More sustainable and quieter

The new Airbus A350 constitutes a major step in building a cleaner and quieter fleet, producing 40% less noise and burning 25% less fuel than similar aircraft of the older generation. The hull of the aircraft largely consists of reinforced, lightweight materials (composites and titanium), ensuring that longer distances can be covered with less fuel. In combination with the use of sustainable aviation fuel (SAF) and other operational innovations and efficiency gains, these new aircraft will significantly contribute to making operations cleaner, quieter and more fuel-efficient. The Airbus A350 is also important in terms of customer experience, comfort and efficiency.

KLM Cargo showed positive results in July. Traffic increased by 2.7% against a drop in capacity of 1.4%. The result was an increase in cargo load factor of 2.5%^pts to 65%. Transavia welcomed fewer passengers in July than in the same month the previous year. With decreased traffic and capacity, load factor decreased slightly as a result of the earlier suspension of activities in Munich.

(*) The joint Air France KLM traffic results are available in the download box of this message.

You can find the press release of AF/KL on the website of the Air France-KLM Group.

Jean-Marc Janaillac will discuss the results and the personal consequences he has attached to this outcome with the AFKL Board and the AF Board next week. In anticipation of these discussions, I would be happy to contribute to the stability and internal cohesion of the AFKL Group wherever possible. Internal support and solidarity are extremely important during such trying times.

The study obtained by current affairs programme EenVandaag, surveying 50 Air France and KLM managers, was commissioned by the French-Dutch trade unions and assesses the sentiments of both French and Dutch managers.

In view of the discussions held in recent years and months, we understand the sentiments expressed and acknowledge the circumstances sketched in the report. There is room for improvement in some areas. However the report also addresses other areas which are performing well. We will consider these sentiments with all due diligence.

During the coming period, we will join hands with Air France to see how we can learn from this and bring about improvements wherever necessary.

The transaction for the first three aircraft is scheduled to be closed in the coming weeks.

Background information:

The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy goals. In 2016 alone, the Bank made available EUR 2.56 bln in loans for projects with Dutch counterparts in various sectors, including SMEs, industry, transport and agriculture.

Koninklijke Luchtvaart Maatschappij N.V. is the flag carrier airline of the Netherlands. KLM is headquartered in Amstelveen, with its hub at nearby Amsterdam Airport Schiphol. It is part of the Air France–KLM group, and is a member of the SkyTeam airline alliance. KLM was founded in 1919 and it is the oldest airline in the world still operating under its original name. KLM operates scheduled passenger and cargo services to 147 destinations.

Crédit Agricole CIB is the Corporate and Investment Banking arm of the Crédit Agricole Group, the world’s n°11 bank measured by Tier One Capital (The Banker, July 2016). The Bank offers its clients a comprehensive range of products and services in capital markets, investment banking, structured finance and corporate banking, structured around six major divisions: Client Coverage & International Network, International Trade & Transaction Banking, Global Investment Banking, Structured Finance, Global Markets, and Debt Optimisation & Distribution. The Bank provides support to clients in large international markets through its network with a presence in major countries in Europe, America, Asia Pacific and Middle East and North Africa. For more information, please visit its website at www.ca-cib.com

Perscontacten:

EIB: Tim Smit, +352 691 286423, t.smit@eib.org

KLM: Koen van Zijl, +31 6 204 17 895, koen-van.zijl@klm.com

Credit Agricole CIB: Louise Tingstrom +44 7899066995, louise.tingstrom@bladonmore.com

In total, the fines imposed on the Air France-KLM Group amount to EUR 325 million. This figure is slightly lower than the initial fine imposed in 2010, mainly because the fine for Martinair was lower due to technical reasons. The European Commission’s decision partly covers the period prior to the merger between Air France and KLM. The total fine imposed on the Air France-KLM Group is the sum of the individual fines imposed on Air France, KLM and Martinair.

Air France-KLM is currently analysing this new decision and considering its options for response. These fines have been fully covered in the Group’s financial accounts since 2010.

KLM confirms its commitment to strict compliance with competition rules and fully acknowledges the importance of a level playing field for airlines. Throughout the investigation, KLM has engaged in full and open cooperation with the authorities.

After considering the various alternatives, the Board of Directors has decided to reduce the full-freighter fleet based in Amsterdam to 3 aircraft in operation by the end of 2016. Five MD-11s will be phased out on an accelerated basis during 2015 and 2016.

By then, the Group will operate five full-freighter aircraft: 2 Boeing 777F in Paris and 3 Boeing 747ERF in Amsterdam, compared with a total of 14 in 2013

The group intends to find alternative employment internally for all affected staff. It will engage in consultations on this matter with the Works Council and trade unions of the companies involved.

The Group will remain a major player in the cargo sector in Europe through its extensive belly network effectively supplemented by a limited number of full-freighter aircraft.

This adjustment of the full-freighter fleet is part of a broader strategic vision designed to increase cargo contribution to the group. Other measures include a strong focus on specialized products such as pharmaceuticals and express, as well as investment in state-of-the-art IT infrastructure and E-developments, further cost reduction and expansion of partnerships.

1. Revenues of 5.55 billion euros, stable on a like-for-like basis, impacted by Easter calendar effect
2. Operating result of -445 million euros, an improvement of 87 million euros
3. EBITDA¹ of -50 million euros, an improvement of 66 million euros
4. Reported unit cost[1] down 4.3%, and 1.7% like-for-like

FULL YEAR 2014 OUTLOOK: OBJECTIVES CONFIRMED

1. Positive effect of Transform 2015
2. Operating environment remains tough
3. Measures underway to address headwinds from Caracas route and the slower than expected recovery in cargo demand

[1] See definition in appendix

First Quarter 2014 revenues stood at 5,554 million euros versus 5,681 million euros in 2013, down 2.2%, but stable on a constant currency and scope basis (like-for-like). Currencies had a negative 108 million euro impact on revenues.

Operating costs were reduced by 3.4% and by 2.0% on a constant currency basis. Ex-fuel, they decreased by 2.3%, and by 1.3% on a constant currency basis. Unit cost per EASK¹ (Equivalent Available Seat Kilometer) was reduced by 4.3%, and by 1.7% on a constant currency, fuel price and pension expense basis, against capacity measured in EASK up by 1.2%. The fuel bill amounted to 1,553 million euros, down 6.3%, and down 3.5% on a constant currency basis. Total employee costs including temporary staff were down 3.8% to 1,846 million euros, and by 3.6% on a constant currency basis. At constant pension expense and scope, they declined by 60 million euros, well on track towards the 120 million euro reduction targeted for the full year.

EBITDA amounted to -50 million euros,  an improvement of 66 million euros. The EBITDA margin stood at -1.0%, a 1.0 point improvement on 2013. The operating result stood at -445 million euros versus -532 million euros in 2013, an 87 million euro improvement. Currencies had a 15 million euro net negative impact on First Quarter operating result.

Net result, group share stood at -608 million euros against -641 million euros a year ago. It was impacted by 117 million euros of foreign exchange losses, in particular related to an adjustment in the value of the cash held by the Group in Venezuela, to take into account the currency conversion risk. On an adjusted basis[1], the net result, group share stood at -485 million euros against-652 million in First Quarter 2013, a 167 million euro improvement.

Earnings and diluted earnings per share both stood at -2.05 euros (-2.17 euros in 2013), and at -1.64 euros on an adjusted basis (-2.20 euros in 2013).

[1] See definition in appendix

Passenger business

First Quarter 2014 passenger revenues amounted to 4,365 million euros, down 1.9%, but stable on a constant currency basis. The passenger business was particularly impacted by the calendar effect of Easter, which fell in March last year. The operating result of the passenger business stood at -378 million euros, versus -447 million euros in Q1 2013, an improvement of 80 million euros on a constant currency basis.

Total passenger traffic rose by 2.1% while capacity rose by 1.3% leading to a 0.6 point improvement in load factor to 82.8%. Unit revenue per Available Seat Kilometer (RASK) fell by 2.5% and by 0.7% like-for-like. Unit costs (CASK) were reduced by 3.9% and by 2.4% like-for-like.

Long-haul traffic rose 2.2% for a 2.1% rise in capacity, leading to a stable load factor at 85.2%. Long-haul RASK was down 0.4% like-for-like.

Cargo Business

As planned in the framework of Transform 2015, medium-haul capacity was reduced by 2.2%. Traffic rose by 1.6%, leading to a 2.7 point improvement in load factor to 73.3%. Medium-haul RASK improved by 0.6% like-for-like.

First Quarter 2014 cargo revenues amounted to 676 million euros, down 3.4% and by 1.3% on a constant currency basis. Traffic experienced a slight upturn, rising by 1.9% for a 0.9% decline in capacity, leading to a 1.8 point increase in load factor to 64.8%. However, the yield remained weak, leading to a 1.0% decline in unit revenue per Available Ton Kilometer (RATK) on a constant currency basis (-3.0% on a reported basis).

Thanks to a reduction in unit cost (down 3.7% on a constant currency basis, and 5.4% on a reported basis), the operating result improved, from -50 million euros in Q1 2013 to -34 million euros. Nevertheless the recovery of cargo demand is taking longer than expected, and further scenarios are now under consideration to restructure the full freighter business in order to accelerate the turnaround.

Maintenance

First Quarter 2014 third party maintenance revenues amounted to 290 million euros, down 4.0% and by 1.9% on a constant currency basis, reflecting quarterly variations in the scheduling of engine shop visits. The operating result stood at 22 million euros, up 2 million euros year-on-year. The operating margin stood at 2.7% versus 2.5% a year earlier. In the quarter, the group recorded a 15% increase in its order book to 5.2 billion euros, including a major contract with Air China to cover the maintenance of GE90 engines.

Other business: Transavia

In First Quarter 2014 Transavia traffic rose 8.4% for capacity up 7.6%, leading to a 0.6 point increase in load factor to 86.3%. Unit revenue was down 4.3%, also affected by Easter timing. Transavia’s total revenue stood at 139 million euros, up 3.7%. The operating result was -58 million euros, down 7 million euros year-on-year.

Other business: Catering

First Quarter 2014 third party catering revenues amounted to 73 million euros, down 13.1% reflecting the deconsolidation of Air Chef. They were up 12.3% at constant scope.

Financial situation

The further improvement in EBITDA translated into an 84 million euro increase in cash flow before change in WCR and the cash out related to Voluntary Departure Plans.

In the First Quarter net investments before sale & lease-back transactions stood at 327 million euros, in line with the Transform 2015 full year capex budget. Operating free cash flow amounted to -80 million euros, versus a positive 40 million euros a year earlier, partly due to the fact that Q1 2013 benefited from a cash inflow of 77 million euros from sale and lease-back transactions.

Net debt amounted to 5.54 billion euros at 31 March 2014, versus 5.35 billion euros at 31 December 2013. The slight increase in net debt reflects foreign exchange losses partly relating to Venezuela. At 2.9x, the net debt / EBITDA ratio was stable compared to 31 December 2013.

Outlook
Delivery on the Transform 2015 plan is fully on track. However, the general operating environment remains tough. Under these conditions, the group remains committed to its objective of an EBITDA in the region of 2.5 billion euros in Full Year 2014, subject to the successful implementation of the measures aimed at compensating for the slower than expected recovery in cargo demand and the network adjustments linked to the situation on the Caracas route, and no reversal in other operating trends. The group will continue to reduce its net debt in line with its objective of 4.5 billion euros in 2015.

• On the Americas network, traffic rose 1.4% for capacity up by 1.6%. The load factor was stable at 90.9%(-0.1 point). 
• The Asia network posted a 1.8% increase in traffic for capacity up by 3.4%, the load factor declining by 1.4 points to 86.9%.
• On the Africa and Middle East network, traffic was virtually stable (-0.2%); with capacity up by 1.2%, the load factor stood at 82.4% (-1.2 points).   
• The Caribbean and Indian Ocean network saw a 0.8% decrease in traffic for capacity down by 3.4%. The load factor increased by 2.1 points to 79.1%.
• On the European network, traffic declined by less than capacity (-0.7% and -2.1% respectively), enabling a 1.1 point improvement in load factor to 78.6%.  

Cargo
Cargo recorded a 4.1% drop in traffic for capacity down by 2.0%, leading to a 1.4 point decline in load factor to 62.4%. Unit revenue per available tonne kilometer (RATK) ex-currency decreased compared with September 2012.

Recent developments

• For the ninth consecutive year, Air France-KLM was ranked leader of the "Airlines" industry by the Dow Jones Sustainability index (DJSI), the main international index evaluating companies on their sustainable development performance. Moreover, for the fifth year running, Air France-KLM was ranked leader of the broader "Transport" category covering air, rail, sea and road transport as well as airport activities. Air France-KLM is thus positioned amongst the 24 most sustainable companies globally, each in their relevant sectors of activity. 
• On 24th September, Air France unveiled its new Economy and Premium Economy offer, within the framework of its “Best & Beyond” project and the strategy to move up market. In Economy, there is a new fully-revised seat with more legroom and an enhanced level of comfort. New wider High Definition screens will also soon be available to everyone. The first flight equipped with these new cabins will be operated in the summer of 2014.  
• As of 2nd February 2014, KLM will offer a scheduled service bound for Santiago in Chile, with a stop over in Buenos Aires. 
• Having been created on 7th October 1933, Air France today celebrates its 80th anniversary.

The Board of Directors of Air France-KLM, chaired by Alexandre de Juniac, met on 25th July, 2013 to examine the accounts for the First Half of Financial Year 2013.  

Alexandre de Juniac made the following comments: "Transform 2015 is fully on track, with cost reduction measures, the industrial plan and initiatives to win back our customers all underway within the planned timeframe. For the past year our results have improved quarter after quarter, in spite of the persistently tough economic environment. Nevertheless, revenues remain below target at this stage and the turnaround of the Medium-haul and Cargo businesses in particular is taking longer than expected. As a result, further measures will be adopted in both businesses in the Fall to ensure that, on completion of our plan, we will have met our cost and debt reduction objectives, paving the way for a return to growth".

Air France-KLM will develop the strategy for its three businesses (Passenger-Cargo-Maintenance) as part of an ongoing dialogue with the companies. The companies are responsible for strategy and operational implementation and the quality of customer service, with the Group's support.

This new phase will strengthen collaboration between Air France and KLM, based on transparent, effective and fair decision-making processes.

The Group’s Executive Committee is made up as follows:

• Group Chairman and CEO: Alexandre de Juniac

Air France and KLM representatives

• Air France Chairman and CEO: Frederic Gagey
• KLM President and CEO: Camiel Eurlings
• Air France COO: Alain Bassil
• KLM COO and KLM Deputy CEO: Pieter Elbers

Group functions

• Executive Vice-President Commercial, Sales and Marketing: Patrick Alexandre
• Executive Vice-President Commercial Marketing: Pieter Bootsma
• Chief Financial Officier: Philippe Calavia
• Executive Vice-President Strategy - Passenger Business: Bram Gräber
• Executive Vice-President Human Resources: Wim Kooijman
• Executive Vice-President Information Technology: Jean-Christophe Lalanne
• Executive Vice-President Engineering and Maintenance: Franck Terner
• Executive Vice-President Cargo: Erik Varwijk
• Chief of staff, Group Executive Committee Secretary: Guy Zacklad

- Biographies and pictures available on www.airfranceklm.com and www.klm.com/corporate/nl/

Thanks to its performance, the group is also leader of the broader "Transport and leisure" sector for the fourth year running. This distinction ranks the 19 most responsible companies in the world, each in their own sector of activity.

Air France-KLM has been committed for many years to reducing its environmental impact, developing a responsible social policy and contributing to the development of territories where its aircraft take off and land every day. In 2011, the group operated the first commercial flights using sustainable biofuel, developed eco-design and the recycling of products served on board and supported numerous humanitarian programmes.

The DJSI is a benchmark in extra-financial ratings. It selects each year the 19 leading companies from among 2,500 international companies, following an analysis process by the Swiss group SAM (Sustainable Asset Management Indexes GmbH).

The Air France-KLM group has been part of the DJSI since 2005 and is also integrated in the non-financial indexes ASPI, Ethibel Sustainabilty Index (ESI) and FTSE4Good.