Annual Report 20072008

Annual Report 2007/2008 Annual Report 2007/2008  Annual Report 2007/2008 Contents The following topics are clickable links. Click on “Back to contents” at the bottom right of the page to return to this table of contents. Profile Key figures Report of the Supervisory Board Report of the Executive Board Financial statements 007/008 Other information Auditor’s report 3 4 5 6 9 53 54  Annual Report 2007/2008 Profile Under the brand name “transavia.com”, Transavia Airlines provides competitively priced air travel along with an up-to-date and innovative range of travel-related products and services. These flights are offered from the Dutch airports Amsterdam Airport Schiphol, Rotterdam Airport and Eindhoven Airport, as well as from other Dutch regional airports. In the Business-to-Business (B2B) market these activities are undertaken in the form of charter flights for tour operators, whereas the accent in the Business-to-Consumer (B2C) market is on scheduled flights for individual passengers. Customers may also book seats directly for a large number of charter flights, so that these customers have a year-long choice of around 90 destinations. In addition, transavia.com uses its website to sell package deals from well-known partners, where flights with transavia.com, accommodation and local transport can all be arranged at the same time. transavia.com also offers the facility for separate online booking of hotels, car rental and insurance. transavia.com also sells in-flight catering and luxury products. Furthermore, transavia.com operates ad hoc flights and leases aircraft capacity to other airlines, either with or without crew and technical support. The company’s activities are incorporated into the limited partnership Transavia Airlines C.V., whose sole managing partner is Transavia Airlines B.V. Transavia Airlines C.V. owns a 40% interest in the French airline company Transavia France S.A.S., which has been active in the French low-cost schedule and charter flight market since May 2007 under the brand name ‘transavia.com’. This company, of which the remaining 60% is owned by Air France S.A., operates in the French market with an absolutely identical business model to that of transavia.com, as well as the same website and outward appearance. transavia.com is an independent member of the Air France - KLM Group. The Annual Report is published in electronic format only and is a translation of the original Dutch version. In matters of interpretation the Dutch text shall prevail. Supervisory Board of Transavia Airlines B.V. J.A.N. van Dijk, Chairman D.D.P. Bosscher P.F. Hartman C. van Woudenberg Executive Board of Transavia Airlines B.V. O.P.M. van den Brink, President & CEO T.R. Zomer, Executive Vice-President & CFO 3 Back to contents Annual Report 2007/2008 Key figures Result Revenue Operating income 3 1,2 2007/2008 2006/2007 2005/2006 2004/2005 2003/2004 719 28 18 12 684 34 28 21 597 24 18 11 521 28 24 14 489 19 22 14 Result before contribution to corporate income tax Result after contribution to corporate income tax Capital Capital Guarantee capital Capital employed 4 5 102 132 201 140 174 344 126 161 391 133 170 403 153 190 377 Cash flow Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities 69 61 -95 77 -18 -37 53 -50 4 53 -68 16 39 5 114 Production and personnel Number of aircraft 6 28 13,288 5,417 1,779 27 12,378 5,138 1,668 27 11,432 4,767 1,548 26 10,388 4,469 1,482 27 9,923 4,212 1,549 Available seat kilometres (x 1,000,000) Passengers carried (x 1,000) Average number of employees Ratios Operating income as % of Revenue Operating income as % of average capital employed Net income as % of average capital Guarantee capital as % of capital employed Net debt 7 : capital Turnover rate on capital employed Interest coverage ratio 3.9% 10.3% 9.9% 66% 3.9 3.6 7.7 5.0% 9.3% 15.8% 51% 3.4 2.0 5.4 3.9% 6.0% 8.6% 41% 4.1 1.5 3.7 5.4% 7.2% 11.3% 42% 3.7 1.3 4.2 3.8% 4.7% 9.8% 50% 2.8 1.3 2.6 EUR 1 = USD 1.58 as at 31 March 2008 1 2 In millions of EUR, unless stated otherwise. With effect from 2004/2005, the figures have been adjusted in accordance with the change to EU-IFRS accounting principles. The key figures for the years before 2004/2005 are therefore less easy to compare with those of the years from 2004/2005 onwards. The figures for earlier financial years were prepared in accordance with Dutch GAAP. 3 4 5 6 7 Operating income in this table corresponds with the Result from operating activities in the Income Statement. Capital + Subordinated loan + Deferred income. Assets -/- Current liabilities + Current portion of long-term liabilities -/- Investments -/- Cash and cash equivalents. At the close of the financial year. Long-term obligations -/- Provisions for employee benefits -/- Other provisions + Repayments due within one year. 4 Back to contents Annual Report 2007/2008 Report of the Supervisory Board We hereby present the report by the Executive Board and the financial statements 2007/2008 of Transavia Airlines C.V. As the company’s Supervisory Board, we approve the financial statements presented by the Executive Board, which are accompanied by an unqualified auditor’s report from KPMG Accountants N.V. in Amstelveen. Over the past year, transavia.com has achieved profitable growth in the Dutch market, and has continued with the expansion of transavia.com as the only Dutch low-cost airline with activities throughout Europe. Once again, this has resulted in an increase in opportunities for employment within transavia.com. We would like to compliment management and staff on the results they have achieved, and to thank them for their efforts during the past year. Transavia France made a successful start to its operations under the brand name of transavia.com. Due to start-up expenses, the company made a loss in its first year of operation, as had been anticipated. Transavia Airlines C.V. holds a 40% interest in Transavia France. Protecting the environment, particularly through a reduction of CO2 emissions, has become an important item on the agenda for modern society and for transavia.com too. The company is investing in cleaner aircraft and other solutions designed to limit harmful emissions. We support the Executive Board’s policy and also argue that the government should base the measures it takes in this area purely on environmental effectiveness. We met five times during the reporting year, with the Executive Board present at all but one of these meetings. There has also been regular contact between individual members of the Supervisory Board and members of the Executive Board, and we attended meetings of the Works Council on a rotational basis. Our meetings have tended to focus on the general and financial position, strategy, fleet renewal and the developments at Transavia France. Following his appointment as President and Chief Executive Officer of KLM, Mr. P.F. Hartman indicated his wish to retire as a member of the Supervisory Board with effect from the close of the reporting year. We fully understand his decision and would like to extend our warmest thanks to him for the active role he has played as a supervisory director. We would also like to welcome Mr. Y de Haan as his successor. Amsterdam Schiphol Airport, 8 May 2008 Supervisory Board Transavia Airlines B.V. J.A.N. van Dijk, Chairman D.D.P. Bosscher P.F. Hartman C. van Woudenberg 5 Back to contents Annual Report 2007/2008 Report of the Executive Board Highlights • Once again, in the financial year 2007/2008, transavia.com succeeded in increasing turnover and recording a positive result. The objective of profitable growth was accordingly achieved during the reporting year. This is the 30th year in succession that the company has managed to return a profit. Revenue amounted to €719.0 million, an increase of 5.1% in relation to the previous year. The strong growth can be attributed to the growth in both charter and scheduled operations. Operating expenses increased by 6.2% to €690.9 million, partly as the result of the organisation’s growth and radically higher fuel costs. The result before contribution to corporate income tax amounted to €18.1 million, 35.2% lower than the €28.0 million in the previous year. We must bear in mind here that the result in 2006/2007 was significantly higher due to a reduction in liabilities to the pension plans, caused by amended pension and early retirement plans. The past year’s result was also adversely influenced by the start-up costs for Transavia France. If these two issues are not taken into account, the result was significantly higher than in the previous year. In the reporting year, transavia.com carried 5.4 million passengers, an increase of 6% compared to the previous year. Approximately 75% of the flights were completed on time (as opposed to 80% in the previous year). The customer satisfaction score was 8.4 (2006/2007: 8.5). Two new scheduled service destinations were introduced during the reporting year (Agadir and the winter destination of Grenoble), and one scheduled service destination (Prestwick) was discontinued. This means that there were 27 scheduled service destinations during the reporting year. The total number of scheduled service destinations for the summer of 2008 is 21, and transavia.com is flying to 73 charter destinations, 34 of which can also be directly booked by individual passengers. transavia.com will be deploying extra capacity in the summer of 2008 in order to accommodate increased demand from the Dutch B2B market. transavia.com will be operating with 34 aircraft in the peak season. We anticipate that this will result in increased turnover for us from this market. Transavia France, the airline set up at the start of 2007 in conjunction with Air France, commenced operations in May 2007. Activities developed in line with expectations during the reporting year. At the end of the reporting year, the company was flying from Paris-Orly (South) under the transavia.com brand name to 21 scheduled and charter destinations, using four Boeing 737-800 aircraft. The new company, in which transavia.com holds a 40% stake, performed in line with forecasts but returned a loss in its first year due to the start-up costs. transavia.com ordered seven Boeing 737-800 aircraft at the end of 2007, with options on three further aircraft. These aircraft are intended as replacements for older aircraft of the same type in our fleet, which will keep our fleet ‘young’. The benefit of this is that the operating costs can stay predictable and relatively low. A young fleet is also favourable from an environmental perspective. Five of the aircraft which are being replaced have now been sold to investment companies on sale and lease-back transactions. The results of an IATA Operational Safety Audit (IOSA) at the close of 2007 demonstrated that transavia.com meets the highest standards of airline safety, also viewed from an international perspective. The updated website for the Dutch market went live at the start of 2008. With extra functionalities and completely new site navigation, the customer can more easily grasp the product package offered by transavia.com, while the search and booking processes have also been speeded up. • • • • • • • • • 6 Back to contents Annual Report 2007/2008 • An agreement was signed in June 2007 with Schiphol Real Estate for the development of a new head office for transavia. com at Schiphol-Oost, and we expect to move in during the autumn of 2009. It was also agreed that flight crews will start using a new crew centre, which has yet to be built beside Terminal 1 at Schiphol-Centrum. Rising fuel prices form an ever-increasing obstacle to our achievement of low seat costs. During the past year, this has only been partially offset by the weakening of the dollar. • Strategy The strategy at transavia.com is aimed at positioning the company as a “web-based” flight brand, and at close collaboration with business partners in the expansion of its package of products. transavia.com would like to distinguish itself in the marketplace by basing its activities on “low cost, low fare with individual service”. It is also crucially important to transavia.com’s healthy future that the company is successful in its selective growth, aimed at healthy returns and based on a carefully devised route network and revenue management. The company remains alert to any opportunities for developing its activities in other European markets, in addition to the Netherlands and France. Fleet and transport Available fleet transavia.com flies exclusively with Boeing 737-700s and 737-800s. A new Boeing 737-800 was delivered and added to the fleet in April 2007. The available fleet consisted of 32 aircraft for the summer season in 2007 (2006: 31). Available seat capacity was 3% higher than in the previous year. A decision was made to lease extra capacity for the 2008 peak season. The peak season fleet availability will therefore be 34 aircraft. 13 of these are owned by the company, 15 are on long-term lease and 6 are on short-term lease. The average fleet age is 6.4 years. Travel figures showing growth During the reporting year, 6 million seats were sold (an increase of 6% in relation to the previous year), producing 13.3 billion seat kilometres (an increase of 7%). The commercial load factor was 85% (2006/2007: 84%). The number of passengers carried increased by 6% to 5.4 million. Major aircraft order in the context of fleet renewal At the end of 2007, transavia.com placed an order with Boeing for seven Boeing 737s, with a right to select the precise models from the 737 range at a later stage. An option was also taken out for a further three Boeing 737s. transavia.com will gradually take the oldest of the 737s in the fleet out of service and replace them from 2009 onwards. The first of the new aircraft is due in the spring of 2009. The fleet renewal will continue in 2010, 2011 and 2012 through the replacement of two aircraft each year. The options are for the purchase of three further 737s from Boeing in 2014. This order is part of a fleet plan aimed at long-term optimisation of the fleet. A young and modern fleet is crucially important, as this keeps ground time and running costs at manageable levels. The new aircraft, which are also fitted with winglets, also offer substantial advantages with respect to fuel usage and the associated CO2 emissions. The new generation of CFM56 engines means that transavia.com will also more than adequately fulfil all of the future legislation dealing with emission of nitrogen oxides that we are currently aware of. 7 Back to contents Annual Report 2007/2008 All new 737s are equipped with GPS (GLS) navigation systems. This means that these aircraft are ready for the future, when airports will be using GLS navigation for further optimisation of approaches to the runways in use, thus limiting noise nuisance around the airports even further. In anticipation of the new aircraft being delivered, five aircraft from the current fleet were sold and temporarily leased back from the new owners under a sale and lease-back arrangement during the reporting year. This sale allowed transavia.com to profit from the company’s lengthy and outstanding reputation for maintaining its aircraft, thanks to the highly-qualified Engineering and Maintenance department. Completion of the introduction of the house style The painting of the aircraft in line with the new house style and the renovating of the aircraft interiors were completed during the reporting year. It has been decided to use the image of the aircraft livery that had previously been chosen as the basis for further development of our house style. This style is based on the ‘bull’s-eye’ containing the letter t and the ‘open’ logo. All internal and external manifestations of the house style will be adapted to this style. New: transavia.com tv A decision has been made to replace the in-flight ‘Wings’ magazine with transavia.com tv in May 2008; this is an on-board TV programme with flight safety information, information on products and destinations, entertainment and advertising. This medium offers opportunities for a multi-media approach, which may prove to be more attractive to advertisers. The entertainment programme includes comedies and cartoons as well as an up-to-date movie on flights lasting more than 2.5 hours. On Time Performance (OTP) reduced due to ATC The OTP (On Time Performance) showed a decrease in the reporting year, at 75.2% compared with the previous year’s figure of 79.6%. The fact that the OTP level of the previous year was not achieved, particularly in the summer, was caused by problems associated with European Air Traffic Control (ATC), resulting in particular routes experiencing regular delays on takeoff and landing. The move to Terminal 3 Due to essential rebuilding work, check-in for departing passengers with transavia.com moved from Terminal 1 to Terminal 3 at Schiphol Airport with effect from 30 March 2008, and this will be the situation for at least a few years. Because this Terminal is linked to a new and improved computerised luggage handling system, it should help us to keep delays to a minimum, even on peak days during the holiday season. Market activities In addition to air travel, transavia.com also provides a range of package holidays and travel-related products and services in collaboration with our business partners. Activities on the BB market (charters for tour operators): transavia.com carries out charter flights principally for Dutch tour operators. These flights depart mostly from Amsterdam Airport Schiphol and Rotterdam Airport. Charter flights also depart from the regional airports at Maastricht Aachen, Groningen Eelde and Eindhoven. During the reporting year, as in the previous year, 84% of the charter flights departed from Amsterdam Schiphol Airport and 16% departed from the regional airports. transavia.com’s market share in this market was 62% in 2007 (2006: 57%). 8 Back to contents Annual Report 2007/2008 The number of charter destinations was 73 in the summer of 2007 and 36 in the winter; charter activities have increased since November 2007, partly due to changes in market circumstances. transavia.com has invested heavily in computerised systems for its B2B processes in recent years. One of the results of this is that the service to tour operators has been enhanced by the option of using the Transpartner web portal to check on the stock of available seats per individual flight, buy seats directly and, for instance, pass on a ‘Special Services Request’ (SSR). The new systems also mean that the company is in a better position to focus on load factors and yield management. We also introduced the facility, on 1 April 2008, for charter flight passengers leaving from Amsterdam to check in via the Internet up to 24 hours in advance. Activities in the BC market In the B2C market, transavia.com offers seats on scheduled services and ‘seat only’ seats for a large number of charter destinations. Last year too, transavia.com had to face serious and increasing competition on a number of important scheduled routes. This resulted in lower returns per seat and, in some cases, in routes being discontinued. There were 21 scheduled destinations in the summer of 2007 and 25 in the winter. After two years of preparation, the renewed website for the Dutch market went live at the start of 2008; the website will be upgraded for other markets during the course of the current year. With all manner of extra functionalities and completely new site navigation, the customer can more easily grasp the product package offered by transavia.com on the new website, while the search and booking processes have also been accelerated. The new site also allows us to develop customer profiles, so that suitable individual offers can be made to our customers. This is expected to provide a further impulse to our turnover. During the reporting year, transavia.com operated scheduled services to 27 destinations from Amsterdam Schiphol, Rotterdam and Eindhoven Airports. A total of 2.4 million passengers were carried on these scheduled services in 2007/2008, 2.3% more than in the previous year. The proportion of bookings from abroad stood at about 31%. In the past year, 92% of passengers booked via the Internet and about 50% of passengers made use of the advance check-in facility via the Internet. It has been decided, during the reporting year, to discontinue our scheduled services to Copenhagen, Madrid and London Stansted with effect from 30 March 2008, due to the lack of prospects of the profitability we require. However, two new destinations were also introduced, namely Agadir and Marrakesh. transavia.com also opened up scheduled services to the new destinations of Bergerac, Montpellier and Paris-Orly in April 2008. Following the introduction of the Rotterdam-Grenoble route at the end of 2007, which runs four times a week, transavia.com now offers winter sports enthusiasts full coverage to all of the major destinations in France, Switzerland and Austria. transavia. com now flies to four winter destinations in or near the Alps and the Pyrenees. All of the airports offer a number of affordable transfers every day to the most popular winter sports destinations. The frequency of the scheduled flights to the winter destinations of Innsbruck, Salzburg and Geneva was stepped up again during the recent winter season. All of the scheduled services to winter destinations flew from Rotterdam Airport between mid December 2007 and the end of March 2008. Last winter, we also flew to a number of well-known city destinations close to good winter sports facilities; Pau-Pyrenees, Gerona (from Rotterdam), Nice (from both Rotterdam and Amsterdam), Verona, Treviso, Milan-Bergamo, Barcelona (from Amsterdam) and Malaga (from Amsterdam, Rotterdam and Eindhoven). In addition, transavia.com offers individual passengers the facility of booking individual seats (“Seat Only”) to a large number of charter destinations either directly, via the Internet or by telephone. During the past year, the service was offered to 42 of the 73 charter destinations. 9 Back to contents Annual Report 2007/2008 Sales on board and via the site: product optimisation On-board sales have shown an increase of more than 30% in the past year. It is clear that our customers are increasingly becoming used to and valuing transavia.com’s à la carte concept. Through optimising our range, what we have on offer is being adjusted constantly to coincide with what our customers want. This involves us and our suppliers tracking what the customer wants and translating this into powerful concepts, resulting in innovative and competitively priced products. Some examples include the refrigerated products, for which our galleys are equipped with chillers, and the ‘Bloem & Groet’ service, which gives passengers an opportunity to send roses, perhaps to someone who is looking after pets or plants during their holiday. The sale of additional services and products via the website has also increased during the past year. Car hire, for instance, has undergone rapid growth thanks in part to a major consumer campaign. Sales via the website also require us to continually optimise our ranges, to make sure we keep abreast of what our customers want. We feel it is likely that turnover will be given an extra impulse following the launch of the new website. Ad hoc flights In addition to charter and scheduled services, transavia.com also runs ad hoc flights, including some for businesses, government and other institutions and sports organisations. We also undertake sub-charters for other airlines. transavia.com flew more than 830 ad hoc flights last year, which was 19% up on the previous year. This figure includes a large number of flights undertaken as sub-services for other airlines. We also undertook flights for the Ministry of Defence, the Dutch national football team and various professional football clubs, as well as to West African airports for ships’ crew turnarounds. Nine aircraft hired during the winter months transavia.com has flight capacity available during the winter season, which is used for hiring purposes, sometimes with crew, to airlines who operate on an ‘off-season’ basis. These lease-outs are part of transavia.com’s efforts towards longer-term collaboration, and we prefer to agree them with companies from whom we can lease in aircraft during the summer season. One good example of this is the American Sun Country Airlines, to whom we leased out five aircraft during the past winter season, and from whom we can lease in flight capacity in the summer season. Four other aircraft were leased out during the winter season to Kulula Airlines (South Africa), Sunwing Airlines (Toronto, Canada), Aloha Airlines (Hawaii) and Caribbean Airlines (Trinidad and Tobago). The deal with Kulula Airlines was a ‘damp lease’ contract under which transavia.com also supplied maintenance, pilots and a purser. The result was that, on average, 20 transavia.com employees were stationed in Johannesburg over the recent winter months. Leasing out aircraft requires extra efforts from the Engineering and Maintenance department and the support departments. Other companies may, for instance, want a different seating configuration, sometimes with their own seats, or adjustments to the livery. Different flight safety guidelines also sometimes require a different layout or different components, or they may impose alternative requirements on, for example, the cockpit layout. The high quality of our maintenance, perfect scheduling of our Engineering and Maintenance activities and timely renewal of our fleet all contribute towards transavia.com being and remaining an attractive partner for the temporary out-leasing of part of our fleet. Transavia France Transavia France, a joint venture between Air France and transavia.com (in a 60%-40% relationship), has been active in the French market for low-cost scheduled services and charters, using the transavia.com brand name and accompanying business model, since May 2007. Flights leave from Paris-Orly (South) for destinations in Egypt, Greece, Italy, Morocco, Spain, and Tunisia. The aim of the cooperation is to make best use of the benefits of synergy within the Air France - KLM Group. The way in which Transavia France is set up and its image are identical to the Dutch transavia.com. The substantive and operational expertise, specific to the operation of a low-cost schedule and charter airline, are being supplied by transavia.com from the Netherlands. The existing transavia.com website has been extended with information concerning Transavia France and functionalities for the French market. Transavia France has its own management team and had four of its own aircraft (all Boeing 737-800s), including crews, at the 0 Back to contents Annual Report 2007/2008 close of the reporting year. The fleet will be expanded to seven aircraft during the summer of 2008. Transavia France had 202 employees (FTE) at the close of the reporting year. In the summer of 2007, Transavia France flew to nine destinations: these were Agadir and Oujda (Morocco), Djerba and Monastir (Tunisia), Catania and Palermo (Italy), Gerona (Spain), Heraklion (Greece) and Porto (Portugal). These routes, apart from Catania and Heraklion, were also run during the winter. Transavia France also introduced nine new more schedule destinations over the winter: Luxor and Hurghada (Egypt), Ouarzazate and Fès (Morocco), Cracow (Poland), Granada, Tenerife and Las Palmas (Spain) and Tozeur (Tunisia). During the reporting year, the new company carried 545,000 passengers. During its first (15 month) financial period, Transavia France achieved a turnover of €53.4 million, nearly 80% of which related to scheduled activities. Operating expenses amounted to €77.7 million, so that there was on balance a negative result of €24.3 million from commercial operations. These preliminary losses were in line with expectations. The positive experience with Transavia France is an extra incentive for us to stay alert to any opportunities for further expansion of the activities under the transavia.com brand name elsewhere in Europe, based on the same successful standards and operating methods. Government and the aviation market A plea for European collaboration on the use of airspace transavia.com is a great advocate of a more efficient use of European airspace in the form of a ‘Single European Sky’. An investigation undertaken in 2007 by the Dutch Ministry of Transport, Public Works & Water Management and the Ministry of Defence, in conjunction with the Dutch Air Traffic Control Directorate, showed that intensive collaboration on airspace policy between the Benelux countries, Germany, Switzerland and France could markedly improve access to the airspace and how it is used. The costs paid by airlines and customers for routes and air traffic control could also be substantially reduced if the large number of nationally oriented routes and navigation services could be superseded. A Single European Sky would also substantially reduce CO2 emissions from aircraft. The environment doesn’t benefit from flight taxes transavia.com views it as a troubling development that the aviation market is now being faced with ad hoc measures introduced by the Dutch government which seem to have little to do with any effective longer-term vision. The clearest example of this is the Ticket Tax, which is being introduced on 1 July 2008 and which is known within the market as the ‘ecotax’. The proceeds of this are not being used to help the environment and this means that passengers will merely regard it as an extra tax charge. The Ticket Tax enhances the competitive position of nearby airfields in Germany and Belgium; for customers in the south and east of the country in particular, it will be more attractive to book flights which depart from these airports. This does not help the environment. The measure also has a negative impact on profitability for transavia.com, which is leading the way with ‘clean’ aircraft, because of the higher cost price and the exodus of passengers to foreign airports. System of emission rights should not discriminate As matters stand at the moment, the European aviation industry will be faced with a system of emission rights for CO2 emissions in 2011, in terms of which CO2 emissions will only be allowed if there are corresponding emission rights, as is the case already for other industries. The way in which the total permitted emissions have been determined means that there is a shortage of them, and companies will be forced to purchase emission rights on the market in order to be able to grow. transavia.com feels that the objective – a positive impact on the environment – could actually be achieved with a properly set up trading system for emission rights. It would prompt companies to adopt more environmentally efficient measures, for example by investing in fleet renewal and cleaner engines. One condition, however, is that the system of emission rights should not discriminate between EU and non-EU airlines, or between aviation and other transport sectors. Finally, the  Back to contents Annual Report 2007/2008 government’s policy line would be more credible if the proceeds from the emission rights were poured back into the sector, to be used for investment in innovation and other measures to make fuels more efficient and thus reduce CO2 emissions. Development of regional airports It has become clear in recent years that the regional airports are meeting a need from consumers. These airfields are closer to the people, offer inexpensive and easy parking, are conveniently laid out and afford faster throughput than the much larger Schiphol Airport. This explains the attraction of Rotterdam Airport and Eindhoven Airport, which are also home bases for transavia.com in addition to Schiphol. Unfortunately this attraction is under threat, for Eindhoven Airport at least, from the impending Ticket Tax, since this will make flights from nearby foreign airports more attractive. It is also unfortunate for passengers in the east of the Netherlands that a decision was made at the start of 2008 to close Enschede Airport for commercial flights for the time being. The further development of Lelystad Airport might in due course offer some benefits. Schiphol Group, Lelystad Airport, the Municipality of Lelystad and the province of Flevoland signed an agreement at the end of 2007 in respect of the future development of Lelystad Airport. These four partners have called on the Minister of Transport, Public Works and Water Management and the Minister of Housing, Spatial Planning and the Environment to speed up with the development of Lelystad Airport. Voices are being raised to relocate the activities of the charter and low cost companies from Schiphol Airport to Lelystad Airport. As we have previously indicated, transavia.com takes the view that, for the market to operate properly, airlines must be able to make their own economic and commercial decisions when it comes to their choice of airports. It should not be the case that the very airlines who offer the lowest prices because of their efficiency, or who are attractive to customers in some other way, should be forced into making choices that are less than optimal. In order to enable regional airports to play a greater part in dealing with this air traffic, it will be necessary first of all to fortify the infrastructure and capacity at and surrounding these airports, so that they then become viable alternatives to Schiphol Airport. One very important factor here, in relation to Lelystad Airport, is that a large proportion of foreign passengers have chosen the city of Amsterdam as their destination, while another proportion are continuing their journeys with connections from Schiphol. Against this background, transavia.com considers that relocating some of its activities to Lelystad would only be responsible in due course if a number of strict conditions were met. There has to be a sound proposal from Lelystad Airport as a competitive alternative to Schiphol Airport, but this is not solely an issue of costs. The question is whether a tour operator or an individual customer will actually want to depart from Lelystad if there are also flights available from competitors, to the same destination, from Schiphol. There are also issues relating to infrastructure, mainly to do with lengthening the runway, night-time opening, rapid passenger and aircraft handling and a structural improvement to the road network and the rail link to Schiphol. Flight Time Limitations (FTL) New European legislation on amended maximum working hours for flight crew (Flight Time Limitations) will come into operation in mid July 2008. This legislation reduces the maximum working hours for both cockpit and cabin crew by an average of 1.5 hours in relation to the present situation. The precise reduction will depend on the time of the flight, the number of time zones being crossed and the number of landings being made. Despite the impact of lower productivity, and hence higher costs, transavia.com is a supporter of this new legislation, in common with many other airlines, since it provides further support for flight safety throughout the industry and creates a level playing field within Europe. Consultations are ongoing on how the legislation will be interpreted for specific long-haul flights.  Back to contents Annual Report 2007/2008 Corporate social responsibility Policy Over the past year, transavia.com has continued to integrate Corporate Social Responsibility (CSR) further into its commercial vision by extending the concept, thus providing the basis for implementation of its mission and strategy in a socially responsible manner. This involves striking a responsible balance between looking after economic returns, ecological quality and personal well-being. transavia.com accepts its responsibility for these matters and is open to the demands of society. One of the factors is that transavia.com wants to communicate openly and transparently with all of the stakeholders. Dealing responsibly with people One of the objectives of CSR is to guarantee the quality of the commercial operation, through dealing responsibly with our employees as well as our passengers. transavia.com accordingly offers its staff a full range of options for personal development by means of training and education courses, in addition to excellent primary and secondary employment conditions. There is a code of conduct applicable to employees of transavia.com, which contains guidelines on matters such as integrity, transparency of action and acceptance of responsibility, mutual respect and dealing properly with customers and other business contacts. This code is, in fact, an ‘umbrella’ for other more specific rules such as the Confidants’ Scheme, the Reporting of (Potential) Financial Irregularities Scheme, the Fraud Prevention Scheme and the Information Security Scheme. It is the Executive Board’s responsibility to ensure that everyone is familiar with the code of conduct; compliance is delegated to line managers and staff, who must in turn be able to talk to their managers about any specific suspected irregularities. Environment For social and financial reasons, transavia.com places great store in restricting its impact on the environment to a minimum. This means that environmental aspects play an important part in all elements of our commercial operations as regards investment decisions and how procedures are set up. The results of this mean that: • transavia.com has a modern, young fleet that meets the highest requirements in the areas of reducing fuel usage, emissions and noise; • transavia.com ensures, through proper engine maintenance, that consumption and therefore emissions are kept to a minimum; • transavia.com plans the use of aircraft in such a way that planes with the cleanest engines fly for the longest distances and relatively the most hours, with calculations on a per flight basis of fuel to be loaded; • transavia.com takes a proactive stance on environmental care within the company (separated waste streams, limitation on the use of paper) and on product procurement. It is also worth mentioning that transavia.com has for many years been making substantial payments towards the cost of sound insulation in houses in the vicinity of Schiphol Airport. CO compensation It has been decided to offer passengers the facility, from the spring of 2008, to compensate for the emissions from their flights by paying an extra amount per ticket in order to finance projects such as tree planting, which contribute to CO2 reduction. At the same time, transavia.com itself will start compensating for CO2 by paying an annual amount as compensation for its commercial operations (electricity, gas, vehicle use and similar). Peter Pan The Stichting Peter Pan Vakantieclub [Peter Pan Holiday Club Foundation] has been active since 1995, an initiative by transavia.com employees. This club is sponsored by various companies in the travel and associated sectors, including transavia.com. The aim of the Foundation is to offer fully supervised flying holidays every year to children and youngsters who would find it difficult to go on holiday themselves because of illness, disability or other circumstances. A holiday was organised last year, in conjunction with sponsor Club Med, at Club Beldi on the Turkish Mediterranean coast. 3 Back to contents Annual Report 2007/2008 Organisation and staffing Members of the Executive Board The members of the operational Executive Board of transavia.com are: Onno P.M. van den Brink, Chief Executive Officer Willem A. Hondius, Chief Commercial Officer Michiel Meijer, Chief Operations Officer Tjero R. Zomer, Chief Financial Officer Staff complement still growing Taken across the whole reporting year, the average number of employees increased by 6.7% to 1,779 full-time equivalents (2006/2007: 1,668). This annual average is made up as follows: • 1,111 flight staff (2006/2007: 1,032) • 347 technical and operational staff (2006/2007: 333) • 321 office staff (2006/2007: 303) Terms of employment The Collective Labour Agreements for the cockpit and cabin staff and for the ground staff both expired on 31 March 2008. Negotiations on the new agreements are still under way. This involves transavia.com being faced with the challenge of offering its employees a remuneration package at market standard rates in a tightening employment market, while at the same time keeping wage costs at a sufficiently manageable level to ensure that they do not threaten profitability. Works Council Last year too, the Works Council (with 13 members and an administrative secretary) has met regularly, and has undertaken constructive formal and informal consultations. The Works Council has informed employees about its work by means of its quarterly bulletins. The transavia.com Works Council also includes four working groups (Cabin Services, Employment, Training Courses and Flight Service) and six committees (Engineering and Maintenance Sub-committee, Elections Committee, PR Committee, Schemes Committee, Financial Committee and Committee on Safety, Health, Social Welfare & Environment). Members of the Works Council are elected for a period of four years. Elections are held every two years for approximately half of the members, which ensures continuity of knowledge and experience. transavia.com considers that an expert and positively critical Works Council is of great value to the company; it can also make a significant contribution towards personal development for the staff. The company therefore feels it is important that employees should put themselves forward for membership. Accordingly, it is pleased to note that a sufficient number of candidates put themselves up for the elections held in April 2008. During the reporting year, matters on which an opinion or approval was sought from the Works Council included the reassessment of ICT, the restructuring of HR, the participation in Transavia France, the new headquarters at Schiphol-Oost, the gradual outsourcing of work at Facility Management, the merging of the commercial back office for B2C, e-commerce, fleet renewal and the access policy for Hangar 5. We would like to thank the employees for their input and involvement in the Works Council, its working groups and committees. Risk management and internal management The management of the company is based around delegation of responsibilities. This requires properly developed risk management and strong internal control measures. These are needed to ensure a proper feedback from the delegated responsibilities and thus good company management. The Internal Audit department was set up with this in mind in 4 Back to contents Annual Report 2007/2008 2006, and has undergone further development over the past year, now representing a powerful mechanism for effectively safeguarding risk management, adequate governance and internal control. Continuation of SOx activities The Air France - KLM Group discontinued its listing on the NYSE in New York in February 2008. This listing entailed that the Group, including transavia.com, was bound by specific laws and regulations, including the US Sarbanes Oxley (SOx) Act. These are aimed at proper management of the company by being “in control” of its processes. The importance of this has now led the Group to a decision to continue the SOx activities within the Group, in a modified format. New ICT functions close to ‘the business’ There has been a thorough reassessment of the ICT function throughout the organisation in the past year, aimed at strengthening the ICT foundations and associated processes. One of the results of this has been the instigation of a restructured Information & Communication Technology (ICT) department. This is designed to result in proper (faster and more customised) communication with and provision of services to ‘the business’ and increased security levels within the systems. This is all of crucial importance, because transavia.com’s dependence on ICT has increased significantly in the past year and has become a key factor in the company’s success. The new ICT set-up includes: • strengthening of collaboration with the business by setting up an Information Management department, which translates requirements from the business into ICT applications; • increasing ICT security by strengthening the ICT operations department and by duplicating the computer processes via the Twin Data Center; • enhancing policy and standardisation by setting up an ICT Strategy & Architecture department; • improving the implementation of ICT projects by integrating the Organisational Development department within the ICT department. Progress on the Mistral project Significant progress was made on the Mistral project during the reporting year, the purpose of which is to select and implement a new information system for Engineering and Maintenance. This system is used, among other purposes, for recording maintenance programmes, supporting the implementation of maintenance work, recording findings and maintaining inventories. The system is also used for verification purposes for the Inspectie Verkeer en Waterstaat (IVW) [Transport, Public Works and Water Management Inspectorate]. The new system is expected to become operational at the start of 2009. Recognitions With effect from 1 February 2008, transavia.com has received a recognition from the Dutch Transport, Public Works and Water Management Inspectorate which allows the company to extend the validity of airworthiness certificates for its aircraft itself. This ‘Airworthiness Review Certificate privilege’ enables transavia.com to demonstrate that its inhouse maintenance organisation is sufficiently experienced and trained for this privilege. The results of an IATA Operational Safety Audit (IOSA), conducted at the end of 2007, also demonstrated that transavia.com meets the highest standards of airline safety, viewed from an international perspective. New accommodation at Schiphol-Oost An agreement with Schiphol Real Estate was signed in June 2007 for the development of a new head office for transavia. com, on P. Guilonardweg at Schiphol-Oost. The timetable indicates that transavia.com will be able to move into the new accommodation in the autumn of 2009. The building will have an area of about 10,000 m2, of which about 60% will be leased in the first instance for approximately 400 employees. The remaining accommodation will be available for third parties. The new head office will enhance transavia.com’s image as a dot-com organisation, and will result in more efficient use of the available floorspace through the application of a contemporary combined cellular and open-plan office concept. The new accommodation for flight staff and a number of related departments will be in a Crew Centre at Schiphol-Centrum, which is also to be developed by Schiphol Real Estate. 5 Back to contents Annual Report 2007/2008 Financial Financial statements fully in line with IFRS The financial statements included in this annual report have been prepared entirely in accordance with the International Financial Reporting Standards (IFRS), which means that the explanatory notes too have been prepared on the basis of IFRS standards. The company therefore fully complies with international requirements in respect of transparency. Result In 2007/2008, the reporting year, transavia.com’s revenue increased by 5.1% to €719.0 million. The operating expenses increased by 6.2% to €690.9 million. Staff expenses rose by 26% to €129.4 million. This rise was caused by an increase in the number of employees, developments in Collective Labour Agreements and the fact that pension costs had benefited from a singular reduction in the previous year because of legislative changes. The cost per seat increased by 3% to €97. The negative balance for financial income and expenses (including interest) decreased to €2.8 million. This means that the result before contribution to corporate tax amounted to €18.1 million, 35.2% less than the €28.0 million of the previous year. We must bear in mind here that the result for 2006/2007 was significantly higher due to a one-off reduction in the pension plan liabilities, caused by amended pension and early retirement plans. The result for 2007/2008 was also adversely affected by the start-up costs for Transavia France. If these two issues are not taken into account, the result from day-to-day operations was significantly higher than in the previous year. The result after contribution to corporate tax amounted to €11.7 million (2006/2007: €21.0 million). The return on average capital employed (ROCE) was 10.3% in 2007/2008 (2006/2007: 9.3%). In the reporting year, net return on average capital amounted to 9.9%, as against 15.8% in the previous year. Sharp rise in fuel prices The price risk for a substantial proportion of our fuel requirements was hedged in advance, in order to limit the impact of increasing fuel prices on the market and the company itself. Nevertheless, and despite the fall in the value of the dollar, the increase in the price of oil was so large that transavia.com was forced to increase the fuel surcharge in the B2C market on three occasions in the reporting year. The level of the fuel costs charged into the B2B market is determined per season. Investments, disposals and financing €24.2 million out of the total investments of €41.3 million is related to investments in tangible assets. Payments for investments amounted to €15.6 million, of which €7.2 million related to the 40% interest in Transavia France. We also invested €1.4 million in software. We succeeded in financing the investments from our own resources. At the end of 2007, transavia.com placed an order with aircraft manufacturer Boeing for seven Boeing 737s, with options on a further three of these aircraft. The oldest of the 737s in the fleet will gradually be replaced from 2009 onwards. In anticipation of the fleet renewal, five aircraft from the present fleet were sold during the reporting year to Japanese and SwedishAmerican investment houses, and temporarily leased back under a sale and lease-back transaction from the new owners. This resulted in a disposal amounting to €101.7 million. Based on the list price, the order for the seven new aircraft involves an investment of USD 523 million. This investment can be met from our existing cash resources, the proceeds from the sale and lease-back transactions and future internal cash flows. We will investigate at a later stage whether external financing might also be an attractive option to the company to finance (some of) the new fleet. 6 Back to contents Annual Report 2007/2008 Healthy balance sheet For many years now, transavia.com has had a healthy balance sheet, giving the company a solid financial foundation. At the close of the financial year, guarantee capital as percentage of capital employed amounted to 66% of operating capital and the ratio between net debt and capital was 3.9. Distribution to the limited partners It is proposed to distribute a sum of €18.3 million to the limited partners. Outlook The consequences of the international credit crunch of 2008 for the economy and consumer confidence in the Netherlands and other countries of significance to transavia.com are as yet unclear. Any economic downturn will have consequences for the markets in which transavia.com operates. In order to accommodate increased demand from the Dutch B2B market, transavia.com will make available extra capacity in the summer of 2008 and will be operating 34 aircraft during the peak season. We accordingly anticipate an extra impulse to our turnover from this market. The company will remain keenly focused on improving profitability in the B2C market, remaining fully alert to yield management and any opportunities for improving the network of scheduled services. We anticipate that the new website and our altered policy on distribution will provide an extra stimulus to our turnover, particularly from abroad. On the leasing market, transavia.com can continue to profit from long-standing relationships with a number of airlines, and the fact that there is a relatively high level of interest in leasing young and well-maintained aircraft. The result from Transavia France is expected to improve significantly in comparison to the past year, when the company had to bear some singular start-up costs. Despite the dollar decline, rising fuel prices form an ever-increasing threat to our achievement of low seat costs. The heavy fluctuations in fuel prices and the euro/dollar exchange rate also introduce a strong element of uncertainty as far as costs are concerned. It also seems that staffing costs are likely to increase substantially over the next few years, partly due to a tightening in the employment market. It is of crucial importance to the future of transavia.com that the company’s cost position in relation to the competition in the ‘low cost low fare’ market should not be adversely affected. Also, the Ticket Tax which is being introduced on 1 July 2008 and the sharp increases in surcharges are a source of major concern. For instance, Schiphol Airport has yet again announced that it intends to substantially increase passenger surcharges, including 3.5% on the passenger service charge and no less than 50% on the security service charge. These increases pose a growing threat to the ‘low cost low fare’ model, because they create a higher base price, undermining the elasticity of pricing in the market, the factor which means that lower fares result in higher turnover. 7 Back to contents Annual Report 2007/2008 For the foreseeable future, transavia.com will continue to focus its strategy on profitable growth in existing and new markets. This will involve additional services for the flight activities and also opportunities for expanding our core activities in Europe, based on the same business model, by means of joint venture relationships or takeovers. Additionally, transavia.com is keen to enhance its market position in the travel market through further development of its distribution policy. Schiphol, 8 May 2008 Executive Board of Transavia Airlines B.V., Onno P.M. van den Brink Tjero R. Zomer 8 Back to contents Annual Report 2007/2008 Financial statements Balance sheet Income statement Statement of recognised income and expense Statement of cash flows Accounting principles General Basis of preparation Significant accounting policies Financial risk management Notes to the balance sheet Notes to the income statement Other information Auditor’s report 0   3 4 4 4 5 3 33 45 53 54 9 Back to contents Annual Report 2007/2008 Balance sheet (x €1,000) (before profit appropriation) Note 31 March 2008 31 March 2007 Intangible assets Tangible fixed assets Investments in associated companies Other investments 1 2 3 4 5,183 327,929 0 108,159 441,271 5,500 438,158 15 119,936 563,609 5,514 48,466 212,018 265,998 -/-48,363 -/-153,155 -/-201,518 628,089 22,689 356,148 51,662 55,342 1,897 487,738 140,351 628,089 Fixed assets Inventories Trade and other receivables Cash and cash equivalents 5 6 7 5,853 44,760 246,254 296,867 Current assets Loans and borrowings Other current liabilities 8 9 -/-43,794 -/-182,730 -/-226,524 511,614 Current liabilities Total assets less current liabilities Subordinated loan Aircraft loans Other long-term liabilities Employee benefits Other provisions 10 10 10 11 12 22,689 275,609 54,864 56,435 433 410,030 Long-term liabilities Capital Total capital and long-term liabilities 13 101,584 511,614 0 Back to contents Annual Report 2007/2008 Income statement (x €1,000) Note 2007/2008 718,953 -/-129,383 -/-34,395 -/-527,081 28,094 18 18 14.720 -/-17,472 -/-2,752 -/-7,200 18,142 -/-6,462 11,680 2006/2007 684,180 -/-102,838 -/-38,208 -/-509,435 33,699 10,515 -/-16,196 -/-5,681 28,018 -/-7,068 20,950 Revenue Personnel expenses Depreciation, amortisation and impairment losses Other operating expenses 14 15 16 17 Result from operating activities Finance income Finance expenses Net financing expense Share of profit of Associated companies Result before contribution to corporate income tax Contribution to corporate income tax Profit for the period  Back to contents Annual Report 2007/2008 Statement of recognised income and expense (x €1,000) 2007/2008 Effective portion of changes in fair value of cash flow hedges Profit for the period -/-12,127 11,680 -/-447 2006/2007 -/-1,311 20,950 19,639 Total recognised income and expense for the period  Back to contents Annual Report 2007/2008 Statement of cash flows (x €1,000) 2007/2008 Profit for the period Depreciation, amortisation and impairment losses Gain on sale of assets Share of profit of associated companies Movement in trade and other receivables Movement in inventories Movement in current liabilities Movement in provisions Movement in derivatives 11,680 34,395 -/-572 7,200 3,706 -/-339 25,006 -/-371 -/-12,127 68,578 -/-1,421 -/-24,239 -/-7,185 -/-8,443 102,383 61,095 5,559 -/-65,878 3,202 -/-38,320 -/-95,437 34,236 212,018 246,254 34,236 6,905 -/-33,942 -/-4,865 -/-4,903 -/-36,805 22,830 189,188 212,018 22,830 -/-3,387 -/-7,998 -/-15 -/-7,072 778 -/-17,694 20,950 38,208 5,766 -/-630 21,692 -/-7,346 -/-1,311 77,329 2006/2007 Net cash from operating activities Acquisition of intangible assets Acquisition of tangible fixed assets Investments in associated companies Acquisition of other investments Disposals Net cash from investing activities Withdrawn aircraft loans Repayment of aircraft loans Movement in other long-term liabilities Capital repayment to limited partners Net cash from financing activities Net cash flow Cash and cash equivalents at 1 April Cash and cash equivalents at 31 March Movement in cash and cash equivalents 3 Back to contents Annual Report 2007/2008 Accounting principles General Transavia Airlines C.V. (‘Transavia’) has its registered office and main place of business at Schiphol, The Netherlands. Transavia is a group company of Koninklijke Luchtvaart Maatschappij N.V., KLM N.V. (‘the Group’), whose registered office is in Amstelveen, The Netherlands. KLM N.V. is part of Air France-KLM S.A. (‘AF-KLM’), with its registered office in Paris, France. Shares in AF-KLM are listed on stock exchanges in Amsterdam and Paris. Under the brand name “transavia.com”, Transavia provides competitively priced non-stop flights along with an appropriate range of travel-related products and services. These activities take place primarily in Europe and North Africa. This Annual Report has been prepared by the Executive Board of Transavia and approved by the Meeting of Partners on 8 May 2008. Basis of preparation Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the interpretations thereof established by the International Accounting Standards Board (IASB), and also with the standards adopted by the European Union (EU-IFRS). Basis of measurement The financial statements have been prepared on the historical cost basis unless otherwise stated. Preparation of the financial statements in accordance with the valuation principles of EU-IFRS requires the management to form opinions and make estimates that influence the application of the accounting principles and the reported value of assets and liabilities and revenue and expenses. The estimates and assumptions underlying them are based on experience from the past and a range of other factors that are regarded as reasonable in the circumstances. The results of these form the basis for the opinion on the carrying amount of assets and liabilities that is not readily evident from other sources. The actual results may deviate from these estimates. The estimates and underlying assumptions are assessed periodically. Foreign currency The financial statements are presented in euros, being the functional currency, and amounts are rounded to the nearest thousand (unless otherwise stated). Transactions denominated in foreign currencies are translated into euros at the exchange rate applicable on the transaction date. Financial assets and liabilities in foreign currencies have been converted into euros as at the date of the balance sheet, at the exchange rate applicable on that date. Foreign currency differences arising on conversion are recognised in the Income statement under Net financing expense. Non-financial assets and liabilities denominated in a foreign currency, and valued on the historical cost basis, have been converted at the exchange rate applicable on each transaction date. 4 Back to contents Annual Report 2007/2008 The most significant exchange rates applied during the past years are as follows: 2007/2008 USD/EUR average exchange rate USD/EUR closing exchange rate 0.7082 0.6324 2006/2007 0.7825 0.7509 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in the financial statements. Intangible assets Substantial investments in software are capitalised under Intangible assets, to the extent that such software is applied for internal use. Capitalisation only occurs if the software is technically and economically feasible and if there are adequate resources available to complete the development. Expenses associated with activities in the research phase are charged directly to the Income statement. Expenditure associated with activities in the development phase is capitalised. Expenditure incurred after the initial recording is only capitalised if there are future economic benefits accruing, contained within the specific asset to which they relate. All other expenditure is recognised as a charge on the Income statement when it is incurred. The amortisation period for software is determined for each investment on the basis of anticipated useful lifespan. The software is subject to full straight-line amortisation over the established amortisation period from the point when it is available for use. Until the point of commission, expenditure is capitalised as future intangible assets. The estimated average useful lifespan for intangible assets is three years. Tangible fixed assets Tangible fixed assets consist of aircraft and ancillary equipment, buildings and other tangible fixed assets. Aircraft are valued at cost less straight-line depreciation based on the estimated useful lifespan, taking into account the estimated residual value and any impairment losses. Cost includes the purchase costs and interest costs for prefinancing. Tangible fixed assets whose economic ownership is acquired through leasing agreements are also included under this heading and are valued using the same principles. The estimated useful lifespan of the aircraft is set at 20 years, and the residual value is determined as zero. Expenditure for major aircraft maintenance is capitalised and subjected to straight-line depreciation over the period up to the next comparable major maintenance. Expenditure for significant renewals and improvements is capitalised and depreciated over the useful lifespan, subject to a maximum of the remaining lifespan of the aircraft concerned. The estimated useful lifespan of the buildings is set at 33 years, and the residual value is determined as zero. Other tangible fixed assets are valued at cost less straight-line depreciation based on the estimated useful lifespan and taking into account the estimated residual value. Tangible fixed assets on order and advance payments on tangible fixed assets are recognised in the balance sheet as regards the amount of paid instalments plus ancillary costs. If tangible fixed assets consist of components with different lifespans, they are recognised as separate items under Tangible fixed assets. Expenditure following the initial recognition as Tangible fixed assets is only capitalised if there are future economic benefits accruing, contained within the specific asset to which they relate. All other expenditure is recognised as a charge on the Income statement when it is incurred. The estimated average useful lifespan for Other tangible fixed assets is three years. 5 Back to contents Annual Report 2007/2008 Associated companies Associated companies are those entities in which Transavia has a significant influence but no decisive control over commercial and financial policy. Investments in Associated companies are valued on the basis of the equity method and are accounted for initially at cost. If Transavia’s share in any losses from an Associated company exceeds the carrying amount, the carrying amount is impaired to zero and no further losses are accounted for, except insofar as Transavia has entered into a legally enforceable or actual obligation or has made a payment on behalf of an Associated company. Non-derivative financial instruments Non-derivative financial instruments include acquisitions in other investments, trade and other receivables, cash and cash equivalents, loans and borrowings, trade liabilities and other current liabilities. Non-derivative financial instruments are initially recognised at fair value, plus any directly attributable transaction costs for instruments not valued at fair value and whose value changes are recognised in the Income statement. After initial recognition, non-derivative financial instruments are valued in the manner set out below. Investments The Investments held-to-maturity are valued at amortised cost, based on the effective interest method, less any impairment losses considered necessary. Cash and cash equivalents Cash and cash equivalents consist of cash and bank account balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s resource management are included within cash and cash equivalents in the Statement of cash flows. Loans and borrowings Loans and borrowings are valued at amortised cost. The portion of a long-term liability due within one year is recognised under Current liabilities. The result from aircraft financing to be attributed to the financial result over future years is credited to the Income statement in accordance with the depreciation or leasing period for the asset to which they relate. Other non-derivative financial instruments Other non-derivative financial instruments are valued at amortised cost, based on the effective interest method, less any impairment losses considered necessary. Derivative financial instruments Transavia uses derivative financial instruments (derivatives) in order to hedge price and currency risk exposures arising from operating, financing and investment activities. In accordance with its financial risk policy, the company does not retain derivatives for trading purposes, nor does it issue any. Derivative financial instruments are measured at fair value from the date of their initial recognition. Fair value changes on a derivative financial instrument are recognised immediately in the Income statement, unless the instrument is allocated to a cash flow hedge. Hedge accounting Changes in the fair value of a derivative held to hedge for future cash flows are recognised in Capital immediately, to the extent that the hedge is effective. The non-effective element is charged immediately to the Income statement. Changes in the fair value of derivatives that are classified as fair value hedges are recognised immediately in the result, along with the change in the fair value of the asset or liability to which the derivative relates. 6 Back to contents Annual Report 2007/2008 If a derivative no longer meets the conditions for hedge accounting, or if it expires or is sold, then the hedge is terminated prospectively. The cumulative results recognised in Capital continue to form part of Capital until the anticipated transaction has been completed. If the derivate relates to a non-financial asset, the amount recognised in Capital is transferred to the carrying amount of the asset whenever it is recognised. In other cases, the amount recognised in Capital will be transferred to the Income statement in the same period in which the hedge instrument has an impact on the Income statement. Leasing Leases are classified as financial leases if Transavia has accepted virtually all of the risks and rewards of ownership. Tangible fixed assets acquired through financial leases are capitalised at the lower of the fair value and the cash value of the minimum number of obligatory lease payments at the start of the lease, under deduction of straight-line depreciation in accordance with an estimate of the anticipated useful lifespan and special impairment losses. Operational leases are those for which the leased asset is not recognised in the Balance sheet. Operational lease expenses are recognised into the Income statement on a straight-line basis over the term of the lease. If a sale and lease-back transaction becomes an operational lease, the result of the transaction is recognised in the Income statement if the transaction is concluded at fair value. If the transaction is concluded at less than fair value, the result is also recognised in the Income statement. If a loss from a transaction is offset by future leasing payments which are less than comparable market rates, then the loss is charged to the Income statement in line with the leasing period for the underlying asset. If the transaction has a result in excess of fair value, then the difference between the value of the return and fair value is credited to the Income statement in line with the leasing period for the underlying asset. Inventories Inventories are valued at the lower of the cost and the net recoverable amount. The cost is based on the average purchase value and includes expenditure made for procuring the inventories, transporting them to their existing locations and bringing them to their existing condition. The net recoverable amount is the estimated sales price at arms length, less estimated costs for completion and sale. Impairment Financial assets Financial assets are considered on every balance sheet date in order to ascertain whether there are any objective reasons for determining that an asset has suffered an impairment loss. A financial asset is considered to be subject to an impairment loss if there are objective indications that one or more events have had an adverse impact on anticipated future cash flows from the asset in question. An impairment loss relating to a financial asset valued at amortised cost is calculated as the difference between the carrying amount and the present value of anticipated future cash flows, discounted at the original effective interest rate. Important financial assets are tested for impairment losses on an individual basis. The other financial assets are aggregated into groups with comparable credit risk characteristics, and assessed collectively. All impairment losses are recognised directly in the Income statement as charges. An impairment loss will be reversed if the reversal can be associated objectively with an event which occurred after the impairment loss was taken into account. For financial assets valued at amortised cost, the reversal is credited to the Income statement. Non-financial assets The carrying amounts of non-financial assets are examined on every balance sheet date in order to determine whether there is any indication for impairment losses. If there are such indications, an estimate is made of the recoverable amount of the asset. 7 Back to contents Annual Report 2007/2008 The recoverable amount of an asset or cash generating unit is equal to its value in use or fair value, less costs to sell. When determining value in use, the present value of estimated future cash flows is calculated using a pre-tax discount rate, which reflects both current market assessments of the time value of money and the specific risks in relation to the asset. In order to test for impairment losses, assets are aggregated into the smallest distinguishable group of assets generating cash flows from continued use, which are broadly independent of other assets and groups (the ‘cash-generating unit’). An impairment loss is recognised if the carrying amount of the asset or the cash flow generating unit to which the asset pertains is higher than the estimated recoverable amount. Impairment losses are recognised directly in the Income statement. Impairment losses recognised for assets in previous periods are assessed on every balance sheet date for any indications that the loss has reduced or no longer exists. An impairment loss is reversed if the estimates on which the recoverable amount was determined have changed. An impairment loss is only reversed to the extent that the carrying amount of the asset does not exceed the carrying amount – after deduction of depreciation or amortisation – that would be determined if no impairment loss had been taken into account. Employee benefits Employee benefits relate to obligations associated with a range of pension and early retirement plans offered by the company to its employees. Some of the pension plans are defined contribution plans and others are defined benefit plans. The early retirement plans are defined benefit plans. Management of the pension plans is fully delegated to three pension funds which are separate from Transavia. Transavia manages its own early retirement plans. Defined contribution plans Transavia has a defined contribution plan for cabin staff and ground staff. A defined contribution plan is characterised by the employer not having any legal or constructive obligation to pay any more to the pension fund than the agreed set premium. The employees bear the actuarial and investment risks. The contributions due for these plans are recognised as an expense in the Income statement in the periods to which they relate. Defined benefit plans Transavia has a defined benefit plan for cockpit staff. A defined benefit plan is one which defines the amount of the pension benefits that an employee will receive on retirement, dependent on factors such as years of service and remuneration. The net obligation under this plan is calculated separately as being the difference between the present value of pension claims attributable to past service periods and the value of the investments reserved for this plan. The value of the pension rights is determined on the basis of a discount base equivalent to the return, as at the date of the balance sheet, on AA credit-rated bonds, where the maturity date is approaching the due term of the obligations. The calculation is carried out by a qualified actuary according to the projected unit credit method. Compulsory contributions by the employees to the pension plan are deducted from the present value of the pension costs. When the pension rights under the scheme improve, the change in the value of the pension rights attributable to past service periods is recognised on a straight-line basis in the Income statement for the average period until the pension rights become unconditional. Insofar as claims become immediately unconditional, the charges are recognised immediately in the Income statement. Actuarial gains and losses arising during the year are not taken into account unless the total of the unrecognised actuarial gains and losses exceeds 10% of the present value of the pension rights attributable to past service, or 10% of the fair value of the fund investments, if higher (the “corridor”). If the corridor is exceeded, the excess is divided by the expected average remaining service years of the active employees. The result is then recognised in the financial result for the following reporting year. The defined benefit plans also include plans for (partial) early retirement. 8 Back to contents Annual Report 2007/2008 Other provisions The Other provisions are actually and legally enforceable obligations arising from an event in the past, which are likely to require a payment from resources and where the impact of the obligations can be reliably estimated. They relate to a provision for restructuring. This is recognised if Transavia has adopted a detailed and formalised restructuring plan and if a start has been made on restructuring, or if the restructuring has been publicised. No provisions have been made for future operating expenses. Revenue Revenue relates to transportation performance and sales of travel-related products and services during the financial year. Revenue from flights is recognised at fair value of the payments received or due to be received, less any discounts. Revenue is recognised in the Income statement at the point when the transportation service is provided and the amount of the revenue can be determined reliably. No revenue is recognised if there is any significant uncertainty in relation to the collection of payments, costs associated with such collection or any payments due to be refunded. Revenue from the sale of travel-related products and services is recognised as soon as the goods or services have been supplied. With respect to revenue, Transavia makes a distinction between the most significant sales channels, namely Business to Business, Business to Consumer and other activities. The other activities relate primarily to revenue from travel-related products and services and revenue from lease-out activities. Operating expenses The operating expenses are accounted for in the period to which they relate. Lease payments Payments made under operating leases are recognised in the Income statement on a straight-line basis over the relevant period. The minimum lease payments made under a financial lease are recognised partly as financing expenses and partly as settlement of the outstanding obligation. The financing expenses are attributed to each period of the total lease term in such a way as to result in a constant periodical interest rate on the outstanding balance of the obligation. Finance income and expenses Finance income includes interest income on funds invested, fluctuations in the fair value of the financial assets which are recognised in the Income statement based on fair value, profits from hedge instruments recognised in the Income statement and amortised financing benefits. Interest income is recognised in the Income statement as they accrue, using an effective interest method. Finance expenses includes interest charged on borrowings, unwinding of the discount on provisions, impairment losses on financial assets, and losses on hedging instruments recognised in the Income statement. Costs related to financing transactions are also recognised under finance expenses. All finance expenses are recognised in the Income statement using the effective interest method. Contribution to corporate income tax The company’s legal form means that its result is not subject to corporate income tax on behalf of the company itself. The company makes a contribution from its financial result to the corporate income tax payable by the partners. This contribution is calculated at the standard rate applicable at the reporting year. Statement of cash flows The indirect method is used to determine the cash flow from operating activities. This means that the reported net result is adjusted for items in the Income statement and movements in the Balance sheet that have not resulted in a cash flow. 9 Back to contents Annual Report 2007/2008 New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations, which are of relevance to Transavia, were not yet in force in 2007/2008, and were not therefore applied to these financial statements: • The existing option to choose to capitalise finance expenses immediately as an expense has been removed from the revised version of IAS 23 Finance expenses. The revised provisions mean that an entity must capitalise the finance expenses directly attributable to the acquisition, construction or production of an eligible asset as an element of the costs of that asset. The revised version of IAS 23 will come into compulsory effect in 2009/10. IFRIC 13 Customer Loyalty Programmes deals with the recognition of customer loyalty programmes applied or otherwise participated in by entities. The interpretation explores accounting for programmes under which the customer can exchange points for awards, such as free or less expensive goods or services. IFRIC 13 will come into compulsory effect in 2009/10. IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction clarifies the point when refunds or reductions in future premiums under defined benefit pension plans are regarded as available, and provides guidance on the impact of minimum funding requirements on this type of asset. It also indicates when a minimum funding requirement can lead to the inclusion of an obligation. IFRIC 14 will come into compulsory effect in 2008/09. • • We do not anticipate that the new standards and interpretations will have much, if any, influence on Transavia’s financial statements. Determination of fair values A number of principles, as well as disclosures, require the determination of fair values for financial and non-financial assets and liabilities. The fair value is determined in the following manner for measurement and disclosure purposes. Where applicable, further information on the principles applied in determining fair value is recognised for the section of these explanatory notes which applies specifically to the asset or liability in question. The fair value of financial assets and liabilities with a term of less than one year is estimated at the present value of the future cash flows, which are subsequently discounted at market interest rates on the balance sheet date. Trade and other liabilities, cash and cash equivalents and current liabilities all have a term of less than one year. Derivatives The fair value of forward exchange contracts is based on the listed market price, if available. If there is no available listed market price, the fair value is estimated at the cash equivalent of the difference between the contractual and current forward prices for the remaining term, based on a risk-free interest rate (derived from government bonds). Reports from fuel suppliers are used to determine the fair value of fuel price contracts. These reports are audited for reasonableness using techniques based on liquidated cash flows, based on the conditions and terms of the contracts, and applying market interest rates for a comparable instrument on the balance sheet date. Non-derivative financial liabilities The fair value of non-derivative financial liabilities is determined in the context of disclosures and is calculated on the basis of the cash value of future capital and interest repayments, discounted at the risk-free interest rate for the term in question, plus the current credit risk surcharge. Market interest rates for financial leases are determined using comparable lease agreements. 30 Back to contents Annual Report 2007/2008 Financial risk management Transavia is exposed to the following risks from its use of financial instruments: • market risk • credit risk • liquidity risk We use derivative financial instruments (“derivatives”) in order to hedge the risk of fluctuations in fuel prices, currency exchange rates and interest rates. Transavia does not trade in these derivatives and has procedures and guidelines in place to limit the extent of the risks. The Executive Board has ultimate responsibility for setting up and supervising the risk management framework at Transavia. Management of the responsibility for developing and monitoring the risk management policy in relation to fuel, foreign currency and finance (interest) is delegated to a Financial Risk Committee (FRC). The Executive Board receives periodical reports from the FRC on its work. The Supervisory Board ensures that the Executive Board monitors compliance with the risk management policy and procedures. The Supervisory Board approves the strategic financial risk policy at the start of every financial year. The Supervisory Board also continually tests the adequacy of the risk management policy in conjunction with the risks faced by Transavia, and is assisted in this supervisory duty by the Internal Audit department. Market risk Market risk is the risk that Transavia’s revenues or the value of its holdings in financial instruments might be adversely affected by changes in market prices, such as fuel prices, currency exchange rates and interest rates. The objective of managing the market risk is to keep the market risk position within acceptable limits. We use derivatives and incur financial liabilities in order to manage the market risk. Transavia endeavours to apply hedge accounting in order to restrict volatility in the Income statement. Fuel price risk Because of the wide fluctuations in oil and dollar prices, Transavia operates a fuel surcharge policy aimed at limiting the consequences of price fluctuations as far as possible. Transavia’s policy for both the B2B and B2C markets is to pass on the costs, with an accompanying method. To limit the consequences for transavia.com of the fluctuations in fuel prices, we arrange coverage in advance for the procurement price of the majority of our fuel requirements. This coverage can be adjusted throughout the financial year on the basis of actual price movements. In summary, the risk policy provides that the price risk should be hedged as regards a large proportion of anticipated fuel usage for approximately 12 months. We frequently use swaps for this purpose. On 31 March 2008, the contract value of the hedges amounted to USD 145.2 million (31 March 2007: USD 103.1 million). Currency risk The currency risk arises from operational exposure in terms of fuel, leases, insurances and other expenditure, as well as finance obligations denominated in a currency other than the operational currency for the Group’s entities, primarily the American dollar (USD). Transavia hedges a substantial proportion of the estimated currency exposure for up to 3 years ahead. Forward exchange contracts are the main instrument used to hedge the currency risk. The principal amount on USD borrowings (aircraft loans and purchase options) and interest obligations are fully covered by means of zero-coupon bonds (see investments) falling due on the same date as that on which the loans are due to be repaid. The currency risk for monetary assets and obligations held in currencies other than the euro is also largely hedged by purchasing forward exchange contracts. On 31 March 2008, the contract value of the outstanding forward exchange contracts amounted to USD 615.1 million (31 March 2007: USD 179.8 million). 3 Back to contents Annual Report 2007/2008 Interest rate risk The interest rate risk policy is aimed at managing the risk of fluctuations in interest rates for the company’s result. This involves consideration of the net debt, made up of leasing obligations less the cash and cash equivalents, where we aim to strike the best possible match between cash and cash equivalents and long-term obligations during the interest period. Credit risk Credit risk is the risk of financial loss if a purchaser or counter-party to a financial instrument fails to meet its contractual obligations. Credit risks arise primarily from claims against customers, investments and positive values on derivatives. The credit risk is limited, bearing in mind the credit ratings of the purchasers and the counter-parties with whom derivative instruments are concluded. Trade and other receivables The size of the credit risk is mainly determined by the individual characteristics of our various purchasers. As part of our credit policy, we undertake a separate credit rating assessment for every new customer. External credit reports are considered during such assessments, if they are available, and in some cases we take up bank references. The credit risk is concentrated primarily in the tour operators’ sales channel. In order to limit this credit risk, the amounts receivable from tour operators are largely collected prior to the date of the flight, or else bank guarantees are used. We periodically assess recoverability of trade and other receivables using an aging analysis. The provisions for impairment losses are determined statically, meaning that the risk of recoverability is determined for each individual receivable. Investments Transavia limits its exposure to credit risk by investing only in current securities (zero-coupon bonds) and only with counterparties with an AAA credit rating. Because of this high credit rating, the management anticipates that each of these counter-parties will fulfil its obligations. Liquidity risk The liquidity risk is the risk that Transavia might not be able to fulfil its financial obligations as they fall due. The principle underlying liquidity risk management is that sufficient liquid assets should be held to allow us to meet our current and future financial obligations. One important principle is that there must be at least enough liquidity available to meet the fixed operating expenses for a number of months. The risk at the close of the financial year 2007/2008 was limited as a result of the substantial liquidity position and the decreasing net debt. Capital management The Executive Board’s policy is aimed at maintaining a strong capital base in order to retain the confidence of the stakeholders, creditors and the markets in which Transavia is active and to safeguard Transavia’s future. The Executive Board monitors the return on capital employed (ROCE), which is defined as the result from operational activities divided by the average capital employed. 3 Back to contents Annual Report 2007/2008 Notes to the balance sheet (x €1,000) . Intangible assets 2007/2008 2006/2007 5,258 3,387 8,645 Cost Balance at 1 April Acquisitions Disposals Balance at 31 March 8,645 1,421 -/-941 9,125 Amortisation and impairment losses Balance at 1 April Amortisation Disposals Balance at 31 March 3,145 1,840 -/-1,043 3,942 1,342 1,803 3,145 Carrying amounts At 31 March 5,183 5,500 The carrying amount as at 31 March 2008 includes an amount of €2.4 million (31 March 2007: €2.1 million) as software under development. No impairment losses occurred during the financial year 2007/2008. 33 Back to contents Annual Report 2007/2008 . Tangible fixed assets Aircraft Buildings 15,046 401 15,447 Other 22,428 611 -/-173 22,866 Total 648,978 7,998 -/4,219 652,757 Cost Balance at 1 April 2006 Acquisitions Disposals Balance at 31 March 2007 611,.504 6,986 -/-4,046 614,444 Depreciation and impairment losses Balance at 1 April 2006 Depreciation Disposals Balance at 31 March 2007 153,272 35,258 -/-3,268 185,262 6,969 466 7,435 21,394 681 -/-173 21,902 181,635 36,405 -/-3,441 214,599 Cost Balance at 1 April 2007 Acquisitions Disposals Balance at 31 March 2008 614,444 22,345 -/-174,133 462,656 15,447 15,447 22,866 1,894 -/-20,052 4,708 652,757 24,239 -/-194,185 482,811 Depreciation and impairment losses Balance at 1 April 2007 Depreciation Disposals Balance at 31 March 2008 185,262 31,615 -/-72,434 144,443 7,435 495 7,930 21,902 445 -/-19,838 2,509 214,599 32,555 -/-92,272 154,882 Carrying amounts At 31 March 2007 At 31 March 2008 429,182 318,213 8,012 7,517 964 2,199 438,158 327,929 Aircraft at 31 March 2008 includes seven Boeing 737-800s and five Boeing 737-700s. Five Boeing 737-800s were sold during this financial year and leased back under an operational lease structure. The return from these aircraft was €102.3 million, 34 Back to contents Annual Report 2007/2008 while the carrying amount was €101.7 million. The net profit is recognised under the item Revenue. Transavia ordered seven new Boeing 737s during the financial year 2007/2008. Furthermore, an option was taken on another three Boeing 737s. The aircraft ordered will be delivered in the period between 2009 and 2012. The down-payments, including capitalised interest, and the options for these aircraft are recognised as down-payments on aircraft in Aircraft, and amounted to €11.1 million as of 31 March 2008. Other includes transport equipment and inventory. Financial leases have been concluded for a number of aircraft and are included under the item Aircraft loans. No securities have been granted to the other categories of Tangible fixed assets. 2007/2008 2006/2007 276,563 Assets subject to financial lease agreements Aircraft 257,786 No impairment losses occurred during the financial year 2007/2008.. 3. Investments in Associated companies 2007/2008 Balance at 1 April Additions Profit for the year Balance at 31 March 15 7,185 -/-7,200 0 2006/2007 15 15 The investment in associated companies relates to a capital contribution to Transavia France S.A.S., based in Paris. 35 Back to contents Annual Report 2007/2008 Summary of the financial information for Transavia France S.A.S.: 2007/2008 Country of incorporation Interest held % Balance sheet total Revenue Result after taxation Share of result after taxation France 40 46,949 53,400 -/-19,328 -/-7,200 2006/2007 France 40 537 - The share of the result after taxation has been maximised to the value of the associated company in the Balance sheet.. 4. Other investments 2007/2008 2006/2007 124,924 167 6,905 -/-12,060 119,936 Investments held-to-maturity Balance at 1 April Additions Accrued interest Foreign currency revaluation Balance at 31 March 119,936 2,884 5,559 -/-20,220 108,159 The item Investments held-to-maturity contains zero-coupon bonds and long-term deposits in USD. These zero-coupon bonds consist of bonds to hedge future liabilities under financial leases in foreign currencies, and amount to €101.6 million (2006/2007: €115.4 million). These foreign currency obligations are included in the item Aircraft loans. The exchange differences are recognised in the income statement. The long-term deposits operate as security for operational leases and amount to €6.5 million (2006/2007: €4.5 million). 36 Back to contents Annual Report 2007/2008 Other information: 2007/2008 Average interest rate on zero-coupon bonds Fair value of the zero-coupon bonds 4.32%-7.09% 111,049 2006/2007 4.32%-7.09% 117,231 5. Inventories 2007/2008 Maintenance materials Provision Other inventories Balance at 31 March 6,109 -/-1,965 4,144 1,709 5,853 2006/2007 5,309 -/-1,698 3,611 1,903 5,514 The impairment loss on inventories amounted to €0.3 million (2006/2007: €0.3 million) and is recognised in Other operating expenses. 37 Back to contents Annual Report 2007/2008 6. Trade and other receivables 2007/2008 Trade receivables Provision 14,660 -/-1,590 13,070 Amounts due from group companies Prepaid expenses Other receivables Prepayments and accrued income Total of Trade and other receivables Derivatives used for hedging Balance at 31 March 6,580 3,205 6,411 167 29,433 15,327 44,760 2006/2007 17,055 -/-2,192 14,863 7,149 18,219 3,737 573 44,541 3,925 48,466 7. Cash and cash equivalents 2007/2008 Deposits with Group companies Cash and bank balances Balance at 31 March 243,568 2,686 246,254 2006/2007 208,411 3,607 212,018 The Cash and cash equivalents are entirely at the company’s disposal. The effective interest rates on deposits are in the range of 2.75% to 5.50% (2006/2007: range of 2.30% to 5.35%). The proportion of Cash and cash equivalents in currencies other than euro: 2007/2008 2006/2007 USD Others 27,267 328 27,595 16,877 180 17,057 38 Back to contents Annual Report 2007/2008 8. Loans and borrowings 2007/2008 2006/2007 36,717 11,646 48,363 Current portions of long-term loans Aircraft loans Other long-term loans Balance at 31 March 29,881 13,913 43,794 9. Other current liabilities 2007/2008 Trade payables Amounts due to group companies Deferred income Derivatives used for hedging Taxes and social security contributions Other liabilities Accrued expenses Balance at 31 March 18,810 13,481 58,454 26,398 3,376 19,905 42,306 182,730 2006/2007 19,600 13,007 56,780 2,869 3,275 16,391 41,233 153,155 The item Accrued expenses consists principally of variable flight costs yet to be paid.. 0. Long-term liabilities This note contains information on the contractual provisions in the interest-bearing loans and borrowings, which are valued at amortised cost. 2007/2008 Subordinated loan Aircraft loans Other long-term liabilities Total loans and borrowings 22,689 275,609 54,864 353,162 2006/2007 22,689 356,148 51,662 430,499 39 Back to contents Annual Report 2007/2008 Subordinated loan relates to a loan made by the limited partners. This loan is subordinated to all existing and future claims of creditors and banks. This loan is not subject to any redemption obligation. The interest on this subordinated loan is set once each year and amounts to 6.75% for 2008 (2007: 6.02%). Aircraft loans consists of obligations under financing agreements concluded in relation to aircraft, which are covered by an associated mortgage debt. The repayments on these debts will be made up to and including 2015. The repayments to be made in 2008/2009, amounting to €29.9 million (31 March 2007: €36.7 million), are included under Loans and borrowings. The mortgage loans on aircraft have been fully repaid this year. The interest on the long-term loans is mainly variable and is in the range of 4.15% to 5.65% (2006/2007: range of 2.95% to 4.93%). This item also contains deferred income from aircraft finance, up to and including 2015, to the value of €5.7 million (31 March 2007: €8.1 million). Other long-term liabilities relates to contracts for aircraft and engine maintenance with a maximum expected remaining term of five years. The amounts payable in 2008/2009, of €13.9 million (31 March 2007: €11.6 million), are recognised under Loans and borrowings. This item also includes deferred income from the contractual return conditions for aircraft with operational lease contracts, to the value of €5.5 million (31 March 2007: nil). The contractual provisions for outstanding loans are as follows: 2007/2008 Interest Maturity date Carrying amount 2006/2007 Carrying amount Subordinated loan Aircraft mortgage loans Fixed interest financial lease obligations Variable interest financial lease obligations 6.75% Indeterminate 2008 22,689 126,285 149,324 275,609 22,689 36,910 146,843 172,395 356,148 4.32%-7.09% 4.15%-5.65% 2010-2011 2011-2015 The nominal value of the outstanding loans is equal to the carrying amount. 40 Back to contents Annual Report 2007/2008 The maturity of the aircraft loans is as follows: 2007/2008 Total obligation Between 2 and 5 years Over 5 years Total long-term Less than 1 year 305,490 177,833 97,776 275,609 29,881 2006/2007 392,865 240,835 115,313 356,148 36,717 . Employee benefits 2007/2008 Present value of (un)funded obligations Fair value of plan assets Present value of net obligations Unrecognised actuarial gains/losses Balance at 31 March 228,308 -/-159,206 69,102 -/-12,667 56,435 2006/2007 224,300 -/-156,668 67,632 -/-12,290 55,342 4 Back to contents Annual Report 2007/2008 Movements in the present value of (un)funded obligations 2007/2008 Balance at 1 April Current service costs Interest on obligation Employee contributions Benefits paid Curtailments Actuarial gains/losses Balance at 31 March 224,300 9,359 10,331 4,075 -/-6,374 -/-13,383 228,308 2006/2007 225,911 8,670 10,105 4,597 -/-5,930 -/-50,215 31,162 224,300 Movements in the fair value of plan assets 2007/2008 Balance at 1 April Return on plan assets Employee contributions Employer contributions Benefits paid Curtailments Balance at 31 March 156,668 -/-5,430 4,075 10,267 -/-6,374 159,206 2006/2007 181,208 8,446 4,597 8,897 -/-5,930 -/-40,550 156,668 Plan assets 2007/2008 Shares Fixed interest investments Cash 30.3% 65.7% 4.0% 2006/2007 21.7% 71.1% 7.2% 4 Back to contents Annual Report 2007/2008 Expenses for defined benefit obligations recognised in the Income statement 2007/2008 Current service costs Interest on obligations Expected return on plan assets Recognised actuarial gains and losses Curtailments 9,359 10,331 -/-7,527 -/-803 11,360 2006/2007 8,670 10,105 -/-8,754 120 -/-9,912 229 Principal actuarial assumptions as at balance sheet date 2007/2008 Discount rate Expected rate of return on assets Expected future salary increases (excluding inflation adjustment) Expected inflation Expected future pension increases 5.50% 6.60% 4.11% 2.0% 1.75% 2006/2007 4.45% 4.75% 3.0% 2.0% 0.45% The assumptions are weighted averages of the pension and early retirement plans for cabin staff, cockpit staff and ground staff. Historical information 2007/2008 Present value of (un)funded obligations Fair value of plan assets Present value of net obligations Experience adjustments arising on liabilities Experience adjustments arising on plan assets 228,308 -/-159,206 69,102 7,308 -/-12,957 2006/2007 224,300 -/-156,668 67,632 -/-4,447 -/-1,140 Experience adjustments are defined as all profits/(losses) not resulting from an amended discount rate. 43 Back to contents Annual Report 2007/2008 . Other provisions 2007/2008 Balance at 1 April Additions Withdrawals Releases Balance at 31 March 1,897 -/-573 -/-891 433 2006/2007 575 1,522 -/-200 1,897 The Other provisions have been made for restructuring and are payable within one year. 3. Capital 2007/2008 Balance at 1 April Movement in the fair value of cash flow hedges Capital repayment to the limited partners Managing partner’s profit share Profit for the period Balance at 31 March 140,351 -/-12,127 -/-38,161 -/-159 11,680 101,584 2006/2007 125,615 -/-1,311 -/-4,744 -/-159 20,950 140,351 The contractually determined share of profits for the managing partner Transavia Airlines B.V. is recognised in the balance sheet as at 31 March 2008. The repayment of capital for 2007/2008 to the limited partners will only be withdrawn from capital once it has been ratified by the General Meeting of Limited Partners. 44 Back to contents Annual Report 2007/2008 Notes to the Income statement ((x €1,000) 4. Revenue 2007/2008 Business to Business Business to Consumer Other activities Subtotal Gain on sale of assets 425,490 251,003 41,888 718,381 572 718,953 2006/2007 389,044 250,675 44,447 684,166 14 684,180 Five aircraft were sold this year and leased back under an operational lease structure. The results from these transactions are recognised under Gain on sale of assets. 5. Personnel expenses 2007/2008 Salaries Social security charges Contributions to defined contribution plans Expenses from defined benefit plans Other personnel expenses 95,325 8,639 3,087 11,360 10,972 129,383 2006/2007 88,719 7,516 546 229 5,828 102,838 The total average number of employees during the financial year was 1,779 FTEs (2006/2007: 1,668). The remuneration of members of the Executive Board charged to the company in 2007/2008 was €0.8 million (2006/2007: €1.1 million). 45 Back to contents Annual Report 2007/2008 6. Depreciation, amortisation and impairment losses 2007/2008 Intangible assets Aircraft Buildings Other tangible fixed assets 1,840 31,615 495 445 34,395 2006/2007 1,803 35,258 466 681 38,208 7. Other operating expenses 2007/2008 Fuel Landing and navigation Passenger taxes Aircraft handling and catering Operational aircraft leases Aircraft maintenance Miscellaneous operational expenses 152,230 89,931 93,977 58,036 43,029 28,841 61,037 527,081 2006/2007 150,100 86,579 89,116 55,803 37,008 28,494 62,335 509,435 46 Back to contents Annual Report 2007/2008 8. Net financing expense 2007/2008 Interest revenue from investments held-to-maturity Net foreign exchange results Interest revenue from bank deposits Finance income Interest expenses on financial liabilities measured at amortised cost Interest accrual on long-term liabilities Other interest charges Finance expenses 2,402 1,055 11,263 14,720 -/-14,063 -/-3,370 -/-39 -/-17,472 -/-2,752 2006/2007 2,403 657 7,455 10,515 -/-13,647 -/-2,529 -/-20 -/-16,196 -/-5,681 The interest revenues and expenses only include amounts for financial instruments that are not recognised at fair value through profit & loss. 47 Back to contents Annual Report 2007/2008 9. Financial instruments Credit risk The carrying amount of the financial assets represents the maximum credit risk. On the reporting date, the maximum credit risk was as follows: 2007/2008 Investments held-to-maturity Total of trade and other receivables Cash and cash equivalents Forward exchange contracts used for hedging: - Assets - Other forward exchange contracts 15,327 3,925 108,159 29,433 246,254 2006/2007 119,936 44,541 212,018 A substantial proportion of the trade receivables relates to 6 tour operators. The credit risk is limited, bearing in mind the credit rating and track records of these customers. Trade receivables aged in excess of six months, and which are not impaired, amount to €0.1 million (31 March 2007: nil). The cash and cash equivalents include deposits representing €243.6 million (2006/2007: €208.4 million) made to the Group. Impairment losses Movements in the provision for impairment losses with respect to trade receivables are as follows:: 2007/2008 Balance at 1 April Impairment loss recognised Write-off of bad and doubtful debtors Balance at 31 March 2,192 158 -/-760 1,590 2006/2007 2,037 902 -/-747 2,192 At the close of the 2007/2008 financial year, there were no impairment losses on investments held-to-maturity (2006/2007: nil). 48 Back to contents Annual Report 2007/2008 Liquidity risk The contractual term of the financial liabilities, including the estimated interest payments and excluding the impact of offset agreements, is as follows: Carrying amount 31 March 2008 Contractual cash flows < 1 year 1-5 years > 5 years Non-derivative financial liabilities Subordinated loan Aircraft loans Other long-term liabilities Loans and other financial liabilities Current liabilities* 22,689 275,609 54,864 43,794 156,332 22,689 275,609 54,864 43,794 156,332 43,794 156,332 177,833 54,864 22,689 97,776 - Derivative financial liabilities Forward exchange contracts used for hedging 26,398 423,807 199,350 224,457 - * excludes derivative financial liabilities Carrying amount 31 March 2007 Contractual cash flows < 1 year 1-5 years > 5 years Non-derivative financial liabilities Subordinated loan Aircraft loans Other long-term liabilities Loans and other financial liabilities Current liabilities* 22,689 356,148 51,662 48,363 150,286 22,689 356,148 51,662 48,363 150,286 48,363 150,286 240,835 51,662 22,689 115,313 - Derivative financial liabilities Forward exchange contracts used for hedging 2,869 137,247 137,247 - * excludes derivative financial liabilities The liquidity risk is limited as a result of sufficient available liquidity in the form of cash and cash equivalents.. 49 Back to contents Annual Report 2007/2008 The periods during which the cash flows take place in respect of the derivatives used as cash flow hedging are equal to the contractual terms. Interest rate risk On the reporting date, the interest rate profile for interest-bearing financial instruments was as follows: 2007/2008 2006/2007 115,398 -/-199,371 Fixed interest financial instruments Financial assets Financial liabilities 101,651 -/-133,908 2007/2008 2006/2007 212,018 -/-216,184 Variable interest financial instruments Financial assets Financial liabilities 246,254 -/-194,271 Cash flow sensitivity analysis for variable interest instruments The interest rate increase, by 100 basis points since the reporting date, means that the capital and the result should rise by €0.5 million (2006/2007: nil). It is assumed that all other variables, particularly exchange rates, remain constant. A reduction by 100 basis points in the interest rate since the reporting date would have had a comparable but adverse impact, assuming that all other variables remained constant. 50 Back to contents Annual Report 2007/2008 Fair values Fair value versus carrying amounts The fair values and carrying amounts of financial assets and liabilities recognised in the balance sheet are as follows:: Carrying amount 2007/2008 Fair value 2007/2008 Carrying amount 2006/2007 Fair value 2006/2007 Investments held-to-maturity Trade and other receivables Cash and cash equivalents Forward exchange contracts used for hedging: - Assets - Liabilities Financial lease obligations Trade liabilities and other items to be paid* 108,159 29,433 246,254 117,556 29,433 246,254 119,936 44,541 212,018 121,769 44,541 212,018 15,327 -/-26,398 -/-275,609 -/-200,126 15,327 -/-26,398 313,192 -/-200,126 3,925 -/-2,869 -/-356,148 -/-198,649 3,925 -/-2,869 393,075 -/-198,649 The basis for the fair valuation is set out in the Accounting principles on page 30. * excludes derivative financial liabilities 0. Related-party transactions Transavia has entered into transactions with Group and Associated companies. The transactions mainly relate to supplies of fuel, aircraft handling, aircraft maintenance, temporary lease-in of aircraft and management of cash and cash equivalents. These transactions were concluded on standard markets terms.. 2007/2008 Revenues Costs 16,297 26,358 2006/2007 18,485 25,294 No loans, advances or guarantees were issued to the members of the Executive Board. A credit facility of €1.6 million was extended by Transavia Airlines C.V. to Transavia France S.A.S. This had not yet been drawn upon by Transavia France S.A.S. at 31 March 2008. 5 Back to contents Annual Report 2007/2008 . Off-balance sheet commitments The off-balance sheet commitments consist of guarantees for third parties amounting to €2.6 million (31 March 2007: €3.5 million), liabilities under lease and rental agreements amounting to €173.7 million (31 March 2007: €109.2 million) and downpayments on new aircraft amounting to €192.2 million (31 March 2007: €14.2 million). 2007/2008 Less than 1 year Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years Over 5 years Balance at 31 March 57,258 88,088 106,377 43,519 46,456 26,762 368,460 2006/2007 44,691 24,198 19,553 15,745 11,536 11,188 126,911 . Subsequent events No events have occurred since the date of the balance sheet of a size which would materially influence the capital position as at 31 March 2008 or the result for the financial year 2007/2008. Schiphol, 8 May 2008 Executive Board of Transavia Airlines B.V., O.P.M. van den Brink T.R. Zomer 5 Back to contents Annual Report 2007/2008 Other information Contractual provisions relating to profit allocation The share of profits for the managing partner Transavia Airlines B.V. is established under contract. The remaining profit as shown in the Income statement is at the disposal of the General Meeting of Limited Partners in accordance with the company’s Articles. Profit appropriation for 007/008 A proposal has been submitted to the General Meeting of Limited Partners to make a capital repayment to the limited partners amounting to €18.3 million. This amount will be charged to the capital account after approval of the proposal.. 53 Back to contents Annual Report 2007/2008 Auditor’s report To: the limited partners and Executive Board of Transavia Airlines C.V. Report on the financial statements We have audited the accompanying financial statements 2007/2008 of Transavia Airlines C.V., Schiphol, which comprise the balance sheet as at 31 March 2008, the profit and loss account, the statement of changes in equity and the cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s responsibility Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the 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 in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires 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 In our opinion, the financial statements give a true and fair view of the financial position of Transavia Airlines C.V. as at 31 March 2008, and of its result and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of our competence, that the management board report is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands Civil Code. Amstelveen, 8 May 2008 KPMG ACCOUNTANTS N.V. A.J.S.M. Oudejans RA 54 Back to contents Annual Report 2007/2008 transavia.com Transavia Airlines C.V. Westelijke Randweg 3 Postbus 7777 1118 ZM Schiphol Centrum The Netherlands Telephone +31 (0)20-6046555 Fax +31 (0)20-6015093 Sita SPLKKHV Email info@transavia.com Transavia Airlines C.V. is registered in the commercial register of the Chamber of Commerce and Industry in Amsterdam, The Netherlands, under number 34069081. For bookings and information: transavia.com call center The Netherlands: Belgium: France: Spain: England: Italy: Denmark: Germany: Portugal: Other countries: 0900 0737 0900 44442 0892 058888 807 075022 0906 6800065 899009901 901 300 30 0900 1100088 707 780009 +46 8505 22255 (€0.35/min.) (€0.45/min.) (€0.34/min.) (€0.31/min.) (£0.25/min.) (€0.30/min.) (kr. 4.80/min.) (€0.45/min.) (€0.12/min.) Opening hours (Central European Time): Monday - Friday: 08.00 - 22.00 Saturday and Sunday: 09.30 - 18.00 55 Back to contents