Financial Year 2012

QUARTER JANUARY-MARCH 2012

· A tough quarter, but in line with our expectations
· Satisfactory passenger traffic, ongoing weakness in cargo
· 5.6% increase in passenger unit revenue, but still insufficient to offset rise in fuel bill
· Implementation of the first phase of ‘Transform 2015’, and negotiations underway for second phase

OUTLOOK

· Full year 2012 objectives maintained: reduction in unit cost on a constant fuel price and currency basis, net debt of a maximum level of 6.5 billion euros.

The Board of Directors of Air France-KLM, chaired by Jean-Cyril Spinetta, met on May 3rd, 2012 to examine the accounts for the First Quarter of 2012.

As anticipated, the first quarter was difficult, in spite of an improvement in activity in March. Strict capacity control as well as good traffic levels led to a rise in unit revenue in the passenger business. However the persistent weakness of international trade weighed on that of cargo. Overall, the improvement in unit revenue was still insufficient to compensate for the rise in costs, notably fuel.

Key data

¹ Before amortisation, provisions and operating leases
² Adjusted for the portion of operating leases corresponding to financial costs (34%)
³ Net result group share henceforth restated only in the case of exceptionally large operations such as Amadeus

Activity

Marked improvement in passenger unit revenue

The passenger business saw a 5.5% rise in traffic for an increase in capacity limited to 1.6%. The load factor gained 3.1 points to 81.6%. Unit revenue per available seat kilometer (RASK) progressed by 5.6% (+4.7% ex. currency) on the back of the rise in volumes. Passenger revenues rose by 8.8% after a favourable currency effect of 0.9%, to 4.43 billion euros. The operating result was -504 million euros (-367 million euros a year earlier) due notably to a 224 million euro increase in the fuel bill.

The cargo business continues to be affected by the slowdown in economic activity which started to weight on transportation of fret as of May 2011. Traffic fell by 6.1% for capacity down by 2.0% leading to a 2.9 point decline in load factor to 64.9%. Unit revenue per available ton kilometre (RATK) declined 2.6% (-4.1% ex. currency).Cargo revenues amounted to 744 million euros (-3.3%) and the operating result was -68 million euros (-9 million euros at 31st March 2011).

Third party maintenance revenues progressed by 10.7% to 258 million euros. The operating result stood at 16 million euros (+26 million euros at 31st March 2011). The engines and components activities performed well during the quarter. Other activities generated revenues of 213 million euros of which 117 million euros for leisure. The operating result was -41 million euros (-53 million euros at 31st March 2011).

Total revenues stood at 5.65 billion euros, up 6.0% after a positive currency effect of 1.1%. Unit revenue per equivalent available seat kilometer (EASK) rose 6.6% (+5.5% ex. currency) but this was insufficient to compensate for the rise in the fuel bill.

Rise in operating costs, notably driven by fuel

Operating costs rose 9.0% and by 6.0% ex-fuel. Unit cost per EASK, was up by 7.3%, but by just 1.9% on a constant currency and fuel price basis, for a slight rise in production measured in EASK (+1.3%). The group nevertheless maintains its objective of a slight decrease in unit cost at Operating costs rose 9.0% and by 6.0% ex-fuel. Unit cost per EASK, was up by 7.3%, but by just 1.9% on a constant currency and fuel price basis for Full Year 2012.

The fuel bill rose by 255 million euros to 1.68 billion euros (+17.9%) under the combined effect of a 1% rise in volumes, a negative currency effect of 3% and a 13% rise in fuel costs after hedging.

Employee costs amounted to 1.91 billion euros (+6.0%) notably due to the knock-on effect of 2011 salary increases and a rise in pension costs at KLM of which 23 million euros based on actuarial assumptions as at December 31, 2011. This rise in employee costs does not reflect the trend for Full Year 2012 which is expected to record a rise in the region of 2% (+3% including the additional pension charge estimated at 80 million euros for the Full Year).

The operating result was -597 million euros (-403 million euros at 31st March 2011). The adjusted operating result was -521 million euros. Net interest charges improved from 91 million euros at 31st March 2011 to 82 million euros at 31st March 2012. ‘Other financial income and costs’ stood at 276 million euros (67 million euros a year earlier) of which 220 million euros from the change in the fair value of hedging instruments.

Net result, group share stood at -368 million euros (-367 million euros at 31st March 2011). Per share, the net and net diluted result stood at -1.25 euros (-1.24 euros at 31st March 2011).

Satisfactory level of liquidity

Investments net of disposals of 25 million euros amounted to 391 million euros at 31st March 2012 (versus 275 million euros after 306 million of disposals in Q1 2011). Operating cash flow was -58 million euros. At 31st March 2012 the Air France-KLM group had cash of 2.85 billion euros as well as available credit lines of 1.85 billion euros.

Shareholders’ funds stood at 5.75 billion euros. Net debt amounted to 6.43 billion euros (6.52 billion euros at 31st December 2011). The gearing ratio1 stood at 1.12 (1.07 at 31st December 2011).

Outlook

The economic environment continues to be uncertain, while the fuel price in euros remains at record levels. The annual fuel bill is expected to increase by 1.1 billion euros2. In this context, the group is highly focused on the negotiations underway, the successful outcome of which will enable it to significantly improve its economic efficiency between now and 2014.

The results of the First Quarter lead the group to maintain its expectations for Full Year 2012, of a reduction in unit cost at constant fuel price and currency and a maximum level of net debt of 6.5 billion at year end. The operating result for the First Half is expected below the level of last year (-548 million euros at 30 June 2011), while the Second Half will see the benefits of the first ‘Transform 2015’ measures feeding through.

Information by business

Passenger

¹ See calculation on p 144 of the 2011 Registration Document. Reconciliation available in the results presentation.
² Based on forward curves at 26 April 2012 and a euro/dollar rate of 1.32 in 2012

Cargo

Maintenance

The maintenance business recorded revenues of 772 million euros (+2.6%) of which 258 million euros in third party revenues, up by 10.7% in Q1 2012. The operating result stood at 16 million euros (versus 26 million euros a year earlier). High value added businesses, notably engines and components remained robust.

Other businesses

‘Other Businesses’ mainly include the leisure activities of Transavia and the catering business of Servair. In Q1 2012, the leisure business generated revenues of 117 million euros versus 141 million euros in Q1 2011. This decline was due to the transfer of Martinair’s passenger activity to that of KLM. At constant perimeter, Transavia recorded a 9% rise in revenues and an operating result of -45 million euros (-41million euros au 31st March 2011 at constant perimeter). Catering recorded third party revenues of 87 million euros and an operating result of 1 million euros (5 million euros a year earlier).

Additional information

Accounts for January-March 2012 are non-audited.

Agenda

A teleconference will be organized for financial analysts on Friday 4th May 2012 at 10:00 am (Paris/Amstelveen time), only in English.

Any journalists who wish to listen in to the conference – however without asking questions – are welcome:
Contact:
from France: 01 70 99 32 08
from others countries: + 44 (0)20 7162 00 77
Password: AKH

The results presentation will be available on line at: www.airfranceklm-finance.com on May 4th, 2012 from 08.00h CET.

INCOME STATEMENTS