Annual report 2008

Unlike the consolidated financial statements, which are based on the IASB’s IFRS standards, the annual financial statements of MTU Aero Engines Holding AG are prepared in accordance with German Commercial Code (HGB) and German Stock Cooperation Act (AktG). The IFRS rules are also applied in the individual income statements where it is permissible and fitting to do so. In numerous cases, the accounting policies applied in the annual financial statements of MTU Aero Engines Holding AG, and those of the German subsidiaries whose profit/loss is transferred to MTU Aero Engines Holding AG (and whose financial statements are also prepared in accordance with the German Commercial Code), differ from the accounting policies applied in the consolidated financial statements.

The following reconciliation table therefore contains the major differences between the net profit of the group and the net profit available for distribution by MTU Aero Engines Holding AG:

In the reconciliation between IFRS and HGB statements, an adjustment is applied to group earnings, which include the profit and loss of the subsidiary, corresponding to the annual results of MTU Maintenance Berlin-Brandenburg GmbH, Ludwigsfelde, since a profit and loss transfer agreement between MTU Aero Engines GmbH, Munich and MTU Maintenance Berlin-Brandenburg GmbH was terminated in 2006.

Contrary to the provisions of the German Commercial Code (HGB), the international financial reporting standards (IFRS) prescribe the use of the percentage-of-completion (PoC) method under certain conditions when accounting for production contracts, whereby revenue and profits arising from a production contract are recognized in proportion to the stage of completion of the project. MTU satisfies the requirements for recognizing a proportion of the profits from certain of its engine projects, which must consequently be eliminated in the reconciliation between IFRS and HGB statements (further information on the relevant accounting policies is provided in Notes 5.8. and 24.).

The goodwill arising from the merger reported in the HGB balance sheet is subject to scheduled amortization over 15 years in accordance with Section 255 (4) of the German Commercial Code. In the reconciliation between IFRS and HGB statements, an adjustment is made to group earnings before tax (EBT), which does not include any amortization of goodwill (IAS 36), corresponding to the goodwill amortization expense in the HGB annual results.

The commercial MRO business has developed special repair processes capable of reducing the cost and increasing the efficiency of engine maintenance. The associated development costs, as well as those relating to development work on the GE 38 engine in the commercial and military engine business, meet the criteria for recognition of intangible assets laid down in the international financial reporting standards. By contrast, the German Commercial Code treats these as services for the company’s own account which are to be recognized as an expense.

Unlike for IFRS accounting purposes, treasury shares acquired by MTU Aero Engines Holding AG are required to be presented for German accounting (HGB) and tax purposes within current assets measured at their average acquisition cost. Such assets are required to be written down to their „fair value“ (for HGB purposes) or their „Teilwert“ (for tax purposes) if lower at the end of the reporting period. Since MTU Aero EnginesHolding AG is classified for tax purposes as a finance company, the write-down on treasury shares reduced taxable profit by € 36.9 million (2007: € 0.0 million). Refer to Note 30.6 for calculation of the average purchase price of treasury shares.

In 2008, employees purchased a total of 192,959 shares at a total price of € 4.9 million (€ 25.19 per share) from MTU under the terms of the employee stock option program. The average purchase price of the shares sold to group employees originally amounted to € 8.2 million. The loss arising from the difference between the proceeds of the sale and the original acquisition cost, amounting to € 3.3 million, was recognized in accordance with the applicable commercial laws and tax regulations.

The annual net profit of MTU Aero Engines Holding AG, as reported in the annual financial statements drawn up in accordance with the German Commercial Code (HGB), amounts to € 69.0 million.

The subscribed capital was reduced by € 3.0 million as a result of the capital reduction due to the withdrawal of 3 million shares with a par value of € 1 each on March 18, 2008. The expense attributable to the withdrawal of the treasury shares led to a reduction in the reserve for treasury shares of € 104.4 million. In addition, € 8.2 million was withdrawn from the reserve for treasury shares and transferred to other revenue reserves to cover the shares issued to group employees under the MAP employee stock option program.

The treasury shares purchased in 2008 amounting to € 56.4 million were allocated to the reserve for treasury shares.

The allocations to other revenue reserves amounting to € 31.8 million include € 23.6 million representing to the remaining net profit of MTU Aero Engines Holding AG after the proposed dividend payment for the financial year 2008, and € 8.2 million representing the issue of shares to group employees under the MAP employee stock option program. The net profit available for distribution thus amounts to € 45.4 million (2007: € 47.2 million).

At the Annual General Meeting on May 26, 2009, the Board of Management and Supervisory Board of MTU Aero Engines Holding AG will recommend that a dividend of € 0.93 (2007: € 0.93) per share be distributed for the financial year 2008. For the 48,770,945 shares entitled to a dividend the dividend payment amounts to € 45.4 million. Based on the quoted share price at the close of 2008, this is equivalent to a dividend yield of 4.7 % (2007: 2.3 %).

Pending approval by the Annual General Meeting, the dividend is to be paid on May 27, 2009.

The annual financial statements of MTU Aero Engines Holding AG, which were granted an unqualified audit certificate by Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, Munich, are published in the Electronic Federal Gazette (elektronischer Bundesanzeiger). Print copies can be obtained on request from MTU Aero Engines Holding AG, 80995 Munich, Germany.

The declaration of conformity by the Board of Management and Supervisory Board of MTU Aero Engines Holding AG pursuant to Section 161 of the German Stock Corporation Act (AktG) is published in the MTU Annual Report 2008 and also permanently available to shareholders on the MTU website at www.mtu.de.