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Annual Report 2010 LuxairGroup

Annual Report 2010 LuxairGroup

Board of Directors Chairmans letter Executive Committee CEOs letter Management report The Luxair eet Corporate Social Responsibility Balance sheet Highlights Prot and loss account Operational results Auditors report

6 8 10 12 14 25 27 28 31 32 33 34

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Board of Directors

Marc Hoffmann Chairman of the Board

Jean-Claude Finck Vice-Chairman of the Board, Banque et Caisse dEpargne de lEtat

Michel Birel Member, Banque et Caisse dEpargne de lEtat

Robert Frei Member until 1 February 2010, Panalpina WorldTransport (Holding) AG

Marco Gadola Member since 1 February 2010, Panalpina WorldTransport (Holding) AG

Jean Graff Member, Ministry of Foreign Affairs

Jan Henning zur Hausen Member until 24 September 2010, Deutsche Lufthansa AG

Karsten Benz Member since 24 September 2010, Deutsche Lufthansa AG

Max Nilles Member, Ministry of Sustainable Development and Infrastructures, Department of Transport

Frank N. Wagener Member, Dexia Banque Internationale Luxembourg

Paul Reuter Member, LuxairGroup Personnel Representative

Helder De Oliveira Borges Member, LuxairGroup Personnel Representative

Raoul Roos Member, LuxairGroup Personnel Representative

Frank Reimen Ministry of Sustainable Development and Infrastructures, Government Commissioner for Luxair S.A. until 1 January 2011

Tom Weisgerber Ministry of Sustainable Development and Infrastructures, Government Commissioner for Luxair S.A. since 2 February 2011

Michel Folmer General Secretary L uxairGroup, Secretary of the Board of Directors of Luxair S.A.

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Chairmans letter

Chairmans letter

The year 2010 reminded us again how deeply uncontrollable external events can affect airline companies. At the start of the year we experienced unusually severe winter conditions with heavy snow and Arctic temperatures. This was followed by the totally unexpected volcano ash crisis in April that literally shut down the skies over Europe for several days, leading to the cancellation of around 100,000 ights. Later in the summer we endured air trafc control strikes in France, Greece and Spain. And nally the year closed with prolonged freezing and snowy conditions from the end of November. With our customer-focused strategy, LuxairGroup met all these challenges in a highly professional manner. We can be particularly proud of the way we cared for and repatriated our stranded customers during the ash-cloud crisis. Commercially speaking, although the market has improved a little, we are certainly not yet out of trouble. The economic crisis that started in the

autumn of 2008 produced a severe drop in highyield passengers and this weakness shows no sign of abating. While our tour operator LuxairTours produced excellent results in 2010 and medium-term prospects remain very positive, 2011 will challenge our strategy in this area as well. The bottom line will be hit severely by recent events in North Africa and we can only hope that our customers loss of condence in destinations such as Tunisia, Morocco and Egypt will be only temporary. Turning to cargo handling, here too we have to put the strong performance of 2010 in perspective: although tonnage handled by LuxairCARGO is increasing constantly, we are still far from the 900,000 tons handled in 2007 and the market remains fragile. Faced with all these challenges, our goal remains to attract and convince customers with the quality that we have to offer be it Airline, Tour operating,

Cargo handling or LuxairServices. This is why, despite the crisis, we are preparing for the future and have not hesitated to make important investments such as ordering two new Boeing 373-800 aircraft and testing new winter destinations like Cape Verde, which has proved to be a success. We have also taken advantage of the business downturn to review and optimize our processes at LuxairCARGO. I believe that we must maintain this positive approach and continue our strategy of investing for the future in order to meet the expectations of our clients. Yet in so doing, we may have to rethink the way we currently do business as competition becomes even ercer, external factors continue to affect us and some of our core routes start showing weaknesses. I believe that LuxairGroup will live up to the challenge.

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Executive committee

11

Martin Isler Executive Vice-President Airline

Alberto Kunkel Executive Vice-President Tour Operating and Sales&Marketing

Adrien Ney President and Chief Executive Ofcer

Hjoerdis Stahl Executive Vice-President Cargo Handling, Ground Equipment and Buildings

Thomas Czypulowski Senior Vice-President IS&O and Change management

Michel Folmer General Secretary

Robert Faymonville Vice-President Human Resources

Laurent Jossart Executive Vice-President Finance

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CEOs letter

13

CEOs letter

After 2009 closed as one of the worst years in air travel history, 2010 showed an improved picture with a return to growth. Despite the ash-cloud crisis, LuxairTours managed to sell 6% more packages than in 2009. Most of its markets grew; even the hard-hit French market experienced growth, although this proved to be weak. After registering a loss in 2009 for the rst time in its history, LuxairCARGO increased volume in 2010 and managed to return to protability, even though volume did not even reach 2004 levels. LuxairServices ground handling and catering took advantage of the increasing number of passengers at Findel airport, as did buy bye Luxembourg shops. Luxair Luxembourg Airlines also managed to increase its passenger numbers, yet the loss in high-yield customers continued. It is clear that the biggest challenge facing Luxair protability is the continuous decline in yield.

Generating higher numbers of passengers is not sufcient if our unit revenue continues to decrease. This decline in yield is caused principally by our corporate customers change in travel policy, which was provoked by the global economic crisis in 2009, towards less frequent business travel, fewer lastminute reservations and economy class tickets for short-haul journeys. Pressure exerted by our competitors on both pointto-point trafc and connections has compounded this decline in yield. At the end of October 2010 Lufthansa launched its own operations on the Munich route with two ights a day and British Airways introduced ights to London Heathrow from the end of March 2011. The negative impact of these moves on our revenue, in addition to rising oil prices and the constant increase of operating costs will exert downward pressure on our operating results in 2011.

We must recognize that protability of the short- and medium-haul network of all European national airline companies has been under extreme pressure for several years. The 2009 economic crisis had a massive catalyst effect and accelerated the process. For large carriers such as Air France, Lufthansa and British Airways, 2010 prots came essentially from long-haul operations. Traditional smaller European airlines without long-haul routes are in nancial agony; only specialist low-cost, no frills operators are managing to stay in the black. In view of the large potential loss we face, Luxair Luxembourg Airlines will have to prepare a new strategy to guarantee that we prosper in the future. This is the absolute priority of our management team in 2011.

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Management report

15

Luxair Luxembourg Airlines

Luxair Luxembourg Airlines took advantage of the economic recovery in 2010 and recorded growth in the number of passengers (+6.4%) although it was unable to curb the continuing erosion of yield (-4%). Luxair Luxembourg Airlines has continued its strategy of stimulating demand for private travel and/or leisure with recurring offers of low-priced tickets coupled with aggressive marketing campaigns (notably 185,000 Primo tickets and other promotional tariffs sold in 2010, compared with 148,000 in 2009). Concerning business travel on short- and mediumhaul ights, the reduction in yield observed in recent years and accelerated by the economic crisis since the end of 2008, continued. In order to constrain costs, many customers have both lowered considerably the number of ights by personnel and/or modied their travel policy by banning last-minute reservations and business class travel in favour of economy class for short distances.

As 2009, the year 2010 was marked by a strong increase in oil prices. Starting in January at USD 80 per barrel, the price dropped in the second quarter but ended 2010 at almost USD 100 per barrel. For many years Luxair has adopted a policy of hedging kerosene prices and the euro/dollar exchange rate, enabling us to smooth out abrupt changes and partially compensate for price increases. In addition to repeated stoppage actions by air trafc controllers in several parts of Europe in 2010, two exceptional events seriously perturbed air trafc and affected the nancial performance of the whole sector. Following the eruption of the Icelandic volcano Eyja fjallajkull, clouds of dust paralyzed air trafc for several days in April. As soon as European airspace was closed, Luxair Luxembourg Airlines set up an impressive range of logistics to guarantee a rapid and smooth repatriation of our customers. The cost of lodging

and repatriation was paid for by Luxair and a rebooking and reimbursement policy was set up from the rst day. In total 149 return ights were cancelled affecting almost 14,000 passengers. The bottom line of Luxair Luxembourg Airlines was severely affected, to the tune of around EUR 2 million. Heavy snowfall and unusually harsh weather conditions led to the closure of Luxembourg airport, and many other European airports, and severely disrupted our ight programme throughout the entire last two weeks of December. Almost 200 ights were cancelled and 8,000 customers directly or indirectly affected by the winter conditions. Loss of revenue and assistance costs to passengers totaled around EUR 1 million. Outlook for 2011 IATA forecasts positive operating results for European air transport companies in 2011 (USD 0.5 billion),

Overall ticket split 2010

Economy Class Tickets (78%) Business Class Tickets (22%)

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Management report

17

below the level of 2010 which recorded prots of USD 1.4 billion. The fragility of the economic recovery and explosion of oil prices are at the root of this decrease. The rst few months of 2011 suggest a scenario of soft recovery but the economic environment remains difcult and erratic. Even if Luxair will generate an increase in the number of passengers, its positive effects will be destroyed by the continued decline in yield. This decline is provoked principally by a move away from business class to economy class due to the application of strict travel policies by our customers (fewer last-minute reservations, negotiation of better prices, etc.) and by the pressure exerted by our competitors on both pointto-point trafc and connections.

At the end of October 2010 Lufthansa launched its own operations on the Munich route with two ights a day and British Airways introduced ights to London Heathrow at the end of March 2011. The negative impact of the above moves on our revenue, in addition to rapidly rising oil prices and the constant increase of operating costs will exert downward pressure on our operating results in 2011. It is important to note that the protability of the shortand medium-haul network of all European national airline companies has been under extreme pressure for several years. The 2009 economic crisis had a massive catalyst effect and accelerated the process. The 2010 prots of large carriers such as Air France, Lufthansa and British Airways came essentially from their long-haul operations and the improved appetite

of business travellers for rst and business classes. Many traditional European airline companies, now independent and smaller, which do not benet from a long-haul network are in nancial agony and ghting for their lives. The only airline companies which operate intra-European networks and are prospering are the low-cost operators. In view of the large potential loss, Luxair Luxembourg Airlines will have to prepare a new strategy.

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Management report

19

LuxairTours

LuxairTours recorded a good year 2010, in spite of collateral damage from the Icelandic volcano.
In order to replace the 17-year old Boeing 737-500 which no longer offered a competitive capacity (121 seats) and in order to respond to rising demand, LuxairTours took out a 3-year lease of a 186-seat Boeing 737-800 in the summer. Thanks to a very competitive cost per seat and its capacity to reduce the number of ights previously operated with the B737-500, this aircraft has generated signicant savings.

part of the total offer. The Cape Verde destination and launch of the LUXiClubs concept were highly successful. The Belgian and German markets were the most dynamic and the Luxembourg market, although mature, posted a promising increase. On the other hand, the French market and particularly the Lorraine region, which was severely affected by the crisis in 2009, had difculty recovering and showed only a weak growth. The geographical customer split was as follows: France 42%, Luxembourg 37%, Belgium 10% and Germany 7%. In April, 37 return ights were cancelled due to the eruption of the Icelandic volcano, affecting 9,100 passengers. The impact on the LuxairTours result was around EUR 1.5 million.

Outlook 2011 Events in North Africa and the Middle East have reshufed the cards (-23% customers in February 2011 versus February 2010) and the year 2011 is full of uncertainties. The timing of any resumption in tourism to North Africa is unpredictable and dependent on the recommendations of the Ministry of Foreign Affairs and especially, the degree of enthusiasm amongst the travelling public to visit the countries affected. The nancial consequences for LuxairTours will be signicant. Moreover, competition will become even tougher with the arrival in Luxembourg of Air Berlin. This increases the pressure already applied by Ryanair operating out of Hahn airport and the ambitious growth plans of Metz-Nancy and Saarbrcken airports.

Geographical customer split

France (42%) Luxembourg (37%) Belgium (10%) Germany (7%)

Sales of package travel increased by 6%. Our agship product, the LuxairTours brochure, registered strong growth of almost 10% (following a decline of 12% in 2009), demonstrating the strength of customer demand. Special offers and last minute products declined by 1% and still represent only a limited

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Management report

21

LuxairCARGO

According to the World Trade Organisation, the crisis led to a decrease of 12% in international trade in 2009, the steepest annual decline since the Second World War. After years of strong and uninterrupted growth, at a higher level even than passenger trafc, air freight was hit extremely hard by the worldwide economic recession. The industry was severely affected by the years 2008 and 2009 which produced a sharp contraction of volume (-4% in 2008 and -14.5% in 2009 according to IATA). In addition to crumbling volumes, our customers the airline air freight companies also suffered a decrease in their unit revenues. 2010 put an end to spiraling decline, with air freight growth of 20.6% worldwide. However the year was also marked by large seasonal variations (+35.2% in

May compared to only +5.5% in November). Growth was also shared unequally between the regions of the world: almost 25% in Latin America, the Middle East and Asia compared to only 10.8% in Europe. LuxairCARGO took advantage of this rebound and achieved a successful year with growth of almost 9% in volume handled. However 2010 volume did not reach the level of 2004, showing that six years of growth were lost in the recession. Volume handled at the Cargocenter reached 735,000 tons versus only 672,000 in 2009. In fact, with the recovery of cargo trafc and better aircraft ll rates, the growth of point-to-point freight was much stronger than that of transit cargo. The number of aircraft movements remained stable at 5,170.

LuxairCARGO maintained the position of Luxembourg airport as the fth airfreight platform in Europe. In 2009 and for the rst time since the launch of our freight activities, we had closed the year with an operating loss. Thanks to the increase in volume, we regained protability in 2010. Outlook 2011 LuxairCARGO welcomed two new clients at the end of 2010: Silk Way Airlines and Unitop. Both companies will contribute to the growth in volume handled by our Cargocenter in 2011. Yet the market remains fragile and uctuation has to be expected.

Nature of goods
Computers (33%) Courrier and express mail (3%) Garments (15%) Spare parts (12%) Perishables (17%) Others (20%)

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Management report

23

LuxairServices

LuxairServices, comprising catering, ground handling and passenger assistance, is a vital part of the travel chain and we constantly monitor its quality to ensure that we offer the highest standards of service to our customers. Major efforts have been made recently to improve efciency through boosting e-services, notably e-ticketing and e-check-in. Reecting the economic upturn, usage levels of Findel airport reached 1,630,165 passengers, an increase of 5.1%, while the number of commercial aircraft movements decreased slightly to 34,883 over the year. The Catering unit, which provides catering services to Luxair Luxembourg Airlines, LuxairTours and other airlines using Luxembourg airport, took advantage

of the higher number of passengers and served 1,486,000 meals in 2010, an increase of 7% compared to 2009. Catering improvements also continue on the qualitative side through the increased use of regional products for in-ight meals and regular changes in the catering concept for the benet of our frequent yers. buy bye Luxembourg Shops Since May 2008, LuxairGroup manages four buy bye shops in the new airport terminal at Luxembourg airport. One of them is located landside in the main airport hall. Open 7 days a week to general public, it offers

a selection of perfumes, fashion, accessories and brand spirits. Three more shops are located in the airside area. Also open 7 days a week, each of these stores is specialized in a given type of goods. i.e. accessories, fashion and perfumes, spirits and whines, as well as Luxembourgs local specialties.

Check-in
Manual check-in (90,7%) E- & mobile check-in (9,3%)

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lima-golf-india lima-golf-yankee lima-golf-delta lima-golf-romeo lima-golf-charlie lima-golf-quebec lima-golf-zulu lima-golf-tango lima-golf-echo lima-golf-whisky
24 Executive committee

The Luxair eet

25

Embraer ERJ 145 2009 2010 6 6

Bombardier Q400 2009 2010 4 4

Boeing 737-700 2009 2010 3 3

Embraer ERJ 135 2009 2010 2 2

Boeing 737-800 2009 2010 1

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The Luxair eet

Corporate Social Responsibility

27

The Luxair eet

Corporate Social Responsibility

The total number of passengers transported by LuxairGroup in 2010 amounted to 1,247,554, an increase of 6% versus 2009. LuxairGroup operated 25,898 ights compared with 26,484 the previous year.

In 2010 LuxairGroup consolidated its social com mitment. LuxairTours signed a partnership agreement with natur&mwelt. Thanks to this partnership, LuxairTours customers now have the opportunity to make a donation towards the protection of the environment at the time they book their travel. At the end of the year LuxairTours doubles the sum collected in this way before donating it to natur&mwelt. At the beginning of 2011, ve new LuxairGroup departments were awarded the quality label SuperDrecks Kscht r Betriber, the organization that recognizes measures relative to responsible waste management. LuxairGroup is committed to helping disadvantaged groups of people and supports social food services, a joint project with the Red Cross and Caritas. The Ulysse Foyer receives support in the form of food donations from LuxairServices Catering.

The load factor increased with an average across the year of 73.8% compared to 72.9% in 2009. The Luxair Luxembourg Airlines eet was enlarged by one aircraft in 2010 with the delivery of a Bombardier Q400 in December 2009. At 31 December 2010, the eet consisted of 8 Embraer (two ERJ 135 and six ERJ 145), 4 Boeing (three 737-700 and one 737-800) and 4 Bombardier Q400. A fth Q400 aircraft was received in February 2011. The Boeing 737-500 was sold during 2010 and two Embraer ERJ135 aircraft were put up for auction. In order to support the growth of LuxairTours, offer additional comfort to customers and operate aircraft with even lower environmental impact, two Boeing 737-800 aircraft were ordered. Deliveries are forecast for December 2012 and January 2015.

With the aim of developing responsible tourism, LuxairGroup maintains a partnership with the asso ciation ECPAT Luxembourg which ghts against the sexual exploitation of children. This partnership not only involves nancial support, it also produces regular awareness campaigns both at Luxembourg airport and on board LuxairTours holiday ights. Lastly, in addition to these voluntary activities, LuxairGroups social responsibility is also manifested internally. LuxairGroup maintains close dialogue with its staff and, for example, provides a wide range of training and facilities linked to internal mobility.

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Balance sheet at 31 December 2010

29

Assets Fixed assets Intangible xed assets Concessions and licences acquired for valuable consideration Tangible xed assets

2010

2009

Liabilities Shareholders Equity Subscribed share capital

2010

2009

13,750,000

13,750,000

6,198

6,198

Reserves Legal reserve Reserve for own shares 1,375,000 4,635,609 234,640,982 3,341,646 3,110,731 8,927,455 269,781,423 1,375,000 4,635,609 229,640,982 3,341,646 6,788,162 1,322,569 260,853,968

Aircraft Land and buildings Plant, machinery and equipment Fixtures, ttings, tools and furniture Payments on account and assets under construction Financial investments

64,003,821 36,757,137 8,984,065 3,861,961 10,196,355

72,024,937 Other reserves 40,502,428 Deferred capital gain 10,022,767 Retained earnings brought forward 5,055,433 Prot for the nancial year 5,287,120 Total shareholders equity Provisions for liabilities and charges

Investments in afliated undertakings Loans to afliated undertakings Participating interests Investments held as xed assets Other long term receivables Own shares Total xed assets Current assets

17,758,922 24,490,965 62,166,907 139,809 195,955 4,635,609 233,197,704

17,758,922 Provisions for aircraft overhaul 36,345,865 Provisions for pension and similar obligations 62,166,907 Provisions for taxation 139,814 Other provisions 200,777 Total provisions for liabilities and charges 4,635,609 Creditors 254,146,777 Bank loans and overdrafts - including: maturing in more than one year 44,375,000 33,687,500 45,811,457 5,678,403 3,458,475 4,485,460 5,202,160 109,010,955 28,332,172 477,924,190 55,062,500 44,375,000 38,895,889 445,226 3,533,649 4,288,505 4,174,960 106,400,729 24,629,773 461,098,442 70,799,640 69,213,972 10,381,063 11,010,970 1,750,000 1,900,000 23,328,873 22,428,896 35,339,704 33,874,106

Stocks Trade creditors Consumables Goods for resale Debtors Social security creditors Trade debtors Amounts owed by afliated undertakings Amounts owed by participating interests Other debtors - maturing in more than one year Transferable securities Cash and cash equivalents Total current assets Deferred charges and accrued income Total assets 13,779,784 24,689 9,209,746 8,183,390 139,678,922 63,208,637 235,901,956 8,824,530 477,924,190 12,895,575 Other creditors 192,601 Total creditors 8,474,161 Deferred income and accrued charges 8,970,516 Total liabilities 147,663,762 24,305,492 204,080,482 2,871,183 461,098,442 400,094 1,416,694 318,509 Amounts owed to afliated undertakings 1,259,866 Tax creditors

Expressed in euros The complete set of full year 2010 results is available at www.luxairgroup.lu

Expressed in euros The complete set of full year 2010 results is available at www.luxairgroup.lu

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Highlights

31

Passengers in Luxembourg

Seat Load Factor

Operational data

2008

2009

2010

Passengers (total, including charter ights operated by LuxairGroup)* Revenue Passengers-km (RPK) (mio)* (total) Seat Load Factor Number of meals served (catering)

1,219,184 1,371 73.4% 1,513,203 1,695,772 36,524 810,118 2,461

1,179,796 1,380 72.9% 1,391,688 1,551,344 35,837 672,114 2,334

1,247,554 1,470 73.8% 1,486,000 1,630,165 35,768 735,329 2,317

2009 2010

1,551,344 1,630,165

2009 2010

72.9% 73.8%

Number of passengers assisted at Luxembourg airport Number of ight hours (for entire LGs eet) Freight handled (tons) Personnel (on average)

Operational eet (on 31 December) Boeing 737-800 Boeing 737-500 1 3 6 2 3 1 3 6 2 4 1 3 6 2 4

Freight handled (tons)

Operating prot (mio EUR)

Boeing 737-700 Embraer ERJ 145 Embraer ERJ 135 Bombardier Q400

Financial data

2009 2010

672,114 735,329

2009 2010

(7.1) 1.8

Turnover (mio EUR) Operating prot (mio EUR) Net Result (mio EUR) Net Prot Ratio Balance Sheet Total (mio EUR) Capital & Reserves (mio EUR)** Capital & Reserves / Balance Sheet Total Return on Equity

416.7 1.5 8.5 2% 493.0 259.5 53.2% 3.3%

382.8 (7.1) 1.3 0.3% 461.1 260.9 56.6% 0.5%

408.8 1.8 8.9 2.2% 477.9 269.8 56.5% 3.3%

Data for the year ended 31 December 2010 * The total includes charter ights operated by LuxairGroup ** According to the Loi du 19 dcembre 2002 concernant la comptabilit et les comptes annuels des entreprises The complete set of full year 2010 results is available at www.luxairgroup.lu

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Prot and loss account

Operational results

33

Charges Consumption of goods for resale, raw materials and consumables Other external charges Personnel expenses Depreciation charges of tangible and intangible assets Other operating charges Value adjustments in respect of nancial assets and transferable securities held as current assets Interest and similar charges Concerning afliated enterprises Other interest and charges Extraordinary charges Taxes on prots Prot for the nancial year Total charges

2010 7,944,620

2009 7,348,839

1,247,554 passengers were carried by Luxair Luxembourg Airlines in 2010. 25.898 ights were operated with an average load factor of 73.8%. Luxair Luxembourg Airlines achieved an increase of passengers of 6.4% versus 2009 and reached 760,495 passengers. The seat load factor increased from 58.7% to 60.4%. The percentage of passengers traveling in business class and economy class with high-yield exible tickets continued to weaken from 24% to 22% (versus 37% in 2007 and 30% in 2008) of the total number of passengers. Growth was back on all LuxairTours markets. Even the French market, which was severely affected by the crisis in 2009, took up again. The trend was strengthened by the success of the Cape Verde destination and the LUXiClub, a holiday club for children. In 2010, LuxairTours operated 4,345 ights and handled 486,791 passengers. LuxairTours ights recorded a load factor of 81.1% compared to 80.6% in 2009. The geographical customer split was as follows: France 42%, Luxembourg 37%, Belgium 10% and Germany 7%.

271,918,493 131,216,505 21,067,093 1,001,041 347,354

259,838,665 130,369,193 21,079,000 1,112,731

LuxairCARGO handled 735,000 tons versus 672,000 tons in 2009. However 2010 volume did not reach the level of 2004, showing that six years of growth were lost in the recession. The number of aircraft movements remained stable at 5,170.
Passenger numbers at Findel airport grew to 1,630,165, an increase of 5.1%. Our activities in ground handling, passenger assistance and catering, as well as the buy bye Luxembourg shops took advantage of the rising activity.

3,109 2,235,913 78,088 150,000 8,927,455 444,889,671

16,562 2,707,884 1,484,984 1,322,569 425,280,427

Net turnover passed from EUR 382,778,520 in 2009 to EUR 408,825,327 in 2010 and operating earnings increased from a loss of EUR 7,065,732 in 2009 to a prot of EUR 1,807,617 in 2010. After taking into account the nancial results and extraordinary income, the result before tax shows a prot of EUR 8,927,455. The total available prot, taking into account the carried-over prot of EUR 3,110,731 is EUR 12,038,186.

Income Net turnover Other operating income Income from participating interest Derived from afliated enterprises Other income from participating interests Other interest and similar income Derived from afliated enterprises Other interest and similar income Extraordinary income Total income

2010 408,825,327 26,130,042

2009 382,778,520 29,904,176

234,244

650,000 1,451,220

1,070,534 1,963,560 6,665,964 444,889,671

911,323 2,317,210 7,267,978 425,280,427

For the year ended 31 December 2010 Expressed in euros The complete set of full year 2010 results is available at www.luxairgroup.lu

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Auditors report

35

To the Shareholders of Luxair, Socit Luxembourgeoise de Navigation Arienne S.A. Report on the annual accounts We have audited the accompanying annual accounts of LUXAIR, Socit Luxembourgeoise de Navigation Arienne S.A., which comprise the balance sheet as at 31 December 2010 and the prot and loss account for the year then ended as well as the appendices with a summary of signicant accounting policies and other explanatory notes. Board of Directors responsibility for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts. This responsibility also includes an internal audit that it deems necessary to prepare the annual

accounts not containing any material misstatement, whether arising from fraud or resulting from error. Auditors responsibility Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted by the Financial Sector Supervisory Commission. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the Auditors judgment, including the assessment of the risks of material misstatement of the annual accounts, whether arising from fraud or resulting from error. In making those risk assess-

ments, the Auditor considers internal control relevant to the entitys preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these annual accounts give a true and fair view of the nancial position of LUXAIR, Socit Luxembourgeoise de Navigation Arienne S.A. as of

31 December 2010, and of the results of its operations for the year then ended in bourg legal and regulatory requirements relating to the preparation of the annual accounts. Report on other legal and regulatory requirements The management report, which is the responsibility of the Board of Directors, is in accordance with the annual accounts.

Luxembourg, 22 April 2011 PricewaterhouseCoopers S. r.l. Represented by Luc Henzig Rviseur

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Executive committee

LuxairGroup
Notes accompanying the annual accounts
1

Note 1 General Remarks The company Socit Luxembourgeoise de Navigation Arienne S.A. (LUXAIR), hereinafter referred to as the Company is a limited company governed by Luxembourg law, established on 9 January 1948 for an unlimited term. The registered ofces are located in Sandweiler and the companys nancial year runs from 1st January to 31st December of each year. The Companys main aim is to provide an air transport service for both passengers and freight, as well as to supply other services both directly and indirectly related to its main activity. In accordance with current legislation, the consolidated accounts will be published. Note 2 Presentation of annual accounts The 2010 annual accounts, presented along with those of 2009 for comparison purposes, have been drawn up in accordance with current legislative provisions. In order to ensure greater comparability between the annual account for 2010 and 2009, certain amounts in other external charges and other operating income were reclassied in the accounts on 31.12.2009. In accordance with Article 4 of the law of 10 December 2010, the Board of Directors has decided for the nancial year ending 31 December 2010 to not apply the changes made by this law to the contents and presentation of the annual accounts, along with the associated accounting principles and evaluation rules. Note 3 Principles and evaluation methods 3.1 General principles The annual accounts have been drawn up in accordance with legal and regulatory provisions in force in Luxembourg. The accounting policies and the valuation principles, as well as being governed by legal regulations, have been determined and implemented by the Board of Directors. 3.2 Main valuation principles The main valuation principles adopted by the Company are as follows: 3.2.1. Intangible assets Intangible assets are valued at their historic purchase price, which includes related charges, or at their production cost, following deduction of cumulative value adjustments and amortisation. A depreciation rate of 33.33% is applied linearly to software.

3.2.2 Tangible assets Tangible assets are valued at their purchase cost, which includes related charges, or at their production cost. Tangible assets are depreciated based on their estimated useful lifetime. Goods for which the purchase value falls below EUR 870 are directly depreciated and recorded in the prot and loss account. The depreciation rates linearly applied are established as follows:
Depreciation rates Aircraft Constructions Plant installations and machinery Other installations, tools and furniture 6.66% 4.00% 10.00% 10.00% to to to to 10.00% 20.00% 20.00% 33.33%

The items concerning the Q400 airplanes are depreciated according to the amortisation duration remaining on the nal airplane grounded in this eet. If the Company feels that a tangible asset has decreased in value permanently, an additional value reduction is made in order to reect this loss. These value adjustments remain active until the reason for their implementation ceases to exist. 3.2.3. Financial assets Shares in associated companies, interests and securities which are classied among xed assets are individually valued at the lower amount of their purchase price or their estimated value according to the Board of Directors, with no compensation between the individual capital gains and losses. Receivables recorded among nancial assets are valued at their face value. A value adjustment is made when the estimated achievable value is lower than the face value. 3.2.4. Stocks of raw materials and consumables Stocks of raw materials and consumables are valued at the lower of their purchase price, determined on the basis of the average weighted prices, and their realisable value. Stocks of consumables include fuel, lubricants, food and miscellaneous supplies. A value adjustment is made when the estimated achievable value is lower than the book value. These value adjustments remain active until the reasons for their implementation cease to exist. 3.2.5. Current receivables Receivables are recorded at their face value. Their value is adjusted when their recovery appears doubtful. These value adjustments remain active until the reasons for their implementation cease to exist.

LuxairGroup
Notes accompanying the annual accounts
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3.2.6. Transferable securities Transferable securities are valued at their purchase cost, expressed in the currency in which the annual accounts are drawn up. Their value is adjusted when the purchase price exceeds the market price or the guaranteed future price. These value adjustments remain active until the reasons for their implementation cease to exist. 3.2.7. Receivables in banks, in postal accounts, cheques and cash Receivables in banks, postal accounts, cheques and cash includes all liquidity in transit which has not yet reached the bank accounts. 3.2.8 Currency conversion The Company draws up its accounts in Euros (EUR, ): the assets and liabilities statement and the prot and loss account are expressed in this currency. Income and charges in currencies other than the currency of the balance sheet are converted into the balance sheet currency at the exchange rate in force on the transaction date. Monetary assets and liabilities and short term items which appear as assets and liabilities on the balance sheet and which are denominated in other currencies, are converted at the exchange rate in force at the closing date of the nancial statements. Exchange rate gains achieved are recorded on the prot and loss account under Other operating income, and exchange rate gains not achieved are recorded as liabilities under the heading Accruals and deferred income, while exchange rate losses, whether achieved or not achieved, are included under Other external charges. 3.2.9. Derivative nancial instruments

3.2.10 Provisions for risks and charges Provisions for risks and charges are established to cover the charge or debts the nature of which is clearly dened, but which at the closing date of the nancial statements are probable or certain but unknown as regards their total amount or date of occurrence. 3.2.11 Provisions for large-scale maintenance of aircraft The large-scale maintenance costs are divided among the relevant nancial years according to the number of ight hours and estimated external costs, by way of the creation of provisions for major inspections accounted for under the section External charges: maintenance and servicing of airplanes. When carrying out major maintenance, the costs are charged to the prot-and-loss account under the specic expense accounts. A reversal of provisions is immediately recorded in the Reversal of provisions account under the Other operating income section. 3.2.12 Prepayments and accrued income assets This item includes charges recorded before the closing date of the nancial statements, which are attributable to a subsequent year. 3.2.13 Accruals and deferred income liabilities This item includes income received before the closing date of the nancial statements, which is attributable to a later year. The majority is made up of transport tickets which have been issued but not yet used. 3.2.14 Value adjustments

- The Company uses derivative nancial instruments in order to reduce its exposure to risks linked to the volatility of the price of kerosene and of the dollar. A hedging policy has been put in place. The charges and income inherent in the hedging contracts are entered into the accounts in the same accounting periods as those in which the kerosene consumption is hedged. Estimated latent losses on the contracts hedging kerosene requirements as at 31.12.2010 are EUR 400,493. Estimated latent gains on the contracts hedging kerosene requirements as at 31.12.2010 are EUR 3,091,032. - Estimated latent losses on the contracts hedging EUR/USD for Cargolux shares held in view of their resale (carrying) are EUR 2,463,414 as at 31.12.2010. - The estimated latent losses on EUR/USD hedging contracts for the purchase of aircraft are EUR 506,973 as at 31.12.2010. The latent gains are EUR 128,117. - The estimated latent losses on EUR/USD hedging contracts for the leasing of aircraft are EUR 172,838 as at 31.12.2010. The latent gains are EUR 453,631.

Value adjustments are deducted directly from the asset concerned. 3.2.15 Net turnover For air transport operations, turnover is recorded when the transportation service is provided. External charges payable on transactions paid to intermediate parties are also recorded on this basis. Tickets for transport which have not been used are recorded as turnover following a systematic recording schedule. Revenue linked to other services provided is recorded at the time of the provision of the service, deduction having been made of sales reductions, as well as value added tax and other taxes directly linked to turnover.

LuxairGroup
Notes accompanying the annual accounts
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Note 4 Immobilisations corporelles et incorporelles Les mouvements de lexercice se prsentent comme suit :
Concessions and licences purchased EUR Gross book value at start of year Additions during nancial year Disposals during nancial year Transfers during nancial year Gross book value at year end Value adjustments at start of year Endowments during the year Write-backs during the year Exceptional value adjustments Value adjustments at year end Net book value at year end Net book value at previous year end (2,596,491) 6,198 6,198 2,602,689 0 0 0 2,602,689 (2,596,491) 0 0 Aircraft Land and construction EUR 85,743,104 26,500 (438,768) 0 85,330,836 (45,240,676) (3,640,160) 307,137 (48,573,699) 36,757,137 40,502,428 Plant machinery and equipment EUR 86,654,708 2,533,909 (3,375,891) 0 85,812,726 (76,631,941) (3,521,046) 3,324,326 (76,828,661) 8,984,065 10,022,767 Other installations, tools and furniture EUR 42,474,595 1,176,484 (4,188,512) 0 41,607,008 (37,419,162) (2,349,304) 2,023,419 (37,745,047) 3,861,961 5,055,433 Payments on account and assets under construction EUR 5,287,120 4,909,235 0 0 10,196,355 0 0 0 0 10,196,355 5,287,120 Total

EUR 250,809,880 0 (23,556,126) 0 227,253,754 (178,784,943) (10,729,804) 23,556,126 2,708,688 (163,249,933) 64,003,821 72,024,937

EUR 473,572,096 8,646,128 (29,414,856) 0 452,803,368 (340,673,213) (20,240,314) 29,211,008 2,708,688 (328,993,831) 123,809,537 132,809,883

No addition provision is recorded for the Boeings and Embaraer 145s. The existing provisions have been listed under Exceptional income. On 31.12.2010, the additional provision for the Embraer 135s was EUR 972,934.

LuxairGroup
Notes accompanying the annual accounts
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Note 5 Financial assets The movements during the nancial year were as follows:
Interests EUR Gross book value at start of year Additions during the year Disposals during the year Gross book value at year end Value adjustments at start of year Write-backs during the year Value adjustments at year end Net book value at year end Net book value at previous year end 0 62,166,907 62,166,907 0 24,490,965 36,345,865 0 17,758,922 17,758,922 0 139,809 139,814 0 195,955 200,777 0 4,635,609 4,635,609 62,166,907 62,166,907 Receivables from associated companies EUR 36,345,865 8,325,281 (20,180,181) 24,490,965 17,758,922 (5) 139,809 Shares in associated companies EUR 17,758,922 Securities classied as assets EUR 139,814 Other loans EUR 200,777 25,848 (30,670) 195,955 4,635,609 Own shares EUR 4,635,609

LuxairGroup
Notes accompanying the annual accounts
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Note 5 Financial assets (continued)

The rms in which the Company holds at least twenty per cent of the capital, directly or indirectly, are as follows:
Nom de la socit Registered Ofces Portion of equity held % Subsidiary companies Air Pub S. r.l. Airrest S.A. Luxair Commuter S.A. Luxair Finance S. r.l. Luxair Cargo Deutschland GmbH Luxair Re S.A. Eurocargo S.A. Luxair Immobilire S. r.l. Luxair Commuter & Cie S.e.N.C. Associated companies Cargolux Airlines International S.A. Luxair Executive S.A. Luxfuel S.A. Niederanven Sandweiler Niederanven 52.05%** 51% 40% 31.12.2009 31.12.2009 31.12.2009 426,745,019 365,000 3,533,998 (108,646,380) 4,466 1,339,237 Niederanven Niederanven Sandweiler Sandweiler Frankfurt Luxembourg Sandweiler Munsbach Sandweiler 100% 99% 99% 100% 100% 99.96% 100% 100% 0.1% 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2009 31.12.2010* 25,400 602,060 (5,351,056) 192,844 213,019 2,500,000 (31,868) 4,848,729 359 14,702 (3,460,112) 1,648 (351,246) (38,690) (88,010) Date of last year end Own shares at year end in the company EUR Result of previous nancial year EUR

In relation to the shares held in Cargolux Airlines International S.A., it is to be noted that the company has included a note on these commitments in their annual accounts. This note refers to the various investigations and legal actions initiated by the competition authorities (antitrust) against several freight airline companies, including Cargolux, relating to an alleged breach of antitrust rules. In this regard, Cargolux has recorded an amount of EUR 79.90 million to be paid, corresponding to the nes imposed by the European Commission and has appealed this decision. In 2010, the group also concluded settlement agreements and/or agreed to pay nes to the competition authorities in Canada and South Korea. Cargolux has created a provision of USD 8 million for proceedings brought by New Zealand and Switzerland. For the class action complaint led in the United States, at the end of 2010, Cargolux agreed a settlement with the complainants under which it commits to pay a total discounted amount of USD 35.1 million. However, the complainants still have the option until the end of June 2011 to reject this settlement agreement and launch individual lawsuits. No provision has been created for other civil actions. * The company Luxair Commuter & Cie S.e.N.C. was created on 2 December 2009 and is 99.9% held by Luxair Commuter S.A. ** The percentage of shares held by Luxair on 31.12.2010 rose to 52.05%, of which 14.60% are considered as equity interest.

LuxairGroup
Notes accompanying the annual accounts
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Note 6 Other receivables The item Other receivables mainly consists of:
2010 EUR Reinsurance fund for staff non-contributory provident scheme (Note 8) Advances on taxes paid as contributions Other Total 3,976,22 1,781,985 2,371,891 3,130,098 2009 EUR 4,461,416 1,710,000 2,799,100 8,970,516

Other reserves special reserve The company had placed in unavailable reserves a total corresponding to ve times the amount of the wealth tax for previous nancial years. The period of unavailability of this reserve is ve years from the year following the year of allocation.

2010 EUR Special wealth tax reserve Free reserve 12,500,000 222,140,982

2009 EUR 24,086,500 205,554,482

Note 7 Shareholders equity Movements during the nancial year for the item Shareholders equity (in Euros)
At 01.01.2010 EUR Subscribed share capital Legal reserve Reserve for own shares Other reserves Results reported Dividends Exempt capital gain Result for the year Total 13,750,000 1,375,000 4,635,609 229,640,982 6,788,162 0 3,341,646 1,322,569 260,853,968 (1,322,569) 8,927,455 5,000,000 (3,677,431) Allocation of 2009 result EUR Movements during year EUR Result for 2010 nancial year EUR At 31.12.2010 EUR 13,750,000 1,375,000 4,635,609 234,640,982 3,110,731 0 3,341,646 8,927,455 269,781,423

In the absence of results, this distribution could not take place in 2010. Exempt capital gains An exempt capital gain was achieved in 2008 on the contribution of land to the company Luxair Immobilire for the sum of EUR 3,341,646. The capital gain was directly reinvested in the holding Luxair Immobilire in accordance with article 54 of the LIR.

Note 8 Provisions for risks and charges Provisions for pensions and similar obligations The Company has put in place for its staff a non-contributory, extralegal provident scheme. At the closing date of the nancial year, the provision totalled EUR 23,328,873. The related reinsurance reserve appears in the assets section of the balance sheet under the heading Other receivables for EUR 3,976,222. Provisions for taxes The provisions for taxes represent the taxes due as estimated by the Company for the nancial years for which denitive tax statements have not yet been received. Taxes paid in advance appear under the item Other receivables under the assets section of the balance sheet. Other provisions The item Other provisions mainly includes the provision for restructuring, for a sum of EUR 606,312 (initially established in 2005), a sum of EUR 2,414,466 for disputes in progress, a sum of EUR 693,125 for IT projects in progress as well as a sum of EUR 6,622,360 as provisions for operating charges. The building design provision remains open for up to EUR 25,927.

Subscribed capital Subscribed share capital has increased to EUR 13,750,000 and is represented by 110,000 shares, each with a nominal value of EUR 125, fully issued. Legal reserve In accordance with the law of Luxembourg on limited companies, the Company has established a legal reserve of ten per cent of its share capital during previous nancial years. This reserve is non-distributable. Reserve for own shares The Company has previously acquired its own shares for a total of EUR 4,635,609, recorded as assets on the Companys balance sheet. In accordance with the law of Luxembourg on limited companies, the Company has established an unavailable reserve which is included under the item Reserve for own shares for the same amount.

LuxairGroup
Notes accompanying the annual accounts
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Note 9 Payables Apart from payables due to banks, the Company payables are due to be repaid within one year. Payables due to banks are comprised as follows:
2010 Less than 1 year EUR Loans for purchase of airplanes Boeing 737 700 LX-LGQ Boeing 737 700 LX-LGR Boeing 737 700 LX-LGS Total Boeing Bombardier Q400 LX-LGA Total Bombardier Total Aircrafts Other bank loans Expansion of cargo centre Total 687,500 10,687,500 2,750,000 31,500,000 687,500 2,187,500 4,125,000 44,375,500 4,812,500 55,062,500 3,000,000 3,000,000 3,000,000 9,000,000 1,000,000 1,000,000 10,000,000 7,500,000 6,750,000 10,500,000 24,750,000 4,000,000 4,000,000 28,750,000 0 0 0 0 1,500,000 1,500,000 1,500,000 10,500,000 9,750,000 13,500,000 33,750,000 6,500,000 6,500,000 40,250,000 13,500,000 12,750,000 16,500,000 42,750,000 7,500,000 7,500,000 50,250,000 2010 1 to 5 years EUR 2010 More than 5 years EUR 2010 Total EUR 2009 Total EUR

Note 11 Personnel expenses The Company employed an average of 2,317 full-time staff during the nancial year, categorised as follows:

2010 Ground staff Pilots Cabin crew Manual workers Total 1,206 154 145 812 2,317

2009 1,195 155 140 844 2,334

The personnel expenses for the nancial year can be broken down as follows:

2010 EUR Wages Social security contributions on wages Provident scheme Other social security contributions 111,826,386 15,757,267 3,574,146 58,706 131,216,505

2009 EUR 111,623,789 14,915,231 3,772,828 57,345 130,369,193

Note 10 Net turnover Breakdown of turnover by activity category:

Total

2010 EUR Luxair Luxembourg Airlines LuxairTours CargoHandling Other activities Total 124,629,757 196,227,117 78,219,328 9,749,124 408,825,327

2009 EUR 119,706,171 187,806,225 67,575,415 7,690,709 382,778,520

The item Other activities includes revenue from airport support services and catering, sales from Airport Shops, and other activities.

LuxairGroup
Notes accompanying the annual accounts
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Note 12 Remuneration of the Board of Directors A net total of EUR 80,220 was allocated to the Directors and to the Government auditor.

Note 15 Exceptional charges The item Exceptional charges includes the following elements:
2010 EUR 2010 EUR 2009 EUR 900,000 212,731 1,112,731 Compensation and appeals Increase in exceptional value adjustment on aircraft IT projects Exceptional fees Total 0 0 0 78,088 78,088 2009 EUR 473,545 759,788 251,651 0 7,267,978

Note 13 Other operating charges

Wealth tax Other Total

700,000 301,041 1,001,041

Note 14 Exceptional income The item Exceptional income includes the following elements:
2010 EUR Recovery of taxes from previous years Recovery of provisions Sale of airplane LX-LGP Recovery of exceptional correction of value of airplanes Benecial interest PP risk component Other Total 223,285 0 2,342,652 2,708,688 1,304,231 87,108 6,665,964 2009 EUR 1,492,039 5,775,939 0 0 0 0 7,267,978

Note 16 Off-balance sheet commitments Financial commitments may be broken down as follows:

2010 EUR Bank guarantees for third parties Bank guarantees for companies with participating interest Firm orders for aircraft Forward purchase of currencies Forward purchase of kerosene 99,092 173,525 79,655,028 92,828,126 26,994,804

2010 EUR 99,092 173,525 10,304,430 72,633,917 20,275,322

Note 17 Other operating income This item consists among others of recovery of provisions for major inspections.