Air France 2007 Annual Report Download

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We support our customers in developing
their businesses on a global level with
innovative travel and transportation
solutions. In each of our businesses
we are pursuing a strategy of profitable
growth, founded on respect for
our employees, shareholders
and the environment.
Our position as world leader
in air transport gives us
responsibilities and
encourages us to set
ever-higher standards
of customer service, financial
performance and social
and environmental commitment.
Annual report
2006-07
2006-07

Table of contents

  • Page 1
    Annual report 2006-07 We support our customers in developing their businesses on a global level with innovative travel and transportation solutions. In each of our businesses we are pursuing a strategy of profitable growth, founded on respect for our employees, shareholders and the environment. Our...

  • Page 2
    ...14 SkyTeam ••• 26 Cargo activity ••• 28 Maintenance activity ••• 34 Corporate governance ••• 42 Being a shareholder ••• 50 Sustainable development ••• 58 Consolidated financial statements ••• 64 Glossary ••• 69 Additional information on the Air France...

  • Page 3
    2006-07 At a glance Global leader 240 105 3 73.5 1.4 900 destinations in businesses million tons of cargo transported 1 countries million passengers carried aircraft maintained Profitable growth 23.1 billion euros of revenues billion euros of operating income employees 1.2 103,000

  • Page 4
    ... by the air transport sector and the achievement of the Group as a whole. Air France-KLM is currently amongst the best performing companies world-wide in terms of profitability. This success was supported by an excellent global economic environment but also by making the right strategic choices. The...

  • Page 5
    ...trust established between us during these years contributed to the success of the Group, of which we both are proud, as I know are all of you who supported us. I take this opportunity to thank you for your unwavering loyalty. 3 Jean-Cyril Spinetta Chairman and Chief Executive Officer Air France-KLM

  • Page 6
    ... growth strategy 4 23.1 21.4 1.2 0.9 2005-06 2006-07 2005-06 Revenues (in â,¬bn) Breakdown of revenues by activity (in â,¬bn) Operating income (in â,¬bn) Revenues increased by 1.63 billion euros (+7.6%), reflecting the very strong level of activity throughout the year. Operating...

  • Page 7
    2006-07 Consolidated figures Full Year to March 31 (in â,¬ millions) Revenues Operating income Pretax income of fully integrated companies Net income, Group share Net income, Group share, excl. Amadeus capital gain Net earnings per share (in euros) Net diluted earnings per share (in euros) (1) ...

  • Page 8
    2006-07 6 Supporting world economic expansion is our job A contributor to the economy ••• 8 Interview with Jean-Cyril Spinetta and Leo van Wijk ••• 10 Passenger activity ••• 14 SkyTeam ••• 26 Cargo activity ••• 28 Maintenance activity ••• 34

  • Page 9
    2006-07 7

  • Page 10
    ... billion passengers carried and 28 million flights in 2006, the air transport sector creates value for the economy in furthering business development and tourism. The globalization of trade is supporting its growth and driving the development of airlines with international reach. Air transportation...

  • Page 11
    ... Europe and the rest of the world, strengthening the country's economic role. This is also true for the zone around Paris-Charles de Gaulle, where more than 700 businesses are based. A social need for mobility Previously restricted to an elite, air transportation is now accessible to a large number...

  • Page 12
    Interview with the two Chairmen 2006-07 10

  • Page 13
    ... Union and the United States signed an "open skies" agreement. Does this represent an opportunity for the Group? Jean-Cyril Spinetta : The "open skies" agreement between Europe and the United States is an important step for our industry since, for the first time, the concept of a European airline is...

  • Page 14
    ... respective markets in France and the Netherlands. However, this new agreement gives our SkyTeam alliance new potential for growth. Our partners will be able to open new routes departing from any European city on which we can use our codes. Transatlantic flights departing from London-Heathrow look...

  • Page 15
    ... Roissy-Charles de Gaulle transfer platform; as a result, our customer service will improve markedly, making our hub an airport reference standard world-wide, as is already the case with Schiphol. As the only air transport group to be included in three sustainable development indices, Air France-KLM...

  • Page 16
    Passenger activity 2006-07 14

  • Page 17
    ... a year, the aircraft is by far our main means of transportation. Currently, Air France-KLM is the leading carrier for the BNP Paribas group, not only in Europe, our main base, but also in the other continents, either directly or through the SkyTeam alliance. Thanks to the density of its network and...

  • Page 18
    ... euros. With a market share of 27.1% in 2006, the Group is the European market leader. The leading global network Air France-KLM has the largest network linking Europe to the rest of the world. Organized around two intercontinental hubs, Paris-Charles de Gaulle and Amsterdam-Schiphol, it offers 240...

  • Page 19
    ...under two hours (summer 2007), Air France-KLM has the best offer in Europe. Today, 52% of passengers at Paris-Charles de Gaulle and 65% at Amsterdam-Schiphol are connecting with a long-haul flight. The Group's hubs, two of the four largest in Europe, are linked by fifteen daily return flights, known...

  • Page 20
    ... the number of frequencies enables the better use of resources in outstations. The hub is an economically profitable model • thanks to its two hubs, Air France-KLM attracts a significant level of premium transfer traffic, a testimony to the quality of the two hubs in that this type of customer is...

  • Page 21
    ... we travel the globe in order to visit our factories, meet our customers or develop our activity. We thus require not only direct flights out of Amsterdam or Paris but also links between European regional airports and the rest of the world. The reach of its network, the flight times and frequencies...

  • Page 22
    ...Air France and KLM customers have been able to check in over the internet for virtually all destinations offered by the two airlines. At any time from 24 hours to 30 minutes before the check-in limit for the flight, passengers can print their boarding cards at home or in the office and select a seat...

  • Page 23
    ... of KLM and its SkyTeam alliance partners by 66%. The leading European frequent flyer program Flying Blue is the leading frequent flyer program in Europe, with 12.6 million members. They benefit from the Group's combined network, earning air miles which may be used on some 16,600 daily flights...

  • Page 24
    ..., Air France has developed a new service from the heart of London. Since March 26, 2007, CityJet, Air France's regional airline, has linked London City Airport with Geneva, Madrid, Milan Linate, Nice and Zurich and, in cooperation with ScotAirways, Belfast, Dundee and Edinburgh with nearly 70 daily...

  • Page 25
    ... the Middle East through Paris and Amsterdam. Our short-haul European travellers like the new e-services such as the option of printing out boarding cards in the office. Key especially at this point in time is also to have a partner that helps us to best manage our travel cost. Matthias Mette Vice...

  • Page 26
    ... offer passengers the latest technological innovations as well as an improved level of service. The introduction of these new aircraft represented an investment of more than one billion euros. Furthermore, since November 2006, Air France's long-haul Business Class customers have benefited from a new...

  • Page 27
    ...phones in flight. This will initially be limited to data before being extended to sound. A first test phase will be carried out with passengers traveling on board an Airbus A318 serving Europe and North Africa. New, higher-performance aircraft The Air France-KLM fleet management policy aims to meet...

  • Page 28
    ... of market share, and brings together ten European, American and Asian airlines. Air France and KLM play a lead role in SkyTeam whose network covers the five continents and the main commercial routes. It is structured around a number of different hubs: • in Europe: Amsterdam, Paris-CDG, Moscow...

  • Page 29
    ... to meet a number of the strategic criteria required of airline members. The alliance can, thus, expand its network and services to new regions of the world. An alliance tailored to corporate needs The alliance has developed customized products for businesses such as global contracts facilitating...

  • Page 30
    Cargo activity 2006-07 28

  • Page 31
    ... needs. Air France Cargo and KLM Cargo offer a global network of scheduled flights with priority access to capacity in the peak season. We manage to find a balance between competitive pricing in each of the service segments and superior quality management. Thomas Lieb Member of the Management Board...

  • Page 32
    ..., with an AEA (Association of European Airlines) market share of 29.6% in 2006 and 7% at global level. Air France-KLM Cargo plans to consolidate its leadership position in providing its customers with the best-performing logistics services offered by an integrated air freight carrier. Since October...

  • Page 33
    ..., Air France Cargo, Alitalia Cargo, CSA Cargo, Delta Air Logistics, KLM Cargo, Korean Air Cargo and Northwest Airlines Cargo. The alliance covers the principal strategic commercial routes over 545 destinations in 127 countries. SkyTeam Cargo members share a global network and a common offering based...

  • Page 34
    32 As a non-asset based company, we need to offer our clients several options for freight management. Air France-KLM offers global airfreight coverage and significant capacities in the world's key markets. Their commitment to quality in service, specific customized solutions and a continual ...

  • Page 35
    ...million tons, driven by the globalization of world trade and "just-in-time" business practice. Asia, and particularly China, remain the most dynamic markets. To anticipate these trends, Air France-KLM Cargo started discussions with Chinese company China Southern in early 2007, with a view to setting...

  • Page 36
    Maintenance activity 2006-07 34

  • Page 37
    ... one cars. For the past twelve years, the KLM world-wide support network, and now Air France-KLM, has been getting rotable parts to us quickly so that we can get our aircraft back in the air, whether they are in Dubai, Amsterdam or New York. We have one contact point for the maintenance, engineering...

  • Page 38
    ... E&M. The two companies also ensure the fleet management of more than 150 airline customers. Air France Industries and KLM E&M offer integrated, multi-product services covering all areas of aeronautics maintenance. Within a context of the deregulation of global markets and growth in traffic, it is...

  • Page 39
    ...was applied as of 2005 for selected aircraft and engine types, was expanded in 2006 and will be developed still further. A multi-product services provider 37 The Group has maintenance operations based at Roissy, Orly, Toulouse, Schiphol and Norwich as well as in more than 150 world-wide airports

  • Page 40
    ... In 2006-07, Air France Industries and KLM E&M saw strong growth in their engine and component support services for third-party customers as well as a high level of airframe maintenance activity on the Group's aircraft. For the component support activity, the two companies engaged in partnerships...

  • Page 41
    2006-07 This strategy of deploying integrated support services in regions far from its home base has been well-received by a number of low-cost Asian airlines. 39 A world-wide logistics network In order to ensure a local presence for customers, the Group has established its logistics network in ...

  • Page 42
    2006-07 40 Being a responsible economic player is our duty Corporate governance ••• 42 Being a shareholder ••• 50 Sustainable development ••• 58 Consolidated financial statements ••• 64 Glossary ••• 69

  • Page 43
    2006-07 41

  • Page 44
    Corporate governance The Board of Directors 42 Jean-Cyril Spinetta Chairman and Chief Executive Officer of Air France-KLM Chairman of the strategy committee Leo M. van Wijk Vice-Chairman of the Board of Directors Member of the strategy committee Patricia Barbizet Chief Executive Officer and ...

  • Page 45
    ...Investissement Chairman of the remuneration and appointments committees Pierre-Henri Gourgeon Deputy Chief Executive Officer of Air France-KLM Claude Gressier President of the Department of Economic Affairs, Counsel General for Public Works Member of the strategy committee Philippe Josse Director...

  • Page 46
    ... to manage the company, with the exception of the limitations set forth in the internal regulation of the Board of Directors. Leo M. van Wijk Vice-Chairman of the Board of Directors • President and Chief Executive Officer of KLM (until March 31, 2007) • Director of Northwest Airlines • Member...

  • Page 47
    ... of flight deck crew Pierre-Henri Gourgeon Deputy Chief Executive Officer of Air France-KLM • Chief Operating Officer of Air France and Permanent representative of Air France-KLM on the Board of Directors of Air France • Vice-Chairman of the Board of Directors of Amadeus GTD • Director of...

  • Page 48
    ... Board Experience at March 31, 2007 Sector Professional experience Experience in the sector Current position 46 Jean-Cyril Spinetta 63 years September 23, 10 years 1997 Public Service Air Transport (Air Inter and Air France) 14 years Chairman and CEO of Air France-KLM and of Air France 36 years...

  • Page 49
    ... Directors Claude Gressier 64 years June 24, 2004 3 years Public Service 39 years President of the Department of Economic Affairs, Counsel General for Public Works Didier Le Chaton 56 years January 26, 2006 15 months Air Transport (Air France) Air Transport (Air France) 31 years Flight...

  • Page 50
    ... for accounting, legal affairs, financial control, internal control and internal audit of Air France-KLM and the subsidiaries Air France and KLM attend its meetings. The audit committee reviews the interim and annual consolidated financial statements in order to inform the Board of Directors of...

  • Page 51
    ... network and hub coordination, budgets and medium-term planning, fleet plans and investments as well as alliances and partnerships. The SMC will be replaced in the second half of 2007 by a Group Executive Committee, comprised of 11 members, who fulfil responsibilities at the level of the Air France...

  • Page 52
    ... all the Committee members see Air France-KLM as a company where ethical management, socially responsible investment and financial performance go hand in hand. The combination of these factors made us want to participate in the Group's communication with its individual shareholders. We hope to...

  • Page 53
    ... areas conducted on behalf of Air France-KLM. Sub-groups also meet in addition to the plenary meetings to address specific issues. This annual report was, thus, the subject of a Committee meeting during which, through their work and views, several of its members contributed to its realization. 400...

  • Page 54
    ... and San Francisco). As every year, an Investor Day was organized at Roissy which was attended by more than 60 analysts and investors, who were thus able to meet the Group's operational management. The Air France-KLM investor relations team this year won the award for the best SBF 120 annual report...

  • Page 55
    ...a member of the investor relations team on the toll free number 0800 320 310. Outside these periods, an electronic message reports the opening and closing Air France-KLM share prices. Shareholders not resident in mainland France should call +33 1 41 56 88 85. You can also send us a question by email...

  • Page 56
    ... by mail to information meetings organized in their region with a business press partner, • special offers. Club members also benefit from preferential special offers from the Air France Museum enabling them to purchase products relating to Air France and KLM and their histories. Special...

  • Page 57
    ...• are listed by name in the company's share register, enabling them to receive the convening notice directly by mail at least fifteen days before the date of the Shareholders' Meeting, • can consult their securities account and be informed of transactions made on it and place stock market orders...

  • Page 58
    ... time of the exchange offer for KLM shares into Air France shares in May 2004, 45,093,300 subscription warrants for new or existing shares (BASA) were issued under the ISIN code: FR0010068965. These warrants are listed for trading on Euronext Paris and Amsterdam. Air France-KLM American Depositary...

  • Page 59
    2006-07 Stock Market Share price performance 2006-07 Share price high (in euros) Share price low (in euros) Share price on March 31 (in euros) Number of shares in circulation Market capitalization (in euro billion) Source : Euronext 2005-06 20.50 11.78 19.43 269,383,518 5.2 2004-05 15.33 11.28 13...

  • Page 60
    58 The new challenge for air transportation is climate change. The inclusion of airlines in the European Emissions Trading Scheme in 2011 is intended to encourage them to reduce their emissions. Air France-KLM is one of the best in its sector with significant investment in fleet renewal aimed at ...

  • Page 61
    ... firm specialized in non-financial analysis and advisory, also ranked Air France-KLM amongst the 100 companies with the best sustainable development credentials. Air France and KLM are committed to respecting the ten principles of the United Nations Global Compact, relating to human rights, labor...

  • Page 62
    ... regions in which they operate. Thus, at Roissy, Air France created and supports the Pays de Roissy-CDG association which, in bringing together companies, local elected representatives and residents, enables projects concerning economic development, housing, transportation, cultural events, training...

  • Page 63
    ... these associations Everyone can support the work of the Air France Foundation and KLM AirCares by donating Flying Blue air miles. The miles collected in this way are converted into Air France or KLM tickets and given to various deserving causes. To suggest a project or for more information please...

  • Page 64
    ... France-KLM has chosen to support the European Union draft directive to include aviation in the European Union Emissions Trading Scheme. The principal challenges faced by the Group are • limiting the contribution to global warming and noise while meeting the growing demand for air transportation...

  • Page 65
    ... the European Commission draft directive and took the opportunity to reiterate its opposition to any taxation system which would unfairly penalize airlines and not constitute a proper solution to the problem. 63 Publication of the corporate social responsibility report Since 2005, Air France-KLM...

  • Page 66
    Consolidated financial statements 2006-07 64

  • Page 67
    ...non-current income and expenses Income from operating activities Cost of financial debt Income from cash and cash equivalents Net cost of financial debt Other financial income and expenses Income before tax Income taxes Net income of consolidated companies Share of profits (losses) of associates Net...

  • Page 68
    66 Consolidated balance sheet In â,¬ millions Assets Goodwill Intangible assets Flight equipment Other property, plant and equipment Investments in equity associates Pension assets Other financial assets Deferred tax assets Other non-current assets Total non current assets March 31, 2007 204 424 11...

  • Page 69
    ... of Air France-KLM Minority interest Total Equity Provisions and retirement benefits Long-term debt Deferred tax Other non-current liabilities Total non-current liabilities Provisions Current portion of long-term debt Trade accounts payable Deferred revenue on ticket sales Current tax liabilities...

  • Page 70
    ... monetary result Unrealized foreign exchange gains and losses, net Negative goodwill Share of (profits) losses of associates Deferred taxes Other non-monetary items Subtotal (Increase) / decrease in inventories (Increase) / decrease in trade receivables Increase / (decrease) in trade payables Change...

  • Page 71
    ... ground services for Air France and KLM passengers, based on new information technology. E-services notably allow passengers to check in using self-service kiosks or via the companies' internet sites as well as the use of electronic tickets. IATA year Financial year for many airlines, including Air...

  • Page 72
    ... of financial and exceptional items. Point-to-point traffic Traffic between two airports, excluding all passengers taking a connecting flight. Revenues Revenues corresponds to the total revenues generated by the Air France-KLM group in its three core activities (passenger, cargo, maintenance) and...

  • Page 73
    ... welcomed the successful merger of our two companies two years ago, then paid tribute to our teams and the values they share last year, we felt that it was logical to dedicate this 2006-07 annual report to what our stakeholders had to say. This is because, for us, the success of Air France-KLM is...

  • Page 74
    ... department Creation and realization: Editorial committee: Air France-KLM Financial Communication Photographic credits: Grégoire Korganow and Philippe Touitou/Rapho - Eyedea Press N. Rigg and J. Cantor Studio/Getty Images Air France and KLM picture libraries - Expeditors This document is printed...

  • Page 75
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