On May 19, 2005, MTU Aero Engines Erste Holding GmbH was converted into MTU Aero Engines Holding AG and became a public company. At the time of conversion, MTU Aero Engines Erste Holding GmbH already had a Supervisory Board formed pursuant to the German Codetermination Act. In accordance with the Conversion Act, this body remained in place after the conversion.

The Supervisory Board kept itself continuously up-to-date on business developments and the situation of the company during the financial year 2005. In addition, it oversaw the work of the Board of Management. Each month, the Board of Management presented comprehensive written information on the status of MTU’s assets, the financial and earnings situation and important business events to the members of the Supervisory Board. The Supervisory Board discussed core strategic questions with the Board of Management and, after careful consideration and examination, endorsed the corresponding strategic orientation of MTU. The Supervisory Board reviewed all business activities subject to approval according to statutory requirements, the Articles of Association or the Management Board’s rules of procedure; the Supervisory Board discussed these matters with the Board of Management and endorsed them without exception.

Meetings of the Supervisory Board

During the financial year 2005, five Supervisory Board meetings and two teleconferences were held in which resolutions were adopted. One resolution was adopted through a written circulation procedure. All Supervisory Board members participated in more than half of the meetings. In addition, the Chairman of the Supervisory Board was regularly updated on the company’s current situation and of significant business transactions.

In its meetings and teleconferences, the Supervisory Board, along with the Board of Management, dealt extensively with business developments involving MTU and its associated companies, the market situation in general, MTU’s competitive position, the repayment of credits from group companies, the development of the dollar exchange rate and hedging measures. It was informed of MTU’s risk management system and of measures taken for protection against risk.

The Supervisory Board was informed in detail on the status of current engine programs, 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 ”V2500 Select“ program (Airbus A320). The Supervisory Board also extensively dealt with the Cooperative Model before the contract was signed. This model provides for a new and closer partnership between MTU Aero Engines and the Bundeswehr (German armed forces). As regards the group companies, the Supervisory Board was kept informed in particular detail on the situation of the US subsidiary, MTU Aero Engines North America Inc., as well as on the sale of ATENA Engineering GmbH.

Prior to the IPO, the Supervisory Board examined the proposed restructuring into a stock corporation by conferring closely with the Board of Management while providing guidance during preparations for taking the company public and approving the share issue price. The Supervisory Board was thoroughly involved in all matters relating to Corporate Governance and also examined the efficiency of its own activities. In the joint declaration with the Board of Management of December 13, 2005 in accordance with Section 161 of the German Stock Corporation Law (AktG) the Supervisory Board declared that MTU Aero Engines Holding AG fully complies with the recommendations of the Code, with three exceptions. The complete declaration is available on the company’s website.

Committee meetings

The Supervisory Board has formed three committees with parity representation: the Audit and Finance Committee, the Personnel Committee, and pursuant to Section 27 Paragraph 3 of the German Codetermination Act the Mediation Committee. The latter did not have to convene during the year under review. Members of the Personnel Committee during the year under review were: Johannes Huth, Günter Sroka, Harald Flassbeck and Reinhard Gorenflos, who served until December 31, 2005. The Personnel Committee convened twice in the past financial year and dealt with Board of Management personnel matters, in particular the amount of compensations and the results of the efficiency audit. The Audit and Finance Committee came together three times during the financial year 2005. Members in 2005 were Babette Haas, Johannes Huth, Günter Sroka and Reinhard Gorenflos (until December 31, 2005). The Audit and Finance Committee focused its activities on the annual financial statements for MTU Aero Engines Erste Holding GmbH, which it recommended to the Shareholders’ Meeting for approval. An additional focal point was the consolidated financial statements for MTU Aero Engines Erste Holding GmbH, which the committee reviewed and recommended for approval by the Supervisory Board. Auditors were involved in the discussions on both the annual accounts and consolidated financial statements. Other activities included the further development of the risk management system and the areas to be examined in the 2005 internal audit. In addition, the committee identified the focus for 2005 financial statement audit.

Review of the annual financial statements and approval of the consolidated financial statements

MTU Aero Engine Holding AG’s annual financial statements, the consolidated financial statements as well as the management report and group management report for the financial year 2005 were audited and fully certified by independent auditor from Deloitte & Touche of Munich, whose selection was approved during the Shareholders’ Meeting. The audit reports as well as the documents to be audited were distributed to each member of the Supervisory Board in a timely manner. Based on the results of the pre-audit by the Audit and Finance Committee, which the chairman of the Audit and Finance Committee presented to the Supervisory Board, the Supervisory Board thoroughly reviewed the consolidated financial statements, the management report and the group management report for MTU Aero Engines Holding AG for fiscal 2005, as well as the recommendation of the Board of Management for appropriation of the year’s net profit. The auditor also attended the Audit and Finance Committee meeting on March 13, 2006 and in the balance sheet meeting of the Supervisory Board on March 22, 2006, and presented the most important results of his audit.

The final results of the Supervisory Board’s review of the annual financial statements, the consolidated financial statements, the management report, the group management report, and the recommendation for the appropriation of profits, did not give rise to any objections on the part of the Supervisory Board. The annual financial statements and management report presented by the company’s Board of Management for the financial year 2005 were approved by the Supervisory Board during its meeting on March 22, 2006. The Supervisory Board affirmed the recommendation of the Board of Management for the appropriation of the net profit for the year. The consolidated financial statements and group management report for MTU Aero Engines Holding AG for the financial year 2005, which were presented by the Board of Management, were approved by the Supervisory Board during its meeting on March 22, 2006.

Changes within the Supervisory Board

The following changes took place within the company’s Supervisory Board during the year under review: former CEO, Dr. Klaus Steffens, was named to the Supervisory Board in a resolution of the Shareholders’ Meeting of December 30, 2004. He succeeded Mr. Ned Gilhuly of Kohlberg Kravis Roberts & Co Ltd.. The Supervisory Board thanked Mr. Gilhuly for his valuable services during 2004.

Based on a proposal by the company, the Munich Register Court named Dr. Jürgen M. Geißinger, President and CEO of INA-Holding Schaeffler KG, Herzogenaurach, Germany, to the Supervisory Board of MTU Aero Engines Holding AG, effective October 4, 2005. Geißinger succeeded Oliver Haarmann of Kohlberg Kravis Roberts & Co. Ltd., who retired from the board as of October 1, 2005. The move came as a result of the change in MTU Aero Engines’ ownership structure in the wake of the company’s IPO. The Supervisory Board thanked Mr. Haarmann for his contribution during 2004 and 2005.

In 2006, Mr. Lewis R. Hughes was named to the Supervisory Board in a resolution of the Munich register court on January 27, 2006. He replaces Mr. Reinhard Gorenflos of Kohlberg Kravis Roberts & Co. Ltd.. The Supervisory Board thanked Mr. Gorenflos for his valuable assistance during 2004 and 2005.

In its meetings on December 13, 2005 and March 22, 2006, the supervisory board has appointed Dr. Rainer Martens to succeed Executive Vice President and COO Dr. Michael Süß, whose term of office expires in 2006, on the board of management. The appointment is for a three-year term, beginning on April 15, 2006. Dr. Martens will take over the responsibilities Dr. Süß, who resigns from his office effective April 30, 2006, has had in his role as chief operating officer. The supervisory board thanks Dr. Süß for the valuable services he has rendered to MTU.

The Supervisory Board sincerely thanks the Board of Management as well as all employees of MTU for their success and their committed efforts during the 2005 business year. The thanks of the Supervisory Board also go out to the shareholders who have placed their trust in MTU.

Munich, March 22, 2006

Johannes P. Huth
Chairman of the Supervisory Board