adria_airways_annual_eng_report_2008

2008

http://www.adria.si/en/index.cp2

INTRODUCTION 6

1. Key Achievements of the Business Year 8

1.1. Key Achievements of the Business Year in Figures 8

1.2. Important Events in 2008 13

1.3. Letter from the Management Board 16

1.4. Report by the President of the Supervisory Board 18

2. General Information 20

2.1. About the Company 20

2.2. Ownership Structure 20

2.3. Fleet 21

2.4. Company History 24

3. Managing the Company 25

3.1. Management Bodies 25

3.2. Management of Subsidiary Companies 27

3.3. Organisational Structure 27

BUSINESS REPORT 28

4. Mission, Vision and Company Strategy 30

5. Care for Our Passengers 34

6. Operating Conditions in 2008 40

7. Business Segments 43

7.1. Scheduled Flights 43

7.2. Charter Services 48

7.3. Leasing out Aircraft 50

7.4. Marketing the Media Space 52

7.5. Cargo Transport 54

7.6. Aircraft Servicing for Third Parties 56

7.7. Education, Flight School 60

8. Partnerships 63

9. Quality 65

10. Safety 66

11. Informatics 68

12. Risk Management 70

13. Analysis of Business Results 80

14. Events After the End of the Business Year 90

15. Plans for the Future 91

TABLE OF CONTENTS

Adria Airways / Annual Report 2008 / TABLE OF CONTENTS

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SUSTAINABILITY REPORT 96

16. Employees 98

17. The Environment 103

18. Relations with the Wider Social Environment 105

19. Corporate Communications 107

20. Passenger Satisfaction 109

21. Research and Development 111

22. Who’s who, Contacts 112

23. Adria Offices and Points of Sale 113

FINANCIAL STATEMENTS 118

1 General Information 120

2. Statement of Responsibility of the Management Board 121

3. Auditor's Report 122

4. Financial Statements 123

4.1. Balance Sheet 123

4.2. Income Statement 124

4.3. Cash Flow Statement for 2008 125

4.4. Statement of Changes in Equity for 2008 127

4.5. Balance Sheet Profit 129

5 Summary of Significant Accounting Policies 130

6. Classifications and Notes to the Financial Statements 144

6.1. Additional Disclosures of the Balance Sheet Items 144

6.1.1. Intangible Assets and Long-Term Deferred Costs 144

6.1.2. Property, Plant and Equipment 145

6.1.3. Investment Property 149

6.1.4. Long-Term Financial Investments 150

6.1.5. Long-Term Operating Receivables 152

6.1.6. Inventories 152

6.1.7. Short-Term Financial Investments 153

6.1.8. Short-Term Operating Receivables 153

6.1.9. Cash 155


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6.1.10. Short-Term Deferred Costs and Accrued Revenue 155

6.1.11. Equity 156

6.1.12. Provisions and Long-Term Accrued Costs and Deferred Revenue 157

6.1.13. Financial Liabilities 158

6.1.14. Short-Term Operating Liabilities 160

6.1.15. Short-Term Accrued Costs and Deferred Revenue 161

6.1.16. Off-Balance Sheet Assets/Liabilities 162

6.1.17. Financial Instruments 163

6.2. Additional Disclosures of the Income Statement Items 165

6.2.1. Net Sales 165

6.2.2. Costs of Goods, Material and Services 166

6.2.3. Labour Costs 167

6.2.4. Write-Downs 168

6.2.5. Financial Revenues 169

6.2.6. Financial Expenses 169

6.2.7. Income Tax 170

6.2.8. Net Profit or Loss 170

7. Other Disclosures 172

7.1. Information on Groups of Persons 172

8. Events after the Balance Sheet Date 173

9. Financial Statements − Expanded Format 174

9.1. Balance Sheet – Expanded Format under SAS 174

9.2. Income Statement – Expanded Format under SAS 177


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We have built a bridge between Slovenia and Europe. We carry many thoughts to the world, we are there when hands are shaken for greetings. We contributed our share to Slovenia’s Presidency of the EU.

INTRODUCTION

We Have Built

We Have Built

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INTRODUCTION1. Key Achievements of the Business Year

1.1. Key Achievements of the Business Year in Figures

Item Unit 2008 2007 2006

Revenue and results

Total revenue in EUR 207,242,233 181,998,193 157,380,137

Revenue – passenger transport in EUR 171,694,491 137,226,061 124,686,220

Operating profit in EUR 1,217,161 4,173,510 751,466

Net profit/loss in EUR -3,240,997 425,272 70,102

Balance sheet and cash flow

Assets in EUR 152,224,001 159,765,355 122,650,231

Equity in EUR 34,009,658 40,304,957 29,711,463

Equity/assets in % 22 25 24

Cash flow from operating activities in EUR 18,514,681 16,890,914 6,510,195

Physical data

Number of passengers flown 1,302,172 1,136,431 1,018,007

Load factors in % 65.6 67.1 66.4

Number of flights 27,183 23,727 21,420

Seat capacity offered 924 776 748

Seat kilometres offered 2,055,981 1,767,966 1,570,949

Passenger-kilometres 1,348,845 1,185,519 1,043,118

Average distance in km 888 869 852

Fuel consumption in tonnes 63,240 54,662 48,585

Planes utilization rate in h/day 9.79 9.82 9.44

Employees

Employees – as at 31 December 719 679 592

In spite of the negative operating result of € 3.2 million, the operating activities of the Company are satisfactory.

We exceeded all business parameters set up in the business plan for 2008. The number of passengers flown increased by 15 % in comparison to the previous year, which is only 2 % less than projected in the plan. The number of flights rose by 15 % in comparison to the previous year and was 4 % lower than projected in the plan. The net sales revenues were exceeded by 15 % compared to 2007 and exceeded the plans by 6 %. For the first time in its history the total revenues of Adria exceeded € 200 million.

We practically surpassed all parameters for business operations.

Adria Airways / Annual Report 2008 / INTRODUCTION

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At the beginning of the second quarter of the year we faced the biggest kerosene price crisis in aviation history. The price of kerosene surpassed all expectations and exceeded even the most pessimistic prognoses. The price rise of kerosene had such a strong impact on the airlines that the majority of aviation and economic analysts compared the situation to the catastrophe in the aviation industry after 11 September 2001. The impact on the airlines was even more devastating because the highest price level was reached during the peak flying season when kerosene consumption is highest.

The International Air Transport Association (IATA) corrected the projected operating activities of airlines every 14 days. Initially, $ 6.2 billion of profit was projected, but later it was estimated that the members of the association would end up with a loss of $ 5 billion. All airlines had to face this situation, regardless of their size and offer or way of flying. One by one, the airlines drastically changed the projections for operating activities in 2008. The kerosene price had a truly dramatic impact on all air carriers.

The kerosene price also had a decisive impact on Adria's financial result. In 2008, the Company spent € 11.2 million more on kerosene than projected, bearing in mind that the number of hours flown decreased by 4 %. The Company's highest operating cost was the cost of fuel, which totally changed the balance sheet, and its ratio in the revenues structure increased from 18 % to 24 %. The actual impact of the kerosene price on the Company's operations is even stronger, but we managed to reduce it to a certain extent by establishing financial instruments.

Regardless of such a nominal increase in the fuel costs (€ 11.2 million) we ended the year with a loss of € 3.2 million. Most of the increase in the fuel costs was moderated by higher revenues due to more tickets sold and a higher price of tickets, while the second part was eased with the help of the established financial instruments mentioned above as well as restrictive management of other operating costs. In addition to the kerosene prices, the economic recession was another factor that influenced the financial result of the Company and was prominent especially in the last two months of operation. The growth of the number of passengers flown decreased from 26 % in the first half of the year to 6 % in the second half or a total of 20 index points.

Due to the projected recession, the airlines in Europe and across the world suffered a setback in the last quarter of the year. In the last 3 months there was a drop in demand, i.e. the number of passengers. The result was a total loss in the amount of $ 8 billion. 50 % of the loss was generated in the last quarter, which was a negative surprise for all airlines according to the IATA.


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Surely we cannot be pleased with the loss, but in view of the facts mentioned above operations were satisfactory. Although the negative effect of the extremely high kerosene prices could not be compensated totally, it was moderated with the measures mentioned above. The year ended with a loss, but the result was better than the overall estimation by the International Air Transport Association (IATA) and better than the result of comparable European airlines.

Development Indicators for Adria Airways d.d. from 2006 to 2008

Growth of the Scale of Operations of Adria Airways d.d.

2008

2007

2006

0 70,000,000 140,000,000

114

116

210,000,000

207,242,233

181,998,193

157,380,137

IndexRevenue in EUR

Over a million passengers flown for the third time in independent Slovenia.

2008

2007

2006

0 400,000 800,000

115

112

1,200,000

IndexNumber ofPassengers Carried

1,302,172

1,136,431

1,018,007


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Growth of the number of passenger flights in 2008 amounts to 15 % compared to 2007.

2008

2007

2006

0 10,000 20,000

115

111

30,000

IndexNumber ofFlights

27,183

23,727

21,420

Growth of our fleet in 2008; one new CRJ–900 aircraft with 86 seats was added to our fleet.

2008

2007

2006

0 5 10

107

117

15

IndexNumber ofAircraft

15

14

12


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We recorded growth in the number of weekly frequencies in scheduled flights, which increased by 12 % compared to 2007 during the summer and winter seasons.

350

300

250

200

150

100

50

0

2006 2007 2008

Number ofWeeklyFrequencies

SummerWinter

201 190 225 212 261 228

Comparison of the load factors and the revenue passenger kilometre (yield) in 2008; yield is the yield/RPK

70

60

50

40

30

20

10

0

20

18

16

14

12

10

8

6

4

2

0

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.Jan.-Dec.

Comparison ofLoad Factors andRevenue PassengerKilometre (yield)on Scheduled Flights

Passenger Cabin Efficiency as a %

RPK in EUR Cents

Pas

seng

er C

abin

Eff

icie

ncy

as a

%

RP

K in

EU

R C

ents

57.57

13.09

60.18

14.06

63.93

14.13

61.81

14.04

67.70

13.90

68.40

14.31

69.02

12.74

68.64

12.04

65.19

14.25

61.64

14.82

53.80

15.66

55.61

14.09

63.25

13.92


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1.2. Important Events in 2008

The First Quarter

We successfully completed the second ● renewal assessment for the IOSA standard in January 2008 and we are one of the first air carriers in the world that obtained the IOSA certificate already for the third time.

In February, we signed contracts with a ● foreign leasing company for the operational lease of two ordered CRJ–900 aircraft, which will join our fleet in December 2008 and January 2009.

In February 2008, the Company ● raised the starting salaries by an average of 10 % due to the high inflation in 2007 and upon agreement with the social partners.

● Intensive advertising of new routes in Slovene media: the radio, the Adria Airways website and to some extent print media were chosen as the main media for promotion.

● Accelerated introduction of electronic tickets.

● “Open Skies” agreement between the EU and the USA came into force on 30 March 2008. It is anticipated that the liberalisation of this market will have an impact on the price reduction for air tickets as a consequence of more competition.

In March 2008, the ● Boeing 737-500 aircraft, leased from Ukraine International Airlines, was entered into the Slovene aircraft register.

● The President of the Management Board & CEO, Tadej Tufek, M.Sc. became the “2008 Young Manager of the Year”.


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The Second Quarter

Along with the summer timetable ● four new routes were gradually introduced: Athens, Bucharest, Stockholm and Oslo.

The ● construction of the new business building at Brnik began.

A dramatic ● increase in kerosene prices until the end of the peak season.

We are continuing the process of ● fleet optimisation and expanding capacities: in April we leased a Fokker 100 and hired the crew for the summer season, and put our second Airbus 320 into operation. In June, another CRJ–200 aircraft was leased for the period of 3 months, but no crew was hired.

As an ● official airline operator during the time of the Slovenian Presidency of the EU, we flew more passengers on our flights, especially between Ljubljana and Brussels, but also from other European destinations and the Balkans. In the period January-June the number of passengers on our scheduled flights increased by 25 %.

● Establishment of the Schengen Regime – due to an improper distribution of passenger flows there are delays at the Ljubljana Jože Pučnik Airport.

● Major maintenance activities for our own fleet – in our hangars more than ten major inspections of our aircraft were carried out.

The Third Quarter

According to the study by Kline & Kline, the expert and non-expert public rated us among ● the top quarter of the most reputable companies in Slovenia. We placed 36th among the most reputable companies in Slovenia. This is an impressive leap from the 171st position when we placed at the bottom of the ranking list two years ago.

On 1 September, we signed a ● code-share agreement with Brussels Airlines for the route Ljubljana Brussels.

The millionth passenger ● already in the first nine months.


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The Fourth Quarter

While ● kerosene prices rose dramatically until the end of peak season, an unexpected drop in prices occurred in the last three months of 2008, which had a positive impact on operations from October on. However, it has to be pointed out that the prices were on average still 46 % higher in 2008 than in 2007.

In the winter season, Finnair stopped flights to Ljubljana, whilst EasyJet decreased the ●frequency of flights to London.

The ● 20th Anniversary of our In-Flight Magazine.

New uniforms ● for the aircrew.

Adria is the ● most reliable air carrier for CRJ-100/200 worldwide – Bombardier's Airline Reliability Performance Award.

In the middle of December, a third CRJ-900 aircraft was added to our fleet, which was leased ●from the German leasing company GOAL.


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1.3. Letter from the Management Board

Ladies and Gentlemen!

For us, 2008 was a year of two extremes: the highest oil prices in history and one of the deepest financial crises in history. Both parameters had a drastic impact on Europe and the rest of the world.

Adria Airways was hit by the oil and financial crisis, too. The balance sheet changed profoundly. The cost structure looks completely different. Kerosene, our most valuable resource, became the highest operating cost. The financing of business activities became more expensive and more demanding.

However, the foundations we laid over the last years are solid. Therefore, we managed to build up the Company in 2008 despite the crisis. With the diligence of a first-rate builder we expanded the network of our flights. New destinations were added to the effective network of routes: Athens, Bucharest, Oslo and Stockholm. We did our best to ensure that business travellers and tourists flying on the new routes would be satisfied.

We built a bridge between Slovenia and Europe. We brought our country one step closer to Europe and added to the country's reputation. As the official air carrier of the Portuguese Government for the handover of the Presidency and the official air carrier of the Government


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of the Republic of Slovenia during the Presidency we enhanced the recognition of Slovenia and our Company, and contributed to the success of the EU Presidency.

In addition, we were successfully building our own reputation. The Company used to be on place 52 but was now ranked on place 36 among the most reputable companies in Slovenia by the non-expert public and on place 28 by the expert public. We take pride in this achievement and see it as a confirmation that we are on the right track. At the same time we see it as our obligation to grow the small plant of trust.

The fleet has been upgraded. In 2008, a new CRJ–900 aircraft was added to our fleet. We managed to build up an efficient environment-friendly fleet. In addition to the enlargement of the fleet and the capacities we fostered a responsible attitude towards the environment. The last three aircraft that were added to our fleet are more environment-friendly. They meet the strict criteria for environment protection, and the CO2 emissions per km flown are 5.6 % lower in comparison to the existing fleet.

Finally, we also literally did some building. In 2008, on the edge of the wooded area a new, energy-saving and environment-friendly business building was erected at our home airport. When the new building will be finished all employees will be working at the same location, the employees at the airport and the other employees will be closer to each other and communica-tion between employees and business partners will be harmonized.

Looking back at 2008, we take pride in our achievements. In spite of the oil and financial crisis we were able to continue building up a modern, efficient and reputable company with strong foundations.

This is also our commitment for the future.

Tadej Tufek, M.Sc. Marjan Ravnikar, M.Sc.President of the Management Board & CEO Vice-President of the Management Board


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1.4. Report by the President of the Supervisory Board

The 2008 business year was extremely important for Adria Airways since it was a year of super-latives.

It was the year of the EU Presidency. Consequently, Adria Airways achieved an enviable growth in the number of passengers of 24 % during this period; however, the Company also made it on the list of the most reputable airlines. During the Presidency, Adria Airways successfully contributed to Slovenia's reputation in Europe and increased Slovenia's recognition, as the official air carrier of the Government of the Republic of Slovenia.

It was a great honour and acknowledgment for Adria Airways to become the official carrier of the Portuguese Government for the period of the handover of the EU Presidency.

In this year, Adria Airways also recorded an enviable growth in revenue, which was a result of the physical growth of the Company. The increase in the number of licences obtained for authorised mechanics, the increase in the number of trained pilots, new licences acquired by the cabin crew and the new aircraft are a good basis for further growth of the Company.

Unfortunately, 2008 was also a year of negative superlatives. The oil price explosion had a significant impact on Adria Airways' business year. Just in this period our airline could have recorded the best results in its history due to the enormous growth, but the extreme price of oil prevented it. In such a situation the Supervisory Board finds it hard to take decisions regarding further growth. However, without resources, namely new aircraft and servicing plants and a higher number of operating personnel, no growth is possible even during an upswing. Therefore, despite high oil prices and extremely difficult operating conditions we ensured the basis for the growth of the Company.

In 2008, two more new CRJ–900 aircraft made by the Canadian manufacturer Bombardier Aerospace had been added to Adria Airways' fleet.

Moreover, the Supervisory Board gave its consent for a capital injection, which would addition-ally provide for conditions for further growth of the Company.

The Supervisory Board had 4 regular sessions in 2008, where the operating results and the impact of the oil crisis on the Company's operations were primarily discussed. After a detailed presentation of the operations of airlines across Europe and around the world, the Adria Airways' Supervisory Board believes, from an impartial point of view, that the oil companies had a negative impact on the operation of all airlines, hence also on ours. Thus, a deviation from the


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planned profit of Adria Airways is, objectively speaking, justified. This assumption is supported by the official report for the business year by the International Air Transport Association (IATA), which confirmed the catastrophic impact of oil prices on the operations of airlines in its annual report. IATA's forecast changed from an optimistic profit of USD 4.5 billion to a loss of USD 8.2 billion.

On the basis of these objective conditions the Supervisory Board of Adria Airways considers the Company’s operations in 2008 to be successful.

President of the Supervisory BoardBranko Franc Grošl


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2. General Information

2.1. About the Company

Address: Adria Airways, Slovenski letalski prevoznik, d.d. (abbreviated to: Adria Airways d.d.)Kuzmičeva 7, 1000 Ljubljana, Slovenija

Legal status: Public Limited CompanyTelephone: +386 1 369 1000Telefax: +386 1 43 69 233Website address: www.adria-airways.comNumber of employees as of 31.12.2008: 719Year of establishment: 1961Registration number: 5156505VAT number: SI51049406Companies register number: 200208417Entry number: 061/10135200Share capital: € 6,782,156Nominal value of share: € 8.35

2.2. Ownership Structure

Kapitalska družba d.d, Dunajska cesta 119, 1000 Ljubljana, is a controlling undertaking which is in charge of preparing a consolidated annual report for the group’s undertakings, and in relation to which Adria Airways d.d. is a controlled undertaking.

The share capital of Adria Airways d.d. is divided into 812,436 ordinary inscribed split shares. The value of one split share amounts to € 8.35.

On 30 December 2008 Nova Ljubljanska banka d.d. acquired 68,631 AARG shares, which is 8.45 % of the voting rights. The Management Board of Adria Airways d.d. announced the change concerning this significant share in the company to the public.


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1. Kapitalska družba d.d.and Kapitalska družba d.d. - PPS

2. Slovenska odškodninska družba d.d.3. NLB d.d.4. Uravnoteženi slovenski sklad Infond Global5. Individa d.o.o.6. Other Shareholders

77,72 %10,00 %

8,45 %2,44 %0,37 %1,02 %

1

2

34 56As of

31 December 2008, the Company had 54 shareholders.

2.3. Fleet

The optimal fleet is a key element of Adria Airways’ adaptation to competitive circumstances in the liberalised European air transport market. In 2007 two new CRJ–900 aircraft with 86 seats each were successfully added to our fleet, and later at the end of 2008 an additional CRJ–900. Due to favourable conditions and the extension of the “wet-lease” operation of one of our A–320 aircraft in Libya, we renewed the leasing contract for the B737-500 aircraft with Ukraine International Airlines. Due to the changes in EU legislation we entered the aircraft to Adria's AOC and the Slovene aircraft register.

In 2008, the Adria Airways’ fleet consisted of:

Number of flights Aircraft type Ownership Note

3 Airbus A-320 owned aircraft

7 Canadair CRJ-200 5 owned, 2 leased one leased until 2012, one only for 3 months

1 Canadair CRJ-100 leased by 2009

2 Canadair CRJ-900 2 owned, 1 leased (December 2008) leased by 2018

1 Boeing 737-500 leased – wet-lease for 1 year

1 Fokker 100 leased – wet-lease for 6 months in high season

Owing to the rising demand for aircraft in our fleet (in Ljubljana), we ended the wet-lease of one A–320 aircraft in April 2008.


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Due to the wet-lease of one of our A–320 aircraft and the arrival of the additional CRJ–900 aircraft as late as December 2008, we leased a Boeing 737-500 as well as an aircraft from Carpatair for the summer season, namely a Fokker 100 with 108 seats.

Considering the increase in the number of aircraft capacities and in view of past experience according to which all additional capacities are needed in summer season, and because the number of aircraft is so high that there is a constant need for maintenance (constant regular maintenance of one aircraft), we took an opportunity and added another CRJ–200 aircraft to our fleet for a period of 3 months in high season, which we dry-leased (the aircraft was entered in our register and our AOC and was operated by our crew).

In April 2008, we sold the Saab 340A cargo aircraft and the relevant spare parts.

Below are the details on individual aircraft types.

Airbus A-320

Airbus A-320

Length 37.57 m

Height 11.75 m

Wing-span 34.1 m

Cruising speed 900 km/h

Max. altitude 11,700 m

Range 3,890 km

Seat capacity 162

Canadair Regional Jet CRJ-200 LR

Canadair Regional Jet CRJ-200 LR

Length 26.77 m

Height 6.22 m

Wing-span 21.21 m



Range 3,285 km

Seat capacity 48/50


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Canadair Regional Jet CRJ-900

Canadair Regional Jet CRJ-900

Length 36.40 m

Height 7.51 m

Wing-span 24.90 m



Range 3,660 km

Seat capacity 86

Pitch 78.74 cm

Aircraft leased for scheduled and charter transport

Boeing 737-500

Boeing 737-500

Length 31.01 m

Height 11.07 m

Wing-span 28.88 m



Range 5,648 km

Seat capacity 112


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2.4. Company History

1961 Establishment of the charter airline Adria Aviopromet, operating DC6 aircrafts, end of ●the sixties purchase of DC – 9 aircrafts.

1970 – 1980 Adria is one of the most reliable charter airlines in Europe. ●1980 – 1990 Domestic scheduled flights within Yugoslavia, start of international scheduled ●

services. Adria becomes a member of the IATA. Fleet: DC – 9, MD – 80, Dash – 7 aircraft.

1989 Purchase of first Airbus A–320 aircraft. ●1991 (25 June) the Republic of Slovenia declares independence; for political reasons Adria is ●

grounded for three months.1992 At the end of January operations are restarted in a significantly reduced market. The ●

structure of operations is significantly changed, from primarily a charter airline to a mainly scheduled service carrier.

1995 Start of cooperation with Lufthansa, inclusion into the European integration ●processes.

1998 Purchase of three new Canadair Regional Jet 200 aircraft. ●2000–2004 Focus on operating regional scheduled flights primarily across Europe, continuous ●

addition of new destinations and frequencies on the existing services. Intensive cooperation with European airlines, especially Lufthansa.

2000 Purchase of the fourth CRJ–200. ●2002 Adria was selected to be the first European authorised Bombardier maintenance ●

centre for CRJ aircraft.2004 (December) Adria joins the global association of airlines, Star Alliance, as a regional member. ●

2005 (Januar) Purchase of the fifth new Canadair Regional Jet 200 aircraft. ●2006 (December) Adria carries more than one million passengers for the first time in independent ●

Slovenia.2007 (June) Two new CRJ-900 aircraft with 86 seats each are added to the fleet of Adria Airways. ●

2007 (December) We became the official carrier of the Government of the Republic of Slovenia during ●the EU presidency.

2008 (December) A third CRJ–900 aircraft is added to Adria's fleet. ●


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3. Managing the Company

3.1. Management Bodies

Management Board

The Adria Airways d.d. Management Board manages the company autonomously and on its ●own responsibility while presenting and representing it unrestrictedly vis-á-vis third parties.

The Management Board is appointed and dismissed by the Supervisory Board which, by its ●Decision on the Structure of the Board, also defines the Board’s number and membership structure. The Management Board has a five-year mandate.

In accordance with the Statute, which states that the management Board can have as much ●as one to four members, the Management Board of Adria Airways d.d. has two members.

Tadej Tufek, M.Sc., President of the Management Board, represents the company together ●with the member of the management Board – vice-president.

Marjan Ravnikar, M.Sc., Vice-President of the Management Board, represents the company ●together with the President of the Management Board.

Supervisory Board

The Supervisory Board is appointed by the shareholder’s assembly, except for the company employee’s representatives which are elected by the Employees’ Council. The members are elected for a period of four years. In 2008 two new employee’s representatives were elected.

There are six members on the Adria Airways d.d. Supervisory Board, its main activities being:

overseeing the commercial management of the company, ●verifying the annual report, ●appointing and dismissing the president and other members of the Management Board, ●deliberating over the company’s investment, commercial and financial plans. ●


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Members of the Supervisory Board, shareholder representatives:

Branko Franc Grošl, President since 12.7.2005 ●Dr. Bogdan Znoj, Deputy President since 12.7.2005 ●Aleš Vehar, member since 12.7.2005 ●Anton Grabeljšek, member since 24.8.2006 ●

Members of the Supervisory Board, employee’s representatives:

Urban Demšar, member since 18.6.2008 ●Tomaž Pečnik, member since 18.6.2008 ●Deana Potza, member from 17.6.2004 to 17.6.2008 ●

The Assembly Meeting

The shareholders may assert their rights with regard to the company in compliance with ●the company’s Statute and the Companies Act at the Assembly meeting.

An assembly meeting may be called by the Management Board or by the Supervisory ●Board; however, it may be called upon by a request of the shareholders representing at least 10 % of the company’s share capital. The meeting should be called at least 30 days before the actual session.

The meeting may be attended by those shareholders who are listed in the share register ●at the CSCC Central Securities Clearing Corporation d.d. Ljubljana on the enrolment closing date. The shareholders may be represented at the Assembly meeting by their representatives or trustees.

At the 24th Assembly meeting on 14.8.2008, the Adria Airways d.d. shareholders ●deliberated on:

discharging the Management Board and the Supervisory Board; ●appointing an auditor for 2008; ●the use of the balance sheet profit from 2007. ●


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3.2. Management of Subsidiary Companies

The Adria Airways Group comprises of:

Adria Airways d.d., Ljubljana – parent company ●Amadeus Slovenija d.o.o., Ljubljana – subsidiary (95 % interest) ●Adria Airways Kosovo d.o.o. – subsidiary (100 % interest) – dormant ●

Adria Airways does not compile a consolidated annual report, since the inclusion of the financial statements from both of the two subsidiaries in the consolidated report is not significant for a true and fair presentation of the financial statements of the Adria Airways group as a whole.

Amadeus Slovenija d.o.o., Ljubljana

Director: Mladen VesnaverNumber of employees: 10

The main lines of business of the subsidiary company Amadeus Slovenija d.o.o. are distribution, marketing, maintenance of the reservation system and Amadeus software for airlines and agents completing reser-vations and selling airline tickets. These services are provided in Slovenia, Macedonia and Albania.

3.3. Organisational Structure

MANAGEMENTIT and Controlling

Corporate Lawand Insurance

Quality AssuranceSystems

Marketing andSales

(Department)

GroundOperations andProcurement(Department)

AircraftMaintenance(Department)

FlightOperations

(Department)

Finance andAccounting

(Department)

HumanResources andOrganisation(Department)

Safety and Security

A B C D E F

K

L

U

QISO

S2


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We are expanding the network of our flights. We have one world, one sky. Our crossing got new signposts. In the sphere of business and tourism.

BUSINESS REPORT

We Expand

We Expand

BUSINESS REPORT4. Mission, Vision and Company Strategy

Mission

We are a company that:

brings together knowledge and skills in aviation; ●offers customers top-quality services; ●achieves these services through innovative work of satisfied employees; ●produces adequate profit to the owners; ●operates in harmony with the environment. ●

Vision

We wish to be a successful traditional European network airline with a modern fleet that is developing and growing, an airline that by achieving the highest level of quality in its services enjoys the satisfaction of its passengers – and other clients – while maintaining a recognisable profile of its own trademark.

Key Strategic Objectives

The primary objective of our operations is to maximise the return per unit of shareholders’ equity.

With regard to the commercial strategies to date and our entry into the Star Alliance, we have pursued the commercial model of a network carrier linked to partner airlines and offering its passengers a global flight network. We are convinced that the selected commercial model represents a competitive advantage, and for this reason it must be improved and enhanced, and adapted to the competitive circumstances.

Adria Airways / Annual Report 2008 / BUSINESS REPORT

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Business strategy for the period 2007-2011 denoted by the following:

the renewal demanding the knowledge and understanding of changes in the environment, ●highly motivated and responsive senior management, determination for overcoming obsolete mindsets, capability for reaching new goals at all levels, and competent management which will include all employees in the implementation of these goals; growth, where the primary goals are: increase the market share; growth and optimisation of ●capacities and development of the company as a whole; rationalisation, which demands specific orientation into the basic activity where support ●processes are of lesser importance. Business strategy for the period in question demands strong financial control while limiting the usage of financial resources in all areas.

Chosen Strategy

The primary commercial strategy of Adria Airways is conducting the business policy of a network carrier distinguished by its individual approach, responsiveness and adaptability. The company is developing into an airline that is recognised for the friendliness of its staff and its sensitive attention to the passenger. We operate flights to attractive destinations with a relatively high frequency for various types of travellers. Our responsiveness is reflected in the introduction of new flights connecting to locations that are attractive both for business and tourism. In formulating our timetables we actively cooperate with passengers and work to suit their needs.

We will strive to:

focus on activities for satisfying and systematically examine the needs of the largest possible ●number of passengers. Our flight network needs to be built and upgraded according to the passengers’ needs in order to maintain the competitive edge, i.e. maintain a relatively large number of scheduled direct and charter flights from the home airport; perform marketing communication activities with the intention of distinguishing ourselves ●from our competitors; focusing on passengers’ expectations; ● performing services of high quality and safety, which is proven by the IOSA certificate. ●


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The marketing activities of Adria Airways will consider:

given the current market circumstances and development of competition in the EU, further ●development of partnership in the strategic Star Alliance network is relevant to be able to meet the needs of the majority of passengers in the Slovenian market for a global flights network; due to the segmentation of the sector, the competition from low-cost air carriers and a small ●domestic market, further building of the direct flight network from Slovenia and restraining the passenger outflow to other carriers is necessary; it can be expected that, in the long term, not all carriers originating from the former Yugoslavian ●republics will be able to compete with increased foreign competition on domestic markets.

Remaining the best air-travel option for passengers who travel to and from Slovenia is important for Adria Airways, as it is also important, because of the small domestic market, to decrease its business risks by entering those profitable foreign markets where quality of their services for a reasonable price and business flexibility can assure long-term business success.

Corporate Culture Values Originating in Commitment to Quality

Focusing on the ClientsOrganisations depend on their clients; therefore they should understand the clients’ present and future needs, satisfy their requirements and strive to exceed their expectations.

LeadershipThe leaders shall establish the unity of the intent and the orientation of the organisation. Leaders should maintain an internal environment of the kind where employees will be able to integrate completely into achieving the purposes of the organisation.

Integration of the EmployeesThe employees at all levels of the organisation are the organisation’s core and their thorough integration enables their talents to be used for the benefit of the organisation.

Process ApproachAny desired result will be much more successfully achieved, when the activities and the related resources are managed in a form of a process.


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System Approach to ManagementIdentifying, understanding and managing inter-related processes in a form of a process will contribute to the efficiency and effectiveness of the organisation in attaining its objectives.

Constant ImprovementConstant improvement of the operation of the organisation on the whole should remain a permanent objective of the organisation.

Fact-based Decision MakingEfficient decisions are based on analysis of data and information.

Mutually Beneficial Relationships with the SuppliersAn organisation and its suppliers are mutually co-dependent and a mutually beneficial relation-ship will increase the capability to create value on both sides.


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5. Care for Our Passengers

Adria Airways is striving to design services in such a manner so as to approximate these services with the needs and expectations of our passengers. The awareness of our flight network and services is strengthened by planned promotional activities thus strengthening our trademark and loyalty of our clients.

We are Expanding the Network of Flights

Introducing new direct lines and increasing the number of flights on the existing lines makes it possible for us to offer our passengers increased flexibility in planning their journeys and saving the time spent for their travel. Increasing the number of direct flights to large European hubs makes it possible for us to additionally improve the accessibility to the Star Alliance air carriers’ network. In 2008 we opened four new routes to Athens, Bucharest, Oslo and Stockholm, and increased the number of weekly frequencies to European destinations.

The Best Air Ticket Price

Designing affordable price offers has become a part of our pricing policy. In April, we introduced a permanent “Outlet” offer, which is no longer limited to certain destinations or flights, but has continuously expanded depending on the number of seats available. With this offer we are trying to attract new passengers, who are flexible in terms of price and can choose the time of travel according to the best price. In addition to the permanent Outlet offer we prepared three seasonal special offers. An agreement on business cooperation with Aegean Airlines was signed and hence the new route to Athens is also connected to the Greek islands. More seasonal offers were prepared in addition to the ones mentioned above. Our prices will also be flexible in the future. There will also be one-time special offers to fill vacant seats either for a limited period of time or for an individual destination.

Call Centre and Passenger Relations Centre

An honest relationship, a prompt response to the demand and flexible problem solving are of key importance for our customers, and we do take that into consideration during the course of our work. Contact with corporate customers is taken care of by key account managers in sales and our passengers can obtain information and help from our call centre every day in the week. When buying a ticket the passengers can book a certain seat on the plane as well as the meal type. In cooperation with Mobitel, a mobile phone provider, we offer passengers a payable SMS info service, with the help of which users can get information on the status of an individual flight on that day.

In 2008 we opened four new routes.


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In the Passenger Relations Centre we take care of a base of corporate customers with which we concluded an agreement on cooperation, as well as a base of Slovenian members from the Miles&More programme. Our passengers get informed about novelties, price offers, new services and benefits for regular passengers through a regular and special newsletter, whereas the members of loyalty programmes receive periodic notifications in connection with the specific benefits of their programme. The number of subscribers to the newsletter has also increased with different promotional campaigns.

In 2008, a complex project for the establishment of the CRM group database was introduced, which will help personnel from the Call Centre, the Passenger Relations Centre and the Claims Office to take care of an individual customer in a comprehensive and high-quality manner, and at the same time offer valuable information for the improvement and the development of new services. By the end of 2008, the part of the programme that enables us to monitor claims for damages had been launched. The entire CRM project will be presumably finished in 2009.

Electronic Ticket (ET)

As of 1 June 2008, IATA agencies involved in the BSP distribution network around the world may issue tickets only in electronic form. Adria introduced electronic ticketing for all scheduled flights by December 2008; 56 IET agreements with foreign carriers have been concluded and consequently ET can be issued also for flights in combination with these foreign carriers. Electronic tickets can be issued through 6 different GDS reservation systems.

At the end of December, the percentage of coupons of electronic tickets used on Adria Airways flights amounted to 92 %. With the establishment of the BSP distribution network in Kosovo, which will take place presumably in June 2009, the percentage of the issued electronic tickets will increase to 97 %.

Electronic ticketing conveys advantages for both, passengers as well as for a carrier:

more modern, faster and more precise process of issuing the ticket; ● significantly lowered improper use of ticketing rules, because all data must be identical in all ●systems involved in the reservation process and issuing the ticket;faster airport data processing; ●possibility for passengers to make reservations and receive their tickets at home; ●faster invoicing to foreign carriers; ●lower data processing costs; ●lower ticket costs; ●no possibility for lost or stolen tickets; ● complying with the requirements of IATA and a possibility of selling through IATA distribution ●channels.

Electronic ticketing conveys advantages.


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www.adria-airways.com

In 2008 the websites adria-airways.com and adria.si (domain for marketing in Slovenia) have been redesigned for the second time since they were established in 1998. The websites now have a new design and concept. The websites aim to maintain and enhance the company’s reputation. Above all, it is a great additional sales channel, which enables the users to buy tickets in a safe, easy and comfortable way. Therefore, the redesign brought the sales and special offers of Adria Airways to the fore. Our web marketing complies with EU legislation, according to which the final prices, including airport charges and other levies as well as reservation costs, have to be displayed, and the charges additionally specified during the purchase process.

On the website adria-airways.com / adria.si 1.3 million visitors were recorded in 2008, which is 24 % more than in the previous year. 67 % more tickets were sold and the revenue from on-line sale increased by 74 %. The growth of traffic is attributable to the ever-increasing expansion of this sales channel at home and around the globe, flexible and up-to-date offers, regular informing, and in the first half of the year also an increase in air traffic from/to Ljubljana during the Slovenian Presidency of the EU Council.

We want to achieve that users will like to come back to our websites. Therefore, we are striving for a high-quality performance of the website, safe purchase, authentic content and new offers as well as offering the users the possibility of being interactive on our website. We provide information and support to our web customers every day of the week. Our passengers can perform a web check-in and receive text message info – daily information about particular individual flights. Apart from on-line ticket reservations, transport and accommodation can be ordered and the status of the reserved trip checked – “Check my trip”.

Adria’s New Uniforms

A friendly and neat look of our personnel is an important part of the company’s outward appearance and at the same time it contributes to the well-being of passengers, with which the personnel communicates. After a long period, Adria Airways decided to refresh the look of the uniforms of the aircrew as well as the ground personnel and the personnel at the points of sale. Thus in 2008 a project was carried out, which included the new design and the selection of the material and the suppliers as well as the updating of the rules on wearing uniforms. The new collection is inspired by the most glamorous periods of air travel – the sixties and seventies. A hat and gloves are again a part of the uniform and give the uniform a slight retro look. The uniforms were manufactured entirely by Slovenian companies and designed by our renowned designers.

1.3 million visitors.


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http://www.adria.si/en/index.cp2


Care for Passengers During the Flight

The well-being of passengers during the flight is our greatest concern besides ensuring the regularity of flights and flight safety. In 2008, we focused primarily on the quality and variety of meals offered in the business and the economy class. In the business class the range of newspapers has been increased. In addition to daily newspapers and selected magazines, Slovenian as well as foreign are now available to passengers.

For a more pleasant flight we offer our passengers a new edition of the free bilingual Adria Airway In-Flight Magazine every two months. The magazine covers current cultural and art events as well as interesting articles about the places, regions, history and other particularities of Slovenia and the destinations we are flying to. The magazine provides high quality articles, a lot of pictures and a high quality product.

In 2008, we offered our youngest passengers the first issue of the fun and educational picture book entitled Medvedek Adrian (Adrian the Bear), which is a result of the cooperation with renowned Slovenian writers and artists. We hope that a new picture book can be added to the Adrian the Bear series every year.

Airport Service

We aim to offer the best possible service to our passengers and place special emphasize on the proficiency of our personnel at our home airport available to passengers in the case of irregularities in traffic, such as longer delays and possible cancellations of flights. These services are provided by our selected contractual partners at foreign airports.

We are following the developments in our line of business in the area of check-ins; we have successfully introduced electronic ticketing and Web Check-in services for departures from the Ljubljana, Zurich, Brussels, Kiev, Skopje, Bucharest, London-Gatwick, Podgorica and Sarajevo airports. We co-operate with the air carriers, members of the Star Alliance, in the initiatives for collocation on the European airports with a view of ensuring uncomplicated and quick connections from one flight to another within the Star Alliance network.Our passengers in business class have access to the contractual business lounges at airports, and as part of their benefits the card holders of the Miles&More programme can additionally use business lounges of the other Star Alliance members.

In-Flight Magazine – free 2-monthly magazine.


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In the field of supplying ground services we have been successfully decreasing costs of ground services for some years by selecting new suppliers on the liberalised markets and by negotiating with existing partners. The quality of the services of passenger and aircraft care suppliers is monitored on a daily basis through the reports of our representatives and crews as well as sporadic passengers’ remarks.

In the case of delayed baggage. WorldTracer an international baggage tracing system, has been used since 1994, and in the majority of cases baggage can be found within 24 to 36 hours after the report and returned to the owner. According to the data of the AEA, we rank among the upper third of the airlines regarding the number of delayed baggage per 1000 passengers carried.

Adria Airways strictly respects all EU regulations regarding passenger rights in air travel. In compliance with EU regulation along with the airport operators, we pay special attention to persons with reduced mobility as they get special assistance on the ground and in the air.

More for our Loyal Passengers

Miles&More

Loyalty of our regular passengers is awarded by our Miles&More programme, which is according to the number of members and air carriers involved in the programme, as well as according to the airline passengers the leading programme around the globe. In 2008, the number of members recorded in Slovenia increased by 11 % and now amounts to 35,868 of which 11,884 are active members, which is a 20 % increase compared to the previous year. In our Passenger Relations Centre we regularly inform members about novelties and special offers concerning our flights, enable that computer data are transferred to the central system, monitor the status and issue tickets for Adria flights to the winners of competitions. In 2008, the programme celebrated its 15th anniversary. We actively celebrated this anniversary on a global scale by issuing several press releases and contributing to the prize fund of the anniversary competition.

In 2008, we supported the establishment of the Slovenian website on the Miles&More web portal for the communication with the members, and participated in the project for the preparation of the contents. According to Miles&More, the Slovenian website will be launched presumably by the end of 2009.

Adria Airways strictly respects all regulations.


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Adria Corporate Card

Our corporate customers’ loyalty is rewarded in the Adria Corporate Card programme, which has 268 card holders. In 2008, 30 new legal persons joined the programme, and the number of flights of card holders increased by 38 % in comparison to the previous year. Up to now the members have been informed in writing, in 2009 the members of the ACC will be able to check their current account balance (collected points/benefits/point used) on the section of Adria’s website dedicated to members.

Adria – Diners Club - Miles&More Partnership Card

In cooperation with Diners Club Slovenia the Diners Club – Adria M&M card holders can collect miles also with every purchase using this card. The number of miles on M&M accounts collected in this way increased by 45 %, and the number of card holders by 10 % in 2008.


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6. Operating Conditions in 2008

2008 was characterized by the high growth of global raw material prices, particularly oil and higher inflation on a global level as well as in Slovenia. Inflation in the euro zone reached its peak in July 2008, when it amounted to 4 %. In Slovenia, inflation was measured with a harmonized, i.e. comparable European index that amounted to 6.9 %, which has been the highest after the introduction of the Euro in Slovenia. It started to level out in the second half of the year, when the oil prices began to fall drastically.

The euro, which has been strengthening against the dollar from January 2007, reached a record high of USD 1.577 in July 2008. In the next months the dollar gradually appreciated against the euro – in December 2008 1 euro equalled USD 1.345. Prognosis about the cooling of economic growth in the euro Zone contributed greatly to this situation, especially in big economies like Germany, Italy, France, but also in other countries. On average, the euro was worth USD 1.47 in 2008. Most of the analysts predict that the dollar will gain further against the euro in 2009.

The first eight months of 2008 were characterized by the increasing oil prices that reached a record high of USD 147 per barrel in July. The credit crunch in the USA turned into a global financial crisis, which has also had an impact on the aviation industry and has already developed into a general recession in some countries and has started to reduce demand.

35

30

25

20

15

10

5

0

2001 2002 2003 2004 2005 2006 2007 2008 2009

Fuel costs as a percentage of total operating costs from 2001 to 2009 (valuation)

13 13 1417

22 2428

32

25

Source: Centre for Asia Pacific Aviation & IATA


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The period April to September 2008 was one of the worst in the history of the aviation industry. The air carriers tried to fight the increasing flight costs by reducing the market capacities (cancellation of frequencies and routes, grounding of aircraft), flying at optimal speed (lower speed – optimal consumption), replacing less efficient aircraft with newer ones, differentiating the product and introducing extra charges for services that were previously included in the basic price (free baggage allowance, seat reservation, meals on aircraft … – the so-called “à la carte pricing”). Since there have been great efforts to decrease the costs and increase efficiency in the recent years, only a few reserves have been left that aviation industry could utilize.

In August, the oil price started to fall after it reached a record high and decreased to USD 40 per barrel by the end of 2008. However, it was not until September that this positive trend had an impact on the operation of air carriers. But while the price of oil was falling, the dollar started to strengthen, which decreased the favourable impact of lower fuel prices on European carriers.

The end of the previous year was marked by falling yields and a drastic decrease in demand (especially in the business travellers segment), while some airlines generated an additional loss due to fuel price hedging.

IATA Data for 2008

In 2008, the international air passenger transport increased by 1.6 % (7.4 % growth in 2007), while cargo transport decreased by 4 %; in December the number of passengers decreased by 4.6 % compared to 2007, the cargo transport plummeted by 22.6 %, all these figures clearly show a decrease in international trade (cargo transport represents 35 % of the value of goods traded internationally) that will continue in 2009. In 2008, the capacity of scheduled passenger flights grew by 3.5 %, resulting in a lower passenger cabin efficiency of 75.9 % (77.3 % in 2007).

In the past year the aviation industry recorded a loss of USD 8 billion, half of which was generated in the last quarter of 2008. In the previous periods of the recession the weakness of the travel market prevailed approximately three years. Therefore, IATA predicts a passenger transport growth of more than 4 % only in 2011, whereas the cargo transport growth, in accordance with global trade, would return to a level above 6 % by 2010. In 2009, air carriers will presumably record a loss of USD 4.7 billion.


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The Business Confidence Survey carried out by IATA shows that only a quarter of the inter-viewees expects an increase in profit and a growth of the number of passengers in 2009, while one half expects a further decrease in profit and the number of passengers and the great majority expects a decrease in revenue per passeneger. The growth of the number of employees in the aviation industry continued also at the end of 2008, while it is expected that growth will stabilize and decrease slightly in 2009.

An Overview of Data of the Association of European Airlines (AEA) for 2008

The data of carriers that are members of the Association of European Airlines (AEA) show that the number of passengers on flights within Europe decreased by 2.7 % in 2008 in comparison to 2007, while the capacity, measured in seats-kilometres, grew by 1.4 %, and transport, measured as a number of passenger kilometres, dropped by 0.3 %. As a result, the average passenger cabin efficiency dropped by 1.2 percentage points and amounted to 68.1 %. Concerning traffic as a whole, including over-ocean flights, the number of passengers flown by AEA carriers decreased by 1.5 % in this period, the number of passenger kilometres increased by 1.2 % and the number of seats-kilometres by 3 %. Hence, the average passenger cabin efficiency amounted to 76 %, which is 1.3 percentage points less than the year before.

The situation in December was even worse, as the number of passengers within Europe decreased by 10.2 %, while capacities dropped by 6.5 %, and the total number of passengers carried by AEA carriers decreased by 8 %, while capacities dropped by 3 %.


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7. Business Segments

7.1. Scheduled Flights

Marketing Strategy

In line with the business orientation and development of the company, scheduled flights are the focal and key activity which is complemented by charter flights and cargo transport. The primary strategic objective of Adria Airways in the segment of passenger transport on regular scheduled flights is expanding the network of flights via the Ljubljana Jože Pučnik Airport. A broad flight network is of crucial and strategic importance for long-term growth and existence of the airline and it also represents its main competitive advantage. In this respect, we are strengthening the existing routes with new frequencies and opening new regular connections between Slovenia and Europe.

Adding new frequencies to the existing routes, we strive to maintain and increase our market shares, and by adding new routes we also add new promising markets. One of the key strategic advantages is membership in the Star Alliance – by flying to major European hubs through a flight network of the Star Alliance airlines we enable our passengers connections to 912 airports in 159 countries throughout the world. At the same time our loyal passengers have the opportunity to collect and take advantage of bonus miles on all flights of the Star Alliance airlines.

Some of our key abilities and comparative advantages that we try to maintain and improve are the fast and comfortable connections in direct flights, flight schedules adjusted to passenger needs, competitive prices and quality of our services. Adria is a company that is distinguished by its individual approach, responsiveness and adaptability. We are developing into an airline that is recognised for the friendliness of our staff and our sensitive attention to the passenger.

Competition

The trend of increasing competition at the Ljubljana Jože Pučnik Airport, which was most obvious in the period 2002 to 2005, is cooling off. On the domestic market, the share of regular Adria Airways passengers was on the decline from 2001 when it amounted to 93 % to 2005 when it amounted to 72.8 %. In 2006, the share of regular Adria Airways passengers increased by 0.5 percentage points compared to the preceding year. In 2007, the share of Adria Airways’ regular passengers was 73.3 %, and in 2008 additionally increased to 79.0 %.


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There were ten regular air carriers flying from the Ljubljana Airport in 2008. In addition to competing with Adria Airways’ scheduled flights, some of these airlines (with their flight networks) also represent competition to the network of flights that Adria enables through its own flight network within the Star Alliance. Apart from regular airlines at the Ljubljana Jože Pučnik Airport, our Ljubljana network also encounters competition from the airlines that fly from the neighbouring airports (Trieste, Graz, Klagenfurt and Zagreb).

Our biggest competition in the segment of passengers travelling from South-Eastern Europe to Western Europe and vice versa comes from other network carriers that compete with their own hubs and flight networks. Furthermore, some charter carriers compete for the same market and strive to increase their market share.

In the past years, Adria Airways has strengthened its flying and business operations in the Western European markets and increased the number of weekly and daily frequencies. A better product also means more connections via the Ljubljana hub and a better position on the market.

Competition on the domestic and foreign markets will continue to strengthen and the efficiency and the expansiveness of the flight network will represent the key competitive advantage in the future as well.

Other Important Factors of Market Position

The Adria Airways flight network consists of three daily rotations and one night rotation, where in the first and third rotation we provide flights between Ljubljana and the Western European destinations, while in the second rotation and the night rotation we provide connections from Ljubljana to the South-Eastern destinations. Such a flight network provides an adequate offer of connections for passengers travelling from the Western Europe to the Balkans and back. At the same time, flying to Western Europe also enables connections for passengers from Slovenia via European hubs with Star Alliance partners throughout Europe and those on other continents (and vice versa). The routes with prevailing potential of direct passengers may deviate from the general pattern of route network.


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In terms of geographical location, the markets in which Adria Airways operates are divided into:

the Slovenian market and bordering regions (Istria, Zagreb with its outskirts, Rijeka with the ●outskirts, the Italian and the Austrian frontier belts) – transport of passengers from Slovenia in Adria’s flight network and via European hubs in the Star Alliance airlines flight network; the markets of Western Europe – transport of passengers from Western European destina- ●tions to Slovenia and via Slovenia to destinations in South-Eastern Europe, and transport of passengers between the EU countries; the markets of South-Eastern Europe – transport of passengers from South-Eastern European ●destinations to Slovenia and via Slovenia to destinations in Western Europe; the markets in which we have our own representatives but in which we do not fly to desti- ●nations on those markets (e.g. the USA, Canada, Australia, Argentina, etc.) – the network of representatives enables us to sell tickets for transport from the mentioned markets to European hubs and from there on Adria’s flights further to Slovenia (and also further in Adria’s flight network).

Sale of scheduled flights is in close connection and proportionate to the capacities that we offer on individual routes. The largest portion of sales was created on the EU market in 2008, followed by Slovenia with 33 % and the South-Eastern markets with 18 %.

1. EU, Scandinavian, Swiss2. SE Europe3. Slovenia4. Other

33 %18 %45 %

4 %1

2

3

4Proportion of SellingScheduled Routes by Markets in 2008


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In 2008, we successfully launched four new routes: Athens (3 times per week), Bucharest (4 times per week) and Stockholm (5 times per week) and Oslo (two times per week from June to September). The number of frequencies has increased on the following routes: Amsterdam (from 6 to 9 per week), Brussels (from 18 to 19 per week), Copenhagen (an additional frequency in high season), Kiev (from 3 to 4 per week), Munich (from 21 to 26 per week), Sarajevo (from 7 to 13 per week), Skopje (from 10 to 13 per week), Tirana (from 7 to 10 per week), Zurich (from 19 to 20 per week) and Warsaw (from 3 to 5 per week). The number of scheduled flights was increased in total by 15 % in 2008. In foreign markets we are trying to improve our presence and recognisability through different strategic partnerships with domestic and foreign tourist service providers, by concluding code-share agreements, and within the Star Alliance we are becoming more and more recognizable in the foreign markets as a reliable air carrier of excellent quality.

Results

The proportion of regular passengers in the number of all passengers carried in 2008 amounted to 84.8 %, which is 1.6 percentage points more than in 2007. In the area of scheduled flights, we performed 24,476 flights in 2008, which is 15 % more than in 2007 and 6 % less than planned. We carried 1,103,810 passengers on scheduled routes, which is a 17 % increase compared to the year before and 4 % less than planned. Passenger cabin efficiency decreased by 2 % and amounted to 63.25 %, only 4 % less than planned.

Flights

Passengers

Index of Increasein Passengers, Flights and Load Factors for Scheduled Flights in 2008 and 2007

101

110

111

98

115

117

20082007

LoadFactors

(LF)


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The proportion of revenue from scheduled flights, which includes the revenue from passengers carried and revenue from luggage payments, amounts to 69.8 % of Adria’s total revenue and 82.5 % of revenue from commercial flying. In 2008, the revenue from scheduled flights increased by 25 %, which was 1 % more the planned and amounted to € 143,581,293.

200,000,000

150,000,000

100,000,000

50,000,000

0

Jan.-Dec. 2006 Jan.-Dec. 2007 Jan.-Dec. 2008

Revenue – Scheduled FlightsPassengers

Revenue – Scheduled Flights in EUR

Index

105,993,856

108

114,882,559

108

143,581,293

125

Forecast for the Next Period

The global financial crisis, which shows in the decrease in GDP and global trade, will have a negative impact on the demand for passenger air transport in 2009 at the global level as well as in Europe. IATA predicts a global loss of USD 4.7 billion for the aviation industry in 2009 due to the recession and a drop in demand.

Since there is a drop in demand, the capacity will be adapted to the fluctuation of demand in 2009, which means a decrease in the number of frequencies on certain routes as well as limitation of the planned expansion of the flight network. In accordance with the needs of passengers, a new route between Ljubljana and Madrid two times a week and an increase in the number of frequencies on the routes Pristina (7 additional frequencies per week), Podgorica (one additional frequency per week), Istanbul (two additional frequencies per week) and Tirana (two additional frequencies per week) is planned.

It is planned that the number of flights in 2009 will be approximately at the same level as in 2008. Moreover, due to the drop in demand and the effect of the EU Presidency in 2008 no increase in the number of passengers is expected in 2009. There will be 263 frequencies per week on scheduled routes in high season.


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7.2. Charter Services

Marketing Strategy

Charter services remain Adria Airways’ complementary services to the scheduled flights and are aimed at optimising returns and not primarily at increasing the volume. Therefore, we have been paying special attention to strengthening the trademark and improving the quality of our services.

Competition

Adria Airways managed to maintain its leading position in the area of charter transport on the domestic market; however, we are facing foreign carriers offering more favourable prices in selling charter flights to certain destinations (Tunisia, Turkey, Egypt). The Slovenian tourist market remains traditional with a prevailing role of tour operators, while in a part of the European market the role of low-cost operators is given more and more emphasis in the segment of charter flights.


It remains characteristic for Adria to be the most important charter carrier on the national market, whose key destinations are dependent on technical characteristics of its fleet. In this manner, we also cover the products of our customers on domestic and foreign markets.

On the domestic market, the main products were the series of charter flights which were flown in the summer season for both, Slovenian and foreign tour operators which market their products on the Slovenian market, thus maintaining the role of the leading charter carrier. The above-mentioned series of charter flights to established destinations in the Mediterranean area, with special emphasis on the Greek islands, represent as much as a 60 % share of the charter flight sales as a whole.

Flights to two all-year-round destinations were maintained, for Slovenian tour operators we were flying to the Egyptian destinations Sharm el Sheikh and Hurghada all year long. We also managed to maintain our presence on the Israeli market and performed the already established series of “incoming” flights Ljubljana–Tel Aviv–Ljubljana.


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The sales of ad hoc charter flights continued to grow successfully on foreign markets, where Adria Airways positioned as a reliable and high-quality carrier in the segment of the most demanding flights, such as “incentive” events and transports of top artistic groups and sports teams. This, along with the growth of sales of “ad hoc” charter flights on the Slovenian market, where travel agencies as well as interested companies, sports clubs, cultural and artistic groups and state institutions order charter flights, increased revenues in the segment of ad hoc flights by 40 %.

Results

In 2008, the growth trend in the market for tourism services and products in both Slovenian and foreign markets where Adria Airways markets its services has continued, which in return affected the growth in the number of charter flights. In the previous year we flew 2,707 flights, exceeding the year 2007 by 10 %, and carried 198,362 passengers, which shows a 4 % growth. Revenues from the charter flights sales increased by 27 % and amounted to over € 28 million.

Flights to Greece are the most numerous amounting to 1,042, which is 11 % more than in 2007 and 979 “ad hoc” charter flights, which is 15 % more than in 2007; the proportion of revenue from flights to Greece amounts to 37 % and from “ad hoc” flights 33 % of the total revenue. The number of ad hoc flights increased both for buyers on the domestic market, where in addition to tourist agencies as buyers appear also interested companies, sports clubs, cultural and artistic groups and state institutions, as well as for buyers on foreign markets, especially on the EU market.


Also in the next period we will develop our business operations in the direction of complying with the current strategy, which means focusing on quality of services and ensuring the optimum rate of return. The traditional charter series for the areas of the Mediterranean and North Africa, which represent the majority of charter traffic, will continue to be supplemented by “ad hoc” charter flights for domestic and foreign tourist agencies, domestic and foreign companies, sports clubs and state institutions. In 2009 we are planning 2,568 flights, which is 5 % less than in 2008. The planned number of passengers carried in charter traffic is 200,300, 1 % more than in 2008.


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7.3. Leasing out Aircraft

Marketing Strategy

When leasing out aircraft, we follow the objective of fleet optimisation, especially at times when certain aircraft are not needed for our own flights due to low demand. That is especially in winter time, when demand for charter flights is lower, and also the number of regular passengers decreases and the flights are reallocated to aircraft with lower capacity. We lease out aircraft only to “wet-lease” in order to ensure control over the state of aircraft.

Competition

From November to March, strong competition arises on the market because of excess supply in low season. The Majority of European air carriers have a surplus of capacities and lease them out at extremely low prices. The strongest competitors are the airlines from Eastern Europe and the area of the new EU Member States, as well as charter operators who often lease out aircraft even below cost price.


Adria Airways is, just like the majority of Central-European airlines, also encountering the problem of distinctive “seasonalisation”, especially in the sphere of bigger aircraft of the A–320 type. In the summer months capacities on the market are too few, and just the opposite in the winter months.

Aircraft of the type CRJ–200 and CRJ–900 meet no substantial demand.

Air carriers are ordering new aircraft and consequently the possibility of leasing them out, especially in the winter time, is diminishing. Air carriers are ordering their own, new aircraft also on the markets that up to now experienced lack of capacities (India, China, Middle East, North Africa), so the demand for lease will be adequately lower.

In leasing out aircraft, our advantages of a reliable and efficient carrier whose price is competitive on the market are of key importance.


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Results

We have created € 11.1 million of revenue by leasing out one aircraft type A–320 on a “wet-lease”, which is 29 % less than in 2007.


In the near future it is expected that there will be a big surplus of aircraft on the market due to recession: Consequently, there will be greater competition.

In the next years, we expect reduction of the scope of leasing out aircraft for long-term periods, especially because of the needs for flying in own operation. During the summer season 2009 one A–320 aircraft will still be wet-leased to the Libyan carrier.

With airplane leasing we have achieved € 11.1 million.


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7.4. Marketing the Media Space

Media Communication

In the field of marketing our own media and promotional campaigns, we concluded annual agreements with clients, suppliers – who advertise through our media – and market the media space during this period.

Because of its exclusivity, the air carriers’ media are an attractive advertising medium as the passengers are exposed to the advertisement messages during a major part of the journey and various segments of passengers are appropriate target groups for various types of advertising. This fact was also exploited by Adria Airways. Our clients can choose from a wide spectrum of possibilities to advertise their products and services in an unobtrusive way through a variety of different media, printed as well as ambient media. A wide range of media, different advertising types – from advertisements and advertising messages to different promotions – offer target advertising. In this way our clients gain maximum efficiency, which is confirmed by their feedback. We pay special attention to our youngest passengers, in cooperation with our partners we present them with small gifts so they can pass the time during the flight. In marketing our media we are careful to pay regard to the value of the Adria Airways trademark. Advertisers in our media are chosen with regard to the fact how they complement our primary activity. In 2008, we earned revenue from marketing the following media:

advertising on the aircraft surface; ● advertising in the Adria Airways printed publications In-Flight Magazine, in the flight schedule ●and on some travel documents;distribution of promotion material and presentation of products in airplanes; ●advertising in the passenger cabin; ●on products used during the provision of services on the airplanes; ●advertising on the webpage. ●

Revenue from marketing our own media in 2008 amounted € 1.1 million and increased by 1 % compared to 2007.


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Main Focus in the Promotion of Services

In 2008, the focus in the promotion of Adria Aiways services was on the new routes to Athens, Bucharest, Oslo and Stockholm that were introduced at the beginning of the summer season. In cooperation with the Slovenian Tourist Board, Aerodrom Ljubljana and the SPOT association we carried out promotional campaigns on the mentioned markets. The new routes were promoted on the Slovenian market as well – especially via radio, city lights, printed media and our website. To additionally promote our new routes to our regular passengers, the members of the Miles&More loyal passengers club were granted double miles for flights on these routes from 31 July 2008.

Promotional campaigns were also carried out on the markets of Albania, Bosnia and Herzegovina and Macedonia, where we advertised the increase in the number of flights per week. We concluded an agreement with Microsoft on the lease of media space on the aircraft surface of the CRJ–200, in the In-Flight Magazine, on tickets and in ambient media in the aircraft. The agreement on advertising on the aircraft surface with the BMW Group Slovenia was upgraded to co-brand cooperation.

We concluded agreements on the distribution of promotional leaflets on airplanes with different lessees. In cooperation with Telekom and Droga Kolinska we bought painting books, which we give to the children on the airplane, and on women’s day we presented our male and female passengers with Baci sweets.

For low season we prepared and ran the special web offer “winter-spring special offer”. For the promotion of our new Outlet offer a new media campaign was prepared, which is continuously carried out in different media. During the summer months, we advertise our special price offer for flights to the Greek islands, which were prepared in partnership with Aegean Airlines. We ended the year with the “LSHOP” offer in December for a one-day trip to Amsterdam, Vienna and Munich.


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7.5. Cargo Transport

Marketing Strategy

At Adria, cargo transport is performed with the same care as other services. By adapting to the needs of customers, with good organisation and control of consignment transport with the existing “eChamp” cargo information system, we ensure a high quality of service. We offer competitive prices, flexibility in choosing transport routes, responsiveness and adaptability, which are key factors for survival on the increasingly open and competitive market.

In addition to the general cargo transport special attention will be paid to the transport of mail and the cooperation with “integrators” also in the future, whereas our sales agents will be offered special transport services, which include road transport when space is limited on our aircraft.

Competition

In addition to the other air carriers, who are our classic competitors, “integrators” operate on our market as well. “Integrators” offer a complete door-to-door service and at the same time low prices to our sales agents also for general cargo.

The market is also increasingly price-sensitive in comparison to other types of transport – especially transport by trucks represents growing competition. In Slovenia, a growing market share belongs also to general sales agents who represent “off line” operators and sell transport from Ljubljana on trucks to bigger airports in the EU, and with lower prices increase their own market share.


Offers to destinations where Adria does not fly directly is provided in collaboration with operators with whom we have special agreements on dividing the revenue on the route. For such transports, our position is better on the markets of South-Eastern Europe, where bigger operators do not have such strong influence or sales activities at the moment.


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Cargo transport is performed on Adria’s scheduled passenger flights as a supplementary service, and as such depends on free capacities on those flights. There is relatively little space for cargo on the routes where mainly CRJ-200 and CRJ-900 aircraft are planned, and consign-ments are limited both by dimension as well as by weight (maximum 100 kg/package). Also the flight schedule is adjusted to the passenger needs and sometimes it does not suit the client ordering cargo transport. A solution was found in road, truck connections, but it is generating lower revenue.

Current demand, taking into account the prices existing on the market, does not enable introducing a cargo route to any destination in the Balkans.

Results

In 2008, we transported 1,561,355 kg of cargo on scheduled routes, which is the same as the year before, while the cargo transport by trucks increased by 5 % to 142,993 kg. We transported 728,161 kg of postal consignments, which is 9 % more than in 2007. Revenue from cargo transport in 2008 amounted to € 2,739,072, which is as we planned.


In view of the significantly lower demand and the competitiveness of the transport by trucks in Europe and the Balkans, where most of our transport offer is focused on, the transport of consignments with a weight of up to approximately one hundred kilograms was our market niche in the past and will continue to be in the future. However, there are two exceptions, namely Pristina and Istanbul, as the A–320 aircraft usually flies on these routes.

In 2008, the recession did not have such a strong impact yet. By reducing prices and adapting the offer to the needs on the market we strive to stay efficient, carry all cargo types safely and fast and continue to be one of the key players in the region in the filed of cargo transport.


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7.6. Aircraft Servicing for Third Parties

Marketing Strategy

Adria Airways, its aircraft maintenance sector (hereinafter AMS), has been present on the market for maintenance of regional aircraft (CRJ) as Bombardier’s centre for Europe present from 2002. The priority is maintenance of own fleet. The share of servicing for foreign clients varies reciprocally proportional to activities that have to be performed on the aircraft of our own fleet. In 2008, the ratio of activities for foreign clients and for our fleet amounted to 51 %:49 %. In the next years we intend to gradually increase the ratio in favour of servicing for foreign clients. The ratio between activities on CRJ aircraft and aircraft of the Airbus family is at the same level as in 2007. In 2009, it is expected that the percentage of works carried out on Airbus aircraft will be higher. Regarding the CRJ fleet an increase in the share of CRJ–900 can be observed. For 2009 a 2 % increase in the scope of business operations is planned. Our marketing and sales activities are focused on direct contact with potential buyers, and we shall continue this policy also in the future. Additionally, we focus also on advertising on the Internet and in professional journals.

1. Airbus2. CRJ

31 %69 %1

2

2008

1. A-3192. A-3203. A-3214. CRJ-1005. CRJ-2006. CRJ-900

9 %17 %

5 %2 %

22 %45 %

1

2

3

4

5

6

Proportion of Inspections Carried Out for Foreign Clients According to Aircraft Types JAN-DEC./08


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In 2008, the structure of third parties started to change. There were aircraft of several customers from non-European countries (Rusline, Nova Air, China Taly) in our hangars. It is expected that there will be various customers from these countries (Estonia, Ukraine, Libya) also in the future. The reason is that the European CRJ–100/200 fleet has been sold to the outskirts of Europe and beyond. The number of air carriers from the Middle East with a CRJ fleet is increasing. In 2008, we maintained contracts with existing customers, and some contracts were also renewed. In the same year, we successfully performed service checks on 96 aircraft owned by other airline companies (66 aircraft of the CRJ type and 30 aircraft of the Airbus family). By August, we carried out the 500th project for third parties (Eurowings), and by the end of the year completed the 541st project.

12,000,000

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

0

AircraftMaintenance

Line Education Repair ofSpareParts

Sales ofSpareParts

Lease ofSpareParts

Performance in 2008 in EUR

For 2009 a 2 % growth in the revenue from third parties is planned, which is in line with the other European maintenance organisations (Lufthansa – 2.2 %). Internally, the turnover depends on a high degree on the decrease/increase of the number of aircraft in our own fleet, but this is still undefined at this moment. The turnover also depends on the global market movement as a whole. The crisis in the maintenance organisations began 6 months after the crisis in the carrier sector and is directly linked to the decrease in the number of hours flown by the global fleet.

2008 was also a fruitful year in terms of acquiring new licences (14) and making entries of aircraft types into licences (32) of aviation technicians. Hence, after years of putting effort into the education of aviation technicians/mechanics first results are visible. While the revenue remained practically the same as in 2007, we managed to decrease the number of hours of hired technicians/mechanics by 15 %. An even faster decrease of these hours is expected in 2009.


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Internal and External Market Threats

In the last period of 2008, we were facing increasingly shorter cancellations/announcements of projects of third parties due to the unstable situation in the field of aviation. Consequently, it is difficult to perform spatial planning and personnel planning.

At the end of 2008, the delays of payments by our customers got longer. In general, the customers insist on longer deadlines, which for us means that we are financing customers through material supply in-between projects even for several months.

The competition on the European aircraft maintenance service market for the Airbus fleet got very intense in 2008. There are maintenance centres also in Bulgaria, on Malta and in Turkey. Increasing pressure also comes from maintenance organisations from the Middle East, where the prices are expressed in USD and are at the same level as the European offer in EUR.

Strategic goals of development in the department are:

preserving the leading position in the market of aircraft maintenance for the ●CRJ–100/200/700/900 type; obtaining a work permit for the CRJ–1000 and Challenger types; ●penetration of the Middle East (Airbus and CRJ) carrier market; ● expanding maintenance in the market of C, 6 Y in 12 Y-checks for aircraft from the Airbus ●family (A–319/320/321); keeping informed about the change of ownership of the CRJ fleet in Europe and immediately ●enter into a contractual relationship with the new owners; expanding the offer by penetrating in the components maintenance market (CRJ chassis); ● expanding the technical training – in cooperation with the Bombardier Training organisation ●and independently; optimisation of all processes and raising the quality of provided services. ●

Our key factors of success remain high motivation, flexibility and professional competence of all employees in the department, quality performance of repair services and flexibility, competitive sales prices and determination to achieve the set goals.


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Marketing activities which we will use to increase our market share and encourage development of new services are:

using our competitive advantages; ●active approach (assisting the user in searching for solutions); ● setting up long-term strategic or project connections with established entities in similar ●business fields; expanding the main activity of aircraft maintenance with service activities by adding ●secondary activities (components maintenance, consulting, start up activities for newly emerging companies); expanding the Part-147 activity of the educational organisation for the education of ●mechanics/technicians for third parties.


Concerning operation, a new approach, greater flexibility when responding to changes and flexibility in terms of financing will be needed in 2009. One of the key activities for cost reduction is the decrease in administration and the number of contractual/hired workers. We will greatly depend on our internal reserves and introduce flexible short-term transfers of personnel within the sector. Already at the end of 2008 we started to reduce the contractors’ costs and raise the awareness on the more economic use of resources and consumables.

Concerning operation, a new approach in terms of financing will be needed in 2009.


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7.7. Education, Flight School

Flight School

In 2008, the Adria Airways flight school carried out the same courses as before, namely:

“PPL Private Pilot Licence”, ●CPL - Commercial Pilot Licence, ●Night rating (certification to fly at night), ●SE/IR Single engine instrumental, ●ME/IR Multi engine instrumental. ●

In the flight school the following trainings were carried out in 2008: 4 Private Pilot Licence courses, 10 Commercial Pilot Licence courses and 10 single engine instrumental courses. In 2008, we also started to educate 5 co-pilots, who will be flying but also teaching part-time at the flight school when they will finish their studies.

Furthermore, a new MCC programme (“Multi Crew Cooperation”) was introduced in 2008. According to the JAR regulation, this course is one of the conditions for flying in traffic. The programme mentioned above will be initially carried out for our own candidates, but will be marketed also to external providers. It has to be pointed out that the entire programme will be carried out in the new simulator.

At the beginning of 2008 the authorization procedure for the “ATPL Integrated” programme was initiated at the Aviation Directorate. This is another new programme of the flight school. This is a consistent and comprehensive programme for the education of the candidate from the beginning to the final stage of meeting all the requirements for flying with passenger aircraft. Candidates for this programme are recruited by the human resources agency on the European market. It has to be pointed out that our flight school is the only one in Slovenia that will carry out this programme.

Towards the end of 2008 we started to lay foundations for a more efficient and transparent education of candidates of the flight school and this process will continue also in 2009.

In the last year we recognized the opportunity for marketing virtual flights on the flight simulator. The simulator, which is intended for future pilots, became interesting also to others who would like to experience the virtual world and get acquainted with the basics of flying.


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Technical Training

The Technical Training department within the EASA Part-147 provides for the following needs:

Adriatic process of aircraft maintenance and external clients, especially flight units within the ●Ministry of Defence of the Republic of Slovenia (MORS) and Ministry of the Interior (MNZ), for basic training of aircraft mechanics-technicians for the EASA Part-66 licences of categories A, B1, B2 and C; Adriatic process of aircraft maintenance for technical training for the aircraft types from ●the list Part-145 AMO authorisations no. SI.145.01 (CRJ–200,700,900, A–319/A–320/A–321); Adriatic process of aircraft maintenance and external clients, especially on the basis of ●Bombardier contractual obligations, for intensive (PT=Practical Training) and extensive (OJT=On Job Training) practical trainings for the aircraft types from the list Part-145 AMO authorisations no. SI.145.01 (CRJ–200,700,900, A–319/A–320/A–321); Adriatic process of aircraft maintenance for continuous training in the fields Human Factors, ●Technical Updates and Company Procedures, refresher and occasional trainings.

The Technical Training department fulfils the needs of its clients by performing own training or organising training performed by other providers, but in any case designed as a fully integrated service including all required organisational, coordination and logistics support.

In 2008 we are starting with modern CBT (=Computer Based Training) and above all WBT (=Web Based Training) trainings – in accordance with the clients’ needs, possibilities of the infrastructure, economic and logistics calculation, and legislative restrictions. The development of the technical training in this direction will be continued in 2009.

Through its membership in the EAMTC (=European Aircraft Maintenance Training Conference) the Technical Training department brings the needs of its internal and external clients in line with the global offer, especially the European and North American providers, and also offers its own services to that market.

On the basis of the Bombardier's analysis it is expected that the scope of practical training for the CRJ will be increased in the second half of 2009 and in 2010. Consequently, the possibility to expand the contractual cooperation with Bombardier arose again, whereby Adria would become Bombardier’s authorised provider of practical trainings also for CRJ–200, 700 and 900.


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Training in the Field of Cargo Transport

Regular trainings in the field of cargo transport for internal and external clients have been carried out since 1992. External clients are mainly airport companies and forwarding agencies specialized in the organisation of cargo transport in air traffic. Slovenian companies as well as companies from Croatia, Bosnia and Herzegovina, Serbia, Kosovo, Montenegro and Macedonia take part in the trainings. The trainings are carried out in two modules:

conditions of admission and IATA cargo transport standards; ●the cargo tariff and air traffic documents. ●

Education of the Sales Force

The needs for the education of our sales personnel emerged twenty years ago and took shape before the collapse of Yugoslavia in the framework of the Adria Airways Training Centre in the form of an independent unit also offering education for the market.

Adria’s Sales Personnel Training Centre is the only one of its kind in Slovenia and provides education for our own sales personnel, the agent network (in Slovenia and Macedonia) as well as for the students of the Faculty of Tourism Studies Portorož of the University of Primorska (education contract). The training is based on our own programmes from the field of sales and reservations, tariffs and ticketing, refresher programmes and other workshops (if necessary), and from 1992 onwards also on the IATA UFTAA international programmes.

The purpose of this training is to train sales personnel in the field of selling our transport documents as well as the transport documents of other air carriers, primarily on the Slovenian market. Hence, with the help of the Training Centre Adria is establishing its sales infrastructure, is entering into the general marketing of the company and is fulfilling its task as the Slovenian flag carrier. The training programmes enable the agents to conclude and keep sales contracts with IATA and in this way join the BS sales accounting system.

On the basis of regular training programmes interested external students and those employees of the company who need the knowledge acquired in the programme for their work finished their studies in 2008.

In 2009, it is expected that the programmes will be introduced in Albania and gradually also in Kosovo.


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8. Partnerships

Adria Airways’ Collaboration with Foreign Airline Operators

Adria Airways cooperates with about 130 airline operators in the mutual sales of airline services, and with sixty-four of them concluded contracts for the sale of electronic tickets. Most of these contracts were implemented in 2008.

Concerning the agreements on the manner of income division, generated through the sale of combined flights (Adria and foreign carriers) we concluded and renewed 20 contracts (Special Prorate Agreements). We participated in the coordination of the multilateral contracts on income division (MARS), which includes eight Star Alliance carriers and with six of those we cooperate intensely on the basis of so called “Code Share” agreements.

A basis for a more intense mutual marketing is the “Code Share” agreements. Adria collabo-rates with eight operators on the basis of such agreements: Lufthansa, LOT Polish Airlines, Swiss International Airlines, Austrian Airlines, Ukraine International Airlines, SAS Scandinavian Airlines, Aeroflot, Montenegro Airlines and Brussels Airlines.

As part of this system, in 2008 foreign air carries sold on their flight documents Adria Airways’ services in the amount of € 36.8 million (ind. 08/07 – 146), while Adria Airways sold on its documents their services in the amount of € 16.2 million (ind. 08/07 – 130). These figures are the best indicator of the importance of collaboration between air carriers.

Adria Airways Regional Membership in Star Alliance and Collaboration with the Air Carriers that are Members of this Association

Since December 2004 Adria has been a regional member of the largest global airline group Star Alliance.

The Star Alliance Association was founded in 1997 as the first global airline association, which provides passengers with global connections and comfortable flying. In 2003 and 2006 it was selected as the best global association of air carriers by the Business Traveller Magazine, and in 2003 and 2005 by Skytrax organisation. The association has 21 “full” members (Air Canada, Air China, Air New Zealand, ANA, Asiana Airlines, Austrian, bmi, Egypt Air, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, SWISS, TAP Portugal, THAI, Turkish Airlines, United and US Airways) and 3 regional members (Adria Airways, Blue1 and Croatia Airlines).

Adria Airways cooperates with about 130 airline operators.


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Star Alliance offers 16,500 flights per day to 912 destination in 159 countries. Miles&More loyalty club membership enables passengers to collect and use miles for award flights in the whole Star Alliance flight network. In addition to global reach, Star Alliance facilitates the transfer of knowledge from various fields of airline business operations (best practice), recognition through a global trademark, and ensures a high level of service that a passenger may expect throughout the entire network of Star Alliance flights. We already provide mutual issuing of electronic tickets with all Star Alliance operators; with some members we are migrating to a common IT platform, the purpose of which is to improve offer for the passengers, using the most recent information technology.

In the last year preparation for the admission of Brussels Airlines, Air India, Continental Airlines and TAM to the Star Alliance was initiated.

Enabled electronic tickets.


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9. Quality

In 2008 we continued to maintain and develop the quality assurance system. In 2003 Adria received the ISO 9001 quality certificate from the Slovenian Institute for Quality and Metrology. By obtaining the ISO 9001:2000 certificate the company completed the cycle of establishing a comprehensive quality assurance system. In the middle of 2009, we intend to switch to the new version of the standard and obtain the ISO 9001:2008 certificate.

The quality assurance system in compliance with ISO 9001:2000 also includes a system of quality in the field of maintenance for Part-145 aircraft, for which we obtained a certificate in 1999. On its basis, in 2002 Adria became one of the two authorised service centres for CRJ type aircraft in the world.

In March 2005, we included in Part-145 of the quality assurance system the Part-147 system of quality in the area of training aircraft maintenance personnel, on the basis of which Adria can itself provide training in the area of aircraft maintenance that is recognised and valid throughout Europe.

Our comprehensive system of quality assurance also comprises a system of quality in the sphere of commercial air transport JAR-OPS 1, for which we obtained a certificate in 2001 and on the basis of which we started implementing routes within the European Union at the end of 2001. In the middle of 2008, by obtaining the EU-OPS certificate the EU-OPS legislation was introduced, which replaced the former JAR-OPS 1 standard.


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10. Safety

In the Republic of Slovenia, civil aviation is protected against unlawful interference by the regulations of the Republic of Slovenia and European Community regulations. European Community regulations have an effect in the Republic of Slovenia and apply directly in accordance with the Constitution of the Republic of Slovenia and principles of European Community law. The basic implementing act that regulates the area of civil aviation is The Aviation Safety Programme of the Republic of Slovenia and The Safety Programme of Adria Airways. Both safety programmes and the Aviation Act also comprise of provisions for quality control in this field.

In 2008, the activities for the improvement of the safety of our aircraft, facilities and conse-quently also passengers were continued. Substantial progress was achieved with the new regime of entering the hangars of Adria Airways at Brnik, which form a boundary between the public and the controlled part of the Ljubljana Jože Pučnik Airport. The physical protection of facilities, closed-circuit television and limitations in the access control were incorporated into these measures. On the basis of the report on the introduction of these safety measures we received the operating permit from the Directorate of the Republic of Slovenia for Civil Aviation in July 2008.

Adria’s quality in the field of safety was confirmed also by the renewal IOSA (=IATA Operational Safety Audit Registry), which was conducted in January 2008. We are one of the first carriers in the world to receive the IOSA certificate already for the third time. The quality of our measures for ensuring safety in civil aviation was also confirmed by two administrative and professional supervisions carried out by the Directorate of the Republic of Slovenia for Civil Aviation. Lastly, the quality of our measures was also confirmed by the inspecting authority of the European Commission, which monitored our safety measures in the hangars at Brnik in December.

In addition to the tasks in connection with the operational implementation of measures for ensuring safety in our company we also cooperated with external institutions of the Ministry of the Interior, namely with the Asylum Centre, the Aliens Centre and the International Police Cooperation Division, the Security and Protection Office and the Special Unit of the Police with the goal of improving safety. In October, we provided assistance at the implementation of training on the monitoring of potentially disruptive passengers on airplanes for the needs of the International Police Cooperation Division.


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Flight Safety

The contract with the suppliers of the flight monitoring software – Flight Data Monitoring – was renewed and the visual representation of the analysed flights was added to the existing functions. In this way we wanted to improve the way of representing analysed flights with the aim of reducing recorded deviations to the lowest level possible. With the knowledge that we obtained improving the current software, we can collaborate with the manufacturers and have impact on the final product. In 2008, we became leaders in the industry in the field of knowledge on the further use of data obtained by the analysis of flights.

Also in 2008, we introduced changes in the field of handling events in connection with uneasy passengers. We participated in the public debate on the amendments of the Penal Code of the Republic of Slovenia and achieved an amendment to Article 330: this Article provides for a prison sentence for anyone who threatens flight safety by misbehaving. Thus, we became one of the few countries where this field is regulated by law. In addition to updating the red card we also started to set up a black list of undesirable passengers. By doing so, we want to reduce the risk of repetition.

Safety Team

Adria Airways has a highly qualified professional safety team, which is responsible for monitoring and improving the achieved level of safety in the company. It cooperates professionally within the working bodies of the Association of the European Airlines, mainly those from the area of flight safety whose aim is to improve the safety level in European airspace. The “Safety Team” also actively monitors the trend of development of safety standards in the branch, and actively participates in their forming, when necessary.

Work and influence of the safety team were particularly important in 2008 due to fleet expansion, changes in the organisational structure and stricter operating conditions, which can have a direct or indirect impact on the safety culture in the company.


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11. Informatics

In the field of informatics the following “Golden Rules” have been introduced:

The management of information and communication technology services is subject to ●ensuring support for services in the framework of the main activities of the company. All other activities are considered as supporting activities and for those activities we search for the best providers on the market. There is no copying of data; there is only the possibility of first entry of data. All other data ●flow automatically through the integrated IT system. There is no own development of applications and no lists, everything is solved within base ●business applications. All business/accounting documents (invoices, order forms, supply orders,...) are issued with ●the help of Navision or exceptionally some base applications. All business applications run on application servers. It is desirable that the new applications ●are designed to run on web servers. There is no unnecessary printing of documents. Employees try to do everything on screen. ●

Business Applications

We continue with the introduction of Navision services that enables greater automation and ●integration with other base applications.

The “CRM module” was added to Navision. The new CRM application for the call centre that ●is based on modern IP telephony as well as the CRM support for the Passengers Relations Centre were introduced.

The introduction of the first phase of the personnel system was completed – replacement ●of the obsolete personnel system by a new, modern one. The new module for personnel planning in the workshops and hangars was introduced. Currently, we are working on the second phase, namely the integration with other base applications and incorporating all of our “lists” and small applications.

The project of the introduction of the new document system which will meet the needs for ●working with documents in the whole company was started. Along with the introduction of the system the new concept of the reception office and working with documentation will be set up. The uniform document system will bring greater transparency and control of business processes, lower costs for working with documents and will be the basis for the optimisation of some other business process.


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The implementation of reports for business intelligence (BI) with the QuickView tool is ●in progress. The new reports for the Passengers Relation Centre and cost review were introduced, while reports for greater control in the sector of aircraft maintenance are still being introduced.

Amadeus

The second phase of the introduction of the CITP information system (common information ●platform) was completed. In addition to the “Code Sharing” module the inventory of flights was transferred to this system in October. Hence, only the system for issuing tickets still has to be transferred in the future. The automated data exchange between our systems (primarily the Caspis applications) and CITP at Amadeus was introduced.

Communications

The communication entry point was modernized. The CISCO router was replaced and now ●provides greater safety and break-in control. A uniform location-independent and internet-service-provider-independent IP numbering was introduced.

We introduced our own VOIP (internal) centre – in the first phase for a new call centre, ●integrated with Navision and CRM. Later the whole landline telephony can be switched to VOIP and hence the costs will be cut in half.

Maintenance

The “Service Desk” (SD) which represents the central point for reporting all incidents, claims and other events in connection with information and communication technology was introduced. These events are recorded in the SD, the system also ensures that they are dealt with and completed timely and accurately.


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12. Risk Management

Risk Assessment – evaluation of the likelihood of the development of critical circumstances and consequences as well as their solving is carried out systematically once a year at the beginning of the year. The management as well as skilled workers are in charge of the execution of the assessment, whereas reporting the assessments is part of the annual management review where adequate preventive and corrective measures for risk reduction or their potential consequences are confirmed. Most attention is paid to the critical risks, i.e. risks that can substantially affect the profit or loss.

The current risk management and changes in the likelihood and potential consequences during the business year is defined partly at the level of the sector, where the individual sector director is responsible for the risk management, and partly at the level of the company’s management (risks relating to the company as a whole). Accordingly, decisions on the measures for handling critical risks in connection with a certain sector are adopted at the level of the sector (reporting to the company’s college), while decisions on the measures for solving critical risks that exceed the limits of one sector or relate to the company as a whole are adopted on the weekly colleges of the company.

Below are the key business and financial risks – description of the risk and measures for risk management – at the end also the likelihood of the development of the risk in 2009, the impact on operation and in the change of both risk parameters in comparison to 2008.

Business Risks

Market Risk / Possibility of a Recession

The general situation on the market and the economy impact the demand for air transport – in a recession, the amount of travelling is reduced. The risk increased at the end of 2008, and in 2009 it will have a great impact on the company’s operation. Nevertheless, the ability of an air carrier to respond relatively quickly in case of changes in demand by adjusting the supply or capacities is important. The reduction of our own flight capacities is compensated by leasing aircraft to others, in this way we ensure adequate revenue from leasing, and at the same time we are reducing capacities in our own flight network. The limitation of slots at airports represents an additional limitation for the reduction of capacities, as the carrier has to perform at least 80 % of the flights at the designated time of landing and takeoff, otherwise it will not be entitled to use it in the next season. Especially in the next years, it is expected that there will be an excessive capacity on the market due to the large volume of aircraft orders and the reduction of the capacities of most air carriers, which complicates the leasing of aircraft.

Probability: high / ↑Impact: very big / =


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Competition / Possibility to Enter or Enhance Competition on the Market

A highly competitive environment is a characteristic for the majority of business segments, but it is strongest for Adria’s primary activity – passenger transport. New competitors constantly enter the market - both network and national air carriers, as well as low cost carriers which represent a threat to the market share, and consequently a possibility of reduction in revenue. In order to preserve and increase their market share, competitors actively offer promotional ticket prices especially in low season, adjust their flight schedule and pricing policy. For such a competitive environment constant efforts of carriers to improve their competitive advantages and structure of the costs are characteristic. They also compete by using strategic connections, where together with their partners they seek new opportunities to expand and improve global reach of the network of flights. It is worth mentioning also the influence of the competition of land transport (car, bus, and rail) – with improvement of transport by land (better roads, railways, fast train, etc.) the impact of these substitutes on the competition to airline transport is stronger. We are trying to manage the risk arising from competition by expanding the flight network, independently as well as through connections within the Star Alliance partnership, by improving our own product which includes privileges for loyal passengers (Miles&More global programme), and by constant improvement of the structure of costs.

Probability: medium / =Impact: big / =

Limited Airport Capacities / Inability of Increasing Capacities

The main limitation in adjusting the times of airplane landing and taking off (slots) at foreign airports remains the high density of operations at primary airports, and consequently the limited number of slots. With regard to the fact that air carriers may increase capacity on a route either by additional frequencies or by larger aircrafts, the slot limitation in the future will consider-ably influence the trend of using increasingly bigger aircrafts on the existing routes. Adria is often encountering slot limitations at primary airports when adjusting its flight schedule either by additional frequencies or by modifications of the existing flight times and introducing new routes. That is an obstacle in optimising the flight network at the Ljubljana airport, as well as in providing optimum connections via Star Alliance hubs Frankfurt, Munich, Vienna, Zurich and Brussels. At some of the mentioned airports, adapting is restricted to planning larger aircrafts on the existing flights, because it is not possible to plan additional frequencies.

Probability: high / ↑Impact: big / =


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Delays in Air Traffic in Europe / Ability of Increasing Delays (Number and Duration)

Delays have been increasing in Europe in the past years, especially because of bottlenecks in air traffic controls. Airline operators lose € 3 billion per year unnecessarily because of frag-mentation of air traffic controls in Europe; at the same time that means 12 million tons of unnecessary CO2 emissions. Delays cause inconvenience for passengers and consequently damage to airline operators because of missed connections and inefficient use of aircraft. The European Commission is therefore trying to set up a unified air traffic control, which would improve efficiency and reduce unnecessary costs. Its efforts are supported by airlines and their associations or organisations such as AEA (Association of European Airlines), IATA (International Air Transport Association) and ERA (European Regions Airline Association). Adria Airways, as an active member of these associations, supports the mentioned initiative.

Probability: high / ↑Impact: big / ↑

Small Domestic Market and Scarcity of Domestic Tourist Capacities / Inability to Achieve the Break-Even Point in Terms of the Number of Passengers that Ensures the Profitability of the Route

As a Slovenian carrier, Adria Airways faces limited potential of passengers on the domestic market to ensure profitability of existing and new routes. We must therefore seek expansion and growth on foreign markets, as well as by providing good connections via the home airport; with that we can highly increase the number of passengers that we can transport on our own flights.

Probability: medium / ↑Impact: big / =

War, Epidemic, Terrorism and Natural Disasters / Possibility of Development and Occurrence

These events may have a negative impact on the possibility of commercial flying to affected areas, which is reflected in loss of revenue. That might be of a more or less limited nature (epidemic may have a global impact on reduced demand for air transport), or they may have more direct consequences in the form of material damage and loss of assets (aircraft, business premises).

Probability: low / =Impact: limited / =


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Information Technology / Possibility of Failure of Key Elements of the IT Infrastructure

With increased automation of some key processes, which is a consequence of growth and bigger scope of business operations, there is an increased risk of possible failures of information systems and programmes which provide smooth functioning of the company and its daily operations. The mentioned key processes are: reservations and sale of air tickets, planning commercial flying, communication to operative services, operative planning of flights and crews, and the support processes linked to that. A failure may cause that flights are suspended, and consequently revenue is lost and additional costs occur to set up the operations again. Safety support or the smooth operation in connection with the reservation system and flights inventory are provided by the suppliers, Amadeus and Lufthansa Systems. Programmes for planning and other operative support run on the Blade server in an environment with a redundancy high availability, and the most critical applications have duplicate servers on another location. As the number of communications running via IP networks is increasing, such access has to be robust. Therefore, we use different communication channels: one is the SITA channel, which runs through rented wires, the others are VPN networks running through optics (T-2, Telekom), and the wireless connections (Softnet).

Probability: medium / =Impact: big / ↑

Safety and Protection / Possibility of Incidents

Passenger safety is Adria Airways’ highest priority. Inability to prevent a major safety incident would have long-term and hard consequences for the company’s business operations, in terms of losing revenue, losing assets, losing reputation and the value of the trademark. More details are outlined in a separate chapter no. 10.

Probability: low / =Impact: big / =

Passenger safety is the highestpriority.


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Labour Force / Possibility of Shortage of Qualified Labour Force

With increased traffic, also the need for qualified labour force is growing – aircrew, maintenance staff, as well as support service. Expanding aircraft fleet also requires that we provide an adequate number of qualified labour force. The risk is managed in short-term by hiring temporary foreign labour force, while at the same time we are intensely educating our own young personnel to obtain the required functional knowledge. We are intensely employing new operational personnel to solve long-term needs, partly because of expansion of our own fleet, but mostly because of extremely high requirements on the market, where in the future we could place our surplus of otherwise scarce professionals for short term lease to other airline companies. We are also preparing a programme of collaboration with educational institu-tions which provide education for key operative professions, whereby certain programmes of functional knowledge would be transferred already to the system of compulsory education in those schools, and at the same time identify the most promising pupils and students and tie them to later employment in our company with a system of scholarships.

Probability: medium / ↓Impact: big / =

Trade Union Requirements / Possibility of Requests for Increasing Labour Force Costs

Trade unions’ requirements for salary increases have a negative impact on achieving success at reducing costs. Employee strikes could cause disturbance in daily operations and performing commercial flying, and consequently a loss of revenue and unforeseen costs. In 2007 we reached individual agreements with the trade unions in the company with regard to increasing employees’ remunerations which are linked to operative performance of air traffic and do not have such a direct influence on revenue, or to a limited extent on cost management. In general, the biggest reserves are still in organisation of work, productivity, higher flexibility and multi-functionality of employees, in monitoring the efficiency, quality and amount of the employees’ work; but all of that requires additional engagement of the management at the medium level, who should dedicate a bigger share of their working time to optimising, organising and managing employees, and to a lesser extent deal with expert operative matters.

Probability: medium / ↓Impact: big / =


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Legislation and EU Regulation / Possibility of Negative Impact of Legislation on Operations

International aviation industry is to a great extent subject to the European and national regulations, which regulate most activities of airline operators. This framework is in force both in the sphere of commercial activities (rights to access to airways and airport “slots”, liberal price regime) as well as operational standards relating to the fields such as safety, protection, noise and passenger rights. Adria is also affected by European Union legislation and regulation, especially with regard to competition, airports, air traffic control, permits for regular flying and passenger rights. Adria’s ability to fulfil these requirements on one hand, and on the other to influence their amendments, is of key importance in ensuring the success of our operative and financial activities.

Probability: medium / =Impact: big / =

Suppliers / Possibility of Inadequate Supplier Services

Potential problems with suppliers could cause reduction in revenue, or a negative perception of the public with regard to our services. For certain services we hire external suppliers and we rely on them regarding timeliness, efficiency and quality of their services. Among those are for example certain maintenance services, flying leased aircraft on our routes, providing ground handling, information support and similar. We have concluded agreements for service hire which include a notice period in which we can find a replacement in case of unilateral or consensual termination of collaboration. Nevertheless, adequate implementation of the hired service has relatively strong influence on the overall quality of the services offered by us.



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Financial Risks

Due to its international orientation, Adria Airways d.d. is exposed to certain types of financial risks, which the company tries to detect and manage in the risk management process.

For efficient and systematic risk management, we follow the strategy of managing financial risks adopted at the end of 2005.

The company divides financial risk into the following types: currency, credit, interest rate, liquidity, risk in insuring interests and property and risk associated with changes in fuel prices.

Currency Risk

In view of the geographical spread of its business operations, the company is exposed to currency risk, where changes in the exchange rate of an individual currency can impair the company’s commercial benefits. The key pair of currencies in 2008 was EUR/USD, but we are also monitoring the following pairs of currencies, the open positions of which are relatively low: EUR/CHF, EUR/GBP; and to smaller extent also others.

The company is in a net short position and thereby most exposed to fluctuations in the dollar rate since USD affects business transactions of the company the most, due to its association with: purchase of aviation fuel, aircraft and spare parts as well as lease and investment maintenance of the aircraft; also, inflows of dollars are scarce.

In the long term, we are trying to reduce exposure by natural securing (restructuring all long-term loans to euro), i.e. by regulating inflows and outflows, while in 2008 a part of short position was secured also by purchasing derivative financial instruments, and a part was left unsecured in compliance with the adopted strategy.

Also in 2009, we are planning a short position in USD, which we have already partly secured by purchasing derivatives, and a part will be left unsecured.

Probability: high / =Impact: limited / =


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Credit Risk

Credit risk relates primarily to the risk of default on payment of operating receivables by customers in Slovenia and abroad, and the company successfully manages this by:

having a wide spread of customers; ● analysing the financial operations of customers and assessing risk prior to signing contracts ●for deferred payment; operating through the IATA (International Air Transport Association), which includes all the ●airlines with which we cooperate; the majority of our partner travel agents also have IATA authorisation to sell tickets; IATA members are subject to control, and are penalised for non-adherence to the terms of payment; additional security for higher-risk claims with bank guarantees, drafts, letters of credit; ●systematically and actively pursuing the collection of receivables. ●

Probability: medium / ↑Impact: limited / ↑

Interest Rate Risk

Risks relating to interest rate changes are defined as the uncertainty associated with the future values of reference (variable) interest rates, LIBOR for the USD and EURIBOR.

All long-term loans as of 31 December 2008 are therefore denominated in EUR and linked mainly to 1-month, and to a lower extent to a 3-month EURIBOR. In the past we have secured part of the loans by purchasing derivative financial instruments, while in 2008 we have not increased the level of security due to relatively unfavourable price levels of derivative financial instruments for protection against interest rate risk. We will continue to purchase instruments for the fixing of the interest rate in 2009, as the key interest rates are currently at the lowest levels. As of 31 December 2008, the company has 30 percent of long-term loans secured against the risk of interest rate changes.

Probability: high / ↑Impact: big / ↑


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Liquidity Risk

Liquidity risk, or the risk of the inability to settle current liabilities, is managed by coordinating the due dates for receivables and liabilities through the monitoring of cash flow. The company is preparing daily, as well as weekly and monthly liquidity plans, and has access to available credit lines for short-term adjustment of cash flow.

Probability: medium / =Impact: limited / ↑

Insuring Interests and Property

The extent and intensiveness of insurance cover change with the growth of property, the use of new technologies and markets, and at the same time there are changes in risk exposure. The extent of insurance cover indicates against what danger a thing is insured, and the intensive-ness indicates the extent to which damage will be reimbursed.

In avoiding damage and exposure, the company operates preventively:

by additionally equipping aircraft with anti-intrusion doors, so as to increase the safety of ●passengers, crew and property; by installing GPS navigation systems on aircraft, which enable the highest possible level of ●detail in establishing the current position of the aircraft in airspace; by training technical and aircraft crew in the sphere of safety protection, with a purpose of ●performing safety checks of aircraft before flying; by installing Enhanced Ground Proximity Warning Systems (EGPWS); ● by purchasing work platforms and stairs for safer work by contractors and preventing damage ●to aircraft; by investing in equipment for controlled access to protected areas; ● by upgrading the existing and purchasing new equipment for ground handling of aircraft; ● by investing in equipment which enables controlled handling/disposal of waste/dangerous ●substances; by renovating the existing working areas and roof on the hangar for aircraft maintenance; ●through twice-yearly refresher courses for flight personnel on a simulator; ●through continuous training of employees in fire safety and safe work; ●by linking up fire safety systems with Aerodrom Ljubljana and the security services; ●through regular medical check-ups for employees. ●


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The Company insures aircraft, spare parts, goods in transit, all liability regarding passengers and possible injury to third persons in line with the valid international regulations and conventions (Montreal Convention).

The Company’s business operations are backed up by all the mentioned insurance.


Risk Associated with Fuel Price Changes

The cost of fuel in 2008 became the biggest cost of airlines, which means that movements in oil prices have a major impact on airline operations. The price of kerosene, like the price of crude oil, is subject to enormous fluctuations. After a period of relatively cheap oil in the first months of 2008, we have witnessed quick growth and extremely high prices in summer season 2008.

Consumption and fuel costs are managed by:

selecting the most competitive offer from aviation fuel suppliers at international airports and ●demanding transparency of prices offered by the domestic fuel supplier;planning the use of aircraft appropriate to the number of passengers; ● using the programme for reduction of fuel consumption, which was prepared at IATA and ●includes measures in monitoring decantation of fuel, aircraft maintenance and technique of flying;adding a surcharge to our own sales prices for the increased cost of fuel. ● In compliance with the adopted strategy of protection from the risk of price fluctuations for ●aviation fuel, in 2008 we secured prices also by using derivative financial instruments.

Probability: high / ↑Impact: limited / =


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13. Analysis of Business Results

Adria Airways’ business operations in 2008 reflect both, implementing the set company strategy as well as achieving objectives of the short-term plan, predominantly regarding all physical indicators of operations.

The record high price of kerosene and the onset of the financial and economic crisis had a significant impact on the 2008 business year, for which we set quite a number of objectives and managed to achieve most of them. Those objectives are:

The planned fleet optimisation by leasing out larger and hiring smaller aircrafts, according to ●the flying needs, was implemented in its entirety.

We planned a net profit of € 0.7 million, but did not achieve this objective mainly due to ●unreasonably high prices of kerosene.

We planned 19 % more flights and a 17 % higher number of passengers carried, as well as an ●increase in operational revenue by 7 %. We achieved 15 % more flights, 15 % more passengers and a 6 % higher revenue, which might be considered a successfully implemented plan.

We planned an increase in the scope of the training process for operating personnel. In ●2008, a total of 27 mechanics took part in the educational process for obtaining licences for individual aircraft types and 26 employees attended basic education for obtaining quali-fications for the position of aviation technicians of different categories. Furthermore, 20 pilots took part in the educational process for aircrews in 2008 and obtained a licence for an individual aircraft type, while four finished their studies and became captains and ten became instructors.

We planned and successfully completed the process of introducing the electronic ticket. ●

In the summer season we successfully launched four new routes: Athens, Bucharest, Oslo ●and Stockholm.

We planned the construction of the new business building at Brnik and the construction ●of an additional hangar; the construction of the building started towards the end of 2008 and will intensely continue in 2009, we are also in the process of acquiring the necessary permits for the construction of the new hangar.

The main objective of the charter plan for 2008 was to preserve the market position of the ●leading charter operator on domestic market and to continue systematic work with selected key clients on foreign markets on one hand, while on the other follow the fleet optimisation, pursuing the goal of performing successful business. Planned revenue was exceeded by 29 %.


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In the sphere of maintenance of foreign aircraft we were planning to continue the strategy ●of expanding the scope of work on the aircraft of the A–320 family and at the same time preserve the leading role on the CRJ market; the planned revenue from maintenance for third parties was exceeded by 5 %.

In the sphere of cargo transport, we will focus only on cargo transport on the company’s ●scheduled flights.

Notes on the Physical Operating Indicators

In 2008, the Company carried 1,302,172 passengers on 27,183 flights. Compared to 2007 the number of passengers carried increased by 15 %. The number of passengers carried on scheduled flights increased by 17 %, and the number of passengers carried on charter flights by 4 %.

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

02008 2007 2006

Number of All Passengers Carried

Passengers in Total

Index

1,302,172

115

1,136,431

112

1,018,007

110

The share of passengers on scheduled flights in the total number of passengers carried was 85 % in 2008, which is for 2 % more than in 2007.

The passenger cabin efficiency on scheduled flights improved by 2 % in 2008 compared to 2007, and the number of seats available for sale increased by 19 %.

Average daily use of aircraft was 9.79 hours per avioday which represented the last year’s level.

Average fuel consumption per hour of flying increased by 16 % compared to 2007, which is mainly a result of larger aircraft in our fleet and the leased Boeing aircraft.


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Revenue Structure

Net sales revenue in 2008 increased by 14 % compared to the previous year. Their structure changed considerably in comparison to 2007: the proportion of revenue from scheduled flights increased, mainly due to decrease in the share of other activities (cargo, technology, other revenues), and the proportion of revenue from charter flights increased.

1. Scheduled Transport – Passengers2. Scheduled Transport – Cargo3. Charter Transport – Passengers4. Technology – Foreign Clients5. Other Activities

70 %1 %

14 %6 %9 %

1

2

3

4

5Composition of Operating RevenueJan.-Dec. 2008

The biggest proportion of net revenues comes from scheduled passenger transport.

2007

2008

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

63 12 7 3 13

70 14 6 1 9

RevenueStructureas a %

Scheduled Transport – PassengersCharter Transport – PassengersAircraft Maintenance for Third PartiesScheduled Transport – CargoOther


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Revenue from scheduled passenger services, which represented 70 % of total operating revenue in 2008 increased by 25 % in comparison to 2007; it is important that we could adopt to the fierce conditions on the market fast enough, primarily because of high kerosene prices.

Revenue from charter services grew by 26 % despite fierce competition in this area, which is a result of increased sales of ad hoc charter flights on foreign markets. Consequently, with adequate quality we managed to build a recognisable brand on the specialized “airline broker” market. The number of charter flights for state institutions (government) and Slovenian companies increased as well.

Revenue from cargo transport decreased by half compared to 2007, mainly due to the cessation of our own cargo operations. In view of the strong competitiveness of the transport by trucks in Europe and the Balkans, where most of our transport offer is focused on, the transport of consignments with a weight of up to a few hundred kilograms was our market niche in the past and will continue to be in the future. Despite decreasing prices and surcharges and hence adapting the offer there was no increase in the demand for transport because of the current situation. Revenues from maintaining aircrafts for third parties: performance of services for foreign clients amounted to € 12.8 million in 2008, which is 4 % less than in the same period in 2007. The decrease in the performance is mainly the result of greater activities in the field of maintaining our own fleet (base and line maintenance), structure of projects of servicing for foreign clients and cessation of the operating line maintenance (Maintenance Off Site) for an Italian aircraft operator. We do not want to build advantages on a low price policy, but want to act in accordance with our vision and strategy as well as become and remain a centre that employs professional and flexible personnel, listens to the needs and wishes of the clients and offers a wide range of quality services with the shortest possible grounding time of aircraft.

In 2008, we still leased our aircraft including pilots due to fleet optimisation, but two of the aircraft remained abroad only for a short period, while only one aircraft was leased for the whole year, as a result the revenues from leasing aircraft are correspondingly lower (ind. 71).


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Expenses Structure

Production costs, distribution costs and general and administrative costs increased by 16 % over 2007.

The cost of material grew by 39 % compared to 2007, still mainly due to high prices of aviation fuel, the growth in the cost of services was 4 %, owing to the larger extent of flying.

The fuel costs have an index of 150; such an extreme growth of fuel prices has a signifi- ●cantly negative impact on the financial result in 2008. The proportion of the fuel costs in the balance structure grew by 6 index points compared to the same period of the previous year. Nobody did foresee such a drastic increase in the kerosene prices and one must keep in mind that nobody can pass on such an increase to the customers totally and on time. Fuel costs exceed planned values by 30 % or € 11.2 million. The kerosene prices were on average 46 % higher in 2008 in comparison to 2007, despite a significant decline from September on.

Airport costs grew by 10 % in 2008 and are under constant control. In spite of a 15 % growth ●in the number of flights, a higher aircraft capacity and a heavier fleet (all these factors have an impact on the prices of flight services), our costs increased “only” by 10 %, which is a sign of a successful maintenance of reduced prices in the past two years, when a lot of measures were carried out in this field.

Navigation costs (index 113) grew in proportion to the growth of operational flying, on ●scheduled, and charter flights.

Aircraft maintenance costs increased by 8 %. They include both, the costs of maintaining ●our own fleet as well as the costs related to servicing aircraft for other clients. In spite of somewhat reduced activities on foreign aircraft, the costs are higher due to an increase in the extent of our own transport activities and consequently an increased volume of line and base maintenance; the number of aircraft in our fleet increased as well.

Aircraft leasing costs (index 85) comprise leasings for three CRJ-100/200 aircraft (the third ●only for a period of 3 months), leasing for the Boeing 737-500, leasing for the Fokker 100 from April to September as well as occasional subcharters, especially during the period of inspecting our own fleet. The costs are lower than last year because there is no leasing of cargo aircraft anymore, there are also two more aircraft in our fleet and with the help of optimal planning we try to avoid additional leasings of aircraft.


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Labour costs increased by 18 % due to the larger extent of flying, more overtime hours flown, ●the different nature of projects in the field of technology (work abroad), the larger extent of instructor works and pay raises from February on, in accordance with the agreement with the trade unions.

Amortisation and depreciation costs grew by 22 % compared to 2007 and are high because ●the aviation sector is highly investment-intensive; the deviation with regard to 2007 is mainly due to purchasing two new aircraft in 2007 (in 2008 the whole year) and higher investment activities in connection with our fleet, which shows in the amortisation and depreciation costs.

Distribution costs grew by 12 % compared to 2007; they include the costs of domestic and ●foreign sales networks, all agency commissions, the costs of the reservation system and the costs of employees in sales and marketing. The costs of the reservation system increased, which is a result of a higher number of passengers and more traffic in the markets. As the sales plan was exceeded, the variable part of the salary and the labour costs in sales and marketing increased as well.

In the financial part of operations, the expenses on interest payments showed the highest ●growth, namely 10 %. The reason is additional indebtedness already in 2007 due to expanding the fleet and growth in the key interest rate.

Results

In 2008, the Company generated an operating profit in the amount of € 1,217,161, which ●is considerably worse than in last year and is solely the result of the extreme growth of kerosene prices.

The Company reports a financial loss of € 4,830,088, which is above the financial loss ●incurred in the previous year, namely € 1.4 million mainly due to incurring new long-term loans for aircraft (in 2007) and because of the growth of key interest rates.

The result is a net loss in the amount of € 3,240,977. April was the first month in the last ●year which we finished with a minimal profit, the same is true for May. In June we generated a net profit of € 1 million, and in July a net profit of € 0.7 million, the situation was similar in September as well.


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Asset Structure

As of 31 December 2008, total assets were 5 % lower than at the end of the previous year.

2007

2008

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

80 3 15 2

81 5 11 3

Asset Structureas a %

Fixed AssetsInventoriesReceivablesOther Assets

As much as 81 % of the Company’s assets are fixed assets, 11 % are receivables, and ●inventories represent only 5 %; the structure of assets changed in comparison to the previous year in the proportion of fixed assets and in the proportion of receivables.

The Company’s fixed assets are for the most part tangible fixed assets, of which the major ●proportion is aircraft (90 %). In 2007, fixed assets were increased by two new CRJ–900 aircraft and the relevant roto spare parts, and in 2008 decreased by one SAAB cargo aircraft held under a finance lease.

In spite of higher sales revenues we managed to reduce short-term operating receivables, ●primarily operating trade receivables, by 34 % or almost € 7 million.


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Structure of Liabilities

2007

2008

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

25 51 22 2

22 46 30 2

Structure of Liabilitiesas a %

CapitalLong-term Financial and Operational LiabilitiesShort-term Financial and Operational LiabilitiesOther Sources

In the structure of liabilities the share of capital somewhat decreased compared to the ●previous year because of the generated loss and the current negative evaluation of derivative instruments.

Long-term financial liabilities (there are no operational liabilities) dropped by 14 % compared ●to 2007 since we did not take out any new long-term loans, while the old loans decreased due to monthly repayments.

The share of short-term liabilities in the structure of liabilities grew by 8 % in line with the ●growth of the total operations and due to a higher amount of the short-term part of long-term financial liabilities for 2009.


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Cash Flow from Operating Activities

Cash flow from operating activities is positive, in the amount of € 18,514,681 and is 10 % better than in 2007. A detailed calculation of cash flow is presented in the financial statements.

Indicators of Business Performance

Basic financing indicators focus on the financial analysis of the Company and are important when making long-term decisions on the financing policy of the Company and for external users.

BASIC FINANCING INDICATORS Jan.-Dec. 08 Jan.-Dec. 07 Index 08/07

Equity financing rate 22.34 25.23 89

Long-term financing rate 69.32 76.85 90

Equity to operating fixed assets 0.2771 0.3163 88

Jan.-Dec. 07

Jan.-Dec. 08

0.00 18.00

25.23

22.34

Equity FinancingRate


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Solvency indicators are the most basic indicators of the success of a company’s operations. It is important that a company has an appropriate structure of current assets, since with the help of an adequate transfer of current assets into cash the company settles its liabilities.

SOLVENCY INDICATORS Jan.-Dec. 08 Jan.-Dec. 07 Index 08/07

Ratio of direct coverage of short-term liabilities (immediate solvency ratio) 0.09 0.10 95

Ratio of accelerated coverage of short-term liabilities (quick ratio) 0.43 0.70 62

Ratio of short-term coverage of short-term liabilities (current ratio) 0.59 0.83 71


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14. Events After the End of the Business Year

At the end of January, a fourth CRJ–900 aircraft was added to our fleet, which was leased ●from the German leasing company GOAL.

The global financial crisis increasingly manifests itself in the drop in demand for passenger ●air transport on the global as well as European level and will most likely nullify the positive impact of the current decline in fuel prices. Therefore, the Management Board of the Company adopted a package of measures for the reduction of operating costs. In February 2009, the Management Board decided to cut all salaries and wages by 5 %.

The accelerated construction of the new business building at Brnik, financed mainly through ●a long-term loan.

The first two rounds of capital injection by the owners (payment of € 2.1 million) were ●conducted; the third round of the capital injection is still in progress.

The aviation industry entered 2009 with a loss of $ 8 billion (according to IATA data), 50 % ●of this loss was generated in the last quarter of 2008; for the year 2009 IATA predicts a loss of $ 2.5 billion.

A new route to Madrid was introduced with the summer flight schedule, which became ●effective at the end of March.


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15. Plans for the Future

The Key Factors of the Company’s Operation in 2009

After the record growth and an extremely strong economic cycle in the years 2006, 2007 and in the first half of 2008, the global economic situation almost came to a standstill before the end of 2008. The financial and bank crisis spread from the USA to the rest of the world. In the EU the economic confidence indicators fell rapidly in autumn 2008. Some of the biggest countries in the EU announced that they are in a recession, since their GDP dropped for two quarters in a row and the banks more or less stopped granting long-term loans to the real sector. Even some of the biggest and most reputable European companies were hit by the risk of illiquidity. In addition to the global financial crisis, the psychological atmosphere as well as the fear of recession had a strong impact on the limitation of future business opportunities. This deepens the recession with real consequences in the financial and real sector.

The evaluations and estimations are uncertain, since a new financial and macroeconomic balance in the world economy will have to be established.

A high degree of uncertainty in the international environment generates signs of recession and impedes economic activities also in Slovenia. In such a situation coordinated action is important – in addition to governmental structures and the central bank there has to be a fast, effective and coordinated response, especially from the bank and the real sector. According to the last evaluations, companies will not only face a liquidity problem in the next months, but also and primarily the problem of getting orders and being competitive.

More time is needed for adapting to the new situation, also by searching for new business paths and markets.

Trends and Forecasts for Aviation Industry

The last reduction of the extent of transport caused by a recession was in 1991 (apart from that, in the last 35 years only once more in 2001 due to a terrorist attack), when air passenger transport dropped by 2.6 %, for 2009 IATA projects a decline of 3 % and for 2010 a growth of 0.9 %. The negative trends in the travel industry lasted for about three years in the last recessions. Therefore, it is expected that the growth will not exceed 4 % before 2011.


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Reduction of Capacities

According to the data for air carriers, members of the AEA, in the winter season the highest reduction of capacities was observed in the area of scheduled flights, especially on routes within Europe, routes to North America and Africa. Forecasted fleet reductions until the end of 2009, including those already performed are reflected in a decrease in the number of aircraft in operation by 1029, which is approximately 5 % of the entire fleet of air carriers around the world.

Revenue per Passenger

IATA predicts an average fuel price of about USD 60 in 2009, which means that the costs per unit will be considerably lower, it is also expected that there will be pressure to reduce the revenue per passenger. Moreover, it is predicted that the growth of the average length of flight will come to a halt during the recession – the passengers will choose cheaper short flights instead of more expensive overseas flights.

Evaluation of the Financial Results for 2009

IATA forecasts a loss on the global level in the amount of USD 4.7 billion for the aviation industry in the next year. All regions will experience a loss, except the carriers from the USA, which will likely realise a profit of USD 100 million. However, European carriers will presumably generate a loss of USD 1 billion, Asian carriers USD 1.7 billion, carriers from the Middle East USD 900 billion, and carriers from Africa as well as South America USD 600 million, respectively.

Journeys in Business Class

The share of journeys in business class on short routes has been decreasing gradually for several years, however, at the end of 2008 the number of journeys in business class decreased already by 10 %. As a result of the impact of the recession a decrease of about 20 % compared to 2008 can be expected in 2009.


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Internal and External Costs

In spite of successful cost control, fuel still remains the most influential cost (it represents already 30-35 % of the operating costs), which cannot be controlled and predicted completely accurately. Its impact on the aviation industry was strongest in 2008, when the price climbed to a record USD 147 per barrel. In 2009, the costs of airport services and air traffic control will most likely increase as well. However, the air carriers effectively reduced those costs they can control and influence. Air carriers reduced costs already in 2008, but further reductions are needed. Furthermore, additional cost reductions will be necessary, but it will be difficult to carry them out since up to 60 % of costs are external costs and carriers have no direct influence on these costs. Therefore, the AEA demands that the costs of the ineffective value chain are regulated.

Financing of New Aircraft

It is expected that 1000 new aircraft will be supplied in the next year. The first problem in this regard is that due to the forecasted recession and the reduction of capacities many of these aircraft will not be needed in the next year. The other problem is that there will be a shortage of funds on the market for financing aircraft that will be needed. The value of aircraft with due dates of delivery in 2009 amounts to USD 65 billion, experts estimate that carriers will not be able to ensure approximately 15-20 % of this amount. Therefore, it is expected that some orders will be cancelled.

Adria Airways’ Plans in 2009

Fleet

Due to an increase in competition on the Slovenian market, commercial needs and operating costs, which is mainly a result of the increase in fuel prices, were realized already in 2006 that the fleet cannot be expanded with jet planes with fifty seats anymore. In compliance with our business model, long-term strategy and business plan we started to add aircraft with more adequate capacities to our fleet. Hence, we added two new Bombardier CRJ–900 Next Gen aircraft to our fleet in December 2008 and January 2009.

In 2009, we will also make a final decision regarding the Airbus fleet. The decision on modernizing, upgrading or replacing the existing Airbus fleet will have an important impact on the optimisation and the employment relationship of the crews according to the aircraft type.


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Marketing Activities

In 2009, we will pursue medium-term strategic objectives in the area of marketing. With marketing activities we want to:

strengthen the reputation of Adria Airways’ trademark; ●inform the public about Adria Airways’ offer; ●strengthen the loyalty of passengers; ●consolidate the income from marketing our own media; ●keep the public informed about Adria Airways’ offer; ●strengthen alternative advertising media (internet, intranet, web pages). ●

Improvement of Cost Effectiveness

In 2009, we will strive to improve the cost effectiveness primarily in the following areas:

adapting capacities – fleet; ●reducing labour costs; ●increasing revenue; ●reducing flying costs; ●savings at aircraft maintenance; ●reducing selling costs. ●

Planned Physical Indicators of Business Performance in 2009

In 2009, we are planning a total of 28,047 flights, which is 3 % more than in 2008 and 43,889 hours flown, a 3 % increase compared to 2008.

We will carry a total of 1,145,574 passengers on scheduled flights, which is 4 % more than in 2008 and achieve a 64.3 % passenger cabin efficiency, which is 1.1 percentage points better than in 2008.

We are planning 2,568 charter flights, which is 2 % less than in 2008. The planned number of passengers carried in charter traffic is 200,300, this is 1 % more than in 2008.


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Planned Physical Indicators of Business Performance in 2009

Net sales will drop by 2 % mainly because of slightly pessimistic forecasts on the field of charter flights and decrease of revenue from leases, as we will lease only one A–320 for the whole year.

It is planned that the revenue from scheduled passenger services will climb by 3 % in 2009, if the recession will not deepen any further.

Under the influence of the global financial crisis it is expected that the demand for charter transport will slightly decrease. This is also the reason why we plan a 6 % lower revenue than in 2008.

In 2009, we plan a minimal growth of revenue (2 %) from aircraft maintenance. The reasons are expansion of Adria’s fleet by two CRJ–900 aircraft (increase in the maintenance activities on Adria Airways aircraft of approx. 8 %) and postponement of the construction of the third hangar.

Planned operating costs are 3 % lower than in 2008. This is attributable mainly to fuel costs, since we plan that the prices will not be as extremely high as in 2008. Additionally, all our efforts will focus on continuous, intensive cost reduction in all areas of operation. For this purpose, we adopted a package of measures at the beginning of 2009, the goal of which is a reduction of costs and improvement of the Company’s liquidity.

We plan a positive operating result in the amount of € 3.6 million, without the effects of possible sales of property, plant and equipment of the Company or any other extraordinary effects and minimal net profit of the 2009 business year.

In addition to the limitation of fuel consumption, the plan focuses mainly on the rationalisation of working processes and working time in the area of aircraft maintenance, where we plan shift work, adapted to the needs of the customer, and in the area of flight operations, where will try to harmonize the working time with the legislation.

Concerning investments in buildings and equipment, the main task is the completion of the construction of the business building at Brnik, which started already in October 2008. We will take out a long-term loan from a local bank for the construction of the building.

2009 will not be a year of capacity expansion, but a year of building a stable, cost effective company with a modern, optimal fleet.


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We are growing in every aspect. We are updating our fleet, which is environmentally friendly. We meet the strict CO2 emission standards. We understand our responsibility for future generations.

SUSTAINABILITY REPORT

We Update

SUSTAINABILITY REPORT16. Employees

Structure of Employees

2008 was a year of superlatives in every way, regarding the growth to the extent of transport and services. Consequently, there was also growth in the number of employees, we were optimistic and employed young, motivated and educated people.

Average Number of Employees in the Period Jan.-Dec. 2007/2008

Jan.-Dec. Average number of employees At 31 December

2007 633 679

2008 701 719

Growth of Employment in 2006, 2007 and 2008

400

350

300

250

200

150

100

50

0

Pilots Cabin Staff Mechanics Other

Growth ofEmployment

200620072008

Adria Airways / Annual Report 2008 / SUSTAINABILITY REPORT

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Comparison Structure of Employment in 2006, 2007 and 2008:

Other

Mechanics

Pilots

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

200620072008

Structure of Employees

Cabin Staff

The employment trend also continued in 2008, primarily in the operational services as we had to increase the number of personnel to ensure high-quality performance of services due to the expansion of our fleet and increase in transport.


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Number of Workers According to the Type of Employment Relationship as of 31 December 2008

Type of employment relationship Pilots Cabin staff Mechanics Other Total

Permanent employment 130 78 62 325 595

Permanent employment – 4 working hours/4 hours of retirement 2 2

Permanent employment – 4 working hours/4 hours Pension and Disability Insurance Institute of the Republic of Slovenia (PDII) 5 5

Permanent employment – 4 working hours/4 hours of disability retirement 3 3

Permanent employment – 4 hours/day 2 6 8

Permanent employment – 5 hours/day 1 1



Permanent employment – 8 hours/disability retirement 4 4

Fixed-term employment – 6 hours/day

Fixed-term employment – 8 hours/day 15 1 67 83

Fixed-term employment – 8 hours – trainee 14 14

Total on 31 December 2008 150 99 63 407 719

Total on 31 December 2007 132 93 70 384 679

Structure of Employees by Sex as of 31 December 2008

Department or staff duty Average age No. of employees

Male Female

Management Board 37.21 7 4 3

Quality Assurance 49.87 3 3

Safety and Protection 50.28 7 5 2

Marketing and Sales Department 43.83 92 21 71

Groundhandling and Procurement Department 38.91 55 27 28

Aircraft Maintenance Department 37.79 230 205 25

Flight Operation Department 39.9 282 187 95

Finance and Accounting Department 44.08 37 6 31

Organisation and Human Resources Department 49.28 5 5

Employees’ Council 53.27 1 1

TOTAL 40.07 719 458 261

The trend of lowering the average age of employees continued also in 2008, attributable mainly to increasing employment of younger workers and gradual retirement of the oldest workers.


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Comparison of Educational Structure in 2001, 2005, 2007 and 2008

Level of Education

PrimarySchool

SecondaryVocational

Secondary Two-year tertiary

Four-year tertiary

University Masters Doctorate

Year 2001 6 % 18 % 37 % 22 % 3 % 14 %

Year 2005 2 % 10 % 42 % 24 % 5 % 16 % 1 %

Year 2007 1 % 7 % 44 % 21 % 11 % 15 % 1 %

Year 2008 1 % 7 % 42 % 20 % 14 % 15 % 1 %

The educational structure in the Company is steadily improving in favour of the higher educated personnel. This is a result of the Company’s decision in 2004 to co-finance the education of employees with no adequate education for their post and to enable them to study while working. The results of this measure are already very visible in 2008.

We continued with the intensive functional education and training of the key segment of workforce, namely the pilots and the aviation mechanics, also in 2008.

Thus, in 2008 a total of 27 aviation mechanics took part in the educational process for obtaining licences for individual aircraft types and 26 employees attended basic education for obtaining qualifications for the position of aviation technicians of different categories.

Furthermore, 20 pilots took part in the educational process for aircrews in 2008 and obtained a licence for an individual aircraft type, while four finished their studies and became captains and ten became instructors.

Safety and Health at Work

In 2008, in compliance with the law 170 workers were sent to periodic health checks, most of these workers are medically fit to perform the assigned works. With the help of periodic health checks it is assessed whether there are health risks for the individual employee and whether the employee meets the special medical requirements for a specific type of work in the working environment, namely due to the impact of critical risk factors in this period, laid down in the Declaration of Safety with Risk Assessment by the Employer. Preliminary health checks for new employees were performed as well.

In 2008, 12 workers were qualified to give first aid and the first-aid kits were supplemented with the required materials. In the field of education for safety, health at work and fire safety 143 employees and 17 students passed the theoretical test.


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Vaccination against influenza was not organised within the framework of the Company. Therefore, although the Company refunded vaccination costs to employees upon presenta-tion of an invoice, a considerably smaller number of employees got vaccinated on their own initiative, which contributed to higher sick-leave use compared to 2007.

The annual sick-leave rate in the Company was 3.46 percentage points, this is an (3.10) increase compared to 2007, the downward trend from 2002 to 2007 was followed by an increase – this is partly attributable to the expanding scope of work due to the growth of transport in 2008.

Human Resources Development

In 2008, a new information system for the calculation of salaries was introduced and established, which is linked to the working-time recording system and the new human resources information system, which we successfully introduced in 2007.

Also in 2008, we carried out a study of the organisational climate and employees’ satisfaction SIOK, which also enables us to compare our data to the data of other successful Slovenian companies. The general value, i.e. the average evaluation of all statements from the study is 3.20, which is an increase of +0.28 compared to 2007; the employees’ satisfaction is rated very high, which is a sign of general well-being of employees in the Company. Other indicators of the climate and satisfaction, which show a positive growth compared to the previous year, are quality attitude towards work, proficiency and commitment, internal relationships and affiliation as well as management aspects and systems.

Clarity, goal orientation, motivation, remuneration and dialogue between the managers and the employees are indicators that present a future challenge.

There was a lively and diverse communication between the management and the employees also in 2008. Continuous and up-to-date communication with six representative trade unions in the Company, monthly meetings with the Employees’ Council, sector and department meetings, assemblies of employees, management open days – are “vivid” forms of direct communica-tion, while in 2008 a weekly Newsletter was introduced with which the management informs all employees about current topics in addition to the communication via intranet.


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17. The Environment Adria Airways is a company that is environmentally aware. We are actively working towards continuously reducing fuel consumption, towards reducing gas emissions and reducing noise. All the aircraft in our fleet comply with ICAO (International Civil Aviation Organization) environ-mental and other requirements. Both types of engine used by the Adria fleet aircraft operate within 70 % of the permitted values of gas and smoke emissions laid down by ICAO. In 2007, at the end of 2008 and at the beginning of 2009 four new regional Bombardier CRJ-900 aircraft were added to the Adria Airways’ fleet, which are state-of-the-art aircraft in terms of fuel consumption and an environmental burden due to noise.

0.08

0.07

0.06

0.05

0.04

0.00

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

Fuel Consumption(in t/000Pkm)

Regardless of the small share of air traffic in CO2 burdening of the environment, Adria committed to reduce the burden by reducing consumption of fuel years ago. In 2008, the high fuel prices practically forced us to save fuel, this is in the way of flying, more regular washing of the aircraft exterior and periodic washing of aircraft engines, which mostly contributed to the fuel consumption reduction, but also wear of engines.

Adria Airways is an environ-mentally aware company.


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In the process of aircraft maintenance we are raising awareness of the employees regarding wise and economic use of chemical agents and those agents that cause environmental pollution after use. In accordance with the above said, awareness for the protection of their own health and the health of other employees is raised and the environment protected in general. Our goal is long-term and a constant reduction in the quantity of agents harmful to the environment, like cleaning agents, aggressive agents, oily cloths, plastic materials, lubricants, one component and more component sealants, kerosene and paper. The existing waste separation will be more organised in future and in line with the ISO 14001 standard, the implementation of which is planned as well.

We separate paper from other waste and it is removed for recycling. In the process of management of documentation we are trying to manage and archive documents in electronic form. Manuals and instructions required for smooth performance of the processes are distributed over the intranet and internet for the clients at external airports. We have achieved an additional contri-bution to the rationalisation of our business operations with the implementation of electronic tickets and a web check-in.

In the process of supplying the passengers on board aircrafts we separate waste, and in choosing packaging we give preference to bio-degradable materials.


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18. Relations with the Wider Social Environment

Since its inception, Adria Airways, the Slovenian national airline operator, has been a closely connected part of the social environment in which we operate. We are aware of our responsibility to the broader social environment and we participate in a variety of projects at the local and national level. We cooperate with groups, organisations and individuals with whom we share common values through donations and sponsorships, and by that we develop a responsible attitude to issues of general and specific interest within society. We try to maintain such an attitude as part of our corporate culture. Our contribution is mostly in the form of assistance in travel cost, by which we help in the organisation of events, meetings, projects which are of general importance for society. Most of the funds are donated to umbrella organisations of national importance, and most of the individual actions are carried out in cooperation with non-profit organisations. As the main activity of our Company is to connect the domestic environment with the foreign environment we are pleased to accept the invitation or request to support presentations of our creators abroad. Here are some of the projects, organisations and associations with which we successfully cooperated in 2008.

The Social Community

We have supported different international events and congresses in Slovenia in the field of business, medicine, culture, education and sports as their official air carrier. The most prominent project in 2008 was the cooperation in the promotion of the Republic of Slovenia during the Slovenian Presidency of the EU Council.

Adria Airways offered three free flights on the route Ljubljana-Brussels-Ljubljana to 260 partici-pants (ambassadors – permanent representatives of the EU with partners and heads of the offices – deputy permanent representatives of the EU and heads of the offices, correspond-ents in Brussels). We also granted a discount for the purchase of air tickets to 70 participants of the meeting of the Political and Security Committee of the EU on the same route. During this period, the Presidency was promoted in all Adria Airways’ publications, in certain advertise-ments abroad and when addressing passengers, the logo of the Presidency was attached to all our aircraft and several official events abroad were supported.

Sports

In the field of sports we focus primarily on long-term cooperation at the national level and this did not change considerably over the last years. We successfully cooperate with the Athletic Association of Slovenia, the Football Association of Slovenia, we participated in the “Beijing 2008” project of the Olympic Committee of Slovenia and supported some local competitions and events like we always do.


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Culture

Concerning culture we offered support to renowned organisers of cultural events in Slovenia, among these are the Ljubljana Festival, Cankarjev dom, International Cultural Biennial, Exodos Festival, Stara Gara Institution and Jazz Cerkno. Abroad we supported participants of the Book Fair in Frankfurt, presentation of Slovenian writers at the European School of Brussels (UCCLE), presentation of Slovenian authors at the “What’s Art Doc?” Festival in London, the “What’s Next; Impressions of Infinity – Images from Slovenia” Exhibition in Brussels, guest performance of the En Knap dancing chorus in Moscow and guest performance of the Ljubljana City Theatre in Sarajevo.

Humanitarian Actions

In October, Adria Airways cooperated in the international “Breast Cancer Awareness” campaign under the auspices of Estée Lauder Companies, the purpose of which was to raise the awareness of women on the importance of prevention and early diagnostics of breast cancer.

This action was supported through media in our In-flight Magazine. Moreover, our aircrew wore the symbol of the campaign on the uniforms – a pink ribbon – and hence additionally drew the attention to the message of the action. We joined the AC Intercar action entitled “And the World Can be Better” for the purchase of wheelchairs and the action of the Kranj Social Work Centre with the name “Also for Our Children”. As we did before, we supported Unicef Slovenia and Amnesty International and made children happy by presenting them gifts in projects of several other charitable organisations and associations.


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19. Corporate Communications

The Corporate Communications department strives for effective communication with a variety of target audiences associated with the company: internal and external public – the media, passengers, business public, decision makers, financial public and others. Parts of our public are interconnected; after all, we are all our potential passengers.

Our goal is to, through our activities, contribute as much as possible to the implementation of business objectives and to the growing reputation of our company thus contributing to its successfulness. Our attention is also devoted to current issues in aviation. Our principles in communication are: openness, advancing cooperation, transparency, bidirection, quick responsiveness and sustainability.

Corporate Communications in 2008 was highly proactive, in compliance with the manage-ment’s guidelines. Throughout 2008 we approached our internal and external public with help of numerous communication tools and performed several activities and events.

At the time of the handover of the Presidency of the EU Council we became the official carrier of the Portuguese Government. It was a great honour for Adria Airways to have been chosen from such a large number of air carriers. As the official carrier of the Portuguese Government we flew the Portuguese Government in our aircraft, which bore the national and governmental insignia of Portugal, to European countries and facilitated the handover.

During the Slovenian Presidency of the EU Council, Adria Airways as the official carrier was involved in the organisation of the Presidency and the promotion of Slovenia. Adria Airways promoted itself for its own benefit at the 1. Ministerial Conference in Brdo.

When we set up a new flight connection to Athens, we prepared an opening flight in collabora-tion with the Athens International Airlines, to which we invited our business partners and the media.

In May, the team for the clean-up of the place of accident of the Inex Adria plane on Corsica removed the debris of the plane. We participated in the clean-up and offered a flight for the family members and the delegation of the Ministry of Defence, Municipality of Ljubljana, Kompas d.d. and Adria Airways. At the place where the aircraft crashed into the mountain we unveiled a memorial plaque for the victims of the accident. In the village Petreto-Bicchisano we prepared a meeting of the family members, locals and representatives of the delegation and thanked the villagers for their support in the most difficult moments after the accident and their unselfish helpfulness in all those years after the accident. Concerning the accident on Corsica, there was a lot of communication from January to June 2008.

For the commercial TV station KTV Koha Vision from Kosovo we shot a promotional film about Adria Airways in August 2008.


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A lot of positive media attention was given to the event organised for the 20th anniversary of the Adria In-Flight Magazine, where we also introduced the new uniforms of our crews.

In November, the Greek Embassy prepared an honorary reception for Adria Airways as the largest air carrier for destinations in Greece. On this occasion, we have been thanked for the special contribution in the promotion of trade and tourism between Greece and Slovenia.

In November 2008, the representatives of the Bombardier management presented a recognition award for the most reliable air carrier in the category Canadair Regional Jet CRJ–100/200 to Adria Airways.

The new aircraft was introduced in a press release and the media were invited to the presentation of the Canadair Regional Jet CRJ–900NextGen S5-AAN aircraft that joined the fleet on 18 December 2008.

We also communicated about topics which are common to the aviation sector, European airline companies and the members of the association – this is performed in collaboration with IATA, AEA, ERO and the Star Alliance Association. In June 2008, we participated in the international workshop on crisis management and communication, and in October 2008 we attended the annual meeting of the Star Alliance communicators.

Adria’s intranet pages became a daily address for the employees; they get there the information which they need at their work, information on what is going on in the company and topics of interest in the sphere of aviation. In 2008, we started to publish a weekly electronic newsletter for the employees. Furthermore, we prepared an annual meeting of all employees.

In 2008, 148 media reported about Adria Airways, namely 91 print media, 36 electronic media and 21 on-line media. In the same year the media issued 384 planned notifications, which is 27 % of all notifications that mentioned Adria Airways.

The share of unfavourable media coverage in 2008 amounted to four percent of all coverage; the share of favourable media coverage was 21 %. However, 75 % of all media coverage was neutral. The highest share of unfavourable media coverage was observed in December (nine percent), and the highest share of favourable media coverage in October (51 %).

In the last year, Adria Airways significantly strengthened its reputation. According to the study on the business reputation of companies, carried out annually by Kline&Partner, we climbed from position 52 to position 36, while the general public ranks the Company at position 28, which is 11 places higher than the year before. According to the analysis providers, these are the key factors of reputation in expert and general public: quality of offer, clear vision and excellence of the management. In the expert public the key source of information about a company are the information communicated by the company itself and information obtained directly from

In the last year, Adria Airways significantly strengthened its reputation.


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the company’s management, whereas the general public gets the most important information directly from employees and through the information communicated by the company. We ranked among 100 of the most reputable companies in the SUPERBRANDS Slovenia group, the purpose of which is to celebrate the achievements and outstanding success of trademarks in practice.

20. Passenger Satisfaction

Measuring Passenger Satisfaction

Passenger satisfaction is measured through the evaluation of services offered by Adria Airways on the market and is one of the key indicators of a company’s success. Passengers satisfied with the services of Adria are one of the strategic goals of the Company. To accomplish this goal it is necessary to communicate with the passengers. Therefore, twice a year, in spring and autumn, a study called Measurement of the Satisfaction of Passengers on the Plane is carried out. Passengers on scheduled flights participate in the study who form a representative sample of Adria’s flights. The preparation of the questionnaire and data processing is performed in the cooperation with the Centre for Public Opinion Research. Passengers assess 31 different components, from the first contact with the sales personnel until exiting the aircraft, as well as suitability of flight schedule and airport services. In 2008, the survey was carried out in April and October.

Generally, the grades are higher on average in 2008 than in the measurement in 2007. It has to be pointed out that the results of the survey in autumn are even better than in spring. Our services are assessed extremely positive. The aircrew again received the best average grade in 2008 in both measurements, whereas the worst grades were given to: information on delays at the airport, information prior to boarding the aircraft (spring measurement) and the quality of the meal (autumn measurement). After a long time, the component quantity of the meal finally made it out of the group of the five worst rated components, while the quality of the meal, despite being rated lowest, improved from the last measurement by 0.03.

The general grade for services prior to and during the flight is 1.81, which is a growth of 0.08. This is the best grade so far, considering all six measurements of satisfaction of passengers in the plane from May 2006 when we introduced a new working methodology.

Among the passenger participating in the survey 32.4 % would definitely chose Adria Airways again, which is also the highest percentage of respondents up to now (April 2007 – 27.5 %, November 2006 – 28.7 %, June 2006 – 24 %).


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Measurement of Passenger Satisfaction in the Framework of Star Alliance

The Star Alliance partner association requires from its members that they carry out surveys of passenger satisfaction, in aircraft as well as on airports, using the questionnaire of the Association on selected flights in accordance with the model provided by them. The model includes solely airports of importance to the Association. Hence, this survey does not exclude the survey conducted by us, but is a supplement.

Adria Airways compares its services to other regional members – Croatia Airlines and Blue 1. A member of the group is also the airline Spanair, which is a full member of the Association. Passengers estimate different components: general impression on the flight, expectations of passengers from the Association and their realisation, evaluation of individual airports and transfer services, punctuality of the individual air carrier and its service in the aircraft. The results, provided to us by the SA, are more than good as in all points we achieved or exceeded the average grade laid down by the Association.

Communication in the Case of Irregularities and Payment of Compensation

At our Passenger Relations Centre we are aware that our response to the mainly negative experiences communicated to us may have a decisive influence on the passengers’ satisfac-tion with our company and their future choice of an air carrier. Passengers are well informed of their rights in case of a flight delay/cancellation, and the number of compensation claims per year is still growing since the implementation of the European Decree 261-2004 in February 2005.

In 2008, we solved 781 written complaints with compensation claims, which is 63 % more than in 2007. As much as 71 % of claims relate to cancellations/delays of flights. In 2008, the payment for complaints due to flight cancellation was 2.3 times higher and due to delayed flights 3 times higher than in 2007.

18 % of received complaints were solved within the compensation claim commission, which met 8 times in the last year. The amount of granted compensation claims was 68 % higher than in 2007. As a compensation for difficulties on the journey we granted 162 upgrade vouchers and credited 212,000 miles to the accounts of 66 members of Miles&More.

The Passenger Relations Centre report and results of the opinion polls performed on aircrafts are, next to the general trends in the aviation services, the most important source for planning changes or improving our services. Our efforts for better and more adequate service are finally positively reflected in the general grade of our passengers in 2008. This is a sign that we are on the right track.


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21. Research and Development

We are continuously developing and enhancing our technical and managerial skills and experience in all areas of civil aviation.

Also in 2008 we participated in projects financed by the European Union. We participate in the design of new navigational equipment within the FlySafe project. We test the equipment for the producers and advise in the sphere of user-friendliness.

Within the project HILAS we participate as advisors in the analysis of the impact of human factor on the safety of civilian aviation.

We also participate in the project CASAM, which regulates set up of the system for detection and destruction of missiles from the ground in the take-off or landing stage of an aircraft. For over 20 years now, Adria has been cooperating with the Faculty of Mechanical Engineering in Ljubljana. In 2002 we signed a new contract with this faculty, as required by the amended legislation (EASA IR). We became a practical education provider for students completing their theoretical studies at the faculty. At our aviation school young pilots can obtain:

PPL – Private Pilot Licence; ●Commercial Pilot Licence – CPL; ●Certification to fly by instruments (IR – Instrument Rating) and ●ATPL – Airline Transport Pilot Licence. ●

The most important acquisition of the educational centre is a new flight simulator, which we already started using for training and selection of our pilots. We also use it for training to fly in instrumental conditions and for beginner training for two-engine aircraft and for aircraft which require two pilots.

With regard to the EASA Part-147 certificate in the technical education department we are providing training for our own needs and also for foreign clients.


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22. Who’s Who, Contacts

Company Management:

Tadej Tufek, M.Sc., President of the Management Board & CEO / [email protected] Ravnikar, M.Sc., Vice-President of the Management Board / [email protected]

Management Associates:

M.Sc., Assistant President of the Management Board, IT and Controlling / [email protected] Petelin, Management Board Associate for Quality Assurance / [email protected] Ornik, Management Board Associate for Marketing / [email protected]

Division Managers:

Tomaž Kostanjšek, MBA, Director of Marketing and Sales Department / [email protected]

Roman Lašič, Director of Aircraft Maintenance Department / [email protected]

Jure Fröhlich, Director of Flight Operation Department / [email protected]

Silvestra Stopar, Director of Finance and Accounting / [email protected]

Dimitrij Berginc, Director of Groundhandling and Procurement Department / [email protected]

Julija Pirc, Director of Organisation and Human Resources Department / [email protected]


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23. Adria Offices and Points of Sale

LJUBLJANA, SlovenijaInformation and reservations:Adria AirwaysKuzmičeva 7, 1000 LjubljanaTel.: 386 (0)1 36 91 010 - Klicni Center/Call CentreFax: 386 (0)1 43 68 606SITA: LJURMJPBrezplačna številka: 080 13 00Toll free No. in Slovenia only: 080 13 00

Adria Airways - Ticket DeskAdria AirwaysGosposvetska 6, 1000 LjubljanaBrezplačna številka: 080 13 00Fax: 386 (0)1 23 21 668SITA: LJURPJP, LJUTBJPE-mail: [email protected]

Jože Pučnik Ljubljana AirportAdria AirwaysBrezplačna številka: 080 13 00Fax: 386 (0)4 23 63 461SITA: LJUKKJPE-mail: [email protected]

AMSTERDAM, NetherlandsAdria AirwaysP.O. Box 756441118 ZR Schiphol TriportThe NetherlandsTel.: 31 20 625 11 22Fax: 32 2 753 23 37

Airport Ticketing DeskPenauille Servisair, Schiphol AirportTerminal 3 in front of check-in row 21Tel.: 31 20 79 52 600Fax: 31 20 79 52 [email protected]

ATHENS, GreeceAdria Airways, General Sales AgentZEUS Kompas S.A.572 Vouliagmenis Ave. & Karaiskaki,164 52 Athens Argiroupolis Tel.: 30 (0)21 09 94 7263Fax: 30 (0)21 09 94 7288E-mail: [email protected] hours: from 09.00-17.00

BARCELONA, MADRID SpainAdria Airways, General Sales AgentKompas Turistik Spain C/Paris, 162-164, Entlo 2a08036 Barcelona, Spain Tel.: 34 (0)93 24 66 777

34 (0)91 57 50 628Fax: 34 (0)93 24 54 188E-mail: [email protected]

BRUSSELS, BelgiumAdria AirwaysBrussels Airport - Box 41930 ZaventemTel.: 32 (0)2 75 32 336Fax: 32 (0)2 75 32 337SITA: BRUTOJPE-mail: [email protected]

Adria Airways Ticket Desk Airport Zaventem / Brussels Tel.: 32 (0)2 75 32 335

BUCHAREST, RomaniaAdria Airways, General Sales AgentB-dul Dimitrie Cantemir nr. 20, Bl. 8, ap. 65, Sect. 4040245, Bucharest, Romania Tel.: & Fax: 4021- 335 32 40E-mail: [email protected]: [email protected]

Adria Airways Ticket DeskAirport Henri Coanda / BucharestTel.: 40 21 204 21 94Fax: 40 21 201 48 14


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COPENHAGEN, DenmarkAdria Airways, Representative and InformationA CVITAN AB, Tingsgatan 2256 56 Helsingborg, SWEDENTel.: 46 (0)42 28 47 78Fax: 46 (0)42 14 47 78 Mobil.: 46 708 28 47 78E-mail: [email protected]: [email protected]

Adria Airways, Airport Ticket DeskCopenhagen AirportTerminal 2, Floor 2, Office 2302770 Kastrup, DenmarkTel. & Fax: 45 (0)32 51 59 59Mobil.: 46 708 28 47 78E-mail: [email protected]

FRANKFURT, GermanyAdria AirwaysAirport Frankfurt, Terminal 1, Building 201, Room 201 . 4043/4044, P.O. Box 039, 60549 Frankfurt am MainTel.: 49 (0)69 269 56 720, 269 56 721 Fax: 49 (0)69 269 56 730E-mail: [email protected]

Adria Airways Airport Ticket OfficeAirport FrankfurtTerminal 1, Hall B, Sales Desk 307, P.O. Box 03960549 Frankfurt am MainTel.: 49 (0)69 269 56 722

ISTANBUL, TurkeyAdria Airways, General Sales AgentOrdu Cad No. 206/1, 34470 LaleliIstanbulTel.: 90 (0)212 51 24 232Fax: 90 (0)212 51 24 234, 51 25 436E-mail: [email protected]

Adria Airways, General Sales AgentAdria Airways Airport Ticket OfficeAirport IstanbulTel.: 90 532 312 66 35

KIEV, UkraineAdria Airways, General Sales Agent: AVIAREPS, Town Office: Chervonoarmijska St. 9/2, Office No. 2,Kiev 01004Tel.: 38 (0)44 287 07 47(Adria Airways dedicated line),Fax: 38 (0)44 496 59 89E-mail: [email protected]

Borispol International AirportTicketing Agent: AQUAVITATel.: 38 (0)44 230 00 49Tel.: 38 (0)44 230 00 50Fax: 38 (0)44 230 00 48E-mail: [email protected]

LONDON, BIRMINGHAM, MANCHESTER United Kingdom, DUBLIN, IrelandAdria Airways49 Conduit StreetLondon W1S 2YSTel.: 44 (0)20 7 73 44 630, 7 43 70 143Fax: 44 (0)20 7 28 75 476E-mail: [email protected]

Adria AirwaysLondon Gatwick Airport Ticketing agent: SkybreakNorth Terminal Ticket DeskTel.: 44 (0)12 9 35 07 182Fax: 44 (0)12 9 36 09 010Tel.: 44 (0)12 9 35 55 707 - Reservations

MOSCOW, RussiaAdria Airways Derbenevskaja 4113 114 MoscowTel.: 7 495 72 70 885,Fax: 7 495 72 70 888


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E-mail: [email protected] Sheremetyevo, Ticketing Desk6th floor, Room No. 6.8Tel. & Fax: 7 495 57 88 024E-mail: [email protected] hours: Mon-Sat 13.30 - 18.30Sun: 13.00-18.00

MUNICH, GermanyAdria AirwaysAirport Munich, Terminal 2Reisemarkt Süd, Ebene 03, Raum 6738 (counter 355 & 356)85356 München – FlughafenP.O. Box 241233, 85334 MünchenTel.: 49 (0)89 975-91191, 91192Fax: 49 (0)89 975-91196E-mail: [email protected]

OHRID, Macedonia Adria Airways, General Sales AgentAAM dooel, Town OfficePartizanska broj 6, 6000 OhridTel.: 389 (0)46 26 20 26,E-mail: [email protected]

Adria Airways Ticket Office, Airport OhridMobil: 389 (0)70 262 193Fax: 389 (0)46 260 167E-mail: [email protected]

OSLO, NorwayAdria Airways, Representative and InformationAntello AB, Tings Gatan 2256 56 Helsingborg, SWEDENTel.: 46 (0)42 28 47 78Fax: 46 (0)42 14 47 78 Mobil.: 46 708 28 47 78E-mail: [email protected]: [email protected]

PARIS, FranceAdria Airways94 rue Saint Lazare75009 ParisTel.: 33 (0)1 47 42 95 00 Fax: 33 (0)1 47 42 00 67 E-mail: [email protected]

PODGORICA, MontenegroAdria Airways, General Sales AgentOKI AIR INTERNATIONALIvana Vujoševiča 4681000 PodgoricaTel.: 382 (0)20 201 201Tel. & Fax 382 (0)20 241 154, Mobil: 382 (0)67 241 154E-mail: [email protected]

Adria Airways Ticket Office Airport PodgoricaOKI AIR INTERNATIONALTel. & Fax 382 (0)20 623 232Mobil: 382 (0)67 241 154E-mail: [email protected] hours: 2 hours before departure and 30 minutes after departure.

PRISTINA, Republic of Kosovo Adria Airways, General Sales AgentAdria Airways Kosovo L. L. CQamil Hoxha Nr. 12, 38000 PrištinaTel.: 381 (0)38 246 746 Tel. & Fax 381 (0)38 246 747Mobil.: 00 377 44 16 50 84E-mail: [email protected]

Airport Pristina Ticket OfficeTel. & Fax 381 (0)38 548 437Mobil.: 00 377 44 501 241


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SARAJEVO, Bosnia and HerzegovinaAdria Airways,Representative and Information Ferhadija 23/2, 71000 SarajevoTel. : 387 (0)33 23 21 25, 23 21 26 Fax: 387 (0)33 23 36 92 E-mail: [email protected]

Adria Airways,Ticket Office, Airport SarajevoRepresentative and Information Tel. & faks 387 (0)33 464 331 E-mail: [email protected] SKOPJE, MacedoniaAdria Airways, General Sales AgentAAM dooel, Town OfficeDame Gruev, Gradski Zid, blok 4/8, 1000 SkopjeTel.: 389 (0)2 31 17 009, 32 29 975Fax: 389 (0)2 31 65 531E-mail: [email protected]

Adria Airways Airport Ticketing Desk, Airport SkopjeTel. & Fax: 389 (0)2 25 50 133

STOCKHOLM, SwedenAdria Airways, Reservations and Information, MDA Service,Stockholm Airport, Terminal 5, Departure, Box 57Tel.: 46 (0)8 797 95 95Fax: 46 (0)8 59 36 1221Mobil.: 46 (0)709 95 95 95E-mail: [email protected]

TEL AVIV, Israel Adria Airways Ticket Desk Ben Gurion Airport Laufer Aviation Ltd. Tel 972 (0) 3 97 74 300 Fax 972 (0) 3 97 12 022

TIRANA, AlbaniaAdria Airways, General Sales AgentEUROPIAN TRADE CENTER - Town OfficeStreet Bajram Curri No. 19, TiranaFax 355 (0)4 272 666 E-mail: [email protected]

Airport TiranaTel.: 355 (0)4 274 666

VIENNA, AustriaAdria Airways Ticket and Sales OfficeAdria Airways Station1300 Airport ViennaTel.: 43 (0)1 70 07 36 913Fax: 43 (0)1 70 07 36 914E-mail: [email protected]

WARSAW, PolandAdria Airways, General Sales AgentGLOBAIR POLSKA SP, Z.O.O.Marszalkowska St.28, Office No. 1-35 Warsaw 00-576 Tel.: 48 (0)22 696 85 20 (Adria dedicated line)Fax: 48 (0)22 696 85 24Mobile: 48 606 123 194E-mail: [email protected]

ZAGREB, CroatiaAdria AirwaysPraška 9, 10000 ZagrebTel.: 385 (1) 48 10 011, 48 10 016Fax: 385 (1) 48 10 008E-mail: [email protected]

ZURICH, Switzerland Adria AirwaysLoewenstrasse 54/II. 8001 ZürichTel.: 41 (0)44 21 26 393, 21 26 394Fax: 41 (0)44 21 25 266E-mail: [email protected]

Adria Airways Ticket DeskAirport Zurich, Terminal B-2-521Tel.: 41 (0)43 81 64 437


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We carefully build our reputation. Our management and employees strive for business excellence and work through a relationship of trust and respect.

FINANCIAL STATEMENTS

We Build

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS1. General Information

Company Profile

ADRIA AIRWAYS d.d.Kuzmičeva 71000 LjubljanaSlovenija

Nature of Business and Primary Activities

The two most significant lines of business of Adria Airways d.d. are scheduled air transport and charter air transport. In addition, the Company is involved in the transport of cargo, aircraft servicing for third parties, aircraft leases, and training of aircraft personnel.

Employees

Number of employees as of 31.12.2008: 719.

Average number of employees per groups in terms of professional qualification:

Professional Qualification Level

I. II. III. IV. V. VI. VII. VIII. IX. Total

Total - 11 - 47 299 146 211 5 - 719

Adria Airways / Annual Report 2008 / FINANCIAL STATEMENTS

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2. Statement of Responsibility of the Management Board

The Management Board has approved the financial statements for the financial year ended 31 December 2008 on pages 123 to 129 and pages 174 to 177, and the accounting policies and notes to the financial statements on pages 130 to 172 of the annual report.

The Management Board is responsible for the preparation of the annual report that gives a true and fair presentation of the financial position of the Company and of its financial performance for the year 2008.

The Management Board confirms that the appropriate accounting policies were consistently applied, and that the accounting estimates were made under the principle of prudence and the diligence of a good manager. The Management Board also confirms that the financial statements and notes thereof have been compiled under the assumption of a going concern, and in accordance with the current legislation and Slovene accounting standards.

The Management Board is also responsible for the appropriate accounting system and adoption of measures to secure the assets, and to prevent and detect fraud and other irregularities and/or illegal acts.

President of the Management Board & CEO Vice President of the Management BoardTadej Tufek M.Sc. Marjan Ravnikar M.Sc.

April 2009


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3. Auditor’s Report


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4. Financial Statements

4.1. Balance Sheet1

(EUR) Notes 31.12.2008 31.12.2007

Assets 152,224,001 159,765,355

A/ Long-term assets 124,480,444 128,951,669

I. Intangible assets and long-term deferred costs and accrued revenue

6.1.1. 3,544,788 2,430,510

II. Property, plant and equipment 6.1.2. 119,210,726 124,988,964

III. Investment property 6.1.3. 216,742 230,191

IV. Long-term financial investments 6.1.4. 968,433 854,234

V. Long-term operating receivables 6.1.5. 539,755 447,770

B/ Short-term assets 26,539,621 30,030,436

I. Assets (disposal groups) held for sale 70,401 70,401

II. Inventories 6.1.6. 7,468,690 5,041,630

III. Short-term financial investments 6.1.7. 867,467 128,974

IV. Short-term operating receivables 6.1.8. 16,943,295 23,748,839

V. Cash 6.1.9. 1,189,768 1,040,592

C/ Short-term deferred costs and accrued revenue 6.1.10. 1,203,936 783,250

Off-balance sheet assets 6.1.16. 111,973,018 114,424,571

Equity and liabilities 152,224,001 159,765,355

A/ Equity 6.1.11. 34,009,658 40,304,957

I. Called-up capital 6,782,156 6,782,156

II. Capital surplus 28,180,234 28,180,234

III. Revenue reserves 3,465,371 6,493,712

IV. Revaluation surplus -4,418,103 -1,363,781

V. Retained earnings - -

VI. Net profit or loss for the period - 212,636

B/ Provisions and long-term accrued costs and deferred revenue

6.1.12. 1,558,283 1,543,735

C/ Long-term liabilities 69,952,116 80,926,369

I. Long-term financial liabilities 6.1.13. 69,952,116 80,916,141

II. Long-term operating liabilities - 10,228

D/ Short-term liabilities 44,979,536 35,117,549

II. Short-term financial liabilities 6.1.13. 19,971,195 9,828,864

III. Short-term operating liabilities 6.1.14. 25,008,341 25,288,685

E/ Short-term accrued costs and deferred revenue 6.1.15. 1,724,408 1,872,745

Off-balance sheet liabilities 6.1.16. 111,973,018 114,424,571

The notes are a constituent part of the financial statements.

1 For the expanded version of the balace sheet, refer to appendix 9.1.


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4.2. Income Statement2

(EUR) Notes 2008 2007

1. Net sales 6.2.1. 205,389,797 179,175,624

2. Production costs of goods sold (including depreciation and amortisation) or cost of goods sold

6.2. 180,431,248 155,686,325

3. Gross profit or loss from sales 24,958,549 23,489,299

4. Selling costs (including depreciation and amortisation)

6.2. 18,676,692 16,742,141

5. General and administrative expenses (including amortisation and depreciation)

6.2. 5,364,961 4,336,829

6. Other operating revenues (including revaluation operating revenues)

6.2. 300,265 1,763,181

7. Financial revenues from shares and interests 6.2.5. 24,336 96,063

9. Financial revenues from operating receivables 6.2.5. 891,425 811,725

10. Financial expenses due to impairment and write-off of financial investments

6.2.6. 10,346 -

11. Financial expenses from financial liabilities 6.2.6. 4,868,961 4,255,204

12. Financial expenses from operating liabilities 6.2.6. 866,542 81,584

13. Other revenues 636,409 151,600

14. Other expenses 264,459 470,838

15. Income tax 6.2.7. - -

17. Net profit or loss of the accounting period 6.2.8. -3,240,977 425,272

The notes are a constituent part of the financial statements.

2 For the expanded version of the income statement, refer to appendix 9.2.


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4.3. Cash Flow Statement for 2008

No. Item 2008 2007

A/ Cash flows from operating activities

a) Cash flows derived from the income statement items 15,641,074 14,328,407

1. Operating revenues (except from revaluation) and financial revenues from operating receivables

207,196,856 180,145,724

2. Operating expenses excluding depreciation and amortisation (except from revaluation) and financial expenses from operating liabilities

-191,555,782 -165,817,317

b) Changes in net current assets (including accruals and deferrals, provisions and deferred tax assets and liabilities)

2,873,607 2,562,507

1. Opening less closing operating receivables 6,158,135 -6,625,829

2. Opening less closing deferred costs and accrued revenue -420,686 97,171

4. Opening less closing assets (disposal groups) held for sale

- -70,401

5. Opening less closing inventories -2,427,060 -1,129,775

6. Closing less opening operating liabilities -302,993 8,640,680

7. Closing less opening accrued costs and deferred revenue, and provisions

-133,789 1,650,661

c) Net cash from operating activities (a+b) 18,514,681 16,890,914

B/ Cash flows from investment activities

a) Cash from investment activities 2,020,802 3,705,138

1. Cash receipts form interest and dividends received from investment activities

389,829 -

2. Cash receipts from disposal of intangible assets 256,937 -

3. Cash receipts from disposal of property, plant and equipment

1,368,602 3,662,899

4. Cash receipts from disposal of investment property 5,434 -

5. Cash receipts from disposal of long-term financial investments

- 7,454

6. Cash receipts from disposal of short-term financial investments

- 34,785

b) Cash disbursement from investment activities -11,849,332 -49,388,996

1. Cash disbursement to acquire intangible assets -2,166,206 -1,992,559

2. Cash disbursement to acquire property, plant and equipment

-8,820,088 -47,289,474

4. Cash disbursement to acquire long-term financial investments

-124,545 -

5. Cash disbursement to acquire short-term financial investments

-738,493 -106,963

c) Net cash from investment activities (a+b) -9,828,530 -45,683,858


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No. Item 2008 2007

C/ Cash flows from financing activities

a) Cash proceeds from financing activities 29,640,681 79,552,691

1. Cash proceeds from paid-in capital - 10,967,886

2. Cash proceeds from increase in long-term financial liabilities

10,706 34,313,012

3. Cash proceeds from increase in short-term financial liabilities

29,629,975 34,271,793

b) Cash disbursements from financing activities -38,177,656 -50,679,379

1. Interest paid on financing activities -4,827,290 -4,248,871

3. Cash repayments of long-term financial liabilities -8,726,172 -7,244,684

4. Cash repayments of short-term financial liabilities -24,624,194 -39,185,824

c) Net cash from financing activities (a+b) -8,536,975 28,873,312

d) Closing balance of cash 1,189,768 1,040,592

1. Net cash inflow or outflow for the period (sum total of Ac, Bc and Cc)

149,176 80,368

2. Opening balance of cash 1,040,592 960,224

(continued from page 125)


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4.4.

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4.5. Balance Sheet Profit

Balance sheet profit (EUR) 2008

Net profit or loss for the period + -3,240,977

Net profit from previous periods - 212,636

Decrease in other revenue reserves + 3,028,341

Increase in revenue reserves -

Balance sheet profit/loss -

Balance sheet profit (EUR) 2007

Net profit or loss for the period + 425,272

Net profit from previous periods - -

Decrease in other revenue reserves + -

Increase in revenue reserves - -212,636

Balance sheet profit 212,636


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5. Summary of Significant Accounting Policies

Basis of Preparation

The financial statements in this report and notes thereto have been prepared in accordance ●with Slovene accounting standards 2006, issued by the Slovenian Institute of Auditors.

The general rules on the classification of the balance sheet statement and income statement ●items, the valuation of the financial statement items, the content of the appendices to the statements and the requirements for the business report have been followed in course of the preparation of these statements. Consequently, a true and fair presentation of the Company’s operations in the annual report is ensured. Furthermore, two fundamental accounting assumptions have been considered: accrual and going concern.

The qualitative characteristics of the financial statements and hence the entire accounting ●system are primarily: understandability, relevance, realibility and comparability.

Adria Airways d.d. keeps its analytical records also in accordance with the recommendations ●of the ICAO (International Civil Aviation Organization), of which Slovenia is a member.

The financial statements are compiled using the euro, excluding cents. For reasons of ●rounding up, calculation differences may occur.

Exchange Rate and Translation into the Local Currency

Adria Airways d.d. converts all purchase and sales transactions, investments, long-term and ●short-term liabilities, as well as long-term and short-term receivables in foreign currencies into the euro at the Bank of Slovenia middle exchange rate prevailing on the transaction date, while at the balance sheet date, these are translated at the final Bank of Slovenia middle exchange rate effective on 31 December 2008.

Exchange rate gains and losses arising from the conversion are recognised in the income ●statement.


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Reporting by Business and Regional Segments

The business segments represent scheduled passenger services, cargo services, charter ●passenger services, aircraft servicing for foreign clients, aircraft lease services, and miscel-laneous.

In terms of segment reporting, the Company reports net sales revenue that can be directly ●attributed to individual segments, while other data is not disclosed.

The Company has no regional segments. ●

Intangible Assets

Intangible assets are recognised at costs and are amortised over their useful life which is a ●maximum of seven years. The Company holds no assets with indefinite useful life.

Intangible assets are not restated to account for value gains. ●

Property, Plant and Equipment

Property, plant and equipment represent land, buildings, manufacturing plant, and other ●equipment. Small tools that are ready for use whose useful life is more than a year and whose individual value does not exceed € 500, are also considered items of property, plant and equipment. The pertaining replacement parts are also classed as property, plant and equipment under construction or being acquired. Equipment acquired under finance lease and depreciated under depreciation rates applicable to equipment of the same or similar class, is also recognised as property, plant and equipment. At the end of the finance lease, the title to the assets is transferred to the lessee.

The Company applies the cost model whereby property, plant and equipment are carried at ●cost of purchase, reduced by accumulated depreciation. Property, plant and equipment are depreciated over their useful lives. Depreciation expenses are charged against the relevant operating costs.


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The cost of an item of property, plant and equipment comprises its purchase price and all ●directly attributable costs of bringing the asset to the condition necessary for the intended use. Subsequent expenditures that enable future benefits in comparison to the ones calculated before increase the purchase value. Expenditures that enable the extension of the asset’s useful life decrease the allowances calculated by then. The land is valued at historical cost (if it is not known, according to the estimated value).

Property, plant and equipment are derecognized in the books of account and in the balance ●sheet on their disposal or when they are permanently withdrawn from use as no future economic benefits are expected from them. Proceeds from disposal of property, plant and equipment are recognized as revaluation operating revenues, whilst the present value is recognized as the revaluation operating expense.

Property, plant and equipment expressed in a foreign currency are converted into the local ●currency at the Bank of Slovenia middle exchange rate prevailing on the transaction date. Any subsequent exchange rate differences arising on settlement are recognized as financial revenues or expenses.

Advances for property, plant and equipment are recognised at the notional amounts. ●

Interest paid on loans raised for the acquisition and construction of property, plant and ●equipment is recognised as financial expense.

Amortisation and Depreciation

The carrying amount of intangible assets and property, plant and equipment is reduced ●through depreciation and amortisation. Depreciation and amortisation begin on the first day of the month following the month when the asset was made available for its use. Land, advances paid for the assets and assets under construction or manufacture, are not depreciated.

Amortisation and depreciation are accounted for individually under the straightline deprecia- ●tion method applied over the expected useful life of individual assets.

In the year 2008, the Company applied the following amortisation and depreciation rates: ●


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Amortisation and Depreciation Rates in 2008 Minimum % Maximum %

(In)tangible assets

Intangible long-term assets

Software applications 25 50

Property, plant and equipment

Real estate:

- Buildings 1.5 2.5

- Other structures 2 12.5

Plant and equipment:

- Plant – aircraft 4.38 10

- Plant – replacement parts 10 10

- Other equipment 8.3 20

Computer equipment:

- Hardware 25 25

Motor vehicles:

- Vans and Trucks 12.5 14.3

- Cars 12.5 15.5

Other property, plant and equipment – small tools 25 33

Investment Property

An investment property is initially measured at cost comprising of its purchase price and ●any attributable costs of acquisition. After the initial recognition, investment property is recognised under the cost model and depreciated at the annual rate of 2.2 %.


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Financial Investments

Investments in Associates

Investments in associates are recognised under the equity method. An associate is an entity ●in which the parent company has significant influence and which is neither a subsidiary nor a joint venture of the investor. The financial statements of associates provide the basis for the application of the equity method. The reporting date of associates is the same as the reporting date of Adria Airways. All the associates apply unified accounting policies as used by Adria Airways. Investments in associates are recognised in the balance sheet at their cost increased to recognise any changes (following the acquisition) in the equity of the associate and decreased by any impairment of the value. The relevant share of the profit or loss of the associate is disclosed in the profit or loss of the parent company. When the changes are recognised directly in the equity of the associate, Adria Airways recognises the proportionate amount of these changes and discloses any significant changes in the statement of changes in equity.

Investments

Investments of Adria Airways d.d. are classified into the following categories: ●

Financial assets at fair value through profit or loss, ●Investments held to maturity, ●Available-for-sale investments, ●Loans and receivables. ●

Investment classification depends on the purpose for which the investment was made.

Recognition of Financial Assets

On initial recognition, all investments except for investments designated at fair value through ●profit or loss are recognised by Adria Airways d.d. at fair value inclusive of costs directly associated with the acquisition. Investments classified at fair value through profit or loss are recognised at fair value (excluding directly attributable costs of acquisition).


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Financial Assets at Fair Value through Profit or Loss

Financial assets classified as financial assets at fair value through profit or loss are measured ●at fair value. Gains or losses on investments classified at fair value through profit or loss are recognised directly in profit or loss. The fair value of investments actively traded on the organised stock markets is the quoted stock market price at the end of trading on the balance sheet date. The fair value of investments in equity instruments that do not have a quoted market price is determined on the basis of a similar financial instrument, or as the net present value of future cash flows expected by Adria Airways d.d. to flow from a certain financial investment. Purchases and redemptions of financial assets classified at fair value through profit or loss are recognised on the trading day; i.e. the day when the Company makes a commitment to either purchase or sell an individual financial asset.

Investments held to Maturity

Financial assets with fixed or determinable payments and fixed maturity that are not ●derivative financial instruments are recognised by Adria Airways d.d. as financial assets held to maturity if the Company has the positive intention and ability to hold the investments to maturity. Investments held by the Company for an indefinite period of time are not included in this class. Investments recognised as financial assets held to maturity are measured at amortised cost using the effective interest method. The amortised cost is calculated by allocation of the premium or discount granted on acquisition over the period until the investment maturity. Any gains and losses on investments measured at amortised costs are recognised in the profit or loss (disposal, impairment, or the effects of amortisation of a premium or a discount). Investments classified as held to maturity are recognised on the settlement date.


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Available-for-Sale Investments

After the initial recognition, all investments made by Adria Airways d.d. are determined as ●available-for-sale investments measured at fair value or cost, if the fair value cannot be reliably determined. Any gains or losses on available-for-sale investments are recognised in equity as net unrealised capital gains on available-for-sale investments until the investment is sold or otherwise disposed of. In the event of investment impairment, the impairment is recognised in profit or loss. Purchases and sales of individual financial investments designated as available-for-sale are recognised on the trading day i.e. the day when the Company makes a commitment to either purchase or sell an individual financial asset.

Among long-term financial investments in the equity of other companies, classified as financial ●assests intended for sale, the Company has also made such investments that could not be evaluated at fair value. Shares of these companies are not listed on the stock exchange. The Company estimates that there is no other unbiassed and impartial evidence that the purchase price of the financial investment could not be compensated for and consequently it was not impaired in accordance with note 1 to SAS 3.

Investments in Subsidiaries and Joint Ventures

Investments in subsidiaries are recognised by Adria Airways d.d. at cost, reduced by any ●impairment loss.

Loans and Receivables

Loans and receivables are financial assets with fixed or determinable payments that are ●not quoted in an organised market. They include loans and receivables acquired by the Company as well as loans and receivables derived from the Company. Loans and receivables are measured at amortised cost using the effective interest method and are recognised on the settlement date.

Long-term and short-term financial investments are reported separately. ●

Amounts of long-term financial investments in loans that mature within a period of one year ●from the balance sheet date are recognised as short-tern financial investments.


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Receivables

Operating receivables may be long-term or short-term receivables comprising: trade ●receivables, other receivables associated with operating revenue, receivables associated with financial revenue, receivables associated with equity payments and other receivables.

Receivables of all categories are initially recognised at amounts recorded in the relevant ●documents under the assumption that they will be collected.

Receivables believed not to be settled or not settled within the set period and which are ●subject to a dispute are recognised as doubtful and disputed receivables. Allowances of the total amount are made against doubtful and disputed receivables.

Receivables due from foreign legal or natural entities are translated into the local currency ●on the accrual date. Exchange rate differences arising by the settlement date or the balance sheet date are recognised as financial revenue or expenses.

Taxes

Current Tax

Current tax is the amount of income tax Adria Airways d.d. expects to pay to or recover from ●the Tax Authorities in respect of the present and past periods. Current income tax payable or recoverable is measured on the basis of tax rates applicable at the balance sheet date.

Deferred Tax

Deferred tax assets and liabilities are accounted for under the balance sheet liability method. ●Only deferred tax assets and liabilities arising from temporary differences are recognised. At the balance sheet date, the Company recognised no deferred taxes.


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Inventories

Inventories are carried at cost. ●

The use of materials is accounted for under the FIFO method. ●

At year-end, inventories are checked for obsolescence and allowances of the 100 % amount ●are made against all obsolete inventories.

Inventory allowances are made to account for inventory value reduction to the recoverable ●amount and are part of operating expenses.

Cash

Cash comprises cash on hand, deposit money and cash in transit. Cash on hand is cash in the ●form of bank notes, coins and cheques received. Deposit money is cash in bank accounts or deposited with another financial institution to be used for payments. Cash in transit is cash being transferred from a cash register to a relevant account in a bank or another financial institution, and is not credited to that account on that same day.

An item of cash is initially recognised at the amount arising from the relevant document after ●the verification of its nature.

Cash expressed in a foreign currency is translated into the local currency at the Bank of ●Slovenia middle exchange rate prevailing on the date of receipt.

Equity

Equity reflects the Company’s equity finance and is the entity’s liability to owners from the ●Company’s point of view. It is determined by both the amounts invested by the owners as well as amounts generated in the course of the Company’s operations.

Total equity consists of: called-up capital, capital surplus, revenue reserves, revaluation ●surplus, retained earnings from previous years and undistributed net profit of the financial year.

Share capital is carried in the local currency. ●


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Liabilities

Liabilities are: long-term or short-term financial or operating liabilities. ●

Initially short-term and long-term liabilities of all categories are recognised at amounts ●recorded in the relevant documents under the assumption that creditors demand their repayments.

Long-term liabilities are reduced by repaid amounts and any potential other settlements ●agreed with the creditor. They are also reduced by the amounts maturing within a period of less than one year and are disclosed as short-term liabilities.

Operating liabilities expressed in a foreign currency are translated into the local currency ●on the accrual date. Exchange rate differences arising up to the balance sheet date are recognised as financial expenses or revenue.

Prior to the compilation of the financial statements, the Company reviews the fair value of ●the short-term operating liabilities on the basis of the contracts, account balance confirma-tions, and other financial tools.

Short-term Accrued and Deferred Items

Deferred costs and accrued revenue comprise of short-term deferred costs or short-term ●deferred expenses and short-term accrued revenue. Short-term deferred costs or short-term deferred expenses are amounts incurred but not yet charged against an entity’s activity. Short-term accrued revenue arises when payments have not been received and invoices could not have been issued, but where an entity has good reasons to include the revenue in its profit or loss.

Accrued costs and deferred revenue comprise short-term accrued costs or short-term ●accrued expenses and short-term deferred revenue. Accrued costs or accrued expenses arise from charging the expected and not yet incurred costs against an entity’s profit or loss. Short-term deferred revenue arises when services to be rendered in the future have been already invoiced. Revenue may also be deferred when at the time of the sale, entitlement to revenue recognition is doubtful.


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Finance and Operating Leases

Adria Airways d.d. recognises a finance lease when substantially all the risks and rewards ●incidental to the ownership of an asset are transferred to Adria Airways d.d.. A finance lease is recognised in the balance sheet as an asset and a liability in the amount which on initial recognition, equals the fair value of an asset obtained under finance lease or the present value of the minimum amount of rent, whichever is lower. Rent repayments are allocated to financial expenses and reduce the outstanding amount of the liability. Financial expenses are allocated over the whole of the lease period to derive to the effective interest rate applicable to the remaining balance of a liability of each individual lease period. Financial expenses are recognised directly in profit or loss. Assets obtained under a finance lease are depreciated over the shorter of the estimated useful life or duration of the finance lease.

An operating lease is a lease where the lessor retains substantially all the risks and rewards ●incidental to the ownership of an asset. Lease payments are recognised by Adria Airways d.d. in profit and loss as expenses under the straight-line method over the lease period.

Financial Instruments: Derecognition

A financial instrument is derecognised in the books of account when the entity has no longer ●control of the contractual rights that comprise that asset. A financial liability is derecognised on its repayment, expiration or when it falls under the statute of limitation.

Derivative Financial Instruments

Adria Airways d.d. applies financial instruments such as forward contracts and interest swaps ●to hedge against the risks associated with interest rate changes, foreign currency fluctua-tions, and aviation fuel price oscillation. Derivative financial instruments are recognised at fair value.


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The fair value of a forward contract is designated as the current price of contracts with similar ●maturity. The fair value of interest rate swaps is determined as the market value of similar instruments. Hedge accounting is classified as fair value hedge i.e. the hedge of the exposure to changes in the fair value of recognised assets or liabilities, and as cash flow hedge i.e. the hedge of the exposure to variability of cash flows that is attributable to a particular risk associated with a recognised asset, liability or highly probable forecast transaction. The gain or loss from re-measuring the hedging instrument used as the fair value hedge is immediately recognised in profit or loss. The gain or loss associated with the re-measurement of the hedged item and associated with the hedged risk of the hedged item, is credited or debited to the hedged item and recognised in profit or loss. When the hedged item is an interest bearing asset or liability, the cumulative gain or loss is amortised over the period to maturity. In cash flow hedges, gains and losses on the hedging instrument that is determined to be an effective hedge are recognised in equity. The ineffective portion is recognised in profit or loss. When a hedged firm commitment subsequently results in the recognition of a non-financial asset, the associated gains or losses that were recognised in equity are included in the asset. In all other circumstances gains or losses on hedging instrument are in the next years transferred to profit or loss and the effect of changes in the value of the hedged item is offset in profit and loss. The effects of re-measurement of derivative financial instruments which no longer meet criteria for hedge accounting are recognised directly in profit or loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, or no longer meets the criteria for hedge accounting. The cumulative gain or loss on the derivative financial instrument recognised by Adria Airways d.d. in equity, remains in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging instrument that remains in equity is recognised in profit or loss of the current period.

Revenue Recognition

Revenue is recognised if increases in economic benefits during the accounting period are ●associated with increases in assets or decreases in liabilities, and those increases can be measured reliably.

Sales revenue is measured at selling prices stated in invoices or other documents relating to ●the services rendered and merchandise and materials sold during the accounting period if it can be reliably expected that cash receipts will flow from them to the entity. Selling prices are decreased by discounts and rebates granted at the time of sale or subsequently, including the value of returned goods.


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Revaluation operating revenue arises on disposal of intangible assets and property, plant ●and equipment as an excess of their sales value over their carrying amount reduced by the revaluation surplus resulting from a previous increase in the value of the assets.

Financial revenue is revenue generated by investment activities. Financial revenue arises ●in relation to investments, as well as in association with receivables. Financial revenue is recognised upon statements of accounts, irrespective of receipts, unless there is a substan-tiated doubt as to their amount, maturity, or repayment. Interest is charged on a time proportion basis with regard to the principal outstanding and the applicable interest rate.

Other revenue comprises unusual items. They are disclosed in the actual amounts. ●

Recognition of Expenses

Expenses are recognised if decreases in economic benefits during the accounting period ●are associated with decreases in assets or increases in liabilities and such decreases can be measured reliably.

Revaluation operating expenses are recognised when the relevant adjustments are made ●irrespective of their impact on profit or loss. Revaluation operating expenses arise in association with intangible assets, property, plant and equipment, and current assets as a result of their impairment.

Financial expenses are financing expenses and investment expenses. Revaluation financial ●expenses arise in association with the impairment of long-term and short-term financial investments as well as in association with the increase in the value of long-term and short-term liabilities.

Other expenses consist of unusual items. They are disclosed in the actual amounts ●incurred.


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Cash Flow Statement

The cash flow statement is compiled under the indirect method on the basis of the balance ●sheet data as at 31 December 2008 and 31 December 2007, the income statement data for the year ended 31 December 2008, as well as additional information necessary to adjust the receipts and disbursements, and for the relevant classification of significant items.

Disclosures

In the 2008 annual report, the Company has disclosed all significant transactions, receivables, ●liabilities, expenses, revenue, and risks, as well as all significant events subsequent to the balance sheet date.

The cost of aircraft is not disclosed. ●

The Company has not disclosed any information that is designated as confidential, any ●personal data, or any other confidential information, which could be detrimental to the Company or an individual.


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6. Classifications and Notes to the Financial Statements

6.1. Additional Disclosures of the Balance Sheet Items

6.1.1. Intangible Assets and Long-Term Deferred Costs

Intangible assets and long-term deferred costs represent software applications (software, Navision software, online ticket, information system for the operational flight support) which are amortised under the straight-line basis at the annual rate of 25 %; pilot licences, and licences issued to the mechanics, all of which are amortised at the annual rates of 50 %, 33.33 %, 25 % or 14.28 %.

Movements in Intangible Assets in 2008

Movements in Intangible Assets in 2008(EUR)

Licences Softwareapplications

Assets beingacquired

Other deffered

costs

Total

Cost

Balance at 31 December 2007 1,159,649 2,014,352 12,069 681,609 3,867,679

Direct increase – investments - - 1,581,537 584,669 2,166,206

Transfer from assets being acquired

461,700 1,002,982 -1,464,682 - -

Decrease during the year 47,729 25,349 - 256,939 330,017

Balance at 31 December 2008 1,573,620 2,991,985 128,924 1,009,339 5,703,868

Allowances

Balance at 31 December 2007 296,206 1,140,963 - - 1,437,169

Amortisation expense for the period

366,097 404,740 - - 770,837

Decrease during the year 23,575 25,349 - - 48,924


Carrying amount at 31 December 2008

934,892 1,471,631 128,924 1,009,339 3,544,786


863,443 873,389 12,069 681,609 2,430,510

At 31 December 2008, the Company reports no liabilities for the acquisition of intangible assets.


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Movements in Intangible Assets in 2007

Movements in Intangible Assets in 2007(EUR)

Licences Softwareapplications

Assets beingacquired

Other deferred

costs

Total

Cost


Direct increase - investments - - 1,310,950 681,609 1,992,559

Transfer from assets being acquired

538,736 760,145 -1,298,881 - -

Balance at 31 December 2007 1,159,649 2,014,352 12,069 681,609 3,867,679

Allowances

Balance at 31 December 2006 43,985 921,612 - - 965,597

Amortisation expense for the period

252,221 219,351 - - 471,572

Balance at 31 December 2007 296,206 1,140,963 1,437,169


863,443 873,389 12,069 681,609 2,430,510


576,928 332,595 - - 909,523

6.1.2. Property, Plant and Equipment

Property, Plant and Equipment (EUR) 31.12.2008 31.12.2007

Land 487,183 487,183

Buildings 6,198,253 6,335,302

Equipment, of which: 111,149,886 117,453,745

* Plant and machinery 109,372,016 115,741,582

- Aircraft 103,756,948 110,577,854

- Replacement parts 5,615,068 5,163,728

* Other plant and equipment 1,777,870 1,712,163

- Other equipment 1,775,292 1,708,020

- Small tools 2,578 4,143

Assets in process of acquisition, of which: 1,375,404 712,734

* Advance payments for property, plant and equipment 248,262 578,546

* Assets under construction 1,127,142 134,188

Total 119,210,726 124,988,964


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In the 2008 financial year, € 8,735,514 was invested in property, plant and equipment. The ●majority of the invested amount relates to the increase in the value of aircraft due to the servicing of the aircraft fuselage and engines. There was also an increase in the value of replacement parts as a result of the acquisition of aircraft parts due to the enlargement of the fleet of the CRJ-900 aircraft (December 2008, January 2009) and the servicing of the the spare engine.

In 2008, the Company took out a finance lease that amounted to € 10,706 for the property, ●plant and equipment, namely for a company vehicle for the representative office in Vienna. Due to the cancellation of our own cargo operations the Company cancelled the finance lease for the SAAB 340 cargo aircraft. Among the existing property, plant and equipement a finance lease was taken out for a flight simulator (€ 271,767) and the company car in Zürich.

The major share of property, plant and equipment represent three (3) Airbus A-320 aircraft ●and five (5) CRJ-200-LR regional aircraft. The increase also relates to major overhaul of A320 aircraft, and increase in the value of CRJ-200 aircraft resulting from the engine and fuselage overhaul. The decrease represents depreciation accounted for under the straight-line basis at the rate of 4.38 % applied to A-320 aircraft, 5.00 % applied to CRJ-200-LR and CRJ-900 aircraft, and 10 % to 66.67 % applied to additional investments in the aircraft.

The net sales value of the aircraft is verified twice a year based on the values reported in The ●Aircraft Value Reference publication issued by the Aircraft Value Analysis Company (AVAC). The Company assessed the value in use of its Canadair aircraft fleet as at 1.1.2008 (CRJ-200 aircraft fleet represents an independent cash-generating unit); the valuation showed a significant excess of replaceable value over the carrying amount. The Management Board believes there are no indications of impairment.

All the long-term financial liabilities of the Company are secured by first pledges on three ●A-320 aircraft (S5-AAA, S5-AAB and S5-AAC), on five CRJ-200-LR regional aircraft (S5-AAD, S5-AAE, S5-AAF, S5-AAG and S5-AAJ), and on two CRJ-900 aircraft (S5-AAK, S5-AAL). All the aircraft pledged are owned by Adria.

In the 2008 year, five aircraft were under the operating lease, namely: for the whole year ●one CRJ-100 aircraft, for the whole year one CRJ-200 aircraft, for four months an additional CRJ-200 aircraft, for the whole year one Boeing 737-500 aircraft, for six months a Fokker 100 aircraft and from the middle of December an additional CRJ-900 aircraft.


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8

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r cha

nges

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rate

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- -

92,9

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- 26

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9,15

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824

- -

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32

Dec

reas

e du

ring

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year

- -1

,039

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- -8

4,42

0-6

97,1

67-2

76-

- -1

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,383

Incr

ease

dur

ing

the

year

- -

- -

- -

- -

-

Othe

r cha

nges

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rate

diff

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- -

- -

- -

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Bala

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at

31 D

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- 4,

993,

220

84,9

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Carr

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ount

at

31 D

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134,

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,155

3,26

2,19

31,

162,

936

7,41

92,

512

1,73

9,67

697

,420

,155


148 Back to index

Mov

emen

ts in

Pro

pert

y, P

lant

and

Equ

ipm

ent i

n 20

07

(EUR

)La

ndBu

ildin

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ftR

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part

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eq

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Smal

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Cost

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8,10

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110

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5,70

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258

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739,

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Dire

ct in

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se –

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vest

men

ts-

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- -

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Tran

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ets

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g ac

quire

d-

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1,06

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367

549

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- -

Dec

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ring

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-206

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31,

162,

936

7,41

92,

512

1,73

9,67

697

,420

,155

6.1.3. Investment Property

Investment property represents holiday apartments as well as other apartments used for the purpose of lease.

A decrease represents the sale of the apartment in Zagreb.

(EUR) 31.12.2008 31.12.2007

Buildings 216,742 230,191

Total 216,742 230,191

The estimated fair value of the investment property ranges from € 1,022,000 to 1,242,000. Reliable fair market values cannot be determined as they are located abroad.

Movements in Investment Property in 2008

(EUR) Buildings Total

Cost

Balance at 31 December 2007 375,578 375,578

Decrease during the year 15,008 15,008


Allowances


Depreciation expense of the period 8,015 8,015

Decrease during the year 9,574 9,574


Carrying amount at 31 December 2008 216,742 216,742

Carrying amount at 1 January 2008 230,191 230,191


149Back to index

Movements in Investment Property in 2007

(EUR) Buildings Total

Cost



Allowances


Depreciation expense of the period 8,263 8,263


Carrying amount at 31 December 2007 230,191 230,191

Carrying amount at 1 January 2007 238,454 238,454

6.1.4. Long-Term Financial Investments

(EUR) 31.12.2008 31.12.2007

Investments in shares and interests in the group 793,332 793,332

Investments in shares and interests of associates 400 200

Other shares and interests 48,018 56,063

Long-term loans to others 126,683 4,639

Total 968,433 854,234

● Adria Airways does not compile a consolidated annual report, since the inclusion of the financial statements of both subsidiaries in the consolidated report is not significant for a true and fair presentation of the financial statements of the Adria Airways group as a whole.

Subsidiary(EUR)

Headoffice

Company’scountry

Share in equity at

31.12.2008

Equity of thesubsidiary

company at31.12.2008

Profit or loss of for the period

2008

Shares and interestsin subsidiaries

31.12.2008 31.12.2007

Amadeus Slovenija d.o.o.

Dunajska 122,

Ljubljana

Slovenija 95 %

812,627

4,960

771,996 781,661

Adria Airways Kosovo

Eqrenz Qabey 119

Priština

Srbija 100 % 2,500 - 2,500 2,500

TOTAL 815,127 774,496 784,161


150 Back to index

Investments in shares and interests of associates include the investment in NMC d.o.o. ●Skopje where the Company holds a 5 % equity interest, representing € 200.

The amount of long-term loans to others increased because we allowed a payment by ●instalments for the education and training costs for the flight school to a limited number of candidates for the position of a copilot at the Company.

Movements in Long-Term Financial Investments in 2008

(EUR)

Groupcompanies

Associates Othercompanies

Loans toothers

Total

Balance at 31 December 2007

793,332 200 56,068 4,639 854,239

Increase - 200 - 147,813 148,013

Decrease - - - 25,769 25,769

Revaluation - - 2,302 - 2,302


793,332 400 58,370 126,683 978,785

Allowances


- - 5 - 5

Increase - - 10,347 - 10,347

Decrease - - - - -


- - 10,352 - 10,352

Net value at 31 December 2007

793,332 200 56,063 4,639 854,234

Net value at 31 December 2008

793,332 400 48,018 126,683 968,433

Investments in shares and interests in the Group represent € 793,332 invested in Amadeus ●Slovenija d.o.o.


151Back to index

6.1.5. Long-Term Operating Receivables

Long-Term Operating Receivables (EUR) 31.12.2008 31.12.2007

Long-term securities and operating receivables 685,199 593,215

Allowances -145,445 -145,445

Total 539,754 447,770

Long-term securities and receivables represent in the majority of cases securites given for the aircraft and the spare engine in the form of a long-term operating lease.

Allowances of the long-term security for Aurora Airlines in the amount of 145,445 were designed on the basis of an initiated legal proceeding.

6.1.6. Inventories

Inventories (EUR) 31.12.2008 31.12.2007

Materials 9,929,183 7,468,277

Allowances -2,460,493 -2,426,647

Total 7,468,690 5,041,630

Inventories mainly represent spare parts and materials used in aircraft servicing. The value ●of inventories and their optimum use depend on the recommendations of the aircraft manu-facturers and the number of aircraft in the fleet.

At the end of 2008, the Company rented a new CRJ-900 aircraft. In January 2009, the fourth ●aircraft of this type was added to the fleet, which consequently attributed to the increase in the inventories of spare parts and materials for regular servicing and repairing of these aircraft already in 2008. Additionaly, part of the increase is attributable to the planned extensive inspections of aircraft for third parties and our own fleet in January 2009.

There are no discrepancies between the book value and the realisable value of inventories. ●

The examination of inventories at the end of 2008 showed no obsolete inventories. ●

At 31 December 2008, no inventories are pledged as collateral. ●


152 Back to index

Discrepancies in the amount of € 14,670, discovered during the inventory of stocks of ●technical materials on 31 December 2008, will be recorded in the year 2009 due to the technical limitations of the programme.

6.1.7. Short-Term Financial Investments

Short-term financial investments (EUR) 31.12.2008 31.12.2007

Short-term loans

− to others 147,292 128,974

Other short-term investments 720,175 -

Total 867,467 128,974

Short-term loans to others (€ 147,292) comprise deposits with banks that are fixed in form ●of a security for the guarantee given by the bank with limited disposal as well as the current amount of the loans for the education of employees.

Other short-term financial investments represent bonds received as denationalisation ●compensation from SOD.

6.1.8. Short-Term Operating Receivables

Short-term operating receivables (EUR) 31.12.2008 31.12.2007

Short-term operating receivables due from subsidiaries 6,106 3,261

Short-term operating trade receivables 11,507,495 17,484,492

Short-term operating interest receivables 37,579 56,938

Other short-term operating receivables 5,718,769 6,595,942

Allowances for short-term operating receivables -326,654 -391,794

Total 16,943,295 23,748,839

In comparison to the previous year, short-term operating receivables were reduced by 29 %. ●The reason is partly a drop in demand for services in the last few months in 2008 and partly extraordinary receivables in 2007 (for the sale of the office building).


153Back to index

Short-term operating trade receivables (gross value) are recognised as domestic and inter- ●national trade receivables (of which € 7,809,097 from international trade and € 3,698,298 from domestic trade). It is important that continuous monitoring of customers is carried out and the receivables are realistic and recoverable.

Regular aircraft operators, members of the IATA (International Air Transport Association), ●account for their monthly receivables and liabilities through the Clearing House registered in Montreal, which provides weekly offsetting. In its own way those receivables are secured as non-compliance with the agreed contractual terms represents a severe breach against the airline and leads to the exclusion from the association. At 31 December 2008, the balance of receivables towards IATA is € 587,774 and has been partially offset. The remaining balance was offset and the payments were made in full in January 2009.

Adria Airways d.d. sells air tickets also through its representatives at home and abroad. A ●similar monthly account and payment discipline applicable to the airlines, also applies to the representatives and the receivables are offset through the Bank Settlement Plan (BSP) set up in the locations where the air tickets are sold. BSP regularly verifies credit rating of all its business partners. If certain financial ratios are not met (these are unique for each individual country) a collateral is required which is, in the event of payment default, shared among the airlines in proportion of the outstanding amount of the receivables. At 31 December 2008, receivables due from various BSPs amount to € 2,669,366, which accounts for 23 % of all the receivables.

No receivables are due from Members of the Management and Supervisory Board, employees ●with special authorisations, or internal owners.

Allowances are made against receivables in accordance with the criteria described under ●the Accounting policies section. In 2008, additional allowance was made against short-term operating trade receivables (€ 4,029) and previously written-off receivables in the amount of € 17,198 were recovered. In the 2008 financial year, € 14,706 of receivables was written-off and charged directly to the revaluation expenses.

Classification of operating receivables per maturity ●

31.12.2008 Not past due

Up to 30 days

From 31 to 60 days

From 61 to 90 days

From 91 to 180 days

From 181 to 365 days

More than 366 days

11,507,495 8,378,980 1,380,088 215,907 227,561 218,448 637,257 449,254

% 72.8 12.0 1.9 2.0 1.9 5.5 3.9


154 Back to index

65 % or € 7,444,810 of total short-term operating trade receivables are secured as follows: ●Clearing House (2 % or € 269,375), BSP (23 % or € 2,669,366), with deposits (13 % or € 1,482,371), bank guarantees and letters of credit (2 % or € 196,110), with advances (3 % or € 391,744), offsetting arrangements (15 % or € 1,713,847), bills of exchange (2 % or € 173,310) and secured receivables due from budget users (5 % or € 548,687); however 35 % (€ 4,062,685) of total short-term receivables is not secured.

Other short-term operating receivables represent short-term advances paid for leased ●aircraft and collaterals, VAT receivable, receivables due from the sale outlets in respect of air ticket sales, and receivables from suppliers for credits recognised but not yet issued.

6.1.9. Cash

Cash (EUR) 31.12.2008 31.12.2007

Cash in hand and cheques 50,696 37,755

Cash at bank 1,139,072 1,002,837

Total 1,189,768 1,040,592

6.1.10. Short-Term Deferred Costs and Accrued Revenue

At 31 December 2008, € 1,203,936 (€ 783,250 at 31 December 2007) represents ●short-term deferred costs and expenses on account of invoiced rent of the aircraft and the engine, and costs of the passenger and aircraft insurances.


155Back to index

6.1.11. Equity

Equity (EUR) 31.12.2008 31.12.2007


1. Share capital 6,782,156 6,782,156



4. Statutory reserves 774,108 774,108

5. Other revenue reserves 2,691,263 5,719,604


V. Retained earnings - -


Total 34,009,658 40,304,957

Called-up capital represents the share capital defined in the Company’s statute, registered ●at the court, and subscribed to by the shareholders. The share capital of € 6,782,156 represents the amount registered at the court. It is divided into 812,436 ordinary, nominal non par value shares.

All the shares are of the same class, issued as dematerialised shares. ●

The company holds no treasury shares and did not hold any during the year. ●

At 31 December 2008, the carrying amount of one share was € 41.86. ●

In 2009, the net loss of € 3,240,977 generated in the 2008 financial year was appropriated ●by the Management Board as follows:

€ 212,636.09 from the retained earnings from previous years, ●€ 3,028,340.96 from other revenue reserves. ●


156 Back to index

In its Statute, the revenue reserves are specified for the following purposes: ●

The capital surplus resulted from the privatisation and injection of the equity capital and ●is to be used under the conditions and for the purposes set out by the law. The capital surplus amounts to € 28,180,234 and did not change in 2008.

The revenue reserves represent statutory reserves in the amount of € 774,108. In ●accordance with the provisions of the Statute, statutory reserves represent 50 % of the net profit generated in the financial periods 2002, 2003, 2004 and 2007. The revenue reserves amount to € 2,691,263 and decreased in 2008 to cover the net loss for the period. The statutory reserves may be used to cover losses, to increase the share capital, and as a capital expenditure. Other revenue reserves may be used for any purpose in accordance with the law, the Statute, and the Company’s business policy.

The negative amount of the revaluation reserve is the result of the valuation of derivative ●financial instruments to be used as cash flow hedges in 2009 and 2010.

The Company has no approved unissued shares (exercise of the right of holders of fungible ●bonds to exchange these for shares or the exercise of the pre-emptive right to acquire new shares).

6.1.12. Provisions and Long-Term Accrued Costs and Deferred Revenue

Provisions of € 1,558,283 were made on account of pensions, anniversary bonuses and ●termination bonuses upon retirement: The provisions were calculated in accordance with the provisions of the collective and individual employment contracts, taking into account the employees’ fluctuation in terms of their retirement age and the years of service with the Company.

EUR 31.12.2008 31.12.2007

Provisions for retirement benefits 1,558,283 1,543,735


157Back to index

Movements in Provisions in 2008

EUR Balance at 1.1.2008

Utilisation,reversal

Formation Balance at31.12.2008

Provisions for retirement benefits 1,543,735 45,937 60,485 1,558,283

Total 1,543,735 45,937 60,485 1,558,283

Movements in Provisions in 2007

EUR Balance at1.1.2007

Utilisation,reversal

Formation Balance at31.12.2007

Provisions for retirement benefits 1,550,417 58,430 51,748 1,543,735

Total 1,550,417 58,430 51,748 1,543,735

6.1.13. Financial Liabilities

EUR Long-term Short-term TOTAL

2008 2007 2008 2007 2008 2007

Financial liabilities to group companies

155,287 155,287 155,287 155,287

Financial liabilities to banks

69,729,107 79,844,533 15,275,426 7,848,759 85,004,533 87,693,292

Other financial liabilities

223,009 1,071,608 4,540,482 1,824,818 4,763,491 2,896,426

TOTAL 69,952,116 80,916,141 19,971,195 9,828,864 89,923,311 90,745,005

Weighted Average Interest Rates at 31 December 2008

31.12.2008 EUR (%)

Financial liabilities to banks 4.51 %

31.12.2007 EUR (%)

Financial liabilities to banks 5.26 %


158 Back to index

Disclosure of the Interest Rate Risk per Individual Type of Borrowings

Year ended 31 December 2008 (EUR)

Interest rate changes within

6 months or less


6-12 months

Interest rate changes in 1-5

years

Over 5 years Total

Total borrowings 81,591,603 - 3,412,930 - 85,004,533

Interest rate swap -848,485 - 848,485 0

Total 80,743,118 - 3,412,930 848,485 85,004,533

Year ended 31 December 2007 (EUR)

Interest rate changes within 6

months or less


6-12 months

Interest rate changes in 1-5

years

Over 5 years Total

Total borrowings 83,817,058 - 3,876,234 - 87,693,292

Interest rate swap -969,697 - - 969,697 -

Total 82,847,361 - 3,876,234 969,697 87,693,292

The current amount of long-term borrowings that matures in the 2009 financial year in the ●amount of € 10,115,426 is reported under short-term financial liabilities.

Short-term liablities to banks increased at the end of 2008 by 95 % in comparison to 2007, ●partly due to a higher current amount of long-term liablities that mature in 2009, and partly due to revolving credits.

On the other hand, long-term liabalities to banks decreased in 2008 by 13 % in comparison ●to 2007 as the Company did not take out new long-term loans. Hence the decrease is attrib-utable only to the regular repayment of loan principals.

The current amount of long-term borrowings under finance leases that mature in the 2009 ●financial year in the amount of € 70,758 is reported under short-term financial liabilities.

All the long-term and short-term loans were raised from local banks and are denominated ●in the euro.

The principal amounts and the interest are repaid in monthly instalments. ●

All long-term financial liabilities are secured with a pledge placed on the aircraft. ●


159Back to index

Classification of Long-Term Financial Liabilities Per Maturity

(EUR) 2008

From 1 to 2 years 11,248,759

From 2 to 5 years 28,664,337

Over 5 years 29,816,011

TOTAL 69,729,107

Short-Term Financial Liabilities to Banks

(EUR) 31.12.2008 31.12.2007

Current amounts of bank loans 10,115,426 7,848,759

Short-term financial liabilities to banks 5,160,000 -

Total 15,275,426 7,848,759

The current amounts of bank loans extended by the local banks represent the amounts of ●long-term loans that mature within a period of one year.

The current amounts of long-term loans are secured with a pledge on aircraft. ●

The short-term financial liablities to banks represent on 31 December 2008 revolving credits ●taken out for current and fixed assets.

6.1.14. Short-Term Operating Liabilities

Short-term operating liabilities (EUR) 31.12.2008 31.12.2007

Short-term operating liabilities to companies in the group 38,976 40,213

Short-term operating liabilities to suppliers 20,313,980 19,464,393

Short-term operating liabilities for advances 835,893 1,602,651

Other short-term operating liabilities 3,819,492 4,181,428

Total 25,008,341 25,288,685

Short-term operating liabilities are not collateralized. ●


160 Back to index

Short-Term Operating Liabilities to Suppliers

Short-term operating liabilities to suppliers (EUR) 31.12.2008 31.12.2007

Short-term operating liabilities to local suppliers 8,123,183 6,349,797

Short-term operating liabilities to foreign suppliers 12,190,797 13,114,596

Total 20,313,980 19,464,393

Short-term operating liabilities to suppliers represent amounts due to the suppliers of goods ●and services at home and abroad. The short-term operating liabilities mature within a period of 8 to 60 days from the date of the supply of goods, the rendering of services, or the invoice date.

Other Short-Term Operating Liabilities

Other short-term operating liabilities (EUR) 31.12.2008 31.12.2007

Short-term operating liabilities to the government 487,417 532,786

Short-term operating liabilities to the employees 2,629,708 2,475,698

Other short-term operating liabilities 702,367 1,172,944

Total 3,819,492 4,181,428

As at 31 December 2008, no operating liabilities are due to the management and the ●supervisory board or the employees, other than the amounts due for December 2008 wages and salaries.

Other short-term operating liabilities mainly represent court damages due to JAT Airways ●Beograd and decreased in 2008 due to a mutual agreement that has been reached.

6.1.15. Short-Term Accrued Costs and Deferred Revenue

Total € 1,724,408 of accrued costs and deferred revenue comprises accrued costs of ●computer reservation system and interest due on loans in the amount of € 246,698, and deferred revenues from charter flights and tickets sold for future flights in the amount of € 1,477,710


161Back to index

EUR 31.12.2008 31.12.2007

Short-term accrued costs and deferred revenue 1,724,408 1,872,745

6.1.16. Off-Balance Sheet Assets/Liabilities

Off balance sheet assets/liabilities (EUR) 31.12.2008 31.12.2007

Mortgages 108,733,078 112,516,130

Guarantees 3,211,466 1,879,967

Other 28,474 28,474

Total 111,973,018 114,424,571

The decrease in the mortgage volume is attributable to the already in 2007 paid off bridging ●credit used for the payment of advances for new aircaft. The cancellation receipt was received in 2008.

Off-balance sheet assets and liabilities maturing in a period of more than five years.

(EUR) 2008

Mortgages 81,893,330

Guarantees -

Other -

Total 81,893,330

Off-balance sheet records represent mortgages (pledges) entered for the benefit of the local ●banks against long-term loans extended to the Company for the purchase of the aircraft, and a pledge entered for the benefit of the IAE in respect of a seven-year contract the Company agreed for the servicing of the A-320 engines.

As at 31 December 2008, a total of € 85,004,533 of borrowings is secured with ●mortgages.

Guarantees represent payment guarantees granted to the suppliers for the purchase of ●goods and services at home and abroad, and guarantees received as a security against receivables.


162 Back to index

The Company is involved in court proceedings either as a plaintiff or a defendant. These ●court actions mainly relate to breach of obligations or labour disputes. As a result of a request for judicial protection, Adria Airways is also subject to procedures of the supervisory and government institutions.

No additional provisions were made for these disputes as we do not expect the outcome of ●these to have a significant financial impact.

6.1.17. Financial Instruments

Fair Value

The majority of investments recognised through profit or loss and as available-for-sale ●investments, are recognised at fair value, whilst receivables and borrowings are reported at amortised cost. Since the majority of the receivables, liabilities, and borrowings are short-term, the fair value of these financial instruments does not significantly deviate from their carrying amount.

Derivative Financial Instruments

At 31 December 2008, the Company reports the following outstanding financial instruments:

Interest Rate Hedge Instruments

Instrument (EUR) Notional amount Fair value

31.12.2008 31.12.2007 31.12.2008 31.12.2007

Interest rate swap 848,485 969,697 -6,408 40,886

Interest rate collar 10,531,612 14,000,000 -158,046 153,185

The interest rate swaps and collars are accounted for as future cash flow hedges.

Instrument (EUR) Notional amount Fair value

31.12.2008 31.12.2007 31.12.2008 31.12.2007

Interest rate cap 9,002,500 10,300,000 66,305 239,237


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Interest rate caps are not accounted for as hedge accounting.

Currency Forwards (EUR) Notional amount Fair value

31.12.2008 31.12.2007 31.12.2008 31.12.2007

Currency acquisition - 41,273,339 - -660,445

Currency sales - 42,103,080 - 587,857

Interest Rate Risk

The interest rate risk, which the Group is exposed to, arises primarily from the financing of the Group as disclosed under the financial liabilities section, 6.1.13.

Credit Risk

The Company is not exposed to any significant credit risk concentration.

Forwards for the Purchase of Fuel

Period January–March 09

April–June 09

July–September 09

October–December 09

% of the forward purchase of the planned kerosene amounts

0 % 35 % 43 % 27 %

The valuation of the forwards for the purchase of fuel at 31 December 2008 shows that ●the fair value decreased by € 4,305. The negative effect is recognised via the Company’s equity.


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6.2. Additional Disclosures of the Income Statement Items

Costs in terms of functional groups ●

Costs in terms of functional groups (EUR) 2008 2007

Production costs 180,431,248 155,686,325

Selling expenses 18,676,692 16,742,141

General and administrative costs 5,364,961 4,336,829

Total 204,472,901 176,765,295

Production costs of goods sold comprise direct costs of the airport and other services, ●costs of materials, costs of labour, amortisation and depreciation expenses, and production overheads.

Selling expenses represent marketing costs, costs of sales made at home and abroad, and ●costs of agency sales at home and abroad (commission other selling costs).

General and administrative costs represent costs of administrative services for the whole of ●the Company.

Classification of revenue and expenses per individual types is presented below.

6.2.1. Net Sales

Net sales per business segments

Net sales per business segments (EUR) 2008 2007

* Scheduled passenger services 143,581,293 114,882,559

* Scheduled cargo services 2,739,072 6,185,861

* Charter passenger flights 28,113,198 22,343,502

* Aircraft servicing for third persons 12,832,819 13,314,578

* Aircraft lease services 11,119,249 15,723,189

* Other 7,004,166 6,725,935

Total 205,389,797 179,175,624


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The activity of the Company is classed as international air passenger service and accounts ●for 84 % of total sales revenue.

● 6 % of the sales revenues represents aircraft servicing for third persons, whereas just over one percent of the total sales revenues accounts for cargo transport, as it represent only an additional service on our scheduled flights since we cancelled our own cargo operations in 2007.

5 % of the net sales are achieved by the aircraft lease services. ●

Net Sales Classification: Slovenia and Abroad

Net sales classification: Slovenia, abroad 2008 2007

Sales revenue (Slovenia) 2,389,410 1,872,856

Sales revenue (outside Slovenia) 203,000,387 177,302,768

Total 205,389,797 179,175,624

6.2.2. Costs of Goods, Material and Services

Costs of goods, material and services (EUR) 2008 2007

Costs of goods sold 76,663 43,325

Costs of materials 58,064,655 41,851,041

Costs of services 86,117,973 83,037,388

Total 144,259,291 124,931,754

Compared to the previous year, the costs of goods, materials and services have increased ●by 15 %, which is primarily due to the increase in the costs of aircraft rent as a result of the restructuring of the fleet, the increase in the price of aviation fuel, and the increase in the air transport services.

Costs of Materials

Costs of materials (EUR) 2008 2007

Aviation fuel 49,006,382 32,685,964

Merchandise and materials used in passenger care 4,365,065 2,927,485

Replacement parts used in aircraft servicing 2,182,537 4,247,508

Other costs of materials 2,510,671 1,990,084

Total 58,064,655 41,851,041


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Costs of Services

Costs of services (EUR) 2008 2007

Airport costs 28,959,098 26,287,845

Navigation costs 9,777,309 8,678,840

Maintenance costs 10,090,414 9,331,579

Rent 16,509,321 19,512,303

Costs of computer reservation system 4,853,254 4,185,987

Reimbursements of costs 2,015,557 2,086,890

Costs of transport services 944,387 1,192,248

Other costs of services 12,968,633 11,761,696

Total 86,117,973 83,037,388

Other costs of services comprise costs of training, cargo, bank charges, costs of student work, passenger tax, intellectual and personal services, and other costs. The costs of the audit of the financial statements and the annual report for the financial year ended 31 December 2008 of € 36,970 relate to the following services:

Auditing of the annual report (€ 36,620) ●Other non-auditing services (€ 350). ●

6.2.3. Labour Costs

Labour costs (EUR) 2008 2007

Payroll costs 29,294,623 24,272,989

Social insurance costs 4,245,019 3,525,284

Retirement insurance costs 1,586,988 1,377,873

Other labour costs 5,018,841 4,911,510

Total 40,145,471 34,087,656

Other labour costs for the 2008 comprise: holiday bonus, travel allowance, termination ●bonuses, anniversary bonuses, payroll taxes, and salaries of the staff employed at the repre-sentative offices abroad.


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None of the employees’ claims based on the provisions of the law, collective agreement, ●general rules of the Company or employment contracts are disputed by the Company.

Other labour costs comprise of provisions for termination bonuses in the amount ●of € 60,485.

6.2.4. Write-Downs

Amortisation and Depreciation

Amortisation and depreciation (EUR) 2008 2007

Amortisation and depreciation of intangible assets and property, plant and equipment

13,606,976

11,480,867

Revaluation expenses associated with intangible assets and property, plant and equipment

441,144

19,533

Total 14,048,120 11,500,400

Revaluation expenses from intangible assets and property, plant and equipment are mainly ●attributable to the sale of the SAAB cargo aircraft and the relevant replacement parts.

Revaluation operating expenses from operating assets

Revaluation operating expenses in the amount of € 18,735 from current assets represent ●the write-off of receivables.


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6.2.5. Financial Revenues

Financial revenues (EUR) 2008 2007

Financial revenues from shares and interests 24,336 96,063

- in group companies 15,133 87,529

- in associates 9,125 8,456

- in other companies 78 78

- other investments - -

Financial revenues from operating receivables 891,425 811,725

- due from group companies - -

- due from others 891,425 811,725

Total 915,761 907,788

Almost all of the financial revenues represent interest income. ●

The majority of other financial revenues from short-term receivables represent interest (€ ●783,794) inclusive revenues from the sale of interest-rate options.

Exchange rate gains in the amount of € 4,371,497 arising on translation of foreign currencies ●are disclosed under the offsetting balance of financial expenses.

6.2.6. Financial Expenses

Financial expenses (EUR) 2008 2007

Financial expenses from impairmed financial investments 10,346 -

Financial expenses from financial liabilities 4,868,961 4, 255,204

- loans received from group companies 5,685 5,361

- loans received from banks 4,689,888 4,249,843

- other financial liabilities 173,388 -

Financial expenses from operating liabilities 866,542 81,584

- to suppliers 74,190 37,865

- other operating liabilities 792,352 43,719

Total 5,745,849 4,336,788


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The majority of the financial expenses represent interest paid on long-term borrowings in the ●amount of € 4,689,888.

Financial expenses from other financial liablities represent expenses from interest ●instruments for the protection of the cash flow.

The exchange rate losses in the amount of € 5,161,390 are disclosed under the financial ●expenses from operating liabilities in the offsetting balance of € 789.983.

6.2.7. Income Tax

As a result of the settlement of tax loss incurred in 2008, the Company reports no income ●tax liability.

(EUR) 2008 2007

Pre-tax profit or loss -3,240,977 425,272

Expenses not recognised as expenditure 816,783 863,953

Allowances for inventories and receivables 18,735 115,852

Provisions formation 30,243 25,874

Non-taxed revenues -41,535 -107,426

Tax relieves - -

Tax losses 2,461,472 -1,269,898

Other -44,721 -53,627

TOTAL 0 0

Income tax (22 %) 0 0

6.2.8. Net Profit or Loss

Net profit or loss (EUR) 2008 2007

Net profit or loss for the period -3,240,977 425,272

Weighted average number of ordinary shares 812,436 710,500

Earnings per share -3.99 0.60


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In 2008, the Company generated € 1,217,161 of operating profit. This a 74 % lower profit in ●comparison to 2007 and a result of the unreasonably high prices for kerosene and the drop in demand in the last quarter of 2008.

The Company reports a financial loss of € 4,830,088, which is above the financial loss ●incurred in the previous year. This is primarily due to the increase in key interest rates.

The result is a loss in the amount of € 3,240,977. ●

(EUR) Consumer priceindex in 2008

Consumer priceindex in 2007

Change in % 2.10 % 5.60 %

General revaluation adjustment 714,203 2,257,078

Profit or loss after the revaluation to preserve the purchasing power of the equity

-3,955,180 -1,831,806

If equity was restated by the consumer price index, the result achieved by Adria Airways d.d. ●in the 2008 financial year would be lower by € 714,203.


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7. Other Disclosures

7.1. Information on Groups of Persons

Total earnings received in 2008 by groups of persons for holding office or the performance of tasks under Article 253 of the Companies Act are presented in the following table:

(EUR) 2008 2007

Gross wages and salaries

- Management Board 352,769 301,001

Bonuses, attendance fees, other incomes

- Management Bodies (Management Board, representatives) 112,162 323,410

Employees on individual contracts 2,290,549 1,334,747

Total 2,755,480 1,959,158

The amounts above are gross, excluding contributions payable by the employer.

Incomes of the Management Board comprise of: salaries, fringe benefits, holiday bonus, any ●other incomes and reimbursements of costs. Incomes of the staff on individual contracts to whom the collective agreement tariffs do not apply comprise: salaries, fringe benefits, holiday bonus, reimbursement of costs and any other incomes such as anniversary bonuses and termination bonuses. Incomes of the Supervisory Board include attendance fees, travel allowance and fees for holding their office as determined by the Shareholders’ meeting.


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8. Events after the Balance Sheet Date

On 13 January 2009, the Management Board adopted the decision to increase share- ●holders’ capital from the approved equity of the Company. The increase in shareholders’ capital is carried out by issuing not more than 121,804 ordinary, freely transferable nominal non par value shares with an issue premium in the amount of € 22. On 14 January 2009, the Supervisory Board of the Company gave its consent to the decision. On 16 January 2009, the decision was published in the Delo newspaper. Shareholders paid in the entire amount for the shares in the first and second round at the end of January and in February 2009, and the third round of capital injection is still in progress.

In the 2009 financial year, the Company is continuing with the optimisation of the fleet: at ●the end of January the fourth CRJ-900 aircraft was added to our fleet, which we leased for 10 years from the German leasing company GOAL. At the beginning of April, we extended the hire of our A320 aircraft to our partner in Libya.

In 2009, the Company will have to make a final decision concerning the optimisation of the ●Airbus fleet. There are several options, namely:

upgrading of the existing fleet by installing new equipment, ●partial renewal of the existing fleet, ●total renewal of the existing fleet. ●

The general economic recession and crisis in the financial sector hit our industry more than ●expected. Therefore, we have already prepared a package of measures that will have an immediate and significant effect, primarily on the cost side. In February 2009, the Managment Board decided to cut all salaries and wages by 5 %.

In 2009, the construction of the new business building at the Brnik airport proceeds at a ●steady pace. The investment will be mainly financed through a new long-term loan.


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9. Financial Statements − Expanded Format

9.1. Balance Sheet – Expanded Format under SAS

(EUR) 31.12.2008 31.12.2007

ASSETS 152,224,001 159,765,355

A/ LONG-TERM ASSETS 124,480,444 128,951,669

I. Intangible assets and long-term deferred costs 3,544,788 2,430,510

1. Long-term property right 934,892 863,443

5. Other long-term deferred costs 2,609,896 1,567,067

II. Property, plant and equipment 119,210,726 124,988,964

1. Land and buildings 6,685,436 6,822,485

a) Land 487,183 487,183

b) Buildings 6,198,253 6,335,302

2. Production equipment and machines 109,372,016 115,741,582

3. Other plant and equipment 1,777,870 1,712,163

4. Property, plant and equipment being acquired 1,375,404 712,734

a) Property, plant and equipment under construction 1,127,142 134,188

b) Advances for acquisition of property, plant and equipment

248,262 578,546

III. Investment property 216,742 230,191

IV. Long-term financial investments 968,433 854,234

1. Long-term financial investments, excluding loans 841,750 849,595

a) Shares and interests in group companies 793,332 793,332

b) Shares and interests in associates 400 200

c) Other shares and interests 48,018 56,063

2. Long-term loans 126,683 4,639

b) Long-term loans to others 126,683 4,639

V. Long-term operating receivables 539,755 447,770

3. Long-term operating receivables due from others 539,755 447,770

VI. Deferred receivables from tax


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(EUR) 31.12.2008 31.12.2007

B/ SHORT-TERM ASSETS 26,539,621 30,030,436

I. Assets (disposal groups) held for sale 70,401 70,401

II. Inventories 7,468,690 5,041,630

1. Materials 7,468,690 5,041,630

III. Short-term financial investments 867,467 128,974

1. Short-term financial investments, excluding loans 720,175 -

c) Other short-term financial investments 720,175 -

2. Short-term loans 147,292 128,974

b) Short-term loans to others 147,292 128,974

IV. Short-term operating receivables 16,943,295 23,748,839

1. Short-term operating receivables due from group companies

6,106 3,261

2. Short-term operating trade receivables 11,180,841 17,092,698

3. Short-term operating receivables due from others 5,756,348 6,652,880

V. Cash 1,189,768 1,040,592

C/ SHORT-TERM DEFERRED COSTS AND ACCRUED REVENUE 1,203,936 783,250

Off-balance sheet assets 111,973,018 114,424,571

(continued from page 174)


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(EUR) 31.12.2008 31.12.2007

EQUITY AND LIABILITIES 152,224,001 159,765,355

A/ EQUITY 34,009,658 40,304,957


1. Share capital 6,782,156 6,782,156

2. Non-called capital (deductible item)



4. Statutory reserves 774,108 774,108

5. Other revenue reserves 2,691,263 5,719,604



B/ PROVISIONS AND LONG-TERM ACCRUED COSTS AND DEFERRED REVENUE

1,558,283 1,543,735

1. Provisions for pensions and similar obligations 1,558,283 1,543,735

C/ LONG-TERM LIABILITIES 69,952,116 80,926,369

I. Long-term financial liabilities 69,952,116 80,916,141

2. Long-term financial liabilities to banks 69,729,107 79,844,533

4. Other long-term financial liabilities 223,009 1,071,608

II. Long-term operating liabilities - 10,228

4. Long-term operating liabilities from advances - 10,228

D/ SHORT-TERM LIABILITIES 44,979,536 35,117,549

II. Short-term financial liabilities 19,971,195 9,828,864

1. Short-term financial liabilities to group companies 155,287 155,287

2. Short-term financial liabilities to banks 15,275,426 7,848,759

4. Other short-term financial liabilities 4,540,482 1,824,818

III. Short-term operating liabilities 25,008,341 25,288,685

1. Short-term operating liabilities to group companies 38,976 40,213

2. Short-term operating liabilities to suppliers 20,313,980 19,464,393

3. Short-term bills payable - -

4. Short-term operating liabilities from advances 835,893 1,602,651

5. Other short-term operating liabilities 3,819,492 4,181,428

E/ SHORT-TERM ACCRUED COSTS AND DEFERRED REVENUE 1,724,408 1,872,745

Off-balance sheet liabilities 111,973,018 114,424,571


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9.2. Income Statement – Expanded Format under SAS

(EUR) 2008 2007

1. Net sales 205,389,797 179,175,624

a) Net sales on the local market – group companies 40,522 157,386

b) Net sales on the local market – others 2,348,888 1,715,470

c) Net sales on foreign markets – group companies 11,871 23,760

d) Net sales on foreign markets – others 202,988,516 177,279,008

2. Production costs of goods sold (including depreciation and amortisation), or costs of goods sold

180,431,248 155,686,325

3. GROSS PROFIT OR LOSS FROM SALES 24,958,549 23,489,299

4. Selling costs (including depreciation and amortisation) 18,676,692 16,742,141

5. General and administrative expenses (including depreciation and amortisation)

5,364,961 4,336,829

a) General and administrative costs 4,905,081 4,067,003

b) Revaluation operating expenses associated with intangible assets and property, plant and equipment

441,145 19,533

c) Revaluation operating expenses associated with current assets 18,735 250,293

6. Other operating revenues (including revaluation operating revenues)

300,265 1,763,181

7. Financial revenues from shares and interests 24,336 96,063

a) Financial revenues from shares and interests in group companies

15,133 87,529

b) Financial revenues from shares and interests in associates 9,125 8,456

c) Financial revenues from shares and interests in other companies 78 78

d) Financial revenues from other investments - -

9. Financial revenues from operating receivables 891,425 811,725

b) Financial revenues from operating receivables due from others 891,425 811,725

10. Financial expenses due to impairment and write-offs investments 10,346 -

11. Financial expenses for financial liabilities 4,868,961 4,255,204

a) Financial expenses for loans, received from group companies 5,685 5,361

b) Financial expenses for loans received from banks 4,689,888 4,249,843

d.) Financial expenses from other financial liabilities 173,388 -

12. Financial expenses for operating liabilities 866,542 81,584

b) Financial expenses for trade payables and bills payable 74,190 37,865

c) Financial expenses for other operating liabilities 792,352 43,719

13. Other revenues 636,409 151,600

14. Other expenses 264,459 470,838

15. Income tax - -

17. NET PROFIT OR LOSS FOR THE PERIOD -3,240,977 425,272


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Issuer: Adria Airways, Slovenian Airline d.d.Idea, design and implementation: Rogač RMV, d.o.o.Photography: Dean Duboković and Adria Airways d.d. archiveTranslation and Editing: Almudena, Mojca Žnidarič s.p.Printing: Design Studio, d.o.o.

2008


adria_airways_annual_eng_report_2008

Documents

financial statements

business report

financial liabilities

financial instruments

financial revenues

financial expenses

shortterm deferred costs

longterm deferred costs