pgs airmtius final 6/26/08 10:42 AM Page 1 pgs airmtius final 6/26/08 10:42 AM Page 2

VISION

Your Preferred Leisure Airline

MISSION STATEMENT

To consistently delight our customers by providing a unique travel experience in genuine Mauritian style

To consistently improve our products and services in line with changing customer expectations

Be a rewarding performance-driven organisation and a great place to work

Deliver sustainable returns for our shareholders

Be a top independent driver of the Mauritius economy

OUR VALUES AND BELIEFS

Service Excellence

We will serve our valued customers with a professional and caring attitude We will transmit our passion for our company by speaking and acting positively We will deliver what we promise

Integrity and Accountability

We work as a team and take collective responsibility once decisions are taken We will strive for solutions instead of blaming others and finding excuses We accept personal accountability for our own actions and results

Our people

We will foster a culture of learning and sharing knowledge We will break internal silos and place our actions in corporate perspective We will treat and work with each other in a respectful manner We welcome feedback and will strive for continuous improvement We will celebrate and reward success

Shareholder Value

We will endeavour to create more value through sustainable return on investment We will put an end to processes, procedures and activities that add no value We will strive to control all costs controllable by us and not tolerate wastage

Social Responsibility

We will act as good corporate citizens and ambassadors for our country We will support and promote the conservation of our heritage and national identity We will assist the Community at large pgs airmtius final 6/26/08 10:42 AM Page 3

Table of Contents

Page 02 Key Results Page 04 Chairman’s Statement Page 08 Chief Executive’s Review Page 12 Glossary Page 13 Directors’ Report and Business Review

Page 14 Overview of the Business Table of Contents Page 25 Key Performance Indicators (KPI’s) Page 26 Performance and Development of the Business Page 37 Resources and Relationships Page 40 Corporate Social Responsibility Report Page 41 Principal Risks and Uncertainties Page 44 Receipts and Returns to Shareholders

Page 47 Treasury Policies and Objectives 03 Page 51 Operating and Financial Statistics Page 52 The Board of Directors Page 54 Corporate Governance Page 56 Leadership Team Page 58 Board Commitees Reports Page 61 Safety Management System Page 63 Directorship of the Group Page 64 Remuneration Report Page 66 Certificate from the Company Secretary Page 66 Directors’ Disclosure Statement Page 67 Directors’ Responsibility Statement Page 68 Independent Auditors’ Report Page 69 Financial Statements Page 70 Balance Sheets Page 71 Income Statements Page 72 Statements of Changes in Equity Page 74 Cash flow Statements Page 76 Notes to the Financial Statements Page 124 Translation of the Balance Sheets Page 126 Cascade Holding Structure Page 127 Directors in Subsidiary Companies Page 129 Shareholders Information Page 133 Notice of Meeting Page 135 Proxy Form

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:42 AM Page 4

Key Results

Group Results 2007/2008 2006/2007

Revenue (Eur m) 448.1 414.2 Operating profit (Eur m) 24.7 1.6 Net profit / (loss) (Eur m) 17.0 (6.7) Attributable profit / (loss) to equity holders of the parent (Eur m) 16.8 (6.8) Net assets (Eur m) 201.0 184.2 Basic earnings per share (Rs) 7.2 (2.9)

Key financial statistics

Key Results Operating margin (%) 5.5 0.4 Net profit / (loss) margin (%) 3.8 (1.6) Return on equity (%) 8.5 (3.7) Return on assets (%) 5.3 (2.1) Interest cover (times) 3.8 0.2 Interest and lease cover (times) 1.5 0.7 Dividend cover (times) 4.6 - Gearing ratio 0.5:1 0.8:1

Group operating statistics 04 Passengers carried (‘000) 1,311 1,177 Revenue passenger kilometres (m) 6,984 6,441 Revenue tonne kilometres (m) 844 779 Available tonne kilometres (m) 1,385 1,366 Passenger load factor (%) 76.8 74.6 pgs airmtius final 6/26/08 10:42 AM Page 5

Chairman’s Statement & Chief Executive’s Review

Financial Statement pgs airmtius final 6/26/08 10:42 AM Page 6

Chairman’s Statement Chairman’s Statement

06

We celebrated our Company’s 40th facing us and our country. We believe that we anniversary last year. From our humble have built a strong foundation for growth and beginnings to the respected national carrier that we have the capacity and resources to we have become, our journey has been very take the airline forward into the future. long and arduous. This achievement has been possible thanks to the unflinching Last year, we encountered exceptionally support of our dedicated staff, esteemed adverse, and hitherto unseen, factors. I am customers, suppliers, shareholders, industry pleased to announce that we have, this year, partners. Mauritius celebrates its 40th turned around our fortune with a Group profit Independence Anniversary this year. It is no of Eur 17 Million. coincidence that the destinies of Mauritius and Air Mauritius have been so intimately Airline Restructuring linked. With a network of 27 destinations, spanning over four continents, the The good results are largely due to the contribution of Air Mauritius towards the Transformation Programme, initiated in 2006, growth of our country’s economy, the tourism aimed at reducing the Company’s operating industry in particular, is undeniable. The oil cost base, improving productivity, margins crisis is serious cause for concern, but we are and profitability. We have also benefited from confident that we are well equipped to face the effect of the appreciation of the Euro over the future. the Dollar.

As we look back to our glorious past, we are Compared to the previous year, our revenue fully conscious of the future challenges performance was good, up 8.2 %. Our Earnings

ANNUAL REPORT 2007 / 2008 pgs airmtiusfinal6/26/0810:42AMPage7 introduced. hospitable andwelcomingspirit,areabouttobe standards anduniforms,reflectingour passengers morechoice.Newservice system hasbeenupgradedtogiveour been improved,andthein-flightentertainment seats, thecabindecorationandambiancehave In additiontotheaddedcomfortofnew new ergonomicseatinEconomyClass. cabin, withlieflatseatsinBusinessClassanda as a‘PreferredLeisureAirline’hasanupgraded cabin layout,whichreflectstheairline'sbrand of ouron-boardproduct.Thenewtwo-class There isgoodnewsforourcustomersinterms New Products Rs 1.50(Eur0.04)pershareinApril2008. pleased tohavebeenablereturnadividendof per shareimprovedtoRs7.23share.We are Governance Committee,whose functionisto In Marchofthisyear, weinstitutedaCorporate Corporate GovernanceCommittee have contributedtoGroupprofit. previous yearandalloperatingsubsidiaries continued togrowcomparedwiththe Group. OurGroupcompanieshave made incomplementaryactivitieswithinthe We arebenefitingfromtheinvestments Group activities launch anE-freight programme. website. We arenowpartneringwithIATA to easily on-line,throughourrecentlyrevamped functions. Customerscannowbookwithus by facilitatingourdistributionandselling We havesimplifiedthewaywedobusiness 2008 forfullimplementationofthisinitiative. successfully metIATA’s deadlineofMay31, am pleasedtoconfirmthatwehave made inimplementingelectronicticketing.I Last year, Isharedwithyoutheprogress E-ticketing interests ofallourstakeholders. corporate governance,soastosecurethe upholding ofthehigheststandards remain morethanevercommittedtothe precepts ofGoodCorporateGovernance.We ensure thatweadhereevenmorestrictlytothe of IT, environmentandriskmanagement. with IATA, andmoreparticularlyinthefields benefited largelyfromourcloseassociation I amgladtosaythatAirMauritiushas course oftheyear. IATA Aviation &EnvironmentSummitinthe Leadership SummitinSingapore,andthe Legal SymposiuminBuenosAires,theIATA media. Inthisrespect,IaddressedtheIATA airlines heardininternationalforumsandthe Mauritius aswellthatofsmallandAfrican I havestriventomakethevoiceofAir of IATA. the BoardofGovernorsis‘government’ strategising oftheglobalaviationworld,as forefront ofthedecisionmakingprocessand with IATA. We aremostprivilegedtobeatthe June, wehaveconsolidatedourrelationship of IATA atitslastAGMinVancouver last Following myelectiontotheBoardGovernor IATA Governance as fromtheendof2008. condition precedenttomembershipAFRAA Safety Audit(IOSA)wouldbecomea We alsoreaffirmedthatIATA Operational infrastructure andairnavigationequipment. to continueimprovetheassociatedairport our keypriority, whilstweurgedGovernments We emphasisedtheneedofmakingsafety industry partnersfromothercountries. over theAfricanContinent,togetherwith attended bynumerousdelegatesfromall December 2007.TheAssemblywas Mauritius, undermyPresidency, in held itsAnnualGeneralAssemblyin The AfricanAirlinesAssociation(AFRAA), AFRAA Presidency ANNUAL REPORT 2007/2008

07 Chairman’s Statement pgs airmtius final 6/26/08 10:42 AM Page 8

Chairman’s Statement (Continued)

We also succeeded in rallying all African the growing financial crisis. The ‘Istanbul airlines around the theme of ‘Doing Business Declaration’ was adopted in the wake of Together’, in terms of common fuel purchase record high fuel prices, causing IATA to revise and ground handling projects. the initial profit forecast of the industry to a potential loss of US$ 6.1 billion with an oil Aviation & Environment price at US$ 135 per barrel for rest of the year.

We fully realise that the Environment has taken We will need to redouble our efforts to face centre stage in the aviation world. We have the fuel crisis. We are therefore regulating our subscribed to the Summit Declaration of the capacity and frequencies on certain routes, Aviation & Environment Summit in Geneva on whilst keeping a close watch on our revenue April 22, 2008, thereby recognising our management, marketing strategy, and major environmental responsibilities and cost elements. determination to a pathway to carbon-neutral growth and IATA’s Four Pillar Strategy, whose We are working with partners in Mauritius and Chairman’s Statement ultimate aim is zero carbon emission. abroad to increase the visibility of our country and our airline. With our newly revamped We have partnered with the Mauritian Wild Life seats and product on board, we believe we Fund to plant a tree in Mauritius for every take off have the ingredients that will appeal to both of our flights out of Mauritius. This will help to our loyal and new customers. preserve our national heritage as our Company and activities grow. Our objective is to work We took other steps during the year to further actively to ensure Air Mauritius continues to be strengthen our business, and to return the 08 a ‘green airline’ in all its activities. Company to profitability. We have started new routes in Bangalore and Madrid. We have I am proud to announce that we shall host a delivered a 5.5% margin on our Group Summit on Aviation & Environment: operations this year and laid the foundations Sustainable Development in Mauritius on towards achieving a consistent net margin October 30, 2008. The aim of the Summit is covering our cost of capital in the long term. to discuss practical ways and means to mitigate the aviation industry’s environmental The Challenges impact, while sustaining economic development. We will also be able to assess We remain focused on our objective to the progress achieved by IATA’s recently improve performance, but are conscious that, launched ‘Carbon Offset Guidelines’. The in many ways, we are looking at a moving Summit, which is supported by the target. The record high price of jet fuel, the Government of Mauritius and IATA, will be accrued competition resulting from the attended by the Director General & CEO of liberalisation of the air access, the growing IATA together with other dignitaries of the exigencies of the travellers, to name but a few, aviation and environment world. are already being addressed.

Market outlook Thankfully, the measures undertaken have enabled us to stay on track and to achieve At the recent IATA Annual General Meeting our profit targets. The process of change is held in Istanbul, member airlines of IATA have yet to be completed. The fuel crisis is still unanimously agreed to a resolution calling for with us. We therefore remain cautiously governments, airports and labour to take optimistic about our future. immediate action to help the industry survive

ANNUAL REPORT 2007/2008 pgs airmtius final 6/26/08 10:42 AM Page 9

Our Vision Tribute

The development of Air Mauritius and the I would like to express my deepest gratitude airline sector can only be enhanced with a and recognition to my fellow Board members correlated development of our airport as well as to management and staff for their infrastructure. We are impatiently awaiting hard work, dedication, commitment and the implementation of Government’s plan to loyalty to our Company. I also wish to build a new passenger terminal at our recognise our industry partners, suppliers airport. In this respect, our vision is to have a and customers without whom we would not dedicated operating area within the new be the Company that we are today. They terminal, as is the case with national airlines have supported us consistently over the past in other countries. 40 years of the Company's history.

We also intend to have new state of the art As we look forward to the future, I wish to buildings at the airport, as it makes much give the assurance that we shall maintain the Chairman’s Statement more sense to concentrate all our operations highest standards of service and comfort at the airport, including a training centre for our that we have come to expect from Air aircraft engineers and cabin crew, and Mauritius. This is our promise and eventually a pilot training school for the region. commitment to one and all.

We have one of the newest fleets in Africa. We have an impeccable safety record. Our vision is to uphold our reputation and to build on it to grow into a leading airline. 09

Sanjay Bhuckory Chairman June 2008

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Chief Executive’s Review Chief Executive’s Review

010

Air Mauritius has achieved strong results Operational challenges despite operational challenges during the year. The Company posted a profit of Eur It has been a challenging year for the 15.6 million which is in line with our target operations with record high fuel prices and set at the beginning of the year, when we changes in security procedures at all launched our 3 year Transformation international airports. Whereas the impact of programme. We have delivered a 5.3 % high fuel prices was managed internally by operating margin, reversing the loss the airline, the new security measures had incurred in the previous year. This significant implications for our passengers performance is well above the industry and partners across the network. Airports in average worldwide and shows that the Europe now restrict the hand luggage strategy and measures we are taking are passengers may carry on board and also the producing good results. As such, we have quantity of liquids and gels in carry-on once again been able to return a dividend luggage. These security measures have been to our investors. replicated worldwide and have frustrated the traveling public due to the confusion on Our long term target is to sustain an treatment of on board duty free items in operating margin of at least 7% and we transit airports. We have worked with our believe that we are moving steadily towards partners to clear the hurdles by giving this goal. We are committed to making Air information at check-in on expected airport Mauritius the airline of choice in the region as procedures abroad. we continue to implement our strategy as “Your Preferred Leisure Airline.”

ANNUAL REPORT 2007 / 2008 pgs airmtiusfinal6/26/0810:42AMPage11 have madeourwebsite, and improvedserviceforourcustomers.We delivering bothcostbenefitstotheCompany improving ourwebsite.Theinternetis In additiontoourproductchanges,wearealso across thenetwork. delighting andwinningnewcustomers revamped servicestandardsisalready completed. However, theimpactofour year changeprogrammewillhavebeen two yearswhenalloftheinitiativesfromour3 Leisure carrierwillbecompletedinthenext Business Class.Ourtransformationintoa entertainment system,andthelieflatseatsin refreshed cabininterior, thein-flight passengers whohaveappreciatedthe brand hasbeenwellreceivedbyour in December2007.Thenewproductand the receiptofourfirsttwoA330-200aircraft We launchedournewtwo-classproductwith Customer benefits of ouractivitiesontheenvironment. Inthe noise andemissions,thusreducingtheimpact getting youngerandtheneweraircrafthaveless advantages. Theaverageageofourfleetis for theirfuelefficiencyandoperatingcost be poweredbyGEengineswhichwereselected to growthemediumhaulroutes.Theywillboth be deliveredin2009.Theseaircraftwillused received inDecember2007,whiletheotherwill new AirbusA330-200aircraft,oneofwhichwas Last yearweannouncedourinvestmentintwo Investments inkeyareas yet morereasonstocontinueflywithus. hospitality ofapremiumairline,butwillfind Customers willnotonlyenjoythecomfortand numerous partnersinMauritiusandabroad. us andgetpriceconcessionsfromour be abletoearnmoremileswhentheyflywith Kestrel Flyerprogramme.Ourcustomerswill frequent flyermembersthroughournew We havealsoaddednewbenefitsforour to payon-line. more freedomtomanagetheirbookingsand simpler tousewithoptionsgivingcustomers www.airmauritius.com passengers. inspiration andprideforourstaff changes willcontinuetobeasourceof Mauritian heritage.We areconfidentthatthese uniforms havebeendesignedtoreflectour uniforms tofitourlongtermstrategy. Thenew the comingyearwewillbechangingour keeping withourcurrentandfuturemarkets.In our longtermstrategyasaLeisureAirlinein ournewproduct,wearecementing brand. With the communicationandrevampingofour Another areaofinvestmentthisyearhasbeen environmental impacts. newer technologyaircraftwithmorepositive of ourfleet,toplanfortheeventualtransitioninto coming year, wewillbedoingastrategicreview our maintenancefacilityinMauritius. Company, butwillhelp extendthecapabilityof This willnotonlybringadditionalrevenuestothe term technicalagreementswiththeseairlines. other airbusfleetsinAfrica,aftersigningshort with AirbusandAirFrance toprovidesupport to the costofmaintenance.We havepartnered competences ofourengineers,tofurtherlower Mauritius aswellontheskillsand on ourworldclassmaintenancefacilityin This yearwehavelookedatwaysofcapitalising Maintenance andengineering authority hasrecognisedthe limitationsofthe and modernairports.InMauritius,theairport Airlines cannotoperateefficientlywithoutproper Airport developmentandairportcosts completed inthecomingfinancialyear. for thenextIOSAaudit,whichwillbe must berenewed.We arethereforepreparing this certificateisonlyvalidfor2yearsand certificate in2006,butasperrequirements, Audit (IOSA).We obtainedourfirstIOSA certification, theIATA OperationalSafety into abenchmarkoperationalsafety the industrysafetystandardshaveevolved In myreportlastyearIcommentedonhow Safety andSecurity ANNUAL REPORT 2007/2008 011 Chief Executive’s Review pgs airmtius final 6/26/08 10:42 AM Page 12

Chief Executive’s Review (Continued)

current airport infrastructure and is looking to compensation levels and working relationships invest in a new terminal over the next 2-3 years. with the unionised workforce over the next four The planned improvements will bring added years. During this period, we will work jointly value to airline operations and accommodate with the unions to improve productivity across the expected growth in tourism arrivals over the all levels by changing work patterns and next decade. We welcome these developments practices. We are targeting key operating areas and we are working with the Airports of Mauritius where we believe our customers will benefit to define our requirements. from more focused attention to serving them and attending to their needs. Globally, there is concern about the rising cost of fuel and air navigation and airport costs. At the same time, we will be rolling out our There is strong belief that governments around performance management system which will the world see aviation as a soft sector to levy bring measurable targets of achievement for charges and taxes to supplement their individuals and teams for each period. We budgets. This perception has persisted despite believe that the new performance appraisal

Chief Executive’s Review the numerous representations made by the system, which focuses on the delivery of airlines to ensure rises in such costs are kept at agreed targets and behaviours, will help reasonable levels. Even though we lobby motivate our people to maintain high extensively against such moves together with standards. These procedures will be linked to our industry partners, we find that such costs reward systems which will incorporate a staff remain largely outside our control and have bonus scheme based on individual and impact on what our passengers will ultimately Company performance. pay for their journeys. 12 The New Air Mauritius The Environment During the past year, we have taken steps to Last year I shared with you the global rediscover and to re-affirm what we stand for concerns on the impact of emissions from as a company. The fundamentals of our the aviation sector on the environment. Over strategy remain the same. We want to grow the past year, we have worked with several and serve the tourist markets in and out of organisations including the Mauritius Wild Mauritius. This is in keeping with our vision as Life Fund, to contribute actively to making “Your Preferred Leisure Airline”, which is Mauritius a green island. Our tree planting being translated in our product and branding. project for every take off is working well and we are pleased with our contribution to the In addition to this core strategy, we have global clean up efforts. considered the manner in which we will operate as a company. We have therefore In the coming year Air Mauritius will be updated our values bringing clarity to how we working with the rest of the aviation industry will behave and treat our colleagues, suppliers to gather data on emissions to help ensure and customers. In this exercise, we have this matter is analysed and placed in its retained what we believe is our Mauritian proper perspective. We also continue to heritage and the best of our traditions, building invest in more modern fuel and energy on the theme of delivering service that touches efficient aircraft which have lower emissions. the heart and soul of our customers.

Employees We aim to ensure our customers feel the friendly and welcoming spirit of our people at We completed negotiations and signed new all touch points as well as the courteous and collective agreements with all six unions during high standard of service on the ground and the year. The agreements defined the on board our aircraft.

ANNUAL REPORT 2007 / 2008 pgs airmtiusfinal6/26/0810:42AMPage13 v v v v v priorities in2008willthereforecontinuetobe: consequent highpriceofjetfuel.Ourkey intensified inlightoftheoilcrisisand programme. Theseeffortswillneedtobe cost reductionobjectivesforthe3year and haveachievedmorethanonethirdofour Transformation programmestartedlastyear We havemadeprogressonour we rationalisecapacityforthisperiod. considering leasingoptionsforthisaircraftas the revisedrouteschedules.We arecurrently A319 aircraftinSeptember2008keepingwith term. Ourplansincludethegroundingofone and adjustingroutestimetablesintheshort emphasis onfurtherrestructuringthenetwork reviewed ourplansforthecomingyearplacing doubt putastrainonourfinances.We have dampened prospectsforgrowthandwillno However 2008withitshighoilpriceshas long termtargetofa7%operatingmargin. give usconfidenceinourabilitytoachieve Our resultsforthisyearareencouragingand Looking aheadto2008/2009 Company; improve productivitythroughout the with allmajorlabourunions.Thiswillhelp following theconclusionofagreements To followupchangestoworkpractices route profitabilityfortheCompany; factors inordertorestoreandsustain continuing basis.We aimtogrowload monitor capacitywithdemandona Revamp ourschedulingpracticesandto fleet ofaircraft; programme acrosstheentirewidebody To completethetwo-classcabinretrofit airline markets; competitive intheregionalandglobal specific areasinordertoensureitis To benchmarktheCompany’s cost basein making targetedinvestmentsinproducts; board ouraircraftandonthegroundby To furtherimprovecustomerserviceon board ofoneouraircraft. Holiday Begins’assoonyoucomeon us. Ourmottoistoensurethat‘Your unique experiencewhentheytravelwith these advantagestogiveourcustomersa spirit ofourpeople.We arebuildingon the beautyofMauritiusandwelcoming Our newstrategyandbrandimagereflects during theperiodofchangeprogramme. business todrivefurthercostefficiencies large numberofinitiativesacrossthe competitive costbase.Thisissupportedbya commitment toachievingandmaintaininga The finalpriorityarearemainstheGroup’s v v both athomeandinternationally. Airline”, aswelltoreinforceourbrand vision tobe“Your PreferredLeisure Finally, tobuildandcommunicateour leaders acrossallfunctions;and and developingthenextgenerationof organisational changesaimedatattracting Building leadershipbytrainingand Manoj RKUjoodhaG.O.S.K. Chief ExecutiveOfficer ANNUAL REPORT 2007/2008 June 2008

13 Chief Executive’s Review pgs airmtius final 6/26/08 10:42 AM Page 14

Glossary

Turnover Earning per share Revenue passengers-km (RPK) Represents total revenue earned and Profit after tax and minority interest The number of passengers carried fees derived, net of taxes, allowances divided by number of shares issued. multiplied by the distance flown and returns, from aircraft, helicopter, (in kms.) hotel, property rental, technical and traffic handling operations.

Travelled Revenue Net assets per share Passenger load factor Consists of gross revenue derived Shareholders’ interests divided by RPK expressed as a percentage of from the carriage of passengers, number of shares issued. ASK freight, mail and excess luggage.

Profit after tax Semdex Unit costs Group: An index of all listed share prices Airline operating costs (excluding Profit attributable to the equity holders on the Stock Exchange of Mauritius. sales commissions and pool of the parents It indicates the movement of share. settlements) divided by system- Company: prices from one trading session to wide available tonne kilometres. The company is exempt from another. payment of tax. .

Glossary Interest Cover Available seat-km (ASK) Cargo tonne-km (CTK) Profit before interest charges The product of seats offered and Multiplying cargo tonnage carried divided by interest payable. the distance flown (in kms.) by the distance flown

Interest & lease cover Available tonne-km (ATK) Revenue per ASK (RASK) Profit before interest and lease charges The product of capacity offered Total operating revenue divided by divided by interest and lease payable. (in tonnes) and the distance flown ASK. (in kms.)

Return on owner’s equity Revenue tonne-km (RTK) Cost per ASK (CASK) Profit after tax divided by Multiplying revenue load carried Total operating costs divided by shareholders’ interests. (in tonnes) by the distance flown ASK. (in kms.)

Dividend Cover EBITDA Net profit margin 14 Profit after tax divided by Earnings Before Interest, Taxes, Profit after tax expressed as a proposed/paid Dividend Depreciation and Amortisation. percentage of turnover.

Return on assets Cash Overall load factor Profit after tax divided by total assets. Cash at bank, cash on hand and RTK as a percentage of ATK. short term deposits.

Gearing ratio Direct serviceable loans Yield Total debt to equity. Loans excluding defeased portions. Travelled revenue divided by RTK pgs airmtius final 6/26/08 10:43 AM Page 15

Directors’ Report & Business Review Financial Statement pgs airmtius final 6/26/08 10:43 AM Page 16

Directors’ Report & Business Review Overview of the Business

The Directors have pleasure in presenting The Company also operates a worldwide air their Annual Report, Business Review and cargo business, solely in conjunction with its Financial Statements of Air Mauritius Limited scheduled passenger services, using the belly (the ‘Company’) and its subsidiaries (the hold capacity for cargo trans-shipment. The ‘Group’) for the year ended March 31, 2008. Cargo business accounts for approximately The Financial Statements are set out on 10% of total airline revenues. pages 70 to 124. Economic value is generated by the Company Results for the year by meeting the demand for business and leisure travel, with leisure travel being the main The Group reported a profit of Eur 17.0 passenger segment. The Company provides million for the year ended March 31, 2008 vital links for trade and investment, and feeds compared to a loss of Eur 6.7 million in the the tourism sector and the rest of the economy previous year. Profit for the year for the through its substantial leisure travel Company amounted to Eur 15.6 million, opportunities for individuals and families. In the against a loss of Eur 7.9 million in the financial year ended March 31, 2008, the previous year. A dividend of Rs 1.50 (Eur Company earned over Eur 445 million in

Directors’ Report & Business Review 0.04) was declared and paid to shareholders revenue, 8.2 % up on the previous year. 85.7 % in April 2008. The Group and the Company of this revenue was generated from passenger performed well during the period in spite of traffic, 11.3 % from cargo and 3 % from other various challenges such as increased activities. During the period 35,959 tonnes of competition due to the opening of air access, cargo were carried across the network, to declining yield and rising costs. destinations throughout the world. At the end of 16 March 2008, the Company had 12 fixed wing OVERVIEW OF THE BUSINESS aircraft in service, compared to 11 in March 2007, and 3 helicopters. Air Mauritius Limited Mauritius Estate Development The main activities of the Company are the Corporation Limited (“MEDCOR”). operation of international and domestic scheduled air services for the carriage of The subsidiary company Mauritius Estate passengers, freight and mail and the Development Corporation Limited (MEDCOR) provision of ancillary services for aviation. The is engaged in leasing out office and commercial domestic network comprises solely of space. Air Mauritius Ltd holds 93.7% of the operations to Rodrigues using turbo prop issued share capital of the company. ATR72 aircraft. MEDCOR recorded a profit after tax of Rs 40 The Company is the leading scheduled million (Eur 0.9 million) as compared to Rs 40.5 international passenger airline in the Indian million (Eur 1.0 million) for last year. The office Ocean region. The Group's Head Office is in space remained at 100% occupancy level Port Louis, while its principal place of during the year. operations is SSR International Airport, Mauritius. From this base it serves 27 Pointe Coton Resort Hotel destinations touching four continents i.e Company Limited Africa, Asia, Australia, and Europe. The airline has a comparatively high proportion Pointe Coton Resort Hotel Company Limited of point-to-point business with interline is in the business of providing hotel accounting for only 20% of its passenger accommodations together with all related airline revenues. services in Rodrigues. Air Mauritius Limited holds 54.2% of its issued share capital.

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Directors’ Report & Business Review Overview of the Business (Continued)

The company recorded a profit of Rs 10.5 target is to achieve a 7 % operating margin in million (Eur 0.25 million) compared to a profit of the next 2 years of the Company’s Rs 5.6 million (Eur 0.14 million) for 2006/2007. Transformation Programme. It is working in Its turnover increased by 10.9% in rupee terms partnership with all its key stakeholders to to reach Rs 57.3 million (Eur 1.3 million), foster growth and harness business compared to Rs 51.7 million (Eur 1.2 million) opportunities and also to effectively manage for last year. The occupancy rate of the hotel the risks associated with the business. increased slightly from 63% to 64%. Shareholders return Airmate Limited For its shareholders, the Group’s key Airmate Ltd is a wholly owned subsidiary of Air responsibility is to generate a sustainable return Mauritius Limited. It was incorporated in on the capital employed in its business and to January 2006 to provide Call Centre and IT ensure it can invest for future growth. It seeks to enabled services. Airmate Ltd recorded a return to shareholders a balance between capital turnover of Rs 28.4 million (Eur 0.67 million) growth and an income stream by way of and a profit of Rs 0.4 million (Eur 0.01 million) dividend. As outlined above, the Group has set

as compared to a turnover of Rs 28 million (Eur a target of a 7 % operating margin to ensure an Directors’ Report & Business Review 0.68 million) and a profit of Rs 2M (Eur 0.05 adequate sustained financial return and it million) for last year. continues to make progress towards this goal. The Group seeks to operate complementary Air Mauritius (S.A) (Proprietary) Limited businesses in its investments with the core being airline operations. In South Africa, the Group operates through a 17 100% owned subsidiary, Air Mauritius (S.A) Other stakeholders (Proprietary) Limited which acts as agent for Air Mauritius Limited. It operates on a cost re- The Group also takes account of its imbursement basis with its expenses being responsibilities to other stakeholders including directly accounted for in books of the parent its employees, its customers and the company. communities affected by its operations, as well as having regard to the impact its business has Blocked funds in Seychelles on the environment. Group policies are benchmarked with best practice internationally As at March 31, 2008, Air Mauritius Limited in managing these stakeholder relationships. held cash amounting to SCR 11.4 million (Eur 0.9 million), which has been blocked in the In conjunction with its employees, the Seychelles since 1998. These funds have been Company has redefined its values during the blocked due to an ongoing shortage of foreign year, having regard to its new vision to be currency in that country. An impairment of 50% “Your Preferred Leisure Airline”. It is re- against the remaining blocked funds has been energising its staff to champion the service made in the financial statements to account for quality that has been recognised worldwide the foreign exchange risk of a depreciation in as synonymous to Mauritius and Air Mauritius. the Seychellois rupee vis-à-vis the Company’s reporting currency, the Euro. In designing its change programme, the Company has also adopted goals and Objectives initiatives relating to customers, employees, financial, and operational performance. The Group aims to build a sustainable Targets relating to each of these have been business with margins covering its cost of set and will be monitored over the next 2 capital on a long term basis. The near term years. Feedback mechanisms in the form of

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Directors’ Report & Business Review Overview of the Business (Continued)

surveys, customer recommendations and Business Plan 2008/2011 employee suggestions are being put in place, with the overall objective of improving the The Business Plan 2008/2011 builds on the service standards, reducing the Company’s theme of change established in the previous cost base, and improving operating margins plan. Operations have been rolled over by one and punctuality. year to give visibility on routes, fleet and capacity requirements. The Company is in the STRATEGIC DEVELOPMENTS middle of its transformation programme and is AND INVESTMENTS implementing projects aimed at further strengthening its competitiveness. Background In 2008 the airline will grow principally by In 2007, we started our three year adjusting and adding frequencies on key routes Transformation Programme for the Company. and no new aircraft are envisaged for either We designed initiatives aimed at achieving cost lease or purchase. The addition of an A330-200 savings of between Eur 50-60 million over the aircraft last year is sufficient to cover the three year period to 2010. In this financial year, capacity requirements for the coming year, and

Directors’ Report & Business Review we have achieved cost savings in line with our will allow flexibility on the A319 fleet which was objectives. We have operated within the previously covering some medium haul sectors. framework of our three year Business Plan put Investments will instead be made to upgrade in place last year. the aircraft cabins and put new seats on the A340-300 fleet to fit with the new two-class The business plan focuses on implementing product branding and strategy. New growth 18 the new vision and strategy for Air Mauritius to aircraft will come in October 2009, when another be the “Preferred Leisure Airline” in the Indian A330-200 aircraft will join the fleet. Ocean region. During the course of the financial year we have unveiled our long term on-board The theme of the plan is ‘change’ in work product. It is an enhanced business class cabin practices, systems and procedures. We will be with lie flat seats in a two-class configuration as investing in the retraining of our people to showcased on the new A330-200 aircraft deliver the new enhanced service and to focus received in December 2007. The rest of the on our customers. Investments are also being cabins on the wide body fleet will be retrofitted made to upgrade revenue management into the two-class structure by the end of July systems and to expand our distribution 2008. It is recognised that the aircraft interior systems across the network and on the web. like any other product has a finite life and must We will also be moving from the traditional be renewed from time to time. sales commission structures to implement more progressive and flexible service fee Although the change programme has many arrangements with our agents in Mauritius. This focus areas aimed at controlling and reducing will allow our customers and industry partners costs, managing pricing and capacity in Mauritius to benefit from current trends in the requirements, improving productivity and industry worldwide. energising our people, the overall objective is to make the Company more profitable and The three-year outlook therefore exploits the competitive, and to deliver a sustained 7 % commercial and operational benefits of a operating margin in the long term. With a company that has embraced change in a profit of Eur 15.6 million during the financial dynamic and competitive industry. The plan year 2007/2008, the Company has made focuses on efficiency gains as well as cost significant strides towards this goal. reduction objectives aimed at improving margins and bringing bottom line benefits for the Company and its shareholders.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 19

Directors’ Report & Business Review Overview of the Business (Continued)

Fleet and Network Strategy its investments while at the same time limiting the number of aircraft in its fleet. The Company’s network strategy continues to reduce its exposure to unprofitable market In the coming year, the network will be further segments whilst strengthening its position in restructured by consolidating operations to profitable markets. Whilst new markets are Italy at one point in Milan. A new seasonal being considered in China and South Asia, service to Madrid will be operated between the Company has this year increased the 16 June and 13 October 2008. Operations to number of flights in key markets such as India will also be augmented by the extension Australia, India, United Kingdom, and Asia. In of our services to Chennai to cover Bangalore the region, it continues to modulate capacity as a co-terminus point. Over the next 3 years according to demand in order to balance we will be consolidating our operations in load factors on a continuing basis. These Asia, through the strengthening of our strategies have enabled the Company to alliance with Malaysian Airlines. Similar reduce exposure to unprofitable operations arrangements will be explored in Europe to and also to achieve one of the highest aircraft extend the European network coverage for utilisation rates for the wide body fleet in the Air Mauritius.

industry. The Company is capitalising fully on Directors’ Report & Business Review

DESTINATIONS AIRCRAFT DEPLOYED

Europe and Australia A340-300/300E with London flights being served exclusively with A340-300E. 19 Asia A340-300/300E and A330-200. The A330-200 aircraft is currently deployed to Chennai, Delhi and Kuala Lumpur / Singapore.

Africa and Madagascar A319-100 and A340-300/300E.

Saint Denis All aircraft types.

Saint Pierre A319-100 and ATR72-500.

Rodrigues ATR72-500 only.

Fleet Deployment Changes on the Domestic Route

Air Mauritius has increased deployment of the The Company has made changes to its A340-300/300E aircraft on Johannesburg, operations on the Rodrigues route in order to Antananarivo and Reunion during 2007/2008 to reduce losses on this route. The changes cover provide for sufficient belly hold capacity for a range of sales and marketing initiatives, cargo. This has provided the opportunity for the including changes to pricing structures bearing A319-100 aircraft to be released to operate in mind the underlying cost per seat. additional frequencies on other African and Indian Ocean destinations. As such, more base Because of the short runway at Plaine Corail flights with A319-100 aircraft are being planned Airport, which can only support ATR on Reunion with a view to reduce cost per seat operations, larger aircraft with better as well as allow release of the ATR72-500 economies of scale cannot be operated on this aircraft for enhanced deployment to Rodrigues. route, thus putting a strain on pricing flexibility

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 20

Directors’ Report & Business Review Overview of the Business (Continued)

for this destination. We are discussing with the ordered and will be received in October 2009. airport authorities and the government the Financing for this aircraft has already been necessity of the extension required for this arranged with details being confirmed in the runway in the context of further developing coming year. tourism in Rodrigues. The Company has not placed any other orders Future Aircraft Fleet Commitments for new aircraft, and does not have any unused option positions for its fleet. In addition, no During the financial year 2007/2008, the tenders have been launched with aircraft Company received its first of two A330-200 manufactures for delivery of additional aircraft. aircraft. The second A330-200 has been OWNED / FINANCE

Fleet Details

OWNED/FINANCE OPERATING SEAT ON FIRM TYPE OF AIRCRAFT LEASE LEASE TOTAL CAPACITY ORDER

Airbus A340-300 3 2 5 294 - Directors’ Report & Business Review

Airbus A340-300E - 2 2 302 -

Airbus A319-100 2 - 2 120 -

ATR 72 - 500 1 1 2 72 -

20 Airbus A330-200 - 1 1 275 1

Total 6 6 12 - 1

Bell Ranger Helicopter 3 - 3 4 -

Daily Utilisation Hours

TYPE OF AIRCRAFT 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008

A340 - 300 13.2 14.5 14.4 14.2 13.6

A340 - 300E (since Dec 06) n/a n/a n/a 15.1 14.8

A330 - 200 (since Dec 07) n/a n/a n/a n/a 12.0

A319 -100 7.7 8.5 8.5 8.4 6.8

ATR 72 7.5 7.4 6.7 6.8 6.3

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 21

Directors’ Report & Business Review Overview of the Business (Continued)

BUSINESS ACTIVITIES Mauritius. As part of a long term agreement with the National Coast Guard, C-Checks on Operational Centres Dornier and Defender aircraft for the Maritime Air Squadron together with The Company flies to 27 airports out of its Engineering and Maintenance Support, principal base at SSR Airport in Mauritius. At Component Repair and Overhaul and this airport, it has offices, maintenance Material Services are also provided. hangars and other support facilities held either Furthermore, a contract has been signed under freehold ownership or long-term leases with one airline in Africa for the provision of a from the respective airport operators. In total on-site maintenance support for A320 addition, the Company occupies space and aircraft. desks under lease or license in airports throughout its network. These facilities are Engineer Training School used to support the business by its staff and contracted passenger handling, cargo and Air Mauritius also provides comprehensive other agents. The Company has offices in aircraft maintenance and human factors France, Germany, India, Italy, Reunion, training to its staff at its training school in

Seychelles, South Africa, Switzerland, United Mauritius. The school provides training to Directors’ Report & Business Review Kingdom, Australia, Belgium, Hong Kong, customers as part of the Company’s support Kenya, Madagascar, Malaysia and Singapore. programmes for the aircraft. The Training School has plans to expand further to The Company has also appointed General provide its services to other third parties and Sales Agents (GSA) in countries such as to become a centre of excellence for Aviation Australia, Austria, Bangladesh, China, Comores, related training in the African Region. The 21 Russia, Cyprus, Czech Republic, Slovakia, school also has plans to start an Ab-Initio Denmark, Ethiopia, Finland, Greece, Hungary, (Aircraft Maintenance) training programmes, India, Indonesia, Israel, Japan, Lebanon, which will be opened to the public to enroll. Madagascar, Mozambique, Netherlands, Norway, Pakistan, Portugal, Republic of Korea, Overseas support Philippines, Reunion, Seychelles, South Africa, Sri Lanka, Sweden, Taiwan, Tanzania, Thailand, At overseas airports, the Company Ukraine, United Arab Emirates, Abu Dhabi, subcontracts the provision of most of its Bahrain, Sultanate of Oman, Qatar, USA, ground handling requirements. Runway, ramp Singapore, Malaysia, Kenya, Hong Kong and and terminal facilities are provided by airport Belgium. The Company's biggest overseas operators that charge airlines for the use of station is Paris, where it flies 14 flights a week these facilities. Tenders for services are for most of the year to and from Mauritius in launched periodically to allow for the conjunction with Air France. negotiation and signature of contracts with service providers. However, there are standard Airport Operations charges levied by airports which are not usually negotiable and cover landing, parking and In Mauritius, the Company provides most of passenger taxes and charges. the operational services it requires in-house for the handling of passengers and cargo Air navigation services are provided to aircraft and for the maintenance of its aircraft. The by countries through whose airspace they fly Company also provides ground handling or by international bodies such as Eurocontrol and technical handling for the following in the Eurozone. Navigation charges are airlines: Air France, South African Airways, generally based on distance flown and weight Air Seychelles, Air Madagascar, Emirates, of aircraft and are levied according to Condor, Corsair, LTU and TUI Fly in prescribed formulae.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 22

Directors’ Report & Business Review Overview of the Business (Continued)

Commercial contact centre is poised to cover more markets as part of its future development plan. Sales & Distribution Zero commission The past financial year was the first year in which sales and distribution functions were brought The Company is also aligning with industry under one umbrella in order to develop and trends with regards to the elimination of standard maintain stronger relationships with key commissions to travel agencies and introducing customer groups and intermediaries. We now more equitable service fees. The structure which have a centralised sales and distribution platform has already been implemented in most which makes more effective use of its customer European markets was extended to the contact channels. Clearer information in the form Mauritius market in April 2008. Other markets will of fares, passenger targets for the financial year, follow in due course. product and hotel room availability were exchanged by the sales teams with tour Revenue Management & Pricing operators and travel agents around the world. The aim was to reach each customer group with Changes to Revenue Management practices

Directors’ Report & Business Review sufficient information covering availability of have been centered on optimising revenue per services, and what they can expect to see and available seat kilometre (RASK) across routes get in Mauritius. and networks. Key objectives are:

Product information on the new cabin and seats, a) to eliminate wastage of seats; including fares and schedules were distributed b) to match demand to capacity; and 22 to these customer groups either through tour c) increase yield on peak dates. operators & travel agents, both business and leisure, using global distribution systems or These principles have been applied during the direct through the Air Mauritius call centres as year, together with new procedures for seat well as through the Company’s website, inventory management. They include flight www.airmauritius.com. monitoring and seat allocation policy and a new flight firming process. The monitoring also Electronic ticketing includes quick win actions like sales of last minute premium seats or upgrades at airports. The deployment of electronic tickets (ET) There is now better coordination between across the network has progressed well in line reservation control, pricing and revenue with the IATA deadline of May 31, 2008. Air management. Mauritius has worked with major interline partners to ensure the sales and distribution Marketing and Brand Management platforms are compatible for e-ticketing purposes across all major routes and networks. We spent significant time and effort to promote A robust payment gateway on our website has the Company’s new brand image as Your also been implemented, thus giving further Preferred Leisure Airline. In December 2007, the reassurance and security to passenger Company launched its new Business Class purchasing tickets on line. product when it received the first A330-200 aircraft in a two-class cabin layout. This new The global contact centre, Airmate Ltd, has product involved a totally redesigned cabin, a also taken a more important role in the sales new seat, an upgrade to the in-flight process, as it now handles not only entertainment system with the introduction of reservations but also ticketing and payment Audio Video on Demand (AVOD). In addition, the transactions, as well as changes to tickets product includes changes to the onboard purchased. A complete reservations and service levels and enhances the attention we ticketing service is being offered and the global give to our passengers. The new seat offers

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 23

Directors’ Report & Business Review Overview of the Business (Continued)

greater privacy, increased comfort and has so AIRLINE ALLIANCES & PARTNERSHIPS far been very well received by our passengers. Air France New uniforms fitting the Company’s revamped service levels and image will be This co-operation has consistently provided our introduced in 2008. customers with improved flight departure times, flexible frequency, routings and value for money. Cargo Discussions on the renewal of the alliance for a further period of 5 years are at an advanced The cargo network is similar in most respects to stage. The co-operation will be extended to the passenger network since the majority of cover routes across the Eurozone in order to cargo is carried in the holds of passenger aircraft. offer our customers the frequencies and network The Company carries out a small amount of advantages of a global partnership grouping. trucking to and from points within Europe, in order to position cargo at the best points for Air India carriage on such passenger traffic. The Company continued to be the only operator

These activities allow Air Mauritius to maximise the on the Mauritius-India route during the period. Directors’ Report & Business Review use of the Company’s scheduled route network The India routes are operated in conjunction with to provide a seamless worldwide cargo service. Air India with whom Air Mauritius has had a In Mauritius, most aspects of cargo processing codeshare agreement for many years. and handling are done in-house, while at overseas airports, most handling operations have been contracted with third parties. 23 pgs airmtius final 6/26/08 10:43 AM Page 24

Directors’ Report & Business Review Overview of the Business (Continued)

Kenya Airways FUTURE CO-OPERATION

This code share agreement has been in place Air Mauritius-British Midland since July 2006 and covers the route Nairobi- Mauritius and back. The operator is Air Mauritius Air Mauritius and British Midland met to discuss with Kenya Airways being given a soft block possibilities of co-operation. Both airlines agreed allocation of seats for commercialisation under on the principle of interlining on Air Mauritius its own flight number and code. The two airlines operated flights to/from London. Considering are also discussing the possible extension of traffic rights available, this co-operation will cover cooperation on the Spanish route. mainly points in the United Kingdom.

Air Madagascar Air Mauritius-Virgin Blue

This codeshare agreement, which covered Discussions were also held with Virgin Blue to principally the route between Mauritius and explore co-operation opportunities on domestic Madagascar was terminated during the year sectors operated by Virgin Blue in Australia. The when Air Madagascar started it restructuring Company currently has an Interline Agreement

Directors’ Report & Business Review programme. with Virgin Blue and both airlines have expressed interest to broaden the scope of their South African Airways cooperation on the Australian market.

The codeshare with South African Airways REGULATION OF AIR TRANSPORT started in November 2006 and covers the 24 routes Mauritius-Johannesburg, Mauritius- The airline industry is subject to numerous global Capetown, and Mauritius-Durban. Under the civil aviation regulations covering most aspects of terms of the codeshare, both partners are able airline operations internationally. This framework to commercialise on a soft block basis, a governs commercial activity including the number of seats on each other’s services as exploitation of route flying rights, fare setting and marketing carriers. access to airport slots. The regulations seek to prescribe industry operating standards relating to Emirates areas such as safety, security, aircraft noise, immigration and passenger rights and the Air Mauritius and Emirates have a soft block environment. codeshare arrangement on the Mauritius-Dubai route, with Emirates being the operating carrier. The present basis for international regulation of The code share covers all the seven weekly airline operations derives from the Chicago flights on the Mauritius-Dubai route. Convention of 1944, to which nearly all countries are parties. The Convention also established the Malaysian Airlines International Civil Aviation Organization (ICAO), a specialised agency of the United Nations, to Discussions were held with Malaysian Airlines foster the planning and development of with a view to signing a cooperation international air transport. Under the auspices of arrangement with them out of their hub in Kuala ICAO, rules relating to minimum operating Lumpur. The development of the necessary standards are normally agreed on a multilateral system interface between the two airlines for basis. Airlines' rights to fly over or make stops in implementation of a free flow code share, is foreign countries for technical reasons in already underway. Currently, Air Mauritius flies operating their international scheduled services two times per week to Singapore and Kuala are also generally derived from the Chicago Lumpur. The proposed alliance will cover Convention under the International Air Services operations to China out of Kuala Lumpur under Transit Agreement of 1944. a code share by the two airlines.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 25

Directors’ Report & Business Review Overview of the Business (Continued)

Route Rights within these guidelines, which give priority to the historic rights of existing users. These initial The rights to carry traffic between countries on allocations provide the basis for slot scheduled commercial routes and the negotiations with both the Airport Coordinators regulation of fares are normally agreed on a and other airlines during each period. Airport bilateral basis between governments. A notable Coordinators act independently and in a exception is the multilateral single market nondiscriminatory manner. The Company arrangements, which apply within the European believes that it has sufficient slots to operate its Union (EU). The Company’s traffic rights to carry existing routes and generally has been able to scheduled passengers and cargo on particular obtain slots in connection with its previous route international routes therefore derives from air changes and expansions. services agreements between the Government of Mauritius and the governments of the foreign Fares states concerned. Under these agreements, each government grants to the other the right to Some bilateral air services agreements provide designate an airline or airlines of its state to that the fares, rates and charges for scheduled operate scheduled services between specified services on the agreed routes be filed with, and

points in their respective countries. approved by, both governments concerned or Directors’ Report & Business Review their agencies. These requirements are However, in negotiating the extension of rights increasingly being relaxed even though some with EU member states, changes in EU law now governments still require all airlines to file and require bilateral agreements to contain a seek approval of their fares. Community designation clause in place of the nationality clause. The Community designation It is a widespread practice among airlines to sell 25 clause removes the nationalist requirement for a substantial proportion of seats and cargo designated airlines to be substantially owned space in many parts of the world at tariffs lower and effectively controlled by the government or than the approved levels or on other its nationals. This will allow any EU airline, not unapproved special terms. The Company just those with the nationality of the EU state, to responds competitively to market conditions apply for available traffic rights on a non- and a large proportion of its revenue is derived discriminatory basis. EU countries will therefore from such sales. be able to sometimes designate an airline or airlines to or from points in third countries, Aviation Safety although this also requires the agreement of the third country's government. Global Aviation Safety Standards are derived from multilateral agreements under the Airport Slots and Slot Allocation auspices of ICAO. The country of registration of an aircraft is generally responsible for ensuring The success of airline operations depend on the that the aircraft and its crew meet these Company’s ability to obtain slots at airports for guidelines, leading to variations and differences the purpose of producing schedules which are on specific requirements between states. attractive to passengers. Route rights without Therefore, the certification of compliance by the airport slots would not bring any benefits. state of registry is normally recognised by all other members of ICAO as evidence that Slots and slot allocation is an activity controlled minimum standards have been met. by the various Airport Coordinators at each of the airports, who act in accordance with In the EU to which Air Mauritius largely operates, guidelines laid down by the International Air European countries have adopted common Transport Association (IATA). The Airport safety and airworthiness requirements. Coordinators make the initial slot allocations Airworthiness and maintenance standards,

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 26

Directors’ Report & Business Review Overview of the Business (Continued)

based largely on ICAO and JAA standards, Environmental Regulation were adopted into EU law in 2003 and a new independent European Aviation Safety Agency As an airline operating in many countries, the (EASA) was set up to advise the Commission Company activities are subject to numerous and member states on safety matters. The new environmental regulations at the local, national safety framework is consistent with ICAO and international levels. These cover emissions requirements with member states still being to the local and global atmosphere, the responsible for supervision and compliance. disposal of solid waste and aqueous effluents, The change is that they can no longer noise and other relevant parameters. The unilaterally vary standards in these areas Company’s strategy takes account of the except to respond to an immediate safety impact of its activities on the environment and problem or to facilitate a short term operational endeavors to comply with standards and need provided that safety is not compromised. regulations.

As an airline operating into the Eurozone, Air In terms of the aircraft fleet, the Company’s Mauritius complies with these standards in strategy is to operate a young fleet in order to addition to those specified under the Civil benefit from technological and economic

Directors’ Report & Business Review Aviation Act of Mauritius. Its maintenance advances in the industry, and also to ensure facility is certified by European Aviation Safety less impact on the environment. The current Agency, and has EASA Part 145 Certification. average age for the Company’s fleet of aircraft is 6.5 years, which compares very well Registration and licensing with the March 2008 worldwide industry average of 8.5 years. 26 All Air Mauritius aircraft are registered in Mauritius. The airline has an Air Operator's Certificate (AOC) Air Mauritius has also developed a joint project issued by the Mauritius Department of Civil with the Mauritius Wildlife Fund for the planting Aviation. The AOC confirms the competence of of an endemic tree for each take off of an Air Air Mauritius to operate and maintain its aircraft Mauritius aircraft from Mauritius. This year safely in accordance with ICAO and Mauritius 6,000 endemic trees will be planted. civil aviation standards and regulations. Each aircraft operated under the AOC may only be Competition flown if it has a certificate of airworthiness confirming compliance with the regulations. In The government of Mauritius has continued to addition, all flight crew and certain maintenance liberalise the aviation markets in Mauritius, as staff must be licensed as evidence of compliance part of its policy to promote tourism. with standards. The licensing includes prescribed Competition from same city-pair routes, charter periodic medical checks for crews allowed to services and indirect sixth freedom airlines has operate flights. Maintaining its high safety been steadily increasing on the Regional, standards is a key priority for the Company. All European and African routes. departments, especially engineering, flight operations and ground operations, pay continual On many of the routes with multiple carriers, attention to operational safety and to the health the Company's pricing decisions are affected and safety of employees. by competition from the other airlines, some of which have cost structures that are lower than Specific responsibility for advising on safety the Company's or have other competitive matters rests with a separate department advantages and can therefore operate at lower headed by the Flight Safety Manager. A formal fare levels. Air Mauritius is addressing these safety management system including the Air factors through its business plan and Safety Review Board is in place to ensure that Transformation programme. incidents are reported and action is taken whenever appropriate.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 27

Directors’ Report & Business Review Key Performance Indicators ( KPI’s )

KPI’S FOR THE FINANCIAL YEAR 2008 The Group achieved an operating margin of 5.5 % and a profit of Eur 17.0 million in the The following KPI’s were applicable for the financial year 2008, which is a significant financial year ended March 31, 2008. improvement from the prior year when a Group loss of Eur 6.8 million was made. 1. Profitability & Operating Margin 2. Dispatch Reliability The profit target in the first year (up to March 31, 2008) of the 3 year turnaround One of the key factors important to our programme was Eur 16.1 million. The customers is on time departure and punctuality of Company’s operating margin for the year, our schedules. To be able to do this, our which is defined as “Operating Profit divided maintenance department must ensure that our by Revenue” expressed as a percentage, aircraft are serviceable and available for use was pegged at 5.3%. This is the Company’s when required. A measure of this aspect is key measure of financial performance and a ‘Aircraft dispatch reliability’ which is monitored for target of 7% margin has been set for the each aircraft type and compared with industry long term. average. The dispatch reliability performance for

the year ended March 31, 2008 was as follows: Directors’ Report & Business Review

DISPATCH RELIABILITY % DISPATCH RELIABILITY % 2007/2008 2006/2007

A340-300E 98.7 96.9 27 A340-300 96.6 96.5

A330-200 97.3 -

A319-100 98.3 98.6

ATR72 97.6 98.4

3. Customer Surveys b) to improve the reliability of the in-flight entertainment systems; The feedback we get from our customers on how well we are serving them on the ground c) to introduce uniforms for our employees that and on board our aircraft is a key measure of fit our new branding and service quality; and the Company’s success. Periodic surveys are conducted to obtain what, in the opinion of d) to further widen menus on our in-flight our customers is important to them. These catering on some routes. Customer Recommendations are used to set targets for future performance for our various At the same time, we have had accolades on teams of staff. In the past year, we have our new business class seats, the new cabin identified the following focus areas from the appearance and the courteous service on feedback we have received: board. The survey for 2008 was launched in May and will continue for a period of one year. a) to further improve punctuality of flights and It will cover a representative sample of all in- speed of delivery of baggage on arrival; bound and out bound flights with the exception of the Inter island routes.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 28

Directors’ Report & Business Review Performance and Development of the Business

4. Safety and Security 6. Employee Reward & Incentives

Airlines cannot operate without the assurance Over the past year the Company has been of safety and security for our passengers and reviewing its reward systems, with a view to staff. The Company has comprehensive safety introducing a new incentive plan based on and security procedures covering activities on individual performance. The new plan will the ground and in the air in accordance with incorporate feedback from the staff appraisal international aviation norms. Safety and system which rates performance on the basis of security at all airports is regularly assessed KPIs agreed at the beginning of each financial before flights can be allowed to operate, year for supervisors and managers. In addition, otherwise they will be cancelled. the Senior Officers Remuneration and Selection Committee will be working on incentive plans for The Company continues to work closely with senior management, which will include the airport authorities, government agencies, airlines additional measures of Operating Margin and and other like minded companies in sharing Shareholder Return to assess and incentivise safety experiences to ensure it continues to learn management’s performance. and deliver the highest standards of safety in all

Directors’ Report & Business Review that it does. Air Mauritius received its IOSA PERFORMANCE AND DEVELOPMENT Certificate at the beginning of 2007. The OF THE BUSINESS Company is now preparing for a second IOSA audit scheduled for next year. Financial Performance

In recognition of the importance of safety and The discussion below covers the two years ended 28 security to its business, the Company has March 31, 2008 and March 31, 2007. It is based embedded the ‘safe and secure’ philosophy in on the Group’s Financial Statements which have everything it does, rather than regarding it as a been prepared in accordance with International separate KPI for any one group of person. The Financial Reporting Standards (IFRS). Air Safety Review Board meets monthly to review all incidents and issues relating to Profit for the year, at Eur 17.0 million, was Eur 23.7 operational safety and to monitor and agree on million better than last year when a Group loss of corrective action. Eur 6.7 million was made. Group Operating Profit improved from Eur 1.6 million last year to Eur 24.7 5. Employees & Industrial Relations for the year ended March 31, 2008. The 5.5 % operating margin was 5.1 points better than last One key component of the 3 Year Transformation year. The improvement primarily reflects the Programme was employee involvement in benefits derived from the Company’s defining strategy and shaping the future of the Transformation initiatives, which have focused on Company. Staff needed to be energised to cost reduction over the period. At the same time, identify with the new Vision and to adopt values earnings quality has improved with Revenue Per that ensure contribution to future growth. In 2008 Available Seat Kilometre (RASK) improving by 4.4 therefore, the Company set itself a goal to %, while Cost Per Available Seat Kilometre (CASK) complete negotiations with all its six unions and has decreased by 0.2 %. to set productivity targets for each. This would ensure energy is focused on Company goals, Business Segments rather than on past practices and disputes. Airline business As at March 31, 2008, new collective agreements have been signed with all the six The airline business segment result for the unions, thus assuring clarity of terms and financial year 2008 was a profit of Eur 15.6 conditions for staff over the next 4 years. million compared with a loss of Eur 7.9 million

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 29

Directors’ Report & Business Review Performance and Development of the Business (Continued)

in 2007. The improvement in profit has been of revenue, except from Lease receivable which achieved despite an increase of 21% on the recorded a fall as a result of lower rates and average price of jet fuel when compared with lesser operations. the previous year. The fuel cost was only partially offset by an increase in fuel surcharge revenue. Revenue earned from the carriage of passengers represented 85% of the total aircraft operations Segmental Information revenue of the company and freight revenue stood at 10% this year. 1. By Product

(a) Aircraft Operations 3% 1% 1% Revenue EUR EUR Composition million million 10% 2007/2008 2006/2007

Passenger Revenue 316.2 289.6

Revenue Directors’ Report & Business Review Freight 38.3 38.1 Composition Other Passenger related & Helicopter revenue 12.1 10.9 85% Lease Receivable & Sundry revenue 4.6 9.8 Passenger Revenue 29 Freight Excess Baggage, Other Passenger related & Helicopter revenue Mail & Courier 2.3 2.1 Lease Receivable & Sundry Revenue Excess Baggage, Mail & Courier Total 373.5 350.5 b) Ground Operations

Aircraft operations generated revenue to the tune Air Mauritius provides traffic handling and technical of Eur 373.5 million for the financial year handling assistance to airlines operating to 2007/2008 which represented an increase of 6.6% Mauritius as per the terms of agreement signed over the previous year. An upward movement between them. For the year under review, revenue was noted in all the different components earned from these services represented 1.3% of the total aircraft operations.

Eur m Travelled Revenue Passenger Freight

350

300

250

200

150

100

50 278.0 297.9 305.0 292.3 319.6 44.9 44.4 44.1 38.1 38.3 0 2003/04 2004/05 2005/06 2006/07 2007/08

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 30

Directors’ Report & Business Review Performance and Development of the Business (Continued)

2. Geographical Travelled Revenue by route

(i) Geographical by Route 17% Travelled Revenue breakdown by route *

EUR Operating Region million Revenue 19% Europe 204.9 57%

Asia 61.7 7% Africa/Middle East/Indian Ocean 67.3

Australia 24.0 Europe Africa/Middle East/Indian Ocean

Asia Total 357.9 Australia

* Excluding Helicopter Revenue, Lease Receivable Directors’ Report & Business Review & Sundry Revenue Available Tonne Kilometres (ATK)

Europe - 57% 10% Europe recorded a decrease in its share of travelled revenue from 58% in 2006/2007 to 30 57% this year. Available Tonne Kilometres was ATK 19% slightly lower by 0.6% when compared with 64% the previous year. On the other hand, Revenue Tonne Kilometres registered an 7% increase of 6.2%.

Asia - 17% Europe

Asia Asia maintained its share of travelled revenue Africa/Middle East/Indian Ocean at 17%. Both Revenue Tonne Kilometres and Australia Available Tonne Kilometres were up by 7.7% and 3% respectively. Revenue Tonne Kilometres (RTK)

Africa / Middle East / Indian Ocean - 19%

The share of travelled revenue of these three 11% regions remained constant at 19%. Revenue Tonne Kilometres improved by 12%, despite a slight drop of 0.3% in Available Tonne Kilometres. 64% RTK 18%

Australia - 7% 7% Australia registered an increase in its share of travelled revenue from 6% in 2006/2007 to 7% in this financial year. Revenue Tonne Kilometres Europe and Available Tonne Kilometres increased Asia Africa / Middle East / Indian Ocean significantly by 28.2% and 20.3% respectively. Australia

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 31

Directors’ Report & Business Review Performance and Development of the Business (Continued)

(ii) Geographical by Destination

Travelled Revenue breakdown by destination * Travelled Revenue by Destination

EUR Destination million

Europe 176.9 19%

Mauritius 69.4

Asia 32.6 9% Revenue Indian Ocean 33.9 49% 10% Africa & Middle East 22.6 6% Australia 20.0 Europe 6% Mauritius

Asia America 2.5 1% Indian Ocean Africa & Middle East Directors’ Report & Business Review Total 357.9 Australia America

* Excluding Helicopter Revenue, Lease Receivable & Sundry Revenue

31 Revenue by destination is defined as the revenue from where the sale originates. The Asian continent made up of Hong Kong, Malaysia, Singapore and India maintained its Europe (France, UK, Germany, Italy and share of revenue at 9%. Switwerland) witnessed a fall of 2 points in its share of travelled revenue from 51% in 2006/ The share of revenue generated by Africa and 2007 to 49% this year. The European continent Middle East slipped by 1 point from 7% last remains the highest revenue contributor for the year to 6%. Africa and Middle East are Company. represented by South Africa, Kenya and United Arab Emirates. Mauritius recorded an increase in its share of revenue from 18% in in 2006/2007 to 19% this Australia’s share of travelled revenue for year, thereby consolidating its position as the 2007/2008 grew by 1 point to reach 6%. Air second highest revenue contributor after Mauritius flies to three cities on this continent. Europe. America which covers USA and Canada kept The share of revenue of Indian Ocean which its share of travelled revenue unchanged at 1%. groups Madagascar, Reunion and Seychelles went up by 1 point to 10% when compared to 2006/2007.

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Directors’ Report & Business Review Performance and Development of the Business (Continued)

(iii) Geographical by Routes (Passenger only)

% EUR % CHANGE OVER OPERATING REGION NUMBER CHANGE MILLION LAST YEAR Europe 466,001 3.8 180.3 6.4 Africa & Middle East 175,140 15.9 35.0 7.0 Asia 238,589 12.0 52.6 11.2 Australia 68,979 29.0 22.5 25.7 Indian Ocean 361,889 16.7 25.8 15.7 Total 1,310,598 11.4 316.2 9.1

Network 100% 8% The number of passengers carried by Air Mauritius 28% reached another high to 1,310,598, representing 7% an increase of 11.4% over the previous financial 17% Directors’ Report & Business Review 5% 11% year. On the other hand, passenger revenue 18% increased by 9.1% only, due to the fall in passenger yield by 2.1%. Seats offered in the 13%

network increased by 8.8% to reach 1,786,425, 57% whilst Passenger Load Factor improved to 76.8%. 36% 32 0% Europe % No of Passengers % Revenue The number of coupons uplifted on the European routes witnessed an increase of 3.8% Africa / Middle East Australia from 449,079 to 466,001. Similarly, passenger Europe Indian Ocean Asia revenue was also up by 6.4% due to the increase in the number of passengers and also owing to was down by 0.7%. Passenger Load Factor was an improvement in yield. A reduction in seat down to 74% due to a higher increase in seat capacity by 2.5% coupled with an increase in capacity by 16% than in passengers carried. number of passengers carried brought the Passenger load factor up 4.5 points to 79.1%. Australia Important increases were noted in both number Africa & Middle East of passengers carried (+29%) and passenger An increase in both passengers carried and revenue (+25.7%) on the Australian routes. revenue was registered in the African & Middle However, passenger yield went down by 2.4%. East regions by 15.9% and 7% respectively. On Seat capacity rose by 36.6% with the increase in the other hand, passenger yield was low by 7.5%. the number of flights on these routes, but Seat offered on these routes went up by 18.2%, Passenger Load Factor was low by 3.2 points. whilst Passenger Load Factor was marginally down by 0.4% to reach 71.9%. Indian Ocean The Indian Ocean region witnessed increases in Asia both traffic and passenger revenue by 16.7% and The Asian region which consists of routes 15.7% respectively. Passenger yield was slightly operating to India and the Far East reported down by 0.9%. Seats offered on these routes improvement in passengers carried by 12% as reached 528,435, representing an increase of well as in passenger revenue by 11.2%. 10.6% over the previous financial year. Passenger Passenger Yield was marginally affected and load factor rose from 66.2% to 71.3%.

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Directors’ Report & Business Review Performance and Development of the Business (Continued)

Passenger capacity and Output

Million Revenue Passenger Kilometres (RPKs) Available Seat Kilometres (ASKs)

10,000 9,000 9,094 8,740 8,000 8,244 7,850 6,984 7,000 7,454 6,339 6,441 5,951 6,000 5,280 5,000 4,000 3,000 2,000 1,000

2003/04 2004/05 2005/06 2006/07 2007/08

Passengers Carried & Revenue Directors’ Report & Business Review

Passengers carried Passenger Revenue Passengers carried Eur (m) 1,400,000 1,310,598 320 1,156,820 1,176,633 315 1,200,000 1,109,299 316.2 33 1,049,157 310 1,000,000 305

800,000 302.2 300 289.7 295 600,000 295.7 290 400,000 285 280 200,000 275 275.5 2003/04 2004/05 2005/06 2006/07 2007/08

Load Factor by Region

% 2006/07 2007/08 85.0 80.0 76.1 76.4 74.6 79.1 75.0 72.4 74.0 70.0 71.9 73.2 66.2 71.3 65.0 60.0 55.0 50.0 45.0

Africa & Middle East Asia Australia Europe Indian Ocean

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Directors’ Report & Business Review Performance and Development of the Business (Continued)

Cargo analysis

Geographical by Routes

OPERATING TONNES % CHANGE OVER EUR % CHANGE OVER REGION LAST YEAR MILLION LAST YEAR

Europe 15,354 7.4 23.1 (0.9)

Africa/Middle East/Indian Ocean 13,399 3.5 5.9 (1.7)

Asia 6,265 16.4 8.0 2.6

Australia 1,791 75.1 1.3 30.0

Total 36,809 9.4 38.3 0.5 Directors’ Report & Business Review Network 100% Cargo uplifted in the network witnessed an 5% 3% increase of 9.4% from 33,649 to 36,809 tonnes. 17% On the other hand, revenue was comparable 21% to the previous financial year. 15% 34 36% Europe The European region registered an increase of 7.4% in tonnage, but revenue was slightly 60% down by 0.9%. 42%

Africa / Middle East / Indian Ocean 0% These regions reported an increase of 3.5% in To nnes Cargo Revenue tonnage from 12,943 to 13,399. However, revenue was down by 1.7%. Australia Asia Asia On its part, Asia recorded increases in both Africa/M East/Indian Ocean tonnage and revenue by 16.4% and 2.6% Europe respectively.

Australia Australia witnessed a substantial increase in tonnage carried by 75.1%, but a lesser increase in revenue of 30% was recorded.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 35

Directors’ Report & Business Review Performance and Development of the Business (Continued)

Cargo Carried & Revenue

Tonnes Cargo carried Cargo Revenue Eur m

38,000 44.9 46 44.4 44.1 37,000 44

36,000 42 35,000 40 34,000 38.1 38.3

38 33,000 34,836 36,717 35,666 33,649 36,809 36 2003/04 2004/05 2005/06 2006/07 2007/08

Contribution of Cargo to Gross Travelled Revenue Directors’ Report & Business Review

Eur m Total revenue Cargo Revenue

450.0 400.0 357.9 349.1 35 350.0 322.9 342.3 330.4 300.0 250.0 200.0 150.0 100.0 50.0 44.9 44.4 44.1 38.1 38.3 2003/04 2004/05 2005/06 2006/07 2007/08

Cargo - Revenue Tonne Kilometres (RTK)

Cargo RTK (Million) Cargo RTK

220 216 215 212 210 205 205 204

200 197 195

190

185 2003/04 2004/05 2005/06 2006/07 2007/08

ANNUAL REPORT 2007 / 2008 pgs airmtiusfinal6/26/0810:43AMPage36 June 08 36 Directors’ Report & Business Review are asfollows: Ocean region.ThecitypairsoutofMauritius Asia, Australia,MiddleEastandTheIndian comprises 27destinationsinEurope,Africa, The Company’sscheduledroutenetwork Route Network Performance and Development oftheBusiness(Continued) Directors’ Report&BusinessReview rnfr ul uprMauritius Rodrigues StDenis Pierre St Antananarivo Singapore Dubai Melbourne Kuala Lumpur HongKong Sydney Perth Delhi Rome Chennai Nairobi Milan EAST Mumbai OCEAN Munich Johannesburg Durban Frankfurt AUSTRALIA Zurich CapeTown Geneva Paris London AFRICAASIA EUROPE MIDDLE INDIAN pgs airmtius final 6/26/08 10:43 AM Page 37

Directors’ Report & Business Review Performance and Development of the Business (Continued)

Revenue and reached Eur 48.6 million. The Company competes internationally for Group revenue for the year was Eur 448.1 million, cockpit crew and this has gone up due to up 8.2 % compared with last year, on a flying a shortage of pilots worldwide. In programme which was 2.4 % larger than last year 2007/2008, Air Mauritius also concluded in terms of ATKs. new terms and conditions with its six unions and this resulted in higher labour Passenger revenue was up 9.2 % to reach Eur costs. The average number of employees 316.2 million. Passenger yields were up 1.1 % per in the Group during the period was 2,914 RPK, and the Load factor at 76.8 % was better compared with 2,928 employees last year. than last year. Capacity in terms of ASKs was Productivity (measured in terms of ATKs higher than last year. per Employee) improved by 5.6 %.

Cargo revenue at Eur 38.3 million was up on last v Depreciation and amortisation costs year by 0.4 %. Cargo volumes measured in terms reduced by 3.4 % compared with the of Cargo Tonne Kilometres were 7.9 % better than previous financial year. The last three prior year with yields lower by 8.2 %. The decline aircraft that were added to the fleet were

in volumes has been driven by a combination of on operating leases and were thus Directors’ Report & Business Review capacity, competitive, market and operational financed off balance sheet. factors. v Aircraft operating lease costs increased by During Financial year 2007/2008, Air Mauritius 50.7 % and reached Eur 26.2 million for the deployed a total of 57,600 tons of cargo capacity year, compared with Eur 17.4 million in the within its network, an increase of 12% as financial year ended March 31, 2007. The 37 compared to previous year and carried a total rise was due to the addition of a new A330- cargo throughput of 39,913 tonnes of cargo. This 200 aircraft in December 2007 and the full was an increase of 8% as compared to the year costs of the two A340E aircraft previous year. The overall load factor when acquired in December 2006. considering both passenger and cargo for the year was 60.4 %, up 3.4 points on last year. v Fuel costs increased by 10.8 % with the fuel bill reaching Eur 145 million. The rise Expenditure was due to a 21 % increase in fuel price. This increase was partially offset by Total operating expenses for the year ended hedging benefits and the impact of a March 31, 2008 increased by 3 % compared to favourable exchange with a high Eur the past financial year. The price of jet fuel versus the weaker US Dollar. continued to increase during the period due to the continued high oil prices worldwide. Jet fuel v Maintenance & overhaul costs reduced costs now comprise 38 % of total operating costs by 16 % compared with the previous up from 35 % last year. Unit costs measured as financial year. The decrease reflects lower (total expenditure on operations per ATK) aircraft maintenance costs arising from increased to 0.28 cents and were 3.7 % higher renegotiated contracts. Savings were than in 2007. obtained from the application of new rates and terms. The table below summarises total Company expenditure on operations and year on year v Landing fees and en route charges were changes in expenditure over the two financial Eur 27.4 million, compared with Eur 27.8 years ended March 31, 2008: million in the previous year which is lower by 1.3 %. Handling charges, ground v Employee costs increased by 3.2 % services, catering and other inflight costs compared with the financial year 2007 increased by 1.7 % compared with

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 38

Directors’ Report & Business Review Performance and Development of the Business (Continued)

financial year 2007. The year on year v Crew costs went up by 4.7% to Eur 15.6 increase is principally due to increased million when compared to the previous rates for air navigation charges and other financial year. charges by airport authorities. v Other Operating costs which include lease v Marketing and distribution direct costs at payable, flight equipment insurance Eur 31.4 million were 14.2 % higher when amongst others decreased by 59.6 % compared with the past financial year. compared with the financial year 2007 and reached Eur 5.5 million mainly attributable to lesser disbursements on wet lease.

2007/2008 2006/2007 INCREASE/ OPERATING EXPENDITURE EUR M EUR M (DECREASE) %

Fuel costs 145.0 130.9 10.8 Employee costs 48.6 47.1 3.2 Maintenance & overhaul 40.2 47.9 (16.0)

Directors’ Report & Business Review Aircraft operating lease costs 26.2 17.4 50.7 Landing fees and en route charges 27.4 27.8 (1.3) Handling charges, ground services, catering and other inflight costs 42.2 42.9 (1.7) Marketing and distribution direct costs 31.4 27.5 14.2 Depreciation & amortisation 17.6 18.2 (3.4) 38 Crew costs 15.6 14.9 4.7 Other operating costs 5.5 13.6 (59.6) Total Group operating expenditure 399.7 388.2 3.0

Financial Derivatives improvement when compared with last year’s earnings per share when a Group loss of Eur Net unrealised gains on fuel derivatives were Eur 6.8 million was made. 3.9 million (2007: Eur (0.4) million), reflecting the unrealised gains on fuel derivative hedges Working Capital recognised directly in equity under International Accounting Standard (IAS) 39. At March 31, 2008, net current assets were Eur 10.5 million, compared to net current liabilities Net Finance Costs of Eur 2.9 million at March 31, 2007.

Net finance costs for the financial year 2008 Cash Flow were Eur 7.5 million, which was Eur 0.05 million lower than in 2007. The reduction reflects lower The cash and cash equivalents for the financial levels of borrowing and higher cash balances year 2008 was Eur 82.6 million, an improvement and also the impact of a strong Eur on finance of Eur 30.1 million over the financial year 2007. costs denominated in other currencies. The cash and cash equivalents increased in the year due to improved earnings and profitability Earnings per Share over the period as well as the return of pre- delivery payments on the closing of financing for The total earnings attributable to shareholders new aircraft. for the year was Eur 16.8 million. This is equivalent to Eur 0.17 cents per share or Net cash inflow from operating activities was Rupees 7.23 per share. There is a major Eur 64.6 million, an increase of Eur 35.0

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 39

Directors’ Report & Business Review Resources and Relationships

million over 2007. This was primarily due to For the purposes of the financial statements, improvement in operating profit and also foreign currency debt is translated into Eur at changes in working capital. year-end exchange rates. Gains and losses on translation of debt are taken to the income A reduction of Eur 23.1 million in the net cash statement. flow from investing activities was recorded. Last year an amount of 29.3 million was received as Gearing ratio proceeds on sale of held for sale assets. Debt at March 31, 2008 amounted to Eur 105.3 An improvement of Eur 13.3 million in the net million excluding defeased liabilities, a reduction cash flow used in financing activities was of Eur 35.0 million compared with balances at registered mainly due to reduction in the March 31, 2007. This amount is net of cash and payment of long term borrowings. cash equivalents and other interest bearing deposits totalling Eur 82.6 million. Capital Expenditure The gearing ratio at March 31, 2008 was 0.5:1 2008 2007 as compared 0.8:1 of the previous year. This EUR M EUR M

was mainly due to the reduction in debt and Directors’ Report & Business Review Aircraft, spares, growth in retained profits. modifications and refurbishments 11.1 11.1 RESOURCES AND RELATIONSHIPS

Property and Customers equipment 3.1 1.5 39 We have made several investments directed at improving the customer experience with The Company acquired one A330-200 aircraft our Company. These include products and which was delivered on December 14, 2007. services which have been outlined on our This aircraft was financed by way of operating website www.airmauritius.com, which has lease through a facility arranged by Doric also been upgraded and enhanced. New Asset Finance. initiatives, product and service developments were introduced as part of Air Mauritius’ During the year, the Company also extended Transformation programme whose core its USD 30.6 million loan facility on one A340- objective is to focus on our customers. 300 aircraft registration mark 3B-NBD, by signing a stretch loan agreement with Banque Nationale de Paris as facility trustee for 5 years up to 2012. By this agreement, title for aircraft 3B-NBD passed over to Air Mauritius.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 40

Directors’ Report & Business Review Resources and Relationships (Continued) Directors’ Report & Business Review

40

Website improvements from anywhere in the world. Customers may now apply for membership, check mile Work on the website was directed mainly at accruals, burn miles, apply for free tickets, improving the Company’s booking engine and excess baggage and seat upgrades, on a PC payment gateway, both of which allow our many in the comforts of their homes. customers to make bookings and pay for their tickets on-line. In addition, the look and feel of In-flight Product the website has been improved and includes open access to our newly improved Kestrel Flyer As detailed in previous sections of this report, programme for frequent flyers. Customers can the Company has changed its long term on easily navigate on the site and make necessary board product and has a programme to changes to their journeys accordingly. change the aircraft layout in two class layout. It has launched a new lie-flat Business Class Kestrel Flyer Programme seat, which will replace the old first class and business class products. The new seat has The Company’s frequent flyer programme has superior comfort levels to the replaced seats been further improved with new benefits and the Business Class cabin has been including the extension of the time period given enlarged to 34 seats on the A340 fleet and 28 for potential members to earn miles and other seats on the A330. The Company’s economy benefits. The programme has also been class comfort levels have been largely changed from a point based system into a mile retained, with the new aircraft coming with earning structure more easily understood by improved ergonomic seats. A retrofit our customers and staff. A significant programme is underway to make these advantage for our customers is that the system changes and this programme will be is now web enabled and may be accessed completed in July 2008.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 41

Directors’ Report & Business Review Resources and Relationships (Continued)

New Cabin Interior & New Uniform Supplier Performance

Our passengers will also be pleased with the new For the year ended March 31, 2008, the Group cabin interior which has a colour scheme which and Company’s worldwide operations were not features the flora and fauna of Mauritius. The cabin subject to any disruption in supply by any of its ambience reflects the beauty of an Island contracted suppliers. Several contracts covering destination and fits well with our strategy and fuel supply, maintenance services, catering and in- brand image as ‘Your Preferred Leisure Airline’. flight products as well as ground handling were renegotiated during the period. Work on the new uniform for our employees fitting all of the above changes has already been Supplier Risk completed and this will be introduced in the coming year. The Company’s Procurement team monitors supplier performance, including their financial Suppliers records and assesses the risk of supply disruption across the Company. Contingency measures are Payment Policy taken from time to time based on the results of

such reviews. It is also the role of Procurement to Directors’ Report & Business Review Company’s policy is to pay suppliers on time ensure the suppliers have acceptable contingency according to agreed terms and to build long plans within their own businesses for supply term relationships with suppliers of key failures, and that evidence of testing these plans commodities and services. Procurement is can be demonstrated from time to time. done on the basis of tenders at cycles designed to assure security of supply as well as Internally, each department must also ensure that 41 competitiveness in terms of price negotiations. there are adequate contingency plans for the Tenders for all significant items are posted on Company’s response to any supply interruption. the Company’s website www.airmauritius.com. This usually includes identifying and securing The Company seeks to sign contracts with all alternative suppliers, building capacity from within major suppliers to ensure clarity of terms and the Company’s own resources, or scaling down conditions. Ad hoc purchases are limited to on services for a period. emergency cases. pgs airmtius final 6/26/08 10:43 AM Page 42

Directors’ Report & Business Review Corporate Social Responsibility Report

Human Resource Health and Safety

As at March 31, 2008 the Group employed 2,914 staff The Group believes that awareness of health and out of which 2,610 were employed by the Company. safety issues is key to the prevention of accidents and In keeping with the Company’s restructuring for promoting the well being of customers and staff. programme, initiatives have been put in place to The Company has during the past year conducted improve productivity and to optimise staff numbers in training and health & safety audits at all its major all areas. In many cases processes and procedures offices and stations in Mauritius and abroad. All issues are being simplified so as to ensure roles, goals and arising out of these audits have been dealt with in responsibilities are clear. Training and re-training is a accordance with legislation and Company key component of the strategy as the Company procedures. There were no serious work related implements its new vision as “Your Preferred Leisure injuries in the operational areas during the period. Airline”. Through these programmes a common awareness and understanding of the Company's CORPORATE SOCIAL RESPONSIBILITY standards, expectations, financial goals and the internal and external economic factors affecting the The Company supports charitable institutions in the Company’s performance is being created. form of rebated tickets, fund raising prizes, and

Directors’ Report & Business Review community based promotional activities each year. Training We are reviewing our policies on Corporate Social Responsibility and this review will be completed in The Company considers training to be an essential the coming year. element in maintaining a competitive edge in a dynamic industry. Whilst mandatory and job essential Early this year Air Mauritius signed a memorandum 42 training in the operational areas continue to ensure of understanding (MOU) with Mauritius Wildlife the maintenance of high standards of safety and Fund in order to support the Foundation’s security, customer service training will be a significant work for the preservation of the focus for the Company during the next few years. The environment. It involves two key training of staff in soft skills, leadership and projects which are: management, will support the delivery of the business plan. pgs airmtius final 6/26/08 10:43 AM Page 43

Directors’ Report & Business Review Principal Risks and Uncertainties

a) The preservation of indigenous birds starting d) Awareness and anticipation: creating an with the Paille en Queue bird, which is Air Mauritius atmosphere of continuous learning and symbol but including two other rare species in awareness of risks that impact the business Rodrigues, namely, the Warbler and the Fody; and throughout the Group.

b) We have also developed a joint project for the Procedures and parameters for risk planting of an endemic tree for each take off of an management are stipulated in the Company’s Air Mauritius aircraft from Mauritius. This year 6000 Risk Management Manual, which is reviewed endemic trees will be planted. This is a small but from time to time to ensure it remains relevant to meaningful signal of our commitment to the the Company’s activities. preservation of our environment. Risk Management Team During the year, Air Mauritius also partnered with HSBC to enable 60 children of various Management is accountable to the RMSC for the backgrounds from the SOS Villages to go on their implementation and detailed monitoring of the risk maiden flight on board one of its aircraft. We are management process. There is a Risk giving hope as well as opening new doors for Management Team (RMT) which meets monthly

these children who experience air travel for the first to review risk management reports as well as Directors’ Report & Business Review time. Together with our partners in industry, we hedging transactions for fuel and currency. The plan to make this a yearly event in the context of Finance Department acts as the Company’s risk the Independence Day celebrations. secretariat and is responsible for reporting all major risks to the RMSC. An overall risk map is PRINCIPAL RISKS AND UNCERTAINTIES prepared each year covering both financial and non-financial risks as part of the Company’s 43 Risk Governance budgeting process. This risk map is approved by the Board and forms the basis for budgeting Group management structures are designed to assumptions each year. ensure enterprise-wide risks are properly identified, analysed, mitigated and managed. PRINCIPAL RISKS Responsibility for effective management of risk rests with the Company’s Board of Directors with The inherent operational complexities in the overall management of risks delegated to the Risk Company’s business, together with the highly Management Steering Committee (RMSC). The regulated and commercially competitive aviation following principles are applied by the Company environment, drive a number of risks for the Group. and the Group: Many of these risks remain outside of the Group’s control and are only mitigated to a certain degree. a) Responsibility: Group activities entail business risk and therefore risk management is everyone’s Government regulation responsibility. The Group must take into account its social, ethical and environmental responsibilities The airline industry worldwide is becoming in setting risk parameters and target returns; increasingly regulated, both directly and indirectly. The scope of such regulation covers b) Risk and return: ensuring that risk is taken in airport infrastructure issues, slots and capacity support of Group strategy and within its risk management, route flying rights, consumer rights appetite as defined from time to time by the RMSC; and denied boarding, flight cancellation & delays, environmental requirements, security etc. The c) Accountability: ensuring that there is an Company’s ability to both comply with and auditable system of evaluating, controlling and influence any changes in these regulations is key reporting on risks, and that decisions are taken to maintaining its operational and financial within defined authority limits; and performance.

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 44

Directors’ Report & Business Review Principal Risks and Uncertainties (Continued)

Political restrictions Epidemics & Pandemics

Route rights and landing rights are often Epidemics (e.g. SARS) and pandemics (e.g determined by the country of destination. If route Chikungunya) as well as other health risks, may rights and permission to land were to be occur and would be beyond the Company’s withdrawn for any reason, the operations of the control. Health concerns are one of the factors Company would be disrupted and its financial that adversely affected demand for air travel to performance impaired. The Company mitigates the region in 2006/2007 as there was concern this risk by being a good citizen and operating among travellers about the spread of within the law to high international aviation Chikungunya. standards. Safety & Security Incidents Competition The safety and security of the Company’s The Company faces competition from other customers and employees are fundamental airlines on its routes as well as from indirect values of the Company. Failure to prevent a major flights, charter services and from other modes of security or safety incident would adversely impact

Directors’ Report & Business Review transport. Competition on core routes to both the Company’s operations and financial Mauritius has increased over the past year as the performance. aviation markets have continued to be liberalised. Some competitors have cost structures that are Capital Investment lower than the Company’s or have other competitive advantages. Fare discounting by A wrong decision in respect of the Company’s 44 such parties has historically had a negative effect planned fleet growth, the timing and number of on the Company’s results because the Company aircraft ordered, the fleet type, or the financing is generally required to respond to competitors’ structures applied, could have a material adverse fares to maintain passenger traffic. impact on the Company’s future performance. Company policy is to achieve a balance in the Industrial Relations fleet structures in order to build flexibility in times of industry downturns. The Company has a large unionised workforce comprising six unions. Collective bargaining takes Financial Commitments place on a regular basis and a breakdown in the bargaining process could disrupt operations and Even though the Company has a comfortable adversely affect business performance. This year, gearing, it still carries substantial debt, which the Company has been able to sign new needs to be repaid or refinanced over time. The collective agreements with all six unions covering Company’s ability to finance both its ongoing terms and conditions for the next four years. operations and future fleet growth plans may be affected by various factors including financial Reputation and Branding market conditions. Most of the Company’s debt is asset-related, reflecting the attractiveness of The Company’s reputation and brand is of aircraft as security to lenders and other financiers. significant commercial value. This brand is being However, should this perception change, lenders revamped in line with its strategy to be the may look for other alternative security thus putting “Preferred Leisure Airline”. Erosion of the brand, pressure on the Company. through either a single event, or series of events, could adversely impact the Company’s Market and economic factors leadership position with its customers in the region which ultimately impact its revenue, Demand for air travel largely depends on profitability and future long term growth. passengers and cargo shippers being willing

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 45

Directors’ Report & Business Review Principal Risks and Uncertainties (Continued)

and able to pay for carriage by air. This ability Fraud and Other Irregularities and willingness is influenced by economic factors and security conditions in Mauritius and The Group has a Code of Business Practice other countries over which the Company has no and Ethics as well as a Fraud Prevention Policy control. The Company strives to market which outline accepted behaviour and Mauritius abroad and to offer products suited to procedures for the prevention, detection and the core tourism markets and other segments. investigation of suspected frauds and other irregularities. Through these policies and Systems and infrastructure practices staff and other stakeholders are encouraged to act with integrity and to report The Company depends on IT systems to all suspicious transactions to relevant deliver key functions. It endeavours to ensure authorities in accordance with Group that its IT and other systems provided in procedures and the requirements of the law. house and by third parties are reliable and well protected against threats from hackers Country Risk and viruses. Such systems have ongoing backup structures and are also regularly Air Mauritius operates in many countries and

updated and maintained. faces country risks. These can take many Directors’ Report & Business Review different forms including the devaluation of a Supplier failure currency, exchange controls or other actions taken by the governments, restricting the The Company has contracts with third parties Company’s ability to operate or to repatriate its for important aspects of its operations, such as funds, outbreaks of diseases or epidemics reservations, catering, aircraft maintenance forcing the Company to stop or suspend 45 and spares provisioning. It is essential that operations. Country managers and agents are critical supplies should be maintained as if this required to give early warnings about adverse were not so, operations would be disrupted trends and conditions in the different and the business would suffer. The Company jurisdictions. Such matters are reported to therefore ensures its contracts with key senior management, the Risk Management suppliers are updated and negotiated for Steering Committee and the Board of Directors periods ensuring security of supply. for action.

Fleet grounding or restriction Legal and Regulatory Risk

The Company operates a number of aircraft Failure to comply with applicable new or types in its business. An accident or changed laws and regulations, or governance discovered defect even where this applied to standards or changes in interpretation of laws another airline could ground significant portion and regulations may harm the Company’s or all of the fleet, thus causing disruption to the business and reputation. The Company business. The Company maintains an updated actively monitors changes in applicable law register of leasing companies as part of its through its legal department. It also provides contingency procedures. recurrent training to staff to ensure they are kept up to date with standards and legislative Commercial strategy and product issues as they evolve.

The Company strives to operate in line with its There is also the potential that unenforceable strategy and business plans. However, due to contracts, lawsuits, or adverse judgments can the matters discussed in this section, such plans disrupt or otherwise negatively affect the may not always prove able to be implemented operations or condition of the Company. This along the lines and time scales envisaged. includes the risk of unexpected loss due to

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 46

Directors’ Report & Business Review Receipts and Returns to Shareholders

transactions not being enforceable under Section works with each department applicable law, regulation or contract. The individually in order to identify major risks and Company manages this risk though effective develop an action plan for reducing the risks use of its internal and external legal advisors identified to acceptable levels. Critical risks are and by ensuring that contracts and reported to the Risk Management Steering transactions are properly authorised. Committee and the Board.

Business Continuity Plans RECEIPTS AND RETURNS TO SHAREHOLDERS The Group and Company Business Continuity Plans (BCP) include standby facilities as well as Dividend Policy emergency procedures and management structures covering recovery from major The Company has a policy of paying 30% of accidents and/or incidents that have the potential profits as dividend, subject to the solvency to disrupt the entire business. The BCP test. In determining the level of dividend, programme includes backup procedures and consideration is given to the Company’s future forms an integral part of the management of funding requirements.

Directors’ Report & Business Review enterprise wide risks covering ground operations, aircraft operations, information technology, Dividend Paid security, safety and other business threats. For the year ended March 31, 2008, the Board Insurance has declared a dividend of Eur 0.04 per share (Rs1.50 per share). This dividend was paid to 46 The Company carries insurance of types shareholders on April 30, 2008 and represents customary in the airline industry and at a return of 15% on the nominal value of the amounts deemed reasonable and adequate to shares which is Rs 1,023,500,000. protect its properties, to comply with civil aviation regulations and to comply with some Shares and Shareholders credit and lease agreements. The policies principally provide “All Risks and War and The authorised share capital of the Company is Terrorism“ coverage for loss or damage to Rs 2,000,000,000 (Eur 81,566,000) divided into aircraft, engines and spare parts, public and 200,000,000 ordinary shares of Rs 10 each. passenger liability, property damage, cargo The number of ordinary shares issued and fully and baggage liability and employee liability. paid in Air Mauritius Limited as at March 31, 2008 was 102,305,000 shares (Eur 41, Claims not covered by or exceed insurance 724,000), the same as in the previous financial year. In accordance with the Company’s The Group believes that its insurance cover constitution, all ordinary shares have equal would substantially mitigate the effect of claims rights to dividends and capital and each share likely to be brought against the Group in carries one voting right. foreseeable circumstances. However, even though the Group takes care to update its Capital Structure Shareholder Rights limits based on trends worldwide, insurance limits can sometimes be broken, uncovered Air Mauritius Holding Limited whose registered claims may emerge with consequent risk of office is Air Mauritius Centre, President John additional cost or loss. Kennedy Street, Port Louis is the holding company of Air Mauritius Limited. The ultimate Although the control of departmental level risks controlling entity is the Government of falls under the responsibility of departmental Mauritius. At March 31, 2008, the shareholding heads, the Treasury & Risk Management of Air Mauritius Limited was as follows.

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Directors’ Report & Business Review Receipts and Returns to Shareholders (Continued)

Ordinary Shareholders Number of Shares % Voting rights (of Rs 10.00 each)

Air Mauritius Holding Ltd 52,175,550 51.0% Pershing LLC - Main Custody a/c 5,569,180 5.4% The State Investment Corporation Ltd 4,643,466 4.5% The Government of Mauritius 4,636,632 4.5% Rogers and Co. Ltd 4,379,344 4.3% British Airways Associated Companies Ltd 3,928,026 3.8% Compagnie Nationale Air France 2,841,986 2.8% Air India 2,617,098 2.6% The Bank of New York as Custodian 2,500,000 2.4% National Pension Fund 2,078,508 2.0%

33,194,240 32.4% Directors’ Report & Business Review Other Investors 16,935,210 16.6% Total 102,305,000 100.0%

47

The shareholder analysis at March 31, 2008 was as follows:

RANGE NO. OF NO. OF % OF SHARE % OF ALL OF SHARES SHAREHOLDERS VOTING RIGHTS CAPITAL SHAREHOLDERS

1 - 1,000 10,818 4,227,536 4.1% 88.0% 1,001 - 5,000 1,082 2,361,807 2.3% 8.8% 5,001 - 10,000 195 1,404,793 1.4% 1.6% 10,001 - 25,000 109 1,707,903 1.7% 0.9% 25,001 - 50,000 38 1,336,128 1.3% 0.3% 50,001 - 100,000 20 1,409,581 1.4% 0.2% 100,001 – 1,000,000 14 3,299,633 3.2% 0.1% Over 1,000,000 11 86,557,619 84.6% 0.1% Total 12,287 102,305,000 100% 100%

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Directors’ Report & Business Review Receipts and Returns to Shareholders (Continued)

Significant Holdings

The following shareholders held more than 5% of the ordinary share capital of the Company.

SHAREHOLDERS DIRECT INDIRECT EFFECTIVE %%%

Air Mauritius Holding Ltd 51.00 - 51.00 Pershing LLC - Main Custody a/c 5.44 - 5.44 The State Investment Corporation Ltd 4.54 7.86 12.40 The Government of Mauritius 4.53 29.64 34.17 Rogers and Co. Ltd 4.28 7.90 12.18 British Airways Associated Companies Ltd 3.84 6.75 10.59 Compagnie Nationale Air France 2.78 4.89 7.67 Air India 2.56 4.50 7.06 Directors’ Report & Business Review

Major clauses in the Memorandum and the case of any shares of the Company which Articles of Association of Air Mauritius are traded on the Mauritius Stock Exchange Limited the transfer may be in such form as is permitted by the Mauritius Stock Exchange. 48 In order to protect the operating rights of the Company under the air services agreements, the Every instrument of transfer of voting shares number of ordinary shares held by non-Mauritian shall be accompanied by a declaration signed nationals is monitored by the Directors. on behalf of the transferee in a form determined by the Board stating whether or not the Issue of Shares transferee is on registration a Mauritian national and whether any person other than a Mauritian Subject to the provisions of the Act and without national will hold or have any interest in the prejudice to any special rights previously shares referred to in the instrument of transfer. conferred on the holders of any existing shares or class of shares, any share in the Company Directors may be issued either at par or at a premium or (subject to Section 54 of the Act) at a discount The number of Directors shall not be less than or by way of bonus and may, in accordance nine (9) Members or more than Fifteen (15) with any applicable enactment or rule of law, Members. Not less than Two Thirds of the issue shares of no par value, and any shares Directors of the Company shall be Mauritian issued by the Company may be issued with citizens. such preferred, deferred, other special rights or restrictions, whether in regard to dividend, Qualification of Directors voting, return of capital, or otherwise, on such terms and conditions and at such times and in No Director shall be required to hold shares in such manner as the Company may by Ordinary the Company to qualify him for appointment. Resolution determine. Appointment of Directors Transfer Of Shares The Directors of the Company shall be Any member may transfer all or any of his appointed by the Company in General Meeting. shares by instrument in writing provided that in

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Directors’ Report & Business Review Treasury Policies and Objectives

Related Party Transactions Shareholders Information

Related Party Transactions are performed at Information relating to share price, reporting arms length and these are disclosed in note 33 dates, dividend declaration and payment dates of this Annual Report. and meetings of shareholders are shown on pages 130 to 132. Transactions with shareholders TREASURY POLICIES AND OBJECTIVES a) Air France Treasury Policy Air France has a 7.67% effective shareholding in Air Mauritius Limited. During the year, Air The Board of Directors sets the Treasury policies France has traded with Air Mauritius and and objectives of the Company, and lays down details of the value of these transactions are the parameters within which the various aspects as follows: of Treasury risk management are operated. The Board through its Risk Management Steering 2008 2007 Committee (RMSC) has approved a Risk

€’000 €’000 Management Manual, which outlines Company Directors’ Report & Business Review policies and procedures for managing corporate Expenses 24,680 23,640 and asset financing, interest rate risk, fuel price risk, foreign exchange risk and cash and liquidity. Income 718 739 The manual also outlines the credit rating levels Amount payable 2,723 1,463 for entities with whom the Company is allowed to transact business, and lists the financial 49 Amount receivable 341 266 instruments that the Company’s Treasury function is authorised to use in managing financial risks.

b) British Airways Treasury objectives and Practices

British Airways has a 10.59% effective Responsibility for ensuring that Treasury shareholding in Air Mauritius Limited. The practices and transactions are consistent and amounts paid to British Airways in relation to compatible with the agreed policies is vested in miscellaneous handling services and training the Risk Management Team, a committee that is to technical crew are as follows: chaired by the Executive Vice President Finance. The Risk Management Team meets monthly and approves risk management strategies and 2008 2007 €’000 €’000 reviews major foreign exchange, fuel and interest rate exposures as well as actions taken during Expenses 2 171 the month to manage those exposures.

Income 42 - The Senior Manager Treasury and Risk Amount payable - 1 implements the agreed policies on a day-to- day basis to meet the Treasury objectives Amount receivable 8 - bearing in mind the agreed level of risk and the cost of different financial instruments. Key objectives include:

a) ensuring that the Group has sufficient liquidity to meet its day-to-day needs and to fund its capital investment and other programmes;

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Directors’ Report & Business Review Treasury Policies and Objectives

b) deploying any surplus liquidity in interest a variety of currencies. As at March 31, 2008, bearing instruments daily in a prudent and the Group had outstanding forward transactions profitable manner; to hedge foreign currencies as follows:

c) managing currency, fuel, interest rate and credit Currency Notional amount exposures to minimise Company’s risk; and sold against USD

d) managing the Group’s relationship with a EUR 33,000,000 large number of banks and other financial GBP 1,750,000 institutions worldwide.

Foreign Currency Risk Financing and Interest Rate Risk

The Company generates a surplus in most of the Most of the Company’s debt is asset related, currencies in which it does business except for the reflecting the capital intensive nature of the airline US Dollar. As a result, the Group can experience industry and the attractiveness of aircraft as adverse or beneficial effects arising from exchange security to lenders and other financiers. These

Directors’ Report & Business Review rate movements, with major impacts arising from factors are also reflected in the medium to long- the relationship between the Eur and US Dollar. For term maturity profiles of the Company’s loans and the US Dollar, capital expenditure mainly aircraft finance leases. The Company has been renewing investments, together with ongoing operating lease its fleet progressively over the years bringing new and fuel payments denominated in US Dollars, financing through its capital expenditure thus usually create a miss-match which must be programme. At March 31, 2008 29 % (2007: 35 50 managed since the Company generates very little %) of the Company’s gross borrowings (after of this currency. In the year to March 31, 2008 as has been the case in previous years, the Company swaps) were at fixed rates of interest and 71 % had more US Dollar payments than US Dollar were at floating rates (2007: 65 %). The revenues. The rise in the price of jet fuel is widening Company’s borrowings are predominantly this mismatch every year. denominated in US Dollars and Eur. The Eur is the Company’s functional currency. Details of the The Company’s policy is to seek to reduce its Company’s borrowings are shown on page 104 foreign exchange exposures through matching, and page 120 of the Annual Report. as far as possible, receipts and payments in each individual currency, with remaining exposures Fuel Price Risk being hedged using various approved financial instruments. Surpluses of convertible currencies The Company's fuel risk management strategy are also sold, either spot or forward, for US aims to provide the airline with protection against Dollars or Eur. The Company maintains a sudden and significant increases in oil prices minimum hedge ratio of 30% and a maximum while ensuring that the airline is not competitively ratio of 70% of its known and anticipated disadvantaged in a serious way in the event of a requirements of US Dollars. Transaction risks are substantial fall in the price of fuel. In meeting selectively and actively hedged within a twelve these objectives, the fuel risk management month horizon using approved financial programme allows for the judicious use of a instruments. The average hedge ratio for the number of derivative instruments with approved financial year 2007/2008 was 37%. counterparties and within approved limits. The Company's fuel price hedging strategy is for a Forward Foreign Exchange contracts rolling time horizon of 24 months. Hedges are conducted on crude oil, gasoil and jet fuel. Forward foreign exchange contracts are used Although, Company policy is to hedge between to cover near-term future operating payments in 30% to 70% of fuel exposures, the Company

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Directors’ Report & Business Review Treasury Policies and Objectives (Continued)

obtains derogations from time to time to increase Accounting for Derivative Financial hedges above the maximum limit, based on Instruments market conditions. For the year ended March 31, 2008 the overall hedge ratio was 57%. Under IAS 39 Derivative Financial Instruments are recorded initially at fair value. Subsequent Hedging measurement of those derivatives at the balance sheet date reflects the designation of In accounting terms, hedges are classified into the derivative. The measurement of fair value is three types: fair values hedges, where fixed rates based on market observable data, where such of interest or foreign exchange are exchanged for information is available, or alternative valuation floating rates; cash flow hedges, where variable methods that can involve the use of judgements rates of interest or foreign exchange are and estimates. exchanged for fixed rates and hedges of net foreign investments translated into the Gains and losses on derivatives designated as Company’s functional currency the Euro. The cash flow hedges and assessed as effective for Company uses derivative instruments such as the period, are taken to equity in accordance futures, forwards, swaps and options in the with the requirements of IAS 39. Gains and

foreign exchange, fuel and interest markets to losses taken to equity are reflected in the Directors’ Report & Business Review hedge risk. income statement when either the hedged cash flow impacts income or its occurrence ceases Derivative Financial Instruments to be probable. As a result of the requirement to measure the effectiveness of the hedging As part of its treasury and fuel risk management instruments, changes in market conditions or programme, the Company selectively uses the Company’s hedging strategy can result in 51 derivative financial and commodity instruments the recognition in the income statement of in order to reduce its exposure to fluctuations in unrealised gains or losses on derivative financial market rates and prices. The Company uses instruments designated as hedging instruments. derivatives only for the purposes of hedging During the financial year 2008 derivatives were identified exposures, where appropriate and generally found to be effective. does not invest in derivatives for trading or speculative purposes. The instruments used Interest rate risk include swaps, futures, forward contracts, options and collars in the currency, interest rate The Company’s earnings are also affected by and fuel markets. changes in interest rates due to the impact of such changes on interest income and expense The Company considers the purchase of from short term deposits and other interest interest rate, foreign exchange and fuel options bearing financial assets and liabilities. The as bona fide treasury exposure management Company manages its interest rate risks by activities. As such these derivatives are used for keeping a portfolio of loans which carry both fixed the purposes of risk management only and they and floating rates. Moreover, cash surpluses are do not expose the Company to market risk invested in floating rate instruments. This acts as because gains and losses on the derivatives a mitigating factor since investment income goes offset losses and gains on the matching asset, up when rates are on the rise. liability, revenues or costs being hedged. Counterparty credit risk is generally restricted to Liquidity risk any hedging gain from time to time and is controlled through mark to market based credit Liquidity risk refers to the possibility of default by limits. The forward foreign exchange contracts the Company to meet its obligations because of outstanding at March 31, 2008 are summarised unavailability of funds to meet both its in note 36 to the Financial Statements. operational and capital requirements. The

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Directors’ Report & Business Review Treasury Policies and Objectives (Continued)

Company currently has a standby credit line increase in interest cover from last year facility to mitigate any liquidity risk that may arise. primarily reflects an increase in profit and a Additionally, the Company regularly reviews the reduction in net interest payable. agreements with its banking partners to ensure that they reflect its current needs. Debt and other Contractual Obligations

Interest Cover The Group has amounts, excluding interest payable, falling due under various debt and other The Group’s interest cover for the year ended contractual obligations as follows: March 31, 2008 was 3.8 (2007: 0.2 time). The

Item Outstanding Balance Outstanding Balance Currency Expiry Date as at 31.03.2008 as at 31.03.2007 EUR ('000) EUR ('000)

A340-300 3BNAU 8,341 11,955 USD 27-Oct-11 A340-300 3BNBD 19,380 19,924 USD 22-Oct-12 Directors’ Report & Business Review A340-300 3BNBD - 13,944 EUR 20-Oct-07 1,093 EUR 20-Oct-07 A340-300 3 BNBE 28,865 36,299 EUR 18-Apr-11 ATR72-500-3BNBG 7,969 9,530 EUR 21-Jun-12 A319-3BNBF 19,237 22,013 EUR 19-Oct-13 52 A319-3BNBH 18,805 21,214 EUR 17-Mar-15 Others* 1,689 2,252 EUR 31-Oct-10 1,065 2,095 EUR 20-Apr-10 105,351 140,319

* Include hangar, cargo shed.

Capital Commitments The Group continually reviews its liquidity requirements. Surplus funds are invested in high Capital expenditure authorised and contracted quality short-term liquid instruments, usually bank for but not provided in the accounts amounts deposits and money market funds. Credit risk is to Eur 7,531 million for the Group (2007: Eur managed by limiting the aggregate exposure to 5,873 million). The outstanding commitments any individual counterparty, taking into account relate to cabin retrofit and the Company has its credit rating. Such counterparty exposures are also committed to take delivery of one Airbus regularly reviewed and adjusted as necessary. A330-200 aircraft by October 2009. Accordingly, the possibility of a material loss arising in the event of non-performance by Liquidity counterparties is considered to be unlikely.

The Group’s holdings of cash together with However, management believes these measures committed general funding facilities and net are useful to investors as they provide further cash flow, are expected to be sufficient to cover analysis of the performance of the Group’s main the cost of all outstanding firm aircraft deliveries business activity i.e. airline operations. The Board and operating expenses. of Directors reviews these measures internally on a monthly basis as an indication of management’s performance in reducing costs.

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Directors’ Report & Business Review Operational and Financial Statistics

2008 2007 2006 2005 2004

Traffic and Capacity Revenue passenger km (RPK) m 6,984 6,441 6,339 5,951 5,280 Available seat km (ASK) m 9,094 8,740 8,244 7,850 7,454 Passenger load factor % 76.8 74.6 76.9 75.8 70.8 Cargo tonne km (CTK) m 212 197 205 216 204 Total revenue tonne kilometres (RTK) m 844 779 779 754 683 Total available tonne kilometres (ATK) m 1,385 1,366 1,320 1,248 1,179 Overall load factor % 60.4 57.0 59.0 60.4 57.9 Passengers carried '000 1,311 1,177 1,157 1,109 1,049 Tonnes of cargo carried '000 36,809 33,649 35,666 36,717 34,836

Revenue flights 10,616 11,087 12,494 12,539 12,443 Directors’ Report & Business Review

Financial Net profit/(loss) margin % 3.8 (1.6) 1.9 5.5 3.8 EBITDA m 75.0 47.6 63.0 75.7 69.3 53 Gearing Ratio 0.5:1 0.8:1 0.7:1 1:1 1.2:1 Total traffic revenue per RTK cents 0.42 0.42 0.45 0.45 0.47 Total traffic revenue per ATK cents 0.26 0.24 0.26 0.27 0.27 Total expenditure on operations per RTK cents 0.46 0.48 0.47 0.43 0.42 Total expenditure on operations per ATK cents 0.28 0.27 0.28 0.26 0.25 Passenger revenue per RPK cents 0.05 0.04 0.05 0.05 0.05 Passenger revenue per ASK cents 0.03 0.03 0.04 0.04 0.04 Cargo revenue per CTK cents 0.18 0.19 0.21 0.21 0.22 Average fuel price (US cents/US gallon) 257.5 212.9 194.2 141.1 100.5

Operations Aircraft in service at year end 12 11 12 12 12 Punctuality - within 15 minutes % 71.3 77.8 78.3 72.8 74.3 Dispatch Reliability overall % 97.6 98.0 97.7 97.7 97.6

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Directors’ Report & Business Review The Board of Directors Directors’ Report & Business Review

Standing : (left to right) Kremchand Beegoo, Ramapatee Guajadhur, C.S.K., Timothy Taylor, Philippe Espitalier-Noël, Dheerendra Kumar Dabee, Raj Ringadoo Seated : (left to right) Suresh Seeballuck, Manoj R K Ujoodha G.O.S.K., Sanjay Bhuckory, Premila Roy, Ali Mansoor.

THE BOARD OF DIRECTORS American Tobacco Group in various roles in Mauritius, South Africa, Senegal, Zambia and 54 The names and details of the current directors are Zimbabwe over the past sixteen years. set out below. All directors served throughout the financial year with the exception of Antoine Pussiau DABEE Dheerendra Kumar, SC who was appointed on March 27, 2008 and Pierre Descazeaux, who served as a non Executive Mr Dheerendra Kumar Dabee, SC, a Laureate and Director also until March 27, 2008. Law and Political Science Graduate from Birmingham University, Barrister at Law of Middle BHUCKORY Sanjay Chairman Temple since 1981 and a Senior Counsel, is currently Solicitor-General in the Attorney General’s office, the Mr Sanjay Bhuckory was appointed to the Board as Chairman of the Medical Tribunal and of the Cane Chairman on 30 September 2005. He is a graduate Planters, Millers Arbitration and Control Board and of the London School of Economics & Political Legal Adviser to a number of public organisations. Science (LSE) and is a Barrister-at-Law of the Middle Temple, England. He has his own practice and is a PUSSIAU Antoine former President of the Bar Council. He was Director on the Board of the State Bank of Mauritius. He was Mr Antoine Pussiau was appointed elected President of the African Airlines Association to the Board on March 27, 2008. (AFRAA) in 2006. He was elected Governor of the He is currently the Executive Vise International Air Transport Association (IATA) in 2007. President for Caribean and Indian He has participated in several aviation conferences Ocean of Air France/KLM. Mr worldwide. Pussiau was for 2 years the Personal Assistant of the Chief UJOODHA R K Manoj G.O.S.K Executive Officer of Air France. Chief Executive Officer ESPITALIER-NOËL Philippe Mr Manoj R K Ujoodha was appointed to the Board as Managing Director on November 20, 2006. In Mr Philippe Espitalier Noël was appointed to the February 2007, the position of Managing Director Board on October 9, 2000. He is currently the Chief was changed by the shareholders to that of Chief Executive for Rogers Company Limited, one of the Executive Officer. He previously worked for the British largest listed conglomerates in Mauritius.

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Directors’ Report & Business Review The Board of Directors (Continued)

TAYLOR Timothy GUJADHUR Ramapatee, C.S.K

Mr Timothy Taylor was appointed to the Board on Mr Ramapatee Gujadhur, C.S.K was appointed to May 10, 2001. He is currently the Chairman of the Board on September 30, 2005. He was Senior Rogers & Company Limited. Mr Timothy Taylor is Manager at the Mauritius Commercial Bank (MCB) also the Chairman of the National Committee on and retired at the end of 2003, he was a member of Corporate Governance. the MCB Top Management team since 1988.

THULASIDAS Vasudevan RINGADOO Raj

Mr Vasudevan Thulasidas was Mr Raj Ringadoo was appointed to the board on appointed to the Board on March 8, 2006. He is currently the Chairman of March 26, 2004. He was the The State Investment Corporation Ltd, the Chairman and Managing investment arm of the Government of Mauritius. Director of Air India until March He was Chief Manager at the Development Bank 2008 and has served as of Mauritius and retired at the end of April 2005. Director of Tourism in Kerala, India and was Chief Secretary ROY Premila

to the Government of Tripura, Directors’ Report & Business Review India. Mrs Premila Roy was appointed to the Board on September 30, 2005. She is currently the Permanent BEEGOO Kremchand Secretary of the External Communications Division of the Ministry of Tourism, Leisure and External Mr Kremchand Beegoo was appointed to the Communications. Board on September 30, 2005. He was formerly 55 the Director of Cargo at Air Mauritius. Presently SEEBALLUCK Suresh he is involved in strategic re-engineering programmes for performance enhancement with Mr Suresh Seeballuck was appointed to the Board major leading global brand names in textiles and on September 29, 2006. He is currently the Secretary apparel in Mauritius, Europe and Asia. to the Cabinet and Head of the Civil Service. He was formerly the Secretary for Home Affairs. BAIRD Robbie COMPANY SECRETARY Mr Robbie Baird was appointed to the board on September 30, Fooad Nooraully 2005. He is presently the Regional Director for Africa, the Is the Company’s Secretary and General Counsel. Middle East, and Central & He joined the Company in April 2001 in the legal South Asia for British Airways. division as General Counsel. He was formerly a State Counsel at the Mauritius State Law Office.

Election of Directors MANSOOR Ali All directors are subject to retirement every year and Mr Ali Mansoor was appointed to the Board on are eligible for re-election by the shareholders at the September 29, 2006. He is currently the Financial Annual Meeting, in accordance with the Company’s Secretary in the Ministry of Finance and Articles of Association. Biographical notes about the Economic Development. He was formerly the directors seeking re-election and election are Lead Economist of the Office of the Chief disclosed to the shareholders at each annual Economist, Europe and Central Asia Region, meeting. Details of the directors’ remuneration and World Bank, Washington DC, USA. share interests are set out in the Remuneration Report and the Report of the Senior Officers Selection and Remuneration Committee on page 59.

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Directors’ Report & Business Review Corporate Governance

CORPORATE GOVERNANCE the overall control, business performance and strategy of the Company. The Board has The Company is committed to high standards of drawn up a schedule of matters reserved for corporate governance with the Board being Board decision and has also defined specific accountable to the Company’s shareholders for terms of reference for its committees. A good governance. The role of the Board is to statement of the directors’ responsibilities in provide entrepreneurial leadership of the respect of the financial statements is set out Company within a framework of prudent and on page 67. effective controls, which enables risk to be assessed and managed. Board Information

The Board is led by the Chairman while the All directors receive regular information about executive management of the Company is led by the Company so that they are equipped to play the Chief Executive Officer. Their respective roles as full a part as possible in Board meetings. are separate and are recognised in terms of The Papers for Board and Committee Meetings are Report on Corporate Governance for Mauritius. typically distributed in the week prior to the relevant meeting. All Board members have

Directors’ Report & Business Review Board composition access to the Company Secretary for any further information they require. In addition, the There were 14 directors serving on the Board of Secretary ensures that the Board members Air Mauritius at March 31, 2008. All were non- receive an appropriate induction and further executive directors except for the Chief Executive training as necessary. The appointment and Mr Manoj R K Ujoodha G.O.S.K. The executive removal of the Secretary is a matter for the 56 presence is complemented by the presence of Board as a whole. Independent professional the Executive Vice President Finance and the advice would be available to directors in Executive Vice President Strategic Planning at appropriate circumstances at the Company’s Board and Board Committee meetings. The non- expense. executive directors are drawn from a diversity of business and other backgrounds, so as to bring Board and Director Appraisal a broad range of views and experiences to Board deliberations. Two of these are independent For the year under review, no evaluation of the directors as defined in The Report on Corporate Board or its committees was carried out. Governance for Mauritius. Dealings in Company Shares Role of the Board No director dealt in Company shares during the The Board sets the Company’s strategic targets, year. The Company does not have any employee ensures that the necessary financial and human share option plan. Details of Directors’ resources are in place for the Company to meet shareholding in the Company are given on page its objectives and reviews management 65 of the Annual Report. performance. The Board also sets the Company’s values and standards and ensures Directors’ remuneration that its obligations to its shareholders and other stakeholders are understood and met. Board Directors are paid monthly fees for their services to the Company. Directors, Board Meetings who are also directors within the Group, receive fees from these subsidiaries. Details The Board of the Company meets at least of the Director’s fees and other remuneration four times a year and additionally when are contained on page 64 of the Annual necessary to consider all matters relating to Report.

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Directors’ Report & Business Review Corporate Governance (Continued)

Significant contracts fees paid to the Chief Executive for these services are included in the remuneration report. No contracts of significance or loans existed Page 63 shows the Board memberships across between the Company and its Directors during the Group. the year under review, with the exception of the service contract of the Executive Director which Board Members and Board Meetings is summarised on page 64. The following table shows the list of Board The Chief Executive Officer serves as a non- members and the number of Board and executive director on the boards of subsidiary Committee meetings held during the year and companies, associates and also on the board the attendance of individual directors. of Airports of Mauritius Limited (AML). Directors’

Status Board GAPC AC RMSC SORSC CGC

Chairman Sanjay Bhuckory N 4/4 10/10 n/a 2/2 5/5 1/1 Directors’ Report & Business Review Chief Executive Officer Mr Manoj R K Ujoodha G.O.S.K. E 4/4 10/10 n/a 2/2 5/5 1/1

Directors Mr Robbie Baird N 3/4 n/a n/a n/a n/a n/a Mr Kremchand Beegoo I 4/4 9/10 2/2 n/a 4/5 1/1 57 Mr Dheerendra Kumar Dabee, S.C N 4/4 8/10 7/7 n/a 3/5 1/1 Mr Pierre Descazeaux (Up to 27 March 2008) N 4/4 n/a n/a n/a n/a n/a Alternate Mr Jacques Monchablon) Mr Antoine Pussiau ( From 27 March 2008) N 1/1 n/a n/a n/a n/a n/a (Alternate Mr Jacques Monchablon) Mr Phillippe Espitalier Noel N 3/4 6/10 n/a 2/2 3/5 1/1 Mr Ramapatee Gujadhur C.S.K. I 4/4 6/10 n/a n/a 2/5 1/1 Mr Raj Ringadoo N 4/4 9/10 7/7 2/2 n/a 1/1 Mrs Premila Roy N 4/4 9/10 2/2 2/2 n/a 1/1 Mr Timothy Taylor N 4/4 8/10 7/7 n/a n/a 1/1 Mr Vasudevan Thulasidas N 1/4 n/a n/a n/a n/a n/a ( Alternate Mr Vishwa Kumar Verma) Mr Ali Mansoor N 1/4 3/10 1/5 n/a n/a 0/1 Mr Suresh Seeballuck N 2/4 7/10 1/5 n/a n/a 0/1

E : Executive Director Secretary: Fooad Nooraully I : Independent Director N : Non Executive Director Auditors: Ernst & Young n/a : Not a member

GAPC : General Affairs and Policy Committee AC : Audit Committee Attendance: RMSC : Risk Management Steering Committee Number of meetings SORSC : Senior Officers Remuneration and Selection Committee attended/total eligible CGC : Corporate Governance Committeeto attend to attend

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Directors’ Report & Business Review Leadership Team

Leadership Team Sheo Kumar Gujadhur

The leadership team of Air Mauritius Limited Is the Executive Vice President-Internal Audit. He comprises the Chief Executive Officer Mr Manoj joined the Company in June 1978. He is in charge R K Ujoodha G.O.S.K. and the following senior of the Internal Audit functions throughout the executives. Group. He was formerly the Director Internal Audit until June 2003. Cornwell Muleya Jacques Gentil Is the Executive Vice President-Finance and joined the Company in March 2003. He was Is the Executive Vice President-Technical Services. previously the integration project manager and He joined the Company in April 1978. He was Managing Director of Air Tanzania Company formerly the Director Maintenance and Engineering Limited. He also served as Chief Executive and is responsible for the maintenance of the Officer and Finance Director of Air Botswana. His airline’s fleet of aircraft as well as technical handling early working career was in accounting firms of own and third party aircraft. Deloitte & Touche and Price Waterhouse Coopers.

Directors’ Report & Business Review Captain Pramil Banymandhub Ashvin Ramdin (as from January 2008) Is the Executive Vice President-Flight Operations. Joined as Executive Vice President Human He joined the Company in April 1979. He was Resources and Organisational Development. He formerly the Director Flight Operations responsible is responsible to lead, consolidate and manage for managing the cockpit crew and also the 58 the Human Resources, Administration and delivery of flights to customers. Organisational Development within the Company. He is also the Chairman of Industrial Vocational Donald Payen Training Council. He has been called to the Bar in England and Wales, and in Mauritius. Is the Executive Vice President-Communications and Corporate Affairs. He joined the Company in Indradev Rajah Buton August 1988. He is responsible for corporate and external communications including media Is the Executive Vice President-Strategic and relations. He was formerly the General Manager, Planning. He joined Air Mauritius in July 1986. He Value Centre Europe and the Director Customer is in charge of strategic planning, international Services with the Company. affairs, as well as fleet and operational planning for the Company. He was formerly the Director Vijay Coomar Singh (Raj) Bhujohory Planning with the Company. Is the Executive Vice President-Sales and Sushil Duth Baguant Marketing. He joined the Company in September 1988 and was formerly the General Manager, Is the Executive Vice President-Information Value Centre Africa, Australasia and Indian Systems and Cargo. He joined the Company in Ocean. His current responsibilities include sales April 1988. He is responsible for Information and and marketing including outstation management, Communications Technology, Helicopter Services distribution and sales. as well as the Cargo business. He was formerly the Director Information Systems and Resignation Communications with the Company. Mr Dinesh K Burrenchobay resigned as Executive Vice President Human Resources and Organisational Development in October 2007.

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Directors’ Report & Business Review Leadership Team (Continued)

Insurance cover & indemnities

The Company has arranged appropriate insurance may incur in the course of acting as officers of cover in respect of legal action against its directors and companies within the Group. These indemnities also officers. The Company has granted rolling indemnities set out the terms on which the Company may, in its to the directors and the Secretary, uncapped in amount discretion, advance defence costs. A specimen but subject to applicable law, in relation to certain indemnity is available for view on the Company’s losses and liabilities which they website, by clicking on the heading Corporate Governance. Directors’ Report & Business Review

59 pgs airmtius final 6/26/08 10:43 AM Page 60

Directors’ Report & Business Review Board Committees Reports

BOARD COMMITTEES All members of the Audit Committee are non- executive directors. The Board considers that The Board has five specific Board Committees, each member brings broad experience and which meet regularly under terms of reference professional knowledge of financial reporting to set by the Board. Copies of these are also the Committee’s deliberations. The Committee available on www.airmauritius.com. Each of the met 12 times during the year and its main Committees has authority to take external responsibilities include: advice as required. v to oversee the financial reporting process to GAPC : General Affairs and Policy ensure the balance, transparency and Committee integrity of published financial information; AC : Audit Committee SORSC : Senior Officers Remuneration v to review the effectiveness of the and Selection Committee Company’s internal financial control and RMSC : Risk Management Steering risk management system; Committee CGC : Corporate Governance v to review the effectiveness of the internal

Directors’ Report & Business Review Committee audit function;

Report of the General Affairs & Policy v to review the effectiveness of the independent Committee (GAPC) audit process including recommending the appointment and assessing the performance This Committee comprises Board members of the external auditor; 60 resident in Mauritius. The Board has delegated its powers to this Committee to deal with v to review the Company’s process for matters that arise in the period between monitoring compliance with laws and scheduled board meetings. regulations affecting financial reporting, its Code of Business Practice and Ethics and Members: Sanjay Bhuckory (Chairman), Manoj its Fraud Prevention Policy; R K Ujoodha G.O.S.K. (CEO), Dheerendra Kumar Dabee, SC, Philippe Espitalier-Noël, Ramapatee v to review the appropriateness of the Gujadhur, C.S.K., Raj Ringadoo, Timothy Taylor, Group’s accounting policies and considers Suresh Seeballuck, Premila Roy, Kremchand changes to them; and Beegoo, Ali Mansoor. Secretary: Fooad Nooraully In attendance: Cornwell Muleya, (Executive Vice v to review the significant accounting President Finance),Indradev Buton, (Executive judgments and monitor the integrity of the Vice President Strategic Planning). annual and interim financial statements. However, ultimate responsibility for the The Committee held 10 meetings during the approval of the annual and interim financial period and among other issues approved the statements rests with the Board. Company’s budgets and three year plan. Items reviewed by the Audit Committee during Report of the Audit Committee the year include:

Members: Raj Ringadoo(Chairperson), a) Financial reporting: The Committee Dheerendra Kumar Dabee, SC, Timothy Taylor, Ali reviewed the draft annual and interim reports Mansoor (up to Nov 2007), Suresh Seeballuck (up before recommending their publication to the to Nov 2007), Premila Roy, Kremchand Beegoo. Board. The Committee discussed with the Secretary: Fooad Nooraully. Chief Executive, Executive Vice President Finance and external auditors the significant

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Directors’ Report & Business Review Board Committees Reports (Continued)

accounting policies, estimates and Report of the Senior Officers Remuneration judgements applied in preparing these and Selection Committee reports. Members: Sanjay Bhuckory (Chairman), b) Internal controls: The Committee has an Manoj R K Ujoodha G.O.S.K., Dheerendra ongoing process for reviewing the Kumar Dabee, SC, Ramapatee Gujadhur, effectiveness of the system of internal controls. C.S.K, Kremchand Beegoo, Philippe During the year it considered reports from the Espitalier-Noël, Secretary: Fooad Nooraully In EVP Internal Audit summarising the work attendance: Dinesh Burrenchobay, Cornwell planned and undertaken.The Committee Muleya. looked at recommendations for improvements as well as actions taken by management as a The Committee is responsible for approving all result. The Committee also sought the views of the policies governing the compensation paid the external auditors in making its assessment to the Company’s executive officers and of the effectiveness of controls. senior management. The Committee also assists the board in the recruitment, c) Internal audit: The Committee evaluated evaluation, selection and approval of contracts

the performance of internal audit from the of candidates for senior management Directors’ Report & Business Review quality of reports and recommendations from positions and ensuring levels of remuneration the EVP Internal Audit. are appropriate.

d) Reappointment of external auditors: In During the period under review, the Committee appropriate circumstances the Committee may met several times resulting in the appointment make recommendations to the Board, to be of Ashvin Ramdin as EVP Human Resources, 61 put to shareholders for approval at the annual Roshan Baguant as VP Cabin Operations, meeting, in relation to the appointment, Sudh Ramjutun as VP Ground Operations reappointment and removal of the Company’s among others. external auditors. Pay Policy – Executive Directors e) Auditor Independence: The Committee reviews the work undertaken by the external The Company’s pay policy for executive auditor and assesses annually its independence directors and senior management is to provide and objectivity taking into account relevant compensation packages at market rates which professional and regulatory requirements and the reward successful performance and attract, relationship with the auditor as a whole. The retain and motivate managers. The Committee monitors the auditor’s compliance remuneration packages offered are comparable with relevant regulatory, ethical and professional in structure with other airlines and businesses of standards. It also monitors the provision of any similar size and nature to the Company. non-audit services as well as processes for the rotation of partners, in the audit process. In fixing packages, the Committee has regard to the compensation commitments which f) Audit Fees: The Committee also determines would result in the event of early termination. the fees paid to external auditors each year. Details of the fees paid to the external auditor Service Contracts during the financial year 2008 can be found on page 65. The terms of reference of the Particulars of the service contract of the Committee are reviewed at least annually and present Executive Director are disclosed in the any changes are recommended to the Board. Remuneration Report on page 64 of the Annual Report.

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Directors’ Report & Business Review Board Committees Reports (Continued)

Chairman’s and Non-Executive Matters Reviewed During the Year Directors’ Fees The Risk Management Steering Committee The Chairman’s fee and the fees for other non- met 2 times during the year to review and executive directors are determined by the approve hedge transactions for both shareholders at the Annual Meeting. The currency and fuel and to set parameters for Chairman is paid a monthly fee of Rs 75,000 the Company’s hedging strategy for each (Eur 1,764) while the other non-executive period. directors are each paid a monthly fee of Rs 15,000 (Eur 353). Board Directors are also The Committee also reviewed the risk eligible for non-contractual travel concessions. management methodology and approved processes for the measurement and Report of the Risk Management Steering identification of non-financial risks. It reviewed Committee the risk maps prepared by the Risk Management section and approved the action Members: Sanjay Bhuckory (Chairman), plans to be taken by the Company to mitigate Manoj R K Ujoodha G.O.S.K., Philippe the significant risks identified.

Directors’ Report & Business Review Espitalier-Noël, Premila Roy, Raj Ringadoo. In Attendance: Cornwell Muleya, Vijay Seetul Report of the Corporate Governance Secretary: Meenakshi Sandrasagren Committee

The Committee's terms of reference include: The Corporate Governance Committee was set up during the year in keeping with the Report on 62 v ensuring there is a system of risk assessment Corporate Governance for Mauritius (the Code). across the Company on an on-going basis; Its role is to ensure that Board structures as well as reporting requirements on corporate v reviewing the effectiveness of the governance, whether in the Annual Report or on Company’s risk management system an ongoing basis are in accordance with the including risk assessment reports; principles of good governance and the Code.

v assisting the Board to understand the total Members: Sanjay Bhuckory (Chairman), risks facing the Group and the Company; Manoj R K Ujoodha G.O.S.K. (CEO), Dheerendra Kumar Dabee, SC, Philippe v approving risk mitigation actions for Espitalier-Noël, Ramapatee Gujadhur, C.S.K., specific items of risk and identifying areas Raj Ringadoo, Timothy Taylor, Suresh for system improvements and monitoring; Seeballuck, Premila Roy, Kremchand Beegoo, Ali Mansoor. Secretary: Fooad Nooraully In v reviewing actions taken for specific critical attendance: Cornwell Muleya, (Executive Vice transactions in accordance with the risk President Finance),Indradev Buton, (Executive map for both financial and non financial Vice President Strategic Planning). risks on a continuing basis;

v setting and approving changes to financial approval limits for hedge and treasury transactions; and

v setting and approving risk parameters for the Company’s budget each year.

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Directors’ Report & Business Review Safety Management System

Safety Management system President Maintenance & Engineering and also by the Flight Safety Manager, the General The Chief Executive Officer is the Counsel, the Head of Ground Operations, the Accountable Manager for the purposes of the Head of Security and the Health and Safety Company’s Air Operators Certificate and the Manager. The Chief Executive meets regularly European Aviation Safety Agency Part 145 with the post-holders to review operational aircraft maintenance certificate. As the compliance, quality and safety incidents, monitor Accountable Manager, he is responsible for the effectiveness of the corporate safety the Company’s safety management system management system and agree cross- in accordance with the Civil Aviation Act. departmental preventative and corrective actions as appropriate. He is assisted in this role by the Company’s Nominated Post-holders, the Executive Vice President Flight Operations, the Executive Vice

Components of the Air Mauritius Ltd Safety Management System Directors’ Report & Business Review

Management Air Safety of Air Safety Risk Review Reports Management Board

63

Safety Safety Surveys Publication System

SAFETY MANAGEMENT Monitoring of SYSTEM Promotion of Ramp Safety Safety

Flight Data Safety Information Analysis Exchange

Airline Crew Human Emergency Factors Planning Reporting

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Directors’ Report & Business Review Safety Management System (Continued)

Report of the Air Safety Review Board Finance. In addition, annual stockbroker and investor events are held to inform the public on Members: Manoj R K Ujoodha G.O.S.K. the performance of the Company. The Board (Chairman), Cornwell Muleya, Capt Roy Lomas, also receives regular feedback on investors’ Capt Pramil Banyumandhub, Jacques Gentil, views. Copies of any news releases and Donald Payen, Sheo Kumar Gujadhur, Sudh presentations to investors are made available Ramjutun, Capt O Loustau-Lalanne, Pravin to the public through the Company’s website, Jogoo, Ashok Keerodhur, Azad Khodabocus, www.airmauritius.com. Fooad Noorally Secretary: Capt Francois Marion. The Annual Meeting each year gives opportunity The Air Safety Review Board meets at least four for the Board to discuss all matters relating to times per year to consider matters relating to the the Company and its performance with operational safety of the airline as well as health shareholders. At these meetings, issues related and safety issues across the Company. It to corporate governance, Company operations reviews reports of incidents from within the airline and Group performance are raised by the as well as relevant reports published shareholders and responded to by the internationally about air accident investigations, Directors. In addition, the Chief Executive’s

Directors’ Report & Business Review major incidents to other operators and external address at the Annual Meeting responds to any reports on safety from aircraft manufactures and issues raised by shareholders in writing, in other experts. The significant matters raised at advance of the meeting. Shareholders also the Air Safety Review Board during the year express their views freely by voting for include: resolutions at the Annual Meeting.

64 a) issues arising from air proximity incidents in Donations some airspaces resulting TCAS (Traffic Collision Avoidance System) aural warnings; As in previous years, the Group and Company did not make any donations to political parties. b) problems associated with confusing The Company continued to provide support in instructions issued by ATC (Air Traffic Control) on the form of rebated tickets and promotions to approach and taxi at some airports; social organisations. No donations were made by Air Mauritius Limited and its subsidiaries c) issues relating to inadequate markings at during the financial year (2007: Eur 4,190). airports where construction and refurbishments of runways and ramps are going on; and Going concern

d) prevention of runway incursions at some After making enquiries, the directors consider airports. that the Company has adequate resources to continue operating for the foreseeable future. All incidents raised at the meetings of the Air For this reason, the going concern basis has Safety Review Board are followed up been adopted in preparing the accounts. systematically to ensure corrective action is taken accordingly. Cascade Holding Structure

Communication with Shareholders The Cascade Holding Structure is shown on page 126 of this Annual Report. The list of The Company maintains regular contact with shareholders holding 5% or more of the its larger institutional shareholders through its ordinary share capital of the Company is meetings with the Chairman, the Chief shown on Page 46. Executive, the Executive Vice President

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Directors’ Report & Business Review Directorship of the Group

DIRECTORSHIP OF THE GROUP

Pointe Air Coton Mauritius Air Resort Maurtius Holding Mauritius MEDCOR Hotel Airmate Helicopter Name of Directors Co. Ltd Ltd Ltd Co. Ltd Ltd Ltd

Sanjay Bhuckory Chairman Chairman Chairman Chairman Chairman Chairman Mr R K Ujoodha G.O.S.K. • • • • • • Mr Robbie Baird • • Mr Kremchand Beegoo • Mr Dheerendra Kumar Dabee, S.C • • Mr Pierre Descazeaux (Up to March 27, 2008) •• (Alternate Mr Jacques Monchablon) Mr Antoine Pussiau (From March 27, 2008) •• (Alernate Mr Jacques Monchablon) Mr Phillippe Espitalier-Noël • • Mr Ramapatee Gujadhur, C.S.K. • • Directors’ Report & Business Review Mr Raj Ringadoo • • • • Mrs Premila Roy • • Mr Timothy Taylor • • Mr Vasudevan Thulasidas • • ( Alternate Mr Vishwa Kumar Verma) 65 Mr Ali Mansoor • • Mr Suresh Seeballuck • • • •

DIRECTORSHIP IN OTHER LISTED COMPANIES

Name of Directors Directorship in other listed companies

Mr Philippe Espitalier-Noël Liberty Investment Trust Ltd Rogers and Company Limited

Mr Ali Mansoor State Bank of Mauritius

Mr Raj Ringadoo National Investment Trust Ltd Sun Resorts Ltd (Alternate Director)

Mr Timothy Taylor Liberty Investment Trust Ltd New Mauritius Hotels Ltd Rogers and Company Limited

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Directors’ Report & Business Review Remuneration Report

Remuneration and benefits

2008 2007

€’000 €’000

Remuneration and benefits of Mr Manoj R K Ujoodha G.O.S.K. 227 53 Remuneration and benefits of Mr N.Veerasamy 104 - Fees paid during the year to Non-Executive Directors* 72 76 299 233 Fees paid to the Executive Director by subsidiaries 1 1 Fees paid to the Non-Executive Directors by subsidiaries Corporations 7 8 307 242

* Monthly fees paid to each Non-Executive Director amounts to Rs 15,000 (Eur 353) except for the Chairman who is paid a Directors’ Report & Business Review monthly fee of Rs 75,000 (Eur 1,764). The fees exclude any amount of reimbursed expenses incurred wholly, exclusively and necessarily for the business.

The Company provides the Executive and all Directors and officers liability insurance Non-Executive Directors with non-contractual concessionary travel benefits for themselves and The policy covers: 66 their immediate family as per industry practice. (i) the loss of each insured (a director, officer and Particulars of service contract employee in a managerial or supervisory of Executive Director capacity) resulting from any claim made against the insured for any wrongful act in the insured’s The term of the service contract of the present capacity as a director, officer or employee of the Executive Director is for a period of three years Company except for and to the extent that the starting November 20, 2006 and is renewable on Company has indemnified the insured; and mutually agreed terms. The notice period for termination of the contract by either the Company (ii) the loss of the Company resulting from any or the Director is three months. claim made against the insured for any wrongful act in the insured’s capacity as a director, officer The contract provides for a compensation upon or employee (in a managerial or supervisory termination for any reason other than gross capacity) of the Company but only when and to misconduct. Such compensation provides for a the extent that the Company has indemnified the percentage of the aggregate of the basic salary insured for the loss. that would have been earned for the remaining period of the contract of employment to be paid The limit of liability is: in such circumstances. v First cover: USD 10M in the aggregate (including defence costs); and Under this clause, a compensation scaling up to 70% of one year’s remuneration would be v Excess Layer cover: USD 10M in the payable only if the contract was to be terminated aggregate including costs and expenses. before November 20, 2009.

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Directors’ Report & Business Review Remuneration Report (Continued)

Directors’ share interests

Number of ordinary shares held on March 31, 2008

Direct Indirect Mr Manoj R K Ujoodha G.O.S.K. 1,244 480 Mr Kremchand Beegoo 188 - Mr Ramapatee Gujadhur, C.S.K. 102 4,300 Mr Raj Ringadoo - 900 Mr Timothy Taylor 1,415 -

The other Directors do not hold any shares of the Company whether directly or indirectly. None of the Directors have a direct or indirect interest in the equity of the subsidiaries.

Auditors Remuneration Directors’ Report & Business Review

The remuneration payable to the auditors was as follows:

The Company Subsidiaries 67 2008 2007 2008 2007 €’000 €’000 €’000 €’000

Audit services 63 59 7 7

Other services 3 2 2 2

Remuneration for other services is derived from the provision of tax advice and special reports on compliance with financial and regulatory matters.

Approved by the Board of Directors on June 19, 2008 and signed on its behalf by :

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K. Chairman Chief Executive Officer

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Certificate from the Company Secretary

I certify that, to the best of my knowledge and belief, the Company has filed with the Registrar of Companies all such returns as are required of the Company under the Companies Act 2001 in terms of Section 166(d)

Mr Fooad Nooraully Company Secretary June 2008 & directors’ Disclosure Statement Certificate from the company Secretary Secretary from the company Certificate Directors’ Disclosure Statement 68 The directors who are members of the Board at the time of approving the Directors’ Report and Business Review are listed on page 55. Having made enquiries of fellow directors and of the Company’s auditor, each of these directors confirms that:

a) to the best of each director’s knowledge and belief there is no information relevant to the preparation of their report to which the Company’s auditor is unaware; and

b) each director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditor is aware of that information.

Approved by the Board and signed on its behalf by:

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K. Chairman Chief Executive Officer June 2008

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Directors’ Responsibility Statement

DIRECTORS’ RESPONSIBILITY STATEMENT

The responsibilities of the Directors of Air Mauritius Limited in respect of the operations of the Group and the Company are set out below:

Financial Statements

The Directors are required by the Companies Act 2001 to prepare financial statements for the Group and Company that provide a true and fair view of the financial position as at the end of the financial year and of the results of their operations for the year then ended.

Directors’ Responsibility for the Financial Statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the requirements of the Mauritian Companies Act 2001. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Directors’ Responsibility Statement

Internal Control

The directors are responsible for taking such steps, as are reasonably open to them, to safeguard the assets of the Group and Company and to prevent and detect fraud and other irregularities. The Group’s internal control systems have been designed to provide the Directors with such reasonable 69 assurance.

Such systems should ensure that all transactions are authorised and recorded and that any material irregularities are detected and rectified within a reasonable time frame. The Group has an established Internal Audit function which assists management in effectively discharging its responsibilities. The Internal Audit function is independent of management and reports directly to the Audit Committee. Business controls are reviewed on an on-going basis by Internal Audit using a cycle based risk approach.

Risk Management

Through the Risk Management Steering Committee (RMSC), it is ensured that the Directors are made fully aware of the various issues and risks affecting the Group and Company’s business activities. The Directors are responsible for taking appropriate action to mitigate these risks using such measures, policies and procedures and other controls that they deem fit.

Governance

The Directors endeavour to apply principles of good governance at the level of the Group and the Company.

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K. Chairman Chief Executive Officer June 2008

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Independent Auditors’ Report to the members of Air Mauritius Limited

Report on the Financial Statements

We have audited the financial statements of Air Mauritius Limited (the “Company”), and its subsidiaries (the “Group”), which comprise the balance sheets as at March 31, 2008 and the income statements, statements of changes in equity and cash flow statements for the year then ended and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial Statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the requirements of the Mauritian Companies Act 2001. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing.Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. Independent Auditors’ Report

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. 70 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial positions of the Group and the Company at March 31, 2008 and of their financial performances and cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the Companies Act 2001.

Other matters

This report, including the opinion, has been prepared for and only for the Company’s members, as a body, in accordance with Section 205 of the Mauritian Companies Act 2001 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Report on Other Legal and Regulatory Requirements - Companies Act 2001

We have no relationship with or interests in the Company other than in our capacities as auditors and tax advisors, and dealings in the ordinary course of business.

We have obtained all the information and explanations we have required.

In our opinion, proper accounting records have been kept by the Company as far as appears from our examination of those records.

ERNST & YOUNG PATRICK NG TSEUNG, A.C.A Port Louis Signing Partner Mauritius June 19, 2008

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Financial Statements

Financial Statement pgs airmtius final 6/26/08 10:43 AM Page 72

Balance Sheets as at March 31, 2008

THE GROUP THE COMPANY Notes 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 ASSETS Restated Restated Non-current assets Property, plant and equipment 6 277,938 294,822 272,883 291,230 Investment property 7 8,975 10,060 - - Intangible assets 8 1,038 244 1,004 188 Investment in subsidiary companies 9 - - 27,155 27,155 Investment in associated company 10 302 257 102 102 Available-for-sale investments 11 2,085 1,956 2,085 1,956 Other financial assets 12 880 - 880 - Deferred tax asset 13 216 485 - - Long term deposits 14 15,280 12,997 15,280 12,997 Long term receivable 15 827 1,397 827 1,397 307,541 322,218 320,216 335,025 Current assets Inventories 16 12,865 14,005 12,831 13,968 Trade and other receivables 17 63,959 158,736 63,280 158,278 Other financial assets 12 6,304 6,774 3,015 1,694 Cash and cash equivalents 18 82,592 52,503 78,546 52,078 165,720 232,018 157,672 226,018 Total assets 473,261 554,236 477,888 561,043

EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 19 41,724 41,724 41,724 41,724

Balance Sheets Share premium 18,869 18,869 18,869 18,869 Other reserves (6,786) (10,255) 4,178 1,459 Retained earnings 145,231 132,116 141,142 129,210 199,038 182,454 205,912 191,262 Minority interests 1,970 1,715 - - Total equity 201,008 184,169 205,912 191,262

Non-current liabilities Borrowings and financial derivatives 20 84,081 111,343 83,603 110,714 Provisions 21 32,955 23,827 32,850 23,739 117,036 135,170 116,453 134,453 72 Current liabilities Trade and other payables 22 128,031 116,747 128,418 117,295 Borrowings and financial derivatives 20 23,474 118,150 23,393 118,033 Dividends 23 3,712 - 3,712 - 155,217 234,897 155,523 235,328 Total equity and liabilities 473,261 554,236 477,888 561,043

These financial statements were approved by the Board of Directors on June 19, 2008.

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K Chairman Chief Executive Officer

The notes on pages 76 to 123 form an integral part of these financial statements.

ANNUAL REPORT 2007 / 2008 pgs airmtiusfinal6/26/0810:43AMPage73 - Equityholdersoftheparent Profit/ (loss)fortheyearattributableto: hr fpoi fascae10(c) Share ofprofitassociate Operating expenses Others Operating revenue The notes on pages 76 to 123 form an integral part of these financial statements. financial these of part integral an form 123 to 76 pages on notes The 28 Earnings/(loss) pershare(Eur) - Minorityinterests 27 Profit/(loss) fortheyear Taxation Finance costs Operating profit 7 Fair valuegainoninvestmentproperty Traffic revenue Fuel surcharge iac eeu 26 Finance revenue Profit/(loss) beforetaxation Gross profit Administrative expenses Other operatingincome Notes 29 25 24 24 (399,718) 378,553 448,077 (17,291) (25,982) 16,827 17,010 17,010 67,335 24,706 17,220 48,359 2,189 9,803 2,248 € 2008 H RU THECOMPANY THE GROUP (210) 0.17 ‘ 183 000 81 Income Statements for theyearendedMarch31,2008 2 (388,151) 356,819 414,231 (16,581) (26,560) 55,169 26,080 (6,799) (6,669) (6,669) (6,473) 2,243 1,635 8,468 1,724 € (0.07) 2007 (196) ‘ 391 130 000 5 (399,214) 378,553 445,888 ANNUAL REPORT 2007/2008 (17,228) (25,231) 15,643 67,335 23,626 15,643 46,674 9,245 2,183 € 2008 ‘ 000 - - - - (387,345) 356,819 411,988 (16,521) (25,791) 55,169 24,643 (7,910) (7,910) 8,096 1,663 € 2007 ‘ 515 000 - - - -

73 Income Statements pgs airmtius final 6/26/08 10:43 AM Page 74

Statements of Changes in Equity for the year ended March 31, 2008 000 ‘ € 000 ‘ € - 000 ‘ €

to be an effective hedge. 000 ‘

€ tements of subsidiaries. 000 ‘ € 000 ‘ € Translation Hedge Total 000 ‘ € 000 ‘ € statements of Changes in Equity statements 000 ‘ Share Share Value Fair Reserve on Equity Retained Shareholders’ Minority Total € Capital Premium Reserve* Consolidation** Reserve*** Earnings Interest Interest Equity

74

The Group Balance at April 01, 2006Exchange differences investments value loss on available-for-sale Fair Cash flow hedge adjustment on swap instrument on loansCash flow hedge adjustment on financial derivative asset and liability -Release to income statement on cash flow hedgesNet income and expense recognised directly in equity - -Loss for the year 41,724 income and expense for the yearTotal 18,869 170Dividends declared (note 23) -Balance at March 31, 2007 2,204 - -Balance at April 01, 2007 41,724 -Exchange differences (8,827) - - 18,869 investments value gain on available-for-sale Fair - -Cash flow hedge adjustment on swap instrument 5,451 2,554on loans 138,915 180Cash flow hedge adjustment on financial derivative - -asset and liability - - 198,336 41,724 - 41,724Release to income statement on cash flow hedges (11,724) 18,869 - 1,851 18,869Net income and expense recognised 200,187 (2,897) (6,107) (1,085)directly in equity 2,554 - - 132,116 - - 2,554 -Profit for the year 41,724 - - income and expense for the yearTotal 18,869 182,454 129 -Dividends declared (note 23) (11,724) - (11,724) 1,715 - - 170 2,554 184,169 (850) (1,085)Balance at March 31, 2008 - 132,116 (1,085) - (6,107) - 138,915 -* - 182,454 (11,724) - 41,724 -** - 189,253 - 1,715 - investments. 18,869 value reserve records unrealised gains or losses arising from changes in fair of available-for-sale Fair *** - reserve on consolidation is used to record exchange differences arising from the translation of financial sta 184,169 421 Translation (1,085) 170 (2,717) 1,585 Hedge equity reserve records the portion of gain or loss on a hedging instrument in cash flow hedge that is determined (6,107) 132,116The notes on pages 76 to 123 form an integral part of these financial statements. 190,838 2,504 - (266) (179) (850) (2,983) - 182,454 - - - - 1,715 - 41,724 (10,973) 41,724 - 184,169 - 18,869 18,869 - - 751 1,683 (850) - - 421 2,504 - 850 2,504 148,943 - - - (6,799) 202,750 - - - (10,973) (10,973) - 129 - 1,970 - 204,720 - (6,799) 421 1,683 1,683 145,231 132,116 - 130 - - - 850 (6,669) 199,038 - 185,923 129 1,970 - 1,787 201,008 - - - 187,710 572 1,692 - 226 850 72 - - - 644 (3,712) - - 1,692 16,827 (3,712) 226 - 16,827 - 1,692 183 (3,712) - 17,010 226

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Statements of Changes in Equity for the year ended March 31, 2008 000 ‘ € 000 910) (7,910) 712) (3,712) ‘ € 000 ‘ € to be an effective hedge. Hedge 000 ‘ € 000 ‘ € ----(7, ------(3, 000 ‘ € Share Share Value Fair Equity Retained Capital Premium Reserve* Reserve** Earnings Total statements of Changes in Equity statements

75

Profit for the year ----15,64315,643 the for The Company Balance at April 01, 2006 investments value loss on available-for-sale Fair Adjustment difference in exchangeCash flow hedge adjustment on swap instrument loansCash flow hedge on financial derivative asset and liabilityRelease to income statement on cash flow hedgesNet income and expense recognised directly in equityLoss for the year income and expense for the yearTotal -Dividends declared (note 23) - -Balance at March 31, 2007 41,724 - -Balance at April 01, 2007 41,724 18,869 - investments value gain on available-for-sale Fair - -Adjustment difference in exchange 18,869Cash flow hedge adjustment on swap instrument loans 2,544 - - 160Cash flow hedge on financial derivative asset and liabilityRelease to income statement on cash flow hedges - 41,724 - 2,204 (1,085)Net income and expense recognised directly in equity 421Profit 18,869 137,120 - - (850) 5,451 income and expense for the yearTotal 180 - 199,172 Dividends declared (note 23) - 2,544 137,120 41,724 - (6,107)Balance at March 31, 2008 - 41,724 - - 205,368 * 18,869 (1,085) - -** - investments. value reserve records unrealised gains or losses arising from changes in fair of available-for-sale Fair 41,724 - 18,869 421 Hedge equity reserve records the portion of gain or loss on a hedging instrument in cash flow hedge that is determined - 129,210 -The notes on pages 76 to 123 form an integral part of these financial statements. - 160 (850) 2,544 18,869 191,262 (6,107) 2,495 - - - 129 (1,085) - 41,724 - 2,544 129,210 1,683 180 226 18,869 191,262 1,692 - - 129,210 (1,085) (178) 129,210 193,981 2,495 41,724 - 850 191,262 - - - 18,869 1,683 226 1,692 144,853 2,495 - 129 - 209,624 1,683 850 (178) 141,141 205,912

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:43 AM Page 76

Cash Flow Statements for the year ended March 31, 2008

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000

Cash flows from operating activities Profit/(loss) before taxation 17,220 (6,473) 15,643 (7,910) Adjustments for : Depreciation on property, plant and equipment (note 6) 31,609 33,584 31,326 33,293 Amortisation of intangible assets 391 464 368 440 Impairment of engine overhaul 934 849 934 849 Fair value gain on investment property (81) (391) - - Loss on sale of property, plant and equipment 110 521 109 521 Deferred credit released to income statement (576) (1,699) (576) (1,699) Retirement benefit obligations 1,560 (594) 1,548 (609) End of contract gratuity 696 (262) 696 (262) Maintenance cost 3,389 - 3,389 - Unrealised foreign exchange gains/(losses) 3,638 432 3,638 458 Interest and investment income (3,742) (3,186) (3,192) (2,814) Interest expense 6,118 7,651 6,055 7,565 Share of results after tax of associates (2) (5) - - Cash flows from operating activities before changes in working capital 61,264 30,891 59,938 29,832 Changes in working capital Inventories 1,003 1,013 998 1,000 Trade and other receivables (2,619) 1,785 (3,020) 2,335 Trade and other payables 9,715 733 10,188 440 Cash generated from operations 69,363 34,422 68,104 33,607 Interest received 3,119 2,835 3,023 2,796

Cash flow Statements Interest paid (7,873) (7,629) (7,810) (7,543) Tax Paid (5) - - - Net cash flows from operating activities 64,604 29,628 63,317 28,860 Investing activities Purchase of property, plant and equipment (14,176) (12,598) (14,131) (12,481) Purchase of intangible assets (1,184) (258) (1,184) (204) Purchase of held-to-maturity investments (3,058) (4,205) - (114) Acquisition of subsidiary - - - (171) Redemption of held-to-maturity investments 5,566 3,468 114 - 76 Predelivery payments (3,358) (11,660) (3,358) (11,660) Predelivery payments refunded 11,274 20,402 11,274 20,402 Proceeds on sale of property, plant and equipment 81 170 81 170 Proceeds on sale of assets classified as held for sale - 29,271 - 29,271 Long term receivables made - (1,272) - (1,272) Deposits made - (4,536) - (4,536) Deposits recovered 570 - 570 - Dividends received 74 68 74 68 Net cash flows (used in)/from investing activities (4,211) 18,850 (6,560) 19,473 Net cash flow before financing activities 60,393 48,478 56,757 48,333

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Cash Flow Statements for the year ended March 31, 2008

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000

Financing activities Payments on long term borrowings (32,157) (45,109) (31,940) (44,994) Proceeds from long term borrowings 2,895 3,905 2,895 3,896 Dividends paid - (1,382) - (1,382) Net cash flows used in financing activities (29,262) (42,586) (29,045) (42,480)

Net change in cash and cash equivalents 31,131 5,892 27,712 5,853

Movement in cash and cash equivalents At April 01, 52,037 44,832 51,612 44,396 Exchange (loss)/gain (576) 1,313 (778) 1,363 Increase 31,131 5,892 27,712 5,853

At March 31, (note 18) 82,592 52,037 78,546 51,612 Cash flow Statements

77

The notes on pages 76 to 123 form an integral part of these financial statements.

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Notes to the Financial Statements for the year ended March 31, 2008

1. CORPORATE INFORMATION Basis of consolidation

Air Mauritius Limited is a public company The consolidated financial statements comprise the incorporated in Mauritius and is listed on the official financial statements of the Company and its market of the Stock Exchange of Mauritius. Its subsidiaries as at March 31, each year. registered office is situated on the 19th Floor of Air Subsidiaries are fully consolidated from the date of Mauritius Centre, John Kennedy Street, Port Louis. acquisition, being the date on which the Group The Group’s and the Company’s financial statements obtains control, and continue to consoli dated until for the year ended March 31, 2008 were authorised the date that such control ceases. for issue by the Board of Directors on June 19, 2008 The financial statements of the subsidiaries are and the balance sheets were signed on the Board’s prepared for the same reporting period as the behalf by S. Bhuckory and R.K. Ujoodha. The parent company, using consistent accounting financial statements will be submitted to the share- policies. holders for approval at the annual meeting. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra- 2. PRINCIPAL ACTIVITIES group transactions are eliminated in full. The principal activities of the Group are: Minority interests represent the portion of profit or • the operation of international air services for the loss and net assets not held by the Group and are carriage of passengers and cargo and the presented separately in the income statement and provision of ancillary services; within equity in the consolidated balance sheet, separately from parent shareholders’ equity. • the operation of a hotel in Rodrigues; Acquisitions of minority interests are accounted for • the owning and operating of an investment using the parent entity extension method, whereby property for rentals; and the difference between the consideration and the • the operation of a call centre. book value of the share of the net assets acquired is recognised as goodwill. There has been no changes in the above activities during the year. Notes to the Financial statements 4. ACCOUNTING POLICIES

3. BASIS OF PREPARATION 4.1 Changes in Accounting Policy and Disclosures The consolidated financial statements are presented in Euros and all values rounded to the nearest The accounting policies adopted, are consistent with those of the previous year except as follows: 78 thousand (Euro’000) except when otherwise stated. The financial statements have been prepared on a In the current year, the Group has adopted the historical cost basis except for investment following new and revised International Financial properties, derivative financial instruments, financial Reporting Standards (“IFRS”) and interpretations assets and liabilities held for trading, and available- issued by the International Accounting Standards for-sale assets that have been measured at fair Board (“IASB”) and the International Financial value. Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations. Adoption of Statement of Compliance these revised standards and interpretations did not The financial statements have been prepared in have any effect on the financial performance or accordance with International Financial Reporting position of the Group. They did however, give rise to Standards (“IFRS”). additional disclosures.

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Notes to the Financial Statements for the year ended March 31, 2008

4.1 Changes in Accounting Policy and financial asset carried at cost. As the Group had Disclosures (continued) no impairment losses previously reversed, the interpretation had no impact on the financial position • IFRS 7 Financial Instruments: Disclosures. or performance of the Group. • IAS 1 Amended – Presentation of Financial 4.2 Accounting Standards and Statements. Interpretations not net effective • IFRIC 9 Reassessment of Embedded At the date of authorisation of these financial Derivatives statements, the following standards and inter- • IFRIC 10 Interim Financial Reporting and pretations, relevant to the operations of the Group, Impairment were in issue but not yet effective:

IFRS 7 - Financial Instruments: Disclosures IFRS 8 – Operating Segments.

This standard requires disclosures that enables users IFRS 8 was issued in November 2006 and becomes of the financial statements to evaluate the significance effective for financial years beginning on or after of the Group’s financial instruments and the nature and January 01, 2009. This standard requires extent of risks arising from those financial statements. disclosures of information about the Group’s The new disclosures are included throughout the operating segments and replaces the requirement financial statements. While there has been no effect on to determine primary (business) and secondary the financial position or results, comparative (geographical) reporting segments of the Group. information has been revised where needed. Management does not expect that adoption of this IAS 1 - Presentation of Financial Statements interpretation will impact on the Group’s financial statements when implemented in the year ending This amendment requires the Group to make new March 31, 2010. disclosures to enable users of the financial statements to evaluate the Group’s objectives, IAS 23 – Borrowing Costs policies and processes for managing capital. These The revised IAS 23 was issued in March 2007, and new disclosures are shown in note 5. becomes effective for financial years beginning on or after January 01, 2009. The standard has been IFIRC 9 - Reassessment of Embedded Derivatives Notes to the Financial statements revised to require capitalisation of borrowing costs IFRIC 9 states that the date to assess the existence when such costs relate to a qualifying asset. In of an embedded derivative is the date that an entity accordance with the transitional requirements in the first becomes a party to the contract, with standard, the change should be adopted reassessment only if there is a change that prospectively and should not have any impact on significantly modifies the cash flows. As the Group the Group’s financial statements. 79 has no embedded derivative requiring separation from the host contract, the interpretation had no IFRIC 13 – Customer Loyalty Programmes impact on the financial position or performance of FRIC Interpretation 13 was issued in June 2007 and the Group. becomes effective for annual periods beginning on IFRIC 10 - Interim Financial Reporting or after July 01, 2008. This interpretation requires and Impairment customer loyalty award credits to be accounted for The Group adopted IFRIC interpretation 10 as of as a separate component of the sales transaction in April 01, 2007, which requires that an entity must not which they are granted and therefore part of the fair reverse an impairment loss recognised in a previous value of the consideration received is allocated to interim period in respect of goodwill or an the award credits and deerred over the period that investment in either an equity instrument or a the ward credits are fulfilled. The Group has not yet

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Notes to the Financial Statements for the year ended March 31, 2008

4.2 Accounting Standards and aircraft and has therefore accounted for it as an Interpretations not net effective (continued) operating lease.

evaluated the impact that this interpre tation will have (ii) Determination of hedging relationship on its financial position and results. The determination of the accounting treatment of the IFRIC 14 IAS19 – The limit on a defined benefit Group’s hedging relationships is critical since the asset, minimum funding requirements and their recording of gains or losses on remeasurement of interaction hedging instruments to fair value at the reporting IFRIC Interpretation 14 was issued in July 2007 and date gives rise to adjustments directly in profit and becomes effective for annual periods beginning on loss or equity where such relationship is treated as or after January 01, 2008. This interpretation fair value hedge or cash flow hedge respectively. As provides guidance on how to assess the limit on the described in note 4.4 (k), there are criteria that need amount of surplus in a defined benefit scheme that to be considered in determining the nature of can be recognised as an asset under IAS 19 hedging relationship. Hedging has only been Employee Benefits. The Group expects that this undertaken by the Company due to the significant interpretation will have no impact on the financial volume of transactions involving the purchase of jet position or performance of the Group as all defined fuel and financial commitments involving varying benefit schemes are currently in deficit. currencies. The directors have determined that the 4.3 Significant Accounting Judgements, criteria for cash flow hedging have been adequately Estimates and Assumptions met to justify their judgement in the application of cash flow hedge accounting. The preparation of the Group’s financial statements requires management to make judgements, Estimates and assumptions estimates and assumptions that affect the reported The key assumptions concerning the future, and amounts of revenues, expenses, assets and other key sources of estimation uncertainty at the liabilities, and the disclosure of contingent liabilities, balance sheet date, that have a significant risk of at the reporting date. However, uncertainty about causing a material adjustment to the carrying these assumptions and estimates could result in amounts of assets and liabilities within the next

Notes to the Financial statements outcomes that could require a material adjustment financial year are discussed below: to the carrying amount of the asset or liability affected in the future. (i) Seychelles Blocked Funds

Judgements As described in note 18 the Company holds cash deposits in the Seychelles, at the reporting date, In the process of applying the Group’s accounting amounting to SCR 11.4M (Euro 0.9M). Prevailing 80 policies, management has made the following foreign exchange restrictions in the Seychelles have judgement, apart from those involving estimations, prevented the Company from repatriating these which has the most significant effect on the amounts funds. The directors have assessed the uncertainty recognised in the financial statements: surrounding the risk that the rate of exchange (i) Operating Lease Commitments – Group as between the Seychelles rupee and the Euro will Lessee change and have estimated that the exposed The Group has entered into lease arrangements portion of these funds could depreciate the value when financing the one new Airbus A330 that have thereof by 50 % within the next twelve months. The entered into operation during the year. The Group carrying amount has been impaired in respect of has determined that it does not retain all the this estimated exposure. Further details are given significant risks and rewards of ownership of the in note 18.

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Notes to the Financial Statements for the year ended March 31, 2008

4.3 Significant Accounting Judgements,  The ratio of the level of free travel to overall Estimates and Assumptions (continued) traffic is insignificant.

(ii) Estimated useful lives and residual values of The carrying amount of the provision for the property, plant and equipment Frequent Flyer Programme was estimated at Euro 4.9M. Determining the carrying amounts of property, plant and equipment requires the estimation of the useful (v) Contractual maintenance expenses lives and residual values of these assets. Certain Contractual maintenance expenses are provided for property, plant and equipment of the Group, such in accordance with the terms of maintenance as aircraft, are separated into their significant parts agreements on aircraft. The provisions are generally and estimates of the useful lives and residual values based on the number of hours flown by each thereof are made for the purposes of calculating aircraft/engine and an estimated rate. The long term depreciation (refer to note 4.4(c)). The estimates of portion of the provision is not discounted to its useful lives and residual values carry a degree of present value due to uncertainties with respect to uncertainty. The directors have used historical the final maintenance costs to be incurred when information relating to the Group and the relevant compared to the estimated rate applied. Further industries in which the Group’s entities operate in details are given in note 21. order to best determine the useful lives and residual (vi) Fair valuation of investment property values of property, plant and equipment. In preparing these financial statements, the (iii) Retirement benefit obligations Directors have obtained from an independent The determination of employee benefit costs and professional valuer the estimated fair value of the related provisions, as described in note 4.4(q) and Group’s investment property which is disclosed in as detailed in note 21 to the financial statements, the notes to the financial statements. These requires the use of actuarial calculations or other estimates have been based on market data assumptions that include significant estimates in regarding current yield on similar properties. The respect of, inter alia, the discount rate, the expected actual recoverable amount of the investment return on plan assets, future salary increases, future properties could therefore differ significantly from

medical cost increases and future pension the estimates. Further details are given in note 7. Notes to the Financial statements increases. These significant estimates are assessed annually by the directors with the actuaries where 4.4 SUMMARY OF SIGNIFICANT applicable. Differences between actual and ACCOUNTING POLICIES estimates are recorded as actuarial gains or losses. The following is a summary of the significant (iv) Provision for Frequent Flyer Programme accounting policies adopted by the Group during 81 The provision for liability in respect of the the year. redemption under the Frequent Flyer Programme, a (a) Functional and presentation currency customer loyalty scheme, is determined using The functional currency of each entity within the various assumptions concerning the future Group has been determined by reference to, inter behaviour of the members. Those include the alia: the primary economic environment in which the following assumptions: entity operates; the geographical location whose  The rewards for free tickets are non-displacing competitive forces mainly determine the sales prices to fare paying passengers, and therefore the of the Group’s goods and services; the currency incremental costs method is considered as that mainly influences the determination of costs of appropriate in estimating the liability; and providing goods and services; the currency in which

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting results for the period are translated into Euro at the Policies (continued) average exchange rate for the period. The exchange differences arising from the translation of funds from financing activities are generated; and, the foreign operations are taken to the Group’s the currency in which proceeds from operating translation reserve. Such translation differences are activities are usually retained. recognised in profit or loss in the period in which the For the purpose of the consolidated financial foreign operation is disposed of. statements the results and financial position of each (c) Property, plant and equipment entity are expressed in Euro, which is the functional currency of the Company, and the presentation All property, plant and equipment are stated at currency used for the Group financial statements. historical cost less accumulated depreciation and For those entities in the Group whose functional any impairment in value. Such costs includes the currencies differ from the presentation currency, the cost of replacing part of an asset when that cost is following exchange rates were applicable: incurred, if recognition criteria is met. Likewise, 2008 2007 when a major inspection is performed on an aircraft or its engines, its cost is recognised in the carrying Closing Average Closing Average amount of the asset as a replacement if recognition EUR /ZAR 12.817 10.099 9.711 9.021 criteria are met. All other repair and maintenance EUR /USD 1.580 1.334 1.334 1.283 costs are recognised in profit or loss as incurred. EUR /AUD 1.724 1.632 1.652 1.678 Depreciation is calculated on the straight-line EUR /GBP 0.792 0.706 0.679 0.678 method to write off the cost of each asset to its EUR /MUR 41.342 42.514 43.042 41.207 residual value over its estimated useful life. Residual (b) Foreign currency translation value is the estimated amount that the Group would currently obtain from disposal of the asset after In preparing the financial statements of the deducting the estimated cost of disposal as if the individual entities, transactions in currencies other asset were already of the age and in the condition than the entity’s functional currency (foreign expected at the end of its useful life. currencies) are recorded at the rates of exchange

Notes to the Financial statements prevailing on the dates of the transactions. At each The useful lives and residual values of all property, balance sheet date, monetary assets and liabilities plant and equipment are reviewed and adjusted if denominated in foreign currencies are retranslated appropriate at each financial year end. into the entity’s functional currency at the rate of The principal annual rates of depreciation are: exchange prevailing on the balance sheet date. Rate (%) Exchange differences arising on the settlement and Aircraft on lease 5 - 6.67 82 the retranslation of monetary items are recognised Aircraft and accessories: - Galley equipment 10 in the income statement. - Inflight entertainment equipment 10 In order to hedge its exposure to certain foreign - Cabin interior and seating 10 - Airframes 5 - 12.5 exchange risks, the Group entered into forward Aircraft rotables spares 5 – 20 contracts and options, which are accounted for in Buildings and hangars on leasehold land 2 - 10 accordance with the accounting policies for Plant and equipment 20 Furniture & fittings 10 - 20 derivative financial instruments. Computer and office equipment 10 - 33 For the purpose of presenting consolidated financial Motor vehicles 20 Sundry assets 10 statements, the assets and liabilities of foreign Improvement to building 10 operations are expressed in Euro using exchange Aircraft and engine overhaul See note rates prevailing on the balance sheet date. Their on next page

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting Transfers are made to or from investment property only Policies (continued) when there is a change in use. For a transfer from investment property to owner occupied property, the Gains and losses on disposal of property, plant and deemed cost for subsequent accounting is the fair value equipment are determined by reference to their carrying at the date of change in use. If owner occupied property amount and are taken to the income statement. becomes an investment property, the Group accounts Leasehold land is not capitalised and the lease for such property in accordance with the policy stated payments are charged to the income statement on under property, plant and equipment up to the date of an accrual basis. change in use.

An item of property, plant and equipment is No assets held under operating lease have been derecognised upon disposal or when no future classified as investment properties. economic benefits are expected from its use or (e) Investments in subsidiary and disposal. Any gain or loss arising on derecognition of associated companies the asset (calculated as the difference detween the net disposal proceeds and the carrying amount of the Subsidiaries asset) is included in profit or loss of in the year the The accounting policy of the Group in respect of the asset is derecognised. consolidation of subsidiaries is presented in the basis Aircraft and engine overhaul of consolidation in note 3 above. In the separate company financial statements, investments in Costs incurred in respect of heavy maintenance and subsidiary companies are carried at cost which is the overhaul of aircraft engines and airframes are aggregate of the fair values, at the date of exchange, capitalised and depreciated over the period to the of assets given, liabilities incurred or assumed, and next scheduled maintenance. Other non-heavy equity instruments issued by the acquiror, in maintenance and overhaul costs are charged to the exchange for control of the acquiree, plus any costs income statement on consumption or as incurred. directly attributable to the acquisition. The carrying (d) Investment property amount is reduced to recognise any impairment in the value of individual investments. Investment properties are measured initially at cost,

including transaction costs. The carrying amount Associates Notes to the Financial statements includes the cost of replacing part of an existing Investments in associated companies are accounted investment property at the time that cost is incurred if the in the consolidated financial statements using the recognition criteria are met; and excludes the costs of equity method. Under this method, the investment in day to day servicing of an investment property. the associate is carried in the balance sheet at cost Subsequent to initial recognition, investment properties plus post acquisition changes in the Group’s share of 83 are stated at fair value, which reflects market conditions net assets of the associate. The income statement at the balance sheet date. Gains or losses arising from reflects the share of the results of operations of the changes in the fair values of investment properties are associate. An associate is an entity in which the included in the profit or loss in the year in which they arise. Group has significant influence and which is neither Investment properties are derecognised when either a subsidiary nor a joint venture. Goodwill arising on they have been disposed of or when the investment the acquisition of an associate is included within the property is permanently withdrawn from use and no carrying amount of the associate. Goodwill is future economic benefit is expected from its disposal. assessed for impairment every year. Profits and Any gains or losses on the retirement or disposal of losses resulting from transactions between the Group an investment property are recognised in profit or and the associate are eliminated to the extent of the loss in the year of retirement or disposal. interest in the associate.

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting classified as held for trading if they are acquired for Policies (continued) the purpose of selling in the near term. Derivatives are also classified as held for trading unless The carrying amount of the investment is reduced designated as effective hedging instruments or a to recognise any impairment in the value of financial guarantee contract. Gains or losses on individual investments. When the Group’s share of investments held for trading are recognised in profit losses exceeds the carrying amount of the or loss. investment, the investment is reported at nil value and recognition is discontinued except to the extent (ii) Held-to-maturity investments of the Group’s commitment. Non-derivatives financial assets with fixed or The reporting dates of the associate and the Group determinable payments and fixed maturities are are identical and the associate’s accounting policies classified as held-to-maturity when the Group has conform to those used by the Group for like the positive intention and ability to hold to maturity. transactions and events in similar circumstances. Investments intended to be held for an undefined period are not included in this classification. Other In the separate company financial statements, long-term investments that are intended to be held- investments in associated companies are carried at to-maturity, such as bonds, are subsequently cost. The carrying amount is reduced to recognise measured at amortised cost. This cost is computed any impairment in the value of individual as the amount initially recognised minus principal investments. payments, plus or minus the cumulative (f) Investments and other financial assets amortisation using the effective interest method of any difference between the initially recognised Financial assets in scope of IAS 39 are classified as amount and the maturity amount. Gains and losses either financial assets at fair value through profit or are recognised in income when the investments are loss, loans and receivables, held-to-maturity derecognised or impaired, as well as through the investments or available-for-sale financial assets, as amortisation process. appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in case (iii) Loans and receivables of investments not at fair value through profit or loss,

Notes to the Financial statements Loans and receivables are non-derivative financial directly attributable transaction costs. The Group assets with fixed and determinable payments that determines the classification of its financial assets are not quoted in an active market. After initial on initial recognition and, where allowed and measurement, such assets are carried at amortised appropriate, re-evaluates this designation at each cost using effective interest method less any financial year-end. allowance for impairment. Gains and losses are 84 All regular way purchases and sales of financial recognised in profit or loss when the loans and assets are recognised on the trade date, i.e. the receivables are derecognised or impaired, as well date the Group commits to purchase the asset. as through the amortisation process. Regular way purchases or sales are purchases or (iv) Available-for-sale financial assets sales of financial assets that require delivery of assets within the period generally established by Available-for-sale financial assets are those non- regular or convention in the market place. derivative financial assets that are designated as available-for-sale or are not classified in any of the (i) Financial assets at fair value through profit or loss three preceding categories. After initial measure - Financial assets classified as held for trading are ment available-for-sale financial assets are measured included in the category ‘financial assets at fair value at fair value with unrealised gains or losses through profit or loss’. Financial assets are recognised directly in equity until the investment is

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting the transferred asset is measured at lower of the Policies (continued) original carrying amount of the asset and the maximum amount of consideration that the Group derecognised or determined to be impaired at which could be required to repay. time the cumulative gain or loss previously recorded in equity is recognised in profit or loss. Where continuing involvement takes the form of a (v) Fair Value written and/or purchased option (including a cash- settled option or similar provision) on the transferred The fair value of investments that are actively traded asset, the extent of the Group’s continuing in organised financial markets is determined by involvement is the amount of the transferred asset reference to quoted market bid prices at the close of that the Group may repurchase, except that the business on the balance sheet date. For case of a written put option (including a cash-settled investments where there is no active market, fair option or similar provision) on an asset measured at value is determined using valuation techniques. fair value, the extent of the Group’s continuing Such techniques include using recent arm’s length involvement is limited to the lower of the fair value market transactions; reference to the current market of the transferred asset and the option exercise value of another instrument, which is substantially price. the same; discounted cash flow analysis or other valuation models. (ii) Financial liabilities

(g) Derecognition of financial assets and A financial liability is derecognised when the liabilities obligation under the liability is discharged or cancelled or expires. (i) Financial assets When an existing liability is replaced by another from A financial asset (or, where applicable a part of the same lender on substantially different terms, or financial asset or part of a group of similar financial the terms of an existing liability are substantially assets) is derecognised when: modified, such an exchange or modification is the right to receive cash flows from the assets has treated as a derecognition of the original liability and expired; the recognition of a new liability, and the difference

the Group retains the right to receive cash flows in the respective carrying amounts is recognised in Notes to the Financial statements from the asset, but has assumed an obligation to profit or loss. pay them in full without material delay to a third party (h) Impairment of financial assets under a ‘pass-through’ arrangement; or The Group assesses at each balance sheet date the Group has transferred its right to receive cash whether a financial asset or group of financial assets flows from the asset and either (a) has transferred is impaired. 85 substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially (i) Assets carried at amortised cost all the risks and rewards of the asset, but has If there is objective evidence that an impairment loss transferred control of the asset. on assets carried at amortised cost has been When the Group has transferred its right to receive incurred, the amount of the loss is measured as the cash flows from an asset and has neither transferred difference between the asset’s carrying amount and nor retained substantially all the risks and rewards of the present value of estimated future cash flows the asset nor transferred control of the asset, the (excluding future credit losses that have not been asset is recognised to the extent of the Group’s incurred) discounted at the financial asset’s original continuing involvement in the asset. Continuing effective interest rate (i.e. the effective interest involvement that takes the form of a guarantee over rate computed at initial recognition). The carrying

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting For the purpose of the cash flow statements, cash Policies (continued) and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding amount of the asset shall be reduced through use of bank overdrafts. an allowance account. The amount of the loss is recognised in profit or loss. (j) Financial Liabilities

If, in a subsequent period, the amount of impairment (i) Interest bearing loans and borrowings loss decreases and the decrease can be related All loans and borrowings are initially recognised at objectively to an event occurring after the fair value less directly attributable transaction costs, impairment was recognised, the previously and have not been designated ‘as at fair value recognised impairment loss is reversed. Any through profit or loss’. subsequent reversal of an impairment loss is recognised in the income statement, to the extent After initial recognition, interest bearing loans and borrowings are subsequently measured at that the carrying value of the asset does not exceed amortised cost using the effective interest method. its amortised cost at the reversal date. Gains and losses are recognised in profit or loss In relation to trade receivables, a provision for when the liabilities are derecognised as well as impairment is made when there is objective (such through the amortisation process. as the probability of insolvency or significant financial difficulties of the debtor) that the Group will (ii) Financial liabilities at fair value through profit or not be able to collect all the amounts due under the loss original terms of the invoice. The carrying amount of Financial liabilities at fair value through profit or loss the receivable is reduced through use of an includes financial liabilities held for trading and allowance account. Impaired debts are derecognised financial liabilities designated upon initial recognition when they are assessed as uncollectible. as at fair value through profit or loss.

(ii) Available-for-sale financial assets Financial liabilities are classified as held for trading If an available-for-sale asset is impaired, an amount if they are acquired for the purpose of selling in comprising the difference between its cost (net of the near term. Derivatives, including separated Notes to the Financial statements any principal payment and amortisation) and its embedded derivatives are also classified as held for current fair value, less any impairment loss trading unless they are designated as effective previously recognised in profit or loss, is transferred hedging instruments. Gains or losses on liabilities from equity to profit or loss. Reversals in respect of held for trading are recognised in profit or loss. equity instruments classified as available-for-sale (iii) Financial guarantee liabilities 86 are not recognised in profit or loss. Reversals of Financial guarantee liabilities issued by the Group impairment losses on debt instruments are reversed are those contracts that require a payment to be through profit or loss if the increase in fair value of made to reimburse the holder for a loss it incurs the instrument can be objectively related to an event because the specified debtor fails to make a occurring after the impairment loss was recognised payment when due in accordance with the terms of in profit or loss. a debt instrument. Financial guarantee contracts (i) Cash and Cash Equivalents are recognised initially as a liability at fair value, adjusted for transaction costs that are directly Cash and short term deposits in the balance sheet attributable to the issue of the guarantee. comprise cash at banks and on hand and short term deposits with an original maturity of three months or Subsequently, the liability is measured at the higher less. of the best estimate of the expenditure required to

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting cumulative gain or loss on the hedging instrument Policies (continued) recognised in equity is removed from equity and included in the initial measurement of the asset or settle the present obligation at the balance sheet liability. Otherwise the cumulative gain or loss date and the amount initially recognised. recognised in equity is transferred to the income (k) Hedge Accounting statement at the same time that the hedged A hedging relationship exists where: transaction affects net profit or loss and included in the same line item as the hedged transaction.  at the inception of the hedge there is formal documentation of the hedge; When a hedging instrument or hedge relationship is  the hedge is expected to be highly effective; terminated but the hedged transaction is still  the effectiveness of the hedge can be reliably expected to occur, the cumulative gain or loss measured; recognised in equity remains in equity and is  the hedge is highly effective throughout the recognised in accordance with the above policy. If reporting period; and the hedged transaction is no longer expected to  for hedges of a forecasted transaction, the occur, the cumulative gain or loss previously transaction is highly probable and presents an recognised in equity is transferred to profit or loss. exposure to variations in cash flows that could (l) Provisions ultimately affect net profit or loss. Where there is a hedging relationship between a (i) General derivative instrument and a related item being Provisions are recognised when the Group has a hedged, the hedging instrument is measured at fair present obligation (legal or constructive) as a result value. The treatment of any resultant gains and of a past event, it is probable that an outflow of losses is set out below. resources embodying economic benefits will be (i) Fair Value Hedge required to settle the obligation and a reliable estimate can be made of the amount of the Where a derivative financial instrument hedges the obligation. Where the Group expects some or all of exposure to changes in the fair value of a a provision to be reimbursed, for example under an recognised asset or liability, the hedged item is

insurance contract, the reimbursement is Notes to the Financial statements stated at fair value in respect of the risk being recognised as a separate asset but only when the hedged. Gains or losses on remeasurement of both reimbursement is virtually certain. The expense the hedging instrument and the hedged item are relating to any provision is presented in profit or loss recognised in the income statement. net of any reimbursement. If the effect of the time (ii) Cash Flow Hedge value of money is material, provisions are discounted using a current pre tax rate that reflects, 87 Where a derivative financial instrument hedges the where appropriate, the risks specific to the liability. exposure to variability in the cash flows of When discounting is used, the increase in the recognised assets or liabilities or anticipated provision due to the passage of time is recognised transactions or firm commitments, the effective part as a finance cost. of any gain or loss on remeasurement of the hedging instrument is recognised directly in equity. (ii) Maintenance reserve The ineffective part of any gain or loss is recognised The Group has an obligation to maintain the aircrafts in the income statement. and engines leased under operating leases in When a hedged anticipated transaction or firm accordance with the provisions stipulated in the commitment results in the recognition of a non- agreements with the lessors. Accordingly, the financial asset or non-financial liability, the Group makes a provision for maintenance costs

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting Gains or losses arising from derecognition of an Policies (continued) intangible asset are measured as the difference between the net disposal proceeds and the carrying based on hours flown and anticipated rates per amount of the asset and are recognised in the hour. Such provision is reduced by the amounts income statement when the asset is derecognised. paid into a maintenance reserve account with the lessors which is reimbursed to the Group when the (o) Inventories agreed maintenance is carried out. Inventory items are valued at the lower of cost and (m) Power by the hour net realisable value. Cost comprises purchase cost from suppliers and any other costs incurred in The Group has entered into maintenance bringing such inventory to its present condition and arrangements (known as power by the hour) for location. In general, cost is determined on a aircraft engines with technical service providers weighted average basis. Net realisable value is the whereby the Group makes monthly fixed payments estimate of the selling price in the ordinary course of in return for total care maintenance service at business, less the costs of completion and selling predetermined rates per hour flown. The accounting expenses. treatment for these arrangements depend on Redundant and slow-moving inventories are whether the aircraft engine is owned / financed identified on a regular basis and written down to leased by the Group or rented under an operating their realisable values. Consumables are written lease. down with regards to their age, condition and utility. (i) Assets owned or finance leased by the Group (p) Leases The Group accounts for the monthly payments as The determination of whether an arrangement is, or prepaid expenditure until such time as the engines contains a lease is based on the substance of the are overhauled at which time the maintenance costs arrangement at inception date of whether the incurred are capitalised in property, plant and fulfilment of the arrangement is dependent on the equipment and amortised until the next overhaul is use of a specific asset or assets or the arrangement due. conveys a right to use the asset. A reassessment is

Notes to the Financial statements (ii) Assets rented under operating leases made after inception of the lease only if one of the following applies: A provision is made for the maintenance of each engine based on the number of hours flown and the (a) There is a change in contractual terms, other rate per hour as per the power by the hour contracts. than a renewal or extension of the arrangement; The monthly payments made under the contracts (b) A renewal option is exercised or extension 88 are debited against the provisions. granted, unless the term of the renewal or extension was initially included in the lease (n) Intangible assets term; Intangible assets which comprise computer (c) There is a change in the determination of software and goodwill on acquisition are initially whether fulfilment is dependant on a specified recorded at cost. Computer software is amortised asset; or using the straight-line method over its estimated (d) There is a substantial change to the asset. useful life of 3 years. Goodwill acquired in a Where a reassessment is made, lease accounting business combination is not amortised and is shall commence or cease from the date when the assessed for impairment every year and the carrying change in circumstances gives rise to the amount is reviewed annually and adjusted for reassessment for scenarios (a), (c) or (d) and at the impairment where it is considered necessary. date of renewal or extension period for scenario (b)

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting qualifying employees are entitled to retirement Policies (continued) benefits up to a maximum of 66.6 % of final salary on attainment of a retirement age of 60. The assets of For arrangements entered into prior to 1 April 2005, the fund are held and administered by a trust the date of inception is deemed to be 1 April 2005 in accordance with the transitional requirements of specifically created for that purpose. IFRIC 4. The cost of providing benefits is determined using Group as a lessee the projected unit credit method, with actuarial valuations being carried out at each balance sheet Leases are classified as finance leases whenever date. For the year ended March 31, 2008 the the terms of the lease transfer substantially all the valuation exercise was carried out by Hewitt LY, risks and rewards of ownership to the lessee. All the Actuaries and Consultants. Actuarial gains and other leases are classified as operating leases. losses are recognised as income or expense when Assets held under finance leases are recognised at the net cumulative unrecognised actuarial gains and their fair value at the date of acquisition. The losses for each individual plan at the end of the corresponding liability to the lessor is included in the previous reporting period exceed 10% of the higher balance sheet as a finance lease obligation. Finance of the defined benefit obligation and the fair value of costs, which represent the difference between the plan assets. These gains or losses are recognised total leasing commitments and the fair value of the over the expected average remaining working lives assets acquired, are charged to the income of the employees participating in the plans. statement over the term of the relevant lease so as The amount recognised in the balance sheet to produce a constant periodic rate of charge on the represents the present value of the defined benefit remaining balance of the obligations for each accounting period. obligation as adjusted for unrecognised past service cost, and reduced by the fair value of plan assets. The property, plant and equipment acquired under finance leasing contracts are depreciated over the Any asset resulting from this calculation is limited to shorter of the lease term and useful life of the asset. unrecognised actuarial losses and past service Payments made under operating leases are cost, plus the present value of available refunds and charged to the income statement on a straight-line reductions in future contributions to the plan. Notes to the Financial statements basis over the terms of the leases. (ii) Defined contribution plans

Group as a lessor The Company operates a defined contribution Leases where the Group does not transfer scheme, created in April 2002, the assets of which substantially all the risks and benefits of ownership are held separately from the Group and are of the asset are classified as operating leases. Initial administered by an independent fund administrator. 89 direct costs incurred in negotiating an operating All new employees of the Company from that date lease are added to the carrying amount of the become members of the defined contribution plan. leased asset and recognised over the lease term on Payments by the Company to the defined the same bases as rental income. Contingent rents contribution retirement plan are charged as an are recognised as revenue in the period in which expense as they fall due. they are earned. (iii) Other post-retirement benefits (q) Retirement Benefit Obligations Other post-retirement benefits include accumulated (i) Defined benefit plans sick leave benefits that are refunded to employees The Company contributes to a pension scheme, on retirement and post retirement medical cover which is a ‘Defined Benefit’ plan. Under this plan the

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting Deferred tax assets relating to the carry forward of Policies (continued) unused tax losses are recognised to the extent that under the Air Mauritius Limited Provident Fund and it is probable that future taxable profit will be the severance allowance payable to employees of available against which the unused tax losses can its subsidiaries in accordance with the Labour Act. be utilised. The net present value of benefits payable is Deferred income tax assets and deferred income tax calculated by a qualified actuary and provided for. liabilities are offset, if a legally enforceable right The severance allowance payable and the exists to set off current tax assets against current tax accumulated sick leaves are unfunded. liabilities and the deferred income taxes relate to the (iv) End of contract gratuity for pilots same taxation authority.

The terms of the employment contracts of all (iii) Value added taxes expatriate pilots contain a condition for the payment of an end of contract gratuity which is calculated Revenues, expenses and assets are recognised net based on a percentage of the total basic salary paid of the amount of Value Added Taxes except: to the pilots over the period of the contract. The  Where the value added tax incurred on a amount of the end of contract gratuity is estimated purchase of assets or services is not recove - and provided for annually at the balance sheet date. rable from the taxation authority, in which case (r) Taxes the value added tax is recognised as part of the cost of acquisition of the asset or as part of the (i) Current income tax expense item as applicable; and Current income tax assets and liabilities for the  current and prior periods are measured at the Receivables and payables that are stated with amount expected to be recovered from or paid to the amount of value added tax included. the taxation authorities. The tax rates and tax laws The net amount of value added tax recoverable used to compute the amount are those that are from, or payable to, the taxation authority is included enacted or substantively enacted by the balance as part of receivables or payables in the balance sheet date. sheet. Notes to the Financial statements (ii) Deferred income tax (s) Defeased deposit, liability and Deferred income tax is provided, using the liability deferred credit method, for all temporary differences arising between the tax bases of assets and liabilities and Two A340-300 aircraft have been financed under a their carrying values for financial reporting purposes. structured finance lease arrangement whereby part 90 of the liability has been pre-funded. This is Under this method the Group is required to make commonly termed as “defeasance”. Consequently, provision for deferred income taxes on the the defeased deposit and liability are perfectly revaluation of certain non-current assets and, in matched and mature at the same date. No offset relation to an acquisition, on the difference between has been made in the financial statements as the fair values of the net assets acquired and their tax base. regards the assets and liabilities resulting from these arrangements. The principal temporary differences arise from depreciation on property, plant and equipment, The deferred credit represents the net benefit revaluations of certain non-current assets, tax losses accrued to the Company as part of the structured carried forward, retirement benefit obligations and finance arrangement. This credit is released to on provisions. income statement over the period of the leases.

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting released as credits are utilised or where there are Policies (continued) unutilised credits over three years old.

(t) Impairment of non-financial assets (w) Revenue recognition

The Group reviews the carrying amounts of its (i) Passenger and cargo sales assets at each balance sheet date to determine Passenger ticket and cargo airway bills, net of whether there is any indication that those assets discounts are recorded as current liabilities in the have suffered an impairment loss. If any such ‘Sales In Advance of Carriage’ account until indication exists, the recoverable amount of the recognised as revenue when the transportation asset is estimated in order to determine the extent of service is provided. Commission costs are the impairment loss (if any). An asset’s recoverable recognised at the same time as revenue to which amount is the higher of an asset’s or cash they relate and are charged to cost of sales. generating unit’s fair value less costs to sell and its Unused tickets are recognised as revenue on a value in use and is determined for an individual systematic basis. asset, unless the asset does not generate cash inflows that are largely independent of those from (ii) Room revenue, sale of food and beverages and other assets or groups of assets. In assessing value income from other normal hotel services in use, the estimated future cash flows are Revenue is recognised upon amounts invoiced and discounted to their present value using a pre-tax customers’ acceptance, net of Value Added Tax discount rate that reflects current market and discounts. assessments of the time value of money and the risks specific to the asset. In determining fair value (iii) Dividend income less costs to sell, an appropriate valuation model is Dividend income is recognised when the Group’s used. right to receive payment has been established.

If the recoverable amount of an asset is estimated to (iv) Other revenues be less than its carrying amount, the carrying (a) Interest income amount of the asset is reduced to its recoverable amount. An impairment loss is recognised Interest is recognised as interest accrues (using

immediately in profit or loss, unless the relevant the effective interest method that is the rate that Notes to the Financial statements asset is carried at a revalued amount, in which case exactly discounts estimated future cash the impairment loss is treated as a revaluation receipts through the expected life of the decrease. financial instrument to the net carrying amount of the financial asset). (u) Borrowing costs (b) Rental income Borrowing costs are recognised in profit or loss in 91 the period in which they are incurred. Rental income arising from operating leases on investment properties is accounted for on a (v) Customer Loyalty Programme straight line basis over the lease terms. The Company operates a customer loyalty (x) Segmental reporting programme (known as frequent flyer programme) that entitles travellers to accumulate mileage credits The Group considers that segmentation of its convertible into free tickets and other benefits. The business should be viewed as a function of value of the accrued mileage credits is provided for products or services rather than geography. using a basis that represents the expected Although revenue is often managed and reported redemption of such credits at a rate equivalent to geographically, costs are considered in a functional the incremental cost per flown mile. The provision is rather than on a geographical basis.

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Notes to the Financial Statements for the year ended March 31, 2008

4.4 Summary of Significant Accounting 5. FINANCIAL RISK MANAGEMENT Policies (continued) OBJECTIVES AND POLICIES

Furthermore, the risks and returns faced by the The Group’s principal financial liabilities, other than Group are dominated by the nature of products and derivatives, comprise bank loans, finance leases services (business segments) offered rather than and trade payables. The main purpose of these where the products and services are offered financial liabilities is to raise finance for the Group’s (geographical segments). operations. The Group has various financial assets such as trade receivables, cash and short-term For the Group the key revenue generating asset, the deposits, available for sale investments, held to aircraft fleet, is deployed flexibly across the entire maturity investments, long-term deposits and route network making an analysis by geographical derivative financial assets which arise directly from area meaningless. its operations. Based on the above, the Group has opted to use its The main risks arising from the Group’s financial different types of products or services as primary instruments are cash flow interest rate risk, liquidity basis of segmentation. The geographical segments risk, foreign currency risk, credit risk and fuel price using the destination basis are being used as risk. The Board of Directors reviews and agrees secondary basis. policies for managing each of these risks which are (i) Business Segments (Primary) summarised below.

The main business segments of the Group and the The Group enters into derivative transactions, Company are aircraft operations, ground primarily interest rate swap and forward currency operations, investment property and hotel and contracts and options. The purpose is to manage restaurant services. the interest rate, currency risks and jet fuel price risk (ii) Geographical Segments (Secondary) arising from the Group’s operations and its sources of finance. Operating Revenue by destination (i) Credit Risk This method considers the location of the Group’s customers and allocates sales on this basis. The Group’s sales are made principally through IATA, CAS and BSP settlement systems. As such, Notes to the Financial statements Allocation is based on the origin of the sales of the credit risk arising from defaults from travel passenger tickets for aircraft operation and agents, other airlines, forwarding agents and tour provision of ground operations services. operators are considerably reduced.

(y) Related parties The Group also trades directly with recognised For the purposes of these financial statements, credit worthy third parties. It is the Group’s policy 92 parties are considered to be related to the Group if that all customers who wish to trade on credit terms they have the ability, directly or indirectly, to control are subject to credit verification procedures. In the Group or exercise significant influence over the addition, receivable balances are monitored on an Group in making financial and operating decisions, ongoing basis with the result that the Group’s or vice versa, or where the Company is subject to exposure to bad debts is not significant. The maxi - common control or common significant influence. mum exposure is the carrying amount as disclosed Related parties may be individuals or other entities. in note 17. For transactions that do not occur in the country of the relevant operating unit, the Group does not offer credit terms without the approval of the Head of Credit Control. There are no significant concentrations of credit risk within the Group.

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Notes to the Financial Statements for the year ended March 31, 2008

5. Financial Risk Management Objectives considers the maturity of both its financial and Policies (continued) investments and financial assets (e.g accounts

With respect to credit risk arising from the other receivables and other financial assets), the maturity financial assets of the Group, which comprise cash of its financial obligations and projected cash flows and cash equivalent, available-for-sale financial from operations. Management also carries out a investments and certain derivative instruments, the regular review of the facilities it has in place with its Group’s exposure to credit risk arises from default of banking partners. As at March 31, 2008, the fair the counterparty, with maximum exposure equal to value of the fair value of the Group derivative liability the carrying amount of these instruments. relating to currency hedges was Eur 2,203.

(ii) Liquidity Risk The table below summarises the maturity profile of The Group monitors its risk to a shortage of funds the Group’s financial liabilities at March 31, based using a recurring liquidity planning tool. This tool on contractual undiscounted payments.

The Group Less than 3 to 12 1 to 5 Above At March 31, 2008 3 months months years 5 years Total €‘000 €‘000 €‘000 €‘000 €‘000 Interest bearing loans and borrowings 7,403 13,868 63,541 20,340 105,152 Financial derivatives 716 1,488 199 - 2,403 Trade and other payables 92,289 32,509 3,233 - 128,031 100,408 47,865 66,973 20,340 235,586

Less than 3 to 12 1 to 5 Above At March 31, 2007 3 months months years 5 years Total €‘000 €‘000 €‘000 €‘000 €‘000 Interest bearing loans and borrowings 17,107 11,868 67,857 39,505 136,337 Financial derivatives 157 2,273 3,982 - 6,412

Trade and other payables 84,745 29,621 2,381 - 116,747 Notes to the Financial statements 102,009 43,762 74,220 39,505 259,496

The Company Less than 3 to 12 1 to 5 Above At March 31, 2008 3 months months years 5 years Total €‘000 €‘000 €‘000 €‘000 €‘000 Interest bearing loans and borrowings 7,263 13,449 63,541 20,340 104,593 93 Financial derivatives 716 1,488 199 - 2,403 Trade and other payables 92,676 32,509 3,233 - 128,418 100,655 47,446 66,973 20,340 235,414

Less than 3 to 12 1 to 5 Above At March 31, 2007 3 months months years 5 years Total €‘000 €‘000 €‘000 €‘000 €‘000 Interest bearing loans and borrowings 16,920 11,309 67,857 39,505 135,591 Financial derivatives 157 2,273 3,982 - 6,412 Trade and other payables 85,293 29,621 2,381 - 117,285 102,370 43,203 74,220 39,505 259,298

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:44 AM Page 94

Notes to the Financial Statements for the year ended March 31, 2008

5.Financial Risk Management Objectives (iv) Commodity price risk and Policies (continued) One of the Group’s principal variable cost (iii) Interest rate risk components is jet fuel. The price of jet fuel is

The Group finances its aircrafts principally in Euro indexed according to international commodity and US dollars. Changes in interest rates of the prices and accordingly the Group’s profitability is Euro zone and US will therefore impact on the cash exposed to commodity price risk. The risk flows and profits of the Group. The Group mitigates associated to fluctuations in the price of jet fuel is this risk by having a loan portfolio which carries both managed by various hedging techniques as well as fixed and floating rates. In addition, cash surpluses the use of a fuel surcharge, whereby some of the are invested in floating rate instruments as a hedge cost is passed on to the customer. against increases in interest rates. As at March 31, 2008, approximately 29% of the Group’s borrowing The following table demonstrates the sensitivity to a were at a fixed rate of interest (2007: 21%). reasonably possible change in fuel price, with all other variables held constant, on the Group’s equity. Interest rate risk table There is no impact on the Group’s profit before tax. The following table demonstrates the sensitivity to a As at March 31, 2008, fair value of the Group reasonably possible change in interest rates, with all derivative financial asset relating to commodity other variables held constant, of the Group profit hedges was Eur 3,895k. before tax (through the impact on floating rate borrowings). There is no impact on the Group’s equity. The Group and the Company

Increase/ Effect The Group and the Company decrease on equity € Increase/ Effect % ‘000 decrease on profit 2008 in basis before points tax Increase in fuel price +15% 389 Notes to the Financial statements €‘000 Decrease in fuel price -5% (195) 2008 2007 Euro +15 (43) US dollar +20 (301) Increase in fuel price +15% 58 Decrease in fuel price -5% (20) 94 Euro -10 28 US dollar -15 226 (v) Foreign currency risk 2007 Revenue is generated principally in Euro while USD Euro +15 (88) mainly influences the determination of costs. US dollar +20 (107) Therefore, prospective cost in non-euro operations will be hedged in this manner between 30% and 70%. Euro -10 59 US dollar -15 80 The Group has transactional currency exposures. Such exposure arises from sales or purchases by an operating unit in currencies other than the unit’s

ANNUAL REPORT 2007 / 2008 pgs airmtius final 6/26/08 10:44 AM Page 95

Notes to the Financial Statements for the year ended March 31, 2008

5.Financial Risk Management Objectives market risk because gains and losses on the and Policies (continued) derivatives offset losses and gains on the matching asset, liability, revenues or costs being hedged. functional currency. Approximately 39% of the Group’s sales are denominated in the functional Foreign currency risks in relation to disbursements currency of the operating unit making the sale, whilst made by the Company denominated in USD are almost 45% of costs are denominated in USD. The hedged by using forward contracts and options forward currency contracts must be in the same based on the budgeted USD cash outflow in the currency as the hedged item. future. These forward contracts and options are It is the Group’s policy to negotiate the terms of the rarely taken for a period of more than one year. hedge derivatives to match the term of the hedged Fuel-hedging instruments are used to protect the item to maximise hedge effectiveness. Company against sudden and significant increases The following table demonstrates the sensitivity to a in fuel prices while ensuring that the Company is not reasonably possible change in the US dollar significantly affected in the event of a substantial fall exchange rate, with all other variables held constant, in the price of fuel. of the Group’s profit before tax (due to changes in These fuel and foreign exchange derivative the fair value of monetary assets and liabilities) and instruments are both accounted for as “cash flow the Group’s equity (due to changes in the fair value hedges” as per IAS 39. of forward exchange contracts and net investment hedges). In 2002, the Company entered into swap agreements in order to convert the majority of its USD-denominated loan obligations into Euro. The Group and the Company These arrangements have mitigated the Company’s Increase/ Effect currency exposure while maintaining the same decrease in on profit Effect interest rate risk profiles. US dollar before on rate tax equity These arrangements comprise both an element of €‘000 €‘000 “fair value hedge” and “cash flow hedge” as defined

by IAS 39. Notes to the Financial statements 2008 +5% (9,911) 116 (vii) Capital Management -5% 8,606 (105) The primary objective of the Group’s capital 2007 +5% (8,789) (45) management is to ensure that it maintains a strong -5% 7,952 40 credit rating and healthy capital ratios in order to support its business and maximise shareholder 95 (vi) Hedging by the Company value.

The Risk Management Steering Committee sets out The Group manages its capital structure and makes the objectives and policies for hedging transactions adjustments to it, in light of changes in economic in order to mitigate exposure on changes in foreign conditions. To maintain or adjust the capital exchange rates and fuel prices. The Company’s structure, the Group may adjust the dividend hedging policies are risk averse. As such, payment to shareholders, return capital to derivatives are not used to generate profits but to shareholders or issue new shares. No changes hedge against anticipated exposures. were made in the objectives, policies or processes As derivatives are only used for the purposes of risk during the years ended March 31, 2008 and March management, they do not expose the group to 31, 2007.

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Notes to the Financial Statements for the year ended March 31, 2008

5.Financial Risk Management Objectives gearing ratio at less than one. The Group excludes and Policies (continued) defeased liabilities in the calculation of interest bearing loans. Capital comprises of equity The Group monitors capital using a gearing ratio, attributable to the equity holders of the parent. which is interest bearing loans and borrowings divided by equity. The Group’s policy is to keep the

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000

Interest bearing loans and borrowings 105,152 136,337 104,593 135,593

Equity 199,038 182,454 205,912 191,262 Gearing ratio 53% 74% 51% 70% Notes to the Financial statements

96

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Notes to the Financial Statements for the year ended March 31, 2008

5.Financial Risk Management Objectives and Policies (continued)

(viii) Financial Instruments Set out below is a comparison by category and class Group’s financial Instruments, which are carried in the financial Statements: of carrying amounts and fair values of all of the

The Group Category Carrying amount Fair value 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Financial assets Cash L.R 82,592 52,503 82,592 52,503 Available-for-sale investments A.F.S 2,085 1,956 2,085 1,956 Held-to-maturity investments H.T.M 3,289 5,224 3,467 5,415 Derivative financial instruments F.V.T.P.L 3,895 1,550 3,895 1,550

Financial liabilities Bank overdraft F.L - (466) - (466) Interest-bearing-loans and borrowings: - Obligations under finance F.L (28,900) (43,571) (29,900) (45,071) - Floating rate borrowings F.L (73,697) (88,828) (73,697) (88,828) - Fixed rate borrowings F.L (2,555) (3,472) (2,555) (3,472) Derivative financial instruments F.V.T.P.L (2,403) (6,412) (2,403) (6,412)

The Company Category Carrying amount Fair value

2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Financial assets

Cash L.R 78,546 52,078 78,546 52,078 Notes to the Financial statements Available-for-sale investments A.F.S 2,085 1,956 2,085 1,956 Derivative financial instruments F.V.T.P.L 3,895 1,550 3,895 1,550

Financial liabilities Bank overdraft F.L - (466) - (466) Interest-bearing-loans and borrowings: 97 - Obligations under finance F.L (28,900) (43,571) (29,900) (45,071) - Floating rate borrowings F.L (73,138) (88,028) (73,138) (88,028) - Fixed rate borrowings F.L (2,555) (3,472) (2,555) (3,472) Derivative financial instruments F.V.T.P.L (2,403) (6,412) (2,403) (6,412)

Market values have been used to determine the fair L.R- Loans and receivables value of listed available-for-sale financial assets. A.F.S- Available-for-sale The fair value of derivatives and borrowings has been calculated by discounting the expected future H.T.M- Held-to-maturity cash flows at prevailing interest rate. The fair value F.V.T.P.L- Fair value through profit or loss of other financial assets have been calculated using market interest rates. F.L- Financial liabilities

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Notes to the Financial Statements for the year ended March 31, 2008 ‘000 € ‘000 € ‘000 € ‘000 €

part of the investment property in MEDCOR and operty which is now occupied by the Group. ‘000 € ‘000 € ‘000 € Buildings & ‘000 € Aircraft hangars on Computer Notes to the Financial statements ‘000 € ‘000 €

98 ‘000 € Aircraft Aircraft & Aircraft & engine leasehold Plant & Furniture & office Motor vehicles on lease accessories spares overhaul land equipment & fittings equipment owned leased Total 131,769 20,504 17,974 14,274100,513 15,998168,640 68,249 15,994 18,246 57,106 18,976 5,189 11,062 17,302 19,752 9,138 16,648 15,771 2,952 5,326 1,994 129 9,704 233,921 809 3,599 1,241 38 1,466 258,601 97 277,938 373,002 21,506 29,168 34,741 30,263269,153 17,940 125,355 29,308 6,294 38,728 10,544 33,073 5,122 18,642 163 528,743 6,135 10,945 5,065 135 536,539 TransferCharge for the yearDisposals 13,797 (45,053) 2,692 45,053 272 - 10,774 - 1,295 - - 707 - 335 (6,072) - 836 (33) (6) 857 (76) 6 44 (209) 31,609 (272) - (208) - (135) (7,005) - - 6. PLANT AND EQUIPMENT PROPERTY, At March 31, 2007 At March 31, 2008 At March 31, 2007 At March 31, 2008 At March 31, 2008 The Group Cost At April 01, 2006TransferReclassified from/(to) investment property (note 7)AdditionsDisposalsExchange differencesTransfer 373,002Reclassified from/(to) investment property (note 7) 21,506AdditionsDisposals 27,201Exchange differences - 40,759 - -Depreciation At April 01, 2006 30,160Transfer -Reclassified to investment - 18,082 (103,849)property (note 7) - -Charge for the year - 103,849Disposals 7,657 -Exchange differences - - - - 10,006 1,967 117,038 - - - - 5,227 - 9,099 - 18,034Exchange differences - 14,731 - - 15,294 158 - (15,117) - -Net book value - 440 533,758 - - 89 15,883 (393) 2,470 - -At March 31, 2007 140 - (33) 2,680 (163) 14,872 (125) - - 371 - 10,993The reclassification to investment property in the prior year was respect of assets at nil book value which form an integral - - - 15,733 (135) (1,443)which have consequently been reclassified. 9,637 (90) - -The reclassification from investment property in the current year is respect of a change use part pr - (7,006) 1,657 (45) 1,110 (65) 208 6,273 1,264 (83) - 87 - - 241,233 (44) - - - 826 (35) 8,659 59 688 - - 663 (205) 31 (90) 2,130 1,002 - (17) - - 102 148 (136) 90 - - 11,194 442 (11,246) 6 - - (329) 134 (123) 20,467 (100) - 9 214,050 28 725 (15,832) (115) - - 698 (23) (331) 12,598 - 14,265 - 100 (1,166) - (615) (107) 168 - (163) (219) (132) 906 1,946 1 (1,443) 110 - - - (138) 42 (35) - 1,105 (48) 93 14,174 (6) (8,157) 33,584 (27) 1,406 29 - - (192) - - - 2,170 (12) 1,657 (99) - 5 122 - 34 (71) - 294,822 (11,811) - 27 2 (296) (1,606) (27) (2) - - 76

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Notes to the Financial Statements for the year ended March 31, 2008 ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € Buildings & ‘000 € Aircraft hangars on Computer ‘000 Notes to the Financial statements € ‘000 € (Continued)

99 ‘000 € Aircraft Aircraft & Aircraft & engine leasehold Plant & Furniture & office Motor vehicles on lease accessories spares overhaul land equipment & fittings equipment owned leased Total 6. PLANT AND EQUIPMENT PROPERTY, At March 31, 2008Depreciation At April 01, 2006TransferCharge for the year 269,153 125,355 29,308 38,728 117,038 27,111 14,731 18,034 17,855At March 31, 2008 15,294Net book value 5,774 2,470 15,883At March 31, 2008 - 10,732 2,680 14,119 100,513 4,974 9,637 14,814 68,249 135 - 168,640 18,247 529,125 1,043 4,590 18,976 57,106 629 11,061 - 16,180 8,469 19,752 15,917 2,064 434 10,931 5,085 - 134 1,938 9,510 210,439 683 3,527 689 - 893 1,222 38 256,242 1,447 93 - 33,293 97 272,883 - - 27 (27) - The Company Cost At April 01, 2006TransferAdditionsDisposalsAt March 31, 2007Transfer 373,002AdditionsDisposals 21,506 373,002 27,201 21,506 40,759 29,168 - - 34,741 25,991 - (103,849)Disposals 26,046 16,960At March 31, 2007 17,126 103,849 -Transfer - 5,918 - -Charge for the year 6,006 - 1,967Disposals - - 10,349 9,875 131,769 9,099 - 5,044 5,132 - (15,117) 20,504 - - - 163 17,974 158 523,151 140 88 13,797At March 31, 2007 14,274 526,502 (33) - 10,993 - 15,139 (45,053) - 301 - 2,692 (135) (7,006) 15,311 1,109Note: Certain aircraft and accessories have been pledged as security against borrowings of the Company. 45,053 273 171 - 4,976 - - - (83) (44) 819 241,233 10,774 - 8,960 679 (205) - (90) 2,885 1,074 1,002 97 - - (11,246) - (136) 148 11,194 - 129 (329) 682 231,921 20,467 (123) 714 (23) 28 - (15,832) - - (331) 10,907 318 12,481 - 149 (132) (6,072) (219) (100) 1,815 - 110 822 (138) (48) 100 (33) - 1,030 14,131 (8,157) 850 - (192) (76) 1,389 - - (99) 44 2,159 (209) - 31,326 (71) (272) 34 (11,811) - 291,230 (208) - (135) (7,005) - -

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Notes to the Financial Statements for the year ended March 31, 2008

7. INVESTMENT PROPERTY 2008 2007 €‘000 €‘000 The Group At April 01, 10,060 11,998 Transfer to property, plant and equipment (note 6) (1,657) (440) Exchange difference 491 (1,889) Fair value gain 81 391 At March 31, 8,975 10,060

Investment property is held by Mauritius Estate investment property of the same nature and Development Corporation Limited (“MEDCOR”), location. The basis used for valuation is the open a subsidiary of the Company. Investment market value approach. property is stated at fair value which has been determined based on a valuation performed by an The reclassification to property, plant and independent valuer at March 31, 2008, Property equipment in the current year is in respect of a and Assets Valuation Ltd, Chartered Surveyor, change in use of part of the investment property who has recent experience in the valuation of which is now occupied by the Group.

2008 2007 €‘000 €‘000 (a) Rental income from the investment property 1,148 1,253 (b) Operating expenses arising on the investment property: - that generated rental income during the year 237 270 - that did not generate rental income during the year - -

8. INTANGIBLE ASSETS

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Carrying amounts

Notes to the Financial statements Computer software (see below) 1,024 230 1,004 188 Goodwill on acquisition of subsidiary 14 14 - - 1,038 244 1,004 188 Computer software Cost At April 01, 3,729 3,496 3,659 3,455 Reclassified to investment property - (9) - - 98 Additions 1,184 258 1,184 204 Disposals (2) - - - Exchange differences 3 (16) - - At March 31, 4,914 3,729 4,843 3,659 Amortisation At April 01, 3,499 3,058 3,471 3,031 Reclassified to investment property - (9) - - Charge for the year 391 464 368 440 Disposals (1) - - - Exchange differences 1 (14) - - At March 31, 3,890 3,499 3,839 3,471 Net book value At March 31, 1,024 230 1,004 188

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Notes to the Financial Statements for the year ended March 31, 2008

9. INVESTMENT IN SUBSIDIARY COMPANIES 2008 2007 €‘000 €‘000 The Company Cost At April 01, 27,155 26,984 Additions - 171 At March 31, 27,155 27,155

Details of the subsidiary companies included in the Group financial statements are as follows:

Class of Nominal Name of companies Country of shares value of Percentage holding and activities incorporation held investment 2008 2007 €‘000

Management company Air Mauritius (S.A.) (Proprietary) Limited South Africa Ordinary 0.1 100% 100% Air Mauritius Holidays (Pty) Limited (Dormant) Australia Ordinary 14.0 100% 100% Mauritian Holidays Ltd (Dormant) England Ordinary 0.1 100% 100%

Investment property Mauritius Estate Development Corporation Limited Mauritius Ordinary 25,707 93.70% 93.70%

Hotel and restaurant Pointe Coton Resort Hotel Company Limited Mauritius Ordinary 1,263 54.19% 54.19%

Information technology

Airmate Ltd Mauritius Ordinary 171 100% 100% Notes to the Financial statements

Helicopter operations Mauritius Helicopter Ltd (Dormant) Mauritius Ordinary 0.1 100% 100%

10. INVESTMENT IN ASSOCIATED COMPANY 2008 2007 101 €‘000 €‘000

(a) Carrying value of investment in associate Cost 102 102 Share of post-acquisition profits, net of dividend received 200 155 Carrying value 302 257

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Notes to the Financial Statements for the year ended March 31, 2008

10. INVESTMENT IN ASSOCIATED COMPANY (Continued)

(b) Interests in associated company

The associated company which is incorporated in Mauritius, is as follows:

Class of Nominal Name of company Country of shares value of Percentage holding operation held investment 2008 2007 €‘000

The Mauritius Shopping Paradise Co. Ltd Mauritius Ordinary 102 41.65% 41.65%

(c) Summarised financial information of the Group’s associate is set out below:

2008 2007 €‘000 €‘000 Total assets 1,021 1,152 Total liabilities (295) (535) Net assets 726 617 Group’s share of associate’s net assets 302 257 Revenue - - Profit after tax for the period 4 12 Group’s share of associate’s profit 2 5 Group’s share of associate’s movement in reserves 43 (76)

11. AVAILABLE-FOR-SALE INVESTMENTS

Notes to the Financial statements 2008 2007 Quoted Unquoted Total Total €‘000 €‘000 €‘000 €‘000 The Group and the Company

At April 01, 1,361 595 1,956 1,796 Fair value gain 101 28 129 160 102 At March 31, 1,462 623 2,085 1,956

Quoted and unquoted investments represent holdings of less than 5% held by the Group and the Company.

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Notes to the Financial Statements for the year ended March 31, 2008

12. OTHER FINANCIAL ASSETS

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Held-to-maturity investments 3,289 5,194 - 114 Derivative financial instruments [note 36 (b)] 3,895 1,580 3,895 1,580 7,184 6,774 3,895 1,694 Less maturing within one year (6,304) (6,774) (3,015) (1,694)

Maturing after one and before two years 880 - 880 -

Held-to-maturity investments consist of fixed March 31, 2009. The Group intends and is able to deposits bearing interest of 10.25% per annum. The hold the investments until maturity date. deposit will mature during the financial year ending

13. DEFERRED TAX ASSET 2008 2007 €‘000 €‘000 The Group At April 01, 485 770 Exchange differences (59) (89) Charge to income statement (note 28) (210) (196) At March 31, 216 485 Deferred tax assets are attributable to the following items: 2008 2007 €‘000 €‘000 Tax losses carried forward - 270 Provisions 92 103 Notes to the Financial statements Accellerated depeciation 124 112 216 485

The deferred tax asset relates to accelarated Tax exemption of the Company depreciation and provisions in Mauritius Estate Development Corporation Limited and has been The Company is not taxable by virtue of an 103 computed at the current tax rate of 15% (2007: 22.5%). agreement with the Government of Mauritius. No deferred tax has, as a result, been provided for in Unused tax losses the financial statements of the Company.

Unused tax losses of the Group that have not been recognised as deferred tax asset amount to 2.9M (2007: €3.2M). No deferred tax asset has been recognised due to the unpredictability of future profit streams.

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Notes to the Financial Statements for the year ended March 31, 2008

14. LONG TERM DEPOSITS

The Group and the Company 2008 2007 €‘000 €‘000 Restated

Defeased deposits (note 17) - 86,744 Predelivery payment 8,776 17,692 Deposits on operating leases 6,504 6,579 15,280 111,015

Less: short-term portion included in trade and other receivables - (98,018) 15,280 12,997

15. LONG TERM RECEIVABLE

The Group and the Company 2008 2007 €‘000 €‘000 Loan 827 1,397

The loan is secured by a floating charge on the using effective interest rate method. The rate of assets of the counterparty. The major part of the interest on the remaining loan is 5.7% per annum. loan bears no interest and has been fair valued

16. INVENTORIES

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Aircraft spares - at net realisable value 10,038 11,051 10,038 11,051 Cabin services - at net realisable value 1,637 1,843 1,637 1,843 Others - at cost 1,190 1,111 1,156 1,074

Notes to the Financial statements 12,865 14,005 12,831 13,968

17. TRADE AND OTHER RECEIVABLES (CURRENT)

THE GROUP THE COMPANY

104 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Restated Restated Trade receivables 55,552 47,213 54,939 46,794 Receivable from subsidiary companies - - 233 390 Defeased deposits (note 14) - 98,018 - 98,018 Other receivables and prepayments 8,407 13,505 8,108 13,076 63,959 158,736 63,280 158,278

Outstanding balances receivable from related As at March 31, 2008, trade receivables at parties, identified under note 33(i), are included nominal value of Eur 1,660k (2007: Eur1,719k) under trade receivables. for the Group and Eur1,526k (2007: Eur 1,285k) Trade receivable are non-interest bearing and are for the Company were impaired and fully generally on 30-90 days’ terms. provided for.

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Notes to the Financial Statements for the year ended March 31, 2008

17. TRADE AND OTHER RECEIVABLES (CURRENT) (Continued)

Movements in the provision for impairment of receivables were as follows: The Group Individually Collectively impaired impaired Total €‘000 €‘000 €‘000 At April 01, 2006 935 - 935 Charge for the year 784 - 784 Utilised - - - At March 31, 2007 1,719 - 1,719 Charge for the year 251 - 251 Utilised (2) - (2) Unused amounts reversed (308) - (308) At March 31, 2008 1,660 - 1,660

The Company Individually Collectively impaired impaired Total €‘000 €‘000 €‘000 At April 01, 2006 668 - 668 Charge for the year 617 - 617 Utilised - - - At March 31, 2007 1,285 - 1,285 Charge for the year 241 - 241 Utilised - - - At March 31, 2008 1,526 - 1,526

As at March 31, the ageing analysis of trade receivables is as follows: Past due but not impaired Total < 30 days 30 - 60 days 60 - 180 days >180 days €‘000 €‘000 €‘000 €‘000 €‘000 The Group 2008 55,552 47,765 1,718 3,747 2,323 2007 47,213 44,500 2,640 491 (418) Notes to the Financial statements The Company 2008 54,939 47,402 1,656 3,666 2,215 2007 46,794 44,361 2,314 418 (299)

18. CASH AND CASH EQUIVALENTS THE GROUP THE COMPANY 105 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Cash resources 82,592 52,503 78,546 52,078 Bank overdraft (note 20) - (466) - (466) 82,592 52,037 78,546 51,612

Included in the cash resources of the Company in the Group’s financial statements is €0.5M at March 31, 2008 is an amount of SCR 11.4M (2007: €0.8M). (€0.9M) [2007: SCR 12.6M (€1.5M)] which is held Cash resources include deposits and bank in the Seychelles and is blocked due to an accounts totalling €72.5M (2007: €51.6M) which ongoing shortage of foreign currency in that earn interest at rates ranging between 0.65 % and country. The carrying value of these blocked funds 11.35 % per annum.

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Notes to the Financial Statements for the year ended March 31, 2008

19. SHARE CAPITAL

THE GROUP THE COMPANY 2008 2007 2008 2007 Number Number €‘000 €‘000 Authorised Ordinary shares of Rs 10 each 200,000,000 200,000,000 81,566 81,566 Issued and fully paid Ordinary shares of Rs 10 each 102,305,000 102,305,000 41,724 41,724

The ordinary shares are denominated in Mauritian rupees.

20. BORROWINGS AND FINANCIAL DERIVATIVES

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Non-current Bank loans [notes (b) & 36(a)] 1,811 2,682 1,333 2,053 Obligations under finance leases [notes (c) & 36(a)] 82,071 104,679 82,071 104,679 Financial derivatives [note 36(a)] 199 3,982 199 3,982 84,081 111,343 83,603 110,714

Current Bank overdraft [note 36 (a)] - 466 - 466 Bank loans 744 790 663 673 Defeased liabilities [note 36 (a)] - 86,744 - 86,744 Obligations under finance leases [note (c)] 20,526 27,720 20,526 27,720 Financial derivatives [note 36(a)] 2,204 2,430 2,204 2,430 23,474 118,150 23,393 118,033 Notes to the Financial statements Total borrowings and financial derivatives 107,555 229,493 106,996 228,747

(a) Details of the borrowings and financial derivatives are given in note 36(a).

106 (b) Bank loans THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Repayable by instalments: - after one year and before two years 760 815 671 691 - after two years and before five years 987 1,691 662 1,362 - after five years 64 176 - - 1,811 2,682 1,333 2,053

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Notes to the Financial Statements for the year ended March 31, 2008

20. BORROWINGS AND FINANCIAL DERIVATIVES (Continued)

The Group and the Company Present value of Minimum lease minimum lease payments payments (c) Obligations under finance leases 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Amounts payable under finance leases: - within one year 25,456 34,138 20,526 27,720 - after one year and before two years 25,168 26,114 21,295 20,981 - after two years and before five years 44,991 51,263 40,500 44,369 - after five years 21,655 42,257 20,276 39,329 117,270 153,772 102,597 132,399 Less: Future finance charges (14,673) (21,373) - -

Present value of lease obligations 102,597 132,399 102,597 132,399

Less: Amount due for settlement within 1 year (20,526) (27,720)

Amount due for settlement after 1 year 82,071 104,679

The Company has acquired certain aircraft under finance leases. The average remaining lease terms for these contracts are 1 to 7 years. Borrowing rates vary according to LIBOR and EURIBOR on which the lease agreements have been negociated.

(d) Guarantees and security Notes to the Financial statements

Lease liabilities are effectively secured as the The loan of one of the subsidiaries is secured by rights to the leased asset revert to the lessor in the floating charges on the assets of that subsidiary event of default. as well as a corporate guarantee given by the holding company (see note 31). The Company’s borrowings are secured by fixed charges over all aircraft on lease and aircraft and 107 accessories.

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Amount of provisions recognised in the Balance Sheets: Defined benefit pension schemes [note (a)] 13,046 11,970 13,046 11,970 Other post retirement benefits [note (b)] 2,341 1,852 2,236 1,764 End of contract gratuity for pilots [note (c)] 1,701 976 1,701 976 Contractual maintenance expenses [note (d)] 15,867 9,029 15,867 9,029 32,955 23,827 32,850 23,739

(a) Defined benefit pension schemes

(i) The amounts recognised in the Balance Sheets are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Present value of funded obligations 50,864 43,115 50,864 43,115 Fair value of plan assets (39,028) (34,793) (39,028) (34,793) 11,836 8,322 11,836 8,322 Unrecognised actuarial gains 1,210 3,648 1,210 3,648 Liability in the Balance Sheet 13,046 11,970 13,046 11,970

(ii) The amounts recognised in the Income Statements are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 Notes to the Financial statements €‘000 €‘000 €‘000 €‘000 Current service cost 2,208 2,027 2,208 2,027 Interest cost 4,665 3,922 4,665 3,922 Expected return on plan assets (4,046) (3,082) (4,046) (3,082) Total included in staff costs 2,827 2,867 2,827 2,867

108 (iii) Changes in present value of the defined benefit obligation are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Opening defined benefit obligation 43,115 46,167 43,115 46,167 Current service cost 2,208 2,027 2,208 2,027 Interest cost 4,665 3,922 4,665 3,922 Benefits paid (898) (826) (898) (826) Liability gains - (1,719) - (1,719) Exchange difference 1,774 (6,456) 1,774 (6,456) Closing defined benefit obligation 50,864 43,115 50,864 43,115

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS (Continued)

(a) Defined benefit pension schemes (Continued)

(iv) Changes in fair value of plan assets is as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Opening fair value of plan assets 34,793 33,561 34,793 33,561 Expected return 4,046 3,082 4,046 3,082 Contributions by employer 2,244 1,845 2,244 1,845 Benefits paid (898) (826) (898) (826) Asset (losses)/gains (2,588) 1,825 (2,588) 1,825 Exchange differences 1,431 (4,694) 1,431 (4,694) Closing fair value of plan assets 39,028 34,793 39,028 34,793

(v) The Group expects to contribute €2.4M to its defined benefit plans in the year ending March 31, 2009.

(vi) The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 % % % % Local equities - 18 - 18 Local bonds 6 39 6 39 Property - 1 - 1 Loans - 10 - 10 Notes to the Financial statements Overseas bonds and equities - 18 - 18 Others 94 14 94 14 100 100 100 100

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. 109 (vii) Obligations, assets and experience adjustments for the current year:

2008 2007 2006 The Group and the Company €‘000 €‘000 €‘000 Defined benefit obligations (50,864) (43,115) (46,167) Fair value of plan assets 39,028 34,793 33,561 Experience adjustment on plan assets (2,588) 1,825 212 Experience adjustment on plan liabilities - - 1,965

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS (Continued)

(a) Defined benefit pension schemes (Continued) (viii) Movement in the liability recognised in the Balance Sheets: THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 At April 01, 11,970 12,727 11,970 12,727 Total expense 2,827 2,867 2,827 2,867 Contributions paid (2,244) (1,845) (2,244) (1,845) Exchange difference 493 (1,779) 493 (1,779) At March 31, 13,046 11,970 13,046 11,970 Actual return on plan assets 1,458 4,907 1,458 4,907

(b) Other post retirement benefits (i) The amounts recognised in the Balance Sheets are as follows: THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Present value of funded obligations 3,371 2,718 3,371 2,718 Fair value of plan assets (1,062) (921) (1,062) (921) 2,309 1,797 2,309 1,797 Present value of unfunded obligations 416 351 319 275 Unrecognised actuarial losses (384) (296) (392) (308) Liability in the Balance Sheets 2,341 1,852 2,236 1,764

(ii) The amounts recognised in the Income Statements are as follows: THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Current service cost 721 707 712 700 Interest cost 289 189 281 182

Notes to the Financial statements Expected return on plan assets (95) (71) (95) (71) Actuarial loss recognised 53 - 58 - Total included in staff costs 968 825 956 811

(iii) Changes in present value of the defined benefit obligation are as follows: THE GROUP THE COMPANY 2008 2007 2008 2007 110 €‘000 €‘000 €‘000 €‘000 Opening funded defined benefit obligation 2,718 2,316 2,718 2,316 Opening unfunded defined benefit obligation 351 363 275 281 Current service cost 721 707 712 700 Employee cost 525 415 525 415 Interest cost 289 189 281 182 Benefits paid (946) (784) (946) (784) Liability losses - 238 - 247 Exchange difference 129 (375) 124 (364) Closing defined benefit obligation 3,787 3,069 3,689 2,993 Analysed as follows: - Closing funded defined benefit obligation 3,371 2,718 3,371 2,718 - Closing unfunded defined benefit obligation 416 351 318 275 3,787 3,069 3,689 2,993

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS (Continued)

(b) Other post retirement benefits (Continued) (iv) Changes in fair value of plan assets is as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Opening fair value of plan assets 921 933 92 933 Expected return 95 71 95 71 Contributions by employer 557 438 557 438 Employee contributions 525 416 525 416 Benefits paid (946) (784) (946) (784) Asset losses (129) (21) (129) (21) Exchange differences 39 (132) 39 (132) Closing fair value of plan assets 1,062 921 1,062 921

(v) The Group expects to contribute € 0.6M to its other post retirement benefit plan in the year ending March 31, 2009. (vi) The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 % % % %

Local bonds - 85 - 85 Others 100 15 100 15 100 100 100 100

The Group and the Company 2008 2007 2006 Notes to the Financial statements (vii) Obligations, assets and experience €‘000 €‘000 €‘000 adjustments for the current year:

Defined benefit obligations (3,690) (2,994) (2,315) Fair value of plan assets 1,062 921 933 Experience adjustment on plan assets (129) (21) (76) 111 Experience adjustment on plan liabilities - (247) 298

(viii) Movement in the liability recognised in the Balance Sheets:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 At April 01, 1,852 1,702 1,764 1,616 Exchange difference 78 (237) 73 (225) Total expense 968 825 956 811 Contributions paid (557) (438) (557) (438) At March 31, 2,341 1,852 2,236 1,764 Actual return on plan assets (34) 50 (34) 50

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS (Continued)

(b) Other post retirement benefits (Continued) The principal actuarial assumptions (in Mauritian rupees terms) used for both the defined benefit pension schemes and the other post retirement benefits were:

The Group and the Company 2008 2007 % % Discount rate 10.5 10.5 Expected return on plan assets 11.0 9.5 Future salary increases 9.0 9.0 Future medical cost increases 10.5 10.5 Future pension increases 4.0 4.0

Additional information

(i) Retirement and other benefit obligations have been provided based on the report from Hewitt LY Ltd, Actuaries and Consultants. (ii) Post retirement mortality has been assumed to be in line with the UK standard table PA(90) rated down by one year. (iii) Sensitivity analysis: 2008 2007 €‘000 €‘000 Increase in benefit obligation at end of period resulting from a 1% increase in medical cost increase 978 788 Decrease in benefit obligation at end of period resulting from a 1% decrease in medical cost increase (742) (598) Increase in current service and interest costs resulting from a 1% increase in medical cost increase 155 118 Decrease in current service and interest costs resulting from a 1% decrease in medical cost increase (116) (88)

(iv) Where the plan is funded, the overall expected rate of return on plan assets is determined by reference to market yields on bonds and expected yield differences on other types of assets held. Notes to the Financial statements (c) End of contract gratuity for pilots The amounts recognised in the Balance Sheets are as follows:

THE GROUP THE COMPANY 2008 2007 2008 2007 € € € € 112 ‘000 ‘000 ‘000 ‘000 At April 01, 1,407 1,669 1,407 1,669 Accrued for the year 1,259 1,065 1,259 1,065 Payments (607) (1,044) (607) (1,044) Difference in exchange 44 (283) 44 (283) At March 31, 2,103 1,407 2,103 1,407

Provided as follows: - less than one year (note 22) 402 431 402 431 - after one year and before two years 842 255 842 255 - after two years and before five years 859 721 859 721 - after five years - - - - 1,701 976 1,701 976 2,103 1,407 2,103 1,407

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Notes to the Financial Statements for the year ended March 31, 2008

21. PROVISIONS (Continued)

(d) Contractual maintenance expenses

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 At April 01, 13,782 13,892 13,782 13,892 Accrued for the year 9,421 4,547 9,421 4,547 Payment (4,568) (4,155) (4,568) (4,155 Difference in exchange (1,464) (502) (1,464) (502) At March 31, 17,171 13,782 17,171 13,782

Provided as follows: - less than one year (note 22) 1,304 4,753 1,304 4,753

- after one year and before two years 1,213 - 1,213 - - after two years and before five years 11,554 5,929 11,554 5,929 - after five years 3,100 3,100 3,100 3,100 15,867 9,029 15,867 9,029 17,171 13,782 17,171 13,782

22. TRADE AND OTHER PAYABLES (CURRENT)

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Trade payables 64,338 54,567 64,134 54,342 Sales in advance of carriage (see note below) 56,263 47,272 56,263 47,272 Amounts due to subsidiary companies - - 638 888 Other payables and accruals 5,724 9,148 5,677 9,033

Deferred credit - 576 - 576 Notes to the Financial statements End of contract gratuity for pilots [note 21(c)] 402 431 402 431 Contractual maintenance expenses [note 21(d)] 1,304 4,753 1,304 4,753 128,031 116,747 128,418 117,295

Outstanding balances due to related parties, as Sales in advance of carriage represent tickets 113 detailed in note 33(i), are included under trade issued but not yet utilised. payables. Trade payables are non-interest bearing and are normally settled on 30-60 days’ term.

23. DIVIDENDS

The Group and the Company 2008 2007 €‘000 €‘000

Dividends declared not yet paid 3,712 -

A dividend of Rs 1.50 per share has been declared by the Board of Directors for the year ended March 31, 2008 (2007: nil).

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Notes to the Financial Statements for the year ended March 31, 2008 5 391 130 257 ‘000 (196) 2007 1,724 1,715 1,956 8,494 € (6,669) (6,799) (6,473) (6,669) 26,080 12,856 34,048 57,412 (26,560) (16,607) 370,067 182,454 414,231 356,819 554,236 554,236 552,023 (388,151) 2 81 183 302 ‘000 (210) 2008 2,248 1,970 2,085 9,803 € 48,359 15,358 32,000 69,524 17,010 16,827 17,220 17,010 (25,982) (17,291) 274,548 199,627 448,077 378,553 476,145 476,145 473,758 (399,718) ------5 2 10 (24) (24) (24) (24) 944 257 ‘000 (944) (944) 2007 1,956 € 182,454 ------2 2 2 2 6 2 2 976 302 ‘000 (976) (976) 2008 2,085 € 199,627 ------1 47 47 21 47 11 47 (65) (29) 296 153 680 100 680 505 ‘000 (580) 2007 € ------7 4 4 14 14 27 78 14 14 (72) 142 668 668 363 ‘000 (590) 2008 € ------13 74 49 62 29 (86) 136 275 819 136 136 934 550 ‘000 (675) (435) 2007 1,254 1,254 2,137 € ------12 53 18 (63) 270 249 135 920 249 249 756 114 690 ‘000 (679) (429) 2008 1,349 1,349 2,262 € ------3 1 9 68 391 518 368 155 ‘000 (735) 2007 1,253 1,082 1,014 1,253 1,278 1,082 1,165 € 18,644 ) (196) ------8 4 22 81 69 687 536 151 ‘000 (210 (461) 2008 1,148 1,102 1,033 1,148 1,312 1,102 1,280 € 20,246 - - - - ‘000 2007 1,663 8,096 € (7,910) (7,910) (7,910) (7,910) 55,169 24,643 (25,791) (16,521) 411,988 356,819 (387,345) - - - - ‘000 2008 2,183 9,245 € 67,335 46,674 15,643 15,643 15,643 15,643 (25,231) (17,228) 445,888 378,553 (399,214) - - - - - Notes to the Financial statements 422 ‘000 2007 1,563 2,379 4,539 6,142 9,447 6,142 € (3,763) - - - - - 798 ‘000 2008 1,233 1,533 6,930 4,929 8,224 4,929 € (4,131) - - - - ‘000 2007 € 12,263 114 55,169 22,264 32,170 THE COMPANY TOTAL SUBSIDIARY COMPANIES TOTAL 364,143 405,846 521,290 350,677 (383,582) - - - - Aircraft Ground The Investment Hotel Call Adjustment /THE Aircraft Ground Hotel Adjustment The Investment Call operations operations Company Property & Restaurant Centre Unallocated GROUP ‘000 2008 € 14,082 67,335 45,876 30,160 266,569 440,959 442,663 373,624 (395,083) (a) Primary reporting - Business Segments Share of result associates Other operating income Capital and reserves Fair value adjustment Fair Finance Revenue Administrative expenses Liabilities Segment liabilities Capital additions Profit/ (loss) attributable to: - Equity holders of the parent 24. SEGMENT INFORMATION surcharge and others Fuel Operating costs Segment results Finance Cost Taxation Profit/ (loss) for the year - Minority interests Unallocated corporate assets Minority interests Depreciation and amortisation Operating revenue Profit/ (loss) before taxation Assets Segment assets Investment in associates Traffic revenue Traffic

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Notes to the Financial Statements for the year ended March 31, 2008

24. SEGMENT INFORMATION (Continued)

The Group and the Company

(b) Secondary reporting geographical segments

Traffic revenue by destination: 2008 2007 €‘000 €‘000 Europe 176,940 169,264 Africa 22,652 21,636 Asia 32,642 30,048 Australia 19,974 15,159 North America 2,467 3,032 Mauritius 90,016 86,390 Indian Ocean 33,862 31,290 378,553 356,819 The Group and the Company

(c) Main analysis of traffic revenue 2008 2007

€‘000 % €‘000 % Passenger (including helicopter revenue) 317,952 84 290,140 81 Cargo 38,262 10 38,101 11 Others 22,339 6 28,578 8 378,553 100 356,819 100

25. OPERATING PROFIT Notes to the Financial statements

THE GROUP THE COMPANY

2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 (a) Operating profit is arrived after: 115 Crediting: Rent received 1,266 1,367 118 114 Deferred credit 576 1,699 576 1,699 Profit on disposal of property, plant and equipment (109) (521) (109) (521) Gain on fuel hedging 5,849 7,468 5,849 7,468

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Notes to the Financial Statements for the year ended March 31, 2008

25. OPERATING PROFIT (Continued)

(a) Operating profit is arrived after:

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Charging: Included in operating expenses Depreciation on property, plant and equipment 28,452 30,323 28,181 30,051 Operating lease rental 26,229 17,408 26,229 17,408 Cost of inventories recognised as expenses 8,548 7,554 8,332 7,419 Increase in provision for stock obsolescence 393 662 387 654 Staff costs 46,012 42,901 45,370 42,489

Included in administrative expenses Depreciation on property, plant and equipment 3,155 3,261 3,144 3,242 (Decrease)/increase in provision for doubtful debts (59) 630 241 618 Amortisation of intangible assets 391 464 368 440 Staff costs 6,584 5,826 6,470 5,711

(b) Analysis of staff costs

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Salaries and wages 45,267 41,631 44,567 41,146 Social security costs 1,982 2,069 1,938 2,041 Defined benefit pension scheme [note 21(a)(ii)] 2,827 2,867 2,827 2,867 Notes to the Financial statements Other post retirement benefits [note 21(b)(ii)] 968 825 956 811 End of contract gratuity for pilots [note 21(c)] 1,259 1,065 1,259 1,065 Defined contribution pension scheme 293 270 293 270 52,596 48,727 51,840 48,200

116 26. FINANCE REVENUE

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Finance revenue Interest income from defeased deposits 5,477 5,282 5,477 5,282 Other interest income 4,252 3,118 3,694 2,746 Dividend income - quoted 62 57 62 57 - unquoted 12 11 12 11 9,803 8,468 9,245 8,096

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Notes to the Financial Statements for the year ended March 31, 2008

27. FINANCE COSTS

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Foreign exchange Loss realised on transactions 2,327 1,971 2,327 1,971 Release of provision on blocked funds (318) (575) (318) (575) Loss on translation of monetary assets and liabilities 1,629 432 1,629 458 Net loss on currency hedging 2,058 1,820 2,058 1,820 5,696 3,648 5,696 3,674

Interest expense Defeased liabilities 5,477 5,282 5,477 5,282 Finance leases 5,929 7,268 5,929 7,268 Bank overdraft - 1 - - Bank loans 189 382 126 297 11,595 12,933 11,532 12,847 Total 17,291 16,581 17,228 16,521

28. TAXATION

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 (a) Income tax Deferred tax charge for the year (note 13) 210 196 - -

(b) Tax reconciliation

Profit/(loss) before tax 17,220 (6,473) 15,643 (7,910) Notes to the Financial statements

Tax at the rate of 15% (2007: 25%/15%) 2,583 (1,480) 2,347 (1,780) Expenses not allowable for tax purposes 64 6 56 3 Exempt income (16) (27) (11) (15) Fair value gain 12 - - - Unrealised exchange gain 479 104 479 104 Expenditure qualifying for 200% deduction (18) (19) - - 117 Deferred tax over provided in current year - 9 - - Deferred tax under provided in previous year (23) (3) - - Effect of tax exemptions (2,871) 1,688 (2,871) 1,688 Effect of changes in tax rate - (77) - - Deferred tax assets not recognised in subsidiary - (5) - - Tax charge for the year 210 196 - -

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Notes to the Financial Statements for the year ended March 31, 2008

29. EARNINGS/(LOSS) PER SHARE 2008 2007 €‘000 €‘000 The Group Earnings/(loss) per share is based on: Profit/(loss) for the year 16,827 (6,799)

Number of shares in issue during the year used in calculation 102,305,000 102,305,000

30. COMMITMENTS 2008 2007 €‘000 €‘000 The Group and the Company

(a) Capital commitments (i) Commitments for the acquisition of property, plant and equipment 7,531 5,873

(ii) The Company has also committed to take delivery of one Airbus A330-200 by October 2009. It is intended that this aircraft will be financed using operating lease arrangements.

(b) Operating lease commitments 2008 2007 €‘000 €‘000 The Group and the Company have the following commitments under non-cancellable operating leases: - within one year 27,783 26,087 - after one year and before two years 27,776 26,312 - after two years and before five years 75,365 67,080 - after five years 113,744 113,129 244,668 232,608 Notes to the Financial statements

The Group has entered into commercial leases on exclude costs to be incurred for the reconditioning certain aircraft and accessories. The remaining of aircraft prior to return to lessor. The above lease lease duration period ranges from 2 to 12 years rentals are subject to changes in market interest with a renewable option. The above commitments rates which are recognised when they arise.

118 31. CONTINGENT LIABILITIES The Company

2008 2007 €‘000 €‘000

Guarantee Guarantee in respect of subsidiary company loan 319 346

The Company has guaranteed a portion of a loan subsidiary defaulting on its loan repayments, taken out by one of its subsidiaries. The obligation which the directors consider not probable. to honour this guarantee is contingent on the

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Notes to the Financial Statements for the year ended March 31, 2008

31. CONTINGENT LIABILITIES (Continued)

Litigation recognised at March 31, 2008 in respect of these There are currently a number of lawsuits that have litigations amounts to€ 1.4M (2007: € 0.4M) been filed against the Company for diverse reasons. The net estimated value of claims Others against the Company amounts to € 4.5M (2007: € The Company has provided guarantees to various 4.3M). The timing and outcome of these claims is other parties in the normal course of business. dependent upon the judicial system and cannot The Company does not expect any liability to be reasonably assessed. The amount of liability crystalise out of these guarantees.

32. SUBSTANTIAL SHAREHOLDERS

At March 31, 2008, the following shareholders held more than 5% of the ordinary share capital of the Company.

Direct Indirect Effective %%%

Air Mauritius Holding Limited 51.00 - 51.00 Government of Mauritius 4.53 29.64 34.17 State Investment Corporation Ltd 4.54 7.86 12.40 Rogers & Co Ltd 4.28 7.90 12.18 British Airways Associates Companies Ltd 3.84 6.75 10.59 Compagnie Nationale Air France 2.78 4.89 7.67 Air India 2.56 4.50 7.06 Pershing LLC 5.44 - 5.44

33. RELATED PARTY TRANSACTIONS

(i) Entities with significant influence over the Group Notes to the Financial statements State-controlled entities the Government of Mauritius and its state- The Government of Mauritius has a 34.17% controlled entities relate generally to taxes, civil effective interest (including both direct and indirect aviation and related charges, utility costs and holdings) in the share capital of Air Mauritius amounts relating to pension and pension Limited. The amounts paid to and received from administration. 119 2008 2007 €‘000 €‘000 Income for the financial year 3,914 2,950 Expenses for the financial year 17,476 14,685 Amount receivable as at March 31, 803 806 Amount payable as at March 31, 1,018 1,613

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Notes to the Financial Statements for the year ended March 31, 2008

33. RELATED PARTY DISCLOSURE (Continued)

(ii) Key management personnel

Key management personnel are persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors and leadership team.

(a) Compensation

THE GROUP THE COMPANY 2008 2007 2008 2007 €‘000 €‘000 €‘000 €‘000 Short-term benefits 1,236 1,161 1,223 1,152 Post-employment benefits: - Defined benefit 114 126 114 126 - Defined contribution 3 3 3 3 1,353 1,290 1,340 1,281

(b) Other transactions

(1) Mr Philippe Espitalier-Noël, who is a Director of the Company, is the Chief Executive of Rogers & Co. Ltd (“Rogers”). Rogers has a number of subsidiaries and these companies have transacted with the Group during the financial year. Transactions relating to these entities are as follows:

2008 2007 €‘000 €‘000 Income for the financial year 24,205 22,845 Expenses for the financial year 1,914 1,888 Amount receivable as at March 31, 2,293 2,365 Amount payable as at March 31, 172 303 Notes to the Financial statements (2) Mr Vasudevan Thulasidas, who is a Director of the Company, was the Chairman and Managing Director of Air India. Air India has transacted with the Group during the year and the summary of transactions are as follows: 2008 2007 €‘000 €‘000 Expenses for the financial year 1,306 1,775 120 Amount payable as at March 31, 97 129

(3) Mr Kremchand Beegoo, who is a Director of the Company, is also the Managing Director of Cargotech Ltd and the chairman of Budget Travel Services Ltd. These two companies have transacted with the Group the transactions relating to these entities are as follows: 2008 2007 €‘000 €‘000 Income for the financial year 3,948 2,072 Amount receivable as at March 31, 304 232

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Notes to the Financial Statements for the year ended March 31, 2008

33. RELATED PARTY DISCLOSURE (Continued)

(c) Terms and conditions of transactions with related parties

Outstanding balances at year end are interest free and settlement occurs in cash. For the year ended March 31, 2008, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2007: Nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

(iii) Subsidiaries and associate

The Company holds investments in subsidiaries and an associate as described in notes 9 and 10. The Company has had no related party transactions with its associate. Transactions with subsidiaries are in respect of rent of office space from MEDCOR, revenue from cleaning services provided to MEDCOR, call center services provided by Airmate Ltd and sale of tickets to Pointe Cotton Resort Hotel Company Limited.

2008 2007 €‘000 €‘000 Income for the financial year 58 31 Expenses for the financial year 918 913 Amount receivable as at March 31, 233 390 Amount payable as at March 31, 638 888

As described in note 31, the Company has guaranteed a portion of a loan taken out by one of its subsidiaries.

34. HOLDING COMPANY AND ULTIMATE CONTROLLING ENTITY

Air Mauritius Holding Limited, whose registered office is Air Mauritius Centre, President John Kennedy Street Port Louis, is the holding company of Air Mauritius Limited. The ultimate controlling entity is the Notes to the Financial statements Government of Mauritius.

35. SUBSEQUENT EVENTS

No material adjusting and non-adjusting events have arisen between the balance sheet date and the date the financial statements were approved. 121

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Notes to the Financial Statements for the year ended March 31, 2008

36. DETAILS OF BORROWINGS AND FINANCIAL DERIVATIVES

(a) Borrowings and swap arrangements

The Group and the Company March 31, 2008 March 31, 2007

Loans and Fair value of Loans and Loans and obligations financial obligations obligations Last under finance derivative under finance under finance repayment Base currency Interest rate % leases liability leases leases date €‘000 €‘000 €‘000 €‘000

Aircraft loans under swap arrangements Fixed interest bearing loan EUR 4.546 to 4.576% 28,865 n/a 36,299 n/a April 2011 USD 7.89% to 8.06% --7,319 2,848 October 2006 to October 2007

Variable interest bearing loan EUR Libor + 0.1 to 0.95% 46,011 n/a 53,849 n/a October 2007 to March 2015 USD Libor + 0.4% 19,380 n/a 19,924 n/a October 2012 USD + 8.06% 8,341 n/a 11,955 n/a October 2011 USD Euribor + 0.45% --3,053 953 October 2007

Bank loans Fixed interest bearing loan EUR 5 % 1,689 n/a 2,252 n/a October 2010 Variable interest bearing loan USD Euribor + 0.797 to 0.819% 307 199 474 181 June 2006 to April 2010 Notes to the Financial statements

Defeased liabilities and deposits EUR 2.76% to 6.74% --86,744 n/a December 2007

Bank overdraft 122 MUR --466 n/a On demand

Financial derivatives (note 20) - 2,204 - 2,430 Company total 104,593 2,403 222,335 6,412

Other loans MUR 8% to 11% 559 n/a 746 n/a

Group total 105,152 2,403 223,081 6,412

Except for financial assets, as described in notes 12, 15 and 18, all other financial assets and liabilities are at call and do not bear any interest rate.

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Notes to the Financial Statements for the year ended March 31, 2008

36. DETAILS OF BORROWINGS AND FINANCIAL DERIVATIVES (Continued)

(b) Derivative financial instruments 2008 2007 The Group and the Company €‘000 €‘000

Currency derivatives (note i) (2,203) (458) Fair value of commodity derivatives: - Liability - (1,972) - Asset [notes (ii) and 12] 3,895 1,580 1,692 (850)

(i) Currency derivatives Notional amount with remaining life: Between three Less than months three and Fair value months one year Total gain €‘000 €‘000 €‘000 €‘000 OTC Traded

Forward rate agreements 11,447 23,762 35,209 (2,203)

(ii) Fair value of commodity derivatives Notional amount with remaining life: Between three Less than months Total three and More than Fair value months one year one year gain €‘000 €‘000 €‘000 €‘000 Asset Notes to the Financial statements OTC Traded

Swaps 352 620 - 972 Corridor 1,241 802 880 2,923 1,593 1,422 880 3,895 123 These derivative financial instruments have been accounted for as cash flow hedges as per the requirements of IAS 39.

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Notes to the Financial Statements for the year ended March 31, 2008

37. FINANCIAL SUMMARY

(a) The Group 2008 2007 2006 €‘000 €‘000 €‘000 (Restated) INCOME STATEMENTS Turnover 448,077 414,231 416,602 Share of results of associates 2 5 (13) Profit/(loss) before taxation 17,220 (6,473) 7,948 Profit/(loss) for the year 17,010 (6,669) 7,888 Minority interests 183 (130) (5) Profit/(loss) attributable to the shareholders 16,827 (6,799) 7,883

BALANCE SHEETS Non-current assets 307,541 322,218 421,219 Current assets 165,720 232,018 188,644 Assets held for sale - - 30,748 Current liabilities (155,217) (234,897) (201,476) Non-current liabilities (117,036) (135,170) (238,948)

SHARE CAPITAL Authorised Ordinary shares of Rs. 10 each 81,566 81,566 81,566

Issued and fully paid Ordinary shares of Rs. 10 each 41,724 41,724 41,724

RESERVES Share premium 18,869 18,869 18,869 Other reserves (6,786) (10,255) (1,172) Notes to the Financial statements Retained earnings 145,231 132,116 138,915

EARNINGS AND DIVIDENDS Dividends - Rate (%) 15 -5 - Ordinary shares (€‘000) 3,712 - 1,382 124 - Per ordinary share (€) 0.04 - 0.01 Earnings/(loss) per ordinary share (€) 0.17 (0.07) 0.08

Number of ordinary shares: Authorised 200,000,000 200,000,000 200,000,000 Issued 102,305,000 102,305,000 102,305,000

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Notes to the Financial Statements for the year ended March 31, 2008

37. FINANCIAL SUMMARY (Continued)

(b) The Company 2008 2007 2006 €‘000 €‘000 €‘000 (Restated) INCOME STATEMENTS Turnover 445,888 411,988 413,922 Profit/(loss) for the year 15,643 (7,910) 7,298

BALANCE SHEETS Non-current assets 320,216 335,035 430,402 Current assets 157,672 226,018 183,657 Assets held for sale- 30,748 Current liabilities (155,523) (235,328) (201,444) Non-current liabilities (116,453) (134,453) (237,995)

SHARE CAPITAL Authorised Ordinary shares of Rs. 10 each 81,566 81,566 81,566

Issued and fully paid Ordinary shares of Rs. 10 each 41,724 41,724 41,724

RESERVES Share premium 18,869 18,869 18,869 Other reserves 4,178 1,459 7,655 Retained earnings 141,142 129,210 137,120

EARNINGS AND DIVIDENDS Dividends Notes to the Financial statements - Rate (%) 15 -5 - Ordinary shares (€‘000) 3,712 - 1,382 - Per ordinary share (€) 0.04 - 0.01

Number of ordinary shares Authorised 200,000,000 200,000,000 200,000,000 Issued 102,305,000 102,305,000 102,305,000 125

38. RESTATEMENT OF COMPARATIVES

The comparative figures in respect of current and expected to be delivered in October 2009. This non current receivables have been restated due reclassification has been made to the comparative to the reclassification of predelivery payment figures to comply with the current figure amounting to € 6,418 K for which the aircraft is presentation.

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Translation of the Balance Sheets as at March 31, 2008

THE GROUP THE COMPANY 2008 2007 2008 2007 MUR ‘m MUR ‘m MUR ‘m MUR ‘m ASSETS Non-current assets Property, plant and equipment 11,491 12,690 11,282 12,535 Investment property 371 433 - - Intangible assets 43 11 42 8 Investment in subsidiary companies - - 1,123 1,169 Investment in associated companies 12 11 4 4 Available-for-sale investments 86 84 86 84 Other financial assets 36 - 36 - Deferred tax asset 9 21 - - Long term deposits 632 559 632 559 Long term receivable 34 60 34 60 12,714 13,869 13,238 14,419 Current assets Inventories 532 603 530 601 Trade and other receivables 2,644 6,832 2,616 6,813 Other financial assets 261 292 125 73 Cash and cash equivalents 3,415 2,260 3,247 2,242 6,851 9,987 6,518 9,729 Assets classified as held for sale - - - Total assets 19,566 23,857 19,757 24,148

EQUITY AND LIABILITIES Capital and reserves Share capital 1,725 1,796 1,725 1,796 Share premium 780 812 780 812 Other reserves (281) (441) 173 63 Translation of the Balance Sheets Translation Retained earnings 6,004 5,687 5,835 5,561 8,229 7,854 8,513 8,232 Minority interests 81 74 - -

Total equity 8,310 7,928 8,513 8,232 Non-current liabilities 126 Borrowings and financial derivatives 3,476 4,792 3,456 4,765 Provisions 1,362 1,027 1,358 1,022 4,838 5,819 4,814 5,787 Current liabilities Trade and other payables 5,293 5,025 5,309 5,049 Borrowings and financial derivatives 970 5,085 967 5,080 Dividends 153 - 153 - 6,417 10,110 6,430 10,129 Total equity and liabilities 19,566 23,857 19,757 24,148

The above balance sheets translated to Mauritian rupees using the Eur/Mur rates prevailing at each respective balance sheet date are provided for information purposes only and do not form part of the audited financial statements.

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Cascade Holding Structure Fi- nancial Statement pgs airmtius final 6/26/08 10:44 AM Page 128

Cascade Holding Structure Air Mauritius Limited

Air Mauritius Holdings Ltd.

51%

Air Mauritius Ltd.

100% 100%

100% 100%

Air Mauritius 100% Holidays (Pty) Ltd. Airmate Ltd. (Australia) 93.7%

Mauritian Air Mauritius (SA) Holidays Ltd. (Proprietary) Ltd. (UK) 54.2%

Mauritius 41.7% Helicopters

Cascade Holding Structure Ltd. Mauritius Estate Development Corporation Ltd. Pointe Coton Resort Hotel Company Ltd.

128 Mauritius Shopping Paradise Company Ltd.

Shareholders of Air Mauritius Holding Ltd % of Shareholding

The Government of Mauritius 37.46 State Investment Corporation Ltd 15.41 Rogers & Co Ltd 15.49 British Airways Associated Companies Ltd. 13.24 Compagnie Nationale Air France 9.58 Air India 8.82

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Directors in Subsidiary Companies

DIRECTORS IN SUBSIDIARY COMPANIES Air Mauritius (S.A.) (Proprietary) Limited

Mauritius Estate Development Corporation In South Africa, the Company operates through Limited (MEDCOR) a 100% owned subsidiary Air Mauritius (S.A.) (Proprietary) Limited which acts as agent for Air Air Mauritius holds 93.7% of the shares of Mauritius Limited. This company operates on Mauritius Estate Development Corporation a cost reimbursement basis with its expenses Limited (MEDCOR) a real estate company. The being directly accounted for in the books of the Board Directors of MEDCOR are: parent company. The Board Directors of Air Mauritius (S.A.) (Proprietary) Limited are: Sanjay Bhuckory ( Chairman ) Manoj R K Ujoodha G.O.S.K Manoj R K Ujoodha G.O.S.K. Ramapatee Gujadhur C.S.K Ben Ambishen Balasoopramanien Vijay Seetul Isidore Bronstein Mitravaroon Moheeput ( up to March 01,2008 ) Secretary: Scribe Holding (PTY) Ltd Raj Ringadoo South Africa

Sushil Duth Baguant Airmate Ltd Bonoomatee Veerasamy (alternate to Raj Ringadoo) Secretary: Fooad Nooraully This is a newly incorporated 100% subsidiary, which provides call centre services to the airline. It became operational in June 2006. The Board Pointe Coton Resort Hotel members are as follows: Company Limited

Air Mauritius has a shareholding of 54.2% in Pointe Sanjay Bhuckory ( Chairman ) Coton Resort Hotel Company Limited, which Manoj R K Ujoodha G.O.S.K. owns a hotel in Rodrigues. The Board Directors of Sushil Duth Baguant Pointe Coton Resort Hotel Limited are: Cornwell Muleya Directors in Subsidiary Companies Sanjay Bhuckory ( Chairman ) Suresh Seeballuck Manoj R K Ujoodha G.O.S.K Secretary: Fooad Nooraully

Anil Sewpaul ( up to October 20, 2007 ) Mauritian Holidays Ltd (UK) Vijay Seetul Anista Ramphul-Punchoo The company was set up with the objective of 129 conducting a tour operating business in the UK. Patrice Leal Activity of this dormant entity is limited to the Raj Ringadoo preparation and filing of the Annual Statutory Banoomatee Veerasamy (Alternate to Raj Ringadoo) returns to the relevant authorities in the United Kingdom. Gilbert Stephane Leal (Alternate to Patrice Leal) Secretary: Fooad Nooraully Board members are as follows:

Dale Keller Iqbal Bhayat Secretary: Ranjeeta Dussoye Sookha

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Directors in Subsidiary Companies (Continued)

Air Mauritius Holidays (Pty) Limited Mauritius Helicopter Limited (Australia) This is a newly incorporated 100% subsidiary. This is a 100% owned subsidiary. It is intended It is not yet operational, awaiting the grant of to operate the tour packaging business in an Air Operator Certificate. The Board these markets. The Board members are as members are as follows: follows: Sanjay Bhuckory (Chairman) Louis Francis Ong Seng. MBE Manoj R K Ujoodha G.O.S.K. Vijay Coomar Singh Bhujohory Suresh Seeballuck Secretary: Louis Francis Ong Seng Sushil Duth Baguant Cornwell Muleya Pramil Banymandhub Secretary: Fooad Nooraully Directors in Subsidiary Companies

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Shareholders Information

Financial Statement pgs airmtius final 6/26/08 10:44 AM Page 132

Shareholders Information

Key Data Per Share

2007/2008 2006/2007 Amount (MUR) Amount (MUR)

Market Capitalisation 2,649,699,500 1,964,256,00 Highest Closing Price 26.00 20.80 Lowest Closing Price 16.10 17.50 Closing Price 25.90 19.20 Average Price 19.08 18.97 Dividend per share 1.50 - Net worth per share 80.67 76.76 Share Price/Equity per share at year end 32.10% 25.0 % Dividend yield/Average price 0.08 P/E ratio,average 2.64 (6.58) Earnings/(Loss) per share 7.23 (2.88) Dividend as % of earnings after tax 21.2 %

No. of shares traded during the year 3,715,647 5,863,501 No. of shares at year end 102,305,000 102,305,000

Earnings & Dividend

(Mur) Dividend per shareEarnings per share

8.00

7.2 6.00 6.3

4.00 4.2

Shareholders Information 2.00 2.6 1.5 1.5 1.5 0.5 2006/2007 2003/2004 2004/2005 2005/2006 2007/2008

-2.00 -2.9 -4.00

132 The company declared a dividend of MUR 1.50 per share for the financial year 2007/2008 which was paid in April 2008. No dividend was paid to shareholders in 2006/2007.

Key Data Per Share

The share price which was quoted at Mur 19.10 ever achieved on the Stock exchange after the at the start of the financial year 2007/2008 bonus issue in April 2000. Volume of shares closed at Mur 25.90 at the end of March 2008 traded at the Stock exchange was inferior to the representing an increase of 35.6%.The share previous financial year with a total of 3,715,647 price peaked to Mur 26.00, the highest price as compared to 5,863,501 for 2006/2007.

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Shareholders Information

Air Mauritius average monthly Share Price v/s Semdex

Mur MK SHARE SEMDEX Points 26.00 2,100 25.00 2,000 24.00 1,900 23.00 1,800 22.00 1,700 21.00 1,600

20.00 Semdex Share Price 1,500 19.00 18.00 1,400 17.00 1,300 16.00 1,200 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08

Share Price performance and trading volume Mur

350,000 Volume MK Share 27.00

300,000 25.00

250,000 23.00 200,000 21.00 150,000 Volume

19.00 Share Price 100,000

50,000 17.00 Shareholders Information

15.00 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08

MK Average share Price - 2007/2008 v/s 2006/2007

Mur 2007/2008 2006/2007 133 26.00 25.00 24.00 23.00 22.00 21.00 20.00 19.00 18.00 17.00 16.00 Apr May Jun JulAug Sep Oct Nov Dec Jan Feb Mar

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Shareholders Information Shareholders Diary

Financial Year End: March 31, 2008 Annual Meeting: July 31, 2008

Abridged Financial Statements

Half Year Results - Published: November 08, 2007 Annual Financial Statements - Published: June 20, 2008

Registered Office

Air Mauritius Limited Air Mauritius Centre President John Kennedy Street Port Louis Website: http//www.airmauritius.com

Company Information

For any information regarding Air Mauritius, please consult our website - http//www.airmauritius.com Shareholders Information

134

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Notice of Meeting

AIR MAURITIUS ANNUAL MEETING 2007/2008

Notice is hereby given that the Annual Meeting of the Shareholders of Air Mauritius Limited will be held at Swami Vivekananda International Convention Centre, Les Pailles, on Thursday July 31, 2008 at 15.00 hours for the following purposes:

(1) To adopt the Minutes of Proceedings of the last Annual Meeting held on September 27, 2007. (2) To receive the Report of the Directors. (3) To receive the Report of the Auditors. (4) To adopt the Group’s and the Company’s Accounts for the year ended March 31, 2008. (5) To ratify the dividends declared in March 2008. (6) To elect the Directors who are already in place and who offer themselves for re-election, namely:

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K. Mr Kremchand Beegoo Mr Dheerendra K. Dabee S.C Mr Philippe Espitalier-Noël Mr Ali Mansoor Mr Ramapatee Gujadhur C.S.K. Mr Raj Ringadoo Mrs Premila Roy Mr Suresh Seeballuck Mr Timothy Taylor

(7) To elect Messrs Raghu Menon and Antoine Pussiau who have been nominated by the Board and who offer themselves for election. Notice of Meeting (8) To fix the remuneration of the Directors. (9) To authorise the Directors to fix the remuneration of the Auditors.

By Order of the Board

135 Mr Fooad Nooraully Company Secretary Air Mauritius Limited

June 30, 2008

N.B:Members entitled to attend and vote at the meeting may appoint proxies to attend and vote on their behalf. The instrument appointing a proxy or any general power of attorney shall be deposited at the Registered Office of the Company not less than twenty-four hours before the day fixed for the meeting or else the instrument of proxy shall not be treated as valid.

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136

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Proxy Form Air Mauritius Limited

I/We ………………………………………………………………… of …………………………………………..………………… being a member of the above-named Company, hereby appoint …………………..……………….…………………………... …………………………………………………………………… of ……………………………………………..………………… or failing him/her, …………………………………………………………………………………………....………………..……… as my/our proxy to vote for me/us on my/our behalf at the Annual Meeting of the Company to be held at Swami Vivekananda International Convention Centre, Les Pailles, on Thursday July 31, 2008 at 15.00 hours and at any adjournment thereof.

I/We desire my/our vote(s) to be cast on the Resolutions as follows: For Against

(1) To adopt the Minutes of Proceedings of the last Annual Meeting held on September 27, 2007.

(2) To receive the Report of the Directors.

(3) To receive the Report of the Auditors.

(4) To adopt the Group’s and the Company’s Accounts for the year ended March 31, 2008.

(5) To ratify the dividends declared in March 2008.

(6) To elect the following Directors who are already in place and who offer themselves for re-election, namely:

Mr Sanjay Bhuckory Mr Manoj R K Ujoodha G.O.S.K. Mr Kremchand Beegoo Mr Dheerendra K. Dabee SC Mr Philippe Espitalier-Noël Mr Ali Mansoor Mr Ramapatee Gujadhur C.S.K. Proxy Form Mr Raj Ringadoo Mrs Premila Roy Mr Suresh Seeballuck Mr Timothy Taylor

(7)To elect the following Directors who have been nominated by the Board and who offer themselves for election: • Mr Raghu Menon • Mr Antoine Pussiau

(8) To fix the remuneration of the Directors 137 (9) To authorise the Directors to fix the remuneration of the Auditors

Dated this …………………… day of …………….. 2008.

…………………………………………… Signature/s

Notes: 1. A member of the Company entitled to attend and vote at this meeting may appoint a proxy of his/her own choice (whether a member or not) to attend and vote on his/her behalf. 2. Please mark in the appropriate box how you wish to vote. If no specific direction as to voting is given, the proxy will exercise his/her discretion as to how he/she votes. 3. The instrument appointing a proxy or any general power of attorney shall be deposited at the Registered Office of the Company not less than twenty-four hours before the day fixed for the meeting or else the instrument of proxy shall not be treated as valid.

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