The management and supervisory boards of listed companies issue an annually renewed declaration stating that the recommendations of the Government Commission on the German Corporate Governance Code have been and are being complied with, if necessary citing those recommendations that have not been or are not being applied. This declaration must be permanently accessible to the public.

The Board of Management and the Supervisory Board of MTU Aero Engines issued the following declaration in December 2009:

Declaration of conformity with the German Corporate Governance Code 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)

The Board of Management and the Supervisory Board of MTU Aero Engines Holding AG declare that the recommendations of the Government Commission on the German Corporate Governance Code, as published in the amended version of June 18, 2009 by the Federal Ministry of Justice in the official section of the electronic Federal Gazette, have been and are being complied with. The Board of Management and Supervisory Board of MTU Aero Engines Holding AG also intend to follow these recommendations in the future. The only elements of the German Corporate Governance Code where MTU deviates from the recommendations are the following:

1. Form and details of Supervisory Board compensation (Section 5.4.6 paragraph 2 of the Code)

The members of the Supervisory Board do not receive performance-related compensation. It is our considered view that a fixed compensation arrangement is appropriate and that compensation should not be linked to the company‘s performance. In our opinion, performance-based compensation is not suitable to furthering the control function exercised by the Supervisory Board.

2. D&O deductible (Section 3.8, paragraph 2 of the Code)

At the time that the amended version of the German Corporate Governance Code of June 18, 2009 was made public, i.e. on August 5, 2009, the company had already taken out D&O insurance cover for the members of its Board of Management and Supervisory Board that contained an appropriate deductible and thus complied with the previously valid Section 3.8 of the German Corporate Governance Code. The D&O insurance cover must be amended to comply with the new provisions within a certain transitional period. The company will amend this insurance in early 2010, i. e. within the stated transitional period, in order to comply with the new Section 3.8 of the German Corporate Governance Code and will agree a new deductible amounting to at least 10 % of the loss and up to at least 150 % of the fixed portion of the annual compensation of each board member.

3. Compensation of board members (Sections 4.2.2 and 4.2.3 of the Code)

At the time that the amended version of the German Corporate Governance Code of June 18, 2009 was made public, i.e. on August 5, 2009, the compensation paid to members of the Board of Management complied with the then valid Sections 4.2.2 and 4.2.3 of the German Corporate Governance Code. Since it is not customary to make ulterior amendments to board members‘ employment contracts once they have been signed, the company will, at the next opportunity, adjust the compensation paid to members of the Board of Management in accordance with the provisions of the German Act on the Appropriateness of Management Board Compensation (VorstAG) so as to comply with the new Sections 4.2.2 and 4.2.3 of the German Corporate Governance Code.

There is a section devoted to Corporate Governance on the MTU website at www.mtu.de under Investor Relations.

Assuming responsibility

MTU has always demonstrated a sense of responsibility in everything it does. The company assumes responsibility for the environment and society in the same way as it does in respect of its products, processes, employees, customers and partners. MTU is committed to sustainable development and has a long tradition of going above and beyond minimum legal requirements. The main areas in which this commitment is applied are environmental protection, human resources policy and community outreach projects in the neighborhood of MTU sites. The company’s commitments are described on the MTU website at www.mtu.deunder The company -> Sustainability, where descriptive documents are also available to the public. Reference is also made to Section 1.5. (Corporate responsibility).

Code of conduct

MTU strives for an open and constant dialog with many different target groups – among them shareholders, employees and unions, customers and suppliers, local residents, environmental interest groups and the media. The company communicates via the internet and intranet, brochures, flyers and employee and customer magazines. It also communicates directly with its target groups at events such as trade shows, exhibitions, open days and discussion forums. In so doing, MTU aims to generate broad public acceptance. A document describing MTU’s code of conduct can be downloaded from the company’s website at www.mtu.de under The company -> Sustainability -> Employees.

Quality spells safety

In aviation, where the smallest of mistakes may have catastrophic consequences, safety is a prime concern. MTU insists on the finest quality for its products and services. Quality spells safety, and safety is the first priority in the work of every MTU employee.

MTU strictly monitors compliance with its high quality standards at all times and across all levels of production and personnel. Its management system ensures the company observes all applicable legal and statutory regulations and clearly defines roles and responsibilities in the company. This enables MTU to promise its customers the same level of quality at any of the company’s locations worldwide. Compliance with quality requirements is verified by government agencies and through internal and external audits. Information on quality approvals and certifications is available on the MTU website at www.mtu.de under The company -> Quality.

The organization of the Board of Management and its members’ areas of responsibility are described in Section 1.2. (Group structure, locations and organization).

The Board of Management sets MTU‘s strategic direction, plans and establishes the company‘s budget, and monitors the individual business units. Its members are responsible for ensuring that an appropriate risk management and control system is in place. As a component of value-oriented corporate management, systematic risk management ensures that risks are identified at an early stage, analyzed and assessed, and that suitable measures are taken to minimize risk exposure. The Board of Management informs the Supervisory Board, in a timely manner and on a regular basis, of the company’s current situation, existing risks and their development and related risk management activities, strategic decisions and their implementation. The Supervisory Board receives monthly written reports on the company’s earnings, financial situation, and net asset position. Any deviations from the planned operational performance are explained in detail to the Supervisory Board.

Furthermore, the chairman of the Supervisory Board is regularly and immediately briefed on the company’s current situation, significant business transactions and important pending decisions.

The Board of Management reports regularly on compliance issues, i.e. on measures to comply with both legal requirements and internal company guidelines. Status reports are presented at the plenary meetings of the Supervisory Board in July and December and at the meetings of the Audit Committee in March and September when the internal auditors also present their report.

Important Board of Management decisions require the approval of the Supervisory Board, in particular concerning the budget. For further information on this topic, please refer to the Supervisory Board report on page 316.

The Board of Management’s rules of procedure listing the transactions by MTU Aero Engines Holding AG, Munich, requiring Supervisory Board approval can be viewed on the website at www.mtu.de under Investor Relations -> Corporate Governance.

In line with statutory requirements, the Supervisory Board comprises six shareholder representatives – in addition to the chairman, Klaus Eberhardt, these are currently Professor Wilhelm Bender, Dr. Jürgen M. Geißinger, Dr. Joachim Rauhut, Udo Stark and Professor Klaus Steffens - and six employee representatives – in addition to the deputy chairman, Josef Hillreiner, these are currently Babette Fröhlich, Michael Behé, Thomas Dautl, Rudolf Domberger and Michael Leppek.

The Supervisory Board regularly advises the Board of Management on the running of the company, oversees its work, and continually follows business developments and the situation of MTU. The Supervisory Board is informed and consulted in a direct and timely manner regarding all decisions of consequence for the company.

The Supervisory Board has formed four committees, three of which equally represent the workforce and the management of the company (the Audit Committee, the Personnel Committee and the Mediation Committee – the latter formed to comply with Section 27, paragraph 3 of the German Co-Determination Act). The fourth is the Nomination Committee, which has the task of proposing candidates for election as shareholder representatives. Its two members are also shareholder representatives, currently Klaus Eberhardt and Dr. Jürgen M. Geißinger. The Personnel Committee consists of Klaus Eberhardt, Dr. Jürgen M. Geißinger and the two workforce representatives Josef Hillreiner and Michael Leppek. The members of the Audit Committee are Dr. Joachim Rauhut, Klaus Eberhardt, Babette Fröhlich and Josef Hillreiner. The members of the Mediation Committee are identical with those of the Personnel Committee.

The Audit Committee monitors the financial reporting process, the efficacy of the company’s risk management system, its system of internal controls, and its internal auditing system, and also monitors the external auditor’s independence. Moreover, the Supervisory Board oversees the Board of Management’s compliance activities with the assistance of the Audit Committee.

The Personnel Committee prepares the ground for personnel decisions by the Supervisory Board, in particular the appointment and dismissal of members of the Board of Management and the nomination of its chairman, the company’s CEO. It also takes decisions relating to the conclusion, amendment and termination of employment contracts and pension agreements with members of the Board of Management. This does not affect the right of the plenary meeting to define amounts of compensation. The Personnel Committee moreover represents the company in dealings with members of the Board of Management, approves transactions between the company and individual members of the Board of Management as well as certain extramural activities by members of the Board of Management, and performs the Supervisory Board’s efficiency audit.

The Supervisory Board is briefed regularly on the work of its committees in its plenary meetings.

The Supervisory Board meets with the Board of Management to discuss strategy issues and all important projects. All transactions requiring the approval of the Supervisory Board according to statutory requirements, the company’s articles of association of the Board of Management’s rules of procedure are reviewed and discussed with the Board of Management prior to a decision.

The Supervisory Board’s rules of procedure can be viewed on the MTU website at www.mtu.deunder Investor Relations -> Corporate Governance.

The compensation awarded to members of the Board of Management is made up of fixed and variable components. A more detailed description, including a table of individual members’ compensation entitlements, can be found in the ‘Corporate governance’ section of this Annual Report. The management compensation report forms an integral part of the group management report.

Pursuant to Section 15a of the German Securities Trading Act (WpHG), members of the Board of Management and the Supervisory Board have a legal obligation to disclose transactions involving the purchase or sale of shares in MTU Aero Engines Holding AG, Munich, or related financial instruments, on condition that the total amount of the transactions undertaken by a board member or related persons reaches or exceeds € 5,000 within a single calendar year. This disclosure requirement applies equally to any other management staff with executive powers and to persons closely related to them. These transactions are posted on the MTU website at www.mtu.de and individually published in the register of companies.

The total number of shares in MTU Aero Engines Holding AG, Munich held by members of the company’s Board of Management and Supervisory Board at December 31, 2009 corresponded to less than 1 % (at December 31, 2008: less than 1 %).

The mandates of members of the Board of Management and Supervisory Board are included in the sections entitled ‘The Board of Management’ and ‘The Supervisory Board’ respectively. Information on related party transactions is provided in Note 45. to the consolidated financial statements (Relationships with related companies and persons).

The group has assets that are not included in the balance sheet. These mainly relate to certain leased or rented goods (under an operating lease). Further explanatory comments are provided in Note 43.4.1. to the consolidated financial statements (Obligations arising from operating lease arrangements). The most important intangible assets include the MTU brand, which has continually grown in strength in the year under review, and MTU’s portfolio of intellectual property rights containing around 900 patent families and serving to protect the company’s technology. More detailed information on MTU’s patent portfolio is provided in Section 1.4.4. (Protecting technology). Significant value can also be attributed to the company’s long-established and smoothly running relationships with partners in risk- and revenue-sharing partnerships with the world’s leading engine manufacturers Pratt & Whitney, General Electric and Rolls-Royce, and with Avio, Snecma Moteurs and Volvo Aero. One of their advantages is that they stabilize business developments and reduce entrepreneurial risks.

MTU thereby has access to the global market potential of the commercial engine business. Another advantage of these intensive collaborations is that they frequently give rise to mutually beneficial research and development projects in which know-how and development capacity are pooled.

MTU does not make use of off-balance-sheet financial instruments.

The following disclosures are made pursuant to Section 315 (4) of the German Commercial Code (HGB) (takeover directive implementation).

Composition of subscribed capital

The subscribed capital (capital stock) of MTU Aero Engines Holding AG is unchanged, and amounts to € 52.0 million, divided into 52.0 million registered non-par shares. All shares have equal rights and each share entitles the holder to one vote at the Annual General Meeting.

Restrictions concerning voting rights and the transfer of share ownership

At December 31, 2009, MTU held 3,078,192 treasury shares. No voting rights are exercised in respect of treasury shares. The articles of association of MTU Aero Engines Holding AG do not contain any restrictions concerning voting rights or the transfer of share ownership. The Board of Management has no knowledge of any agreement between shareholders that could give rise to any such restrictions.

Capital investments exceeding 10 % of the voting rights

MTU has no knowledge of any direct or indirect investments exceeding 10 % of the voting rights.

Shares with special rights conferring powers of control on the holder

MTU has not issued any shares with special rights conferring powers of control on the holder.

Method of controlling voting rights when employees own stock capital and do not exercise their control rights directly

Employees holding shares in MTU Aero Engines Holding AG exercise their control rights like any other shareholder, in strict compliance with statutory regulations and the company’s articles of association.

Rules governing the appointment and dismissal of members of the Board of Management

Members of the Board of Management are appointed by the Supervisory Board in accordance with the provisions of Section 84 of the German Stock Corporation Act (AktG). The Supervisory Board also determines the number of members in the Board of Management which, according to the articles of association, must consist of at least two members. The Supervisory Board is entitled to select one member of the Board of Management to serve as its chairman. Members of the Board of Management serve for a term of office not exceeding five years. This initial term of office may be prolonged, in the same or a different capacity, for an additional five years. Pursuant to Section 31 of the German CoDetermination Act (MitbestG), the appointment of a member of the Board of Management requires a two-thirds majority of the votes of the Supervisory Board. In default of a majority vote, the Supervisory Board’s Mediation Committee is granted a one-month period within which it must submit an alternative proposal for the appointment. If no candidate is accepted as a result of this second vote, a third voting round is held, in which the chairman of the Supervisory Board has two votes but the deputy chairman is not entitled to a second vote.

The Supervisory Board has the right to refuse the appointment of a member or chairman of the Board of Management on significant grounds – for instance gross breach of duty or incapacity to manage a business in an orderly manner.

Rules governing amendments to the articles of association

All amendments to the articles of association require a resolution on the part of the Annual General Meeting, pursuant to Section 179 of the German Stock Corporation Act (AktG). Under the terms of the articles of association, such resolutions must be carried by a simple majority of the votes or, in cases where a majority of the voting stock must be represented at the meeting, by the simple majority of the voting stock – unless otherwise stipulated by the law (Section 18 (1)). The right to add amendments of a purely formal nature, for instance changes to the share capital as the result of utilization of the authorized capital, is devolved to the Supervisory Board under the terms of Section 13 of the articles of association. Amendments to the articles of association become effective on the date at which they are entered in the commercial register (Section 181 (3), of the German Stock Corporation Act – AktG).

Authorizations conferred on the Board of Management, especially concerning the issue and purchase of shares

Authorized capital

At the Annual General Meeting on May 30, 2005, the Board of Management was authorized to increase the company’s capital stock by issuing new registered shares in return for cash contributions, and/or in return for non-cash contributions in the case of Authorized Capital II. At December 31, 2009, MTU Aero Engines Holding AG had available authorized capital amounting to € 24,75 million, which will remain authorized until May 29, 2010.

Authorized capital I

The Board of Management is authorized until May 29, 2010 to increase the company’s capital stock by up to € 5.5 million, with the prior approval of the Supervisory Board, by issuing, either in a single step or in several steps, new registered shares in return for cash contributions.

Authorized capital II

The Board of Management is furthermore authorized until May 29, 2010 to increase the company’s capital stock by up to € 19.25 million, with the prior approval of the Supervisory Board, by issuing, either in a single step or in several steps, new registered shares in return for cash and/or non-cash contributions.

Convertible bonds and bonds with warrants

At the Annual General Meeting on May 30, 2005 the Board of Management was authorized until May 29, 2010 to issue, with the prior approval of the Supervisory Board, registered or bearer convertible bonds, bonds with warrants, certificates of beneficial interest or income bonds, or any combination of these instruments (collectively referred to as ‘securities’), with or without maturity date, with a total nominal value of up to € 750 million, and to grant the owners or creditors of convertible bonds and/or bonds with warrants the right or option to convert them into registered shares of the company representing a share of equity of up to € 19.25 million under the conditions established for the issue of convertible bonds or bonds with warrants. These securities may be issued in euros or – to an equivalent value – in any other legal currency, for instance that of an OECD country. They may also be issued by an affiliated company in which MTU Aero Engines Holding AG holds a direct or indirect interest. In such cases and subject to the prior approval of the Supervisory Board, the Board of Management is authorized to act as guarantor for the securities, and to grant the owners of the securities the right or option to convert them into new registered shares of MTU Aero Engines Holding AG.

At the Annual General Meeting on May 30, 2005, it was clarified that the provision made in the above-mentioned resolution authorizing affiliated companies in which MTU Aero Engines Holding AG holds a direct or indirect interest to issue securities, solely and exclusively permits such securities to be issued by group companies in the interests of securing financial resources for the benefit of the group, as defined in Section 18 of the German Stock Corporation Act (AktG).

Resolution concerning the authorization to purchase and use treasury shares pursuant to Section 71 (1) item 8 of the German Stock Corporation Act (AktG) and concerning the exclusion of subscription rights

At the Annual General Meeting on May 26, 2009, a resolution was passed by a majority of votes representing 99.05 % of the stock capital with voting rights held by those present at the meeting to accept the proposal by the Supervisory Board and Board of Management concerning the authorization to purchase and use treasury shares pursuant to Section 71 (1) item 8 of the German Stock Corporation Act (AktG) and concerning the exclusion of subscription rights. The resolution adopted by the Annual General Meeting conferred the following authorizations on the company:

Significant agreements relating to change of control subsequent to a takeover bid

Group holding company (MTU Aero Engines Holding AG, Munich)

The group holding company, MTU Aero Engines Holding AG, Munich, has not entered into any significant agreements with third parties or affiliated companies relating to change of control subsequent to a takeover bid.

Group companies

The following agreements were concluded with group companies:

Convertible bond

The convertible bond with a total par value of € 180.0 million issued by the company’s consolidated subsidiary MTU Aero Engines Finance B.V., Amsterdam, the Netherlands (‘bond debtor’) in the financial year 2007 has given rise to the following agreements relating to change of control subsequent to a takeover bid:

In the event of a change of control (as defined below), the bond debtor or MTU Aero Engines Holding AG, Munich in its capacity as guarantor will notify the bondholders of this fact through the intermediary of the depository immediately after obtaining knowledge of the change of control. A change of control is deemed to have taken place if an individual or a collectively acting group of individuals acquires a controlling interest in the guarantor. The merger of one of the guarantor’s subsidiaries with the guarantor itself and the transfer of rights from the former to the latter does not constitute a change of control under any circumstances.

Diverging from the requirements of Section 315 (4) of the German Commercial Code (HGB) and German accounting standard DRS 15a, control in the context of bond issuance conditions means:

• direct or indirect legal or commercial ownership defined by Section 22 of the German Securities Trading Act (WpHG) as a total of 50 % or more of the voting rights in the guarantor or, as defined in Section 17 of the German Stock Corporation Act (AktG), the ability to determine the affairs of the guarantor in any other manner,

or

• in the case of a takeover bid for shares of the guarantor, the existence of circumstances under which the shares already under the bidder’s control added to the shares for which the bid has already been accepted together entitle the bidder to 50 % or more of the voting rights in the guarantor, if at the same time the bid has become unconditional,

or

• the sale or transfer of ownership of all or substantially all assets by the guarantor to another individual or group of individuals.

In the event of a change of control, the following agreements form part of the bond issuance conditions:

• Early repayment at the request of the bondholder

  In the event of a change of control, every bondholder has the right to demand that the bond debtor should proceed with repayment of part or all of the bond units held by the bondholder at par value plus accrued interest, on condition that the attached conversion rights have not yet been exercised and that the bond units have not yet been redeemed for the purposes of repayment. This demand takes the form of a repayment request, which must be received by the paying agency at least 20 days prior to the control record date.

• Repayment request

  The prescribed form for submitting a repayment request is that the bondholder should deliver a written request to the paying agency in person or by registered letter, enclosing a certified statement by the bondholder’s depository bank proving that he or she is the owner of the securities in question on the date of the request. Repayment requests are irrevocable.

• Adjustment of the conversion price due to change of control

  If, after the bond debtor or the guarantor has notified the bondholders of a change of control, bondholders exercise their conversion rights during the period up to the control record date, the conversion price shall be reduced (in certain cases after adjustment in accordance with Section 10 of the bond issuance conditions) by the following percentages:
  From February 1, 2010 to January 31, 2011 (both dates inclusive)   5.2 % From February 1, 2011 to January 18, 2012 (both dates inclusive)   0.0 %
  
  Adjustment of the conversion price must not result in a conversion price that is lower than the proportional amount of the guarantor’s total capital stock represented by each share.

Promissory notes

The four promissory notes for a total note amount of € 65.0 million raised by MTU Aero Engines Holding AG, Munich on June 3, 2009 gave rise to the following agreements relating to change of control subsequent to a takeover bid:

• Irrespective of existing statutory cancellation rights, the lenders are entitled to declare due an amount that corresponds to their share in the loan and demand the immediate repayment of this amount of principle plus accumulated interest up to the date of repayment in the event that an individual or several individuals acting in consort, or one or several third parties acting on the instructions of the relevant individual(s), at any time directly or indirectly (depending on whether the Board of Management or Supervisory Board has granted its approval to the borrower) hold(s) more than 50 % of the outstanding subscribed capital or hold(s) or acquire(s) a number of the borrower’s shares corresponding to 50 % or more of the voting rights.
• Requests for repayment must be submitted in writing, citing the reason for the cancellation of the loan and the underlying circumstances, and sent by registered mail to the borrower and the paying agency.

Revolving credit facility (RCF)

The terms of the revolving credit facility for a total amount of € 100 million entitle the lender to cancel the agreement in the event that one or several individuals should acquire a controlling interest in MTU Aero Engines GmbH, Munich or any other group company benefiting from the credit agreement, or in the event that one or several individuals should hold more than 50 % of the share capital or corporate capital.

Other agreements

It is possible that the group holding company might nevertheless be indirectly affected by a change of control though risk- and revenue-sharing agreements entered into by its subsidiary, MTU Aero Engines GmbH, Munich. Under such agreements, a company acquires a stake in an engine program by investing its own resources – workforce capacity and financial resources (risk) – and in turn receives a proportion of the revenues corresponding to their percentage share in the program.

Such agreements, like certain other agreements concluded by other group subsidiaries operating in the MRO segment, often contain change-of-control clauses that entitle the other party to terminate the agreement in the event that one of that party’s competitors should acquire a given percentage of the company’s voting rights (generally 25 30 %, occasionally rising to 50 % of the equity capital).

Claims for compensation in the event of a takeover bid

The company has not entered into any agreements entitling members of the Board of Management or other employees to claim compensation in the event of a takeover bid.

In addition to information relating to past events, this report also contains forward-looking statements. Such passages can generally be identified through the use of such terms as ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘anticipate’, ‘predict’, ‘will’, ‘believe’, ‘is likely to’, ‘might’ and similar phrases, or through the fact that they are presented in the context of a strategy. Forward-looking statements relate to future expectations, developments, trends, and business strategies, and are based on analyses or predictions of MTU’s future business performance and estimates of figures that cannot be affirmed with any certainty at the present time. These forward-looking statements merely reflect MTU’s current outlook at the time the statements were made, and MTU does not accept any responsibility for updating forward-looking statements except in cases where it is a statutory requirement. The forward-looking statements contained in this report involve known and unknown risks, uncertainties, and other factors that may result in an actual future outcome based on real events, developments and performances that deviates significantly from the content of the statements presented here. These factors include changes in the general economic climate and business environment, exchange rate fluctuations, in addition to the factors enumerated in Section 6 (Risk report) of this group management report.