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Annual
report
2008-09

Table of contents

  • Page 1
    Annual report 2008-09

  • Page 2

  • Page 3
    Air-France KLM - Annual report 2008-09 1 Contents Chairman's message 3 Interview with the Chief Executive Officer 7 Seven questions raised by the crisis 10 Solid fundamentals on which to build 12 Complementary activities to strengthen the business 28 Effective corporate governance to underpin con...

  • Page 4
    ... KLM - Annual report 2008-09 Profile The Air France-KLM group was born of the merger between Air France and KLM in 2004. With revenues of around â,¬24 billion, the Group's development is based on leveraging the complementarity of the two companies in their three principal businesses: passenger...

  • Page 5
    ... of Air France-KLM. He takes over at a very difficult time. Our Group's results to March 31, 2009 show that the airline business has been particularly badly hit by the global crisis which has spared no market nor sector of activity. Your Board of Directors supports the strategy implemented...

  • Page 6
    4 Air-France KLM - Annual report 2008-09 Appropriate responses to adapt the business

  • Page 7
    Air-France KLM - Annual report 2008-09 5

  • Page 8
    6 Air-France KLM - Annual report 2008-09

  • Page 9
    ... with the Air France-KLM group. The strategy implemented by Jean-Cyril Spinetta and myself over these last eleven years is still valid and I don't intend to review it fundamentally even though, in the current environment, it will need to be adapted. We are experiencing an unprecedented crisis and...

  • Page 10
    ... Air-France KLM - Annual report 2008-09 Have all the Group's businesses been affected in the same way by the crisis? P.-H. G.: No, not all our businesses have been affected in the same way. The cargo activity has been the worst hit. The weakness in international trade ï¬,ows during the second half...

  • Page 11
    ...2010-11. The third response consists of reinforcing our cost-savings plans. We have set a target of â,¬600 million of savings for the 2009-10 financial year, in addition to the â,¬675 million already achieved in 2008-09. Air France-KLM has always had a customer-focused strategy. Does this mean that...

  • Page 12
    ...comfort than economy at an attractive price. This is also a response to the crisis aimed at stemming the ï¬,ow of business customers switching to economy class. Securing customer loyalty remains a major concern and investing in quality a priority. Roger Stehlin: Can a group of Air France-KLM's size...

  • Page 13
    Air-France KLM - Annual report 2008-09 11 Claude Samuel: Does the hub-based organization, which proved highly effective in a growth period, remain a strength currently? Our organization around our two main hubs, Paris-Charles de Gaulle and Amsterdam-Schiphol, is acting as a shock-absorber for the ...

  • Page 14
    12 Air-France KLM - Annual report 2008-09 Solid fundamentals on which to build

  • Page 15
    Air-France KLM - Annual report 2008-09 13

  • Page 16
    ...respecting our commitments While the crisis reduces visibility, it does not call into question the commitments made by the Air France-KLM group. Building a sustainable relationship with customers, promoting a responsible social policy, combating climate change, reducing its environmental footprint...

  • Page 17
    ... year, the Group concluded two strategic partnerships to take its business forward. Air France-KLM's position on the North Atlantic, the leading air transport market, has been strengthened through a jointventure agreement with its partner Delta. In Europe, the Group has also increased its access...

  • Page 18
    16 Air-France KLM - Annual report 2008-09 Preserving our strategic strengths A resilient operating model Networks, hubs and the alliance are all key to a strategy which is demonstrating its validity in the current environment. The hubs, shock absorbers of the crisis The Air France-KLM network is ...

  • Page 19
    ...use the networks of one or several airline members during the same trip and gives them access to 400 airport lounges world-wide. Whatever their chosen airline, passengers can earn and redeem miles and, since November 2008, for the most loyal customers, use them to upgrade to business class. SkyTeam...

  • Page 20
    ...The Group's many technological innovations are aimed at streamlining the travel experience for its customers. e-services are used by more than half of Air France-KLM's customers who can choose the check-in channel which suits them the best: check-in at the airport using self-service kiosks or online...

  • Page 21
    Air-France KLM - Annual report 2008-09 19 15.4 million members of the Flying Blue program 6,000 check-ins by mobile Respecting cultural nuances With international customers now representing more than 60% of the overall total, the Group is responding to the cultural diversity of its customers. The...

  • Page 22
    ... in unit costs on crew training, maintenance and spare parts. The Group also seeks to preserve the ï¬,eet's asset value in choosing models offering long-term operating potential. The medium-haul ï¬,eet, for example, is built around the Airbus A318 to A321 aircraft family at Air France and the Boeing...

  • Page 23
    Air-France KLM - Annual report 2008-09 21 Financing of the ï¬,eet (in %) 32 51 17 • Full ownership • Finance lease • Operating lease 641 aircraft 164 long-haul aircraft 29 cargo aircraft 236 medium-haul aircraft 212 regional aircraft Flexible management In a cyclical sector, ï¬,exibility ...

  • Page 24
    22 Air-France KLM - Annual report 2008-09 Respecting our commitments The values of corporate social responsibility, a federating force The Air France-KLM group maintains a responsible human resources policy vis-Ã -vis its 107,000 employees and continues to contribute to regional development. ...

  • Page 25
    Air-France KLM - Annual report 2008-09 23 Number 1 120,000 KLM initiatives in Kenya The Group operates around 40% of the ï¬,ights at the Nairobi hub in Kenya and the cooperation with Kenya Airways has resulted in the creation of jobs within the region. Amongst the development projects supported by...

  • Page 26
    ..., the company joined the 2003 United Nations Global Compact while 2004 saw the signature of a sustainable development charter with its suppliers. The Corporate Social Responsibility report can be found on the www.airfranceklmfinance.com website. In 2009, Air France-KLM's 2007-08 Corporate Social...

  • Page 27
    Air-France KLM - Annual report 2008-09 25 2.8 million euros dedicated over 100km: 2012 target by KLM to its environmental management system in 2008-09 3.7 litres per passenger carried times less noise recorded on the ground at Orly between the Boeing B747-300s and the Boeing 777-300ERs 3 ...

  • Page 28
    ... April 1, 2009. With Delta and Northwest having merged, this joint-venture between the European and US market leaders creates, to the benefit of their customers, the number one operator on the North Atlantic with more than 200 daily ï¬,ights linking six main hubs, Paris, Amsterdam, Atlanta, Detroit...

  • Page 29
    ... with a 25% equity stake in the Italian company in return for â,¬323 million on March 25, 2009. This operation has significant advantages for the two groups. Air France-KLM gains access to the Italian market, the fourth-largest in Europe, alongside a restructured and financially sound partner with...

  • Page 30
    28 Air-France KLM - Annual report 2008-09 • passenger • cargo • maintenance Complementary activities to strengthen the business

  • Page 31
    Air-France KLM - Annual report 2008-09 29

  • Page 32
    30 Air-France KLM - Annual report 2008-09 Passenger A ï¬,exible, innovative approach, adapted to the new economic environment

  • Page 33
    ... - Annual report 2008-09 31 Passenger Passenger transportation is the Air France-KLM group's main activity, representing around 80% of revenues. The global economic crisis is affecting consumption patterns and particularly expenditure on travel. A look back at the year 543 aircraft in operation...

  • Page 34
    32 Air-France KLM - Annual report 2008-09 A business hit by the crisis The long-haul network, the leading network between Europe and the rest of the world With a ï¬,eet of 158 aircraft, the Air FranceKLM group carried 23.4 million passengers on its long-haul network to 124 destinations in 69 ...

  • Page 35
    Air-France KLM - Annual report 2008-09 33 Passenger Air France-KLM, the most connecting opportunities in Europe Air France KLM 6,262 (AMS) Lufthansa and Swiss 22,672 (CDG) 11,155 (FRA) 5,380 (MUC) 3,680 (ZRH) British Airways 5,530 (LHR) Number of medium-haul/long-haul connecting opportunities ...

  • Page 36
    34 Air-France KLM - Annual report 2008-09 Cargo A radically changed operating environment, a leadership position maintained

  • Page 37
    ... Air France-KLM Cargo began the year in a difficult environment with a marked slowdown as of the summer of 2008. The fall in traffic was, however, offset by a strong rise in revenues. In effect, in the cargo activity, the fuel surcharges automatically keep pace with the trend in the oil price...

  • Page 38
    ... years. The Joint Cargo Team regroups sales, distribution, marketing, network management and communication as well as the strategy and development teams within one integrated structure, representing more than half the 5,700 employees working for the cargo activity. European and global leader Cargo...

  • Page 39
    ... Air France-KLM shareholding in Alitalia, the Group has been entrusted with the marketing of the holds in the Italian company's aircraft. million tons of cargo carried (67%: holds of passenger aircraft, 33%: dedicated cargo aircraft) 1.44 2.8 billion euros of revenues - 207 million euro operating...

  • Page 40
    38 Air-France KLM - Annual report 2008-09 Maintenance Competitive support for the Air France and KLM ï¬,eets and a leading player, contributing to the Group's results

  • Page 41
    Air-France KLM - Annual report 2008-09 39 Maintenance In addition to the services provided to the Group's ï¬,eets, one third of the maintenance activity is realized with thirdparty clients. A look back at the year multi-product players 900 aircraft handled 4% of the Group's revenues No.2 ...

  • Page 42
    ... Support Program) partnership between Air France Industries and Boeing continued to increase, reaching 140 aircraft over the financial year. A similar partnership has been developed between KLM E&M and Boeing for the next-generation B737s. An evolving heavy maintenance business New technologies...

  • Page 43
    Air-France KLM - Annual report 2008-09 41 Maintenance 140 Boeing 777s handled 2% reduction in MRO Engine support: a ï¬,agship product The growth in the engine business is underpinned by the scale effect provided by the Group ï¬,eets and from key alliances with engine OEMs. This year, Air France ...

  • Page 44
    42 Air-France KLM - Annual report 2008-09 Effective corporate governance to underpin confidence

  • Page 45
    Air-France KLM - Annual report 2008-09 43

  • Page 46
    44 Air-France KLM - Annual report 2008-09 1 2 3 7 8 9 The Group Executive Committee The Group Executive Committee determines the Group's main orientations within the framework of the strategy approved by the Board of Directors. It meets every two weeks, alternating between Amsterdam and Paris...

  • Page 47
    Air-France KLM - Annual report 2008-09 45 4 5 6 10 11 12 Frank de Reij (10) Executive Vice President, Procurement, of the Air France-KLM group Erik Varwijk (11) Executive Vice President, Commercial Passenger Business, KLM and Executive Vice President, International and the Netherlands of the...

  • Page 48
    46 Air-France KLM - Annual report 2008-09 1 2 3 4 9 10 11 12 The Board of Directors The Board of Directors determines the orientations of the company's activity and ensures their implementation. Subject to the powers conferred upon it, the Board is responsible for any question regarding the...

  • Page 49
    ...-one days preceding the quarterly and half-year results. The Financial Code of Ethics defines the principles with which the principal executives of the company responsible for the disclosure of financial information must comply. Composition of the Board of Directors The Air France-KLM Board of...

  • Page 50
    48 Air-France KLM - Annual report 2008-09 The Board of Directors committees The audit committee On March 26, 2009, the Board of Directors decided to increase the number of audit committee members from six to seven, given the range and importance of its work. The principal executives responsible ...

  • Page 51
    Air-France KLM - Annual report 2008-09 49 Experience of members of the Board of Directors Board of Directors' experience Director Age at 31/03/2009 Date appointed to the Group 23/09/1997 Professional experience Sector Current position Chairman of the Board of Directors of Air France-KLM and of ...

  • Page 52
    50 Air-France KLM - Annual report 2008-09 Transparency at the heart of our relationship with our shareholders

  • Page 53
    Air-France KLM - Annual report 2008-09 51

  • Page 54
    ...be kept informed of the posting online of press releases and to be reminded of any event in the Group's calendar. The website is also available in a PDA (personal digital assistant) version and from mobile phones by logging into www.airfranceklmfinance.mobi. In฀November฀2008,฀Air฀France-KLM...

  • Page 55
    ... relations site award in the United States. In 2007, Air France-KLM won first prize for Shareholder Democracy and and first prize for the Corporate Governance Dynamic. Lastly, in 2009, the Group won the award for the best investor relations in terms of sustainable development. This trophy, awarded...

  • Page 56
    ... free custodial fees. They do, however, receive the convening notice to the General Shareholders' Meeting. The Air France-KLM stock Air France-KLM is listed for trading on Euronext Paris and Amsterdam and in ADR form on the OTC฀Market฀in฀New฀York.฀ Codes and tickers Securities services...

  • Page 57
    Air-France KLM - Annual report 2008-09 55 Shareholder breakdown French State: 15.7% 12.0% Individual shareholders: 14.0% Institutional investors: 56.3% Treasury stock: 2% Employees and former employees: Air France-KLM in the stock market Base 100 in 2004/Data to June 19, 2009 325 300 275 250 ...

  • Page 58
    56 Air-France KLM - Annual report 2008-09 Summary consolidated financial statements

  • Page 59
    Air-France KLM - Annual report 2008-09 57

  • Page 60
    58 Air-France KLM - Annual report 2008-09 Key figures 2008-09 The annual results reï¬,ect the deterioration in the operating environment during the second half. Revenues Revenues amounted to â,¬23.97 billion for the financial year (-0.6%) after a negative currency impact of 1.9%. The breakdown ...

  • Page 61
    Air-France KLM - Annual report 2008-09 59 EBITDAR* A measure of management performance which corresponds to the difference between revenues and operating expenses excluding operating leases, depreciation, amortization and provisions. It amounted to â,¬2.21 billion (-41.5%), or 9.2% of revenues at ...

  • Page 62
    60 Air-France KLM - Annual report 2008-09 Income/(loss) before tax The loss before tax of â,¬1.2 billion was mainly due to â,¬911 million of financial charges, of which 78% related to the fall in the oil price which led Air France-KLM to recognize the decline in the fair value of its hedging ...

  • Page 63
    Air-France KLM - Annual report 2008-09 61 Net฀debt Net฀debt฀amounted฀to฀â,¬4.4 billion at March 31, 2009, an increase of â,¬1.7 billion. The gearing ratio stood at 78% of shareholders' equity, which was impacted by the â,¬3.3 billion negative change in the fair value of hedging ...

  • Page 64
    62 Air-France KLM - Annual report 2008-09 Summary consolidated financial statements Financial year ended March 31, 2009 Consolidated balance sheet Assets In â,¬ million March 31, 2009 March 31, 2008 Goodwill Intangible assets Flight equipment Other property, plant and equipment Investments in ...

  • Page 65
    Air-France KLM - Annual report 2008-09 63 Liabilities and equity In â,¬ million March 31, 2009 March 31, 2008 Issued capital Additional paid in capital Treasury shares Reserves and retained earnings Equity attributable to equity holders of Air France-KLM Minority interests Total equity ...

  • Page 66
    64 Air-France KLM - Annual report 2008-09 Consolidated income statement Period from April 1 to March 31 (in฀â,¬ million) 2008 (adjusted) 2009 Sales Other revenues Revenues External expenses Salaries and related costs Taxes other than income taxes Amortization and depreciation Provisions Other ...

  • Page 67
    Air-France KLM - Annual report 2008-09 65 Consolidated statement of cash ï¬,ows Period from April 1 to March 31 (In฀â,¬ million) 2009 2008 (adjusted) Net฀income,฀Group Minority interests Amortization, depreciation and operating provisions Financial provisions Gain on disposals of tangible...

  • Page 68
    66 Air-France KLM - Annual report 2008-09 Period from April 1 to March 31 (in฀â,¬ million) 2009 2008 (adjusted) Dividends paid Decrease in equity Net cash ï¬,ow from financing activities Effect of exchange rate on cash and cash equivalents and bank overdrafts Change in cash and cash ...

  • Page 69
    ... 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 as well as the use of electronic tickets. EASA European Aviation Safety Agency. EASA develops safety and...

  • Page 70
    68 Air-France KLM - Annual report 2008-09 Hub Term used for a transfer platform where departures and arrivals are scheduled to minimize transit times. Air France-KLM disposes of two of the four major European hubs: RoissyCharles de Gaulle and Amsterdam-Schiphol. The Air France and KLM hubs are ...

  • Page 71
    ..., economically and socially sustainable forests. For additional information on the Air FranceKLM group, the 2008-09 reference document is available on the www.airfranceklm-finance. com website or on request from Air France-KLM financial communication department, 45 rue de Paris, 95747 Roissy...

  • Page 72
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