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Finnair Group

Finnair Group. Interim Report 1 January – 31 March 2010. Despite difficulties, positive signs perceptible. The sector’s projected loss for the current year was 5.6 billion US dollars, in addition to which the ash cloud caused an estimated further burden of around 1.5 billion euros

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Finnair Group

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  1. Finnair Group Interim Report 1 January – 31 March 2010

  2. Despite difficulties, positive signs perceptible • The sector’s projected loss for the current year was 5.6 billion US dollars, in addition to which the ash cloud caused an estimated further burden of around 1.5 billion euros • Finnair incurred a direct loss of 20 million euros; recovery of passenger numbers will take weeks • Passenger demand had returned to slow growth • Business travel clearly rose, excluding the Finnish market • Cargo demand improving, price level rising • Punctuality returned to a good level

  3. Finnair’s loss halved • Q1 turnover declined 6.6%; in March, turnover grew for the first time since the start of the economic downturn • Operational expenses declined by 9.9% • Operational loss 26.3 million euros • Average passenger yield weakened 7% • Fall in volume adjusted to through capacity cuts • Passenger load factor good • Finnair continues to have strong balance sheet and cash position

  4. Unique ash cloud crisis over • Finnair traffic was at a standstill for a week due to the Iceland volcanic eruption, but the situation has now completely normalized • More than 1,700 cancelled flights, affecting more than 140,000 passengers • Stranded passengers were repatriated quickly after traffic resumed • Of the more than 20,000 stranded passengers, the last will return home today • EU internal coordination operated poorly. Integrating Europe airspace control would bring better coordination in corresponding situations (and would reduce unnecessary emissions) • Finnair expects clear ground rules on customer care, for the benefit of both customers and airlines

  5. Aid measures distort competition • Companies in the weakest situation are making strong demands for help • Finnair opposes aid; there is a great risk of the system being used to support airlines more widely • Already signs of aid in contravention of EU competition law • Under the EU air services regulation, airlines must be able to meet their obligations for the next 12-month period • Do the airlines demanding support fulfil the conditions of their operating licences? • The EU Commission has made unreasonable demands on airlines, but at the same time has paid scant regard to the fulfilment of operating licence requirements • If money is given to the sector, all airlines should be equally treated

  6. Operational result improved *excl. capital gains. fair values changes of derivatives and non recurring items

  7. MEUR 2005 2006 2007 2008 2009 2010 A right trend in operational results EBIT* per quarter *excl. capital gains. fair value changes of derivatives and non recurring items

  8. Unit costs develop in the right direction Change YoY Yield (EUR/RTK) Unit costs (EUR/RTK) % 2010 2005 2006 2007 2008 2009

  9. Savings materialise * excluding fair value changes of derivatives and non-recurring items RTK = Revenue Tonne Kilometre

  10. 200 million euro efficiency program • Savings target in personnel costs totalling 120 million euros • Targets of close to 200 mill. euro identified or agreed upon • Fuel efficiency • Structural and operational changes • Temporary lay-offs continue • Stabilisation agreements in Technical Services, Catering and cabin service • Reduction of unit costs agreed upon in pilots’ collective agreement, permanent flexibility targeted also with other personnel groups • Structural impact of the program per annum over 140 mill. euro

  11. Headcount shrinks, productivity improves Personnel Personnel on average

  12. Fuel price on rise

  13. Finnair has a rolling hedging policy

  14. One of the world's most modern fleets • Average age of entire fleet around six years • Modern fleet consumes less fuel and produces less emissions • The last Boeing MD-11 aircraft was withdrawn from Finnair's passenger traffic on 22 February • Three of seven Boeing 757 aircraft will be withdrawn in coming weeks • Two Embraer 170 aircraft leased, two for sale • In early 2010 two new Airbus A330 aircraft, one more at end of year

  15. Funding secured • Funding of Finnair investment programme ensured • Cash reserves more than 500 mill. euros • Funding sources totalling over 500 mill. euros • Export Credit Agencies, still one A330 plane on financial lease organised in Q2 • 1 A330 in Q4 probably operational lease • Loan-back of TyEL pension fund reserves, 330 mill. euros remaining • Liquidity reserve unused credit facility, 200 mill. euros • In addition, 200 million euro commercial paper programme, of which 17 in use

  16. Cash flow improved in Q1 Cash flow statement * incl. financial interest bearing assets at fair value ** incl. A330 aircraft lease arrangement

  17. Strong balance sheet Equity ratio and adjusted gearing % Equity ratio Adjusted Gearing

  18. A return to growth track expected • Clear pick-up in passenger and cargo traffic demand during the Q1 • Business travel demand growing outside Finland • After ash cloud crisis, a return – with a delay – to earlier growth track expected • Funding for investments arranged • Scheduled traffic capacity will grow this year; leisure flights at a clearly lower level • Second quarter clearly worse than first quarter • Efficiency programme and structural change to continue • Profitability expected to improve towards end of the year • Visibility is currently rather poor

  19. Appendices

  20. Segment results* * Operating profit. excluding capital gains, fair value changes of derivatives and non restructuring items

  21. Trend in profitability turned Change in EBIT* per quarter MEUR 2010 2005 2006 2009 2007 2008 *excl. capital gains, fair value changes of derivatives and non recurring items

  22. Fuel costs reduced during Q1

  23. ROE and ROCERolling 12 months % ROE ROCE

  24. Investments and cash flowfrom operations MEUR Operational net cash flow Investments

  25. Aircraft operating lease liabilities Flexibility. costs. risk management MEUR On 31 March all leases were operating leases. If capitalised using the common method of multiplying annual aircraft lease payments by seven, the adjusted gearing on 31 March 2010 would have been 91.9%

  26. Emissions trading raises questions • EU begins air transport emissions trading unilaterally in 2012 • Free emissions rights to be received by each airline for 2012-2020 will be based on this year’s revenue tonne kilometres • Risk of changing ground rules exists • Finnair has supplied the necessary documentation to TraFi • Current emissions trading model will increase carbon leakage risk and jeopardise EU competitiveness • Finnair supports sector-specific emissions trading which is global and does not distort competition

  27. Finnair's strategy working • Asia-Europe strategy based on Via Helsinki concept is working; geographical advantage a lasting competitive advantage • Growing affluence in Asia presents huge growth potential • Passenger numbers have grown from 0.3 million in 2001, to over 1.1 million in 2009 • Finnair's Asian traffic accounted for 3.7% of Finland's GDP growth in 2002–2007 • Created more than 4,000 jobs in Finnair alone • 8,000 new jobs by 2015 • Without Asian strategy, company would be only half of present size • Modern fleet • Indicators show operational and service quality at a high level

  28. Towards future growth • Customers of the future will increasingly come from Asia • Strategy update and supporting reforms during the spring – main strategy will not change • Competitiveness based on excellent product and efficient operations • Group structure focused on core functions in order to achieve flexibility, partners supplement network and service provision • Working toghether with personnel, to reach joint objectives • Sustainable development creates added value for environment-conscious customers

  29. Finnair Financial Targets ”Sustainable value creation” EBIT margin at least 6% => over 120 mill. € in the coming few years Operating profit (EBIT) EBITDAR margin at least 17% => over 350 mill. € in the coming few years EBITDAR To create positive value over pretax WACC of 8.25% Economic profit Gearing adjusted for aircraft lease liabilities not to exceed 140 % Adjusted Gearing Minimum one third of the EPS Pay out ratio

  30. Finnair’s Financial Targets Description of targets Operating profit (EBIT) Turnover + other operating revenues – operating costs Result before depreciation. aircraft lease payments and capital gains EBITDAR Economic profit Operating profit EBIT – Weighted Average Cost of Capital Interest bearing debt + 7*Aircraft lease payments – liquid funds) / (Equity + minority interests) Adjusted Gearing Pay out ratio Dividend per share / Earnings per share

  31. www.finnair.com/group Finnair Group Investor Relations email: investor.relations@finnair.com tel: +358-9-818 4951 fax: +358-9-818 4092

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