Experts predict that the world economy will lose a great deal of impetus in 2009. The crisis affecting the financial markets will slow down economic development. After having seen the world economy growing at a rate of 2.2 % in 2008, experts at the Economist Intelligence Unit (EIU) now expect it to regress by 1.9 % in 2009. This means that the world economy would be going through a period of recession.

The industrialized nations are already in the grip of a severe recession, despite the stimulating factor of low commodity prices. The crisis affecting the housing market in the United States is persisting, and the problems of the financial markets are spreading their effect to industry, as the weakening labor market indicates. The euro area continues to struggle against numerous adversities, including scarce funding resources, the strength of the euro, and the beginnings of a property market crisis in Spain, Ireland and the UK. The developing countries of the world will, of course, also be affected by the turbulence in the banking sector and the decreasing volumes of trade. Eastern Europe will also suffer, whereas Latin America is likely to be less vulnerable thanks to the structural improvements that have been made in recent years. The region continuing to make a substantial contribution to the growth of the global economy will be the dynamic economies of Asia.

While the International Monetary Fund (IMF) takes a less dramatic view of the developing situation than the Economist Intelligence Unit (EIU), neither expect to see any improvement before 2010. The many complex factors that play a role in the crisis make it extremely difficult to assess which way the economy will go from now on. But given that the risk of inflation appears to have been banished and that oil prices are expected to remain at an equivalent level to 2004/2005, there is great optimism in business and industrial circles that the generous economic stimulus packages being launched in the industrialized nations will have a positive impact and soon help to bring about a recovery.

IATA anticipates a significant weakening of the aviation market in 2009, as the January statistics already indicate – passenger traffic down by 5.6 % and freight traffic down by 23.2 % compared with the same month a year earlier. For 2009 as a whole, the volume of passenger traffic is expected to reduce by more than 3 % and freight traffic by more than 5%. The airlines may have to face even greater losses, despite the preventive measures already being implemented to optimize fleet and capacity utilization, reduce costs on a sustainable basis, and stabilize the price of air tickets at the present internationally relatively high level.

Airlines and leasing companies are finding it much more difficult than in previous years to obtain the funds they need to purchase aircraft. This is likely to result in a considerable number of orders scheduled for delivery in 2009 and 2010 being postponed to a later date, and an increase in the number of customers canceling orders or failing to exercise options.

Despite the many adverse market factors, Airbus and Boeing reported their fourth-best-ever volume of orders in 2008. Although the level of orders is expected to fall significantly in 2009, order backlogs are sufficiently high to keep the manufacturers busy until well beyond the predicted end of the crisis. Production rates at Airbus and Boeing in 2009 are likely to remain at roughly the same level as in 2008.

The situation is much worse for manufacturers of business jets. The financial and economic crisis is forcing them to cut back production rates to well below their previous levels, and many have already announced job cuts.

MTU forms part of risk- and revenue-sharing partnerships with the world’s top engine manufacturers and is the largest independent provider of maintenance services for commercial aircraft. The company is therefore inevitably exposed to all changes taking place in the global air transportation sector. Nevertheless, thanks to a business model with activities covering the entire lifecycle of commercial and military aero engines, MTU is well positioned to claim a substantial share of the market even in difficult times.

It is difficult to assess the possible effects of the global financial and economic crisis. The statements below are based on the knowledge available at the beginning of 2009 and possess a significantly higher degree of uncertainty than forecasts made in previous years. Under these circumstances, it is not possible to make any concrete predictions extending beyond the horizon of 2009.

The company does not intend to make any fundamental changes to its business strategy in the years ahead.

In 2008, MTU joined several new engine programs that will account for a predominant share of revenues in the decades to come. The company estimates the market volume of these engine programs. programs to be worth a total of approximately € 30 billion over their entire projected life time. These programs are: The PW810 engine for heavy business jets, the PW1217G geared turbofan engine for the new Mitsubishi Regional Jet and the PW1524G for the Bombardier CSeries, the GE38 engine for heavy-lift helicopters, and the GEnx program for the Boeing 787 and 747-8. MTU is also partnering General Electric on two versions of its LM6000 industrial gas turbine.

In view of the level of existing orders retained by the market, MTU expects revenues to reach approximately € 2,800 million in the financial year 2009.

The revenue forecasts for the commercial and military engine business (OEM) and the commercial maintenance business (MRO) in the financial year 2009 are based on the following assumptions:

• After adjustments to eliminate the effect of the U.S. dollar exchange rate, MTU expects revenues from the volume production of commercial engines to decrease slightly, predominantly as a result of lower production rates in the business jet sector and in spare parts for commercial engines, owing to negative market trends.
   
• In 2009, the military side of the OEM business can expect to generate revenues of a similar magnitude to those in 2008.
   
• Revenues in the commercial maintenance business are expected to remain constant in 2009, excluding the effect of the U.S. dollar exchange rate.

MTU expects its profitability to remain at a consistently high level in 2009, with an EBIT margin (adjusted) in the region of 10 %. The estimated roughly 2 % lower margin compared with 2008 is mainly a consequence of lower sales of spare parts for commercial engines, increased investments in new engine programs, and the startup phase of the new site in Poland, offset by improved earnings in the MRO business. There is a risk of failing to meet the set EBIT target if the U.S. dollar exchange rate and the general economic climate continue to deteriorate.

Starting in the financial year 2009, the group intends to use EBIT (adjusted) as a measure of operating profitability (instead of EBITDA adjusted in prior periods up to December 31, 2008), to enable results to be more easily compared with members of its peer group and other capital-market-oriented companies. In the reconciliation table, depreciation and amortization expenses arising principally from the company’s acquisition by Kohlberg Kravis Roberts & Co. (KKR) from DaimlerChrysler AG are added to EBIT and adjusted for nonrecurring items (EBIT adjusted).

In view of the planned forward-looking investments, MTU expects a reduced net profit in 2009 of around € 140 million. Other factors that might substantially change this projected result, apart from those with a direct impact on operating profit, include unpredictable events affecting the financial result, in particular the high volatility of the U.S. dollar exchange rate and changes in the fair value of forward commodity sales contracts.

Every year since the MTU share was accepted for trading on the Frankfurt stock exchange on June 6, 2005, the company has paid a dividend to its shareholders. The dividend for the financial year 2005 amounted to € 0.73 per share. In subsequent years, the dividend per share increased progressively to € 0.83 for 2006 and € 0.93 for 2007 and 2008.

In the years to come, MTU will continue to apply a policy of continuity in the level of its dividend payments based on the generation of profit. Investors can always expect the MTU share to yield a substantial return. Consequently, future dividend payments will follow the progression of the group’s net profit, based on the German Commercial Code’s interpretation of net profit available for distribution.

There will be no significant change in the structure of MTU’s funding resources in 2009. The company will be able to cover its financing needs through cash flow for many years to come – both for current operations and for essential items of capital expenditure such as the expansion of the plant in Poland or research and development costs in connection with the GTF and GEnx programs. Despite increased research and development expenses, MTU expects free cash flow to remain within the range of € 80 million to € 100 million in 2009. Moreover, the company’s existing lines of credit and authorized capital provide a further, not yet utilized source of flexible funding options.

No material changes to the legal structure of the group are being considered at the present time.

Notwithstanding the recruitment of new staff for MTU Aero Engines Polska and the creation of additional engineering posts to meet the development capacity needs of the new engine programs, MTU expects the total number of employees to remain more or less constant in the financial year 2009.

The current decline in the volume of air traffic has not yet had any serious repercussions on MTU’s business activities. So far, the spare parts business has remained relatively stable. The temporary withdrawal of aircraft from service has affected MTU to a lesser extent than other industry players, thanks to the modernity of its engine portfolio. The older engine models that are most severely affected by airline fleet economy measures only account for a minor, single-digit percentage of MTU’s revenues in the commercial engine business. At the present time, the percentage of parked aircraft powered by engines belonging to MTU’s portfolio lies several points below the industry average.

The global aviation market is expected to enter a new growth phase after the end of the worldwide recession. This will be accompanied by a greater emphasis on more fuel-efficient and quieter engines. The geared turbofan and a considerable number of other innovations place MTU in an excellent position in this context.

The MRO business will be able to seize new opportunities arising from the growth of air traffic in the newly industrialized nations and from the tendency of airlines to narrow their focus onto their core business, a trend that will lead to wider-scale outsourcing of maintenance activities. MTU will be able to benefit from this trend in the coming years as the world’s largest independent provider of commercial maintenance services.

MTU’s technological edge and solid funding basis promise to open the way to additional stakes in new engine development programs in the years to come.

In the financial year 2008, the strength of the euro inhibited the growth of MTU’s revenues. An improvement in the exchange rate parity between the euro and the U.S. dollar would lead to a modest improvement in MTU’s earnings situation. If energy prices were to stabilize or even retreat to a lower level, and if commodity prices were to fall, this would have a positive effect on MTU’s cost structure and hence on its business results.

Even under the present austere economic climate, MTU has identified opportunities that will enable the company to expand its business.

Despite the present difficulties facing the economy in general, MTU is optimistic that it will be able to profitably expand its business activities. The recently concluded partnership agreements will be a major contributory factor, in addition to the ongoing programs, despite the considerable short-term up-front investments that they require. Stable earnings from military contracts and anticipated improvements in the MRO sector will help to reinforce this positive trend. Consequently, MTU expects free cash flow and earnings to remain at a correspondingly high level, enabling the company to offer the prospects of an attractive dividend yield to its shareholders.