Air France-KLM S.A.

Jean-Marc Janaillac - Chairman and Chief Executive Officer of Air France-KLM and Chairman of Air France Frédéric Gagey - Chief Financial Officer, Air France-KLM Pieter Elbers - President and Chief Executive Officer, KLM Franck Terner - Chief Executive Officer of Air France

Daniel Roska - Bernstein Neil Glynn - Credit Suisse Securities Jarrod Castle - UBS Andrew Lobbenberg - HSBC Bank Michael Kuhn - Société Générale Damian Brewer - Royal Bank of Canada

Okay. Good morning, ladies and gentlemen.

And good morning to those who are connected via webcast. With me this morning are Frédéric Gagey, our CFO; Pieter Elbers, CEO of KLM and Franck Terner, CEO of Air France.

We are all pleased to welcome you this morning. We have about one hour and half to cover our first half results and our strategic update and take your questions, which I am sure will be numerous.

Let me start by giving an overview of our financial performance and main strategic developments. The financial highlights are there on the screen.

The second quarter performance was overall very satisfactory. As you can see on the chart, we continue to benefit from the good momentum in traffic.

More importantly, unit revenue bolstered its improvement path and we recorded a positive growth of nearly 2%. Our main financial KPIs showed a significant progress with operating income close to €500 million, up 77%, and operating free cash flow at €339 million, almost doubling compared to last year.

Before I hand over to Frédéric for a detailed financial review, let me say a few words about the execution of our strategic plan. I'm very pleased and proud of what we have accomplished over the first half.

In terms of alliances, as you know, the reinforcement of alliances is a key pillar of our strategy to bolster profitable growth. It was the first aim of the Trust Together plan we had presented last November.

With the cooperations announced yesterday evening, we have made a major leap forward. The global agreement with Delta and Virgin Atlantic on one side and with China Eastern on the other side is unprecedented in the airline industry.

It will allow Air France-KLM to be the European pillar of the most powerful commercial and equity partnership. The fact that we could strike such agreements is no coincidence.

It is thanks to the relentless collective efforts produced by our employees to improve our positioning and performance that we could attract prestigious partners. The second major milestone, I would like to highlight, is the materialization of our project Boost into the creation of the new airline, Joon.

A couple of weeks ago, the consultation of our pilots resulted in a massive vote in favor of the Boost project. A few days later, we announced the creation of the new airline Joon in Air Force group.

The agreement reached with the Air France pilots enables us to deploy the project in line with the original schedule. Operation will start in winter 2017 as planned.

All this is a clear demonstration that we deliver on our strategic objectives, which are gross revenues and improved competitiveness, and that the execution of Trust Together is well on track. Together with my two colleagues, Pieter Elbers and Franck Terner, we will come back later in more details for a strategic update.

But for now, I give the floor to Frédéric Gagey for the second quarter and first half financial review.

Thank you, Jean-Marc. So, let's just look through the result of the second quarter, a good improvement compared to last year with an operating result close to €500 million, which is an improvement over €200 million if you compare like-for-like, excluding the [indiscernible] impact.

If in order to compare to some other company, we go to the lease adjusted operating result, it is above €500 million, close to €600 million, and also improving by more than €200 million compared to last year, which is a margin at 9%. So, net result is improving by €326 million.

A bit technical, last year same period, we had non-cash financial impact linked to the current exchange effect on the debt. So, don't take that as improvement, just consider it as mainly technical.

If you go for the half year, the result are more or less in the same trend. And operating result at €353 million, an improvement like-for-like above €200 million also.

And same evolution for the lease adjusted operating results, which is improving €255 million compared to last year and which is a bit above €500 million at €540 million. The only red spot on the slide is the ROCE, but it is a ROCE which is calculated on a 12-month period, which means that it does include the last-year impact of the strike of the month of August.

You also observe that the net debt at the end of the period is going below €3 billion. There's an improvement [indiscernible] evolution in the financial net debt close to €700 million.

And finally, the adjusted net debt on EBITDAR ratio was 2.9 by the end of the year, it is 2.7 by the end of the first half of 2017. Where this improvement is coming from?

Mainly, of course, from the network which is the most important business into our group, with a revenue of close to €6 billion, improving by plus 6% compared to last year. And the result during the quarter of this network is improving by €138 million.

The maintenance is stable, even if we have some good news concerning the order book of sales activity. And please note also the quite strong improvement of the Transavia performance.

The operating result during the quarter is positive at plus €34 million. It is an improvement of plus €46 million coming both, of course, from the Dutch and from the French part of Transavia.

So, it is really a quite strong improvement. You will see later on that the commercial performance of the Transavia are absolutely excellent, we think, during this quarter.

Let's go now to the network. I think that the important news is the evolution of the RASK.

We have revenue per seat kilometer collected, of course, from the currency, which is improving at 1.5%. It is 2.4%, sorry, before correction and 1.5% if you correct for the currency impact.

That is clearly a positive evolution of the unit revenue. And if you go on the left of the slide, on the top, you see the evolution of this unit revenue since the full year 2015.

And I see that we have an impressive trend, minus 3% in full year 2015, minus 4% in the full year 2016, minus 0.5% in Q1, and plus 1.5% in the second quarter. So, it's really a great marked evolution over the almost full-year period.

The improvement is a bit stronger in premium class for the premium unit revenue. Revenue improvement of plus 4.4%.

In the economy unit revenue, it is 2.2%. I also note the evolution of the ancillary revenues, which are for the first half 2017 increasing by 9.9%.

Where this improvement of the RASK is coming from? Mainly from many parts of the world, but mainly from Latin America where the RASK is improving by 14% and also by Asia when the RASK is improving by 9%.

Latin America is mainly explained by the recovery of some countries in this part of the world. In Asia, as you know, in last year same period, the cause of the – effect of the attacks in Europe and, more specifically, in France, you know that the flow of tourism has decreased significantly.

I will also draw your attention on the evolution of the RASK for the medium-haul hubs, which are the medium-haul flights feeding the hubs at Schiphol airport and at Charles de Gaulle. You see that in spite of ASK increasing by 7%, which is a sharp increase of the capacity, the RASK globally is improving by 2% after the correction of the currency impact.

Cargo, it is a bit of the same story. As in Q1, we see here and there some positive signs coming from the cargo.

It is still quite shy, of course. So, it is not booming.

But that this compared to what we have experienced during the last two years. It is improving.

Still difficult to interpret, but a least a sign of optimism in the cargo activity. You see that, for the quarter, we increased capacity by plus 1.7% and the traffic increased by 2.7%.

So, it is a small increase of the load factor. And the unit revenue is still negative, but far less compared to what we have experienced in 2015, 2016.

You see on the slide that, in 2015, the yield was minus 13% in 2016; again, minus 12% in Q1; minus 5% in Q2 only, but it is still negative, of course; minus 1.3%, which has given a bit some optimism around the cargo teams of Air France-KLM. Maintenance.

We have a stable margin over the quarter. The most important new for us is a strong improvement of the order book.

We promised to the market to be at €10 billion by the end of the year after the Le Bourget Air Show, when there has been a significant contract signed. You see that, at the end of June, we have an order book with now close to €10 billion, at €9.7 billion.

I have to emphasize also that there was some difficulty in the maintenance activity concerning the [indiscernible] we have with some partners, mainly concerning the maintenance of the engines. I will come back on that later.

Transavia, to be honest, it is impressive numbers. You see that in terms of number of passengers, we are plus 16% compared to last year.

It's driven by the increase of capacity, plus 11% out of Orly and plus 15% if you add together the capacity out of Schiphol and out of Munich, even if we close, as you know, the Munich base by the end of the summer. This increase of the passenger number is going together with an increase of the unit revenue.

We have a RASK of plus 11% during the quarter. Of course, there is no effect of the currency changes, as it is mainly on the Dutch and the French market, of course.

But it is – both, I think, in terms of volume and in terms of unit revenue – results which are promising. And the result – that’s the operating result, which is positive at plus €34 million, is up plus €46 million compared to the last period of – equivalent period, sorry, of the year 2016.

So, on operating results improvement, which is driven, like I said, by solid traffic figures and solid unit revenue performance. We see also that there was a positive effect of the fuel price ex-currency, but one half of that is absorbed by the effect of the currency impact.

In terms of cost, we missed a bit our target, but I will say for good reasons. If I look at the unit cost evolution for the first half, we are at minus 1%.

There is, however, two effects that we are taking into consideration. One is the fact that we are very surprised by the high quality of the load factor development.

And when you increase the load factor, it means that you have more passenger per seat and you have more cost per seat. So, if you measure the cost by unit cost on available seat kilometers, when you improve your commercial performance, there is, of course, the negative effect on the cost per seat.

And we have estimated – so, it's true for the two companies, both Air France and KLM. And we have estimated its impact to 2.2.

And the signal effect we have to be taken into consideration is the fact that we have reserved bulk of the jets in both Air France and KLM, which means that we have been obliged, which is good news, I will say, to revise the profit sharing in our books and this impact is also of an order of magnitude of 0.2%, which means that corrected for these two effects, we are finally not so far from the first half of the target to decrease our unit costs by minus, you remember, 1.5% over the full year. This reduction in the unit costs is, of course, associated to an improvement of employee productivity.

We have a decrease of all number of FTE during the period compared to Q2 2016. The average headcount is down 700.

We have capacity, plus 4.7%, which means that we have a productivity, if it is measured in equivalent available seat kilometer, which is close to 6%, and the net change in employee cost is at plus 1.9%, which is we think relatively reasonable. Not surprised concerning the fuel bill.

It is almost stable year-on-year from €2.2 billion to €2.3 billion. So, we are quite close with an increase of only €17 million over the period.

It is explained by the evolution of the fuel price, but also clearly, strongly impacted by the result of the fuel hedging portfolio. Last year, we posted negative results coming from the hedge of around minus €600 million.

And this year, we are almost neutral with hedge results of minus €62 million. All these results together will – the good development of the EBITDA leads to a reduction of the net debt.

As I told before, we have a net debt, which is below €3 billion. It is, of course, the financial net debt, but taking into consideration the lease on the fleet.

And this reduction is largely explained by the operating free cash, which is close to €700 million with a cash flow before working capital at €1 billion, a change in working capital at €800 million. Still a small impact of the Voluntary Departure Plan into Air France, but less than last year.

So, this is a cash effect, and not an accounting effect. And investment at €1.1 billion, but we are still targeting to be, concerning the CapEx, in the range we have given to you at the beginning of the year.

So, the reduction of the debt means, of course, reduction of the net cost of the debt. There were – you have to remember that close to €400 million in 2013 that have decreased to €260 million last year.

And for the time being, they are still in reduction, of course. If you compare half one 2017 to half one 2016, with a reduction of €20 million.

The liquidity situation is quite good. We have cash in hand, close to €5 billion, and we have still available undrawn credit lines for €1.760 billion.

Contribution by the airline – but the two CEOs will with about their main targets and results – you see the evolution of the EBITDA for both Air France-KLM and the lease adjusted operating margin for the two companies. Also, you observe a sharp increase of the lease adjusted operating margin into KLM from 6% to 7.7%.

There is also an improvement in Air France, but of a lower order of magnitude. Some words about the outlook.

First point, we continue to see a positive improvement in terms of commercial environment. We gave you, on that slide, the long-haul forward booking for the next four months or the next three months at the end of July, and you see that they're all above the levels of the last year – plus 1 in July, plus 1 August, plus 3 for September, plus 3 for October.

We have also already some indication concerning the unit revenue in July. We have worked a lot with the review management team to have the best appreciation we can share with you concerning the evolution of the unit revenue for the second half of the year.

And we have concluded that [indiscernible] should be slightly up compared to the last year unit revenue. So, we consider that the unit revenue will increase compared to last year for this second part of the year.

A more technical evolution of the fuel bill based on the forward curve at the 14 July, we expect small reduction, around €100 million, compared to the last year fuel bill of the second part – sorry, second half of the year 2016. Then global outlook.

We will, of course, continue to grow during the half two. For the passenger network capacity, we increased by 2.5%, so between 2.5% and 3%.

In Transavia, between 5% and 6%. We are still targeting unit costs decreasing compared to last year.

Together with the two correction I have given during the presentation, we will be between minus 1% and minus 1.5%. Fuel bill, minus €100 million.

CapEx in line with the range we gave to you during the presentation of the last year results. And as expected, because we expect a positive free cash before disposals, we still expect an improvement of at least a net debt-to-EBITDA ratio compared to what it was by the end of 2016.

Thank you. Jean-Marc

Thank you, Frédéric. Coming back to the strategic update for Air France-KLM.

In this ultra-competitive environment, to control our market position is vital. And it is in this framework that we have decided to take a major step by acquiring a stake in Virgin Atlantic and by signing strategic commercial and capitalistic alliances with Delta Airlines and China Eastern.

Air France-KLM thus reinforced its position as the European pillar of the most integrated partnership network in the global airline industry. Firstly, by building an expanded partnership on the North Atlantic – we will come back to it – combining the joint venture between Air France-KLM and Delta and that of Delta and Virgin Atlantic.

This alliance will be reinforced by Air France-KLM acquiring a 31% stake in Virgin Atlantic and by Delta acquiring 10% of the Air France-KLM share capital in a reserved capital increase. To reinforce our position on the Chinese market, we are going to step up our commercial cooperation and strengthen our partnership with China Eastern, also subscribing to a reserved capital increase in return for 10% of the Air France-KLM share capital.

This strategy is a perfect fit Trust Together, which aims to enable the group to develop profitable growth by offering customers an unparalleled proposition between Europe and North America and secure its access to the high-growth Chinese market. The capital increase will raise €750 million of equity, which will contribute to a strengthening of our balance sheet.

Pieter?

Merci, Jean-Marc. If we continue on that path and look at the visualization of the picture, which we just showed, which was just illustrated by Jean-Marc Janaillac, we see that we are building an axis around the world where the Air France-KLM is the European pillar of a deep and strong cooperation between Delta, Air France-KLM and China Eastern.

Next to that, we do have our partnerships in other parts of the world like South America, but also in Africa with Air Cote d'Ivoire and Kenya Airways. And most recently, we're building up a deeper corporation with Jet Airways.

Our present partnership with Delta basically goes back to the year 1997 when KLM and Northwest pioneered the first alliance of its kind. About a decade later, it was Air France, Delta, and at the time Air France-KLM and Delta who make a new JV.

And step-by-step, we have been building on that JV and made it stronger to what it is today. And today, it is a €12 billion annual turnover business with 200 in daily flights across the Atlantic, covering 500 destinations in Europe and North America and having a capacity share of roughly 20% of all capacity on the North Atlantic.

Next, to these impressive numbers. We do have a very strong governance and know-how and management of this joint venture, which is done basically on all levels.

It's done on the strategic level, on the planning level and on the operational level in order to make sure that our customers get the best experience in traveling our North Atlantic joint venture. A few words on the position of Virgin.

Virgin being officially an iconic brand, which really doesn't need too much of an introduction, being such a large player on the North Atlantic route, with over 5 million of passengers welcomed onboard last year, a fleet of almost 39 aircraft, almost 40, and more than 9,000 employees, with obviously an extraordinarily strong position at London Heathrow and as such really supplementing the position of Air France-KLM. If we look to then what is next, we do have a couple of drivers for change really.

Today, there's two joint ventures. One is the joint venture between Delta and Virgin between US and London.

And on the other-hand side, there's the European joint venture with Air France-KLM, Alitalia and Delta. In fact, we have two joint ventures next to each other.

So, there's nothing more logic really than combining these two joint ventures into one and making sure that we give all the synergies and benefits to our customers. In addition, there's the situation around Alitalia and there's a limited duration of the present joint venture contract between Air France-KLM, Delta and Alitalia.

So, with this new joint venture, we will really create a nice momentum. And you recall from the previous page that the first – the foundation was laid in 1997.

The next step was done in 2008. And basically, in 2018, we are ready to make the next step and to have the integration of Virgin into the very strong trans-Atlantic joint venture between Air France-KLM and Delta.

This will definitely be the next step and make sure that we do continue on the good path we have embarked in the last few years. The important part is also that it will allow us to have some associate memberships for some of our partners, such as Aeroméxico, the future of Alitalia and maybe even Jet Airways to see how we can connect other partners to this very strong joint venture.

It's very good that we also are working on an extended joint venture duration, up to 15 years, creating stability, which is extremely important for planning purposes, and making sure that our passengers do have a seamless service. We expect very significant yearly synergies.

We have seen that the joint venture with Delta has brought us enormous synergies. And this new step can bring new synergies as well, both on the cost side, but even more so on the commercial side whereby the position of Air France-KLM in the UK market is extremely strong in the provinces.

But with this joint venture, it will also be very strong in the London market and by combining it. Thank you.

So, let's go East. As you know, we have a very strong position in Asia.

You see here the picture. We have a very strong partnership with Air India, just mentioned before with – in India, sorry, with Jet Airways.

Our aim was to connect India to North America and this is done through 12 daily flights from Europe to India, connecting to our 81 daily flights to North America from Europe, and this basically – this really helps, but mainly Charles de Gaulle and Amsterdam. On the other hand, we have a strong code share agreement with some leading airlines in Asia, Southeast Asia.

And of course, we're looking for additional opportunities in order to reinforce our position in Southeast Asia. And last, but not least, we have an extended network on the Chinese market, thanks to the two partners we have in China.

The first one being China Eastern and the second one being China Southern. With China Eastern where, as you know, a joint venture between Air France-KLM and China Eastern, this is a big thing as the turnover generated by this joint venture in 2016 was €530 million, out of which €400 million plus is going to Air France-KLM.

Chinese Eastern is a SkyTeam member, as you know. And since last year, Delta holds 3.2% stake in China Eastern.

China Eastern is also the main and dominant carrier in Shanghai, which, as you know, is the entry point in China for business traffic. China Southern, on the other hand, we have not one, but two joint venture – one with Air France on the Paris-Guangzhou route and one joint venture with KLM, which is a joint venture joining China Southern and [indiscernible] Xiamen Airlines on different routes, Amsterdam-Beijing, Guangzhou, Xiamen, and so on.

This joint venture is generating €480 million turnover, roughly 50% of which is going to Air France-KLM. China Southern is also a SkyTeam member.

And this is a very moving environment. As you know, American Airlines, which is a member of OneWorld, owns now a 2% stake in China Southern, and which is not mentioned here, but good to know.

Air China has reinforced its position in Cathay Pacific. So, this is a very fast-moving environment.

So, our goal, of course, is to strengthen our position in this joint venture, and mainly with China Eastern. So, we will further enhance our cooperation with China Eastern.

First, this is intended to secure our leadership operation in Shanghai, which is, as I said before, the largest business market within Mainland China. On the short term, we will enhance our cooperation by different actions, joint contracting, coordination of the price and the network, develop some commercial tooling, but also what we call non-commercial synergies, which could be [indiscernible] commercial as we develop some commercial synergies in the field of engineering and maintenance.

It's important to notice that this is very consistent with what was said before by people on the Delta partnership as, again, Delta is a stakeholder at China Eastern. Also, it's very important to preserve our current joint venture with China Southern.

And we are continuing to work and negotiate with China Southern in order to secure our joint venture with China Southern.

So, as announced yesterday, global operations which is, as explained by Jean-Marc, clearly a quite important strategic step for Air France-KLM, is going along with some financial operations. The first one is that Air France-KLM will acquire 31% of Virgin Atlantic from the Virgin Group, and which means that, at the end of the operation, their shareholdings to Virgin Atlantic will be 20% for the Virgin Group, 31% for Air France-KLM and 49% for Delta.

On top of that, as announced yesterday, Delta and China Eastern [indiscernible] quite long-term partner of Air France-KLM, will take each 10% of the equity of Air France-KLM. It will be, of course, new shares for French people according to the [indiscernible].

For that, of course, you need to call an exceptional shareholding meeting. We will do that quite soon and it will be at the beginning of September.

Concerning Virgin Atlantic. So, the total deal is £220 million for the 31%.

It is more between €240 million, €250 million based on the exchange rate between euro and pound. There is a put option together with Delta in case of hard Brexit.

Hard Brexit, I mean, if after all this negotiation, it was necessary to immediately guarantee that the shareholding structure of Virgin with 51% at least of UK citizens. Then we have already discussed with Delta and with Virgin an option which can help us to immediately be in full agreement of the possible new regulation.

But, again, nobody knows today exactly what will Brexit mean in terms of civil aviation. So, we have to wait and to stay still.

Also, an important point, there will be, of course, participation of Air France-KLM at the board of Virgin and we will have the same number as Delta in the board of Virgin Atlantic. So, the next step will be a bit complex.

Of course, we have to continue to go through the appropriate regulatory approvals. So, we expect a deal at the beginning of 2018.

Concerning Delta and China Eastern, it is a simple operation. They will take post money [ph] 10% in Air France-KLM capital.

It means a subscription for each of €375 million. The subscription price has been fixed at €10.

It is a deal with Delta which is accretive. And for China Eastern, we expect progressive synergies coming from €35 million immediately after the deal of the year – after the deal and increasing progressively up to close to €100 million.

The investment condition are the same for Delta and China Eastern. There is, of course, a lockup period and a stand-still period, relatively long in accordance with terms of the commercial agreement with these two partners.

It is a five-year period, which has been negotiated. It explains, of course, partly the price of the euro, which has been discussed during the preparation of that deal.

As told before, we have to organize an extraordinary general meeting for early September in order to approve this reserved capital increase. And, of course, board directors appointment.

There will be one board director designated by Delta and one other designated by China Eastern. OneWorld [ph].

On the price, if you take the average – weighted average of the share price over the last 12 months, the price of €10 is a premium of 42% compared to the last year average share price. If you take the share price since the announcement of last year reserve, which is February 2017, there is a premium of plus 11%.

In fact, this offer is made at a price, which is, if you look at the – sorry, at the bottom of the slide, you'll see that 10% is compared to the last five-year price, which is relatively in the top range. One word on the financial impact of this deal, of course, it is increasing the cash of the company.

Even if I have shown before where we were in terms of cash before this operation, it will have a positive impact, of course, on the adjusted net debt on EBITDA we show. We have on the slide the evolution we expect and what it could be after the deal.

And you see that the deal has an impact moving [indiscernible] ratio by 0.2, so it is progressively – we promise you to be soon at 2.5 for still adjusted net debt-on-EBITDA ratio anywhere progressively converging into that duration. Just conclusion, but it can be made by Jean-Marc, I think.

On conclusion of this strategic maneuver, it confirmed our attractiveness and also our ability to control our growth strategy. And they open way to numerous opportunities for stable growth.

I will not come back, but on what we call the – on the very interesting North Atlantic market, we are building long-term leading alliance. And on China, which is going to be a very important market for tourism and business, we are building also long-term partnership.

And it will enable us to raise €750 million for the equity. And as Frédéric showed, it will improve our financial structure.

And also, they improve now our share of two of the major international airlines, like Delta and China Eastern. It shows a genuine mark of confidence and trust in Air France-KLM and its possibility to develop in a profitable way.

So now, we are ready to answer to your questions. Thank you.

Yes. If you can have the light because I don't think we are – so – yeah, yeah.

Good morning. Daniel Roska from Bernstein.

Good morning. So, first of all, congratulations on the results and the network strategy.

Great progress on those two fronts. Three questions, if I may.

Number one, on the MRO, maybe a little bit focus, because you said in your presentation, the like-for-like third-party revenue was down slightly, although the order book is increasing. So, I just wanted to ask how would you expect the third-party revenue to develop based on that order book.

So, when does the order book actually flow through and translate into increased third-party revenues. And what's the run rate you would expect in a couple of years' time on that?

Second question on the ownership impact around the Delta and China Eastern. You already commented on the put option you have for the Virgin Atlantic deal.

Who is this put option going to load the shares off on to? So, who is going to buy them?

Question one. And number two, maybe a comment on the risk of the UK exiting the EU/US open skies deal and how you see that playing out for the entire joint venture across the trans-Atlantic.

And last question. Jean-Marc, last year, for your first results session, you covered on several strategic objectives you had for the company.

And one definitely was also to improve the culture within the company and between Air France, KLM. Now, you had some news flow in the past few weeks around that.

And I just want to ask you, one year into this, where do you see organization culture and governance between Amsterdam and Paris and what would you like to progress on over the next two years?

On the order book, I think it is not necessarily indicating that the order book is increasing. It means that we are securing years and years of activity.

And I think that I would rather take that as an indication coming from the evolution of the order book. It is interesting because, if you look at other activities of the group for the passenger, I can speak to you about the next three months.

For the cargo, I can speak to you about the next week or the next two weeks, up to Friday next week. And concerning the [indiscernible] now, thanks to the great long-term contracts we are signing, we can speak about activity for the next ten years.

Hopefully, I should be here, of course. So, I think that we have rather to look at that as a securitization of the business, and not necessarily showing that we expect [indiscernible] activity in the next year.

So, I would rather use this interpretation. There is another – I would say the fact that the difference between the growth of the turnover and the growth of the order book, in my view, is very good news.

It means that what we put in the order book is a very new technology, non-mature aircraft. But when you sign a contract, long-term contract on the A320 NEO, for example, you know that the first enhanced revenues will rise very quickly after three to four years.

So, you have a very low turnover, but this big increase in the order book is a very good news for our business on the long term. It means that we are securing our position on the new generation aircraft.

Concerning the put, it is a put by the current shareholder, which is in the hands of the new shareholders [indiscernible] as expected.

On the question of the open skies agreement between USA and UK, we are more than confident that we will keep on because I think that, for UK, it's difficult to have at the same time the Brexit and to cut the links with USA. So, I think that we are quite confident of that.

On your last question, in fact, it was a major goal of Trust Together. And the name has been chosen for the purpose to recreate the trust in Virgin-Air France, between Air France and KLM, and also in the future of the group.

And I think that to recreate trust takes much time. It's what we are doing, especially, I think, we have made achievements within Air France.

I think – and the move we have made yesterday is going to increase, I think, [indiscernible] already yesterday from the staff, create more trust in the company and its ability to grow. As far as the relations between Air France and KLM are concerned, I am deeply convinced that the root of some of the difficulties lies on the difference of growth and difference of results between the two companies.

And what we are doing is really to give to Air France a way to find the way to have a profitable growth. And in general terms, I've read the papers.

I listen to what is being said. For example, if you take the analyst report, a report that was made on the [indiscernible], I regret that only the negative aspects were in the newspapers.

And besides, there was also many positive elements that were not talked about. There are several hundred of employees that work on a daily basis to ensure the success of both airlines in every sector.

And I must say, to tell the truth, that in KLM, but also in Air France, there is a kind of a rear guard, a certain group of people who dream of times gone by and it will never come back. And this, it's regrettable, but these are the nuance.

We are doing all they can to make themselves heard by the press. And the press likes to have a bad story, not a good one.

But I'm convinced, and I am deeply convinced that is not – not at all – the vast majority of the staff in KLM, in Air France and in the group that are looking in the future. And with Pieter and with Franck, we are really working in that direction.

And I'm sure that the announcement of yesterday are going to do a lot of good in that direction. But perhaps Pieter can complete what I told.

Well, I think you addressed, Jean-Marc, basically the points. The report gave different observations.

Some of them were positive, some other were more on the concerning side. The positive ones have not been mentioned, but there definitely were.

On the concerning side, I think we should recognize them and we should acknowledge that these issues are there. I think we should also look at some of these dynamics in the field of the big changes we are making, both in Air France and KLM.

And when we are making all these changes and we ask people to do a lot of sacrifices in terms of productivity and hard work, it is clear that there is – it's a fertile ground for some more tensions. I think it's our job as management to address these challenges and to make sure that we provide the platform to move forward in a positive way and see where and how to improve.

And just to underline what Jean-Marc says, some of these new projects like had been announced yesterday, I'm sure it will be an inspiring and motivating part because, once again, the Air France-KLM Group is building something new and something in the industry which is new. And looking back to when Air France-KLM was created back in 2004, there was a large positive feeling throughout the companies that we were building something new and something unique together.

And I think this new dynamic could help us to create that feeling again, whilst recognizing some of the concerns, which I don't think we should downplay it. We should be realistic, address it and solve it.

Okay. We can take some questions from the calls.

If I could ask three questions, please. The first one with respect to that Virgin Atlantic ownership issue.

I guess, you probably wouldn't have done this deal if you didn't expect some kind of satisfactory outcome with respect to UK foreign ownership restrictions after Brexit. Just interested in your thoughts in terms of, do you play a more – or do you play an active role in that now with the UK government?

Can you be an agent for good with the broader EU approach to Brexit for aviation, given the deal? The second question, clearly, a very, very strong unit revenue growth rate from APAC in the second quarter.

Just interested, can you give us some color as to how influential Chinese, Japanese, et cetera, tourist groups were in returning to Europe on easy comps for last year? What kind of a pricing growth rate is sustainable into the second half of the year in Asia?

Then the third question. Again, reverting back to Virgin Atlantic, I think the UK is a bigger market for KLM than Air France.

But interested, can you give a sense as to how meaningful UK passengers are to your long-haul operations? And can you take more share of that market on to your long-haul routes via Virgin Atlantic's customer base?

Thank you.

Yes. On the Brexit again, first, nobody knows what will be the decision at the end of the negotiation.

So, we have to be cautious. Second, as I told before, we have organized together with the Virgin Group and Delta, we have organized internally a put option, which means that we can easily, immediately restore the UK citizenship of this – into the stake of Virgin Atlantic if it was necessary or mandatory after decision coming from the Brexit.

[indiscernible] to keep in mind, in my opinion, is the fact that Virgin is – of course, is a European company, but mainly flying to the US and to some islands in the Caraïbes and some very few destination to east. So, it is not a company flying Europe to Europe.

So, it is really – so, again, I don't know what will be the result of the Brexit, but I suppose that whatever it is, it will be relatively [indiscernible] between the UK and the US. So, we have also not to exaggerate what would be the economic impact of the Brexit on the Virgin Atlantic network and capability to fly.

But, again, having said that, if it is mandatory one day to have the shareholding of Virgin to be a UK – with a UK citizenship, we have already organized the discussion with Delta and Virgin and this is a way to solve that question.

The second question for tourism from Asia to Europe, we see a very good figures in terms of the increase, especially in Japan, I would say, but also in China afterwards. There is the demand and there is our revenue management system and we are yielding what are the most attractive and profitable flight.

So, the increase of [indiscernible] we have a strong demand for the summer towards China and from China from individual travelers, and so we don't take too many groups because they are lowering our unit revenue. So, the strong demand that allow us to choose from this market the most interesting groups of passengers, but positive guidance and also for the second half of the year.

Your question on the – how meaningful are the UK passengers for the long-haul network, the UK market is an incredibly important market for Air France-KLM. And in that context, even more so for KLM.

We operate to some 18 destinations in the UK. And sometimes, we jokingly say, we do have more connections from Amsterdam to secondary cities in the UK than BA does out of London, Heathrow.

So, with that network into the secondary cities in the UK, we connect them to our hubs in Charles de Gaulle and Amsterdam to the rest of the world, especially Asia, Africa and parts of the Middle East. What we were missing actually for our customers was a good offer to the United States.

With this deal with Virgin, clearly, we can now also offer our connections, not only to the rest of the world, but also the US. Vice versa, for Virgin, who could only offer actually the US and a very limited part of the rest of the world.

Then that's where Air France and KLM, out of Charles de Gaulle and Amsterdam, now suddenly provides for all these customers from Virgin with one connection basically the entire network of Air France-KLM to the rest of the world. So, we are very positive and upbeat really on the prospect of having passengers from the UK choosing to connect in Amsterdam and Charles de Gaulle for the rest of the network to Asia, Africa and Middle East.

Thank you.

Does it answer your question?

Absolutely. Thank you.

Good morning, gentlemen. And I'll also ask three then.

Just firstly a couple of questions about the announced deal. One, you said the value accretion is 8% through the partnership between Air France and Delta and Virgin.

Can you just kind of take us through how you get to the 8% accretive, and frankly, whether or not you could achieve the same results without the ownership changes, which have taken place? Secondly, just related to ownership changes, you’ve now got two non-EU investors contributing 20% roughly to your ownership.

What is your current non-EU ownership, i.e. is there any issue now that non-EU members push over 50% of the stake in Air France-KLM?

And I guess related to that, what is the UK shareholding in Air France-KLM, thinking further ahead in terms of Brexit? And then lastly, you seem quite positive on 2H yield.

I guess some other airlines are a little bit more cautious when they kind of look into quarter four with regards to winter capacity and what that might mean for pricing. So, I'm just trying – just interested to get your thoughts please on how you currently see the outlook for quarter four in terms of capacity.

So, for the accretion, of course, it is otherwise a bit theoretical, but at least we have taken into account what to expect from synergy coming from the new deal with Virgin. And also some technical aspect [indiscernible] to the renegotiation of the JV contract with Delta.

So, you know that it is extremely complex contract, including what we call the settlement between the two companies. We expect the negotiation with Delta because it has been discussed already in the memorandum of understanding we have signed yesterday, but there will be some technical change.

And altogether, by taking into consideration the synergies coming from the extension of the JV to Virgin, so by merging the two JV between AF-KLM, Delta and Virgin Delta, there is a package of synergies. Second, we expect for Air France-KLM only, it is what has been discussed by Pieter some minutes ago.

Of course, there is some opportunities coming from this new access to the UK market, thanks to the creation of the JV between AF-KLM, Delta and Virgin. There is some good synergy when we will consider future reorganization of the sales force in the UK market.

And there is an impact of the renegotiation of some financial aspect of the JV, which were impacting a bit Air France-KLM in the past due to what we call the settlement and the cost-cutting aspect. And this point will be different in the new JV agreement.

So, when we put all together, see the demand, we consider that – if you consider the Virgin, Delta new JV deal, even if there is the dilution coming from the entry of Delta to the Air France KLM equity, after calculation in mind that it is a deal which is accretive. Of course, it is not an extreme accretion, but you have also to consider that – I think it is immense weight [ph] of the deal is that, strategically speaking, they represent for Air France-KLM an extraordinary securitization of our business on the North Atlantic for quite long period.

What is also quite important is that – the distribution in that deal is that we are ready to sign together with Delta a deal for 15 years over the North Atlantic, which is, I think, strategically – sorry, in terms of securitization of our business, something extremely positive.

For the shareholding of the group, right now, the French state has got 18% of the share and the total of European shares is 74%. And post capital increase, the state will have 14% and the total European shares are going to be 59%.

I'm sorry. How much on the 59%...?

[indiscernible] the definition of the outlook. And on the capacity, sorry, I was preparing the answer to the first question.

The question is…

Outlook on the quarter four capacity growth.

Yeah, I think it is in the presentation. Concerning the network, we are between 2.5% and 3%.

And concerning the Transavia, we are, if I am correct, between 5% and 6%. So, it is accordingly to what we have presented when we discussed the outlook of the year at the beginning of the month of March, I think.

Answers the question?

Yeah, hi. The only question I have is what is your views on ticketing environment in Spain and Portugal because some of your competitors have said that they're experiencing some weakness in ticket revenues in those regions.

So, some color on that will be really appreciated. Thank you.

The question was the weakness in the market or the perceived weakness in the market in Spain and Portugal. Did we understand that correct?

Yeah, yeah, that's correct.

We have not the same perception because we have, I think, rather good results from especially Spain right now. The last figures we have seen on the sales of Spain, we will not talk about Portugal, were positive ones.

And we don't have a specific worry on the sales in this market. Next question?

Okay. No, that's it from my end.

Thank you.

Okay, in the room? No question from the room Okay, from the calls.

No, there is one in the room.

Thanks. [indiscernible].

Just a small question. At the end, you had a great uplift in Transavia.

How much of that really was the concentration back into your home markets because you pulled out of Munich, moving back, or was that rather really the demand coming back during the summer in France and Amsterdam. So why was the Transavia result that much better?

Is there an underlying effect in the market or was that due to network repositioning?

Thank you for your question. Munich is still being operated.

Munich will continue to operate until the end of October. So, in the present results, which have been presented, Munich is in – really the improvement of results both in France and the Netherlands are coming from basically the strong performance Transavia is having out of Orly and having out of Schiphol.

And Munich will be there until October; and next year, it will be out.

And I think, specifically, for Transavia in France, Transavia has reached a level of an authority and a level of acceptance and good image that now came to a level that allows them to attract more passengers. And they have put together a new policy with more flights to the same destination and more marketing.

And I think that the growth is accelerating because of these reasons. There was a question on the call.

Sorry. Thank you.

Just following up on the questions I asked previously. You said post the deal that there will be – 59% of the shares will be held by Europeans.

Can you tell me what percent is held by UK investors currently? Because if there's a hard Brexit, will you actually go below the 50% European ownership if – once the UK has left?

And then just secondly, on the 8% again in terms of value accretion, when can we expect this to be running at 8%? It's obviously not this year or is it?

Or is it next year that we'll see that accretion?

Apparently, you are preparing the post-Brexit analysis of the share of European owned –non-European shareholders, so we have not a precise estimate right now. But we consider that we are at 7% – 6%, 7% for the UK shareholders.

So, it means that even if one day, it is not to be considered as European, based under today's split of the shares, we will be still above 50%. Concerning the accretion, as you know, we are still negotiating these new JV contracts.

So, it's clear that what we expect is the best – at the best, it will be that the new JV can be organized for 2018. It is really the best case.

So, I think it won't be – of course, you will not see accretion immediately, but let us say that it will come progressively. As of 2018, we have to finalize the deal with Virgin.

I told in the presentation that it will be achieved beginning of 2018 because we need some authorization from some authorities, mainly competition. And concerning the JV, we have the MOU signed yesterday.

We are now to finalize the contract and it will be put in place also in 2018. So, progressive accretion as of 2018.

And, sorry, just lastly related…

Any other question on the call?

Oh, hi there. Three questions if I may.

On the synergies from merging the two joint ventures, I don't think I heard you guys say anything about revenue management. And yet, I understand that you're quite proud of the combined revenue management structure of the Air France-KLM-Alitalia-Delta setup.

Are there plans to combine the rev management for the Virgin deal? Second question relating to Transavia France.

Have you made any progress yet in moving on the scope clause or do you have any sense of whether it will be easier given that the progress you've made with Boost or Joon? And then a third question, back on the launch of Joon.

When do we hear about the routes? What is guiding your choices of those routes?

And, I guess, you're ready to go. So, how is the initial feedback from the market on the brand launch?

Concerning – as you know in the JV, AF-KLM Delta, we have today one unique team, based in Amsterdam, by the way, who is managing all the volume and the demand for all the flights over the North Atlantic. So, clearly, we will implement that progressively, but the idea is to integrate all the flights into the same organization.

Could you repeat the question on scope clause?

Sure, yeah. Your ability to grow Transavia France is limited.

And in, I don't know, 18 months or so, you run out of available aircraft as agreed with the pilots. So, at some stage, you need to negotiate the ability to grow it more.

Where's that going?

I'm not sure if I understood the point. I'm sorry.

We have – I don’t know if I will answer the question [indiscernible] you question, but I'll try anyway. We have a scope clause agreement, which prevent us to fly over 115 aircraft seaters out of Air France.

So, this was not having any kind of impact on Joon or on Boost, now the company called Joon. We have a perimeter agreement.

And this is one of the topic that we have to negotiate with our cockpit crew. And this limitation has been solved within the agreement.

So, I don't know if I answered your question.

And for Transavia, we have right now 29 planes and we can go to 40, which has been planned within the actual agreement with the pilots. So, it allows further growth of Transavia.

Concerning the routes for Joon now, as you know, we will launch the company next winter with most probably four routes on the medium haul and the long haul will start the next season, so in 2018. And now, we're working on the four routes on the medium haul that will be most probably – so, I'm still prudent as we still have some time.

But most probably, we'll fly Berlin, Lisbon, Portu and Barcelona. But I'm sure you will be upset if in some time we will change a little bit that network.

We will add another two to three routes at the next season. As far as the number of aircraft, we'll raise to 18.

As you know, our goal is to raise the number of our aircraft to 18. And for the long haul, it's a bit early to mention what could be the routes, but we are working on it.

Another question?

Good morning. Also three from my side, please.

Firstly, again, on joint venture synergies, you mentioned on slide 34 that they will go up from €35 million to €95 million. Maybe an idea on the timing of that and let's say how it will be reflected in your P&L.

Secondly, on the trading in the second quarter, obviously, we saw a massive improvement at Transavia, but, clearly, that was partly related to the Easter shift. It would be great if you could give us an idea on the profit contribution from the Easter business for Transavia specifically and maybe also for the group.

And then lastly, on unit revenues. 1.5% increase in the second quarter, a clear improvement for the second half.

You guide for a slight increase – slight, implying a modest momentum slowdown versus the second quarter, maybe a little more color on that. Thank you.

So, concerning the synergies coming from the partnership with China Eastern, we have indicated a range between €35 million and €95 million. It will come progressively.

We expect the full effect to be around 2025. As you know, the organization of the Chinese market, the growth and the organization between various airports, et cetera, are long-term projects.

So, it will be a progressive increase of synergy into the P&L. But, again, we have also a clear strategic securitization of our interest and our position in the Chinese market.

With that, very clearly, we are securing, I think, for quite long period – long term, so we have full access to the Chinese market. Frankly, the Easter business from Transavia, let me check.

Okay. Meanwhile, we have a question in the room.

[indiscernible]. Just two questions.

Can you say some word about what happened on Alitalia? And on Air France, my second question is about if you can give some color about the result of the freight business.

And what – where are you about recovery in point-to-point and medium haul? [indiscernible].

First on Alitalia, Alitalia is a member of the joint venture in North Atlantic. And we desire to group, still be part of the joint venture, but to grow, to have more freedom in order to grow.

And the idea of this new unified North Atlantic Transavia is to create a new kind of status of partner and that could be of some interest for Aeroméxico and Alitalia with some common routes, but also a bit more freedom. And the people in Alitalia seem to be interested by this status, depending on what is going to be the future of Alitalia that we don't know.

Afterwards, we don't have any other relations with Alitalia besides their being part of the North Atlantic field today and denounced the agreement we had in the past on Europe. For question on Air France, Franck.

As you see the trend on the yield and the traffic is also true on the medium haul. So, we are well oriented on the medium haul.

On the short haul and point-to-point, I'd say point-to-point [indiscernible] helped Air France. We have, in fact, two things to consider.

The first is that the trend is good. The yield is up.

Clearly, we have a very good load factor. I think it's probably historical load factor.

On this activity, we have well managed the capacity on one side and the yield on the other. Well, it's true that we have some issues, internal issues with HOP!, the company called HOP!, mainly for pilots resources management.

We are missing pilots in this company. So, we are obliged to organize the operation by subcontracting some flight, which creates some tensions on the results.

But I would say, overall, the orientation under the flavor [ph] is good also on the medium haul and the short haul.

Frédéric, perhaps the question on Eastern.

Yes, it's clear that the fact that we have Eastern in the second quarter clearly has contributed to that. Is it improvement trend [indiscernible] linked to that?

Frankly, not. First of all, if I look at the month of June, for example, we have for the two Transavia as compared to last year an improvement month over the month of €21 million.

The current operating income is plus 3 in June compared to minus 12 last year. So, clearly, it is improving month-over-month.

And it is not only the fact that there were linked to calendar effect linked to Easter. Hence, again, [ph] when you look to the result of July, the commercial result of July, they are also relatively strong.

So, it is indicating that it is more a trend and not only a calendar effect.

Okay. We are going to take the last question by call.

Good morning. Two questions for me, please.

First of all, could you follow-up on Jarrod's question just in a different way and just explain to us why it was considered essential that both Delta and China Eastern were needed to take equity in Air France-KLM in order to consummate the new JV? What parameters created that essential requirements in your equity?

And then secondly, you've hinted it in your prepared remarks that, obviously, helps with your balance sheet. Given the positive aspects of the transaction you outlined, what prevented you from offering your existing shareholder the base to participate in maybe a larger equity offering and reduce the company's balance sheet debt by more than the existing transaction proposes?

Thank you.

Okay. So, for the time being, we have no decision.

No decision, to be honest. First, we have to finalize this operation.

I don't know about you. That's the first step, is to go to an EGM in September, and to first get the authorization of the shareholders to organize or to finalize this, without an increase of capital for our two partners.

And so, it is what we are preparing now and it is goal between now and the month of September.

And for the first general question, we thought and it's this strategic move that these commercial links and these commercial partnerships needed to be structured and consolidated by equity presence from our partners and our presence in the capital of Virgin. And we think it's important to have these things.

And for us, for example, to have a Delta representative and China Eastern representative in our board is also something very important in order to consolidate this partnership that must be long-term partnership and it's fair value [ph].

Okay. I think we reach the time.

I thank you very much for your presence and your participation. And I hope you will have a wonderful summer.

Thank you very much.