ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global...

41
annual report 2010 AERO Vodochody a.s. ANNUAL REPORT

Transcript of ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global...

Page 1: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

annual report 2010 AERO Vodochody a.s.

ANNUAL REPORT

Page 2: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Contents

annual report 2010 AERO Vodochody a.s. | contents

02 | | 03

04 Foreword by the company presidentTechnological DevelopmentOrganisational ChangesResults

08 Company profileCorporate ProfileAerostructures DivisionDefence & MRO Division Strategic ObjectiveCorporate Portfolio

12 History AeroEarly Years ExpansionWar ProductionJet AgeIn-house Jet Trainers

14 Aero’s History by Dates

18 Organisational structure

19 Company bodies and management

20 Key events of 2010

24 Company’s business reportAerostructures DivisionDivize Defence&MRO

25 Sikorsky S-7626 Sikorsky UH-60M Black Hawk27 Alenia C-27J Spartan28 Bombardier CSeries29 Further Programs30 Investments, Development Programs,

Research and Development of AERO Vodochody a.s.Company Income

31 Revenues32 Income

Asset structure 33 Financial Situation34 Human resources

Quality Policy - Quality Management System

35 EnvironmentMajor Events after the Balance Date

38 Opinion of the supervisory board

40 Auditor’s statement of the annual report

44 Financial statement 54 Notes to the financial statement

74 Report on relations between the related entities

Page 3: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Foreword by the company president

annual report 2010 AERO Vodochody a.s. | foreword by the company president

04 | | 05

2010 was a year of major changes and significant commercial and economic success for AERO Vodochody a.s. The global market of aviationproducts was marked in 2010 by positive development which was also displayed by an increase in customers’ interest in AERO Vodochody a.s.products, with the exception of the S-76 helicopter where the transition continues to the latest version, the S-76D and a fall in deliveries.The key subject for all of 2010 continued to be the increase in the efficiency of production and non-production activities, nevertheless the recoveryof the market demanded an increase in the company’s capacities. In 2010 AERO Vodochody a.s. created 71 new job positions and recruited 159new employees. The company achieved marked commercial success. In January 2010 a contract was signed for the manufacture of cockpits forSikorsky UH-60M Black Hawk helicopters with the first delivery planned for August 2011.

During 2010 the AERO Vodochody a.s. team worked on other business cases of which the most important successfully culminated in April 2011with the signing of a contract for the development, industrialisation and production of 4 structural units for the KC-390 aircraft. In terms of sizeand once production starts, this will be one of the company’s biggest programs with added value equal to the S-76 Program. AERO Vodochody a.s.was successful in talks in Algeria for deliveries as part of the L-39 Program and in Tunisia for repairs of DV-2 engines and continued supportof the operation of L-59 aircraft. Aero is also working intensively on the development of the leading wing for the Bombardier CSeries aircraft,and the project successfully completed the Joint Definition Phase in August 2010 and entered the Detailed Design Phase. As regards existing programsAero worked with Sikorsky on the introducing the production of the latest version of the S-76 – variant D helicopter. In 2010 AERO Vodochody a.s.supplied the first two series aircraft together with 16 versions of the S-76 C++ aircraft, but has seen a significant fall in total deliveries against 26S-76C++ aircraft supplied in 2009. Despite this Aero achieved a record pre-tax income of 431 mil. CZK.

The commercial success confirmed the leading position of Aero Vodochody a.s. among aviation technology manufacturers in the Czech Republic.Aero is successfully meeting its long-term vision of being a key development and production partner for leading global aircraft manufacturersand an integrator of important aviation projects. In addition, commercial success means that Aero is bringing more contracts to the Czech Republicthan its present production capacities can handle and in view of the fact that the company’s objective is to invest in development and expansionof new technologies in the next few years and not into extensive growth of existing capacities cooperation is becoming crucial for Aero and othercompanies in the sector in the Czech Republic and neighbouring countries.

Technological DevelopmentComposites are irreplaceable technology in aircraft construction and their importance will continue to grow in the forthcoming years. In the interestof strengthening its position on the market AERO Vodochody a.s. has decided to expand and intensify its capabilities in the manufacture of compositestructures and also for providing higher efficiency, to transfer the focal point of these activities from the subsidiary Rotortech in Great Britainto the Czech Republic. In September the first phase was launched of the expansion of composite production at the small composite worksitewhich will become the development and prototype plant in future. In addition, the second phase of composite expansion was launched in theform of construction of a large series production site with an area of 5600 m2. The launch of series production at this site is planned in April 2012.In order to secure support for the operation of L-59 aircraft operated by the Tunisian Air Force, Aero purchased equipment and recruited personnelessential for the overhaul of DV-2 engines from the manufacturer, the company HTC. These activities are concentrated at the company Clarex a.s.,based in Povážská Bystrice, Slovakia. Clarex, a 100% subsidiary of AERO Vodochody a.s., successfully took over the first engine for overhaulat the end of 2010. As of June the transfer was completed of activities of the subsidiary Technometra to the AERO Vodochody a.s. site, whereall the activities of AERO Vodochody a.s. are now concentrated, with the exception of the repair of aircraft engines.

AERO IS SUCCESSFULLYFULFILLING ITS LONG-TERM VISION OFA KEY DEVELOPMENTAND MANUFACTURINGPARTNER OF LEADINGWORLD AIRCRAFT MANUFACTURERS AND INTEGRATOR OF SIGNIFICANT AIRCRAFT PROJECTS.

„Organisational ChangesIn view of the fact that Aero operates on two significantly different markets with a differentcustomer portfolio and different nature of provided products, it was decided to split 2 divisions • Aerostructures – combines activities associated with the cooperation programs• Defence&MRO – focuses on in the manufacture and support of the company’s in-house products

(L-39, L-59, L-159, Ae-270) and commercial provision of MRO services to aircraft of othermanufacturers, civil and military customers

The split came about at the start of January 2010. The objective of the split is to strengthencustomer focus and specialisation and optimisation of processes in both divisions. The first stepswere also taken to detach the development worksite and make it a separate division plannedfor July 2011. The abovementioned need for intensive cooperation with other companies in theCzech Republic and the region of Central and Eastern Europe resulted in creating an independentStrategic Sourcing Division in July 2010, which is engaged in systematically building a supplychain and the application of the WING System at selected business partners.

Results The most important criterion of the accuracy of the company’s strategy is the continuingsuccess among customers. Further proof of the success of this strategy is also the awardsthe company received in 2010. Thanks to the long-term emphasis of the entire companyefficiency and first-class processes, AERO Vodochody a.s. achieved important awards by beingpresented with the UTC Gold Supplier Award for 2009 (presented in January 2010). Beingpresented with this award confirms the position of AERO Vodochody a.s. among the topcompanies in the global aviation business. Aero confirmed its position of top aviation productsupplier by again being presented with the UTC Gold Supplier Award for 2010. AERO Vodochody a.s.was also made the Best Supplier of the Helicopter Industry (Supplier Excellence Award)by the American Helicopter Society.

AERO Vodochody a.s. has unquestionably become a highly attractive business partnerand employer for all who want to develop and contribute to the successes of the Czechaviation industry on an international scale.

Ladislav ŠimekPresident and Chairman of the Board of Directors

Page 4: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

UH-60M Black Hawk

IN JANUARY 2010, AEROVODOCHODY AND ITSLONG-TERM PARTNERSIKORSKY AIRCRAFTCORPORATION SIGNEDA CONTRACT FOR MANUFACTURING OF A COCKPIT FOR THE UH-60M BLACKHAWK HELICOPTER.THE FIRST COCKPITSSHALL BE SUPPLIED BY AERO TO ITS CUSTOMER IN 2011.

Page 5: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company profile

Defence & MRO Division The Defence&MRO Division (Maintenance, Repair and Overhaul) of AERO Vodochody a.s.specialised in the support and expansion of its final products – the L-159, L-39 and L-59aircraft and for providing various services in aircraft repair, modernisation, modificationand aviation technology tests.

The L-159 system, which involves integrated logistic support, ground training system,means for planning and evaluation of flights and other equipment, has been successfullyestablished in the Air Force of the Army of the Czech Republic. The single-seat L-159 ALCAlight combat aircraft were included in the weapons of the Army of the Czech Republicin 2000, the two-seater L-159T1 trainers in 2007. L-159 aircraft fulfil many tasks fromadvanced and operation training, support for ground armed forces to reconnaissancemissions and air defence. They regularly participate in NATO international trainingexercises (Tactical Leadership Program, NATO Air Meet, Clean Hunter or Flying Rhino).

Aero continues to provide support for users of L-39 and L-59 aircraft. For customersof L-39 / L-59 aircraft the Defence&MRO Division offers an extensive portfolio of servicesranging from the extension of service life and overhauls to the modernisation of alltheir systems. Besides programs associated with in-house aircraft production,the Defence&MRO Division also offers customers services connected with the modificationand testing of their aircraft.

In order to secure its activities, the Defence&MRO Division has capacities for aircraftand aviation product construction designs, for logistics, flight test centre, as well aspremises and preparation and testing equipment for aircraft production and maintenance.Its subsidiary Clarex also provides support and maintenance of DV-2 jet engines.The Defence&MRO Division is the holder of authorisations DOA Part-21/23/25, POA Part-21,EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

annual report 2010 AERO Vodochody a.s. | company profile

08 | | 09

Corporate ProfileAERO Vodochody a.s. (hereinafter “Aero”) based in Odolena Voda, Dolínek, ul. U Letiště no. 374, PCN 250 70 is a joint stock company registeredon 2 January 1991 in the Commercial Register at the Municipal Court in Prague, Section B, File No. 449, company ID No: 00010545, Tax ID No: CZ00010545.

By the end of 2006 the Czech Consolidation Agency owned almost 100 % of Aero’s shares. On 4 January 2007 the Penta Group become Aero’ssole shareholder and successfully completed the restructuring project in the company in the same year and from 2007 to 2009 Aero achieveda profit of 917 mil. CZK. In 2010 the profit was 431 mil. CZK. Aero’s registered capital is 1,884 mil. CZK and has been repaid in full. In 2009 lossesof previous years were settled amounting to 4,081 mil. CZK with a reduction in the registered capital and issue of shares worth 950 mil. CZK.

Aero is the biggest manufacturer of aviation technology in the Czech Republic. It is engaged in the development, production, sale and servicingof military and civil aviation technology. It focuses above all on cooperation with leading aircraft manufacturers in international cooperationprojects and in the military program is a long-term partner of several armies, especially the Army of the Czech Republic. It has an establishedquality management system according to AS 9100 / ISO 9001 and is the holder of all the relevant company attestations and certificates as a wholeand partial processes in line with national and international standards.

Aerostructures DivisionThe Aerostructure Division is involved in cooperation in important air programs globally. Aero’s main capabilities are to manufacturecomprehensive aircraft assemblies with a high degree of production finalisation, including systems integration and testing, supply managementand final inspection. Furthermore, in the last year aircraft undercarriages, production and development of composites have been includedin production. The Aerostructures Division is involved in the complete life cycle of commercial and military projects and thereby combinesthe company’s extensive experience in the aviation industry acquired since it was established in 1919 with the present introductionof the latest technologies, test methods and principles of lean production. Aero continuously expands its portfolio of customers among the worldleaders in aviation production. Since 2009 it has been striving to achieve a balance between production programs and risk-sharing productionprograms in an aim to ensure long-term, highly prospective contracts.

Currently Aero is the risk-sharing partner of the Belgian company Sonaca for the development and production of leading edge of the CSeriesaircraft of the company Bombardier. In addition, Aero has become the risk-sharing partner of the company Embraer for the KC-390 militarytransport aircraft responsible for the industrialisation and series production of the loading ramp, all the doors, back part of the fuselageand the development of the leading edge. This contract marks an important milestone in Aero’s strategy to become a global first-classsupplier recognised for its development capabilities and experience in international programs.

The Aerostructures Division is also continuing in the production and assembly of the S-76 helicopter (with the exception of the dynamic parts),for the American company Sikorsky Aircraft Corporation. The first S-76D, a brand new version of the successful S-76C++ helicopter, was puton the Aero production line in 2010. Aero also began the production of undercarriages for the A-320 for the French customer Messier-Dowty.It is also continuing with the production of the C-27J Spartan centre wing box for the Italian customer Alenia Aeronautica, production of gunbay doors for the F/A-18E/F/G for the American company, door subassemblies for the French company Latecoere and subassembliesand parts for the Airbus A-320/A-330 for the subsidiary EADS, Premium Aerotec.

SIKORSKY BLACKHAWKHELICOPTER IS ONE OF THE MOST IMPORTANT AND MOSTNUMEROUS MILITARYTECHNOLOGY OF THE US ARMY.PRESENTLY, AROUND2,500 HELICOPTERS OF THE H-60 FAMILYARE IN SERVICE AT THE MILITARYFORCES OF THE USAAND OTHER STATES.

Page 6: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company profile

Corporate Portfolio Aero is a 100% owner of Technometra Radotín, a.s. at which the project of the transferof production capacities was carried out successfully in 2010 from the Prague-Radotínlocation to the main production plant in Odolena Voda. The objective of this project wasto increase the synergy in production and administration, and achieve higher profitabilityin the Aero Group.

The Aero Group consists of the company Letiště Vodochody a.s., as of 2009 the companyRotortech Aero Composites Ltd. based in Cambridge, Great Britain and in 2010 Aerobecame the owner of the company Clester Trading a.s. based in the Slovak Republicwhich sold its 100% share in the company Clarex Investments a.s.

Letov, a.s., in which the company held a 42.6% share as of 31.12.2009, was dissolvedin 2010 after the fulfilment of the decree of distribution.

The companies are consolidated in the Penta Investments Limited group.

annual report 2010 AERO Vodochody a.s. | company profile

10 | | 11

Strategic ObjectiveThe success of Aero during the global economic recession confirms the success of the strategy followed by our company. The company’sstrategic plan for the next period is:Continuing to focus on the internal efficiency, lean and quality processes in an aim to be confirmed the UTC Supplier Gold also for 2011and obtain certification of ISO 14001, ISO 18001, AS 9100 rev. C and the Business Continuity Management System.

Objectives of the Aerostructures Division:• Development of relations above all with existing customers• Development of three key product groups

- integration of important aircraft structural parts – above all wings, door and body parts – and entire aircraft- equipment – undercarriage and engine parts- composite parts and structures – either as part of bigger structural parts or separately

Objectives of the Defence&MRO Division:• The key customer continues to be the Army of the Czech Republic and the objective of AERO Vodochody a.s. is to become the main partner

of the Army of the Czech Republic in aviation technology• Global support for users of existing products• Seeking new products and further implementation of technology and experience with L-39/59/159 aircraft and the Ae -270 aircraft

Technology & processes• Development of composites and technology for processing titanium and heat resistant steel alloys• Development of internal processes• Expansion of the level of cooperation with selected suppliers

It is also our intention to develop cooperation with other aviation technology manufacturers, schools and public institutions for the purposeof the support and promotion of education for the aviation industry, regulation of the conditions for business and grants and other formsof support in order to increase the competitiveness of the Czech aviation industry and acquire new projects with industrial application.

THE F/A-18 SUPER HORNETIS A COMBAT-PROVENMULTI-ROLE AIRCRAFTINCORPORATING TOMORROW'S CUTTING-EDGE TECHNOLOGY,ON-BOARD AND IN USETODAY. IT IS PRODUCEDBY BOEING INTEGRATEDDEFENSE SYSTEMS, A UNIT OF THE BOEINGCOMPANY, THE WORLD'SLEADING AEROSPACECOMPANY AND THELARGEST MANUFACTUREROF COMMERCIAL JET-LINERS AND MILITARYAIRCRAFT COMBINED.

Page 7: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

History Aero

Jet AgeIn 1953 new facilities designed entirely for jet aircraft production were built in Vodochodyand operation began in the same year. The production, in which several Czechoslovakaviation plants were involved, focused on large-scale series production of the licensed-builtSoviet MiG-15 aircraft and its derivatives. The supersonic MiG-19 and MiG-21 aircraft weremanufactured in Aero in the 1960s and 1970s, paving the way in production capabilitiesto the domestic programs of the L-29 Delfín and L-39 Albatros jet trainers.

In-house Jet TrainersIn the second half of the 1950s the need for jet trainer aircraft became more and more urgent.The result of concentrated efforts in developing an optimised airframe and domestic jetengine was the maiden flight of the L-29 aircraft in 1959. The final step on Aero’s roadto mass production of jet trainers came in 1961 near Moscow: the L-29 Delfín won in thecomparative testing of three different prototypes and was declared the most suitabletrainer in the Eastern Block countries. Production and deliveries continued smoothly forthe next decade during which the second generation of more powerful and more efficientL-39 aircraft was developed. Aero’s production and assembly halls were occupied withthe production of the L-39 during the 1970s and 1980s. A number of air forces throughoutthe world still use the excellent training quality of this affordable aircraft.

The family of L-39 Albatros aircraft expanded considerably in the course of time and createda perfect basis for further development. The advent of the 1990s saw the incorporationof Western avionics and standards, and the use of more powerful American enginesand global equipment, thereby opening a new chapter in the life of the company. The L-159aircraft was developed.

annual report 2010 AERO Vodochody a.s. | History Aero

12 | | 13

Early Years Aero was founded on 25 February 1919 and was based in Prague’s Old Town while its production plant was located in Prague-Bubeneč. In 2009it celebrated its 90th anniversary and is therefore ranked as one of the oldest aviation technology manufacturers in the world. From the verystart Aero focused on the development and production of aircraft, aircraft parts and repair and as early as 1919 flew its first in-house typeof aircraft - the Aero A-1. This was soon followed by an order from the Ministry of Defence for series production of this type of aircraft designedfor training army pilots – a typical product of a far more distant future!

ExpansionHigher-performance trainers followed and after production was moved to the new plant in Prague in the city district of Vysočany (1923), thislaid the foundation for a new family of Aero A-11 and A-12 reconnaissance, bomber and trainer biplanes. Army pilots soon became famous forbreaking records and winning races in Aero aircraft. Aero – at this time a private enterprise owned by Dr. Vladimír Kabeš – became the mainsupplier for the Ministry of Defence and for the Ministry of Public Works (civil aviation).

This was soon followed by the first foreign customers staring with Finland. The period of the first Czechoslovak Republic brought Aero manyCzechoslovak firsts: it constructed the prototype of the first domestic fighter plane, designed the first single-role cabin transport aircraft,the first twin-engine aircraft, first seaplane with locally constructed floats, introduced a braced high-wing monoplane and also pioneereda practical design for a wooden cantilever wing structure.

War ProductionThe company’s expanded capabilities were fully utilised and later developed during the German occupation when Aero produced stressed-skinsemi-monocoque structures with full jigging for reconnaissance and training missions – the Focke-Wulf Fw 189 and Siebel Si 204. Immediatelyafter the war ended, the nationalised Aero continued to manufacture and repair aircraft. Modified German types of aircraft were manufacturedfor the Czechoslovak Air Force and civil aviation. Shortly after the war a new remarkable domestic type had been introduced – the high-performance,twin-engine all-metal Aero 45 four-seater.

AS EARLY AS 1919 AERO FLEW ITS FIRSTIN-HOUSE TYPE OF AIRCRAFT - THE AERO A-1. THISWAS SOON FOLLOWEDBY AN ORDER FROMTHE MINISTRY OF DEFENCE FOR SERIESPRODUCTION OF THISTYPE OF AIRCRAFT DESIGNED FOR TRAINING ARMY PILOTS

Page 8: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Aero’s History by Dates

annual report 2010 AERO Vodochody a.s. | aero’s history by dates

14 | | 15

1919

továrna létadel(Aero – Aircraftfactory) foundedin Prague

A-1, first in-house designed military trainingaircraft

A-10, first in-house designed civilpassenger aircraft

A-11, family of successful military biplanes(bomber and reconnaissanceaircraft)

De Havilland DH-50, a passengeraircraft builtunder Britishlicence

A-34 “Blackbird”,first of the family of sportand training light biplanes

A-100, family of military biplanes (bomber and reconnaissanceaircraft)

MB-200, all-metal bomber manufacturedunder French licence (Marcel Bloch)

1921 1923 1925 1929 1932 1937 1938

A-A-304, twin-enginelow-wing military aircraft

A-300, twin-enginelow-wing bomber

C4/C-104 (Bucker Bu-131Jungmann) training and aerobaticbiplane

C-3 (Siebel Si-204D),twin-engine military aircraft

Ae-45, twin-engine civil aircraft

Aero movedfrom Prague to new facilitiesin Vodochody

Maiden flight of the MiG-15 jet fighter builtunder Soviet licence (3 405 aircraftdelivered in 1954-1962)

Maiden flight of the MiG-19Farmer supersonic fighter builtunder Soviet licence (103aircraft delive-red in 1958-1962)

1939 1943 1947 1953 1954 1958

Maiden flight of the L-29 Delfín (/Dolphin),the first jet trainerdesigned in Czechoslovakia(3 500 aircraft in 1963-1974)

1959

1962

Maiden flight of the MiG-21 Fishbed supersonic fighter builtunder Soviet licence (194 aircraft delivered in 1962-1972)

Maiden flight of the L-39 Albatros in-house designed jettrainer (more than 2900 aircraft delivered in 1971-1999)

1986 Maidenflight of L-39MSjet trainer, for export designated as L-59 Super Albatros (60 aircraftunits deliveredin 1992-1996)

Maiden flight ofthe L-159 ALCAsingle-seaterlight combataircraft (72 aircraft delivered to theCzech Air Force)

Joint ventureestablished with Taiwanese company AIDC for the developmentand productionof the Ae 270civil aircraft

Boeing’s arrival at Aero (owns 35 %of shares)

Delivery of the firstL-159 aircraft tothe Czech Air Force

Production of passenger doorpolished skins forthe Boeing 757aircraft launched

Maiden flight ofthe first prototypeof the Ae 270aircraft

Production of theS-76 helicopterfor the SikorskyAircraft Corpo-ration launched

Production of the gun baydoors of the F-18 Super Hornet for Boeing St. Louislaunched

Production ofthe Boeing 767sets of parts andsubassembliesfor BAE SYSTEMS(today Spirit AeroSystems)

1968 1986 1997 1998 2000 2001 2002

Maiden flight of the L-159Btwo-seater advanced trainer

Completion ofthe delivery ofL-159 aircraft to the Czech Air Force

Boeing’s departure from Aero

Ae 270 aircraftawarded theEASA Type Certificate

Privatisation ofAero announcedby the Czechgovernment

Aero signs a long-term general contractfor the post-guarantee support of theCzech Air ForceL-159 squadron

Ae 270 aircraftawarded an FAAType certificate

Penta, the privateequity group,becomes theowner of Aero

L-159T1 advancedtrainers deliveredto the Czech Air Force

Joint venturewith AIDC ends

Penta acquiresBritish companyRotortech Com-posites Ltd.

Production of theC-27J Spartancentre wing box forAlenia Aeronauticalaunched

Production of the Embraer170/190 doorsubassembliesfor Latecoerelaunched

Contract signed for the production of suspensions for the JAS-39 Gripen withSAAB

Aero increasesthe registeredcapital in LetištěVodochody, a.s. bya non-monetaryinvestment contribution

Aero purchasesRotortech AeroComposites Limited

Aero purchasesClarex Investments, a.s.

First contractsigned for an international risk-sharing projectwith Belgium company SONACA

2004 2005 2006 2007 2008 2009

Signed contract for theproduction ofthe cockpit forthe Black HawkUH-60 militaryhelicopter withSikorsky

Completion ofthe transfer ofproduction fromTechnometraRadotín

2010

Page 9: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

L-159

L-159 IS A FAMILY OF ADVANCED TRAININGAND LIGHT COMBATAIRCRAFT, WHICH MATESAERO’S LONG-TERM EXPERIENCE IN DEVELOPMENT ANDPRODUCTION OF MILITARYJET AIRCRAFT, IN THECATEGORY OF WHICHAERO REPRESENTSHISTORICALLY THELARGEST PRODUCER IN THE WORLD, WITHLATEST ADVANCES IN AVIONIC, ENGINEAND AIRCRAFT SYSTEMSTECHNOLOGY.

Page 10: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

ROTORTECH

Oragnisational structure Company bodies and management

annual report 2010 AERO Vodochody a.s. | oragnisational structure

18 | | 19

FINANCE (FIN)Michal Flídr

VP

HUMAN RESOURCES (HR)

Milana HrubáVP

STRATEGICPROJECTS (STR)

Petr ŘehořDirector

SECURITY (SEC)Jan Svoboda

QUALITY ASSURANCE (QA)Zdeněk Mlejnek

ředitel

HEAD OF DESIGNORGANISATION

Miloš Trnobranský

SECRETARY

PRESIDENT (CEO)Ladislav Šimek

updated as of 31.12.2010

BUSINESS DEVELOPMENT & SALES (BD&S)

Dale FreeVP

SUPPLY CHAIN (SCH)

Branislav TakáčDirector

AERO-STRUCTURES

PROGRAM (AS)Monika

Vajnerová VP

STRATEGICSOURCING

(STRS)Karel Klíma

Director

OPERATIONS(OPS)

Josef KadlecVP

BUSINESS DEVELOPMENT

& SALES (BD&S MRO))

Petr KalašActing Head

PROCUREMENT(PROC)

Petr Falta

ENGINEERING(R&D MRO)

Miloš Trnobranský

Director

QUALITY CONTROL(QC MRO)

Martin Cerha

PRODUCTION(PROD MRO)

Stanislav Raška

AERO-STRUCTURES

Philippe MichelExecutive VP

DEFENCE & MRO

(D&MRO)Executive VP

CLAREX

Board of directors as of 31 December 2010:chairman: Ing. Ladislav Šimek, MBAmembers: Ing. Petr BrychtaOndřej Benáček

Supervisory board as of 31 December 2010:chairman: Mgr. Václav Štajnermembers: Ing. Zdeněk SýkoraJan Borýsek

Top management as of 31 December 2010:Ing. Ladislav Šimek, MBA, PresidentPhilippe Michel, Executive Vicepresident Aerostructures Ing. Ladislav Šimek, MBA, Deputy Executive Vicepresident Defence&MROMonika Vajnerová, Vicepresident Aerostructures ProgramsIng. Josef Kadlec, Vicepresident for the Technical-Operation SectionIng. Michal Flídr, Vicepresident for FinancePhDr. Milana Hrubá, Vicepresident for Human Resources Ing. Branislav Takáč, Director for Purchase Bc. Zdeněk Mlejnek, Director for QualityIng. Petr Raška – authorised with management, Director for Development

Page 11: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Key events of 2010

annual report 2010 AERO Vodochody a.s. | key events of 2010

20 | | 21

THE SINGLE-SEAT L-159 ISA LIGHT MULTI-ROLE COMBATAIRCRAFT DESIGNED FORA VARIETY OF AIR-TO-AIR,AIR-TO-GROUND AND RECONNAISSANCE MISSIONS.THE AIRCRAFT IS EQUIPPEDWITH A STATE-OF-THE-ARTMULTI-MODE RADAR FOR ALL-WEATHER, DAYAND NIGHT OPERATIONSAND CAN CARRY A WIDERANGE OF NATO STANDARDSSTORES INCLUDING AIR-TO-AIR AND AIR-TO-GROUND MISSILESAND LASER GUIDED BOMBS

„Januarysignature of the contract for the production of the cockpit for the Black Hawk UH-60 helicopter

AERO Vodochody a.s. presented for the second time in succession with the “UTC Gold Supplier Award of the Year”.

February Marchratification

of the contract for GO in Algeria

AprilAmerican Helicopter Society (AHS) presents Aero Vodochody a.s with the Supplier Excellence Award, an award for major contribution to the vertical aviation industry.

May Junecompletion of the transfer of manufacture from Technometra Radotín

July Augustdelivery of the first L159 T1 aircraft to the Army of the Czech Republic

SeptemberAero launches the composite manufacture expansion project

Octobercompletion of the first phase of the composite project, opening of the development-manufacturing worksite with an area of 1600m2

Novemberlaunch of series deliveries of the S-76D to Sikorsky

DecemberAero Vodochody a.s. and the Army of the Czech Republic celebrate the 10th anniversary of the start of the operation of L-159 aircraft.

start of the manufacture of bodies of the undercarriages for the Airbus A-320

Page 12: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

JAS-39Gripen IN OCTOBER 2008,

AERO AND ITS SWEDISHCUSTOMER, SAAB,SIGNED A CONTRACTON DELIVERIES OF THREETYPES OF PYLONS FOR JAS-39 GRIPENAIRCRAFT. WITHINTWELVE MONTHS HAS AERO RAISED ITSPRODUCTION, QUALIFIEDALL SPECIAL PROCEDURES AND PRODUCED FIRST PARTS.

Page 13: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

Sikorsky S-76Program Description• Sikorsky S-76 is a successful twin-engine civil medium category helicopter with a maximum

takeoff weight of 6 tons, designed for carrying 12 passengers. Since production beganin 1976 Sikorsky has delivered more than 700 helicopters to customers especiallyin Europe and the United States.

• Aero has been manufacturing the S-76 since 2000 and so far has delivered more than300 helicopters (reached in mid 2011)

• In 2010 Aero delivered the first series plane of the S-76D version which graduallyreplaced the existing S-76C++

Aero Vodochody a.s. Product and Role• Fully assembled and equipped helicopter ready for the installation of the dynamic parts

(engines, gearbox, rotor blades)• Fully responsible for the production and supply chain• Production of about 45% out of 8,000 various types of parts and components including

tubes and bunched cable. • Installation of avionic, hydraulic, electrical and fuel systems• Assembly of the helicopter body including the installation of composite parts• Responsibility for final inspection• Responsibility for guarantee and post-guarantee servicing and deliveries of spare parts

Program Outlook• In 2010 Aero manufactured 16 S-76C++ helicopters and in 2011 the last 9• Aero is expecting deliveries of 36 S-76D helicopters in the long-term

annual report 2010 AERO Vodochody a.s. | company’s business report

24 | | 25

Business Activities

Aerostructures DivisionThe business activities of the Aerostructures Division in 2010, in accordance with the company’s strategy, focused on 3 key areas which areaircraft structural units with high-level of assembly, undercarriages and composite structures.

In customer terms one of the main directions of business activity was the development of cooperation with existing customers, above all theSikorsky Aircraft Corporation, resulting in the successful conclusion of a contract for the production of cockpits for UH-60M helicoptersin January 2010. Subsequently, Aero began talks on expanding production cooperation for UH-60/S-70 helicopters, and the result is expected in 2011.The second key direction for the development of business relations in 2010 was the establishment of direct cooperation with the Braziliancompany Embraer, which was crowned in 2011 with the extraordinary success in the form of the signing of a contract for deliveries of 4 keystructures of the new KC-390 military transport aircraft.

In total the Aero Vodochody business team prepared 31 bids in 2010 as part of the existing and new programs.

Divize Defence&MROThe division’s business activities in 2010 focused on:• sale of unoperated L-159 aircraft especially to Iraq and Hungary• sale of new L-159 aircraft to Poland• modernisation of the avionics system and software of the Czech Army’s L-159 aircraft fleet• extension of the service life, maintenance and modernisation of L-39 aircraft especially to Vietnam and Bulgaria• repairs and maintenance of L-410 undercarriages• expansion of the division’s activities to different aircraft technology (modifications to transport aircraft and helicopters)

Programy

Aerostructures DivisionIn 2010 the Aerostructures Division supplied products for a total of 8 aircraft families. Besides this, the Aero team worked intensivelyon the development of the leading wing for the CSeries aircraft of Canadian manufacturer Bombardier.

THE S-76 IS A LOWERMIDDLE-CLASS HELICOPTER. IT IS OPERATED IN 37 COUNTRIES ALL OVER THE WORLD.SIKORSKY AIRCRAFTCORPORATION HAS DELIVERED MORE THAN 700 AIRCRAFT TO ITS CUSTOMERS.

„2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f 2013f 2014f 2015f 2016f

1

9

15

2125

30

42

50

56

26

16

9

34 35 36 36 36

2

17

S-76 C Shipsets S-76 D Shipsets

Page 14: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

Alenia C-27J SpartanProgram Description• Alenia C-27J is a military tactical transport aircraft with a maximum utility weight of 11.5 tons• Main users of the aircraft are the United States Air Force and the countries of Central

and Eastern Europe.• Aero has been the sole supplier of the centre wing box since 2007 which is a critical structural

and system unit for the aircraft. Aero manufactures centre wing boxes for all versionsof the C-27J aircraft

• The C-27 Program is a stable source of income for Aero Vodochody a.s.

Aero Vodochody a.s. Product and Role• Fully assembled, equipped and tested centre wing box ready for installing in the aircraft• Aero is fully responsible for the program’s production and supply chain• 63% of the 3,200 components are manufactured directly at Aero• Assembly of the centre wing box involves an integral tank, suspension for installing engines

and mechanisation of the wing, fuel, hydraulic lines and electric harnesses• Aero is responsible for testing all the systems and complete outgoing inspection – the centre

wing box is supplied directly on the production line without inspection by the customer• Responsible for the guarantee and post-guarantee service and delivery of spare parts

Program Outlook• It is estimated that in the next 10 years 350 C-27J category aircraft will be sold globally• Aero has registered 15 fixed orders at July 2011 • Aero expects an annual cycle of deliveries of between 9 – 11 centre wing boxes annually

annual report 2010 AERO Vodochody a.s. | company’s business report

26 | | 27

Sikorsky UH-60M Black HawkProgram Description• Type series Sikorsky S-70/UH-60 helicopters are currently

the most widespread type of military transport helicopter and alsothe main type of helicopter of the United States Armed Forces.The latest version is the UH-60M

• Contract between Aero and Sikorsky was concluded in at the startof 2010, the first cockpit was successfully delivered in June 2011

• Aero is one of two suppliers of the cockpits (long-term 50% share)• Program is highly stable and with long-term prospects

Aero Vodochody a.s. Product and Role• Aero supplies a fully equipped cockpit for the UH-60M helicopter• Production of the parts including the application of special processes • Installation of composite parts• Installation of electric harnesses and control systems• Responsibility for guarantee and post-guarantee service and deliveries of spare parts

Program Outlook• Aero plans to supply 8 cockpits in 2011 and 30 cockpits in 2012• Production program of the UH-60 series of helicopters has a highly stable outlook• Production program of the UH-60M helicopters expects the production of a total of 1200 helicopters up to 2025 for the requirements of the

Unites States Armed Forces (without including export), so far about 300 UH-60M helicopters have been delivered

THE C-27J SPARTAN IS TACTICAL MILITARYCARGO AIRCRAFT, FEATURING GREAT OPERATION FLEXIBILITYAND LOW OPERATIONCOSTS. THE AIRCRAFTIS USED FOR A WIDERANGE OF MISSIONSFROM CARGO TRANS-PORTATION TO LOGISTICSUPPORT OF MILITARYUNITS AND AIRBORNEUNIT TRANSPORTATIONAS WELL AS FOR SPECIAL SERVICES.

„2011f 2012f 2013f 2014f 2015f 2016f

4

30

45 45 45 45

2007 2008 2009 2010 2011f 2012f 2013f 2014f 2015f 2016f

1

7

11

9 910

11 11 11 11UH-60M cocpit Shipsets C-27J CWB Shipsets

Page 15: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

Further ProgramsBoeing 767• Aero supplies a set of parts for the leading wing for the Boeing 767 series of aircraft• Direct partner of Aero Vodochody a.s. is the company Spirit AeroSystems

SAAB JAS-39 Gripen• Fully equipped weapons pylon of NATO standard; • Deliveries as part of the program’s first phase completed in

January 2011; deliveries as part of the second phase will beginat the end of 2011

Embraer 170 / 190• Deliveries of hinges and internal structure for all doors

for Embraer E-170/175/190/195 aircraft • Aero’s partner is Latecoere

F/A-18 Super Hornet• JSole supplier of assembled doors for the gun bay shaft

of the F/A-18 Super Hornet aircraft; start of deliveries in 2001;so far more than 360 doors have been delivered

• Program involves production of parts, special processes,assemblies

Airbus A320 / A340• Since 2005 Aero has been delivering smaller assemblies

of structural parts for the tail section of the A320 and A340Airbus including more than 250 assemblies

• In 2010 Aero began delivery of components (side-stay assemblies) for the undercarriagesof A320 (318 / 319 / 320) series of aircraft; a direct partner of Aero Vodochody a.s.is the company Messier-Dowty

annual report 2010 AERO Vodochody a.s. | company’s business report

28 | | 29

Bombardier CSeriesProgram Description• Bombardier CSeries is a new single-aisle aircraft for commercial

transport on short and medium hauls, two versions of the aircraft(C100 and C300) can carry between 100 and 150 passengers

• Thanks to the modern construction of the airframe and enginesthe CSeries will have the lowest operating costs of its class

• Aircraft prototype is expected in 2012, to go into service in 2014• Aero is the development and risk sharing partner of the Belgium

company Sonaca • Aero is the exclusive supplier

Aera Vodochody a.s. Product and Role• Fully assembled and equipped with a fixed leading wing ready for installation • Each assembly (left and right wing) contains more than 2,000 components• Aero is fully responsible for the design, industrialisation, certification and production

Program Outlook• Aero expects the start of series deliveries in 2013 and production of 50 assemblies in 2015 and 100 assemblies as of 2016 onwards • In mid 2011 Bombardier was registered for fixed orders for 123 aircraft and option of 119

THE BOEING 767 IS A MIDDLE-SIZEDWIDE-BODY TWINJETAIRLINER PRODUCEDBY BOEING COMMERCIALAIRPLANES. PASSENGERVERSIONS OF THE B767CAN CARRY FROM 181 UP TO 375 PASSENGERS, AND HAVE A RANGE OF 9,400 TO 12,200 KM,DEPENDING ON THE VERSION AND SEATING CONFIGURATION.

„2013f 2014f 2015f 2016f

7

26

50

100

CSeries FLE Shipsets

Page 16: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

RevenuesAero’s revenues amounted to 2.7 bil. CZK. Of this revenues for in-house products andservices accounted for 91%, revenues from goods 8% and revenues from the sale ofmaterial and assets 1%. The Aerostructures Division accounted for 65% of revenues,especially from the production and sale of the Sikorsky S-76 civil helicopters (76%of revenues of the Aerostructures Division) despite the customer temporarily reducingthe number of deliveries in reaction to the development of the economic situation on themarket and a delay in the development of the S-76D model. In 2010 Aero delivered toSikorsky 16 S-76C++ helicopters and 2 prototypes of the S-76D version. Of the othercooperation programs that contributed more significantly was the Alenia C-27J Programwhen the entire centre wing box is being manufactured for the C-27J Spartan militarytransport aircraft (9% of the revenues of the Aerostructures Division), as well as the F/A-18Program – gun bay door for Boeing, subassemblies for EADS, pylons for the JAS-39Gripen and Embraer 170/190 aircraft door subassemblies for Latecoere.

Production is planned for 2011 and further years of the new type of Sikorsky helicopters,production of the cockpit for the UH-60M Black Hawk helicopter and production of theleading wing for the new CSeries type of aircraft.

The Defence & MRO Division accounted for 35% of revenues particularly with the fulfilmentof contracts with the Ministry of Defence of the Czech Republic, flight hours in Hungary andoverhauls for foreign countries above all for the Ministry of Defence of Algeria and Tunisia.

Export accounted for 1.8 bil. CZK and 69% of total revenues. The high contributionof export to total revenues consists particularly of the high share of cooperation in totalproduction. This particularly concerns the production of S-76C helicopters for Sikorskyand deliveries of centre wing box for C-27J aircraft for Alenia Aeronautica. In the caseof the Defence & MRO Division export consisted of overhauls of the L-39 in Algeria.

annual report 2010 AERO Vodochody a.s. | company’s business report

30 | | 31

Defence & MRO DivisionThe division’s main programs in 2010 were as follows:• production and delivery of two L-159T1 jet trainers for the Air Force of the Army of the Czech Republic• third level of maintenance for the eight year operation of L-159 aircraft owned by the Army of the Czech Republic (i.e. PP2000) associated

with modernisation features• providing post-guarantee support for the L-159 aircraft fleet owned by the Army of the Czech Republic (FOSS)• long-term storage of unoperated L-150 aircraft owned by the Army of the Czech Republic• modernisation of communication and identification equipment for parts of the L-159 aircraft fleet owned by the Army of the Czech Republic• support for the L-39ZA aircraft fleet of the Algerian Air Force • support for the L-59 aircraft fleet of the Tunisian Air Force (post-guarantee support for aircraft and overhauls of DV-2 engines)

Investments, Development Programs, Research and Development of AERO Vodochody a.s.The company’s investment and development activities are in compliance with the development strategy directed at two key areas. One of thenis the development of new manufacturing and non-manufactruing capabilities. In 2010 investments were approved of 188.5 mil. CZK, of whichthe biggest part is directed at the construction of the series composite production worksite and at the technological equipment and renewalof existing operations (such as the quick-hardening furnace, wirecutter).

The second key area are investments in new products. In 2010 the company invested 90.1 mil. CZK in development projects, mostly in programsfor the development of the leading wing for CSeries aircraft and production of the cockpit for the Black Hawk UH 60 helicopter.

Company IncomeIn 2010 Aero achieved an economic profit of 431.4 mil. CZK despite the unfavourable economic situation on global markets. Aero continues tomake a profit since the successful completion of restructuring the company in 2007 when the company was taken over by the Penta Group.

The production and sale of Sikorsky helicopterssignificantly contributed to the 2010 income as didthe fulfilment of the contracts for the Ministry ofDefence of the Czech Republic to a considerableextent. Cooperation is intensively developing in othercooperation programs. In 2010 the companysignificantly contributed to the CSeries Program whenit worked throughout the year on the developmentof the leading wing. The equity as of 31 December2010 amounted to 2.88 billion CZK (2009: 3.04 bil.CZK; 2008: 1.8 bil. CZK). The reduction in equitywas caused by the payment of dividends toshareholders in September 2010 of 0.6 bil. CZK.

THE AIRBUS A340 IS A COMMERCIAL PASSENGER AIRLINERFOR SHORT- TOMEDIUM-RANGE DIS-TANCE MANUFACTUREDBY AIRBUS. THE A320WAS THE FIRST CIVILAIRCRAFT WITH FLY-BY-WIRE DIGITAL CONTROLSYSTEM. MEASURED BY THE VOLUME OFCURRENT ORDERS, THE AIRCRAFT RANKAMONG THE MOST FAVORITE IN ITSCATEGORY.

„2007 2008 2009 2010 2011f 2012f 2013f 2014f 2015f 2016f

236 402 279 431 246638

411 467 428 531

3999 4118

2911 2851 2874

4273 4153 4284 4350

4826

1349 1354

10751157

1261

1478 1460 14521355

1452

Revenues (mil. CZK) Profit (mil. CZK) Number of employees

Page 17: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

Financial SituationThe share of equity in the company’s total capital at the end of 2010 was 57 %. The entitieswho contributed to the registered capital are TULAROSA a.s. (51%) and Salori Holding B.V.(49%). The parent company is TULAROSA which is part of the consolidation unitof the group Penta Investments Limited. Equity fell by 159 mil. CZK (5%) to 2,878 mil. CZKcompared with 2009. The fall was due above all to the payment of dividends of 600 mil.CZK. This impact was compensated by achieving a positive economic profit (431 mil. CZK)and there was an increase in June 2010 of the legal reserve fund in line with the rulesof Czech accounting standards.

Liabilities increased by 5% to 2,186 mil. CZK. In July 2010 a loan from the Česká exportníbanka was refinanced when the Sikorsky Program was newly financed through a consortiumof banks (Česká spořitelna, Komerční banka, Česká exportní banka). This transaction alsoinvolved the financing of the CWB production program for Alenia Aeronautica. Howeverthis has not been managed so far because of the customer’s rejection.

Financing was also concluded for future receivables for the PP2000 Project with Komerčníbanka and Česká spořitelna of 350 mil. CZK. In total there was an increase in loansby 349 mil. CZK (32 %) to 1,449 mil. CZK

On the contrary, there was a reduction in trade payables by 224 mil. CZK (52%) to 209 mil.CZK above all due to a fall in the production volume of the Sikorsky Program. The company’sindebtedness is 43 % of the total value of the venture. Our company continues to cover thepayables to its suppliers by the due date.

The company manages the risk of fluctuation in the exchange rate and regularly ensures securitythrough hedging products (usually forwards, options, currency and interest swaps).

annual report 2010 AERO Vodochody a.s. | company’s business report

32 | | 33

IncomeAero showed a total income for 2010 of 431.4 mil. CZK consisting of the operating income of 410 mil. CZK, financial result of 21 mil. CZK and extraordinaryincome of 0.8 mil. CZK. Operating income in 2010 was lower than planned and above all for the reason that the licence for the repair of the L-39was not sold to RALAS (-58 mil. CZK) and also because of a delay in the development and sale of the S-76D. Aero flexibly responded to this newsituation and took steps resulting in lower overhead costs in an attempt to reduce the impact on regular employees as much as possible.The company’s management attempted to find the most viable alternative and at the end of the year there was even a response to increasingdemands for deliveries in 2011 for the gradual increase in employees which will continue in 2011.

The fall in deliveries compared with those planned was particularly noticeable in cooperation with the biggest impact on the level of revenuesin the production of S-76 C and D helicopters and in wings for Alenia. Part of the deliveries of pylons for JAS-39 Gripen aircraft for SAAB was movedto 2011. Deliveries were also not made of undercarriage parts for Messier-Dowty due to a delay in the transfer of the project from TechnometraRadotín. The Defence & MRO Division achieved a higher than planned operating income. The operating income was positively affected above allby achieving savings in periodical works (PP2000) and overhauls in Algeria. The exchange rate of the crown against the dollar and Euro also hada positive effect on income.

In Aero had losses from derivative operations of 48 mil. CZK. The interest received from loans provided exceeded interest from loans received by80 mil. CZK. Interest paid compared with previous years was affected by a development in interest rates on world markets when Aero makesuse of financing by foreign capital with interest including a fluctuating component such as 3M USD Libor or the discount rate announced by the CNB,whereas providing the Penta Group with free funds at a fixed interest. Foreign exchange gains from the revaluation of loans were higher thanlosses by 6.2 mil. CZK.

Asset structure Aero’s total assets fell in 2010 compared with 2009 by 1.2% to a total (in net value) of 5,081 mil. CZK. Current assets, as of 31.12.2010 were3,530 mil. CZK (i.e. 69 % of total company assets), consisting of stock (1,210 mil. CZK), short-term receivables (774 mil. CZK) and short-termfinancial assets (283 mil. CZK). Current assets fell by 5.5% compared with 2009.

The fall in material stock by 34% was particularly due to a reduction in deliveries of S-76C helicopters arising from Sikorsky’s decision in mid2009, when the material for this program is planned for several months in advance and significantly increased the end status in 2009. Aero adoptedmeasures to reduce the volume of new orders to the necessary level and exerted long-term pressure on reducing the volume of stock.Advances for stock fell by 94% to 2 mil. CZK.

Trade receivables rose by 34% to 622 mil. CZK, above all for reasons of completing deliveries (S-76, GO Algeria, Alenia) at the end of the year.Short-term financial assets were increased by 34% to 283 mil. CZK. Long-term assets rose by 6% to 1,470 mil. CZK and account for 29%of Aero’s assets. The significant increase in long-term assets was caused by the evaluation and capitalisation of costs for development,introduction of the CSeries and Black Hawk Programs and evaluating rights acquired when procuring know how from Technometra evaluatedby an expert at 25 mil. CZK.

THE EMBRAER 170/190FAMILY OF E-JETS CONSISTS OF FOURCOMMERCIAL JETSWITH 70 TO 122 SEATS,FEATURING ADVANCEDENGINEERING DESIGN,EFFICIENT PERFORMANCE,OUTSTANDING OPERATING ECONOMICS,LOW EMISSIONS LEVELSAND A SPACIOUS CABIN.

Page 18: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Company’s business report

EnvironmentIn 2010 Aero produced a total of 12.5 tons of dangerous materials (of which 5.7 tonsof volatile organic materials, 5.25 tons of nitrogen oxide and 0.62 tons of solid particles).The main emitters were the boiler room, chemical plants and paint shops.In 2010 Aero paid 24,300 CZK in air protection charges. The measurement of all sourcesshowed that emission limits were also met in 2010. In 2010 Aero produced 955.42 tons of waste (of which 323.57 tons of dangerous waste).

In 2010 Aero consumed 87,100 m3 of ground water (of which 75,600 m3 for industrialtechnology) and produced 67,700 m3 of waste water. Water consumption charges totalled249,652 CZK. Total charges for discharging waste water in 2010 amounted to 614 CZK,of which charges for discharging pollution amounted to 614 CZK and for dischargedvolumes of water 0 CZK.

Major Events after the Balance Date

January 2011 split of the separate Engineering Division (to strengthen the position of the development partner)

February 2011 development of the manufacture of composites (start of construction of the seriesproduction site with an area of 5 627 m2 scheduled for completion in 4/2012)

March 2011 supplier conference at AV in cooperation with Sikorsky (to strengthen the positionof the aircraft projects integrator and building of the supply chain

April 2011 description of the risk-sharing project with EMBRAER (historical turning-point, advancement to the position of 1st tier partner for the development, industrialisation and manufacture in an international military aircraft project)

June 2011 acquisition of certification for the environmental management system according to ISO 14001:2004acquisition of the certification for the occupational health and safety system according to 18001:2007 delivery of the first cockpit for the Black Hawk UH-60 helicopter

July 2011 start of deliveries as part of the CSeries Programstart of development work on the KC-390 Project (sending a team to Brazil)

annual report 2010 AERO Vodochody a.s. | company’s business report

34 | | 35

Human resourcesIn human resources Aero focused in 2010 on stabilising its employees’ situation in terms of creating comparative market conditions and projectsrelating to the company’s direct development support which is associated with business success. Aero became an active link to the labour marketand a driving force of cooperation of the aviation industry with educational institutions. The great challenge which was met was maintaining the constantincrease in the qualifications and professionalism employees which goes hand in hand with ensuring their sufficient number as one of the mainpriorities for the years to follow. In 2010 the average converted number of employees was 1,122 and the total number of employees was 1,157 as of 31.12.2010.At this time more than 150 employees were recruited, mostly for manual jobs to ensure and implement the existing and new production programs,and 93 employees left the company. The total fluctuation in 2010 came to 1.86 %, which was a 0.26% fall compared with 2009. The average wageamounted to 32,544 CZK. The company laid great stress in 2010 on education and training employees due to the increasing demands of customers.Among the important pillars of education and training are language courses and intensive training of lean production tools which will besupported in 2011 with the implementation of the training centre project and the WING operating system training. Total training costsin 2010 amounted to 2,906,178 CZK, which comes to 2,590 CZK per employee.

Quality Policy - Quality Management SystemThe optimisation was completed in 2010 of the existing quality management system. The main steps were the complete review of corporate processesand their adjustment in line with the company’s objectives. The resulting setting of outputs from processes now directly corresponds to the requirementsand information essential for company’s management. Adjustment of management documentation is closely related to the review of processes.The simplification and transparency of the setting of processes led to a reduction in the number of organisational guidelines by more than 50% and reduceadministration. The conformity of the quality management system was verified in 2010 by independent audits conducted by certification bodies (LRQA)and inspections by state administration supervisory bodies (in the civil area by the ÚCL, in the military by the OVL). These audits did not find anyserious inconsistencies with legislative requirements. The audits conducted by Aero Vodochody a.s. customers came up with similar results. In 201043 of these audits were conducted at the company. As regards the further development of company activities and requirements for continuousimprovement of performance processes, the WING operating system was created in 2010 which is a summary of all the tried and tested practicesand procedures used in the company in relation to process management and streamlining of processes. The requirements of the WING operatingsystem will be required over the next few years by Aero Vodochody a.s. suppliers in order to achieve maximum harmonisation and follow-up of activitiesin joint activities. The Aero Vodochody a.s. quality policy was reassessed with regard to meeting the quality objectives set for 2010 and planned changesin the company. In view of the ongoing implementation of ISO 14001 environmental protection and OHSAS 18001 occupational health and safety standard,and new review of the AS9100 professional aviation standard a requirement was defined for the explicit opinion of the new settings of the qualitymanagement systems. The existing quality policy will be transformed into the integrated management system policy during the first half of 2011.

The company’s management decided as part of the review of the quality / integrate management system policy for a stronger standpoint withregard to customer orientation and clearer focus• on customer requirements• on constant and sustained development• on environmental management and increased in occupational safety• on dealing with problems with narrow seats• on quicker implementation of the WING operating system • on the certification of WING requirements for specific suppliers according to the plan presented within the WING Project12 out of the 14 defined tasks were met concerning planned quality objectives for 2010. The reason why 2 objectives were not met wasa complete change in the requirements for the area being resolved.

AERO VODOCHODY A.S.HAS COMMITTED ITSELFTO THE CONTINUOUSREDUCTION OF WASTEPRODUCTION AND TO LIMIT NEGATIVEEFFECTS ON THE ENVIRONMENT.

Page 19: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

SikorskyS-76

WE HAVE BEEN MANUFACTURING THE COMPLETE S-76HELICOPTER READYFOR THE INSTALLATIONOF DYNAMIC PARTS FOR THE AMERICANCUSTOMER SIKORSKYAIRCRAFT CORPORATIONSINCE 2000. IN MAY 2011THE 300TH VERSION CHELICOPTER WAS DELIVERED.

Page 20: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Opinion of the supervisory board

annual report 2010 AERO Vodochody a.s. | opinion of the supervisory board

38 | | 09

According to the § 198 Commercial Code supervisory board has reviewed regular 2010 final accounts of AERO Vodochody a.s.

After regular final accounts discussion and auditor standpoint identification supervisory board recommended the submitted regular 2010 finalaccounts for regular company general meeting approval on its sitting on 28th June 2011.

Supervisory board has further commanded regular general meeting to approve the board of directors proposal on 2010 profit allocation of CZK431,377 mil. as follows:- CZK 21,569 mil. to the company reserve fund,- The rest of CZK 409,808 mil. to transfer from the 431 Economy result in approval procedure account to the 428 Retained income from the past

years.

In Odolena Voda 28th June 2011

Vaclav StajnerChairman of the supervisory board

Page 21: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Auditor’s statement of the annual report

annual report 2010 AERO Vodochody a.s. | auditor’s statement of the annual report

40 | | 41

To the Shareholders of AERO Vodochody a.s.:We have audited the financial statements of AERO Vodchody a.s. (“the Company”) as at 31 December 2010 presented in the annual reportof the Company on pages 44 – 75 and our audit report dated 13 June 2011 stated the following:

To the Board of Directors of AERO Vodochody a.s.:We have audited the accompanying financial statements of AERO Vodochody a.s., which comprise the balance sheet as at 31 December 2010,and the income statement and cash flow statement for the year then ended, and a summary of significant accounting policies and otherexplanatory notes. For details of AERO Vodochody a.s. see Note 1 to the financial statements.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principlesgenerally accepted in the Czech Republic, and for such internal control as management determines is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud or error.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Act onAuditors and International Standards on Auditing as amended by implementation guidance of the Chamber of Auditors of the Czech Republic. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financialstatements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The proceduresselected depend on the auditor's judgment, including an assessment of the risks of material misstatement of the financial statements, whetherdue to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of AERO Vodochody a.s. as at 31 December 2010,and its financial performance and its cash flows for the year then ended in accordance with accounting principles generally accepted in the Czech Republic.

Emphasis of MatterWe draw attention to the facts disclosed in Note 4c to the financial statements, which describes that the recoverability of the cost ofthe investment in Rotortech Aero Composites Limited amounting CZK 225,530 thousand is dependent on successful conclusion of a compensationagreement for cost recovery with PENTA INVESTMENTS LIMITED. Our opinion is not qualified in respect of this matter.

I.We have also audited the consistency of the annual report with the financial statements described above. The management of AERO Vodochodya. s. is responsible for the accuracy of the annual report. Our responsibility is to express, based on our audit, an opinion on the consistencyof the annual report with the financial statements.

We conducted our audit in accordance with International Standards on Auditing and the related implementation guidance issued by the Chamberof Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whetherthe information presented in the annual report that describes the facts reflected in the financial statements is consistent, in all material respects,with the financial statements. We have checked that the accounting information presented in the annual report is consistent with that containedin the audited financial statements as at 31 December 2010. Our work as auditors was confined to checking the annual report with the aforementio-ned scope and did not include a review of any information other than that drawn from the audited accounting records of the Company. We believe thatour audit provides a reasonable basis for our opinion. Based on our audit, the accounting information presented in the annual report is consistent,in all material respects, with the financial statements described above.

I.In addition, we have reviewed the accuracy of the information contained in the report on related parties of AERO Vodochody a. s. for the year ended31 December 2010 presented in the annual report of the Company on pages 76 – 77. The management of AERO Vodochody a.s. is responsible forthe preparation and accuracy of the report on related parties. Our responsibility is to issue a report based on our review.

We conducted our review in accordance with the applicable International Standard on Review Engagements and the related Czech standard No. 56 issuedby the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the review to obtain moderate assurance as to whe-ther the report on related parties is free from material misstatement. The review is limited primarily to enquiries of company personnel, to analytical pro-cedures applied to financial data and to examining, on a test basis, the accuracy of information, and thus provides less assurance than an audit. We have notperformed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the report on related parties of AERO Vodochody a. s. for the year ended31 December 2010 is materially misstated.

Ernst & Young Audit, s.r.o.License No. 401Represented by Partner

Radek PavAuditor, License No. 2042

30 August 2011Prague, Czech Republic

Page 22: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Alenia C-27J

WE PARTICIPATE ON THE PRODUCTIONOF THE C-27J SPARTANMILITARY TRANSPORTAIRCRAFT SINCE 2006.FOR ITS ITALIAN CUSTOMER, ALENIAAERONAUTICA, AEROPRODUCES THE COMPLETE CENTERWING BOX READY FOR INSTALLATION ON THE AIRCRAFT.

Page 23: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Financial statement

annual report 2010 AERO Vodochody a.s. | financial statement

44 | | 45

Current year Prior year 2009BALANCE SHEET - LONG FORM (in thousands of Czech crowns) Net Net

TOTAL ASSETS 5,080,939 5,142,115A. PSTOCK SUBSCRIPTION RECEIVABLE 0 0

B. FIXED ASSETS 1,470,095 1,392,336

B. I. Intangible assets 151,587 94,473B. I. 1 Foundation and organization expenses 0 0

2 Research and development 0 0 3 Software 2,663 2,104 4 Patents, royalties and similar rights 25,823 0 5 Goodwill 0 0 6 Other intangible assets 1,054 614 7 Intangible assets in progress 122,047 91,755 8 Advances granted for intangible assets 0 0

B. II. Tangible assets 757,035 771,416 B. II. 1 Land 24,897 24,897

2 Constructions 421,685 423,833 3 Separate movable items and groups of movable items 264,152 218,577 4 Perennial crops 0 0 5 Livestock 0 0 6 Other tangible assets 3,454 119 7 Tangible assets in progress 42,743 95,803 8 Advances granted for tangible assets 104 8,187 9 Gain or loss on revaluation of acquired property 0 0

B. III. Financial investments 561,473 526,447 B. III. 1 Subsidiaries 561,473 526,447

2 Associates 0 0 3 Other long-term securities and interests 0 0 4 Loans to subsidiaries and associates 0 0 5 Other long-term investments 0 0 6 Long-term investments in progress 0 0 7 Advances granted for long-term investments 0 0

Current year Prior year 2009Net Net

C. CURRENT ASSETS 3,529,946 3,734,720

C. I. Inventory 1,210,407 1,572,901 C. I. 1 Materials 676,671 1,019,190

2 Work in progress and semi-finished production 530,567 505,491 3 Finished products 0 0 4 Livestock 0 0 5 Goods 467 3,789 6 Advances granted for inventory 2,702 44,431

C. II. Long-term receivables 1,262,885 7,940 C. II. 1 Trade receivables 0 0

2 Receivables from group companies with majority control 1,262,885 7,940 3 Receivables from group companies with control of 20% - 50% 0 0 4 Receivables from partners, co-operative members and participants in association 0 0 5 Long-term advances granted 0 0 6 Unbilled revenue 0 0 7 Other receivables 0 0 8 Deferred tax asset 0 0

C. III. Short-term receivables 773,716 1,963,601 C. III. 1 Trade receivables 621,846 464,075

2 Receivables from group companies with majority control 120,592 1,427,260 3 Receivables from group companies with control of 20% - 50% 0 0 4 Receivables from partners, co-operative members and participants in association 0 0 5 Social security and health insurance 0 0 6 Due from government - tax receivables 122 36,592 7 Short-term advances granted 14,873 33,372 8 Unbilled revenue 14,720 605 9 Other receivables 1,563 1,697

C. IV. Short-term financial assets 282,938 190,278 C. IV. 1 Cash 4,756 4,702

2 Bank accounts 278,182 185,576 3 Short-term securities and interests 0 0 4 Short-term financial assets in progress 0 0

D. OTHER ASSETS - TEMPORARY ACCOUNTS OF ASSETS 80,898 15,059

D. I. Accrued assets and deferred liabilities 80,898 15,059 D. I. 1 Prepaid expenses 68,328 13,717

2 Prepaid expenses (specific-purpose expenses) 0 0 3 Unbilled revenue 12,570 1,342

Page 24: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Financial statement

annual report 2010 AERO Vodochody a.s. | financial statement

46 | | 47

BALANCE SHEET - LONG FORM (in thousands of Czech crowns) Current year Prior year 2009

TOTAL EQUITY & LIABILITIES 5,080,939 5,142,115 A. EQUITY 2,878,084 3,037,427

A. I. Basic capital 1,883,589 1,883,589 A. I. 1 Registered capital 1,883,589 1,883,589

2 Own shares and own ownership interests (-) 0 0 3 Changes in basic capital 0 0

A. II. Capital funds 30,400 21,119 A II. 1 Share premium (agio) 0 0

2 Other capital funds 28,720 28,720 3 Gain or loss on revaluation of assets and liabilities 1,680 (7,601) 4 Gain or loss on revaluation of company transformations 0 0

A III. Reserve funds and other funds created from profit 249,871 247,622 A III. 1 Legal reserve fund 245,575 231,611

2 Statutory and other funds 4,296 16,011

A. IV. Profit (loss) for the previous years 282,847 605,793 IV. 1 Retained earnings for the previous years 282,905 605,851

2 Accumulated loss of previous years (58) (58)

A. V. Profit (loss) for the year (+ / -) 431,377 279,304

Current year Prior year 2009

B. LIABILITIES 2,186,330 2,078,423

B. I. Provisions 191,613 191,025 B. I. 1 Provisions created under special legislation 0 0

2 Provision for pensions and similar obligations 0 0 3 Provision for corporate income tax 0 0 4 Other provisions 191,613 191,025

B. II. Long-term liabilities 195,884 198,408 B. II. 1 Trade payables 0 0

2 Liabilities to group companies with majority control 195,884 198,408 3 Liabilities to group companies with control of 20% - 50% 0 0 4 Liabilities to partners, co-operative members and participants in association 0 0 5 Advances received 0 0 6 Bonds payable 0 0 7 Notes payable 0 0 8 Unbilled deliveries 0 0 9 Other liabilities 0 0

10 Deferred tax liability 0 0

B. III. Current liabilities 350,189 588,986 B. III. 1 Trade payables 208,978 432,866

2 Liabilities to group companies with majority control 0 0 3 Liabilities to group companies with control of 20% - 50% 0 0 4 Liabilities to partners, co-operative members and participants in association 0 0 5 Liabilities to employees 27,459 28,187 6 Liabilities arising from social security and health insurance 14,783 12,931 7 Due to government – taxes and subsidies 12,764 5,616 8 Advances received 35,282 41,134 9 Bonds payable 0 0

10 Unbilled deliveries 34,393 58,129 11 Other liabilities 16,530 10,123

B. IV. Bank loans and borrowings 1,448,644 1,100,004 B. IV. 1 Long-term bank loans 1,348,644 0

2 Short-term bank loans 100,000 1,100,004 3 Borrowings 0 0

C. OTHER LIABILITIES - TEMPORARY ACCOUNTS OF LIABILITIES 16,525 26,265

C. I. Accrued liabilities and deferred assets 16,525 26,265 C. I. 1 Accruals 905 11,669

2 Deferred income 15,620 14,596

Page 25: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Financial statement

annual report 2010 AERO Vodochody a.s. | financial statement

48 | | 49

INCOME STATEMENT - LONG FORM (in thousands of Czech crowns) Current year Prior year 2009

I. 1 Revenue from sale of goods 220,686 247,068 A. 2 Cost of goods sold 175,187 267,977

+ GROSS MARGIN 45,499 (20,909)

II. Production 2,630,595 2,664,256 II. 1 Revenue from sale of finished products and services 2,511,216 2,601,112

2 Change in inventory produced internally 41,468 40,905 3 Own work capitalized 77,911 22,239

B. Production related consumption 1,546,133 1,731,612 B. 1 Consumption of material and energy 1,161,304 1,421,334 B. 2 Services 384,829 310,278

+ VALUE ADDED 1,129,961 911,735

C. Personnel expenses 586,695 622,383 C. 1 Wages and salaries 432,064 469,642 C. 2 Bonuses to members of company or cooperation bodies 350 360 C. 3 Social security and health insurance 144,503 141,791 C. 4 Other social costs 9,778 10,590

D. Taxes and charges 5,349 3,791 E. Amortization and depreciation of intangible and tangible fixed assets 90,132 83,911

III. Revenue from sale of intangible and tangible fixed assets and materials 27,963 33,871 III. 1 Revenues from sale of intangible and tangible fixed assets 5,298 26,025

2 Revenue from sale of materials 22,665 7,846 F. Net book value of intangible and tangible fixed assets and materials sold 23,908 30,888 F. 1 Net book value of intangible and tangible fixed assets sold 4,678 23,378 F. 2 Materials sold 19,230 7,510 G. 1 Change in provisions and allowances relating to operations and in prepaid expenses (specific-purpose expenses) (19,234) (158,228)

IV. 2 Other operating revenues 1,116,310 1,934,613 H. 1 Other operating expenses 1,177,695 2,041,950

V. 2 Transfer of operating revenues 0 0 I. 1 Transfer of operating expenses 0 0

Current year Prior year 2009

* PROFIT OR LOSS ON OPERATING ACTIVITIES 409,689 255,524

VI. 1 Revenue from sale of securities and interests 4,291 0 J. 1 Securities and interests sold 4,508 0

VII. Income from financial investments 0 0 VII.1 Income from subsidiaries and associates 0 0

2 Income from other long-term securities and interests 0 0 3 Income from other financial investments 0 0

VIII.1 Income from short-term financial assets 22 0 K. 2 Expenses related to financial assets 1,100 0

IX. 1 Gain on revaluation of securities and derivatives 0 0 L. 2 Loss on revaluation of securities and derivatives 0 0 M. 1 Change in provisions and allowances relating to financial activities (1,100) 0

X. 1 Interest income 106,379 69,838 N. 2 Interest expense 26,206 26,716

XI. 1 Other finance income 266,842 304,808 O. 2 Other finance cost 325,985 331,472

XII.1 Transfer of finance income 0 0 P. 2 Transfer of finance cost 0 0

* PROFIT OR LOSS ON FINANCIAL ACTIVITIES 20,835 16,458

Q. Tax on profit or loss on ordinary activities 0 0 Q. 1 - due 0 0 Q. 2 - deferred 0 0

** PROFIT OR LOSS ON ORDINARY ACTIVIES AFTER TAXATION 430,524 271,982

XIII.1 Extraordinary gains 3,334 9,241 R. 2 Extraordinary losses 2,481 1,919 S. 1 Tax on extraordinary profit or loss 0 0 S. 1 - due 0 0 S. 2 - deferred 0 0

* EXTRAORDINARY PROFIT OR LOSS 853 7,322

1 Transfer of share of profit or loss to partners (+/-) 0 0

*** PROFIT OR LOSS FOR THE YEAR (+/-) 431,377 279,304

**** PROFIT OR LOSS BEFORE TAXATION 431,377 279,304

Page 26: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Financial statement

annual report 2010 AERO Vodochody a.s. | financial statement

50 | | 51

CASH FLOW STATEMENT (in thousands of Czech crowns) Current year Prior year 2009

CASH FLOWS FROM OPERATING ACTIVITIES

Z. PROFIT OR LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (+/-) 430,524 271,982

A. 1. Adjustments to reconcile profit or loss to net cash provided by or used in operating activities 42,830 100,101 A. 1. 1. Depreciation and amortization of fixed assets and write-off of receivables 90,132 83,911 A. 1. 2. Change in allowances (20,922) 91,458 A. 1. 3. Change in provisions 588 (66,769) A. 1. 4. Foreign exchange differences (19,061) 37,270 A. 1. 5. (Gain)/Loss on disposal of fixed assets (403) (2,647) A. 1. 6. Interest expense and interest income (80,173) (43,122) A. 1. 7. Other non-cash movements (e.g. revaluation at fair value to profit or loss, dividends received) 72,669 0

A * NET CASH FROM OPERATING ACTIVITIES BEFORE TAXATION,CHANGES IN WORKING CAPITAL AND EXTRAORDINARY ITEMS 473,354 372,083

A. 2. Change in non-cash components of working capital (72,131) (222,784) A. 2. 1. Change in inventory 330,132 (292,325) A. 2. 2. Change in trade receivables (148,548) 126,349 A. 2. 3. Change in other receivables and in prepaid expenses and unbilled revenue (17,386) 160,534 A. 2. 4. Change in trade payables (223,888) (131,933) A. 2. 5. Change in other payables, short-term loans and in accruals and deferred income (12,441) (85,408)

A ** NET CASH FROM OPERATING ACTIVITIES BEFORE TAXATION,INTEREST PAID AND EXTRAORDINARY ITEMS 401,223 149,300

A. 3. 1. Interest paid (29,134) (23,788) A. 4. 1. Tax paid 0 0 A. 5. 1. Gains and losses on extraordinary items 853 0

A *** NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 372,942 125,512

Current year Prior year 2009

CASH FLOWS FROM INVESTING ACTIVITIES

B. 1. 1. Purchase of fixed assets (186,624) (281,592) B. 2. 1. Proceeds from sale of fixed assets 9,589 26,025 B. 3. 1. Loans granted 51,723 (529,937) B. 4. 1. Interest received 98,914 74,764 B. 5. 1. Dividends received 0 0

B *** NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (26,398) (710,740)

CASH FLOWS FROM FINANCING ACTIVITIES

C. 1. Change in long-term liabilities and long-term, resp. short-tem, loans 346,116 (398,586)

C. 2. 1. Effect of changes in basic capital on cash 0 0 C. 2. 2. Dividends or profit sharing paid (600,000) 0 C. 2. 3. Effect of other changes in basic capital on cash 0 950,000

C *** NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (253,884) 551,414

F. NET INCREASE (DECREASE) IN CASH 92,660 (33,814) P. CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 190,278 224,092 R. CASH AND CASH EQUIVALENTS AT END OF YEAR 282,938 190,278

Page 27: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

CSeriesC100/C130

AERO SIGNED AT THEAIR-SHOW IN PARIS IN JUNE 2009 ITS HISTORICALLY FIRSTCONTRACT ON INTER-NATIONAL RISK-SHAREPROJECT WITH BELGIUM COMPANYSONACA. THE SUBJECTOF COOPERATION BETWEEN SONACA AND AERO IS TO DESIGN, DEVELOP AND MANUFACTURETHE WING FIXED LEADING EDGES FOR A NEW AND INNOVATIVECSERIES AIRCRAFT FOR THE CANADIANAEROSPACE MANUFACTURER BOMBARDIER.

Page 28: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

54 | | 55

1. 1.DESCRIPTION OF THE COMPANY

AERO Vodochody a.s. ("the Company") is a joint stock company incorporated on 2 January 1991 in the Czech Republic. The Company's registered office is located at Odolena Voda,Dolínek, U Letiště 374, 250 70, Czech Republic and the business registration number (IČ) is 00010545. The Company is involved in cooperation in production of helicopters andaircraft parts, foreign trade of military products, development, production, repairs and modernization of military training and combat jets, and other aircraft related work.

Shareholders holding a 10% or greater interest in the Company's basic capital are as follows:TULAROSA a.s. 51,50 %Salori Holding B.V. 48,50 %

The parent company is TULAROSA a.s. with its registered office located at Na Příkopě 583/15, Praha 1, Czech Republic. The Company is included in the consolidated group of PENTA INVESTMENTS HOLDING with the registered office in Agias Fylaxeos & Pollygnostou, 212,C&I CENTER, P.C. 3803, Limassol, Cyprus.

The Company is the parent company of the AERO Vodochody Group and the accompanying financial statements have been prepared as separate financial statements.Consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) have been prepared by the parent company. In accordancewith the valid Czech accounting legislation, the Company is exempt from the obligation to prepare consolidated financial statements in accordance with Czech GAAP.

Members of the statutory bodies as at 31 December 2010 were as follows:Board of Directors Chair: Ing. Ladislav Šimek, MBAMember: Ing. Petr BrychtaMember: Ondřej Benáček

2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

The accompanying financial statements were prepared in accordance with the Czech Act on Accounting and the related guidelines as applicable for 2010 and 2009.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied by the Company in preparing the 2010 and 2009 financial statements are as follows:

A) INTANGIBLE FIXED ASSETSIntangible fixed assets are recorded at their acquisition cost and related expenses.Intangible fixed assets with a cost exceeding CZK 60 thousand are amortized over their useful economic lives. Small intangible fixed assets (with a cost of lessthan CZK 60 thousand) are expensed upon acquisition and carried only in off balance sheet.

Internally-developed intangible fixed assets are recorded at their accumulated cost, which consist of direct material, labor costs and production overheads.

AmortizationAmortization is calculated based on the acquisition cost and the estimated useful life of the related asset. The useful economic lives are as follows:

YearsSoftware 3Patents, royalties and similar rights 15

An allowance is created against intangible fixed assets if their value as identified by the stocktaking is significantly lower than their carrying amount.

Supervisory BoardChair: Mgr. Václav ŠtajnerMember: Ing. Zdeněk SýkoraMember: Jan Borýsek

B) TANGIBLE FIXED ASSETS

Tangible fixed assets with a cost exceeding CZK 40 thousand are recorded at their acquisition cost, which consists of purchase price, freight, customs duties and other related costs.Internally-developed tangible fixed assets are recorded at their accumulated cost, which consist of direct material, labor costs and production overheads. Interest and otherfinancial expenses incurred in the construction of tangible fixed assets are also capitalized. Tangible fixed assets acquired free of charge are valued at their replacement costand are recorded with a corresponding credit to the 'Other capital funds account' on the date of acquisition. The replacement cost of these assets is set on the basis of the costknown at the moment of the respective asset acquisition. The costs of technical improvements are capitalized. Repairs and maintenance expenses are expensed as incurred.

DepreciationDepreciation is calculated based on the acquisition cost and the estimated useful life of the related asset. The useful economic lives are as follows:

YearsConstructions 30 - 45Machinery and equipment 10 - 30Vehicles 8 - 20Furniture and fixtures 4 - 15Other tangibles 5 - 20

An allowance is created against tangible fixed assets if their value as identified by the stocktaking is significantly lower than their carrying amount.

C) FINANCIAL ASSETS

Short-term financial assets consist of liquid valuables, cash in hand and at bank. Long-term financial assets consist in particular of ownership interests andshareholdings. Interests and securities are valued at their acquisition cost, which includes the purchase price and direct costs related to the acquisition, e.g. feesand commissions paid to agents and stock exchanges. As at 31 December, ownership interests constituting dominant or significant influence are valuedat acquisition cost. If there is a decrease in the carrying value of long-term financial assets that are not revalued at the balance sheet date, the difference isconsidered a temporary diminution in value and is recorded as an allowance.

D) INVENTORY

Purchased inventory is stated at actual cost being determined using the weighted average method. Costs of purchased inventory include acquisition-related costs(freight, customs, commission, etc.). Work-in-progress and semi-finished products are recorded at standard cost, which approximates actual. The cost of inventoryproduced internally includes direct material and labor costs and production overhead costs. Production overhead costs include energy, repairs and maintenance,telecommunication and IT costs, depreciation and other production services and materials and are allocated based on direct labor hours.

E) RECEIVABLES

Both long- and short-term receivables are carried at their realizable value after allowance for doubtful accounts. Additions to the allowance account are charged to income.

F) DERIVATIVES

Derivatives are initially measured at cost. Derivatives are recorded in other short-term receivables or payables, as appropriate, in the accompanying balancesheet. Derivatives are classified as derivatives held for trading or hedging derivatives. The latter are designated as either fair value hedges or cash flow hedges.In order to qualify for hedge accounting, the change in the fair value of a derivative or of its estimated cash flow must offset, in whole or in part, the change in thefair value or cash flow arising from the hedged item. In addition, there must be formal documentation of the hedging relationship at inception and the Companymust prove that the hedging relationship is highly effective. In all other cases, derivatives are recognized as held-for-trading.

Derivatives are revalued to fair value as at the balance sheet date. Changes in the fair value of derivatives held for trading are reported in income. Changes in thefair value of derivatives designated as fair value hedges are also recognized in income, together with the change in the fair value of the hedged item attributableto the risk being hedged. Changes in the fair value of derivatives designated as cash flow hedges are taken to equity and reflected in the balance sheet throughgain or loss on revaluation of assets and liabilities. Any ineffective portion of the hedge is reported in income.

Page 29: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

56 | | 57

G) EQUITY

The basic capital of the Company is stated at the amount recorded in the Commercial Register maintained in the Municipal Court. Any increase or decrease inthe basic capital made pursuant to the decision of the General Meeting which was not entered in the Commercial Register as at the financial statements date isrecorded through changes in basic capital. Contributions in excess of basic capital are recorded as share premium. Other capital funds are created pursuant tothe Company's Articles of Incorporation. In accordance with the Commercial Code, the Company creates a legal reserve fund from profit. In the first year in whichprofit is generated, a joint-stock company should allocate 20% of profit after tax (however, not more than 10% of basic capital) to the legal reserve fund. In subsequentyears, the legal reserve fund is allocated 5% of profit after tax until the fund reaches 20% of basic capital. These funds can only be used to offset losses.

H) PROVISIONS AND LIABILITIES

Long-term liabilities and current liabilities are carried at their nominal values. Amounts resulting from the revaluation of financial derivatives at fair value areshown in other payables. Short-term and long-term loans are recorded at their nominal values. Any portion of long-term debt which is due within one year of thebalance sheet date is classified as short-term debt. Contingent liabilities that are not recorded in the balance sheet because significant uncertainties exist withrespect to the amount, title or timing of the expected outflow of benefits are described in Note 19.

I) FINANCIAL LEASES

The Company records leased assets by expensing the lease payments and capitalizing the residual value of the leased assets when the lease contract expiresand the purchase option is exercised. Lease payments paid in advance are recorded as prepaid expenses and amortized over the lease term.

J) FOREIGN CURRENCY TRANSACTIONS

Assets and liabilities whose acquisition or production costs were denominated in foreign currencies are translated into Czech crowns at the exchange rate prevailingas at the transaction date. On the balance sheet date monetary items are adjusted to the exchange rates as published by the Czech National Bank as at 31 December.Realized and unrealized exchange rate gains and losses were charged or credited, as appropriate, to income for the year.

K) RECOGNITION OF REVENUES AND EXPENSES

Revenues and expenses are recognized on an accrual basis, that is, they are recognized in the periods in which the actual flow of the related goods or servicesoccurs, regardless of when the related monetary flow arises. The Company recognizes as an expense any additions to provisions or allowances against risks, los-ses or physical damage that are known as at the financial statements' date. Long-term contracts are accounted for according to the completed contract method(or as specified in the contract).

L) INCOME TAX

The corporate income tax expense is calculated based on the statutory tax rate and book income before taxes, increased or decreased by the appropriatepermanent and temporary differences (e.g. non-deductible provisions and allowances, entertainment expenses, differences between book and tax depreciation,etc.). The deferred tax position reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for corporate income tax purposes, taking into consideration the period of realization.

M) SUBSIDIES

In 2010 and 2009, the Company received subsidies from the government of CZK 14,263 thousand and CZK 7,197 thousand, respectively which were accountedfor as other operating revenues. In 2010 and 2009, the Company received subsidies for the acquisition of intangible fixed assets of CZK 28,551 and CZK 9,480respectively. Received subsidies are recorded in separate accounts. This treatment enables the Company to closely monitor subsidies' receipt and utilization.

N) EMISSION ALLOWANCES

Carbon emission allowances are recorded as intangible fixed assets, which are not amortized and are valued at cost or replacement cost when acquired free-of-charge.The "use of emission allowances" is recorded as at the financial statements' date corresponding to the volume of accounting unit's emissions in the calendar year. The firstfree-of-charge acquisition is recorded as other liabilities, which are recognized into income at the time and in the amount corresponding to the usage of allowances.

4. FIXED ASSETS

A) INTANGIBLE FIXED ASSETS (in CZK thousands)

COST At beginning of year Additions Disposals Transfers At end of yearSoftware 188,723 - (1,788) 4,861 191,796Patents, royalties and similar rights 49,955 - - 25,902 75,857Other intangibles 614 2,055 (1,615) - 1,054Intangibles in progress 91,755 61,055 - (30,763) 122,0472010 Total 331,047 63,110 (3,403) - 390,7542009 Total 237,294 95,947 (2,194) - 331,047

ACCUMULATED AMORTIZATION At beginning of year Additions Disposals At end of year Net book valueSoftware (186,619) (4,302) 1,788 (189,133) 2,663Patents, royalties and similar rights (49,955) (79) - (50,034) 25,823Other intangibles - - - - 1,054Intangibles in progress - - - - 122,0472010 Total (236,574) (4,381) 1,788 (239,167) 151,5872009 Total (230,576) (5,997) - (236,574) 94,473

As at 31 December 2010 intangibles in progress include, in particular, assets purchased from Sonaca S.A. and assets internally developed within the developmentof a part of the wing for the C-Series aircraft for the Canadian producer Bombardier. Patents, royalties and similar rights are amortized over their useful livesas specified in the relevant contracts. As at 31 December 2010 and 2009, the total value of small intangible fixed assets, which are not reflected in the accompanyingbalance sheet, was CZK 5,342 thousand and CZK 5,294 thousand at acquisition cost, respectively. Intangible fixed assets at a cost of CZK 203,949 thousand arefully amortized as at 31 December 2010. In 2010, the Company received subsidies for intangible fixed assets of CZK 28,551 thousand. Other intangible fixed assetsrepresent carbon emission allowances ("allowances"). The Company was issued free of charge allowances constituting the right to emit 6,288 tones of gas emissionsin 2010. These emission allowances were valued at their replacement cost totaling CZK 2,055 thousand.

See below for the movements in the emission allowance account during 2010. In connection with the movements of the allowance account, the following amountswere charged against or recognized into income (in CZK thousands):

Value of Other Other Revenues fromemission operating operating sale of emission Other

allowances revenues expenses allowances liabilitiesAt beginning of year 614 - - - (614)Free of charge allocation of allowances 2,055 - - - (2,055)Emission allowances required to cover the level

(1,613) 1,613 (1,613) - 1,613of carbon dioxide emissions determined in 2010Emission allowances required to cover the level of carbon

(2) 2 (2) - 2dioxide emissions determined in 2009 – additional chargeTotal as at 31 December 2010 1,054 1,615 (1,615) - (1,054)

a) See below for the movements in the emission allowance account during 2009. In connection with the movements of the allowance account, the followingamounts were charged against or recognized into income (in CZK thousands):

Value of Other Other Revenues fromemission operating operating sale of emission Other

allowances revenues expenses allowances liabilitiesAt beginning of year 1,044 - - - (1,044)Free of charge allocation of allowances 1,764 - - - (1,764)Emission allowances required to cover the level

(1,380) 1,380 (1,380) - 1,380of carbon dioxide emissions determined in 2009 Sale of allowances (814) - - 1,069 814Total as at 31 December 2009 614 1,380 (1,380) 1,069 (614)

Page 30: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

58 | | 59

B) TANGIBLE FIXED ASSETS (IN CZK THOUSANDS)

COST At beginning of year Additions Disposals Transfers At end of yearLand 24,897 - - - 24,897Constructions 896,311 - - 20,847 917,158Machinery and equipment 1,160,119 6,377 (15,464) 120,302 1,271,334Vehicles 241,300 - (2,386) 318 239,232Furniture and fixtures 3,897 - (55) - 3,842Other tangibles 5,875 - - 3,455 9,330Tangibles in progress 95,803 94,775 (2,913) (144,922) 42,743Advances for tangibles 8,367 3,502 (11,585) - 2842010 Total 2,436,569 104,654 (32,403) - 2,508,8202009 Total 2,628,391 198,675 (390,497) - 2,436,569

At beginning Depreciation Cost of sales At end Net bookACCUMULATED DEPRECIATION of year during year or liquidation Disposals Transfers of year Allowances valueLand - - - - - - - 24,897Constructions (462,627) (23,772) - - - (486,399) (9,074) 421,685Machinery and equipment (980,344) (49,470) (97) 15,464 (6,377) (1,020,824) - 250,510Vehicles (37,912) (12,387) (1,662) 2,386 - (49,575) (176,063) 13,594Furniture and fixtures (3,844) (6) - 56 - (3,794) - 48Other tangibles (5,756) (116) (4) - - (5,876) - 3,454Tangibles in progress - - - - - - - 42,743Advances for tangibles - - - - - - (180) 1042010 Total (1,490,483) (85,751) (1,763) 17,906 (6,377) (1,566,468) (185,317) 757,0352009 Total (1,510,583) (77,914) (49,689) 147,745 (42) (1,490,483) (174,670) 771,416

As at 31 December 2010 tangibles in progress include, in particular, assets internally developed within the preparation of production of the Black Hawkhelicopters for the Sikorsky Aircraft Corporation. As at 31 December 2010 and 2009, the total value of small tangible fixed assets, which are not reflectedin the accompanying balance sheet, was CZK 714,172 thousand and CZK 597,482 thousand at acquisition cost, respectively.

Tangible fixed assets at a cost of CZK 734,772 thousand are fully depreciated as at 31 December 2010. The Company has adjusted the carrying amount of certaintangible assets for a diminution in value through an allowance charged against income (see Note 7). Allowances relating to buildings were establishedin the amount of 100% of their net book value as the Company does not expect to use these assets in the future. Allowances relating to Ae270 aircraft wereinitially established in the amount of 100% of its net book value. In 2009 they were reduced by the value arising from the concluded agreement on the aircraftsale, which was planned for 2010. However, as a result of the contract failure, the allowances relating to Ae270 aircraft were again increased to the net book valuelevel in 2010.

As at 31 December 2010 and 2009, a part of the buildings with a cost of CZK 19,653 thousand and CZK 16,401 thousand respectively, and with a net book valueof CZK 10,010 thousand and CZK 7,184 thousand, respectively, were located outside the Company's production plant (flats, accommodation facilities). On 8 December 2005, the Company signed a general agreement for post-warranty support of L-159 and L-39 aircraft (see Note 19) with the Ministry of Defenceof the Czech Republic pursuant to which the Company committed itself to hold with limited disposal rights a significant portion of fixed assets (particularly land,production halls, airport and other assets necessary for maintaining the ability to provide service repairs for the Army of the Czech Republic). The acquisition costof assets with limited disposal rights was CZK 435,841 thousand and CZK 424,899 thousand and their net book value was CZK 214,961 thousand and CZK 218,383thousand as at 31 December 2010 and 2009, respectively. This commitment is not entered in the Cadastral Register.

On 23 September 2010, AERO Vodochody a.s. and Česká spořitelna, a.s., Komerční banka, a.s. and Česká exportní banka, a.s. entered into a contract forthe establishment of the right of pledge securing the Company's immovable assets (buildings and land) with respect to the provided pre-export loan (see Note14). As at 31 December 2010, the acquisition cost of assets pledged amounted to CZK 149,030 thousand and the net book value amounted to CZK 72,414thousand. The acquisition cost of land was CZK 13,341 thousand, the acquisition cost of buildings was CZK 135,689 thousand whereas their net book value amountedto CZK 59,073 thousand. As at 31 December 2010, certain tangible fixed assets (office building, maintenance storage, waste storage, junction exchange station,assembly hall 4 etc.) were no longer in service. These assets had an original cost of CZK 29,995 thousand and net book value of CZK 9,075 thousand.

As at 1 January 2009, assets with an original cost of CZK 276,601 thousand and net book value of CZK 222,571 thousand were used as a non-monetary contributionin Letiště Vodochody a.s. (see Note 4c). The acquisition cost of land was CZK 179,759 thousand, the acquisition cost of buildings was CZK 96,842 thousandwhereas their net book value amounted to CZK 42,812 thousand.

C) LONG-TERM FINANCIAL INVESTMENTS (IN CZK THOUSANDS)

Summary of changes in long-term financial investments:

Balance as at Balance as at Balance as at31/ 12/ 2008 Additions Revaluation 31/ 12/ 2009 Additions Disposals Revaluation 31/ 12/ 2010

Subsidiaries 112,220 414,218 9 526,447 37,078 (1,056) (996) 561,473Associates 1,100 - - 1,100 - (1,100) - -Allowances (1,100) - - (1,100) 1,100 - - -

Page 31: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010:

Technometra Letiště Rotortech Aero ClesterName Radotín, a.s. Vodochody a.s. Composites Limited Trading a.s.Percentage of ownership Odolena Voda Odolena Voda Velká Británie Slovak RepublicTotal net assets 100 100 100 100Equity 173,176 1,917,842 9 627 900Vlastní kapitál 170,308 1,493,981 8 230 (3,510)Basic capital and capital funds 119,287 1,859,817 75 710 832Funds created from profit 8,869 - - 83Accumulated loss / retained earnings 50,295 (335,215) (67 480) -Profit / (loss) for the current year (8,143) (30,621) (42 968) (241)Acquisition cost of share / interest 110,220 224,571 225 530 1,153Revaluation - - 1,144 (129)Nominal value of share / interest 119,287 1,859,817 - -Intrinsic value of share / interest 170,308 1,493,981 8,230 -

Financial information about Technometra Radotín, a.s., and Letiště Vodochody a.s. was obtained from the companies' standalone audited financial statementsas at 31 December 2010. Financial information about Rotortech Aero Composites Limited and Clester Trading a.s. was obtained from the companies' standalonefinancial statements as at 31 December 2010 which have yet not been audited.

In 2010 Technometra Radotín, a.s. changed its registered office to Odolena Voda, Dolínek, U Letiště 374, PSČ 250 70 and ceased its manufacturing activity.

In 2010, the Company made financial investment in the form of the acquisition of Clester Trading a.s., with its registered office in the Slovak Republic and the basiccapital totaling EUR 33 thousand (CZK 832 thousand). Acquisition cost of this investment was EUR 37 thousand (CZK 1,063 thousand) and CZK 90 thousand.The Company sold its 100% interest in Clarex Investments a.s. to Clester Trading a.s.

In 2010 the Company made a monetary contribution of GBP 1,200 thousand (CZK 34 930 thousand) in Rotortech Aero Composites Limited.

As at 31 December 2009, the Company held a 42.6% interest (corresponding to a contribution of CZK 1,100 thousand) in Letov, a.s. As a result of the compliancewith the resolution to distribute the estate, Letov, a.s. was terminated and deleted from the Commercial Register in 2010.

In 2009, AERO Vodochody acquired a 100% stake in British company Rotortech Aero Composites Limited from its related party PENTA INVESTMENTS LIMITED.The acquisition price was stated by a valuation expert nominated by the court and amounted to CZK 190,600 thousand. In 2010, AERO Vodochody made additionalcash contribution to the basic capital of Rotortech Aero Composites Limited of CZK 34,930 thousand and increased the value of its financial investment to CZK225,530 thousand. After this, in 2011 Rotortech Aero Composites Limited terminated its business activities and currently is considering various optionsof Rotortech’s liquidation. In relation with that AERO Vodochody a.s. concluded with the seller addendum to the contract, which includes the option of AEROVodochody a.s. to sell the company Rotortech Aero Composites Limited back to the seller until 31 July 2011. Due to the risk of impossibility to use the optionAERO Vododchody a.s. has entered into negotiations with the seller, PENTA INVESTMENTS LIMITED, about the compensation of losses incurred by AERO Vodo-chody in relation to Rotortech Aero Composites Limited. The management of AERO Vodochody believes that the negotiations will lead to a full compensationof the losses and did not record any impairment provision against this investment as at 31 December 2010.

SUBSIDIARIES AND ASSOCIATES AS AT 31 DECEMBER 2009 WERE AS FOLLOWS (IN CZK THOUSANDS):

Technometra Letiště Rotortech Aero ClarexName Radotín, a.s. Letov, a.s. Vodochody a.s. Composites Limited Investments a.s.Registered office Prague 5 Prague 9 Odolena Voda United Kingdom Slovak RepublicPercentage of ownership 100 42,6 100 100 100Total net assets 296,641 - 1,923,471 43,420 9,982Equity 178,449 - 1,524,602 20,584 (1,480)Basic capital and capital funds 219,426 - 1,859,800 41,747 878Funds created from profit 5,862 - 17 - 88Accumulated loss (106,974) - (311,528) (8,825) -Profit / (loss) for the current year 60,135 - (23,687) (12,339) (2,446)Acquisition cost of share / interest 110,220 1 100 224,571 190,600 1,047Revaluation - - - - 9Nominal value of share / interest 219,426 - 1,859,800 41,747 878Intrinsic value of share / interest 178,449 - 1,524,602 20,584 -

Financial information about Technometra Radotín, a.s. and Letiště Vodochody a.s. was obtained from the companies' standalone audited financial statementsas at 31 December 2009. Financial information about Rotortech Aero Composites Limited and Clarex Investments a.s. was obtained from the companies'standalone financial statements as at 31 December 2009 which have not yet been audited.

In 2009, the Company made financial investments in the form of the acquisition of Rotortech Aero Composites Limited, with its registered office in the UnitedKingdom and the basic capital totaling GBP 1,401 thousand, and the acquisition of Clarex Investments a.s., with its registered office in the Slovak Republicand the basic capital totaling EUR 33 thousand. Acquisition cost of Rotortech Aero Composites Limited and Clarex Investments a.s. was CZK 190,600 thousandand CZK 1,047 thousand, respectively. Rotortech Aero Composites Limited was acquired within the Penta Group from Penta Investments Limited. Acquisitioncost was determined based on a certified expert’s opinion.

As at 1 January 2009, the Company increased the basic capital of Letiště Vodochody a.s. in the form of a non-monetary contribution by CZK 1,857,800 thousandto a total of CZK 1,859,800 thousand and owns 9,299 ordinary shares with a nominal value of CZK 200 thousand per share. The Company is the sole shareholderof the above company. The contribution was comprised of the selected land and buildings with a net book value of CZK 222,571 thousand (see Note 4b). The Company provided loans to and received loans from subsidiaries and associates (see Note 22).

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

60 | | 61

Page 32: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

62 | | 63

5. INVENTORY

Excess, obsolete and slow-moving inventory has been written down to its estimated net realizable value by an allowance account. The allowance is determinedby management based on an inventory aging analysis and the analysis of its future usability (see Note 7).

Allowances as at 31/ 12/ 2010 against (in CZK thousands): Materials Work-in-progress, semi-finished products and goods Advances granted for inventoryAe270 291,146 117,495 4,785L-159 334,645 71,079 3,154L-39, L-59 382,507 10,071 -Sikorsky Program 31,913 11,926 1,905SAAB Project - - 312Not-assigned material 19,483 566 -Other inventory 19,723 4,265 104Total 1,079,417 215,402 10,260

6. RECEIVABLES

Allowances against outstanding receivables that are considered doubtful were charged to income based on the analysis in 2010 and 2009, respectively (see Note 7).As at 31 December 2010 and 2009, receivables overdue for more than 180 days totaled CZK 7,502 thousand and CZK 7,952 thousand, respectively.

In 2010 and 2009, the Company sold receivables of CZK 1,074,294 thousand and CZK 1,902,974 thousand, respectively. The income from the sale of the receivableswas CZK 1,071,109 thousand and CZK 1,897,538 thousand in 2010 and 2009, respectively. Nominal values of these receivables along with the income from the saleof the receivables were included in other operating expenses or other operating revenues, as appropriate, in the income statement.

As at 31 December 2010 and 2009, unbilled revenue represents, in particular, accrued interest on the loans to related parties.

As at 31 December 2010 other receivables include mainly positive actual value of financial derivatives.

Long- and short-term receivables from related parties (see Note 22).

7. ALLOWANCES

Allowances reflect a temporary diminution in the value of assets (see Notes 4, 5 and 6).

Changes in the allowance accounts (in CZK thousands):

Balance as at Balance as at Balance as atAllowances against: 31/ 12/ 2008 Additions Deductions 31/ 12/ 2009 Additions Deductions 31/ 12/ 2010Tangible fixed assets 207,977 131 (33,438) 174,670 22,106 (11,459) 185,317Long-term financial investments 1,100 - - 1,100 - (1,100) -Inventory 1,388,489 63,828 (117,191) 1,335,126 12,164 (52,471) 1,294,819Advances granted for inventory 15,842 8,487 (14,173) 10,156 1,018 (914) 10,260Receivables - legal 2,128 145 - 2,273 - (2,074) 199Receivables - other 5,189 4,634 (3,882) 5,941 19,426 (7,618) 17,749Total 1,620,725 77,225 ( 168,684) 1,529,266 54,714 (75,636) 1,508,344

Page 33: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

64 | | 65

8. SHORT-TERM FINANCIAL ASSETS

As at 31 December, the Company had the following restricted cash balances (in CZK thousands):

2010 2009Bank Currency Amount in foreign currency Amount Amount in foreign currency Amount

(in thousands) in CZK thousands (in thousands) in CZK thousandsČeská spořitelna, a.s. USD - - 87 1,606Komerční banka, a.s. USD - - - -Komerční banka, a.s. EUR 575 14,422 50 1,320Total - 14,422 - 2,926

Financial assets deposited in restricted accounts represent a security for guarantees granted by the banks (see Note 14).

On 23 September 2009, the Company concluded an agreement on the overdraft facility of CZK 70,000 thousand with Komerční banka a.s. (see Note 14). As at 31December 2009 the loan was not drawn. In 2010 the loan was drawn on an ongoing basis and its balance was zero as at 31 December 2010. The maturityof the loan is set on 23 June 2011.

9. OTHER ASSETS

As at 31 December 2010 and 2009, prepaid expenses include in particular prepaid insurance fees, interest expenses and overhead costs, which are chargedto income for the year in which they were incurred.

As at 31 December 2010, accrued revenues include in particular commision from an offset program from 2010.

10. EQUITY

The basic capital of the Company comprises 968,356 ordinary registered shares in materialized form, with a nominal value of CZK 1,000; 913,458 priorityregistered shares in materialized form, with a nominal value of CZK 1,000; 887,366 registered shares in materialized form, with a nominal value of CZK2 and 1 priority registered share in materialized form, with a nominal value of CZK 2.

Other capital funds are primarily comprised of the remaining balance of financial restructuralization from previous years. Other funds from profit representa social fund.

The movements in the capital accounts during 2010 and 2009 were as follows (in CZK thousands):

Balance as at Balance as at Balance as at31/ 12/ 2008 Increase Decrease 31/ 12/ 2009 Increase Decrease 31/ 12/ 2010

Number of shares 5,899,681 - (3,130,500) 2,769,181 - - 2,769,181Basic capital 5,014,089 950,000 (4,080,500) 1,883,589 - - 1,883,589Other capital funds 28,720 - - 28,720 - - 28,720Differences arising from revaluation of assets and liabilities (50,361) 50,651 (7,891) (7,601) 9,281 - 1,680Legal reserve fund 211,531 20,080 - 231,611 13,964 - 245,575Other funds 16,508 - (497) 16,011 - (11,715) 4,296Retained earnings 224,342 381,509 - 605,851 277,054 (600,000) 282,905Accumulated loss (4,080,558) 4,080,500 - (58) - - (58)

The Annual General Meeting held on 29 June 2010 decided on the transfer of CZK 11,715 thousand from other capital funds to retained earnings and agreed upona dividend payout in the total amount of CZK 600,000 thousand. The Annual General Meeting decided on the basic capital increase by CZK 950,000 thousand on 18 September 2009. The basic capital was paid up, and wasentered in the amount of CZK 5,964,089 thousand in the Commercial Register on 13 November 2009.

The Annual General Meeting held on 27 November 2009 decided to reduce the basic capital by CZK 4,080,500 thousand in order to settle accumulated losses.The basic capital decrease was made through withdrawal of shares without charge. The whole amount representing the decrease was used to settle accumulatedlosses. The basic capital amount following the decrease, i.e. CZK 1,883,589 thousand, was entered in the Commercial Register on 22 December 2009.

In 2010 gain or loss on revaluation of assets and liabilities arose due to the revaluation of derivative transactions (see Note 16) and the revaluation of contributions(see Note 4c) in Clester Trading a.s. and Rotortech Aero Composites Limited. In 2009 gain or loss on revaluation of assets and liabilities arose due to the revaluationof the financial investment in Clarex Investments a.s. (see Note 4c) and the revaluation of derivatives (see Note 16).

The Annual General Meetings held on 29 June 2010, 13 August 2009 and 27 November 2009, respectively approved the following profit distribution for 2009and 2008 and compensation of the accumulated loss of previous years (in CZK thousands):

Profit for 2008 401,589 Profit for 2009 279,304Compensation of accumulated loss from basic capital decrease 4,080,500 Compensation of accumulated loss from basic capital decrease -Allocation to legal reserve fund (20,080) Allocation to legal reserve fund (13,965)Dividend payout - Dividend payout (600,000)Transfer from other capital fund - Transfer from other capital fund 11,715Undistributed profits added to retained earnings 381,509 Undistributed profits added to retained earnings (322,946)Retained earnings as at 31/ 12/ 2009 605,851 Retained earnings as at 31/ 12/ 2010 282,905Accumulated loss as at 31/ 12/ 2009 (58) Accumulated loss as at 31/ 12/ 2010 (58)

Page 34: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

66 | | 67

11. PROVISIONS

The movements in the provision accounts were as follows (in CZK thousands):

Balance as at Balance as at Balance as at31/ 12/ 2008 Additions Deductions 31/ 12/ 2009 Additions Deductions 31/ 12/ 2010

Contractual charges and penalties 5,200 - (5,200) - 9,972 - 9,972Guarantee repairs L-159 and L-159T1 9,951 1,448 (2,893) 8,506 3,094 - 11,600Overhaul Tunis 1,102 - (200) 902 - - 902Ae270 contract 5,435 - (2,040) 3,395 - (3,395) -Staff bonuses 35,887 47,343 (49,116) 34,114 43,727 (34,114) 43,727Accrued vacation 12,415 61,102 (65,871) 7,646 13,153 (7,646) 13,153Guarantee repairs Sikorsky 163,554 3,541 (31,612) 135,483 6,975 (39,891) 102,567Contractual charges and penalties Latecoere - - - - 4,100 - 4,100Guarantee repairs CASA - - - - 2,058 - 2,058Contractual charges and penalties SAAB - - - - 6,000 (3,600) 2,400Guarantee repairs Alenia - 979 - 979 155 - 1,134Bank guarantee Egypt 24,250 - (24,250) - - - -Business transaction Sikorsky - 2,000 (2,000) - - - -Total 257,794 116,413 (183,182) 191,025 89,234 (88,646) 191,613

Sikorsky guarantee repairs The Company established a provision in the amount of estimated costs for expected guarantee repairs related to the Sikorsky helicopter deliveries. As at 31December 2010 and 2009, the provision totaled CZK 41,088 thousand and CZK 52,408 thousand, respectively.

In 2008 a constructional defect affecting 193 Sikorsky helicopters was detected, which was caused by a failure in the implementation of the helicopter designon the part of the Company. For the sake of prudence, the Company established a provision for the elimination of the constructional defect in the amountof CZK 88,893 thousand in 2008. The provision decreased to CZK 83,075 thousand and CZK 61,479 thousand in 2009 and 2010, respectively.

12. LONG-TERM LIABILITIES

As at 31 December, the Company had the following other long-term payables (in CZK thousands):

Terms/ Conditions 2010 2009Payables to Salori Holding B.V. Maturity: 2059; floating interest rate, up to 140% of the CNB discount rate 195,884 198,408

On 7 January 2008, the Company and Salori Holding B.V. concluded an agreement on the change in provisions on loan repayment. Accordingly, the companiesagreed to replace the existing fixed interest rate by a fee based on the financial result of the Company before taxes and interest (EBIT). However, the maximumfee shall not exceed the amount corresponding to 140% of the Czech National Bank discount rate times the unpaid loan principal. In addition, the maturityof the loan was postponed to 31 January 2059.

In 2010 and 2009, the changes related to a long-term payable to Salori Holding B.V. were as follows (in CZK thousands):

Balance as at Waiving of Loan Balance as at Payment of Loan Balance as at31/ 12/ 2008 principal and interest interest 31/ 12/ 2009 principal and interest interest 31/ 12/ 2010

Loan 409,479 (350,000) - 59,479 - - 59,479Interest 155,403 (20,451) 3,977 138,929 (3,977) 1,453 136,405Total 564,882 (370,451) 3,977 198,408 (3,977) 1,453 195,884

In 2009 the loan balance owed to Salori Holding B.V. was reduced due to a partial repayment of the principal and the interest in the amount of CZK 350,000 thousandand CZK 20,451 thousand, respectively. This extraordinary repayment was approved by Česká exportní banka, a.s.

The interest expense relating to the loan from Salori Holding B.V. for 2010 and 2009 was CZK 1,453 thousand and CZK 3,977 thousand, respectively.

On 4 September 2007, the Company and Salori Holding B.V. concluded a payable subordination agreement concerning the payable that the Company hasto Salori Holding B.V. Pursuant to the agreement, the payable to Salori shall be subordinated to the payable recorded by AERO Vodochody a.s. with respectto the loans granted to AERO Vodochody a.s. by the bank (Česká exportní banka, a.s.). AERO Vodochody a.s. may redeem the subordinated payable only afterit has settled the liability arising from the loan or with a prior bank's consent in writing.

13. CURRENT LIABILITIES

As at 31 December 2010 and 2009, the Company had overdue current payables totaling CZK 11,004 thousand and CZK 51,454 thousand, respectively.

Unbilled deliveries include, in particular, supplies of material and services, which are charged to income for the year in which they were incurred.

Advance payments received as at 31 December 2010 include in particular advance payments from Alenia Aeronautica S.p.A. for the production of aerospacecomponents.

As at 31 December 2010 and 2009 other liabilities comprise in particular negative fair values of outstanding hedging derivatives (see Note 16).Payables to related parties (see Note 22).

Page 35: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

68 | | 69

14. BANK LOANS

On 30 July 2010 the Company repaid a loan drawn at Česká exportní banka, a.s. in the amount of USD 54,272 thousand. The loan was repaid from a new loan providedby Česká spořitelna a.s., Komerční banka a.s. and Česká exportní banka, a.s. on 23 July 2010 for financing of the Sikorsky program. The limit of agreed revolvingloan is USD 60,000 thousand (CZK 1,125,060 thousand) and the credit limit for purchase of receivables is USD 42,000 thousand (CZK 787,542 thousand). At any timethe sum of these two loans may not exceed the limit of USD 92,000 thousand (CZK 1,725,092 thousand). The loans bear a floating interest rate of 1M LIBOR +margin. Their maturity is set on 22 March 2013. As at 31 December 2010, the drawn down element of the loan was USD 59,125 thousand (CZK 1,108,644 thousand).The loans are secured by pledged receivables and rights resulting from the general agreement with Sikorsky Aircraft Corporation; the receivables and rights werepledged in favor of Česká spořitelna, a.s. on 23 July 2010.

On 23 September 2010 the Company concluded a loan agreement with Česká spořitelna, a.s. and Komerční banka, a.s. for CZK 350,000 thousand. These funds arerestricted for financing of a liability arising from a contract for work done (PP-2000 project) effected with the Ministry of Defence of the Czech Republic. A full amountof the loan (CZK 350,000 thousand) was drawn on 1 October 2010. As at 31 December 2010 the Company repaid CZK 10,000 thousand in compliance with a paymentschedule and the remaining balance of the drawn loan was CZK 340,000 thousand. The loan bears a floating interest rate of 1M Pribor + margin. The outstandingbalance of this loan is CZK 100,000 thousand in 2011 and the maturity of the whole loan is set on 30 June 2013. On 23 September 2010, the Company and Českáspořitelna, a.s., Komerční banka, a.s. and Česká exportní banka, a.s. entered into a loan agreement on pre-export financing of production of the wing centre sectionfor Alenia Aeronautica SpA. up to EUR 3,000 thousand (CZK 75,180 thousand) and a loan agreement on purchase of receivables up to EUR 2,500 thousand (CZK 62,650thousand). At any time the sum of these two loans may not exceed the limit of EUR 4,500 thousand (CZK 112,770 thousand). The loans bear a floating interest rate of1M EURIBOR + margin. Their maturity is set on 23 May 2013 and 23 September 2013. As at 31 December 2010, the Company did not draw the loans.

On 23 September 2010, AERO Vodochody a.s. and Česká spořitelna, a.s., Komerční banka, a.s. and Česká exportní banka, a.s. entered into a contract forthe establishment of the right of pledge securing the Company's immovable assets with respect to the provided loans (see Note 4b). Pursuant to a generalagreement on the provision of financial services and pertinent addenda entered into by and between the Company and Komerční banka, a.s., on 23 September 2009,the Company was granted an overdraft facility of CZK 70,000 thousand (until 23 June 2011) to temporarily compensate for insufficient funds. The loan interest rateis O/N PRIBOR actual + margin. The loan was drawn and repaid on an ongoing basis in 2010. The Company did not draw this loan as at 31 December 2010.

The total interest expense on all received bank loans for 2010 and 2009 was CZK 24,138 thousand and CZK 22,630 thousand in 2010 and 2009, respectively.Based on the loan agreements, the Company is obliged to fulfill the following financial covenants:

Covenant Calculation Required valueNet debt (Bank loans – current assets) / EBITDA < 3:1

(Annual net income + amortization/depreciation + change in reserves –change in inventories – change in currentDebt coverage ratio receivables + change in current payables – CAPEX + interest payments)/(interest payments + bank loan payments) >= 120%

Financial leverage (Total assets – loans to related parties)/ Total assets < 50%

As at 31 December 2010, the Company met all the above financial indicators.

As at 31 December 2010, the Company was provided with the following bank guarantees (in CZK thousands):

Bank Guarantee Terms AmountČeská spořitelna, a.s. - performance bond non-specified 897

- performance bond non-specified 742Komerční banka, a.s. - performance bond non-specified 1,250

- performance bond non-specified 1,895- performance bond 08/12 11,277

- bid bond 05/11 112,506Total 128,567

As at 31 December 2009, the Company was provided with the following bank guarantees (in CZK thousands):

Bank Guarantee Terms AmountČeská spořitelna, a.s. - performance bond non-specified 879

- performance bond non-specified 727Komerční banka, a.s. - performance bond 09/09 547

- performance bond 06/10 2,223- performance bond non-specified 1,320

- bid bond 06/10 92Total 5,788

As at 31 December 2010 and 2009, the Company secured received bank guarantees by cash of CZK 14,422 thousand and CZK 2,926 thousand, respectivelydeposited in restricted bank accounts (see Note 8).

15. OTHER LIABILITIES

As at 31 December 2010 and 2009, accruals include in particular outstanding interest to Česká exportní banka a.s., which is charged to income for the year in which it was incurred.

As at 31 December 2010 and 2009, deferred income includes in particular revenue from sales related to the Sikorsky contract, which is recognized into income for the yearin which it was earned.

16. DERIVATIVES

The Company has concluded several hedging derivative contracts as at 31 December 2010 and 2009. The derivatives were revalued at fair value, with positiveand negative fair values of the hedging derivatives being included in other receivables and other payables, respectively, and in differences arising fromthe revaluation of assets and liabilities in the accompanying balance sheet. The following table summarizes face values and positive or negative values of outstanding hedging derivatives as at 31 December (in CZK thousands):

2010 2009Contractual/ Fair value Contractual/ Fair value

(in CZK thousands) Face Positive Negative Face Positive NegativeInterest rate contractsSwaps - - - 734,720 - (7,891)Foreign exchange contractsForwards 171,603 2,695 - 179,790 281 -Total derivatives held for hedging 171,603 2,695 - 914,510 281 (7,891)

Hedging derivatives include derivatives that are designated as hedging instruments of assets and liabilities in a hedge of a foreign currency or interest rate risks andthat meet the criteria for hedge accounting.

Page 36: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

70 | | 71

17. INCOME TAXES

2010 (in CZK thousands) 2009 (in CZK thousands)Profit before taxes 431,377 279,304Non-taxable revenues (6,651) (3,335)Difference between book and tax depreciation (65,747) 75,945Non-deductible expensesChange in allowances (18,848) (91,604)Change in provisions 588 (66,769)Shortages and losses 29,819 47,589Other (e.g. entertainment expenses) 64,595 51,839Taxable profit 435,133 292,969Tax loss carry-forward (435,133) (292,969)Current income tax rate 19% 20 %Current tax expense - -

In accordance with the Income Taxes Act, the Company can carry forward tax losses generated since 2005 for up to five years. The remaining tax losscarry-forward from the years 2005 through 2006, the benefit of which has not been recognized in the financial statements for the year ended 31 December 2010,amounted to CZK 59,515 thousand as at 31 December 2010.The Company quantified deferred taxes as follows (in CZK thousands):

2010 2009Deferred tax Deferred tax Deferred tax Deferred tax

Deferred tax items asset liability asset liabilityDifference between net book value of fixed assets for accounting and tax purposes 17,132 - 23,226 -Other temporary differences:Allowance against receivables and advances for inventory 5,322 - 3,490 -Allowance against inventory 246,016 - 253,674 -Allowance against fixed assets 35,210 - 33,396 -Provisions 36,406 - 36,295 -Tax loss carryforward 11,308 - 96,346 -Total 351,394 - 446,427 -Net 351,394 446,427

The Company has not recorded a deferred tax asset on the basis that its future recovery is uncertain.

18. LEASES

The Company leases fixed assets, which are not recorded on the balance sheet (see Note 3i).

As at 31 December 2010 and 2009, assets which are being used by the Company under operating leases consist of the following (in CZK thousands):

Description Terms Expense in 2010 Expense in 2009 CostInformation technologies Until 2012 720 660 2,760

Assets which are being used by the Company under finance leases (i.e. the assets are transferred to the Company when the lease term expires) as at 31 December2010 and 2009 consist of the following (in CZK thousands):

Payments Payments Remaining payments as at 31. 12. 2010Terms/ Total made as at made as at Due within Due over

Description Conditions lease 31. 12. 2010 31. 12. 2009 one year one yearMachinery Until 2014 116,628 42,616 14,962 27,014 46,998

19. COMMITMENTS AND CONTINGENCIES

The Company has a contractual relationship with mediators and records liabilities to them upon the completion of sales contracts. Pursuant to the sale contract,the Company undertakes to pay the mediator a part of the income realized. It is not possible to determine the amount until contract completion.

Under the standard terms of its sales contracts, the Company has a responsibility to make spare parts available for a period between 10-15 years after the dateof sale.

As at 8 December 2005, the Company concluded with the Ministry of Defence of the Czech Republic a general agreement for after warranty support for L-159and L-39 aircraft. The contract was signed for a definite period until January 2029. According to this agreement, in the period until January 2029, the Companyis obliged to provide services, maintenance and spare parts for planes already owned by the Army of the Czech Republic, and to assist during their modernization.In cases of significant breaches of the contractual terms or in case of withdrawal from the contract, the Ministry of Defence of the Czech Republic is entitled toclaim a penalty and potential additional compensation from the Company. Under the terms of this agreement, a significant portion of its fixed assets may not befreely disposed of (see Note 4b).

The main production orders are realized on the basis of long-term contracts with suppliers. As at 31 December 2010 and 2009, the commitments arising fromcontracts concluded with suppliers amounted to CZK 568,288 thousand and CZK 849,645 thousand, respectively; of that the supplies for the project Sikorskytotaled CZK 371,907 thousand and CZK 617,722 thousand, respectively. These contracts, as a rule, include a provision stipulating the amount of compensationthat the Company is obliged to pay if it fails to fulfill contractual obligations or if it withdraws from the contract. In addition, the suppliers do not acceptresponsibility for possible subsequent damage caused by an accident.

The Company has concluded liability insurance for its own aviation activity, an accident insurance of aircraft and insurance for damage caused by faulty products.The Company has concluded a combined insurance limit in the amount of USD 250,000 thousand regarding the liability for product within the Sikorsky Programand of USD 75,000 thousand regarding other liability emerging from aeronautical operations for one and all insured accidents arising during the insuranceperiod worldwide. The insurance covers the major risks emerging from the Company's aeronautical operations.

In 1998, the Company together with GEO s.r.o. conducted an environmental audit, the result of which was, inter alia, a quantification of investments requiredfor making the production ecofriendly and for remedy of environmental damage. The cost estimate totaled CZK 248,375 thousand. Based on the Contract forrepayment of costs incurred in the settlement of environmental liabilities concluded between the Company and the National Property Fund of the CzechRepublic on 12 August 1998, the National Property Fund (currently the Ministry of Finance of the Czech Republic) should cover those costs of the Company whichare reasonably incurred up to CZK 2,691,926 thousand, which exceeds the estimate.

Page 37: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

72 | | 73

20. REVENUES

The breakdown of revenues on ordinary activities is as follows (in CZK thousands):2010 2009

Domestic Foreign Domestic ForeignAviation production 864,221 1,845,309 386,191 2,433,908Non-aviation production 22,372 - 28,081 -Total revenues 886,593 1,845,309 414,272 2,433,908

Převážná část výnosů společnosti za rok 2010 je soustředěna na čtyři hlavní zákazníky v leteckém odvětví (Sikorsky Aircraft Corporation, Ministerstvo obranyČeské republiky, Alenia Aeronautica S.p.A. a Saab Aeronautics). V ostatních provozních výnosech dále společnost eviduje dotace na provozní účely přijaté ze státníhorozpočtu ve výši 14 263 tis. Kč v roce 2010 a ve výši 7 197 tis. Kč v roce 2009.

21. PERSONNEL AND RELATED EXPENSES

The breakdown of personnel expenses is as follows (in CZK thousands):2010 2009

Total Of which: members of Total Of which: members ofpersonnel managerial bodies personnel managerial bodies

Average number of employees 1,122 13 1,186 13Wages and salaries 432,064 31,204 469,642 35,304Social security and health insurance 144,503 6,995 139,641 4,718Social cost 9,778 328 10,590 326Other social security - - 2,150 -Bonuses to statutory representatives 350 60 360 360Total personnel expenses 586,695 38,587 622,383 40,708

The members and former members of statutory and supervisory bodies received total bonuses and other remuneration of CZK 350 thousand and CZK 360thousand in 2010 and 2009, respectively.

22. RELATED PARTY INFORMATION

The majority shareholder of AERO Vodochody a.s. is TULAROSA a.s. TULAROSA a.s. is owned by Penta Investments Limited, Cyprus, which owns shares in othercompanies both in the Czech Republic and abroad, and with which AERO Vodochody a.s. has no significant trading and other activities, except for Privatbanka, a.s.,Salori Holding B.V. and Penta Investments Limited. The members of statutory and supervisory bodies, directors and executive officers were granted no loans,guarantees, advances or other benefits in 2010 and 2009 and they do not hold any shares of the Company. Benefits of certain members of the Company's statutorybodies and management consist of the use of automobiles for private purposes. The Company sells products, goods and provides services to related parties in theordinary course of business. Sales including interest income were CZK 136,457 thousand and CZK 107,457 thousand in 2010 and 2009, respectively.

Summary of changes in receivables from related parties:

Balance as at Balance as at Balance as at 31. 12. 2008 Increase Decrease Revaluation 31. 12. 2009 Increase Decrease Revaluation 31. 12. 2010

Long- and short-termreceivables from group 905,263 1,243,419 (686,349) (27,133) 1,435,200 623,727 (686,073) 10,623 1,383,477companies with majority control

Long-term receivables from related parties as at 31 December were as follows (in CZK thousands):Related party Due dates / Interest rates Amount in original currency (in thousands) 2010 2009Clarex Investments a.s. - loan in EUR 2015/6.10 % 300 7 518 7,940Penta Investments Limited - loan in USD 2013/7.58 % 29,650 555,967 -Penta Investments Limited - loan in CZK 2013/7.58 % 699,400 699,400 -Total 1,262,885 7,940The loans provided to Penta Investments Limited were classified as short-term in 2009.

Short-term receivables from related parties as at 31 December were as follows (in CZK thousands):Related party Amount in original currency (in thousands) Due dates 2010 2009Clarex Investments a.s. - interest in EUR 64 2011 1,601 -Clarex Investments a.s. - advance payment in EUR 328 2011 8,227 -Clester a.s. – interest in EUR 3 2011 81 -Fortuna Entertainment – trade receivables in EUR 6 2011 146 -Privatbanka, a.s. – accrued interest in CZK 1 2011 1 -Rotortech Aero Composites Limited – interest in GBP 30 2010 882 -Letiště Vodochody a.s. - trade receivables in CZK 2,366 2011 2,366 23,061Letiště Vodochody a.s. - interest in CZK 5,505 2011 5,505 -Žabka, a.s. - trade receivables in CZK 6 2011 6 -Total 18,815 23,061

Short-term loans provided to related parties as at 31 December were as follows (in CZK thousands):Related party Amount in original currency (in thousands) Due dates 2010 2009Clarex Investments a.s. – loan in EUR 655 2011 16,408 2,249Clester a.s. – loan in EUR 167 2011 4,184 -Letiště Vodochody a.s. – loan in CZK 100,000 2011 100,000 41,000Penta Investments Limited – loan in USD 29,650 2010 - 544,611Penta Investments Limited – loan in CZK 85 2010 - 789,400Technometra Radotín, a.s. – loan - 2010 - 50,000Total 120,592 1,427,260

In 2010 and 2009, the Company received interest on receivables from related parties totaling CZK 106,231 thousand and CZK 69,937 thousand, respectively. As at31 December 2010 and 2009, the Company recorded a deposit in related party Privatbanka, a.s. of CZK 231,663 thousand and CZK 68,153 thousand, respectively.The Company purchases products and receives services from related parties in the ordinary course of business. Purchases were CZK 81,521 thousand and CZK127,191 thousand in 2010 and 2009, respectively.

Short-term payables to related parties as at 31 December were as follows (in CZK thousands):Related party Due dates 2010 2009Technometra Radotín, a.s. 2010 2,933 197,182Rotortech Aero Composites Limited 2011 2,233 943Fortuna Game, a.s. 2011 15 14Penta Investments Limited o.z. 2011 204 283Letiště Vodochody a.s. 2011 335 58Clarex Investments a.s. 2011 1 -Total 5,721 198,480A liability to the subsidiary Technometra Radotín, a.s. as at 31 December 2009 arose from the transfer of fixed assets and inventory in December 2009.

Long-term payables to related parties as at 31 December were as follows (in CZK thousands):Related party Terms/Due dates 2010 2009Salori Holding B.V. 2059 195,884 198,408Long-term payables to Salori Holding B.V. relate to the payable from loan and interest (see Note 12).

Page 38: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Notes to the financial statement

annual report 2010 AERO Vodochody a.s. | notes to the financial statement

74 | | 75

23. RESEARCH AND DEVELOPMENT COSTS

Research and development costs amounted to CZK 43,541 thousand and CZK 39,266 thousand in 2010 and 2009, respectively, and were expensed as incurred.

24. SIGNIFICANT ITEMS OF INCOME STATEMENT

In 2010 and 2009, other operating revenues comprise in particular revenues from sale of receivables (see Note 6).

In 2010 and 2009, other operating expenses include in particular the nominal value of sold receivables (see Note 6), shortages and damages and insurance fees.

In 2010 and 2009, other finance income and expense consist mainly of foreign currency gains and losses.

Statutory auditor's fees as at 31 December were as follows:

Services 2010 2009Statutory audit 2,138 2,250Total 2,138 2,250

25. GOING CONCERN

The Company's production portfolio consists of two main production programs. The Military Program comprises the project L-159 and overhauls of earlier typesof aircraft. The Program of the Aerospace Cooperation includes mainly the production of the S-76C+ and S-76D helicopters and the UH-60M Black Hawkhelicopter cabin for the American company Sikorsky Aircraft Corporation, production of the wing centre section of the C-27J Spartan aircraft for Alenia AeronauticaS.p.A., production of carriers for JAS-39 Gripen aircraft for Saab Aeronautics as well as other cooperation with leading global aerospace producers (Latecoere,Sonaca, Spirit Aerosystems, EADS and others).

The only one contractual partner of the production program L-159 is the Ministry of Defence of the Czech Republic. As at 8 December 2005, the Company hasconcluded with the Ministry of Defence of the Czech Republic a general agreement for after warranty support for the aircraft within which the Company wouldprovide services, maintenance and assist in the modernization of the fleet and deliveries of spare parts. The contract was signed for a definite period untilJanuary 2029. Since the beginning of the production of the L-159 aircraft, the Company sold a total of 72 planes to the one and only customer (i.e. to the Ministryof Defence of the Czech Republic). The Company has been concentrating on possible sales of the unused L-159 aircraft of the Army of the Czech Republic and onupgrading of the specified number of aircraft to the L-159T1 advanced training aircraft for the Army of the Czech Republic.

Until 2008, the production of helicopters for the Sikorsky Aircraft Corporation had a growing trend. Based on placed orders, the number of produced helicoptersdecreased in 2009 and 2010. In 2011, the Company will continue to produce the S-76C+ and S-76D versions of helicopters; a planned number of producedhelicopters is 6 and 19 pieces. Based on the cooperation agreement with the Italian aircraft producer Alenia Aeronautica S.p.A., the Company will supply 9 piecesof the centre section of the wing for the C-27J Spartan transportation aircraft in 2011. The production will continue of 18 carriers for JAS-39 Gripen aircraft forSaab Aeronautics, 10 sets of leading edge of wing for Boeing 767 and 46 pieces of cannon doors for Boeing. The Company will continue to supply hinges and innerconstruction of doors for regional transportation jet planes Embraer 170 and Embraer 190, in the volume of 94 shipsets based on the contract with LatecoereToulouse. In addition, the Company sees perspectives in the cooperation with the Belgian company SONACA on the development of a part of the wing for theC-Series aircraft for the Canadian producer Bombardier, and prepares to deliver the planned 9 cabins for the UH-60M Black Hawk helicopter for the SikorskyAircraft Corporation.

26. STATEMENT OF CASH FLOWS (SEE APPENDIX 1)

The cash flow statement was prepared under the indirect method.

27. STATEMENT OF CHANGES IN EQUITY (SEE NOTE 10)

Page 39: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

Report on relations between the related entities

annual report 2010 AERO Vodochody a.s. | report on relations between the related entities

76 | | 77

Report on related parties Report of the Board of Directors of AERO Vodochody a.s. according to provision of Section 66a of the Act No. 513/199, Coll. the Commercial Code

SECTION I. CONTROLLED AND CONTROLLING PARTY

CONTROLLED PARTYAERO Vodochody a.s., Seat at Odolena Voda, Dolínek, U Letiště 374, Postcode 250 70, Identification No.: 00010545Registered in the Companies Register maintained by the Municipal Court in Prague, Section B, File 449, (further referred to as “Company”)

CONTROLLING PARTYPenta Holding LimitedSeat at Agias Fylaxeos & Polygnostou 212, C&I Center, 2nd floor; Limassol, Cyprus Republic, Registration No.: HE 101 570

SECTION II. RELATED PARTIES

Related parties are represented by the Company and parties directly and indirectly controlling, and companies controlled by the controlling party, i.e. fromJanuary 4, 2007 parties controlled by Penta Holding Limited.

SECTION III. DECISIVE PERIOD

This report was elaborated for the period from January 1, 2010 to December 31, 2010.

SECTION IV. CONTRACTS AND AGREEMENTS CONCLUDED BY RELATED PARTIES

In the decisive period, the following contracts between related parties were signed:Contract Date of Provided Gained

Party Name Signature Performance Performance Duration DetrimentPenta Investments Limited Amendment no. 5 to Loan Facility Agreement signed on 26.6.2007 27.1.2010 Prolongation of loan Prolongation of loan 30.7.2010 NonePenta Investments Limited Amendment no. 6 to Loan Facility Agreement signed on 26.6.2007 30.7.2010 Prolongation of loan Prolongation of loan 22.3.2013 NonePenta Investments Limited Amendment no. 6 to Loan Facility Agreement signed on 26.6.2008 27.1.2010 Prolongation of loan Prolongation of loan 30.7.2010 NonePenta Investments Limited Amendment no. 7 to Loan Facility Agreement signed on 27.6.2009 30.7.2010 Prolongation of loan Prolongation of loan 22.3.2013 NonePenta Investments Limited,Tularosa a.s., Salori Holding B.V. Amendment no. 3 to Loan Facility Agreement no . 21559 28.1.2010 Prolongation of loan Prolongation of loan 31.7.2010 None

Penta Investments Limited, Preexport loan Tularosa a.s., Salori Holding B.V. Project Support Agreement 23.7.2010 funding for SAC 31.3.2013 None

Agreement on foundation Foundation of rights ofPenta Investments Limited of rights of lien regarding receivables 2.8.2010 lien regarding receivables 23.9.2010 None

of intercompany loan contracts – intercompany loansPenta Investments Limited, Expiration ofTularosa a.s., Salori Holding B.V. Agreement on expiration of rights of lien 23.9.2010 rights of lien None

Agreement on foundation Foundation of rights ofPenta Investments Limited of rights of lien regarding receivables 23.9.2010lien regarding receivables 31.3.2013 None

of intercompany loan contracts – intercompany loansInsurance contract „F“ Preexport loan

Penta Investments Limited, No. 125007536 23.10.2010 insurance 31.3.2013 NoneTularosa a.s., Salori Holding B.V. for insurance of preexport loan from EGAPPenta Investments Limited, Preexport loan Tularosa a.s., Salori Holding B.V. Project Support Agreement 23.9.2010 funding for Alenia None

Penta Investments Limited, Subordination of liabi-Tularosa a.s., Salori Holding B.V. Subordination Agreement 23.9.2010 lity to comp. Salori 31.3.2013 None

Penta Investments Limited, Agreement betweenTularosa a.s., Salori Holding B.V. Intercreditor Agreement 23.9.2010 creditors 31.3.2013 None

Amendment No. 1 to the Share Purchase Option for S-BPenta Investments Limited Agreement dated July 31, 2009 16.12.2010 of company 30.7.2011 None

Petr BrychtaMember of the BoardAERO Vodochody a.s.

SECTION V. OTHER LEGAL ACTS BETWEEN RELATED PARTIES

No other legal acts are known to the Company carried out in the interest of the related parties.

SECTION VI. OTHER MEASURES BETWEEN RELATED PARTIES

No other measures were carried out in the interest of the related parties to the knowledge of the Company.

SECTION VII. CONCLUSION

The Board of Directors of AERO Vodochody a.s. states that it proceeded with all due diligence of a manager to establish the circle of related parties for thepurpose of this report: by consulting the controlling parties, both in the period before and after the change in the owner of the Company, regarding the circleof parties, which were controlled by these parties in the given period.

The Board of Directors of AERO Vodochody a.s. proclaims that all fulfillments, considerations respectively, which were provided on the basis of the relationsmentioned in Sections IV. – VI. of this report, were in a customary amount. This report was presented for review to the Supervisory Board and to the auditor,who will perform the audit of the financial statements as required by a special law.

In Odolena Voda, March 14, 2011

Ing. Ladislav Šimek, MBAChairman of the Board AERO Vodochody a. s.

Page 40: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

F/A-18 Super Hornet

AERO HAS PARTICIPATEDIN THE PRODUCTION OF THE F/A-18 SUPERHORNET SINCE 2001.FOR ITS AMERICANCUSTOMER, BOEINGINTEGRATED DEFENSESYSTEMS LOCATED IN ST. LOUIS, AERO DELIVERS GUN BAYDOORS. IN AUGUST2008, AERO DELIVEREDITS 300TH UNIT. THE PROGRAM COMPRISES DETAILEDPARTS FABRICATION,SURFACE TREATMENTAND FINAL ASSEMBLYOF GUN BAY DOORS -READY FOR INSTALLATIONON THE AIRCRAFT.

Page 41: ANNUAL REPORT - Aero Vodochody · Defence & MRO Division Strategic ... companies in the global aviation business. ... EASA Part-145 MRO and EASA Part-147 Civil Aircraft Training.

AERO Vodochody a.s.U Letiště 374 250 70 Odolena Voda

www.aero.cz

© AERO Vodochody a.s.Design: TAC-TAC agency s.r.o.