Utair-Engl.Pdf

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Annual Report 2010

CONTENTS

1. UTair today ...... 4 9. Sustainable Development ...... 38 2. Our achievements ...... 8 10. Corporate governance ...... 44 3. Message of the Chief Executive Officer ...... 10 11. Our securities ...... 54 4. Main events of 2010 ...... 12 12. Reference information ...... 58 5. Our strategic goals ...... 15 13. Glossary ...... 59 6. Where we work ...... 16 14. Liability restriction ...... 60 7. Our work ...... 20 15. Attachment: 8. Financial results ...... 34 Consolidated statements in accordance with International Financial Reporting Standards (IFRS) ...... 61 4 5

Annual Report 2010

We are the world’s no. 1 helicopter company based on fleet size THE WORLD’S NO. 1 HELICOPTER COMPANY and lift capacity of rotary-wing >300 HELICOPTERS OF ALL CLASSES aircraft inventories. The UTair fleet has over 300 helicopters of all classes, including 26 Mil-26Т heavy helicopters that are capable of carrying payloads of up to 20 tons internally and on external sling loads.

We are a major supplier of aviation services for the United Nations, >20 YEARS OF having successfully provided SUCCESSFUL COOPERATION WITH THE UN air-transportation support of UTAIR TODAY Peacekeeping missions since 1991.

The UTair Group is comprised of companies operating aircraft as well as providing aircraft repair and maintenance, staff training, flight service support and the sale of air carriage services. UTair Aviation Joint- We have our own aviation training Stock Company is the nucleus of the UTair Group companies. center with the necessary AVIATION TRAINING equipment and qualified teachers AND RETRAINING CENTER and instructors to provide training, Based on 2010 results, we hold retraining and practical exercises 2ND PLACE the second place in terms of for aircraft specialists. Training is IN TERMS OF PASSENGER OPERATION passenger operation volume on provided to over 20,000 persons domestic routes, and are among annually. VOLUME ON DOMESTIC ROUTES the top four leading Russian airlines based on the number of passengers transported by Our catering services unit is one of the major Russian passenger domestic and international 108 AIRLINES ARE CUSTOMERS airlines. catering producers, and is among OF UTAIR-CATERING SERVICES the most rapidly-developing UTair In 2010, UTair aircraft performed units. more than 220 regular passenger >220 flights daily on more than 180 REGULAR PASSENGER FLIGHTS routes in Russia, to CIS countries and Asia. 6 7

Annual Report 2010

The aircraft fleet upgrade and modernization strategy planned by the company in the 2010-2015 timeframe will allow us to improve the quality of service and develop promising new routes, including European routes.

166 aircraft* Medium-range Boeing 757-200 4 337 helicopters* Boeing 737-800 5 Boeing 737-400/500 28 Тu-154М 21 Heavy Мil-26Т 26 Short-range Мil-10К 5 ТU-134 28 Bombardier CRJ-200 15

Regional Medium ATR 72-200/500 9 Мil-171/Мil-8АМТ 52 ATR 42-300 14 Мil-8МТВ 67 YAK-40 5 Мil-8Т (P, PS) 166 АN-24 25 Мil-2 3 L 410 2 Ка-32 5

Cargo Light АN-74 3 Eurocopter AS-350/355 5 АN-26 4 Eurocopter BO-105 4 VIP air services Robinson R-44 4 Gulfstream IV/V-SP 2 Bombardier Сhallenger 300 1 * All aircraft of the UTair Companies Group, including leased aircraft. Information as of August 1, 2011. 8 9 Annual Report 2010

OUR ACHIEVEMENTS 2010 2009 In 2010, UTair marked many achievements, and can be rightfully proud of the excellent results of our 328,238 employee team. flight hours

During 2010, UTair aircraft logged a total of more than 328,238 flight 2010 hours, which was an all-time high 5.1 million 2009 in the company’s history. 261,505 328,238 passengers Operational flight time, hours

2010 In 2010, UTair aircraft transported a record number of passengers: US$ 1.462 mln 2009 over 5 million persons, which revenue exceeded the 2009 indicators by 3,695,661 5,147,436 39.3%. Number of passengers transported Based on the 2010 results, we 2010 increased the revenue from our main lines of business to a record

level of US$ 1.462 mln, exceeding 1,056,105 1,461,957 2009 8,981,000 the 2009 level by 38%. th. Pkm Revenue, mln US$

Based on the results of 2010 250 2010 passenger turnover, the airline US$ 205 mln 14.50 grew by 51% when compared to EBITDA 14.04% 200 14.00 2009, amounting to 8,981,417.1 5,939.4 8,981.4 14% EBITDA margin 13.50 th. pkm. 150 2009 Passenger turnover, million passenger-kilometers 13.00

UTair demonstrated its excellent 100 12.20% 12.50 2010 efficiency in 2010, which was 12.00 reflected in the growth of EBIDTA 50 19, 248.2 11.50 to US$ 205 mln; the EBITDA 129 205 tons of cargo 2009 margin grew by 1.84 percentage 0 11.00 EBITDA , mln US$ EBITDA margin % points compared to 2009.

In 2010, our company’s aircraft transported almost 20,000 tons These impressive results are due primarily to the work and dedication of the UTair team’s 12,000 employees, of cargo and mail, which is an whose concerted actions allowed the company to implement a full range of measures aimed at optimizing increase of 38.2% when compared 13,927.6 19,249.2 and expanding the route network, expanding the company’s geographic presence in the global and Russian to the results of 2009. helicopter operating markets, resulting in a significant increase in flight frequencies (over 220 regular flights a Cargo transported, tons day) and passenger flight load factors (78.2% occupancy of passenger seats) performed by UTair Aviation, and an increase in the volume of helicopter operations (flight hours increased by 23%). 10 11

Annual Report 2010 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

2010 was a landmark year occupied a clear leadership started servicing UTair Aviation requirements. The airline intends specialists working to fulfill delivery of 20 lightweight AS350 in the development of the UTair position based on the number flights in the spring. to buy 24 aircraft of this type, with contracts abroad. B3 and AS355 NP helicopters. Group’s business. Our success of passengers transported on In addition, UTair significantly deliveries to UTair beginning in UTair South Africa participated On behalf of the Board of was built on the framework of domestic routes. increased its Boeing aircraft fleet. 2013-2014. in fulfilling the contract for fire- Directors, the Executive Board fleet modernization, an expansion Active development of Five Boeing 737-400s were added, In 2010, a number of strategic fighting duties in Turkey. Another and the Employees, I would like to of geographical presence, and UTair’s route network continued and the airline started flying Boeing tasks for UTair Aviation’s helicopter subsidiary, UTair India, received express sincere gratitude to the further improvement of the according to the market 757-200s with a capacity of 228 business were successfully its operator certificate, paving shareholders and investors, whose company’s structure. UTair requirements: in 2010 more passengers. This type of aircraft is implemented. The volume of the way to promising markets in trust helped us to demonstrate confirmed its status as a major than 30 new regular flights were used by the airline on routes with helicopter operations increased Southeast Asia. such consistent growth rates. global helicopter operator and a launched. Today the map of UTair high passenger potential, primarily and their geographic presence An unprecedentedly large New business development leading airline in the CIS and Baltic flights covers the territory in which on international flights connecting was expanded due to activities in contract for the delivery of 40 new tasks in 2011 already are set republics. 90% of the Russian population Moscow, Saint Petersburg and the following promising regions: Mil-171 helicopters to UTair from and target further achievements. Thanks to the concerted lives. No other airline can boast other big cities with popular the Yamal peninsula, Omsk, Tomsk the Ulan-Ude aviation plant was Undoubtedly, these lofty goals actions of our Employees of such coverage. tourism destinations in Turkey and and Novosibirsk Oblast. We plan completed prior to the expiration will be achieved due to the high consisting of over 12,000 In its development strategy, Egypt. to leverage UTair’s potential in of the contract’s terms. An order professionalism of the multi- efficient specialists, the growth the airline attaches special The competition to select supporting the development of the for delivery of six Kа-32А11VС thousand employees in UTair’s of UTair’s operational indicators significance to the modernization a commercial civil jetliner Shtokmanskoye gas condensate helicopters was signed by UTair Employees, with the full devotion in 2010 was much higher than of its aircraft fleet. In 2010, 25 replacement for Tu-134s in the field, one of the largest in the Europe and the investment/ of each employee to the common industry standards. In 2010, foreign-made aircraft were added UTair fleet has been completed, world. financial company Avialeasing. cause. the airline’s passenger turnover to the UTair fleet. Among them are with a commission of experts To aid peacekeeping missions UTair’s cooperation with its doubled, reaching 8,981,417.1 the comfortable and fuel-saving declaring that the Sukhoi Superjet in eight countries, 67 helicopters long-standing partner – the Andrei Martirosov thousand passenger-kilometers. Canadian-made Bombardier CRJ 100 was best suited to meet were used and were supported Eurocopter company – continues, Chief Executive Officer, From January to July, the airline 200 regional airliners, which our technical and economic by more than 600 highly qualified with a contract signed for the Chairman of the Board of UTair Aviation JSC 12 13 Annual Report 2010

Awards and prizes

MAIN EVENTS OF 2010 with our work, it is a special pleasure when our work is highly appreciated by professionals. In 2010, UTair received several awards and recognitions, the most significant one being “The best Route network development While we are justifiably proud of the helicopter company of 2009.” fact that our clients are satisfied correspondingly develop our route network. In 2010, we opened up 31 new routes, connecting more than 10 cities and providing Contracts with the United Nations our clients with broader travel opportunities using both direct We realize our great responsibility To attract new clients, we and connecting flights. in supporting peacekeeping and constantly monitor the demand other UN missions in various for new flight opportunities and countries and regions all over the world. In 2010, nine new contracts were signed in support of UN peacekeeping missions. Introduction of new aircraft types

We react to the growing demand for the airline’s services in an efficient and prompt manner. In 2010, we High appreciation of staff performance started flying Boeing 757-200s, which are used on routes with of professionalism, providing intensive passenger traffic. smooth operation of the company. In 2010, 11 UTair employees received government awards and decorations from the President of the Russian Federation.

Every day, UTair employees carry Implementation of new services and technologies out their work at a high level We are very attentive to our passengers and do everything to Corporate governance level make them feel comfortable, using the whole range of our airline’s We strive to be open for share- corporate governance at UTair services. For the passengers’ holders and investors, adhering and confirmed the 6 rating for cor- convenience, we implemented to the best corporate governance porate governance (“Developed in 2010 the capability of making practices. In 2010, the Consor- corporate governance practice”). hotel reservations through the tium RID–Expert RA gave special UTair website, and were the first recognition to the high level of to perform a flight to Vnukovo Airport’s Terminal A. 14 15 Annual Report 2010

Events of the first six months of 2011 OUR STRATEGIC GOALS

Extension and modernization of the aircraft fleet In our activities, we are oriented towards achieving a new level of quality in client service, while retaining the position of a modern, first-class, competitive company. Our business includes two main lines of business: To continue our policy for improving Generation Boeing 737-800s, the passenger transportation and helicopter operations, each of which has long-term goals within the framework service quality and flight safety, we first in Russia and Eastern Europe of the general strategy of the UTair Group’s development. signed agreements for the delivery with the Sky Interior passenger of 10 new Mil-34С1 helicopters cabin, and 36 helicopters were and 15 new EC 175 helicopters, added to the aircraft fleet. along with 40 new Boeing 737 jetliners. In the first half of 2011, 17 aircraft, two of which are Next- UTAIR’S STRATEGIC GOALS Route network development

To satisfy the growing demand of 2011, 25 new routes were for passenger transportation, we implemented. MAINTAINING HIGH QUALITY SERVICES continue to actively develop our route network; since the beginning EXPANDING THE RANGE OF SERVICES

ENSURING THE HIGHEST LEVEL OF SAFETY

EXPANSION OF THE OPERATIONS GEOGRAPHY

Receiving project financing

UTair Aviation received the of 20 new ATR 72-500 regional approval of export agencies in airliners. The first of these aircraft PASSENGER HELICOPTER France (Coface) and Italy (Sace) – was financed and delivered to the along with the leading European airline in May 2011. TRANSPORTATION OPERATIONS banks UniCredit (Austria) and Intesa (Italy) – for the financing

• Maintaining no less than the third • Strengthening the airline’s position Awards and prizes position among Russian airlines in the as a leader of the international domestic passenger transportation helicopter operations market among UTair has once again become the – UTair-Express LLC – was the market with a market share of no less global helicopter operators winner in the “Wings of Russia” winner in the category “Airline than 10% • Entering new international markets, industry competition for the of the year – passenger carrier • Entering long haul market. primarily in South-East Asia and “Helicopter company of the year” on domestic routes in Group Europe category, and also received the III (volume of passenger traffic diploma “Airline of the year on from 0.5 to 1 billion passenger- • Maintaining a leading position on the domestic routes in Group I (volume kilometers).” Russian market. of passenger traffic of over 3 billion passenger-kilometers.).” At the same time, UTair’s subsidiary 16 17

Annual Report 2010

WHERE WE WORK Air Transport market overview

The air transport industry is services. The global economy’s affected Russia as well. Despite 2010. The top five rated airlines 75%, payload were up by over globalized, so it is quite sensitive gradual recovery in 2010 the remaining impact of the crisis occupy the leading position 65%, which are optimal values to all types of changes occurring stimulated global trade, pushed on the global economy, 2010 was in the passenger operations and provide a balance between in the global economy. 2009 was the growth of import and export one of the most successful years market. They account for 52% satisfying the demand for air a vivid example of how crises in transactions and increased in the history of the Russian air of the transported passengers, transportation and an effective certain countries can result in an tourist flows – thereby boosting transport history. Based on the by 29.9%. 11.8 million more providing a growth of 6 million operation of the fleet. overall global drop in air transport the demand for transportation results of 2010, air transport passengers and 213,000 more passengers, including 4 million on services, including air transport. volume exceeded the previous tons of cargo were transported international airlines and 2 million According to the International year’s indicators in passenger when compared to 2009. on domestic airlines. Air Transport Association (IATA), turnover by 30.8%, in number of According to the Transport Based on the 2010 results, the rate of growth in passenger passengers carried by 26.2%, in Clearing House, 20 Russian an increase in the efficiency of operations was 8.2% in 2010. cargo turnover by 32.4%, and in airlines performed 86% of all aircraft fleet use was observed. The global air transport growth volume of cargo and mail carried the flights on domestic routes in Passenger load factor was over 18 19

Annual Report 2010

Distribution of the global helicopter fleet by countries and regions in Helicopter operations market overview 2010.* South-East Asia Other regions In contrast to air transportation, different areas: of the entire fleet (Russia), Petroleum Helicopters Medium helicopters with lifting 2% 10% the helicopter operations market as of the end of 2010, consisting (USA) and Canadian Helicopters capacity of 3-5 tons account for CIS 2% is less susceptible to dramatic of over 20,000 civil helicopters, (Canada). over 80% of the flight hours. Due South Africa North America changes in the economic North America accounted for Most of the Russian market’s to the Russian economy’s gradual 2% 41% environment, as such rotary-wing approximately one half, and helicopter operations also recovery in 2010, the demand Far East Region (without flights are performed primarily on Europe for one fifth of the fleet. are performed on the basis for helicopter operations started South-East Asia) 4% the basis of long-term contracts. Currently, the major of contracts with oil and gas growing. Based on the 2010 Most of the helicopter operations international helicopter operators companies, which determines the results, operational flight hours Central America 4% are carried out for oil and gas are located in the USA, Canada relative stability of this business. increased by 5%. Australia, New Zealand companies. and Russia, and they perform and Islands A specific feature of the operations on all the continents 7% helicopter market is that the around the world. The top five global rotary-wing fleet can be major operators are: Bristow South America tentatively broken down into two Group (USA), CHC (Canada), UTair 8% Western Europe 20% * According to the U.K. media organization, Flight Global 20 21

Annual Report 2010

OUR WORK Passenger operations

Recovery of the global and on the volume of passenger opera- 5.1 million passengers and 19.2 by 31, including such flights as Taganrog, Gelendzhik, Stavropol, cities of Ukraine, Middle Asia, Russian economies in 2010 fol- tions on domestic air routes in Rus- tons of cargo, which is 39.3% and Ufa-Yekaterinburg, Ufa-Nizhny Vladikavkaz, Lenkoran, Zaporo- Caucasus and Europe. Our base lowing the 2009 crisis provided sia. UTair aircraft performed over 38.2% higher, respectively, than Novgorod, Ufa-Hudzhand, Surgut- zhye and Riga. On the whole, the airports in Russia are Vnukovo air- a major impetus to the growth of 220 regular passenger flights per the 2009 results. The effective- Andizhan, Surgut-Donetsk, Surgut- geography of UTair regular flights port (Moscow), Surgut and Tyumen air transportation. Against this day. During 2010, passenger turn- ness of UTair aircraft on passenger Tomsk-Barnaul, Surgut-Kishinev, covers the European part of Rus- airports. In Ukraine, Borispol (Kiev) background, we managed to dem- over increased by almost 2 times operations was 77% and the load Irkutsk-Bodaibo, Irkutsk-Ust-Kut, sia with the center in the Moscow and Lugansk international airports onstrate very good results. UTair to 8.98 billion passenger-kilome- factor was over 64%. During 2010, from Moscow to Beloyarsky, Kirov, hub, the West Siberian region, are used as base airports. occupied the second place based ters and UTair aircraft transported the number of routes increased 22 23 Annual Report 2010

Map passenger operations turnover

UTair departments location Regular/connection flights 24 25

Annual Report 2010

In the environment of growing program envisages three types For our passengers’ conve- 50 000 2010 competition between airlines, of participation: STATUS, STATUS- nience, we are also expanding 45 000 we make many efforts to win the FAMILY and STATUS-BUSINESS. In the range of services available on 40 000 2009 loyalty of customers. In addition 2010 the number of the STATUS the UTair website. We implement- 35 000 2008 to an extensive route network program participants increased ed the capability of making ho- 30 000 to serve our passengers, a by 16.6% when compared tel reservations via the website, 25 000 convenient schedule of connected to 2009 and amounted to including the ability for a visitor 20 000 flights, a significant number of 280,000 participants, which is to simultaneously make a hotel 15 000 cities connected by direct flights a good indicator of an increase reservation and select a conve- 10 000 and adding comfortable modern in passenger loyalty to UTair nient flight. 1,406 1,574 2,114 45,499

5 000 30,651 33,458 aircraft to the fleet, UTair offers its services. 0 passengers a specially developed The number of bonus tickets and service class upgrades loyalty program – STATUS. This Bonus tickets Service class upgrades 26 27

Annual Report 2010

Helicopter operations

In 2010, we retained the title including 22 new Mil-171 rotary- Agency (EASA). These aircraft will As a global operator, UTair missions in the international in Europe, South and South-East of the world’s no. 1 helicopter wing aircraft that have the approval be certified for flights at any time of has been providing air transport market, UTair performs fire Asia, Africa and South America. company. That was the result of certificates similar to those issued the day over land and sea. support in peacekeeping missions fighting missions, construction and In 2010, over 2,000 pilots, our operating the largest helicopter in European and Asian countries. After a slight drop in the for 20 years, making it a major assembly duties in complicated technicians, managers, engineers fleet (over 300 helicopters), In 2010, UTair signed two helicopter operations market provider of aviation services climatic conditions in the and paramedics were sent abroad including 26 heavy Mil-26 major contracts for the delivery of during 2010, the trend for for the UN. In 2010, 67 UTair mountains, cargo transportation, to carry out the company’s helicopters, and performing a wide Ecureuil AS350B3 and AS355NP increased helicopter operations helicopters performed operations and other helicopter operations activities under foreign contracts. range of operations (transportation, family 20 light helicopters, along volume resumed. Based on the within the framework of nine construction and assembly work, with six Ка-32А11VС helicopters results of 2010, total operational contracts for helicopter services aerial survey work, monitoring of oil equipped with modern avionics – flight time increased by 23% to support peacekeeping missions 2010 and gas pipelines, forest patrol and which will come with certification compared to 2009, amounting to in Sudan, Congo, Chad, Sierra- 35,000 2009 aerochemical work, search and by the European Aviation Safety 121,000 hours. Leone, Liberia, Cote d’Ivoire, Nepal 30,000 rescue operations and emergency and Afghanistan. Under these 25,000 rescue works, emergency medical contracts with the United Nations 2010 20,000 evacuation and passenger 140,000 in 2010, the operational flight time 120,000 15,000 operations). 2009 of UTair helicopters increased + 15% As with the air transport 100,000 by 15% compared to the 2009 10,000 5,000 passenger operations market, we 80,000 results, reaching 32,823 hours. 28, 538 32, 823 60,000 achieved excellent results in the + 23% In addition to operations within 0 helicopter operations market in 40,000 United Nations peacekeeping Operational flight time within UN programs, hours 20,000 2010. A total of 33 helicopters 98, 537 097 121, were added to the UTair fleet, 0 Operational flight time, hours 28 29 Annual Report 2010

Map helicopter operations geography (global)

Russia

1 Russia 15 Mozambique 2 Yugoslavia 16 Republic of South Africa 3 Turkey 17 India 4 Spain 18 Madagascar 5 Western Sahara 19 Cambodia 6 Sierra Leone 20 Indonesia 7 Liberia 21 Papua new Guinea 8 Côte d'Ivoire 22 New Zealand 9 Eritrea 23 Canada 10 Sudan 24 New York (Rep. Office) 11 Central African Republic 25 Colombia 12 Somalia 26 Ecuador 13 Congo 27 Slovakia 14 Angola 28 Iraq 29 Peru 30 31 Annual Report 2010

In the Russian market, the the Medical Emergency Center of operations in cargo transportation, fulfillment of contracts with oil the Khanty-Mansiysk Autonomous assembling equipment, fire and gas companies forms the Okrug – Ugra. These customers fighting search and rescue, and main part of UTair’s helicopter account for over 70% of all the aerial survey missions. operations. Our main customers helicopter operations performed are the major Russian oil and gas by UTair in 2010 in Russia. We companies JSC NK Rosneft, JSC also provide VIP transportation in Surgutneftegaz, TNK-BP, as well as addition to performing helicopter

Map helicopter operations geography (Russia)

1 Moscow 2 Komi Republic 3 The Sverdlovsk Region 4 Yamal-Nenets Autonomous Okrug 5 Khanty-Mansiysk Autonomous Okrug- Ugra 6 The south of Tyumen Region 7 The Omsk Region 8 The Tomsk Region 9 Krasnoyarsk Region 10 Irkutsk Region 11 Yakutia 32 33

Annual Report 2010

Aviation services

Aircraft repair and maintenance services for all versions and retraining and practical exercises ZapSib-Catering offers services of other Russian airlines and is one of the most important lines types of the Mil-9 helicopter, the for aviation personnel. for the cleaning of airplane and airlines from the CIS countries, of business as it has a direct maintenance of Mil-26, Mil-10, In the highly competitive helicopter cabins. as well as leading world airlines. impact on flight safety. There are Mil-171 and Mil-8 in all variants, environment among airlines, in- To increase the ticket sales It is an agency accredited by the three units in UTair that perform along with the Mil-2, AS350/ flight service is often a decisive for UTair flights, a specialized unit Transport Clearing Chamber (TCC) repair and maintenance of aircraft AS355, BO-105, Robinson R-44 professional and qualified flight factor in a passenger’s selection called the Carriage and Services and the International Air Transport operated by the company. and the repair of accessories and crews, engineering and technical of a carrier. ZapSib-Catering Sales Center LLC was founded in Association (IATA). Currently, UTair UTair-Technic LLC provides line components for helicopters. personnel and other aviation is a leading service supplier 1994 and currently is functioning has one of the largest networks of and routine maintenance of Tu- UTair-Express LLC offers full specialists is one of the company’s in Tyumenskaya Oblast and effectively. It sells tickets for agencies among Russian carriers. 154M(B), Boeing-737-400/500, services in the maintenance, repair most important lines of business. elsewhere, as well as a top service UTair Aviation flights, the flights A total of 42 commercial agencies Tu-134, An-24, An-26, Yak-40, and support of the airworthiness We have an aviation personnel operator and major producer of in- of the airline are functioning in the Yak-42, ATR-42/72 and Gulfstream of the entire fleet of Tu-134, training center of our own, which flight catering in Russia. In 2010, Russian Federation and 11 beyond aircraft. This entity is one of the An-24 and An-26-100 aircraft. As has the necessary premises, this unit’s services were used by the boundaries of Russia. largest aircraft maintenance and an operator, the company has the technical facilities and devices, more than 5 million people; in-flight repair centers in Russia. largest fleet of Tu-134 and An-24 various training simulators, as well catering services were used by 108 UTair-Engineering JSC provides aircraft in Russia. as highly qualified staff of teachers airlines in addition to UTair. Beyond a full range of major overhaul The training of highly and instructors to provide training, its in-flight catering services, 34 35

FINANCIAL RESULTS

In 2010, UTair Aviation demonstrated a dramatic growth in operational indicators that had a positive impact on financial performance.

Measure- 2010/ Item ment unit 2008 2009 2010 2009

INCOMES AND RESULTS FROM ACTIVITIES Annual Report 2010

Revenue US$ k. 1,028,487 1,056,105 1,461,957 38.4% Operating profit (EBIT) US$ k. -32,934 58,881 103,713 76.1% Depreciation US$ k. 49,834 69,767 101,347 45.3% Main financial indicators EBITDA US$ k. 16,900 128,648 205,060 59.4% Profit before tax US$ k. -144,419 5,919 16,839 184.5% Income Net profit US$ k. -129,732 2,843 13,139 362.2% 1 Net profit per share US$ -0.24 0.002 0.023 1050.0% With the successful (charter) passenger flights grew by 18.3%, reaching US$ 20.6 mln, BALANCE SHEET AND CASH FLOWS implementation of measures 31.8%, reaching US$ 82.6 mln. and the income from helicopter aimed at route network Helicopter operations in operations in foreign countries Net assets (own capital) as of the US$ k. 211,879 211,327 220,546 4.36% development and aircraft fleet Russia and abroad contributed grew by 25%. Such high results end of the reporting period optimization, UTair revenue over 35% of the total revenue were possible due to the increase Assets US$ k. 1,174,522 1,389,955 1,423,254 2.40% in 2010 increased by 38.4%, – US$ 518.1 mln. This is almost in flight hours within Russia – Equity ratio % 18.0% 15.2% 15.5% 0.3% 2 reaching US$ 1.462 bln. 23% higher compared to the 2009 growing by 23% – and retaining Net operating cash flow US$ k. -182,427 65,154 94,455 44.97% Net profit was US$ 13.1 results. Based on the results in the business volume performed Capital investments, including deposits under leasing contracts US$ k. 148,333 335,082 325,855 -2.75% mln, which is 4.6 times higher 2010, the revenue from helicopter under United Nations contracts. to buy aircraft than the 2009 results. Revenue operations in Russia increased by from passenger transportation OPERATING MARGIN AND RETURN ON EQUITY (%) continues to account for the 2010 EBIT margin % -3.2% 5.6% 7.1% 1.8%2 largest share in the revenue at EBITDA margin % 1.6% 12.2% 14.0% 13.5% 2 59%. As compared to 2009, we 2009 Pre-tax margin % -14.0% 0.6% 1.2% 0.6% 2 managed to increase the revenue 2008 Net profit margin % -12.6% 0.3% 0.9% 0.7% 2 from passenger transportation Return on equity (ROE) % -78.0% 1.3% 6.1% 4.7% 2 by 45.6% to US$ 857 mln, which Return on average capital resulted from a significant increase % 6.19% 0.46% 1.51% 1.1% 2 +38.4% employed (ROACE) of passenger turnover on regular +2.7% flights. In 2010, UTair revenue from

1 regular flights was US$ 774.4 mln, 1,056,105 1,461,957 1,461,957 – the calculation was based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares 1,028,487 while revenue from non-regular 2 - relative deviation, in %. Revenue, US$ k. 36 37

Structure of revenue, 2010 Structure of expenses, 2010

Air transportation services, regular 53% Fuels expenses 21% Helicopter transportation services, abroad 26% Airport services 12% Helicopter transportation services, inland 9% Rent of air fleet and equipment 9% Air transportation services, charter 6% Travel expenses 3% Repair and maintenance services 2% Spare parts and other materials 3% Marketing services 1% Passenger servicing 4% Airport services 0.1% Other 3% Air navigation and meteo services 4% UN missions support 1% Other direct operating expenses 3% Personnel expenses 19% Annual Report 2010 Depreciation and amortization 7% Commissions 3% Repair expenses 6% Other operating expenses 6% Expenses Performance

The growth in operations prices. On average, the price of a expenses which, based on the Based on the 2010 results, affected the costs directly related ton of aviation kerosene increased 2010 results, accounted for UTair’s performance indicators 20.00% to UTair’s operational activities. by almost 16% during the year. 12% in the cost structure, having show positive dynamics. EBITDA 15.00% In 2010, the airline’s total costs Personnel expenses occupied increased by 37.2% from 2009. grew by 59.4%, reaching US$ 14.03% increased by 36.2% and amounted the second place in the structure of The increase was mostly caused 205.1 mln and EBITDA margin 10.00% 12.18% to US$ 1358.2 mln. Aviation fuel expenses in 2010 at 19%. Based by growth in the number of aircraft increased by 1.85%, reaching 5.00% and other lubricants continued on the results for the year, these departures (+7.3%) and transported 14.03%. EBIT reached the value 5.58% 7.09% to account for a significant expenses grew by 32.6%, which passengers (+39.2%). Additionally, of US$ 103.7 mln, increasing by 0.00% 1.64% 0.27% 0.90% share (20.8%) in the structure of was caused by an increase in the due to an expansion of the aircraft 76.1%, as compared to 2009 and -5.00% expenses. As compared to 2009, costs of personnel retraining for fleet, equipment rent and leasing, EBIT margin grew by 1.51 percent -3.20% these costs increased by 47.2%, flying foreign-made aircraft and expenses rose significantly – by points, reaching 7.09%. The net -10.00% which resulted from the increase a raise in the salaries of flight 28.6% (the share of these expenses profit margin grew by 0.63% and -15.00% -12.61% in total operational flight hours and personnel. in the cost structure is 8.9%). reaching 0.90%. 2008 2009 2010 from a considerable growth of oil Next are airport services Margin indicator dynamics

EBIT margin EBITDA margin Net profit margin 38 39

Annual Report 2010

SUSTAINABLE DEVELOPMENT Safety is our priority

Ensuring the maximum level We believe that the decisive our aircraft fleet, along with the company to maintain a high level of flight safety and aviation safety factors in ensuring aviation safety training and advanced training of flight safety. For the past 10 is the top priority in our work. are the maintenance of UTair of flight, cabin and technical years UTair had only one accident 1 We take a realistic approach Group aircraft on a high technical personnel. with its aircraft and five accidents to flight safety issues and level, the gradual upgrading of All these measures allow our involving helicopters. We rightfully recognize that the human factor, belong to the safest airlines in or a man-made system, does not highest standards in the sphere register and was recognized as an Russia and are a global leader - guarantee complete absence of providing flight safety, as well IATA member, while receiving the based on flight safety – in carrying of risk or operational errors, so, as complying with national and relevant certificate confirming the out helicopter operations. we have created a special flight international rules when providing air carrier’s maturity, soundness safety management system. services. In 2008, UTair Aviation and ability to maintain flight safety It enables us to maintain the was included in the IOSA operators indicators on the appropriate level.

* According to the data from the NTSB, NTSB, МАК, TKP, Rosstat, UTair 1 An aviation accident involving passenger or crew member deaths. * According to the data from the NTSB, NTSB, МАК, TKP, Rosstat, UTair 40 41

Annual Report 2010

Our Employees is our capital

As in 2010, we can be proud of currently in Russia the lack of employees’ professionalism and graduates of civil aviation schools. as a whole, we managed to remuneration level by 42% in the the work of our highly professional well-trained pilots capable of expertise on an appropriate level, As a result, graduates of leading increase our employees’ average past three years. and well-organized employees that flying modern aircraft types is we implement periodical training civil aviation schools joined the formed the basis of the company’s apparent. As a result, more than that is mandatory for aviation UTair Aviation flight team, allowing 1,800 2010 successful activities. Recognizing 1,000 pilots, flight-attendants specialists on an ongoing basis. them to gain knowledge and the achievements of the UTair and technical engineers attended Additionally, UTair Group ground experience while working side 1,600 2009 Group employees, we pay them a retraining courses in 2010 to fly personnel also received the by side with highly-qualified and 1,400 2008 fair remuneration, provide them foreign-made aircraft. We were required training in 2010. experienced tutors. 1,200 with a wide range of opportunities successful in implementing flight In 2010, we conducted a Realizing that a high level of 1,000 to improve their professional skills, and cabin personnel retraining traditional campaign in recruiting qualification and expertise of UTair and offer a high degree of social programs to train them to fly the personnel requires an adequate 800 +34.1% protection. Bombardier CRJ-200s and Boeing level of remuneration, we are 600

2010 was the year of a major 757s delivered to the company, focused on consistent growth of 400 +5.4% upgrading of UTair’s fleet, as while personnel training on Boeing the well-being of our personnel. 200 1,223 1,640 modern foreign-made aircraft were 737s and ATR-42s continued. As Although 2009 was a difficult year 1,160 put into operation. Unfortunately, we are focused on maintaining our for the air transportation industry 0 Remuneration level, US$ 42 43

Annual Report 2010

UTair and the environment

The desire to be a highly increasing the fuel efficiency of We believe that the measures • Respect for the cultures and • Impermissibility of abusing the With a view to complying with effective company is linked to our aircraft fleet and optimizing taken by UTair in protecting the traditions of the local popula- official position; the above-indicated principles our activities in protecting the the occupancy of aircraft, thereby environment will help to preserve tion; • Providing assistance in com- and ethical norms of the United environment. We realize that CO2 reducing fuel consumption. nature on our planet for future • Impermissibility of using child bating poverty and social in- Nations, a UTair policy on the emissions cause considerable We strictly comply with the generations. labor and compulsory labor; equality; prohibition of sexual abuse and damage to the environment, so requirements of domestic and • Zero-tolerance towards sexual • Offering humanitarian assis- sexual violence was developed we attach great significance to foreign environmental laws. exploitation and violence; tance in the places of peace- and implemented. The policy • Respect for human rights and keeping missions operation; states that “sexual abuse and Human rights and humanitarian principles creation of equal opportuni- • Compliance with all the rele- sexual violence are violations ties for labor; vant laws and regulations ad- of universally-recognized rules We realize that consistent player in the air transportation the fundamental human rights and • Impermissibility of discrimina- opted by local authorities and and standards of international development of the company is and helicopter operations market, freedoms which explicitly overlap tory behavior based on racial, international organizations. law, are considered as behavior impossible without respect for so we assumed obligations to the humanitarian principles religious, sexual, national, and actions, inadmissible and the fundamental human rights develop and follow humanitarian developed by the United Nations. physical, age differences or forbidden for the company and freedoms. UTair is a global principles focused on respect for Our principles are based on: sexual orientation; employees.” 44 45

CORPORATE GOVERNANCE

The management of a As a result, we attach special shareholders and other interested structure composed of units that significance to building an effective parties. Currently, there is a clear operate aircraft, performing their corporate governance system and understandable organizational repair and maintenance, as well focused on the preservation structure in UTair Aviation JSC as personnel training, the sale of and growth of assets, growth of with a good level of interaction air transport services, and service market value, maintenance of between the management bodies support of flights requires an the company’s financial stability and segregation of control and effective corporate governance and profitability and respect management duties. and control system. for the rights and interests of

Annual Report 2010

Organizational structure of interaction of the management and control bodies in UTair Aviation JSC

Elections

Annual General Meeting Elections Recommendations Elections Report Elections Audit Committee Report Appointment Board of Directors Report Audit Commission Appointment/Control Report Audit Committee

Executive Board

External Independent Audit Report Internal Audit Department Chief Executive Officer Internal Audit Control Management of the current activities Monitoring UTair Finance report- UTair Aviation JSC Regional Departments Report ing RFRS and IFRS audit Monitoring Report Internal Audit Subsidiaries and affiliated companies Internal control 46 47 Annual Report 2010

Deputy Chief Executive Officer of Surgutneftegas JSC on property; has Burtsev been member of the Board of Directors since 2009. Gennady Alekseyevitch

Senior investment specialist of the securities administration of Larichev Surgutneftegaz JSC; has been member of the Board of Directors since Ilya 2008. Vladimirovitch

Head of the Legal administration of Surgutneftegaz JSC; has been Loginovskaya member of the Board of Directors since 2005. Lyudmila Board of Directors Alexandrovna

Strategic planning and management in UTair Aviation JSC is carried out by the Board of Directors, which is a collegial elected body consisting of seven persons. Deputy Director of the Department of Property of Surgutneftegaz JSC on Popyzenko property issues; has been member of the Board of Directors since 2007. Membership of the Board of Alexander Mikhailovitch Directors of UTair Aviation JSC (as of December 31, 2010) Deputy General Director and Head of the Department of Technological Deputy Governor of Khanty-Mansiysk Autonomous Okrug – Ugra, Savin Transport, Special Equipment and Roads of Surgutneftegaz JSC; has Novitskiy Chairman of the Board of Directors of UTair Aviation JSC; has been Sergey been member of the Board of Directors since 2004. Vyacheslav member of the Board of Directors since 2002. Anatolyevitch Fedorovitch

Chief Executive Officer of UTair Aviation JSC; has been member of the To achieve the goal of functioning at the Board of the relevant recommendations Martirosov Board of Directors since 1995, and owns 0.1226% of the charter capital. improving the performance of Directors for several years. It to the members of the Board of Andrei the airline and its management reviews financial and business Directors. Zarmenovitch bodies to the maximum extent, activities control issues on a an audit committee has been tentative basis and provides 48 49 Annual Report 2010

Deputy Chief Executive Officer Executive Board Bachurin – Director on foreign economic Victor activity of UTair Aviation JSC; has been member of the Executive A collegial body (Executive Board) and a single-person executive body (Chief Executive Officer) manage the Grigorievitch Board since 1993. day-today activity of UTair Aviation JSC. The Executive Board consists of nine persons, appointed by the Board of Directors at the recommendation of the CEO. The Chief Executive Officer is elected by the general meeting of the shareholders.

Membership of the Executive Board (as of December 31, 2010)

Deputy Chief Executive Officer – Chief Executive Officer of UTair Avi- Bekmukhanbetov technical director of UTair Aviation Martirosov ation JSC; has been member of the Meiramkhan JSC; has been member of the Andrei Executive Board since 1993, owns Dzumabayevitch Executive Board since 1994, owns Zarmenovitch 0.1226% of the charter capital. 0.009 % of the charter capital.

Deputy flight director of UTair Avia- First Deputy Chief Executive Officer Demkin tion JSC, director of NP Personnel Lebedinsky – Director on production of UTair Vladimir Training Center; has been member Vasiliy Aviation JSC; has been member of Vasilievitch of the Executive Board since 1996, Stepanovitch the Executive Board since 1993, owns 0.0010 % of the charter capi- owns 0.2 % of the charter capital. tal. 50 51 Annual Report 2010

First Deputy Chief Executive Officer Deputy Chief Executive Officer – Ilmensky of UTair Aviation JSC; has been Stefanyuk flight director of UTair Aviation JSC; Andrei member of the Executive Board Alexander has been member of the Executive Olegovitch since 2003. Ilyitch Board since 2010.

First Deputy Chief Executive Officer Kravchenko – commercial manager of UTair Vladislav Aviation JSC; has been member of Alexandrovitch the Executive Board since 1993. Internal Control

We regard the existence of a trol over the key business pro- participate in the internal control well-organized internal control cesses, special attention is paid process according to the authority system for effective control over to processes transferred to the assigned to them. These divisions the activities of the airline and its company’s contractors under a include the Audit Commission, the management bodies as one of the contract and affecting the quality Balance Commission, the Internal most important elements of an ef- of the services provided and flight Audit Department and the Audit fective corporate governance sys- safety. Committee of the Board of Direc- tem. Key management bodies and tors. First Deputy Chief Executive Officer When performing internal con- individual structural divisions Petrov – chief financial officer of UTair Igor Aviation JSC; has been member of Valerievitch the Executive Board since 2002. Audit Commission

The Audit Commission is a per- its management bodies. The main - Review of the validity of de- manently-elected body elected by tasks of the Audit Commission in- cisions and actions of the com- the General Meeting of UTair Avia- clude: pany’s executive bodies, including tion JSC shareholders. It consists - Review of the company’s fi- contracts concluded and transac- of three persons and performs nancial and business documenta- tions performed. control over the company’s finan- tion (including the data of source cial and business operations and accounting documents); 52 53

Annual Report 2010

Balance Commission our company’s website as the of the company, financial and the information is available both most important information operational indicators, statements in Russian (www.utair.ru) and in The Balance Commission was control procedures. Its main divisions, subsidiaries and distribution channel in providing and other useful information English (www.utair.com). created by a decision of the CEO goal is to ensure the effective dependent companies. information about the latest news about the company’s activities. All of UTair Aviation JSC in 2003 with management of production and a view to consolidating internal financial operations of structural Corporate governance rating Internal Audit Department With a view to obtaining an level of 6 (“Developed practice Significant positive changes in independent assessment of the of corporate governance”), the corporate governance system Performing the analysis and of the Internal Audit Department, dependent companies, as well as corporate governance system’s meaning that the company has noted by the agency and achieved assessment of the internal control reporting to the CEO. In 2010, the an analysis and assessment of tax effectiveness for UTair Aviation low corporate governance risks, due to strategic initiatives system’s effectiveness at UTair department performed scheduled risks arising during interaction with JSC, we have been using the complies with the requirements of the management and the Aviation JSC is the responsibility audit reviews of subsidiaries and the company’s clients. services of the Consortium of the of Russian corporate governance shareholders were an important Russian Managers Association legislation, follows most of the result of the work in the sphere Information disclosure and the Expert RA rating agency recommendations of the Russian of improving the effectiveness annually for the past six years. In Code of Corporate Conduct and of UTair Aviation JSC corporate Information transparency our company. We do everything we with accurate and complete 2010, this rating agency confirmed certain recommendations of governance in 2010. plays an important role in the can to provide our shareholders information about our company the corporate governance rating international best practices in corporate governance system of and other interested parties to the extent possible. We regard of UTair Aviation JSC at the corporate governance. 54 55

Annual Report 2010

OUR SECURITIES

General information regarding the UTair Aviation JSC ordinary shares (as of December 31, 2010) 2 UTair Aviation shares and ADRs are traded on these markets:

Market share price at MICEX (closing price, US$) 0.53 Securities Ordinary shares ADR, 1st level program Trading volume (MICEX, for 2010, mln shares) 236.7 Stock exchange / Berlin Stock OTC market Market capitalization (US$ mln) 309 MICEX RTS market Exchange (USA) Shares outstanding 577,208,000 Non-listed / Non-listed / Freiverkehr/ Quotation list – Shares authorized 124,945,000 admitted to trade admitted to trade Open Market Par value (US$) 0.033 Ticker / UTAR TMAT/TMATG 914632 UAIRY Chapter capital (US$) 18,939,197

Dividends per share (US$) 0.0039

ADR issued (pieces) 61,646

2 Was calculated with exchange rate as at December 2010 (US$1 = 30.4769 RUR) 56 57

Annual Report 2010

0.0045 2,500 2010 2009 0.0039 0.0040 US$ mln US$ 2,000 0.0036 0.0035 2,0 0,66 max - 0.573 0.0030 1,6 0,59 1,500 0,52 0.0025 1,3 2008 0,46 1,000 0.0015 1,0 0.0013 0,39 total accrued dividends, 0.0010 0,7 US$ k. 0,33 500 min - 0.339 0,3 0.0005 2,083 2,273

0,26 758 dividends per share, 0 0 0,20 0.0000 US$ UTair Aviation share price for 2010 * Dividend history

31.12.09 31.01.10 03.02.10 03.04.10 03.05.10 03.06.10 03.07.10 03.08.10 03.09.10 03.10.10 03.11.10 03.12.10 General information regarding American Depositary Receipts Program on UTair Aviation shares Trade volume Closing price Date of the level 1 program registration 26.05.2008 * MICEX data Depositary bank BNY Mellon

Custody bank ING Bank (Eurasia) ZAO

ADR:shares ratio 1 ADR = 100 ordinary shares 58 59 Annual Report 2010

REFERENCE INFORMATION GLOSSARY

UTAIR AVIATION JOINT-STOCK COMPANY

Address Airport, Khanti-Mansiysk, Tyumen region, 628012 Russian Federation EBIDTA Earnings before interest, tax, depreciation and amortization Fax +7 (3467) 39-45-88 Earnings before interest, tax, depreciation and amortization (EBITDA) Telephone +7 (3467) 39-45-57 EBITDA margin Website http://www.utair.ru divided by total revenue (in percent) IATA International Air Transport Association Contacts for shareholders and investors Media contacts IOSA IATA Operational Safety Audit (Property and Shareholder Relations Department) (Public Relations Department) Domestic airlines Flights on the domestic market A/C Aircraft Contact person Akhmadeev Albert Faritovich Contact person Mushikhin Yury Valentinovich Fax +7 (3462) 770 381 Fax +7 (3462) 286 973 Actual flying time Actual aircraft flight hours Indicator calculated by multiplying the actual number of fare-paying Telephone +7 (3462) 770 381 Telephone +7 (3462) 770 055 Actual passenger turnover E-mail [email protected] E-mail [email protected] passengers transported at each flight stage by the length of the stage UTair Group, Group, UTair Open joint-stock company UTair Aviation, its subsidiaries (dependent Aviation Group of companies, companies) and other affiliated legal entities, unless otherwise follows Airline company UTair, airline, from the context REGISTRAR UTair International airlines Flights on the international market Company name: ZAO Surgutinvestneft Tumen, Lenina street, 78, room 516–518, MICEX Closed joint-stock company Moscow Interbank Currency Exchange Address: Entuziastov street, 52/1, Surgut, tel. +7 (3452) 463 269, 463 557 IFRS International Financial Reporting Standards Tyumen region, 628400 Russian Federation Kirishi, Leningradskaya oblast, Lenina street, 56, Pkm (passenger-kilometer) Transportation of one passenger for one km Telephone / Fax: +7 (3462) 421 174 / 421 193 tel. +7 (81368) 542 48 E-mail: [email protected] License: RTS Open Joint Stock Company “Russian Trading System” Stock Exchange Branches and representative offices: Number 10-000-1-00324 of 24 June 2004, issued by the Moscow, Myasnitskaya street, 14, office 414, 415, Federal Financial Markets Service, valid license period: tel. +7 (495) 698 94 22 unlimited term

AUDITORS

An audit of the financial statements prepared in The Financial statements, prepared in accordance accordance with Russian accounting standards: with IFRS:

Company name: Rosexpertiza LLC Company name: CJSC “KPMG” Address: Tikhvinsky pereulok 7, building 3, Moscow, Address: Russian Federation, Moscow. Presnenskaya Russian Federation Naberezhnaya, 10 Telephone / Fax: +7 (495) 721 3883 / 721 3894 Telephone / Fax: +7 (495) 937-44-77 Website: http://www.rosexpertiza.ru/ Website: //www.kpmg.ru/ Acronyms for metric and monetary units License: License: Number Е 000977, issued by Ministry of Finance of the № Е 003330 dated 17.01.2003, issued by the Ministry of US$ - US dollar M - Meter T - Ton Russian Federation on June 25, 2007, valid to June 24, Finance of Russian Federation, validity 17.01.2013 Kg - Kilogram Mln - Million Th. - Thousand 2012. Km - Kilometer Bln - Billion 60 61

UTAIR AVIATION JOINT-STOCK COMPANY CONSOLIDATED FINANCIAL STATEMENTS

Annual Report 2010

LIABILITY RESTRICTION The Financial statements audit in accordance with IFRS has been carried out by the independent auditor Forward-looking Statements looking statements or to advise of such differences include changes CJSC KPMGГ This annual report was changes in the assumptions on in the competitive environment prepared using information which they were based. of UTair, general economic available to UTair at the time Forward-looking statements and business conditions, of its preparation. Certain by their nature are associated industry trends, and changes in statements in this annual report with uncertainties, both general governmental or environmental are forward-looking and may and specific, and risks may be rules and regulations. UTair does include assumptions about future involved because predictions, not assume any liability for losses market conditions, operations and estimates and projections may not which may be incurred by persons financial results. UTair assumes no necessarily be achieved. Factors or entities acting or relying on such obligation to update these forward- that could cause or contribute to forward-looking statements. 62 63 Annual Report 2010

Consolidated Statement of Financial Position as at 31 December 2010 Consolidated Statement of Financial Position as at 31 December 2010 The Financial statements audit in accordance with IFRS has been carried out by the independent auditor CJSC KPMG The Financial statements audit in accordance with IFRS has been carried out by the independent auditor CJSC KPMG

31 31 31 31 31 December 31 December 31 December 31 December December December December December Note 2010 2009 2010 2009 Note 2010 2009 2010 2009 ’000 RUB ’000 RUB ’000 USD ’000 USD ’000 RUB ’000 RUB ’000 USD ’000 USD EQUITY AND LIABILITIES ASSETS Equity Non-current assets Share capital 19 3,101,456 3,101,456 112,145 112,145 Property, plant and equipment 6 27,956,603 21,385,230 917,305 707,085 Reserve for own shares (174,859) (173,244) (6,868) (6,815) Advances for property, plant and equipment 445,617 362,953 14,621 12,001 Surplus from sale of treasury shares 13,010 13,010 451 451 Goodwill 7 119,624 106,849 3,925 3,533 Foreign currency translation reserve 93,349 117,911 (6,211) (4,632) Other intangible assets 7 336,150 350,341 11,030 11,584 Revaluation reserve 7,913,459 8,133,733 259,654 268,935 Investments in equity accounted investees 8 192,086 199,488 6,303 6,596 Retained earnings (4,774,088) (5,313,407) (156,646) (175,684) Other investments 9 52,285 16,455 1,716 544 Total equity attributable to equity holders of Loans issued 10 57,856 59,370 1,898 1,963 the Company 6,172,327 5,879,459 202,525 194,400 Net investment in finance leases 11 240,286 39,770 7,884 1,315 Non-controlling interest 549,221 511,949 18,021 16,927 Advances related to operating leases 12 123,975 25,760 4,068 852 Total equity 6,721,548 6,391,408 220,546 211,327 Accounts receivable – 1,671 – 56 Non-current liabilities Deferred tax assets 14 115,828 68,986 3,801 2,280 Total non-current assets 29,640,310 22,616,873 972,551 747,809 Loans and borrowings 20 21,124,041 12,548,873 693,116 414,918 Derivatives 21 45,009 98,088 1,477 3,244 Current assets Trade and other payables 22 70,695 117,134 2,320 3,873 Inventories 15 1,823,435 1,665,943 59,830 55, 083 Deferred income 23 674,305 895,201 22,125 29,599 Trade and other receivables 13 8,208,327 5,741,462 269,330 189,837 Employee benefits 24 195,573 165,296 6,418 5,465 Other advances 12 1,475,852 2,710,879 48,425 89,633 Deferred tax liabilities 14 1,830,022 1,867,313 60,046 61,741 Income tax receivable 131,486 288,879 4,314 9,552 Total non-current liabilities 23,939,645 15,691,905 785,502 518,840 Net investment in finance leases 11 55,676 91,028 1,827 3,010 Current liabilities Loans issued 10 863,416 794,654 28,330 26,275 Other investments 9 4,956 404,983 163 13,390 Loans and borrowings 20 6,037,624 13,584,686 198,105 449,167 Security deposits 16 476,654 6,450,010 15,640 213,264 Derivatives 21 66,347 93,720 2,177 3,099 Cash and cash equivalents 17 443,998 514,586 14,568 17,014 Trade and other payables 22 4,666,209 4,831,012 153,106 159,734 Assets classified as held for sale 18 252,232 758,759 8,276 25,088 Deferred income 23 422,146 298,400 13,852 9,866 Total current assets 13,736,032 19,421,183 450,703 642,146 Income tax payable 49,840 2,659 1,635 88 Total assets 43,376,342 42,038,056 1,423,254 1,389,955 Other taxes payable 25 521,288 244,527 17,104 8,085 Advances received 26 933,271 886,523 30,622 29,312 Employee benefits 24 18,424 13,216 605 437 Total current liabilities 12,715,149 19,954,743 417,206 659,788 Total liabilities 36,654,794 35,646,648 1,202,708 1,178,628 Total equity and liabilities 43,376,342 42,038,056 1,423,254 1,389,955

The consolidated financial statements for the year ended 31 December 2010 were approved by management on 29 July 2011 and were signed on their behalf by: A. Z. Martirosov Chief Executive Officer O. V. Grabarovskaya Chief Accountant 64 65 Annual Report 2010

2010 2009 2010 2009 Note ’000 RUB ’000 RUB ’000 USD ’000 USD 2010 2009 2010 2009 Note ’000 RUB ’000 RUB ’000 USD ’000 USD Passenger traffic and helicopter services revenue 27 42,715,358 32,737,441 1,406,535 1,031,975 Other comprehensive income Other revenue 27 1,683,116 765,484 55,422 24,130

44,398,474 33,502,925 1,461,957 1,056,105 Foreign currency translation differences (3,764) 4,371 (1,776) (6,116) Operating expenses Realisation of property, plant and equipment revaluation reserve – (65,578) – (2,067) Direct operating expenses 28 (24,735,998) (18,362,786) (814,511) (578,846) Income tax on realisation of property, plant and Personnel expenses 29 (7,829,582) (6,169,859) (257,813) (194,491) equipment revaluation reserve – 13,112 – 413 Other comprehensive income for the year, net of Depreciation and amortisation (3,077,837) (2,213,217) (101,347) (69,767) income tax (3,764) (48,095) (1,776) (7,770) Repair expenses (2,439,014) (2,115,555) (80,312) (66,688) Total comprehensive income for the year 395,248 42,105 11,363 (4,927) Commissions (1,386,106) (1,046,749) (45,642) (32,996) Profit attributable to: Gain on sale of assets classified as held for sale 470,597 380,738 15,496 12,002 Owners of the Company 382,538 38,044 12,597 1,199 Other income 311,240 98,685 10,249 3,111 Non-controlling interest 16,474 52,156 542 1,644 Other expenses 30 (2,562,073) (2,206,289) (84,364) (69,549) Profit for the year 399,012 90,200 13,139 2,843 (41,248,773) (31,635,032) (1,358,244) (997,224) Total comprehensive income attributable to: Owners of the Company 357,976 (16,561) 10,269 (6,336) Results from operating activities 3,149,701 1,867,893 103,713 58,881 Non-controlling interest 37,272 58,666 1,094 1,409 Net foreign exchange gain Total comprehensive income for the year 395,248 42,105 11,363 (4,927) Impairment of doubtful debts 166,185 667,531 5,472 21,042 Earnings per share Обесценение сомнительной задолженности 12, 13 (88,442) 100,844 (2,912) 3,179 Basic and diluted earnings per share 33 RUB 0.69 RUB 0.07 USD 0.023 USD 0.002 Share of loss of equity accounted investees (net of income tax) 8 (7,402) (55,507) (244) (1,750) Other finance income 31 609,046 450,726 20,055 14,208 Other finance costs 31 (3,317,703) (2,843,701) (109,245) (89,641) Profit before income tax 511,385 187,786 16,839 5,919 Income tax expense 32 (112,373) (97,586) (3,700) (3,076) The consolidated financial statements for the year ended 31 December 2010 were approved by management on 29 July Profit for the year 399,012 90,200 13,139 2,843 2011 and were signed on their behalf by:

A. Z. Martirosov Chief Executive Officer O. V. Grabarovskaya Chief Accountant 66 67 Annual Report 2010

Consolidated Statement of Changes in Equity for the year ended 31 December 2010 Consolidated Statement of Changes in Equity for the year ended 31 December 2010 The Financial statements audit in accordance with IFRS has been carried out by the independent auditor CJSC KPMG The Financial statements audit in accordance with IFRS has been carried out by the independent auditor CJSC KPMG

’000 RUB Attributable to equity holders of the Company Attributable to equity holders of the Company

Property, plant Surplus from and equip- Share Reserve for sale of treas- Translation ment revalua- Retained Non-controlling Total capital own shares ury shares reserve tion reserve earnings Total interest equity

Balance at 1 January 2009 3,101,456 (173,244) 13,010 120,050 8,449,185 (5,591,349) 5,919,108 489,014 6,408,122 Total comprehensive income for the year Profit for the year – – – – – 38,044 38,044 52,156 90,200 Other comprehensive income Foreign currency translation differences – – – (2,139) – – (2,139) 6,510 4,371 Realisation of property, plant and equipment revaluation reserve – – – – (384,422) 318,844 (65,578) – (65,578) Income tax on realisation of property, plant and equipment revaluation reserve – – – – 68,970 (55,858) 13,112 – 13,112 Total other comprehensive income – – – (2,139) (315,452) 262,986 (54,605) 6,510 (48,095) Total comprehensive income for the year – – – (2,139) (315,452) 301,030 (16,561) 58,666 42,105

Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders – – – – – (23,088) (23,088) – (23,088) Total contributions by and distributions to owners – – – – – (23,088) (23,088) – (23,088) Changes in ownership interests in subsidiaries Disposal of subsidiary – – – – – – – (35,731) (35,731) Total transactions with owners – – – – – (23,088) (23,088) (35,731) (58,819) Balance at 31 December 2009 3,101,456 (173,244) 13,010 117,911 8,133,733 (5,313,407) 5,879,459 511,949 6,391,408 Balance at 1 January 2010 3,101,456 (173,244) 13,010 117,911 8,133,733 (5,313,407) 5,879,459 511,949 6,391,408 Total comprehensive income for the year Profit for the year – – – – – 382,538 382,538 16,474 399,012 Other comprehensive income Foreign currency translation differences – – – (24,562) – – (24,562) 20,798 (3,764) Realisation of property, plant and equipment revaluation reserve – – – – (275,355) 275,355 – – – Income tax on realisation of property, plant and equipment revaluation reserve – – – – 55,081 (55,081) – – – Total other comprehensive income – – – (24,562) (220,274) 220,274 (24,562) 20,798 (3,764) Total comprehensive income for the year – – – (24,562) (220,274) 602,812 357,976 37,272 395,248 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Own shares acquired – (1,615) – – – – (1,615) – (1,615) Dividends to equity holders – – – – – (63,493) (63,493) – (63,493) Total contributions by and distributions to owners – (1,615) – – – (63,493) (65,108) – (65,108) Total transactions with owners – (1,615) – – – (63,493) (65,108) – (65,108) Balance at 31 December 2010 3,101,456 (174,859) 13,010 93,349 7,913,459 (4,774,088) 6,172,327 549,221 6,721,548

’000 USD Attributable to equity holders of the Company Attributable to equity holders of the Company

Balance at 1 January 2009 112,145 (6,815) 451 (1,587) 287,579 (190,309) 201,464 16,644 218,108 Total comprehensive income for the year Profit for the year – – – – – 1,199 1,199 1,644 2,843 Other comprehensive income Foreign currency translation differences – – – (3,045) (8,700) 5,864 (5,881) (235) (6,116) Realisation of property, plant and equipment revaluation reserve – – – – (12,118) 10,051 (2,067) – (2,067) Income tax on realisation of property, plant and equipment revaluation reserve – – – – 2,174 (1,761) 413 – 413 Total other comprehensive income – – – (3,045) (18,644) 14,154 (7,535) (235) (7,770) Total comprehensive income for the year – – – (3,045) (18,644) 15,353 (6,336) 1,409 (4,927)

Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders – – – – – (728) (728) – (728) Total contributions by and distributions to owners – – – – – (728) (728) – (728) Changes in ownership interests in subsidiaries Disposal of subsidiary – – – – – – – (1,126) (1,126) Total transactions with owners – – – – – (728) (728) (1,126) (1,854) Balance at 31 December 2009 112,145 (6,815) 451 (4,632) 268,935 (175,684) 194,400 16,927 211,327 Balance at 1 January 2010 112,145 (6,815) 451 (4,632) 268,935 (175,684) 194,400 16,927 211,327 Total comprehensive income for the year Profit for the year – – – – – 12,597 12,597 542 13,139 Other comprehensive income Foreign currency translation differences – – – (1,579) (2,028) 1,279 (2,328) 552 (1,776) Realisation of property, plant and equipment revaluation reserve – – – – (9,067) 9,067 – – – Income tax on realisation of property, plant and equipment revaluation reserve – – – – 1,814 (1,814) – – – Total other comprehensive income – – – (1,579) (9,281) 8,532 (2,328) 552 (1,776) Total comprehensive income for the year – – – (1,579) (9,281) 21,129 10,269 1,094 11,363 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Own shares acquired – (53) – – – – (53) – (53) Dividends to equity holders – – – – – (2,091) (2,091) – (2,091) Total contributions by and distributions to owners – (53) – – – (2,091) (2,144) – (2,144) Total transactions with owners – (53) – – – (2,091) (2,144) – (2,144) Balance at 31 December 2010 112,145 (6,868) 451 (6,211) 259,654 (156,646) 202,525 18,021 220,546

2010 2009 2010 2009 2010 2009 2010 2009 ’000 RUB ’000 RUB ’000 USD ’000 USD ’000 RUB ’000 RUB ’000 USD ’000 USD CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM OPERATING ACTIVITIES Acquisition of property, plant and equipment (6,581,726) (3,349,466) (216,724) (105,766) Profit before income tax 511,385 187,786 16,839 5,919 Proceeds from sale of property, plant and equipment 39,123 250,536 1,288 7,898 Adjustments for: Acquisition of intangible assets (88,819) (39,563) (2,925) (1 247) Depreciation and amortisation 3,077,837 2,213,217 101,347 69,767 Interest received from deposits 404,973 – 13,335 – Loss on disposal of property, plant and equipment 316,743 127,768 10,430 4,028 Interest received from other investments held for sale 81,679 37,988 2,690 1,197 Finance costs, net 2,804,501 2,347,638 92,346 74,004 Acquisition of other investments (841,919) (6,315,147) (27,723) (199,071) Unrealised foreign exchange differences (95,509) (974,859) (3,145) (30,729) Proceeds from sale of other investments 1,481,126 5,475,563 48,771 172,605 Cash from operating activities before changes in work- Short-term loans provided to third parties (7,098) (69,578) (234) (2,193) ing capital and provisions 6,614,957 3,901,550 217,817 122,989 Short-term loans repaid by third parties 5,170 10,130 170 319 (Increase)/decrease in inventories (157,492) 396,915 (5,186) 12,694 Deposits 5,830,480 (1,894,000) 191,987 (59,704) Increase in trade and other receivables and net invest- Net cash from/(used in) investing activities 322,989 (5,893,537) 10,635 (185,962) ment in finance leases (1,957,769) (682,165) (64,466) (21,504) CASH FLOWS FROM FINANCING ACTIVITIES Decrease/(increase) in other advances 1,136,812 (253,519) 37,433 (7,992) Proceeds from borrowings 32,378,765 46,720,533 1,066,171 1,472,761 (Decrease)/increase in trade and other payables (330,100) 1,438,394 (10,870) 45,342 Repayment of borrowings (35,055,955) (42,569,812) (1,154,325) (1,341,918) Increase in employee benefits 35,485 50,694 1,168 1,598 Dividends paid to equity holders of the Company (43,687) (23,088) (1,439) (728) (Decrease)/increase in advances received and deferred income (50,402) 697,326 (1,660) 21,982 Dividends paid to non-controlling holders (530) (8,002) (17) (252) Increase/(decrease) in other taxes payable 424,427 (317,931) 13,976 (10,022) Repayment of liability under finance lease agreements (539,154) (111,759) (17,753) (3,523) Decrease/(increase) of assets classified as held for Acquisition of treasury shares (1,615) – (53) – resale 506,527 (305,138) 16,679 (9,619) Net cash (used in)/from financing activities (3,262,176) 4,007,872 (107,416) 126,340 Cash flows from operations before income taxes and Net (decrease)/increase in cash and cash equivalents (70,588) 175,714 (2,326) 5,542 interest paid 6,222,445 4,926,126 204,891 155,468 Effect of movements in exchange rates – – (120) (62) Income tax paid (144,005) (171,949) (4,742) (5,420) Cash and cash equivalents at 1 January 514,586 338,872 17,014 11,534 Interest paid (3,209,841) (2,692,798) (105,694) (84,884) Cash and cash equivalents at 31 December 443,998 514,586 14,568 17,014 Net cash from operating activities 2,868,599 2,061,379 94,455 65,164