Finnair GroupInterim Report

January 1 - June 30, 2003

Industry faced tough times

• Effects of Iraq war and SARS even bigger than 911

• Economic situation still weak

• Tough competition

• Cost cutting resulted in lay-offs and new structures

• Losses for industry financiers

Finnair Q2/2003

• 8,0 %-unit loss in passenger load factors primarily because of SARS epidemic

• Business class down 18,1 %• Pressure on yields• 160 MEUR cost cutting programme proceeds

as planned• Strong financial position, net debt close to nil

AEA and Finnair demandScheduled Traffic

Total traffic (RPK) Year-on-year change TOTAL - Traffic (RPK) growth YoY in %

-35,0 %

-25,0 %

-15,0 %

-5,0 %

5,0 %

15,0 %

25,0 %

35,0 %

45,0 %

35 38 41 44 47 50 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 3 6 9 12 15 18 21 24 27 30

Week

Gro

wth

in %

Total AEA

AY

AEA: Association of European Airlines

Ups...Operating expenses -5.7 %

Unit costs -2.1 %

Staff costs -4.4%, at the end of June 877

employees less than year before

Strong financial position

Considerable savings also on other costs, except

for...

…and Downs

...traffic and authority charges

Turnover -14.2 %,

Passenger load factor -8 %-unit, Asia -28.2 %-unit

despite of severe capacity cuts

Negative trend in business class demand and

price competition dropped yield by 4.4 %

Two-day illegal industrial action in June

Finnair Asian demand vs. AEAFEA - Traffic (RPK) growth YoY in %

-60,0 %

-40,0 %

-20,0 %

0,0 %

20,0 %

40,0 %

60,0 %

Week

Ch

an

ge %

Total AEA

AY

AEA: Association of European Airlines

-40

-30

-20

-10

0

10

20

30

40

50

60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

EBIT from operations Capital gainsMEUR

1999 2000

EBIT per quarter

2001 2002 2003

-50

-40

-30

-20

-10

0

10

20

30

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

MEUR

1999 2000

Change in EBIT per quarter Excluding capital gains from asset disposals

2001 20022003

-10

-5

0

5

Q1 Q2 Q3 Q4 Q1 Q2

Yield (EUR/ RTK) Unit costs (EUR/ ATK)

Both yield and unit costs down

%

2002 2003

Leisure traffic Leisure Flights and Suntours Ltd

• Overall demand still down, might lead to over capacity

• Market leader Aurinkomatkat-Suntours further strengthened its position

• Finnair Leisure Flights a clear market leader• Q2 capacity down 8.3% => turnover down

12.8 %• Weakened profitability • Yields -0.5 %• Customer satisfaction remains good

Finnair Cargo

• Capacity cuts and weak global economy resulted in decreasing revenues

• Cargo tonnes carried (Q2) -7.3 %• Cuts in chartered cargo capacity• Tougher price competition particularly on North

Atlantic cargo markets• Negative result

Aviation ServicesAircraft maintenance services, ground handling and

catering

• Turnover down 11.1% due to remarkably decreased volumes and price levels

• Successful adaptation of operating expenses, increased profitability

• Ground handling operations at most domestic airports outsourced

• FinnHandling AB set up at Stockhom Arlanda• Finnair Catering Oy has transferred its wine

wholesale operations to new SkyCellar Oy of which Finnair Catering Oy owns 19.9%

Travel servicesSMT, Area, Amadeus Finland, Estravel

• Turnover down by 19.9.% due to weak economic situation and declining yields

• Result halved• Management and transaction fees established• As of 1 September 2003 no commissions paid for

Finnair tickets in Finland

Liquidity has remained strong

CASH FLOW STATEMENT (MEUR) Q2/2003 Q2/2002

Cash flow from operations 20 53

Investments and sale of assets 8 24

Cash flow from financing -31 -95

Change in liquid funds -3 -18

Liquid funds at the beginning 302 215

Liquid funds at the end 299 197

Net debt close to nilMEUR

0

50

100

150

200

250

300

350

400

450

I nterest bearing debtLiquid fundsNet debt

June 30, 2003

Liquid funds € 299 mill. Loan facilities € 219 mill.

Strong balance sheet, big bufferEquity ratio and gearing

%

•In 2003 eight additional A320 series aircraft, total of 25 by the end of the year•In 2004 orders for one A320, one A319 and two leased A320 series aircraft•MD80 aircraft operations continue for the time being•Whole year investments approximately 80 MEUR

Actively implemented fleet strategy

•Last DC-9 flight in July•European jet flights in coming years with Airbus A320 series aircraft, domestic operations with MD80s

•Huge savings from fleet commonality

•Positive impact on eco-efficiency

DC-9 operations in history

Strategy remains unchanged

• Cost efficiency vs. competitors

• Competitive edge from distinct, superior product

• Partnerships/alliances

• Growth from Asia, Baltic Sea region and Scandinavia

• Sustainable, profitable growth, focus on core business and more flexibility through structural changes

160 MEUR cost-cutting programme proceeds on time

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

At the end of June 877 employees less than year before

7 000

8 000

9 000

10 000

11 000

12 000

Nordic Airlink

• Finnair acquires 85% of shares• New low-cost airline Nordic Airlink expands and

deepens operations in Scandinavia• Five MD-80 aircraft in fleet breeds synergy• Competitive cost structure• Turnover MSEK 240 (25.6 MEUR), approx. 200 000

passengers in 2003• Operations on mainly busy routes with monopoly at

work in terms of services and price

Short-term outlook• Demand slowly picking up. Global economy still

weak. • Cost cutting proceeding, but full year result

expected to be a clear loss • Finnair introduces totally new price concepts• New growth in Scandinavia through airline

acquisition• Strong expansion in Asia continues• Aero Airlines prepared to expand into Finnish

domestic traffic

Appendices

Q2/2003 in short:Operating loss excl. capital gains EUR 9,9 million

Q2/2003 Q2/2002

Turnover, mill.€ 366,1 426,9

EBITDAR 38,9 76,6

EBIT -5,5 30,2

- EBIT excl. capital gains -9,9 29,4

Pre tax profit -6,4 27,8

Capital gains 4,3 0,8

Passenger load factor and yield decreased during the second quarter of 2003

Q2/2003H1/2003

• Demand (RPK) - 15,4 % -3,3 %• Capacity (ASK) - 4,8 % +3,4 %• Passenger load factor - 8,0 %-points -4,7 %-points

• Yield (EUR/RTK) - 4,4 % - 7,0 %• Unit costs (EUR/ATK) - 2,1 % - 2,6 %

Development of Group business units

Operating loss/profit, EBIT excl. capital gains

Q2/ 2003 Q2/ 2002Mill. EURScheduled traffic - 5,7 26,6Leisure traffic 1,2 5,8Cargo - 1,6 0,2Aviation services 0,7 - 0,8Travel services 1,1 2,6Support services - 5,6 - 5,0Total -9,9 29,4

Business and tourist class volumesInternational scheduled traffic

Business class:Finnair + Aero

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 %Q2/2003 -18,1%

GROWTH IN BUSINESS CLASS vs TOURIST CLASS (incl. AERO)(International scheduled traffic)

-25,0

-20,0

-15,0

-10,0

-5,0

0,0

5,0

10,0

15,0

20,0

01

.00

03

.00

05

.00

07

.00

09

.00

11.0

0

01

.01

03

.01

05

.01

07

.01

09

.01

11.0

1

01

.02

03

.02

05

.02

07

.02

09

.02

11.0

2

01

.03

03

.03

05

.03

07

.03

%

business tourist

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

PASSENGER LOAD FACTORS (incl. Aero)

73,0

81,6 83,0

59,356,2

90,0

68,365,3

73,1

56,053,1

90,2

0

10

2030

40

50

60

7080

90

100

All Far East N-Atlantic Europe Domestic Leisure

%

prev-y act.

January 03 - July 03

EBITDAR, without capital gains

0

10

20

30

40

50

60

70

80

Q1 Q2 Q3 Q4

2000200120022003

Mill. EUR

Investments financed with cash flow from operations

Estimated investments 2003 about 80 million euros

0

50

100

150

200

250

300

1998/ 99 1999/ 00 2000 2001 2002 H1/ 2003

Operational cash flow Investments

Mill. EUR

Operating lease liabilities of aircraft have increased in line with the strategy

Flexibility, competitive cost, residual risk management

0

50

100

150

200

250

300

350

400

450

MEUR

1998/ 99 1999/ 00 2000 2001 2002 Q2 2003

At the end of June 2003 all aircraft leases are operating leases. If the leaseliability inherent in an operating lease would be capitalized using theindustry standard method (= annual lease payments x 7), the adjusted gearing would have been approximately 100% at the end of June 2003.

TRAFFIC GROWTH vs PASSENGER LOAD FACTOR (incl. Aero)12 m rolling sum

-4,0

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

01.9

6

01.9

7

01.9

8

01.9

9

01.0

0

01.0

1

01.0

2

01.0

3

rpkY-o-y growth %

56,0

58,0

60,0

62,0

64,0

66,0

68,0

70,0

72,0

74,0

76,0plf %

change, y-o-y (left) passenger load factor (right)

Jet fuel price developmentUSD/Tonne and EUR/Tonne

100

150

200

250

300

350

400

450

01/96 07/96 01/97 07/97 01/98 07/98 01/99 07/99 01/00 07/00 01/01 07/01 01/02 07/02 01/03 07/03

USD

EUR

ROE and ROCE rolling 12 months

-6

-3

0

3

6

9

12

15

18

21

Q22000

Q32000

Q42000

Q12001

Q22001

Q32001

Q42001

Q12002

Q22002

Q32002

Q42002

Q12003

Q22003

ROE ROCE

%

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

Finnair Financial Targets”Sustainable value creation”

Operating profit (EBIT)

EBIT margin at least 6% => 110-120 mill. € in the coming few years

EBITDAR EBITDAR margin at least 17% => over 300 mill. € in the coming few years

Economic profit To create positive value over pretax WACC of 10% not later than 2004

Pay out ratio Minimum one third of the EPS

GearingNet Debt to Equity max 0.6

Equity ratio Equity to Balance Sheet total more than 30%

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’s financial targets description of scorecards

Operating profit(EBIT)

Turnover + other operating revenues – operating costs =operating profit

EBITDAR Result before depreciation, aircarft lease payments and capitalgains

Economic profit Operating profit EBIT – Weighted Average Cost of Capital

Gearing (Interest bearing debt – liquid funds) /(Equity + minority interests)

Equity ratio (Equity + minority interests) /(Balance sheet total – advances received)

Pay out ratio Dividend per share / Earnings per share

Total shareholderreturn (TSR)

Total return for shareholders including dividend paid out duringcertain period. Expects that dividend is invested back intoFinnair shares immediately.

Price to book ratio Finnair’s market value calculated on the basis of its share pricedivided by its book equity

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tel: +358-9-818 4951fax: +358-9-818 4092