Mannual Report
Mannual Report
Mannual Report
March 30
The Clean technology demonstrator, which
features newly-developed heat exchangers,
is put through its paces for the first time
at the University of Stuttgart’s altitude test
facility. The highly touted demonstrator
performs as expected, burning about 25 %
less fuel than today’s engines.
April 15
The PW307 business-jet engine receives
approval from Transport Canada. The maiden
flight onboard the Falcon 7X takes place on
May 5.
April 15 June 28
Contract signing for delivery of 38 EJ200 MTU Maintenance Hannover concludes an
engines that will power the 18 Eurofighters exclusive ten-year agreement with JetBlue for
ordered by Austria. the maintenance of the airline’s entire fleet
of V2500 engines. The €750 million contract
is the biggest in the history of MTU Mainte- August 25
nance. MTU Maintenance Hannover obtains PW6000
production organization approval from the
Federal Office of Civil Aeronautics (LBA).
The Hannover facility takes over final assem-
August 16 bly and testing of all engines of this type and
Western Europe’s largest production test delivers the engines directly to the Airbus
cell for propeller engines is completed at MTU final assembly line in Hamburg.
Maintenance Berlin-Brandenburg in Ludwigs-
felde. The facility will be used to perform
acceptance testing of all TP400-D6 produc-
tion engines, which will be assembled by September 5
MTU starting in 2007. MTU receives recognition as a family-friendly
company by Renate Schmidt, German Min-
is-ter for Family Affairs, Senior Citizens,
Women and Youth, and Wolfgang Clement,
June 6 August 16 German Minister for Economics and Labor.
Shares of MTU Aero Engines Holding AG LAN Airlines of Chile is the launch customer
are traded for the first time on the stock ex- for the PW6000 engine. Production of the
change. At an issue price of €21, the stock engine to power the Airbus A318 will com-
is oversubscribed more than sevenfold. On mence in 2006. MTU will perform final September 19
June 10, the greenshoe option permitting the assembly of the PW6000 production engines MTU Aero Engines Holding AG is included in
sale of additional shares is fully exercised. for Pratt & Whitney. the German MDAX stock index.
October 10
MTU Aero Engines and Lufthansa Technik
agree to expand their joint Malaysian sub-
sidiary ASSB, which specializes in blade
repairs. By boosting production capacities
and staffing levels, the company intends
to quadruple its sales to $20 million
(€17 million) by 2010.
October 21
IndiGo Airlines decides to equip its 100 Air-
bus A320s with IAE V2500 engines. This is
the biggest contract in the history of the IAE
consortium. For MTU, which provides the
low-pressure turbine for the V2500, this con-
tract translates into sales in the amount of
€155 million.
November 16
MTU Aero Engines and the German Federal
Office for Defense Technology and Procure-
ment (BWB) sign a contract to extend the
Cooperative Model to include the RB199
(Tornado), J79 (Phantom), and RR250-C20
(Bo-105 helicopter) engines in addition to the
Eurofighter’s EJ200 engine. The ten-year
contract is worth €370 million.
December 29
October 28 The GP7000 receives type approval from the
The TP400-D6 engine developed for the November 30 U.S. Federal Aviation Administration. This
A400M military transport successfully com- OCCAR and MTRI sign a contract for the deve- clears the way for testing of the engine on
pletes its first test run at MTU’s Ludwigs- lopment of the uprated MTR390E. The first run the Airbus A380, which is scheduled to com-
felde site in Berlin-Brandenburg. of the MTR390E is planned for early 2007. mence in the spring of 2006.
Innovation for Generations
5
Table of Contents
Flight Hours
6
Foreword by the President and CEO 8–9
The Board of Management 10 – 11
7
And on September 19, 2005, the company
was included in the MDAX, the index for
mid-size companies.
Foreword by the President and CEO The decision to go public was made in
February 2005, and was implemented in less
than four months. For MTU and its employees,
the placement of MTU’s shares thus became
Dear Shareholders: the most significant event of the past finan-
cial year. The seven-fold oversubscription of
I am very pleased to have assumed the the shares at the issue price of €21 and the
helm at MTU Aero Engines as President and 25 % increase in the share price by the end
CEO on January 1, 2005. MTU’s business of 2005 marked a great success.
model, its excellent technological position
and the outstanding performance of its KKR’s decision to resell its shares came as
employees have impressed me from the no surprise, as this type of exit strategy is
outset. Around two-thirds of the company’s common practice for “short-term” investors.
sales are derived from the profitable after-
market business, that is, from commercial Hence, at the beginning of February 2006,
and military engine maintenance and from KKR sold the 29 % share it still held after
the spare parts business. These combined MTU’s IPO. Once again, demand significantly
strengths offer outstanding potential for outstripped the number of shares on sale.
the future. Placement with a large number of institu-
tional investors is further evidence of the
trust the market has in the company’s
economic and technical capabilities. MTU
has thus achieved an important strategic
goal: it has become a stand-alone company.
8
on the proven market success of the V2500
engine, in which it participates as a consor-
tium partner. The company will also be
deeply involved in the production of successor
models. As a consortium partner in the
MTU’s individual business segments saw a GP7000 engine to power the Airbus A380,
favorable development which is now entering production, MTU will
also benefit from growth in the wide-body
In the commercial engine business, sales in segment. Deliveries of new engines, which
the year under review increased to €943 are expected to increase also in 2006, are
million, from €880 million in the previous investments in the growing installed base of
year. This positive development – and above MTU engines, which will yield long-term,
all the high number of orders received – profitable spare parts sales.
reflects the strong growth in the market for
new engines. The cyclical upturn in the The cyclic upswing in the aviation industry
aircraft industry gained strong momentum is expected to continue unabated through
in mid-2004, leading to a 26 % increase in 2006. Steady increases in passenger kilome-
the number of modules and components ters flown and in worldwide cargo volumes
delivered by MTU in 2005, compared to the are also expected. Internally, MTU will con-
previous year. tinue to pursue its efficiency improvement
programs at all locations. Against this back-
In the military engine business, financial drop, the company anticipates an increase in
year 2005 sales amounted to €491 million, sales and further improvements in earnings
nearing the level of the previous year (€496 for the business year currently underway.
million). The increase in sales generated by
the EJ200 Eurofighter engine was, however, The 2005 Annual Report now being pre-
offset by the gradual retirement of the sented is based on the results of the work
Tornado fleet from service. The Cooperative of the entire MTU team. For this reason,
Model, which was finalized in November 2005 I would like to express my thanks to all
and provides for long-term maintenance of a employees for their commitment and
number of engines operated by the German dedication.
Air Force under the direction of MTU, will
have a stabilizing effect in the coming years. Together with my colleagues on the Board
of Management, I thank you, dear share-
The commercial maintenance business holders, for your trust and your investment
showed particularly strong growth in this in MTU. You have made it possible for us
reporting year. Sales increased to €732 to strengthen and expand the company’s
million from €576 million in the previous market position. The future is promising,
year. The fact that profit margins could be our markets are growing and MTU is profit-
improved as well is a particularly welcome ing from this dynamic growth.
development.
9
The Board of Management
10
Dr. Michael Süß (born in 1963)
Executive Vice President Technology (COO)
11
Part I – MTU after the IPO
0
Flight Hours
12
Part I – MTU after the IPO
0 Flight Hours
When an engine takes off for the first time
on the wing of an airliner, it has already been
subjected to everything it might encounter
in the air – extreme heat and cold, monsoon-
like rain, freezing rain, pounding hail and bird
strikes. Aircraft engines are put to the acid
test early on in the development phase.
To prove their airworthiness they must be
able to withstand every conceivable stress.
13
Part I – MTU after the IPO
14
Part I – MTU after the IPO
Ownership structure of MTU following the IPO
KKR-funds 29.3 %
Core 35.2 % Other 23 % UK 24 %
Management 5.9 %
Switzerland 3 %
Institutional
investors Italy 4 %
Free float 53.8 %
64.8 %
France 10 % Germany 23 %
US 13 %
Private investors 11.0 %
15
Part I – MTU after the IPO
Development of MTU shares and the MDAX since the IPO on June 6, 2005
140.00
130.00 +25%
120.00
+22%
110.00
100.00
90.00
06-06-05 12-31-05
MTU MDAX
16
Part I – MTU after the IPO
Debut on the stock exchange floor: IPO of MTU Aero Engines Holding AG on June 6, 2005.
17
Part I – MTU after the IPO
Remuneration of the
Board of Management with
long-term incentive effect
Remuneration of the bodies of MTU is subject
to clearly defined and transparent criteria.
Remuneration of the members of the Board
of Management includes fixed and variable
components, and amounted in the past
business year to €6,631,847, including
non-cash benefits and share-based compensa-
tion. Of this amount, €3,644,575 was fixed,
The headquarters of the MTU Group: the administration building of MTU Aero Engines in Munich €2,750,000 was performance-related,
18
Part I – MTU after the IPO
volume and at the current share price (MSP
shares). These shares are credited to the
MSP participants in a blocked security
deposit for the duration of their participation
in the MSP. On the date of the initial notice
and thereafter 5 times in 12-month intervals,
and €237,272 was tied to the calculated MTU Aero Engines Holding AG will allocate
annual value of the matching stock program six virtual, so-called phantom shares for each
that is described in detail in the following. MSP share owned. These phantom share
The amount of the performance-related com- options are considered “exercised” two
pensation (45 % of the total remuneration) years after their allocation, if certain perfor-
depends on the development of two perfor- mance goals are reached: The MTU share’s
mance data: the operating cashflow and the average unweighted closing price in Xetra
operating profit (adjusted EBITDA). These trading on the Frankfurt Stock Exchange
key figures reflect the business situation, the during the 60 trading days preceding exer- In the opinion of MTU, this voluntary, detailed
success and future prospects of the company. cise of the phantom share options must be presentation of the amount and composition
Both have developed very positively; the ten percent higher than the MTU share’s of the performance-based remuneration
targets agreed with the Supervisory Board for average unweighted closing price in Xetra as well as the MSP is a key element of the
the 2005 financial year were exceeded. trading on the Frankfurt Stock Exchange presentation of the Board of Management’s
Allocations to provisions for pension obliga- during the 60 trading days prior to allocation remuneration. There is no individualized
tions to the members of the Board of of the respective tranches of the phantom disclosure of the remuneration as per Section
Management, with the exception of the shares. 4.2.4 of the Code, however. MTU strongly
President and CEO, amounted to €2,577,664 believes that such disclosure violates
in the year under review. When phantom share options are exercised, personal privacy rights. Here, the individual
the difference between the stock market decision of each member of the Board of
In line with the recommendations of the price of the MTU shares of the date of exer- Management must be respected. On the other
Code, a matching stock program (MSP) was cise and the stock market price of the MTU hand, details regarding the structure of the
established in 2005 as a long-term, incentive share on the date of allocation is paid by remuneration are essential for determining
and risk-based compensation element, with MTU Aero Engines Holding AG to the MSP whether such compensation is appropriate
a term of eight years. Under this program, participants in cash (plus a premium of 10%). and whether it creates an incentive
the members of the Board of Management The MSP participants are obliged to invest for the Board of Management. As the Board
as well as a large group of top-level manage- this money in turn in MTU shares, which of Management operates as a collegiate
ment staff will receive a compensation the are credited to them in a blocked security body, the incentives provided for the Board
amount of which depends on the develop- deposit with a two-year ban on sale. In total, of Management as a whole are the decisive
ment of the market value of the MTU shares. the use of personal funds, linkage to the factor, not those for each individual member.
In accordance with the conditions of the share price and long-term participation in Individualized reporting of Board of Manage-
MSP, each participant is obliged to purchase the MSP offer the necessary incentive to ment compensation will occur when the
MTU shares with their own funds, up to a create long-term shareholder value as called Management Compensation Publishing Act
predefined maximum investment for in the Corporate Governance Code. first comes into effect.
19
Part I – MTU after the IPO
20
Part I – MTU after the IPO
performance-related components is appro-
priate and whether the structure of such
compensation provides adequate incentives
for the Board of Management. We therefore
regard the information about the overall
compensation as sufficient to verify its ade-
Declaration by the Board of Management quacy. As the Board of Management oper-
and Supervisory Board of MTU Aero Engines ates according to the principle of collective
Holding AG pursuant to Section 161 of responsibility, the incentives provided for the
the German Stock Corporation Act (AktG) Board of Management as a whole are the
regarding the German Corporate decisive factor, not those for each individual
Governance Code member. Individualized reporting of Board
The Board of Management and the Super- of Management compensation will occur
visory Board of MTU Aero Engines Holding with respect to the business year 2006 when
AG declare that the recommendations of the Management Compensation Publishing 3. Reporting of the total ownership
the June 2, 2005 version of the ”German Cor- Act will become first applicable. of shares in the company
porate Governance Code Government Com- (Code Clause 6.6)
mission“ published by the Federal Ministry of The amount of shares in the company held
Justice in the official section of the electronic 2. Form and Details of the Compensation by all members of the Board of Management
Federal Gazette have been and are being met. of the Supervisory Board (Code Clause and by all members of the Supervisory Board
The Board of Management and the Super- 5.4.7, Paragraphs 2 and 3) will not be reported separately. As the Board
visory Board of MTU Aero Engines Holding AG There is no performance-related compensa- of Management and the Supervisory Board
also intend to follow the recommendations tion for the members of the Supervisory do not consult with each other regarding the
of the German Corporate Governance Code Board. We are of the opinion that a fixed exercise of their stock rights, we do not re-
in the future. The following recommendations compensation is appropriate and that it gard such reporting as appropriate. Also the
are the only ones not been or being applied: should not be related to the performance legislator has not yet enacted a correspond-
of the company. In our judgement a perfor- ing law as such information is not deemed
mance-related compensation is not suitable necessary.
1. Individualized reporting of Board to enhance the control tasks of the Super-
of Management compensation visory Board.
(Code Clause 4.2.4) Munich, December 2005
The compensation for the Board of Manage- The compensation for the Supervisory Board
ment is not reported individually in the is not reported individually or broken down For the Board For the Supervisory
Notes to the Group Financial Statements. into its elements. The compensation of of Management Board
The compensation of the Board of Manage- the members of the Supervisory board will
ment is reported in compliance with the be reported in a total amount. In view of the
Code but broken down into fixed and variable level of compensation and the stipulations
elements and into components with a long- of the Articles of Association (§ 12 of the
term incentive effect. This information is Articles of Association) we consider a repor-
crucial for assessing whether the division of ting of the total compensation as sufficient Udo Stark Johannes P. Huth
such compensation between fixed and to evaluate its adequacy. CEO Chairman
21
Part I – MTU after the IPO
Report of the Supervisory Board for The Supervisory Board was informed in
detail on the status of current engine pro-
the 2005 Business Year grams, particularly the competitive situation
for the MTR390, the progress of the GP7000
(Airbus A380) and TP400-D6 (Airbus A400M)
development programs, and the status of the
financial year 2005. In addition, it oversaw ”V2500 Select“ program (Airbus A320). The
the work of the Board of Management. Each Supervisory Board also extensively dealt with
month, the Board of Management presented the Cooperative Model before the contract
comprehensive written information on the was signed. This model provides for a
status of MTU’s assets, the financial and new and closer partnership between MTU
earnings situation and important business Aero Engines and the Bundeswehr (German
events to the members of the Supervisory armed forces). As regards the group
Board. The Supervisory Board discussed companies, the Supervisory Board was kept
core strategic questions with the Board of informed in particular detail on the situation
Management and, after careful consideration of the US subsidiary, MTU Aero Engines
and examination, endorsed the correspon- North America Inc., as well as on the sale
ding strategic orientation of MTU. The of ATENA Engineering GmbH.
Supervisory Board reviewed all business
activities subject to approval according to Prior to the IPO, the Supervisory Board
statutory requirements, the Articles of examined the proposed restructuring into a
Association or the Management Board’s stock corporation by conferring closely with
rules of procedure; the Supervisory Board the Board of Management while providing
discussed these matters with the Board of guidance during preparations for taking the
Management and endorsed them without company public and approving the share
exception. issue price. The Supervisory Board was
thoroughly involved in all matters relating to
Corporate Governance and also examined
Meetings of the Supervisory Board the efficiency of its own activities. In
During the financial year 2005, five Supervisory the joint declaration with the Board of
Board meetings and two teleconferences Management of December 13, 2005 in
Johannes P. Huth
Chairman of the Supervisory Board were held in which resolutions were adopted. accordance with Section 161 of the German
One resolution was adopted through a Stock Corporation Law (AktG) the Supervisory
written circulation procedure. All Supervisory Board declared that MTU Aero Engines
Board members participated in more than Holding AG fully complies with the recom-
half of the meetings. In addition, the Chairman mendations of the Code, with three excep-
of the Supervisory Board was regularly tions. The complete declaration is available
updated on the company’s current situation on the company’s website.
On May 19, 2005, MTU Aero Engines Erste and of significant business transactions.
Holding GmbH was converted into MTU Aero
Engines Holding AG and became a public In its meetings and teleconferences, the Committee meetings
company. At the time of conversion, MTU Supervisory Board, along with the Board of The Supervisory Board has formed three
Aero Engines Erste Holding GmbH already Management, dealt extensively with business committees with parity representation: the
had a Supervisory Board formed pursuant to developments involving MTU and its associated Audit and Finance Committee, the Personnel
the German Codetermination Act. In accor- companies, the market situation in general, Committee, and pursuant to Section 27
dance with the Conversion Act, this body MTU’s competitive position, the repayment Paragraph 3 of the German Codetermination
remained in place after the conversion. of credits from group companies, the devel- Act the Mediation Committee. The latter did
opment of the dollar exchange rate and not have to convene during the year under
The Supervisory Board kept itself continu- hedging measures. It was informed of MTU’s review. Members of the Personnel Committee
ously up-to-date on business developments risk management system and of measures during the year under review were: Johannes
and the situation of the company during the taken for protection against risk. Huth, Günter Sroka, Harald Flassbeck and
22
Part I – MTU after the IPO
Based on a proposal by the company, the
Munich Register Court named Dr. Jürgen M.
Reinhard Gorenflos, who served until Geißinger, President and CEO of INA-Holding
December 31, 2005. The Personnel Schaeffler KG, Herzogenaurach, Germany, to
Committee convened twice in the past the Supervisory Board of MTU Aero Engines
financial year and dealt with Board of Holding AG, effective October 4, 2005.
Management personnel matters, in particular Geißinger succeeded Oliver Haarmann of
the amount of compensations and the Kohlberg Kravis Roberts & Co. Ltd., who
results of the efficiency audit. The Audit and group management report for MTU Aero retired from the board as of October 1,
Finance Committee came together three Engines Holding AG for fiscal 2005, as well 2005. The move came as a result of the
times during the financial year 2005. as the recommendation of the Board of change in MTU Aero Engines’ ownership
Members in 2005 were Babette Haas, Management for appropriation of the year’s structure in the wake of the company’s
Johannes Huth, Günter Sroka and Reinhard net profit. The auditor also attended the IPO. The Supervisory Board thanked
Gorenflos (until December 31, 2005). The Audit and Finance Committee meeting on Mr. Haarmann for his contribution during
Audit and Finance Committee focused its March 13, 2006 and in the balance sheet 2004 and 2005.
activities on the annual financial statements meeting of the Supervisory Board on March
for MTU Aero Engines Erste Holding GmbH, 22, 2006, and presented the most important In 2006, Mr. Lewis R. Hughes was named to
which it recommended to the Shareholders’ results of his audit. the Supervisory Board in a resolution of the
Meeting for approval. An additional focal Munich register court on January 27, 2006.
point was the consolidated financial state- The final results of the Supervisory Board’s He replaces Mr. Reinhard Gorenflos of
ments for MTU Aero Engines Erste Holding review of the annual financial statements, Kohlberg Kravis Roberts & Co. Ltd. The
GmbH, which the committee reviewed and the consolidated financial statements, the Supervisory Board thanked Mr. Gorenflos
recommended for approval by the management report, the group management for his valuable assistance during 2004 and
Supervisory Board. Auditors were involved in report, and the recommendation for the 2005.
the discussions on both the annual accounts appropriation of profits, did not give rise to
and consolidated financial statements. Other any objections on the part of the Supervisory In its meetings on December 13, 2005 and
activities included the further development Board. The annual financial statements and March 22, 2006, the supervisory board has
of the risk management system and the management report presented by the appointed Dr. Rainer Martens to succeed
areas to be examined in the 2005 internal company’s Board of Management for the Executive Vice President and COO Dr. Michael
audit. In addition, the committee identified financial year 2005 were approved by the Süß, whose term of office expires in 2006,
the focus for 2005 financial statement audit. Supervisory Board during its meeting on on the board of management. The appoint-
March 22, 2006. The Supervisory Board ment is for a three-year term, beginning on
affirmed the recommendation of the Board April 15, 2006. Dr. Martens will take over the
Review of the annual financial state- of Management for the appropriation of the responsibilities Dr. Süß, who resigns from
ments and approval of the consolidated net profit for the year. The consolidated his office effective April 30, 2006, has had in
financial statements financial statements and group management his role as chief operating officer. The super-
MTU Aero Engine Holding AG’s annual finan- report for MTU Aero Engines Holding AG for visory board thanks Dr. Süß for the valuable
cial statements, the consolidated financial the financial year 2005, which were presented services he has rendered to MTU.
statements as well as the management by the Board of Management, were approved
report and group management report for the by the Supervisory Board during its meeting The Supervisory Board sincerely thanks
financial year 2005 were audited and fully on March 22, 2006. the Board of Management as well as all
certified by independent auditor from employees of MTU for their success and
Deloitte & Touche of Munich, whose selec- their committed efforts during the 2005
tion was approved during the Shareholders’ Changes within the Supervisory Board business year. The thanks of the Supervisory
Meeting. The audit reports as well as the The following changes took place within the Board also go out to the shareholders who
documents to be audited were distributed company’s Supervisory Board during the have placed their trust in MTU.
to each member of the Supervisory Board in year under review: former CEO, Dr. Klaus
a timely manner. Based on the results of the Steffens, was named to the Supervisory Munich, March 22, 2006
pre-audit by the Audit and Finance Committee, Board in a resolution of the Shareholders’
which the chairman of the Audit and Finance Meeting of December 30, 2004. He
Committee presented to the Supervisory succeeded Mr. Ned Gilhuly of Kohlberg
Board, the Supervisory Board thoroughly Kravis Roberts & Co Ltd. The Supervisory
reviewed the consolidated financial state- Board thanked Mr. Gilhuly for his valuable Johannes P. Huth
ments, the management report and the services during 2004. Chairman of the Supervisory Board
23
Part I – MTU after the IPO
Harald Flassbeck
Senior Representative of the IG Metall
Administrative Center, Munich
Additional mandates
EADS Deutschland GmbH
MTU Aero Engines GmbH*
MAN Nutzfahrzeuge AG
24
Part I – MTU after the IPO
Babette Haas
Head of the Business
Administration Division,
IG Metall Executive Committee, Frankfurt
Additional mandates
EDAG Engineering & Design AG
MTU Aero Engines GmbH*
Harmann Becker Automotive Systems GmbH
Dr.-Ing. Klaus Steffens
Former President and CEO of MTU Aero Engines, Munich
Josef Hillreiner Additional mandates
Chairman of the Works Council of MTU Aero MTU Aero Engines GmbH*
Engines GmbH, Munich
Additional mandates
MTU Aero Engines GmbH* Prof. Dr. Sigmar Wittig
Chairman of the Management Board of the
German Aerospace Center (DLR, Deutsches Zentrum
Louis R. Hughes für Luft- und Raumfahrt), Cologne
(beginning January 30, 2006) Additional mandates
Chief Executive Officer of MTU Aero Engines GmbH*
GBS Laboratories, LLC., Herndon, Virginia
Additional mandates
ABB Ltd.
AB Electrolux Committees of the Supervisory Board
British Telecom plc (until March 31, 2006)
Maxager Technology, Inc. Personnel Committee
MTU Aero Engines GmbH* Johannes P. Huth, Chairman
Sulzer AG Reinhard Gorenflos (until December 31, 2005)
Dr. Jürgen M. Geißinger (as of February 16, 2005)
Günter Sroka
Michael Keller Harald Flassbeck
Director Rotor/Stator & Production Service
of MTU Aero Engines GmbH, Munich
Additional mandates Audit and Finance Committee
MTU Aero Engines GmbH* Louis R. Hughes (as of February 16, 2006)
Reinhard Gorenflos, Chairman (until December 31, 2005)
Johannes P. Huth
Prof. Dr. Walter Kröll Günter Sroka
Former President of Helmholtz-Gemeinschaft Babette Haas
Deutscher Forschungszentren e.V., Bonn
Additional mandates
Wincor Nixdorf AG Mediation Committee
Siemens AG Johannes P. Huth, Chairman
MTU Aero Engines GmbH* Reinhard Gorenflos (until December 31, 2005)
Dr. Jürgen M. Geißinger (as of February 16, 2005)
Günter Sroka
Josef Mailer Harald Flassbeck
Full-time member of the Works Council
of MTU Aero Engines GmbH, Munich
Additional mandates * Group mandate within the meaning of Section 100 Paragraph 2 Sentence
MTU Aero Engines GmbH* 2 of the German Stock Corporation Law (AktG)
25
Part II – Innovation for Generations
15,000
Flight Hours
26
15,000
Flight Hours
By the time an engine reaches 15,000 hours,
it has covered a distance equivalent to the
Frankfurt-Sydney-Frankfurt route about 250
times. In the life of a modern aircraft engine,
Generations
the co-pilot inspects the aircraft and engine –
among other things, checking for bent fan
blades and oil leaks.
27
Part II – Innovation for Generations
28
Part II – Innovation for
the order books; about half of the engines
Generations
on order have already been delivered.
This “green engine”, as it is called by experts
by the end of 2005, more than half of all because of its particular environmental
engines ordered were GP7000s. In late 2004, friendliness, is especially popular in the Asia-
the GP7000 successfully completed its first Pacific region, which has seen a real boom
test flight on the wing of a Boeing 747. In for the V2500 in recent years. To meet
December 2005, it received FAA certification customer requirements even better, IAE has
and in the spring of 2006, it is scheduled to launched the “V2500 Select” engine upgrade
begin flight testing on the A380. and aftermarket support program. Among
other things, it provides for longer mainte-
MTU employs about 300 people in both the nance intervals. MTU, which is a co-founder
development and the production of the of the IAE consortium, is the world’s leading
GP7000. The program also creates about provider of maintenance services for the
1000 additional highly qualified jobs among V2500.
suppliers.
29
Part II – Innovation for Generations
In the military arena, MTU has for decades Major Military Programs
been the national market leader: As the in the Years Ahead
German lead company for nearly all aircraft The most important military programs in the
engines flown by the German Armed Forces years ahead are the EJ200 for the Eurofighter,
(Bundeswehr), it provides enabling techno- the TP400-D6 for the Airbus A400M military
logies, develops and manufactures engines transport, and the MTR390 for the Tiger
and components, overhauls them, provides attack-escort helicopter.
technical-logistic support for its products,
and trains military and civilian employees of Worldwide the EJ200 is considered the most
the armed forces. advanced engine in its class. MTU is devel-
oping and producing the Eurofighter engine
jointly with Avio, ITP, and Rolls-Royce. Its share
is 33% in development and 30 % in produc-
tion. The company provides the low-pressure
and high-pressure compressors, the electro-
nic engine control system, and is responsible
for engine assembly and testing of the en-
gines operated by the German armed forces.
Production contracts are placed for three
tranches; currently, production is ramping
up for Tranche 2 deliveries.
30
Part II – Innovation for
Generations
also hold 28%, and Spain’s ITP 16 %.
For the TP400-D6, MTU is developing and
producing the intermediate-pressure spool,
including the IP compressor and turbine. In
addition, it is involved in the control system.
MTU Maintenance Berlin-Brandenburg in
Ludwigsfelde plays a particularly important
role for the partners: That is where the devel-
opment tests, the exclusive final assembly,
and the acceptance tests for all production
engines will be conducted. The facility’s new
test cell is the only one in Europe for this
functions in a single unit and is more flexible engine. It was completed in August 2005.
and less costly than the two systems In October, the engine successfully passed
previously required. The new control unit is its first test run. The first flight of the A400M
designed in such a way that it readily accom- powered by TP400-D6 engines is slated for
modates future engine modifications. The first 2007.
engines of Tranche 2 will be delivered in the
spring of 2007. First export orders have already been
received for the A400M with the TP400-D6:
In the meantime there are first export wins: South Africa has signed a contract for the
Austria has ordered 18 Eurofighters. Inten- purchase of eight A400M aircraft, and
sive sales negotiations are under way with Malaysia for the purchase of four; Chile has
other European and non-European countries. issued a declaration of intent to buy three
aircraft.
With the Cooperative Model of joint industry-
military maintenance for the EJ200 engine The MTR390 engine for the German-French
the Bundeswehr and MTU are blazing new Tiger support and anti-tank helicopter was
trails: The EJ200 engines will now be main- developed in collaboration with Turbomeca
tained at a single site – MTU. That pools the and Rolls-Royce. The engine has since enter-
resources, limits storage capacity require- ed the production phase. 110 production
ments, and ensures short cycle times. The engines had been delivered by the end of
personnel of the partner, the Luftwaffe, 2005. MTU’s activities in the MTR390 pro-
will remain involved in the overall process. gram concentrate on the technologically
Starting in 2006, the Cooperative Model will advanced core engine with the combustor
be extended to other important Luftwaffe and high-pressure turbine as well as a
engines as well to include the RB199 (Tor- number of accessories.
nado), J79 (Phantom), and the RR250-C20
(Bo-105 helicopter) engines. The Tiger has already won some export
customers: Australia has ordered 22 units
The TP400-D6 is the engine to power the and Spain 24. The Southern Europeans will
A400M military transport, and, at 11,000 shp, be the first Tiger operators to receive the
it is the most powerful turboprop in the MTR390 Enhanced, a 14 % uprated version
Western world. The work is being coordinated which will be developed together with Spain’s
by Europrop International, or EPI for short. ITP in the period from 2004 to 2008. The
Under the Cooperative Model, MTU and Bundeswehr
MTU participates in the consortium with new model version will provide additional employees work shoulder-to-shoulder in the EJ200
a share of 28%; Snecma and Rolls-Royce plc. impetus to MTU’s export business. engine assembly shop.
31
Part II – Innovation for Generations
32
Part II – Innovation for
Generations
With a value of €750 million, the order is
the largest in the history of MTU Maintenance.
In the commercial maintenance business, An agreement worth $300 million was con-
the total contract volume as of December cluded with Shanghai Airlines for the main-
2005 was worth about €3.1 billion. The tenance of PW2000 and CF34 engines. Other
largest new customer was JetBlue: An new contracts covered the maintenance of
exclusive ten-year agreement was signed CF34-8 engines for Hong Kong Express and
with the airline for the maintenance of its of CFM56 engines for the B737 fleet of the
V2500 engines. Brazilian low cost carrier GOL.
The newly introduced flowline principle shortens cycle times – a benefit to the customer.
33
Part II – Innovation for Generations
34
Part II – Innovation for
Generations
In the GP7000 program, MTU is responsible
for the low-pressure turbine and the turbine
center frame. The six-stage low-pressure
turbine is characterized by particularly high
efficiency, low noise level, and low weight – Research for
making it a prototype for the engine of the future engine generations
future. The GP7000 provides the power for The geared-fan concept promises to reduce
the mega-Airbus A380. Flight testing of the fuel consumption by 10 % and to lower the
GP7000 on the Airbus A380 is scheduled to noise level by 50 %. MTU works together with
begin in April 2006, and the first four engines Pratt & Whitney Canada and Avio on a geared
have already been delivered to Toulouse. fan demonstrator, the ATFI (Advanced Techno-
logy Fan Integrator). What makes this con-
While the GP7000 and PW6000 have already cept special is a reduction gear connecting
received certification, approval in the third the low-pressure shaft and the fan. It ensures
large development project, the TP400-D6, is that the fan and the low-pressure turbine
planned for the end of 2007. The MTU team’s each operate at their optimum speed. Last
contribution to the most powerful turboprop financial year, the ATFI high-pressure com-
engine in the Western world includes the pressor developed by MTU successfully com-
intermediate-pressure compressor, the inter- pleted a test run in the core engine. Another
mediate-pressure turbine, and the intermedi- key component of the geared fan is the high-
ate-pressure shaft. MTU is also collaborating speed low-pressure turbine, which runs
with Snecma on the engine and propeller about three times as fast as a conventional
control system. So far, the first five mile- unit. It is of pivotal importance to the opti-
stones of the program have been completed. mum design of the overall system.
On October 28, 2005, the engine of the
A400M military transport successfully com-
pleted its first test run at MTU Maintenance
Berlin-Brandenburg in Ludwigsfelde and has
already achieved the maximum rating.
35
Part II – Innovation for Generations
36
Part II – Innovation for
Generations
Innovative technologies for
novel products
MTU is committed to the continuous improve-
ment of its manufacturing and maintenance
procedures. Methods developed to produc- MTU’s patent portfolio covers all areas
tion maturity by MTU last financial year included necessary for the company’s operation. MTU
processes for improved protection of com- currently holds some 1,800 patents and
ponents against wear, new manufacturing patent applications; each year about 100
and repair processes, and new measurement new applications are added. That places the
methods for blisks. Blisks – integrally bladed company in a top ranking in the industry.
rotor disks – are high-tech components used
in compressors. They are a textbook example MTU and Pratt & Whitney are developing
of MTU’s innovative power: The disks and the a new high-pressure compressor that could
blades are machined from one single piece be used in engines for new generation
and are no longer assembled from separate single-aisle airliners. Among other things, its
components. The advantages: increased extremely lightweight construction makes
component stability and strength, higher it the compressor of choice for conventional
aerodynamic efficiency and lower weight. A engines and engines with reduction gears.
number of patents have been granted in the The component tests are slated to begin in
area of blisk technology. September 2006.
37
Part II – Innovation for Generations
38
Part II – Innovation for
Generations
to be only half as loud as their predecessor
models. And this development is continuing:
Future engines are expected to burn 20 %
less fuel, make 50 % less noise, and produce
80 % less oxides of nitrogen.
39
Part II – Innovation for Generations
40
Part II – Innovation for
Generations
In 2003, the company pooled its activities
in the US market, merging MTU Aero Engine
Design and MTU Aero Engine Components
under the roof of MTU Aero Engines North
America (AENA). Early that year, MTU was
In 1991, MTU began expanding its network awarded the 23rd Innovation Award of the
of maintenance locations and acquired MTU German Industry for the high-pressure
Maintenance Berlin-Brandenburg and Airfoil compressor it developed for the PW6000.
Services Sdn. Bhd. in Kuala Lumpur, Malay-
sia. That same year, MTU and Pratt & Whitney In 2004, DaimlerChrysler sold MTU Aero
signed an agreement on their strategic Engines to Kohlberg Kravis Roberts (KKR),
alliance for cooperation in the commercial a global private equity company, following
turbine engine segment, which gave MTU negotiations that had lasted for almost a
a right to participate in Pratt & Whitney’s full year.
commercial engine programs.
MTU Aero Engines’ successful initial public
In 1992, MTU Maintenance Berlin-Branden- offering followed in June 2005. The listing on
burg set up the Pratt & Whitney Canada the stock exchange increased the equity
Customer Service Centre, a joint venture capital of MTU to more than €500 million.
with Pratt & Whitney Canada, in Ludwigsfelde. That put MTU on a sound financial basis for
the future. In early February 2006, KKR sold
In the mid-1990s, the world economy moved all of its 29 % share it had retained in MTU
into turbulences caused by the first war after the IPO. With this move, MTU had
in Iraq, an oil crisis, and a weak dollar. reached an important strategic goal: being
Commercial aviation saw a drastic collapse. a stand-alone company.
MTU, too, was hard hit by the crisis. The
company was quick to react to the challenge
and emerged from the downturn in 1996.
41
Part II – Innovation for Generations
42
MTU Maintenance Hannover GmbH
MTU Maintenance Berlin-Brandenburg GmbH
43
Part III – Group Management Report
25,000
Flight Hours
44
25,000
Flight Hours
An engine usually requires its first over-
haul after five to seven years in service, or
after 20,000 to 25,000 flight hours. The
overhaul may become necessary for safety
concerns identified, such as a defect, but
often also for economic considerations:
An increase in fuel consumption may be
attributable to worn blades. An overhaul will
bring the amount of fuel burnt to the
original level.
Management Report
Part III – Group
Das V2500 gehört zu den meistverkauften Triebwerken seiner Klasse.
45
Part III – Group Management Report
46
The commercial MRO business, too, saw a
marked increase in 2005. The management
Management Report
consulting firm AeroStrategy is forecasting
The Airline Industry sustained growth at an average annual rate
47
Part III – Group Management Report
48
Management Report
Part III – Group
MTU’s organization and
accounting standards
When preparing for the IPO, MTU in 2005
put a simple and transparent corporate In compiling the annual accounts and con-
structure in place by merging the two gene- solidated financial statements it was neces-
ral partner and limited liability companies sary to make certain assumptions and
from the previous structure into their respec- estimates that affect the reported amount
tive parent companies. At the same time, of assets and liabilities. These forecasts are
MTU Aero Engines Zweite Holding GmbH and made to the best of our knowledge and in
MTU Aero Engines Dritte Holding GmbH were good faith to ensure that the consolidated
merged into MTU Aero Engines Erste Holding financial statements provide a realistic and
GmbH, since both companies had been accurate picture of the company’s assets,
relieved of their original financing function. finances, and earnings. The following aspects
MTU Aero Engines Erste Holding GmbH was in particular are affected by these estimates
then transformed into a stock corporation and assumptions:
under the name of MTU Aero Engines
Holding AG. This company now manages the • Value of goodwill and other intangible
operational activities of MTU Aero Engines assets
GmbH and its subsidiaries via MTU Aero
Engines Investment GmbH. MTU Aero • Valuation of accounts receivable
Engines Investment GmbH is also the issuer
of the high yield bond. The consolidated • Analytical parameters for provisions
financial statements of MTU Aero Engines for pensions
Holding AG are prepared according to the
International Financial Reporting Standards • Risk assessment for the remaining
(IFRS), account being taken of the interpreta- provisions
tions of the International Financial Reporting
Interpretations Committee (IFRIC). The com- • Revenues from long-term contracts and
panies reported in the consolidated financial the commercial MRO business
statements are listed in the Notes to the
Consolidated Financial Statements under The Notes to the Consolidated Financial
Item 1.2. Statements contain additional information.
49
Part III – Group Management Report
Order Situation
In the commercial engine business, the In the military engine business, the order
order backlog increased by 21.4 % to €1,844 backlog decreased to €1,590 million in late
million compared to €1,519 million the year 2005, from €1,717 million the year before.
before. This growth resulted primarily from MTU managed to reduce the high 2005 order
the success of campaigns for the V2500 backlog especially through deliveries under
engine powering the Airbus A320 family the EJ200 program in support of the Euro-
and the new GP7000 engine to power the fighter. This was counteracted by the receipt
Airbus A380. The first order received from of an order from Austria for 18 Eurofighters
launch customer LAN Airlines of Chile for with 38 engines worth €94 million; deliveries
the PW6000 also had a positive effect. under this contract will begin in 2007.
12/31/2005 12/31/2004
in € million % in € million %
Commercial and military business 3,434 94.1 3,236 95.0
- of which: Commercial business 1,844 50.5 1,519 44.6
- of which: Military business 1,590 43.6 1,717 50.4
Commercial MRO
Engines received 215 5.9 172 5.0
Order backlog 3,649 100.0 3,408 100.0
Commercial MRO
Order value of contracted engines 2,896 1,953
Expected order volume 6,545 5,361
50
Management Report
Operating Results
The order backlog in commercial engine Revenues in the military engine business, at
maintenance increased by 25.0 %, to €215 €491.4 million, remained virtually unchanged
million. Also, in the financial year, the order compared with the previous year (€495.7
value of MRO services under existing long- million). In this business, the EJ200 engine
term contracts increased by €943 million, program is a steady source of revenues as
to €2,896 million. This increase is to a major the Eurofighter is being introduced into ser-
part attributable to a ten-year agreement vice. On the other hand, the European air
inked with the US’ JetBlue. The expected forces have begun to phase out their fleet
order volume, at €6,545 million, was 22.1 % of Tornados and RB199 engines. The heli-
above the previous year’s level. This order copter engine MTR390 for the attack-escort
volume is equivalent to three times MTU’s helicopter Tiger had a positive effect on
2005 annual revenues. revenues.
51
Part III – Group Management Report
Overview of income
*) Incl. share of income/loss in joint ventures accounted for using the equity method.
*) Depreciation/amortization on hidden reserves disclosed within the scope of the purchase price allocation.
52
Management Report
Rapid pace of development pays off
53
Part III – Group Management Report
54
The significantly increased operative result
and the improved financial result have led
to an increase in the result from ordinary
activities by €52.2 million to €58.7 million
in 2005. After taxes, MTU has earned a net
Management Report
income of €32.9 million against €0.2 million
in 2004. The reconciliation from the consoli-
55
Part III – Group Management Report
OEM-business MRO-business
in € million 2005 2004 2005 2004
Revenues 1,434.8 1,375.6 732.1 575.9
Cost of sales -1,232.2 -1,117.6 -652.3 -543.5
Gross profit 202.6 258.0 79.8 32.4
in % 14.1 18.8 10.9 5.6
EBIT 94.4 84.9 37.1 -2.0
EBITDA adjusted 162.4 131.3 72.1 42.7
EBITDA adjusted in % of revenue 11.3 9.5 9.8 7.4
56
Financial Situation
Management Report
Significant increase
in operative cashflow
57
Part III – Group Management Report
58
In 2005, the positive development led to an
increase in inventories by €70 million to
€518 million. Especially the upcoming series
production of the GP7000 and PW6000
Net Assets engines induce a corresponding build-up of
inventories in the commercial engine busi-
Going public sustainably ness. In the military engine business, the
strengthens equity increase in inventories essentially stems
The positive development of its operative from the series production of the first
business is also reflected in the balance tranche of the EJ200. Inventories are also
Management Report
sheet of MTU. At the same time, going pub- being stocked up in commercial MRO due to
lic leads to a sustained boost in the equity the steep rise in business volume. In both the
59
Part III – Group Management Report
60
Management Report
The success of occupational safety training
61
Part III – Group Management Report
62
In the military engine business, MTU in firm-
ly embedded in international cooperations.
The customers are national and multinational
Management Report
government agencies whose budget varies
with the level of public spending. However,
63
Part III – Group Management Report
Every move must be exactly right: Assembly work on a V2500 engine fan at MTU Maintenance Hannover,
the world’s leading provider of maintenance services for this engine.
64
Insurance against catastrophic risks
In the aviation industry, accidents can never
be ruled out completely despite strict com-
pliance with manufacturing quality standards
and utmost diligence in performing mainte-
nance work. In the military engine business
(excluding exports), MTU is largely exempt
from product risk liability through govern-
Forward-looking accounts ment agency indemnification. The remaining
Management Report
receivable management liabilities, first and foremost aviation product
In the commercial engine and commercial liability, especially in the commercial engine
65
Part III – Group Management Report
Outlook
66
MTU expects the military engine business to
remain stable. With a basic workload secured,
this segment should make an appropriate
Management Report
contribution to earnings. Production
deliveries of the first tranche of EJ200s for
67
Part IV – Consolidated Financial Statements
50,000
Flight Hours
68
50,000
Flight Hours
50,000 flight hours: at this point an engine
has reached middle age and usually has two
or three overhauls behind it. Parts that have
been subjected to extremely high tempera-
tures must be replaced – such as parts of
the turbines and combustion chambers.
The way how an aircraft is operated has a
direct effect on the engine. Engines for long-
haul aircraft such as the Boeing 747 require
fewer repairs than those for short-haul aircraft.
Part IV – Consolidated
Financial Statements
The V2500 is among the best-selling engines in its class.
69
Part IV – Consolidated Financial Statements
70
Consolidated Income Statement
Part IV – Consolidated
Financial Statements
Consolidated income statement
Appendix Group
in € million 2005 2004
Revenues 2,148.6 1,918.0
Cost of sales (6.) -1,864.8 -1,627.6
Gross profit 283.8 290.4
Research and development costs (7.) -45.7 -57.7
Selling costs (8.) -67.4 -68.0
General administrative costs (9.) -45.4 -87.7
Other operating income and expenses (10.) 4.7 4.1
Result before financial result 130.0 81.1
Financial result (11.) -73.5 -72.8
Share of income/loss of joint ventures
accounted for using the equity method 2.2 -1.8
Result from
ordinary activities 58.7 6.5
Income taxes (12.) -25.8 -6.3
Net profit 32.9 0.2
Loss carried forward -0.1 -0.3
Retained earnings/accumulated loss (-) 32.8 -0.1
Earnings per share in € (13.) 0.60 0.00
71
Part IV – Consolidated Financial Statements
Assets
Appendix Group
in € million 12/31/2005 12/31/2004
Non-current assets
Intangible assets (16.) 941.7 968.6
Property, plant and equipment (17.) 546.0 576.6
Financial assets (18.) 47.6 46.6
Other assets (20.) 1.5 40.4
Deferred tax assets (29.) 0.0 2.3
1,536.8 1,634.5
Current assets
Inventories (19.) 518.2 448.1
Receivables (20.) 418.4 394.6
Other assets (20.) 58.8 203.8
Cash and cash equivalents (21.) 15.9 28.5
Prepayments (23.) 5.2 9.6
1,016.5 1,084.6
Balance sheet total 2,553.3 2,719.1
72
Equity and Liabilities
Appendix Group
Part IV – Consolidated
in € million
Financial Statements
12/31/2005 12/31/2004
Equity (24.)
Subscribed capital 55.0 2.2
Capital reserves 453.8 203.7
Accumulated other equity -13.3 11.2
Retained earnings/accumulated loss (-) 32.8 -0.1
528.3 217.0
Non-current debt
Pension provisions (25.) 362.5 344.7
Other provisions (26.) 31.3 56.7
Financial liabilities (27.) 229.8 621.2
Other liabilities (28.) 144.0 58.2
Deferred tax liabilities (29.) 250.8 367.7
1,018.4 1,448.5
Current debt
Pension provisions (25.) 15.3 14.2
Other provisions (26.) 207.2 156.2
Financial liabilities (27.) 23.3 245.3
Trade payables 289.3 227.1
Other liabilities (28.) 471.5 410.8
1,006.6 1,053.6
Balance sheet total 2,553.3 2,719.1
73
Part IV – Consolidated Financial Statements
Subscribed
capital
in € million
Balance as of January 1, 2004 0.0
Financial instruments (Forward foreign exchange transactions)
Translation differences
= Profit not stated in income statement 0.0
Net profit
= Total income 0.0
+ Capital/capital reserves increase 2.2
Balance as of December 31, 2004 / January 1, 2005 2.2
Financial instruments (Forward foreign exchange transactions)
Translation differences
= Profit not stated in income statement 0.0
Net profit
= Total income 0.0
Capital increase from company funds 37.8
Capital increase new issue 15.0
Transaction costs resulting from capital increase (IPO)
Matching Stock Program (MSP)
Total as of December 31, 2005 55.0
74
Capital Retained Gesamtergebnisrechnung
Accumulated other equity Total
reserves earnings/
Part IV – Consolidated
accumulated
Financial Statements
Translation Matching Derivative Subtotal
loss (-) differences Stock financial
Program instruments
75
Part IV – Consolidated Financial Statements
Appendix
in € million
Net profit
+ Depreciation and amortization
+/- Profit/loss of associated companies
+/- Profit/loss on disposal of assets
+/- Increase/decrease in pension provisions
+/- Increase/decrease in other provisions
+/- Change in non-cash taxes 1)
+/- Matching Stock Program
+/- Increase/decrease in inventories
+/- Increase/decrease in receivables (excl. derivatives)
+/- Increase/decrease in liabilities (excl. derivatives)
Cashflow from operating activities 2) (31.)
- Investments in intangible assets and property, plant and equipment
- Acquisition of MTU Group
- Investments in financial assets
+ Proceeds from asset disposals
+ Repayment of loans
Cashflow from investing activities (31.)
Free cashflow
+/- Increase/decrease in financial liabilities
+/- Change in market value of derivatives
+ Acquisition of MTU Group
+/- Capital increase after deduction of transaction costs
Cashflow from financing activities (31.)
Exchange rate movements in equity
Exchange rate movements in fixed assets
Change in consolidation
76
Group
2005 2004
32.9 0.2
138.3 133.0
-2.2 1.8
2.3 -1.7
19.5 15.9
29.1 -51.5
-88.4 -2.4
0.7
-75.0 -29.8
47.3 -79.8
185.6 87.2
Part IV – Consolidated
Financial Statements
290.1 72.9
-83.5 -65.9
-766.6
-0.5 -0.1
0.7 3.4
1.5 2.8
-81.8 -826.4
208.3 -753.5
-613.4 -269.6
91.5 74.5
766.6
294.7 4.4
-227.2 575.9
2.0 -1.0
-3.7 1.4
8.0
6.3 0.4
-12.6 -177.2
28.5 205.7
15.9 28.5
77.4 40.3
86.0 62.0
28.2 23.3
77
Part V – Appendix Group
I. Basic Principles
1. General information
78
Newly issued
accounting regulations
The following standards, which were revised MTU Aero Engines Dritte Participation
as part of IASB’s improvement projects, were GmbH was merged into MTU Aero Engines
applied for the first time in 2005: Investment GmbH through a resolution of
the shareholders’ meeting on March 15,
IAS 36 (revised 2004) “Impairment • IAS 1 (Presentation of financial 2005. With the merger agreement of March
of assets” Statements) 15, 2005 (UR No. S 0459/2005), the merger
The modifications to IAS 36 essentially relate • IAS 8 (Accounting Policies. Changes was carried out by absorption through trans-
to goodwill. This is no longer systematically in Accounting Estimates and Errors) ferral of assets as a whole. With regard
amortized, but rather is now subjected to an • IAS 16 (Property, plant, and equipment) to the law of obligations and to taxes, the
annual “impairment-only” approach. • IAS 24 (Related party disclosures) merger was internal and effective as of
January 1, 2005.
IAS 38 (revised 2004) “Intangible assets” In addition, IASB has issued new or revised
The primary modification of IAS 38 concerns and amended standards in 2004, which are MTU Aero Engines Zweite Verwaltungs
the distinction of useful economic life into being followed. These are, in particular: GmbH was merged into MTU Aero Engines
unlimited and limited lifetimes. Intangible Dritte Holding GmbH through a resolution
assets with unlimited useful economic life- • IFRS 2 (Share-based Payments) of the shareholders’ meeting on March 15,
times are no longer amortized on a scheduled • IFRS 5 (Non-current assets held for sale 2005. With the merger agreement of March
basis, but rather are now subjected to an and discontinued operations) 15, 2005 (UR No. S 0467/2005), the merger
Part V – Appendix Group
annual “impairment-only” approach in accor- was carried out by absorption through trans-
dance with IAS 36. Assets with a limited ferral of assets as a whole. With regard to
useful economic life continue to be amortized 1.2. Changes in corporate law the law of obligations and to taxes, the
on a scheduled basis over their economic life. merger was internal and effective as of
January 1, 2005.
IAS 32 and 39 (revised 2004) “Financial 1.2.1. Merger agreements
instruments” MTU Aero Engines Zweite Participation
Early application of IAS 32 and IAS 39 MTU Aero Engines Verwaltungs GmbH was GmbH was merged into MTU Aero Engines
(revised 2004) results in new classification merged into MTU Aero Engines Investment Dritte Holding GmbH through a resolution of
of financial assets. Depending on the clas- GmbH through a resolution of the share- the shareholders’ meeting on March 15,
sified category, changes in fair value are holders’ meeting on March 15, 2005. With 2005. With the merger agreement of March
recognized in the income statement or the merger agreement of March 15, 2005 15, 2005 (UR No. S 0463/2005), the merger
directly in equity until disposition of the (UR No. S 0455/2005), the merger was was carried out by absorption through trans-
financial asset. Receivables and liabilities carried out by absorption through transferral ferral of assets as a whole. With regard
are valued at amortized cost. Transitional of assets as a whole. With regard to the law to the law of obligations and to taxes, the
guidelines pursuant to IAS 39 No. 105 ff of obligations and to taxes, the merger was merger was internal and effective as of
were applied accordingly. internal and effective as of January 1, 2005. January 1, 2005.
79
Part V – Appendix Group
MTU Aero Engines Dritte Holding GmbH In the General Meeting on May 30, 2005,
was merged into MTU Aero Engines Zweite a resolution was passed to increase the
Holding GmbH through a resolution of the company’s share capital against capital con-
shareholders’ meeting on April 27, 2005. tributions by €15.0 million from €40.0 million The Company’s Board of Management was
With the merger agreement of April 27, 2005 to €55.0 million by issuing 15.0 million new further authorized to issue, with the consent
(UR No. S 0771/2005), the merger was no-par value bearer shares. The new shares, of the supervisory board, bearer or registered
carried out by absorption through transferral which carry dividend rights from the start convertible bonds, warrant bonds, profit
of assets as a whole. With regard to the law of the current fiscal year, were issued with participation rights, or profit-linked bonds
of obligations and to taxes, the merger was a nominal amount of €1.00. The capital (or combinations of such instruments), on
internal and effective as of January 1, 2005. increase took effect when it was entered in one or more occasions, through May 29, 2010.
the commercial register on June 3, 2005. Such Bonds are to be with or without fixed
MTU Aero Engines Zweite Holding GmbH The purpose of the capital increase was to maturity, up to an aggregate nominal amount
was merged into MTU Aero Engines Erste place the shares as part of the company’s of €750.0 million, and to grant the holders of
Holding GmbH through a resolution of the initial public offering. convertible and/or warrant bonds conversion
shareholders’ meeting on April 27, 2005. or option rights for up to an aggregate of
With the merger agreement of April 27, 2005 €29.25 million in the registered share capi-
(UR No. S 0775/2005), the merger was Conditional capital tal of the company, in accordance with the
carried out by absorption through transferral Conditional capital of €19.25 million was detailed terms and conditions of such con-
of assets as a whole. With regard to the law also created by way of a resolution of the vertible bonds and/or warrant bonds.
of obligations and to taxes, the merger was General Meeting on May 30, 2005. This
internal and effective as of January 1, 2005. capital is to be used to grant shares to the
holders of convertible bonds or bonds 1.2.3. The Initial public offering (IPO)
with warrants.
1.2.2. Change of legal form The new shares of the company were issued
on June 6,2005 on the Frankfurt Stock Ex-
MTU Aero Engines Erste Holding GmbH (HRB Authorized capital change, Amtlicher Markt, using book-building
151 251), was transformed into an Aktien- According to a resolution by the General and with a subscription period from May 25,
gesellschaft (German public limited company) Meeting on May 30, 2005, the Board of 2005 to June 3, 2005. After the subscription
by way of a transformation resolution pas- Management is authorized, subject to offers had been received within the book-
sed in May 2, 2005 within the scope of the approval, to increase the share capital on or building window at prices of between €19.00
Umwandlungsgesetz (German Corporate before May 29, 2010, against cash contribu- and €22.00 per share, the issue price
Transformation Act) via a change of legal tions on one or several occasions by a total was set at €21.00 per share. Initial listing
form. This transformation was entered in the of up to €5.5 million, whereby it is possible on the first day of trading was at €21.89.
commercial register on May 19, 2005, under to exclude shareholders’ subscription rights A placement volume of 31 million shares plus
number HRB 157 206. Also by way of a (Authorized capital I). a green shoe option of 4.65 million shares
shareholders’ resolution passed in May 2, resulted in a placement volume of €748.65
2005, the share capital of MTU Aero Engines In addition, according to a resolution by million. Of these proceeds, a total of €294.7
Erste Holding GmbH was increased by €37.8 the General Meeting on May 30, 2005, the million accrued to MTU Aero Engines
million according to the rules for a capital Board of Management is authorized, subject Holding AG after the deduction of costs
increase from company funds from €2.2 to approval, to increase the share capital on from the capital increase of 15 million
million to €40.0 million prior to the change or before May 29, 2010, against cash and/or shares. This amount was mostly used to
of legal form. For this purpose, an amount non-cash contributions on one or several repay debt. The remaining proceeds from the
of €37.8 million was withdrawn from the occasions by a total of up to €19.25 million, issue accrued to the company’s former main
capital reserves and transformed to become whereby it is possible to exclude shareholders’ shareholder, Blade Lux Holding Two S.a.r.l.,
ordinary share capital. No new shares were subscription rights (Authorized capital II). Luxembourg.
80
Shareholding structure as
of December 31, 2005
The following synopsis shows the share-
holders and their participation in the capital
following the IPO.
No-par
Name of shareholder shares in %
Blade Lux Holding Two S.a.r.l.*) 16,092,080 29.26
Blade Management Beteiligungs
GmbH & Co. KG 3,257,920 5.92
Free float of stock 35,650,000 64.82
Total 55,000,000 100.00
*) Incorporated under the laws of Luxembourg. Shareholder is Blade Lux Holding One S.a.r.l., Luxemburg, whose
shares are in turn held by KKR European Fund, Limited Partnership with 75 %, and KKR Millenium Fund, Limited
Partnership with 24.04 %, as well as KKR Partners, Limited Partnership, with 0.96 %.
With an agreement dated May 17, 2005, and Military engine business” market seg-
ATENA Engineering GmbH, Munich with its ment up to the time of the sale are classified
shares ATENA INDIA PRIVATE LIMITED as follows up to June 30, 2005:
and EUROAER GmbH, were sold effective
June 30, 2005. ATENA Engineering GmbH was Assets of ATENA Engineering GmbH as of June 30, 2005
then no longer consolidated. As the sale
had an overall insignificant effect on the por- in € million
trayal of the Group’s net worth, the financial Non-current assets 4.3
statements does not include a separate
Inventories 4.3
presentation of assets and liabilities pursuant
to IFRS 5. The profit from the sale is referred Current receivables and prepaid expenses 4.7
to in the explanation under text item 10 Non-current provisions and liabilities -0.5
(Other operating income and expenses). Current provisions and liabilities -7.6
The principal groups of assets and liabilities
that were classified under the “Commercial 5.2
81
Part V – Appendix Group
2.3. Insignificant participations Ceramic Coating Center S.A.S., Paris, France no at cost 50
Airfoil Services Sdn. Bhd., Shah Alam, Malaysia no at cost 50
Three subsidiaries are not included due to Pratt & Whitney Canada CSC, (Africa) (PTY.), Ltd.
insignificance. MTU München Unterstützungs- Lanseria, South Africa**) no at cost 50
kasse GmbH, Munich, is not consolidated
Other shares
because the obligations are recognized in
the consolidated financial statements. Five IAE International Aero Engines AG, Zurich, Switzerland no at cost 12.1
associated companies, three joint ventures Gesellschaft zur Entsorgung von Sondermüll
as well as two other companies are not in Bayern GmbH, Munich no at cost 0.1
measured according to the equity method *) Full = fully consolidated.
and are not included according to propor- At cost = stated at fair value, but equivalent to costs of purchase.
**) Indirect participation.
tional consolidation. Their overall impact on
the net worth, financial and earnings situation The complete statement of Group share registry of the local court of Munich
of the group is of minor significance. ownership is reported in the commercial (HRB 157 206).
82
4. Currency translation
83
Part V – Appendix Group
5. Accounting principles
and policies
84
The recoverable amount is the higher
amount from the present value less the cost
to sell and the anticipated value in use. The
upper limit of the impairment loss reversal is
Scheduled amortization, with the exception determined by the acquisition cost less the
of goodwill, technology assets, and program cumulative scheduled depreciation that
assets, is normally applied over three years. would have resulted if no non-scheduled
Program assets are amortized over a period depreciation had been recorded. The rever-
5.5. Intangible assets of maximally 30 years, whereas technology sal of impairment loss is recorded in the
assets are amortized over a period of income statement in the corresponding
Purchased intangible assets and internally ten years and customer relations between function areas. An impairment loss recog-
generated intangible assets are capitalized 4 and 18 years. nized for goodwill shall not be reversed in
in accordance with IAS 38 (Intangible Assets). a subsequent period.
IAS 38 requires capitalization if it is probable Goodwill with an unlimited life in accordance
that a future economic benefit attributable with IFRS 3 is subject to an impairment test
to the asset exists and the costs of the asset at least once a year. As for other reporting, 5.6. Property, plant, and equipment
can be measured reliably. the “Commercial and military engine busi-
ness” and “Commercial Maintenance Repair Property, plant and equipment are subject
Intangible assets with a limited useful life and Overhaul business are viewed as cash to wear and tear and are carried at cost of
are carried at cost of purchase or production generating units. The goodwill as of January 1, purchase or production less scheduled
Part V – Appendix Group
and amortized on a straight-line basis over 2004, is allocated to both segments. The depreciation. Depreciation is applied using
their useful life. present value of the future net cashflows of the straight-line method to reflect wear and
each cash generating unit is compared with tear. If there are any indications of impair-
If there are indications that an intangible as- its carrying amount. If the present value is ment, the property, plant, and equipment
set’s carrying amount may be extraordinary, lower than the carrying amount, the goodwill is subject to an impairment test. An impair-
the asset is subject to an impairment test. is impaired. If the amount estimated for an ment loss is recognized immediately in the
The recoverable amount is calculated as impairment loss is greater than the goodwill, income statement if the carrying amount
the higher of the fair value less cost to sell the difference is proportionately allocated to of an asset exceeds its recoverable amount.
and the value in use of an asset. An impair- the other assets of the cash generating unit. The recoverable value is calculated as the
ment loss is recognized immediately in the higher of fair value less the cost to sell and
income statement if the carrying amount A test is conducted for each balance sheet the value in use of the asset. If the reason
of an asset exceeds its recoverable amount. date to determine whether grounds for the for impairment in previous reporting periods
If the reason for an impairment in previous non-scheduled depreciation of the previous is no longer applicable, the value is written
reporting periods is no longer applicable, period still exist. If the recoverable amount up to an amount not exceeding the amortized
a reversal is taken to the income statement, of an asset has increased the impairment costs. Minor value assets (worth less than
whereby the amortized costs of production must be reversed, irrespective of the decla- €410) are expensed immediately in the year
or purchase must not be exceeded. red goodwill. in which they are acquired.
85
Part V – Appendix Group
in years
Buildings 25 – 50
Lightweight structures 10
Property facilities 10 – 20
Changes in the fair value of assets in the
Technical equipment, plant, and machinery 5 – 10 category “fair value through profit and loss”
Operational and office equipment 3 – 15 are recognized with an impact on profits via
the income statement, whereas changes in
The depreciation applicable for machines “fair value of available for sale” assets are
used in multiple-shift operation is increased recognized in accumulated other equity
accordingly by way of shift mark-ups. without having impacts on profits. Interest
rate swaps that do not meet the strict crite-
The costs of production of installations pro- ria of IAS 39 for hedge accounting are classi-
duced in-house comprise all costs that can be fied as ‘‘held for trading’’ in the category
directly allocated to the production process ‘‘fair value through profit and loss’’.
as well as reasonable amounts of production-
related overheads. These comprise production- Loans extended by the company which are
related depreciation, pro rata administrative 5.7. Financial assets not held for trading purposes (originated
expenses and pro rata social costs. Financing loans and receivables) as well as all financial
costs are not considered as part of produc- Financial assets are recognized at the settle- assets which do not have a quoted market
tion costs or purchase. ment date, the date on which the asset is price in an active market and whose fair
delivered. When the financial assets are initial- value cannot be reliably measured are car-
If all opportunities and risks associated with ly recognized, they are stated at fair value. ried at amortized cost, if they have a fixed
ownership of a group company leased asset maturity. In the case of current receivables,
are primarily transferred attributable to the After the initial recognition, ‘‘available for the amortized costs are equivalent to the
lessee, the leased asset is capitalized under sale financial assets’’ as well as assets in nominal amount or the repayment amount.
property, plant and equipment, and an equi- the category ‘‘fair value through profit and
valent value is recognized under liabilities loss’’ are recorded at fair value. In general, In accordance with IAS 39 (Financial
from finance lease (finance lease arrange- the fair value corresponds to the market Instruments: recognition and measurement)
ments). The amount capitalized at the start value. If a market price does not exist, the regular checks are carried out to establish
of the basic lease period is the lower of fair market value of the available for sale whether there are any objective sustan-
value or present value of minimum lease financial assets as well as market value of tial indications of an impairment of a financial
payments. The capitalized leased asset is assets in the category ‘‘fair value through asset or portfolio. If such indications exist,
depreciated over its useful life, whereas profit and loss” are determined using suita- the impairment loss is recognized in the
interest is added in instalments to the ble valuation methods, e.g. discounted cash- income statement. Profits and losses from
leasing liability. flow method, taking into account market an available for sale financial asset are
data available at the balance sheet date. recorded directly in accumulated other equity
If all risks and opportunities associated with until the financial asset is disposed, or until
ownership of a leased asset are not attributa- Financial investments in equity instruments an impairment has been established. In the
ble to the lessee, the lease payments are for which there is no active market price and event of an impairment, the cumulative
expensed as incurred (operating lease arrange- for which no fair value can reliably be deter- loss is withdrawn from shareholders’ equity
ments). mined, are valued at acquisition cost. and transferred to the income statement.
86
5.8.3. Equity participations
in joint ventures
87
Part V – Appendix Group
88
1. Forward foreign exchange
transactions:
The purpose of forward foreign exchange
transactions is to hedge US Dollar cashflows
arising from operational transactions.
5.15. Pension provisions
At the end of the year, there were currency
forward foreign exchange transactions of US Pension provisions are established based
$560.0 million, which have expiration dates 2. Swaps on the projected unit credit method in
till October 2007, with a fair value of €416.8 accordance with IAS 19 (Employee Benefits).
million. Cross currency swaps This method recognizes not only the pen-
The goal is to protect against fluctuations sions and acquired entitlements known on
The change in market price value of the deri- in exchange rates and interest rates, using the balance sheet date but also estimated
vative financial instruments totaled €27.2 US Dollar income surpluses. increases in pensions and salaries expected
million during the past business year. in future, with a conservative assessment of
Proceeds from hedging activities from the With this financial instrument, fixed Euro the relevant parameters. The calculation is
accumulated other equity amounting to interest obligations have been swapped for based on actuarial reports. Actuarial profits
€8.3 million were recorded in the revenues. fixed US Dollar interest obligations. Due to and losses are only offset against the pen-
exchange rate fluctuations, a negative sion expense if they fall outside a range of
As of December 31, 2005, after deduction of market price of €7.7 million resulted on the 10 % (target range) of the estimated obliga-
deferred taxes, the change in fair value of balance sheet date (versus a positive €5.2 tion. In this case, they are spread over the
the cashflow hedges transactions of €-15.0 million for the previous year). future average remaining service time of the
million (prior year: €12.2 million) was re- workforce. The expenses attributable to
corded in accumulated other equity without cumulative interest for pension obligations
any impact on profits. 5.13. Cash and cash equivalents are recognized with financial results in the
income statement. All other expenses attri-
Cash and cash equivalents comprise foreign butable to pension obligations are included
Risk management and hedging policy currency holdings of €8.2 million and are with the costs of the affected function areas.
Cashflows, which are principally secured valued using the exchange rate applicable at
through forward foreign exchange trans- the reference date.
Part V – Appendix Group
actions, are anticipated for the following per- 5.16. Other provisions
iods and amounts. This assumes that these
planned transactions will primarily be con- 5.14. Deferred taxes Other provisions are recorded if an obli-
sidered in the results for these periods: gation exists to third parties, it is probable
Deferred tax assets and deferred tax that the provision will be utilized and,
liabilities are recognized for all temporary if probable, if the provision can be reliably
differences between the values reported estimated. For measuring the value of pro-
business year planned transactions in the tax balance sheets and the consoli- visions with, for example, warranties and
(Underlying transaction dated balance sheet (‘‘balance sheet liability missing costs – consideration is given to all
in US$ millions)
method’’). The deferred tax assets and de- cost components including those in inven-
2006 380.0
ferred tax liabilities were calculated using tories. Non-current provisions due in more
2007 180.0 the tax rate applicable at the point at which than one year are recognized with a settle-
560.0 the temporary differences are expected to ment amount discounted to the balance
reverse. Deferred tax assets and deferred tax sheet´s date. Provisions for part-time work
There are no transactions for which hedge liabilities are offset if the tax creditor and tax for elderly people and anniver-saries are
accounting had previously been used but debtor is the same person and if maturities evaluated in accordance with statistical
that are no longer expected to occur. are congruent. appraisals under IAS 19.
89
Part V – Appendix Group
Financial obligations are initially recognized In line with its accounting policies, the con-
at cost of purchase equivalent to the fair solidated companies assesses every year
value of the service rendered in return. The assumptions and estimates primarily whether an impairment of goodwill is
Financial obligations that are valued at fair refer to the determination of estimated use- required. The utility value is determined by
value are considered in the totals pursuant ful lives within the group, the statement and calculating the recoverable amount of the
to transition regulations in accordance with valuation of provisions and the extent to cash generating units. This requires the use
IAS 39.105 ff. which future tax relief will be realized. The of estimates.
actual amounts may differ from the assump-
Non-current liabilities due in more than tions and estimates. Changes are reflected If the actual gross profit on December 31,
one year are recognized with their present in the income statement at the point 2006, is 10% lower than management’s
value. Liabilities, except for derivative finan- at which appropriate knowledge is gained. estimate of gross profit on December 31,
cial instruments, are carried at fair value. 2005, this would not indicate an impairment
The company assesses the value of its good- of goodwill or any other assets. Assuming
will at least once a year (see ‘‘Accounting a 10 % increase in the discount rate before
5.18. Other comments principles and policies’’). For this purpose, taxes which was applied for calculating
the goodwill is allocated to cash generating the enterprise value using the discounted
The claims of shareholders to dividend pay- units. The recoverable amount of the cash cashflow method (DCF), the company’s
ments are recorded as a liability in the period generating units is established on the basis goodwill and property, plant, and equipment
in which the corresponding resolution is of the value in use. This requires the use of would still not be impaired.
passed. estimates.
90
II. Notes to the Consolidated
Income Statement
6. Cost of sales
Cost of sales
On the balance sheet date, the value of MTU The research and development costs in the
Maintenance Canada Ltd., Canada, was amount of €57.7 million – included in the
compared with its recoverable amount (cash- cost of sales for the previous year – were
flows), which resulted in a shortfall in the reclassified with their own position (text
present value compared with the €2.4 mil- item 7) for the financial year 2005 in order
lion carrying amount of MTU Maintenance to make comparison easier.
Part V – Appendix Group
Canada Ltd. This amount reduces in the full
amount the result for the accounting period 7. Research and
and is primarily contained in the cost of development costs
sales. A small portion is included in admini-
stration costs due to the classification of Research and development costs
functions.
in € million 2005 2004
The following asset groups were affected by Cost of materials -33.3 -75.2
the impairment of value:
Personnel expenses -44.9 -73.2
Depreciation and amortization -5.6 -7.5
-83.8 -155.9
in € million
Consumption of research provisions 38.1 98.2
Intangible assets 0.5
Expenses -45.7 -57.7
Property, plant, and equipment 1.9
See text item 6 (Cost of sales) to compare
2.4 new classification.
91
Part V – Appendix Group
8. Selling costs
Selling costs
92
10. Other operating income and
expenses
93
Part V – Appendix Group
Financial result
94
12. Income taxes
Income taxes
Tax reconciliation
Deferred tax assets and deferred tax liabilities tax rate of 26.4 %. The trade tax amounts
are recognized for all temporary differences to 14 % after corporate tax is taken into
Part V – Appendix Group
between the values reported in the tax consideration, which means the total tax
balance sheets of the individual companies rate comes to 40.4 %.
and the consolidated balance sheet using the
liability method. Based on the good results in The actual tax expense is €2.1 million above
the past and the positive results to be the expected tax expense that would have Factors that affected the rise of the total tax
expected, MTU Aero Engines Holding AG resulted from application of the rate for tax rate included interest from purchase finan-
is confident that the future taxable income on distributed earnings for MTU Aero Engines cing in the amount of €37.7 million, which
of MTU Aero Engines Holding AG and other Holding AG. In the previous year, actual was added in part when determining income
subsidiary companies will be sufficient for tax expense was €3.7 million higher than tax, as well as €2.9 million in valuation allow-
realization of deferred tax assets. Up to expected. ances for tax losses carried forward for
December 31, 2005, all domestic deferred MTU Maintenance Canada Ltd., Canada, and
taxes were determined by temporary differ- Purchase price distributions associated with €1.5 million for those of MTU Aero Engines
ences on the basis of a combined 40.4 % purchases made during the previous busi- North America Inc., USA.
tax rate. In the financial year 2005, the cor- ness year resulted in an additional deprecia-
porate tax rate was 25 % plus the solidarity tion volume of €63.3 million, which lowered Text item 29 details the balance sheet items
surcharge of 5.5 % on the corporate tax earnings but was not taken into account under which the tax accruals and deferrals
charge. This results in a effective corporate for taxation. are classified.
95
Part V – Appendix Group
2005
Net profit in € million 32.9
Number of shares pieces 55,000,000
Earnings per share*) € 0.60
*) Undiluted result; there is no dilution effect
96
14.2. Financial instruments:
Comparison of valuation up to
December 31, 2005
The book values of the financial instruments other shares correspond to the fair value
were matched with their respective fair values. (see text item 5.8.2. and 5.8.4.). Other assets
The fair value of MTU Maintenance Zhuhai and receivables correspond to the fair value
Co. Ltd., China, was determined with the in accordance with valuation allowances
discounted cashflow method and compared and currency translation as well as financial
to the book value. The shares in other joint liabilities. Derivative financial instruments
ventures, in associated companies, and are assessed at market prices.
Personnel expenses
503.9 510.0
*) Adjusted from previous year by €10.7 million
97
Part V – Appendix Group
98
III. Notes to the Consolidated
Balance Sheet
The following overview displays the changes Detailed explanations can be found in
in assets and liabilities positions between the following statements appended to
December 31, 2005, and December 31, 2004. the respective positions:
in € million
Non-current assets
Intangible assets -26.9
Property, plant, and equipment -30.6
Financial assets 1.0
Other assets -38.9
Deferred tax assets -2.3 -97.7
Current assets
Inventories*) 70.1
Receivables 23.8
Other assets -145.0
Cash and cash equivalents -12.6
Prepayments -4.4 -68.1
Change in assets -165.8
99
Part V – Appendix Group
in € million
Programme assets
Programme-independent technologies
Customer relations
Rights and licenses
Goodwill
Intangible assets
Land, leasehold rights and buildings
including buildings on non-owned land
Technical equipment, plant and machinery
Other equipment, operational and office equipment
Advance payments and construction in progress
Property, plant, and equipment
Shares in subsidiaries
Shares in associated companies
Equity participations in joint ventures
Other shares
Loans to:
- Joint ventures
- Other shares
Other loans
Financial assets
Fixed assets
100
Cost
Exchange rate Disposal of Consolidated
1/1/2005 differences ATENA Additions Transfers disposals 12/31/2005
377.5 377.5
124.7 124.7
56.5 56.5
54.6 1.9 -0.3 5.6 0.5 -0.4 61.9
382.6 0.7 -2.4 380.9
995.9 2.6 -2.7 5.6 0.5 -0.4 1,001.5
0.2 -0.2
1.3 -1.3
0.1 0.1
46.6 -0.1 2.7 -1.6 47.6
1,723.9 4.5 -4.0 86.2 0.0 -8.9 1,801.7
101
Part V – Appendix Group
in € million 1/1/2005
Programme assets 0.6
Programme-independent technologies 12.5
Customer relations 4.7
Rights and licenses 9.5
Goodwill
Intangible assets 27.3
Land, leasehold rights and buildings
including buildings on non-owned land 9.3
Technical equipment, plant and machinery 58.0
Other equipment, operational and office equipment 37.5
Advance payments and construction
in progress
Property, plant, and equipment 104.8
Shares in subsidiaries
Shares in associated companies
Equity participations in joint ventures
Other shares
Loans to:
- Joint ventures
- Other shares
Other loans
Financial assets
Fixed assets 132.1
102
Depreciation Net book values
Exchange rate Disposal of
differences ATENA Additions Disposals 12/31/2005 12/31/2005 12/31/2004
3.9 4.5 373.0 376.9
12.4 24.9 99.8 112.2
4.8 9.5 47.0 51.8
0.4 -0.1 11.4 -0.3 20.9 41.0 45.1
380.9 382.6
0.4 -0.1 32.5 -0.3 59.8 941.7 968.6
1.3
0.1 0.1
47.6 46.6
0.8 -0.5 138.3 -4.3 266.4 1,535.3 1,591.8
103
Part V – Appendix Group
104
The following net book values and lease
payments collected applied on the balance
sheet reference date for assets capitalized
for finance leasing purposes:
Net Collected
book value lease payments
in € million 2005 2005
Land and buildings 28.6 1.8
Technical equipment and machines 17.0 3.1
45.6 4.9
12/31/2005 12/31/2004
18. Financial assets
5.8 3.4
Composition of financial assets: Accounting of financial assets
Part V – Appendix Group
32.9 26.5
34.5 41.2
in € million 2005 2004
73.2 71.1
Joint ventures accounted for
with the equity method 42.3 40.1
Joint ventures
3.2 1.5 accounted for at cost 4.2 4.0
10.7 5.3 Other shares
6.1 12.4 accounted for at cost 1.1 2.5
20.0 19.2 47.6 46.6
105
Part V – Appendix Group
*) Disclosed data for MTU Maintenance Zhuhai Co. Ltd., China are for 2005. The other joint-venture data for Pratt & Whitney Canada Customer Service Centre Europe GmbH,
Ceramic Coating Center S.A.S and Airfoil Services Sdn. Bhd. are for the 2004 business year, as the actuals are not yet available.
**) Data for 2004 business year, as actuals for 2005 are not yet available.
***) Disclosed data for MTU Maintenance Zhuhai Co. Ltd., China are for 2004. The other joint-venture data for Pratt & Whitney Canada Customer Service Centre Europe
GmbH, Ceramic Coating Center S.A.S and Airfoil Services Sdn. Bhd. are for the 2003 business year. Where 2004 annual reports were available, the previous year’s
numbers were updated.
****) Data for 2003 business year, as actuals for 2004 are not yet available.
19. Inventories
Inventories
Inventories are recognized at the lower of costs and overheads which can be allocated
cost or net realizable value. The costs of to production (based on normal operating
production of unfinished products comprise capacity). Costs of purchase or production been deducted from the costs of purchase.
the costs of raw materials and supplies, do not include any costs of debt capital. Advanced payments received are recognized
direct personnel expenses, other direct Discounts, bonuses, and concessions have under liabilities.
106
20. Receivables and other assets
Receivables
12/31/2005 12/31/2004
Current Non-current Total Current Non-current Total
Due within Due in more than Due within Due in more than
in € million one year one year one year one year
Other assets
12/31/2005 12/31/2004
Current Non-current Total Current Non-current Total
Due within Due in more than Due within Due in more than
in € million one year one year one year one year
Accounts receivable
from related companies
- Associated companies 26.3 26.3 46.1 46.1
- Joint ventures 0.4 0.4 9.8 9.8
Tax refund claims
- Taxes on income 5.4 5.4 41.3 41.3
- Other taxes 11.6 11.6 11.9 11.9
More details to accounts receivables from market price for interest rate swaps in the
companies for which an investment relation- amount of €111.9 million and €5.2 million
ship exists are disclosed in the chapter turned negative with €25.2 million and €7.7
‘‘Relationships with related companies and million during the past business year due to
persons’’. The receivables are netted with the change in the dollar exchange rate and
the liabilities of the respective company. The are therefore accounted for under “Other
market prices for hedging contracts and the liabilities” (text item 28).
107
Part V – Appendix Group
108
Disregarding fluctuations, a total of 2,180,130
phantom stocks resulted as of the end of
the program on the balance sheet date,
stemming from the shares acquired by the
program’s participants on June 6, 2005.
Status of granted and exercised phantom stocks as of the balance sheet
reference date at the expected average exercise price:
The average fair value of a phantom stock
equals €2.32 and is determined with the
Phantom Profit share per
Black-Scholes method. From this, €0.7 stocks Phantom
million as recognized in income statement stock in €*)
for the period under review. Equity increased Phantom stocks outstanding at the start
by the same amount (see Consolidated of the period under review 0
statement of changes in equity)
Phantom stocks granted
during the period under review 2,180,130 2.32
The assumptions upon which this is based
include the following: Phantom stocks forfeited
during the period under review 0
Phantom stocks exercised
Program duration assumptions
Part V – Appendix Group
during the period under review 0
Stock price change p.a. 6.5 % Phantom stocks granted
Expected volatility 20 % during the period under review 0
109
Part V – Appendix Group
12/31/2005 12/31/2004
Pension provisions are established for obli-
Discount rate 4.25 % 4.75 %
gations arising from vested interests and
current benefits paid to authorised active Salary level trend 2.50 % 2.50 %
and former employees within the MTU Aero Pension level trend 1.75 % 1.75 %
Engines Holding AG Group and their sur-
viving dependants. Depending on the legal, Future salary trends growth includes expec-
financial, and tax circumstances of the par- ted future salary increases, which are
ticular country, there are various systems of estimated every year on the basis of various
retirement pension plans which, in general, factors, including inflation and length of remaining lifetime of the staff. As of Decem-
are based on the length of service and service with the company. ber 31, 2005, there were accrued actuarial
remuneration of the employees. losses of €64.3 million (previous year:
Actuarial profits and losses may occur for €27.0 million).
A distinction is made between defined con- valuation of benefit obligations, which are
tribution plans and defined benefit plans. caused by such things as changes in calcula- The current underfunding in Germany is
In the case of defined contribution plans, the tion parameters or changes in estimates primarily a result of capital-induced changes
company has no further obligations. with regard to risk developments of pension in the discounting factor. Due to significantly
obligations. Accrued actuarial profits and reduced net yields from investments, pen-
In the case of defined benefit plans, the com- losses that do not exceed 10 % of the cash sion, anniversary, and partial retirement
pany has an obligation to fulfill the commit- value of the obligations are not accounted obligations up to December 31, 2005, were
ments made to active and former employees for. Actuarial losses that lie outside the 10 % discounted by 4.25 %. The following financing
(defined benefit plans). These benefits are bandwidth of the scope of obligations for status of the pension benefits was produced
principally reserved for as provisions in the defined benefit pension plans are distributed using the basis for calculation in accord-
consolidated financial statements. In Ger- from the following year over the average ance with IAS 19:
many, most of the benefit commitments are
applicable for MTU Aero Engines GmbH, Reconciliation of cash values as of the balance sheet date
Munich, MTU Maintenance Hannover GmbH,
Langenhagen, as well as MTU Maintenance in € million 12/31/2005 12/31/2004
Berlin-Brandenburg GmbH, Ludwigsfelde. Projected benefit obligations of benefit
These commitments are reserved for by way commitments (Defined benefit obligations) 442.1 385.9
of allocations to provisions. There are also
Adjustment based on actuarial
benefits financed by employees (retirement profits (+) and losses (-) -64.3 -27.0
and benefit capital as well as pension capital
accumulation account). Total as of December, 31 377.8 358.9
110
The financial developments of the pension
provisions can be derived as follows:
Movements in totals
Other provisions
12/31/2005 12/31/2004
Current Non-current Total Current Non-current Total
Due within Due in more than Due within Due in more than
in € million one year one year one year one year
111
Part V – Appendix Group
Balance
in € million 1/1/2005
Tax obligations 9.7
Personnel and social obligations 48.7
Obligations due to potential losses and warranties 10.8
Other obligations 87.0
156.2
Balance
in € million 1/1/2004
Tax obligations 1.1
Personnel and social obligations 26.9
Obligations due to potential losses and warranties 10.1
Other obligations 138.4
176.5
112
Exchange Disposal of Balance
rate differences ATENA Consumption Dissolution Allocations Transfers 12/31/2005
-8.9 -0.5 41.0 41.3
0.2 -2.6 -33.4 -1.6 45.4 56.7
0.4 -0.5 -3.1 3.3 10.9
0.1 -0.5 -63.3 -1.1 55.9 20.2 98.3
0.7 -3.6 -108.7 -3.2 145.6 20.2 207.2
113
Part V – Appendix Group
Balance Balance
in € million 1/1/2005 Consumption Dissolution Allocations Transfers 12/31/2005
Balance Balance
in € million 1/1/2004 Consumption Dissolution Allocations Transfers 12/31/2004
114
27. Financial liabilities
(Current and non-current)
Current Non-current
Due in more than
Due in less one year and less Due in more Total
in € million than one year than five years than five years 12/31/2005
Bonds
High Yield Bond 165.0 165.0
Interest liability High Yield Bond 3.4 3.4
Liabilities due to banks
Revolving Credit Facility 17.0 17.0
Accounts due to related companies 0.3 0.3
Other financial liabilities
Finance leasing liabilities 2.6 22.2 28.4 53.2
Loan from the province of British Columbia
115
Part V – Appendix Group
Current Non-Current
Due in more than
Due in less one year and less Due in more Total
in € million than one year than five years than five years 12/31/2004
Bonds
High Yield Bond 275.0 275.0
Interest liability High Yield Bond 5.7 5.7
Liabilities due to banks
Senior Facility Agreement 174.2 174.2
Accounts due to related companies 63.5 98.9 162.4
Other financial liabilities
Vendor loan 185.5 185.5
Finance leasing liabilities 1.9 21.2 28.8 51.9
Loan from the province of British Columbia
to MTU Maintenance Canada. 8.1 3.7 11.8
245.3 128.2 493.0 866.5
116
28. Other liabilities
(Current and non-current)
Current Non-current
Due in more than
Due in less one year and less Due in more Total
in € million than one year than five years than five years 12/31/2005
Advance payments from customer 317.3 113.7 431.0
Accounts due to related companies
Non-consolidated subsidiaries 4.9 4.9
Associated companies, joint ventures
and other investments 56.7 56.7
Taxes payable 4.9 4.9
Social security 10.8 10.8
Employees 43.1 7.1 50.2
Market price of derivative financial instruments
Forward foreign exchange transactions 19.5 5.7 25.2
Interest rate swaps 7.7 7.7
Other liabilities 14.3 7.2 2.6 24.1
471.5 141.4 2.6 615.5
117
Part V – Appendix Group
118
Composition of deferred taxes
Balances are stated for tax claims and obliga- current and deferred income tax obligations
tions with regard to the same fiscal authorities. as well as tax reconciliation of expected to an
Please see text item 12 for details on related actual tax expense.
119
Part V – Appendix Group
The company has contingent liabilities of of liability, whereas the net amount is re-
€150.6 million (previous year: €138.4 million). duced by the provisions set aside to cover
The gross figure represents the total amount the liability.
12/31/2005 12/31/2005
in € million Provisions Gross Net
I. Liability due to risk and revenue
contract conditions
GE 0.3 27.5 27.2
IAE 1.9 39.7 37.8
PWA 0.2 20.7 20.5
2.4 87.9 85.5
II. Guarantees issued for
non-consolidated subsidiaries 0.5 65.6 65.1
2.9 153.5 150.6
12/31/2004 12/31/2004
in € million Provisions Gross Net
I. Liability due to risk and revenue
contract conditions
GE 0.4 31.9 31.5
IAE 1.6 34.2 32.6
PWA 0.1 16.2 16.1
2.1 82.3 80.2
II. Guarantees issued for
non-consolidated subsidiaries 0.4 58.6 58.2
2.5 140.9 138.4
120
30.2.2. Pledged securities
121
Part V – Appendix Group
122
Accounts due from related companies
123
Part V – Appendix Group
124
Major shareholdings of MTU Aero Engines Holding AG
MTU Aero Engines North America Inc., Rocky Hill, USA 100.00 -841 3) -3,498 4)
MTU Maintenance do Brasil Ltda.. Sao Paulo, Brazil 99.99 64 1/3) -16 1/6)
EPI Europrop International GmbH, Munich 28.00 252 1/5) 188 1/5)
MTU Turbomeca Rolls-Royce GmbH, Hallbergmoos 33.33 168 1/5) 130 1/5)
APA Aero Propulsion Alliance GmbH i.L., Munich 24.80 55 1/5) 3 1/5)
MTU Maintenance Zhuhai Co. Ltd., Zhuhai, China 50.00 34,780 3) 273 7)
1) Previous year’s figures; current figures not available 5) HGB-Value; therefore no IFRS Financial Statements available.
2) Profit transfer arising under German GAAP (HGB) from Profit and Loss Pooling. 6) Conversion to average yearly exchange rate for 2005
3) Conversion to year end exchange rate. 7) Conversion to 2005 average quarterly exchange rate for 2005
4) Conversion to exchange rate per end of the month.
125
Part V – Appendix Group
No Group company has conducted any busi- positions or with companies in whose The Board of Management, which until the
ness which is subject to disclosure require- Managing Board or Supervisory Boards end of July consisted of three members, and
ments with members of the Managing Board these persons are represented. This is also the Supervisory Board received the following
or the Supervisory Board of the company or applicable for close family members of this compensation, of which €2.8 million was
with other members of management in key group of persons. performance-related:
Compensation
126
32.2.3 Members of the Supervisory Board
127
Part V – Appendix Group
in € million 2005
Audit of financial statements 1.0
Other certification or evaluation services 0.5
1.5
The “Audit” item includes all expenses The Board of Management and the Super-
paid to auditing company Deloitte & Touche visory Board of MTU Aero Engines Holding
GmbH, Wirtschaftsprüfungsgesellschaft, AG have issued the declaration prescribed
for auditing of financial statements. Other by Section 161 of the German Stock Cor-
certification and evaluation services concern poration Act (AktG) in the 2005 MTU Group
services relating to the initial public offering Annual Report, and have also made it per-
(IPO) as well as review of interim financial manently available to shareholders on the
statements. web site at www.mtu.de.
128
V. Segment Information
129
Part V – Appendix Group
130
36. Information according to business segment
The “Commercial MRO business” market Canada Ltd., Canada, which influenced
segment contains €2.4 million in amorti- annual results for the period under review
zation of intangible assets and depreciation (see text item 6).
of tangible assets for MTU Maintenance
131
Part V – Appendix Group
132
38. Segment information
according to region 2005
and 2004
133
Part V – Appendix Group
134
We conducted our audit of the consolidated
financial statements in accordance with
§ 317 HGB and German generally accepted
standards for the audit of financial state-
ments promulgated by the Institut der Wirt-
schaftsprüfer [Institute of Public Auditors
in Germany]. Those standards require that
we plan and perform the audit such that Our audit has not led to any reservations.
misstatements materially affecting the pre-
sentation of the net assets, financial position In our opinion, based on the findings of our
and results of operations in the consolidated audit, the consolidated financial statements
financial statements in accordance with of MTU Aero Engines Holding AG, Munich,
the applicable financial reporting framework comply with IFRSs as adopted by the EU,
and in the group management report are the additional requirements of German com-
Independent Auditors’ Report detected with reasonable assurance. mercial law pursuant to § 315a Abs. 1 HGB
Knowledge of the business activities and and give a true and fair view of the net
the economic and legal environment of the assets, financial position and results of
We have audited the consolidated financial Group and expectations as to possible operations of the Group in accordance with
statements prepared by the MTU Aero misstatements are taken into account these requirements. The group management
Engines Holding AG, Munich, comprising in the determination of audit procedures. report is consistent with the consolidated
Part V – Appendix Group
income statement, the balance sheet, the The effectiveness of the accounting-related financial statements and as a whole provides
statement of changes in equity, Cashflow internal control system and the evidence a suitable view of the Group’s position and
Statement and the notes to the consolidated supporting the disclosures in the consoli- suitably presents the opportunities and risks
financial statements, together with the group dated financial statements and the group of future development.
management report for the business year management report are examined primarily
from 1 January to 31 December 2005. The on a test basis within the framework of
preparation of the consolidated financial the audit. The audit includes assessing the Munich, 27 February 2006
statements and the group management annual financial statements of those
report in accordance with IFRSs as adopted entities included in consolidation, the deter-
by the EU, and the additional requirements mination of entities to be included in con- Deloitte & Touche GmbH
of German commercial law pursuant to § 315a solidation, the accounting and consolidation Wirtschaftsprüfungsgesellschaft
Abs. [paragraph] 1 HGB are the responsi- principles used and significant estimates
bility of the parent company’s management. made by management, as well as evaluating
Our responsibility is to express an opinion the overall presentation of the consolidated Dr. Plendl Dr. Reitmayr
on the consolidated financial statements financial statements and the group man- Wirtschaftsprüfer Wirtschaftsprüfer
and on the group management report based agement report. We believe that our audit [German [German
on our audit. provides a reasonable basis for our opinion. Public Auditor] Public Auditor]
135
Part V – Appendix Group
2005
136
MTU-BB MTU-Can RSZ Vericor MTU-AENA Total Consolidation Group
137
Part V – Appendix Group
2005
138
MTU-BB MTU-Can Vericor ATENA MTU-AENA Total Consolidation Group
144.0 24.6 23.0 18.3 23.5 2,220.7 -72.1 2,148.6
-128.9 -23.8 -14.4 -14.7 -23.9 -1,929.9 65.1 -1,864.8
15.1 0.8 8.6 3.6 -0.4 290.8 -7.0 283.8
2.2 2.2
5.8 -1.8 1.8 0.9 -3.5 204.3 -145.6 58.7
-1.7 -2.1 -0.7 -0.4 -25.6 -0.2 -25.8
4.1 -3.9 1.1 0.5 -3.5 178.7 -145.8 32.9
-4.3 -124.5 124.5
-1.2 0.9 -0.5 -2.9 -25.6 25.5 -0.1
-1.4 -3.0 1.1 0.0 -6.4 28.6 4.2 32.8
139
Part VI – Appendix
100,000
Flight Hours
140
100,000
Flight Hours
An aircraft engine approaches retirement at
about 100,000 flight hours. At that point the
repair costs usually begin to outweigh the
procurement costs for a new engine. Most
engines are taken out of service, disassem-
bled, and disposed of. Since modern engines
are made of highly valuable materials, such
as nickel, tungsten, or titanium, they are
recycled almost 100%. These materials are
characterized by low weight, high reliability,
141
Part VI – Appendix
Shareholdings
of MTU Aero Engines
142
Financial and Technical Glossary
Clean Demonstrator
Altitude Test Facility Clean (component validator for environ-
Altitude test facilities are used to test engines mentally friendly aero engine) is a European
on the ground under simulated conditions technology demonstrator program under the
of flight altitude. Every newly developed direction of MTU Aero Engines. Its special
engine undergoes a series of tests on an alti- feature: The concept is based on geared fan
tude test facility before actual flight testing technology and includes a heat exchanger.
begins. It affords substantial fuel savings as well as
significant noise reductions.
ASE series
The ASE series is a family of gas turbines in Combustor
the 0.5 to 15 MW power category initially CF6 In the combustor, the air coming from the
produced by former AlliedSignal. When Engines of General Electric’s CF6 family compressor is mixed with fuel and burned.
AlliedSignal and Honeywell merged, pro- power medium- and long-haul Airbus and This creates extremely high pressures
duction moved to Honeywell and later to Boeing aircraft. For the CF6, MTU manu- and very high temperatures of well over
Vericor Power Systems, then a 50/50 joint factures parts of the high-pressure turbine 2,000° C. All the hazardous substances
venture of Honeywell and MTU Aero Engines. and the compressor. For this engine, which which the engine emits are produced in the
When Honeywell exited Vericor, all rights to has been in service for over 25 years, the combustor. Therefore, an attempt is made
the ASE series were transferred to MTU. maintenance and spare parts business is today to lower the level of these hazardous
becoming increasingly important. substances – especially of nitrogen oxides –
Avio by changing the injection and mixing
The Italian engine manufacturer Avio has its CF6-50 concepts in the combustor. Because of the
origins in former FiatAvio, the aircraft engine Engine of the CF6 family. high temperatures, the combustors are
division of the Italian Fiat Group. provided with special thermal protection.
CF6-80
Cashflow Engine of the CF6 family. Compressor
Cashflow refers to the internal financing The compressor consists of several stages of
potential of a company. CFM56 bladed compressor disks that rotate at very
CFM56 engines power the twin-jet Airbus high speeds between stationary guide vanes.
CEO A320 family, the long-haul A340 jet, and the Large volumes of air are ingested and com-
CEO stands for Chief Executive Officer. standard and new-generation Boeing 737. pressed greatly before being passed into the
The CFM56 is the world’s best-selling engine combustor. To achieve the compression ratio
CF34 for commercial jetliners. MTU concentrates of over 30:1 of current engines, two different
The main applications for the CF34 engine on maintenance for a number of CFM56 types of compressors are used: the low-
are 50-, 70- or 100-seat business jets and variants. pressure and the high-pressure compressor.
Part VI – Appendix
regional jets. Maintenance for the CF34 is These compressors are driven at different
provided by MTU Maintenance Berlin- CFO speeds by the associated turbines via con-
Brandenburg. CFO stands for Chief Financial Officer. centric shafts.
143
Part VI – Appendix
DECMU
The DECMU (digital engine control and mo-
nitoring unit) is an engine subsystem for the
complete digital control and monitoring of
the engine. Normally, there are two separate
units for these two functions. In the DECMU,
Control and Monitoring Systems they are integrated into one single unit.
The control system comprises the individual
devices used to monitor the engine and to EASA
control the fuel supply system, actuation of EASA (European Aviation Safety Agency) is
guide vanes and nozzles, bleed-air system the European approval agency and has the
and lubrication system, as well as the neces- same approval authority for all EU member
sary sensors for engine speed, pressure, states as the FAA has in the U.S. Equity Ratio
and temperature. The equity ratio is a parameter for the financing
EBIT structure. It indicates the percentage of
Cooperative Model Earnings before interest and taxes. equity capital to total capital.
Under the Cooperative Model, the mainte-
nance activities for aircraft engines operated EBITDA FAA
by the German Armed Forces (Bundeswehr) Earnings before interest, taxes, depreciation, The Federal Aviation Administration (FAA)
are pooled under the umbrella of industry. and amortization. is the U.S. approval agency for all matters
The Bundeswehr is closely involved in all pertaining to aviation.
procedures, with airmen and MTU personnel EJ200
working shoulder-to-shoulder. The EJ200 engine powers the Eurofighter FAR33
and its export version, the Typhoon. MTU is FAR is the abbreviation for the FAA’s Federal
Corporate Governance responsible for the development and manu- Aviation Regulations. Part 33 of the FAR
Corporate governance refers to the rules of facture of the low-pressure and high-pres- specifies test standards for engines.
good, value-oriented corporate management. sure compressors and the electronic control
The principles of corporate governance are unit. The company also manufactures high- Free Cashflow
aimed at promoting trust in the company pressure turbine parts, and carries out Free cashflow is the total of operational
among investors, customers, employees, and engine assembly and test runs. cashflow and cashflow from investment
the general public. activities. It provides funds for retiring debt,
Engine Pool Services paying dividends, and increasing cash
D&O Insurance The Engine Pool Services are MTU’s response reserves.
D&O insurance covers liability risks resulting to the increasing demand for engine services
from the execution of professional or official beyond maintenance proper. The focus is on Free Float
responsibilities in a company (= director and the provision of lease and spare engines as Free float refers to the part of capital stock
officer liability insurance). well as industrial gas turbines. held by shareholders with a low stockholding.
144
Intermediate-Pressure Turbine
In addition to the usual high-pressure and
low-pressure turbines, three-shaft engines
also feature an intermediate-pressure
turbine. It drives the intermediate-pressure
compressor.
Interturbine Duct
General Electric The interturbine duct connects the high-
General Electric is a diversified technology, pressure turbine to the low-pressure turbine.
manufacturing and services company. One of This transition area is particularly critical.
its businesses is aircraft engines. In this busi- Therefore, the interturbine duct must meet
ness, General Electric is the world leader. very stringent requirements.
GP7000 ISIN
MTU has a share of 22.5% in the GP7000 ISIN stands for International Securities
engine co-developed by General Electric and Identification Number. It is a unique world-
Pratt & Whitney. This completely new family wide identification number for securities. Joint Venture
of engines will be used in long-haul service. A contractual agreement joining two or
It is intended to power the Airbus A380 and ITP more independent companies for the purpose
possibly other Airbus and Boeing aircraft as Industria de Turbo Propulsores (ITP) is Spain’s of executing a particular joint business
well. only engine manufacturer. ITP is represented undertaking.
in a number of European engine programs,
High-Pressure Compressor for example the EJ200, the TP400-D6, and JT15D
See Compressor. the MTR390 Enhanced. The JT15D can be used both in the military
and in the commercial sector. For years, the
High-Pressure Turbine J79 characteristics of the JT15D have made it
See Turbine. The J79 has been manufactured by MTU the ideal engine for business jets. The JT15D
under license from General Electric since is maintained by MTU Maintenance Berlin-
IAE 1970. It was used initially on the Lockheed Brandenburg.
IAE stands for IAE International Aero Engines F-104 Starfighter and since 1973 has been
AG, Zurich. IAE is the consortium for the powering the McDonnell Douglas F-4 Phan- LM Series
V2500 engine. Partners in this consortium tom II aircraft of the German Armed Forces The LM series refers to General Electric in-
are Pratt & Whitney, Rolls-Royce, JAEC, and (Bundeswehr). Today MTU’s J79-related dustrial gas turbines, which are derived from
MTU Aero Engines. activities concentrate on maintenance. aircraft engines. Examples are the LM5000
based on the CF6-50 and the LM6000 based
IFRS JAEC on the CF6-80.
IFRS is the abbreviation for international fi- Japanese Aero Engines Corporation (JAEC) is
nancial reporting standards, which are based a joint venture in which Kawasaki, Mitsubishi, LM2500
on Anglo-American balance sheet principles. and Ishikawajima Harima have pooled their The LM2500, an industrial gas turbine manu-
Part VI – Appendix
engine activities in conjunction with their factured by General Electric, derives from
Intermediate-Pressure Compressor participation in IAE, the international V2500 the CF6-6 aircraft engine. It is maintained by
See Intermediate-Pressure Turbine. engine consortium. MTU Maintenance Berlin-Brandenburg.
145
Part VI – Appendix
146
Subsystem
The overall engine is made up of a number
of subsystems. They include the high-pressure
and low-pressure compressors, combustor,
high-pressure and low-pressure turbines,
and the control system.
TP400-D6
The TP400-D6, a military turboprop engine,
is intended to power the A400M military
transport. MTU is responsible for the inter-
mediate shaft with intermediate-pressure Turbomeca
Risk and Revenue Sharing compressor and turbine and parts of the Turbomeca is a subsidiary of the Snecma
When an engine manufacturer – for example, control system. Furthermore, final assembly Group, which specializes in helicopter en-
MTU Aero Engines – participates in a pro- and testing of all TP400-D6 engines manu- gines. It is a partner in the MTR390 program.
gram as a risk-and-revenue-sharing partner, factured in Europe are being performed
it bears all risks of the overall program for exclusively at MTU Maintenance Berlin- V2500
its percentage share – not just for the parts Brandenburg. The V2500, a two-spool turbofan engine for
of its workshare. In compensation, it also short- and medium-haul aircraft, is used
receives the same percentage share of pro- Turbine on the Airbus A319, A320, and A321 as well
fits from sales. In the turbine, the energy contained in the as the Boeing/McDonnell Douglas MD90.
gases emitted from the combustor at high MTU is responsible for the complete low-
Rolls-Royce pressures and high velocity is converted into pressure turbine. The current annual
Next to General Electric and Pratt & Whitney, mechanical energy. Like the compressor, the production rate of this engine type is 250
the British company Rolls-Royce is the world’s turbine is divided into two parts: the high- to 300 units. The maintenance business is
third large engine manufacturer. pressure and low-pressure sections. The tur- becoming increasingly important for the
bine is connected directly to the correspon- V2500.
Snecma Moteurs ding compressor via the respective shaft.
Snecma Moteurs – now part of the French The turbine has to withstand substantially Working Capital
SAFRAN Group – is the French engine higher stresses than the compressor, being The working capital is the difference
manufacturer. In the commercial area, it exposed to high gas temperatures and addi- between current assets (not counting liquid
Part VI – Appendix
cooperates closely with General Electric; in tionally to extreme centrifugal forces that assets and securities) and short-term liabili-
the military area, Snecma acts as an OEM, tear at the outer rim of the turbine disks with ties (not counting bank loans). It is a para-
for example for the M88 engine. a force of several tons. meter for monitoring changes in liquidity.
147
Part VI – Appendix
Contacts
Corporate Communications
Michael Hauger
Director Corporate Communications
Telephone: ++ [49] (89) 14 89-91 13
Fax: ++ [49] (89) 14 89-9 60 66
E-mail: Michael.Hauger@muc.mtu.de
Investor Relations
Inka Koljonen
Director Investor Relations The addresses of MTU’s subsidiaries, joint
Telephone: ++ [49] (89) 14 89-83 13 ventures and program coordination and
Fax: ++ [49] (89) 14 89-9 50 62 management companies in Germany and
E-mail: Inka.Koljonen@muc.mtu.de abroad can be found on the Internet at
http://www.mtu.de.
MTU Aero Engines Holding AG
Dachauer Straße 665 This Annual Report of MTU Aero Engines
80995 Munich, Germany Holding AG is available in printed form in
Telephone: ++ [49] (89) 1489 0 German and English. We would be happy to
Fax: ++ [49] (89) 1489 5500 send you copies of the Annual Report.
E-mail: info@muc.mtu.de The report is also available on the Internet
http://www.mtu.de in German and English.
148
Financial Calendar 2006
Military Engines
EJ200 Two-spool turbofan engine with Engine for the Eurofighter/
afterburner in the 90 kN thrust class. Typhoon 2000.
RB199 Three-spool turbofan engine with
afterburner and thrust reverser in
the 70 – 80 kN thrust range. Engine for the Panavia Tornado
J79 Single-shaft turbojet engine with after-
burner in the 70 – 80 kN thrust range. Engine for the F-4 Phantom.
Larzac04 Two-spool turbofan engine in
the 14 kN thrust class. Engine for the Alpha Jet.
TP400-D6 Three-spool engine with a power
output of 8000 kW. Engine for the Airbus A400M.
Tyne Turboprop engine in the Engine for the Breguet Atlantic,
3955 – 4224 kW power range. Transall C160, und Short Belfast.
T64 Turboshaft engine with free power turbine Engine for the
in the 3000 kW power class. Sikorsky CH-53G helicopter.
MTR390 / MTR390 Enhanced Turboshaft engine with free power turbine
in the 950 kW power class. Engine for the helicopter Tiger.
RR250-C20 Turboshaft engine with free power turbine Engine for the helicopters PAH1,
in the 310 – 340 kW power range. Bo105, and others.
GER 03/06/MUC/05500/DC/EB/E