As the world’s fifth-largest engine manufacturer, MTU is one of the big players in the industry. Germany’s Number One engine manufacturer develops and manufactures components and modules for commercial and military engines and assembles complete engines. In the military engine arena, MTU is the national partner of the German Armed Forces (Bundeswehr). In addition, the company is the world’s largest independent provider of commercial engine maintenance services. Moreover, MTU uses its know-how from engine construction in the industrial gasturbine business.

Commercial Engine Business – the Growth Driver

MTU derives the major part of its sales from the development and production of commercial engine components and modules in all thrust classes. In the commercial new engine business – including spare parts – the company is an important market participant: Almost every third commercial aircraft has MTU modules and components onboard. Technologically, MTU’s low-pressure turbines and high-pressure compressors are worldclass. In the commercial new engine business, MTU cooperates with the Who’s Who in engine manufacture, its most important partners being Pratt & Whitney, General Electric, and Rolls-Royce. MTU maintains close links with each partner through cooperative ventures.

In the year 2005, the development activities in the commercial engine business concentrated on the two most important future programs: the GP7000, the engine for the mega-Airbus A380, and the PW6000, the engine for the single-aisle Airbus A318.

MTU holds major stakes in both engine programs: In the GP7000, it holds a 22.5% share as a risk-and-revenue-sharing partner and in the PW6000 it has a total 33% share in the program. Today these program workshares do not yet reflect in the sales figures; over the mid-to-long-term, however, they will represent an important volume of business.

In addition to the manufacturing business, the production of spare parts is the second essential revenue generator in the commercial engine business. MTU produces spare parts for all modules in which it is involved as a partner. An important role is played by the high-pressure turbine of the CF6 engine, which powers Airbus and Boeing mid- and long-haul aircraft, and the low-pressure turbine of the V2500 engine, the preferred engine for the Airbus A320 family of aircraft. As a risk-and-revenue-sharing partner in a total of ten commercial engine-family programs, MTU also profits pro-rata from the sale of spare parts.

The commercial engine business will profit from an aviation market that will continue to grow. Experts predict an average long-term annual growth in passenger kilometers flown of more than 5%, they estimate the market for new engines in the next 20 years at over 40,000.

GP7000: Most Important Commercial Engine of the Future

The GP7000 is the most important future commercial program for MTU. The engine to power the Airbus A380 is the first engine to be developed and built jointly by Pratt & Whitney and General Electric. MTU delivers the low-pressure turbine and the turbinecenter frame and is also involved in the production of the high-pressure turbine. With its risk-and-revenue-sharing stake of 22.5%, it is the third-largest partner in the program. The GP7000 has developed into the preferred engine for the Airbus megaliner:
by the end of 2005, more than half of all engines ordered were GP7000s. In late 2004, the GP7000 successfully completed its first test flight on the wing of a Boeing 747. In December 2005, it received FAA certification and in the spring of 2006, it is scheduled to begin flight testing on the A380.

MTU employs about 300 people in both the development and the production of the GP7000. The program also creates about 1000 additional highly qualified jobs among suppliers.

PW6000: MTU Cracking the High-Pressure Compressor Market

With the high-pressure compressor it developed for the PW6000, the engine for the single-aisle Airbus A318, MTU for the first time launched a compressor on a commercial core engine, allowing the company to penetrate a tough-to-crack market – a success of strategic significance. In addition to the compressor, it is also contributes the low pressure turbine. Final assembly of all engines is performed exclusively at MTU Maintenance Hannover, which received PW6000 production organization approval in August 2005.

The total program share of about 33 % is the biggest workshare MTU has ever had in a commercial jet engine. In November 2004, the PW6000 was approved by the US aviation authority FAA and won its first customer in August 2005, LAN Airlines, Chile. Volume production begins in 2006.

Bestseller V2500

The International Aero Engines (IAE) consortium’s V2500 engine which powers the Airbus A320 family, has developed into a best-selling engine: More than 5,000 orders and options have already been recorded in the order books; about half of the engines on order have already been delivered. This “green engine”, as it is called by experts because of its particular environmental friendliness, is especially popular in the Asia-Pacific region, which has seen a real boom for the V2500 in recent years. To meet customer requirements even better, IAE has launched the “V2500 Select” engine upgrade and aftermarket support program. Among other things, it provides for longer maintenance intervals. MTU, which is a co-founder of the IAE consortium, is the world’s leading provider of maintenance services for the V2500.

PW300/PW500: Power for Business Jets

MTU also provides plenty of thrust for business jets: The German industry leader is participating in the PW300 and PW500 engine families, which have found homeson small, mid-size and large business jets. For the Pratt & Whitney Canada engines, MTU develops and manufactures the lowpressure turbine including the turbine exitcase and the mixer; it holds a 25% share each in the PW300 and PW500.

The engines are used on aircraft such as the Learjet 60, Cessna aircraft, the Gulfstream G200, and the new Dassault Falcon 7X. The latter is powered by three PW307 engines. The design concept of the PW307 is based on the proven PW306, however, it offers more thrust, provides improved efficiency, and burns less fuel. MTU’s share is 15%. The PW307 was certified in April 2005, and the first flight on the Falcon 7X followed a few weeks later. Flight testing will continue until early 2007. MTU expects a total market of up to 320 aircraft and up to 1,000 engines, including spare engines.

The total business jet market promises good growth rates: In the year 2005, sales rose by 27%. The market for aircraft powered by PWC engines in which MTU holds a stake even grew by 43%.

Military Engine Business: Technological Pace-Setter’s Business

As technological pace-setters, military engines are another mainstay of MTU: The company develops highly advanced modules and components, including turbines, compressors, control and monitoring systems, and innovative manufacturing and repair processes.

In the military arena, MTU has for decades been the national market leader: As the German lead company for nearly all aircraftengines flown by the German Armed Forces (Bundeswehr), it provides enabling technologies, develops and manufactures engines and components, overhauls them, provides technical-logistic support for its products, and trains military and civilian employees of the armed forces.

As the German partner in the European engine programs, the Munich-based company cooperates with the European engine manufacturers. Looking back on more than 30 years in the business, MTU has positioned itself as a reliable partner of choice, contributing key components to the most important military engine programs in Europe. Beyond the borders of its home market, it benefits from export sales under the European military programs.

Major Military Programs in the Years Ahead

The most important military programs in the years ahead are the EJ200 for the Eurofighter, the TP400-D6 for the Airbus A400M military transport, and the MTR390 for the Tiger attack-escort helicopter.

Worldwide the EJ200 is considered the most advanced engine in its class. MTU is developing and producing the Eurofighter engine jointly with Avio, ITP, and Rolls-Royce. Its share is 33% in development and 30% in production. The company provides the low-pressure and high-pressure compressors, the electronic engine control system, and is responsible for engine assembly and testing of the engines operated by the German armed forces. Production contracts are placed for three tranches; currently, production is ramping up for Tranche 2 deliveries.

Under the Tranche 2 contract, MTU will produce 147 complete engines for the German Air Force (Luftwaffe). Furthermore, by 2012, it will produce a total of 519 low-pressure and high-pressure compressor modules and 519 digital control and monitoring units, which will be installed in the engines operated in Germany and in the other participating nations. The engines of the second tranche will be fitted with a new engine control and monitoring unit, the so-called DECMU (digital engine control and monitoring unit), for which MTU has system design responsibility. The DECMU combines control and monitoring functions in a single unit and is more flexible and less costly than the two systems previously required. The new control unit is designed in such a way that it readily accommodates future engine modifications. The first engines of Tranche 2 will be delivered in the spring of 2007.

In the meantime there are first export wins: Austria has ordered 18 Eurofighters. Intensive sales negotiations are under way with other European and non-European countries.

With the Cooperative Model of joint industry-military maintenance for the EJ200 engine the Bundeswehr and MTU are blazing new trails: The EJ200 engines will now be maintained at a single site – MTU. That pools there sources, limits storage capacity requirements, and ensures short cycle times. The personnel of the partner, the Luftwaffe, will remain involved in the overall process. Starting in 2006, the Cooperative Model will be extended to other important Luftwaffe engines as well to include the RB199 (Tornado), J79 (Phantom), and the RR250-C20 (Bo-105 helicopter) engines.

The TP400-D6 is the engine to power the A400M military transport, and, at 11,000 shp, it is the most powerful turboprop in the Western world. The work is being coordinated by Europrop International, or EPI for short. MTU participates in the consortium witha share of 28%; Snecma and Rolls-Royce plc. 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 development tests, the exclusive final assembly, and the acceptance tests for all production engines will be conducted. The facility’s newtest cell is the only one in Europe for this engine. It was completed in August 2005. In October, the engine successfully passed its first test run. The first flight of the A400M powered by TP400-D6 engines is slated for 2007.

First export orders have already been received for the A400M with the TP400-D6: South Africa has signed a contract for the purchase of eight A400M aircraft, and Malaysia for the purchase of four; Chile has issued a declaration of intent to buy three aircraft.

The MTR390 engine for the German-French Tiger support and anti-tank helicopter was developed in collaboration with Turbomeca and Rolls-Royce. The engine has since entered the production phase. 110 production engines had been delivered by the end of 2005. MTU’s activities in the MTR390 program concentrate on the technologically advanced core engine with the combustorand high-pressure turbine as well as a number of accessories.

The Tiger has already won some export customers: Australia has ordered 22 units and Spain 24. The Southern Europeans will be the first Tiger operators to receive the MTR390 Enhanced, a 14% uprated version which will be developed together with Spain’s ITP in the period from 2004 to 2008. The new model version will provide additional impetus to MTU’s export business.

Commercial Maintenance: Global Leader

The maintenance of commercial aircraft engines is one of MTU’s core competencies. In the commercial maintenance business, MTU is the world’s largest independent provider of engine maintenance services, with annual sales of €732 million ($911 million) in an overall annual volume of about $14 billion*. With its licenses, MTU covers about half ofthis market and enjoys above-averagegrowth. In the mid-term, MTU expects toincrease its annual sales in the maintenancebusiness to about €1 billion. AeroStrategyestimates the market development in thisperiod at an annual volume of about $17billion*.

MTU has pulled its repair, overhaul and maintenance activities together into a function that operates a network of maintenance shops: MTU Maintenance. The company and its subsidiaries have established a worldwide presence: In addition to the German locations in Hannover and Ludwigsfelde (Berlin-Brandenburg region), MTU also operates sites in Zhuhai (China), Vancouver (Canada), Kuala Lumpur (Malaysia), and Brazil. The technology is continuously shared among the subsidiaries. That ensures the same high standard of service worldwide. Major areas include the maintenance of engines in which MTU Aero Engines has a risk-and-revenue-sharing stake, for instance, the CF6, PW2000, or V2500.

MTU Maintenance is also becoming increasingly involved in programs that are not in MTU’s manufacturing portfolio, such as the CFM56 and CF34 engine families. The CFM56 family comprises five different models that equip the Airbus A320 twin-jet family, the long-haul A340 transports, and the standard and next-generation Boeing 737. With a backlog of nearly 14,000 orders from about 300 customers, the CFM56 is the hottest selling engine for commercial aircraft and thus an attractive market, in which MTU Maintenance is continuously increasing its share.

The CF34 is the best-selling engine in its class worldwide. Its main applications are business jets and regional jets with 50, 70, and 100 seats. Today the CF34 is frontrunner on 50-seaters. Bombardier’s and Embraer’s 70- and 100-seaters are also equipped exclusively with this engine. All of MTU’s maintenance activities for the CF34 have been pulled together at MTU Maintenance Berlin-Brandenburg. In the mid-term, MTU Maintenance expects to increase its annual sales in the commercial maintenance business worldwide to about €1 billion. That would be equivalent to a world market share of 6%.

The Maintenance Group wants to expand its portfolio step by step: the new Engine Pool Services have already been added. Airlines are provided with lease and spare engines of the most popular types wherever in the world they are needed. In addition to aircraft engines, MTU Maintenance also maintains industrial gas turbines, heavyweights in the portfolio being GE’s LM2500 and LM6000 series of IGT.

In the commercial maintenance business, the total contract volume as of December 2005 was worth about €3.1 billion. The largest new customer was JetBlue: An exclusive ten-year agreement was signed with the airline for the maintenance of its V2500 engines.

With a value of €750 million, the order is the largest in the history of MTU Maintenance. An agreement worth $300 million was concluded with Shanghai Airlines for the maintenance of PW2000 and CF34 engines. Other new contracts covered the maintenance of CF34-8 engines for Hong Kong Express and of CFM56 engines for the B737 fleet of the Brazilian low cost carrier GOL.

* commercial engines for 35-plus seaters