The breadth of our service, experience, and knowledge allows us to provide an extremely high level of added value into the analysis of our customers' business challenges. As a woman-owned and veteran-owned small business, The Vesper Company takes pride in providing Government agencies (Federal, State, and Local) effective winning solutions in program management, budget strategies, training, and acquisition support.
The talented staff at The Vesper Company leverages nearly 29 years of in-depth Federal Government experience in delivering a wide range of services, solutions, and support. The Vesper Company provides technical services and customized solutions that continually address your business challenges. CDCAThe Charleston Defense Contractors Association addresses issues facing the Charleston, South Carolina military industrial complex.
WIDWomen in Defense provides networking and professional development opportunities to promote the role of women in national defense and security. AFCEAArmed Forces Communications and Electronics Association serves the military, government, industry, and academia as an ethical forum for advancing professional knowledge and relationships in the fields of communications, IT, intelligence, and global security. The systematic consideration of significant risk factors is of vital importance to the MTU group given the long-term nature of its business model, and serves as a fundamental basis for value-oriented controlling functions and continuous business success. MTU regards a suitable control environment as being essential for a functioning risk management system.
The risk management manual, which is valid throughout the group and which documents the risk management system in place at MTU Aero Engines Holding AG, Munich, is accessible to all employees as part of the organizational guidelines or via the intranet. DMTU regards risk management as a continuous, end-to-end process to ensure responsible behavior when dealing with specific risks at business unit level and general risks affecting several business units or the entire group or risks which need to be assessed on a wider scale (projects, U.S. The risk inventory of the group, which encompasses all the business units and all the risk factors to which MTU is exposed, serves as a basis for risk identification. The Board of Management receives a risk report once a quarter and is informed of the groupa€™s current risk situation at board meetings each quarter. Monitoring the risk management process is of crucial importance for ensuring the functioning and continuous development of the risk management system.
With its end-to-end risk management system, the company has created the necessary transparency to deal with risks in a responsible manner. MTU has integrated opportunity management into the process of systematically recording, assessing, dealing with and monitoring risks.
The Board of Management, Supervisory Board and Audit Committee of MTU attach the greatest importance to ensuring the regularity, accuracy and reliability of MTUa€™s financial reporting for recipients of MTUa€™s financial statements. The Board of Management and the senior managers are responsible for creating a supportive environment. The main features of the internal control system at MTU in terms of the (consolidated) accounting process can be described as follows:MTU has a clear management and corporate structure.
Because engines have long product lifecycles a€“ extending from development through volume production to the supply of spare parts a€“ MTUa€™s spare parts business is increasingly exposed to competition from companies that manufacture parts under the FAAa€™s system of Parts Manufacturer Approval (PMA). The customers in the military engine business are national and multinational agencies whose budgets vary widely with the level of public spending. In the commercial and military engine business, MTU undertakes to perform development work during which unplanned delays and additional costs may arise.
For some raw materials, individual parts and components and for the provision of specific services, MTU is dependent on suppliers and third-party vendors. Besides the general business risks, MTU has specifically identified risks in the TP400-D6 engine program for the new Airbus military transporter A400M. MTU holds a long-term hedge portfolio comprising financial instruments with terms to maturity stretching over several years. In the commercial engine business and commercial MRO, airlines are indirect and direct customers of MTU. In the aviation industry, accidents can never be completely ruled out despite strict compliance with manufacturing quality standards and utmost diligence in performing maintenance work. In June 2007, the European Commission approved Germanya€™s request to prolong the period during which tax reductions could to be granted to particularly energy-intensive businesses to the end of 2009.
MTUa€™s business activities are subject to numerous laws and regulations on the protection of the environment.
The company has not identified any risks arising from controlling and monitoring systems or relating to organization and management. In the commercial maintenance business, MTUa€™s interests in the Asian market include a 50:50 joint venture, MTU Maintenance Zhuhai Co.
The technical services and customized solutions we deliver to address these challenges always meet our customers' objectives.
We employ technology and utilize our expertise to help reduce your costs while expediting the rate of delivery. To meet the expectations of its shareholders, MTU must exploit opportunities, which entails a certain degree of risk. The system ensures compliance with statutory requirements and is based on the internationally recognized COSO II Enterprise Risk Management (ERM) Framework.
Hence, MTU knows the risks it faces, is aware of their effects and can manage them appropriately. This was laid down by the Board of Management in a group-wide code of conduct communicated to all employees and incorporated in the guiding principles.
The rules contained in the manual form the basis for the uniform and appropriate treatment of risks and for communicating them within the group. These rules document theintegration in the MTU management process,principles of the risk policy,risk management,value thresholds.In line with the rules of the risk strategy, the net loss expectation should not exceed 50 % for the first planning year and 30 % of the planned EBIT in adjusted terms for the five-year period under consideration. According to the COSO Framework, it is structured into governance and compliance, strategy and planning, operations and infrastructure, and reporting.
The so-called Top Risk Map (risks above a‚¬ 5 million) includes:top gross risks for the current planning year and the five-year period under consideration,top net risks (assessed based on the probabilities of occurrence) for the current planning year and the five-year period under consideration,mitigation actions to manage the top risks,top gross opportunities for the current planning year and the five-year period under consideration,top opportunities (assessed based on the probabilities of occurrence) for the current planning year and the five-year period under consideration. The group identifies high-risk developments and potential risks at an early stage and introduces targeted measures for dealing with and minimizing these risks. Besides taking account of strategic opportunities in the strategic planning, also entrepreneurial opportunities are identified, assessed and documented in a risk report and then communicated to the Board of Management and Supervisory Board once a quarter.
5 of the German Commercial Code (HGB) introduced by the German Act to Modernize Accounting Law (BilMoG) which serve to transpose the requirements of an EU directive into national law, publicly traded companies are required to provide a description of the main features of their internal control system and risk management system relating to the (consolidated) accounting process in their (group) management report. The control and monitoring processes required for this purpose are tailored to the complex business model of the MTU group and are an important part of a comprehensive corporate governance approach that defines the basic framework for creating sustainable values for shareholders, customers, employees and the public. Management style and philosophy, integrity and ethical values, and staff training and development are important pillars of this favorable monitoring environment. The risks entailed in financial reporting at group level are, in turn, a part of the corporate risks to be monitored as a whole. Key functions spanning more than one business unit are managed centrally, although the individual subsidiaries have a certain degree of autonomy at the same time. Special evaluations are also carried out during the year at the request of various management levels.
These companies are able to sell FAA-approved parts at lower prices than the original engine manufacturer because they have not had to bear the financial burden of high development costs and the loss-making early stages of volume production. The already strained situation may be further exacerbated by escalating fuel prices and by an intensification of the difficult financial situation of many airlines.
When they are faced with budgetary constraints, there is a risk that contracts might be rescheduled or canceled. The company nevertheless ensures strict adherence to time schedules and budgets by permanently monitoring project management and applying appropriate corrective measures where necessary.


Risks can arise in the form of the unavailability of suppliers, problems with quality, and price increases. Employees who are entrusted with confidential or insider information make a solemn commitment to abide by the applicable regulations, such as those laid down in the German Investor Protection Improvement Act (AnSVG), and to exercise the appropriate integrity when handling such information.
There is considerable rivalry in the recruitment market for the aerospace sector, as companies compete to find the best-qualified employees to work on the development, manufacture and maintenance of cutting-edge technical products. Due to its business with military customers, MTU is particularly sensitive about how confidential data are handled and has a very advanced data and security system.
The net risk is calculated by subtracting the part of the currency risk balanced by costs invoiced in U.S.
These carriers may find themselves facing financial difficulties, with the result that they may plan or carry out restructuring measures or mergers, or apply to be placed under bankruptcy protection.
These are risks which, in essence, are if managers and employees of the company fail to observe valid laws and regulations or internal rules. In the military engine business (excluding exports), MTU is largely exempt from product risk liability through government agency indemnification.
This concerns the capping of the German ecotax for the most energy-intensive users (the so-called a€?Spitzenausgleicha€™). Any tightening of the applicable environmental requirements may give rise to additional investment costs, particularly in connection with the use of chemicals in manufacturing and test rig emissions. The group is of the opinion that it would serve no purpose to aggregate the most important individual risks, on the grounds that it is improbable that hypothetical risks would arise simultaneously. The logical consequence of striving for continuous improvement is the establishment of a CIP organization (Continuous Improvement Project), which aims to encourage employees to deal openly with weak points and create a culture that forms the basis of a functioning risk management system.
The importance of staff training and development is embodied in the mission statement under the heading of a€?cooperation and leadershipa€™.
Risk officers use generally accepted commercial methods valid at MTU that are also applied at the planning stage. The MTU risk management process is integrated into the existing control systems and coordinated with them. The statements made concerning strategy and management in this connection apply analogously to the organization of opportunity management. By virtue of a corresponding transitional arrangement regarding these regulations, the information specified in Sections 289 (5) and 315 (2) No.
The important role that integrity and ethical values play at MTU is laid down by the Board of Management in a code of conduct that applies throughout the group and has been communicated to all employees in writing, is continuously practiced in training programs and is explicitly described in the guiding principles.
If a need for support arises at short notice in connection with special, complex IFRS issues or company acquisitions requiring examination, this demand is met by qualified staff or by employing the services of external auditors.With its end-to-end risk management system, MTU has created the necessary transparency, also in its financial reporting, to deal with risks in a responsible manner. MTU generates a high proportion of its revenues in the commercial engine business and in commercial MRO.
MTU counters the risks inherent to the aerospace industry with its level of cutting-edge technology that it constantly protects and advances. As MTU operates in various sectors of the market and in different thrust ranges, it spreads the risk in line with the market.At the present time, MTU does not expect any significant negative impact on the groupa€™s operating results, financial situation or net assets.
In the commercial sector, many years often pass between the decision to invest in a new engine and the breakeven point, separated by a long period of development and the preparatory phases leading to volume production. In the military engine business, the company is firmly embedded in international cooperative ventures.
Furthermore, through its involvement in collaborative ventures, it works in partnerships that extend beyond corporate boundaries and thus spreads the risk.MTU products are subject to extremely stringent safety requirements. MTU strives to reduce its reliance on individual suppliers by securing the services of several, equally qualified vendors for materials, parts and services.
Each partner initially finances unexpected additional development and manufacturing costs using its own resources, in proportion to its share in the program.
The unhedged portion of forecast transactions is calculated at the euro cash rate on the date payment is received. Particularly critical areas are purchasing and the sales organization in the commercial MRO business. The remaining liabilities, especially in the commercial engine business, are covered by comprehensive insurance policies; this includes aircraft liability insurance. The Commissiona€™s decision makes provision for the application of the tax cap to be further extended to the end of 2012 on condition that German industry meets the agreed voluntary environmental targets. In jointly controlled entities where decisions have to be made jointly, there is always a risk of differences of opinion when the companya€™s own interests do not coincide with those of its partners.
Employees receive instruction in risk management within the framework of the MTU training program and risk management is an integral part of personnel development.
Moreover, the Top Risk Map for the group forms part of the regular monthly reports submitted to the Board of Management and Supervisory Board. This ensures that both risks and future opportunities are taken into account in planning activities and the controlling department can take timely countermeasures if there are signs of any planning deviations. This enables MTU to ensure an end-to-end, standardized opportunity and risk management process.
5 HGB must be incorporated into the (group) management report for the first financial year beginning after December 31, 2008.Applying the explanatory memorandum to the BilMoG analogously, a report on the main features of our internal control system (ICS) and risk management system (RMS) relating to the (consolidated) accounting process is included in MTUa€™s risk report so that the risk report presents a unified and integrated picture.
The organizational, controlling and monitoring structures described below, which ensure that business data are recorded, processed and assessed correctly and in accordance with statutory and financial reporting requirements and are subsequently incorporated in individual accounting instruments, are part of a company-wide risk management system and internal monitoring system.
The concept of learning from mistakes is embodied in MTUa€™s mission statement, which describes this as a means of facilitating teamwork and promoting constructive behavioral attitudes.
The work of the Risk Management Board ensures that both risks and future opportunities are taken into account in planning activities to a reasonable extent and that countermeasures can be taken at an early stage if there are signs of any planning deviations.
This commercial market depends heavily on the volume of air traffic, and is subject to cyclical fluctuations which depend on the general economic situation.
The risk is that the original economic and technological parameters on which the decision was based might change substantially over the course of time, and also that the customers, i.e. This tends to have a limiting effect on risks because the partners work together to protect their common interests.
The company requires numerous official certifications, particularly from the German Federal Office of Civil Aviation (LBA) and the U.S. In the case of single-source suppliers, MTU enters into long-term agreements as a hedge against unforeseen shortages and to reduce the risk of sudden price hikes. A provision has been allocated for anticipated contractual obligations to cover part of this possible future expense.MTU has taken precautions to a greater extent than previously due to the additional requirements which have arisen in recent months, in particular regarding the software, and the termination of the South Africa export contract. MTU minimizes the associated risks by means of fast-track professional training and development programs, performance-related compensation, mentoring schemes and early preparation for promotion. MTU minimizes these risks by employing qualified experts and using professional project management.
The consortium leaders in the commercial engine and spare parts businesses have extensive receivables management systems in place.
Employees deployed in areas where the protection of confidential documents and information plays a significant role are generally affected. Other risks that could threaten the continued existence of the company, such as fire and interruption of business operations, are covered as well.
If the further extension beyond 2009 is not approved, German industry will face the burden of additional energy taxes, which could have an adverse effect on the international competitiveness of MTUa€™s domestic production facilities. MTU requires special certification in order to operate certain production facilities such as test rigs and electroplating plants.


The Risk Management Board furthermore examines risks with a potential impact on the whole group, which are difficult to assess at business unit level. The reflection of risks in the balance sheet in compliance with the underlying accounting standards is also part of this process. We have also taken account of the German accounting standard DRS 5, which is still valid, and the amendment DRA„S 5.The comments given below apply both to MTU Aero Engines Holding AG, Munich and to all other group companies included in the consolidated financial statements. This, in turn, consists of a company-wide internal control system, company-wide controlling and internal auditing. The striving towards continuous improvement is reinforced by the setting up of a CIP organization (Continuous Improvement Project), which is intended to help employees to deal openly with weak points and create a culture that forms the basis of a functioning risk management system.The internal control and risk management system of MTU relating to the accounting process guarantees an efficient accounting process that avoids errors as far as possible but at least discovers them at an early stage. This process also integrates the inclusion of risks in the financial statements in compliance with the underlying accounting standards.
German Commercial Code and national tax laws) and international accounting standards (IFRSs) are strictly observed in annual and consolidated financial statements.The IT systems used are protected by appropriate installations in the IT area against unauthorized access.
This ensures that opportunities and risks are appropriately taken into account in planning activities and that regular bookkeeping and monthly and quarterly financial statements take account of risks in the balance sheet in compliance with the underlying accounting standards. The volume of commercial air traffic in both the passenger and the freight sectors showed a negative trend in the last financial year; however, the latest forecasts are showing signs of this situation leveling off. Because government offices more and more frequently attempt to settle accounts for military engines on the basis of negotiated fixed prices, new military programs face an increasing risk that the technical, economic and market-related assumptions on which the contract is based may deviate from the actual conditions, thus also affecting the attainable return on investment. It is involved in the leading engine programs of the major engine manufacturers in the context of these partnerships. The risks involved are manageable thanks to the broad diversity of the links in the supply chain. Thus, all previous expenses of the program and the provision for possible obligations have already been taken into account in the 2009 financial statements.
Most other expenses are incurred in euros (a‚¬) and, to a lesser extent, in Polish zloty (PLN), Chinese yuan renminbi (CYN) and Canadian dollars (CAD). In the commercial MRO business, MTU tracks its open accounts receivable in short cycles in cooperation with the sales department. No insurance cover has been taken out for the risk of terrorist attacks because of the excessively high premiums. MTU has taken every possible organizational measure to ensure early awareness of potential risk situations. The interaction between these systems ensures that the high expectations placed on MTUa€™s accounting are met.
The slowdown in economic growth and the difficulties being encountered by certain companies is moreover changing patterns of use in the existing fleet of business jets and reducing the quantity of orders for new air transportation capacity. MTU counters such strategy risks by engaging highly qualified specialists at the decision-making stage and by using documented processes to perform cost-benefit analyses, which make it compulsory to carry out the appropriate risk analysis on the basis of a variety of different scenarios.
The terms of existing contracts in the military sector are generally defined to cover a prolonged period of time, thus effectively excluding the possibility of modifying prices. The customers of these risk- and revenue-sharing partnerships in the commercial engine and MRO business are airlines. These certifications are valid for limited periods; they can only be renewed after further tests have been carried out. MTU is meeting this challenge by setting up new development centers in Munich and at its new site in Poland, and by collaborating with universities.In contrast, the slight decline in business volume following the economic crisis is presenting MTU with the challenge of managing capacities appropriately. Consequently, earnings are dependent on changes in the exchange rate parity between the U.S.
The hedge portfolio accounts for the majority of the groupa€™s hedging transactions.For accounting purposes, MTU prudently only designates a portion of its hedged future cash flows (forecast transactions) as hedged items to reduce the expected net currency risk exposure. Before a deal is finalized, potential risks are assessed and any necessary precautions are taken.
By limiting liability risks and taking out insurance cover, the risks are transparent and manageable.
Other than this, there are no important risks arising from (tax) legislation that could have a significant impact on the companya€™s net assets, financial situation or operating results. An environmental management system certified to DIN EN ISO 14001 minimizes the risks in this area. Within the framework of the comprehensive IT concept and the existing IT architecture, the IT systema€™s application controls are reviewed internally and externally on a regular basis against a background of a high level of automatic controls and plausibility checks. Other risks affecting industry in general include rising energy costs, the unavailability of suppliers, and delays in deliveries from suppliers. The companya€™s wide product portfolio a€“ comprising engines in all thrust classes a€“ helps to spread the risk and minimize the dependency on individual engine programs.Significant investment decisions recently were the set-up of the location MTU Aero Engines Polska Sp.
Various types of concessions to customers are common practice in the marketing of commercial production engines.
The production and repair processes are documented in detail to ensure compliance with all regulations.As a general rule, MTUa€™s business plans for new engines are drawn up to cover a long period. As long as the actual gross inflow of a foreign currency (per month) exceeds the hedged amount, postponements or cancellations of underlying transactions (cash inflows) do not affect the hedging relationship.
Wherever possible, the company takes advantage of export credit guarantees (Hermes coverage) to protect itself against political and credit risk. Overall, from the present point of view, there are no identifiable risks to the substance of MTU arising from general economic trends. MTU is obliged to absorb these concessions to the extent of its program share in risk- and revenue-sharing arrangements. They tend to assume long repayment terms, with the result that the investments in the development phase and the production run-up are only gradually amortized over a long period of time.
In line with the corporate policy of generating profit solely on the basis of its operating activities and not through currency speculation, MTU makes use of hedging strategies for the exclusive purpose of controlling and minimizing the effect of U.S. As a matter of principle, the group avoids signing contracts for which the parameters cannot be calculated. The fact that the cooperation partners share a common interest helps to prevent excessive concessions during contract negotiations. Due to the long period under consideration, the actual conditions may deviate from the technical, economic and market-related assumptions on which the calculations were based, thus also affecting the attainable return on investment. Checks integrated within processes reduce the probability of errors occurring (error risk) and help to bring to light any errors that have already occurred (e.g. Concessions to major customers during the launch phase of a program are largely offset by a decline in the marketing expenses for older programs. The corporate audit department of MTU assesses controlling and monitoring systems and contributes to their enhancement. It is also considered to have an advisory function that aims at improving business processes and ultimately the effectiveness of the internal control system.
The charter of the corporate audit department complies with national and international requirements of the Institut der Internen Revision and the Institute for Internal Audit.
Exchange rate disparities amplify currency risk, with a possible adverse impact on MTUa€™s earnings.
The administrative standards for internal auditing are available to all employees for perusal on MTUa€™s intranet.



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