AIDC — Interim / Quarterly Report 2015

Oct 13, 2015

2015 Q3

Investor Conference

‧ ‧ ‧ Accountability Innovation Dedication Customer Orientation

Aerospace Industrial Development Corporation Date: October 13, 2015

0

0

-0-

Contents

I. Markets

II. Operations and Financial Status

III. Objectives IV. Q & A

1

I. Markets - Defense Segment

1.Defense Business

• 70% of ROC Air Force trainer will reach their maximum lifespan within the next 10 years (e.g. F-5 fighter and the AT-3 Advanced Trainer have been in service for 30 years.) ROCAF plans to procure 66 advanced trainers with 69 billion NT dollars between years 2017 and 2022.

• The ROC military weapon system establishment plan includes IDF upgrade, F-16A/B upgrade and related manufacturing, assembly and maintenance.

• � The voluntary military service policy and projects of streamlining armed forces structure and organization will encourage the MND to release business such as military aircraft commercial maintenance and GOCO.

2

I. Markets - Defense Segment

2. Business Updates

==> picture [398 x 163] intentionally omitted <==

==> picture [329 x 120] intentionally omitted <==

----- Start of picture text -----

F-16A/B Radar Repair
IDF Upgrade & CSIST
Weapon Integration
----- End of picture text -----

IDF Fighter Commercial Army UH-1H Helicopter Maintenance

==> picture [118 x 12] intentionally omitted <==

----- Start of picture text -----

2nd AFLC GOCO
----- End of picture text -----

Air Force Academy A/C Maintenance GOCO

TFE-1042 engine (IDF)

Aerial Target Towing Services

3

I. Markets - Defense Segment

2. Business Updates (Cont.)

• IDF Performance Upgrade ： Delivery on schedule.

• The Advanced Trainer project: ROCAF held a meeting in June to release the required performance specifications of the new trainer. AIDC has submitted its proposal and related materials accordingly.

• F-16 Performance Upgrade: In preparation as planned.

4

I. Markets - Commercial Aviation

1. Commercial Aviation Industry

• (1) Global air transportation continues to grow:

• Two major causes for growth: macroeconomics growth and the value of service which touches passengers.

• While global economy continues to grow, both Airbus and Boeing predict the same trend in global air transportation by a growth rate at 4.6%~4.9% annually in the RPK in the next 20 years with gross value of 4.9~5.6 trillion U.S. dollars.

- � Major Causes for More Air Transportation � Air Transportation Outlook in 20 Years (2015 2034)

==> picture [426 x 124] intentionally omitted <==

Note: RPK (Revenue Passenger Kilometer) is a measure of the volume of passengers carried by an airline.

5

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(2) Emerging Markets Lead the Growth

• In the emerging markets, the Asia Pacific region tops the global demand for new airplanes with a significant 40% rise. Single aisle airplane is the most thriving demand.

• � With China offering a great market, Airbus built its single aisle airplane assembly line for A320 in Tien-Ching in 2008. Boeing has also confirmed plans to build plants in China for B737 assembly and delivery.

==> picture [498 x 243] intentionally omitted <==

----- Start of picture text -----

1
----- End of picture text -----

6

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

• (3) Engine requirements will definitely grow in tandem with the demand of new airplanes.

• According to Teal Group, there would be a demand of approximate 120 thousand aero engines in a total amount of 480 billion U.S. dollars.

Source:Teal Group

7

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(4) Green engine is the mainstream of the market

==> picture [781 x 369] intentionally omitted <==

----- Start of picture text -----

∥ CFM LEAP-X ∥ ∥ Rolls-Royce Trent XWB ∥
Applied to Applied to
Airbus A320neo Airbus
A350XWB
Boeing 737MAX
COMAC C919
Composite
Green Engines
With Low Carbon
Emission, Low Noise,
∥ Pratt & Whitney PW1000G ∥ & Operation ∥ General Electric GE9X ∥
Efficiency.
Applied to
Bombardier CSeries
Applied to
Mitsubishi Regional Boeing
Jet (MRJ) 777X
Airbus A320neo
Embraer E-Jet
----- End of picture text -----

8

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(5)The influences of lower fuel prices differ in cases

The fuel expense used to take up 30%+ of operational cost for airliners. With fuel prices going down since June 2014, the observations are:

• Demand of commercial airplanes remains ： Lower fuel prices reduce costs and increase profits for commercial airliners, which could be invested in more new airplanes or uplifting fleet efficiency.

• Less demand on Commercial Helicopters ： Based on Honeywell’s recent release of the outlook of commercial helicopters for the next five years (2015-2019), its market is declining due to less offshore drilling activities result in low oil prices. Future demand is pending on the fluctuation of oil prices.

==> picture [159 x 177] intentionally omitted <==

==> picture [477 x 168] intentionally omitted <==

----- Start of picture text -----

USD/bbl Brent crude oil prices
Lower fuel
prices cause
lower sea
transportation
demand on
helicopters
----- End of picture text -----

9

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(6)The pressure for cost down from the leading global commercial aircraft makers continues.

• Boeing’s “Partnering for Success” policy is pressing its suppliers to go further in cost down; Airbus demands its A320 suppliers to drop prices by 10% by Y2019. Global suppliers are facing severe challenges on the issue.

• � In addition to meeting the precise requirements for quality and on-time delivery, cost down has become one of the major issues in new business opportunities and new contract negotiations.

==> picture [527 x 147] intentionally omitted <==

----- Start of picture text -----

Supplier policy CostCost Supplier policy
Partnering for Success Scope +
No cost reduction, To drop prices by 10%
no further by Y2019 for more
contract business opportunities
DownDown as the orders for A320
are big
----- End of picture text -----

==> picture [106 x 12] intentionally omitted <==

----- Start of picture text -----

Compiled by AIDC
----- End of picture text -----

10

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(7) Merger and Acquisition

While military aircraft makers are experiencing much pressure owing to the reducing defense budgets in the US and Europe, commercial aircraft builders enjoy growth in emerging markets. They expand production capacity through acquisitions to boost revenues. Mergers and acquisitions are also seen in the military aircraft segment for survival or expansion.

Compiled by AIDC

==> picture [646 x 294] intentionally omitted <==

11

I. Markets - Commercial Aviation

1. Commercial Aviation Industry (Cont.)

(8) Aircraft orders in Paris Air Show 2015

• A total amount of airplanes ordered in the show was 1223 aircraft, slightly exceeding that of 2014 which was 1,210 a/c, with a value of 69 billion U.S. dollars, of which 446 a/c were firm order while in 2014 firm orders were 552 a/c.

• Single-aisle passenger airplanes made up 68% of the total orders. Airbus exceeded Boeing in the order tally in this segment.

• The order tally of Airbus and Boeing together was 902 aircraft, 74% of the total orders. Boeing surpassed Airbus in the wide-body commercial airplane segment while Airbus toped Boeing in the narrow bodies. The backlog would take 7 years to digest.

• The Pacific Asia had the strongest demand for air transportation, followed by Europe, South America and the Middle East.

==> picture [779 x 182] intentionally omitted <==

----- Start of picture text -----

Source ： Flightglobal
----- End of picture text -----

12

I. Markets - Commercial Aviation

2. Programs

==> picture [370 x 157] intentionally omitted <==

GEnx Engine Parts

R&R Trent XWB Engine Parts

Boeing B787 H/S Auxbox

Boeing B737max MLDG

MRJ ODM/OEM

Airbus A320 Parts

Airbus A380 H/S Tip

Bell M429 Parts

13

II. Operations and Financial Status

1. Income Statement

Unit: NTD in Millions

	ITEM	Q2	Q2	Q2	Q2	Q1~Q2	Q1~Q2	Q1~Q2	Q1~Q2
		Y2015		Y2014		Y2015		Y2014
	Revenue	6,921	100%	5,395	**100% **	12,761	**100% **	10,962	100%
	Cost of Goods Sold	6,016	87%	4,382	81%	11,089	87%	9,403	86%
	Gross Profit	905	13%	1,013	19%	1,672	13%	1,559	14%
	Operating Expenses	259	4%	229	4%	450	4%	423	4%
	Operating Income	646	9%	784	15%	1,222	9%	1,136	10%
	Non-operating Income	(115)	-2%	(320)	-6%	(181)	-1%	(160)	-1%
	Pre-tax Income	531	8%	464	9%	1041	8%	976	9%
						,
	Income Tax Expenses	86	1%	47	1%	173	1%	137	1%
	Net Income	445	6%	417	8%	868	7%	839	8%
	EPS(NT$）	0.49		0.46		0.96		0.92

14

II. Operations and Financial Status

2. Revenues

Unit: NT100M Dollars

==> picture [658 x 134] intentionally omitted <==

==> picture [781 x 214] intentionally omitted <==

----- Start of picture text -----

Year 年度 2010 2011 2012 2013 2014 2015 1-9
----- End of picture text -----

15

II. Operations and Financial Status 3. Net Income and EPS for the last 5 years

Net Income in NT 100M Dollars

EPS in NT$/share

==> picture [781 x 289] intentionally omitted <==

----- Start of picture text -----

30 3.0
Net Income EPS
25 2.5
2.06
20 2.0
1.42
1.37
15 1.24 1.5
1.12
0.96
10 1.0
18.72
12.48 12.89
11.26
5 10.13 0.5
8.68
0 0.0
2010 2011 2012 2013 2014 2015Q2
----- End of picture text -----

Note ： 2010-2012 ROC GAAP were observed; the IFRS was adopted since 2013.

16

II. Operations and Financial Status

4. Top 10 Customers

2012

2013

2014

~ 2015 1 9

==> picture [781 x 181] intentionally omitted <==

AIDC’s business has turned from AIDC’s business has turned from solely military to cover both military solely military to cover both military and commercial. Future efforts and commercial. Future efforts include expanding production include expanding production capacity as well as the scope of our capacity as well as the scope of our commercial business. commercial business.

17

II. Operations and Financial Status

5. Fixed Assets Investment

The Fixed Assets Investment for FY2015 is mainly focused in the establishment of the Engine Case Machining Center (ECMC), TACC #19 facilities, and the Maintenance Hanger for the F-16A/B Enhancement.

• With the main beam in place on August 10, 2015 for the ECME, this facility will start production in the 1Q of FY2016 capable of producing casing in the size of 200cm in diameter, which will meet the business core

• demand for Rolls Royce Trent XWB and elevate AIDC’s capabilities.

• The TACC-19 had its Ground Breaking on April 21, 2015 and will be ready for test run in 2Q of FY2016. As the key 1st tier supplier for Air Bus, our purpose of building this facility is to produce Airbus A320 Belly Fairing.

• The construction contract for the F-16A/B maintenance hanger has been signed and the construction is estimated to be completed in FY2017. This facility will be used to conduct the F-16 configuration modification program and the following maintenance.

18

II. Operations and Financial Status

6. Recent Achievements

2015.03 2014 APAC(Asia PACific) Supplier Performance Improvement Award from Honeywell.

2015.05 Award of General Manufacturing & Fabrication Growth Excellence Award from General Electric. This is the 4th award from GE in the last 5 years. 2015.05 Performance Excellence Award from Boeing. AIDC won this award consecutively in the last 4 years.

==> picture [206 x 47] intentionally omitted <==

==> picture [417 x 14] intentionally omitted <==

----- Start of picture text -----

BOEING Performance Excellence Award (2011,2012,2013,2014)
----- End of picture text -----

19

III. Objectives

1. After several transitions in the nature of our business body, AIDC is now an important part in the global aviation supply chain both for civil aircraft and aero engines. AIDC continues to enhance operational efficiency and flexibility in response to the global aviation industry’s current deployment of supply chain in the emerging markets.

2. Revenue up to September 2015 is 20 Billion NT dollars as expected. To cope with rising international competition, the new civil aircraft projects, and possible future government regulations for salary raise, AIDC continues to invest in core technology R&D, Lean production, supply chain enhancement. With better integration of resources and Taiwan suppliers, we aim for cost effectiveness while maintaining decent profits. Our objective is to surpass the revenue of 2014.

20

==> picture [781 x 181] intentionally omitted <==

Q & A

21