Air France-KLM S.A.

Pierre-Francois Riolacci - CFO Bertrand Delcaire - IR

Jarrod Castle - UBS Damian Brewer - RBC Neil Glynn - Credit Suisse Michael Kuhn - Societe Generale Andrew Lobbenberg - HSBC

Thank you Janique. This is Pierre-Francois speaking.

Good morning all of you. Just before I start, I will ask Bertrand to make sure that you all can get at the presentation on the website.

Yes, indeed. We just noticed the presentation is admitted and in the -- on the website.

So to locate the presentation, you need to go to the home page. And then on the home page you will find Q1, 2015 results with a button, discover, on which you can click and then you can see all three elements, the press release, the presentation and the full detailed statements.

So you should locate it all and of course it will show on the results page later on; sorry about that.

Thank you Bertrand. So thank you for attending this call on the first quarter.

You know that the first quarter of the year definitely is, usually is the worst one. But despite this seasonal effect, we post a quarter which is not the worst that we have posted over the last few years.

We benefit from a topline which is up with a clear ForEx tailwind. Operational KPIs are up and the net debt is down.

When you look at the overview of the first quarter 2015, that is page 2 for those who can get at the presentation, the key takeaways are the following. First we had the contrasted demand, with a few good markets especially in the US which is quite related to the stronger dollar that we benefit from.

European markets are more or less idle, especially France. And we some markets which are under pressure on the back of the economy, mainly Brazil and, more generally, everywhere where -- every routes which are related to oil and gas destinations.

We had a political background that was rather negative, with East Africa unrest, the terrorist attacks in France in January that hurt the Japanese market. But also the Ebola impact in Africa that is now stabilizing and hopefully will fade away throughout the next months.

The second takeaway is definitely the very high level of volatility in fuel price and ForEx. You are all aware; just to give you an idea, on the basis of pure market prices, without hedging, the jet fuel price would be down 42% in US dollars and 30% in euros.

So that's a very significant swing. However we have been consistently implementing the strategy through the quarter.

That's true for project upgrade. Further the fleet, long haul fleet will be upgraded at the end of June.

We are moving on on the [full factor] of restructuring. We are selective where we go in the long haul with strong capacity discipline, further restructuring of networks.

We are growing Transavia capacity 48%, passengers up 56%. And we've been active also on the balance sheet, both in terms of debt management but also disposing of part of our shares in Amadeus.

So a very active first quarter. If you look at the key datas, I will elaborate on the numbers, but the first one is that our revenues at €56 million is up 1.8%, but it is down 2.4% like for like.

The ForEx impact for the quarter is plus €240 million; that's a significant headwind as you [indiscernible]. As you can see, there are a lot of green arrows on this table.

And the adjusted net result, which is slightly down €19 million, is linked to a basis of comparison on discounting of provisions in the third quarter 2014, but also on the premiums that we have paid to buy some call options on the fuel to protect the second half of the year. The debt is down at €5,280 million, on the back of the Amadeus share disposal for €327 million, but I will come back on it.

We had a reasonably good cash flow for the first quarter in 2015. And this number you will see is before the hybrid issuance of €600 million that was closed in the first half of April.

Now if we move a bit further in the numbers and that's page 4. We had a very significant currency impact.

As a reminder, you know that 25% of the revenues are in US dollar or related currencies. Another 25% revenues are linked to other currencies.

And they are spread over a large number of currencies; the main ones, the top five being the British pound, the yuan, the Japanese yen, the Canadian dollar and the Swiss franc, these top five accounting for about 14% out of this 25%. But we have, on the other side, 42% of our costs which are in US dollar; a large part of it, more than two-third being from -- related to fuel.

The rest is aircraft and maintenance. So we don't like [some] US dollar you know, but we like [indiscernible].

In the first quarter the positive impact on revenues was €240 million, two-third of it out of the passenger business, the rest coming from cargo and MRO. And on the cost €320 million.

The larger impact, the negative impact that we have in Q1 is [indiscernible] because you need to bear in mind that 30%, the third of the sales that we have recognized based on transportation of passenger in the first quarter of 2015 were actually booked during the second half of 2014. So they are showed in our accounts at the currency rate of that time.

So we have a softer backlog that will come later in the year and we should see the impact on revenues being a little better from H2. So that's for the currency impact.

If you go to the big numbers of each of the business, I won't comment all of them. Just again on the revenues you see on the passenger network that the impact of the stronger capacity discipline with the ASK plus 0.1%.

If you take all over the unit revenue as a Group, all businesses being mixed, the unit revenue is down 3.5%. Minus 2.3% for the passengers but also minus 11% for cargo.

I should highlight then on the PAX business, on the passenger business, we have been helped by the month of March which was due to calendar effect, quite stronger amounts, based on the Easter vacations compared to last year. So March was a good month and this minus 2.3% on passengers includes this positive impact that we expect to be reverted in April.

We benefited also during the first quarter with a strong MRO growth, plus its positive natural exposure to US dollar. At operating result level, we see an increase like for like of a bit more than €100 million.

It's obviously coming from the passenger business, with significant tailwind in the business of the fuel price. The poor -- the performance of cargo is definitely poor, despite good unit cost increase.

And we see a growing pressure on unit revenues in cargo. I will elaborate a bit on what we should expect for the rest of the year.

Margins in E&M are stable despite the strong growth of the business. And we have some ramp-up costs in Transavia that hit the P&L, but it is fully in line with expectations.

If we move to passenger business, again I would like to highlight the capacity discipline, plus 0.1%. Again very selective; long haul is up by 0.5%, medium haul hub is down by 1.7% and point-to-point is down by 11.8% so that you know that 2015 is the last year of significant restructuring of the point-to-point network, especially in regional cities in France.

There is still some pressure on the unit revenues, minus 2.3%. And so despite the favorable calendar impact in March of Easter vacations, the long haul unit revenue is down 3.3%.

And I will elaborate on the different areas of the network, but as a general trend you will see that premium are rather more resilient than the economy. It's a trend that we have already in the past.

And all this reflect the imbalance between supply and demand that we have on some part of the network. The CASK is down 5.1%, driven by the fuel cost.

And you will see that the unit cost, excluding ForEx, fuel and pension, is flat on the quarter. If you go page 7 for the trend, you will see that the capacity discipline has been reinforced over the last six months.

And we will carry on being very selective and looking carefully our network. And we will be scrutinizing the evolution and the variation of the unit revenues in the coming months to see what should be done possibly during the next winter season.

For the full year we expect the new-add capacity to be up more than 1%, that's our current vision. You see in the unit revenue development that since Q3 last year we are under pressure.

And it's actually rather encouraging; this was expected and this is in line with our previous guidance on unit revenue development. Moving to the network in the different regions, on long haul I would like to highlight that we see very contrasted development.

Overall ASK are up 0.5% with unit revenue down 3.3%. But you have some very strong part of the network which account for about 40% of it; that's North America and Caribbean and Indian Ocean.

North America capacity is up 1.9%, where unit revenue is up 2.2%. And Caribbean and Indian Ocean ASK are down 0.3%, where unit revenue is up [2.3%].

But there are the other part of the network which account for about 60% of the long haul which are under pressure. And South America, despite very strong capacity discipline in this first quarter we see still some pressure on the unit revenue, minus 6.7%.

We are still a bit hit by Caracas for 45 days because we start in February 2014 starting selling ticket locally in Venezuela. So now it's easing, but in the first quarter we still have some impact.

But the main takeaway is definitely Brazil where we see a poor market today with the point-of-sale Brazil which is quite low. On Asia we have grown capacity by 1.6%.

And unit revenue is down 6.5%. Definitely we see here the over-capacity in South Asia, South East Asia.

And on the top of it a weak Japanese market on the back of the terrorist attack in January that didn't help at all. And we have some significant cancellation of flights following these events.

In Africa we decreased capacity by 1.8%. Unit revenue is down 6.5%.

Obviously the demand is being hurt by the political unrest in the eastern part of Africa, by Ebola , by weaker oil routes. But we see also increased capacity from the Gulf carriers, especially in the eastern part of Africa.

Very strong point that I want to highlight is the point-to-point restructuring. You see that we've cut capacity heavily, but you see also that unit revenue is up close to 10% with the load factor improving further to 66.2%.

So definitely we are successful in restructuring this point-to-point operation. On the medium haul we've been optimizing the network and reducing the capacity by 1.7%.

We post a slight increase of unit revenues, 0.8%, despite a lower lag of long haul contribution. Moving to cargo, we post numbers which are quite disappointing, Despite ongoing restructuring efforts, the full freighter capacity is down 9.6%.

Today you have only two 777 operating in [indiscernible]. The capacity is down 1.9% including you see the belly's contribution.

And despite this decreased capacity, we managed to decrease the cost RATK 9%, taking obviously advantage also of the lower fuel price. However the operating environment is still disappointing.

There is demand in the world for cargo, good demand. It's less attractive in the European markets, as you know.

And also we have a lot of competition still moving in and the unit revenue is down 11.3% like for like, both with a lower load factor and a share on the yields including some pressure from customers to decrease the fuel surcharges since the beginning of the year. So definitely pressure on the cargo business.

We are now starting the restructuring in Schiphol. You know that we have 5 MD11 that will exit the fleet from now to the next 12 months; so summer 2016.

We plan some improvement in the trend of unit revenues, so the deterioration of unit revenues should slow a bit in the next few months on the back of this restructuring of network. But still a lot of uncertainty on this market.

We have ongoing discussion with Nuance on this restructuring. You know that you have some jobs that will disappear; more than 300 on ground and 120 jobs for pilots in Martinair.

Going to maintenance, page 10, it's obviously a very different outlook. Revenues benefit from the strong exposure of -- to US dollars.

But even like for like, revenues are up by close to 14%; that's a strong double-digit growth in engines and in components. The full year should be lower than that and more in line with high single-digit growth, but still definitely good organic growth on that business on top of the ForEx impact.

The backlog then is hitting a new record at €5.9 billion. I should highlight that this backlog is computed with historical rates of US dollar, which means that we have, on the top of it, an upside based on the stronger dollar that will flow in the revenues in the future.

New significant wins in this quarter with Royal [Emirates], Thai Airways, so definitely a business which is doing well in this beginning of the year. Hopefully it will continue.

The impact on the ForEx is accretive on margins, because we have about 30% of our costs which are euro based. So we are quite happy with the development of the business, especially due t5o this US dollar exposure.

On Transavia, page 11 of the presentation, you see that the capacity is up 5%, with an improved load factor at 1.6% and a number of passengers up 12%. The RASK, the unit revenue is flat, but with two very different stories.

I will come back to it. Same for the CASK which is up by 4%.

I should mention immediately that the CASK, excluding fuel, excluding ForEx and stage lengths adjusted, because we have decreased the stage lengths with the growth of Transavia France, is flat. It is fully in line with the business plan.

And if you want to understand better numbers, you need to dissociate and separate the Netherlands and France. Transavia Netherlands, which is by far still the first business of Transavia, it's more than two-thirds of our ASK and revenues, is moving on, shifting its model towards more B2C and low cost [indiscernible] customers, their exposure.

The ASK ends the quarter at down 8% with a sharp reduction of charters, but also some seasonal adjustment that you will not find further down the year. Therefore the unit revenue is up 5% and the CASK is up, stage lengths adjusted, excluding fuel, 12%, but this is also a trend that you will not see during the rest of the year.

Transavia France strong growth, I must say, with capacity up 48%. The RASK stage lengths adjusted is down 8%.

And the CASK, stage lengths adjusted excluding fuel, is down 5%. So again we are fully on line with our budget expectation on Transavia which is developing and shifting its model respectively in France and Netherlands.

If you look at the cost during this first quarter 2015, I will come back on the fuel and employees cost. I would like to highlight on this page 12 two things.

First, the suppliers cost are up 0.7%, excluding ForEx. And within this line we have two different trends.

We have cost which are with, let's say, a low level of competition between our suppliers, as is the case for landing fees, as is the case for handling. And these costs are up by 3% to 6%.

You have catering, which is up by about 2% and this is on the back of our view to increase, to upgrade the product and increase the services to passengers. All other costs, that is about 40% of the cost, are down year on year from 2% to 5%.

Aircraft costs are down 1.4%, excluding ForEx, which is on the back of capacity discipline. And on purchase of maintenance services, you see plus 27% at constant currency, but there is no worry about that.

Half of this increase is linked to our cabin configuration and basically any capitalized maintenance. So it will not flow into the P&L, but it's then added back to capital expenditures.

And this is linked to the strong program, the increases into the strong program of cabin configuration. And the second half of the increase of purchasing of maintenance services and parts is due to the growth of third-party sales in this E&M business.

You remember that in this business, when we generate $100 million of extra revenues, it generates about EUR70 million -- $70 million of cost to third parties as a result of outsourcing and also spare parts buying. If we move page 13 to employee cost.

You see that the headcount is again down quarter to quarter. But I was about to say, only 700 FTs.

You know that we had, at the end of March, very significant leaves in Air France, 1,300. This has happened.

And from the second quarter you will see again a sharp decrease in the headcount of the Group. You note that the pension cost is increased €31 million.

It's in line with what we had said last year and this is on the back of lower discount rates that were recorded in 2014. And this has to be extended for the full year, as you can imagine.

The net change, all in all, is flat. We see some pressure obviously on cost of employees due to CLAs and especially for crews, but we manage to keep the cost per employee basically flat on the quarter.

And, as you know, we have now ongoing negotiation in KLM and also Air France -- for your recent question about it -- from today. When you look at page 14, the variation of the operating income year on year, you see that we still have very strong impact of the fuel price, excluding currency, despite the hedging.

But this is in US dollar. And you see that, as we indicated, most of it has been actually compensated, has been actually transferred to our customers in unit revenue variation.

But also we had this impact of the ForEx minus €81 million. It's fair to say they are still a bit less in this first quarter, that is that we do retain, let's say, about 20% of the benefit of fuel price after hedging, currency and [indiscernible] new development.

The unit cost is flat on the first quarter, with no capacity growth. And you see the increase in pension, minus €31 million, on the right-hand side, which is what I mentioned about discount rate just two minutes ago.

All in all we improve the operating income quarter to quarter by €28 million, at minus €417 million. Maybe just a word on the fuel bill.

To mention that, based on our current assumption, based on the forward curve which is, at the narrow edge, $63 per barrel, we have a $7.3 billion fuel bill for year 2015. It's a decrease of $1.6 billion year on year, which is spread evenly over the year.

Euro converted it is basically flat today; that's what we see. And the decrease is actually fully compensated by the euro/dollar variation for the year.

As you can see, the sensitivity is not that high. And as we are moving on in the year and the hedging is in place, we have no change, as you can see.

For hedging policy I should mention, however, this course that we are about, which are out of the [money], to remit the premium and [indiscernible] of the [money], but which give us an extra protection should the fuel price really increase sharply during the second half of the year. We mention for the first time, first evaluation of what could be the fuel bill in 2016.

Again, based on the current forward curve, which are -- which end up with a number of $6.7 billion, so we see some further impact, hedging fading away, of the lower fuel price in 2016. Just to sum up on the cost, you see that we report a unit cost down 0.4% for the first quarter.

You see on the graph this major impact of the currency and of the fuel price. We mentioned the change in pension-related expense.

And we end up with a net change, excluding pension, fuel, currency, which is basically flat year on year. You know that we have a full-year target of minus 1% to minus 1.3% which is expected to benefit from the transition measures from 2015 that will kick in from H2.

But also two tailwinds that I mentioned already; the first one is that wide capacity was flat during the first quarter. We expect the full year capacity up by more than 1%.

And, two, we have a headcount reduction from April 1 in Air France that will [basically leave] as soon as second quarter. And that will help also boosting the performance in terms of decreasing the unit cost in 2015.

That's it for the P&L and operation. And just a word about cash.

You see that operating free cash is minus €37 million. Slightly negative; it was minus €80 million during the first quarter 2014.

The cash flow is minus €134 million, improving slightly compared to last year, in line with the EBITDA improvement. On the restructuring and voluntary departure plan, it's minus €30 million.

Full year is expected around €120 million. I should mention that we have provided in the non-recurring events, €56 million to cover the cost of the next [leaves] and the new PDV.

But this amount are not expected to be cashed-out significantly in 2015. The working cap is improving by €477 million, so even a bit better than last year.

And this is a very seasonal effect, as you know. We benefit from a reasonable level of pre-paid tickets.

Not bad at all, compared to last year. CapEx, net CapEx are €350 million.

They are in line with our overall guideline for the full year. The gross CapEx is up €50 million year on year, and this is consistent with increase of CapEx that we plan, as you know, for the full year.

In the other dark blue plus €164 million, you have a positive which is the disposal of Amadeus shares of €327 million. But you have also a non-cash item which is a negative ForEx impact on the net debt.

We have some net debt in Swiss francs and in Japanese yen. This net debt is not eligible for hedge accounting because we have basically no asset, but you know that we have strong cash flows, even in this currency.

So, from an economic standpoint, this debt is variable because it gives us protection against currency variation. But accounting wise it triggers a revaluation of debt that is in the plus €164 million.

The debt ends up at €5,280 million at the end of March. And the -- you know we have issued an hybrid for €600 million during the first half of April.

And if you add up the €600 million, then the net debt proforma would be €4,680 million. That's basically the key items on the cash side.

I was mentioning -- and I'm back to page 18. I was mentioning the disposal of Amadeus shares.

The hybrid issue for €600 million. I should mention also yesterday the signing of the RCF of Air France, KLM and Air France for €1.1 billion on the three-year and five-year maturity, half/half, with 13 international banks and covenants which are in line with the previous existing RCF, same sort of conditions.

If you look page 19 to the financial ratios, as you can see, we show you the 2014 ratios strike-adjusted. We show you also at the end of March the ratio based on the last 12 months.

[Restated] on strike, but also proforma with the €600 million hybrid. I think that these ratios, presented like that, give you the best proxy to see what will happen at year end.

And that's why we have [restated both] strike and included the proforma. It seems a good point in that we have come back into that move of reducing our leverage.

And if you take the first -- for me the most important criteria which is adjusted net debt to EBITDAR, you'll see that it is now decreasing to 3.7 at the end of the March based on the restatement that I mentioned. You remember that we were at 5.7 at the end of 2011 and our target at the end of 2017 is to be at 2.5 if indeed [the average] is helping us to close the gap with this target and we'll carry on obviously moving in that direction.

Moving to the full year outlook, there is no breaking news. We stick to what we said in February.

That is that we are moving the implementation of Perform 2020 both on the restructuring, but also on the business. We still expect that most of the savings on the fuel bill will be offset by currency and unit revenue pressure.

And we obviously carry on, we maintain our target both on net debt for about €4.4 billion end of 2015. This has been updated obviously of the €600 million hybrid.

And we maintain our target of 1% to 1.3% unit cost reduction. Thank you very much for listening this long presentation and I'm happy to take your questions.

Good morning, gentlemen. Three questions if I may please.

Firstly, just looking a little bit on the balance sheet, can you give a little bit of an update if there's any plans in terms of how to deal with the pension or is it out of your hands just given what discount rates are doing? And I guess related to that, in terms of shareholder equity it's now a negative €1.6 billion.

Does that have any impact in terms of how you operate the business or any kind of covenants etc. that we have to think about?

And just on the hybrid itself, what would the dilutive impact be should it actually become equity? Or how should we think about that?

Thanks.

On the pensions, you know indeed that we've seen a very significant decrease of long-term interest rates in the eurozone especially in the very long-term [prospects] that increases the defined benefit obligations, the DBO that we recognize in this calculation. I think that there is -- the view that we have is that there is no other remedy than to move to a de-risked pension profile.

And as you know the main exposure of the Group is on the KLM side, where we are in a position which I would say is a sort of luxury situation which is -- at least for this defined benefit plan are actually quite overfunded. However, we see a negative equity move because the net pension assets have been reducing on the back of the increase of the DBO despite the very strong performance on the asset side.

So we are still quite comfortable with the level of non-pension assets which is, if you compare to whatever is known in the rest of the world, in the UK or whatever is a very comfortable position. And even in the Netherlands, KLM is in a very comfortable position.

However, we believe we need to de-risk this pension assets and this pension scheme which basically to a certain extent is very big compared to the size of the Company. So we are in this process and the KLM management is working on it.

And the discussion actually has been started also with unions with that regard. You know that there has been a very significant change in pension regulation in the Netherlands at the very end of last year, coming into effect into 2015.

2015 is a sort of temporary regime and the discussion is expected to close at the end of the year to move in a de-risked profile of this pension scheme. So we'll come back and we'll keep you posted on the development.

You should not expect something significant before summer. But that's something that during the second half will be discussed with the pension [indiscernible].

On the equity it is negative by €1.6 billion. It's difficult to make any statement about what will happen further on the [contracts] to come on the pension fund because until we come to a new agreement we are fully exposed to the discount rate story.

However, you know that the minus €1.6 billion includes the negative result of the first quarter and obviously we expect to book for the full year a much better result on that one. Two, we have the hybrid for €600 million which is another that -- which will come to restore a better equity level.

And three, we have also the negative fair value of the portfolio of derivatives which is significant at the end of the quarter. I think it's about minus [EUR700 million] if you take assets and liabilities.

And part of it, everything being equal, should fade away throughout the year. So the number that you see here subject to further [variation] of the pension should be improving throughout the year.

I can confirm you that there is no covenants whatsoever on equity anywhere. So there is no discussion about it.

And yes, I was mentioning the minus [EUR700 million] in the derivative. As you can imagine, it's on the back of the fuel.

So as the fuel will fade away -- will go into the P&L, the negative hedging will fade away and that's the point. And then on the dilution on the hybrid, the hybrid has no equity content in terms of shares.

So it doesn't -- the hybrid is not a convert or whatever that looks like it. So there is no dilution on the share.

I think that if you want to look at, from the shareholders perspective, usually what is done is to [retreat] the net income from the dividends that we've paid. Obviously we will give this information to the market.

We will publish the net income and the EPS according to GAAP rules. But we will mention very clearly the coupon of the hybrid which is accounted as dividend and we'll mention it so that you can work out your calculations the way you are used to do.

First of all, on the restructuring side you mentioned you might be able to share some more details with us during your prepared remarks. So could you tell us a bit more about where you are, where some of the sticking points are.

And indeed historically I think some -- there has been mentioned before that sometimes you've had over-subscription or over interest in areas. So is there any scope to even outperform on those plans?

And then the second question on cargo. And again in your prepared remarks you mentioned that there's an expectation unit revenues would improve in the rest of the year.

What is the contingency thinking if they don't improve and continue -- cargo continues to be weak. What else would you need to do there?

Thank you.

Thank you. I'm sorry, I'm not sure I got the full sense of your first question.

If you don't mind to start again.

Yes, if you could just give us an update on where you are on the discussions about the next set of restructuring, where some of the sticking points are and maybe whether you hope to outperform.

Sorry. Thank you.

On that one, so we started the salary discussion. For KLM you know that it started a few months ago.

Where we are today is that we have a sort of temporary agreement with the ground staff. It's an 18 months deal.

I should mention that there is one CP, one condition precedent, which is that the deal is hit also with the crews. But the deal on the ground staff has been hit for 18 months.

The main items are that the wages would be frozen. There will be a cut in the days off.

There is also another demand that for the first time for voluntary leaves, voluntary leaves that should come first. But then if the target in terms of efficiency were not met after the period of the voluntary leave, there is a possibility to go even further.

And also something which is technical but very important. An agreement has been found on a higher flexible layer.

That is the proportion of flexible workers that we can have in our operation and that gives us some flexibility in the resources. I think it's a good deal, it's a reasonable deal.

It's only for 18 months, but it definitely secures the impact on the short term and it paves the way to a longer agreement, which is also as you can imagine on the background. We need first to find a good agreement with the crews, but that would be consistent with the target of positivity that we have at KLM.

On Air France, there is a [indiscernible] committee [indiscernible] this morning. I am sure that there will be [a release] in the press as we speak.

And it's opening a six month period of discussion with the target to final agreement somewhere in October. It's based on the new deal with pilots with a serious review of the labor conditions.

The negotiation of the new CLA for 2016 with cabin crews because the CLA -- the existing CLA will elapse in 2016, so it has to be discussed by year end and that would be part of the pack or the package. It will address the other staff in the French out stations.

It will address the restructuring of the [indiscernible] in Orly and the shift to more profitable activities, so some restructuring in that part. And it will also focus on the implementation of the [G&A] project which is at Group level on the organization within Air France with a target to come to the full plan in September/October.

We do not expect it to be easy and we know that there will be some tough discussion because at the end of the day what is behind that is to get more productivity of crews with a constant remuneration. That is basically having them give us -- giving us flexibility and more flying hours with the same cost.

And we need also to address some serious issues in terms of [indiscernible], not -- not a question of number but definitely some tension in some location. And the key question will be how we get to there with the key question of possible forced leave which is the main issue.

And we definitely want to avoid it. And that's the question that will be for the six months in discussion and clearly would be the point [indiscernible].

That's what we expect. So sticking points will be on, one, how do we [indiscernible] on that part, what compensation [can we find] and how do we get the crews flying more at constant cost.

That's basically the key points and that's the way we want to address it.

Thank you. And on cargo (multiple speakers).

Cargo, yes, maybe I was confusing. We do not expect unit revenue to improve in cargo.

We expect deterioration to be slower in the rest of the year. Minus 11% is not a good number for the first quarter.

We expect the full year to be a bit better than that. And this is on the back of the impact, the positive impact of restructuring the network in the full freighter and [its people].

It's not easy and I mentioned that it should not to be taken as [indiscernible] for sure we [indiscernible]. What should we do next?

I think the first move is to implement what we have decided. We need to go through this restructuring.

It will take about a year through let's say late spring, early summer of next year. If we find out in six months' time that the restructuring of the full freighter network is not paying off and that the unit revenue continues to deteriorate at a very high pace or even higher, then definitely we'll have to take some further actions.

And -- but then you need to bear in mind that early summer we will have about 85% of our capacity [indiscernible]. So it's not that much in restructuring.

The full freighter, the remaining full freighter that we find the clear solution. So we are also investigating at the same time what can we do to improve our efficiency of the full cargo organization including sales, and also the worldwide organization.

That's one. And two, we should be also looking at different way to induce our commercial performance and possibly partnerships or alliance to make sure that we can resist and -- in the market to the growing competition.

Thank you very much.

That's a decision for -- let's say for the end of the year.

If I could ask firstly, a question on the summer really towards your approach to managing the passenger division. Clearly transfer traffic effectively ruined the summer last year.

So I'm just interested in understanding what are you doing differently to better manage the risk for this year, given certainly it seems the risks are at least as equivalent this year to pricing given the lower fuel pricing as you've touched on. The second question again on cargo.

You're clearly shedding volume continuously and volumes were down 8% year on year in the first quarter which smacks of a bit of a race for the bottom. But I'm aware clearly you're restructuring the network.

So if you could provide a bit of color on what's happening with your core accounts. Are you managing at least those accounts that you hold as most valuable to manage volume or even grow volume to help us understand the underlying dynamics within cargo a bit better.

And then finally, maintenance clearly looks in rude health as you highlighted with your order book and I know you outlined expectations for EBITDAR within the 2020 plan. How far do you think the operating margin in maintenance can go over the medium term?

Have you got an operating margin target for maintenance? Thank you.

Thank you very much. Your first question is much more sexy than the second one.

On summer, we -- you know that, as you can hear [indiscernible] message which is a cautious message on the rest of the year for the passengers because while we posted minus 2.3 unit revenue development in the first quarter, we still believe that it will be more negative. And that's consistent with the April numbers that we see.

I mentioned that the March was boosted by the vacation calendar and we see that April is under pressure. But April is also under pressure because you see the summer capacity moving in from the market.

So I will first answer [on operation] mentioning what we see in the long haul for the summer season. Europe-North America, we see a growth of capacity of 5%, 6% which is a bit more that what we expected a few months ago, but still in a reasonable [framework].

So that's what we see. Latin America we see a growth of about 2%, 3%.

Europe-Asia, 3%, 4%. Europe-Middle East more than 10%, bearing in mind that Middle East to Asia would be up probably also by 10% and Middle East to Africa 20%.

And we see growth in Europe to Sub-Saharan Africa 3%, 4%. So we see a summer season which in and out Europe probably is not that bad in terms of capacity, but obviously a growth of capacity.

[indiscernible] will be very reasonable because we will grow along with capacity for [southern] let's say 1.5% to 2%, with some increase located in the targeted increase on South and Central America and the northern part of South America and limited increase in North America and Asia. And we will decrease our capacity in the Indian Ocean and the Caribbean slightly.

So we would be on our side very cautious. For the timing, we've been good in [steadying] the load factor.

So I think that what we need to be very careful is basically these last three, four weeks of booking when we build the curve and where -- which is the time when we start closing some booking platforms and then manage to raise the yield. And I think the key question will be there I think that we've learned from last year and we hope that we'll be in a slightly better situation.

However, again we are very cautious in the -- for the rest of the year and this summer season. And what we see in April is not indeed giving us more optimism.

We believe we are ready. On cargo, we are on the -- we are under pressure to decrease [indiscernible] and I can tell you that we have daily discussion with the big accounts.

We have been trying to maintain the price and the yields but you see that the load factor are [indiscernible]. So I cannot tell you that we found today the best way to address this asset.

It's clear that the new capacity that are moving in are aggressive and are putting us under pressure. We'll keep you updated on that part, but definitely for us that's the main [indiscernible].

On the margins, it's clear that we benefit definitely of the stronger US dollar. And we see further the margins increasing on the back of it.

It's clear that it will not -- you know that margins do not climb to the sky like trees. So at some stage it will stop.

And definitely I can tell you that some customers already raised their hand and say hey, guys, you have some of your costs in euros so that would be nice if you could share part of this profit with us. So I think that yes, we will post further improvements in margins.

Obviously today we are not where we believe we can be. We'll end up 2014 probably around 6% that -- we ended 2014 around 6%.

We will grow this -- from this we will grow from this part, from this level. However, you cannot take for granted that we will retain the full of the dollar benefit in margins.

Again we have 30% of our costs in euros in that business, so indeed when there is a stronger [indiscernible] US dollar it's a significant boost to margins and you see that as soon as the first quarter. But again you should not factor that it will increase that way all the year.

But yes we plan a further improvement in margins. We do not have a -- we do not have a target for 2017.

But let's say that we are comfortable with the improvement that we have shown so far.

Good morning. Just one question essentially on currencies.

There was a comment on [MRO] and passenger. Just one more detailed question.

Could you share with us the revenue and the cost exposure maybe in those two divisions, passengers and MRO especially on the US dollar side?

On MRO I mentioned 30% in euro. I think that you can basically say that 70% is in US dollar, maybe 65% for the sake of also margin of error.

But let's say 65%. And on the pax business, it depends obviously on the different networks.

But I would say that's a bit less than 40%. It's the biggest -- by far it's the biggest business, so I would say a bit less than 40%.

40% [or thereabout] for the cost. And for the revenues, I think that for MRO it's close to 100%.

And for the pax I mentioned that I think that you can take the Group number [as basically right] for the passenger division.

Hi guys. I was curious to see what you guys think you can do about Africa.

It's an important market for your profitability and obviously it's got multiple pressures on it. What's it going to take to defend profitability there?

And second question is to explore where your relationships are with Etihad in terms of deepening or not deepening the partnership in the context of the political debate going on in Europe and the US. And then finally, what's your take on the latest negotiations about the Aeroports de Paris charging structure?

Thank you for these good questions, Andrew. On Africa, yes, that's basically three set of different issues on the demand side.

Oil routes they are I would say under pressure because some of our customers, [the states], but also the oil companies are obviously more restrictive in their spending; Ebola and the political unrest in East Africa. And on the latter one, there is little that we can do.

I'm sad to say that today point of sales, for example point of sales in the US for Africa especially on the eastern part is really weak and there is basically no tourism coming from the US on this part. For that one, it's not an easy one.

On the oil routes, I would say that they still are very profitable. As you can imagine, they are still very strong routes.

And we believe that after the first reaction you can suspend your travel for a while. I've been working for ten years in an oil company.

You can do it for six months maybe 12 months, then you need to go back because you need to manage your business. So we believe that it's still very, very profitable, it's still among the best routes and it will probably pick up a bit as soon as [indiscernible] in the new environment.

On Ebola, it sounds like it seems now it starts to stabilize. We believe that at the end of the next quarter we should see -- we should start seeing the Ebola effect fading away.

So I think that would be a good news that would help. And then on the other side, on the supply side, we see definitely the Gulf carriers being there in the eastern part mainly.

And it's fair to say that so far on the western part, South and Central Africa we have not been hit too much. So we see them on the east and on the south.

Definitely I think that the right answer is that we [indiscernible] and we need to be sure to have the right partners in the eastern part of Africa and for us that would be the key priority to maintain our position on that part. That's what we can do about Africa.

Etihad, there is no secret that we have discussions with Etihad. As you can imagine, the first relates to our partnership also with Alitalia.

We are still in the process. You know the story.

I think that all partners would like to continue but the question is how do we make sure that we can continue the partnerships I would say because there is transatlantic JV but there is also the European partnership on one hand. And Alitalia, we also need to accommodate or recommend for Alitalia to take [indiscernible] Etihad.

So that's the big [background] that we have currently. And then on the top of it, indeed we are trying to see what we could do on the eastern part with Etihad.

I don't think that we are much more impacted on that by the political and media discussion. That's one thing.

And then you have discussion on the other side and I think that's a different story. We shall see whether we can come to a good arrangement.

But at the end of the day, an agreement needs to be profitable for both parties. And we need to be effective but we need also to convince ourselves that there is value in this partnership.

We are working on it. I cannot tell you much more than that.

On ADP, well, you know what are the proposal of the ADP both for 2015 and for the new regulation period. We are not agreeing with ADP and this point has now been taken up to the French government which at the end of the day is the regulation body.

It has started but indeed the government is the first shareholder of Air France KLM, the controlling shareholder of ADP and the regulator. So I agree that it's not a very easy situation and I can tell it has been taken to the governments.

And the good points is that you have different views. So there will be at the end of the day a decision that will be taken.

But today unfortunately I cannot tell you what will be the decision but we have good grounds to hope that at least part of [our request] will be heard. I mean the tariff for the next regulation but also the question of the [indiscernible], which you know is a very important one for us.

So we see which rabbit comes out of the hat. Is it black or is it white we don't know.

Well, if there is no other question, I know that you may have another engagement. So thank you very much for coming to the call and we'll see you in [indiscernible].

Bye-bye.