KLM Reports Operating Income of NLG 457 Million for the First Half Year

AMSTELVEEN, Netherlands (PROTEXT) - The following was releasedtoday by KLM (NYSE: KLM): Result for the half year ending September 30, 1999 * KLM today reports an operating income of NLG 457 millionfor the half year ending September 30, 1999 compared to NLG 638million for the same period last year. * Capacity was up 1%, while traffic saw an increase of 2.4%,mainly due to strong growth in cargo volumes. * Group operating revenues, which were flat versus last yearin the first quarter, increased by 1% in the second quarter. Theincrease for the first six months amounted to 0.3%. Groupoperating expenses increased by 3%. * Company unit revenues, although 2% below last year for theperiod show an upward trend. The half year was exited with unitrevenue growth, while the half year was entered on a downwardtrend. Company unit costs increased by 5%. Excluding the effectof currency exchange rates, unit cost showed an increase of 3%. * An amount of NLG 50 million is included relating to reducedpension payments(2). * Net income before extraordinary items was NLG 229 million,down from previous year's level of NLG 572 million. Last yearsnet income included an amount of NLG 148 million of results onthe sale of holdings, and NLG 29 million as a consequence of theinclusion of 100%, instead of 50% of the net results ofMartinair. At the time, it reflected the anticipated completionof the acquisition of the remaining 50% of Martinair not yetowned by KLM, a transaction that did not materialize. * The result from the sale of Galileo International isrecorded as an extraordinary income item of NLG 898 million. Result for the quarter ending September 30, 1999 * Group operating income for the second quarter amounts toNLG 291 million, compared to NLG 377 million for the same periodlast year. The relative decrease in the second quarter wassubstantially lower than the decrease experienced in the firstquarter. * Group operating revenues increased by 1%, while groupoperating expenses increased by 4%. * Company unit revenues saw an increase of 1%, while companyunit costs increased by 8%. Excluding currency effects, unitcosts saw an increase of 6%. * Net income for the quarter was NLG 152 million, compared toNLG 361 million last year. Earnings per share(1) amounted to NLG3.23 (EUR 1.47) compared to NLG 5.85 (EUR 2.65) last year. Traffic, Capacity, Load Factor, Break-Even Load Factor(Company) KLM has continued its deliberately prudent capacity growthstrategy in view of the general over-capacity in the market.Passenger capacity growth was kept at only 1%. Passenger traffic,which was flat for the first quarter, saw an increase again inthe second quarter of 1%. Business Class traffic, which was stillweak in the first quarter, was especially strong (+ 5%) in thesecond quarter, exceeding Economy Class growth. It is encouragingto note the upward trend in passenger yield, which was down 5%versus last year in the first quarter, but was flat for thesecond quarter. Despite strong growth in volume, Business Classyields are stable. Cargo volumes have shown healthy growth since early 1999following the improvement of economic conditions in the AsiaPacific region. This continuing trend is also reflected in thenumber for the half year, where growth amounted to 6%. Although cargo yield is still below last year's levels, thetrend is also upwards. Whereas for the first quarter, yield wasstill 6% below last year's levels, it was down a more modest 2%for the second quarter. (1) The 1999 EPS are based on the number of outstandingcommon shares, presuming that the reverse share split (formallyagreed by the shareholders' meeting on August 3, 1999 andrealised on October 11, 1999) was completed at September 30,1999. (2) On the basis of an agreement which is expected to becomeeffective within the next three months Cash flow and financialposition. Cash Flow and Financial Position Cash flow from operating activities amounted to NLG 915million in the first six months of fiscal year 1999/2000 andimproved NLG 170 million compared to the same period last year.The net-debt-to-equity-ratio, which stood at 82 as per March 31,1999, decreased to 62. As per September 30, 1999 proceeds fromthe sale of Galileo are still reflected in the cash position,while the amount of capital of NLG 1,015 million redeemed tocommon and preferred shareholders in October is included undercurrent liabilities. When accounting for this capitalrestructuring (which was completed on October 11, 1999) the net-debt-to equity-ratio as per September 30, 1999 would have been83. Business Developments The early signs of the improved operating environment arereflected in improved unit revenues, which -- although still downfor the half year -- showed an increase of 1% for the secondquarter. The half year was exited with unit revenue growth whilstwe entered the period on a downward trend. In particular,overcapacity was experienced on the North Atlantic. Althoughcargo traffic shows healthy growth, particularly in the AsiaPacific region, cargo yields have not yet reached previous yearslevels. Against this background KLM continuous to intensify itsefforts to reduce controllable costs. Prospects The operating environment, although more difficult than wehave seen for a long time, is improving, resulting in strongertraffic growth, especially in Business Class, and higher yields.This trend continues into the third quarter. Although excesscapacity remains a factor of significance, we expect that overallunit revenues will show continued improvement during the secondhalf of fiscal year 1999/2000. The anticipated agreement with the unions will result in areduction of pension payments by the company of approximately NLG100 million for the full year, NLG 50 million of which has beentaken in the first half year. A NLG 25 million reduction will bereported for each of the two remaining quarters of this fiscalyear. For the first half of the fiscal year 1999/2000 fuel expensewas NLG 29 million below previous year, largely as a result ofeffective fuel hedging. Since July of this year, fuel prices haverisen by more than 30%. Our hedge position in the second halfyear is less extensive than in the first half. We estimate thatthe year-on-year increase in fuel expense for the second halfyear will be in the order of NLG 200 million. In conclusion, we expect a significant improvement in revenuesfor the second half year, provided operating conditions remainstable. However, the increase in operating expenses, mainlydriven by increased fuel prices, is expected to more than offsetthe revenue gain. On balance, we expect group operating incomealso for the second half year to decrease versus previous year,but, significantly less so than in the first half year. Additional targets have been set to reverse the trend ofrising controllable unit costs. We continue to focus on implementing our alliance strategythat should deliver our vision of becoming one of the strongestplayers in the global aviation industry together with ourpartners. Significant achievements in the past six months have been thesigning of the Settlement Agreement with Alitalia on July 30, andthe regulatory approval received from the European Commission'sMerger Task Force on August 11. KLM and Alitalia are set to fullyintegrate their network organizations, a level of integration yetunseen in the industry. On November 1, the Passenger and CargoJoint Ventures commenced under a single, unified managementstructure. This report is unaudited. The Board of Managing Directors ots Original Text Service:KLM Internet: http://www.newsaktuell.de Contact: Bert Menkveld,+31-20-649-5917, or Martine Eisma, +31-20-648-9379, both of KLMWeb site: http://www.klm.com

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