Financial Results of the Austrian Airlines Group for the First Half-Year 2009

Economic crisis affects revenue and earnings

* Net result for the period amounts to minus 166.6 million Euro, due to impairment losses on aircraft
* Performance of the second quarter better than first quarter, but still below expectations
* Cash flow from operating activities at 21.2 million Euro is positive, liquidity is assured
* Cost reduction measures and integration in the Lufthansa Group will lead to a positive earnings contribution of 300 million Euro annualy

The crisis in the international aviation industry intensified further in the second quarter of 2009. This development is also reflected in the financial figures of the Austrian Airlines Group for the first half of 2009, which posted a net result for the period of minus 166.6 million Euro, including non-cash impairment losses of 74.3 million Euro resulting from the valuation of aircraft. The adjusted resulting from operating activities (EBIT) amounted to minus 88.4 million Euro, with the second quarter EBIT of minus 18.1 million Euro perceptibly better than the first quarter, at minus 70.3 million Euro. Nevertheless, there was still no return to the profit zone.

“We are suffering from extremely weak demand, similar to the situation affecting the entire airline sector,” according to the members of the Austrian Executive Board Peter Malanik and Andreas Bierwirth. “The crisis has relentlessly revealed our weaknesses. Of course we cannot be satisfied with the half-year results. It is not very comforting to know that the entire aviation industry is standing with its back against the wall. We are fighting with all the means and energy at our disposal to overcome the crisis and massively improve profitability through structural measures. For the time being, tough countermeasures enabled us to significantly reduce our operating losses for the second quarter of the 2009 financial year,” the two board members add.

This tendency is also reflected in the development of the operating cash flow. Following a negative cash flow of minus 13.8 million Euro in the first quarter 2009, Austrian Airlines succeeded in generating a positive cash flow of
35.0 million Euro in the second quarter of 2009. On balance, the cash flow from operating activities for the first half-year was 21.2 million Euro. As at the balance sheet date of June 30, 2009, the liquidity of the Austrian Airlines Group totaled about 180 million Euro (consisting of 84.1 million Euro cash and cash equivalents and 95.5 million Euro disposable securities). The Austrian Airlines Group has sufficient liquidity also beyond the end of 2009, even if the economic situation does not improve.

Initial successes were achieved in the first half of 2009 by the comprehensive range of measures initiated by Austrian Airlines to overcome the crisis and increase profitability. The anti-crisis package developed in recent months has been successively implemented, and will unfold its full potential in the second half of the year. We expect to achieve the targeted cost savings of 15 percent for the year 2009 as a whole on the basis of prevailing aircraft fuel prices.

The short-term measures to reduce costs will be consequently substituted by sustainable measures. Thus we will reach a positive earnings contribution of more than 300 million Euro per year on a medium-term basis. In this regard, the sustainability package will continually reduce the costs by 200 million Euro per year. The reduction of the personnel expenditure by 150 million Euro for the period 2010 to 2015 leads to a further cost reduction of about 25 million Euro per year. In addition, Austrian Airlines will enormously benefit from the integration in the Lufthansa Group, in terms of both revenue and costs: The management anticipates an earnings effect of 80 million Euro annually already starting in the year 2010. The board members Bierwirth and Malanik add: “The cooperation within the Lufthansa Group will massively benefit us. We expect a significant impetus to growth by being able to access Lufthansa’s international route and sales networks. This will help a great deal, in the light of our strong focus on the transfer business. And naturally we will be able to exploit considerable synergies in terms of costs.”

Overview of business results for the first half-year 2009
The ongoing contraction in demand impacted the second quarter of 2009. The adjusted result from operating activities (adjusted EBIT) declined to
minus 18.1 million Euro in the second quarter of 2009, down from
22.7 million Euro in the comparable period of the previous year, which developed in a particularly positive manner due to EURO 2008, the European Soccer Championship. In addition, non-cash impairment losses for aircraft amounting to 74.3 million Euro had a major influence on earnings. The result from operating activities (EBIT) in the second quarter of 2009 totaled
minus 84.6 million Euro, down from 22.9 million Euro in the previous year.

In conjunction with results for the first quarter, a traditionally weak period of the year, the adjusted EBIT for the first half-year 2009 as a whole totaled minus 88.4 million Euro. On balance, the result from operating activities (EBIT) for the first six months of 2009 amounted to minus 161.6 million Euro, compared to minus 29.9 million Euro in the previous year.

The financial result improved from minus 18.8 million Euro in 2008 to
minus 14.6 million Euro in the months January-June 2009, which is primarily the result of proceeds realized in connection with the disposal of securities.

Revenue and operating revenue
In the second quarter of 2009, flight revenue fell to 473.7 million Euro,
a decrease of 26.2 percent compared to the flight revenue of 642.1 million Euro generated in the second quarter of the previous year. Austrian Airlines suffered from a sharp drop in flight bookings, as did the entire aviation industry. On balance, total flight revenue fell from 1,142.5 million Euro to 889.0 million Euro, whereas charter revenue was down 21.6 percent, to
68.9 million Euro. At the same time, operating revenue decreased
by 21.0 percent in the first half of 2009, to 969.3 million Euro.

Operating expenses
Operating expenses in the second quarter of 2009 totaled 599.2 million Euro, down by 9.2 percent year-on-year, whereas the operating expenses for the first half of 2009 amounted to 1,130.9 million Euro, a decrease of 10.0 percent from the previous year.

In a year-on-year comparison, jet fuel expenditure on the whole fell
28.0 percent in the period January-June 2009, to 179.6 million Euro. Due to production cutbacks, 13.7 percent less kerosene was needed to maintain flight service. At the same time, we were confronted with negative hedging and USD/EUR exchange rate effects in the second quarter of the year.

Due to declining demand, all production-related expenditures decreased (in particular landing, handling and en route charges, passenger servicing fees and commissions). Accordingly, expenses for materials and services totaled
627.2 million Euro, down 17.6 percent from the previous year.

Personnel expenses could be reduced by 28.9 million Euro in the first half-year 2009, to 233.4 million Euro as a consequence of measures such as deferred compensation and reduced working time. The total number of employees in the Austrian Airlines Group was reduced from 8,035 in the first half of 2008
to 7,288 as of the end of June 2009.

The increased depreciation and amortization of tangible and intangible assets from 131.6 million Euro to 187.1 million Euro is primarily related to the non-cash impairment losses of 74.3 million Euro recognized for aircraft in the Austrian Airlines fleet. In contrast, the loss in value of the aircraft in 2008 reduced the calculation base for ordinary depreciation in subsequent years.

Fleet
In March 2009, one Dash 8-300 was sold and transferred to the Canadian airline Air Inuit. In March, an agreement was also reached with the aircraft manufacturer Bombardier to move up the delivery date for four Dash 8-400 aircraft from November 2010 to October 2009.

Not all aircraft in the Austrian Airlines fleet were in operation due to the production cutbacks. At the end of June 2009, three Airbus A320 and three Canadair Jet CRJ200 aircraft were temporarily grounded.

Moreover, we also began work in the first quarter on refitting Boeing 767-300ER jets with winglets, upturned ends on the tips of wings which improve the aerodynamics of passenger aircraft. As of the end of the June, 2009, four aircraft in the Austrian Airlines fleet had already been refitted. This measure will enable annual savings of approximately 5 percent of the fuel consumed. This is according to about 1,000 tons of kerosene for each aircraft.

Segments
After successively curtailing the number of flights in the first half-year 2009, flight revenue declined in all regions served by Austrian Airlines. On balance, flight revenue of the scheduled services segment was down 22.2 percent, to 820.1 million Euro, whereas the result from operating activities (EBIT) fell
to minus 150.4 million Euro (previous year: minus 24.6 million Euro). Unit revenue was down 8.4 percent from the previous year.

We also successively implemented production cutbacks in the charter segment, with production down 23.5 percent during the first half of 2009 as measured in available seat kilometers in comparison with the previous year. The frequency of flight service to Spain, Egypt, Greece and Turkey was reduced. Incoming flight traffic from Great Britain, Ireland and Russia also decreased. In contrast, growth was generated in respect to charter flights to Tunesia, Croatia and Kenya. A total of 389,352 passengers were carried by Lauda Air in the first half of 2009. Flight revenue of the charter segment amounted to 68.9 million Euro in the first six months of 2009, whereas the result from operating activities (EBIT) for the period under review was minus 12.8 million Euro.

The complementary services segment encompasses third-party passenger handling, technical services and aircraft leasing. The revenue was down by
1.8 million Euro in the first half of 2009, to 139.6 million Euro. The result from operating activities (EBIT) amounted to 1.6 million Euro (previous year:
2.4 million Euro).

Outlook
The privatization of the Austrian Airlines Group is proceeding according to plan. On friday last week the EU Commission announced that it has reached an agreement with Deutsche Lufthansa AG on the takeover of Austrian Airlines Group. At the same time we have received clear signals that a positive decision is forthcoming in the financial aid proceeding. It is therefore highly probable that the takeover will be formally confirmed in August 2009 and that the deal will be successfully concluded probably still in August, but latest in September. Thus an important milestone in the history of the Austrian Airlines Group will be reached. The merger will be implemented with all the energy at our disposal, in order to fully exploit potential synergies as quickly as possible.

From today‘s point of view, we expect the difficult business environment to change the airline industry in the long term and leading to a further consolidation in the airline sector. A sustainable improvement in efficiency will determine the future success or failure of every airline. The Austrian Airlines Group has sufficient liquidity beyond the end of 2009, even if the economic situation does not improve. The integration of Austrian Airlines in the Lufthansa Group will give it the additional strength required to achieve sustainable corporate success.