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ANNUAL REPORT2004

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tents1

Editorial 03President’s Letter

Highlights 05Executive Committee 07Board of Directors 08Luxair Shareholders 09Luxair Activities 11

Airline

Tour Operating

Cargo Handling

Passenger Handling

Airport Shops

Catering Services

Auditors’ Report 19Balance Sheet as at 31 December 2004 20Profit and Loss Account 22Cash Flow Statement 23Notes to the Accounts 24

con

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03

The global airline industry landscape has, however, changed profoundly over the last fewyears. First, the liberalisation of air traffic hasbrought in a new form of competition, whereas,at the same time, the advantages and privilegesof the so-called national flag carriers have dis-appeared.

Secondly, terrorist threats, wars and epidemicshave, in their turn, thrown the aviation industryinto a deep crisis. The relationship between theglobal economy and the aviation sector has,furthermore, accentuated the crisis in a sectorthat is still suffering on a global scale.

These developments have not spared Luxair andresulted in a disappointing 2003 financial year.

In 2004, the Executive Committee chaired byChristian Heinzmann who left the Company inFebruary 2005, focused on curbing the negativechain of events facing the aviation industry.2004 thus saw a slight recovery and, thanks tosustained efforts, the national airline has regis-tered positive operating results again.

But a new structural situation has added to thecyclical economic problems of the aviation in-dustry. The fall in yield, that is average revenueper seat sold, has continued. And, as revenue hasfallen, production costs have seen a sustained rise.

When, in 1962, a few representatives from industry, the financial world and the State ofLuxembourg created Luxair, they had a specificidea in mind: open up Luxembourg to the out-side world in order to develop the nationaleconomy.

It worked. Luxair quickly became a majorplayer in the extraordinary socio-economic riseof the Grand Duchy and its success continues tothis day. Luxair remains the gateway to Europeand the world for Luxembourg and the GreaterRegion as well as the European capital’s ambas-sador abroad.

editorial

president’s letter


Luxair has reacted to the increase in internalcosts by successfully implementing a cost re-duction programme which is to be continuedduring the 2005 financial year. Unfortunately,the continual rise in external costs – for examplefuel charges, air traffic costs and landing charges,to mention just a few – has, in part, cancelledout the efforts made.

Luxair is thus at a key moment of its existence.The new problem requiring a solution is how toachieve new balance. This balance must respectthe rules of the market and, at the same time,respect Luxair’s role as a crucial player in theeconomic development of Luxembourg.

Luxair is thus going through a profound reviewprocess. Every worker, employee, executive andboard member at Luxair must ensure full com-mitment to this exercise.

The across-the-board review will have to applyto the Company as a whole – be it to the fleetstrategy, the destination network, the informa-tion systems or the commercial approach.

Only by submitting to this exercise will Luxairguarantee its competitiveness and continue tobe the proud ambassador for Luxembourg.

Marc HOFFMANNChairman of the Board of Directors


05

OPERATIONAL DATA 2004 2003 2002 2001 2000

Passengers * 1,171,292 1,095,755 1,196,070 1,181,566 1,146,740Available Seat-km (ASK) * mio 1,861 1,762 1,780 1,703 1,627Revenue Passengers-km (RPK) * mio 1,147 1,027 1,094 1,061 997Seat Load Factor * 61.6% 58.3% 61.5% 62.3% 61.3%Freight Handling tonnes 762,359 650,082 586,746 525,889 510,804

Personnel (31 December) 2,190 2,137 2,184 2,120 2,015

NB : The data contained in the items marked with an (*) differ from the data published in previous annual reports, following the termination of the code-share agreement withVLM in the course of the financial year 2003. The new basis for calculation, which does no longer take into account the number of passengers having travelled on a VLM code-share flight, was used for the previous financial years.

OPERATIONAL FLEET (31 DECEMBER) 2004 2003 2002 2001 2000

Boeing 737-400 0 2 2 2 2Boeing 737-500 3 3 3 3 2Boeing 737-700 2 0 0 0 0Fokker 50 3 3 3 4 4Embraer ERJ 145 «Eurojet» 8 8 8 8 7

FINANCIAL DATA 2004 2003 2002 2001 2000

Turnover mio EUR 306.0 289.1 302.0 282.6 264.7Net Result mio EUR 13.4 3.6 29.6 20.3 19.6Net Profit Ratio 4.4% 1.2% 9.8% 7.2% 7.4%

Balance Sheet Total mio EUR 451.0 389.3 384.0 395.4 380.9Capital & Reserves mio EUR 202.4 198.8 174.2 157.3 141.1Capital & Reserves / Balance Sheet Total 44.9% 51.1% 45.4% 39.8% 37.0%Return on Equity 6.6% 1.8% 17.0% 12.9% 13.9%

highl ights


Since March 2005, Luxair has boasted one of the most modern “All Jet“ fleets in Europe


Christian HEINZMANNPresident

and Chief Executive Officer

(until 18.02.2005)

Fernand BRISBOISExecutive Vice-President

Handling Services

Jean-Pierre WALESCHPresident

and Chief Executive Officer

(from 18.02.2005)

Executive Vice-President

Finance

Jean-Louis KREMERExecutive Vice-President

Controlling

Jean-Michel STROCKExecutive Vice-President

Sales & Marketing

07

committeeexecutive


Marc HOFFMANN

Alain GEORGES

Paul SCHMIT

Raymond KIRSCH

Helder DE OLIVEIRA BORGES

Daniel COLLING

Jean-Claude FINCK

Mario JANDER

Jean MEYER

Gaby SCHAUL-FONCK

Bruno SIDLER

Emile SIMON

Marc THILL

Jan Henning ZUR HAUSEN

Frank REIMEN

Henri KLEIN

DEXIA - Banque Internationale à Luxembourg, Chairman of the Management Board, LuxembourgChairman of the Board, from 10 May 2004

Doctor at Law, LuxembourgChairman of the Board, until 10 May 2004

Ministry of Transport, Government Commissioner, LuxembourgVice-Chairman of the Board, from 10 May 2004

Banque et Caisse d’Epargne de l’Etat, President and Chief Executive Officer, LuxembourgVice-Chairman of the Board, until 31 January 2004

Luxair Personnel Representative, LuxembourgMember

Luxair Personnel Representative, LuxembourgMember, from 7 April 2004

Banque et Caisse d’Epargne de l’Etat, President and Chief Executive Officer, LuxembourgMember, from 1 February 2004

Luxair Personnel Representative, LuxembourgMember, until 7 April 2004

Banque Générale du Luxembourg, Chairman of the Management Board, LuxembourgMember

Luxair Personnel Representative, LuxembourgMember, from 7 April 2004

Panalpina World Transport (Holding) Ltd., President and Chief Executive Officer, BaselMember

Luxair Personnel Representative, LuxembourgMember, until 7 April 2004

Ministry of Foreign Affairs, Director of International Economic Relations, LuxembourgMember

Deutsche Lufthansa A.G., Director, Investments and Regional Alliances, FrankfurtMember

Ministry of Transport, “Conseiller de Gouvernement 1ère classe”, LuxembourgGovernment Commissioner for Luxair S.A., from 1 April 2005

Ministry of Transport, Director of Civil Aviation, LuxembourgGovernment Commissioner for Luxair S.A., until 31 March 2005

directorsboard of


Luxair’s share capital amounts to € 13,750,000 represented by 110,000 shares held

by the following shareholders (on 31.12.2004):

State of the G-D of Luxembourg 23.1%

Banque et Caisse d’Epargne de l’Etat 13.4%

Luxair Group and others 13.2%

DEXIA - Banque Internationale à Luxembourg S.A. 13.1%

Deutsche Lufthansa A.G. 13.0%

Banque Générale du Luxembourg S.A. 12.1%

Panalpina World Transport (Holding) Ltd 12.1%

9

Luxair shareholders


After a disap-pointing 2003,Luxair’s businessresults recoveredin the 2004 financial year


After a disappointing 2003, Luxair’s businessresults recovered in the 2004 financial year.Whereas in 2003, the Luxair Group recordeda negative operating result of EUR 4,085,652,in 2004 it achieved a profit of EUR 3,877,249.

CargoCenter’s excellent performance hascontributed significantly to this result, with a17.3% increase in tonnage over 2003. The6.9% growth in passenger numbers in 2003,and the rise in the occupancy rate from58.3% to 61.6%, have improved the per-formance of Luxair’s airline activities.

Luxair S.A. ended the 2004 financial yearwith profits totalling EUR 13,391,849 whichis a clear increase over the net profit of EUR3,607,827 in 2003.

As part of the constant renewal of the Luxairfleet, at the beginning of 2004 two NextGeneration Boeing 737-700 replaced the oldBoeing 737-400; a third Boeing 737-700 wasdelivered in January 2005. In 2004, Luxairalso placed an order for two Embraer 135,certified to operate into and out of LondonCity Airport. At the beginning of the 2005financial year, the ERJ 135 replaced thefleet’s Fokker 50. Luxair thus has one of themost modern “All Jet” fleets in Europe.

11

A slight recovery

activitiesLuxair


Luxair destinations 2005


Major promotion campaigns were launched onLuxair destinations in 2004, in order to boostinbound traffic. The initial results have beenpositive and international markets have seen arise in sales in the order of 1.5%, representing34.4% of the global market. The biggest marketsare Italy, followed by the United Kingdom, Spainand Switzerland. The promotion campaign todevelop incoming traffic to Luxembourg willcontinue in 2005.

The domestic markets, which include Luxem-bourg and the Greater Region, have seen an in-crease in sales in line with the global rise inpassenger numbers.

Direct Internet sales did very well in 2004, up52% over 2003. Following the launch of thenew Luxair website, which facilitates onlinebooking, the sale of electronic tickets is nowhovering around 5% of total sales.

In 2004, Luxair carried 821,763 passengers on

scheduled flights, a 6.0% rise over the previous

financial year. The occupancy rate rose from

49.55% to 50.78%.

The Metropolis programme, offering short staypackages in European cities, registered a 7.0%growth in customer numbers.

Luxair offered 25,699 scheduled flights to 26different destinations. A new destination, Warsaw,was added in 2004, whereas the Zurich andStockholm routes were suspended.

In 2004, Luxair followed the trend begun by themajor European airlines and reviewed its policyon commissions paid to travel agencies; thesewere reduced radically, and some even can-celled, depending on the contracts involved.

13

l ineair


Luxair’s Tour Operating business, which ismarketing Luxair Tours and Happy Summerholiday packages, carried 335,839 passengersin 2004. After a disappointing 2003, LuxairTour Operating has seen a 9.1% rise in cus-tomers. The French market is particularly flou-rishing, with growth up 12.9% over 2003, andthe German market, which literally collapsed in2003, has seen a 4.2% growth in customers.The biggest market is still Luxembourg, with46.2% of customers, followed by France(34.3%), Germany (14.0%) and Belgium(5.5%).

In 2004, Luxair offered 3,768 holiday flightsand the occupancy rate reached 72.7%, asagainst 3,269 flights and a 69.1% occupancyrate in 2003.

Spain is still the most popular destination, with44.1% of Luxair Tours customers, although itdid not benefit from the rise in leisure travellersin 2004. The latter preferred destinations thatoffer sun throughout the year, such as Egypt,Morocco and Malta. Seven new destinations wereadded in 2004 in Corsica, Greece, Sardinia,Bulgaria and Morocco.

In 2004, Luxair Tour Operating introduced newproducts, such as “First minute” reservation,free holiday packages for children, an attractiverange of cruises and reductions for specific agegroups. Its sales policy will continue to developin 2005, focusing on promotions for families,young people and senior citizens.

operatingtour


handling

15

In 2004, Luxair freight business grew by a spec-tacular 17.3%, or 112,277 tonnes, against theprevious year. With 762,359 tonnes handled bythe CargoCenter, the Luxembourg platform hasconsolidated its position as the fifth in rank ofthe European airports for airfreight handling.The number of aircraft movements has in-creased by 10%.

The main client of Luxair Cargo Handling,Cargolux, which represents 60% of the volumehandled, has contributed to this result with a16% increase in tonnage. With a 10% growth inproduction, the Panalpina partner has also par-ticipated in this positive trend. 2004 also sawthe return of the Israeli company El Al toLuxembourg and the arrival of the Chinese com-pany China Eastern.

cargo

Luxair Cargo Handlingended the 2004 finan-cial year with a 17,3%increase in the volumehandled


The main challenge for the future of Car-goCenter consists in anticipating growth incustomer demand; as a result, it has plannedfor the third extension of the Cargo infra-structure. This project involves an increaseof 12,000 m2 in storage space, a system forstoring 308 aircraft pallets and an additional

1,000 m2 of office space. Construction willbegin in the second half-year of 2005; workis expected to last for 15 months and theproject is scheduled to come into operationat the end of 2006. In 2007, the CargoCenterinfrastructure will be able to handle overone million tonnes.

Luxair Cargo Deutschland GmbH (LCDG), aLuxair subsidiary at Frankfurt Airport, hashandled a volume of 53,000 tonnes and it ismaking profit for its second year of operation.


17

In May 2004, the opening of “Short haul”Terminal B for intra-Schengen traffic of aircraftwith no more than 50 seats freed up the currentterminal, thanks to the increase in the numberof embarkation gates and aircraft parking lots.With 1,517,834 passengers passing throughFindel Airport, in 2004 passenger handling in-creased by 4.7% and aircraft movements roseby 4.2%, attaining a total of 45,246.

As the building site for the new terminal and un-derground car park caused a lack of parkinglots, temporary car parks, served by a Luxairbus shuttle service, have been installed for bothLuxair Tours customers and for business flightcustomers.

2004 saw the opening of the Prague-Luxem-bourg flight route operated by Czech Airlines,with one return flight per day, whereas AirNostrum suspended its daily flights to Madrid.Besides Luxair, ten passenger airlines operatedat Luxembourg Airport in 2004.

In 2005, the introduction of electronic ticketingwill mean that passengers will spend consider-ably less time checking in.

passenger handling


In 2004, Airport Shops saw the opening of athird sales outlet in addition to the two shops located in Terminal A. “The Schengen Store”opened its doors in May 2004, following theopening of “Short haul” Terminal B; it offerstravellers a selection of the items on sale in thetwo other shops.

For 2005, Airport Shops will continue their policyof offering luxury items at affordable prices,while developing “The Schengen Store”, which,unlike the shops in Terminal A, is also accessibleto passengers arriving in Luxembourg.

In 2004, Luxair Catering Services continued todevelop the excellent quality of its products, fo-cusing on home made food. This concern forquality is reflected in the new meals and snacksserved aboard Luxair flights. With the same aimin mind, 2004 saw an intensification of the al-ready highly efficient quality and hygiene controls.

In 2004, Luxair Catering Services provided1,182,850 meals on behalf of Luxair and170,540 meals for other airlines operating atFindel.

Airport Shops

Catering Services

At the passengers’service: customersatisfaction isone of Luxair’stop priorities


In our opinion, the attached annual accounts

give, in conformity with the legal and regula-

tory requirements in Luxembourg, a true and

fair view of the assets, liabilities and financial

position of LUXAIR S.A. at 31 December 2004

and the results of its operations for the year

then ended.

The management report is consistent with the

annual accounts.

DELOITTE S.A.Réviseur d’entreprises

Georges Kioes / Partner

April 18th, 2005

To the shareholders of Luxair S.A.

Following our appointment by the Annual

General Meeting of Shareholders of 10 May

2004 we have audited the attached annual

accounts of LUXAIR S.A. for the year ended

31 December 2004 and have read the related

management report. These annual accounts

and the management report are the responsi-

bility of the Board of Directors. Our respon-

sibility is to express an opinion on these

annual accounts based on our audit and to

verify the consistency of the management

report with the annual accounts.

We conducted our audit in accordance with

International Standards on Auditing. Those

Standards require that we plan and perform

the audit to obtain reasonable assurance

about whether the annual accounts are free

of material misstatement. An audit includes

examining, on a test basis, evidence supporting

the amounts and disclosures in the annual

accounts. An audit also includes assessing

the accounting principles used and significant

estimates made by the Board of Directors in

preparing the annual accounts, as well as

evaluating the overall annual accounts’ pre-

sentation. We believe that our audit provides

a reasonable basis for our opinion.

19

This annual report is a

free translation of the

original text in French. In

all matters of interpreta-

tion and otherwise, the

original French version of

this annual report shall

prevail.

reportauditors’

*04 Luxair_rapp_chiffres_GB 4/25/05 15:33 Uhr Seite 19

at 31 December 2004 (expressed in euro)

ASSETS Note* 2004 2003

FIXED ASSETSIntangible fixed assets 3

Concessions and licences acquired for valuable consideration 663,542 363,267

Tangible fixed assets 3Aircraft 143,698,376 110,237,200Land and buildings 49,763,277 53,044,833Plant, machinery and equipment 17,813,116 18,734,300Fixtures, fittings, tooling and furniture 6,818,438 8,595,381Payments on account and assets under construction 19,682,785 37,663,135

Investments 4Investments in afiliated undertakings 20 432,809 2,569,990Participating interests 26,375,858 26,375,858Investments held as fixed assets 208,789 208,789Other long-term receivables 1,918,316 2,047,402including: long-term receivable from afiliated undertakings 1,174,625 1,286,788Own shares 4,635,609 4,635,609

TOTAL FIXED ASSETS 272,010,915 264,475,764

CURRENT ASSETSStocks

Consumables 428,688 500,156Goods for resale 1,763,293 1,788,849

DebtorsTrade debtors 28,597,963 25,821,382Amounts owed by affiliated undertakings 291,958 558,691Amounts owed by participating interests 4,133,942 3,462,807Other debtors 5 19,768,336 19,595,877

Transferable securities 6 403,797 403,797

Cash at banks, in CCP accounts and in hand 122,118,994 71,302,688

TOTAL CURRENT ASSETS 177,506,971 123,434,247DEFERRED CHARGES AND ACCRUED INCOME 1,470,401 1,377,227GRAND TOTAL 450,988,287 389,287,238

* SEE NOTES TO THE ACCOUNTS

20

bal ance sheet*04 Luxair_rapp_chiffres_GB 4/25/05 15:34 Uhr Seite 20

21

at 31 December 2004 (expressed in euro)

LIABILITIES Note* 2004 2003

CAPITAL AND RESERVES 7Subscribed share capital 13,750,000 13,750,000Reserves

Legal reserve 1,375,000 1,375,000Reserve for own shares 4,635,609 4,635,609Other reserves 182,565,982 178,259,482

Retained earnings brought forward 66,299 764,972

TOTAL CAPITAL AND RESERVES 202,392,890 198,785,063

CAPITAL GAINS ROLLED OVER TO BE REINVESTED 8 13,443,537 13,443,537

PROVISIONS FOR LIABILITIES AND CHARGES 9Provisions for aircraft overhaul 3 34,761,712 33,721,401Provisions for pensions and similar obligations 22,478,806 21,657,769Provisions for taxation 6,520,086 5,831,675

Other provisions 9,590,442 15,643,913TOTAL PROVISIONS FOR LIABILITIES AND CHARGES 73,351,046 76,854,758

CREDITORS 10Bank loans and overdrafts 63,725,608 14,715,978

including: maturing in more than one year 52,178,194 7,475,572Trade creditors 35,696,360 38,708,580Amounts owed to affiliated undertakings 5,716,252 7,389,773Other creditors 13,169,609 11,232,643including: tax and social security 6,376,856 6,665,007

TOTAL CREDITORS 118,307,829 72,046,974

DEFERRED INCOME AND ACCRUED CHARGES 11 30,101,136 24,549,079PROFIT FOR THE FINANCIAL YEAR 13,391,849 3,607,827

GRAND TOTAL 450,988,287 389,287,238* SEE NOTES TO THE ACCOUNTS


for the year ended 31 December 2004 (expressed in euro)

Note* 2004 2003

OPERATING INCOMETurnover: 12

- air transportation 177,613,048 172,291,307- other services 128,416,190 116,783,274

306,029,238 289,074,581Other operating income 13 17,562,089 16,218,056

323,591,327 305,292,637

OPERATING EXPENSESExternal charges 14 (157,402,747) (151,997,847)Payroll costs 15 (113,226,828) (106,939,490)Depreciation of tangible and intangible assets 3 (33,816,089) (32,687,418)Other operating expenses 16 (15,268,414) (17,753,534)

(319,714,078) (309,378,289)OPERATING PROFIT 3,877,249 (4,085,652)

Income from participating interests 12,672,745 3,510,302including: affiliated undertakings 8,237,444 108,773

Amounts written off fixed asset investments and transferable securities held as current assets (210,524) (47,891)Interest and similar income 4,662,477 4,428,248

Including: affiliated undertakings 32,987 15,164Interest and similar charges (3,273,854) (1,344,705)

including: affiliated undertakings 136,554 100,702

FINANCIAL ITEMS, NET 13,850,844 6,545,954PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 17,728,093 2,460,302

Extraordinary income 17 2,229,765 7,137,032Extraordinary charges 18 (6,007,719) (6,640,595)

EXTRAORDINARY ITEMS, NET (3,777,954) 496,437PROFIT BEFORE TAXATION 13,950,139 2,956,739Tax on profit 9 (558,290) 651,088

PROFIT FOR THE FINANCIAL YEAR 13,391,849 3,607,827* SEE NOTES TO THE ACCOUNTS

22

profit and loss account


mentfor the year ended 31 December 2004 (expressed in euro)

Note* 2004 2003

NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES (I) 21 36,991,686 36,575,985

CASH FLOW FROM INVESTING ACTIVITIES (II)Purchase of intangible fixed assets (530,484) -

Purchase of tangible fixed assets (51,727,595) (44,511,006)

Proceeds on disposal of tangible fixed assets 90,432 18,735,652

(Increase)/Decrease in fixed asset investments, net 2,310,782 (1,669,461)

Interest received 4,662,477 4,428,500

Dividends received from equity investments 12,672,745 3,510,302

Recovery of amounts due under reinsurance arrangements from the non-contributory post-retirement benefits scheme 685,172 -

NET CASH (USED) BY INVESTING ACTIVITIES (31,836,471) (19,506,013)

CASH FLOW FROM FINANCING ACTIVITIES (III)New debt 60,000,000 -

Repayment of long-term debt (10,990,370) (7,240,038)

Interest paid (3,348,539) (1,419,390)

Dividends paid - (5,080,262)

NET CASH (USED) BY FINANCING ACTIVITIES 45,661,091 (13,739,690)

NET MOVEMENT IN CASH AND CASH EQUIVALENTS (I) + (II) + (III) 50,816,306 3,330,282CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 71,302,688 67,972,406

CASH AND CASH EQUIVALENTS AT END OF YEAR 122,118,994 71,302,688

23

cash flow state


2.1.1. Consolidated accountsUnder prevailing legislation, parent undertakings with subsidiaries are

required to prepare consolidated accounts. This requirement is

suspended where the subsidiary undertakings fulfil the conditions set

out in Article 317 of the Law of 10 August 1915 (as amended), as is

the case with regard to the Company's subsidiary undertakings.

2.2. Significant accounting policiesThe significant accounting policies applied are as follows:

2.2.1. Foreign exchangeThe Company's accounting reference currency is the euro (EUR) and

its annual accounts are expressed in this currency.

Income and expense items denominated in a foreign currency are

translated into EUR at the rate prevailing on the transaction date.

24

NOTE 1 GENERAL

The “Société Luxembourgeoise de Navigation Aérienne S.A. ("LUXAIR")”

(hereafter "the Company") was incorporated in the Grand-Duchy of

Luxembourg as a Société Anonyme on 9 January 1948.

NOTE 2 ACCOUNTING POLICIES

2.1. Accounting basisThe annual accounts are prepared under the historical cost conven-

tion, in accordance with prevailing Luxembourg legislation and with

generally accepted practice in the air transportation industry.

notes to the accounts


Monetary assets and liabilities together with balance sheet items

maturing in less than one year denominated in a foreign currency are

translated into EUR at the rate prevailing at the balance sheet date.

Unrealised exchange losses are recognised as an expense of the period.

Unrealised exchange gains are carried forward in the balance sheet

under “Deferred Income”.

2.2.2. Tangible fixed assetsTangible fixed assets are stated at acquisition cost less accumulated

depreciation.

Tangible assets are depreciated in equal annual instalments so as to

write them off over their estimated useful lives.

Items with an individual cost under EUR 870.00 are capitalised and

written off in full in the year of acquisition.

Annual rates of depreciation are applied under the straight-line method as follows:

Aircraft 6.66% to 10.00%Buildings 4.00% to 20.00%Plant, machinery and equipment 10.00% to 20.00%Fixtures, fittings, tooling and furniture 10.00% to 33.33%

2.2.2.1. Aircraft

Aircraft are stated at their historical cost translated at the historical

rate of exchange.

Rates of depreciation vary according to the type of aircraft.

Cabin interiors and other aircraft fixtures and fittings are depreciated

over the estimated useful life of the aircraft concerned.

2.2.2.2. Plant, machinery and equipment

This heading includes aircraft and engine replacement spares which

are depreciated over the estimated useful life of the aircraft to which

they relate.

2.2.3. InvestmentsInvestments in affiliated undertakings, participating interests and

investments held as fixed assets are stated individually at the lower of

acquisition cost and Directors' valuation. Individual valuation surpluses

and deficits are not offset.

Long-term loans included under this heading are stated at face value.

They are written down to their estimated realisable value when this is

lower than face value.

2.2.3.1. Own shares

The Company holds 10% of its own subscribed share capital, shown

under assets in the balance sheet at acquisition cost. In accordance

with the law, an identical amount has been credited to a Reserve for

own shares.

2.2.4. Stocks 2.2.4.1. Consumables

This heading comprises fuel, lubricant, catering stocks and miscella-

neous supplies. Certain lines are subject to specific write-downs.

2.2.4.2. Goods for resale

Airport shop inventories are stated at acquisition cost less a standard

write-down of 10%.

25


26

2.2.5. DebtorsDebtors are stated at face value. They are written down to their esti-

mated realisable value when this is lower than face value.

A standard write-down of 2% is applied to the face value of debtors

on which no specific value adjustment has been accounted for.

2.2.6. Transferable securitiesTransferable securities are stated at the lower of their purchase price

and estimated realisable value.

2.2.7. Provisions for risks and liabilitiesProvisions are raised at each financial year end so as to cover all fore-

seeable contingencies and charges. Provisions brought forward from

previous years are regularly reviewed and released where no longer

required.

2.2.7.1. Provisions for aircraft overhaul

Aircraft maintenance costs are expensed as incurred, with the exception

of costs relating to aircraft airframe and engine overhaul.

Overhaul costs are spread over the accounting periods to which the

overhaul relates using an estimate of external costs accrued under

Provisions for aircraft overhaul on the basis of flight hours and charged

to operating expenses under External charges: Aircraft maintenance

and repair. Provisions are released on completion of the overhaul

concerned.

With effect from the 1997 financial year, these provisions have been

treated as tax deductible.

2.2.7.2. Provisions for pensions and similar obligations

The Company operates a non-contributory post-retirement benefits

scheme for its staff. Obligations with respect to supplementary pensions

are the subject of external reinsurance arrangements until December 31,

1999.

Contributions to the scheme are made on the basis of regular actuarial

advice and are credited to “Provisions for pensions and similar obli-

gations”.

Amounts receivable under the reinsurance arrangements for the pur-

pose of meeting supplementary pension obligations are included

under “Other debtors”.

2.2.7.3. Provisions for taxation

This heading includes the estimated charge to income taxes for all

open fiscal years.

Advance payments against estimated assessments for open tax years

are included under “Other debtors”.


27

2.2.8. TurnoverAir transportation revenues are recognised when the transportation

service is provided. Corresponding commission costs payable to inter-

mediaries are also recognised on this basis.

Passenger ticket and cargo waybill sales are recorded as current liabi-

lities under “Deferred income: tickets issued but not yet used”.

Unused items are recognised as revenue on a predetermined scheme

as Turnover.

Revenues relating to the other activities are recognised at the time the

service is provided.

2.2.9. Derivative financial instrumentsThe company uses derivative financial instruments such as jet fuel

price swaps and collars in order to mitigate its exposure to the risk of

volatile jet fuel prices. As of december 31, 2004 there were no such

instruments in place.


28

NOTE 3 TANGIBLE FIXED ASSETS AND INTANGIBLE FIXED ASSETS

Revenues and charges relating to the disposal of the other tangible assets are registered as “Other operating income” respectively “Other operating expense” (see notes 13 and 16).

Aircraft Land and Plant, Fixtures, fittings, Concessions and Payments onbuildings machinery and tooling and licences acquired for account and assets

equipment furniture valuable consideration under construction

EUR EUR EUR EUR EUR EUR

Cost as at 1 January 2003 278,921,746 80,488,159 77,483,161 34,839,534 1,636,573 1,079,108

Additions 1,347 3,739,876 3,679,066 37,090,717

Transfers 60,281 446,409 (506,690)

Disposals (56,708,586) (3,677,871) (58,593) (3,212,453)

COST AS AT 31 DECEMBER 2003 222,213,160 76,811,635 81,224,725 35,752,556 1,636,573 37,663,135

Accumulated depreciation brought forward (139,711,758) (23,768,226) (56,132,786) (25,796,814) (835,401)

Depreciation charge for the year (17,631,071) (3,676,447) (6,409,554) (4,532,441) (437,905)

Adjustments on disposals / transfers 45,366,869 3,677,871 51,915 3,172,080

ACCUMULATED DEPRECIATION AS AT 31 DECEMBER 2003 (111,975,960) (23,766,802) (62,490,425) (27,157,175) (1,273,306)

NET BOOK VALUE AS AT 31 DECEMBER 2003 110,237,200 53,044,833 18,734,300 8,595,381 363,267 37,663,135

Cost as at 1 January 2004 222,213,160 76,811,635 81,224,725 35,752,556 1,636,573 37,663,135

Additions 32,547,037 438,768 3,643,768 2,930,125 530,484 12,167,897

Transfers 28,940,927 887,913 25,836 293,571 (30,148,247)

Disposals (158,730) (48,202)

COST AS AT 31 DECEMBER 2004 283,701,124 77,250,403 85,597,676 38,660,315 2,460,628 19,682,785

Accumulated depreciation brought forward (111,975,961) (23,766,802) (62,490,425) (27,157,175) (1,273,306)

Depreciation charge for the year (19,432,193) (3,720,324) (5,410,127) (4,729,665) (523,780)

Extraordinary depreciation (see note 18) (8,594,594)

Adjustments on disposals / transfers 115,992 44,963

ACCUMULATED DEPRECIATION AS AT 31 DECEMBER 2004 (140,002,748) (27,487,126) (67,784,560) (31,841,877) (1,797,086)

NET BOOK VALUE AS AT 31 DECEMBER 2004 143,698,376 49,763,277 17,813,116 6,818,438 663,542 19,682,785


LUXAIR FLEET AS AT 31 DECEMBER 2004:

Registration Aircraft type Net book Depreciation Financing method Secured / security Existing Provisions forvalue rate deposits borrowings overhaul

EUR % EUR EUR EUR

LX-LGC Fokker F-50 - 10.00 Japanese Leverage Lease - -

LX-LGD Fokker F-50 - 10.00 Japanese Leverage Lease - - 4,254,815

LX-LGE Fokker F-50 - 10,00 Japanese Leverage Lease - -

LX-LGN Boeing 737-500 - - Operating Lease 157,763 -

LX-LGO Boeing 737-500 4,653,935 6.66 85% bank finance

+ 15% own funds - 841,597 12,348,143

LX-LGP Boeing 737-500 4,711,225 6.66 85% bank finance

+ 15% own funds - 850,412

LX-LGQ Boeing 737-700 28,525,009 6.66 85% bank finance

+ 15% own funds - 28,500,000 1,260,947

LX-LGR Boeing 737-700 28,863,758 6.66 85% bank finance

+ 15% own funds - 27,750,000

LX-LGI Embraer ERJ 145 13,212,748 8.33 100% own funds - -

LX-LGJ Embraer ERJ 145 13,343,875 8.33 100% own funds -- -

LX-LGU Embraer ERJ 145 7,684,008 8.33 100% own funds - -

LX-LGV Embraer ERJ 145 8,933,413 8.33 100% own funds - - 9,748,610

LX-LGW Embraer ERJ 145 9,107,703 8.33 100% own funds - -

LX-LGX Embraer ERJ 145 9,109,861 8.33 100% own funds - -

LX-LGY Embraer ERJ 145 11,810,753 8.33 100% own funds - -

LX-LGZ Embraer ERJ 145 12,336,682 8.33 100% own funds - -

EI-DGN Boeing 737-400 - - Operating Lease 198,121 -

EI-DGM Boeing 737-400 - - Operating Lease 198,121 -

152,292,970 554,005 57,942,009 34,761,712

The two aircraft Boeing 737-400 (EI-DGN and EI-DGM) are subject to a sale and leaseback transaction and are operated by Blue Panorama, an Italybased company. The three aircraft Fokker 50 will be sold over the year 2005.

}

}

}}

}29

7.149.197


Affiliated Participating Investments held Other long-term Own sharesundertakings interests as fixed assets receivables

EUR EUR EUR EUR EUR

Cost as at 1 January 2003 2,580,020 34,307,417 208,824 435,531 4,635,609

Additions 72,277 1,727,730

Disposals (80,571) (84,284) (35) (35,093)COST AS AT 31 DECEMBER 2003 2,571,726 34,223,133 208,789 2,128,168 4,635,609

Amounts written off in prior years (34,780) (7,931,559) (32,876)

Amounts written back during the year 33,044 84,284

Translation differences (47,890)CAMOUNTS WRITTEN OFF AS AT 31 DECEMBER 2003 (1,736) (7,847,275) (80,766)

NET BOOK VALUE AS AT 31 DECEMBER 2003 2,569,990 26,375,858 208,789 2,047,402 4,635,609

Cost as at 1 January 2004 2,571,726 34,223,133 208,789 2,128,168 4,635,609

Additions 57,019

Disposals (2,138,917) (141,590)COST AS AT 31 DECEMBER 2004 432,809 34,223,133 208,789 2,043,597 4,635,609

Amounts written off in prior years (1,736) (7,847,275) (80,766)

Disposals 1,736

Translation differences (44,515)AMOUNTS WRITTEN OFF AS AT 31 DECEMBER 2004 (7,847,275) (125,281)

NET BOOK VALUE AS AT 31 DECEMBER 2004 432,809 26,375,858 208,789 1,918,316 4,635,609

30

NOTE 4 INVESTMENTS


NOTE 7 MOVEMENTS IN SHAREHOLDERS' EQUITY

Subscribed Legal reserve Reserve for own shares Other reserves Retained earnings Profit for the share capital financial year


Balance as at 1 January 2004 13,750,000 1,375,000 4,635,609 178,259,482 764,972 3,607,827

including: in respect of Net Worth Tax

- 1998 1,859,201

- 1999 2,528,514

- 2002 4,667,975

Appropriation of net profit for 2003

- Other reserves

including: in respect of Net Worth Tax

- 2003 4,306,500 (698,673) (3,607,827)

Profit for the financial year 2004 13,391,849

Balance at 31 December 2004 13,750,000 1,375,000 4,635,609 182,565,982 66,299 13,391,849

31

NOTE 5 OTHER DEBTORS

This heading may be analysed as follows:

2004 (in EUR) 2003 (in EUR)

Reinsurance fund for Staff Post-retirement

Benefits scheme (cf. note 10) 8,953,029 9,245,429

Advance payments of taxes 7,490,400 8,316,391

Other 3,324,907 2,034,057

TOTAL 19,768,336 19,595,877

Subscribed share capital The subscribed and fully paid up share capital is made up of 110,000 shares of

EUR 125 each, totalling EUR 13,750,000.

Legal reserveIn accordance with Luxembourg corporate law, the Company appropriated over the

preceding years a legal reserve equal to 10% of the subscribed share capital. This

reserve is not distributable.

NOTE 6 TRANSFERABLE SECURITIES

In the past, the Company recorded value adjustments pursuant to Article 244(1) c)

of Luxembourg corporate law in order to be protected against possible valuation

changes in the future. The amounts recorded in the balance sheet amount to

EUR 1,013,565 (2003: EUR 914,652).

Other reservesIf the special reserve equalling five times the amount of the charge to Net Worth Tax

for the respective financial year is maintained for a period of five years, the Company

is allowed to deduct the Net Worth Tax charge against its own base up to the amount

of Corporate Income Tax.


The tax estimate is stated net of the unutilised balance of investment

tax credits already granted by the tax authorities together with the esti-

mated amount of tax credits deductible from the tax charge of the year

under review. The total amount of investment tax credits deducted

from the provision for fiscal year 2004 was estimated at EUR

2,421,824 (2003: EUR 783,016). Income tax amounts written back

are shown under “Tax on profit”. Final assessments were agreed

during the year for fiscal year 2000.

The Tax on profit may be subdivided as follows:

2004 (in EUR) 2003 (in EUR)

Amounts charged to provisions for tax

on profit for the current year:

Municipal business tax 792,556 255,359

Amounts charged to/(released from)

provisions for tax on profit for prior

fiscal years:

Corporate income tax (111,403) (1,258,624)

Municipal business tax (122,863) 352,177

Sub-total (234,266) (906,447)

Total tax on profit 558,290 (651,088)

32

NOTE 8 CAPITAL GAINS ROLLED OVER TO BE REINVESTED

Gains arising from asset disposals intended for the acquisition of replace-ment assets were transferred to this item in application of Article 53 ofthe Corporate Income Tax Law.

NOTE 9 PROVISIONS FOR LIABILITIES AND CHARGES

Provisions for pensions and similar obligations

The book provision with respect to the Company's obligations under its

non-contributory post-retirement benefits scheme amounts to EUR

22,478,806 (2003: EUR 21,657,769).

The corresponding reinsurance fund included under “Other debtors”

amounts to EUR 8,953,029 (2003: 9,245,429) and represents insurance

premiums paid to the insurer up to 31 December 1999 (see note 5).

Provisions for taxationTax provisions of EUR 6,520,086 (2003: EUR 5,831,675) relate to the

aggregate estimated assessments for the open fiscal years 2001 to 2004

inclusive (2003: 2000 to 2003 inclusive). Advance payments to the tax

authorities for open years not yet assessed amount to EUR 7,490,400 as

at 31 December 2004 (2003: EUR 8,316,391) and are included under

“Other debtors” (see note 5).


33

NOTE 10 CREDITORS

All creditors with the exception of certain bank loans are due within less than one year.

Bank loans and overdrafts

2004 2003

Less than One to Over Less than One to Overone year five years five years one year five years five years


Borrowings in respect of aircraft purchases

- Boeing 737-500, LX-LGO et LX-LGP 1,692,009 - - 3,384,018 1,692,009 -

- Boeing 737-700, LX-LGQ et LX-LGR 6,000,000 24,000,000 26,250,000 - - -

Other bank borrowings 3,856,240 1,927,359 - 3,856,388 5,783,563 -

TOTAL 11,548,249 25,927,359 26,250,000 7,240,406 7,475,572 -

Borrowings in respect of aircraft purchasesThe loan for the two Boeing 737-500 is guaranteed by the Export Import Bank of the United States of America (Exim Bank). All loans in relation to the acqui-

sition of aircraft are covered by a mortgage. The risk on interest rate fluctuations on the loan for the two Boeing 737-700 is covered through two interest rate

swaps for the entire amount of the loan.


34


35

NOTE 11 DEFERRED INCOME AND ACCRUED CHARGES

2004 (in EUR) 2003 (in EUR)

Tickets issued but not yet used 24,908,560 21,442,719

Unrealised exchange gains 612,960 597,959

Other 4,579,616 2,508,401

TOTAL 30,101,136 24,549,079

NOTE 12 TURNOVER

Analysis by type of business:2004 (in EUR) 2003 (in EUR)

Air transportation

Passenger 177,226,330 171,839,235

Freight and mail 386,718 452,072

TOTAL AIR TRANSPORTATION 177,613,048 172,291,307

Other services 128,416,190 116,783,274

TOTAL TURNOVER 306,029,238 289,074,581

Other services include the following business operations:

• terminal support, freight handling and storage,

• Luxair Tour Operating,

• in-terminal Airport Shops sales,

• catering services.

NOTE 13 OTHER OPERATING INCOME

2004 (in EUR) 2003 (in EUR)

Other income from prior years 686,957 279,747

Realised exchange gains 5,465,729 7,156,321

Gains on disposal of tangible fixed assets 47,682 209,852

Other sundry income 11,361,721 8,572,136

TOTAL 17,562,089 16,218,056

For the year ended 31 December 2004, “Other sundry income” include write-backs

of provisions for an amount of EUR 3,511,749 (2003: EUR 2,149,449).


36

NOTE 14 EXTERNAL CHARGES

2004 (in EUR) 2003 (in EUR)

Fuels and lubricants 20,485,187 17,307,086

Aircraft leasing 5,040,570 5,548,221

Aircraft maintenance and repair 17,623,650 19,849,257

Handling, landing and overflight fees 37,841,691 37,482,293

Purchases of goods for resale 7,676,803 8,426,408

Commissions 35,953,274 34,307,737

Other 32,781,572 29,076,845

TOTAL 157,402,747 151,997,847

NOTE 15 PAYROLL COSTS

2004 (in EUR) 2003 (in EUR)

Salaries 98,659,082 92,073,790

Social security and similar contributions 14,567,746 14,865,700

including: pensions 6,816,263 6,482,869

TOTAL 113,226,828 106,939,490

Staff numbersThe average number of staff employed by the Company and expressed in full time

equivalent may be analysed as follows:

2004 2003

Ground staff 870 849

Pilots 145 148

Cabin crew 147 155

Manual grades 1,028 985

TOTAL 2,190 2,137

These figures include part-time and seasonal workers.

Directors' feesA net total of EUR 104,568 (2003: EUR 87,061) was voted as remuneration payable

in respect of the duties performed by the Directors and the Government

Commissioner.

NOTE 16 OTHER OPERATING EXPENSES

2004 (in EUR) 2003 (in EUR)

Amounts charged to provisions 49,256 550,588

Unrealised and realised exchange losses 8,522,530 10,658,748

including: unrealised exchange losses 3,211,008 3,409,017

Charge to Net Worth Tax 1,484,951 800,491

Other 5,211,677 5,743,707

TOTAL 15,268,414 17,753,534


37

NOTE 17 EXTRAORDINARY INCOME

The extraordinary income contains the income generated out of the sub-lease of the

two Boeing 737-400 which is considered as a capital gain out of the sale and lease-

back transaction entered into in December 2003.

NOTE 18 EXTRAORDINARY CHARGES

The extraordinary income comprises the extraordinary depreciation on the Embraer

145 aircraft in relation to the depreciation of the US dollar, the latter being the acqui-

sition currency for those aircraft.

NOTE 19 OFF-BALANCE SHEET COMMITMENTS

2004 (in EUR) 2003 (in EUR)

Bank guarantees in favour of third parties 140,092 20,452

Bank guarantees in favour

of associated undertakings - 83,847

Bank guarantees in favour of participating interests 731,286 929,601

Firm aircraft orders 47,317,813 89,965,817

Jet fuel price swap contracts - 6,437,195

Forward purchase of currencies 11,400,833 12,064,807


NOTE 20 SIGNIFICANT SUBSIDIARY AND ASSOCIATED COMPANIES

At 31 December 2004 undertakings in which the Company held an equity interest of 20% or more were as follows:

Name of company Reg'd office Equity interest Accounts Shareholders' equity Net profit / Principal activity(locality) (in %) denominated as at 31.12.2004 (loss) for

in before FY 2004appropriation

(local currency) (local currency)

Subsidiary companies:Air Pub S.à r.l. (*) Niederanven 100% EUR 19,923 286 Purchase/sale of advertising space

Airrest S.A. (*) Niederanven 99% EUR 1,641,464 242,951 Catering

Luxair Commuter S.A. (*) Sandweiler 99% EUR 114,197 1,183 Leasing of aircraft with crew

Luxair Finance S.A.R.L. (*) Sandweiler 100% EUR 4,562,617 146,657 Equity investment

Luxair Cargo Deutschland GmbH(*) Frankfurt 100% EUR (139,466) 327,747 Cargo handling

Associated companies:Cargolux Airlines International S.A. (*) Niederanven 34.88% USD 379,264,639 83,455,836 Cargo air transportation

Eurocargo S.A. (*) Sandweiler 50% EUR 119,040 666 Dormant

Luxair Executive S.A. (*) Sandweiler 51% EUR 311,369 30,824 Aircraft chartering

Luxfuel S.A. Niederanven 40% EUR 5,369,517 1,441,693 Aircraft refuelling and fuel storage

Shares in Eurocargo S.A. are 25% paid. The amount unpaid and uncalled of EUR 37,500 is included under “Other creditors”.

In 2004, the companies “Luxair France S.A.” and “Luxair Deutschland GmbH” were liquidated.

The company “Luxair Finance” has been converted into an LLC from a PLC without changing its holding company status

(*) Figures based on draft annual accounts for the year ended 31 December 2004

38


3939

NOTE 21 NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES

2004 (in EUR) 2003 (in EUR)

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 17,728,093 2,460,302

ADJUSTMENTS FOR ITEMS NOT INVOLVING THE MOVEMENT OF CASHAmortisation of intangible fixed assets 523,780 437,905

Depreciation of tangible fixed assets 33,292,309 32,249,510

(Decrease)/Increase in provisions, net 24,952 11,411,182

Losses/(Gains) on disposal of tangible fixed assets, net (44,455) (7,346,883)

33,796,586 36,751,714

ADJUSTMENTS FOR NON-OPERATING INCOME AND EXPENSE ITEMS

Income from participating interests (12,672,745) (3,510,302)Interest and similar income (4,662,477) (4,428,248)

Interest and similar charges 3,273,854 1,344,705

(14,061,368) (6,593,845)

OPERATING CASH FLOW BEFORE MOVEMENTS IN WORKING CAPITAL 37,463,311 32,618,171

Decrease/(Increase) in stocks 97,024 (135,241)

Decrease/(Increase) in trade and sundry debtors (3,484,052) 218,099

Increase in trade and sundry creditors 2,877,967 3,815,820

(509,061) 3,898,678

CASH FLOW PROVIDED BY OPERATING ACTIVITIES 36,954,250 36,516,849

Income taxes paid (700,000) (619,733)

Income taxes repaid 737,436 678,869

NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES 36,991,686 36,575,985


40

LUXAIR

Corporate Communications

Mr Bob Wetzel, Vice-President Corporate Communications

L-2987 Luxembourg

Tél.: (+352) 2456 4281

Fax: (+352) 2456 4289

www.luxair.lu

[email protected]

Concept Factory S.A.

21, rue de Pont-Rémy

L-2423 Luxembourg

Air Pub S.à r.l.

L-2987 Luxembourg

Luxair

Fr. Faber

7, rue des Prés

L-7561 Mersch

Luxair Corporate Communications

editeur

design

adaptation

texte

printed by

photography


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