Adria Airways d.d. Annual Report 2005 A dria Airw a ys d.d. A ...

Adria Airways d.d. Annual Report 2005
Adria Airways d.d.
Annual Report 2005

Adria Airways d.d.
Annual Report 2005

Adria Airways saw a year of
changes in 2005. We live in
a world where change is the
only constant.

Letter from the President of the Management Board
Ladies and Gentlemen!
Adria Airways saw a year of changes in 2005. We live in a world where change is the only constant. Sometimes this is
positive and brings us satisfaction and prosperity, while at other times it puts us through difficult trials and demands
that we adapt. Membership of the EU is changing the air transport sector in Slovenia. The number of carriers operating
scheduled flights in Slovenia has not increased significantly, but the competition has been stepped up.
We carried 944,288 passengers, an increase of 7% over the previous year. Despite this enviable growth in the number of
passengers, we still ended the financial year with a loss. Business conditions are changing – passengers expect the lowest
airline ticket prices, while costs have risen owing primarily to the global increase in oil prices. For this reason a number
of traditionally successful airlines ended the year with a loss.
Passenger awareness is growing. They realise that it is not just the low-cost airlines that offer low-priced air tickets.
We are pleased to see that our sales of tickets over the internet are growing, which indicates that we are carrying an
increasing number of passengers who opt to fly with us mainly on the basis of price. The fact is that air ticket prices are
continuing to fall, leaving airlines with no other option than to rationalise operations and exploit economies of scale.
However, in view of the rising operating costs, we may expect the global drop in ticket prices to stop. Adria Airways, too,
has been increasing its turnover, adding another CRJ-200 aircraft to the fleet and bringing the total number of aircraft
to 10. At the same time we established a new service to Warsaw, which will be followed in the coming year by services
to Barcelona, Rome, Tirana and Birmingham.
Adria Airways d.d.
Annual Report 2005
The airline industry is in a process of transition that is affecting practically all the key players and carriers in the sector.
Liberalisation and opening of the market, together with increasing globalisation, are reflected in the continuously
strengthening competition. New commercial models have taken over corporate behaviour and operations, and they have
proven to be economically acceptable in the long term. A crucial part has been played in this by the low-cost airlines and
their policy of ultra-low prices (such as Ryanair and easyJet). Consequently the traditional carriers are faced with excess

capacity. The reason for this lies both in adapting too late to the new conditions and in the appearance of new competition
operating in line with the latest economic principles of company management. Low ticket prices have contributed
to a change in the pattern of passenger behaviour.
Given the existing situation and the anticipated development of events, we may expect in the medium term a further
consolidation in the airlines sector, and this will be reflected in a dwindling number of airlines, both globally and
regionally. The air travel market will be dominated by a few major global operators in a variety of strategic links with
regional carriers.
The dynamic environment in which Adria Airways operates incorporates the cyclical nature of demand, a high proportion
of fixed costs in the breakdown of total costs and a major dependence on external factors that are beyond anyone’s
influence (such as economic growth and the state of the economy, price trends for commodities, interest rates and exchange
rates). The basic factor in formulating the Adria Airways strategy must be associated with the method of managing
the aforementioned specific risks.
Key competitive advantages of Adria Airways that we can highlight include the extensive network of flights, connections
with carriers in the strategic Star Alliance group and the high quality of services that we offer our passengers and
business partners. One outstanding new feature that we started offering passengers in 2005 is the rewards under the
Miles&More programme. In this way loyal passengers can use collected air miles on the global Star Alliance network,
in other words all over the world.
At Adria we are striving to adapt to the changes. We introduced measures to reorganise and rationalise operations. We
re-established the financial basis that provides a firm footing for carrying out all the planned financial measures – loan
restructuring, a moratorium on credit repayments and a halving of cash outflows.
The coming years will be crucial for airlines the size of Adria Airways. We are certain that we will be more than a match
for the competition, and that we will long continue to bear the Slovenian colours across European skies.
Tadej Tufek, M.Sc.
President of the Management Board
Adria Airways d.d.
Annual Report 2005

We carried 944,288
passengers, an increase of
7% over the previous year.

Adria Airways d.d.
Annual Report 2005

1 st part
Business Report

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Annual Report 2005
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Table of contents
1 Summaries and highlights 12
1.1. Important events in 2005 12
1.2. Highlights of operations and key achievements in 2005 14
1.3. Report from the President of the Supervisory Board 17
1.4. Management bodies 18
1.5. Management of subsidiary companies 19
2 General information 20
2.1. About the company 20
2.2. Company timeline 22
3 Mission, vision and company strategy 26
4 Ownership structure 27
5 Fleet 28
6 Business report 30
6.1. Economic trends in 2005 30
6.2. Notes on the physical operating indicators 31
6.3. Sales and market position 32
6.4. Sales 34
6.5. Passenger transport 35
6.6. Cargo transport 36
6.7. Aircraft maintenance for third parties 37
6.8. Other activities 38
6.9. Partnerships 38
7 Financial operations 42
7.1. Revenue structure 2
7.2. Expenses structure 3
7.3. Asset structure 3
7.4. Liability structure
7.5. Plans and operating conditions in 2006
7.6. Events after the balance sheet date 6
8 Risk management 47
9 Cooperation with the Star Alliance group 52
10 Employees and human resources policy 54
11 Corporate communication 55
12 Environmental responsibility 56
12.1. Impact on the social environment 6
12.2. Impact on the natural environment 7
13 Security and safety 60
14 Quality assurance 63
15 Research and development 66
16 Who is who, contacts 67
17 Organisational structure of the company 68
18 Adria offices and points of sale 69
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1. Summaries and highlights
1.1. Important events in 2005
• At the end of January Adria Airways d.d. purchased one new 50-seat CRJ-200LR aircraft, and began operating it on
services at the beginning of February 2005. The company financed this purchase almost entirely through a long-term
foreign currency loan in US dollars.
• In June we completed construction of a new, up-to-date hangar that provides optimum conditions for maintaining our
own fleet and expanding our maintenance services for third parties on large aircraft, including the CRJ-900, Airbus
A319 and also the A321.
• June saw the replacement of the president and two other members of the supervisory board and November the enlargement
of the management board to three members, and right at the end of the year the president of the management
board resigned.
• In September we leased an aircraft for cargo and opened a new cargo service between Ljubljana and Sarajevo, adding
a cargo service to Frankfurt in November.
• September also saw the start of a new scheduled service between Ljubljana and Warsaw.
• Long-term contract signed with Air France for performing C checks on A320 type aircraft for that airline’s clients.
• Rise in fuel prices by an average of 36 per cent.
• Stronger competition, especially in scheduled services.
• Refinancing of the majority of long-term foreign currency loans (more than 80 per cent); replacing fixed high-interest
loans in dollars with euros and cheaper sources of finance. Adoption of a financial risk management strategy.
The dollar gained 15 per cent in 2005.
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In December 2004 Adria Airways d.d. became a full member of the Star Alliance group, in which the company intends
to take advantage of all the synergies of joining and in this way to withstand the increasingly tough competitive environment
created by the enlarged European area. The company set itself the following objectives, which in the overall
European arena it was not possible to fulfil entirely:
• We planned for an 11 per cent increase in flights, 12 per cent more passengers carried and 5 per cent growth in total
revenues; we achieved a 7 per cent increase in flights, 7 per cent increase in passenger numbers and maintained total
revenues at the 2004 level.
• Special attention was focused on controlling all types of cost; a lack of success was noted especially in negotiations
with the unions to reduce labour costs.
• We planned out a longer-term concept of advertising and an aggressive marketing campaign to include foreign markets.
• In line with fleet availability and in agreement with partner airlines, we planned a new scheduled service; in 2005 we
opened up a service to Warsaw with the Polish carrier LOT.
• A major objective of the plan was to boost internet sales, and in connection with this to increase the use of our website
and simplify the tariff structure; internet sales have increased, but we will need to reduce prices for this method of
sale.
• By offering quality services we wish to maintain and increase passenger loyalty, maintain our competitiveness on the
market and raise the profile of Adria as an affordable and at the same time punctual and high-quality airline.
• The company intended to manage the negative trends in fuel prices through a surcharge on ticket prices, using smaller
aircraft and economies in the method of flying; at the end of the financial year it was apparent that this approach
alone was not sufficient for managing rising fuel prices.
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1.2. Highlights of operations and key achievements in 2005
Item Unit 2005 2004 2003
Revenue SIT thousands 32,763,337 32,595,426 29,794,755
EBIT* SIT thousands (1,276,481) 971,899 1,058,955
Net profit/loss SIT thousands (2,293,283) 42,468 106,688
Assets SIT thousands 28,627,117 25,633,650 27,651,999
Shareholders’ equity SIT thousands 7,624,435 9,918,340 9,873,098
Equity financing in % 27 39 36
Number of passengers carried 944,288 884,861 864,368
Number of aircraft 10 9 8
*EBIT – earnings before interest and taxes
For the first time in several years Adria Airways ended the 2005 financial year with a loss. The fact is that only in 2005
did the traps of globalisation and Slovenia’s accession to the EU become apparent. The rise in oil prices generated additional
costs, and on top of this the dollar showed marked gains in contrast to the previous year.
In 2005 the company generated an increase of 1% in total revenues over the previous year. The biggest growth in revenues
can be attributed to charter traffic, where we intensively reorganised charter services to cover other destinations
in Europe. The other trends dictated primarily a drop in the average sales coupon. The number of passengers flying
on scheduled services fell by 1%, while charter services saw a 56% increase. Load factors on scheduled services grew by
8% in 2005 compared to 2004, while the number of passengers per flight dropped by 5%, indicating that despite the
reduction in the number of passengers per flight, we optimised the planning of aircraft per individual flight in respect
of the number of passengers on that flight.
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The greatest pressure on operating costs comes from fuel prices. Excluding these costs, total operating costs grew by 1%,
despite the increase in all physical indicators of operation. There was also a marked increase in the cost of labour, which
in turn is chiefly a result of the increased number of aircraft, new lines of business (aircraft maintenance for third parties)
and the introduction of a new wages and salaries system. A more aggressive approach in the sale of services requires
new recruitment in aircraft operation, aircraft maintenance and in sales and marketing. In all other lines of business
the number of employees and the proportion of labour costs have fallen, or certain inter-departmental changes were
effected to improve job efficiency.
The company’s assets can be broken down into fixed assets, making up 82%, and current assets making up 18%. In 2005
tangible fixed assets grew by 17% over 2004, a consequence of the new aircraft purchase and completion of the new
hangar. Current assets were reduced by 9%. The major contribution here was from the reduction in short-term financial
investments, especially deposits. In terms of liquidity the increase in fixed assets signifies a concomitant reduction in
risk for the regular settlement of due liabilities. We define liquidity as the concept of the ready convertibility of assets
into cash, meaning in fact the remoteness of assets from their cash form.

The share of capital in all sources of financing amounts to 27%. Here the company’s capital fell in comparison to the
previous year owing to the operating loss.
Analysis of the financial indicators shows that owing to the operating loss the company’s performance presents a poorer
picture compared to the same period in the previous year. There were improvements only in the fixed asset and longterm
investment ratios, since we purchased a new aircraft and completed a new hangar in 2005. The self-financing
ratio fell by 12 percentage points relative to 2004. The reason for this was the taking of a long-term loan and short-term
revolving loans.
Growth in turnover at Adria Airways d.d.
Increasing numbers of passengers seek our services.
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Load factors are improving.
We are working to ensure renewal and growth.
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1.3. Report by the President of the Supervisory Board
In 2005 the supervisory board monitored and supervised the company’s performance at 13 ordinary sessions, one extraordinary
session, and one correspondence session. Given the poor business results, the emphasis was on remedial measures and
measures to improve performance.
The president of the supervisory board, Peter Grašek, and the other two members, Alojz Jamnik and Igor Zajec, remained
in office until the board’s first constitutive session on 21 July 2005. Because the terms of the president and deputy-president
of the supervisory board had come to an end, and the other member resigned, three new members were appointed to the
supervisory board at this session: Franc Branko Grošl as the president, Dr Bogdan Znoj as his deputy, and Aleš Vehar.
Because of poor results, the supervisory board in its previous make-up had instructed the management board to carry out a
programme of measures to improve performance. It required the immediate implementation of the programme, and the consistent
realisation of remedial measures in all areas. After drawing up the programme of measures, it carefully monitored the
timing and accuracy of the implementation of the remedial measures by the management board. It warned the management
board, all the employees and their unions at Adria Airways of the tougher conditions of business, and the need to work with
the management board and the supervisory board in taking the necessary measures to address the situation. The supervisory
board also approved the annual report of Adria Airways d.d. for the 2004 financial year, together with the official auditor’s
report, and studied the consolidated financial statements and the proposal for the use of the distributable profit.
After confirming the new president, the new deputy and the other new member in office, in its new make-up the supervisory
board studied the physical and financial performance indicators, and the measures to improve performance. Alongside Dr
Branko Lučovnik, the president of the management board, it appointed Tadej Tufek as management board member responsible
for finance, and Iztok Malačič as management board member responsible for marketing. The supervisory board also
studied Adria Airways d.d.’s year-end profit forecast for 2005, and the advantages and disadvantages of membership of the
Star Alliance. It instructed the management board to continue negotiations with the unions on a wage cut, calling on the
two sides to reach an agreement at the earliest possible juncture. From the management board it requested a report on the
measures to improve performance, including figures for the projected and realised financial effects.
In addition, the supervisory board discussed a proposal for the early repayment of long-term foreign currency loans, giving the
go-ahead for early repayment, and debated a report on the measures carried out by the management board in its new make-up.
It received the resignation statement by Dr Brank Lučovnik, the president of the management board, and appointed Iztok
Malačič as interim president until 30 June 2006 at the latest.
It received a report on the situation at the company, and on the basis of Adria Airways d.d.’s financial standing and the proposed
measures instructed the management board to focus in particular on making preparations for a company reorganisation,
including a new job organisation system, while also carrying out the other measures.
It approved the proposed change in the make-up of the fleet, instructing the management board to present a proposal to the
supervisory board at the earliest possible juncture for the optimisation of the fleet to meet the flight schedule.
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Adria Airways d.d.
Annual Report 2005
Franc Branko Grošl
president of the supervisory board
17

1.4. Management bodies
Management Board
At its 5 th regular session on 19 September 2005 the supervisory board appointed a management board of several members:
- Dr. Branko Lučovnik, president of the management board
- Tadej Tufek, M.Sc., member of the management board responsible for finance
- Iztok Malačič, M.Sc., member of the management board responsible for marketing.
On 31 December 2005 Dr. Branko Lučovnik resigned from the position of president of the management board, and the
supervisory board appointed Iztok Malačič as president of the management board for an interim term.
Supervisory Board
The Adria Airways supervisory board comprises six members, and their main activities are:
• to oversee the commercial management of the company
• to verify the annual report
• to appoint and dismiss the president and other members of the management board
• to deliberate over the company’s investment, commercial and financial plans.
Members of the management board, shareholder representatives:
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Annual Report 2005
- Peter Grašek, president till 11. 7. 2005
- Alojz Jamnik, member till 11. 7. 2005
- Igor Zajec, member till 11. 7. 2005
- Branko Franc Grošl, president from 12. 7. 2005
- Aleš Vehar, member from 12. 7. 2005
- dr. Bogdan Znoj, member from 12. 7. 2005
- Mirjana Gaspari
Members of the management board, workers’ representative:
- Tomaž Pečnik
- Deana Potza
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1.5. Management of subsidiary companies
The Adria Airways Group, for which consolidated financial statements are compiled, comprises:
• Adria Airways d.d., Ljubljana – parent company
• Amadeus Slovenija d.o.o. Ljubljana – subsidiary (95% interest)
• AAM EAR Servis d.o.o. Skopje – subsidiary (51% interest).
Adria Airways d.d. does not compile a consolidated annual report, since the inclusion of the financial statements of the
two subsidiaries in the consolidated statements 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
Managing Director: Mladen Vesnaver
Number of employees: 15
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 reservations and selling air
tickets. These services are provided in Slovenia, Macedonia and Albania.
AAM EAR Servis d.o.o. Skopje
Managing Director: Zoran Malinovski
Number of employees: 20
The subsidiary company AAM EAR Servis d.o.o. is registered in Macedonia and covers the markets of Macedonia and
Kosovo. Its main lines of business are the sale of air tickets and supervising flights at Skopje Airport, selling air tickets
for the parent company and other airlines in Skopje and Priština, providing services via the reservation system and
training agents in Macedonia.
Adria Airways d.d. oversees and manages the subsidiaries through its membership of management structures in their
general meetings. The parent company also performs regular checks and monitoring – at least every three months – of
the performance of the subsidiary companies.
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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, Slovenia
• Legal status: public limited company
• Telephone: +386 1 36 91 000
• Fax: +386 1 43 69 233
• Website address: www.adria-airways.com
• Number of employees as at 31 December 2005: 543
• Year of establishment: 1961
• Registration number: 5156505
• VAT number: SI51049406
• Companies register number: 200208417
• Entry number: 061/10135200
A1
• Share capital: SIT 812,436,000
• Nominal value of share: SIT 2,000
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The Slovenian airline Adria Airways has a wealth of experience in charter and scheduled services stretching back 45
years. Adria’s story begins in 1961, when it was established as a charter company. In the 1980s it began operating scheduled
services and became a member of the International Air Transport Association (IATA).
Today the majority of Adria’s flights are operated on scheduled services, and the airline’s network links Ljubljana
to more than 20 European cities and offers excellent connections to south-eastern Europe. We operate around 200
scheduled flights per week from Ljubljana to Amsterdam, Brussels, Copenhagen, Dublin, Frankfurt, Istanbul, London,
Manchester, Moscow, Munich, Ohrid, Paris, Podgorica, Priština, Sarajevo, Skopje, Warsaw, Vienna and Zürich. Since
the autumn of 2001 Adria has also been flying between Vienna and Frankfurt.
We operate charter flights mainly in the summer season, most frequently to holiday destinations on the Mediterranean.
Adria’s cargo service makes shipments to airports throughout the world. Since autumn 2005 Adria has also operated
two cargo services, between Ljubljana and Sarajevo and Ljubljana and Frankfurt.
The company’s registered office is in Ljubljana, and it has representative offices in London, Paris, Moscow, Frankfurt,
Munich, Zagreb, Zurich, Brussels and Vienna, plus sales outlets in almost all European countries.
Adria’s fleet comprises 10 aircraft – three Airbus A320 and seven Canadair Regional Jet CRJ-200. We have a modern,
economical and environment-friendly fleet.
We maintain our aircraft in line with the European Union standards and on the basis of a JAR 145 certificate. We also
provide aircraft maintenance services for other airlines, and in 2002 the Canadian aircraft manufacturer Bombardier
Aerospace selected Adria to operate the first authorised maintenance centre for CRJ aircraft in Europe, an operation
that we expanded in 2005 to include Airbus aircraft.
A long-time partner of the biggest European airlines, particularly Lufthansa, Adria was accepted in December 2004 as a
regional member of the leading strategic airline association Star Alliance. In this way Adria achieved its strategic objective
and clearly mapped out its commercial policy of being a network carrier offering global services.
In August 2004 Adria was also one of the first airlines in the world to receive IOSA (IATA Operational Safety Audit)
Registration (www.iata.org/registry), which determines the level of company organisation, operating procedures, flight
safety and company security.
As the national carrier, Adria Airways reflects the characteristics of its country: hospitality, friendliness and high-quality
services. In the future, too, our goal is to remain a reliable and successful European regional carrier, focused on further
development and growth. With our professional and friendly staff and our modern fleet we are seeking to achieve a high
level of services and satisfaction, as well as the loyalty of our passengers.
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2.2. Company history
• 60’s – 1961 Establishment of the charter airline Adria Aviopromet, operating DC-6 aircraft, end of the sixties purchase
of DC-9 aircraft.
• 70’s Adria is one of the most reliable charter airlines in Europe.
• 80’s Domestic scheduled flights within Yugoslavia, start of international scheduled services. Adria becomes a member
of the IATA. Fleet: DC-9, MD-80 and Dash 7 aircraft.
• 1989 Purchase of first Airbus A320 aircraft.
• 1991 On 25 June, the Republic of Slovenia declares independence, for political reasons Adria is grounded for three
months.
• 1992 End of January operations restarted in a significantly reduced market. The structure of operations is markedly
changed, from primarily a charter airline to a mainly scheduled service carrier.
• 1995 Start of cooperation with Lufthansa, inclusion in European integration processes.
• 1996 Financial consolidation of company.
• 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 existing services. Intensive cooperation with European airlines, especially Lufthansa.
• 2000 Purchase of fourth CRJ 200.
• 2002 Adria selected as first European authorised Bombardier maintenance centre for CRJ aircraft.
Adria Airways d.d.
Annual Report 2005
• 2004 In December Adria joins the global association of airlines, Star Alliance, as a regional member.
A2• 2005 In January, purchase of fifth new Canadair Regional Jet 200.
22

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At Adria we are striving
to adapt to the changes.
We introduced measures to
reorganise and rationalise
operations.

3. Mission, vision and company strategy
Mission
We are a company that:
• brings together knowledge and skills in aviation
• offers customers top-quality services
• achieves top-quality services through the innovative work of satisfied employees
• provides an appropriate return to shareholders
• operates in harmony with the environment.
Vision
We wish to be a successful European 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
the recognisable profile of its own trademark.
Strategy
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. This model
functions on the principle of a network scheduled service airline distinguished by an individual approach, responsiveness
and adaptability. 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.
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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 traveller.
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.
Values
One of the biggest challenges in adapting to the new commercial circumstances is harmonising the values of our employees,
which for most of them were formed in essentially different commercial conditions. These values (especially those of
key figures in the company) must therefore be harmonised, and in line with the organisational hierarchy we must ensure
the motivation of all employees. The more people accept the objectives of the company or of individual organisational
units as their own, the greater will be their commitment to work and results.

4. Ownership structure
• The share capital of Adria Airways d.d. is divided in 406,218 ordinary shares with a nominal value of SIT 2,000.
• As at 31 December 2005 the company had 56 shareholders.
Ownership structure as at 31 December 2005 in %
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5. Fleet
Adria’s fleet is modern, economical and environment-friendly.
Airbus A320
Number: 3
Lenght: 37.57 m
Height: 11.75 m
Wingspan: 34.10 m
Cruising speed: 900 km/h
Cruising altitude: 11.700 m
Range: 3.890 km
Number of seats: 162
CANADAIR CRJ 200 LR
Number: 7
Lenght: 26.77 m
Height: 6.22 m
Wingspan: 21.21 m
Cruising speed: 860 km/h
Cruising altitude: 12.496 m
Range: 3.285 km
Number of seats: 48/50
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Annual Report 2005
Adria’s fleet status as at 31 December 2005:
Aircraft type Company owned Operating lease Total
Canadair Regional Jet 200 LR/ 48/50 seats 5 1 6
Canadair Regional Jet 100 LR/ 50 seats 1 1
Airbus A 320 / 162 seats 3 3
Total 8 2 10
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We maintain our fleet in the maintenance section AA Part-145 AMO in line with European Union standards (EASA
IR) and on the basis of a Part-145 certificate.

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6. Business report
6.1. Economic trends in 2005
Air transport facilitates important social, political and economic ties between countries, and this is reflected in the
increased demand for air transport services in recent decades. Medium-term forecasts of air passenger flows point to
significant differences in individual markets. These are a consequence of the maturity of individual markets or of their
geographical characteristics. If the predictions are true, in 2010 eight per cent of European travellers will go by plane.
Nevertheless, behind the favourable medium-term forecasts there are some troubled times ahead for airlines. Owing to
the increasing competition, some natural selection may be expected.
The growth in air transport is a reflection of economic growth in individual markets. Recently this has been most apparent
in Asia – especially in China. Airbus and Boeing predict approximately 5% global annual growth in passenger
transport, translating into a 2.5-fold increase in the number of passengers in the next 20 years. Creating better transport
conditions for significantly expanded passenger and cargo traffic is one of the major challenges facing the air transport
sector.
Analysis of market conditions
Liberalisation of air transport is increasing competition and consequently reducing the profitability of other providers,
especially national carriers. While this signifies an advantage for the passenger, who has several different alternatives
when it comes to air travel, owing to the continuous drop in ticket prices, the established airlines can no longer cover
their fixed costs if they do not change their way of doing business. Revenues are increasingly uncertain, but at the same
time airlines can only reduce their operating costs with great difficulty: these relate both to the costs of financing aircraft
purchases and to employee wages and costs in the whole value chain of air transport.
The reasons for which traditional airlines must adapt their operations are as follows:
Reduced profitability of the sector – Owing to increasing competition and the general fall in air transport prices,
returns in this sector are declining. Figures show that these returns are lower than the returns of other elements in the
value chain of air transport.
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High costs – At a time when the price level of air travel is falling, special attention must be paid to reducing costs. High
costs are a consequence of excessive staffing levels in airlines, high wages and high costs of fuel and spare parts. As
information technology is developed further, it is important for carriers to computerise processes and at the same time
improve services and reduce labour costs.
Pressure from capital markets – Owing to the protectionism of national governments in earlier circumstances, airlines
were not concerned about return on shareholders’ equity. If they recorded a poor business performance, national carriers
received subsidies. In the new circumstances this is no longer the case, and shareholders must be provided with an
appropriate return on their equity, which at the same time as lowering air travel prices is no simple matter. Owing to the
reduction in yields, air transport has become a sector drawing continually fewer investors.
Greater competition – Alongside the process of liberalisation, traveller dissatisfaction has also contributed to the

greater success of low-cost airlines. The new providers are not just those that operate flights between outlying airports.
There are also some that compete with established carriers at the same destinations, gearing their market approach to
include business travellers. Without an appropriate and rapid response from the major carriers, we will see a further
decline in their market shares on short-haul services.
Trends in air transport
Commercial cooperation and forming strategic alliances is one of the strategic possibilities for facing the competitive
environment. To this end several large strategic alliances have been formed, while at the same time low-cost airlines are
entering the sector, operating independently and causing problems for the established airlines through their ultra-low
prices. Regional carriers are active in the continental air transport market, and their operations are more flexible than
the big airlines, while the quality of their services is comparable. Through such specialisation, especially in markets
with relatively small passenger potential, they achieve a competitive advantage over the low-cost airlines and the major
network carriers.
The factors of commercial success dictate that carriers focus primarily on passenger expectations. What is important
is the value that the passenger ascribes to the service. The business traveller places greater value on the high frequency
of flights, a convenient timetable, punctuality, rapid flight preparation procedures and fast baggage claim. Major motivations
for tourists are sufficiently low prices and direct flights. Long-haul passengers ascribe importance to legroom,
entertainment and the quality of service during the flight.
6.2. Notes on the physical operating indicators
• The company fleet comprised 10 aircraft in 2005, specifically three Airbus A320-200 and seven Bombardier CRJ
aircraft, after we leased two aircraft (CRJ-100 and CRJ-200). By acquiring these two additional CRJ aircraft for the
fleet we further enhanced the possibility of optimum deployment of aircraft relative to passenger numbers, and at
the same time we gained the opportunity to develop new routes and to increase the number of flights on individual
scheduled services.
• In 2005 the company carried 944,288 passengers on 20,122 flights. Compared to 2004 the number of passengers
carried increased by 7%. Despite the general world crisis in aviation, the increased competition and the small market,
since 2001 Adria has been increasing the number of passengers carried. The number of passengers carried on scheduled
services fell by 1%, while the number of passengers flying on charter services grew by 56%.
• Load factors on scheduled services grew by 8% in 2005 compared to 2004, indicating that the company optimised the
planning of aircraft per individual flight in respect of the number of passengers on that flight.
• The average daily use of aircraft amounted to 9.17 hours per air day, representing a 7% decline from the previous year.
• Labour productivity, measured by the number of passengers per employee, increased by 8% compared to 2004, since
with the same number of employees (in terms of hours worked) we carried 7% more passengers.
• Average fuel consumption per hour of flying fell by 5% compared to 2004. The fall in the average fuel consumption
per hour of flying is primarily the result of increasing the proportion of hours flown with the CRJ-200/100 aircraft.
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• We are one of the more punctual European airlines; in 2005 we recorded an average of 10.7 minutes of delay on all
flights; comparing the number of Adria Airways scheduled flights delayed more than 15 minutes with the average
for the 30 European carriers grouped into the AEA (Association of European Airlines) shows that our average is low,
since 21% of AEA flights were delayed more than 15 minutes in 2005, while just 18% of Adria’s flights were more
than 15 minutes late.
Comparison with the AEA – scheduled flights
Shifts in key performance categories in 2005 compared to 2004
Difference from 2004 in thousands of SIT
Comparison with 2004 (index)
Net sales revenues + 546,584 102
Gross return on sales - 1,713,091 71
Net profit or loss from ordinary activities - 2,340,305
Net profit or loss - 2,335,752
6.3. Sales and market position
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Adria Airways is building its commercial model as a regional carrier in a network of flights through Ljubljana Airport,
which alongside the relatively small potential of the Slovenian market and the insufficiently exploited potential of
foreign markets affords Slovenia the added potential of passengers travelling from western Europe to destinations in
south-eastern Europe and vice versa. At the same time, as a regional member of the Star Alliance group of airlines, Adria
Airways links Slovenia with destinations across Europe and the entire world.
In 2005 Adria Airways maintained its position on the domestic and most foreign markets despite the increased competition
and the constant pressure to reduce ticket prices. One of the goals we set ourselves was to increase ticket sales over
the internet, and to this end to formulate special offers aimed exclusively at internet sales. We achieved results that far
exceeded expectations.
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Through a new, simplified tariff structure we offered passengers a greater selection of cheaper tickets, especially through
advance purchase, the possibility of combining various ticket prices and less restrictive conditions of sale. Despite the
effect this had in terms of reducing average ticket prices, in the last quarter of 2005 we recorded a marked increase in

the number of passengers compared to the same period in the previous year.
Market communication in Slovenia and abroad
Market communication activities in 2005 were directed towards creating positive identification and enhancing our reputation
based on competitive advantages such as a wide network of flights and the high quality of services and passenger
care. We communicated to passengers that with Adria the world is smaller and more accessible, and can be reached
faster and at a lower cost. We presented the wide and extensive network of flights operated by the airline of Slovenia,
and emphasised our partnership with other airlines.
In Slovenia as well as abroad the major emphasis is on extensive communication with the entire network of agents.
Much of 2005 was characterised by partnership projects with various travel agencies in Slovenia and abroad, and as in
many previous years we cooperated successfully in various fields with the Slovenian Tourist Board.
Market communication strategy
The main objectives of the market communication strategy in 2005 were to raise awareness about the good price
deals offered by Adria, promotion of the website as the primary medium of communication, raising awareness of our
improved product owing to membership of the Star Alliance, and increasing the volume of market communication on
foreign markets in cooperation with the Slovenian Tourist Board.
With the aim of acquiring the most price-flexible and thus far relatively unexploited segment of passengers, in 2005 we
pursued the strategy of promoting Adria special offers and sales over the internet.
After the encouraging results of introducing internet ticket sales in 2004, at the end of 2005 we began an overhaul of
the website, which will be adapted to the desires and needs of visitors and will provide easy access to the information
they seek. To promote our web offers we used both internal and external media, including an increased proportion of
internet advertising. An important medium that we started issuing once month in 2005 is the Adria E-novice [E-news],
where we give passengers the latest information and travel offers.
Despite its special price deals, Adria remains an airline distinguished by its extensive network of flights, high-quality
services and its emphasis on passenger care – qualities that have enabled us to join the biggest association of airlines,
Star Alliance. Communication on the advantages of Star Alliance membership was provided for the most part through
PR tools and our own communication channels.
The network of representative offices and authorised agents in foreign markets allowed us to communicate in those markets,
especially through travel agencies and tour operators. Market communication in foreign markets was based on the
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promotion of Slovenia as a tourist destination and Adria as the airline offering connections to Slovenia with high-quality
services and affordable tickets. This was done for the most part in cooperation with the Slovenian Tourist Board. We advertised
together and organised workshops for foreign journalists and agents in Slovenia; we also participated in tourism
fairs and workshops abroad. We conducted joint marketing activities in the markets of Russia, Scandinavia, France and
Switzerland. Communication with the segment of guest worker passengers was conducted via specialised media.
Marketing of Adria Airways media
In 2005 Adria Airways increased the volume of revenues from marketing its own media by 2%. The In-Flight Magazine
remains the most attractive medium for Slovenian advertisers, and this is joined by the Privilege News, the timetable
and various on-board media. The number of long-term advertisers grew in 2005, and the spread of media in which advertising
space was purchased also increased, while at the same time there is a growing number of top brand and co-brand
advertisers, which serves to enhance the standing of Adria’s trademark.
6.4. Sales
Adria Airways conducts the following main lines of business:
• passenger transport – scheduled services
• passenger transport – charter services
• cargo transport
• servicing and maintaining aircraft for third parties
• other activities.
Structure of net sales revenue in 2005
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• Net sale revenues grew by 2%, owing chiefly to the increased charter revenue; the biggest absolute decline was recorded
in revenues from scheduled services, while at the same time there was a marked reduction in revenues from
cargo transport and in revenues from maintaining aircraft for foreign clients.

6.5. Passenger transport
Scheduled services
Scheduled passenger transport is our main line of business, and in 2005 this generated 74% of net sales revenues. The
trend of falling air ticket prices around the world has also been reflected in the average value of tickets sold for Adria
Airways scheduled services, which fell in 2005 by 5%.
Definition of markets
In terms of geographical location, the markets in which Adria Airways operates can be divided roughly into:
• the Slovenian market and bordering regions – transport of passengers from Slovenia to destinations in western and
south-eastern Europe
• the markets of western Europe – transport of passengers from western European destinations to Slovenia and via
Slovenia to destinations in south-eastern Europe, and transport of passengers between 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
• ‘’off-line’’ markets in which we have our own representatives but in which we do not fly to destinations.
Market position and new features
In 2005 despite the growing competition we maintained our market position in all our defined markets.
We expanded our network of flights to include Poland, flying twice weekly to Warsaw. In cooperation with LOT Polish
Airlines we offer a total of four flights a week.
We strengthened and expanded our activities in the US and Czech markets. Off-line markets represent just a small proportion
of our volume of business, but we take the view that through our own activities we can contribute to an increase
in revenues from these markets.
Charter services
Charter services are aimed at optimising returns and not primarily at increasing the volume. Adria is characterised by
being far and away the leading charter airline in the national market, with key destinations that are determined by the
technical characteristics of the fleet, and at the same time these destinations are included in the majority of products
offered by the main customers, Slovenian tour operators. Here we stand out particularly for our adaptability, up-to-theminute
services, high quality and punctuality of flights.
Characteristic of 2005 was relatively high growth in the market for tourism services and products, with an increase
especially in the volume of outbound journeys by Slovenian passengers, which had an important effect in increasing the
number of charter flights, with a rise of 30% over 2004 giving charter flights a 10% share of all Adria flights.
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Our assessment is that through appropriate quality and the associated recognisable trademark, we have consolidated
Adria’s position as the leading charter carrier both for domestic and foreign tour operators offering their products on
the national market, and in addition to this we have also started getting involved in the products offered by foreign tour
operators on the single European market.
Domestic and foreign tour operators represent key buyers in the charter service segment, since currently 80% of flights
are tied to tourism products, with the remainder representing ad hoc flights for various target groups (companies, orchestras,
sports clubs and state institutions).
The key destinations are traditional destinations, and one the one hand they are dictated by the technical characteristics
of the fleet, and on the other hand they are tied to the main tourist flows from European countries to the region of
the Mediterranean and North Africa, with just a small portion of flights going to European destinations outside these
regions.
The Adria Airways network of scheduled and charter flights
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6.6. Cargo transport
The transport of cargo by road has the advantage of the cargo being picked up at the supplier’s location and then delivered
to the buyer’s location. Air transport, on the other hand, picks up cargo at the nearest airport and also delivers it

to the nearest airport. This gives the advantage of time and price to road haulage.
The general trends for cargo transport in the European Union are encouraging, with a 6% annual growth in air cargo
being recorded for several years, and this is still bigger than the growth in passenger transport. This figure relates to
cargo carried within the European Union, and does not include imports or exports involving the American or Asian
regions or the Middle East.
We are building up our logistics network in the following areas:
• the Balkans
• North America, including Canada
• Asia and the Middle East
• international and Slovenian mail
• express mail.
The range of services and the level of use of free capacities for cargo depend on the distance, type of aircraft, the number
of passengers and their baggage. On scheduled services we mainly operate the smaller CRJ-200 aircraft, which can provide
space for small, urgent packages and air mail. For larger packages we use the bigger A320 aircraft, and occasionally
where needed we also add scheduled ground (lorry) transport between airports; as indicated by the trends in Europe
and Slovenia, the proportion of road transport will grow further in the future.
Within Slovenia we have developed our own sales division and we cooperate with shippers that have geared their business
to sending consignments by air. Slovenian companies, and of course the Slovenian Post Office, are our valued and
important business partners.
Abroad we have contracted out sales to sales agents that represent us in the countries from which we fly to Slovenia, and
then on to destinations in the Balkans. Our major sales agents for cargo business are in Germany, France, the United
Kingdom, Belgium, the Netherlands and Turkey. In recent years we have expanded ‘’our’’ sales into the USA and to
Middle East markets.
Contracts with globally recognised airlines also allow us to reach more distant markets, wherever there is a demand for
air cargo from and to Slovenia.
6.7. Aircraft maintenance for third parties
Adria Airways is distinguished by superlative technical know-how based on more than 40 years of experience in maintaining
aircraft produced by McDonnell Douglas, Airbus and Bombardier.
In July 2002 Adria Airways became the first and only service centre in Europe authorised to perform modifications and
servicing on CRJ 200, 700 and 900 series aircraft made by Canadian manufacturer Bombardier. We offer these services
to all airlines with Canadair Regional Jet aircraft in their fleets. The year 2002 was therefore a year of studying and
familiarisation with the producer and primary client Bombardier and potential customers.
We then marked 2003 as a year of maturing, when clients with CRJ aircraft recognised our high-quality services at
reasonable prices and started returning. Based on our experience and our quality work for foreign clients, in July 2003
Adria signed with manufacturer Bombardier a long-term contract (four years) for maintenance and servicing of CRJ
aircraft. We marked 2004 as a year of expansion, since it was exceptional in terms of volume of services provided. We
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further expanded this line of business in 2005, and entered the market for servicing A320 aircraft. Appearing independently
on this market and using strong marketing tools we performed inspections with which we have the prospect of
increasing our market share and business from maintenance for third parties.
In 2005 we completed the construction a hangar with space for three CRJ and one Airbus aircraft.
A high level of motivation, professionally qualified staff, high quality, competitive prices, a determination to achieve
targets, experience to date and the satisfaction of contractual partners regarding fulfilment of contractual obligations all
serve to confirm that in 2006 Adria will continue its strategy of expanding and marketing new products.
The number of serviced aircraft for which Adria performs authorised maintenance work:
It is important to note that we perform an increasing amount of servicing for third parties.
6.8. Other activities
In addition to scheduled routes we also offer passengers personal services such as:
• panoramic flights over Slovenian towns and regions
• transport of passengers by Piper Turbo Arrow PA-28R-201T aircraft with three passenger seats to all major locations
with recreational airfields in Slovenia and to nearby airports in neighbouring countries.
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Piper Turbo Arrow PA-28R-201T
Število: 2
Dolžina: 7,6 m
Višina: 2,4 m
Razpon kril: 10,7 m
Maks. vzletna masa: 1315 kg.
Moč motorja: 200 ks
Hitrost: 220 km/h

6.9. Partnerships
Since December 2004 Adria Airways has been a regional member of the global airline group Star Alliance. Adria has
code share agreements with Lufthansa, Austrian Airlines, Aeroflot, Montenegro Airlines, Swiss International Airlines
and LOT Polish Airlines, and we offer passengers access to the worldwide networks of these airlines.
We have commercial ties with more than 100 foreign airlines, allowing passengers to travel throughout the world on an
Adria ticket.
Membership of international aviation organisations
IATA – International Air Transport Association, since 1984
AEA – Association of European Airlines
ERA – European Regions Airline Association
MITA – Multilateral Interline Traffic Agreements (pax), since 1984
MITA – Multilateral Interline Traffic Agreements (cargo)
As the Slovenian national airline we participate in forums of international organisations of which Slovenia is a member:
ICAO – International Civil Aviation Organization
ECAC – European Civil Aviation Conference
ECAA – European Common Aviation Area
JAA – Joint Aviation Authorities.
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The basic factor in
formulating the Adria
Airways strategy must
be associated with the
method of managing the
aforementioned specific
risks.

7. Financial operations
7.1. Revenue structure
• Net sales revenues increased in 2005 by 2% over the previous year, and were 6% less than the planned amount. The
shortfall from the planned amount was recorded primarily in revenues from scheduled services.
• The biggest proportion of net revenues comes from scheduled passenger transport.
• Revenues from scheduled passenger services fell in this period by 3%; the reasons are a smaller number of passengers
(just 1% down) and a drop in the value of travel coupons (5%). Trends in scheduled services in 2005 dictated the
price reduction owing to the increasingly stiff competition, which we attempted to halt through special pricing campaigns
and in this way to attract the highest possible number of potential passengers. We also increased our flight
frequencies to existing destinations and optimised the use of capacities in line with the availability of crews and fleet
maintenance.
• Revenues from charter services increased, despite the strong competition in this sector; there were a higher number of
‘’ad-hoc’’ flights, which offer the biggest commercial return, and we also continued charter flights within the EU.
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• Revenues from cargo transport fell by 12% compared to 2004. Throughout 2005 cargo transport faced major competition
from road haulage, insufficient capacities on the CRJ aircraft and changes in aircraft type. Nevertheless we
attempted to boost cargo business through numerous special offers to transport shipments from the customer door
to airports in the EU, and by organising the logistics in the transport of spare parts. For the destinations of Priština,
Sarajevo and Skopje we established priority cargo baggage and we also established some new cargo routes.
• Revenues from maintaining aircraft for third parties were much smaller in the first half of the year than in 2004,
but in the second half of the year (July on) the pace of work picked up, and conditions were improved particularly
with the opening of the new hangar. We believe that despite the lower revenues, 2005 was not an unsuccessful year,
since almost all the business generated resulted from our own marketing efforts. We retained all our current buyers,
brought in new ones and received enquiries from certain existing buyers regarding long-term contracts, which we can
ascribe to the fact that in terms of quality and deadlines, the services provided satisfied the customer; the orientation
towards selling technical services for third parties has proven to be the right decision and a major enhancement to
our primary business, while at the same time it raises our level of technical know-how.

7.2. Expenses structure
• Production costs, distribution costs and general and administrative costs increased by 7% over 2004.
• Costs of materials increased by 27% over 2004, owing chiefly to the high prices of aviation fuel.
• Fuel costs show an index of 146; the increase is attributable to the increase in flying and thereby increased consumption,
and above all to the record prices of oil on world markets. These have caused major problems, especially for
airlines, which have not yet developed a strategy of securing fuel prices and have not obtained any protection on the
futures market.
• Airport costs fell by 2% in 2005 and are under constant control. These costs are managed by seeking competitive offers
at individual airports and through greater use of CRJ aircraft for flights.
• Navigation costs show an index of 96 relative to 2004, although the number of flights increased.
• Aircraft maintenance costs fell by 2% relative to the previous year, although this includes the costs of maintaining our
own fleet and also the costs related to servicing aircraft for other clients; these costs were lower primarily because of
the reduced volume of work for other clients.
• Aircraft leasing costs were 43% higher than in 2004, which was a consequence of leasing the additional CRJ-200 for
the whole of 2005.
• Aircraft insurance costs were 4% higher owing primarily to the new aircraft.
• Costs of amortisation and depreciation were 9% higher than in 2004, owing chiefly to depreciation on buildings and
aircraft. Amortisation/depreciation costs are still high, since the aviation sector is very investment-intensive, and this
demands high depreciation costs.
• Distribution costs were 2% less than in 2004; these include the costs of our own domestic and foreign sales network,
all agency commissions, costs of the reservation system and the costs of employees in sales and marketing.
• General and administrative costs (index of 100 compared to 2004) include administration, the finance and accounting
division, human resources and legal affairs, general support, corporate communication, safety and security and
the quality assurance division.
• Our expenses on interest payments rose by 11%, which was a consequence of taking long-term loans for the new
aircraft and short-term revolving loans, while long-term loans were taken out at high interest rates, and in addition to
this, under the new Corporate Income Tax Act Adria paid 25% tax on interest for loans taken out with the financial
institution CRAFT.
7.3. Asset structure
• As at 31 December 2005, total assets were 12% higher than at the end of the previous year.
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• Fixed assets account for 82% of the company’s total assets, while 13% are receivables and inventories are just 3%.
• The company’s fixed assets are for the most part tangible fixed assets, of which the major proportion is aircraft
(85%).
• The book value of aircraft grew by 17% in 2005 owing to the new aircraft.
• The recoverable value of the aircraft exceeds their book value.
• Operating receivables grew by 11% compared to 2004, and this is a result of the greater volume of sales, especially
through foreign air tickets, where receivables take 45 days to clear (Clearing House). All receivables are real and collectible.
7.4. Liability structure
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• The breakdown of liabilities shows a lower proportion of capital compared to 2004, owing to the operating loss.
• Long-term financial and operating liabilities grew by 39% compared to 2004. Long-term liabilities are almost entirely
financial liabilities at domestic banks, while a small proportion is made up by liabilities to other financial institutions
(less than 1%).
44
• Short-term financial and operating liabilities grew by 24% compared to 2004.

7.5. Plans and operating conditions in 2006
One of the main factors that will mark the future of the air transport sector is the increased competition and the concomitant
lower returns, which given the relatively modest success of airlines in reducing costs means a deterioration in
operating conditions. The biggest difficulty is the intractability of fixed costs (air transport is a capital-intensive sector),
for which reason carriers have trouble adapting to the competitive environment.
In view of this fact the most important thing is that Adria Airways optimises its operations in terms of revenues and
expenses.
• With the aim of improving the revenues to expenses ratio and reducing losses, we are planning to adapt the fleet as
soon as possible to the market conditions.
• We are planning for an 11% increase in flights, 9% more passengers carried and 12% growth in total revenues.
• Relative to turnover in 2005 we intend to increase the number of weekly flights, by 13% in the summer timetable and
5% in the winter timetable compared to turnover in winter 2005/2006, or 13% more than winter 2004/2005.
• For 2006 we are planning four new scheduled services, involving a twice weekly seasonal service to Barcelona, a weekly
seasonal service to Birmingham and a service to Rome four times a week. We are also planning to re-establish the
scheduled service to Tirana.
• In 2006 we plan to sell charter flights on the domestic market, where the aim is to maintain and consolidate our position
as the leading charter carrier and at the same time to make further inroads into foreign markets.
• The marketing plan of the cargo transport division will seek to generate considerable growth in the sales of its services
and to contribute to increased profits for the company in the coming year. The planned growth in sales relative to previous
years should be between 20% and 37%.
• In the area of maintaining foreign aircraft we will continue our strategy of expanding the volume of work on aircraft in
the A320 family and at the same time we plan to maintain our leading position in the CRJ market.
• We aim to lessen our exposure to certain kinds of risk, especially the risk of changes in fuel prices and exchange rate
and interest rate risk. Implementation of the strategy should have a major impact on operations in 2006.
• We wish to carry out a reorganisation of jobs and to gradually introduce a wage and salary system geared towards results-based
incentives.
• The company is tackling the organisation of effective controlling, primarily by establishing profit and cost centres. We
will be greatly assisted in this by the planned replacement of the IT system in the finance and accounting division and
by the construction of an effective management IT system; all of this will provide the basis for timely, accurate and
high-quality information and rapid adjustment to changes.
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• We will devote particular attention to controlling all kinds of costs; we will continue to review contracts with individual
airports and even in 2006 to achieve planned savings of SIT 335 million; the impact of lower prices will have a favourable
effect on the company’s long-term plan.
45

• At the beginning of 2006 we started making changes to passenger care, which will have no significant effect on the
quality of services and will not reduce our competitive advantage, but will have a major impact in terms of reducing
costs, and we plan to make savings in this area of more than SIT 230 million in 2006.
• We estimate the anticipated costs of agency commission to be 4% lower in 2006 compared to 2005.
• In 2006 we plan to make savings of SIT 287 million from refinancing long-term loans.
• We are progressing intensively with the electronic ticket project.
• We are planning to build a new commercial building and to centralise the company in one location.
• We are planning a gradual reduction in labour costs by reviewing employment contracts; talks are also being conducted
with individual unions to reduce basic wages and other privileges.
• We intend to build a longer-term concept of advertising and to market ourselves aggressively in foreign markets.
• By offering quality services we wish to maintain and increase passenger loyalty, maintain our competitiveness in the
market and raise the perception of Adria as an affordable and at the same time punctual and high-quality airline.
• By increasing revenues, optimising the fleet and managing costs and risk we plan to record a small net profit at the
end of 2006.
7.6. Events after the balance-sheet date
• 31. On 31 December 2005 Dr. Branko Lučovnik resigned from the position of president of the management board; in
his place the supervisory board appointed Iztok Malačič, until then the member of the management board responsible
for marketing, for a temporary term.
• 3. On 3 March 2006 the supervisory board accepted the resignation of Iztok Malačič as president and member of
the management board and appointed Tadej Tufek, until then the member of the management board responsible for
finance, for a temporary term.
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• In March 2006 the company signed a seven-year contract with the manufacturer of the engines for the A320, IAE, to
maintain engines and for payment of costs by engine flight hours; the advantages of this contract include: an easing
of cashflows especially in 2006, even distribution of costs over seven years and lower maintenance costs.
Fleet optimisation
• In March 2006 a contract was signed for the lease of one A320 aircraft in ‘wet lease’ for the period of one year starting
on 31 March 2006.
• Leasing out one A320. By leasing two hundred-seat Boeing 737-500 for our own operation, one for 6 months and
another for a year, we anticipate better occupancy of the aircraft and lower operating costs.

8. Risk management
Owing to its international orientation, Adria Airways is exposed to certain kinds of financial risk, which we strive to
identify and control as part of the risk management process, which is aimed at:
• achieving stability and predictability of operations and reducing exposure to individual risks
• increasing the value of the company and raising the company’s creditworthiness
• increasing financial revenues and reducing financial expenses, and
• eliminating or reducing the effects of extreme and damaging events.
In order to achieve effective and systematic risk management, at the end of 2005 the company adopted a strategy of
financial risk management.
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. Currency risks are dominated
by those associated with acquiring aviation fuel, aircraft and spare parts, leasing aircraft and capital maintenance
of aircraft, since all these outgoings are still tied to the dollar. In 2005 the company was also paying off the majority of
its long-term loans in dollars. This means that the company is recording far fewer inflows than outflows in dollars, it is
in a net short position and thereby most exposed to fluctuations in the dollar rate.
We are attempting to reduce our exposure in the long term through natural means of protection (restructuring all longterm
loans into euros), in other words by balancing inflows and outflows, while at the end of 2005 on the basis of the
adopted strategy we also protected our short position by purchasing currency options, which at the time of the transaction
required no outflow of funds.
The gains made by the dollar in 2005 had a negative impact on our operations through the exchange rate losses on payments
and the revaluation of assets and liabilities.
In 2006 we also anticipate a net short position in dollars, which we have hedged through currency options. These options
provide an effective hedge against larger adverse movements of the euro/dollar exchange rate.
Credit risk
A8
• 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
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we cooperate; the majority of our partner travel agents also have IATA authorisation to sell tickets; IATA members
are subject to control, and are punished for non-adherence to the terms of payment
- having additional insurance on higher-risk receivables through bank guarantees and bills
- systematically and actively pursuing the collection of receivables.
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 dollar and Euribor.
• In November and December 2005 the company made early repayment or changed the currency of the loan for all longterm
loans denominated in dollar and tied to a high, fixed interest rate. This served to improve the net short position
in dollars regarding currency risk, and reduced financial outflows.
• As at 31 December 2005, all long-term loans were therefore denominated in euros (EUR). The purchase of financial
derivatives in 2005 afforded us a hedge for a portion of our new loans, and as at 31 December 2005 we had secured
38% of long-term loans against the risk of interest rate changes; we are continuing to hedge in 2006 on the basis of
the adopted strategy.
Liquidity risk
• Liquidity risk, or the risk of inability to settle current liabilities, is managed by coordinating the due dates for receivables
and liabilities through the monitoring of cashflows. The company makes daily, weekly and also monthly liquidity
plans. In order to stay on top of liquidity issues, in 2005 the company took out short-term revolving liquidity loans.
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.
A8
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48
• The extent of insurance cover indicates against what danger a thing is insured, and the intensiveness 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 enhanced ground proximity warning systems (EGPWS)
- by purchasing work platforms and stairs for safer work by contractors and preventing damage to aircraft
- 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 Ljubljana Airport and the security services
- through regular medical check-ups for employees.

• 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 aforementioned insurance.
Risk associated with fuel price changes
The cost of fuel is the second biggest cost of airlines, and movements in oil prices therefore 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, between $20 and $30 a barrel, since the middle of 2004 we have seen rapid growth in oil prices, which had reached
$70 a barrel by 2005.
The rise in prices had a negative impact on the company’s operations, despite the fact that we were able to mitigate the
high prices of kerosene through certain measures:
- 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
- adding a surcharge to our own sales prices for the increased cost of fuel.
At the end of 2005 the company adopted a strategy of protection from the risk of fluctuating fuel prices, which envisages
protection through the use of financial derivatives. We implemented this strategy in January 2006.
A8
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49

Key competitive advantages
of Adria Airways that we
can highlight include the
extensive network of flights,
connections with carriers in
the strategic Star Alliance
group and the high quality of
services.

9. Cooperation with Star Alliance
In December 2004 Adria Airways joined the strategic international airline group Star Alliance as a regional member
under the sponsorship of Lufthansa. In order to get the best possible use out of membership in this alliance, in 2005
we worked on the following projects:
- setting up or enhancing IT platforms and mechanisms to connect up different reservation systems, frequent flyer programmes
and flight networks, producing a commercial assessment of IT service offers for introducing e-tickets;
- transfer of the existing programme for monitoring and rewarding loyal Adria Airways customers (Adria Privilege Club)
to Lufthansa’s Miles&More programme;
- agreement with Ljubljana Airport on setting up a computer platform for handling arriving and departing passengers,
- joint use of airport services and passenger lounges at certain airports;
- indicating our regional membership at airports;
- one of our CRJ aircraft is painted entirely in the Star Alliance livery;
- advertising campaign marking our entry into the Star Alliance;
- organising a Star Alliance day, on which there was a presentation of products that are useful for regional members;
- a joint workshop at which the sponsor (LH) presented to regional members all the products and projects of the Star
Alliance;
- establishing contacts for inclusion in the joint purchasing of fuel, aircraft and spare parts.
Since regional membership is a new concept, the precise method of communication within Star Alliance GmbH, that
is, its members, the sponsor of the regional member and regional members is still being formulated.
A9
Cooperation in the areas of sales and ‘’network planning’’ is seriously impeded by the restrictions deriving from European
legislation. Nevertheless, in the first year as a regional member of the Star Alliance, we improved our terms of
cooperation with certain carriers in the group and signed contracts on code sharing with Swiss on the Ljubljana-Zurich-
Ljubljana service and with Air One on the Ljubljana-Rome-Ljubljana service.
Adria Airways d.d.
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52

A9
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53

10. Employees and human resources policy
At the end of 2005 the company had 543 employees, 2% less than at the end of 2004. The biggest proportion of employees
work in flight operations (37%), followed by aircraft maintenance (26%), sales and marketing (14%), finance and
accounting (6%) and the remaining 17% of staff work in other company support sectors.
The average age of employees in 2005 was 42.1 years.
In 2005 for various reasons 4% of the workforce left the company, while owing to the increased volume of flights and
aircraft maintenance we recruited personnel primarily for operational positions, increasing the workforce by 2%.
We continued the project to support staff in obtaining higher formal education, and thereby in a four-year period we
improved the personnel educational structure by 7% in terms of higher and university education. We currently have
contracts or annexes to contracts with 6% of employees, who are enrolled in undergraduate degree courses. Around 5%
of employees are in their final year of degree study, and we have contracts with them on joint funding for their continuing
education. They are expected to finish their courses next year. In this way we will achieve the goal of raising the
educational structure of employees by more than 10%, as well as expanding the level of knowledge and general employability
of staff. In part we obtained funds for cofinancing employee education from European Union structural funds.
Comparison of the educational structure in 2001 and 2005
Level of
education
primary
schoo
secondary
vocational
secondary
two-year
tertiary
four-year
tertiary
university master’s doctorate
Year 2001 6 % 18 % 37 % 22 % 3% 14 %
Year 2005 2 % 10 % 42 % 24 % 5 % 16 % less than 1% less than 1%
A10
However, 2005 was marked by a deterioration in performance and by the consequent implementation of economies.
In the area of human resources we made the biggest savings through the project of reducing the number of employees,
which involved for the most part retirements or voluntary redundancies. A major saving was also made in the area of
reducing sick leave as part of the project Motivation and Health.
Proposed reductions in wages and other earnings in 2005 were not implemented owing to opposition from the unions.
Reductions in the salaries of management personnel were implemented, however, with an average drop of 7%.
The implementation of economies saw a shrinking of funds for other types of education on all levels, such that in 2005
we concentrated on providing the legally required training for workers in aviation and aeronautical technology operations.
Adria Airways d.d.
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54

11. Corporate communication
The corporate communication department strives for effective communication with a variety of target audiences associated
with the company: internal and external groups – the media, passengers, business circles, decision-makers,
financial circles and so forth. Some of our audiences overlap, and ultimately of course they and we can all be regarded
as (potential) Adria passengers.
Our aim is to steer our activities towards contributing as much as possible to achieving the commercial targets and to
raising the standing of the company, and thereby to its success. We also devote attention to current topics in aviation.
Our communication guidelines are openness, incisive cooperation, clarity, a two-way flow, rapid response and sustainability.
The guidelines for the targets in 2005 were set out on the basis of strategic orientations and the business plan for this
year. Our communication has constantly emphasised direct flights, the large number of scheduled flights and frequencies,
and the good connections with flights operated by other airlines, especially with Star Alliance members, and the
optimum price deals. The achievements of recent years such as joining the Star Alliance and successful operation of the
maintenance centre have been very important. Given the numerous air accidents in the summer, we perceived a greater
need to communicate about safety management in the company, and also throughout the year to communicate about
the tougher operating conditions. We also experienced certain crisis situations where a proactive and transparent approach
is extremely important.
We also communicated on subjects that are common to the aviation sector, to European airlines and members of the
association, something that we perform in cooperation with the IATA, AEA and Star Alliance.
Throughout 2005 we used numerous communication tools to address our internal and external audiences, and we carried
out a range of activities and events.
Adria’s intranet site has become a daily destination for employees, who can thereby obtain information they need for
their jobs, plus details of company events and developments and news of current topics in aviation. We also held the
annual meeting for all employees.
We realise that through their constant role of communicating and seeking information, the media have become an
increasingly important factor in forming public opinion. By implementing an effective communication strategy we can
ensure an understanding of our company’s operation. Analysis of appearances in the Slovenian media has shown that
of 993 articles mentioning Adria in 2005, the company enjoyed primary publicity (Adria was the main topic) in 41% of
these articles, and of this, 90% was planned or supplied by our department. A total of 97% of all articles about Adria
were favourable or neutral.
We published four issues of the Adria In-Flight Magazine, which seeks to increase familiarity with Adria and with
Slovenia. Passengers and various institutions respond enthusiastically to the magazine, which is also used to promote
Slovenia abroad.
A11
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Annual Report 2005
The main publication for business and financial circles was the annual report.
55

12. Environmental responsibility
12.1. Impact on the social environment
Social responsibility
As the only Slovenian airline, Adria Airways has since its very establishment been intensively involved in the overall
social environment in which it operates. Constant concern and planned investment in the wider social community, plus
fulfilling the interests of various groups with which we are jointly shaping a better future, are the guiding principles that
we observed in 2005.
Through grants and sponsorship we are helping and cooperating with various groups, institutions and individuals, sharing
common values with them and in this way maintaining a responsible attitude to wider and narrower social issues
and bringing our services closer to those that do not have easy access to them, while we are contributing to development
on the local and national levels as well as further afield.
• 2005 marked our fourth year of participation in the Unicef campaign Change for Good, designed to help children
in developing countries.
• We cooperate in various humanitarian campaigns to help at-risk children and families, and in 2005 our cooperation
also included donations to the Ljubljana Oncology Insitute, Caritas, the Slovenian Red Cross, the SILA International
Ladies Association, the Child Neurology Foundation and the Society for Kidney Patients.
• In the area of sports we provide financial support to various Slovenian sports people, having already cooperated successfully
with the Slovenian Olympic Committee for 14 years, and we have built on these activities through a partnership
with the Athletic Federation of Slovenia.
A12
Adria Airways d.d.
Annual Report 2005
• In 2005 we served as the official airline in support of more than 30 international conferences on medicine, law, culture
and business.
• The major share of our sponsorship funds in 2005 was targeted at a range of Slovenian cultural and healthcare
projects and institutions with which we have cooperated for a number of years now: Ljubljana Festival, Lent Festival,
the International Graphics Biennial, Radovljica Festival, the Jazz Festival, the Museum of Modern Art, Imago Slovenije,
the Ecology Institute, the Slovenian Chamber of Physicians and more.
Adria Airways – employer
Given the expansion of its business, Adria is a major employer in its local environment. Creating new jobs in Slovenia
is nowadays more the exception than the rule.
56
Taking account of the global trends of future growth in air transport and the associated imperative for aircraft maintenance,
we can state with some certainty that this is a sector with fairly good prospects. Here it should be noted that
aircraft maintenance is a service with a relatively high added value.

Given the increasing need for workers, various possibilities are opening up:
• employment of personnel with secondary and higher qualifications;
• owing to the need for specific skills that cannot be acquired in Slovenia’s public school system (aircraft mechanic),
the Adria Airways technical training department provides education and training for its internal needs and also for
external clients;
• all education and training courses are conducted in line with the stringent regulations of the EASA (European Aviation
Safety Agency);
• additional training of already qualified mechanics for other types of aircraft and thereby raising our competitive
advantage;
• raising our profile in Slovenia and abroad.
12.2. Impact on the natural environment
Adria Airways is an environmentally aware company. 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 Organisation) environmental and other requirements. Both types of engine used by Adria fleet
aircraft operate within 70% of the permitted values of gas and smoke emissions laid down by the ICAO.
Source: Adria Airways physical indicators
In 2005 Adria Airways constructed a new hangar and a modern cleaning station in line with demanding environmental
protection provisions. As an environmentally aware company we moved and upgraded the waste water treatment facility,
which treats water to such an extent that it can be discharged to the common airport biological treatment plant, and
from there in its purified state into the groundwater.
The process of aircraft maintenance involves the use of various hazardous chemicals, but only in small amounts. These
are specific chemicals that are used exclusively for our own requirements. For these operations the company has specially
organised staff who provide annual reporting on the entry of such chemicals into the country, safe storage and regular
collection and removal of waste, which is provided for Adria by a suitably registered organisation. Workers who come
into contact with these chemicals undergo formal courses in familiarisation with hazardous chemicals, the conditions of
their storage and procedures and guidelines for first aid in the event of an accident at work with chemicals. We separate
paper from other waste and it is removed for recycling.
A12
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57

The dynamic environment
in which Adria Airways
operates incorporates the
cyclical nature of demand,
a high proportion of fixed
costs in the breakdown
of total costs and a major
dependence on external
factors that are beyond
anyone’s influence.

13. Security and safety
In aviation the approach to safety is somewhat different from that in other transportation sectors. The personnel that
perform the various jobs in aviation are required to have appropriate general education, excellent health, years of experience
and to be continuously acquiring new skills. Flying represents the pinnacle of various scientific, industrial and also
natural activities. All of this is evident in the fact that the air transport system is far more complex and thereby more
exposed to risk. The proper way of preventing new errors is consistent adherence to the special system of investigation
and analysis of accidents, which has been shown to produce solutions on a worldwide scale.
Over the past year the major emphasis in aviation security was on training employees in the area of civil aviation security
to prevent acts of unlawful interference. At Adria Airways we are aware that we can expect an adequate response
to threats to civil aviation only from appropriately trained and aware personnel. The project of security training will be
fully completed this year. The current year is orientated towards improving quality.
In the international arena Adria Airways is cooperating closely with the security committee of the AEA and the EASTI
institution in Brussels.
Flight safety
The major gain has been the installation of the EPGWS - Enhanced Ground Proximity Warning System in all our aircraft.
The system ensures prompt warning of any dangerous proximity to the ground outside the vicinity of airports. The
advantage of such a system over older versions is that the aircraft navigation system warns of such a danger even before
it is within radar, on the basis of a database on the terrain configuration. The basis for such a system is of course precise
GPS navigation that we have installed in the A320 aircraft.
A13
The other technical advance is the automatic Emergency Locator Transmitter (ELT), which in the event of an accident
enables immediate identification of the accident location. Previously the A320 aircraft carried manual transmitters,
which had to be activated manually.
Safety Team
Adria Airways also has a highly trained and professional Safety Team, which has the job of monitoring the level of safety
in the company. It cooperates professionally with other airlines, and manages the system of collecting reports on events
related to safety. It also manages the Flight Data Monitoring System, which like the black box records all data from
each flight. Through data filtering and analysis of trends, this system allows Adria Airways to use certain procedures to
monitor flight safety and continuously improve it.
Adria Airways d.d.
Annual Report 2005
Regulations and standards
60
Yet this is just the beginning, and on top of this come numerous standards and regulations that lay down the organisation
of the company, operating procedures and flight safety. Each airline operates in line with the laws of its own
country, but must also operate in compliance with the requirements of the International Civil Aviation Organisation

(ICAO) and the European Union. And Adria Airways is one of the first airlines in the world to have received the IOSA
(IATA Operational Safety Audit) certificate, which derives from all these relatively technical regulations, and from ISO
standards, which determine the quality of company management.
Regular testing of crews
Every six months pilots spend two days on simulators training for certain emergency procedures, such as engine failure,
engine fire, smoke in the cabin, loss of cabin pressure, and many other situations. In addition to this, at least once a year
they must also undergo what is called Line Oriented Flight Training, where they perform an approximately one-hour
simulated flight from preparation to landing.
Cabin crew also undergo testing and supplementary training. They practice emergency evacuation of the aircraft, extinguishing
fires in the cabin and so forth.
Double and triple components
Passengers sometimes say that a plane has broken down. But the aircraft never breaks down. It is composed of thousands
of components, and for reasons of safety they are all doubled or even trebled. The aircraft will therefore normally fly
completely safely on to its destination, even though one or even two components might have failed. If the pilot determines
that something is not functioning on the aircraft as it should, he enters this in the technical log and when the
aircraft lands, the mechanic must immediately repair the fault and also confirm this in writing. Of course with major
faults, such as engine failure in the air, the pilot must land at the nearest airport, although according to legal requirements
the aircraft could still fly for at least another hour. So the flight can continue safely, but the aircraft cannot take
off again with anything remotely like such a serious fault.
Working hours
Crew working hours are strictly defined and regulated by law. Daily, weekly and even monthly restrictions are laid down.
All airlines must adhere to this, something governed by international conventions. Alongside these restrictions, the
rhythm of work is also very important for crews to be properly rested.
And the airport
For pilots it really is all the same which airport they land at, since the same level of safety is assured everywhere. If
one particular airport is worse, then its drawbacks will require certain restrictions. Here is an example: if an airport is
known for its strong winds, then as an airline we can say that we will land only in winds not exceeding a certain speed.
And of course this kind of airport will demand special attention and preparation. Pilots can only fly to certain airports,
for instance, if they have previously undergone training on a simulator or with some other airline.
A13
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Crowded skies
Air traffic is becoming increasingly heavy, but flying is no less safe because of this, since technology is also advancing
all the time. Recently the required altitude difference between aircraft in air corridors over 8800 m was reduced to
300 m; and this is the distance that has been used permanently at lower altitudes. This is made possible by improved
aircraft instruments, better altimeters and special procedures for the use of smaller altitude differences between aircraft.
Another advance of recent years is a system for alerting pilots to the possibility of mid-air collision, which also provides
instructions on how to avoid collisions.
Human factor
The people who have long been a part of the aviation world assert that concern for safety is increasing year by year.
In recent years a great amount of new equipment has been developed, while there have been perfections to the system
that warns of possible collisions in the air or with the ground, and navigation systems have been improved so that now
aircraft can land in fog with visibility down to just 75 m.
Nevertheless aviators do not forget that the human factor remains most important of all. In the last 20 years, experts
have worked extremely rapidly to develop cockpit resource management, since joint operations in the cockpit are sometimes
decisively important. It is very important how the two colleagues communicate, how they understand each other,
and how they listen to each other when there is something to say.
A13
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Annual Report 2005
62

14. Quality assurance
In 2005 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 March 2005 we included in Part-145 of the quality 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.
Alongside the system of quality management in line with ISO 9001:2000, this also includes the Part-145 quality assurance
system for aircraft maintenance, for which we obtained a certificate in 1999 and on the basis of which in 2002
Adria became one of two authorised service centres in the world for the CRJ series of aircraft.
The overall system of quality also includes the JAR-OPS 1 quality assurance system for commercial air transport, for
which we obtained a certificate in 2001 and on the basis of which at the end of 2001 we started operating services within
the European Union.
Safety always comes first. Adria’s quality in this area has been confirmed by the renewed IOSA (IATA Operational
Safety Audit Registry) assessment in December 2005, something that needs to be performed every two years by an IATA
accredited assessment organisation. This assessment determines the level of company organisation, operating procedures,
flight safety and company security.
Given the current commercial decisions, the main emphasis in 2006 has been and will continue to be on ensuring the
quality of external flight providers for the requirements of passenger and cargo transport, since in such cases we are
bound to ensure for our clients the same level of safety and quality as we provide with our own aircraft.
A14
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Annual Report 2005
63

The coming years will be
crucial for airlines the size
of Adria Airways. We are
certain that we will be
more than a match for the
competition, and that we
will long continue to bear
the Slovenian colours across
European skies.

15. Research and development
• We are continuously developing and enhancing our technical and managerial skills and experience in all areas of civil
aviation.
• In the future, too, we will continue to cooperate intensively with various professional institutions.
• 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
- CPL - Commercial Pilot Licence
- certification to fly by instruments (IR – Instrument Rating) and
- ATPL - Airline Transport Pilot Licence.
• In the area of training personnel for aircraft maintenance requirements, talks are in progress on long-term cooperation
with the Secondary Engineering School in Škofja Loka.
• In 2005 we began four years of active participation in the EU project FLYSAFE. The project is aimed at analysis and
specifications in developing the NG-ISS (Next Generation Integrated Surveillance System).
• The middle of 2005 saw the start of the European project HILAS (Human Integration into the Life-Cycle of Aviation
Systems), which also lasts four years, with preparations for it taking one year. In this way we are keeping in touch with
the latest knowledge and technology in the fields of safety and quality of procedures in modern aviation.
Adria Airways d.d.
Annual Report 2005
• With regard to the Part-147 certificate obtained from the Slovenian and British aviation authorities, in the technical
education department we are providing training for our own needs and also for foreign clients.
A15• At the same time preparations are also underway for our cooperation on future European aviation projects.
66

16. Who’s who, contacts
Company management:
Tadej Tufek, M.Sc., president of the management board / tadej.tufek@adria.si
Division managers:
Tomaž Kostanjšek, MBA, director of sales and marketing / tomaz.kostanjsek@adria.si
Pavel Prhavc, director of aircraft maintenance / pavel.prhavc@adria.si
Dejan Slodej, director of flight operations / dejan.slodej@adria.si
Silvestra Stopar, director of finance and accounting / silva.stopar@adria.si
Peter Kolar, M.Sc., director of procurement, ground operations, IT and controlling / peter.kolar@adria.si
Andrej Petelin, management board associate for quality assurance / andrej.petelin@adria.si
A16
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Annual Report 2005
67

17. Organisational structure of the company
General Meeting
Supervisory Board
President
Managing Board
Subsidiaries
Amadeus
Slovenija d.o.o.
AAM EAR SERVIS
d.o.o. Skopje
Strategic Planning
and Development
Quality Systems
(ISO9001,
JAR-OPS1 & 145)
Human Resources
and Legal
General
Support
Corporate
Communications
Safety and Security
(JAR-OPS1,
Safety at Work)
A17
Sales and
Marketing
Ground
Operations
Aircraft
Maintenance
Flight
Operations
Finance and
Accounting
Adria Airways d.d.
Annual Report 2005
68

18. Adria offices and points of sale
SLOVENIA, Ljubljana
AMSTERDAM, Netherlands
COPENHAGEN, Denmark
Adria Airways d.d.
P.O. BOX 75644
Adria Airways
Information and bookings:
1118 ZR Schiphol Triport
Bookings and information
Kuzmičeva 7
Tel. 31 20 625 11 22
Antello AB, Tings Gatan 2
1000 Ljubljana
Fax 32 2 753 23 37
256 56 Helsingborg, SWEDEN
adr.amstown@adria.si
Tel. 46 (0)42 28 47 78
Tel. 386 (0)1 36 91 010 – Call Centre
Fax 46 (0)42 14 47 78
Fax 386 (0)1 43 68 606
Airport Ticketing Desk
Mobile 46 708 28 47 78
E-mail: booking@adria.si
Amsterdam Schiphol Airport
E-mail: adr.copenhagen@adria.si
Free telephone number in Slovenia:
Penauille Arvisair Ticketing Desk
Tel. 080 13 00
Terminal 3, opposite check-in row 20
Adria Airways – airport ticket desk
Tel. 31 20 79 52 600
Copenhagen Airport
Adria Airways
Fax 31 20 79 52 601
Terminal 2, Floor 2, Office 230
Ticket sales:
adr.amsariport@adria.si
2770 Kastrup, Denmark
Tel./Fax 45 (0)32 51 59 59
Gosposvetska 6
Mobile 46 708 28 47 78
1000 Ljubljana
BARCELONA, Spain
E-mail: adr.copenhagen@adria.si
Free telephone number in Slovenia:
Adria Airways
Tel. 080 13 00
Authorised agent
Fax 386 (0)1 23 21 668
Kompas Turistik Espan~a S.A.
DUBLIN, Ireland
E-mail: adr.gosposvetska@adria.si
c/València 494, esc. dta. A, 12
See London, United Kingdom
08013 Barcelona,
Ljubljana Airport
Tel. 34 (0)93 24 66 777
Free telephone number in Slovenia:
Fax 34 (0)93 24 54 188
FRANKFURT, Germany
Tel. 080 13 00
E-mail: adr.barcelona@adria.si
Adria Airways
Fax 386 (0)4 23 63 461
Frankfurt Airport,
E-mail: adr.prodaja@adria.si
Terminal 1, Building 201,
Koper
Pristaniška 41
6000 Koper
Free telephone number in Slovenia:
Tel. 080 13 00
Fax 386 (0)5 66 35 902
E-mail: adr.koper@adria.si
BIRMINGHAM, United Kingdom
See London, United Kingdom
BRUSSELS, Belgium
Adria Airways
Brussels Airport - Box 4
1930 Zaventem
Tel. 32 (0)2 75 32 336
Room 201. 4043/4044
P.O. Box 039, 60547 Frankfurt am Main
Tel. 49 (0)69 269 56 720, 269 56 721
Fax 49 (0)69 269 56 730
E-mail: adr.frankfurt@adria.si
Adria Airways – airport ticket desk
Frankfurt Airport,
Terminal 1, Hall B,
A18
Maribor
Fax 32 (0)2 75 32 337
Sales Desk 307
Vita Kraigherja 5
p. p. 1555, 2001 Maribor
adr.brussels@adria.si
P.O. Box 039, 60547 Frankfurt am Main
Tel. 49 (0)69 269 56 722
Adria Airways d.d.
Annual Report 2005
Free telephone number in Slovenia:
Adria Airways ticket desk
Tel. 080 13 00
Fax 386 (0)2 23 02 903
Zaventem Airport / Brussels
Tel. 32 (0)2 75 32 335
69
E-mail: adr.maribor@adria.si

ISTANBUL, Turkey
MUNICH, Germany
Adria Airways – airport ticket desk
Adria Airways
Adria Airways
Podgorica Airport,
Authorised agent
Munich Airport, Terminal 2
Oki Air International, authorised agent
Ordu Cad No. 206/1,
Reisemarkt Süd
Tel./Fax 381 (0)81 623 232,
34470 Laleli, Istanbul
Ebene 03, Raum 6738 (counter 355 & 356)
Mobile 381 (0)67 241 154
Tel. 90 (0)212 51 24 232
85356 München – Flughafen, P.O. Box
E-mail: adr.podgorica@adria.si
Fax 90 (0)212 51 24 234, 51 25 436
241233, 85334 München
Opening hours: 2 hours before departure and
E-mail: adr.istanbul@adria.si
Tel. 49 (0)89 975-91191, 91192
30 minutes after departure of flight
Fax 49 (0)89 975-91196
Adria Airways – airport ticket desk
E-mail: adr.munich@adria.si
Istanbul Airport
PRIŠTINA, Serbia–Kosovo
Tel. 90 532 312 66 35
Adria Airways
OHRID, Macedonia
AAM, authorised agent
Adria Airways
Pal Palucij 3, 38000 Priština
LONDON, United Kingdom
AAM, authorised agent – city office
Tel. 381 (0)38 543 411
Adria Airways
Partizanska broj 6, 6000 Ohrid
Tel./Fax 381 (0)38 543 285
49 Conduit Street
Tel. 389 (0)46 26 20 26,
E-mail: adr.pristina@adria.si
London W1S 2YS
Fax 389 (0)46 26 10 71
Tel. 44 (0)20 7 73 44 630, 7 43 70 143
E-mail: aamohrid@mt.net.mk
Adria Airways
Fax 44 (0)20 7 28 75 476
Priština Airport – airport ticket desk
E-mail: adr.london@adria.si
Adria Airways – airport ticket desk, Ohrid
Tel./Fax 381 (0)38 548 437
Airport–Operator
Mobile 00 377 44 501 240
Adria Airways
Tel. 389 (0)46 262 503, 252 820, 252 821
Mobile 00 377 44 501 241
London Gatwick Airport
ext. for AAM 115
Ticketing agent: Skybreak
E-mail: adr.ohrid@adria.si
North Terminal Ticket Desk
ROME, Italy
Tel. 44 (0)1293 507 182
Adria Airways, authorised agent
Fax 44 (0)1293 507 144
PARIS, France
Cimair – city office
Adria Airways
Via Bissolati 54, Rome
Flight Supervision: KLA Ltd. (Airline Services)
38 Avenue de l’Opéra
Tel. 39 (0)6 42 04 5327
A18
Tel. 44 (0)1293 568 004
Fax 44 (0)1293 567 005
Mobile 44 7899 95 23 49
MANCHESTER, United Kingdom
See London, United Kingdom
75002 Paris
Tel. 33 (0)1 47 42 95 00
Fax 33 (0)1 47 42 00 67
E-mail: adr.paris@adria.si
PODGORICA, Montenegro
Adria Airways
Oki Air International, authorised agent
Fax 39 (0)6 48 73 483
E-mail: adr.rome@adria.si
Opening hours: Mon–Fri 9.00 am to 1.00 pm
and 2.00 pm to 6.00 pm, Sat & Sun closed
Adria Airways
Authorised agent
Cimair – at the airport
Terminal C
MOSCOW, Russia
Ivana Vujoševiča 46
Distal & ITR
Adria Airways d.d.
Annual Report 2005
Adria Airways
Derbenevskaja 4
81000 Podgorica
Tel. 381 (0)81 201 201,
Tel. 39 (0)6 65 95 8053
Opening hours: 2 hours before the flight
113 114 Moscow
Tel./Fax 381 (0)81 241 154,
70
Tel. 7 (495) 727 08 85,
Fax 7 (495) 727 08 88
Mobile 381 (0)67 241 154
E-mail: adr.podgorica@adria.si
E-mail: adr.moscow@adria.si

SARAJEVO, Bosnia and Herzegovina
Adria Airways
Oki Air International, authorised agent
Ferhadija 23/II
71000 Sarajevo
Tel. 387 (0)33 23 21 25, 23 21 26
Mobile 387 (0)65 26 31 91
Fax 387 (0)33 23 36 92
E-mail: adr.sarajevo@adria.si
Opening hours: Mon-Fri 9.00 am to 5.00 pm
Adria Airways – airport ticket desk
Oki Air International, authorised agent
Kurta Shorka 36
71000 Sarajevo
Tel. 387 (0)33 46 43 31
Fax 387 (0)33 46 43 31
E-mail: adr.sarajevo@adria.si
Opening hours: Mon-Sun 10.00 am
to 4.00 pm
SKOPJE, Macedonia
Adria Airways
AAM, authorised agent
Ulica Dame Gruev, Gradski Zid,
blok II bb, 91000 Skopje
Tel. 389 (0)2 31 17 009, 32 29 975
Fax 389 (0)2 31 65 531
Adria Airways – airport ticket desk
Ben Gurion Airport
Laufer Aviation Ltd.
Tel. 972 (0) 3 97 74 300
Fax 972 (0) 3 97 12 022
VIENNA, Austria
Adria Airways – airport ticket desk
1300 Vienna Airport
Tel. 43 (0)1 70 07 36 913
Fax 43 (0)1 70 07 36 914
Mobile 43 664 30 87 813
E-mail: adr.vienna@adria.si
WARSAW, Poland
Adria Airways
Air System Poland, authorised agent
34 Krzywickiego Str.
Warsaw 02-078
Tel. 48 (0)22 62 51 427
Fax 48 (0)22 62 51 386
E-mail: adr.warsaw@adria.si
ZAGREB, Croatia
Adria Airways
Praška 9
Adria Airways – airport ticket desk
Zurich Airport
Terminal B-2-521
Tel. 41 (0)1 81 64 437
Purchase tickets online:
www.adria-airways.com
E-mail: adr.skopje@adria.si
Adria Airways – airport ticket desk
Tel./Fax 389 (0)2 25 61 279
TEL AVIV, Israel
Adria Airways
Mirus Services (1996) Ltd.
Authorised agent
8 Mendele Str.
10000 Zagreb
Tel. 385 (0)1 48 10 011, 48 10 016
Fax 385 (0)1 48 10 008
E-mail: adr.zagreb@adria.si
ZURICH, Switzerland
Adria Airways, city office
Loewenstrasse 54/II
8001 Zurich
Tel. 41 (0)1 21 26 393,
A18
Tel Aviv 63432
Tel. 972 (0) 3 52 23 161
Fax 972 (0) 3 52 40 895
21 26 394
Fax 41 (0)1 21 25 266
E-mail: adr.zurich@adria.si
Adria Airways d.d.
Annual Report 2005
71

Passenger awareness is
growing. They realise that
it is not just the low-cost
airlines that offer low-priced
air tickets.

2 nd part
Financial Report

B
Adria Airways d.d.
Annual Report 2005
76

Contents
1 General Disclosures 78
2 Management Board’s Declaration of Responsibility 79
3 Financial Statements 80
3.1 Balance sheet 0
3.2 Income statement 1
3.3 Cashflow statement 2
3.4 Statement of changes in equity for 2005 financial year 3
3.5 Distributable profit
4 Summary of Important Accounting Guidelines 86
5 Itemisations and notes on the financial statements 91
5.1 Additional disclosures of balance sheet items 91
5.1.1 Tangible fixed assets 91
5.1.2 Long-term financial investments 92
5.1.3 Inventories 93
5.1.4 Operating receivables 94
5.1.5 Short-term financial investments 95
5.1.6 Bank balances, cheques, cash 95
5.1.7 Capital 95
5.1.8 Long-term financial and operating liabilities 96
5.1.9 Short-term financial and operating liabilities 97
5.1.10 Off-balance-sheet assets/liabilities 98
5.2 Additional disclosures of items in the income statement 98
5.2.1 Net sales revenues 99
5.2.2 Costs of merchandise, materials and services 99
5.2.3 Labour costs 100
5.2.4 Write-downs 100
5.2.5 Financial revenues 101
5.2.6 Financial expenses 101
5.2.7 Net profit 102
6 Other disclosures 103
6.1 Information on groups of persons 103
6.2 Mandatory indicators 103
7 Events after the balance sheet date 105
8 Financial Statements – Expanded Form 106
8.1 Balance sheet (expanded form according to SAS) 106
8.2 Income statement (expanded form according to SAS) 108
B
Adria Airways d.d.
Annual Report 2005
77

1. General Disclosures
About the company
ADRIA AIRWAYS d.d.
Kuzmičeva 7, 1000 Ljubljana
Slovenia
Nature of business and main lines of business
Adria Airways d.d. is a company whose two most important lines of business are scheduled air transport and chartered
air transport. The company is also involved in the transport of cargo, aircraft maintenance for third parties and training
for aircraft personnel.
Workforce
Number of employees as at 31 December 2005: 543
Average number of employees in terms of qualifications:
Level of qualification I. II. III. IV. V. VI. VII. VIII. IX. Total
Number 4 8 2 42 228 138 116 4 1 543
B1
Adria Airways d.d.
Annual Report 2005
78

2. Management Board’s Declaration of Responsibility
The management board hereby certifies the financial statements for the year ending 31 December 2005 on pages 80 to
85 and pages 106 to 108, and the accounting guidelines and notes on the financial statements on pages 85 to 105 of the
annual report.
The management board is responsible for compiling the annual report so that it presents a true and fair picture of the
financial standing of company and the outcomes of its operations in 2005.
The management board confirms that the accounting guidelines were consistently applied, and that the accounting estimates
were made according to the principle of prudence and the diligence of a good manager. The management board
also confirms that the financial statements together with the notes have been compiled on a going concern basis and in
line with current legislation and the Slovenian Accounting Standards.
The management board is also responsible for ensuring that accounting is conducted correctly, for taking appropriate
measures to secure assets, and for preventing and exposing fraud and other irregularities or misdemeanours.
Tadej Tufek, M.Sc.
President of the management board
April 2006
B2
Adria Airways d.d.
Annual Report 2005
79

3. Financial Statements
3.1 Balance sheet 1
(SIT thousands) Notes 31. 12. 2005 31. 12. 2004
Assets 28,627,117 25,633,650
A Fixed assets 23,602,178 20,192,753
I. Intangible fixed assets 43,102 36,176
II. Tangible fixed assets 5.1.1 23,308,153 19,899,668
III. Long-term financial investments 5.1.2 250,923 256,909
B Current assets 4,766,908 5,220,880
I. Inventories 5.1.3 822,750 759,075
II. Operating receivables 5.1.4 3,775,616 3,389,322
III. Short-term financial investments 5.1.5 47,255 734,623
IV. Bank balances, cheques, cash 5.1.6 121,287 337,860
C Deferred expenses and accrued revenues 258,031 220,017
Off balance-sheet items 5.1.10 15,795,442 21,388,402
Capital and liabilities 28,627,117 25,633,650
A Capital 5.1.7 7,624,435 9,918,340
I. Called-up capital 812,436 812,436
II. Capital surplus 3,630,211 3,630,211
III. Profit reserves 1,862,022 4,004,560
IV. Retained earnings - 129,511
V. Net profit for financial year - 21,234
VI. Capital revaluation adjustments 1,319,766 1,320,388
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Annual Report 2005
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B Provisions 4,015 4,962
C Financial and operating liabilities 20,754,715 15,530,464
a) Long-term financial and operating liabilities 5.1.8 13,407,956 9,612,520
b) Short-term financial and operating liabilities 5.1.9 7,346,759 5,917,944
D Accrued expenses and deferred revenues 243,952 179,884
Off balance sheet items 5.1.10 15,795,442 21,388,402
The notes are a constituent part of the financial statements
1
For the expanded version of the balance sheet, refer to Appendix 8.1

3.2 Income Statement 2
(SIT thousands) Notes 2005 2004
1. Net sales revenues 5.2.1 32,190,502 31,643,918
2. Production costs of products sold, and historical cost
of merchandise sold (including amortisation/depreciation) 5.2 (28,034,881) (25,775,206)
3. Gross return on sales 4,155,621 5,868,712
4. Distribution costs (including amortisation/depreciation) 5.2 (3,957,573) (4,030,910)
5. Administrative costs (including amortisation/depreciation) 5.2 (1,036,855) (1,037,049)
6. Other operating revenues (including revaluation operating revenues) 47,366 105,777
7. Financial revenues from participating interests 5.2.5 49,382 9,113
8. Financial revenues from long-term receivables 5.2.5 1,791 638
9. Financial revenues from short-term receivables 5.2.5 464,445 821,201
10. Financial expenses from write-downs of financial investments - -
11. Interest expenses and financial expenses for other liabilities 5.2.6 (1,895,088) (1,568,088 )
13. Net profit from ordinary activities (2,170,911) 169,394
14. Extraordinary revenues 9,851 14,778
15. Extraordinary expenses (132,223) (86,481)
16. Extraordinary profit/loss (122,372) (71,703)
17. Corporate income tax - (55,223)
19. Net profit (loss) for the accounting period 5.2.7 (2,293,283) 42,468
The notes are a constituent part of the financial statements
2
For the expanded version of the income statement, refer to Appendix 8.2
B3
Adria Airways d.d.
Annual Report 2005
81

3.3 Cashflow statement
(SIT thousands) 2005 2004
A. Cashflows from operating activities
a) Inflows from operating activities 31,761,635 31,133,381
Operating revenues 32,192,034 31,693,265
Extraordinary operating revenues 9,851 14,778
Opening minus closing operating receivables (402,236) (440,134)
Opening minus closing short-term deferred expenses and accrued revenues (38,014) (134,528)
b) Outflows from operating activities (29,773,556) (29,194,153)
Operating expenses excluding amortisation/depreciation and long-term provisions (30,832,690) (28,807,888)
Extraordinary operating expenses (132,223) (86,481)
Income taxes and other taxes not included in operating expenses - (55,223)
Closing minus opening inventories (63,675) (139,017)
Opening minus closing operating liabilities 1,274,631 (79,180)
Opening minus closing accrued expenses and deferred revenues (19,599) (26,364)
c) Net cash from (used in) operating activities 1,988,079 1,939,228
B. Cashflows from investing activities
a) Inflows from investing activities 520,953 870,590
Financial revenues associated with investing activities (excluding revaluation) 494,580 825,020
Net decrease in long-term financial investments (excluding revaluation) 26,373 22,159
Net decrease in short-term financial investments (excluding revaluation) - 23,411
b) Outflows from investing activities (4,111,445) (302,208)
Net increase in tangible fixed assets (25,250) (24,716)
Net increase in intangible assets (excluding revaluation) (4,085,334) (277,492)
Net increase in short-term financial investments (excluding revaluation) (861) -
c) Net cash from (used in) investing activities (3,590,492) 568,382
C. Cashflows from financing activities
a) Inflows from financing activities 2,576,396 73,501
Net increase in long-term financial liabilities (excluding revaluation) 2,377,574 -
Net increase in short-term financial liabilities 198,822 73,501
B3
Adria Airways d.d.
Annual Report 2005
b) Outflows from financing activities (1,878,785) (3,050,986)
Financing expenses (excluding revaluation) (1,878,785) (1,551,311)
Decrease in capital (excluding net profit/loss for the year) - (10,218)
Net decrease in short-term financial liabilities (excluding revaluation) - -
Net decrease in long-term financial liabilities - (1,489,457)
c) Net cash from (used in) financing activities 697,611 (2,977,485)
D. Closing balance of cash and cash equivalents 3 121,297 1,026,099
a) Net cashflow during the accounting period (904,802) (469,875)
b) Opening balance of cash and cash equivalents 1,026,099 1,495,974
82
3
Med denarnimi ustrezniki so tudi kratkoročno vezani depoziti oziroma depoziti na odpoklic, ki so izkazani med kratkoročnimi finančnimi naložbami.

3.4 Statement of changes in equity for 2005 financial year
Net profit for
financial year Capital revaluation adjustments TOTAL
Retained
earnings
Capital
surplus Profit reserves
Called-up capital
Specific capital
revaluation
adjustment
General capital
revaluation
adjustment
Net profit
(loss) for
financial year
Retained
profit (loss)
Other
profit
reserves
Reserves
under
articles of
association
Share
capital
(SIT thousands)
A. Balance as at 31 Dec 2004 812,436 3,630,211 134,551 3,870,009 129,511 21,234 1,307,396 12,992 9,918,340
B. Transfers to capita (2,293,283) (2,293,283)
d) Entry of net profit (loss) for
(2,293,283) (2,293,283)
financial year
f) Entry of specific capital revaluation
adjustments
C. Transfers within capital (2,142,538) (129,511) 2,272,049 -
b) Distribution of net profit for creation
of additional reserves pursuant to
75,372 (75,372) -
general meeting resolution
c) Settlement of loss (2,217,910) (75,372) 2,293,283 -
f) Other reallocations of capital
21,234 (21,234) -
components
D. Transfers from capital (622) (622)
c) Decrease for impairment of assets
(622) (622)
previously subject to value gain
E. Balance as at 31 Dec 2005 812,436 3,630,211 134,551 1,727,471 - - 1,307,396 12,370 7,624,435
B3
Adria Airways d.d.
Annual Report 2005
83

Statement of changes in equity for 2004 financial year
B3
Adria Airways d.d.
Annual Report 2005
84
Net profit for
financial year Capital revaluation adjustments TOTAL
Retained
earnings
Capital
surplus Profit reserves
Called-up capital
Specific capital
General capital
Net profit
Other
Reserves
under
revaluation
adjustment
revaluation
adjustment
(loss) for
financial year
Retained
profit (loss)
profit
reserves
articles of
association
Share
capital
(SIT thousands)
A. Balance as at 31 Dec 2003 812,436 3,630,211 113,317 3,753,928 202,466 53,344 1,307,396 9,873,098
B. Transfers to capita 42,468 12,992 55,460
d) Entry of net profit (loss) for
42,468 42,468
financial year
f) Entry of specific capital revaluation
12,992 12,992
adjustments
C. Transfers within capital 21,234 116,081 (62,737) (74,578) -
a) Distribution of net profit pursuant
to management board and supervisory
21,234 (21,234) -
board resolution
b) Distribution of net profit for creation
of additional reserves pursuant to
116,081 (116,081) - -
general meeting resolution
f) Other reallocations of capital
53,344 (53,344) -
components
D. Transfers from capital (10,218) (10,218)
a) Payment of dividends, profit-sharing
(10,218) (10,218)
and management board bonuses
E. Balance as at 31 Dec 2004 812,436 3,630,211 134,551 3,870,009 129,511 21,234 1,307,396 12,992 9,918,340

3.5 Distributable profit
Distributable profit (SIT thousands) 2004
Net profit for financial year + 42,468
Retained earnings + 129,511
Increase in profit reserves - 21,234
Distributable profit 150,745
Distributable profit (SIT thousands) 2005
Net profit for financial year - 2,293,283
Retained earnings + 75,373
Decrease in profit reserves + 2,217,910
Distributable profit -
B3
Adria Airways d.d.
Annual Report 2005
85

4. Summary of Important Accounting Guidelines
Basis for compiling financial statements
• The financial statements and notes on the financial statements in this report were compiled on the basis of the 2001
Slovenian Accounting Standards issued by the Slovenian Institute of Auditors.
• The general rules on the itemisation of the balance sheet and the income statement, and the valuation of items in the
financial statements, the content of the notes on the financial statements and the requirements regarding the business
report were applied in the compilation of these financial statements, which is sufficient for the presentation of a true
and fair picture of the company’s performance in the annual report. The basic accounting precepts of the principle
of matching (accrual basis), a going concern basis and consideration of a true and fair picture under the conditions of
changes in the value of the euro and individual prices were applied.
• Adria Airways d.d. also administers its analytical records according to the recommendations of the International Civil
Aviation Organisation (ICAO), of which Slovenia is a member.
• The financial statements are compiled in tolars, rounded to units of one thousand.
Exchange rate and translation into local currency
• Adria Airways d.d. converts all purchase and sale transactions, investments, long-term and short-term liabilities, and
long-term and short-term receivables in foreign currencies into tolars at the Bank of Slovenia middle exchange rate as
at the day that the transaction is concluded, and the figure as at 31 December at the final Bank of Slovenia middle
exchange rate (on 31 December 2005).
• Exchange rate gains and losses arising in connection with short-term operating receivables and liabilities are included
in the income statement as financial revenues or financial expenses.
Reporting by business segment and regional segment
B4
Adria Airways d.d.
Annual Report 2005
• The business segments are scheduled passenger services, cargo services, charter passenger services, aircraft servicing
for foreign clients, and miscellaneous.
• The company’s segment reporting includes net sales revenues that can be directly assigned to the segments, while
other figures are not disclosed.
• The company does not have any regional segments.
Intangible assets
• Intangible assets are disclosed at historical cost, and are amortised with regard to useful life, which is generally a
maximum of five years for these assets.
• Intangible assets are not revalued for reason of value gains.
86

Tangible fixed assets
• Tangible fixed assets are land, buildings, plant and equipment. Small inventory that has a useful life of longer than
one year and that in terms of individual value is worth no more than the tolar equivalent of €500 is classed as tangible
fixed assets fit for use. The pertaining replacement parts are also classed as tangible fixed assets under construction
or in acquisition.
• The historical cost of a tangible fixed asset comprises the purchase price and all costs that can be directly ascribed to
making the asset fit for use. Subsequently incurred costs that provide for future benefits greater than those previously
estimated go to increase the historical cost. Costs that extend the useful life of an asset are charged against the value
adjustment (depreciation) charge to date. The company’s land is valued at its historical cost (or at an appraisal value
if the former is not known).
• A tangible fixed asset is no longer the subject of book-keeping records if it is alienated or has been permanently put
out of use and no further economic benefits may be expected to accrue from it. Gains from the sale of a tangible
fixed asset are recorded under revaluation operating revenues; while the present value is recorded under revaluation
operating expenses.
• Tangible fixed assets are revalued for any change in an exchange rate deriving from loans received for the assets in
question. Depreciation is subsequently charged as a cost on the changed historical cost of the tangible fixed asset for
reason of the revaluation made.
Amortisation/depreciation
• Individual tangible fixed assets are subject to depreciation over the useful life of the asset by consistently allocating the
depreciable sum during a particular accounting period to the depreciation to date. The company uses the straight-line
depreciation method.
• Land is not subject to depreciation.
• The amortisation/depreciation rates used by the company in 2005 are as follows:
min
max
Asset % %
Intangible assets
Software 25.00 25.00
Tangible fixed assets
Real estate:
buildings 1.50 2.50
other structures 2.00 12.50
Plant and equipment:
plant (aircraft) 4.38 5.00
plant (replacement parts) 10.00 10.00
other equipment 8.30 20.00
Computer equipment:
hardware 25.00 25.00
Motor vehicles:
transport vehicles (vans) 12.50 14.30
cars 12.50 15.50
Other tangible fixed assets (small inventory) 25.00 33.00
B4
Adria Airways d.d.
Annual Report 2005
87

Financial investments
• Financial investments of all types are initially disclosed at historical cost. Long-term and short-term investments are
recorded separately.
• Long-term financial investments in subsidiaries included in the consolidated financial statements are valued using
the equity method. Under the equity method, the value of investments in subsidiaries is increased to recognise the
controlling company’s share of net profit of the subsidiary; it is also booked as an increase in the financial revenues
of the controlling company.
• If any financial investment loses value, an adjustment to its original disclosed value should be established as financial
expenses for write-downs in long-term and short-term investments.
• The portion of long-term financial investments maturing within one year of the balance-sheet date is disclosed as
short-term financial investments.
Receivables
• Operating receivables can be long-term or short-term, and include trade receivables, other receivables associated with
operating revenues, receivables associated with financial revenues, receivables associated with capital formation, and
other receivables associated with conversion of assets.
• Receivables of all types are initially recognised at the amounts recorded in the relevant documents under the assumption
that the amounts owed will also be repaid.
• Receivables regarding which there is a doubt as to whether they will be settled, or that have not been settled by the
due date and have become the subject of a lawsuit are disclosed as doubtful and disputed receivables, and value adjustments
are created for them in full. Collectibility is determined monthly, and at the end of the year for individual
customers.
• Receivables from legal entities and individuals abroad are converted into domestic currency on the day that they arise.
Exchange rate differences that arise up to the day that the receivables are settled or up to the balance sheet date are
deemed to be financial revenues or financial expenses.
Inventories
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Adria Airways d.d.
Annual Report 2005
88
• Inventories are valued at purchase price.
• Consumption of materials is booked using the FIFO method.
• Adjustments to the value of inventories are charged when the value of inventories falls to their net realisable value,
and are booked as operating expenses.
Cash
• Cash consists of cash-in-hand, money at banks (deposits), and money underway. Cash-in-hand is money in the cashbox
in the form of banknotes, coins and cheques received and other readily convertible securities. Deposits comprise cash
in accounts at banks and other financial institutions that is readily available for payments. Money underway is cash
that is being transferred from a cashbox to an appropriate account at a bank or any other financial institution, and is
not credited to the account on the same day.
• Cash is disclosed upon initial recognition in the amounts recorded in the relevant documents, after it has been

checked that it has the nature of cash.
• Cash denominated in foreign currency is converted to the domestic currency at the middle Bank of Slovenia exchange
rate on the day that it is received.
Capital
• Capital reflects the equity-based financing of the company, and from the company’s point of view entails its liabilities
to the shareholders. It is defined not only as the amounts that the shareholders originally invested in company, but
also the amounts generated during its trading.
• The total shareholders’ equity consists of called-up capital, the capital surplus, profit reserves and the capital revaluation
adjustments.
• Share capital is administered in the domestic currency.
Liabilities
• Liabilities may be either financial or operating liabilities, short-term or long-term.
• Short-term and long-term liabilities of all types are initially disclosed in the amounts recorded in the relevant documents,
under the assumption that the creditors require the repayment of the liabilities.
• Long-term financial investments denominated in foreign currency are converted into the domestic currency at the
prevailing exchange rate on the day that they are booked. The exchange rate difference in the period to the balance
sheet date is the result of the valuation of long-term financial liabilities as at the balance sheet date, and is disclosed
as the exchange rate difference on the tangible fixed assets for which the long-term liabilities were assumed in foreign
currencies.
• Operating liabilities denominated in foreign currency are converted to domestic currency on the day that they arise.
Any exchange rate difference that arises by the balance sheet date is treated as an item of financial revenues or financial
expenses.
• Before compiling the annual financial statements the company assesses the fair value of short-term operating liabilities
on the basis of contracts, the coordination of balances and other financial tools.
Recognition of revenues
• Revenues are recognised if increases in economic benefits during the accounting period are associated with increases
in assets or decreases in debts and the increases can be measured reliably.
• Sales revenues consist of the sale values cited in invoices and other documents for the services, merchandise and
material sold in the accounting period, provided that it can realistically be expected that they will be paid, minus all
discounts given at sale, and subsequently minus the value of returned quantities and discounts given subsequently.
• Revaluation operating revenues arise during the alienation of tangible fixed assets and intangible assets at a value
in excess of their book values, with allowance for a previous capital revaluation adjustment deriving from a previous
value gain in the assets.
• Financial revenues are revenues generated from investment activities. They arise in association with long-term and
short-term investments, and in association with receivables. They are recognised when statements of account are prepared,
irrespective of receipts, unless there is a substantiated doubt as to their size, the due repayment date or whether
they can be repaid. Interest is charged on a time proportion basis with regard to the principal outstanding and the
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Annual Report 2005
89

applicable interest rate.
• Extraordinary revenues consist of unusual items. They are disclosed in the amounts that actually arise.
Recognition of expenses
• Expenses are recognised when the outflow of economic benefits in the accounting period is related to decrease in
assets or increase in liabilities, and when the amount of expenses can be measured reliably.
• Revaluation operating expenses are recognised when the relevant revaluation is made, irrespective of their effects
upon profit and loss. Revaluation operating expenses arise in connection with tangible fixed assets, intangible assets
and current assets for reason of their impairment.
• Financial expenses are expenses for financing and expenses for investment. Revaluation financial expenses arise in
connection with long-term and short-term financial investments for reason of their impairment and in connection
with value gains in long-term and short-term debts.
• Extraordinary expenses consist of unusual items, and are disclosed in the amounts that actually arise.
Taxes
• The company is subject to corporate income tax in the amount of 25%. Adria Airways d.d. did not declare any liabilities
from corporate income tax in the 2005 financial year, owing to its operating loss.
Cashflow statement
• The cashflow statement shows the effect of cash inflows and cash outflows on the balance of cash and cash equivalents
during the accounting period.
• It is compiled in Format II using the indirect method, on the basis of the balance sheet as at 31 December 2005 and
the balance sheet as at 31 December 2004, figures from the income statement for 2005, and additional adjustments
required for items that are neither inflows nor outflows.
B4
Disclosures
• In its annual report for 2005 the company has disclosed all significant business events, receivables, liabilities, expenses,
revenues and risks, and all significant business events subsequent to the balance sheet date.
• The company does not disclose the historical cost of its aircraft.
• The company has not disclosed any information that it classes as commercially confidential, any personal information
or any other confidential information that could damage the company or any individual.
Adria Airways d.d.
Annual Report 2005
90

5. Itemisations and notes on the financial statements
5.1 Additional disclosures of balance sheet items
5.1.1 Tangible fixed assets
(SIT thousands) 31. 12. 2005 31. 12. 2004
Land 166,343 166,343
Buildings 2,005,003 1,208,001
Plant and equipment, of which: 21,126,686 18,328,906
production plant and equipment 20,864,649 18,116,822
- aircraft 20,089,022 17,186,252
- replacement parts 775,627 930,570
- other plant and equipment 262,037 212,084
- other equipment 259,742 209,135
- small inventory 2,295 2,949
Fixed assets in acquisition, of which: 10,121 196,418
advances for fixed assets 10,121 100,239
fixed assets under construction - 96,179
Total 23,308,153 19,899,668
• The largest component in tangible fixed assets is the three Airbus A-320 aircraft and five CRJ-200-LR aircraft. The
increase in the value of the aircraft relates to the purchase of a 50-seat CRJ-200-LR at the beginning of 2005, while the
decrease is the depreciation charged at a straight-line rate of 4.38% for the A-320s and 5.00% for the CRJ-200-LRs.
The amounts for the aircraft have been administered in the purchase currency (dollars), but from 1 January 2006 are
administered in euros.
• Twice a year the company checks the net sale value of the aircraft in Aircraft Reference Value, published by the Aircraft
Value Analysis Company (AVAC); at the beginning of 2004 the company also ordered an appraisal of the Candair
fleet in use as at 31 December 2003 from a licensed appraiser (the Canadair fleet is an independent profit centre),
while a further assessment of the net sale value of the aircraft was made in April 2006 by considering any changes that
may have arisen in the assumptions made in the appraisal of 31 December 2003. The management board assesses that
there are no indications of any need for the impairment of assets.
• All long-term liabilities from financing are insured by the creation of a primary lien on two A-320 aircraft (S5-AAA
and S5-AAC, and a reserve A-320 engine) and on all five CRJ-200-LRs (S5-AAD, S5-AAE, S5-AAF, S5-AAG and S5-
AAJ). All the aircraft covered by the lien are the property of Adria Airways.
• The increase in the value of buildings relates to the activation of the new hangar together with the car park.
• The company leased an extra CRJ-200 on 1 November 2004 (operating leasing), and leasing costs thus rose in 2005.
The company had two CRJs on lease as at 31 December 2005.
B5
Adria Airways d.d.
Annual Report 2005
91

Change in tangible fixed assets in 2005
(SIT thousands) Land Buildings
Production
plant and
equipment
- aricraft
Rotating
spare
parts
Other
equipment
Lowvalue
tools
Advances
for tangible
fixed
assets
Tangible
fixed assets
in course of
construction
Total
Historical cost
Balance at
31 December 2004
Direct increases
(investments)
Transfer from investment
in progress
166,343 2,487,827 30,260,077 2,679,566 1,269,391 14,057 100,239 96,179 37,073,679
- - - - - - 12,539 4,188,118 4,200,657
- 843,691 3,238,467 91,051 110,694 558 - (4,284,461) -
Decreases during year - - - (99,450) (52,763) (820) (108,205) - (261,238)
Other changes (exchange
rate differences)
Balance at
31 December 2005
- - 3,373,772 (1,879) - - 5,548 164 3,377,605
166,343 3,331,518 36,872,316 2,669,288 1,327,322 13,795 10,121 - 44,390,703
Adjustment to value
Balance at
31 December 2004
- 1,279,826 13,073,825 1,748,996 1,060,256 11,108 - - 17,174,011
Depreciation during year - 46,689 1,748,721 177,465 52,448 1,183 - - 2,026,506
Decreases during year - - - (31,543) (45,124) (791) - - (77,458)
Increases during year - - - - - - - - -
Other changes (exchange
rate differences)
Balance at
31 December 2005
Net book value as at
31 December 2005
Net book value as at
31 December 2004
- - 1,960,748 (1,257) - - - - 1,959,491
- 1,326,515 16,783,294 1,893,661 1,067,580 11,500 - - 21,082,550
166,343 2,005,003 20,089,022 775,627 259,742 2,295 10,121 - 23,308,153
166,343 1,208,001 17,186,252 930,570 209,135 2,949 100,239 96,179 19,899,668
5.1.2 Long-term financial investments
(SIT thousands) 31. 12. 2005 31. 12. 2004
Investments in shares and participating interests in subsidiaries 224,753 233,523
B5
Investments in shares and participating interests in other companies 24,163 21,086
Other long-term financial investments in debts 2,007 2,300
Total long-term financial investments 250,923 256,909
• Adria Airways d.d. does not compile a consolidated annual report, as the inclusion of the financial statements of
the two subsidiaries in consolidated statements would be of no significance to a true and fair picture of the financial
statements of the Adria Airways Group as a whole.
Adria Airways d.d.
Annual Report 2005
92

Subsidiary Registered office Country
Participating
interest as at
31 Dec 2005
Capital of subsidiary
as at 31 Dec 2005
(SIT thousands)
Net profit
in 2005 (SIT
thousands)
Capital held in susidiary
(SIT thousands)
31. 12. 2005 31. 12. 2004
Amadeus
Slovenija d.o.o.
AAM EAR Servis
d.o.o.
Dunajska 122,
Ljubljana
Gradski zid
Blok 4/8,Skopje
Slovenia 95% 209,012 7,729 197,209 216,909
Macedonia 51% 54,334 24,023 27,454 16,614
TOTAL 224,753 233,523
• Investments in shares and participating interests in associates include NMC d.o.o. of Skopje, where Adria holds 5%
of the capital, an amount of SIT 48 thousand.
Changes in long-term financial investments in 2005
(SIT thousands) Companies in group Associates Other companies Loans to others Total
Balance as at 1 Jan 2005 233,523 - 21,087 2,300 256,910
Increase 19,594 - - - 19,594
Decrease 29,157 - - 297 29,454
Revaluation 793 - 3,077 4 3,874
Balance as at 31 Dec 2005 224,753 - 24,164 2,007 250,924
Adjustment to value
Balance as at 1 Jan 2005 - - 1 - 1
Increase - - - - -
Decrease - - - - -
Balance as at 31 Dec 2005 - - 1 - 1
Net book value as at 1 Jan 2005 233,523 - 21,086 2,300 256,909
Net book value as at 31 Dec 2005 224,753 - 24,163 2,007 250,923
5.1.3 Inventories
(SIT thousands) 31. 12. 2005 31. 12. 2004
Materials 1,750,879 1,738,954
Inventory surpluses - -
Inventory deficits - (2,041)
Adjustment to value (928,129) (977,838)
Total 822,750 759,075
B5
• The majority of the inventories consist of permanent inventories of spare parts and non-durables for aircraft maintenance.
The inventories are scaled and optimised in line with the recommendations of the aircraft manufacturers,
depending on the number of aircraft.
• The company found no outmoded inventories during its inspection at the end of 2005, and thus did not create any
extra value adjustment.
Adria Airways d.d.
Annual Report 2005
93

5.1.4 Operating receivables
(SIT thousands) 31. 12. 2005 31. 12. 2004
Long-term operating receivables 47,092 19,991
Long-term trade receivables from other customers 47,092 19,991
Short-term operating receivables 3,728,524 3,369,331
Short-term receivables from subsidiaries 96,451 32,738
Short-term trade receivables 3,098,064 2,902,847
Short-term receivables from interest - -
Other short-term operating receivables 641,432 536,754
Adjustment to value of short-term operating receivables (107,423) (103,008)
Total operating receivables 3,775,616 3,389,322
B5
Adria Airways d.d.
Annual Report 2005
• Long-term trade receivables from other customers (gross value) record long-term warranties granted for aircraft leasing
(SIT 34.9 million) and other warranties granted (SIT 12.1 million).
• Short-term trade receivables (gross value) record receivables from domestic and foreign customers (of which SIT
2,639,145 thousand is receivables from customers abroad and SIT 555,370 thousand is receivables from customers in
the country). It is important that the company executes constant oversight of customers, and that the receivables are
genuine and collectible.
• Scheduled airlines that are members of IATA charge their monthly receivables and liabilities via the Montreal-registered
Clearing House, which carries out netting each month. The receivables are not insured, and failure to observe
the contractual deadlines is an infringement by the airline and can lead to its expulsion at a later stage. The receivables
from IATA for netting amounted to SIT 1,366,675 thousand as at 31 December 2005. The netted amount was settled
in full in January and February 2006.
• Adria Airways d.d. sells plane tickets via agents inside and outside Slovenia. Monthly accounting and payment discipline
similar to that for airlines also applies to agents, whose receivables are settled via the Bank Settlement Plan
system organised in the country where the plane tickets are sold.
• The company does not have any receivables from members of the management board, members of the supervisory
board, employees with specific powers or internal shareholders.
• The company creates adjustments to the value of receivables in line with the criteria cited in the section on accounting
guidelines. In 2005 it created an additional adjustment to the value of short-term trade receivables (SIT 10,649 thousand),
and received payments in the amount of SIT 117 thousand for receivables previously written-off and scratched.
The company wrote off SIT 861 thousand of receivables in 2005, charging them directly as revaluation expenses.
• Short-term trade receivables are insured partly by bank guarantees and partly by blank bills of exchange, while the majority
are unsecured. The maturity breakdown of short-term trade receivables reveals that 84.6% were not yet overdue
as at 31 December 2005, while 15.4% were overdue, the majority of which were less than 30 days overdue.
• Other short-term operating receivables consist of short-term advances paid for leased aircraft, warranties, receivables
for VAT, receivables for corporate income tax prepayments, receivables for the sale of tickets to points of sale, and
receivables from suppliers for credits recognised but not yet issued.
94

5.1.5 Short-term financial investments
(SIT thousands) 31. 12. 2005 31. 12. 2004
Short-term financial investments in debts (in Slovenia and abroad):
- to banks 39,742 727,012
- to others 7,194 7,194
Short-term receivables from interest 1 72
Short-term portion of long-term financial investments 318 345
Total 47,255 734,623
• Short-term financial investments are mostly in the form of deposits at foreign banks.
5.1.6 Bank balances, cheques, cash
(SIT thousands) 31. 12. 2005 31. 12. 2004
Cash-in-hand and cheques received 13,393 8,657
Cash at banks 107,894 329,203
Total 121,287 337,860
5.1.7 Capital
(SIT thousands) 31. 12. 2005 31. 12. 2004
I. Called-up capital 812,436 812,436
1. Share capital 812,436 812,436
II. Capital surplus 3,630,211 3,630,211
III. Profit reserves 1,862,022 4,004,560
3. Reserves under articles of association 134,551 134,551
4. Other profit reserves 1,727,471 3,870,009
IV. Retained earnings - 129,511
V. Net profit for financial year - 21,234
VI. Capital revaluation adjustments 1,319,766 1,320,388
1. General capital revaluation adjustment 1,307,396 1,307,396
2. Specific capital revaluation adjustment 12,370 12,992
Total 7,624,435 9,918,340
• The called-up capital consists solely of the share capital, is defined in the company’s articles of association and in the
companies register, and has been subscribed to as appropriate by the shareholders. The share capital amounts to SIT
812,436 thousand, and is equal to the registered capital. It is divided into 406,218 ordinary shares with a nominal
value of SIT 2,000, which have been paid up in full. All the ordinary shares were a single issue.
• All the shares are of the same class and are issued as book-entry securities. The number of shares did not change during
the year.
• The company does not hold any treasury shares, and did not hold any during the financial year.
• The book value of a share was SIT 18,769.30 as at 31 December 2005.
• At Adria Airways d.d.’s 19th general meeting, the company’s distributable profit for the 2004 financial year in the
B5
Adria Airways d.d.
Annual Report 2005
95

amount of SIT 150,745,148,40 was distributed as follows:
- SIT 75,372,574.20 to other reserves
- SIT 75,372,574.20 to retained earnings
• In 2006 the management board and the supervisory board proposed that the net loss for the financial year be covered
from the following capital items:
- SIT 75,372,574.20 from retained earnings
- SIT 2,217,910,783.40 from other profit reserves
• A final resolution on the settlement of the net loss will be passed by the general meeting when the management
board’s annual report is debated.
• In its articles of association, the company defines the purpose of its reserves as follows:
- The capital surplus was created during privatisation and recapitalisation and is to be used under the conditions and
for the purposes set out by law; the capital surplus in the amount of SIT 3,630,211 thousand was unchanged.
- The profit reserves consist of the reserves under the articles of association (SIT 134,551 thousand) created in the
amount of 50% of the net profit for the 2002, 2003 and 2004 financial years in accordance with the articles of association.
The other profit reserves amount to SIT 1,727,471 thousand, and decreased in 2005 by the portion used
to cover the loss in the same year. The reserves under the articles of association can be used for loss coverage, for
increases in the share capital and for capital expenditure. The other profit reserves can be used for any purpose in
accordance with law, the articles of association and company’s business policy.
• The general capital revaluation adjustment (SIT 1,307,396 thousand) relates to the revaluation of the share capital in
previous years.
• The specific revaluation capital adjustment in the amount of SIT 12,370 thousand includes the revaluation adjustment
associated with tangible fixed assets.
5.1.8 Long-term financial and operating liabilities
(SIT thousands) 31. 12. 2005 31. 12. 2004
Long-term financial liabilities to banks 13,401,306 4,219,630
Long-term financial and operating liabilities to others 6,650 5,392,890
Skupaj 13,407,956 9,612,520
B5
• The portion of long-term loans and liabilities from financial leasing falling due for payment in the 2006 financial year
in the amount of SIT 712,277 thousand is disclosed as short-term financial and operating liabilities.
Long-term financial liabilities to banks
(SIT thousands) 31. 12. 2005 31. 12. 2004
Long-term loans from domestic banks 13,401,306 2,733,971
Long-term loans from foreign banks - 1,485,659
Skupaj 13,401,306 4,219,630
Adria Airways d.d.
Annual Report 2005
96

Long-term financial and operating liabilities to others
(SIT thousands) 31. 12. 2005 31. 12. 2004
Long-term loans from other companies abroad - 5,385,988
Long-term operating liabilities from financial leasing 4,200 1,836
Long-term operating liabilities to others 2,450 5,066
Total 6,650 5,392,890
• Long-term loans from other companies abroad (the financial institution CRAFT Jersey) and long-term loans from
foreign banks were repaid early in 2005 by the raising of new loans at domestic banks for a term of ten years.
• The company also raised a new long-term loan for a term of 12 years at a domestic bank for financing a new CRJ 200
aircraft.
• The long-term loans are denominated in euros.
• The repayment of the principal and the interest is generally made on a monthly basis.
• SIT 7,178,078 thousand of long-term loans mature in more than five years.
• All long-term financial liabilities are insured with a lien on aircraft.
5.1.9 Short-term financial and operating liabilities
(SIT thousands) 31. 12. 2005 31. 12. 2004
Short-term financial liabilities to banks 1,621,493 781,031
Short-term operating liabilities from advances 72,595 50,410
Short-term trade payables 4,745,344 3,472,820
Short-term financial and operating liabilities to companies in group 12,325 17,836
Short-term financial and operating liabilities to others 895,002 1,595,847
Total 7,346,759 5,917,944
Short-term financial liabilities to banks
(SIT thousands) 31. 12. 2005 31. 12. 2004
Short-term portion of loans from domestic banks 712,277 437,435
Short-term financial liabilities to banks 909,216 -
Short-term portion of long-term loans from foreign banks - 343,596
Total 1,621,493 781,031
• The short-term portion of loans from domestic banks consists exclusively of the liabilities from long-term loans that
fall due for payment within a period of one year.
• Short-term financial liabilities consist of liabilities to domestic banks. The short-term loans are denominated in euros.
Short-term trade payables
B5
Adria Airways d.d.
Annual Report 2005
(SIT thousands) 31. 12. 2005 31. 12. 2004
Short-term trade payables to domestic suppliers 1,100,841 749,364
Short term trade payables to foreign suppliers 3,644,503 2,723,456
Total 4,745,344 3,472,820
97

• Short-term trade payables derive from liabilities for goods and services received inside Slovenia and abroad. The shortterm
operating liabilities fall due for payment between 8 and 60 days after the delivery of the goods, the provision of
the services, or the issue of the invoice.
Short-term financial and operating liabilities to others
(SIT thousands) 31. 12. 2005 31. 12. 2004
Short-term portion of loans from financial institutions - 677,544
Short-term financial liabilities to others 35,904 -
Short-term operating liabilities to the government sector 121,608 173,135
Short-term operating liabilities to employees 426,903 480,254
Short-term portion of liabilities from financial leasing 794 835
Other short-term operating liabilities 309,793 264,079
Total 895,002 1,595,847
• Other than its liabilities for wages and salaries for December 2005, Adria Airways d.d. did not have any operating
liabilities to the management board, members of the supervisory board or employees as at 31 December 2005.
• Other short-term operating liabilities consist primarily of liabilities to JAT Airways of Belgrade under a court ruling.
5.1.10 Off-balance-sheet assets/liabilities
(SIT thousands) 2005 2004
Mortgages 14,917,675 20,513,424
Guarantees 610,622 603,158
Others 267,145 271,820
Total 15,795,442 21,388,402
B5
Adria Airways d.d.
Annual Report 2005
98
• The company records mortgages (liens) registered in favour of domestic banks for long-term loans for purchasing
aircraft among the off-balance-sheet items.
• The stock of mortgages changed owing to the early repayment of certain long-term loans, thus reducing mortgages,
which undergo no change in basic value until final repayment of the loan.
• The stock of loans insured by mortgage was SIT 14,113,583 thousand as at 31 December 2005.
• Guarantees include payment guarantees granted in favour of suppliers for the purchase of goods and services in Slovenia
and abroad, and guarantees received for insuring receivables.
5.2 Additional disclosures of items in the income statement
Costs in terms of functional group
(SIT thousands) 2005 2004
Production costs 28,034,881 25,775,206
Distribution costs 3,957,573 4,030,910
General administrative costs 1,036,855 1,037,049
Total 33,029,309 30,843,165

• The production costs of quantities sold include the direct costs of airport services and other services, materials, labour
and amortisation/depreciation, and general production costs.
• Distribution costs represent the costs of marketing and in-house sales inside Slovenia and abroad and the costs of sales
by agents inside Slovenia and abroad (commission, other distribution costs).
• General administrative costs represent the costs of administrative tasks for the entire company.
There follows a breakdown of revenues and costs.
5.2.1 Net sales revenues
Net sales by business segment
(SIT thousands) 2005 2004
Scheduled services (passenger) 23,733,658 24,604,747
Scheduled services (cargo) 843,232 911,504
Charter services (passenger) 4,272,350 2,766,904
Aircraft servicing for third parties 2,154,199 2,486,151
Miscellaneous 1,187,063 874,612
Total 32,190,502 31,643,918
• The company’s core line of business is international passenger air transport services, which account for 87% of its
total sales revenues.
• The increasingly important line of aircraft servicing for third parties accounts for 6.7% of revenues, while cargo transport
accounts for 2.6%.
Regional breakdown of net sales revenues
(SIT thousands) 2005 2004
Sales revenues in Slovenia 310,488 358,146
Sales revenues abroad 31,880,014 31,285,772
Total 32,190,502 31,643,918
5.2.2 Costs of merchandise, materials and services
(SIT thousands) 2005 2004
Historical cost of merchandise sold 16,086 19,551
Material costs 7,517,980 5,913,147
Service costs 14,925,401 14,775,884
Total 22,459,467 20,708,582
B5
• Costs of merchandise, material and services were up 8.5% from the previous year, primarily as a result of a rise in
aviation fuel prices and an increase in the amount of flying.
Adria Airways d.d.
Annual Report 2005
99

Material costs
(SIT thousands) 2005 2004
Aviation fuel 5,643,723 3,864,031
Merchandise and material for passengers 689,045 667,702
Replacement parts for aircraft maintenance 786,227 959,105
Other material costs 398,985 422,309
Total 7,517,980 5,913,147
Service costs
(SIT thousands) 2005 2004
Airport costs 5,423,823 5,504,401
Navigation costs 1,876,678 1,957,418
Maintenance costs 2,232,753 2,168,694
Rents 1,505,628 2,084,682
Banking and insurance costs 283,980 293,109
Reimbursement of expenses 346,631 320,594
Costs of transport services 338,690 412,421
Other service costs 2,917,218 2,034,565
Total 14,925,401 14,775,884
Other service costs include training, cargo, student pay, passenger fees, and intellectual and personal services.
5.2.3 Labour costs
(SIT thousands) 2005 2004
Wages and salaries 4,623,996 4,234,232
Social security insurance 755,370 698,204
Pension insurance 261,688 261,439
Other labour costs 1,307,803 1,260,677
Total 6,948,857 6,454,552
B5
Adria Airways d.d.
Annual Report 2005
100
• Other labour costs in 2005 included allowance for annual leave, costs for travel to work, severance pay, loyalty bonuses,
payroll tax, and wages and salaries paid to employees at representative offices abroad.
5.2.4 Write-downs
Amortisation/depreciation
(SIT thousands) 2005 2004
Depreciation of tangible fixed assets and amortisation of intangible assets 2,044,831 1,869,889
Revaluation expenses for intangible assets and tangible fixed assets 67,835 32,254
Total 2,112,666 1,902,143

Revaluation operating expenses for current assets
• Revaluation operating expenses for current assets relate to the adjustment to the value of receivables (SIT 10,649
thousand), the direct write-off of receivables (SIT 861 thousand) and the indirect write-off of liabilities (SIT 44,890
thousand).
5.2.5 Financial revenues
(SIT thousands) 2005 2004
Financial revenues from participating interests 49,382 9,113
- in companies in group 43,265 6,913
- other financial revenues 6,117 2,200
Financial revenues from long-term receivables 1,791 638
- other financial revenues from long-term receivables 1,791 638
Financial revenues from short-term receivables 464,445 821,201
- from companies in group 2,976 1,742
- other financial revenues from short-term receivables 461,469 819,459
Total 515,618 830,952
• Financial revenues are almost entirely revenues from interest received and exchange rate gains.
• Other financial revenues from short-term receivables consist of interest revenues (SIT 8,485 thousand) and exchange
rate gains (SIT 452,984 thousand) arising from conversion of foreign currencies.
5.2.6 Financial expenses
(SIT thousands) 2005 2004
Financial expenses from write-downs of financial investments - -
- Revaluation financial expenses for other financial investments - -
Interest expenses and financial expenses for other liabilities 1,895,088 1,568,088
- for companies in group 2,670 3,687
- for associates - 2
- other interest expenses and financial expenses for other liabilities 1,892,418 1,564,399
Total 1,895,088 1,568,088
• Financial expenses mostly relate to interest expenses from long-term borrowing (SIT 894,430 thousand, of which SIT
84,273 thousand relates to tax on interest), expenses for exchange rate losses (SIT 703,868 thousand) and expenses for
the early termination of loan agreements for long-term foreign currency loans (SIT 294,120 thousand).
B5
Adria Airways d.d.
Annual Report 2005
101

5.2.7 Net profit
(SIT thousands) 2005 2004
Net profit (loss) from ordinary activities (2,170,911) 169,394
Extraordinary profit (loss) (122,372) (71,703)
Net profit (loss) for the accounting period (2,293,283) 42,468
• The company made an operating loss of SIT 791,441 thousand in 2005, primarily because of a decline in the average
sales price and record high aviation fuel prices.
• The company recorded a loss of SIT 1,379,470 thousand in its financial operations, primarily as a result of the high
costs of financing aircraft, exchange rate losses owing to the rise in the dollar and the costs of early termination of
loan agreements.
• This resulted in a net loss of SIT 2,293,283 thousand.
General revaluation in order to preserve capital purchasing power
(SIT thousands) Sprememba tečaja evra Rast cen življenjskih potrebščin
Change - 0.07 % 2.3 %
General revaluation adjustment (5,337) 175,362
Net profit (loss) for accounting period after revaluation to preserve capital
purchasing power
(2,287,946) (2,468,645)
• Were the capital to be adjusted for the change in the euro exchange rate, Adria Airways d.d.’s net profit (loss) in 2005
would be SIT 5,337 thousand better, while were the capital to be adjusted for the consumer price index, the net profit
(loss) would be SIT 175,362 thousand worse.
B5
Adria Airways d.d.
Annual Report 2005
102

6. Other disclosures
6.1 Information on groups of persons
Total earnings received in the 2005 financial year by groups of persons for holding office or performing tasks in accordance
with Article 253 of the Companies Act
(SIT thousands) 2005
Members of the management board 59,012
Members of the supervisory board 5,166
- external (shareholder representatives) 3,359
- internal (workers’ representatives) 1,807
Employees on special contracts 308,254
Total 372,432
All the amounts are gross, excluding employer’s contributions.
• The earnings of the management board include salaries, fringe benefits, annual leave allowance, other emoluments
(golden handshakes) and reimbursement of expenses. The earnings of employees on special contracts to whom the
collective agreement does not apply include wages and salaries, fringe benefits, annual leave allowance, reimbursement
of expenses, and other earnings (loyalty bonuses, severance pay, etc.). The earnings of supervisory board members
include session fees and travel expenses.
6.2 Mandatory indicators
2005 2004
Self-financing ratio 26.63% 38.69%
Long-term financing ratio 73.48% 76.21%
Fixed asset investment ratio 81.57% 77.77%
Long-term investment ratio 82.61% 78.85%
Equity to fixed assets ratio 0.33 0.50
Quick ratio 0.02 0.18
Accelerated liquidity ratio 0.55 0.77
Current ratio 0.66 0.89
Operating efficiency ratio 0.98 1.03
Net return on equity 0.43%
B6
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Annual Report 2005
103

Explanation of indicators
• The self-financing ratio is the ratio of capital to liabilities in the broader sense, and shows level of equity financing for
the company’s total assets. There was a decline of 12.06 percentage points in this indicator during 2005, the reason
being new long-term borrowing, short-term revolving loans and a decline in capital in order to cover losses.
• The long-term financing ratio is the ratio of long-term sources of financing (capital, long-term provisions and longterm
financial and operating liabilities) to liabilities in the broader sense. At 73.48% in 2005, it was down 2.73
percentage points from the previous year, primarily because of the net loss and an increase in long-term financial
liabilities to banks.
• The fixed asset investment ratio shows the ratio of fixed assets (intangible and tangible) to total assets. Tangible fixed
assets accounted for 81.57% of all assets in 2005; air transport, the company’s principal line of business, demands
high investment in fixed assets. The fixed asset investment ratio rose by 3.8 percentage points during 2005, the company
having purchased a new aircraft and built a new hangar.
• The long-term investment ratio shows the ratio of fixed assets and long-term operating receivables to total assets. The
ratio of 82.61% in 2005 points to a trend for long-term assets to account for an increasing proportion of total assets.
• The equity to fixed assets ratio is the ratio of capital (shareholders’ equity) to fixed assets (intangible assets and tangible
fixed assets), and indicates the level to which fixed assets are covered by the company’s capital. The ratio was lower
in 2005 than in 2004, the reason being a 23% decline in capital during the year and an increase in fixed assets.
• The quick ratio, accelerated liquidity ratio and current ratio indicate the company’s solvency. The current ratio is
the ratio of current assets, deferred expenses and accrued revenues to short-term financial and operating liabilities,
accrued expenses and deferred revenues. The accelerated liquidity ratio is calculated by subtracting inventories from
the current assets, deferred expenses and accrued revenues, while the quick ratio ignores inventories, operating receivables
and short-term financial investments. All three indicators deteriorated in 2005.
• The operating efficiency ratio is the ratio of operating revenues to operating expenses. The ratio was below 1 in 2005,
which indicates the company’s operating loss.
B6
• The net return on equity is the ratio of the net profit generated during the accounting period to the average capital
(excluding the net profit for the accounting period). This is less than zero, owing to the operating loss.
Adria Airways d.d.
Annual Report 2005
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7. Events after the balance sheet date
The management board assesses that there have been no events subsequent to the balance sheet date that could have a
significant impact on the financial statements for 2005.
The new Slovenian Accounting Standards entered into force on 1 January 2006, but the management board assesses
that no significant effects can be expected on the financial statements for 2006.
B7
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Annual Report 2005
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8. Financial Statements – Expanded Form
8.1 Balance sheet (expanded form according to SAS)
(SIT thousands) 31. 12. 2005 31. 12. 2004
Assets 28,627,117 25,633,650
A. Fixed assets 23,602,178 20,192,753
I. Intangible assets 43,102 36,176
1. Long-term deferred operating expenses 43,102 36,176
II. Tangible fixed assets 23,308,153 19,899,668
1. Land and buildings 2,171,346 1,374,344
a) Land 166,343 166,343
b) Buildings 2,005,003 1,208,001
2. Production plant and equipment 20,864,649 18,116,822
3. Other plant equipment 262,037 212,084
4. Fixed assets in acquisition 10,121 196,418
a) Advances for tangible fixed assets 10,121 100,239
b) Fixed assets under construction or in production - 96,179
III. Long-term financial investments 250,923 256,909
1. Participating interests in companies in group 224,753 233,523
5. Other long-term participating interests 24,163 21,086
6. Other long-term financial receivables 2,007 2,300
B. Current assets 4,766,908 5,220,880
I. Inventories 822,750 759,075
1. Materials 822,750 759,075
II. Operating receivables 3,775,616 3,389,322
a) Long-term operating receivables 47,092 19,991
4. Long-term operating receivables from others 47,092 19,991
b) Short-term operating receivables 3,728,524 3,369,331
1. Short-term trade receivables 2,990,641 2,799,839
B8
2. Short-term operating receivables from companies in group excluding associates 96,451 32,738
4. Short-term operating receivables from others 641,432 536,754
III. Short-term financial investments 47,255 734,623
4. Short-term investments in others 47,255 734,623
IV. Bank balances, cheques, cash 121,287 337,860
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31. 12. 2005 31. 12. 2004
C. Deferred expenses and accrued revenues 258,031 220,017
Off-balance-sheet assets 15,795,442 21,388,402
Capital and liabilities 28,627,117 25,633,650
A. Capital 7,624,435 9,918,340
I. Called-up capital 812,436 812,436
1. Share capital 812,436 812,436
II. Capital surplus 3,630,211 3,630,211
III. Profit reserves 1,862,022 4,004,560
3. Reserves under articles of association 134,551 134,551
4. Other profit reserves 1,727,471 3,870,009
IV. Retained earnings - 129,511
V. Net profit for financial year - 21,234
VI. Capital revaluation adjustments 1,319,766 1,320,388
1. General capital revaluation adjustment 1,307,396 1,307,396
2. Specific capital revaluation adjustment 12,370 12,992
B. Provisions 4,015 4,962
3. Other provisions 4,015 4,962
C. Financial and operating liabilities 20,754,715 15,530,464
a) Long-term financial and operating liabilities 13,407,956 9,612,520
2. Long-term financial liabilities to banks 13,401,306 4,219,630
8. Long-term financial and operating liabilities to others 6,650 5,392,890
b) Short-term financial and operating liabilities 7,346,759 5,917,944
2. Short-term financial liabilities to banks 1,621,493 781,031
3. Short-term operating liabilities from advances 72,595 50,410
4. Short-term trade payables 4,745,344 3,472,820
6. Short-term financial and operating liabilities (including bonds)
to companies in group excluding associates
12,325 17,836
8. Short-term financial and operating liabilities to others 895,002 1,595,847
D. Accrued expenses and deferred revenues 243,952 179,884
B8
Off-balance-sheet liabilities 15,795,442 21,388,402
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Annual Report 2005
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8.2 Income statement (expanded form according to SAS)
(SIT thousands) 2005 2004
1. Net sales revenues 32,190,502 31,643,918
2. Production costs of products sold (including amortisation/depreciation)
and historical cost of merchandise sold
(28,034,881) (25,775,206)
3. Gross return on sales (1-2) 4,155,621 5,868,712
4. Distribution costs (including amortisation/depreciation) (3,957,573) (4,030,910)
5. Administrative costs (including amortisation/depreciation) (1,036,855) (1,037,049)
a) Estimated general and administrative expenses (953,078) (887,956)
b) Revaluation operating expenses for intangible assets
and tangible fixed assets
(67,835) (32,254)
b) Revaluation operating expenses for current assets (15,942) (116,839)
6. Other operating revenues (including revaluation operating revenues) 47,366 105,777
7. Financial revenues from participating interests 49,382 9,113
a) Financial revenues from participating interests in companies in group
excluding associates
43,265 6,913
c) Other financial revenues from participating interests (including revaluation financial revenues) 6,117 2,200
8. Financial revenues from long-term receivables 1,791 638
c) Other financial revenues from long-term receivables
(including revaluation financial revenues)
1,791 638
9. Financial revenues from short-term receivables 464,445 821,201
a) Financial revenues from interest and short-term receivables from companies
in group excluding associates
c) Other interest revenues and financial revenues from short-term receivables
(including revaluation financial revenues)
2,976 1,742
461,469 819,459
10. Financial expenses from write-downs of financial investments - -
c) Revaluation financial expenses for other financial investments - -
11. Interest expenses and financial expenses for other liabilities (1,895,088) (1,568,088)
a) Financial expenses for interest and other liabilities to companies in group
excluding associates
(2,670) (3,687)
b) Financial expenses for interest and other liabilities to associates - (2)
c) Other interest expenses and financial expenses for other liabilities (1,892,418) (1,564,399)
B8
Adria Airways d.d.
Annual Report 2005
13. Net profit from ordinary activities (2,170,911) 169,394
14. Extraordinary revenues 9,851 14,778
15. Extraordinary expenses (132,223) (86,481)
a) Extraordinary expenses less capital revaluation adjustment (132,223) (86,481)
16. Extraordinary profit/loss (14-15) (122,372) (71,703)
17. Corporate income tax on extraordinary operations - (55,223)
19. Net profit (loss) for the accounting period (2,293,283) 42,468
108

3 rd part
Auditor's Report

C
Adria Airways d.d.
Annual Report 2005
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B7
C
Adria Airways d.d.
Annual Report 2005
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Production:
Adria Airways,
The Airline of Slovenia
Design:
LUKS Studio
Photos:
Branko Čeak,
Borut Peterlin
Adria Airways archive
Translated by:
Amidas
Printed by:
Tiskarna Schwarz
July 2006