FULL YEAR 2017

• Robust traffic statistics with 99 million passengers carried, up 5.6% compared to last year
• Operating income at 1,488 million euros, up 41.8% compared to 2016.
• Significant balance-sheet de-risking linked to the de-recognition of two pension plans, with a related non-current net expense of 1,429 million euros. Including this impact, the net result group share stands at -274 million euros.

Excluding this non-current expense, the 2017 net result stands at +1,155 million euros, up 363 million euros compared to last year.

• Flat unit costs at constant currency, fuel and pension charges in spite of increased load factor and profit sharing effects.
• Significant strengthening in the group's financial structure with a net debt reduction of 2 billion euros resulting from strong operating free cash flow and issued capital.
• Adjusted net debt / EBITDAR ratio of 2.1x, an improvement of 0.8 points compared to 31 December 2016.

OUTLOOK FOR FULL YEAR 2018

• First quarter 2018 unit revenue growth expected to be positive at constant currency compared to last year.
• Unit cost reduction of between -1.0% and -1.5% at constant currency, fuel and pension charges.
• Fuel bill increase of 150 million euros, based on current forward prices and hedge portfolio.
• Positive operating free cash flow (before acquisitions and disposals).

The Board of Directors of Air France-KLM, chaired by Jean-Marc Janaillac, met on 15 February 2018 to approve the accounts for the Full Year 2017.

Jean-Marc Janaillac made the following comments: "Air France-KLM closed 2017 with strong results boosted by a positive business environment. Thanks to the commitment of employees and the continuing focus on the quality of customer service, the group confirmed its leadership position in Europe in traffic terms while reporting an operating income increase of 42% and significantly improving its financial profile. These achievements went hand in hand with major strategic advances including the strengthening and broadening of our network of alliances and the successful launch of Joon. As we enter 2018, in a context of rising oil prices and even more intense competition, we will pursue the offensive, work on competitiveness and unit cost reduction, and capitalize on the realizations of 2017 in order to maintain a profitable growth momentum."

Business Review

The combined Passenger and Cargo operating result amounted to 1,192 million euros for full year 2017, an increase of 479 million euros at constant currency. This improvement was underpinned by capacity growth, increased unit revenue and stable unit costs.

The number of passengers carried in 2017 grew by 4.3% to 84 million and unit revenue increased by 1.8% at constant currency.

The Passenger business benefitted from a favourable trading environment with disciplined capacity growth and dynamic demand. Demand was particularly strong on the North American routes and on the medium-haul hub network, with traffic increases of respectively 6.1% and 7.4%. In addition, the recovery in demand on Asian and Latin America routes had a strongly positive impact on unit revenues, with increases of respectively 6.5% and 8.3% at constant currency.

The improved product offerings on board, personalization of the customer experience and numerous targeted commercial initiatives also contributed to the achievement of unit revenue growth.

In addition, significant progress was made in a number of strategic areas. Air France-KLM made important advances on further expanding its unrivaled global network. The group significantly strengthened its existing partnerships and setup new joint ventures, with China Eastern, Jet Airways and Vietnam Airlines, while the foundations are being laid for the new North Atlantic Joint Venture with Delta and Virgin Atlantic.

In December 2017, as planned, Air France successfully launched its new airline Joon.

The Cargo business confirmed its turnaround in the second half of 2017. Traffic grew by 1.8% in full year 2017 and successive quarters showed higher year over year increases in unit revenue, contributing to a full year unit revenue increase of 1.6% at constant currency.
The improvement in the Cargo business was driven by solid demand growth to/from Asia as of the beginning of 2017 and from Latin America in the second half of the year, enabling optimized revenue management steering.
The Full Freighter activity significantly improved in 2017 compared to last year, contributing to the overall Cargo performance.

Transavia carried 14.8 million passengers in 2017, an increase of 11.3% compared to last year. Capacity in France was up 12.1%, while capacity in the Netherlands was up 9.6%. Transavia maintained its traffic growth of 12.2% and a strong unit revenue rise of 6.8%, underpinned by improved commercial positioning and network rationalization.

In full year 2017, the operating result increased to 81 million euros with a margin of 5.6%, versus break-even in 2016.

The Maintenance business had flat revenues in 2017 compared to last year, with third-party revenues increasing by 1.1% at constant currency. The operating margin expressed as a percentage of total revenues stood at a healthy 5.1%. Its small decrease of 0.6 points at constant currency was driven firstly by margin pressure in the Components activity due to a tougher competitive landscape, including competition from OEMs, and secondly by manufacturer supply chain pressure and procurement price escalation in the Engine business. On the other hand the Airframe activity delivered an improved performance compared to last year.

The Maintenance order book further increased to a record high of 10.4 billion dollars at end 2017, an increase of 16.9%, well ahead of the 2017 target of 10% growth. Both Engine and Component orders contributed to the increase in the order book. In the fourth quarter of 2017, several large new CFM56 engine deals and various "Next Gen" components contracts were signed.

In 2017, the Air France-KLM Group realized an operating result of 1,488 million euros, up by 439 million euros or +41.8% compared to last year. This increase was mainly driven by the rise in unit revenues, accounting for 447 million euros. The other elements contributing to the result compared to last year were: a capacity growth effect of 28 million euros, a unit cost effect of -20 million euros, a currency effect of -119 million euros and a fuel price effect of +101 million euros.

The operating margin was 5.8% in 2017. Adjusted for the interest portion of operating leases, the operating margin[1] was 7.2%, an improvement of 1.5 points compared to last year.

The Air France-KLM Group net result amounted to -274 million euros for full year 2017. The net result was impacted by a non-current expense linked to the de-recognition of pension assets in the Group's balance sheet, resulting from the de-risking of the KLM pilot and cabin pension plans. Excluding the pension-related non-current expense effect, the net result was +1,155 million euros, an improvement of 363 million euros compared to last year.

Flat unit cost in spite of increased profit sharing and load factor effects
The unit cost was broadly flat at +0.1% in 2017, on a constant currency, fuel price and pension-related expense basis. The structural unit cost reductions were impacted by profit sharing and by higher flight variable costs related to the increasing load factor. The unit cost reduction stood at -1.0%, excluding the effects of load factor and profit sharing, at constant currency, fuel price and pension expense in 2017.

Employees delivering productivity and sharing the benefits
Productivity, measured in EASK per FTE, increased by 3.5% while capacity increased by 3.0%. The average number of staff decreased by 400 FTEs including +100 FTEs in Pilots and +550 FTEs in Cabin crew relating to the capacity increase. Ground staff were reduced by 1,050 FTEs. Net employee costs were stable before profit sharing, the latter increasing by 176 million euros compared to last year.

2017 fuel bill down 90 million euros
The 2017 fuel bill amounted to 4,507 million euros, down 90 million euros compared to last year.

Strong operating free cash flow
Operating free cash flow stood at 696 million euros, significantly higher than last year's 347 million euros.

Net investments amounted to 2.2 billion euros, an increase of 343 million euros compared to last year.

At 31 December 2017, net debt had been further reduced to 1,657 million euros versus 3,655 million euros at 31 December 2016, an improvement of 1,998 million euros from operating free cash flow and issued capital. The Group completed capital increases totalling 751 million euros reserved to China Eastern Airlines and Delta Air Lines, and redeemed the OCEANE 2023 in new shares in the value of 523 million euros.

2017 was the sixth year of improvement in the adjusted net debt[2] / EBITDAR ratio, which decreased from 2.9x at 31 December 2016 to 2.1x at 31 December 2017, well below the mid cycle target of 2.5x by the end of 2020.

As of 1 January 2018, the Air France-KLM Group will implement the international accounting standards IFRS 9, IFRS 15 and IFRS 16.

With IFRS 16, all lease contracts will be recognized on the balance sheet. The net debt on the opening balance sheet as of 1 January 2017 will be between 8.8 billion and 9.2 billion euros[3]. This compares with an adjusted Net Debt2 of 11.2 billion euros as reported on 31 December 2016, which is a reduction of between 2.0 billion and 2.4 billion euros.

As of 31 December 2017, there will be a net equity impact which is estimated between -0.3 billion and -0.6 billion euros. From 2018 onwards, the volatility in the foreign exchange result originating from the revaluation of the USD lease debt will be limited as the Group intends to use the USD lease debt as a natural hedge for the USD revenues.

IFRS 9 Financial Instruments is expected to have a minor impact on operating Income with reduced volatility in the financial result.

IFRS 15 Revenue recognition is expected to have a timing effect on the airline revenues that will be year-over-year neutral in the P&L. In addition, there will be a timing effect for maintenance revenues as the revenue recognition on flight-hour-based contracts will be done on an expense-incurred basis.

Outlook
The global context remains uncertain given the current geopolitical environment and fuel price trends

In 2018, to capture the market growth, the Air France-KLM group plans to increase capacity by between 3% and 4% in available seat kilometres for the Passenger Network and by between 6 and 7% for Transavia.

The first data for the Passenger network show a continued positive trend in demand for early 2018: the current long haul forward bookings for the coming three months are ahead of last year's levels with a strong March 2018 due to the Easter shift.
Passenger Network unit revenue is expected to be positive in first quarter 2018 at constant currency compared to last year.

The Group is pursuing its initiatives to reduce unit costs with a targeted reduction of between 1.0% to 1.5% at constant currency, fuel price and pension charges for 2018. The unit cost reductions will be achieved through further increases in productivity, higher fleet utilisation and efficiency, the lower cost base of the new airline Joon and the focus on operational performance.

The full year 2018 fuel bill is expected to increase by 150 million euros compared to 2017 to 4.7 billion euros[4], based on the forward curve of 9 February 2018.

The Group is targeting positive free cash flow (before acquisitions and disposals) for full year 2018. The investment plan will be managed in the long-term target range of 2.0 billion to 2.5 billion euros.