The global economy was still expanding in the early part of the past year, with the main agents of growth being countries outside the OECD. Then the credit market crisis in the United States started to spread to the rest of the world, sending shock waves around the globe from September 2008 onwards. The resulting heavy economic turbulence had a significant impact on international economic growth rates, pulling them down from 3.7 % in 2007 to 2.4 % in the 2008 business year. The regions most affected by this trend were North America (1.1 %) and Western Europe (1.1 %), whose economies henceforth threatened to slide into a recession. The crisis also weakened international trade in goods and services, resulting in growth rates in the developed economic regions that lay 50 % below the expected levels. Whereas trade had been growing at a rate of 4.9 % in 2007, it fell to 2.5 % in 2008.

The euro/U.S. dollar exchange rate, which is of major importance to MTU Aero Engines’ business as an export company in the aerospace sector, passed from 1.4721 to 1.5990 in the first half of the year (national central bank fixing July 15, 2008), before finally settling at a year-end closing rate of 1.3917.

Crude oil prices followed a similar course (WTI standard in U.S. $ per barrel). After reaching a peak of 147 U.S. dollars per barrel in mid-year, the closing price at the end of the year lay in the region of 40 U.S. dollars per barrel, resulting in a record annual average of 100 U.S. dollars per barrel. Expenditure on fuel represents the highest single item in the operating costs of MTU’s customers – the airlines.

International air traffic, in terms of revenue passenger kilometers (RPKs), increased in 2008 by no more than 1.6 %. This was in line with expectations, based on global industry growth rates. Favorable conditions in the regions of Asia and North America, in particular, helped to produce an average growth rate of 5.4 % in the first half of the year, but growth was considerably weakened in the second half of the year as the financial crisis subsequently spread throughout the world. Growth in the international volume of air freight lost impetus over the course of the year, closing at a level 4 % below that achieved in 2007. It should be noted, however, that freighters represent no more than 10% of the worldwide fleet of aircraft.

Rising fuel costs led to heavy losses of revenue for the airlines, many of which were forced to declare bankruptcy, especially in the United States. This also resulted in an increased consolidation of the market. In order to reduce costs and maintain capacity utilization levels, airlines around the world announced fleet reduction measures that would permit them to continue operations. Altogether, the planned economy measures involve taking around 700 to 800 Airbus and Boeing passenger airliners out of service, or 4-5 % of the world’s entire fleet. Of these, the majority of the more recent models are likely to resume service as soon as the market regains momentum, and many of the older models have a strong chance of being able to find a new use in the air freight market. However, given that the engines employed by these aircraft represent only 2-3 % of MTU’s commercial OEM revenues, the overall impact of this market situation on MTU’s revenues is likely to be relatively modest.

The dramatic fall in fuel prices in the second half of the year combined with the capacity reductions that became effective in the fourth quarter have had a limited effect on the airlines. Nevertheless, IATA estimates that airlines around the world will be faced with a total loss of 5.2 billion U.S. dollars.

Airbus and Boeing together delivered approximately 850 new aircraft in the early part of the year, thus failing to meet the predictions announced at the beginning of the year for deliveries of passenger aircraft, where a record of around 950 to 1000 units had been expected. In 2008, the two manufacturers fell short of their 2007 performance of 896 delivered aircraft by a modest 5 %. MTU has ramped up the volume production of engines for widebody aircraft, given that its best-selling model, the V2500, is used to power the Airbus A320 family of aircraft.

Airbus and Boeing order books stood at record levels at the end of 2008, with more than 7,000 firm orders. This represents an increase of almost 10 % with respect to the previous record achieved in 2007. The associated workload corresponds to the production output of 7 to 8 years. Fifty percent of these machines are scheduled for delivery in the period 2009 to 2011. The relative difference between order backlog and annual production output is less significant than during the last economic crisis, when deliveries of 3,000 aircraft had been promised up to the end of 2001 at a time when the total production capacity of Boeing and Airbus stood at 800 aircraft per year. Since then, the total size of the aircraft fleet, the main factor in the spare parts business, has risen by between 7,000 and 8,000 units.

The fundamental, driving factor in the aerospace industry is economic growth, which started to weaken in 2008. The resulting reversal of growth in the number of air passengers had a particularly negative impact on the airlines’ earnings situation, which was compromised by the high price of fuel in the first six months of 2008. These circumstances had no effect on the production figures for completion of new aircraft. Alone the strike called by Boeing staff prevented deliveries in 2008 from reaching a higher level. And the lower volume of air traffic in 2008 has not yet had any effect on the maintenance and spare parts business. Contrary to their effect on general economic growth, the price of crude oil and airline tickets had a positive impact on the aviation industry in terms of year-end results. MTU additionally benefited from the renewed strength of the U.S. dollar with respect to the euro and from the high levels of fleet capacity and orders.