Annual Report 2007-08

22H00shanghai

07H00new york

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Contents

Additional information on the Air France-KLM Group can be found in the 2007-08Reference Document on the www.airfranceklm-finance.com website, or on request.

4 Highlights 6 Key figures

8 Interview with the Chairman14 Strategy

16 Business challenges18 A profitable growth strategy 20 The hubs24 The fleet26 The SkyTeam alliance

28 Activities30 Passenger38 Cargo44 Maintenance

50 Corporate governance52 The Group’s management54 The Board of Directors60 Sustainable development

68 Shareholders78 Summary consolidated

financial statements84 Glossary

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Highlights

The 2007-08 financial year reinforced the Group’s leadership

position in Europe

� Joint-venture on the AtlanticOn October 17, following the example of KLM andNorthwest, Air France and Delta Air Lines announce thesignature of a joint-venture agreement effective as of2008. The two companies will share revenues and costson transatlantic routes between the hubs and onconnecting flights. Next objective: the creation of a four-way joint-venture with KLM and Northwest in 2009.

� Air France-KLM enters the CAC 40Air France-KLM, the leading European air transportcompany, entered the Paris Stock Market benchmarkCAC 40 index, on Monday June 18, 2007. Inclusion in theindex of the premier listed companies in France is arecognition of the Group’s success and the importance ofair transport for the global economy.

� SkyTeam goes from strength to strengthA busy year for the SkyTeam alliance, which welcomesthree new associate airline members, Air Europa, CopaAirlines and Kenya Airways followed, on November 15, byChina Southern, which becomes the eleventh full memberairline. Finally, Leo van Wijk assumes responsibility for thealliance, with a mission to further improve its functioning andto extend its membership base to new carriers.

� E-services come of ageAir France and KLM say goodbye to paper tickets: theseare replaced with e-tickets that are easier to use and givethe passenger greater flexibility. Self-service check-inkiosks, baggage drop-off points, check-in by internet orusing a cell phone: the range of e-services keeps ongrowing, the company seeing such innovation as anintegral part of its strategy to ensure excellent standardsof customer service.

� ��

� The boom in the Indian ContinentAir France establishes a material presence on strategicdestinations such as Chennai and Bangalore in SouthernIndia and gains share of a rapidly-changing Indian market.The company operates 24 frequencies under its owncolors to Delhi and Mumbai and four to Hyderabad undercode share with KLM. In order to become the Europeanleader, it offers a product specifically adapted to localcustomers. The Phoenix India training program increasesthe cultural awareness of cabin crews and ground staff,enabling them to better understand the needs of the150,000 passengers across the entire service chain, bothon the ground and in the air.

The S3 satellite at Paris-Charles de Gaulle nowoperationalInaugurated by the French President on June 26, this newinfrastructure strengthens Air France-KLM’s existingfacilities and completes a first stage in the development ofthe hub of the future.

A world first for AFIAir France Industries is the first aeronautics maintenancecompany in the world to obtain Single Global Certification,an exceptional commercial advantage that the companydoes not fail to highlight, alongside KLM Engineering &Maintenance, at the latest Paris Air Show. The opportunityto sign a number of GE90 engine and B777 supportcontracts as well as to renew all those for Airbus support.

� transavia.com France takes on the low costcarriersA new airline takes to the holiday skies: transavia.comFrance. This subsidiary of Air France and transavia.comNetherlands positions itself as the low-cost carrier ofchoice, in focusing on service quality across a network ofleisure destinations (North Africa, the Mediterraneanbasin). Customers appreciate the quality of this offer,which surpasses that of the other low cost carriers andnew routes are introduced during the winter.

� Air France replaces its Boeing 747-400s withBoeing B777-300ERsAir France decides to replace its Boeing 747-400 fleetwith Boeing B777-300ERs in order to reduce its jet fuelconsumption and CO2 and NOx emissions.

A joint-venture in ChinaAir France-KLM and China Southern open exclusivediscussions with a view to creating a cargo joint-venture in China. On June 2, 2008, a new phasebegins with the signature of a framework agreementenabling the launch of a Sino-European cargo joint-venture.

� Establishment of a Group Executive CommitteeThe integration of the two companies continues with theestablishment of a Group Executive Committeecomprised of eleven members representing the Group’smain functions. It replaces the Strategic ManagementCommittee created in May 2004, the year of the mergerbetween Air France and KLM.

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Key figures

Results in line with objectives, benefiting from synergies and our cost

saving measures

2006

-07

2007

-08

Revenues(in € billion)Revenues increased by€1.04 billion (+4.5%), drivenby growth across all thebusinesses.

19.16

2.93

1.06

0.97

23.124.1

Breakdown of revenuesby activity (in € billion)

● Passenger● Cargo● Other activities● Maintenance20

05-0

6

21.4

2006

-07

2007

-08

Operating income (in € billion)

Operating income increasedby 13.3% to €1.41 billion,despite the crisis in thefinancial sector and thesharp rise in the oil price.

1.2

2005

-06

0.9

1.4

7

2006

-07

2007

-08

Net income, Group share (in € million)

Earnings per shareamounted to €2.63 at March31, 2008. The dividend wasincreased by 21% to €0.58per share.

891

2005

-06

913

748

Mar

ch 3

1, 2

006

Mar

ch 3

1, 2

008

Financial structure (in € billion)

The balance sheet was againstrengthened, with net debtfalling by €1.1 billion to€2.69 billion andstockholders’ equity to€10.61 billion. The Group’sgearing ratio has beenhalved within the space oftwo years.

4.4

Mar

ch 3

1, 2

007

3.8

2.7

Inve

stm

ents

Financing of investments(in € billion)

Investments amounted to€2.34 billion and werefinanced from operating cashflow of €2.59 billion. At March 31, 2008, free cashflow stood at €820 million, a€188 million improvement onthe previous year.

2.3

Fina

ncin

g3.2

2008 2007 2006

Revenues 24 ,114 23,073 21,448

Operating income 1,405 1 ,240 936

Income before tax 1 ,149 1 ,118 1,200

Net income, Group share 748 891 913

Earnings per share (in €) 2.63 3.35 3.47

Diluted earnings per share (in €) 2.47 3.05 3.25

1,291

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Breakdown of operatingincome by activity(in € million)

● Passenger ● Maintenance● Cargo● Other activities

Consolidated figuresYear to March 31 (in € million)

● 0.6

● 0.5

● 0.3

■ Net debt● Gearing ratio

13:00

parisWith the opening of new terminals, Air France-KLM plans to makeParis-Charles de Gaulle the European reference hub.

Interview“In 2007-08 we achieved our objectives, despite the rise in the oilprice and a deterioration in the economic environment in early2008. I am confident of our ability to strengthen our businessduring a period which will prove difficult for many companies in oursector.” Jean-Cyril Spinetta, Chairman and Chief Executive Officer.

Interview

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“We must continue to build an even stronger and competitive

industry leader”

What is your view of the 2007-08 financial year?We achieved our objectives we had set out with andcreated value. It was, therefore, an excellent financial yearwith record operating income of €1.41 billion. Profitabilityimproved further, with the adjusted operating margingaining nearly one point to 6.7% and return on capitalemployed reaching 7.1%, again in line with our objective.Net income of €748 million was down on last year, butthis was after the €530 million provision booked to reflectthe current status of the US and European Unioncompetition authorities’ investigations of the cargo sector.This was partially offset by capital gains on ourshareholding in WAM. Excluding these exceptional items,net income would have increased by 10.8%. This led usto increase the dividend per share by 21% to 58 eurocents. This performance is all the more remarkable when setagainst an environment which began to deteriorate duringthe second half, with the credit crisis originating in theUnited States and the very sharp rise in the oil price.

Global economic growth and the oil price are keyelements for your sector. What impact are they likelyto have?Forecasts for global economic growth have beendowngraded but remain positive, calling for growth of

some 3% over the next few years, driven by emergingcountries. This should normally underpin an increase ofaround 6% in long-haul traffic demand. Unfortunately, therise in fares needed to offset the higher fuel cost will put atemporary dampener on demand. We expect all of this tolead to a redrawing of the air transport landscape, withthe leading players, which of course include Air France-KLM, becoming stronger.

How do you see the restructuring in the air transportlandscape?With oil at $135 a barrel and without hedging, fuelrepresents on average around 40% of costs for ourindustry, compared with just 5% only a decade ago. Cost-cutting is no longer sufficient to offset this sharpincrease, so we need to increase fares and, as Imentioned earlier, this will weigh on demand. Over thenext two years, I expect demand to be stable or evenslightly down. Add to this the fact that some airlinesoperate old, fuel-hungry fleets and don’t have fuel hedgingto reduce the impact of this increase. In thesecircumstances, restructuring looks inevitable. It will involvecapacity reductions already announced by many carriers,the acceleration of mergers - particularly in the UnitedStates - and, unfortunately, the disappearance of anumber of players.

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Interview

You mentioned, in this context, that major playerssuch as Air France-KLM will emerge stronger. Whydo you believe that Air France-KLM could furtherreinforce its leadership position?Air France-KLM has a number of structural advantages:we have the largest route network between Europe andthe rest of the world. With us, travelers can find virtually allthe solutions for their travel needs. Furthermore, we offernumerous long-haul destinations on which our Europeancompetitors are not present. Finally, this network isorganized around two powerful, well-coordinated hubs.These hubs are even more important in an environment ofcapacity reductions involving, amongst other things, theclosure of direct flights on some routes. Many small andmedium-sized airlines will no longer be able to maintainunprofitable routes, meaning their passengers will have totravel via a hub. And the more efficient your hub, the moreattractive it will be for these passengers.

Our second competitive advantage can be summed up inone word: balance. Our business model is balanced interms of markets, traffic and customers. Geographically,because we are not overly-dependent on any specificmarket, we enjoy a natural hedge against economic orgeopolitical risk. Moreover, our traffic is also equallybalanced between point-to-point and connecting traffic.Finally, in terms of our customer base, it is almost evenlysplit between business and leisure travelers.

Within the current oil price environment, the choice ofaircraft is of the utmost importance. Thanks to theinvestment we have pursued for the past ten years whichremains ongoing, we have a young, modern fleet,organized, in long-haul, around Boeing B777-200 and300 aircraft. One figure alone sums up the importance ofthis choice: a Boeing B747-400 uses 30% more jet fuelthan a Boeing B777-300. By 2012, we shall have phased

out all our Boeing B747-400s while the delivery of theAirbus A380 will further improve the fuel efficiency of ourfleet. Our sound financial position, another of our keystrengths, enables us to fund our future development inrenewing the fleet.

Looking at the situation of many US airlines, do yourpartnerships with Delta Air Lines and Northwestrepresent a competitive advantage? Yes, they give us a significant advantage. In 2009, thanksto the joint venture we are going to implement, we willcreate a major virtual carrier on the North Atlantic, which isstill the leading air transport market globally. WhatAir France and Delta are already doing on one hand andKLM and Northwest on the other, which is sharing costsand revenues, we plan to do between the fourcompanies. The revenue of this venture will representabout $12 billion and we expect an improvement in theprofitability of these routes of about 3 percentage points.Only Air France-KLM has this type of co-operation withUS airlines who, moreover, are themselves about tomerge. Finally, with our US partners, we are establishing astrong presence at London’s Heathrow airport, the leadingmarket between the United States and Europe.

Do you also have competitive cost advantages overyour competitors?The answer again is yes. We have two advantages: one isthe potential for synergies thanks to the merger betweenAir France and KLM. The other is our fuel hedgingstrategy. At March 31, 2008, we had generated €685million of synergies. Our target is €1 billion by 2011. LastOctober, we reached a new stage in the integration of ourtwo companies with the setting up of the Group ExecutiveCommittee, whose eleven members are each responsiblefor one of the Group’s key strategic functions. Thedecision-making process and the execution of such

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decisions are now faster and more effective. We have highhopes for this new organization going forward and we areworking on accelerating the generation of additionalsynergies. The Group also benefits from the best fuel hedgingposition among the European carriers. Launched morethan a decade ago with a strategy over four rolling years,our hedging reduces the impact of the increase in the oilprice. For the 2008-09 financial year, we are 85% hedgedat an oil price of $88*/bbl and 61% for the following yearat a price of $78*/bbl. However, efficient as it is, thishedging does not prevent our fuel costs from rising.Indeed, compared with last year, our fuel bill will rise by€1.5 billion, with fuel surcharges offsetting only a part ofthis increase. We have, consequently, launched a plan foran additional €150 million of cost savings, on top of thosetargeted under the initial Challenge 10 plan. The 2008-09financial year should see total savings of €580 million.

You have an objective of operating income of€1 billion for the current financial year based on anoil price at $120. Are you maintaining this objectivedespite the recent increases in the oil price?We remain confident we can achieve this objective.Forward bookings for the next three months are good,particularly in premium class, while unit revenue perpassenger continues to improve. Our cost-cuttingmeasures are paying off. Finally, our pro-active hedgingstrategy reduces the impact of the recent increases.

Where do you see your main challenges for thefuture?Were jet fuel to stabilize at a high level, our hedgingstrategy would become ineffective in the medium term, inother words by 2012-13. We would then have to pay themarket price for oil. If we want to continue to create value,which is to generate a return on capital employed at least

equal to the cost of capital, we will have to step up ourefforts on productivity. The environment is anotherchallenge. We aim to be the reference for the industry inthis respect, but our industry must not be penalized bythe introduction of environmental taxes. They provide littleincentive for behavioral change and could bediscriminatory if not applied equally in all countries. Finally,the next decade will see the emergence of newcompetitors from emerging markets.

The objective of Air France-KLM’s management is toprepare the Group to face such challenges withconfidence. We can count on the loyalty of ourcustomers, our employees and our shareholders. Thisrepresents a considerable strength when it comes todealing successfully with these new challenges.

* based on futures prices at June 20, 2008.

07:00

shanghaiIn summer 2008, Air France and KLM should each operate two dailyflights to Shanghai, a total of four daily frequencies.

StrategyAir France-KLM aims to strengthen its European leadershippostion by leveraging the power of its network and alliances, amodern fleet, attractive product offerings and significantreserves of synergies, supported by a cost saving program.

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Strategy

Air transportation faces three major challenges: the oil price,

competition and the environment

As of its inception, air transportation has been evolvingand the sector will see profound change over the nextdecade. In an increasingly liberalized universe, only a fewlarge companies which benefit from sound networks,powerful hubs and modern fleets will be able to contendwith competition, the rise in the oil price and increasinglydemanding environmental standards and thus remainmaster of their own strategies.

Increased competitionIn Europe, three large groups have emerged over the pastfew years: Air France-KLM, Lufthansa and British Airways.While Lufthansa has growth ambitions in long-haul,supported by partnerships to attract traffic to its Frankfurtand Munich hubs, British Airways continues to refocus itsbusiness on high contribution flows out of London. Theopening of Heathrow to competition on the North Atlanticwill, furthermore, increase competition in its principalmarket. The US airlines are prioritizing internationalgrowth, notably on the North Atlantic, which is moreprofitable than their domestic business. The Gulf airlinesare becoming serious competitors on flows for which theirgeographic positioning is attractive. In the future, powerfulChinese and Indian players could emerge. In medium-haul, low cost carriers currently account fornearly 40% of capacity. In order to achieve their growthobjectives, they are evolving towards a hybrid businessmodel to attract, specifically, business traffic and intensifyingtheir direct competition with the network companies. In theFrench network, in addition to the growth in low costcapacity, Air France has to contend with the extension ofthe TGV high speed rail service. Within this context,the Group is preparing for full market liberalization bydeveloping its European positioning, fine-tuning itscapacity and controlling its costs.

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A high oil price over the long termFor the first time in the history of air transportation, jet fuelhas become the largest cost item for airlines. Whereas ithad amounted to an annual cost of around $40 billion inthe early 2000s, equivalent to around 10% of operatingexpenses, IATA estimates show it reaching more than$230 billion in 2008, based on an oil price of $130 perbarrel, and representing some 40% of operating expenses.Thanks to its hedging strategy and investment in moreefficient aircraft, the Air France-KLM Group is betterpositioned than other players in terms of limiting theimpact of higher oil prices.

Environmental responsibilityAir transportation, which has always been subject tosignificant constraints (safety, regulatory compliance,infrastructure, taxation), must now meet increasinglydemanding environmental standards and help to combatglobal warming. The Air France-KLM Group works toreduce its greenhouse gas emissions through the variousinitiatives in its Climate Action Plan. Air France and KLMhave deployed separate but harmonized environmentalmanagement systems, based on the 14001 standard.Thus, the two environmental divisions work together on arange of issues and carry out common environmentalreporting through the Group’s Corporate SocialResponsibility Report.

FranceFrench Environmental Summit (Grenelle)Anti-growth lobby

ETS: inclusion of air transportation in 2012Europe Flight curfews

Ecotaxes

Kyoto protocolInternational Work of the IPCC

ICAO recommendations

150

140

130

120

110

100

90

80

70

60

5050 60 70 80 90 100 110 120 130 140 150

Market price

Air France-KLM final purchase

price in 2008-09

Air France-KLM final purchase

price in 2009-10

The Air France-KLM Group benefits from the fuel hedging strategy in placefor nearly a decade, which reduces the negative impact of price rises andensures the cost remains constant over the financial year.

An effective fuel hedging strategy

In $/bl

In $/bl

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Strategy

The Group is pursuing a strategy of profitablegrowth, leveraging the complementarity between

its two companies

The Air France-KLM Group is leveraging thecomplementarity of the two companies in their three mainbusinesses: passenger, cargo and maintenance. It isexploiting to the full the significant synergies in terms ofboth revenues and costs. The Group’s growth strategygoes hand in hand with strict cost control, reflected inthree-year cost saving plans.

A powerful networkThe Air France-KLM Group has the largest route networkbetween Europe and the rest of the world. Of the 181 long-haul destinations operated by AEA(Association of European Airlines) member airlines insummer 2008, Air France offers 114, or 63% of the total,compared with 39% for British Airways and 47% forLufthansa and Swiss. The Group also offers 42 uniquedestinations which are served by neither British Airwaysnor Lufthansa.

Two coordinated hubs at fast-developing airportsThe Group’s network is coordinated around the twointercontinental hubs of Paris-Charles de Gaulle andAmsterdam-Schiphol, which are two of the four largesttransfer platforms in Europe. These hubs, which combine transfer traffic flows withthose of point-to-point traffic, are based at airports withsignficiant development potential. Starting June 2007 and through to 2012, Air France willbenefit from the gradual opening of new airportinfrastructure which will provide top-flight facilities forpassengers and make Paris-Charles de Gaulle, likeAmsterdam-Schiphol, a reference within Europe.

A balanced customer baseThe Air France-KLM Group benefits from a balancedcustomer base, underpinning the resilience of its businessmodel: 52% are leisure passengers and 48% travel forprofessional reasons while 56% are transfer passengersand 44% take direct flights. Furthermore, half of revenuescome from regular customers whose loyalty the Groupsecures with its frequent flyer program and throughcorporate contracts.

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A global alliance to extend the networkAir France and KLM play a lead role in the SkyTeamalliance, the number two alliance world-wide in terms ofmarket share. Bringing together eleven European, Americanand Asian airlines (Aeroflot, Aeromexico, Air France,Alitalia, Continental, CZA, Delta Air Lines, KLM, KoreanAirways, Northwest Airlines and, as of 2007, ChinaSouthern), SkyTeam gives the Group the means to fullysatisfy the expectations of its customers and to extend itsoffer under competitive conditions in both passenger andcargo transportation.

A modern fleetThe Group makes an ongoing investment in theacquisition of new aircraft and currently operates one ofthe most rationalized and modern fleets in the sector. Thismeans it can provide an enhanced level of passengercomfort and achieve substantial fuel savings whilerespecting its sustainable development commitments inreducing noise disturbance for local residents andgreenhouse gas emissions.

An innovative product offerAir France-KLM’s customer-focused strategy aims to offerpassengers a wide range of destinations and innovativeproducts including, for example, fare combinability, whichincreases the routing possibilities at attractive fares.The joint Flying Blue frequent flyer program, e-servicesand improved cabin services are further examples of thisinnovation at work. These new products and services aredeveloped while respecting the Group’s environmental policy.

Synergies and cost saving plansGiven the complementarity between their three mainbusinesses, the companies are generating significantsynergies. Originally estimated at €495 million over fiveyears, this figure has been regularly increased with themost recent revision standing at €750 million (+51.5%)over the same period (through to 2008-09). In addition,there will be new synergies to come from, notably, theintegration of operational IT in 2010-11 by which timetotal synergies should have reached €1 billion. The two companies have also launched a joint three-year cost saving plan which will include the €212 millionof synergies still to come. Challenge 10, effective as ofApril 1, 2007, is targeting total savings of €1.4 billion, ora 3% reduction in unit costs excluding fuel by the end ofthe 2009-10 financial year. In response to the currentenvironment, the Group has launched an additional planseeking a further €150 million of cost savings in the2008-09 financial year.

685million euros of synergies since the merger of the twocompanies in 2004

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Strategy

Our two powerful and coordinated hubs are amongst

the four largest in Europe

In terms of revenues, the Air France-KLM Group is nowthe leading global air transport company thanks, notably,to the combined power of the Air France and KLMnetworks based, respectively, at the Paris-Charles deGaulle and Amsterdam-Schiphol hubs. These hubsconcentrate short and medium-haul flows beforetransferring them to long-haul flights: connectingpassengers account for 50% of the total at Paris-Charlesde Gaulle and 72% at Amsterdam-Schiphol.

The Air France and KLM hubs are synchronized aroundsix transfer waves at Paris-Charles de Gaulle and seven atAmsterdam-Schiphol. In concentrating the arrivals anddepartures of medium and long-haul flights, these transferwaves offer a maximum number of flight connectionopportunities in under two hours. With 30,500 weeklytransfer opportunities in under two hours (summer 2008),Air France-KLM passengers benefit from the mostextensive offer in Europe.

The hubway shuttle service linking Paris-Charles deGaulle and Amsterdam-SchipholA hubway shuttle service of fifteen daily flights links Paris-Charles de Gaulle and Amsterdam-Schiphol, enabling theAir France-KLM network to offer access to 258destinations. An experiment is also underway between Paris andAmsterdam giving passengers greater freedom at theairport and enabling automatic boarding for passengerswho so wish. Thanks to an individual card regrouping newbiometric technologies (integrated digital printing), RFID(Radio Frequency IDentification) and thermal printing (thereverse of the boarding card can be reinscribed up to 500times), customers will soon be able to avoid queuing forembarkation checks and board at will.

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Facilitating flight connections at Paris CDG2Air France and KLM transfer passengers now haveaccess to self-service transfer kiosks at Paris-Charles deGaulle and Amsterdam-Schiphol, giving them easy, rapidaccess to personalized information on the next leg of theirjourney. Available in ten languages, this information includes analternative flight should this be necessary, together withthe issuance of a new boarding card. Air France-KLM isthe first European company to offer this service.

2007-2012: a new era for the Air France hub at Paris-Charles de GaulleParis-Charles de Gaulle is the premier European hub. At the heart of the new infrastructure for Air France andKLM passengers: the S3 satellite, the reopening of theboarding pier at Terminal 2E and, in autumn 2008, anew terminal reserved for regional aircraft. The newsatellite S4, expected to come into service in 2012, willcomplete these new facilities. This international long-haul boarding satellite equipped with 17 parkingstands will be able to handle up to 7.2 millionpassengers per year. 258

destinations out of theParis-Charles de Gaulleand Amsterdam-Schiphol hubs

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Strategy

The Air France hub a focus for innovationIn order to respond to new passenger expectations andbehavior, Air France is optimizing the combination of all itshuman and technological resources and is designingtailor-made services. Thus, e-services provide greaterautonomy and save time, freeing airport ground staff toattend to customers, particularly those with special needssuch as those with disabilities or children traveling alone.

New initiatives to strengthen the attractiveness ofSchipholFaced with competition from rapidly-developing Germanand Belgian airports, KLM is strengthening its position inits domestic market. The company has adapted its faresand offers contracts to business customers. It is alsoworking on facilitating passenger transportation. As of the2008 first half, passengers outbound from Amsterdam willbenefit from additional services such as journey timereckoners or park, sleep and fly type products, packaginga flight with car parking and airport hotel accommodation.There is also a very promising initiative underway with theDutch railways (NS) offering small and medium-sizedcompanies as well as other corporate customers a freeNS Business Card with a 20% reduction on all rail fares.All these services will be offered over the www.klm.nlwebsite.

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Financial benefits• The power of the Air France-KLM double hub attractshigh-contribution passengers seeking to optimize theirjourney times. • Routes where the traffic is highest, fed by flights coming from smaller outstations, can be operated inlarger-capacity aircraft which are also cheaper.

What are the benefits of the hub?

Environmental benefitsIn combining small flows of medium-haul traffic on along-haul flight, the hub works very much like carpooling: a passenger from Marseilles and another fromStockholm thus travel together between Paris and NewYork. Fewer flights are needed to carry the samenumber of passengers to their destinations, reducingCO2 emissions.

Customer benefits• The hub gives access to all world regions, whateverthe point of origin.• Each flight combines connecting and point-to-pointtraffic, increasing the volume of traffic and thefrequencies for each destination.• The hub favors the opening of new direct long-haulroutes fed, in part, by the pooling of small traffic flows.Air France has thus been able to introduce a direct flightto Santiago de Chile, whereas this destination hadpreviously involved a stopover in Buenos Aires, enablingthe Air France-KLM passenger to gain three hours onthe total journey time. • The hub increases frequencies and the choice of flighttimes.

Air France-KLM, the most connectingopportunities in Europe

Air France-KLM 30,566

Lufthansa-Swiss 22,664

British Airways 7,156

Number of medium-haul/long-haul connecting opportunities in under two hours(Source: OAG, summer 2008)

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Strategy

A modern, rationalized fleet combining comfort

and energy efficiency

At March 31, 2008, the Air France-KLM Group fleetcomprised 622 aircraft, of which 607 were operational(591 and 569 at March 31, 2007). The main fleetconsisted of 408 aircraft, of which 159 long-haul, 16cargo and 233 medium-haul aircraft including 33 aircraftin the transavia.com fleet. The regional fleet comprised214 aircraft.

A pro-active fleet policyThe Air France-KLM Group seeks to meet the needs of itsmarkets while respecting technological consistency andreducing its impact on the environment. Its fleet plan aimsto met the requirement for fleet renewal and expansion whileremaining compatible with the Group’s financial capacity.The fleet plan must also preserve the asset value of thefleet over the medium and long term and while retainingan adequate level of flexibility. The analysis of requirements, whether in terms of renewalor expansion, is based on the age curve of the aircraft, theavailability of replacement aircraft and the outlook in eachmarket. This pro-active management of the fleet with,particularly, a common approach to suppliers and atransfer of aircraft between Group subsidiaries, generatedsynergies of around €2 million during the financial year,bringing the total since the merger of the two companiesto nearly €10 million.

Flexibility as an optimization toolIn a sector which is subject to considerable and rapidchange, flexibility enables capacity to be fine-tuned todemand. Hence a third of the fleet is under operatinglease, enabling the restitution or prolonged operation of anaircraft depending on requirements. The Group alsoincludes clauses in its contracts enabling the adjustmentof delivery schedules and possible changes in modelwithin a family of aircraft.

New more efficient aircraft with enhancedenvironmental performanceAir France and KLM continue to invest in their fleets. InMay 2007, Air France decided to renew its Boeing B747-400s and another section of the medium-haul fleet.Eighteen Boeing B747-400s, of which thirteen passengerand five cargo aircraft, will be replaced by eighteen B777sbetween 2007 and 2013. This investment will increase thefuel efficiency of the long-haul fleet whose consumptionper passenger over 100 kilometers will be reduced from3.88 currently to 3.44 liters in 2012. The replacement ofthe B747-400s will reduce the CO2 emissions of this sub-fleet by between 23% and 28% on 2006 levels by 2012. In the medium-haul fleet, the 30 longest-serving AirbusA320s will be replaced by 30 A320 and A321 new-generation aircraft, reducing fuel consumption and carbon

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emissions. This partial renewal will enable the company toawait the new more efficient generation of medium-haulaircraft planned for beyond 2015. In 2005-06, KLMdecided to replace its Boeing B767-300ERs with AirbusA330s and Boeing B777-200s. This renewal will becompeted in summer 2009.

A first joint aircraft orderIn its regional fleet, the Group has placed its first jointorder for 20 Embraer E170 and E190 regional jets,together with 18 options, for its Régional and KLMCityhopper subsidiaries. This should generate significantsynergies in the purchasing of aircraft, engines andspare parts as well as in fleet management, operationalmaintenance and flight crew training.

Air France and KLM operate the largest BoeingB777 fleet globally, an aircraft consistent with theGroup’s profitable growth strategyThe Group currently operates 77 Boeing B777s. OnApril 30, 2008, Air France took delivery of a BoeingB777-300ER, its 50th Boeing 777. This aircraft can carryup to 325 passengers on international routes and 472passengers on the Caribbean-Indian Ocean network. At57 tons, its carrying capacity is unequalled by any othertwin-engine long-haul aircraft.

607aircraft

in operation

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Strategy

SkyTeam, the number two global alliance

with a market share of 19%

The SkyTeam alliance: a global network of high-quality partnersFirst created in 2000 by Aeromexico, Air France, Deltaand Korean Air, the alliance expanded around these fourfounders with the addition of seven new members(Aeroflot, Alitalia, China Southern, Continental Airlines,CSA Czech Airlines, KLM and Northwest Airlines). InSeptember 2007, it welcomed three new associate airlinemembers, Air Europa, Copa Airlines and Kenya Airways,contributing 47 new destinations and nearly 500additional daily flights. Local partnerships with, forexample, JAL in Japan and Qantas in Australia alsoenhance the SkyTeam offer. The alliance carried 428million passengers in 2007.

An extension of the product rangeThe SkyTeam network serves the fastest-growing marketswhere 80% of global air traffic is concentrated. SkyTeamcustomers benefit from harmonized services and the mostefficient hubs in the United States (Atlanta, Detroit), Asia(Incheon) and Europe (Paris-Charles de Gaulle andAmsterdam-Schiphol). SkyTeam offers them more flightconnection opportunities and direct flights to destinationsin Europe and the United States than any other alliance.

They also benefit from a wide choice of exclusive faresand tailor-made products such as the SkyTeam AmericaPass, the SkyTeam Asia Pass and the SkyTeam Roundthe World, making travel easier. Four hundred lounges canbe accessed by all passengers traveling in first orbusiness class or who are Elite Plus members.

Potential for growthSkyTeam plans to continue its development in 2008 and isseeking new partnerships in markets with strong growthpotential, such as Brazil and India. The alliance will takeadvantage of the Open Skies agreement between theEuropean Union and the United States to gradually extendits offer and strengthen its position at London-Heathrow:since March 30, 2008, SkyTeam has offered nine newdaily direct flights on seven new routes between theUnited States and the British capital.

27

SkyTeam was voted 2007Best Airline Alliance for thesecond year running byreaders of US magazine,Business Traveler, for thequality of its services and itsextensive network.

China Southern joins SkyTeamIn November 2007, China Southern became the firstChinese airline to join a global alliance. Without takinginto account its two subsidiaries, China Northern andXinjiang Airlines, China Southern is the leading Chinesecarrier in terms of fleet size (305 aircraft), passengernumbers (50 million per year), revenues (€5 billionannually) and destinations served, particularly in thedomestic network coordinated around its four hubs:Guangzhou, Beijing, Ouroumtsi (in the far west) andShenyang (in the north-east). This partnership providesthe other SkyTeam members with significant transferpotential inside China and, in return, enables ChinaSouthern to develop internationally. In time, therelationship between Air France and China Southerncould be extended beyond the respective hubs of thetwo airlines to increased cooperation in related areassuch as catering and maintenance. Furthermore, thetwo companies are in the process of establishing acargo joint-venture.

16,400daily flights

162countries

841destinations

22:00

new yorkThe Open Skies agreement between Europe and the United States enablesAir France and KLM to serve North America out of Heathrow.

ActivitiesPassenger, cargo and maintenance: Air France-KLM’s leadershipin these three businesses is based on customer service quality,continuous innovation and the complementarity of the twobrands.

Passenger activity

31

The group is strengthening itsleadership position in an increasingly

liberalized market

The Air France-KLM Group is the European leader in itsmain business, passenger transportation, which accountsfor 80% of the company’s revenues and 92% of operatingincome. The Group’s passenger strategy is based on acombination of strengths which give it a decisiveadvantage over the principal competitors: a continuousimprovement in service quality for passengers and a highdegree of responsiveness enabling the Group to capitalizeon development opportunities.

A network organized around five hubsWith a fleet of 543 passenger aircraft in operation, theGroup operates 2,500 daily flights to 258 destinations in105 countries. This network is organized around fivehubs. Paris-Charles de Gaulle and Amsterdam-Schipholare the international transfer platforms, Paris-Orly coversthe French domestic market while Lyons, a medium-haulhub, is principally reserved for European trans-regionalflights. Finally, in April 2008, the Group established twostrong positions in London: to the United States out ofHeathrow Airport and to Europe out of London CityAirport.

Continuous innovation to the benefitof the customerIn order to encourage innovation, theGroup has deployed tools to ensure asteady flow of new ideas. Continuous innovation and customerrelationships are key to the Group’sstrategy for strengthening its leadershipposition in an increasingly liberalizedmarket. Air France-KLM is thus pursuing thedevelopment of e-services in order toensure a streamlined travel experiencefrom the moment a booking is made.

19.16billion euros of revenues

32

Passenger activity

During the financial year 74.8 million passengers chose totravel on the Group’s network, benefiting from a widechoice of destinations, exclusive facilities and a range ofservices recognized for their quality.

A powerful offer based on a network coordinatedaround two major European hubsParis-Charles de Gaulle and Amsterdam-Schiphol, thetwo powerful, coordinated hubs, offer the Group’scustomers a wide choice of destinations and flight timesas well as a large number of frequencies per destination.Passengers can choose between eleven daily flights toNew York, five to Tokyo and four to Johannesburg andMontreal.

This organization is particularly attractive to both highcontribution passengers looking for a direct flight andconnecting passengers who also have the opportunity tooptimize their trip in using the two hubs. This unique offer has attracted new customers who havegenerated 220 million of additional revenues since 2004.The Air France-KLM offer is extended still further bySkyTeam and local partnerships.

New long-haul routes departing from EuropeFollowing the Open Skies agreement, the Group hasestablished operations at Heathrow, the largest Europeanlong-haul market to the United States: high contributiontraffic flows between New York and London are threetimes greater than the flows between New York and Paris,the leading Continental European market. As of April2008, in order to establish a meaningful network out ofHeathrow, Air France and KLM made slots available toDelta Air Lines and Northwest, enabling nine daily flightsto be operated under code share to seven US cities, ofwhich the two largest are New York and Los Angeles. Thelatter is now served by a direct Air France flight, makingAir France the first European carrier to operate a long-haulflight between two destinations situated outside itsnational territory.

The Group offers its passengers an extensive network

and innovative services

33

In October 2007, Air France and Delta concluded a joint-venture agreement based on the model establishedby KLM and Northwest who have been cooperating formore than a decade on the North Atlantic. With this typeof agreement, the companies share revenues and costsand jointly develop the network. The scope of the joint-venture between Air France and Delta includes the flightslinking the hubs of the two airlines as well as theconnecting flights and those departing from London-Heathrow. In 2009, these two joint ventures will bemerged in a single four-way joint-venture. The scope willbe extended to all the transatlantic flights between theUnited States, Canada, Mexico, Europe and theMediterranean basin, representing revenues of around$12 billion. Air France also continues to develop its operations inLondon. One year ago, CityJet for Air France introducedservices linking London City, an airport located close to London’s new business districts, with ten newEuropean cities.

75million

passengers

124long-haul

destinations in69 countries

134medium-haul

destinations in36 countries

34

Passenger activity

E-services are all the automized and IT-based serviceswhich ensure a more seamless and enjoyable travelexperience from booking right through to boarding. Newtechnologies developed across the entire e-services chainenable staff to refocus on a new customer servicerelationship.

The simplicity of e-servicesAll the tickets sold by the Group are electronic. On thewebsites of the two airlines, passengers can purchase aticket, consult the times of all the Group’s flights and alsomanage their reservation with their electronic ticket. SinceApril 2006, Air France and KLM customers can alsocheck in over the internet for virtually all the destinations

offered by the two airlines. At any time from 24 hours to30 minutes before the check-in limit for the flight,passengers can print their boarding cards at home or inthe office and choose a seat, whether traveling with orwithout hold baggage, then go straight to the boardinglounge at the airport.

Check-in in less than 30 secondsEvery day nearly 550 self-service check-in kiosks locatedin 63 airports save the Group’s 20,000 customersprecious time at check-in. Since October 2007, at Paris-Charles de Gaulle and Amsterdam-Schiphol, Air Franceand KLM transfer passenger have had access to self-service transfer kiosks giving them, on arrival, easy andrapid access to information about their connecting flight.As of the 2008 first half, customers have been able towithdraw refreshment and meal vouchers from thesekiosks should the transfer periods prove longer thenexpected. New technologies not only enable the offer ofpersonalized information in real time but also thesuggestion of alterative solutions in the event the plannedflight is delayed.In order to offer their customers an easier, streamlinedtravel experience, Air France and KLM have both offeredcell phone check-in since June 2007 for Air France and

550self-service check-in

kiosks located at 63 airports

world-wide

The digital airport is streamlining

the travel experience

35

KLM short and medium-haul flights departing fromvirtually all the European outstations. In order to takeadvantage of this service, the customer must have aninternet-enabled call phone and go tohttp://mobile.airfrance.com or www.klm.com. This new e-service should be extended to the entirenetwork and offer new functionalities by the end of 2008.

Information around the clock, anywhere in the worldPassengers can access Air France and KLM services atany time using a cell phone with mobile internet access.These services (latest flight news, Air France and KLMflight schedules, telephone numbers for the two airlines,and Flying Blue miles balances) can also be downloadedto a PDA (Personal Digital Assistant).

At home with the Air France keep in touch widgetAs of 2008, visitors to the Air France British website,www.airfrance.co.uk can install an Air France keep intouch widget on their computers to stay informed, on areal time basis, of fare promotions on flights departingfrom their region.

Awards for Air France customer servicesThis year, Air France won the Prix du jury for its aroundthe clock 36 54 customer call service in the FrenchVocal Trophies. This prize was awarded by anindependent jury and recognizes the effectiveness andoriginality of the service ergonomics.

China in the e-services eraSince July 2007, China has belonged to the e-ticket erathanks to an agreement with Travel Sky. On theirrespective Chinese websites, Air France and KLM arelaunching the Best Price Guarantee program, with eachairline guaranteeing that fares on its website are cheaperthan those offered through a different sales channel.

36

Passenger activity

Passenger comfort and state-of-the-art entertainment arepriorities for Air France-KLM in that they are key tobuilding brand loyalty.

Making the most of the journey timeSince September 2007, KLM has offered additional inflightentertainment on board its Boeing B777 and Airbus A330aircraft. All passengers benefit from new programs suchas language courses, audio books, a business programand an extended musical offer through its acclaimedjukebox function. KLM is also the first airline to offer its passengersinformation on all aspects of the flight, such as theaerodynamics of the aircraft, the inflight procedures andeven any upcoming turbulence. These new services arealso available to World Business Class customers inBoeing B747s. Since November 2007, movies have taken center stageon Air France long-haul flights, with a choice of 85 video-on-demand films, of which ten are currently showing inground-based movie houses. Some of these films areavailable in nine languages (German, English, Chinese,Korean, Spanish, French, Italian, Portuguese andJapanese). Amongst the new features, passengers can discover well-known television series, video clips, and a choice of

200 CDs leaving them free to compose their own musicalprogram, together with practical information on Air Franceservices. In total, there are 400 hours of programs. In another first,via Geovision, Air France passengers on flights betweenParis and Singapore, Delhi, Mumbai and Bangalore candiscover the landscape below thanks to a series ofsatellite photographs selected by Air France’s partner, theEuropean Space Agency.

The onboard experience: passenger comfort, service quality

and top-flight entertainment

85video-on-demandmovies: the largest inflight cinema

37

A responsible commercial policyThe Group explores all possible ways ofreducing its environmental footprint andimplements pro-active initiatives to this end:Flying Blue, the Air France-KLM Group’sfrequent flyer program, is graduallyreplacing plastic cards with cards based onnatural starch from plants. Its members areencouraged to receive their accountstatements by email and 37% haveaccepted, enabling a saving of 200 tons ofpaper. Baggage tags will gradually be replacedwith biodegradable versions enabling, bythe end of the process, a saving of someten tons of PVC. Furthermore, Air France-KLM also offers its customers a CO2

emission offsetting program: in partnershipwith the WWF for KLM and Goodplanet forAir France, voluntary contributions togetherwith the Group’s various initiatives allcontribute towards supporting projectsfocused on the development of renewableenergies.

100,000new members join the Flying Blue frequent flyerprogram every month

Effective customer loyalty toolsLaunched in June 2005, Flying Blue, the frequent flyerprogram common to the Group’s two airlines, is growingsteadily, its membership having increased from 10million in 2005 to 13 million this year. Air France andKLM passengers can also benefit from the Group’scombined network. Flying Blue also enables membersto collect miles that can be redeemed on 16,400 flightsoperated by SkyTeam alliance members as well as with130 air or commercial partners.Flying Blue members benefit from facilities offered by e-services: they can consult their account, request thecrediting of miles or access promotional offers on thecommercial websites of the two airlines.

Cargo activity

39

The Group is reinforcing its position as the European and global

leader in air freight

Air France-KLM Cargo is the European and global leaderin air freight (excluding integrators) with an operationalfleet of 13 exclusively cargo aircraft. Contributing 12% oftotal revenues, the cargo business is the Group’s secondactivity.

Higher costs and increased competitionThe economic slowdown in the United States, theincrease in the oil price and dollar weakness all held backthe cargo activity despite continued strong demand (+4%)driven by the development of the Chinese market.Competition with shipping has increased with theefficiency of large tonnage ships supported by that of portfacilities enabling sea freight to broaden its offer and lowerprices. New players have emerged both in Asia and theMiddle East, again adding to competition. 2007 was a record year with orders placed for 151 cargoaircraft, the global cargo fleet entering a renewal cycleaccelerated by the increase in the jet fuel price. Despitelikely overcapacity, annual air freight growth shouldaverage close to 4.8% through to 2011. In this challenging environment, Air France-KLM Cargomaintained its market share in terms of traffic (29.5%compared with 29.6% in 2006) amongst AEA (Association

of European Airlines) airlines and globally (7% as in 2006),thanks to its integrated organization, its network, anattractive offer and measures to adapt the business.During the financial year the Group carried more than 1.5million tons of cargo, of which 50% in the holds ofpassenger aircraft and 50% in 13 dedicated cargo aircraftto 350 destinations in 175 countries.

1.5million

tons carried

40

Cargo activity

In response to their customers’ needs, Air France Cargoand KLM Cargo decided, as of October 2005, to createan integrated organization, the Joint Cargo Team, to coversales, distribution, marketing, network management andcommunication as well as the strategy and developmentteams. The integrated functions regroup more than 2,300of the 5,750 employees who work for the cargo business.Thanks to this organization, the Group’s customersbenefit from one contact point, one contract and a uniquenetwork with the choice of two operational systems viaParis-Charles de Gaulle or Amsterdam-Schiphol, or acombination of the two hubs. This integration has generated significant synergiestotaling 70 million ( 25 million during the 2007-08 financialyear).

An offer tailored to the specific needs of eachcustomerAir France-KLM Cargo has a product range organizedaround four product families which offer rapid andeffective solutions to the specific needs of industrialcompanies and the markets. This product range is alsooffered by the members of the SkyTeam Cargo alliance.

Equation is the Group’s express shipment solution andguarantees immediate boarding, without prior reservation,on the first available flight.

Cohesion is a customized logistics solution, based on athree-way contractual agreement between the shipper,the cargo agent and the airline. It gives customers theopportunity to establish a closer relationship with AirFrance-KLM Cargo and has seen steady growth since itslaunch.

Variation offers solutions for the transportation of atypicalmerchandise, in which Air France-KLM Cargo specializes,ranging from hazardous or high added-value products tolive animals, over-sized parcels and the French mailservice.

Dimension covers the general cargo category and offersstandard airport-to-airport shipping of cargo that does notrequire special handling and mostly concernsconsolidated shipments. Its share of revenues is graduallydeclining in favor of other higher-added-value products.

The integrated organization offers customers rapid handling and appropriate solutions

41

SkyTeam CargoLaunched in September 2000, SkyTeam Cargo is thelargest air freight alliance, regrouping eight European,American and Asian airlines: Aeromexico Cargo, AirFrance Cargo, Alitalia Cargo, CSA Cargo, Delta AirLogistics, KLM Cargo, Korean Cargo and NorthwestCargo. The alliance covers the main strategic traderoutes with 728 destinations. The alliance also prioritizesone sole contact point together with the one roofconcept, with most of the freight transiting the citiesserved by the alliance being handled in warehouses orby ground handlers that are common to all the SkyTeamCargo members.

57%

21%

12%

10%

Breakdown of revenuesby product

● Dimension ● Variation● Cohesion● Equation

2.93billion euros of revenues

42

Cargo activity

Recognizing the excess capacity, the increase in the oilprice and increased competition from Chinese airlines onthe Europe-Asia axis, the Group took rapid measures toadapt its business.

Accelerated fleet renewalSince 2006, in order to fine-tune its capacity and improveits energy and environmental performance, Air France-KLM Cargo has been replacing its Boeing B747-200swith Boeing B747 Cargo 400 aircraft. Similarly, in May 2007, it decided to replace the BoeingB747-400s with Boeing 777-200Fs in order to reduce unitcosts. Foreseeing the growth in air freight between Asiaand Europe and in Asia itself, Air France-KLM stepped upits cooperation with China Southern with the signature, inJuly 2007, of a letter of intent aimed at the creation of ajoint cargo company which could go ahead during the2008-09 financial year.

The environment: a key concern for the cargo activityFor Air France-KLM Cargo, limiting the impact of itsactivity on the environment is a key consideration. Therenewal of the fleet, effective in 2012, will enable anongoing reduction in its environmental footprint. TheGroup also offers its customers the opportunity to offsetthe CO2 emissions generated by their air freightrequirements. In developing e-freight (electronic freight), Air France-KLMis reducing paper consumption.

Faced with changes in the market, the Group is adapting its offer and leveraging

its strengths

13aircraft in operation:one of the largest cargofleets in the world

43

Air France-KLM Cargo: electronic shipping of freightOn November 5, 2007, Air France-KLM Cargo carriedout the first electronic cargo shipments in the countriesparticipating in a pilot project: Hong Kong, Singapore,Canada, the Netherlands and the United Kingdom. Thismajor advance for air freight improves the monitoringand consistency of the entire logistics chain.After ten months of planning involving the InternationalAir Transport Association (IATA), customs, governmentalauthorities, handling agents and airlines as well as thefreight forwarders participating in the Netherlands (DHL,Schenker, Panalpina and TMI Group subsidiary RoadAir) electronic cargo has now become a reality. Air France-KLM Cargo’s overall objective is to increasethe percentage of electronic cargo to 50% of shipmentson the major trade routes over the next five years.

The Boeing B777F: a technological andenvironmental advanceIn October 2008, Air FranceCargo will take delivery of thefirst Boeing B777F in an orderof five aircraft, an aircraft typefor which it is the launch airline.This aircraft will give thecompany a decisive advantageover its competitors. With a potential revenuepayload capability of 104 metrictons, the Boeing B777F has acapacity close to that of theBoeing B747-400. It alsoenables a fuel saving of around20% compared with the BoeingB747-400. In 2013, the AirFrance cargo fleet will beexclusively comprised of 12Boeing B777Fs.

Breakdown of revenues bysales region

● Europe ● Asia● Americas● Africa and Middle East● Caribbean and Indian Ocean

46%

33%

13%

7%

1%

Maintenance activity

45

The Group is developing a common operational model

for a reference network

Aeronautics maintenance is the Air France-KLM Group’sthird business. Revenues generated with third-partycustomers contribute around 4% of total revenues for theGroup and around a third of revenues for Air France-KLM’s maintenance activity.

Continued growth in the aeronautics maintenance marketThe aeronautics maintenance market, estimated at $45billion in 2007, is expected to grow by around 3%* peryear over the next decade. However, the growth will becharacterized by some marked regional differences.Currently, three zones represent more than 80% of themarket (North America with 36%, Europe with 27% andSouth-East Asia with 18%) whose growth rate is close tothe market average, whereas the growth rate in China,India and the Middle East should be significantly higher atbetween 8% and 15%.Furthermore, the proportion of outsourced maintenance isgrowing and is expected to increase from 52% in 2007 tomore than 70% within ten years. Competition is, however,increasing, with OEMs offering their customers integratedmaintenance solutions and independent players benefitingfrom the consolidation in this sector.

*Source: Aerostrategy – 2008

2.9billion euros

of total revenues

969million euros of

third-party revenues

46

Maintenance activity

opened a new in-line maintenance center at London CityAirport, enabling it to provide this service for the CityJetfleet and to new third-party customers.

Major changes in the heavy maintenance businessAs a highly labor-intensive business, the heavy airframemaintenance activity is evolving with the arrival of newtechnologies and the improved reliability of materials andto contend with competition from low cost countries. TheGroup is adapting its industrial facilities and calls onairframe maintenance capacity in low-cost countries inorder to be able to market a competitive service in thissegment, while retaining strategic expertise in the heavymaintenance of the fleets it operates as well as its cabinmodification capacity close to operations.

A multi-product offer tailored to customerexpectationsThe engineering of the Group’s fleet is handled by AFI andKLM E&M, ensuring that this activity’s legacy of skills andexpertise is perpetuated and enabling it to offercustomized monitoring of customer maintenanceprograms. From line maintenance to component support,engine overhaul and cabin modification, the AFI and KLME&M multi-product offer covers the entire maintenancechain.

A significant dollar effectIn an increasingly competitive market, the maintenanceactivities located in Europe are impacted by thedevaluation in the dollar relative to the euro. In effect,contracts are principally negotiated in dollars, whereas thecosts of European maintenance activities are mostly ineuros.

Two specialized centers for the GroupThe Group’s MRO (Maintenance, Repair & Overhaul)activities are mostly regrouped within two profit centers:Air France Industries (AFI) and KLM Engineering &Maintenance (KLM E&M).AFI and KLM E&M maintain the fleets of their respectivebrands as well as those of over 150 customers, handingmore than 900 aircraft. The Group’s total MRO revenuesamounted to €2.9 billion. In order to ensure maintenancelocated as close as possible to the operational fleet, AFIhas runway-located facilities, known as HMCs or hubmaintenance centers, so that inspections can take placeas soon as aircraft arrive at the terminal. Procedures havebeen optimized, enabling information to be received priorto the aircraft’s arrival and maintenance and materialsplanned. These new facilities improve line maintenanceand contribute to the respect of the Group’s maintenanceprogram. Similarly, subsidiary KLM UK Engineering has

47

155airports world-wide,at which theGroup’smaintenanceactivity is present

900aircraft handledCRMA: celebrates its

fifty-year anniversarySubsidiary CRMA, whichcelebrated its fifty-year anniversarythis year, is complementing thegrowth in the engine overhaulbusiness by developing capacity inGE90 component repair and in itscombustion chamberspecialization.

45%

32%

23%

Breakdown of revenues inthe maintenance activity

● Aircraft maintenance● Component overhaul● Engine overhaul

48

Maintenance activity

Component support: recognized expertiseAFI and KLM E&M are developing expertise that isacclaimed by the market and its maintenance facilitiesenjoy a reputation for state-of-the-art competence.Geographical presence and customer proximity remainkey to the component support business. The deploymentof the Group’s logistics network has seen the opening of anumber of logistics centers in three main regions (South-East Asia, China and the United States), where itssubsidiary AMG ensures localized logistics and thedevelopment of component repair capabilities. Integratedservices, the strategic availability of parts inventories andthe scale effects on flagship products are also significantdrivers of competitiveness. The continuing trust andsatisfaction of customers was reflected, in 2007-08, in therenewal of a number of major support contracts, such asfor Royal Jordanian’s Airbus A340s and A321s or BRATransportes’s Boeing B737 aircraft. Partnerships with a number of OEMs strengthen thecommercial positioning of the Group while providingeconomies of scale. Thus, the number of Boeing B777ssupported by the CSP (Component Support Program)partnership between AFI and Boeing continued to growover the financial year to 124 aircraft. A similar partnershiphas been developed between KLM E&M and Boeing forthe new-generation Boeing B737s. Subsidiary EPCOR,specialized in APU (Auxiliary Power Unit) overhaulsupplements the multi-product offer on the Boeing B737NG and B777 aircraft and the Airbus A330 and A340.

Engine support: scale effectsThe development of the engine support business isbenefiting from the scale effect provided by the Group’sfleet and from strategic partnerships with engine OEMs.AFI is increasing its engine overhaul capacity on the GE90and is preparing for the arrival of the GP7000 destined forthe Airbus A380. For its part, KLM E&M is developing itsposition in CF6-80 E1 overhaul (the engine for the Group’sA330s) and continues to ensure the maintenance checkson General Electric’s CFM56-7 engine.Third-party revenues continue to grow with customerssuch as Pegasus Airlines choosing AFI KLM E&M for themaintenance of their CFM56-7B engines.

The drive for innovation and high quality standardsAFI and KLM E&M combine technological innovation withthe drive for productivity. The aircraft painting systemdeveloped by KLM E&M in 2007, for example, reducesthe amount of product used by 15% and thus the weightof the aircraft, contributing to the reduction in fuelconsumption. In the spirit of sharing best practice, AirFrance has adopted the hangar-based engine washsystem known as Water Wash developed by KLM E&M. Innovation doesn’t just mean developing newtechnologies but also the continuous improvement ofexisting systems and processes. The two companies arecommitted to a continuous drive for progress combiningin-house momentum with customer satisfaction andimproved business performance.Thus, within the framework of its Quality InnovationProgram (QIP), AFI encourages all its employees to submitinnovative ideas known as QIPs and see them through totheir implementation. In 2006, of the 5,700 QIPs put forward, 84 enabled costsavings of some €4 million. In 2007-08 more than 7,100ideas were submitted.

49

Investment in trainingBusiness growth depends on the professionalism andexpertise of teams who are abreast of the latesttechnologies. A program of regular training ensures thattheir knowledge is current and meets the needs of anumber of specialist competences. It contributes tosecuring the loyalty of high-quality manpower. An ambitiousapprenticeship program developed over the past ten yearsat AFI reached a new record in this financial year inwelcoming more than 400 apprentices.

Towards a common operational modelThe two companies are establishing the foundations of aharmonized maintenance network. The phasing in ofshared engineering responsibilities for the Group’s aircraftthough the establishment of the CEAs (CentralEngineering Agency) was completed in 2007 and thesharing of technical and financial responsibility for PLA(Product Leadership Agency) product management ofengines and components is continuing. Having createdjoint sales teams in 2007, the Group is now aligning thecommercial and strategic processes which should soonresult in a joint sales and marketing organization and theregrouping of all the industrial development, marketing,communication and sales activities on the basis of acommon strategy. Similar process harmonization initiativesare also underway in other areas such as procurementand logistics.

A world first: Single GlobalCertificationIn June 2007, AFI obtained SingleGlobal Certification, a world first.This certification covers a spectrumof seven aeronautical standards(including the ISO and EN series)world-wide. It was achieved thanksto the deployment of an integratedmanagement system providing thebusiness with the methods andtools to ensure an ongoingimprovement in performance.

09h00

rio de janeiroAir France and KLM are committed to an ongoing reduction in theenvironmental impact of their activities.

Corporate GovernanceThe Group is committed to excellence and corporate and social responsibility for its shareholders,employees and other stakeholders.

52

With the establishment of the Group ExecutiveCommittee, the Air France-KLM Group has strengthenedand integrated its governance. Comprised of elevenmembers representing the Group’s key functions, itcoordinates the joint strategic decision-making processduring fortnightly meetings in Paris and Amsterdam.

The Group’s management

Corporate Governance

�

� ��

�

53

MembersJean-Cyril Spinetta �Chairman and CEO of Air France-KLM and of Air France Leo van Wijk �Vice-Chairman of Air France-KLMPierre-Henri Gourgeon �Deputy CEO of Air France-KLM and Chief Operating Officer of Air France Philippe Calavia �Senior Executive Vice-President, Finance, of Air France-KLM and Air FrancePeter Hartman �President of the KLM Management BoardAlain Bassil Senior Vice-President, Maintenance, of Air France and the Air France-KLM Group

Christian Boireau Senior Vice-President, Commercial FranceFrédéric Gagey �Senior Executive Vice-President, Finance, KLM andSenior Vice-President, Fleet and Purchasing of the Air France-KLM GroupBruno Matheu �Senior Executive Vice-President, Marketing, RevenueManagement and Networks, of Air France and of the Air France-KLM GroupErik Varwijk Senior Vice-President, International Marketing, KLM andof the Air France-KLM GroupMichael Wisbrun �Executive Vice-President, Air France-KLM Cargo

Air France-KLM

� �

�

�

�

�

� � � � � � � �

Directors appointed by the Shareholders’ MeetingJean-Cyril Spinetta �Chairman and CEO of Air France-KLM and of Air FranceLeo van Wijk �Vice-Chairman of the Board of Directors of Air France-KLMPatricia Barbizet �Chief Executive Officer and Director of ArtémisFrits Bolkestein �Member of the Supervisory Board of de NederlandscheBankJean-François Dehecq �Chairman of the Board of Directors of Sanofi-AventisJean-Marc Espalioux Chairman of Financière Agache Private EquityPierre-Henri Gourgeon Deputy CEO of Air France-KLM and Chief Operating Officer of Air France

The Board of Directors determines the orientations of theGroup’s activities and ensures their implementation.Subject to the powers conferred upon it, the Board isresponsible for any question regarding the proper runningof the company and settles, in its deliberations, thematters which concern it. The Board of Directors appoints the Chairman and ChiefExecutive Officer, who has full powers to manage thecompany with the exception of the limitations set forth inthe internal regulation of the Board of Directors.

Composition of the Board of DirectorsThe Air France-KLM Board of Directors may comprise upto 18 members, with a six-year term of office. At March31, 2008, the Air France-KLM Board of Directors had 15members: ten directors appointed by the Shareholders’Meeting, two representatives of the employeeshareholders appointed by the Shareholders’ Meeting andthree representatives of the French State appointed byministerial order.It has four specialized committees: an audit committee, anappointments committee, a strategy committee and aremuneration committee.

54

Corporate Governance

The Board of Directors

� � � � � � �

Cornelis van Lede �Chairman of the Board of Directors of INSEADFloris Maljers �Chairman of the Board of Directors of the RotterdamSchool of ManagementPierre Richard Chairman of the Dexia Board of Directors

Directors representing the French StateBruno Bézard �Director of the French Treasury State Holdings AgencyClaude Gressier �President of the Department of Economic Affairs andTransport, Counsel General for Public WorksPhilippe Josse �Director of Budget, French Ministry of Economy, Financeand Industry

Directors representing employee shareholdersDidier Le Chaton �Flight captainRepresentative of flight deck crewChristian Magne !Finance executiveRepresentative of the ground staff and cabin crews

55

56

Functioning of the Board of DirectorsThe minimum number of Board of Directors meetings isset at five per year. Prior to Board meetings, a file is sentto Board members containing the agenda for the meetingtogether with any summaries or, where appropriate, fulldocumentation on any issues requiring special analysisand prior consideration. The matters raised in meetingsare presented orally or by video, followed by discussion.Board meetings are conducted in French, however eachdirector may speak in French or in English withsimultaneous interpretation. Secretarial services for theBoard of Directors are provided by the Legal Counsel.

Compliance and ethicsThe Board of Directors has adopted a Compliance Charterand a Code of Ethics. The Compliance Charter, adoptedby the Board of Directors on March 25, 2004 andamended on November 22, 2005, prohibits both corporateofficers and senior executives of the company from tradingin the company’s shares during the month preceding theannual results announcement and for a period of twenty-one days preceding the quarterly and half-year results. Thefinancial Code of Ethics defines the principles with whichthe principal executives of the company responsible for thedisclosure of financial information must comply.

Corporate governance principlesThe Board of Directors functions according to thegovernance principles in force in France, with theexception of the duration of the terms of office and theindependence of Board members.

In order to come into line with the corporate governanceprinciples and adopt the conclusions of the Boardevaluation, the Board of Directors decided to submit tothe Shareholders’ Meeting to be held on July 10, 2008, aresolution to reduce the current six-year term of office fordirectors to four years and to establish a staggeredrenewal process.

The Board of Directors CommitteesWith the exception of the strategy committee none of theBoard of Directors committees has corporate officers asmembers.

The audit committeeThe committee comprises six members: Pierre Richard(Chairman of the committee), Jean-François Dehecq, therepresentative of the French State Holdings Agency, FlorisMaljers, Christian Magne and Didier Le Chaton. Theprincipal executives responsible for accounting, legalaffairs, finance, internal control and audit of Air France-KLM and the subsidiaries Air France and KLM attend themeetings. The statutory auditors attended all meetings ofthe audit committee held during the financial year. At therequest of the Chairman of the committee, they were ableto consult with committee members without the presenceof the Group’s senior executives.The audit committee’s principal missions are to review theinterim and annual consolidated financial statements inorder to inform the Board of Directors of their content, toensure that they are reliable and exhaustive and that theinformation they contain is of high quality, including the

Corporate Governance

57

forecasts provided to shareholders and the market. It evaluates the consistency and effectiveness of theinternal control procedures and examines any significantrisks. It approves the fees of the statutory auditors andissues prior approval for some services provided by them.The committee must also monitor the quality ofprocedures to ensure compliance with stock marketregulations. The audit committee has the resourcesnecessary to perform its mission and may, notably, beassisted by persons from outside the company. Duringthe 2007-08 financial year the audit committee met fourtimes.

The strategy committeeThe strategy committee comprises seven directors: Jean-Cyril Spinetta (Chairman of the committee), Leo van Wijk,Patricia Barbizet, Philippe Josse, Claude Gressier, DidierLe Chaton and Christian Magne. The meetings are alsoattended by the Deputy Chief Executive Officer, the SeniorExecutive Vice President, Finance and the Secretary forthe Board of Directors.The committee’s responsibilities include reviewing thestrategic orientations of the Group’s activities, changes inthe structure of the fleet or scope of subsidiaries, thepurchase or sale of aircraft-related or other assets and theair sub-contracting and alliance policy.The strategy committee did not meet during the 2007-08financial year (one meeting in 2006-07), the strategy of theGroup having been presented directly to the Board ofDirectors.

The remuneration committeeThe remuneration committee comprises three directors:Jean-Marc Espalioux (Chairman of the committee)Cornelis van Lede and Pierre Richard. The remunerationcommittee is primarily responsible for submittingrecommendations for the level of and changes to theremuneration of the principal corporate officers. It mayalso be asked to give an opinion on the compensation ofthe Group’s senior executives, as well as on the policy forstock option plans for new and existing shares.

The appointments committeeThe committee comprises three members: Jean-MarcEspalioux (Chairman of the committee), Patricia Barbizetand Jean-François Dehecq. The appointments committeeis responsible for proposing candidates to serve asmembers of the Board of Directors as well as to replaceprincipal corporate officers, particularly in the event ofunforeseen vacancies. The appointments committee did not meet during thefinancial year.

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Experience and training of

Director Age Date appointed Experience at Sector Experience Current positionto Board 03/31/2008 in the sector

Jean-Cyril Spinetta 64 years 09/23/1997 11 years Public Service Chairman and CEOAir Transport 15 years of Air France-KLM

(Air Inter and Air France) and of Air France

Leo van Wijk 61 years 06/24/2004 4 years Air Transport 37 years Vice-Chairman of the (KLM) Air France-KLM Board of Directors

Patricia Barbizet 52 years 01/3/2003 5 years Industrial 31 years CEO and Director (Renault, Pinault Group) of Artémis

Bruno Bézard 44 years 03/14/2007 1 year Public Service 20 years Director of the French TreasuryState Holdings Agency

Frits Bolkestein 74 years 11/22/2005 2 years Industrial (Shell) 17 years Member of and Public 27 years the Supervisory Board

(Dutch Parliament of de Nederlandsche Bankand European Commission)

Jean-François Dehecq 68 years 01/25/1995 13 years Industrial 43 years Chairman of the Board (SNPA and Sanofi) of Directors of Sanofi–Aventis

Jean-Marc Espalioux 56 years 09/14/2001 7 years Services (CGE, Accor) 21 years Chairman of Financière Agache Private Equity

Pierre-Henri Gourgeon 61 years 01/20/2005 3 years Aeronautics and 37 years Deputy Chief Executive OfficerAir Transport of Air France-KLM and Chief

Operating Officer of Air France

Board of Directors experience Directors’ principal professional experience

Corporate Governance

59

members of the Board of Directors

Director Age Date appointed Experience at Sector Experience Current positionto Board 03/31/2008 in the sector

Claude Gressier 64 years 06/24/2004 4 years Public Service 40 years President of the Departmentof Economic Affairs and Transport,

Counsel Generalfor Public Works

Philippe Josse 47 years 05/16/2006 2 years Public Service 24 years Director of BudgetFrench Ministry of Economy

Finance and Industry

Didier Le Chaton 57 years 01/26/2006 2 years Air Transport 32 years Flight Captain(Air France)

Cornelis van Lede 65 years 06/24/2004 4 years Industrial 37 years Chairman of the Board (Shell, Akzo, Dutch Industry of Directors of INSEAD

Federation), Consultancy (McKinsey & Company)

Christian Magne 55 years 09/14/2001 7 years Air Transport 34 years Finance executive(Air France)

Floris Maljers 74 years 06/24/2004 4 years Industrial (Unilever) 36 years Chairman of the Board of Directors of the Rotterdam

School of Management

Pierre Richard 67 years 10/20/1997 10 years Banking (CDC, Crédit 25 years Chairman of the Dexia Local de France, Dexia) Board of Directors

Board of Directors experience Directors’ principal professional experience

60

The Group pursues an ambitious environmental strategy

A strategy for meeting the environmental challengeEnvironmental considerations are at the heart of anambitious, common strategy across the Group. Air Franceand KLM have established separate but harmonizedenvironmental management systems based on the ISO14001 standard. A common environmental reportingprocess is carried out through the Group’s CorporateSocial Responsibility Report. Although air transport is onlyresponsible for 3% of global CO2 emissions, Air France-KLM believes that the sector must work towards reconcilingeconomic development with respect for the environmentand has set out all its environmental commitments in itsClimate Action Plan. It has confirmed its support for theKyoto protocol and for the integration of air transportationin the European Union Emissions Trading Scheme.

Mobilizing employeesIn order to ensure the success of the Climate Action Plan,all of the Group’s employees are mobilized aroundenvironmental plans in every operational area. Thus, tolimit its impact on air quality around airports as well as inits ground activities, the Group has rationalized itsnetwork, improved its flight operation procedures toreduce low-altitude emissions, optimized its maintenance,cut its water and energy consumption and optimized itswaste management.

Corporate Governance

Air France-KLM selected for the DJSI sustainabledevelopment indexFor the third consecutive year, AirFrance-KLM is amongst thecompanies figuring in the two DowJones sustainable developmentindices: the DJSI World at globallevel and the DJSI STOXX atEuropean level. It is the only airtransport company to figure in boththese indices. The Group is also acomponent of the FTSE4Good andASPI Eurozone indices and figures inthe Global 100, a global ranking ofthe 100 companies most committedto sustainable development, as wellas in the Ethibel investment registerwith the Pioneer label.

61

Fleet renewal is positive for the environmentImproved fuel efficiency and a significant reduction innoise and gas emissions were key considerations whenthe program to renew the fleet was established. The Group has also announced that it would like toparticipate, in cooperation with the European and US airnavigation authorities and services, in the evaluation ofgreen routes between its principal Paris-Charles de Gaulleand Amsterdam-Schiphol bases and the destinations itserves in North America. This would notably involveguaranteeing optimum flight paths in order to minimize,with due regard to safety considerations, the CO2

emissions on its transatlantic flights. The Group also plans to promote the use of renewableenergies such as solar or wind energy. Finally, Air France-KLM supports NGOs which are conducting environmentalprotection programs in fields such as combatingdeforestation.

62

Online access to a CO2 calculator for a carbon-neutral flightIn order to enable customers – whether businesses orindividual passengers – to evaluate the amount of CO2

emissions generated by their trips, Air France and KLMhave made a CO2 calculator available on thewww.airfrance.com and www.klm.com websites. Basedon actual operating data recorded on each flight androute, it includes the distance flown, the type of aircraftoperated, the actual fuel consumed during the journey,the number of passengers carried and the weight ofbaggage and goods carried on board. This online servicealso enables passengers wishing to do so to offset theCO2 emissions generated by their flights with the Groupthrough an NGO-led initiative.

An improvement in flight fuel efficiencyIn addition to fleet renewal, energy efficiency is beingimproved through the optimization of operationalprocedures, such as reducing taxiing and waiting time onthe ground, optimizing flight paths, adjusting the quantity offuel loaded and, finally, reducing the weight of aircraft.Significant savings have been achieved by the two airlinesthanks to lighter trolleys or glasses or in reducing theamount of paper on board.

Publication of theCorporate SocialResponsibility ReportSince 2005, Air France-KLM has published anannual Corporate SocialResponsibility Report,covering all the activitiesas well as the Group’scommitments in this area.It can be consulted at thewww.airfranceklm-finance.com website.

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63

Noise energy and air quality: specific initiativesInvestment in modern aircraft also enables a reduction innoise pollution. The two airlines are also implementing less

noise operational procedures in the vicinity of airports,such as the continuous descent approach. The Groupalso takes measures to reduce its impact on air quality inairport zones by investing in cleaner ground supportequipment and introducing innovative procedures.

French Environmental Summit(Grenelle): Air France’scommitmentsOn January 28, 2008, ChairmanJean-Cyril Spinetta andrepresentatives of the other keyplayers from French aviation signedthe Environmental SummitConvention. The Air France Groupthus committed to pursuing its fleetmodernization strategy, the mainlever for reducing greenhouse gasemissions and noise pollution and tosupporting the inclusion of airtransportation in the EuropeanUnion Emissions Trading Scheme.Air France is cooperating with airnavigation authorities and airports ina continuous process ofimprovement and is furthering itsstrategy of awareness raising andgreater transparency for itscustomers in offering a carbonemission offsetting program.

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The Group’s sustainable development is grounded in

its social performance

Within a constantly changing economic and competitiveenvironment, the Group prioritizes the increasedqualification and mobility of its employees through astrategy based on the forward-planning of jobs and skills,within the framework of a high-quality social dialogue. Theissues of non-discrimination, diversity, equal opportunityand health and safety in the workplace are at the heart ofthe Group’s corporate social responsibility commitment. Itis on the basis of these common values that Air France-KLM is building an original one Group, two companies

business model.

Developing employee mobility and skillsAir France-KLM is pursuing its policy of sustainableemployment in France, the Netherlands and elsewhere inthe world. In order to achieve this objective and prepare for

technological and organizational change, the Group worksto promote the employability and mobility of its employees. In 2007, in addition to modules dedicated to executives,the KLM Academy, KLM’s in-house training center, addedproject management and personal effectiveness modulesto its management training program. In addition, at KLMeach division offers a range of different vocational trainingcourses to all its employees. Air France invested around €270 million in its trainingprogram. This figure represents over 10% of the payrolland is significantly higher than the company’s obligationunder French law.

Promoting diversity across the businessAir France-KLM’s commitment to promoting diversity andensuring equal opportunities for all its employees has beenformalized in a Social Rights and Ethics Charter. The 2nd

Air France professional gender equality agreement for the2006-09 period defines the key performance indicators forthe action to be taken, enabling progress to be measured.KLM commits to professional gender equality through thepromotion of women into strategic roles. Hence, withinground staff, 21% of management and 5% of seniorexecutive positions are occupied by women. Moreover, inorder to achieve a better balance between everyone’sprofessional and private lives, KLM authorizes the

Corporate Governance

65

reorganization of working hours for the men and womenrequesting this. At the end of 2007, 60% of women and14% of men were working part time, some 33% of theoverall workforce.

Pursuing responsible integrationSince the merger, the Group has pursued its integrationand is achieving greater efficiency thanks to anorganizational structure which facilitates decision-making.Thus, in activities where this could generate moresynergies and added value, such as in sales andmarketing, activities are combined.

Mobilizing employees around the Group’ssustainable development strategyThe two companies conduct training programs andinitiatives to involve employees in their sustainabledevelopment approach. These are aimed at encouragingemployee innovation: KLM training includes awarenessraising on sustainability issues (sorting of refuse, carpooling, global warming). At Air France, the QualityInnovation Program initially launched at Air FranceIndustries is deployed in all divisions to encourageemployees to submit their ideas. In 2007, more than70,000 suggestions were received, of which a growingnumber linked to sustainable development.

KLM wins the Reputation Awardin the NetherlandsKLM came first place in the studymeasuring the reputation of theleading Dutch companies. The2007 Reputation Award in theAnnual Reputation Institute Studywas awarded for its vision andleadership as well as for its actionon sustainable development. KLMwas also voted the third favoriteemployer by students in theNetherlands, behind ABN AMROand Shell, in a survey conducted byIntermediair magazine.

A positive response from AirFrance-KLM employeesThe quarterly perception survey onthe business combination revealedthat 80% of employees have beenmotivated by the merger betweenthe two companies (1,500employees and 600 executivespolled during the year).

66

Corporate Governance

A significant commitment to humanitarian initiatives focusing on

children and young people

Through the Air France Foundation and KLM AirCares, theGroup supports numerous projects globally whichcontribute to providing effective assistance to sick anddisabled children as well as populations in distress. TheGroup has contributed funding amounting to €6 million.

The Air France FoundationThe Air France Foundation, created in 1992, works inpartnership with associations and NGOs in the area ofeducation and training for children and young people,providing them with financial and practical support. TheFoundation also supports projects submitted by AirFrance employees who are already involved inassociations which assist children. In 2007, €1.4 millionwas contributed to supporting some 71 projects. The Air France Foundation also directed its effortstowards helping sick and disabled children. This year, theprogram involved 24 such projects, seven more than inthe 2006 program. For the 2007-13 period, the Foundation has committed toa multi-year program amounting to €8.5 million.

KLM AirCaresEvery year since 1999, KLM has selected four differentassociations for whom it has organized innovative andimaginative events to help with fund raising. The programinvolves donating KLM resources and its communicationnetwork for a three-month period to help these goodcauses reach as wide an audience as possible in order toraise the support and resources they need. In 2007-08,KLM AirCares gave particular support to combatingdiabetes in children. It also contributed, through twoprojects based in Brazil and Moscow, to helping orphansand abandoned children. Some 450 SOS Children’s Villages located in 132countries are supporting orphaned or abandoned childrenthroughout the world: the aim is to build special villageswhere such children can find a new, permanent andsecure home in order to enable them to grow up equippedfor an independent future.

67

Humanitarian initiatives involving the Group’semployeesThe Friends of the Foundation network has almost 1,600volunteers who support the associations helped by the AirFrance Foundation. Similarly, the humanitarian organizationWings Support, created by KLM and Martinair flightpersonnel, conducts a number of projects in thedestinations served. Associations such as Aviation Sans

Frontières and Pilots without Borders also involvenumerous Group employees in transporting sick childrenand medical supplies.

Supporting these associationsEveryone can support the work ofthe Air France Foundation and KLMAirCares by donating Flying Blue airmiles. The miles are then convertedinto Air France or KLM tickets andgiven to various deserving causes. For more information please visit theKLM AirCares website,www.aircares.nl, and the Air FranceFoundation website,http://fondation.airfrance.com.

Breakdown of Air France-KLMcontributions in 2007-08

57%

25%

18%

● Financial donation● In-kind donation● Salary and skills donation

13:00

amsterdamSchiphol/Charles de Gaulle: a unique proposition within Europe enabling, for example,a passenger to choose between 12 flights bound for New York or 5 for Tokyo.

ShareholdersAll the Group’s choices are directed at creating value for its shareholders. Transparency and respectare key to maintaining a mutual relationship based on trust.

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Shareholders

The Group is committed to keeping its shareholders informed

and creating sustainable value

For Air France-KLM, value creation and transparent,regular and interactive information for its shareholders arekey priorities.

A pro-active committee for individual shareholdersSince its creation in 2000, the Consultative Committee forIndividual Shareholders (CCRAI), has been a forum inwhich its members are free to raise concerns and submitideas on relations with Air France-KLM’s individualshareholders. The Committee has 16 French and Dutchmembers who are regularly renewed and meets four timesa year on average. Its work is then followed up withrecommendations and special studies into particular areas

conducted on behalf of Air France-KLM. This annualreport was the focus of a Committee meeting duringwhich members submitted ideas which contributed to itsrealization. Sub-groups may also meet to look at specific issues.Committee members regularly accompany the teamsresponsible for financial communication to, for example,meetings with individual investors or the Shareholders’Meeting. The list of Committee members can be found in theshareholder section of the www.airfranceklm-finance.comwebsite. To contact the Committee or forward asuggestion to one of its members, just send an email tomail.actionnaires.afklm@airfrance.fr.

Engaging with institutional investors and financialanalystsThe Group’s senior executives regularly meet withinstitutional investors and financial analysts duringroadshows in Europe, the United States and Asia. In2007-08, they dedicated more than 50 days to suchmeetings with portfolio managers and analysts in Europeand North America. Additionally, as every year, an InvestorDay was organized at Roissy which was attended bymore than 80 analysts and investors who were able tomeet the Group’s operational management.

400,000individual

shareholders

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Air France-KLM as perceived by its shareholdersIn order to get a better understanding of the way in whichAir France-KLM is perceived by the financial markets andwhat characterizes the Group’s image in the eyes ofindividual shareholders, specialist market research instituteOpinionway was asked to include the Air France-KLMstock in its annual report entitled the 2007 National Study,

Saving, the Stock Market and Information. The conclusions of this survey, involving a sample of 7,370respondants, were positive on many of the criteria, some ofwhich, such as revenue growth and the Group’sinternational development, scored particularly highly. In terms of the perception of Air France-KLM’scommunication, individuals holding the stock andshareholders following the stock without actually owning ithighlighted the clear communication of the annual results,and communication committed to the objectiveness of theinformation together with developing shareholder relationsand equipped with powerful communication tools including,in particular, an attractive website.

A dedicated interactive shareholder spaceon the websiteOn its www.airfranceklm-finance.com financialwebsite, the Group has developed a shareholderspace providing:• all the documentation relating to theShareholders’ Meeting • interactive versions of published documents(the e-mag, the Shareholder Handbook, theAnnual Report and Reference Document),• the financial calendar• the interactive stock price• Shareholders’ Club events• the Shareholders’ Newsletter• Special offers for Club members• the Consultative Committee space.

Shareholders can also consult the monthly trafficfigures for both the passenger and cargobusinesses on the website, as well aspresentations made to analysts at the time of thequarterly, half-year and annual resultsannouncements. An email alert system enables everyone to beinformed of the posting of press releases and tobe reminded of any event in the Group’scalendar. The website is also available in PDA version(personal digital assistant) and from cell phonesby logging into www.airfranceklm-finance.mobi,which gives access to a simplified version of thesite with the press releases, stock price andfinancial calendar.

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Shareholders

A special newsletter for individualshareholdersEvery three months, Air France-KLMpublishes Connecting, the newsletterdedicated to individual shareholdersavailable in French, English and Dutch.The eight page-format includes businessnews, the main financial information on theGroup as well as special features ondifferent aspects of the air transportsector, the calendar of the variousshareholder events and the dates of futureresults announcements. It is sent tomembers of the Shareholders’ Club bymail or email and is available in theshareholder space on the website.

A handbook for individual shareholdersThis handbook contains all the practical information on thestock and the different forms of ownership in France, theNetherlands and the United States. Put together with thehelp of the Consultative Committee for IndividualShareholders, this handbook aims to answer potentialquestions from individual shareholders and outlines thevarious tools deployed by the Group for communicatingwith them. The interactive version of this document isavailable in French, English and Dutch on thewww.airfranceklm-finance.com website. Additional copiesare available on request.

A dedicated toll-free numberFrom Monday to Friday, between 10h30 and 12h30 and14h30 and 17h30, you can put a question to a member ofthe financial communication team on a toll-free number (0 800 320 310) in France. Outside these periods, a voiceserver reports the Air France-KLM stock opening andclosing prices. Shareholders not resident in ContinentalFrance can call +33 1 41 56 88 85.

A Shareholders’ ClubMaintaining a regular, constructive dialogue with itsshareholders is a priority for Air France-KLM and, in 2000,the company created a Shareholders’ Club, which

Numerous sources of information for shareholders

7,000members of theShareholders’ Club

currently has over 7,000 members. Any Air France-KLMshareholder owning at least 50 shares, whether in beareror registered form, can become a member of the Club. Asa Club member, each shareholder receives:• the quarterly Connecting newsletter• the convening notice and the voting forms for the

Shareholders’ Meeting• invitations to site visits.

Club members benefit from exclusive special offers fromthe Air France Museum enabling them to purchaseproducts relating to Air France and KLM and theirheritages.

Information meetings to further understanding ofthe businessAir France-KLM regularly organizes, in partnership withthe financial press, information meetings throughoutFrance. These are an opportunity to explain more abouthow the Group functions, its strategy and the differentissues in the sector. In addition, throughout the year, the Group also organizesvisits to sites such as the Paris-Charles de Gaulle hub, thenew flight personnel center, the BEPN building for flightpersonnel training, the G1XL cargo terminal or themaintenance workshops, etc. Open to all Club members,these site visits give Club members a behind-the-scenespicture of the Group and enable them to learn more aboutthe business in meeting professionals from the passenger,cargo and maintenance activities. The dates and venues of these information meetings andother Shareholders’ Club events are announced in theConnecting newsletter, on the website and in the partnermedia. To participate, members need to sign up inadvance by calling the toll-free number 0 800 320 310 orby sending an email to mail.actionnaires.afklm@airfrance.fr.

To become a Club memberJust send a shareholding statement provingownership of at least 50 shares to:Air France-KLM Shareholder Relations, DB-AC,45 rue de Paris, 95747 Roissy-CDG Cedex; orby fax to +33 1 41 56 82 79. If you have any questions, you can call the toll-free number 0 800 320 310 from a fixedline in France or +33 1 41 56 88 85 fromoutside France or send an email tomail.actionnaires.afklm@airfrance.fr.

An electronic magazineThe e-mag, the new financial information tool forshareholders available since March 2007, hasproved a resounding success. Navigation issimple since all its takes is a few clicks to reviewwhat’s covered in the magazine.

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74

Shareholders

Registered sharesAir France-KLM has appointed Société Générale as itsagent for the management of direct registered shares.

The advantages of registered sharesHolders of Air France-KLM shares in registered formbenefit from three key advantages:• free custodial fees, the cost being borne by the Group• they receive the convening notice directly by mail fifteendays ahead of the meeting• they can consult their securities account and be keptinformed of transactions and place stock market ordersdirectly by telephone or via the Nomilia voice server on0 825 820 000 (+33 2 51 85 67 89 from outside France)as well as via the www.nominet.socgen.com website.

Transferring shares to registered formEvery shareholder, irrespective of the number of shares held,can transfer his or her Air France-KLM shares to registeredform by filling in a form available on request from SociétéGénérale – Division de la Clientèle Emetteurs – and thenreturning it to his or her financial intermediary. Shareholderscan also make their initial purchase in registered form. Toplace this order, simply write to Société Générale, Divisionde la Clientèle Emetteurs and, on receipt of your letter,Société Générale will send out an application pack to bereturned to it, accompanied by the necessary information.

Administered registered sharesEvery shareholder can also transfer his or her shares intoadministered registered form. These shares are managed

in the same way as bearer shares and thus theshareholder does not benefit from free custodial fees.Holders of administered registered shares receive theconvening notice and the mail voting form enabling themto request an admission card.

Securities servicesIn France• Société Générale32, rue du Champ-de-TirDivision de la Clientèle Émetteurs GSSI/GIS/NPOBP 81236 – 44312 Nantes Cedex 3• Nomilia voice server: 0825820000 (+33 2 51856789)• Website: www.nominet.socgen.com

In the Netherlands• ABN Amro EffectenPostbus 32004800 de BredaTel.: +31765799455

In the United States• Citibank Shareholders Services250 Royal StreetCanton, MA 02021Tel.: +1 – 877-CITI-ADR(+1-877-248 4237)E-mail: Citibank@shareholders-online.com

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Awards for corporate governanceAir France-KLM won first prize for ShareholderDemocracy and first prize for the Governance Dynamicduring the fourth Corporate Governance Grand Prixwhich took place in June 2007. The jury, comprised ofwell-known individuals in the Paris Euronext market,highlighted the efforts made to provide shareholderswith information and the fact that the merger betweenAir France and KLM had strengthened the managementteam’s commitment to transparency.

Specific communication foremployee shareholdersSince 1999, the internal newsletterActions has been distributed everythree months to employeeshareholders. This newsletter outlines the financialand stock market challenges facedby companies and shareholders. Itaims to increase employeeknowledge of the various financialmechanisms. A toll-free number –0800 042 000 – as well as anintranet site complete theinformation sources for employeeshareholders.

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Shareholders

Shareholder reference information

The Air France-KLM stockAir France-KLM is listed for trading on the Euronext Parisand Amsterdam markets. It is eligible for deferredsettlement and for French tax-efficient individual savingsaccounts (PEAs).

Codes and tickersMarket: Eurolist Section AISIN: FR0000031122Reuters: AIRF.PA and AIRF.ASBloomberg: AF PA

Included in the following indicesIndices: CAC 40, Euronext 100Sustainable development indices: ASPI Eurozone,FTSE4Good, DJSI World and DJSI STOXX.Air France-KLM has been the only airline to figure in theDJSI STOXX since 2006.Other indices: Euronext FAS IAS

CharacteristicsNumber of shares: 300,219,278 fully paid up shares atMarch 31, 2008 with a nominal value of 8.50, theshareholder choosing whether to hold them in registeredor bearer form. Each share confers one voting right and there are nospecific rights attached to the shares. There are nosecurities not representing the share capital.

Securities conferring entitlement to sharesOCEANES (bonds convertible and/or exchangeableinto Air France-KLM new or existing shares)In April 2005, the company Air France issued 21,951,219bonds convertible and/or exchangeable into Air France-KLM new or existing shares with a 15-year maturity for atotal sum of €450 million. These bonds have a nominalunit value of €20.50 and mature on April 1, 2020. The annual coupon is 2.75% paid annually in arrears onApril 1. The conversion period for these bonds runs fromJune 1, 2005 to March 23, 2020.

71.3%

15.7%

11.2%

1.8%

Breakdown of shareholders

● Free float 71.3%● French State 15.7%● Employees 11.2%● Treasury stock 1.8%

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Stock price performance2007-08 2006-07 2005-06

Stock price high (in €) 39.40 36.30 20.50

Stock price low (in €) 15.20 15.93 11.78

Stock price on March 31 (in €) 17.84 34.15 19.43

Number of shares in circulation on March 31 300,219,278 269,398,500 269,383,518

Market capitalization at March 31 (in € billion)

5.4 9.2 5.2

Dividend: +21% in 2007-08

Financial year Earnings per share Dividend paid(in €) (in €)

2005-06 3.47 0.30

2006-07 3.35 0.48

2007-08(1) 2.63 0.58

(1) Submitted for approval to the Shareholders’ Meeting of July 10, 2008

Performance of the stock since 2004Base 100 in 2004 – Data to June 11, 2008

2004 2005 2006 2007 2008

300

250

200

150

100

50

Air France-KLM closing price

CAC 40

Air transport index

78

Summary consolidated financial statements

79

Consolidated income statement

(In € million)

Period from April 1 to March 31 2008 2007 2006Sales 24,114 23,073 21,448Other revenues 4 4 4Revenues 24,118 23,077 21,452External expenses (13,814) (13,100) (12,127)Salaries and related costs (7,018) (6,689) (6,357)Taxes other than income taxes (250) (263) (228)Amortization and depreciation (1,606) (1,782) (1,656)Provisions (17) (8) (72)Other income and expenses (8) 5 (76)Income from current operations 1,405 1,240 936Sales of aircraft equipment 9 13 2Negative goodwill 40 - 5Other non-current income and expenses (182) (20) 512Income from operating activities 1,272 1,233 1,455Cost of financial debt (387) (407) (392)Income from cash and cash equivalents 288 267 168Net cost of financial debt (99) (140) (224)Other financial income and expenses (24) 25 (31)Income before tax 1,149 1,118 1,200Income taxes (358) (248) (256)Net income of consolidated companies 791 870 944Share of profits (losses) of associates (24) 17 (23)Net income from continuing operations 767 887 921Net income from discontinued operations - - -Net income for the period 767 887 921

- Group 748 891 913- Minority interests 19 (4) 8

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Summary consolidated financial statements

Consolidated

(In € million)

Assets March 31, 2008 March 31, 2007 March 31, 2006Goodwill 377 204 208Intangible assets 475 424 428Flight equipment 12,280 11,551 11,017Other property, plant and equipment 2,193 2,007 1,955Investments in equity associates 177 228 204Pension assets 2,245 2,097 1,903Other financial assets (including €735 million of deposits related to financial leases as of March 31, 2008, 956 1,095 1,182€835 million as of March 31, 2007and €895 million as of March 31, 2006)Deferred tax assets 29 26 7Other non-current assets 1,810 604 1,082

Total non-current assets 20,542 18,236 17,986

Other short-term financial assets(including €266 million of deposits related to financial leases and investments between 3 months and 1 year 303 689 932as of March 31, 2008, €631 million as of March 31, 2007, €889 million as of March 31, 2006) Inventories 507 360 340Trade accounts receivable 2,569 2,610 2,518Income tax receivables 3 7 1Other current assets 2,385 1,271 1,756Cash and cash equivalents 4,381 3,497 2,946

Total current assets 10,148 8,434 8,493

Total assets 30,690 26,670 26,479

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balance sheet

(In € million)

Liabilities and equity March 31, 2008 March 31, 2007 March 31, 2006Issued capital 2,552 2,375 2,290Additional paid-in capital 765 539 430Treasury shares (119) (30) (58)Reserves and retained earnings 7,338 5,415 5,072

Equity attributable to equity holders of Air France-KLM 10,536 8,299 7,734

Minority interests 78 113 119

Total equity 10,614 8,412 7,853

Provisions and retirement benefits 1,439 1,387 1,453Long-term debt 6,914 7,419 7,826Deferred tax 1,713 891 839Other non-current liabilities 819 401 417

Total non-current liabilities 10,885 10,098 10,535

Provisions 441 225 192Current portion of long-term debt 905 1,098 1,260Trade accounts payable 2,218 2,131 2,039Deferred revenue on ticket sales 2,279 2,217 2,062Current tax liabilities 25 21 167Other current liabilities 3,151 2,335 2,269Bank overdrafts 172 133 102

Total current liabilities 9,191 8,160 8,091Total liabilities 20,076 18,258 18,626

Total liabilities and equity 30,690 26,670 26,479

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Summary consolidated financial statements

Consolidated statements

(In € million)

Period from April 1 to March 31 2008 2007 2006Net income for the period – Group 748 891 913Minority interests 19 (4) 8Amortization, depreciation and operating provisions 1,623 1,790 1,728Financial provisions 17 10 24Gain on disposals of tangible and intangible assets (43) (44) (46)Loss/(gain) on disposals of subsidiaries and associates (46) (1) (2)Gain on WAM (ex Amadeus GTD) transactions (284) (16) (504)Derivatives – non monetary result (65) (43) (6)Unrealized foreign exchange gains and losses, net 27 (5) 8Negative goodwill (40) - (5)Share of (profits) losses of associates 24 (17) 23Deferred taxes 261 244 98Other non-monetary items 214 (112) (182)Subtotal 2,455 2,693 2,057

(Increase)/decrease in inventories (70) (20) (18)(Increase)/decrease in trade receivables 69 (184) (215)Increase/(decrease) in trade payables 118 228 96Change in other receivables and payables 330 133 736Net cash flow from operating activities before non-recurring items

2,902 2,850 2,656

Payment of the ESA 2003 balance (110) - -Additional contribution to pension fund (198) - -

Net cash flow from operating activities 2,594 2,850 2,656

of cash flows

83

(In € million)

Period from April 1 to March 31 2008 2007 2006Acquisitions of subsidiaries and investments in associates, net of cash acquired

(272) (25) (58)

Purchase of property, plant and equipment and intangible assets (2,340) (2,378) (2,544)Proceeds on disposal of subsidiaries and investments in associates 84 43 35Proceeds on WAM (ex Amadeus GTD) transactions 284 - 817Proceeds on disposal of property, plant and equipment and intangible assets 282 160 227Dividends received 5 6 10Decrease (increase) in investments, net between 3 months and 1 year 349 331 (294)Net cash used in investing activities (1,608) (1,863) (1,807)

Increase in capital 597 - -Issuance of long-term debt 681 1,240 1,410Repayments on long-term debt (414) (714) (523)Payment of debt resulting from finance lease liabilities (886) (866) (580)New loans (53) (89) (155)Repayments on loans 79 52 97Dividends paid (137) (88) (41)Decrease in equity (10) - -Net cash flow from financing activities (143) (465) 208

Effect of exchange rate on cash and cash equivalents and bank overdrafts

2 (2) 2

Change in cash and cash equivalents and bank overdrafts 845 520 1,059

Cash and cash equivalents and bank overdrafts at beginning of period 3,364 2,844 1,785Cash and cash equivalents and bank overdrafts at end of period 4,209 3,364 2,844Income tax paid (flow included in operating activities) (96) (309) (4)Interest paid (flow included in operating activities) (410) (451) (364)Interest received (flow included in operating activities) 288 299 154

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Glossary

AEAAssociation of European Airlines. Created in 1952, notablyby Air France and KLM, the AEA represents the interestsof its members within the European Union institutions, theEuropean Civil Aviation Conference and otherorganizations and associations.

BiometryTechnology allowing the identity of an individual to beverified, while crossing a national border for example,through the automatic recognition of certain pre-recordedphysical characteristics.

Code shareIn accordance with a code share agreement, two partnerairlines offer services on the same aircraft, each with theirown brand, their own IATA code and their own flightnumber.

Electronic ticketingAll the journey information for one or several passengerswhich, instead of being printed, is recorded in an airline’sIT database, once the reservation has been made andpaid for. An electronic or e-ticket replaces the traditionalpaper ticket.

E-servicesRange of ground services offered by Air France and KLMto their passengers, based on new informationtechnologies. E-services notably enable passengers tocheck in using self-service kiosks or via the airlines’websites and to use electronic tickets.

Fare combinability System which, on destinations served by both Air Franceand KLM, enables customers to choose between ajourney with an onward flight connection at KLM’s

Amsterdam-Schiphol hub and a journey with an onwardflight connection at Air France’s Paris-Charles de Gaullehub. With fare combinability, customers benefit from morefrequencies via one or other of the hubs, for both theinbound and outbound trips. The fare is based on two halfreturn tickets.

Fuel hedgingFinancial mechanism aimed at protecting Air France-KLMfrom the risk of a rise in the fuel price. Involves purchasinga fixed quantity of fuel on a certain date and at a pre-determined price. Two financial products, options andswaps, are used in this type of mechanism.

HubTerm used for a transfer platform where departures andarrivals are scheduled to minimize transit times. AirFrance-KLM disposes of two of the four major Europeanhubs: Paris-Charles de Gaulle and Amsterdam-Schiphol.The Air France and KLM hubs are organized intosuccessive waves for arrivals and departures each day inorder to increase the transfer options for customers.

IATAInternational Air Transport Association. Created in 1945,IATA establishes regulations for the air transport industryand provides its members with a framework for thecoordination and proper implementation of tariffs, togetherwith commercial and financial support services.

IATA yearFinancial year for many airlines, including Air France-KLM,which runs from April 1 to March 31 the following year.This system makes it possible to track changes in activitymore effectively based on the seasons defined by IATA,i.e. a summer season and a winter season.

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Joint-ventureJoint company with two partners, often owned equallywith 50% each. This type of shareholder structure notablyallows the implementation of technological or industrialalliances in order to undertake specific projects commonto both partner companies.

Load factorRevenue passenger-kilometers (RPK) divided by availableseat-kilometers (ASK). In the cargo activity this is revenue-kilometers transported (RTK) divided by availableton-kilometers (ATK).

Multi-hubSystem linking several hubs, allowing customers toaccess the networks developed from each hub, thusmultiplying the round-trip offer to world-wide destinations.

Net income, Group shareCorresponds to the share of operating income reverting toshareholders after net financial charges, exceptional itemsand taxation. Net income can be distributed in the form ofdividends or retained as reserves, thus increasing thecompany’s stockholders’ equity.

OCEANEBonds convertible into new or existing shares.

Operating income Operating income is the amount remaining after operatingexpenses (external expenses, payroll costs, amortizationand provisions) have been deducted from revenues. Itshows what the company earns from its principal activitybefore the impact of financial and exceptional items.

Point-to-point trafficTraffic between two airports, excluding all passengersconnecting with another flight.

Self-service check-in kioskSelf-service check-in kiosks, available in airport departurehalls, allow passengers to check in and print their ownboarding cards independently, without having to go to acheck-in counter.

Sub-fleetAll the aircraft of the same type, with identical technicaland commercial characteristics (engines, cabinconfiguration etc.)

Unit revenue In the passenger business, corresponds to the revenuefor one available seat or paying passenger carried overone kilometer. In the cargo business, corresponds to therevenue for one available ton or one ton carried over onekilometer.

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Document produced by the Air France-KLMfinancial communication department – 45 ruede Paris – 95747 Roissy-CDG cedex

Design and realization:

Editorial committee: Air France-KLM financialcommunication

Editorial consultant: Doussot Conseil (PatrickDoussot)

Photographic credits: transavia.com, VirginieValdois, Eric Avenel, Philippe Delafosse,Sylvain Cambon, Patrice Giraud, LaurentMonlaü, Didier Rebeis/Interlinks Image, DR, Joe Sohm/Getty Images, Louis-Laurent Grandadam/Getty Images,Stuart Westmorland/Corbis, imageSource/Photononstop, Tom Wolff, 1992-97NEMO (National Center for Science and Technology) Amsterdam,The Netherlands/Client : NINT/Renzo PianoBuilding Workshop, architects, CapitalPhotos/Presslink, Grégoire Korganow/AgenceRapho

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