Annual Report 2009

2009 annual report

Aeroflot's 2009 Annual Report was approved on 19 April 2010 by the Board of Directors of the Company. Protocol #16. CONTENTS

Aeroflot Group at a Glance 4 Letter from the Chairman of the Board of Directors 9 Letter from the General Director 11 Key Events 2009 12 1. Aeroflot’s Strategy 15 2. Overview of the Air Transport Market 23 3. Operations 31 4. Overview of Financial Results 46 5. Risk Management 53 6. Corporate Governance and Securities 59 7. Corporate Social Responsibility 79 8. Consolidated Financial Statements 84 Appendixes 140

2 3 AEROFLOT GROUP AT A GLANCE

Operational Performance AEROFLOT 2009 2008 Change, % Passengers, thousands 11,062 11,600 -4.6 Cargo and mail, thousand tonnes 148,949 159,162 -6.4 GROUP AT A GLANCE Passenger load factor, % 70 71 -0.8pp Cargo load factor, % 58 58 - Cost-based turnaround to drive solid long-term growth Flight hours 363,272 391,202 -7.1

Last year was one of the most challenging in the history of the airline industry. Financial Performance Aeroflot demonstrated its ability to react quickly to a changing business environ- USD millions 2009 2008 Change, % ment by rapidly implementing a major cost-cutting program. This both triggered Total revenue 3,346 4,603 -27 a cost-based recovery and created solid foundations from which to increase Traffic revenue 2,819 3,950 -29 profitability. Despite the difficult conditions, Aeroflot was one of the few major Operating costs 3,068 4,273 -28 global carriers to be profitable in 2009. Profit before taxes 206 167 +24 Net profit 86 24 +261 EBITDA* 461 516 -11 Operating costs, USD million Net profit, USD million EBITDA margin, % 14 11 +3pp EBITDAR** 747 723 +3 2008 4,273.3 2008 23.8 EBITDAR margin, % 22 16 + 6pp 261% Net debt/EBITDA ratio 3.9 2.5 +56 – 28% 2009 3,068.1 2009 85.8 * EBITDA=Operating profit+Depreсiation and amortization+Custom duties expenses ** EBITDAR=EBITDA+Operating lease expenses

Capital Markets Indicators First place in the Russian market for A total of million passengers carried 11.1 2009 2008 Change, % international and domestic air transportation Earnings per share, US cents 8.1 4.0 +103 Market capitalization at year-end, USD billion 1.9 1.1 +73 EBITDAR margin Price/Earnings ratio 22.1 45.8 - 52 Aeroflot Group has increased increased by 6pp by the end its 2009 IFRS net profit of 2009 due to effectiveness of anti-recession 3.6 times to USD 85.8 million measures implemented by the management Aeroflot traffic revenue structure

Europe 38% Overall operating expenses Fitch rates Aeroflot at ; ‘BB+’ were reduced by 28.2% outlook Stable due to effective cost-reduction program, the fall in world oil prices and currency fluctuations Other 4% Russia 37%

As a member of SkyTeam, Aeroflot belongs to a network offering Asia 17% more than 13,100 daily flights to more than 850 destinations in 169 countries America 4%

4 5 AEROFLOT GROUP AT A GLANCE

Fleet Business Segments

Aeroflot operates one of the most modern and 15 Airbus A-319 Tupolev Tu-154 youngest fleets in Europe. 26 Aeroflot is the key asset of the Aeroflot Group, 32 Airbus A-320 12 Tupolev Tu-134 accounting for 85% of the Group’s business Average age of the Aeroflot’s fleet is 5 years. 8 Airbus A-330 3 Ilyushin Il-86 At the end of 2009, the fleet of Aeroflot Group The group has 4 reportable segments: airline, catering, numbered 166 aircraft, most of which are 16 Airbus A-321 6 Ilyushin Il-96 modern, efficient airliners. terminal, and hotels. There are also other operating segments 26 Boeing B-737 5 Antonov An-24 The Group adheres to the highest environment, safety and noise standards. 11 Boeing B-767 1 Antonov An-26 Airline business accounts for 99% of Group revenue Aeroflot’s fuel consumption declined by 9% 3 McDonnell Douglas 2 Yakovlev-42 in 2009. MD-11 Airline business includes Aeroflot, Donavia, Nordavia, Aeroflot Plus Route Network

Catering and Terminal business seg- Aeroflot aims to maintain only profitable ments receive the largest part of their Extensive route network of Aeroflot Group allows business segments; the inefficient 162 destinations in 48 countries revenues from inter-segment sales transporting over 11 million passengers Aeroflot-Cargo operation was liquidated in 2009, and its assets were integrated into Aeroflot

The share of scheduled flights is An average frequency of 7.1 flights more than of all flights Airline Catering a week per route 94% USD million USD million Revenue 3,312.1 Revenue 88.3 of which external revenue 3,312.1 of which external revenue 12.2 In 2009 Aeroflot opened 11 new routes Aeroflot has28 code-sharing agree- Operating result 279.5 Operating result 12.4 to the most profitable destinations ments with other airline companies Segment assets 3,141.3 Segment assets 33.8 Segment capital expenditures 499.2 Segment capital expenditures 2.6

Brand and Quality Hotels Terminal USD million USD million Revenue 19.9 Revenue 1.7 of which external revenue 15.1 of which external revenue 0.7 Founded in 1923, Aeroflot is one of the Operating result 3.7 Operating result -18.0 Segment assets 15.2 Segment assets 964.0 best-known Russian brands Segment capital expenditures 0.5 Segment capital expenditures 270.1

Other First place among SkyTeam alliance airlines USD million for service quality in economy class on short- and medium-haul routes and in business Revenue 8.3 class on long-haul flights of which external revenue 5.8 Operating result -1.2 Segment assets 49.9 Segment capital expenditures 0.2

6 7 LETTER FROM THE CHAIRMAN Dear colleagues, Aeroflot’s results for 2009 are those of a crisis year. They are mixed and require deep reflection. Nonetheless, the most important issue is clear: amid conditions of a major crisis OF THE BOARD OF DIRECTORS engulfing the entire industry worldwide, our airline endured and strengthened its position in the air-travel market. Effective anti-crisis measures enabled Aeroflot to preserve its profitability and financial sta- bility and deliver financial results that exceeded the industry average notably. The Company’s importance as the flagship of the Russian civil aviation industry remains unchanged. In 2009 Aeroflot and its subsidiary airlines transported 11.1 million people. This represents nearly every fourth airline passenger in the Russian market. The slowdown in passenger flows due to the crisis was around half of the industry average at Aeroflot. The Airline is one of the few in the world to have finished last year with a positive balance sheet. Aeroflot is an actively developing carrier and has one of the youngest fleets in Europe, with leading standards of service, an extensive domestic and international route network, the latest technology, and a modern approach to business. The airline competes on equal terms with the leading players in the international air transportation business, and has successfully integrated itself in the market, including by participating in the global SkyTeam alliance. Last year the construction of Sheremetyevo’s Terminal D – the most modern and technologically advanced facility of its type in Russia and Eastern Europe – was completed, and trial operations began at the facility. Aeroflot is an integral part of Russia’s economic structure, without which it would be impossible to maintain mass access for Russians to air transportation services. The Airline possesses great economic and political significance. The state does not simply view Aeroflot as a strategic asset and a world-recognised brand closely identified with Russia. Today the Company is the bearer of certain hopes and responsibilities during the consolidation of domestic aviation industry. As set out in a government resolution, Aeroflot is receiving assets that will enable it to substantially increase operations on its priority domestic routes. By 2011 Aeroflot plans to double its passenger flow and control at least one-third of the domestic market. Such an outlook is fully realistic. In early 2010 there were signs that the industry was emerging from the crisis. Aeroflot began the new year with high growth rates, and strong passenger numbers have been seen on domestic routes. This year air passenger numbers are forecast to recover to 2008 levels. A gap exists between forecasts and reality that can be overcome only with efficient, coordinated and dedicated work. Last year Aeroflot’s employees demonstrated their ability to carry out such work. Today the national carrier has all of the necessary resources to carry out the major tasks set before it in the interests of passengers and shareholders.

Yours sincerely,

Minister of Transport of the Russian Federation Igor Levitin

8 9 Dear shareholders,

Last year was full of major events for Aeroflot. A change in management took place following a resolution by the shareholders, we renewed our development priorities and we embarked LETTER FROM on a thorough modernization of the Company. In 2009 we not only confronted the global economic crisis successfully but also made significant advances in numerous key areas, increasing our competitiveness in both Russian and THE GENERAL DIRECTOR international markets. Aeroflot has maintained its clear leadership among Russian airlines for regularly scheduled flights. Its operational results exceeded the market averages in 2009. Overall, the Aeroflot group, including subsidiaries, transported 11.1 million passengers last year, which is practi- cally one-quarter of all passengers carried by the entire domestic aviation industry. The main financial result was that Aeroflot finished the year in profit. Amid the crisis facing the aviation industry, very few global carriers can say the same. This achievement was due to the timely and effective implementation of an anti-crisis program. At the same time, Aeroflot’s market capitalization rose significantly, reaching USD 1.9 billion by the end of 2009, up 73% year-on-year. We consider Aeroflot’s most notable achievements in 2009 to be: • Optimising the Company’s structure and employee numbers. As a result, we increased the manageability and efficiency of all of Aeroflot’s subdivisions. • Completing the strategic project to bring Terminal D at Sheremetyevo Airport into operation. The terminal has been operating on a trial basis since November 15 and will begin full-fledged operations this year. We also opened our new office in the immediate vicin- ity of Sheremetyevo. • Continuing the program to renew our fleet: completely withdrawing from service the obsolete Tu-154M aircraft and simultaneously replenishing the fleet with modern aircraft. • Developing the route network across Russia and internationally. Management of the network has been standardised based on specific criteria for evaluating route profitability. • Introducing information technology throughout the Company. This included transferring IT systems to a unified base, working to introduce a management system on the basis of SAP solutions, and developing internet sales and high-tech services for passengers extensively. • Improving passenger service. This included new in-flight meals, new content for in-flight entertainment programs, new uniforms, and additional qualifications for flight attendants based on the highest international standards. Aeroflot ranked first in terms of service for economy-class passengers on short and medium-haul flights, as well as for business class on long-range flights among the European members of the SkyTeam alliance. The Company has set itself the goal of becoming the leader in the Russian air transportation market for all routes, particularly those connecting Russian cities. We believe that we cannot become leaders in foreign markets without being first in our home market. On this path we face the challenge of fulfilling various strategic objectives in complex conditions, including industry consolidation. The presence of a professional and highly qualified team at the Company provides every basis to hope for success. Shareholder support for our initiatives allows us to use Aeroflot’s potential effectively and create the right conditions to not only maintain our leading positions, but also achieve new breakthroughs.

Yours sincerely, Vitaly Saveliev

10 11 KEY EVENTS 2009

KEY EVENTS 2009

New management General partner for the Sochi 2014 Olympic Games In April 2009 Vitaly Saveliev took the helm at Aeroflot after the Board of Directors selected Aeroflot was awarded the status of General Partner in the Air Transportation category him to be general director. for the XXII Winter Olympic Games and XI Paralympic Winter Games in 2014 in Sochi.

New corporate structure New technologies In 2009 the Company underwent a reorganization and reduced headcount as part of its Aeroflot introduced new online services as well as automated self-service facilities for anti-crisis program. The number of department heads was reduced from 53 to 34 and the passengers, ensuring additional speed and convenience from initial booking to board- number of deputy general directors from 14 to 9. Over the year the number of employees fell ing flights. A full-scale IT audit was conducted. A program to transform 180 separate IT by 2,335, primarily due to a reduction in management staff. complexes to 4 modern platforms, that encompasses all elements of flight management, was developed. Opening of new terminal In November 2009 the Sheremetyevo 3 airport terminal complex (Terminal D) at Aeroflot’s home airport went into operation. By the year-end all domestic flights operated by Aeroflot and its subsidiaries had been transferred to the new terminal.

Fleet modernization As part of the ongoing fleet modernization strategy, Aeroflot added 24 new aircraft to its fleet in 2009: six long-range A330 airliners and 18 mid-range liners from the A320 aircraft family. General Director Vitaly Saveliev and VEB Leasing General Director Vyacheslav Solo- Key Events after the Reporting Period viev signed a contract to lease the first ten Sukhoi Superjet 100s for 12 years. Fleet modernization Development of the route network In the first quarter of 2010 an A320 and an A330 entered the Airline’s fleet and a Tu- Six new routes were opened in 2009 (Dresden, Innsbruck, Salzburg, Hurghada, Sharm el- 134 and three Tu-154 aircraft were withdrawn. At the end of the quarter the fleet com- Sheikh, and Eilat), while affiliates were set up in Kaliningrad and Vladivostok. In addition, the prised 114 aircraft. frequency of flights on primary routes was increased: from seven to nine flights daily on the Moscow – St. Petersburg – Moscow route, and from two to five flights daily on the Moscow – Industry consolidation Kaliningrad – Moscow route. The Russian government has decided to consolidate the aviation assets of the Rus- Service improvements sian Technologies state corporation using Aeroflot as the base. In 2010 the Rossiya, Kavminvody-avia, and Orenburg airlines will be turned into joint-stock companies. There Aeroflot continued to work on improving the quality of its customer service. Last year it are plans to merge them, together with Vladivostok-avia, Saratov Airlines, and Sakhalin came first among European members of SkyTeam in the SkyTeam onboard survey of pas- Airways, into Aeroflot. senger service in economy class on short- and medium-haul flights, as well as in business class for long-haul flights. In addition, as part of its Aeroflot Shuttle program Aeroflot intro- Ratings duced a new service concept for its business-class customers on the Moscow – St. Peters- International ratings agency Fitch awarded Aeroflot a credit rating of ‘BB+’ with a“ sta- burg route. New uniforms were also introduced for cabin crew and customer-facing staff and ble” outlook. a new service management program for cabin crew was implemented. Bond issues Safety certification Aeroflot’s Board of Directors approved the placement of two exchange-traded bonds Aeroflot successfully underwent its third International Operational Safety Audit (IOSA) by totaling RUR12 billion. BO-01 and BO-02, which have a nominal value of RUR6 billion the International Air Transport Association (IATA) in 2009. This made it the first Russian air- each and RUR1,000 per bond, were placed via open subscription at 100% of par. The line to achieve IOSA certification, and its current certificate is valid until 2011. Aeroflot was bonds mature 1,092 days from the date of placement, and the interest rate on the cou- also the first Russian airline to successfully complete the IATA Safety Audit for Ground Op- pons is 7.75% annually. erations.

Environment The Airline joined the EU Greenhouse Gas Emissions Scheme and has provided the Ger- man aviation authorities with an action plan for introducing a system to monitor emissions regularly.

12 13 AEROFLOT’s STRATEGY tru- kyTeam SkyTeam alliance and Y STRATEG AEROFLOT’s Aeroflot’s strategic goal is to create a a create to is goal strategic Aeroflot’s posi- dominant a with airline, global ly market- Russian consolidated the in tion major a and CIS, the in leadership place, role within the the wider global aviation industry as the operator of an efficient transit hub link- ing Europe and Asia. An integral part of its strategy is environmental protection: the Company has introduced a corporate policy for achieving energy - conser vation and a real improvement in environmental efficiency by 2020. Aeroflot is also dedicated to working constantly to enhance flight safety and aviation security further. 1 STRATEGY AEROFLOT’ s

AEROFLOT’s STRATEGY: Aeroflot’s seven strategic goals

Aeroflot’s seven strategic goals

Strong market position Large modern hubs Aeroflot intends tostrengthen its leading position in the domestic mar- The Company is dedicated to creating a competitive transportation hub ket, primarily by expanding its presence in Russia and the CIS transportation at Sheremetyevo that is comparable with those of leading European airlines market. This will involve increasing flight frequency on current routes as well in terms of both capacity and service quality. This will require ensuring the nec- as opening new ones. Aeroflot also look for M&A possibilities. The strategic essary runway capacity and air corridors, as well as infrastructure within and goal is to boost the Company’s share of the home market. Aeroflot intends to around the airport and quick links to central Moscow. Developing the regional expand its positions in the following target markets: transportation segment includes creating new hubs in St. Petersburg and • Domestic market: Russia is the most important market and the foundation the Russian Far East. for entering the global marketplace • Russia – CIS: a strategic market with high growth potential due to the fa- 4 vorable geographic presence of Aeroflot’s hub • Southeast Asia – Russia and Southeast Asia – Europe: a fast-growing Outstanding service quality market for international transit where Aeroflot has competitive geographic Aeroflot strives to ensure that itssafety rating is the highest in the indus- advantages try and to achieve the level of punctuality, flight frequency, and baggage safety • Russia – Europe: an already successful market for Aeroflot with continued of the world’s leading airlines. New tested service concepts will be introduced growth potential on all flights. Stewards and other staff who deal with customers will undergo special training, while major changes will be made to the menu, and the range 1 of in-flight entertainment will be expanded. Aeroflot is establishing profitable services that offer customers great value and reenforce the brand. Development of the route network The main principles of developing the network are concentrating on the 5 most profitable market segments and increasing convenient transfer options. In addition, Aeroflot seeks to increase its cooperation with Russian andin- Personnel development ternational airlines (code-sharing, interline) to boost flight frequency and the number of routes available. The focus of the Company’s network development Aeroflot’s goal in the sphere of personnel management is to provide its em- is high-yield tourism and business passengers, for whom Aeroflot aims to offer ployees with attractive opportunities of professional development and competi- direct flights, high flight frequency (at least five to seven times a week on each tive wages, provide social protection, and attract highly skilled people by the route) and convenient scheduling. perspective of professional development. Aeroflot will introduce a new system of compensation based on the concept of KPIs. An employee’s bonus will 2 be based on the performance of the Company, individual subdivisions, and personal achievements. Fleet modernization and unification 6 Aeroflot’s strategy for air fleet development involves optimising its aircraft line-up according to the route system, reducing the number of aircraft models Economic efficiency to cut expenses, and switching to modern fuel-efficient and more comfortable types of aircrafts. Aeroflot’s strategic goal regarding income growth is to further improve operating efficiency by optimising routes, attracting profitable passengers, and 3 increasing product quality. The Company also intends to boost revenue from other operations by extending services provided to other airlines, including per- 7 sonnel training and technical maintenance.

16 17 STRATEGY AEROFLOT’ s

AEROFLOT’s STRATEGY: Focus 2009

Focus 2009

Last year Aeroflot successfully focused on various important As a result, Aeroflot’s fleet has been made more fuel-efficient, and its environmental impact has been mitigated. Meanwhile, the reduction of aircraft projects in line with its long-term strategy, seeking to use ad- models in the fleet reduces service costs substantially, and the use of more ef- vanced technology and improved management efficiency to re- fective, new, and modern aircraft provides added flexibility. In addition, the new aircraft are more comfortable for passengers, and have the technology needed duce costs and improve service. The projects completed suc- to provide new and value-added services to passengers. cessfully will significantly increase its competitive advantages in the Russian marketplace, as well as establish Aeroflot as an airline with a truly global network and the operator of an efficient transit hub between Europe and Asia. Cost reductions In 2009 Aeroflot continued to implement its anti-crisis program, which was critical in enabling the Company to deliver sales and profitability indicators that exceeded those of the industry overall. In addition, this strategy places the Air- line in a strong position to benefit from improving economic conditions in 2010. Terminal D Aeroflot created a new Committee for Finance and Investment, which has car- Sheremetyevo’s Terminal D – the most modern and technologically ad- ried out significant and successful work to reduce operational, commercial, and vanced facility of its kind in Russia and Eastern Europe – saw the completion administrative costs. of construction, trial operations, and entry into full service in 2009. It provides The Company also continued to optimise staff numbers (reducing head- Aeroflot with not only new capacity, but also a world-class facility that will help count by 15% year-on-year), eliminated loss-making flights, substituted aircraft the Company with its strategy of consolidating its leadership in Russia and the on routes with low passenger loads, and economised on services provided by CIS and becoming an airline with a global network. third parties. When taking the fall in world oil prices and currency fluctuations Sheremetyevo 3 – Terminal D began trial operations on November 15. By into account, the total financial effect of the cost reduction program in 2009 the end of the year Aeroflot had successfully transferred its domestic flights exceeded USD 975 million, which beat preliminary expectations by 13.5%. to the new facility and had served nearly 243,000 passengers, with around 70 flights a day operating from the new terminal. In February 2010 the Airline began transferring its international flights to the facility. The new terminal can handle up to 3,800 passengers per hour – upwards of 12 million per year – and has 33 aircraft stands to load and unload passengers. The 172,000 square meter terminal has every service a modern airport can provide for passen- Improving customer service gers, including 15,000 square meters of space for retail and services, including duty-free shopping and bars and restaurants with Russian and international In 2009 Aeroflot scored first in a SkyTeam onboard survey (conducted be- themes. tween April and September 2009) of the alliance’s European member airlines for passenger service in economy class on short- and medium-haul flights. It also ranked first among European member airlines for business class on long- haul flights. The Company achieved leading positions for all elements of onboard service: the boarding process, comfort in the cabin, cabin-crew service, provision of newspaper and magazines, and the quality of the video system in Fleet modernization business class. Aeroflot’s fleet modernization continued to deliver both short- and long-term Aeroflot also continued to deliver improvements to the service provided by benefits in 2009, including improved service and a sharp reduction in costs. cabin crew, front-line ground staff and sales representatives. A new uniform The fleet was strengthened by the addition of 18 medium-haul aircraft from the for cabin crew was introduced, and two groups of cabin crew were sent for Airbus 320 family and six long-haul Airbus 330s, while the last Tu-154s were additional training with Singapore’s Mil-Com. Employees underwent training taken out of operation. By the end of 2009 all regular flights featured mod- in foreign languages and the standards in the “Service Management” concept. ern aircraft. As of December 31, 2009, Aeroflot’s fleet included 116 aircraft: In addition, Aeroflot successfully continued to conduct market research aimed 88 passenger aircraft in operation, including 63 mid-range A320 family jets and at strengthening its competitive position and tracking consumer satisfaction. In 25 long-range jets, of which eight are A330s, 11 are Boeing 767s, and six are particular, it became part of the widely recognised EPSI Customer Satisfaction Il-96s. Index.

18 19 STRATEGY AEROFLOT’ s

AEROFLOT’s STRATEGY: Focus for 2010

Focus for 2010

Aeroflot’s main goals for 2010 are in line with its long-term strategy. They address key elements of its sales and marketing, route network, and fleet, along with important initiatives such as developing the Aeroflot Aviation Introduction of e-technology School to train its air and ground staff and key performance indicators to align the incentives and performance of employees and the Company. In 2009 Aeroflot introduced new online services as well as automated self- service facilities for passengers, ensuring additional speed and convenience Strengthening Aeroflot’s positions on the domestic market remains a stra- from initial booking to boarding flights. Such e-technology innovations also tegic priority, particularly through the consolidation of local airlines owned allow the Company to cut costs and improve efficiency significantly. The air- by the Russian Technologies Corporation. line introduced a new website providing an interface in eight languages, as well as separate sections for corporate clients, Aeroflot Bonus members, and In addition, the Company will seek rapid growth and dominant positions in employees. The site allows customers to make reservations, obtain e-tickets target markets in 2010 through the following strategic approaches in key and check in for flights, as well as book hotels and rental cars. A program was operational areas. also developed for automated call-center services, including introduction of voice-recognition technology in eight languages, which permits the automated handling of unlimited calls. At Sheremetyevo, additional self check-in facilities were installed. Sales and marketing Meanwhile, a new automated system to manage Aeroflot’s operations was developed that encompasses all elements of flight management: planning Aeroflot is committed to improving all aspects of its sales and marketing. In general, flights, crew, and other resources; monitoring the completion of flights, opti- the Company is focusing on promoting its brand, strengthening overseas sales and pre- mising the daily plan, and finding solutions for mechanical problems. In ad- paring initiatives for the SkyTeam alliance. It is also expanding services for passengers dition, the Company began introducing the SAP/R3 enterprise management in business and economy class and personalising service, by improving the schedule of system. flight on routes where demand is high and making the frequent flyer programs more effective. Another area of focus is the corporate segment, where Aeroflot intends to boost sales and increase client loyalty. Finally, technology is enabling the Company to make major advances in its sales. These include using electronic commerce to both increase direct sales and make block bookings as well as launching new check-in services through Strategic management system mobile telephones and onboard internet access on certain long-haul flights. In 2009 Aeroflot began the introduction of a Strategic Management System on the basis of the internationally recognised Key Performance Indicator (KPI) Development of the route network system. This aims to transparently align the Company’s strategic goals with employees’ incentives. The KPI system incorporates indicators that reflect the The core of an airline’s network is efficient hubs. With this in mind, Aeroflot has made efficiency of the Company’s business (ROIC, EBITDAR, and others) as well developing Sheremetyevo airport a key priority and also intends to expand in Russia’s as the performance of subdivisions and the quality and effectiveness of opera- Northwest and Far East regions with the aim of creating hubs there. In addition, the Com- tions. Evaluations of employee performance in terms of KPIs are conducted pany plans to strengthen its positions on major domestic routes by increasing frequency quarterly and at the end of the full year. and optimising connections, as well as develop its network of transit flights on the East Asia – Russia – Europe route further. Last year Aeroflot senior managers in positions ranging from deputy general director and head accountant to department heads were transferred to a new pay system. In 2010, there are plans to move the remaining managers Effective cost management and some Company specialists, primarily those in the IT division and the ad- Cost management has enabled Aeroflot to steer itself successfully through the crisis, ministrative and management block, to the new system. and will remain key to expanding further in the future. In particular, the Company will focus on optimising inventory management and the use of aviation fuel, a major cost item in the industry. There are also plans to reduce administrative expenditures further and phase in the SAP/R3 integrated enterprise management systems.

Aeroflot Aviation School This year, Aeroflot plans to continue developing the project to build a center to train aviation personnel. The Aeroflot Aviation School will carry out the initial training as well as retraining of all aviation employees: pilots, cabin crew, engineering personnel, and ground staff.

20 21 OVERVIEW OF THE AIR TRANSPORT MARKET EW OF THE OVERVI KET SPORT MAR AIR TRAN Key trends affect long-term devel- The crisis did not the global industry opment trends in of the crisis continued in The acute phase while the situa- year, the first half of the the second tion stabilised in The crisis had an uneven impact on regional air transport markets Energy costs declined The trend toward industry consolidation continued 2 OVERVIEW OF THE AIR TRANSPORT MARKET: Global market

Regional trends in key markets TRANSPORT MARKET OVERVIEW OF THE AIR Global market The change in demand for air transportation in 2009 was marked by significant regional disparities. The strongest aviation markets in the world – North America, Europe and Asia-Pacific – saw passenger numbers fall by 3.3-5.2%. In Europe demand shifted in favor of lower-cost travel: the passenger turnover In 2009 the market was affected by the negative trends seen in 2008 of the continent’s leading budget operators, Ryanair and EasyJet, increased by 13% and 3.4%, respec- and connected to the global economic crisis, the main one being a major tively. According to IATA figures, in 2009 European airlines’ net losses amounted to USD 3.8 billion, North American airlines’ to USD 3.1 billion and, Asia-Pacific airlines’ to USD 2.7 billion. decline in demand for passenger and freight transportation. The most One exception was the Middle East, where passenger turnover increased strongly by 11.2%. This acute phase of the decline was in the first quarter of 2009. By the end was primarily due to the greater role of global carriers based at Persian Gulf hubs in the global industry. of the year, however, the overall situation in the industry had begun to Despite the rise in passenger numbers, Middle Eastern airlines suffered losses of around USD 500 million in 2009, preliminary calculations by IATA from March 2010 indicate. improve gradually. Future events will depend on how quickly the world’s Airlines in Latin America, another rapidly growing market, maintained passenger numbers at the leading economies recover. 2008 level. One factor dampening growth was the outbreak of swine flu. At the same time, according to IATA’s preliminary calculations, Latin America was the only region where airlines posted a net profit – of around USD 800 million – in 2009. Huge challenges for the global airline industry Long-term market developments remain unchanged According to International Air Transport Association (IATA) figures from March 2010, global demand The severity of the crisis was somewhat moderated by a reduction in fuel costs, which were the main for passenger air transport declined by 2.9% in 2009 and for freight transport by 11.1%. The combined problem for the industry in 2008. The average price of a barrel of Brent oil fell from USD 99 in 2008 to net losses of airlines, according to the organization’s preliminary estimates, amounted to USD 9.4 bil- USD 62 last year, reducing the share of average fuel costs from 33% of total operational costs to 24%. lion. Giovanni Bisignani, the director general of IATA, has called 2009 the worst year in the industry’s modern history. Fears caused by the outbreak of the A (H1N1) “swine” flu also contributed to a fall in Despite the crisis, the global aviation industry continued to develop in terms of technology. One major passenger numbers in several of the world’s regions. event was the first flight of a new-generation aircraft, the Boeing 787 Dreamliner. In addition, leading international airlines introduced numerous technological innovations: the Mobile Check-in service for Despite the negative short-term results and the major impact of the global economic crisis, the trends checking in via mobile phone (Air France-KLM) and onboard WiFi services (American Airlines). British defining the industry’s long-term development remain the same. Air transportation is experiencing long- Airways also began to rebrand its first-class service. term growth worldwide, driven mainly by economic globalization. At the same time, this growth is not linear, but wave-shaped. An analysis of the industry’s development reveals that the waves driving the The consolidation process continued actively. The main events last year were the merger of British growth arise periodically. The current long-term wave is linked to economic growth in the BRIC countries Airways and Iberia, as well as the ongoing strengthening of the Lufthansa group with the addition of and their increasing influence in the world economy. This provides Aeroflot with decent opportunities to Austrian Airlines and Brussels Airlines. strengthen its position as a global network airline.

Operational indicators for global civil aviation (IATA) Long-term trend in global passenger traffic 700

1.6 • Growth in civil aviation • Beginning of • New stage of in the USSR globalization globalization 600 • First post-war • Formation of hub system 1.4 • Formation of hub system economic crash in in the USA in Europe 500 developed countries • Growth in civil aviation • Sharp downturrn in civil in the USSR 1.2 aviation in former USSR 400 1.0 300 USD billion 0.8 200

0.6 100

number of passengers, bln number of passengers, • Growth of BRIC and AP 0.4 economies • EU enlargement and 0 OpenSky influence 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 0.2 • Influence of the IT on operations Revenue, USD billion Expenditures, USD billion Expenditures on aviation fuel, USD billion

0 Source: IATA Fact Sheet: Industry Statistics 1970 1980 1990 2000 International routes Domestic routes

Source: IATA Fact Sheet: Industry Statistics 24 25 OVERVIEW OF THE AIR TRANSPORT MARKET: Russian market TRANSPORT MARKET OVERVIEW OF THE AIR Structure of the Russian market for air Structure of the Russian market for air Russian market transport by total passenger turnover transport by total passenger traffic

Others 17.8% Key trends: Others 23.1% Atlant-Soyuz 2.3% 26.6% Aeroflot Group 24.5% Aeroflot Group

VIM-AVIA 2.9% Sky Express 2.3%

• Demand for air transportation fell for the first time since 2000 Vladivostok Air 3.4% • Aeroflot retained its leading positions in the industry Vladivostok Air 2.4% Ural Airlines 3.6% VIM-AVIA 2.8% S7 Group 12.5% ORENAIR 4.4% Ural Airlines 3.3% • The situation had begun to improve by the end of the year ORENAIR 3.6% UTair 5.2% Transaero 16.7% Rossiya 5.5% Rossiya 6.6% Transaero 11.1% S7 Group 11.7% • The crisis had no major impact on the long-term trend: a recovery UTair 7.8% in the domestic air-transportation market

Last year was the most difficult one for Airline industry figures the Russian air transportation market in the 779.3 Position in Russian airline industry by domestic passengers carried last decade. After the major fall during the crisis years of the 1990s, the domestic avia- 712.2 122.6 20.5% tion industry expanded steadily from 2000. 112.5 17.4% Strong growth in air transportation was ac- 13.6% companied by consolidation, as well as 49.8 45.1 an increase in the largest airlines’ market 6.6% 4.4% shares, the modernization of several carri- 3.4% 3.1% 2.9% 2.6% ers’ fleets, the introduction of new techno- 1.9% logy, and the beginning of the modernization 2008 2009

of airport infrastructure. The positive trends Passengers carried, million passengers UTair Yakutia Rossiya S7 Group Transaero Sky Express

that began during these years mitigated the Passenger turnover, billion PRK Airlines Ural Kuban Airlines Kuban Aeroflot Group Aeroflot impact of the global economic crisis on the Cargo and mail carried, thousand tonnes Air Vladivostok domestic aviation industry substantially. Source: Transport Clearing House

Short-term challenges in the Russian market Position in Russian airline industry by international passengers carried

After a record year in 2008, when the number of passengers carried by Russian airlines reached 29.0% 49.8 million people, the figures for 2009 fell to 45.1 million, on par with 2007 levels. The demand for air transportation in Russia declined 9.4%, compared to global demand dropping 2.9%. The number of 18.6% passengers carried on international routes was 21.3 million (down 9.9% year-on-year) and on domestic routes was 23.8 million (down 9% year-on-year). The greatest drop in demand for international flights 7.0% 6.6% 6.5% 5.8% was for charter flights to CIS countries. 3.9% 3.7% 3.2% 1.6% Last year domestic airlines’ overall passenger turnover was 112.5 billion RPK, down 8.3% year-on- year, but up 1.3% from 2007.

Demand for air transportation in 2009 can be roughly divided into three periods. The most intense Rossiya ORENAIR S7 Group VIM-AVIA Transaero Red Wings Red Ural Airlines Ural

period for the industry was the first one, which lasted from the beginning of the year until around April. Atlant-Soyuz Aeroflot Group Aeroflot During this time passenger numbers plummeted, as the economic crisis intensified and expectations of Air Vladivostok further shockwaves increased. In February, for example, passenger numbers fell by 23% year-on-year. The most significant decline, 25%, was in domestic travel, due to less business activity in the country. In February Aeroflot was the last of the main Russian airlines to register a fall in the number of passengers carried. Source: Transport Clearing House

26 27 OVERVIEW OF THE AIR TRANSPORT MARKET: Russian market TRANSPORT MARKET OVERVIEW OF THE AIR Position in Russian airline industry by domestic passenger turnover Market stabilization The next period spanned April to September and represented a gradual stabilization in the market- 22.1% place, with the rate of decline in passenger numbers slowing significantly. The recovery began in the segment for scheduled international flights – a key business for Aeroflot – beyond the CIS. In May pas-

18.9% senger numbers were down 6.5%, compared with a drop of 17% in April. The air transportation market TRANSPORT MARKET O V ER in the CIS began to recover in the third quarter of 2009, while positive trends began to appear on the

domestic market in June. VI EW OF THE A I R 11.0% The third period began around September 2009 and was also marked by a general recovery in 9.8% demand for air transportation. In the fourth quarter of 2009 the volume of air transportation rose by 6.1% 8.9% quarter-on-quarter. The greatest growth was in the domestic (up 12.2%) and international charter 4.5% 4.3% 3.4% markets (up 6.6%). This was primarily due to general changes in the Russian economy and pent-up 2.1% 1.6% demand, as well as a statistical effect: the impact of the crisis was already apparent in the fourth quarter of 2008. The crisis also affected the geography of flights in different ways. Demand on several domestic

UTair routes plummeted, particularly on quieter ones, such as long-haul routes from the European part of Yakutia Rossiaya KMVavia S7 Group Transaero Transaero

Sky Express Russia to the Far East. In recent years several airports in the region had become the busiest in terms of Ural Airlines Ural Aeroflot Group Aeroflot Vladivostok Air Vladivostok passenger numbers from Moscow, especially Vladivostok, Magadan, and Petropavlovsk-Kamchatsky. The recovery in demand was linked to government measures aimed at developing the Far East and subsidies for certain types of passengers from the region. International routes, where demand fell heavily overall, experienced a whole range of different trends. The most noticeable decline was on several tourist-oriented Mediterranean routes. At the same time, according to figures from the Transport Clearing House, the flow of passengers increased on routes operated by Russian airlines to the main resorts in Egypt. The fall in demand for air freight transportation, which began in the second half of 2008, also contin- Position in Russian airline industry by international passenger turnover ued in the first half of 2009. Despite negative expectations, however, the volume of freight transportation by Russian airlines fell by just 8.6% to 712.2 million tonnes. Meanwhile, the volume of freight transportation on international air routes totaled 487 million tonnes (down 6.4%) and on domestic air routes 226 30.1% million tonnes (down 13.1%). These were the lowest figures for the last five years. The stabilization of the Russian economy and the greater visibility regarding the future coincided with the traditionally sea- 22.0% sonal increase in Russian imports in the second half of 2009, and this was reflected in the recovery in demand for international air freight transportation.

Long-term growth trend 7.2% 6.2% 6.1% 4.9% Further trends on the domestic air transportation market will be driven by the overall economic situa- 3.7% 3.5% 3.2% 1.4% tion in Russia and other countries. Nonetheless, given the long-term trend towards economic globalization, demand for air transportation looks set to rise steadily. Rossiya ORENAIR S7 Group VIM-AVIA Transaero Red Wings Red Ural Airlines Ural Atlant-Soyuz Aeroflot Group Aeroflot Vladivostok Air Vladivostok

Source: Transport Clearing House

28 29 OPERATIONS IONS OPERAT Safety Passenger operations Cargo carrying Aircraft fleet network Route service Technical Quality of service Marketing and sales center Training and international cooperation SkyTeam Business of subsidiaries and dependent companies 3 OPERATIONS: Passenger operations

Safety Passenger operations Ensuring flight safety and aviation security is one of the most important The Company’s crisis management program allowed Aeroflot Group to aspects of Aeroflot’s operations. The Company has created and main- reduce the impact of negative economic factors on its operations in tains an efficient and integrated system aimed at identifying and mitigat- 2009. Its operational indicators exceeded the industry average, and the ing risks to safety and security. In 2009 Aeroflot occupied the leading share of the Group of the Russian air-transportation market grew.

position among Russian airlines according to the Safety Assessment of OPERATIONS Foreign Aircraft (SAFA).

Traffic figures* High level of flight safety Aeroflot’s flight safety rating was 99.967% last year, higher than the average in 2008 (99.955%) and International 2009 2008 Change, % within the required range (99.900-100%) corresponding to a high level of flight safety. The average flight Passengers carried, thousands 6,169.1 6,550.2 -5.8 time per incident was 7,853 hours, which substantially exceeds the industry average. Revenue passenger kilometers, million RPK 19,072.9 20,521.7 -7.1 Airports in member countries of the European Civil Aviation Conference (ECAC) have implemented the Safety Assessment of Foreign Aircraft (SAFA) program since 2000. Inspections are carried out ac- Available seat kilometers, million ASK 27,773.8 29,143.3 -4.7 cording to a standard procedure in all member states. Between October 2008 and October 2009, ECAC Passenger load factor, % 68.7 70.4 -1.7pp state inspectors carried out 139 SAFA appraisals of Aeroflot aircraft. Cargo and mail, thousands of tonnes 107.4 117.9 -8.9 The SAFA inspection program for evaluating the safety condition of airline flights provides a score. Cargo turnover, million CTK 660.5 675.8 -2.2 Last year Aeroflot scored 0.38 ratio, which fully satisfies SAFA requirements and was the highest among Revenue tonne kilometers, million RTK 2,377.1 2,522.7 -5.8 Russian air transportation companies. Available tonne kilometers, million ATK 4,255.0 4,473.7 -4.9 100.0% Commercial load factor, % 55.9 56.4 -0.5pp 99.967 99.955 99.936 Hight level of flight safety Domestic 2009 2008 Change, % Passengers carried, thousands 4,892.8 5,050.1 -3.1 99.9% Revenue passenger kilometers, million RPK 10,833.4 10,640.4 +1.8 Moderate level of flight safety Available seat kilometers, million ASK 14,845.1 14,780.7 +0.4 99.0% Low level of flight safety Passenger load factor, % 73.0 72.0 +1.0pp 90% Cargo and mail, thousands of tonnes 41.5 41.3 +0.5 Threat to flight safety Cargo turnover, million TKM 176.6 160.0 +9.9 0 2007 2008 2009 range Revenue tonne kilometers, million RTK 1,151.6 1,117.7 +3.0 Available tonne kilometers, million ATK 1,836.8 1,812.7 +1.3 Ensuring aviation security Commercial load factor, % 62.7 61.7 +1.0pp The primary goal of aviation security is to protect the lives and health of passengers and employees in carrying out their duties, as well as preventing illegal interference in the Company’s operations and Total 2009 2008 Change, % attempts to cause it economic harm. Aeroflot’s conformity to aviation security standards has been con- Passengers carried, thousands 11,061.9 11,600.3 -4.6 firmed by inspections by the Transportation Ministry’s Federal Agency for Air Transportation. Revenue passenger kilometers, million RPK 29,906.3 31,162.1 -4.0 In 2009 inspections of the ground service for Aeroflot flights were carried out at the following air- Available seat kilometers, million ASK 42,618.9 43,924,0 -3.0 ports: Katunayake (Colombo, Sri Lanka), Ovda (Eilat, Israel), Bishkek (Kyrgyzstan), Dnepropetrovsk Passenger load factor, % 70.2 70.9 -0.7pp (Ukraine), and Omsk, Kaliningrad and Rostov-on-Don (Russia). Inspections of the security at the Air- line’s representative offices were also made. Share of regular traffic, % 94.2 95.2 -1.0pp In accordance with Article 68 of Russia’s Federal Aviation Rules, “Requirements for aviation security Cargo and mail, thousands of tonnes 148.9 159.2 -6.4 for airports”, airports in Moscow must have canine units dedicated to detecting explosive substances Cargo turnover, million TKM 837.1 835.8 +0.1 and devices. Canine inspections at Sheremetyevo international airport are carried out by the corre- Revenue tonne kilometers, million RTK 3,528.7 3,640.4 -3.1 sponding unit of Aeroflot’s Department for Management of Aviation Security. Available tonne kilometers, million ATK 6,091.8 6,286.4 -3.1 In addition, as part of ongoing special programs, the airline worked actively in 2009 to deal with the Commercial load factor, % 57.9 57.9 - problem of unruly passengers, the protection of flights judged to face heightened risk, the protection of revenue, and the implementation of an integrated system to protect Aeroflot facilities. * Including subsidiaries 32 33 OPERATIONS: Cargo carrying

Passenger capacity measured by available seat kilometers fell by 3.0% year-on-year, while passenger load factor fell by 0.7pp to 70.2%. The commercial load ratio was 57.9%, almost the same as in 2008, against a reduction of available tonne kilometers by 3.1%. Cargo carrying Overall, 11,061,900 passengers and 148,900 tonnes of cargo and mail were carried. Passenger turnover amounted to 29,906.3 million PRK and cargo turnover 3,528.7 million TKM. Aeroflot Group’s aim in cargo carrying is to increase the cargo business’ Despite the fall in overall operational indicators, the Group remained the definitive leading among contribution to the Company’s overall efficiency. To achieve this, the Russian airlines in both the domestic and international markets, carrying 11.1 million passengers in 2009. Airline has identified the following goals: maintaining the cargo business’ long-term competitiveness; extracting synergies from the route OPERATIONS Regional structure of carrying on regular routEs networks of passenger jets and MD-11 cargo aircraft; reducing the flight

Passengers Passenger turnover, Available seat- Passenger time of cargo aircraft thanks to the possibility of flying over Russian ter- Region carried, thousands million RPK kilometers, million load factor, % ritory and making technical landings; obtaining commercial rights for 2008 2009 2008 2009 2008 2009 2008 2009 regular flights on the most profitable cargo routes; and creating the most America 301.8 267.8 2,640.6 2,405.1 3,690.3 3,338.9 71.6 72.0 modern system for booking and managing loads. Middle East, Far East, and Africa 547.7 665.1 1,466.9 1,818.8 2,037.7 2,683.6 72.0 67.8 Asia (incl. Japan) 1,002.2 763.0 6,277.8 4,934.3 8,435.8 7,221.1 74.4 68.3 Some 141,100 tonnes of cargo was carried during the year, down 7.5% year-on-year, as well as Europe 3,255.3 3,129.4 7,136.5 6,828.1 11,055.9 10,686.8 65.0 64.0 7,800 tonnes of mail, up 19.8% year-on-year. Cargo turnover amounted to 837.1 million TKM, up 0.1% Russia 4,245.1 4,874.9 8,696.2 10,805.5 12,166.6 14,796.6 71.5 73.0 year-on-year due to an increase in the average distance of cargo and mail transportation (up 3.6%). CIS 785.9 734.7 1,479.8 1,452.1 2,055.2 1,999.3 72.0 72.6 Total 10,138.0 10,434.9 27,697.8 28,243.9 39,441.5 40,726.3 70.2 69.4 International cargo carrying

Passenger numbers on regularly scheduled flights fell by 5.7% year-on-year, while on unscheduled flights International cargo and mail carrying accounted for 72.1% of the total amount of cargo and post car- they increased by 15.5%. ried and 79% of cargo turnover. In total, 107,400 tonnes of cargo and past was carried on international routes, down 8.9% year-on-year. The overall commercial load factor amounted to 68.7%, down 1.7pp. In addition, 627,000 passengers were carried on charter flights.

Passenger carrying on domestic routes Domestic cargo carrying Some 4.9 million passengers were transported on domestic routes, 3.1% lower than in 2008 and The total volume of cargo and mail carried on domestic routes in 2009 amounted to 41,500 tonnes, equal to 44.2% of the total for the Airline. With growth of available seat kilometers of 0.4%, the passen- up 0.6% year-on-year. Cargo turnover amounted to 176.6 million RTK, up 9.9% year-on-year. With a ger load factor rate increased by 1.0 pp to 73%. Passenger turnover rose by 1.8%. growth in total capacity of 1.3%, the commercial load factor rose by 1.0pp to 62.7%.

Passenger carrying on international routes In 2009 6.2 million passengers were carried on international routes, down 5.8% year-on-year. The share of international passengers accounted for 55.8% of all passengers carried and 63.8% of passenger turnover. With the reduction in available seat kilometers by 4.7%, the passenger load factor rate fell by 1.7pp to 68.7%.

Passengers carried on international and domestic flights of Aeroflot Passenger load factor, % Group, thousand people

4,893 73 6,169 68.7

5,050 72 2008 2009 6,550 2008 2009 70.4

Domestic flights International flights Domestic flights International flights

34 35 OPERATIONS: Aircraft fleet

Aircraft type

Aircraft fleet Owned Aeroflot Donavia Nordavia Aeroflot Plus Total Aeroflot is developing its fleet in accordance with the following principles: Antonov An-24 2 2 fuel and environmental efficiency; consistency in model type; choos- Ilyushin II-86 2 2 Ilyushin II-96-300 6 6 ing more effective, new, and modern aircraft; and flexibility in changing Tupolev Tu-134 1 9 1 11 the composition of the fleet. Thanks to this, the Company is achieving Tupolev Tu-154 22 4 26

several key aims: ensuring a high level of flight safety (minimising the Total owned 31 4 11 1 47 OPERATIONS quantity of aviation accidents) and reliability (increasing the flight time per aircraft) as well as reducing operational expenditures and owner- Under finance lease Aeroflot Donavia Nordavia Aeroflot Plus Total Airbus A-319 4 4 ship costs. Airbus A-320 1 1 Airbus A-321 16 16 The backbone of Aeroflot’s fleet consists of fuel-efficient and modern medium-haul aircraft from the A320 family. Their number increased by 18 aircraft in 2009 (including 4 A319s, 8 A320s and 6 A321s), Boeing 737 5 2 7 while 22 Tu-154 aircraft belonging to the Company were withdrawn from operation. As a result, the Total finance lease 21 5 2 28 number of medium-haul aircraft was reduced to one type, which improves the efficiency of the Airline’s operations. Under operating lease Aeroflot Donavia Nordavia Aeroflot Plus Total In 2009 Aeroflot continued to modernise and unify its fleet, which enabled it to significantly increase Airbus A-319 11 11 the efficiency of operating its aircraft. As of December 31, 2009, Aeroflot Group’s fleet included 166 Airbus A-320 31 31 aircraft. Aeroflot’s fleet included 116 planes of which: 88 passenger aircraft in operation, including 63 Airbus A-330 8 8 mid-range A320 family jets, and 25 long-range jets, of which 8 are A330s, 11 are Boeing 767s, and six are Il-96s. Antonov An-24 3 3 As part of developing its fleet of long-haul aircraft, Aeroflot bolstered its fleet with six new A330 air- Antonov An-26 1 1 craft in 2009, including three A330-200s and three A330-300s. It also began operating modified A330- Boeing 737 5 14 19 300 aircraft. This airliner is the most spacious in the Company’s fleet, equipped with a comfortable two- Boeing 767-300 11 11 class layout and capable of carrying 302 passengers up to 7,000 kilometers with a full commercial load. In 2009 A330 aircraft carried out flights to Havana, New York, Beijing, and Vladivostok. Ilyushin II-86 1 1 Only the new passenger jets entered Aeroflot’s fleet in 2009. In total, there are 24 modern, efficient, McDonnell Douglas MD-11 3 3 and comfortable Airbuses for use on medium-haul (A320 family) and long-haul (A330) routes. Tupolev Tu-134 1 1 In 2010 the new Russian-made Sukhoi Superjet 100 regional aircraft are expected to join the Airline’s Yak-42 2 2 fleet. Total operating lease 64 6 18 3 91

B767 Total 116 15 31 4 166 B767 B767 B787 B777

A310 Il-96 Il-96 A350

Il-96 A330 A330 A330 Aeroflot average daily flight time per aircraft, Aeroflot aircraft fuel efficiency, g/skm Il-62 hours

Il-86 Tu-154 2.8 40 38 38 38 Tu-154 Il-96 6.8 40 37 37 35 Tu-154 A320* A320* 32 A320* А321 8.7 30 29 A320* А319 8.9 20 А320 9.4 В767 Tu-134 SSJ SSJ 12.5 10 А330-300 13.3 0 А330-200 14.8 2001 2002 2003 2004 2005 2006 2007 2008 2009 9 types 5 types 5 types 5 types 2002 2009 2010 2016

* A320 family, including A319, A320, A321 aircraft 36 37 OPERATIONS: Technical service

Route network Technical service

In 2009 Aeroflot Group operated on 162 destinations in 48 countries Maintaining a high level of flight readiness and safety is an undisputed with average frequency of 7.1 flights a week per route. priority for Aeroflot. At the same time the Company aims to reduce Aeroflot carried out its own regularly scheduled flights on 111 routes expenditure on technical service and repair of aircraft. As part of this, with an average frequency of eight flights per day in 2009. Taking into it has developed and is successfully implementing various initiatives account code sharing agreements with partner airlines, Aeroflot offered regarding the technical service and repair of aircraft. OPERATIONS passengers flights on 169 routes with an average frequency ofnine flights per week (compared with 163 routes with an average frequency In connection with implementing the program to modernise the fleet, the volume of technical service of 9.4 flights per route in 2008). work for foreign manufactured aircraft has grown substantially. To reduce planned aircraft downtime for technical servicing (on average 10%), Aeroflot has implemented a project to introduce docking systems The Airline operated flights on 87 medium-haul routes with an average frequency of 8.9 flights per that permit the more rational use of labor-intensive technical personnel work when carrying out the form week. The long-haul network included 24 routes with an average frequency of 4.7 flights per week. C-check of aircraft in the A-320 family. Last year Aeroflot operated 717 charter flights to 37 destinations, transporting 94,989 passengers, al- Throughout 2009 the Company actively introduced programs aimed at increasing the quality of tech- most double the figure for 2008. The connectivity rate for the Company’s own flights increased by 0.6pp nical service that were developed at the end of 2008. Some initiatives were directed at increasing the to 6.61% (compared with 6.57% in 2008), while transit passenger flows in its route network increased share of technical service work carried out by Aeroflot itself. There were significant savings from lower by 7.3% to 2.5 million people, or 29.4% of the total passengers carried. labor costs and lower expenditures on transportation of spare parts, as well as a reduction in customs payments, which can account for as much as 40% of the cost of a new unit. In 2009 Aeroflot began operating flights to In the Russian Far East, an airline affiliate was Given an increase in the number of foreign-manufactured aircraft in 2009, Aeroflot began to six new international destinations: created and regular flights were inaugurated on the expand the inventory of aviation components and units that it services itself. Last year the Airline began following routes: independently carrying out the six-year “6Y” technical service of A320 aircraft, and it plans to carry out Moscow — Dresden eight such checks itself in 2010. The expected savings will amount to around USD 6.98 million. Vladivostok — Yuzhno-Sakhalinsk Moscow — Innsbruck Going forward, thanks to the greater potential of its own operational base, Aeroflot plans to sig- Vladivostok — Petropavlovsk-Kamchatsky nificantly expand its presence in the promising market for the technical service and repair of foreign Moscow — Salzburg aircraft in Russia. Due to the absence of competition in this segment domestically, this area has great Vladivostok — Khabarovsk potential. Moscow — Hurghada Yuzhno-Sakhalinsk — Khabarovsk Moscow — Sharm el-Sheik Petroplavlovsk-Kamchatsky — Khabarovsk Moscow — Eilat

At the end of 2009 Aeroflot was cooperating with 28 airlines in code-sharing agreements. It entered into bilateral agreements with Mongolian airline MIAT on the Moscow–Ulan–Bator route and renewed bilateral code-sharing cooperation with Malev on the Moscow–Budapest route. Consultation continued on synchronising the timetable for the Moscow–Hanoi route with Vietnam Airlines, and Aeroflot launched a study regarding cooperation with airlines AeroSvit and Kenya Airways. Some 1.2 million passengers were transported on marketing routes, up 14.6% year-on-year. Code- sharing agreements allowed the Airline to add 58 additional destinations to its timetable. In 2010, Aeroflot plans to concentrate on developing passenger flights in the domestic market as well as in Southeast Asia and Europe. The Company also sees transit traffic as a separate and promising market. The launch into operation of Terminals D and F at Sheremetyevo international airport creates the right conditions for developing a “hub” model. In 2009 Aeroflot continued to play an active role in the SkyTeam alliance programs. The number of Aeroflot marketing passengers on alliance partner flights grew by 5% year-on-year to 147,100 people. The Company’s total revenue from marketing activity as part of the alliance amounted to USD 46.8 million.

38 39 OPERATIONS: Marketing and sales

Quality of service Marketing and sales Despite the program implemented to reduce non-production expenditures in 2009, Aeroflot successfully continued to implement primary Marketing research projects aimed at strengthening its competitive position and Introduced in 1999, Aeroflot’s frequent-flyer program, Aeroflot Bonus, provides customers witha wide range of benefits and services for choosing the Company and its SkyTeam partners, as well as tracking consumer satisfaction. In particular, the Company became discounts and free services from various other partners, including hotels and banks. As of December 31,

part of the widely recognised EPSI Customer Satisfaction Index. 2009, Aeroflot Bonus had 1,911,179 members. OPERATIONS Last year the Aeroflot Bonus Department implemented various projects aimed at improving the program’s level of service and developing and promoting the program. In February 2009 the Aeroflot Business Club project was launched for corporate clients. The program is aimed at employees who fly Aeroflot for business and personal trips. By the end of the year the In 2009 in a SkyTeam onboard survey, Aeroflot for the first time in its history was named number program had signed up 2,570 people from 235 companies without a contract (between 5 and 25 emp- one among the alliance’s European participants for passenger service in economy class for short- and loyees) and 1,593 people from 36 companies with a contract (over 25 employees). medium-haul flights, as well as business class for long-haul flights. The Airline achieved winning positions for the following aspects of its onboard service: cabin-crew service (accessibility throughout the In April the Airline launched the Aeroflot Bonus Family program, which allows members of one family flight, food service, providing information about delays), seat comfort, and availability of news media. to accumulate miles in a single account. By the end of the year 2,184 families had signed up, representing 9,647 people. Last year was declared a year of “equal opportunities”. A new edition of the standards for serving passengers with limited physical abilities was developed based partly on input from such passengers. During the year two regional centers were opened for the Aeroflot Bonus program at Aeroflot representative offices in Russia, in Arkhangelsk in the Northwest region and in Yekaterinburg in the Urals In accordance with changes in the requirements of the SkyTeam alliance for passenger service, region. In October 2009 a regional center was opened in London (UK). numerous changes to basic standards of the organization were introduced, as were new standards for passenger service in a hotel in the event of a technical problem and requirements for frontline ground Last year marked the 10th anniversary of the launch of the Aeroflot Bonus program, and in April and staff serving passengers. May anniversary promotions and competitions were launched with partner GRECOTEL. These gave additional miles to Aeroflot Bonus members as well as two weeks’ free stay at GRECOTEL’s best hotels Aeroflot has introduced a new service concept in business class for Moscow–St. Petersburg flights. for the four competition winners. The main aim is to develop a range of services and increase the quality of service as part of the Aeroflot Shuttle program. Throughout the year the Airline used promotions aimed at Aeroflot Bonus members to increase sales for selected destinations, including targeted domestic routes and selected international routes. The In 2009 the Airline renewed its menu in business class based on light and healthy food prepared program was also used to promote new destinations, including Hurghada, Sharm el-Sheikh, and Dres- exclusively from natural products. Passengers are now offered a new wine list as well as tasty snacks, den. In addition, promotions were targeted at Aeroflot agents to stimulate sales, including a drive to sell hot dishes, desserts, and ice cream. business-class tickets to selected destinations in Russia and Europe (Tyumen, London, Paris, Geneva, Last year Aeroflot conducted a research into passenger product satisfaction for the first time, the Zurich, Berlin, and Vienna). Another promotion in October and November aimed to stimulate economy- aim being to carry out an integrated assessment of its quality of service. As a result of the research, a class sales on the first regular flight to all destinations. program for improving service is being developed. During the first quarter of 2009 Aeroflot Bonus launched a campaign to enroll new members by dis- As part of the program to increase quality service, Aeroflot introduced a new uniform for cabin crew. tributing applications with pre-activated membership cards on board the Company’s aircraft. Throughout The airline has introduced “Service Management” for cabin crew and implemented various steps to im- the year, applications and pre-activated cards were distributed at all advertising and promotional events prove the command of foreign languages for serving employees. Two groups of cabin crew underwent conducted jointly with the Marketing Department and the Sales Department. From November 2009, the training at the Singaporean company Mil-Com. program’s website (www.aeroflotbonus.ru) launched a new service allowing new members to activate their temporary card online. Given the high demand for Fast Track services, the Airline will develop a new standard in 2010, defining technological services for passengers for a fast-track system through passport, customs, and To improve the quality of service provided to program members, the authority of Aeroflot’s regional special controls, as well as revise the standard for keeping passengers informed onboard. centres was increased and employees were provided with training in crediting miles to members for flights on Aeroflot’s regular flights and preparing award certificates. Regular monitoring was also carried out on outsourcing companies involved in the program. In 2009 the Aeroflot Bonus program signed partnership contracts with the following companies: GazpromBank, SMP Bank, Bank Uralsib, Korston Hotel, Sokotel, Azimut Hotels Company, Hotel Con- cord, Hotel Ritz Carlton, Megafon, Aerofirst and Komandir Taxi. In addition, co-branded cards were launched with Gazprombank and SMP Bank. From August 2009 changes were made to partnership agreements with the following companies, increasing the cost of miles on average by 25%: Hotel Ro- dina, Hilton Garden, Hotel Kempinski, Grecotel, Lavtek.ru, Travelling Comment, Stage Entertainment, Alfa Insurance, and SIXT. To increase revenue received from company partners, numerous joint advertising campaigns for collecting additional miles were launched, including with Alfa Bank, Sberbank and Citibank account holders and the Ritz Carlton hotel chain.

40 41 OPERATIONS: Training center

In addition to the above projects, the Aeroflot Bonus Department undertook various additional activi- Structure of Aeroflot revenues from passenger Structure of Aeroflot passenger ties to advance the program and promote the Airline as a whole. ticket Sales outside Russia by regions in 2009 revenues by sales channels overseas The program continued to participate in the Mercy Miles charitable program, allowing members to 5% 7% donate miles to charitable causes, and launched a new project with the Vladimir Spivakov Charitable Eastern Europe 8% 100% Fund at the end of January. America 10% 16% 13% 80% Special promotional programs were carried out during the fourth quarter aimed at increasing sales 18% 16% and the number of program members in the UK, Germany, and Japan. In addition, a special promotion 60% was launched lowering the threshold of miles needed to join the program’s elite levels based on the Western Europe 40% CIS 18% 40% 2009 calendar year (from 50,000 to 48,000 for Gold, from 25,000 to 24,000 for Silver). 61% 64%

20% OPERATIONS

Growth in the Aeroflot Bonus Program 0% Southeast Asia 24% 2008 2009 Number of members Change, year-on-year BSP Official agents Total +37% Representative offices Web Silver members +49% Gold members +38% Improving sales Active members +33% Particular attention was paid to sales of passenger transportation on corporate contracts in 2009. Award tickets issued +73% The share of sales under corporate contracts amounted to 4.5% of the total for the year. The bulk of New partner programs (number) 12 corporate contracts came through the agent network (around 80%). On March 1, 2009, the Airline began operating a corporate bonus card (Aeroflot Business Club). This allows it to expand the range of Revenue from partner programs +128% services offered to corporate clients and represents a major competitive advantage. The share of internet sales in Russia in 2009 increased by 8pp year-on-year to 11% of total sales. The share of internet sales overseas also increased, up 2pp to 7%. Sales outpacing the industry Thanks to the priority placed on boosting sales through the internet in 2009, despite the crisis, the Company increased the volume of web-based sales by 25% year-on-year. The Airline’s primary source of revenue in Russia is from its network of official agents in Moscow and the regions. This sales channel has a wide coverage of various consumer groups. In 2009 its share of total sales amounted to 42%, although this was down 18pp year-on-year due to an increase in the share of sales through neutral sales channels, Ticket and Clearing Chamber/Billing and Settlement Plan (TKP BSP), of 10pp. These changes were due to an optimization of the sales structure as well as the cost reduction program. Training center In January 2009 Aeroflot put a FFS A320 Model 5400 full-flight simulator Structure of Aeroflot revenues from Structure of Aeroflot passenger for training of A320 flight crew into operation. The simulator was manu- passenger ticket sales in Russian regions revenues by sales channels in Russia factured by CAE (Canada) and meets the highest international stand- 3% 11% Volga 7% 100% ards and requirements. The simulator underwent the approval proce- Southern 7% 20% 80% dure by the Department for Flight Standards of the Federal Agency for Far East 33% 30% 17% Urals 12% 60% Air Transportation for level two of International Civil Aviation Organiza- 17% 40% tion (ICAO) document 9625-AN/938 and the international certification 60% 20% 42% of the Joint Aviation Authorities (JAA) for Level D of the JAR-FSTD-A Northwest 15% 0% standard. Siberia 26% 2008 2009 Agents Own offices TKP BSP Web In 2009 the airline conducted 1,000 training sessions, 12,100 students underwent training in 39 programs for the training, re-training and raising qualifications of flight crew, cabin crew, engineering and Overseas sales technical personnel and ground crew, as approved by the Russian federal body for civil aviation. Based on authorization from the Russian federal aviation authorities (on a full and ongoing basis) The majority of sales revenue abroad goes through neutral BSP sales channels, whose share in the Company conducts online training for qualification improvements. In 2009 many specialists and 2009 increased by 3pp to 64%. In addition, as part of the program to optimise the sales structure, the employees of its representative offices in Russia and overseas underwent training. Flight crews take share of sales through official agents fell by 2pp to 16%. distance learning of the English language. Aeroflot also plans to offer distance-learning services for training personnel for other companies.

42 43 OPERATIONS: Business of subsidiaries and dependent companies

Aeroflot carried around 1.5 million passengers as part of code-sharing agreements in 2009, in line with 2008. Of these, 42% were on international and 58% on domestic flights. SkyTeam and The strength of these figures in 2009 is attributable not only to the conclusion of new and improvement of existing code-sharing agreements, but also to Aeroflot’s activity in the SkyTeam global alliance international cooperation and the use of its codes on alliance partner flights. In 2010 Aeroflot plans to conclude a code-sharing agreement with Kenya Airways, implement a previous signed agreement with Delta, and expand and improve agreements with CSA, Air France, KLM, As a member of SkyTeam, Aeroflot belongs to a network offering more than 13,100 daily flights to Alitalia, and AirEuropa. more than 850 destinations in 169 countries. Membership allows Aeroflot Bonus card holders to earn and spend miles on every SkyTeam airline. The alliance provides a single check-in procedure for passengers connecting to other SkyTeam flights. In addition, it provides passengers with a guaranteed high OPERATIONS level of service on any member airline. In 2009 bookings with alliance partners brought 42,084 passengers to Aeroflot flights, generating Business of subsidiaries revenue of over USD 13 million. and dependent companies The number of passengers transferred by Aeroflot to alliance airlines through code sharing (marketing passengers) amounted to 147,053 people in 2009. Revenue from marketing activity by Aeroflot as part of the alliance amounted to USD 46.8 million. As of the end of 2009, Aeroflot had ownership stakes in 22 commercial companies and non-commer- The implementation of code sharing has allowed Aeroflot to retain its positions in promising mar- cial organizations. kets, increase the frequency of flights, ensure access to otherwise restricted markets, expand its route In December 2009 following a decision by the Board of Directors, the limited liability company Aero- network and use its own fleet more effectively. The airline continued to implement the following types flot Finance was founded to implement the Company’s option program. The charter capital was paid by of code-sharing agreements: “point-to-point” agreements using the marketing code for flights between 11 million common shares of Aeroflot previously acquired to develop the option program. The company’s Moscow and SkyTeam hubs; and “points beyond” using Aeroflot’s marketing code on partner flights main activity is to provide information and consulting services regarding the issuance and circulation of beyond their hubs as well as partner codes for Aeroflot flights beyond Moscow. securities, as well as gather and provide information on the competitive environment in the market for On October 28, 2009 the SkyTeam alliance opened a new waiting lounge and premium check-in area securities and financial markets to interested individual and legal entities. Aeroflot Finance is a 100% for passengers of member airlines at Heathrow’s (London) Terminal 4. The “LHR Showcase” is the first subsidiary of Aeroflot. such project among alliance partners. As part of its implementation, new uniforms were designed for SkyTeam front-line personnel. Key projects in 2009 Last year Aeroflot took delivery of a new A330-300 from Airbus painted in the SkyTeam livery, com- Important projects during the year included: pleting the first stage of a SkyTeam initiative aimed at strengthening the alliance brand. The next step will be to paint 1% of the fleet of the SkyTeam airlines in the alliance colors. • Attraction of Non-state Pension Fund (NPF) Sberbank as a co-shareholder in NPF Social Partner, with the subsequent merger of the funds. This allowed the Airline to merge non-core assets with As part of the project to create the Service-Oriented Architecture (SOA) unified information platform a company that is a leader in non-state pension provision. for all alliance members, Aeroflot completed the testing stage of the SOA/SkyTeam initiative in 2009. To optimise the project, the alliance has established a working group to review the business conditions • Systemic reorganization of the cargo business in the Aeroflot Group: the process was begun to liq- and reduce the costs of the initiative. The project is due to be completed in 2010. In addition, in the first uidate the loss-making cargo airline Aeroflot Cargo, MD-11 cargo aircraft were included in Aeroflot’s quarter of 2009 the alliance implemented an initiative to provide an e-mailing platform for all agents and operator certificate, independent sales of cargo transportation services were established and direct corporate clients of SkyTeam companies. contracts were concluded with agents and expeditors. In 2009 the alliance introduced two new tariff products, Mexico Pass and Italy Pass, complementing • Renaming of subsidiaries Donavia and Nordavia for the purpose of their subsequent specialization its existing offers: Europe Pass, Asia Pass, America Pass, China Pass, and the Round-the-World fare. as regional feeder airlines. Aeroflot has issued a booklet informing sales agents about the rules and use of the tariffs. • Construction of the new building for the Sherotel hotel: the necessary permit documentation was Priority initiatives for the alliance in 2010 include a Mileage Calculator/Travel Planner on the alliance obtained to begin the construction of a new three-star hotel at Sheremetyevo airport. website (www.skyteam.com) that will allow clients to calculate the cost of their round-the-world travel • Development of the specialised business-travel airline Aeroflot Plus: in accordance with a resolution via destinations of interest. In the future this function will support booking and issuance of electronic of the Board of Directors of Aeroflot, Austrian company JetAlliance, the largest European specialist tickets. business-travel airline, was selected via a tender to work with Aeroflot on the project. The primary The alliance will continue to increase its PR activities to increase brand visibility. At the same time it goal is to ensure launching into operation the new foreign-manufactured modern aircraft (Cessna), continues to restructure its management and organizational structure, including the establishment of a adopting new technology, and improving service. global alliance headquarters in Amsterdam, the Netherlands. SkyTeam continues to study new ways to improve service quality across the alliance and to search for ways to extract new synergies, including Key projects planned for 2010 joint facilities and lounges. Important projects planned for 2010 include: Wider international cooperation • A project to consolidate the aviation assets of the Russian Technologies state corporation (Vladi- vostok Avia, Saratov Airlines, Sakhalin Airways, State Transportation Company Rossiya, Orenburg At the beginning of 2010, Aeroflot had code-sharing agreements with 28 Russian and foreign airlines. Airlines and Kavminvodyavia) on the base of Aeroflot and integrate them into the structure of the Aeroflot’s biggest code-sharing partners in 2009 were CSA, Air France, Alitalia, Belavia, KLM, Nordavia, Aeroflot Group. Donavia, and GTK Rossiya. In addition, it had “interline” agreements with 192 airlines, including six Rus- sian and 12 CIS companies. • Continuation of the restructuring and optimization of subsidiaries Donavia and Nordavia. In 2009 Aeroflot renewed cooperation with Hungarian airline Malev for the joint operation of flights. • Ongoing work on projects begun in 2009: development of the Aeroflot Plus airline and construction The code-sharing agreement was implemented on the basis of the free sale of commercial loads on of the new Sherotel hotel building. flights of both partners on the Moscow–Budapest route. • Optimization of the structure of Aeroflot Group companies in various areas.

44 45 OVERVIEW OF FINANCIAL RESULTS

OVERVIEW OF FINANCIAL RESULTS The drop in revenue, which was due mainly to the economic crisis and also structur- 4 al changes in some markets, demanded prompt action. Aeroflot Group demonstrated its ability to react quickly to a changing business environment by rapidly implementing a major cost-cutting program. This program both triggered a cost-based recovery and has created solid foundations from which to increase profitability.

In 2009 the Aeroflot Group’s IFRS net profit was USD 85.8 million, up 261% year- on-year. The global financial crisis had a major impact on the Company’s financial Revenue –27% results, with revenue falling 27.3% year-on-year to USD 3,345.9 million. At the same time, operating expenses were down 28.2% to USD 3,068.1 million. FINANCIAL RESULTS OVERVIEW OF

Operating costs –28% Revenue

Revenue from air transport and services accounted for 78% of Group revenue from operations in 2009, while code-sharing agreements with foreign airlines contributed 12%, cargo 6%, and other activi- EBITDAR +3% ties 4%. As mentioned above, the global economic crisis had a substantial negative effect on revenue. Revenue from passenger traffic was USD 2,607.4 million in 2009, down 27.9% year-on-year, due to a decline in both passenger numbers and profitability. The margins on scheduled passenger traffic fell Net profit +261% across all divisions when compared to 2008. Revenue from cargo traffic was USD 211.3 million, down 36.7%, as the number of flights was reduced. Revenue from code-sharing agreements with other airlines totaled USD 388.2 million, down 18.6% year-on-year, as the amount of global air travel fell in response to the crisis. USD millions 2009 2008 Change, % Revenue from other businesses was USD 139 million, down 21.2% year-on-year. This includes Revenue 3,345.9 4,603.4 -27.3 revenue from ground services at the airport, refueling services to other airlines, hotels, sales of in-flight refreshments, realestate leasing, advertisements, commission from duty-free retail sales, and other Operating costs 3,068.1 4,273.3 -28.2 services. Operating profit 277.8 330.1 -15.8 Profit before tax 205.8 166.6 23.5 Aeroflot Group revenue breakdown Tax 120 142.8 -16.0 Change, USD millions 2009 2008 % Minority interest -3.4 -19.1 -82.2 Scheduled passenger 4% Net profit 85.8 23.8 261 flights 2,512.4 3,508.9 -28.4 12% * EBITDA 461 516 -11 Cargo 211.3 333.6 -36.7 3% Scheduled passenger flights EBITDA margin, % 14 11 +3pp Charter passenger 6% Cargo flights 95 107.5 -11.6 EBITDAR** 747 723 +3 Charter passenger flights Airline revenue Airline revenue agreements EBITDAR margin, % 22 16 + 6pp agreements 388.2 477.1 -18.6 Other revenue Net debt/EBITDA ratio 3.9 2.5 +56 Other 139 176.3 -21.2 75% Total 3,345.9 4,603.4 -27.3 * EBITDA=Operating profit+Depreсiation and amortization+Custom duties expenses ** EBITDAR=EBITDA+Operating lease expenses

46 47 OVERVIEW OF FINANCIAL RESULTS: Income and costs relating to financial activities

Operating expenses Income and costs relating to financial activities Aeroflot’s operating costs were USD 3,068.1 million in 2009, down 28.2% year-on-year. The main Group income from financial activities dropped from USD 4.5 million in 2008 to USD 2.8 million in reasons driving the reduction were the introduction of more fuel-efficient imported aircrafts, a year-on- 2009, mainly due to a decline in interest income on bank deposits. At the same time, costs relating to year drop in passenger numbers caused by the crisis, and the Company’s successful anti-crisis meas- financial activities plummeted almost four-fold to USD 53.1 million, thanks to a major reduction in FX ures. Three items accounted for the bulk of operating costs last year: losses and lower interest expenses on lease liabilities.

• Aircraft fuel – 24% USD millions 2009 2008 Change, % • Staff costs – 18% Income from financial activities • Aircraft and traffic servicing – 16% Interest income on bank deposits 2.7 4.5 - 40 In addition to the reasons given above, an important factor that influenced operating costs last year Gain on disposal of investments 0.1 - - was an increase in leasing and customs costs related to the new imported aircraft introduced to the fleet. Total 2.8 4.5 - 38 The primary reason for the decline in operating costs last year was the sharp drop in energy prices Costs relating to financial activities during the crisis, including aviation fuel prices. Savings in fuel costs also came from various measures to Interest expense on customs duty discounting 16.6 13.4 +23.8 increase the Company’s efficiency and reduce the physical cost of fuel, including commercial work, the Interest expense on short- and long-term borrowings 15.6 16.7 - 6.6 introduction of new procedures for buying aviation fuel, fleet modernization, and the utilization of more Foreign exchange loss 12.0 141.0 - 91.4

fuel-efficient aircraft. Aeroflot’s fuel consumption declined by 9% to 392 g/tkm in 2009. FINANCIAL RESULTS OVERVIEW OF Interest expense on finance lease liabilities 8.9 24.6 - 64.8 Staff efficiency improved significantly in 2009, with the Group’s headcount down 10% and staff costs down 21.5% Loss on disposals of investments - 1.3 - Customs duties on imported aircraft added to the fleet increased by 40.3%. Sales and marketing Total 53.1 197.0 - 73 costs dropped by 39.3%.

Net profit Aeroflot Group operating costs breakdown Group net profit in 2009 amounted to USD 86 million, up 261% year-on-year. The main growth driv- USD millions 2009 2008 Change, % ers were Aeroflot’s solid financial results and Aeroflot-Cargo’s doubtful debt provisions being released. Aircraft fuel 725.4 1,551.1 -53.2 One factor bearing down on the Company’s net profit was the poor performance of its Nordavia, Aero- flot-Cargo, and Terminal subsidiaries. Staff costs 538.9 686.6 -21.5 Aircraft and Earnings per share traffic servicing 506.5 594.7 -14.8 Earnings per share were USD 0.081. Maintenance 270.7 295.1 -8.3 Sales and marketing 138.7 228.5 -39.3 Yields Operating lease expenses 286.7 207.4 38.2 The drop in yields* in 2009 was caused by an overall market trend to reduce fares. Management Aircraft fuel Depreciation implemented measures and actions to secure comparable rates of decrease for yields and costs. Staff costs and amortization 145.3 159.3 -8.8 Passenger yield, US¢/RPK Aircraft and traffic servicing Administration Maintenance and general expenses 126.7 149.8 -15.4 14 Sales and marketing Passenger services 114.5 142 -19.4 11.7 12 11.5 Operating lease expenses 10.9 Communication expenses 62.5 65.4 -4.4 10.1 Depreciation and amortization 10 9.2 8.9 8.2 8.7 8.7 Administration and general expenses Customs duties 37.6 26.8 40.3 8.0 Passenger services 8 7.3 Insurance expenses 19.8 21.4 -7.5 6.4 Communication expenses 6 Customs duties Other 94.8 145.2 -34.7 Insurance expenses Total 3,068.1 4,273.3 -28.2 4 Other expenses 2

EBITDA and EBITDA margin 0 Despite EBITDA falling by 11% to USD 461 million, EBITDA margin of the Aeroflot Group demon- 2004 2005 2006 2007 2008 2009 strated a significant increase from 11% in 2008 to 14% by the end of 2009, confirming the effectiveness of anti-recession measures implemented by the management. Scheduled + charter international flights Scheduled domestic flights * Passenger yield=PAX revenue/RPK, Cargo yield=Cargo revenue/CTK 48 49 OVERVIEW OF FINANCIAL RESULTS: Liquidity

Cargo yield, US¢/CTK Average interest rate

45 Contractual Effective 39.9 40 Non-derivative financial liabilities: Loans in US dollars 8.8% 8.8% 35 31.9 30.2 Loans in Russian rubles 13.2% 13.2% 30 28.3 25.2 Finance lease liabilities 1.1% 1.1% 25 23.0 Customs duties 0% 9.9% 20 15 10 Liquidity 5 Aeroflot Group’s liquidity position remains strong, with USD 121.1 million of cash and cash equivalents. Net cash flows from operating activities amounted to USD 228.5 million. The net debt/EBITDA 0 ratio grew to 3.9 in 2009 due to the construction of Terminal D. Current ratio is 1.03. 2004 2005 2006 2007 2008 2009 FINANCIAL RESULTS OVERVIEW OF Dividend Debt profile The annual General Meeting of Shareholders approved the Board of Directors’ recommendation to assign a dividend of not less than 25% of 2009 net income according to RAS, or RUR 388.4 million*

The Group’s total debt increased 34% mainly due to the construction of Terminal D. In 2009 Aero- (USD 12.26 million)**. This equaled RUR 0.3497 (USD 0.0110)** per share. The 2009 dividend doubled flot’s short-term borrowings consisted of loans from Sberbank, Gazprombank, Vnesheconombank, year-on-year. Vneshtorgbank, Natixis, and Raiffeisenbank totaling USD 156.4 million. Of these, USD 49.3 million was denominated in dollars and the remainder in RUR. The Company used the credit lines mainly for unsecured additions to working capital at floating and fixed interest rates. Credit agreements with floating interest rates make the bank margin dependent on the drawdown period in the framework of each Capital expenditures agreement. This structuring of the credit portfolio enables the Company to obtain credit in an optimal and efficient manner depending on the environment on financial markets. USD million Construction in progress 349.8 USD millions 2009 2008 Change, % Acquisition, leasing, and modernization of aircraft 340.1 Borrowings 976 737 33 Acquisition of cars, equipment, vehicles, production and business inventory, IT equipment, Finance lease payable 735 538 37 uniforms and special clothing 76.2 Pension obligation 9 10 -10 Construction and repairs to buildings, facilities, and relay equipment 2.2

Custom duties payable 187 138 36 Total 768.3 Total debt 1,907 1,422 34 Cash and ST investments 132 156 -16 Capital investments amounted to USD 768.3 million in 2009. The bulk of this related to: Net debt 1,776 1,266 40 • The addition of six Airbus A-321s under finance lease agreements for USD 320.6 million – 41.7%; • Expenses relating to the construction of Sheremetyevo’s Terminal D of USD 202.2 million – As of December 31, 2009, Aeroflot had long-term borrowings of USD 819.7 million, including a USD 26.3%; 383.3 million loan from Vnesheconombank and credit lines of USD 238 million from Vneshtorgbank and • An increase in prepayments for 16 Airbus A-321s of USD 101.8 million – 13.3%. USD 190.4 million from Vnesheconombank to finance the construction and commissioning of Shereme- tyevo’s Terminal D complex. These loans are secured against the right to sub-lease the land plot, with a Aeroflot invested in new equipment as part of the construction of Terminal D and a new office complex, as well as to replace outdated equipment and improve standards for ground and technical re- mortgage value of USD 375.9 million, and the construction in progress, with a mortgage value of USD quirements. New equipment included container transporters, aircraft towing equipment, vehicle lifts, 839.8 million. bench-testing and meteorological devices, and office necessities. Overall, USD 202.2 million was spent Last year the Group’s interest expenses on short-term and long-term loans were USD 15.6 million, on equipment. down 7% from the USD 16.7 million in 2008. The interest expenses on discounted customs duties on imported aircraft came to USD 16.6 million, up 24% year-on-year. Interest expenses on finance lease liabilities were USD 8.9 million, down 64% year-on-year. Together with a foreign exchange loss of USD 12.0 million, finance costs were USD 53.1 million, down 73% from USD 197 million in 2008. * Aeroflot pays dividends on the basis of its financial results prepared according to Russian Accounting Standards. ** Based on the Central Bank of Russia average exchange rate for 2009 of RUR 31.68 per USD.

50 51 RISK MANAGEMENT Manage- t works con- works It Integrated Airline ANAGE MENT RISK M ment System (iAMS). have that risks the of review a is Below the most significant potential impact on Aeroflot’s business. As Russia’s largest airline, Aeroflot is unfore- and risks of range a to subject signifi- a have can that events seeable results. its on impact cant stantly to identify, account for, warn of, and minimise the potential - conse quences of risks. The Company has developed, introduced and regularly improves an integrated, - risk-manage ment system that is an indispensible part of its 5 RISK MANAGEMENT: Financial risks

Legal regulation, country risk Rules covering air transportation and requirements for airlines are subject to careful regulation by Russia and the countries to which the Airline flies as well as by international regulatory bodies. Aeroflot carefully monitors regulatory changes and actively participates in the work of international organizations, advancing its own proposals for the development of the legal and normative base. In addition, the Company places great significance on analyzing specific country risks, choosing the necessary measures to react in particular areas (stopping flights, changing routes, increasing aviation security iAMS measures, increasing sanitary and epidemiological controls, etc).

Increased operating risk in the aviation sector A unique aspect of the aviation business is that the risks, which can sometimes be catastrophic, are mostly not comparable with those in other sectors. Aeroflot maintains an integrated system for monitoring operating risks, including ensuring flight safety, aviation security, equipment reliability and employee training and qualifications. IOSA certification awarded by independent auditors has confirmed the sys- QMS ERM SUMS tem’s effectiveness. SMS SEMS Environmental risks iAMS - Integrated Airline Management System Aeroflot works to minimise its negative impact on the environment, modernising its fleet by introduc- SMS - Safety Management Systems SUMS - Supplier Management System ing the latest-generation aircraft that have greater fuel efficiency and a lower level of harmful emissions. The Company has developed and implemented an environmental management system. SEMS - Security Management System ERM - Enterprise Risk Management System Aeroflot has fully met the requirements of European Directive Number 2008/101/EC, whichpre- scribes the inclusion of airlines flying to and from European Union airports into the greenhouse gas QMS - Quality Management System emissions quota trading system. The directive came into effect in February 2009. Last year Aeroflot

presented the German aviation authorities with an action plan for introducing a system for the constant RISK MANAGEMENT monitoring of emissions.

Sector risks Financial risks 2009 was a difficult year for Russia and the entire world, and its results Risks linked to the seasonality of demand for air transportation confirmed the effectiveness of Aeroflot’s financial risk management The transport sector is subject to seasonal fluctuations. Historically, activity peaks during vacations system. and public holidays, when the greatest passenger loads are seen on both domestic and international routes. By expanding the route network to countries with year-round tourist seasons, Aeroflot is optimising Credit risk its passenger loads. To increase passenger loads in the winter months, the Company conducts various promotions offering tickets at attractive prices. In addition, its flights are traditionally scheduled at Credit risk is linked to the inability of a counterparty to pay its obligations to the Company. To reduce convenient times for departure and arrival, allowing for quality passenger traffic even during times of this risk, Aeroflot conducts constant control and monitoring of the financial state of counterparties selling reduced demand for air transportation services. passenger tickets: • Personal limits are established for ticket sales; Competitive risks • The amount of financial provision for sales is calculated on the basis of deposits, bank guarantees, and other forms of financial provision. Aeroflot operates in highly competitive domestic and international air-transportation markets. It is the clear leader among Russian airlines, its high level of flight safety and service attracting clients. The These methods are applied across Aeroflot’s entire agent network and may also be applied in rela- Company seeks to offer clients the most convenient services – it has switched to e-ticketing and has tion to electronic tickets sales through agents that participate in neutral sales systems (TKP, BSP), which introduced online flight check-in. In 2009 among European members of the SkyTeam alliance, the Com- carry out settlements bilaterally or through the IATA clearing center. pany ranked first in passenger service in economy class on short- and medium-haul flights, as well as The financial state of correspondent banks acting as guarantors for counterparty obligations is evalu- first in business class on long-haul flights. ated on a monthly basis. This is carried out on the basis of accounts and mandatory bank ratios, and By guaranteeing a high level of safety, quality service, and a wide route network, as well as devel- a maximum limit on operations with bank guarantees from a credit institution is defined as a result. oping a loyalty program, Aeroflot maintains passenger satisfaction at a high level, ensuring long-term competitive advantages for the Airline.

54 55 RISK MANAGEMENT: Risks associated with core business

Currency risk attention. First and foremost, the Airline is concerned about the security and convenience of passengers both on board and during any contact with the Airline – from obtaining information to purchasing a ticket Aeroflot’s currency risk is linked to its global route network. Fluctuations in exchange rates may have to traveling the airport. In 2009 Aeroflot introduced a new modern uniform for onboard crew, developed an impact on the Company’s financial activity. Aeroflot has a policy of maintaining a balance of income a new website with a user-friendly interface, launched independent check-in for flights, and provided and liabilities in each currency. In particular, its fares for international flights across Russia are denomi- passengers with additional information. nated in foreign currency.

Interest-rate risk Risks linked to the transfer to Terminal D at Sheremetyevo When interest rates in the Russian and international financial markets are volatile, Aeroflot is ex- At the end of 2009 Aeroflot completed the construction of its terminal at Sheremetyevo and began posed to the risk of an increase in the cost of servicing current and future financial obligations. An operations there. The transfer of all flights to a single terminal, even within the same airport, is a techni- increase in the interest rate could limit access to external financing. In 2010, to reduce the impact of cally complex process that requires careful work. interest-rate risk linked to borrowing money in overseas markets at rates linked to LIBOR, the Company To minimise unexpected and unplanned situations, Aeroflot has modeled various potential risks dur- issued exchange-traded bonds totaling RUR12 billion with a coupon of 7.775% annually. ing the transfer of primary operations to the new terminal. This model has served as a basis for training personnel and establishing new technical lines and interactions between subdivisions. To ensure the full-scale functioning of the new terminal and to minimise operational risks, the respon- Risk of worsening liquidity sibility for serving passengers and aircraft has been clearly divided between Aeroflot, OJSC Terminal, and OJSC Sheremetyevo International Airport. This will help to identify the necessary insurance of risks Aeroflot’s treasury department carries out precise planning of the incoming and outgoing cash flow to at OJSC Terminal. identify any potential shortfall. This means that short-term financing can be obtained from bank partners when necessary. Control over the use of working capital has been tightened to ensure that Aeroflot’s liquidity position Human resources is kept at the required level. Aeroflot’s business is based largely on attracting and retaining highly qualified personnel, and the Company is developing an appropriate compensation system to do this. However, a lack of flight personnel in Russia, as well as legislative requirements that crew members on commercial flights have Risk of growth in aviation fuel costs Russian citisenship, could potentially create a situation where the Airline does not have sufficient crew Last year, fuel costs fell initially then increased by mid-year (to the level seen in early 2007) and stabi- members. To ensure sufficient labor resources, the Company is implementing a project to create a new lised. As a result, Aeroflot did not incur any additional fuel costs, although it undertook various measures flight school. The Aeroflot Flight School will train 60 pilots per year initially, and 200-250 annually there- RISK MANAGEMENT to improve the fuel procurement system. after. This will allow Aeroflot to ensure the necessary number of flight crew to expand its operations. In particular, a system of direct contracts for refueling “at the wing” was introduced and tenders among suppliers were organised. In addition, Aeroflot is implementing the Tankering 1 program, which will results in significant savings and is an important element in the program to reduce operating costs. Insurance In 2009 fuel-inefficient Tu-154 aircraft were taken out of operation and replaced with fuel-efficient aircraft from the A320 family, which brought additional savings. Insurance is one of the instruments used for managing risks and enables to transfer the risks of large financial losses to insurers. Alongside traditional types of insurance (medicine, property, transport, etc), Aeroflot’s primary coverage is aviation risks insurance, which is traditionally grouped into four main areas: hull and liability insurance; hull war and allied perils; war, hi-jacking and other perils liability (AVN52E); and hull deductible insurance. Risks associated with core business The renewal of insurance contracts for Aeroflot’s aviation risks for the 2009-10 policy period took place during difficult circumstances. On one hand, the global financial crisis and large insurance losses of 2008 and 2009 brought about a general increase in rates. On the other hand, the crash of Aeroflot- Nord’s Boeing 737-500 aircraft in Perm in September 2008 also had an impact on Aeroflot’s position Operational risks regarding aviation insurance, as Aeroflot and all of its subsidiary airlines, as part of a single group, have consolidated re-insurance coverage. The main goal of managing operational risks at Aeroflot is to ensure flight safety and aviation security. The Company has developed and approved guidance for ensuring flight safety and is implementing Despite this, the Company secured lower rates for hull insurance for western-built aircraft of 4.13%, a system for managing flight safety, based on complex analysis and forecasting. In each operational and the premium for its legal liability increased by just 13.26% compared with 2008-09. The premiums subdivision, a system has been implemented to manage specific risks. In turn, this is incorporated in the for hull war risks and hull deductible remained unchanged. corporate operational risk management system. As previously, direct risk insurance was provided by the subsidiary OJSC Moscow Insurance Com- The Company maintains a commission for evaluating risks in relation to ensuring flight safety that pany. Reinsurance services in Western markets were provided by the insurance broker Willis, the world includes representatives from all relevant subdivisions. The commission acts in coordination with the leader in aviation insurance. committee for the management of flight safety. A system of voluntary reporting is being introduced in During the 2009-10 policy period the liability insurance expenditure per passenger was USD 0.81 operational subdivisions as a necessary element of a proactive risk management system. (compared with USD 0.7 in 2008-09) and the cost of each USD 1 million in hull insurance for aircraft was USD 1,827 (compared with USD 1,887 in 2008-09). Reputational risks The reputation of being a high-quality and safe airline and reliable business partner is crucial for Aer- oflot. Therefore, the development of the Company’s brand and reputation has always merited particular

56 57 CORPORATE GOVERNANCE AND SECURITIES CORPORATE GOVERNANCE CORPORATE ITIES AND SECUR Aeroflot works constantly to improve its corporate governance standards in the belief that strong protections for all investors and regular information disclo- more and run better a to contribute sure efficient company and reflects the val- carrier. flag Russia’s as embrace we ues Corporate governance standards and approaches continue to evolve internationally and Aeroflot aims to be at the forefront of introducing the best stand- man- efficient the ensure to order in ards interests the in Company the of agement of all shareholders. 6 CORPORATE GOVERNANCE AND SECURITIES: Corporate Governance

Board of Directors The Board of Directors acts in accordance with requirements of the Federal Law “On joint-stock Corporate Governance companies”, the Charter, and the Statute on the Board of Directors. The Board of Directors consists of 11 people. Members of the Board of Directors are elected by the General Meeting of Shareholders by cumulative voting for a term ending with the next annual General Meeting of Shareholders. The right to A rational and efficient system of relationships between the Company’s management, its sharehold- nominate candidates to the new Board of Directors belongs to a shareholder, or shareholders, with total ers and investors permits Aeroflot to maintain the trust of all stakeholders. ownership of no less than 2% of the voting shares of the Company. The nomination should take place within 50 days of the end of the financial year. Aeroflot’s current corporate governance system is based on the requirements of Russian and international legislation and also takes into account domestic and international best practices. In addition In accordance with the requirements of best practice in corporate governance and the conditions for inclusion in the “A1” level Quotation List, the Board of Directors of Aeroflot includes more than three to its Charter, the Company has a Code of Corporate Conduct, a Statute on Corporate Information directors, which is in accordance with the composition of the Board of Directors contained in the Statute Policy as well as statutes on the Audit Committee and Committee on Personnel and Remuneration of on Activity for Organization of Trading on the Securities Market (approved by a decree of the Federal the Board of Directors. These documents set out corporate governance procedures and processes not Financial Market Service dated October 9, 2007). In addition, the Board of Directors has an Audit Com- otherwise regulated by current legislation and incorporating the recommendations of the Russian Fed- mittee, a Strategy Committee and a Committee for Personnel and Reimbursement. eral Securities Commission’s (FSC) Code of Corporate Conduct, to which Aeroflot seeks to be in maximum accordance (see Appendix). As in 2008, the Board of Directors included more than three directors, which meets the requirements Report of the Board of Directors for the composition of the Board of Directors contained in the “Statute on Activity for Organization of Trading on the Securities Market” of the FSC, and which ensures an independent evaluation and opin- In 2009 the Board of Directors approved developing the route network; ions in the discussion of issues relating to the development of the Company. Aeroflot’s new optimised organizational struc- • completing the construction of the Air ture, which is designed to improve the ef- Aeroflot’s highest governing authority is the General Meeting of Shareholders of Aeroflot. The annual Terminal complex Sheremetyevo 3 and ficiency of the Company’s management and General Meeting of Shareholders is held each year no earlier than three months and no later than six putting the Airline’s new office building into provide for a more rational use of resources. months after the end of the Company’s financial year, which concludes on December 31. operation; 17 meetings of the Board of Directors were The Board of Directors carries out the general strategic management of the Company, with the exclu- • increasing the efficiency of subsidiary and held during the year, during which 142 issues sion of issues that fall under the exclusive competence of the Meeting of Shareholders. dependent companies. were reviewed and more than 280 decisions The day-to-day management of the Company is carried out by the General Director and the Execu- were taken. The implementation of decisions The three committees of the Board of Di- tive Board. The General Director is the chairman of the Executive Board. of the Board of Directors enabled the achieve- rectors – Audit, Strategy, and Personnel and ment of the following priority goals: Compensation - met 20 times during the re- • ensuring security and regularity of flights; porting period. The committees reviewed specialised issues regarding Aeroflot’s business Meeting of Shareholders • developing the aircraft fleet: writing off of and prepared recommendations for the Board planes that have served out their life and Two general meetings of shareholders of Aeroflot took place during the reporting period: the annual of Directors. acquisition through leasing of modern, General Meeting (AGM) on June 20, 2009 and an extraordinary General Meeting (EGM) on December fuel-efficient aircraft; The Audit Committee composition: 14, 2009. S.V. Aleksashenko, L.A. Dushatin; Committee The annual General Meeting of Shareholders approved (protocol 25 dated June 20, 2009): • improving the quality of passenger service Chairman A.V. Stolyarov. in the airport and onboard; • Aeroflot’s annual report for 2008; The Committee for Personnel and Com- • annual financial reports including the profit and loss statement for the results of the 2008 financial • increasing the quantity of services offered pensation composition: K.G. Androsov, AND SECURITIES GOVERNANCE CORPORATE year; (introduction of electronic ticketing, inter- V.D. Dmitriev, G.S. Nikitin; Committee Chair- • distribution of profit, including the declaration of dividends, for the 2008 financial year; net ticket sales, etc.); man A.E. Tarasov. • payment over period from June 21 to December 31 of dividends for the 2008 financial year in the • developing of the latest business, financial, The Strategy Committee composition: amount of USD 0.0073 per share in monetary form; and commercial activity through introduc- S.V. Aleksashenko, Committee Chairman • new composition of the Board of Directors and the Audit Commission; tion of advanced technologies and experi- L.A. Dushatin, A.V. Stolyarov, as well as other • Aeroflot’s auditor for RAS financial report 2009 – audit firm CJSC HLB Vneshaudit; ence of leading world airlines; experts: V.V. Brychev (Department Head of the • Aeroflot’s auditor for IFRS financial report 2009 – audit firm CJSC KPMG; • introducing new methods for stimulating Federal Agency for State Property Manage- ment), Sh.R. Kurmashov (Deputy General • payment of compensation to members of Aeroflot’s Board of Directors. the performance of management and em- Director of Aeroflot for Finance and Invest- In addition, the AGM approved related-party transactions between Aeroflot and its subsidiary com- ployees as a whole on the basis of key productivity indicators for their work; ment), S.G. Obryvalin (Deputy General panies: CJSC Aeromar, OJSC Aeroflot-Don, and CJSC Aeroflot-Nord. The conditions of these deals can Director of Aeroflot for Commerce) and be found in the Appendix. • improving and developing information A.V. Tikhonov (Department Director of the The Extraordinary Meeting of Shareholders, which was held in the form of absentee voting, approved technologies; Ministry of Transportation of the Russian (protocol 26 dated December 18, 2009): • working with SkyTeam alliance partners Federation). • a change to the Charter linked to a change in Aeroflot’s address to 10 Arbat Street, Moscow, and Russian and international airlines and Russian Federation, 119002; • a new edition of Appendix 1 to the Charter containing information about affiliates and representative offices; Compensation for Members of the Board of Directors • shareholders also approved a related-party transaction between Aeroflot and OJSC VEB Leasing for the lease by the Company of 10 new Sukhoi Superjet 100 regional jet aircraft; conditions of The decision was taken at the annual General Meeting of Shareholders of Aeroflot on June 20, 2009, the transaction are contained in the Appendix. to pay members of the Board of Directors a compensation for 2008 for the total sum of RUR 2,960,000. 60 61 CORPORATE GOVERNANCE AND SECURITIES: Composition of the Board of Directors

Composition of the Board of Directors of Aeroflot as of December 31, 2009

Igor E. Levitin Vladimir N. Antonov Chairman Executive director

Chairman of the Board since 2008. Mr. Levitin is the Minister of Board member since 2003. Mr. Antonov is the First Deputy Transportation of the Russian Federation. He is the former Head of General Director for Production Activity. After joining Aeroflot in the Railroad Department and Deputy General Director of Severstal- 1995, he worked as the Deputy General Director for Economic trans. He also holds a position of the Chairman of the Board of Di- and Aviation Security, Deputy Chief Executive for Aviation Security rectors of Sheremetyevo International Airport. Mr. Levitin has been and Deputy General Director for Aviation and Production Security. awarded several state honors. He does not own any shares in the Mr. Antonov has been awarded several state honors. He owns a charter capital of Aeroflot. 0.000425% share in the charter capital of Aeroflot.

Sergey V. Aleksashenko Vladimir A. Dmitriev Director Director

Board member since December 2008. Mr. Aleksashenko currently holds a position of Director of Macroeconomic Research at the Higher School of Economics. He has worked as Deputy Minister Board member since 2008. Mr. Dmitriev is the Chairman of of Finance of the Russian Federation, the First Deputy Chairman of Vnesheconombank. He is a member of the Board of Directors of the Central Bank of the Russian Federation, Deputy General Direc- Sheremetyevo International Airport, United Aircraft Corporation tor of Interros, Head of the Development Center Fund, President of and a member of the Executive Board of the Russian Union of Antanta Capital investment group and General Director of Merrill Industrialists and Entrepreneurs. Mr. Dmitriev has a degree in In- Lynch Securities. Mr. Aleksashenko has a PhD in Economics. He ternational Economic Relations and a PhD in Economics. He does does not own any shares in the charter capital of Aeroflot. not own any shares in the charter capital of Aeroflot. AND SECURITIES GOVERNANCE CORPORATE

Kirill G. Androsov Leonid A. Dushatin Director Director

Board member since 2008. Mr. Androsov is the Deputy Chief of Staff of the Government of the Russian Federation. Prior to this position he worked as a Deputy Minister and Department Director at the Ministry of Economic Development and Trade of the Russian Federation, as well as the First Deputy General Director of Len- Board member since 2003. Mr. Dushatin currently holds the energo. Mr. Androsov has a PhD in Economics. He has been award- position of First Deputy General Director of National Reserve Cor- ed the Medal of Honor. He does not own any shares in the charter poration. Previously, he worked as Vice-President, Department capital of Aeroflot. Head and Deputy Chairman of the Executive Board of National Reserve Bank. Mr. Dushatin holds a degree in Economics. He does not own any shares in the charter capital of Aeroflot.

62 63 CORPORATE GOVERNANCE AND SECURITIES: Composition of the Board of Directors

Alexander E. Lebedev Andrei V. Stolyarov Director Director

Board member since 2008. Mr. Lebedev is Chairman of the Board of Directors of National Reserve Corporation. Previously, he held the Board member since 2009. Mr. Stolyarov is the Deputy General position of Deputy Chairman of the Committee of the State Duma for Director of UniCredit Securities. Previously, he worked as Financial CIS Affairs and Communications with Neighbors, and worked as the Director of UniCredit Aton (now ATON Broker) and General Director President and Chairman of the Executive Board of National Reserve of Largo. He is the former Deputy Financial Director and Director Bank. Mr. Lebedev has a degree in International Economic Rela- of the Finance Department at Aton. Mr. Stolyarov holds degrees in tions and a PhD in Economics. He does not own any shares in the Mathematics and Management. He does not own any shares in the charter capital of Aeroflot. charter capital of Aeroflot.

Gleb S. Nikitin Alexey E. Tarasov Director Director

Board member since 2009. Mr. Tarasov is the General Director Board member since 2006. Mr. Nikitin is Deputy Head of the Fed- and a Member of the Executive Board of National Reserve Cor- eral Agency for the Management of State Property. Previously he poration. He was previously Deputy General Director and Head of was Department Head of the Federal Agency for the Management the Legal Department of National Reserve Corporation. Mr. Tarasov of State Property and worked as Leading Specialist and Department also worked as the Advisor to the President of National Reserve Head of the Committee for the Management of Municipal Property Bank, Head of the Legal Department of Ingosstrakh-Soyuz and of St Petersburg. Mr. Nikitin holds degrees in Finance and Law. He Konversbank. He holds a Law degree. He does not own any shares does not own any shares in the charter capital of Aeroflot. in the charter capital of Aeroflot. AND SECURITIES GOVERNANCE CORPORATE

Vitaly G. Saveliev Executive Director

Executive Board member since April 2009, when he also became the Chairman of Aeroflot’s Executive Board and General Director. He previously held the position of First Vice-President at Sistema and worked as Deputy Minister for Economic Development and Trade of the Russian Federation. Mr. Saveliev has been Chairman of numerous Boards of Directors, including at VVC, Russian Development Bank, MTS, Comstar, SMM, SkyLink, the Indian telecom Shyam Tel- elink and others. He has a PhD in Economics. He has been awarded the Medal of Honor and other medals. He does not own any shares in the charter capital of Aeroflot.

64 65 CORPORATE GOVERNANCE AND SECURITIES: Executive Board

Executive Board Composition of the executive Board as of December 31, 2009

The day-to-day management of the business of the Company is carried out by its executive bodies: the General Director and Executive Board. The executive bodies are subordinate to the Board of Directors and the General Meeting of Shareholders. The Executive Board consists of 12 people elected by the Board of Directors. The Vitaly G. Saveliev function of chairman is carried out by the General Director. Chairman of the Executive Board, General Director Last year the management of the Company underwent significant changes: election of a new General Director and new members of the Executive Board com- bining a deep understanding of the Russian and international transportation indus- Executive Board member since April 2009, when he also became try with diverse experience and understanding in the areas of management and the Chairman of Aeroflot’s Executive Board and General Director. He finance. previously held the position of First Vice President at Sistema and worked as Deputy Minister for Economic Development and Trade of the Russian Federation. Mr. Saveliev has been Chairman of numerous Boards of Directors, including at VVC, Russian Development Bank, MTS, Comstar, SMM, SkyLink, the Indian telecom Shyam Tel- elink and others. He has a PhD in Economics. He has been awarded the Medal of Honor and other medals. He does not own any shares Report of the Executive Board in the charter capital of Aeroflot.

45 meetings of the Executive Board were • management of foreign property; held in 2008, including 36 in person and nine • logistics; by distance. • increasing the efficiency of commercial The main issues which were brought up for activity. review were: A system of Key Performance Indicators Vladimir N. Antonov • strategic planning for Aeroflot, presenta- (KPIs) was developed on the initiative of the tion of developed plans to the Board of First Deputy General Director for Production Activity Executive Board and approved by the Board Directors; of Directors. The KPI system includes: indica- • flight safety; tors that characterise the economic efficiency of the Company’s business (ROIC, EBITDAR • development of the airline flight and route

and others); financial indicators of the per- AND SECURITIES GOVERNANCE CORPORATE network; formance of subdivisions; and other indica- • improvement of the work of branches and tors of the quality and effectiveness of opera- Aeroflot representative offices in Russia tions. The evaluation of KPI fulfillment takes First Deputy General Director since 2002. After joining Aeroflot and abroad; places quarterly and on the basis of full-year in 1995, he worked as the Deputy General Director of Aeroflot for performance. Economic and Aviation Security, Deputy Chief Executive for Aviation Security and Deputy General Director for Aviation and Production Security. He has been awarded state honors. He owns a 0.000425% share in the charter capital of Aeroflot.

Compensation for Members of the Executive Board The total amount of compensation paid in 2009 on the basis of the results of 2008 amounted to RUR 514,014.3.

66 67 CORPORATE GOVERNANCE AND SECURITIES: Executive Board

Vasiliy N. Avilov Dmitry Y. Galkin Director of the Administration Department Director of the Department for Internal Audit

Director of the Administration Department since 2009. Since 1997, he worked as the Manager of the Administration of Aeroflot. Director of the Department of Internal Audit since 2009. He has Prior to this, he worked in the Ministry of Foreign Economic Rela- worked at Aeroflot since December 1988. His previous positions in- tions of the USSR and the Administration of the Security Council of clude Economist, Department Head, and Deputy Head of the Con- the Russian Federation. He is a 1st Class Capitan, 3rd Class State trol and Audit Service. Since 2002, he has managed the Internal Au- Councilor of the Russian Federation. Mr. Avilov has been awarded dit Service. Mr. Galkin has a degree in Transportation Management. state honors. He owns a 0.0000002% share in the charter capital of He owns a 0.000003% share in the charter capital of Aeroflot. Aeroflot.

Kirill I. Bogdanov Vadim Y. Zingman Deputy General Director for Information Technology Deputy General Director for Client Service

He has been in his present position since 2009. In April 2009 Has worked at Aeroflot since 2009. Prior to this, he worked as he also became Advisor to the General Director of Aeroflot. Prior Director of the Department for Development and Control of the Tele- to this he worked as Director of the Government Relations Depart- communications Assets business unit at Sistema, Executive Director ment of Sistema, Deputy Director of the Department of State Regu- at Ramax International, Vice-President of United Company GROS, lation for Foreign Economic Development and Trade of the Russian and Head of the Automation, Information and Telecommunications Federation, Chairman of the Executive Board of Baltonexim Bank; Department of Gazprom. He holds 27 patents for developments in and President of Inter-regional Clearing Bank. He holds a degree the field of information technology. Mr. Bogdanov has a degree in in Labor Economics and a PhD in Economics. He was awarded an Engineering. He does not own any shares in the charter capital of Honorary Certificate of the Government of the Russian Federation. Aeroflot. He does not own any shares in the charter capital of Aeroflot. AND SECURITIES GOVERNANCE CORPORATE

Konstantin M. Bushlanov Alexander A. Koldunov Deputy General Director for Human Resources Director of the Flight Safety Department

Director of the Flight Safety Department since 2009. He has worked at Aeroflot since 1976, and has risen from First Officer to Airline Captain, Flight Instructor, and eventually Director of the Flight Safety Department. He is an Honored Pilot of the Russian Deputy General Director for Human Resources since 2009. He Federation, and has served as a pilot instructor for the Il-96 and has worked at Aeroflot since 1986, including positions as Head of Boeing B-767. He has logged more than 15,000 hours flight time. Protocol Department and Representative to Head of the Human Re- Mr. Koldunov holds a degree in Air Transport Operations. He has sources Department. He has been awarded with state honors. He been awarded several state honors. He owns a 0.002528% share owns a 0.002528% share in the charter capital of Aeroflot. in the charter capital of Aeroflot.

68 69 CORPORATE GOVERNANCE AND SECURITIES: Executive Board

Shamil R. Kurmashov Vladimir V. Smirnov Deputy General Director for Finance and Investment Deputy General Director for Procurement

Deputy General Director for Procurement since 2009. From Deputy General Director for Finance and Investment since 2009. 1989 to 1995, he occupied the position of Deputy Head of Pro- Prior to this he worked as the Director of the Investment Department duction Services for Terminal Sheremetyevo 2 and Deputy Head and Deputy Head of Finance and Investment Complex at Sistema, of Terminal at the Central Department for International Flights. In Deputy General Director for Finance and Investment at Sistema Tel- 1996, he was appointed to the post of Director of the Ground Sup- ecom, and a Department Head at Norilsk Nickel. Mr. Kurmashov port Complex for Flight Operations. Mr. Smirnov holds a degree has a PhD in Economics. He does not own any shares in the charter in Air Transport Operations. He owns a 0.002623% share in the capital of Aeroflot. charter capital of Aeroflot.

Sergey G. Obryvalin Anatoly P. Yakimchuk Deputy General Director for Commerce Director of the Flight Operations Department

Director of the Flight Operations Department since 2009. He has worked at Aeroflot since 1983. During that time, he has been First Officer of the Tu-154, Captain of the Tu-154, a Pilot Instructor for Deputy General Director of Aeroflot for Commerce since 2009. the Tu-154, Commander of a Tu-154 Squadron, Pilot of the A310, a He has worked at Aeroflot since 2001. During this period he rose Pilot Instructor for the A310, the Commander of a A310 Flight Unit, from the Head of the Department for Moscow and Regional Sales First Deputy Director of the Flight Complex, Chief Pilot and First to Director of the Department for the Management of Commercial Deputy Director of the Flight Operations Department for flight plan- Activity in the Russian Federation. Mr. Obryvalin has a degree in ning. Mr. Yakimchuk holds degrees in Aircraft Flight Operations and International Economics. He does not own any shares in the charter in Flight Equipment and Operations. He owns a 0.0013% share in capital of Aeroflot. the charter capital of Aeroflot. AND SECURITIES GOVERNANCE CORPORATE

Dmitry P. Saprykin Deputy General Director for Legal and Property Affairs

Deputy General Director for Legal and Property Affairs since 2009. Prior to this, he worked as Director of the Department for Mergers, Acquisitions, and Capital Markets of MTS, Deputy General Director of SkyLink, General Director of MSS, Deputy Manager of Legal Affairs and Director of the Department for Transaction Support at Sistema. Mr. Saprykin holds a degree in Financial Management, a Master of Law degree, and an SJD. He does not own any shares in the charter capital of Aeroflot.

70 71 CORPORATE GOVERNANCE AND SECURITIES: Internal Audit

Revision Commission Internal Audit

The Revision Commission carries out control over the financial activity of the Company, its sub- A separate unit carrying out the function of internal audit has existed in the Company from 1999. In divisions and services, affiliates, and representative offices. The Commission is subordinate to the August 2009, the Internal Audit Service was restructured into the Department for Internal Audit. In order General Meeting of Shareholders. to ensure its independence, the Department was subordinated directly to the General Director. During the reporting period, the total number of employees in the subdivision grew from 19 to 21 people. According to resolution of the General Meeting of Shareholders, the new Revision Commission consists of: The primary goals of the Department are the development and carrying out of internal control (audit) of the financial activity of Aeroflot, as well as the development of recommendations as a result of • Nikolai A. Galimov, Deputy Department Director of the Ministry of Transportation audits. of the Russian Federation; In 2009 39 audits were conducted by the Department. The Department’s work was carried out on the • Dmitry Y. Galkin, Deputy Department of Internal Audit of Aeroflot; basis of quarterly plans approved by the General Director and were focused on existing areas of activ- • Andrey Y. Kalmykov, Advisor to the Minister of Transportation of the Russian Federation; ity of the Company and its subsidiary and dependent companies. As a result of the audits around 100 recommendations and proposals were prepared. These were directed at increasing the efficiency of the • Pavel S. Kalmaev, Head of Service for Corporate Property of Sheremetyevo International activity of structural subdivisions, representative offices, and the company as a whole, the optimization Airport; of operational expenditures, and protection of its assets. • Margarita V. Yakimets, Deputy Director of the Department for Financial Planning and Analy- sis of Aeroflot. External Audit Report on the Work of the Revision Commission The audit of the financial accounts of Aeroflot for 2009 was carried out: In accordance with the Statute on the Re- prepared a conclusion about the results of • in accordance with Russian Accounting Standards by CJSC HLB Vneshaudit; vision Commission, an audit was undertaken the audit of the financial activity of Aeroflot of the annual financial accounts, the profit for 2009. In the concluding document on the • in accordance with International Financial Reporting Standards by CJSC KPMG. and loss report, and other documents that are results of the audit, recommendations were A preliminary evaluation of the proposals by auditing companies is carried out by the Audit Commit- presented to the annual General Meeting of given on how to increase the efficiency of tee of the Board of Directors and takes into account the quality of previous work and the professional Shareholders. The Commission conducted the Company’s activity to yield an increase in business and ethical reputations of the candidates. The Committee’s recommendations are forwarded an audit of the assets and the sources of their profitability and a reduction in costs. for review by the Board of Directors. formation; an analysis of the basic changes in The conclusion was positive and the Re- the structure of the balance sheet is reflected Aeroflot is not a client of CJSC HLB Vneshaudit or CJSC KMPG for other work, besides the financial vision Commission expresses the opinion accounting of Aeroflot. in the according conclusion. The conclusion regarding the reliability of the accounts as a also contains an analysis of the financial re- whole and does not have significant grounds

sults with reference to the main factors affect- for the non-confirmation of data contained in AND SECURITIES GOVERNANCE CORPORATE ing the performance of the Company. the accounting balance and profit and loss re- As a result of its work, the Commission port of Aeroflot as of December 31, 2009. Information Disclosure

A vital element supporting the high business and investment reputation of Aeroflot is regular provision of information to all stakeholders, including shareholders, potential investors, and business part- Compensation for members of the Revision Commission ners regarding the Company’s activities and its future development. The Company seeks to uphold the highest international practices and always adheres to Russian legislation in its information disclosure. In 2009 neither salaries nor any type of material compensation were contemplated or paid to members Aeroflot’s policies in this area are defined by its internal Statute on Corporate Information Policy. of the Revision Commission. The Company strictly observes the principle of fair information disclosure, whereby every stakeholder receives material information regarding the Company simultaneously through the publication of quarterly and full-year financial results and other important news in the form of press releases in Rus- sian and English in the investor relations section of Aeroflot’s website (www.aeroflot.ru). Aeroflot publishes its financial accounts according to IFRS three times year, on a six-, nine- and 12- month basis. The Company’s financial year coincides with the calendar year. Along with their publication on the corporate website, Aeroflot usually holds a briefing and a question-and-answer session hosted by the Financial Director for members of the investment community and the media. Aeroflot maintains a dedicated Investor Relations function with responsibility for day-to-day inter- action with investors and market analysts. In 2009 the Company conducted 30 individual meetings with analysts and investors as well as three group meetings between management and analysts and investors. 72 73 CORPORATE GOVERNANCE AND SECURITIES: Shares and Global Depositary Receipts

Shares and Global Depositary Receipts

Securities Shares of JSC Aeroflot trade on the following Russian stock exchanges: • MICEX Stock Exchange (on the A1 quote list with the ticker AFLT); • RTS Stock Exchange (included on the section of the list “securities admitted to trading without The charter capital of Aeroflot as of December 31, undergoing a listing procedure”, with the tickers AFLT and AFLTG). Shareholding structure 2009, amounted to RUR1,110,616,299. It is divided as of December 31, 2009 The primary trading activity of the Company’s shares during the reporting period, as with other Rus- into 1,110,616,299 common shares with a par value sian securities, occurred on the MICEX stock exchange (see table “Volume of shares traded”). The of RUR1 each. same reason, the general shift of turnover from the RTS to MICEX, served as the basis for the exclu- 7.45% The Company did not issue additional shares in sion of Aeroflot shares from the A2Q uotation List of RTS in the summer of 2009. Nonetheless, Aeroflot Individuals 2009. remains on the A1 Quotation List of MICEX, which is a confirmation of its high investment quality. The state registration numbers for the issues of The ordinary shares of the Company are included on two MICEX indexes: the MICEX Index and the Aeroflot’s ordinary shares are: 73-1 “p”-5142 dated MICEX Standard Capitalization Index, as well as two RTS indexes: RTSI and RTS2. June 22 1995; 1-02-00010-A dated February 1, 1999; Outside of the Russian Federation, the Company’s shares circulate in the form of Level 1 Global 51.17% and 1-01-00010-A dated January 23, 2004 with the Depositary Receipts (GDRs) on the Frankfurt Stock Exchange (OTC market). One GDR equals 100 merger of the first share issues. Government common shares. Banker’s Trust Company acts as the depositary bank and Deutsche Bank LLC acts as The total number of shareholders at the end of the the custodian. As of December 31, 2009, 22,057,800 shares, amounting to 1.99% of the charter capital reporting period amounted to 11,237 (including 30 le- of Company, were converted into GDRs. gal entities and 11,207 individual shareholders). As the graphs above show, although Aeroflot’s local shares trailed the MICEX on a relative basis, The gradual tendency towards the reduction in they remained fairly closely correlated with the index last year. More importantly, Aeroflot clearly out- 41.38% the share of individual shareholders continued: dur- performed European and global peers, underlining its strong financial performance relative to main Legal entities ing the reporting period it fell by 0.07%, and at the players in the sector. end of 2009 amounted to 7.45% of charter capital. According to the MICEX stock exchange, the cap- Maximum and minimum share price according to MICEX data italization of Aeroflot increased from USD 1.1 billion to USD 1.9 billion last year. Share price, USD 2006 2007 2008 2009 Maximum 2.35 3.73 4.45 1.75

Largest shareholders of JSC Aeroflot Minimum 1.44 2.25 0.99 0.61

As of December 31, 2008 As of December 31, 2009 Changes Share trading volumes in share of Share of Share of share- Shareholder Quantity Quantity charter capital, Platform Average weekly turnover, USD.* Total yearly turnover, USD Number of transactions shareholding holding capital, Status * of shares of shares percentage capital, % % points MICEX ** 3,651,641 182,582,070 197,630

Legal entities RTS 80,218 4,010,877 75 1,027,149,067 92.48 1,027,861, 338 92.55 0.07 AND SECURITIES GOVERNANCE CORPORATE Including: Russian Federation (in the * - calculated on 50 weeks. form of the Federal Agency 568,335,339 51.17 568,335,339 51.17 ** - Based on the Central Bank’s average exchange rate for 2009 of USD 1=RUR31.68. for the Management of Owner Federal Property) NP National Depositary Nom 179,837,229 16.19 205,007, 218 18.46 2.27 Center Share price performance of Aeroflot in comparison with MICEX index CJSC Depositary Clearing % Nom 202,059,171 18.19 173,503,728 15.62 -2.57 Company 250 JP Morgan Bank Nom 10,409,455 0.94 30,103,478 2.71 1.77 International LLC 200 Deutsche Bank LLC Nom 36,542,200 3.29 22,057,800 1.99 -1.30 Aeroflot Finance LLC Owner 11,000,000 0.99 0.99 150 AFLT CJSC ING Bank (Eurasia) Nom 9,953,610 0.90 10,902,274 0.98 0.08 MICEX index CJSC Citibank Bank Nom 2,374,032 0.21 5,137,228 0.46 0.25 100 Joint-stock Commercial Nom 1,439,100 0.13 1,439,100 0.13 Bank Rosbank 50

Individuals 83,467,232 7.52 82,754,961 7.45 -0.07 0 July May June April March August October January

* Nom – nominal shareholder February December November September 74 75 CORPORATE GOVERNANCE AND SECURITIES: Dividend Policy

Share price performance of Aeroflot in comparison with global air transport indices Dividend payments 200% 180% Dividend period Total accrued amount, RUR Quantity of shares at cut-off date Dividends per share, RUR 160% BWAIRL 1997 8,796,334.42 8 378 496,98 2.78 140% 1998 9,107,053.65 1,110,616,299 0.0082 120% BEUAIR 1999 11,106,162.99 1,110,616,299 0.01 100% 80% AFLT 2000 33,318,488.97 1,110,616,299 0.03 60% 2001 66,636,977.94 1,110,616,299 0.06 40% 2002 322,033,567.62 1,110,460,578 * 0.29 20% 0% 2003 485,316,700.00 1,110,616,299 0.4369 2004 777,431,409.30 1,110,579,386 ** 0.70 July May June April March August October January

February 2005 910,893,053.42 1,110,616,299 0.8202 December November September 2006 1429,363,176.81 1,110,616,299 1.287

BWAIRL – Bloomberg World Airline Index BEUAIR – Bloomberg European Airline Index AFLT – Aeroflot shares on MICEX 2007 1,518,212,482.57 1,110,616,299 1.367 2008 199,910,243.16 1,099,616,299*** 0.1818 2009 388,382,519.76 1,110,616,299 0.3497

* 155,721 shares were held on account by the issuer at the time of the closure of the register, and dividends were not accrued for these shares. Dividend Policy ** 36,913 shares were held on account by the issuer at the time of the closure of the register, and dividends were not accrued for these shares. *** 11,000,000 shares were held on account by the issuer at the time of the closure of the register, and dividends were not accrued for these shares. Aeroflot was among the few companies to declare dividends for 2009, despite extremely difficult conditions brought about by the global financial crisis. In 2010, the annual General Meeting of Shareholders approved the Board of Directors’ recommendation to pay shareholders at least 25% of the RAS net profit for 2009 in dividends, equaling RUR388.4 million* (USD 12.26 million)**, or RUR0.3497 per share (USD 0.0110)**. This is double the amount for 2008, which confirms that the Company is committed to increasing profits for shareholders.

Share of net profit directed to paying dividends

25% 25% AND SECURITIES GOVERNANCE CORPORATE 18% 15% 12%

3.4%

2004 2005 2006 2007 2008 2009

* Aeroflot pays dividends on the basis of its financial results prepared according to Russian Accounting Standards.

** Based on the Central Bank’s average exchange rate for 2009 of USD 1=RUR31.68.

76 77 CORPORATE SOCIAL RESPOSIBILITY CORPORATE SOCIAL CORPORATE SIBILITY RESPO Alongside Alongside managing a successful busi- market leading its maintaining and ness the recognises Group Aeroflot positions, importance of corporate responsibility and a positive dialogue with the society in which it operates. As part of this, the employ- its after look to strives Company envi- to approach proactive a adopt ees, ronmental issues, and engage in charitable and social activity that will benefit local communities and Russian citisens around the world. 7 CORPORATE SOCIAL RESPOSIBILITY: Employees

Improving employees’ skills and qualifications Employees Aeroflot Group actively invests in the professional training of employees and increasing their qualifications. In 2009 more than 2000 employees took part in programs for training, re-training, gaining additional qualifications, and certification in educational institutions. The most popular programs included Aeroflot Group is an important participant in the international transporta- quality management, working with the Sabre system, and IATA international programs. tion system. The scale of its operations means that the Company has The aviation personnel training department oversees the training and increasing the qualifications of aviation personnel. Aeroflot’s strong material, technical, and methodological knowledge base, as well significant influence – as well as reliance – on the economic, social and as the growing international and Russian requirements for flight and technical employees to have the environmental situation in Russia and the world. Given this, in its day- necessary qualifications, has led to a project to create a flight school. The Company has introduced a to-day work, Aeroflot Group is governed by the leading standards for distance-learning system that allows for online training. responsible business. Workplace safety As in previous years, Aeroflot dedicated significant attention to accident prevention in 2009. A system Aeroflot Group’s human resources policy is directed at strengthening the Company’s leading posi- for ensuring safe working conditions for employees has been created by the Company. The Airline has tions in the Russian and international air transportation market. Achieving this goal involves several key a special department responsible for workplace safety and the environment. It carries out regular work- aims: place assessments, organises training about the fundamentals of technical safety, develops internal • Ensuring employees have attractive opportunities for professional development; directives and regulations, and oversees their implementation. • Recruiting the most qualified staff with potential for professional growth; The Airline’s workplace safety efforts are certified by Safety Certificate No. 000214, which was received in 2008. The annual safety inspection was carried out last year and no deviations were identified. • Maintaining effective benefits and protection, including after retirement; More than 700 workplaces were assessed, including the new offices in Melkisarovo and on the Arbat, • Increasing the productivity of employees to European levels using the latest incentive systems. and over 600 introductory safety sessions for new employees were held. Aeroflot Group made changes to its organizational structure last year. The headcount of the Group Preliminary (for new employees) and periodic medical checkups were also carried out. In 2009 89% reduced by 10%. This reduction was carried out in full accordance with Russian labor legislation. Out- of all employees underwent periodical medical check-ups, and 280 people had check-ups in the work- reach was carried out with all outgoing employees regarding layoff procedures; this including early place health center in Moscow. redundancies, the amount of payment and compensation, and the procedure for registering at employment centres. Over 500 employees were transferred from Aeroflot Company to subsidiaries. Social policy Following the change to the staffing plan, the average employee of Aeroflot age was 41.5 years Aeroflot Group values its employees and constantly strives to instill in them confidence about the (compared with 42 in 2008) and the number of workers with a higher education increased by 5%. future. It has traditionally stood out for its dedicated work to provide benefits for employees. Benefits and With the aim of improving the employee pay system, the management decided to gradually transfer guarantees are provided on the basis of a collective agreement. The primary aim of social programs is employees to a new system based on key productivity indicators (KPIs) in 2009. to attract and retain personnel and to enable them to strengthen the business and achieve the airline’s strategic goals.

Number of employees in Aeroflot Group companies The Company’s main social programs are: • Health retreat and wellness vacations for employees and family members: Last year more than Employees by area of activity 2009 2008 Change, % 1,847 employees were sent on health retreats and 483 children were treated in children’s health and OJSC Aeroflot 13,306 15,641 -15 wellness centres. OJSC Donavia 1,221 1,560 -22 • Private pension provision: The Group continued its participation in a non-government pension fund CJSC Nordavia 1,498 1,710 -12 to provide additional pension to certain employees upon their retirement. Over 6,000 employees are CJSC Sherotel 283 316 -10 participants in the Company pension program, and 3,563 former employees receive supplementary CJSC Aeroflot-Plus 76 71 7 pensions. Attraction of Non-state Pension Fund (NPF) Sberbank as a co-shareholder in NPF Social CJSC Aeromar 1,810 1,257 44 Partner, with the subsequent merger of the funds allowed the Airline to merge non-core assets with OJSC Terminal 625 109 473 a company that is a leader in non-state pension provision. CJSC Aeroflot-Cargo 216 372 -42 • Transport to work, car parks, and other benefits: The Airline optimised its transport system last OJSC IC Moskva 30 34 -12 year. The number of bus trips to work amounted to 92 per day, while transport to Sheremetyevo’s RESPOSIBILITY CORPORATE SOCIAL Total 19,065 21,070 -9.5 Terminal D on Aeroexpress trains was offered at discounted fares. The Company leased 1,270 park- ing spaces for employees’ private vehicles; 693 employees received benefits relating to pre-school Key Performance Indicators tuition; and the Airline’s catering facilities served more than 1,500 employees daily. A priority for 2010 is introducing a system to manage the achievement of strategic goals at the top • Organization of social, holiday and sporting events: Last year Aeroflot’s sportsmen took part in level using key performance indicators (KPIs). In 2009 the Aeroflot management decided to gradually skiing competitions in Austria, the Hockey World Cup in Autrans and the Issyk-Kul sporting games. transfer employees to a new system of compensation based on the concept of KPIs. This envisions that Under the management of the Committee for Physical Culture and Sports, the Aeroflot Cup open the sise of an employee’s bonus will be based on the performance of the Company, individual subdivi- tennis tournament was held, as were two volleyball tournaments, in Novogorsk and Khimki. In 2009 sions and personal achievements. KPIs are evaluated on a quarterly and annual basis, and they include sporting facilities were leased for employees to use for football, volleyball, tennis, and martial arts: indicators that reflect the economic performance of Aeroflot (ROIC, EBITDAR, etc.) and subdivisions courts at the CSKA Tennis Club, the small Luzhniki sports arena, a stadium in Khimki, and the Lob- as well as qualitative measures. The KPI system was introduced for managers from the level of deputy nya Palace of Sport. Over 100 employees took advantage of membership discount cards for gyms general director and head accountant to department heads. In 2010, it will be extended to remaining in Moscow and Moscow Region. managers as well as some Company specialists.

80 81 CORPORATE SOCIAL RESPOSIBILITY: Charity and social activity

Support of socially vulnerable citizens Environmental responsibility Aeroflot has initiated a “Mercy Miles” campaign to help seriously ill children. Participants in the Aero- flot Bonus program can donate their accumulated miles to the “Give the Gift of Life” charitable fund, Increased attention to environmental issues and careful use of natu- whose patrons are the actresses Chulpan Khamatova and Dina Korzun. Any miles donated are con- ral resources means that environmental policy is an important compo- verted into plane tickets for children sent for treatment from other cities to Moscow or abroad. In 2009 nent of Aeroflot Group’s business. In 2009 the Airline continued its work more than 700 free tickets were issued. Each year since the beginning of the decade Aeroflot has conducted the “Places of Military Glory” aimed at increasing energy and ecological efficiency and reducing pol- campaign, which helps veterans meet with their military comrades. As part of the campaign, the veter- lution and environmental impact. An environmental management sys- ans are given free flights in Russia and Europe. In 2009 over 3,000 veterans usedAeroflot’s services. Since 2008 Aeroflot has been a partner of the all-Russian charitable campaign “Train of Hope” car- tem based on the ISO14001 international standards was introduced, ried out by Radio Rossii as part of the “Children’s Question” social project. In providing free air transpor- and the airline prepared Environmental Management Guidelines. tation for families looking to adopt, Aeroflot highlights the plight of orphans and helps organise meetings between potential families and orphans. As part of a project with the Vladimir Spivakov Fund in March 2009, Aeroflot held the “Heart with Emissions Two Wings” drawing contest for children with limited abilities. Children from over 200 care institutions in Aeroflot Group is implementing its previously adopted program to optimise fuel efficiency and switch 31 cities took part in the contest, which has become a big event and a genuine gift for the children. to a modern, fuel-efficient fleet. Airline employees organised exhibitions of children’s drawings, children’s days with entertainers, tours, theatrical presentations, and film screenings. In summer 2009 10 winners travelled as guests to Aero- The “Program for conserving energy and increasing Aeroflot’s environmental efficiency through flot in Moscow. They were taken on a tour to see the capital’s attractions and Aeroflot’s training centre, 2020” continues to be developed. Between 2007 and 2020 a range of energy conservation measures where the children were able to experience being pilots of a virtual aircraft. The main aim of the competi- is expected to bring savings of up to 1.5 million tonnes of aviation fuel and a 43.6% reduction in the tion is to give children the opportunity to express themselves, gain confidence in their own abilities, and Company’s weighted expenditure. experience their own significance. Secondary sources of atmospheric pollution include automobiles and stationary auxiliary production. Aeroflot has helped Russian citizens in emergency situations resulting from armed conflicts and Instrument checks and regulation of fuel systems are conducted regularly on the Airline’s ground trans- natural disasters worldwide. Alongside planes from the Russian Emergency Situations Ministry, the portation vehicles to ensure they comply with toxicity and exhaust limits. Company’s aircraft have evacuated passengers from “hot spots” on numerous occasions. Waste production and consumption Last year Aeroflot took part in the government program to subsidise “social” transportation of residents of the Russian Far East to the European part of the country and back. From May 15 to September In accordance with Russian law, Aeroflot has carried out work to collect, store and utilise 44 types 23 the Company transported 26,000 passengers at subsidised rates. This included 8,423 passengers of waste. According to the figures for 2009, 3,100 tonnes of class 4 and class 5 waste (hard household from Vladivostok and back, 7,265 from Petropavlovsk-Kamchatsky, 6,165 from Yuzhno-Sakhalinsk, wastes) were buried in specialised landfills. 2,806 from Khabarovsk, and 1,135 from Magadan. Discounted tariffs were applied for Russian residents Meanwhile, places for temporary waste storage were monitored, and recycling was overseen. Some of the region aged 23 or younger and 60 or over. Aeroflot provides up 60 places for subsidised passen- mainly minor violations regarding waste storage were identified in subdivisions (unsanctioned storing, gers in economy class on each flight from Vladivostok, Khabarovsk, Yuzhno-Sakhalinsk, Petropavlovsk- improper disposal), and these were remedied in a timely manner. Kamchatsky and Magadan to Moscow and back. One issue that should be noted relates to the disposal of deicing liquid residue, which a joint commission involving Aeroflot and Sheremetyevo International Airport worked on last year. Following its guid- Support for educational and scientific programs ance, the area where deicing operations are carried out was cleaned and the issue of removing liquid residue from the airport’s drainage system was resolved. Together with the Vladimir Spivakov international charitable fund, Aeroflot is implementing the “Inspired by Music” program. Under this, participants in the Aeroflot Bonus program can donate their Environmental payments accumulated miles for the transportation of gifted children participating in the fund’s programs. In 2009 work was carried out to compile data about the disposal of waste from production and con- Several years of fruitful cooperation link Aeroflot with the Tchaikovsky Moscow State Conservatory, sumption and expenditures on kerosene and diesel fuel. The information obtained was used to calculate whose students and teachers can tour and study in musical institutes in Russia and Europe thanks to the environmental impact on a quarterly basis, and it was provided to the Interregional Territorial Depart- the support of the national carrier. ment of the Russian Federal Service for Ecological, Technical, and Nuclear Oversight (Rostekhnadzor) For six years Aeroflot has provided support for the “Golden Mask” festival of Russian theatre, which for the Central Federal District. During the year, the environmental impact payment due was calculated presents leading theatre shows in the country. Thanks to the Airline’s support, spectators in Moscow can on the basis of existing environmental permits, and the quarterly amount payable was RUR2.5 million. see the most interesting work of theatres from various Russian regions and abroad. RESPOSIBILITY CORPORATE SOCIAL As noted in previous reports, since 2006 the amount of environmental payments has been reduced. This is primarily due to the timely annual confirmation of limits for production and consumption waste and the presence of valid environmental permits. Support of culture and sport In February 2009 Moscow was the venue for the eighth annual Aeroflot Open 2008 chess tournament. In June, together with the Russian football union, the Company arranged five charter flights to Charity and social activity send Russian fans to the semi-final between Russia and Spain. In August 2009, as part of the International Aerospace Show MACS-2009, the organising committee for Sochi 2014 announced Aeroflot as the winner of a competition for the status of General Partner in the In planning its sponsorship and charitable programs, Aeroflot Group “Passenger air transportation” category for the XXII Winter Olympic Games and XI Paralympic Winter works to improve the social and business climate, establish a construc- Games in Sochi. tive dialogue between business and society, and develop the mutual In summer 2009 Aeroflot signed an agreement to sponsor CSKA Football Club for the 2009 season. Soccer in Russia is rising rapidly, and CSKA, is making a substantial contribution to the development links and cooperation among the country’s regions. of the sport with its talents. Aeroflot provides the club with not only financial support, but also a special plane for charter flights. 82 83 Consolidated Statement of management’s responsibilities for the preparation and approv- Financial Statements al of the Consolidated Financial Statements as at and for the year ended 8 December 31, 2009. as at and for the year ended December 31, 2009 Management is responsible for the preparation of consolidated financial statements that present fairly the consolidated financial position of the Group as at December 31, 2009, and The following statement, which should the consolidated results of its operations, cash flows and changes in equity for the year then ended, in compliance with International Financial Reporting Standards (“IFRS”). be read in conjunction with the inde- In preparing the consolidated financial statements, management is responsible for: pendent auditors’ responsibilities stated • selecting suitable accounting principles and applying them consistently; • making judgments and estimates that are reasonable and prudent;

in the independent auditors’ report set • stating whether IFRS have been complied with, subject to any material departures being out on pages 86 and 87, is made with a disclosed and explained in the consolidated financial statements; and • preparing the consolidated financial statements on a going concern basis, unless it is view to distinguishing the respective re- inappropriate to presume that the Group will continue in business for the foreseeable future. sponsibilities of management and those Management is also responsible for: • designing, implementing and maintaining an effective system of internal controls, of the independent auditors in relation throughout the Group; to the consolidated financial statements • maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Group, and which enable them to ensure that the con- of Open Joint Stock Company Aeroflot solidated financial statements of the Group comply with IFRS; • maintaining statutory accounting records in compliance with local legislation and ac- – Russian Airlines and its subsidiaries counting standards in the respective jurisdictions in which the Group operates; • taking such steps as are reasonably available to them to safeguard the assets of the (the “Group”). Group; and preventing and detecting fraud and other irregularities.

The consolidated financial statements as at and for the year ended December 31, 2009 were approved on May 28, 2010 by:

V.G. Saveliev Sh.R. Kurmashov General Director Deputy General Director S tatements F inancial C onsolidated Finance and Investment

84 85 Consolidated Financial Statements: Independent Auditors’ Report S tatements F inancial C onsolidated

86 87 Consolidated Financial Statements: Consolidated Statement of Income

Consolidated Statement of Income Consolidated Statement of Comprehensive Income (All amounts in millions of US dollars) (All amounts in millions of US dollars)

Notes 2009 2008

Traffic revenue 5 2,818.7 3,950.0 2009 2008 Other revenue 6 527.2 653.4 Revenue 3,345.9 4,603.4 Profit for the year 85.8 23.8

Operating costs 7 (2,383.9) (3,427.4) Other comprehensive income: Staff costs 8 (538.9) (686.6) Loss on revaluation of available-for-sale investments (2.3) (5.4) Depreciation and amortisation 21, 22 (145.3) (159.3) Exchange differences on translating to presentation currency (24.3) (178.6) Operating costs (3,068.1) (4,273.3) Income taxes relating to components of other comprehensive income 0.4 1.0 Other comprehensive income for the year (26.2) (183.0) Operating profit 277.8 330.1 Total comprehensive income for the year 59.6 (159.2) Finance income 9 2.8 4.5 Finance costs 9 (53.1) (197.0) Total comprehensive income attributable to: Share of results of equity accounted investments 17 6.9 8.4 Shareholders of the Company 64.7 (141.7) Other non-operating (expenses)/income, net 10 (28.6) 20.6 Non-controlling interest (5.1) (17.5) Profit before income tax 205.8 166.6

Income tax 11 (120.0) (142.8) The consolidated statement of comprehensive income should be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 95 to 138.

Profit for the year 85.8 23.8

Attributable to: Shareholders of the Company 89.2 42.9 Non-controlling interest (3.4) (19.1) 85.8 23.8

Earnings per share, basic and diluted (US cents) 8.1 4.0

Weighted average number of shares outstanding (millions) 1,094.5 1,067.0

V.G. Saveliev Sh.R. Kurmashov General Director Deputy General Director Finance and Investment S tatements F inancial C onsolidated

The consolidated statement of income should be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 95 to 138.

88 89 Consolidated Financial Statements: Consolidated Statement of Financial Position

Consolidated Statement of Financial Position (All amounts in millions of US dollars)

1 January LIABILITIES AND EQUITY Notes 2009 2008 2008 Current liabilities ASSETS Accounts payable and accrued liabilities 23 674.5 667.0 627.2 Unearned transportation revenue 24 186.1 172.9 180.3 Current assets Deferred revenue related to frequent flyer programme, current 25 9.0 12.5 13.0 Cash and cash equivalents 12 121.1 146.8 90.6 Provisions 26 0.8 22.8 4.0 Short-term investments 13 10.4 9.5 54.1 Short-term borrowings 27 156.4 145.4 131.4 Accounts receivable and prepayments 14 943.8 916.1 1,048.7 Finance lease liabilities 28 111.2 78.0 67.4 Aircraft lease deposits - 0.6 0.7 1,138.0 1,098.6 1,023.3 Expendable spare parts and inventories 15 70.0 78.7 104.2 Assets of disposal group classified as held for sale 16 27.3 - - Non-current liabilities 1,172.6 1,151.7 1,298.3 Long-term borrowings 29 819.7 591.1 379.6 Finance lease liabilities 28 623.5 460.2 531.1 Non-current assets Provisions 26 1.6 2.4 60.9 Equity accounted investments 17 24.5 21.1 20.5 Deferred tax liabilities 11 85.5 44.9 33.4 Long-term investments 18 15.6 16.8 21.8 Deferred revenue related to frequent flyer programme, non- Aircraft lease deposits 7.3 1.6 1.7 current 25 30.7 48.2 60.8 Deferred tax assets 11 54.5 34.9 8.2 Other non-current liabilities 30 316.0 167.7 186.5 Other non-current assets 19 401.5 240.4 216.6 1,877.0 1,314.5 1,252.3 Prepayments for aircraft 20 156.3 95.5 114.5 Equity Property, plant and equipment 21 2,167.8 1,774.3 1,708.9 Share capital 31 51.6 51.6 51.6 Intangible assets 22 20.7 14.1 7.8 Treasury stock 31 (14.6) (41.0) (43.8) 2,848.2 2,198.7 2,100.0 Accumulated gain on disposal of treasury shares 27.9 31.9 14.1 Investment revaluation reserve 6.4 8.3 12.7 TOTAL ASSETS 4,020.8 3,350.4 3,398.3 Cumulative translation reserve (145.7) (123.1) 63.0 Retained earnings 32 1,037.0 956.6 952.2 Equity attributable to shareholders of the Company 962.6 884.3 1,049.8

Non-controlling interest 43.2 53.0 72.9 Total equity 1,005.8 937.3 1,122.7

TOTAL LIABILITIES AND EQUITY 4,020.8 3,350.4 3,398.3

The consolidated statement of financial position should be read in conjunction with the notes to, and The consolidated statement of financial position should be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 95 to 138. forming part of, the consolidated financial statements set out on pages 95 to 138. S tatements F inancial C onsolidated

90 91 Consolidated Financial Statements: Consolidated Statement of Cash Flows

Consolidated Statement of Cash Flows (All amounts in millions of US dollars) Notes 2009 2008 Note 2009 2008 Cash flows from operating activities: Profit before income tax 205.8 166.6 Cash flows from financing activities: Proceeds from borrowings 647.0 904.0 Adjustments to reconcile Sale of treasury stock 18.8 64.3 profit before taxation to net cash provided by operating activities: Purchases of treasury stock - (28.8) Depreciation and amortisation 21, 22 145.3 159.3 Repayment of borrowing (399.3) (654.1) Increase in impairment allowance for bad and doubtful debts 14 7.1 3.9 Repayment of the principal element of finance lease liabilities (101.5) (75.0) Accounts receivable write off 2.4 1.2 Interest paid (107.8) (104.1) (Decrease)/increase in impairment allowance for obsolete inventory (3.2) 2.5 Dividends paid (8.9) (61.7) (Decrease)/increase in impairment of property, plant and equipment (7.4) 27.2 Loss on disposal of property, plant and equipment 12.5 7.4 Net cash flows from financing activities 48.3 44.6 Decrease in other provisions and other assets impairments 0.8 - Accounts payable write off 10 (0.7) (4.5) Effect of exchange rate fluctuations (3.2) (21.6) Share of results in equity accounted investments 17 (6.9) (8.4) (Gain)/loss on disposal of investments 9 (0.1) 1.3 Net (decrease)/increase in cash and cash equivalents (25.7) 56.2 Increase/(decrease) in tax and legal provisions 26 (21.5) (34.4) Impairment expense on assets held for sale 16 20.1 - Cash and cash equivalents at the beginning of the year 146.8 90.6 Interest expense 9 41.1 54.7 Cash and cash equivalents at the end of the year 12 121.1 146.8 Unrealised foreign exchange loss 12.0 151.0 VAT write off 10 21.4 16.8 Supplemental cash flow information: Other non-cash (income)/expenses (1.2) 18.0 Interest received 2.7 4.5 Operating profit before working capital changes 427.5 562.6

Non-cash investing and financing activities: (Increase)/decrease in accounts receivable and prepayments and other (217.4) 77.7 non-current assets Property, plant and equipment acquired under finance leases 321.4 19.3 Decrease in expendable spare parts and inventories 5.7 23.1 Increase/ (decrease) in accounts payable and accrued liabilities 17.2 (48.8) The consolidated statement of cash flows should be read in conjunction with the notes to, and forming 233.0 614.6 part of, the consolidated financial statements set out on pages 95 to 138. Income tax paid (9.4) (142.1) Income tax received 4.9 -

Net cash flows from operating activities 228.5 472.5

Cash flows from investing activities: Proceeds from sale of investments 20.9 130.1 Proceeds from sale of property, plant and equipment 5.6 6.9 Return of aircraft advances 78.9 - Dividends received 3.2 3.8 Decrease in aircraft lease deposits (1.4) - Purchases of investments, net (23.3) (104.5) Lease prepayments - (0.4)

Purchases of property, plant and equipment and intangible assets (383.2) (475.2) S tatements F inancial C onsolidated

Net cash flows to investing activities (299.3) (439.3)

92 93 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements (All amounts in millions of US dollars) (All amounts in millions of US dollars)

Invest- Cumula- Attribu- ment tive table to Non- revalua- transla- sharehol- control- 1. NATURE OF THE BUSINESS Share Treasury tion tion Retained ders of the ling capital stock reserve reserve earnings Company interest Total OJSC Aeroflot – Russian Airlines (the “Company” or “Aeroflot”) was formed as a joint stock company following a government decree in 1992. The 1992 decree conferred all the rights and obli- As at 31 December 2007 51.6 (29.7) 12.7 63.0 1,014.6 1,112.2 72.9 1,185.1 gations of Aeroflot Soviet Airlines and its structural units, excluding its operations in Russia and Restatement (Note 25) - - - - (62.4) (62.4) - (62.4) Sheremetyevo Airport, upon the Company, including inter-governmental bilateral agreements and agreements signed with foreign airlines and enterprises in the field of civil aviation. As at 1 January 2008 51.6 (29.7) 12.7 63.0 952.2 1,049.8 72.9 1,122.7 The principal activities of the Company are the provision of passenger and cargo air transportation Profit/(loss) for the year - - - - 56.1 56.1 (19.1) 37.0 services, both domestically and internationally, and other aviation services from its base at Mos- Foreign currency cow Sheremetyevo Airport. The Company and its subsidiaries (the “Group”) also conduct activities translation for the year - - - (180.2) - (180.2) 1.6 (178.6) comprising airline catering, hotel operations, and the construction of the Sheremetyevo-3 terminal. Associated entities mainly comprise cargo-handling services, fuelling services and duty-free retail Loss on investments businesses. available-for-sale - - (4.4) - - (4.4) - (4.4) Total comprehensive income (128.5) (17.5) (146.0) As at 31 December 2009 and 2008 the Government of the Russian Federation owned 51% of the Company. The Company’s headquarters are located in Moscow at 10 Arbat Street.

Gain on disposal of treasury The principal subsidiary companies are: stock - 17.9 - - - 17.9 - 17.9 Sale of treasury stock - 29.0 - - - 29.0 - 29.0 Place of incor- poration and 31 December 31 December Purchase of treasury stock - (26.3) - - - (26.3) - (26.3) Company name operation Activity 2009 2008 Dividends - - - - (59.3) (59.3) (2.4) (61.7) CJSC Sherotel Moscow region Hotel 100.00% 100.00% As at 31 December 2008 51.6 (9.1) 8.3 (117.2) 949.0 882.6 53.0 935.6 CJSC Aeroflot Plus Moscow Airline 100.00% 100.00% Restatement (Note 25) - - - (5.9) 7.6 1.7 - 1.7 OJSC Insurance com- Captive insurance As at 1 January 2009 51.6 (9.1) 8.3 (123.1) 956.6 884.3 53.0 937.3 pany Moscow Moscow services 100.00% 100.00% Profit/(loss) for the year - - - - 89.2 89.2 (3.4) 85.8 OJSC Donavia Rostov-on-Don Airline 100.00% 100.00% Foreign currency translation Cargo transportation for the year - - - (22.6) - (22.6) (1.7) (24.3) CJSC Aeroflot-Cargo Moscow services 100.00% 100.00% Loss on investments available- Construction of for-sale - - (1.9) - - (1.9) - (1.9) Sheremetyevo-3 Total comprehensive income 64.7 (5.1) 59.6 OJSC Terminal Moscow region terminal 52.82% 52.82% CJSC Aeromar Moscow region Catering 51.00% 51.00% Gain on disposal of treasury CJSC Nordavia Arkhangelsk Airline 51.00% 51.00% stock - (4.0) - - - (4.0) - (4.0) LLC Aeroflot-Finance Moscow Finance services 100.00% - Sale of treasury stock - 26.4 - - - 26.4 - 26.4 Dividends - - - - (8.8) (8.8) (4.7) (13.5) The significant entities in which the Group holds more than 20% but less than 50% of As at 31 December 2009 51.6 13.3 6.4 (145.7) 1,037.0 962.6 43.2 1,005.8 the equity are:

Place of incor- The consolidated statement of changes in equity should be read in conjunction with the notes to, and poration and 31 December 31 December forming part of, the consolidated financial statements set out on pages 95 to 138. Company name operation Activity 2009 2008 LLC Airport Moscow Moscow region Cargo handling 50.0% 50.0% CJSC AeroMASH – AB Moscow region Aviation security 45.0% 45.0% CJSC Aerofirst Moscow region Trading 33.3% 33.3% CJSC TZK Shereme- Fuel trading com- tyevo Moscow region pany 31.0% 31.0% S tatements F inancial C onsolidated

All the companies listed above are incorporated in the Russian Federation.

94 95 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

The table below provides information on the Group’s aircraft fleet as at 31 December 2009: 2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Aeroflot - Russian Aero- Group Basis of presentation Airlines Donavia Nordavia flot- Plus total Type of aircraft Ownership (number) (number) (number) (number) (number) The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements are presented in Ilyushin Il-96-300 Owned 6 - - - 6 millions of US dollars (“USD”), except where specifically noted otherwise. Ilyushin Il-86 Owned 2 - - - 2 All significant subsidiaries directly or indirectly controlled by the Group are included in the con- Tupolev Tu-154 Owned 22* 4 - - 26 solidated financial statements. A listing of the Group’s principal subsidiary companies is set out in Note1. Tupolev Tu-134 Owned 1^ - 9# 1 11 Antonov An-24 Owned - - 2 - 2 The Group maintains its accounting records in Russian roubles (“RUR”) and in accordance with Russian accounting legislation and regulations. The accompanying consolidated financial state- Total owned 31 4 11 1 47 ments are based on the underlying accounting records, appropriately adjusted and reclassified for fair presentation in accordance with IFRS. Airbus A-319 Finance lease 4 - - - 4 Airbus A-320 Finance lease 1 - - - 1 Functional and presentation currency Airbus A-321 Finance lease 16 - - - 16 Since 1 January 2007 the functional currency of the Group is the Russian rouble. The presenta- Boeing 737 Finance lease - 5 2 - 7 tion currency of the Group is the US dollar for convenience of foreign users, including the major lessors. Total finance lease 21 5 2 - 28 The assets and liabilities, both monetary and non-monetary, have been translated at the closing rate at the date of each balance sheet presented in accordance with International Accounting Tupolev Tu-134 Operating lease - - - 1 1 Standard (“IAS”) 21 The Effect of Changes in Foreign Exchange Rates. Income and expense Antonov An-24 Operating lease - - 3 - 3 items for all periods presented have been translated at the exchange rates existing at the dates of Antonov An-26 Operating lease - - 1 - 1 the transactions or a rate that approximates the actual exchange rates. All exchange differences resulting from translation have been classified as other comprehensive income and transferred to Yakovlev-42 Operating lease - - - 2 2 the Group’s translation reserve. Ilyushin Il-86 Operating lease - 1 - - 1 Any conversion of Russian rouble amounts to US dollars should not be considered as a represen- Airbus A-319 Operating lease 11 - - - 11 tation that Russian rouble amounts have been, could be or will be in the future, converted into US Airbus A-320 Operating lease 31 - - - 31 dollars at the exchange rate shown or at any other exchange rate. Airbus A-330 Operating lease 8 - - - 8 The assets and liabilities, both monetary and non-monetary, of the subsidiaries of the Company Boeing B-737 Operating lease - 5 14 - 19 with functional currencies other than the Russian rouble have been translated at the closing rate at the date of each balance sheet presented; income and expense items for all periods presented Boeing B-767 Operating lease 11 - - - 11 have been translated at the exchange rates existing at the dates of the transactions or a rate that McDonnell Douglas approximates the actual exchange rates. All exchange differences resulting from translation have MD-11 Operating lease 3 - - - 3 been classified as equity and transferred to the Group’s translation reserve. Total operating lease 64 6 18 3 91 The following table details the exchange rates used to translate Russian roubles to US dollars:

Total fleet 116 15 31 4 166 Exchange rate As at 31 December 2009 30.24 * 21 of these aircraft have been grounded and are now available for sale (Note 16). Average rate in 2009 31.72 # 7 of these aircraft have been grounded and are now available for sale (Note 16). ^ This aircraft has been grounded and is now available for sale (Note 16). As at 31 December 2008 29.38 Average rate in 2008 24.86 As at 31 December 2007 24.55

The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets and financial instruments. The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. There have been no changes to accounting policies except for ones associated with IFRIC 13

Customer Loyalty Programme and IFRS 8 Operating Segments which have been described in the S tatements F inancial C onsolidated frequent flyer programme and operating segments sections of this note.

96 97 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Consolidation Foreign currency translation The consolidated financial statements incorporate the financial statements of the Company and Transactions in currencies other than the functional currency are initially recorded at the rates of entities controlled by the Company (its subsidiaries). Subsidiaries comprise entities in which the exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated Company, directly or indirectly, has an interest of more than one half of the voting rights or other- in such currencies at the balance sheet date are translated into the functional currency at the year wise has power to exercise control over their operations. Control is achieved where the Company end exchange rate. Exchange differences arising from such translation are included in the consoli- has the power to govern the financial and operating policies of an investee entity so as to obtain dated statement of income. benefits from its activities. Subsidiaries are consolidated from the date on which effective control is obtained by the Group and Non-current assets and disposal groups held for sale are no longer consolidated from the date of disposal or loss of control. Non-current assets and disposal groups are classified as held for sale if their carrying amount All intra-group transactions, balances and unrealised surpluses and deficits on transactions be- will be recovered through a sale transaction rather than through continuing use. This condition is tween Group companies are eliminated on consolidation. Non-controlling interests in the net as- regarded as being met only when the sale is highly probable and the asset (or disposal group) is sets of consolidated subsidiaries are identified separately from the Group’s equity therein. The available for immediate sale in its present condition. Management must be committed to the sale, interest of non-controlling shareholders is stated at the non-controlling proportion of the fair values which should be expected to qualify for recognition as a completed sale within one year from the of the assets and liabilities acquired adjusted by subsequent changes in the carrying value of net date of classification. assets of those entities. Losses applicable to the non-controlling in excess of the non-controlling interest in the subsidiary’s equity are allocated against the interests of the Group except to the ex- Any liabilities related to non-current assets to be sold are also presented separately as liabilities in tent that the non-controlling has a binding obligation and is able to make an additional investment the balance sheet. Non-current assets (and disposal groups) classified as held for sale are meas- to cover the losses. ured at the lower of the assets’ previous carrying amount and fair value less costs to sell.

Business combinations Revenue recognition The acquisition of subsidiaries is accounted for using the purchase allocation method. The cost of Revenue is measured at the fair value of the consideration received or receivable and represents the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets amounts receivable for goods and services provided in the normal course of business, net of sales given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for related taxes. control of the acquire, plus any costs directly attributable to the business combination. The acquir- Passenger revenue: Ticket sales are reported as traffic revenue when the transportation serv- er’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition ice has been provided. The value of tickets sold and still valid but not used by the balance sheet under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, date is reported as unearned transportation revenue. This item is reduced either when the Group except for non-current assets (or disposal groups) that are classified as held for sale in accordance completes the transportation service or when the passenger requests a refund. Sales representing with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised the value of tickets that have been issued, but which will never be used, are recognised as traffic and measured at fair value less costs to sell. revenue at the date the tickets are issued based on an analysis of historical patterns of actual sales The results of subsidiaries acquired or disposed of during the year are included in the consolidated data. Commissions, which are payable to the sales agents are recognised as sales and marketing statement of income from the effective date of acquisition or up to the effective date of disposal, as expenses at the same time as revenue from the air transportation to which they relate. appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to Passenger revenue includes revenue from code-share agreements with certain other airlines. Un- bring their accounting policies into line with those used by other members of the Group. der these agreements, the Group sells seats on these airlines’ flights and those other airlines sell seats on the Group’s flights. Revenue from the sale of code-share seats on other airlines are recorded net in Group’s passenger revenue in the consolidated statement of income. The revenue Purchases of non-controlling interests from other airlines’ sales of code-share seats on the Group’s flights is recorded in passenger rev- The difference between the cost of acquisition and the carrying value of non-controlling interests is enue in the Group’s consolidated statement of income. recognised as an adjustment to equity. Cargo revenue: The Group’s cargo transport services are recognised as revenue when the air transportation is provided. Cargo sales for which the transportation service has not yet been pro- Investments in associates vided are shown as unearned transportation revenue. Associates in which the Group has significant influence but not a controlling interest are accounted Catering revenue: Revenue is recognised when meal packages are delivered to the aircraft, as for using the equity method of accounting. Significant influence is usually demonstrated by the this is the date when the risks and rewards of ownership are transferred to customers. Group’s owning, directly or indirectly, between 20% and 50% of the voting share capital or by exert- Other revenue: Revenue from bilateral airline agreements is recognised when earned with refer- ing significant influence through other means. ence to the terms of each agreement. Hotel accommodation revenue is recognised when the serv- Under the equity method, investments in associates are carried in the consolidated balance sheet ices are provided. Sales of goods and other services are recognised as revenue when the goods at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the as- are delivered or the service is rendered. sociate, less any impairment in the value of individual investments. The Group’s share of the net Borrowing costs – All borrowing costs that are directly attributable to the acquisition, construction income or losses of associates is included in the consolidated statement of income. An assess- and production of a qualifying asset form part of the cost of that asset. All other borrowings costs ment of investments in associates is performed when there is an indication that the asset has been are recognised as an expense in the consolidated statement of income. impaired or that the impairment losses recognised in prior years no longer exist. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are not recognised. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to S tatements F inancial C onsolidated the extent of the Group’s interest in the relevant associate. A listing of the Group’s principal associated entities is included in Note 1.

98 99 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Operating segments Useful lives of the Group’s fleet assets are as follows:

As of 1 January 2009 the Group determines and present operating segments based on the in- Airframes of foreign aircraft 20 years formation that internally is provided to the General Director, who is the Group’s chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 Operating Seg- Airframes of Russian aircraft 25-32 years ments. Previously operating segments were determined and presented in accordance with IAS Engines of foreign aircraft 8 years 14 Segment Reporting. The changed presentation in respect of segment operating disclosures is presented as follows. Engines of Russian aircraft 8-10 years Interiors 5 years An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are v. Capitalised leasehold improvements – capitalised costs that relate to the rented fleet are reviewed regularly by the General Director to make decisions about resources to be allocated to depreciated over the shorter of their useful life and the lease term. the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the General Director include items directly attributable to a b. Land and buildings, plant and equipment segment as well as those that can be allocated on a reasonable basis. Property, plant and equipment is stated at the historical US dollar cost recalculated at the exchange rate on 1 January 2007, the date of the change of the functional currency of the Company from the US dollar to the Russian rouble. Provision is made for the depreciation of property, plant and equipment based upon expected useful lives or, in the case of leasehold properties, over the dura- Property, plant and equipment tion of the leases using a straight-line basis. These useful lives range from 3 to 50 years. Land is Property, plant and equipment is stated at cost, or appraised value, as described below. Deprecia- not depreciated. tion is calculated in order to amortise the cost or appraised value (less estimated salvage value c. Capital expenditure where applicable) over the remaining useful lives of the assets. Capital expenditures comprise costs directly related to the construction of property, plant and a. Fleet equipment including an appropriate allocation of directly attributable variable overheads that are i. Owned aircraft and engines – Aircraft and engines owned by the Group as at 31 December incurred in construction as well as costs of purchase of other assets that require installation or 1995 were stated at depreciated replacement cost based upon external valuations denomi- preparation for their use. Depreciation of these assets, on the same basis as for other property nated in US dollars. Airclaims, an international firm of aircraft appraisers, conducted the valu- assets, commences when the assets are put into operation. Capital expenditures are reviewed ation. The Group has chosen not to revalue these assets subsequent to 1995. Subsequent regularly to determine whether their carrying value is fairly stated and whether appropriate provi- purchases are recorded at cost. sion for impairment is made. ii. Finance leased aircraft and engines – Where assets are financed through finance leases, d. Gain or loss on disposal under which substantially all the risks and rewards of ownership are transferred to the Group, The gain or loss arising on the disposal or retirement of an asset is determined as the difference the assets are treated as if they had been purchased outright. The Group recognises finance between the sales proceeds and the carrying amount of the asset and is recognised in the consoli- leases as assets and liabilities in the balance sheet at amounts equal to the fair value of the dated statement of income. leased property at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding obligation, reduced by the capital portion of lease payments made, is included in payables. Custom duties, legal fees and other initial direct costs are added to the amount recognised as an asset. The interest element of lease payments Impairment of non-current assets made is included in interest expense in the consolidated statement of income. At each balance sheet date the Group reviews the carrying amounts of its non-current assets to de- iii. Capitalised maintenance costs – The valuation of aircraft and engines as at 31 December termine whether there is any indication of impairment of those assets. If any such indication exists, 1995 reflected their maintenance condition, as measured on the basis of previous expendi- the recoverable amount of the asset is estimated in order to determine the extent of the impairment ture on major overhauls and estimated usage since the previous major overhaul. Subsequent loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the expenditure incurred on modernisation and improvements projects that are significant in sise Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (mainly aircraft modifications involving installation of replacement parts) are separately capitalised in the balance sheet. The carrying amount of those parts that are replaced is derec- Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing ognised from the balance sheet and included in gain or loss on disposals of property, plant value in use, the estimated future cash flows are discounted to their present value using a pre-tax and equipment in the Group’s consolidated statement of income. Capitalised costs of aircraft discount rate that reflects current market assessments of the time value of money and the risks checks and major modernisation and improvements projects are depreciated on a straight- specific to the asset. line basis to the projected date of the next check or based on estimates of their useful lives. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its car- Ordinary repair and maintenance costs are expensed as incurred. rying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable iv. Depreciation – The Group depreciates fleet assets owned or held under finance leases on a amount. An impairment loss is recognised immediately in the consolidated statement of income. straight-line basis to the end of their estimated useful life. The airframe, engines and interior Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-gener- of an aircraft are depreciated separately over their respective estimated useful lives. The ating unit) is increased to the revised estimate of its recoverable amount, but so that the increased salvage value for airframes of the foreign fleet is estimated at 5% of historical cost, while the carrying amount does not exceed the carrying amount that would have been determined had no salvage value for Russian aircraft is zero. Engines are depreciated on a straight-line basis to impairment loss been recognised for the asset (cash-generating unit) in prior years.

the end of the useful life of the related type of aircraft. S tatements F inancial C onsolidated

100 101 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Lease deposits e. Non-financial risks – fuel hedging activities Lease deposits represent amounts paid to the lessors of foreign aircraft, which are held as security The results of Group’s operations can be significantly impacted by changes in the price of aircraft deposits by lessors in accordance with the provisions of finance and operating lease agreements. fuel. The Group periodically purchases derivatives such as aircraft fuel options in order to hedge its These deposits are returned to the Group at the end of the lease period. Lease deposits relating exposure from future price fluctuations in aircraft fuel. In 2009 the Group did not engage in any fuel to operating lease agreements are presented as assets in the balance sheet. A portion of these hedging activities. The Group does not use derivative instruments for speculative purposes. deposits is interest-free. Interest-free deposits are recorded at amortised cost using an average market yield of 6.12%. Lease deposits that are part of finance lease arrangements are presented net as part of the finance lease liability. Cash and cash equivalents Cash and cash equivalents consist of cash on hand, balances with banks and short-term interest- Operating leases bearing accounts which are used in the day to day financing of the Group’s airline activities. Payments under operating leases are charged to the consolidated statement of income in equal annual instalments over the period of the lease. Related direct expenses including custom duties for leased aircraft are amortised using a straight-line method over the term of lease agreement. Investments The Group’s financial assets have been classified according to IAS 39Financial Instruments: Rec- ognition and Measurement into the following categories: securities held for trading, held-to-maturity Financial instruments investments, loans and other receivables, and available-for-sale investments. Investments with Financial assets and financial liabilities carried in the balance sheet include cash and cash equiv- fixed or determinable payments and fixed maturity, which the Group has the positive intent and alents, marketable securities, investments, derivative financial instruments, trade and other ac- ability to hold to maturity, other than loans and receivables, are classified as held-to-maturity in- counts receivable, trade and other accounts payable, borrowings and notes payable. The account- vestments. Derivative financial instruments and investments acquired principally for the purpose of ing policies on recognition and measurement of these items are disclosed below. generating a profit from short-term fluctuations in price are classified as trading securities. All other investments, other than loans and receivables, are classified as available-for-sale. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, and gains and losses relating to a financial instru- Investments are recognised and derecognised on a trade date basis where the purchase or sale of ment classified as a liability are reported as expense or income. Distributions to holders of financial an investment is under a contract whose terms require delivery of the investment within the time- instruments classified as equity are charged directly to equity. Financial instruments are offset frame established by the market concerned, and are initially measured at fair value, plus directly when the Group has a legally enforceable right to offset and intends to settle either on a net basis attributable transaction costs. or to realise the asset and settle the liability simultaneously. The result from the realisation of the Held-to-maturity investments are financial assets excluding derivative contracts which mature on financial instruments is determined on the FIFO basis. a specified date and which a company has the firm intent and ability to hold to maturity. They are a. Credit risks valued at allocated acquisition cost and they are included in long-term assets. The sale of passenger and freight transportation is largely processed through agencies that are Investments other than held-to-maturity debt securities are classified as either investments held for normally linked to country specific clearing systems for the settlement of passenger and freight trading or as available-for-sale, loans and receivables, and are measured at subsequent reporting sales. Clearing centres check individual agents operating outside of the Russian Federation. dates at fair value. Investments in equity instruments of other companies that do not have a quoted Individual agents operating within the Russian Federation are checked in-house. market price are stated at cost less impairment loss, as it is not practicable to determine the fair value of such investments. For derivatives and other financial instruments classified as held for Receivables and liabilities between major airlines, unless otherwise stipulated in the respective trading, gains and losses arising from changes in fair value are included in the consolidated state- agreements, are settled on a bilateral basis or by settlement through an International Air Trans- ment of income for the period. For available-for-sale investments, gains and losses arising from port Association (“IATA”) clearing house. changes in fair value are recognised directly in other comprehensive income, until the security is b. Fair value disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the consolidated statement of income for the period. Impairment The fair value of financial instruments is determined by reference to various market information losses recognised in the consolidated statement of income for equity investments classified as and other valuation methods as considered appropriate. At the balance sheet date the fair val- available-for-sale are not subsequently reversed through the consolidated statement of income. ues of the financial instruments held by the Group did not materially differ from their recorded Impairment losses recognised in the consolidated statement of income for debt instruments classi- book values. fied as available-for-sale are subsequently reversed if an increase in the fair value of the instrument c. Foreign exchange risk can be objectively related to an event occurring after the recognition of the impairment loss. In 2009 the Group did not manage foreign exchange risk through the use of hedging instru- In 2009 the Group held corporate and Government financial instruments primarily comprising ments but rather aimed to broadly match its assets and liabilities in the different currencies to shares and bonds. These are disclosed as held-for-trading investments in Note 13. Gains and limit exposure. The Group monitors changes in foreign exchange rates to minimise the level of losses arising from changes in fair value of held-for-trading investments are recognised in the con- foreign currency exposure and to identify any need for hedging activities. solidated statement of income. d. Interest rate risk The Group assesses on each closing date whether there is any objective evidence that the value of a financial asset item or group of items has been impaired. If there is objective evidence that an The Group’s main exposure to interest rate risk is from its finance lease liabilities and short-term impairment loss has arisen for loans and other receivables entered at allocated acquisition cost borrowings. In 2009 the Group did not use financial hedging instruments to hedge its exposure in the balance sheet or for held-to-maturity investments, the sise of the loss is determined as the to the changes in interest rates, as they are not generally available on the Russian market. The difference between the book value of the asset item and the present value of expected future cash Group constantly monitors changes in interest rates to minimise the level of its exposure and to flows of the said financial asset item discounted at the original effective interest rate. The loss is identify any need for hedging activities. recognised in the consolidated statement of income. S tatements F inancial C onsolidated

102 103 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Loans and receivables value using the deferred revenue method. Prior to the adoption, the programme was accounted for under the incremental cost method by recording an estimated liability for the incremental cost as- Loans and receivables are non-derivative financial assets with fixed or determinable payments sociated with providing free transportation pertaining to the programme. The adoption of IFRIC 13 that are not quoted in an active market. Loans and receivables are individually recognised at fair Customer Loyalty Programmes had an impact on the Group’s net assets and its financial perform- value, and are subsequently measured at amortised cost using the effective interest rate method. ance. The effect of the adoption is disclosed in Note 25. Because the expected term of an account receivable is short, the value is typically stated at the nominal amount without discounting, which corresponds with the fair value. Uncertain accounts In accordance with IFRIC 13 Customer Loyalty Programmes accumulated but as yet unused bo- receivable balances are assessed individually and any impairment losses are included in non- nus miles are deferred using the deferred revenue method to the extent that they are likely to be operating expenses. used on flights of AeroflotG roup. The fair value of miles accumulated on the Group’s own flights is recognised under deferred revenue (Note 25) and the miles collected from third parties as well as promotional miles are recognised under other liabilities (Note 23 and Note 30). The comparative Accounts payable figures have been restated accordingly. Trade payables are initially measured at fair value and are subsequently measured at amortised cost and because the expected term of accounts payable is short the value is stated at the nominal Provisions amount without discounting, which corresponds with the fair value. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable (i.e. more likely than not) that an outflow of resources Short-term borrowings embodying economic benefits will be required to settle the obligation, and a reliable estimate can Short-term borrowings comprise: be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the expected timing of cash flows can be es- • Interest bearing borrowings with a term shorter than one year; timated and the effect of the time value of money is significant, the amount of a provision is stated • current portion of interest-bearing long-term borrowings. at the present value of the expenditures required to settle the obligation. These liabilities are measured at amortised cost and reported based on the settlement date. Income tax Long-term borrowings The nominal income tax rate for industrial enterprises in Russia in 2008 was 24%. With effect from 1 January 2009, the income tax rate for Russian companies has been reduced to 20%. Long-term borrowings (i.e. liabilities with a term longer than one year) consist of interest-bearing loans, which are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method as at the settlement date. Deferred income taxes Deferred tax assets and liabilities are calculated in respect of temporary differences in accordance Expendable spare parts and inventories with IAS 12 Income Taxes. IAS 12 requires the application of the balance sheet liability method for financial reporting and accounting for deferred income taxes. Deferred income taxes are provided Inventories, including aircraft expendable spare parts, are valued at cost or net realisable value, for all temporary differences arising between the tax bases of assets and liabilities and their car- whichever is lower. The costs are determined on the first-in, first-out (“FIFO”) basis. Inventories are rying values for financial reporting purposes. Deferred tax liabilities are generally recognised for reported net of provisions for slow-moving or obsolete items. all taxable temporary differences and deferred tax assets are recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can Value added taxes be utilised. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its tax assets and liabilities on a net Value added tax (“VAT”) related to sales is payable to the tax authorities on an accruals basis. For basis. sales of passenger tickets this is when the tickets are registered for a flight by the customers. Do- mestic flights are subject toV AT at 18% and international flights are subject toV AT at 0%. Input VAT Deferred tax assets and liabilities are measured at the tax rates that are expected to apply during invoiced by domestic suppliers as well as VAT paid in respect of imported aircraft and spare parts the period when the asset is to be realised or the liability settled, based on tax rates that have been may be recovered, subject to certain restrictions, against output VAT. The recovery of input VAT enacted or substantively enacted as at the balance sheet date. As at 31 December 2009 deferred relating sales at 0% is typically delayed by up to six months and sometimes longer due to compul- tax assets and liabilities have been measured at 20%. Deferred tax is charged or credited to the sory tax audit requirements and other administrative matters. Input VAT claimed for recovery as at consolidated statement of income, except when it relates to items credited or charged directly to the balance sheet date is presented net of the output VAT liability. Recoverable input VAT that is not other comprehensive income, in which case the deferred tax is dealt with in equity. claimed for recovery in the current period is recorded in the balance sheet as VAT receivable. VAT receivables that are not expected to be recovered within the twelve months from the balance sheet Employee benefits date are classified as long-term assets. VAT balances are not discounted. Where provision has been made for uncollectible receivables, the bad debt expense is recorded at the gross amount The Group makes certain payments to employees on retirement or when they otherwise leave the of the account receivable, including VAT. The provision for non-recoverable VAT is charged to the employment of the Group. These obligations, which are unfunded, represent obligations under a consolidated statement of income as a non-operating expense. defined benefit pension plan. For such plans the pension accounting costs are assessed using the projected unit credit method. Under this method the cost of providing pensions is charged to the consolidated statement of income in order to spread the regular cost over the average service lives Frequent flyer programme of employees. Actuarial gains and losses are recognised in the consolidated statement of income Since 1999 the Group operates a frequent flyer programme referred to as Aeroflot Bonus.S ubject immediately. The pension payments may be increased upon the retirement of an employee based to the programme’s terms and condition, the miles earned entitle members to a number of benefits on the decision of management. The pension liability for non-retired employees is calculated based S tatements Finan c ial Consolidated such as free flights and flight class upgrades. on a minimum annual pension payment and do not include increases, if any, to be made by management in the future. Where such post-employment employee benefits fall due more than twenty In accordance with new IFRIC 13 Customer Loyalty Programmes, which is mandatory from 1 Janu- months after the balance sheet date they are discounted using a discount rate determined by refer- ary 2009, miles earned but unused under bonus miles programmes are to be accounted for at fair ence to the average government bond yields at the balance sheet date. 104 105 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

The Group also participates in a defined contribution plan, under which the Group has committed Compliance with tax legislation to contribute a certain percentage (15% to 20% in 2009) of the contribution made by employees As discussed further in Note 38 compliance with tax legislation, particularly in the Russian Federa- choosing to participate in the plan. Contributions made by the Group on defined contribution plans tion, is subject to a significant degree of interpretation and can be routinely challenged by the tax are charged to expenses when incurred. Contributions are also made to the Government Pension authorities. The management records a provision in respect of its best estimate of likely additional fund at the statutory rates in force during the year. Such contributions are expensed as incurred. tax payments and related penalties which may be payable if the Group’s tax compliance is challenged by the relevant tax authorities. Treasury shares The Company’s shares, which are held as treasury stock or belong to the Company’s subsidiaries, are reflected as a reduction of the Group’s equity. The disposal of such shares does not impact net income for the current year and is recognised as a change in the shareholders’ equity of the 4. ADOPTION OF NEW OR REVISED STANDARDS Group. Dividend distributions by the Company are recorded net of the dividends related to treasury AND INTERPRETATIONS shares. A number of new Standards, amendments to Standards and Interpretations are not yet effective Dividends as at 31 December 2009, and have not been applied in preparing these consolidated financial Dividends are recognised at the date they are declared by the shareholders at a general meeting. statements. Of these pronouncements, potentially the following will have an impact on the Group’s operations. The Group plans to adopt these pronouncements when they become effective. Retained earnings legally distributable by the Company are based on the amounts available for distribution in accordance with applicable legislation and reflected in the statutory financial state- • Revised IAS 24 Related Party Disclosures (2009) introduces an exemption from the basic dis- ments. These amounts may differ significantly from the amounts presented in accordance with closure requirements in relation to related party disclosures and outstanding balances, includ- IFRS. ing commitments, for government-related entities. Additionally, the standard has been revised to simplify some of the presentation guidance that was previously non-reciprocal. The revised Earnings per share standard is to be applied retrospectively for annual periods beginning on or after 1 January 2011. The Group has not yet determined the potential effect of the amendment. Earnings per share are calculated by dividing the income for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. • Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues The Group does not have any potentially dilutive equity instruments. clarifies that rights, options or warrants to acquire a fixed number of an entity’s ownequity instruments for a fixed amount are classified as equity instruments even if the fixed amount is determined in foreign currency. A fixed amount can be determined in any currency provided that Contingencies entity offers these instruments pro rata to all of the existing owners of the same class of its own Contingent liabilities are not recognised in the consolidated financial statements unless they arise non-derivative equity instruments. The amendment is applicable for annual periods beginning as a result of a business combination. They are disclosed unless the possibility of an outflow of re- on or after 1 February 2010. The amendment is expected to have no impact on the Group’s sources embodying economic benefits is remote. Contingent assets are not recognised in the con- consolidated financial statements. solidated financial statements but are disclosed when an inflow of economic benefits is probable. • Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment, which becomes mandatory for the Group’s 2010 consolidated financial statements, with retrospective application required, is not expected to have any impact on the consolidated financial state- 3. SIGNIFICANT ESTIMATES ments. The key assumptions concerning the future, and other key sources of estimation uncertainties at • Amendment to IFRS 2 Share-based Payment – Group Cash-settled Share-based Payment the balance sheet date, that have a significant risk of causing a material adjustment to the carrying Transactions which clarifies that the entity receiving goods or services in a share-based pay- amounts of assets and liabilities within the next financial year, are discussed below. ment transaction that is settled by any other entity in the group or any shareholder of such an entity in cash or other assets is required to recognise the goods or services received in its financial statements. Amendment will come into effect on 1 January 2010. The Group has not Provisions yet determined the potential effect of the amendment. Provisions are made when any probable and quantifiable risk of loss attributable to disputes is • Revised IFRS 3 Business Combinations (2008) and amended IAS 27 (2008) Consolidated and judged to exist. Separate Financial Statements came into effect on 1 July 2009 (i.e. they become mandatory for the Group’s 2010 consolidated financial statements). The revisions address, among other Depreciable lives of property, plant and equipment things, accounting for step acquisitions, require acquisition-related costs to be recognised as expenses and remove the exception for changes in contingent consideration to be accounted In reporting property, plant and equipment and intangible assets an assessment of the useful eco- by adjusting goodwill. The revisions also address how non-controlling interests in subsidiaries nomic life is made at least once a year. should be measured upon acquisition and require the effects of transactions with non-controlling interests to be recognised directly in equity. Frequent flyer programme • Amendments to IFRS 5 Non-current Assets held for Sale and Discontinued Operations which

The Group has estimated the liability pertaining to air miles earned by Aeroflot Bonus programme came into effect on 1 July 2009. The amendment clarifies the classification of assets and liabili- S tatements F inancial C onsolidated (Note 2) members. The estimate has been made based on the statistical information available to ties on disposal of a subsidiary. The amendment is not expected to have an impact on Group’s the Group and reflects the expected air mile utilisation pattern after the balance sheet date multi- consolidated financial statements. plied by their assessed fair value.

106 107 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

• IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace Interna- 7. OPERATING COSTS tional Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measure- ment once the project is completed by the end of 2010. The first phase of IFRS 9 was issued in 2009 2008 November 2009 and relates to the recognition and measurement of financial assets. The Group Aircraft and traffic servicing 506.5 594.7 recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on Group’s consolidated financial state- Operating lease expenses 286.7 207.4 ments. The impact of these changes will be analysed during the course of the project as further Maintenance 270.7 295.1 phases of the standard are issued. Sales and marketing 138.7 228.5 • Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All Administration and general expenses 126.7 149.8 amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2010. The Group has not yet analysed Passenger services 114.5 142.0 the likely impact of the improvements on its financial position or performance. Communication expenses 62.5 65.4 Customs duties 37.6 26.8 Insurance expenses 19.8 21.4 Other expenses 94.8 145.2 5. TRAFFIC REVENUE (All amounts in millions of US dollars) Operating cost excluding aircraft fuel 1,658.5 1,876.3 Aircraft fuel 725.4 1,551.1 2009 2008 2,383.9 3,427.4 Scheduled passenger flights 2,512.4 3,508.9 Cargo 211.3 333.6 Charter passenger flights 95.0 107.5 2,818.7 3,950.0 8. STAFF COSTS

2009 2008 Wages and salaries 459.4 582.7 Pension costs 60.6 78.8 6. OTHER REVENUE Social security costs 18.9 25.1 538.9 686.6 2009 2008 Airline revenue agreements 388.2 477.1 The Group continued its participation in a non-government pension fund to provide additional pen- Refuelling services 29.1 63.1 sions to certain of its employees upon their retirement. The pension fund requires contributions from both employees and the Group and is a defined contribution pension plan for the employer. Ground handling and maintenance 20.3 25.4 Furthermore, the Group makes payments, upon retirement, to employees participating in the plan Hotel revenue 15.1 22.1 with one or more years’ service. These obligations, which are unfunded, represent obligations un- Catering services 9.9 15.2 der a defined benefit pension plan. Other revenue 64.6 50.5 Pension costs also include compulsory payments to the Russian Federation Pension Fund 527.2 653.4 (“RFPF”), contributions to a non-government pension fund and an increase in the net present value of the future benefits which the Group expects to pay to its employees upon their retirement under a defined benefit pension plan, as follows:

2009 2008 Payments to the RFPF 59.7 77.2 Defined contribution pension plan 0.6 0.4 Defined benefit pension plan 0.3 1.2 60.6 78.8 S tatements F inancial C onsolidated

108 109 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

9. FINANCE INCOME AND COSTS Income before taxation for financial reporting purposes is reconciled to taxation as follows: 2009 2008 2009 2008 Finance income: Profit before income tax 205.8 166.6 Interest income on bank deposits 2.7 4.5 Tax rate 20% 24% Gain on disposal of investments 0.1 - Theoretical tax at rate applicable for each jurisdiction (41.2) (40.0) Finance income 2.8 4.5 Tax effect of items which are not deductible or assessable Finance costs: for taxation purposes: Interest expense on customs duty discounting (16.6) (13.4) Effect of income tax rate reduction to 20% - 7.5 Interest expense on short and long-term borrowings (15.6) (16.7) Non-taxable income 7.2 6.3 Foreign exchange loss (12.0) (141.0) Non-deductible expenses (70.4) (89.4) Interest expense on finance lease liabilities (8.9) (24.6) Unrecognised current year tax losses (7.8) (22.1) Loss on disposal of investments - (1.3) Prior period tax adjustment (7.8) (5.1) Finance costs (53.1) (197.0) (120.0) (142.8)

The Group did not recognise a deferred tax assets of USD 7.8 million (2008: USD 22.1 million) related to CJSC Aeroflot Cargo’s tax losses as the subsidiary is not expected to earn sufficient taxable profits in the foreseeable future against which the unused tax losses can be utilised by the Group. 10. OTHER NON-OPERATING (EXPENSES)/ The Russian corporate profit tax rate has been reduced to 20% from 24%. The new rate is effective INCOME, NET from 1 January 2009. 2009 2008 Movement 2008 Restate- Fines and penalties received from suppliers 7.7 1.8 2009 for year restated ment 2008 Insurance compensation received 0.9 1.3 Tax effects of temporary differences: Accounts payable write-off 0.7 4.5 Loss carry-forward 45.5 19.1 26.4 - 26.4 Other (expense)/income (16.5) 29.8 Accounts receivable 4.2 1.0 3.2 - 3.2 Non-recoverable VAT write-off (21.4) (16.8) Property, plant and equipment 2.9 (0.1) 3.0 - 3.0 (28.6) 20.6 Accounts payable (Note 25) 1.9 (0.1) 2.0 - 2.0 Long-term investments - (0.3) 0.3 - 0.3 Deferred tax assets 54.5 19.6 34.9 - 34.9

Property, plant and equipment (68.8) (14.0) (54.8) - (54.8) Customs duties related to aircraft operation leases (20.9) (10.3) (10.6) - (10.6) 11. INCOME TAX Long-term investments (4.0) 0.1 (4.1) - (4.1) 2009 2008 Accounts receivable (4.5) (5.7) 1.2 - 1.2 Current income tax charge 99.2 151.4 Accounts payable (Note 25) 12.7 (10.7) 23.4 15.1 8.3 Deferred tax liabilities (85.5) (40.6) (44.9) 15.1 (60.0) Deferred income tax expense/(benefit) 20.8 (8.6) Movement for the year, net 21.0 120.0 142.8 Less: Deferred tax recognised directly in equity (i) 0.4 Effect of translation to presentation currency (0.6) Deferred tax expense for the year 20.8 S tatements F inancial C onsolidated

110 111 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

2008 Movement 2007 Restate- The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and li- restated for year restated ment 2007 abilities are disclosed in Note 34. Most of the funds are held at state owned Russian banks such as Sberbank of the Russian Federation, Vneshtogbank and Vnesheconombank and well known Tax effects of temporary differences: multinational banks such as the Royal Bank of Scotland. All funds are accessible by the Group. Loss carry-forward 26.4 26.1 0.3 - 0.3 Accounts receivable 3.2 2.2 1.0 - 1.0 Property, plant and equipment 3.0 (2.4) 5.4 - 5.4 13. SHORT-TERM INVESTMENTS Accounts payable (Note 25) 2.0 0.8 1.2 - 1.2 Long-term investments 0.3 0.3 - - - 2009 2008 Short and long-term borrowings - (0.3) 0.3 0.3 Held-for-trading investments: Deferred tax assets 34.9 26.7 8.2 - 8.2 Corporate and government bonds 1.8 3.7 Property, plant and equipment (54.8) 13.1 (67.9) - (67.9) Corporate shares 1.8 1.4 Customs duties related to aircraft opera- 3.6 5.1 tion leases (10.6) (4.4) (6.2) - (6.2) Long-term investments (4.1) 3.7 (7.8) - (7.8) Other short-term investments: Accounts receivable 1.2 (1.7) 2.9 - 2.9 Bank deposits with original maturities exceeding 90 days 5.5 1.6 Accounts payable (Note 25) 23.4 (22.2) 45.6 19.8 25.8 Promissory notes from third parties 0.3 2.3 Deferred tax liabilities (44.9) (11.5) (33.4) 19.8 (53.2) Other short-term investments 1.0 0.9 Impairment allowance for short-term investments - (0.4) Movement for the year, net (15.2) 6.8 4.4 Less: Deferred tax recognised directly in equity (i) 1.8 10.4 9.5 Effect of translation to presentation cur- Corporate and government bonds represent bonds denominated in Russian roubles issued by the rency 4.8 Government of the Russian Federation and major Russian companies with maturity dates from Deferred tax benefit for the year (8.6) 2010 to 2019 and yield to maturity rates of 7.3% to 18.0% per annum as at 31 December 2009. The Group’s investments in bonds and shares are reflected at market values at the end of the period based on the last traded prices obtained from the Moscow Interbank Currency Exchange i. The Group holds shares in France Telecom, which are classified as long-term investments avail- (“MICEX”). able-for-sale. Gains and losses arising from changes in fair value of the France Telecom shares are recognised directly in equity, deferred tax related to them is also dealt with in equity. The Corporate shares are publicly traded shares of Russian companies with readily available market movement during 2009 amounted to USD 0.4 million (2008: USD 1.8 million). prices. As at 31 December 2009 the interest rates on bank deposits denominated in Russian roubles, with A deferred tax liability in relation to temporary differences of USD 49.2 million (31 December 2008: original maturities exceeding 90 days, were from 3.1% to 14.0% per annum (31 December 2008: USD 27.5 million) relating to investments in subsidiaries and associates has not been recognised 10.0% per annum). in the consolidated financial statements as the Group is able to control the timing of reversal of the difference, and reversal is not expected in the foreseeable future. 14. ACCOUNTS RECEIVABLE AND PREPAYMENTS

12. CASH AND CASH EQUIVALENTS 2009 2008

2009 2008 VAT and other taxes recoverable 410.6 401.5 Trade accounts receivable 344.7 341.3 Bank accounts denominated in US dollars 47.6 20.4 Prepayments to suppliers 76.2 47.7 Bank accounts denominated in Russian roubles 32.1 61.5 Deferred customs duties related to aircraft operating Bank accounts denominated in other currencies 24.0 23.0 leases 44.5 27.1 Bank accounts denominated in Euros 8.5 7.3 Income tax prepaid 21.9 61.7 Bank deposits 8.5 33.9 Other receivables 72.4 59.5 S tatements F inancial C onsolidated Cash in transit and other 0.4 0.7 Accounts receivable and prepayments, gross 970.3 938.8 121.1 146.8 Impairment allowance for bad and doubtful accounts (26.5) (22.7) 943.8 916.1

112 113 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Deferred customs duties of USD 44.5 million (31 December 2008: USD 27.1 million) relate to the As at 31 December 2009 the Group has made a decision to discontinue flying most of its Tupolev current portion of customs duties incurred on importation of aircraft under operating leases. These Tu-134 and Tu-154 aircraft fleet (Note 1). Subsequently, a decision was made to sell those aircraft customs duties are expensed in the consolidated statement of income over the term of the operat- and the related spare parts and engines. The sale is expected in 2010. An impairment loss of USD ing lease. The non-current portion of the deferred customs duties is disclosed in Note 19. 20.1 million has been recognised in non-operating expenses on the remeasurement of the aircraft to the lower of their carrying amount and fair value less costs to sell. As at 31 December 2009 sufficient impairment allowance has been made against accounts receivable and prepayments. The movement in the Group’s impairment allowance for bad and doubtful debts is as follows:

Impairment 17. EQUITY ACCOUNTED INVESTMENTS allowance

As at 31 December 2007 24.3 2009 2008 Provision exchange rate (4.3) Voting Carrying Voting Carrying rights value rights value Increase in impairment allowance for bad and doubtful accounts 3.9 Receivables written off during the year as uncollectible (1.2) LLC Airport Moscow 50.0% 4.3 50.0% 4.4 As at 31 December 2008 22.7 CJSC AeroMASH – AB 45.0% 1.6 45.0% 1.5 CJSC Aerofirst 33.3% 4.8 33.3% 4.5 Provision exchange rate (0.9) CJSC TZK Sheremetyevo 31.0% 13.3 31.0% 10.2 Increase in impairment allowance for bad and doubtful accounts 7.1 Other Various 0.5 Various 0.5 Accounts receivable written off during the year as uncollectible (2.4) 24.5 21.1 As at 31 December 2009 26.5

The summarised financial information in respect of the Group’s affiliates accounted for by using the equity method based on their respective financial statements prepared for the years ended 31 15. EXPENDABLE SPARE PARTS AND INVENTORIES December 2009 and 2008 is set out below: 2009 2008 2009 2008 Expendable spare parts 48.3 57.0 Total assets 168.7 174.7 Fuel 9.8 7.8 Total liabilities (98.9) (115.8) Other inventories 15.4 20.9 Net assets 69.8 58.9 Expendable spare parts and inventories, gross 73.5 85.7 Group’s carrying amount of equity accounted invest- Impairment allowance for obsolete inventory (3.5) (7.0) ments 24.5 21.1 70.0 78.7

2009 2008

16. ASSETS OF DISPOSAL GROUP CLASSIFIED AS Revenue 361.6 1,125.2 HELD FOR SALE Profit for the year 23.5 28.4 Group’s share of profits for the year in equity ac- 2009 2008 counted investments 6.9 8.4 Property, plant and equipment 42.3 - Inventory 3.7 - Impairment reserve (20.1) - Foreign currency translation 1.4 - Total Assets of Disposal Group Classified as Held for

Sale 27.3 - S tatements F inancial C onsolidated

114 115 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

21. PROPERTY, PLANT AND EQUIPMENT

18. LONG-TERM INVESTMENTS Owned Leased Plant, Construction aircraft and aircraft and Land and equipment in progress engines engines buildings and other (i) Total 2009 2008 Cost Available-for-sale investments: Shares in France Telecom 12.8 14.4 31 December 2007 579.4 919.8 219.9 254.1 555.6 2,528.8 Mutual investment funds 0.8 0.8 Additions 40.3 11.7 4.2 34.4 489.2 579.8 SITA Investment Certificates 0.6 0.6 Capitalised overhaul costs 30.2 - - - - 30.2 14.2 15.8 Disposals (56.2) - (0.2) (16.4) (1.8) (74.6) Other long-term investments: Transfers 1.2 0.7 0.9 19.6 (22.4) - Loans issued and promissory notes from third parties 0.7 0.3 Foreign currency trans- Other 0.7 0.7 lation (97.7) (153.3) (36.2) (48.1) (162.9) (498.2)

1.4 1.0 31 December 2008 497.2 778.9 188.6 243.6 857.7 2,566.0 15.6 16.8 Additions (ii) 19.5 320.6 2.2 76.2 349.8 768.3 Capitalised overhaul costs 4.3 - - - - 4.3 Disposals (iii) (241.6) - (0.1) (15.5) (172.6) (429.8) 19. OTHER NON-CURRENT ASSETS Transfers (iv) 1.4 - 77.4 39.9 (118.7) - Transfers from leased 2009 2008 assets to owned assets 3.3 (3.3) - - - - Deferred customs duties related to aircraft operating leases 211.6 152.3 Foreign currency translation (24.7) (8.0) (1.4) (2.3) (21.2) (57.6) VAT recoverable 182.9 76.3 Other 7.0 11.8 31 December 2009 259.4 1,088.2 266.7 341.9 895.0 2,851.2 401.5 240.4 Accumulated depreciation VAT recoverable primarily includes USD 179.3 million (31 December 2008: USD 76.3 million) re- 31 December 2007 (398.0) (153.8) (96.2) (170.8) (1.1) (819.9) lated to the acquisition of aircraft. Charge for the year (49.0) (74.3) (11.0) (22.9) - (157.2) Impairment - - - - (27.8) (27.8) Disposals 46.2 - - 12.8 - 59.0 Foreign currency 20. PREPAYMENTS FOR AIRCRAFT translation 65.9 36.8 19.1 28.0 4.4 154.2 31 December 2008 (334.9) (191.3) (88.1) (152.9) (24.5) (791.7)

Prepayments for aircraft relate to cash advances made in relation to twenty-two Boeing B-787 (de- Charge for the year (50.4) (60.4) (9.1) (22.3) - (142.2) livery: 2016 – 2019), twenty-two Airbus A-350 (delivery: 2016-2019), twenty-eight Sukhoi Superjet- Impairment (v) 7.0 - - 0.4 19.0 26.4 100 (SSJ) (delivery: 2011 – 2013) aircraft which are expected to be used under operating lease agreements and eight Airbus A-321 (delivery: 2012-2013) aircraft which are expected to be used Disposals (iii) 186.0 0.4 0.1 11.1 - 197.6 under finance lease agreements. Foreign currency translation 16.5 2.5 2.3 3.7 1.5 26.5 31 December 2009 (175.8) (248.8) (94.8) (160.0) (4.0) (683.4)

Net book value S tatements F inancial C onsolidated 31 December 2008 162.3 587.6 100.5 90.7 833.2 1,774.3

31 December 2009 83.6 839.4 171.9 181.9 891.0 2,167.8

116 117 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

i. Construction in progress mainly includes capital expenditure incurred in relation to the construction of the new Sheremetyevo-3 terminal of USD 839.8 million (2008: USD 645.8 mil- 22. INTANGIBLE ASSETS lion); Development ii. The 2009 additions mainly relate to: Software Licences in progress Total • addition of six Airbus A-321 aircrafts received under finance lease agreements of USD 320.6 million; Cost • capital expenditures incurred in relation to the construction of the new Sheremetyevo-3 31 December 2007 - - 7.8 7.8 terminal of USD 202.2 million; Additions 3.6 5.4 2.2 11.2 • increase in prepayments for delivery of sixteen Airbus A-321 aircrafts of USD 101.8 million; Transfers 5.8 - (5.8) - Foreign currency translation (1.5) (0.9) (0.8) (3.2) iii. The 2009 disposals mainly relate to: • transfer of capitalised prepayments of USD 149.8 million related to the delivery of sixteen 31 December 2008 7.9 4.5 3.4 15.8 Airbus A-321 aircraft due to change of lease agreement conditions; Additions 2.2 - 7.6 9.8 • transfer of capitalised prepayments of USD 4.0 million related to the delivery of ten Sukhoi SuperJet-100 (SSJ) aircraft due to change of lease agreement conditions; Disposal - - - - Transfers 2.5 - (2.5) - • discontinuation of most of the Group’s Tupolev Tu-134 and Tu-154 aircraft fleet (Note 16); Foreign currency translation 0.1 (0.1) 0.1 0.1

iv. Transfer from construction in progress mainly includes capital expenditures of USD 84.8 31 December 2009 12.7 4.4 8.6 25.7 million (2008: USD 74.5 million) related to the construction of the Company’s new office building; Accumulated amortisation v. A full impairment allowance has been made against cash prepayments related to one Mc- Donnell Douglas MD-11 aircraft (Note 21(i)) as it is unlikely that the Group will get any future 31 December 2007 - - - - economic benefits related to this asset. Also impairment allowance of capital expenditures and prepayments for the delivery of two McDonnell Douglas MD-11 aircrafts and capitalised Charge for the year (2.1) - - (2.1) refurbishment expenditure related to MD-11 of USD 19.0 million was written-off. Foreign currency translation 0.4 - - 0.4

During 2009 the total of USD 69.3 million was capitalised in the cost of property, plant and equip- 31 December 2008 (1.7) - - (1.7) ment of which USD 4.5 million related to the portion of foreign currency translation losses on non- Rouble denominated construction loans that were deemed as borrowing costs. The remaining Charge for the year (2.5) (0.6) - (3.1) USD 64.8 million (2008: USD 40.9 million) comprised interest accrued on these loans and was fully Foreign currency translation (0.2) - - (0.2) capitalised in cost of the construction. All amounts related to the new Sheremetyevo-3 terminal. Refer to Note 29 for property, plant and equipment pledged as collateral for borrowings. 31 December 2009 (4.4) (0.6) - (5.0)

Net book value

31 December 2008 6.2 4.5 3.4 14.1 31 December 2009 8.3 3.8 8.6 20.7 S tatements F inancial C onsolidated

118 119 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

25. DEFERRED REVENUE RELATED TO FREQUENT 23. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES FLYER PROGRAMME Deferred revenue related to Aeroflot Bonus as at 31 December 2009 has been assessed in accord- 2009 2008 ance with IFRIC 13 Customer Loyalty Programmes. The amount represents the number of points earned but unused by the Aeroflot Bonus programme members estimated at fair value (Note 2). Trade accounts payable 253.4 348.3 This represents a change of accounting policy as previously air miles related to the programme VAT payable on leased aircraft 148.8 91.9 have been valued at incremental cost of providing the service to passengers. Consequently, the Staff related liabilities 65.5 76.6 comparatives have been restated accordingly. Customs duties payable on leased aircraft 89.8 74.2 Consolidated statement of financial position Advances received (other than unearned transportation revenue) 30.2 27.6 1 January 2008 31 December 2008 Before After Before After Other taxes payable 13.3 8.1 restate- Adjust- restate- restate- Adjust- restate- Other liabilities related to frequent flyer programme (Note ment ments ment ment ments ment 25) 8.2 4.8 Income tax payable 4.1 0.1 TOTAL ASSETS 3,398.3 - 3,398.3 3,350.4 - 3,350.4 Merchandise credits 3.8 4.8 LIABILITIES AND EQUITY Dividends payable 3.7 2.5 Current liabilities Other payables 53.7 28.1 Accounts payable and accrued liabilities 629.8 (2.6) 627.2 669.2 (2.2) 667.0 674.5 667.0 Unearned transportation revenue 180.3 - 180.3 172.9 - 172.9 As at 31 December 2009 accounts payable and accrued liabilities include the short-term portion of Deferred revenue related to frequent VAT of USD 148.8 million (31 December 2008: USD 91.9 million) and customs duties of USD 89.8 flyer programme, current - 13.0 13.0 - 12.5 12.5 million (31 December 2008: USD 74.2 million) relating to imported leased aircraft, which are pay- Provisions 4.0 - 4.0 22.8 - 22.8 able in equal monthly instalments over a thirty-four-month period from the date these assets were Short-term borrowings 131.4 - 131.4 145.4 - 145.4 cleared through customs. The long-term portion of VAT payable and customs duties of USD 179.3 million (31 December 2008: USD 76.2 million) and USD 97.6 million (31 December 2008: USD Finance lease liabilities 67.4 - 67.4 78.0 - 78.0 63.7 million), respectively, relating to the leased aircrafts are disclosed in Note 30. 1,012.9 10.4 1,023.3 1,088.3 10.3 1,098.6 Staff related payables primarily include salaries and social contribution liabilities of USD 29.4 mil- Non-current liabilities lion (31 December 2008: USD 40.7 million) and the unused vacation accrual of USD 35.1 million Long-term borrowings 379.6 - 379.6 591.1 - 591.1 (31 December 2008: USD 35.0 million). Finance lease liabilities 531.1 - 531.1 460.2 - 460.2 The Group’s exposure to currency and liquidity risk related to accounts payable and accrued li- Provisions 60.9 - 60.9 2.4 - 2.4 abilities is disclosed in Note 34. Deferred tax liabilities 53.2 (19.8) 33.4 60.0 (15.1) 44.9 Deferred revenue related to frequent flyer programme, non-current - 60.8 60.8 - 48.2 48.2 Other non-current liabilities 175.5 11.0 186.5 150.4 17.3 167.7 24. UNEARNED TRANSPORTATION REVENUE 1,200.3 52.0 1,252.3 1,264.1 50.4 1,314.5 Equity As at 31 December 2009 unearned transportation revenue of USD 186.1 million (31 December Share capital 51.6 - 51.6 51.6 - 51.6 2008: USD 172.9 million) comprised passenger transportation revenue of USD 186.1 million (31 December 2008: USD 172.8 million) and cargo transportation revenue of nil (31 December 2008: Treasury stock (43.8) - (43.8) (41.0) - (41.0) USD 0.1 million). Accumulated gain on disposal of treasury shares 14.1 - 14.1 31.9 31.9 Investment revaluation reserve 12.7 - 12.7 8.3 - 8.3 Cumulative translation reserve 63.0 - 63.0 (117.2) (5.9) (123.1) Retained earnings 1,014.6 (62.4) 952.2 1,011.4 (54.8) 956.6 Equity attributable to shareholders of the Company 1,112.2 (62.4) 1,049.8 945.0 (60.7) 884.3

Non-controlling interest 72.9 - 72.9 53.0 - 53.0 S tatements F inancial C onsolidated Total equity 1,185.1 (62.4) 1,122.7 998.0 (60.7) 937.3 TOTAL LIABILITIES AND EQUITY 3,398.3 - 3,398.3 3,350.4 - 3,350.4

120 121 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Consolidated statement of income for the year ended 31 December 2008 The information presented above differs from that reported in the consolidated IFRS financial statements as at 30 June 2009 and 30 September 2009, respectively. As at 31 December 2008 the Before re- Adjustments After restate- total USD 82.8 million of frequent flyer programme related liability has been split between deferred statement in 2008 ment revenue and other liabilities in the current consolidated financial statements.

Traffic revenue 3,948.7 1.3 3,950.0 Other revenue 665.1 (11.7) 653.4 26. PROVISIONS Revenue 4,613.8 (10.4) 4,603.4 2009 2008 Operating costs (3,429.4) 2.0 (3,427.4) Staff costs (686.6) - (686.6) As at 1 January 25.2 64.9 Depreciation and amortisation (159.3) - (159.3) Additional provision - 9.1 Operating costs (4,275.3) 2.0 (4,273.3) Release of provision (21.5) (48.8)

Operating profit 338.5 (8.4) 330.1 Foreign exchange loss, net (1.3) - Finance income 4.5 - 4.5 As at 31 December 2.4 25.2 Finance costs (197.0) - (197.0) Share of results of equity accounted investments 8.4 - 8.4 2009 2008 Other non-operating (expenses)/income, net 20.7 (0.1) 20.6 Analysed as: Current liabilities 0.8 22.8 Profit before income tax 175.1 (8.5) 166.6 Non-current liabilities 1.6 2.4 Income tax (138.1) (4.7) (142.8) 2.4 25.2

Profit for the period 37.0 (13.2) 23.8 The Group is a defendant in various legal actions. The provision represents management’s best estimate of the Group’s probable losses relating to various actual and potential legal claims. The Attributable to: Group also provides against tax contingencies and the related interest and penalties based on Shareholders of the Company 56.1 (13.2) 42.9 management’s estimate of the amount of the additional taxes that may become due. Non-controlling interest (19.1) - (19.1) The Group has released USD 12.7 million previously provided in relation to a claim by the owner 37.0 (13.2) 23.8 of a cargo plane, which crashed in Italy in October 1996 as the liability has been fully settled in cash. Earnings per share, basic and diluted (US cents) 5.2 (1.2) 4.0

Weighted average number of shares out- 27. SHORT-TERM BORROWING standing (millions) 1,067.0 1,067.0 2009 2008

As at 31 December 2009 deferred revenue related Aeroflot Bonus are expected to realise as fol- Loans denominated in US dollars: lows: Vneshtorgbank - short term portion (Note 29) 15.6 14.0 Natixis (i) 15.0 - 2009 2008 Vnesheconombank - short term portion (Note 29) 14.6 12.9 Deferred revenue related to frequent flyer programme, current 9.0 12.5 Royal Bank of Scotland (ii) - 16.0 Deferred revenue related to frequent flyer programme, Société Générale Vostok (iii) - 15.0 non-current 30.7 48.2 WestLB Vostok (iv) - 10.1 Other current liabilities related to frequent flyer programme Alfa-Bank (v) - 5.5 (Note 23) 8.2 4.8 Other short-term bank loans 4.1 - Other non-current liabilities related to frequent flyer programme (Note 30) 25.1 17.3 49.3 73.5

73.0 82.8 S tatements F inancial C onsolidated

122 123 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

2009 2008 x. The balances represent the net amounts due under a series of short-term security sale and repurchase agreements bearing an interest rate of 15.0% per annum. The securities that are Loans denominated subject to the sale and repurchase agreements are pledged as collateral pertaining to these in Russian roubles: loans. During 2009 this amounts due were repaid in full. The loan is from a related party (Note 35); Sberbank of the Russian Federation (vi) 66.3 - xi. As at 31 December 2008 USD 20.8 million was payable to Sberbank of the Russian Federa- Sberbank of the Russian Federation (vii) 14.7 4.3 tion in relation to the credit line issued to the Group. The effective annualised interest rate Raiffeisenbank – short term portion (viii) 11.8 7.3 related to this loan in 2009 was equal to 14.4% per annum. During 2009 this credit line was Gazprombank (ix) 11.7 11.6 repaid in full. The loan was unsecured and is from a related party (Note 35); Gazprombank (x) - 17.3 xii. The balances as at 31 December 2008 represent a loan of USD 5.1 million, issued at an interest rate of 10.75% per annum. The loan was borrowed to finance the Group’s work capital. Sberbank of the Russian Federation (xi) - 20.8 The effective annualised interest rate on loan in 2009 was equal to 11.4% per annum. During UniCredit Bank (xii) - 5.1 2009 this loan was repaid in full. The loans were unsecured. Other short-term bank loans 2.6 5.5 107.1 71.9 156.4 145.4 28. FINANCE LEASE LIABILITIES i. The balance as at 31 December 2009 represents a loan of USD 15.0 million issued at an The Group leases aircrafts under finance lease agreements. Leased assets are listed in Note 1 interest rate of LIBOR plus 5.0% per annum. The effective annualised interest rate related to above: this loan in 2009 was equal to 5.4% per annum. The loan is unsecured; ii. The balance as at 31 December 2008 represents a credit line of USD 16.0 million issued at an interest rate of LIBOR plus Margin from 1.45% to 7.0% per annum. The effective annual- 2009 2008 ised interest rate related this credit line in 2009 was equal to 4.7% per annum. During 2009 this credit line was repaid in full. The loan was unsecured; Total outstanding payments 784.2 623.6 iii. The balance as at 31 December 2008 represents a credit line of USD 15.0 million issued at Finance charges (49.5) (85.4) an interest rate of six month LIBOR plus 4.27% per annum. The effective annualised interest rate related to this credit line in 2009 was equal to 8.65% per annum. During 2009 this credit Principal outstanding 734.7 538.2 line was repaid in full. The loan was unsecured; Representing: iv. The balance as at 31 December 2008 represents a credit line of USD 10.1 million issued at an interest rate of three month LIBOR plus 3.95% per annum. The effective annualised inter- Current lease liabilities 111.2 78.0 est rate related to this credit line in 2009 was equal to 7.46% per annum. During 2009 this Non-current lease liabilities 623.5 460.2 credit line was repaid in full. The loan is unsecured; 734.7 538.2 v. The balances as at 31 December 2008 represents two loans for the total of USD 5.5 million issued at interest rates of 15% and 16% per annum. The effective annualised interest rate related to these loans in 2009 was equal to 15.3% per annum. During 2009 these loans were 2009 2008 repaid in full. The loans were unsecured; Finance Total Finance Total vi. The balance as at 31 December 2009 represents a credit line of USD 66.3 million issued at an Due for repayment: Principal changes payments Principal changes payments interest rate of 11.5% per annum. The effective annualised interest rate related this credit line in 2009 was equal to 11.7% per annum. The loan is unsecured and is from a related party (Note 35); On demand or within one year 110.3 11.4 121.7 77.9 20.0 97.9 vii. The balance as at 31 December 2009 represents loans for the total amount of USD 14.7 mil- In two to five years 337.7 25.4 363.1 255.5 49.8 305.3 lion issued at interest rates of 14% to 19% per annum. The effective annualised interest rate After five years 286.7 12.7 299.4 204.8 15.6 220.4 on the total outstanding balance of these loans in 2009 was equal to 18.1% per annum. The 734.7 49.5 784.2 538.2 85.4 623.6 loans are secured by a property, plant, equipment and inventory with a carrying value of USD 11.2 million. The loans are from a related party (Note 35); viii. The balance as at 31 December 2009 represents an outstanding amount of USD 11.8 million Interest unpaid as at 31 December 2009 amounted to approximately USD 3.2 million (31 Decem- at a fixed interest rate of three month MosPrime plus 3% per annum. The loan was borrowed ber 2008: USD 3.7 million) and is included in accrued expenses. During 2009 the effective interest in order to finance the Group’s working capital requirements. The effective annualised inter- rate on these leases was approximately 1.1% per annum (31 December 2008: 3.8% per annum). est rate in 2009 was equal to 15.8% per annum. The loan is unsecured; The Group’s aircraft leases are subject to both positive and negative covenants. In accordance ix. The balance as at 31 December 2009 represents loans of USD 11.7 million issued at an with those covenants, the Group maintains insurance coverage for its leased aircraft. interest rate of 13.5% to 15.75 per annum. The effective annualised interest rate related to The Group’s aircrafts leased under finance lease agreements are subject to a registered debenture S tatements F inancial C onsolidated these loans in 2009 was 15.3% per annum. The loans are unsecured and are from a related to secure liabilities in relation to their lease. party (Note 35);

124 125 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

29. LONG-TERM BORROWINGS 30. OTHER NON-CURRENT LIABILITIES

2009 2008 2009 2008

Loans denominated in US dollars: Vnesheconombank (i) 383.3 201.9 VAT payable on leased aircraft 179.3 76.2 Vneshtorgbank (ii) 238.0 252.4 Custom duties payable on leased aircraft 97.6 63.7 Vnesheconombank (iii) 190.4 121.1 Other liabilities related to frequent flyer programme (Note 25) 25.1 17.3 Accor 2.8 2.7 Defined benefit pension obligation – non-current portion 9.0 9.9 Other long-term loans 3.3 3.3 Other non-current liabilities 5.0 0.6 817.8 581.4 316.0 167.7 Loans denominated in Russian roubles: Raiffeisenbank – long term portion (Note 27) - 9.7 As at 31 December 2009 other non-current liabilities include the long-term portion of VAT of USD Other long-term loans 1.9 - 179.3 million (31 December 2008: USD 76.2 million) and customs duties of USD 97.6 million (31 December 2008: USD 63.7 million) relating to imported leased aircraft, which are payable in equal 819.7 591.1 monthly instalments over a thirty-four-month period from the date these assets are cleared through customs. Customs duties payable on leased aircraft have been discounted using a discount rate between i. The balance as at 31 December 2009 relates to a loan of USD 383.3 million borrowed at 9.0% and 15.0%. an interest rate of 9.0% per annum. The agreed interest rate will be effective until 20 August 2018 after which the interest rate will be LIBOR plus 4% per annum. The amount was bor- The short-term portion of the VAT payable and the customs duties of USD 148.8 million (31 De- rowed in order to finance the construction of the new Sheremetyevo-3 terminal. The sublease cember 2008: USD 91.9 million) and USD 89.8 million (31 December 2008: USD 74.2 million), of the land is pledged as collateral under a primary loan agreement with a hypothecation respectively, relating to the imported leased aircraft are disclosed in Note 23. value of USD 375.9 million. The loan is from a related party (Note 35); ii. The balance as at 31 December 2009 represents an outstanding amount of USD 238.0 million on a credit line issued by Vneshtorgbank at a fixed interest rate of 7.75% per annum. The amount was borrowed in order to finance the construction of the new Sheremetyevo-3 31. SHARE CAPITAL terminal. The sublease of the land and the construction in progress are pledged as collateral under a secondary loan agreement with hypothecation values of USD 375.9 million and USD Number of Number of 839.8 million, respectively. The loan is from a related party (Note 35); shares author- Number of treas- shares outstand- ised and issued ury shares ing iii. The balance as at 31 December 2009 represents an outstanding balance of USD 190.4 million on a credit line issued by Vnesheconombank at a fixed interest rate of 10.56% per Ordinary shares annum. The amount was borrowed in order to finance the construction of the new Shereme- of one Russian rouble each: tyevo-3 terminal. The sublease of the land and the construction in progress are pledged as collateral under a primary loan agreement with hypothecation values of USD 375.9 million As at 31 December 2008 1,110,616,299 (27,770,779) 1,082,845,520 and USD 839.8 million, respectively. The loan is from a related party (Note 35). As at 31 December 2009 1,110,616,299 (11,040,970) 1,099,575,329

The borrowings are repayable as follows: Ordinary shareholders are entitled to one vote per share. 2009 2008 During 2009 the number of treasury shares held by the Group decreased by 16,729,809. On demand or within one year 30.2 34.2 The Company’s shares are listed on the Russian Trade System (“RTS”) and the Moscow Interbank In two to five years 151.2 239.8 Currency Exchange (“MICEX”) and on 31 December 2009 were traded at USD 1.74 per share. On After five years 668.5 351.3 28 May 2010 were traded at USD 1.88 per share. 849.9 625.3 The Company launched a Level 1 Global Depositary Receipts (GDR’s) programme in Decem- ber 2000. The Company signed a depositary agreement with Deutsche Bank Group, allowing the Less: amounts due for settlement within 12 months (30.2) (34.2) Company’s shareholders to swap their shares for GDR’s, which trade over-the-counter on US and Amounts due for settlement after 12 months 819.7 591.1 European markets. The swap ratio was established at 100 shares per GDR. In accordance with the depositary agreement the total volume of the GDR’s of the Company cannot exceed 20% of the Company’s share capital. In 2001 the Company’s GDR’s were listed on the New Europe Exchange (“NEWEX”) in Vienna and after closing of this stock exchange the GDR’s were transferred to the S tatements F inancial C onsolidated third segment of the stock exchange in Frankfurt. On 31 December 2009 and 28 May 2010 the GDR’s were trade at USD 167.85 and USD 184.53 each, respectively.

126 127 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

32. RETAINED EARNINGS AND DIVIDENDS Elimi- Total Airline Catering Hotels Terminal Other nations Group The statutory accounting reports of the Group companies are the basis for profit distribution and Finance income 2.8 other appropriations. For the years ended 31 December 2009 and 31 December 2008, the statu- Finance costs (53.1) tory profits as reported in the statutory financial statements amounted to 1,553 million Russian Share of income in as- roubles (49.0 million US dollars) and 5,807 million Russian roubles (233.6 million US dollars), sociates 6.9 - - - - - 6.9 respectively. Non-operating expens- 2009 2008 es, net (28.6) Profit before income Retained earnings (thousand roubles) 28,470,489 30,287,589 tax 205.8 Income tax (120.0) At the annual shareholders’ meeting held in 20 June 2009 the shareholders approved dividends in Profit for the year 85.8 respect of 2008, which would be paid to the shareholders between 21 June and 31 December 2009 in the amount of 0.1818 Russian roubles per share (0.73 US cents at the average exchange rate of the year 2008) totalling to 199.9 million Russian roubles (USD 8.1 million at the average exchange Year ended 31 De- rate of the year 2008). The outstanding balance of the dividends payable will be transferred as cember 2009 soon as the relevant shareholders’ bank details are collected. Segment assets 3,141.3 33.8 15.2 964.0 49.9 (277.3) 3,926.9 Associates 17.5 - - - - - 17.5

Unallocated assets 76.4 OPERATING SEGMENTS 33. Consolidated total assets 4,020.8 The Group has four reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of Segment liabilities 616,0 27.8 5.7 33.7 35.7 (53.2) 665.7 the strategic business units, the Group’s General Director reviews internal management reports on Unallocated liabilities 2,349.3 at least a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments: Consolidated • Airline – domestic and international passenger and cargo air transport and other airline serv- total liabilities 3,015.0 ices; Capital expenditure • Catering – includes preparation of food and beverages for air travel; (Note 21) 499.2 2.6 0.5 270.1 0.2 - 772.6 • Hotels – includes operating a hotel; Depreciation and • Airport terminal – includes operating the Sheremetyevo-3 terminal. amortisation 140.0 0.9 3.0 1.3 0.1 - 145.3 There are also other operating segments. However, none of these segments meets any of the Non-recoverable VAT quantitative thresholds for determining reportable segments in 2009 and 2008. (Note 10) 21.4 - - - - - 21.4 Information regarding the results of each reportable segment is included below. Performance is measured based on segment sales revenue and operating profit, as included in the internal man- Elimi- Total agement reports that are reviewed by the Group’s General Director. Segment sales revenue and Airline Catering Hotels Terminal Other nations Group operating profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate Year ended 31 De- within these industries. Inter-segment pricing is determined on an arm’s length basis. cember 2008 External sales 4,570.3 17.6 22.1 - (6.6) - 4,603.4 Elimi- Total Inter-segment sales - 74.3 6.7 - 4.0 (85.0) - Airline Catering Hotels Terminal Other nations Group Total revenue 4,570.3 91.9 28.8 - (2.6) (85.0) 4,603.4 Year ended 31 De- cember 2009 Operating profit/(loss) 327.1 10.7 6.7 (8.6) (14.8) 9.0 330.1 External sales 3,312.1 12.2 15.1 0.7 5.8 - 3,345.9 Finance income 4.5 Inter-segment sales - 76.1 4.8 1.0 2.5 (84.4) - Finance costs (197.0)

Total revenue 3,312.1 88.3 19.9 1.7 8.3 (84.4) 3,345.9 Share of income in S tatements F inancial C onsolidated associates 8.4 - - - - - 8.4 Operating profit/(loss) 279.5 12.4 3.7 (18.0) (1.2) 1.4 277.8 Non-operating income, net 20.6

128 129 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

2009 2008 Elimi- Total Airline Catering Hotels Terminal Other nations Group Cargo revenue:

Profit before International flights from Moscow to: income tax 166.6 Europe 13.7 4.3 Asia 9.9 2.1 Income tax (142.8) North America 2.2 1.2 Profit for the year 23.8 Other 1.2 0.2 27.0 7.8

Year ended 31 De- International flights to Moscow from: cember 2008 Europe 27.1 56.7 Segment assets 2,634.0 28.2 20.3 734.1 44.4 (220.9) 3,240.1 Asia 64.5 57.3 Associates 13.8 - - - - - 13.8 North America 3.3 6.8 Unallocated assets 96.5 Other 0.4 0.2 Consolidated 95.3 121.0 total assets 3,350.4 Other international flights 45.0 151.4 Segment liabilities 725.4 19.4 21.4 25.9 28.5 (52.7) 767.9 Domestic flights 44.0 53.4 Unallocated liabilities 1,645.2 211.3 333.6 Consolidated total liabilities 2,413.1 Capital expenditure (Note 21) 267.3 2.7 2.8 337.2 - - 610.0 34. RISK CONNECTED WITH FINANCIAL INSTRUMENTS Depreciation and Liquidity risk amortisation 154.4 0.9 3.8 0.1 0.1 - 159.3 Is the risk that the Group will not be able to meet its financial obligations as they fall due. The Non-recoverable VAT Group’s approach to managing liquidity is to ensure that, as far as possible, that it will always have (Note 10) 16.8 - - - - - 16.8 sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group entities utilise a detailed budgeting and cash forecasting process to ensure their liquidity is maintained at the appropriate level. 2009 2008 The Group has entered into various agreements with a number of banks in Russia whereby the Scheduled passenger revenue: banks have issued facilities to guarantee the repayment of the Group’s commitments related to International flights from Moscow to: the existing aircraft lease agreements. As at 31 December 2009 the total value of the guarantees Europe 476.4 689.5 issued amounted to USD 376.1 million (31 December 2008: USD 76.4 million). Asia 210.9 293.3 The following are the contractual maturities of financial liabilities, excluding estimated interest pay- North America 48.3 85.1 ments and the impact of netting agreements: Other 26.0 28.5 Average interest rate 761.6 1,096.4 31 December 2009 Contrac- 0-12 1-2 2-5 Over 5 tual Effective months years years years Total International flights to Moscow from: Non-derivative financial Europe 482.6 684.3 liabilities: Asia 209.7 300.6 Loans in US dollars 8.8% 8.8% 49.3 30.7 170.5 616.6 867.1 North America 47.1 84.4 Loans in Russian roubles 13.2% 13.2% 107.1 1.9 - - 109.0 Other 24.4 26.9 Finance lease liabilities 1.1% 1.1% 111.2 90.5 246.3 286.7 734.7 763.8 1,096.2 Customs duties 0% 9.9% 89.8 75.7 21.9 - 187.4 Domestic flights 942.0 1,248.8 Trade and other payables (excluding customs S tatements F inancial C onsolidated Other international flights 45.0 67.5 duties) 0% 0% 584.7 132.3 51.0 5.0 773.0 2,512.4 3,508.9 942.1 331.1 489.7 908.3 2,671.2

130 131 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Average interest rate A 20% strengthening or weakening of the Russian rouble against the following currencies as at 31 December 2009 and 31 December 2008, respectively, would have increased/(decreased) profit 31 December 2008 Contrac- 0-12 1-2 2-5 Over 5 before income tax by the amounts shown below. This analysis assumes that all other variables, in tual Effective months years years years Total particular interest rates, remain constant. The effect on the Group’s equity would be the same as Non-derivative that on the on the Group’s profit. financial liabilities: Loans in US dollars 8.9% 8.9% 73.5 126.2 103.8 351.4 654.9 2009 2008 Loans in Russian roubles 13.3% 13.3% 71.9 9.7 - - 81.6 Percent Effect on Percent Effect on against profit before against profit before Finance lease liabilities 3.8% 3.8% 78.0 65.6 189.8 204.8 538.2 RUR income tax RUR income tax Customs duties 0% 6% 74.2 45.1 18.6 - 137.9 Trade and other paya- Increase in the rate of exchange to rouble bles (excluding customs USD 20% (250.7) 20% (203.5) duties) 0% 0% 592.8 56.7 24.1 5.9 679.5 Euro 20% 4.1 20% 3.4 890.4 303.3 336.3 562.1 2,092.1 Other currencies 20% 12.8 20% 9.4

Customs duties represent discounted liabilities on custom duties regarding finance and operation Decrease in rate of exchange to rouble leases of aircrafts. The effective annualised interest rate is impacted by the date of adding a new USD 20% 250.7 20% 203.5 aircraft to the fleet of the Group. Euro 20% (4.1) 20% (3.4) As at 31 December 2009 the Group had available USD 81.7 million (31 December 2008: USD 451.2 million) in relation to lines of credit granted to the Group by various lending institutions. Other currencies 20% (12.8) 20% (9.4)

Currency risk Interest rate risk The Group is exposed to currency risk in relation to sales, purchases and borrowings that are Changes in interest rates impact primarily loans and borrowings by changing either their value denominated in a currency other than the respective functional currencies of the Group entities, (fixed rate debt) or their future cash flows (variable rate debt). At the time of raising new loans or which are primarily the Russian rouble. The currencies in which these transactions are primarily borrowings management uses judgment to decide whether it believes that a fixed or variable inter- denominated are Euro and USD. est rate would be more favourable to the Group over the expected period until maturity. The Group’s exposure to foreign currency risk was as follows based on notional amounts: As at 31 December 2009 and 31 December 2008 the interest rate profiles of the Group’s interest- bearing financial instruments were: 2009 2008 USD EUR Other Total USD EUR Other Total Carrying amount Cash and cash 2009 2008 equivalents 47.6 8.5 24.0 80.1 20.4 7.3 23.0 50.7 Fixed rate instruments Accounts receivable Financial assets 14.1 33.9 and prepayments, net 379.2 56.9 55.2 491.3 207.1 47.0 39.4 293.5 Financial liabilities (977.9) (709.2) Other non-current assets 51.0 0.2 0.4 51.6 87.6 - - 87.6 (963.8) (675.3) 477.8 65.6 79.6 623.0 315.1 54.3 62.4 431.8 Variable rate instruments Financial assets 0.6 - Accounts payable and Financial liabilities (733.0) (565.5) accrued liabilities 125.7 45.0 15.4 186.1 141.0 37.3 15.3 193.6 (732.4) (565.5) Finance lease liabilities (current portion) 110.9 - - 110.9 76.3 - - 76.3 Finance lease li- During the year some of the Group’s loans bore variable interest rates (Note 27 and Note 29). If abilities (non-current the variable interest rates on borrowings in 2009 were 30% greater or lower that the actual interest portion) 623.5 - - 623.5 460.2 - - 460.2 rates for the period, with all other variables held constant, interest expense would have been higher or lower by USD 0.9 million (2008: USD 0.8 million). Short-term borrowings 49.3 - - 49.3 73.5 - - 73.5 Long-term borrowings 817.8 - - 817.8 581.4 - - 581.4 The interest component of the Group’s finance leases primarily accrues at variable interest rates. If in 2009 those rates were 30% greater or lower than what they actually were, with all other variables Other non-current held constant, interest expense on finance leases for the period would have been different by USD liabilities 4.2 0.2 - 4.4 - - - - 1.1 million (2008: USD 4.9 million). The effect on the Group’s equity would be the same as that on 1,731.4 45.2 15.4 1,792.0 1,332.4 37.3 15.3 1,385.0 the on the Group’s profit. S tatements F inancial C onsolidated Net assets/(liabilities) (1,253.6) 20.4 64.2 (1,169.0) (1,017.3) 17.0 47.1 (953.2)

132 133 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Capital risk management 35. RELATED PARTY TRANSACTIONS Management’s policy is to have a strong capital base as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return The ultimate controlling party of the Company is the Government of the Russian Federation and all on capital and the level of dividends to ordinary shareholders. companies controlled by the Government of the Russian Federation are treated as related parties of the Group for the purpose of these consolidated financial statements. There were no changes in the Group’s approach to capital management during the year. The consolidated financial statements of the Group include the following balances and transaction Neither the Group nor any of its subsidiaries are subject to externally imposed capital require- with related parties: ments. Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receiva- 2009 2008 bles from customers and investment securities. Assets The Group conducts transactions with the following major types of counterparties: Russian Government and companies controlled by the Gov- i. The Group has credit risk associated with travel agents and industry settlement organisa- ernment tions. A significant share of the Group’s sales takes place via travel agencies. Due to the VAT recoverable and customs duties capitalised on leased fact that receivables from agents are diversified the overall credit risk related to agencies is aircraft 584.3 347.5 assessed by management as low. Cash and cash equivalents 53.0 66.1 ii. Receivables from other airlines are carried out through the IATA clearing house. Regular settlements ensure that the exposure to credit risk is mitigated to the greatest extent possible. Trade and accounts receivable 57.6 23.6 iii. Aircraft suppliers require that security deposits are paid by the Group in relation to the future Bank deposits with maturities less than 90 days 1.5 21.9 aircraft deliveries. The Group mitigates this credit risk by performing extensive background Bank deposits with maturity date not exceeding 90 days 2.8 - checks on suppliers. Only well known and reputable companies are contracted with. 699.2 459.1 iv. The Group limits its exposure to credit risk associated with investments by only investing in Associates liquid securities. Management actively monitors the performance and given that the Group only has invested in securities with high credit ratings, management does not expect any Trade and accounts receivable 8.3 9.2 counterparty to fail to meet its obligations. 707.5 468.3 The maximum exposure to the credit risk net of impairment allowance is set out in the table be- Liabilities low: Russian Government and companies controlled by the Gov- ernment 2009 2008 Long-term borrowings 813.6 575.4 Cash and cash equivalents 121.1 146.8 VAT and customs duties payable on leased aircraft 515.5 306.0 Short-term investments 10.4 9.5 Short-term borrowings 122.9 81.7 Trade accounts receivable 318.2 318.6 Trade and other accounts payable 24.0 52.8 Long-term investments 15.6 16.8 1,476.0 1,015.9 Prepayments for aircraft 156.3 95.5 Associates 621.6 587.2 Trade and other accounts payable 10.3 3.5 1,486.3 1,019.4 Most of the amounts in the total credit risk exposure are current.

2009 2008 Sales to Government and companies controlled by the Gov- ernment 41.6 43.7 Sales to associates 9.9 11.1 51.5 54.8

Purchases from associates 42.0 677.9 Purchases from Government and companies controlled by the Government 617.1 571.8

Dividend income received 0.4 0.3 S tatements F inancial C onsolidated

134 135 Consolidated Financial Statements: Notes to the Consolidated Financial Statements

Purchases consist primarily of purchases of aircraft fuel as well as air navigation and airport serv- As at 31 December 2008, commitments under operating leases include USD 13.6 million related to ices. In 2009 and 2008 most of the transactions between the Group and its related parties were lease contracts which were terminated by management in the first half of 2009. based on market prices. The amounts above represent base rentals payable. Maintenance fees payable to the lessor, based The summary of balances and charges relating to the taxes due to the Government of the Russian on actual flight hours, and other usage variables are not included in the figures. Federation for the years 2009 and 2008 is presented below: For details of the fleet subject to operating leases refer to Note 1. 2009 2008

Accounts receivable from tax authorities 283.6 371.0 Accounts payable to tax authorities 20.7 10.8 37. CAPITAL COMMITMENTS The Group’s capital commitments in relation to the acquisition of property, plant and equipment and other services as at 31 December 2009 amounted to approximately USD 665.8 million (31 2009 2008 December 2008: USD 1,397 million). These commitments mainly relate to the finance leases of ten Airbus A-321-200 aircraft, contracts related to the commissioning of the Sheremetyevo-3 terminal Tax refunds received during the period 291.8 390.6 and other contracts related to the Group’s business. Total amount of taxes settled with tax authorities during the period 223.6 376.5

The amounts outstanding to and from related parties mainly will be settled in cash. Tax receivable 38. CONTINGENCIES and tax payable might be offset according to Russian tax legislation. As at 31 December 2009 total amount of guarantees given amount to USD 1.1 million (31 Decem- Political environment ber 2008: USD 1.3 million), guarantees received USD 0.3 million (31 December 2008: USD 0.4 million). The Government of the Russian Federation continues to reform the business and commercial infrastructure in its transition to a market economy. As a result laws and regulations affecting businesses continue to change rapidly. These changes are characterised by poor drafting, different Compensation of key management personnel interpretations and arbitrary application by the authorities. The remuneration of directors and other members of key management (the members of the Board of Directors and Management Committee as well as key managers of flight and ground personnel Business environment who have significant power and responsibilities on key control and planning decisions of the Group) The Russian Federation has been experiencing political and economic change that has affected, consist of short-term benefits including salary and bonuses as well as short-term compensation for and may continue to affect, the activities of enterprises operating in this environment. Consequent- serving on the management bodies of Group companies of 2009 amounted to approximately USD ly, operations in the Russian Federation involve risks that typically do not exist in other markets. In 13.8 million (2008: USD 15.6 million). addition, the recent contraction in the capital and credit markets has further increased the level of Such amounts are stated before personal income tax but exclude unified social tax. According to economic uncertainty in the environment. The consolidated financial statements reflect manage- Russian legislation, the Group makes contributions to the Russian State pension fund as part of ment’s assessment of the impact of the Russian business environment on the operations and the unified social tax for all its employees, including key management personnel. Government officials, financial position of the Group. The future business environment may differ from management’s who are directors, do not receive remuneration from the Group. assessment.

Taxation 36. COMMITMENTS UNDER OPERATING LEASES Russian tax legislation is subject to varying interpretations and constant changes. Furthermore, the interpretation of the tax legislation by the tax authorities, as applied to the transactions and activities of the Group, may not coincide with that of management. As a result, the tax authorities could Future minimum lease payments under non-cancellable aircraft and other operating leases are as challenge transactions and the Group could be assessed additional taxes, penalties and interest. follows: which could be significant. Periods remain open to review by the tax authorities for three years. The Group’s management believes that it has adequately provided for all tax liabilities in the con- 2009 2008 solidated financial statements. However, the risk remains that the relevant authorities could take up On demand or within one year 358.6 269.7 differing positions with regard to interpretative issues and the effect could be significant. In addition, In two to five years 1,409.7 1,254.3 tax treatment of air transportation services is relatively less regulated part of Russian taxation. After five years 1,487.0 1,068.7 Legal action Total minimum payments 3,255.3 2,592.7 Former members of the Group’s management and two Swiss non-bank financial companies that provided treasury and financial services to the Group, are currently under civil and criminal inves-

tigation by the Swiss and Russian authorities for potential misconduct related to funds managed S tatements F inancial C onsolidated under treasury and financial services agreements, which were entered into by the former management of the Group. On 16 November 2006 the court in Moscow considered the Company’s claim against two former employees of the Group and an employee of Financial United Corporation and

136 137 awarded a total of approximately USD 8.2 million in damages to the Group. The Group intends to Notes: pursue the recovery of all losses to the fullest extent possible. However, due to remaining uncertainties in collecting already awarded and any possible additional amounts, it has not recognised any assets related to this matter in its consolidated financial statements.

39. SUBSEQUENT EVENTS

On 21 October 2009 the Moscow Regional Arbitration Court issued a verdict declaring CJSC Aer- oflot-Cargo, a Group subsidiary, insolvent. The verdict comes into force on 5 April 2010.Con- sequently, the Company has commenced transferring Cargo’s business to a newly established department within the Company. All significant liabilities incidental to the court decision have been accounted for in these consolidated financial statements. In January and February 2010 the Company obtained a credit line from Banque Société Générale Vostok for the total amount of USD 60 million at an interest rate of 6-month USD Libor plus 4.5% per annum. The credit line is repayable in July – August 2010. On 17 February 2010 the Company obtained a loan of 12 billion Roubles from Sberbank of the Russian Federation at 11% per annum. The loan was fully repaid on 13 April 2010. On 12 April 2010 the Group issued, in two equal instalments, a total of 12,000,000 interest bearing, non-convertible bonds, with a par value of 1,000 Russian roubles per bond. The bonds were issued at par value and mature on 8 April 2013. Coupon payments on the bonds are to be made semi-annually at a rate of 7.75%. On 26 January 2010 the Company made a decision to purchase 25.8% of its own shares from Nat- sionalnaya Rezervnaya Korporatsia. Consequently, on 24 February 2010, LLC Aeroflot-Finance, the Company’s newly created subsidiary, bought 6.3% of its shares. The remaining 19.5% is currently in the process of being purchased. On 5 May 2010 LLC Aeroflot-Finance announced its plans to purchase 49% of CJSC Nordavia from minority shareholders. As a result of the acquisition the Company will have a full control over CJSC Nordavia. The Group is currently considering a possibility of acquiring a number of Russian regional airlines currently controlled by Rostechnologii. On 7 May 2010 the Company decided to act as the guarantor for a loan facility of 2.5 billion Russian roubles to be issued by Sberbank of the Russian Federation to the Federal State Unitary Enterprise State Transport Company Rossiya. The loan will be issued for the duration of two years and will be denominated in Russian roubles. S tatements F inancial C onsolidated

138 139 APPENDIXES: Information on observance of the Code of Corporate Conduct

Information on observance of the Code of Corporate Observed or Conduct * № Item in the Code of Corporate Conduct not observed Notes

6. Personal presence of Candidates should Partially Observed or be provide when the general meeting of observed № Item in the Code of Corporate Conduct not observed Notes shareholders considers questions of selecting members of the BoD, the CEO, General Meeting of Shareholders executive directors, members of the audit commission, and approval of the 1. Shareholders are notified about any gen- Observed Company Charter, point 17.2. Сompany auditor. eral meeting of shareholders at least 30 days before it is held, regardless of the 7. Internal documents of the company Observed Statute on the General Meeting of agenda items, unless legislation permits should set out the procedure for reg- Shareholders, article 7. a longer notification period. istration of participants of the general meeting of shareholders. 2. Shareholders have the opportunity to ac- Observed In accordance with p.16.4. of the quaint themselves with the list of persons Company Charter, “The list of per- Board of Directors having the right to participate in a gener- sons having the right to take part al meeting of shareholders starting from in the general meeting of share- 8. The charter of the company should en- Observed Company Charter, point 19.2 the date when the meeting is announced holders is provided by the Com- sure the right of the BoD to carry out an- (subpoints 1 and 23). and up to closure of the meeting in case pany for purpose of acquaintance nual approval of the company’s financial of a meeting in person, or up to the last at the request of persons included and business plan. date for receipt of ballots in case of a in the list and controlling at least 1 meeting in absentia. percent of votes.” 9. There should be a procedure for risk Observed The document, “General Guide- manage18ment in the company, which lines for Organization of risk Man- 3. Shareholders have the opportunity to ac- Observed Obeyed in practice. should be approved by the BoD. agement”, was approved by the quaint themselves with information (ma- Board of Directors in May 2008 terials), which are required to be provided in preparation for holding of a general 10. The charter of the company should allow Observed Company Charter, point 19.2 meeting of shareholders, by electronic the BoD to suspend the authority of the (sub-point 8). means of communication, including via CEO, who has been appointed by the Internet. general meeting of shareholders. 4. A shareholder has the opportunity to Observed The Company itself requests 11. The charter should allow the BoD to de- Partially Company Charter, point 19.2 place a question on the agenda of a confirmation from the register of cide requirements for qualifications and observed (subpoints 10 and 12). general meeting of shareholders or re- shareholders when accepting level of remuneration of the CEO, execu- quest convocation of a general meeting agenda proposals for the general tive board members, and heads of main of shareholders without providing an meeting of shareholders. sub-divisions of the company. extract from the register of sharehold- 12. The charter should allow the BoD to ap- Observed Company Charter, point 19.2 ers if his right to shares is accounted via prove the conditions of contracts with the (sub-point 10). the register, and, if his right to shares is CEO and executive board members. via a depo account, he can exercise the above-mentioned rights after presenting 13. The charter or internal documents of the Observed In accordance with Federal Law. an extract from his depo account. company should require that votes of BoD members who are also the CEO and 5. The charter or internal documents of the Observed Statute on the General Meeting of members of the executive board cannot company should contain a requirement Shareholders, point 11.3. be taken into account in voting on condi- for obligatory presence at the general tions of the company’s contract with the shareholders meeting of the CEO, ex- CEO (with management organizations or ecutive directors, BoD members, mem- with managers). bers of the revision commission and the company auditor. 14. The BoD should include at least three di- Observed rectors who are independent, as defined in the Code of Corporate Conduct.

* In the information thet follows, observance of the Code of Corporate Conduct means due account (observance) by the Company of recommendations of the federal body of executive power responsible for the securities market, and of requirements of the Charter and internal documents of the Company itself (valid at the time when this information was compiled), and of legal acts of the Russian Federation governing the activities of joint-stock companies, such as JSC Aeroflot.

140 141 APPENDIXES: Information on observance of the Code of Corporate Conduct

Observed or Observed or № Item in the Code of Corporate Conduct not observed Notes № Item in the Code of Corporate Conduct not observed Notes

15. The BoD should not include any person Observed 24. Internal documents should allow BoD Observed Company Charter, point 21.4; Ar- who has been judged guilty of economic members to obtain information, which is ticle 7 of the Statute on the Board crimes or crimes against government au- necessary for carrying out their functions of Directors. thority, government services or local gov- in the BoD, from executive bodies and ernment services, or has been subject to heads of main structural sub-divisions of administrative sanctions for violations in the company, and should made the lat- the entrepreneurial, financial, fiscal or ter answerable for any failure to provide securities market sectors. such information. 16. The BoD of the company should not in- Observed 25. The company should have a BoD com- Observed Statute on the Board of Directors, clude any person who is a stakeholder, mittee on strategic planning or the func- subpoint 11.3 of article 11; Statute CEO (manager), member of a manage- tions of such a committee should be as- on the Audit Committee. ment body or employee of any legal en- signed to some other committee (other tity, which is in competition with the com- than the audit committee or personnel pany. and remunerations committee). 17. The charter should require election of the Observed Company Charter, point 19.4. 26. The company should have a BoD com- Observed Statute on the Board of Directors, BoD by cumulative voting. mittee (the audit committee), which rec- subpoint 11.3 of article 11; Statute ommends an auditor for the company to on the Audit Committee. 18. Internal documents should require BoD Partially Company Charter, point 22.1; Ar- the BoD and collaborates with the auditor members to refrain from any actions, observed ticle 8 of the Statute on the Board and the company revision commission. which will or might lead to a conflict be- of Directors. tween their own interests and interests 27. The audit committee should only include Observed of the company and, if such a conflict independent and non-executive direc- arises, they internal documents should tors. require them to disclose the relevant information to the BoD. 28. The audit committee should be headed Observed by an independent director 19. Internal documents should require BoD Observed The procedure for members of members to notify the BoD in writing if the Board of Directors to declare 29. Internal documents should allow all Observed Statute on the Audit Committee, they intend to carry out transactions with any interest in transactions by the members of the audit committee to have points 3.4 and 4.11. securities of the company, in which they Company is regulated by point access to any company documents and are serving as BoD members, or of its 22.7 of the Company Charter and information on condition that confidential subsidiaries (dependent companies), by Articles 81 and 82 of the Law information is not disclosed. and should disclose information about “On Joint-stock Companies”. 30. The company should have a BoD com- Observed Statute on the Board of Directors, any transactions, which they have car- mittee (the personnel and remunerations sub-point 11.3 of article 11; Stat- ried out with such securities. committee), whose function is to define ute on the Personnel and Remu- 20. Internal documents should require hold- Observed Statute on the Board of Directors, criteria for choice of BoD candidates and neration Committee. ing of BoD meetings at least once every article 5. to design company remuneration policy. six weeks. 31. The personnel and remunerations com- Observed 21. BoD meetings in the year, for which the Observed Statute on the Board of Directors, mittee should be headed by an inde- annual report is prepared, should be held article 5. pendent director. at least once every six weeks. 32. The personnel and remunerations com- Observed 22. Internal documents should set out the Observed Statute on the Board of Directors, mittee should not include executives of procedure for conduct of BoD meetings. article 5; Regulations for Meet- the company. ings of the Board of Directors of 33. The company should have a BoD com- Partially In accordance with sub-point 11.1 JSC Aeroflot. mittee on risk management or the func- observed of article 11 of the Statute on the 23. Internal documents should require ap- Observed Company Charter, point 19.2 tions of such a committee should be as- Board of Directors, the Board of proval by the BoD of any transaction with (sub-point 21). signed to another committee (other than Directors can create permanent value equal to or exceeding 10% of the the audit committee and the personnel and temporary committees. company asset value s, except for trans- and remunerations committee). actions carried out in the course of the company’s normal business.

142 143 APPENDIXES: Information on observance of the Code of Corporate Conduct

Observed or Observed or № Item in the Code of Corporate Conduct not observed Notes № Item in the Code of Corporate Conduct not observed Notes

34. The company should have a BoD commit- Partially There have been no corporate 43. Executive bodies should not include any Observed tee on resolution of corporate conflicts or observed conflicts since July 28, 1992 (the person who has been judged guilty of the functions of such a committee should date of creation since July 28, economic crimes or crimes against gov- be assigned to another committee (other 1992 (the date of creation since ernment authority, government services than the audit committee and the person- July 28, 1992 (the date of creation or local government services, or has nel and remunerations committee). arise, the Board of Directors has been subject to administrative sanctions the right to create a committee for for violations in the entrepreneurial, fi- resolution of corporate conflicts nancial, fiscal or securities market sec- (Statute on the Board of Directors, tors. If the function of unique executive sub-point 11.1 of article 11). body is carried out by a professional managing organization or manager, the 35. The committee on resolution of corporate Not A committee of the Board of Di- CEO and executives of the organization conflicts should not include executivesof observed rectors for resolution of corporate or the manager should be subject to the the company. conflicts has not been created. same requirements. 36. The committee on resolution of corpo- Not A committee of the Board of Di- 44. The Charter or internal documents Not The Company Charter does not rate conflicts should be headed by an observed rectors for resolution of corporate should forbid any managing organization observed require any statute on a manag- independent director. conflicts has not been created. or manager to carry out analogous func- ing organization or manager. 37. The company should have internal docu- Observed Separate statutes for each com- tions for a competing company or to be in ments, approved by the BoD, which mittee of the Board of Directors. any ownership relationship with the com- regulate the procedure for formation and pany apart from provision of the services operation of BoD committees. of managing organization (manager). 38. The company charter should define a Not 45. Internal documents should require exec- Observed Company Charter, article 22; BoD quorum in such a way that partici- observed utive bodies to refrain from any actions, Statute on the Executive Board, pation of independent directors in BoD which will or might lead to a conflict be- sub-points 5.5, and 5.10—5.15. meetings is essential. tween their own interests and interests of the company and, if such a conflict arises, they should be required to disclose Executive Bodies the conflict to the BoD. 39. The company should have a collegiate Observed Company Charter, point 21.1. 46. The Charter or internal documents should Not The Company Charter does not executive body (board). set out criteria for selection of a manag- observed require any statute on a manag- 40. The charter or internal documents should Observed Statute on the Executive Board, ing organization (manager). ing organization (manager). require approval by the executive board paragraph 2; Company Charter, 47. Executive bodies should submit monthly Partially Company Charter, point 21.4.5 of of real estate transactions and taking of point 21.4 of article 21. reports on their work to the company observed article 21. credits by the company, unless the rel- BoD. evant transactions are classed as major transactions and therefore do not relate 48. Contracts between the company and the Observed CEO Employment Contract, sub- to normal conduct of business by the CEO (managing organization, manager) point 11 of point 2.3; Standard company. and executive bodies should assign re- Employment Contract, sub-point sponsibility for violation of regulations on 6.2. 41. Internal documents should contain a pro- Observed Company Charter, sub-points use of confidential or official information. cedure for approving operations, which 19—21 of point 19.2 of article 19, exceed the limits of the company’s finan- and sub-point 12 of point 21.5 of Corporate Secretary cial and business plan. article 21. 49. The company should have a special of- Observed Statute on the Board of Directors, 42. Executive bodies should not include any Observed In accordance with sub-point 5.11 ficer (the corporate secretary), whose article 10; Company Charter, person who is a stakeholder, CEO (man- of the Statute on the Executive function is to ensure observation by point 19.8. ager), member of an executive body or Board. company bodies and officers of proce- worker of an legal entity, which is in com- dural requirements that guarantee imple- petition with the company. mentation of rights and lawful interests of company shareholders.

144 145 APPENDIXES: Information on observance of the Code of Corporate Conduct

Observed or Observed or № Item in the Code of Corporate Conduct not observed Notes № Item in the Code of Corporate Conduct not observed Notes

50. The charter or internal documents should Observed Company Charter, point 19.8. Information Disclosure specify a procedure for nominating (elect- 58. The company should have an internal Observed Statute on Corporate Information ing) the corporate secretary and the re- document approved by the BoD defining Policy. sponsibilities of the corporate secretary. rules and approaches to information dis- 51. The Charter should specify criteria for Not closure (statute on information policy). candidates to serve as corporate secre- observed 59. Internal documents should require dis- Partially Statute on Corporate Information tary. closure of the purposes of any share observed Policy, point 3.2.1. placement, the persons who plan to Major Corporate Actions acquire the shares (also in the case of large share stakes) and whether senior 52. The Charter or internal documents Not officials of the company will participatein should include requirements for approval observed acquisition of the shares. of major transactions prior to their implementation. 60. Internal documents should provide a full Observed Statute on the General Meet- list of information, documents and mate- ing of Shareholders, sub-points 53. An independent appraiser should be en- Partially Common practice. rials, which must be supplied to share- 5.5.1, 5.5.2, 5.5.3, 5.5.4 of point gaged for appraisal of market value of observed holders for resolution of issues raised at 5.5. property, which is the object of a major general meetings of shareholders. transaction. 61. The company should have a corporate Observed Generally available corporate in- 54. The charter should forbid any actions by Not web site in the Internet and should regu- formation and documents, which the company’s executive bodies (mem- observed larly disclose company information on must be provided to all interested bers of executive bodies) or BoD mem- that web site. parties, are in open access on bers, which are intended to protect their the corporate site, www.aeroflot. own interests or which tend to worsen ru. the situation of shareholders when large share stakes in the company are being 62. Internal documents should require dis- Partially Statute on Corporate Information acquired (takeover). In particular the closure of information about company observed Policy, point 3.2.1. charter should forbid any decision by transactions with persons whom the the BoD on additional share issue, issue company charter categorises as senior of securities convertible into shares or company officials, and also about com- securities offering the right to purchase pany transactions with organizations, company shares until the period of ac- in which senior officials of the company quisition of the large stake has expired, directly or indirectly own 20 or more per- even if such a decision is the right of the cent of share capital or over which such BoD in other circumstances. officials can exert significantinfluence by other means. 55. The charter should require engagement Observed In accordance with the Federal of an independent appraiser to appraise Law, “On Joint-stock Compa- 63. Internal documents should require dis- Partially Code of Corporate Conduct, current market value of shares and pos- nies”, hiring of appraisers is com- closure of information about all transac- observed point 3. sible changes in their market value as a pulsory if the state owns more tions, which can have serious impact on result of takeover. than 2% of shares. market value of company shares. 56. The charter should not release the buyer Observed 64. The company should have an internal Observed Statute on Corporate Information in a takeover from the obligation to offer document, approved by the BoD, setting Policy, point 3.2.3. to buy common shares (securities con- out rules for use of material information vertible into common shares) from other on company business, its shares and shareholders. other securities and transactions with them in cases where such information is 57. The Charter or internal documents should Not not generally available and where its dis- contain an requirement to engage an in- observed closure may have significant impact on dependent appraiser for appraisal of the market value of shares and other securi- share conversion ratio during reorgani- ties of the company. zation.

146 147 APPENDIXES: Information on observance of the Code of Corporate Conduct

Observed or Observed or № Item in the Code of Corporate Conduct not observed Notes № Item in the Code of Corporate Conduct not observed Notes

Supervision of Financial and Business Operations 74. The company should have an internal Observed Statute on the Revision Commis- document, approved by the BoD, defin- sion, point 3.1 of article 3. 65. The company should have procedures, Observed Statute on the Internal Audit ing the procedure for checks of financial approved by the BoD, for internal control Service. and business activity by the company’s of its financial and business operations. audit commission. 66. The company should have a special sub- Observed Statute on the Internal Audit 75. The BoD audit committee should give an Observed Company Charter, point 24.4 of division for supervising internal control Service. assessment of the auditor’s report prior article 24; Statute on the Audit procedures (a control and audit service). to its presentation to shareholders at the Committee, point 5.5. 67. Internal documents should require defi- Observed Statute on the Internal Audit general meeting of shareholders. nition of the structure and composition Service. of the control and audit service by the Dividends BoD. 76. The company should have an internal Partially The Statute on Dividend Policy 68. The control and audit service should Observed document, approved by the BoD, which observed approved by the Executive Board not include any person who has been the BoD uses for guidance when making of JSC Aeroflot. judged guilty of economic crimes or decisions on dividend recommendations crimes against government authority, (statute on dividend policy). government services or local government services, or has been subject to 77. The statute on dividend policy should Partially The Company Charter does not administrative sanctions for violations contain a procedure for defining the observed envisage preferred shares. in the entrepreneurial, financial, fiscal or minimum share of company net profit, securities market sectors. which must be paid out as dividends, and should specify the conditions, un- 69. The control and audit service should not Observed der which dividends on preferred shares include any person who is a member of (whose sise is defined in the company other executive bodies of the company charter) are not paid or not paid in full. or who is a stakeholder, CEO (manager), member of a management body or work- 78. Company dividend policy and amend- Not er of any legal entity, which is in competi- ments to that policy should be published observed tion with the company. in a periodical publication, which is in- dicated by the company charter as the 70. Internal documents should set out sched- Partially Statute on the Revision Commis- place for announcement of shareholder ules for submission of documents and observed sion. meetings, and should also be placed on materials to the control and audit service the company’s web site in the Internet. for assessment of financial andbusiness operations, and should define responsibility of company officials andworkers for failure to meet such schedules. 71. Internal documents should oblige the Observed Statute on the Internal Audit control and audit commission to inform Service. the BoD audit committee of any violations, which are discovered, or to inform the BoD directly in case the company does not have an audit committee. 72. The charter should require prior assess- Not ment by the control and audit commis- observed sion of the advisability of carrying out any operations, which were not envisaged by the company’s financial and business plan (non-standard operations). 73. Internal documents should contain a pro- Partially Part of powers of the Board of cedure for approval of non-standard op- observed Directors. erations by the BoD.

148 149 APPENDIXES: Operational statistics of Group Aeroflot

Operational statistics of Group Aeroflot

JSC Aeroflot

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Aircraft kilometers flown thousands International routes 137,185.6 133,287.6 135,608.8 121,925.0 124,451.9 138,982.4 147,689.8 156,187.2 156,251.7 160,745.8 154,490.8 Domestic routes 32,887.0 37,074.7 42,230.4 39,752.0 40,537.7 41,343.6 45,378.9 55,683.8 66,119.4 76,697.4 70,216.6 Total 170,072.6 170,362.2 177,839.2 161,677.0 164,959.6 180,326.0 193,068.7 211,871.0 222,371.1 237,443.2 224,707.4 Aircraft departures International routes 45,474 44,275 45,777 41,952 42,282 46,261 49,786 52,516 53,746 56,612 54,961 Domestic routes 14,703 17,878 21,541 20,985 21,617 21,771 23,461 28,766 33,619 38,200 31,629 Total 60,177 62,153 67,318 62,937 63,899 68,032 73,247 81,282 87,365 94, 812 86,590 Aircraft hours flown International routes 174,059 169,421 172,596 154,360 156,670 175,973 187,266 197,559.0 198,664.6 206,024.0 195,930.5 Domestic routes 43,730 49,983 57,639 54,643 54,845 56,102 61,085 74,346.9 87,250.6 100,722.1 90,347.8 Total 217,789 219,404 230,235 209,003 211,515 232,075 248,351 271,905.9 285,915.2 306,746.1 286,278.3 Passengers carried thousands International routes 3,440.2 3,704.6 4,205.2 3,885.4 4,129.8 4,647.6 4,649.7 4,939.5 5,356.3 5,696.3 5,412.6 Domestic routes 1,169.1 1,396.3 1,625.5 1,603.9 1,713.7 1,942.5 2,016.8 2,350.9 2,809.9 3,575.1 3,342.9 Total 4,609.3 5,100.9 5,830.7 5,489.3 5,843.5 6,590.1 6,666.5 7,290.4 8.166,2 9,271.4 8,755.5 thousand Cargo and mail tonnes International routes 80.0 95.4 86.8 93.3 95.7 124.9 121.8 118.8 67.4 57.5 51.3 Domestic routes 9.5 12.1 14.8 16.2 18.5 20.6 23.6 26.5 28.5 30.4 35.5 Total 89.5 107.5 101.6 109.5 114.2 145.5 145.4 145.3 95.9 87.9 86.8 Revenue passenger kilometers millions International routes 13,240.8 14,068.1 15,110.4 13,826.3 14,163.7 16,171.5 15,897.7 16,753.7 18,033.0 18,745.5 17,345.9 Domestic routes 3,164.6 3,366.1 3,833.0 3,818.9 4,038.9 4,476.7 4,797.1 5,652.8 6,672.3 8,502.0 8,640.3 Total 16,405.4 17,434.2 18,943.4 17,645.2 18,202.6 20,648.2 20,694.8 22,406.5 24,675.3 27,247.5 25,986.2 Available seat kilometers millions International routes 23,366.1 21,917.7 23,522.6 20,551 20,848.0 23,728.1 23,255.7 24,257.6 26,041.8 26,889.3 25,770.2 Domestic routes 4,273.1 4,632.9 5,273.5 5,251.5 5,393.1 6,253.5 6,721.6 7,688.2 9,077.6 11,522.7 11,629.5 Total 27,639.2 26,550.6 28,796.1 25,802.5 26,241.1 29,981.6 29,977.3 31,945.8 35,119.4 38,412.0 37,399.7 Passenger load factor % International routes 56.7 64.2 64.2 67.3 67.9 68.2 68.4 69.1 69.1 69.7 67.3 Domestic routes 74.1 72.7 72.7 72.7 74.9 71.6 71.4 73.5 73.5 73.8 74.3 Total 59.4 65.7 65.8 68.4 69.4 68.9 69.0 70.1 70.3 70.9 69.5 Revenue tonne kilometers millions International routes 1,722.5 1,872.2 1,822.2 1,735.6 1,805.0 2,212.5 2,192.1 2,253.8 1,959.6 1,949.2 1,793.2 Domestic routes 338.5 368.6 436.7 415.6 447.7 498,5 539.0 630.9 731.3 894.1 945.4 Total 2,061.0 2,240.8 2,258.9 2,151.2 2,252.7 2,711.0 2,731.1 2,884.7 2,690.9 2,843.3 2,738.6 Available tonne kilometers millions International routes 3,479.0 3,493.8 3,534.5 3,130.1 3,258.8 3,869.4 3,849.4 3,988.4 3,661.1 3,599.0 3,383.3 Domestic routes 581.1 619.6 690.7 684.1 692.3 792,9 859.9 1,012.4 1,167.1 1,459.9 1,516.7 Total 4,060.1 4,113.4 4,225.2 3,814.2 3,951.1 4,662.3 4,709.3 5,000.8 4,828.2 5,058.9 4,900.0 Commercial load factor % International routes 49.5 53.6 51.6 55.4 55.4 57.2 56.9 56.5 53.5 54.2 53.0 Domestic routes 58.3 59.5 63.2 60.8 64.6 62.9 62.7 62.3 62.7 61.2 62.3 Total 50.8 54.5 53.5 56.4 57.0 58.1 58.0 57.7 55.7 56.2 55.9

150 151 APPENDIXES: Operational statistics of Group Aeroflot

DONAVIA

2000* 2001 2002 2003 2004 2005 2006 2007 2008 2009 Aircraft kilometers flown thousands International routes 1,630.2 2,485.1 2,623.0 3,011.1 4,192.3 3,581.0 3,493.9 7,507.7 10,334.8 10,023.2 Domestic routes 4,509.8 7,718.5 6,503.2 7,648.1 8,279.6 7,851.7 7,799.0 8,695.8 11,871.4 10,604.8 Total 6,140.0 10,203.6 9,126.5 10,659.2 12,471.9 11,432.7 11,292.9 16,203.5 22,206.2 20,628.0 Aircraft departures International routes 855 1,276 1,373 1,833 2,622 2,268 2,199 4,126 5,472 4,746 Domestic routes 3,008 5,079 5,235 6,012 6,018 5,675 5,834 6,157 8,019 7,604 Total 3,863 6,355 6,608 7,845 8,640 7,943 8,033 10,283 13,491 12,350 Aircraft hours flown International routes 2,160 3,239 3,336 3,939 5,568 4,640 4,606 9,827 13,764.5 13,448.5 Domestic routes 6,097 10,523 9,208 10,661 11,179 10,513 10,576 12,005 16,593.3 15,179.0 Total 8,257 13,762 12,544 14,600 16,747 15,153 15,182 21,832 30,357.8 28,627.5 Passengers carried thousands International routes 63.2 86.5 103.1 129.9 173.4 180.1 170.2 524,8 758.8 698.6 Domestic routes 199.8 313.5 324.3 376.9 414.7 419.5 418.0 432,0 555.6 511.7 Total 263.0 400.0 427.4 506.8 588.1 599.6 588.2 956,8 1,314.4 1,210.3 Cargo and mail thousand tonnes International routes 0.4 0.3 0.6 0.6 0.6 0.5 0.5 0.3 0.4 0.2 Domestic routes 1.4 1.9 1.8 2.0 2.1 2.1 1.8 1.7 2.0 1.6 Total 1.8 2.2 2.4 2.6 2.7 2.6 2.3 2.0 2.4 1.8 Available seat kilometers millions International routes 189.4 276.9 352.7 382.1 513.3 492.1 410.9 1,322.1 1,997.6 1,861.3 Domestic routes 582.1 812.3 674.3 901.9 1,090.1 1,098.2 957.6 952.3 1,460.2 1,142.8 Total 771.5 1,089.2 1,027.0 1,284.0 1,603.4 1,590.3 1,368.5 2,274.4 3,457.8 3,004.1 Revenue passenger kilometers millions International routes 122.9 171.1 201.1 216.6 286.9 305.7 287.5 1,044.7 1,608.3 1,625.3 Domestic routes 374.6 527.4 447.2 527.4 595.7 606.5 587.0 620.3 931.4 766,5 Total 497.5 698.5 648.3 744.0 882.6 912.2 874.5 1,665.0 2,539.7 2,391.8 Passenger load factor % International routes 64.9 61.7 57.0 56.6 55.8 62.1 70.0 79.0 80.5 87.3 Domestic routes 64.4 65.0 66.3 58.5 54.6 55.2 61.3 65.1 63.8 67.1 Total 64.5 64.1 63.1 57.9 55.0 57.4 63.9 73.2 73.4 79.6 Revenue tonne kilometers millions International routes 11.9 16.0 19.3 20.8 27.0 28.5 26.7 94.6 145.3 146.6 Domestic routes 37.6 52.1 43.7 51.2 57.3 58.5 56.2 58.5 87.4 71.2 Total 49.5 68.1 63.0 72.0 84.3 87.0 82.9 153.1 232.8 217.8 Available tonne kilometers millions International routes 17.7 27.4 34.3 37.8 52.4 50.0 43.1 137.2 210.4 191.1 Domestic routes 53.7 83.1 70.5 90.5 104.3 105.8 96.6 93.2 144.6 111.4 Total 71.4 110.5 104.8 128.3 156.7 155.8 137.7 230.4 355.1 302.5 Commercial load factor % International routes 67.2 58.3 56.2 54.7 52.0 57.0 61.9 68.9 69.1 76.7 Domestic routes 70.0 62.8 61.8 56.6 55.0 55.3 59.4 62.8 60.4 63.9 Total 69.3 61.7 60.0 56.0 54.0 55.8 60.2 66.4 65.6 72.0

* as of the date when the company joined the Group (April 13, 2000)

152 153 APPENDIXES: Operational statistics of Group Aeroflot

Nordavia Revenue tonne kilometers millions 2004 2005 2006 2007 2008 2009 International routes 1.1 10.6 9.1 10.8 15.7 8.7 Aircraft kilometers Domestic routes 8.4 74.6 88.2 135.1 114.1 135.0 flown thousands Total 9.5 85.2 98.3 145.9 129.8 143.7 International routes 255.1 2,039.0 1,774.5 2,093.3 2,408 1,396.7 Cargo load factor % Domestic routes 1,790.4 14,719.6 18,084.6 23,946.6 21,243 21,330.3 International routes 73.3 65.8 70.9 65.8 67.2 65.5 Total 2,045.5 16,758.6 19,859.1 26,039.9 23,651 22,727.0 Domestic routes 65.6 64.8 62.4 64.1 63.2 64.7 Aircraft departures Total 66.4 65.0 63.2 64.2 63.7 64.7 International routes 188 1,384 1,522 1,631 1,747 1,095.0 Domestic routes 1,727.0 13,891 17,331 18,760 17,696 16,840.0 * as of the date when the Company joined the Group (October 8, 2004) Total 1,915 15,275 18,853 20,391 19,443 17,935.0 Aircraft hours flown International routes 596 3,852 3,315 3,858 4,260 2,566 Domestic routes 3,489 26,864 32,826 40,741 36,988 36,390 Aeroflot-Cargo Total 4,085 30,716 36,141 44,599 41,248 38,956 2007 2008 2009 Passengers carried thousands Aircraft kilometers flown thousands International routes 9.4 76.3 65.5 67.7 95.1 57.9 International routes 8,517.0 9,742.6 7,876.1 Domestic routes 87.3 729.6 809.8 1,014.3 919.4 1,038.4 Domestic routes 384.0 457.3 Total 96.7 805.9 875.2 1,082.0 1,014.6 1,096.2 Total 8,901.0 10,199.9 7,876.1 thousand Aircraft departures Cargo and mail tonnes International routes 1,977.0 2,681.0 1,964.0 International routes 0.1 0.1 0.1 0.05 0.05 0.02 Domestic routes 62.0 124.0 Domestic routes 0.6 3.5 4.1 5.4 4.8 4.48 Total 2,039.0 2,805.0 1,964.0 Total 0.7 3.6 4.2 5.5 4.9 4.5 Aircraft hours flown Available seat International routes 10,427.0 11,772.7 9,415.0 kilometers millions Domestic routes 445.0 562.0 International routes 16.3 169 152.2 174.5 256.6 142.3 Total 10,872.0 12,334.7 9,415.0 Domestic routes 132.2 1,168.7 1,426.1 2,167.5 1,799.7 2,073.1 Cargo and mail thousand tonnes Total 148.5 1,337.7 1,578.5 2,342.0 2,056.3 2,215.3 International routes 47.8 59.9 55.9 Revenue passenger kilometers millions Domestic routes 2.5 4.0 International routes 11.1 116 111.1 119.2 174.1 101.7 Total 50.3 63.9 55.9 Domestic routes 87.5 791.2 932.7 1,419.6 1,200.7 1,426.6 Available tonne kilometers millions Total 98.6 907.2 1,043.8 1,538.8 1,374.8 1,528.4 International routes 497.0 640.9 667.4 Passenger load Domestic routes 23.0 27.7 factor % Total 520.0 668.6 667.4 International routes 67.9 68.6 73.0 68.3 67.9 71.5 Revenue tonne kilometers millions Domestic routes 66.2 67.7 65.4 65.5 66.7 68.8 International routes 354.6 412.4 428.6 Total 66.4 67.8 66.1 65.7 66.9 69.0 Domestic routes 15.6 22.2 Available tonne Total 370.2 434.6 428.6 kilometers millions Commercial load factor % International routes 1.5 16.1 14.1 16.4 23.4 13.2 International routes 71.0 64.4 64.2 Domestic routes 12.8 115.0 141.4 210.7 180.5 208.9 Domestic routes 69.0 80.0 Total 14.3 131.1 155.5 227.1 203.9 222.1 Total 71.0 65.0 64.2

154 155 APPENDIXES: Aeroflot representative offices

Aeroflot representative offices City Code Telephone Fax Address

Angola City Code Telephone Fax Address Rua Coronel Aires de Ornelas № Luanda 244-2 22430599 22430599 1-A/B-r/c Own sales offices 499 245-38-51 4 Frunzenskaya Embankment Armenia 499 238-80-35 7 Korovy Val Street Yerevan 374-10 532131 522435 12 Amiryan Street 499 621-51-31 20/1 Petrovka Street Australia 495 628-41-54 3 Kuznetsky Most Street 24 Level 44 Market Street Sydney Sydney 61-2 92622233 92621821 NSW 2000 499 186-20-74 19 Yeniseyskaya Street Austria 495 953-66-73 37/19 Pyatnitskaya Street Vienna 43-1 512150180 512150178 10 Parkring, 1010 Vienna 495 223-55-55 Sheremetyevo-F (2) Azerbaijan Moscow 495 223-55-55 Sheremyetevo-D (3) Baku 994-12 4981167 4981166 23 Hajibeyov Street Representative offices Belarus Anapa 86133 32-255 31-566 170 Krymskaya Street Minsk 375-17 3286979 3286895 Office 101, 25, J. Kupala Street Arkhangelsk 8182 65-14-55 65-14-55 88 Naberezhnaya Severnoy Dviny Astrakhan 8512 44-55-55 44-55-55 3 Gubernator A. Guzhvin Prospect Belgium Barnaul 3852 36-99-02 38-02-45 85А Dmitrov Street Brussels 32-2 5136066 5122961 58 Rue des Colonies Chelyabinsk 351 237-09-17 237-09-17 90 Svobody Street Bulgaria Ekaterinburg 343 356-55-70 356-55-70 41 Belinsky Street Irkutsk 3952 25-57-80 21-13-31 27 S. Razin Street Sofia 359 9622255 9625566 22 Zlaten Rog Street Kaliningrad 4012 91-64-55 95-64-54 4 Pobedy Square China Kemerovo 3842 36-80-18 34-94-51 1 Kolomytseva Street N.2 Chao Yang Men Bei Da Jie, Khabarovsk 4212 78-34-35 78-34-56 50 Pushkin Street Beijing 86-10 65002412 65012563 Beijing 100027, PR China Krasnodar 861 210-00-10 210-00-91 43 Krasnaya Street Suite 2918,29 Floor, Shui on Centre, Krasnoyarsk 3912 20-64-36 20-64-37 37 Mira Rrospect 6-8 Harbour Road, Wanchai, Hong Mineralnye Vody 87922 59-920 59-920 24 Zheleznovodskaya Street Hong Kong 852 25372611 25372614 Kong Murmansk 8152 42-80-19 42-80-19 24 Kirovo Prospect Suite 203A, Shanghai Centre, 1376 Nizhnevartovsk 3466 61-33-96 24-55-55 11 Omskaya Street Shanghai 8621 62798033 62798035 Na Jing Xi Road, Shanghai, China Nizhniy Novgorod 8312 434-40-40 434-41-88 6 Gorky Square, Croatia Novosibirsk 383 223-15-79 217-96-98 28 Krasny Prospect Zagreb 385-1 4872055 4872051 6 Subica Zrinskog, 10000 Zagreb Omsk 3812 25-13-22 24-79-55 14 Ordzhonikidze Street Perm 342 290-13-03 290-13-02 10 Lenin Street Cuba Petropavlovsk-K. 4152 30-07-22 30-08-30 35 Sovietskaya Street 5-ta Avenida, Entre76 Y 78, Edificio Samara 846 276-02-77 276-02-80 141 Leninskaya Street, Barcelona, Oficina 208, Miramar Trade Center, Miramar Playa, Ciudad Surgut 3462 23-42-43 23-38-77 41 Lenin Street Havana 537 2043200 2045593 Habana, Cuba Tyumen 3452 68-11-55 38-38-72 84/1 Malygina Street Vladivostok 4232 20-88-19 20-90-41 143 Svetlanovskaya Street Cyprus Volgograd 8442 38-54-79 38-54-80 15 Lenin Prospect 32 B&C, Homer Avenue, P.O. Box Ufa 3472 79-60-55 79-60-75 5/3 Lenin Street Nicosia 357-22 669071 678484 22039, 1097 Nicosia Yuzhno-Sakhalinsk 4242 78-87-55 78-45-55 Khomutovo Airport Czech Republic Affiliates Prague 420-2 27020020 24812683 5 Truhlárská, 11000 Praha 1 Magadan 4132 63-90-80 63-90-80 31/1 Karl Marx Street Denmark St Petersburg 812 438-55-85 572-43-10 1/43 Rubenstein Street 1.1 Vester Farimagsgade, Room 1255 Sochi 8622 64-45-11 64-56-75 61А Rose Street Copenhagen 45 33126338 33141182 DK-1606, Copenhagen

156 157 APPENDIXES: Aeroflot representative offices

City Code Telephone Fax Address City Code Telephone Fax Address

Egypt Kyrgyzstan 18 El Boustan Street., El Boustan Bishkek 996-312 620072 620075 64/1 Bul. Erkindik Cairo 20-2 23900429 23900407 Commercial Centre Republic of Korea Finland 404 City Air Terminal Building, 159-6, Helsinki 358-9 659655 661021 00100 Manner-Heimintie, 5 Helsinki Seoul 822 5693271 5693276 Samsung-Dong, Kangnam-ku, Seoul

France Latvia Aéroport Côte d'Azur, Terminal 1, Riga 371-6 77807720 7780771 9 Scolas str., Riga, Latvia LV-1010 Nice 33-4 93214482 93214544 06281 Nice Cedex Lebanon 33 Avenue des Champs Elysées, Paris 33-1 42254381 42560480 75008 Beirut 9611 739596 739597 Verdun Str., Selim Saab Bld. 2-Floor

Germany Lithuania Berlin 49-30 22698130 22698136 51 Unter den Linden, 10117 Berlin Vilnius 370 52127550 52124189 8/2 Pilimo Street, 2001 Vilnius

Dusseldorf 49-211 86443110 320928 26 Berliner Allee, 40212 Düsseldorf Malaysia 41 Wilhelm-Leuschner Strasse, Lot 2.33, 2nd floor, Bangunan Ang- Frankfurt/m 49-69 27300612 27300619 60329 Frankfurt am Main kasa Raya, Jalan Ampang, 50450 Flughafen Hannover-Langenhagen Kuala Lumpur 60-3 21416000 21416946 Kuala Lumpur Terminal C Zimmer 311, Postfach Hannover 49-511 9772065 9772064 420251, 30662 Hannover Mongolia 60 Admiralitätstrasse, 20459 Ham- Ulan Bator 976-11 319286 323321 15 Seoul Street, Ulan Bator, 210644 Hamburg 49-40 3742883 3742888 burg Netherlands Munich 49-89 288261 2805366 2 Isartorplatz, 80331 München 26-3 Weteringschans, 1017 SG, Greece Amsterdam 31-20 6245715 6259161 Amsterdam 14 Xenofontos Street, Syntagma - GR Athens 30-210 3220986 3236375 105 57, Athens, Greece

Hungary Budapest 361 3185955 3171734 18 Jozsef Attila Utca, 1050 Budapest

India 15-17 Tolstoy House, Tolstoy Marg, Delhi 91-11 23312843 23723245 110001 New Delhi

Iran Tehran 98-21 88919315 88807494 62 Sadr Str, Vali Asr Ave, Tehran

Italy Milan 3902 66987538 66984632 3 Via Marina, 20121 Milano Rome 3906 420385 42904923 76 Via Bissolati, 00187 Roma Aeroport Marco Polo, Tessera, Ven- Venice 39-041 2698484 2698447 ezia Luigi Broglio street 8, 30030

Japan Toranomon Kotohira Tower 16F, 1-2-8 Toranomon, Minato-ku, Tokyo, Japan Tokyo 81-3 55328781 55328821 105-0001

Kazakhstan Almaty 727 2915416 2915597 42 Begalina Street

158 159 APPENDIXES: Glossary

Glossary

— All companies (standalone legal entities), linked by financial and economic ties, Aeroflot Group that includes the following aspects of airline operations: organization and management system; flight that carry out coordinated business in the air transportation market, of which Aeroflot is the head (par- operations; aircraft engineering and maintenance; ground handling; operational control and flight dis- ent) company and corporate center, based on its significant or controlling stakes in them. patch; cabin crew; aviation security; cargo operations and transport of hazardous cargos. — A system for submitting lists with ad- APIS (Advance Passenger Information System) — International Organization for Standardization. ditional information about passengers to customs and border services in the country of arrival. ISO — A series of international standards aimed at creating a quality control system at an enter- — Protection of air traffic from illegal interference; all the measures and resources ISO 9000 Aviation security prise. It consists of various prescriptions for increasing business efficiency. necessary for achieving such protection. – Liability Limited Company BSP/ARC (Billing and Settlement Plan/Airline Reporting Corporation) — An interna- LLC tional settlement system between agents and airlines, organised by IATA, that enables “neutral” sales of air transportation services (not assigned to any specific airline), helps airlines to expand their pres- Market capitalization — Total market value of a company’s shares ence in the air transport market, minimises financial risks, lowers expenses on maintenance of the sales system, and speeds up the accounting system by use of electronic technology. The purpose of BSP is Maximum available passenger turnover — Maximum possible volume of air transport opera- to increase the efficiency of interactions between airlines and agent networks. ARC is a system similar tions that an airline can provide. It is calculated by multiplying the number of available passenger seats to BSP that is used in the US. on each flight stage by the length of the stage.

Cargo load factor — Ratio of tonne kilometers actually flown to maximum tonne-kilometer capacity, Maximum available tonne kilometers — Volume of operations, calculated by multiplying the expressed as a percentage. total available load capacity (passengers, cargo and post) on each flight stage by the length of the stage; measured in tonne kilometers. Cargo tonne kilometer (CTK) — Transport of one tonne of cargo and mail over a distance of one kilometer. OJSC – Opened Joint Stock Company

Code sharing — An agreement on joint use of route codes, enabling one and the same route to Passenger kilometer — Transport of one passenger over a distance of one kilometer. be sold by two companies under their own brands and with a distinct route number for each company. Either airline in the agreement can be the actual provider of transport service on the route. Passenger load factor — Ratio of the number of revenue passenger kilometers flown to total available seat kilometers, expressed as a percentage. CJSC – Closed Joint-Stock Company Passenger turnover — Measure of the volume of air transport operations, calculated by multiply- Electronic ticket (e-ticket) — A way of documenting the sale and control of air transport without ing the actual number of paying passengers carried on each stage of a flight by the distance of the flight compiling exact calculations on a physical medium (paper ticket). All information relating to the transport stage; expressed in passenger kilometers. of a specific passenger (routes, fare, service class, sum paid, duties, etc.) is contained in an electronic ticket file, located in a carrier’s database. E-tickets are not necessarily associated with the sale of trans- RUR — Russian rubles port services online, although it is simpler to sell electronic tickets than ordinary tickets via the internet. Seat kilometers — Measure of an airline’s passenger carrying capacity, based on one seat flying Flight safety — Capacity to provide air transport services without risk to people’s life or health. a distance of one kilometer. Hub — Term used to describe an airport where transport routes converge and where there is a large SkyTeam — An alliance of 11 airlines: Aeromexico, Air France–KLM, Alitalia, Сhina Southern Airlines, share of transit passengers. This includes airports where the timetable of incoming and outgoing flights Continental Airlines, CSA–Czech Airlines, Delta Airlines, Korean Air, Northwest Airlines, and three asso- is organised in such a way as to minimise transit time between any one flight and the maximum number ciated companies, which are AirEuropa, Copa Airlines and Kenya Airways. The address of the SkyTeam of other flights. website is: www.skyteam.com.

IATA (International Air Transportation Association) — An international association cre- TCH — Transport and Clearing House. ated in 1945 for development of cooperation between airlines to ensure safety, reliability and cost efficiency of flights in consumers’ interests. Members of the association now include 270 airlines from 140 The Company, the Airline — Aeroflot. countries worldwide. The address of the IATA web site is: www.iata.org. Tonne kilometer (TKM) — Transport of one tonne of paying load (passengers at 90 kg per pas- ICAO (International Civil Aviation Organization) — Created as a result of the Chicago senger, cargo and mail) over a distance of one kilometer. Convention on International Civil Aviation, signed in 1944. The ICAO is a specialised institution within the UN that is responsible for developing international standards, recommended practice and rules in USD — US dollars the technical, economic, and legal realms of international civil aviation. The address of the ICAO web site is: www.icao.int.

IOSA (International Operational Safety Audit) — An international audit of operational safety

160 161 APPENDIXES: Contact information

Structure of the Aeroflot Group Contact information

As of January 1, 2010, the Aeroflot Group structure was as follows:

Aeroflot’s share in Full name Name charter capital (%) Primary activity Open Joint-stock Company “Aeroflot Russian Airlines” Aviabusiness Higher 100 Increasing the qualifications and professional Business School retraining of airline specialists Social Partner (non- - Additional pension provision for employees Short name state pension fund) JSC Aeroflot CJSC Aeroflot Plus 100 Air transportation services with high levels of comfort and service CJSC Sherotel 100 Hotel services Headquarters Alt RejserA/C 100 Tourism services, sale of airline tickets 10 Arbat Street, Moscow, 119002, Russia Aeroflot Riga LLC 100 Tourism services, sale of airline tickets OJSC Insurance com- 100 Insurance of automobiles, liability, accidents and Postal address pany Moscow other activity 10 Arbat Street, Moscow, 119002, Russia CJSC Aeroflot-Cargo 100 Aviation transportation of cargo, post and baggage OJSC Donavia 100 Aviation transportation on international and domestic routes on a regular and charter basis Certificate of inclusion in the Unified State Register of Legal Entities Aeroflot Finance LLC 100 Information services for the issuance and circula- Issued by the Moscow Department of the Russian Tax Ministry (№ 1027700092661, issued on 22 tion of securities August, 2003) OJSC Terminal 52.82 Operation of Sheremetyevo ‘s Terminal D, including bringing in the services of other companies Shareholders and Investors: CJSC Aeromar 51 Production and provision of onboard meals and beverages Tel/fax: +7 (495) 258-0686, +7 (499) 500-6963/fax CJSC Nordavia 51 Aviation transportation on international and domes- e-mail: [email protected] tic routes on a regular and charter basis Airport Moscow LLC 50 Ground baggage services Press Service: CJSC DEIT 50 Tourism services, sale of airline tickets Tel: +7 (499) 500-7387 Transnautik Aero 49 Agent for the sale of cargo air transportation GmbH Tel/fax: +7 (495) 725-9071 CJSC AeroMASH-AB 45 Aviation security in airports e-mail: [email protected] CJSC Aerofirst 33.33 Duty-free retail trade in shops at Sheremetyevo and onboard aircraft Share Register: CJSC TZK Shereme- 31 Provision to aircraft of fuels, lubricants and special tyevo fluids; storage of fuels and lubricants CJSC National Registry Company CJSC Transport Clear- 3.85 Settlements between agencies and airlines Address: 6 Veresaeva Street, 121357, Moscow ing House Tel: +7 (495) 440-31-04 S.I.T.A 0.65 International organization of aviation telecommunications – provision of telecommunications and information services to companies in the aviation Notice regarding future development industry In addition to factual data, this Annual Report also contains opinions, assumptions and forecasts by France Telecom 0.02 Telecommunications services Company management based on currently available information. Changes in external factors, such as fluctuating demand for air transportation, price changes, implementation of new technologies, changes in legal environment, fluctuations in exchange rates, etc., may cause actual performance by the Company in the future to differ from forecasts in this Report.

162 163