• Solid traffic performance with passengers carried up 5.2% at 20.9 million and RPKs up 4.2% leading to an improved load factor by 0.7pt
• Confirmation of the improvement in unit revenue trend observed since the end of 2016 with passenger network unit revenue per available seat kilometer (RASK) ex-currency almost stable at -0.5%
• Unit cost reduction on track, down 1.7% at constant currency, fuel and pension expenses
• Operating income at -143 million euros, a progression of 28 million euros at constant currency
• Operating free cash flow of 329 million euros, up 133 million euros

OUTLOOK

• High level of uncertainty regarding the geopolitical environment and the fuel price
• Resilient trading start to 2017, confirmed for April
• Continued strong focus on unit cost with a maintained target reduction of at least 1.5% in 2017 at constant currency, fuel price and pension expenses
• Based on current forward prices and hedge portfolio, expecting a slight decrease in the dollar fuel bill in 2017
• Keeping strict capex discipline, targeting positive free cash flow before disposals in 2017

(*) Please find in the download section of this release the complete AirFrance KLM Q1 2017 results

• Revenues of 6.64 billion euros, up 3.0%, down 4.5% like-for-like[1]
• EBITDAR[2] of 824 million euros, a decrease of 30 million euros
• Operating result of 185 million euros, a decrease of 53 million euros,stable like-for-like
• Unit cost² down 0.5% like-for-like

FIRST HALF

• Revenues of 12.30 billion euros, up 2.4%, down 3.6% like-for-like
• EBITDAR of 1,053 million euros, an improvement of 32 million euros
• Strong operating free cash flow² generation: 274 million euros
• Further net debt reduction: net debt² of 4.55 billion euros, down 857 million euros compared to 31 December 2014
• Adjusted net debt / EBITDAR ratio[3] of 3.8x, an improvement of 0.2 compared to 31 December 2014

FULL YEAR 2015 OUTLOOK: OBJECTIVES MAINTAINED

• Unit cost reduction in the 1% to 1.3% range[4]
• Significant reduction in net debt, from 5.4 billion euros at end 2014 down to around 4.4 billion euros at end 2015

ACCELERATION OF PERFORM 2020

• Launch of immediate cost-saving measures
• Acceleration of all cost reduction initiatives
• Adjustment of Winter 2015-16 capacity

[1] Like-for-like: excluding currency. Same definition applies in rest of press release

[2] See definition in appendix

[3] Trailing 12 months, EBITDAR adjusted for September 2014 pilot strike impact; see definition in appendix

[4] On a constant currency, fuel price and pension-related expense basis. See computation in appendix

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The Board of Directors of Air France-KLM, chaired by Alexandre de Juniac, met on 23 July 2015 to approve the accounts for the First Half of the Financial Year 2015.

Key Data

The consolidated financial statements of the Group have been revised as of 1^st January 2015 in order to improve their clarity. The changes are:

• In view of its rapid development, Transavia is now presented as a separate business segment. The passenger business segment is thus renamed from “passenger” to “passenger network”.
• Capitalized production costs are no longer deducted from individual cost lines in the profit and loss statement, but are instead fully allocated to the “other income and expenses” line. The impact per quarter of this restatement is provided in the appendix.
• Foreign currency effects on provisions are no longer recorded in “amortization, depreciation and provisions” but in “other financial income and expenses”. The closing exchange rate is used to convert provisions at the closing date. Previously, the Group used the average rate of the US dollar to convert maintenance provisions. The consolidated financial statements as of December 31, 2014 have been restated for reason of comparison. The impact of this restatement is provided in the appendix.

• Watch the broadcast of the press conference at 10:30 am CET

1. Revenues of 5.7 billion euros, up 1.8%
2. EBITDAR[1] of 229 million euros, an improvement of 62 million euros
3. EBITDA1 of -21 million euros, an improvement of 29 million euros
4. Operating result of -417 million euros, an improvement of 109 million euroslike-for-like[2]
5. Net negative currency impact of 81 million euros on operating result
6. Net debt¹ of 5.28 billion euros, down 127 million euros compared to 31 December 2014, and down to 4.68 billion euros including April 2015 hybrid bond issuance
7. Adjusted net debt / EBITDAR ratio[3] of 3.7x, an improvement of 0.5 compared to 31 March 2014

FULL YEAR 2015 OUTLOOK: OBJECTIVES MAINTAINED

1. Unit cost¹ reduction target of 1 to 1.3%
2. Significant reduction of net debt, from 5.4 billion euros at end 2014 down to around 4.4 billion euros at end 2015, in part as a result of the April 2015 hybrid bond issuance

[1] See definition in appendix

[2] Like-for-like: excluding currency. Same definition applies in rest of press release

[3] Trailing 12 months, adjusted for September 2014 pilot strike impact and April 2015 hybrid bond; see definition in appendix

KEY DATA

The consolidated financial statements of the Group have been revised as of 1^st January 2015 in order to improve their legibility. The changes are:

• In view of its rapid development, Transavia is now presented as a separate business segment. The passenger business segment is thus renamed from “passenger” to “passenger network”.
• Capitalized production costs are no longer deducted from individual cost lines in the profit and loss statement, but are instead fully allocated to the “other income and expenses” line. The impact per quarter of this restatement is provided in appendix.

First Quarter 2015 total revenues stood at 5.7 billion euros versus 5.6 billion euros in First Quarter 2014, up 1.8%, but down 2.4% like-for-like.

Currencies had a positive 239 million euro impact on revenues, primarily driven by the strengthening of the US dollar against the euro. In spite of higher profits on currency hedging, the negative impact on costs reached 320 million euros. It was larger considering the bigger share of costs than revenues in US dollars, and considering the fact that a sizeable portion of First Quarter 2015 revenues were booked in 2014 at a time when the dollar was weaker. In the First Quarter 2015, the net impact of currencies thus amounted to a negative 81 million euros.

Total operating costs were 1.2% higher year-on-year and down 3.9% on a like-for-like basis. Ex-fuel, they increased by 3.3% and by 1.5% on a like-for-like basis. Unit cost per EASK was stable, on a constant currency, fuel price and pension-related expense basis, against stable capacity measured in EASK (+0.1%).

The fuel bill amounted to 1,480 million euros, down 4.7% and like-for-like down 17.6%, on the back of a 20.3% reduction in jet fuel price after hedging and of a 15.6% negative currency impact. Based on the forward curve at 17 April, the Full Year 2015 fuel bill is expected to reach 6.6 billion euros4[1]. Based on the same forward curve, the Full Year 2016 fuel bill could amount to 6.1 billion euros4.

Total employee costs including temporary staff were up 2.1% to 1,920 million euros. They included a non-cash increase of 31 million euros in pension-related expenses at KLM due to changes in actuarial assumptions (lower discount rate). On a constant scope and pension-related expense basis, they were flat (+0.3%). In addition, the Group recorded under “non-current income and expenses” a 56 million euro provision for the Voluntary Departure Plan targeting 800 positions that was announced in February.

EBITDAR amounted to 229 million euros, an improvement of 62 million.

4 2015 average Brent price of USD63, average jet fuel price of USD608 per metric ton, average exchange rate of 1.10 USD per euro. 2016 average Brent price of USD69, average jet fuel price of USD663 per metric ton, average exchange rate of 1.10 USD per euro.

EBITDA amounted to a negative 21 million euros, an increase of 29 million euros. On a like-for-like basis, EBITDA improved by 91 million euros. The Passenger network had the largest contribution to the improvement of EBITDA, up 58 million euros, whereas cargo EBITDA decreased by 30 million euros. At 85 million euros, maintenance achieved a good performance on EBITDA level, up 9 million euros.

The operating result stood at -417 million euros versus -445 million euros in 2014, a 28 million euro improvement. Like-for-like, the operating result increased by 109 million euros.

The net result, group share stood at -559 million euros against -608 million euros a year ago. It included notably the non-current result related to the capital gain on the sale of Amadeus shares (+218 million euros), partly offset by the change in value of the fuel hedging portfolio (-26 million euros) and the unrealized foreign exchange loss (-143 million euros). On an adjusted basis, the net result, group share stood at -504 million euros against -485 million euros in First Quarter 2014, a 19 million euro decrease.

At 31 March 2015, the trailing 12 months strike-adjusted return on capital employed¹ (ROCE) was 5.6%, up 1.6 point compared to 31 March 2014.

PASSENGER NETWORK BUSINESS

First Quarter 2015 total passenger network revenues amounted to 4,421 million euros, up 1.3% and down 2.0% like-for-like. The operating result of the passenger network business stood at -322 million euros, versus -378 million euros over the First Quarter 2014. Like-for-like, the operating result improved by 132 million euros.

The Group maintained its strict capacity discipline, keeping total passenger network capacity stable (+0.1%). Unit revenue per Available Seat Kilometer (RASK) remained volatile, down by 2.3% on a like-for-like basis in the First Quarter. On the long-haul network, unit revenue was affected by the expected capacity-demand balances reflected in the unit revenue performance of the different parts of the network: good performance on North America and the Caribbean & Indian Ocean, weaker performance on the Latin American network on the back of a weak economic environment in several key markets, whereas the capacity-demand balances put pressures on both Eastern-Africa and Asia networks.

As planned, short and medium-haul point-to-point capacity (excluding the Paris and Amsterdam hubs) was further reduced by 11.8%, leading to a significant improvement in unit revenue of +9.6% like-for-like, whereas for hub-related short and medium-haul traffic, unit revenues were down -1.4% like-for-like.

CARGO BUSINESS

The Group continued to restructure its cargo activity to address the weak global trade and structural air cargo industry overcapacity. During First Quarter 2015, full-freighter capacity was reduced by 9.6%, while belly capacity increased by 1.2%, leading to a decrease in total capacity of 1.9%. Revenue per Available Ton Kilometer (ATK) was nevertheless down by 11.3% like-for-like, reflecting the structural industry overcapacity, especially on flows from Asia to Europe.

The operating result stood at -63 million euros, a decrease of 15 million euros like-for-like.

Within the framework of Perform 2020, 3 Boeing 747 were retired in the Winter 2014-15 season, while another 5 MD11s will be retired by the end of the Winter 2015-16 season. The Group plans to operate only 5 full-freighters by the end of 2016. This reduction should enable the full-freighter business to return to operating breakeven in 2017 (versus a strike-adjusted loss of around 95 million euros in 2014).

MAINTENANCE BUSINESS

First Quarter 2015 third party maintenance revenues amounted to 380 million euros, up 31.0% and by 13.8% like-for-like. Revenues benefited not only from the strong dollar, but also from the contracts gained in previous years and from weak comparables in Q1 2014. In the quarter, the Group performed its first GEnx engine overhaul.

The operating result stood at 35 million euros, up 13 million euros year-on-year, and down 2 million euros like-for-like.

Over the period, the Group recorded a further 5% increase in its order book to a record high 5.9 billion euros, including several new B787 component support contracts. The Group further expanded its service portfolio with an investment in a US engine parts trading business.

TRANSAVIA

In the First Quarter 2015, Transavia capacity was up by 5.1%, reflecting the accelerated development in France (capacity up by 48%) partly offset by seasonal capacity adjustments in the Netherlands (capacity down 7.5%). Traffic rose by 7.1%. The load factor remained high (87.9%, up 1.7 point) despite the increase in capacity. Unit revenue per ASK increased by +0.7% despite the increase in capacity, resulting in total revenues of 146 million euros, up 5.0%.

Unit costs were up 4.3% on the back of the stronger US dollar, a shorter stage length, ongoing ramp-up investments in France, and the seasonal capacity adjustments performed in the Netherlands.

The operating result was thus down by 11 million euros to reach -69 million euros.

The development of Transavia will further accelerate in 2015: on top of a 30% capacity increase to serve 44 destinations from France, Transavia is launching a new brand identity, a new web site, implementing a tighter integration with Flying Blue, and has recently ordered 20 Boeing 737s.

OTHER BUSINESS: CATERING

In the First Quarter 2015, third party catering revenues amounted to 75 million euros, up 2.7%.The operating result stood at -1 million euros, up 3 million euros.

FINANCIAL SITUATION

In the First Quarter 2015, the increase of 29 million euros in EBITDA translated into a 27 million euro improvement in cash flow before change in WCR and cash out related to Voluntary Departure Plans. The Group disbursed 30 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 477 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 350 million euros. As a result, operating free cash flow improved by 43 million euros.

The operating free cash flow does not include free cash flow from financial investments, including the cash-in of 327 million euros from the sale of Amadeus shares in January.

Net debt amounted to 5.28 billion euros at 31 March 2015, versus 5.41 billion euros at 31 December 2014. Currencies had a significant 175 million euro negative impact on net debt. After issuance of an hybrid bond in April, net debt would stand at 4.68 billion euros at the end of First Quarter 2015.

Excluding the impact of the pilot strike on EBITDAR and including the hybrid bond issued in April, the trailing 12 months adjusted net debt / EBITDAR ratio stood at 3.7x at 31 March 2015, down 0.3 points compared to 31 December 2014, and 0.5 points compared to 31 March 2014. In parallel, a 661 million euro convertible bond was reimbursed on 1^st April, reducing the diluted share count by more than 70 million shares to 370 million shares.

Despite strong returns on pension plan assets and the positive impact of the changes in Dutch fiscal rules on pensions, the 70 basis point fall in discount rates during First Quarter 2015 led to another significant increase in the actuarial valuation of retirement obligations. The balance sheet pension situation thus moved from a net liability of 710 million euros at 31 December 2014 to a net liability of 1,051 million euros at 31 March 2015.

At 31 March 2015, equity, group share, amounted to -1,515 million euros, down 844 million euros over the quarter due to the strong seasonality of results (net result of -559 million euros) and an increase of 257 million euros in after tax net pension liability. The change in fair value of the fuel hedging portfolio had a limited impact over the quarter. At 31 March 2015, the fair value of the fuel hedging portfolio remained however strongly negative, at around -1.3 billion euros. This level of equity does not take into account the 600 million euro hybrid bond that was issued in April.

The Group continues to enjoy a good level of liquidity, with net cash² of 3.5 billion euros at 31 March 2015, and undrawn credit lines of 1.77 billion euros. At the end of April, the Group renewed some of its credit lines for an amount of 1,100 million euros with a wide pool of international banks. In addition, in January 2015, the Group received net proceeds of 327 million euros on the sale of Amadeus shares, and it issued a 600 million euros hybrid bond in April.

OUTLOOK

All the operational initiatives planned within the framework of the new strategic plan Perform 2020 are being deployed.

In parallel, negotiations with unions on labor productivity are ongoing.

As demonstrated in the First Quarter, almost all of the expected savings on the fuel bill could be offset by unit revenue pressure and negative currency impacts.

For Full Year 2015, the Group maintains its key targets:

• unit cost reduction of 1 to 1.3%
• net debt around 4.4 billion euros at the end of 2015

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.