Behind the Scenes Annual Report 2008 – Backstory the DFS Annual Report 2008 Is Divided Into Two Separate Volumes: Volume 1 Thematic Part Volume 2 Financial Part

Behind the Scenes Annual Report 2008 – Backstory The DFS Annual Report 2008 is divided into two separate volumes: Volume 1 Thematic part Volume 2 Financial part

You can download or order both volumes of the Annual Report at www.dfs.de. The business year 2008 DFS Deutsche Flugsicherung Flugsicherung GmbH, Langen

Report of the Supervisory Board

In the 2008 business year, the Supervisory 2008 on the situation and development of Board performed its functions as pre- the corporation in accordance with Article scribed by legal provisions and the Articles 90 of the German Stock Corporation Law. of Association. The Supervisory Board regu- In 2008, there were five ordinary and two larly advised and monitored the activities of extraordinary meetings of the Supervisory the Board of Managing Directors and was Board. comprehensively involved in decisions of fundamental importance to the company. The Supervisory Board was supported by the audit, personnel and project commit- In the reporting period, the Supervisory tees. The three committees met to inten- Board was newly appointed for the next sively discuss draft proposals and to pre- Robert Scholl, Chairman scheduled term of office. pare resolutions for the Board's plenary meetings. On the Shareholder side, Jörg Hennerkes, Dr Dieter Knoll and Dr Michael Zumpe In addition to the quarterly reports on the retired from the Supervisory Board as of situation of the corporation, the Superviso- 22 April 2008. With effect from 23 April ry Board dealt with the following topics: 2008, Rainer Münz, Robert Scholl and Christiane Wietgrefe-Peckmann were n the annual financial statements of 2007, appointed as new members; in addition, management report and audit report on Dr Norbert Kloppenburg, Reinhard Kuhn the annual financial statements of 2007 and Hans-Dieter Poth as representatives of the Shareholder. and

Otto Fischer, Holger Müller, Petra Reinecke n the annual and business plan for 2009 and Peter Schaaf were elected as new with the medium-term planning until employee representatives to the Supervi- 2013, including financial planning and sory Board in elections held between 7 staff planning. and 11 April 2008. They succeeded Karl- Heinz Gatz, Walter Keppler, Volker Röhrich Furthermore, the Supervisory Board and Martin Rumpf. addressed the following key issues:

In the 62nd and constitutional meeting of n the changes in the distribution of the fourth term of office on 6 May 2008, responsibilities, the management sys- the Supervisory Board elected Robert tems and the organisational structures Scholl as Chairman of the Supervisory as part of the strategy and structure Board. analysis;

Within the scope of the quarterly reports n the involvement of DFS in the tender for and subsequent deliberations in the Super- the American FAA Contract Tower Pro- visory Board, the Board of Managing Direc- gram and the change to the Articles of tors reported to the Supervisory Board in Association;

4 n the membership in the Single European Sky ures. Through its commitment to the Single ATM Research Joint Undertaking; European Sky, DFS is making a major contribution to the further development and strength- n the construction of air traffic control towers ening of the technical and operational integra- at the international airports of Frankfurt and tion of European air navigation service pro- Berlin-Brandenburg International (BBI); viders to promote mobility and environmental protection. The Supervisory Board has deter- as well as mined that the Board of Managing Directors has paved the way strategically for the future n the adjustment of DFS rules of internal pro- and reacted with appropriate measures to the cedure. slowing trend in traffic growth brought about by the international economic crisis. The Supervisory Board discussed the 2008 financial statements and the management The Supervisory Board wishes to thank the report with the assistance of the audit report Board of Managing Directors, the staff coun- prepared by SUSAT & Partner oHG Wirtschafts - cils and all members of staff for the outstand- prüfungsgesellschaft in accordance with Article ing performance delivered in 2008. 53 of the German Budgetary Principles Act. The comprehensive risk management firmly established in the company was included in the audit. The auditors participated in the discus- The Supervisory Board sions and answered questions, giving an account of the key results of their report. Overall, the Supervisory Board found no exceptions to be taken after completion of its examination. Robert Scholl Chairman The Supervisory Board could see from the reports by the Board of Managing Directors that the high safety level in German airspace was maintained despite increasing traffic fig-

5 DFS Deutsche Flugsicherung Flugsicherung GmbH, Langen

Members of the Supervisory Board

Chairman Rainer Münz Robert Scholl Ministerialdirigent Ministerialdirektor Federal Ministry of Transport, Building Federal Ministry of Transport, Building and Urban Affairs and Urban Affairs Hans-Dieter Poth Deputy Chairman Colonel (GS) Michael Schäfer Federal Ministry of Defence DFS Deutsche Flugsicherung GmbH Employee representative Petra Reinecke DFS Deutsche Flugsicherung GmbH Otto Fischer Employee representative DFS Deutsche Flugsicherung GmbH Employee representative Peter Schaaf DFS Deutsche Flugsicherung GmbH Dr Norbert Kloppenburg Employee representative Member of the Managing Board KfW Bankengruppe Dirk Wendland DFS Deutsche Flugsicherung GmbH Dr Reinhard Kuhn Employee representative Ministerialrat Federal Ministry of Defence Christiane Wietgrefe-Peckmann Regierungsdirektorin Holger Müller Federal Ministry of Finance DFS Deutsche Flugsicherung GmbH Employee representative Correct at April 2009

6 Members of the Advisory Council

Chairman Prof Dr Elmar Giemulla Ulrich Schulte-Strathaus Ulrich Kasparick President Secretary General Parliamentary State Secretary Aircraft Owners and Pilots Association AEA – Association of European Airlines Federal Ministry of Transport, Building and AOPA Germany Urban Affairs Klaus-Peter Stieglitz Winfried Hermann Lieutenant General Member of Parliament Chief of Staff, Air Force Christine Alig German Bundestag Federal Ministry of Defence Chairwoman BARIG – Board of Airline Representatives in Norbert Königshofen Hans Joachim Suchan Germany e.V. Member of Parliament Administrative Director German Bundestag Zweites Deutsches Fernsehen, Uwe Beckmeyer 3sat and ARTE Member of Parliament Eric Kroese German Bundestag Special Advisor to the Minister on Aviation Policy Ralf Teckentrup Ministry of Transport, Public Works and Water President of the Executive Board Prof Dr Wilhelm Bender Management (Netherlands) Condor Flugdienst GmbH Chairman of the Executive Board Fraport AG – Frankfurt Airport Services World- Dr Klaus Lippold Hans-Joachim Tonnellier wide Chairman of the Committee on Transport, Chairman of the Board of Management Building and Urban Affairs Frankfurter Volksbank eG Markus Beumer German Bundestag Member of the Board of Managing Directors Daniel Weder Commerzbank AG Wolfgang Mayrhuber Chief Executive Officer Chairman of the Executive Board and Chief skyguide Charles-Louis d’Arenberg Executive Officer swiss air navigation services ltd Chairman of the Board Deutsche Lufthansa AG Belgocontrol Friedrich-Wilhelm Weitholz Ralf Nagel Chairman of the Executive Board Michael Eggenschwiler Senator for Economics and Ports of the Free Eurowings Luftverkehrs AG President Hanseatic City of Bremen ADV – German Airports Association e.V. Ernst Welteke Eduard Oswald Former Minister of State Wolfgang Faden Former Federal Minister Former President of German Bundesbank Chief Executive Officer Germany Member of Parliament Allianz Global Corporate & Specialty AG Chairman of the Finance Committee German Bundestag Permanent guest Dirk Fischer Robert Scholl Member of Parliament Dr Karl-Friedrich Rausch Chairman of the Supervisory Board German Bundestag Member of the Board of Management for Federal Ministry of Transport, Building and Passenger Transport Urban Affairs Horst Friedrich DB Mobility Logistics AG Member of Parliament German Bundestag Prof Klaus-Dieter Scheurle Correct at April 2009 Managing Director Credit Suisse Securities (Europe Limited)

7 DFS Deutsche Flugsicherung GmbH, Langen

Group management report for the business year ended 31 December 2008

Operating environment Overall economic situation Business activities The economy has been slowing down since DFS Deutsche Flugsicherung GmbH (DFS) is the middle of 2008. A number of industrialised responsible for air traffic control in Germany. It countries were already in a recession. In par- operates one of Europe's largest radar control ticular, the deepening of the crisis in the global centres in Langen, near Frankfurt. Further con- financial markets accelerated this trend. In the trol centres are located in Bremen, Karlsruhe previous year, the global economy posted and Munich. DFS also performs air traffic con- growth of only approximately 2.0% (estimate: trol at the 16 international airports in Germany. December 2008), industrialised countries The Berlin Senate decided to discontinue flight grew by only approximately 1.4%. It is antici- operations at Berlin-Tempelhof Airport in 2008. pated that the negative impact on the real Apart from performing air navigation services, economy stemming from the financial and DFS also operates and develops air traffic property markets will intensify and dominate management systems, surveillance systems the year 2009. as well as navigation aids. The company collects all flight-related data and uses them in The economic climate in the Federal Republic the provision of its products and services, of Germany had already been dampened by a such as aeronautical maps and charts and its series of external factors, particularly the jump pre-flight information service. In its Academy, in inflation driven by raw material prices in the the company trains a large number of air traf- first half of the year and the appreciation of fic controllers every year. At the end of the the euro. The 2008 inflation rate in Germany year, DFS had a staff of 5,300, half of them rose to 2.7% (previous year: 2.3%). Apart working in air traffic control. from being affected by the financial crisis, the German economy was hit by the weak global The subsidiary The Tower Company GmbH economy, which slowed the export of invest- (TTC), which was established in 2005, had a ment goods in particular. Nevertheless, gross staff of 34 (including a managing director) at domestic product rose by 1.3% in 2008. The the end of 2008. This company is entrusted number of gainfully employed persons rose by with the development and provision of air navi- 523,000 (+1.3%) from January 2008 to Janu- gation services at nine German regional air- ary 2009 (as at February 2009). As a percen- ports under fully competitive conditions. tage of the total labour force, the number of Besides the core business of aerodrome con- unemployed persons fell from 8.1% (2006) to trol services, this includes, in particular, apron 7.1% at the end of the year. management services, the coordination of ground handling and meteorological observa- Development of air transport tion. After five years of continuous growth in air traffic, 2008 saw a reversal of this trend. From Commercial activities both in Europe and Asia the fourth quarter of 2008, traffic has been are currently being further developed. decreasing significantly compared with the previous year. Air traffic declined for the first time since the third quarter of 2002.

8 The number of civil IFR flights in Europe in- Defi ni ti on of service units creased by only 0.4% in 2008. In the first half Arrivals/departures: max. take-off weight of 2008, the rates of increase in European √ 50 countries were still at the previous years’ level. En-route flights: max. take-off weight distance in km x In the second half of 2008, a reduction in the √ 50 100 load factor could be seen, which as a consequence led to an adjustment in capacity. Since In 2008, the number of service units for October 2008, air traffic has been declining in arrivals and departures in German airspace Europe. Italy, Spain, the United Kingdom and increased by 1.4% over the previous year to France, which in 2007 had posted the highest 1,190,919, and for en-route flights by 2.7 % growth in traffic, saw significant decreases in to 12,749,260. aircraft movements. Transatlantic traffic posted the lowest load factor rates for four years. With respect to arrivals and departures, the airports of Leipzig, Berlin-Tegel and Munich In Germany, the number of flights under instru- recorded the highest increase in service units. ment flight rules (IFR) recorded in 2008 rose Frankfurt only posted a slight increase, while by a total of 1.1% over the previous year. The Cologne/Bonn saw a significant decline. The number of IFR flights increased from growth rates in the en-route area are mainly 3,115,324 (2007) to 3,149,591 (2008). The attributable to low-cost carriers as has been distribution was as follows: 13.2% domestic the case in the past. Such airlines now flights, 51.7% flights arriving in or departing account for around 24.0% of total air traffic in from Germany and 35.1% overflights. Germany.

The volume of civil air traffic increased by Legal and organisational framework condi- approximately 1.3% over the previous year. In tions contrast, the volume of military air traffic In 1993, DFS was entrusted with the tasks of dropped by approximately 6.4%. the Federal Administration of Air Navigation Services (BFS). The headquarters of DFS is in DFS revenues in the business year 2008 stem Langen, near Frankfurt. The company is regis- from the total number of aircraft movements, tered under HRB 34977 on the Commercial calculated on the basis of the maximum take- Register at the local district court in Offen- off weight (MTOW) of the aircraft used, bach. expressed in service units. A service unit is computed as the square root of the weight fac- The objective of the company is to develop tor (arrivals and departures) or the square root and provide the air navigation services which of the weight factor multiplied by the distance the Federal Minister of Transport (MoT) has factor (en-route flights). This formula takes into entrusted to it. The sole shareholder is the account the economic value of each flight conducted so that the value of the air traffic control service performed is considered by the legislator when establishing the relevant air traffic control charges.

9 Group management report 2008

Federal Republic of Germany. The company is DFS also holds 55% of the shares of the managed by the Chairman of the Board of Braunschweig-based FCS Flight Calibration Managing Directors and two further Managing Services GmbH and 36% of the shares of Directors. The Supervisory Board of DFS com- GroupEAD S.L., which has its headquarters in prises 12 members, six appointed by the Madrid, Spain. Shareholder and six elected by the employees. As the subsidiaries are not yet of sufficient DFS is the sole shareholder of the following materiality, the contents of this management companies that have their headquarters in Lan- report only refer to DFS. gen, near Frankfurt. n The Tower Company GmbH With the retirement of the Managing Director n DFS European Satellite Services Beteili- Infrastructure and the creation of a new posi- gungsgesellschaft mbH tion Managing Director Finance and Human n DFS Unterstützungskasse GmbH Resources, there was a change in the distribution of responsibilities among the Managing Directors as at 1 January 2008.

Distribution of Responsibilities among the DFS Managing Directors

Chairman and CEO (V) Managing Director Operations (F) Managing Director Finance and HR (K) – Labour Director – n Corporate development (strategy, n Area control and approach con- organisation, international affairs) trol service (incl. ATS systems) n Finance (incl. taxes and charges) n Institutional and legal affairs, n Aerodrome control service (incl. n General administration (control- insurances, risk management ATS systems) ling)

n Safety and security management n Flight information service, alert- n Procurement systems ing service n Human resources management Auditing, quality management Provision of aeronautical infor- n n n Human resources strategy and mation and data, aeronautical n Corporate communications, public development relations, environment information service (incl. ATS n Collective bargaining systems) Communications, navigation and n n DFS Academy surveillance services, logistics n Research and development Military affairs n Technical and infrastructural facili- n ty management

n Systems House (business and administrative information technology)

n Consulting services

10 The core processes of DFS are divided into The Board of Managing Directors will in the four business units: future be advised by a ten-strong Management n Control Centre (area and approach control Committee. The Management Committee is services including ATS systems) made up of members of the first management n Tower (aerodrome control service including level. By including the committee in all signifi- ATS systems) cant topic areas which are cross-departmental n Aeronautical Solutions (consulting services) and which impact the whole company, deci- n Aeronautical Information Management (provisions will be made more quickly and communi- sion of aeronautical information, including cation improved. AIS) Corporate management The business units are complemented by Cor- Corporate management and reporting at DFS porate Service Centres und Corporate Devel- are based on the separation of the core busi- opment Centres. The Corporate Development ness financed by ANS charges and the com- Centres focus on activities of the management mercial business not financed by ANS processes and on preparing decisions to be charges. The major part of the core business taken by the management. The Corporate comprises en-route control and aerodrome Service Centres are in charge of central ser- control services. Planning and control for busi- vices, thus supporting the business units. ness activities financed by ANS charges are subject to the principle of full cost recovery The organisational structure of DFS may have and a specified return on equity in combination to be modified in the future, above all as a with non-monetary indicators concerning safe- result of the following initiatives: ty (number of aircraft proximities) and service n In the medium term, the creation of cross- quality (ATC-induced delays). Planning and con- border Functional Airspace Blocks (FAB) trol of the commercial business is based on together with neighbouring air navigation targets relating to EBIT and the contribution service providers; margin. n Within the scope of the Single European Sky (SES), the harmonisation of the European air Capital procurement is a central corporate navigation systems (interoperability and fur- task on which the individual organisational ther development of the technical air naviga- units have no influence. This is why interest tion infrastructure). expenses are not taken into account in their targets. The same applies to tax expenses. The project “Optimisation of corporate strategy and structure” commissioned by the Super- Corporate management is based on an ongo- visory Board in 2006 was concluded in 2008. ing performance assessment by means of DFS will continue to be led by three Managing comparisons between planned and actual fig- Directors. The associated implementation pro- ures (monthly, annually). These comparisons jects in the business units were completed on are made on the basis of an annual planning schedule in 2008. process with a 5-year horizon, the focus being on the budgeted year (n+1).

11 Group management report 2008

Research and development activities tion services organisations in the two year defi- The German air navigation services must con- nition phase, which ended in spring 2008. This stantly strive for the highest performance as it phase was funded by EUROCONTROL and the controls the busiest airspace in Europe with a European Commission. The subsequent devel- continuously increasing volume of air traffic in opment phase of the future European air traffic the mid-term. Besides excellent personnel and management system will be organised within tried and tested technology, innovations are an the scope of the SESAR Joint Undertaking important factor. DFS has for many years col- (SJU). Along with other leading organisations, laborated in national and international research DFS declared its intention to become an active projects in order to identify and shape promis- member of the SJU in December 2008. DFS ing technological trends and new operational will be in a position to help shape the future of approaches at an early stage, as well as to European air navigation services on the basis advance and market innovative developments. of its experience and benefit optimally from the joint developments. DFS dedicates about 1% of its total costs and about 70 staff members to research activities. Results of operations Approximately one third of these staff increas- Development of the unit rates ingly supports operational tasks, for example, Since 2007, air-traffic-related cost elements of the training simulator for air traffic controllers the German Meteorological Service (DWD), as and the optimisation of procedures and air- well as of the national supervisory authority space structures. A total of approximately 4% (BMVBS), have been included in the unit rate of the costs and 170 staff posts are allocated for terminal services, in keeping with the EU to research and own developments, this was regulations concerning the provision of air nav- strengthened in 2008 by the technology man- igation services. agement department. These costs were offset by funds amounting to €1.7 million from the The 2008 unit rate for terminal services rose German aeronautical research programme and by 1.4% from €160.07 to €162.34. In 2009, the European research framework programmes. the unit rate for terminal services will rise by The activities funded on a national basis, where 3.4% from €162.34 to €167.78 because of DFS once again coordinated the largest inter- the expected decline in traffic. Compared with connection project of the air transport section, the rate in 2003 of €224.70, the unit rate of focus on busy airports and their vicinity. A major €167.78 for 2009 is 25% lower. The DFS objective is the optimal use of limited capacity share amounts to approximately 96%. with the best possible punctuality while taking ecological factors into consideration.

The most prominent project at international level is the Single European Sky Air Traffic Management Research (SESAR). DFS took a leading role among the participating air naviga-

12 2009 2008 2007 2006 2005 2004 Terminal unit rate (€) 167.78 162.34 160.07 143.85 140.20 195.60 DFS share (€) 160.80 154.24 151.02 143.85 140.20 195.60

The national unit rate for en-route charges For 2009, the national unit rate for en-route comprises air-traffic-related cost elements of services will increase by about 3.5% from DFS, the German Meteorological Service €64.77 to €67.02. This is primarily attributa- (DWD), EUROCONTROL and the national super- ble to the expected decline in traffic. Com- visory authority. In 2008, the national unit rate pared with 2003 (€92.26), the unit rate of for en-route services declined by about 3.6% €67.02 for 2009 is 27% lower. The DFS from €67.21 to €64.77. The DFS share share amounts to approximately 80%. In declined by 3.4% from €53.10 to €51.29. 2008, the German government reimbursed DFS about €5.5 million for the costs of services provided for en-route flights under visual flight rules.

2009 2008 2007 2006 2005 2004 En-route unit rate (€) 67.02 64.77 67.21 63.13 71.31 89.31 DFS share (€) 53.30 51.29 53.10 49.74 56.05 69.66

Revenues After making allowance for reimbursements to the Federal Republic of Germany and netting over-recoveries from the years 2006 and 2008, revenues from air navigation services increased slightly by 0.8% from €885 million to €892 million.

Revenues from en-route charges 2008 2007 2006 2005 2004 Gross revenues (in € millions) – – 734 785 913 Reimbursements paid by DFS (in € millions) – – 155 167 200 Net revenues (in € millions) 650 655 579 618 713

13 Group management report 2008

In 2008, net revenue from en-route charges many for its contribution to the EUROCON- declined by 0.8% over the previous year, also TROL budget as well as the prorated costs for as a result of the 3.6% decrease in the nation- the aeronautical meteorological service of the al unit rate compared with the previous year. German Meteorological Service and for the national supervisory authority. Since 1 January 2007, the German Govern- ment has been reimbursed directly by EURO- CONTROL and no longer by DFS. Up until 1 January 2007, DFS had remitted the reimbursements to the Federal Republic of Ger-

Revenues from terminal charges 2008 2007 2006 2005 2004 Gross revenues (in € millions) 194 189 – – – Reimbursements paid by DFS (in € millions) 10 11 – – – Net revenues (in € millions) 184 178 162 154 207

In 2008, revenues from net terminal charges billed by DFS increased by approximately 3.4% over the previous year. The unit rates increased by 1.4% in comparison with the previous year. Since 2007, the unit rates for terminal services include air-traffic-related cost elements of the German Meteorological Service (DWD) and the national supervisory authority (BMVBS).

Revenues from military operational air traffic 2008 2007 2006 2005 2004 in € millions 58 56 59 65 66

Government reimbursements to DFS for mili- Other sales revenues increased by approxi- tary flights and the Maastricht unit amounted mately 15% from €19.4 million to €22.4 mil- to €58 million in the year under review. lion. They mainly comprise revenues from training and personnel services as well as con- Revenues from other air navigation services sulting and apron management services. (aeronautical publications, flight calibrations, expert reports) amounted to €5.4 million, rep- Revenues amounting to €20.4 million from resenting a decrease of €0.5 million com- other air navigation services and other sales pared with the previous year. revenues were generated by business activities not financed by ANS charges.

14 Other operating income Depreciation and amortisation totalled Other operating income amounted to €54.4 €109.5 million, a decrease of €13.0 million million and mainly consisted of the following: compared with the previous year. n Income from the reversal of finance lease liabilities ahead of schedule Profit n Income from the reversal of provisions In 2008, DFS realised net income of €49.6 n Sale of energy by the DFS energy plant in million. The operational over-recovery amount- Langen to third parties ed to €42.6 million. n Income from the reversal of allowances for doubtful accounts It must be taken into account that the rev- n Leasing of buildings and calibration aircraft enues contain an amount of €37.1 million n Project-specific funding by the European (previous year: €36.7 million) from non-recur- Commission ring effects arising from the conversion of the n Reimbursement of costs of the business cost-base to International Financial Reporting year and of previous years Standards in 2007.

Principal cost categories When assessing the net income as well as the In the year under review, employee expenses results of ordinary activities, the particular situ- amounted to €590 million (previous year: ation of DFS as regards its ANS charges policy €555 million). Wages and salaries accounted based on ICAO and EUROCONTROL principles for €462 million (previous year: €407 mil- must be borne in mind. These principles stipu- lion), social security costs and expenses for late that – after making allowance for a rea- pensions and assistance for €102 million (pre- sonable return on capital employed – over- or vious year: €119 million). Staff costs for per- under-recoveries must be passed on to the air- sonnel from the Federal Office of Civil Aviation space users in subsequent years. (LBA) totalled €25 million (previous year: €29 million). The operational over-recovery amounting to €42.6 million is carried forward at the end of Interest of €88.4 million accruing from provi- the 2008 business year and will be taken into sions for pensions and early retirement is account when determining air traffic control charged to the financial result. Return on plan charges for the year 2010, unless otherwise assets (€45.6 million) is credited to the finan- stipulated in new statutory charging regula- cial result. tions.

The principal cost categories included under other operating expenses are power, rent and other building occupancy costs (€30.4 million), costs of spare parts and maintenance (€42.6 million), other employee expenses (€9.5 million), and costs of external personnel (€12.9 million). In total, they comprise 66.9% of other operating expenses.

15 Group management report 2008

Assets and financial position n At the airports of Frankfurt and Munich, ILS Capital expenditure equipment was replaced with a new system In the 2008 business year, capital expenditure generation. totalled €79.5 million. The following projects n The DFS Systems House building is being are currently under way and represent the redeveloped to optimise energy use and to highest share of capital expenditure: improve working conditions. n P1/VAFORIT software for the new Karlsruhe flight plan data processing system for upper In the 2008 business year, assets under devel- airspace. opment worth a total of €39.5 million were completed. The main projects included: n Data Link software: The introduction of Data n P1/VAFORIT: Completion of parts of the Link will allow the partial replacement of software for the new Karlsruhe flight plan radiotelephony by air-ground data transfer. data processing system.

n iCAS software: The future control centre n The control centre extension in Langen: The system iCAS will in particular meet the inter- extension for the future installation of the air operability requirements of the Single Euro- traffic management system iCAS was com- pean Sky regulations. pleted. In addition, new rooms for the aeronautical telecommunication centre at Frank- n The further development of the internally furt Airport were completed and the power generated software Phoenix (system for the supply of the Langen control centre was air situation display). refurbished in keeping with DFS requirements. n The transition phase for the internally generated software PSS (Paperless Strip Sys- n The voice switching system SVS-XM Düssel- tem) started in 2008. dorf in Langen entered into service.

n New Frankfurt control tower: The construc- n The internally generated software E-PEP (an tion of a new tower unit started on 27 Octo- electronic personnel planning system) was ber 2008, with the foundation stone being completed in March 2008. laid on 30 January 2009. The construction was required in the light of the plans of the n The externally generated software PSS airport operator Fraport AG to build a new entered into service in July 2008 at the Bre- runway in the north-western part of the air- men Control Centre. port. Balance sheet structure n New tower at Berlin Brandenburg Interna- The group financial statements of DFS as at tional: In the 2008 business year, planning 31 December 2008 were prepared in accord- services for the construction of a new tower ance with the International Financial Reporting unit were rendered due to the construction Standards (IFRS) issued by the International of the new airport. Accounting Standards Board (IASB). Transition

16 to IFRS was effected as at 1 January 2006 decrease of approximately €29 million in (opening IFRS balance sheet). The resulting dif- property, plant and equipment over the previ- ferences were recognised directly in equity. ous year. As a result of higher intangible and The causes for the differences and their financial assets, this effect was less significant effects on equity are described in detail in the for non-current assets. The details of capital Notes. As at 31 December 2008, DFS has expenditures are presented in the preceding negative equity amounting to minus €344.5 section. In total, non-current assets declined million. This is mainly due to the fact that provi- by €46 million, while current assets increased sions for pensions and similar obligations are by €24.4 million. Current assets rose primari- now determined according to IAS 19 (“Employ- ly due to an increase of €31.4 million in cash ee benefits”). Under the German Commercial at bank. Code (HGB), pension obligations were determined on the basis of the “Teilwert” (part-value) Non-current liabilities decreased by €91 mil- method permitted under German tax laws. lion and the negative equity declined by €40.4 million compared with the previous year. Cur- DFS has the right to spread the ex-post financ- rent liabilities increased by €29.2 million due ing requirements resulting from the conversion to the rise in non-current other provisions. to the new accounting standards over a period of 15 years by including them in the cost-base Net financial indebtedness amounted to (Article 6 of EU Regulation No. 1794/2006). In €17.5 million at 31 December 2008, the this way, the negative equity of DFS will be debt-equity ratio at the balance sheet date continuously reduced during this period, pro- thus amounted to 1.7%. Interest expense vided that the current charging regime remains exceeds interest income by €43.1 million. in force. The following passage describes the changes made to the balance sheet structure compared with the previous year.

Last year, the balance sheet total decreased by 2.0% to €1,043 million compared with the previous year. This reduction is mainly due to a

Balance sheet indicators 2008 2007 2006 Balance sheet indicators in € 17.5 63.5 119.7 (Financial liabilities – liquid funds) millions Debt-equity ratio % 1.7 6.0 10.3 (Net financial indebtedness/balance sheet total) Asset intensity % 73.9 76.7 74.1 (Non-current assets/balance sheet total)

17 Group management report 2008

Cash flow statement Issuance Programme to the amount of €500 As can be seen from cash flow statement pres- million each). As back-up credit lines to redeem ented in the Notes, at €129.2 million the inflow commercial paper falling due, DFS had at its dis- of cash from operating activities basically posal credit facilities with its principal bankers matched the previous year’s level. In the year totalling €161 million in the year under review. under review, the reduction in deferred tax assets and lower liabilities was primarily offset With its money and capital market programme, by a reduction in depreciation and amortisation, DFS attracts both national and international other receivables and assets as well as lower investors. These investors base their investment pension obligations. decisions and price fixing on the credit rating of each debtor. DFS is awarded standardised cred- At €71.5 million, capital expenditure of DFS it ratings by credit rating agencies according to was at about the same level as in the previous internationally uniform procedures. DFS has year (€68.6 million) and was covered by the been awarded ratings by the two leading agen- inflow of cash from operating activities. cies, namely Standard & Poor’s and Moody’s. In 2008, both agencies once again confirmed the The cash outflow from financing activities credit-worthiness of DFS with the best possible amounted to €26.3 million, primarily due to the rating for both short-term and long-term credit, reversal of finance lease liabilities ahead of awarding it with A-1+/AAA and P1/Aaa ratings. schedule for towers and associated equipment of €21.8 million. In addition, dividends amount- To cover its capital requirements in the 2008 ing to €7.7 million were paid to the Shareholder. business year, DFS made use of its money and capital market programme and took out short- Cash and cash equivalents increased by €31.4 term loans from its principal bankers. As at million to €129.8 million. year-end 2008, bonds totalling €92.2 million with remaining terms of up to ten years were Financial management outstanding. The average nominal interest rate Financial management at DFS is carried out cen- for bonds at the balance sheet date was 5.28%. trally with the objectives of ensuring liquidity and optimising the interest result. DFS has a cash- In the 2008 business year, the liquidity situation pool agreement for all companies in which it did not require any fresh borrowings. Existing holds more than 50% of the shares. In addition, bonds primarily have fixed interest rates or have DFS has a profit-and-loss transfer agreement been swapped from variable to fixed. Other sig- with its subsidiary TTC, which was founded in nificant off-balance sheet financing activities do 2005. not exist.

DFS mainly finances itself by drawing on a money and capital market programme. This programme consists of general agreements for issuing short-term as well as medium- and long- term bearer notes (Multi-Currency Commercial Paper Programme and Multi-Currency Debt

18 Personnel The people who work for DFS make a major contribution to the long-term success of the company and its sustained corporate development.

As at 31 December 2008, DFS had a total of 5,342 employees. The following table shows the changes in the number of employees at DFS:

31Dec2008 31Dec2007 31Dec2006 31Dec2005 31Dec2004 Permanent employees 5,342 5,126 5,165 5,301 5,359 Total of which salaried staff 4,797 4,640 4,667 4,756 4,757 of which wage-earners 32 33 34 37 37 of which commercial apprentices 39 42 37 38 40 of which air traffic 112 27 26 48 92 control trainees belonging to the Federal Office of 362 384 401 422 433 Civil Aviation (LBA)

There are 4,797 salaried staff, 32 wage-earn- for air traffic controllers due, inter alia, to the ers, 151 apprentices and trainees, and 362 civil continuous increase in traffic and the age struc- servants. Forty-seven percent of employees ture of the current air traffic controller popula- work in air traffic control (including support serv- tion (generation shift). Therefore, in 2008 the ices) and 8% perform technical services for air number of air traffic controller trainees recruited traffic control. The remaining 45% work in auxil- rose. All traineeship places were filled. The iary service areas such as finance, human growing need for more trainees meant that addi- resources management, IT, facility manage- tional staff needed to be taken on in the Air Nav- ment, safety management and project manage- igation Services Academy (teachers), in the ment. training simulators section and in personnel services. The rising demand for air traffic con- At year-end, the DFS subsidiary TTC had 34 trollers was partially met by recruiting additional employees (including a managing director). This external air traffic controllers. The objective of number includes 22 qualified or trainee air traf- this measure is to fill positions at short notice fic controllers. with external air traffic controllers who have already completed their training. Trainees The number of employees at DFS increased by require four years to become fully fledged con- 4.2% compared with the previous year. The trollers, while this can be reduced to around one increase was brought about by the high demand year for a qualified external air traffic controller.

19 Group management report 2008

Female employees represent 26% of the entire erative Education, combining periods of study DFS workforce. There were 550 part-time with interlocking periods of structured work employees – 401 women and 149 men. Since experience at DFS leading to a Bachelor of Arts 2001, the number of part-time employees has (Air Transport Management) or a Bachelor of almost doubled. Non-German nationals made up Science (Information Technology). In the next 3.1% of the workforce and this figure has slight- few years, DFS will continue to expand the num- ly increased since 2001. In 2008, DFS ber of such positions. This is the reaction of employed 164 non-German nationals from 37 DFS to the growing demand for qualified staff nations, mainly from the USA, followed by the who are trained internally and who will, in all like- United Kingdom, Austria and Italy. lihood, take on duties in the company on completion of their training. In 2009 and 2010, The age structure of staff is well balanced, with there will be 124 and 154 training places, the average age being 42 years. The average respectively, for new air traffic controllers. All age for men is 43, whereas the average female training contracts for air traffic controllers employee is 39 years old. Twenty-nine percent include a guarantee of employment should the of staff are 35 years old or younger (previous training be successfully completed. The relative- year: 27.8%), 78.0% are 50 years old or ly high number of planned new hires requires younger (previous year: 78.5%). These figures intensive recruitment advertising of the training are expected to largely stay the same in the opportunities at DFS, primarily in air traffic con- coming years. trol (ATC). Since 2008, DFS has again been advertising nation-wide on the radio. All print The rate of staff turnover in 2008 was at a com- media used by secondary school pupils for paratively low level. This rate – which only con- career selection purposes, including teaching siders employees who leave DFS voluntarily – materials, have been employed in recruitment was 1.2 % in 2007 (previous year: 1.0%). The advertising. The national competition for best figure is much lower than the average rate of school magazine was held for the fifth year in turnover of 2.9% that prevails in service compa- succession and the DFS Training Day for the nies (source: German Association for Personnel first time. Management 2008). One of the reasons for the low turnover rate is the fact that there is no external labour market for air traffic control staff.

For many years, DFS has been offering trainee- ships to job starters. In 2008, 116 started at DFS, 100 of whom started their training to become air traffic controllers. Sixteen apprentices embarked on a business or technical career to become, for example, office clerks, technicians or IT specialists. Others started their career in the dual education system offered in cooperation with a University of Coop-

20 Supplementary report Possible effects are grouped into four cate- At the beginning of 2009, there was a decline in gories for further analysis: traffic which greatly exceeded the planning fig- n Operations: e.g. fulfilling statutory obligations, ures prepared in the autumn of 2008. The engineering decline in demand seen in the last quarter of n Finance: e.g. costs, financial markets, cus- 2008 is gaining momentum. A comparable tomers/suppliers trend can be seen in the neighbouring countries n Leadership: e.g. strategy, personnel, organi- relevant for DFS. sation n External environment: e.g. markets and com- Therefore, we expect this development to con- petition, politics and legislation tinue through the whole of 2009, with lower traffic figures and consequently declining revenues. The analysis is conducted for both the services We anticipate that there will be a mid-year financed by ANS charges and commercial serv- adjustment of unit rates. ices. Possible risks facing the subsidiaries are also considered. Risk assessment is based on The reversal of finance lease liabilities conduct- the evaluation of the probability of occurrence ed ahead of schedule in 2008, was also carried and the amount of possible damages as report- out at the beginning of the year for the other ed by the department affected. The goal is a control towers and operating equipment under quantifiable assessment; in well-founded cases a Article 27d of the German Aviation Act. qualified assessment is permissible. The standards for the range applied in qualified assess- Risk report ments are laid down centrally in an assessment DFS uses efficient instruments to identify, matrix. Based on this, the reported risks are cat- analyse, monitor, and control the risks associat- egorised as ‘red’/threat to going-concern status, ed with its business. The ongoing further devel- ‘yellow’/material and ‘green’/internal to the opment of the risk management system, which department. takes account of the changes taking place in the company and the aviation industry, also The Board of Managing Directors receives quar- guarantees the early identification of risks, terly reports on those risks to the going-concern including the initiation of countermeasures, in status and material risks, with an overview of the future. changes to the prior period and all risks that were hedged in the period under review. The risk management process The risk management process at DFS lays down A binding version of the risk management standards for the ongoing company-wide recog- process is described in a process description nition and assessment of business risks, begin- and in an operational instruction concerning risk ning with the applications for approval of busi- management. The integrity of the risk manage- ness plans and projects. ment system is tested in the course of the audit of the annual financial statements by the external auditors and on a regular basis by the Inter- nal Audit department.

21 Group management report 2008

The organisation Presentation of material risk areas The Board of Managing Directors has tasked The material risk areas are set out below: the Risk and Contract Management department with the central implementation of the risk man- n Insured risks agement system in the company. The main DFS has taken out insurance to cover common duties include the methodical further develop- insurable risks, including those of subsidiaries. ment of the system, including laying down the It particularly includes compensation for the documentation requirements, as well as the loss or damage of material assets and the central risk reporting to the Board of Managing resulting interruption of operations minus the Directors. usually agreed deductible.

Risks are managed by the responsible organisa- It should be kept in mind when assessing the tional units. The heads of these units are insured risks that DFS performs sovereign func- obliged to make quarterly updates and any ne- tions on behalf of the Federal Republic of Ger- cessary ad-hoc updates as part of their man- many in keeping with Article 87d of the German agement responsibilities. As part of this pro- Basic Law (in conjunction with Articles 31b and cess, measures to mitigate and manage risks 31d of the German Aviation Act). As a conse- are reassessed and supplemented. In general, quence, the Federal Republic of Germany is the forecast period is one year. The heads of liable for claims brought by third parties for the organisational units are responsible for damages in line with the principles of State lia- ensuring that the statements on the risk situa- bility. tion in their areas are correct. In the case of damage culpably caused by DFS In 2004, a risk management committee was set while acting on behalf of the Federal Republic of up to provide a company-wide view of the risk Germany, aviation recourse liability insurance situations reported by each department. As a covers a limit of €767 million per instance of rule, the members belong to ‘management level damage, thus releasing the Federal Republic of 1’, are closely involved in the business decision- Germany from its liability to this amount. making processes, know company-wide interre- lationships and are hence in a position to con- Third-party claims relating to employer's liability tribute to forming a comprehensive overview. risks or aviation risks outside the area of sovereign tasks are covered by insurance policies. The resulting risk reporting to the Board of Man- aging Directors takes place on a quarterly n Risks associated with the industry and basis. The risk reporting of the Board of Manag- general conditions ing Directors to the Supervisory Board of DFS DFS is exposed to market and external risks takes place every six months. which sometimes lie far outside of the Federal Republic of Germany, such as risks triggered by

22 political events, economic developments or The inclusion of aircraft emissions in emission cross-border health risks. There is no safeguard trading as planned by the European Commission against these risks and DFS can only offset changes the framework conditions. The airlines their effects in part. are expected to pass on the costs of the emission trading scheme directly to consumers. The economic environment in 2008 was charac- terised by the global financial crisis and the The political unrest in the Middle East and the weakening global economy. In view of this, the threat of terrorist attacks are still unforeseeable leading economic institutes and experts lowered risks for the development of air transport. This their economic forecast for 2009. The Federal also applies to the occurrence of pandemics. government expects a decline in economic growth of minus 2.25% based on the Annual n Corporate strategy risks Economic Report 2009 presented in January In view of the changes facing air navigation serv- 2009. ice providers in Europe, DFS conducts rolling strategic planning. As a result of the annual Consequently, it is not possible to foresee the strategic planning process, the company is impact of the financial and economic crisis on aligned with the goal of continuing to success- air traffic. Admittedly, two trends can be seen: fully positioning itself in a changed environment Aircraft load factors are dropping and advance in the future. bookings in business aviation are declining significantly. In addition, the umbrella organisation Beginning with the vision of DFS, the long-term for airlines, the International Air Transport Asso- direction of this approach gives us stability and ciation (IATA), anticipates billions in losses orientation in the light of major changes that the despite declining crude oil and industrial raw company will face in the coming years. To give material prices. Overall, it can be said that the an example – the air navigation service pro- development of air traffic in 2009 will not match viders are focusing more on Europe as shown the previous year’s level. by the creation of functional airspace blocks (FAB) and the harmonisation of air traffic man- Airlines continue to call for DFS to ensure high agement systems in terms of interoperability safety levels, maintain infrastructure – regard- under SES. less of the level of demand – and to provide a high service quality, while enhancing air traffic control capacity.

In the medium term, it is anticipated that air traffic will return to its long-term growth trend. A risk which applies to Germany in particular is the delay in the expansion of airport infrastructure which negatively impacts Germany in terms of competition in Europe.

23 Group management report 2008

n Performance-related and IT risks n Financial risks The top priority of DFS is to ensure air safety. Principles of financial risk management DFS has established and complies with a safety As part of its business, DFS is exposed to risks management system in keeping with Regulation relating to changes in interest and exchange (EC) No. 2096/2005. To this end, various meas- rates. Financial risk management also focuses ures are taken at all levels of planning, imple- on counterparty and liquidity risks. menting and operating the DFS infrastructure to minimise the probability of downtime of the The objective of risk management is to mitigate operational and administrative infrastructure of existing risks. It is not permitted to take specu- DFS such as would endanger air safety and lative positions separately from an underlying impact the business performance of DFS. transaction.

The risk management system of DFS also incor- As part of its overall risk management system, porates the systems and applications related to DFS performs Value-at-Risk (VaR) analyses to ATM and to administration. Measures to avoid manage market price risk (interest, currencies). outages that would have economic repercus- The risk position is assessed weekly by the sions include the redundancy and spatial sepa- Treasury department based on market price ration of critical systems, the storage of com- risks and is reported to the Board of Managing prehensive data on separate data carriers as Directors. The VaR indicates the absolute loss well as the SAP backup computer centre. for a company of a defined risk position, which will not be exceeded with a previously defined n Personnel risks probability over a given period of time. The cal- The commitment and dedication of its staff are culation of the VaR at DFS is based on a holding crucial for DFS to maintain safety in German air- period of 10 days and a probability of 95%. On space and for the future economic development 31 December 2008, the cumulative loss at a of the company. confidence level of 95% amounted to under €942 thousand. DFS uses a comprehensive range of measures to recruit new air traffic controllers. To meet the rising need for air traffic controllers, qualified air traffic controllers were recruited from other organisations (ready entries) in 2009 to comple- ment the recruitment of new air traffic control trainees.

In the light of demographic change and the tougher competition to recruit highly qualified staff and executives, DFS is intensifying its recruitment marketing particularly for IT, mathe- matics, physics, engineering and engineering management graduates.

24 The VaR is calculated as follows: With the help Other price risks of statistical time series on the relevant financial Other price risks were not present or known. market data (interest rates, exchange rates), historical simulations are computed by extrapo- Liquidity risk lating scenarios from the past to the future The daily liquidity is monitored by the Treasury using simulated changes in market values for department and is managed with the help of financial instruments. short-term liquidity planning. As an additional safeguard, DFS has as a result of its excellent This market risk analysis includes all money creditworthiness sufficient lines of credit at its market transactions of DFS, the issued bonds, disposal (€161 million), in addition to its capital interest derivatives, securities, currency hedges market programmes. There was no liquidity as well as all associated risk positions (foreign shortfall in the year under review. currency purchases/liabilities). Quantitative information on VaR values for risks from curren- Default risk cy and interest rate changes is summarised in DFS is exposed to default risks from its operat- note 33. ing business and from financial instruments. As regards financial investing, transactions are only Currency risk entered into with counterparties who either have DFS is exposed to transaction risks as part of a long-term rating of at least AA/Aa3, short- cross-border business transactions. The majori- term A1/P1 or a correspondingly high credit- ty of foreign currency purchases/liabilities result worthiness or other form of collateral. In the from suppliers invoicing in US dollars. The total operating business, receivables are monitored volume amounted to approximately US$3.5 mil- constantly. Default risks are taken into account lion in the reporting period. Other currencies are using specific and general allowances for doubt- only of minor importance. These risks are limit- ful accounts. The maximum default risk is ed by means of hedging using financial deriva- reflected in the carrying amounts of the financial tives. assets recognised in the balance sheet.

Currency risks from financial transactions (for- Currently, there is no default risk stemming from eign bonds/foreign currencies/commercial the cross-border leasing transaction (QTE paper) are hedged immediately on conclusion of lease). the transaction. n Other risks Interest rate risk The complaint (previously reported here) DFS is exposed to interest rate risk from both brought by an airline against charges levied by financing activities and financial investments. DFS in 2004 is pending final judgement. The In 2008, DFS made use of financial derivatives Federal Administrative Court allowed the appeal to hedge interest rate risk and to minimise inter- in December 2008 due to its fundamental est expenses. importance.

25 Group management report 2008

The defendant was the Federal Republic of Ger- A concrete measure to implement the Single many, as legal action was implicitly taken European Sky is the FABEC (Functional Airspace against the lawfulness of the regulations pertain- Block Europe Central). Together with the ing to terminal charges as adopted by the Fed- Benelux States, France, Switzerland and the eral Ministry of Transport, Building and Urban EUROCONTROL Centre in Maastricht, DFS is Affairs and used as a basis by DFS for levying actively participating in implementing FABEC. charges (Ordinance on Terminal Charges of the The goal is for the future air navigation services Air Navigation Services). The plaintiff filed an system to be organised according to traffic objection against the uniform unit rate stipulated flows rather than national borders, thus further in the charges regulation, which is used as a enhancing airspace capacity. basis for terminal charges at the 16 international airports. It should also be clarified whether SESAR (SES Air Traffic Management Research) the revenues from a cross-border lease in emerged from SES. SESAR aims to modernise 2002/2003 should have been included in the air traffic management (ATM) in Europe and is calculation of charges. the technological element of SES. A high-performance air traffic control infrastructure that Although the case has not yet been decided, enables the safe and environmentally friendly DFS ascribes little chance of success to the development of air transport should be made appeal. available to the European Community by 2020. DFS has applied for membership in the SESAR Overall risk Joint Undertaking (SESAR JU) and in 2009 will On balance, the DFS Board of Managing Direc- submit a binding offer to SESAR JU for a ten- tors judges the risks to be limited and control- dered work package. lable. There are no risks to the going-concern status. The effects of SES II on the European air navigation service providers and explicitly on DFS can- Outlook not be precisely assessed at the moment. The Future company developments new SES regulations, which have not yet been The outlook contains statements and informa- adopted, foresee, inter alia, the introduction of a tion concerning the future development of DFS, performance scheme which will set out binding which are based on expectations and assump- targets at European level for the provision of air tions of the company at the time of publishing navigation services. The regulations govern the the outlook and are subject to known and designation of air navigation service providers unknown risks. The success of the company (ANSPs) independently of nationality as well as depends on a number of factors, some of which the mandating of Member States to put in place are outside the company’s sphere of influence. measures by 2012 for the implementation of FABs and the development of common infra- DFS is pursuing the work that it started in structure for the provision of aeronautical data recent years to get ready for the changing con- by the European Commission. ditions in Europe. A crucial initiative in this connection is the Single European Sky (SES).

26 In the coming year, a decline in air traffic is European Satellite Services Provider S.A.S expected due to the current economic situation. (ESSP SAS) has been established for the opera- In subsequent years, however, air traffic is still tional phase. The contracts to establish ESSP expected to grow. In this regard, the timely SAS (a limited liability company under French adjustment of the needed ATC capacity is nec- law) have been signed by the individual share- essary to avoid ANS-related capacity bottle- holders. The company was entered onto the necks. This will require more investments in French commercial register on 25 September training controllers as well as new and improved 2008. The division of stakes in ESSP SAS is the operational air navigation services systems. The same as the current split in ESSP EEIG. DFS aim of these measures is to ensure the safe and ESSP therefore still has a stake of 16.67%. expeditious provision of air navigation services both now and in the future. Development of the economy The slump in the world economy will continue in Since June 2007, The Tower Company (TTC) 2009. The gross domestic product of the Fed- has been providing certified air navigation serv- eral Republic of Germany in 2009 is forecast ices at nine regional airports. Based on the plan- between 0.0% (The German Council of Econom- ning with nine regional airports, TTC expects ic Experts) and a decline of approximately 2.7% earnings to be positive for 2009 and 2010. The (Institute for the World Economy). Overall, the medium-term objective is to further expand its worst economic recession in Germany since the market share in this segment. The loss of cus- end of the Second World War is expected. The tomers, for example, due to the elimination of inflation rate, which has been falling since the an essential term of contract (insolvency, clo- middle of 2008, will weaken further due to the sure of the control zone, loss of operating per- drastic decline in demand. As a consequence of mit) would have a serious impact on the earn- the recession, unemployment is expected to ings of TTC. For this reason, we are pushing rise again. ahead with the development of new business areas (such as the rating training of air traffic The International Air Transport Association controllers at regional airports, licence mainte- (IATA), which represents around 230 airlines nance) and the expansion of current services. worldwide, expects sales and income to decline in the aviation industry in 2009. It also DFS European Satellite Services Provider Beteili- announced that passenger numbers would gungsgesellschaft mbH (DFS ESSP) has a stake drop by around 3.0%. That would represent of 16.67% in European Satellite Services the first decrease in passenger numbers since Provider EEIG (ESSP EEIG). In 2009, ESSP EEIG 2001. In 2008, passenger numbers still is to be liquidated as the preparation phase for increased by around 2.0%. the start-up of EGNOS has been completed.

27 Group management report 2008

EUROCONTROL forecasts that, in the short set such revenue decreases with cost savings term, traffic in Germany will decline by around while maintaining the available infrastructure, 3.5% in 2009. In the medium term, EUROCON- the service quality and pursuing current invest- TROL expects air traffic to increase in Ger- ment projects for capacity gains. Therefore, many, with an annual increase of between based on current conditions, we anticipate an 2.7% and 3.6% for IFR flights until 2015. under-recovery for 2009. This will be carried forward into the calculation of charges for Development of the results and financial position 2011, but immediately impacts the earnings of Since spring 2008, DFS has been reacting to the current year. An under-recovery does not the difficult economic conditions in the aviation necessarily result in a loss as return on equity industry. At the beginning of 2008, it was pri- and the impact of the IFRS conversion also marily the rising oil price, which at that time affect earnings. led to declining margins and internal adjustments at the airlines. With the introduction of A reliable forecast of the 2009 net income will the summer schedule, adjustments at the air- only be possible after the introduction of the lines as regards flight frequency and smaller summer schedule. aircraft finally led to significant reductions in service units for DFS. In the medium term, we cautiously base our planning on a renewed increase in air traffic In parallel with these developments, DFS has starting in 2010. been increasingly investing in the selection and training of additional air traffic controllers Langen, 16 March 2009 since 2008 in order to continue to maintain significant service parameters (safety, punctu- The Board of Managing Directors ality) in the future. Dieter Kaden Since the winter schedule, developments have Ralph Riedle Jens Bergmann been dominated by the considerable fall in passenger numbers as a consequence of the global financial and economic crisis. Although the oil price has dropped in the meantime, it will not be possible to offset the negative market development. In 2009, further declines in air transport and consequently, in revenues at DFS are expected. It is impossible to fully off-

28 Group income statement for the period 1 January 2008 to 31 December 2008

Note 2008 2007 €'000 €'000

Revenues (6) 914,586 904,105 Changes in inventory and other own work capitalised (7) 1,867 3,285 Other operating income (8) 54,410 34,093

Total operating revenues and income 970,863 941,483

Cost of materials and services (9) -4,288 -4,194

Employee expenses 1 (10) -589,958 -554,540 Depreciation and amortisation (11) -109,489 -122,543

Other operating expenses 1 (12) -142,736 -135,504

Earnings before interest and taxes (EBIT) 124,392 124,702

Financial income (13) 55,384 57,623 Financial expenses (13) -98,456 -100,042

Profit (loss) before income taxes 81,320 82,283

Income taxes (14) -31,748 -40,441

Net income 49,572 41,842

1) Reclassification of comparative item in respect of the financial statements for the year ended 31 December 2007

29 DFS Deutsche Flugsicherung GmbH, Langen

Group balance sheet as at 31 December 2008

Note 31 Dec 2008 31 Dec 2007 €'000 €'000 Assets

Intangible assets (15) 223,280 224,951 Property, plant and equipment (16) 512,320 541,104 Investment property (17) 993 1,023 Financial assets (18) 29,750 36,121 Other receivables and assets (19) 3,692 504 Deferred tax assets (14) 488 12,878 Non-current assets 770,523 816,581

Inventories (21) 4,264 5,011 Trade receivables (20) 122,690 132,475 Other receivables and assets (19) 10,733 7,625 Current tax assets (14) 4,739 4,358 Cash at bank and in hand (22) 129,807 98,407 Current assets 272,233 247,876

Total assets 1,042,756 1,064,457

Note 31 Dec 2008 31 Dec 2007 €'000 €'000 Equity and liabilities

Issued capital (23) 153,388 153,388 Capital reserve (23) 74,296 74,296 Retained earnings (23) -571,829 -613,690 Reserve for fair value adjustments (23) -394 1,069 Equity -344,539 -384,937

Provisions for pensions and similar obligations (24) 789,647 830,445 Other provisions (25) 126,674 152,093 Financial liabilities (26) 145,157 159,223 Trade payables (27) 1,112 1,104 Other liabilities (28) 68,425 75,002 Income tax liabilities 46,113 50,563 Non-current liabilities 1,177,128 1,268,430

Other provisions (25) 78,347 48,480 Financial liabilities (26) 2,184 2,692 Trade payables (27) 38,439 36,410 Other liabilities (28) 89,871 92,020 Income tax liabilities 1,326 1,362 Current Liabilities 210,167 180,964

Total equity and liabilities 1,042,756 1,064,457

30 Statement of changes in equity

Issued Capital Retained Reserve for fair Total capital reserves earnings value adjustments €’000 €’000 €’000 €’000 €’000 Note (24) (24) (24) (24) As at 1 Jan 2007 153,388 74,296 -648,714 318 -420,712 Payment of dividend to Shareholder 0 0 -6,818 0 -6,818 Net income 0 0 41,842 0 41,842 Fair value adjustments for available-for-sale financial assets 0 0 0 735 735 Fair value adjustments for available-for-sale financial assets realised in profit or loss 0 0 0 16 16 As at 31 Dec 2007 153,388 74,296 -613,690 1,069 -384,937 Payment of dividend to Shareholder 0 0 -7,711 0 -7,711 Net income 0 0 49,572 0 49,572 Fair value adjustments for available-for-sale financial assets 0 0 0 -1,463 -1,463 As at 31 Dec 2008 153,388 74,296 -571,829 -394 -344,539

31 DFS Deutsche Flugsicherung GmbH, Langen

Group cash flow statement

Note 2008 2007 (30) €'000 €'000 Net income 49,572 41,842 Depreciation and amortisation expense 109,489 122,543 Income taxes 28,306 40,441 Income from investments -144 -144 Losses (+) / gains (-) from the measurement of bonds 5,600 -932 Income (-) from asset disposals -3,506 -510 Losses (+) from asset disposals 1,007 1,199 Increase (-) / decrease (+) in other receivables and assets -4,640 24,646 Decrease (+) in deferred tax assets 12,303 2,238 Decrease (+) / increase (-) in inventories 747 -644 Decrease (+) in trade receivables 9,785 7,937 Increase (-) / decrease (+) in current tax assets -381 4,161 Decrease (-) in provisions for pensions and similar obligations -40,798 -21,900 Increase (+) in other provisions 4,448 7,425 Decrease (-) in other liabilities -16,752 -62,116 Increase (+) / decrease (-) in trade payables 2,037 -22,403 Decrease (-) / increase (+) in income tax liabilities -4,486 10,342 Taxes paid -23,556 -23,598 Income from investments received 144 144 Cash inflow from operating activities 129,175 130,671 Payments (-) for investments in intangible assets and property, plant and equipment -79,476 -80,218 Payments (-) for investments in financial assets 0 -5,000 Proceeds (+) from disposal of intangible assets and property, plant and equipment 2,971 1,591 Proceeds (+) from disposal of financial assets 5,000 0 Proceeds from disposal of short-term securities 0 15,001 Cash outflow from investing activities -71,505 -68,626 Payments for redemption of bonds 0 -50,000 Payments (-) for finance leases -20,179 -2,711 Payment (-) of dividend to Shareholder -7,711 -6,818 Interest result -409 5,675 Interest received 8,790 12,690 Interest paid -6,761 -23,806 Cash outflow from financing activities -26,270 -64,970 Net change in financial assets 31,400 -2,925 Cash and cash equivalents at 1 Jan 98,407 101,332 Cash and cash equivalents at 31 Dec 129,807 98,407

32 Notes to the group financial statements 2008

(1) Legal basis DFS Deutsche Flugsicherung GmbH (DFS) has its Headquarters in 63225 Langen, Am DFS-Campus 10. The company is registered on the Commercial Register (HRB 34977) at Offenbach am Main district court, Germany, as a limited liability company (GmbH). The Federal Republic of Germany, represented by the Federal Ministry of Transport, Building and Urban Affairs, is the sole shareholder of DFS.

The field of activity of DFS comprises the development and provision of the air navigation services assigned to it by the Federal Ministry of Transport, Building and Urban Affairs. The company took over these tasks from the former Federal Administration of Air Navigation Services (BFS). Accord- ing to Article 87d of the German Constitution, the provision of air navigation services is a sovereign task. This task was assigned to DFS by the German government (see also Article 31b and 31d of the German Aviation Act). The company’s objective is to provide regional military and civil air traffic control in Germany.

According to the German Aviation Act, DFS has to render the following services: n Operational air navigation services n Technical air navigation services n Planning and testing of procedures and facilities for the air navigation services n Collection and publication of aeronautical data

(2) Application of accounting standards DFS prepares its group financial statements on the basis of International Financial Reporting Stan- dards (IFRS), in accordance with Regulation No. 1606/2002 and 550/2004 (service provision regulation) of the European Parliament and Council on the application of international accounting standards. Article 315a of The Accounting Law Reform Act (Bilanzrechtsreformgesetz) enacts the EU Regulation in the German Commercial Code (HGB).

The group financial statements of DFS as at 31 December 2008 were prepared in accordance with the International Financial Reporting Standards of the International Accounting Standards Board (IASB) and their interpretations by the International Financial Reporting Interpretations Committee (IFRIC) as endorsed by the EU. These were supplemented by the applicable provisions of Article 315a, paragraph 1, of the HGB.

All the standards published by the IASB that were in force at the time of the preparation of the group financial statements and applied by DFS were endorsed by the EU. This means that these group financial statements were prepared in accordance with the IFRSs endorsed by the EU as well as with the provisions of the Article 315a, paragraph 1, of the HGB.

33 Notes 2008

On 16 March 2009, the Board of Managing Directors of DFS submitted the group financial statements to the Supervisory Board. The Supervisory Board has the duty to check and declare its approval of the financial statements. In accordance with Article 325, paragraph 2a, No.1 of the HGB, the group financial statements as at 31 December 2008 are available via the electronic Ger- man Federal Gazette and from our website at www.dfs.de.

The business year at DFS corresponds to the calendar year (1 January to 31 December). The group financial statements have been prepared in euro (€). The reporting currency is euro. All figures are in thousands (€'000), unless otherwise stated. The common method of rounding has been used.

(3) Scope of consolidation DFS holds over 50.00% of the shares in four subsidiaries and has the legal and/or effective control of them. DFS holds 36.00% of the shares in another company and can exercise significant control. A DFS subsidiary holds stakes of 16.67% in additional investments involved in the development and provision of air traffic services.

Even when taken as whole, these investments are immaterial for the representation of the financial position and financial performance of the group and are not included in the scope of consolidation. Investments are reported under financial assets at cost. A list of affiliated companies and investments can be found in note 39 “Related party disclosures”.

(4) Accounting policies The annual financial statements of group companies were prepared using uniform group-wide accounting policies as at the same balance sheet date.

Measurement in the group financial statements is based on historical cost. If IFRS prescribes a different measurement method, this is applied.

In the business year, the following revised and new standards as well as interpretations from the IASB and IFRIC were mandatory, as they were endorsed by the European Commission through publication in the Official Journal of the European Union.

Publication in Standard Description Official Journal of the EU IAS 39 Financial Instruments: recognition and measurement 16 Oct 2008 IFRS 7 Financial Instruments: disclosure 16 Oct 2008 IFRIC 13 Customer loyalty programmes 17 Dec 2008 IFRIC 14 The limit on a defined benefit asset, 17 Dec 2008 minimum funding requirements and their interaction

34 IAS 39 Financial instruments: Recognition and measurement On 16 October 2008, the amendments to IAS 39 “Financial Instruments: recognition and measurement” were published in the Official Journal of the European Union. These amendments allow companies in exceptional circumstances to reclassify certain financial instruments from “held for trading” to a different category. The current worldwide financial crisis is recognised as being such an exceptional event. The amended standard is mandatory for reclassifications for all business years beginning on or after 1 November 2008. It is to be applied on the day of the actual reclassification. Under certain circumstances, reclassifications can become effective before 1 November 2008, at the earliest however on 1 July 2008.

IFRS 7 Financial instruments: Disclosure In a similar manner to the amendments to IAS 39, the disclosures on financial instruments were adjusted in line with the changed market conditions upon publication in the Official Journal of the European Union on 16 October 2008. For reclassifications from “at fair value” to “at amortised cost” (or vice versa), full disclosure must be made, in particular as to the reclassified amount for each category and the reasons for these measures. The date of application of the amended standard corresponds to that of IAS 39.

IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction On 17 December 2008, IFRIC 14 on “IAS 19 - The Limit on a Defined Benefit Asset, Minimum Fund- ing Requirements and their Interaction” was endorsed by the Commission of the European Commu- nity. IFRIC 14 clarifies some provisions of IAS 19 “Employee Benefits” concerning the measurement of defined benefits assets where a minimum funding requirement exists. In addition, the interpretation addresses the interaction between a minimum funding requirement and the limit placed by IAS 19 on the measurement of the defined benefit assets or liabilities. The interpretation becomes effective from 1 January 2008.

The following revised and amended standards were adopted by the IASB in 2008 and endorsed by the Commission through publication in the Official Journal of the European Union, but only become effective in the following business year.

Publication in Standard Description Application Official Journal of the EU IAS 1 Presentation of financial statements 18 Dec 2008 1 Jan 2009 IAS 23 Borrowing costs 17 Dec 2008 1 Jan 2009 IFRS 2 Share-based payment 17 Dec 2008 1 Jan 2009

35 Notes 2008

IAS 1 Presentation of financial statements In December 2008, the revised standard IAS 1 “Presentation of Financial Statements” was endorsed by the EU. Some provisions governing the presentation of financial statements were changed and additional information disclosures prescribed to simplify the analysis and comparabili- ty of information. The revised standard IAS 1 becomes effective from 1 January 2009. The impact on the group financial statements of DFS is currently being reviewed and it will be implemented accordingly when it becomes effective.

IAS 23 Borrowing costs IAS 23 as revised by the IASB has abolished the benchmark method which had been allowed till now. Under this method, borrowing costs incurred in connection with the acquisition, construction or production of a qualifying asset could be expensed immediately. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use. Borrowing costs include interest costs and other costs incurred in connection with borrowings. Under the revised IAS 23, borrowing costs must be capitalised and represent part of the cost of an asset. The revised standard becomes effective from 1 January 2009 and early application is permitted. DFS applied this option in the prior year financial statements as part of the conversion to IFRS.

36 The IASB and IFRIC have adopted the following standards and interpretations, which were not mandatory in the period under review. These regulations will be applied following endorsement by the EU, which in some cases was still outstanding as at the balance sheet date.

Publication Official Journal Standard Description IASB/IFRIC of the EU IAS 1 Presentation of financial statements 14 Feb 2008 22 Jan 2009 Puttable financial instruments and obligations arising on liquidation IAS 27 Consolidated and separate financial statements 10 Jan 2008 IAS 27 Cost of an investment in a subsidiary, joint-controlled 22 May 2008 24 Jan 2009 entity or associate in the parent’s separate financial statements IAS 32 Presentation of financial statements 14 Feb 2008 22 Jan 2009 Puttable financial instruments and obligations arising on liquidation IAS 39 Financial instruments: recognition and measurement 31 Jul 2008 Eligible hedge items IAS 39 Reclassification of financial Instruments: recognition and measurement 27 Nov 2008 IFRS 1 Cost of an investment in a subsidiary, joint-controlled 22 May 2008 24 Jan 2009 entity or associate in the parent’s separate financial statements IFRS 1 First time adoption of IFRS 27 Nov 2008 IFRS 3 Business combinations 10 Jan 2008 Improvements to IFRS 22 May 2008 24 Jan 2009 IFRIC 15 Agreements for the construction of real estate 3 Jul 2008 IFRIC 16 Hedges of net investment in a foreign operation 3 Jul 2008 IFRIC 17 Distribution of non-cash assets to shareholders 27 Nov 2008

Improvements to international financial reporting standards In May 2008, the IASB published a combined standard “Improvements to IFRSs” to make non- urgent but necessary amendments to existing standards. The standard presented the amendments to 20 standards in two parts. The first part contains changes for presentation, recognition or measurement. The second part involves terminology or editorial changes. Unless otherwise stated in the applicable standard, the changes are mandatory for all business years beginning on or after 1 January 2009. Early application is permitted. The impact of “Improvements to IFRSs” is currently under review. However, it is not assumed that the application of the revised standards will result in material changes to the presentation of the group financial statements.

37 Notes 2008

Use of estimates and assumptions The accounting policies prescribed by IFRSs and IFRICs require estimates and assumptions to be made about the future which might not correspond to actual events. All estimates and assumptions used in accounting and measurement are continuously reviewed and are based on experience or expectations about the occurrence of future events which in the given circumstances appear com- mercially reasonable.

In accordance with IAS 8.32(d), the following changes were made to the assumptions regarding the useful lives of assets that are subject to depreciation in the year under review:

n The useful lives for special software in connection with air navigation services were adjusted in the year under review. Due to time delays in the development of new systems, the existing software modules will be used for longer than originally planned. The new useful lives for the systems will run until 2018. n The useful lives of the ADV control towers recognised as finance leases have been reduced to a uniform 25 years, as they in fact cannot be used longer than this period. n The tower at Frankfurt Airport and its facility building will be given back to the airport operator, presumably at the end of 2010. The useful life has been adjusted accordingly. n The useful life of a radar station was reduced due to the alternative use of the land.

In addition, the following changes were made to assumptions in connection with provisions for pensions and similar obligations:

n Obligations from transitional pension payments Until 31 December 2007, it was assumed for measurement purposes that the vesting period for claims for benefits from transitional payments spanned the total term of employment, which contin- ued beyond the time when active duty finished. As a departure from this legal viewpoint, the company now assumes based on economic considerations that the entitlement to the company pension for recipients of transitional payments has already fully vested on termination and that, from this point in time, a provision should be recognised for the full present value of the obligation. In addition, disability is no longer considered a membership terminating event. Furthermore, the assumptions underlying the calculation of staff turnover was adjusted in this way, as the claim to transitional pension payments expires on staff turnover-related early termination and it is unlikely that the employee will rejoin the company.

38 n Entitlement to orphan’s pension The entitlement to an orphan's pension, previously not recognised due to immateriality, is now taken into consideration. A surcharge of 5.00% is added to the provision for dependents until the insured event occurs. n The age at maturity for measurement for the severely disabled Severely disabled employees who have a claim to transitional pension payments are granted these payments until they reach the age of 60. Following the change in the law governing the age of earliest entitlement to pension benefits, the retirement age, dependent on the age cohort, has been shifted to 62 for the severely disabled. n Financing from the age of 24 For employees who have not reached the age of 25, service costs, but not pension provisions, have been recognised. For employees who entered the company before the age of 24, a pension provision was recognised from the age of 25, taking the beginning of the financing from the age of 24 into account. This adjustment – financing starting with the entry into the company – improves the presentation of information on the net assets, financial position and results of operations.

The impact of the changed assumptions can be seen from the following table:

Defined benefit obligation Service cost Pension provision Staff costs €'000 €'000 Recipients of transitional payments 19,569 -4,756 Air traffic controllers and flight data handling personnel 49,626 1,818 Entitlement to orphan’s pension 4,944 234 Age at maturity -291 0 Turnover of future potential beneficiaries of transitional payments -10,630 -1,405 Age at maturity for the severely disabled 572 28 Financing from the age of 24 24,771 -1,876

39 Notes 2008

Changes in comparative information The presentation of comparative information for 2007 was changed for one item in the income statement in the year under review. The account for other staff costs (restructuring and transfer) of the Aeronautical Information Service Centre (AIS-C) was reclassified from the item “other operating expenses” to the item “employee expenses”. The value of the transaction amounted to €172 thousand (previous year: €193 thousand).

Income and expense recognition Revenues and other operating income are recognised upon the rendering of services or upon the delivery of assets and the simultaneous transfer of risks and obligations to the customer. In addition, it must be sufficiently probable that there will be an inflow of economic benefits and these must be capable of being quantified reliably.

Revenues and expenses from long-term service contracts are accounted for using the percentage of completion method, where revenue is recognised based on the stage of completion. It results from the relationship between the contract costs incurred up to the balance sheet date and planned contract costs to this date. If the execution of the service contract requires a significant period of time, contract costs may also include direct borrowing costs.

Under the percentage of completion method, the service contracts are measured according to the contract costs incurred up the balance sheet date plus the proportionate share of profits based on the stage of completion. These revenues are shown on the balance sheet under trade receivables net of advance payments received. Contract changes, subsequent claims and performance fees are taken into consideration if they have been bindingly agreed with the customer.

If the results of a service contract cannot be estimated reliably, the probable revenues are recorded at the value of the costs incurred. The contract costs are expensed in the period in which they are incurred. If the total contract cost is expected to exceed the total contract revenue, the expected loss is expensed immediately.

Operating expenses are recognised in the income statement when the service is used or at the time of its cause.

Interest income and expenses are recognised on an accrual basis.

40 Intangible assets Assets acquired for valuable consideration are capitalised at cost when it is probable that the asset will generate future economic benefits for the company and the costs can be measured reliably.

Internally generated intangible assets for air navigation services which are the result of development activities are capitalised at cost, to the extent that the provisions of IAS 38 are fulfilled as regards the ability to identify associated costs clearly, the technological feasibility, the intent and ability to use or sell as well as the probability of generating future economic benefits. The production costs of capitalised development costs include all direct costs incurred in the development process and an appropriate share of the overhead costs related to development.

The borrowing costs for internally generated intangible assets are capitalised as part of production costs in accordance with IAS 23, provided they are a qualifying asset. The same applies to assets under construction for intangible assets that are not internally generated.

Intangible assets have a limited useful life and are subject to straight-line amortisation from the point in time they are put into use.

Internally generated intangible assets which are the result of development activities are subject to straight-line amortisation over their probable useful lives from the point in time they are put into use. Research costs are charged immediately to the income statement at the point in time at which they are incurred.

Intangible assets Economic useful life Concessions, industrial and similar property rights and assets as well as licences in such rights and assets 3 - 15 years Internally generated intangible assets 8 - 18 years Prepayments on intangible assets –

Government grants for pure research projects are recognised immediately in profit or loss.

Property, plant and equipment Non-current tangible assets are carried at cost less scheduled depreciation provided it is probable that the asset will generate future economic benefits for the company and the costs can be measured reliably.

Production costs comprise all direct production costs and an appropriate share of manufacturing overhead. Borrowing costs which can be allocated to a qualifying asset are capitalised as part of the cost in accordance with IAS 23.

41 Notes 2008

For buildings, each part of an item of the property, plant and equipment with a cost that is significant in relation to the total cost of the asset is assessed, recognised and depreciated separately (component approach).

Property, plant and equipment Economic useful life Building – Structure 40 years Building – Façade 25 - 30 years Building – Interior finishing 25 years Building – Heating, ventilation, water 15 - 25 years Building – Electronics 15 - 25 years Outdoor installations 5 - 19 years Technical equipment 5 - 20 years Operating and office equipment 3 - 15 years

Repair and maintenance costs are always recognised as an expense. Subsequent expenses for property, plant and equipment are only capitalised as subsequent costs when they clearly increase the future economic benefit of this asset.

Government grants are deducted from the carrying amount of the corresponding asset.

Leases A lease is considered a finance lease when the risks and rewards of ownership are transferred sub- stantially to the lessee. If a lease satisfies the provisions of IAS 17 as regards finance leases, it is capitalised at the lower of the present value of the minimum lease payments or the fair value of the leased asset. The leased asset is depreciated over the shorter of the estimated useful life or the term of the lease. The payment obligations resulting from future lease instalments are recognised as a financial liability at the same value as the leased asset. Interest is allocated to the obligation using the effective interest method over the term of the lease.

Leases where the substantial risks and rewards remain with the lessor are classified as operating leases. The leasing instalments are recognised in the income statement over the term of the lease arrangement.

42 Investment property Property not used operationally but held solely for rental income or capital gains is classified as investment property and measured at amortised cost. Scheduled depreciation is conducted using the straight-line method over the useful life for buildings.

Impairment Assets are reviewed at the balance sheet date to determine if there are indications of impairment. This involves comparing the carrying amount with the recoverable amount of the asset. In addition to scheduled depreciation and amortisation, intangible assets and property, plant and equipment are impaired if the recoverable amount is lower than the carrying amount of the asset. The recoverable amount is the higher of the net realisable value (fair value less costs to sell) and the value in use. Value in use is the present value of the future cash flows expected to be derived from the continuing use of an asset and its disposal at the end of its useful life.

The recoverable amount is calculated for each individual asset or, if this is not possible, for the cash-generating unit to which it is allocated.

If the reasons, either in full or in part, for impairment made in previous years no longer apply in future periods, the impairment loss is reversed accordingly.

Financial assets Financial assets comprise loans, shares in affiliated companies, investments and long-term securities. Financial assets are capitalised on the trade date at cost, which corresponds to the fair value of the consideration paid. Long-term loans which are non-interest bearing or have below-market rates are carried at their present value provided the interest effect is material.

Loans are classified as loans or receivables and are measured at the balance sheet date at amortised cost.

Securities are classified as available-for-sale financial assets and are measured at fair value (market value) at the balance sheet date. Unrealised gains and losses from changes in fair value are recognised directly in equity in the reserve for fair value adjustments. Upon sale or permanent impairment, the cumulative gains and losses are recognised in the income statement.

43 Notes 2008

Inventories Inventories are carried at cost based on the weighted average method or at production cost.

Production costs comprise direct production costs (especially direct materials and direct labour), as well as an appropriate share of the necessary material and manufacturing overhead. Administra- tive expenses and costs of employee assistance programmes are included to the extent they can be allocated to production. Financing costs are not recognised as part of production costs. Inven- tory risks resulting from the duration of storage or impaired usability led to write-downs upon determination of the net realisable value. If the reasons for a write-down no longer apply, the write-down is reversed. Lower values at the reporting date due to lower prices on sales markets are taken into account. Subsequent measurement occurs at the lower of deemed cost and net realisable value.

Trade receivables Trade receivables are carried at amortised cost.

Possible default risks for trade receivables are recognised in an allowance account in the income statement in the form of specific allowances or an appropriate general allowance for doubtful debts based on actual default rates. The write-downs are reversed through the income statement should the reasons for the write-down no longer be valid in subsequent periods. If a receivable which had been written down is classed as uncollectible, it is written off.

Foreign currency receivables are measured at the closing rate with the corresponding income or expense being reported in the income statement.

Other receivables and assets Receivables and other assets are carried at amortised cost. They are adjusted by allowances for doubtful accounts based on possible defaults.

Cash at bank and in hand Liquid funds include cash, cash accounts and short-term money market investments and certificates of deposit at credit institutions. The funds are measured at their fair value. Foreign currency funds are translated using the closing rate.

Provisions for pensions and similar obligations Provisions for pensions and similar obligations are recognised in accordance with IAS 19 using the projected unit credit method for defined benefit plans on the basis of actuarial reports. The measurement is conducted using recognised tables and assumptions concerning trends for relevant factors, such as future salary and pension developments and average life expectancy. The assumptions are based on historical trends and take into account country-specific interest and inflation levels as well as the relevant labour market developments. Biometric data serves as the basis for assumptions on life expectancy.

44 The present value of the defined benefit obligation and the service cost is calculated by discounting the benefits using the projected unit credit method. The interest rate used to discount future benefits is the market yield on high-quality corporate or government bonds.

Actuarial gains and losses reflect the changes in the estimates from year to year as well as the variance to the actual yearly effect. They are only recognised as income or expense when they exceed the higher of either 10.00% of the present value of defined benefit plans before deducting plan assets or 10.00% of the fair value of plan assets (10.00% corridor approach). The amount that exceeds the corridor is amortised proportionally through the income statement over the average remaining working life of the participating employees. Unrecognised actuarial gains as at the balance sheet date amounted to €309,726 thousand (previous year: €185,365 thousand), of which minus €7,464 thousand was amortised in the income statement in the business year (previous year: €1,951 thousand).

To the extent that pension obligations are reinsured with insurance companies, the fair value of the entitlement to reinsurance coverage, as a plan asset, is netted against obligations if the entitlement fulfils the criteria under IAS 19.

Contributions to defined contribution plans where the company has no obligation beyond the contribution to a special purpose plan are recognised in the income statement in the year in which they are incurred.

Other provisions Other provisions are recognised for past events that result in present obligations to third parties which can be estimated reliably and will lead to an outflow of resources in the future with a probability of at least 50.00%. The provisions are recognised with the settlement amount, which represents the highest probability of occurrence based on best estimates and under consideration of all dis- cernible risks.

Provisions for obligations which in all probability will not lead to a reduction in assets in the subsequent year are discounted at prevailing market rates and carried at the present value of the expected outflow of resources provided the interest effect is material.

If a change in an estimate results in a reduction of the obligation, then the provision is reversed proportionally and the income reported under other operating income.

45 Notes 2008

Financial liabilities Financial liabilities are initially recognised at their fair value. Direct transaction costs are also recognised for all financial liabilities which are not carried at fair value.

Bonds are carried at amortised cost using the effective interest method.

On initial recognition, finance lease liabilities are measured at the lower of the present value of the lease instalments or the fair value of the capitalised leased asset. In subsequent years, the leasing obligations are carried using the effective interest rate method.

Trade payables and other liabilities are recognised at their amortised cost.

Liabilities in foreign currencies are translated at the closing rate.

Financial liabilities are derecognised when the contractual obligation is settled or terminated.

Derivative financial instruments Derivative financial instruments are used to hedge against the risks of existing and future interest and currency rate changes. Interest and combined interest and cross-currency swaps are concluded to control interest rate risk. Combined interest and cross-currency swaps are used to hedge against the currency risk from financing in foreign currencies. They are based on the hedging policy defined by the Board of Managing Directors and monitored by the Treasury department. This policy stipulates that only effective derivatives are used to hedge interest and currency risks.

The measurement of derivatives with positive and negative fair values is at fair value on the basis of published market prices. If there is no quoted market price, a different suitable measurement method is used. These methods include all factors an independent, informed marketplace partici- pant would take into consideration when pricing and represent the common, recognised economic models used for the pricing of financial instruments.

Changes in the fair value and associated deferred taxes are recognised in the income statement. Derivates financial instruments with positive fair values are reported as receivables; those with negative fair values are reported as liabilities. All derivative financial instruments were accounted for without the creation of designated hedging relationships and the changes in market value were directly recognised in the income statement.

46 Deferred taxes Deferred taxes are measured in accordance with IAS 12 using the liability method. Deferred tax assets and liabilities are recognised for all temporary differences between the tax base of assets and liabilities and their carrying amounts in the balance sheet according to IFRS as well as for consolidation adjustments recognised in profit or loss. Deferred tax assets are also recognised for future claims to tax reductions resulting from tax loss carryforwards. Deferred tax assets for deductible temporary differences and for tax loss carryforwards are only recognised to the extent that there are future taxable profits which either the temporary differences or unused taxable losses can be netted against.

The computation is based on the existing or applicable income tax rates in each country on the date of valuation. The result of changes in tax rates on deferred tax assets and liabilities is reflected in the income tax expense for the period in which the law was changed.

Deferred tax assets and liabilities are netted if permitted under law and the receivables and payables are against the same tax authority.

Deferred tax assets and liabilities are not discounted.

(5) Currency translation The annual financial statements of the group companies are prepared in euro.

The monetary items (such as liquid funds, receivables, payables) booked in the individual financial statements prepared in foreign currencies are translated at the rate prevailing on the reporting date. Non-monetary items (such as intangible assets, property, plant and equipment, inventories) in foreign currencies are carried at historical cost. The net differences resulting from the translation of monetary positions are recognised in the income statement.

The exchange rates of the material currencies are listed below:

Currency ISO code EMU conversion EMU conversion Asked price Asked price 1 EUR = 31 Dec 2008 31 Dec 2007 U.S. dollar USD 1.39470 1.47510 Canadian dollar CAD 1.70580 1.45090 British pound GBP 0.95450 0.73535 Danish krone DKK 7.47060 7.47830 Swiss franc CHF 1.48700 1.65670 Japanese yen JPY 126.38000 165.17000

47 Notes 2008

Notes to the income statement

(6) Revenues Revenues comprise the following:

2008 2007 €'000 €'000 Revenues from air navigation services 892,152 884,724 Other revenues 22,434 19,381 Revenues 914,586 904,105

The revenues from air navigation services comprise the following:

2008 2007 €'000 €'000 En-route charges 649,924 654,472 Terminal charges 194,048 188,675 Payments to German MET Service and MoT from terminal charges -9,542 -10,663 Offsetting over-recovery of charges from previous years 31,724 53,826 Over-recovery of charges for current year -42,610 -69,258 Revenues from en-route and terminal charges 823,544 817,052

Reimbursements by the State for military flights and facilities 57,709 56,279 Reimbursements by the State for exempted flights 5,462 5,462 Nachrichten für Luftfahrer (German-language publication) 2,878 3,269 Flight inspection services 2,302 2,291 Other air navigation services 257 371 Revenues from air navigation services 892,152 884,724

DFS collects charges for providing services and facilities for terminal and en-route services.

Since 1 January 2007, the share of the en-route charges to be reimbursed to the German government is no longer remitted by DFS but directly by EUROCONTROL. From 2007, the unit rates for terminal services include the cost elements of the German Meteorological Service and the national supervisory authority.

The goal of air traffic control charges is for revenues to match costs (full cost recovery). This is achieved by publishing a unit rate each year which results from dividing the planned costs by the planned number of service units. If this results in an under-recovery or over-recovery – because the actual situation deviates from the plan – then the amount is carried over and included in year n+2 (positive and negative adjustment mechanism).

48 Development of unit rates in Germany:

250.00 EUR

200.00 EUR

150.00 EUR

100.00 EUR

50.00 EUR

0.00 EUR

Unit rate for 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Terminal EUR 219.45 196.34 205.13 224.70 195.60 140.20 143.85 160.07 162.34 167.78 En-route EUR 60.50 67.82 77.00 92.26 89.31 71.31 63.13 67.21 64.77 67.02

Comparison of unit rates within Europe:

EUROCONTROL 2009 2008 En-route charges EUR EUR Spain 83.98 79.45 Slovenia 76.24 60.68 Belgium/Luxembourg 75.90 69.36 United Kingdom 73.38 77.92 Switzerland 71.23 68.80 Germany 67.02 64.77 Italy 65.85 66.91 Netherlands 64.05 59.48 Denmark 61.78 59.23 France 61.33 58.47 Austria 60.27 60.31 Sweden 56.12 52.04

Revenues from air navigation services increased due to the rise in charges by 0.8% from €885 million to €892 million. The unit rate for terminal services in 2008 rose by 1.4%, while the unit rate for en-route services declined by 3.6%. DFS is authorised to spread the conversion effects resulting from the different measurements over a 15-year period. The conversion effects relating to ATC charges are included in the cost-base.

49 Notes 2008

Other revenues relate to revenues from personnel services, consultancy services, training and other services as well as revenues from royalties and from the sale of goods.

(7) Changes in inventory and other own work capitalised Changes in inventory and other own work capitalised comprise the following:

2008 2007 €'000 €'000 Changes in inventories of finished goods and work in progress -873 759 Other own work capitalised 2,740 2,526 Changes in inventory and other own work capitalised 1,867 3,285

Other own work capitalised relates primarily to intangible assets resulting from the development of internally generated IT systems.

(8) Other operating income Other operating income comprises the following:

2008 2007 €'000 €'000 Income from QTE cross-border transaction 5,321 5,321 Revenues from energy sales 6,404 3,776 Income from the reversal of provisions 8,140 2,635 Reversal of allowances for bad debts 288 5,885 Cost reimbursements 7,358 3,687 Rental income 1,084 2,201 R&D project funding by the EU Commission and German federal and regional ministries 1,718 2,125 Income from asset disposals 3,506 510 Income from the derecognition of liabilities 4,086 2,569 Other 16,505 5,384 Other operating income 54,410 34,093

Of the total grants given by the EU Commission and the German federal and regional ministries for research and development project funding, €1,718 thousand (previous year: €2,125 thousand) was recognised in the income statement and €319 thousand (previous year: €0 thousand) was deducted from the cost.

50 The item “other” comprises income of €11,719 thousand from the adjustment to the residual debt from a finance lease due to the return of the tower and facility building at Frankfurt Airport ahead of schedule. In addition, it contains income from benefits in kind as well as from the accounting for the settlement of operating and service charges from previous years.

(9) Cost of materials and services These costs can be broken down as follows:

2008 2007 €'000 €'000 Cost of raw materials, consumables and supplies, and of purchased goods 572 1,301 Cost of purchased services 3,716 2,893 Cost of materials and services 4,288 4,194

The purchased services relate primarily to flight inspection and consulting services.

(10) Employee expenses Employee expenses result from the following items:

2008 2007 €'000 €'000 Wages and salaries 462,221 407,011 Social security costs and expenses for pensions and assistance 102,367 118,835 Costs of personnel from Federal Office of Civil Aviation 25,370 28,694 Employee expenses 589,958 554,540

Besides the usual outlays for wages, salaries and social security expenses for DFS personnel, this item also includes the costs charged by the Federal Office of Civil Aviation for personnel who did not transfer to DFS.

The structure of the compensation system for the Board of Managing Directors and the Superviso- ry Board is shown under “Organs of the company” in note 40.

Retired benefit costs relate, inter alia, to the expense for defined benefit pension obligations. The interest component of €83,757 thousand (previous year: €77,095 thousand) from the measurement of pension obligations and the expected income from the corresponding fund assets of €45,609 thousand (previous year: €40,535 thousand) are reported under financial result.

51 Notes 2008

The comparative figures for 2007 include an item in the amount of €193 thousand which was reclassified in the course of the business year from “other operating expenses” to “employee expenses” to provide more detailed information. This relates to the account for “staff costs” in connection with the restructuring and relocation of the Aeronautical Information Service Centre (AIS-C).

The average number of staff employed was as follows:

2008 2007 Salaried staff 4,726 4,619 Wage-earners 32 33 Apprentices 101 63 DFS personnel 4,859 4,715

Wage earners and salaried staff 89 95 Established civil servants 296 312 Personnel belonging to the Federal Office of Civil Aviation 385 407

Total number of staff employed 5,244 5,122

(11) Depreciation and amortisation Depreciation and amortisation relate to the following items:

2008 2007 €'000 €'000 Intangible assets 28,743 37,242 Property, plant and equipment 80,716 85,271 Investment property 30 30 Depreciation and amortisation 109,489 122,543

In 2008, as in 2007, no impairment losses were recognised.

The useful lives for special air navigation services software was adjusted and extended until 2018. In contrast, the useful lives for control towers carried as finance leases were shortened to the actual useful life of 25 years. The useful life of a radar station was reduced due to the alternative use of the land. The differences in depreciation and amortisation can be found in the notes to the balance sheet (for intangible assets in note 15 and for property, plant and equipment in note 16).

52 (12) Other operating expenses Other operating expenses comprise the following:

2008 2007 €'000 €'000 Spare parts and maintenance 42,603 42,033 Rent, leasing and occupancy costs 30,376 31,249 Legal and consultancy costs 12,690 10,794 Cost of external personnel 12,863 10,388 Other employee expenses 9,466 7,781 Travel expenses 7,448 6,530 Write-downs and write-offs on receivables 4,021 6,249 Telecommunication costs 5,149 5,433 Insurance 3,406 3,744 Other 14,714 11,303 Other operating expenses 142,736 135,504

Expenses connected with research and development amounted to €31,667 thousand (previous year: €33,722 thousand). Of this amount, development costs of €2,575 thousand (previous year: €2,493 thousand) were capitalised as intangible assets and €29,092 thousand (previous year: €31,229 thousand) was recognised as an expense.

Other operating expenses relate primarily to expenses for asset disposals, advertising and enter- tainment, operating costs for previous years, vehicle and transport costs, commissions and fees, office stationery, technical journals and other taxes.

The comparative figures for 2007 include an item in the amount of €193 thousand which was reclassified in the course of the business year to employee expenses in the period under review to provide more detailed information. This relates to the account for other staff costs in connection with the restructuring and relocation of the Aeronautical Information Service Centre (AIS-C).

53 Notes 2008

(13) Financial result The financial result can be broken down as follows:

2008 2007 €'000 €'000 Income from fund assets to finance pension obligations 45,609 40,535 Interest income 10,446 13,245 Income from foreign currency translation -5,593 3,257 Result from the fair value adjustment of derivatives 4,376 215 Income from profit and loss transfer agreements 402 227 Income from investments 144 144 Financial income 55,384 57,623

Expenses from discounting provisions -88,419 -79,298 Other interest expenses -10,037 -18,920 Income from available-for-sale financial assets 0 -1,824 Financial expenses -98,456 -100,042

Financial result -43,072 -42,419

The expenses from the discounting of provisions contain interest expense for post employment benefits and similar obligations of €83,757 thousand (previous year: €77,095 thousand).

(14) Income taxes Taxes on income and revenues based on origin were as follows:

2008 2007 €'000 €'000 Current taxes 19,445 38,203 Deferred taxes 12,303 2,238 Income tax expense 31,748 40,441

Current income taxes relate to corporation taxes, including the solidarity surcharge, and German municipal trade taxes. The computation of income taxes is based on applicable tax regulations.

54 In addition to the tax liabilities from the current business year, they include estimated additional tax demands from the planned conversion to regulated charges or from the current tax audit.

Deferred taxes are computed based on the tax rates applicable as at the balance sheet date. Fol- lowing the German Tax Reform 2008, an income tax rate of 29.83% (previous year: 38.89%) is applied, made up of corporate income tax of 15.00%, a solidarity surcharge of 5.50% and an average German municipal trade tax multiplier rate of 400.00%.

Deferred taxes are recognised for all temporary differences between the tax base of assets and liabilities and their carrying amounts in the balance sheet according to IFRS as well as for consolidation adjustments recognised in profit or loss.

The differences are limited to those items whose changes influence taxable earnings. As a rule, items covered by full cost recovery (cf. Article (§) 32, paragraph 4, sentence 1, item 6, of the Ger- man Aviation Act) are excluded. The continuation of full cost recovery is anticipated in the planning. It also takes into account the ability to retroactively charge for the valuation differences from the conversion of the cost-base for service charges from HGB to IFRS on first adoption. This has been authorised by the regulatory authority.

In the financial statements according to HGB, there is a balancing item relating to the one-off effects from the conversion of the cost-base as well as the yearly differences in results between the IFRS and the German Commercial Code accounts. In a letter dated 15 May 2008, the Tax Office Offenbach/Main – City issued a binding statement that this balancing item should also be recognised in the tax base of assets and liabilities. The adjustment of the tax base of assets and liabilities based on this binding statement, in particular as regards pension provisions, resulted in a deferred tax expense of €12,644 thousand.

55 Notes 2008

Deferred tax assets and liabilities by balance sheet item comprise the following:

Deferred tax assets Deferred tax liabilities 2008 2007 2008 2007 €'000 €'000 €'000 €'000 Intangible assets 0 0 13,997 14,048 Property, plant and equipment 7,441 7,546 24,462 28,608 Available-for-sale securities 0 0 1,098 489 Receivables and other assets 33,532 15,518 0 0 Provisions for pensions and similar obligations 173,208 191,413 0 0 Other provisions 4,763 5,084 3,951 6,211 Liabilities 37,631 44,980 10 1,210 256,575 264,541 43,518 50,566 Impact deferred taxes -227,424 -217,592 -15,673 -20,957 Other adjustments -818 -4,462 0 0 Netting -27,845 -29,609 -27,845 -29,609 Deferred taxes 488 12,878 0 0

The current income tax expense of €31,748 thousand (previous year: €40,441 thousand) was €7,490 thousand higher than the expected income tax expense of €24,258 thousand (previous year: €32,000 thousand), which would have theoretically arisen based on a domestic tax rate of 29.83% (previous year: 38.89%).

The reconciliation from the expected to the current income tax expense is shown below:

2008 2007 €'000 €'000 Net income before income taxes 81,320 82,283 Expected income tax expense (in %) 29.83 38.89 Expected income tax expense 24,258 32,000 Tax expense not relating to the period under review -4,450 8,980 Effects of changes in tax rates -1,756 3,911 Deviations in municipal trade tax 389 274 Constructive dividend 0 56 Tax expense previous years under Article 37 and Article 38 of Corporation Income Tax Act -158 0 Change due to balancing items - Deferred tax assets 10,646 23,740 - Deferred tax liabilities 5,284 -17,962 - Changes on other adjustments -3,644 -10,818 Tax effect from the development of old balancing items 1,258 317 Other -79 -57 Current income tax expense 31,748 40,441 Effective tax rate (in %) 39.04 49.15

56 Notes to the balance sheet

(15) Intangible assets The development of intangible assets is shown below:

Concessions, Internally Prepayments on Total industrial and generated intangible similar property intangible assets rights and assets as assets well as licences in such rights and assets €'000 €'000 €'000 €'000 Cost As at 1 Jan 2007 311,333 32,365 71,328 415,026 Additions 8,807 3,308 18,335 30,450 Disposals -8,320 0 0 -8,320 Transfers 100,598 0 -53,927 46,671 As at 31 Dec 2007 412,418 35,673 35,736 483,827 Cumulative amortisation As at 1 Jan 2007 226,412 3,519 0 229,931 Additions 35,088 2,154 0 37,242 Disposals -8,297 0 0 -8,297 Transfers 0 0 0 0 As at 31 Dec 2007 253,203 5,673 0 258,876 Carrying amounts at 31 Dec 2007 159,215 30,000 35,736 224,951

Cost As at 1 Jan 2008 412,418 35,673 35,736 483,827 Additions 10,196 2,575 13,060 25,831 Disposals -4,303 0 0 -4,303 Transfers 22,799 0 -21,455 1,344 As at 31 Dec 2008 441,110 38,248 27,341 506,699 Cumulative amortisation As at 1 Jan 2008 253,203 5,673 0 258,876 Additions 26,077 2,666 0 28,743 Disposals -4,274 0 0 -4,274 Transfers 74 0 0 74 As at 31 Dec 2008 275,080 8,339 0 283,419 Carrying amounts at 31 Dec 2008 166,030 29,909 27,341 223,280

Acquired intangible assets are carried at cost and amortised over their estimated useful lives using the straight-line method.

The useful live for a special air navigation services software application was reviewed in the business year and adjusted based on current circumstances. This relates to the ATM software VAFORIT

57 Notes 2008

and the P1/ATCAS software. Due to emerging time delays in the development of the new system generation, the existing software will be used for longer than originally planned. The new useful lives for the systems will run until 2018.

The differences in amortisation due to the change in the useful lives were as follows:

VAFORIT Amortised cost Amortisation 2008 2008 2009 2010 2011 2012 2013 €'000 €'000 €'000 €'000 €'000 €'000 €'000 Before 88,434 12,198 12,198 12,198 12,198 12,198 12,198 After 88,434 8,039 8,039 8,039 8,039 8,039 8,039 Difference 4,159 4,159 4,159 4,159 4,159 4,159 Amortisation Carrying amount 2014 2015 2016 2017 2018 31 Dec 2018 €'000 €'000 €'000 €'000 €'000 €'000 Before 12,198 3,048 0 0 0 0 After 8,040 8,040 8,040 8,040 8,040 0 Difference 4,158 -4,992 -8,040 -8,040 -8,040 0 P1/ATCAS Amortised cost Amortisation 2008 2008 2009 2010 2011 2012 2013 €'000 €'000 €'000 €'000 €'000 €'000 €'000 Before 51,025 15,369 15,369 8,209 3,094 2,597 1,901 After 51,025 4,573 4,573 4,573 4,573 4,573 4,573 Difference 10,796 10,796 3,636 -1,479 -1,976 -2,672 Amortisation Carrying amount 2014 2015 2016 2017 2018 31 Dec 2018 €'000 €'000 €'000 €'000 €'000 €'000 Before 1,901 1,460 135 135 135 720 After 4,573 4,573 4,573 4,573 4,575 720 Difference -2,672 -3,113 -4,438 -4,438 -4,440 0

Internally generated intangible assets which will, in all probability, result in an inflow of economic benefits and which can be reliably measured are capitalised at production cost and amortised over their useful life using the straight-line method. Production costs comprise direct production costs and an appropriate share of manufacturing overhead. Internally generated intangible assets are primarily tailor-made IT systems for air navigation services.

58 Borrowing costs of €1,984 thousand (previous year: €3,052 thousand) were capitalised in the business year. The calculation of the capitalised borrowing costs was based on a cost of capital of 5.24% (previous year: 4.85%).

Transfers relate to, inter alia, the completion of intangible assets which were recorded as assets under development under property, plant and equipment. If the individual internally generated components cannot be subdivided, then they are initially recognised under property, plant and equipment and on completion the exact subdivision into intangible assets and property, plant and equipment is conducted. They are then written off over their respective useful lives. In the year under review, €22,799 thousand (previous year: €100,598) for software (primarily for VAFORIT and PSS) and minus €21,455 thousand (previous year: minus €53,927 thousand) were transferred from prepayments on intangible assets.

59 Notes 2008

(16) Property, plant and equipment Property, plant and equipment can be broken down as follows:

Land, Technical Other operating Assets under Total equivalent rights equipment and and office development and buildings machinery equipment including buildings on third-party land €'000 €'000 €'000 €'000 €'000 Cost As at 1 Jan 2007 567,526 1,087,186 92,850 61,281 1,808,843 Additions 3,430 26,407 3,802 16,131 49,770 Disposals -2,095 -77,298 -8,164 0 -87,557 Transfers 3,843 5,929 939 -57,382 -46,671 As at 31 Dec 2007 572,704 1,042,224 89,427 20,030 1,724,385 Cumulative depreciation As at 1 Jan 2007 255,435 851,166 76,708 0 1,183,309 Additions 21,033 58,493 5,745 0 85,271 Disposals -2,094 -75,155 -8,050 0 -85,299 Transfers 15 -123 108 0 0 As at 31 Dec 2007 274,389 834,381 74,511 0 1,183,281 Carrying amounts at 31 Dec 2007 298,315 207,843 14,916 20,030 541,104

Cost As at 1 Jan 2008 572,704 1,042,224 89,427 20,030 1,724,385 Additions 6,373 26,074 4,930 16,268 53,645 Disposals -6,960 -27,165 -3,325 0 -37,450 Transfers 6,269 8,823 590 -17,026 -1,344 As at 31 Dec 2008 578,386 1,049,956 91,622 19,272 1,739,236 Cumulative depreciation As at 1 Jan 2008 274,389 834,381 74,511 0 1,183,281 Additions 24,813 51,519 4,384 0 80,716 Disposals -7,670 -26,131 -3,206 0 -37,007 Transfers -2 -74 2 0 -74 As at 31 Dec 2008 291,530 859,695 75,691 0 1,226,916 Carrying amounts at 31 Dec 2008 286,856 190,261 15,931 19,272 512,320

60 The useful lives of the ADV control towers capitalised as finance leases (ADV – German Airports Association e.V.) were reviewed in the business year and adjusted to the prevailing circumstances. It was determined that the ADV towers could in fact not be used for longer than 25 years. Conse- quently, the useful lives of the control towers were shortened to 25 years in 2008.

The tower and facility buildings currently in use at Frankfurt Airport will be given back to the airport company FRAPORT AG (presumably in December 2010) due to the construction of the new fourth runway and the associated construction of a new tower. Consequently, the useful life was shortened to this date.

The radar station ASR Nord at Frankfurt Airport protrudes through an obstacle clearance limit for the new runway north/west. FRAPORT AG is expected to put the runway into operation in October 2011. Consequently, the radar station cannot be used beyond this time and must be dismantled. Therefore, the useful life for the radar station ASR Nord at Frankfurt Airport was reduced to Octo- ber 2011.

The differences in depreciation due to the changes in the useful lives were as follows:

Tower and Cost Amortised cost Depreciation radar station 2008 2008 2009 2010 €'000 €'000 €'000 €'000 €'000 Before 66,366 40,765 2,111 2,062 2,001 After 66,366 40,765 6,292 6,233 6,177 Difference -4,181 -4,171 -4,176 Depreciation 2011 2012 2013 2014 2015 €'000 €'000 €'000 €'000 €'000 Before 1,972 1,972 1,972 1,970 1,970 After 3,323 3,170 2,330 2,327 2,327 Difference -1,351 -1,198 -358 -357 -357 Depreciation Carrying amount 2016 2017 2018 31 Dec 2018 €'000 €'000 €'000 €'000 Before 1,968 1,966 1,965 18,836 After 2,325 2,324 2,323 1,614 Difference -357 -358 -358 17,222

61 Notes 2008

In the year under review, grants given by the European Commission and the German federal and regional ministries for research and development project funding amounting to €319 thousand (previous year: €0 thousand) were deducted from the cost of property, plant and equipment.

Transfers relate primarily to the conversion of the Langen control centre, power generators and auxiliary power units as well as other technical air navigation facilities and systems.

Borrowing costs of €642 thousand (previous year: €94 thousand) were capitalised in the business year. The calculation of capitalised borrowing costs was based on a cost of capital of 5.24% (previous year: 4.85%).

Expenses for research and development amounted to €31,667 thousand (previous year: €33,722 thousand). Of this amount, development costs of €2,575 thousand (previous year: €2,493 thousand) were recognised as additions to “Assets under development” and €29,092 thousand (previous year: €31,229 thousand) was recognised as an expense.

In the context of finance leases, ADV control towers, additional airport facilities and rooms are reported under the item “Land, equivalent rights and buildings including buildings on third-party land”, while computer hardware is reported under the item “Other operating and office equipment”.

The carrying amounts of the capitalised leased assets comprise the following:

Airport facilities Computer hardware €'000 €'000 Cost 78,399 2,392 Cumulative depreciation -36,692 -2,283 Carrying amount at 31 Dec 2008 41,707 109

In the year under review, the tower building and other facilities at the Cologne/Bonn Airport, which had been recognised as a finance lease, were redeemed through a compensation payment of €5,060 thousand. The company Flughafen Köln/Bonn GmbH relinquished these leased assets to DFS to use in air navigation services following payment of the prime costs.

62 (17) Investment property Investment property developed as follows:

€'000 €'000 2008 2007 Cost As at 1 Jan 1,210 1,210 Additions 0 0 As at 31 December 1,210 1,210

Cumulative depreciation As at 1 Jan 187 157 Additions 30 30 As at 31 December 217 187 Carrying amounts at 31 Dec 993 1,023

Investment property relates to property and buildings held for rental income or capital gains.

This relates to a rented administrative building in Braunschweig. In 2005, the fair value of the building was calculated by a property surveyor using the DCF method. There were no material changes in this value up to the balance sheet date. The fair value as at the balance sheet date is the carrying amount.

In the year under review, the building generated rental income of €117 thousand (previous year: €114 thousand).

63 Notes 2008

(18) Financial assets Financial assets comprise the following:

Shares in Loans to Investments Long-term Total affiliated affiliated securities companies companies €'000 €'000 €'000 €'000 €'000 Cost As at 1 Jan 2007 21,776 492 360 7,290 29,918 Changes to the scope of consolidation 0 0 0 0 0 Additions 0 0 0 5,005 5,005 Changes in fair value 0 0 0 1,198 1,198 Disposals 0 0 0 0 0 As at 31 Dec 2007 21,776 492 360 13,493 36,121

Cumulative impairment 0 0 0 0 0

Carrying amounts at 31 Dec 2007 21,776 492 360 13,493 36,121

Cost As at 1 Jan 2008 21,776 492 360 13,493 36,121 Additions 0 0 0 0 0 Disposals 0 0 0 -5,000 -5,000 Changes in fair value 0 0 0 -1,371 -1,371 As at 31 Dec 2008 21,776 492 360 7,122 29,750

Cumulative impairment 0 0 0 0 0

Carrying amounts at 31 Dec 2008 21,776 492 360 7,122 29,750

Shares in affiliated companies comprise the following:

Stake (in %) Capital share Real estate reserves contribution €'000 €'000 DFS European Satellite Services Provider Beteiligungsgesellschaft mbH, Germany 100.00 28 21,499 DFS Unterstützungskasse GmbH, Germany 100.00 26 0 The Tower Company GmbH, Germany 100.00 100 123 FCS Flight Calibration Services GmbH, Germany 55.00 0 0 Carrying amounts at 31 Dec 2008 154 21,622

64 The registered and fully paid-in capital of DFS European Satellite Services Provider Beteiligungsge- sellschaft mbH amounts to DM 50 thousand. The sole shareholder is DFS. Its business year corresponds to the calendar year and to the business year at DFS. The financial statements for the year ended 31 December 2008 were prepared under HGB.

The registered capital of DM 50 thousand of DFS Unterstützungskasse GmbH is fully paid in. The sole shareholder is DFS. The separate financial statements are prepared in accordance with the provisions of the HGB. The business year corresponds to that of DFS and covers the period from 1 January to 31 December 2008.

The share capital of The Tower Company GmbH amounts to €25 thousand as well as an additional capital contribution of €75 thousand in the capital reserves. Both amounts were fully paid in. The sole shareholder is DFS. The business year corresponds to the calendar year and to the business year at DFS. Its separate financial statements for the year ended 31 December 2008 are prepared under IFRS as endorsed by the EU. There is a profit-and-loss transfer agreement with TTC with effect from 1 January 2006 and with a fixed maturity until 31 December 2010. After this point in time, it extends for one year at a time, unless one of the contracting parties terminates the contract six months before expiry. In the year under review, €409 thousand (previous year: €227 thousand) profit in accordance with HGB was transferred from TTC to DFS.

The registered capital of FCS Flight Calibration Services GmbH amounts to DM 400 thousand and was fully paid in. Of this amount, DFS holds DM 220 thousand (55.00%). Other shares are held by SKYNAV S.A., Awans, Belgium (25.00%) and by Austro Control Österreichische Gesellschaft für Zivilluftfahrt mbH, Vienna, Austria (20.00%). Its separate financial statements for the year ended 31 December 2008 were prepared under HGB. Its business year corresponds to the calendar year and to the business year at DFS.

Loans to affiliated companies relate to an extended loan to DFS European Satellite Services Provider Beteiligungsgesellschaft mbH to settle loss allocations from their investments. The non- interest bearing loan amounted to €1,500 thousand, of which €492 thousand was called.

The investment of €360 thousand includes a 36.00% stake in GroupEAD Europe S.L., Madrid. In 2007, the original indirect investment in GroupEAD held through a trust agreement with FREQUEN- TIS was changed to a direct corporate investment. The other shareholders in GroupEAD are FRE- QUENTIS GmbH, Vienna, and Entidad Pública Empresarial Aeropuertos Españoles y Navegación Aérea, Madrid. The subscribed capital of the company amounts to €1,000 thousand and is divided into 100,000 company shares with a nominal value of €10 each. The business year of GroupEAD runs from 1 January until 31 December and corresponds to that of DFS. The company’s net income is paid out based on the capital share of each shareholder. In 2008, €144 thousand was recognised (previous year: €144 thousand) as income from investments in the financial result.

65 Notes 2008

The disposal of long-term securities relates to the sale of a registered mortgage Pfandbrief – a German mortgage-backed bond – of the Aareal Bank AG.

(19) Long-term and short-term other receivables and assets Other receivables and assets by maturity are shown below:

31 Dec 2008 31 Dec 2008 31 Dec 2007 31 Dec 2007 Total Remaining term Total Remaining term more than 1 year more than 1 year €'000 €'000 €'000 €'000 Receivables from Shareholder 1,903 0 0 0 Receivables from affiliated companies 145 0 73 0 Interest receivables 1,756 0 1,909 0 Derivative financial instruments 3,389 3,389 87 87 Remaining financial assets 603 303 797 417 Other financial receivables and assets 7,796 3,692 2,866 504

Remaining non-financial assets 6,629 0 5,263 0

Other receivables and assets 14,425 3,692 8,129 504

Other receivables and assets are impaired if necessary at the reporting date. There were no material overdue items.

Receivables from affiliated companies are against GroupEAD Europe S.L., Madrid.

Interest receivables consist primarily of interest swaps and interest income on cash accounts and certificates of deposit.

The derivative financial instruments relate to receivables from interest swaps with a remaining term of maturity of more than one year.

The remaining financial assets relate primarily to employee relocation loans (those with a remaining term to maturity of more than one year), receivables from employees for advance payment of salary or travel expenses, receivables against insurance companies and creditors with debit balances.

66 The remaining non-financial assets comprise advance payments for property, plant and equipment, VAT credits and prepayments. The latter includes prepaid insurance premiums, rent, maintenance and other fees.

(20) Trade receivables As in the previous year, trade receivables all fall due within one year.

The following shows those receivables which are overdue but not impaired:

Carrying of which not of which not of which not of which not of which not amount impaired, impaired, impaired, impaired, impaired, not yet for fewer for for for more than overdue than 30 days 31 - 60 days 61 - 180 days 180 days overdue overdue overdue overdue €'000 €'000 €'000 €'000 €'000 €'000 31 Dec 2008 122,690 117,822 2,565 519 968 816 31 Dec 2007 132,475 127,839 2,628 465 394 1,149

With regard to the trade receivables which are neither impaired nor overdue, there was no indica- tion at the balance sheet date that the debtors would not be able to fulfil their payment obligations.

The development of the allowances for doubtful accounts from trade receivables can be found in the following table:

2008 2008 2007 2007 Specific General Specific General allowance allowance allowance allowance €'000 €'000 €'000 €'000 As at 1 Jan 3,552 1,177 9,179 1,275 Additions 3,869 83 1,238 25 Utilisation -2,471 0 -1,286 0 Reversal -1 -95 -5,579 -123 As at 31 December 4,949 1,165 3,552 1,177

67 Notes 2008

The income statement contains expenses from the writing off of trade receivables and the income from the payment of trade receivables previously written off as follows:

2008 2007 €'000 €'000 Expenses for the complete write off of trade receivables 4,021 6,249 Income from the payment of trade receivables previously written off 288 5,885

(21) Inventories Inventories can be broken down as follows:

31 Dec 2008 31 Dec 2007 €'000 €'000 Raw materials, consumables and supplies 3,925 3,799 Work in progress 0 1,017 Finished goods and goods for resale 339 195 Inventories 4,264 5,011

The gross value of inventories as at the balance sheet date amounted to €4,291 thousand (previous year: €5,032 thousand). Raw materials, consumables and supplies were written down by €27 thousand (previous year: €21 thousand).

(22) Cash at bank and in hand Cash at bank and in hand can be broken down as follows:

31 Dec 2008 31 Dec 2007 €'000 €'000 Cash in hand and cheques 43 48 Cash at bank 129,764 98,359 Cash at bank and in hand 129,807 98,407

Cash at bank and in hand are not subject to any restrictions.

Credit balances in foreign currencies are measured at the closing rate.

68 (23) Equity Subscribed capital remained at its 2007 level of €153,388 thousand and was fully paid in.

The capital reserve relates primarily to an amount of €29.5 million, which exceeds the original capital contribution from the bringing in of the assets of the former Federal Administration of Air Navi- gation Services as at 31 December 1992 as well as amounts paid in by the Shareholder in prior business years.

Retained earnings relate to the earnings of the current and prior business years as well as adjustments in equity from the first time conversion to IFRS of minus €679,693 thousand from the opening IFRS balance sheet as at 1 January 2006.

Negative equity resulted from the conversion of the financial reporting from HGB to IFRS. DFS has the right to spread the conversion effects resulting from the different measurements over a 15-year period. The conversion effects relating to ATC charges are included in the cost-base. As the conversion effects are not included in the full cost recovery procedure, this will reduce the negative equity in the long term.

With the Shareholders’ resolution No. 92 from 23 April 2008, the Federal Republic of Germany as the sole Shareholder, represented by the Federal Ministry of Transport, Building and Urban Affairs, adopted the group financial statements and the group management report for the year ended 31 December 2007 in accordance with IAS/IFRS. The annual financial statements for the year ended 31 December 2007 under HGB were also adopted. A payout of a gross dividend of €7,711,266.13 (before capital gains tax and solidarity surcharge) from the retained profit for 2007 under HGB of €38,620,600.48 was agreed. The payment was made on 15 May 2008. The remainder of €30,909,334.35 was transferred to retained earnings.

In the reserve for fair value adjustments, changes in the fair value of available-for-sale securities are recorded. In the business year, unrealised losses of €1,376 thousand (previous year: income of €1,198 thousand) and deferred tax liabilities of €87 thousand (previous year: €463 thousand) were recognised directly in equity. Upon sale, the changes in valuation recorded in equity are recognised in profit or loss.

31 Dec 2008 31 Dec 2007 €'000 €'000 Issued capital 153,388 153,388 Capital reserve 74,296 74,296 Retained earnings -571,829 -613,690 Reserve for fair value adjustments -394 1,069 Equity -344,539 -384,937

69 Notes 2008

The availability of robust financial resources is important to ensure the continuation of the company. Capital management is based on the total capital and is regularly reviewed using appropriate metrics, such as the equity ratio or the return on equity. As a result of the approach taken in the conversion to IAS/IFRS, both these metrics were negative. The negative equity declined by €40,398 thousand to minus €344,539 thousand as a result of the net income of €49,572 thousand generated in 2008.

The company’s goal is to move out of the negative equity situation in the long term.

The following metrics are decisive in capital management:

31 Dec 2008 31 Dec 2007 €'000 €'000 Equity -344,539 -384,937 Equity ratio -33.04% -36.16% Return on equity -14.39% -10.87% Net income 49,572 41,842 EBIT 124,392 124,702 Borrowings 1,387,295 1,449,394 Debt ratio 133.04% 136.16% Return on total assets 5.64% 5.61% Debt-equity ratio 1.68% 5.97%

The company finances itself primarily by drawing on a money and capital market programme. There are two framework agreements, the Multi-Currency Commercial Paper Programme and the Multi-Currency Debt Issuance Programme, for issuing short-, medium- and long-term bearer bonds. Taken together with the lines of credit with its principal bankers of €161 million, the company has access to funding of €1,000 million.

Net financial indebtedness can be broken down as follows:

31 Dec 2008 31 Dec 2007 €'000 €'000 Cash at bank and in hand 129,807 98,407 Non-current liabilities 145,157 159,223 Current liabilities 2,184 2,692 Net financial indebtedness 17,534 63,508

70 (24) Provisions for pensions and similar obligations Company pension schemes for employees comprise both defined contribution and defined benefit schemes. Retirement benefit obligations are dependent on the legal, tax and economic circumstances of the Federal Republic of Germany and are based, as a rule, on the length of service and compensation of the employee.

The changes made in the measurement of pension obligations are explained in section 4 “Account- ing policies” in “Use of estimates and assumptions”.

For the defined contribution plans, the company pays statutory or contractual contributions to State or private pension plans. The company has no further obligations beyond the payment of these contributions. The current contributions are recorded under employee expenses. In 2008, payments to defined contribution plans amounted to €26,099 thousand (previous year: €28,927 thousand).

For defined benefit plans, the company is obliged to honour the benefits payable to active and former employees. These benefits are financed by either recognising provisions or by investing in funds independent of the company.

The expenses for defined benefit obligations recognised in the income statement can be broken down as follows:

2008 2007 €'000 €'000 Current service cost 57,455 68,415 Interest expense 83,757 77,095 Amortisation of actuarial gains and losses -7,464 1,951 Expected return on fund assets -45,609 -40,535 Contribution to Pensionssicherungsverein (German pension guarantee association) 1,207 1,793 Expense for defined benefit obligations 89,346 108,719

The interest expense and expected income from plan assets are reported under financial result. In the year under review, the actual return on plan assets amounted to €23,871 thousand (previous year: €27,458 thousand).

For the 2009 business year, DFS expects employer contributions to the plan of €113,489 thousand. Pension payments of €64,898 thousand are expected in 2009.

71 Notes 2008

The provisions for pension obligations are recognised based on the retirement benefit obligation for old-age, disability and surviving dependant's pensions. Provisions are only recognised for defined benefit plans, where the company guarantees certain pension benefits for the employee.

The measurement of pension obligations is based on annual actuarial calculations and assumptions. Defined benefit obligations are calculated using the projected unit credit method, taking into account expected future salary and pension increases. Actuarial gains and losses from adjustments due to experience and changes in actuarial assumptions are recorded using the 10.00% corridor approach.

Retirement benefit obligations are calculated based on actuarial methods using estimates of the relevant variables. At the beginning of the year, the following assumptions were made as to the life expectancy and the following premises regarding the parameters used in the actuarial calculations in the reports were laid down:

Percentage rate per year 2009 2008 2007 Discount rate 6.30% 5.50% 4.64% Projected return on plan assets 5.00% 5.00% 5.00% Projected increase in salaries 3.50% 3.50% 3.50% Projected increase in benefits 2.00% 2.00% 2.00%

A year-on-year comparison results in the following values:

2008 2007 2006 €'000 €'000 €'000 Present value of funded pension obligations 1,484,342 1,552,446 1,687,525 Fair value of plan assets 1,004,421 907,366 805,566 Net obligation (-) / surplus (+) -479,921 -645,080 -881,959 Experience adjustment of plan liabilities 32,303 307 -121,574 Experience adjustment of plan assets -21,738 -13,076 7,007

72 Actuarial gains and losses may result from increases or decreases in the present value of the defined benefit obligation resulting from, inter alia, changes in calculation parameters and estimates for the risk connected with pension obligations. The provisions for pensions and similar obligations were calculated as follows:

2008 2007 €'000 €'000 Development of present value of pension obligations Defined benefit obligation at 1 Jan 1,552,446 1,687,525 Current service cost 57,455 70,208 Interest expense 83,757 77,095 Retirement benefits paid -55,754 -56,278 Actuarial gains (-) and losses (+) -153,562 -226,104 Present value of pension obligations at 31 Dec 1,484,342 1,552,446

Present value of funded pension obligations 1,484,342 1,548,795 Fair value of plan assets 1,004,421 907,366

Net obligation 479,921 641,429

Present value of non-funded obligations 0 3,651 Adjustment for unrecognised actuarial gains (+) and losses (-) 309,726 185,365 Provisions for pensions and similar obligations 789,647 830,445

The plan assets consist of qualifying insurance policies. To determine the overall expected return on plan assets, a discount rate of the actuary of 4.00% and the expectations of the additional return on plan assets of 7.00% were used. The fair value of plan assets developed as follows:

2008 2007 €'000 €'000 Development of fair value of plan assets Fair value of plan assets at 1 Jan 907,366 805,566 Projected income from plan assets 45,609 44,662 Employer contributions 111,142 124,307 Retirement benefits paid -37,958 -54,093 Actuarial gains (+) and losses (-) -21,738 -13,076 Fair value of plan assets at 31 Dec 1,004,421 907,366

73 Notes 2008

(25) Other provisions Other provisions developed as follows in the year under review:

1 Jan Utilisation Reversal Additions Discounting 31 Dec Remaining 2008 2008 term more than 1 year €'000 €'000 €'000 €'000 €'000 €'000 €'000 Charges over-recovery 100,982 31,724 0 42,610 0 111,868 45,131 Personnel 64,943 13,751 0 4,839 1,679 57,710 55,738 Leasehold 11,161 509 0 0 2,316 12,968 12,450 QTE cross-border transaction 7,106 0 2,282 0 855 5,679 5,679 Restructuring 8,938 13 5,293 0 0 3,632 1,032 Other 7,443 516 566 6,992 -189 13,164 6,644 Other provisions 200,573 46,513 8,141 54,441 4,661 205,021 126,674

When calculating air navigation service charges, it is assumed that revenues match costs (full cost recovery). Over- and under-recovery can result if the assumptions underlying the planning do not occur in full. Provisions for over-recovery of charges in a business year are carried forward to the year after next (n+2) and deducted, therefore reducing the charges for that year.

Personnel provisions comprise primarily provisions for early retirement, part-time work for older employees and anniversary payments. They also include provisions for recuperation treatment, which are an additional fringe benefit for air traffic controllers under the collective agreement.

The provision for the Berlin leasehold relates to the lease payments for a property in Berlin-Schöne- feld which is not used operationally.

The provision for the qualified technological equipment cross-border transaction relates primarily to the fees for letters of credit and ongoing information, identification and insurance obligations of the assets concerned.

The provision for restructuring contains expected expenses for the Operational Centres Concept. This envisages a reduction in the number of control centres from six to four locations. The provision primarily relates to financial settlements for employees due to the closure of locations and the re-conversion obligations for the respective locations.

74 “Other” relates to provisions for property taxes, costs of litigation, obligations to preserve records and measures to reconvert buildings.

(26) Financial liabilities Financial liabilities can be broken down as follows:

31 Dec 2008 31 Dec 2008 31 Dec 2007 31 Dec 2007 Total Remaining term Total Remaining term more than more than 1 year 1 year €'000 €'000 €'000 €'000 Bonds 93,749 93,749 88,144 88,144 Finance lease liabilities 53,592 51,408 73,771 71,079 Financial liabilities 147,341 145,157 161,915 159,223

DFS mainly finances itself by drawing on a money and capital market programme. There are two framework agreements for the issuance of short-, medium- and long-term bearer notes. Due to the two framework agreements, the Multi-Currency Commercial Paper Programme and the Multi-Curren- cy Debt Issuance Programme, DFS has funding framework of €500 million from each of the agreements.

The individual bonds are as follows:

Terms Currency Nominal Nominal Effective 31 Dec 2008 31 Dec 2007 value interest interest €'000 €'000 2000 - 2010 EUR 25,000 5.90% 5.91% 24,981 24,975 2000 - 2010 EUR 20,000 6.00% 6.01% 19,985 19,980 2003 - 2018 EUR 25,000 4.84% 4.84% 25,000 25,000 2004 - 2016 JPY 22,200 1.82% 1.82% 23,783 18,189 Bonds 93,749 88,144

In addition, DFS has credit lines of €161 million at its disposal with its principal bankers.

75 Notes 2008

Finance leasing liabilities:

31 Dec 2008 31 Dec 2008 31 Dec 2008 31 Dec 2008 31 Dec 2007 Up to 1 year 1 - 5 years More than 5 years Total Total €'000 €'000 €'000 €'000 €'000 Sum of lease instalments to be paid in the future 7,264 22,588 79,723 109,575 156,883 Interest component -5,080 -16,015 -34,888 -55,983 -83,112 Finance leasing liabilities 2,184 6,573 44,835 53,592 73,771

Finance lease liabilities relate to control towers, other rooms and equipment at airports as well as computer hardware (servers, printers, monitors, PCs and laptops).

In the year under review, the tower building and other facilities at Cologne/Bonn Airport were redeemed through a compensation payment of €5,060 thousand. The company Flughafen Köln/Bonn GmbH relinquished these assets to DFS to use in air navigation services following payment of the prime costs. Due to this agreement to relinquish, a leasing liability of €5,767 thousand was derecognised.

The tower and facility buildings currently in use at Frankfurt Airport will be given back to the airport company FRAPORT AG (probably in December 2010) due to the construction of the new fourth runway and the associated construction of a new tower. Due to this change, a leasing liability of €11,719 thousand was derecognised.

(27) Trade payables Trade payables can be broken down as follows:

31 Dec 2008 31 Dec 2008 31 Dec 2007 31 Dec 2007 Total Remaining term Total Remaining term more than 1 year more than 1 year €'000 €'000 €'000 €'000 Germany 28,670 4 26,120 5 Abroad 7,025 0 7,541 0 Creditors with debit balances 163 0 241 0 Amounts withheld 3,690 1,108 3,605 1,099 Maastricht unit 3 0 7 0 Trade payables 39,551 1,112 37,514 1,104

76 (28) Other liabilities Other liabilities comprise the following:

31 Dec 2008 31 Dec 2008 31 Dec 2007 31 Dec 2007 Total Remaining term Total Remaining term more than 1 year more than 1 year €'000 €'000 €'000 €'000 Staff costs 9,479 0 10,653 0 Amounts owed to Shareholder 0 0 9,713 0 Amounts owed to 0 affiliated companies 10,277 0 8,471 0 Reimbursements to German Meteorological Service 2,217 0 2,601 0 Derivative financial instruments 4,575 4,575 5,649 5,649 Interest payable 3,430 0 3,013 0 Remaining financial liabilities 10,977 0 9,102 0 Other financial liabilities 40,955 4,575 49,202 5,649

QTE cross-border transaction 66,512 61,191 71,834 66,513 Staff costs 34,029 2,659 32,477 2,840 Amounts owed to the tax authorities 13,510 0 10,117 0 Remaining non-financial liabilities 3,290 0 3,392 0 Other non-financial liabilities 117,341 63,850 117,820 69,353 Other liabilities 158,296 68,425 167,022 75,002

DFS leased and leased back part of its assets as part of a “qualified technological equipment cross-border transaction” to a special purpose company (SPC) founded especially for this transaction. The total transaction consists of five tranches. Under the contract, DFS rents to the SPC for a period of 38 years certain air traffic control systems which are owned and used by DFS. Land and buildings are not included. Simultaneously, the SPC entered into a contract with DFS to rent back the equipment for a period of 23 years. During the term of the contract to rent back the equipment, DFS is obliged to maintain and report to the investors regularly on the air traffic control systems. After 18.5 years, DFS will be entitled to acquire all of the rights of the SPC under the main lease contract by paying an option price.

As a result of one-off payments in 2002 and 2003, DFS has no more payment obligations for the term of both agreements (38 and 23 years respectively). Through the payment of the discounted lease instalments and of the present value for the exercise of the purchase option a net present value benefit arose.

77 Notes 2008

The resulting net present value benefit is deferred under other liabilities and reversed in the income statement on a straight-line basis over 18.5 years, the term until the exercise of the purchase option. Income of €5,321 thousand from the QTE cross-border transaction was recorded under other operating income.

Staff costs relate primarily to financial liabilities concerning the back payment of salaries and end- of-year remuneration.

Staff costs also relate to non-financial liabilities comprising liabilities for holidays and flexitime, the surcharge for non-employment of disabled persons, liabilities for the statutory accident insurance scheme, contributions to the insolvency fund of the workers' compensation board as well as payments to the pension indemnity fund.

Amounts owed to affiliated companies comprise the following items and relate primarily to liabilities from cash pool transactions:

31 Dec 2008 31 Dec 2007 €'000 €'000 DFS European Satellite Services Provider Beteiligungsgesellschaft mbH 7,857 6,873 FCS Flight Calibration Services GmbH 22 507 DFS Unterstützungskasse GmbH 1,791 692 The Tower Company GmbH 607 399 Liabilities to affiliated companies 10,277 8,471

Amounts owed to the German Meteorological Service relate to their share of en-route charges.

Derivative financial instruments relate to interest rate swaps.

Interest payables result from interest rate swaps and from bonds.

Other financial liabilities comprise liabilities for outstanding invoices, travel expenses and debtors with credit balances.

Amounts owed to the tax authorities comprise payroll, church and value added tax.

Other non-financial liabilities relate to deferred income due to advance payment of insurance refunds and income received, advance payments and internal costs for the annual financial statements.

78 Additional disclosures

(29) Notes to segment reporting The core business, which is financed by ATC charges, is the only reportable segment at DFS. The only geographic segment is Europe, as DFS is only active in this economic environment.

(30) Additional disclosures on the cash flow statement The cash flow statement presents the cash flows of a business year and provides information on the movements in the company’s means of payment. Cash inflows and outflows are divided into operating, investing and financing activities.

The total of cash and cash equivalents reported at the balance sheet date comprises the short- term liquid funds shown on the balance sheet, comprising cash at bank and in hand.

Cash inflow from operating activities was calculated using the indirect method by adjusting net income for changes in inventory, receivables, other assets and borrowings as well as depreciation and amortisation and other non-cash income and expenses.

Cash outflows for investing and financing activities are presented using the direct method.

79 Notes 2008

(31) Financial instruments Financial assets are classified as follows:

Note Carrying At fair value Loans and Available Fair value amount through receivables for sale profit or loss 2007 €'000 €'000 €'000 €'000 €'000 Shares in affiliated companies (18) 21,776 21,776 21,776 Loans to affiliated companies (18) 492 492 492 Investments (18) 360 360 360 Securities (18) 13,493 13,493 13,493 Derivative financial instruments (19) 87 87 87 Remaining financial assets (19) 417 417 417 Trade receivables (20) 132,475 132,475 132,475 Receivables from affiliated companies and investments (19) 73 73 73 Interest receivables (19) 1,909 1,909 1,909 Remaining financial assets (19) 380 380 380 Cash in hand and cheques (23) 48 48 48 Cash at bank (23) 98,359 98,359 98,359 269,869 87 135,746 134,036 269,869 2008 Shares in affiliated companies (18) 21,776 21,776 21,776 Loans to affiliated companies (18) 492 492 492 Investments (18) 360 360 360 Securities (18) 7,122 7,122 7,122 Derivative financial instruments (19) 3,389 3,389 3,389 Remaining financial assets (19) 303 303 303 Trade receivables (20) 122,690 122,690 122,690 Receivables from Shareholder (19) 1,903 1,903 1,903 Receivables from investments (19) 145 145 145 Interest receivables (19) 1,756 1,756 1,756 Remaining financial assets (19) 300 300 300 Cash in hand and cheques (23) 43 43 43 Cash at bank (23) 129,764 129,764 129,764 290,043 3,389 127,589 159,065 290,043

80 Financial liabilities are classified as follows:

Note Carrying amount At fair value Amortised Under Fair value through cost IAS 17 profit or loss 2007 €'000 €'000 €'000 €'000 €'000 Bonds (26) 88,144 88,144 89,740 Finance leasing liabilities (26) 71,079 71,079 71,079 71,079 Trade payables (27) 1,104 1,104 1,104 Derivative financial instruments (28) 5,649 5,649 5,649 Finance leasing liabilities (26) 2,692 2,692 2,692 2,692 Trade payables (27) 36,410 36,410 36,410 Staff costs (28) 10,653 10,653 10,653 Amounts owed to Shareholder (28) 9,713 9,713 9,713 Amounts owed to affiliated companies (28) 8,471 8,471 8,471 Reimbursements to German Meteorological Service (28) 2,601 2,601 2,601 Interest payable (28) 3,013 3,013 3,013 Remaining financial liabilities (28) 9,102 9,102 9,102 248,631 5,649 242,982 73,771 250,227 2008 Bonds (26) 93,749 93,749 98,717 Finance leasing liabilities (26) 51,408 51,408 51,408 51,408 Trade payables (27) 1,112 1,112 1,112 Derivative financial instruments (28) 4,575 4,575 4,575 Finance leasing liabilities (26) 2,184 2,184 2,184 2,184 Trade payables (27) 38,439 38,439 38,439 Staff costs (28) 9,479 9,479 9,479 Amounts owed to affiliated companies (28) 10,277 10,277 10,277 Reimbursements to German Meteorological Service (28) 2,217 2,217 2,217 Interest payable (28) 3,430 3,430 3,430 Remaining financial liabilities (28) 10,977 10,977 10,977 227,847 4,575 223,272 53,592 232,815

81 Notes 2008

A financial instrument is a contract which results in a financial asset for one party and either a financial liability or an equity instrument for the other party.

Financial assets comprise, inter alia, liquid funds, trade receivables and extended loans and receivables. These are classified as “at fair value through profit or loss” “loans and receivables” or “available-for-sale”.

All financial assets classified as “at fair value through profit or loss" are held for trading. They are capitalised at fair value plus transaction costs on the settlement date, the time the assets arose or were transferred. In subsequent periods, the assets are carried at fair value. This category includes, for example, derivatives that do not qualify as hedging instruments. Changes in the fair value between the balance sheet dates are recognised in profit or loss in the financial result.

The category “loans and receivables” consists of financial assets with fixed or determinable terms of payment which are not traded on an active market. Assets are classified as either current or non-current based on the remaining term. Initial recognition occurs at fair value as of the time of settlement (plus direct transaction costs), subsequent measurement is at amortised cost using the effective interest rate method. If there are doubts about the collectibility of receivables, they are carried at the lower recoverable amount. Reversals are made through the income statement in subsequent periods if necessary. Receivables denominated in a foreign currency are measured in the income statement at the balance sheet date.

The category “available for sale” includes all additional financial assets which cannot be allocated to any other category (such as investments, securities, cash at bank and in hand). Initial recognition at the point when they arise is made at fair value plus direct transaction costs. In subsequent periods, the long-term securities in this category are measured at fair value. Changes in the fair value between the balance sheet dates are recognised in reserves in equity. The reversal of reserves through the income statement takes place either on sale or when the market value is permanently lower than the carrying amount. The shares and investments as well as cash at bank and in hand in this category are recognised at amortised cost.

Financial liabilities generally give rise to a claim for repayment in cash or in the form of another financial asset. These include bonds, liabilities under finance leases, trade payables and other liabilities. They are subdivided into the categories “at fair value through profit or loss” and “amortised cost”.

Financial liabilities in the category “at fair value through profit or loss” are held exclusively for trading and initial and subsequent recognition is at fair value. Changes in the fair value between the balance sheet dates are recognised in profit or loss in the financial result. The category “amortised cost” contains all other financial liabilities which cannot be allocated to another category. In subsequent periods, they are carried at amortised cost using the effective interest rate method. Liabili-

82 ties denominated in a foreign currency are converted using the rate at the balance sheet date. The difference arising from their adjustment is reported in the income statement. The fair value of bonds is calculated as the present value of the expected future cash flows. Prevailing market interest rates for the corresponding term are used for discounting. The fair value for finance leasing liabilities is reported as the present value of the minimum lease payments. Trade payables and other liabilities have short-term maturities, which means that the amounts shown in the balance sheet correspond to a large degree with the fair value. Financial liabilities with maturities longer than one year correspond to the fair value of the amount discounted at the risk-free rate.

The net results of financial instruments by measurement category are as follows:

Profit Currency Change in Valuation Interest 2008 2007 share effect fair value allowances €'000 €'000 €'000 €'000 €'000 €'000 €'000 Assets At fair value through profit or loss 4,376 -767 3,609 -836 Loans and receivables -3,733 8,291 4,558 12,387 Available for sale 546 0 2,154 2,700 -959 Liabilities Amortised cost -5,594 -9,270 -14,864 -14,613 546 -5,594 4,376 -3,733 408 -3,997 -4,021

The net losses from derivatives recognised at fair value through profit or loss contain positive changes in market value of €4,376 thousand (previous year: €215 thousand) and an interest result of minus €767 thousand (previous year: minus €1,051 thousand).

83 Notes 2008

Net gains and losses from loans and receivables contain results from impairment losses and write- ups. Interest income results primarily from cash at bank.

The net result from available for sale financial assets comprises negative changes in the market value of securities, dividends received from investments as well as profit transfers from affiliated companies. Interest income was generated from securities.

The currency effects of financial liabilities measured at amortised cost are reported as net gains. Interest expenses relate to bonds issued.

Expenses in the form of payments from financial assets and financial liabilities which are not recognised at fair value in profit or loss amounted to €370 thousand (previous year: €384 thousand) and are recorded under other operating expenses.

(32) Derivative financial instruments As at 31 December 2008, the derivatives on hand at DFS comprised interest rate swaps, interest

and cross-currency swaps and a CO2 certificate swap.

The volumes as at the balance sheet date are summarised in the following table:

Remaining Fair value Nominal volume term 31 Dec 2008 31 Dec 2007 31 Dec 2008 31 Dec 2007 EUR millions EUR millions EUR millions EUR millions Payer interest rate swaps 1 - 5 years -2.320 -0.690 52.000 20.000 Payer interest rate swaps > 5 years -2.260 -0.490 22.200 29.200 Receiver interest rate swaps > 5 years 1.170 -0.280 25.000 25.000 Interest and cross-currency swaps > 5 years 2.260 -4.100 22.200 22.200 CER/EUA swap > 1 year 0.014 0.118 -1.136 -5.560 121.518 96.400

The nominal volume is defined as the sum of all bought and sold amounts of foreign exchange contracts or the computational basis for the interest payments on interest rate swaps. The fair value of a financial instrument is the amount which can be obtained in an arm’s length transaction between knowledgeable willing parties under prevailing market conditions. In determining the fair value of a derivative financial instrument, compensating effects from the primary transaction (e.g. pending business or anticipated transactions) are excluded.

84 The fair values of foreign exchange contracts are determined on the basis of the ECB reference rates taking account of the forward premiums and discounts for the remaining term to trade date and/or measurement date.

The fair values of interest rate hedges (e.g. interest rate swaps, interest rate and cross-currency swaps) are calculated on the basis of discounted future expected cash flows. The market interest rate appropriate for the remaining term of the financial instrument or the implicit interest rate which can be derived is applied. The clean price of the financial instruments is reported.

DFS is exposed to counterparty risk, which arises should the counterparty not fulfil its contractual obligations. To minimise counterparty risk, DFS concludes derivative transactions exclusively with its principal bankers, who have very good credit ratings. Counterparty risks only exist for transactions with a positive fair value for DFS.

Currency management By virtue of its international business activities, DFS is exposed to currency risk which can impact the operating result, the financial result and cash flows. DFS is principally exposed to currency risk through the purchase of technical equipment which is invoiced in US dollars.

In order to reduce the impact of currency fluctuations, DFS continually evaluates currency risks and hedges its risks, where applicable, through the use of derivatives. Currency risks are determined by having a currency risk position. The risk positions resulting from primary transactions are matched to hedges which have been entered into. The Treasury department plans and controls currency risks and the use of derivative financial instruments. The Board of Managing Directors receives regular reports from the Treasury department about currency risks and the use of derivatives.

Interest rate management Interest rate risks result from the sensitivity of financial assets and financial liabilities and/or their cash flows from future interest payments to changes in market rates. DFS mainly finances itself by drawing on a money and capital market programme. The funds from the capital market programme have predominantly long-term maturities and fixed or variable interest rates. DFS endeavours to limit the resulting interest rate risks through the use of derivative interest rate contracts and interest rate and cross-currency swaps.

Interest swaps are used in relation to financial indebtedness to affect a change in the relationship of the fixed interest rate positions to assets and liabilities with variable rates. An interest rate swap is designed so that the company pays a set fixed interest rate on the principal amount of its underlying variable rate financial liability; the company, in turn, receives a variable rate on the same principal amount. Alternatively, it uses payer swaps to secure a variable rate. Only the interest rate payments are swapped, not the principal amounts.

85 Notes 2008

In order to reduce the impact of interest rate fluctuations, DFS continually evaluates interest rate risks and hedges these through derivative financial instruments. The Treasury department plans and controls interest rate risks and the use of derivatives. The Board of Managing Directors receives regular reports from the Treasury department on newly concluded transactions and on its book of derivatives.

(33) Financial risks DFS discloses in the group management report the required qualitative information according to IFRS 7 about the type and means by which risks from financial instruments arise as well as the procedures for the management and control of these risks.

Financial risks arise within the DFS group in the form of credit risks, liquidity risks and market price risks. Market price risks are quantified using the Value-at-Risk (VaR) concept.

Credit risks The maximum credit risk position was as follows:

2008 2007 €'000 €'000 Loans to affiliated companies 492 492 Securities 7,122 13,493 Trade receivables 122,690 132,475 Other financial receivables and assets 7,796 2,866

Collateral is not held for financial instruments.

86 Liquidity risks The following aged-list shows, as at the balance sheet date, the undiscounted principal and interest payments of financial liabilities, the undiscounted payments for trade payables, the undiscounted payments for other financial liabilities as well as the undiscounted net payments for derivative financial liabilities.

Total Due in less Due in Due in Due in more than 3 4 – 12 1 – 5 than 5 months months years years €'000 €'000 €'000 €'000 €'000 2007 Financial liabilities – Non-derivative Bonds 110,244 1,700 2,346 56,172 50,026 Finance leasing liabilities 156,883 2,127 6,381 29,471 118,904 Trade payables 37,513 36,232 179 1,102 0 Other liabilities 32,039 24,392 7,647 0 0 Financial liabilities – derivatives Derivatives 7,471 -1,136 2,098 3,495 3,014 2008 Financial liabilities – Non-derivative Bonds 105,709 1,743 2,119 78,435 23,412 Finance leasing liabilities 109,575 1,857 5,407 22,588 79,723 Trade payables 39,551 38,252 187 1,112 0 Other liabilities 32,950 26,717 6,233 0 0 Financial liabilities – derivatives Derivatives 7,135 -435 1,550 3,791 2,229

Market risks The following table shows the interest rate risk for financial assets and liabilities exposed to such a risk:

31 Dec 2008 31 Dec 2007 Nominal value Nominal value €'000 €'000 Securities Fixed interest rate 7,000 11,943 Bonds Variable rate 0 25,000 Fixed interest rate 92,200 67,200

87 Notes 2008

The following table shows the net risk by currency:

31 Dec 2008 31 Dec 2007 Nominal value Rate Nominal value Rate JPY ’000 JPY ’000 Primary transactions -3,000,000 126.14 -3,000,000 156.93 Derivative financial instruments 3,000,000 126.14 3,000,000 156.93 Planned hedges 0 0 Net risk 0 0 31 Dec 2008 31 Dec 2007 Nominal value Rate Nominal value Rate USD ’000 USD ’000 Primary transactions -1,680 1.35390 -2,084 1.34260 Derivative financial instruments 0 1,100 1.48250 Planned hedges 0 0 Net risk -1,680 1.35390 -984

The following tables show the annual value of the Value-at-Risk with a confidence interval of 95.00% and a holding period of 10 days using the historical simulation for 2008 and 2007 as a basis for the currency and interest rate risks:

Currency risk 2008 2007 €'000 €'000 At year-end 80 52

Interest rate risk 2008 2007 €'000 €'000 At year-end 906 260

For the overall risk, the end, highest, lowest and average values are shown below. The currency risks declined in the reporting period through the further reduction in primary transactions in foreign currencies. The decline in interest risks is primarily due to the repayment of a bond and the reversal of interest rate swaps.

Overall risk 2008 2007 €'000 €'000 At year-end 942 266 High 1,029 593 Low 260 243 Average 676 366

88 (34) Contingent liabilities and other financial commitments At the end of year under review, there were no obligations for the issuance or endorsement of guarantees covering bills of exchange and cheques.

The nominal values of contingent liabilities and other financial commitments were as follows:

2008 2008 2008 2008 2007 Up to 1 year 1 – 5 years More than 5 years Total Total €'000 €'000 €'000 €'000 €'000 Warranty contracts 517 517 336 Loan commitments - to TTC 3,900 3,900 3,900 - to DFS ESSP 8,500 8,500 8,500 - to the Unterstützungskasse no credit line no credit line - to FCS 1,500 1,500 1,500 Capital expenditure commitments 52,978 3,132 0 56,110 40,995 Commitments from rental and leasing contracts 3,777 2,751 49 6,577 7,408 Pending legal proceedings 59 59 0 Total 71,231 5,883 49 77,163 62,639

No provisions were recognised for the commitments shown because the risk of use was deemed as having a low probability.

Warranty contracts relate to guarantees for advance payments, warranties, contract fulfilment and tender guarantees for radar data and air traffic control systems.

In order to cover their liquidity needs, the following subsidiaries were granted an inter-company credit line as part of daily cash pooling – The Tower Company GmbH (TTC), DFS European Satellite Services Provider Beteiligungsgesellschaft mbH (DFS ESSP), DFS Unterstützungskasse GmbH (Unterstützungskasse) as well as FCS Flight Calibration Services GmbH (FCS). Cash pooling serves to obtain better conditions for cash investments and loans and enables the participating companies to benefit from central, systematic financial planning within the group.

Capital expenditure commitments relate exclusively to additions to fixed assets.

Commitments from rental and leasing contracts relate exclusively to operating leases, where the leased asset belongs economically to the lessor, who bears all the significant risks and rewards.

89 Notes 2008

The contract for the construction of the tower in Dresden could result in legal proceedings between Walter Bau AG and DFS. Walter Bau AG’s payment claim for work against DFS due on 21 February 2005 of €59,088.68 had been surrendered to Cegelec AT GmbH & Co. KG in January 2005. The assignment of the claim was reported to DFS, who discharged its payment obligation by direct payment to Cegelec AT. On 1 April 2005, insolvency proceedings were instituted against Walter Bau AG. Before the limitation period ended on 31 December 2008, the liquidator contested the direct payment made to Cegelec on the grounds of intentional fraudulent trading pursuant to Article 133 of the Insolvency Code. Should the contestation be successful, DFS would be obliged to render the payment again to the liquidator. In turn, DFS would then have a claim against Cegelec AT for repayment because of the principles of unjust enrichment. The validity of the contestation depends on the extent to which the liquidator can prove intentional fraudulent trading against DFS.

(35) Contingent assets There are two separate abstract acknowledgements of debt (abstrakte Schuldanerkenntnisse – a standard German law acknowledgement of a borrower’s indebtedness) between DFS Deutsche Flugsicherung GmbH and FCS Flight Calibration Services GmbH.

In the acknowledgement of debt with effect from 26 April 2006, FCS acknowledges that it owes DFS €8,500 thousand. All known and unknown objections which do not arise from the agreement itself, especially an objection because of unjust enrichment, are excluded. FCS has provided security for the acknowledgement of debt by registering a charge in favour of DFS on a Raytheon Beachcraft Super King (serial number FL473, D-CFMD) in accordance with Article 1 of the “Gesetz über Rechte an Flugzeugen – LuftfzgG” (law on rights to aircraft) and agreed to register this charge in the register for pledges on aircraft at the local district court in Braunschweig. The registration was conducted on 22 August 2006. The basis is a loan agreement dated March 2006 between DFS European Satellite Services Provider Beteiligungsgesellschaft mbH and FCS Flight Calibration Services GmbH for the aircraft (serial number FL-473, identification D-CFMD) of €5,500 thousand and the flight inspection system (type Aerodata AeroFIS) of €3,000 thousand. The loan for the aircraft matures on 31 December 2022 and for the flight inspection system on 31 December 2016. The loan is collateralised over its entire maturity by an abstract acknowledgement of debt in favour of DFS by means of a liability of €8,500 thousand.

In the acknowledgement of debt with effect from 29 September 2008 or 6 October 2008, FCS acknowledges that it owes DFS €6,000 thousand. All known and unknown objections which do not arise from the agreement itself, especially an objection because of unjust enrichment, are excluded. FCS has provided security for the acknowledgement of debt by registering the charge in favour of DFS on a Hawker Beachcraft Super King Air (serial number FL-626, D-CFME) in accordance with Article 1 of the “Gesetz über Rechte an Flugzeugen - LuftfzgG” (law on rights to aircraft) and has agreed to register this charge in the register for pledges on aircraft at the local district court in Braunschweig. The basis is a loan agreement from September and October 2008 between DFS

90 European Satellite Services Provider Beteiligungsgesellschaft mbH and FCS Flight Calibration Serv- ices GmbH for the aircraft (serial number FL-626, identification D-CFME) of €4,300 thousand and the flight inspection system (type Aerodata AeroFIS) of €1,700 thousand. The loan for the aircraft matures on 31 December 2025 and for the flight inspection system on 30 September 2019. The loan is collateralised over its entire maturity by an abstract acknowledgement of debt in favour of the collateral agent (DFS) through a liability of €6,000 thousand. The loan sum had not been called as at the balance sheet date.

(36) Auditors’ fees The fees for the auditor expensed in the business year according to Article 319, paragraph 1, of the HGB comprise the following:

2008 2007 €'000 €'000 Audit of the annual financial statements 148 140 Audit according to German Budgetary Principles Act 0 10 Tax advice 0 4 Other consultancy services 76 83 Total 224 237

(37) Post-balance sheet events There were no material post-balance sheet events.

91 Notes 2008

(38) Service concession arrangements The field of activity of DFS comprises the tasks of the air navigation services. DFS took over these tasks from the former Federal Administration of Air Navigation Services (BFS). Air navigation services are a sovereign task. After an amendment to Article 87d the Constitution, this duty was transferred on 11 November 1992 by the legislator to DFS according to Article 31b, paragraph 1, sentence 1 of the German Aviation Act (LuftVG) in conjunction with Article 1 of the Regulation Concern- ing the Commissioning of an Air Navigation Services Enterprise (FS-AuftragV) with effect from 1 January 1993. DFS has been entrusted with monitoring both civil and regional military air traffic.

The air navigation services ensure the safe, orderly and expeditious handling of air traffic pursuant to Article 27c, paragraph 1, of the German Aviation Act. It includes in particular the following tasks pursuant to Article 27c, paragraph 2, of the German Aviation Act:

1. Provision of operational air navigation services, including: a) air traffic control for the surveillance and control of aircraft movements in the air and on the manoeuvring areas of the aerodromes, including checking, warning and rerouting aircraft in airspace, b) air traffic flow management and management of airspace utilisation, c) aeronautical information service, except for aeronautical meteorological services, d) cooperation in the search and rescue service for aircraft, e) transmission of air navigation services information.

2. Provision of technical air navigation services, including: a) procurement, installation and acceptance of technical air navigation services facilities, b) operation, maintenance and monitoring of technical air navigation services facilities, c) development and maintenance of application software used in electronic data processing for the air navigation services.

3. Planning and testing of procedures and facilities for the air navigation services.

4. Collection and dissemination of aeronautical information, production and publication of aeronautical charts and promulgation of procedures for aviation.

These tasks are described in detail in the Regulation on the Operational Air Navigation Services (FSBetrV).

DFS was also entrusted with the training of operational and technical air traffic management personnel, participation in international organisations, the powers and competencies for the former staff of the BFS and the planning of flight procedures.

92 DFS performs these tasks pursuant to Article 27c, paragraph 2, of the German Aviation Act only to the extent that they have not been transferred to EUROCONTROL by treaty; to military units pursuant to Article 30, paragraph 2, sentence 2 of the German Aviation Act; or to individually entrusted personnel pursuant to Article 31b, paragraph 1, sentence 2 of the German Aviation Act.

Charges are the main source of revenue levied by DFS, which should cover the costs incurred. Ter- minal charges for the use of terminal services and facilities are determined annually by the Federal Ministry of Transport, Building and Urban Affairs (German Ordinance on Terminal Charges of the Air Navigation Services – FSAAKV). Charges for en-route services are determined by a commission at EUROCONTROL in cooperation with the Federal Ministry of Transport, Building and Urban Affairs. To this end, DFS sends the Federal Ministry of Transport, Building and Urban Affairs a preliminary cost estimate for the coming year by 1 June each year. The cost estimates are based on the actual costs of the last business year and the estimates of the current cost developments in the current and following business year. The difference between the estimated and actual costs of the respective business year (over- and under-recovery) are charged/repaid to the airspace users two years later in the form of higher/lower charges.

(39) Related party disclosures In the normal course of business, services are rendered to related parties. Group companies also render services to DFS. These extensive delivery and service relationships are conducted at arm’s length. n Related parties – persons There were no material nor, in their form or character, atypical transactions between the company and people in key positions of management and their immediate family. n Related parties – entities The Federal Republic of Germany, represented by the Federal Ministry of Transport, Building and Urban Affairs, is the sole shareholder of DFS. DFS maintains business relations with the Sharehold- er and with other companies controlled by the Federal Republic of Germany as part of the entrusted sovereign functions for air navigation services. These transactions are also conducted at arm’s length.

93 Notes 2008

Affiliated companies and investments are as follows:

Shareholding Equity Net income in % €'000 €'000 Material affiliated companies DFS Unterstützungskasse GmbH Langen, Germany 100.00% 26 0 DFS European Satellite Services Provider Beteiligungsgesellschaft mbH Langen, Germany 100.00% 21,933 341 The Tower Company GmbH Langen, Germany 100.00% 223 0 FCS Flight Calibration Services GmbH Braunschweig, Germany 55.00% 1,574 158 Material investments GroupEAD Europe S.L. 1 Madrid, Spain 36.00% 3,559 1,177 European Satellite Services Provider European Economic Interest Grouping Brussels, Belgium 16.67% Investment through DFS ESSP European Satellite Services Provider Société par actions simplifiée Toulouse, France 16.67% Investment through DFS ESSP 1) Equity and net income as at 31 December 2007 – figures as at 31 December 2008 were not available

There is a profit-and-loss transfer agreement with TTC with effect from 1 January 2006 and with a fixed term until 31 December 2010. After this time, it extends for one year at a time, provided one of the contracting parties does not terminate the contract six months before expiry. In the year under review, €409 thousand (previous year: €227 thousand) profit was transferred from TTC to DFS.

94 The scope of business relationships with related parties is as follows:

Shareholder Affiliated Investments companies €'000 €'000 €'000 2007 Income statement Revenues 67,777 1,125 103 Reimbursements of share of revenue -10,663 Other operating income 918 196 Purchased services -28,694 -6,154 Financial result -57 144 Balance sheet Other assets 0 0 73 Financial assets 22,268 360 Other liabilities -9,713 -8,471 2008 Income statement Revenues 73,196 612 138 Reimbursements of share of revenue -9,543 Other operating income 0 1,048 206 Purchased services -25,417 -5,771 -14 Financial result 0 30 144 Balance sheet Other assets 1,903 0 145 Financial assets 22,268 360 Other liabilities 0 -10,277

Revenues from the shareholder relate primarily to reimbursements for military flights and facilities from the Federal Republic of Germany.

Since 2007, the share of the en-route charges to be reimbursed to the German government is remitted directly by EUROCONTROL. In addition, the air-traffic-related costs of the German Meteoro- logical Service (DWD) and the national supervisory authority are included in unit rates for terminal charges.

The purchased services from the Shareholder relate primarily to the staff costs of the employees of the Federal Office of Civil Aviation (LBA).

The purchased services from affiliated companies result primarily from expenses for flight inspec- tions.

95 Notes 2008

The financial result is the outcome of interest expenses and interest income against subsidiaries and from profit transfers from TTC.

From the indefinite loan commitment of €1,500 thousand against DFS ESSP, a line of credit of €492 thousand was taken up.

Other liabilities to affiliated companies relate primarily to cash pool transactions with DFS ESSP, DFS Unterstützungskasse GmbH and TTC.

The financial result relates to income from the investment in GroupEAD.

(40) Organs of the company Board of Managing Directors

Dieter Kaden, Bad Dürrheim, Chairman and CEO

Ralph Riedle, Langen, Managing Director Operations

Jens Bergmann, Bad Homburg v. d. Höhe, Managing Director Finance and Human Resources

Total emoluments for managers in key positions are made up as follows, broken down by category:

Dieter Ralph Jens Former Total Kaden Riedle Bergmann Managing Directors €'000 €'000 €'000 €'000 €'000 Short-term benefits - fixed 279 219 190 688 - performance-related 94 75 57 226 Post-employment benefits -36 676 315 -477 478 Termination benefits 295 295 337 970 562 -182 1,687

The company granted no advance payments or loans to members of the Board of Managing Direc- tors or to former managing directors. In addition, no remuneration was paid for consultancy or service contracts.

96 Provisions for pensions and other obligations for the Board of Managing Directors amounted to €478 thousand (previous year: €1,178 thousand), and for former members of the Board of Man- aging Directors a total of minus €447 thousand (previous year: €440 thousand).

Former members of the Board of Managing Directors received total pension payments of €295 thousand (previous year: €96 thousand).

There were no other long-term benefits due or share-based compensation.

97 Notes 2008

Supervisory Board

The Supervisory Board comprises the following voting members:

Otto Fischer Holger Müller Michael Schäfer Director Corporate Development Air traffic controller Deputy Chairman DFS Deutsche Flugsicherung GmbH DFS Deutsche Flugsicherung GmbH Watch supervisor in flight data handling from 23 April 2008 from 23 April 2008 DFS Deutsche Flugsicherung GmbH from 7 May 2008 Karl-Heinz Gatz Rainer Munz Head of Munich Control Centre Ministerialdirigent Robert Scholl DFS Deutsche Flugsicherung GmbH Unterabteilungsleiter LR2 Chairman until 22 April 2008 Federal Ministry of Transport, Ministerialdirektor Building and Urban Affairs Abteilungsleiter Z Jörg Hennerkes from 23 April 2008 Federal Ministry of Transport, Chairman Building and Urban Affairs State Secretary Hans-Dieter Poth from 23 April 2008 Federal Ministry of Transport, Colonel (GS) Building and Urban Affairs Referatsleiter FüL III 4 Dirk Wendland until 22 April 2008 Federal Ministry of Defence Systems engineer DFS Deutsche Flugsicherung GmbH Walter Keppler Petra Reinecke until 22 April 2008 Air traffic controller Christiane Wietgrefe-Peckmann DFS Deutsche Flugsicherung GmbH Regierungsdirektorin Dr Norbert Kloppenburg from 23 April 2008 Federal Ministry of Finance Member of the Board of Managing Directors from 23 April 2008 KfW Bankengruppe Volker Röhrich AIS officer Dr Michael Zumpe Dr Dieter Knoll DFS Deutsche Flugsicherung GmbH Ministerialdirigent Ministerialrat until 22 April 2008 Unterabteilungsleiter Z1 Referatsleiter VIII B 1 Federal Ministry of Transport, Federal Ministry of Finance Martin Rumpf Building and Urban Affairs until 22 April 2008 Personnel expert until 22 April 2008 DFS Deutsche Flugsicherung GmbH Dr Reinhard Kuhn until 22 April 2008 Ministerialrat Referatsleiter R II 5 Peter Schaaf Federal Ministry of Defence Air traffic controller/ Chairman Central Staff Council DFS Deutsche Flugsicherung GmbH from 23 April 2008

In the business year, there were five scheduled and two extraordinary Supervisory Board meetings.

98 The remuneration of the Supervisory Board can be broken down as follows:

Meeting fees Travel expenses Total EUR EUR EUR Otto Fischer 500 400 900 Karl-Heinz Gatz 100 0 100 Jörg Hennerkes 300 2,500 2,800 Walter Keppler 200 200 400 Dr Norbert Kloppenburg 1,100 0 1,100 Dr Dieter Knoll 400 700 1,100 Dr Reinhard Kuhn 700 900 1,600 Holger Müller 500 500 1,000 Rainer Münz 700 200 900 Hans-Dieter Poth 900 1,200 2,100 Petra Reinecke 800 4,500 5,300 Volker Röhrich 300 0 300 Martin Rumpf 400 200 600 Peter Schaaf 600 600 1,200 Michael Schäfer 1,300 600 1,900 Robert Scholl 800 300 1,100 Dirk Wendland 1,100 6,400 7,500 Christiane Wietgrefe-Peckmann 600 1,100 1,700 Dr Michael Zumpe 400 2,600 3,000 11,700 22,900 34,600

The remuneration of the Supervisory Board is set out in the Articles of Association. The emoluments of the Supervisory Board are comprised of fixed and variable components. The fee for meeting attendance is €80 and the daily allowance amounts to €26 per meeting. Travel expenses incurred are also reimbursed.

The members of the Supervisory Board received no advances, loans or remuneration from consultancy or service contracts.

99 DFS Deutsche Flugsicherung GmbH, Langen

Responsibility statement

The Board of Managing Directors of DFS Deutsche Flugsicherung GmbH issues the following statement, pursuant to Article 37y No 1 of the Securities Trading Act in conjunction with Articles 297 paragraph 2 sentence 3, 315 paragraph 1 sentence 6, 315a paragraph 1 of the German Commer- cial Code.

To the best of our knowledge, and in accordance with the applicable reporting principles, the group financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group.

Langen, 5 March 2009

Dieter Kaden Ralph Riedle Jens Bergmann Chairman and CEO Managing Director Managing Director Finance Operations and Human Resources

100 Auditor’s report

We have audited the consolidated financial statements prepared by DFS Deutsche Flugsicherung GmbH (DFS), Langen, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from 1 January to 31 December 2008. The preparation of the consolidated financial statements and the group management report in accordance with the IFRS as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetzbuch”: German Commer- cial Code) are the responsibility of the parent Company’s Board of Management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Insti- tut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company’s Board of Management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with the IFRS as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is con- sistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Cologne, 16 March 2009 SUSAT & PARTNER OHG Wirtschaftsprüfungsgesellschaft

Graf von Kanitz Schorse Auditor Auditor

101 DFS Deutsche Flugsicherung GmbH, Langen

Acronyms and abbreviations

ADV German Airports Association – Arbeitsgemeinschaft Deutscher Verkehrsflughäfen AEA Association of European Airlines AG Public Limited Company – Aktiengesellschaft AIS Aeronautical Information Service AIS-C Aeronautical Information Service Centre ANA Administration de la Navigation Aérienne ANSP Air Navigation Service Provider AOPA Aircraft Owners and Pilots Association ASR Airport Surveillance Radar ATCAS Air Traffic Control Automation System

ATM Air Traffic Management ATS Air Traffic Services BARIG Board of Airline Representatives in Germany e. V. BFS Federal Administration of Air Navigation Services – Bundesanstalt für Flugsicherung BMVBS German Ministry of Transport, Building and Urban Affairs – Bundesministerium für Verkehr, Bau und Stadtentwicklung

CAD Canadian Dollar CDA Continuous Descent Approach CHF Swiss Franc DCF Discounted Cash Flow DM Deutsche Mark DSNA Direction des Services de la Navigation Aérienne DWD German Meteorological Service – Deutscher Wetterdienst EAD European AIS Database EBIT Earnings before Interest and Taxes EEIG European Economic Interest Group EGNOS European Geostationary Navigation Overlay Service ESSP European Satellite Services Provider EU European Union EUR Euro EUROCONTROL European Organisation for the Safety of Air Navigation e.V. Registered Association – eingetragener Verein FAA Federal Aviation Administration FAB Functional Airspace Block FABEC Functional Airspace Block Europe Central FCS Flight Calibration Services GmbH GBAS Ground Based Augmentation System GBP British Pound Sterling GmbH Limited Liability Company – Gesellschaft mit beschränkter Haftung GPS Global Positioning System

102 HGB German Commercial Code – Handelsgesetzbuch HRB Commercial Register B – Handelsregister Abteilung B IAS International Accounting Standards IASB International Accounting Standards Board ICAO International Civil Aviation Organisation iCAS iTEC Center Automation System IFR Instrument Flight Rules IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards ILS Instrument Landing System

IP Internet Protocol ISO International Organisation for Standardisation IT Information Technology iTEC Interoperability Through European Collaboration JPY Japanese Yen KG Private Limited Partnership – Kommanditgesellschaft LuftVG German Aviation Act – Luftverkehrsgesetz LVNL Luchtverkeersleiding Nederland NIROS Noise Impact Reduction and Information System p. a. per annum P1 Project 1 PSS Paperless Strip System QTE Qualified Technological Equipment SES Single European Sky SESAR Single European Sky ATM Research S.L. Sociedad Limitada SPC Special Purpose Company TTC The Tower Company GmbH UAC Upper Area Control Centre USD United States Dollar VAFORIT Very Advanced Flight Data Processing Operational Requirements Implementation VaR Value at Risk VFR Visual Flight Rules ISSN 0948-7085 www.dfs.de Inter [email protected] net E-mail 707-4196 +49(0)6103 Facsimile Tele 707-4110 phone +49(0)6103 Germany 63225 Lan gen Am DFS-Cam pus 10 Corporate Communications DFS Deut sche Flug si che rung GmbH Imprint

60-2290-184