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Finnair Group First Quarter Result January 1 - March 31, 2003

Finnair Group First Quarter Result January 1 - March 31, 2003. Industry hit from two sides. Effects of Iraq war and SARS Economic situation remains weak Market situation continues to tighten Adjustment of capacity, total capacity clearly below 2001 level

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Finnair Group First Quarter Result January 1 - March 31, 2003

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  1. Finnair GroupFirst Quarter ResultJanuary 1 - March 31, 2003

  2. Industry hit from two sides • Effects of Iraq war and SARS • Economic situation remains weak • Market situation continues to tighten • Adjustment of capacity, total capacity clearly below 2001 level • Cost cutbacks resulted in significant redundancies • Loss cycle continuing and speeding up • Focus on survival, cash and balance sheet

  3. Finnair Q1/2003 • Iraq war • Profitability weakened significantly • Demand weak especially in business class • 160 mill. euro cost-cutting programme initiated • Operational quality still top class in Europe • Financial/ cash position remained strong

  4. Group key figures Mill. EUR

  5. Q1/2003:Operational result weakened significantly • Turnover +2.4%, operating expenses +8.0% • Passenger load factor dropped 1.9 percentage points • Turn for worse on North American and Asian routes • Unit revenues (yield) -8.7% • Unit costs for flight operations decreased by -3.1% • Number of personnel down -2.6%, but pension costs increased personnel expenses • One MD11 aircraft sold and leased back • Net debt almost nil

  6. EBIT per quarter MEUR 2001 2000 2002 1999 2003

  7. Change in EBIT per quarter Excluding capital gains from asset disposals MEUR 2002 2001 2000 1999 2003

  8. Passenger load factor and yield decreased during the first quarter of 2003 Q1/2003 1-12/2002 • Demand (RPK) + 8.6 % + 0.1 % • Capacity (ASK) + 11.5 % - 3.7 % • Passenger load factor - 1.9 %-points + 2.7 %-points • Yield (EUR/RTK) - 8.7 % - 1.9 % • Unit costs (EUR/ATK) - 3.1 % - 1.0 %

  9. Business and tourist class volumes International scheduled traffic Finnair and Aero Business class: Q3/2001 -16.2% Q4/2001 -18.6 % Q1/2002 -18.7 % Q2/2002 - 6.9 % Q3/2002 - 4.1 % Q4/2002 - 0.8 % Q1/2003 - 4.3 %

  10. Yield and unit costs of Flight Operations 2002 2003 %

  11. SARS • From 40% growth to 40% plunge • Affects Asian traffic and European traffic as well due to gateway travel • Capacity cut on Beijing route • SARS situation good in Japan, Thailand and Singapore, soon under control in Hong Kong and Toronto • Foreseeable impact on result already tens of millions of euros

  12. Asian traffic declined clearly due to Iraq war and SARS-epidemic

  13. Iraq war and SARS epidemic have also decreased European volumes due to gateway travel through Helsinki

  14. Leisure trafficLeisure Flights and Suntours Ltd • Overall demand in leisure industry down • Market leader Suntours (Aurinkomatkat) continues to strengthen its position • Finnair Leisure Flights increased market share • Increase in capacity => turnover increased 17.3% • Profitability improved • Unit revenues +0.7% • Customer satisfaction good

  15. Finnair Cargo • Investment in Asian market continued,volume growth +30.8%. • Cargo tonnes +4.0% • Continuing decrease in cargo capacity chartered from outside Group • Price competition tightens • Result negative vs. zero in the previous year

  16. Aviation ServicesAircraft maintenance services, ground handling and catering • Significant decrease in volume and price levels led to weakening of profitability • Turnover -9.0 %, result negative • Bankruptcy of French Air Lib airline will decrease maintenance service revenues for current year by 9 mill. euros • Finnair Catering Oy has transferred its wine wholesale operations to new SkyCellar Oy of which Finnair Catering Oy owns 19.9%

  17. Travel servicesSMT, Area, Amadeus Finland, Estravel • Decline in overall demand and price level lead to 7.3% decline in turnover • Result negative • Service and transaction fees increasingly common • Sales commission will no longer be paid to travel agents for Finnair tickets issued in Finland on September 1, 2003 or later

  18. Liquidity has remained strong

  19. Virtually no net debt March 31, 2003 Liquid funds € 317 mill. Loan facilities € 230 mill.

  20. Strong balance sheet, good bufferEquity ratio and gearing %

  21. Strategy remains unchanged • Cost efficiency vs. competitors • Competitive edge from distinct, superior product • Partnerships/ alliances • Growth from Asia and Baltic Sea region • Sustainable, profitable growth, focus on core business and more flexibility through structural changes

  22. Short-term savings • Temporary lay-offs • Recruitment frozen • Investments • Capacity cuts • Procurement

  23. Long-term savings • Group unit costs -15% by 2005 • 160 mill. euro cost-cutting programme • Permanent changes in cost and operating structure • Main focus on fixed costs • Share of personnel costs approx. 60 million euros. 1200 cut in manpower over two years • Structural adjustments bring new flexibility and savings • Increased efficiency and productivity through fleet renewal

  24. Group personnel on average

  25. Short-term forecast • Outlook clearly deteriorating • Pre-booking situation weak • Q2 bad • Result for entire year in the red • Market situation continues to tighten • Weak economic development in main market areas • Number of flights for April-September down by around 7% from previous year. New destinations Osaka and Shanghai. • Investments approx. 70 mill euros

  26. Appendices

  27. Q1/2003 in short:Operating loss excl. capital gains EUR 27.1 million Q1/2003Q1/2002 Turnover, mill.€ 400,3 391,1 EBITDAR 18,2 41,5 EBIT -13,1 -2,6 - EBIT excl. capital gains -27,1 -3,1 Pre tax profit -14,0 -4,7 Capital gains 14,0 0,4

  28. Development of Group business unitsOperating loss/profit, EBIT excl. capital gains

  29. EBITDAR, without capital gains Mill. EUR

  30. Investments financed with cash flow from operations Mill. EUR

  31. Fleet strategy actively implemented • By end of 2002, total of 17 A320 series aircraft • In 2003, eight additional A320 series aircraft • Binding orders for two A320 aircraft deliveries in 2004-2005 • DC-9 aircraft phased out by end July • MD-80 aircraft operation continues for time being • DC-9/MD-80 aircraft replacements being assessed

  32. AEA and Finnair trafficScheduled services AEA: Association of European Airlines

  33. Jet fuel price developmentUSD/Tonne and EUR/Tonne

  34. ROE and ROCE rolling 12 months %

  35. Over a third of interest bearing debt maturing in 2010 or later

  36. Average number of personnel per business area

  37. Superiority of product • Direct to 30 destinations in the world • no time-consuming transfers at crowded airports • Best schedules • morning-evening concept • One of the most punctual in Europe with least cancellations • Top class service in Europe • oneworld - alliance with best quality and best coverage – good connections to 135 countries • New aircraft in European traffic and renewed Business Class in long-haul traffic

  38. Total Shareholder Return (TSR) On average 15% annual TSR => to double the value for shareholders in five years Market Cap Price to Book minimum target 1.0 Finnair Financial Targets”Sustainable value creation” EBIT margin at least 6% => 110-120 mill. € in the coming few years Operating profit (EBIT) EBITDAR margin at least 17% => over 300 mill. € in the coming few years EBITDAR Economic profit To create positive value over pretax WACC of 10% not later than 2004 Gearing Net Debt to Equity max 0.6 Equity ratio Equity to Balance Sheet total more than 30% Pay out ratio Minimum one third of the EPS

  39. Finnair’s financial targetsdescription of scorecards

  40. www.finnair.com Finnair Group Investor Relations email: investor.relations@finnair.com tel: +358-9-818 4951 fax: +358-9-818 4092

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