AKH Air France Ads

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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Form 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of November, 2007

 

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AIR FRANCE–KLM

(translation of registrant’s name into English)

45, rue de Paris, 95747 Roissy-CDG Cedex. France

(Address of principal executive offices)

 

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Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:
Form 20-F   x     Form 40-F   ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):     ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):     ¨

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.    Yes   ¨     No   x

 

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22 ^nd  November 2007

FINANCIAL YEAR 2007-08

EXCELLENT SECOND QUARTER

 

Ø	Operating income up 27.6% to 725 million euros

 

Ø	Adjusted 1 operating margin of 12%, up 2 points

 

Ø	Net income up 97% to 736 million euros

STRONG FIRST HALF

 

Ø	Revenues up 4.2% to 12.43 billion euros

 

Ø	Operating income up 16.4% to 1.14 billion euros

 

Ø	Adjusted 1 operating margin of 10%, up almost 1 point

OBJECTIVE MAINTAINED FOR THE FULL YEAR

The board of directors of Air France-KLM met on 21st November 2007 under the chairmanship of Jean-Cyril Spinetta to approve the accounts for the First Half of financial year 2007-08.

Jean-Cyril Spinetta made the following comment on the results : “Robust global growth continues to underpin demand, especially on long-haul where our strong network remains a major advantage. A feature of our trading environment in the past six months has been the rise in oil prices to record levels. These excellent first half results therefore also reflect ongoing group-wide efforts to contain costs. This ability to control costs remains a key factor as we pursue our global development while respecting our environmental commitments.” The chairman added: “Taking account of dynamic market conditions we confirm our objectives of a further rise in operating income and a return on capital employed of 7% after tax for the full year, up from 6.5% last year. “

Consolidated figures

 

Financial year 2007-08		Second Quarter to 30th September							First Half to 30th September
In € millions (except for per share data in € )		2007		2006		Change			2007		2006		Change
Revenues		6,489		6,131		+5.8	%		12,434		11,933		+4.2	%
Operating income		725		568		+27.6	%		1,140		979		+16.4	%
Pre-tax income of fully integrated companies		919		520		+76.7	%		1,522		830		+83.4	%
Net income, group share		736		374		+96.8	%		1,151		618		+86.2	%
Net earnings per share		2.64		1.41		+87.2	%		4.13		2.33		+77.3	%
Net diluted earnings per share		2.31		1.30		+77.7	%		3.73		2.16		+72.7	%

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1	Operating income adjusted by the portion of financial costs of operating leases (34%)

 

Internet site: www.airfranceklm-finance.com

Investor contact: Dominique Barbarin – +33 (0)1 41 56 88 60 – dobarbarin@airfrance.fr

Analyst contact: Olivier Mougeot – +33 (0)1 41 56 72 59 – olmougeot@airfrance.fr

 

1/11

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Excellent Second Quarter: 725 million euros in operating income (+27.6%) and an adjusted ¹ operating margin of 12%

The passenger activity was dynamic during the second quarter, still driven by long-haul. In cargo, the recovery in traffic levels of the end of the first quarter was confirmed, but unit revenues remain under pressure.

Total revenues rose 5.8% to 6.49 billion euros after a negative currency effect of 2.1% for production measured in EASK (equivalent available seat kilometers) up 5.9%. Unit revenue per EASK was virtually stable (+0.2%) but rose 2.3% excluding the currency impact. Operating costs rose 3.6% to 5.77 billion euros. The efficiency of our hedging measures and the decline in the dollar enabled us to contain the rise in our fuel bill to just 1.8% during the quarter. Unit cost per EASK was down 2.1% and by 0.9% on a constant currency and fuel price basis.

Operating income rose 27.6% to 725 million euros (568 million euros at 30th September 2006). The adjusted ¹ operating margin therefore stood at 12%, up 2 points year-on-year.

After an additional gain of 202 million euros on WAM (Amadeus) and a significant reduction in net interest charges

(-59.0%), the pre-tax income of fully integrated companies was up by 76.7% to 919 million euros.

Income tax amounted to 172 million euros (151 million euros at 30th September 2006). The contribution from associates was -2 million euros against a positive contribution of 15 million euros a year earlier. Net income, group share amounted to 736 million euros (374 million euros at 30th September 2006), up 96.8%. Net diluted earnings per share was 2.31 euros versus 1.30 euros at 30th September 2006.

Information by activity

Passenger activity: 28.3% rise in operating income

During the second quarter to 30th September 2007, traffic and capacity rose 6.4% and 5.7% respectively, leading to a slight increase in load factor to the high level of 84.6%. The group carried 20.5 million passengers (+4.4%).

Total passenger revenues rose 6.1% to 5.17 billion euros. Operating income rose significantly from 505 million euros at 30th September 2006 to 648 million euros, a rise of 28.3%. The passenger activity generated an adjusted1 operating margin of 13.4% during the quarter.

 

		Second Quarter to 30th September
		2007		2006		Change
Total passenger revenues ( € m)		5,171		4,873		+6.1	%
Revenues from scheduled passenger business ( € m)		4,929		4,625		+ 6.6	%
Unit revenue per RPK( € cts)		8.65		8.63		+0.2	%
Unit revenue per ASK ( € cts)		7.32		7.26		+0.8	%
Unit cost per ASK ( € cts)		6.29		6.40		-1.7	%
Operating income ( € m)		648		505		+28.3	%

On a constant currency basis, unit revenue per RPK and unit revenue per ASK rose by 2.3% and 2.9% respectively. Unit cost per available seat kilometer declined slightly, by 0.3% on a constant currency and fuel price basis.

 

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1	Operating income adjusted by the portion of financial costs of operating leases (34%)

 

2/11

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Cargo activity: environment remains difficult

Despite an upturn in traffic during the second quarter, the cargo activity continued to encounter a difficult operating environment. Traffic rose by 6.1% with capacity up by 2.9%, leading to a 2 point improvement in load factor to 65.5%. However, total cargo revenues declined slightly, by 0.3% to 722 million euros, reflecting ongoing pressure on unit revenues. Nevertheless, relative to the first quarter, the decline in unit revenues was more limited.

 

		Second Quarter to 30th September
		2007			2006			Change
Total cargo business revenues ( € m)		722			724			-0.3	%
Revenues from the transportation of cargo ( € m)		672			669			+0.5	%
Unit revenue per RTK ( € cts)		23.48			24.79			-5.3	%
Unit revenue per ATK ( € cts)		15.37			15.75			-2.4	%
Unit cost per ATK ( € cts)		15.49			15.65			-1.0	%
Operating income ( € m)		(12	)		(6	)		nm

On a constant currency basis, unit revenue per tonne kilometer (RRTK) declined by 3.0% while unit revenue per available tonne kilometer (RATK) was stable. Unit cost per ATK rose by 0.5% on a constant currency and fuel price basis.

Maintenance activity: strong improvement in results

Third party maintenance revenues amounted to 233 million euros, against 249 million euros at 30th September 2006, a decline of 6.4%, mainly attributable to the dollar impact. Operating income, however, tripled to 35 million euros, against 11 million euros in the previous year.

Other activities: successful launch of transavia.com France

Revenues from other activities amounted to 363 million euros, up 27.4%, on the back of the full consolidation of a company previously accounted under the equity method into Servair and the successful launch of transavia.com France. The catering activity generated revenues of 107 million euros, of which 22 million euros from the new associate, while the leisure activity saw revenues of 256 million euros of which 24 million euros from transavia.com France. Operating income from other activities amounted to 54 million euros against 58 million euros at 30th September 2006.

First Half to 30th September 2007: 1.14 billion euros in operating income (+16.4%) and an adjusted operating margin of 10% (+0.9 points)

During the first half, revenues rose by 4.2%, after a negative currency impact of 2.3%, to 12.43 billion euros for production measured in EASK (equivalent available seat kilometers) up 4.8%. Unit revenue per EASK declined slightly

(-0.3%) but rose by 2.0% excluding the currency impact. Operating charges rose 3.1% to 11.29 billion euros. The increase was limited to 2.7% excluding fuel costs. Unit cost per EASK was down by 1.4% and by 1.0% on a constant currency and jet fuel price basis, in line with the objective set out in “Challenge 10”.

The main operating charges evolved in line with levels of activity, including the fuel charge which rose just 4.8% thanks to efficient hedging and the weakness of the dollar.

Operating income stood at 1.14 billion euros, a rise of 16.4% (979 million euros at 30th September 2007). The adjusted ¹ operating margin showed a further strong improvement, rising from 9.1% at 30th September 2006 to 10.0% at 30 September 2007.

After additional gains in respect of WAM (Amadeus) totalling 284 million euros, income from operating activities amounted to 1.48 billion euros versus 954 million euros a year earlier. Pre-tax income of fully integrated companies stood at 1.52 billion euros (830 million euros at 30th September 2006). Net income, group share, was 1.15 billion euros against 618 million euros a year earlier, up 86.2%.

 

3/11

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Net earnings per share stood at 4.13 euros against 2.33 euros at 30 ^th  September 2006. Net diluted earnings per share was 3.73 euros against 2.16 euros.

Information by activity

Passenger activity

Passenger activity rose by 5.2% during the first half, with a 5.0% increase in capacity, leading to a 0.2 point improvement in the load factor to the record level of 83.0%. The group carried 39.8 million passengers, up 3.0%.

The profitability of Air France-KLM’s core business improved again during the first half. Total passenger activity revenues rose by 4.7% after a negative currency effect of 2.3% to 9.93 billion euros (9.49 billion euros at 30th September 2006). Operating income rose by 20.3% to reach 1.04 billion euros for the first time (868 million euros at 30th September 2006). The adjusted1 operating margin amounted to 11.4% versus 10.1% at 30th September 2006.

 

		First Half to 30th September
		2007		2006		Change
Total passenger revenues ( € m)		9,933		9,486		+4.7	%
Revenues from scheduled passenger business ( € m)		9,449		8,970		+5.3	%
Unit revenue per RPK( € cts)		8.70		8.69		+0.1	%
Unit revenue per ASK ( € cts)		7.23		7.20		+0.4	%
Unit cost per ASK ( € cts)		6.36		6.43		-1.1	%
Operating income ( € m)		1,044		868		+20.3	%

On a constant currency basis, unit revenue per RPK and unit revenue per ASK rose by 2.4% and 2.6% respectively. Unit cost per available seat kilometer declined by 0.5% on a constant currency and fuel price basis.

Cargo activity

During the first half to 30th September 2007, cargo traffic progressed by 3.8% with capacity up by 1.5%, leading to a 1.4 point improvement in the load factor to 66.3%. Tonnes transported increased by 4.4% to 751,000 tonnes.

This recovery in traffic, however, was not accompanied by an improvement in unit revenues. Total cargo activity revenues amounted to 1.41 billion euros against 1.45 billion euros at 30th September 2006 (-2.9% after a negative currency effect of 3.0%). Operating income was -29 million euros versus a profit of 22 million euros at 30th September 2006.

 

		First Half to 30th September
		2007			2006		Change
Total cargo business revenues ( € m)		1,411			1,453		-2.9	%
Revenues from the transportation of cargo ( € m)		1,314			1,343		-2.1	%
Unit revenue per RTK ( € cts)		23.32			24.74		-5.7	%
Unit revenue per ATK ( € cts)		15.46			16.04		-3.6	%
Unit cost per ATK ( € cts)		15.65			15.61		+0.3	%
Operating income ( € m)		(29	)		22		ns

On a constant currency basis, unit revenue per tonne kilometer (RRTK) declined by 2.9% and unit revenue per available tonne kilometer (RATK) by 0.7%. Unit cost per ATK rose by 0.8% on a constant currency and fuel price basis.

 

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1	Operating income adjusted by the portion of financial costs of operating leases (34%)

 

4/11

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Maintenance activity

The first half was a good one for the maintenance activity. Although third party revenues of 476 million euros were down 0.8% year-on-year, mainly on the back of the weaker dollar, operating income was sharply ahead, rising from 14 million euros at 30th September 2006 to 48 million euros at 30th September 2007.

Other activities

The main businesses in this segment the catering activity and the leisure activity of transavia.com and third party catering activities. Revenues from these businesses amounted to 614 million euros against 514 million euros a year earlier, reflecting good levels of activity as well as changes in the consolidation scope. Operating income stood at 77 million euros against 75 million euros a year earlier.

Financial position: Free cash flow of almost 500 million euros

Tangible and intangible investments by the Air France-KLM group amounted to 1.28 billion euros, compared with 1.11 billion euros at 30th September 2006. They were financed by operating cash flow of 1.35 billion euros after the payment of a sum of 110 million euros to the State in respect of the shares-for-salary scheme of 2003 and a voluntary payment of 198 million euros to reduce the group’s pension commitments. The proceeds from various financial operations, notably WAM (Amadeus) amounted to 401 million euros. The group’s cash position stood at 4.5 billion euros at 30th September 2007. The group still has 1.7 billion euros in available credit facilities.

The balance sheet was further reinforced during the year with a 480 million euro reduction in net debt since 31 ^st  March 2007 to 3.11 billion euros. Shareholders’ funds amounted to 9.60 billion euros (8.41 billion euros at 31 ^st  March 2007), of which the value of derivative instruments represented 668 million euros.

The gearing ratio therefore stood at 0.32 at 30 ^th  September 2007 against 0.43 at 31st March 2007.

ROCE objective maintained for Financial Year 2007-08

Taking into account the level of forward bookings for the coming months and integrating the impact of the Air France cabin crew strike, estimated at 60 million euros, we confirm our objectives for the full financial year 2007-08 of a return on capital employed of 7% after tax as well as a further increase in operating income.

Share capital

At the end of the period for the exercise of the warrants issued during the exchange of KLM shares, 99.3% (or 44.8 million out of a total of 45.1 million issued) of these had been converted into Air France-KLM shares. The total subscription resulting from these exchanges is 597 million euros. 30.8 million shares have been created, of which 19.6 million on 15 ^th  November 2007, which started to trade as of 20 ^th November. The share capital of Air France-KLM thus stands at 300,219,278 million shares.

Finally, on the recommendation of the Board, Air France-KLM will delist its ADRs from the New York Stock exchange and deregister with the SEC.

 

5/11

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Agenda

Thursday 22nd November 2007 :

First Half results presentation at 15.00h CET

Pavillon Gabriel

5, avenue Gabriel

75008 Paris

 

Ø	Audio-web conference at 3:00 pm (CET)

to connect to the conference call, please dial:

 

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UK  00 44 207 162 0125 (password: AKH)

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US  1 334 323 6203 (password: AKH)

 

Ø	To see the presentation, go to the following website:

http://airfranceklm.viewontv.com (password: AKHH1)

 

Ø	To listen to a recording of the conference in English, dial 44 (0) 207 031 4064 (UK) or

1 954 334 0342 (US) (code: 758370)

Forward-looking statements

The information herein contains forward-looking statements about Air France-KLM and its business. These forward looking statements which include but are not limited to statements concerning the financial condition, results of operations and business of Air France KLM are based on management’s current expectations and estimates.

These forward-looking statements involve known and unknown risks, uncertainties and other factors many of which are outside of Air France-KLM’s control and are difficult to predict that may cause actual results to differ materially from any future results expressed or implied from the forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties including among others: the expected synergies and cost savings between Air France and KLM may not be achieved; unanticipated expenditures; changing relationships with customers, suppliers and strategic partners; increases in aircraft fuel prices; and other economic. Business, competitive and/or regulatory factors affecting the businesses of Air France and KLM generally. Additional information regarding the factors and events that could cause differences between forward-looking statements and actual results in the future is contained in Air France-KLM’s Securities and Exchange Commission filings including its Annual Reports on Form 20-F for the year ended March 31, 2007. Air France-KLM undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

THIS FORM 6-K REPORT IS HEREBY INCORPORATED BY REFERENCE INTO THE PROSPECTUS CONTAINED IN AIR FRANCE KLM’S REGISTRATION STATEMENT ON FORM F-3 (REGISTRATION STATEMENT NO. 333-114188). AND SHALL BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED. TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 

6/11

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FLEET AS OF 30 SEPTEMBER 2007

AIR FRANCE FLEET

 

Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
B747-400		9		7						7		7		16		14		15		13
B747-300/200		4		3										4		3
B777-200/300		25		30		4		4		15		14		44		48		44		48
A340-300		10		10		3		3		6		6		19		19		19		19
A330-200		6		6		1		1		9		9		16		16		16		16
Long-haul fleet		54		56		8		8		37		36		99		100		94		96
B747-400		2		4						4		5		6		9		6		8
B747-200		6		4						1				7		4		7		4
Cargo		8		8						5		5		13		13		13		12
A321		11		11						3		4		14		15		14		15
A320		52		52						16		16		68		68		68		68
A319		19		19		4		4		22		23		45		46		45		46
A318		18		18										18		18		18		18
B737-500		2		2						2				4		2		4
Medium-haul fleet		102		102		4		4		43		43		149		149		149		147
Total Air France fleet		164		166		12		12		85		84		261		262		256		255
REGIONAL FLEET
BRIT AIR
Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
Canadair Jet 100		2		2		11		11		5		4		18		17		18		17
Canadair Jet 700		3		6		9		9						12		15		12		15
F100-100		5		5						8		8		13		13		13		13
Total		10		13		20		20		13		12		43		45		43		45
CITY JET
Aircraft		Owned				Finance lease				Operating lease		TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
BAE146-200/300*		5		5		1				14		11		20		16		20		15
AVRO RJ 85		13		13						1		5		14		18		3		12
Total		18		18		1				15		16		34		34		23		27
*   including 2 aircraft sub-leased by KLM U.K. to CityJet
REGIONAL
Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
BEECH 1900-D		3		3		1		1		1		1		5		5
EMB190										2		4		2		4		2		4
EMB145-EP/MP		2		2		17		17		9		9		28		28		28		28
EMB135-ER		2		2		3		3		4		4		9		9		9		9
EMB120-ER		8		7										8		7		8		7
F100-100		4		3						6		6		10		9		9		9
F70-70				3		5		2						5		5		5		5
Total		19		20		26		23		22		24		67		67		61		62
Total Regional fleet		47		51		47		43		50		52		144		146		127		134
OTHER FLEET
TRANSAVIA FRANCE
Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
B737 800												4				4				4
Total												4				4				4
TOTAL Air France Group		211		217		59		55		135		140		405		412		383		393

 

7/11

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FLEET AS OF 30 SEPTEMBER 2007

KLM FLEET

 

Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
B747-400		11		11		11		11						22		22		22		22
B777-200						6		6		8		9		14		15		14		15
MD11		2		3		6		5		2		2		10		10		10		10
A330-200						6		6		2		3		8		9		8		9
B767-300										1				1
Long-haul fleet		13		14		29		28		13		14		55		56		54		56
B747-400						3		3						3		3		3		3
Cargo						3		3						3		3		3		3
B737-900						2		2		3		3		5		5		5		5
B737-800						13		13		2		2		15		15		15		15
B737-400		6		6						7		7		13		13		13		13
B737-300		6		6		1		1		7		7		14		14		14		14
Medium-haul fleet		12		12		16		16		19		19		47		47		47		47
Total		25		26		48		47		32		33		105		106		104		106
REGIONAL FLEET
KLM Cityhopper
Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
F100		9		9		11		11						20		20		20		20
F70		18		18		3		3						21		21		21		21
F50		6		6						8		8		14		14		14		14
Total		33		33		14		14		8		8		55		55		55		55
OTHER FLEET
TRANSAVIA Netherlands
Aircraft		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
B737-800		6		6		7		7		4		5		17		18		17		18
B737-700						5		5		5		5		10		10		10		10
Total		6		6		12		12		9		10		27		28		27		28
TOTAL KLM Group		64		65		74		73		49		51		187		189		186		189
		Owned				Finance lease				Operating lease				TOTAL				In operation
		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07		3/31/07		9/30/07
TOTAL Air France-KLM Group		275		282		133		128		184		191		592		601		569		582

 

8/11

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AIR FRANCE KLM GROUP
INCOME STATEMENT (unaudited)
In € millions		2nd quarter (July to September)							P&L for the semester (April to September)
		2007-08		2006-07		Variation			2007-08		2006-07		Variation
SALES		6,489		6,131		5.8	%		12,434		11,933		4.2	%
Other revenues		3		3		0.0	%		3		3		0.0	%
EXTERNAL EXPENSES		-3,543		-3,390		4.5	%		-6,914		-6,632		4.3	%
Aircraft fuel		-1,192		-1,171		1.8	%		-2,285		-2,181		4.8	%
Chartering costs		-166		-164		1.2	%		-326		-330		-1.2	%
Aircraft operating lease costs		-154		-149		3.4	%		-305		-305		0.0	%
Landing fees and en route charges		-472		-448		5.4	%		-915		-881		3.9	%
Catering		-128		-112		14.3	%		-238		-215		10.7	%
Handling charges and other operating costs		-341		-316		7.9	%		-663		-635		4.4	%
Aircraft maintenance costs		-234		-233		0.4	%		-498		-434		14.7	%
Commercial and distribution costs		-311		-299		4.0	%		-617		-620		-0.5	%
Other external expenses		-545		-498		9.4	%		-1,067		-1,031		3.5	%
Salaries and related costs		-1,731		-1,644		5.3	%		-3,460		-3,305		4.7	%
Taxes other than income taxes		-57		-65		-12.3	%		-114		-129		-11.6	%
Amortization and depreciation		-412		-446		-7.6	%		-799		-870		-8.2	%
Provisions		-24		-17		41.2	%		-35		-23		52.2	%
Other income and expenses				-4					25		2		na
INCOME FROM CURRENT OPERATIONS		725		568		27.6	%		1,140		979		16.4	%
Sales of aircraft equipment		7		-1		na			7		5		40.0	%
Sales of subsidiaries		1		-1		na			41		1		na
Other non-current income and expenses		206				na			288		-31		na
INCOME FROM OPERATING ACTIVITIES		939		566		65.9	%		1,476		954		54.7	%
Income from cash and cash equivalents		77		57		35.1	%		142		108		31.5	%
Cost of financial debt		-93		-96		-3.1	%		-189		-193		-2.1	%
Net cost of financial debt		-16		-39		-59.0	%		-47		-85		-44.7	%
Foreign exchange gains (losses), net		-9		3		na			2		-9		na
Change in fair value of financial assets and liabilities		11		-7		na			105		-18		na
Other financial income and expenses		-6		-3		na			-14		-12		16.7	%
INCOME BEFORE TAX		919		520		76.7	%		1,522		830		83.4	%
Income taxes		-172		-151		13.9	%		-346		-238		45.4	%
NET INCOME OF CONSOLIDATED COMPANIES		747		369		102.4	%		1,176		592		98.6	%
Share of profits (losses) of associates		-2		15		na			-11		15		na
INCOME FROM CONTINUING OPERATIONS		745		384		94.0	%		1,165		607		91.9	%
Net income from discontinued operations
NET INCOME FOR THE PERIOD		745		384		94.0	%		1,165		607		91.9	%
Minority interest		-9		-10		-10.0	%		-14		11		na
NET INCOME FOR THE PERIOD - GROUP		736		374		96.8	%		1,151		618		86.2	%

 

9/11

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AIR FRANCE KLM GROUP
CONSOLIDATED BALANCE SHEETS (unaudited)
				In  €  millions
		September 30, 2007		March 31, 2007
Assets
Goodwill		211		204
Intangible assets		446		424
Flight equipment		11,994		11,551
Other property, plant and equipment		2,050		2,007
Investments in equity associates		177		228
Pension assets		2,153		2,097
Other financial assets (1)		1,023		1,095
Deferred tax assets		24		26
Other non-current assets		911		604
Total non current assets		18,989		18,236
Other short term financial assets (2)		752		689
Inventories		479		360
Trade accounts receivable		2,757		2,610
Income tax receivables				7
Other current assets		1,307		1,271
Cash and cash equivalents		4,089		3,497
Total current assets		9,384		8,434
(1)        of which € 805 million of deposits related to financial leases as of September 30, 2007 and € 835 million as of march 31, 2007
(2)        of which € 708 million of deposits related to financial leases and investments between 3 months and 1 year as of September 30, 2007 and € 631 million as of march 31, 2007
Total assets		28,373		26,670
		September 30, 2007		March 31, 2007
Liabilities and equity
Issued capital		2,385		2,375
Additional paid-in capital		553		539
Treasury shares		-43		-30
Reserves and retained earnings		6,575		5,415
Equity attributable to equity holders of Air France-KLM		9,470		8,299
Minority interest		127		113
Total Equity		9,597		8,412
Provisions and retirement benefits		1,205		1,387
Long-term debt		7,219		7,419
Deferred tax		1,178		891
Other non-current liabilities		608		401
Total non-current liabilities		10,210		10,098
Provisions		261		225
Current portion of long-term debt		1,133		1,098
Trade accounts payable		2,170		2,131
Deferred revenue on ticket sales		2,062		2,217
Current tax liabilities		127		21
Other current liabilities		2,525		2,335
Bank overdrafts		288		133
Total current liabilities		8,566		8,160
Total liabilities		18,776		18,258
Total liabilities and equity		28,373		26,670

 

10/11

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AIR FRANCE KLM GROUP
STATEMENT OF CONSOLIDATED CASH FLOW (unaudited)
				In  €  millions
		2007		2006
Period from April 1 to September 30,
Net income for the period – Group		1,151		618
Minority interests		14		-11
Amortization, depreciation and operating provisions		834		893
Financial provisions		5		18
Gain on disposals of tangible and intangible assets		-9		-7
Loss / (gain) on disposals of subsidiaries and associates		-41		-1
Gain on Amadeus GTD transaction		-284		—
Derivatives – non monetary result		-105		18
Unrealized foreign exchange gains and losses, net		-5		-9
Share of (profits) losses of associates – non monetary part		11		-15
Deferred taxes		238		255
Other non-monetary items		-45		-62
Subtotal		1,764		1,697
(Increase) / decrease in inventories		-47		-20
(Increase) / decrease in trade receivables		-109		-272
Increase / (decrease) in trade payables		29		161
Change in other receivables and payables		21		61
Payment of the ESA 2003 soulte		-110		—
Additional contribution to pension fund		-198		—
Net cash flow from operating activities		1,350		1,627
Acquisitions of subsidiaries and investments in associates, net of cash acquired		-8		-27
Purchase of property, plant and equipment and intangible assets		-1,275		-1,114
Proceeds on disposal of subsidiaries and investments in associates		80		15
Proceeds on Amadeus GTD transaction		284		—
Proceeds on disposal of property, plant and equipment and intangible assets		37		60
Dividends received		4		2
Decrease (increase) in investments, net between 3 months and 1 year		-123		-93
Net cash used in investing activities		-1,001		-1,157
Increase in capital		218		—
Issuance of long-term debt		585		942
Repayments on long-term debt		-214		-223
Payment of debt resulting from finance lease liabilities		-397		-282
New loans		-32		-27
Repayments on loans		65		24
Dividends paid		-135		-82
Net cash flow from financing activities		90		352
Effect of exchange rate on cash and cash equivalents and bank overdrafts		-2		-1
Change in cash and cash equivalents and bank overdrafts		437		821
Cash and cash equivalents and bank overdrafts at beginning of period		3,364		2,844
Cash and cash equivalents and bank overdrafts at end of period		3,801		3,665

 

11/11

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Air France – KLM Group

 

UNAUDITED INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

 

April 1, 2007 – September 30, 2007

 

- 1 -

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Air France – KLM Group

CONSOLIDATED INCOME STATEMENTS (unaudited)

 

In € millions Period from April 1 to September 30,		Notes		2007			2006
Sales		4		12 434			11 933
Other revenues				3			3
Revenues				12 437			11 936
External expenses		5		(6 914	)		(6 632	)
Salaries and related costs		6		(3 460	)		(3 305	)
Taxes other than income taxes				(114	)		(129	)
Amortization and depreciation		7		(799	)		(870	)
Provisions		7		(35	)		(23	)
Other income and expenses		8		25			2
Income from current operations				1 140			979
Sales of aircraft equipment		9		7			5
Other non-current income and expenses		9		329			(30	)
Income from operating activities				1 476			954
Cost of financial debt		10		(189	)		(193	)
Income from cash and cash equivalents		10		142			108
Net cost of financial debt				(47	)		(85	)
Other financial income and expenses		10		93			(39	)
Income before tax				1 522			830
Income taxes		12		(346	)		(238	)
Net income of consolidated companies				1 176			592
Share of profits (losses) of associates		11		(11	)		15
Net income from continuing operations				1 165			607
Net income from discontinued operations				—			—
Net income for the period				1 165			607
- Group				1 151			618
- Minority interest				14			(11	)
Earnings per share – Group (in euros)
- basic		13		4.13			2.33
- diluted		13		3.73			2.16

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 2 -

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Air France – KLM Group

CONSOLIDATED BALANCE SHEETS (unaudited)

 

Assets In € millions		Notes		September 30, 2007		March 31, 2007
Goodwill				211		204
Intangible assets		14		446		424
Flight equipment		15		11 994		11 551
Other property, plant and equipment		15		2 050		2 007
Investments in equity associates				177		228
Pension assets				2 153		2 097
Other financial assets (which includes € 805 million of deposits related to financial leases as of September 30, 2007 and € 835 million as of march 31, 2007)				1 023		1 095
Deferred tax assets				24		26
Other non-current assets				911		604
Total non current assets				18 989		18 236
Other short term financial assets (which includes € 708 million of deposits related to financial leases and investments between 3 months and 1 year as of September 30, 2007 and € 631 million as of march 31, 2007)				752		689
Inventories		16		479		360
Trade accounts receivable				2 757		2 610
Income tax receivables				—		7
Other current assets				1 307		1 271
Cash and cash equivalents				4 089		3 497
Total current assets				9 384		8 434
Total assets				28 373		26 670

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 3 -

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Air France – KLM Group

CONSOLIDATED BALANCE SHEETS (unaudited) (continued)

 

Liabilities and equity In € millions		Notes		September 30, 2007			March 31, 2007
Issued capital		17.1		2 385			2 375
Additional paid-in capital				553			539
Treasury shares				(43	)		(30	)
Reserves and retained earnings		17.3		6 575			5 415
Equity attributable to equity holders of Air France-KLM				9 470			8 299
Minority interest				127			113
Total Equity				9 597			8 412
Provisions and retirement benefits		19		1 205			1 387
Long-term debt		20		7 219			7 419
Deferred tax				1 178			891
Other non-current liabilities				608			401
Total non-current liabilities				10 210			10 098
Provisions		19		261			225
Current portion of long-term debt		20		1 133			1 098
Trade accounts payable				2 170			2 131
Deferred revenue on ticket sales				2 062			2 217
Current tax liabilities				127			21
Other current liabilities				2 525			2 335
Bank overdrafts				288			133
Total current liabilities				8 566			8 160
Total liabilities				18 776			18 258
Total liabilities and equity				28 373			26 670

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 4 -

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Air France – KLM Group

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

 

In € millions		Number of shares		Issued capital		Additional paid-in capital		Treasury shares			Reserves and retained earnings			Equity attributable to holders of Air France-KLM			Minority interests			Total equity
March 31, 2006		269 383 518		2 290		430		(58	)		5 072			7 734			119			7 853
Fair value adjustment on available for sale securities		—		—		—		—			(3	)		(3	)		—			(3	)
Gain / (loss) on cash flow hedges		—		—		—		—			(392	)		(392	)		—			(392	)
Currency translation adjustment		—		—		—		—			(2	)		(2	)		(2	)		(4	)
Net income for the period		—		—		—		—			618			618			(11	)		607
Total of income and expenses recognized		—		—		—		—			221			221			(13	)		208
Stock based compensation (ESA)		—		—		—		—			17			17			—			17
Dividends paid		—		—		—		—			(81	)		(81	)		(1	)		(82	)
Treasury shares		—		—		—		9			—			9			—			9
Other		—		—		—		—			—			—			5			5
September 30, 2006		269 383 518		2 290		430		(49	)		5 229			7 900			110			8 010
March 31, 2007		279 365 707		2 375		539		(30	)		5 415			8 299			113			8 412
Fair value adjustment on available for sale securities		—		—		—		—			—			—			—			—
Gain / (loss) on cash flow hedges		—		—		—		—			128			128			2			130
Currency translation adjustment		—		—		—		—			(1	)		(1	)		(1	)		(2	)
Net income for the period		—		—		—		—			1 151			1 151			14			1 165
Total of income and expenses recognized		—		—		—		—			1 278			1 278			15			1 293
Stock based compensation (ESA)		—		—		—		—			16			16			—			16
Increase in capital		1 267 184		10		14		—			—			24			—			24
Dividends paid		—		—		—		—			(134	)		(134	)		(1	)		(135	)
Treasury shares		—		—		—		(13	)		—			(13	)		—			(13	)
Other		—		—		—		—			—			—			—			—
September 30, 2007		280 632 891		2 385		553		(43	)		6 575			9 470			127			9 597

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 5 -

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Air France – KLM Group

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (unaudited)

 

In € millions		September 30, 2007			September 30, 2006
Fair value adjustment on available for sale securities
Valuation gains / (losses) taken to equity		—			(3	)
Transferred to profit or loss on sale		—			—
Cash flow hedges
Gains / (losses) taken to equity		406			(139	)
Transferred to profit or loss on sale		(226	)		(453	)
Currency translation adjustment		(1	)		(2	)
Tax on items taken directly to or transferred from equity
Gains / (losses) taken to equity		(52	)		200
Income and expenses directly recognized in equity – Group		127			(397	)
Net income for the period – Group		1 151			618
Total of income and expenses recognized for the period – Group		1 278			221
Total of income and expenses recognized for the period – Minority interest		15			(13	)
Total recognized income and expenses for the period		1 293			208

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 6 -

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Air France-KLM Group

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

In € millions Period from April 1 to September 30,		Notes		2007			2006
Net income for the period – Group				1 151			618
Minority interests				14			(11	)
Amortization, depreciation and operating provisions				834			893
Financial provisions				5			18
Gain on disposals of tangible and intangible assets				(9	)		(7	)
Loss / (gain) on disposals of subsidiaries and associates				(41	)		(1	)
Gain on WAM (Amadeus GTD) transaction		9		(284	)		—
Derivatives – non monetary result				(105	)		18
Unrealized foreign exchange gains and losses, net				(5	)		(9	)
Share of (profits) losses of associates – non monetary part		11		11			(15	)
Deferred taxes				238			255
Other non-monetary items				(45	)		(62	)
Subtotal				1 764			1 697
(Increase) / decrease in inventories				(47	)		(20	)
(Increase) / decrease in trade receivables				(109	)		(272	)
Increase / (decrease) in trade payables				29			161
Change in other receivables and payables				21			61
Payment of the ESA 2003 soulte				(110	)		—
Additional contribution to pension fund				(198	)		—
Net cash flow from operating activities				1 350			1 627
Acquisitions of subsidiaries and investments in associates, net of cash acquired				(8	)		(27	)
Purchase of property, plant and equipment and intangible assets				(1 275	)		(1 114	)
Proceeds on disposal of subsidiaries and investments in associates				80			15
Proceeds on WAM (Amadeus GTD) transaction		9		284			—
Proceeds on disposal of property, plant and equipment and intangible assets				37			60
Dividends received				4			2
Decrease (increase) in investments, net between 3 months and 1 year				(123	)		(93	)
Net cash used in investing activities				(1 001	)		(1 157	)
Increase in capital				218			—
Issuance of long-term debt				585			942
Repayments on long-term debt				(214	)		(223	)
Payment of debt resulting from finance lease liabilities				(397	)		(282	)
New loans				(32	)		(27	)
Repayments on loans				65			24
Dividends paid				(135	)		(82	)
Net cash flow from financing activities				90			352
Effect of exchange rate on cash and cash equivalents and bank overdrafts				(2	)		(1	)
Change in cash and cash equivalents and bank overdrafts				437			821
Cash and cash equivalents and bank overdrafts at beginning of period				3 364			2 844
Cash and cash equivalents and bank overdrafts at end of period				3 801			3 665
Income tax paid (flow included in operating activities)				(2	)		(268	)
Interest paid (flow included in operating activities)				(178	)		(216	)
Interest received (flow included in operating activities)				139			112

The accompanying notes are an integral part of these condensed consolidated financial statements

 

- 7 -

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Air France-KLM Group

 

NOTES TO THE UNAUDITED INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

April 1, 2007 – September 30, 2007

 

- 8 -

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Air France-KLM Group

1. BUSINESS DESCRIPTION

As used herein, the term “Air France–KLM” refers to Air France-KLM S.A., a limited liability company organized under French law without its consolidated subsidiaries. The term “Group” refers to Air France-KLM together with its consolidated subsidiaries.

The Group is headquartered in France and is one of the largest airlines in the world. The Group’s core business is passenger transportation. The Group’s activities also include cargo, aeronautics maintenance and other air-transport related activities, including principally catering and charter services.

The limited company Air France-KLM SA, domiciled 2 rue Robert Esnault-Pelterie 75007 Paris – France, is the parent company of the Air France-KLM group. Air France-KLM is listed for trading in Paris (Euronext), Amsterdam (Euronext) and New-York (NYSE).

The Group’s functional currency is the euro.

2. SIGNIFICANT EVENTS OF THE YEAR

The income for the six-month period ended September 30, 2007 includes a gain of € 284 million before tax relating to the WAM (Amdeus GTD) transaction described in note 9.

3. ACCOUNTING POLICIES

    3.1. Accounting principles

Accounting principles used for the interim condensed consolidated financial statements as of September 30, 2007 are the same as those used as of March 31, 2007 and described in the consolidated financial statements of the year ended March 31, 2007.

The interim condensed consolidated financial statements as of September 30, 2007 are prepared in accordance with IAS 34 “Interim financial reporting” and must be read in connection with the annual consolidated financial statements for the year ended March 31, 2007. They have been prepared in accordance with those IFRS as of November 21, 2007, date on which the accounts have been approved by the Board of Directors.

    3.2. Preparation of unaudited interim consolidated financial statements

Revenues and income from current operations are characterized by their seasonal nature related to a high level of activity during the first half of the fiscal year. This phenomenon varies in magnitude depending on the year. In accordance with IFRS, revenues and the related expenses are recognized over the period in which they are realized and incurred respectively.

For the interim statements, the tax charge (current and deferred) is calculated by applying to the book income for the period the estimated annual average tax rate for the current year for each entity or tax group.

    3.3. Use of estimates

The preparation of the condensed consolidated financial statements in conformity with IFRS requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. The significant areas of estimations described in the note 3 of the March 31, 2007 consolidated financial statements, concerned:

 

n

Revenue recognition related to deferred revenue on ticket sales,

 

n

Tangible and intangible assets,

 

n

Financial assets,

 

- 9 -

---

Air France-KLM Group

 

n

Deferred tax assets

 

n

Flying Blue frequent flyer program

 

n

Provisions

The Group’s management makes these estimates and assessments continuously on the basis of its past experience and various other factors considered to be reasonable.

Actual results could differ from these estimates depending on changes in the assumptions used or different conditions.

 

- 10 -

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Air France-KLM Group

4. INFORMATION BY ACTIVITY AND GEOGRAPHICAL AREA

The Group’s primary reporting format is business segmentation.

Business segments’ results are those that are either directly attributable or that can be allocated on a reasonable basis to these business segments. Amounts allocated to business segments correspond to the income from current operations. Other elements of the income statement are presented in the “non allocated” column.

Inter-segment transactions are valued based on normal market conditions.

The Group’s secondary reporting format is geographical segmentation based on origin of sales.

Only segment revenues are allocated by geographical sales area.

Business segments

Passenger : Passenger operating revenues primarily come from passenger transportation services on scheduled flights with the Group’s airline code, including flights operated by other airlines under code-sharing agreements. They also include commissions paid by SkyTeam alliance partners, code-sharing revenues, revenues from excess baggage and airport services supplied by the Group to third party airlines and services linked to IT systems.

Cargo : Cargo operating revenues come from freight transport on flights under the companies’ codes, including flights operated by other partner airlines under code-sharing agreements. Other cargo revenues are derived principally from sales of cargo capacity to third parties.

Maintenance : Maintenance operating revenues are generated through maintenance services provided to other airlines and customers globally.

Other : The revenues from this segment come primarily from catering supplied by the Group to third-party airlines and to charter flights operated primarily by Transavia.

Geographical segments

Group activities are broken down into five geographical regions:

 

-

Europe and North Africa

 

-

Caribbean, French Guiana and Indian Ocean

 

-

Africa, Middle East

 

-

Americas, Polynesia

 

-

Asia and New Caledonia

 

- 11 -

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Air France-KLM Group

    4.1. Information by business segment

 

•

Six month period ended September 30, 2007

 

In € millions		Passenger			Cargo			Maintenance			Other			Non allocated			Total
Total sales		10 350			1 419			1 424			934			—			14 127
Intersegment sales		(417	)		(8	)		(948	)		(320	)		—			(1 693	)
External sales		9 933			1 411			476			614			—			12 434
Income from current operations		1 044			(29	)		48			77			—			1 140
Income from operating activities		1 044			(29	)		48			77			336			1 476
Share of profits (losses) of associates		—			—			—			—			(11	)		(11	)
Net cost of financial debt and other financial income and expenses		—			—			—			—			46			46
Income taxes		—			—			—			—			(346	)		(346	)
Net income from continuing operations		1 044			(29	)		48			77			25			1 165

•         Six month period ended September 30, 2006

In € millions		Passenger			Cargo			Maintenance			Other			Non allocated			Total
Total sales		9 874			1 466			1 394			819			—			13 553
Intersegment sales		(388	)		(13	)		(914	)		(305	)		—			(1 620	)
External sales		9 486			1 453			480			514			—			11 933
Income from current operations		868			22			14			75			—			979
Income from operating activities		868			22			14			75			(25	)		954
Share of profits (losses) of associates		—			—			—			—			15			15
Net cost of financial debt and other financial income and expenses		—			—			—			—			(124	)		(124	)
Income taxes		—			—			—			—			(238	)		(238	)
Net income from continuing operations		868			22			14			75			(372	)		607

 

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Air France-KLM Group

    4.2. Information by geographical area

Sales by geographical area

 

•

Six month period ended September 30, 2007

 

In € millions		Europe, North Africa		Caribbean, French Guiana, Indian Ocean		Africa, Middle East		Americas, Polynesia		Asia, New Caledonia		Total
Scheduled passenger		6 204		212		625		1 623		785		9 449
Other passenger sales		365		23		17		29		50		484
Total passenger		6 569		235		642		1 652		835		9 933
Scheduled cargo		597		17		90		169		441		1 314
Other cargo sales		62		2		4		14		15		97
Total cargo		659		19		94		183		456		1 411
Maintenance		472		—		—		—		4		476
Others		599		10		5		—		—		614
Total		8 299		264		741		1 835		1 295		12 434
•         Six month period ended September 30, 2006
In € millions		Europe, North Africa		Caribbean, French Guiana, Indian Ocean		Africa, Middle East		Americas, Polynesia		Asia, New Caledonia		Total
Scheduled passenger		5 773		213		615		1 605		764		8 970
Other passenger sales		367		28		20		41		60		516
Total passenger		6 140		241		635		1 646		824		9 486
Scheduled cargo		589		18		91		172		473		1 343
Other cargo sales		76		2		4		11		17		110
Total cargo		665		20		95		183		490		1 453
Maintenance		475		—		—		—		5		480
Others		501		9		4		—		—		514
Total		7 781		270		734		1 829		1 319		11 933

 

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Air France-KLM Group

Traffic sales by geographical area of destination

 

•

Six month period ended September 30, 2007

 

In € millions		Europe, North Africa		Caribbean, French Guiana, Indian Ocean		Africa, Middle East		Americas, Polynesia		Asia, New Caledonia		Total
Scheduled passenger		3 754		594		1 263		2 334		1 504		9 449
Scheduled cargo		32		90		184		405		603		1 314
Total		3 786		684		1 447		2 739		2 107		10 763
•         Six month period ended September 30, 2006
In € millions		Europe, North Africa		Caribbean, French Guiana, Indian Ocean		Africa, Middle East		Americas, Polynesia		Asia, New Caledonia		Total
Scheduled passenger		3 673		576		1 190		2 174		1 357		8 970
Scheduled cargo		34		94		175		420		620		1 343
Total		3 707		670		1 365		2 594		1 977		10 313

5. EXTERNAL EXPENSES

 

In € millions Six month period ended September 30,		2007		2006
Aircraft fuel		2 285		2 181
Chartering costs		326		330
Aircraft operating lease costs		305		305
Landing fees and en route charges		915		881
Catering		238		215
Handling charges and other operating costs		663		635
Aircraft maintenance costs		498		434
Commercial and distribution costs		617		620
Other external expenses		1 067		1 031
Total		6 914		6 632

“Other external expenses” correspond mainly to rent and insurance costs.

The increase of “aircraft maintenance costs” is mainly due to the reclassification of spare parts from flight equipment to inventories as described in note 16.

 

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Air France-KLM Group

6. SALARIES AND NUMBER OF EMPLOYEES

Salaries and related costs

 

In € millions Six month period ended September 30,		2007		2006
Wages and salaries		2 550		2 425
Social contributions		819		766
Net periodic pension cost		42		73
Expenses related to share-based compensation		15		15
Other expenses		34		26
Total		3 460		3 305
Average number of employees
Six month period ended September 30,		2007		2006
Flight deck crew		8 185		7 974
Cabin crew		21 605		20 676
Ground staff		75 201		74 697
Total		104 991		103 347
7. AMORTIZATION, DEPRECIATION AND PROVISIONS
In € millions Six month period ended September 30,		2007		2006
Amortization and depreciation
Intangible assets		22		19
Flight equipment		646		728
Other property, plant and equipment		131		123
		799		870
Provisions
Inventories		8		5
Trade receivables		5		—
Risks and contingencies		22		18
		35		23
Total		834		893

The decrease of the “depreciation of flight equipment” is mainly due to the reclassification of spare parts from flight equipment to inventories as described in note 16.

 

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Air France-KLM Group

8. OTHER INCOME AND EXPENSES

 

In € millions Six month period ended September 30,		2007		2006
Joint operation of routes		16		(2	)
Operations-related currency hedges		1		5
Other		8		(1	)
Total		25		2

9. SALES OF AIRCRAFT EQUIPMENT AND OTHER NON-CURRENT INCOME AND EXPENSES

 

•

Six month period ended September 30, 2007

During the six month period ended September 30, 2007, the Group sold its shares in Alpha recording a gain on disposal of € 40 million. The company Alpha, previously held at 26%, was accounted for under the equity method in the Group’s condensed consolidated financial statements.

The gain on WAM (Amadeus GTD) transaction that amounts to € 284 million, corresponds to the reimbursement of the shareholder capital for € 202 million, of the shareholders’ loan for an amount of € 76 million and to a payment of interests for € 6 million. The shares and the loan had been recognized at a value of nil in the operation of reinvestment of Air France-KLM within the LBO operation initiated in July 2005.

 

•

Six month period ended September 30, 2006

The result on disposal of aircraft equipment that amounts to € 5 million corresponds to the sale of an aircraft owned by AFPL.

Moreover, AFPL has recorded a loss of € 20 million relating to an aircraft destined to be sold.

 

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Air France-KLM Group

10. NET COST OF FINANCIAL DEBT AND OTHER FINANCIAL INCOME AND EXPENSES

 

In € millions Six month period ended September 30,		2007			2006
Income from cash and cash equivalents
Income from marketable securities		43			38
Other financial income		99			70
		142			108
Cost of financial debt
Loan interests		(115	)		(115	)
Lease interests		(94	)		(96	)
Capitalized interests		20			18
		(189	)		(193	)
Net cost of financial debt		(47	)		(85	)
Other financial income and expenses
Foreign exchange gains (losses), net		2			(9	)
Change in fair value of financial assets and liabilities		105			(18	)
Net (charge) release to provisions		(5	)		(18	)
Other		(9	)		6
		93			(39	)
Total		46			(124	)

The interest rate used in the calculation of capitalized interest is 4.96% for the six month period ended September 30, 2007 (4.45% for the six month period ended September 30, 2006).

Net foreign exchange result includes an unrealized net gain of € 5 million for the six month period ended September 30, 2007 and a gain of € 9 million for the six month period ended September 30, 2006, mainly due to the change of the US dollar rate.

Net charge to provisions includes an unrealized loss on shares of Alitalia for an amount of € 4 million and € 9 million, as a result of the stock price decreasing significantly during the six month period ended September 30, 2007 and 2006, respectively.

11. SHARE OF PROFITS (LOSSES) OF ASSOCIATES

Share of profits (losses) of associates includes a new provision for risk recorded in the accounts of Martinair concerning the inquiry of the US Department Of Justice (DOJ) about an alleged conspiracy to fix the price of air shipping services. Because of the status of discussions with the US DOJ, Martinair has recorded a provision net of tax amounting to € 23 million. The part of the Group is a cost amounting to € 11 million.

 

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Air France-KLM Group

12. INCOME TAXES

12.1 Income tax charge

 

In € millions Six month period ended September 30,		2007			2006
Current tax (expense) / benefit		(108	)		17
Charge for the period		(108	)		(3	)
Adjustment of previous current tax charges		—			20
Deferred tax income / (expense) from continuing operations		(238	)		(255	)
Change in temporary differences		(107	)		(24	)
Change in tax rates		—			—
(Use) / recognition of tax loss carryforwards		(131	)		(231	)
Total income tax (expense) / credit		(346	)		(238	)

The current tax charge relates to the amounts paid or payable in the short term to the tax authorities in respect of the financial period, in accordance with the regulations prevailing in various countries and any applicable treaties.

    12.2 Deferred tax recorded directly in equity

Deferred tax directly recorded in equity amounts to an income of € 53 million as of September 30, 2007 against an income of € 200 million for the period ended September 30, 2006. These deferred taxes relate to the accounting of cash flow hedges.

13 EARNINGS PER SHARE

Reconciliation of income used to calculate earnings per share

 

In € millions Six month period ended September 30,		2007		2006
Income for the period – Group share		1 151		618
Dividends to be paid to priority shares		—		—
Income for the period – Group share (used to calculate basic earnings per share)		1 151		618
Impact of potential ordinary shares :
- interest paid on convertible bonds (net of tax)		5		5
Income for the period – Group share (used to calculate diluted earnings per share)		1 156		623

 

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Air France-KLM Group

Reconciliation of the number of shares used to calculate earnings per share

 

Six month period ended September 30,		2007			2006
Weighted average number of:
- Ordinary shares issued		280 164 858			269 383 518
- Treasury stock held regarding stock option plan		(1 616 586	)		(3 943 674	)
- Treasury stock held for the share buyback plan		(40 154	)		(96 985	)
Number of shares used to calculate basic earnings per share		278 508 118			265 342 859
Weighted average number of ordinary shares:
- Conversion of convertible bonds		22 609 230			21 951 219
- Conversion of warrants		8 083 123			—
- Exercise of stock options		633 978			596 306
Number of potential ordinary shares		31 326 331			22 547 525
Number of ordinary and potential ordinary shares used to calculate diluted earnings per share		309 834 449			287 890 384

14 INTANGIBLE ASSETS

Starting April 1, 2007, software development expenses are capitalized and amortized over their useful lives. For that purpose, the Group equipped with the necessary tools that enabled a tracking by project of all the stages of development, and particularly the internal and external expenses directly related to each project during its development phase. Capitalized software development expenses amount to € 31 million as of September 30, 2007.

15. TANGIBLE ASSETS

 

In € millions		As of September 30, 2007						As of March 31, 2007
		Gross value		Depreciation		Net Value		Gross value		Depreciation		Net Value
Owned aircraft		8 706		2 331		6 375		7 972		2 091		5 881
Leased aircraft		4 409		1 031		3 378		4 435		908		3 527
Assets in progress		1 386		—		1 386		1 170		—		1 170
Other		1 546		691		855		1 716		743		973
Flight equipment		16 047		4 053		11 994		15 293		3 742		11 551
Land and buildings		2 276		966		1 310		2 172		909		1 263
Equipment and machinery		956		599		357		933		572		361
Assets in progress		892		623		269		145		—		145
Other		114		—		114		831		593		238
Other tangible assets		4 238		2 188		2 050		4 081		2 074		2 007
Total		20 285		6 241		14 044		19 374		5 816		13 558

The net value of tangible assets financed under capital lease amounts to € 3 651 million as of September 30, 2007 and € 3 811 million as of March 31, 2007.

 

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Air France-KLM Group

16. INVENTORIES

As of April 1, 2007, € 87 million of spare parts with useful lives of less than a year have been reclassified from flight equipment to inventories.

17. EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF AIR FRANCE-KLM SA

    17.1 Breakdown of stock and voting rights

 

		As of September 30, 2007						As of March 31, 2007
		Capital			Voting rights			Capital			Voting rights
French State		18	%		18	%		18	%		18	%
Employees and former employees		11	%		11	%		11	%		11	%
Treasury shares		1	%		—			1	%		—
Other		70	%		71	%		70	%		71	%
Total		100	%		100	%		100	%		100	%

The item “Employees and former employees” includes shares held by employees and former employees identified in funds or by a Sicovam code.

17.2 Other securities giving access to common stock

On April 22, 2005, Air France issued 15-year bonds with an option of conversion and/or exchange for new or existing Air France-KLM shares (OCEANE). 21,951,219 bonds were issued for a total amount of € 450 million. Because each bond can be exchanged for a share Air France-KLM, the potential maximum increase of equity of Air France-KLM amounts to € 450 million.

Following the Exchange Offer, 45,093,299 Equity Warrants for new or existing shares (Bons d’Acquisition et/ou de Souscription d’Actions, BASA) were issued. Three BASAs give the holder the right to purchase and/or subscribe to 2.066 new or existing shares of Air France-KLM stock, with a par value of 8.50 euros, at an exercise price of 20 euros per Air France-KLM share. BASA holders will have the option, at any time during a 24-month period beginning November 2005, to obtain new or existing shares, at the Group’s discretion, upon exercise of the BASA.

During the six month period ended September 30, 2007, 1 839 336 BASA were exercised, leading to the issuance of 1 266 659 shares.

As of September 30, 2007, 28 747 934 BASA remain floating. The maximum potential increase in the equity capital of Air France-KLM is € 383 million.

    17.3 Reserves and retained earnings

 

In € millions		As of September 30, 2007		As of March 31, 2007
Legal reserve		57		46
Distributable reserve		989		973
Derivatives and available for sale securities reserves		673		550
Aggregate results of consolidated subsidiaries		3 705		2 955
Net income (loss)		1 151		891
Total		6 575		5 415

 

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Air France-KLM Group

18 SHARE BASED COMPENSATION

On February 1, 2005, the Group launched a shares-for-salary exchange scheme, in which all Air France employees residing in France were offered the opportunity to purchase Air France-KLM shares at a price of € 14 per share in exchange for wage concessions over a 6-year period. The offer was limited to a maximum of 13,186,853 ordinary shares. At the date the offer was closed, February 21, 2005, Air France employees had acquired 12,612,671 Air France-KLM shares.

These shares were granted by the French State, the largest Air France-KLM shareholder, subject to a € 110 million payment by Air France-KLM made in April 2007. The wage concessions cover the period from May 2005 to May 2011.

In the event an employee leaves the Group prior to the end of the six-year period, the unvested shares are returned to Air France which, in turn, returns them to the French State. The fair value of the services provided under the shares-for-salary exchange scheme was calculated on the basis of the market price of the Air France-KLM share on the date the offer was closed, namely 14.30 euros and amounts to € 180 million. The corresponding salary expense covers the acquisition period of voting rights from May 2005 to May 2011. Each installment, corresponding to the annual decrease of salary, is treated as a separate grant. The ESA 2003 plan share-based payment is therefore recognized on a straight-line basis over the requisite service period for each separately vested portion.

19 PROVISIONS AND RETIREMENT BENEFITS

 

In € millions		As of September 30, 2007						As of March 31, 2007
		Non current		Current		Total		Current		Non current		Total
Retirement benefits		805		—		805		990		—		990
Restitution of aircraft		236		164		400		221		153		374
Restructuring		—		35		35		32		7		39
Litigation		34		59		93		32		60		92
Other		130		3		133		112		5		117
Total		1 205		261		1 466		1 387		225		1 612

The decrease of the « retirement benefits » is mainly explained by the payment of an additional contribution of €  198 million to the funds covering the termination indemnities in France.

CONTINGENT LIABILITIES

The Group is involved in several disputes, and the potential losses have not been recorded in the consolidated financial statements.

The Group was definitively removed by the Court of Appeals of Richmond, Virginia on December 9, 2004, from in the HALL action, the name of one of the travel agents who had filed a class action suit against American and European airlines, including Air France and KLM, accusing them of illegal agreements to reduce the commissions collected on the sale of airline tickets.

In another lawsuit based on the same complaints, filed by fifty travel agents acting individually against the same airlines a settlement agreement between Air France and the plaintiffs has been executed in May 2007.

In the dispute between Servair a subsidiary of the Group, and its employees for payment of meal times, all judgments issued to date by the courts have dismissed the claims of the employees involved. Only one proceeding with 255 employees is still pending before the Labor Board. This action, like the preceding cases, is considered to be not relevant by the Group and no provisions have been recorded.

 

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Air France-KLM Group

As of February 14, 2006, authorities from the EU Commission and the US Department Of Justice (DOJ) presented themselves at the offices of Air France and KLM, as well as most airlines and world major cargo operators, formally requesting information about an alleged conspiracy to fix the price of air shipping services. Skyteam Cargo, a Company in which Air France held shares, was subject to the same investigations.

Air France-KLM as well as Air France and KLM are cooperating with these investigations which were still ongoing as of September 30, 2007.

As of the same date 2007, over 140 purported class action lawsuits were filled in the US against air cargo operators including Air France-KLM, Air France, KLM and/or related entities. Plaintiffs allege that defendants engaged in a conspiracy to fix the price of air shipping services since January 1, 2000 including various surcharges in air cargo services in violation of antitrust laws. They consequently seek compensatory damages and treble monetary damages in unspecified amounts, costs and attorney’s fees, as well as injunctive relief amounting to triple amount of compensatory damages. These actions have been transferred and consolidated before the US District Court of the Eastern District of New-York. The consolidated case is currently in the pleading process, with the first consolidated amended complaint filed by the plaintiffs in February 2007. Air France and KLM filed a motion to dismiss on July 2007. A decision by the Court on the motion to dismiss is not expected before several weeks.

At this time, Air France-KLM is unable to predict the outcome of these investigations requested by antitrust and civil litigation authorities, or the amount of penalties and compensatory damages which could be due.

On July 20, 2006, Air France was placed under formal investigation for (i) possible illegal employment practices and (ii) being a possible accessory to misappropriation of funds by Pretory, a company that supplied on board safety guards to Air France for flights to the US or other destinations following the September 11 terrorist attacks.

Air France has denied any illegal practice and immediately filed an appeal against the judge’s decision as of September 30, 2007. This appeal was still pending before the Paris Court of Appeal.

To the Group’s knowledge, there is no other litigation, arbitration or other threatened or pending disputes that could have or has had in the recent past a material impact on the financial position, earnings, business or holdings of the Group.

20 FINANCIAL DEBT

 

In € millions		As of September 30, 2007						As of March 31, 2007
		Non current		Current		Total		Non current		Current		Total
Perpetual subordinated loan stock		446		—		446		462		122		584
OCEANE (convertible bonds)		386		—		386		386		—		386
Bonds		750		—		750		550		—		550
Capital lease obligations		3 668		692		4 360		3 917		657		4 574
Other long-term debt		1 969		322		2 291		2 104		224		2 328
Accrued interest		—		119		119		—		95		95
Total		7 219		1 133		8 352		7 419		1 098		8 517

On April 23, 2007, the company Air France, subsidiary of the Group Air France-KLM has made a bond in euro for an amount of € 200 million with a maturity as of January 22, 2014. Characteristics of this bond are as follows:

 

-

Amount : € 200 million

 

-

Coupon : 4.75%

 

-

Starting date : April 23, 2007

 

-

Maturity date : January 22, 2014

 

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Air France-KLM Group

21 LEASE COMMITMENTS

    21.1 Capital lease

The breakdown of total future minimum lease payments related to capital lease is as follows:

 

In € millions As of		September 30, 2007		March 31, 2007
Flight equipment		4 962		5 153
Buildings		403		422
Other		12		—
Total		5 377		5 575

    21.2 Operating leases

The undiscounted amount of the future minimum operating lease payments for aircraft under operating lease totaled € 2 729 million as of September 30, 2007 ( € 2 786 million at March 31, 2007).

22 FLIGHT EQUIPMENT ORDERS

Due dates for commitments in respect of flight equipment orders are as follows:

 

In € millions		As of September 30, 2007		As of March 31, 2007
N + 1		927		870
N + 2		1 323		571
N + 3		959		688
N + 4		776		416
N + 5		388		287
> 5 years		—		—
Total		4 373		2 832

These commitments relate to amounts in US dollars, converted into euros at the closing date exchange rate.

The number of aircraft on firm order as of September 30, 2007 increased by 50 units compared with March 31, 2007 to 97 units. The number of options increased by 28 units over the same period to reach 62 aircraft. These movements can be explained by:

 

-

the delivery of 8 aircraft over the period;

 

-

new orders: 47 firm orders and 39 options;

 

-

the conversion of 11 options into firm orders.

Long-haul fleet

Passenger

The Group took delivery of 4 Boeing B777. Concerning this aircraft type, the Group has ordered a firm order of 5 units, converted 6 options into firm orders (including one coming form Boeing B777F) and ordered 8 options. Moreover, the Group has converted two options on Airbus A380.

As of September 30, 2007, the Group’s backlog for the long-haul fleet comprised firm orders for 12 Airbus A380s and 18 Boeing B777s. It comprised also 13 options: 2 Airbus A380s and 11 Boeing B777.

 

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Air France-KLM Group

Cargo

Following to the conversion of an option on Boeing B777F transformed into B777, the Group has ordered a new option. The outstanding orders concerning the cargo long-haul fleet are stable with 8 Boeing B777F (five firm orders and three options). The first deliveries will begin during the winter of 2008-2009.

Medium-haul fleet

The Group took delivery of one Boeing B737 finally under operational lease.

The Group has ordered a firm order of 15 Airbus A320/A321 and taken the three options on Airbus A318 converted into A320/A321. This new order is accompanied with ten options. Concerning the Boeing B737, the Group has ordered a firm order for seven aircraft and two options.

As of September 30, 2007, the Group’s backlog comprised 18 Airbus A320/A321 and 16 Boeing B737. The Group has 20 options equally shared between Airbus A320 and Boeing B737.

Regional fleet

The Group took delivery of three Canadair CRJ700. It has placed an order with Embraer for 12 ERJ170 (6 firm orders and 6 options) and for 26 ERJ190 (14 firm orders and 12 options).

As of September 30, 2007, the Group’s backlog comprised 28 aircraft under firm orders (eight CRJ1000, six ERJ170 and fourteen ERJ190) and 26 options (eight CRJ1000, six ERJ170 and twelve ERJ190).

 

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Air France-KLM Group

The Group’s commitments concern the following aircraft:

Aircraft type				To be delivered in		N+1		N+2		N+3		N+4		N+5		Beyond N+5
A 318		As of September 30, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—
		As of March 31, 2007		Firm orders		—		—		—		—		—		—
				Options		—		2		1		—		—		—
A 320		As of September 30, 2007		Firm orders		—		1		2		4		5		—
				Options		—		—		—		—		4		6
		As of March 31, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—
A 321		As of September 30, 2007		Firm orders		—		1		—		3		2		—
				Options		—		—		—		—		—		—
		As of March 31, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—
A 380		As of September 30, 2007		Firm orders		—		3		3		4		2		—
				Options		—		—		—		—		2		—
		As of March 31, 2007		Firm orders		—		—		5		3		2		—
				Options		—		—		—		1		2		1
B 737		As of September 30, 2007		Firm orders		9		3		2		1		1		—
				Options		—		3		—		—		1		6
		As of March 31, 2007		Firm orders		4		6		—		—		—		—
				Options		—		2		5		1		—		—
B 777		As of September 30, 2007		Firm orders		4		6		5		2		1		—
				Options		—		—		—		—		7		4
		As of March 31, 2007		Firm orders		6		4		1		—		—		—
				Options		—		—		5		3		—		—
B 777 F		As of September 30, 2007		Firm orders		—		4		1		—		—		—
				Options		—		—		1		1		1		—
		As of March 31, 2007		Firm orders		—		3		2		—		—		—
				Options		—		—		1		2		—		—
CRJ 700		As of September 30, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—
		As of March 31, 2007		Firm orders		3		—		—		—		—		—
				Options		—		—		—		—		—		—
CRJ 1000		As of September 30, 2007		Firm orders		—		1		3		4		—		—
				Options		—		—		—		—		4		4
		As of March 31, 2007		Firm orders		—		—		1		4		3		—
				Options		—		—		—		—		—		8
Emb 170		As of September 30, 2007		Firm orders		1		4		1		—		—		—
				Options		—		—		1		4		1		—
		As of March 31, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—
Emb 190		As of September 30, 2007		Firm orders		—		9		5		—		—		—
				Options		—		—		1		8		3		—
		As of March 31, 2007		Firm orders		—		—		—		—		—		—
				Options		—		—		—		—		—		—

23 RELATED PARTIES

During the six-months period ended September 30, 2007, relationships of the Group with its related parties have not changed significantly in terms of amounts and or scope, except the WAM (Amadeus GTD) transaction described in note 9.

24 SUBSEQUENT EVENTS

A strike of cabin crew of Air France company has occurred during October 2007. Total cost of this strike has been estimated by the management to € 60 million on the income from current operation and will be recorded in the third quarter 2007-08.

 

- 25 -

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto authorized.

 

				Air France–KLM
Date: November 23, 2007				By		/s/    Dominique Barbarin
				Name:		Dominique Barbarin
				Title:		Head of Investor Relations