2005-06 reference document Contents Corporate governance — 10 Activity report — 46 Social and environmental data — 86 Risks and risk management — 104 Financial report — 124 Additional Information — 248 This document is an unofficial translation of the French Document de Référence, which was filed with the French Autorité des Marchés Financiers on June 29, 2006, in accordance with article 212-13 of the AMF General Regulations. This unofficial translation has been prepared by Air France-KLM for information purposes only and has not been reviewed or registered with the AMF. The French Document de Référence may be used for purposes of a financial transaction if supplemented with an offering memorandum approved by the AMF. In the event of any ambiguity or discrepancy between this unofficial translation and the French Document de Référence, the French version shall prevail. Chairman’s message Dear Shareholder, We achieved an excellent performance in 2005-06. Operating income rose by nearly 70% to 936 million euros and net income reached 913 million, including an exceptional gain of 504 million euros on Amadeus. These results confirm what we had already announced last year, the success of our merger, both operationally and financially. Our combination has given us a real competitive advantage, supporting our strategy of profitable growth. Despite a continued high oil price our objective is for operating income in the current financial year at least in line with last year. Our confidence in the future has led us to propose a doubling in the dividend to 30 euro cents. Within a context of buoyant economic conditions, Air France and KLM have been able to seize every opportunity offered by sustained demand thanks to the power of their networks, organized around two highly efficient hubs. We achieved record load factors across all markets, carrying 70 million passengers. This puts us far ahead of our competitors and confirms our position as European leader. 2005-06 Our sector makes an essential contribution to the world economy, whose development depends on efficient and profitable air transport. While last year showed very strong worldwide traffic growth, we should remember that the air transport sector is still in a very fragile state. The ever-higher oil price of the past two years, following a number of geopolitical crises and health scares, is not allowing it to benefit fully from restructuring initiatives. The US airlines, for example, remain in the red, despite their cost-cutting efforts and the various subsidies received while, in Europe, certain airlines are still in difficulty. The development of the air transport sector, clearly divided between strong and weak companies, must be achieved We intend to play a major role in this new context. through consolidation. Alliances are already playing a major Thanks to the strategy of profitable growth we are pursuing, role in this process in bringing companies together around we are achieving a steady improvement in our profitability. a shared and compelling commercial project. I remain We have chosen RoCE, or return on capital employed, as convinced, however, that only mergers will be able our performance benchmark. Currently standing at 5.1% to deliver the profound restructuring our sector needs after tax, our objective is to increase this to 7% after tax to enjoy the status that its economic importance deserves. over the coming four years and to generate significant free It is also becoming essential for airlines to achieve critical cash flow, allowing us to seize growth opportunities while creating value for our shareholders. mass to provide the adaptive capacity and flexibility needed message Chairman’s in a sector subject to rapid and profound changes. Thank you for your loyalty, Jean-Cyril Spinetta 2 / 3 2005-06 Highlights April 2005 June 2005 Air France adopts the new economic model for distribution, A frequent flyer program, common to both Air France and applied as of January 1, 2005 by KLM. From now on, KLM, Flying Blue, is launched. the airlines will no longer pay commissions to travel agencies, whose services are directly invoiced to their Air France Industries creates a joint venture, Spairliners, customers. for the maintenance of the Airbus A380 and takes a stake in Aero Maintenance Group (AMG). Air France and KLM implement mutual operational support at their two hubs. According to this principle, Air France is July 2005 responsible for managing KLM flights at the Roissy-Charles Air France disposes of its stake in Amadeus within de Gaulle hub and KLM for Air France at Schiphol. the framework of the LBO by investment funds Cinven and BC Partners. Air France launches its new uniform, designed by Christian Lacroix. Air France-KLM publishes its first joint sustainability report. The oil price (Brent IPE) reaches a new record level August 2005 of $56.51 a barrel in London. On August 3, flight AF358 from Paris to Toronto overshoots the runway. There are no life-threatening injuries. May 2005 To celebrate its first anniversary, Air France-KLM organizes its first joint convention, “Flying together”, bringing together executives from both airlines. The Group’s financial website www.airfranceklm- finance.com is launched. 2005-06 September 2005 Air France-KLM is the only air transport group to be included in the sustainable development indices, DJSI (Dow Jones Sustainability Index) World 2005 and DJSI STOXX February 2006 2005. Air France-KLM creates a European Works Council to keep employees informed and consult with them on issues Delta and Northwest Airlines, member airlines of SkyTeam, concerning the Group as well as matters of a trans-national file for Chapter 11 bankruptcy protection. nature. KLM takes delivery of its first Airbus A330-200 to replace March 2006 the Boeing 767 and launches its exclusively “business The new flight crew center is inaugurated at Roissy. class” flights between Amsterdam and Houston. Air France launches its new advertising campaign with October 2005 a well-being theme. The marketing, commercial and sales teams of Air France Cargo and KLM Cargo are integrated within a common A seventh transfer time is introduced at the Schiphol hub, structure, the Joint Cargo Team. allowing KLM to increase its flights to major European destinations. November 2005 KLM reviews its economy flights, bringing them into line April 2006 with the services Air France offers its passengers. Aeroflot joins the SkyTeam alliance as a member airline. Highlights December 2005 Air France-KLM is recognized for the success Flying Blue, Europe’s foremost frequent flyer program by of the merger by Aviation Week in the United States. number of members, is an outright success. Membership of Air France and KLM’s joint program shows record A common e-services application is launched jointly growth of 10% since its creation. by Air France and KLM, allowing passengers of the two airlines to check in over the internet. January 2006 Air France and KLM adopt a single ticket code for the The oil price (Brent IPE) reaches a new record of $74.57 Roissy-Amsterdam route, the hubway linking the Group’s in London. two hubs. Air France is voted 2005 Best Trans-Atlantic Airline and SkyTeam Best Alliance for the same year by readers of the American magazine Global Traveler. The oil price (Brent IPE) breaks the $60 level in London. 4 / 5 Key figures 21.4 16.9 Passenger 936 686 Passenger 19.5 2.9 Cargo 166 Cargo 0.9 Maintenance 54 Maintenance 0.7 Other activities 30 Other activities 553 2004-05 2004-05 2005-06 2005-06 * 2004-05 proforma figures, unaudited figures, * 2004-05 proforma Breakdown Breakdown of revenues Operating income of operating income Revenues (in billions of euros) (in millions of euros) (in millions of euros) (in billions of euros) The passenger, cargo Operating income rose by Each of the activities saw Revenues increased and maintenance activities 69.3% to 936 million euros an improvement by 1.9 billion euros, recorded, respectively, despite an 870 million in profitability (+ 10.2%), reflecting growth of 10.2%, 11.9% increase in fuel expense with the passenger activity the very strong level and 12.1% in their to 3.59 billion euros. achieving a remarkable of activity throughout revenues. performance. (+78.6%). the year. "Our 2005-06 financial year was characterized by two economic events: strong worldwide growth leading to extremely buoyant activity and a marked increase in the oil price. In this environment, our Group confirmed the success of its merger and maintained its sector leadership position achieving the highest traffic growth and load factors in Europe. The synergies linked to the merger as well as continued cost control not only limited the impact of the oil price but allowed for a significant improvement in our margins. At the same time, we have considerably strengthened our financial position while continuing to invest in improving the efficiency of our fleet." Jean-Cyril Spinetta 2005-06 5.6 2.6 2.5 913 4.4 706 • Net debt • Gearing ratio 0.94 • • 0.56 2005-06 * before restating for KLM pension fund restating * before 2004-05* Cash flow Investments March 31, 2005 March 31, 2006 March Net income, Group share Financing of investments Financial structure (in millions of euros) (in billions of euros) (net debt in billions of euros) Earnings per share amounted Investments amounted While net debt fell by 1.3 billion to 3.47 euros at March 31, 2006. to 2.5 billion, of which 1.5 billion euros, stockholders’ equity The dividend doubled to 30 euro in flight equipment. They were increased by 1.8 billion euros, Key figures cents. financed from operating cash reducing the gearing ratio flow of 2.6 billion euros, from 0.94 at March 31, 2005 supplemented by the one billion to 0.56 at March 31, 2006.