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Results for the first half comfortably positive

  20.11.2008    

The board of directors of Air France-KLM convened on 19th November 2008 under the chairmanship of
Jean-Cyril Spinetta to examine the accounts for the first half of Financial Year 2008-09. Mr Spinetta
made the following comments on the results:
"Activity in the first half held up well in a more difficult operating environment, marked by the first signs
of  economic slowdown and  a  further  sharp  rise  in  oil  prices.  Traffic was positive  and  unit  revenues
resilient. We recorded revenue growth of over 4% despite the appreciation of the euro relative to other
currencies. The rise in oil prices was partly offset by our hedging measures, but nevertheless added
almost  700  million  euros  to  our  fuel  bill  which  amounted  to  some  3  billion  euros.  In  spite  of  these
headwinds, the group generated operating income of 639 million euros in the first half and 405 million
euros  in  the  second  quarter,  the  highest  among  our  European  peers  both  in  terms  of  results  and
margins.”  He  concluded:  "The  deterioration  in  the  economy  has  accelerated  since  the  summer.
Nevertheless,  our  flexibility  has  allowed  us  to  respond  rapidly  to  adjust  capacity,  enabling  us  to
continue to maintain high load factors. Moreover, the generation of an additional 260 million euros in
savings this year will help us stabilize our costs and protect our profitability. The group is committed to
making the most of its competitive advantages, and I am confident we will emerge stronger from the
current crisis."

Good Second Quarter in a more difficult operating environment
Activity in the second quarter was affected by the economic slowdown, the rise in the oil price and the
weakness of the US dollar. The passenger business held up well, with traffic up 1.7% and capacity by
3.6% (1.8% and 3.8% respectively after consolidating VLM). The load factor remained high at 83.0%,
down 1.6 points.  Unit revenue excluding currency impact remained resilient. Cargo saw a slowdown
during the summer, offset by a further rise in unit revenue. The very sharp rise in the oil price weighed
on  profitability  for  the  quarter.  Nevertheless,  all  the  businesses  contributed  positively  to  operating
income.
Revenues  rose  3.2%  to  6.69  billion  euros  after  a  negative  currency  effect  of  3.9%,  for  production
measured in equivalent available seat kilometers (EASK) up 4.1%. Unit revenue measured in EASK
was slightly down (-0.5%) but rose 3.6% on a constant currency basis. Operating costs were up 9.2%.
Excluding the fuel charge, the rise would have been 2.3%. Unit cost measured in EASK was up 6.1%,
but was  stable (+0.1%) on a constant currency and fuel price basis. In the context of the reinforced
‘Challenge 10’ cost-savings plan, the group realized 163 million euros in savings during the quarter.
The main  change  in  operating  costs  related  to  the fuel  bill,  which was  up  422  million  euros  to  1.61
billion euros against 1.19 billion euros at 30th September 2007, a rise of 35.3% under the combined
effect  of  a  1.0%  rise  in  volumes,  a  46.0%  increase  in  fuel  prices  after  hedging,  and  a  favorable
currency effect of 12.0%.
Operating income amounted to 405 million euros (versus 725 million euros at 30th September 2007).
The adjusted operating margin1 was 6.8% (12.0% a year earlier).  
Net  interest  charges  continued  to  fall,  at  10  million  euros  (-37.5%)  reflecting  the  strong  financial
position of the group. ‘Other financial income and charges’ recorded a charge of 438 million euros of
which  373  million  euros  relating  to  the  change  in  the  value  of  hedging  instruments  (‘time’  value),
versus income of 11 million euros at 30th September 2007. After a tax credit of 57 million euros and
income from  associates  of  9  million  euros,  net  income  stood  at  28  million  euros  versus  736  million
euros  the  previous  year,  which  had  included  proceeds  of  212  million  euros  in  respect  of Amadeus.
Restated for non-recurrent and non-cash items, net income stood at 244 million euros, down 49.1%.

First Half 2008-09: operating income of 639 million euros 
After a negative currency impact of 3.9%, revenues rose 4.4% in the first half to 12.98 billion euros for
production measured in EASK (equivalent available seat kilometer) up 5.1%. Unit revenue measured
in  EASK  was  slightly  down  (-0.3%),  but  progressed  3.7%  on  a  constant  currency  basis.  Operating
costs, impacted by the oil price, were up 9.3% to 12.34 billion euros. Excluding fuel they rose 4.0%.
Unit cost per EASK was up 5.1%, but by only 0.5% on a constant fuel and currency basis, thanks to
realized savings of 277 million euros in the context of the ‘Challenge 10’ cost-savings program.
The main operating costs evolved in line with the activity, with the exception of fuel and commercial
and distribution costs. The fuel bill rose by 687 million euros, or 30.1%, to 2.97 billion euros under the
combined effect of a 2.0% rise in volumes, a rise in fuel price after hedging of 41.0% and a favorable
currency  effect  of  13.0%.  Commercial  and  distribution  costs  declined  10.1%  thanks  to  the  further
reduction in commissions and a cut in advertising spend.
Operating income amounted to 639 million euros, down 43.9% (1.14 billion euros at 30th September
2007). The adjusted operating margin1 was 5.7% (10.0% at 30th September 2007).
Income from operating activities stood at 662 million euros compared with 1.48 billion euros at 30th
September 2007, after 284 million euros in additional gains in respect of Amadeus and on the disposal
of  shares.  Pretax  income  of  fully  consolidated  companies  was  214  million  euros  after  a  non-cash
accounting charge relating to the valuation of hedging instruments (‘time’ value) of 361 million euros.
Net income, group share stood at 196 million euros versus 1.15 billion euros at 30th September 2007.
Restated for non-recurrent and non-cash items, net income amounted to 385 million euros, a decline
of 47.8%, in line with that of operating income.
Earnings  per  share  amounted  to  0.66  euros,  and  diluted  earnings  per  share  to  0.63  euros  at  30th
September 2008, against 4.13 euros and 3.73 euros respectively at 30th September 2007.

Financial position: free cash flow of 173 million euros 
Tangible  and  intangible investments  of  the  Air France-KLM group amounted to  1.12  billion  euros  at
30th September 2008 compared with 1.28 billion euros a year earlier. They were funded by operating
cash flow of 1.17 billion euros and proceeds from aircraft disposals of 123 million euros, leading to free
cash flow of 173 million euros. The group’s financial position continues to be healthy, with cash of 4.4
billion  euros  and  available  credit lines  of  2  billion  euros,  of  which  the  group  drew  down 500  million
euros at the beginning of October, benefiting from favorable financing terms.
Shareholders’  equity  amounted  to  11.1  billion  euros,  of  which  2.27  billion  euros  relating  to  the  fair
value of hedging instruments, a rise of 453 million euros relative to 31st March 2008. Net debt stood at
2.74  billion  euros  (versus  2.69  billion  euros  at  31st  March  2008).  As  a  result,  the  gearing  ratio1
remained  stable  in  comparison  with  31st  March  2008  at  0.25,  and  0.31  excluding  the  valuation  of
hedging instruments. 

Outlook for Full Year 2008-09
The  operating  environment  continues  to  be  affected  by  deteriorating  economic  conditions  and
significant volatility in the oil price and the euro/dollar exchange rate. The group has therefore taken a
number of decisions, notably to curtail capacity growth for winter 2008, to reinforce the current cost-
savings  plan  by  a  further  260  million  euros,  and  to  reduce  the  scope  of  the  investment  program.
Assuming there is no further significant deterioration in the operating environment, our objective is of
an operating income clearly in profit for Full Year 2008-09. 


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