MTU Aero Engines AG BAADER INVESTMENT CONFERENCE Michael Röger, VP Investor Relations Munich, 20. September 2017
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 2
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 3
Market Environment Remains Encouraging Market Indicator 2015 A 2016 A Passenger Traffic +7.4% +6.3% Strong 7.9% growth yoy in H1 2017 - fastest first half since 2005 Airline Profits $35 bn $36 bn remain at peak level Crude Oil (Brent) 52 $ 44 $ Stimulates traffic, benefits park and retirement rates Airliner Deliveries 1,397 1,443 Delivery rates are expected to go up Airliner Orderbook 13,365 13,442 Backlog is turning into deliveries Airliner Engine Fleet 43,300 45,600 Fleet up to meet traffic growth 4
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 5
MTU is Built on Three Pillars Commercial Business Military Business Commercial MRO Risk and revenue sharing partner with major OEMs Focus on Low-Pressure Turbines, High-Pressure Compressors and Turbine Center Frames Approx. 30% of active aircraft with MTU participation Capability to develop and manufacture entire engines R&D is typically customer financed MTU has high shares in key European military programs World's largest independent engine MRO provider (Maintenance, Repair and Overhaul) Exposure to highest growth engines (V2500, CFM56, CF34, GE90) Strong presence in Asia Sales* 2,401 m (50 %) 504 m (10 %) 1,914 m (40 %) Business OEM MRO EBIT margin* 11.1 % 9.5 % MTU Group* Sales: 4,733 m / EBIT margin: 10.6 % *FY2016 - figures 6
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 7
Overview of Aero Engine Industry Players Key Market Participants in Large Engine Business OEMs Engine sub-system (module) providers Engine component suppliers * *former Volvo Aero Material suppliers Aero Engine Industry Characteristics Industry players are specialized in different modules/technologies Oligopolistic structure of market High barriers to entry High technology expertise required Substantial up front investment (R&D, Concessions) required Long term contracts Structurally capative spare parts business Certification requirements and regulatory approvals 8
MTU s Continuous Growth is Supported by all Market Segments OEM market volume ($bn) 140 120 100 CAGR 2016-2026 Total market Mid to high single digit CAGR Mid single digit Aircraft Segment* Widebody (50-120 klb) 80 60 40 Mid single digit Narrowbody (20-50 klb) 20 0 2016 2018 2020 2022 2024 2026 High single digit High single digit Regional jet (13-24 klb) Business jet (3-16 klb) MTU projects outperformance of market growth in 3 out of 4 segments. 9
Business Jet Market PW300 / PW500 PW800 Installed base of more than 7,600 engines 10 business jet applications in operation Successful market introduction of Cessna Latitude Dassault Falcon 8X in development Program share of 15% Exclusive engine for future Gulfstreams MTU will be responsible for the LPT, the first four stages of the HPC and will participate in the MRO EIS expected in 2018 (G500) and 2019 (G600) MTU s turnover in the segment will triple within 10 years 10
Regional Jet Market PW1200G (MRJ) PW1500G (CSeries) PW1700G/1900G (E2-Jets) Program share of 15% Exclusive engine for MRJ with seats up to 92 passengers First flight in Nov 2015 EIS expected in 2020 Program share of 17% Exclusive engine for the Bombardier CSeries EIS in July 2016 with launch customer Swiss International Airlines Program share of 15-17% Exlusive engine for Embraer s 2 nd Gen E-jets Embraer is current market leader with large customer base First flight of E190-E2 with PW1900G in May 2016 EIS in 2018-2020 MTU and its partners will dominate the future regional jet market with more than 3,000 engines already ordered or optioned 11
Narrowbody Market V2500 PW1100G-JM ~ 6,500 engines flying Most important program w.r.t. revenue contribution Strong growth of spare parts sales until mid of next decade #1 MRO provider - capability in 2 locations Market share in NB segment ~24% Program share increase in 2012 from 11% to 16% Strong order book 16% improved fuel efficiency Designed for lower maintenance cost ~50% market share on A320neo family expected Increase in Market share in NB segment (~30%) Program share of 18% EIS 2016 Excellent narrowbody market position leads to continuous OEM & MRO growth 12
Update on PW1000G engine family >80 GTF powered aircraft delivered to 16 operators GTF engines performed over 290,000 flight hours Dispatch reliability is nearly 99.9% Fuel consumption reduced by 16%, noise footprint reduced by 75% Strong order book of more than 8,000 GTF engines Retrofit program of the improved carbon oil seal accomplished in Q2 2017 Production engine shipments with the new combustor will start in Q4 2017 Delivery of 350-400 GTF engines in 2017 confirmed, 134 delivered in H1 13
Widebody Market GP7000 GEnx GE9X Market share of ~ 50% on the A380 In production since 2007 ~ 500 engines in service Production peak in 2015 Market share of 60% on 787, exclusive on 747-8 In production since 2011 ~ 1000 engines in service Market expectation of 4,400 engines MTU is partner of the GE-MRO network Exp. MRO revenue 3 bn Revenue potential 4 bn 950 orders and options Entry into service expected in 2020 Exclusive engine for Boeing 777X MTU will be partner of GE-MRO network Strong partnership with GE Aviation in the widebody market 14
Revenue Growth in Commercial OE Today (2015) Future (2025) Other Business Jet Other Business Jet CAGR ~ mid-single digit Widebody Narrowbody Widebody Regional Jet Narrowbody Growth of commercial OE business secured through extensively filled order books and stronger diversification 15
Revenue Growth in Commercial Spare Parts Today (2015) Future (2025) Other Business Jet Other Business Jet Regional Jet Widebody Narrowbody CAGR ~ high-single digit Widebody Narrowbody New engine programs (GP7000, GEnx, GTF) will join the V2500 to significantly drive future spare parts growth 16
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 17
Military Business EJ200 TP400-D6 T408 Strong revenue contribution, both OEM&MRO ~ 500 Eurofighter in service ~ 1,200 engines delivered Production of until 2021 Strong export potential Ramp up successfully achieved ~ 200 engines produced 174 A400M aircraft on order Aircraft well positioned for export Power for CH-53K for US marine corps Latest Technology Turboshaft engine First flight October 2015 Engine could be used for additional applications Strong transatlantic partnership Successful new product introduction for the international military market 18
Revenue Growth in Military Business Today (2015) Future (2025) After market/ services Series CAGR ~ stable After market/ services Series Stronger demand in aftermarket/services and T408/GE38 compensates for decline in EJ200 production 19
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 20
MTU s Diversified Approach Ensures a Broad MRO Market Coverage Independent OEM cooperation Airline cooperation 1 2 3 Over 700 customers (airlines, MROs, lessors ) #1 independent for engine MRO Integrated solutions 120 IGT/ Marine customers MTU is OEM network partner MRO share is secured at program entry for entire life JV with China Southern JV with Lufthansa Technik (ASSB) CF34, CF6, CFM56, GE90G, PW2000, V2500, LM IGTs, Vericor GEnx, GP7000, PWC, V2500, PW1000G, GE9X V2500, CFM56 Parts repair 21
MTU s MRO Portfolio is the Basis for Future Growth MRO Market Volume ($bn) 60 CAGR 2015-25 Total Market High single digit 50 MTU-served Low teens 40 CAGR Market Approach Portfolio Mid single digit No access as of today 30 20 High single digit Independent or Airline Cooperation CF34, CFM56, CF6, GE90G, PW2000, V2500 10 0 2015 2017 2019 2021 2023 2025 High teens OEM Cooperation PW1000G, GEnx, GP7000, V2500 Source: MTU, escalated MTU has the largest engine MRO portfolio of all providers: The market MTU serves will grow over-proportionally at low teens level p.a 22
Revenue Growth Commercial MRO Today (2015) Future (2025) Airline cooperation OEM cooperation Independent CAGR ~ 10 % incl. MTU Zhuhai w/o MTU Zhuhai high single digit* Airline cooperation OEM cooperation Independent Independent business will remain MTU MRO's revenue driver while OEM & airline cooperation business gains importance *) MTU Zhuhai is consolidated at equity thus not part of MTU s group reported IFRS revenues.. JV s Net Income part of the group s EBIT line. 23
Contents 1. Market Environment 2. Company Overview 3. Commercial OEM Business 4. Military OEM Business 5. Commercial MRO Business 6. Outlook 24
Guidance 2017 Military: New engine Sales (Com. OE): Spare parts Sales (Com. Spares): Down mid teens (ex: down high single digit) Up high single digit Up high single digit (ex: up mid single digit) Commercial MRO: Up mid to high teens (ex: up 10%) Revenues ~ 5.3 bn Tailwind from US$ fx-rate Slight headwind from business mix EBIT adj. ~ 560 m Lower interest expenses & Tax rate of 29% Net Income adj. ~ 390 m FCF ~ 120 m 25
Long Term Outlook 2014 2025 Investment Phase 2014 2017 Consolidation Phase 2018 2025 Revenues Military: Com. OE: Com. Spares: Com. MRO: Military: Com. OE: Com. Spares: Com. MRO: EBIT adjusted Growth in line with revenues Growth stronger than revenues Net Income adj. Growth stronger than EBIT adj. Growth in line with EBIT adj. CCR* Low double digit % High double digit % * Cash Conversion Rate = Free Cash Flow / Net Income adj. 26
Appendix MTU s Cash Deployment Strategy Prio Instrument Investment phase 2014-17 Consolidation phase 2018-25 I Investment in organic growth Strong investment in new programs Limited opportunities II Dividend deployment Growth in line with net income Growth stronger than net income III Share buyback programs No buyback programs as cash conversion low Instrument to limit deleveraging IV M&A No suitable targets in aircraft engine market No new targets expected 27
Thank you very much for your attention!
Cautionary Note Regarding Forward-Looking Statements Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words may, will, should, expect, plan, intend, anticipate, forecast, believe, estimate, predict, potential, or continue and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) competition from other companies in MTU s industry and MTU s ability to retain or increase its market share, (ii) MTU s reliance on certain customers for its sales, (iii) risks related to MTU s participation in consortia and risk and revenue sharing agreements for new aero engine programs, (iv) the impact of non-compete provisions included in certain of MTU s contracts, (v) the impact of a decline in German or other European defense budgets or changes in funding priorities for military aircraft, (vi) risks associated with government funding, (vii) the impact of significant disruptions in MTU s supply from key vendors, (viii) the continued success of MTU s research and development initiatives, (ix) currency exchange rate fluctuations, (x) changes in tax legislation, (xi) the impact of any product liability claims, (xii) MTU s ability to comply with regulations affecting its business and its ability to respond to changes in the regulatory environment, (xiii) the cyclicality of the airline industry and the current financial difficulties of commercial airlines, (xiv) our substantial leverage and (xv) general local and global economic conditions. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking statement. Any securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act ), and may not be offered or sold without registration thereunder or pursuant to an available exemption therefrom. Any public offering of securities of MTU Aero Engines to be made in the United States would have to be made by means of a prospectus that would be obtainable from MTU Aero Engines and would contain detailed information about the issuer of the securities and its management, as well as financial statements. Neither this document nor the information contained herein constitutes an offer to sell or the solicitation of an offer to buy any securities. These materials do not constitute an offer of securities for sale in the United States; the securities may not be offered or sold in the United States absent registration or an exemption from registration. No money, securities or other consideration is being solicited, and, if sent in response to the information contained herein, will not be accepted. 29
Proprietary Notice This document contains proprietary information of the MTU Aero Engines AG group companies. The document and its contents shall not be copied or disclosed to any third party or used for any purpose other than that for which it is provided, without the prior written agreement of MTU Aero Engines AG. 30