Aircraft, Defense & Space Domain Business Plan

Keisuke Hisakazu Naohiko HIROSE MIZUTANI ABE Senior Vice President, President, Senior Vice President, Head of Commercial Aviation Mitsubishi Aircraft Corporation Head of Integrated Defense Systems & Space Systems June 12, 2017

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. Contents 1. Business Overview 2. Commercial Aviation Systems Segment 2-1. Overview 2-2. FY2016 Summary & FY2017 Outlook 2-3. FY2017 Business Strategy 3. MRJ Business 3-1. Overview 3-2. Development Activities 3-3. Implementation of Development Schedule 4. Integrated Defense & Space Systems Segment 4-1. Overview 4-2. FY2016 Summary & FY2017 Outlook 4-3. FY2017 Business Strategy

The Aircraft, Defense & Space domain was created as a result of MHI’s domain reorganization, carried out 2017年4月の全社ドメイン再編・事業再配置により、航空・防衛・宇宙ドメインを発足。 in April 2017.直轄による育成基盤の早期形成と収益安定を図る。 Under the CEO’s direct oversight, the new domain is pursuing prompt formation of a strong developmentCEO foundation and stable earnings. [Until March 2017] [From April 2017] Energy & Environment Power Systems Business Group company Mitsubishi Aircraft MRJ Thermal Power Nuclear Power Thermal Power Compressors Corporation

Renewable Energy Chemical Plants Aero Engines Nuclear Power

Commercial Aviation & Renewable Energy Transportation Systems Commercial / Cruise Land Transportation Ships Systems Industry & Infrastructure Material Handling Commercial Aircraft MRJ Metals Machinery Equipment

Aero Engines Turbochargers Engines

Air Conditioning & Machinery & Integrated Defense & Space Systems Refrigeration Equipment Commercial / Cruise Land Transportation Defense Systems Space Systems Ships Systems

Machinery, Equipment & Infrastructure Chemical Plants

Compressors Metals Machinery Aircraft, Defense & Space

Material Handling Commercial Aircraft MRJ Equipment Turbochargers Air Conditioning & Defense Systems Space Systems Engines Refrigeration Machinery & Equipment

Integrated Defense Commercial & Space Systems Aviation Systems Operating income (In billion yen)  Naval ships  Aircraft components for Boeing  Aircraft & missile systems  Aircraft components for Airbus, (1.5%)  Special vehicles Bombardier, etc. 10.0   Space systems MRJ (0.1%) 0.9

Orders received / Net sales

Commercial Aviation Systems FY2016 net sales Integrated Defense & Space Systems ¥703.4 (In billion yen) billion 955.0 703.4 600.0 650.0

Orders Net Orders Net received Sales received Sales FY2016 (Actual) FY2017 (Forecast)

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 3 1. Business Overview 2. Commercial Aviation Systems Segment 2-1. Overview 2-2. FY2016 Summary & FY2017 Outlook 2-3. FY2017 Business Strategy 3. MRJ Business 3-1. Overview 3-2. Development Activities 3-3. Implementation of Development Schedule 4. Integrated Defense & Space Systems Segment 4-1. Overview 4-2. FY2016 Summary & FY2017 Outlook 4-3. FY2017 Business Strategy 2-1. Overview

Boeing Wide-body Airbus 787 jets A380 Aircraft components for Airbus, Bombardier, etc.

Photo courtesy of Boeing Photo courtesy of Airbus MHI : main wing boxes Narrow-body jets MHI : fwd and aft cargo doors 777 and business jets Bombardier Global 5000/6000 Wide-body jets

Photo courtesy of Boeing Aircraft components for MHI : aft fuselage, tail fuselage, and entry doors Boeing Photo courtesy of Bombardier MHI : main wings, mid-fuselages, 767 737 and center wings Challenger 300/350

Photo courtesy of Boeing Photo courtesy of Boeing Narrow-body jets Photo courtesy of Bombardier MHI : aft fuselages and MHI : inboard flaps and business jets cargo doors MHI : main wings

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 5 2-2. FY2016 Summary & FY2017 Outlook Status and operating income of 1) Sales down as result of yen commercial aircraft Tier1 business appreciation 2) Sales eroded by declines in contract prices, production, etc. 3) Cost reductions not achieved (1) Yen appreciation  Improvement in production efficiency • Automated assembly through adoption of (2) robotics Gradual decline in • Enhanced efficiency of management and contract prices, indirect work processes through use of AI / decreasing IoT production, etc.  FY2015 Supply chain reforms • Configuration of harmonized production (Actual) processes (3) • Achievement of optimal order placements Cost reductions Efficiency Establishment of “Commercial Aircraft unachieved improvement Procurement Center”

FY2017 FY2016 (Forecast) Leveraging production bases (Actual) and formation of optimal production system Flexible business portfolio

Strengthen aircraft manufacturing superiority Reconfigure business portfolio - Creating added value from structure, etc. Integrated system synergies Component-related synergies • Reinforcement of MHI’s comprehensive business strengths Overall business synergies Expansion into new business (C)JAXA/NASA areas in the aircraft industry

Increase the MRJ’s commercial value (C)Pratt & Whitney Traffic control-related Aircraft and space-related • Development of differentiation Completed aircraft technologies Advanced flight operation and Tier-1 - Weight reduction, material Completed aircraft support systems - Total system integration synergies development - 3D laminate modeling technologies • Initiatives into new fields: functional MRJ components, equipment, etc. MU-300 YS-11 Reinforced initiatives in (first flight in 1962) high-added-value parts

787 777X 777 Global • Advanced production process Express reforms 767 (active use of robotics, AI, IoT) Tier1 (first shipment of fuselage panels in 1980) Strengthen

Added value, technology level technology Added value, Manpower savings - Structure and flight performance existing businesses -’70 -’80 -’90 -’00 -’10 -’20 Unmanned operation

777-X Parts Production 787 Painting Process

・In March 2017 operation began of a newly configured ・Testing is now in progress on the automated production line using robots, to produce parts for Boeing 787 main wing production Boeing’s new 777-X model at our Hiroshima facilities . line at Nagoya for an automated painting process using robots.

By promoting automation of production processes, MHI is shifting focus from saving manpower to achieving unmanned operations.

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 8 1. Business Overview 2. Commercial Aviation Systems Segment 2-1. Overview 2-2. FY2016 Summary & FY2017 Outlook 2-3. FY2017 Business Strategy 3. MRJ Business 3-1. Overview 3-2. Development Activities 3-3. Implementation of Development Schedule 4. Integrated Defense & Space Systems Segment 4-1. Overview 4-2. FY2016 Summary & FY2017 Outlook 4-3. FY2017 Business Strategy 3-1. Overview

Market trends Business strategies Basic policy • Projected scale of market for 70- to 90-seat aircraft during the next 20 years: 3,500 planes • Drive forward development and commercialization toward “achieving airframe performance and excellent customer support superior to Embraer” • Embraer is scheduled to launch E175-E2, a next- generation 90-seat class aircraft, in 2021. • Minimize development costs, which will peak in FY2019 • Bombardier is focusing on C-Series planes with more • Propose and implement a cost reduction strategy while than 100 seats; its presence in the up-to-90-seats maintaining the schedule through type certification market is declining. acquisition, and development & marketing strategies for subsequent commercial production and the MRJ70’s commercial viability • 90-seat class: Competition between MRJ90 and E175-E2 FY2016 results • 70-seat class: MRJ70 will be the sole next-generation • Concluded definitive agreements with preferred airframe contender MRO(Maintenance, Repair & Overhaul) partners, aiming to - To maintain competitive superiority, recovery from enhance after-sale services in North America schedule delays will be critical. • Ferried four aircraft to Moses Lake - Contracts with customers that have placed orders • Launched corporate culture reforms to achieve greater are being maintained. company-wide globalization Our position FY2017 initiatives • Sales strategy: Secure a solid position in the regional Under direct oversight of MHI’s CEO: jet market by raising its airframe value assessment - Development activities by two dedicated teams leveraging the MRJ’s outstanding durability and airframe performance - Utilization of global industry experts • Marketing environment: Owing to delays in launching Steady implementation of development timetable into the market, measures will be taken to strengthen customer relations and ensure long-range business Ex.: FAA type certification has been acquired for the viability. PW1200G engine. FAA: Federal Aviation Administration

Areas of focus Activities • Strengthen structure under direct oversight of MHI’s CEO and 3-base Strengthening of development structure business promotion structure - Establishment of MRJ Business Promotion Committee - Swift decision making and improved communication among global facilities MRJ development team - Stay on schedule using strict KPI management of development progress Strengthening of Future differentiation technology development team development activities - Development of further differentiation technologies - Proposal and development of technology strategies for next-generation aircraft concept Natural icing test Cold soak test

Hot soak test Acquisition of FAA type certification of PW1200G engine Activities

• Selection of partner, and commencement of work, to support reworking of EWIS design that caused schedule delays EWIS : Electrical wiring interconnection systems

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 11 3-3. Steady Execution of Development Schedule with Global Experts Formation of global-standard commercial aircraft development structure manned by global experts working with Japanese staff Main areas of activity Activities Further enhancement of • Leadership and transfer of authority decision making • Achievement of swift decision making • Information and knowledge sharing Pursuit of higher level of teamwork • Open-minded top-down/bottom-up approach • State-of-the-art IT environment Global level of workplace efficiency • Ongoing improvement of business processes

Organizational structure in FY2016 Organizational structure in FY2017

Example

Number of global experts(few many ) Global experts fill important posts

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 12 1. Business Overview 2. Commercial Aviation Systems Segment 2-1. Overview 2-2. FY2016 Summary & FY2017 Outlook 2-3. FY2017 Business Strategy 3. MRJ Business 3-1. Overview 3-2. Development Activities 3-3. Implementation of Development Schedule 4. Integrated Defense & Space Systems Segment 4-1. Overview 4-2. FY2016 Summary & FY2017 Outlook 4-3. FY2017 Business Strategy 4-1. Overview

Defense Space Systems

Space Systems

H-IIA Launch H-IIB Launch F-2 Fighter FY2016 Vehicle Vehicle net sales ¥470.6 billion

（C）JAXA/NASA H-II Transfer Vehicle Defense (HTV) SH-60K Maritime Patrol Helicopter

Source: Japan Ground Self-Defense Force website Type 16 Mobile Combat PAC-3 SM-3 “Jinryu” Submarine “Akizuki” Destroyer Vehicle Type 10 Main Battle Tank © 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 14 4-1. Overview (FY2016 Major Projects and Orders Received)

Defense Space Systems

 Advanced Technology  Launch vehicles Demonstrator 1)H-IIA/B April 2016 First flight June Delivery November 2016 Launch of H-IIA No.31 November December Launch of H-IIB No.6 Commencement of flight Courtesy of Acquisition, Technology & Logistics Agency test January 2017 Launch of H-IIA No.32  PATRIOT system modification March Launch of H-IIA No.33

March 2017 Order received for MSE*1 2)H3 March 2017

*1 MSE: Missile segment enhancement Preparation for FY2017 LE-9 Engine’s combustion test in Tanegashima  Launching ceremonies Source: Japan Air Self-Defense Force website October 2016 Asahi-class destroyer ”Asahi” Nagasaki

Soryu-class submarine “Seiryu” Kobe  HTV 1)KOUNOTORI

December 2016 Launch of No.6

February 2017 Reentry （C）JAXA/NASA (Mission completion)  Type 16 Mobile Combat 2) Start of HTV-X development Vehicle June 2016 Start of production (C)JAXA Source: Japan Ground Self-Defense Force website Conceptual rendering © 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 15 4-2. FY2016 Summary & FY2017 Outlook

FY2016 Summary  Orders received / Net sales (In billion yen)  Operating income (In billion yen) 702.1 Space Systems 447.7 485.0 470.6 Defense (5.9%) (5.3%) 27.9 25.7

Orders Net Orders Net received Sales received Sales FY2015 (Actual) FY2016 (Actual) FY2015(Actual) FY2016(Actual)

[Orders received] Bulk purchases of Patriot missiles (MSE), patrol helicopters etc., meant orders received increased ¥250 billion from FY2015. [Net sales] Sales declined slightly year-on-year under impact of decreased deliveries of missiles, etc. [Operating income] Despite the sales decline, income rose year-on-year following streamlining of operations .

MSE : Missile segment enhancement FY2017 Outlook [Orders received] Orders received are projected to undershoot the FY2016 level under the impact of last year’s bulk purchasing. [Net sales] Sales on the scale of FY2016 are secure, given the steady execution of existing construction and inclusion of peripheral construction. [Operating income] Operating income on FY2016’s scale is secure, owing to further operating streamlining.

• Cabinet authorized the Three Principles on • Revision of new Basic Plan on Space Policy and Transfer of Defense Equipment and Implementation Schedule Technology (2014) Average 4 launches per year through 2020 • 4th year of Medium Term Defense Program H3 development (FY2014-FY2018) Start of HTV-X development • A review of the next Medium Term Defense • Formulation of Vision for the Space Industry Program (FY2019-FY2023) and National Defense Increasing demand for products and services Program Guidelines is under consideration by the relating to space utilization and satellite data Government. usage Situation and Challenges  Business scale: Almost unchanged for more than 20 years Growth strategies for expanding business scale are needed.  Gain/loss: Fragile profit structure Sustained improvement of bottom line through various streamlining activities is needed.

© 2017 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 17 4-3. FY2017 Business Strategy Basic policy Continuously strengthen existing businesses and prepare for next expansionary step (initiatives targeting overseas opportunities and application to commercial market demand)

Growth strategy #1 Growth strategy #2 Overseas Develop overseas business through Dual-use expansion existing business partners or relationships development Existing Development of businesses Space Systems businesses based on Defense commercial market demand

Development of new overseas businesses

Growth strategy #3 Expansion of existing fields

Defense Defense Joint development and F-35 fighter production of SM-3 FY2016 achievement Future initiatives FY2016 achievement Future initiatives

 Final assembly and check out  Delivery of the first  Supported flight test mission  In line with Government of the first F-35 fighter domestically assembled (intercept test) under policy, commence aircraft Government’s leadership. preparation of joint Confirmed prescribed production system  Preparation for MRO&U operations.  facility As contracted, produce and  Manufacturing SM-3 export components for components for Research, Japan / U.S. deployment Development, Evaluation & missiles

Test by U.S. Government Missile assembly (direct contract with Raytheon) Components developed by U.S. side U.S. in charge of production

Missile guidance Kinetic Booster section warhead Components developed by Japan side Japan in charge of production

Source:http://www.jsf.mil/ 3rd-stage Source:http://www.jsf.mil/ 2nd-stage rocket motor rocket motor Nosecone Assembly work MRO&U：Maintenance, repair, Image of joint production system (Source: MHI, based on overhaul and upgrade Flight test mission: Feb 3 2017(U.S. time) Acquisition, Technology & Logistics Agency website) （Source: Acquisition, Technology & Logistics Agency website） Make use of key technologies and channels cultivated in defense and space systems business New Business

 Initiatives underway together with Government, toward potential international joint development projects  Discussions underway among international companies toward adapting MHI components for use in overseas equipment

Cybersecurity

FY2016 achievement Future initiatives

 Completed prototype of  Operationalization: through testing and InteRSePT®*1 cybersecurity field data analysis technology for control systems  Seek business opportunities based on *1 InteRSePT： Integrated Resilient Security and Proactive Technology commercial market demand  Started adaptation for defense  Product capability enhancement: anomaly products detection through machine learning /AI  Assessing potential applications in  Added value enhancement: broad control systems for power and application of accumulated data chemical plants Adaptability verification

Data usage Cyber lab Adaptation to (technology development and commercial market demonstration facility) demand

Defense Defense Future fighter program PATRIOT System

FY2016 achievement Future initiatives FY2016 achievement Future initiatives

 Successfully completed  Achieve the world’s most  Received order for MSE  Steady manufacture and first flight of Advanced advanced technologies for contract under FY2016 delivery of MSE missiles Technology Demonstrator future fighter integration supplementary budget  Develop business proposals  Demonstrated enhancement (F-2 successor ) for further BMD capability of fighter jet-related enhancement High-altitude, technologies 高高度・長射程化long-range capability MSEミサイル missile • Stealth aircraft design technologies Extended detection 探知距離延伸range • Stealth radome technologies • Total heat control management technologies レーダRadar装置 MSE : Missile segment enhancement BMD : Ballistic missile defense MSE missile Space Launch vehicles Systems

FY2016 achievement Future initiatives  Conducted three H-IIA launches and  Strengthen MHI brand recognition through one H-IIB launches high reliability and on-time launches  Started preparation for combustion  With price-competitive H3 launch vehicle, testing of H3 launch vehicle’s 1st/2nd obtain more launch service orders from stage engines overseas customers Preparation of (also promote public awareness of MHI Launch  Started business development for H3 combustion testing of Services through speaker session and launch services 1st-stage engine exhibitions at international meetings)