AEGEAN AIRLINES S.A. ANNUAL REPORT FOR THE YEAR 2008

Transcription

1 ANNUAL REPORT 2008

2 AEGEAN AIRLINES S.A. ANNUAL REPORT FOR THE YEAR 2008

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4 CONTENTS Message from the Chairman 4 Message from the Managing Director 6 1. Board of Directors 9 2. Summary of Financial Figures Principal Milestones Financial and Operating Highlights The Fleet Routes and Destinations Focus on Quality Social Responsibility Information about the preparation of the Annual Report and the Company s auditors Annual Financial Report 31 3

5 Message from the Chairman In 1999, after the deregulation of the Greek airline industry, a group of successful Greek entrepreneurs, triggered by the lack of quality air travel choices available in our country, were inspired to create an airline that could offer safety and quality of service to the public, a company that would treat its passengers with respect. And so it all begun, with existing company Aegean Aviation being transformed to Aegean Airlines. Emboldened by our first successes, we brought two other existing Greek carriers to the fold: Air Greece and Cronus. The mergers were not without challenges: consolidating companies with different philosophies and operating structures is no easy feat to accomplish. Nevertheless, following consistent efforts we have managed to create a robust team, able to move forward with compassion and understanding towards our common goals.

6 Ever since the launch of our operations we came across with numerous obstacles. The terrorism events of September 11, SARS, the war in Iraq, the dramatic rise in fuel costs during the last year those were devastating blows to the airline industry. AEGEAN s shareholders have supported the company throughout these difficult times as we strongly believe and we remain committed to our goals. Everyone at the company fought, learned, gained in experience and never seized to love what we do. During the last ten years we have secured commercial agreements with global carriers while we implement the single largest private investment ever undertaken in Greek aviation history which involves the renewal of our fleet with 27 brand new aircraft of the Airbus A320 family. We are deploying the latest technology whilst we undertake new training programmes for our employees as we are very much aware of the fact that only our constant efforts for improvement can gain the trust of our passengers. Our efforts have been recognized and awarded repeatedly in Greece and abroad by numerous organizations and authorities of the airline and the tourism industries. With the completion of our tenth year of our operations, AEGEAN is faced with an unprecedented financial crisis. Despite the challenges, we remain optimistic as we rely on strong foundations that we have built with hard work over the past years. Our progress so far proved that whatever obstacles that may come in our way, could not break us but make us even stronger and more determined to continue our efforts of offering quality services to our passengers, thus making a positive contribution to the Greek economy and our country. I would like to express my sincere gratitude to AEGEAN employees for their contribution and congratulate them for the results of their work. At the same time, I wish to thank AEGEAN S shareholders for their support and our customers for the confidence they are showing in us and for sharing with us our ambition for quality excellence. But above all, we have gained the trust of our passengers that reached 6 million in 2008, making AEGEAN the largest carrier in terms of traffic in the total Greek market. This is the ample recognition of our efforts which gives us strength and enforces our will to continue our job. THEODORE VASSILAKIS 5

7 Message from the Managing Director The year 2008 has been yet another important year of growth and progress for AEGEAN as we successfully continued the implementation of our fleet renewal investment programme, amid challenging conditions for the sector and the economy. At the same time, 2008 has been a significant year in terms of passenger traffic as WE carried near 6 million passengers, thus becoming the largest carrier in the Greek market. In 2008 the Company continued the implementation of the network expansion plans, introducing new routes to London, Tirana, Limnos and Kefalonia, while in the last quarter of 2008 another highly popular destination was added, Paris, along with a direct flight from Athens to Dusseldorf.

8 The fleet renewal programme continued as planned with the Company taking delivery of 10 new aircraft of the Airbus A320 family. New aircraft added capacity to our fleet while contributed to the reduction of the average fleet age and consequently led to improved reliability of the services offered. The key factors that impacted the airline industry in 2008 were the price of oil that exceeded 145 US dollars per barrel in July 2008 as well as the economic slowdown in the second half of the year. These adverse market conditions forced a number of airline companies around the world to suspend their operations while others followed a conservative strategy of capacity reduction. In 2008 AEGEAN recorded an improvement in revenue and operating profit, increased cash flows from operating activities and a limited decline in net earnings, managing to partly offset the negative impact of sharply higher oil prices, securing its healthy financial position which demonstrates the effectiveness of our business model and our strategic directives. More specifically: I would like to thank AEGEAN employees and congratulate them for their efforts and their important contribution to the Company s progress. I would also like to express my gratitude to our shareholders for their constant support and our passengers for the confidence they have shown in us and ensure them of our commitment to implement our strategy with consistency. DIMITRIS GEROGIANNIS - Revenue reached 611.7m, rising 27% y-o-y - Earnings Before Interest Tax and Depreciation increased 22% to 57.5m - Earnings Before Tax reached 39.9m, 10% lower y-o-y - Net earnings after tax reached 29.5m, 18% lower y-o-y Inevitably, prospects for 2009 will be affected by current unfavourable business environment, the slowdown in economic activity and consequently expected reduced demand for transportation in both domestic and international markets. Under current challenging circumstances, management will focus its efforts on the healthy financial structure of the company while continuing to develop the product and brand. Despite the challenging environment, we are confident that AEGEAN has developed strong fundamentals, strong financial structure and necessary flexibility that allow us to cope in the best possible way with current conditions. 7

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10 1. Board of Directors Theodore Vassilakis, Chairman (Executive) Eftichios Vassilakis, Vice Chairman (Executive) Dimitrios Gerogiannis, Managing Director (Executive) Achilleas Constantakopoulos, Director (Non-Executive) Anastasios David, Director (Non-Executive) Iakovos Georganas, Director (Non-Executive) Christos Ioannou, Director (Non-Executive) Panagiotis Laskaridis, Director (Non-Executive) Alexandros Makridis, Director (Independent, non-executive) Victor Pizante, Director (Independent, non-executive) Markos Tsaktanis, Director (Non-Executive) George Vassilakis, Director (Non-Executive) 9

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12 2. SUMMARY OF FINANCIAL FIGURES AEGEAN AIRLINES S.A. is a full service airline, having a leading domestic position in Greece and a growing presence in international scheduled routes between Greece and destinations in Europe and neighboring countries. The Company offers its passengers premium services such as a dual-class cabin configuration, in-flight catering and reserved seating, through an extended domestic and international scheduled routes network. AEGEAN also operates seasonal charter flights to a significant number of Greek and international destinations. A summary of consolidated and standalone financial figures in accordance with International Financial Reporting Standards (IFRS) is presented below: Note: The Company did not publish consolidated financial statements for fiscal year 2008 since it sold its only subsidiary (AIR GREECE) in March Summary of Consolidated Financial Figures Revenue , , , ,5 EBITDAR (1) , , , ,8 EBITDA (2) , , , ,8 Operating profit , , , ,2 Profit before tax , , , ,9 Profit after tax from continuing operations , , , ,4 Profit after tax , , , ,4 Distributed to: Parent shareholders , , , ,4 Minority interest 1.494,5 969,8 0,0 0,0 Basic profit per share in 0,25 0,48 0,57 0,41 (1) Earnings before net interest expense, income taxes, depreciation and amortization and rental costs (2) Earnings before net interest expense, income taxes, depreciation and amortization Summary of Consolidated Balance Sheet Figures Assets Intangible assets 779,4 280,5 301,3 598,1 Tangible assets , , , ,4 Advances for assets acquisition 4.754, , , ,0 Other assets , , , ,5 Total fixed assets , , , ,0 Inventories 5.284, , , ,1 Customers and other trade receivables , , , ,6 Advances 5.284, , , ,1 Cash and cash equivalents 7.586, , , ,4 Total current assets , , , ,2 Total assets , , , ,2 11

13 Equity & Liabilities Share capital , , , ,1 Share premium account , , , ,4 Other reserves 811, , , ,7 Retained Profits / (losses) , , , ,3 Parent company shareholders equity 433, , , ,2 Minority interest 1.542,4 0,0 0,0 0,0 Total equity 1.975, , , ,2 Long term loan liabilities , , ,9 0,0 Finance lease contracts liabilities , ,4 0, ,1 Other 3.101, , , ,1 Total long term liabilities , , , ,2 Suppliers and other liabilities , , , ,8 Short term loan liabilities , ,2 0,0 0,0 Long term loan liabilities payable next year 9.636,9 0, , ,1 Long term finance leases liabilities payable next year 5.020, ,7 0, ,2 Other , , , ,7 Total short term liabilities , , , ,8 Total equity & Liabilities , , , ,2 Summary of Financial Figures (Aegean Airlines S.A.) Revenue , , , ,5 EBITDAR(1) , , , ,8 EBITDA(2) , , , ,8 Operating profit , , , ,2 Profit before tax , , , ,9 Profit after tax , , , ,4 Basic profit per share in 0,22 0,47 0,57 0,41 (1) Earnings before net interest expense, income taxes, depreciation and amortization and rental costs (2) Earnings before net interest expense, income taxes, depreciation and amortization 12

14 Summary of Balance Sheet Figures (Aegean Airlines S.A.) Assets Intangible assets 468,4 280,5 301,3 598,1 Tangible assets , , , ,4 Advances for assets acquisition 4.754, , , ,0 Other assets , , , ,5 Total fixed assets , , , ,0 Inventories 5.284, , , ,1 Customers and other trade receivables , , , ,6 Advances 4.942, , , ,1 Cash and cash equivalents 5.123, , , ,4 Total current assets , , , ,2 Total assets , , , ,2 Equity & Liabilities Share capital , , , ,1 Share premium account , , , ,4 Other reserves 811, , , ,7 Retained Profits / (losses) , , , ,3 Total equity 685, , , ,2 Long term loan liabilities , , ,9 0,0 Finance lease contracts liabilities , ,4 0, ,1 Other 2.537, , , ,1 Total long term liabilities , , , ,2 Suppliers and other liabilities , , , ,8 Short term loan liabilities 9.815, ,2 0,0 0,0 Long term loan liabilities payable next year 9.636,9 0, , ,1 Long term finance leases liabilities payable next year 3.102, ,7 0, ,2 Other , , , ,7 Total short term liabilities , , , ,8 Total equity & Liabilities , , , ,2 13

15 3. Principal Milestones _ Establishment of the Company in 1988 as a limited liability Company and transformation into a société anonyme in 1995 _ Acquisition by the Vassilakis Group of companies in 1994 _ From 1994 until the launch of scheduled flights in 1999 the Company operates non-scheduled executive aviation services (air-taxi flights) 1999 _ Liberalization of the Greek domestic airline market _ AEGEAN operates the first scheduled flights in May 1999 with brand new aircraft (AVRO RJ-100) and an expanded shareholders base _ Acquisition of AIR GREECE in December 1999 and increase of fleet to 9 aircraft (4 brand new AVRO RJ 100, 3 ATR 72 and 2 FOKKER-100). The Company undertakes the activity of the newly acquired Company which ceased its operations and remained inactive until the completion of its sale in 2007 _ 10 domestic destinations during the first year of operating scheduled flights 2000 _ Achieve fleet homogeneity through the return of 2 aircraft FOKKER-100 to their lessors and their replacement by 2 AVRO RJ-100 _ 11 domestic destinations with more than 80 daily flights _ Significant rise in passenger traffic to 1.5 million in 2000 from 310 thousand in _ Merger with Cronus Airlines, Greek carrier owned by Laskaridis Group which operated Boeing 737/ aircraft and served domestic routes and 7 international routes _ Transfer to the new modern facilities of Athens International Airport and a consequent significant rise in operating costs 2002 _ A restructuring plan is put into place given the merger with Cronus, involving cost cutting and network rationalization in order to cope with adverse sector conditions created by the prolonged economic downturn in global aviation brought forth by the events of September 11, 2001 _ As a result of the implementation of the restructuring plan and the overall adverse environment, including the high costs of AIA, passenger traffic remained stagnant at 2.4 million passengers in _ AEGEAN turns marginally profitable for the first time since the launch of operations _ The first Greek airline to launch electronic ticketing as a means of booking and issuing tickets over the Internet _ Addition of three new destinations in Greece and Europe (Athens to Chios, Kos, and Milan) _ Gradual increase in the activity of Low Cost Carriers on competitive international routes to Greece _ Non extension of leases for 3 ATR-72, aiming at fleet homogeneity _ Rise in passenger traffic from 2.5 million passengers in 2002 to 2.8 million passengers in 2003

16 2004 _ The Company s fleet totals 19 jet aircraft, ie 13 Βoeing /400 and 6 AVRO RJ-100 _ Larnaca is added to the network of international scheduled destinations _ Rise in passenger traffic from 2.8 million passengers in 2003 to 3.6 million passengers in _ AEGEAN becomes Lufthansa s regional partner in Greece and thus becomes the first Greek carrier which implements a close commercial agreement with an international carrier _ In December 2005 the Company finalized a non recallable order to purchase 8 new Airbus Α-320 and lease additional 3, with an option to purchase up to 12 additional aircraft _ Passenger traffic rises from 3.6 million passengers in 2004 to 4 million passengers in _ New direct flights Athens-Sofia, Athens-Samos were initiated in the beginning of the year and Athens-Cairo, Athens-Bucharest were initiated towards the end of the year _ Passenger traffic rises from 4 million passengers in 2005 to 4.45 million passengers in _ New direct flights Athens-Munich and Athens-Frankfurt. Double frequencies in Athens-Milan route _ Finalize agreement to purchase and lease a total of 25 Airbus _ AEGEAN takes delivery of the first 3 Airbus A320 _ Listing in Athens Exchange _ Passenger traffic rises from 4.5 million passengers in 2006 to 5.2 million passengers in _ Exercise option to lease two Airbus A321 in 2009 Final agreement to purchase and lease aircraft of the Airbus A320 family reaches 27 aircraft _ New direct flights Athens-London, Athens-Tirana, Athens-Limnos and Athens-Kefalonia _ New direct flights Athens-Paris and Athens-Dusseldorf towards the end of the year _ Agreement with Brussels Airlines under which the two companies will code share flights within their networks _ Passenger traffic rises to 6 million passengers and AEGEAN becomes the largest air carrier in Greece 15

17 4. Financial and Operating Review AEGEAN carries 6 million passengers in 2008 AEGEAN has registered strong growth in passenger traffic since the launch of its operations in May More specifically, total passengers carried reached 6 million in 2008 from 310 thousand in 1999, with AEGEAN becoming the largest air carrier in Greece. The Company is following a dynamic path with regards to international expansion as it consistently adds new international destinations every year, targeting to better cover the needs of its customers through the offer of high quality services. Flights 1 passengers (million) Average stage length (km) 1 Total scheduled and charter flights. Excluding non-revenue flights. 16

18 Average number of passengers per flight load factor (Scheduled flights) 2 Healthy financial results Since the launch of its operations AEGEAN s financial results have shown a significant improvement. Revenue during the past 4 years has grown by a compounded annual rate of 21% while Profit before tax increased from 4.9 million to 39.9 million in The improvement of the financial results stems from the significant rise in passenger traffic combined with efficient cost and revenue management. The year 2008 has been an important year for the company given the successful continuation of the company s strategic plan to renew its fleet. At the same time, the Company managed to sustain its healthy financial position and enhance its operating cash flow amid a challenging environment for the economy and the airline sector. Revenue rose by 27% to 611.7m, resulting from the significant rise achieved in the international traffic and high load factors sustained in both domestic and international network. The Company s profitability was negatively impacted by the 54% rise in fuel costs that reached 148m. Nevertheless, EBITDA increased by 22% to 57.5m, despite the dramatic increase in fuel costs, as a result of increased revenue, the benefits that gradually unfold from the fleet renewal and scale economies stemming from larger aircraft and the rise in the number of average passenger per flight. Profits before tax stood at 39.9m, 10% lower compared to 2007, while net earnings after tax were 18% lower at 29.5m. 2 Passengers/Available seats. 17

19 Financial Figures Sales (in million ) EBITDAR (in million ) 1 EBITDA (in million ) 2 Operating profit (in million ) 3 Profit after tax (in million ) profit before tax (in million ) 18 1 Earnings before net interest expense, income taxes, depreciation and amortization and rental costs. 2 Earnings before net interest expense, income taxes, depreciation and amortization. 3 Earnings before net interest expense, and income taxes.

20 Revenue Breakdown revenue Breakdown Total Equity (million ) Cash & Cash equivalents (million ) Net cashflow from operating Total Borrowings (million ) 2 activities (million ) 19 1 Excluding airport passenger taxes. 2 Including finance lease liabilities.

21 Awards AEGEAN is 6 times awarded from the European Regions Airline Association (ERA) in recognition of its operating performance, commercial success and commitment to customer comfort and satisfaction. Additionally, AEGEAN has been repeatedly awarded by Athens International Airport as the fastest growing airline for the domestic region and as the Company registering the highest passenger volumes at Athens International Airport. Market share evolution In 2008 AEGEAN has captured a market share of 29% in terms of passengers carried in Athens International Airport, among 65 carriers that operate flights. In addition, AEGEAN maintained its leading position in terms of both domestic and international passenger traffic at the airports of Thessaloniki and Heraklion. AEGEAN carried 6 million passengers in 2008, achieving a 14% y-o-y growth. The Company carried 3.7m passengers on domestic flights, ie. 9% more compared to 2007 while the number of passengers carried in the international network increased by 24% to 2.3m passengers. Market Share (Athens International Airport) 20 Source: AIA, CAA, The Company

22 5. The Fleet In 2008 AEGEAN s fleet consisted of 29 aircraft: _13 Airbus A320 _10 Boeing /300 _6 AVRO RJ-100 The Company also owns a Learjet 60, which is engaged in executive aviation activities. Aiming at improving the quality of services the Company initiated in 2007 its fleet renewal and expansion program which involves taking delivery of a total 27 aircraft of Airbus A320- A321. At the same time, the Company plans to return the entire Boeing /400 fleet back to their owners. During 2008 the Company took delivery of 10 aircraft of the Airbus A320 family whilst it returned four Boeing back to their owners. The fleet renewal programme that is currently being implemented is expected to increase capacity, reduce the average fleet age and further enhance the credibility of services offered Number of aircraft (December) 17,0 21,0 23,0 29,0 Average fleet 18,2 20,0 23,4 27,0 Fleet (2008) Capacity Registration Type Year of Construction Year of Delivery (Seats) SX-DVS Airbus A SX-DVR Airbus A SX-DVQ Airbus A SX-DVP Airbus A SX-DVO Airbus A SX-DVN Airbus A SX-DVM Airbus A SX-DVL Airbus A SX-DVK Airbus A SX-DVJ Airbus A SX-DVI Airbus A SX-DVH Airbus A SX-DVG Airbus A SX-DVF AVRO RJ SX-DVE AVRO RJ SX-DVD AVRO RJ SX-DVC AVRO RJ SX-DVB AVRO RJ SX-DVA AVRO RJ SX-BBU Boeing SX-BTN Boeing SX-BGV Boeing SX-BGS Boeing SX-BGJ Boeing SX-BGQ Boeing SX-BGR Boeing SX-BLM Boeing SX-BGX Boeing SX-BGH Boeing

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24 6. Routes and destinations Domestic Network In 2008 AEGEAN expanded further its domestic network with the addition of two new routes: Athens-Limnos and Athens-Kefalonia. During the year the Company operated a domestic network of 23 routes, serving 17 domestic destinations. International Network In 2008 AEGEAN has implemented with consistency its international network expansion strategy by adding new routes to London and Tirana, while in the last quarter of the year flights to Paris and direct Athens-Düsseldorf flights were also launched. At the end of 2008 AEGEAN operated an international network of 19 routes, serving 13 destinations as well as a significant number of charter flights for tour operators. Commercial agreements AEGEAN is the regional partner of Lufthansa, offering its customers access to the German carriers global network. Moreover, AEGEAN and Brussels Airlines have signed a strategic co-operation which includes the operation of the route Brussels/Athens in code-share. In addition, AEGEAN and TAP Portugal have entered a commercial agreement covering flights from Athens-Lisbon and Thessaloniki-Lisbon. International Network Expansion Among the key strategic priorities is the gradual international network expansion with the addition of new European destinations and more frequencies, in order to offer customers competitive services. To this end, the Company is adding the following new destinations with the start of the 2009 summer season: Brussels, Berlin, Barcelona, Venice and Paphos. At the same time AEGEAN is adding a second daily flight to Paris as of March With the addition of aforementioned 5 new destinations, AEGEAN will operate 47 domestic and international routes with more than 200 daily flights as of the 2009 Summer season. 23

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27 7. Focus on Quality Among the basic pillars of AEGEAN s strategy are the continuous development, quality service and credibility. To this end, the Company is investing in renewing its fleet, expanding its network, securing agreements with global carriers and using pioneer services for simplyfing procedures, reducing expenses and offering new improved products. An important component of the Company s strategy is the renewal and upgrading of the fleet over the next three years, which will enhance the Company s competitive advantage over its closest competitors in terms of punctuality, service and comfort, as well as increase of seat capacity per flight. AEGEAN offers its customers premium-quality services, including a dual-class cabin configuration and high-quality in-flight catering, while it has the best punctuality record in the Greek market. The Company is also the domestic market leader in innovation and process simplification. For example, AEGEAN was he first airline in Greece to introduce business class on domestic routes and in October 2003 it became the first Greek airline to offer ticket issuance via the Internet (web-ticketing), electronic ticketing and electronic check-in facilities via the Internet and self-check-in kiosks at the airports. At the end of 2007 the Company upgraded its web booking engine, offering more choices and flexibility to its customers and following a clear and transparent and all inclusive fare communication policy. In addition, as of 2008 customers have the choice to change their bookings through the internet. The Company s commitment to delivering premium services is reflected in internal customer surveys and external independent reports that are regularly commissioned, which indicate a high degree of customer satisfaction. 26

28 8. Social Responsibility AEGEAN is a member of the Global Compact Network Hellas, a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption, based on the UN Universal Declaration of Human Rights. Within the framework of its social responsibility AEGEAN undertakes a wide range of initiatives and activities on three main directions: Responsibility towards people, the culture and the environment. In all these fields AEGEAN during the last 10 years of its operations contributes on efforts implemented by social groups in the areas of education, health, social benefit and sports, it sponsors culture events and promotes environmental responsibility. 27

29 9. information about the preparation of the Annual report and the Company s auditors This annual report contains all information and financial data necessary for a proper assessment of the assets, financial status, results and prospects of the Company AEGEAN AIRLINES S.A. by investors and their investment advisers. The drafting and distribution of this Annual report is made in accordance with provisions of the relevant legislation. Responsible for the Annual Report and the accuracy of the information it contains are: Mr. Dimitrios Gerogiannis, Managing Director Mr. Michael Kouveliotis, Financial Director The address of the aforementioned directors is 31 Viltanioti str, Kifisia, tel Investors can obtain the annual report from the Company s headquarters (Viltanioti 31, Kifisia). This Annual report is also available in the Company s website: Investors who are interested in more information should contact Aegean Airlines Investor Relations department during working hours (Person in charge Ms Stella Dimaraki, tel ). The Company is audited by Certified Auditors. The audit for the fiscal year ending was conducted by the Certified Auditors Mr. Georgios Deligiannis, reg. nr. SOEL and Mr. Marios Lasanianos, reg. nr. SOEL 25101, of Grant Thornton (44 V. Konstantinou, Athens, tel ). 28

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32 10. annual financial report AEGEAN AIRLINES S.A. Societe Anonyme Reg. No.: 32603/06/Β/95/3 31 Viltanioti Street, Kifissia, Attica Annual Financial Statements for the period 1 January 2008 to 31 December 2008 In accordance to the International Accounting Standards and Art. 4 of Law 3556/

33 TABLE OF CONTENTS A. Statements of the Board of Directors Representatives 33 B. Independent Auditors Report 34 C. Board of Directors Annual Report 37 D. Annual Financial Statements 54 E. Financial Figures and information 116 F. Report on the use of IPO Proceeds 118 G. Company announcements as per Art.10 Law 3401/2005 being published during year H. Website for the publication of the Annual Financial Statements

34 Α. Statements of the Board of Directors Representatives According to the article 4 paragraph 2 of Law 3556/2007. The undersigned Board of Directors representatives: 1. Theodore E. Vassilakis, Chairman, 2. Dimitrios C. Gerogiannis, CEO and 3. Eftichios T. Vassilakis, Vice Chairman By the authority assigned to us by the Board of Directors for this purpose, to the best of our knowledge we declare that: a. The Annual Financial statements of Aegean Airlines S.A. (the Company) for the period 1 January 2008 to 31 December 2008 are in accordance with International Financial Reporting Standards, and they truly reflect all Assets, Liabilities and Shareholders Equity along with the Profit & Loss Statement and b. The Board of Directors Report truly reflects the development, performance and the financial position of the Company, along with the description of the main uncertainties and risks they are faced with. Kifissia, 10 March 2009 Theodore Vassilakis Dimitrios Gerogiannis Eftichios Vassilakis Chairman I.D. No. Ξ Chief Executive Officer Vice Chairman I.D. No. AB I.D. No. Ξ

35 Β. Independent Auditors Report To the Shareholders of AEGEAN AIRLINES S.A. Report on the Financial Statements We have audited the accompanying financial statements of AEGEAN AIRLINES S.A. ( the Company ), which comprise, the balance sheet as at December 31, 2008, the income statement, the statement of changes in equity, the cash flow statement for the year then ended and a summary of the significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards that have been adopted by the European Union. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Greek Auditing Standards, which are based on the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion The abovementioned financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2008, and the financial performance and the cash flows of the Company for the year then ended in accordance with International Financial Reporting Standards that have been adopted by the European Union. 34

36 Report on Other Legal and Regulatory Requirements The Board of Directors Report is consistent with abovementioned financial statements according to articles 43 and 37 of Law 2190/1920. Athens, 10 March 2009 The Auditor The Auditor George Deligiannis SOEL reg no Marios Lasanianos SOEL reg no Vasileos Konstantinou Athens SOEL reg no

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38 C. Board of Directors Annual Report Board of Directors Annual Report Concerning the financial statements for the period for the Company AEGEAN AIRLINES S.A. To the shareholders, In accordance to Law 2190/1920 article 43a paragraphs 3 & 4 and Law 3556/2007 articles 2c, 6, 7 & 8 as well as the ASE s board of directors decision 7/448/ article 2 and the Company s Articles of Association we submit for the period from 01/01/2008 to 31/12/2008, the Annual Report of the Board of Directors, which consists of, the audited financial statements, the notes to the financial statements and the independent auditors report. In this report are presented in summary information of the Company AEGEAN AIRLINES S.A., financial information that aims to provide to the shareholders and investors a general view of the financial position and results, the general course of the Company and the developments during the period (01/01/ /12/2008), important events that took place and their effect to the financial statements of the period. Additionally, there is an analysis of potential risks and uncertainties of the most significance the Company might face in the future and a report on related parties transactions. 37

39 1. FINANCIAL DEVELOPMENTS AND PERFORMANCE IN THE REPORTING PERIOD 1.1 General review 2008 has been yet another important year of development for the Company, continuing successfully the implementation of our expansion plans. The main target remained the renewal of our aircraft fleet maintaining at the same time a healthy financial position through strong cash flows, despite the adverse conditions not only in the airlines sector but also in the global economy in general. The main drive factor of the Company s financial performance during 2008 was the oil prices, which reached a peak of above 145 US dollars per barrel in July The steep increase in the oil prices forced a number of airline companies around the world to suspend their operations since they became unable to meet their highly increased operational costs while others followed a strategy of conservative capacity reduction. The average oil price throughout 2008 was 99.8 US dollars per barrel 38% higher than in 2007, resulting in a similar increase in the jet fuel prices. During the last quarter of the year the oil prices declined substantially as a result of the global economic crisis. In 2008 the economic growth rate in the E.U. was only 1%, with the larger economies entering recession periods. The deterioration of the economy became more obvious during the second half of the year in various economic sectors such as tourism and transportations. According to data from the Association of European Airlines (AEA), passenger traffic increased by 2% in the first half of 2008 while reduced by 5% in the second half, resulting in an overall annual reduction of 1,5% in The economic growth rate in Greece remained at higher levels compared to the average of the Euro-zone countries both in 2007 (+4%) and in 2008 (+3%). However the growth rate was reduced the last two quarters of 2008, without Greece being able to remain uninfluenced from the global twists. The passenger traffic in the country s biggest airport, Athens International Airport (AIA), remained marginally in the same levels as in 2007, demonstrating a decline in the abroad market segment, particularly in the last quarter of Despite the adverse investment environment created by the steeply increased fuel prices and the global recession, Aegean Airlines in 2008 reported a strong rise in passenger traffic as a result of our successful commercial strategy and further network expansion. In particular, the Company transferred 6 million passengers during the period January December 2008, an annual increase of 14% from last year. The total flights reached , increased by 5% compared to As a result, the number of average passengers per flight improved to 104 from 96 in the previous year. Domestic passengers in 2008 were 3,7 million, an increase of 9% from Annual increase in international passenger traffic was 24%, transferring 2,3 million passengers. Strengthening further its market position, the Company had in 2008 a market share of 29% of the total passenger traffic amongst the over 65 airline companies that operated in AIA. At the same time it maintained its leading position at Macedonia Airport in Thessaloniki and N.Kazantzakis in Heraklion, Crete. In 2008 the Company continued the implementation of the network expansion strategy plans, introducing new routes to London, Tirana, Limnos and Kefalonia, while in the last quarter of 2008 another highly popular destination was added, Paris along with a direct flight from Athens to Dusseldorf. At the end of 2008, the Company was servicing 23 domestic routes and 19 international scheduled routes, covering 17 and 13 destinations domestic and internationally respectively, as well as a substantial number of seasonal charter flights for various tour operators. Throughout 2008 the Company continued its fleet renewal program gradually taking delivery 10 new aircrafts (type Airbus A 320) and returned 4 Boeing 737/300 back to their lessors with the expiration of their leasing contracts. The introduction of the 10 new aircrafts in the Company s fleet contributed to the increased capacity, the reduction of the average age of the fleet and the reliability improvement of the offered services. The fleet renewal implicates also higher ownership costs in comparison with the older Company fleet. Finally the Company sold and leased back an older aircraft type Avro RJ 100 in December At the end of 2008 the fleet of the Company totaled 13 Airbus A320/321, 6 Avro RJ 100 and 10 Boeing 737/

40 1.2 Financial review In 2008 Aegean Airlines S.A. recorded an improvement in the operational profit, increased operational cash flows and constrained the profit decline maintaining a sound financial position, managing to reduce the negative effect of the steep increase in fuel costs and the decline in demand during the last quarter. In more detail, total revenue in 2008 was 611,7 million compared to 482,7 million in 2007 (27% increase), as a result of the passenger traffic increase mainly in the routes abroad where the ticket fares are higher, the increase of the average capacity per aircraft due to the delivery of the new Airbus A320/321 and finally due to the fuel surcharge. Scheduled flights income increased by 26%, representing 84% of the total revenue (excluding airport passenger charges). The average fare increased by 11%, mainly due to the increased contribution of the abroad destinations passenger traffic. The average load factor remained at 70%, at the same level with the previous year, a fact that demonstrates the successful commercial promotion of the additional capacity. Charter flights represented 11% of the total revenue (excluding airport passenger charges), totaling 62,6 million, 36% higher compared to 2007, due to the increase in the number of aircrafts assigned to charter flights from 4 to 5 aircrafts during the summer period of Total operational expenses were 561,9 million from 438 million in 2007 due to the increased activity and oil prices. The cost of fuels was 148 million, 52 million higher than in 2007, representing 24% of the revenue and 26% of the operational costs of the Company. Despite the highly increased fuel costs, earnings before interest, taxes depreciation and amortization (EBITDA) increased by 22% at 57,5 million, due to: a) Increased revenue, b) The resulting benefits from the renewal of the aircraft fleet, mainly at the maintenance costs and finally, c) In the achieved economies of scale due to the introduction of larger aircrafts, increased distance routes and increased average passengers per flight. The abovementioned profitability enhancement factors contributed into reducing the effects of the substantial increase in fuel costs and aircraft leasing payments resulting from the acquisition of new aircrafts with higher ownership/leasing costs compared to the older fleet of Boeing /400. Therefore the operational EBITDA decreased by 0,3% at 9,4% from 9,7% in Depreciation costs increased by 76% at 7,3 million due the depreciation charges for the 2 aircrafts acquired in 2008 through finance leasing. Interest income increased at 8,5 million from 3,5 million as a result of the Company s strong cash position and the higher interest rates on fixed term deposits during the last quarter, while interest and other expenses for bank loans and finance leases were 3,9 million. Other financial results include the net negative effect from the reversal/closure of forward contracts on fuel and foreign currency, totaling 8 million. Additionally the Company suffered a net loss from exchange differences of 8,7 million (losses of 20,5m. and gains of 11,8m.) mainly coming from revaluation of loans (bank loans and finance leasing) and reimbursements of pre delivery payments for acquiring new aircrafts. Earnings before taxes (EBT) declined by 10% at 39,9 million, mainly due to the increased depreciation costs and net financial costs. Net profit after taxes was 29,5 million, reduced by 18% compared to 2007, while earnings per share were 0,41 from 0,57 in previous year. The Board of Directors will propose a dividend of 0,25 per share, which represents 61% of the Company s net profits in 2008 (from which a 10% tax will be withheld), pending the approval in the Shareholders General Meeting. 39

41 Equity reserves increased to 212,8m. from 167,5m. in 2007, mainly due to the Company s profitability. Total fixed assets increased at 169,8m. from 124,3m. in 2007, with the acquisition of 2 aircrafts with finance leasing being responsible at large. Total short and long term liabilities (including liabilities from finance leases) increased at 86m. from 57,5m. in Total cash and cash equivalents increased to 182,8m. from 158,3m. with the Company maintaining its sound capital structure. _BASIC KEY PERFORMANCE INDICATORS The Company follows the policy of assessing its results and efficiency on a monthly basis, locating deviation from the budget timely and taking the necessary corrective measures. The Company evaluates its performance (amongst others) through the following ratios, commonly used in the airline industry: RASK (Revenue per Available Seat Kilometer): The index divides the total income by the total seats available for sale multiplied by the total kilometers flown. CASK (Cost per Available Seat Kilometer): The index divides the total operating expenses by the total seats available for sale multiplied by the total kilometers flown. Passenger yield: The index divides the total income from passengers carried by the total passengers multiplied by the total kilometers flown. The aforementioned indices for the year 2008 compared to 2007 were as follows: (in cents) RASK 9,8 9,4 CASK 8,2 7,8 Passenger yield 14,0 13,4 RASK and passenger yield improved by 4% and 5% respectively as a result of effective revenue management, the successful utilization of additional capacity and the introduction of fuel surcharges. The sharp rise of oil prices was the primary factor that drove CASK 5% higher compared to Excluding fuel cost, CASK declined by 2%. 40

42 2. REVIEW OF OTHER IMPORTANT EVENTS _ Change of Raised Funds Use Timeline The Company s Board of Directors on the basis of its decision dated has suggested the change of the raised funds use timeline in relation to non-appropriated funds as at 31/12/2007 of 104,3m as follows: Within the framework of the Company s fleet renewal program, AEGEAN has signed binding contracts for the purchase and operating leasing of 27 aircraft of Airbus A320 family. More specifically, the Company has signed binding contract with Airbus for the purchase of 17 aircraft of Airbus A320 type. According to the initial planning, the investment horizon for the direct financing of aircraft expanded until the end of the first half of Nevertheless, based on an updated planning the investment horizon is expected to expand until the end of the first half of This change reflects the change of the characteristics of the planned direct financing with regards to the commencement date, the pre-delivery payments and the total duration of the investment. The Company has initiated procedures for the construction of its own hangar at the Athens International Airport which will become the base for its maintenance activity. According to the initial planning, the investment horizon for the direct financing of the hangar construction expanded until the end of the first half of Nevertheless, based on an updated planning the investment financing is to be finalized by the end of the first half of The change of raised funds use timeline is aimed at adjusting the Company s investment program to the current challenging economic environment. Nevertheless, the change of timeline is not considered to have a material impact to the Company s results and operation. Taking into consideration the above mentioned the table of allocation of IPO proceeds which was approved by the General Shareholders Meeting has been modified as follows: Appropriation of raised funds (Amounts in million )) Total Appropriation of the funds until 31/12/2007 AMENDED TABLE OF ALLOCATION OF IPO PROCEEDS Nonappropriated funds as at 31/12/2007 Jan - Jun 2008 Jul - Dec 2008 Distribution Jan - Jun 2009 Jul - Dec 2009 Jan - Jun 2010 Total Total IPO Proceeds Aircraft 9,8 61,2 14,3 15,4 8,2 5,5 17,8 61,2 71 New routes development Construction 8 2,1 3,5 2,4 8 8 of a hangar at AIA General 7,5 20,1 7,5 7,1 5,5 20,1 27,6 business needs and working capital IPO related 8, ,6 expenses Total 30,9 104,3 28, ,1 5,5 17,8 104,3 135,2 41

43 _ Share capital reduction by the amount of Euro ,00 through the decrease of the nominal value of the Company s shares for offsetting losses of previous fiscal years The Ordinary General Shareholders Meeting convened on decided the reduction of the Company s share capital by the amount of euro 60,704,535 for offsetting losses of previous fiscal years through the decrease of the shares nominal value to euro 0.65 per share from euro 1,50 per share. Following aforementioned share capital reduction, the Company s share capital amounts to euro divided into common registered shares of nominal value of euro 0.65 per share. The Ministry of Development with its decision on (protocol number K2-9014) has approved the amendment of the Company s Articles of Association. The Board of Directors of Athens Exchange convened on has been notified for the reduction of the Company s nominal value. Therefore, as of the Company s shares commence trading with a new nominal value of euro 0.65 per share. The aim of the aforementioned reduction was to offset previous fiscal years losses, achieving a healthy balance sheet and providing the possibility to distribute dividend to shareholders from 2008 earnings. _ Amendment on the Company s Articles of Association The Annual General Shareholders Meeting convened on has decided the amendment and supplementation of provisions of the Company s Articles (regarding article 3, par. 2 (e), par. 4 & par. 5, article 4, par. 2 & 3, article 6, par. 1, article 7, par. 3, articles 9, 13, 14, 17 par. 2, 4, 6 (c), (d) & (e), articles 19, 24 and 26 (b), for the purpose of complying with the provisions of L. 3604/2007 by virtue of which C.L. 2190/1920 was reformed - amendment of article 10 par. 2 of the Articles of Association - codification of Company s Articles in a new uniform text. The amendment in the Company s Articles of Association was approved with the no. Κ2-9014/ Decision of the Ministry of Development. 42