2006 First half operating results in line with expectations for full year EBITDA of $165 million

Avion Group’s operating performance for the six months ended 30 April 2006 was in line with management’s expectations. Operations continue to be characterised by steady growth in operating revenues. Group operations are subject to considerable seasonal fluctuation and as a rule, profit is generated in the second half of the financial year.

Presentation from a analyst meeting on 30 June 2006

Avion Group’s operating performance for the six months ended 30 April 2006 was in line with management’s expectations. Operations continue to be characterised by steady growth in operating revenues. Group operations are subject to considerable seasonal fluctuation and as a rule, profit is generated in the second half of the financial year.

• Operating revenues of $723 million
• EBITDA ($5 million)
• EBIT ($44 million)
• Pre-tax profit (loss $92 million)
• Net income (loss $72 million )
• Total assets increased by 18% to $1,793 million
• Working capital to operating activities $37 million
• Total equity as at 30 April $482 million - equity ratio 27%
• Current ratio 1.06
• Total block hours flown 70 thousand, decrease of 2%
• Number of passengers increased by 14% to 993 thousand
• 1,071 thousand tonnes ocean freight transported, increase of 14%

Statement from the Executive Chairman, Magnus Thorsteinsson:
I am delighted to be able to report that Avion Group’s operating results for the six months ended 30 April 2006 are in line with expectations. In our first half year as an Icelandic listed company, we are able to report performance in line with budget. I should emphasise that as a rule, profit is generated in the second half of the financial year and that figures for the comparative period include Avion Group prior to the completion of the acquisition of Excel Airways Group and before significant acquisitions such as Eimskip, Travel City Direct and Star Airlines.

During the period the IPO of Avion Group raised $160 million and shortly afterwards a further $160 million was raised from a bond issue. The capital raisings increased Avion Group’s capability to make further acquisitions to support its investment program. The Group’s balance sheet was strengthened with total equity at the beginning of the period increasing from $461 million to $482 million at 30 April 2006.

During the second quarter, Avion Group acquired Star Airlines, the second largest charter airline in France. Star Airlines carried approximately 900,000 passengers in 2005. On completion of the acquisition, Avion Group is expected to carry approximately seven million passengers on an annual basis.

At the end of March, Avion Group announced the purchase of seven Boeing 747-400 aircraft (six passenger and one cargo aircraft) and four passenger to cargo conversion slots with Boeing. Following these conversions, the five cargo aircraft are to be operated by Air Atlanta Icelandic, (AAI), Avion Group’s ACMI operator. They will replace the older Boeing 747-200 Freighters in AAI’s fleet. The remaining two passenger 747-400s are to become part of the Travel City fleet.

Since the end of the six months ended 30 April 2006, Avion Group has continued to make further acquisitions. Eimskip acquired a 55% stake in Innovate Holdings, which specialises in the storage and distribution of temperature controlled cargo and a 50% share in the Lithuanian shipping line Kursiu Linija. Excel Airways Group acquired Kosmar Holidays and the airline, Star Europe was established in Germany.

As a result of an ongoing investigation, instigated by Avion Group’s Board, into supply contracts for catering services to Excel Airways Group by Alpha Airports Group, a full provision amounting to $10 million (net of taxes) has been made as a precautionary measure in the financial statements of Excel Airways Group. This provision has no effect on cash reserves, budgets and financial statements for current or future periods of Excel Airways Group and has no effect on its current or future earnings.
On completion of the investigation, the Board of Avion Group will take all necessary steps as it deems appropriate to strengthen the management team of Excel Airways Group.

Avion is currently in serious negotiations with a third party which may lead to a sale of a majority shareholding in Avion Aircraft Trading. The evaluation of the company being used in the sale process is in excess of $100 million. The current book value of the business is $5 million. If the sale materializes it will have a material impact on the financial results of the Group for the current financial year ending 31 October 2006.

Our achievements in the first six months have been considerable and our ability to successfully integrate acquisitions and grow our business units are a result of the talent and enthusiasm of our employees. Our growth strategy will continue as further opportunities become available in our markets. Avion Group’s Board remains confident of our future prospects and the achievement of our EBITDA forecast for the year of $165 million.

Results from operations in the first half 2006
Avion Group’s operating performance in the six months ended 30 April 2006, was in line with management’s expectations. Total revenues amounted to $706 million and total expenses amounted to $767 million. EBITDA amounted to ($5 million) and the EBITDA margin was (0,7%).

Financial expenses amounted to $49 million for the six months ended 30 April 2006, and taxes amounted to $20 million. Net income amounted to ( $72 million).

Balance Sheet
Non-current liabilities amounted to $705 million at the end of the first half ended 30 April 2006 compared with $421 million at 31 October 2005. Current assets increased from $ 466 million at 31 October 2005 to $640 million at 30 April 2006. Current liabilities decreased from $638 million at 31 October 2005 to $606 million at 30 April 2006.

Equity increased from $461 million at year end 2005 to $482 million at the end of the first half. The equity ratio now stands at 27%. The current ratio for the first half stood at 1.06 compared to 0.71 at year end 2005.

The Group’s cash position remains strong with $164 million in short term funds at the end of the period. Avion Group’s working capital to operating activities stood at $ 37 million for the period and cash to operations was $101 million for the period.

Future prospects
Avion Group’s budget for the current financial year forecasts an improvement in the profitability in the operations of all three divisions (Aviation Services, Charter & Leisure and Shipping & Logistics).

Group revenue is forecast to increase from USD 1.400 million in financial year 2005 to USD 2.100 million in the financial year 2006. EBITDA is forecast to increase from $ 115 million in the financial year 2005 to $ 165 million in the year 2006.

Quarterly income statement
Avion Group changed it’s financial year end in 2005 so all comparisons for last year are for different reporting periods. Second quarter 2006 is therefore for the period 1 February to 30 April 2006 and second quarter 2005 is from 1 April 2005 to 30 June 2005.

Results approved and presentation of results
The Board of Directors of Avion Group approved the results for the first quarter at a board meeting on 29 June 2006. Avion Group’s financial statements can be viewed at the Group’s offices at Hlíðarsmára 3 and at the Group’s website www.aviongroup.com.
A presentation for shareholders and market participants will be held on Friday, 30 June at the headquarters of Avion Group, at

About Avion Group
Avion Group is a leading investment company, focused on air, land and sea transportation solutions worldwide. The company is organized into three business divisions -- Aviation Services, Charter & Leisure and Shipping & Logistics.

Aviation Services consists of ACMI (Aircraft, Crew, Maintenance, Insurance) provider Air Atlanta Icelandic, maintenance provider Avia Technical Services and airport handling provider Southair. Charter & Leisure is represented by leisure service travel provider Excel Airways Group in the UK, Star Airlines, the second biggest charter airline in France and the newly founded airline Star Europe in Germany. There are currently approximately 60 Boeing and Airbus aircraft in the fleet.

The Shipping and Logistics division is represented by Eimskip, the market leading transport company in the North Atlantic and the prime maritime transportation company in Iceland. Eimskip’s fleet consists of approximately 30 ships, 40 coldstores and 850 trucks.

Avion Group employs close to 6,500 people at 110 operational bases worldwide.

Contact Information

Dögg Hjaltalín

Director - Investor Relations

Avion Group

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