• High level of uncertainty regarding fuel price and unit revenue due to geopolitical context and industry capacity environment
• Impact of fuel savings on P&L expected to be significantly offset in the coming quarters by downward pressure on unit revenue and negative currency impacts
• Continued progress in unit cost reduction targeted around 1% in 2016
• Free operating cash flow generation after disposals between 0.6 billion euros and EUR 1.0 billion euros in 2016
• Further significant net debt reduction

The Board of Directors of Air France-KLM, chaired by Alexandre de Juniac, met on May 3^rd 2016 to examine the accounts for the First Quarter of the Financial Year 2016.

Key data

* Servair reclassified as discontinued operation.

The consolidated financial statements of the Group have been revised as of 1^st January 2016 in order to reflect Servair as discontinued operations. The 2015 financial statements have been restated accordingly. Details of this restatement can be found in the appendix of this press release.

First Quarter 2016 total revenues were stable at 5.6 billion euros versus First Quarter 2015, down 1.3% excluding the impact of currency (like-for-like).

Currencies had a positive 95 million euro impact on revenues versus First Quarter 2015, primarily driven by the strengthening of the US dollar against the euro partly offset by the weakening of other currencies. The negative impact on costs reached 174 million euros, including a lower tailwind from currency hedging compared to the First Quarter 2015. In the First Quarter 2016, the net impact of currencies thus amounted to a negative 79 million euros.

Total operating costs were 4.9% lower year-on-year and down 7.6% on a like-for-like basis. Ex-fuel, they increased by 2.0% and by 0.3% on a like-for-like basis. Unit cost per EASK was down 1.3%, on a constant currency and fuel price basis, with a stable capacity measured in EASK (+0.3%).

Total employee costs including temporary staff were up 0.8% to 1,844 million euros. In addition, the Group recorded under “other non-current income and expenses” a 146 million euro provision for a Voluntary Departure Plan targeting 1,600 full time equivalent positions.

The fuel bill amounted to 1,096 million euros, down 25.9% and like-for-like down 30.5%. Based on the forward curve at 22 April 2016, the Full Year 2016 fuel bill is expected to reach 4.6 billion euros4[1]

EBITDAR amounted to 531 million euros, a reported increase of 307 million euros. Like-for-like, EBITDAR increased by 371 million euros. Over the First Quarter 2016, 55% of the savings achieved on the fuel bill were retained. The positive fuel price effect of 450 million euros was partially offset by pressure on unit revenues (negative 119 million euros) and currency impacts (negative 79 million euros).

EBITDA amounted to 266 million euros, an increase of 292 million euros. Like-for-like, EBITDA increased by 370 million euros, mainly as a result of the strong Passenger network performance, which improved by 356 million euros like-for-like over the first quarter.

* Servair reclassified as discontinued operation.

First Quarter 2016 EBITDA improved by 179 million euros like-for-like at Air France and 196 million euros like-for-like at KLM. EBITDA margins were up at both airlines, reaching 4.2% at Air France and 5.5% at KLM.

* Servair reclassified as discontinued operation.

The operating result stood at -99 million euros versus -417 million euros, a 318 million euro improvement. Like-for-like, the operating result increased by 397 million euros.

The net result, group share stood at -155 million euros against -559 million euros a year ago.

At 31 March 2016, the trailing 12 months return on capital employed (ROCE) was 11.2%, up 6.0 points compared to 31 March 2015.

Passenger network5 business

First Quarter 2016 total passenger network revenues amounted to 4,473 million euros, up 1.2% and down 0.2% like-for-like. The operating result of the passenger network business stood at -18 million euros, versus -322 million euros over the First Quarter 2015. Like-for-like, the operating result improved by 375 million euros.

The Group maintained its strict capacity discipline, growing the total passenger network capacity during the First Quarter 2016 by 1.1%, while increasing the average loadfactor by 2.0 points to 84.5%. The traffic increased in all regions of the network, except Asia following the planned reduction in capacity. Unit revenue per Available Seat Kilometer (RASK) remained volatile, down by 1.3% overall on a like-for-like basis in the First Quarter.

Cargo business

The Group continued to restructure its cargo activity to address the weak global trade and structural air cargo industry overcapacity. During First Quarter 2016, full-freighter capacity was reduced by 32%, while belly capacity increased by 0.7%, leading to a decrease in total capacity of 8.1%. Revenue per Available Ton Kilometer (ATK) was nevertheless down by 10.8% like-for-like, reflecting the industry overcapacity, especially on flows from Asia to Europe.

The operating result stood at -50 million euros, an improvement of 16 million euros like-for-like.

Within the framework of Perform 2020, 1 MD-11 freighter was retired during the First Quarter, down to 8 full-freighters in operation. The Group plans to operate only 5 full-freighters by the end of 2016.

Maintenance business

First Quarter 2016 third party maintenance revenues amounted to 431 million euros, up 13.4% and by 7.0% like-for-like. Revenues benefited not only from the strong dollar, but also from the contracts gained in previous years. The operating margin remained stable as a result of change in business mix from mature contracts to new growth, OEM supply chain under pressure in the engine business and labor costs inflation due to the profit sharing scheme.

The operating result stood at 38 million euros, up 3 million euros year-on-year, and stable like-for-like.

Over the period, the Group recorded a further 4% increase in its order book to 8.7 billion dollars with new contracts for CFM engines and first A350 total support contract.

Transavia

In the First Quarter 2016, Transavia capacity was up by 8.4%, reflecting the accelerated development in France (capacity up by 18.6%). Traffic rose by 8.2%. Unit revenue per ASK decreased by 0.7% and with increased capacity, total revenues increased to 160 million euros, up 9.6%.

Unit costs were down 5.3%. At constant currency and stage length, the unit costs decreased by 11.7%. The operating result improved by 6 million euros to reach -63 million euros.

Financial situation

* Servair reclassified as discontinued operation.

In the First Quarter 2016, the increase of 292 million euros in EBITDA resulted in a cash flow before change in WCR and cash out related to Voluntary Departure Plans of 255 million euros. The Group disbursed 39 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 524 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 544 million euros. As a result, operating free cash flow improved by 242 million euros.

Net debt amounted to 4.16 billion euros at 31 March 2016, versus 4.31 billion euros at 31 December 2015. The trailing 12 months adjusted net debt / EBITDAR ratio stood at 3.0x at 31 March 2016, an improvement of 0.4 points compared to 31 December 2015, and 0.8 points compared to 31 March 2015.

The 35 basis points fall in discount rates (for period > 20 years) during First Quarter 2016 led to another significant increase in the actuarial valuation of retirement obligations of more than 1.3 billion euros. The change in asset value amounted to 325 million euros during the First Quarter. The balance sheet pension situation thus moved from a net liability of 177 million euros at 31 December 2015 to a net liability of 1,164 million euros at 31 March 2016.

At 31 March 2016, equity, group share, amounted to -510 million euros, down 783 million euros over the quarter due to the strong seasonality of results (net result of -155 million euros) and an increase of 753 million euros in after tax net pension liability. The change in fair value of the fuel hedging portfolio had a positive impact of 178 million euros over the quarter.

Outlook

The global context in 2016 remains highly uncertain regarding fuel prices, the continuation of the overcapacity situation on several markets and the geopolitical and economic context in which we operate. As a consequence, the Group expects the forecasted savings on the fuel bill to be significantly offset in the coming quarters by unit revenue pressure and negative currency impacts.

Under these conditions, the Group is maintaining its expectations for 2016:

• Free operating cash flow generation after disposals between 0.6 billion euros and 1.0 billion euros. The 2016 investment plan (between 1.6 billion euros and 2.0 billion euros) and disposals programme (between 0.2 billion euros and 0.5 billion euros) will be adjusted depending upon operating cashflow generation
• 2016 unit cost reduction target around 1%
• Further significant reduction in net debt

4 2016 average Brent price of USD 43, average jet fuel price of USD 409 per metric ton, average exchange rate of 1.10 USD per euro for period april-december 2016

5 Air France, KLM and HOP!. Transavia is reported in its own business segment.

1. Revenues of 5.7 billion euros, up 1.8%
2. EBITDAR[1] of 229 million euros, an improvement of 62 million euros
3. EBITDA1 of -21 million euros, an improvement of 29 million euros
4. Operating result of -417 million euros, an improvement of 109 million euroslike-for-like[2]
5. Net negative currency impact of 81 million euros on operating result
6. Net debt¹ of 5.28 billion euros, down 127 million euros compared to 31 December 2014, and down to 4.68 billion euros including April 2015 hybrid bond issuance
7. Adjusted net debt / EBITDAR ratio[3] of 3.7x, an improvement of 0.5 compared to 31 March 2014

FULL YEAR 2015 OUTLOOK: OBJECTIVES MAINTAINED

1. Unit cost¹ reduction target of 1 to 1.3%
2. Significant reduction of net debt, from 5.4 billion euros at end 2014 down to around 4.4 billion euros at end 2015, in part as a result of the April 2015 hybrid bond issuance

[1] See definition in appendix

[2] Like-for-like: excluding currency. Same definition applies in rest of press release

[3] Trailing 12 months, adjusted for September 2014 pilot strike impact and April 2015 hybrid bond; see definition in appendix

KEY DATA

The consolidated financial statements of the Group have been revised as of 1^st January 2015 in order to improve their legibility. The changes are:

• In view of its rapid development, Transavia is now presented as a separate business segment. The passenger business segment is thus renamed from “passenger” to “passenger network”.
• Capitalized production costs are no longer deducted from individual cost lines in the profit and loss statement, but are instead fully allocated to the “other income and expenses” line. The impact per quarter of this restatement is provided in appendix.

First Quarter 2015 total revenues stood at 5.7 billion euros versus 5.6 billion euros in First Quarter 2014, up 1.8%, but down 2.4% like-for-like.

Currencies had a positive 239 million euro impact on revenues, primarily driven by the strengthening of the US dollar against the euro. In spite of higher profits on currency hedging, the negative impact on costs reached 320 million euros. It was larger considering the bigger share of costs than revenues in US dollars, and considering the fact that a sizeable portion of First Quarter 2015 revenues were booked in 2014 at a time when the dollar was weaker. In the First Quarter 2015, the net impact of currencies thus amounted to a negative 81 million euros.

Total operating costs were 1.2% higher year-on-year and down 3.9% on a like-for-like basis. Ex-fuel, they increased by 3.3% and by 1.5% on a like-for-like basis. Unit cost per EASK was stable, on a constant currency, fuel price and pension-related expense basis, against stable capacity measured in EASK (+0.1%).

The fuel bill amounted to 1,480 million euros, down 4.7% and like-for-like down 17.6%, on the back of a 20.3% reduction in jet fuel price after hedging and of a 15.6% negative currency impact. Based on the forward curve at 17 April, the Full Year 2015 fuel bill is expected to reach 6.6 billion euros4[1]. Based on the same forward curve, the Full Year 2016 fuel bill could amount to 6.1 billion euros4.

Total employee costs including temporary staff were up 2.1% to 1,920 million euros. They included a non-cash increase of 31 million euros in pension-related expenses at KLM due to changes in actuarial assumptions (lower discount rate). On a constant scope and pension-related expense basis, they were flat (+0.3%). In addition, the Group recorded under “non-current income and expenses” a 56 million euro provision for the Voluntary Departure Plan targeting 800 positions that was announced in February.

EBITDAR amounted to 229 million euros, an improvement of 62 million.

4 2015 average Brent price of USD63, average jet fuel price of USD608 per metric ton, average exchange rate of 1.10 USD per euro. 2016 average Brent price of USD69, average jet fuel price of USD663 per metric ton, average exchange rate of 1.10 USD per euro.

EBITDA amounted to a negative 21 million euros, an increase of 29 million euros. On a like-for-like basis, EBITDA improved by 91 million euros. The Passenger network had the largest contribution to the improvement of EBITDA, up 58 million euros, whereas cargo EBITDA decreased by 30 million euros. At 85 million euros, maintenance achieved a good performance on EBITDA level, up 9 million euros.

The operating result stood at -417 million euros versus -445 million euros in 2014, a 28 million euro improvement. Like-for-like, the operating result increased by 109 million euros.

The net result, group share stood at -559 million euros against -608 million euros a year ago. It included notably the non-current result related to the capital gain on the sale of Amadeus shares (+218 million euros), partly offset by the change in value of the fuel hedging portfolio (-26 million euros) and the unrealized foreign exchange loss (-143 million euros). On an adjusted basis, the net result, group share stood at -504 million euros against -485 million euros in First Quarter 2014, a 19 million euro decrease.

At 31 March 2015, the trailing 12 months strike-adjusted return on capital employed¹ (ROCE) was 5.6%, up 1.6 point compared to 31 March 2014.

PASSENGER NETWORK BUSINESS

First Quarter 2015 total passenger network revenues amounted to 4,421 million euros, up 1.3% and down 2.0% like-for-like. The operating result of the passenger network business stood at -322 million euros, versus -378 million euros over the First Quarter 2014. Like-for-like, the operating result improved by 132 million euros.

The Group maintained its strict capacity discipline, keeping total passenger network capacity stable (+0.1%). Unit revenue per Available Seat Kilometer (RASK) remained volatile, down by 2.3% on a like-for-like basis in the First Quarter. On the long-haul network, unit revenue was affected by the expected capacity-demand balances reflected in the unit revenue performance of the different parts of the network: good performance on North America and the Caribbean & Indian Ocean, weaker performance on the Latin American network on the back of a weak economic environment in several key markets, whereas the capacity-demand balances put pressures on both Eastern-Africa and Asia networks.

As planned, short and medium-haul point-to-point capacity (excluding the Paris and Amsterdam hubs) was further reduced by 11.8%, leading to a significant improvement in unit revenue of +9.6% like-for-like, whereas for hub-related short and medium-haul traffic, unit revenues were down -1.4% like-for-like.

CARGO BUSINESS

The Group continued to restructure its cargo activity to address the weak global trade and structural air cargo industry overcapacity. During First Quarter 2015, full-freighter capacity was reduced by 9.6%, while belly capacity increased by 1.2%, leading to a decrease in total capacity of 1.9%. Revenue per Available Ton Kilometer (ATK) was nevertheless down by 11.3% like-for-like, reflecting the structural industry overcapacity, especially on flows from Asia to Europe.

The operating result stood at -63 million euros, a decrease of 15 million euros like-for-like.

Within the framework of Perform 2020, 3 Boeing 747 were retired in the Winter 2014-15 season, while another 5 MD11s will be retired by the end of the Winter 2015-16 season. The Group plans to operate only 5 full-freighters by the end of 2016. This reduction should enable the full-freighter business to return to operating breakeven in 2017 (versus a strike-adjusted loss of around 95 million euros in 2014).

MAINTENANCE BUSINESS

First Quarter 2015 third party maintenance revenues amounted to 380 million euros, up 31.0% and by 13.8% like-for-like. Revenues benefited not only from the strong dollar, but also from the contracts gained in previous years and from weak comparables in Q1 2014. In the quarter, the Group performed its first GEnx engine overhaul.

The operating result stood at 35 million euros, up 13 million euros year-on-year, and down 2 million euros like-for-like.

Over the period, the Group recorded a further 5% increase in its order book to a record high 5.9 billion euros, including several new B787 component support contracts. The Group further expanded its service portfolio with an investment in a US engine parts trading business.

TRANSAVIA

In the First Quarter 2015, Transavia capacity was up by 5.1%, reflecting the accelerated development in France (capacity up by 48%) partly offset by seasonal capacity adjustments in the Netherlands (capacity down 7.5%). Traffic rose by 7.1%. The load factor remained high (87.9%, up 1.7 point) despite the increase in capacity. Unit revenue per ASK increased by +0.7% despite the increase in capacity, resulting in total revenues of 146 million euros, up 5.0%.

Unit costs were up 4.3% on the back of the stronger US dollar, a shorter stage length, ongoing ramp-up investments in France, and the seasonal capacity adjustments performed in the Netherlands.

The operating result was thus down by 11 million euros to reach -69 million euros.

The development of Transavia will further accelerate in 2015: on top of a 30% capacity increase to serve 44 destinations from France, Transavia is launching a new brand identity, a new web site, implementing a tighter integration with Flying Blue, and has recently ordered 20 Boeing 737s.

OTHER BUSINESS: CATERING

In the First Quarter 2015, third party catering revenues amounted to 75 million euros, up 2.7%.The operating result stood at -1 million euros, up 3 million euros.

FINANCIAL SITUATION

In the First Quarter 2015, the increase of 29 million euros in EBITDA translated into a 27 million euro improvement in cash flow before change in WCR and cash out related to Voluntary Departure Plans. The Group disbursed 30 million euros for Voluntary Departure Plans. The change in Working Capital Requirement contributed 477 million euros to operating cash flow. Net investments before sale & lease-back transactions stood at 350 million euros. As a result, operating free cash flow improved by 43 million euros.

The operating free cash flow does not include free cash flow from financial investments, including the cash-in of 327 million euros from the sale of Amadeus shares in January.

Net debt amounted to 5.28 billion euros at 31 March 2015, versus 5.41 billion euros at 31 December 2014. Currencies had a significant 175 million euro negative impact on net debt. After issuance of an hybrid bond in April, net debt would stand at 4.68 billion euros at the end of First Quarter 2015.

Excluding the impact of the pilot strike on EBITDAR and including the hybrid bond issued in April, the trailing 12 months adjusted net debt / EBITDAR ratio stood at 3.7x at 31 March 2015, down 0.3 points compared to 31 December 2014, and 0.5 points compared to 31 March 2014. In parallel, a 661 million euro convertible bond was reimbursed on 1^st April, reducing the diluted share count by more than 70 million shares to 370 million shares.

Despite strong returns on pension plan assets and the positive impact of the changes in Dutch fiscal rules on pensions, the 70 basis point fall in discount rates during First Quarter 2015 led to another significant increase in the actuarial valuation of retirement obligations. The balance sheet pension situation thus moved from a net liability of 710 million euros at 31 December 2014 to a net liability of 1,051 million euros at 31 March 2015.

At 31 March 2015, equity, group share, amounted to -1,515 million euros, down 844 million euros over the quarter due to the strong seasonality of results (net result of -559 million euros) and an increase of 257 million euros in after tax net pension liability. The change in fair value of the fuel hedging portfolio had a limited impact over the quarter. At 31 March 2015, the fair value of the fuel hedging portfolio remained however strongly negative, at around -1.3 billion euros. This level of equity does not take into account the 600 million euro hybrid bond that was issued in April.

The Group continues to enjoy a good level of liquidity, with net cash² of 3.5 billion euros at 31 March 2015, and undrawn credit lines of 1.77 billion euros. At the end of April, the Group renewed some of its credit lines for an amount of 1,100 million euros with a wide pool of international banks. In addition, in January 2015, the Group received net proceeds of 327 million euros on the sale of Amadeus shares, and it issued a 600 million euros hybrid bond in April.

OUTLOOK

All the operational initiatives planned within the framework of the new strategic plan Perform 2020 are being deployed.

In parallel, negotiations with unions on labor productivity are ongoing.

As demonstrated in the First Quarter, almost all of the expected savings on the fuel bill could be offset by unit revenue pressure and negative currency impacts.

For Full Year 2015, the Group maintains its key targets:

• unit cost reduction of 1 to 1.3%
• net debt around 4.4 billion euros at the end of 2015