strong wings, big goals - turkish airlines

ANNUAL REPORT 2009

Strong wings, big goals

It has been told that Simurg, emperor of the birds, lived in the Kaf Mountains among the branches of the Tree of Knowledge.

Travelers themselves on the road to truth, birds set out in search of timurg. On this difficult journey, they pass over a lifetime’s worth of coarse valleys and lose hope when they reach the last valley, the valley of destitution. Still, a small number of birds keep flying and finally succeed in reaching the Kaf Mountains, whereupon they come to realization that they themselves are Simurg, their sought-after emperor of

truth, and that the strength they need already lies within them. From the very beginning, we too have looked to become

Simurg. With every step we take, we aim for something higher. We advance to the future through a process of

continuous renewal and development. As we reach higher under the strength our shared corporate values and

expanding ambitions, we believe that the joy of beating our wing together will deliver us to the summit.

Corporate

Financial Indicators 6

2009 Milestones 8

Mission-Vision 10

Management and Messages 12

Management System 20

Operations

Total Traffic Results 38

Fleet 44

Activities 48

Subsidiaries and Joint Ventures 72

Financial

Financial Ratios and Audit Reports 82

ontentsCC

2ANNUAL REPORT 2009

AmsterdamAthensBakuBarcelonaBaselBatumiBelgradeBerlinBirminghamBrusselsBucharestBudapestChisinau

Addis AbabaAlgiersBenghaziCairoCape TownCasablancaDakarJohannesburgKhartoumLagosNairobiTripoliTunis

New YorkChicagoToronto

Sao Paulo

North America3 destinations

South America1 destination

Europe65 destinations

Africa13 destinations

ur Flight NetworkOO

3ANNUAL REPORT 2009

CologneCopenhagenDnepropetrovskDonetskDublinDusseldorfEkaterinburgErcanFrankfurtGenevaGothenburgHamburgHannover

HelsinkiKazanKievLisbonLondonLjubljanaLvivLyonMadridManchesterMilanMinskMoscow

MunichNiceNurembergOdessaOsloParisPraguePristinaRigaRomeRostovSarajevoSimferopol

SkopjeSofiaStockholmSt.PetersburgStuttgartTbilisiTiranaUfaVeniceViennaWarsawZagrebZurich

AdanaAdıyamanAğrıAnkaraAntalyaBatmanBodrumÇanakkaleDalamanDenizliDiyarbakırElazığ

ErzincanErzurumEskişehirGaziantepHatayIspartaİstanbulİzmirK. MaraşKarsKayseriKonya

MalatyaMardinMerzifonMuşNevşehirSamsunŞanlıurfaSinopSivasTekirdağTrabzonUşakVan

AlmatyAshgabatAstanaBangkokBeijingBishkekJakartaDelhiDushanbe

Hong KongKarachiMumbaiOsakaSeoulShanghaiSingaporeTashkentTokyo

Abu DhabiAmmanAleppoBaghdadBahreinBeirutDamascusDohaDubaiJeddah

KuwaitMadinahMashadMuscatRiyadhSan’aaTabrizTehranTel Aviv

Far East18 destinations

Middle East19 destinations

Taking strong steps to carry our deeply-rooted

corporate identity to new horizons.

““

Financial Indicators 6

2009 Milestones 8

Mission and Vision 10

Management and Messages

Message from the Chairman 12

Board of Directors 14

Farewell to Candan Karlıtekin 18

Management System

Quality Concept 20

Sustainability 22

Social Responsibility 22

Risk Management 24

Organizational Structure 26

Legal Statute 28

Principles of Corporate Governance and

Compliance Report 30

orporateCC

6ANNUAL REPORT 2009

inancial IndicatorsFF

7ANNUAL REPORT 2009

1 January - 1 Januray - 31 December 2009 31 December 2008

ONGOING OPERATIONS Income from Sales 7,035,882,903 6,123,174,209Cost of Sales (-) (5,135,949,144) (4,542,670,584)

GROSS PROFIT / (LOSS) 1,899,933,759 1,580,503,625Marketing, Sales and Distribution Costs (-) (806,503,413) (635,876,008)General Administrative Costs (-) (261,536,526) (203,813,181)Other Operating Income 91,136,104 56,690,528Other Operating Costs (-) (199,139,482) (210,120,463)

OPERATING PROFIT / (LOSS) 723,890,442 587,384,501Share of Investment in Profit/Loss (Equity Method) 12,813,703 3,572,374Financial Income 172,982,144 1,427,882,203Financial Costs (-) (172,708,672) (713,373,140)

PROFIT BEFORE TAX / (LOSS) 736,977,617 1,305,465,938Tax income / (expense) (177,901,337) (171,239,727)

PROFIT FOR PERIOD / (LOSS) 559,076,280 1,134,226,211Earnings per share (Kr) / (Loss) (Kr) 0.64 1.30

Note: All amounts are expressed in Turkish Lira (TL) unless otherwise stated.

NET PROFIT

559million TL

Operating Profit (TL)

2009

2008

2007

2006

2005

723,890,442

587,384,501

722,759,224

206,680,100

218,493,953

Sales Income (TL)

2009

2008

2007

2006

2005

7,035,882,903

6,123,174,209

4,859,508,826

4,051,345,129

3,107,071,608

ANNUAL REPORT 2009

8

Turkish Airlines has been nominated “The Best Airline” in its region Turkish Airlines was selected as the best airline in its region, receiving the title of “Southern Europe’s Best Airline Company” by Skytrax, a company that evaluates airlines and airports using 750 parameters that measure a range of service and quality standards. In recognition of the services standards it has developed though its quality and customer-focused philosophy, Turkish Airlines was the only airline in Europe to receive 4 stars in all categories.

Turkish Airlines received the Aircraft Finance Journal’s “2008 Europen Deal of the Year” award with financing of aircraft. Turkish Airlines received the award during a ceremony organized by the 29th Air Finance Conference in New York. Following a survey it made in 2008, in which detailed analysis and criteria were applied to more than 350 airlines around the world in the area of aircraft and aircraft engine financing, the Airfinance Journal, one of the world’s leading publications in the aviation financing sector, named Turkish Airlines as having the best financial applications in Europe.

“Operational Excellence” award to Turkish Airlines from AirbusFollowing an evaluation of the service records of its fleet’s A320 family of aircraft, Turkish Airlines received Airbus’ “Operational Excellence” award. The award was presented at a ceremony held in Paris attended by airlines that operate Airbus’ A320 aircraft, and was an occasion for Turkish Airlines to put its name to yet another international achievement.

Turkish Technic Inc. once again certifies its prestige in the international arenaTurkish Airlines Technic Inc. became the first aircraft maintenance and repair center in Turkey to obtain the EN/AS9100 Aviation Series and the ISO9001:2008 Quality Management System Certificates.Turkish Air l ines Technic Inc., holding ISO9001:2000, ISO14001:2004, ISO18001:1999 Management System Certificates and National/International Aircraft/ Aircraft Components maintenance authorization certificates, is both a leader in Turkey and an important global player.The EN/AS9100 Aviation Series - Quality Management System certificate, in addition to being an important source of prestige and progress for civil aviation in Turkey, will also increase Turkish Airlines Technic Inc.‘s influence in the global aviation industry and its share in the market.

Turkish Airlines, a Cargo Quality System Member On January 1, Turkish Airlines Cargo joined the Cargo 2000 Quality Management System, an International Air Transport Association (IATA) enterprise that comprises nearly 50 airlines, numerous cargo agencies, general service providers and information technology providers. Turkish Airlines Cargo increased its market share in the global air cargo market by its improving cargo transport time management, quality of service and level of customer satisfaction. Flights to Tiran via Milan began on June 7, and the total number of cargo flight destinations reached to 21.

AWARDS INNOVATIONS AND DEVELOPMENTS

009 Milestones

9ANNUAL REPORT 2009

Turkey’s first mobile airline application from Turkish Airlines: mobil.thy.comTurkish Airlines, diversifying its sales channels with the launch of mobil.thy.com, now offers its passengers the ability to perform all stages of ticketing, check-in and boarding procedures from their mobile phones.

Restructuring of business processes with ERPTurkish Airlines launched an ERP (Enterprise Resource Planning) project, one of the world’s largest of its kind. The project aims to restructure business processes, increase operational efficiency and more effectively deliver products and services to passengers. The project is planned to be completed in three years.

Codeshare agreements Passenger have been offered expanded flight options as a result of codeshare agreements signed with Ethiopia, Singapore, Malaysia, Bosnia, Etihad, Asiana and Air Maroc airlines. A codeshare agreement has also been signed between SunExpress, which is a joint venture between Turkish Airlines and Lufthansa, and AnadoluJet, also a Turkish Airlines brand.

Special Passengers Program partnershipsTurkish Airlines signed a Special Passenger Program partnership agreement with Jet Airways and Continental Airlines, under which Miles&Smiles members may earn miles on flights with Jet Airways and Continental Airlines, which they may convert into ticket awards.

New domestic flight destinationsThe number of domestic flight destinations increased to 37 with the addition of Uşak (January 12), Çanakkale (January 19), and Isparta (October 28).

New destinations with AnadoluJetFlights to Çorlu (Tekirdağ) began on February 27 and flights to Izmir began on September 28.

New international fl ights destinationsTurkish Airlines added 10 new international destinations in 2009, increasing the total number of international destinations on its flight network to 119.NAIROBI- Kenya (February 20)UFA - Russia (March 04)MASHAD - Iran (March 15)SAO PAOLO - Brazil (April 05)DAKAR - Senegal (April 05)BENGHAZI - Libya (May 05)GOTEBORG - Sweden (June 29)TORONTO - Canada (July 11)LVIV - Ukraine (July 27)JAKARTA - Indonesia (September 04)

NETWORK

As one of the world’s most prestigious airlines, striving to be the very best in every area, Turkish Airlines gains strength with each milestone on its ascent to the top.

10ANNUAL REPORT 2009

missionTo become the preferred leading European air carrier with a global network of coverage thanks to its strict compliance with flight safety, reliability, product line, service quality and competitiveness, whilst maintaining its identity as the flag carrier of the Republic of Turkey in the civil air transportation industry.

ission and ision


visionTo become an air carrier with;

• a continued growth trend over industry average• zero major accidents/crashes• most envied service levels worldwide• unit costs equating with low cost carriers• sales and distribution costs below industry averages• a personnel constantly developing their qualifications with the awareness of the close relationship between the benefits for the company and the added value that they contribute• an entrepreneurship that creates business opportunities for fellow members in the Star Alliance and takes advantage of the business potential provided by them• a staff well adapted to modern governance principles by observing the best interests of not only shareholders but also stakeholders


essage from the ChairmanMM

13MGMT. AND MESSAGES

Dear investors and shareholders, In 2009, financial and commercial performance closely mirrored overall macroeconomic balances. Severe reverberations emanated from the global crises, which turned into the worst economic year on record since World War II, and which the IATA reported as having caused significant financial losses.

Despite the sector’s overall negative picture, Turkish Airlines continued to progress successfully. Building its strategies based on long-term goals and visions - rather than short-term gains - our company turned the crisis atmosphere into an opportunity, becoming the fastest growing airline of all member airlines in the European Airlines Association. Turkish Airlines added to this momentum by expanding its share of existing markets through organic growth, and by creating new markets that bring in rising numbers of new potential new passengers.

Today, Turkish Airlines, with its comprehensive flight network and strong schedule structure, has further reinforced its identity as a global airline. The fact that more than one third of our international passengers used Istanbul as their connection point has strengthened our company’s status as a network carrier. In 2009, the Turkish Airlines brand, with its young fleet, quality in-flight catering services, friendly personnel and security and safety standards that surpass international standards, was the preferred airline for 25.1 million passengers, and while the IATA announced a 3.5% contraction in passenger demand, Turkish Airlines grew by an impressive 11%.

In an environment where the sector’s unit revenues have been on a marked downward trend due to deteriorating global economic conditions, our company has reduced costs through a disciplined financial structure and as a result maintained its profitability. In 2009, Turkish Airlines was among Europe’s most profitable airlines, with a total profit of TL 559 million.

Our investments have served as the catalyst for Turkish Airlines’ growth. Ten new international destinations were added to the flight network in 2009. In addition to individual aircraft purchasing and leasing, the ordering process was completed on a total of 89 aircraft - 25 of which are optional – under our fleet renewal and expansion master program encompassing a total of 105 aircraft. Under this program, aircraft will begin entering our fleet in September and generate balanced and effective growth both in single and double-corridor aircraft though 2014.

Through our investments in technical training, we aim to turn Istanbul into a bona fide aviation training center. Our company completed the ordering process for two more training jets and also purchased simulators that will continue providing training services both to our airline’s own pilots and to those of other airlines that we serve. Our pilots that graduate from the flight academy, which provides world-class training, are a source of great pride to us.

Alongside our main investments in the development of our fleet and routes, projects aimed at strengthening our brand image also deserve emphasis. In addition to the “Feel Like a Star” advertising campaign featuring Kevin Costner, in which we highlight that the services we offer our passengers are fit for the stars, we signed sponsorship agreements that once again validate us as an airline preferred by the very best in the world. We were further motivated by the fact that our high quality and service standards were found to be worthy of the “Best airline in South Europe” Skytrax award, regarded as the Oscars of the aviation sector.

Our company’s achievements have been reflected in the increasing value of our shares, which are traded on the Istanbul Stock Exchange and rose by a colossal 395% in 2009. At the start of 2009, our market value was 945 million TL, and by the end of the year reached 4,988 million TL. Share in Turkish Airlines were the most profitable investment vehicle compared either to other stocks traded on the IMKB or other airline company stocks on exchanges throughout the world.

Turkish Airlines understands that its greatest assets are its determined, dynamic and devoted employees, and thus places great importance on projects that improve the living standards of our personnel. By providing all of our employees with private health insurance and increasing salaries by 6% before the start of the Collective Labor Agreement term, we have further boosted the motivation of our personnel - the architects of our success.

Turkish Airlines has taken off to a roaring start in 2010, and its coming achievements will also command strong attention. I would like to express my gratitude to our investors for their support and to all my colleagues, who have made great contributions to the achievements of our company and put forward their best efforts in making Turkish Airlines one of the most highly respected airlines in the world today.

Hamdi TOPÇUChairman of the Board, Turkish Airlines

Continuing to grow in 2009 despite the crisis


Hamdi TopçuChairman of The Board

Prof. Dr. Cemal ŞanlıVice Chairman of The Board

Temel Kotil, Ph.D.Member of The BoardPresident & CEO

oard of DirectorsBB


Temel Kotil, Ph.D.Member of The Board and President & CEO

Born in 1959, Mr. Kotil graduated from Aeronautical Engineering Department at Istanbul Technical University in 1983. In 1986, he completed his first masters degree in the United States from the Aircraft Engineering department of Michigan University, his second masters degree in Mechanical Engineering in 1987, and his Ph.D in Mechanical Engineering in 1991. Following his work, Mr. Kotil served as Assistant Associate Professor and Associate Professor at Istanbul Technical Univesity in the Faculty of Aircraft and Space Sciences. In 2003, he began his carrier with Turkish Airlines as Vice President of the Technical Department. In 2005, he was appointed General Manager of Turkish Airlines, and in 2006, he was elected as a member of the IATA Boards of Directors. Mr. Kotil is married with four children.

Prof. Dr. Cemal ŞanlıVice Chairman of The Board

Mr. Şanlı was born in Manisa in 1950. He graduated from the Faculty of Law of Istanbul University in 1977 and received his title as a Doctor of Law with the publication of his thesis “International Commercial Arbitration” in 1985. He completed his Ph. D. his thesis on International Arbitration at the “Institute of Advanced Legal Studies” associate with the University of London. In 1987, he became Assistant Associate Professor, in 1990 Associate Professor, and in 1996 full Professor at Istanbul University’s of Law. He is currently the head of the International Private Law Department of the Faculty of Law at Istanbul University. He is married and has four children.

Hamdi TopçuChairman of The Board

Mr. Topçu was born in Çayeli, Rize in 1964. He graduated from Marmara University in 1986, receiving his degree in Economics and Administrative Sciences. He began a certified accounting practice in Kartal in 1986, and continues his work as an accountant and financial advisor. Mr. Topçu is married with four children.


Born in 1962, Mr. Akpınar attended the French Saint-Michel Lycee and graduated from the Department of Management Science of Bosphorus University. He began professional career as a founding partner of Penta Tekstil in 1986 and in 1993 was appointed as the CEO of KVK Mobil Telefon Hizmetleri A.Ş. Mr. Akpınar later served as CEO of MV Holding A.Ş. and played an active role in the creation of Fintur Holding BV. Mr. Akpınar served as the General Manager of Turkcell between January 1, 2002 July 2006. He is married and has two children.

Muzaffer Akpınar Member of The Board

Mr. Büyükekşi was born in Gaziantep in 1961 and graduated from the Faculty of Architecture of Yıldız Technical University in 1988. He has participated Management Courses at Marmara University, and in Management and English courses in England in 1998. He currently holds positions as Vice Chairman of the Exporters Council of the Istanbul Chamber of Industry, Member of the Board Directors of EximBank, and Member of the Directors of the Turkish Leather Foundation. Mr. Büyükekşi is the General Coordinator of the Zilyan Group. He is married and has three children.

Mehmet Büyükekşi Member of The Board

Born in 1961 in Trabzon, Mr. Erol graduated from Karadeniz Technical University in 1985 and received his masters’ degree from Middle East Technical University. In 1996, he completed his Ph.D in Economics at Erasmus University in the Netherlands. Mr. Erol served as an assistant professor at Başkent University between 1997-1998, and as associate professor from 1998-2003. In 2003, he was appointed as a member of the Capital Markets Board (CMB), and in December of 2004 was elected as Vice President of the CMB, holding this position until June of 2007. Mr. Erol now serves as Chief Advisor to the President. He is married with two children.

Dr. Turan Erol Member of The Board

Orhan BirdalMember of The Board

Mr. Birdal was born in Kemah in 1958, in 1980 graduated from the Istanbul I.T.I.A College of Journalism and Public Relations, and in 1990 completed his graduate degree from the Social Sciences Institute of Marmara University. Between 1976 – 1978 Mr. Birdal served on the Turkish Agricultural Equipment Board and beginning in 1982 carried out various duties at DHMİ. As of 2007, he assumed the position of General Manager and Chairman of the Board of DHMİ (General Directorate of State Airports Authority), which he presently continues. On April 17, 2008 he was elected as a Member of the Board of Directors of Turkish Airlines. Mr. Birdal is married and has four children.


Born in Çanakkale in 1963, Mr. Gerçek graduated in 1985 from Ankara University, in the Department of Public Administration of the Faculty of Political Sciences. In that same year, he began working as Deputy Finance Inspector Committee of the Ministry of Finance. Between 1992 – 94, he completed his Master of Arts degree in Money and Banking in the United States as well as post – graduate studies in finance. Since 1998, he has worked as a partner an certified public accountant in an accounting firm. He is married and has two children.

İsmail GerçekAuditing Commitee Member

Mr. Vuran was born in Istanbul in 1944. He graduated from the Istanbul Academy of Economic and Commercial Sciences, and conducted studies at Italy’s Perugia University in 1966 – 1967. He received his Ph.D. in 1974, became an associate professor in 1978, and full Professor in 1984 in the Departments of Statistical and Numerical Methods. In 1971, founded Turkey’s first private airline company (Anadolu Havacılık ve Turizm A.Ş.). He is currently the Rector of Istanbul University of Commerce and heads the Department of Tourism Management within the Faculty of Commercial Sciences at Istanbul University Commerce. He is married with two children.

Prof. Dr. Ateş VuranAuditing Commitee Member

Mr. Ağbal was born in Bayburt in 1968. He graduated from the Department of Public Administration of the Faculty of Political Sciences of Istanbul University in 1989. Between 1996 – 1998, he completed an MBA program at Exeter University in England. He is now engaged in a Ph.D Program in Management at the Institute of Social Sciences of Ankara University. Mr. Ağbal currently continues his duties as General Manager of Budget and Financial Control in the Ministry of Finance. He is married with two children.

Naci AğbalAuditing Commitee Member


arewell to Candan KarlıtekinFF


He was not only an executive, but also a true friend. We shared in almost every moment of happiness and sadness. The contributions of Candan Karlıtekin signature will forever remain in bold under each positive decision made by the company.

Hamdi Topçu

He made very valuable contributions to our company as its Chairman. I thank him for his services on behalf of the entire Turkish Airlines family.

Ph.D. Temel Kotil

We thank him for transforming Turkish Airlines from a national and regional airline into a global company and brand.

Orhan BirdalA very good businessman, an excellent executive, and a kind person with a very pure heart. I wish him all the very best.

Muzaffer Akpınar

A warm-hearted and enthusiastic Chairman of the Board of Directors, who loved his job and to which he brought clear a horizon and vision.

İsmail Gerçek

Farewell to Candan Karlıtekin …

His name Candan means “heartfelt”; but it is through his vigorous personality that Candan Karlıtekin put his signature to the countless achievements of Turkish Airlines during his term as the Chairman of the Board from 2004 to the end of 2009, which he served with obvious love for his work, as a master executive and with a colorful personality devoted to education. Even though we say farewell to him at the end of 2009, we know that our routes will cross on another flight. We owe him a debt of infinite gratitude for the value and vision he brought to Turkish Airlines.

Turkish Airlines Employees

20

ANNUAL REPORT 2009

uality ConceptQQ

21MANAGEMENT SYSTEM

As it continues its rapid growth, Turkish Airlines took further steps to improve quality and safety without ever compromising its standards. As a result of its work on quality and management systems, Turkish Airlines successfully passed all of the approval processes conducted by national and international authorities.

Management system

One of the basic duties of an airline company is to ensure a hassle-free experience by continually improving the products and services it offers to its customer, thus creating lasting customer satisfaction. In order to achieve this, the operational and commercial processes must be managed in an integrated fashion. Turkish Airlines takes this approach, and since May 2006 has held the TS-EN ISO 9001:2000 Quality Management System Certificate, which was renewed in 2009 as the TS-EN ISO 9001:2008. Having received this new certificate, Turkish Airlines’ quality standards were validated both by the Turkish Standards Institute and the international certification network IQNet, of which it is a member. Turkish Airlines is committed to leaving behind a clean environment for subsequent generations and is working on an ISO 14001 Environment Management System Project, while also placing priority on its employees through its work on OHSAS 18001 Work Health and Safety.

Quality and assurance

The conformity of flight and ground operations to Turkish Airlines’ regulations and national and international standards are controlled through yearly planned and non-planned audits. In addition, operational training units (both flight and ground) provide quality assurance audits. In 2009, 792 audits were conducted, and Turkish Airlines also successfully passed external audits carried out by the Civil Aviation General Directorate, EASA, JAA Mast Team, France Civil Aviation and British Civil Aviation Authorities.

Flight safety

Turkish Airlines successfully satisfied the nearly 900 criteria specified in the IOSA (IATA Operational Safety Audit) program in 2005 (organization and management system, flight operations, operational control and flight departure management, technical, cabin, group operations, cargo and security) and received the IOSA Certificate. In 2009, AQS performed the validity renewal audit for this certificate, which was completed with zero adverse findings.

Turkish Airlines strives to be among the world’s leading airlines brands, and it is committed to a quality policy of sustainability and maximum security. To this end, it has developed quality and safety standards that its growth requires in cooperation with national and international authorities.

Quality through sustainability and maximum security


As one of the most important contributors to global warming, fossil fuel usage is coming under increasing scrutiny, and airlines are looking to adopt renewable energy models within the shortest time. Turkish Airlines recognizes that older generation aircraft release higher carbon emissions, consume more fuel, and create more noise pollution, and it conducts itself with the awareness of its responsibility to the environment, operating a young fleet whose age is below the sector’s average.

Under the “Fuel Savings Project,” which was launched in order to bring about the highest fuel efficiency, work began on the monitoring, control and reduction of fuel consumption values. In implementing the project, great care has been taken to ensure that fuel consumption reduction measures are carried out by those units whose paramount responsible is flight safety. Through practices such as the reduced of the use of the APU (Auxiliary Power Unit), take offs and landings with a low flap configuration, reduced aircraft weight, increased engine wash intervals, and reduced cabin and catering weights, approximately 360,000 fewer tons of carbon was emitted compared to prior years - a benefit equal to the planting of nearly 1 million trees per year.

Turkish Airlines’ vision of sustainability is based on being a leading, global and respected institution that conducts itself in line with its responsibility towards environmental, economic and social development. For long-term corporate sustainability, the implementation of resource and risk management is essential to putting in place responsible environmental and climate practices, as well as providing for the well-being, development and security of human resources.

Turkish Airlines’ carbon reduction environmental implementations had the equivalent impact of planting one million trees. The practices introduced under the Fuel Savings Project were implemented across all operations.

Social Responsibility

ustainabilitySS

23MANAGEMENT SYSTEM

Leaving good marks on nature


Financial Risk Management (FRM) was initiated under the Enterprise Risk Management (ERM) project, which Turkish Airlines is conducting in order to evaluate the company’s financial risks and implement risk hedging strategies.

The financial effects of changes in jet fuel prices has been defined as “commodity price risk”; losses that may arise from financial loans, receivables and investments as “credit risk”; fluctuations in the market value of aircraft financing, debts in foreign currency and the market value of cash as “interest risk”; and the various foreign currency rates in the income and expense calculations as “foreign exchange rate risk.” As a result of decisions to establish fixed commodity prices and fixed loan interest rates, strategies to hedge against the above risks were developed in derivative markets.

Commodity price risk management

Commodity price management aims to mitigate the effect of fuel price variations on jet fuel costs by fixing the cost of jet fuel within a specific band or at a single price, thus minimizing the consequences of adverse conditions that may arise in the fuel market. Risk hedging has been implemented in a staged manner, with the use of derivative instruments for crude oil (barrels) and jet fuel (Mtons) on contract amounts corresponding to approximately 20% of Turkish Airlines’ forecasted annual jet fuel requirements.

The “Petroleum Market Pricing Scenario” graph, below, shows scenarios covering a risk-hedging period for Turkish Airlines’ fuel prices and related estimated fuel costs in the event of supply changes in the Brent crude oil market.

Risk Management

Turkish Airlines Risk Hedging Strategy (16 Months)

M+1

M+2

20%

19%

M+3

18%

M+4

16%

M+5

15%

M+6

14%

M+7

13%

M+8

11%

M+9

10%

M+1

09%

M+1

18%

M+1

26%

M+1

35%

M+1

44%

M+1

5M

+16

3%

1%

Market Price

Turkish Airlines Price

180

150

120

90

60

3030 60 90 120 150 180

Turkish Airlines Price

USD/Barrel

Market Price

Turkish Airlines Petroleum Market Pricing Scenario*(as of February 1, 2010)

25MANAGEMENT SYSTEM

- When the price of a barrel of crude oil is $180, the cost to the company is $174,2- When the price of a barrel of crude oil is $150 the cost to the company is $145,9- When the price of a barrel of crude oil is $120 the cost to the company is $117,7- When the price of a barrel of crude oil is $90 the cost to the company is $89,4- When the price of a barrel of crude oil is $60 the cost to the company is $61,1- When the price of a barrel of crude oil is $30 the cost to the company is $32,9

The graph below, which compares Turkish Airlines’ fuel costs in 2008 with those in 2009, shows the change in various costs factors.

Credit risk management

In response to the effects of the international economic crisis spanning 2008 and 2009, Turkish Airlines signed agreements for deposit and derivative transactions with financial institutions it does business with in order to protect against any future credit risks.

Taking into consideration the credit risk ratings of financial institutions, Turkish Airlines has assigned its own limits to those institutions that remain above the credit risk threshold. The assigned limits have been periodically updated and the health of any institution whose credit rating slips is monitored closely.

In order to manage the credit risk that can arise as the result of using derivative products, Turkish Airlines signed an International Swaps and Derivatives Association (ISDA)” agreement and other required agreements with its counterparties. Issues relating to the management of credit risks were dealt with in the “Credit Support Annex (CSA)” section of the agreement. As provided by the agreement, credit risk was reduced though reconciliation operations for certain periods.

Interest rate risk management

Turkish Airlines’ interest rate risk management activities include the regular monitoring and analysis of the interest rate market, setting fixed loan interest rates, conducting sensitivity analyses on interest rate variations and tracking probable interest-derived cost adjustments.

Foreign exchange rate risk management

Turkish Airlines’ international operations necessitate the denomination of revenues and expenditures in many foreign currencies. In order of descending magnitude, revenues are in EUR, USD and TL and expenditures in USD, TL and EUR. In order to minimize the effects of foreign currency fluctuations, which are a serious risk factor, an active foreign exchange rate policy has been implemented.

2008-2009 Turkish Airlines’ Fuel Cost Variations (as of February 1, 2010)

2,5

2,0

1,5

1,0

0,5

0,0Fuel Costs

2008Fuel Costs

2009Consumption

1,8

0,3

0,9

0,3

1,5

0,004

Cost Exchange Rate Risk HadgingActivities

Managing risks well under uncertain circumstances


Turkish Airlines’ sound and strong organizational structure rapidly adapts to changing conditions and increasing competition.

“”

rganizational StructureOO

27MANAGEMENT SYSTEM

Board of Directors

Executive Committee

Mgr. Office of CEO

Dir. Inspection Board Legal Counsellor

Dir. InvestmentManagement

Press Counsellor

Dir.Quality Assurance

Dir. Flight Training

Dir. Tecnical

Dir. Corporate Developmentand Information Technology

Exe. Vice President(Human Resources)

Exe. Vice President(Financial)

Dir. General Purchasing and Catering

Dir. Social &Administrative Affairs

Exe. Vice President(Commercial)

Exe. Vice President(Flight Operations)

Dir. Personnel Dir. Finance

Dir. Cargo

Dir. CorporateCommunications

Dir. Flight Operations (Chief Pilot)

Dir. Training Dir. Accounting Dir. Cabin CrewManaging

Dir.Production Planning

Dir. Business Devolopment & Agreements

Dir.Ground Operations

Dir. RevenueManagement

Dir. Regional Flights

Mgr. Flight Safety

Dir. OperationsCoordination

Dir. Marketing & Sales

Mgr. Aviation Safety

President & CEO


1933Turkish Airlines was founded in Ankara pursuant to law No. 2186 as the “State Airlines Administration” and commenced operationsunder the authority of the Ministry of Defense.

1935In 1935, authority was transferred to the Ministry of Public Works, and in 1938 the Administration was renamed the “General Directorate of State Airlines,” with authority transferring to the Ministry of Transportation in 1939.

1955In 1955, pursuant to Law No. 6623, the State Airlines was restructured as a corporation governed by the provisions of private law and continued its operations under the name of “Türk Hava Yolları Anonim Ortaklığı”.

1984As a Public Economic Institution (KIK), the Company fell within the scope of Decree Law 233 Regarding Certain Public Bodies and Institutions published in Official Gazette No.18570 on November 9, 1984.

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1994-2005The Company was included within the scope of Law No. 4046 Concerning the Structuring of Privatization Activities and Amendments to Certain Decree Laws, which was published in Official Gazette No. 22124 dated November 27, 1994. Pursuant to Article 35 of the above-mentioned law, the Company was reclassified as a State Economic Enterprise under the Ministry of the Privatization Administration. In order to comply with the provisions of the above-mentioned law, the Articles of Association were amended in accordance with Article 20(a) of the said law, and approved by the Privatization Administration on December 5, 1996. The amendments to the Articles of Association received the approval of the Capital Markets Board by Decision No. 33/953 dated July 5, 2002 and were deemed suitable via Authorization No. 1006 of the Privatization Administration dated November 8, 2002. The amendments were entered into force following acceptance by an extraordinary session of the General Assembly on January 17, 2003.

1990Pursuant to Council of Ministers’ Resolution No.90/822 dated August 22, 1990 and published on September 25, 1990 in Official Gazette No. 20646, the Company was placed among KIKs to be privatized under the scope of Law 3291. The Company’s Articles of Association were structured in accordance with its new status and approved by the Higher Planning Authority via decision No. 90/18 dated October 30, 1990, and on November 5, 1990 the Article of Association were entered into the Commercial Register.

2006The share of the government’s ownership in Turkish Airlines fell below 50% as a result of a public offering in May, and thus ended Turkish Airlines’ legal status as that of a state corporation.


1. Declaration of Compliance with Principles of Corporate Governance

The Company has embraced the concept of fairness, transparency as well as promoting Turkey and Turkish Aviation sector internationally by upholding fully to these Principles of Corporate Governance of Capital Market Board (CMB)

2. Shareholder Relations Unit

The Investor Relations Department, which reports to the CFO, has been established as an unit that oversees the communication of accurate and timely information to our investors, maintaining relations and exchanging information with capital market supervisors, monitoring capital increases and public offering transactions and organizing presentations and informational meetings for domestic and international investors. Contact information for the Investor Relations Manager, Suna ÇELEBİ, is as follows: Contact Details: Phone 212- 463-6363, Extension 3630, Fax 212-465-2307, E-mail [email protected]

3. Shareholder’s Right to Obtain and Evaluate Information

50.88% of our Company’s share is Free Floating at Istanbul Stock Exchange (ISE). During the year 2009, 258 requests have been submitted to our Company by e-mail. All of the requests mostly related to financial and operational data, were responded to without delay. In addition to those requests, a large number of investors and shareholders were provided with information by telephone. The Company does not discriminate among shareholders on the issue of exercise of shareholders’ right to obtain and evaluate information. The Company has created a web site in order to allow shareholders to exercise their right to obtain information effectively.

4. Information on General Assembly Meeting

Pursuant to Article 6 of our Articles of Association, all share certificates of our Company are registered and are categorized into two groups: A and C. There is only one outstanding Group C share, which belongs to the Privatization Administration of the Prime Ministry (OIB) incase such duties of OIB are transferred then the transferee institution. Presently, 49.12% of Group A shares belong to OIB, and 50.88% are traded publicly.

In the course of 2009:

1. An Extraordinary General Assembly was held on January 22, 2009 that served to bring our Company’s Shareholders’ Agreement into conformity with the New TL, as required by the decision of the Capital Markets Board. Shareholders representing 92,900,317.66 TL of the 175 million TL of our Company’s issued share capital attended the Extraordinary General Assembly.

2. An Ordinary General Assembly was held on May 4, 2009 to review 2008 accounts and operations. Shareholders representing 90,414,562.66 TL of the 175 million TL of our Company’s issued share capital attended the Ordinary General Assembly.

Invitations to both the Ordinary and Extraordinary General Assembly were promulgated by way of announcements in the agenda of the Trade Registry Gazette and in one newspaper circulated across the country, as well as through announcements on the Investor Relations page of our website.

Pursuant to Article 29 of our Articles of Association, we are under no obligation to send notification of the meeting date by registered mail to shareholders holding share certificates traded on the stock exchange.

No time period has been stipulated for holders of registered shares to place notification with the share register in order to secure participation in the general assembly. Other conditions relating to this matter are set forth in Article 7 of our Articles of Association, as follows:

Transfer of shares is subject to the provisions of Turkish Commercial Code, Capital Market regulations and Civil Aviation regulations.

Transfer of registered shares will be effective with regard to the Incorporation upon registration in the Share Register. The shareholders will be under the obligation to evidence when required, according to the format as determined by the Board of Directors, their identities and nationalities and, if available, the “Foreign shareholding” relation as indicated in Article 6, before registration of the registered shares in the Share Register.

Until registration of the share transfer in the Share Register, the holder registered in the Share Register will be deemed as the holder of the shares by the Incorporation.

Share transfers will be registered in the Share Register upon resolution of the

Board of Directors. The Board of Directors may refrain from registering any share transfers in the Share Register in cases which are not in consistency with this Articles of Association or the law or without indicating any reason therefore.

Share transfers which are not in compliance with the foreign shareholding rate limits as indicated in Article 6 above, may not be registered in the Share Register. The Board of Directors will be under the obligation to reject the registration of such share transfers in the Share Register. Share transfers which are not registered in the Share Register by the Board of Directors will not be recognized by the Incorporation and the related transferee will not be granted to be a shareholder. The affirmative vote of the member, appointed to the Board of Directors to represent Group C share is required in the resolutions of the Board of Directors to affirm the share transfer and to register this in the Share Register.

Group C share may be transferred to any Turkish public institution substantially having the same powers granted to the Prime Ministry Privatization Directorate by Law No: 4046. In case of such a transfer then this will promptly be registered in the Share Register without requirement for any resolution of the Board of Directors.

The Board of Directors will be under the obligation to limit the transfer of the shares to the foreigners, in order to comply with the provisions of Civil Aviation and/or other laws, it is subject to, and with the limitations as indicated in this Articles of Association and to avoid from endangering the traffic and cabotage rights held by the Incorporation.

As per article 362 of the Turkish Commercial Code (TCC), the income statement, balance sheet, annual report and proposals for the method of distribution of net income will be made available to shareholders at the Head Office of the Company at least 15 days prior to the Ordinary General Assembly, accompanied by the report to be issued by auditors.

In General Assembly Meetings, existing practice endeavors to respond to shareholder questions orally and to address more comprehensive questions in writing; however, since no questions requiring a written answer were encountered during these period, verbal explanations were deemed adequate.

The powers of authority of the General Assembly are set out in Article 27 of our Articles of Association; as such, the General Assembly is that body holding the powers of authority as stipulated in TCC and other laws. Outside of this article, there is no provision in the Articles of Association calling for resolutions by General Assembly on matters of material importance.

Under Article 14 of our Articles of Association, the validity of any resolution to be adopted by the Board of Directors on the matters listed below is contingent upon the participation of the Board member representing the Group C share in any meeting where such resolutions are to be adopted and upon that member casting an affirmative vote.

- Resolutions which will clearly adversely affect the mission of the Incorporations as indicated in Article 3.1 of this Articles of Association;

- Any suggestion to be made to the Shareholders Assembly for any modification in the Articles of Association;

- Increase of the share capital;

- Approval of transfer of registered shares and registration of the transfer in the Share Register;

- Any transaction, based on each contract, which exceeds 5 % of the total assets of the Incorporation as indicated in the latest balance sheet submitted to the Capital Market Board and which is directly or indirectly binding for the Incorporation, any resolution which will bring the Incorporation under any commitment, (provided that in case the share of the public in the Incorporation has decreased below 20% of the Incorporation’s share capital, then the provisions of this clause will automatically terminate);

- Merger, termination or liquidation of the Incorporation;

- Any resolution about the cancellation of any flight route or for a remarkable decrease in the number of flights, excluding the routes which do not even have revenue to meet its own operating costs based on exclusive market conditions or through other sources.

- The privileges of Group C share may only be limited by the High Commission of Privatization or any other public institution which has taken over such duties.

Minutes of General Assembly Meetings are made available to shareholders within our Company all the time and are delivered to shareholders upon

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31MANAGEMENT SYSTEM

request. Furthermore, General Assembly minutes and attendance list are made available on the Investors’ Relations section of our website.

5. Voting Rights and Minority Rights

1. Voting Rights are set out in Article 31 of our Articles of Association, as appearing below.“Each shareholder or proxy attending the ordinary or extraordinary Shareholders Assembly Meetings will be vested with one vote for each share, provided that the provisions of Article 6/d of this Articles of Association are reserved.

2. Under Clause 5 of Article 14 of our Articles of Association, It is required for the Board member representing Group C share to attend the meeting and his affirmative vote is required for the effectiveness of the resolutions of the Board of Directors regarding the followings issues:

- Resolutions which will clearly adversely affect the mission of the Incorporations as indicated in Article 3.1 of this Articles of Association;

- Any suggestion to be made to the Shareholders Assembly for any modification in the Articles of Association;

- Increase of the share capital;

- Approval of transfer of registered shares and registration of the transfer in the Share Register;

- Any transaction, based on each contract, which exceeds 5% of the total assets of the Incorporation as indicated in the latest balance sheet submitted to the Capital Market Board and which is directly or indirectly binding for the Incorporation, any resolution which will bring the Incorporation under any commitment, (provided that in case the share of the public in the Incorporation has decreased below 20% of the Incorporation’s share capital, then the provisions of this clause will automatically terminate);

- Merger, termination or liquidation of the Incorporation;

- Any resolution about the cancellation of any flight route or for a remarkable decrease in the number of flights, excluding the routes which do not even have revenue to meet its own operating costs based on exclusive market conditions or through other sources. The privileges of Group C share may only be limited by the High Commission of Privatization or any other public institution which has taken over such duties.

3. Under Article 10 of our Articles of Association, The Board of Directors will consist of 7 members appointed by the Shareholders Assembly. It is obligatory to appoint 6 members of the Board of Directors, by electing amongst the candidates nominated by the Group A shareholders having highest votes, and to appoint one member by electing amongst the candidates nominated by the Group C shareholder.

Below principles will apply in the nomination of the candidates by the Group

A shareholders:

a) In case the rate of being open to public is 15% (including), then the shareholders holding the Group A shares open to public will have the right to nominate one of the 6 members granted to Group A shares.

b) In case the rate of being open to public is 35% (35% and more), then the shareholders holding the Group A shares open to public will have the right to nominate two of the 6 members granted to Group A shares.

c) In order to be able nominate candidates for the Board of Directors by the shareholders holding Group A shares open for public, they are required to be represented at the rate of minimum 2% of the total issued share capital of the Incorporation during the Shareholders Assembly in which the members of the Board of Directors will be elected. Calculation of the aforementioned rate of 2% will be based only on the Group A shares open for public. Shareholders holding Group A shares open for public will determine the candidates nominated for the Board of Directors in a special meeting. In this meeting only shareholders holding Group A shares open for public, not held by the public, will be entitled to nominate candidates. In case shareholders holding Group A shares open for public are not represented in the rate of 2% at the Shareholders Assembly, then the right of such shareholders to nominate candidates for the Board of Directors, will be used by the other shareholders holding Group A shares not open for public according to the rules of Turkish Commercial Code and Capital Market.

d) In the event of any vacancy in any membership of the Board of Directors due

to any reason like death, resignation, dismissal or cease of membership, then such vacant position will be occupied by the election of the Board of Directors made in compliance with Article 315 of Turkish Commercial Code. In the event of any vacancy in the Board of Directors due to any of the aforementioned reason, then the shareholders holding the group shares entitled to nominate the candidate office of which is then vacant, will be entitled to nominate a candidate for the vacant position and the Board of Directors will elect this candidate for this vacant position. In the event that the shareholders holding Group A shares open for public may not nominate any candidate for the vacant position in the Board of Directors then Group C shareholder will be entitled to nominate a candidate for the vacant position or in case Group C share has been converted to Group A share, then the shareholders holding Group A shares not open for public will be entitled to nominate a candidate for the vacant position. In the election for the vacant position of the candidate nominated by the shareholders holding Group A shares open for public, the rates of 15%, 35% and 2% as indicated in paragraphs (a), (b) and (c) above will not be taken into consideration. The appointment of the successor member of the Board will be submitted to the approval of the following Shareholders Assembly. The Board member approved by the Shareholders Assembly will continue the Office period of the predecessor member.

e) In the event information is given that any Board member representing a legal person has no more relation with that legal person or in the event such legal person transfers its shares to a third party, then this member will be deemed to have resigned, and provisions of paragraph (d) hereof will apply in nominating a candidate for the vacant position.

f) In the event of any modification in this Articles of Association and creation of new share groups, the right granted to the shareholders holding Group A shares open for public to nominate 2 Board members as indicated in paragraphs (a) and (b) above may not be cancelled or modified, unless the aforementioned modification is approved by the shareholders representing 65 % of the issued share capital.

4. No mutually-affiliated relationship exists with any other company.

5. Representation of minority shares in management is carried out in accordance with Article 10 of our Articles of Association, as specified above.

6. Our Articles of Association do not contain provisions for accumulated voting.

6. Dividend Policy and Timing of Distribution

The determination and distribution of profits from our Company are set forth in Article 36 of our Articles of Association, as follows.

The net profit, as indicated in the annual balance sheet, found after deducting from the revenue of the Incorporation, the amounts required to be paid or reserved by the Incorporation like general expenses and various depreciations and the taxes required to be paid by the Incorporation, following the deduction of the losses of the past years, will be distributed in the following priority:

a) Legal reserve fund in the rate of 5% will be reserved. Our Dividend Policy is published at our web site.

b) First dividend in the rate and amount as determined by Capital Market Board will be deducted from the balance.

c) After deducting from the net profit the amounts indicated in clauses (a) and (b) above, the Shareholders Assembly will be entitled to resolve either to distribute as second dividend or to reserve as extraordinary reserve fund, the entire or any portion of the balance.

d) Second reserve fund will be reserved according to Article 466, paragraph 2, clause 3 of Turkish Commercial Code in the rate of one tenth of the amount found after deducting the profit share in the rate of 5% of the issued share capital from the amount resolved to be distributed to the shareholders and those entitled to participate the profit.

e) Unless legal reserves required by law and the first dividend determined in the Articles of Association for the shareholders are reserved, no resolution may be adopted to reserve other reserve funds, to transfer profit to the coming year, and unless first dividend is paid in cash and/or in share certificates, no resolution may be adopted to distribute profit to the privileged shareholders in profit distribution, to the holders of participation, founder and ordinary interest certificates, to the members of the Board and officers, employees and workers, to the trusts established for various purposes and similar persons and/or institutions.

The General Assembly shall determine the time and method of payment of


dividends in accordance with the directives of Capital Market Board. In this regard, our Company’s dividend distribution policy as formulated by the Board of Directors by taking the strategic targets, growth trend, financial needs and the expectations of the shareholders of the Incorporation into consideration and under the provisions of the Turkish Commercial Code, Capital Markets Law, other related legislation and its Articles of Association, and the Incorporation will basically distribute profit at the minimum ratio determined by the Capital Markets Board by means of cash and/or bonus shares and upon taking of the potential of the Incorporation to be able to distribute profit, it is always possible for the Board of Directors to resolve for distributing profit above the minimum ratio and submit it to the approval of the General Assembly and the profit share distribution shall be carried out within their legal terms.

7. Transfer of Shares

Article 6 of our Articles of Association;

Shareholders Nature

The shares held by the foreigner shareholders may not exceed 40% of the issued share capital of the Incorporation. In calculating the rates of the shares held by the foreigner shareholders, the rate of foreign shareholding in the shares held by the shareholder holding Group A shares which are not open for public will be taken into consideration as well.

Foreign shareholder shall mean:

- foreign natural or legal persons;

- Turkish companies, share capital of over 49% of which are owned by foreigners;

- Turkish companies in which majority members of administrative and representative boards are not Turkish citizens and in which majority votes are not on Turkish partners according to their articles of associations;

- Turkish companies under actual control of the aforementioned.

In order to ensure that the aforementioned share rate limitations on the foreigner partners will be complied with the provisions of the Articles of Association, the Incorporation will use separate parts for foreign shareholders in registering the shareholders and their related share rates in the Share Register.

It is obligatory to promptly notify the Incorporation of any share purchase and sale reaching to 1% of the issued share capital of the Incorporation. Moreover, the shareholders who have reached or exceeded the maximum foreign shareholding rates as indicated in this Articles of Association, are obliged to promptly notify the Incorporation as they become aware of this. The purpose of such notification is to follow the foreigner element and remarkable share movements and to ensure the Board of Directors to perform its powers based on these, and only notification will not result with the nature of being a shareholder unless registered in the Share Register, and only the records in the Share Register will be relied on in such cases.

In cases where it is understood through the notifications or through other means that the total shares held by the foreigner shareholders have exceed 40% of the issued share capital of the Incorporation, then the Board of Directors will be under the obligation, to promptly notify the related shareholders lately within 7 (seven) days, starting from the latest share transfer, to dispose of the shares which exceed the foreign shareholding limit, in amounts and rates to be in conformity to the foreign shareholding limit and otherwise the Incorporation will be entitled to apply any of the measures indicated below. The foreign shareholder to whom the notice to dispose of its exceeding shares has been served, will be under the obligation to sell such shares which have caused the foreign shareholding limit to be exceeded, to a person who is not included in the foreign shareholder definition in this Articles of Association, within the period stated in the notice. In case such shares are not disposed despite the notification, then the Board of Directors will be under the obligation to meet in 3 (three) days and to take a resolution to cover the measures indicated below in regard to the shares exceeding the limit.

(i) To redeem with the nominal value, the shares held by the foreign shareholder which has caused the foreign shareholding limit to be exceed, through decreasing the share capital; with this purpose, the Incorporation will first notify the shareholder who has exceed the foreign shareholding limit that his shares will be redeemed. In case such a notice may not be served then the fact will be announced in two newspapers published at the place where the head office of the Incorporation is located. Expenses related with

such redemption, will be collected from the shareholder who has caused the redemption, through deduction from the redemption amount.

(ii) In cases where the total share rate of the foreign shareholder is over the limit indicated in this Articles of Association, then the Board of Directors will be entitled to increase the share capital in order to reduce the rate of the shares exceeding the limit. In this case, new shares may be issued by limiting the preferential purchase options of the existing shareholders according to the rules of the Capital Market Board.

REASONING FOR THE ARTICLE:

The reasoning for the rule in this Article is provided in the final paragraph of Article 7 of our Articles of Association and in paragraph below. The regulations to which our company is subject in its capacity as an airline and to which it must adhere are also explained.

a) An airline company that does not qualify as Turkish on account of provisions listed in Articles 31 and 49 of Turkish Civil Aviation Act No. 2920 may not obtain an operating license or, if it does possess an operating license, such operating license shall be revoked in the event it ceases to qualify as Turkish due such factors or events such as the transfer or sale of shares of the airline or due to the majority of the members of its Board of Directors being foreign, etc.

b) In order for flights to be possible from one state to another, that is, to secure rights to international traffic, bilateral inter-governmental aviation treaties must first be executed between the two given countries, and the majority ownership of the airline to be designated by the Turkish Government and the control of such company must lie in the hands of Turks (natural or legal persons). The criteria of nationality that qualifies our company as Turkish is a also a sine qua non condition for holding the right to traffic under the bilateral aviation treaties executed between states.

Hence, since the right of traffic may only be granted to an airline domiciled in Turkey if the majority of its shares of effective control thereof belong to Turkish citizens or companies, and since in the event such airline ceases to qualify as Turkish (or it fails to prove that it has not ceased to do so or if other contracting states to which flights will be made fail to believe that it has not done so) then the relevant airline shall lose its right to traffic, the criterion of nationality is an element of vital importance for an airline.

Hence, Article 6 of our Articles of Association contain provisions governing the foreign element in order to ensure that our airline’s operating license and also our international traffic rights are secured, as explained above. Accordingly, restrictive rules were set out in terms of the limitations imposed on the foreign shareholding ratio for the protection of the traffic rights of our Company based on the criterion of nationality, should such limit be exceeded.

2- Articles of Association Article 7 (Transfer of Shares)

Transfer of shares is subject to the provisions of Turkish Commercial Code, Capital Market regulations and Civil Aviation regulations.

Transfer of registered shares will be effective with regard to the Incorporation upon registration in the Share Register. The shareholders will be under the obligation to evidence when required, according to the format as determined by the Board of Directors, their identities and nationalities and, if available, the “Foreign shareholding” relation as indicated in Article 6, before registration of the registered shares in the Share Register.

Until registration of the share transfer in the Share Register, the holder registered in the Share Register will be deemed as the holder of the shares by the Incorporation.

Share transfers will be registered in the Share Register upon resolution of the Board of Directors. The Board of Directors may refrain from registering any share transfers in the share Register in cases which are not in consistency with this Articles of Association or the law or without indicating any reason therefore.

Share transfers which are not in compliance with the foreign shareholding rate limits as indicated in Article 6 above, may not be registered in the Share Register. The Board of Directors will be under the obligation to reject the registration of such share transfers in the Share Register. Share transfers which are not registered in the Share Register by the Board of Directors will not be recognized by the Incorporation and the related transferee will not be granted to be a shareholder. The affirmative vote of the member, appointed to the Board of Directors to represent Group C share is required in the resolutions of the Board of Directors to affirm the share transfer and to register this in the Share Register.

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Group C share may be transferred to any Turkish public institution substantially having the same powers granted to the Prime Ministry Privatization Directorate by Law No: 4046. In case of such a transfer then this will promptly be registered in the Share Register without requirement for any resolution of the Board of Directors.

The Board of Directors will be under the obligation to limit the transfer of the shares to the foreigners, in order to comply with the provisions of Civil Aviation and/or other laws, it is subject to, and with the limitations as indicated in this Articles of Association and to avoid from endangering the traffic and cabotage rights held by the Incorporation.

8. Company Public Disclosure Policy

Our Board of Directors has established Disclosure Policy to share information on the performance and forward looking developments within the scope of generally accepted accounting principles and Capital Market Legislation (CML), Capital Markets Board and Istanbul Stock Exchange regulations and Capital Markets Board Corporate Governance Guidelines in a fair, complete, accurate and comprehensible way with the capital market participants equally and keep an active and open dialogue always available.

Turkish Airlines’ policy to give correct, complete, understandable, analyzable and cost effective easily accessible information, except trade secrets, to the capital market participants and personnel about its activities and related strategies, critical subjects, risks and developments. The comprehensive public disclosure policy of our Company as approved by the Board of Directors may be found on our Company’s website.

9. Material Disclosure

In addition to the financial statements and notes to financial statements for 2009, our Company made 64 Material Disclosure in accordance with CMB’s Directive Series: VIII, No: 54 on Public Announcements of Special Circumstances, and no supplementary announcements were required by the CMB and ISE regarding such announcements. Our company has used its best efforts to ensure that its material disclosures were communicated to investors, deposit holders, agencies and organizations simultaneously, in due time and in an understandable, accurate and interpretable form. Since no Material Disclosure was made by our Company that was not delivered in a timely manner, no sanctions were imposed by the CMB or ISE during the applicable period. Furthermore, since our Company shares are not listed on any International Stock Exchange, no Material Disclosures were made to any International Stock Exchange.

10. Company’s Website and Its Contents

Our Company’s web address is www.thy.com.tr, and the Investors’ Relations page may be accessed via this website. The website also has an English version. The Investor Relations page contains information on shareholding composition, Minutes of General Assemblies, proxy specimens, annual reports, financial statements, commercial operating data, presentations, Corporate Governance Guidelines, details on the Board of Directors, Material Disclosures, share information, analyst information, Articles of Association, Board Committees and contact information. Furthermore, a section with live data as well as historical data on Share performance of the Company procured from a data distribution company is available on the relevant page.

11. Disclosure of Natural Person(s) with Final Controlling Shareholding

No natural person exists with final controlling shareholding in our Company.

12. Disclosure of Ultimate Controlling Individual(s)

Board of Directors, Auditors, CEO, Executive Vice Presidents, Executive Assistant, Investor Relations Manager, Press Consultant, Director of Accounting, Director of Finance, Director of Investment Management, Director of Corporate Communications, as well as all staff of these Directors are prohibited from revealing any knowledge acquired during their terms of duty and fields of operation That could be used to the advantage of third parties or advantage of themselves.

13. Informing the Stakeholders

In our announcements to the public of information regarding our Company, in addition to forecast and material disclosure announcements other information and statements that are deemed to be of interest to other beneficiaries are delivered to the public in a timely and clear manner through the appropriate communications channels.

Not only stakeholders and investors, but also suppliers, financial institutions and

other interested parties may obtain information about our company via our website. Personnel receive information regarding the Company’s general practices and operations through internal annoucements through the Company intranet site.

14. Human Resource Policy

Our Company adheres to a Human Resource Code established by our Board of Directors, and the Company act in accordance with Labor Law No. 4857 regarding the personnel policies. In addition, our Company’s personnel are unionized and as such work under a collective bargaining system. Employee/employer relations are conducted in an effective and result-oriented manner at all levels and on any subject concerning collective bargaining and representatives appointed by the union in numbers and percentages as specified in Article 34 of Unions Law No. 2821 and by union directors. Training services are provided to all our personnel. No complaints of discrimination have been received from any employee.

15. Relations with Customers and Suppliers

Since the Company is an IATA member, ticket sales are subject to certain rules and regulations determined by IATA. In addition, forms for complaints and suggestions are made available to customers on board and at all airports and these are evaluated in an effort to improve customer satisfaction. Other efforts geared toward customer satisfaction include the practice of allowing a commitment and penalty-free 24-hour option for changes or cancellations on reservations made over phone, assistance provided to passengers with special needs or with disabilities, meeting basic passenger needs at times when flights are grounded during delays, taking the necessary measures to facilitate checkin. Customer satisfaction principles adopted by the Company in direct passenger relations form the basis of the agreements signed with agencies. Only agencies that comply with these principles are allowed to work with Turkish Airlines. Agencies that do not comply with the rules are issued the necessary warnings and the business relationship is terminated in the event of repeated violations. The Company engages in the purchase of goods and services in accordance with the Purchasing/Sale Regulations that have been drawn up with the resolution of the Company’s Board of Directors and revised regularly since 1952 . Announcements for tenders are made in newspapers that have highest circulation nationwide within the timeframes set forth by Company, and also announced on the website www.thy.com. Procedures have been documented via Customer Relationship Management (CRM) for areas relating to customer loyalty analysis, global customer research, corporate prestige research and the hidden customer program, and implementation of the “hidden customer” program aimed at quality improvement has begun. Our company became a Star Alliance member to improve both customer satisfaction and our global mage. Cooperation still continues with member airlines of the Alliance to improve international products and services and to participate an global information sharing and auditing mechanisms.

Customer grievances may arise due to faults that occur from time to time in our Company’s operations and services. We strive to address such grievances and restore satisfaction in the shortest possible time, and are looking to create a faithful customer profile. Our Customer Relations Department is engaged in efforts towards these ends. In order to complete work quickly and enable various departments to communicate findings from their own studies to the Customer Relations Directorate in as soon as possible, the company as whole has adopted a Department Performance assessment system, whose statistics are monitored by General Management.

16. Social Responsibility

The Company continued to operate by its service quality and social responsibility philosophy, keeping its leading position both in the country and abroad. No lawsuits have been filed against the Company in Turkey on the ground of causing environmental damage.

17. Structure of the Board of Directors, its Formation and Independent Members

The Board of Directors is comprised of seven members elected by the General Assembly. Six Board Members are required to be elected from among the candidates receiving the highest number of votes in the election held by Class A shareholders. The other member is nominated by the Class C shareholder. At least five Board Members, including the Board Member representing the Class C share, must be Turkish citizens. The term of office for Board members is two years. The General Assembly may terminate the membership of a Board Member before the end of his/her term. Board Members whose term has expired may be reelected.


Members of the Board in 2009:

Candan KARLITEKİN - Chairman of the Board

Hamdi TOPÇU - Deputy Chairman of the Board

Ph.D. Temel KOTİL - Member of the Board and General Manager

Prof. Dr. Cemal ŞANLI - Member of the Board

Orhan BİRDAL - Member of the Board

Muzaffer AKPINAR - Member of the Board

Mehmet BÜYÜKEKŞİ - Member of the Board

18. Qualifications of Board Members

The criteria for Board membership are specified in Article 11 of the Company’s Articles of Association. In addition, Article 4/i of Law No. 4046 stipulates that in organizations to be privatized, Board Members shall be graduates of fouryear higher education programs. Care is taken to comply with the provisions of Articles 3.1.1, 3.1.2 and 3.1.5 of Section IV of the Corporate Governance Principles concerning the appointment of Board Members. Qualifications of the Company’s Board Members are in accord with these articles. Article 11 and Provisional Article 1/c of the Articles of Association are quoted below.

ARTICLE 11

Persons to be elected to the Board shall not have been placed under legal restraint; a Company where they owned an interest or worked as a manager shall not have been declared bankrupt or insolvent; they shall be a shareholder of the Company and shall not have been convicted of an infamous crime or any other crime specified in the Civil Aviation Law. If a member who is not a shareholder is elected, that individual may only assume duties after having become a shareholder.

The General Assembly may grant permission for the cases defined in Articles 334 and 335 of the Turkish Commercial Code.

Board Members representing Class C shares and at least five members (including those who represent Class C shares) must be Turkish citizens.

Provisional Article 1/c

With the exception of the provisions outlined in the Paragraph “d” below concerning elections to be held among candidates nominated by Class A shareholders in accordance with Law No. 4046, the Chairman of the Board of Directors, Board Members, Auditors and the General Manager shall be appointed upon the proposal of the Privatization Administration or the approval of the authorized Minister. This is carried out on the condition that they can satisfy the conditions set forth in the Law, and that the state’s stake in the Company does not fall to below 50%.

19. Mission and Vision and Strategic Targets of theCompany

The Board of Directors shall approve the strategic targets set out by the management and continuously and effectively monitor these targets, the activities of the Company and its past performance. In doing so, the Board shall strive to ensure compliance with international standards and wherever necessary, take action before problems arise. The mission of the Company as it appears in Article 3 of the Articles of Association is indicated below:

a) To strengthen the Company’s position as a global airline by expanding its long-distance flight network,

b) To position the Company as a technical services provider by transforming its maintenance unit into a leading maintenance base for the region,

c) To promote the Company’s identity as a service provider in all areas of strategic civil aviation, including handling and flight training,

d) To maintain the Company’s leading status in domestic air transportation,

e) To provide seamless, high-quality air transportation services by collaborating with a global airline alliance that complements its network in order to further improve the Company’s image abroad and increase marketing opportunities and

f) To make Istanbul an important hub.

In addition, through its leadership position in the Civil Aviation Transport (SHT) sector of the Republic of Turkey, to be a premier European airline with global operations which is preferred for its flight safety, security, product range, service quality and competitive approach.

Vision:

a) Maintaining the growth trend that exceeds sector averages

b) Zero accidents

c) An understanding of service that captures the world’s attention

d) Unit prices that are competitive with those of low-cost carriers

e) Sales and distribution costs that are below sector averages

f) Loyal customers who carry out reservation, ticketing and boarding activities themselves.

g) Personnel who understand that the added value they create is directly proportional to the Company’s gains and who are committed to their own development

h) A commercial approach that creates business for partners who are members of the Star Alliance and which harnesses the potential that those partners offer

i) Management that is recognized for its embrace of the principals of modern management, respecting the interests of its shareholders and all other stakeholders.

20. Risk Management and Internal Control

The airline industry by its nature is a high risk sector, and we believe that effective risk management systems at our Company are critical to ensuring sustainable growth. In this regard, plans are being implemented for the formation of a Financial Risk Management structure within our Company that will provide a reasonable degree of security against fluctuations particularly relating to fuel prices, interest rates, and exchange rates. The Corporate Risk Management Department, which was formed in 2008, is currently engaged the required preparatory work for this purpose. The Corporate Risk Management Department has the overall responsibility of coordinating the relevant units of the Company in identifying and effectively managing both financial and other important areas of risk. The Corporate Risk Management Department is currently laying down the Financial Risk Management strategy as a matter of first priority. Immediately following the completion of this process, work will begin on the establishment of an operational, strategic and external risk management framework to support our Corporate Risk Management strategy.

The Company has an internal control mechanism in place that is implemented by the relevant units. Matters such as the correct pricing of tickets sold by employees or agencies, the compliance of foreign offices’ accounting records with the Company’s regulations and the correct and prompt fulfillment of tax obligations are all matters dealt with in this scope. The Company makes every effort to ensure that all records are accurate according to the Company regulations and directives. The Company is, in addition, subject to annual inspections by the Prime Ministry’s Supreme Inspection Board. Separately, the Company is being audited by three auditors appointed in the

General Assembly Meeting:

İsmail GERÇEK - Member of Auditing Board

Naci AĞBAL - Member of Auditing Board

Prof. Dr. Ateş VURAN - Member of Auditing Board

Two auditors shall be elected from among Class A shareholders and one auditor shall be the candidate nominated by the Class C shareholder. The auditors have a one year term of office. An auditor whose term has expired may be reelected.

Class A Auditors shall be determined in the following manner:

a) In the event that the proportion of publicly traded shares is 35% or more, the rights granted to Class A shareholders to elect two auditors shall belong to shareholders holding publicly-traded Class A shares.

b) Shareholders holding publicly traded Class A shares may nominate a candidate for membership of the Board of Auditors, provided they represent at least 2% of the total increased capital by attending the General Assembly Meeting in which the election of the Board of Directors elections took place. Only publicly traded Class A shares shall be considered in the calculation of this 2%. Shareholders holding publicly traded Class A shares shall determine their candidates for Board of Auditors membership in a meeting held between them. The right to nominate a candidate in this meeting shall belong to the

35MANAGEMENT SYSTEM

holders of Class A shares which are publicly traded but not owned by the state. In the event that the holders of publicly traded Class A shares do not represent 2% at the General Assembly Meeting, these shareholders’ rights to nominate candidates for Board of Auditors membership shall be exercised by those shareholders holding Class A shares which are not publicly traded, in accordance with the Turkish Commercial Code and Capital Markets Board Regulations.

c) In the event of a vacancy on the Board of Auditors due to the death, resignation or dismissal of one of its members or otherwise, the vacant position shall be filled by means of an election to be held by the Board of Auditors in accordance with Article 351 of the Turkish Commercial Code. If the holders of publicly traded Class A shares have not nominated a candidate for the vacant position on the Board of Auditors, the right to nominate a candidate shall belong to the Class C Shareholder. If the Class C share has been converted into a Class A share, the right to nominate shall belong to the shareholders holding Class A shares that are not publicly traded. In such an election carried out to fill the position vacated by the candidate nominated by shareholders holding publicly traded Class A shares, the percentages of 35% and 2% as referenced in paragraphs “a”, “b” and “c” shall not be taken into consideration.

d) In the event that these Articles of Association are later amended or new share classes created, paragraphs “a” and “b” above defining the right of shareholders holding publicly traded Class A shares to determine two auditors shall not be annulled or modified, unless such modification has been approved by shareholders representing at least 65% of the capital.

The duties of the Auditors are to examine the Company’s general transactions and budget and assume the responsibilities stipulated in the Turkish Commercial Code. Auditors are authorized and assume the responsibility to submit proposals to the Board of Directors, to ensure that the Company is managed efficiently and its interests protected, call a general meeting in the event of vital and urgent matters, determine the agenda of such a meeting and draw up the report specified in Article 354 of the Turkish Commercial Code. Auditors are responsible for fulfilling the duties assigned to them by law and the Articles of Association in a satisfactory manner.

21. Responsibilities of Board Members and Directors Article

Article 15 of the Articles of Association defines the power and responsibilities of the Board of Directors and Article 19 defines the power and responsibilities of the General Manager.

Article 15. The Board of Directors represents and manages the Company. The Board of Directors is responsible for all tasks that are not assigned in the General Meeting by law, as well as the duties laid out in the Articles of Association, and it is granted all authority which these duties may require.

As set out in Article 319 of the Turkish Commercial Code, the Board of Directors may assign all or part of its management and representation powers to one or more of its members, to a general manager, assistant general manager, a manager or managers who are not members of the Board, or may form executive committees comprising of Board Members or non-members to exercise its powers and fulfill its duties. All financial and other information required for the Board of Directors to fulfill its duties as well as Board proposals and attachments shall be submitted in a timely manner.

All financial and other information needed for the Board of Directors to fulfill its duties as well as Board proposals and attachments shall be submitted in a timely manner. Article 19. The duties and powers of the General Manager shall be determined by the Board of Directors. The General Manager is required to be diligent in fulfilling his or her duties, and shall be held responsible for any behavior or actions which contravene this duty.

22. Activities of the Board of Directors

The activities of the Company’s Board of Directors, specified in Article 14 of the Articles of Association, are as follows:

The Board of Directors shall meet whenever necessary and at least once a month. The meeting venue will be at Company headquarters; other venues may be chosen by a Board decision.

Matters to be discussed at Board meetings shall be specified in an agenda that will be communicated to Board Members prior to the meeting.

Invitations to Board meetings shall be made at least three days before the actual meeting.

The quorum for Board meetings is five members. Board decisions shall be taken with the affirmative vote of at least four members. A member who has failed to attend four consecutive Board meetings without a valid reason, or has not participated in six meetings over the course of a year shall be considered to have resigned.

Unless one of the members has requested a meeting, Board decisions may also be taken following the proposal of one of the members regarding a specific issue and with the written approval of all members. The validity of Board decisions is contingent on their having been set out in writing and signed. Failure to reach a quorum for a decision on any issue shall be treated as a rejection of the proposal in question.

The validity of the decisions to be taken by the Board of Directors on the following matters requires the presence and affirmative vote of the Board Member representing Class C shares at the meeting during which the decision was taken.

- Decisions that would clearly adversely affect the Company’s mission, as set out in Article 3.1 of the Articles of Association;

- Proposals to the General Assembly Meeting for an amendment to the Articles of Association;

- Capital increases;

- Approval of the transfer of registered shares and the recording of this in the share ledger;

- All transactions and decisions concerning direct or indirect commitments on behalf of the Company for more than 5% of the total assets appearing in the previous year’s financial statements submitted by the Company to the Capital Markets Board per each contract (this provision shall be automatically annulled when state-owned shares fall below 20% of the Company’s capital);

- The merger of the Company with other companies, its termination or liquidation;

- With the exception of those routes which are exclusively affected by market conditions, or those that cannot cover their operational costs with other resources, decisions concerning the termination of a route or a significant reduction in the number of flights.

The privileges of the Class C share may only be restricted by the Supreme Privatization Board or a state agency that has taken over its duties. In 2009, the Board held 72 meetings and made 254 decisions. The validity of Board decisions is subject to their having been written up and signed. The organization and communication of Board activities, the determination of the number of Board meetings, the following up of proposals made to the Board and the drawing up of agendas are all duties of the General Secretariat.

23. Prohibition to Deal and Compete with the Company

During the reporting period, Board Members were prohibited from dealing and competing with the Company in accordance with Articles 334 and 335 of the Turkish Commercial Code. In addition to these prohibitions, there are also rules set out in Section 11 of Turkish Airlines’ Human Resources Regulations No. 07-001, which prohibits Company personnel from providing services to other organizations

24. Code of Ethics

Our Company has set forth its Code of Ethics within the scope of the Principals of Corporate Governance, which is published on our Website.

25. The number, structure, and independency of the Board Committees

The Board of Directors’ Financial Audit Committee is comprised of Mr. Hamdi TOPÇU, Prof. Dr. Cemal ŞANLI and Mr. Mehmet BÜYÜKEKŞİ. The Corporate Governance Committee, which audits the implications regarding the corporate governance principles, is comprised of Mr. Muzaffer AKPINAR and Mr. Orhan BİRDAL.

26. Remuneration Paid to Board Members

Board Member remuneration is set by the General Assembly. Board Members may not obtain any loan or debt from the Company.

We believe that the strength we need to be

better and more successful exists within us.

““

Total Traffic Results 38

Fleet 44

Activities

Human Resources 48

Cargo 54

Production Planning 58

Marketing and Sales 60

Information Technologies 62

Business Development 66

Subsidiaries and Joint Ventures

AnadoluJet 72

Turkish DO&CO 74

Turkish Technic Inc. 76

TGS (Turkish Ground Service) 80

perationsOO


otal Traffic Results TT

As the effects of the financial crisis on the airline industry peaked in 2009 and traffic volumes dropped, low-cost airline companies made significant market inroads by lowering fares and expanding their price-sensitive customer portfolios. In an effort to lower operational costs and budgets, businesses reduced travel and increased their use of alternative technologies, such as videoconferencing and teleconferencing, reflecting a need to spend cautiously in the face of economic crisis.While the Association of European Airlines lost passengers at a rate of 5.8% and global commerce shrank dramatically in 2009, Turkish Airlines grew by 11.1%, carrying 25.1 million passengers.


Turkish Airlines, with its young fleet, top quality catering, friendly personnel and high security and safety standards, continued its rapid ascent in 2009 as the top preference by passengers. In 2009, Turkish Airlines was the fastest growing airline company in Europe, growing 11.1% and carrying 25.1 million

passengers, while the Association of European Airlines saw average passenger numbers fall by 5.8% and global commerce shrank dramatically. Operating a fleet of 132 aircraft, Turkish Airlines has displayed its business success through its network, charter and Hadj-Umrah operations.

Europe’s fastest growingairline

Past 5-Year Performance in Figures

2005 2006 2007 2008 2009

Number of flights 127,137 152,536 168,899 189,328 213,953Kms flown (000) 168,902 207,202 232,147 262,124 311,869Available seat kms (million) 29,805 36,934 41,619 46,343 56,574Revenue passenger - kms (million) 21,317 25,383 30,251 34,265 40,130Load factor (%) 71.5 68.7 72.7 73.9 70.9Available ton - kms (million) 3,986 4,874 5,535 6,147 7,795Revenue ton - kms (million) 2,590 3,019 3,549 3,993 4,784Overall load factor (%) 65.0 61.9 64.1 65.0 61.4Revenue passengers (000) 14,134 16,947 19,636 22,597 25,102Cargo (tons) 140,559 155,863 177,508 191,934 230,709Mail (tons) 4,415 4,010 6,714 6,956 7,351Excess Baggage (tons) 3,714 3,673 3,462 3,752 3,734Personnel (year - end total) 11,121 10,324 10,453 11,520 12,750

2005 2006 2007 2008 2009

14,1

34 16,9

47 19,6

36 22,5

97 25,1

02

Total Passengers Carried (000) Total Passenger Breakdown

InternationalDomestic

Hadj-Umrah Charter

51.2%46.4%

1.3% 1.2%

P

G R O W HT

A S S E N G E R 1 1 . %1


Turkish Airlines continued to increase the number of its domestic destinations and flight frequencies in 2009, posting a 5.7% increase in the number of domestic passengers. 11.7 million domestic passengers, which account for 46.6% of our total passengers, experienced the pleasure of comfortable, convenient and economical flights on Turkish Airlines to 37 destinations throughout the country. In addition to expanding its domestic flight operations, Turkish Airlines has made a significant impact by establishing the AnadoluJet brand, and is rapidly improving and growing.

Domestic Flights

2005 2006 2007 2008 2009

Number of flights 65,448 78,910 87,162 92,593 97,697Kms flown (000) 36,049 45,282 51,016 53,372 56,313Available seat kms (million) 5,457 7,123 8,117 8,488 9,038Revenue passenger - kms (million) 4,016 5,213 5,924 6,417 6,819Load factor (%) 73.6 73.2 73.0 75.6 75.4Available ton - kms (million) 647 806 946 1,000 1,047Revenue ton - kms (million) 394 504 570 615 652Overall load factor (%) 60.9 62.5 60.3 61.5 62.3Revenue passengers (000) 7,197 8,906 9,984 11,063 11,692Cargo (tons) 29,233 32,085 35,518 34,305 33,037Mail (tons) 1,088 1,295 3,555 3,427 3,549Excess Baggage (tons) 1,490 1,460 1,538 1,589 1,450

2005 2006 2007 2008 2009

7,19

7 8,90

6 9,98

4

11,0

63

11,6

92

Number of DomesticPassengers (000)

5 . 7 %D

G R O W HT

O M E S T I C


In 2009, the number of international passengers flying with Turkish Airlines rose by 16.3%, confirming its status as a global airline that commands a comprehensive flight network and strong schedule structure. Transporting 13.4 million passengers to 119 destinations in 5 continents, Turkish Airlines has proven its ability to succeed, even during the crises in 2009. International passengers account for 53.4% of the total passengers carried by Turkish Airlines.

International Flights

2005 2006 2007 2008 2009

Number of flights 61,689 73,626 81,737 96,735 116,256Kms flown (000) 132,852 161,920 181,131 208,752 255,556Available seat kms (million) 24,348 29,811 33,502 37,855 47,536Revenue passenger - kms (million) 17,301 20,170 24,327 27,848 33,311Load factor (%) 71.1 67.7 72.6 73.6 70.1Available ton - kms (million) 3,339 4,068 4,589 5,147 6,748Revenue ton - kms (million) 2,196 2,515 2,979 3,378 4,132Overall load factor (%) 65.8 61.8 64.9 65.6 61.2Revenue passengers (000) 6,937 8,041 9,652 11,534 13,410Cargo (tons) 111,326 123,777 141,990 157,629 197,672Mail (tons) 3,327 2,715 3,159 3,529 3,802Excess Baggage (tons) 2,224 2,213 1,924 2,163 2,284

2005 2006 2007 2008 2009

6,93

7 8,04

1 9,65

2 11,5

34

13,4

10

Number of InternationalPassengers (000)

1 6 . %3I

G R O W HT

N T E R N A T I O N A L


Passenger Breakdown by Region

EuropeMiddle East

AfricaN. America S. America

Far East

64.4%15.0%

11.5%

6.4%

2.4% 0.3%

Change in available Change in revenue Change in number Change in cargo + seat kms (%) passenger kms (%) of passengers (%) mail (tons) (%)

MIDDLE EAST 35.3 24.4 26.3 27.2

EUROPE 18.5 13.4 13.2 10.2

FAR EAST 28.3 22.3 22.9 51.9

N. AMERICA 39.0 37.6 36.3 14.6

AFRICA 58.1 49.8 49.1 64.1

S. AMERICA - - - -

While other airline companies reduced their capacity in response to the economic downturn in 2009, the effects of which were more severe than the 1980-82 recession, the 1991 Gulf War and the September 11 World Trade Center attacks, Turkish Airlines took bold steps, adding new destinations and expanding its capacity. Across all regions, lead by Africa and North America, the increase in capacity has been met by passenger demand with noteworthy success.

As industrial production and global trading went into deep decline in 2009 and the European Airlines Association endured an unprecedented 16.5% drop in air cargo traffic, Turkish Airlines posted the largest increase of all airlines, with 19.6% growth in cargo figures.

4 9 . 1 %P

G

A

R

F

O

R

W

I

H

A

T

C

A S S E N G E R

I N


2000

66.9

2005

71.5

2001

63.0

2006

68.7

2002

68.9

2007

72.7

2003

67.0

2008

73.9

2004

70.2

2009

70.9

Passenger Load Factor (%)

2000

149,

349

2005

168,

901

2001

143,

617

2006

207,

202

2002

138,

058

2007

232,

146

2003

137,

392

200826

2,12

42004

147,

491

2009

311,

869

Kms Flown (000)

2000

130,

337

2005

144,

974

2001

109,

426

2006

159,

873

2002

124,

905

2007

184,

222

2003

122,

822

2008

198,

890

2004

134,

851

2009

238,

060

Cargo and Mail Development (Tons)

2000

117,

916

2005

127,

137

2001

109,

028

2006

152,

536

2002

102,

607

2007

168,

899

2003

100,

807

2008

189,

328

2004

106,

493

2009

213,

953

Number of Flights

2000

Available seat-kms (million)

Revenue passenger-kms (million)

26,0

0117

,396

2001

24,8

9015

,679

2002

24,0

7116

,594

2003

24,0

4016

,113

2004

26,4

8118

,594

2005

29,8

0521

,317

2006

36,9

3425

,383

2007

41,6

1930

,251

2008

46,3

4334

,266

2009

56,5

7440

,130

ASK and RPK Comparison

2000

12,0

31

2005

14,1

34

2001

10,2

27

2006

16,9

46

2002

10,3

83

2007

19,6

36

2003

10,4

20

2008

22,5

97

2004

11,9

91

2009

25,1

02

Revenue Passengers Carried (000)


Turkish Airlines, aiming to offer the highest quality service and maximum passenger comfort, boasts a fleet that is younger than the sector average. Turkish Airlines continued to expand its fleet under its “2009-2023 Fleet Projection” project, and has expanded its fleet 103% over the past five years, reaching a fleet size of 132 at the end of 2009. In the commercial aircraft market, in which new generation models with the latest technological equipment compete with each other, Turkish Airlines continued to pursue a purchasing strategy of ongoing expansion with ever younger aircraft. While at the beginning of 2009 the average age of our fleet of 127 aircraft was 6.27 years, by the end of 2009 the fleet size increased to 132 aircraft and the average age fell to 6.19 years.

Fleet as of year-end 2009 Number Fleet Age Total Capacity

Aircraft Type (Seat)

A340 9 13.15 2,451A330 7 3.57 1,812A320 22 2.99 3,512A321 21 3.80 3,985A319 4 3.87 528B737-800 51 6.44 8,487B737-700 6 3.01 894B737-400 4 17.57 632B777 4 2.39 1,248

Cargo Aircraft A310-304 4 21.53 -

Total 132 6.19 23,549

leetFF


Young, comfortable, technological fleet

2009

2008

2007

2006

2005

22,238

23,549

17,594

17,931

14,419

Total Seat Capacity

Turkish AirlinesAnadoluJet

Turkish Cargo

90%7%3%

Alongside the revised fleet plans at the end of 2008, orders announced in October 2008 for 105 aircraft, 75 of which are final and 30 of which are optional, remained active. Orders were placed for 10 A330-300 and 12 B777-300ER type aircraft, with delivery planned between 2010 and 2012. While work continuing on the procurement of narrow fuselage aircraft, with the order of a 22-wide fuselage aircraft, two A330-200F type cargo aircraft orders were placed and scheduled for delivery in 2010 and 2011.

In order to meet periodic demand and fleet renewal needs, the chartering of aircraft has served as an interim solution, provided that neither the integrity of the aircraft family nor the average fleet aged is compromised.


A340Number of aircraft 9 Fleet Age 13.15 Total Seat Capacity 2,451 Hours Flown 40,815 Kms Flown 29,182,860 Utilization 12:35 Maximum Range 11,952 km.Maximum Cargo Capacity 44,836 kg / 152.80 m3


Number of aircraft 21 Fleet Age 3.8 Total Seat Capacity 3,985 Hours Flown 86,393 Kms Flown 49,357,399 Utilization 11:54 Maximum Range 3,350 km.Maximum Cargo Capacity 9,435 kg / 37.42 m3


A319Number of aircraft 4 Fleet Age 3.87 Total Seat Capacity 528 Hours Flown 15,758 Kms Flown 7,394,269 Utilization 10:48 Maximum Range 3,350 km.Maximum Cargo Capacity 6,786 kg / 27.62 m3

A321


B737-800Number of aircraft 51 Fleet Age 6.44 Total Seat Capacity 8,487 Hours Flown 223,245 Kms Flown 387,529,942 Utilization 12:00 Maximum Range 4,755 km.Maximum Cargo Capacity 8,408 kg / 45.05 m3

B737-700Number of aircraft 6 Fleet Age 3.01 Total Seat Capacity 894 Hours Flown 12,396 Kms Flown 5,357,595 Utilization 10:04 Maximum Range 5,940 km.Maximum Cargo Capacity 5,178 kg / 27.3 m3

B737-400Number of aircraft 4 Fleet Age 17.57 Total Seat Capacity 632 Hours Flown 11,991 Kms Flown 6,067,983 Utilization 08:38 Maximum Range 3,350 km.Maximum Cargo Capacity 7,491 kg / 39.22 m3

B777-300ERNumber of aircraft 4Fleet Age 2.39Total Seat Capacity 1,248Hours Flown 15,132Kms Flown 11,320,655Utilization 13:25Maximum Range 14,685 km.Maximum Cargo Capacity 57,784 kg / 201.6 m3

A310 Cargo

Number of aircraft 4 Fleet Age 21.53 Total Seat Capacity Hours Flown 8,782 Kms Flown 5,374,406 Utilization 06:19 Maximum Range 8,980 km.Maximum Cargo Capacity 36,000 kg / 200 m3


uman ResourcesHH

49ACTIVITIES

The corporate vision and values that Turkish Airlines shares with its employees have played major roles in the company’s successful emergence from the global economic crisis and competitive environment of 2009.

Turkish Airlines, which has embraced the principle of service focused on customer satisfaction, seeks to balance employee satisfaction and corporate benefits, and has developed an approach to human resources that is predicated on work experience.Effective employment and enterprise resource planning

The “Turkish Airlines Human Resources Management System” software has been implemented in order to meet the growing need to shorten and facilitate follow-up on employment processes. As a first step, the flight attendant employment process was restructured, allowing selections to be finalized in two days, and nearly 50,000 applications received in 2009 were processed in a faster and more reliable manner.

The rising need for experienced pilots due to fleet expansion has necessitated the employment of foreign pilots, which has been done with the cooperation of international companies specializing in the field. The human resources infrastructure for the Enterprise Resource Planning (ERP) project to be initiated in 2010 was completed.

In line with its customer satisfaction-oriented service philosophy, Turkish Airlines hired more people with knowledge of local languages such as Korean, Japanese and Chinese. The adaptation process for newly-employed personnel was carried out through corporate culture training.

Turkish Airlines; the success of employees

P E R S O N N E L

G R O W HT

Turkish Airlines’ human resources development strategy and its investments in in-house training and personnel motivation lie at the foundation of the success of the company, which maintained its competitive edge and leading position in 2009. In tandem with the company’s accelerating growth, in 2009 the number of employees also increased by 10.7%, reaching 12,750. In order to strengthen team spirit among employees and ensure continuing trust and harmony, a “Personnel Relations Office” was established, through which employees communicate their needs and expectations. Private health insurance has been provided to employees and their families, and measures to guard against global epidemics were implemented meticulously. Health scans and disinfection operations were conducted regularly, along with ongoing training activities for the prevention of on-the-job accidents.

1 0 . 7 %

50

ANNUAL REPORT 2009

Personnel Breakdown by Title

Number of PersonnelManager 692Pilot 1,622Cabin Crew 3,925I.T. Personnel 195Foreign Office 1,403Engineer, Lawyer, Doctor 136Expert, Dispatch, Trainer 771Technician 73Officer 3,319Worker 614

TOTAL 12,750

Personnel Breakdown by Work Status

2009

12,7504.6%

95%

3.5%

96.5%

11,520

2008

1.0%

99.0%

10,453

2007

3.2%

96.8%

10,324

2006

Does not include Turkish Technic Inc.

PART TIMEFULL TIME

51

ACTIVITIES

Personnel Breakdown by Unit

Number of PersonnelDepartments Affiliated with The Board of Directors 4Departments Directly Affiliated with General Manager 3,087Deputy General Management (Human Resources) 347Deputy General Management (Financial) 416Deputy General Management (Commercial) 2,966Deputy General Management (Flight Operations) 5,930

TOTAL 12,750

Personnel Breakdown by Gender

2009

12,750

51.6%

48.4%

51.8%

48.2%

11,520

2008

51.2%

48.8%

10,453

2007

50.5%

49.5%

10,324

2006

Does not include Turkish Technic Inc.

MALEFEMALE


New investments have expanded the Turkish Airlines Flight Training Center into a facility providing professional services to customers both within Turkey and abroad.

light TrainingFF

53ACTIVITIES

The Turkish Airlines Flight Training Center, which provides flight training for cockpit and cabin personnel, renewed its technical equipment with up-to-date technologies and improved its infrastructure to keep up with Turkish Airlines’ growth rate.

Having started out with one simulator in 1995, the Turkish Airlines Flight Training Center has since transformed into a facility that now offers 8 training aircraft, 4 simulators, 1 CEET, 1 FNPT II, 2 CST, 4 CBT classes and 24 classrooms. In 2009, the Flight Training Center placed orders for 2 new simulators, and plans to remain abreast and integrated with the market by exchanging training sessions with 14 simulators and traffic centers abroad.

People-oriented investment in the service sector

While other airline companies have postponed investments in operational and training services in the wake of the global crisis, Turkish Airlines kept its cockpit and cabin training standards up to speed with the rapid growth of its fleet, purchased new simulators and training aircrafts, and increased the training times for its cockpit and cabin crew.

Training sessions are provided across 22 different categories, including with first-aid and defibrillator training.

Nearly four thousand cockpit crew completed their conversion, type and recurrent trainings. The adaptation process for foreign pilots joining Turkish Airlines for the B777 fleet was supported by corporate culture training.

The Flight Training Academy operating within the Flight Training Center increased its capacity 330% and approached the capacity to meet pilot rotations. An increase of 200% with six fleets in total is predicted for 2010.

Training was provided for 24 different companies operating in Asia, the Caucasus, the Middle East, North Africa and Europe. Academic cooperation was initiated with reputable academic institutions such as Istanbul Technical University, Culture University and Anatolia University with objective of developing models for increasing productivity and quality.

The Turkish Airlines Flight Training Center, which is IQNet-approved and has met quality standards such as TSE 9001, 18001 and 14001, is an authorized TRTO and FTO by the SHGM, an authorized First Aid Center through the Ministry of Health and an authorized Educational Institution through the Ministry of National Education.

IOSA and all other similar planned and non-planned audits in 2009 were passed with zero incidents of nonconformity.

Flight Training Center is growing


argoCC

55ACTIVITIES

In order to mitigate the impact of the ongoing global economic crisis in 2009, Turkish Airlines Cargo, aiming to enhance its presence in regions with growing economies, improved its effectiveness in the transit market by making its passenger and cargo flight schedules compatible. Having established a flexible schedule structure that changes according to cargo potential, maximum utilization is ensured by enjoining destinations with low cargo potential. A flexible product policy allows for changes according to market demand. These measures allowed Turkish Airlines Cargo to increase the amount of cargo it carried by 19.7% and claim a 57% share of the Turkish air cargo market. Turkish Airlines Cargo posted the highest growth rate among member airlines of the AEA (Association of European Airlines), with a 32% growth in its scheduled cargo traffic.

Turkish Airlines transported approximately 238,000 tons of cargo across the world, generating revenues of $304 million. A total of 179,000 and 59,000 tons of cargo was carried in the cargo compartments of passenger airplanes and cargo airplanes, respectively.

Four A310-200 cargo airplanes, each with a 38-ton capacity, make scheduled cargo flights to a total of 22 destinations, including five flights per week to Maastricht and Frankfurt, three flights to Tel Aviv, Milan, Zurich and Paris, 2 flights to Almaty, New Delhi, Tbilisi, Damascus, Amman, Madrid, Beirut, Cairo and Cologne, and one flight to London, Dubai, Algeria, Casablanca, Pristine, Tiran and Tripoli.

Destination countries with the most intensive cargo traffic were Germany, England, France and the Netherlands in Europe, and Thailand, Japan, China and India in the Far

East. Routes with the greatest amount of cargo volume transported were (in order) Frankfurt, Maastricht, Delhi, Tel-Aviv and London.

Membership to the Quality Management Group

Turkish Airlines Cargo, offering high quality, fast and safe service in the intensively competitive cargo market, and being committed to continuous service quality standards and customer satisfaction, joined “Cargo 2000 Quality Management Group” on January 1, 2009 as a corporate member. Membership in this group, which consists of nearly 50 airlines, numerous forwarder companies, handling organizations and information technology providers, brings access to a powerful system where all cargo movements are traceable at every stage. The marketing strength derived from being a member of a IATA-registered brand and the commitment to the international standard that the organization sets down have given a boost to Turkish Airlines’ effectiveness in the market.

Electronic supply chain: e-freight

In cooperation with the IATA, Turkish Airlines Cargo guides and supports customs and local agencies, and it is continuing its efforts to bring the e-freight application, which is designed to establish an electronic, faster and less costly cargo supply chain and end the use of documents in the air cargo sector, into full operation in the shortest possible time.

In 2009, Turkish Airlines Cargo increased its cargo volume by 19.7%, achieving a 57% share of the Turkish air cargo market.

144,

974

159,

873

184,

222

198,

890 23

8,06

0

2005 2006 2007 2008 2009

Cargo and Mail Development (Tons)

Speed and quality in air cargo service

C

G R O W HT

A R G O

1 9 . 7 %


Cargo Traffic

2008 2009 09/08 (%change)

Number of flights 189,328 213,953 13.0

Passenger flights 186,733 210,990 13.0Cargo flights 2,595 2,963 14.2 Cargo+Mail (tons) 198,890 238,060 19.7

Passenger flights (tons) 144,154 178,511 23.8Cargo flights (tons) 54,736 59,549 8.8

Cargo+Mail revenue (000 USD) 323,952 304,279 -6.1

Passenger flights (000 USD) 232,213 229,954 -1.0Cargo flights (000 USD) 91,739 74,325 -19.0

57ACTIVITIES

Europe

Far East

Middle East

Africa

America

44%

33%

10%

7%6%

Breakdown of Regional Cargo Traffic Breakdown of Regional Cargo Revenue

%26

Europe

AfricaN. America S. America

Middle East

Far East

48.9%

26.1%

14.5%

5.1%4.5%

0.9%


Planned increases in frequency on existing routes have made the prospect of flying with Turkish Airlines even more attractive.

roduction Planning PP

59ACTIVITIES

As it continues to position itself in the competitive global aviation industry as one of the world’s leading brands, Turkish Airlines has engaged in a series of innovations and developments in its production planning activities in 2009.

The introduction to its fleet of B777-type aircraft, on which Turkish Airlines offers first-class services, and the addition of Sao Paulo - the first destination in South America - further improved product diversity and customer satisfaction. In addition to scheduled flight operations from Antalya to Paris, Düsseldorf and Stockholm, flights from Eskişehir to Brussels were launched. Due to ever-rising passenger traffic at Atatürk International Airport, Istanbul’s rapidly growing Sabiha Gökcen Airport has been increasingly used with the addition of alternative international flight frequencies to Amsterdam, London (Stansted), Stuttgart, Cologne, Moscow, Hannover and Berlin (Schönefeld).

Turkish Airlines in Haj, Umrah, charter and private rental flights

In 2009, 321,000 passengers traveled on Haj and Umrah flights, generating revenues of approximately $98.5 million. Supplementary flights generated revenues of $19.5 million, of which 44% was from domestic flights and 56% was from international flights. Charter flights, which carried 629,000 passengers, brought in revenues of approximately $161.5 million.

An expanding flight network and new destinationsIn 2009, Turkish Airlines started flying to 13 new

destinations, 10 international and 3 domestic.

13 new destinations have been added to the flight network, bringing the total number of destinations to 156 including 37 domestic and 119 international destinations.

New Destinations

Nairobi (NBO) - Kenya February 20, 2009Ufa (UFA) – Russia March 4, 2009Mashad (MHD) - Iran March 15, 2009Dakar (DKR) - Senegal April 5, 2009Sao Paulo (GRU) - Brazil April 5, 2009Benghazi (BEN) - Libya May 5, 2009Gothenburg (GOT) – Sweden June 29, 2009Toronto (YYZ) – Canada July 11 2009Lviv (LWO) – Ukraine July 27, 2009Jakarta (CGK) – Indonesia September 4, 2009Uşak (USQ) January 12, 2009Çanakkale (CKZ) January 19, 2009Isparta (ISE) October 28, 2009

1 5 6F

D E S T N A T I O N SI

L I G H T

Innovation, development and growth

10,2

1

10,4

4 11,1

3

11,4

0

11,3

9

2005 2006 2007 2008 2009

Utilization


Despite the global economic crises, Turkish Airlines increased its number of destinations around the world to 156 airports, including 3 new domestic and 10 new international flights in 2009, taking bold steps to consolidate its global position in the airline industry.

Turkish Airlines has successfully competed with the world’s leading airline companies in their own regions and increased capacity through the addition of new destinations and frequencies to its existing flight network. Through pricing policies that dovetail with target markets and passenger profiles, Turkish Airlines ensured that its increasing capacity met with the corresponding demand.

Flying is now easier with mobil.thy.com Improvements made to the www.thy.com internet portal reflect improving information technologies and changing customer needs and have provided time saving and convenience. Sales over the Internet increased 2% over the previous year. As part of its effort to diversity sales channels, Turkish Airlines launched the mobil.thy.com application, allowing passengers to perform each stage of the ticketing process via mobile phone.

Codeshare agreements were entered into with Ethiopia Airlines, Etihad Airlines, Malaysian Airlines, Asiana Airlines, Singapore Airlines, Bosnia – Herzegovina Airlines and Air Maroc, strengthening network structure and attracting new customers. These agreements provided alternative access to markets in Africa, the Middle East, the Far East, and the Balkans.

Turkish Airlines has increased the capacity of its flight network through the addition of new destinations and increased frequencies.

arketing and SalesMM

61ACTIVITIES

Turkish Airlines views flight safety and service quality as two indispensible factors, and it has made efforts to improve check-in and boarding processes through the implementation of advanced technology that improve on-time takeoff performance. Despite its expanding network structure and increasing number of passengers, Turkish Airlines has maintained a consistent level of success in luggage delivery services. It has received Airbus’ “Operational Excellence Award,” which evaluates airline companies based on criteria that consider the number of aircraft in the fleets, the daily utilization rates of the aircraft, technical trustworthiness and minimization of delays for operational reasons over the past two years. Turkish Airlines was selected as the best in the region by Skytrax, which evaluates airlines and airports using 750 parameters that cover services rendered and quality standards, and it has awarded the title of “The Best Airline Company in South Europe”. With its high quality services and customer-oriented philosophy, Turkish Airlines was the sole airline to receive four stars in all categories.

An active player in global competition

In 2009, Turkish Airlines became a major player in world aviation. The number of passengers choosing the pleasure of flying with Turkish Airlines in the international market increased by 16% to 13.4 million. Despite the overall contraction in the aviation industry due to the impact of the global economic crises, Turkish Airlines increased its capacity by 22% and its load factor rose to 71%. Turkish Airlines continued to pursue a strategy of flight network expansion and achieved a 15% increase in sales revenues, which reached 7 billion TL.

8.3 million passengers flew to Europe, the most common destination. With the addition of Göteburg, Lviv and Ufa to the flight network, the total number of passengers flying to Europe increased by 13% and the region brought in revenues of 2.6 billion TL.

Continued growth in the Middle East, Far East and Africa

In terms of passenger traffic, the Middle East grew faster than any other region in 2009. In particular, the markets connecting the Middle East with the Far East, Europe and Africa have led the way in bringing about a 43% increase in the number of international passengers. Compared to the previous year, the capacity serving the region grew 35.3% and the number of passengers rose 26.3%, resulting in a 22% increase in revenues to 858 million TL. With the addition of Meshed - Turkish Airlines’ third destination in Iran - to the flight network in 2009, the number of destinations in the Middle East grew to 19.

The Far East is another region that has seen high growth rates, which Turkish Airlines has responded to with increased capacity, particularly on flights to Bombay, Delhi and Hong-Kong. A 28.3% increase in capacity was matched with a 23% increase in the number of passengers. With the addition of Jakarta, a magnet for faith-based tourism and high in commercial potential, to the flight network, the total number of destinations in the region rose to 18.

Turkish Airlines experienced the highest level of growth in Africa, where the number of passengers increased by 49%. The market abounds with opportunities, and flights were launched to Nairobi, Bingazi and Daccar, increasing capacity by 58% and bringing the total number of flight destinations to 13. These new destinations led to a 49% increase in the number of passengers over the prior year, as well as a 49% increase in revenues.

Turkish Airlines added Toronto as its third destination in North America, where it experienced a 36.3% rise in the number of passengers and increased capacity by 39%.

Flights to Sao Paulo, Turkish Airlines’ latest and only destination in South America, successfully achieved an average load factor of 60%.

Multi-faceted service

In recognition of its commitment to high quality services and a customer-oriented philosophy, Turkish Airlines was the sole European airline to receive four stars in all categories.


nformation Technology II

63ACTIVITIES

The size of the global airline information technology market is €7.8 billion annually. America and the EMEA (Europe, the Middle East and Africa) have the largest share of the market, with €2.8 billion each. These are followed by the Asia-Pacific, with a market size of €2.2 billion.

Outsourced contracting services account for 40% of the volume in the airline information technology market. The sector is showing a growing trend in which a portion of the information technology services are obtained through service providers, and such outsourced services are expected to continue to increase.

In line with global trends, Turkish Airlines outsources some information technology services when necessary for cost savings and efficiency. Turkish Airlines determines its outsourcing strategy in order to control externally-sourced information technology sources within the company.

In the wake of the global economic crisis, cost reduction measures have taken priority in the airline industry, and thus applications and technology that would result in cost savings get more attention. Competition in the industry, meanwhile, has put rising pressure on the need to increase revenue and customer satisfaction. As such, investments in information technology are needed now more than ever, and despite the overall contraction of the airline industry in general, the market for airline information technology continues to grow.

SITA (Specialists in Air Transport Communications and IT Solutions) foresees that as a result of the economic crisis, the priority investment areas for information technology in the airline industry will center on applications that would reduce costs, followed by applications that would increase revenues.

America

2.80 2.80 2.20

Asia-Pacific

EMEA(Europe-

Middle East-Africa)

3.00

2.50

2.00

1.50

1.00

0.50

0.00

Airline Information Techonology Markets (billion EUR)

Priority Areas of Investment in Information Technology forThe Airline Sector

Cost -reducing

Most preferred Least preferred

57% 26% 12% 3%

Increase in Personnel Efficiency 34% 44% 21% 1%

Sector Rules and Regulations 32% 34% 28% 3%

Information Technology Compatibility 14% 32% 41% 13%

Improvement in Customer Services 42% 40% 15% 1%

Delivery of new products and services andrevenue - increasing 43% 31% 20% 3%

0% 20% 40% 60% 80% 100%

Percentage of companies, based on priority assessment of investment purpose. (Source: SITA Airline IT Trends Survey, 2009)

Effective information technology delivering innovation and competitive strength

Cutting-edge and performance-enhancing information technology solutions have been implemented in response to increasing business process needs.


The airline industry features complex business processes, and therefore high performance information technology solutions are required to maintain a competitive edge and achieve sustainable growth targets. In this respect, ongoing work is underway to maximize the efficiency of Turkish Airlines’ business processes, design decision-making processes that function in the fastest and the most effective manner, and support the implementation of solutions and decisions that most effectively contribute to Turkish Airlines’ pursuit of competitive strength and sustainable growth.

The Information Technology Department is responsible for determining areas of corporate development in line with strategic targets, defining the scope of projects, and

coordinating project management and business process owners in the resulting restructuring processes. As such, it has launched several customer satisfaction-oriented projects in 2009 aimed at cost reduction and revenue increase, reflecting the growing sensitivity of the aviation industry to the impact of the global economic crisis.

Among these projects, the ERP (Enterprise Resource Planning) project, a broad-based project with major goals, was one of the most important developments of 2009. The installation and development stages of the ERP project, to begin in 2010, will be outsourced within the framework of an agreement made with SAP Turkey.

Full support for business processes and functionality with the very best IT solutions

65ACTIVITIES

Additionally, there have been important developments in 2009 on the O&D (Origin and Destination) and MRO (Maintenance, Repair and Options) projects. Alongside these main projects, further projects are being prepared to meet the company’s needs and technological requirements, and these are scheduled for completion in 2010.

As Turkish Airlines continues its investment planning, new developments and trends in technology and in the airline industry are closely tracked in order to ensure that well-aligned strategies are formed.


With the launch of its renewed website and mobil.thy.com, Turkish Airlines has successfully created an ever-increasing number of customer contact points.

usiness Development BB

67ACTIVITIES

With its new user-friendly design, the Turkish Airlines web site - available in 24 languages through 40 local sites - increased turnover by 37% over the prior year, with an increase of 73% in the number of tickets sold.

Passengers are now able to use the “3D Secure” payment option for hotel reservation services and online shopping. The numbers of visitors to Turkish Airlines’ website increased by 73%, and the management of the customer support line is now being conducted over a more effective and measurable integrated management system.

Fast and accessible service: mobil.thy.com

mobil.thy.com gives passengers the ability to inquire into schedules, make reservations, purchase mobile tickets for domestic flights, and perform check-in, luggage, cargo, bonus ticket and Miles&Smiles operations via their mobile phones.

In the process of selecting the digital marketing agent, the originality of the competition pitch created by Turkish Airlines made a large worldwide impact, earning the recognition of the world’s leading digital media companies, including Fast Company, Adverblog, and Brand Republic.

Turkish Airlines, which is featured in social networks such as Twitter, Friendfeed, Slideshare, Facebook, and Flickr, has taken important steps in reinforcing its interaction with customers.

A point of contact for service and solutions: Turkish Airlines Call Center

As of February 2, 2009, outsourced services have been provided by Assistt Rehberlik ve Müşteri Hizmetleri A.Ş. and Vodatech Bilişim Proje Danışmanlık Sanayi ve Dış Ticaret Ltd. Şti., and the Turkish Airlines Call Center has now reached activation speed for the resource increase required for service from three different locations.

In February, the reservation system switched its software application to Quickres. In doing so, graphical interfacing improved, efficiencies increased and personnel training processes became shorter.

A Miles upgrade service was added to the Miles ticket sales service offered through the Call Center. The Call Center, which responds to international calls from the United States, England, Germany, France, Moscow, Switzerland, the Netherlands and Italy, now also responds to calls from Denmark, Austria and Cyprus.

Call Center costs fell by 46%, while the call completion rate increased to 95%. Both the number of calls answered and minutes generated increased by 4%, and the number of tickets sold rose by 9%. The Call Center generated 1.78% of Turkish Airlines’ total ticket sales and accounted for 4.48% of the total number of tickets sold.

Your office in the sky

Call center costs fell by 46%, and the call completion rate increased to 95%.


Turkish Airlines’ membership in the Star Alliance has been an important stepping stone in the company’s goal of becoming a worldwide brand. The “Post-integration audit,” which assesses integration with the minimum conditions following entry into the Star Alliance, and the “Self- Verification” audit, in which members audit themselves online, were both successfully concluded.

The Pollux, Castor and Wasat packages, which are the three new membership status levels offered by the Star Alliance in 2010, were evaluated, and the decision was made to advance to “Pollux” status, the highest level. Accordingly, the required work on the “Star Alliance Main Agreement 4th Amendment” was initiated.

Turkish Airlines offered its passengers the ability to use Miles&Smiles privileges through Special Passenger Program agreements it has entered into with leading organizations in a number of fields, first and foremost the tourism sector.

The diversity of services that Turkish Airlines offers its passengers was enriched through mutual FFP partnership agreements with new Star Alliance members Continental Airlines and Brussels Airlines, and with a Special Passenger Program partnership agreement with Jet Airways.

Ongoing promotions offered by Turkish Airlines throughout the year have served both to increase member satisfaction as well as maintain a lively and active program.

Turkish Airlines, a member of the Star Alliance, successfully passed all of its audits in 2009 and now aims to achieve Pollux status, the highest membership level.

New applications and agreements enhanced the Miles&Smiles Special Passenger Program, which now boasts 50 partners and 1.8 million members.

“

“

69ACTIVITIES

Non-stop convenience with Miles&Smiles

Turkish Airlines changed its method of distributing Miles&Smiles cards, and now sends out membership cards following the first flight taken with either Turkish Airlines or a Star Alliance member airline. In May, a Miles&Smiles desk was set up in the international flights terminal of Atatürk Airport in order to provide instant membership card services, and members were given the option of performing Miles&Smiles operations via mobil.thy.com.

A new service also now transmits any missing flight information entered into the system to members’ email addresses via an automatic information message.

Domestic travel agencies are now able to process Miles&Smiles domestic award tickets, and a condition was introduced to accompanying ticket awards that requires accompanying passengers to travel together with the Miles&Smiles member on the outbound portion of their voyage.

The “Last Minute Upgrade” feature offered to Elite and Elite Plus card holders under the Miles&Smiles Special Passenger Program has now also been made available to Classic and Classic Plus card holders.

Parade of the stars


The Star Alliance offers passengers comprehensive and safe air transport with approximately 20,000 daily departures to more than 1,000 destinations in 171 countries and 954 CIP lounges.

In 2009, Continental Airlines and Brussels Airlines joined the Star Alliance, while Air India, Aegean Airlines and TAM continued their integration process.

Alliance membership discussions are underway with the African flag-carrier Ethiopian Airlines, the Chinese flag-carrier China Eastern airlines and the Latin American flag-carriers TACA, COPA and Avianca.

71ACTIVITIES

The Star Alliance is bringing new products to market in order to facilitate its passengers’ travel options. These products are divided into two general categories - personal and corporate.

Individual Products:

• Round the World Fares• 2 Circle Fares• 9 Airpasses

Corporate Products:

• Corporate Plus• Meeting Plus• Convention Plus

Starting in 2009, the Star Alliance has given passengers the option of purchasing member airline tickets through its own website (www.staralliance.com), under the slogan “Book and Fly.”

More than 3,000 customers per month reach Turkish Airlines’ website via the Star Alliance website, bringing them the benefits of Turkish Airlines’ online opportunities.

Available Seat - Kms

Others

Star Alliance

Sky Team

Oneworld

Others

Star Alliance

Sky Team

Oneworld

Revenue Passenger - Kms

AC BC CA CO FM JK JP KF LH LX MS NH NZ OS OU OZ SA SK SN SQ TG TK TP UA US

6,25

2

1,44

9

2,58

2

659

1,05

1

358

269

5,82

7

1,53

8 3,54

9

1,79

3

3,39

4

438 2,

510

1,68

7 3,88

6

1,59

1

6,43

2

6,91

0

3,06

3

1,79

8

11,7

65

4,69

9

Monthly Traffic Routed to Member Websites from The Star Alliance Website

9,28

5

17,6

38

Synergy: the source of competitive power

26.0%

16.1%

15.4% 15.6%

16.6%

26.3%

41.6%42.5%

73SUBSIDIARIES

Transport to Anatolia at jet speed

Turkish Airlines, which places the utmost importance on quality of service and customer satisfaction, has turned AnadoluJet into one of Turkey’s most preferred brands.AnadoluJet connects the four corners of Turkey with flight operations based out of Ankara, and through its affordable product policy and convenient flight schedules has carved out a strong market position, becoming one of Turkish Airlines’ preferred brands. AnadoluJet flies to 25 destinations every day of the week and offers passengers an economic and comfortable means of travel, featuring complimentary in-flight meal service and an onboard monthly publication, the “AnadoluJet Magazine”.

AnadoluJet goes international

AnadoluJet has succeeded in taking the pleasure of its services abroad, adding new international destinations to its flight network in 2010 and continuing to move forward in becoming an international brand.

AnadoluJet completed the year having carried 2.8 million passengers on its domestic flights at an 80% load factor, and with a load factor of 65% on international flights that began in June, has now joined the global competitive marketplace.

AnadoluJet’s promotional activities have played an important and effective role in increasing brand awareness. These activities include ongoing transportation sponsorship of various concerts and arts organizations in Anatolia, particularly in Ankara. It has expanded its sponsorship of the “AnadoluJet in Support of Anatolian Teams” campaign that supports Anatolian athletic teams. AnadoluJet also participates in national and international fairs and other similar events in cooperation with agencies, tour operators, tourism operators and city culture and tourism offices, creating opportunities to forge face-to-face relationships with its passengers.

Anatolia’s young and dynamic airline

AnadoluJet has the youngest fleet in the skies, with three B 737-800s and six B 737–700s, and in 2009 it continued to add new flight operations to its network and increase frequencies.

Scheduled flights from Ankara to Çorlu Airport began in February, from Ankara to Istanbul’s Sabiha Gökçen Airport

in June, and from Ankara to Cyprus in October. For the 2009-2010 winter schedule, flights were scheduled for each day of the week from Sabiha Gökçen Airport to Diyarbakır, Elazığ, Erzincan, Erzurum, Konya, Trabzon and Van.

In 2009, AnadoluJet’s flight network comprised flights from Ankara to Adana, Adıyaman, Antalya, Batman, Çorlu, Diyarbakır, Elazığ, Erzincan, Erzurum, Gaziantep, Hatay, İstanbul Sabiha Gökçen, İzmir, Kahramanmaraş, Kars, Kıbrıs, Malatya, Mardin, Muş, Samsun, Şanlıurfa, Trabzon, Van and in the summer schedule to Bodrum and Dalaman; and from Istanbul Sabiha Gökçen to Diyarbakır, Elazığ, Erzincan, Erzurum, Konya, Trabzon, Van and in the summer schedule to Bodrum and Dalaman.

AnadoluJet simplifies the luxury services of aviation without compromising international standards and flight safety, offering fares that accommodate its customers’ budgets. Among various fare promotions that support its economic pricing policy, AnadoluJet continued its “first 29 seats for 59 TL” campaign.

The net address for young people: “jetgenc.net”

Through its JetGenç project, AnadoluJet gives university students under 24 years old the opportunity to travel at a 25% discount.

AnadoluJet supported the project with various promotions, and delivered a message to university students that they should not wait for life after 25.

Promotions are accessible through the www.anadolujet.com and www.jetgenc.net websites, where young people in universities can win one free flight for every 10 flights, purchase all tickets using a student member password registered to their accounts and win bonus tickets on AnadoluJet.

AnadoluJet periodically organizes aviation events that aim to promote and popularize aviation and create career opportunities for students.


Turkish DO&CO was founded in 2007 as a partnership between Turkish Airlines and the Austrian catering company DO&CO, and it has since achieved great acclaim with its diverse menu catering to a variety of tastes and with the great care it gives to the details of service. Turkey’s market leader with a commanding 70% share, Turkish DO&CO operates from 9 locations (İstanbul - Atatürk ve Sabiha Gökçen, Ankara, Antalya, İzmir, Bodrum, Trabzon, Dalaman and Adana) and provides catering services for more than 60 airlines and nearly 650 daily flights.

Turkish DO&CO produces an average of 25 million meals per year under 1,500 menus, striving to offer the highest quality products and service. Working to bring out the flavors of the world’s cuisines, Turkish DO&CO also gives a special place on its menus to foods unique to Turkey, such as shish kebabs, karnıyarık (aubergines with meat filling), mantı (Turkish style ravioli), imambayıldı (cold aubergines with vegetable filling), lentil patties, beğendi (aubergine puree) and cheese rolls. The quality of service and the importance placed on customer requests have shown up in surveys of customer satisfaction, which has risen to 93% from 49%.

With Turkish DO&CO, customer satisfaction has risen from 49% to 93%.

Materials used for offerings 95%

Temperature of foods 92%

Food quality 93%

Appetizing appearence of foods 92%

Variety of food 92%

Freshness of food 93%

Meeting your taste expectations 92%

Size of portions 93%

Guest satisfaction Questionaire. International Flights: 93%

75SUBSIDIARIES

Turkish cuisine meets the worldPurchases of catering service abroad were curtailed in certain terminals, after a decision was made to load meals in a staged manner for round-trip flights departing from Turkey,. This practice boosted worldwide promotion of Turkish cuisine and increased our competitive strength through higher in-flight meal service quality and reduced costs. Turkish Airlines, which never compromises on the quality of its service and the products they contain, has completed the in-flight meal loading process for round trip departures from Turkey at 101 terminals.

With the launch of First Class services on medium range and ocean crossing flights, new First Class menus have been added to the in-flight meal services.

The transfer of materials management to Turkish DO&CO as way of improving quality and procurement though integrated catering services has been an important step in the adoption of a per-passenger cost approach.

The gourmetentertainment

Materials used for offerings

Meeting your taste expectations

Temperature of foods

Food quality

Variety of food

Size of portions

Appetizing appearence of foods

Freshness of food

94%

89%

91%

88%

82%

92%

88%

89%

Guest satisfaction Questionaire. Domestic Flights: 92%


urkish Technic Inc.TT

77SUBSIDIARIES

Services provided both domestically and abroad

Turkish Technic Inc., which in 2009 carried out nearly 1,800 letter checks in its two hangars at Ataturk Airport, generated business of approximately 1,000,000 A/S through its heavy maintenance activities alone. The engine workshop completed 74 engine maintenance works, 38 of which were shop visits and 36 were overhauls, and it generated approximately 100,000 A/S. The APU workshop performed 42 APUs, the landing gear workshop performed 81 landing gear overhauls, and the component workshops performed approximately 43,000 component overhauls. Turkish Technic Inc. also continued to provide maintenance services for VIP craft in its Ataturk Airport VIP Hangar. Over 100 maintenance works were provided for foreign customers.

Ankara Esenboğa Hangar

The construction of the Ankara Esenboğa Hangar was completed in August of 2009, and the facility is now ready for operation in its 7,000 m2 closed area with a capacity of 3 narrow fuselage craft. The facility plans to handle line maintenance services such as A and L for narrow fuselage craft and C level heavy maintenance, landing gear replacements, engine replacements and aircraft painting. One slot of the hangar, which can accommodate 3 narrow fuselage aircraft, is also reserved for nightly line maintenance services such as A and/or L. The same slot is anticipated to handle non-planned aircraft service, failed aircraft and VIP aircraft. The other 2 slots are reserved for C level heavy maintenance services on Turkish Airlines and AnadoluJet aircraft and the aircraft of

foreign customers. These slots are also planned to handle landing gear replacements, engine replacements and aircraft painting operations.

New gains

In 2009, Turkish Technic Inc. obtained authorization for Gulfstream 550 ESB+IST Base Maintenance, Gulfstream IV ESB Base Maintenance and Diamond DA42 NG Base Maintenance.

With the addition of the 777-300ER to the Turkish Airlines fleet, all required works - such as tool and training - were completed, line maintenance and A maintenance capabilities were put in place and additional work on C maintenance capability continued.

Under the scope of Total Care, Turkish Technic Inc. has taken on the technical obligations of foreign companies. By assigning technicians to these companies’ main bases, a sound continuity of technical operations has been ensured.

An IFE maintenance group of avionics technicians was established for the professional maintenance of the IFE systems in aircraft configurations. The group meets the aircraft upon flight completion, corrects any failures and delivers the system to the crew in operating condition under the “meet and greet” philosophy.

For the follow-up of repeat failures, the procedures for the Repetitive Defect Alert System – REDAS program, which was created by studying the procedures of other international companies, reached completion stage.

Turkish Technic Inc. aims to carve out a large share of the aviation industry’s maintenance & repairs market with new projects. Turkish Technic Inc. has achieved prominence through its experience and extensive engineering know-how in the increasingly competitive environment of the maintenance & repairs market. In 2009, Turkish Technic Inc. further strengthened its market position thought a customer-oriented operating philosophy that has been at the core of its quality policy since the day it was founded.

Turkish Technic Inc. commands an 85% share of the $550

million Turkish maintenance and repair market, whose global size in 2009 was $44 billion and is expected to reach $65 billion by the 2020s.

As of year-end 2009, Turkish Technic Inc. employed a total of 2,519 personnel, of which 61.3% hold technical licenses, and it continues to invest in its human resources - one of the most important contributors to its success and growth.

Safe flights


Cabin developmentsIn 2009, numerous studies were carried out on cabin improvements. All seat covers for the fleet may now be manufactured by domestic companies that are authorized as sub-contractors, and new seat covers were sewn for 40 aircraft. Companies with JAR 21 authorization began production of parts used in the cabin, which have a high replacement rate and pose procurement difficulties, and costs were reduced by 15% -25%. Projects by the R&D group led to the creation of new tool designs that deliver enhance working ease, time savings and increased productivity. The seat-lifting apparatus and the A330/A340 B/C seat carry tool are among the projects implemented.

Full engineering support Technical comparisons of candidate aircraft types and configuration assessments for selected aircraft types were conducted as part of the selection process for wide and

narrow fuselage aircraft.

For internal cabin configuration changes made to some of the aircraft in Turkish Airlines’ fleet and in the preparation of engineering publications produced by EASA-approved design organizations, project management and engineering support was provided for the implementation of modifications made by Turkish Airlines.

The required engineering support was provided for the installation of the curved wing feature in 24 aircraft, 22 without provision and 2 with provision. Effective work was also carried out to obtain testing capability for the V2500 engine, on which a full performance maintenance was made for the first time.

Maintenance programs were revised by increasing the A maintenance interval for Turkish Airlines’ A330 and A340 aircraft from 600 FH to 800 FH and by increasing the S maintenance interval for the A340 aircraft from five years to six years.

Turkish Technic Inc., serves a variety of customers throughout the world, and continues to expand its domestic and foreign customer portfolio.

79SUBSIDIARIES

TEC (Turkish Engine Center)As part of Turkish Technic Inc.’s strategy to establish partnerships with manufacturers that provide know-how and technology transfer, the Turkish Engine Center (TEC), which is the first subsidiary jointly established with Pratt&Whitney, began operations in December 2009. Under the Turkish Technic Inc. - Pratt&Whitney partnership, a modern engine center was built, providing a window on the future and featuring a green-building construction concept in which work health and safety precautions have been taken to the highest level and flow lines that allow for simple production techniques fast TAT times. TEC, which is designed to perform revisions on 250 engines per year at its full capacity, covers an area of 25,000 m2 and sits in a lot totaling 10 hectares.

An agreement has been reached with TEC for heavy maintenance and repair services on the CFM56-3C/-5C/-7B series engines fitted on Turkish Airlines’ Airbus 340 and

Boeing 737 aircraft and the V2500-A5series engines fitted on the Airbus 320 aircraft.

HABOM (Aviation Maintenance Repairs and Modifications Center)All preparations were completed for the HABOM project, which gathers the majority of Turkish Airlines technical projects under one roof. The first stage of the project, planned for launch in the first quarter of 2010, covers narrow fuselage hangars and is targeted for completion in 18 months. The facility will have a closed area of approximately 370,000 m2, and has an impressive design that comprises hangars, component workshops, and training and social buildings capable of simultaneously serving 12 narrow fuselage aircraft and three wide fuselage aircraft. The project that will be the industry’s largest maintenance and repairs center in the region is anticipated to provide employment for 3,000 personnel when it reaches full operating capacity.


VISION

Taking its market leadership in Turkey into the international arena and distinguishing itself by maintaining the highest levels of customer satisfaction though cost savings and high quality of service.

MISSION

To become a global player in the ground services industry, delivering cost savings to customers and achieving the highest level of operational efficiency.

GOALS

Turkish Ground Service, a consortium between Turkish Airlines and Havaş (TAV Holding), aims to achieve first local and then global status in its sector, by offering high quality service and undisputable cost savings.

Turkish Ground Service (TGS) began operating in December 31, 2009 as a 50-50 joint venture partnership between Turkish Airlines and HAVAŞ, the ground services company of TAV Havalimanı Holding.

The company’s 4,000 personnel began providing ramp (aircraft and cargo) services principally at Istanbul Atatürk Airport and Ankara Esenboğa, İzmir Adnan Menderes, Antalya and Adana Şakirpaşa airports, and aims to employ 5,000 personnel by the end of its first year.

The company will begin providing passenger and operating services at İzmir Adnan Menderes Airport on March 1, 2010, at Ankara Esenboğa Airport on May 1, 2010 and at İstanbul Atatürk Airport on October 1, 2010, and it will continue expanding to other airports following the completion of its market research.

81SUBSIDIARIES

Service from the ground to the sky

The company will provide services for the aircraft of domestic and foreign airlines with over 300,000 flight frequencies – first and foremost Turkish Airlines and AnadoluJet – and aims to become one of the world’s best ground operations companies. TGS’s target turnover for its first year is approximately TL 100 million, and the company plans to expand into Europe and the Middle East in the medium term.

While bringing employment opportunities to hundreds of people, TGS’s entry into the market will enhance the market’s competitive environment and lead to higher customer satisfaction.

SERVICES:

• Passenger services

• Cargo control services

• Ramp services

• Postal services

• Communications

• Cargo services

• Representation, management and supervision services

Our achievements lay the foundation for our goals. Our

numbers tell the stories of the roads we have traveled.

““

Financial Ratio and Audit Reports

Financial Ratios 85

Consolidated Financial Tables and Independent Auditor’s Report 86

inancialFF

Ongoing Investment and Growth

In 2009, while the world's leading airline companies cut down capacityas a result of the severe global economic crisis, Turkish Airlines grewboth operationally and financially. Operating profit increased 12% to832 million TL, and sales revenues grew by 15%, reaching 7 billion TL.Posting a net profit of 559 million TL, Turkish Airlines continuedmethodically bringing its investments to fruition in 2009.

Under the scope of the 2008-2023 fleet expansion projection of a totalof 105 airplanes, final orders were issued for 64, including 22 double-corridor long-range airplanes, 40 single-corridor short and medium-range airplanes and 2 wide-body cargo airplanes. These airplanes willbe added to the fleet in 2014. In 2009, the number of airplanes in thefleet grew 4%, from 127 to 132. International routes accounted for 79%and domestic routes for 21% of revenues from scheduled service. Inparallel to a 22% increase in available seat kilometers, the number ofpassengers grew 11% to 25,099,000 and cargo transport increased 20%to 238,000 tons. To the effects of an increase in capacity, the load factorfell 3.1 points to 70.9%.

Turkish Airlines continues its work to carry the success of 2009 intofuture years.

31 December 2009 31 December 2008

LIQUIDITY RATIOS

Current Ratio 1.44 1.58

Acid Test Ratio 1.36 1.52

Cash Ratio (Incl. fixed deposits) 1.35 1.17

FINANCIAL STRUCTURE RATIOS

Debt/Assets Ratio 0.60 0.62

Equity/Assets Ratio 0.40 0.38

PROFITABILITY RATIOS

Net Profit Margin %8 %19

Operating Profit Margin %10 %10

EBITDAR Margin %24 %22

EBITDA Margin %17 %17

EBIT Margin %12 %12

Interest Coverage Ratio 7.11 7.02


Financial Ratios


DRT Bağımsız Denetim veSerbest MuhasebeciMali Müşavirlik A.Ş.Sun PlazaNo: 2434398 Maslakİstanbul, Türkiye

Tel: (212) 366 6000Fax: (212) 366 6010www.deloitte.com.tr

AUDITOR’S REPORT

To the Board of Directors of

Türk Hava Yolları A.O.

We have audited the accompanying consolidated balance sheet of Türk Hava Yolları A.O. and itssubsidiary (together the “Group”) as at 31 December 2009 and the related consolidated statement ofcomprehensive income, consolidated change in shareholder's equity statement and consolidated cashflow statement for the year ended 31 December 2009, and a summary of significant accounting policiesand other explanatory notes.

Management Responsibility on Financial Statements

The management is responsible for preparation and fair presentation of these financial statements inaccordance with accounting standards published by Capital Markets Board. This responsibility includes:designing, implementing and maintaining internal control relevant to the preparation and fair presentationof financial statements that are free from material misstatement, whether due to fraud or error; selectingand applying appropriate accounting policies; and making accounting estimates that are reasonable inthe circumstances.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.We conducted our audit in accordance with auditing standards published by the Capital Markets Board.Those standards require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance whether the financial statements are free from material misstatement. Anaudit involves performing procedures to obtain audit evidence about the amounts and disclosures in theconsolidated financial statements. The procedures selected depend on the auditor's judgment, includingthe assessment of the risks of material misstatement of the financial statements, whether due to fraudor error. In making those risk assessments, the auditor considers internal control relevant to the Group'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the Group's internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by the Group, as well as evaluatingthe overall presentation of the financial statements.

Member of Deloitte Touche Tohmatsu

Auditor's Responsibility (cont'd)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Financial statements of Gunes Ekspres Havacılık A.Ş. and THY DO&CO Ikram Hizmetleri A.Ş. thatare joint ventures of the company and accounted on the equity method have been audited by otherindependent audit firms. %0, 7 of total assets of accompanying financial statements is contributed bythose companies. Those statements were audited by other auditors whose reports have been furnishedto us and our opinion, insofar as it relates to the amounts included for these entities is solely based onreports of the other auditors.

Conclusion

In our and other audit firms' opinion, accompanying consolidated financial statements of the Group asof 31 December 2009 and for the year then ended have been properly prepared, in all material respectsin accordance with generally accepted accounting standards issued by Capital Markets Board.

Without qualifying our opinion, we would like to draw attention to the following matter:

As it is explained in detail in Note 41, the Group has classified the financial statements for the yearended 31 December 2008 and balance sheet as of 1 January 2008.

Istanbul, 5 April 2010

DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.Member of DELOITTE TOUCHE TOHMATSU

Berkman ÖzataPartner

Member ofDeloitte Touche Tohmatsu



(Convenience Translation of Report And Financial Statements Originally Issued in Turkish)

Türk Hava Yolları Anonim OrtaklığıConsolidated Balance Sheet as of 31 December 2009(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)

The accompanying notes form an integral part of these consolidated financial statements.

Audited Audited

Audited (Restated Note 41) (Restated Note 41)

ASSETS Note 31 December 2009 31 December 2008 1 January 2008

Current Assets 2.799.855.184 2.620.279.393 1.487.528.554

Cash and Cash Equivalents 6 1.096.111.869 504.905.721 480.196.215

Financial Assets 7 222.298.370 1.442.632.862 292.020.000

Trade Receivables 10 445.381.881 349.144.133 245.539.019

Other Receivables 11 743.393.375 61.673.958 305.855.757

Inventories 13 148.995.932 98.359.291 113.740.571

Other Current Assets 26 143.673.757 163.563.428 50.176.992

Non-current Assets 5.772.234.243 5.290.955.322 3.434.915.521

Other Receivables 11 664.360.128 22.808.881 21.756.328

Financial Assets 7 1.750.943 1.750.943 3.016.564

Investments Accounted for Using the

Equity Method 16 152.052.556 43.637.924 38.370.043

Investment Property 17 48.810.000 48.130.000 53.700.000

Tangible Assets 18 4.811.019.050 5.055.984.137 3.238.003.554

Intangible Assets 19 10.669.612 11.162.602 6.801.172

Deferred Tax Assets 35 - 1.986.324 3.193.155

Other Non-current Assets 26 83.571.954 105.494.511 70.074.705

TOTAL ASSETS 8.572.089.427 7.911.234.715 4.922.444.075



Türk Hava Yolları Anonim OrtaklığıConsolidated Balance Sheet as of 31 December 2009(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)


Audited Audited

Audited (Restated Note 41) (Restated Note 41)

LIABILITIES Note 31 December 2009 31 December 2008 1 January 2008

Current Liabilities 1.949.243.312 1.653.906.994 1.186.652.969

Financial debt 8 412.266.841 419.289.229 228.918.371

Other financial liabilities 9 46.078.943 45.000.251 877.628

Trade payables 10 560.801.478 435.109.211 364.523.991

Other payables 11 156.633.381 115.967.007 83.387.054

Current tax liabilities 35 2.419.544 4.185.809 19.981.215

Provisions 22 7.287.354 7.460.396 4.779.221

Employee benefit obligations 24 54.734.480 47.818.425 39.664.361

Passenger flight liabilites 26 586.525.279 487.393.997 379.676.586

Other current liabilities 26 122.496.012 91.682.669 64.844.542

Non-current Liabilities 3.177.965.889 3.270.740.625 1.887.889.627

Financial debt 8 2.575.899.283 2.798.005.235 1.595.842.462

Other payables 11 8.941.613 7.865.284 7.058.322

Provision for retirement pay liability 24 151.875.562 142.459.082 131.959.011

Deferred tax liability 35 362.243.105 291.289.291 128.930.080

Other non-current liabilities 26 79.006.326 31.121.733 24.099.752

SHAREHOLDERS' EQUITY

Equity Attributable to Shareholders of Parent 3.444.880.226 2.986.587.096 1.847.901.479

Share capital 27 875.000.000 175.000.000 175.000.000

Inflation difference on shareholders' equity 27 1.123.808.032 1.672.901.479 1.739.005.871

Share premium 27 - - 895.492

Restricted profit reserves 27 22.686.727 - 61.014.406

Differences from currency translation 27 4.641.339 4.459.406 -

Cash flow hedge fund (-) 27 (1.751.329) - -

Retained Earnings 27 861.419.177 - (393.511.064)

Net Profit/(Loss) for the Period 27 559.076.280 1.134.226.211 265.496.774

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8.572.089.427 7.911.234.715 4.922.444.075



Türk Hava Yolları Anonim OrtaklığıConsolidated Statement of Comprehensive Income for The Year Ended31 December 2009(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)


Audited

Audited (Restated Note 41)

Notes 31 December 2009 31 December 2008

Sales revenue 28 7.035.882.903 6.123.174.209

Cost of sales (-) 28 (5.135.949.144) (4.542.670.584)

GROSS PROFIT / (LOSS) 1.899.933.759 1.580.503.625

Marketing. sales and distribution expenses (-) 29,30 (806.503.413) (635.876.008)

Administrative expenses (-) 29,30 (261.536.526) (203.813.181)

Other operating income 31 91.136.104 56.690.528

Other operating expenses (-) 31 (199.139.482) (210.120.463)

OPERATING PROFIT / (LOSS) 723.890.442 587.384.501

Share of investments' profit/ (loss) accounted for

using the equity method 16 12.813.703 3.572.374

Financial income 32 172.982.144 1.427.882.203

Financial expenses (-) 33 (172.708.672) (713.373.140)

PROFIT / (LOSS) BEFORE TAX 736.977.617 1.305.465.938

Tax (expense) / income (177.901.337) (171.239.727)

Current tax expense (-) 35 (104.523.367) (7.673.685)

Deferred tax (expense) / income 35 (73.377.970) (163.566.042)

PROFIT / (LOSS) FOR THE YEAR 559.076.280 1.134.226.211

OTHER COMPREHENSIVE INCOME / (EXPENSE)

Differences from currency translation 181.933 4.459.406

Cash flow hedge fund (2.189.161) -

Tax income on items in other comprehensive income 437.832 -

OTHER COMPREHENSIVE INCOME/ (EXPENSE) (AFTER TAX) (1.569.396) 4.459.406

TOTAL COMPREHENSIVE INCOME/ (EXPENSE) FOR THE YEAR 557.506.884 1.138.685.617

Earnings/(Loss) per share (Kr) 36 0.64 1.30

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Türk Hava Yolları Anonim OrtaklığıConsolidated Statement of Cash Flow for The Year Ended 31 December 2009(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)

(*)TL 178.514.434 portion of tangible and intangible assets purchases in total of TL 407.150.331 as of 31 December 2009 was financed through financeleases. (31 December 2008: TL 1.019.175.119 portion of tangible and intangible assets purchases in total of TL 1.299.191.959 was financed throughfinance leases.)

CASH FLOW FROM OPERATING ACTIVITIES 1 January- 1 January-Notes 31 December 2009 31 December 2008

Net profit before taxes 736.977.617 1.305.465.938Adjustments to obtain net cash flow generated fromoperating activities: Depreciation and amortization 18-19 347.051.580 286.265.401 Provision for retirement pay liability 24 26.356.395 23.354.581 Interest income 32 (159.789.136) (123.120.093) Profit/(loss) on sales of fixed assets 31 (3.333.754) (55.645) Increase/(decrease) in provision for impairment 18 178.783.996 (835.272.705) Loss/(profit) on equity investments accounted for using

the equity method 16 (12.813.703) (3.572.374) Interest expense 33 116.763.052 105.396.609 Movement in manufacturers' credit 26 (13.146.194) (3.378.570) Unrealized foreign exchange loss/(gain) on finance leases 32-33 (2.890.159) 586.719.977 Increase/(decrease) in provision for doubtful receivables 10 4.749.104 15.637.769 Impairment on investment property 17 78.086 5.000.000 Movement in fair value of derivative instruments 32-33 (9.016.534) 6.071.262 Dividend income 32 (42.016) (35.033)Operating profit before working capital changes 1.209.728.334 1.368.477.117 Increase in trade receivables 10 ( 100.986.852) (119.242.883) (Increase)/decrease in other short and long term receivables 11 7.946.875 (6.855.126) (Increase)/decrease in inventories 13 (50.636.641) 15.381.280 (Increase)/decrease in other current assets 26 19.889.671 (54.435.261) (Increase)/decrease in other non-current assets 26 21.922.557 (35.419.804) Increase in trade payables 10 125.692.267 70.585.220 Increase in other payables 11 41.742.703 33.386.915 Increase/(decrease) in provision for short term liabilities 22 (173.042) 2.681.175 Increase in other short and long term liabilities 26 35.344.129 37.238.679 Increase in employee benefits 24 6.916.055 8.154.065 Increase in passenger flight liabilities 26 99.131.282 107.717.411 Cash flow from operating activities 1.416.517.338 1.427.668.788 Payment of retirement pay liability 24 (16.939.915) (12.854.510) Interest paid (117.019.197) (102.736.065) Tax payments 26-35 (106.289.632) (82.420.270)Net cash flow from operating activities 1.176.268.594 1.229.657.943CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of tangible and intangible fixed assets 18-19 129.348.500 26.482.893 Interest received 181.134.732 82.172.581 Dividends received 542.016 7.034.983 Purchase of tangible and intangible fixed assets

(net of increase in finance lease liabilities) (*) 18-19 (228.635.897) (230.333.395) Prepayments for the purchase of aircrafts (1.331.217.539) 249.984.372 (Increase)/decrease in short term financial investments 7 1.203.244.254 (1.109.665.350) Cash outflow for the purchase of investments accounted

at equity method 16 (39.418.996) (4.280.515)Net cash used in investing activities ( 85.002.930) ( 978.604.431)CASH FLOW FROM FINANCING ACTIVITIES Repayment of principal in finance lease liabilities ( 397.692.584) ( 261.788.079) Decrease in financial borrowings ( 6.803.885) ( 3.917.374) Increase in other financial liabilities 9 3.650.707 39.361.447 Dividends paid ( 99.213.754) -Net cash used in financing activities ( 500.059.516) ( 226.344.006)NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 591.206.148 24.709.506CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 504.905.721 480.196.215CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1.096.111.869 504.905.721




Türk Hava Yolları Anonim OrtaklığıNotes to The Consolidated Financial Statements for The Year Ended 31 December, 2009(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)

1. THE COMPANY'S ORGANIZATION AND OPERATIONS

Türk Hava Yolları A.O. (“the Company” or “THY”) was incorporated in Turkey in 1933. The principal activity of the Company is

domestic and international air transportation of passengers and cargo. As of 31 December 2009 and 31 December 2008, the

shareholders and their respective shareholdings in the Company are as follows:


Republic of Turkey Prime Ministry

Privatization Administration 49,12% 49,12%

Other (publicly held) 50,88% 50,88%

Total 100,00% 100,00%

The total number of employees working for Türk Hava Yolları A.O. and its subsidiary (“the Group”) as of 31 December 2009 is

15.269. (31 December 2008:14.072). The average number of employees working for the Group as of 31 December 2009 and 2008

is 14.696 and 13.724, respectively.

The Company is registered in İstanbul, Turkey and its head office address is as follows:

Türk Hava Yolları A.O. Genel Yönetim Binası Atatürk Havalimanı, 34149 Yeşilköy İSTANBUL.

Approval of Financial Statements

Board of Directors has approved the financial statements as of 31 December 2009 and delegated authority for publishing it on

5 April 2010. General shareholders' meeting has the authority to modify the financial statements.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

2.1 Basis of Presentation

Basis of Preparation for Financial Statements and Significant Accounting Policies

The company and its subsidiaries registered in Turkey maintain their books of account and prepare their statutory financial

statements in accordance with accounting principles in the Turkish Commercial Code and Tax Legislation. Subsidiaries that are

registered in foreign countries maintain their books of account and prepare their statutory statements in accordance with the

prevailing accounting principles in their registered countries

The Capital Markets Board (“CMB”) has established principles, procedures and basis on the preparation of financial reports by

enterprises and the representation of the reports with Communiqué Series XI, No: 29 “Communiqué on Capital Market Financial

Reporting Standards”. This Communiqué is applicable for the first interim financial statements to be prepared after 1 January

2008 and with this Communiqué, the Communiqué Series XI, No: 29 “Communiqué on Capital Market Accounting Standards” has

been repealed. In accordance with this Communiqué, the companies are supposed to prepare their financial statements in

accordance with the International Financial Reporting Standards (“IAS/IFRS”) accepted by the European Union.

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)

2.1 Basis of Presentation (cont'd)

Basis of Preparation for Financial Statements and Significant Accounting Policies (cont'd)

Nevertheless, until the discrepancies between the IAS/IFRS accepted by the European Union, and the IAS/IFRS declared by IASBare announced by the Turkish Accounting Standards Board (“TASB”), IAS/IFRS will be in use. Under these circumstances, TurkishAccounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”), which are the standards published by TASB, notcontradicting with IAS/IFRS will be predicated on.

The accompanying consolidated financial statements have been prepared in accordance with IFRS and comply with CMB's decreeannounce on 17 April 2009 and 9 January 2009 regarding the format of the financial statements and footnotes since at the dateof the issuance of these financial statements the differences of IAS/ IFRS accepted by the European Union are not declared bythe TASB. Accordingly, some reclassifications are made in the prior year financial statements.

All financial statements have been prepared on cost basis principal. Historical cost is generally based on the fair value of theconsideration given in exchange for assets.

Currency Used In Financial Statements

The individual financial statements of each Group entity are presented in the currency of the primary economic environment inwhich the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results andfinancial position of each entity are expressed in Turkish Lira (“TRY”), which is the functional currency of the Company, and thereporting currency for the consolidated financial statements.

Adjustment of Financial Statements in Hyperinflationary Periods

As per the 17 March 2005 dated, 11/367 numbered decree of CMB, companies engaged in Turkey and those of which preparetheir financial statements in accordance with the CMB Accounting Standards (including IAS/IFRS exercisers), use of inflationaryaccounting standards have been discontinued effective 1 January 2005. Pursuant effectuation, “Financial Reporting Standardsin Hyperinflationary Economies” issued by the International Accounting Standards Committee (IASC), (“IAS 29”) was no longerapplied henceforward.

Comparative Information and Restatement of Prior Period Financial Statements

Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give informationabout financial position and performance. On order to maintain consistency, with current year consolidated financial statements,comparative information is reclassified and significant changes are disclosed if necessary.

Basis of the Consolidation

a) The consolidated financial statements include the accounts of the parent company, Türk Hava Yolları A.O., its Subsidiary and its Affiliateson the basis set out in sections (b) and (c) below. Financial statements of subsidiary and affiliates are adjusted where applicable in orderto apply the same accounting policies. All transactions, balances, profit and loss within the Group are eliminated during consolidation

b) Subsidiary is the entity in which the Company has power to control the financial and operating policies for the benefit of the Companythrough the power to exercise more than 50% of the voting rights relating to shares in the companies owned directly and indirectlyby itself, otherwise having the power to exercise control over the financial and operating policies for the benefit of the Company.








2.1 Basis of Presentation (cont'd)

Basis of the Consolidation (cont’d)

The table below sets out the consolidated Subsidiary and participation rate of the Group in this subsidiary at 31 December 2009:

Participation Rate

Name of the Company Principal Activity 31 December 2009 31 December 2008 Country of Registration

THY Teknik A.Ş. Aircraft Maintenance Services 100% 100% Turkey

The balance sheet and statement of income of the subsidiary were consolidated on the basis of full consolidation. The carrying

value of the investment held by the Group and its Subsidiary were eliminated against the related shareholders' equity. Intercompany

transactions and balances between the Group and its Subsidiary were eliminated during consolidation process.

c) The Group has six joint ventures. These joint ventures are economical activities that decisions about strategic finance and

operating policy are jointly controlled by the consensus of the Group and other participants. The affiliates to which the participation

rates of the Group are 50% and 49% are controlled by the Group jointly, and are valued by equity method.

The table below sets out consolidated affiliates and indicates the proportion of ownership interest of the Company in these

affiliates at 31 December 2009:

Participation share

Company name Principle activity 31 December 2009 31 December 2008 Country of registration

Güneş Ekspres Havacılık A.Ş. Air Transportation 50% 50% Turkey

THY DO&CO İkram Hizmetleri A.Ş. Catering Services 50% 50% Turkey

P&W T.T. Uçak Bakım Merkezi Ltd. Şti. Maintenance 49% 49% Turkey

Bosnia Herzegovina Airlines Air Transportation 49% - Bosnia Herzegovina

TGS Yer Hizmetleri A.Ş. Ground Services 50% 100% Turkey

THY Opet Havacılık Yakıtları A.Ş. Fuel sales 50% 50% Turkey

According to the equity method, subsidiaries are stated as the cost value adjusted as deducting the impairment in subsidiary

from the change occurred in the subsidiary's assets after the acquisition date that is calculated by the Group's share in the

consolidated balance sheet. Subsidiary's losses that exceed the Group's share are not considered (actually, that contains a long

term investment which composes the net investment in the subsidiary)





2.2 Changes in Accounting Policies

Changes in accounting policies are applied retroactively and the financial statements of the previous period are adjusted.

2.3 Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable

right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability

simultaneously.

2.4 New and Revised International Financial Reporting Standards

Updated following new standards and interpretations applied in the current period financial statements and the reported amounts

and disclosures effect has been made. Applied in these financial statements but does not have an impact on the reported amounts

of other standards and interpretations in detail later in this chapter also explains in part.

Standards affecting presentation and disclosure in 2009 financial statements

• IAS 1 (Revised), “Presentation of financial statements”

IAS 1(2007) has introduced terminology changes (including revised titles for the financial statements) and changes in the format

and content of the financial statements. The Group presents in the consolidated statement changes in equity all owner changes

in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.

• IFRS 7 (Change), “Financial instruments: Disclosures”

The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk The Group

in the current period, towards the implementation of these standards in the transition process, as mentioned in relation to the

extended description has chosen not offer any comparative information (Note: 38).

• IFRS 8, “Operating segments”

IFRS 8 is an explanation standard that requires of the revised the Group's reportable segment that (Note: 5). The Group presented

the segment information for the first time in a manner that is consistent with its internal reporting. According to internal reporting,

aviation and technical operations were identified as operating segments.





2.4 New and Revised International Financial Reporting Standards (cont’d)

Standards affecting presentation and disclosure in 2009 financial statements (cont'd)

IFRIC 13, “Customer loyalty programs”

According to IFRIC 13, customer loyalty programs should be accounted as a separate component of the sales process. Group

has adopted the early application of IFRIC 13 "Customer Loyalty Program", and on 1 January 2008 as retroactively applied as

is. The Implementation of IFRIC 13, with the Group's customer loyalty programs changes has caused changes in the recording

policy of revenues. While free travel has calculated by incremental cost method and recorded estimated cost as liability at previous

application, according to the IFRIC 13, customer loyalty programs have started to account a separate component of sales

operations. A fraction of fair value of collected the sales amount is distributed as unearned income with the name of “liability

of passenger of frequent flight program”. Besides, as these interests are used by the Entity, they are recorded as revenue.

Standards and interpretations those are effective in 2009 with no impact on the 2009 consolidated financial statements

With the following new and revised standards and comments were applied in these financial statements. There is no significant

effect of implementation these standards and comments on the amounts that reported in the financial statements. However,

this may affect the accounting of future transactions or contracts.

Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” and IAS 27 “Consolidated and Separate

Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”

The Group presents in the consolidated statement changes in equity all owner changes in equity, whereas all non-owner changes

in equity are presented in the consolidated statement of comprehensive income.

Amendments to IFRS 2 “Share-based Payment - Vesting Conditions and Cancellations”

The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of 'non-vesting'

conditions, and clarify the accounting treatment for cancellations.

'IAS 23, “Borrowing costs” (2007)

The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred.





2.4 New and Revised International Financial Reporting Standards (cont'd)

Standards and Interpretations that are effective in 2009 with no impact on the 2009 consolidated financial statements (cont'd)

Amendments to IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements -Puttable Financial

Instruments and Obligations Arising on Liquidation”.

The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments and

instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share

of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met

IAS 39, “Financial Instruments: Recognition and Measurement” Amendments relating to hedging items

The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and

hedging with options.

“Embedded Derivatives” (Amendments to IFRIC 9 and IAS 39)

The amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the

'fair value through profit or loss' category as permitted by the October 2008 amendments to IAS 39.

IFRIC 15, “Agreements for the Construction of Real Estate”

The Interpretation addresses how entities should determine whether an agreement for the construction of real estate is within

the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be

recognized. The requirements have not affected the accounting for the Group's construction activities.

IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”

The Interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting

designations.

IFRIC 18, “Transfers of Assets from Customers”

The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from 'customers' and

concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective

of the recipient, the recipient should recognize the asset at its fair value on the date of the transfer, with the credit recognized

as revenue in accordance with IAS 18 Revenue






Standards and Interpretations those are effective in 2009 with no impact on the 2009 consolidated financial statements (cont'd)

IAS 38, 'Intangible Assets' Standards Changes

In addition to improvements in IFRS (2008), IAS 38 standard has been amended as purposes of: A business has only access to

purchased products or advertising or promotional expenses could be accounted to the point of services taken.

Amendments to IAS 40, “Investment Property”

As part of Improvements to IFRSs (2008), IAS 40 has been amended to include within its scope investment property in the course

of construction.

Amendments to IAS 39 “Financial Instruments: Recognition, Measurement”, and IFRS 7, “Financial Instruments: Disclosures regarding

reclassifications of financial assets”

The amendments to IAS 39 permit an entity to reclassify non-derivative financial assets out of the 'fair value through profit or

loss' (FVTPL) and 'available-for-sale' (AFS) categories in very limited circumstances. Such reclassifications are permitted from

1 July 2008. Reclassifications of financial assets made in periods beginning on or after 1 November 2008 take effect only from

the date when the reclassification is made.

Amendments to IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”:

As part of Improvements to IFRSs (2008), IAS 20 has been amended to require that the benefit of a government loan at a below-

market rate of interest be treated as a government grant. This accounting treatment was not permitted prior to these amendments.

Standards and Interpretations that are issued but not yet effective in 2009 and have not been early adopted

IFRS 3, “Business Combinations (2008)”

IFRS 3(2008) is effective for business combinations where the acquisition date is on or after the beginning of the first annual

period beginning on or after 1 July 2009. The main impact of the adoption will be as follows:

a) to allow a choice on a transaction-by-transaction basis for the measurement of non-controlling interests (previously referred

to as 'minority' interests) either at fair value or at the non-controlling interests' share of the fair value of the identifiable net

assets of the acquire,






Standards and interpretations that are issued but not yet effective in 2009 and have not been early-adopted (cont'd)

IFRS 3, “Business Combinations (2008)” (cont'd)

b) to change the recognition and subsequent accounting requirements for contingent consideration,

c) to require that acquisition-related costs be accounted for separately from the business combination, generally leading to those

costs being recognized as an expense in profit or loss as incurred.

The group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010.

IFRS 9, “Financial Instruments: Classification and Measurement”

In November 2009, the first part of IFRS 9 relating to the classification and measurement of financial assets was issued. IFRS

9 will ultimately replace IAS 39 Financial Instruments: Recognition and Measurement. The standard requires an entity to classify

its financial assets on the basis of the entity's business model for managing the financial assets and the contractual cash flow

characteristics of the financial asset, and subsequently measure the financial assets as either at amortized cost or at fair value.

The new standard is mandatory for annual periods beginning on or after 1 January 2013.

IAS 24, ”(Revised 2009) Related Party Disclosures”

In November 2009, IAS 24 “Related Party Disclosures” was revised. The revision to the standard provides government-related

entities with a partial exemption from the disclosure requirements of IAS 24. The revised standard is mandatory for annual

periods beginning on or after 1 January 2011.

IAS 27, “(as revised in 2008) Consolidated and Separate Financial Statements"

IAS 27 (revised) is effective for annual periods beginning on or after 1 July 2009. The revised standard requires that ownership

decreases or increases that do not result in change in control to be recorded in equity.

The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010.

IFRIC 17, “Distributions of non-cash assets to owners”

IFRIC 17 is effective for annual periods beginning on or after 1 July 2009. The interpretation provides guidance on the appropriate

accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.






Standards and Interpretations that are issued but not yet effective in 2009 and have not been early-adopted (cont'd)

IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”

IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. IFRIC 19 addresses only the accounting by the entity

that issues equity instruments in order to settle, in full or part, a financial liability.

Amendments related to Annual Improvements to IFRS (2009)

As part of the Annual Improvement project, in addition to the amendments mentioned above, other amendments were made to

various standards and interpretations. These amendments are effective for annual periods beginning on or after 1 January 2010.

2.5 Summary of Significant Accounting Policies

Significant accounting policies applied in the preparation of accompanying financial statements are as follows:

2.5.1 Revenue

Rendering of services:

Revenue is measured based on the future value of collected or to be collected receivable amounts. Passenger fares and cargo

revenues are recorded as operating revenue when the transportation service is provided. Tickets sold but not yet used (not flied)

are recorded as passenger flight liabilities.

The Group develops estimations using historical statistics and data for unredeemed tickets. Total estimated unredeemed tickets

are recognized as operating revenue. Agency commissions to relating to the passenger revenue are recognized as expense when

the transportation service is provided.

Aircraft maintenance and infrastructure support services are accrued with regard to invoices prepared subsequent to the services.

Dividend and interest income:

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable,

which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that

asset's net carrying amount.

Dividend income generated from equity investments is registered as shareholders gain the dividend rights.





2.5 Summary of Significant Accounting Policies (cont’d)

2.5.2 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost of inventories is the sum of all costs of purchase, costsof conversion and other costs incurred in bringing the inventories to their present location and condition.

Average cost method is applied in the calculation of cost of inventories. Net realizable value represents the estimated sellingprice less all estimated costs of completion and costs necessary to make a sale.

2.5.3 Tangible Assets

Tangible assets are measured at net book value calculated by deduction of accumulated depreciation from cost values, costvalues being restated until 31 December 2004 in accordance with inflation accounting. Depreciation is calculated over the usefullives for tangible assets on a straight-line basis. The useful lives and residual values used for tangible assets are as follows:

Useful Life (Years) Residual Value

- Buildings 25-50 -- Aircrafts 15-20 10-30%- Cargo Aircraft 30 10%- Engines 15-20 10-30%- Components 7 -- Repairable Spare Parts 3-7 -- Simulators 10-20 0-10%- Machinery and Equipments 3-15 -- Furniture and Fixtures 3-15 -- Motor Vehicles 4-7 -- Other Equipments 4-15 -

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the differencebetween the sales proceeds and the carrying amount of the asset and is recognized in profit or loss

2.5.4 Leasing Transactions

Leasing - the Group as the lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards ofownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower,at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheetas a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligationso as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit orloss, unless they are directly





2.5 Summary of Significant Accounting Policies (cont'd)

2.5.4 Leasing Transactions (cont'd)

Leasing - the Group as the lessee (cont'd)

attributable to qualifying assets, in which case they are capitalized in accordance with the Group's general policy on borrowing

costs.

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group's net investment in the

leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's

net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs

incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized

on a straight-line basis over the lease term.

2.5.5 Intangible Assets

Intangible assets include leasehold improvements, rights, information systems and software. Intangible assets are carried at

the beginning cost including the restatement to the equivalent purchasing power for those accounted on or before 31 December

2004 less accumulated depreciation. Leasehold improvements are depreciated over their lease periods and other intangible

assets are depreciated over their useful life of 5 years, on a straight-line basis.

2.5.6 Impairment on Assets

The carrying amounts of the Group's assets are reviewed at each reporting date to determine whether there is any indication

of impairment. If any such indication exists then the assets' recoverable amounts are estimated.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.

Value in use is the present value of estimated future cash flows resulting from continuing use of an asset and from disposal at

the end of its useful life. Impairment losses are accounted at the consolidated income statement.

An impairment loss recognized in prior periods for an asset is reversed if the subsequent increase in the asset's recoverable

amount is caused by a specific event since the last impairment loss was recognized. Such a reversal amount is recognized as

income in the consolidated financial statements and cannot exceed the previously recognized impairment loss and shall not

exceed the carrying amount that would have been determined, net of amortization or depreciation, had no impairment loss been

recognized for the asset in prior years.

Group determined aircrafts, spare engines and simulators together (“Aircrafts”) as lower-line cash generating unit subject to

impairment and impairment calculation was performed for Aircrafts collectively.






2.5.6 Impairment on Assets (cont'd)

In the examination of whether net book values of aircrafts, spare engines and simulators exceed their recoverable amounts, the higher

value between value in use and sale expenses deducted net selling prices in US Dollars is used for determination of recoverable

amounts. Net selling price for the aircrafts is determined according to second hand prices in international price guides. Net selling

price for spare engines and simulators is net book values based on US Dollar acquisition costs. In the accompanying financial statements,

the change in the differences between net book values of these assets and recoverable amounts are recognized as provision income/losses

under income/losses from other operations account. Changes in value due to exchange rate changes are shown under group of financial

income/expenses.

2.5.7 Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily

take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as

the assets are substantially ready for their intended use or sale.

2.5.8 Financial Instruments

Financial assets and liabilities are recorded in the balance sheet when the Group is a legal party to these financial instruments.

a) Financial assets

Financial investments are recognized and derecognized on a trade date where the purchase or sale of an investment is under a contract

whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured

at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss, which are initially

measured at fair value.

Financial assets are classified into the following specified categories: financial assets as “at fair value through profit or loss” (FVTPL),

“held-to-maturity investments”, “available-for-sale” (AFS) financial assets and “loans and receivables”. The classification depends

on the nature and purpose of the financial assets and is determined at the time of initial recognition

Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss where the Group acquires the financial asset

principally for the purpose of selling in the near term, the financial asset is a part of an identified portfolio of financial instruments

that the Group manages together and has a recent actual pattern of short term profit taking as well as derivatives that are not designated

and effective hedging instruments.

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognized in profit or loss

incorporates any dividend or interest earned on the financial asset.






2.5.8 Financial Instruments (cont'd)

a) Financial assets (cont'd)

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest incomeover the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through theexpected life of the financial asset, or where appropriates a shorter period.

Income is recognized on an effective interest basis for held-to-maturity investments, available-for-sale financial assets and loansand receivables.

Loans and receivables

Trade and other receivables are initially recorded at fair value. At subsequent periods, loans and receivables are measured atamortized cost using the effective interest method.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss are assessed for indicator of impairment at each balancesheet date.

Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after theinitial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For loans andreceivables the amount of the impairment is the difference between the assets carrying amount and the present value of estimatedfuture cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exceptiontrade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable isuncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously recognize written offare credited against the allowance account are recognized in profit or loss.

With the exception of available for sale equity instruments, if, in a subsequent period the amount of the impairment loss decreasesand the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognizedimpairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairmentis reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect ofavailable for sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity.







a) Financial assets (cont'd)

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which

their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash

and are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value.

b) Financial liabilities

The Group's financial liabilities and equity instruments are classified in accordance with the contractual arrangements and

recognition principles of a financial liability and equity instrument. An equity instrument is any contract that evidences a residual

interest in the assets of an entity after deducting all of its liabilities. The significant accounting policies for financial liabilities

and equity instruments are described below. Financial liabilities are classified as either financial liabilities at fair value through

profit and loss or other financial liabilities.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are initially measured at fair value, and at each reporting period revalued

at fair value as of balance sheet date. Changes in fair value are recognized in profit and loss. The net gain or loss recognized in

profit or loss incorporates any interest paid on the financial liability.

Other financial liabilities

Other financial liabilities, including bank borrowings, are initially measured at fair value, net of transaction costs. Other financial

liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized

on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and

of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.







b) Financial liabilities (cont'd)

Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates. The majorsource of interest rate risk is finance lease liabilities. The Group's policy is to convert some financial liabilities with fixed interestrates into financial liabilities with variable interest rates, and some financial liabilities denominated in EUR into financial liabilitiesdenominated in USD. The derivative financial instruments obtained for this purpose are not subject to hedge accounting andprofit/loss arising from the changes in the fair values of those instruments are directly accounted in the income statement. In2009, Group converted some of the floating-rate loans into fixed-rate loans through derivative financial instruments. Also, Groupbegan to obtain derivative financial instruments to hedge against jet fuel price risks beginning from 2009. Group accounts forthose transactions as hedging against cash flow risks arising from jet fuel prices. Use of derivative financial instruments ismanaged according to Group policy which is written principles approved by Board of Directors and compliant with risk managementstrategy.

The Group does not use derivative financial instruments for speculative purposes.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifiesfor hedge accounting. At that time, for forecast transactions, any cumulative gain or loss on the hedging instrument recognizedin equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, thenet cumulative gain or loss recognized in equity is transferred to profit or loss for the period.

Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivativeswhen their risks and characteristics are not closely related to those of the host contract and the host contract is not carried atfair value with unrealized gains or losses reported in profit or loss.

2.5.9 Foreign Currency Transactions

Transactions in foreign currencies are translated into Turkish Lira at the rates of exchange ruling at the transaction dates.Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the balance sheetdate.

Gains and losses arising on settlement and translation of foreign currency items are included in the statements of income.






2.5.9 Foreign Currency Transactions (cont'd)

The closing and average TL - US Dollar exchange rates for the periods are as follows:

Closing Rate Average Rate

Year ended 31 December 2009 1,5057 1,5457



The closing and average TL - Euro exchange rates for the periods are as follows:

Closing Rate Average Rate




2.5.10 Earnings per Share

Earnings per share is calculated by dividing net profit by weighted average number of shares outstanding in the relevant period.

In Turkey, companies are allowed to increase their capital by distributing free shares to share holders from accumulated profits.

In calculation of earnings per share, such free shares are considered as issued shares. Therefore, weighted average number

of shares in the calculation of earnings per share is found by applying distribution of free shares retrospectively.

2.5.11 Events Subsequent to the Balance Sheet Date

An explanation for any event between the balance sheet date and the publication date of the balance sheet, which has positive

or negative effects on the Group (should any evidence come about events that were prior to the balance sheet date or should

new events come about) they will be explained in the relevant footnote

If such an event were to arise, the Group restates its financial statements accordingly.

2.5.12 Provisions, Contingent Liabilities, Contingent Assets

Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group

will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the

balance sheet date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present

value of those cash flows.






2.5.12 Provisions, Contingent Liabilities, Contingent Assets (cont'd)

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, thereceivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivablecan be measured reliably.

Onerous Contracts

Present liabilities arising from onerous contracts are calculated and accounted for as provision.

It is assumed that an onerous contract exists if Group has a contract which unavoidable costs to be incurred to settle obligationsof the contract exceed the expected economic benefits of the contract.

2.5.13 Segmental Information

There are two operating segments of the Group, air transportation and aircraft technical maintenance operations; these includeinformation for determination of performance evaluation and allocation of resources by the management. The Company managementuses the operating profit calculated according to financial reporting standards issued by the Capital Markets Board while evaluatingthe performances of the segments.

2.5.14 Investment Property

Investment properties, which are properties, held to earn rentals and/or for capital appreciation are measured initially at cost,including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects marketconditions at the balance sheet date.

Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year inwhich they arise.

Investment properties are derecognized when either they have been disposed of or when the investment property is permanentlywithdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement ordisposal of an investment property are recognized in profit or loss in the year of retirement or disposal

2.5.15 Taxation and Deferred Tax

Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisionsfor taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.

Income tax expense represents the sum of the tax currently payable and deferred tax.






2.5.15 Taxation and Deferred Tax (cont'd)

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income

statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes

items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted

or substantively enacted by the balance sheet date.

Deferred Tax

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and

the corresponding tax bases which is used in the computation of taxable profit, and is accounted for using the balance sheet

liability method.

Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized

for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those

deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises

from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction

that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and affiliates,

and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable

that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary

differences associated with such investments and interests are only recognized to the extent that it is probable that there will

be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse

in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to

the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is

settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance

sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the

manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.



2.5.15 Taxation and Deferred Tax (cont'd)

Deferred Tax (cont'd)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against currenttax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its currenttax assets and liabilities on a net basis

Current and deferred tax for the period

Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items credited ordebited directly to equity, in which case the tax is also recognized directly in equity, or where they arise from the initial accountingfor a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill ordetermining the excess of the acquirer's interest in the net fair value of the acquirer's identifiable assets, liabilities and contingentliabilities over cost.

2.5.16 Employee benefits / Retirement pay provision

Under Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group.Such payments are considered as being part of defined retirement benefit plan as per International Accounting Standard 19(revised) “Employee Benefits” (“IAS 19”). The retirement benefit obligation recognized in the balance sheet represents the presentvalue of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses.

2.5.17 Statement of cash flows

In statement of cash flow, cash flows are classified according to operating, investment and finance activities.

Cash flows from operating activities reflect cash flows generated from sales of the Group.

Cash flows from investment activities express cash used in investment activities (direct investments and financial investments)and cash flows generated from investment activities of the Group.

Cash flows relating to finance activities express sources of financial activities and payment schedules of the Group.

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments whichtheir maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cashand are subject to an insignificant risk of changes in value.









2.5.18 Share Capital and Dividends

Common shares are classified as equity. Dividends on common shares are recognized in equity in the period in which they are

approved and declared.

2.5.19 Manufacturers' Credits

Manufacturers' credits are received against acquisition or lease of aircraft and engines. The Group records these credits as a

reduction to the cost of the owned and amortizes them over the related asset's remaining economic life. Manufacturers' credits

related to operating leases are recorded as deferred revenue and amortized over the lease term.

2.5.20 Maintenance and Repair Costs

Regular maintenance and repair costs for owned and leased assets are charged to operating expense as incurred. Overhaul

maintenance checks for owned and finance leased aircraft are expensed as incurred and delivery maintenance checks of operating

leased aircraft are accrued on a periodical basis.

2.5.21 Frequent Flyer Program

The Group provides a frequent flyer program named “Miles and Smiles” in the form of free travel award to its members on

accumulated mileage. Miles earned by flights are recognized as a separately identifiable component of the sales transaction(s).

A portion of the fair value of the consideration received in respect of the initial sale shall be allocated to the award credits and

the consideration allocated to award credits should be recognized as revenue when awards credits are redeemed.

The Group also sells mileage credits to participating partners in “Shop and Miles” program. A portion of such revenue is deferred

and amortized as transportation is provided.

2.6 Important Accounting Estimates and Assumptions

Preparation of the financial statements requires the amounts of assets and liabilities being reported, explanations of contingent

liabilities and assets and the uses of accounting estimates and assumptions which would affect revenue and expense accounts

reported during the accounting period. Group makes estimates and assumptions about the future periods. Actual results could

differ from those estimations. Accounting estimates and assumptions which might cause material adjustments on the book values

of assets and liabilities in future financial reporting period were given below:

The Determination of Impairment on Long Term Assets:

Basic assumptions and calculation methods of the Group relating to impairment on assets are explained in Disclosure 2.5.6.


2.6 Important Accounting Estimates and Assumptions (cont'd)

Calculation of the Liability for “Frequent Flyer Program”:

As explained in Note 2.5.21, Group has programs called “Miles and Smiles” and “Shop & Miles” which are applied for its members.In the calculations of the liability related with concerned programs, the rate of use and mile values which are determined byusing statistical methods over the historical data were used

Useful Lives and Salvage Values of Tangible Assets:

Group has allocated depreciation over tangible assets by taking into consideration the useful lives and salvage values which wereexplained in Note 2.5.3.

3. BUSINESS COMBINATIONS

None.

4. JOINT VENTURES

See note 16.

5. SEGMENTAL REPORTING

The management of the Group investigates the results and operations based on air transportation and aircraft technicalmaintenance services in order to determine in which resources to be allocated to segments and to evaluate the performancesof segments. The detailed information on the sales data of the Group is given in Note 28.

5.1 Total Assets and Liabilities

Total Assets 31 December 2009 31 December 2008Aviation 8.542.807.991 7.871.289.987Technic 534.901.509 444.802.648Total 9.077.709.500 8.316.092.635Less: Eliminations due to consolidation (505.620.073) (404.857.920)Total assets in consolidated financial statements 8.572.089.427 7.911.234.715

Total Liabilitites 31 December 2009 31 December 2008Aviation 5.529.700.126 4.884.702.891Technic 100.305.913 93.546.882Total 5.630.006.039 4.978.249.773Less: Eliminations due to consolidation (502.796.838) (53.602.154)Total liabilities in consolidated financial statements 5.127.209.201 4.924.647.619







5. SEGMENTAL REPORTING (cont'd)

5.2 Net Operating Profit / (Loss)

Segment Results:

Inter-segment

1 January-31 December 2009 Aviation Technic elimination Total

Sales to external customers 6.845.308.852 190.574.051 - 7.035.882.903

Inter-segment sales 17.973.830 526.831.414 (544.805.244) -

Segment revenue 6.863.282.682 717.405.465 (544.805.244) 7.035.882.903

Cost of sales (5.087.547.647) (579.093.922) 530.692.425 (5.135.949.144)

Gross profit / (loss) 1.775.735.035 138.311.543 (14.112.819) 1.899.933.759

Marketing, sales and distribution expenses (801.665.991) (5.171.892) 334.470 (806.503.413)

Administrative expenses (221.582.438) (44.046.329) 4.092.241 (261.536.526)

Other operating incomes 82.872.341 17.160.521 (8.896.758) 91.136.104

Other operating expenses (202.042.652) (15.679.696) 18.582.866 (199.139.482)

Operating profit / (loss) 633.316.295 90.574.147 - 723.890.442

Inter-segment


Sales to external customers 5.974.927.490 148.246.719 - 6.123.174.209

Inter-segment sales 30.938.398 434.468.304 (465.406.702) -

Segment revenue 6.005.865.888 582.715.023 (465.406.702) 6.123.174.209

Cost of sales (4.500.178.013) (501.131.764) 458.639.193 (4.542.670.584)

Gross profit / (loss) 1.505.687.875 81.583.259 (6.767.509) 1.580.503.625

Marketing, sales and distribution expenses (632.369.295) (3.714.723) 208.010 (635.876.008)

Administrative expenses (172.203.555) (34.289.692) 2.680.066 (203.813.181)

Other operating incomes 58.451.257 17.899.690 (19.660.419) 56.690.528

Other operating expenses (196.578.878) (37.081.437) 23.539.852 (210.120.463)

Operating profit / (loss) 562.987.404 24.397.097 - 587.384.501

Income statement items related to impairment of tangible fixed assets.

Inter-segment


Real increase on tangible fixed asset

impairment provision (Loss from other

operations) (154.263.062) - - (154.263.062)

Increase on tangible fixed asset

impairment provision due to exchange

rate changes (Financial expense) (24.520.934) - - (24.520.934)




5. SEGMENTAL REPORTING (cont'd)

5.2 Net Operating Profit / (Loss) (cont’d)

Inter-segment


Real increase on tangible fixed asset

impairment provision (Loss from

other operations) (176.836.702) - - (176.836.702)

Increase on tangible fixed asset

impairment provision due to exchange

rate changes (Financial expense) 1.012.109.405 - - 1.012.109.405

Income statement items related to investments accounted for equity method

Inter-segment


Share of investment profit/ (loss)

accounted for using the equity method 15.512.901 (2.699.198) - 12.813.703

Inter-segment


Share of investment profit/ (loss)

accounted for using the equity method 4.042.859 (470.485) - 3.572.374

5.3 Investment Operations

Inter-segment


Purchase of of tangible and intangible

fixed assets 286.807.723 120.342.608 - 407.150.331

Current period amortization and depreciation 293.456.913 53.594.667 - 347.051.580

Investments accounted for using the equity method 129.630.762 22.421.794 - 152.052.556

Inter-segment


Purchase of of tangible and intangible

fixed assets 1.180.306.571 118.885.388 - 1.299.191.959

Current period amortization and depreciation 203.281.709 82.983.692 - 286.265.401

Investments accounted for using the equity method 39.872.359 3.765.565 - 43.637.924




6. CASH AND CASH EQUIVALENTS


Cash 540.180 356.049

Cheques received 769 244.458

Banks - Time deposits 974.329.053 365.786.513

Banks - Demand deposits 100.193.848 122.908.559

Other liquid assets 21.048.019 15.610.142

1.096.111.869 504.905.721

Time Deposits:

Amount Currency Opening Date Interest Rate Maturity 31 December 2009

21.05.2009 04.01.2010

238.174.400 TL 31.12.2009 22.02.2010 238.174.400

20.07.2009 18.01.2010

87.427.313 EUR 31.12.2009 20.01.2010 188.869.224

23.01.2009 04.01.2010

363.475.745 USD 31.12.2009 25.02.2010 547.285.429

974.329.053


17.11.2008 02.01.2009

90.700.000 TL 31.12.2008 %13,50 - %23,50 22.01.2009 90.700.00

23.050.000 EUR 07.11.2008 %7,76 05.02.2009 49.345.440

24.10.2008 02.01.2009

149.270.034 USD 31.12.2008 %2,00 - %7,50 22.01.2009 225.741.073

365.786.513

7. FINANCIAL ASSETS

Short-term financial assets are as follows:


Time deposits with maturity more than 3 months 175.000.000 1.403.033.703

Derivative instruments at fair values (Note 39) 47.298.370 39.599.159

222.298.370 1.442.632.862

Time deposits with maturity of more than 3 months:


20.07.2009 11,55% 20.07.2010

175.000.000 TL 20.07.2009 12,50% 20.07.2010 175.000.000

175.000.000

%5,85 - %13,7

%1,75 - %4,50

%0,20 - %6,00

7. FINANCIAL ASSETS (cont’d)


21.05.2008 05.01.2009

544.600.000 TL 22.12.2008 %19,15 - %23,00 03.09.2009 544.600.000

07.07.2008 19.01.2009

107.460.000 Euro 22.12.2008 %6,50 - %8,50 04.05.2009 230.050.368

23.01.2008 05.01.2009

415.515.000 USD 15.12.2008 %5,65 - %8,55 24.07.2009 628.383.335

1.403.033.703

Long-term financial assets are as follows:


Sita Inc. 1.679.619 1.679.619

Emek İnşaat ve İşletme A.Ş. 26.859 26.859

Star Alliance GMBH 44.465 44.465

1.750.943 1.750.943

Sita Inc., Emek İnşaat ve İşletme A.Ş. and Star Alliance GMBH are disclosed at cost since they are not traded in an active market.

Details of the long-term financial assets of the Group at 31 December 2009 are as follows:

Country of

registration Ownership

Company name and operation Share Voting power Principle Activity

Emek İnşaat ve İşletme A.Ş. Turkey 0,3% 0,3% Construction

Sita Inc. Netherlands Less than 0,1% Less than 0,1% Information&

Telecommunication Services

Star Alliance GMBH Germany 5,55% 5,55% Coordination Between Star

Alliance Member Airlines

8. FINANCIAL BORROWINGS

Short-term financial borrowings are as follows:


Bank loans 14.439.256 34.900.371

Finace lease obligations 397.827.585 384.388.858

412.266.841 419.289.229




8. FINANCIAL BORROWINGS (cont'd)

Long-term financial borrowings are as follows:


Bank loans 14.187.801 -

Finace lease obligations 2.561.711.482 2.798.005.235

2.575.899.283 2.798.005.235

The details of short-term part of long-term bank loans as of 31 December 2009 are as follows:

Maturity Interest Rate Currency Original Amount Interest Accrual TL

17.10.2011 Libor+3,50% USD 9.422.728 167.002 14.439.256

The details of long-term bank loans as of 31 December 2009 are as follows:


17.10.2011 Libor + 3,50% USD 9.422.728 - 14.187.801

The details of short-term bank loans as of 31 December 2009 are as follows:


15.08.2009 Libor+1,25% USD 22.937.732 139.945 34.900.371

Financial lease obligations are as follows:


Less than 1 year 469.617.973 480.276.603

Between 1 – 5 years 1.438.363.567 1.566.966.270

Over 5 years 1.548.610.096 1.778.034.612

3.456.591.636 3.825.277.485

Less: Future interest expenses (497.052.569) (642.883.392)

Principal value of future rentals

stated in financial statements 2.959.539.067 3.182.394.093

Interest Range:

Floating rate obligations 1.133.986.718 1.221.791.915

Fixed rate obligations 1.825.552.349 1.960.602.178

2.959.539.067 3.182.394.093

As of 31 December 2009, the US Dollars and Euro denominated lease obligations' weighted average interest rates for the fixed

rate obligations are 4,91% (31 December 2008: 4,90 %) and for the floating rate obligations are 0,78% (31 December 2008: 1,93%).







9. OTHER FINANCIAL LIABILITIES

Short-term other financial liabilities of the Group are as follows:


Fair value of derivative instruments (Note 39) 45.232.172 44.360.335

Borrowings from banks 846.771 639.916

46.078.943 45.000.251

Debt to banks account consists of overnight interest-free borrowings obtained for settlement of monthly tax and social security

premium payments.

10. ACCOUNTS RECEIVABLE AND PAYABLE

Short-term trade receivables are as follows:


Trade receivables 455.045.487 381.445.533

Due from related parties (Note 37) 32.128.286 4.741.388

Allowance for doubtful receivables (41.791.892) (37.042.788)

445.381.881 349.144.133

The Group provided provision for the receivables carried to legal proceedings and for the others by making historical statistical

calculations. Movement of the doubtful receivables for the period ended 31 December 2009 and 2008 are as follows:

1January - 1 January -


Opening Balance 37.042.788 21.405.019

Current period expense 22.513.003 20.707.670

Bad debts collected (15.357.120) (4.895.781)

Receivables written-off (2.406.779) (174.120)

Closing Balance 41.791.892 37.042.788

Explanations about the credit risk of Group's receivables are provided in Note 38 Credit Risk.

Short-term trade payables are as follows:


Trade receivables 536.177.325 425.068.449

Due from related parties (Note 37) 22.663.149 9.433.149

Other 1.961.004 607.613

560.801.478 435.109.211




11. OTHER RECEIVABLES AND PAYABLES

Other short-term receivables are as follows:


Prepayments made for aircrafts,

to be received back in cash (net) 724.055.005 30.220.978

Non-trade receivables from related parties (Note37) 12.581.316 67.386

Receivables from tax office 1.933.804 4.917.861

Receivables from employees 1.165.585 1.263.682

Deposits and guarantees given 1.153.878 949.250

Receivables from foreign acquisition transactions 938.235 5.551.351

Receivables from foreign technical suppliers 265.974 1.465.399

Deductible VAT - 4.295.567

Bosnia Herzegovina Airlines Share Advancement - 10.704.000

Other receivables 1.299.578 2.238.484

743.393.375 61.673.958

Long-term other receivables are as follows:


Prepayments made for aircrafts,

to be received back in cash (net) 637.383.512 -

Interest swap agreement deposits 7.663.566 -

Advance payments for operating leases 7.211.446 6.924.230

Receivables from employees 6.045.185 6.410.064

Deposits and guarantees given 4.863.237 3.472.266

Receivables from Sita deposit certificates 1.193.182 1.205.400

Receivables from foreign acquisition transactions - 4.796.921

664.360.128 22.808.881

Short-term other payables are as follows:


MCO advances 69.550.656 57.613.133

Taxes and funds payable 31.244.933 26.061.291

Social security premiums payable 25.835.403 21.564.459

Payables to insurance companies 14.832.195 -

Deposits and guarantees received 9.665.768 7.603.582

Other advances received 1.150.351 1.072.264

E-Pos ticket advances 936.185 162.591

Charter advances 895.143 751.062

Other liabilities 2.522.747 1.138.625

156.633.381 115.967.007




11. OTHER RECEIVABLES AND PAYABLES (cont’d)

Long-term other payables are as follows:


Deposits and guarantees received 8.941.613 7.865.284

12. RECEIVABLES AND PAYABLES FROM FINANCIAL SECTOR OPERATIONS

None (31 December 2009: None).

13. INVENTORIES


Spare parts 133.739.727 87.165.280

Other inventories 29.624.852 25.918.729

163.364.579 113.084.009

Provision for impairment (-) (14.368.647) (14.724.718)

148.995.932 98.359.291

Movement in change of diminution in value of inventories as of 31 December 2009 and 2008 are as follows:

1 January - 1 January -


Provision at the beginning of the period 14.724.718 10.845.508

Current period expense 1.290.280 13.078.367

Cancellation of provisions recognized (1.646.351) (9.199.157)

Provision at the end of the period 14.368.647 14.724.718

14. BIOLOGICAL ASSETS


15. ASSETS FROM CONSTRUCTION CONTRACTS IN PROGRESS





16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD

The associates accounted per the equity method are as follows:


Güneş Ekspres Havacılık A.Ş. (Sun Express) 26.698.068 13.811.371

THY DO&CO İkram Hizmetleri A.Ş. (Turkish DO&CO) 34.054.590 26.060.988

Bosnia-Herzegovina Airlines 2.936.441 -

P&W T.T. Uçak Bakım Merkezi Ltd. Şti. 22.421.794 3.765.565

TGS Yer Hizmetleri A.Ş. (TGS) 63.482.168 -

THY OPET Havacılık Yakıtları A.Ş. 2.459.495 -

152.052.556 43.637.924

Financial information for Sun Express as of 31 December 2009 and 31 December 2008 are as follows:


Total assets 232.316.502 113.774.956

Total liabilities 178.920.367 86.152.214

Shareholders' equity 53.396.135 27.622.742

Group's share in associate's shareholders' equity 26.698.068 13.811.371



Revenue 899.836.648 765.171.890

Profit/ (loss) for the period 25.409.528 (3.899.580)

Group's share in profit/ (loss) for the period 12.704.764 (1.949.790)

Financial information for THY DO&CO Catering Services as of 31 December 2009 and 31 December 2008 are as follows:


Total assets 122.594.934 93.245.421

Total liabilities 52.485.754 41.123.446





Revenue 267.960.365 190.142.882

Profit/ (loss) for the period 16.987.205 11.985.300

Group's share in profit/ (loss) for the period 8.493.603 5.992.650




16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD (cont’d)

Financial information for P&W T.T Uçak Bakım Merkezi Ltd. Şti as of 31 December 2009 and 31 December 2008 are as follows:


Total assets 104.846.886 8.344.051

Total liabilities 59.088.122 659.225





Revenue 119.754 -

Profit/ (loss) for the period (5.508.567) (960.174)

Group's share in profit/ (loss) for the period (2.699.198) (470.485)

Financial information for Bosnia and Herzegovina Airlines as of 31 December 2009 and 31 December 2008 are as follows:


Total assets 49.653.830 -

Total liabilities 43.661.093 -

Shareholders' equity 5.992.737 -

Group's share in associate's shareholders' equity 2.936.441 -



Revenue 20.721.502 -

Profit/ (loss) for the period (13.524.756) -

Group's share in profit/ (loss) for the period (6.627.130) -

Financial information for TGS as of 31 December 2009 and 31 December 2008 are as follows:



Total liabilities 15.907.488 -









Revenue - -

Profit/ (loss) for the period 1.964.336 -

Group's share in profit/ (loss) for the period 982.168 -

By the protocol and capital increase dated on 17 September 2009, 50 % of TGS’ capital, which has a nominal value of 6.000.000

TL, was acquired by HAVAŞ for 119.000.000 TL and a share premium at an amount of 113.000.000 TL has arised in the TGS’s

capital. Because the share premium is related to the 5-year service contract between the Company and TGS, the Company’s

portion (50 %) of the share premium under the shareholders’ equity of TGS was recognized as ‘Deferred Income’ to be amortized

during the contract period.

Financial information for THY Opet Havacılık Yakıtları A.Ş. as of 31 December 2009 and 31 December 2008 are as follows



Total liabilities 826.333 -





Revenue - -

Profit/ (loss) for the period (81.009) -

Group's share in profit/ (loss) for the period (40.504) -

Portions of financial assets accounted for equity method in profit / (loss) are as follows:



Sun Ekspress 12.704.764 (1.949.791)

Turkish DO&CO 8.493.603 5.992.650

P&W T.T. Uçak Bakım Merkezi Ltd. Şti. (2.699.198) (470.485)

Bosna Hersek Havayolları (6.627.130) -

TGS 982.168 -

THY OPET Havacılık Yakıtları A.Ş. (40.504) -

Toplam 12.813.703 3.572.374





Details of investments accounted for equity method as of 31 December 2009 are as follows:

Country of

registration Ownership

Company name and operation Share Voting power Principle Activity

Güneş Ekspres Havacılık A.Ş.

(Sun Express) Turkey 50% 50% Air transportation

THY DO&CO İkram

Hizmetleri A.Ş. Turkey 50% 50% Catering services

P&W T.T. Uçak Bakım

Merkezi Ltd. Şti Turkey 49% 49% Maintanance services

Bosnia Herzegovina

Bosnia Herzegovina Airlines Federation 49% 49% Air transportation

TGS Yer Hizmetleri A.Ş. Turkey 50% 50% Ground services

THY OPET Havacılık

Yakıtları A.Ş. Turkey 50% 50% Aviation fuel

17. INVESTMENT PROPERTY



Opening balance, January 1 48.130.000 53.700.000

Purchases 758.086 -

Loss due to the change in fair value (78.086) (5.000.000)

Disposal - (570.000)

Closing balance, December 31 48.810.000 48.130.000

Fair values of Group’s investment property were obtained from the valuation performed by an independent valuation firm, which

is not a related party to Group. Valuation was performed by the independent valuation firm, which is authorized by Capital Markets

Board with reference to market prices.

Cost

Open

ing

bala

nce

at 1

Jan

uary

200

916

4.64

5.53

831

1.29

4.13

916

6.56

1.73

62.

755.

313.

950

366.

092.

558

29.0

93.6

1462

.709

.927

4.85

5.58

2.30

78.

711.

293.

769

Addi

tions

-

19.3

36.9

1920

.689

.613

37.3

02.4

8893

.157

.533

2.31

1.97

227

.889

.945

203.

152.

915

403.

841.

385

Disp

osal

s -

(9

.709

.447

)(1

4.61

5.91

3)(2

83.4

01.1

22)

(139

.420

.597

)(2

.850

) -

(8

4.40

7.35

9)(5

31.5

57.2

88)

Tran

sfer

s -

-

-

31

.770

.055

-

16.

019.

226

(72.

886.

720)

25.0

97.4

39 -

Clos

ing

bala

nce

at 3

1 De

cem

ber 2

009

164.

645.

538

320.

921.

611

172.

635.

436

2.54

0.98

5.37

131

9.82

9.49

447

.421

.962

17.7

13.1

524.

999.

425.

302

8.58

3.57

7.86

6

Accu

mul

ated

dep

reci

atio

n

Open

ing

bala

nce

at 1

Jan

uary

200

955

.667

.061

248.

016.

427

139.

815.

066

2.02

3.62

7.03

618

5.00

9.98

022

.559

.087

-

980.

614.

975

3.65

5.30

9.63

2

Depr

ecia

tion

char

ge fo

r the

yea

r2.

731.

505

14.9

43.9

0710

.371

.000

53.5

90.8

6445

.729

.773

3.62

4.70

4 -

21

2.25

7.89

134

3.24

9.64

4

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6.24

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36.9

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1.21

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18. TANGIBLE ASSETS (cont’d)

As explained in Note 2.5.6., since it is higher than ‘value in use’, the Group uses net US Dollar sales prices after cost of sales as

the recoverable value in calculation of impairment in its property, plant and equipment (i.e. aircrafts, spare engines and simulators

- “Aircrafts”). The Group has TL 24.520.934 of increase in impairment loss arising from exchange rate changes due to the decrease

of net TL sales prices of aircrafts as a result of the depreciation of US Dollar against the TRY and has 154.263.062 TL of increase

in impairment loss as a result of decline in the US Dollar prices of aircrafts in the year ended 31 December 2009 (Note 2.5.9).

Total increase in impairment loss amounts to TL 178.783.996.

19. INTANGIBLE ASSETS

Rights

Cost

Opening balance at 1 January 2009 76.958.343

Additions 3.308.946

Disposals (2.333)

Closing balance at 31 December 2009 80.264.956

Amortization


Additions 3.801.936

Amortization for the year (2.333)


Net book value 31 December 2009 10.669.612


Rights

Cost


Additions 8.138.832

Disposals (12.701)

Closing balance at 31 December,2008 76.958.343

Amortization

Opening balance at 1 January, 2008 62.031.040

Additions 3.777.402

Amortization for the year (12.701)







20. GOODWILL

None (31 December 2008: None)

21. GOVERNMENT GRANTS AND INCENTIVES

None (31 December 2008: None)

22. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

Provisions for short-term liabilites are as follows:


Provisions for legal claims 7.287.354 7.460.396

Movements in the provisions for legal claims at 31 December 2009 and 2008 periods set out below:

1 January- 1 January-


Provision at the beginning of the period 7.460.396 4.695.954

Charge for the period 1.346.190 3.031.707

Provisions released (1.519.232) (267.265)

Provision at the end of the period 7.287.354 7.460.396

The Group recognizes provisions for lawsuits against it due to its operations. The lawsuits against the Group are usually

reemployment lawsuits by former employees or damaged luggage or cargo.

a) Guarantees/Pledge/Mortgage (“GPM”) given by the group: Amount of letter of guarantees given is TL 92.014.638 as of 31

December 2009 (31 December 2008: TL 81.610.647).


A. Total amounts of GPM given on

the behalf of its own legal entity 92.014.638 81.610.647

B. Total amounts of GPM given on the behalf of

subsidiaries that are included in full consolidation - -

C. Total amounts of GPM given in order to guarantee third

partie debts for routine trade operations - -

D. Total amounts of other GPM given - -

92.014.638 81.610.647




22. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (cont’d)

b) At the beginning of 2006, US Ministry of Justice Antitrust Unit and Europe Antitrust Authorities synchronously initiated an

investigation in Europe and the United States about the fix of the air cargo prices that covers the leading airline companies. Within

the context of this investigation, information and documents that the Company holds are requested to be presented by USA

Columbia (Washington) Regional Court through official notification in April 6, 2006. Similar notifications are sent to the other

concerning airline companies. Within the context of this investigation, the Company’s inviolation of the agreement is declared to

Anti-trust department of US Ministry of Justice, negotiations are continued by the American lawyers on behalf of the Company.

As of the report date, the Company management thinks that the results of this investigation initiated by the US Ministry of Justice

cannot be reliably measured. For this reason, no provision is provided for this issue in the accompanying financial statements.

But, there is a possibility of financial liability to the Group as the result of this issue.

c) Dispute Related to Collective Bargaining

Since it is understood that an agreement will not be reached in the 22nd Term talks on collective bargaining between the Company

and labor union Türkiye Sivil Havacılık Sendikası (“Hava-İş”), a “Record of Dispute” is signed and mediation process started. The

Company made a wage increase of 6% on its own initiative, however, “Hava-İş” demands a retroactive increase in wages. Since

collective bargaining is not concluded as of balance sheet date, there is not any provision in financial statements for the matter

due to the fact that the result is uncertain for 2009 whether it will cause additional charge for the Company or not.

d) The Group’s discounted retirement pay provision is TL 151.875.562. The Group’s liability for retirement pay would be approximately

TL 299.090.230 as of 31 December 2009, if all employees were dismissed on that date.

23. COMMITMENTS

The Group’s not accrued operational leasing debts details are as follows:


Less than 1 year 312.850.973 201.619.938

Between 1 – 5 years 853.516.736 684.056.091

More than 5 years 422.992.569 422.009.094

1.589.360.278 1.307.685.123

To be delivered between the years 2010-2012, the Group signed a contract for 24 aircrafts with a total value of 5.9 billion US

Dollars, according to the price lists before the discounts made by the aircraft manufacturing firms. The Group has made an

advance payment of 913 Million US Dollars relevant to these purchases as of 31 December 2009.




24. EMPLOYEE BENEFITS

Short-term employee benefits are as follows:


Salary accruals 38.827.130 33.409.789

Due to personnel 1.437.729 1.674.174

Provisions for unused vacation 14.469.621 12.734.462

54.734.480 47.818.425

Provision for long-term retirement pay liability comprised the following:


Provisions for retirement pay liability 151.875.562 142.459.082

Provision for retirement pay liability is recorded according to following explanations:

Under labor laws effective in Turkey, it is a liability to make legal retirement pay to employees whose employment is terminated

in such way to receive retirement pay. In addition, according to Article 60 of Social Security Law numbered 506 which was changed

by the laws numbered 2422, dated 6 March 1981 and numbered 4447, dated 25 August 1999, it is also a liability to make legal

retirement pay to those who entitled to leave their work by receiving retirement pay. Some transfer provisions related to service

conditions prior to retirement are removed from the Law by the changed made on 23 May 2002.

Retirement pay liability is subject to an upper limit of monthly TL 2.427 as of 1 January 2010 (1 January 2009: TL 2.260).

Retirement pay liability is not subject to any kind of funding legally. Provision for retirement pay liability is calculated by estimating

the present value of probable liability amount arising due to retirement of employees. IAS 19 (“Employee Benefits”) stipulates

the development of company’s liabilities by using actuarial valuation methods under defined benefit plans. In this direction,

actuarial assumptions used in calculation of total liabilities are described as follows:

Main assumption is that maximum liability amount increases in accordance with the inflation rate for every service year. So,

provisions in the accompanying financial statements as of 31 December 2009 are calculated by estimating present value of

contingent liabilities due to retirement of employees. Provisions in the relevant balance sheet dates are calculated with the

assumptions of 4,80% annual inflation rate (31 December 2008: 5,40%) and 11% discount rate. (31 December 2008: 12%). Estimated

amount of retirement pay not paid due to voluntary leaves and retained in the Company is also taken into consideration as 2.17%

(2008: 2.99%). Ceiling for retirement pay is revised semi-annually. Ceiling amount of TL 2.427 which is in effect since 1 January

2010 is used in the calculation of Group’s provision for retirement pay liability.




24. EMPLOYEE BENEFITS (cont’d)

Movement in the provision for retirement pay liability is as follows:



Provisions at the beginning of the period 142.459.082 131.959.011

Charge for the period 15.405.411 17.941.602

Interest charges 8.870.209 8.260.634

Actuarial loss /(gain) 2.080.775 (2.847.655)

Payments (16.939.915) (12.854.510)

Provisions at the end of the period 151.875.562 142.459.082

25. RETIREMENT BENEFITS


26. OTHER ASSETS AND LIABILITIES

Details of other current assets are as follows:


Credit note accruals for received aircrafts 34.479.378 40.861.407

Prepaid taxes and funds 33.751.118 58.951.175

Prepaid operating lease expenses 19.410.997 11.010.997

Technical maintenance income accruals 18.049.297 5.438.006

VAT to be refunded 9.825.050 5.469.834

Prepaid sales commissions 9.418.953 8.832.684

Prepaid insurance expenses 5.197.278 5.676.306

Advance given for orders 3.788.745 4.649.039

Other prepaid expenses 3.543.305 4.668.513

Interline passenger income accruals 3.409.593 8.073.217

Advances for business purposes 903.082 1.005.304

Prepaid wet lease rent expenses - 5.345.647

Other currents assets 1.896.961 3.581.299

143.673.757 163.563.428




26. OTHER ASSETS AND LIABILITIES (cont’d)

Other non-current assets are as follows:


Prepayment for tangible assets 45.347.530 74.096.755

Maintenance reserves for engines 26.581.865 18.171.033

Prepaid aircraft financing expenses 7.543.182 7.197.530

Prepaid operating lease expenses 2.776.711 3.175.779

Prepaid Eximbank guarantee and exposure fee 1.183.491 2.618.689

Prepaid expenses 139.175 234.725

83.571.954 105.494.511

Other short-term liabilies are as follows:


Accruals for maintenance costs 98.389.811 69.099.738

Unearned revenue from share transfer of TGS (Note:16) 11.300.000 -

Other unerarned revenue 5.534.473 430.965

Incentive premium accruals 5.049.461 4.603.716

Accruals for other expenses 2.142.564 369.934

Other liabilities 79.703 7.251.639

Manufacturer’s credit related to aircrafts to be received - 9.926.677

122.496.012 91.682.669

Other long-term liabilities are as follows:


Unearned revenue from share transfer of TGS (Note:16) 45.200.000 -

Other unerarned revenue 5.904.110 -

Gross manufacturer’s credits 39.419.630 39.289.960

Accumulated depreciations of manufacturer’s credit (11.517.414) (8.168.227)

79.006.326 31.121.733

Passenger flight liabilities are as follows:


Frequent flyer program liability 124.222.967 98.946.996

Flight liability generating from ticket sales 282.983.563 253.091.354

Flight liability generating from mileage sales 179.318.749 135.355.647

586.525.279 487.393.997

27. SHAREHOLDERS’ EQUITY

The ownership structure of the Group’s share capital is as follows:

31 December 31 December

Type % 2009 % 2008

Republic of Turkey Prime

Minestry Privitization Adm(*) A, C 49,12 429.818.308 49,12 85.963.662

Other (Publicly held) A 50,88 445.181.692 50,88 89.036.338

Paid-in capital 875.000.000 175.000.000

Restatement effect 1.123.808.032 1.672.901.479

Restated capital 1.998.808.032 1.847.901.479

(*) 1.644 shares belonging to various private shareholders were not taken into consideration when the Group was included to

the privatization program in 1984. Subsequently, these shares were registered on behalf of Privatization Administration according

to Articles of Association of the Group, approved by the decision of the Turkish Republic High Planning Board on 30 October 1990.

As of 31 December 2009, the Group’s issued and paid-in share capital consists of 87.499.999.999 Class A shares and 1 Class C

share, all with a par value of Kr 1 each. These shares are issued to the name. The Class C share belongs to the Republic of Turkey

Prime Ministry Privatization Administration and has the following privileges:

Articles of Association 7: Positive vote of the board member representing class C share and approval of the Board of Directors

are necessary for transfer of shares issued to the name.

Articles of Association 10: The Board of Directors consists of seven members of which one member has to be nominated by the

class C shareholder.

Articles of Association 14: The following decisions of the Board of Directors are subject to the positive vote of the class C

Shareholder:

a) As defined in Article 3.1 of the Articles of Association, taking decisions that will negatively affect the Company’s mission,

b) Suggesting change in the Articles of Association at General Assembly,

c) Increasing share capital,

d) Approval of transfer of the shares issued to the name and their registration to the “Share Registry”,

e) Making decisions or taking actions which will put the Company under commitment over 5% of its total assets considering

the latest annual financial statements prepared for Capital Market Board per agreement (this statement will expire when the

Company’s shares held by Turkish State is below 20%),

f) Making decisions relating to merges and liquidation,

g) Making decisions to cancel flight routes or significantly decrease number of flights except for the ones that cannot recover

even its operational expenses subject to the market conditions.







27. SHAREHOLDERS’ EQUITY (cont’d)

Restricted Reserves Assorted from Profit

The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (TCC).

The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total

reserve reaches 20% of the company’s paid-in share capital. The second legal reserve is appropriated at the rate of 10% per

annum of all cash distributions in excess of 5% of the paid-in share capital. Under the TCC, the legal reserves can only be used

to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital.

Foreign Currency Translation Differences

Foreign currency translation differences are the changes due to foreign exchange rate changes in the shareholders’ equity Sun

Express which is a subsidiary accounted for equity method.

Distribution of Dividends

Companies whose shares are traded at Istanbul Stock Exchange (ISE) are subject to the following dividend rules determined by

Capital Markets Board:

According to the Serial:XI No:29 communiqué of Capital Markets Board, depending on the decision made in shareholders' meeting,

the profit distribution can be made either by giving bonus shares to shareholders which are issued either in cash or by adding

dividend to capital or giving some amount of cash and some amount of bonus shares to shareholders. If the primary dividend

amount determined is less than 5% of the paid-in capital, the decision gives the option of not to distribute the related amount

as to keep within the equity. However, for companies that have not made any dividend distributions in the prior period and therefore

has classified their shares as “old shares” and “new shares” and those that will distribute dividends from the profit for the year

obtained from their activities, primary dividend amount shall be distributed in cash.

According to the CMB’s decision on 9 January 2009, in calculation of distributable profit, the companies are required to prepare

consolidated financial statements, those companies enabled to calculate distributable profit by taking into consideration the profit

in the financial statements prepared and announced to the public in accordance with Serial:XI No:29. Regarding the same decision,

retained earnings of the companies in legitimate records, profit for the period and total amount of the assets generating profit

are to be stated in the accompanying notes of financial statements in accordance with Serial:XI No:29 communiqué.

In accordance with the Capital Markets Board’s (the “Board”) Decree issued as of 27 January 2010, in relation to the profit

distribution of earnings derived from the operations in 2009, minimum profit distribution is not required for listed companies

(December 31, 2008: 20%), and accordingly, profit distribution should be made based on the requirements set out in the Board’s

Communiqué Serial:IV,No: 27 “Principles of Dividend Advance Distribution of Companies That Are Subject To The Capital Markets

Board Regulations”, terms of articles of corporations and profit distribution policies publicly disclosed by the companies;





Distribution of Dividends (cont’d)

Furthermore, based on the afore-mentioned decree, companies that are required to prepare consolidated financial statements

should calculate their net distributable profits, to the extent that they can be recovered from equity in their statutory records,

by considering the net profit for the period in the consolidated financial statements which are prepared and disclosed in accordance

with the Communiqué Serial: XI, No: 29;

Within the frame of Communiqué Series: XI, No: 29, amount disclosed in notes to financial statements based on the Board decision

dated 9 January 2009; following the deduction of companies’ retained earnings, total of remaining profit for the period and other

total resources that may apply to profit distribution;

Within the frame of 6 th bulletin of Communiqué Series: IV No: 27, application of related period about profit distribution time;

a) If all dividends are distributed in cash, dividends made to continue the adoption of distributing until the end of following fifth

month of the fiscal period.

b) If dividends are distributed as share, the Entity should apply for Capital Markets Board until the end of following fifth month

of the fiscal period and finish profit distribution until the end of following sixth month of the fiscal period as the purpose of exported

shares are recorded by Capital Markets Board.

c) In the case of combination of the options "a" and "b", it was decided that operations described earlier should be performed

separately but within the time that referred to in subparagraph

The items of shareholders’ equity of the Company in the statutory records as of 31 December 2009 are as follows

Paid-in capital 875.000.000

Share premium 181.185

Legal reserves 39.052.952

Extraordinary reserves (*) 7.806.889

Other profit reserves 9

Special funds 53.064.572

Retained earnings (*) 303.035.058

Net profit for the period (*) 332.792.278

Total shareholders’ equity 1.610.932.943

* According to legitimate regulations, total amount, subject to dividend distribution is TL 643.634.225





Hedge Fund against the Cash Flow Risk

Hedge fund against cash flow risk arises from the accounting under shareholders’ equity for the changes in the fair values of

effective derivative financial instruments designated against financial risks of future cash flows. Total of deferred gain/loss arising

from hedging against financial risk are accounted when the effect of the hedged item goes into the income statement.

28. SALES AND COST OF SALES

Details of gross profit are as follows:



Scheduled flights

Passenger 6.242.396.046 5.415.875.828

Cargo and mail 442.452.326 381.265.205

Total scheduled flights 6.684.848.372 5.797.141.033

Non scheduled flights 60.234.596 79.011.633

Other revenue 290.836.108 247.035.147

Gross sales 7.035.919.076 6.123.187.813

Less: discounts and sales returns (36.173) (13.604)

Net sales 7.035.882.903 6.123.174.209

Cost of sales (-) (5.135.949.144) (4.542.670.584)

Gross profit 1.899.933.759 1.580.503.625

Geographical details of revenue from the scheduled flights are as follows:



- Europe 2.621.154.415 2.349.389.459

- Far East 1.113.861.041 961.855.198

- Middle East 858.064.501 703.042.695

- Africa 380.388.615 254.735.557

- America 317.489.740 221.418.430

International flights 5.290.958.312 4.490.441.339

Domestic flights 1.393.890.060 1.306.699.694

Total revenue from scheduled flights 6.684.848.372 5.797.141.033




28. SALES AND COST OF SALES (cont’d)

The details of the cost of sales are as follows:



Fuel expenses 1.527.808.008 1.850.738.704

Personnel expenses 1.044.182.478 856.558.103

Landing and navigation expenses 552.646.148 399.283.075

Depreciation expenses 317.706.200 263.848.336

Handling expenses 378.811.863 276.261.303

Maintenance expenses 381.802.941 233.448.486

Passenger service and catering expenses 325.039.231 259.376.473

Operating lease expenses 275.052.324 154.353.787

Codeshare expenses 160.695.562 141.212.392

Insurance expense 35.344.992 21.169.619

Short term leasing expenses 62.753.715 6.898.765

Other leasing expenses 12.393.476 24.958.770

Communnication expenses 6.914.020 7.019.829

Other tax 5.763.728 6.154.225

Utility expenses 6.075.303 4.285.948

Cost of other sales 42.959.155 37.102.769

5.135.949.144 4.542.670.584

29. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SALES AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE

EXPENSES



Marketing, sales and distribution expenses 806.503.413 635.876.008

Administrative expenses 261.536.526 203.813.181

1.068.039.939 839.689.189




29. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SALES AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE

EXPENSES (cont’d)

Marketing, sales and distribution expenses are as follows:



Personnel expenses 221.533.668 199.988.876

Commission and incentives expenses 206.925.465 189.842.053

Reservation system expenses 154.300.075 104.458.574

Advertising expenses 84.163.376 34.517.643

Service expenses 24.116.304 11.688.333

Other rent expenses 23.857.845 17.635.490

Special passenger program milage expenses 17.731.434 14.100.772

Passenger service and catering expenses 14.014.565 9.388.785

Communication expenses 11.727.334 11.335.043

Other tax 7.990.340 6.672.221

Transportation expenses 7.444.732 5.187.679

Membership expenses 5.118.475 12.929.861

Utility expenses 3.291.672 2.686.730


Depreciation expenses 868.435 708.667

Fuel expenses 866.661 789.684

Insurance expenses 751.543 527.870

Other marketing and sales expenses 20.262.219 12.007.572

806.503.413 635.876.008

General administrative expenses are as follows:



Personnel expenses 144.413.318 122.824.047

Depreciation expenses 28.476.945 21.708.398

Insurance expenses 16.633.619 2.610.354

Service expenses 12.020.015 8.398.360

Other tax 11.669.858 7.734.389

Other rent expenses 11.395.026 6.828.249


Communication expenses 7.632.253 3.730.409

Other administrative expenses 20.665.417 18.161.611

261.536.526 203.813.181

30. EXPENSES ACCORDING TO CATEGORIES

Expenses according to categories are explained in Notes 28 and 29.




31. OTHER OPERATING INCOME / (EXPENSES)

Other operating income consists of the following:



Reimbursement of maintenance fee from leasing companies 16.559.675 -

Provision released 16.876.352 4.903.880

Banks protocol revenue 4.730.845 3.510.000

Discounts received from maintenace spare parts suppliers 9.060.636 8.174.830

Insurance, indemnity, penalty incomes 24.005.243 6.268.389

Purchase discount 5.857.946 6.423.388

Rent incomes 1.753.645 979.550

Fixed assets sale income 3.333.754 179.102

Income from free of charge materials 911.946 6.302.617

Other operating incomes 8.046.062 19.948.772

91.136.104 56.690.528



Real increase in provisions for impairment of fixed assets (Note 18) 154.263.062 176.836.702

Provision expenses 24.037.694 23.492.206

Expenses due to aircraft crash 5.503.191 -

Expense due to passengers without visa 4.796.605 1.973.061

Other operating expenses 10.538.930 7.818.494

199.139.482 210.120.463

32. FINANCIAL INCOME

Finance income consists of the following



Decrease in the provisions for impairment of fixed assets due to

changes in exchange rate (Note 18) - 1.012.109.405

Interest income 159.789.136 123.120.093

Gain due to changes in the fair value of derivative instruments 9.016.534 -

Rediscount interest income 4.134.460 4.692.212

Foreign exhange rate income - 287.925.459

Dividend income 42.014 35.034

172.982.144 1.427.882.203




33. FINANCIAL EXPENSES

Finance expenses are as follows



Decrease in the provisions for impairment

due to changes in exchange rate (Note 18) 24.520.934 -

Foreign exchange loss 1.845.975 -

Financial liabilities foreign exchange loss 2.890.159 586.719.978

Finance lease interest expense 116.382.383 103.921.630

Gain due to changes in the fair value of derivative instruments - 6.071.262

Retirement pay interest expense 8.870.209 8.260.634

Rediscount expense 17.530.474 6.801.332

Other financial debts interest expense 380.669 1.474.979

Other financial expenses 287.869 123.325

172.708.672 713.373.140

34. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS


35. TAX ASSETS AND LIABILITIES

Tax liability for the current profit is as follows:


Provisions for corporate tax 70.893.068 7.673.685

Prepaid taxes and funds (68.473.524) (3.487.876)

2.419.544 4.185.809

Tax liability consists of the following items:



Current period tax expense 70.893.068 7.673.685

Deferred tax expense / (income) 73.377.970 163.566.042

Change in deferred tax for the year 2008 (foreign earnings exemption) 33.121.716 -

Change in corporate tax for the year 2008 (other) 508.583 -

Tax expense / (income) 177.901.337 171.239.727

35. TAX ASSETS AND TAX LIABILITIES (cont’d)

The Group is subject to taxation in accordance with the tax procedures and the legislation effective in Turkey. Provision is made

in the accompanying financial statements for the estimated charge based on the Group’s results for the years and periods.

Corporate Tax Law of 5520 entered into force by 21 June 2006 and published in the Official Gazette No. 26205. With this Law, Law

No. 5422 was repealed from application.

The corporate tax rate is 20% since 2006 (2006, 2007 and 2008 years: 30% for investment deduction).

Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back

non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment

incentives utilized

Investment incentive certificates are revoked commencing from January 1, 2006. The investment incentive amount that cannot

be deducted from 2008 taxable income will not be carried forward to following years. In accordance with Income Tax Law Temporary

Article 69, investment allowances available as of 31 December 2005 and due to insufficiency of profit are transferable to next

year’s; can be deducted from the profits of 2006, 2007 and 2008 depending on taxpayers’ choice. Investment allowances can be

forwarded to next year’s by restatement with Producer Price Index (PPI).

In case of benefiting from investment allowances, the Corporate Tax rate is 30 % instead of 20%. Taxpayers have the option to

benefit from investment allowances in all or any of the years 2006, 2007 and 2008.

Group preferred to deduct the investment allowances of 2005 from the earnings in 2006 and 2007. Therefore, the applicable

current corporate tax rate is 30% for 2006 and 2007. The applicable current corporate tax rate is 20% for 2008. The deferred tax

rate used for the calculation of deferred tax assets and liabilities is also 20%

Corporations are required to pay advance corporation tax quarterly, at the current rate on their corporate income. Advance tax is to

be filed in the following second month’s 14th day and paid on 17th day. Advance tax paid by corporations is credited against the annual

corporation tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government.

Despite of the offset, if there are temporary tax amounts, it may be returned by cash or may be offset any other financial liabilities.

Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years.

Tax losses cannot be carried back to offset profits from previous periods.

In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns within

the 25th of the fourth month following the close of the related financial year. Tax authorities have the right to audit tax declarations

and accounting records for 5 years, and may issue re-assessment based on their findings.

Except for the dividends paid to non-resident corporations, which have a representative office in Turkey, or resident corporations,

dividends that are paid to non-resident corporations or corporations exempt from taxation in accordance with Income Tax Law

article 75 paragraph 2 lines (1), (2) and (3) are subject to withholding tax at the rate of 15%. An increase in capital via issuing

bonus shares is not considered as a profit distribution and thus does not incur withholding tax.








In accordance with “Bringing Some Assets Into National Economy” Law No: 5811, which has become effective as of 22 November

2008, earnings of real persons and entities which are full fledged taxpayers obtained through their foreign offices/branches and

their permanent agencies, including of those that are obtained by the end of 30 April 2009, are exempt from income and corporate

taxation to the extent that such earnings are transferred to Turkey from the date of the issuance of the related law until 31 May

2009.

Article 7.4 of the General Communiqué issued on 6 December 2008 in regards to “Bringing Some Assets Into National Economy”

Law Serial 1, No: 5811 requires the inclusion of such earnings to the exemption to the extent that they are transferred to Turkey

as of 31 May 2009, even if earnings attributable to 2008 are subject to temporary tax filings for the 2008’s temporary tax periods,

since branch earnings obtained through their foreign offices/branches and permanent agencies are determined at the last day

of the financial year.In this respect, the Company’s TL 436.428.799 of foreign branch earnings exemption obtained in 2008 is

subject to as a deduction against the 2008’s Corporate Tax base. Unused and carry forward exemption amount of 2008 is also

subject to deferred tax calculation.

During the calculation of prepaid tax for the 2009 March period, the issues about the calculation of foreign branch earnings were

evaluated again by the Company management due to the factors of uncertainty in regulations, arising of different figures for the

matter about which initiative can be used depending on the opinion taken from Tax authority, arising of different exception figures

when the methods other than in the Tax authority’s opinion was applied. Foreign branch earnings, which were calculated previously

on the location basis, are calculated again in the line basis, the previous earnings figure TL 436.428.799 has decreased to TL

114.788.079. Because of the changes made in accounting estimates, an additional tax burden of TL 64.328.144 is stated in the

financial statements as of 31 December 2009.

Furthermore, the period of these exceptions are extended with Law No: 5917 article 46 which has become effective as of 10 July

2009 and the provisional article 3 added to the Law No: 5811. Accordingly commercial earnings obtained by corporations through

permanent representatives and branches abroad, between the dates of 1 May 2009 and 31 December 2009 are exceptional from

income and corporate tax if, those earnings were transferred to Turkey until the date 28 February 2010. The Company has

calculated TL 156.045.544 foreign branch earnings for the year 2009 and has incorporated this amount to the calculation of

corporation of tax relevant year.

In August 2009, the company has reflected TL 508.580 additional tax burden, which is related to the corporate tax for the period

2008 into the financial statements as of 31 December 2009 via adjustment declaration.







Reconciliation of provision for taxes:

Profit from operations before tax 736.977.617 1.305.465.938

Domestic income tax rate of 20% 147.395.523 261.093.188

Taxation effects on:

- revenue that is exempt from taxation (2.846.785) (5.848.893)

- foreign branch earning exemption 33.119.035 (87.285.760)

- non-deductible expenses 233.564 3.281.192

Provisions for tax expense in income statement 177.901.337 171.239.727

Tax effect regarding other comprehensive income is as follows:

1 January - 31 December 2009

Amount Tax (expense) Amount

before tax /income after tax

Foreign currency translation differences 181.933 - 181.933

Change in cash flow hedge fund (2.189.161) 437.832 (1.751.329)

Other comprehensive income for the period (2.007.228) 437.832 (1.569.396)

Change in translation differences of foreign currency that is included in other comprehensive income, is TL 4.459.406. In addition,

the effect on taxation does not exist for the period 1 January - 31 December 2008.

The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial statements

prepared in accordance with IFRS and its statutory financial statements. Deferred tax assets and liabilities calculated for temporary

differences expected to be realized in future are calculated under the liability method.





The deferred tax assets and (liabilities) as of 31 December 2009 and 31 December 2008 are as follows:


Fixed assets (437.228.761) (433.734.782)

Provision for ticket sales advances (48.624.219) (32.179.753)

Accrued expense 41.874.247 36.194.357

Provision for retirement pay 30.375.112 28.491.817

Long-term lease obligations 21.625.506 49.277.131

Short-term lease obligations 21.321.316 21.716.516

Allowance for doubtful receivables 3.752.304 3.050.391

Provision for impairment in inventories 2.873.729 2.944.944

Provision for unused vacation 2.739.207 2.546.893

Adjustment of inventories (1.165.198) -

Income and expenses relating to future periods (756.009) 1.037.855

Discount on receivables 279.604 472.633

Discount on payables (164.343) (485.657)

Accummulated loss - 31.206.428

Other 854.400 158.260

(362.243.105) (289.302.967)


Deferred tax assets - 1.986.324

Deferred tax liabilities (362.243.105) (291.289.291)

Deferred tax assets/ (liabilities), net (362.243.105) (289.302.967)

The movements of deferred tax liability as of 31 December 2009 and 2008 are as follows:



Opening balance at January 1 289.302.967 125.736.925

Deferred tax expense 73.377.970 163.566.042

Hedge fund tax income (437.832) -

Closing balance at December 31 362.243.105 289.302.967




36. EARNINGS PER SHARE

Earnings per share disclosed in the consolidated statements of income are determined by dividing the net income by the weighted

number of shares that have been outstanding during the period concerned.

In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“bonus shares”) to existing

shareholders from retained earnings. For the purpose of earnings per share computations, such bonus shares are regarded as

issued shares. Accordingly, the weighted average number of shares outstanding during the years has been adjusted in respect

of bonus shares issued without a corresponding change in resources, by giving them retroactive effect for the period in which

they were issued and for each earlier year.

Earnings per share is calculated by dividing net profit by weighted average number of shares outstanding in the relevant period.

Number of total shares and calculation of earnings per share at 31 December 2009 and 2008 are as follows:



Number of shares outstanding at 1 January (in full) 17.500.000.000 17.500.000.000

New shares issued (in full) 70.000.000.000 70.000.000.000

Number of shares outstanding at 31 December (in full) 87.500.000.000 87.500.000.000

Weighted average number of shares outstanding during

the year (in full) 87.500.000.000 87.500.000.000

Net profit for the period 559.076.280 1.134.226.211

Earnings per share (kr) (*) 0,64 1,30

(*) The earnings per share with par value of TL 1 is TL 0, 64 in December 2009; TL 1, 3 in December 2008.

37. RELATED PARTY TRANSACTIONS

Short-term trade receivables from related parties (Note 10) are as follows:


P & W T.T Uçak Bakım Merkezi 26.705.625 -

Bosnia Herzegovina Airlines 3.729.488 -

Sun Express 1.074.744 646.191

THY DO&CO İkram Hizmetleri A.Ş. 616.912 4.095.197

TGS 1.517 -

32.128.286 4.741.388




37. RELATED PARTY TRANSACTIONS (cont’d)

Transactions with related parties in the nine month period ended as of 31 December are as follows:


TGS (*) 12.546.944 67.386

Bosnia Herzegovina Airlines 34.372 -

12.581.316 67.386

(*) TL 12.279.145 (EURO 5.684.000), a portion of the Group’s non-trade reveivables from TGS, consist of the credit given to TGS

which is due to 5 January 2010. (Interest rate: 2%)

Short-term trade payables to related parties (Note 10) are as follows:


Sun Express 14.416.433 9.433.149

THY DO&CO İkram Hizmetleri A.Ş. 8.246.716 -

22.663.149 9.433.149

Transactions with related parties in the nine-month period ended as of 31 December are as follows:



Services rendered to Sun Express 46.068.132 8.038.397

Services rendered to Bosnia Herzegovina Airlines 4.399.906 -

Services rendered to THY DO&CO 1.001.534 792.687

Service rendered to P&W T.T. 23.467.921 -

Interest income from THY DO&CO - 401.509

74.937.493 9.232.593



Services received from THY DO&CO 224.579.638 147.850.051

Services received from Sun Express 57.017.608 30.909.242

Services received from Bosnia Herzegovina Airlines 2.435.000 -

284.032.246 178.759.293




37. RELATED PARTY TRANSACTIONS (cont’d)

Transactions between the Group and Sun Express are codeshare operations; transactions between the Group and Turkish DO&CO

are catering services and loan financing. Receivables from related parties are not collateralized and maturity of trade receivables

is 30 days.

The total amount of salaries and other short term benefits provided for the Chairman and the Member of Board of Directors,

General Manager, General Coordinator and General Deputy Managers are TL 3.693.289 (2008: TL 3.003.116).

38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS

(a) Capital Risk Management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing

the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 8, cash and cash equivalents

and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

The Board of Directors of the Group periodically reviews the capital structure. During these analyses, the Board assesses the

risks associated with each class of capital along with cost of capital. Based on the review of the Board of Directors, the Group

aims to balance its overall capital structure through the issue of new debt or the redemption of existing debt.

The overall strategy of the Group remains the same since the year 2008.


Total debts 3.595.046.545 3.697.403.926

Less: Cash and cash equivalents (1.096.111.869) (504.905.721)

Net debt 2.498.934.676 3.192.498.205

Total shareholders' equity 3.444.880.226 2.986.587.096

Total capital stock 5.943.814.902 6.179.085.301

Net debt/total capital stock ratio 0,42 0,52

b. Financial Risk Factors

The risks of the Group, resulted from operations, include market risk (including currency risk, fair value interest rate risk and

price risk), credit risk and liquidity risk. The Group’s risk management program generally seeks to minimize the potential negative

effects of uncertainty in financial markets on financial performance of the Group. The Group uses a small portion of derivative

financial instruments in order to safeguard itself from different financial risks.

Risk management, in line with policies approved by the Board of Directors, is carried out. According to risk policy, financial risk

is identified and assessed. By working together with Group’s operational units, relevant instruments are used to reduce the risk.

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38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont'd)

(b) Financial Risk Factors (cont'd)

b.1) Credit risk management (cont'd)

The risk of a financial loss for the Group due to failing of one of the parties of the contract to meet its obligations is defined as

credit risk.

The Group's credit risk is basically related to its receivables. The balance shown in the balance sheet is formed by the net amount

after deducting the doubtful receivables arisen from the Group management's forecasts based on its previous experience and

current economical conditions. Because there are so many customers, the Group's credit risk is dispersed and there is not

important credit risk concentration.

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cont

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38 NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)

(b) Financial Risk Factors (cont’d)

(b.1) Credit risk management (cont’d)

As of balance sheet date, total amount of cash collateral and letter of guarantee, which is received by Group for past due not

impaired receivable, is TL 3.414.006 (31 December 2008: TL 2.318.741).

As of the balance sheet date, Group has no guarantee for past due receivables for which provisions were recognized.

b.2) Liquidity Risk Management

The main responsibility of liquidity risk management rests upon Board of Directors. The Board built an appropriate risk management

for short, medium and long term funding and liquidity necessities of the Group management. The Group manages liquidity risk

by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and

actual cash flows and matching the maturity profiles of financial assets and liabilities.

The tables below demonstrate the maturity distribution of nonderivative financial liabilities and are prepared based on the earliest

date on which the Group can be required to pay. The interests that will be paid on the future liabilities are included in the related

maturities. The adjustment column shows the item which causes possible cash flow in the future periods. The item in question

is included in the maturity analysis and is not included balance sheet amount of financial liabilities in the balance sheet.

Group manages liquidity risk by keeping under control estimated and actual cash flows and by maintaining adequate funds and

borrowing reserves through matching the maturities of financial assets and liabilities.

Liquidity risk table:

31 December 2009Total cash

outflow

according to

the contract Less than 3-12 months 1-5 years More than 5

Due date on the contract Book value (I+II+III+IV) 3 months (I) (II) (III) years (IV)

Non-derivative

financial liabilities

Bank borrowings 28.627.057 29.847.936 7.680.629 7.536.703 14.630.604 -

Financial lease obligations 2.959.539.067 3.456.591.636 103.436.047 366.181.926 1.438.363.567 1.548.610.096

Trade payables 560.801.478 561.612.148 490.554.785 71.057.363 - -

Other financial liabilities 846.771 846.771 846.771 - - -

Total 3.549.814.373 4.048.898.491 602.518.232 444.775.992 1.452.994.171 1.548.610.096




38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)


b.2) Liquidity risk management (cont’d)

Liquidity risk table (cont’d):

31 December 2008Total cash

outflow

according to

the contract Less than 3-12 months 1-5 years More than 5

Due date on the contract Book value (I+II+III+IV) 3 months (I) (II) (III) years (IV)

Non-derivative

financial liabilities

Bank borrowings 34.900.371 35.698.342 1.469.294 34.229.048 - -

Financial lease obligations 3.182.394.093 3.825.277.485 107.114.326 373.162.277 1.566.966.270 1.778.034.612

Trade payables 435.109.211 437.537.494 382.178.541 55.358.953 - -

Other financial liabilities 639.916 639.916 639.916 - - -

Total 3.653.043.591 4.299.153.237 491.402.077 462.750.278 1.566.966.270 1.778.034.612

b.3) Market Risk Management

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

Market risk exposures of the Group are measured using sensitivity analysis. There has been no change to the Group’s exposure

to market risks or the manner in which it manages and measures the risk.

b.3.1) Foreign Currency Risk Management

Transactions in foreign currencies expose the Group to foreign currency risk. The foreign currency denominated assets and

liabilities of monetary and non-monetary items are as follows:

31 December 2009

TL Equivalent US Dollar Euro GBP Other

1.Trade receivables 318.804.899 91.640.001 108.281.865 8.393.269 110.489.764

2a.Monetary financial assets 1.596.717.983 1.276.912.740 214.803.790 12.413.729 92.587.724

2b.Non-monetary financial assets - - - - -

3.Other 1.982.078 1.066.174 94.361 103.224 718.319

4.Current assets (1+2+3) 1.917.504.960 1.369.618.915 323.180.016 20.910.222 203.795.807

5.Trade receivables - - - - -

6a.Monetary financial assets 637.383.512 637.383.512 - -

6b.Non monetary financial assets - - - - -

7.Other 65.373.959 48.743.839 12.586.766 2.119.701 1.923.653

8.Noncurrent assets (5+6+7) 702.757.471 686.127.351 12.586.766 2.119.701 1.923.653

9.Total assets (4+8) 2.620.262.431 2.055.746.266 335.766.782 23.029.923 205.719.460

10.Trade payables 297.880.412 120.793.475 107.571.626 5.863.884 63.651.427

11.Financial liabilities 457.499.014 252.991.955 204.507.059 - -

12a.Other liabilities, monetary 14.337.275 7.789.570 3.479.885 336.138 2.731.682

12b.Other liabilities, non monetary - - - -

13.Current liabilities (10+11+12) 769.716.701 381.575.000 315.558.570 6.200.022 66.383.109

14.Trade payables - - - - -

15.Financial liabilities 2.575.899.284 975.801.038 1.600.098.246 - -

16a.Other liabilities, monetary 8.941.614 2.354.919 5.734.714 2.605 849.376

16b.Other liabilities, non monetary - - - - -

17.Noncurrent liabilities (14+15+16) 2.584.840.898 978.155.957 1.605.832.960 2.605 849.376

18.Total liabilities (13+17) 3.354.557.599 1.359.730.957 1.921.391.530 6.202.627 67.232.485

19.Net asset / liability position of Off-balance

sheet derivatives (19a-19b) 27.416.849 (257.400.455) 284.817.304 - -

19a.Off-balance sheet foreign currency

derivative assets 284.817.304 - 284.817.304 - -

19b.Off-balance sheet foreign currency

derivative liabilities 257.400.455 257.400.455 - - -

20.Net foreign currency asset/(liability)

position (9-18+19) (706.878.319) 438.614.854 (1.300.807.444) 16.827.296 138.486.975


position of monetary items (IFRS 7.B23)

(=1+2a+5+6a-10-11-12a-14-15-16a) (801.651.205) 646.205.296 (1.598.305.875) 14.604.371 135.845.003

22.Fair value of foreign currency hedged

financial assets - - - - -

23.Hedged foreign currency assets - - - - -

24.Hedged foreign currency liabilities - - - - -

25.Exports 5.356.374.684 756.866.783 2.821.421.134 152.119.413 1.625.967.354

26.Imports 1.684.743.255 1.003.419.468 488.549.014 19.535.389 173.239.384



b.3) Market risk management (cont’d)

b.3.1) Foreign Currency Risk Management (cont’d)







31 December 2008

TL Equivalent US Dollar Euro GBP Other

1.Trade receivables 201.671.977 36.369.880 72.663.669 6.607.281 86.031.147

2a.Monetary financial assets 1.300.384.063 911.904.026 316.192.868 5.534.421 66.752.748

2b.Non-monetary financial assets - - - - -

3.Other 7.419.216 2.458.692 41.404 4.760.149 158.971

4.Current assets (1+2+3) 1.509.475.256 950.732.598 388.897.941 16.901.851 152.942.866

5.Trade receivables - - - - -

6a.Monetary financial assets - - - - -

6b.Non monetary financial assets - - - - -

7.Other 72.794.855 72.789.485 4.400 - 970

8.Noncurrent assets (5+6+7) 72.794.855 72.789.485 4.400 - 970

9.Total assets (4+8) 1.582.270.111 1.023.522.083 388.902.341 16.901.851 152.943.836

10.Trade payables 244.277.675 125.858.217 56.555.012 16.252.346 45.612.100

11.Financial liabilities 463.649.564 251.539.094 212.110.470 - -



13.Current liabilities (10+11+12) 717.688.317 381.869.744 271.455.344 16.333.567 48.029.662

14.Trade payables - - - - -

15.Financial liabilities 2.798.005.235 1.052.489.444 1.745.515.791 - -



17.Noncurrent liabilities (14+15+16) 2.806.004.061 1.053.528.212 1.751.345.217 4.210 1.126.422

18.Total liabilities (13+17) 3.523.692.378 1.435.397.956 2.022.800.561 16.337.777 49.156.084

19.Net asset / liability position of Off-balance

sheet derivatives (19a-19b) 12.349.552 (112.925.248) 125.274.800 - -

19a.Off-balance sheet foreign currency

derivative assets 125.274.800 - 125.274.800 - -

19b.Off-balance sheet foreign currency

derivative liabilities 112.925.248 112.925.248 - - -


position (9-18+19) (1.929.072.715) (524.801.121) (1.508.623.420) 564.074 103.787.752


position of monetary items (IFRS 7.B23)

(=1+2a+5+6a-10-11-12a-14-15-16a) (2.021.636.338) (487.124.050) (1.633.944.024) (4.196.075) 103.627.811

22.Fair value of foreign currency hedged

financial assets - - - - -

23.Hedged foreign currency assets - - - - -

24.Hedged foreign currency liabilities - - - - -

25.Exports 4.540.026.181 536.061.102 2.404.349.759 141.055.054 1.458.560.268

26.Imports 1.651.794.897 937.339.395 495.108.749 14.626.988 204.719.765



b.3) Market Risk Management (cont’d)









Foreign currency sensitivity

The Group is exposed to foreign exchange risk primarily from US dollar, Euro and GBP. The following table details the Group’s

sensitivity to a 10% increase and decrease in US Dollars, Euro and GBP. 10% is the sensitivity rate used when reporting foreign

currency risk internally to key management personnel and represents management’s assessment of the possible change in

foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and

adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external

loans as well as loans to foreign operations within the Company where the denomination of the loan is in a currency other than

the currency of the lender or the borrower. A positive number indicates an increase in profit or loss.

31 December 2009

Profit / (Loss) Before Tax

If foreign currency If foreign currency

appreciated against devaluated against

TL by 10% TL by 10%

1 - US Dollar net asset / liability 43.861.485 (43.861.485)

2- Part of hedged from US Dollar risk (-) - -

3- US Dollar net effect (1+2) 43.861.485 (43.861.485)

4 - Euro net asset / liability (130.080.744) 130.080.744

5 - Part of hedged from Euro risk (-) - -

6- Euro net effect (4+5) (130.080.744) 130.080.744

7 - GBP net asset / liability 1.682.730 (1.682.730)

8- Part of hedged from GBP risk (-) - -

9- GBP net effect (7+8) 1.682.730 (1.682.730)

10 - Other foreign currency net asset / liability 13.848.698 (13.848.698)

11- Part of hedged other foreign currency risk (-) - -

12- Other foreign currency net effect (10+11) 13.848.698 (13.848.698)

TOTAL (3 + 6 + 9 + 12) (70.687.831) 70.687.831








Foreign currency sensitivity (cont’d)

31 December 2008

Profit / (Loss) Before Tax

If foreign currency If foreign currency

appreciated against devaluated against

TL by 10% TL by 10%

1 - US Dollar net asset / liability (42.548.468) 42.548.468

2- Part of hedged from US Dollar risk (-) - -

3- US Dollar net effect (1+2) (42.548.468) 42.548.468

4 - Euro net asset / liability (161.468.260) 161.468.260

5 - Part of hedged from Euro risk (-) - -

6- Euro net effect (4+5) (161.468.260) 161.468.260

7 - GBP net asset / liability 63.642 (63.642)

8- Part of hedged from GBP risk (-) - -

9- GBP net effect (7+8) 63.642 (63.642)

10 - Other foreign currency net asset / liability 10.472.471 (10.472.471)

11- Part of hedged other foreign currency risk (-) - -

12- Other foreign currency net effect (10+11) 10.472.471 (10.472.471)

TOTAL (3 + 6 + 9 + 12) (193.480.615) 193.480.615

As explained in Note 2.5.6, the Group uses net US Dollars sales price as the recoverable amount in the impairment calculation

of its property, plant and equipment (i.e. aircrafts, spare engines and simulations - “Aircrafts”). Accordingly, the impairment

provided by the Group for the tangible assets decreases when the US Dollar is evaluated against TL, and increases when the US

Dollar is devaluated against TL. In this context, If US Dollar is appreciated by 10 % against TL, there would be an increase amounted

TL 360.275.994 (1 January-31 December 2008: TL 360.198.667) in the net profit for the period except for the effects in the table

above due to the decrease in the impairment of aircrafts, spare engines and simulators. If US Dollar is devaluated by 10 % against

TL, there would be a decrease amounted TL 401.499.641 effect in the profit or except for the effects in the table above.







b.3.2) Interest Rate Risk Management

Group has been borrowing over fixed and variable interest rates. Considering the interest types of the current borrowings,

borrowings with variable interest rates have the majority but in financing of aircrafts performed in the last years, Group tries to

create a partial balance between borrowings with fixed and variable interest rates by increasing the weight of the borrowings

with fixed interest rate in condition of the suitability of the cost. Due to the fact that the variable interest rates of the Group are

dependent on Libor and Euribor, dependency to local risks is low.

Interest Rate Position Table


Instruments with fixed interest rate

Financial Assets – Time Deposits 1.149.329.053 1.768.820.216

Financial Liabilities 1.825.552.349 1.960.602.178

Financial Instruments with Variable Interest Rate

Financial Liabilities 1.162.613.775 1.256.692.286

Interest Swap Agreements not subject to Hedge Accounting (net) (829.874) (5.087.603)

Interest swap agreements subject to hedge acounting (Net) (7.130.730) -

As indicated in Note 39, the Group as of 31 December 2009 fixed the interest rate for TL 877.507.548 of floating–interest-rated

financial liabilities via an interest rate swap contract.

Interest rate sensitivity

Following sensitivity analysis is determined according to the interest rate exposure in the reporting date and possible changes

on this rate and it is fixed during all reporting period. Group management checks out possible effects that may arise when Libor

and Euribor rates, which are the interest rates of the borrowings with variable interest rates, fluctuate 0, 5% and reports these

to the top management.

In condition that 0, 5% increase in Libor and Euribor interest rate and all other variables being constant:

Profit before taxes of the Group, which belongs to twelve-month-period, will decrease for TL 6.283.461 (as of 31 December 2008

it will decrease by TL 6.283.461). In contrast, if Libor and Euribor interest rate decreases 0, 5%, Profit Before Taxes for six-

month-period will increase with the same amounts

Moreover, as a result of the interest rate swap contracts against cash flow risks, in case of a 0,5% increase in the Libor and

Euribor interest rates, the shareholders’ equity of the Group will increase by TL 18.318.580 without the deferred tax effect. In

case of a 0,5% decrease in the Libor and Euribor interest rates, the shareholders’ equity of the Group will decrease by the same

amount without the deferred tax effect.







b.3.3) Fuel prices sensitivity

As explained in Note 39, Group made forward fuel purchase contracts in order to hedge cash flow risks arising from fuel purchases

beginning from 2009. Due to forward fuel purchase contracts subject to hedge accounting, as a result of a 10 % increase in fuel

prices, the shareholders’ equity of the Group will increase by TL 11.038.146 excluding the deferred tax effect. In case of a 10%

decrease in fuel prices, the shareholders’ equity of the Group will decrease by the same amount excluding the deferred tax effect

39. FINANCIAL INSTRUMENTS

Fair Values of Financial Instruments

Fair values of financial assets and liabilities are determined as follows:

• In standard maturities and conditions, fair values of financial assets and liabilities which are traded in an active market are

determined as quoted market prices.

• Fair values of derivative instruments are calculated by using quoted prices. In absence of prices, discounted cash flows analysis

is used through applicable yield curve for maturities of derivative instruments.

(Con

veni

ence

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of R

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t A

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39. FINANCIAL INSTRUMENTS (cont’d)

Fair Values of Financial Instruments (cont’d)

Fair values of financial assets and liabilities are determined as follows:

• First level: Financial assets and liabilities are valued with the stock exchange prices in the active market for the assets and

liabilities same with each other.

• Second level: Financial assets and liabilities are valued with input obtained while finding the stock exchange price of the

relevant asset or liability mentioned in the first level and the direct or indirect observation of price in the market.

• Third level: Financial assets and liabilties are valued by the input that does not reflect an actual data observed in the market

while finding the fair value of an asset or liability.

Financial assets and liabilities, which are presented in their fair values, level reclassifications are as follows:

Fair value level

as of the reporting date

31 December Level 1 Level 2 Level 3

Financial assets 2009 TL TL TL

Financial assets at fair value through

profit or loss

Derivative instruments 43.196.250 - 43.196.250 -

Financial assets subject to

hedge accounting


Total 47.298.370 - 47.298.370 -

Financial liabilities

Financial liabilities at fair value

through profit or loss


Financial liabilities subject to

hedge accounting


45.232.172 - 45.232.172 -


Derivative Instruments and Hedging Transactions (cont’d)

In order to hedge important operations and cash flows in the future against financial risks, Group made interest rate swap

contracts to convert some of the fixed-rate finance lease liabilities into floating rate and cross-currency swap contracts to convert

Euro-denominated finance lease liabilities into US Dollars.The changes in the fair values of those derivative instruments are

directly accounted in the income statement for the period.

The floating-rate financial liabilities of the Group are explained in b.3.2. Beginning from June 2009, in order to keep interest costs

at an affordable level, considering long-term finance lease liabilities; Group made fixed-paid/floating-received interest rate swap

contracts to fix interest rates of finance lease liabilities whose maturities are after the second half of 2010 and account for

approximately 76 % of floating rate USD and Euro denominated liabilities. Effective part of the change in the fair values of those

derivative instruments which are subject to hedge accounting for cash flows risks of floating-rate finance lease liabilities are

accounted in cash flow hedge fund under the shareholders’ equity.

Beginning from September 2009, in order to control risk arising from fluctuations in price of fuel which is approximately 30% of

cost of sales as of 31 December 2009 and to lessen the effects of fluctuations in oil prices on fuel expenses, the Group began

hedging transactions for approximately 10% of annual jet fuel consumption in 2009 . For this purpose, the Group made forward

fuel purchase contracts settled on cash basis. Effective part of the change in the fair values of those derivative instruments which

are subject to hedge accounting for cash flows risks of fuel purchases are accounted in cash flow hedge fund under the shareholders’

equity

Group’s derivative instruments arisen from transactions stated above and their balances as of 31 December 2009 and 31 December

2008 are as follows:









Pozitive fair Negative fair31 December 2009 value value Total

Fixed-paid/floating received interest rate swap contractsfor hedging against cash flow risks of interest rate - (7.130.730) (7.130.730)

Forward fuel purchase contracts for hedging against cashflow risk of fuel prices 4.102.120 (736.175) 3.365.945

Fair values of derivative instruments for hedgingpurposes 4.102.120 (7.866.905) (3.764.785)

Cross-currency swap contracts not subject to hedgeaccounting 15.596.383 (8.935.528) 6.660.855

Interest rate swap contracts not subject to hedgeaccounting 27.599.867 (28.429.739) (829.872)

Fair values of derivative instruments not for hedgingpurposes 43.196.250 (37.365.267) 5.830.983

Total 47.298.370 (45.232.172) 2.066.198

Pozitive fair Negative fair31 December 2008 value value Total

Fixed-paid/floating received interest rate swap contractsfor hedging against cash flow risks of interest rate - - -

Forward fuel purchase contracts for hedging against cashflow risk of fuel prices - - -

Fair values of derivative instruments for hedgingpurposes - - -

Cross-currency swap contracts not subject to hedgeaccounting 5.068.203 (4.741.776) 326.427

Interest rate swap contracts not subject to hedgeaccounting 34.530.956 (39.618.559) (5.087.603)

Fair values of derivative instruments not for hedgingpurposes 39.599.159 (44.360.335) (4.761.176)

Total 39.599.159 (44.360.335) (4.761.176)



Hedging against Hedging against

fuel risk interest risk Total

Increase/(decrease) in fair values of derivative

instruments for hedging purposes 3.365.945 (7.130.730) (3.764.785)

The amount of financial expenses inside hedge funds - 2.165.655 2.165.655

Reclassified amount for inactive part in the risk elimination

of fair value of hedging gains of fuel hedging derivative

instrument to financial revenues (590.031) - (590.031)

Total 2.775.914 (4.965.075) (2.189.161)

Deferred tax (555.183) 993.015 437.832

Hedge fund as of 31 December 2009 2.220.731 (3.972.060) (1.751.329)

40. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

The Board of Directors decided to purchase 14 of A321-200 and 6 of A319-100 aircrafts to be delivered in 2011 and 2012; and to order

at option 10 of A319/A321 aircrafts to be delivered in 2013.

The Board of Directors, having 49% of the shares of Bosnia Herzegovina Airlines, approved the decision a capital increase by 8.000.000

–KM. In accordance with this decision, the “Corporation” will pay for its share in this capital increase in cash.

The Board of Directors decided to lease 2 of B737-700 aircrafts which are to be delivered by March and April 2010.

The Board of Directors decided to purchase 10 of B737-800 and 10 of B737-900ER aircrafts from Boeing Company to be delivered

between 2011 and 2014. The Board of Directors also decided to order at option 15 of B737-800/B737-900ER aircrafts to be delivered

between 2013 and 2015.

The Board of Directors decided to lease 1 of B737-700 aircraft to be delivered by March 2010.

The Board of Directors decided to increase authorized capital from TL 500 million to TL 2 billion and to include the following matters

into Articles of Incorporation: to establish training institutions related to fields of activities of the Corporation and to make donations

and financial aid in compliance with regulatory provisions. The Board of Directors made an application to Capital Markets Board.







41. OTHER ISSUES AFFECTING FINANCIAL STATEMENTS MATERIALLY OR NECESSARY TO MAKE FINANCIAL STATEMENTS SOUND,INTERPRETABLE AND UNDERSTANDABLE

The Board of Directors approved and authorized to issue the consolidated financial statements on 5 April 2010.

In compliance with Capital Markets Board (“CMB”) Communiqué Serial: XI No: 29, the Group restated the previous periods’financial statements due to the changes in presentation and classification of financial statement items in order to maintaincomparability. The changes have no material impact on the shareholders’ equity and net profit / (loss) of the previous periods.The significant classifications are as follows:

In the balance sheet as of 31 December 2008, TL 4.761.176 in “Other Financial Liabilities” is the offsetted amount for the “fairvalue of derivative instruments”, whereas it is presented separately in the balance sheet as of 31 December 2009 as TL 39.599.159in “Financial Assets” and TL 44.360.335 in “Other Financial Liabilities.

‘Advances received for milage credit sales’ item, which was stated under ‘Other receivables and payables’ and amounting to TL45.587.172 in the balance sheet as of 31 December 2008, is now classified under ‘Other short term liabilities’.

‘Special costs’ item, which was stated under ‘Intangible assets’ and amounting to net book value of TL6.534.527 in the balancesheet as of 31 December 2008, is now classified under ‘Tangible assets’.

The Group reconsidered the depreciation accounting method of its aircrafts, spare engines and simulators, which are subject toimpairment while preparing the financial statements for the year ended at 31 December 2009. In previous years, the Group madedepreciation calculation over cost value impairment according to paragraph of 63 th in the International Accounting Standard36 "Impairment of Assets"; after the recognition of impairment loss, the depreciation charge for the asset is adjusted in futureperiods to allocate the asset’s revised charging amount, less its residual value, on a systematic basis over its remaining usefullife. The mentioned change does not lead to a change in balance sheet items, equity and net profit for the year, however, led toa reclassification between “Depreciation expense for the year” and “Provision for impairment loss for the year”. Thus, 2008financial statements were restated based on International Accounting Standard 8 “Changes and Inaccuracies in AccountingPolicies and Accounting Predictions” (“IAS 8). Because of this change, “Depreciation expense” under “Cost of sales” item decreasedby TL107.560.793 and “Real increase in provision for impairment in value of tangible assets” increased by the same amount

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