ANNUAL R E P O RT 2 0 0 0

IBERIA L.A.E. AND IBERIA GR O U P

IBERIA L.A.E. AND IBERIA GR O U P

I B E R I A,L Í N E A S AÉ R E A S D E E S PA Ñ A , S . A . I B E R I A G R O U P

LETTER FROMTHE CHAIRMAN ...... 6 LEGAL INFORMATION ...... 99

LEGAL INFORMATION ...... 9 CONSOLIDATED FINANCIAL STATEMENTS ...... 103

FINANCIAL STATEMENTS ...... 13 -CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,2000 AND 1999 ...... 104 -BALANCE SHEETSAS OF DECEMBER 31,2000 AND 1999 ...... 14 -CONSOLIDATEDSTATEMENTS OF INCOME FOR 2000 AND 1999 ...... 106 -STATEMENTS OF INCOME FOR 2000 AND 1999 ...... 16 NOTES TO 2000 CONSOLIDATEDFINANCIAL STATEMENTS . . . . 109 NOTES TO 2000 FINANCIAL STATEMENTS ...... 19 -DESCRIPTION OFTHE CONTROLLING COMPANYAND OFTHE GROUP . . . 111 -COMPANY DESCRIPTION ...... 21 -DEPENDENT COMPANIES ...... 112 -BASIS OF PRESENTATION OFTHE FINANCIAL STATEMENTS ...... 22 -ASSOCIATEDCOMPANIES ...... 113 -DISTRIBUTION OF INCOME ...... 22 -BAS I S O FP R E S E N TAT I O NO FT H E CO N S O L I D ATE D FI N A N C I A L ST ATE M E N T S . 114 -VALUATION STANDARDS ...... 23 -DISTRIBUTION OFTHE CONTROLLING COMPANY’S INCOME ...... 115 -INTANGIBLEASSETS ...... 28 -VALUATION STANDARDS ...... 115 -PROPERTY, PLANTAND EQUIPMENT ...... 30 -INTANGIBLEASSETS ...... 122 -LONG-TERM FINANCIAL INVESTMENTS ...... 38 -PROPERTY, PLANTAND EQUIPMENT ...... 123 -ACCOUNTS RECEIVABLE ...... 44 -LONG-THERM FINANCIAL INVESTMENTS ...... 132 -SHORT-TERM FINANCIAL INVESTMENTS ...... 45 -GOODWILL / NEGATIVE GOODWILL IN CONSOLIDATION ...... 136 -SHAREHOLDERS’ EQUITY ...... 45 -SHORT-TERMFINANCIAL INVESTMENTS ...... 137 -PROVISION FORTHIRD-PARTY LIABILITY ...... 47 -SHAREHOLDERS’ EQUITY ...... 137 -PAYABLE TO CREDIT ENTITIES ...... 48 -MINORITY INTERESTS ...... 142 -FUTURESTRANSACTIONS ...... 49 -PROVISIONSFOR CONTINGENCIESAND EXPENSES ...... 143 -BA L A N C E SA N DT R A N S AC T I O N SW I T HG RO U PA N DA S S O C I AT E D CO M PA N I E S . . 50 -PAYABLE TO CREDIT ENTITIES ...... 144 -TAX MATTERS ...... 52 -FUTURESTRANSACTIONS ...... 145 -REVENUESAND EXPENSES ...... 56 -TAX MATTERS ...... 146 -PLANS FORADAPTATION TO THE EURO ...... 59 -REVENUESAND EXPENSES ...... 149 -DIRECTORS’ COMPENSATIONAND OTHER BANEFITS ...... 59 -CONTRIBUTION OFTHE GROUPAND ASSOCIATED COMPANIES -INFORMATION RELATING TO THE MERGER OF TO CONSOLIDATED INCOME ...... 153 IBERIA,LÍNEAS AÉREAS DE ESPAÑAAND AVIACIÓN Y COMERCIO S.A. . . . . 59 -PLANS FORADAPTATION TO THE EURO ...... 154 -2000 AND 1999 STATEMENTS OF CHANGES IN FINANCIAL POSITION . . . . . 64 -DIR E C TO R S ’ C O M P E N S AT I O NA N D OT H E RB E N E F I T S ...... 154 MANAGEMENT REPORT ...... 67 -INFORMATION RELATING TO THE MERGER OF -2000 HIGHLIGHTS ...... 69 IBERIA,LÍNEAS AÉREAS DE ESPAÑA AND AVIACIÓN Y COMERCIO S.A. . . . .155

-IBERIA PRODUCTION (BY NETWORK) ...... 74 2000 CONSOLIDATED MANAGEMENT REPORT ...... 159

-SUMMARY BY MANAGEMENT AREAOF IBERIA, L.A.E...... 77 -2000 HIGHLIGHTS ...... 161

-RESOURCES ...... 84 -IBERIA GROUP (BYNETWORK) ...... 166

-IBERIA OPERATING RESULTS ...... 87 -SUMMARY BYSUBSIDIARY MANAGEMENTAREA ...... 173

GOVERNING BODIES ...... 93 -RESOURCES ...... 179

AGENDA ...... 97 -IBERIA GROUP OPERATING RESULTS ...... 182 Dear Shareholder,

The best of Iberia in 2000, which we offer in this annual report, is not only to be found in our excellent business results -37 billion pesetas in gross profits from an income of 747 billion increases of 18.5% and 15.6%, respectively, from the previous year’s totals- but also in the fact that such results were achieved in an especially complicated year for the air t ra n s p o r tation industry, owing to the spectacular rise in the cost of fuel (our second-largest expense item), the rising of the dollar against the euro, and higher airport fees.

But the markets behaved satisfactorily, and the company was able to avail itself of these circumstances to continue to grow. Indeed, demand for our services increased twice as fast as supply, and the average seat occupancy rate reached a record 74%, up five points from the preceding year. We carried 30 million passengers, counting those of our franchises, which was 14% more than the total in 1999.

Furthermore, and despite the hike in fuel costs, our supply policies served to ensure that we paid much less than spot market price, although our outlay for fuel was still substantially larger than it had been in 1999.

Of the many major developments during the year, particular ly noteworthy was our progress towards full privatisation, whereby the six representatives of our new private-sector partners took their seats on the Board.This completed the first stage of our privatisation, which will be concluded when the company’s shares are listed on stock markets early in 2001.

Although for the past several years Iberia has been managed in strict accordance with private sector norms and practices, the entry of private capital took us another step forward in the adaptation of our corporate culture, and today all of us who work at Iberia are more focused on the interests of our customers and also of our shareholders individuals and institutions which, among so many investment options, chose Iberia. We fully understand that they deserve a return on their investments that can justify this choice.

Another significant development in 2000 was the launch of our new strategic plan for 2000-2003, following the success of the previous three-year plan.Among the key objectives set forth in the new plan is the strengthening of our leadership in Iberia’s strategic markets -Spain-Europe and Europe-Latin America- while making ever more effective use of the new technologies, enhancing customer satisfaction, improving the utilisation of our assets and resources, developing our alliances, reducing costs, and heightening competitiveness.All these efforts are baked by a series of commercial, financial and organisational measure which are being implemented on schedule.

6 I would not want to omit a mention of one of the milestones reached by Iberia in 2000: it became Spain’s leading company in internet sales, by selling more than 300,000 air tickets on-line, generating some 6 billion pesetas’ worth of business in the year, far outstripping all other companies in electronic commerce. Iberia.com has become Spain’s standard-bearer in e-commerce, and studies show that our pages are highly appreciated and valued by the general public. And this is only the beginning, our strategic plan calls for even greater emphasis on the use of internet technologies as business tools.

The year witnesses other ventures related to e-commerce, both B2C and B2B, such as our involvement alongside other European and U.S. airlines in a new portal focusing on air travel, and alongside other major Spanish companies in another portal designed to facilitate purchasing.These are but two early examples of how the Internet can be used to improve our services and procedures, while helping to reduce costs.

We have continued with our fleet replacement programme, and in 2000 we took delivery of 26 new aircraft, while retiring all our DC-10s. In the course of 2001 our Boeing 727s and DC-9s will also be withdrawn from service, having written their respective pages in Iberia’s history. Their replacements will give Iberia a more modern and homogeneous fleet which will raise productivity while reducing operating costs. Our new aircraft are more friendly to the environment and more comfortable for our passengers.

These passengers also benefited last year from several major improvements in our services. Our punctuality increases substantially, and we launched our new First Class and European Business Class services, while inaugurating a new European Reservations Centre, a new luggage problem hotline, and other innovations. Our airport passenger and aircraft handling operations were awarded ISO quality certification, our operations area had already earned such certification in 1999.

The year under review was almost certainly last one during which Iberia operated as a public-sector company. For several years we have been preparing for the change, and the excellent business results we have obtained since the mid-1990s testify to the suitability of the decisions taken.

XABIER DE IRALA CH A I R M A N O F I B E R I A

7

I B E R I A , LINEAS AEREAS DE ESPA Ñ A , S . A .

BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 S T ATEMENTS OF INCOME FOR 2000 AND 1999 T R A N S L ATION OF A REPORT AND FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH AND PREPA R E D I N A C C O R D ANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN SPAIN (SEE NOTE 21). IN THE EVENT OF A DISCREP A N C Y , T H E S P A N I S H - L A N G U AGE VERSION PREV A I L S .

I B E R I A , LINEAS AEREAS DE ESPA Ñ A , S . A . ASSETS MILLIONSOF PESETAS

2000 1999

FIXED AND OTHER NONCURRENT ASSETS: START-UP EXPENSES (NOTE 4-a) 105 285 INTANGIBLE ASSETS (NOTE 5) 67,904 58,290 PROPERTY, PLANTAND EQUIPMENT (NOTE 6) 289,466 282,070 AIRCRAFT: COST 424,216 407,562 ACCUMULATED DEPRECIATIONAND PROVISIONS (199,792) (189,093) 224,424 218,469 OTHER TANGIBLE FIXED ASSETS: COST 161,034 158,901 ACCUMULATED DEPRECIATIONAND PROVISIONS (95,992) (95,300) 65,042 63,601 LONG-TERM FINANCIAL INVESTMENTS 120,434 127,943 HOLDINGS IN GROUPAND ASSOCIATED COMPANIES (NOTE 7) 44,469 96,226 LOANS TO GROUP ANDASSOCIATED COMPANIES (NOTE 7) 4,263 33,625 LONG-TERM RECEIVABLES FROM GROUP COMPANIES (NOTE 14) 59,524 36,066 INVESTMENTS SECURITIESAND OTHER LOANS (NOTE 7) 59,531 11,440 PROVISIONS (NOTE 7) (47,353) (49,414) TOTAL FIXEDAND OTHER NONCURRENTASSETS 477,909 468,588

DEFERRED CHARGES (NOTE 5) 18,702 16,163

CURRENT ASSETS: INVENTORIES 15,780 10,285 RECEIVABLE FROM GROUP COMPANIES (NOTE 14) 6,930 12,353 ACCOUNTS RECEIVABLE (NOTE 8) 74,951 72,784 SHORT-TERM FINANCIAL INVESTMENTS (NOTE 9) 114,182 87,393 CASH 915 1,175 ACCRUAL ACCOUNTS 5,079 4,395 TOTAL CURRENTASSETS 217,837 188,385

TOTAL ASSETS 714,448 673,136

14 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 TRANSLATIONOF A REPORT AND FINANCIAL SHAREHOLDERS’ EQUITY AND LIABILITIES MILLIONSOF PESETAS STATEMENTSORIGINALLY ISSUEDIN SPANISH ANDPREPAREDIN ACCORDANCEWITHGENERALL Y ACCEPTED ACCOUNTINGPRINCIPLESIN SPAIN 2000 1999 (SEE NOTE 21). IN THEEVENTOF A DISCREPANCY, SHAREHOLDERS’ EQUITY (NOTE 10): THE SPANISH-LANGUAGEVERSIONPREVAILS . CAPITAL STOCK 118,485 118,478 ADDITIONAL PAID-IN CAPITAL 16,049 16,049 REVALUATION RESERVE 6 - LEGAL RESERVE 6,734 5,129 VOLUNTARY RESERVES 1,474 623 MERGER RESERVE 28 - DIF F E R E N C E SD U E TO TH EA D J U S T M E N TO F CA P I TA L STO C K TO EU RO S 200 200 PRIORYEARS’ LOSSES - (5,570) INCOME FORTHEYEAR 29,851 16,052 TOTAL SHAREHOLDERS’ EQUITY 172,827 150,961

DEFERRED REVENUES 6,323 2,503

PROVISIONS FOR CONTINGENCIES AND EXPENSES: PROVISIONS FOR PENSIONS (NOTE 4-I) 15,077 14,974 PROVISIONS FOR OBLIGATIONS TO EMPLOYEES (NOTE 4-K) 69,102 50,549 PROVISION FOR MAJOR REPAIRS 19,485 19,115 PROVISION FORTHIRD -PARTY LIABILITY (NOTE 11) 101,235 56,356 TOTAL PROVISIONS FOR CONTINGENCIESAND EXPENSES 204,899 140,994

LONG-TERM DEBT: PAYABLE TO CREDIT ENTITIES (NOTE 12) 91,078 89,794 PAYABLE TO GROUPANDASSOCIATED COMPANIES (NOTE 14) 28,064 4,970 UNCALLED CAPITAL PAYMENTS PAYABLE 4 22 OTTHER ACCOUNTS PAYABLE 45 40 TOTAL LONG-TERM DEBT 119,191 94,826

CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES (NOTE 12) 18,980 56,982 PAYABLE TO GROUPANDASSOCIATED COMPANIES (NOTE 14) 8,083 77,409 TRADE ACCOUNTS PAYABLE 142,827 111,457 CUSTOMERADVANCES 49,644 30,459 PAYABLES FOR PURCHASESAND SERVICES 93,183 80,998 COMPENSATION PAYABLE 18,234 18,704 OTHER NONTRADE PAYABLES (NOTE 15) 22,968 19,220 ACCRUAL ACCOUNTS 116 80

TOTAL CURRENT LIABILITIES 211,208 283,852 The accompanying Notes 1 to 21 are an integral part of the balance sheet TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 714,448 673,136 as of December 31,2000.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 15 DEBIT MILLIONSOF PESETAS

2000 1999

EXPENSES: PURCHASES (NOTE 16) 124,099 86,186 PERSONNEL EXPENSES (NOTE 16) 211,416 187,170 PERIOD DEPRECIATION AND AMORTIZATION 26,437 19,895 VARIATION IN OPERATING PROVISIONS 759 602 OTHER OPERATING EXPENSES (NOTE 16) 349,570 324,638 712,281 618,491 OPERATING INCOME 6,056 5,477 FINANCIAL AND SIMILAR EXPENSES 11,103 8,254 VARIATION IN LONG-TERM FINANCIAL INVESTMENT PROVISIONS (NOTE 7) 1,198 - EXCHANGE LOSSES 13,425 15,870 25,726 24,124

FINANCIAL INCOME - 18,644 INCOME FROM ORDINARYACTIVITIES 2,583 24,121 VARIATION IN FIXED ASSET PROVISIONS (NOTE 7) (3,260) 9,143 LOSSES ON FIXED ASSETS (NOTES 6 AND 7) 2,617 584 EXTRAORDINARY EXPENSES (NOTES 6, 7 AND 16) 50,655 24,446 PRIORYEARS ’ EXPENSESAND LOSSES 259 1,000 50,271 35,173

EXTRAORDINARY INCOME 28,205 -

INCOME BEFORE TAXES 30,788 16,859 CORPORATE INCOME TAX (NOTE 15) 937 807 INCOME FORTHEYEAR 29,851 16,052

16 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - STATEMENTS OF INCOME FOR 2000 AND 1999 TRANSLATIONOF A REPORT AND FINANCIAL CREDIT MILLIONSOF PESETAS STATEMENTSORIGINALLY ISSUEDIN SPANISH ANDPREPAREDIN ACCORDANCEWITHGENERALL Y ACCEPTED ACCOUNTINGPRINCIPLESIN SPAIN 2000 1999 (SEE NOTE 21). IN THEEVENTOF A DISCREPANCY, REVENUES: THE SPANISH-LANGUAGEVERSIONPREVAILS . NET REVENUES (NOTE 16) 682,362 596,272 OTHER OPERATING REVENUES (NOTE 16) 35,975 27,696

718,337 623,968 REVENUES FROM SHAREHOLDINGS (NOTE 7) 1,230 10,904 REVENUES FROM OTHER MARKETABLE SECURITIES 2 9,397 OTHER INTEREST AND SIMILAR REVENUES 6,243 4,335 EXCHANGE GAINS 14,778 18,132 22,253 42,768

FINANCIAL LOSS 3,473 -

GAINS ON FIXED ASSET DISPOSALS (NOTES 6 AND 7) 66,383 543 EXTRAORDINARY REVENUES (NOTE 16) 6,901 14,608 PRIOR YEARS’ REVENUESAND INCOME (NOTE 16) 5,192 12,760

78,476 27,911

EXTRAORDINARY LOSS - 7,262

The accompanying Notes 1 to 21 are an integral part of the 2000 statement of income.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - STATEMENTS OF INCOME FOR 2000 AND 1999 17

T R A N S L ATION OF A REPORT AND FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH AND PREPA R E D I N A C C O R D ANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN SPAIN (SEE NOTE 21). IN THE EVENT OF A DISCREP A N C Y , T H E S P A N I S H - L A N G U AGE VERSION PREV A I L S .

I B E R I A , LINEAS AEREAS DE ESPA Ñ A , S . A .

TR A N S L AT I O N O F A R E P O RT A N D F I N A N C I A L 1. Company description S TAT E M E N T SO R I G I N A L L Y I S S U E DI N SPA N I S H A N D P R E PA R E D I N AC C O R DA N C EW I T H G E N E R A L LY AC C E P T E D AC C O U N T I N G P R I N C I P L E S I N SPA I N IBERIA, Líneas Aéreas de España, S.A. engages in the air transport of passengers and (S E E NOT E 2 1 ) . cargo and also carries on other activities related to its core business. IN T H E E V E N T O F A D I S C R E PA N C Y, T H E SPA N I S H-L A N G UAG EV E R S I O N P R E VA I L S. As a carrier of passengers and cargo, the Company operates through a large network serving three major markets: Spain, Europe and the Americas.As regards international traffic, in countries with which bilateral agreements have been entered into designating a single company as the operator, IBERIA, Líneas Aéreas de España,S.A. is the operator designated by the Spanish party. As part of the activities related to the core business, mention should be made of the Company’s activities as a handling agent,its maintenance activity and the special positioning of IBERIA, Líneas Aéreas de España, S.A. in distribution systems. As regards the handling activity, it should be noted that in 1992, after a public call for tenders, Ente Público de Aeropuertos Españoles y Navegación Aérea (AENA) -the Spanish public airports and aviation agency- awarded the Company a contract for the provision of handling services as the first operator in Spain from April 1, 1993, to April 1, 2000. Since that date the contracts have been terminated but they have been expressly extended until they are awarded once again. The Company performs a significant portion of its own maintenance work and provides technical assistance to various companies, mainly through its maintenance center in Barajas, Madrid. As regards the distribution system, IBERIA, Líneas Aéreas de España, S.A. is a partner of the Amadeus Group, which owns the Amadeus central booking system. This investment enables IBERIA, Líneas Aéreas de España, S.A. to be present in an industry with enormous economic and growth potential, characterized by its significant technological content. IBERIA, Líneas Aéreas de España, S.A.is a fully-fledged member of the Oneworld alliance, one of the two largest air transport groups in the world, which facilitates the globalization of its air transport business. In 2000 the merger by absorption of the subsidiary Aviación y Comercio, S.A.(absorbed company) into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company) took place, with the dissolution without liquidation of the former and the transfer en bloc all its assets and liabilities to the absorbing company which, by universal succession,acquired the rights and obligations of the absorbed company. The transactions performed by Aviación y Comercio, S.A. are deemed to have been performed for accounting purposes by IBERIA, Líneas Aéreas de España, S.A. from February 1, 2000. Note 19 to the financial statements includes the information relating to the merger required by Article 107 of Corporate Income Tax Law 43/1995. In the first few months of 2000 Group management designed the 2000-2003 Master Plan containing the definition and scope of the actions to be taken during that period in order to successfully achieve the strategic objectives:

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 21 -To strengthen our leadership in the main markets. -To improve quality and relations with customers ,e s p e c i a l ly the most frequent customers. -To lead the development of new technologies in the industry. -To forge and develop alliances. -To give each business line autonomy in order to improve competitiveness. -To use the available assets efficiently. -To reduce unit costs and increase productivity. -To reduce the cost of capital by controlling operating and financial risks. -To strengthen the competitiveness of the employees. -To adapt planning and monitoring processes to value management. Sociedad Estatal de Pa rticipaciones Industriales (SEPI), the Company ’s majori t y shareholder as of December 31,2000 (see Note 10), plans to launch a public offering in April 2001 of all the Company’s shares that it owns as of that date.

2. Basis of presentation of the financial statements

The 2000 financial statements, which were prepared from the Company's accounting records adjusted for the effects of the revaluation made pursuant to Royal Decree-Law 7/1996, are presented in accordance with the Spanish National Chart of Accounts and, accordingly, give a true and fair view of the Company's net worth, financial position, results of operations and funds obtained and applied in 2000.These financial statements, which were prepared by the Company's directors, will be submitted for approval by the Shareholders' Meeting, and it is considered that they will be approved without any changes. As a result of the merger by absorption of Aviación y Comercio, S.A., these notes to financial statements include information on the additions contributed by Aviación y Comercio, S.A., referred to as “Additions Due to Merger”. To be able to better compare the information, Ptas. 1,720 million were included under the “Accounts Receivable” caption in the accompanying balance sheet as of December 31, 1999,which in the 1999 financial statements approved by the Shareholders’Meeting had been recorded under the “Inventories” caption.

3. Distribution of income

The Company’s directors propose the following distribution of 2000 income:

DISTRIBUTION OF INCOME

MILLIONS OF PESETAS

TO L E G A L R E S E RV E 2 , 9 8 5 TOVO L U N TA RY R E S E RV E S 19,407 DI V I D E N D S 7 , 4 5 9 IN C O M E F O R T H E Y E A R 2 9 , 8 5 1

22 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 4.Valuation standards

The main valuation methods applied by the Company in preparing its financial statements for 2000, in accordance with the Spanish National Chart of Accounts, were as follows:

A) START-UP EXPENSES These expenses consist basically of public deed execution and registration expenses relating to capital increases, and are amortized at an annual rate of 20%. Ptas. 180 million of amortization of start-up expenses were charged to the 2000 statement of income.

B) INTANGIBLE ASSETS Leased assets are recorded as intangible assets at the cost of the related item, excluding interest costs, and are amortized by the same methods as those used to depreciate similar items of property, plant and equipment.The total debt for lease payments plus the amount of the purchase option is recorded as a liability.The difference between the two amounts, which represents the interest expenses on the transaction, is recorded under the “Deferred Charges” caption in the balance sheet and is allocated to income each year by the interest method. In prior years the Company modified the net book value of certain of its leased aircraft pursuant to a Ministry of Economy and Finance Order (see Note 4-f). Since no aircraft were leased in currencies other than the peseta or the euro in 2000 or in any of the four preceding years, no modification pursuant to this Order was made to the net book value of any aircraft in 2000. Computer software is recorded at cost and is amortized on a straight-line basis over an estimated useful life of five years.

C) PROPERTY, PLANT AND EQUIPMENT The valuation methods applied by the Company are as follows:

1. AIRCRAFT: Aircraft are carried at cost revalued pursuant to the applicable enabling legislation, including Royal Decree-Law 7/1996, except for certain aircra f t , the value of which was modified pursuant to the provisions of a Ministry of Economy and Finance Order (see Note 4-f).

2. OTHER TANGIBLE FIXED ASSETS: The tangible fixed assets recorded under the “Other Tangible Fixed Assets”caption in the balance sheets are carried at cost revalued pursuant to the applicable enabling legislation, including Royal Decree-Law 7/1996.

3. REPAIRS, UPKEEP AND MAINTENANCE: The Company records a provision for the periodic major repairs of the fuselages of its B-747, B-757, B-767, A-300, A-319, A-320, A-321 and A-340 aircraft based on the estimated total cost to be incurred, and allocates this cost to income on a straight-line basis during the period elapsing between two successive major repairs. The balance of this provision is reflected under the “Provision for Major Repairs” caption in the balance sheet.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 23 The costs of repairs of engines and of minor repairs to the aforementioned types of aircraft and of all repairs to the B-727, DC-9, MD-87 and MD-88 aircraft are expensed currently, since the annual expenses tend to be uniform. Upkeep and maintenance expenses are expensed currently.

D) DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT The Company depreciates its property, plant and equipment by the straight-line method at annual rates based on the years of estimated useful life. The methods applied to calculate the depreciation of the main items of property, plant and equipment are as follows:

1. AIRCRAFT: The depreciable cost of the aircraft is equal to their book value less the estimated residual value at the end of their useful lives.The residual value ranges from 10% to 20%, depending on the aircraft.

2. AIRCRAFT SPARE PARTS: Spare parts for aircraft maintenance are depreciated, depending on the type of part, as follows: a) Rotatable parts These parts are depreciated over eighteen years from the date of purchase, assuming a residual value of between 10% and 20%, depending on the type of aircraft. b) Repairable parts These are depreciated over a period ranging from eight to ten years, depending on the aircraft, from the date of purchase, assuming a residual value of 10% in all cases. The Company also records provisions for diminution in value of spare parts due to obsolescence.

3.YEARS OF ESTIMATED USEFUL LIFE: The years of estimated useful life of property, plant and equipment items are as follows:

YEARS OF ESTIMATED USEFUL LIFE

YEARS

A I R C R A F T 16 - 18 B U I L D I N G S A N D OT H E R S T R U C T U R E S 20 - 50 M A C H I N E R Y, I N S TA L L AT I O N S A N D TO O L S 10 - 15 T R A N S P O R T E QU I P M E N T 7 - 10 F U R N I T U R E A N D F I X T U R E S 10 C O M P U T E R H A R D WA R E 5 - 7 S PA R E PA RT S 8 - 18 F L I G H T S I M U L ATO R S 10 - 14

24 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S As a result of the acquisition of aircraft and properties from Aviación y Comercio, S.A. in 1999 and of the merger, the estimated useful lives of that company’s property, plant and equipment items are shorter than those shown in the foregoing. The buildings and installations on land owned by the Spanish State, mostly at Spanish airports,with an aggregate net book value of Ptas.4,876 million as of December 31, 2000,are depreciated over the respective concession periods. Depreciation is taken on the net amount of property, plant and equipment revaluations from the date they are recorded, using the same useful life periods as for the cost values.

E) SHAREHOLDINGS AND OTHER FINANCIAL INVESTMENTS

1. HOLDINGS IN GROUP AND ASSOCIATED COMPANIES AND OTHER SHAREHOLDINGS. The Company carries its investments in other companies at cost,net, where appropriate, of the required provisions for diminution in value if cost exceeds fair value at year-end, which in the case of the Amadeus Group and Touroperador Viva Tours, S.A. was based on their provisional financial statements as of December 31, 2000. The effects of applying consolidation criteria to the Company's 2000 financial statements was to increase assets by Ptas. 36,133 million, income for the year by Ptas. 3,623 million and reserves by Ptas. 17,238 million.

2. GOVERNMENT DEBT SECURITIES AND TIME DEPOSITS. Investments in government debt securities are carried at cost and time deposits at the amount delivered.The interest on these securities and deposits is credited to income when earned and is charged through maturity to the “Short-Term Financial Investments” caption.

F) TRANSLATION OF FOREIGN CURRENCY BALANCES The balances of accounts denominated in foreign currencies are translated to pesetas at the exchange rates ruling as of December 31 of each year. However, following customary airline practice, the balance of the liability for unused traffic documents is reflected in the balance sheet at the exchange rates ruling in the month of the sale, as set by the International Air Transport Association (IATA).The IATA exchange rates for each month are the average exchange rates for the last five days of the preceding month. Translation differences arising from translation at official year-end exchange rates and from the difference between exchange rates as of December 31 of the preceding year and those prevailing at the date of effective collection or payment are recorded under the “Exchange Gains/Losses” captions in the statement of income, except for the net gains or losses relating to the financing obtained for the acquisition of certain aircraft. Unrealized exchange gains arising on currencies for which exchange losses have not been allocated to income in prior years or in the current year are recorded under the “Deferred Revenues” caption in the balance sheet.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 25 EXCHANGE DIFFERENCES ARISING FROM AIRCRAFT FINANCING Pursuant to Valuation Rule 14 in Section 5 of the Spanish National Chart of Accounts, on March 23, 1994, the Ministry of Economy and Finance issued, at the proposal of the Spanish Accounting and Audit Institute (ICAC), a Ministerial Order on the accounting treatment of certain foreign currency exchange differences. Under this accounting regulation, from January 1, 1993, the net amount of foreign currency exchange differences arising in each year on debts for financing for the acquisition by the Company of aircraft added to the fleet in the current year and in the four immediately preceding years has to be recorded as an increase or decrease in the value of such aircraft. In accordance with this regulation, in 2000 the Company recorded a net increase in the value of its aircraft of approximately Ptas.491 million,of which Ptas.500 million related to cost and Ptas. 9 million to accumulated depreciation.

G) INVENTORIES Inventories, basically aeronautical supplies and fuel,are valued at average acquisition cost, and the related provisions for diminution in value are recorded.

H) RECOGNITION OF REVENUES AND EXPENSES Revenues and expenses are recognized on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Ticket sales and sales of the traffic documents for cargo and other services are initially credited to “Customer Advances” in the balance sheet.The balance of this balance-sheet caption reflects the liability for tickets and traffic documents sold prior to December 31,2000, but not yet used as of that date.The revenues relating to these items are recognized when the transport or service is performed. The Company has introduced the “IBERIA Plus” card as a promotional tool whereby the holder of the card accumulates points for taking certain flights, using certain hotels, renting cars or making credit card purchases with credit cards covered by the program.The points can be exchanged for free tickets or other services offered by the companies included in the program.The accompanying balance sheet as of December 31, 2000, includes a provision of Ptas. 7,187 million in this connection, based on estimates of the value of the points accumulated as of that date.

i) PROVISIONS FOR PENSIONS Under the collective labor agreements currently in force, the Company is required to pay full compensation to flight personnel who take early retirement (special leave) and to supplement the social security benefits of ground personnel taking early retirement, in accordance with the conditions specified for each case. The “Provisions for Contingencies and Expenses – Provisions for Pensions”caption in the accompanying balance sheet includes the liabilities incurred in this connection as of December 31, 2000.The provisions recorded to cover the discounted value of the liabilities incurred as of December 31, 2000,and the interest allocable to the recorded allowance amount to Ptas. 939 million and Ptas. 606 million, respectively, and these amounts are included under the “Personnel Expenses” and “Financial and Similar Expenses” captions, respectively, in the accompanying 2000 statement of income.

26 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S As a result of the merger by absorption of Aviación y Comercio, S.A., during 2000 the pension provisions recorded by Aviación y Comercio, S.A. as of January 31, 2000, which amounted to Ptas. 160 million, were included in the Company’s pension provisions. As required under current legislation, Company management is currently negotiating with various entities the externalization of this liability, which as of December 31, 2000, amounted to approximately Ptas. 7,194 million. The liability incurred as of December 31, 2000,was determined on the basis of actuarial studies conducted by independent actuaries using the unit credit method, and the main assumptions were an annual interest rate of 4%, an expected annual CPI variation of 2% and annual provisions payable in arrears.Also, the Spanish generational life-expectancy tables used were the PERM/F-2000 P tables.

J) MONTEPÍO DE PREVISIÓN SOCIAL LORETO The main purpose of the Montepío de Previsión Social Loreto is to pay retirement pensions to its members (who include the employees of the Company) and other welfare benefits in certain circumstances (death and permanent disability). Under the current collective labor agreements, the Company and its employees make the statutory contributions to the Montepío, as established in these labor agreements. The Montepío’s bylaws limit the Company’s liability to the payment by it of the statutorily established contributions. The Company’s contribution of Ptas. 3,555 million in 2000 was recorded under the "Personnel Expenses" caption in the accompanying 2000 statement of income.

K) OBLIGATIONS TO FLIGHT PERSONNEL PLACED ON THE RESERVE Under the collective labor agreements in force, the Company is required to pay full compensation to flight personnel placed on the reserve. The “Provisions for Obligations to Employees” account in the accompanying balance sheet includes the liabilities incurred in this connection as of December 31, 2000. The provisions recorded to cover the estimated liability incurred in 2000 and the interest allocable to the recorded allowance amount to Ptas. 6,901 million and Ptas. 2,465 million, respectively, and these amounts are included under the “Personnel Expenses” and “Financial and Similar Expenses” captions, respectively, in the accompanying 2000 statement of income. As a result of the merger by absorption of Aviación y Comercio, S.A., during 2000 the provisions for obligations to flight personnel placed on the reserve recorded by Aviación y Comercio, S.A. as of January 31, 2000, which amounted to Ptas. 13,493 million, were included in the Company’s provisions for obligations to flight personnel placed on the reserve. The liability incurred as of December 31, 2000,was determined on the basis of actuarial studies conducted by independent actuaries using the unit credit method, and the main assumptions were an annual interest rate of 4%, an expected annual CPI variation of 2% and annual provisions payable in arrears.Also, the Spanish generational life-expectancy tables used were the PERM/F-2000 P tables.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 27 L) PROVISION FOR THIRD-PARTY LIABILITY The Company records under the “Provision for Third-Party Liability” caption in the balance sheet the estimated amount required for probable or certain third-party liability arising from legal proceedings and litigation in progress or from outstanding indemnity payments or obligations of undetermined amount, and collateral and other similar guarantees provided by the Company. As described in Note 11, this caption includes the provisions for the estimated costs of the labor force reduction plan currently in progress and which will be initiated in the next few months.

M) CORPORATE INCOME TAX The corporate income tax of each year is calculated on the basis of the book income before taxes, increased or decreased, as appropriate, by the permanent differences from taxable income, net of tax relief and tax credits, excluding tax withholdings and prepayments. The Company is taxed under the consolidated taxation system as part of SEPI. This system is regulated by Articles 42 et seq. of the Commercial Code, as provided for by Law 5/1996. Consequently, the 2000 corporate income tax will be settled on a consolidated tax return basis.

N) FUTURES AND OTHER SIMILAR INSTRUMENTS The Company uses these instruments in transactions to hedge its asset and liability positions and its future flows of collections and payments. It only carries out “nongenuine” hedging transactions (i.e. those arranged between two parties, establishing in each case the contractual terms of the transactions agreed upon between them). If cash deposits are required as security for the obligations inherent to the aforementioned transactions, they are recorded under the “Short-Term Financial Investments - Short-Term Deposits and Guarantees” caption on the asset side of the balance sheet. The expenses relating to transactions involving futures and similar instruments are expensed currently. The price differences arising during the term of futures and similar instruments are recorded as follows: 1- In the case of transactions arranged to hedge exchange rates relating to asset or liability positions, the related balances are discounted to present value based on the gains or losses that arise. 2- For the other exchange and interest rate hedging transactions, the price differences are recorded in the statement of income when the transactions involving futures or similar instruments are retired or finally settled.

5. Intangible assets

The variations in 2000 in intangible asset accounts and in the related accumulated amortization were as follows:

28 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 2000 MILLIONSOF PESETAS ADD I T I O N S 01 - 0 1 - 0 0 AN D PROVI S I O N S TRA N S F E R S 12 - 3 1 - 0 0

RIGHTS ON LEASED ASSETS 68,781 12,200 (330) 80,651 COMPUTER SOFTWARE 2,876 1,520 26 4,422 LEA S E H O L DA S S I G N M E N T AN D OTH E R RI G H T S 85 18 - 103 AMORTIZATION (13,452) (4,077) 257 (17,272) NET VALUE 58,290 67,904

COMPUTER SOFTWARE The period additions relate basically to investments in research and development projects.

RIGHTS ON LEASED ASSETS In 2000 the Company leased two A-321 aircraft for Ptas. 11,707 million. These two aircraft and their engines were acquired in 1999.They were sold to a third party in 2000 and were subsequently leased back under a financial lease contract. The Company recorded these additions for the same net book value as that at which they were recorded at the time of sale. The main features of these two lease contracts are as follows: 1. Expiration: March 30, 2009. 2. Interest: monthly. 3. Interest rate: EURIBOR + 0.55%, and/or a fixed rate of 6.185%. 4. Purchase option: may be exercised at any time from the contract date to March 30, 2002,and from five years from the contract date to the expiry date of the contract.The price of the options varies according to when they are exercised. The general features of the lease contracts (relating mainly to aircraft) in force as of December 31,2000,some of which have interest rates tied to floating interest rates and lease payments denominated in foreign currencies, are as follows:

DECEMBER 31,2000

MILLIONS OF PESETAS CASH PRICE OFTHE FIXED ASSETS ACQUIRED, ACCORDING TO CONTRACTS 80,902 AMOUNT OF LEASE PAYMENTS PAID - IN PRIORYEARS 32,507

- IN THE CURRENTYEAR 8,828 (a) As of December 31,2000,these amounts included Ptas . AMOUNT OF LEASE PAYMENTS OUTSTANDING AT DECEMBER 31 65,419 (a) 16,809 million of unaccrued interest at that date, the balancing entry for which is included under the “Deferred AMOUNT OF PURCHASE OPTIONS 25,808 (a) Charges”caption in the accompanying balance sheet.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 29 The due dates for the lease payments outstanding as of December 31, 2000, including the amount of the purchase options, are as follows:

DECEMBER 31,2000

LE A S E PAY M E N T S DU E I N MI L L I O N S O F PE S E TA S 2001 14,449 2002 12,508 2003 10,867 2004 14,475 2005 - 2009 38,928

6. Property, plant and equipment

The variations in 2000 in property, plant and equipment accounts and in the related accumulated depreciation and provisions were as follows:

COST MILLIONSOF PESETAS

ADD I T I O N S DUE 01 - 0 1 - 0 0 TO MER G E R ADD I T I O N S RET I R E M E N T S TRA N S F E R S 12 - 3 1 - 0 0

AIR C R A F T 359,884 - 44 , 9 1 2 (36,788) 13,662 38 1 , 6 7 0 ADVAN C E SO NA I R C R A F T 47 , 6 7 8 - 28 , 4 3 2 (1 9 , 9 1 9 ) (1 3 , 6 4 5 ) 42 , 5 4 6 40 7 , 5 6 2 - 73 , 3 4 4 (5 6 , 7 0 7 ) 17 42 4 , 2 1 6 OTH E R TAN G I B L EF I X E DA S S E T S : LAN D 529 - - - - 52 9 BUI L D I N G SA N D OTH E RS T R U C T U R E S 27,706 257 90 (5 6 ) 8 28 , 0 0 5 MACH I N E R Y, IN S TA L L AT I O N SA N D TOO L S 61,381 959 4,256 (2,615) 37 9 64 , 3 6 0 TRA N S P O R T EQU I P M E N T 3,625 93 54 (174) - 3, 5 9 8 FUR N I T U R EA N D FI X T U R E S 3,177 176 419 (3 7 4 ) 4 3, 4 0 2 COM P U T E RH A R D WAR E 13,162 363 1,156 (4,779) 32 7 10 , 2 2 9 SPAR E PART S 39,268 2,253 13,732 (14,936) - 40 , 3 1 7 FLI G H TS I M U L A TOR S 7,173 5 117 - 14 2 7, 4 3 7 CON S T R U C T I O NI NP RO G R E S S 2,880 6 3, 7 0 5 (2,861) (5 7 3 ) 3, 1 5 7 158,901 4,112 23 , 5 2 9 (25,795) 28 7 16 1 , 0 3 4

ADVANCES ON AIRCRAFT The advances on aircraft relate to advances paid as a result of purchase commitments to manufacturers in accordance with the established schedules. The additions in 2000 relate to advances paid in connection with thirty-four A-320 aircraft, thirty-one A-321 aircraft and seven A-340 aircraft to be received under the Company’s fleet renewal plan.

30 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S Also, in 2000 Ptas. 9,406 million relating to the advances paid for the eight B-757 aircraft that came into service in that year were recovered. Additionally, Ptas. 10,513 million relating to the advances paid for three A-340 aircraft that came into service in 2000 were recovered. Ptas. 13,591 million were transferred to the “Aircraft” caption relating to the advances paid for eight A-320 aircraft that were acquired by the Company in 2000.

AIRCRAFT, PERIOD ADDITIONS In 2000 the Company acquired eight A-320 aircraft for a total of Ptas. 55,638 million (Ptas. 42,047 million in cash and Ptas. 13,591 million from the advances paid previously). Of these eight aircraft, three were sold during the year and subsequently leased back under operating lease contracts.

AIRCRAFT, PERIOD RETIREMENTS The Company obtained a gain of Ptas. 2,492 million on the aforementioned sale of the three A-320 aircraft, and this amount was recorded under the “Deferred Revenues” caption in the accompanying balance sheet as of December 31, 2000. Subsequently, the Company entered into operating lease contracts on the same aircraft.The capital gain will be allocated to the statement of income over the term of the lease. Also, during 2000 the Company sold two B-727 aircraft, one DC-9 aircraft and one DC-10 aircraft.The Company obtained a total net gain of Ptas. 356 million from these sales. Lastly, during 2000 the Company sold two A-321 aircraft which were subsequently leased back under financial lease contracts (see Note 5).

REVALUATION RESERVE ROYAL DECREE-LAW 7/1996 On December 31, 1996, the Company revalued its property, plant and equipment pursuant to Royal Decree-Law 7/1996, and paid the single 3% tax. The Company had previously availed itself of other revaluation legislation.The revaluation surplus and the effect there of as of December 31, 2000, are as follows:

REVALUATION MILLIONSOF PESETAS

SURPLUS 2000 BALANCE AT 01-01-00 PROVISION RETIREMENTS AT 12-31-00

AIRCRAFT 2,216 (96) (27) 2,093 LAND 147 -- 147 BUILDINGS AND OTHER STRUCTURES 1,669 (215) (8) 1,446 MACHINERY, INSTALLATIONS AND TOOLS 720 (564) (6) 150 TRANSPORT EQUIPMENT 5 (3) (1) 1 FLIGHT SIMULATORS 170 (62) - 108 4,927 (940) (42) 3,945

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 31 As of December 31, 2000, the accumulated depreciation taken on the surplus arising from the revaluation made by IBERIA,Líneas Aéreas de España,S.A.amounted to Ptas.11,646 million. The revaluation increased the 2000 depreciation charge by Ptas. 940 million, and will increase the 2001 depreciation charge by approximately Ptas. 402 million. The revaluation surplus, net of the single 3% tax, was credited to the “Revaluation Reserve” caption, with a charge to the appropriate revalued asset accounts, without altering the recorded accumulated depreciation amount.

DEPRECIATION AND PROVISIONS MILLIONSOF PESETAS

ADD I T I O N S DUE 01-01-00 TO MER G E R PROVI S I O N S RET I R E M E N T S TRA N S F E R S 12 - 3 1 - 0 0

AIR C R A F T 18 9 , 0 9 3 - 16 , 0 9 2 (5 , 3 9 3 ) - 19 9 , 7 9 2 OTH E R TAN G I B L EF I X E DA S S E T S : BUI L D I N G SA N D OTH E RS T R U C T U R E S 15 , 0 1 5 11 6 95 0 (2 5 ) - 16 , 0 5 6 MACH I N E R Y, IN S TA L L AT I O N SA N D TOO L S 41 , 0 2 8 59 9 3, 6 5 1 (2 , 4 4 2 ) - 42 , 8 3 6 TRA N S P O R T EQU I P M E N T 1, 3 5 9 53 38 3 (1 7 2 ) - 1, 6 2 3 FUR N I T U R EA N DF I X T U R E S 2, 5 0 2 15 3 16 8 (3 6 8 ) - 2, 4 5 5 COM P U T E RH A R D WAR E 9, 8 2 0 27 7 1, 1 5 5 (4 , 7 7 7 ) 25 7 6, 7 3 2 SPAR E PART S 19 , 7 2 7 1, 4 7 1 2, 7 5 4 (3 , 9 8 9 ) - 19 , 9 6 3 FLI G H TS I M U L A TOR S 5, 8 4 9 - 47 8 -- 6, 3 2 7 95 , 3 0 0 2, 6 6 9 9, 5 3 9 (1 1 , 7 7 3 ) 25 7 95 , 9 9 2

As of December 31, 2000, the cost of the fully depreciated assets which the Company was maintaining in property, plant and equipment amounted to Ptas. 41,436 million.

TRANSACTIONS INVOLVING AIRCRAFT In recent years the Company has formalized the agreements relating to its fleet renewal plan and has entered into certain agreements with its suppliers, particularly Airbus Industrie, G.I.E. and The Boeing Company.The main features of these agreements are as follows.

- BOEING AIRCRAFT - B-757 In 1994, the Company entered into operating lease contracts with several companies for seven B-757 aircraft.Two of these aircraft were on lease for a period of four years, extended by a further eighteen months in 1997 and for a further twelve months in 1998 (through October 2000), and the contracts did not provide for a purchase option. One of these two aircraft was returned to the lessor and the lease contract on the other was extended through April 2005.The other five B-757 aircraft were on lease for an initial period of approximately five years,at the end of which the Company would have the following three options for each plane: to exercise the purchase option; to extend the lease by up to a further twelve years; or to return the plane to the lessor.The lease contracts relating to four of these aircraft were extended through 2000 and the Company returned one of the aircraft to the lessor in 1999. In 2000 the Company returned one of these aircraft to the lessor and the other three were sublet to third parties for subsequent operation under a wet lease arrangement.

32 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S As of December 31, 2000, the contracts entered into by the Company with The Boeing Company (“Boeing”) for the purchase of sixteen B-757 aircraft and a purchase option on a further fourteen aircraft were still in force. In 1999 eight of the B-757 aircraft relating to the agreement with Boeing came into service. These eight planes were acquired under operating lease contracts from various companies (a different company for each plane).The initial lease term for these aircraft is 62 or 63 months, at the end of which the lessor of the aircraft has a residual value guarantee from International Lease Finance Corporation. In 2000 eight B-757 aircraft acquired under operating lease contracts from various companies came into service.The lease term for these aircraft is 65 months, at the end of which the aircraft will be returned to the lessor. Of the 14 aircraft on which there is a purchase option, the purchase option will be exercised on eleven in 2001 and on three in 2002. As of December 31, 2000, the Company had paid advances of Ptas. 551 million on these aircraft. B-747 In 1994 the Company sold one B-747 aircraft to Boeing. Subsequently, the Company entered into a three-year operating lease contract for this aircraft, which included a purchase option. In 1997 the Company renegotiated the operating lease contract, extending it for a further 29 months and modifying the purchase option price at the end of this period. In December 1999 the Company extended the contract for a further 36 months, and it can exercise the purchase option at any time. On November 30, 2000, the Company started to operate one B-747 aircraft under an operating lease contract for an initial period of 48 months, with an option to extend the lease for a further 12 months.

-AIRBUS AIRCRAFT - A-340 In 1996,the Company reached an agreement with Airbus Industrie, G.I.E.(Airbus) for the delivery dates of eight A-340 aircraft and on the delivery schedule for a further four aircraft on which there is a purchase option. In 1998, the Company entered into an agreement with Airbus for the acquisition of a further six A-340 aircraft and a purchase option on a further five, in addition to four subordinated options that it can exercise provided that it exercises the purchase option on four of the five aforementioned aircraft. In recent years certain aircraft have come into service and options have been exercised to the extent that as of December 31, 2000,12 A-340 aircraft were in service and on November 27, 2000, the two parties entered into an amendment which established that the outstanding agreements were firm commitments for the purchase of six A-340 aircraft and the possible exercise of purchase options on a further five aircraft. The delivery schedule for these six aircraft would be: three in 2001 and three in 2002 in the case of the aircraft for which there are firm commitments, and three in 2003 and two in 2004 for the aircraft on which there is a purchase option. The 11 of the 12 A-340 aircraft in service were leased under operating lease contracts from the “Iberbus” companies (see Note 7).The term of the operating leases for the eleven A-340 aircraft is seven years, at the end of which the Company will have the following three options: to exercise the purchase option and pay a predetermined price for the aircraft; to extend the lease for periods of three and eight years and mandatorily exercise the purchase option; or to return the planes to the lessor.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 33 If the Company opts to return the planes and if the owner of the aircraft does not find a buyer for the aircraft, the Company is obliged to extend the operating lease contract for a further one-year period for the aircraft which came into service in 1996 (four planes) and for a further two-year period for the aircraft which came into service in 1997 (two planes), 1998 (two planes), 1999 (one plane) and 2000 (two planes). In 2000 one A-340 aircraft came into service under a nine-year operating lease contract, on expiration of which the Company may purchase the aircraft for approximately Ptas.11,450 million, or return it to the owner, and the Company must inform the owner of its decision two years before the expiration date. If the aircraft is returned and a third-party buyer for the aircraft is not found, the manufacturer guarantees to pay 67% of the residual value. The basic price of the six aircraft pending delivery for which there are firm commitments is approximately US$ 828 million. As of December 31, 2000, the Company had paid advances totaling Ptas. 14,570 million in connection with these aircraft. A-319,A-320 and A-321 On June 19, 1998, IBERIA, Líneas Aéreas de España, S.A. and Airbus Industrie, G.I.E. entered into an agreement for the firm purchase of 50 A-320-family aircraft, with the option of acquiring a further 26 aircraft of this family and a purchase option on an additional 14 aircraft. Also, the Company entered into an agreement with Singapore Aircraft Leasing Enterprise Pte. Ltd. (“SALE”) to bring forward the date on which two A-320 scheduled for delivery in 2002 came into service to 1999. Additionally, the Company entered into an additional agreement with Airbus for the firm purchase of two A-320 aircraft which will come into service in 2002 on the same date as that on which the aircraft on which the purchase option has been exchanged with SALE were scheduled to come into service. In 1999 the Company received eight A-320 aircraft, of which six were acquired under financial lease contracts and two under operating lease contracts, for an initial term of five years, at the end of which the Company may renew the agreements for up to seven years. Al s o , in 1999 the Company acquired two A-321 aircraft and their engines, which wer e sold in 2000 so as to be subsequently leased back under financial lease contracts (see Note 5). In 2000 the Company acquired eight A-320 aircraft and subsequently sold three of them in order to operate them under operating lease contracts for a period of twelve years (13 years in the case of one of the aircraft) with a purchase option on two aircraft at a price of Ptas. 4,055 million ( 9,882,980 plus US$ 13,480,871) which may be exercised on September 30, 2009, and a purchase option on one aircraft at a price of Ptas. 5,992 million ( 15,649,018 plus US$ 18,945,546) which may be exercised on September 30, 2007. The delivery schedule for the aircraft receivable under the original agreement with Airbus Industrie, G.I.E., which has since been amended, is as follows:

34 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S DELIVERY SCHEDULE FOR AIRCRAFT (a) Relating to aircraft on which there TYPE OF AIRCRAFT 2001 2002 2003 2004 2005 (a)2006 TOTAL is a purchase option. (b) Including three aircraft on which there A-319 - - - - 4 (a) 5 9 is a purchase option. (c) Including six aircraft on which there A-320 3 11 5 (b) 8 (c) 5 (b) 2 34 is a purchase option. (d) Including two aircraft on which there A-321 2 5 7 (d) 11 (e) - 6 31 is a purchase option. (e) Including nine aircraft on which there 5 16 12 19 9 13 74 is a purchase option.

The basic price of the aircraft involved in this transaction is approximately Ptas. 326,000 million. As of December 31, 2000, the Company had paid advances totaling Ptas. 27,395 million in connection with these aircraft. In connection with the A-320 aircraft,on July 17,1998,the Company entered into a lease contract with International Lease Finance Corporation (“ILFC”) for nine A-319 and seven A-320 aircraft under a dry lease arrangement for an initial period of five years, on expiration of which the Company may extend the contract twice for one- or five-year periods,provided that the two extensions do not total more than six additional years. In 2000 the Company received three A-320 aircraft and four A-319 aircraft and in 1999 it received two of the A-320 aircraft under the aforementioned contract with ILFC. As of December 31, 2000, a change was made to the lease contracts, whereby a third-party lessor was subrogated to ILFC’s position in the contract. The aforementioned lease term and extensions were not altered. In relation to this contract, as of December 31, 2000, seven A-320 aircraft had not been delivered, but will be delivered in 2001 (originally five A-319 aircraft and two A-320 aircraft). As a result of having entered into this contract, as of December 31, 2000, the Company had made deposits for the lease of these aircraft of Ptas. 1,877 million, and this amount is recorded under the “Investment Securities and Other Loans” caption in the balance sheet.

- OTHER AIRCRAFT - A-320 and MD-87 Without prejudice to the foregoing regarding the A-319, A-320 and A-321 aircraft, in 1993 the Company sold six A-320 and five MD-87 aircraft, and subsequently entered into operating lease contracts therefor. In July 1997 the owner of these aircraft sold them to three companies, which entered into new lease contracts with the Company. The lease contracts entered into for the six A-320 aircraft expire in 2001, 2002 and 2003, at which time the Company may extend them for a further five-year period or return the planes.The term of the lease contracts entered into for the five MD-87 aircraft is 96 months, at the end of which the Company may exercise the purchase option provided for in the contract or return the planes. In 1999 the Company signed novations of the operating lease contracts for the five A-320 aircraft, as a result of which five new lessors were subrogated to the position of the original lessors.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 35 AIRCRAFT IN SERVICE The detail of the aircraft that the Company had in service as of December 31, 2000, is as follows:

AIRCRAFT IN SERVICE 2000 UNDER UNDER WET TYPE OF OWNED BY FINANCIAL OPERATING LEASE AIRCRAFT THE COMPANY LEASE LEASE (a) TOTAL B-727 9 (c) - - - 9 B-737 - - - 3 3 B-747 6 - 2 2 10 B-757 - 1 17 6 (e) 24 B-767 - - 2 - 2 A-300 6 - - - 6 A-319 - - 4 - 4 A-320 16 11 16 - 43 A-321 - 2 - - 2 (a) Lease type including aircraft and crew for approximately one year.The lessors are Air Atlanta U.K.Limited, A-340 - - 12 - 12 Air Europa,S.A.and Cygnus. (b) Excluding six inactive aircraft that DC-8 - - - 2 2 are ready for sale. (c) Excluding twenty inactive aircraft that DC-9 7 (d) - - - 7 are ready for sale. DC-10 - (b) - - -- (d) Excluding eighteen inactive aircraft that are ready for sale. MD-87 17 2 5 - 24 (e) Three aircraft which were operated under an operating lease arrangement MD-88 13 - - - 13 have been sublet to Air Europa,S.A. 74 16 58 13 161 and now are operating by the Company.

One aircraft operated by the Company under a financial lease contract had been mortgaged for a net book value of Ptas. 3,820 million as of December 31, 2000. Also, the financial lessors of the two A-321 aircraft on which the lease contracts were entered into in 2000 have mortgaged the two aircraft under British legislation. As of December 31, 2000, fourty four aircraft (twenty B-727, eighteen DC-9 and six DC-10), with a net book value of Ptas. 9,077 million as of that date, were grounded.These aircraft are ready for sale, and management of the Company does not expect any losses to arise in this connection. Preliminary agreements have been reached to sell nine of the B-727 aircraft. On September 26, 2000, a bond issue of 496,473,000 (Ptas. 82,606 million) was launched in the European market secured by eighteen aircraft which, in turn, the Company guarantees to operate under an operating lease or a financial lease.As of December 31,2000, three A-320 aircraft,two A-321 aircraft and eight B-757 aircraft relating to this issue had come into service.

36 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S WET LEASE In recent years the Company has entered into several wet lease contracts (lease of aircraft with crew). In March 1998 the Company entered into contracts with Air Europa, S.A. for the lease of eleven aircraft currently in service (six B-757, three B-737 and two B-767) under a wet lease arrangement. These contracts have an initial term of two years and are renewable annually. In December 1999 the two B-767 started to be operated under a dry lease arrangement, and in 2000 the three B-757 aircraft were returned to the lessor. Also, in 2000 the Company sublet to third parties three B-757 aircraft that it was operating under an operating lease contract,to subsequently operate them under a wet lease arrangement with Air Europa, S.A. (two of the leases expire in 2005 and the other in 2004). In 2000 the lessors of the two B-767 aircraft changed. In January and December 1999 the Company entered into wet lease contracts with Atlas Air, Inc. to operate two B-747 aircraft equipped for passenger transport for 18 months and 6 months, respectively.The lease contracts were subsequently extended through January 2002.

LEASE EXPENSES The lease payments paid by the Company in 2000 for the operating lease of the aforementioned B-747, B-757, B-767, A-319,A-320,A-340 and MD-87 aircraft amounted to Ptas. 41,995 million, and this amount is included under the “Other Operating Expenses” caption in the accompanying 2000 statement of income (see Note 16). The detail of the approximate total operating lease payments payable for these aircraft and of the related due dates is as follows:

LEASE EXPENSES

YEAR MILLIONS OF U.S. DOLLARS 2001 280 2002 278 2003 246 2004 TO 2013 438 1,242

INSURANCE COVERAGE The Company has arranged insurance policies for its property, plant and equipment and intangible assets which sufficiently covered their net book value as of December 31, 2000. It has also taken out insurance policies for the aircraft leased from third parties in accordance with the conditions stipulated in the related lease contracts. Most of these policies are with Musini, Sociedad Anónima de Seguros y Reaseguros.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 37 7. Long-term financial investments

HOLDINGS IN GROUP AND ASSOCIATED COMPANIES The variations in 2000 in the balance of the “Holdings in Group and Associated Companies” caption and in the related allowance were as follows:

HOLDINGS IN GROUP AND ASSOCIATED COMPANIES MILLIONSOF PESETAS

COST ALLOWANCE

BA L A N C E AT 01-01-00 96,226 ( 4 3 , 8 5 2 ) AD D I T I O N S O R P ROV I S I O N S 709 ( 2 6 ) RE T I R E M E N T S O R R E V E R S A L S ( 5 4 6 ) 3 , 2 8 6 TR A N S F E R S ( 9 , 1 8 1 ) 5 , 0 3 2 AD D I T I O N S D U E TO M E R G E R 1 - DI V I D E N D S ( 1 7 , 5 7 2 ) - RE T I R E M E N T S D U E TO M E R G E R ( 2 5 , 1 6 8 ) - BA L A N C E AT 1 2 - 3 1 - 0 0 4 4 , 4 6 9 ( 3 5 , 5 6 0 )

DECEMBER 31, 2000

GROUPAND ASSOCIATED COMPANIES ADDRESS BINTER CANARIAS, S.A. (d) AEROPUERTO DE LAS PALMAS BINTER MEDITERRÁNEO, S.A. (d) VELÁZQUEZ, 130; MADRID COMPAÑÍA AUXILIARAL CARGO EXPRÉS, S.A. CEN T R O DE CAR G A AÉR E A PAR C E L A 2 P.5 NAV E 6; MAD R I D CAMPOS VELÁZQUEZ, S.A. (f) VELÁZQUEZ, 134; MADRID CARGOSUR, S.A. (f) VELÁZQUEZ, 130; MADRID IBER-SWISS CATERING, S.A. CTRA. DE LA MUÑOZA, S/N;MADRID VUE L O S INT E R N AC I O N A L E SD E VACACI O N E S , S. A .( V I V A) (d) CAMINODE LA ESCOLLERA, 5; PALMA DE MALLORCA AMADEUS GLOBAL TRAVEL DISTRIBUTION, S.A. SALVADOR DE MADARIAGA, 1; MADRID VEN E Z O L A N A INT E R N AC I O N A L DE AVI AC I Ó N , S. A .( V I A S A ) OSCAR M. ZULOAGA, S/N;CARACAS SIS T E M A S AUTO M AT I Z A D O S AGE N C I A SD E VIA J E S , S. A .( S AV I A ) VELÁZQUEZ, 130; MADRID TOUROPERADOR VIVA TOURS, S.A. TRESPADERNE, 29; MADRID TOTAL

38 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The additions in 2000 relate mainly to the acquisition by the Company of 45.45% of the capital of the two lessors of the two A-340 aircraft that came into service in 2000 for Ptas. 692 million. The retirements from cost include the sale of shares of Amadeus Global Travel Distribution,S.A. for Ptas.524 million and the capital reduction approved by the Shareholders’ Meeting of Amadeus Global Travel Distribution, S.A.This capital reduction related to class B shares and took place through the reimbursement of contributions.The Company’s holding was reduced by Ptas. 22 million. The transfers include Ptas.4,149 million relating to the Company’s holdings in the Iberbus companies, which were transferred to the “Investment Securities and Other Loans” caption as a result of the decision taken by the Company’s directors to exclude them from the scope of consolidation of the IBERIA Group, due to certain terms in the contracts under which the aforementioned companies were incorporated, which guarantee the full recovery of all the amounts invested. As a result of this decision, in 2000 the Company reversed the portfolio provision of Ptas.234 million it had recorded for these companies as of December 31, 1999. In addition, the balance relating to the holding in Interinvest, S.A. (a company which has a majority holding in Aerolíneas Argentinas, S.A.) amounting to Ptas. 5.032 million was transferred to the “Investment Securities and Other Loans” caption. The information relating to the main Group and associated companies as of December 31,2000,drawn from their respective audited financial statements or from provisional financial statements in the case of the Amadeus Group and Touroperador Viva Tours, S.A. (which have not yet been approved by the respective Shareholders' Meetings), is as follows:

(a) In 2000 there were no variations in the Company’s percentages of ownership of the capital stock of the Group and associated companies, except in the cases of Amadeus Global Travel Distribution,S.A. and Sistemas Automatizadas Agencias de Viaje, S.A.,the ownership interests in which changed as a result of the sales of shares of Amadeus Global Travel Distribution,S.A.in May and June 2000. (b) Including the following amounts relating to revaluation MILLIONSOF PESETAS reserves resulting from asset revaluations made in 1996 pursuant to Royal Decree-Law 7/1996: PERCENTAGE OF INCOME (LOSS) DIRECTAND INDIRECT (b) EXTRAOR- MILLIONS 0F PESETAS OWNERSHIP (a) COST ALLOWANCE CAPITAL RESERVES ORDINARY DINARY BIN T E R CAN A R I A S , S. A . 59 3 COM PA Ñ Í A AU X I L I A RA L CAR G O EXP R É S , S. A . 1 99.99 5,127 (1,202) 1,386 1,114 1,243 184 CAR G O S U R , S. A . 18 5 100.00 6,620 (6,389) 100 129 7 (6) IBE R -S WI SS CATE R I N G , S. A . 23 2 75.00 111 - 32 261 88 3 (c) Venezolana Internacional de Aviación,S.A.’s operations were 100.00 460 (279) 150 31 -- discontinued in January 1997 and in March 1997 the company filed for “suspensión de pagos”(Chapter 11-type insolvency proceedings) 100.00 1,445 (609) 1,008 (172) -- and the process of liquidation commenced.At the date of preparation 70.00 594 - 500 796 411 26 of these financial statements , it had not been possible to obtain any recent financial statements relating to this company. 99.47 13,093 (12,365) 367 28 (249) 586 (d) The Company recorded the following amounts as additional provisions under the “Provision for Third-Party Liability“ caption 27.92 (e) 1,729 - 5,563 101,252 13,493 - of the accompanying balance sheet as of December 31,2000: C Ptas. 180 million for Bínter Canarias , S.A.,Ptas. 2,140 million for 45.00 14,716 (14,716) (c) ( ) (c) (c) Bínter Mediterráneo, S.A.and Ptas. 1,729 million for 75.49 (e) 33 - 50 995 1,069 (42) Vuelos Internacionales de Vacaciones, S.A. (e) The dividend rights relating to the Amadeus Group 49.04 225 - 460 499 (333) (9) and Sistemas Automatizados Agencias de Viaje, S.A. amount to 18.28% and 72.22%,respectively. 44,153 (35,560) (f) Inactive in 2000.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 39 In 2000 the Shareholders’Meetings of the Group and associated companies listed below adopted the following resolutions:

2000 MILLIONSOF PESETAS

DISTRIBUTION CAPITAL OF DIVIDENDS REDUCTION AVIACIÓN Y COMERCIO, S.A. 17,582 - BINTER CANARIAS, S.A. 1,122 - CAMPOS VELÁZQUEZ, S.A. 26 - COMPAÑÍA AUXILIARAL CARGO EXPRÉS, S.A. 64 - IBER-SWISS CATERING, S.A. 30 - AMADEUS GLOBAL TRAVEL DISTRIBUTION, S.A. - 649

AVIACIÓN Y COMERCIO, S.A. On January 27, 2000, the Shareholders’ Meeting of Aviación y Comercio, S.A. declared an interim dividend of Ptas. 17,582 million to be distributed out of 1999 income, of which Ptas. 17,572 million corresponded to the Company and were recorded, before the merger took place (see Note 19), as a reduction in the value of the investment in the “Holdings in Group and Associated Companies” caption in the accompanying balance sheet as of December 31, 2000.

BÍNTER CANARIAS, S.A., CAMPOS VELÁZQUEZ, S.A., COMPAÑÍA AUXILIAR AL CARGO EXPRÉS, S.A. AND IBER-SWISS CATERING, S.A. The Shareholders’ Meetings of the aforementioned companies, held on various dates in 2000, resolved to distribute dividends out of their respective 1999 income, of which Ptas. 1,122 million, Ptas. 26 million, Ptas. 48 million and Ptas. 21 million, respectively, corresponded to the Company. These dividends were recorded under the “Revenues from Shareholdings” caption in the accompanying 2000 statement of income. Amadeus Group The Amadeus Group, whose corporate purpose consists of the management and operation of a computerized booking system, comprises Amadeus Global Travel Distribution, S.A. (the parent company), Amadeus Data Processing KG (a German company) and their investees. In May and June 2000, the Company sold shares of Amadeus Global Travel Distribution, S.A. for Ptas. 54,365 million and Ptas. 10,896 million, respectively, obtaining a total net capital gain of Ptas. 64,737 million, and recorded a gain of Ptas. 65,142 million under the “Gains on Fixed Asset Disposals” caption and a loss of Ptas. 405 million under the “Losses on Fixed Assets” caption in the accompanying 2000 statement of income.

40 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S Also, in the last quarter of 2000 Amadeus Global Travel Distribution,S.A. reduced capital. This capital reduction related to class B shares (which only carry voting rights) and was carried out through the reimbursement of contributions.The Company’s holding was reduced by Ptas. 22 million. As of December 31,2000, IBERIA,Líneas Aéreas de España,S.A.had a holding of 27.92% in Amadeus Global Travel Distribution, S.A. in terms of voting rights and of 18.28% in terms of dividend rights.

SISTEMAS AUTOMATIZADOS AGENCIAS DE VIAJE, S.A. As a result of the sale of certain of the shares of Amadeus Global Travel Distribution, S.A., as of December 31, 2000, the Company’s direct and indirect ownership interest in the capital stock of Sistemas Automatizados Agencias de Viaje, S.A. totaled 75.49% in terms of voting rights and 72.22% in terms of dividend rights.

LOANS TO GROUP AND ASSOCIATED COMPANIES This caption in the accompanying balance sheet as of December 31, 2000, relates to the loans granted in prior years to Venezolana Internacional de Aviación,S.A.(VIASA) which were fully provisioned as of that date.

INVESTMENT SECURITIES AND OTHER LOANS The detail of the investments recorded under this caption in the accompanying balance sheet as of December 31, 2000, is as follows:

DECEMBER 31,2000

MILLIONS OF PESETAS

IB E R B O N D PLC 1999 6,100 IN T E R I N V E S T, S . A . 5,032 IB E R B U S C O M PA N I E S 4,149 O N L I N E T R AV E L P O RTA L 1,198 AD D I T I O N S D U E TO M E R G E R 522 LOA N S TO IB E R B U S C O M PA N I E S 35,414 L OA N TO A E RO L Í N E A S AR G E N T I N A S, S . A . 580 DE P O S I T S A N D G UA R A N T E E S F O R O P E R AT I O N O F A I R C R A F T U N D E R A W E T L E A S E A R R A N G E M E N T 2,328 DE P O S I T S A N D G UA R A N T E E S F O R O P E R AT I O N O F A I R C R A F T L E A S E F F RO M I L F C 1,877 OT H E R D E P O S I T S A N D G UA R A N T E E S 372 OT H E R 1,959 5 9 , 5 3 1

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 41 IBERBOND PLC 1999 In September 1999 the Company subscribed to bonds issued by Iberbond PLC 1999 totaling 39,000,000 (Ptas. 6,489 million).These bonds form part of an issue relating to the acquisition of six A-320 aircraft that were subsequently leased to the Company under a financial lease contract (see Note 6). The bonds subscribed to by the Company earn annual interest of 5.90%, which is settled every six months.The principal is redeemed annually and the final maturity of the transaction is set for September 1, 2007. Based on this maturity, as of December 31, 2000, the Company recorded the portion of the investment maturing at long term (Ptas.6,100 million) under the “Investment Securities and Other Loans” caption and the portion maturing at short term (Ptas.194 million) under the “Short-Term Financial Investments” caption in the accompanying balance sheet as of December 31, 2000. The interest earned in 2000 amounted to Ptas. 375 million, and this amount was recorded under the “Other Interest and Similar Revenues”caption in the accompanying 2000 statement of income.The Ptas. 124 million receivable in this connection as of December 31, 2 0 0 0 , were recorded under the “ S h o rt - Te rm Financial Inve s t m e n t s ” caption in the accompanying balance sheet as of December 31, 2000.

AEROLÍNEAS ARGENTINAS GROUP AND INTERINVEST, S.A. On July 24, 2000, the Annual and Special Shareholders’ Meeting of Interinvest, S.A., the majority shareholder of Aerolíneas Argentinas, S.A.,resolved to reduce capital by 402,761,654 Argentine pesos to offset losses.Also, on the same date, it was resolved to increase capital by 208,517,779 Argentine pesos, but the Company did not subscribe to the percentage corresponding to its ownership interest.As of December 31, 2000,the Company’s holding in Interinvest, S.A. had been reduced to 0.4143% and was recorded at a cost of Ptas. 5,032 million.A provision was recorded for the same amount as of December 31, 1999, due to the accumulated losses incurred by Aerolíneas Argentinas, S.A. As of December 31, 2000, the Company had provided U.S. dollar guarantees for Aerolíneas Argentinas, S.A. to several entities totaling Ptas. 8,932 million.The Company has covered this risk through a provision of Ptas.7,858 million recorded under the “Provisions for Contingencies and Expenses” caption in the accompanying balance sheet as of December 31, 2000, and by mortgaging two B-747 aircraft owned by Aerolíneas Argentinas, S.A. Ptas.4,976 million of this provision were recorded under the “Extraordinary Expenses” caption in the accompanying 2000 statement of income.

IBERBUS COMPANIES As indicated above, due to certain terms in the contracts under which the Iberbus companies were incorporated, which guarantee the full recovery of the amounts invested, as of December 31, 2000, the holdings in the aforementioned companies were transferred to this caption. The information relating to these companies as of December 31, 2000,drawn from their respective provisional financial statements, is as follows:

42 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S DECEMBER 31,2000 MILLIONSOF PESETAS

PERCENTAGE INCOME GROUPAND OF DIRECT (LOSS) ASSOCIATED COMPANIES ADDRESS OWNERSHIP COST CAPITAL RESERVES ORDINARY

IBERBUS CONCHA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 338 1,226 (221) 34 IBERBUS ROSALÍA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 342 1,217 (192) (144) IBERBUS CHACEL,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 380 1,348 (472) (416) IBERBUS ARENAL,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 393 1,379 (721) (517) IBERBUS TERESA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 417 1,247 (163) (539) IBERBUS EMILIA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 416 1,252 (138) (612) IBERBUS AGUSTINA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 430 1,253 (3) (260) IBERBUS BEATRIZ,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 425 1,257 12 (204) IBERBUS JUANA INÉS,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 45.45 316 749 (66) (250) IBERBUS MARÍADE MOLINA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 45.45 330 788 - (397) IBERBUS MARÍA PITA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 45.45 362 830 - (282) TOTAL 4,149

OTHER INVESTMENTS In 2000 the Company participated in the incorporation of various new companies. The main investments were as follows: 1. A 7.3% holding amounting to Ptas. 85,352 in Oneworld Management Company, a company which was incorporated to manage and coordinate all matters relating to the Oneworld alliance. 2.A 40% holding amounting to Ptas. 17 million in Noamar Air Handling Haldco.,N.V.,the holding company of the company that will perform handling activities at Tel Aviv airport. 3. A 8% holding in Online Travel Portal, a company which was incorporated to make common purchases via the Internet, for Ptas. 1,198 million, which had been fully provisioned as of December 31, 2000.The related provision was recorded with a charge to the “Variation in Long-Term Financial Investment Provisions” caption in the accompanying 2000 statement of income. 4. A 5% holding amounting to Ptas. 8 million in European College, S.A. (Adventia), a company which was incorporated to train airline pilots. 5. A 4.16% holding amounting to Ptas. 3 million in Universal Air Travel Plan, a company which was incorporated by the main airlines to market a single credit card.

LOANS GRANTED The main data on the principal loans granted by the Company as of December 31,2000, are as follows:

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 43 LOANS GRANTED

MI L L I O N S DU E LOA N S O F PE S E TA S DAT E IN T E R E S T RAT E AEROLÍNEAS ARGENTINAS, S.A. 580 (a) 2006 5.25% IBERBUS CONCHA,LTD. 3,514 02-29-2003 5.00% IBERBUS ROSALÍA,LTD. 3,488 05-10-2003 5.00% IBERBUS CHACEL,LTD. 3,863 09-06-2003 6.00% IBERBUS ARENAL,LTD. 3,952 10-18-2003 6.00% IBERBUS TERESA,LTD. 3,574 10-21-2004 6.00% IBERBUS EMILIA,LTD. 3,589 11-10-2004 6.00% IBERBUS AGUSTINA,LTD. 3,591 05-15-2005 6.00% IBERBUS BEATRIZ,LTD. 3,602 06-15-2005 6.00% IBERBUS JUANA INÉS,LTD. 1,976 12-01-2006 6.00% IBERBUS MARÍA DE MOLINA,LTD. 2,078 03-15-2007 6.00% (a) This amount is recorded under the “Provision for Third-Party Liability” IBERBUS MARÍA PITA,LTD. 2,187 06-15-2007 6.00% caption in the accompanying balance sheet TOTAL 35,994 as of December 31,2000.

The Iberbus companies are the lessor companies of the A-340 aircraft (see Note 6). As a result of the treatment of the holdings in the Iberbus companies as investments in which the amounts invested will be recovered in full, the loans granted to these companies are recorded under the “Investment Securities and Other Loans”caption in the accompanying balance sheet as of December 31, 2000, whereas they were recorded under the “Loans to Group and Associated Companies” caption in the accompanying balance sheet as of December 31, 1999.

8.Accounts receivable

The breakdown of the “Accounts Receivable”caption in the accompanying balance sheet as of December 31, 2000, is as follows:

ACCOUNTS RECEIVABLE

MILLIONS OF PESETAS

RE C E I VA B L E F RO M PA S S E N G E R A N D CA R G O AG E N C I E S 2 5 , 2 6 6 RE C E I VA B L E F RO M P U B L I C AU T H O R I T I E S 1 4 , 6 5 7 RE C E I VA B L E F RO M A I R L I N E S 6 , 1 6 0 RE C E I VA B L E F RO M C U S TO M E R S AT S A L E S O F F I C E S 5 , 5 0 5 ACCOUNTS RECEIVABLE DUE TO MEMORANDUM COLLECTION RIGHTS 2 , 5 6 0 CR E D I T CA R D R E C E I VA B L E S 1 , 8 9 5 OT H E R C U S TO M E R R E C E I VA B L E S F O R S A L E S A N D S E RV I C E S 1 2 , 0 0 0 SU N D RYAC C O U N T S R E C E I VA B L E 7 , 5 2 8 DO U B T F U L R E C E I VA B L E S 3 , 1 8 9 PROV I S I O N S ( 3 , 8 0 9 ) 7 4 , 9 5 1

44 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The balance of the “Receivable from Public Authorities” caption relates basically to accounts receivable from the Spanish Directorate-General of Civil Aviation in connection with the subsidy for residents in the Autonomous Communities of the Canary Islands and the Balearic Islands and in Ceuta and Melilla; accounts receivable from several Spanish ministries for maintaining the aircraft of the Royal Family and the Armed Forces; accounts receivable from the Spanish Postal and Telegraph Service and other foreign postal agencies for the transport of mail; and accounts receivable from foreign tax authorities.

9. Short-term financial investments

The detail of the balance of this caption in the accompanying balance sheet as of December 31, 2000, is as follows:

DECEMBER 31,2000

MILLIONS OF PESETAS

SH O RT-T E R M D E P O S I T S 9 9 , 3 6 2 GOV E R N M E N T D E B T S E C U R I T I E S 1 2 , 1 6 4 SH O RT-T E R M D E P O S I T S A N D G UA R A N T E E S 1 , 2 5 9 UN M AT U R E D I N T E R E S T R E C E I VA B L E 8 0 9 OT H E R S H O RT-T E R M F I N A N C I A L I N V E S T M E N T S 5 8 8 1 1 4 , 1 8 2

The average return on short-term deposits was 4.22% in 2000. The government debt securities relate to government debentures and Treasury bills, which earned average interest of 3.87% in 2000.

10. Shareholders’ equity

The only variations in equity accounts in 2000 related to the distribution of the income for 1999 and to the effects of the merger with Aviación y Comercio, S.A.

CAPITAL STOCK As of December 31, 2000, the Company’s capital stock consisted of 912,962,035 fully subscribed and paid registered shares of 0.78 par value each. As a result of the merger by absorption of Aviación y Comercio, S.A. (absorbed company) into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company), capital was increased through the issuance of three new shares of IBERIA, Líneas Aéreas de España, S.A. of 0.78 par value each for each share of Aviación y Comercio, S.A. owned by minority shareholders (see Note 19). As of December 31, 2000, the Company’ shareholders were as follows:

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 45 SHAREHOLDERS’ EQUITY

NUM B E RO F SHA R E S PER C E N T AGE

SO C I E DA D ES TATA L D E PA RT I C I PAC I O N E S IN D U S T R I A L E S 4 9 2 , 1 2 5 , 2 6 2 5 3 . 9 0 CA J A D E AH O R RO S Y MO N T E D E PI E DA D D E MA D R I D 9 1 , 2 9 0 , 7 1 6 1 0 . 0 0 BA & AA HO L D I N G S LI M I T E D 9 1 , 2 9 0 , 7 1 6 1 0 . 0 0 BA N C O BI L BAO VI Z CAYA AR G E N TA R I A, S . A . 6 6 , 6 4 2 , 2 2 3 7 . 3 0 CO M PA Ñ Í A D E DI S T R I B U C I Ó N IN T E G R A L LO G I S TA, S . A . 6 1 , 1 6 4 , 7 8 0 6 . 7 0 EL CO RT E IN G L É S, S . A . 2 7 , 3 8 7 , 2 1 5 3 . 0 0 OT R A S CA J A S D E AH O R RO 2 7 , 3 8 7 , 2 1 5 3 . 0 0 MUSINI,SOCIEDAD ANÓNIMA DE SEGUROS Y REASEGUROS 1 , 0 2 9 - EM P L OY E E S A N D OT H E R S 5 5 , 6 7 2 , 8 7 9 6 . 1 0 TOTA L 912,962,035 100.00

In December 1999 Sociedad Estatal de Participaciones Industriales and the Company’s new shareholders entered into an agreement whereby the latter acquired 40% of the capital stock of IBERIA, Líneas Aéreas de España, S.A. in 2000. Sociedad Estatal de Participaciones Industriales plans to launch a public offering of all the shares of the Company that it owns in April 2001. In order to fulfil the agreements reached with the Company’s employees’representatives, the directors will propose to the Shareholder’s Meeting debentures convertible into shares of the Company, with the exclusion of the current shareholders’ preemptive subscription right, be issued.The total par value of the convertible debentures will be up to 343 million (approximately Ptas.57,000 million).The par value of each debenture will be the same as the price set for the Company’s shares in the public offering of the shares.

ADDITIONAL PAID-IN CAPITAL The revised Corporations Law expressly permits the use of the additional paid-in capital balance to increase capital and establishes no specific restrictions as to its use.

LEGAL RESERVE Under the revised Corporations Law, 10% of income for each year must be transferred to the legal reser ve until the balance of this reserve reaches at least 20% of capital stock. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased capital stock amount. Otherwise, until the legal reserve exceeds 20% of capital stock, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.

DIFFERENCES DUE TO THE ADJUSTMENT OF CAPITAL STOCK TO EUROS As a result of the redenomination of the capital stock in euros, which was approved by the Board of Directors in 1999, the difference arising as a result of the rounding down made it necessary to reduce capital and to record a restricted reserve in accordance with current legislation.

46 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S REVALUATION RESERVE AND MERGER RESERVE As a result of the merger by absorption of Aviación y Comercio, S.A., a merger reser ve was recorded (see Note 19). Also,Aviación y Comercio, S.A., in its merger balance sheet as of January 31, 2000, had recorded a revaluation reserve as a result of the revaluation pursuant to Royal Decree-Law 7/1996. As a result of the application of current regulations, the Company recorded a revaluation reserve equal to the amount obtained by applying to the merger reserve the percentage of Aviación y Comercio, S.A.’s total equity represented by its revaluation reserve.

11. Provision for third-party liability

The variations in 2000 in the balance of this caption in the accompanying balance sheet were as follows:

PROVISION FOR THIRD-PARTY LIABILITY

MI L L I O N S O F P E S E TA S

BA L A N C E AT 0 1 - 0 1 - 0 0 5 6 , 3 5 6 PE R I O D P ROV I S I O N S 4 4 , 1 2 3 AM O U N T S U S E D I N T H E Y E A R ( 1 , 6 2 4 ) AD D I T I O N S D U E TO M E R G E R 2 , 3 8 0 BA L A N C E AT 1 2 - 3 1 - 2 0 0 0 1 0 1 , 2 3 5

As of December 31, 1999,a provision of Ptas.30,000 million had been recorded relating to the estimated present value of payments to be made to employees availing themselves of a labor force reduction plan that is being carried out in 2000 and 2001.As of December 31, 2000,the provision recorded in this connection under the “Provision for Third-Party Liability” caption in the balance sheet amounted to Ptas. 30,828 million, including Ptas. 1,300 million arising from the merger with Aviación y Comercio, S.A. In 2000 the directors recorded a further provision of Ptas. 30,000 million, with a charge to the “Extraordinary Expenses” caption in the accompanying statement of income, to cover the estimated cost of a labor force rejuvenation plan that will be implemented in 2001, 2002 and 2003.The amount recorded as of December 31, 2000,relates to the present value of the estimated cost of this plan, which is aimed at ground personnel of between 58 and 64 years of age in 2001,2002 and 2003 (it is estimated that there will be 1,100 employee departures). Participation in this plan will be voluntary both for the employees and for the Company. The other provisions in 2000, which were also recorded mainly with a charge to the “Extraordinary Expenses” caption in the accompanying statement of income, relate to the estimate made by the directors of the Company of the amount required to cover probable sundry third-party liability.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 47 The remainder of the balance of the “Provision for Third-Party Liability” caption relates to the estimated amount required for probable or certain third-party liability arising from litigation in progress or from outstanding indemnity payments or obligations of undetermined amount, and collateral and other similar guarantees provided by the Company.

12. Payable to credit entities

The breakdown, by maturity, of the Company’s payables to credit entities as of December 31, 2000 (which related to loans and financial lease transactions), is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

D UEIN : SUB S E Q U E N T CURRENCY 2001 2002 2003 2004 2005 YEARS DEBT: PESETAS 5,327 1,601 2,557 3,273 155 462 FOREIGN CURRENCIES:U.S. DOLLAR 2,773 6,985 3,333 --- YEN 4,395 1,864 2,154 --- DEUTSCHE MARK 1,291 1,307 1,325 6,649 -- EURO 5,194 5,286 5,800 5,522 5,421 37,384 18,980 17,043 15,169 15,444 5,576 37,846

On February 12, 2001, the Company exercised early the purchase option under two lease contracts for A-320 aircraft, for which it paid Ptas. 6,478 million.This early cancellation will increase the debt maturing in 2001 by Ptas. 5,080 million and reduce the debt maturing in 2002, 2003 and 2004 by Ptas. 1,073 million, Ptas. 1,102 million and Ptas. 6,458 million, respectively. The weighted annual average interest rates on the foregoing loans in 2000 were 5.20% for peseta loans and 5.55% for foreign currency loans, and some of the rates were tied to MIBOR or LIBOR, respectively.

48 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 13. Futures transactions

The Company’s policy is to actively manage the risks arising from fluctuations in exchange and interest rates and in fuel prices. Hedging transactions are arranged to minimize the impact of these variables on the statement of income. Following is a detail of the transactions arranged by the Company as of December 31, 2000, based on the following criteria: notional values to hedge asset and liability positions, and for options, exchange rate hedging and fuel price hedging transactions, and present values for the income hedged for the other future collection and payment hedging transactions.

DECEMBER 31,2000

MIL L I O N SO F PES E TA S HED G I N G O FA S S E TA N D LI A B I L I T YP O S I T I O N S : EXC H A N G E RI S KH E D G I N GT R A N S AC T I O N S CROS S CU R R E N C Y SWA P S 97 , 9 5 2 INT E R E S TR AT E RI S K HE D G I N GT R A N S AC T I O N S INT E R E S T RAT E SWA P S 18 , 3 5 1

HED G I N G OF FU T U R E FL OW S : EXC H A N G EA N D IN T E R E S TR AT ER I S K HE D G I N GT R A N S AC T I O N S CROS S CU R R E N C Y IN T E R E S TA N DE X C H A N G E RAT E SWA P S 26 , 3 6 5 EXC H A N G E RI S KH E D G I N GT R A N S AC T I O N S CROS S CU R R E N C Y SWA P S 27 , 8 5 6 CAL L OP T I O N S BO U G H T 39 , 9 5 2 CAL L OP T I O N S SO L D 17 , 6 0 1 PUT OP T I O N SS O L D 41,899 EXC H A N G E RAT E IN S U R A N C E 13 , 2 1 0 INT E R E S T RAT E RI S KH E D G I N GT R A N S AC T I O N S INT E R E S T RAT E SWA P S 5, 6 7 0 OTH E RH E D G I N GT R A N S AC T I O N S FU E LP R I C E HE D G I N GT R A N S AC T I O N S 93,560

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 49 14. Balances and transactions with Group and associated companies

The detail of the receivables from and payables to SEPI Group and associated companies as of December 31, 2000, is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

RE C E I VA B L E PAYA B L E LONG SHORT LONG SHORT COMPANY TERM TERM TERM TERM SEPI, TAXES (NOTE 15) 59,524 3,466 26,357 3,118 SEPI, OTHER -- 23 33 VUE L O S INT E R N AC I O N A L E S DE VACACI O N E S , S. A . --- 133 CAMPOS VELÁZQUEZ, S.A. --- 57 COMPAÑÍA AUXILIAR AL CARGO EXPRÉS, S.A. - 553 - 112 IBER-SWISS CATERING, S.A. - 26 - 98 IBERIA TECNOLOGÍA, S.A. - 89 - 213 SAVIA --- 360 CARGOSUR, S.A. --- 823 AEROLÍNEAS ARGENTINAS, S.A. - 1,928 (b) - 40 AMADEUS GROUP - 414 -- BINTER FINANCE B.V. --- 794 BINTER CANARIAS, S.A. --- 903 BINTER MEDITERRÁNEO, S.A. --- 297

(a) The Company has recorded a short-term account TOUROPERADOR VIVA TOURS, S.A. - 298 - 453 receivable of Ptas. 4,876 million from MUS I N I ,SDAD .ANÓ N I M A DE SEG U RO S Y REA S E G U RO S - 155 1,684 191 Venezolana Internacional de Aviación,S.A. for which a provision has been recorded in full. VEN E Z O L A N A INT E R N AC I O N A L DE AVI AC I Ó N , S. A . (a) - - - 412 (b) A provision of Ptas. 1,431 million had been recorded in this connection under the “Provision for Third- OTHER - 1 - 46 Party Liability”caption in the accompanying 59,524 6,930 28,064 8,083 balance sheet as of December 31,2000.

The Company’s main transactions with SEPI Group and associated companies in 2000 were as follows:

50 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The services rendered to the Aerolíneas Argentinas Group and Bínter Canarias, S.A. consist basically of aircraft maintenance, passenger service, handling services for aircraft on stopovers, commissions on ticket sales and aircraft leases.

2000 MILLIONSOF PESETAS

FINANCIAL SERVICES REVENUES SERVICES FINANCIAL COMPANY RENDERED AND DIVIDENDS RECEIVED EXPENSES SEPI --- 27 VUELOS INTERNACIONALES DE VACACIONES, S.A. 53 44 564 - CAMPOS VELÁZQUEZ, S.A. - 26 -- COMPAÑÍA AUXILIAR AL CARGO EXPRÉS, S.A. 2,038 48 470 - IBER-SWISS CATERING, S.A. 106 21 9,719 - SAVIA 2,906 - 830 - AEROLÍNEAS ARGENTINAS GROUP 8,611 76 -- AMADEUS GROUP 4,633 - 16,003 - BINTER FINANCE,B.V. - 514 - 7 BINTER CANARIAS, S.A. 3,559 1,122 -- BINTER MEDITERRÁNEO, S.A. 668 --- MU S I N I,SDA D.AN Ó N I M A D E SE G U RO S Y RE A S E G U RO S --- 183

The services rendered to the Company by Iber-Swiss Catering, S.A. relate to catering services and materials.The Amadeus Group bills the Company for tickets booked through its system and the Company receives a commission for each ticket issued through that system. The services rendered by the Company to SAVIA relate mainly to the charge for the license to use the trademark, booking services and rent. Also, as of December 31, 2000, the Company had provided guarantees to third parties for its subsidiary Bínter Mediterráneo, S.A. totaling Ptas. 2,600 million and for its subsidiary Bínter Canarias, S.A. totaling Ptas. 2,592 million.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 51 15.Tax matters

The “Accounts Receivabl e ” and “Other Nontrade Paya bl e s ” captions in the accompanying balance sheet as of December 31, 2000, include the accounts receivable from and payable to, respectively, public authorities, the detail being as follows:

DECEMBER 31,2000

MI L L I O N S O F PE S E TA S RECEIVABLE: RECEIVABLE FROM FOREIGN TAX AUTHORITIES 1,121 OTHER TAX RECEIVABLES 2 1,123 PAYABLE: VAT 872 PERSONAL INCOME TAXWITHHOLDINGS 4,440 AIRPORTTAKEOFFAND SAFETY LEVIES 2,283 PAYABLE TO FOREIGN TAX AUTHORITIES 3,612 ACCRUED SOCIAL SECURITY TAXES PAYABLE 6,316 OTHER PAYABLES TO PUBLIC AUTHORITIES 1 17,524

Corporate income tax is calculated on the basis of the income per books, which does not necessarily coincide with the taxable income for corporate income tax purposes. The reconciliation of the income per books for 2000 to the taxable income for corporate income tax purposes is as follows:

2000 MILLIONSOF PESETAS

INCREASE DECREASE AMOUNT

(a) This amount relates basically to the provisions for INCOME FORTHEYEAR PER BOOKS (BEFORE TAXES) -- 30,788 pensions and other commitments to employees, the provision for labor force rejuvenation costs, for contingencies PERMANENT DIFFERENCES 160 (2,421) (2,261) related to investee companies and deferred income arising from memorandum loans and aircraft sales. TIMING DIFFERENCES: (b) This amount relates basically to the deferral of the tax charge relating to the gain arising from the sale of shares of ARISING INTHEYEAR 64,528 (a) (66,169) (b) (1,641) Amadeus Global Travel Distribution,S.A. (c) This amount relates basically to the deferral of the tax ARISING IN PRIORYEARS 17,135 (c) (11,606) (d) 5,529 charge on the gain arising in 1999 at Aviación y Comercio, S.A.as a result of the sale of its aircraft. TAX A B L E IN C O M E (BE F O R E CO N S O L I D ATI O NA D J U S T M E N T S ) 32,415 (d) This amount relates basically to amounts used of TAX CONSOLIDATIONADJUSTMENTS : provisions recorded in prior years for pensions and other commitments to employees and for risks PERMANENT DIFFERENCES - (19,785) (e) (19,785) relating to accounts receivable and other provisions . (e) This amount relates basically to reversals of provisions TAXABLE INCOME 12,630 at Group subsidiaries and to dividends paid by the latter.

Under the consolidated tax regime applicable to the Company, individual tax assets and liabilities are integrated in the Controlling Company (SEPI) and,accordingly, the Company paid corporate income tax amounting to Ptas. 3,118 million to SEPI in 2000.

52 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The offset in 2000 of the tax losses contributed to the Group involves repurchasing the related tax assets amounting to Ptas.3,216 million,and this amount is recorded under the “Corporate Income Tax” caption in the accompanying 2000 statement of income.The detail of the balance of the “Corporate Income Tax” caption in the accompanying 2000 statement of income is as follows:

2000

MI L L I O N S O F PE S E TA S AP P L I CAT I O N O F T H E 35% TA X R AT E TO I N C O M E P E R B O O K S A D J U S T E D B Y T H E P E R M A N E N T D I F F E R E N C E S 3 , 0 6 0 A D D / (LE S S) : 7% O F T H E P R I O R Y E A R S’ TA X L O S S E S O F F S E T I N 2 0 0 0 (804) DO U B L E TA X AT I O N A N D I N V E S T M E N T TA X C R E D I T S (244) OT H E R (1,075) C O R P O R AT E IN C O M E TA X 937

The 7% of prior years’ tax losses offset in 2000 relates to the difference between the corporate income tax rate (35%) and the rate of 28% that the Company obtained from SEPI by contributing its tax losses in consolidation for tax purposes. As of December 31,2000,the prior years’tax losses susceptible to repurchase from SEPI amounted to Ptas.183,414 million.7% of this figure amounts to Ptas.12,839 million,which the Company has recorded under the “Long-Term Receivables from Group Companies” caption in the accompanying consolidated balance sheet as of December 31,2000.The Company will maintain a provision for the latter amount until it is able to use this tax asset. The tax assets and liabilities were recorded, on the basis of the recovery date, under the “Receivable from Group Companies”,“Long-Term Receivables from Group Companies” and “Payable to Group and Associated Companies” captions in the accompanying balance sheet as of December 31, 2000, the detail being as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

PAYA B L E TO GRO U P RE C E I VA B L E F RO M GRO U P CO M PA N I E S A N D AS S O C I AT E D CO M PA N I E S S H O RT L O N G S H O RT L O N G TE R M TE R M TOTA L TE R M TE R M TOTA L TAXABLE INCOME FOR 2000 --- 3,118 - 3,118 TIMING DIFFERENCES ARISING INTHEYEAR - 23,653 23,653 - 23,159 23,159 UNALLOCATED TIMING DIFFERENCES ARISING IN PRIORYEARS 3,466 35,871 39,337 - 3,198 3,198 TOTAL 3,466 59,524 62,990 3,118 26,357 29,475

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 53 The estimated years for use of the long-term tax assets as of December 31, 2000,are as follows:

YEAR OF RECOV E RY MILLIONS OF PESETA S 2 0 0 2 5 , 8 4 3 2 0 0 3 8 , 3 2 6 2004 A N D S U B S E QU E N T Y E A R S 4 5 , 3 5 5 5 9 , 5 2 4

The Company’s directors consider that all these assets will be recovered in not more than ten years. Current corporate income tax regulations provide certain tax incentives to encourage vocational training and export activity.The Company availed itself of the tax benefits envisaged in this legislation and earned tax credits of Ptas. 85 million in 2000 this connection. As of December 31, 2000, the Company did not have any unused tax credits. In 2000 the Company availed itself of the tax regime for the reinvestment of extraordinary income and deducted Ptas. 65,903 million of tax. The Company opted to include the income deferred in 2000 (Ptas. 1,167 million, which has already been reinvested), by the method established in Article 34.1 a) of the Corporate Income Tax Regulations;however, the method to be used for including the remainder has not yet been decided.

REINVESTMENT OF EXTRAORDINARY INCOME

MI L L I O N S O F PE S E TA S

IN C O M E QUA L I F Y I N G F O R R E I N V E S T M E N T E X E M P T I O N A N D N OT I N C L U D E D I N TA X A B L E I N C O M E 6 5 , 9 0 3 RE I N V E S T M E N T C O M M I T M E N T 6 7 , 4 6 6

In 2000 the Company reinvested Ptas. 2,206 million of this income in fixed assets. As of December 31, 2000, it had a reinvestment commitment amounting to Ptas. 65,260 million. As of December 31, 2000, the Company had included in its taxable income the income qualifying for reinvestment deferral in prior years, the detail being as follows:

DECEMBER 31,2000 I N P R I O R Y E A R S M I L L I O N S O F PE S E TA S 1 9 9 6 123

54 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The detail, by year of origin, of the income to be included in the Company’s taxable income in future years as a result of the application of the tax regime for reinvestment deferral is as follows:

DECEMBER 31,2000 B Y Y E A R O F OR I G I N MI L L I O N S O F P E S E TA S 1 9 9 6 741 1 9 9 7 915 1 9 9 8 6,889 1 9 9 9 487 2 0 0 0 65,903

In January 1997 the tax authorities commenced an audit of 1992 to 1995 for all the taxes applicable to the Company.As a result of the aforementioned tax audit, tax assessments were issued and contested by the Company.The Company’s directors do not expect any liabilities additional to those recorded as of December 31, 2000, to arise from these tax assessments. In 1999 the tax authorities commenced an audit of 1996 and 1997 for all the taxes applicable to the Company. As a result of the aforementioned tax audit,tax assessments were issued and contested by the Company.The Company’s directors do not expect any liabilities additional to those recorded as of December 31, 2000, to arise from these tax assessments. As of December 31, 2000, the Company had 1998, 1999 and 2000 open for review by the tax authorities for all the taxes applicable it.The Company’s directors do not expect any liabilities additional to those provisioned as of December 31, 2000, to arise as a result of inspection of the open years. As of December 31, 2000, no decision had yet been handed down in relation to a tax assessment issued by the tax authorities in 1992 in connection with Aviación y Comercio, S.A. relating to the taxes applicable to the company in 1989 and 1990. Additionally, in 1996 the tax authorities issued two assessments relating to the treatment of the tax prepayments on compensation in kind as a result of the personal income tax audits for 1993 and 1994.The related tax assessments were challenged. Lastly, in 2000 the tax authorities audited all the taxes applicable to Aviación y Comercio, S.A. in 1996, 1997 and 1998.The tax assessments issued as a result of this audit were contested, and the directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those recorded in the balance sheet as of December 31, 2000, to arise from these tax assessments. As of December 31, 2000, 1999 and the year ended January 31, 2000, were open for review by the tax inspection authorities for all the taxes applicable to Aviación y Comercio, S.A. The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those provisioned as of December 31, 2000, to arise in the event of a tax audit of these to periods.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 55 16. Revenues and expenses

A) NET SALES The breakdown of the Company’s net sales in 2000 and 1999, by type of activity, is as follows:

BY TYPE OF ACTIVITY MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

PA S S E N G E R T I C K E T R E V E N U E S 5 7 3 , 5 2 5 4 8 9 , 2 0 2 CA R G O R E V E N U E S 3 8 , 8 2 6 3 5 , 5 2 7 HA N D L I N G (A I R C R A F T D I S PAT C H I N G A N D A I R P O RT S E RV I C E S) 4 0 , 4 1 8 4 1 , 1 7 5 TE C H N I CA L A S S I S TA N C E TO A I R L I N E S (a) 1 9 , 5 4 3 2 1 , 2 1 9 OT H E R R E V E N U E S 1 0 , 0 5 0 9 , 1 4 9 (a) In 1999 the Company provided technical 6 8 2 , 3 6 2 5 9 6 , 2 7 2 assistance to Aviación y Comercio, S.A.

The geographical breakdown of passenger ticket revenues in 2000 and 1999, by network, is as follows:

NETWORK MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

S PA I N A N D E U RO P E 3 7 7 , 4 3 2 3 4 0 , 3 3 4 AT L A N T I C 1 8 0 , 6 6 0 1 3 6 , 6 0 1 A F R I C A 1 5 , 4 3 3 1 2 , 2 6 7 5 7 3 , 5 2 5 4 8 9 , 2 0 2

TECHNICAL ASSISTANCE TO AIRLINES This caption includes revenues from aircraft maintenance services rendered to other airlines, including Group companies.

B) OTHER OPERATING REVENUES The detail of the balances of this caption in the accompanying 2000 and 1999 statements of income is as follows:

OTHER OPERATING REVENUES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

CO M M I S S I O N S 1 7 , 4 4 0 1 3 , 1 4 8 ROYA LT I E S 1 , 9 8 0 2 , 2 4 4 RE N T 2 , 2 0 4 1 , 0 5 5 DE F E R R E D R E V E N U E S C R E D I T E D TO I N C O M E 6 2 8 2 8 7 OT H E R S U N D RY R E V E N U E S 1 3 , 7 2 3 1 0 , 9 6 2 3 5 , 9 7 5 2 7 , 6 9 6

56 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The revenues from commissions relate basically to the commissions on the sale of tickets to other airlines, the commissions arising from the franchise agreement entered into with Air Nostrum and the commissions obtained as a result of the agreements entered into with Mundicolor and Touroperador VivaTours, S.A.

C) EXTRAORDINARY REVENUES The detail of the balance of the “Extraordinary Revenues” caption in the accompanying 2000 statement of income is as follows:

EXTRAORDINARY REVENUES

MI L L I O N S O F P E S E TA S

RE C OV E RY O F P ROV I S I O N S F O R T H I R D-PA RT Y L I A B I L I T Y 6 0 0 RE C OV E RY O F P ROV I S I O N S F O R C O M M I T M E N T S TO P E R S O N N E L 1 , 3 6 3 RE C OV E RY O F C O N T I N G E N C Y-R E L AT E D O P E R AT I N G P ROV I S I O N S 3 , 6 5 0 OT H E R 1 , 2 8 8 6 , 9 0 1

D) PRIOR YEARS’ REVENUES AND INCOME The balance of this caption in the accompanying 2000 statement of income includes Ptas. 4,939 million recovered from AENA as a result of an adjustment to the 1999 rates applied.

E) PURCHASES The detail of the “Purchases” caption in the accompanying 2000 and 1999 statements of income is as follows:

PURCHASES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

AI R C R A F T F U E L 9 4 , 7 0 5 5 7 , 0 4 9 AI R C R A F T S PA R E PA RT S 1 8 , 6 3 7 1 9 , 1 9 4 C AT E R I N G M AT E R I A L S 5 , 0 9 4 4 , 9 0 9 OT H E R P U R C H A S E S 5 , 6 6 3 5 , 0 3 4 1 2 4 , 0 9 9 8 6 , 1 8 6

The aircraft fuel expense in 2000 totaled Ptas. 118,112 million. However, the related futures transactions reduced this expense by Ptas. 23,407 million. The amounts for 1999 were reclassified in accordance with the methods applied in 2000.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 57 F) HEADCOUNT AND PERSONNEL EXPENSES The detail of the “Personnel Expenses” caption in the accompanying 2000 and 1999 statements of income is as follows:

HEADCOUNT AND PERSONNEL EXPENSES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9 WAG E S , S A L A R I E S, E T C . 1 5 9 , 9 7 8 1 4 1 , 7 8 2 E M P L OY E E W E L FA R E E X P E N S E S 5 1 , 4 3 8 4 5 , 3 8 8 2 1 1 , 4 1 6 1 8 7 , 1 7 0

The employees of Aviación y Comercio, S.A. joined the Company’s labor force on September 1, 1999. The average number of employees, by professional category, in 2000 and 1999 was as follows:

EMPLOYEES 2 0 0 0 1 9 9 9 GR O U N D P E R S O N N E L : SE N I O R M A N AG E R S A N D T E C H N I C I A N S 1 , 3 5 3 1 , 2 7 6 CL E R I CA L S TA F F 6 , 7 4 2 6 , 4 9 8 OT H E R 1 1 , 0 2 7 1 0 , 7 7 0 1 9 , 1 2 2 1 8 , 5 4 4 F L I G H T P E R S O N N E L : PI L OT S 1 , 8 2 1 1 , 4 7 6 FL I G H T E N G I N E E R S 2 0 5 2 2 3 C A B I N C R E W 4 , 2 3 8 3 , 7 2 1 6 , 2 6 4 5 , 4 2 0 2 5 , 3 8 6 2 3 , 9 6 4

G) OTHER OPERATING EXPENSES The detail of the balances of this caption in the accompanying 2000 and 1999 statements of income is as follows:

OTHER OPERATING EXPENSES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9 AIRCRAFT LEASE PAYMENTS AND PAYMENTS TO OPERATORS (NOTE 6) (a) 5 8 , 6 4 6 7 5 , 9 0 7 (a) In addition to the operating aircraft lease expense (see Note 6),this amount includes the cost of the CO M M E R C I A L E X P E N S E S 7 8 , 0 9 9 6 5 , 0 4 0 aircraft wet lease contracts, which amounted to Ptas. AI R T R A F F I C L E V I E S A N D C H A R G E S 4 3 , 6 0 0 3 7 , 9 9 4 20,092 million in 2000 and to Ptas. 21,208 million in 1999.The aircraft lease expense amounted to MA I N T E N A N C E (b) 2 9 , 6 6 7 2 8 , 9 5 7 Ptas. 68,767 million and Ptas . 48,794 million AV I G AT I O N A I D S in 2000 and 1999,respectively. However, N 3 2 , 5 5 1 2 7 , 5 9 0 the related futures transactions reduced these IN-F L I G H T S E RV I C E S 1 8 , 4 4 2 1 5 , 2 4 4 expenses by Ptas. 10,121 million and Ptas . 1,238 million, respectively. Also included in 1999 are payments BO O K I N G S Y S T E M E X P E N S E S 1 9 , 8 7 8 1 4 , 9 9 0 totaling Ptas. 28,351 million to the operator SU N D RY R E N T 1 0 , 5 3 7 8 , 5 4 1 Aviación y Comercio, S.A. (b) Including maintenance expenses and provision OT H E R 5 8 , 1 5 0 5 0 , 3 7 5 for major repairs. 3 4 9 , 5 7 0 3 2 4 , 6 3 8

58 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S H) EXTRAORDINARY EXPENSES The detail of the balance of the “Extraordinary Expenses” caption in the accompanying 2000 statement of income is as follows:

EXTRAORDINARY EXPENSES

MI L L I O N S O F P E S E TA S PROV I S I O N S F O RT H I R D -PA RT Y L I A B I L I T Y ( NOT E 1 1 ) 4 4 , 0 8 5 DE P R E C I AT I O N O F DC-9 A I R C R A F T 3 , 4 1 2 OT H E R E X T R AO R D I N A RY E X P E N S E S 3 , 1 5 8 5 0 , 6 5 5

17. Plans for adaptation to the euro

As of December 31,2000,the Company had assessed the impact of European Monetary Union on its computer systems and considers that no significant investments or other transactions will be necessary in connection with the introduction of the euro.

18. Directors’ compensation and other benefits

The compensation of all types earned by the Company’s directors amounted to Ptas. 102 million in 2000. In 2000 no advances or loans were granted to the directors and there are no pension commitments to them.

19. Information relating to the merger of IBERIA, Líneas Aéreas de España, S.A.and Aviación y Comercio, S.A.

In 2000 Aviación y Comercio, S.A. (the absorbed company) was merged into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company) through the dissolution without liquidation of Aviación y Comercio, S.A. and the transfer en bloc of all its assets and liabilities to the absorbing company, which by way of universal succession acquired the rights and obligations of the absorbed company, was formerly executed. The Merger Plan was presented by the Boards of Directors of the two companies at their respective meetings on March 23, 2000, and was approved by their respective Shareholders’ Meetings on June 12, 2000. The transactions carried out by Aviación y Comercio, S.A. will be considered for accounting purposes to have been performed by IBERIA, Líneas Aéreas de España, S.A. from February 1, 2000.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 59 As indicated in the Merger Plan, as of the date of the merger IBERIA, Líneas Aéreas de España, S.A. had a 99.93% holding in Aviación y Comercio, S.A. Accordingly, the share exchange ratio relating to the minority shareholders of Aviación y Comercio, S.A. was determined on the basis of the actual value of the assets and liabilities of the two companies, and three new shares of IBERIA, Líneas Aéreas de España, S.A. of 0.78 par value each and carrying the same rights as the other shares were issued for each share of Aviación y Comercio, S.A.

IBERIA, LÍNEAS AÉREAS DE ESPAÑA, S.A. (THE ABSORBING COMPANY IN THE MERGER) Merger balance as of december 31, 1999

ASSETS MILLIONSOF PESETAS

1999 FIXED AND OTHER NONCURRENT ASSETS: START-UP EXPENSES 285 INTANGIBLEASSETS 58,290 PROPERTY, PLANTAND EQUIPMENT 282,070 LONG-TERM FINANCIAL INVESTMENTS 127,943 TOTAL FIXEDAND OTHER NONCURRENTASSETS 468,588

DEFERRED CHARGES 16,163

CURRENT ASSETS: INVENTORIES 12,005 RECEIVABLE FROM GROUP COMPANIES 12,353 ACCOUNTS RECEIVABLE 71,064 SHORT-TERM FINANCIAL INVESTMENTS 87,393 CASH 1,175 ACCRUAL ACCOUNTS 4,395 TOTAL CURRENTASSETS 188,385 TOTAL ASSETS 673,136

60 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S The newly-issued shares will carry profit-sharing rights from January 31, 2000. Also, the two companies informed the Spanish tax inspection authorities within the period established by current legislation of their intention to avail themselves of the tax regime provided for in Chapter VIII of Title VIII and Additional Provision Eight of Corporate Income Tax Law 43/1995. In compliance with Article 107 of Corporate Income Tax Law 43/1995, the following information is hereby disclosed: 1.The merger balance sheets of the absorbing company and of the absorbed company, which are as of December 31, 1999, and January 31, 2000, respectively, are as follows:

SHAREHOLDERS’ EQUITY AND LIABILITIES MILLIONSOF PESETAS

1999 SHAREHOLDERS’ EQUITY: CAPITAL STOCK 118,478 ADDITIONAL PAID-IN CAPITAL 16,049 REVALUATION RESERVE - LEGAL RESERVE 5,129 VOLUNTARY RESERVES 623 DIFFERENCES DUE TO THEADJUSTMENT OF CAPITAL STOCK TO EUROS 200 PRIORYEARS’ LOSSES (5,570) INCOME FORTHEYEAR 16,052 TOTAL SHAREHOLDERS’ EQUITY 150,961

DEFERRED REVENUES 2,503 PROVISIONS FOR CONTINGENCIES AND EXPENSES 140,994 LONG-TERM DEBT 94,826

CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES 56,982 PAYABLE TO GROUPANDASSOCIATED COMPANIES 77,409 TRADE ACCOUNTS PAYABLE 111,457 COMPENSATION PAYABLE 18,704 OTHER NONTRADE PAYABLES 19,220 ACCRUAL ACCOUNTS 80 TOTAL CURRENT LIABILITIES 283,852 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 673,136

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 61 AVIACIÓN Y COMERCIO, S.A. (THE ABSORBED COMPANY IN THE MERGER) Merger balance sheet as of January 31, 2000.

ASSETS MILLIONSOF PESETAS

2000 FIXED AND OTHER NONCURRENT ASSETS: PLANT, PROPERTYAND EQUIPMENT 1,443 LONG-TERM FINANCIAL INVESTMENTS 523 OTHER LONG-TERM RECEIVABLES 5,324 TOTAL FIXEDAND OTHER NONCURRENTASSETS 7,290

CURRENT ASSETS: INVENTORIES 754 ACCOUNTS RECEIVABLE 311 RECEIVABLE FROM GROUP COMPANIES 30 SHORT-TERM FINANCIAL INVESTMENTS 52,181 CASH 82 ACCRUAL ACCOUNTS 4 TOTAL CURRENTASSETS 53,362 TOTAL ASSETS 60,652

2. Detail of the years in which Aviación y Comercio, S.A. acquired the assets transferred in the merger to IBERIA,Líneas Aéreas de España,S.A.This information is presented in millions of pesetas and on the basis of the net book value of the assets as of January 31, 2000:

JANUARY 31,2000 MILLIONSOF PESETAS

1 9 8 0 - 1 9 8 4 1 9 8 5 - 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3

BUILDINGS AND OTHERSTRUCTURES 106 ----- MACHINERY, INSTALLATIONS AND TOOLS - 55 13 31 21 14 TRANSPORT EQUIPMENT - - - - - 1 FURNITUREAND FIXTURES - - 1 2 2 3 COMPUTER HARDWARE - - - 2 2 3 SPARE PARTS 34 128 55 53 60 65 FLIGHT SIMULATORS ------CONSTRUCTION IN PROGRESS ------TOTAL 140 183 69 88 85 86

62 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S SHAREHOLDERS’ EQUITY AND LIABILITIES MILLIONSOF PESETAS

2000

SHAREHOLDERS’ EQUITY: CAPITAL STOCK 7,400 ADDITIONAL PAID-IN CAPITAL 1,480 REVALUATION RESERVE 4,736 LEGAL RESERVE 1,480 VOLUNTARY RESERVES 10,059 INCOME 17,637 INTERIM DIVIDEND (17,582) TOTAL SHAREHOLDERS’ EQUITY 25,210 PROVISIONS FOR CONTINGENCIES AND EXPENSES 14,806

LONG-TERM DEBT 8,370 CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES 1,166 PAYABLE TO GROUP COMPANIES 9,041 TRADE ACCOUNTS PAYABLE 582 OTHER NONTRADE PAYABLES 183 COMPENSATION PAYABLE 67 PROVISIONS FOR SHORT-TERM CONTINGENCIES AND EXPENSES 1,227 TOTAL CURRENT LIABILITIES 12,266 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 60,652

JANUARY 31,2000 MILLIONESOF PESETAS

1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9

BUILDINGSAND OTHER STRUCTURES 35 ----- MACHINERY, INSTALLATIONSAND TOOLS 21 17 20 6 2 160 TRANSPORT EQUIPMENT - 4 10 4 17 4 FURNITUREAND FIXTURES 5 4 2 1 1 2 COMPUTER HARDWARE 11 16 22 7 7 16 SPARE PARTS 62 64 65 60 67 69 FLIGHT SIMULATORS - - - - - 5 CONSTRUCTION IN PROGRESS - - - - - 6 TOTAL 134 105 119 78 94 262

3. All the assets and liabilities were received by IBERIA, Líneas Aéreas de España, S. A . at the same book value as that for which they were recorded in the books of Aviación y Comercio,S. A . 4. Aviación y Comercio, S.A. was not availing itself of any tax benefit with an effect on the absorbing company.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 63 20. 2000 and 1999 statements of changes in financial position

Following are the Company’s statements of changes in financial position for 2000 and 1999:

APPLICATION FUNDS MILLIONSOF PESETAS

2 0 0 0 1 9 9 9

FI X E D A S S E T A D D I T I O N S: IN TA N G I B L E A S S E T S 2 , 0 3 1 3 5 , 0 8 8 PRO P E RT Y, P L A N T A N D E QU I P M E N T 8 4 , 3 0 0 1 1 5 , 9 1 7 LONG-TERM FINANCIAL INVESTMENT IN GROUPAND ASSOCIATED COMPANIES 4 , 7 2 4 4 , 6 7 5 OT H E R F I N A N C I A L I N V E S T M E N T S 2 , 9 3 9 7 , 2 0 2 DE F E R R E D C H A R G E S 1 , 0 6 2 1 , 1 4 8 DE F E R R E D R E V E N U E S 7 6 5 - DI V I D E N D S PA I D 8 , 0 2 6 3 5 , 3 0 0 RE PAY M E N T O R T R A N S F E R TO S H O RT T E R M O F L O N G-T E R M D E B T: DE B T S E C U R I T I E S A N D OT H E R S I M I L A R I S S U E S 3 0 , 4 3 3 1 1 , 2 3 1 GRO U P A N D A S S O C I AT E D C O M PA N I E S 2 2 8 8 OT H E R D E B T 1 2 PROV I S I O N F O R M A J O R R E PA I R S 1 , 7 6 8 1 , 7 4 4 PROV I S I O N S F O R P E N S I O N S 2 , 5 2 8 2 , 3 4 8 PROV I S I O N S F O R O B L I G AT I O N S TO E M P L OY E E S 2 , 0 1 7 1 , 6 5 9 PROV I S I O N F O RT H I R D -PA RT Y L I A B I L I T Y 9 5 4 1 , 0 2 2 TOTA L FU N D S AP P L I E D 1 4 1 , 5 7 0 2 1 7 , 4 2 4 FU N D S OB TA I N E D I N EX C E S S O F FU N D S AP P L I E D ( IN C R E A S E I N WO R K I N G C A P I TA L) 5 9 , 7 7 8 -

64 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S SOURCE OF FUNDS MILLIONSOF PESETAS

2000 1999

FU N D S O B TA I N E D F RO M O P E R AT I O N S 2 6 , 6 9 0 3 7 , 6 2 2 CA P I TA L I N C R E A S E - 2 0 , 0 0 0 LO N G-T E R M D E B T: GRO U P C O M PA N I E S - - OT H E R C O M PA N I E S 1 8 , 3 2 3 3 8 , 0 0 9 DISPOSALS OF PROPERTY, PLANTAND EQUIPMENTAND INTANGIBLE ASSETS 4 4 , 3 6 6 2 9 , 8 4 2 DI S P O S A L S O F L O N G-T E R M I N V E S T M E N T S 6 5 , 2 6 1 9 , 4 2 4 DI V I D E N D S R E C E I V E D 1 7 , 5 7 2 -

EA R LY R E D E M P T I O N O R T R A N S F E R TO S H O RT T E R M O F OT H E R F I N A N C I A L I N V E S T M E N T S: OT H E R F I N A N C I A L I N V E S T M E N T S 8 4 7 1 0 , 5 7 5 DE F E R R E D R E V E N U E S 5 , 1 3 4 1 , 6 2 5 DE F E R R E D C H A R G E S 6 9 4 5 LO N G-T E R M D E F E R R E D TA X L I A B I L I T Y 2 3 , 0 8 6 2 0 7

TOTA L FU N D S OB TA I N E D 2 0 1 , 3 4 8 1 4 7 , 3 4 9 FU N D S AP P L I E D I N EX C E S S O F FU N D S OB TA I N E D ( DE C R E A S E I N WO R K I N G C A P I TA L) - 7 0 , 0 7 5

VARIATION IN WORKING CAPITAL MILLIONSOF PESETAS 2 0 0 0 1 9 9 9 IN C R E A S E DE C R E A S E IN C R E A S E DE C R E A S E

IN V E N TO R I E S 4 , 7 4 1 - 3 , 2 6 1 - AC C O U N T S R E C E I VA B L E - 3 , 5 9 7 1 3 , 6 1 4 - CU R R E N T L I A B I L I T I E S 3 1 , 9 3 5 - - 9 6 , 4 1 5 SH O RT-T E R M F I N A N C I A L I N V E S T M E N T S 2 6 , 3 6 1 - 1 0 , 8 3 6 - CA S H - 3 4 2 - 8 0 2 AS S E T AC C R UA L AC C O U N T S 6 8 0 - - 5 6 9 TOTA L 6 3 , 7 1 7 3 , 9 3 9 2 7 , 7 1 1 9 7 , 7 8 6 VA R I AT I O N I N WO R K I N G C A P I TA L 5 9 , 7 7 8 - - 7 0 , 0 7 5

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S 65 The reconciliation of the income per books to the funds obtained from operations is as follows:

RECONCILIATION MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

INCOME PER BOOKS 29,851 16,052 ADD / (LESS): PERIOD DEPRECIATION ANDAMORTIZATION AND FIXED ASSET PROVISIONS 31,104 27,055 PERIOD PROVISIONS FOR CONTINGENCIES AND EXPENSES 62,937 31,746 DEFERRED INTEREST EXPENSESAND DEFERRED CHARGES 2,851 1,106 TAX ASSET RECOVERABLE AT LONG-TERM (18,134) (6,374) NET EXCHANGE DIFFERENCES ON LONG-TERM ITEMS (6,099) (7,851) NET EXCHANGE DIFFERENCES ON FIXED ASSET REVALUATIONS (491) 180 DEFERRED INTEREST REVENUES (549) (269) NET GAINS ON FIXED ASSET DISPOSALS (63,766) (9,356) REC OV E R Y OF OVE R S T ATE D PR OVI S I O N SA N D DE P R E C I AT I O NA N D AM O RT I Z AT I O N (11,014) (14,667) 26,690 37,622

21. Explanation added for translation to English

These financial statements are presented on the basis of accounting principles generally accepted in Spain. Certain accounting practices applied by the Company that conform with generally accepted accounting principles in Spain may not conform with generally accepted accounting principles in other countries.

66 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - NOTES TO 2000 FINANCIAL STA T E M E N T S DUE TO ITS LENGTH, THIS PUBLICATION INCLUDES ONLY A SUMMARY OF THE MANAGEMENT REPORT. THE COMPLETE TEXT HAS BEEN DEPOSITED WITH THE MERCANTILE REGISTER. T R A N S L ATION OF A REPORT ORIGINALLY ISSUED IN SPA N I S H . IN THE EVENT OF A DISCREPA N C Y, THE SPA N I S H - L A N G UAGE VERSION PREVA I L S .

I B E R I A , LINEAS AEREAS DE ESPA Ñ A , S . A .

1. 2000 Highlights

In 2000 the IBERIA Group reported very favorable results, with income after taxes of Ptas. 33,474 million and a return on equity of 17.27%, which enabled the Group to make investments in assets, mainly aircraft, of Ptas. 73,824 million and to reduce its indebtedness by Ptas.79,587 million.All this is attributable to an active commercial management policy and to special strict cost control, by applying the appropriate risk hedging policies required to minimize the impact that the sharp increase in crude oil prices in international markets in 2000 (an increase of over 40% in the year) had on all airlines.The price of aviation kerosene also soared in 2000, by rates that topped even the rise in oil prices, due to refinery capacity problems and to more environmentally-friendly legislation in Europe, signifying that the increase in demand was not proportionally reflected in earnings. The Company’s main business (passenger air transport) reached record levels in the Company’s recent history, with growth in demand that almost doubled that in supply and a load factor of nearly 74%, in line with the figures reported by the leading airlines in Europe. In 2000 the IBERIA Group came very close to achieving the record figure of 30 million passengers transported. In March 2000 the representatives of the owners of 40% of IBERIA’s shares joined the Board of Directors following the sale of these shares by SEPI as part of the privatization process. For the IBERIA Group, the target pursued in 2000 was based on creating shareholder value.To achieve this, the Company completed and presented in the first few months of the year its 2000-2003 Master Plan, a continuation of the previous Master Plan, which defines the actions required to meet the following strategic objectives: -To strengthen the Group’s leadership in its main markets, particular ly in the Spain- Europe and Europe-Latin America markets. -To increase customer satisfaction, especially that of the most frequent customers, by improving customer service and service quality and increasing business-class market share. -To lead the use of new technologies in the industry. -To develop air transport alliances. -To give each business line autonomy in order to improve its competitiveness and ensure its development. -To reduce unit costs and increase the productivity of resources. -To increase the use of aircraft and other assets. -To reduce the cost of capital by controlling operating and financial risks. -To strengthen the competitiveness of employees. -To adapt planning and monitoring processes to value management. In line with the aforementioned strategic objectives, 2000 was once again a year of growth for IBERIA: whereas in 1998 and 1999 emphasis was placed on the Latin American market with an increase in supply of over 30% and the renewal of its business class, in 2000 and subsequent year the largest increases will come about in the European market, in which IBERIA grew by 13% in 2000 by increasing the frequency of flights from Madrid to Milan, Rome, Brussels, Geneva and Stockholm, and from Barcelona to London. Through IBERIA Regional-Air Nostrum, the number of flights was increased from Madrid to Lyon and Toulouse and from Madrid and Barcelona to Hanover and Turin (the latter routes were inaugurated at the end of 1999).

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 69 In addition to prioritizing the European market, the IBERIA Group remained committed to and improved its supply in the Americas market, and increased significantly the number of weekly flights to Miami, Buenos Aires, Bogotá, Río de Janeiro and São Paulo, with an increase of almost 9% in the supply in this market. Furthermore, the Company replaced its DC-9 in Miami with modern MD-87 aircraft which, in addition to using more advanced technology, have a larger number of seats for the Company’s flights between Miami and destinations in Central America (Cancún,Panama,Guatemala,San Salvador, San Pedro Sula,Managua and San José de Costa Rica).This growth in production on intercontinental routes was accompanied by a strong upturn in demand, the increase in which almost doubled that in supply, and the load factor in 2000 was more than six percentage points higher than in 1999. Also, significant improvements were made in the domestic market.The number of flights between the Canary Islands and the Spanish mainland increased by 7.1%. Flights between Madrid and Barcelona also increased, and new record figures were achieved in October and November 2000 on the Madrid-Barcelona route. In fact,in 2000 IBERIA carried around three million passengers on this route (more than two million on the Madrid-Barcelona Shuttle and around 950,000 on booked flights), with 8.9% growth with respect to the number of passengers transported in 1999. Among the various measures envisaged in the new Master Plan, one of IBERIA’s priority targets was customer service. Several projects were initiated in the commercial area aimed at improving customer service quality: in June a Customer Hotline (C.A.T.) was inaugurated to attend to luggage incidents in Spain affecting IBERIA Group customers, customers of the oneworld alliance or the customers of other airlines with which the Company has entered into agreements. In September the European Information and Booking Center came into being,enabling the Group to unify and improve the service that it offers, centralizing the calls from the Company’s direct customers in several European countries by standardizing passenger service procedures. Work continued in 2000 on making the use of the electronic ticket more widespread. This ticket (cyberticket), which can be used on any domestic flight, except for the Madrid- Barcelona shuttle, has replaced the traditional paper ticket with electronic entries in a database. Among other advantages for the customer, this ticket cannot be stolen or lost, and a simple telephone call to the travel agency or to Serviberia is all that is required to arrange it. Customer acceptance of this type of ticket has grown steadily, from the 2,077 sold in June to the maximum figure of 15,958 in November, a seven-fold increase.The 85,268 tickets sold in 2000 also gave rise to a cost saving for the Company. The IBERIA Group has also carried out a significant amount of work aimed at developing new technologies.The Group was rewarded for its work by becoming the airline that makes most sales on the Internet. As part of its e-commerce strategy, in February IBERIA, L.A.E. launched its first mass flight sale offer through its website. Under this promotion (“Despegue On Line”– “On-line Take Off”),which lasted until September, 150,000 seats to 30 destinations in Spain and abroad were put on offer at significantly reduced prices.A new product (“Elige y Vuela” – “Choose and Fly”) was launched in September, whereby all the fares are shown on the Internet. With “Elige y Vuela” IBERIA decided to definitively back Internet sales, and consolidated its position as the Spanish company which made the most sales through its website in 2000. Evidence of the success of this new sales channel were the 300,000 tickets sold using this system, with revenues of over Ptas. 5,000 million (around 1.5% of total revenues), and IBERIA was awarded the iBest 2000, the Internet Oscar, for the best website in the transport category.

70 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT Also, IBERIA, L.A.E. broadened the possibility of booking and buying tickets through its website to other countries in Europe. In Germany and Austria (www.iberia.de) and in the U.K. and Ireland (www.iberia.com/iberia.uk) tickets can now be bought on-line, and customers can obtain information on the Company or join the IBERIA Plus program.These points of sale are scheduled to be also up and running in France, Italy and the U.S. in early 2001. Simultaneously, in May IBERIA, L.A.E. and ten other European airlines announced their agreement to create a travel agency on the Internet.This on-line travel agency, which will be managed on an independent basis, will offer travelers the broadest possible range of flights starting or finishing in Europe, and will give customers access to the cheapest fares.Customers will also be offered hotel booking, car hire and travel insurance facilities.The new portal will enable the associated companies to significantly reduce their sale and distribution expenses. At the same time, in 2000 the IBERIA Group continued to pursue its policy of alliances with the aim of offering its customers an even more extensive network by incorporating new destinations, agreements with other companies or, together with other operators, widening the existing services on offer.To this end, the Group entered into several shared-code agreements, with both oneworld alliance members and other airlines, including most notably the agreement with British Airways, which led to the addition of nine additional routes to the 21 already being flown jointly, and to the inclusion of the IBERIA code in certain flights operated by the GB Airways franchise.The two companies are continuing to work towards extending their cooperation to other routes, particularly between Europe and Latin America. Also noteworthy are the agreements with Air France for the route to Manila, with LOT for the Barcelona-Warsaw route; and to expand the Group’s existing services, the agreements with Swissair for the Madrid-Barcelona and Madrid-Zurich routes and with LAN Chile for flights to Santiago de Chile. Work continued in 2000 on fine-tuning the design of the IBERIA Group’s holding company model, taking advantage of the knowledge of how IBERIA, L.A.E.’s business units are currently functioning, and the Group has been working on the best means for corporate law purposes of incorporating the new companies that will make up the holding company.All this will provide the business units with greater autonomy and the capacity to manage resources independently in IBERIA L.A.E.’s various businesses: handling (the current holder of the AENA concession for the provision of handling services at Spanish airports), cargo, systems, aircraft maintenance and flight personnel training. This new business structure will be introduced when the shareholders so decide, because the Company is already prepared for the change. This air transport business diversification and restructuring strategy requires a reduction in IBERIA, L.A.E.’s holding in Amadeus GTD and a public offering of shares, carried out in Spring,reducing IBERIA, L.A.E.’s ownership interest to 18.28% and giving rise to gains of almost Ptas. 65,000 million. To achieve its cost-cutting targets and as part of its commercial strategy, two years ago the IBERIA Group successfully implemented a new system for remunerating Spanish travel agencies (Valor 98 plan). In early 2000 the Company introduced a new commercial management model in the international markets,the aim of which is to increase sales through more efficient commercial expense management, creating a new system for paying variable remuneration to the channel, with the objective of remunerating each agency in line with the promotional work actually carried out.This was achieved through the development of a new application,Milenium, which standardizes all the incentive systems.Three achievements will be rewarded in all international markets: general growth, growth in high-revenue fares and growth in customers flying to certain destinations.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 71 In addition, IBERIA, L.A.E. and eight other large U.S. and European airlines have set up a consortium to create an industry purchasing portal on the Internet through which to operate on a global aviation market stage with a view to optimizing purchases and inventories.The Company expects to significantly reduce its supply chain costs (fuel, airport services, aircraft spare parts and engine parts, catering, etc.) as a result of its stake in this consortium. Also, in July 2000, IBERIA, L.A.E., BBVA, Telefónica and Repsol YPF incorporated a company to develop a horizontal Internet purchasing (e-procurement) portal, which will serve to facilitate the four companies’ acquisitions of nonproductive goods and services. Following the strategies contained in the Master Plan, and as a continuation of the fleet renewal plan devised by the Spanish company in 1998, making IBERIA the European airline with the most modern fleet, in 2000 a total of 27 new aircraft were added to the fleet, consisting of 15 Airbus 320-type craft (eleven A-320 and four A-319 planes),eight Boeing 757 aircraft, one Boeing 747 plane and three Airbus 340 planes. The Airbus 320 and 319 and Boeing 757 aircraft have replaced the Boeing 727 aircraft, and the Airbus 340 planes have replaced the DC-10s (withdrawn from service at the end of November). Financing for 18 of the aircraft took the form of a securitization transaction similar to that carried out in 1999. To these 27 aircraft must be added the 21 planes received in 1999. By 2000 year-end, IBERIA had already added to its fleet one-half of the aircraft envisaged in the fleet renewal plan.These aircraft additions, in addition to offering improved quality to customers, provide greater uniformity, thereby increasing the use of the aircraft and crew productivity and reducing maintenance and fuel costs. As part of its strategy to hedge nonoperating risk, IBERIA worked hard to ensure it was adopting an appropriate fuel price hedging policy.The spectacular rise in the price of crude oil throughout the year (which was superior to US$ 34/barrel several times in 2000) increased the IBERIA Group’s fuel costs by 56%.These costs were also adversely affected by the rise in the U.S. dollar/euro exchange rate and the greater number of flights. These costs could have been even higher had it not been for the aforementioned fuel price hedging policy pursued by the Company. IBERIA managed to save nearly Ptas. 25,000 million by hedging 50% of the fuel used in 2000 at US$ 17/barrel and 15% at a little over US$ 23/barrel; with only 35% being purchased at free market prices.This enabled IBERIA to have the lowest unit fuel costs (in terms of cents per ASK) in Europe. The IBERIA Group’s enormous tangible fixed asset investment drive was accompanied by a policy of strengthening the competitiveness of its human resources, for which it implemented in 2000 a Strategic Training Plan (2000-2002).The key objectives of the training activities are to ensure the adaptation of the employees affected by the incorporation of new aircraft, equipment and systems; to improve the image and service offered to customers; to promote occupational risk prevention; to foster the continuous improvement of executives’ and supervisors’ management efficiency and, in general, to facilitate the ongoing professional training required by all employees. However, in addition to the Master Plan, on which the IBERIA Group’s strategies will be based in the coming years, in 2000 IBERIA undertook other ambitious projects, including the continued implementation of an efficient environmental policy, a project approved in January 2000.The implementation of this environmental policy will be the first step in a wide-reaching process through which IBERIA wishes to achieve effective management with respect to its natural surroundings that will prevent pollution derived from its activities.

72 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT The measures that IBERIA will take in this area include most notably the promotion and application of all the best technical improvements that are available and economically feasible, the rational use of limited resources (water, fuel, electricity, paper, etc.) and the adequate management of waste, effluents and emissions through their reduction, recycling and treatment. Measures will also be taken to improve the environmental management and compliance of suppliers and subcontractors and to increase the environmental awareness of employees through training programs and awareness campaigns relating to environmental protection. It should be noted in this regard that the fleet renewal plan in which the Company is currently immersed will give rise to fuel savings and noise reductions.The Airbus 320-type planes use 40% less fuel and emit up to nine times less noise then the Boeing 727 aircraft that they are to replace. In addition,IBERIA will continue to work with State agencies and social partners towards eliminating or minimizing the adverse environmental impact of air transport. It will also continue to participate in Spanish and international air transport industry forums aimed at protecting the environment. Work continued on the Euro Project in 2000, with the ongoing analysis and assessment of the effects of the euro on tasks, resources and systems and the adaptation of the procedures and systems affected that had to be addressed in 2000.The timetable set was fulfilled and an Office for the Transition to the Euro Project was set up, thereby ensuring a successful transition to the single currency in January 2002. Continuing with its standardization process, on June 21, 2000, IBERIA, L.A.E. obtained from AENOR the ISO 9000 certificate under the UNE-EN-ISO-9002 standard for its passenger and ramp handling services at the 13 busiest Spanish airports of the 39 at which these services are provided.The airports for which this certificate was obtained were Madrid, Barcelona, Mallorca, Ibiza, Menorca, Alicante, Bilbao, Málaga, Gran Canaria, Lanzarote, Fuerteventura,Tenerife North and Tenerife South.The process of obtaining the certificate for the other 26 Spanish airports at which the Company operates will be initiated shortly. IBERIA Handling, with this certified quality assurance system, will continue to implement its strategy of improving the service it offers to its customers. As a result of the aforementioned measures, the IBERIA Group reported income before taxes of Ptas.36,833 million in 2000,almost 18.5% higher than in 1999, and a return on equity of 17.27%. The cost per ASK increased by 7.7% to Ptas. 13.12 in 2000, due mainly to the aforementioned high fuel prices and to the rise in the U.S. dollar/euro exchange rate. However, the unit revenues per ASK also grew at a similar rate (7.0%) as a result of the efforts made by the Company as a whole to improve its commercial positioning, thereby maintaining the unit margin despite the significant, only partially controllable, increase in costs. In short, it can be said that in 2000, despite being a year of high fuel prices and a strong dollar, IBERIA was able to adapt to and successfully preempt a somewhat unfavorable scenario.This explains the achievement of managing to stabilize the Group’s profitability, with EBITDAR over 13% higher than in 1999.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 73 This healthy profitability permits IBERIA’s future as a fully privatized company to be viewed with optimism, with the involvement of all the groups of people who work at the Company in a common drive aimed at creating value for the shareholders, steadily improving the Company’s position in terms of competitiveness and developing the strategies envisaged and defined by all areas of the Company and included in the 2000/2003 Master Plan.

2. IBERIA Production (By Network) 2.1. SUPPLY In terms of ASKs, IBERIA, L.A.E.’s production increased by over 8% with respect to 1999, the largest increase being in the European network (12.8%), on which IBERIA’s strategic growth strategy was focused in 2000 and will be focused in the coming years, in accordance with the Master Plan:

AVAILABLE SEATS KILOMETRE S U P P LY MILLIONSOF ASKS SOUTHERN AFRICA 1.41 % AR I AT I O N AR I AT I O N SPAIN 20 0 0 19 9 9 V 00 / 9 9 % V AMERICAS 25.04 % 48.31 % S PAIN 13,596 1 2 , 9 0 1 6 9 5 5 . 4 E U ROPE 1 3 , 6 9 6 1 2 , 1 3 7 1 , 5 5 9 1 2 . 8 A M E R I CA S 2 6 , 2 3 0 2 4 , 4 3 2 1 , 7 9 8 7 . 4

EUROPE 25.22 % SOUTHERN A F R I CA 7 6 8 7 6 8 0 0

TOTAL IBERIA LAE 2000:54,290 I B E R I A , L . A . E . 5 4 , 2 9 0 5 0 , 2 3 8 4 , 0 5 2 8 . 1

IBERIA, L.A.E.’s production measured in block hours was 6.5% higher than in 1999 (taking into account this year the full integration of Aviaco in IBERIA, L.A.E.’s production). Aircraft continued to be used under wet lease arrangements, albeit on a reduced basis, not only because of the need to reach certain essential production levels, but also due to the flexibility provided by this type of transaction. The variations in 2000 were as follows:

BLOCK HOURS VA R I ATION IN 2000 BLOCK HOURS 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N IBERIA OPERATO R 4 1 7 , 3 7 2 3 3 0 , 9 1 3 8 6 , 4 5 9 2 6 . 1 WET LEASE 3 5 , 4 4 4 4 2 , 6 4 1 ( 7 , 1 9 7 ) ( 1 6 . 9 ) AV I ACO OPERATOR (*) - 5 1 , 7 2 9 ( 5 1 , 7 2 9 ) ( 1 0 0 . 0 )

IBERIA WET-LEASE AVIACO I B E R I A , L . A . E . 4 5 2 , 8 1 6 4 2 5 , 2 8 3 2 7 , 5 3 3 6 . 5 OPERATIONS OPERATIONS TOTAL IBERIA LAE 2000:452,816 2000 1999 (*) Integrated into IBERIA,L.A.E.since September 1999. 2.2. DEMAND The number of passengers carried by IBERIA, L.A.E. increased significantly with respect to 1999 in all markets, and 2.5 million more passengers were carried in 2000 than in 1999. Noteworthy was the growth on long-haul routes, which was the result of the consolidation of the supply introduced since 1998 and the service structure designed (direct daily flights, new intercontinental business class, etc.).

74 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT The breakdown of passengers carried is as follows:

PASSENGERS CARRIED D E M A N D THOUSANDSOF PASSENGERS SOUTHERN AFRICA 0.28 % 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N AMERICAS 10.77 % S PAIN 1 4 , 1 6 0 1 2 , 8 8 8 1 , 2 7 2 9 . 9 E U ROPE 7 , 6 6 9 6 , 5 7 4 1 , 0 9 5 1 6 . 7

A M E R I CA S 2 , 6 4 5 2 , 3 5 9 2 8 6 1 2 . 1 EUROPE 31.24 % SPAIN SOUTHERN A F R I CA 6 9 5 8 1 1 1 9 . 0 57.69 %

I B E R I A , L . A . E . 2 4 , 5 4 3 2 1 , 8 7 9 2 , 6 6 4 1 2 . 2 TOTAL IBERIA LAE 2000:24,543

The trend in RPKs was very positive, with an increase in demand which almost doubled that in supply, and included most notably the increases of 16.9% on long-haul routes and of 12.6% on domestic routes. The detail by company and network is as follows:

REVENUE PASSENGERS KILOMETRE BY COMPANY AND NETWORK MILLIONSOF RPKS SOUTHERN AFRICA 1.39 % AR I AT I O N AR I AT I O N 20 0 0 19 9 9 V 00 / 9 9 % V SPAIN 24.37 % S PA I N 9 , 7 6 2 8 , 6 6 9 1 , 0 9 3 1 2 . 6 E U ROPE 9 , 3 5 5 8 , 0 4 3 1 , 3 1 2 1 6 . 3 A M E R I CA S 2 0 , 3 7 5 1 7 , 4 2 5 2 , 9 5 0 1 6 . 9 AMERICAS 50.87 % EUROPE SOUTHERN A F R I CA 5 5 7 4 7 0 8 7 1 8 . 5 23.35 %

I B E R I A , L . A . E . 4 0 , 0 4 9 3 4 , 6 0 7 5 , 4 4 2 1 5 . 7 TOTAL IBERIA LAE 2000:40,049

2.3. PASSENGER LOAD FACTOR IBERIA, L.A.E.’s passenger load factor of 73.8% in 2000 was almost 5 percentage points higher than in 1999, due to the significant increase in demand in all networks, particularly the transatlantic networks (where the load factor increased by 6.4 percentage points) and in Spain, where it grew by 4.6 percentage points in 2000, following the recovery from the problems suffered by airlines as a result of airport congestion throughout most of 1999.

PASSENGER LOAD FACTOR These load factor levels represent record figures in the Company’s recent history and (IN %) place the Company at a similar level to the leading airlines. The breakdown by network is as follows:

PASSENGER LOAD FAC TOR LOAD FACTOR % 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N

SPAIN EUROPE AMERICAS SOUTHERN AFRICA S PAIN 7 1 . 8 6 7 . 2 4 . 6 6 . 8 TOTAL IBERIA LAE 2000:73.8% E U ROPE 6 8 . 3 6 6 . 3 2 . 0 3 . 0 2000 1999 A M E R I CA S 7 7 . 7 7 1 . 3 6 . 4 9 . 0 SOUTHERN A F R I CA 7 2 . 5 6 1 . 1 1 1 . 4 1 8 . 7 I B E R I A , L . A . E . 7 3 . 8 6 8 . 9 4 . 9 7 . 1

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 75 2.4.AVERAGE YIELD The detail, by area, of the variations in the average yield in 2000 and of the comparable figures for 1999 is as follows:

AVERAGE YIELD (IN PTS./RPK) AVERAGE YIELD PTS./RPK - CENT. /RPK 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N S PAIN 1 9 . 9 1 2 . 0 2 0 . 7 1 2 . 4 ( 0 . 8 ) 0 . 4 ( 3 . 9 ) E U ROPE 1 9 . 7 1 1 . 8 1 9 . 8 1 1 . 9 ( 0 . 1 ) ( 0 . 1 ) ( 0 . 5 ) A M E R I CA S 8 . 6 5 . 2 7 . 6 4 . 6 1 . 0 0 . 6 1 3 . 2 SOUTHERN A F R I CA 6 . 2 3 . 7 6 . 1 3 . 7 0 . 1 - 1 . 6 SPAIN EUROPE AMERICAS SOUTHERN AFRICA TOTAL IBERIA LAE 2000:13.9 I B E R I A , L . A . E . 1 3 . 9 8 . 4 1 3 . 7 8 . 2 0 . 2 0 . 2 1 . 5 2000 1999

IBERIA’s average yield increased by almost 1.5% in 2000, since the excess supply in European markets and particularly in the domestic market exerted downward pressure on prices.This was accompanied by significant increases in IBERIA’s supply, precisely on the routes with the lowest yields, namely the Mid and South Atlantic markets, giving rise to a reduction due to the traffic mix effect, which was partially offset by the parity of the dollar in these markets. Also worthy of mention was the favorable evolution in the relative weight of business-class traffic in the passenger mix. However, the unit revenues per ASK improved significantly with respect to 1999, as shown in the following table:

UNITS REVENUES PER A S K PTS./ASK - CENT. /ASK 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N S PAIN 1 4 . 3 8 . 6 1 3 . 9 8 . 4 0 . 4 0 . 2 2 . 9 E U ROPE 1 3 . 4 8 . 1 1 3 . 1 7 . 9 0 . 3 0 . 2 2 . 3 A M E R I CA S 6 . 7 4 . 0 5 . 4 3 . 2 1 . 3 0 . 8 2 4 . 1 SOUTHERN A F R I CA 4 . 5 2 . 7 3 . 7 2 . 2 0 . 8 0 . 5 2 1 . 6 I B E R I A , L . A . E . 1 0 . 3 6 . 2 9 . 4 5 . 6 0 . 9 0 . 6 9 . 6

2.5. PASSENGER REVENUES PASSENGERS REVENUES IBERIA, L.A.E.’s scheduled flight passenger revenues increased by almost 18% in 2000 to SOUTHERN AFRICA 0.61 % AMERICAS Ptas. 556,511 million ( 3,345 million), due mainly to the increase in demand and assisted by 31.49 % SPAIN 34.82 % the evolution of the euro/U.S. dollar exchange rate. The detail is as follows:

PASSENGER REVENUES MILLIONSOF PTAS. - MILLIONSOF

EUROPE AR I AT I O N AR I AT I O N 33.06 % 20 0 0 19 9 9 V 00 / 9 9 % V

TOTAL IBERIA LAE 2000:556,511 SPAIN 193,779 1,165 179,241 1,077 14,538 88 8.1 EUROPE 183,990 1,106 159,105 956 24,885 150 15.6 AMERICAS 175,300 1,053 132,198 795 43,102 258 32.6 SOUTHERN AFRICA 3,442 21 2,860 18 582 4 20.3 IBERIA,L.A.E. 556,511 3,345 473,404 2,845 83,107 500 17.6

76 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 3. Summary by management area of IBERIA L.A.E.

3.1. IBERIA MARKETING, NETWORK AND SCHEDULING In accordance with the strategic objectives set, 2000 was once again a year of grow t h for IBERIA, with the largest increases being in the European marke t , with growth for IBERIA of 13%, brought about by the increase in the frequency of flights from Madrid to Milan, R o m e, B ru s s e l s , Geneva and Stockholm and from Barcelona to London. Through IBERIA Regional-Air Nostru m , the number of flights was increased from Madrid to Lyon and Toulouse and from Madrid and Barcelona to Hanover and Tu rin (the latter routes we r e i n a u g u rated at the end of 1999). A l s o, the number of flights each week to Miami, Buenos A i r e s , B o g o t a , Rio de Janeiro and São Paulo was increased, with almost 9% more supply in this marke t . F u rt h e rm o r e, t h e C o m p a ny replaced its DC-9 planes in Miami with modern MD-87 aircraft which have a l a rger number of seats for the Company ’s flights between Miami and destinations in Centra l A m e rica (Cancún, Pa n a m a , G u a t e m a l a , San Salvador, San Pedro Sula, Managua and San José de Costa Rica). The domestic market also saw substantial improvements.The number of flights between the Canary Islands and the Spanish mainland increased by 7.1%. Flights between Madrid and Barcelona also increased, and new record figures were achieved in October and November 2000 on the Madrid-Barcelona route. In fact, in 2000 IBERIA carried around three million passengers on this route (more than two million on the Madrid-Barcelona Shuttle and around 950,000 on booked flights), with 8.9% growth with respect to the number of passengers transported in 1999. Due to all the foregoing, IBERIA’s market share on its strategic routes increased in 2000, and the market shares on the Spain-Europe and Europe-Latin America routes reached 34.5% and 15.1%. respectively. Among the various measures envisaged in the new Master Plan, one of IBERIA’s priority targets was customer service. Several projects were initiated: in June a Customer Hotline (C.A.T.) was inaugurated to attend to luggage incidents in Spain. In August the European Information and Booking Center came into being,enabling the Company to unify and improve the service that it offers, centralizing the calls from the Company’s direct customers in several European countries. Work continued in 2000 on making the use of the electronic ticket more widespread. This ticket (cyberticket), which can be used on any domestic flight, except for the Madrid- Barcelona shuttle, has replaced the traditional paper ticket with electronic entries on a database. A simple telephone call to the travel agency or to Serviberia is all that is required. Customer acceptance of this type of ticket has grown ceaselessly.The 85,268 tickets sold in 2000 gave rise to commercial cost savings for the Company. This new customer service center is enabling us to improve our customer service and standardize our policy in this area. In 2000 IBERIA.com experienced considerable growth in its volume of business and managed to consolidate its position as a sales channel clearly differentiated from the traditional sales channels. The introduction at the end of February 2000 of exclusive fares for IBERIA.com passengers enabled IBERIA to lead this field and achieve sales of Ptas. 5,350 million and a high degree of penetration and recognition among the growing number of Spanish Internet users. This volume of business accounts for 18% of the total business in Spain and, according to AECE (the Spanish e-Commerce Association), amounted to Ptas. 29,877 million.There were 8,153,784 visits to the website in 2000.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 77 The average ticket sales in iberia.com grew by more than 20% in the period from March to December. This upward trend should continue with the new functional and operational improvements that will be introduced in 2001, which will lead to a clear improvement in the service IBERIA offers to its customers. IBERIA, L.A.E. broadened the options for booking and buying tickets in Europe through its we b s i t e. In Germ a ny and A u s t ria (www. i b e ria.de) and in the U. K . and Ireland (www.iberia.com/iberia.uk) tickets can now be bought on-line, and customers can obtain information on the Company or join the IBERIA Plus program. These points of sale are scheduled to be also up and running in France, Italy and the U.S. in early 2001. Progress continued to be made in 2000 on the improvement of the management of international markets, with a notable saving in commercial expenses, mainly our territorial organization’s distribution and rationalization expenses. The introduction of the “Milenium” tool, a computer application for distribution channel management, made it possible to introduce uniform management policies and methods which, together with the drop on commissions in most markets, gave rise to a saving of approximately Ptas. 1,500 million. In addition, the territorial organization’s improved its productivity significantly, and it met its targets relating to international revenues,which were over 22% more in 2000 than in 1999, despite having fewer human resources. Also, IBERIA’s shift towards a new commercial management model was consolidated in 2000. Under this new model, our territorial organization will focus mainly on the need to add value to marketing activities. 3.2. IBERIA CARGO This area perfo rmed satisfactori ly in 2000, with a 6.2% increase in the volume of carg o c a rried with respect to 1999, which led to an 11% improvement in reve nu e s . This was made possible by an increase of 7.6 percentage points in the load factor and a 3% increase in the yield. Also, the sharp cutback in the number of cargo flights made with a view to optimizing the service offered to markets in order to minimize the cost increases brought about by soaring U.S. dollar exchange rates and fuel prices, particularly in the second half of the year, led to a substantial improvement in earnings with respect to those reported in 1999. In the short- and medium-haul netwo rk , the flights to the Canary Islands accounted fo r 40% of the netwo rk ’s reve nues in 2000, up 11% on 1999, as a result of the new agreements entered into with the Spanish State Postal Agency and despite the drop in Canary Island fish export s . The contribution made by intercontinental flights led to an increase in the tonnes transported throughout the EU. The decrease in the yield in this market was offset by the flights to the Canary Islands and by the launch of new products (Priority and Courier) to win back part of the cargo currently transported by road and rail.Also, the new cargo service to Frankfurt increased significantly the load factor on long-haul flights.

78 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT In the long-haul networks, 2000 was characterized by the sharp increase in traffic with Latin America and by the rise in revenues due to the strength of the U.S.dollar. In this network as a whole, the volume of goods transported and revenues increased by 8% and 15%, respectively. In the North Atlantic network the supply on passenger flights remained virtually unchanged. However, revenues increased by 12%, as a result of the transportation of cargo with a higher average yield, the increase in exports to the U.S.and the U.S. dollar effect. In the Mid Atlantic network, supply grew by 12%, whereas revenues increased by only 8%. In the South Atlantic network,where supply on passenger planes almost doubled,the fact that demand from Latin America was very low due to the strong directionality meant that the volume of cargo carried on passenger planes grew by only 76%.This subnetwork’s revenues increased by 32% to Ptas. 5,400 million in 2000.The largest increase, with the concomitant positive effect on the load factor, was in European departures and on the Santiago de Chile route.To improve the load factor on flights from the Southern Cone, work began in 2000 on strengthening commercial activities in this area. Lastly, it should be noted that at the end of 2000 the Cargo Division was awarded the AENOR certificate under the ISO 9000 standard. The main parameters of this business line are as follows:

IBERIA CARGO 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N

MI L L I O N AT KS 1 , 2 9 2 1 , 3 4 2 ( 5 0 ) ( 3 . 8 ) IN H O L D S 1 , 0 7 8 1 , 0 0 2 7 6 7 . 6 INCA R G O A I R C R A F T 2 1 4 3 4 0 ( 1 2 6 ) ( 3 7 . 2 ) MI L L I O N T K TS 8 9 0 8 2 3 6 7 8 . 1 IN H O L D S 7 7 8 6 5 7 1 2 1 1 8 . 3 INCA R G O A I R C R A F T 1 1 2 1 6 6 ( 5 4 ) ( 3 2 . 6 ) LOA D FAC TO R ( % ) 6 8 . 9 6 1 . 3 7 . 6 1 2 . 3 IN H O L D S 7 2 . 1 6 5 . 6 6 . 5 1 0 . 0 INCA R G O A I R C R A F T 5 2 . 4 4 8 . 8 3 . 6 7 . 4 AV E R AG EY I E L D ( PTA S. / T K T ) 4 2 . 6 4 1 . 4 1 . 2 2 . 9 AV E R AG EY I E L D ( / T K T ) 2 5 . 6 0 2 4 . 8 8 0 . 7 2 2 . 9 TOTAL FREIGHT REVENUES (MILL.PTAS.) 3 7 , 8 6 1 3 4 , 0 5 1 3 , 8 1 0 1 1 . 2 TOTAL FREIGHT REVENUES ( MILL.) 2 2 8 2 0 5 2 3 1 1 . 2

3.3. IBERIA HANDLING Total handling activity increased by 3.4% with respect to 1999 due to the increase in own production and in IBERIA Group production (6.9%), but above all to the production of Air Nostrum, which rose by 34.3%. The activity of third-party companies was 6.9% lower in 2000 than in 1999, thereby completing the initial process of second operators entering the market. Activity will foreseeably increase in the future due to market growth.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 79 The total headcount increased by 3.8% with respect to 1999, as a result of the increase in activity and of the new services being offered, mainly at Barajas airport.As a result of the employment plan implemented in December 1999, the handling at Spanish airports in 2000 was carried out with a greater number of permanent employees, offset by the fewer hours for which temporary employees were hired. Accordingly, productivity decreased by almost 0.5%. It should be taken into account that a significant number of measures were taken to improve passenger service, in accordance with the parameters defined by the IBERIA Group’s Commercial Department.

IBERIA HANDLING

20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N

WEIGHTED PLANES HANDLED (WPH) 442,548 427,999 14,549 3.4 IBERIA 231,091 217,060 14,031 6.5 REST OF IBERIA GROUP 30,794 28,001 2.793 10.0 FRANCHISEES 33,631 25,048 8,545 34.3 THIRD PARTIES (SPANISHAND FOREIGN) 147,032 157,890 (10,860) (6.9) EQUIVALENT FULL-TIME EMPLOYEES 8,250 7,947 303 3.8 THIRD-PARTY REVENUES (MILL.PTAS) (R E S TO F GROU P + AIR NOS T R U M + THI R D -PART I E S ) 39,193 40,884 (1,691) (4.1) OPERATING REVENUES (MILL.PTAS) 79,390 79,514 (124) (0.2) OPERATING REVENUES/WPH (MILL.PTAS) 179,393 185,781 (6,388) (3.4) PRODUCTIVITY (HOURS/WPH) 32.11 31.99 0.12 0.4

3.4. IBERIA MAINTENANCE Pursuant to the guidelines set down by the 2000-2003 Master Plan, the Maintenance Department’s drive in the area of marketing and sales of services to third parties focused once again on the promotion of the maintenance of specialized products relating to the A-340, A-320, B-747 and MD-80 aircraft, of CFM56-5A/-5B/-5C, JT9D-7Q/-59A/-70A, RB211-535E4 and JT8D-217/-219 engines and of all these aircraft’s parts. Throughout the year IBERIA maintained its contacts with various engine and parts manufacturers and with other maintenance centers owned by leading airlines and airlines in the oneworld alliance, with a view to entering into cooperation agreements that will enable it to increase its market share.Also, new maintenance agreements were entered into in 2000, the main customers and projects being as follows:

80 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT - Aerolíneas Argentinas Overhauls of B-747 aircraft and CFM56-C2, JT9D-7Q, JT8D-217 engines and A-340 parts - Air Atlanta Icelandic Maintenance of B-747 wheels and brakes - Air France C overhauls and B-747 parts - Air Liberté Maintenance of JT8D-219 engines and MD parts - Air Madagascar Maintenance of JT9D-7Q engines - Airtours / Premiair Maintenance of JT9D-59 engines - Spanish Navy Maintenance of Pegasus and JT15 engines - Cameroon Airlines Maintenance of JT9D-7Q engines - Spanish Air Force Maintenance of B-707 and Falcon aircraft and operating support for State VIP transport planes - Nouvelair Maintenance of MD parts - Polar Air Maintenance of JT9D-70 engines - Spanair C, IV and D overhauls of MD-80 aircraft for 2000 to 2003 - Syrian Arab Airlines Maintenance of B-727 parts In 2000 there was a notable increase in work relating to the sale of DC-9, DC-10 and B-727 aircraft and to the inclusion or return of the leased B-747, B-757, A-320 and A-340 aircraft. Also, work continued on the development of new products, including most notably: - Modification of cabins of A-320 aircraft - Incorporation of TCAS and 8.33 VHF to IBERIA aircraft - Adaptation of A-320 equipment to new aircraft - Parts for A-340 aircraft. Billings relating to work abroad were affected by the increase in repairs of third-party engines and by the strong U.S.dollar with respect to the euro. IBERIA's maintenance activities increased as a result of the addition of Aviaco’s aircraft to IBERIA’s fleet and to increased flights; however, subcontracting expenses were higher as a result of the strength of the U.S. dollar. Consumption decreased due to the effect of the addition of new aircraft. The variations in the main operating aggregates were as follows:

IBERIA MAINTENANCE 2000 1999 VARIATION 00/99 %VARIATION

NU M B E R O F OV E R H AU L S 251 233 18 7.7 THO U S A N D SO FP RO D U C T I O NH O U R SI N -HO U S EP E R S O N N E L 3,140 3,262 (122) (3.7) IN D I R E C T/ DI R E C T L A B O R 0.54 0.54 0 0 TH I R D-PA RT Y R E V E N U E S (MILL.PTAS.) * 19,549 17,897 (1,892) (8.8) EQU I VA L E N T F U L L-T I M E E M P L OY E E S 4,316 4,171 145 3.5 * 1999 figure made comparable as a result of the consolidation of Aviaco in the IBERIA Group.

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 81 3.5. IBERIA SYSTEMS MANAGEMENT Work began in 2000 on the projects defined in the Master Plan,both in the Systems area and on the implementation of the information systems that the other areas of the Company need to carry out their own actions, for which purpose the technological renewal process continued. In the commercial systems area booking, check-in and flight-plan services started to be rendered to Lan Chile using IBERIA’s systems, and, for IBERIA L.A.E., work concluded on implementing the “PROS” revenue and load factor management system, the “Milenium” system was implemented for the negotiation of the incentives offered to international travel agencies and the technological infrastructure required to start up the European Call Center service was installed. With regard to flight-related applications, in the Operations area the “CARMEN” system for the automatic generation, rotation and assignment of crews was implemented and work concluded on the development of the expert Network Control system, which assists in the resolution of incidents and anomalies that arise in the execution of the daily flight schedule, while in the In-Flight Service area a new laptop-based system was implemented for in-flight sales on the Company’s various aircraft, and the Altair system for the planning of in-flight material supplies was completed. In the business-class area, the Maintenance department commenced a study of what will be the unit’s new integrated information system, and the new EVIL II communications and stopover operating management system was implemented at pilot airports. In connection with the oneworld alliance, the features of the computer systems in VIP lounges were standardized. In the administration, financial and personnel areas,the Company started to take the first steps towards implementing a corporate strategy for the B2B business, and a documentary management system providing Intranet access as a means of disseminating information within the Company was introduced. The variations in the main operating aggregates were as follows:

IBERIA SYSTEMS MANAG E M E N T 20 0 0 19 9 9 VAR I AT I O N 00 / 9 9 % VAR I AT I O N

OP E R AT I N G E X P E N S E S ( MI L L.PTA S. ) 1 1 , 5 7 5 1 0 , 4 6 8 1 , 1 0 7 10.6 OP E R AT I N G E X P E N S E S ( MILL.) 6 9 . 5 7 6 2 . 9 1 6 . 6 6 1 0 . 6 EQU I VA L E N T F U L L-T I M E E M P L OY E E S 5 6 9 5 7 9 ( 1 0 ) ( 1 . 7 ) IN V E S T M E N T S ( MI L L.PTA S. ) 3 , 1 9 8 3 , 7 1 5 ( 5 1 7 ) ( 1 3 . 9 )

82 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 3.6. IBERIA OPERATIONS MANAGEMENT In the technical and flight support area work continued on the design of the manuals for the new flights added, safety and rescue manuals, documentation of various types and fuel consumption studies.Also, the Company participated actively in the Barajas noise control and air and airport navigation coordination committees. In 2000 57 internal audits were conducted in the flight safety area to monitor the Operations Department Quality Plan, in compliance with all the requirements of the ISO 9001 and JAR standards.A follow-up audit was passed and,therefore, the ISO 9001 certificate was retained by the Operations Department.The FOQA program (flight operation quality assurance) computer hardware was installed, the flight safety coordinating committee, on which safety representatives from all the Spanish airlines will sit, was set up. The Operations area engaged in intensive training activities in 2000, due to the hiring of 111 new pilots.Training was given to 15,016 trainees and management courses were given to 36 future commanders. In addition, all the training processes were streamlined. 78,925 hours of training under 2,681 courses were given to technical crew members and 4,242 to cabin crew members. 35,319 hours of training was given using flight simulators and training flights. Work continued in the Operating Control area in 2000 on the development and start- up of the SIRIO II and CREWS projects, through which, combined with the ATFM (air traffic flow management), ACARS, FMS and Flight Watch systems, possible alternatives to problems arising in the day-to-day operation of planes, crews and passengers are analyzed using graphical representations of the various scenarios. Also, new features were added to the flight scheduling systems, including airport operating meteorology and NOTAMS aeronautical information, etc. In the Technical Crew Management area, work on personnel monitoring systems such as CARMEN,ALHAMBRA, CARLINGA and INTERBIDS was either continued or completed. The Cabin Crew Scheduling and Aircraft Supply Department continued to carry out in- flight service planning on all short- and long-haul flights and participated in the creation of the GESABOR (overload reporting management) system. The In-Flight Service and Training and Scheduling areas continued to participate in the oneworld In-Flight Service-Cabin Crew work group and in two IATA work groups, namely, “Customer Care” and “Cabin Safety’.Also, 453 training courses were given to 5,104 trainees (3,136 course hours and 35,196 trainee hours).

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 83 4. Resources

4.1. FLEET The detail of the passenger aircraft operated by IBERIA as of December 31, 2000, is as follows:

F L E E T AI R C R A F T U N D E R TOTA L AI R C R A F T TY P E IB E R I A WE T LE A S E *OP E R AT E D B - 7 2 7 * 9 - 9 B-737 - 3 3 B-747 8 2 1 0 B - 7 5 7 1 8 6 2 4 B - 7 6 7 2 - 2 A - 3 0 0 6 - 6 A - 3 1 9 4 - 4 A - 3 2 0 4 3 - 4 3 A - 3 2 1 2 - 2 A - 3 4 0 1 2 - 1 2 D C - 9 * 7 - 7 DC-10* - - - M D - 8 7 2 4 - 2 4 MD-88 1 3 - 1 3 * Excluding the inactive aircraft and the cargo aircraft (two DC-8). TOTAL* 1 4 8 1 1 1 59

These numbers are the result of the following changes in 2000: Additions 2 A-321 under financial lease 5 A-320 owned outright 4 A-319 under operating lease 6 A-320 under operating lease 3 A-340 under operating lease 1 B-747 under operating lease 8 B-757 under operating lease

84 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT RETIREMENTS 5 B-757 under operating lease (3 transferred to wet lease) 14 B-727 owned outright 6 D-C10 owned outright 1 D-C9 owned outright

WET LEASE - Operation of three B737 and six B757 under wet lease from AIR EUROPA (three retired and three transferred from operating lease) - Operation of two B747 under wet lease from Air Atlanta

The usage of the IBERIA’s aircraft, in terms of total block hours per aircraft per day, was as follows:

U S AGE IBERIA’S A I R C R A F T BLOCK HOURS/AIRCRAFT/DAY

AI R C R A F T TY P E 2 0 0 0 1 9 9 9 B - 7 2 7 5 . 2 4 . 8 B-747 1 2 . 8 1 1 . 9 B - 7 4 7 M 1 0 . 4 8 . 7 B - 7 5 7 7 . 2 7 . 1 B - 7 6 7 1 1 . 9 1 1 . 4 D C - 9 4 . 1 5 . 5 DC-10 8 . 9 1 0 . 9 M D - 8 7 7 . 2 6 . 3 MD-88 7 . 5 7 . 6 A - 3 0 0 6 . 8 7 . 2 A - 3 1 9 6 . 1 - A - 3 2 0 7 . 1 7 . 3 A - 3 2 1 8 . 2 7 . 9 A - 3 4 0 1 3 . 1 1 3 . 4 AV E R AG E S H O RT-A N D M E D I U M- H AU L A I R C R A F T U S E 6 . 6 6 . 2 AV E R AG E L O N G - H AU L A I R C R A F T U S E 1 2 . 4 1 2 . 1 TOTA L AV E R AG E A I R C R A F T U S E 7 . 4 6 . 9

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 85 4.2. PERSONNEL The detail of the average and year-end headcount in 2000 and 1999 is as follows (Aviaco´s personnel was incorporated to IBERIA, L.A.E. at september 1, 1999):

AV E R AGE A N N UAL HEADCOUNT

GR O U N D F L I G H T TOTA L 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

MARKETING,NETWORK AND SCHED. 2,711 2,732 -- 2,711 2,732 CARGO 1,094 1,084 -- 1,094 1,084 HANDLING 8,250 7,947 -- 8,250 7,947 MAINTENANCE 4,316 4,166 -- 4,316 4,166 SYSTEMS MANAGEMENT 569 573 -- 569 573 OPERATIONS 856 743 6,264 5,420 7,120 6,163 CENTRAL SERVICES 1,326 1,299 -- 1,326 1,299 IBERIA,L.A.E. 19,122 18,544 6,264 5,420 25,386 23,964

YEAR-END HEADCOUNT

GR O U N D F L I G H T T OTA L 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

MARKETING,NETWORK AND SCHED. 2,838 2,788 -- 2,838 2,788 CARGO 1,131 1,145 -- 1,131 1,145 HANDLING 9,420 9,533 -- 9,420 9,533 MAINTENANCE 4,247 4,378 -- 4,247 4,378 SYSTEMS MANAGEMENT 567 570 -- 567 570 OPERATIONS 863 865 6,436 6,302 7,299 7,167 CENTRAL SERVICES 1,312 1,355 -- 1,312 1,355 I B E R I A ,L . A . E . 20,378 20,634 6,436 6,302 26,814 26,936

86 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 5. IBERIA Operating Results

5.1. OPERATING INCOME Operating income amounted to Ptas. 6,056 million ( 36 million) in 2000. The summarized detail of IBERIA’s operating account for management accounting purposes, which differs from the statement of income in the Company’s financial statements because the revenue and expense items are aggregated using management accounting criteria, is as follows:

O P E R ATING INCOME MILLIONSOF PTAS. - MILLIONSOF 2000 1999 %VAR. OPERATING REVENUES PASSENGER 571,915 3,437 487,186 2,928 17.4 CARGOAND EXCESS BAGGAGE 39,134 235 35,694 215 9.6 HANDLING 40,418 243 41,174 247 (1.8) MAINTENANCE 19,544 117 21,219 128 (7.9) CATERING SALES 2,629 16 2,832 17 (7.2) SALES COMMISIONS 17,440 105 13,148 79 32.6 OTHER OPERATING REVENUES 27,258 164 22,715 136 20.0 718,338 4,317 623,968 3,750 15.1 OPERATING EXPENSES COMMERCIAL EXPENSES 84,674 509 71,247 428 18.8 FUEL 94,705 569 57,034 343 66.1 AIRCRAFT LEASE EXPENSES 59,214 356 47,691 287 24.2 COMMISIONS 2,459 15 2,379 14 3.4 AIRCRAFT MAINTENANCE 45,677 274 45,749 275 (0.2) NAVIGATION CHARGES 32,552 196 27,590 166 18.0 TRAFFIC SERVICES 61,098 367 55,005 330 11.1 BOOKING SYSTEMS 19,878 119 14,990 90 32.6 IN-FLIGHT SERVICES 18,442 111 15,244 92 21.0 PERSONNEL EXPENSES 211,416 1,271 187,170 1,125 13.0 PER I O D DE P R E C I AT I O NA N DA M O RT I Z AT I O N 26,437 159 19,895 119 32.9 OTHER OPERATING EXPENSES 55,730 335 74,497 448 (25.2) 712,282 4,281 618,491 3,717 15.2 OPERATING INCOME 6,056 36 5,477 33 10.6

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 87 The main comments on the operating account are as follows: a) OPERATING REVENUES Operating revenues increased by 15.1% in 2000, due mainly to the greater number of flights and to the appreciation of the U.S. dollar with respect to 1999.The main variations were as follows:

PASSENGER REVENUES The difference between the passenger revenue figure shown above and that shown in the activity tables is due to the fact that the latter relates directly to the actual production for each year and does not reflect accounting adjustments and revaluations.The breakdown of the Ptas. 84,729 million ( 509 million) increase in passenger revenues is as follows:

PASSENGER REVENUES MILLIONSOF PESETAS

VARIATIONIN C A U S E O F T H E V A R I AT I O N VARIATIONIN OPERATING REVENUES REVENUES 00/99 PR I C E VO L U M E PA R I T Y OT H E R PER BOOKS 00/99

* The “Other”column shows the variation DOMESTIC 14.540 (9,322) 22,643 1,219 -- in the difference between revenues EU COUNTRIES 20,130 (4,641) 21,651 3,121 -- per books and the revenues by network. (1) Including the former Aviaco charter flights amounting NON-EU COUNTRIES 4,767 (32) 4,236 562 -- to Ptas. 369 million in 1999 (Ptas. 303 million relating to EU countries , Ptas. 56 million to non-EU LONG-HAUL 43,671 8,594 23,038 12,039 -- countries and Ptas. 10 million to domestic flights). IBERIA,L.A.E.(1) 83,108 (5,401) 71,568 16,941 1,621 84,729

The difference due to volume is the result of the increase in demand, which was 12% in terms of passengers and 15.7% in terms of RPKs, since there was a greater increase in medium- and long-haul traffic, which has a bigger impact on the average haul. There were increases of 1.5% in the average revenue per RPK,due basically to the stronger U.S.dollar, and in the yield on intercontinental routes, which performed more than satisfactorily, with revenues which were almost 33% higher than in 1999), assisted by an appropriate yield management policy, which had a positive effect on the class mix, with increases in up-mar ket class ticket sales.The variation due to the parity effect relates mainly to the average annual appreciation of 16.2% of the U.S. dollar with respect to the peseta (the average IATA U.S. dollar/peseta exchange rate climbed from Ptas. 154.298/US$ 1 in 1999 to Ptas. 179.361/US$ 1 in 2000).

CARGO REVENUES The 9.6% (Ptas. 3,440 million 21 million) increase in cargo revenues was due mainly to the 2.9% rise in the yield, aided by the recovery of the transatlantic markets and to the U.S. dollar effect.

HANDLING REVENUES The slight drop in handling revenues was due to the 6.9% drop in the work performed for other companies in terms of weighted planes handled, which was not offset by the 34.3% increase in the work performed for Air Nostrum,and to the decrease in the average revenue per plane handled in order to maintain market share.

88 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT MAINTENANCE Aircraft maintenance revenues decreased in 2000 by Ptas. 1,675 million ( 10 million) since, although more engine maintenance work was performed for third parties and the U.S. dollar was stronger, there was a significant increase in the maintenance work performed on the Company’s own aircraft as a result of the higher production and of work performed on aircraft transferred from Aviaco, which made it necessary to reduce the work performed for third parties.

SALES COMMISSIONS The increase in the volume of business led to an increase of almost 33% (Ptas. 4,292 million 26 million) in these revenues, due largely to the growing activity of Air Nostrum and to billings relating to ticket sales through the oneworld alliance.

OTHER OPERATING REVENUES AND CATERING SALES It is important to note that the effect in 2000 of the decrease in in-flight sales and other catering revenues as a result of the disappearance of duty-free sales on intra-EU flights, which reduced these revenues by approximately Ptas. 203 million ( 1.2 million), was offset by the Ptas. 4,543 million ( 27 million) of other traffic revenues.

b) OPERATING EXPENSES Operating expenses increased by 15.2% (Ptas. 93,791 million 564 million), due largely to the increase in fuel costs, to the lease of new aircraft,to the cost of approach charges and to the increase in personnel expenses, due largely to the increase in the number of flight, maintenance and handling employees. The variations in the main expense items were as follows:

FUEL Total fuel expenses in 2000 were 66% higher than in 1999 (an increase of Ptas. 37,671 million 226 million),due mainly to the increase in fuel prices and to the 16.2% appreciation in the value of the U.S. dollar. As a result, the fuel costs as a percentage of total operating expenses increased from 9.2% in 1999 to 13.3% in 2000.The increase in fuel expenses due to the volume consumed and to the rise in crude oil prices was not offset by the cost savings achieved through the use of new aircraft which are more efficient in terms of fuel consumption.The detail of the various effects on fuel prices is as follows:

EFFECTS ON FUEL PRICES

MI L L.PTA S. MI L L.

PR I C E 1 7 , 6 2 3 1 0 5 . 9 VO L U M E 4 , 0 7 2 2 4 . 5 PA R I T Y 1 3 , 3 2 1 8 0 . 1 C O N S U M P T I O N/ A S K ( 1 , 0 6 5 ) ( 6 . 4 ) TOTA L 3 3 , 9 5 2 2 0 4 . 1

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 89 PERSONNEL EXPENSES Personnel expenses increased by 13% with respect to 1999, due mainly to the effect of the Aviaco´s personnel in 2000. In adittion, the increase is due to the following: - Salary increase under the collective labor agreement. - Length of service, promotions etc. and increases in social security costs. - Increase in activity, with the concomitant effect on flight employees’ per diems, the cost of which increased by 18.3%, and bonuses, which rose by almost 13%, totaling Ptas. 5,136 million ( 31 million), with the concomitant effect on the parity of foreign per diems. - An increase of Ptas. 1,293 million in the provisions for pilots placed on the reserve and on special leave.

TRAFFIC AND IN-FLIGHT SERVICE COSTS The increase of 11.1% in traffic service costs was in line with the increase in IBERIA’s activity (6.5% in terms of block hours and 8.1% in terms of supply), and with the increase in airport services paid for in U.S. dollars on the routes on which the Company’s strategic growth targets were focused. There was also a significant increase with respect to 1999 in flight personnel accommodation costs (Ptas. 1,070 million 6 million).Also worthy of mention was the drop in non-quality expenses (interrupted journeys and lost connections) of almost Ptas. 1,010 million ( 6 million). The 21% increase in in-flight service costs, which are expenses that relate mainly to passengers, was due largely to the increase in the overall volume of passengers, which rose by 12% on U.S. routes and by 16.7% on European routes, and to cost increases arising from improved service levels, the increase in business-class passengers and the effect of the strong U.S. dollar.

COMMERCIAL EXPENSES (COMMISSIONS, OVERCOMMISSIONS AND ADVERTISING) The 18.8% increase in commercial expenses was the direct result of the 16.9% increase in passenger and cargo revenues,since if commercial revenues are deducted from these costs, the increase is 15.7%. Commercial expenses (commissions and overcommissions) as a percentage of total traffic revenues dropped from 11.1% in 1999 to 11.0% in 2000, since these costs are continuing to fall with respect to passenger revenues due to the greater use of the system of fares net of commissions and to the effect of the measures envisaged in the Master Plan, such as the Valor 98 plan for Spanish travel agencies, Millenium for European agencies and the new direct sales channels such as iberia.com.

NAVIGATION CHARGES There was an increase in air traffic control expenses of 18% (Ptas. 4,962 million 30 million), due largely to the 6.5% increase in activity and to the total elimination of discounts from the Spanish approach charges and, to a lesser extent, of the increase in 2000 in the prices charged by Eurocontrol.

AIRCRAFT MAINTENANCE Aircraft maintenance expenses relating to both outsourcing and purchases decreased slightly, despite the increase in production and the performance of additional work on the Aviaco aircraft and the strength of the U.S. dollar, because of the savings achieved as a result of the smaller amount of spare parts used by the new aircraft.

90 I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT AIRCRAFT LEASE EXPENSES The increase of Ptas. 11,523 million ( 69 million) in these expenses was due mainly to: - A higher operating lease cost incurred as a result of aircraft additions:A-340,A-320, A-319, B-757 and B-767 (Ptas. 21,152 million 127 million). - The lower cost incurred in wet lease transactions with Air Atlanta and Air Europa (Ptas. 1,018 million 6 million). - A smaller impact or saving in currency risk hedging of the aforementioned transactions (Ptas. 8,882 million 53 million). - The price of contracts for cargo aircraft and cargo hold rental, which fell by Ptas. 792 million ( 4.8 million), as a result of the minimization of the hours of use of the cargo B-747 aircraft.

PERIOD DEPRECIATION AND AMORTIZATION There was a sharp 33% increase of Ptas. 6,542 million ( 39 million) in the charge to income in this connection.

OTHER OPERATING EXPENSES AND RESERVATION SYSTEM These expenses decreased by Ptas. 18,767 million ( 113 million), the detail being as follows: - Consideration in 1999 (until september) of the lease of fleet and crew of Aviaco by IBERIA for its operation, recorded in the expenses accounts of this company. - Reservation system expenses increased by Ptas. 4,888 million ( 29 million), due largely to the increase in passengers and to the variation in Amadeus prices.

5.2. IBERIA STATEMENTS OF INCOME

IBERIA STATEMENTS OF INCOME MILLIONSOF PTAS. - MILLIONSOF 2000 1999 OPERATING INCOME 6,056 36 5,477 33 FINANCIAL REVENUES 7,475 45 24,636 148 FINANCIAL EXPENSES (8,032) (48) (5,843) (35) PROVISION TO PENSION ALLOWANCE (3,071) (18) (2,411) (14) EXCHANGE GAINS 14,778 89 18,132 109 EXCHANGE LOSSES (13,425) (81) (15,870) (95) FINANCIAL INCOME/LOSS (3,473) (21) 18,644 112 LOSS/GAIN ON SECURITIES PORTF O L I O 3,260 20 (9,143) (55) EXTRAORDINARY INCOME 24,945 150 1,881 11 NET INCOME BEFORE TAXES 30,788 185 16,859 101 TAXES 937 6 807 5 INCOME OF THE CONTROLLING COMPAN Y 29,851 179 16,052 96

I B E R I A , LINEAS AEREAS DE ESP A Ñ A , S . A . - MANAGEMENT REPORT 91

I B E R I A G R O U P BOA R D O F DI R E C TO R S O F IBERIA L.A.E.

C H A I R M A N

M R .X A B I E R D E I R A L A E S T É V E Z

V I C E - C H A I R M A N

M R .M I G U E L B L E S A D E L A P A R R A

M E M B E R S

M R .J O S É M A R Í A A B R I L P É R E Z

M R .P A B L O I S L A A LV A R E Z D E T E J E R A

M R .J O R D I D A G Á S A N C H O

L O R D G A R E L - J O N E S

M R .J U A N G U R B I N D O G U T I É R R E Z

M R .J U A N M A S S Ó G A RO L E R A

M R .R O G E R P A U L M A Y N A R D

M R .J O R G E P O N T S Á N C H E Z

M S .E S T H E R R I T U E R TO M A RT Í N E Z

M R .J U A N S E R R A D A H I E R R O

S E C R E TA RY

M R .I G N AC I O P I N I L L A R O D R Í G U E Z

94 MA N AG E M E N T CO M M I T T E E

C H A I R M A N A N D C . E . O

M R .X A B I E R D E I R A L A E S T É V E Z

M E M B E R S

M R .A N G E L M U L L O R P A R R O N D O G E N E R A L M A N AG E R

M R .M A RT Í N C U E S TA V I VA R O R G A N I Z AT I O N A N D H U M A N R E S O U R C E S M A N AG E R

M R .L U I S D Í A Z G Ü E L L C O R P O R AT E C O M M U N I C AT I O N S M A N AG E R

M R .E N R I Q U E D O N A I R E R O D R Í G U E Z S A L E S M A N AG E R

M R .E N R I QU E D U P U Y D E L Ô M E C H A V A R R I F I N A N C I A L M A N AG E R

M R .J O S É M A R Í A F A R I Z A B AT A N E R O C O N T RO L A N D A D M I N I S T R AT I O N M A N AG E R

M R .L U I S F E R N Á N D E Z T U R A N Z A S I N - FL I G H T S E RV I C E S M A N AG E R

M R .M A N U E L L Ó P E Z C O L M E N A R E J O R O U T E S A N D S C H E D U L E S M A N AG E R

M R .J U A N L O S A M O N TA Ñ É S H O L D I N G C O M PA N Y P R O J E C T M A N AG E R

M R .S A LV A D O R M A G A L L Ó M A RT Í N E Z B U S I N E S S M A N AG E R

M R .E N R I QU E P É R E Z D E V I L L A A M I L S I E R R A O P E R AT I O N S M A N AG E R

M R .I G N AC I O P I N I L L A R O D R Í G U E Z L E G A L A F FA I R S M A N AG E R A N D B O A R D S E C R E TA R Y

M R .G U I L L E R M O S E R R A N O E N T R A M B A S AG UA S S T R AT E G I C P L A N N I N G M A N AG E R

M R .S E R G I O T U R R I Ó N B A R B A D O I N D U S T R I A L R E L AT I O N S M A N AG E R

M R .V I C E N T E A G U I L E R A R I B OTA T E C H N I CA L D E PA R TA M E N T M A N AG E R

95

AG E N DA

- 1 - Approval of the Annual Accounts (Balance, Profit and Loss Statement, and Annual Report) for the year 2000.

- 2 - Approval of the performance of the Board of directors in 2000.

- 3 - Agreement on the distribution of earnings made in 2000.

- 4 - To empower the Board of Directors to issue debentures convertible into IBERIA stock, up to the amount of 342,576,900, the equivalent of 57,000,000,083 pesetas, to determine the bases and formulas for such conversion, and the subsequent agreement to increase capital in the amount necessary to meet all requests for such conversion. Exclusion of the preferential subscription right of said convertible debentures held by existing shareholders in order to fulfil commitments undertaken by the Company’s executives and employees. The debentures will be issued at par and in relation to the fixed conversion on the basis of the price set for IBERIA stock when the public offering for sale of such stock is made by the Sociedad Estatal de Participaciones Industriales (SEPI), in accordance with the Advance Notification registered on 15 February 2001 with the Comisión Nacional del Mercado de Valores; a price which willunder no circumstances may be lower than their nominal value.

- 5 - To extend to Company executives the stock options made available to other employees by means of a retribution system in conformity with the terms of section 4 of Temporary Provision 19 of the Fiscal,Administrative and Labour Law 55 of 29 December 1999.

- 6 - Derivative acquistion of treasury stock.

- 7 - Delegation to the Board of Directors to re-draft the Bylaws and nullify the Temporary Provision included therein.

- 8 - Renewal of the Board of Directors.

- 9 - Re-election of the Auditors of the Accounts of the Company and its Consolidated Group.

- 10 - Delegation of Powers.

97

I B E R I A G R O U P

C O N S O L I D ATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 C O N S O L I D ATED STATEMENTS OF INCOME FOR 2000 AND 1999 T R A N S L ATION OF A REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH AND PREPA R E D I N A C C O R D ANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN SPAIN (SEE NOTE 23). IN THE EVENT OF A DISCREP A N C Y , T H E S P A N I S H - L A N G U AGE VERSION PREV A I L S .

I B E R I A G R O U P ASSETS MILLIONSOF PESETAS

2000 1999

FIXED AND OTHER NONCURRENT ASSETS: START-UP EXPENSES (NOTE 6-c) 249 476 INTANGIBLEASSETS (NOTE 7) 71,077 61,429 PROPERTY, PLANAND EQUIPMENT (NOTE 8) 283,116 274,210 AIRCRAFT: COST 458,466 441,349 ACCUMULATED DEPRECIATION AND PROVISIONS (244,062) (236,056) 214,404 205,293 OTHER TANGIBLE FIXEDASSETS : COST 173,213 174,407 ACCUMULATED DEPRECIATION AND PROVISIONS (104,501) (105,490) 68,712 68,917 LONG-TERM FINANCIAL INVESTMENTS 125,770 97,784 HOLDINGS IN COMPANIES CARRIED BYTHE EQUITY METHOD (NOTE 9) 13,590 15,688 LOANS TO COMPANIES CARRIED BYTHE EQUITY METHOD (NOTE 9) 4,263 33,115 LONG-TERM INVESTMENT SECURITIES (NOTE 9) 17,568 12,354 OTHER LONG-TERM RECEIVABLES (NOTES 9 AND 17) 102,142 47,222 PROVISIONS (11,793) (10,595) SHARES OFTHE CONTROLLING COMPANY - 3 TOTAL FIXEDAND OTHER NONCURRENTASSETS 480,212 433,902

GO O D WILL IN CONSOLIDATION (N OTE 10 ) 19,624 20,724

DEFERRED CHARGES (N OTE 7) 19,170 16,563

CURRENT ASSETS: INVENTORIES 16,851 12,508 ACCOUNTS RECEIVABLE 89,068 104,989 SHORT-TERM FINANCIAL INVESTMENTS (NOTE 11) 118,279 90,831 CASH 1,466 2,396 ACCRUAL ACCOUNTS 5,911 4,951 TOTAL CURRENTASSETS 231,575 215,675 TOTAL ASSETS 750,581 686,864

104 IBERIA GROUP - CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 TRANSLATIONOF A REPORT ANDCONSOLIDATED MILLIONSOF PESETAS SHAREHOLDERS’ EQUITY AND LIABILITIES FINANCIALSTATEMENTSORIGINALL Y ISSUED IN SPANISHANDPREPAREDIN ACCORDANCEWITH GENERALLYACCEPTED ACCOUNTINGPRINCIPLES 2000 1999 IN SPAIN (SEE NOTE 23). IN THEEVENTOF A DISCREPANCY, SHAREHOLDERS’ EQUITY (NOTE 12): THE SPANISH-LANGUAGEVERSIONPREVAILS . CAPITAL STOCK 118,485 118,478 ADDITIONAL PAID-IN CAPITAL 16,049 16,049 DIF F E R E N C E SD U E TO TH EA D J U S T M E N TO FC A P I TA L STO C K TO EU RO S 200 200 RESERVES OFTHE CONTROLLING COMPANY: 8,242 182 LEGAL RESERVE 6,734 5,129 PRIORYEARS’ LOSSES - (5,570) MERGER RESERVE 28 - REVALUATION RESERVE 6 - VOLUNTARY RESERVES 1,474 623 RES E RV E S AT CO M PA N I E SC O N S O L I D ATE DB YT H EG L O B A LI N T E G R AT I O NM E T H O D 11,064 7,431 RESERVES AT COMPANIES CARRIED BYTHE EQUITY METHOD 6,174 393 TRANSLATION DIFFERENCES - 553 INC O M E ATT R I BU TA B L E TO TH E CON T RO L L I N G COM PA N Y (NOTE 19) 33,474 25,466 CONSOLIDATED INCOME FORTHEYEAR 33,915 25,596 INCOME ATTRIBUTED TO MINORITY INTERESTS (NOTES 13 AND 19) (441) (130) TOTAL SHAREHOLDERS’ EQUITY 193,688 168,752

MINORITY INTERESTS (NOTE 13) 1,182 745

NE G A TIVE DIFFERENCE IN CONSOLIDATION (N OTE 10 ) 98 266

DEFERRED REVENUES 6,539 3,759

PR OVISIONS FOR CONTINGENCIES AND EXPENSES (NOTE 14) 207,571 159,701

LONG-TERM DEBT: PAYABLE TO CREDIT ENTITIES (NOTE 15) 95,455 104,535 OTHER ACCOUNTS PAYABLE (NOTE 17) 30,347 8,133 TOTAL LONG-TERM DEBT 125,802 112,668

CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES (NOTE 15) 21,352 63,554 CUSTOMERADVANCES 49,642 30,463 PAYABLES FOR PURCHASESAND SERVICES 96,996 93,280 OTHER NONTRADE PAYABLES (NOTE 17) 27,250 33,583 COMPENSATION PAYABLE 18,922 19,321 ACCRUAL ACCOUNTS 1,539 772 The accompanying Notes TOTAL CURRENT LIABILITES 215,701 240,973 1 to 23 are an integral part of the consolidated balance sheet TOTAL SHAREHOLDERS’ EQUITY AND LIABILITES 750,581 686,864 as of December 31,2000.

IBERIA GROUP - CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 105 DEBIT MILLIONSOF PESETAS

2000 1999

EXPENSES: PURCHASES (NOTE 18) 129,583 96,446 PERSONNEL EXPENSES (NOTE 18) 222,516 209,981 PERIOD DEPRECIATION AND AMORTIZATION 28,574 27,138 VARIATION IN OPERATING PROVISIONS 740 680 OTHER OPERATING EXPENSES (NOTE 18) 354,280 302,455 735,693 636,700 OPERATING INCOME 10,945 9,625 FINANCIAL AND SIMILAR EXPENSES 11,610 10,232 VARIATION IN FINANCIAL INVESTMENT PROVISIONS 1,198 (3) EXCHANGE LOSSES 13,521 16,094

26,329 26,323 FINANCIAL INCOME - 6,921 SHARE IN LOSSES OF COMPANIES CARRIED BYTHE EQUITY METHOD 168 225 AMORTIZATION OF GOODWILL IN CONSOLIDATION 1,100 1,100 INCOME FROM ORDINARYACTIVITIES 10,492 22,964 LOSSES ON FIXED ASSETS 2,610 637 VARIATION IN FIXED ASSET RPOVISIONS - 4,328 EXTRAORDINARY EXPENSES (NOTE 18) 47,364 28,196 PRIORYEARS ’ EXPENSES AND LOSSES 587 1,703 50,561 34,864

EXTRAORDINARY INCOME 26,341 8,118 CONSOLIDATED INCOME BEFORE TAXES 36,833 31,082 CORPORATE INCOME TAX (NOTE 17) 2,918 5,486 CONSOLIDATED INCOME FORTHEYEAR 33,915 25,596 INCOME ATTRIBUTED TO MINORITY INTERESTS (NOTES 13 AND 19) 441 130 IN C O M EF O RT H EY E A R ATT R I BU T E D TO TH E CON T RO L L I N G COM PA N Y 33,474 25,466

106 IBERIA GROUP - CONSOLIDATED STATEMENTS OF INCOME FOR 2000 AND 1999 TRANSLATIONOF A REPORT AND CONSOLIDATED CREDIT MILLIONSOF PESETAS FINANCIAL STATEMENTSORIGINALLY ISSUED IN SPANISHAND PREPAREDIN ACCORDANCEWITH GENERALLYACCEPTED ACCOUNTINGPRINCIPLES 2000 1999 IN SPAIN (SEE NOTE 23). IN THEEVENTOF A DISCREPANCY, REVENUES: THE SPANISH-LANGUAGEVERSIONPREVAILS . NET SALES (NOTE 18) 714,926 622,607 OTHER OPERATING REVENUES (NOTE 18) 31,712 23,718

746,638 646,325

REVENUES FROM SHAREHOLDINGS 12 30 REVENUES FROM OTHER MARKETABLE SECURITIES - 9,742 OTHER INTEREST AND SIMILAR REVENUES 6,338 5,095 EXCHANGE GAINS 15,139 18,377 21,489 33,244 FINANCIAL LOSS 4,840 - SHARE INTHE INCOME OF COMPANIES CARRIED BYTHE EQUITY METHOD 5,487 7,624 REVERSAL OF NEGATIVE GOODWILL IN CONSOLIDATION (NOTE 6-a) 168 119

GAINS ON FIXED ASSET DISPOSALS (NOTES 8 AND 9) 62,811 3,148 EXTRAORDINARY REVENUES (NOTE 18) 8,215 25,543 PRIORYEARS’ REVENUESAND INCOME (NOTE 6-i AND 18) 5,876 14,291

76,902 42,982

The accompanying Notes 1 to 23 are an integral part of the consolidated statement of income as of December 31,2000

IBERIA GROUP - CONSOLIDATED STATEMENTS OF INCOME FOR 2000 AND 1999 107

T R A N S L A TION OF REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH AND PREPARED IN AC C O R D ANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN SPAIN (SEE NOTE 23). IN THE EVENT OF A DISCREP A N C Y , T H E S P A N I S H - L A N G U AGE VERSION PREV A I L S .

I B E R I A G R O U P

T R A N S L AT I O N O F R E P O RT S A N D C O N S O L I DAT E D 1. Description of the Controlling Company and of the Group F I N A N C I A L S TAT E M E N T S O R I G I N A L LY I S S U E D I N SPA N I S H A N D P R E PA R E D I N AC C O R DA N C E W I T H G E N E R A L LYAC C E P T E D AC C O U N T I N G P R I N C I P L E S IBERIA, Líneas Aéreas de España, S.A. engages in the air transport of passengers and I N SPA I N (S E E N OT E 2 3 ) . cargo and also carries on other activities related to its core business. IN T H E E V E N T O F A D I S C R E PA N C Y, T H E SPA N I S H-L A N G UAG EV E R S I O N P R E VA I L S . As a carrier of passengers and cargo, the Company operates through a large network serving three major markets: Spain, Europe and the Americas.As regards international traffic, in countries with which bilateral agreements have been entered into designating a single company as the operator, IBERIA, Líneas Aéreas de España,S.A. is the operator designated by the Spanish party. As part of the activities related to the core business, mention should be made of the IBERIA,Líneas de Aéreas de España,S.A.’s activities as a handling agent,its maintenance activity and its special positioning in distribution systems. As regards the handling activity, it should be noted that in 1992, after a public call for tenders, Ente Público de Aeropuertos Españoles y Navegación Aérea (AENA) -the Spanish public airports and aviation agency- awarded IBERIA, Líneas Aéreas de España, S.A.a contract for the provision of handling services as the first operator in Spain from April 1,1993, to April 1, 2000. Since that date the contracts have been terminated but they have been expressly extended until they are awarded once again. IBERIA, Líneas Aéreas de España, S.A. performs a significant portion of its own maintenance work and provides technical assistance to various companies, mainly through its maintenance center in Barajas, Madrid. As regards the distribution system, IBERIA, Líneas Aéreas de España, S.A. is a partner of the Amadeus Group, which owns the Amadeus central booking system. This investment enables IBERIA, Líneas Aéreas de España, S.A. to be present in an industry with enormous economic and growth potential, characterized by its significant technological content. IBERIA, Líneas Aéreas de España,S.A.is a fully-fledged member of the Oneworld alliance, one of the two largest air transport groups in the world, which facilitates the globalization of its air transport business. In 2000 the merger by absorption of the subsidiary Aviación y Comercio, S.A.(absorbed company) into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company) took place, with the dissolution without liquidation of the former and the transfer en bloc all its assets and liabilities to the absorbing company which, by universal succession,acquired the rights and obligations of the absorbed company. The transactions performed by Aviación y Comercio, S.A. are deemed to have been performed for accounting purposes by IBERIA, Líneas Aéreas de España, S.A. from February 1, 2000. Note 22 to the consolidated financial statements includes the information relating to the merger required by Article 107 of Corporate Income Tax Law 43/1995. In the first few months of 2000 Group management designed the 2000-2003 Master Plan containing the definition and scope of the actions to be taken during that period in order to successfully achieve the strategic objectives:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 111 -To strengthen the Group’s leadership in its main markets. -To improve quality and relations with customers, especially the most frequent customers. -To lead the development of new technologies in the industry. -To forge and develop alliances. -To give each business line autonomy in order to improve competitiveness. -To use the available assets efficiently. -To reduce unit costs and increase productivity. -To reduce the cost of capital by controlling operating and financial risks. -To strengthen the competitiveness of the Group’s employees. -To adapt planning and monitoring processes to value management. Sociedad Estatal de Participaciones Industriales (SEPI), the majority shareholder of IBERIA,Líneas Aéreas de España,S.A.as of December 31,2000 (see Note 12),plans to launch a public offering in April 2001 of all the shares of IBERIA, Líneas Aéreas de España, S.A. that it owns as of that date.

2. Dependent companies

The data on the dependent companies is as follows:

DEPENDENT COMPANIES PERCENTAGEOF OWNERSHIPBY IBERIA,LÍNEAS AÉREASDE ESPAÑA, S.A. C O M PA N Y R E G I S T E R E D O F F I C E L I N E O F BU S I N E S S %

VUELOS INTERNACIONALESDE CAMINODE LA ESCOLLERA, 5 AIRCRAFT VACACIONES, S.A.(VIVA) PALMA DE MALLORCA MAINTENANCE 99.47

CAMPOS VELÁZQUEZ, S.A. VELÁZQUEZ, 134 - MADRID ACQUISITIONAND OWNERSHIP OF URBANPROPERTIES (b) 100.00

BÍNTER CANARIAS, S.A. LAS PALMASAIRPORT AIRTRANSPORT OF PASSENGERSAND CARGO INTHE CANARY ISLANDS 99.99

BÍNTER MEDITERRÁNEO, S.A. VELÁZQUEZ, 130 - MADRID AIRTRANSPORT OF PASSENGERS AND CARGO 100.00

CARGOSUR, S.A. VELÁZQUEZ, 130 - MADRID AIRTRANSPORT OF CARGO (b) 100.00

IBER–SWISS CATERING, S.A. CTRA. DE LA MUÑOZA, S/N PREPARATIONAND MADRID MARKETING OF FOODAND OTHER SERVICES FORAIRCRAFT 70.00

SISTEMAS AUTOMATIZADOS VELÁZQUEZ, 130 COMPUTER SERVICES (a) The dividend rights conferred by this holding AGENCIAS DE VIAJE, S.A. MADRID APPLICABLE TO THETRAVEL amount to 72.22%,which was the percentage used in consolidation,and which includes the 66% holding (SAVIA) AND TOURISMINDUSTRIES 75.49 (a) owned directly by IBERIA,Líneas Aéreas de España,S.A. and the 6.22% holding owned indirectly through COMPAÑÍA AUXILIARAL CARGO CENTRO DE CARGA AÉREA the Amadeus Group. EXPRES, S.A.(CACESA) PARCELA 2 P.5 NAVE 6 MADRID TRANSPORT OF CARGO 75.00 (b) Inactive in 2000.

112 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S All the foregoing companies were consolidated by the global integration method in 2000 and their fiscal years end on December 31.

SISTEMAS AUTOMATIZADOS AGENCIAS DE VIAJE, S.A. As a result of the sale of certain of the shares of Amadeus Global Travel Distribution, S.A., as of December 31, 2000, the IBERIA Group’s direct and indirect ownership interest in the capital stock of Sistemas Automatizados Agencias de Viaje, S.A. totaled 75.49% in terms of voting rights and 72.22% in terms of dividend rights, whereas as of December 31, 1999, these percentages were 76.84% and 74.5%, respectively.

3.Associated companies

The fiscal years of the associated companies consolidated in the IBERIA Group in 2000 end on December 31.The data on these companies, all of which are carried by the equity method, are as follows:

ASSOCIATED COMPANIES PERCENTAGEOF OWNERSHIPBY IBERIA,LÍNEAS AÉREASDE ESPAÑA, S.A.

C O M PA N Y R E G I S T E R E D OF F I C E L I N E O F B U S I N E S S %

VENEZOLANA INTERNACIONAL OSCAR M. ZULOAGA, S/N AIRTRANSPORT OF 45.00 DE AVIACIÓN, S.A. CARACAS,VENEZUELA PASSENGERSAND CARGO (VIASA)

AMADEUS GROUP SALVADOR DE MADARIAGA, 1 MANAGEMENT 27.92 (a) MADRID ANDOPERATION OF A COMPUTERIZED BOOKING SYSTEM

TOUROPERADOR VIVA TOURS, S.A. EDIFICIO BARAJAS 1 MANAGEMENT OF 49.04 (a) The dividend rights relating to TRESPADERNE, 29 - MADRID PACKAGE TOURS this holding amount to 18.28%,which is the percentage used in consolidation.

The net worth data of the Amadeus Group and of Touroperador Viva Tours, S.A. were drawn from their respective unaudited provisional financial statements as of December 31, 2000.

VENEZOLANA INTERNACIONAL DE AVIACIÓN, S.A. Venezolana Internacional de Aviación, S.A.’s operations were discontinued in January 1997 and in March 1997 the company filed for “suspensión de pagos” (Chapter 11-type insolvency proceedings) and the process of liquidation commenced. At the date of preparation of these consolidated financial statements, it had not been possible to obtain any recent financial statements relating to this company.

AMADEUS GROUP The Amadeus Group, whose corporate purpose consists of the management and operation of a computerized booking system, comprises Amadeus Global Travel Distribution, S.A. (the parent company), Amadeus Data Processing KG (a German company) and their investees.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 113 IBERBUS COMPANIES As of December 31, 1999,the Iberbus companies (Iberbus Concha, Ltd.,Iberbus Rosalía, Ltd., Iberbus Chacel, Ltd., Iberbus Arenal, Ltd., Iberbus Emilia, Ltd., Iberbus Teresa, Ltd., Iberbus Agustina,Ltd., Iberbus Beatriz, Ltd. e Iberbus Juana Inés, Ltd.) were consolidated as part of the IBERIA Group. Due to certain provisions in the contracts under which the aforementioned companies were incorporated, which guarantee the full recovery of all the amounts invested, it was decided to exclude them from the scope of consolidation in 2000, and these companies were valued at acquisition cost under the "Long-Term Investment Securities" caption in the accompanying consolidated balance sheet as of December 31, 2000.The net worth information on these companies as of December 31, 2000, is presented in Note 9.

4. Basis of presentation of the consolidated financial statements

A) TRUE AND FAIR VIEW The 2000 consolidated financial statements were prepared from the accounting records of IBERIA, Líneas Aéreas de España, S.A. and of its subsidiaries (as detailed in Notes 2 and 3) which include, in the case of certain companies, the effects of the revaluation made pursuant to Royal Decree-Law 7/1996. The financial statements of the Spanish subsidiaries consolidated by the global integration method were prepared by each company's directors in accordance with the Spanish National Chart of Accounts. The Amadeus Group and Touroperador Viva Tours, S.A. were consolidated on the basis of their provisional financial statements as of December 31,2000,before receipt of the related auditors’ reports. As a result of the situation of Venezolana Internacional de Aviación, S.A.(see Note 9) and because recent financial statements were not available, this company was consolidated on the basis of its latest available provisional financial statements. The 2000 consolidated financial statements, which were prepared by the directors of IBERIA, Líneas Aéreas de España, S.A., will be submitted for approval by the Shareholders’ Meeting, and it is considered that they will be approved without any changes. To be able to better compare the information, Ptas. 1,720 million were included under the “Accounts Receivable” caption in the accompanying consolidated balance sheet as of December 31, 1999, which in the 1999 consolidated financial statements approved by the Shareholders’ Meeting had been recorded under the “Inventories” caption.

B) CONSOLIDATION PRINCIPLES The companies over which there is effective control were consolidated by the global integration method.The Controlling Company and the companies consolidated by the global integration method constitute the "consolidable Group". The associated companies in which the Controlling Company has a significant influence on management but does not have majority voting rights and does not manage them jointly with third parties are carried by the equity method. The companies composing the consolidable Group and those carried by the equity method constitute the IBERIA Group.

114 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S The equity of minority shareholders in the net worth and results of the consolidated subsidiaries is reflected under the "Minority Interests" caption on the liability side of the consolidated balance sheet. Also, the equity of minority shareholders in the results of the aforementioned subsidiaries is reflected under the “Income Attributed to Minority Interests” caption in the consolidated statement of income. All material accounts and transactions between companies consolidated by the global integration method were eliminated in consolidation.

5. Distribution of the Controlling Company’s income

The directors of IBERIA,Líneas Aéreas de España,S.A. propose the following distribution of 2000 income:

DISTRIBUTION OF THE CONTROLLING COMPANY’S INCOME

THOUSANDSOF PESETAS

TO L E G A L R E S E RV E 2 , 9 8 5 TOVO L U N TA RY R E S E RV E S 1 9 , 4 0 7 DI V I D E N D S 7 , 4 5 9 IN C O M E F O R T H E Y E A R 2 9 , 8 5 1

6.Valuation standards

The main valuation methods applied in preparing the consolidated financial statements for 2000, in accordance with the Spanish National Chart of Accounts, were as follows:

A) GOODWILL IN CONSOLIDATION AND NEGATIVE GOODWILL IN CONSOLIDATION

GOODWILL Goodwill was calculated as the positive difference between the additional investment made in Aviación y Comercio, S.A. by IBERIA,Líneas Aéreas de España,S.A.and the underlying book value of the holding per the balance sheet used as the basis for the acquisition. The balance of the “Goodwill in Consolidation” caption in the accompany i n g consolidated balance sheet as of December 31, 2000, relates in full to securities that cannot be assigned to assets and is being amortized on a straight-line basis over 20 years (see Note 10).The directors of IBERIA, Líneas Aéreas de España, S.A. set this amortization period in accordance with Law 37/1999 amending Article 194 of the Corporations Law because they consider that this is the period in which the goodwill will contribute to the obtainment of income by the Group.

NEGATIVE GOODWILL IN CONSOLIDATION The negative goodwill in consolidation was calculated as the negative difference between the investment made in Touroperador Viva Tours,S.A. by IBERIA,Líneas Aéreas de España,S.A. and the underlying book value of the holding per the balance sheet used as the basis for the acquisition.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 115 The negative goodwill in the accompanying consolidated balance sheet as of December 31, 2000, is treated as a provision for contingencies and expenses and is allocated to income as the contingencies and expenses materialize or as the projected losses are recognized (see Note 10).

B) UNIFORMITY OF PRESENTATION The main valuation principles and standards used by IBERIA, Líneas Aéreas de España, S.A. were applied to all the consolidated companies and to the associated companies so as to ensure uniform presentation of the items composing the consolidated financial statements.

C) START-UP EXPENSES These expenses consist basically of public deed execution and registration expenses relating to capital increases, and are amortized at an annual rate of 20%. Ptas. 227 million of amortization of start-up expenses were charged to the 2000 consolidated statement of income.

D) INTANGIBLE ASSETS Leased assets are recorded as intangible assets at the cost of the related item, excluding interest cost, and are amortized by the same methods as those used to depreciate similar items of property, plant and equipment.The total debt for lease payments plus the amount of the purchase option is recorded as a liability.The difference between the two amounts, which represents the interest expenses on the transaction, is recorded under the “Deferred Charges” caption in the accompanying consolidated balance sheet and is allocated to income each year by the interest method. In prior yea r s IBERIA, Líneas Aéreas de España, S . A .m o d i fied the net book value of certa i n of its leased aircraft pursuant to a Ministry of Economy and Finance Order (see Note 6-i). Since the company did not lease any aircraft in currencies other than the peseta or the euro in 2000 or in any of the four preceding years, no modification pursuant to this Order was made to the net book value of any aircraft in 2000. Computer software is recorded at cost and is being amortized on a straight-line basis over an estimated useful life of five years.

E) PROPERTY, PLANT AND EQUIPMENT The valuation methods applied by the consolidable Group are basically as follows:

1. AIRCRAFT: Ai r c r aft are carried at cost revalued pursuant to the applicable enabling legislation, including Royal Decree-Law 7/1996, except for certain aircraf t , the value of which was modifie d pu r suant to the provisions of a Ministry of Economy and Finance Order (see Note 6-i).

116 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 2. OTHER TANGIBLE FIXED ASSETS: The tangible fixed assets recorded under the “Other Tangible Fixed Assets” caption in the consolidated balance sheet are carried at cost revalued pursuant to the applicable enabling legislation, including Royal Decree-Law 7/1996.

3. REPAIRS, UPKEEP AND MAINTENANCE: The consolidable Group companies record a provision for the periodic major repairs of the fuselages of their aircraft (basically B-747, B-757, B-767, A-300, A-319, A-320, A-321, A-340, ATR-72 and CN-235 aircraft) based on the total estimated cost to be incurred, and allocate this cost to income on a straight-line basis during the period elapsing between two successive major repairs.The balance of this provision is reflected under the “Provisions for Contingencies and Expenses - Provision for Major Repairs” caption in the consolidated balance sheet. The costs of repairs of engines and of minor repairs to the aforementioned types of aircraft and of all repairs to the B-727, DC-9, MD-87 and MD-88 aircraft are expensed currently, since the annual expenses tend to be uniform. Upkeep and maintenance expenses are expensed currently.

F) DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT The consolidable Group companies depreciate their property, plant and equipment by the straight-line method at annual rates based on the years of estimated useful life. The methods applied to calculate depreciation of the main items of property, plant and equipment are as follows:

1. AIRCRAFT: The depreciable cost of the aircraft is equal to their book value less the estimated residual value at the end of their useful lives.The residual value ranges from 10% to 20%, depending on the aircraft.

2. AIRCRAFT SPARE PARTS: Spare parts for aircraft maintenance are depreciated, depending on the type of part, as follows: a) Rotatable parts: These parts are depreciated over a period ranging from 10 to 18 years from the date of purchase, assuming a residual value of between 10% and 20%, depending on the type of aircraft. b) Repairable parts: These are depreciated in a period ranging from eight to ten years, depending on the aircraft, from the date of purchase, assuming a residual value of 10% in all cases. The Companies also record provisions for diminuition in value of spare parts due to obsolescence.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 117 3.YEARS OF ESTIMATED USEFUL LIFE: The years of estimated useful life of property, plant and equipment items are as follows:

YEARS OF ESTIMATED USEFUL LIFE

YEARS

A I R C R A F T 16 - 18 (a) B U I L D I N G S A N D O T H E R S T R U C T U R E S 20 - 50 M A C H I N E R Y, I N S TA L L AT I O N S A N D T O O L S 10 - 15 T R A N S P O R T E QU I P M E N T 7 - 10 F U R N I T U R E A N D F I X T U R E S 10 C O M P U T E R H A R D W A R E 5 - 7 (a) The used aircraft acquired by the Group are depreciated over a period shorter than their S PA R E P A RT S 8 - 18 estimated useful life based on economic criteria. F L I G H T S I M U L AT O R S 10 - 14

The buildings and facilities built on land owned by the Spanish State, mostly at Spanish airports,with an aggregate net book value of Ptas.4,876 million as of December 31, 2000,are depreciated over the respective concession periods. Depreciation is taken on the net amount of tangible fixed asset revaluations from the date they are recorded, using the same useful life periods as for the cost values.

G) SHAREHOLDINGS AND OTHER FINANCIAL INVESTMENTS

SHAREHOLDINGS Investments in nonconsolidated companies are carried at cost net, where appropriate, of the required provisions for diminution in value (cost higher than fair value at year-end).

SHORT-TERM FINANCIAL INVESTMENTS Investments in government debt securities and time deposits are recorded at cost and the amount delivered,respectively.The interest on these securities is credited to income when earned and is charged through maturity to the “Short-Term Financial Investments” caption.

H) TRANSLATION OF FOREIGN CURRENCY BALANCES The balances of accounts denominated in foreign currencies are translated to pesetas at the exchange rates ruling at December 31 of each year. However, following customary airline practice, the balance of the liability for unused traffic documents is reflected in the consolidated balance sheet at the exchange rate ruling in the month of the sale, as set by the International Air Transport Association (IATA).The IATA exchange rate for each month is the average exchange rate for the last five days of the preceding month. Translation differences arising from translation at official year-end exchange rates and from the difference between exchange rates at December 31 of the preceding year and those prevailing at the date of effective collection or payment are recorded under the “Exchange Gains/Losses” captions in the consolidated statement of income, except for the net gains or losses relating to the financing obtained for the acquisition of certain aircraft.

118 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S Unrealized exchange gains arising on currencies for which exchange losses have not been allocated to income in prior years or in the current year are recorded under the “Deferred Revenues” caption in the consolidated balance sheet.

i) EXCHANGE DIFFERENCES ARISING FROM AIRCRAFT FINANCING Pursuant to Valuation Rule 14 in Section 5 of the Spanish National Chart of Accounts, on March 23, 1994, the Ministry of Economy and Finance issued, at the proposal of the Accounting and Audit Institute (ICAC), a Ministerial Order on the accounting treatment of certain foreign currency exchange differences. Under this accounting regulation, from January 1, 1993, the net amount of foreign currency exchange differences arising in each year on financing for the acquisition by IBERIA, Líneas Aéreas de España,S.A. of aircraft added to the fleet in the current year and in the four immediately preceding years has to be recorded as an increase or decrease in the value of such aircraft. In accordance with this regulation, in 2000 IBERIA, Líneas Aéreas de España, S.A. recorded a net increase in the value of its aircraft of approximately Ptas. 491 million,of which Ptas. 500 million related to cost and Ptas. 9 million to accumulated depreciation.

J) INVENTORIES Inventories, basically aeronautical supplies and fuel, are valued at average acquisition cost, and the related provisions for diminution in value are recorded.

K) RECOGNITION OF REVENUES AND EXPENSES Revenues and expenses are recognized on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Ticket sales and sales of the traffic documents for cargo and other services are initially credited to “Customer Advances” in the consolidated balance sheet. The balance of this caption in the consolidated balance-sheet caption reflects the liability for tickets and traffic documents sold prior to December 31, 2000, but not yet used as of that date.The revenues relating to these items are recognized when the transport or service is performed. IBERIA, Líneas Aéreas de España, S.A. and its commercial airline subsidiaries have introduced the “IBERIA Plus” card as a promotional tool whereby the holder of the card accumulates points for taking certain flights, using certain hotels, renting cars or making credit card purchases with credit cards covered by the program.The points can be exchanged for free tickets or other services offered by the companies included in the program. The accompanying consolidated balance sheet as of December 31, 2000, includes a provision of Ptas. 7,187 million in this connection, based on estimates of the value of the points accumulated as of that date.

L) PROVISIONS FOR PENSIONS Under the collective labor agreements currently in force, IBERIA, Líneas Aéreas de España,S.A. is required to pay full compensation to flight personnel who take early retirement (special leave) and to supplement the social security benefits of ground personnel taking early retirement, in accordance with the conditions specified for each case.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 119 The “Provisions for Contingencies and Expenses – Provisions for Pensions”account in the accompanying consolidated balance sheet includes the liabilities incurred in this connection as of December 31,2000.The provisions recorded to cover the discounted value of the liabilities incurred as of December 31, 2000, and the interest allocable to the recorded allowance amount to Ptas.939 million and Ptas.606 million,respectively, and these amounts are included under the “Personnel Expenses” and “Financial and Similar Expenses” captions, respectively, in the accompanying 2000 consolidated statement of income. As required under current legislation,IBERIA Group management is currently negotiating with various entities the externalization of this liability, which as of December 31, 2000, amounted to approximately Ptas. 7,194 million. The liability incurred as of December 31, 2000, was determined on the basis of actuarial studies conducted by independent actuaries using the unit credit method, and the main assumptions were an annual interest rate of 4%, an expected annual CPI variation of 2% and annual provisions payable in arrears.Also, the Spanish generational life-expectancy tables used were the PERM/F-2000 P tables.

M) MONTEPÍO DE PREVISIÓN SOCIAL LORETO The main purpose of the Montepío de Previsión Social Loreto is to pay retirement pensions to its members (who include the employees of IBERIA,Líneas Aéreas de España,S.A. and of its subsidiary Sistemas Automatizados Agencias de Viaje, S.A.) and other welfare benefits in certain circumstances (death and permanent disability). Under the current collective labor agreements,the aforementioned companies and their employees make the statutory contributions to the Montepío, as established in these labor agreements.The Montepío’s bylaws limit these companies’ liability to the payment by them of the contributions established by law. The consolidable Group's contribution of Ptas.3,558 million in 2000 was recorded under the "Personnel Expenses" caption in the accompanying 2000 consolidated statement of income.

N) OBLIGATIONS TO FLIGHT PERSONNEL PLACED ON THE RESERVE Under the collective labor agreements in force, IBERIA, Líneas Aéreas de España, S.A. is required to pay full compensation to flight personnel placed on the reserve. The “Provisions for Contingencies and Expenses - Provisions for Obligations to Employees” account in the accompanying consolidated balance sheet includes the liabilities incurred in this connection as of December 31, 2000.The provisions recorded to cover the estimated liability incurred in 2000 and the interest allocable to the recorded allowance amount to Ptas. 6,901 million and Ptas. 2,465 million, respectively, and these amounts are included under the “Personnel Expenses” and “Financial and Similar Expenses” captions, respectively, in the accompanying 2000 consolidated statement of income. The liability incurred as of December 31,2000, was determined on the basis of actuarial studies conducted by independent actuaries using the unit credit method, and the main assumptions were an annual interest rate of 4%, an expected annual CPI variation of 2% and annual provisions payable in arrears.Also, the Spanish generational life-expectancy tables used were the PERM/F-2000 P tables.

120 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S O) PROVISION FOR THIRD-PARTY LIABILITY The “Provisions for Contingencies and Expenses – Provision for Third-Party Liability” caption in the accompanying consolidated balance sheet includes the estimated amount required for probable or certain third-party liability arising from legal proceedings and litigation in progress or from outstanding indemnity payments or obligations of undetermined amount, and collateral and other similar guarantees provided by the consolidated companies. As described in Note 14, this caption includes the provisions for the estimated costs of the labor force reduction plan currently in progress and which will be initiated in the next few months.

P) CORPORATE INCOME TAX The corporate income tax of each year for each consolidated company is calculated on the basis of the book income before taxes, increased or decreased, as appropriate, by the permanent differences from taxable income, net of tax relief and tax credits, excluding tax withholdings and prepayments. The Controlling Company and its dependent companies are taxed under the consolidated taxation system as part of SEPI.This system is regulated by Articles 42 et seq. of the Commercial Code, as provided for by Law 5/1996. Consequently, the 2000 corporate income tax will be settled on a consolidated tax return basis.

Q) FUTURES AND OTHER SIMILAR INSTRUMENTS IBERIA, Líneas Aéreas de España, S.A. uses these instruments in transactions to hedge its asset and liability positions and its future flows of collections and payments. It only carries out “nongenuine” hedging transactions (i.e. those arranged between two parties, establishing in each case the contractual terms of the transactions agreed upon between them). If cash deposits are required as security for the obligations inherent to the aforementioned transactions, they are recorded under the “Short-Term Financial Investments - Short-Term Deposits and Guarantees”caption on the asset side of the consolidated balance sheet. The expenses relating to transactions involving futures and similar instruments are expensed currently. The price differences arising during the term of futures and similar instruments are recorded as follows: 1. In the case of transactions arranged to hedge exchange rates relating to asset or liability positions, the related balances are discounted to present value based on the gains or losses that arise. 2.For the other exchange and interest rate hedging transactions,the price differences are recorded in the consolidated statement of income when the transactions involving futures or similar instruments are retired or finally settled.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 121 7. Intangible assets

The variations in 2000 in intangible asset accounts and in the related accumulated amortization were as follows:

2000 MILLIONSOF PESETAS ADDITIONS 01-01-00 AND PROVISIONS RETIREMENTS TRANSFERS 12-31-00 RIGHTS ON LEASED ASSETS 71,671 12,474 (2) (371) 83,772 COMPUTER SOFTWARE 3,634 1,671 - 26 5,331 INTELLECTUAL PROPERTYAND LEASEHOLD ASSIGNMENT RIGHTS 104 22 -- 126 AMORTIZATION (13,980) (4,470) - 298 (18,152) NET VALUE 61,429 71,077

COMPUTER SOFTWARE The period additions relate basically to investments in research and development projects.

RIGHTS ON LEASED ASSETS In 2000 IBERIA, Líneas Aéreas de España leased two A-321 aircraft for Ptas. 11,707 million. These two aircraft and their engines were acquired in 1999.They were sold to a third party in 2000 and were subsequently leased back under a financial lease contract. IBERIA, Líneas Aéreas de España recorded these additions for the same net book value as that at which they were recorded at the time of sale. The main features of these two lease contracts are as follows: 1. Maturity: March 30, 2009. 2. Interest: monthly. 3. Interest rate: EURIBOR + 0.55%, and/or a fixed rate of 6.185%. 4. Purchase option: may be exercised at any time from the contract date to March 30, 2002, and from five years from the contract date to the expiry date of the contract. The price of the options varies according to when they are exercised. The general features of the lease contracts (relating mainly to aircraft) in force as of December 31, 2000, some of which provide for floating interest and lease payments denominated in foreign currencies, are as follows:

122 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S DECEMBER 31,2000

MILLIONS OFPESETAS

CASH PRICE OFTHE FIXED ASSETS ACQUIRED, ACCORDING TO CONTRACTS 8 4 , 0 2 2 AMOUNT OF LEASE PAYMENTS PAID: IN PRIORYEARS 3 3 , 0 2 5 IN THE CURRENTYEAR 9 , 2 9 5 (a) As of December 31,2000,these amounts included Ptas. 17,236 million of unaccrued interest at AMOUNT OF LEASE PAYMENTS OUTSTANDING AT DECEMBER 31 6 8 , 0 5 7 (a) that date, the balancing entry for which is included under AMOUNT OF PURCHASE OPTIONS 2 5 , 8 4 2 (a) the “Deferred Charges”caption in the accompanying consolidated balance sheet.

The due dates for the lease payments outstanding as of December 31, 2000, including the amount of the purchase options, are as follows:

DECEMBER 31,2000 LE A S E PAY M E N T S DU E I N MI L L I O N S O F PE S E TA S 2001 14,905 2002 12,957 2003 11,315 2004 14,910 2005 4,993 2006 AND SUBSEQUENTYEARS 34,819

8. Property, plant and equipment

The variations in 2000 in property, plant and equipment accounts and in the related accumulated depreciation and provisions were as follows:

COST MILLIONSOF PESETAS

01-01-00 ADDITIONS RETIREMENTS TRANSFERS 12-31-00

AIRCRAFT 393,671 45,252 (36,788) 13,759 415,894 ADVANCES ONAIRCRAFT 47,678 28,458 (19,919) (13,645) 42,572 441,349 73,710 (56,707) 114 458,466 OTHER TANGIBLE FIXEDASSETS : LAND 794 --- 794 BUILDINGS AND OTHER STRUCTURES 28,403 360 (323) 8 28,448 MACHINERY, INSTALLATIONSAND TOOLS 64,762 5,307 3,569 390 66,890 TRANSPORT EQUIPMENT 4,667 173 (284) 2 4,558 FURNITURE AND FIXTURES 3,604 637 (578) 4 3,667 COMPUTER HARDWARE 16,423 1,858 (5,040) 366 13,607 SPARE PARTS 44,607 16,135 (17,189) - 43,553 FLIGHT SIMULATORS 7,173 122 - 142 7,437 OTHER TANGIBLE FIXED ASSETS 1,089 109 (102) - 1,096 CONSTRUCTION IN PROGRESS 2,885 3,718 (2,867) (573) 3,163 174,407 28,419 (29,952) 339 173,213

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 123 ADVANCES ON AIRCRAFT The advances on aircraft relate to advances paid as a result of purchase commitments to manufacturers in accordance with the established schedules. The additions in 2000 relate to advances paid in connection with thirty-four A-320 aircraft,thirty-one A-321 aircraft and seven A-340 aircraft to be received under IBERIA,Líneas Aéreas de España, S.A.’s fleet renewal plan. Also, in 2000 Ptas. 9,406 million relating to the advances paid for the eight B-757 aircraft that came into service in that year were recovered. Additionally, Ptas. 10,513 million relating to the advances paid for three A-340 aircraft that came into service in 2000 were recovered. Ptas. 13,591 million were transferred to the “Aircraft” caption relating to the advances paid for eight A-320 aircraft that were acquired by IBERIA, Líneas Aéreas de España, S.A. in 2000.

AIRCRAFT, PERIOD ADDITIONS In 2000 IBERIA, Líneas Aéreas de España, S.A. acquired eight A-320 aircraft for a total of Ptas. 55,638 million (Ptas. 42,047 million in cash and Ptas. 13,591 million from the advances paid previously). Of these eight aircraft, three were sold during the year and subsequently leased back under operating lease contracts.

AIRCRAFT, PERIOD RETIREMENTS IBERIA, Líneas Aéreas de España, S.A. obtained a gain of Ptas. 2,492 million on the aforementioned sale of the three A-320 aircraft, and this amount was recorded under the “Deferred Revenues” caption in the accompanying consolidated balance sheet as of December 31, 2000. Subsequently, IBERIA, Líneas Aéreas de España, S.A. entered into operating lease contracts on the same aircraft. The capital gain will be allocated to the consolidated statement of income over the term of the lease. Also, during 2000 IBERIA, Líneas Aéreas de España, S.A. sold two B-727 aircraft, one DC-9 aircraft and one DC-10 aircraft.The IBERIA Group obtained a total net gain of Ptas. 356 million from these sales. Lastly, during 2000 IBERIA, Líneas Aéreas de España, S.A. sold two A-321 aircraft which were subsequently leased back under financial lease contracts (see Note 7).

REVALUATION RESERVE ROYAL DECREE-LAW 7/1996 On December 31, 1996, IBERIA, Líneas Aéreas de España, S.A. and certain of its dependent companies revalued their property, plant and equipment pursuant to Royal Decree-Law 7/1996, and paid the single 3% tax. These companies had previously availed themselves of other revaluation legislation.The revaluation surplus and the effect thereof as of December 31, 2000, are as follows:

124 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S REVALUATION MILLIONSOF PESETAS

SURPLUS 2000 BALANCE AT 01-01-00 PROVISION RETIREMENTS AT 12-31-00

AIRCRAFT 6,169 (558) (27) 5,584 LAND 147 -- 147 BUILDINGSAND OTHER STRUCTURES 1,872 (247) (8) 1,617 MACHINERY, INSTALLATIONS AND TOOLS 724 (564) (6) 154 TRANSPORT EQUIPMENT 6 (3) (1) 2 FLIGHT SIMULATORS 170 (62) - 108 9,088 (1,434) (42) 7,612

As of December 31, 2000, the accumulated depreciation taken on the surplus arising from the revaluation made by the IBERIA Group amounted to Ptas. 14,027 million. The revaluation increased the 2000 depreciation charge by Ptas. 1,434 million, and will increase the 2001 depreciation charge by approximately Ptas. 896 million. The revaluation surplus, net of the single 3% tax, was credited to the “Revaluation Reserve” caption at each company, with a charge to the appropriate revalued asset accounts, without altering the recorded accumulated depreciation amount.

DEPRECIATION AND PROVISIONS MILLIONSOF PESETAS

01-01-00 ADDITIONS RETIREMENTS TRASNSFERS 12-31-00

AIRCRAFT 236,056 13,377 (5,468) 97 244,062 OTHER TANGIBLE FIXEDASSETS : BUILDINGS AND OTHER STRUCTURES 15,699 966 (25) - 16,640 MACHINERY, INSTALLATIONSAND TOOLS 43,108 3,855 (2,456) 41 44,548 TRANSPORT EQUIPMENT 2,144 432 (190) 2 2,388 FURNITUREAND FIXTURES 2,824 179 (398) - 2,605 COMPUTER HARDWARE 11,613 1,735 (4,778) 318 8,888 SPARE PARTS 23,470 2,812 (3,989) - 22,293 FLIGHTS SIMULATORS 5,850 478 -- 6,328 OTHER TANGIBLE FIXED ASSETS 782 81 - (52) 811 105,490 10,538 (11,836) 309 104,501

As of December 31, 2000, the cost of fully depreciated assets which the IBERIA Group was maintaining in property, plant and equipment amounted to approximately Ptas. 44,593 million.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 125 TRANSACTIONS INVOLVING THE AIRCRAFT In recent years IBERIA, Líneas Aéreas de España, S.A. has formalized the agreements relating to its fleet renewal plan and entered into certain agreements with its suppliers, particularly Airbus Industrie, G.I.E. and The Boeing Company. The main features of these agreements are as follows.

- BOEING AIRCRAFT - B-757 In 1994 IBERIA,Líneas Aéreas de España,S.A. entered into operating lease contracts with several companies for seven B-757 aircraft.Two of these aircraft were on lease for a period of four years, extended by a further 18 months in 1997 and for a further 12 months in 1998 (through October 2000), and the contracts did not provide for a purchase option. One of these two aircraft was returned to the lessor and the lease contract on the other was extended through April 2005.The other five B-757 aircraft were on lease for an initial period of approximately five years, at the end of which IBERIA, Líneas Aéreas de España, S.A. would have the following three options for each plane: to exercise the purchase option; to extend the lease by up to a further 12 years; or to return the plane to the lessor.The lease contracts relating to four of these aircraft were extended through 2000 and IBERIA, Líneas Aéreas de España, S.A. returned one of the aircraft to the lessor in 1999. In 2000 IBERIA, Líneas Aéreas de España, S.A. returned one of these aircraft to the lessor and the other three were sublet to third parties for subsequent operation under a wet lease arrangement. As of December 31, 2000, the contracts entered into by IBERIA, Líneas Aéreas de España, S.A. with The Boeing Company (“Boeing”) for the purchase of sixteen B-757 aircraft and a purchase option on a further fourteen aircraft were still in force. In 2000 eight of the B-757 aircraft relating to the agreement with Boeing came into service. These eight planes were acquired under operating lease contracts from various companies (a different company for each plane).The initial lease term for these aircraft is 62 or 63 months, at the end of which the lessor of the aircraft has a residual value guarantee from International Lease Finance Corporation. In 2000 eight B-757 aircraft acquired under operating lease contracts from eight companies came into service.The lease term for these aircraft is 65 months, at the end of which the aircraft will be returned to the lessor. Of the fourteen aircraft on which there is a purchase option,the purchase option will be exercised on eleven in 2001 and on three in 2002.As of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. had paid advances of Ptas. 551 million on these aircraft. B-747 In 1994 IBERIA, Líneas Aéreas de España, S.A. sold one B-747 aircraft to Boeing. Subsequently, IBERIA, Líneas Aéreas de España, S.A. entered into a three-year operating lease contract for this aircraft, which included a purchase option. In 1997 IBERIA, Líneas Aéreas de España, S.A. renegotiated the operating lease contract, extending it for a further 29 months and modifying the purchase option price at the end of this period. In December 1999 IBERIA, Líneas Aéreas de España, S.A. extended the contract for a further 36 months, and it can exercise the purchase option at any time.

126 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S On November 30, 2000, IBERIA, Líneas Aéreas de España, S.A. started to operate one B-747 aircraft under an operating lease contract for an initial period of 48 months, with an option to extend the lease for a further 12 months.

-AIRBUS AIRCRAFT - A-340 In 1996 IBERIA, Líneas Aéreas de España, S.A. reached an agreement with Airbus Industrie, G.I.E. (Airbus) for the delivery dates of eight A-340 aircraft and on the delivery schedule for a further four aircraft on which there is a purchase option. In 1998 IBERIA,Líneas de España, S.A. entered into an agreement with Airbus for the acquisition of a further six A-340 aircraft and a purchase option on a further five, in addition to four subordinated options that it can exercise provided that it exercises the purchase option on four of the five aforementioned aircraft. In recent years certain aircraft have come into service and options have been exercised to the extent that as of December 31, 2000, twelve A-340 aircraft were in service and on November 27, 2000, the two parties entered into an amendment which established that the outstanding agreements were firm commitments for the purchase of six A-340 aircraft and the possible exercise of purchase options on a further five aircraft. The delivery schedule for these six aircraft would be:three in 2001 and three in 2002 in the case of the aircraft for which there are firm commitments, and three in 2003 and two in 2004 for the aircraft on which there is a purchase option. The eleven of the twelve A-340 aircraft in service were leased under operating lease contracts from the “Iberbus” companies (see Note 9).The term of the operating leases for the eleven A-340 aircraft is seven years,at the end of which IBERIA,Líneas Aéreas de España, S.A. will have the following three options: to exercise the purchase option paying a predetermined price for the aircraft; to extend the lease for periods of three and eight years and mandatorily exercise the purchase option; or to return the planes to the lessor. If IBERIA,Líneas Aéreas de España,S.A. opts to return the planes and if the owner of the aircraft does not find a buyer for the aircraft, IBERIA, Líneas Aéreas de España, S.A. is obliged to extend the operating lease contract for a further one-year period for the aircraft which came into service in 1996 (four planes) and for a further two-year period for the aircraft which came into service in 1997 (two planes),1998 (two planes),1999 (one plane) and 2000 (two planes). In 2000 one A-340 aircraft came into service under a nine-year operating lease contract, on expiration of which IBERIA, Líneas Aéreas de España, S.A. may purchase the aircraft for approximately Ptas. 11,450 million, or return it to the owner, and the Company must inform the owner of its decision two years before the expiration date. If the aircraft is returned and a third-party buyer for the aircraft is not found, the manufacturer guarantees to pay 67% of the residual value. The basic price of the six aircraft pending delivery for which there are firm commitments is approximately US$ 828 million. As of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. had paid advances totaling Ptas. 14,570 million in connection with these aircraft. A-319,A-320 and A-321 On June 19, 1998, IBERIA, Líneas Aéreas de España, S.A. and Airbus Industrie, G.I.E. entered into an agreement for the firm purchase of fifty A-320-type aircraft, with the option of acquiring a further twenty six aircraft of this type and a purchase option on an additional fourteen aircraft.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 127 Also, IBERIA, Líneas Aéreas de España, S.A. entered into an agreement with Singapore Aircraft Leasing Enterprise Pte. Ltd. (“SALE”) to bring forward the date on which two A-320 scheduled for delivery in 2002 came into service to 1999. Additionally, IBERIA, Líneas Aéreas de España, S.A. entered into an additional agreement with Airbus for the firm purchase of two A-320 aircraft which will come into service in 2002 on the same date as that on which the aircraft on which the purchase option has been exchanged with SALE were scheduled to come into service. In 1999 IBERIA, Líneas Aéreas de España, S.A. received eight A-320 aircraft, of which six were acquired under financial lease contracts and two under operating lease contracts, for an initial term of five years, at the end of which IBERIA,Líneas Aéreas de España,S.A. may renew the agreements for up to seven years. Also, in 1999 IBERIA, Líneas Aéreas de España, S.A. acquired two A-321 aircraft and their engines, which were sold in 2000 so as to be subsequently leased back under financial lease contracts (see Note 7). In 2000 IBERIA, Líneas Aéreas de España, S.A. acquired eight A-320 aircraft and subsequently sold three of them in order to operate them under operating lease contracts for a period of twelve years (13 years in the case of one of the aircraft) with a purchase option on two aircraft at a price of Ptas. 4,055 million ( 9,882,980 plus US$ 13,480,871) which may be exercised on September 30, 2009, and a purchase option on one aircraft at a price of Ptas. 5,992 million ( 15,649,018 plus US$ 18,945,546) which may be exercised on September 30, 2007. The delivery schedule for the aircraft receivable under the original agreement with Airbus Industrie, G.I.E., which has since been amended, is as follows:

DELIVERY SCHEDULE FOR AIRCRAFT (a) Relating to aircraft on which there is a purchase option. TYPE OF AIRCRAFT 2001 2002 2003 2004 2005 2006 TOTAL (b) Including three aircraft on which there is a purchase option. A-319 - - - - 4 (a) 5 (a) 9 (c) Including six aircraft on which there is a purchase option. A-320 3 11 5 (b) 8 (c) 5 (b) 2 (a) 34 (d) Including two aircraft on which there is a purchase option. A-321 2 5 7 (d) 11 (e) - 6 (a) 31 (e) Including nine aircraft on which there is a purchase option. 5 16 12 19 9 13 74

The basic price of the aircraft involved in this transaction is approximately Ptas. 326,000 million. As of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. had paid advances totaling Ptas. 27,395 million in connection with these aircraft.

128 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S In connection with the A-320 aircraft, on July 17, 1998, IBERIA, Líneas Aéreas de España, S.A. entered into a lease contract with International Lease Finance Corporation (“ILFC”) for nine A-319 and seven A-320 aircraft under a dry lease arrangement for an initial period of five years, on expiration of which IBERIA, Líneas Aéreas de España, S.A. may extend the contract twice for one- or five-year periods, provided that the two extensions do not total more than six additional years. In 2000 IBERIA, Líneas Aéreas de España, S.A. received three A-320 aircraft and four A-319 aircraft and in 1999 it received two of the A-320 aircraft under the aforementioned contract with ILFC. As of December 31, 2000, a change was made to the lease contracts, whereby a third-party lessor was subrogated to ILFC’s position in the contract. The aforementioned lease terms and extensions were not altered. In relation to this contract, as of December 31, 2000, seven A-320 aircraft had not been delivered, but will be delivered in 2001 (originally five A-319 aircraft and two A-320 aircraft). As a result of having entered into this contract, as of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. had made deposits for the lease of these aircraft of Ptas.1,877 million, and this amount is recorded under the “Other Long-Term Receivables” caption in the accompanying consolidated balance sheet.

- OTHER AIRCRAFT - A-320 and MD-87 Without prejudice to the foregoing regarding the A-319, A-320 and A-321 aircraft, in 1993 IBERIA, Líneas Aéreas de España, S.A. sold six A-320 and five MD-87 aircraft, and subsequently entered into operating lease contracts therefor. In July 1997 the owner of these aircraft sold them to three companies, which entered into new lease contracts with IBERIA, Líneas Aéreas de España, S.A. The lease contracts entered into for the six A-320 aircraft expire in 2001, 2002 and 2003, at which time IBERIA, Líneas Aéreas de España, S.A. may extend them for a further five-year period or return the planes.The term of the lease contracts entered into for the five MD-87 aircraft is 96 months, at the end of which IBERIA, Líneas Aéreas de España, S.A. may exercise the purchase option provided for in the contract or return the planes. In 1999, IBERIA, Líneas Aéreas de España, S.A. signed novations of the operating lease contracts for the five A-320 aircraft, as a result of which five new lessors were subrogated to the position of the original lessors.

-AIRCRAFT IN SERVICE - The aircraft in service of the companies consolidated by the global integration method as of December 31, 2000, are summarized as follows:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 129 AIRCRAFT IN SERVICE 2000

UNDER UNDER WET TYPE OF OWNED BY FINANCIAL OPERATING LEASE AIRCRAFT THE COMPANIES LEASE LEASE (a) TOTAL B-727 9 (c) - - - 9 B-737 - - - 3 3 B-747 6 - 2 2 10 B-757 - 1 17 6 (e) 24 B-767 - - 2 - 2 A-300 6 - - - 6 A-319 - - 4 - 4 A-320 16 11 16 - 43 A-321 - 2 - - 2 A-340 - - 12 - 12 DC-8 - - - 2 2 (a) Lease type including aircraft and crew for approximately one year.The lessors are Air Atlanta U.K.Limited, DC-9 7 (d) - - - 7 Air Europa,S.A.and Cygnus. (b) Excluding six inactive aircraft that DC-10 - (b) - --- are ready for sale. (c) Excluding 20 inactive aircraft that MD-87 17 2 5 - 24 are ready for sale. (d) Excluding 18 inactive aircraft that MD-88 13 - -- 13 are ready for sale. (e) Three aircraft which were operated under an ATR-72 7 1 3 - 11 operating lease arrangement have been sublet to Air Europa,S.A.to be subsequently operated by CN-235 5 - - - 5 IBERIA,Líneas Aéreas de España,S.A.under a wet lease arrangement. 86 17 61 13 177

One aircraft operated by IBERIA, Líneas Aéreas de España, S.A. under a financial lease contract had been mortgaged for a net book value of Ptas. 3,820 million as of December 31, 2000.Also, the financial lessors of the two A-321 aircraft on which the lease contracts were entered into in 2000 have mortgaged the two aircraft under British legislation. As of December 31, 2000, twenty-four aircraft (twenty B-727, eighteen DC-9 and six DC-10 aircraft), with a net book value of Ptas. 9,077 million as of that date, were grounded. These aircraft are ready for sale, and management of IBERIA, Líneas Aéreas de España, S.A. does not expect any losses to arise in this connection. Preliminary agreements have been reached to sell nine of the B-727 aircraft. On September 26, 2000, a bond issue of 496,473,000 (Ptas. 82,606 million) was launched in the European market secured by eighteen aircraft which, in turn, IBERIA, Líneas Aéreas de España, S.A.guarantees to operate under an operating lease or a financial lease.As of December 31, 2000, three A-320 aircraft, two A-321 aircraft and eight B-757 aircraft relating to this issue had come into service.

130 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S Wet lease In recent years IBERIA, Líneas Aéreas de España, S.A. has entered into several lease contracts (lease of aircraft with crew). In March 1998 IBERIA, Líneas Aéreas de España, S.A. entered into contracts with Air Europa, S.A. for the lease of eleven aircraft currently in service (six B-757, three B-737 and two B-767) under a wet lease arrangement.These contracts have an initial term of two years and are renewable annually. In December 1999 the two B-767 started to be operated under a dry lease arrangement, and in 2000 the three B-757 aircraft were returned to the lessor. Also, in 2000 IBERIA, Líneas Aéreas de España, S.A. sublet to third parties three B-757 aircraft that it was operating under an operating lease contract,to subsequently operate them under a wet lease arrangement with Air Europa, S.A. (two of the leases mature in 2005 and the other in 2004). In 2000 the lessors of the two B-767 aircraft changed. In January and December 1999 IBERIA, Líneas Aéreas de España, S.A. entered into lease contracts with Air Atlanta, S.A. to operate two B-747 aircraft equipped for passenger transport for 18 months and 6 months, respectively.The lease contracts were subsequently extended through January 2002. Lease expenses The lease payments paid by IBERIA, Líneas Aéreas de España, S.A. in 2000 for the operating lease of the aforementioned B-747, B-757, B-767,A-319,A-320,A-340 and MD-87 aircraft amounted to Ptas. 41,995 million, and this amount is included under the “Other Operating Expenses” caption in the accompanying consolidated 2000 statement of income (see Note 18).The detail of the approximate total operating lease payments payable for these aircraft and of the related due dates is as follows:

LEASE EXPENSES

YE A R MI L L I O N S O F U. S . D O L L A R S 2001 280 2002 278 2003 246 2004 - 2013 438 1,242

- INSURANCE COVERAGE - IBERIA, Líneas Aéreas de España, S.A. and its dependent companies have arranged insurance policies for their property, plant and equipment and intangible assets which sufficiently covered their net book value as of December 31,2000.Also, IBERIA,Líneas Aéreas de España, S.A. has arranged insurance policies for the aircraft leased from third parties, in accordance with the conditions stipulated in the related lease contracts.Most of these policies are with Musini, Sociedad Anónima de Seguros y Reaseguros.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 131 9. Long-term financial investments

HOLDINGS IN COMPANIES CARRIED BY THE EQUITY METHOD The variation in 2000 in the balance of the “Holdings in Companies Carried by the Equity Method” caption in the accompanying consolidated balance sheet relates, on the one hand, to the effect of recording the share in the losses of the Touroperador Viva Tours, S.A. and the net worth variation at the Amadeus Group that arose mainly as a result of the income earned by this Group in 2000 and,on the other, to the effect of the sales of shares of Amadeus Global Travel Distribution, S.A. which took place in 2000. Lastly, the variation in 2000 includes the transfer of the IBERIA Group’s holdings in the Iberbus companies, which were transferred to the “Long-Term Investment Securities” caption in the consolidated balance sheet as a result of the decision to exclude them from the scope of consolidation of the IBERIA Group, due to certain provisions in the contracts under which the aforementioned companies were incorporated, which guarantee the full recovery of all the amounts invested. The variations in 2000 in this caption are summerized as follows:

HOLDINGS IN COMPANIES CARRIED BY THE EQUITY METHOD

MILLIONS OF PESETAS

BA L A N C E AT JA N UA RY 1 , 2000 1 5 , 6 8 8 SA L E O F S H A R E S ( 4 , 0 2 4 ) CA P I TA L R E D U C T I O N ( 2 2 ) SH A R E I N I N C O M E 5 , 3 1 9 EX C L U S I O N F RO M T H E S C O P E O F C O N S O L I DAT I O N ( 3 , 3 7 1 ) BA L A N C E AT DE C E M B E R 3 1 , 2 0 0 0 1 3 , 5 9 0

AMADEUS GROUP The Amadeus Group, whose corporate purpose consists of the management and operation of a computerized booking system, comprises Amadeus Global Travel Distribution, S.A. (the parent company), Amadeus Data Processing KG (a German company) and their investees. In May and June 2000 IBERIA, Líneas Aéreas de España, S.A. sold shares of Amadeus Global Travel Distribution, S.A. for Ptas. 54,365 million and Ptas. 10,896 million, respectively, giving rise to a total net capital gain of Ptas. 61,187 million. In this connection, a gain of Ptas. 61,498 million was recorded under the “Gains on Fixed Asset Disposals” caption and a loss of Ptas. 311 million was recorded under the “Losses on Fixed Assets” caption in the accompanying 2000 consolidated statement of income. Also, in the last four months of 2000 Amadeus Global Travel Distribution, S.A. reduced capital.This capital reduction related to class B shares (which only carry voting rights) and was carried out through the reimbursement of contributions.The IBERIA Group’s holding was reduced by Ptas. 22 million.

132 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S As of December 31, 2000,IBERIA, Líneas Aéreas de España,S.A. had a holding of 27.92% in Amadeus Global Travel Distribution, S.A. in terms of voting rights and of 18.28% in terms of dividend rights.

LOANS TO COMPANIES CARRIED BY THE EQUITY METHOD This caption in the accompanying consolidated balance sheet as of December 31, 2000, relates to the loans granted in prior years to Venezolana Internacional de Aviación, S.A. (VIASA) which were fully provisioned as of that date.

LONG-TERM INVESTMENT SECURITIES The detail of the investments recorded under this caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

LONG-TERM INVESTMENT SECURITIES

MILLIONSOF PESETAS

IB E R B O N D PLC 1999 6 , 1 0 0 IN T E R I N V E S T, S . A . 5 , 0 3 2 IB E R B U S C O M PA N I E S 4 , 1 4 9 ON L I N E TR AV E L PO RTA L 1 , 1 9 8 OT H E R 1 , 0 8 9 1 7 , 5 6 8

IBERBOND PLC 1999 In September 1999 IBERIA, Líneas Aéreas de España, S.A. subscribed to bonds issued by Iberbond PLC 1999 totaling 39,000,000 (Ptas. 6,489 million).These bonds form part of an issue relating to the acquisition of six A-320 aircraft that were subsequently leased to IBERIA, Líneas Aéreas de España, S.A. under a financial lease contract (see Note 8). The bonds subscribed to by IBERIA, Líneas Aéreas de España, S.A. earn annual interest of 5.90%,which is settled every six months.The principal is paid annually and the final maturity of the transaction is set for September 1, 2007. Based on this maturity, as of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. recorded the portion of the investment maturing at long term (Ptas. 6,100 million) under the “Long-Term Investment Securities” caption and the portion maturing at short term (Ptas. 194 million) under the “Short-Term Financial Investments” caption in the accompanying consolidated balance sheet as of December 31, 2000. The interest earned in 2000 amounted to Ptas. 375 million, and this amount was recorded under the “Other Interest and Similar Revenues”caption in the accompanying 2000 consolidated statement of income.The Ptas. 124 million receivable in this connection as of December 31, 2000, were recorded under the “Short-Term Financial Investments” caption in the accompanying consolidated balance sheet as of December 31, 2000.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 133 AEROLÍNEAS ARGENTINAS GROUP AND INTERINVEST, S.A. On July 24, 2 0 0 0 , the A n nual and Special Shareholders ’ Meeting of Interi nve s t , S . A . , t h e m a j o rity shareholder of Aerolíneas A rg e n t i n a s , S . A . , r e s o l ved to reduce capital by 402,761,654 A rgentine pesos to offset losses. A l s o, on the same date, it was resolved to increase capital by 208,517,779 A rgentine pesos, but IBERIA, Líneas Aéreas de España, S . A . did not subscribe to the percentage corresponding to its ow n e rship interest. As of December 31, 2 0 0 0 , I B E R I A , Líneas Aéreas de España, S . A .’s holding in Interi nve s t , S . A . h a d been reduced to 0.4143% and was recorded at a cost of Ptas. 5,032 million. A provision was recorded for the same amount as of December 31, 1 9 9 9 , due to the accumulated losses i n c u rred by Aerolíneas A rg e n t i n a s , S . A . As of December 31,2000, IBERIA,Líneas Aéreas de España,S.A.had provided U.S.dollar guarantees for Aerolíneas Argentinas, S.A. to several entities totaling Ptas. 8,932 million. IBERIA, Líneas Aéreas de España, S.A. has covered this risk through a provision of Ptas. 7,858 million recorded under the “Provisions for Contingencies and Expenses” caption in the accompanying consolidated balance sheet as of December 31, 2000, and by mortgaging two B-747 aircraft owned by Aerolíneas Argentinas, S.A. Ptas. 4,976 million of this provision were recorded under the “Extraordinary Expenses”caption in the accompanying 2000 consolidated statement of income.

IBERBUS COMPANIES As indicated above, due to certain provisions in the contracts under which the Iberbus companies were incorporated, which guarantee the full recovery of the amounts invested, as of December 31, 2000, the holdings in the aforementioned companies were transferred to this caption. The information relating to these companies as of December 31, 2000,drawn from their respective provisional financial statements, is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

PERCENTAGE ORDINARY GROUPAND OF DIRECT INCOME ASSOCIATED COMPANIES ADDRESS OWNERSHIP COST CAPITAL RESERVES (LOSS)

IBERBUS CONCHA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 338 1,226 (221) 34 IBERBUS ROSALÍA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 342 1,217 (192) (144) IBERBUS CHACEL,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 380 1,348 (472) (416) IBERBUS ARENAL,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 40.00 393 1,379 (721) (517) IBERBUS TERESA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 417 1,247 (163) (539) IBERBUS EMILIA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 416 1,252 (138) (612) IBERBUS AGUSTINA,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 430 1,253 (3) (260) IBERBUS BEATRIZ,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 40.00 425 1,257 12) (204) IBERBUS JUANA INÉS,LTD.EARLSFORT CENTRE-HATCH ST., DUBLÍN 45.45 316 749 (66) (250) IBERBUS MARÍADE MOLINA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 45.45 330 788 - (397) IBERBUS MARÍA PITA,LTD.GEORGE’S DOCK HOUSE, IFSC; DUBLÍN 45.45 362 830 - (282) TOTAL 4,149

134 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S OTHER INVESTMENTS In 2000 IBERIA,Líneas Aéreas de España,S.A.participated in the incorporation of various new companies.The main investments were as follows: 1. A 7.3% holding amounting to Ptas. 85,352 in Oneworld Management Company, a company which was incorporated to manage and coordinate all matters relating to the Oneworld alliance. 2. A 40% holding amounting to Ptas. 17 million in Noamar Air Handling Haldco., N.V., the holding company of the company that will perform handling activities at Tel Aviv airport. 3. A 8% holding amounting to Ptas. 1,198 million in Online Travel Portal, a company which was incorporated to make common purchases via the Internet,which had been fully provisioned as of December 31, 2000.The related provision was recorded with a charge to the “Variation in Long-Term Financial Investment Provisions” caption in the accompanying 2000 consolidated statement of income. 4. A 5% holding amounting to Ptas. 8 million in European College, S.A. (Adventia), a company which was incorporated to train airline pilots. 5. A 4.16% holding amounting to Ptas. 3 million in Universal Air Travel Plan, a company which was incorporated by the main airlines to market a single credit card.

OTHER LONG-TERM RECEIVABLES The detail of the main items recorded under this caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

OTHER LONG-TERM RECEIVABLES

MILLIONSOF PESETAS

LOA N S TO IB E R B U S C O M PA N I E S 3 5 , 4 1 4 LOA N TO AE RO L Í N E A S AR G E N T I N A S, S . A . 5 8 0 DE P O S I T S A N D G UA R A N T E E S F O R O P E R AT I O N O F A I R C R A F T U N D E R A W E T L E A S E A R R A N G E M E N T 2 , 3 2 8 DE P O S I T S A N D G UA R A N T E E S F O R O P E R AT I O N O F A I R C R A F T L E A S E D F RO M I L F C 1 , 8 7 7 LO N G-T E R M P R E PA I D I N C O M E TA X E S ( NOT E 1 7 ) 5 9 , 6 0 9 OT H E R 2 , 3 3 4 1 0 2 , 1 4 2

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 135 The main data on the principal loans granted by the IBERIA Group as of December 31, 2000, are as follows:

LOANS

MI L L I O N S DU E O F PE S E TA S DAT E IN T E R E S T RAT E

AEROLÍNEAS ARGENTINAS, S.A. 580 (a) 2006 5.25% IBERBUS CONCHA,LTD. 3,514 02-29-2003 5.00% IBERBUS ROSALÍA,LTD. 3,488 05-10-2003 5.00% IBERBUS CHACEL,LTD. 3,863 09-06-2003 6.00% IBERBUS ARENAL,LTD. 3,952 10-18-2003 6.00% IBERBUS TERESA,LTD. 3,574 10-21-2004 6.00% IBERBUS EMILIA,LTD. 3,589 11-10-2004 6.00% IBERBUS AGUSTINA,LTD. 3,591 05-15-2005 6.00% IBERBUS BEATRIZ,LTD. 3,602 06-15-2005 6.00% IBERBUS JUANA INÉS,LTD. 1,976 12-01-2006 6.00% IBERBUS MARÍA DE MOLINA,LTD. 2,078 03-15-2007 6.00%

(a) This amount is recorded under the “Provisions for IBERBUS MARÍA PITA,LTD. 2,187 06-15-2007 6.00% Contingencies and Expenses”caption in the accompanying TOTAL 35,994 consolidated balance sheet as of December 31,2000.

The Iberbus companies are the lessor companies of the A-340 aircraft (see Note 8). As a result of the treatment of the holdings in the Iberbus companies as investments in which the amounts invested will be recovered in full, the loans granted to these companies are recorded under the “Other Long-term Receivables” caption in the accompanying consolidated balance sheet as of December 31,2000,whereas they were recorded under the “Loans to Companies Carried by the Equity Method” caption in the consolidated balance sheet as of December 31, 1999.

10. Goodwill / Negative goodwill in consolidation

GOODWILL As indicated in Note 5-a, the goodwill relates to the positive difference between the amount paid by IBERIA Líneas Aéreas de España, S.A. to acquire a 67% holding in Aviación y Comercio, S.A. and the underlying book value of the holding as of December 31, 1997. As permitted by Law 37/1999 amending Article 194 of the Corporations Law, the directors of IBERIA, Líneas Aéreas de España, S.A. opted to amortize this goodwill on a straight-line basis over 20 years from the acquisition date (November 10, 1998).

136 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S The only variation in 2000 in this caption in the accompanying consolidated balance sheet related to the period amortization charge of Ptas. 1,100 million.

NEGATIVE GOODWILL IN CONSOLIDATION As indicated in Note 6-a, the negative goodwill in consolidation relates to the difference between the investment made in Touroperador Viva Tours, S.A. by IBERIA, Líneas Aéreas de España, S.A. to acquire 49% of its capital stock and the underlying book value of the holding as of March 31, 1999. The only variation in 2000 in this caption was the allocation of the IBERIA Group’s share of the losses incurred by Touroperador Viva Tours, S.A. in 2000 to the consolidated statement of income.

11. Short-term financial investments

The detail of the balance of this caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

DECEMBER 31,2000

MILLIONS OFPESETAS

SH O RT-T E R M D E P O S I T S 9 9 , 9 4 0 GOV E R N M E N T D E B T S E C U R I T I E S 1 2 , 1 6 4 SH O RT-T E R M D E P O S I T S A N D G UA R A N T E E S 1 , 7 4 0 UN M AT U R E D I N T E R E S T A N D G UA R A N T E E S 8 0 9 OT H E R S H O RT-T E R M F I N A N C I A L I N V E S T M E N T S 3 , 6 2 6 TOTA L 1 1 8 , 2 7 9

The average annual return on short-term deposits was 4.22% in 2000. The government debt securities relate to government debentures and Treasury bills, which earned average interest of 3.87% in 2000.

12. Shareholders’ equity

The only variations in the balance of the “Shareholders’ Equity” caption of the accompanying consolidated balance sheet related to the distribution of consolidated income for 1999, to the effects of the merger with Aviación y Comercio, S.A. and the elimination of translation differences as a result of the exclusion of the Iberbus companies from the scope of consolidation. 1999 consolidated income was distributed as follows:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 137 SHAREHOLDERS’ EQUITY

MILLIONSOF PESETAS

TO L E G A L R E S E RV E 1 , 6 0 5 TOVO L U N TA RY R E S E RV E S 8 5 1 OF F S E T O F P R I O R Y E A R S’ L O S S E S 5 , 5 7 0 RESERVES AT COMPANIES CONSOLIDATED BYTHE GLOBAL INTEGRATION METHOD 3 , 6 3 3 RE S E RV E S AT C O M PA N I E S C A R R I E D B Y T H E E QU I T Y M E T H O D 5 , 7 8 1 DI V I D E N D S 8 , 0 2 6 CO N S O L I DAT E D I N C O M E F O R 1 9 9 9 2 5 , 4 6 6

CAPITAL STOCK As of December 31, 2000,IBERIA, Líneas Aéreas de España, S.A.’s capital stock consisted of 912,962,035 fully subscribed and paid registered shares of 0.78 par value each. As a result of the merger by absorption of Aviación y Comercio, S.A. (absorbed company) into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company), capital was increased through the issuance of three new shares of IBERIA, Líneas Aéreas de España, S.A. of 0.78 par value each for each share of Aviación y Comercio, S.A. owned by minority shareholders (see Note 22). As of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A.’s shareholders were as follows:

CAPITAL STOCK

NU M B E R O F SH A R E S PE R C E N TAG E

SOCIEDAD ESTATAL DE PARTICIPACIONES INDUSTRIALES 492,125,262 53.90 CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID 91,290,716 10.00 BA & AA HOLDINGS LIMITED 91,290,716 10.00 BANCO BILBAO VIZCAYA ARGENTARIA, S.A. 66,642,223 7.30 COMPAÑÍA DE DISTRIBUCIÓN INTEGRAL LOGISTA, S.A. 61,164,780 6.70 EL CORTE INGLÉS. S.A. 27,387,215 3.00 OTHER CAJAS DE AHORRO 27,387,215 3.00 MUSINI,SDAD.ANÓNIMA DE SEGUROS Y REASEGUROS 1,029 - EMPLOYEESAND OTHERS 55,672,879 6.10 TOTAL 912,962,035 100.00

138 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S In December 1999 Sociedad Estatal de Participaciones Industriales and IBERIA, Líneas Aéreas de España, S.A.’s new shareholders entered into an agreement whereby the latter acquired 40% of the capital stock of IBERIA, Líneas Aéreas de España, S.A. in 2000. Sociedad Estatal de Participaciones Industriales plans to launch a public offering of all the shares of IBERIA, Líneas Aéreas de España, S.A. that it owns in April 2001. In order to fulfil the agreements reached with the representatives of the employees of IBERIA, Líneas Aéreas de España,S.A.,the directors will propose to the Shareholders’ Meeting that debentures convertible into shares of IBERIA, Líneas Aéreas de España, S.A., with the exclusion of the current shareholders’ preemptive subscription right, be issued.The total par value of the convertible debentures will be up to 343 million (approximately Ptas. 57,000 million).The par value of each debenture will be the same as the price set for the IBERIA, Líneas Aéreas de España, S.A.’s shares in the public offering.

ADDITIONAL PAID-IN CAPITAL The revised Corporations Law expressly permits the use of the additional paid-in capital balance to increase capital and establishes no specific restrictions as to its use.

LEGAL RESERVE Under the revised Corporations Law, 10% of income for each year must be transferred to the legal reser ve until the balance of this reserve reaches at least 20% of capital stock. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased capital stock amount. Otherwise, until the legal reserve exceeds 20% of capital stock, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.

DIFFERENCES DUE TO THE ADJUSTMENT OF CAPITAL STOCK TO EUROS In the redenomination of the capital stock in euros, which was approved by the Board of Directors in 1999,the difference arising as a result of the rounding down made it necessary to reduce capital and to record a restricted reserve in accordance with current legislation.

REVALUATION RESERVE AND MERGER RESERVE As a result of the merger by absorption of Aviación y Comercio, S.A., a merger reser ve was recorded (see Note 22). Also,Aviación y Comercio, S.A., in its merger balance sheet as of January 31, 2000, had recorded a revaluation reserve as a result of the revaluation made pursuant to Royal Decree- Law 7/1996. Pursuant to current legislation, IBERIA, Líneas Aéreas de España, S.A. recorded a revaluation reserve equal to the amount obtained by applying to the merger reserve the percentage of Aviación y Comercio, S.A.’s total equity represented by its revaluation reserve.

RESERVES AT COMPANIES CONSOLIDATED BY THE GLOBAL INTEGRATION METHOD AND CARRIED BY THE EQUITY METHOD The detail of the balance of the "Reserves at Companies Consolidated by the Global Integration Method" caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 139 DECEMBER 31,2000

CO M PA N Y MILLIONSOF PESETAS

BI N T E R C A N A R I A S, S . A . ( 5 4 5 ) BI N T E R ME D I T E R R Á N E O. S . A . ( 6 , 3 9 1 ) CO M PA Ñ Í A AU X I L I A R A L CA R G O EX P R É S, S . A . 1 9 5 C A M P O S VE L Á Z QU E Z, S . A . 1 , 0 4 8 CA R G O S U R, S . A . ( 6 0 8 ) IB E R- SW I S S C AT E R I N G, S . A . 3 7 2 VU E L O S IN T E R N AC I O N A L E S D E VACAC I O N E S, S . A . ( 1 2 , 6 8 8 ) SI S T E M A S AU TO M AT I Z A D O S AG E N C I A S D E VI A J E S, S . A . 8 5 7 TOTA L ( 1 7 , 7 6 0 ) CO N S O L I DAT I O N AD J U S T M E N T S 2 8 , 8 2 4 TOTA L 1 1 , 0 6 4

The breakdown of the consolidation adjustments is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

RE S E RV E S O F AV I AC I Ó N Y CO M E R C I O, S . A . 1 1 , 1 0 0 RE V E R S A L O F P ROV I S I O N S F O R L O N G-T E R M F I N A N C I A L I N V E S T M E N T S I N IB E R I A,LÍ N E A S AÉ R E A S D E ES PA Ñ A, S . A . , M A D E B Y D E P E N D E N T C O M PA N I E S I N P R I O R Y E A R S 2 3 , 8 4 6 EL I M I N AT I O N O F D I V I D E N D S R E C E I V E D I N P R I O R Y E A R S ( 4 , 7 4 9 ) EL I M I N AT I O N O F G A I N S O N F I X E D A S S E T D I S P O S A L S ( 8 9 ) AM O U N T S A L L O CAT E D TO G O O DW I L L ( 1 , 2 8 4 ) TOTA L 2 8 , 8 2 4

The detail of the balance of the "Reserves at Companies Carried by the Equity Method" caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

DECEMBER 31,2000

CO M PA N Y MILLIONS OF PESETAS

VE N E Z O L A N A IN T E R N AC I O N A L D E AV I AC I Ó N, S . A . ( 1 5 , 5 4 7 ) AM A D E U S GRO U P 1 0 , 0 9 2 IB E R B U S E S CO M PA N I E S ( 6 3 5 ) TO U RO P E R A D O R VI VA TO U R S, S . A . ( 1 1 9 ) TOTA L ( 6 , 2 0 9 ) CO N S O L I DAT I O N A D J U S T M E N T S 1 2 , 3 8 3 TOTA L 6 , 1 7 4

140 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S The breakdown of the consolidation adjustments is as follows:

DECEMBER 31,2000 MILLIONS OF PESETAS

RE V E R S A L O F P ROV I S I O N S F O R L O N G-T E R M F I N A N C I A L I N V E S T M E N T S I N IB E R I A,LÍ N E A S AÉ R E A S D E ES PA Ñ A, S . A . , M A D E B Y D E P E N D E N T C O M PA N I E S I N P R I O R Y E A R S 1 6 , 0 1 1

EL I M I N AT I O N O F D I V I D E N D S R E C E I V E D I N P R I O R Y E A R S ( 7 , 2 8 7 )

AD D I T I O N TO N E T WO RT H N E T O F TA X E S R E L AT I N G TO AM A D E U S 5 , 5 2 2

EL I M I N AT I O N O F G A I N S O N F I X E D A S S E T D I S P O S A L S ( 1 , 9 8 2 )

RE V E R S A L O F N E G AT I V E G O O DW I L L I N C O N S O L I DAT I O N 1 1 9

TOTA L 1 2 , 3 8 3

OTHER MATTERS The restricted reserves at the consolidable Group companies amounted to Ptas. 1,413 million as of December 31, 2000 (Ptas. 941 million of revaluation reserves and Ptas. 472 million of legal reser ves). The companies with holdings of over 10% in the capital stock of the dependent companies as of December 31, 2000, were as follows:

DECEMBER 31,2000 P E R C E N TA G E O F C O M PA N Y OW N E R S H I P I N V E S T E E MA R Í T I M A S RE U N I DA S, S . A . 25.00 COMPAÑÍA AUXILIARAL CARGO EXPRÉS, S.A. AM A D E U S GL O BA L TR AV E L 3 4 . 0 0 SISTEMAS AUTOMATIZADOS DISTRIBUTION, S.A. AGENCIAS DE VIAJE, S.A. SW I S S– AI R GRO U P 30.00 IBER-SWISS CATERING, S.A. AI R FR A N C E 35.69 AMADEUS GROUP LU F T H A N S A 27.92 AMADEUS GROUP FO N D O D E IN V E R S I Ó N VE N E Z O L A N O 40.00 VENEZOLANA INTERNACIONAL DE AVIACIÓN, S.A. BA N C O PROV I N C I A L 15.00 VENEZOLANA INTERNACIONAL DE AVIACIÓN, S.A. SO L ME L I Á, S . A . 21.98 TOUROPERADOR VIVA TOURS, S.A. IB E RO S TA R HOT E L E S Y APA RTA M E N TO S, S . A . 14.99 TOUROPERADOR VIVA TOURS, S.A.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 141 13. Minority interests

The variations, by dependent company, in the balance of the “Minority Interests” caption in the accompanying consolidated balance sheet as of December 31, 2000, were as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS VUELOS SISTEMAS INTERNA- COMPAÑÍA AUTOMA- CIONALES AVIACIÓN IBER- AUXILIAR TIZADOS DE VACA- Y SWISS AL CARGO AGENCIAS CIONES, COMERCIO, CATERING, EXPRÉS, DE VIAJE, S.A. S.A. S.A. S.A. S.A. TOTAL

BALANCE AT JANUARY 1,2000 (12) 29 398 89 241 745 DIVIDENDS - (12) (9) (16) - (37) SALE OF HOLDING IN AMADEUS ---- 50 (a) 50 EFFECT OFTHE MERGERWITH (a) As a result of the sales of a portion of the IBERIA Group’s holding in Amadeus Global Travel Distribution,S.A., AVIACIÓN Y COMERCIO, S.A. - (17) --- (17) the percentage of ownership of minority interests in HARE IN Sistemas Automatizados Agencias de Viaje, S.A.increased. S (b) A provision had been recorded for the full amount 2000 INCOME 2 - 131 23 285 441 of this account receivable from minority interest as of December 31,2000. BAL A N C E AT DEC E M B E R 31 ,2 0 0 0 (10)(b) - 520 96 576 1,182

The breakdown, by company, of the balance of the “Minority Interests” caption as of December 31, 2000, is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

CA P I TA L REVA L U AT I O N SH A R E I N STO C K RE S E RV E S RE S E RV E S IN C O M E TOTA L

VUELOS INTERNACIONALES DE VACACIONES, S.A. 2 (a) (14) (a) - 2 (10) IBER-SWISS CATERING, S.A. 150 169 70 131 520 COMPAÑÍA AUXILIAR (a) In 1998 IBERIA,Líneas Aéreas de España,S.A. AL CARGO-EXPRÉS, S.A. 8 65 - 23 96 made a contribution of Ptas . 2,500 million to offset losses. Since the minority shareholders SISTEMAS AUTOMATIZADOS did not make any contribution,this amount GENCIAS DE IAJE was not included in calculating the balance A V , S.A. 14 277 - 285 576 of the “Minority Interests”caption. 174 497 70 441 1,182

142 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 14. Provisions for contingencies and expenses

The detail of the balance of this caption in the accompanying consolidated balance sheet as of December 31, 2000, is as follows:

PROVISIONS FOR CONTINGENCIES AND EXPENSES

MILLIONSOF PESETAS

PE N S I O N P ROV I S I O N S ( NOT E 6 -l) 1 8 , 8 1 0 PROV I S I O N S F O R O B L I G AT I O N S TO E M P L OY E E S ( NOT E 6 -n) 6 5 , 2 0 2 PROV I S I O N F O R M A J O R R E PA I R S ( NOT E 6 -e) 2 2 , 0 1 2 PROV I S I O N F O R T H I R D-PA RT Y L I A B I L I T Y ( NOT E 6 -o) 1 0 1 , 5 4 7 T OTA L 2 0 7 , 5 7 1

PROVISION FOR THIRD-PARTY LIABILITY The variations in the balance of this caption in 2000 were as follows:

PROVISION FOR THIRD-PARTY LIABILITY

MILLIONSOF PESETAS

BA L A N C E AT JA N UA RY 1 , 2000 5 7 , 9 3 2 PROV I S I O N S 4 5 , 3 4 6 AM O U N T S U S E D ( 1 , 7 3 1 ) B A L A N C E AT DE C E M B E R 3 1 , 2 0 0 0 1 0 1 , 5 4 7

As of December 31, 1999,a provision of Ptas.31,300 million had been recorded relating to the estimated present value of payments to be made to employees availing themselves of a labor force reduction plan that is being carried out in 2000 and 2001.As of December 31, 2000, the provision recorded in this connection under the “Provisions for Contingencies and Expenses - Provision for Third-Party Liability” caption in the consolidated balance sheet amounted to Ptas. 30,828 million. In 2000 the directors recorded a further provision of Ptas. 30,000 million, with a charge to the “Extraordinary Expenses” caption in the accompanying consolidated statement of income, to cover the estimated cost of a labor force rejuvenation plan that will be implemented in 2001,2002 and 2003.The amount recorded as of December 31,2000,relates to the present value of the estimated cost of this plan,which is aimed at ground personnel of between 58 and 64 years of age in 2001, 2002 and 2003 (it is estimated that there will be 1,100 employee departures). Participation in this plan will be voluntary both for the employees and for IBERIA, Líneas Aéreas de España, S.A. The other provisions in 2000, which were also recorded mainly with a charge to the “Extraordinary Expenses” caption in the accompanying consolidated statement of income, relate to the estimate made by the directors of the Company of the amount required to cover probable sundry third-party liability.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 143 The remainder of the balance of the “Provisions for Contingencies and Expenses - Provision for Third-Party Liability” caption relates to the estimated amount required for probable or certain third-party liability arising from litigation in progress or from outstanding indemnity payments or obligations of undetermined amount, and collateral and other similar guarantees provided by the consolidated companies.

15. Payable to credit entities

The breakdown, by maturity, of the payables to credit entities as of December 31, 2000 (which related to loans and financial lease transactions), is as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

D U E I N : SUB S E Q U E N T 2001 2002 2003 2004 2005 YEARS DEBT: PESETAS 7,699 3,013 4,122 3,767 576 947 FOREIGN CURRENCIES: YEN 4,395 1,864 2,154 --- EURO 5,194 5,286 5,800 5,522 5,421 37,384 U.S. DOLLAR 2,773 6,985 3,333 --- DEUTSCHE MARK 1,291 1,307 1,325 6,649 -- 21,352 18,455 16,734 15,938 5,997 38,331

On February 12,2001,IBERIA,Líneas Aéreas de España,S.A.exercised early the purchase option under two lease contracts for A-320 aircraft, for which it paid Ptas. 6,478 million.This early cancellation will increase the debt maturing in 2001 by Ptas. 5,080 million and reduce the debt maturing in 2002, 2003 and 2004 by Ptas. 1,073 million, Ptas. 1,102 million and Ptas. 6,458 million, respectively. The weighted annual average interest rates on the foregoing loans in 2000 were 5.44% for peseta loans and 5.52% for foreign currency loans, and some of the rates were tied to MIBOR or LIBOR, respectively.

144 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 16. Futures transactions

The policy of IBERIA, Líneas Aéreas de España, S.A. is to actively manage the risks arising from fluctuations in exchange and interest rates and in fuel prices. Hedging transactions are arranged to minimize the impact of these variables on the consolidated statement of income. Following is a detail of the transactions arranged by IBERIA, Líneas Aéreas de España, S.A. as of December 31, 2000, based on the following criteria: notional values to hedge asset and liability positions, and for options, exchange rate hedging and fuel price hedging transactions, and present values for the income hedged for the other future cash flow hedging transactions.

DECEMBER 31,2000 MILLIONSOF PESETAS HEDGING OF ASSET AND LIABILITY POSITIONS: EXCHANGE RISK HEDGINGTRANSACTIONS CROSS CURRENCY SWAPS 97,952 INTEREST RATE RISK HEDGINGTRANSACTIONS INTEREST RATE SWAPS 18,351

HEDGING OF FUTURE CASH FLOWS: EXCHANGEAND INTEREST RATE RISK HEDGINGTRANSACTIONS CROSS CURRENCY INTEREST AND EXCHANGE RATE SWAPS 26,365 EXCHANGE RISK HEDGINGTRANSACTIONS CROSS CURRENCY SWAPS 27,856 CALL OPTIONS BOUGHT 39,952 CALL OPTIONS SOLD 17,601 PUT OPTIONS SOLD 41,899 EXCHANGE RATE INSURANCE 13,210 INTEREST RATE RISK HEDGINGTRANSACTIONS INTEREST RATE SWAPS 5,670 OTHER HEDGINGTRANSACTIONS FUEL PRICE HEDGINGTRANSACTIONS 93,560

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 145 17.Tax matters

The corporate income tax of each of the companies consolidated by the global integration method is calculated on the basis of the result per books, which does not necessarily coincide with the taxable income for corporate income tax purposes. The reconciliation of the consolidated income per books for 2000 of the companies composing the consolidated tax group to the taxable income for corporate income tax purposes is as follows:

2000 MILLIONSOF PESETAS

(a) This amount relates basically to dividends paid by IN C R E A S E DE C R E A S E AM O U N T subsidiaries out of prior years’income . (b) This amount relates basically to the provisions NCOME FORTHEYEAR PER BOOKS BEFORE TAXES for pensions and other commitments to employees, I ( ) -- 36,392 the provision for labor force rejuvenation costs, for PERMANENT DIFFERENCES 159 (20,374) (a) (20,215) contingencies related to investees and deferred income arising from memorandum loans and aircraft sales . TIMING DIFFERENCES : (c) This amount relates basically to the deferral of the tax charge relating to the gain arising from the sale of ARISING INTHEYEAR 64,586 (b) (66,201) (C) (1,615) shares of Amadeus Global Travel Distribution,S.A. (d) This amount relates basically to the deferral of the ARISING IN PRIORYEARS 17,137 (d) (11,878) (e) 5,259 taxcharge on the gain arising in 1999 at Aviación y Comercio, S.A.as a result of the TAX A B L E IN C O M E (BE F O R E CO N S O L I D ATI O NA D J U S T M E N T S )- - 19,821 sale of its aircraft. (e) This amount relates basically to amounts used of TAX CONSOLIDATIONADJUSTMENTS : provisions recorded in prior years for pensions and other commitments to employees and for PERMANENT DIFFERENCES 3,068 (5,880) (2,812) risks relating to accounts receivable and other provisions. TAXABLE INCOME -- 17,009

The consolidated corporate income tax expense recorded in 2000, amounting to Ptas. 2,918 million, relates to the sum of the corporate income tax expenses recorded by each company consolidated by the global integration method, the detail being as follows:

2000

MI L L I O N S O F PE S E TA S AP P L I CAT I O N O FT H E 35% TA X R AT E TO I N C O M E P E R B O O K S A D J U S T E D B Y P E R M A N E N T D I F F E R E N C E S 4,678 A D D / (LE S S) : 7% O F T H E P R I O R Y E A R S’ TA X L O S S E S O F F S E T I N 2 0 0 0 (837) DO U B L E TA X AT I O N A N D I N V E S T M E N T TA X C R E D I T S (577) OT H E R (346) C O R P O R AT E I N C O M E TA X 2,918

The 7% of prior years’ tax losses offset in 2000 relate mainly to the difference between the corporate income tax rate (35%) and the rate of 28% that IBERIA, Líneas Aéreas de España,S.A. obtains from SEPI by contributing its tax losses in consolidation for tax purposes.

146 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S The tax assets and liabilities were recorded, on the basis of the recovery date, under the “Accounts Receivable”, “Other Long-term Receivables”, “Other Nontrade Payables” and “Long-Term Debt – Other Accounts Payable” captions in the accompanying consolidated balance sheet, the detail being as follows:

DECEMBER 31,2000 MILLIONSOF PESETAS

LONG-TERM CURRENT OTHER TOTAL DEBT - OTHER OTHER TOTAL ASSETS-ACCOUNT LONG-TERM ACCOUNTS ACCOUNTS NONTRADE ACCOUNTS RECEIVABLE RECEIVABLES RECEIVABLE PAYABLE PAYABLES PAYABLE

TAXABLE INCOME FOR 2000 ---- 4,227 4,227 TIMING DIFFERENCES ARISING INTHEYEAR - 22,601 22,601 23,170 - 23,170 OTHER TAX PAYABLES ARISING INTHEYEAR DUE TO CONSOLIDATION --- 2,174 - 2,174 UNALLOCATED TIMING DIFFERENCES, ARISING IN PRIORYEARS 3,480 37,008 40,488 3,285 - 3,285 TOTAL 3,480 59,609 63,089 28,629 4,227 35,856

The estimated years for use of the long-term tax assets as of December 31, 2000, are as follows:

YEAR OF RECOV E RY MILLIONS OF PESETA S 2 0 0 2 5 , 8 4 3 2 0 0 3 8 , 3 2 6 2004 A N D S U B S E QU E N T Y E A R S 4 5 , 4 4 0 5 9 , 6 0 9

The directors of the Group companies consider that all these assets will be recovered in not more than ten years. Current corporate income tax regulations provide certain tax incentives to encourage new investment, training and export activity.The consolidated companies availed themselves of the tax benefits envisaged in this legislation and earned tax credits of Ptas. 418 million in 2000 in this connection.As of December 31, 2000, the consolidated companies did not have any unused tax credits. In 2000 the IBERIA Group availed itself of the tax regime for the reinvestment of extraordinary income and deducted Ptas. 65,903 million of tax.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 147 The IBERIA Group opted to include the income deferred in 2000 (Ptas. 1,167 million, which has already been reinvested), by the method established in Article 34.1 a) of the Corporate Income Tax Regulations; however, the method to be used for including the remainder has not yet been decided:

MI L L I O N S O F P E S E TA S

IN C O M E QUA L I F Y I N G F O R R E I N V E S T M E N T E X E M P T I O N A N D N OT Y E T I N C L U D E D I N TA X A B L E I N C O M E 6 5 , 9 0 3 RE I N V E S T M E N T C O M M I T M E N T 6 7 , 4 6 6

In 2000 the IBERIA Group reinvested Ptas.2,206 million of this income in fixed assets.As of December 31, 2000, it had a reinvestment commitment amounting to Ptas. 65,260 million. As of December 31, 2000, the IBERIA Group had included in its taxable income the income qualifying for reinvestment deferral in prior years, the detail being as follows:

DECEMBER 31,2000 IN P R I O R Y E A R S M I L L I O N S O F PE S E TA S 1 9 9 6 123

The detail, by year of origin, of the income to be included in the Company’s taxable income in future years as a result of the application of the tax regime for reinvestment deferral is as follows:

DECEMBER 31, 2000 BY Y E A R O F O R I G I N MI L L I O N S O F P E S E TA S 1 9 9 6 741 1 9 9 7 915 1 9 9 8 6,889 1 9 9 9 487 2 0 0 0 65,903

In January 1997 the tax authorities commenced an audit of 1992 to 1995 for all the taxes applicable to IBERIA,Líneas Aéreas de España,S.A.As a result of the aforementioned tax audit, tax assessments were issued and contested by IBERIA, Líneas Aéreas de España, S.A. The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those recorded as of December 31, 2000, to arise as a result of these tax assessments. In 1999 the tax authorities commenced an audit of 1996 and 1997 for all the taxes applicable to IBERIA,Líneas Aéreas de España,S.A.As a result of the aforementioned tax audit, tax assessments were issued and contested by IBERIA, Líneas Aéreas de España, S.A. The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those recorded as of December 31, 2000, to arise as a result of these tax assessments.

148 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S As of December 31, 2000, IBERIA, Líneas Aéreas de España, S.A. had 1998, 1999 and 2000 open for review by the tax authorities for all the taxes applicable it.The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those provisioned as of December 31, 2000, to arise as a result of inspection of the open years. As of December 31, 2000, no decision had yet been handed down in relation to a tax assessment issued by the tax authorities in 1992 in connection with Aviación y Comercio, S.A. relating to the taxes applicable to the company in 1989 and 1990. Additionally, in 1996 the tax authorities issued two assessments relating to the treatment of the tax prepayments on compensation in kind as a result of the personal income tax audits for 1993 and 1994.The related tax assessments were challenged. Lastly, in 2000 the tax authorities audited all the taxes applicable to Aviación y Comercio, S.A. in 1996, 1997 and 1998.The tax assessments issued as a result of this audit were contested, and the directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those for which provisions had been recorded in the consolidated balance sheet as of December 31, 2000, to arise as a result of these tax assessments. As of December 31, 2000, 1999 and the year ended January 31, 2000, were open for review by the tax inspection authorities for all the taxes applicable to Aviación y Comercio, S.A. The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those provisioned as of December 31, 2000, to arise in the event of a tax audit of these to periods. Also, in 1999 the tax authorities commenced a review of 1995, 1996 and 1997 for all the taxes applicable to Bínter Canarias, S.A., as a result of which no material tax assessments were issued against this company. The directors of IBERIA, Líneas Aéreas de España, S.A. do not expect any liabilities additional to those recorded as of December 31, 2000, to arise in the event of an inspection of the years open for review at the other subsidiaries in the consolidable Group.

18. Revenues and expenses

A) NET SALES The breakdown of the consolidable Group companies' net sales in 2000 and 1999, by type of activity, is as follows:

BY TYPE OF ACTIVITY MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

PA S S E N G E R T I C K E T R E V E N U E S 5 9 2 , 5 8 4 5 0 8 , 5 1 1 C A R G O R E V E N U E S 4 2 , 6 4 4 3 5 , 8 7 6 HA N D L I N G (A I R C R A F T D I S PAT C H I N G A N D A I R P O RT S E RV I C E S) 3 8 , 7 2 3 3 9 , 6 2 5 TE C H N I CA L A S S I S TA N C E TO A I R L I N E S 2 0 , 6 9 5 1 7 , 5 9 8 OT H E R R E V E N U E S 2 0 , 2 8 0 2 0 , 9 9 7 TOTA L 7 1 4 , 9 2 6 6 2 2 , 6 0 7

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 149 The geographical breakdown of passenger ticket reven ues in 2000, by network , is as fol l ow s :

BY NETWORK MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

SPA I N A N D E U RO P E 3 9 6 , 4 8 3 3 5 9 , 5 8 3 AT L A N T I C 1 8 0 , 6 6 0 1 3 6 , 6 0 1 A F R I C A A N D MI D D L E E A S T 1 5 , 4 4 1 1 2 , 3 2 7 TOTA L 5 9 2 , 5 8 4 5 0 8 , 5 1 1

Technical assistance to airlines This caption includes revenues from aircraft maintenance services rendered to other airlines.

B) OTHER OPERATING REVENUES The detail of the “Other Operating Revenues”caption in the accompanying consolidated statements of income is as follows:

OTHER OPERATING REVENUES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

C O M M I S S I O N S 1 5 , 5 2 6 1 1 , 4 5 4 RE N T 9 , 5 0 8 7 , 2 9 7 OT H E R S U N D R Y R E V E N U E S 6 , 6 7 8 4 , 9 6 7 3 1 , 7 1 2 2 3 , 7 1 8

The revenues from commissions relate basically to the commissions on the sale of tickets for other airlines, the commissions arising from the franchise agreement entered into with Air Nostrum and the commissions obtained as a result of the agreements entered into with Mundicolor and Touroperador VivaTours, S.A.

C) EXTRAORDINARY REVENUES The detail of the balance of the “Extraordinary Revenues” caption in the accompanying 2000 consolidated statement of income is as follows:

E X T R AO R D I N A RY REVENUES

MILLIONS OF PESETAS

R E C OV E R Y O F P ROV I S I O N S F O R T H I R D - PA RT Y L I A B I L I T Y 6 0 0 RE C OV E RY O F P ROV I S I O N S F O R C O M M I T M E N T S TO P E R S O N N E L 1 , 3 6 3 RE C OV E RY O F C O N T I N G E N C Y-R E L AT E D O P E R AT I N G P ROV I S I O N S 3 , 6 5 0 OT H E R 2 , 6 0 2 TOTA L 8 , 2 1 5

150 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S D) PRIOR YEARS’ REVENUES AND INCOME The balance of this caption in the accompanying 2000 consolidated statement of income includes Ptas. 4,939 million recovered from AENA as a result of an adjustment to the 1999 rates applied.

E) PURCHASES The detail of the “Purchases” caption in the accompanying 2000 and 1999 consolidated statements of income is as follows:

PURCHASES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

AI R C R A F T F U E L 9 5 , 8 8 8 6 1 , 8 3 5 AI R C R A F T S S PA R E PA RT S 1 9 , 1 1 6 1 9 , 8 7 8 CAT E R I N G M AT E R I A L S 5 , 1 4 5 7 , 8 1 5 OT H E R P U R C H A S E S 9 , 4 3 4 6 , 9 1 8 1 2 9 , 5 8 3 9 6 , 4 4 6

The aircraft fuel expense in 2000 totaled Ptas. 119,295 million. However, the related futures transactions reduced this expense by Ptas. 23,407 million. The amounts for 1999 were reclassified in accordance with the methods applied in 2000.

F) HEADCOUNT AND PERSONNEL EXPENSES The breakdown of the balance of the “Personnel Expenses” caption in the accompanying consolidated statements of income for 2000 and 1999 is as follows:

HEADCOUNT AND PERSONNEL EXPENSES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

WAG E S, S A L A R I E S , E T C . 1 6 8 , 5 7 2 1 5 9 , 4 0 2 E M P L OY E E W E L FA R E E X P E N S E S 5 3 , 9 4 4 5 0 , 5 7 9 2 2 2 , 5 1 6 2 0 9 , 9 8 1

The number of employees at the consolidable Group companies, measured in terms of equivalent average headcount, by professional category, in 2000 and 1999 was as follows:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 151 EMPLOYEES NUMBEROFEMPLOYEES 2 0 0 0 1 9 9 9

GRO U N D P E R S O N N E L : SE N I O R M A N AG E R S OT H E R L I N E P E R S O N N E L 1 , 5 7 4 1 , 4 0 5 CL E R I CA L S TA F F 7 , 1 0 3 7 , 2 0 7 OT H E R 1 2 , 4 5 3 1 2 , 2 3 2 2 1 , 1 3 0 2 0 , 8 4 4 F L I G H T P E R S O N N E L : PI L OT S 1 , 9 2 1 1 , 8 1 7 FL I G H T E N G I N E E R S 2 1 6 2 2 5 C A B I N C R E W 4 , 3 4 0 4 , 2 0 4 6 , 4 7 7 6 , 2 4 6 2 7 , 6 0 7 2 7 , 0 9 0

G) OTHER OPERATING EXPENSES The detail of the balances of this caption in the accompanying 2000 and 1999 consolidated statements of income is as follows:

OTHER OPERATING EXPENSES MILLIONSOF PESETAS 2 0 0 0 1 9 9 9

AI R C R A F T L E A S E PAY M E N T S (a) 6 0 , 0 4 6 5 0 , 1 4 4 (a) In addition to the operating aircraft lease expense (see Note 8),this amount includes the cost of CO M M E R C I A L E X P E N S E S 7 8 , 5 0 6 6 7 , 1 5 6 the aircraft wet lease contracts, which amounted to Ptas. 20,092 million in 2000 and to Ptas. 21,208 million AI R T R A F F I C L E V I E S A N D C H A R G E S 4 5 , 5 7 4 4 0 , 6 9 2 in 1999.The aircraft lease expense amounted to Ptas. 70,167 million and Ptas. 51,382 million MA I N T E N A N C E (b) 3 2 , 0 4 1 3 2 , 3 2 2 in 2000 and 1999,respectively. However, the related futures transactions reduced these NAV I G AT I O N A N D OT H E R C O M M U N I CAT I O N A I D S 3 3 , 3 6 7 3 3 , 8 4 5 expenses by Ptas. 10,121 million and Ptas . 1,238 million,respectively. OT H E R 1 0 4 , 7 4 6 7 8 , 2 9 6 (b) Including maintenance expenses and provision for major repairs. 3 5 4 , 2 8 0 3 0 2 , 4 5 5

H) EXTRAORDINARY EXPENSES The detail of the balance of the “Extraordinary Expenses” caption in the accompanying 2000 consolidated statement of income is as follows:

E X T R AO R D I N A RY EXPENSES

MILLIONSOF PESETAS

PROV I S I O N S F O R T H I R D-PA RT Y L I A B I L I T Y 4 4 , 0 8 5 OT H E R E X T R AO R D I N A RY E X P E N S E S 3 , 2 7 9 4 7 , 3 6 4

152 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 19. Contribution of Group and associated companies to consolidated income

The contri bution of Group and associated companies to the 2000 and 1999 consolidated income was as follows:

CONTRIBUTION OF GROUP AND ASSOCIATED COMPANIES MILLIONSOF PESETAS I N C O M E / ( L O S S ) 2 0 0 0 1 9 9 9

IB E R I A,LÍ N E A S AÉ R E A S D E ES PA Ñ A, S . A . 2 5 , 2 7 7 1 4 , 4 0 4 AV I AC I Ó N Y CO M E R C I O, S . A . - 4 , 2 7 7 BI N T E R C A N A R I A S, S . A . 1 , 4 2 7 1 , 5 6 3 BI N T E R ME D I T E R R Á N E O, S . A . 1 1 6 1 CO M PA Ñ Í A AU X I L I A R A L CA R G O EX P R É S, S . A . 6 8 4 8 CA M P O S VE L Á Z QU E Z, S . A . - 2 6 CA R G O S U R, S . A . ( 1 ) 15 IB E R– SW I S S CAT E R I N G, S . A . 3 0 6 85 VU E L O S IN T E R N AC I O N A L E S D E VACAC I O N E S, S . A . 3 3 5 ( 2 , 7 5 1 ) SI S T E M A S AU TO M AT I Z A D O S AG E N C I A S D E VI A J E S, S . A . 7 4 2 238 AM A D E U S GRO U P 5 , 4 8 7 7 , 6 2 5 VE N E Z O L A N A IN T E R N AC I O N A L D E AV I AC I Ó N, S . A . (a) - - IB E R B U S CO N C H A,LT D. - (5) IB E R B U S RO S A L Í A,LT D. - ( 7 ) IB E R B U S CH AC E L,LT D. - ( 1 7 ) IB E R B U S AR E N A L,LT D. - ( 4 8 ) IB E R B U S TE R E S A,LT D. - ( 1 6 ) IB E R B U S EM I L I A,LT D. - ( 1 6 ) IB E R B U S AG U S T I N A,LT D. - 6 IB E R B U S BE AT R I Z LT D. - 5 IB E R B U S JUA N A IN É S,LT D - ( 8 ) TO U RO P E R A D O R VI VA TO U R S, S . A . ( 1 6 8 ) ( 1 1 9 ) N C O M E AT T R I BU T E D TO T H E O N T RO L L I N G O M PA N Y (a) As described in Note 3,it was not possible to I C C 3 3 , 4 7 4 2 5 , 4 6 6 obtain any recent financial statements of this company.

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 153 The detail of the balances of the "Income Attributed to Minority Interests" caption in the accompanying 2000 and 1999 consolidated statements of income is as follows:

COMPANY MILLIONSOF PESETAS I N C O M E / ( L O S S ) 2 0 0 0 1 9 9 9

AV I AC I Ó N Y CO M E R C I O, S . A . - 1 2 CO M PA Ñ Í A AU X I L I A R A L CA R G O EX P R É S, S . A . 2 3 1 6 IB E R– S W I S S CAT E R I N G, S . A . 1 3 1 3 6 VU E L O S IN T E R N AC I O N A L E S D E VACAC I O N E S, S . A . 2 (15) SI S T E M A S AU TO M AT I Z A D O S AG E N C I A S D E VI A J E, S . A . 2 8 5 8 1 IN C O M E AT T R I BU T E D TO M I N O R I T Y I N T E R E S T S 4 4 1 1 3 0

20. Plans for adaptation to the euro

As of December 31, 2000, the IBERIA Group had assessed the impact of European Monetary Union on its computer systems and considers that no significant investments or other transactions will be necessary in connection with the introduction of the euro.

21. Directors’ compensation and other benefits

The compensation of all types earned by the directors of IBERIA, Líneas Aéreas de España, S.A. amounted to Ptas. 102 million in 2000. In 2000 no advances or loans were granted to the directors of IBERIA, Líneas Aéreas de España, S.A. and there are no pension commitments to them.

154 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 22. Information relating to the merger of IBERIA, Líneas Aéreas de España, S.A.and Aviación y Comercio, S.A.

In 2000 Aviación y Comercio, S.A. (the absorbed company) was merged into IBERIA, Líneas Aéreas de España, S.A. (the absorbing company) through the dissolution without liquidation of Aviación y Comercio, S.A. and the transfer en bloc of all its assets and liabilities to the absorbing company, which by way of universal succession acquired the rights and obligations of the absorbed company. The Merger Plan was presented by the Boards of Directors of the two companies at their respective meetings on March 23, 2000, and was approved by their respective Shareholders’ Meetings on June 12, 2000. The transactions carried out by Aviación y Comercio, S.A. will be considered for accounting purposes to have been performed by IBERIA, Líneas Aéreas de España, S.A. from February 1, 2000. As indicated in the Merger Plan, as of the date of the merger IBERIA, Líneas Aéreas de España, S.A. had a 99.93% holding in Aviación y Comercio, S.A. Accordingly, the share exchange ratio relating to the minority shareholders of Aviación y Comercio, S.A. was determined on the basis of the actual value of the assets and liabilities of the two companies, and three new shares of IBERIA, Líneas Aéreas de España, S.A. of 0.78 par value each and carrying the same rights as the other shares were issued for each share of Aviación y Comercio, S.A. The newly-issued shares will carry profit-sharing rights from January 31, 2000. Also, the two companies informed the Spanish tax inspection authorities within the period established by current legislation of their intention to avail themselves of the tax regime provided for in Chapter VIII of Title VIII and Additional Provision Eight of Corporate Income Tax Law 43/1995. In compliance with Article 107 of Corporate Income Tax Law 43/1995, the following information is hereby disclosed: 1.The merger balance sheets of the absorbing company and of the absorbed company, which are as of December 31, 1999, and January 31, 2000, respectively, are as follows:

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 155 IBERIA, LÍNEAS AÉREAS DE ESPAÑA, S.A. (ABSORBING COMPANY IN THE MERGER) Merger Balance Sheet as of December 31, 1999

ASSETS MILLIONSOF PESETAS

1999 FIXED AND OTHER NONCURRENT ASSETS: START-UP EXPENSES 285 INTANGIBLEASSETS 58,290 PROPERTY, PLANTAND EQUIPMENT 282,070 LONG-TERM FINANCIAL INVETSMENTS 127,943 TOTAL FIXEDAND OTHER NONCURRENTASSETS 468,588

DEFERRED CHARGES 16,163

CURRENT ASSETS: INVENTORIES 12,005 RECEIVABLE FROM GROUP COMPANIES 12,353 ACCOUNTS RECEIVABLE 71,064 SHORT-TERM FINANCIAL INVESTMENTS 87,393 CASH 1,175 ACCRUAL ACCOUNTS 4,395 TOTAL CURRENTASSETS 188,385 TOTAL ASSETS 673,136

AVIACIÓN Y COMERCIO, S.A. (ABSORBED COMPANY IN THE MERGER) Merger Balance Sheet as of January 31, 2000

ASSETS MILLIONSOF PESETAS

2000 FIXED AN DOTHER NONCURRENT ASSETS: PROPERTY, PLANT AND EQUIPMENT 1,443 LONG-TERM FINANCIAL INVESTMENTS 523 OTHER LONG-TERM RECEIVABLES 5,324 TOTAL FIXEDAND OTHER NONCURRENTASSETS 7,290

CURRENT ASSETS: INVENTORIES 754 ACCOUNTS RECEIVABLE 311 RECEIVABLE FROM GROUP COMPANIES 30 SHORT-TERM FINANCIAL INVESTMENTS 52,181 CASH 82 ACCRUAL ACCOUNTS 4 TOTAL CURRENTASSETS 53,362 TOTAL ASSETS 60,652

156 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S SHAREHOLDERS’ EQUITY AND LIABILITIES MILLIONSOF PESETAS

1999 SHAREHOLDERS’ EQUITY: CAPITAL STOCK 118,478 ADDITIONAL PAID-IN CAPITAL 16,049 REVALUATION RESERVE - LEGAL RESERVE 5,129 VOLUNTARY RESERVES 623 DIFFERENCES DUE TO ADJUSTMENT OF CAPITAL STOCK TO EUROS 200 PRIORYEARS’ LOSSES (5,570) INCOME FORTHEYEAR 16,052 TOTAL SHAREHOLDERS’ EQUITY 150,961

DEFERRED REVENUES 2,503 PROVISIONS FOR CONTINGENCIES AND EXPENSES 140,994

LONG-TERM DEBT 94,826 CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES 56,982 PAYABLE TO GROUPANDASSOCIATED COMPANIES 77,409 TRADE ACCOUNTS PAYABLE 111,457 COMPENSATION PAYABLE 18,704 OTHER NONTRADE PAYABLES 19,220 ACCRUAL ACCOUNTS 80 TOTAL CURRENT LIABILITIES 283,852 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 673,136

SHAREHOLDERS’ EQUITY AND LIABILITIES MILLIONSOF PESETAS

2000

SHAREHOLDERS’ EQUITY: CAPITAL STOCK 7,400 ADDITIONAL PAID-IN CAPITAL 1,480 REVALUATION RESERVE 4,736 LEGAL RESERVE 1,480 VOLUNTARY RESERVE 10,059 INCOME 17,637 INTERIM DIVIDEND (17,582) TOTAL SHAREHOLDERS’ EQUITY 25,210 PROVISIONS FOR CONTINGENCIES AND EXPENSES 14,806

LONG-TERM DEBT 8,370 CURRENT LIABILITIES: PAYABLE TO CREDIT ENTITIES 1,166 PAYABLE TO GROUP COMPANIES 9,041 TRADE ACCOUNT PAYABLE 582 OTHER NONTRADE PAYABLES 183 COMPENSATION PAYABLE 67 SHORT-TERM PROVISIONS FOR CONTINGENCIESAND EXPENSES 1,227 TOTAL CURRENT LIABILITIES 12,266 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 60,652

IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S 157 2. Detail of the years in which Aviación y Comercio, S.A. acquired the assets transferred in the merger to IBERIA,Líneas Aéreas de España,S.A.This information is presented in millions of pesetas and on the basis of the net book value of the assets as of January 31, 2000:

JANUARY 31,2000 MILLIONSOF PESETAS

1 9 8 0 - 1 9 8 4 1 9 8 5 - 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3

BUILDINGS AND OTHERSTRUCTURES 106 ----- MACHINERY, INSTALLATION AND TOOLS - 55 13 31 21 14 TRANSPORT EQUIPMENT - - - - - 1 FURNITUREAND FIXTURES - - 1 2 2 3 COMPUTER HARDWARE - - - 2 2 3 SPARE PARTS 34 128 55 53 60 65 FLIGHT SIMULATORS ------CONSTRUCTION IN PROGRESS ------TOTAL 140 183 69 88 85 86

JANUARY 31,2000 MILLIONSOF PESETAS

1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9

BUILDINGS AND OTHER STRUCTURES 35 ----- MACHINERY, INSTALLATION AND TOOLS 21 17 20 6 2 160 TRANSPORT EQUIPMENT - 4 10 4 17 4 FURNITUREAND FIXTURES 5 4 2 1 1 2 COMPUTER HARDWARE 11 16 22 7 7 16 SPARE PARTS 62 64 65 60 67 69 FLIGHT SIMULATORS - - - - - 5 CONSTRUCTION IN PROGRESS - - - - - 6 TOTAL 134 105 119 78 94 262

3. All the assets and liabilities were received by IBERIA, Líneas Aéreas de España, S. A . at the same book values as those for which they were recorded in the books of Aviación y Comercio,S. A . 4. Aviación y Comercio, S.A.was not availing itself of any tax benefit with an effect on the absorbing company.

23. Explanation added for translation to English

These consolidated financial statements are presented on the basis of accounting principles generally accepted in Spain.Certain accounting practices applied by the Group that conform with generally accepted accounting principles in Spain may not conform with generally accepted accounting principles in other countries.

158 IBERIA GROUP - NOTES TO CONSOLIDATED FINANCIAL STA T E M E N T S DUE TO ITS LENGTH, THIS PUBLICATION INCLUDES ONLY A SUMMARY OF THE MANAGEMENT REPORT. THE COMPLETE TEXT HAS BEEN DEPOSITED WITH THE MERCANTILE REGISTER. T R A N S L ATION OF A REPORT ORIGINALLY ISSUED IN SPA N I S H . IN THE EVENT OF A DISCREPA N C Y, THE SPA N I S H - L A N G UAGE VERSION PREVA I L S .

I B E R I A G R O U P

T R A N S L AT I O N O F A R E P O RT O R I G I N A L LY 1. 2000 Highlights I S S U E D I N S PA N I S H . IN T H E E V E N T O F A D I S C R E PA N C Y, In 2000 the IBERIA Group reported very favorable results, with income after taxes of T H E S PA N I S H - L A N G UAG E V E R S I O N P R E VA I L S . Ptas. 33,474 million and a return on equity of 17.27%, which enabled the Group to make investments in assets, mainly aircraft, of Ptas. 73,824 million and to reduce its indebtedness by Ptas.79,587 million.All this is attributable to an active commercial management policy and to strict cost control and cost cutting measures, by applying the appropriate risk hedging policies required to minimize the impact that the sharp increase in crude oil prices in international markets in 2000 (an increase of over 40% in the year) had on all airlines.The price of aviation kerosene also soared in 2000, by rates that topped even the rise in oil prices, due to refinery capacity problems and to more environmentally-friendly legislation in Europe, signifying that the increase in demand was not proportionally reflected in earnings. The Company’s main business (passenger air transport) reached record levels in the Company’s recent history, with growth in demand that almost doubled that in supply and a load factor of nearly 74%, in line with the figures reported by the leading airlines in Europe. In 2000 the IBERIA Group came very close to achieving the record figure of 30 million passengers transported. In March 2000 the representatives of the owners of 40% of IBERIA’s shares joined the Board of Directors following the sale of these shares by SEPI as part of the privatization process. For the IBERIA Group, the target pursued in 2000 was based on creating shareholder value.To achieve this, the Company completed and presented in the first few months of the year its 2000-2003 Master Plan, a continuation of the previous Master Plan, which defines the actions required to meet the following strategic objectives: -To strengthen the Group’s leadership in its main markets, particularly in the Spain-Europe and Europe-Latin America markets. -To increase customer satisfaction, especially that of the most frequent customers, by i m p r oving customer service and service quality and increasing business-class m a rket share. -To lead the use of new technologies in the industry. -To develop air transport alliances. -To give each business line autonomy in order to improve its competitiveness and ensure its development. -To reduce unit costs and increase the productivity of resources. -To increase the use of aircraft and other assets. -To reduce the cost of capital by controlling operating and financial risks. -To strengthen the competitiveness of employees. -To adapt planning and monitoring processes to value management.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 161 In line with the aforementioned strategic objectives, 2000 was once again a year of growth for IBERIA: whereas in 1998 and 1999 emphasis was placed on the Latin American market with an increase in supply of over 30% and the renewal of its business class, in 2000 and subsequent year the largest increases will come about in the European market, in which IBERIA grew by 13% in 2000 by increasing the frequency of flights from Madrid to Milan, Rome, Brussels, Geneva and Stockholm, and from Barcelona to London. Through IBERIA Regional-Air Nostrum,the number of flights was increased from Madrid to Lyon and Toulouse and from Madrid and Barcelona to Hannover and Turin (the latter routes were inaugurated at the end of 1999). In addition to prioritizing the European market, the IBERIA Group remained committed to and improved its supply in the Americas market, and increased significantly the number of weekly flights to Miami, Buenos Aires, Bogotá, Río de Janeiro and São Paulo, with an increase of almost 9% in the supply in this market. Furthermore, the Company replaced its DC-9 in Miami with modern MD-87 aircraft which, in addition to using more advanced technology, have a larger number of seats for the Company’s flights between Miami and destinations in Central America (Cancún,Panama,Guatemala,San Salvador, San Pedro Sula,Managua and San José de Costa Rica).This growth in production on intercontinental routes was accompanied by a strong upturn in demand, the increase in which almost doubled that in supply, and the load factor in 2000 was more than six percentage points higher than in 1999. Also, significant improvements were made in the domestic market.The number of flights between the Canary Islands and the Spanish mainland increased by 7.1%. Flights between Madrid and Barcelona also increased, and new record figures were achieved in October and November 2000 on the Madrid-Barcelona route. In fact, in 2000 IBERIA carried around three million passengers on this route (more than two million on the Madrid-Barcelona Shuttle and around 950,000 on booked flights), with 8.9% growth with respect to the number of passengers transported in 1999. Among the various measures envisaged in the new Master Plan, one of IBERIA’s priority targets was customer service. Several projects were initiated in the commercial area aimed at improving customer service quality: in June a Customer Hotline (C.A.T.) was inaugurated to attend to luggage incidents in Spain affecting IBERIA Group customers, customers of the oneworld alliance or the customers of other airlines with which the Company has entered into agreements. In September the European Information and Booking Center came into being,enabling the Group to unify and improve the service that it offers, centralizing the calls from the Company’s direct customers in several European countries by standardizing passenger service procedures. Work continued in 2000 on making the use of the electronic ticket more widespread. This ticket (cyberticket), which can be used on any domestic flight, except for the Madrid- Barcelona shuttle, has replaced the traditional paper ticket with electronic entries in a database. Among other advantages for the customer, this ticket cannot be stolen or lost, and a simple telephone call to the travel agency or to Serviberia is all that is required to arrange it. Customer acceptance of this type of ticket has grown steadily, from the 2,077 sold in June to the maximum figure of 15,958 in November, a seven-fold increase.The 85,268 tickets sold in 2000 also gave rise to a cost saving for the Company.

162 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The IBERIA Group has also carried out a significant amount of work aimed at developing new technologies.The Group was rewarded for its work by becoming the airline that makes most sales on the Internet. As part of its e-commerce strategy, in February IBERIA, L.A.E. launched its first mass flight sale offer through its website. Under this promotion (“Despegue On Line”– “On-line Take Off”),which lasted until September, 150,000 seats to 30 destinations in Spain and abroad were put on offer at significantly reduced prices. A new product (“Elige yVuela” – “Choose and Fly”) was launched in September, whereby all the fares are shown on the Internet. With “Elige y Vuela” IBERIA decided to definitively back Internet sales, and consolidated its position as the Spanish company which made the most sales through its website in 2000. Evidence of the success of this new sales channel were the 300,000 tickets sold using this system, with revenues of over Ptas. 5,000 million (around 1.5% of total revenues), and IBERIA was awarded the iBest 2000, the Internet Oscar, for the best website in the transport category. Also, IBERIA, L.A.E. broadened the possibility of booking and buying tickets through its website to other countries in Europe. In Germany and Austria (www.iberia.de) and in the U.K. and Ireland (www.iberia.com/iberia.uk) tickets can now be bought on-line, and customers can obtain information on the Company or join the IBERIA Plus program.These points of sale are scheduled to be also up and running in France, Italy and the U.S. in early 2001. Simultaneously, in May IBERIA, L.A.E. and ten other European airlines announced their agreement to create a travel agency on the Internet.This on-line travel agency, which will be managed on an independent basis, will offer travelers the broadest possible range of flights starting or finishing in Europe, and will give customers access to the cheapest fares.Customers will also be offered hotel booking, car hire and travel insurance facilities.The new portal will enable the associated companies to significantly reduce their sale and distribution expenses. At the same time, in 2000 the IBERIA Group continued to pursue its policy of alliances with the aim of offering its customers an even more extensive network by incorporating new destinations, agreements with other companies or, together with other operators, widening the existing services on offer.To this end, the Group entered into several shared-code agreements, with both oneworld alliance members and other airlines, including most notably the agreement with British Airways, which led to the addition of nine additional routes to the 21 already being flown jointly, and to the inclusion of the IBERIA code in certain flights operated by the GB Airways franchise.The two companies are continuing to work towards extending their cooperation to other routes, particularly between Europe and Latin America. Also noteworthy are the agreements with Air France for the route to Manila, with LOT for the Barcelona-Warsaw route; and to expand the Group’s existing services, the agreements with Swissair for the Madrid-Barcelona and Madrid-Zurich routes and with LAN Chile for flights to Santiago de Chile. Work continued in 2000 on fine-tuning the design of the IBERIA Group’s holding company model, taking advantage of the knowledge of how IBERIA, L.A.E.’s business units are currently functioning, and the Group has been working on the best means for corporate law purposes of incorporating the new companies that will make up the holding company.All this will provide the business units with greater autonomy and the capacity to manage resources independently in IBERIA L.A.E.’s various businesses:handling (the current holder of the AENA concession for the provision of handling services at Spanish airports), cargo, systems, aircraft maintenance and flight personnel training. This new business structure will be introduced when the shareholders so decide, because the Company is already prepared for the change.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 163 This air transport business diversification and restructuring strategy requires a reduction in IBERIA, L.A.E.’s holding in Amadeus GTD and a public offering of shares, carried out in Spring,reducing IBERIA,L.A.E.’s ownership interest to 18.28% and giving rise to gains of almost Ptas. 65,000 million. To achieve its cost-cutting targets and as part of its commercial strategy, two years ago the IBERIA Group successfully implemented a new system for remunerating Spanish travel agencies (Valor 98 plan). In early 2000 the Company introduced a new commercial management model in the international markets,the aim of which is to increase sales through more efficient commercial expense management, creating a new system for paying variable remuneration to the channel, with the objective of remunerating each agency in line with the promotional work actually carried out.This was achieved through the development of a new application,Milenium, which standardizes all the incentive systems.Three achievements will be rewarded in all international markets: general growth, growth in high-revenue fares and growth in customers flying to certain destinations. In addition, IBERIA, L.A.E. and eight other large U.S. and European airlines have set up a consortium to create an industry purchasing portal on the Internet through which to operate on a global aviation market stage with a view to optimizing purchases and inventories.The Company expects to significantly reduce its supply chain costs (fuel, airport services, aircraft spare parts and engine parts, catering, etc.) as a result of its stake in this consortium. Also, in July 2000, IBERIA, L.A.E., BBVA, Telefónica and Repsol YPF incorporated a company to develop a horizontal Internet purchasing (e-procurement) portal, which will serve to facilitate the four companies’ acquisitions of nonproductive goods and services. Following the strategies contained in the Master Plan, and as a continuation of the fleet renewal plan devised by the Spanish company in 1998, making IBERIA the European airline with the most modern fleet, in 2000 a total of 27 new aircraft were added to the fleet, consisting of 15 Airbus 320-family craft (eleven A-320 and four A-319 aircraft), eight Boeing 757 aircraft, one Boeing 747 aircraft and three Airbus 340 aircraft.The Airbus 320 and 319 and Boeing 757 aircraft have replaced the Boeing 727 aircraft,and the Airbus 340 planes have replaced the DC-10s (withdrawn from service at the end of November). Financing for 18 of the aircraft took the form of a securitization transaction similar to that carried out in 1999. To these 27 aircraft must be added the 21 aircraft received in 1999. By 2000 year-end, IBERIA had already added to its fleet one-half of the aircraft envisaged in the fleet renewal plan.These aircraft additions, in addition to offering improved quality to customers, provide greater uniformity, thereby increasing the use of the aircraft and crew productivity and reducing maintenance and fuel costs. As part of its strategy to hedge nonoperating risk, IBERIA worked hard to ensure it was adopting an appropriate fuel price hedging policy.The spectacular rise in the price of crude oil throughout the year (which topped US$ 34/barrel several times in 2000) increased the IBERIA Group’s fuel costs by 56%.These costs were also adversely affected by the rise in the U.S. dollar/euro exchange rate and the greater number of flights.

164 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT These costs could have been even higher had it not been for the aforementioned fuel price hedging policy pursued by the Company. IBERIA managed to save nearly Ptas. 25,000 million by hedging 50% of the fuel used in 2000 at US$ 17/barrel and 15% at a little over US$ 23/barrel; with only 35% being purchased at free market prices.This enabled IBERIA to have the lowest unit fuel costs (in terms of cents per ASK) in Europe. The IBERIA Group’s enormous tangible fixed asset investment drive was accompanied by a policy of strengthening the competitiveness of its human resources, for which it implemented in 2000 a Strategic Training Plan (2000-2002).The key objectives of the training activities are to ensure the adaptation of the employees affected by the incorporation of new aircraft, equipment and systems; to improve the image and service offered to customers; to promote occupational risk prevention; to foster the continuous improvement of executives’ and supervisors’ management efficiency and, in general, to facilitate the ongoing professional training required by all employees. However, in addition to the Master Plan, on which the IBERIA Group’s strategies will be based in the coming years, in 2000 IBERIA undertook other ambitious projects, including the continued implementation of an efficient environmental policy, a project approved in January 2000.The implementation of this environmental policy will be the first step in a wide-reaching process through which IBERIA wishes to achieve effective management with respect to its natural surroundings that will prevent pollution derived from its activities. The measures that IBERIA will take in this area include most notably the promotion and application of all the best technical improvements that are available and economically feasible, the rational use of limited resources (water, fuel, electricity, paper, etc.) and the adequate management of waste, effluents and emissions through their reduction, recycling and treatment. Measures will also be taken to improve the environmental management and compliance of suppliers and subcontractors and to increase the environmental awareness of employees through training programs and awareness campaigns relating to environmental protection. It should be noted in this regard that the fleet renewal plan in which the Company is currently immersed will give rise to fuel savings and noise reductions.The Airbus 320-family aircraft use 40% less fuel and emit up to nine times less noise then the Boeing 727 aircraft that they are to replace. In addition,IBERIA will continue to work with State agencies and social partners towards eliminating or minimizing the adverse environmental impact of air transport. It will also continue to participate in Spanish and international air transport industry forums aimed at protecting the environment. Work continued on the Euro Project in 2000, with the ongoing analysis and assessment of the effects of the euro on tasks, resources and systems and the adaptation of the procedures and systems affected that had to be addressed in 2000.The timetable set was fulfilled and an Office for the Transition to the Euro Project was set up, thereby ensuring a successful transition to the single currency in January 2002.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 165 Continuing with its standardization process, on June 21, 2000, IBERIA, L.A.E. obtained from AENOR the ISO 9000 certificate under the UNE-EN-ISO-9002 standard for its passenger and ramp handling services at the 13 busiest Spanish airports of the 39 at which these services are provided.The airports for which this certificate was obtained were Madrid, Barcelona, Mallorca, Ibiza, Menorca, Alicante, Bilbao, Málaga, Gran Canaria, Lanzarote, Fuerteventura, Tenerife North and Tenerife South.The process of obtaining the certificate for the other 26 Spanish airports at which the Company operates will be initiated shortly. IBERIA Handling, with this certified quality assurance system, will continue to implement its strategy of improving the service it offers to its customers. As a result of the aforementioned measures,the IBERIA Group reported income before taxes of Ptas.36,833 million in 2000,almost 18.5% higher than in 1999, and a return on equity of 17.27%. The cost per ASK increased by 7.7% to Ptas. 13.12 in 2000, due mainly to the aforementioned high fuel prices and to the rise in the U.S. dollar/euro exchange rate. However, the unit revenues per ASK also grew at a similar rate (7.0%) as a result of the efforts made by the Company as a whole to improve its commercial positioning, thereby maintaining the unit margin despite the significant, only partially controllable, increase in costs. In short, it can be said that in 2000, despite being a year of high fuel prices and a strong dollar, IBERIA was able to adapt to and successfully preempt a somewhat unfavorable scenario.This explains the achievement of managing to stabilize the Group’s profitability, with EBITDAR over 13% higher than in 1999. This healthy profitability permits IBERIA’s future as a fully privatized company to be viewed with optimism, with the involvement of all the groups of people who work at the Company in a common drive aimed at creating value for the shareholders, steadily improving the Company’s position in terms of competitiveness and developing the strategies envisaged and defined by all areas of the Company and included in the 2000/2003 Master Plan.

2. IBERIA Group (By Network)

2.1. SUPPLY In terms of ASKs, the IBERIA Group’s production increased by over 7% with respect to 1999, the largest increases being in the European (13%) and long-haul (7%) networks, on which IBERIA’s strategic growth strategy is focused. Binter Canarias and Binter Mediterráneo increased their production by 9%, since the former did not have any airline competitors and the markets of both companies grew.

SUPPLY MILLIONSOF ASK’S

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 5 4 , 2 9 0 5 0 , 2 3 8 4 , 0 5 6 8 . 1 AV I ACO (CHART E R ) - 5 0 ( 5 0 ) ( 1 0 0 . 0 ) V I VA - 4 0 0 ( 4 0 0 ) ( 1 0 0 . 0 ) BINTER CANARIAS 4 6 8 4 2 8 4 0 9 . 1 BINTER MEDITERRANEO 1 0 5 9 6 9 1 0 . 4 IBERIA GROUP 5 4 , 8 6 3 5 1 , 2 1 2 3 , 6 5 5 7 . 1

166 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The breakdown of the IBERIA Group’s supply, by network, is as follows:

AIVALABLE SEATS KILOMETRE BY NETWORK MILLIONSOF ASKS TOTAL OTHER 1.40 % 2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N TOTAL SPAIN MAD-BCN SHUTTLE 1 , 3 5 4 1 , 2 3 0 1 2 4 1 0 . 1 25.81 % M A I N L A N D - CANARIES 5 , 9 2 3 5 , 6 0 8 3 1 5 5 . 6 CA N A RY ISLANDS 4 6 4 4 2 1 4 3 1 0 . 2 TOTAL TOTAL ATLANTIC EUROPE OTHER DOMESTIC 6 , 4 2 0 6 , 1 5 9 2 6 1 4 . 2 47.80 % 24.96 %

TOTAL SPA I N 1 4 , 1 6 1 1 3 , 4 1 8 7 4 3 5 . 5 TOTAL IBERIA GROUP 2000:54,863 A F R I CA AND M. E A S T 1 , 1 0 2 9 3 5 1 6 7 1 7 . 9 E U 1 1 , 7 2 1 1 0 , 4 1 6 1 , 3 0 5 1 2 . 5 NON-EU COUNTRIES 8 7 6 7 8 6 9 0 1 1 . 5 TOTAL EUROPE 1 3 , 6 9 9 1 2 , 1 3 7 1 , 5 6 2 1 2 . 9 N O RTH AT L A N T I C 7 , 9 6 9 7 , 6 4 8 3 2 1 4 . 2 MID AT L A N T I C 1 0 , 8 9 7 1 0 , 2 5 0 6 4 7 6 . 3 SOUTH AT L A N T I C 7 , 3 6 4 6 , 5 3 4 8 3 0 1 2 . 7 TOTAL ATLANTIC 2 6 , 2 3 0 2 4 , 4 3 2 1 , 7 9 8 7 . 4 SOUTHERN A F R I CA 7 6 8 7 6 8 -- C H A RT E R 5 4 5 7 ( 4 5 2 ) ( 9 8 . 9 ) IBERIA GRO U P 5 4 , 8 6 3 5 1 , 2 1 2 3 , 6 5 1 7 . 1

Group production in terms of block hours was higher than in 1999, despite the disappearance of Viva Air, as a result of the increased production of IBERIA’s existing subsidiaries.Aircraft continued to be used under wet lease arrangements due to the flexibility provided to the Group’s scheduling by this type of transaction. The variations in 2000 were as follows:

VARIATION IN 2000 BLOCK HOURS

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 4 5 2 , 8 1 6 4 2 5 , 2 8 3 2 7 , 5 3 3 6 . 5 AV I ACO (CHART E R ) - 5 7 1 ( 5 7 1 ) ( 1 0 0 . 0 ) V I VA - 4 , 6 0 2 ( 4 , 6 0 2 ) ( 1 0 0 . 0 ) BINTER CANARIAS 3 0 , 3 9 6 2 3 , 8 9 9 6 , 4 9 7 2 7 . 2 BINTER MEDITERRANEO 8 , 3 9 4 7 , 7 1 3 6 8 1 8 . 8 IBERIA GRO U P 4 9 1 , 6 0 6 4 6 2 , 0 6 8 2 9 , 5 3 8 6 . 4

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 167 2.2. DEMAND The IBERIA group carried nearly 11% more passengers in 2000 than in 1999,due mainly to the greater number of flights offered by IBERIA, L.A.E. in all markets, despite the minor impact that the discontinuation of Viva Air’s operations in 1999 could have had on consolidated operating figures. The breakdown of passengers carried is as follows:

DEMAND THOUSANDSOF PASSENGERS

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 2 4 , 5 4 3 2 1 , 8 7 9 2 , 6 6 4 1 2 . 2 AV I ACO (CHART E R ) - 2 3 ( 2 3 ) ( 1 0 0 . 0 ) V I VA - 1 8 3 ( 1 8 3 ) ( 1 0 0 . 0 ) BINTER CANARIAS 2 , 0 3 5 1 , 9 0 3 1 3 2 6 . 9 BINTER MEDITERRANEO 2 9 1 2 8 6 5 1 . 7 IBERIA GROUP 2 6 , 8 6 9 2 4 , 2 7 4 2 , 5 9 5 1 0 . 7

The detail by network is as follows:

PASSENGERS CARRIED BY NETWORK THOUSANDSOF PASSENGERS TOTAL OTHER 0.28 % TOTAL ATLANTIC 9.84 % 2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N MAD-BCN SHUTTLE 2 , 0 4 3 1 , 8 7 6 1 6 7 8 . 9 MAINLAND CANARIES 2 , 5 2 5 2 , 1 8 1 3 4 4 1 5 . 8

TOTAL EUROPE CA N A RY ISLANDS 2 , 0 3 0 1 , 8 9 1 1 3 9 7 . 4 28.54 % TOTAL SPAIN 61.32 % OTHER DOMESTIC 9 , 8 8 0 9 , 1 1 7 7 6 3 8 . 4

TOTAL IBERIA GROUP 2000:26,869 TOTAL SPA I N 1 6 , 4 7 8 1 5 , 0 6 5 1 , 4 1 3 9 . 4 A F R I C A AND M. E A S T 3 7 4 2 9 7 7 7 2 5 . 9 E U 6 , 8 4 8 5 , 8 9 0 9 5 8 1 6 . 3 NON-EU COUNTRIES 4 4 8 3 8 7 6 1 1 5 . 8 TOTAL EUROPE 7 , 6 7 0 6 , 5 7 4 1 , 0 9 6 1 6 . 7 N O RTH AT L A N T I C 9 4 2 8 7 3 6 9 7 . 9 MID AT L A N T I C 1 , 1 0 5 9 9 4 1 1 1 1 1 . 2 SOUTH ATLANTIC 5 9 8 4 9 2 1 0 6 2 1 . 5 TOTAL ATLANTIC 2 , 6 4 5 2 , 3 5 9 2 8 6 1 2 . 1 SOUTHERN A F R I CA 6 9 5 8 1 1 1 9 . 0 C H A RT E R 7 2 1 8 ( 2 1 1 ) ( 9 6 . 8 ) IBERIA GRO U P 2 6 , 8 6 9 2 4 , 2 7 4 2 , 5 9 5 1 0 . 7

168 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The trend in RPKs was positive, since the increase in supply focused on the networks on which the IBERIA Group is basing its strategic growth targets, basically the Europe-Latin America routes. The detail by company and network is as follows:

BY COMPANY MILLIONSOF RPKS

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 4 0 , 0 4 9 3 4 , 6 0 7 5 , 4 4 2 1 5 . 7 AV I ACO (CHART E R ) - 3 1 ( 3 1 ) ( 1 0 0 . 0 ) V I VA - 3 3 7 ( 3 3 7 ) ( 1 0 0 . 0 ) BINTER CANARIAS 3 6 2 3 3 6 2 6 7 . 7 BINTER MEDITERRANEO 7 3 6 8 5 7 . 4 IBERIA GROUP 4 0 , 4 8 4 3 5 , 3 7 9 5 , 1 0 5 1 4 . 4

REVENUES PASSENGERS CARRIED BY NETWORK MILLIONSOF RPKS TOTAL OTHER 1.38 % 2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N TOTAL SPAIN MAD-BCN SHUTTLE 9 8 5 9 0 4 8 1 9 . 0 25.17 % MAINLAND CANARIES 4 , 4 6 2 3 , 8 5 6 6 0 6 1 5 . 7 CA N A RY ISLANDS 3 5 9 3 3 0 2 9 8 . 8 TOTAL TOTAL ATLANTIC EUROPE OTHER DOMESTIC 4 , 3 8 7 3 , 9 7 7 4 1 0 1 0 . 3 50.32 % 23.11 %

TOTAL SPA I N 1 0 , 1 9 3 9 , 0 6 7 1 , 1 2 6 1 2 . 4 TOTAL IBERIA GROUP 2000:40,484 A F R I CA AND M. E A S T 7 8 1 6 3 0 1 5 1 2 4 . 0 P E U 8 , 0 3 5 6 , 9 6 0 1 , 0 7 5 1 5 . 4 NON-EU COUNTRIES 5 4 0 4 5 3 8 7 1 9 . 2 TOTAL EUROPE 9 , 3 5 6 8 , 0 4 3 1 , 3 1 3 1 6 . 3 N O RTH AT L A N T I C 5 , 9 7 2 5 , 3 3 2 6 4 0 1 2 . 0 MID AT L A N T I C 8 , 7 0 4 7 , 5 3 7 1 , 1 6 7 1 5 . 5 SOUTH AT L A N T I C 5 , 6 9 9 4 , 5 5 6 1 , 1 4 3 2 5 . 1 TOTAL ATLANTIC 2 0 , 3 7 5 1 7 , 4 2 5 2 , 9 5 0 1 6 . 9 SOUTHERN A F R I CA 5 5 7 4 7 0 8 7 1 8 . 5 C H A RT E R 3 3 7 4 ( 3 7 1 ) ( 9 9 . 2 ) IBERIA GRO U P 4 0 , 4 8 4 3 5 , 3 7 9 5 , 1 0 5 1 4 . 4

2.3. PASSENGER LOAD FACTOR The IBERIA Group’s passenger load factor of 73.8% in 2000 was almost 5 percentage points higher than in 1999.The passenger load factor was affected by the significant increase in demand in IBERIA’s transatlantic and domestic networks, by the increase in flight frequencies and by the increase in the number of passengers carried, after having recovered from the increased delays and, therefore, the lower demand in 1999, due to airport congestion.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 169 The load factor of the subsidiaries operating in the domestic market dropped slightly, since their supply grew by over 9% in certain markets where demand grew, in the case of the Canary Islands operator, by only 7%, and in the case of Binter Mediterráneo, by only 2%. The breakdown by company and network is as follows:

PASSENGER LOAD FACTOR BY COMPANY (IN %) BY COMPANY LOAD FACTOR %

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 7 3 . 8 6 8 . 9 4 . 9 7 . 1 AV I ACO (CHART E R ) - 6 3 . 4 ( 6 3 . 4 ) ( 1 0 0 . 0 ) V I VA - 8 4 . 2 ( 8 4 . 2 ) ( 1 0 0 . 0 )

IBERIA LAE AVIACO VIVA BINTER BINTER BINTER CANARIAS 7 7 . 4 7 8 . 5 ( 1 . 1 ) ( 1 . 4 ) (CHARTER) CANARIAS MEDITERRANEO TOTAL IBERIA GROUP 2000:73.8% BINTER MEDITERRANEO 6 9 . 2 7 0 . 7 ( 1 . 5 ) ( 2 . 1 ) 2000 1999 IBERIA GRO U P 7 3 . 8 6 9 . 1 4 . 7 6 . 8

PASSENGER LOAD FACTOR BY NETWORK (IN %) BY NETWORK LOAD FACTOR %

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N MAD-BCN SHUTTLE 7 2 . 7 7 3 . 4 ( 0 . 7 ) ( 1 . 0 ) MAINLAND CA N A R I E S 7 5 . 3 6 8 . 8 6 . 5 9 . 4 CA N A RY ISLANDS 7 7 . 4 7 8 . 3 ( 0 . 9 ) ( 1 . 1 )

TOTAL TOTAL TOTAL OTHER DOMESTIC 6 8 . 3 6 4 . 6 3 . 7 5 . 7 SPAIN EUROPE ATLANTIC TOTAL IBERIA GROUP 2000:73.8% TOTAL SPA I N 7 2 . 0 6 7 . 6 4 . 4 6 . 5 2000 1999 A F R I CA AND M. E A S T 7 0 . 8 6 7 . 3 3 . 5 5 . 2 E U 6 8 . 6 6 6 . 8 1 . 8 2 . 7 NON-EU COUNTRIES 6 1 . 6 5 7 . 6 4 . 0 6 . 9 TOTAL EUROPE 6 8 . 3 6 6 . 3 2 . 0 3 . 0 N O RTH AT L A N T I C 7 4 . 9 6 9 . 7 5 . 2 7 . 5 MID AT L A N T I C 7 9 . 9 7 3 . 5 6 . 4 8 . 7 SOUTH ATLANTIC 7 7 . 4 6 9 . 7 7 . 7 1 1 . 0 TOTAL ATLANTIC 7 7 . 7 7 1 . 3 6 . 4 9 . 0 SOUTHERN A F R I CA 7 2 . 5 6 1 . 1 1 1 . 4 1 8 . 7 C H A RT E R 8 5 . 5 8 2 . 0 3 . 5 4 . 3 IBERIA GRO U P 7 3 . 8 6 9 . 1 4 . 7 6 . 8

170 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 2.4.AVERAGE YIELD The detail of the variations in the average yield, by company, in 2000, and of the comparable figures for 1999 is as follows:

AVERAGE YIELDBY COMPANY (IN PTS./RPK) AVERAGE YIELD BY COMPANY PTAS./RPK - CÉNT. /RPK

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N I B E R I A , L . A . E . 1 3 . 9 8 . 4 1 3 . 7 8 . 2 0 . 2 0 . 2 1 . 5 AV I ACO (CHART E R ) -- 1 1 . 8 7 . 1 ( 1 1 . 8 ) ( 7 . 1 ) ( 1 0 0 . 0 ) V I VA -- 6 . 8 4 . 1 ( 6 . 8 ) ( 4 . 1 ) ( 1 0 0 . 0 )

BINTER CANARIAS 4 2 . 4 2 5 . 4 3 9 . 2 2 3 . 6 3 . 2 1 . 8 8 . 2 IBERIA LAE AVIACO VIVA BINTER BINTER (CHARTER) CANARIAS MEDITERRANEO BINTER MEDITERRANEO 4 8 . 3 2 9 . 0 4 8 . 7 2 9 . 3 ( 0 . 4 ) ( 0 . 3 ) ( 0 . 8 ) TOTAL IBERIA GROUP 2000:14.2 2000 1999 IBERIA GRO U P 1 4 . 2 8 . 5 1 3 . 9 8 . 4 0 . 3 0 . 1 2 . 2

The detail of the variations in the average yield, by market, in 2000, and of the comparable figures for 1999 is as follows:

AVERAGE YIELDBY MARKET AVERAGE YIELD BY MARKET PTAS./RPK - CÉNT. /RPK (IN PTS./RPK)

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N MAD-BCN SHUTTLE 31.4 18.9 28.8 17.3 2.6 1.6 9.0 MAINLAND CANARIES 10.9 6.6 11.7 7.0 (0.8) (0.4) (6.8) CANARY ISLANDS 42.6 25.6 39.6 23.8 3.0 1.8 (7.6)

OTHER DOMESTIC 26.8 16.1 28.0 16.8 (1.2) (0.7) (4.3) TOTAL TOTAL TOTAL SPAIN EUROPE ATLANTIC TOTAL SPAIN 20.9 12.6 21.6 13.0 (0.7) (0.4) (3.2) TOTAL IBERIA GROUP 2000:14.2 2000 1999 AFRICA AND M.EAST 14.8 8.9 14.3 8.6 0.5 0.3 3.5 EU 19.9 12.0 20.1 12.1 (0.2) (0.1) (1.0) NON-EU COUNTRIES 22.7 13.6 22.1 13.3 0.6 0.3 2.7 TOTAL EUROPE 19.7 11.8 19.7 11.8 --- NORTH ATLANTIC 9.0 5.4 8.1 4.9 0.9 0.5 11.1 MID ATLANTIC 8.6 5.2 7.4 4.4 1.2 0.8 16.2 SOUTH ATLANTIC 8.2 5.0 7.2 4.3 1.0 0.7 13.9 TOTAL ATLANTIC 8.6 5.2 7.6 4.5 1.0 0.7 13.2 SOUTHERN AFRICA 6.2 3.7 6.1 3.7 0.1 0.1 1.6 CHARTER 23.6 14.2 7.5 4.5 16.1 9.7 214.7 IBERIA GRO U P 1 4 . 2 8 . 5 1 3 . 9 8 . 4 0 . 3 0 . 1 2 . 2

The average yield dropped by 3.2% in the domestic market in 2000, since the increase in supply in the domestic and European markets had a downward effect on prices.This was compounded by the significant increase in IBERIA’s supply in the Mid and South Atlantic networks, where the yield is lower as the average haul is longer, despite the nominal increase of over 13%, due mainly to the U.S. dollar effect and the favorable evolution of the relative weight of business-class traffic in the passenger mix.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 171 2.5. PASSENGER REVENUES The IBERIA Group’s passenger revenues increased by 16.8% in 2000 to Ptas. 575,389 million ( 3,458 million), the detail being as follows:

PASSENGER REVENUES MILLIONSOF PESETAS - MILLONSOF

2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N IBERIA,L.A.E. 556,511 3,345 473,404 2,845 83,107 500 17.6 AVIACO (CHARTER) -- 369 2 (369) (2) (100.0) VIVA -- 2,306 14 (2,306) (14) (100.0) BINTER CANARIAS 15,335 92 13,183 79 2,152 13 16.3 BINTER MEDITERRANEO 3,543 21 3,301 20 242 1 7.3 IBERIA GROUP 575,389 3,458 492,563 2,960 82,826 498 16.8

The detail, by network, of the passenger revenues is as follows:

PASSENGER REVENUES BY NETWORK MILLIONSOF PESETAS - MILLIONESOF TOTAL OTHER 0.61 %

TOTAL ATLANTIC TOTAL 2 0 0 0 1 9 9 9 VA R I AT I O N 0 0 / 9 9 % VA R I AT I O N 30.46 % SPAIN 36.94 % MAD-BCN SHUTTLE 30,916 186 26,009 156 4,907 30 18.9 MAINLAND CANARIES 48,833 293 45,179 272 3,654 21 8.1 CANARY ISLANDS 15,274 92 13,064 79 2,210 13 16.9 TOTAL EUROPE 31.98 % OTHER DOMESTIC 117,526 706 111,354 669 6,172 37 5.5

TOTAL IBERIA GROUP 2000:575,389 TOTAL SPAIN 212,549 1,277 195,606 1,176 16,943 101 8.7 AFRICA AND M.EAST 11,556 69 9,012 54 2,532 15 28.1 EU 160,180 963 140,050 842 20,144 121 14.4 NON-EU COUNTRIES 12,277 74 10,043 60 2,219 14 22.1 TOTAL EUROPE 184,013 1,106 159,105 956 24,895 150 15.6 NORTH ATLANTIC 53,923 324 43,345 260 10,581 63 24.4 MID ATLANTIC 74,633 448 56,018 337 18,618 111 33.2 SOUTH ATLANTIC 46,731 281 32,835 197 13,903 84 42.3 TOTAL ATLANTIC 175,287 1,053 132,198 795 43,102 258 32.6 SOUTHERN AFRICA 3,442 21 2,860 17 582 4 20.3 CHARTER 98 1 2,794 17 (2,696) (16) (96.5) IBERIA GROUP 575,389 3,458 492,563 2,960 82,826 497 16.8

Revenues increased in all markets,as a result of the increases in demand in the domestic (12%) and European (16%) markets,which were partially offset by a 3% drop in prices in the domestic market and stagnant prices in the European market, giving rise to an overall increase of almost Ptas. 43,000 million ( 258 million) in revenues on short- and medium-haul routes.

172 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The increase of 17% in demand in the Atlantic market was accompanied by a rise in the yield in gross terms (of over 13%), which gave rise to an increase of 33% in the revenues of this network, which amounted to almost Ptas. 44,000 million ( 280 million) in 2000. The disappearance of charter traffic, which had been formerly operated by Aviaco to cover gaps in its scheduling, gave rise to revenues of almost Ptas. 2,700 million ( 16 million).

3. Summary by subsidiary management area

3.1.AVIACO The company’s merger, which was initiated in October 1997, was completed in 2000 with the unification of the networks, scheduling and marketing of IBERIA and Aviaco. On March 23, 2000,the two companies’ Boards of Directors unanimously approved the merger plan, and on August 31, 1999, the Special Shareholders’ Meeting unanimously approved the company’s integration into its majority shareholder IBERIA, L.A.E. Aviaco’s merger balance sheet was as of January 31, 2000, the date on which all the assets, rights, obligations, shares and contracts making up the net worth of the absorbed company were formerly merged by absorption into IBERIA. Accordingly, Aviaco’s assets and liabilities were transferred en bloc to the absorbing company and Aviaco was dissolved without liquidation. On October 17, 2000, the merger deed was registered with the Madrid Mercantile Register, with retroactive effect from February 1, 2000.

3.2. BINTER CANARIAS In 2000 Binter Canarias strengthened its leadership in the Canary Islands regional air transport market. As a result of its losses, in November the company’s main competitor Atlantic Airways discontinued its scheduled operations after seven and a half months of operations under a commercial agreement with Binter Canarias whereby it operated the routes to and from La Gomera in exchange for a commercial fee. To recover the flights abandoned by Atlantic Airways,Binter Canarias entered into a wet lease contract with Naysa for the current winter 2000/2001 season. As regards competition from shippers, the qualitative improvement process initiated in 1999 continued,with the introduction of new fast-ferries operated by Fred Olsen and Armas. Binter Canarias’ activity grew by 7.3% in 2000. It carried more than two million passengers and had a market share of 95% in 2000. Supply increased by 7.8%.The company operates eleven aircraft all year round and the frequency of flights increased from 100 flights per day in 1999 to around 108 flights per day in 2000. Fares increased twice in 2000, the first time to recover the increase in the CPI in 1999, and the second time to absorb the rise in fuel costs in 2000.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 173 Total sales grew by almost 17% to Ptas. 15,931 million ( 95.75 million) in 2000, whereas operating expenses increased by nearly 19%, due to the rise in fuel prices and the increase in average flying times provoked by the conflict with technical crews and the concomitant impact on provisions for maintenance and spare parts. Despite this, operating income increased by Ptas. 26 million ( 0.16 million) in 2000. The company’s financial results were affected by the fluctuations in the euro during the year, although the financial loss was offset by extraordinary income. The detail of this company’s main aggregates is as follows:

BINTER CANARIAS % 2 0 0 0 1999 VA R I AT I O N

MI L L I O N A S KS 4 6 7 4 2 8 9 . 1 MI L L I O N R P KS 3 6 2 3 3 6 7 . 7 LOA D FAC TO R ( % ) 7 7 . 4 7 8 . 5 ( 1 . 4 ) YI E L D ( PTA S. / R P K ) 4 2 . 4 3 9 . 2 8 . 2 YI E L D (C E N T. / R P K ) 2 5 . 4 8 2 3 . 5 6 8 . 2 PA S S E N G E R R E V E N U E S ( MI L L.PTA S. ) 1 5 , 3 3 5 1 3 , 1 8 3 1 6 . 3 PA S S E N G E R R E V E N U E S ( MI L L. ) 9 2 . 1 7 7 9 . 2 3 1 6 . 3 OP E R AT I N G I N C O M E ( MI L L.PTA S. ) 1 , 8 5 6 1 , 8 2 9 1 . 5 OP E R AT I N G I N C O M E ( MI L L. ) 1 1 . 1 5 1 1 . 0 0 1 . 5 NE T I N C O M E A F T E R TA X E S ( MI L L.PTA S. ) 1 , 4 2 7 1 , 5 6 3 ( 8 . 7 ) NE T I N C O M E A F T E R TA X E S ( MI L L. ) 8 . 5 7 9 . 3 9 ( 8 . 7 ) EQU I VA L E N T F U L L-T I M E E M P L OY E E S 3 7 1 3 3 5 1 0 . 7

3.3. BINTER MEDITERRANEO In 2000 this airline’s performance stabilized after the strong growth experienced in 1999. The number of scheduled flights increased by 2.4% and the number of passengers carried rose by 1.7% to 289,379. Also, in 2000 the company started to operate charter flights, although the related figures are still relatively insignificant. In 2000 the number of scheduled flights increased as a result of the inauguration of new routes, such as: GRX-MAD-GRX, AGP-RAK-AGP and GRX-RAK-GRX (the latter two were abandoned in October due to low load factors). The yield remained virtually unchanged with respect to 1999,despite price increases,due to a change in the price structure, which led to an increase in promotional fares, and to an increase in the average passenger haul.

174 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The operating income of Ptas. 89 million ( 0.5 million) in 2000 was similar to that reported in 1999, despite the rise in fuel prices,thanks to increased production and a greater absorption of fixed costs. Earnings fell with respect to 1999, since the extraordinary income for 1999 included a gain on the sale of CN235 aircraft spare parts. The detail of this company’s main aggregates is as follows:

BINTER MEDITERRANEO % 2 0 0 0 1999 VA R I AT I O N

MI L L I O N A S KS 1 0 6 9 6 1 0 . 4 MI L L I O N S R P KS 7 3 6 8 7 . 4 LOA D FAC TO R ( % ) 6 9 . 2 7 0 . 7 ( 2 . 1 ) YI E L D ( PTA S. / R P K ) 4 8 . 3 4 8 . 7 ( 0 . 8 ) YI E L D (C E N T. / R P K ) 2 9 . 0 3 2 9 . 2 7 ( 0 . 8 ) PA S S E N G E R R E V E N U E S ( MI L L.PTA S. ) 3 , 5 4 3 3 , 3 0 1 7 . 3 PA S S E N G E R R E V E N U E S ( MI L L. ) 2 1 . 2 9 1 9 . 8 4 7 . 3 OP E R AT I N G I N C O M E ( MI L L.PTA S. ) 8 9 1 0 0 ( 1 1 . 2 ) OP E R AT I N G I N C O M E ( MI L L. ) 0 . 5 3 0 . 6 0 ( 1 1 . 2 ) NE T I N C O M E A F T E R TA X E S ( MI L L.PTA S. ) 1 1 6 1 ( 9 9 . 3 ) NE T I N C O M E A F T E R TA X E S ( MI L L. ) 0 . 0 1 0 . 9 7 ( 9 9 . 3 ) EQU I VA L E N T F U L L-T I M E E M P L OY E E S 7 6 6 7 1 3 . 4

3.4.VIVA AIR (MAINTENANCE) For Viva Air (Maintenance) 2000 was the first complete year of operations in its new line of business (aircraft maintenance). The company carried out the necessary work for the subletting of the aircraft by Viva Air through expiration of the related contracts or their sale. The company also supervised the overhauls of the four aircraft owned byViva by Sabena prior to their return to the lessors. The company continued to carry out integral B737 aircraft maintenance work on three Air Europa aircraft operated by IBERIA and two Seven Air aircraft,together with “A” overhauls of B727 aircraft for the cargo carrier DHL, other maintenance work for Futura, engine replacements, the installation of TCAS, breakdown repairs and the implementation of guidelines. In 2000, to pave the way for the new opportunities that might arise from the construction of a hangar in Palma and the formation of the company that will operate it, training courses were given at Viva Air to mechanics, which led to their accreditation by the Spanish Directorate-General of Civil Aviation (DGAC) for the performance of “A” overhauls for new generation B737 family (600/700/800),and it is hoped to obtain accreditation in early 2001 for the performance of “C” overhauls. Also, for this same purpose, certain of the computer processes affecting the maintenance, economic and financial, payroll and personnel areas were updated.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 175 Of the total operating revenues of Viva Air (Maintenance) (Ptas. 1,489 million, 8.95 million), Ptas. 1,136 million ( 6.83 million) relate to technical assistance, of which 50.3% is provided to third parties and other IBERIA Group companies. This company’s main aggregates, presented as the sum of the results of the foregoing activities, are as follows:

V I VA AIR % 2 0 0 0 1999 VA R I AT I O N

THOUSANDS OFPRODUCTIONHOURS OFIN -HOUSE PERSONNEL 67,230 46,641 44.1 INDIRECT/DIRECT LABOR (%) 83.22 87.41 (4.8) OPERATING INCOME (MILL.PTAS.) (410) (2,709) 84.9 OPERATING INCOME ( MILL.) (2.46) (16.28) 84.9 NET INCOME AFTER TAXES (MILL.PTAS.) 337 (2,765) 112.2 NET INCOME AFTER TAXES ( MILL.) 2.03 (16.62) 112.2 EQUIVALENT FULL-TIME EMPLOYEES 91 194 (53.1)

3.5. SAVIA Noteworthy in 2000 were the significant increase in flight bookings and the sale of the “Viajes y Destinos” portal, the extraordinary revenues from which helped to improve the company’s earnings. Work continued in 2000 on implementing the computer hardware technological renewal policy, for which renting transactions were used, and on changing the communication lines of travel agencies from X-25 lines to RDSI technology. As stated above, this company’s volume of business increased significantly in 2000. As regards the Spanish market, the number of terminals installed at travel agencies increased by 18.9% from 13,849 terminals in 1999 to 16,468 in 2000.The number of agencies connected to the system in Spain increased by 16.4% from 4,912 at 1999 year-end to 5,716 in December 2000.Flight bookings (excluding hotels and cars) totaled 26,496,080 in 2000,up 15.3% on the 22,973,606 bookings made in 1999. As regards the Portuguese market, 199,504 flight bookings were made in 2000, as compared with the 103,432 made in 1999, an increase of 92.9%. The detail of this company’s income for 2000 and 1999 is as follows:

176 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT S AVIA % 2000 1999 VARIATION

OPERATING REVENUES (MILL.PTAS.) 10,643 8,929 19.2 OPERATING REVENUES ( MILL.) 64.0 53.7 19.2 OPERATING INCOME(MILL.PTAS.) 1,653 633 161.2 OPERATING INCOME ( MILL.) 9.9 3.8 161.2 NET INCOMEAFTER TAXES (MILL.PTAS.) 1,027 319 221.9 NET INCOMEAFTER TAXES ( MILL.) 6.2 1.9 221.9

3.6. IBER-SWISS CATERING This company’s volume of business in 2000, in terms of the number of trays, increased by 30.4 % with respect to 1999, due mainly to the greater demand from IBERIA in Madrid and to the incorporation by IBERIA of new services in its European and domestic networks. Consolidated production rose in all networks, particularly the intercontinental network, and the catering center in Barcelona consolidated its position after the difficulties experienced in its start-up in 1999. Net income for the year amounted to Ptas.437 million ( 2.6 million),as compared with Ptas.122 million ( 0.7 million) in 1999.Also, 50% more cash flow was generated in 2000 than in 1999. The sales of Ptas. 11,219 million ( 67.4 million) in 2000 were 17% higher than those made in 1999. The greater production of the main customer, IBERIA, the achievement of new customers and the cost-cutting plan, which was based on the introduction of a tool for measuring and controlling the production of the Catering Points Calculation project, combined with the raw material production and control planning project will make it possible to monitor even more closely the production chain, thereby optimizing margins. The company’s main aggregates are summarized as follows:

IBER-SWISS CAT E R I N G

VA R I AT I O N % 2 0 0 0 1999 0 0 / 9 9 VA R I AT I O N

PRODUCTION OF FOOD-TRAYS (THOUSANDS) 14,331 10,991 3,340 30.4 PLANES SERVED (UNITS) 138,361 129,507 8,854 6.8 AVERAGE HEADCOUNT 1,475 1,361 114 8.4 FOOD-TRAYS PER EMPLOYEE 9,716 8,078 1,638 20.3 OPERATING REVENUES (MILL.PTAS.) 11,257 9,697 1,560 16.1 OPERATING REVENUES ( MILL.) 67.66 58.28 9.38 16.1 OPERATING INCOME (MILL.PTAS.) 727 219 508 232.0 OPERATING INCOME ( MILL.) 4.37 1.31 3.06 232.0 NET INCOME AFTER TAXES (MILL.PTAS.) 437 122 315 258.2 NET INCOME AFTER TAXES ( MILL.) 2.63 0.73 1.90 258.2

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 177 3.7. CACESA Sales totaled Ptas. 5,451 million ( 32.8 million) in 2000, up 31% on 1999. Sales of the Ibexpress product, in all its forms, increased by 18.6% to 1,948 million ( 11.7 million) in 2000.Worthy of particular mention was the growth in airport/airport sales, with increases of 40% in terms of billings and of 35% in terms of the number of kilograms, and in Ibexpress Internacional sales, which increased by 28% in terms of billings. As regards Ibexpress Internacional,operation commenced in 1999 of the Americas-Spain traffic.Agreements were entered into with partners in Mexico and Santo Domingo, and work continued in 2000 with Puerto Rico,Peru, Brazil,Argentina and Chile. Billings relating to the Ibertras product in 2000 increased sharply (Ptas. 2,951 million 17.7 million) with respect to 1999, a rise of 45% in percentage terms. Work continued in 2000 on developing the International Network in Latin America, as a result of which operation of traffic carrying exports to Spain commenced. The expense containment program was maintained in 2000, with positive results in both purchases of goods and services and the control of other expenses. The detail of this company’s main aggregates is as follows:

C AC E S A

VA R I AT I O N % 2 0 0 0 1999 00/99 VA R I AT I O N

IBEXPRESS REVENUES (MILL.PTAS.) 1,948 1,642 306 18.6 IBEXPRESS REVENUES ( MILL.) 11.71 9.87 1.84 18.6 IBERTRAS AÉREO REVENUES (MILL.PTAS.) 2,951 2,029 922 45.4 IBERTRAS AÉREO REVENUES ( MILL.) 17.74 12.19 5.55 45.4 IBERTRAS MARÍTIMO REVENUES (MILL.PTAS.) 98 78 20 25.6 IBERTRAS MARÍTIMO REVENUES ( MILL.) 0.59 0.47 0.12 25.6 EQUIVALENT FULL-TIME EMPLOYEES 126 120 6 5.0 OPERATING INCOME (MILL.PTAS.) 123 97 26 26.8 OPERATING INCOME ( MILL.) 0.74 0.58 0.16 26.8 NET INCOMEAFTER TAXES (MILL.PTAS.) 91 64 27 42.2 NET INCOMEAFTER TAXES ( MILL.) 0.55 0.38 0.17 42.2

3.8.VIVA TOURS The institutional and product advertising campaigns and direct promotions at travel agencies carried out in 2000 made it possible to maintain this company as a leading tour operator with high prestige among travel agencies and the general public. In 2000 315,000 package tours were sold, as compared with the 127,000 sold in 1999. This 148% increase contributed significantly to the generation of traffic for IBERIA. Net sales in 2000 amounted to Ptas. 19,068 million ( 114.6 million), up 93% on 1999.

178 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT Although this production figure for 2000 is acceptable, it did not reach the targets set. Accordingly, even more ambitious targets have been established for 2001, when it is aimed to sell around 425,000 package tours and step up activity in the Americas/Southern Africa, Canary Islands, European and Balearic Islands markets, with a drop in activity in the Spanish Mainland market.

4. Resources

4.1. FLEET The detail of the passenger aircraft operated by the Group as of December 31, 2000, is as follows:

F L E E T

BI N T E R BI N T E R TOTA L AIR C R A F TU N D E R AI R C R A F T TY P E IB E R I A CA N A R I A S ME D I T E R R A N E O OP E R AT E D W E T L E A S E B - 7 2 7 9 - - 9 - B-737 -- - - 3 B-747 8 - - 8 2 B - 7 5 7 1 8 - - 1 8 6 B - 7 6 7 2 - - 2 - A- 3 0 0 6 - - 6 - A- 3 1 9 4 - - 4 - A- 3 2 0 4 3 - - 4 3 - A- 3 2 1 2 - - 2 - A- 3 4 0 1 2 - - 1 2 - D C - 9 * 7 - - -- M D - 8 7 2 4 - - 2 4 - MD-88 1 3 - - 1 3 - C N - 2 3 5 - - 5 5 - ATR-72 - 1 1 - 1 1 - * Excluding grounded aircraft and cargo TOTAL* 148 11 5 164 11 aircraft (two DC-8 planes).

These numbers are the result of the following changes in 2000:

ADDITIONS 2 A-321 aircraft under financial lease 5 A-320 aircraft owned outright 4 A-319 aircraft under operating lease 6 A-320 aircraft under operating lease 3 A-340 aircraft under operating lease 1 B-747 aircraft under operating lease 8 B-757 aircraft under operating lease Retirements 5 B-757 aircraft under operating lease (3 now under wet lease). 14 B-727 aircraft owned outright 6 DC-10 aircraft owned outright (grounded) 1 DC-9 aircraft owned outright

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 179 WET LEASE - Operation of 3 B 737 and 6 B 757 aircraft under wet lease from Air Europa. - Operation of 2 B 747 aircraft under wet lease from Air Atlanta The usage of the IBERIA Group’s aircraft, in terms of total block hours per aircraft per day, was as follows:

FLEET UTILIZAT I O N BLOCK HOURS/AIRCRAFT/DAY 2 0 0 0 1 9 9 9 B - 7 2 7 5 . 2 4 . 8 B-737 (VI VA) - 4 . 5 B-747 1 2 . 8 1 1 . 9 B-747M 1 0 . 4 8 . 7 B-757 7 . 2 7 . 1 B - 7 6 7 1 1 . 9 1 1 . 4 DC-9 4 . 1 5 . 5 DC-10 8 . 9 1 0 . 9 MD-87 7 . 2 6 . 3 MD-88 7 . 5 7 . 6 A- 3 0 0 6 . 8 7 . 2 A- 3 1 9 6 . 1 - A-320 7 . 1 7 . 3 A- 3 2 1 8 . 2 7 . 9 A- 3 4 0 1 3 . 1 1 3 . 4 CN-235 BI N T E R ME D I T E R R Á N E O 4 . 6 4 . 5 ATR-72 BI N T E R CA N A R I A S 7 . 5 6 . 4 AV E R AG E S HO R T-A N D M E D I U M-H AU L A I R C R A F T US E 6 . 6 6 . 2 AV E R AG E L O N G-H AU L A I R C R A F T US E 1 2 . 4 1 2 . 1 TOTA L AV E R AG E A I R C R A F T US E 7 . 4 6 . 9

180 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 4.2. PERSONNEL The detail of the IBERIA Group’s average and year-end headcounts in 2000 and 1999 is as follows:

ANNUAL AVERAGE HEADCOUNT

G R O U N D F L I G H T T OT A L 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

IBERIA,L.A.E. 19,122 18,544 6,264 5,420 25,386 23,964 AVIACO - 410 - 575 - 985 VIVA - 76 - 53 - 129 BINTER CANARIAS 195 174 176 163 371 337 BINTER MEDITERRANEO 39 32 37 35 76 67 CACESA 126 120 -- 126 120 IBER-SWISS 1,475 1,361 -- 1,475 1,361 SAVIA 83 66 -- 83 66 VIVA AIR (MAINTENANCE) 91 61 -- 91 61 IBERIA GROUP 21,131 20,844 6,477 6,246 27,608 27,090

YEAR-END HEADCOUNT

G R O U N D F L I G H T T OT A L 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

IBERIA,L.A.E. 20,378 20,634 6,436 6,302 26,814 26,936 AVIACO - 1 - - - 1 VIVA ------BINTER CANARIAS 201 179 175 164 376 343 BINTER MEDITERRANEO 40 37 35 37 75 74 CACESA 132 121 -- 132 121 IBER-SWISS 1,551 1,439 -- 1,551 1,439 SAVIA 88 74 -- 88 74 VIVA AIR (MAINTENANCE) 88 91 -- 88 91 IBERIA GROUP 22,478 22,576 6,646 6,503 29,124 29,079

4.2.1. PRODUCTIVITY The detail of the productivity of the crews (in block hours per crew member) in 2000 and 1999 is as follows:

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 181 PRODUCTIVITY OF THE CREWS BLOCK HOURS/CREWMEMBER

T E C H N I C A L C R E W C A B I N C R E W 2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9

IBERIA + AVIACO 229.2 226.9 104.6 101.9 VIVA - 69.7 - 46.2 BINTER CANARIAS 350.1 282.7 338.9 297.2 BINTER MEDITERRANEO 353.3 320.8 648.6 671.2

The detail of the total productivity of the average labor force in terms of ASKs per employee is as follows:

PRODUCTIVITY OF THE AVERAGE LABOR FORCE ASK PEREMPLOYEE

MI L L I O N S O F A S K S / T OTA L E M P L OY E E S 2 0 0 0 1 9 9 9 % VARIATION

IBERIA 2.14 2.01 6.5 BINTER CANARIAS 1.25 1.25 0.0 BINTER MEDITERRANEO 1.38 1.42 (2.8)

5. IBERIA Group Operating Results

5.1. OPERATING INCOME Operating income for 2000 amounted to Ptas. 10,945 million ( 66 million), the detail by company being as follows (in millions of pesetas):

BY COMPANY MILLIONSOF PESETAS 2000 1999 IBERIA 6,056 5,477 AVIACO (7) 3,938 VIVA (410) (2,709) BINTER CANARIAS 1,856 1,829 BINTER MEDITERRANEO 89 100 CACESA 123 97 CARGOSUR (1) (1) SAVIA 1,653 633 IBERSWISS 726 219 CAMPOS VELAZQUEZ (1) 42 IBERIA GROUP 10,945 9,625

182 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The summarized detail of the IBERIA Group’s operating account for management accounting purposes, which differs from the statement of income in the Group’s financial statements because the revenue and expense items are aggregated using management accounting criteria, is as follows:

OPERATING INCOME MILLIONSOF PESETAS - MILLIONSOF 2000 1999 %VAR.

OPERATING REVENUES PASSENGER REVENUES 590,974 3,552 506,498 3,044 16.7 CARGO AND EXCESS BAGGAGE 42,973 258 37,949 228 13.2 HANDLING 39,442 237 39,262 236 0.5 MAINTENANCE 20,076 121 18,992 114 5.7 SALES COMMISSIONS 15,526 93 11,454 69 35.6 CATERING SALES 2,633 16 3,289 20 (19.9) OTHER OPERATING REVENUES 35,040 209 28,886 174 21.3 746,664 4,488 646,330 3,885 15.5 OPERATING EXPENSES FUEL 95,885 576 61,565 370 55.7 PERSONNEL EXPENSES 222,517 1,337 209,981 1,262 6.0 TRAFFIC SERVICES 56,856 342 53,270 320 6.7 IN-FLIGHT SERVICES 13,808 83 10,496 63 31.6 COMMISSIONS 84,805 510 71,371 429 18.8 NAVIGATION CHARGES 33,283 200 28,408 171 17.2 AIRCRAFT MAINTENANCE 48,230 290 49,410 297 (2.4) AIRCRAFT LEASE EXPENSES 60,614 364 50,142 301 20.9 PER I O D DE P R E C I AT I O NA N DA M O RT I Z AT I O N 28,573 172 27,138 163 5.3 BOOKING SYSTEMS 18,476 111 14,664 88 26.0 FEES 4,067 24 3,610 22 12.7 OTHER OPERATING EXPENSES 68,605 412 56,650 340 21.1 OPERATING EXPENSES 735,719 4,421 636,705 3,827 15.5 OPERATING INCOME 10,945 67 9,625 58 13.7

The main comments on the operating account are as follows: a) IBERIA GROUP OPERATING REVENUES Operating revenues increased by 15.5% in 2000, due mainly to the greater number of passenger and cargo flights and to the appreciation of the U.S.dollar with respect to the euro in 2000.The main variations were as follows:

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 183 PASSENGER REVENUES The difference between the passenger revenue figure shown above and that shown in the activity tables is due to the fact that the latter relates directly to the actual production for each year and does not reflect accounting adjustments and revaluations.The increase of Ptas. 84,476 million ( 508 million) in passenger revenues was due mainly to volume as a result of an increase in demand of 14.4% in terms of PKTs, since the number of passengers carried increased in all markets, and particularly as regards medium- and long-haul traffic, which have a greater effect on the average haul, where the increase was Ptas. 70,179 million ( 422 million).The variation due to price is due to various factors with an impact on the yield, such as the fare mix and the commercial yield-improvement policies;however, the principal reason was the drop in prices in the domestic network due to the excess supply in that market and the pricing policy in growing markets, such as the European and Latin American markets, on which the Company focused its strategy, in which the fluctuations in the U.S. dollar gave rise to significant increases, with an effect of Ptas. 16,941 million ( 102 million).

CARGO REVENUES The 13.2% (Ptas. 5,026 million, 30 million) increase in cargo revenues was due mainly to the larger number of flights (basically using passenger plane holds) and to the 4.7% rise in the yield, due largely to the easing off of the pressure on prices in the transatlantic markets and to the U.S. dollar effect.

HANDLING REVENUES The consolidated handling revenues remained virtually unchanged, since the drop in aircraft and passenger handling services provided to third parties (excluding Air Nostrum – 6.9%) was offset by the catering handling revenues provided to third parties by the subsidiary Iberswiss.The decrease recorded was due largely to the fact that the increase in third-party activity (5.4%), basically Air Nostrum and Spanish companies, was more than offset by a reduction in the unit revenue, relating mainly to Spanish third parties, with prices set at levels aimed at maintaining market share.

MAINTENANCE Maintenance revenues increased at consolidated level by Ptas.1,084 million ( 6 million), due mainly to the business activities of Viva Air (Maintenance).

SALES COMMISSIONS The increase in the volume of business led to an increase of Ptas. 4,102 million ( 25 million) in these revenues, due largely to billings relating to ticket sales through the oneworld alliance and the growing activity of Air Nostrum.

OTHER OPERATING REVENUES AND CATERING SALES The drop in in-flight sales was due to the fact that 2000 was the first complete year without duty free sales on intra-European flights and to the disappearance of the sales made on the now discontinued Viva Air flights. b) OPERATING EXPENSES Operating expenses increased by 15.5% (Ptas. 98,989 million, 595 million), due largely to the increase in fuel costs, to the higher cost of leasing new aircraft, both of which were significantly affected (by over 86%) by the U.S. dollar parity effect, to the cost of approach charges and to the increase in personnel expenses.

184 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT The variations in the main expense items were as follows:

FUEL Total fuel expenses in 2000 were 56% higher than in 1999 (an increase of Ptas. 34,320 million, 206 million),due mainly to the increase in fuel prices and to the 16.2% appreciation in the value of the U.S. dollar.The increases in volume and price were in no way offset with the saving achieved by using new aircraft with better fuel consumption. The detail of the various effects on fuel prices is as follows:

FUEL

MI L L.PTA S. MI L L.

P R I C E 1 8 , 0 0 7 1 0 8 VO L U M E 4 , 1 5 1 2 5 PA R I T Y 1 3 , 3 9 8 8 1 CO N S U M P T I O N / A S K ( 1 , 2 3 6 ) ( 7 ) TOTA L 3 4 , 3 2 0 2 0 6

This includes a reduction of Ptas. 250 million in the expense due to the disappearance of VIVA.

PERSONNEL EXPENSES Personnel expenses increased by 6% with respect to 1999, due mainly to the following: - A net increase in the number of direct employees, basically crews (268 more employees) and ground personnel (175 more employees) and in IBERIA L.A.E.’s handling and maintenance service employees, with an effect valued at Ptas. 4,431 million. - Salary increase under the collective labor agreement, with an effect of Ptas. 2,650 million, and an increase of Ptas. 1,722 million in operating expenses, such as per diems, and the concomitant effect of U.S. dollar parity in the case of international per diems in the markets on which IBERIA targeted its growth. - Length of service, promotions etc.,amounting to Ptas. 1,645 million, and an increase of Ptas. 813 million in social security costs. - The provisions for commitments to employees increased by Ptas. 1,293 million due to the recalculation of future payments and to an increase in the number of flight personnel. -Ter mination of certain employees and discontinuation of certain of the business activities of Viva Ai r , giving rise to savings of Ptas. 1,130 million, which were offset by the increase in the pe r sonnel expenses of the subsidiaries Iberswiss (Ptas. 673 million), due to the inauguration of the Barcelona catering center, Sa via (Ptas. 157 million) and Cacesa (Ptas. 65 million).

TRAFFIC AND IN-FLIGHT SERVICE COSTS The increase of 6.7% in traffic service expenses was in line with the increase in the Group’s production (6.4% in terms of block hours).The increase in in-flight services costs, which include costs relating to passengers, was due to the increase in demand of 14.4% in terms of RPKs, mainly in the networks with the highest unit catering costs (long-haul and European networks) and to the increase in the number of business-class fliers. The most significant increase arose in crew hotel accommodation costs (18.8%), whereas costs associated with interrupted journeys dropped as a result of the reduction in delays and improvement in quality to prior years’ levels.

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 185 COMMERCIAL EXPENSES (COMMISSIONS, OVERCOMMISSIONS AND ADVERTISING) The increase of 15.7% in commercial expenses net of commercial revenues was in line with the 16.4% increase in passenger and cargo sales. Commercial costs as a percentage of traffic revenues fell from 11.0% to 10.9% due to the greater use of the system of fares net of commissions, to the decrease in overcommisions and to the introduction of new direct sales systems, which reduced the cost of distribution intermediaries.

NAVIGATION CHARGES There was an increase in air traffic control expenses of 17.2% (Ptas. 4,875 million, 29 million), due largely to the increase of 6.4% in activity in terms of block hours, to the impact of increased approach charges at Spanish airports as a result of the elimination of discounts and to the increase in 2000 in the prices charged by Eurocontrol.

AIRCRAFT MAINTENANCE Aircraft maintenance expenses fell by Ptas. 1,180 million ( 7 million) in 2000, despite the increase in IBERIA aircraft flights and the rise in the value of the U.S. dollar, as a result of the lower operating costs associated with the new aircraft added to the fleet.

AIRCRAFT LEASE EXPENSES The increase of Ptas. 10,472 million ( 63 million) in these expenses was due mainly to: - A higher operating lease cost incurred as a result of additions of Airbus and Boeing aircraft to IBERIA, L.A.E.’s fleet, with an impact at Group level of Ptas. 21,152 million ( 127 million),partially offset by a decrease in passenger aircraft wet lease operations,valued at Ptas. 1,018 million ( 6 million), and by a greater saving due to hedging transactions. - The lease expenses relating to cargo aircraft and cargo holds decreased by Ptas. 792 million ( 5 million) with respect to 1999,due mainly to the reduced cost of the cargo aircraft.

PERIOD DEPRECIATION AND AMORTIZATION The period depreciation and amortization increased slightly by Ptas. 1,435 million ( 9 million) due to the addition of new leased aircraft to IBERIA’s fleet.

BOOKING SYSTEMS Booking system expenses increased by Ptas. 3,812 million ( 23 million) (26%), due to the rise of almost 11% in the number of booked flights and to the increase in the prices charged by Amadeus.

186 IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 5.2. IBERIA GROUP STATEMENTS OF INCOME

STATEMENTS OF INCOME MILLIONSOF PESETAS- MILLIONSOF 2000 1999 OPERATING INCOME 10,945 66 9,625 58 FINANCIAL INCOME (LOSS) (4,840) (29) 6,921 41 INCOME FROM SECURITIES PORTFOLIO 5,487 33 7,418 45 AMORTIZATION OF GOODWILL (1,100) (7) (1,100) (7) EXTRAORDINARY INCOME 26,341 158 8,118 49 NET INCOME BEFORE TAXES 36,833 221 31,082 187 TAXES (2,918) (18) (5,486) (33) INCOME BEFORE MINORITY INTERESTS 33,915 203 25,596 154 INCOME ATT R I BU T ABLE TO MINORITY INTERESTS (441) (2) (130) (1) INCOME OF THE CONTROLLING COMPANY 33,474 201 25,466 153

IBERIA GROUP - CONSOLIDATED MANAGEMENT REPORT 187 IBERIA L.A.E. Y GRUPO IBERIA