Letter to the shareholders
After the most severe recession since the Second World War, the global economy began recovering in the course of 2010, gathering pace very quickly. In this improving environment, MTU Aero Engines did not simply maintain its position, but performed very well, meeting and even exceeding our profit forecasts – including those that had been adjusted upward in summer 2010. Operating profit rose from € 292 million in 2009 to € 311 million, against a forecast figure of € 310 million. What is more, with an annual net income of € 142 million, MTU outperformed compared with both the previous year and its own forecast of € 140 million. Revenues climbed from € 2.61 billion in 2009 to € 2.71 billion, against a slightly higher forecast of € 2.75 billion. Despite big investments in research and development aimed at safeguarding the company’s future, MTU’s free cash flow improved by 21% to € 145 million, much higher than the expected figure of € 120 million.
All these results are proof positive that, as an innovative high-tech company with a balanced portfolio and an exceptionally motivated and qualified workforce, we are extremely well placed. Another key factor in our success is the finely meshed network of partnerships that MTU has cultivated for decades. Together with our partners, we are in the business of shaping today’s – and tomorrow’s – aviation industry. We are thrusting forward in all power categories, meeting the highest safety and quality standards in our industry – it is this striving for excellence that unites us.
I would like to take this opportunity to thank all those without whom the company’s success in the past year would not have been possible. My thanks go to all our business partners and customers for their excellent cooperation in the financial year just passed, as well as to our investors – you, our shareholders. MTU’s success hinges on your commitment. I am particularly grateful to the MTU workforce – around 7,900 men and women worldwide who once again demonstrated great commitment and delivered excellent performance in 2010. Their work is the key to MTU’s innovative strength. We actively support our staff with training programs and place particular emphasis on encouraging female employees; in the years ahead, we intend to double the percentage of women in management positions at MTU.
It goes without saying that we want you, our shareholders, to participate again in the company’s success. In the light of our positive expectations for the company’s growth over the next few years, we are proposing to increase the dividend for the financial year 2010 to € 1.10 per share. Your confidence in us continues to spur us on in our efforts to strengthen MTU’s position in the market and further enhance the value of the company.
Given the current trend, I am optimistic that we will achieve our goals. The economic upswing is a welcome boost for the aviation industry. Passenger traffic has grown by 8.2% compared with 2009, and freight traffic by as much as 20.6%, with both segments having reached their pre-crisis levels again. The most dynamic markets are to be found in Asia, the Middle East and Latin America, and that looks set to remain so, with experts expecting ongoing globalization to fuel a substantial increase in international air traffic in the coming years. With its comprehensive portfolio of innovative products and services, MTU is set to profit from this growth.
Our starting position is a good one, for we are well placed in the key markets. What is more, our success across all lines of business last year served to underscore our strong market presence.
One of the most significant events for the OEM business was the news that Emirates had placed the largest single order in aviation history up to that date, namely for a further 32 Airbus A380s, the world’s biggest passenger aircraft. The airline has opted to equip its new A380s with engines from the GP7000 program in which MTU holds a 22.5% stake, so we also stand to profit from the deal. Emirates operates by far the biggest fleet of A380s, and has announced its intention to order even more aircraft. Airbus also received numerous orders for the A320, its bestselling aircraft family. These came mainly from airlines based in the burgeoning markets of the Middle East and Asia, among them Yemen Airways, Vietnam Airlines and China Southern. These aircraft are powered by engines from the V2500 program, in which MTU plays a central role.
Some of these new aircraft orders included MRO services for the V2500 engines, and MTU Maintenance is the world’s biggest provider of maintenance services for this engine type. In China, MTU Maintenance Zhuhai has taken a clear lead. This joint venture with China Southern Airlines is flourishing, prompting us to expand our facilities there and complete a first extension to the maintenance hangar in Zhuhai. In 2010, the commercial MRO business also signed or renewed contracts with customers in other up-and-coming markets, the largest being with the Brazilian airline TAM and with Royal Jordanian Airlines.
As far as our military portfolio is concerned, we are making good progress with a project of key importance to the company’s future – the TP400-D6 engine designed to power the A400M military transporter. In 2010, three prototypes of this aircraft equipped with a total of twelve engines successfully completed their scheduled flight tests. A fourth A400M entered the flight testing phase at the end of the year. The program is proceeding well and showing good export potential. In the United States, the world’s largest military market, we accomplished our plans to ramp up maintenance of the CF6-50 engines of the U.S. Air Force’s KC-10 tanker fleet. This is another area in which we are looking to exploit opportunities for future growth.
In a high-tech field such as engine manufacturing, standing still is tantamount to falling behind. That is the reason why we have been driving forward our R&D activities, boosting expenditure in the financial year 2010 by 4% to € 239 million. This scale of investment was possible thanks to our solid finances and excellent position in the market. The focus of our R&D work last year was on the PW1000G, GE38 and GEnx engine programs, and they look set to remain our growth drivers in the years ahead.
Among these engine programs, the PurePower PW1000G geared turbofan is set to become one of the most important engines in the commercial aviation market. This entirely new engine concept is based on technology developed and implemented jointly by MTU and Pratt & Whitney. The superior performance of this cutting-edge, eco-efficient propulsion technology has also convinced Airbus to deploy the geared turbofan (GTF) when it re-engines its top-selling A320 aircraft. While the earlier decisions by Mitsubishi and Bombardier to equip the MRJ and the CSeries respectively with the GTF were already important milestones for the engine, the decision by Airbus to use this engine in its A320neo must rank as the market breakthrough for this engine type. Many years of joint technological collaboration are now starting to bear fruit. We kept closely to our schedule last year, successfully completing the first test run of the CSeries engine, the PW1524G, at the beginning of October, and are well on track to complete certification of the engine by 2012. Despite Airbus’s decision to re-engine the A320, the aircraft’s previous V2500 engine is not likely to lose its appeal in the coming years. In fact, it will continue to play a key role, especially in terms of demand for maintenance services. Work on the GE38, an engine for heavy transport helicopters, is also going according to plan. This engine has much potential, not least owing to its suitability as the powerplant for a future European heavy-lift helicopter. In 2010, the Dreamliner engine GEnx went into volume production, and 2011 will witness the launch of production activities at MTU in Munich. In order to not only maintain but also strengthen our role as a technological innovator, we will continue to invest heavily in research and development.
One thing is clear: we are on course to continue MTU’s success, achieve substantial growth and ensure that a company with a distinguished past has a bright future ahead of it too. I sincerely hope we can count on your continued support as we strive to meet the challenges ahead.