The following factors associated with the performance and financial position etc. of the Group has the potential to exert a material impact on decisions by investors.

Note that the text contains forward-looking statements that reflect the judgment of the Group as of the date of submission (June 27, 2018) of this securities report.

1 - Deterioration in the management base of airlines

The Group operations in the airline industry, and the Group's financial position and business performance may be adversely affected, in the form of falling order volumes and revenue and so on by factors, including declines in passenger numbers and air freight volumes, caused by economic downturns, international conflict and terrorist activity, the spread of infectious diseases, soaring oil prices, or other aspects of intensified competition between airlines  that lead to deterioration in the performance or management base of airlines.

2 - Significant changes in the production plans of aircraft manufacturers

In its Aircraft Interiors-related, Aircraft Seat-related and Aircraft Components-related manufacturing businesses, the Group manufactures products for Boeing and Airbus. In the Aircraft Interiors-related business in particular, the Group is the exclusive supplier of lavatories to Boeing for 777, 767 and 747 aircraft, as well as both lavatories and galleys for 787 aircraft. Accordingly, in the event of delays in the development of new aircraft by aircraft manufacturers, significant fluctuations in the production schedule, or the shutdown of operations caused by labor disputes, there may be an adverse effect on the financial position and business performance of the Group.

3 - Long-term suspension of services due to aircraft accidents, etc.

In the Aircraft Maintenance business, we maintain, repair and refurbish the airframe and components of small- and medium-sized aircraft owned by public agencies, operators of air transport or other non-passenger services, domestic airlines and so on. In the event that one of these aircraft etc. suffers from a serious fault or accident, services operated using other aircraft of the same type may be suspended while the cause is being investigated and safety is being confirmed. In the event of a problem with the aircraft, etc. that involves a considerable impairment of safety, based on laws and regulations, the Minister of Land, Infrastructure and Transport may issue a notification requiring improvements in airworthiness, leading to a situation in which use of the same type of aircraft currently in service is not approved until safety has been confirmed.

When such cases arise, there may be an adverse effect on the financial position and business performance of the Group, such as reductions in maintenance work related to aircraft of the type in question.

4 - Fluctuations in raw material prices

The Group procures a large portion of its raw materials and parts etc. used in its businesses from external suppliers. The materials, metals and composites etc. used in aircraft include specialist items that have a limited number of suppliers or for which it would be difficult to switch suppliers. In the event of accidents or quality problems at suppliers, or in the event of supply shortages or delays in supply caused by a worsening of the international situation and so on, there may be an adverse effect on the production schedule of the Group. In addition, in the event that procurement prices soar as a result of rising demand for raw materials and parts etc. or sharp increases in the prices of oil, manufacturing costs may increase, with adverse effects on the financial position and business performance of the Group.

5 - Fluctuations in the foreign exchange rate

In its Aircraft Interiors-related, Aircraft Seat-related and Aircraft Components-related manufacturing businesses, the Group’s export dealings with overseas airline companies and overseas aircraft manufacturers include a large number of transactions denominated in foreign currency, primarily US dollars. Additionally, a large portion of raw materials and components etc. are procured from imports. As a result of these export transactions some foreign currency settlements are offset and partially hedge the effects of exchange rate fluctuations, but because the current situation in which the value of exports exceeds the value of imports, the financial position and business performance of the Group are affected negatively when the yen appreciates in foreign exchange markets, and positively when the yen is in a depreciating phase. Moreover, although we hedge such exchange rate fluctuations using foreign exchange forward contracts and so on, the Group's financial position and business performance may be adversely affected in the event of fluctuations that are larger than expected.

Furthermore, local currency settlements of account for consolidated overseas subsidiaries and equity-method affiliates are converted into Japanese yen for the consolidated financial statements, and the exchange rate at the time of conversion affects the settlement of accounts after the conversion has been made.

6 - Rising interest rates

Currently, partly in consideration of the low-interest rate financial conditions, the Group's procurement of funds is largely dependent on long-term and short-term borrowings from financial institutions. Particularly in the Aircraft Interiors-related and Aircraft Seat-related manufacturing businesses, many products involve an extended period of time from order to delivery, and the time taken to turn over inventory tends to be long. In order to prepare for increases in production, we have also moved forward with concentrated capital expenditures to expand factories, facilities and equipment. For these reasons, the outstanding balance of loans payable remains at a high level and, in the event that interest rates rise due to changes in financial conditions, the cost of procuring funds will increase and may adversely affect the financial position and business performance of the Group.

7 - Impediments to business activities due to natural disasters

The Group has distributed its bases for development, production, sales and so on both in Japan and overseas, but in the event that a major natural disaster such as an earthquake causes damage from which quick recovery is not possible, there is the risk of suspensions or delays in the procurement of materials and parts, production activities, products sales and servicing activities. In addition, in the event that ports and airports used by the Group are shut for long periods of time due to earthquakes, typhoons, snowfall etc., there is the risk that the Group's business activities will be constrained, which may adversely affect the financial position and business performance of the Group.

8 - Laws and regulations

The Group carries out the repair and refurbishment of aircraft as well as the design, manufacture, repair and refurbishment of aircraft components pursuant to laws and regulations, including the Civil Aeronautics Act in Japan and similar regulations overseas, and, the Group is subject to a variety of regulations for part of that business due to the need to obtain approval from the relevant authorities in each country. In the event that an infringement of the various laws and regulations is recognized, the Group may be subject to punishment such as having its licenses revoked, which may adversely affect its financial position and business performance.