Back in Black Erno Hildén CFO 1 Finnair Capital Market Day, 3 Dec 2012 Improved business performance in Jan – Sep 2012... Operational EBIT build-up Jan – Sep 2012 M€ 250.0 11,0 -1,7 200.0 11,1 11,5 -18,1 -19,3 150.0 20,6 -21,1 22,7 100.0 -96,3 147,7 50.0 38,6 0.0 -29,3 -50.0 2 Finnair Capital Market Day, 3 Dec 2012 ...driven by increased traffic and unit revenue improvement • Unit revenue per available seat kilometre (RASK) up by 8.7% in Jan-Sep 2012 as both passenger load factor (PLF, +4.5%-p) and yield per revenue passenger kilometre (RPK yield, +2.2%) improved y-o-y Q3 RASK +8.7% PLF RPK yield +4.5%-p +2.2% 3 Finnair Capital Market Day, 3 Dec 2012 Implementation of €140 million restructuring and cost savings program ahead of target Target €140 million Savings progress to €140 2% million target 8% 25% TOTAL 57% 43% 8% maintenance 26% 74% 9% staff 43% 57% other 102% 10% lease 105% 24% sales 109% 14% catering 148% maintenance staff ground handling 38% 62% other lease sales catering fuel 155% ground handling fuel 0% 100% 4 Finnair Capital Market Day, 3 Dec 2012 New €60 million savings programme will ensure reaching our target of 6% operational EBIT margin • The aim is to achieve a permanent reduction in costs of €60 million by the end of 2014 • The new programme complements the existing €140 million structural change and cost reduction programme launched in 2011 Savings timeline for in total €200 million sustainable savings from 2010 cost level 2012 2013 2014 2015 €90 million €50 million €60 million 5 Finnair Capital Market Day, 3 Dec 2012 Hands-on approach to drive our costs down • Dedicated project organisation and well defined responsibilities and timelines for each savings initiative • Regular Executive Board level monitoring of advancements • All Executive Board members and persons responsible for initiative implementation are incentivised in achieving the targets • 9 Program streams and over 200 savings initiatives in total 6 Finnair Capital Market Day, 3 Dec 2012 Our financial targets • Operational profit (EBIT) margin 6% – over €120 million in the coming few years • EBITDAR margin 17% – over €350 million in the coming few years • Economic profit – To create positive value over pretax WACC of 9.5% • Adjusted gearing <140% • Dividend policy pay-out ratio minimum one third of the EPS 7 Finnair Capital Market Day, 3 Dec 2012 The path towards our profitability target Continuous Improved Revenue New Capital unit cost productivity maximi- product efficiency reduction and quality zation offering and strong (ex. fuel) balance sheet • Fixed cost • Fleet and •New leverage network destinations optimisation through •Next growth and • Operational generation outsourcing quality top Airbus 350 class XWB 8 Finnair Capital Market Day, 3 Dec 2012 Finnair fleet and future investments 9 Finnair Capital Market Day, 3 Dec 2012 Strong financial position supports business development and future investments Strong balance sheet Good cash position over years % M€ despite significant investments 120 750 100 600 80 450 60 300 40 150 20 0 0 -20 -150 2008 2009 2010 2011 09/2012 2008 2009 2010 2011 1-9/2012 Equity ratio Net cash flow from operations Gearing Investment, gross Adjusted gearing Short term cash and cash equivalents 10 Finnair Capital Market Day, 3 Dec 2012 Fleet renewal is key for successful strategy implementation – leads to reduced unit costs and improved fuel efficiency • First phase in 2008-2010 – In Long haul, MD11 fleet replaced with Airbus 330/340 • Second phase in 2012 Harmonized – Reducing 9 aircraft from European fleet Airbus fleet – Embraer traffic transferred to Flybe brings asset and crew utilization • Third phase in 2013-2014 benefits – Boeing 757 fleet to be replaced with Airbus A321 ERs • Fourth phase from H2 2015 – Airbus 350 XWB, partly to replace current A340s, partly to increase capacity 11 Finnair Capital Market Day, 3 Dec 2012 Finnair invests in new technology Gross cash flows totalling €1.2 billion M€ 400 • 5 Airbus 321 ER and 11 Airbus 350 350 XWB aircraft 300 250 • Net effect of investments is 200 materially lower – lease expiries for current aircraft 150 100 50 0 2013 2014 2015 2016 2017 12 Finnair Capital Market Day, 3 Dec 2012 We have several funding sources available for aircraft investments secured by aircraft as collateral, loan to values 70-100% depending on the vehicle In the long-run, owning aircraft is Asset Export the most cost- backed credit efficient way to loans finance fleet. Finnair’s strategy is >50% (Japanese) Asset ownership of the operating backed core fleet lease bonds 13 Finnair Capital Market Day, 3 Dec 2012 We can finance investments with our increasing debt capacity Unencumbered 9/2012 Encumbered 9/2012 Unencumbered 12/2013 Encumbered 12/2013 12 12 10 10 8 8 7 8 3 3 6 6 3 4 4 2 4 2 7 2 6 5 5 5 5 2 4 4 4 2 4 4 3 3 3 22 0 0 A-319 A-320 A-321 A-330 A-340 E170 E190 ATR-72 A-319 A-320 A-321 A-330 A-340 E170 E190 ATR-72 • Currently 26 unencumbered aircraft = 68% of the total fleet value of €1.05 billion • In 15 months 35 unencumbered aircraft 14 Finnair Capital Market Day, 3 Dec 2012 Our funding strategy is to use different funding sources to ensure the lowest total funding cost with maximum operational flexibility and continuity • Fleet investments through secured financing, unsecured loans for refinancing and flexibility – Commercial paper programme of €200 million, €61 million outstanding. – Revolving credit facility of €200 million expires in Q2/2013. Unutilized, last time of utilisation 2002. Only facility with a covenant. • Other potential funding sources – Non-core fleet sale and leasebacks – Asset optimization – Pension loan – Senior unsecured bond 15 Finnair Capital Market Day, 3 Dec 2012 We have a balanced loan maturity profile Maturing loans in total €598 million M€ Guarantee facility 200 (backed by mortgaged 4*A330) to be renewed, 175 the underlying EIB loan expires in 2019 150 89 125 100 75 134 131 50 101 25 54 53 35 0 10‐12/2012 2013 2014 2015 2016 2017=> 16 Finnair Capital Market Day, 3 Dec 2012 Our actual lease liabilities are lower than reported due to expiring lease agreements Lease commitments, in total €186 Aircraft operating lease liabilities million Lease liability based on formula M€ (7*annual rentals) 80 600 70 500 60 50 400 40 300 30 200 20 100 10 0 0 Operating leases are off-balance sheet liabilities. When capitalised using the common method of 7*annual aircraft lease payments, the adjusted gearing on 30 Sep 2012 is 90.1%. 17 Finnair Capital Market Day, 3 Dec 2012 Finnair has the strongest balance sheet in the Nordics Key ratios as of 30 September 2012 >400% % 200 175 150 125 100 75 50 25 0 Equity ratio Gearing Adjusted gearing Finnair SAS Norwegian • Norwegian adjusted gearing >400% • Pension liabilities excluded from SAS adjusted gearing 18 Finnair Investor Presentation - Nov 2012 Summary • Profitable Q3 result • Cost savings are progressing as planned • We have a strong balance sheet • Finnair will be the first European airline to fly new A350s in long haul traffic • We have a good funding position to finance future investments 19 Finnair Capital Market Day, 3 Dec 2012.