AeroEdge Co., Ltd.

The main raw material for the Titanium Aluminide Low-Pressure Turbine Blades (for LEAP) is supplied free of charge by Safran S.A. of France. Should a shortage or delivery delay occur due to an accident at the supplier, quality issues, or deterioration in the international situation, this would lead to delayed production schedules, resulting in decreased sales and profits and a deterioration in cash flow. In the past, material supply delays caused by labor shortages and equipment failures related to COVID-19 have occurred, affecting production volumes. The Company plans to begin supplying its own New Titanium Aluminide Blade Material from FY2027 (ending June 2027) in order to avoid material supply risk.

In FY2025 (ended June 2025), the sales ratio attributable to Safran S.A. of France and the New Titanium Aluminide Blade Material sold to it (including related sales) reached 96.8%. Should contract termination, market share reduction, or production suspension requests occur, this could have a significant impact on business performance and financial condition. In addition, Boeing's 737MAX has been subject to a production expansion halt instruction from the U.S. Federal Aviation Administration following a quality issue in January 2024, and there is a risk of prolonged production stagnation. The Company concluded a renewal contract in October 2024 extending the contract period and expanding market share, and is also working to expand New Non-LEAP Aircraft Engine Parts (New Mass-Production Projects).

In order to avoid material supply risk and expand profitability, the Company has developed a new material for its titanium aluminide blades and plans to gradually switch to full in-house supply starting from FY2027 (ending June 2027); however, mass production via casting will be the Company's first experience with this process. Should mass production fail or the production schedule be delayed, this could lead to decreased sales and profits across the entire Titanium Aluminide Low-Pressure Turbine Blades (for LEAP) business and a deterioration in cash flow. The Company aims to reduce this risk by establishing an early mass-production system.

Most sales of the Titanium Aluminide Low-Pressure Turbine Blades (for LEAP) are denominated in U.S. dollars. A stronger yen negatively affects business performance, while a weaker yen has a positive effect. Under the contract revision with Safran in October 2024, a price adjustment clause was established for cases where the exchange rate exceeds a certain range, but the Company remains exposed to exchange rate fluctuations within that range. The Company works to hedge this exposure through forward foreign exchange contracts and other means.

The Company is subject to various laws and regulations, including the Product Liability Act, the Antimonopoly Act, the Waste Management and Public Cleansing Act, and the Fire Service Act, and business operations may be restricted by the enactment of new laws and regulations. Furthermore, should a serious defect or accident occur in aircraft equipped with the Company's products and the relevant authorities revoke the type certification, the Company's order volume would decrease, significantly affecting business performance and financial condition. The Company works to minimize this risk through periodic regulatory reviews by the Corporate Administration Department and responses coordinated through the Risk and Compliance Committee.

The Company's production base consists of only one factory, located in Tochigi Prefecture. Should a large-scale natural disaster, factory accident, or fire occur, damage to production equipment, disruption of logistics operations, or suspension of operations could seriously affect the Company's financial condition and business results. The Company works to minimize the risk of business interruption through the formulation of a business continuity plan (BCP), securing outsourcing partners for some processes, and preparing production recovery manuals and conducting internal training.

In addition to the production expansion of the A320neo family and 737MAX aircraft, the Company needs to continuously strengthen its production capacity through capital investment in order to respond to the market share expansion scheduled from July 2024 and January 2028. Should the Company fail to secure sufficient production capacity and supply delays occur, this could result in penalty costs and a loss of trust from Safran S.A. of France, adversely affecting future business relations. The Company plans to address this through productivity improvements and necessary capital investment.

The aircraft industry is highly susceptible to economic and macroeconomic trends. Should the performance of airlines and aircraft manufacturers deteriorate due to a global economic downturn, international conflict, terrorism, infectious disease outbreaks, or soaring crude oil prices leading to decreased passenger demand, this would lead to a decrease in the Company's order volume and sales. Since most of the Company's sales consist of aircraft engine parts sales, it is directly affected by fluctuations in demand across the industry as a whole.

The Company recorded continuous operating losses from its establishment through FY2022 (ended June 2022), and as a manufacturing company, it holds substantial fixed assets such as factory buildings and machinery and equipment. Fixed assets are expected to continue increasing going forward as the Company expands new mass-production projects and mass-produces the new material. Should the recoverable amount be determined to fall below the book value, an impairment loss would be recorded, affecting business performance and financial condition. The Company works to minimize impairment risk through cost reduction activities and the expansion of new revenue sources.

As of the end of FY2025 (ended June 2025), the outstanding balance of borrowings was ¥3,350 million (40.8% of total assets). In September 2024, the Company entered into a syndicated loan agreement totaling ¥3,300 million (including a commitment line), and the outstanding balance of borrowings has been on an increasing trend. Some loan agreements include financial covenants, and a breach of these conditions could result in acceleration of debt repayment and other effects on cash flow. The Company held cash and deposits of ¥1,573 million as of the end of FY2025 (ended June 2025), and is working to maintain good relationships with financial institutions and strengthen its financial base.