mtu aero engines ag - investment...

MTU Aero Engines AGBAADER INVESTMENT CONFERENCE

Michael Röger, VP Investor RelationsMunich, 20. September 2017

© MTU Aero Engines AG. The information contained herein is proprietary to the MTU Aero Engines group companies.

Contents

1. Market Environment

2. Company Overview

3. Commercial OEM Business

4. Military OEM Business

5. Commercial MRO Business

6. Outlook

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Contents


2. Company Overview




6. Outlook

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4

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


Contents


2. Company Overview




6. Outlook

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• Risk and revenue sharing partnerwith major OEMs

• Focus on Low-Pressure Turbines, High-Pressure Compressors andTurbine Center Frames

• Approx. 30% of active aircraft withMTU participation

• Capability to develop andmanufacture entire engines

• R&D is typically customer financed

• MTU has high shares in keyEuropean military programs

• World's largest independent engineMRO provider (Maintenance, Repairand Overhaul)

• Exposure to highest growth engines(V2500, CFM56, CF34, GE90)

• Strong presence in Asia

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Commercial Business Military Business Commercial MRO

MTU is Built on Three Pillars

Sales* € 2,401 m (50 %) € 504 m (10 %) € 1,914 m (40 %)

OEMBusiness MRO

EBIT margin* 11.1 % 9.5 %

MTU Group* Sales: € 4,733 m / EBIT margin: 10.6 %*FY2016 - figures


Contents


2. Company Overview




6. Outlook

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8

Key Market Participants in Large Engine Business

Overview of Aero Engine Industry Players

Materialsuppliers

Engine componentsuppliers

Engine sub-system (module) providers

OEMs

Aero Engine Industry Characteristics

• Industry players are specialized in different modules/technologies

• Oligopolistic structure of market

**former Volvo Aero

• 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


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MTU’s Continuous Growth is Supported by all Market Segments

0

20

40

60

80

100

120

140

2016 2018 2020 2022 2024 2026

OEM market volume ($bn)CAGR Aircraft

Segment*

Mid single digit Widebody (50-120 klb)

Mid single digit Narrowbody (20-50 klb)

High single digit Regional jet (13-24 klb)

High single digit Business jet (3-16 klb)

CAGR 2016-2026

Total market Mid to high single digit

MTU projects outperformance of market growth in 3 out of 4 segments.


• 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 fourstages of the HPC and will participate in the MRO

• EIS expected in 2018 (G500) and 2019 (G600)

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PW300 / PW500 PW800

Business Jet Market

MTU’s turnover in the segment will triple within 10 years



• Exclusive engine for MRJ with seatsup to 92 passengers

• First flight in Nov 2015

• EIS expected in 2020


• Exclusive engine for the Bombardier CSeries

• EIS in July 2016 with launchcustomer Swiss International Airlines

• Program share of 15-17%

• Exlusive engine for Embraer‘s 2nd

Gen E-jets

• Embraer is current market leaderwith large customer base

• First flight of E190-E2 withPW1900G in May 2016

• EIS in 2018-2020

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PW1200G (MRJ) PW1500G (CSeries) PW1700G/1900G (E2-Jets)

Regional Jet Market

MTU and its partners will dominate the future regional jet market with more than 3,000 engines already ordered or optioned


• ~ 6,500 engines flying

• Most important program w.r.t. revenue contribution

• Strong growth of spare parts sales until mid of nextdecade

• #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%)


• EIS 2016

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V2500 PW1100G-JM

Narrowbody Market

Excellent narrowbody market position leads to continuous OEM & MRO growth


• >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

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Update on PW1000G engine family


• 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

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GP7000 GEnx GE9X

Widebody Market

Strong partnership with GE Aviation in the widebody market


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Revenue Growth in Commercial OE

Growth of commercial OE business secured throughextensively filled order books and stronger diversification

Today (2015) Future (2025)

Business Jet

Regional Jet

Other

CAGR ~ mid-single

digitWide-body

Business JetOther

Narrow-body

Wide-body

Narrow-body


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Revenue Growth in Commercial Spare Parts

Regional Jet

CAGR ~ high-single

digit

WidebodyWide-body

Business JetOther

Narrow-body

Business Jet Other

Narrowbody


New engine programs (GP7000, GEnx, GTF) will join the V2500 to significantly drive future spare parts growth


Contents


2. Company Overview




6. Outlook

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• Strong revenue contribution, bothOEM&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 Turboshaftengine

• First flight October 2015

• Engine could be used for additional applications

• Strong transatlantic partnership

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EJ200 TP400-D6 T408

Military Business

Successful new product introduction for the international military market


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Revenue Growth in Military Business


CAGR ~ stable

Aftermarket/services

After market/services

SeriesSeries

Stronger demand in aftermarket/services and T408/GE38 compensates for decline in EJ200 production


Contents


2. Company Overview




6. Outlook

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• 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 programentry for entire life

• JV with China Southern

• JV with Lufthansa Technik (ASSB)

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Independent OEM cooperation Airline cooperation

MTU’s Diversified Approach Ensures a Broad MRO Market Coverage1 2 3

CF34, CF6, CFM56, GE90G,PW2000, V2500,LM IGTs, Vericor

GEnx, GP7000, PWC,V2500, PW1000G, GE9X

V2500, CFM56Parts repair


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MTU’s MRO Portfolio is the Basis for Future Growth

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10

20

30

40

50

60

2015 2017 2019 2021 2023 2025

MRO Market Volume ($bn)

CAGR Market Approach Portfolio

Mid single digit

No access asof today –

High single digit

Independentor Airline

Cooperation

CF34, CFM56, CF6, GE90G,

PW2000, V2500

High teens OEM Cooperation PW1000G, GEnx,

GP7000, V2500…

CAGR 2015-25Total Market High single digitMTU-served Low teens

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


Revenue Growth Commercial MRO

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Independent business will remain MTU MRO's revenue driverwhile OEM & airline cooperation business gains importance

Independent

Independent

OEM cooperation

CAGR ~ 10 %

incl. MTU Zhuhai

w/o MTU Zhuhaihigh single digit*

OEM cooperation

Airlinecooperation

Airlinecooperation

*) 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.


Contents


2. Company Overview




6. Outlook

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Military: Down mid teens (ex: down high single digit)

New engine Sales (Com. OE): Up high single digit

Spare parts Sales (Com. Spares): 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€

Guidance 2017

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Long Term Outlook 2014 – 2025Investment 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.


MTU’s Cash Deployment Strategy

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Share buyback programs

M&A

Dividend deployment

Investment in organic growth

Strong investment in new programs

Limited opportunities

Growth in line with net income

Growth stronger than net income

No buyback programs as cash conversion low

Instrument to limit deleveraging

No suitable targets in aircraft engine market

I

II

III

IV

Prio Investment phase 2014-17

Consolidation phase 2018 - 25

No new targets expected

Instrument

Appendix

Thank you very much for your attention!


Cautionary Note Regarding Forward-Looking Statements

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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.


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.

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Proprietary Notice

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