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Annual Report 2007-08
22H00
shanghai
07H00
new york

Table of contents

  • Page 1
    Annual Report 2007-08 07H00 22H00 new york shanghai

  • Page 2
    2

  • Page 3
    ...The SkyTeam alliance 28 Activities 30 Passenger 38 Cargo 44 Maintenance 50 Corporate governance 52 The Group's management 54 The Board of Directors 60 Sustainable development 68 Shareholders 78 Summary consolidated financial statements 84 Glossary Additional information on the Air France-KLM Group...

  • Page 4
    ...-08 financial year reinforced the Group's leadership position in Europe ቢ Joint-venture on the Atlantic On October 17, following the example of KLM and Northwest, Air France and Delta Air Lines announce the signature of a joint-venture agreement effective as of 2008. The two companies will share...

  • Page 5
    ..., alongside KLM Engineering & Maintenance, at the latest Paris Air Show. The opportunity to sign a number of GE90 engine and B777 support contracts as well as to renew all those for Airbus support. ቩ transavia.com France takes on the low cost carriers A new airline takes to the holiday skies...

  • Page 6
    ...figures Results in line with objectives, benefiting from synergies and our cost saving measures 23.1 21.4 19.16 2.93 1.06 0.97 0.9 1.2 24.1 1.4 â- Passenger â- Cargo â- Other activities â- Maintenance 2005-06 2006-07 2007-08 2005-06 2006-07 Revenues (in â,¬ billion) Revenues increased by...

  • Page 7
    ... â- Gearing ratio â- 0.3 â- Passenger â- Maintenance â- Cargo â- Other activities Investments Breakdown of operating income by activity (in â,¬ million) Net income, Group share (in â,¬ million) Earnings per share amounted to â,¬2.63 at March 31, 2008. The dividend was increased by 21% to...

  • Page 8
    13:00 paris With the opening of new terminals, Air France-KLM plans to make Paris-Charles de Gaulle the European reference hub.

  • Page 9
    ..., despite the rise in the oil price and a deterioration in the economic environment in early 2008. I am confident of our ability to strengthen our business during a period which will prove difficult for many companies in our sector." Jean-Cyril Spinetta, Chairman and Chief Executive Officer.

  • Page 10
    Interview

  • Page 11
    ... years, driven by emerging countries. This should normally underpin an increase of around 6% in long-haul traffic demand. Unfortunately, the rise in fares needed to offset the higher fuel cost will put a temporary dampener on demand. We expect all of this to lead to a redrawing of the air transport...

  • Page 12
    ... 3 percentage points. Only Air France-KLM has this type of co-operation with US airlines who, moreover, are themselves about to merge. Finally, with our US partners, we are establishing a strong presence at London's Heathrow airport, the leading market between the United States and Europe. Do you...

  • Page 13
    ... of additional synergies. The Group also benefits from the best fuel hedging position among the European carriers. Launched more than a decade ago with a strategy over four rolling years, our hedging reduces the impact of the increase in the oil price. For the 2008-09 financial year, we are 85...

  • Page 14
    07:00 shanghai In summer 2008, Air France and KLM should each operate two daily flights to Shanghai, a total of four daily frequencies.

  • Page 15
    Strategy Air France-KLM aims to strengthen its European leadership postion by leveraging the power of its network and alliances, a modern fleet, attractive product offerings and significant reserves of synergies, supported by a cost saving program.

  • Page 16
    ... of their own strategies. Increased competition In Europe, three large groups have emerged over the past few years: Air France-KLM, Lufthansa and British Airways. While Lufthansa has growth ambitions in long-haul, supported by partnerships to attract traffic to its Frankfurt and Munich hubs, British...

  • Page 17
    ...110 120 130 140 150 The Air France-KLM Group benefits from the fuel hedging strategy in place for nearly a decade, which reduces the negative impact of price rises and ensures the cost remains constant over the financial year. France Europe Kyoto protocol International Work of the IPCC ICAO...

  • Page 18
    ...-year cost saving plans. A powerful network The Air France-KLM Group has the largest route network between Europe and the rest of the world. Of the 181 long-haul destinations operated by AEA (Association of European Airlines) member airlines in summer 2008, Air France offers 114, or 63% of the total...

  • Page 19
    ... product offer Air France-KLM's customer-focused strategy aims to offer passengers a wide range of destinations and innovative products including, for example, fare combinability, which increases the routing possibilities at attractive fares. The joint Flying Blue frequent flyer program, e-services...

  • Page 20
    ... and long-haul flights, these transfer waves offer a maximum number of flight connection opportunities in under two hours. With 30,500 weekly transfer opportunities in under two hours (summer 2008), Air France-KLM passengers benefit from the most extensive offer in Europe. The hubway shuttle service...

  • Page 21
    .... Available in ten languages, this information includes an alternative flight should this be necessary, together with the issuance of a new boarding card. Air France-KLM is the first European company to offer this service. 258 2007-2012: a new era for the Air France hub at Paris-Charles de Gaulle...

  • Page 22
    ... In order to respond to new passenger expectations and behavior, Air France is optimizing the combination of all its human and technological resources and is designing tailor-made services. Thus, e-services provide greater autonomy and save time, freeing airport ground staff to attend to customers...

  • Page 23
    .... Customer benefits • The hub gives access to all world regions, whatever the point of origin. • Each flight combines connecting and point-to-point traffic, increasing the volume of traffic and the frequencies for each destination. • The hub favors the opening of new direct long-haul routes...

  • Page 24
    ... main fleet consisted of 408 aircraft, of which 159 long-haul, 16 cargo and 233 medium-haul aircraft including 33 aircraft in the transavia.com fleet. The regional fleet comprised 214 aircraft. A pro-active fleet policy The Air France-KLM Group seeks to meet the needs of its markets while respecting...

  • Page 25
    ...'s profitable growth strategy The Group currently operates 77 Boeing B777s. On April 30, 2008, Air France took delivery of a Boeing B777-300ER, its 50th Boeing 777. This aircraft can carry up to 325 passengers on international routes and 472 passengers on the Caribbean-Indian Ocean network. At 57...

  • Page 26
    Strategy SkyTeam, the number two global alliance with a market share of 19% The SkyTeam alliance: a global network of high-quality partners First created in 2000 by Aeromexico, Air France, Delta and Korean Air, the alliance expanded around these four founders with the addition of seven new members ...

  • Page 27
    ... airline to join a global alliance. Without taking into account its two subsidiaries, China Northern and Xinjiang Airlines, China Southern is the leading Chinese carrier in terms of fleet size (305 aircraft), passenger numbers (50 million per year), revenues (â,¬5 billion annually) and destinations...

  • Page 28
    22:00 new york The Open Skies agreement between Europe and the United States enables Air France and KLM to serve North America out of Heathrow.

  • Page 29
    Passenger, cargo and maintenance: Air France-KLM's leadership in these three businesses is based on customer service quality, continuous innovation and the complementarity of the two brands. Activities

  • Page 30
    Passenger activity

  • Page 31
    ...-haul hub, is principally reserved for European trans-regional flights. Finally, in April 2008, the Group established two strong positions in London: to the United States out of Heathrow Airport and to Europe out of London City Airport. Continuous innovation to the benefit of the customer In order...

  • Page 32
    ...The Air France-KLM offer is extended still further by SkyTeam and local partnerships. New long-haul routes departing from Europe Following the Open Skies agreement, the Group has established operations at Heathrow, the largest European long-haul market to the United States: high contribution traffic...

  • Page 33
    ... the United States, Canada, Mexico, Europe and the Mediterranean basin, representing revenues of around $12 billion. Air France also continues to develop its operations in London. One year ago, CityJet for Air France introduced services linking London City, an airport located close to London's new...

  • Page 34
    ... websites of the two airlines, passengers can purchase a ticket, consult the times of all the Group's flights and also manage their reservation with their electronic ticket. Since April 2006, Air France and KLM customers can also check in over the internet for virtually all the destinations offered...

  • Page 35
    ... of 2008. Information around the clock, anywhere in the world Passengers can access Air France and KLM services at any time using a cell phone with mobile internet access. These services (latest flight news, Air France and KLM flight schedules, telephone numbers for the two airlines, and Flying Blue...

  • Page 36
    ... of the aircraft, the inflight procedures and even any upcoming turbulence. These new services are also available to World Business Class customers in Boeing B747s. Since November 2007, movies have taken center stage on Air France long-haul flights, with a choice of 85 videoon-demand films, of which...

  • Page 37
    ... frequent flyer program common to the Group's two airlines, is growing steadily, its membership having increased from 10 million in 2005 to 13 million this year. Air France and KLM passengers can also benefit from the Group's combined network. Flying Blue also enables members to collect miles that...

  • Page 38
    Cargo activity

  • Page 39
    ... year with orders placed for 151 cargo aircraft, the global cargo fleet entering a renewal cycle accelerated by the increase in the jet fuel price. Despite likely overcapacity, annual air freight growth should average close to 4.8% through to 2011. In this challenging environment, Air France-KLM...

  • Page 40
    ...distribution, marketing, network management and communication as well as the strategy and development teams. The integrated functions regroup more than 2,300 of the 5,750 employees who work for the cargo business. Thanks to this organization, the Group's customers benefit from one contact point, one...

  • Page 41
    ... European, American and Asian airlines: Aeromexico Cargo, Air France Cargo, Alitalia Cargo, CSA Cargo, Delta Air Logistics, KLM Cargo, Korean Cargo and Northwest Cargo. The alliance covers the main strategic trade routes with 728 destinations. The alliance also prioritizes one sole contact point...

  • Page 42
    .... The Group also offers its customers the opportunity to offset the CO2 emissions generated by their air freight requirements. In developing e-freight (electronic freight), Air France-KLM is reducing paper consumption. 13 42 aircraft in operation: one of the largest cargo fleets in the world

  • Page 43
    ... International Air Transport Association (IATA), customs, governmental authorities, handling agents and airlines as well as the freight forwarders participating in the Netherlands (DHL, Schenker, Panalpina and TMI Group subsidiary Road Air) electronic cargo has now become a reality. Air France-KLM...

  • Page 44
    Maintenance activity

  • Page 45
    The Group is developing a common operational model for a reference network Aeronautics maintenance is the Air France-KLM Group's third business. Revenues generated with third-party customers contribute around 4% of total revenues for the Group and around a third of revenues for Air FranceKLM's ...

  • Page 46
    ...to the respect of the Group's maintenance program. Similarly, subsidiary KLM UK Engineering has opened a new in-line maintenance center at London City Airport, enabling it to provide this service for the CityJet fleet and to new third-party customers. Major changes in the heavy maintenance business...

  • Page 47
    45% 32% 23% 155 â- Aircraft maintenance â- Component overhaul â- Engine overhaul airports world-wide, at which the Group's maintenance activity is present Breakdown of revenues in the maintenance activity 900 CRMA: celebrates its fifty-year anniversary Subsidiary CRMA, which celebrated its ...

  • Page 48
    ... logistics network has seen the opening of a number of logistics centers in three main regions (SouthEast Asia, China and the United States), where its subsidiary AMG ensures localized logistics and the development of component repair capabilities. Integrated services, the strategic availability of...

  • Page 49
    ... joint sales teams in 2007, the Group is now aligning the commercial and strategic processes which should soon result in a joint sales and marketing organization and the regrouping of all the industrial development, marketing, communication and sales activities on the basis of a common strategy...

  • Page 50
    09h00 rio de janeiro Air France and KLM are committed to an ongoing reduction in the environmental impact of their activities.

  • Page 51
    Corporate Governance The Group is committed to excellence and corporate and social responsibility for its shareholders, employees and other stakeholders.

  • Page 52
    ...'s management With the establishment of the Group Executive Committee, the Air France-KLM Group has strengthened and integrated its governance. Comprised of eleven members representing the Group's key functions, it coordinates the joint strategic decision-making process during fortnightly meetings...

  • Page 53
    ... ቪ Senior Executive Vice-President, Marketing, Revenue Management and Networks, of Air France and of the Air France-KLM Group Erik Varwijk ቫ Senior Vice-President, International Marketing, KLM and of the Air France-KLM Group Michael Wisbrun ቭ Executive Vice-President, Air France-KLM Cargo...

  • Page 54
    ... Shareholders' Meeting Jean-Cyril Spinetta ቢ Chairman and CEO of Air France-KLM and of Air France Leo van Wijk ባ Vice-Chairman of the Board of Directors of Air France-KLM Patricia Barbizet ቤ Chief Executive Officer and Director of Artémis Frits Bolkestein ብ Member of the Supervisory Board...

  • Page 55
    ... Management Pierre Richard ቫ Chairman of the Dexia Board of Directors Directors representing the French State Bruno Bézard ቭ Director of the French Treasury State Holdings Agency Claude Gressier ቮ President of the Department of Economic Affairs and Transport, Counsel General for Public Works...

  • Page 56
    ... Air France and KLM attend the meetings. The statutory auditors attended all meetings of the audit committee held during the financial year. At the request of the Chairman of the committee, they were able to consult with committee members without the presence of the Group's senior executives...

  • Page 57
    ... purchase or sale of aircraft-related or other assets and the air sub-contracting and alliance policy. The strategy committee did not meet during the 2007-08 financial year (one meeting in 2006-07), the strategy of the Group having been presented directly to the Board of Directors. The remuneration...

  • Page 58
    ... and Air France) Air Transport (KLM) Industrial (Renault, Pinault Group) Public Service 15 years Chairman and CEO of Air France-KLM and of Air France Vice-Chairman of the Air France-KLM Board of Directors CEO and Director of Artémis Director of the French Treasury State Holdings Agency Member of...

  • Page 59
    ...experience Director Age Date appointed Experience at to Board 03/31/2008 06/24/2004 4 years Directors' principal professional experience Sector Experience in the sector 40 years Current position Claude Gressier 64 years Public Service President of the Department of Economic Affairs and Transport...

  • Page 60
    ... the third consecutive year, Air France-KLM is amongst the companies figuring in the two Dow Jones sustainable development indices: the DJSI World at global level and the DJSI STOXX at European level. It is the only air transport company to figure in both these indices. The Group is also a component...

  • Page 61
    ... when the program to renew the fleet was established. The Group has also announced that it would like to participate, in cooperation with the European and US air navigation authorities and services, in the evaluation of green routes between its principal Paris-Charles de Gaulle and Amsterdam...

  • Page 62
    ....klm.com websites. Based on actual operating data recorded on each flight and route, it includes the distance flown, the type of aircraft operated, the actual fuel consumed during the journey, the number of passengers carried and the weight of baggage and goods carried on board. This online service...

  • Page 63
    ... signed the Environmental Summit Convention. The Air France Group thus committed to pursuing its fleet modernization strategy, the main lever for reducing greenhouse gas emissions and noise pollution and to supporting the inclusion of air transportation in the European Union Emissions Trading...

  • Page 64
    ... two companies business model. Developing employee mobility and skills Air France-KLM is pursuing its policy of sustainable employment in France, the Netherlands and elsewhere in the world. In order to achieve this objective and prepare for technological and organizational change, the Group works to...

  • Page 65
    ... more synergies and added value, such as in sales and marketing, activities are combined. Mobilizing employees around the Group's sustainable development strategy The two companies conduct training programs and initiatives to involve employees in their sustainable development approach. These are...

  • Page 66
    ..., works in partnership with associations and NGOs in the area of education and training for children and young people, providing them with financial and practical support. The Foundation also supports projects submitted by Air France employees who are already involved in associations which assist...

  • Page 67
    ... involve numerous Group employees in transporting sick children and medical supplies. Supporting these associations Everyone can support the work of the Air France Foundation and KLM AirCares by donating Flying Blue air miles. The miles are then converted into Air France or KLM tickets and given...

  • Page 68
    13:00 amsterdam Schiphol/Charles de Gaulle: a unique proposition within Europe enabling, for example, a passenger to choose between 12 flights bound for New York or 5 for Tokyo.

  • Page 69
    Shareholders All the Group's choices are directed at creating value for its shareholders. Transparency and respect are key to maintaining a mutual relationship based on trust.

  • Page 70
    ... France-KLM's individual shareholders. The Committee has 16 French and Dutch members who are regularly renewed and meets four times a year on average. Its work is then followed up with recommendations and special studies into particular areas conducted on behalf of Air France-KLM. This annual report...

  • Page 71
    ...at the time of the quarterly, half-year and annual results announcements. An email alert system enables everyone to be informed of the posting of press releases and to be reminded of any event in the Group's calendar. The website is also available in PDA version (personal digital assistant) and from...

  • Page 72
    ... 17h30, you can put a question to a member of the financial communication team on a toll-free number (0 800 320 310) in France. Outside these periods, a voice server reports the Air France-KLM stock opening and closing prices. Shareholders not resident in Continental France can call +33 1 41 56 88...

  • Page 73
    ... the partner media. To participate, members need to sign up in advance by calling the toll-free number 0 800 320 310 or by sending an email to [email protected]. To become a Club member Just send a shareholding statement proving ownership of at least 50 shares to: Air France-KLM...

  • Page 74
    ....nominet.socgen.com website. Transferring shares to registered form Every shareholder, irrespective of the number of shares held, can transfer his or her Air France-KLM shares to registered form by filling in a form available on request from Société Générale - Division de la Clientèle Emetteurs...

  • Page 75
    ...individuals in the Paris Euronext market, highlighted the efforts made to provide shareholders with information and the fact that the merger between Air France and KLM had strengthened the management team's commitment to transparency. Specific communication for employee shareholders Since 1999, the...

  • Page 76
    ... and/or exchangeable into Air France-KLM new or existing shares) In April 2005, the company Air France issued 21,951,219 bonds convertible and/or exchangeable into Air FranceKLM new or existing shares with a 15-year maturity for a total sum of â,¬450 million. These bonds have a nominal unit value of...

  • Page 77
    ... Dividend paid (in â,¬) 0.30 0.48 0.58 (1) Submitted for approval to the Shareholders' Meeting of July 10, 2008 Performance of the stock since 2004 Base 100 in 2004 - Data to June 11, 2008 300 250 200 150 100 50 2004 2005 2006 2007 2008 Air France-KLM closing price CAC 40 Air transport index 77

  • Page 78
    Summary consolidated financial statements 78

  • Page 79
    ...expenses Income before tax Income taxes Net income of consolidated companies Share of profits (losses) of associates Net income from continuing operations Net income from discontinued operations Net income for the period - Group - Minority interests 2008 24,114 4 24,118 (13,814) (7,018) (250) (1,606...

  • Page 80
    ... assets Total non-current assets Other short-term financial assets (including â,¬266 million of deposits related to financial leases and investments between 3 months and 1 year as of March 31, 2008, â,¬631 million as of March 31, 2007, â,¬889 million as of March 31, 2006) Inventories Trade accounts...

  • Page 81
    ...equity holders of Air France-KLM Minority interests 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...

  • Page 82
    ... 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 in other receivables and payables Net cash flow from operating activities...

  • Page 83
    ... assets Dividends received Decrease (increase) in investments, net between 3 months and 1 year Net cash used in investing activities Increase in capital Issuance of long-term debt Repayments on long-term debt Payment of debt resulting from finance lease liabilities New loans Repayments on loans...

  • Page 84
    ...of ground services offered by Air France and KLM to their passengers, based on new information technologies. E-services notably enable passengers to check in using self-service kiosks or via the airlines' websites and to use electronic tickets. Fare combinability System which, on destinations served...

  • Page 85
    ... transported (RTK) divided by available ton-kilometers (ATK). Multi-hub System linking several hubs, allowing customers to access the networks developed from each hub, thus multiplying the round-trip offer to world-wide destinations. Net income, Group share Corresponds to the share of operating...

  • Page 86
    Document produced by the Air France-KLM financial communication department - 45 rue de Paris - 95747 Roissy-CDG cedex Design and realization: Editorial committee: Air France-KLM financial communication Editorial consultant: Doussot Conseil (Patrick Doussot) Photographic credits: transavia.com, ...

  • Page 87
    13H00 paris www.airfranceklm-finance.com