Annual report 2009 - Adria Airways

RepAnnual ReportPart 12

Ta b l e o f c o n t e n t sINTRODUCTION................................................................................................................................................................................... 41. Key Achievements of the Business Year........................................................................................................... 41.1. Key Achievements of the Business Year in Figures.................................................................................... 41.2. Important Events in 2009.......................................................................................................................................... 71.3. Letter from the Management Board.................................................................................................................. 81.4. Report by the President of the Supervisory Board.................................................................................... 92. General Information.................................................................................................................................................. 112.1. About the Company................................................................................................................................................. 112.2. Ownership Structure................................................................................................................................................. 112.3. Fleet..................................................................................................................................................................................... 122.4. Company History........................................................................................................................................................ 163. Managing the Company........................................................................................................................................ 173.1. Management Bodies................................................................................................................................................. 173.2. Management of Subsidiary Companies....................................................................................................... 183.3. Organizational Structure........................................................................................................................................ 19BUSINESS REPORT............................................................................................................................................................................ 204. Mission, Vision and Company Strategy......................................................................................................... 215. Care for our Passengers........................................................................................................................................... 226. Operating Conditions in 2009............................................................................................................................. 247. Business Segments.................................................................................................................................................... 267.1. Scheduled Flights....................................................................................................................................................... 267.2. Charter Services........................................................................................................................................................... 297.3. Leasing out Aircraft.................................................................................................................................................... 307.4. Marketing the Media Space................................................................................................................................. 317.5. Cargo Transport............................................................................................................................................................ 347.6. Aircraft Servicing for Third Parties..................................................................................................................... 357.7. Education, Flight School......................................................................................................................................... 378. Investments.................................................................................................................................................................... 419. Partnerships.................................................................................................................................................................... 4210. Quality................................................................................................................................................................................ 4311. Information Solutions............................................................................................................................................... 4412. Risk Management....................................................................................................................................................... 4513. Analysis of Business Results.................................................................................................................................. 5114. Events after the end of the Business Year.................................................................................................... 5615. Plans for the Future.................................................................................................................................................... 56SUSTAINABILITY REPORT............................................................................................................................................................. 5816. Employees....................................................................................................................................................................... 6917. Environment................................................................................................................................................................... 6118. Relations with Wider Social Environment.................................................................................................... 6219. Corporate Communication.................................................................................................................................. 6320. Passenger Satisfaction.............................................................................................................................................. 6621. Research and Development................................................................................................................................. 6722. Who’s Who, Contacts................................................................................................................................................ 69Adria Airways / Annual Report 2009 / BUSINESS REPORT3

Introduction1. Ke y Ac h i e v e -m e n t s o f t h eBu s i n e s s Ye a r1.1. Key Achievementsof the Business Yearin Figures• DevelopmentIndicators for AdriaAirways d.d. from2007-20091. 2. Important Events in2009• The First Quarter• The Second Quarter• The Third Quarter• The Fourth Quarter1. 3. Letter from theManagementBoard1. 4. Report by thePresident of theSupervisory BoardItem Unit 2009 2008 2007Revenue and resultsTotal revenue in EUR 164,174,820 207,242,233 181,998,193Revenue – passenger transport in EUR 139,636,782 171,694,491 137,226,061Operating profit in EUR -12,205,669 1,217,161 4,173,510Net profit/loss in EUR -13,991,691 -3,240,977 425,272Balance sheet and cash flowAssets in EUR 147,061,431 151,341,079 159,765,355Equity in EUR 27,880,447 30,970,698 40,304,957Equity/assets in % 19 20 25Cash flow from operating activities in EUR 6,120,385 18,514,681 16,890,914Physical dataNumber of passengers flown 1,143,542 1,302,172 1,136,431Load factors in % 63.3 65.6 67.1Number of flights 26,133 27,183 23,727Seat capacity offered 971 924 776Seat kilometres offered 1,886,328 2,055,981 1,767,966Passenger-kilometres 1,193,415 1,348,845 1,185,519Average distance in km 905 888 869Fuel consumption in tons 57,786 63,240 54,662Planes utilization rate in h/day 8.99 9.79 9.82EmployeesEmployees – as at 31 December 705 719 6791.1. Key Achievements ofthe Business Year in FiguresThe economic crisis and the slowdown of economicactivity turned out to be a serious riskfor the Slovenian economy and Adria Airways.The loss of revenue is primarily the result of theimpact of the crisis.The reason for a 21% decrease in revenue isabove all the lower prices of air tickets (theshift of demand from the high price class toeconomy class and consequently the decreaseof the nominal value of the used coupon)owing to the slack demand on a global scale,lower cabin efficiency and partly to the loweraverage daily use of aircraft.In 2009, the kerosene price again had a decisiveimpact on Adria’s financial result. The relativelyhigh oil price in combination with the poordemand and low revenue per passenger (dueto low air ticket prices and modified structureof passengers at the expense of the growth4

of the portion of passengers in the economyclass) has an impact on the negative financialresult also in this year, especially in the secondhalf of the year.The latest data of AEA show that the recessionin the aviation industry is not over yet as thenumber of passengers remains approximatelyat a 2% lower level in comparison to last yearwhen the number of passengers already startedto decline. The decrease in the average revenueper passenger and passenger kilometrethat amounted to over 15% in 2009 and willpresumably not return to the level of 2008 before2012 had an even greater impact on thebad results of air carriers around the world. Anadditional decline in revenue per passengeris attributable to the lower prices of businessclass tickets; the drop in prices for these wasconsiderably bigger than the fall in prices foreconomy class tickets, which are necessary inorder to ensure the cash flow.Despite the above-mentioned parametersthat had an impact on the financial result ofthe company, upon an analytical review ofthe balance sheet we cannot be dissatisfiedwith the operational result. Data show that thenumber of flights and number of passengersincreased in the 2006–2008 period and slightlydecreased in 2009. However, the companymanaged to keep the demand at the levelof 2007 and even enhanced it in spite of thepoor demand. Compared to 2007, when thecompany did not operate at a loss, the numberof flights increased by 10% but the incomewas lower due to the lower occupancy of theaircraft and the lower ticket prices.activities that initiate further development ofair transport and the company as a whole.Regardless of the difficult conditions of conductingbusiness, Adria also managed to realizeits growth strategy. For a number of years,we have been observing that the capacity ofthe A320 aircraft is inappropriate for Adria’s operation,at the same time the aircraft started tolose their competitiveness with age. When theprices of aircraft leasing decreased in the middleof 2009, we took advantage of the recessionin the air transport sector and concluded leasingcontracts for new, more competitive A319aircraft. Thus, two new aircraft will be added toour fleet in the next year.We are aware of the fact that thechanged market conditions and theprevailing negative business result callfor new approaches. Therefore, wehave already taken measures in thefields of adjusting capacities, reductionof costs as well as increase of incomeand investments to mitigate the consequencesof the global financial andeconomic crisis. New strategic goalswill enable the company not only tosuccessfully manage the consequencesof the global crisis, but also primarily tosuccessfully conduct business in future.Data show that thenumber of flights andnumber of passengersincreased in the2006–2008 period andslightly decreased in2009.However, thecompany managedto keep the demandat the 2007 leveland even managedto enhance.However, 2009 was not only characterizedby the financial crisis it was also a year ofrealization of the long-anticipated merging ofthe administrative facilities of Adria Airways.After long years of waiting, the company builta new, energy-efficient commercial buildingat Brnik. The merging contributed to a betterinternal and external cohesion of the companyand hence provided for better organizationand rationalization of business focusing onAdria Airways / Annual Report 2009 / BUSINESS REPORT5

Development Indicators for Adria Airways d.d. from 2007-2009Revenuesdependedon the recessionandthe decreasein demand24018012060240 0180120600Revenue in EURRevenue in EUR€ 210,000,000€ 210,000,000 175,000,000€ 175,000,000 140,000,000€ 140,000,000 105,000,000€ € 105,000,000 70,000,000€ 70,000,000 35,000,000€ 35,000,0002007 2008 20092007 2008 2009Revenues depended on the recession and the decreasein the demandSummer181,998,193181,998,193SummerWinter207,242,233207,242,233Winter164,174,820164,174,820Number of Weekly FrequenciesSummer Number of Winter Weekly Frequencies261 250225240 212 228 227261 250180 Number 225 212of Weekly Frequencies 228 22712060261 250225 2007 200822820092270 2122007 2008 2009In spite of the difficult situation the number of weeklyfrequencies (primarily in the winter season) remains2007 the same, hence 2008 our passenger 2009 is offereda high-quality and diverse service€ 80,000,000 € 80,000,000€ 60,000,000 € 60,000,000€ 40,000,000 € 40,000,000€ 20,000,000 € 20,000,000Number of All Passengers Carried1,400,0001,300,0001,200,0001,100,0001,000,000900,000800,000700,0002007 2008 2009Over a million passengers flown for the fourth timein independent Slovenia.Long-term Long-term Financial Financial Liabilities Liabilities (EUR) (EUR)€ € € €80,926,3691,136,43180,926,36969,952,1161,302,17269,952,11664,918,46664,918,4662007 2007 2008 2008 2009 2009Long-term indebtedness is decreasingdespite the new investments1,143,542Number of FlightsNumber of Flights28,00028,00021,00021,00014,00014,00023,727 27,183 26,13323,727 27,183 26,1337,0007,000002007 2008 20092007 2008 2009There was a 4% decline in the number ofpassenger flights compared to 200814131211Number of Aircraft in the FleetNumber of Aircraft in the Fleet141312112007 2008 20092007 The number of 2008 aircraft is adjusted 2009 accordingto demand6

1. 2. Important Events in 2009The First Quarter• At the end of January 2009, a fourth CRJ-900aircraft, registration number S5-AAO, wasadded to our fleet, which was leased fromthe German leasing company GOAL.• Due to the general economic recessionand financial sector crisis, the ManagementBoard of the company prepared a packageof measures already in February 2009; interalia, the Management Board decided to cutall salaries and wages by 5%.• In March, the contract for the leasing of theAirbus in Libya was renewed for another 6months until October 2009.• The owners and employees undertook thecapital injection for Adria Airways.The Second Quarter• The new regular route to Madrid was introducedwith the summer flight schedule.• According to data from Bombardier, theCanadian manufacturer of Canadair RegionalJet aircraft, the general reliability at thedeparture of the CRJ100/200 series aircraftis highest at our company. In May 2009,Adria Airways was presented an award forthe most reliable air carrier for 2008 (AnnualAirline Reliability Performance Award 2008)by Bombardier Aerospace.• In May 2009, an operating leasing contract fortwo new Airbus A-319 aircraft was signed.• Due to fundamentally changed operatingconditions and great deviations from theoriginal plans, particularly concerning revenue,the company set up a supplementarybusiness plan in June.The Third Quarter• According to the study by Kline & Kline,the expert and non-expert public rated usamong the top quarter of the most reputablecompanies in Slovenia. We placed 22ndamong the 100 most reputable companies inSlovenia. Compared to last year we advanced14 positions, hence the professional businesspublic ranked us among rising stars.• The IATA “BCBP Platinum Airline” award formeeting the requirements connected to theintroduction of the 2 D barcode for check-indocuments ahead of schedule.• A full membership contract with the StarAlliance airlines association was signed.• A new Supervisory Board was appointed.• The last landing of the A-320, registrationnumber S5-AAC, at the Ljubljana Jože PučnikAirport (Ljubljana–Samos–Ljubljana).• Exchange of the ordered CRJ-1000 aircraftwith a CRJ-900 from Bombardier andpostponement of the originally planneddelivery date from spring 2010 to spring2011.The Fourth Quarter• Moving into the new office building –centralization of the company at onelocation.• After almost four years the Boeing 737-500registration number S5-AAM, was returnedto the owning company, Ukraine InternationalAirlines.• Renewal of the operating leasing of the CRJ-100 aircraft until 2011.• Restructuring of the Airbus fleet – sale ofone A-320 at the beginning of October andof another in December 2009.• We celebrated our tenth anniversary offlights to Pristina, the capital of Kosovo.• The millionth passenger at the beginning ofNovember.• The 3 and a half year long operation of theA320 aircraft in Libya ended in October 2009• Change in the significant share of the company.In December, Posebna družba zapodjetniško svetovanje d.d. (special companyfor enterprise consultancy) acquired a87.38% of the voting rights.The millionthpassenger atthe beginningof November.Adria Airways / Annual Report 2009 / BUSINESS REPORT7

1. 3. Letter from the Management BoardLadies and Gentlemen!Tadej Tufek M.Sc.,President of the Management Board & CEOandMarjan Ravnikar M.Sc.,Vice-president of the Management BoardWe experienced one of the most difficult periodsin the history of global and European air transport.The economic crisis that occurred after thefinancial and real estate market breakdown inEurope hit the air transport branch harder thanmost other industries.Just like an individual that cannot exist ontheir own, we decided to connect with all thestakeholders in our business life. We unitedknowledge, experience and ideas and with joinedefforts tried to soothe the consequences of thisserious economic crisis as best as we could inthis turbulent period. In 2009, the high negativeeconomic growth amounted to as much as -7.8%in Slovenia and was also the reason for a veryhigh decrease in air transport on a global level;according to the estimation of the InternationalAir Transport Association (IATA) this decreaseamounted to as much as 15% and analysts claimthat this is the highest decrease in the past 30years and also affected Adria Airways. Revenueswere lower by as much as 21%; most of the dropof revenues was recorded in the first half of theyear and despite joined efforts the decrease couldnot be made up by the end of the year. Togetherwith our business partners, employees and otherstakeholders of our Company as well as ownersand the supervisory bodies we managed toadjust the costs of the Company to the changedcircumstances; however, we could not makeup the entire loss of income. The result was anoperating loss of the Company in the amount of€12.2 million.Despite a difficult business year, we did not forgetabout our business partners. Dear partners, in2009 we prepared quite a number of innovations,which will be upgraded in the next years and withthe help of which we want to bring our productseven closer to your needs and requirements. Inthe following year, Adria Airways will celebrate its50th anniversary. To celebrate this occasion weprepared some promotional and sales activities,with which we already join activities for theforthcoming anniversary of our Company. Thespecial offer labelled as 148, which was preparedfor the celebration of the 48th anniversary of ourCompany is already being combined with theoffers 149 and 150. Dear business partners, atthis occasion we kindly call your attention to ourforthcoming 50th anniversary.The economic recession has, as already mentioned,quite a number of negative impacts; however,it also offers new opportunities. The drop in theprice of aircraft on the market and the reductionof delivery times are for sure two of them andwe could not let this opportunity pass us by. Ourcommon commitment to the development ofthe Company enabled the combining of theseopportunities and the exchange of obsolete AirbusA-320 aircraft with new A-319 aircraft adjusted toour flight structure. The new aircraft contribute tofurther development and growth of the Company.Dear partners, they are intended primarily for you:they are efficient, comfortable, technologicallyperfected and environmentally friendly. With theirhelp we will combine and realize our commonobjectives.And last but not least: We finally united all ofour activities and personnel also physically atone location at our domestic airport. With theCompany’s move to Brnik our employees, activitiesand ideas are united also at the symbolic level:For the first time since the establishment of theCompany we operate as an inseparable entity.Ladies and gentlemen, the difficult business year,financial and economic crisis strongly affectedthe operation of the Company. However becausewe were united we managed to minimize theimpact of the economic crisis on its operations. Thefact that we made the right moves was evidentalso in the way our Company is perceived by theenvironment in which we work. In this businessyear, the reputation of our Company grew forthe fourth time in a row. This time we have beenranked at a reputable 22 nd place. Only together wemanaged to maintain our reputation and soothethe consequences of the economic crisis for theCompany despite the difficult economic situation.Your contribution is our commitment to extendand strengthen our Company with our activitiesalso in future when the economic situation will bemore favourable and make way for a stable andprimarily safe development.Yours faithfully,Tadej Tufek M.Sc.,President of theManagement Board & CEOMarjan Ravnikar M.Sc.,Vice-presidentof the Management Board8

1. 4. Report by the President of the Supervisory BoardLadies and Gentlemen!The economic situation in which Adria Airways wasoperating in 2009 was very difficult. The Slovenianeconomy reached the second lowest economicgrowth since the country gained independence, i.e.-7.8 percent of gross domestic product, while theunemployment rate was 6.8 percent on average,inflow from tourism declined by 9.1 percent andthe fuel prices were high. The EU member statesexperienced a negative growth in the amount of4.1 percent as well, unemployment was at a levelof 9.5 percent and there was a strengthening ofthe euro against the dollar. All of this caused adrop in demand for air transport. Furthermore, thestructure of demand changed due to the declinein purchasing power. The number of businesstravellers in the higher price class decreased andtheir shift to the economically more affordableprice area was considerable. In 2009, the numberof business travellers of Adria Airways decreased to40 percent, while the total drop in demand was 21percent. Other air carriers were in a similar situation.According to the estimation of the Associationof the European Airline (AEA), the number ofpassengers carried decreased by 5.8 percent,whereas their number dropped by 6.1 percenton a global level. The total revenues of air carriersdecreased by 15 percent worldwide, according toIATA this is the highest drop since World War II.In 2009, the Supervisory Board of Adria Airwaysoperated in two different compositions. The reasonis that at the end of the first half of the year theterm of the Supervisory Board, the president ofwho was Branko F. Grošelj, expired. In addition, thenew Supervisory Board and the presidency, whichwas entrusted to Dr. Maks Tajnikar, commenced itsfour-year-long term in June.Both Supervisory Boards of Adria Airways followedthe developments in the economic area and severaltimes during the year instructed the ManagementBoard of the Company to prepare and takemeasures with which the Company could adjust tothe changing economic situation. For the Company,the economic situation was particularly hard in thesecond half and towards the end of 2009.The old Supervisory Board held two regular andtwo correspondence meetings, at which it, interalia, adopted two important decisions:decision on the increase of the Company’s capital,adopted at the 4th correspondence meeting ofthe Supervisory Board of the Company decision onthe exchange of the A-320 aircraft with new A-319aircraft.Both decisions were realized in 2009. Adria Airwaysreceived a capital injection of 2.4 million euros byMay. Moreover, negotiations on a 12-year-longlease of A-319 aircraft with the introduction intothe Company’s fleet by May 2010 were successfullyconcluded.In August 2009, the new Supervisory Board wasformed at the first meeting and held four regularmeetings that year. These are the most importantdecisions adopted at the meetings:decision on the increase of the Company’scapital, adopted at the 1st regular meeting of theSupervisory Board, decision on the authorizationof the Management Board to increase the fixedassets of the Company in the next 5 years by issuingshares, adopted at the 1st regular meeting of theSupervisory Board, decision on the confirmation ofthe document Strategic Goals of Adria Airways forthe Period 2010-2014.At the end of 2009, the Supervisory Board of theCompany estimated that the difficult economicsituation had a significant impact on Adria’s capabilityto reach the set business objectives. In their opinionthere is a great chance of a loss in 2009 and theloss from 2008 extremely impairs the liquidity ofthe Company and is a threat to its current business.Therefore, the Board decided that it is necessaryto prepare a set of measures for the improvementof the Company’s operation and set up measuresthat would allow for structural adjustment of theCompany by 2014. Hence, the document StrategicGoals of Adria Airways for the Period 2010-2014 wasadopted in December. The document is focusedon the necessary reorganization of the Company,reduction of key costs of its operation and capitalinjection for the Company as a response to thedeterioration of its capital adequacy as a result ofthe losses.Due to objective circumstances that had an impacton the operation of Adria Airways, the SupervisoryBoard estimated that its operation was appropriateto the circumstances.The Supervisory Boardof Adria Airways d.d.Dr. Maks Tajnikar, PresidentAdria Airways / Annual Report 2009 / BUSINESS REPORT9

2.1. About the Company2. Ge n e ra lIn f o r m a t i o n2.1. About the Company2.2. Ownership StructureRegistered office of the company: Adria Airways, Slovenski letalski prevoznik, d.d.(abbreviated to: Adria Airways d.d.), Kuzmičeva 7, 1000 Ljubljana, Slovenija2.3. Fleet2.4. Company HistoryAddress of the business premises: Adria Airways, Slovenski letalski prevoznik, d.d.(abbreviated to: Adria Airways d.d.), Zgornji Brnik 130 h, 4210 Brnik, SlovenijaLegal status: Public Limited CompanyTelephone: +386 4 255 9000Telefax: +386 4 259 4572Website address: www.adria-airways.comNumber of employees as of 31.12.2009: 705Year of establishment: 1961Registration number: 5156505VAT number: SI51049406Companies register number: 200208417Entry number: 061/10135200Share capital: € 7,676,900Nominal value of share: € 8.352.2. Ownership StructureThe share capital of Adria Airways d.d. is dividedinto 919,591 ordinary inscribed split shares. Asof 31 December 2009, the company had 619shareholders.In 2009, there were two significant events thathad an impact on the ownership structure ofAdria Airways d.d.On 20 July 2009 the process of increasingthe fixed assets of Adria Airways d.d. wasconcluded. The process was carried out on thebasis of the decision to increase the fixed assetsby the Management Board of Adria Airwaysd.d. of 13 January 2009 and the consent of theSupervisory Board on 14 January 2009.The increase in the fixed assets of the companywas carried out with the issue of 121,804ordinary, freely transferable nominal nonpar value shares at most. The shares weresubscribed in three rounds, the final numberof shares paid in is 107,155. The total amountpaid in is € 2,357,410.00. The fixed assets of thecompany increased from € 6,782,155.65 by€ 894,744.25 and amount to € 7,676,899.90after the increase. The surplus from paid-incapital represents capital surplus.On the basis of an agreement according towhich in a potential third round of the capitalinjection the Kapitalska družba, d.d. wouldsubscribe and pay in the same number of sharesas would have been previously paid in by theemployees of Adria Airways d.d., the employeesordered a total of 12,407 of the AARG securities,hence many employees became owners of thecompany and this brings greater unity andcohesion within the company.Največji delničarjiNajvečji delničarjiThe second important event concerning theownership structure of Adria was the acquiringof 803,545 AARG shares on 18 December 2009,which represents 87.38% of the voting rights, bythe Posebna družba za podjetniško svetovanje,d.d. The Management Board of Adria Airwaysd.d. announced the change concerning thissignificant share in the company to the public.Major shareholders:2%2% 4%7% 4%7%87%87% PDP, PDP, d.d. d.d.PDP, d.d.NLB, 7% NLB, d.d. d.d.NLB, INFOND, 2% INFOND, d.d. d.o.o. d.o.o.INFOND, ostali 4% Other delničarji d.o.o. shareholdersostali delničarjiAdria Airways / Annual Report 2009 / BUSINESS REPORT11

2.3. FleetDuring the crisis in the air traffic industry, theoptimization of the fleet remains one of the keyelements of Adria Airways’ adaptation to competitivecircumstances in the liberalised Europeanair transport market. Manufacturers of aircraftand aircraft engines are improving their technologiesincreasingly faster with the purpose ofmaintaining competitiveness. Air carriers haveto face a drop in prices, an increasing restrictionsin air traffic, increasing costs and increasingly demandingcustomers. Therefore, the fleet compositionwill remain as one of the key factors of anair carrier’s success.Number of Aircraft in the Fleet:In 2007, two new CRJ-900 aircraft with 86 seatsjoined our fleet. At the end of 2008, the third aircraftand in January 2009 the fourth CRJ-900 wasadded.In 2009, we started to face the global economicrecession. Therefore, in order to minimize therisk and due to the drop in the number of passengersand prices the “wet lease” of the aircraftin Libya was extended until October 2009. Dueto favourable conditions for leasing and lowoperating costs the lease of the B737-500 fromUkraine International Airline was extended untilthe end of October 2009 and was under ouroperation (the aircraft was entered into the Slovenianregister).In 2009, the Adria Airways’ fleet consisted of:In 2007, two newCRJ-900 aircraft with86 seats joined ourfleet. At the end of2008, the third aircraftand in January 2009the fourth CRJ-900was added.Numberof flightsAircraft type Ownership Note3 Airbus A-320 owned aircraft6 Canadair CRJ-200 5 owned, 1 leased one leased until 20121 Canadair CRJ-100 leased leased until 30 June 20114 Canadair CRJ-900 2 owned, 2 leased (December 2008, January 2009) leased until 2018 or 20191 Boeing 737-500 leased – wet-lease until October 2009In October 2009, we successfully concluded the3 years and a half long “wet lease” of the AirbusA-320 aircraft in Libya. In the same month, thelease of the Boeing 737-500 aircraft, which weused for our flights from Ljubljana, was successfullyconcluded.2009 was a key year for the modernisation of ourfleet. For a number of years, we have been observingthat the capacity of the A-320 aircraft isinappropriate for Adria’s operation, at the sametime the aircraft started to lose their competitivenesswith age. When the prices of aircraft leasingdecreased by 30% to 40% in comparison to theprevious years in the middle of 2009, we tookadvantage of the recession in the air transportsector and concluded leasing contracts for new,more competitive A-319 aircraft for a period of12 years. The two new aircraft will become partof our fleet in April and May 2010.After we made an analysis of our flights, takinginto consideration the age of the A320 aircraft,the increase of maintenance costs and noncompetitivenessof the A-320 aircraft, we decidedto sell them. In the middle of 2009, a contractfor the sale of one A-320 aircraft and in Augustfor another A-320 aircraft was signed and sold tothe buyer with the best offer.In the middle of September, the S5-AAB aircraftleft our fleet, and at the end of December 2009,the S5-AAC left.In the future, the flexibility of the fleet will play akey role. Flexibility can be achieved with a combinationof ownership and leasing of aircraft.12

Airbus A-320Length37.57 mHeight11.75 mWing-span34.1 mCruising speed 900 km/hMax. altitude 11,700 mRange3,890 kmSeat capacity 162Canadair Regional Jet CRJ-900Length36.40 mHeight7.51 mWing-span24.90 mCruising speed 882 km/hMax. altitude 12,496 mRange3,600 kmSeat capacity 86Canadair Regional Jet CRJ-100/200 LRLength26.77 mHeight6.22 mWing-span21.21 mCruising speed 860 km/hMax. altitude 12,496 mRange3,285 kmSeat capacity 48 / 50Aircraft leased for scheduled and charter transport:Boeing 737-500Length31.01 mHeight11.07 mWing-span28.88 mCruising speed 900 km/hMax. altitude 11,278 mRange5,648 kmSeat capacity 112Adria Airways / Annual Report 2009 / BUSINESS REPORT 13

Committedc o o p e r a t i o nof enterprisesand individualsbringsa n a r r a y o fpossibilitiesfor jointtravels.Adria Airways / Annual Report 2009 / BUSINESS REPORT15

2.4. Company Historynovember2009Moving intothe new officebuilding –centralization ofthe company atone location.1961 − Establishment of the charter airline Adria Aviopromet, operating DC6 aircraft, end of thesixties purchase of DC-9 aircraft.1970 – 1980 − Adria is one of the most reliable charter airlines in Europe.1980 – 1990 − Domestic scheduled flights within Yugoslavia, start of international scheduledservices. Adria becomes a member of the IATA. Fleet: DC 9, MD 80, Dash 7 aircraft.1989 − Purchase of first Airbus A-320 aircraft.1991 (25 June) − the Republic of Slovenia declares independence; for political reasons Adria isgrounded for three months.1992 − At the end of January operations are restarted in a significantly reduced market. Thestructure of operations is significantly changed from a primarily charter airline to amainly scheduled service carrier.1995 − Start of cooperation with Lufthansa, inclusion into the European integration processes.1996 − Financial consolidation of the 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 the existing services.Intensive cooperation with European airlines, especially Lufthansa.2000 − Purchase of the fourth CRJ-200.2001 (November) − The first scheduled flight in the EU, from Vienna to Frankfurt.2002 − Adria was selected to be the first European authorized Bombardier maintenance centrefor CRJ aircraft.2004 (December) − Adria joins the global association of airlines, Star Alliance, as a regionalmember.2005 (January) − Purchase of the fifth new Canadair Regional Jet 200 aircraft.2005 (June) − Opening of a new hangar.2006 (November) − Adria starts introducing e-ticketing.2006 (December) − Adria carries more than one million passengers for the first time inindependent Slovenia.2007 (June) − A successful introduction of two new 86-seat CRJ-900 aircraft into the AdriaAirways fleet, which helped to increase and optimize our capacities mainly on theroutes to Brussels, Moscow, Paris, London, Skopje, Vienna, Munich and Frankfurt.2007 (September) − Purchase of a new simulator which enabled the training of pilots foroperating multi-engine and multi-crew aircraft.2007 (December) − We became the official carrier of the Government of the Republic ofSlovenia during the EU presidency.2008 (April-June) − Adria extends its network of flights. Introduction of new regular routes toAthens, Bucharest, Stockholm and Oslo.2008 (December) − A third CRJ-900 aircraft is added to Adria’s fleet.2009 (January) − Adria gets the fourth CRJ-900 aircraft.2009 (April) − The new route to Madrid was established.2009 (May) − For the second time Adria was presented a recognition award for the mostreliable air carrier in the category Canadair Regional Jet CRJ100/200 (for 2008) by therepresentatives of the Bombardier Management.2009 (November) − Moving into the new office building – centralization of the company atone location.16

3.1. Management BodiesManagement BoardThe Management Board carries out its task onthe basis of laws, the Statute, decisions of theSupervisory Board of the company and theRules of Procedure of the Management Boardthat regulate the manner and organizationof the operation of the Management Board,lays down the number of ManagementBoard members and their areas of work,responsibilities and powers of the ManagementBoard, representation and presentation of thecompany, manner of taking decisions andtransfer of the Management Board’s powers.In accordance with the Statute, which statesthat the Management Board can have as muchas one to four members, the ManagementBoard of Adria Airways d.d. has two membersthat represent the company together:Tadej Tufek, M.Sc.,President of the Management BoardThe responsibilities of the President of theManagement Board are:• marketing and sale,• finances and accounting,• aircraft maintenance,• strategic plan and development,• flight operation,• corporate communication.Marjan Ravnikar, M.Sc., Vice President of theManagement BoardThe responsibilities of the Vice President of theManagement Board are:• controlling, invoice costs,• ground handling and procurement,• operation of subsidiaries,• trainings,• organization and staff,• corporation law and insurances,• cargo transport.The Management Board manages the companyaccording to the principles of joint and severalliability in compliance with the adopted plansand business policy. Notwithstanding thejoint and several liability of the ManagementBoard concerning the decisions taken, eachManagement Board member is severallypersonally liable for the planning, organization,management and coordination of work inindividual areas of work in accordance with theagreed functional division of work.The Adria Airways d.d. Management Boardmanages the company autonomously and onits own responsibility while presenting andrepresenting it unrestrictedly vis-à-vis third parties.The Management Board is appointed anddismissed by the Supervisory Board which, byits Decision on the Structure of the Board, alsodefines the Board’s number and membershipstructure. The Management Board has a fiveyear mandate.Supervisory BoardThe Supervisory Board controls the businessconduct of the company and:• deals with and adopts the business plan,• deals with and adopts the annual report,accounts and final accounts,• takes decisions regarding bonuses for themembers of the Management Board,• adopts its Rules of Procedure,• deals with and takes decisions regardingall other issues the Board is responsible foraccording to law, other rules and general actsof the company,• deals with the business report and maylay down manners and contents of what isreported about the business, prepares anddetermines contracts on employment of themembers of the Management Board, contractson loans for the members of the ManagementBoard and other contracts with the membersof the Management Board,• gives its consent to the Rules of Procedure ofthe Management Board,• in accordance with the Statute, it gives itsconsent to the kind of business and generalacts of the company, the decisions concerningthese can be taken by the Management Boardonly upon prior consent of the SupervisoryBoard.The Supervisory Board is appointed bythe shareholder’s assembly, except for thecompany’s employee representatives whoare elected by the Employees’ Council. Themandate of its members lasts for four yearsand commences on the day of the election. In2009, the representatives of the owners werenewly appointed.There are six members on the Adria Airwaysd.d. Supervisory Board.Members of the Supervisory Board,shareholder representatives until 12 July 2009:• Branko Franc Grošl, President of the SupervisoryBoard,• Dr. Bogdan Znoj, Deputy President of theSupervisory Board,• Aleš Vehar,• Anton Grabeljšek.3. Ma n a g i n gt h e Co m p a n y3.1. ManagementBodies• Management Board• Supervisory Board• The Assembly Meeting3.2. Managementof SubsidiaryCompanies3.3. OrganizationalStructureAdria Airways / Annual Report 2009 / BUSINESS REPORT17

Members of the Supervisory Board, shareholderrepresentatives from 13 July 2009:• Dr. Maks Tajnikar, President of the SupervisoryBoard,• Dr. Tone Magister,• Primož Klemen,• Ivan Gorjup.Members of the Supervisory Board, shareholderrepresentatives from 18 June 2008:• Urban Demšar,• Tomaž Pečnik, Vice President of the SupervisoryBoard.The Assembly MeetingThe shareholders may assert their rights withregard to the company in compliance with thecompany’s Statute and the Companies Act at theAssembly meeting. The assembly is the highestbody of the company where the will of theshareholders is directly realized.An assembly meeting may be called by theManagement Board or by the Supervisory Board;however, it may be called upon at a request ofthe shareholders representing at least 10% of thecompany’s share capital. The meeting should becalled at least 30 days before the actual session.The meeting may be attended by thoseshareholders who are listed in the share register atthe CSCC Central Securities Clearing Corporationd.d. Ljubljana on the enrolment closing date. Theshareholders may be represented at the Assemblymeeting by their representatives or trustees. Oneshare represents one vote. Adria Airways d.d.does neither have shares with limited votingrights nor does it have own shares. Relevant data,information and explanations that are necessaryfor the examination of the contents of theassembly’s agenda are given to the shareholdersby the Management Board of the company.At the 25th assembly meeting on 13 July 2009,88% of the company’s shares with voting rightswere present and represented. Shareholdersdeliberated on:• discharging the Management Board andthe Supervisory Board;• appointment of the Ernst&Young d.o.o. auditcompany, Dunajska cesta 111, 1000 Ljubljanato audit the operation and financialstatements of the company for 2009,• determination of the amount of the meetingfee for the members of the SupervisoryBoard and the members of the SupervisoryBoard’s commissions.The assembly also took note of the termination ofthe mandate of the members of the SupervisoryBoard and the recall of a member of theSupervisory Board and elected new members ofthe Supervisory Board and representatives of theshareholders.3.2. Management of Subsidiary CompaniesThe Adria Airways Group comprises of:• Adria Airways d.d., Ljubljana – parentcompany• Amadeus Slovenija Podjetje za marketing,d.o.o., Ljubljana – subsidiary (95% interest)• Adria Airways Kosovo d.o.o. – subsidiary(100% interest) – dormantThe parent company is the controlling companyand has a direct majority ownership share andthe majority of voting rights.Adria Airways does not compile a consolidatedannual report, since the inclusion of the financialstatements from both of the two subsidiaries inthe consolidated report is not significant for a trueand fair presentation of the financial statementsof the Adria Airways group as a whole.Amadeus Slovenija d.o.o., LjubljanaDirector: Mladen VesnaverNumber of employees: 10The company was established for an unlimitedperiod by a contract of members that is the basicact of the company and determines the conditionsand manner of the company’s operation,the responsibilities of the bodies and other relationshipsin connection with the establishmentand operation.The assembly is the company’s managementbody and consists of one representative of eachpartner. The members of the assembly are appointedfor a period of four years and can be appointedagain after the expiry of the mandate.The assembly decides on the business policy ofthe company and appoints and recalls the director.The President of the assembly, i.e. the representativeof Adria Airways d.d., operatively implementsthe measures for the review and controlof the work of the company’s director.The main lines of business of the subsidiary companyAmadeus Slovenija d.o.o. are distribution,marketing, offering IT support, maintenance ofthe reservation system and Amadeus softwarefor airlines and agents completing reservationsand selling airline tickets. This service is not providedonly in Slovenia but also in Macedonia andAlbania.18

3.3. Organizational StructureMANAGEMENTIT andControllingKQISOQualityAssuranceSystemsCorporate Lawand InsuranceLS2Safetyand SecurityAB C D E F MMa r k e t i n ga n d Sa l e s(De p a r t m e n t)Gr o u n dOp e r a t i o n sa n d Pr o -c u r e m e n t(De p a r t m e n t)Ai r c r a f tMa i n t e -n a n c e(De p a r t m e n t)Fl i g h tOp e r a t i o n s(De p a r t m e n t)Fi n a n c ea n dAc c o u n t i n g(De p a r t m e n t)Hu m a nRe s o u r ce sa n dOr g a n i s a -t i o n(De p a r t m e n t)Cr e wTr a i n i n g(De p a r t m e n t)Adria Airways / Annual Report 2009 / BUSINESS REPORT19

Business Report20

ReportMissionWe are a company that:• brings together knowledge and skills inaviation;• offers customers top-quality services;• achieves these services throughinnovative work of satisfied employees;• produces adequate profit to the owners;• operates in harmony with theenvironment.VisionWe wish to be a successful traditional Europeannetwork airline with a modern fleet that isdeveloping and growing, an airline that byachieving the highest level of quality in itsservices enjoys the satisfaction of its passengers– and other clients – while maintaining arecognizable profile of its own trademark.Key Strategic Objectives in the Period2009-2014• reaching the threshold of rentability in 2010with the existing capacities and activities• extension of activities connected to aviation• extension of activities not connected toaviation• adjustment of the organizational structure• investments• ensuring financial resourcesThe primary objective of our operations is tomaximize the return per unit of shareholders’equity.With regard to the commercial strategies todate and our entry into the Star Alliance, wehave pursued the commercial model of anetwork carrier linked to partner airlines andoffering its passengers a global flight network.We are convinced that the selected commercialmodel represents a competitive advantage,and for this reason it must be improved andenhanced, and adapted to the competitivecircumstances.Business strategy for the period 2009–2014denoted by the following:• the renewal demanding the knowledgeand understanding of changes in the environment,highly motivated and responsivesenior management, determinationfor overcoming obsolete mindsets, capabilityfor reaching new goals at all levels,and competent management, which willinclude all employees in the implementationof these goals;• growth, where the primary goals are:increase the market share; growth andoptimization of capacities and developmentof the company as a whole;• rationalisation, which demands specificorientation into the basic activity wheresupport processes are of lesser importance.Business strategy for the period inquestion demands strong financial controlwhile limiting the usage of financialresources in all areas.Chosen StrategyThe primary commercial strategy of AdriaAirways is conducting the business policy of anetwork carrier distinguished by its individualapproach, responsiveness and adaptability.The company is developing into an airline thatis recognized for the friendliness of its staff andits sensitive attention to the passenger. Weoperate flights to attractive destinations witha relatively high frequency for various typesof travellers. Our responsiveness is reflected inthe introduction of new flights connecting tolocations that are attractive both for businessand tourism. The flight schedule is adjusted tothe needs of the passengers.We will strive to:• focus on activities for satisfying andsystematically examine the needs of thelargest possible number of passengers.Our flight network needs to be built andupgraded according to the passengers’needs in order to maintain the competitiveedge, i.e. maintain the relatively largenumber of scheduled direct and charter4. Mi s s i o n, Visiona n d Co m p a n ySt r a t e g y• Mission• Vision• Key StrategicObjectives in the Period2009-2014• Chosen Strategy• Corporate CultureValues Originating inCommitment to QualityWe wish to bea successful traditionalEuropean network airlinewith a modern fleet that isdeveloping and growing,an airline that by achievingthe highest level of qualityin its services enjoys thesatisfaction of its passengers– and other clients – whilemaintaining a recognizableprofile of its owntrademark.Adria Airways / Annual Report 2009 / BUSINESS REPORT21

flights from the home airport;• perform marketing communicationactivities with the intention to distinguishourselves from our competitors;• focusing on passengers’ expectations;• performing services of high quality andsafety, which is proven by the IOSA certificate.Remaining the best air-travel option forthe passengers who travel to and fromSlovenia is important for Adria Airways, asit is also important, because of the smalldomestic market, to decrease its businessrisks by entering those profitable foreignmarkets where quality of their services for areasonable price and business flexibility canassure long-term business success.Corporate Culture Values Originating inCommitment to QualityFocusing on the ClientsOrganizations depend on their clients, thereforethey should understand the clients’ presentand future needs, satisfy their requirementsand strive to exceed their expectations.LeadershipThe leaders shall establish the unity of the intentand the orientation of the organization. Leadersshould maintain an internal environment ofthe kind where the employees will be ableto integrate completely into achieving thepurposes of the organization.Integration of the EmployeesThe employees at all levels of the organizationare the organization’s core and their thoroughintegration enables their talents to be used forthe benefit of the organization.Process ApproachAny desired result will be much moresuccessfully achieved, when the activities andthe related resources are managed in a form ofa process.System Approach to ManagementIdentifying, understanding and managinginter-related processes in a form of a processwill contribute to efficiency and effectivenessof the organization in attaining its objectives.Constant ImprovementConstant improvement of the operation of theorganization on the whole should remain apermanent objective of the organization.Fact-based Decision MakingEfficient decisions are based on analysis of dataand information.Mutually Beneficial Relationships with theSuppliersAn organization and its suppliers are mutuallyco-dependent and a mutually beneficialrelationship will increase the capability tocreate value on both sides.5. Ca r e f o r o u rPa s s e n g e r s• We are Expanding theNetwork of Flights• The Best Air Ticket Price• www.adria-airways.com• Care for Passengersduring the Flight• More for our LoyalPassengersAdria Airways is striving to design services insuch a manner so as to approximate these serviceswith the needs and expectations of ourpassengers. The awareness of our flight networkand services is strengthened by plannedpromotional activities thus strengthening ourtrademark and loyalty of our clients.We are Expanding the Network of FlightsIntroducing new direct lines and increasingthe number of flights on the existing linesmakes it possible for us to offer our passengersincreased flexibility in planning their journeysand saving the time spent for their travel. Increasingthe number of direct flights to largeEuropean hubs makes it possible for us to additionallyimprove the accessibility to the StarAlliance air carriers’ network. In 2009, a newregular flight route to Spain was opened, in additionto Barcelona we also fly to Madrid now.The Best Air Ticket PriceBy regularly offering lower prices, which aremarketed under the trademark, we are tryingto attract new passengers who are flexibleconcerning prices and can adjust their time oftravel according to the best price. The “AdriaOutlet” offer is no longer limited to certain destinationsor flights but is continuously expandeddepending on the number of seats available.We also prepared some one-time offers:Valentine’s Day, special offer upon introducingthe new route to Madrid, Christmas shoppingin December and a larger autumn offer withthe title “Hurry up and fly!” in order to fill vacantseats in the low season. This special offer isconnected to our upcoming 50th anniversaryand will be repeated in 2010.22

Call Centre and Passenger Relations CentreAn honest relationship, a prompt response tothe demand and flexible problem solving are ofkey importance for our customers, and we dotake that into consideration during the courseof our work. Contact with corporate customersis taken care of by key account managers in salesand our passengers can obtain informationand help from our call centre every day in theweek. When buying a ticket the passengerscan book a certain seat on the plane as wellas the meal type. In cooperation with Mobitel,a mobile phone provider, we offer passengersa payable SMS info service, with the help ofwhich users can get information on the statusof an individual flight on that day.In 2009, the introduction of the CRM project formonitoring customers in the Call Centre andPassenger Relations Centre was concluded.In the Passenger Relations Centre we take careof a base of corporate customers with which weconcluded an agreement on cooperation, aswell as a base of the Slovenian members fromthe Miles&More programme. Our passengersget informed about novelties, price offers, newservices and benefits for regular passengersthrough a regular and special newsletter,whereas the members of loyalty programmesreceive periodic notifications in connectionwith the specific benefits of their programme.www.adria-airways.comThe purpose of Adria’s web portal is to maintainand enhance the reputation of the company.Above all, it is a great additional sales channel,which enables the users to buy tickets in a safe,easy and comfortable way. Our web marketingcomplies with EU legislation, according towhich the final prices, including airport chargesand other levies as well as booking costs, haveto be displayed and the charges additionallyspecified during the purchase process.We want to achieve that users will like tocome back to our websites. Therefore, we arestriving for high-quality performance ofthe website, safe purchase, authentic contentsand new offers as well as offering the users thepossibility of being interactive on our website.We provide information and support to ourweb customers every day of the week. Ourpassengers can perform a web check-in. Apartfrom on-line ticket reservations, transport andaccommodation can be ordered and the statusof the booked trip checked – “Check my trip”.On the website adria-airways.com / adria.si 1million visitors were recorded in 2009, whichis 23% less than in the previous year and sold12% less tickets than in 2008. The loss in salesis attributable to the same factors that had animpact on the sale via other sales channels.In 2010, our web offer will be extended toinclude flights of other air carriers, primarily ourkey partners in the Star Alliance Association.Care for Passengers during the FlightThe well-being of passengers during theflight is our greatest concern besides ensuringregularity of flights and flight safety. Whenputting together the offer we follow the trendin the regular transport of passenger; however,the opinions of our passengers are also takeninto account. We follow the principle ofhealthy food; we started to offer bread withoutadditives and the possibility to choose the typeof sugar for passengers in business class.More for our Loyal PassengersMiles&MoreLoyalty of our regular passengers is awardedby our Miles&More programme, which isaccording to the number of members and aircarriers involved in the programme, as well asaccording to the airline passengers the leadingprogramme around the globe. In 2009, thenumber of members recorded in Sloveniaincreased by 11% and now amounts to 39,665.The Passenger Relations Centre regularlyinforms the members of Miles&More on allnovelties and special offers concerning ourflights, and transfers and controls data on theflights of the members to the central system.Adria Corporate CardOur corporate customers’ loyalty is rewarded inthe Adria Corporate Card programme, whichAn honestrelationship, a promptresponse to thedemand and flexibleproblem solving are ofkey importance for ourcustomers, and we dotake that into considerationduring the courseof our work.Adria Airways / Annual Report 2009 / BUSINESS REPORT23

has 305 card holders. In 2009, 36 new legal personsjoined the programme, and the numberof flights of card holders increased by 11% incomparison to the previous year. Our web portalwas upgraded with a BTB website for monitoringthe corporate account where our corporateclients can check the number of collected/used points and bonuses at any time.Adria-Diners Club – Miles&MorePartnership CardIn cooperation with Diners Club Slovenia theDiners Club-Adria M&M card holders can alsocollect miles with every purchase using thiscard. The number of miles on M&M accountscollected in this way increased by 5%, and thenumber of card holders by 8% in 2009.6. Op e r a t i n gCo n d i t i o n sin 2009• AEA data• IATA data2009 was mostly characterized by the generalrecession, which brought a 4.1% decreasein the GDP in the EU, while in Slovenia theGDP decreased by 7.8%, this was the largestdrop since 1992 when the GDP decreased by8.9%. Unemployment in the EU increased to9.5% and in Slovenia it amounted to 6.8% inDecember. The inflation decreased in the EU to1% (in 2008 it amounted to 3.7%), in Slovenia:however, it amounted to 2.1%. It is predictedthat in 2010 there will be a weak and longrecovery in the EU and a 0.7% GDP growth.The raw material prices on global marketsdecreased in 2009 and the energy becamecheaper by as much as 37%. Oil got cheaperin the first half of the year, in the second half:however, the price started to climb again andreached 61.86 dollars per barrel on average. It ispredicted that the average price will be around75–78 dollars in 2010.Due to the weak economic activity in theUSA the euro got stronger compared to thedollar in the period from March to November.In November, the euro was worth USD 1.491,while on average it was worth USD 1.393in 2009. In December, the dollar started tostrengthen again and it is estimated that theexchange rate will range from 1.25–1.30 dollarsfor one euro in 2010.The global financial and economic crisis had astrong impact on the drop in demand for air24

transport, the growth of key operating costsand the decrease in revenues in the last yearand a half. The crisis did not only cause a dropin demand but it also changed the structureof demand. The decline in the number ofpassengers in the higher price classes (businesstravellers) is larger than the average decline inthe number of passengers and ranges from20 to 40 percent. Air carriers responded tothe drop in demand, which is also influencedby the H1N1 epidemic and the increase inthe fuel prices, by taking measures to reducecosts. The most common measures includeflying at optimal speed (lower speed – optimalconsumption), replacing less efficient aircraftwith newer ones, differentiating the product,introducing extra charges for basic services andreducing the market capacities (cancellation offrequencies and routes, grounding of aircraft).Due to the gap between the height of thedecline in the number of passengers and thelower reduction of available market capacities,air carriers face losses and liquidity problemson a global scale, resulting in bankruptcy andconcentration processes. Many air carriersretreated from some markets and will not enterthem again. On a global scale, some companiesare trying to escape the crisis with the help ofstrategic partners, and a great number of lowcostcarriers either limited their capacities orwent out of business.The recession will have long-termconsequences. Hence, there is a need forstructural changes in the aviation industry. Therecession changed the behaviour pattern ofconsumers concerning personal consumptionas well as the behaviour of business entities.There is an increasing trend to save moneyand the number of tourist travels is decreasingwhich is killing the demand for air transport(economy segment passengers). Primarily onshort routes, the prices became the only or atleast the most important decisive factor whenchoosing an air carrier.Air carriers need to adjust to the new businesscircumstances, which are determined by ahigher unemployment rate, a weak and longrecovery, stagnation of salaries, minimal profits,and even losses and bankruptcy of companies,reaching a positive operating result by reducingcosts rather than by increasing revenues, lessaccess to financial resources and higher costsfor credits and the possibility of a sudden andsharp increase in fuel costs.The recovery in the passenger segment isinhibited by several factors; the main factorsinclude the high indebtedness of consumersand high stocks, which forecast a furtherweakening of revenues in 2010. While thereis a decrease in revenues due to monopolies,external costs in particular do not follow thelaw of crisis in most cases, as there was anadditional increase in costs of airport servicesand navigation.According to the estimates of AEA and IATA, thenegative business trends in the air transportsegment will also continue in 2010. Eventhough there were signs of recovery at thebeginning of 2010 in terms of a higher demand,the average revenues per passenger remainedlower than expected, while at the same timethe fuel prices started to increase. There willpresumably be economic growth in 2010:however, the growth will be relatively weakand will most likely not suffice for a substantialincrease in the demand for air transport,especially in the business class. Therefore, theaverage revenues per passenger will remainweak. Losses will decrease but presumablythere will be no positive results before 2011.AEA DataIn 2009, the number of passengers transported byair carriers who are members of the AEA decreasedby 5.8%, the number of passenger kilometres by4.5% and the number of seat kilometres offeredby 4.2%. On flights across Europe the numberof passengers fell by 6.7%, on flights betweenEurope and North America by 5.7%, betweenEurope and South America by 5.5%, betweenEurope and the Far East by 6%, while the numberof passengers on flights between Europe and theMiddle East increased by 7.6%.In 2009, the number of passengers decreasedby 20 million in comparison to 2008, whichgreatly exceeds the biggest decline in thelast decade in 2001 when the number ofpassengers decreased by 14 million due to theevents on September 11.Source: IATA, February 2010The recession willhave long-termconsequences. Hence,there is a need forstructural changes inthe aviation industry.The recession changedthe behavior pattern ofconsumers concerningpersonal consumptionas well as the behavior ofbusiness entities.Adria Airways / Annual Report 2009 / BUSINESS REPORT25

The cargo transport of the AEA air carriers fellby 16.5%, the decrease was highest on routesbetween Europe and the Far East (-22.8%).IATA Data2009 was the worst year in the history of theaviation industry after the war. The aviationindustry lost 2.5 years of growth in thepassenger transport and 3.5 years of growth inthe cargo transport.At an annual level, the number of passengerkilometres decreased by 2.5% on a globallevel. The largest drop was observed in NorthAmerica and amounted to 5.2%, followed bythe Asian-Pacific region with a drop of 4.6%,Europe with a drop of 3.3% and Africa with adrop of 2%; there was a zero growth in SouthAmerica, while the Middle East was the onlyregion with a growth of 11.2%.The cargo transport, measured by tonkilometres, decreased by 10.1%. The highestdecrease was observed in Europe 16.1%,followed by North America 10.8%, Africa 9.2%,the Asian-Pacific region 9.1%, South America4.0%, and the Middle East was the only regionwith a growth of 3.9%.On a global level, the revenues declined by15%, the revenue per passenger by 14% inthe passenger transport and the revenue perton-kilometre by 14.2% in the cargo transport.The estimated loss of the entire industryamounts to USD 9.4 billion. The greatest losswas experienced by the European air carriersand amounted to USD 3.8 billion; the NorthAmerican air carriers lost USD 3.1 billion, theAsian-Pacific air carriers USD 2.7 billion, theMiddle Eastern air carriers USD 0.5 billion, theAfrican air carriers USD 0.2 billion; only theSouth American air carriers recorded a profit ofUSD 0.8 billion.The passenger and freight growth in the lastmonths of 2009 (figure) forecast a positive trendin 2010. Nonetheless, IATA does not expect therevenues to return to the levels of 2008 before2012 due to further pressures on the decreaseof the average revenue per passenger, whichwill be greatest in Europe and the USA. Theaverage fuel price will presumably be higherin 2010 than in 2009 and amount to USD75 per barrel of oil. Hence, the fuel costs willprobably represent 26 percent of all operatingcosts in 2010, which is twice as much as inthe years 2001 and 2002. The total loss of aircarriers in 2010 will probably reach USD 5.6billion; the greatest loss will be experienced bythe European air carriers and will presumablyamount to USD 2.5 billion.7. Bu s i n e s sSe g m e n t s7.1. Scheduled Flights7.2. Charter Services7.3. Leasing outAircraft7.4. Marketingthe Media Space7.5. Cargo Transport7.6. Aircraft Servicingfor Third Parties7.7. Education,Flight School7.1. Scheduled FlightsMarketing StrategyIn line with the business orientation and developmentof the company, scheduled flightsare the focal and key activity which is complementedby charter flights and cargo transport.The primary strategic objective of Adria Airwaysin the segment of passenger transporton regular scheduled flights is expanding30 %20 %10 %0 %-10 %-20 %Passenger and freight growth 2008-2009the network of flights via the Ljubljana JožePučnik Airport. A broad flight network is ofcrucial and strategic importance for long-termgrowth and the existence of the airline and italso represents its main competitive advantage.In this respect, we are strengthening theexisting routes with new frequencies andopening new regular connections betweenSlovenia and Europe.Passenger Growth (RPK)Source: IATA, February 2010Freight Growth (FTK)-30 %Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-1026

Adding new frequencies to the existing routes,we strive to maintain and increase our marketshares and by adding new routes we also addnew promising markets. One of the key strategicadvantages is membership in the Star Alliance –by flying to major European hubs through a flightnetwork of the Star Alliance airlines we enableour passengers connections to 1001 airports in174 countries throughout the world. At the sametime, our loyal passengers have the opportunityto collect and take advantage of bonus miles onall flights of the Star Alliance airlines.Some of our key abilities and comparativeadvantages that we try to maintain and improveare the fast and comfortable connections in directflights, flight schedule adjusted to passengerneeds, competitive prices and quality of ourservices. Adria is a company that is distinguishedby its individual approach, responsiveness andadaptability. We are developing into an airlinethat is recognised for the friendliness of our staffand our sensitive attention to the passenger.CompetitionThe trend of increasing competition at theLjubljana Jože Pučnik Airport, which was mostobvious in the period 2002 to 2005, is coolingoff. On the domestic market, the share ofregular Adria Airways passengers was on thedecline from 2001 when it amounted to 93%to 2005 when it amounted to 73%. In 2006,the share of regular Adria Airways passengersincreased by 0.5 percentage points comparedto the preceding year. In 2007, the share ofAdria Airways’ regular passengers was 73%, in2008 this share increased to 79% and in 2009 itdecreased to 78%.There were nine regular air carriers flying fromthe Ljubljana Airport in 2009. In addition tocompeting with Adria Airways’ scheduledflights, some of these airlines (with their flightnetworks) also represent competition to thenetwork of flights that Adria enables throughits own flight network within the Star Alliance.Apart from regular airlines at the LjubljanaJože Pučnik Airport our Ljubljana network alsoencounters competition from the airlines thatfly from the neighbouring airports (Trieste,Graz, Klagenfurt and Zagreb).Our biggest competition in the segment ofpassengers travelling from South-EasternEurope to Western Europe and vice versa comesfrom other network carriers that competewith their own hubs and flight networks.Furthermore, some charter carriers competefor the same market and strive to increase theirmarket share.In the past years, Adria Airways has strengthenedits flying and business operation in the WesternEuropean markets and increased the number ofweekly and daily frequencies. A better productalso means more connections via the Ljubljanahub and a better position on the market.Competition on the domestic and foreignmarkets will continue to strengthen and theefficiency and the expansiveness of the flightnetwork will represent the key competitiveadvantage in the future as well.In 2009, a new route to Madrid was introduced,in the summer season we flew there twicea week. The routes that were flown in thesummer season only are the following: Athens(3 times per week), Barcelona (2 times per week),Bucharest (4 times per week), Dublin (1 time perweek), Manchester (2 times per week) and Ohrid(3 times per week). Routes on which the numberof weekly frequencies has been increased inthe summer season include: Istanbul (from7 to 9), Podgorica (from 3 to 4), Pristina (from7 to 14), Skopje (from 13 to 14) and Tirana(from 10 to 12). Routes on which the numberof weekly frequencies has been increased inthe winter season include: Istanbul (from 7 to10), Paris (from 12 to 14), Podgorica (from 3 to4), Pristina (from 7 to 11). Routes on which thenumber of flights has been decreased in thesummer season of 2009: Frankfurt (from 25 to20), Munich (from 26 to 21), Sarajevo (from 13 to7) and Vienna (from 28 to 21). Routes on whichthe number of frequencies has been decreasedin the winter season include: Bucharest (noflights), Copenhagen (from 4 to 3 per week),Kiev (from 4 to 3 per week), Warsaw (from 5 to4 per week), Skopje (from 13 to 10 per week),Pristina (from 13 to 11 per week), Tirana (from 10to 7 per week). The number of scheduled flightswas increased in total by 4% in 2009. In foreignmarkets we are trying to improve our presenceand recognisability through different strategicpartnerships with domestic and foreign touristservice providers, by concluding code-shareagreements, and within the Star Alliance weare becoming more and more recognizable inthe foreign markets as a reliable air carrier ofexcellent quality. On other routes the numberof weekly flights was the same as in 2008.Proportion of Selling ScheduledRoutes by Markets in 200931%12%12%17%17%40% 40%40% EU, EU, Skandinavija, Scandinavian, Švica Swiss31% Slovenija Slovenia17% JV Evropa SE Evrope12% Ostalo Slovenija OtherEU, Skandinavija, ŠvicaJV EvropaOstaloAdria Airways / Annual Report 2009 / BUSINESS REPORT 27

Index of Increase in Passengers,Flights and Load Factorsfor Scheduled Flightsin 2009 and 2008Key Factors in the Business Environment2009 was primarily characterized by thesubstantial decrease in the number ofpassengers and the decrease of revenue perpassenger as a result of the deepened crisison the global and European market. Changesaffected all passenger segments, businesstravellers as well as tourists. The global crisislimited the mobility of passengers and sloweddown the planned development of theeconomy, which requires increased mobilityin modern times. Business travels were limitedin all areas: there was a shift of passenger frombusiness class to economy class, and both thenumber of travels and the number of businesstravellers declined. Despite very low prices, theaviation industry did not register an increase indemand to make up for the loss caused by thedecrease in the revenue per passenger. AdriaAirways adjusted its sales policy and approachto the market to the agents and passengersand changed it quickly and in accordance withtheir needs. In 2009, Adria’s sales promotion wasbased on a number of special and promotionaloffers, which included all passenger segments.In spite of all benefits, the responsiveness ofthe market was not satisfactory, i.e. it did notmeet our expectations.The same is true for the network of flightsfrom European cities towards destinations onthe Balkan Peninsula. The uncertainty due tothe unknown duration and intensity of thecrisis changed business as well as personalpreferences of consumers. In times of crisis,one of the first measures consumers take isto forgo or decrease the number of journeysand vacations and carefully plan all secondaryneeds. Therefore, the offer needs to be adjusted2009 2008LFFlightsto this smaller and price-sensitive population.Hence, all air carriers and Adria as well, preparedan additional offer in the lower prices classes,which lead to lower revenues.Despite all the mentioned negative impacts,Adria Airways increased the number ofpassengers on certain markets in 2009.The proportion of regular passengers in thenumber of all passengers carried in 2009amounted to 83.4%, which is 1.4 percentagepoints more than in 2008. In the area ofscheduled flights, we performed 23,441 flightsin 2008, which is 4% more than in 2008 and1% less than planned. We carried 953,378passengers on scheduled routes, which is a14% decrease compared to the year beforeand 2% less than planned. Passenger cabinefficiency decreased by 5% and amounted to60.16%, only 1% less than planned.The proportion of revenue from scheduledflights, which includes the revenue frompassengers carried and revenue from luggagepayments amounts to 72% of Adria’s totalrevenue and 83% of revenue from commercialflying. In 2009, the revenue from scheduledflights amounted to € 115,767,185 and waslower by 19% in comparison to last year.Forecast for the Next PeriodSince there is a drop in demand, the capacitywill be adapted to the fluctuation of demandin 2010, which means a decrease in thenumber of frequencies on certain routes aswell as limitation of the planned expansionof the flight network. In accordance with theneeds of the passengers, we are planning anew route between Ljubljana and Belgrade (six9698961152009 20082009 200888Passengers117LF0 30 60 90 120LFLeti969828LetiPotniki8896

times per week) and the re-establishment ofseasonal routes between Ljubljana and Madrid,Barcelona, Stockholm (twice per week) andAthens (three times per week).In 2010, we plan a 2% higher number of flightscompared to 2009 and a 2% increase in thenumber of passengers in comparison to 2009.In high season, we will offer 258 frequenciesper week on scheduled routes.Revenue – Scheduled Flights Passengers150,000,000112,500,00075,000,00037,500,00007.2. Charter ServicesGeneral Situation108114,883,000150,000,0000The restrictive economic situation on theSlovenian market and foreign markets whereAdria Airways is marketing its services also hadan impact on the sale of charter flights in 2009.125143,581,00081115,767,0002007 2008 2009125112,500,000 10875,000,00037,500,000The most obvious impact can be observed inthe tourist industry segment where there was aslack demand and after a few years of constantgrowth in the number of flights, passengersand revenue there was a stagnation of thenumber of realized flights and the number ofpassengers in 2009.114,883,000143,581,000Mediterranean area, with special emphasison the Greek islands and the all-year-rounddestinations 2007 Hurghada 2008 and Sharm el 2009 Sheikh.indexRevenue – Scheduled Flights in EUR81115,767,000Three series of incoming charter flights toSlovenia were realized for foreign customers.We also managed to maintain our presence onthe Israeli market by the flights Ljubljana–TelAviv–Ljubljana, repeat the series Ljubljana–Kristians–Ljubljana and add the new seriesLjubljana–Saint Petersburg–Ljubljana.“Ad-hoc” FlightsindexRevenue – Scheduled Flights in EURIn 2009, we realized 2,692 flights, which is 1%less than in 2008 and transported 190,164passengers, which is 4% less than in 2008.The Series of Charter FlightsOn the domestic market, the main productswere the series of charter flights whichwere flown in the summer season for bothSlovenian and foreign tour operators whichmarket their products on Slovenian market.With a market share of 68% (in 2008 themarket share amounted to 69%) we remainedthe leading charter carrier on the Slovenianmarket. The above-mentioned series of charterflights head for established destinations in theIn the previous year, we further strengthenedthe reputation of a reliable and top-quality aircarrier in the European area. Even though thedemand decreased somewhat due to the generalcrisis we managed to keep key customers.In the field of ad-hoc flights, the revenues in2009 were somewhat lower than in 2008. Thegenerated revenue fell by 15%; however, wemanaged to keep the revenue that was generatedon foreign markets, which is of keyimportance to us, approximately at the samelevel (primarily flights across Europe for verydemanding clients, like automobile manufacturers,orchestras, special groups of well-knowncompanies and, naturally, sports clubs).Adria Airways / Annual Report 2009 / BUSINESS REPORT29

Plans and Goals for 2010In 2010, the charter transport remains a complementaryservice to the scheduled flightsand is above all aimed at optimising returnsand not only at increasing the volume. Thesame volume of flights as in the last year (2,700flights and 190,000 passengers) is planned. Inview of the situation and demand on the market,we still expect a slack demand, pressure onthe prices and increased competition in thecharter series segment.On the European market, the crisis is slowlycoming to an end, this is also shown by an increasein demand in the field of “ad-hoc” flights.However, competition is likely to increase inthis field in the future but if we can keep theprices moderate while offering quality servicesand maintain the trust of our customer, thenumber of “ad-hoc” flights for foreign clientsis likely to increase. It needs to be pointed outthat the number of “ad-hoc” flights is highest inlow seasons when the occupancy rate of aircraftis lower and the need for cash inflows ishigher.Successful operation will depend on the optimalcombination of both segments, quickdecisions with which we respond to all opportunitieson the market, continuous responsivenessof the pricing policy, where high financingcosts and fluctuation of purchasing power andinstability of the fuel prices demand a continuousadjustment of price levels and care for themaintaining of quality of the service.7.3. Leasing out AircraftMarketing StrategyWhen leasing out aircraft, we follow theobjective of fleet optimisation, especially attimes when certain aircraft are not neededfor our own flights due to low demand. Thatis especially in winter time, when demand forcharter flights is lower, and also the number ofregular passengers decreases and the flightsare reallocated to aircraft with lower capacity.We lease out aircraft only to “wet-lease” in orderto ensure control over the state of aircraft. Theleasing out of aircraft in periods of decreaseddemands on our own market contributes tothe reduction of business risks.CompetitionFrom November to March, strong competitionarises on the market because of an excesssupply in low season. The majority of Europeanair carriers has a surplus of capacities andlease them out at extremely low prices. Thisconcerns primarily the A-320 type of aircraftsegment where charter carriers with loweroperating costs and a higher number of seatshave an advantage. The strongest competitorsare the airlines from Eastern Europe and thearea of the new EU Member States, as well ascharter operators who often lease out aircrafteven below cost price, which turn out to beineffective in the long run.Other Important Factors of Market PositionAdria Airways is, just like majority of Central-European airlines, also encountering theproblem of distinctive “seasonalisation”,especially in the sphere of bigger aircraftof the A-320 type. In the summer monthscapacities on the market are too few, and justthe opposite in the winter months. In the pastyears we observed that 20 year old aircraft arebecoming unsuitable for leasing, primarily dueto the higher number of new aircraft in thissegment and legal restrictions of the majority ofglobal aviation authorities (limitation of leasesto 15 year old aircraft). The demand for CRJ-200and CRJ-900 aircraft was rather slack in the pastbut during the crisis there is also demand forsmaller types of aircraft where better pricesare achieved as practically nobody leases outaircraft in this segment.Air carriers are ordering new aircraft andconsequently the possibility of leasing themout, especially in the winter time, is diminishing.Air carriers are ordering their own, newaircraft also on the markets that up to nowexperienced lack of capacities (India, China,Middle East, North Africa), so the demand forlease will be adequately lower. Regarding themodernisation of our fleet of A-320 type aircraft,the arrival of new A-319 aircraft will improve ourcompetitiveness in the segment of leasing outaircraft. Our advantage is our rich experienceand high quality of operation. However, we are30

less competitive concerning prices.In leasing out aircraft, our advantages ofa reliable and efficient carrier whose priceis competitive on the market are of keyimportance.ResultsWith the “wet-lease”, aircraft revenue of € 6.3million was generated, which is 43% less thanin 2008, since we leased out only one A-320type of aircraft for most of the year. The threeand-a-half-year-longoperation of the A-320aircraft in Libya ended in October 2009.Due to the reduction of transport on our ownmarket we leased out a Boeing 737-500 tothe Ukraine in May 2009 in order to decreasethe leasing costs. Furthermore, a CRJ-200 wasleased out to the Croatian air carrier CroatianAirlines in May/June 2009.Forecast for the Next PeriodIt is estimated that in the near future there willbe a large surplus of aircraft on the market dueto the recession. At the same time, we observedthat quite a number of air carriers ground theiraircraft in low season periods and optimize thevolume of their own operation (they reduce thenumber of on-board staff ) so there is demand,but the price will still play a key role in future.Our competitiveness can be ensured only byoffering quality for an adequate price. Withthe leasing out of aircraft in periods of slackdemand on the domestic market we will keepour fleet flexible also in the future and hencereduce our business risk.7.4. Marketing the Media SpaceMedia CommunicationDue to its exclusivity, the air carriers’ media arean attractive environment for advertising as thepassengers are exposed to the advertisementnot only for most of the travel but also beforeand after the flight. Different groups ofpassengers allow for target advertising.This fact was also exploited by Adria Airways.Our clients can choose from a wide spectrum ofcommunication paths and individual solutionsthrough a variety of different media, printed aswell as ambient media. Therefore, the mediaof Adria Airways are also an effective tool forthe promotion of renowned trademarks andservices, domestic as well as foreign. Thanks tothe direct and regular contact with passengers,the media of Adria Airways represent a greatenvironment for advertising of domestic andforeign trademarks. In marketing our mediawe are careful to pay regard to the value ofthe Adria Airways trademark. The media canbe adjusted to the passenger that travels inthe business class as well as to the passengerthat travels in economy class or on charterflights. Advertisers in our media are chosenwith regard to the fact how they complementour primary activity. The responses of ourregular advertisers are good. They report thatadvertising in our media brings good visibilityand is also effective.In addition to the most attractive medium foradvertisers, the In-flight Magazine, we alsomarketed the advertising space in the followingprinted and ambient media and on the website:flight schedule, envelopes for air tickets, aircraftfuselage, headrests, refreshing wet wipes,sugar, napkins, glasses for hot drinks, coastersand stickers for snacks. In an unobtrusive waythe passengers have been offered differentpromotional materials: sweets, magazines,catalogues and leaflets. We increased thecooperation with the providers of touristservices on the domestic and foreign market. Incooperation with our suppliers and advertiserswe extended our offer in the passengerservice to additional promotional offers offood and drink. Our youngest passengerson our scheduled flights got painting booksby Žito and on charter flights they receivedpromotional NLB balls.Revenue from marketing our own mediaamounted to € 1 million in 2009 and was 20%smaller than the revenue from marketing in2008. This is a result of the reduction of funds foradvertising due to the unfavourable economicsituation. Nonetheless, we managed to keepthe majority of our clients and continue tocooperate with them also in 2010.Adria Airways / Annual Report 2009 / BUSINESS REPORT31

The secretof flying liesnot in theequilibriumof forces alone.It is as u c c e s s f u lb a l a n c eof employees k i l l scater for newroutes.Adria Airways / Annual Report 2009 / BUSINESS REPORT33

Adria In-Flight MagazineThe magazine remains an important mediumfor communication with our passengers andat the same time an interesting option foradvertisers who want to present themselves inthe domestic as well as foreign media space.The Adria In-Flight Magazine remains a freebimonthly, which is primarily intended for ourpassengers on scheduled and charter flights.Each issue of the magazine has a clear contentconcept. Its columns and design allow for thepresentation of various topics, which are ofteninterconnected in the form of informationarticles and articles by different authors. Thereader is offered an attractive story, top-qualityphotographs, all important tips for safe flyingand a recognizable outward appearance of themagazine.Surveys show that passengers like the In-Flight Magazine and pay special attention toit. There are numerous distribution paths ofthe magazine (representative offices, businesslounges on airports, tourist organisations, fairsin Slovenia and abroad, certain hotels and spas,etc.). The demand for the magazine, the currentissue as well as older issues, is high.Main Focus in the Promotion of ServicesIn 2009, the focus in the promotion of Adria’sservices was on the special offers with whichwe promoted the sale in low season and filledvacant seats on selected routes: in February“Valentine’s Day”, during spring months“Fly, fly, …”, in autumn “Hurry up and fly!”, inDecember “Christmas shopping”. In spring wecarried out a larger promotion with the name“Madrid, the city of passion” upon introducingour new route Ljubljana–Madrid in April. Ourspecial offers were promoted in the printedmedia, on radio, the Internet, displays andposter areas at the airport and LCD monitorsat post offices.For additional promotion and in order to gaina base of potential new passengers we carriedout a SMS competition with the name “Fly!”in July. Thus, we generated new contacts forfuture special offers for sales promotion and atthe same time we were able to define the mostresponsive media for our promotion.The success of promotions abroad alsodepends on the recognisability of Slovenia as atourist destination. Therefore, we are searchingfor synergies with other entities in the economyfor the planning and at the annual level wemake arrangements for joint appearances onindividual foreign markets. In April and May, incooperation with the Slovenian Tourist Boarda one-month long advertising campaignwas carried out in printed media and on theInternet in Greece, in June and July a onemonthlong advertising campaign in Spain andin June on taxis in London. Independently, weadvertised the increase in the number of flightsper week in Albania, Bosnia and Herzegovina,Montenegro, Kosovo, Macedonia and in thearea of Pordenone–Venezia Giulia – in Italy.7.5. Cargo TransportMarketing StrategyIn the field of cargo transport quality is ourpriority. We provide quality and at the sametime keep the transport time as short aspossible with the help of adequate spaceon aircraft, where the promised top-qualityservice can be realized on the basis of our highproficiency.Key Factors in Business EnvironmentRecession in the cargo transport sector had asimilar impact for Adria Airways as for the otherair carriers. During the entire year we were facingconstant drops in turnover, which eased atthe end of the year.The main competition comes in the form ofunreasonably low prices of foreign air carrierspresent at the airport for which our market isnot of primary importance and who can adjust34

the prices with the goal to put the domesticair carrier in a difficult situation. In addition tothe competition, the increasingly bad paymentdiscipline presents a problem and makes thecooperation with the clients harder.We tried to soothe the situation with the adjustmentof prices, sales activities were acceleratedin the form of a more intensive communicationwith the clients. We kept an eye on publictenders of companies and in cooperation withfreight forwarders offered competitive prices.ResultsIn 2009, we transported 1,289 tons of cargo onscheduled routes, which is 18% less in comparisonto 2008. The cargo transport by trucks decreasedas well – 98 tons (index 69%), the sameis true for postal consignments – 665 tons(index 91%) in comparison to 2008. Revenuesamounted to € 2,032,918 (index 74%) in 2009.Plans and Goals for 2010Our objectives are:• 2,037,700 kg of general cargo on aircraft,• 96,000 kg of cargo on trucks,• 621,700 kg of postal consignments,this is a total growth of approx. 10% comparedto 2009.The forecasts for 2010 are not optimistic; however,the cargo transport and the transport ofpostal consignments will probably increaseslightly in the second half of the year. The goalsare not set high. One reason is the small numberof planned flights of the A320 in the firstfour months and the planned closure of theBrnik airport in April.Our sales activities will still focus on marketsthat did not get much attention in the structureof our transport up to now and we willtry to achieve better results. The activities willfocus also on the sale on “third markets” withthe conclusion of contracts with some of the“off-line” GSAs (Italy, India, China).7.6. Aircraft Servicing for Third PartiesMarketing StrategyAdria Airways has been present on the marketfor maintenance of regional aircraft (CRJ)as Bombardier’s centre for Europe from 2002.The priority is maintenance of own fleet. Dueto limited sources the share of servicing forforeign clients varies reciprocally proportionalto activities that have to be performed on theaircraft of our own fleet. In 2009, the ratio ofactivities for foreign clients and for our fleetwas 37:63 in favour of the domestic fleet. Inthe same year a lot of work needed to be doneon our own fleet and at the same time the volumeof work for third parties decreased. Hence,the ratio is the result of these two parameters.According to the plans, the ratio between activitieson CRJ aircraft and aircraft of the Airbusfamily changed to 64:36 in favour of the Airbusfleet. The ratio will remain approximately onthe same level next year, in 2011; however, theshare of A320 aircraft in the fleet will increaseas a result of the already singed long-term contracts.Concerning the CRJ fleet, the share of CRJ-900is increasing in comparison to CRJ-200, eventhough larger inspections were postponed forabout a year due to the extension of the maintenanceperiod of CRJ-900 in the second half ofthe year. Our marketing and sales activities arefocused on direct contact with potential buyers,and we shall continue with this policy alsoin the future, since experience showed that itbrings the best results. Additionally, we also focuson advertising on the Internet and in professionaljournals.2009 was a milestone regarding the maintenanceof aircraft in our facilities. For the firsttime, we had to face a considerable decreasein the amount of work during the summermonths. Due to the reduction of the Europeanfleet by approx. 15%, this is most obvious forthe CRJ-200 fleet (these aircraft are withdrawnfrom operation by two large European air carriers– Austrian Airlines and Lufthansa City Line),all larger works on aircraft take place during theautumn, winter and early spring months. As alreadyin 2008, there were more and more air-Adria Airways / Annual Report 2009 / BUSINESS REPORT35

Realizacija 2009Performance in 2009 5%3%28%Realizacija 2009Proportion of Inspections CarriedOut for Foreign Clients Accordingto 2009 Aircraft TypesDelež opravljenih pregledov za tuje naročnikepo tipih letal 2009.38%CRJ-9005%3%28%A-320 A320A320CRJCRJ LINELINEOther Ostale Activities dejavnostiOstale dejavnosti25%CRJ-20064%19%A-32064%9%A-3219%A-319craft of several customers from non-Europeancountries (Rusline, Nova Air) in our hangars. Itis expected that there will be many customersfrom these countries (Estonia, Ukraine, Libya,Kenya, India and China) also in the future.The reason is that the European CRJ-100/200fleet has been sold to the outskirts of Europeand beyond. The number of air carriers fromthe Middle East with a CRJ fleet is increasing.In 2009, the number of valid contracts wasincreased. We also maintained and renewedcontracts with the majority of existing clients.In August 2009, a contract for the line maintenanceof 3 A-320 aircraft of the Belleair air carrierwas signed in Tirana. The activities were extendedto the field of A inspections and repairs.In the field of line maintenance new possibilitiesopen up in the Eastern European countries.Unplanned revenues may also be generatedby exhibiting old aircraft. Here we cooperatewith Volvo and Voyager.In 2009, the number of working hours increasedby 11% for our own fleet, and decreased by33% for third parties in comparison to 2008.Overall, the number of working hours droppedby 10%, the costs of hired workers decreasedby 18% and the number of hours of the gainfullyemployed by 7%. It is estimated that therewill be a positive growth, with an average annualrate of 3.9%, in the aircraft maintenanceindustry in the next five years.For 2010 an increase in the realization of aircraftmaintenance of 6% and a decrease of costs of3% is planned. One of the key activities will bethe reduction of labour costs and overhead expensesand the reduction of work performedby contract workers by 13%. Due to the declinein the number of C inspections on the domesticfleet (also the result of the rejuvenation ofthe fleet with two A-319 aircraft) an increasein the share of the maintenance for foreign clientsfrom 37% to 53% and a 34% increase inthe realization for foreign clients is planned. Itis planned that this share will increase by 5–7%annually in the next years.In 2009, we continued with the intensive trainingsand the obtaining of licences of the technicalstaff. For 2010, the acquisition of newlicences and the increase of the qualificationfor approx. 20 mechanics/technicians as wellas trainings for engineers, workers and NDTstaff are planned. Even though we compensatefor the aeronautical engineering staff thatis retiring by hiring new staff, this will help todecrease the costs of hired workers.Internal and External Market ThreatsIn the summer season 2009 there was an unexpectedand unplanned decline in the maintenanceactivity. This was due to the crisis. Theimpact of the crisis was delayed for 6 monthsin this area. During that period several alreadyconformed projects (in connection to the CRJfleet, the volume of maintenance for this fleetwas high during the summer season in thepast years) have been cancelled.From September to the end of the year wefaced enormously high demands, however, wecould not meet all of them due to the lack ofspace and labour force. Some cancellations ofprojects are the result of the sudden sale of oneof our A-320 aircraft and the works that wereperformed on that aircraft prior the sale. Wealso took on a large repair on one of the A-321aircraft of Air Mediterranean that was damagedin Mali. The conclusion of this project, whichwas carried out in cooperation with Airbus Industries,caused delays of later projects.The unstable situation in aviation and increasinglyshorter cancellations/announcementsof projects of third parties continued in 2009.Consequently, it is difficult to perform spatialplanning and personnel planning.The customers insist on longer contractualpayment deadlines, which means that we arefinancing customers through material supplyin-between projects even for several months.Furthermore, the payment discipline of clientsin general is getting worse.The competition on the European aircraftmaintenance service market for the Airbusfleet got even more intense in 2009. There aremaintenance centres also in Bulgaria, on Maltaand in Turkey. Increasing pressure also comesfrom maintenance organizations from the MiddleEast, where the prices are expressed in USDand are at the same level as the European offerin EUR. On the other hand, the closure of maintenanceorganisations on the CRJ fleet marketis beneficial to us. Consequently, we anticipatea higher share of works on the CRJ fleet.36

Strategic goals of development in thedepartment are:• Independence of Adria Tehnika;• Maintenance of the leading position on themarket of aircraft maintenance for CRJ-100/200/7000/900 aircraft and expansion ofactivities to all European air carriers;• Acquisition of the licence for works on CRJ-1000 and Challenger aircraft and in connectionto this also the set up of “start-up” teamsfor the new CRJ 1000 air carriers;• penetration of the Middle East (Airbus andCRJ) carrier market;• expanding maintenance in the market of C,6 Y in 12 Y-checks for aircraft from the Airbusfamily (A-319/320/321);• keeping informed about the change ofownership of the CRJ fleet in Europe andimmediately enter into a contractual relationshipwith the new owners;• expanding the offer by penetrating in thecomponents maintenance market (CRJchassis);• expanding the technical training – incooperation with the Bombardier Trainingorganisation and independently;• expansion of maintenance to general aviation.Our key factors of success remain the highmotivation, flexibility and professional competenceof all employees, quality performanceof repair services and competitive sales pricesand determination to achieve the set goals.Marketing activities which we will use toincrease our market share and encouragedevelopment of new services are:• using our competitive advantages;• active approach (assisting the user insearching for solutions);• setting up long-term strategic or projectconnections with established entities insimilar business fields;• expanding the main activity of aircraftmaintenance with service activities byadding secondary activities (componentsmaintenance, consulting, start up activitiesfor newly emerging companies, CAMOactivities for foreign fleets);• expanding the Part-147 activity of the educationalorganisation for the education ofmechanics/technicians for third parties;• Starting “joint venture” relationships on themarket where we can expand our activities(line and base maintenance).Forecast for the Next PeriodIn 2010, operation will be a new milestone regardingthe aircraft maintenance in Sloveniaand Europe. The establishment and deteriorationof maintenance organisations is alreadycausing great movements of workers and therelocation of maintenance activities to theEuropean peripheral regions and areas withcheaper labour force. With our activities we willalso get closer to this trend. Such relocationsdemand new approaches, the reorganisation ofprocesses, greater flexibility in the responsivenessto quick changes and flexibility in terms offinances. One of the key activities for cost reductionis still the decrease of overhead expensesand the number of contractual/hired workers.7.7. Education, Flight SchoolFlight SchoolThe Adria Airways Flight School was establishedin 1980 in cooperation with the Faculty ofMechanical Engineering in Ljubljana. Its initialpurpose was to educate and train pilotson smaller aircraft to obtain a professionalpilot licence, which was a requirement foremploying a professional or transport piloton large passenger aircraft. Over the years, theAdria Airways Flight School raised its reputationand with the purchase of the new simulator in2007 became one of the most distinguishedschools in Europe.In 2009, the school flourished not only due tothe commercial pilot courses and certificateslike instrumental flying, multi-engine flyingand night rating but also because of the PrivatePilot Licence (PPL) course.The flying hours in the PPL programmeincreased by more than 200% in a single yearand thus contributed to a 15% increase ofAdria Airways / Annual Report 2009 / BUSINESS REPORT37

the total flying hours in 2009 in comparisonto the previous year. In 2009, the number ofcandidates in the flight school was four timeshigher and it increased from 20 to 80 activestudents. In this period, 5 candidates finishedthe private to cope with the increased scope ofwork in the flight school two new aircraft wereadded to the existing fleet of five aircraft. Thosetwo aircraft, a Piper Pa-38 Tomahawk and aPiper Pa-28 Warrior are intended for trainingsfor the acquisition of the Private Pilot Licenceand certificates for instrumental flying. For thesame reason three new instructors joined ourteam of instructors at the flight school, thosethree instructors were trained in the AdriaAirways Flight School.In 2009, a great emphasis was placed on thetheoretical training. In the second half of theyear as many as three theoretical trainings forthe Private Pilot Licence and Flight InstructorLicence were organized. More than 50candidates attended the lectures.At the end of the year we started to workon the image and the approach of the flightschool (for example we started to design ourown website), standardize the learning process,take part in flight meetings and promote ouractivity in the Slovenian media.It is anticipated that in 2010, we will keep up orincrease the pace of courses for the acquisitionof the Private Pilot Licence and the Commercial* In 2008, an additional Warrior DES aircraft was inuse as the Tomahawk DAA intended for PPL trainingswas not available. The lease of the Warrior aircraftended in January 2009. In December 2009, we leaseda new Warrior, which will be used for independentflying before obtaining the CPL.** For co-pilot trainings the DA42 aircraft is used. In2008, there were quite a few places available in theco-pilot course, while in 2009 no new co-pilots wereneeded.Flying hours according to the type of aircraft and the simulator2009 20081500112511927503750786672575 6123654172002520Tomahawk Warrior* Arrow DA-42** SIMULATORPilot Licence. With a good pricing policy forthe organization of courses for the acquisitionof the Multi-Engine Certificate in 2009 weestablished good conditions for the increasein the number of candidates in the courses forthe mentioned certificate.We plan to get a certain number of candidatesfrom abroad for the Multi-Engine course andincrease the annual number of candidates atthe zone training (Base Training) with Airbusaircraft in 2010.Technical TrainingIn compliance with the EASA Part-147 and Part-145 Regulation, the Technical Training Departmentensures to meet the following needs:• Adriatic process of aircraft maintenance andexternal clients, especially flight units withinthe Ministry of Defence of the Republic ofSlovenia (MORS) and Ministry of the Interior(MNZ), for basic training of aircraft mechanics-techniciansfor the EASA Part-66 licencesof categories A, B1, B2 and C;• Adriatic process of aircraft maintenance for38

theoretical trainings for the aircraft typesBombardier CRJ 200, 700, 900 and AirbusA319/A320/A321 – at the beginning of thesecond half of 2010 a CRJ 1000 will be added;• Adriatic process of aircraft maintenance andexternal clients for intensive (PT = PracticalTraining) and extensive (OJT = On Job Training)practical trainings for the aircraft typesBombardier CRJ 200, 700, 900 and AirbusA319/A320/A321;• Adriatic process of aircraft maintenance forcontinuous training in the fields Human Factors,Technical Updates and Company Procedures,refresher and occasional trainings.The Technical Training department fulfils theneeds of its clients by performing own trainingor organising training performed by otherproviders but in any case designed as a fully integratedservice including all required organisational,coordination and logistics support.In 2009, we continued with the introduction ofmodern CBT (= Computer Based Training) andabove all WBT (=Web Based Training) trainings– in accordance with the clients’ needs, theinfrastructure options, economic and logisticscalculation and legislative restrictions.Due to a limited number of personnel we focusedon intensive practical trainings for thosetypes of aircraft of external clients in 2010.Negotiations concerning the extension of thecontractual cooperation with Bombardier accordingto which Adria would become Bombardier’sauthorized provider of practical trainingsfor CRJ 200, 700, 900 and 1000 are still inprogress.Training in the Field of Cargo TransportTrainings in the field of cargo transport in airtraffic have been carried out for internal andexternal clients since 1992. The trainings havethree modules:• the conditions of admission and IATA cargotransport standards;• the cargo tariff and air traffic documents;• the eChamp reservation system (from autumn2008 on).In 2009, we carried out trainings for the followingexternal clients: AD Intereuropa Beograd,Intereuropa RTC Sarajevo, Interevropa Skopje,Interevropa Kosova, Rhea Express Podgorica,Intereuropa PE Brnik, RSE OptimaVite Doel Skopje,MAT–Macedonian Airlines, Skopje, AirportPristina.With the use of the eChamp reservation systemwe trained general sales agents and handlingagents in the field of cargo transport in 2009.Trainings in the Field of Dangerous GoodsTrainings in the field of dangerous goods areobligatory by law for all participants in air transport.The training programme of Adria Airwayswas approved by the Ministry of Transport ofthe Republic of Slovenia. Trainings for internaland external clients have five modules:• DGT1 Personnel of air carriers, freightforwarders and handling agents who areengaged in the handling, storage andloading of goods and postal consignments,• DGT2 Flight crews and loading planners,• DGT3 Cabin personnel, reception andpassenger handling personnel and securityguards who check passengers, luggage,cargo and postal consignments,• DGT4 Senders of dangerous goods,personnel of air carriers, freight forwardersand handling agents who accept dangerousgoods,• DGT5 Personnel of air carriers, freightforwarders and handling agents who acceptgeneral goods and postal consignmentswithout dangerous goods.Education of the Sales ForceThe needs for the education of our own salespersonnel and agent network emerged twentyyears ago and took shape before the collapseof Yugoslavia in the framework of the AdriaAirways Training Centre and later as an independentunit within the sales and marketingsector. In addition to the education of our ownsales personnel it also offers education for themarket.Adria Airways / Annual Report 2009 / BUSINESS REPORT39

Adria’s Sales Personnel Training Centre is theonly one of its kind in Slovenia and provideseducation for our own sales personnel, theagent network (in Slovenia and Macedonia)as well as for the students of the UP Turisticafrom Portorož. The training is based on ourown programmes from the field of sales andreservations, tariffs and ticketing, refresherprogrammes and other workshops (ifnecessary), and from 1992 onwards also on theIATA UFTAA international programme.The purpose of this training is to trainsales personnel in the field of selling ourtransport documents as well as the transportdocuments of other air carriers, primarily onthe Slovenian market. Hence, with the helpof the Training Centre Adria is establishing itssales infrastructure, is entering into the generalmarketing of the company and is fulfilling itstask as the Slovenian flag carrier. The trainingprogrammes enable the agents to concludeand keep sales contracts with IATA and in thisway join the IATA BSP sales accounting system.In 2009, according to the plan, three instructorsfinished their studies for the execution of theprogrammes in Albania and one instructor forthe execution of the programmes in Kosovo.We plan to start the courses in Albania andlater in Kosovo in 2010.from time to time. Such education is intendedfor the wide circle of personnel who come intodirect contact with passengers in the processof transporting passenger, i.e. reservations,ticket sales, agent network, check-in personnel,cabin personnel, sales & passenger service, lostluggage, etc.The educational concept is e-learning withdirect access to the Star Alliance educationprogramme. In 2009, we started to establishthe system, manner and organization of thisform of certified education. It is planned that350 employees of Adria Airways will finish theirstudies by the end of April 2010. We intendto include the mentioned education in therefresher for sales agents in Slovenia in 2010.The drop in sales via the agent sales networkin the field of flight documents of all air carrierswho are members of the BSP Slovenia alsocaused a substantial drop in the number ofparticipants of our education programmes in2009. It is estimated that this trend will alsocontinue in 2010. There was a similar situationin the past (at the beginning of the 90’s) andwas followed by a drastic increase in the needfor education in the field of sales skills. Weexpect the same for 2011.As a Star Alliance member we are obliged toeducate our sales and other personnel aboutthe alliance, its members, advantages for regularpassengers, products and agreed procedures aswell as to refresh and upgrade the knowledge40

Adria Airways pays a lot of attention to theinvestment policy. The investment strategyis based on investments into the aircraft, rotoparts and equipment for the maintenance ofaircraft and investments into modern computersupported technology and adequate workareas.Our largest investment in 2009 was a new,energy efficient business building, built atBrnik on a lot reserved for the development ofAdria Airways. The volume of the investmentsamounted to € 6 million and it included theconstruction of the building, surroundingsmaintenance, public utilities, access road,telecommunication and canalizationconnection and interior design of rooms.For many years, the company had administrativebuildings at two different locations, thus theirmerging allows for:• provision of adequate internal and externalcohesion of the company, which willenable better organization, faster informing,updating, improved communication;• enhancement of the further development ofair transport and the company as a whole;• improvement and increase in the growthlevel, the basic goal of which is to increaseand optimize the capacities;• rationalization of operation, which shouldresult in the reduction of operating costs;• focusing activities on meeting andsystematically checking the needs ofpassengers, whose communication wouldbe facilitated.Plans for 2010The volume of investments in 2010 will greatlydepend on the willingness of the owners for acapital injection, as the company cannot copewith further indebtedness at the moment. Thefree cash flow will be used for the repayment oflong-term liabilities of the company.After the investment into the new businessbuilding is finished in 2009, the constructionof a new, additional hangar for aircraftmaintenance in the amount of € 3.5–4 million isplanned. With the new hangar we can increaseour maintenance capacities for foreign clients,as we have been facing with an increaseddemand in this field lately. At the same timewe get a room for top-quality maintenance ofour own fleet.According to the fleet plan for 2010, costs forperiodic maintenance for aircraft, enginesand systems in the amount of € 3.7 million,investments into licences for the aircrew andtechnical personnel, computer programmes,equipment and building maintenance in theamount of € 1.1 million are planned.8. Inve s t m e n t s• Plans for 2010Adria Airways / Annual Report 2009 / BUSINESS REPORT41

9. Pa r t n e r s h i p s• Adria Airways’Membership in StarAlliance• Adria Airways’Collaboration withForeign AirlineOperatorsAdria Airways’ Membershipin Star AllianceIn the world of globalization integrationis inevitable as it provides for the directappearance in global air transport. This isexactly the reason why Adria Airways becamea member of Star Alliance, the leading globalassociation of airlines, in 2004. This membershipenables a more efficient, faster and passengerfriendly connection to 855 global destinationsin 155 countries. Via the hub at the Ljubljanaairport Adria Airways connects Slovenia withthe Star Alliance network as well as the airportsof South-Eastern Europe.Due to accelerated enlargement plans andchanging needs of its members, the StarAlliance association of airlines adopted a newoperating structure in 2009 in order to abolishthe present category of regional membership.These are the three present regional membersof the association: Adria Airways, Blue1 andCroatia Airlines, since they showed a goodperformance over the last five years andmaintained high standards as laid down by therequirements on conformity with Star Alliance,made a progress and gained the status ofair carriers, members of the Star Allianceassociation in January 2010.With the new status the quality requirementswill increase. We will need to comply with allthe rules and provisions of the Star Allianceassociation determined by the rules onconformity within the association, the socalled“Star Alliance Assets & Components”. Weactively started to prepare for the annual qualitychecks of the Star Alliance association in whichwe will take part for the first time in 2010.As a full member of the Star Alliance AdriaAirways’s trademark will gain greaterrecognizability since in the future the logowill be included in the common list of logosof all air carriers who are members of the StarAlliance association. Adria will participate fullyin common negotiations with the suppliers(fuel, spare parts, airport services) and have aleading role in the creation of a common StarAlliance plan for the Slovenian market.Adria Airways’ Collaborationwith Foreign Airline OperatorsIn 2009, Adria Airways conducted thecoordination of the multilateral contracts onincome division (MARS), which includes eightStar Alliance carriers and with six of those wecooperate intensely on the basis of so-called“Code Share” agreements. In this period,Brussels Airlines was included in the MARS anda further participation of the BMI and AegeanAirlines was agreed. Scandinavian Airlines alsoshowed interest to join MARS.Although the economic crisis caused a dropin demand for air transport of passengersand consequently a surplus of capacities anda more fierce competition, within this systemforeign air carriers on their flight documentsstill contribute a quarter of Adria’s revenuefrom scheduled flights.42

In 2009, we continued to maintain and developthe quality assurance system. In 2003, Adriareceived the ISO 9001:2000 quality certificatefrom the Slovenian Institute for Quality andMetrology. By obtaining this certificate thecompany completed the cycle of establishinga comprehensive quality assurance system. Sixyears after the acquisition of the ISO9001:2000certificate for transport of passengers, cargotransport, aircraft maintenance and trainingsin the field of aviation, we passed the secondrefresher assessment, which was at the sametime a transitional assessment for the new issueof the ISO9001:2008 standard. The auditors didnot find any non-conformity and only gave 8recommendations. Therefore, we obtained theISO 9001:2008 quality certificate in June 2009.The quality management system accordingto the ISO 9001:2008 includes the qualitysystem from the field of commercial EU-OPS airtransport and the Part-145 quality system fromthe field of aircraft maintenance.The EU-OPS quality system from the fieldof commercial air transport, for which weobtained the JAR-OPS 1 certificate in 2001,enabled us to start with the implementing ofroutes within the European Union at the endof 2001. In the middle of 2008, by obtaining theEU-OPS certificate the EU-OPS legislation wasintroduced, which replaced the former JAR-OPS 1 standard. In the framework of the EU-OPSquality system from the field of commercial airtransport we are also members of the IOSA (=IATA Organizational Safety Audit) register of aircarriers that needs to be renewed every 2 yearson the basis of a passed IOSA assessment. Asthe sixth airline in the world, which obtainedthe first IOSA certificate already in 2004, wepassed the third refresher assessment inJanuary 2010. The EU-OPS quality systemfrom the field of commercial air transportensures with its mechanisms the meeting ofall legal requirements and the observance ofgood practice in the field of aircraft safety andprotection.From March 2005 the Part-145 quality systemfrom the field of aircraft maintenance, forwhich we obtained a certificate in 1999 andon the basis of which Adria became one ofthe two authorized service centres for the CRJtype of aircraft in the world in 2002, includesalso the Part-147 quality system from the fieldof maintenance personnel education, on thebasis of which Adria can carry out trainingsfrom the field of aircraft maintenance withworldwide recognition on its own.10. Qu a l i t yAdria Airways / Annual Report 2009 / BUSINESS REPORT43

11. In f o r m a t i o nSo l u t i o n s• Plans and Goals for2010Nowadays, we are aware that informationtechnology with the use of modern solutionscontributes to the creation of top-qualitybusiness processes even in the framework ofsuch specialized companies as ours.The year 2009 was full of challenges in thesphere of information solutions. One of thekey projects this year was the introduction ofthe CITP (“Common IT Platform”) project in theframework of the Star Alliance association. CITPis a common, centralized platform for customerrelationship management hosted by Amadeus.With the new project we plan to improve theservice for the customers, reduce the costs perunit, considerably reduce fixed costs for thedevelopment and maintenance of our IT aswell as the reservation system costs.The introduction of electronic commerce(e-orders, invoice liquidation, electronicdistribution of aircraft manuals) took moretime than expected. Therefore, the system willnot be fully operational until 2010.We also established the basis for the upgradingof the mail server. This will increase theproductivity, improve the operation at remotelocations and reduce the costs for antivirusprotection.It was also an eventful year when it comes to thedocument system. The electronic distributionof contracts and the electronic process forhandling complaints concerning the flight andthe cabin personnel was introduced.It is a fact that the development of informaticsis very fast. That is why our employees strive toadjust to the situation as best as they can, beflexible in the search for solutions; however, alot of attention is also paid to the efficiency ofthe protection system. Only the combinationof all factors will enable us to ensure that wewill efficiently achieve the business objectivesset by the company.Plans and Goals for 2010In 2010, the introduction of virtual andterminal servers will be continued. The mailserver will be upgraded, the MS System Centerfor a central overview and central installationof applications with the goal of reducing themaintenance costs will be introduced. TheE-document system project will be continued.Above all, we want to introduce e-orders andtransfer the invoice liquidation and main officethere.We will constantly work on the optimization ofbusiness processes; our aim is the automationwith the help of the main support applications.New BI (Business Intelligence) reports will beintroduced and hence better business dataensured for management.44

Risk Assessment – evaluation of the likelihoodof the development of critical circumstancesand consequences as well as their solutionsare carried out systematically once a year at thebeginning of the year. The management as wellas skilled workers are in charge of the executionof the assessment, whereas reporting theassessments is part of the annual managementreview where adequate preventive andcorrective measures and activities for riskreduction or their potential consequences areconfirmed. Most attention is paid to the criticalrisks, i.e. risks that can substantially affect theprofit or loss.The current risk management and changesin the likelihood and potential consequencesduring the business year is defined partly at thelevel of the sector, where the individual sectordirector is responsible for the risk management,and partly at the level of the company’smanagement (risks relating to the company as awhole). Accordingly, decisions on the measuresfor handling critical risks in connection with acertain sector are adopted at the level of thesector (reporting to the company’s college),while decisions on the measures for solvingcritical risks that exceed the limits of one sectoror relate to the company as a whole are adoptedat the weekly colleges of the company.Below are the key business and financial risks– description of the risk, impact in 2009 andmeasures for risk management – at the endalso the likelihood of the development of therisk in 2010, the impact on operation and in thechange of both risk parameters in comparisonto 2009.Business RisksMarket Risk / Possibility of RecessionThe general situation on the market and in theeconomy impact the demand for air transport– the amount of travelling is reduced in arecession. In 2009, the recession had a strongimpact on the operations of all air carriers,including Adria Airways. As a result of the dropin demand we reduced the volume of flights,and at the same time reduced the ticket pricesbecause of the increasingly lower numberof passengers. The structure of the marketpotential is also changing, there are morepassengers who buy economy class ticketsinstead of more expensive business class ticketsand intensively search for cheap offers, whichalso have a negative effect on the revenue.The market risk was mitigated to a certainextent with the measures mentioned above,but the consequences could not be entirelyremedied; the operating revenue reduced in2009 by 20% in comparison to 2008, whichis comparable to the results of the aviationindustry in Europe and around the world;however, in the case of Adria Airways regardneeds to be paid to the extraordinary growthin 2008 (25%) due to Slovenia’s Presidency ofthe EU. In the first half of the year, the volumeof flights was limited to a certain extent, butwe could not manage to further decrease thenumber of frequencies until June when therelaxation of EU regulations regarding the useof slots at airports was confirmed.Probability: medium/Impact: big/Competition / Possibility to Enter orEnhance Competition on the MarketAdria is exposed to the greatest risk dueto competition in the passenger transportsegment. Competition comes in theform of other air carriers (network andlow-cost carriers) and ground transport.New competitors represent a threat to themarket share and consequently a possibilityof reduction in revenue. We are trying tomanage the risk arising from competition byexpanding the flight network, independentlyas well as through connections within the StarAlliance partnership by improving our ownproduct, which includes privileges for loyalpassengers (Miles&More globalprogramme)and by constant improvement of the structureof costs.The competitiveness of our offer is maintainedin terms of prices. In this way we maintain ourpresence and shares on the key market. In 2009,we were pressured by high price reductions ofour competitors. This is a result of the air carrier’sefforts to gain additional passengers andfill vacant seats during the recession as theydid not manage to decrease the capacities accordingto the drop in demand. Consequently,this year’s prices had to be further reduced andnew special offers were needed, which had an12. Ri s kMa n a g e m e n t• Business Risks• Financial RisksAdria Airways / Annual Report 2009 / BUSINESS REPORT45

impact on the reduction of revenue per passengerkilometre by 6%.Probability: medium/Impact: big/=Limited Airport Capacities / Inability ofIncreasing CapacitiesDue to the limited number of available slots(dates for landings and take-offs of aircraft) atthe main primary airports in Europe it is veryhard to increase the capacities in terms of additionalfrequencies of flights. Thus, the capacityon those routes can be increased mainlywith larger aircraft. For Adria it is hardest to getslots in order to optimize the network of flightsvia the Ljubljana airport and ensure optimalconnections via Star Alliance hubs at certainprimary Western European airports. The riskdid not play an important role in 2009 as thecapacities were limited and some frequenciescancelled, so we could better adapt to thedrop in demand more easily. However, someprimary airports are still more or less inaccessibleto new air carriers and are not open forthe increase in the number of flights.Probability: high/=Impact: big/=Delays in Air Traffic in Europe / Ability ofIncreasing Delays (Number and Duration)Delays cause inconveniences for passengersand consequently damage to airline operatorsbecause of missed connections and the inefficientuse of aircraft. Due to the limitation ofcapacities in the aviation industry in Europe ingeneral, the risk was considerably lower thanin 2008, hence the delays decreased in termsof number and duration.Probability: medium/=Impact: medium/=Small Domestic Market and Scarcity ofDomestic Tourist Capacities / Inability toAchieve the Break-Even Point in Terms ofthe Number of Passengers that Ensures theProfitability of the RouteAs a Slovenian carrier, Adria Airways faces limitedpotential of passengers on the domesticmarket to ensure profitability of existing andnew routes. The drop in demand in 2009 furtherincreased the risk of the limitation of thedomestic market. However, to a certain extentwe compensated for this effect with the openingof the new market Ljubljana–Madrid andthe increase of capacities on the markets of theBalkan Peninsula.Probability: medium/=Impact: big/=War, Epidemic, Terrorism and NaturalDisasters / Possibility of Development andOccurrenceThese events may have a negative impact onthe possibility of commercial flying to affectedareas, which is reflected in loss of revenue. Thatmight be of a more or less limited nature (epidemicmay have a global impact on reduceddemand for air transport), or they may havemore direct consequences in the form of materialdamage and loss of assets (aircraft, businesspremises).In 2009, there was a H1N1 flu epidemic, whichhad a negative but limited impact on the airtransport of passengers. We estimate that it didnot have a substantial impact on the demandfor Adria’s flights.Probability: low/=Impact: limited/=Information Technology / Possibility ofFailure of Key Elements of the IT InfrastructureWith increased automation of some key processes,which is a consequence of growth andbigger scope of business operations, there isan increased risk of possible failures of informationsystems and programmes which providesmooth functioning of the company and itsdaily operations. The mentioned key processesare: reservations and sale of air tickets, planningcommercial flying, communication to operativeservices, operative planning of flightsand crews, and the support processes linkedto that. A failure may cause that flights are suspended,and consequently revenue is lost andadditional costs occur to set up the operationsagain. Safety support or the smooth operationin connection with the reservation system andflights inventory is provided by the suppliers,Amadeus and Lufthansa Systems. Programmesfor planning and other operative support runon the Blade server in an environment witha redundancy high availability and the mostcritical applications have duplicate servers onanother location. As the number of communi-46

cations running via IP networks is increasing,such access has to be robust. Therefore, we usedifferent communication channels: one is theSITA channel, which runs through rented wires,the others are VPN networks running throughoptics (T-2, Telekom), and the wireless connections(Softnet).Probability: medium/=Impact: big/Safety and Protection / Possibility of IncidentsPassenger safety is Adria Airways’ highest priority.Inability to prevent a major safety incidentwould have long-term and hard consequencesfor the company’s business operations, in termsof losing revenue, losing assets, losing reputationand the value of the trademark.Probability: low/=Impact: big/=Labour Force / Possibility of ExcessiveLabour ForceDue to the intensive growth of the transportand fleet in the previous two years, weemployed quite a number of additional operationalworkers (pilots, cabin personnel andmechanics). However, it was hard to ensurethere is enough work for them during the crisisbecause of the decline in orders for the maintenanceof aircraft for foreign clients and thedecreased volume of air transport as a resultof the drop in demand. The sale of aircraft furtherdecreased the need for a labour force. Theproblem was solved with employment outsidethe company and measures for the reductionof working time, early retirement, decrease inthe cooperation with some external suppliersof services and further pay cuts.Probability: medium/Impact: big/=Trade Union Requirements / Possibility ofRequests for Increasing Labour Force CostsTrade unions’ requirements for salary increaseshave a negative impact on achieving successat reducing costs. Employee strikes couldcause disturbance in daily operations, theperformance of commercial flying andconsequently a loss of revenue and unforeseencosts. In general, the biggest reserves are stillin organisation of work, productivity, higherflexibility and multi-functionality of employees,in monitoring the efficiency, quality and amountof the employees’ work; but all of that requiresadditional engagement of management atthe medium level, who should dedicate abigger share of their working time in optimising,organising and managing employees and to alesser extent deal with expert operative matters.Probability: medium/Impact: big/=Legislation and EU Regulation / Possibilityof Negative Impact of Legislation onOperationsThe international aviation industry is to agreat extent subject to European and nationalregulations, which regulate most activitiesof airline operators. This framework is inforce in the sphere of commercial activities(competitive marketing environment, rightsto access to airways and airport “slots”, liberalprice regime) as well as operational standardsrelating to the fields such as safety, protection,noise and passenger rights. Adria is also affectedby European Union legislation and regulation,especially with regard to competition, airports,air traffic control, permits for regular flying andpassenger rights. One of the most relevantareas is the protection of the environment andin the framework of environment protectionthe issue on the emission of greenhouse gases.In this year, there was a preparation of processesfor the monitoring of emissions, monitoringemissions in 2010 and reporting and from 2012there will be an additional financial burdenin the framework of the emissions tradingscheme.The impact of legislation is demonstrated bestby this year’s decision of the EU to temporarilycancel the “use it or lose it” rule concerning theallocation of airport slots, which enabled theair carriers to adjust their capacities to marketconditions without jeopardizing the integrityof their product in the long run. Although theadjustment of capacities does not suffice fora final solution of the drastic drop in demand,it did contribute to the reduction of costs,which is of great help when facing a seriousdrop in revenue. The “use it or lose it” ruledemands from the air carriers to fly and usethe obtained airport slots also when this isnot economically justified in order to keepAdria Airways / Annual Report 2009 / BUSINESS REPORT47

the historical right for the relevant slot also inthe future.The regulations in the field of consumerprotection define the obligations of air carriersin the case that an air carrier does not flyaccording to schedule, this mostly results infinancial compensations or the obligation ofthe air carrier to find an alternative solution forthe transport of the passenger to the bookeddestination.Adria’s ability to fulfil all of these requirements onone hand and to influence their amendmentson the other hand, is of key importance inensuring the success of our operative andfinancial activities.Probability: medium/=Impact: big/=Suppliers / Possibility of InadequateSupplier ServicesPotential problems with suppliers couldcause a reduction in revenue, or a negativeperception of the public with regard to ourservices. For certain services we hire externalsuppliers and we rely on them regardingtimeliness, efficiency and quality of theirservices. Among those for example are certainmaintenance services, flying leased aircrafton our routes, providing ground handling,information support and similar. We haveconcluded agreements for service hire whichinclude a notice period in which we can find areplacement in case of unilateral or consensualtermination of collaboration. Nevertheless,adequate implementation of the hired servicehas relatively strong influence on the overallquality of the services offered by us.Probability: low/=Impact: limited/=Financial RisksDue to its international orientation, AdriaAirways d.d. is exposed to certain types offinancial risks, which the company tries todetect and manage in the risk managementprocess.For efficient and systematic risk management,we follow the strategy of managing financialrisks adopted at the end of 2005.The company divides financial risk into thefollowing types: currency, credit, interest rate,liquidity, risk in insuring interests and propertyand risk associated with changes in fuel prices.Currency RiskIn view of the geographical spread of itsbusiness operations, the company is exposedto currency risk, where changes in theexchange rate of an individual currency canimpair the company’s commercial benefits.The key pair of currencies in 2009 was EUR/USD, but we are also monitoring the followingpairs of currencies, the open positions of whichare relatively low: EUR/CHF, EUR/GBP; and to asmaller extent also others.The company is in a net short position andthereby most exposed to fluctuations inthe dollar rate since USD affects businesstransactions of the company the most, due toits association with: the purchase of aviationfuel, aircraft and spare parts as well as leaseand investment maintenance of the aircraft;also, inflows of dollars are scarce.In the long term, we are trying to reduceexposure by natural securing (restructuringall long-term loans to euro), i.e. by regulatinginflows and outflows, while in 2009 a part ofshort position was also secured by purchasingderivative financial instruments and a part wasleft unsecured in compliance with the adoptedstrategy.In 2010, we are also planning short position inUSD, which we have already partly secured bypurchasing derivatives, and a part will be leftunsecured.Probability: high/=Impact: limited/=Credit RiskCredit risk relates primarily to the risk ofdefault on payment of operating receivablesby customers in Slovenia and abroad and thecompany successfully manages this by:• having a wide spread of customers;• analysing the financial operations ofcustomers and assessing risk prior to signingcontracts for deferred payment;• operating through the IATA (InternationalAir Transport Association), which includesall the airlines with which we cooperate; the48

majority of our partner travel agents alsohave IATA authorisation to sell tickets; IATAmembers are subject to control, and arepenalised for non-adherence to the terms ofpayment;• additional security for higher-risk claimswith bank guarantees, drafts, letters ofcredit;• systematically and actively pursuing thecollection of receivables.In 2009, the problem of the downfall, groundingor insolvency of certain air carriers in theEuropean air transport as well as problems ofsome large tour operators emerged.Probability: medium/Impact: limited/Interest Rate RiskRisks relating to interest rate changes aredefined as the uncertainty associated with thefuture values of reference (variable) interestrates, LIBOR for the USD and EURIBOR.All long-term loans as of 31 December2009 are therefore denominated in EURand linked mainly to 1-month and to alower extent to a 3-month and 6-monthEURIBOR. With the purchase of derivativefinancial instruments we further secured agreat part of the long-term credits in 2009.As of 31 December 2009, the company has67 percent of the long-term loans securedagainst the risk of interest rate changes.In 2009, we also began to face the pressureof the banks in terms of increasing the bank’ssurcharge for credit agreements concluded inthe past when companies could agree with thebanks on considerably lower surcharges than in2009. It is anticipated that the key interest rateswill increase in the future and this will result inway worse conditions for business entities.Probability: high/Impact: big/Liquidity RiskLiquidity risk, or the risk of inability to settle currentliabilities, is managed by coordinating thedue dates for receivables and Long-term FinancialLiabilitiesthrough the monitoring of cashflow. The company is preparing daily, as wellas weekly and monthly liquidity plans and hasaccess to available credit lines for short-termadjustment of cash flow. With some largerpartners, payment plans have been agreedand with two largest strategic partners it wasagreed that part of the liabilities from 2009will be covered in 2010.Probability: high/Impact: limited/Insuring Interests and PropertyThe extent and intensiveness of insurance coverchange with the growth of property, the useof new technologies and markets, and at thesame time there are changes in risk exposure.The extent of insurance cover indicates againstwhat danger a thing is insured, and the intensivenessindicates the extent to which damagewill be reimbursed.In avoiding damage and exposure, the companyoperates preventively:• by additionally equipping aircraft with antiintrusiondoors, so as to increase the safetyof passengers, crew and property;• by installing GPS navigation systems onaircraft, which enable the highest possiblelevel of detail in establishing the currentposition of the aircraft in airspace;• by training technical and aircraft crew in thesphere of safety protection, with a purposeof performing safety checks of aircraftbefore flying;• by installing a surveillance system for theentrance to the pilot’s cabin in aircraft withmore than 60 passengers;• by installing Enhanced Ground ProximityWarning Systems (EGPWS);• by purchasing work platforms and stairs forsafer work by contractors and preventingdamage to aircraft;• by investing in equipment for controlledaccess to protected areas;• by upgrading the existing and purchasingnew equipment for ground handling ofaircraft;• by investing in equipment which enablescontrolled handling/disposal of waste/dangeroussubstances;Adria Airways / Annual Report 2009 / BUSINESS REPORT49

• by renovating the existing working areasand roof on the hangar for aircraft maintenance;• through twice-yearly refresher courses forflight personnel on a simulator;• through additional education of technicalpersonnel in the field of preventive maintenanceof the aircraft’s fuel systems;• by carrying out all the requirements/recommendationsof the aircraft manufacturersconcerning the aircraft’s fuel systems withthe purpose of preventing self-ignition orexplosions;• through the continuous training ofemployees in fire safety and safe work;• by linking up fire safety systems with AerodromLjubljana and the security services;• through regular medical check-ups foremployees.The Company insures aircraft, spare parts,goods in transit, all liability regarding passengersand possible injury to third persons in linewith the valid international regulations andconventions (Montreal Convention).The Company’s business operations are backedby all the mentioned insurance.Probability: low/=Impact: limited/=Risk Associated with Fuel Price Changes2008 was a year of enormously high fuel costs,while in 2009 the decrease in the oil costs hada considerable impact on the reduction of fuelcosts.Consumption and fuel costs are managed by:• selecting the most competitive offer fromaviation fuel suppliers at internationalairports and demanding transparency ofprices offered by the domestic fuel supplier;• planning the use of aircraft appropriate tothe number of passengers;• using the programme for the reduction offuel consumption, which was prepared atIATA and includes measures in monitoringthe decantation of fuel, aircraft maintenanceand technique of flying;• adding a surcharge to our own sales pricesfor the increased cost of fuel;• in compliance with the adopted strategyof protection from the risk of price fluctuationsfor aviation fuel, in 2009 and 2010we secured prices also by using derivativefinancial instruments.Probability: high/Impact: limited/=50

The economic recession and financial crisischaracterized the 2009 business year. Alreadyin the first months the drop in demand especiallyfor air transport of passengers was morepronounced than expected. Therefore, we setup a supplementary business plan in June 2009that took account of the reduction in revenuesand consequently the measures and pressureon reducing the costs.We managed to realize most of the bold plans;however, some plans were not fulfilled:• The continued fleet optimization by leasingout larger and later selling larger aircraft andhiring smaller aircraft according to the flyingneeds, was implemented in its entirety. ✔• A positive operating result in the amountof € 3.6 million was planned, however, dueto the difficult situation on the market,especially the somewhat larger drop in theaverage revenue per passenger, could notbe achieved. ✖• In the field of investments, we planned theconclusion of the construction of the businessbuilding at Brnik that started in October2008. The investment was successfullyconcluded in October and in November thecompany moved to a unified location. ✔• In April, the planned new route to Madridwas successfully introduced. ✔• In the field of maintenance of foreignaircraft, it was planned to continue with thestrategy to extend the scope of work onaircraft of the A-320 family and at the sametime to maintain the leading role on the CRJmarket. ✔• The number of passengers decreased by3% in 2009 according to the supplementaryplan, whereas the number of flights increasedby 1%. ✖• A capital injection in the amount of € 8million was planned, from which € 2.4 millioncould be realized, which increased theshort-term and long-term indebtedness ofthe Company. ✖13. An a l y s i so f Bu s i n e s sRe s u l t s• Notes on the PhysicalOperating Indicators• Revenue Structure• Expenses Structure• Results• Structure of Liabilities• Cash Flow fromOperating ActivitiesNotes on the Physical Operating Indicators• In 2009, the Company carried 1,143,542 passengerson 26,133 flights. Compared to 2008the number of passengers carried increasedby 12%. The number of passengers onscheduled flights increased by 14%, and thenumber of passengers carried on charter flightsby 4%.120112 1151.400.00080881.300.0001.200.0004001.136.4311.302.1721.143.5422007 2008 20091.100.0001.000.000Passengers in TotalIndexNumber of All Passengers Number Carriedof All Passengers CarriedAdria Airways / Annual Report 2009 / BUSINESS REPORT51

• The share of passengers on scheduled flightsin the total number of passengers carriedwas 83.4%, the share of passengers on charterflights was 16.6%, which is 1.4 percentagepoints more than in 2008.• The passenger cabin efficiency on scheduledflights improved by 5% in 2009 compared to2008, and the number of seats available forsale increased by 5%.• The average daily use of aircraft was 8.99hours per avioday and decreased by 8%.• The average fuel consumption per hour offlying decreased by 5% compared to 2008,which is mainly the result of increasing theshare of flights with smaller aircraft.Revenue Structure• Net sales revenue in 2008 decreased by 21%compared to the previous year. Their structurechanged slightly in comparison to 2008:the proportion of revenue from scheduledflights increased, mainly due to decrease inthe share of other activities (cargo, technology,aircraft lease), and the proportion of revenuefrom charter flights increased.• Revenues from the transport of passengersof scheduled flights, which amountedto 72% of all operating revenues in 2009decreased by 19% compared to 2008,primarily because of the lower number ofpassengers. This decrease is connected toComposition of OperatingSlovenia’s Presidency of the EU in the firstRevenue Jan.–Dec. 2009half of 2008 and at that period the world didComposition of Operating Revenue Jan.–Dec. 2009Composition of Operating Revenue Jan.–Dec. not 2009 face such an extended financial crisis. Wealso had to face the reduction of the value1%1% of the passenger coupon, mainly due to thedecrease of charges that were added in the15%previous year as a result of the high kerosene72%15% prices and a pronounced drop in the number72%5%of business travellers.5%7%7% • Revenues from charter flights declined by15%; the drop in revenues is not proportionalto the number of flights (index 101) asScheduled Transport – Passengers the prices were lower due to the lower fuelScheduled Transport – PassengersScheduled Transport – CargoScheduled Transport – Cargocosts; the number of “ad hoc” flights was alsoCharter Transport – PassengersCharter Transport – Passengers somewhat lower than in the previous year;Technology – Foreign ClientsTechnology – Foreign ClientsOther Activitieshowever, the final proceeds were higher andOther Activitiesthis is more important.• Revenue from cargo transport decreased by26% compared to 2008. In view of the strongcompetitiveness of the transport by trucks inEurope and the Balkans, where most of ourtransport offer is focused on, the transport ofconsignments with a weight of up to a fewhundred kilograms was our market niche inthe past and will continue to be in the future.Despite decreasing prices and surchargesand hence adapting the offer there was noincrease in the demand for transport becauseof the current situation.• Revenues from maintaining aircraft for thirdparties: Performance of services for foreignclients amounted to € 8.5 million in 2009,which is 33% less than in 2008. The decreasein the performance is mainly the result ofgreater activities in the field of maintainingour own fleet (base and line maintenance),structure of projects of servicing for foreignclients and cessation of the operating linemaintenance for an Italian aircraft operator.We do not want to build advantages on alow price policy, but want to act in accordancewith our vision and strategy as well asbecome and remain a centre that employsprofessional and flexible personnel, listens tothe needs and wishes of the clients and offersa wide range of quality services with theshortest possible grounding time of aircraft.• In 2009, only one Airbus 320 was “wet leased”until October, that is why revenues in thisfield are lower (index 57).• Revenues from other activities have been decreasing(index 70) in accordance with theeconomic situation as well, primarily in aviation;these include revenues from education,advertising, commissions, reservation fees, etc.Expenses StructureProduction costs, distribution costs and generaland administrative costs decreased by 15%over 2008.The cost of material decreased by 27%compared to 2008, still mainly due to lowerprices of aviation fuel and the decrease in thecost of services was 12%.The low kerosene price had an impact onthe lower fuel costs (index 67/08); the pricesclimbed somewhat in the last two quarters52

of 2009 but were on average still a great dealbelow the level of 2008.Airport costs decreased by 7% and are underconstant control. In addition, the number offlights decreased by 4%. The reduction is a signof the successful maintenance of lower pricesin the past two years when many measureshave been taken in this area.Navigation costs decreased by 4%, but only duethe structure of flights. The highest increaseof prices for navigation services in 2009 wasobserved in the field of air traffic control inSlovenia (by 23%) and some countries of theBalkan region. In the rest of Europe, the pricesremained at the levels of the previous year orwere even somewhat lower; this can be seenin the diagram below.% change 2009 over 2008European ATC Unit Rates will rise by 3.2 % in 2009, despite reduced traffic levels302520151050-5-10-15Average increase of +3,2% in unit rates for ATC ChargesSloveniaBosnia & HerzegovinaCzech RepublicCroatiaSlovakiaBelgium - Lux.MoldovaSwedenNetherlandsSpainHungaryIrelandFranceDenmarkAlbaniaSwitzerlandGermanyRomaniaPolandPortugalSpain CanariesSerbia-MontenegroMaltaAustriaFinlandTurkeyGreeceItalyLithuaniaNorwayFYROMBulgariaUKCyprusSource: eurocontrolThe aircraft maintenance costs decreased by15%. They include both the costs of maintainingour own fleet as well as the costs relatedto the servicing of aircraft for foreign clients.The labour costs and the maintenance costsfor our own fleet decreased by auditing somecontracts and reducing the volume of flights.Naturally, all costs for foreign clients decreasedas a consequence of the pronounced drop inthe revenues.The costs of aircraft leases decreased by 12%as we prematurely concluded the lease of oneaircraft and there were also less flying hours.The labour costs decreased by 11% due to thecut in payments in agreement with the tradeunions, the lower volume of flights, a differentnature of technical projects, a decrease in the“wet lease” operation in Libya and a lower variablepart of wages.Amortisation and depreciation costs grew by12% compared to 2008 and are high becausethe aviation sector is highly investment-intensive;the deviation with regard to 2008 ismainly due to higher investment activities inconnection with our fleet, which shows in theamortization and depreciation costs.Distribution costs decreased by 14% comparedto 2008; they include the costs of domesticand foreign sales networks, all agency commissions,the costs of the reservation system andthe costs of employees in sales and marketing.In terms of the financial part of operation thefinancial expenses for loans received frombanks decreased most, as the key interest ratesremained at the lowest levels for most of theyear due to the general global economic andfinancial crisis.Adria Airways / Annual Report 2009 / BUSINESS REPORT53

ResultsIn 2009, the Company generated a net lossof € 12.2 million, which is considerably worsethan in the previous year when there was a netprofit of € 1.2 million.The result is a net loss in the amount of€ 13,991,691. In 2009, there were only twopositive months, namely July and September.The company reports a financial loss of € 3.3million, which is € 1.5 million less than thefinancial loss in 2008, mainly because of thesmaller costs of interest rates.Asset StructureAs of 31 December 2009, total assets were 3% lower than at the end of the previous year.2008 as a %815113Fixed AssetsInventories2009 as a %78 5125ReceivablesOther Assets0 25 50 75 100Asset Structure as a %As much as 78% of the company’s assets arefixed assets, 12% are receivables, and inventoriesrepresent only 5%; the structure of assetschanged in comparison to the previous year inthe proportion of fixed assets and in the proportionof receivables and other assets.The Company’s fixed assets are for the mostpart tangible fixed assets, of which the majorproportion is aircraft (78%). In 2009, the fixedassets decreased as a result of the sale of twoAirbus 320 aircraft and increased due to thenew business building that was finished in Novemberand the effects of the revaluation ofreal estates according to the fair value model.The short-term operating receivables practicallydid not change.Structure of Liabilities2008 2008 as a as % a %2009 2009 as a as % a %22 2219 1946 4644 4430 3036 362121Capital CapitalLong-term Long-term Financial Financialand and Operational Operational Liabilities LiabilitiesShort-term Short-term Financial Financialand and Operational Operational Liabilities LiabilitiesOther Other Sources Sources0 0 25 25 50 50 75 75 100 100Structure of Liabilities as a %54

In the structure of liabilities the share of capitalsomewhat decreased compared to the previousyear because of the generated loss in 2009 and2008 and the negative evaluation of derivativeinstruments, even though capital increaseddue to the effects of the revaluation of realestates according to the fair value model.The long-term financial liabilities (there areno operational liabilities) dropped by 7%Cash Flow from Operating ActivitiesThe cash flow from operating activities ispositive, it amounts to € 6.1 million and is 67%worse than in 2008. A detailed calculationof cash flow is presented in the financialstatements.compared to 2008 since our regular andextraordinary repayments of long-term creditsexceeded the new credits, primarily for thenew business building.The share of short-term liabilities in thestructure of liabilities grew by 16% in line withthe growth of the total operations and dueto a higher amount of the short-term part oflong-term financial liabilities for 2010.Indicators of Business PerformanceBasic financing indicators focus on the financialanalysis of the Company and are importantwhen making long-term decisions on thefinancing policy of the Company and forexternal users.Solvency indicatorsare the most basicindicators of thesuccess of a company’soperations. It is importantthat a company has anappropriate structure ofcurrent assets, since withthe help of an adequatetransfer of current assetsinto cash the companysettles its liabilities.BASIC FINANCING INDICATORSJan.–Dec.09Jan.–Dec.08Equity financing rate 18.96 20.46 93Long-term financing rate 64.94 69.32 94Equity to operating fixed assets 0.2418 0.2771 87Index09/08Equity Financing RateEquity Financing RateJan.−Dec. 200820.46Jan.−Dec. 200918.9618 19 20 21Solvency indicators are the most basic indicatorsof the success of a company’s operations. It isimportant that a company has an appropriatestructure of current assets, since with the helpof an adequate transfer of current assets intocash the company settles its liabilities.SOLVENCY INDICATORSJan.–Dec.09Jan.–Dec.08Ratio of direct coverage of short-term liabilities (immediate solvency ratio) 0.02 0.15 13Ratio of accelerated coverage of short-term liabilities (quick ratio) 0.38 0.43 88Ratio of short-term coverage of short-term liabilities (current ratio) 0.51 0.59 86Index09/08Adria Airways / Annual Report 2009 / BUSINESS REPORT55

14. Ev e n t s a f t e rt h e e n d o f t h eBu s i n e s s Ye a r• From 7 April to 21 April the Jože Pučnikairport will be closed due to the renovationof the central part of the runway. Adriacancelled about a half of its flights for thisperiod, the rest will be redirected to Mariborand some even to Trieste.• The Supervisory Board of the Companyadopted the starting points for theidentification of strategic issues and goals ofthe Company for the 2009–2014 period.• Adria Airways became a full member of the StarAlliance association in January. The changewill be most visible in the marketing of thetrademark where the slogan “A Regional StarAlliance Member” will not be used anymore.Adria Airways will gradually introduce thetraditional Star Alliance trademark, whichincludes the change of signs at the airport,notifications during the flights and the StarAlliance logo on the aircraft. In addition, thetrademark of all three air carriers will gaingreater recognizability as the logos of thecarriers will be included in the common listof logos of all air carriers who are membersof the Star Alliance association.• The contract for a long-term operationallease of a third A319 aircraft which will beadded to our fleet in 2011 was signed.• On 1 March Adria re-established the regularroute to Belgrade, 6 flights a week. The newroute will undoubtedly be of great help toSlovenian businessmen and all who like totravel to this most cosmopolitan capital onthe Balkan Peninsula.• In February, the Management Board of AdriaAirways concluded the negotiations over theheight of wages in 2010. The negotiations,which were commenced in Novemberof last year, were based on the adoptedstrategy of the Company. In the strategy, dueto the difficult economic situation and therecession that affected primarily the airlinecompanies, it is envisaged that some radicalmeasures will be taken by the ManagementBoard to mitigate the impact of this recessionon the operation of the Company.15. Pl a n s f o rt h e Fu t u r e• Operational Goalsof the Companyfor 2010In 2010, Adria Airways will follow the strategicgoals set at the beginning of the year. The capitalinjection by the owners, further optimizationof the fleet, agreement with the two largeststrategic domestic partners and investmentinto a third hangar for aircraft maintenance willbe of key importance.Operational Goals of the Company for2010:• To stabilize the drop in demand for passengerand cargo transport and to achieve slight,stable growth.• To stop the reduction in the value of the56

passenger coupon and maintain the valuesfrom 2009.• To increase the passenger cabin efficiencywith a more optimal fleet.• To the greatest possible extent use the capacitiesin the maintenance organization againand increase revenues in this area by 40%.• To enhance the operation and efficiency ofour flight school and increase the revenues inthis area.• To continue with the marketing of our ownmedia and again achieve revenues in theamount of approximately € 1 million in thisarea.• To make arrangements concerning theamount of the margin for fuel costs with thelargest partner.• To strive to reduce the costs for individualairports and above all negotiate good pricesfor the A319 aircraft and make arrangementswith AP Ljubljana.• To reduce the maintenance costs despite thehigh standards of maintenance, this will beachieved mainly with the help of the newfleet.• It is not planned to increase the passengercare costs. Nonetheless, we believe that weensure a high level of services to our passengers.• To decrease the overhead expenses.Planned Physical Indicators of BusinessPerformance in 2010• In 2010, a total of 26,563 flights are planned,which is 2% more than in 2009 and 41,992hours flown, which is a 3% increase comparedto 2009.• We will carry a total of 975,941 passengers onscheduled flights, which is 2% more than in2009 and achieve a 61.3% passenger cabin efficiency,which is 2 percentage points betterthan in 2009.• We are planning 2,722 charter flights, whichis 1.1% more than in 2009. The planned numberof passengers carried in charter trafficis 190,011 and did not substantially changecompared to 2009.Planned Finance Indicators of BusinessPerformance in 2010• Net sales revenue will increase by 3%. Thelargest increase is planned for maintenancerevenues, and the revenues from other activitieswill decrease as no free capacities forleasing are planned due to the sale of thetwo aircraft.• We plan that the revenue from passengertransport on scheduled flights will increaseonly by 5% in 2010, as we cannot be very optimisticbecause of the reduction of capacitiesin the winter season and the decline inthe average prices for passenger coupons.• We also plan a growth in revenues fromcharter flights in 2010, which will also beattributable to the two new economicallyefficient aircraft.• In 2010, we plan a 40% growth of revenuefrom aircraft maintenance. The reason is theincrease in the scope of work in the maintenanceof aircraft of foreign clients and improvedworking conditions (construction ofa 3rd hangar).• Planned operating costs are 7% lower thanin 2009. The main reason is the fuel costs,leasing costs and maintenance costs. Infuture, all our efforts will focus on continuous,intensive cost reduction in these areasof operation. For this purpose we adopted apackage of measures, the goal of which is areduction of costs and improvement of theCompany’s liquidity.• We want to end the year 2010 with a minimumprofit.• In addition to the limitation of fuel consumption,the plan focuses mainly on the rationalizationof working processes and workingtime in the area of aircraft maintenance,where shift work, adapted to the needs ofthe customer is planned and in the area offlight operations, where we will try to harmonizethe working time with the legislation.• Concerning investments in buildings andequipment, the main task is the constructionof a third hangar.• 2010 will not be a year of capacity expansion,but a year of building a stable, cost effectivecompany with a modern, optimal fleet.Adria Airways / Annual Report 2009 / BUSINESS REPORT57

Sustainability Report16. Em p l o ye e s• Structure ofEmployees• Safety and Healthat Work• Human ResourcesDevelopmentStructure of Employees2009 was characterized by the economiccrisis, which was even more pronouncedin the area of human resources as the pasttwo years were extraordinary in terms ofgrowth in the volume of traffic, services andconsequently employment and education. Insuch circumstances we tried to tackle the crisiswith the reorganization and rationalization ofprocesses and cost reduction.Average Number of Employees in the Period Jan.–Dec. 2007/2008/2009In 2009, there was a selective renewal of fixedterm contracts only for operational workers,while we encouraged the letting go oftemporary hourly employees.The educational structure in the Companyis steadily improving in favour of the highereducated personnel. This is a result of theCompany’s decision in 2004 to co-finance theJanuary – December Average Number of Employees At 31. December2007 633 6792008 701 7192009 711 705Growth of Employment2006 2007 2008 2009150Growth of Employment (Index)12510075110.53121.9110.16105.67106.35120.9118.52103.13126.56122.22109.0999.07107.3109.86110.5310050250Pilots Cabin Staff Mechanics Other58

ility Repor2005 2006 2007 2008 2009Comparison Structure of Employment in 2005, 2006, 2007, 2008 and 2009:400Structure of Employees3002002001200520072008200910002005 20062005 2006 20072005 2006 2007 2008Struktura2005 2006 2007 2008 2009400Struktura zaposlenih2005 2006 2007 2008 2009400Struktura zaposlenihPilots Cabin Staff Mechanics Other400Struktura zaposlenih400Struktura zaposlenih400300300300300Comparison of Educational Structure in 2001, 2005, 2007, 2008 and 2009300200200120020052007100200820090Educational Educational structure structure 200200200100primary school100secondary primary vocational school100secondary secondary vocational100two-year secondary tertiary0four-year tertiarypiloti two-year tertiary kabinsko osebje0university0piloti kabinskofour-yearmastersosebje tertiarymehanikipiloti kabinsko osebje universitydoctorate mehaniki0piloti kabinsko osebje mehanikimastersostalidoctoratepiloti kabinsko osebje mehaniki ostali0 20 40 60 80 1000 20 40 60 80 100Adria Airways / Annual Report 2009 / BUSINESS REPORT59

education of employees with no adequateeducation for their post and to enable them tostudy while working. Despite the general crisis,co-financing for the acquisition of a higher formaleducation was granted to 13 workers in 2009.We continued with the functional educationand training of the key segment of workforce,namely the pilots and the aviation mechanics,also in 2009.Thus, in 2009 a total of 32 aviation mechanicstook part in the educational process forobtaining licences for individual aircraft typesand 35 employees attended basic educationfor obtaining qualifications for the position ofaviation technicians of different categories.In 2009, 24 pilots took part in the educationalprocess, out of which 12 were trained asco-pilots, 8 became captains and 4 weretrained as instructors.Safety and Health at WorkIn 2009, in compliance with the law 280workers in total were sent to periodicalhealth checks and most of these workers aremedically fit to perform the assigned works.With the help of periodic health checks itis assessed whether there are health risksfor the individual employee and whetherthe employee meets the special medicalrequirements for a specific type of work inthe working environment, namely due to theimpact of critical risk factors in this period, laiddown in the Declaration of Safety with RiskAssessment by the Employer.Human Resources DevelopmentDue to the financial crisis, no large investmentsinto the development of personnel werepossible in 2009. All efforts were focused on therationalization of costs at all levels; hence mostenergy was put into the communication withthe representatives of the employees regardingthe reduction of labour costs. In addition toorganizational changes and the rationalizationof processes with the help of IT solutions wecontinued with the soft methods of letting goworkers, primarily temporary personnel.The employing of workers was very selectiveand limited in 2009, the temporary personnel inthe commercial and other operational serviceswere offered other forms of cooperation thatprovide for greater flexibility of managinghuman resources.There was also lively and diverse communicationbetween management and the employeesin 2009. Continuous and up-to-datecommunication with six representative tradeunions in the Company, monthly meetingswith the Employees’ Council and other directand indirect forms of communication wereurgently needed for the up-to-date communicationof the daily changing conditions of thedifficult business situation of the Company.In the field of education for safety, health atwork and fire safety, 73 employees and 11students passed the theoretical test.In 2009, after the emergence of the swine flu avaccination was organized in the Kranj HealthCentre where about 7 percent of all employeesgot a vaccination.The annual sick-leave rate in the Companywas 3.92 percentage points, which is an (3.46)increase compared to 2008, the upward trendfrom 2007 continues – this is partly attributableto the occurrence of the new flu in 2009.60

Adria Airways is a company that isenvironmentally aware. We are activelyworking towards continuously reducingfuel consumption, towards reducing gasemissions and reducing noise. All the aircraftin our fleet comply with ICAO (InternationalCivil Aviation Organization) environmentaland other requirements. Both types of engineused by the Adria fleet aircraft operate within70% of the permitted values of gas and smokeemissions laid down by the ICAO. In 2007, atthe end of 2008 and at the beginning of 2009four new regional Bombardier CRJ-900 aircraftwere added to the Adria Airways’ fleet, whichare state-of-the-art aircraft in terms of fuelconsumption and environmental burden dueto noise.In 2009, the project of exchanging the currentA-320 aircraft for a new A-319 aircraft wasconcluded. The new aircraft will be equippedwith the latest generation of V2500 engines ofIAE. One of the advantages of these engines isthe lower fuel consumption and as a result afew percent lower environmental burden dueto emissions.17. En v i r o n m e ntFuel consumption in t/000 passenger km0,0800,0700,0600,0500,0400,0300,0200,0100,000199219931994199519961997199819992000200120022003200420052006200720082009Regardless of the small share of air traffic inCO2 burdening of the environment, Adriacommitted to reduce the burden by reducingconsumption of fuel years ago. In 2008, the highfuel prices practically forced us to save fuel, thisis in the way of flying, more regular washingof the aircraft exterior and periodic washing ofaircraft engines, which mostly contributed tothe fuel consumption reduction but also thewear of engines.In the process of aircraft maintenance we areraising awareness of the employees regardingwise and economic use of chemical agentsand those agents that cause environmentalpollution after use. In 2009, an extensive actionof organizing the separation of industrial andmunicipal waste was carried out. The action wascarried out in cooperation with the Jože PučnikAirport that takes care of the waste disposal ofmunicipal waste. Dangerous substances areseparated even more carefully; hence we setup collecting points. In addition and as a newfeature, the disposal of fluorescent lamps andwaste kerosene is organized.In accordance with the above said, awarenessfor the protection of their own health and thehealth of others employees is raised and theenvironment protected in general. Our goal islong-term and the constant reduction in thequantity of agents harmful to the environment,like cleaning agents, aggressive agents,oily cloths, plastic materials, lubricants, onecomponent and more component sealants,kerosene and paper. The existing wasteseparation will be more organised in the futureand in line with the ISO 14001 standard, theimplementation of which is planned as well.We separate paper from other waste and itis removed for recycling. In the process ofAdria Airways / Annual Report 2009 / BUSINESS REPORT61

management of documentation we are tryingto manage and archive documents in electronicform. Regarding the paperless processing ofdocumentation we made a step forward in theprocess of aircraft maintenance also with thehelp of the HILAS project.Manuals and instructions required for thesmooth performance of the processes aredistributed over the intranet and internetfor the clients at external airports. We haveachieved additional contribution to therationalisation of our business operations withthe implementation of electronic tickets and aweb check-in.In the process of supplying the passengerson board of aircraft we separate waste andin choosing packaging we give preference tobio-degradable materials.18. Re l a t i o n s w it hWi d e r So c i a lEn v i r o n m e nt• Sports• Culture• Humanitarian ActionsSince its inception, Adria Airways, the Sloveniannational airline operator, has been a closelyconnected part of the social environmentin which we operate. We are aware of ourresponsibility to the broader social environmentand therefore we regularly participate as adonator and sponsor in a variety of projects atthe local and national level. Our contributioncomes mostly in the form of assistance fortravel expenses. We have supported differentinternational events and congresses in Sloveniain the field of business, medicine, culture,education and sports as their official air carrier.Most of the funds are donated to umbrellaorganisations of national importance, andmost of the individual actions are carried out incooperation with non-profit organisations. Asthe main activity of our Company is to connectthe domestic environment with the foreignenvironment we are pleased to accept theinvitation or request to support presentationsof our creators abroad. Here are some of theprojects, organisations and associations withwhich we successfully cooperated in 2009.SportsIn the field of sports, we primarily focus onlong-term cooperation at the national leveland this did not change considerably over thelast years. We successfully cooperate with theAthletic Federation of Slovenia, the SlovenianOlympic Committee, the Ice Hockey Federationof Slovenia and FC Domžale and as always wealso supported some local competitions andevents.CultureIn the area of culture we provided assistanceto renowned organizers of cultural events inSlovenia and to smaller organizers who striveto spread culture among young people withtheir activities. We were pleased to cooperatein the Ljubljana Festival, the Ljubljana CityTheatre, the Emzin competition – Photographof the Year 2009, Druga godba 2009, the 50thLjubljana Jazz Festival and others. We helpedin the project of the Amala Roma Association,the European Cultural and TechnologicalCenter Maribor and the realization of theSpekter zvokov (Sound Spectrum) musicprogramme and the Spring Festival 2009 inthe realization of the Museum of TransitoryArt programme, the European School inBrussels and the International Chopin YoungArtist Piano Competition.Humanitarian ActionsThe Company feels responsibility towards thewider social community. Therefore, we try tohelp in different kinds of non-commercial projectsin the scope of our possibilities. In 2009,we supported the Open Doors Weekend ofthe Ljubljana Jože Pučnik Airport, the YouthInformation Centre in the POTA programme –International Group Voluntary Work, the ŽivžavChristensen Kindergarten charity event, andhelped in the realization of the Trebnje StudentsClub programme, the Autism Centreand Amnesty International Slovenia. We areparticularly pleased that we cooperated in thecharity project of the Krog Association “Give asmile” in August and enabled a group of lessprivileged children from Kosovo to have vacationsin Debeli Rtič. This action will be repeatedagain in 2010.62

The corporate communication departmentstrives for effective communication with a varietyof target audiences associated with thecompany: internal and external public – themedia, passengers, business public, decisionmakers, financial public and others. Parts of ourpublic are interconnected; after all, we are allour potential passengers.Our goal is to, through our activities, contributeas much as possible to the implementationof business objectives and to the growingreputation of our company thus contributing toits successfulness. Our attention is also devotedto current issues in aviation. Our principlesin communication are: openness, advancingcooperation, transparency, being bidirectional,quick responsiveness and sustainability.Corporate communication in 2009 was highlyproactive, in compliance with the management’sguidelines. Throughout 2009 we approachedour internal and external public withthe help of numerous communication toolsand performed several activities and events.The Canadair Regional Jet CRJ900NextGen S5-AAO aircraft was added to the fleet on 27 January2009, this was also communicated.In March 2009, we took part in the regionalmeeting of European and African Star AllianceCommunicators in Brussels. We also communicatedabout topics which are common to theaviation sector, European airline companiesand the members of IATA, AEA, ERA associationsand the Star Alliance Association. In cooperationwith the International Air TransportAssociation (IATA), the Association of EuropeanAirlines (AEA) and the Star Alliance Associationwe communicated about the H1N1 flu fromApril to September 2009. In June 2009, we participatedin the international workshop in crisismanagement and communication in Munich,where we presented our work and communicationin connection with the accident of theInex Adria Aviopromet aircraft on Corsica.A lot of positive media attention was paid tothe schooling of the guide dog for blind people,which we carried out on the initiative ofthe Health Insurance Institute of Slovenia andin cooperation with Aerodrom Ljubljana, d.d.When we set up a new flight connection toMadrid, we prepared an opening flight in collaborationwith the Madrid Barajas Airport, towhich we invited our business partners andthe media.In September 2009, we cooperated in theshooting of the promotional movie entitled LocationSlovenia. On the initiative of the mediawe cooperated in the preparation of numerousarticles and reports about our Company.In November, there was an annual press conferencewhere we presented our business results.The main emphasis of the press conferencewas on the presentation of the Star AllianceAssociation due to the fact that Adria Airwayswould become a full member of the associationon 1 January 2010.In 2009, 151 media reported about Adria Airways,namely 90 print media, 42 electronic mediaand 19 on-line media. In the same year themedia issued 343 planned notifications, whichis 22% of all notifications that mentioned AdriaAirways.The share of unfavourable media coverage in2009 amounted to one percent of all coverage;the share of favourable media coveragewas 9%. However, 90% of all media coveragewas neutral. The highest share of unfavourablemedia coverage was observed in October (fourpercent), and the highest share of favourablemedia coverage in January (19%).In the last year, Adria Airways significantlystrengthened its reputation. According to thestudy on the business reputation of companies,carried out annually by Kline&Partner, itjumped from 36th place in the last year to the22nd place this year, which is 14 places higherthan a year before. According to the analysisproviders, these are the key factors of reputationin expert and general public: quality ofoffer, clear vision and excellence of the management.In the expert public the key source ofinformation about a company are the informationcommunicated by the company itself andinformation obtained directly from the company’smanagement, whereas the general publicgets the most important information directlyfrom employees and through the informationcommunicated by the company.19. Co r p o r a t eCo m m u n i c at i o n• InternalCommunicationAdria Airways / Annual Report 2009 / BUSINESS REPORT63

How faris the goal?The newdestinationsbring cities andpeoplec l o s e r ,altoughthed i s t a n c e sremain the same.Adria Airways / Annual Report 2009 / BUSINESS REPORT65

The Adria Airways d.d. Company got the‘Reputable Employer 2009’ award. On theMojeDelo.com Internet employment portal wecarried out an in-depth professional study onthe most reputable employers in the countryin the past year. More than 3000 job seekersparticipated in the study and according todifferent criteria estimated the reputation ofSlovenian companies on the labour market.For the second time in a row (the first studywas carried out in 2007) Adria Airways madeit among the elite reputable employers andin this way showed that it is a successful andstable company, which was noticed also by thepotential candidates – the job seekers.Internal CommunicationAdria’s intranet pages became a daily addressfor the employees; they get there the informationwhich they need at their work, informationon what is going on in the company and topicsof interest in the sphere of aviation. From 2008we have been publishing a weekly electronicnewsletter for the employees to inform themabout novelties in the operation.20. Pa s s e n g e rSa t i s f a c t i o n• MeasuringPassengerSatisfaction• Measurementof PassengerSatisfaction in theFramework ofStar Alliance• Communicationin the Caseof Irregularitiesand Paymentof CompensationMeasuring Passenger SatisfactionOur premium services ensure the reputation ofour Company. They are also a guarantee thatpassengers will decide to fly with Adria again.The provision of quality is not a one-time eventand final action but a continuous process thatconstantly demands new improvements ofthe quality of services. For this purpose theMarketing Department always carries out astudy called Measurement of the Satisfactionof Passengers on the Plane twice a year. Passengerson scheduled flights participate in thestudy and they form a representative sampleof Adria’s passengers. Passengers assess 31 differentcomponents, from the first contact withthe sales personnel until exiting the aircraft, aswell as quality of airport service and suitabilityof flight schedule.In 2009, we carried out the Measurement ofthe Satisfaction of Passengers on the Plane inspring and autumn (in May and October). Onaverage all our services were evaluated as verypositive, including the last positions, at bothmeasurements. The general grade of servicesranges from 1.81 to 1.82 on the grade scale,where 1 is the best grade and 5 the worst. Atboth measurements, the passengers weremost satisfied with the kindness and efficiencyof the cabin personnel and the personnel thatsold them the ticket.Measurement of Passenger Satisfactionin the Framework of Star AllianceAdria Airways carries out the measurement ofthe satisfaction of passengers on the plane inthe framework of the Star Alliance association.When Adria joined the Star Alliance in 2004 wehave undertaken to start to survey the passengerson Adria’s flights with the help of a questionnairefrom the association. The provisionof the measurement of the satisfaction of passengersconcerning the services on the planeand at the airport was one of the demands ofthe SA when accepting Adria as a regional SAmember.In 2009, the measurement of the satisfactionof passengers on the plane, which is carriedout methodologically by the SA, changedand is now carried out via the Internet. Withthe introduction of the interviewing of passengersvia e-mail it was necessary to modifythe passenger base that participated in thesurvey, hence only members of the frequentflyer programme (FFP) participate in it fromnow on. They give their grade after the flight.Therefore, the measurement includes the entireexperience of the passenger and not onlybefore and after the flight (e.g. waiting for theluggage, irregularities in connection with theluggage – damaged or lost luggage, change toconnecting flights etc.).Results submitted by the SA prove that ourairline meets all the expectations of the passengersand the Association as we achieve orexceed the average grade of all members inmost of the points.Communication in the Case of Irregularitiesand Payment of CompensationAt our Passenger Relations Centre we areaware that our response to the mainly negative66

experiences communicated to us may have adecisive influence on the passengers’ satisfactionwith our company and their future choiceof an air carrier. Passengers are well informedabout their rights in case of a delay/cancellationof a flight, especially since the introductionof the European Regulation 261-2004 inFebruary 2005. In 2009, for the first time afterthe introduction of the European Regulation261-2004 we received and solved less writtencomplaints with compensation claims thanthe year before, namely as much as 40% less,and the total amount of compensation paiddecreased as well (63% lower than in 2008). Asubstantial drop was observed at the payoutdue to cancelled or delayed flights.In the communication of irregularities we cooperatewith the Consumer Protection Officeof the Republic of Slovenia and the AviationInspection Division of the Ministry of Transportof the Republic of Slovenia.The Passenger Relations Centre report and resultsof the opinion polls performed on aircraftare, next to the general trends in the aviationservices, the most important source for planningchanges or improving our services. Ourefforts are again positively reflected in the generalgrade of our passengers in 2009.We are continuously developing and enhancingour technical and managerial skills and experiencein all areas of civil aviation.In 2009, we concluded the cooperation in theFLYSAFE research project, initiated and financedby the European Community with the purposeto improve the safety in air transport due to theexpected growth in transport over the next decades.It remains a goal and it is a fact that airtransport is the safest way to travel on Earth.Detailed analyses of air accidents from the pastshowed that the key factors that have a directimpact on the safety in air transport remain thesame and are not limited to the maintenancepersonnel, flight crews, air controllers and theother personnel.The FLYSAFE research project is focused primarilyon the development of electronic equipmentfor flight control with which the aircraft andairports will be equipped in the future. To theusers it will bring greater integration of data(current conditions, warnings, control, etc.)connected to the prevention of collisionswith other aircraft on the ground as well asin the air, prevention of collision with barrierson the ground taking into account serious orrapidly changing weather conditions (storms,turbulence, sudden icy conditions, etc.). Thestudy results were successfully tested on flightsimulators with an adjusted hardware andsoftware in real time and in the environment.The contribution of the representatives ofAdria Airways in this project was in the formof sharing rich experience and knowledgeacquired according to the type of operation,great frequency of flights and the environmentof a so-called alpine air carrier.At the end of last year, Adria Airways successfullyconcluded a four-year long cooperation inthe European research project called HILAS,which focused on research in the field ofimpacts of the human factor in aviation. Thefact that the European Commission allocated€ 28 million to the project alone shows howimportant it is to address this topic and howhigh the expectations are in connection tothe results of the project. Adria Airways hadthe status of an end user in the HILAS project.Therefore, we were very busy with the testingand evaluation of the project’s products in thesecond half of 2009. Especially in the field ofprocess optimization and ecology of aircraftmaintenance some changes were alreadyintroduced into our daily work. We believe thatthe newly acquired knowledge can contributeto constant improvement, particularly due tothe fact that the employees intensively takepart and support the changes.We also participate in the project CASAM,which regulates the set up of the system fordetection and destruction of missiles from theground in the take-off or landing stage of anaircraft.For over 20 years now, Adria has been cooperatingwith the Faculty of Mechanical Engineeringin Ljubljana, where we provide practicaleducation for students who completed theirtheoretical studies at the faculty.21. Re s e a r c h a n dDe ve l o p m e n tAdria Airways / Annual Report 2009 / BUSINESS REPORT67

Company Management:Tadej Tufek,M.Sc., President of the Management Board / tadej.tufek@adria.siMarjan Ravnikar,M.Sc., Vice President of the Management Board / marjan.ravnikar@adria.siManagement Associates:Peter Kolar, M.Sc.,Assistant President of the Management Board, IT and Controlling / peter.kolar@adria.siAndrej Petelin,Management Board Associate for Quality Assurance / andrej.petelin@adria.siManuela Ornik,Management Board Associate for Marketing / manuela.ornik@adria.si22. Wh o’s Wh o,Co n t a c t s• CompanyManagement• ManagementAssociates• Division DirectorsDivision Directors:Tomaž Kostanjšek, MBA, Director of Marketing and Sales Department / tomaz.kostanjsek@adria.siRoman Lašič, Director of Aircraft Maintenance Department / roman.lasic@adria.siIgor Korenjak, Director of Flight Operation Department / igor.korenjak@adria.siSilvestra Stopar, Director of Finance and Accounting / silva.stopar@adria.siDimitrij Berginc, Director of Ground handling and Procurement Department / dimitrij.berginc@adria.siJulija Pirc, Director of Organisation and Human Resources Department / julija.pirc@adria.siAdria Airways / Annual Report 2009 / BUSINESS REPORT69

23. Ad r i a Of f i ce sa n d Po i nt so f Sa l eLJUBLJANA, SloveniaInformation and reservations:Adria AirwaysZgornji Brnik 130 h4210 Brnik-AerodromCall CentreTel.: 386 (0)1 36 91 010Fax: 386 (0)4 25 94 573SITA: LJURMJPHotline: 080 13 00E-mail: booking@adria.siTicket Desk:Adria AirwaysGosposvetska 61000 LjubljanaHotline: 080 13 00Fax: 386 (0)1 23 21 668SITA: LJURPJP, LJUTBJPE-mail: adr.gosposvetska@adria.siJože Pučnik LJUBLJANA AirportAdria Airways Ticket deskAirport LjubljanaHotline: 080 13 00Fax: 386 (0)4 23 63 461SITA: LJUKKJPE-mail: adr.prodaja@adria.siAMSTERDAM, NetherlandsAdria AirwaysP.O. Box 756441118 ZR Schiphol TriportTel.: 31 20 625 11 22Fax: 32 2 753 23 37Airport Ticket DeskPenauille Servisair,Schiphol AirportTerminal 3in front of check-in, row 21Tel.: 31 20 79 52 600Fax: 31 20 79 52 601E-mail: adr.amsairport@adria.siATHENS, GreeceAdria Airways,General Sales AgentZEUS Kompas S.A.572 Vouliagmenis Ave. & Karaiskaki,164 52 Athens ArgiroupolisTel.: 30 (0)21 09 94 7263Fax: 30 (0)21 09 94 7288E-mail: adr.athens@adria.siBARCELONA, MADRID SpainAdria Airways,General Sales AgentKompas Turistik SpainC/Paris, 162-164, Entlo 2a08036 Barcelona, SpainTel.: 34 (0)93 24 66 777Fax: 34 (0)93 24 54 188E-mail: adr.barcelona@adria.siBEOGRAD, SerbiaAdria AirwaysGeneral Sales AgentOKI AIR INTERNATIONALAirport Nikola Tesla11180 Beograd 59, SerbiaTel/Fax: 381 11 2286457,2286458, 2097457E-mail: okiairbeg@oki.meadr.beograd@adria.siBRUSSELS, BelgiumAdria AirwaysBrussels Airport - Box 41930 ZaventemTel.: 32 (0)2 75 32 336Fax: 32 (0)2 75 32 337SITA: BRUTOJPE-mail: adr.brussels@adria.siAdria Airways Ticket deskAirport Zaventem / BrusselsTel.: 32 (0)2 75 32 335BUCHAREST, RomaniaAdria Airways,General Sales AgentB-dul Dimitrie Cantemir nr. 20,Bl. 8, ap. 65, Sect. 4040245, Bucharest, RomaniaTel.: & Fax: 4021- 335 32 40E-mail: adr.bucharest@adria.siE-mail: office@adria-air.roAdria Airways Ticket deskAirport Henri Coanda / BucharestTel.: 40 21 204 21 94Fax: 40 21 201 48 14COPENHAGEN, DenmarkAdria Airways,Representative and InformationA CVITAN AB, Tingsgatan 2256 56 Helsingborg, SWEDENTel.: 46 (0)42 28 47 78Fax: 46 (0)42 14 47 78Mobil.: 46 708 28 47 78E-mail: adr.copenhagen@adria.siE-mail: info@adria-airways.dkAdria Airways Ticket desk,Copenhagen AirportTerminal 2, Floor 2, Office 2302770 Kastrup, DenmarkTel. & Fax: 45 (0)32 51 59 59Mobile.: 46 708 28 47 78E-mail: adr.copenhagen@adria.siFRANKFURT, GermanyAdria AirwaysAirport Frankfurt, Terminal 1, Building201,Office 201 . 4043/4044,P.O. Box 039, 60549 Frankfurt am MainTel.: 49 (0)69 269 56 720, 269 56 721Fax: 49 (0)69 269 56 730E-mail: adr.frankfurt@adria.siAdria Airways Ticket deskAirport FrankfurtTerminal 1, Hall B, Ticket desk 307,P.O. Box 03960549 Frankfurt am MainTel.: 49 (0)69 269 56 722ISTANBUL, TurkeyAdria Airways,General Sales AgentOrdu Cad No. 206/1, 34470 LaleliIstanbulTel.: 90 (0)212 51 24 232Fax: 90 (0)212 51 24 234, 51 25 436E-mail: adr.istanbul@adria.siAdria Airways,Adria Airways Ticket deskAirport IstanbulTel.: 90 532 312 66 35KIEV, UkraineAdria Airways, General Sales Agent:AVIAREPS,Chervonoarmijska St. 9/2, OfficeNo. 2,Kiev 01004Tel.: 38 (0)44 287 07 47Fax: 38 (0)44 496 59 89E-mail: adr.kievtown@adria.siBorispol International AirportTicket desk: AQUAVITATel.: 38 (0)44 230 00 49Tel.: 38 (0)44 230 00 50Fax: 38 (0)44 230 00 48E-mail: adr.kievairport@adria.siLONDON, BIRMINGHAMMANCHESTER, United Kingdom,DUBLIN, IrelandAdria Airways, 49 Conduit StreetLondon W1S 2YSTel.: 44 (0)20 7 73 44 63044 (0)20 7 43 70 143Fax: 44 (0)20 7 28 75 476E-mail: adr.london@adria.siAdria AirwaysLondon Gatwick AirportTicket desk: SkybreakNorth Terminal Ticket DeskProdajno mesto: severni terminalTel.: 44 (0)12 9 35 07 182Fax: 44 (0)12 9 36 09 010Tel.: 44 (0)12 9 35 55 707 - Reservations70

MOSCOW, RussiaAdria AirwaysDerbenevskaja 4113 114 MoscowTel.: 7 495 72 70 885,Fax: 7 495 72 70 888E-mail: adr.moscow@adria.siTicket Desk, Airport Sheremetyevo6th Floor, Office 6.8Tel. & Fax: 7 495 57 88 024E-mail: svokkjp@adria.siMUNICH, GermanyAdria Airways,Airport Munich, Terminal 2Reisemarkt Süd, Ebene 03,Raum 6738 (counter 355 & 356)85356 München – FlughafenP.O. Box 241233, 85334 MünchenTel.: 49 (0)89 975-91191, 91192Fax: 49 (0)89 975-91196E-mail: adr.munich@adria.siOHRID, MacedoniaAdria Airways,General Sales AgentAAM dooel, Town officePartizanska 6, 6000 OhridTel.: 389 (0)46 26 20 26,E-mail: adr.ohrid@adria.siAdria Airways Ticket desk,Airport OhridMobile: 389 (0)70 262 193Fax: 389 (0)46 260 167E-mail: adr.ohrid@adria.siOSLO, NorwayAdria Airways,Representative and InformationAntello AB, Tings Gatan 2256 56 Helsingborg, SWEDENTel.: 46 (0)42 28 47 78Fax: 46 (0)42 14 47 78Mobil.: 46 708 28 47 78E-mail: adr.oslo@adria.siE-mail: info@adria-airways.dkPARIS, FranceAdria Airways,94 rue Saint Lazare75009 ParisTel.: 33 (0)1 47 42 95 00Fax: 33 (0)1 47 42 00 67E-mail: adr.paris@adria.siPODGORICA, MontenegroAdria Airways,General Sales AgentOKI AIR INTERNATIONALIvana Vujoševiča 4681000 PodgoricaTel.: 382 (0)20 201 201Tel. & Fax 382 (0)20 241 154,Mobile: 382 (0)67 656 677E-mail: adr.podgorica@adria.siAdria AirwaysPodgorica Ticket deskOKI AIR INTERNATIONALTel. & Fax 382 (0)20 623 232Mobile: 382 (0)67 656 677E-mail: adr.podgorica@adria.siPRISTINA, Republic of KosovoAdria Airways,General Sales AgentAdria Airways Kosovo L. L. CQamil Hoxha Nr. 12, 38000 PristinaTel.: 381 (0)38 246 746Tel. & Fax 381 (0)38 246 747Mobil.: 00 377 44 16 50 84E-mail: adr.pristina@adria.siPristina Ticket DeskTel. & Fax 381 (0)38 548 437Mobile: 00 377 44 501 241SARAJEVO, Bosnia and HerzegovinaAdria Airways,Representative and InformationFerhadija 23/271000 SarajevoTel. : 387 (0)33 23 21 25, 23 21 26Fax: 387 (0)33 23 36 92Mobile: 387 (0)61 279 394E-mail: adr.sarajevo@adria.siAdria Airways Ticket desk,Airport SarajevoRepresentative and InformationTel. & faks 387 (0)33 464 331E-mail: adr.sarajevo@adria.siSKOPJE, MacedonijaAdria Airways,General Sales Agent: AAM dooel,Dame Gruev, Gradski Zid, blok 4/8,1000 SkopjeTel.: 389 (0)2 31 17 009, 32 29 975Fax: 389 (0)2 31 65 531E-mail: adr.skopje@adria.siAdria Airways Ticket deskAirport SkopjeTel. & Fax: 389 (0)2 25 50 133STOCKHOLM, SwedenAdria Airways,Reservations and Information, MDAService,Stockholm Airport, Terminal 5,Departure, Box 57Tel.: 46 (0)8 797 95 95Fax: 46 (0)8 59 36 1221Mobil.: 46 (0)709 95 95 95E-mail: adr.stockholm@adria.siTEL AVIV, IsraelAdria Airways Ticket deskBen Gurion AirportLaufer Aviation Ltd.Tel.: 972 (0) 3 97 74 300Fax: 972 (0) 3 97 12 022TIRANA, AlbaniaAdria Airways,General Sales AgentEUROPIAN TRADE CENTERStreet Bajram Curri No. 19, TiranaFax: 355 (0)4 272 666E-mail: adr.tirana@adria.siAirport TiranaTel.: 355 (0)4 274 666VIENNA, AustriaAdria Airways Ticket deskAdria Airways1300 Airport ViennaTel.: 43 (0)1 70 07 36 913Fax: 43 (0)1 70 07 36 914E-mail: adr.vienna@adria.siWARSAW, PolandAdria Airways,General Sales AgentGLOBAIR POLSKA SP, Z.O.O.Marszalkowska St.28,Office No. 1-35Warsaw 00-576Tel.: 48 (0)22 696 85 20(Adria Airways dedicated line)Fax: 48 (0)22 696 85 24Mobile: 48 606 123 19E-mail: adr.warsaw@adria.siwww.globairgroup.comZAGREB, CroatiaAdria Airways,Praška 9,1000 ZagrebTel.: 385 (1) 48 10 011, 48 10 016Fax: 385 (1) 48 10 008E-mail: adr.zagreb@adria.siZÜRICH, SwitzerlandAdria Airways,Loewenstrasse 54/II. 8001 ZürichTel.: 41 (0)44 21 26 393, 21 26 394Fax: 41 (0)44 21 25 266E-mail: adr.zurich@adria.siAdria Airways Ticket deskAirport ZürichTerminal B-2-521Tel.: 41 (0)43 81 64 437Purchase tickets online:www.adria-airways.comAdria Airways / Annual Report 2009 / BUSINESS REPORT71

StFinancial StatementsPart 274

Ta b l e o f Co n t e n t s1. General Information................................................................................................................................................ 762. Statement of Responsibility of the Management Board ................................................................. 773. Auditor’s Report......................................................................................................................................................... 784. Financial Statements .............................................................................................................................................. 794.1. Balance Sheet.............................................................................................................................................................. 794.2. Income Statement................................................................................................................................................... 804.3. Cash Flow Statement for 2009......................................................................................................................... 814.4. Statement of Changes in Equity for 2009.................................................................................................. 824.5. Balance Sheet Profit................................................................................................................................................ 835. Summary of Significant Accounting Policies.......................................................................................... 845.1 Basis of Preparation................................................................................................................................................. 845.2 Exchange Rate and Conversion into the Local Currency................................................................. 855.3 Reporting by Business and Regional Segments.................................................................................... 855.4 Accounting policies................................................................................................................................................ 856. Classifications and Notes to the Financial Statements...................................................................... 926.1. Additional Disclosures of the Balance Sheet Items............................................................................. 926.1.1. Intangible Assets and Long-Term Deferred Costs................................................................................ 926.1.2. Property, Plant and Equipment........................................................................................................................ 936.1.3. Investment Property............................................................................................................................................... 956.1.4. Long-Term Financial Investments .................................................................................................................. 976.1.5. Long-Term Operating Receivables................................................................................................................. 986.1.6. Inventories.................................................................................................................................................................... 986.1.7. Short-Term Financial Investments.................................................................................................................. 986.1.8. Short-Term Operating Receivables................................................................................................................ 996.1.9. Cash.................................................................................................................................................................................1006.1.10. Short-Term Deferred Costs and Accrued Revenue............................................................................1006.1.11. Equity.............................................................................................................................................................................1006.1.12. Provisions and Long-Term Accrued Costs and Deferred Revenue..........................................1026.1.13. Financial Liabilities.................................................................................................................................................1026.1.14. Short-Term Operating Liabilities....................................................................................................................1036.1.15. Short-Term Accrued Costs and Deferred Revenue............................................................................1046.1.16. Off-Balance Sheet Assets/Liabilities............................................................................................................1046.1.17. Financial Instruments...........................................................................................................................................1056.2. Additional Disclosures of the Income Statement Items.................................................................1066.2.1. Net Sales.......................................................................................................................................................................1066.2.2. Costs of Goods, Material and Services.......................................................................................................1066.2.3. Labour Costs..............................................................................................................................................................1076.2.4. Write-Downs..............................................................................................................................................................1086.2.5. Financial Revenues................................................................................................................................................1086.2.6. Financial Expenses.................................................................................................................................................1086.2.7. Other Revenues.......................................................................................................................................................1096.2.8. Other Expenses........................................................................................................................................................1096.2.9. Income Tax..................................................................................................................................................................1096.2.10. Net Profit or Loss.....................................................................................................................................................1107. Other Disclosures....................................................................................................................................................1117.1. Information on Groups of Persons.................................................................................................................1118. Events after the Balance Sheet Date...........................................................................................................1129. Balance Sheet – Expanded Format................................................................................................................1129.1. Balance Sheet – Expanded Format under SAS.......................................................................................1129.2. Income Statement – Expanded Format under SAS............................................................................114Adria Airways / Annual Report 2009 / Financial Statements75

1. Ge n e ra lIn f o r m a t i o n• Company Profile• Nature of Businessand Primary Activities• EmployeesCompany ProfileADRIA AIRWAYS d.d.Kuzmičeva 71000 LjubljanaSlovenijaNature of Business and Primary ActivitiesThe two most significant lines of business of Adria Airways d.d. are scheduled air transport andcharter air transport. In addition, the Company is involved in the transport of cargo, aircraftservicing for third parties, aircraft leases, and training of aircraft personnel.Employees• The number of employees as of 31 December 2009 is 705, while on 31 December 2008 therewere 719.• The average number of employees per groups in terms of professional qualification in 2009:ProfessionalQualification LevelI. II. III. IV. V. VI. VII. VIII. IX. TotalTotal 0 11 0 49 290 147 209 5 0 711On 18 December 2009 the controllingundertaking Adria Airways d.d. became thenewly established PDP, Posebna družba zapodjetniško svetovanje, d.d.Registered office of the controlling company:PDP, Posebna družba za podjetniško svetovanje, d.d.Dunajska cesta 1191000 LjubljanaSlovenijaThe owner of PDP d.d. is the Kapitalskadružba d.d., which also needs to draw up aconsolidated annual report in which it willinclude the financial and business data of thecontrolled company Adria Airways d.d.The consolidated annual report 2009 will beavailable at the registered office of KAD.76

2. St a t e m e n t o fResponsibility o ft h e Ma n a g e m e n tBo a r dThe Management Board has approved the financial statements for the financial year ended 31December 2009 on pages 79 − 83 and pages 112 − 114 and the accounting policies and notes tothe financial statements on pages 92 to 111 of the annual report.The Management Board is responsible for the preparation of the annual report that gives a trueand fair presentation of the financial position of the Company and of its financial performancefor the year 2009.The Management Board confirms that the appropriate accounting policies were consistentlyapplied, and that the accounting estimates were made under the principle of prudence and thediligence of a good manager. The Management Board also confirms that the financial statementsand notes thereof have been compiled under the assumption of a going concern, and inaccordance with the current legislation and Slovene accounting standards.The Management Board is also responsible for the appropriate accounting system and adoptionof measures to secure the assets, and to prevent and detect fraud and other irregularities and/orillegal acts.Ljubljana, 16 April 2010Marjan Ravnikar, M.Sc.Vice President of the Management BoardTadej Tufek, M.Sc.President of the Management BoardAdria Airways / Annual Report 2009 / Financial Statements 77

3. Au d i t o r ’sRe p o r tindependent auditor’s reportTo the owners of Adria Airways d.d.Report of the Financial StatementsWe have audited the accompanying financial statements of Adria Airways d.d., which comprise the balancesheet as at 31 December 2009, and the income statement, statement of changes in equity and cash flowstatement for the year then ended, and a summary of significant accounting policies and other explanatorynotes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordancewith Slovenian Accounting Standards and with the requirements of the Slovenian Companies Act related to thepreparation of the financial statements. This responsibility includes: Designing, implementing and maintaininginternal control relevant to the preparation and fair presentation of financial statements that are free frommaterial misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies;and making accounting estimates that are reasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted ouraudit in accordance with International Standards on Auditing. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance whether the financialstatements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor’s judgment, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentationof the financial statements in order to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit alsoincludes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of AdriaAirways d.d., as of 31 December 2009, and of its financial performance and its cash flows for the year thenended in accordance with Slovenian Accounting Standards and with the requirements of the SlovenianCompanies Act released to the preparation of the financial statements.Without expressing an opinion with reservations, we draw the attention to the following facts described inpoint 5.1 of the annual report claiming that the Company does not fulfill the contractual obligations in theamount of € 21,021,000 for long-term financial liabilities. The banks have the right to recall credits and demandan immediate repayment in 2010. The Management of the Company believes that there are no indications onthe grounds of which the banks would demand a repayment of credits before the maturity date.Without expressing an opinion with reservations, we draw the attention to the following facts described inpoint 5.1 of the annual report where it is disclosed that Adria Airways d.d. generated a loss in the amount of€ 13,992,000 in the financial year 2009 that ended on 31 December 2009. The net short-term liabilities of theCompany as of 31 December 2009 amount to € 28,055,000. The Supervisory Board of the Company approvedthe strategic plan of the Adria Airways group in January 2010. The strategic plan includes the restructuringplan that is based on the assumption of a successful capital injection in the amount of € 9,000,000 a successfulrefinancing of due obligations to key suppliers in the amount of € 9,783,000 and further financing from banks.The stated conditions, together with the other issues revealed in point 5.1 of the annual report, show that thereis significant uncertainty that can cause significant doubt concerning the capability of Adria Airways d.d. tocontinue to operate as a going concern.Report of Other Legal and Regulatory RequirementsManagement is also responsible for preparing the business report in accordance with the Slovenian CompaniesAct. Our responsibility is to asses whether the business report is consistent with the audited financial statements.Our work regarding the business report is performed in accordance with ISA 720, and restricted to assessingwhether the business report is consistent with the financial statements and does not include reviewing otherinformation originated form non-audited financial records.The business report is consistent with the audited financial statements.Ljubljana, 22 April 2010Janez UraničDirectorErnst & Young d.o.o.Dunajska 111, LjubljanaNataša LahCertified Auditor78

4.1. Balance Sheet 14. Fi n a n c i a lSt a t e m e n t s(EUR) Notes 31.12.2009 31.12.2008Assets 147,061,431 151,341,079A/ Long-term assets 120,177,037 123,597,522I. Intangible assets and long-term deferred costsand accrued revenue6.1.1. 3,276,705 3,544,788II. Property, plant and equipment 6.1.2. 112,004,791 118,327,804III. Investment property 6.1.3. 3,244,541 216,742IV. Long-term financial investments 6.1.4. 943,454 968,433V. Long-term operating receivables 6.1.5. 707,546 539,755VI. Deferred receivables from tax - -B/ Short-term assets 24,234,938 26,539,621I. Assets (disposal groups) held for sale - 70,401II. Inventories 6.1.6. 6,925,789 7,468,690III. Short-term financial investments 6.1.7. 147,170 867,467IV. Short-term operating receivables 6.1.8. 16,499,833 16,943,295V. Cash 6.1.9. 662,146 1,189,768C/ Short-term deferred costs and accrued revenue 6.1.10. 2,649,456 1,203,936Off-balance sheet assets 6.1.16. 117,211,412 111,973,0184.1. Balance Sheet 14.2. Income Statement 24.3. Cash Flow Statementfor 20094.4. Statement ofChanges in Equityfor 20094.5. Balance Sheet ProfitEquity and liabilities 147,061,431 151,341,079A/ Equity 6.1.11. 27,880,447 30,970,698I. Called-up capital 7,676,900 6,782,156II. Capital surplus 16,077,621 28,180,234III. Revenue reserves - 3,465,371IV. Revaluation surplus 4,125,926 -4,418,103V. Retained earnings - -3,038,960VI. Net profit or loss for the period - -B/ Provisions and long-term accrued costsand deferred revenue6.1.12. 1,441,626 1,558,283C/ Long-term liabilities 64,918,466 69,952,116I. Long-term financial liabilities 6.1.13. 64,918,466 69,952,116II. Long-term operating liabilities - -III. Deferred liabilities from tax - -D/ Short-term liabilities 52,290,341 47,135,574II. Short-term financial liabilities 6.1.13. 19,129,011 19,971,195III. Short-term operating liabilities 6.1.14. 33,161,330 27,164,379E/ Short-term accrued costs and deferred revenue 6.1.15. 530,551 1,724,408Off-balance sheet liabilities 6.1.16. 117,211,412 111,973,018The notes are a constituent part of the financial statements.1 For the expanded version of the balance sheet, refer to appendix 9.1.Adria Airways / Annual Report 2009 / Financial Statements 79

4.2. Income(EUR) Notes 2009 20081. Net sales 6.2.1. 161,424,714 205,389,7972. Production costs of goods sold (includingdepreciation and amortization) or cost of goods sold6.2. 152,520,556 180,431,248Statement 2 2 For the expanded version of the income statement, refer to appendix 9.23. Gross profit or loss from sales 8,904,158 24,958,5494. Selling costs (including depreciation andamortization)5. General and administrative expenses(including amortization and depreciation)6. Other operating revenues(including revaluation operating revenues)6.2. 16,135,186 18,676,6926.2. 5,847,454 5,364,9616.2. 872,813 300,2657. Financial revenues from shares and interests 6.2.5. 183,394 24,3368. Financial revenues from given loans - -9. Financial revenues from operating receivables 6.2.5. 29,348 891,42510. Financial expenses due to impairment andwrite-off of financial investments6.2.6. 10 10,34611. Financial expenses from financial liabilities 6.2.6. 2,680,786 4,868,96112. Financial expenses from operating liabilities 6.2.6. 872,924 866,54213. Other revenues 1,664,551 636,40914. Other expenses 109,595 264,45915. Income tax 6.2.7. - -16. Net profit or loss of the accounting period 6.2.8. -13,991,691 -3,240,977The notes are a constituent part of the financial statements.80

No. Item 2009 2008A/ Cash flows from operating activitiesa) Cash flows derived from the income statement items 2,116,589 15,641,0741.Operating revenues (except from revaluation) and financial revenuesfrom operating receivables161,928,347 207,196,8562.Operating expenses excluding depreciation and amortization (exceptfrom revaluation) and financial expenses from operating liabilities-159,811,758 -191,555,782b)Changes in net operating assets in balance sheet items (includingaccruals, reservations and deferred receivables and tax assets)4,003,796 2,873,6071. Opening less closing operating receivables 233,328 6,158,1352. Opening less closing deferred costs and accrued revenue -1,445,520 -420,6864. Opening less closing assets (disposal groups) held for sale 70,401 -5. Opening less closing inventories 542,901 -2,427,0606. Closing less opening operating liabilities 5,913,200 -302,9937.Closing less opening accrued costs and deferred revenue, andprovisions-1,310,514 -133,789c) Net cash from operating activities (a+b) 6,120,385 18,514,6814.3. Cash FlowStatementfor 2009B/ Cash flows from investment activitiesa) Cash from investment activities 10,158,561 2,020,8021.Cash receipts from interest and dividends received fromInvestment activities69,161 389,8292. Income from disposal of intangible assets 381,751 256,9373. Income from disposal of property, plant and equipment 8,957,242 1,368,6024. Cash receipts from disposal of investment property - 5,4345. Cash receipts from disposal of long-term financial investments 30,232 -6. Cash receipts from disposal of short-term financial investments 720,175 -b) Cash disbursement from investment activities -13,048,114 -11,849,3321. Cash disbursement to acquire intangible assets -1,075,980 -2,166,2062. Cash disbursement to acquire property, plant and equipment -11,966,993 -8,820,0884. Cash disbursement to acquire long-term financial investments -5,141 -124,5455. Cash disbursement to acquire short-term financial investments - -738,493c) Net cash from investment activities (a+b) -2,889,553 -9,828,530C/ Cash flows from financing activitiesa) Income from financing activities 43,081,837 29,640,6811. Income from paid-in capital 2,357,411 -2. Income from increase in long-term financial liabilities 9,277,926 10,7063. Income from increase in short-term financial liabilities 31,446,500 29,629,975b) Cash disbursements from financing activities -46,840,291 -38,177,6561. Interest paid on financing activities -2,596,223 -4,827,2903 . Cash repayments of long-term financial liabilities -12,287,568 -8,726,1724. Cash repayments of short-term financial liabilities -31,956,500 -24,624,194c) Net cash from financing activities (a+b) -3,758,454 -8,536,975d) Closing balance of cash 662,146 1,189,7681. Net cash inflow or outflow for the period (sum total of Ac, Bc and Cc) -527,622 149,1762. Opening balance of cash 1,189,768 1,040,592Adria Airways / Annual Report 2009 / Financial Statements 81

4.4. Statement ofChanges in Equityfor 2009Called-upcapitalCapitalsurplusRevenue reservesRevaluationsurplusRetainedearningsNet profit orloss for theperiodTOTAL(EUR)SharecapitalStatutoryreservesOtherrevenuereservesNet profit/lossbroughtforwardNet profitor lossfor theperiodA/ Balance at 31 December 2008 6,782,156 28,180,234 774,108 2,691,263 -4,418,103 -3,038,960 - 30,970,698B/ Movements to equity 894,744 1,462,667 - - 8,544,029 - -13,991,691 -3,090,251d) Additional paid-in capital 894,744 1,462,667 - - - - - 2,357,411e) Entry of the net profit or loss - - - - - - -13,991,691 -13,991,691f ) Increase in revaluation surplus - - - - 8,544,029 - - 8,544,029C/ Movements within equity - -13,565,280 -774,108 -2,691,263 - 3,038,960 13,991,691 -c) Settlement of loss - -13,565,280 -774,108 -2,691,263 - 3,038,960 13,991,691 -D/ Movements from equity - - - - - - - -E/ Balance at 31 December 2009 7,676,900 16,077,621 - - 4,125,926 - - 27,880,447BALANCE SHEET PROFIT/LOSS - 13.565.280 774,108 2,691,263 - -3,038,960 -13,991,691 -Item c) Settlement of loss revealed in the explanation 6.1.11.82

Statement ofChanges in Equityfor 2008Called-upcapitalCapitalsurplusRevenue reservesRevaluationsurplusRetainedearningsNet profit orloss for theperiodTOTAL(EUR)SharecapitalStatutoryreservesOtherrevenuereservesNet profit/loss broughtforwardNet profitorloss forthe periodA/ Balance at 31 December 2007 6,782,156 28,180,234 774,108 5,719,604 -1,363,781 - 212,636 40,304,957Incorrectly recognized exchangerate differences on the plane in - - - - - -882,922 - -822,922the past yearsIncrease of costs on the basisof the IAE contract on themaintenance of engines for- - - - - -2,156,038 - -2,156,038the past yearsBalance at 31 December 2007after allowances6,782,156 28,180,234 774,108 5,719,604 -1,363,781 -3,038,960 212,636 37,265,997Opening balance 1 January 2008 6,782,156 28,180,234 774,108 5,719,604 -1,363,781 -3,038,960 212,636 37,265,997B/ Movements to equity - - - - - - -3,240,977 -3,240,977e) Entry of the net profit or loss - - - - - - -3,240,977 -3,240,977C/ Movements within equity - - - -3,028,341 - - - 3,028,341 -c) Settlement of loss - - - -3,028,341 - -212,636 3,240,977 -f ) Allocation of net profitor loss of the last year- - - - - 212,636 -212,636 -D/ Movements from equity - - - - -3,054,322 - - -3,054,322d) decrease in revaluationsurplus- - - - -3,054,322 - - -3,054,322E/ Balance at 31 December 2008 6,782,156 28,180,234 774,108 2,691,263 -4,418,103 -3,038,960 - 30,970,698BALANCE SHEET PROFIT/LOSS 3,028,341 -2,826,324 -3,240,977 -3,038,960Balance sheet profit (EUR) 2009Net profit or loss for the period + -13,991,691Net profit from previous periods - -3,038,960Decrease in capital reserves + 13,565,280Decrease in statutory reserves + 774,108Decrease in other revenue reserves + 2,691,263Balance sheet profit/loss -4.5. Balance SheetProfitBalance sheet profit (EUR) 2008Net profit or loss for the period + -3,240,977Net profit from previous periods - -2,826,324Decrease in capital reserves + -Decrease in statutory reserves + -Decrease in other revenue reserves + 3,028,341Balance sheet profit/loss -3,038,960Adria Airways / Annual Report 2009 / Financial Statements 83

5. Su m m a r y o fSignificantAc c o u n t i n gPolicies5.1. Basis of Preparation5.2. Exchange Rate andConversion intothe Local Currency5.3. Reporting byBusiness andRegional Segments5.4. Accounting policies• Intangible Long-TermAssets• Property, Plant andEquipment• Amortization andDepreciation• Investment property5.1. Basis of PreparationThe financial statements in this report and notesthere to have been prepared in accordancewith Slovenian Accounting Standards 2006,issued by the Slovenian Institute of Auditors.The general rules on the classification ofthe balance sheet statement and incomestatement items, the valuation of the financialstatement items, the content of the appendixesto the statements and the requirements forthe business report have been followed incourse of the preparation of these statements.Consequently, a true and fair presentation ofthe Company’s operations in the annual reportis ensured. Furthermore, two fundamentalaccounting assumptions have been considered:consideration of the creation of events as wellas the unlimited time of performance.The financial statements of the Company areprepared on the basis of the assumption of anunlimited time of performance. In 2009, theCompany generated a loss in the amount of€ 13,922,000. The net short-term liabilities asof 31.12.2009 amount to € 28,055,000. In caseof a part of long-term credits, which amountto € 21,021,000 as of 31 December 2009,the Company does not fulfil the contractualobligation that is why the involved banks maydemand an immediate repayment of the creditsaccording to the credit contracts. These creditsare disclosed on 31 December 2009 in theframework of long-term financial liabilities bythe Company. Currently there are no indicationsthat the banks will demand a repaymentof the credits before the maturity date.Furthermore, the strategic plan was approvedin January 2010 by the Supervisory Board ofthe Company. The strategic plan envisages arestructuring of the Company that depends onthe capital injection of the restructured AdriaAirways group in the amount of € 9,000,000and a continuous refinancing of bank creditsand the refinancing of due obligations by threeof the largest suppliers of the Company in theamount of € 9,783,000. The restructuring plandemands a reduction in labour costs and otheroperational costs, particularly costs of keysuppliers and exchange of the old fleet with anewer, more economical fleet of aircraft. TheCompany plans to exchange the old Airbus320 with two new Airbus 319 aircraft in Apriland May 2010. The Company managed toreduce the labour costs by 10% in April 2010and is in the final stage of negotiations withthe key suppliers concerning the extension ofthe period for repayment of due obligationsand the reduction of their costs. In addition,the Company is the final stage of the capitalinjection of the Adria Airways group by themajority owner and one of the key suppliers.On the basis of the aforementioned facts theManagement Board of the Company believesthat the preparation of financial statements onthe basis of the assumption of an unlimitedtime performance is appropriate.The qualitative characteristics of the financialstatements and hence the entire accountingsystem are primarily: understandability,relevance, reliability and comparability.Adria Airways d.d. keeps its analytical recordsalso in accordance with the recommendationsof the ICAO (International Civil AviationOrganization), of which Slovenia is a member.The used accounting policies are the sameas in the last years, with the exception of theaccounting policy concerning the valuation ofinvestment property and buildings.The financial statements are compiled using theeuro, excluding cents. For reasons of roundingup, calculation differences may occur.84

Adria Airways d.d. converts the purchase andsale transactions, investments, long-term andshort-term liabilities, as well as long-term andshort-term receivables in foreign currenciesinto the euro at the ECB reference exchangerate prevailing on the transaction date. Whereasat the balance sheet date, these are translatedat the final ECB reference exchange rate (31December 2009).Exchange rate gains and losses arising fromthe conversion are recognized in the incomestatement.5.2. Exchange Rateand Conversioninto the LocalCurrencyThe business segments are: scheduledpassenger services, cargo services, charterpassenger services, aircraft servicing forforeign clients, aircraft lease services, andmiscellaneous.In terms of segment reporting, the Companyreports net sales revenue that can be directlyattributed to individual segments, while otherdata is not disclosed.The Company has no regional segments.5.3. Reportingby Businessand RegionalSegmentsIntangible Long-Term AssetsIntangible long-term assets are recognized atcosts and are amortized over their useful lifewhich is a maximum of seven years. The Companyholds no assets with indefinite useful life.Intangible long-term assets are not restated toaccount for value gains.Property, Plant and EquipmentProperty, plant and equipment represent land,buildings, manufacturing plant, and otherequipment. Small tools that are ready foruse whose useful life is more than a year andwhose individual value does not exceed € 500,are also considered items of property, plantand equipment. The pertaining replacementparts are also classed as property, plant andequipment under construction or beingacquired. Equipment acquired under financiallease and depreciated under depreciation ratesapplicable to equipment of the same or similarclass, is also recognised as property, plant andequipment. At the end of the financial lease, thetitle to the assets is transferred to the lessee.After the initial recognition the buildings arerevaluated according to the fair value model,this means that they are noticed by therevaluated amount that is its fair value on therevaluation day, reduced by any subsequentaccumulated depreciation and subsequentlygenerated loss due to impairment. The fairvalue of buildings is measured every five yearson the basis of the market value determinedby the authorized valuer in a way that is basedon international standards for the assessmentof value.On the day of the revaluation of buildings theircost or revaluated cost and the accumulateddepreciation are revaluated in such a way thatthe accumulated depreciation is charged tothe cost or revaluated cost of the building andthe net amount is revaluated to the revaluatedamount. The amount of the conversion formsa part of the increase or decrease in the carryingamount. If the carrying amount is increaseddue to the revaluation, the increase is recognizeddirectly in the capital as a surplus from revaluation.If the carrying amount is decreaseddue to revaluation, the decrease is recognizedin the profit or loss. The decrease is chargeddirectly to the capital in the item surplus fromrevaluation to the extent of the credit balanceof the surplus from revaluation at the same asset.The surplus from revaluation of buildingsis transferred to the transferred profit or losswhen the recognition of assets is abrogatedand also when the asset is used. In this case thetransferred part of the surplus is the differencebetween the amortization on the basis of therevaluated cost of the building and the amortizationon the basis of its historical cost.5.4. AccountingpoliciesAdria Airways / Annual Report 2009 / Financial Statements 85

The Company applies the cost model forall property, plant and equipment, exceptbuildings, and keeps a record according tothe cost of purchase, reduced by accumulateddepreciation. Property, plant and equipmentare depreciated over their useful lives.Depreciation expenses are charged against therelevant operating costs.The cost of an item of property, plant andequipment comprises its purchase price and alldirectly attributable costs to bringing the assetto the condition necessary for the intendeduse. Subsequent expenditures that enablefuture benefits in comparison to the onescalculated before increase the purchase value.Expenditures that enable the extension ofthe asset’s useful life decrease the allowancescalculated by then. The land is valued athistorical cost (if it is not known, according tothe estimated value).Property, plant and equipment are derecognizedin the books of account and in the balance sheeton their disposal or when they are permanentlywithdrawn from use as no future economicbenefits are expected from them. Proceeds fromdisposal of property, plant and equipment arerecognized as revaluation operating revenues,whilst the present value is recognized as therevaluation operating expense.Property, plant and equipment expressedin a foreign currency are converted into thelocal currency at the ECB reference exchangerate prevailing on the transaction date. Anysubsequent exchange rate differences arisingon settlement are recognized as financialrevenues or expenses.Advances for property, plant and equipmentare recognized at the notional amounts.Interest paid on loans raised for the acquisitionand construction of property, plant andequipment is recognized as financial expense.Amortization and DepreciationThe carrying amount of intangible assets andproperty, plant and equipment is reducedthrough depreciation and amortization.Depreciation and amortization begin on thefirst day of the month following the monthwhen the asset was made available for its use.Land, advances paid for the assets and assetsunder construction or manufacture, are notdepreciated.Amortization and depreciation are accountedfor individually under the straight-linedepreciation method applied over theexpected useful life of individual assets.In 2009, the Company applied the following amortization and depreciation rates:Amortization and Depreciation Rates in 2009 Minimum % Maximum %(In)tangible assetsIntangible long-term assetsSoftware applications 25.00 50.00Property, plant and equipmentReal estate:- Buildings 1.50 10.00- Other structures 2.00 12.50Plant and equipment:- Plant – aircraft 4.38 10.00- Plant – replacement parts 10.00 10.00- Other equipment 8.30 20.00Computer equipment:- Hardware 25.00 25.00Motor vehicles:- Vans and Trucks 12.50 14.30- Cars 12.50 15.50Other property, plant and equipment – small tools 25.00 33.0086

Investment propertyAn investment property is initially measuredat cost comprising of its purchase price andany attributable costs of acquisition. However,after the initial recognition they are measuredaccording to the fair value model, where thefair value is measured on the basis of themarket value on the balance sheet date, whichis determined by the authorized valuer in away that is based on international standardsfor the assessment of value. Profit or loss thatis based on the change of the fair value ofthe investment property is recognized in thefinancial statement of the period in which itoccurs.Financial InvestmentsInvestmentsInvestments of Adria Airways d.d. are classifiedinto the following categories:• Financial assets at fair value through profit orloss,• Investments held to maturity,• Available-for-sale investments,• Loans and receivables.Investment classification depends on thepurpose for which the investment was made.Long-term and short-term financial investmentsare reported separately.Recognition of Financial AssetsOn initial recognition, all investments except forinvestments designated at fair value throughprofit or loss are recognized by Adria Airwaysd.d. inclusive of costs directly associated withthe acquisition. Investments classified at fairvalue through profit or loss are recognized atfair value (excluding directly attributable costsof acquisition).Financial Assets at Fair Value throughProfit or LossFinancial assets classified as financial assets atfair value through profit or loss are measuredat fair value. Gains or losses on investmentsclassified at fair value through profit or lossare recognized directly in profit or loss. Thefair value of investments actively traded onthe organized stock markets is the quotedstock market price at the end of tradingon the balance sheet date. The fair value ofinvestments in equity instruments that do nothave a quoted market price is determined onthe basis of a similar financial instrument, oras the net present value of future cash flowsexpected by Adria Airways d.d. to flow froma certain financial investment. Purchases andredemptions of financial assets classified at fairvalue through profit or loss are recognized onthe trading day; i.e. the day when the Companymakes a commitment to either purchase or sellan individual financial asset.Investments held to MaturityFinancial assets with fixed or determinablepayments and fixed maturity that are notderivative financial instruments are recognizedby Adria Airways d.d. as financial assets heldto maturity if the Company has the positiveintention and ability to hold the investments tomaturity. Investments held by the Company foran indefinite period of time are not includedin this class. Investments recognized asfinancial assets held to maturity are measuredat amortized cost using the effective interestmethod. The amortized cost is calculatedby allocation of the premium or discountgranted on acquisition over the period untilthe investment maturity. Any gains and losseson investments measured at amortized costsare recognized in the profit or loss (disposal,impairment, or the effects of amortization of apremium or a discount). Investments classifiedas held to maturity are recognized on thesettlement date.Available-for-Sale InvestmentsAfter the initial recognition, all investmentsmade by Adria Airways d.d. are determined asavailable-for-sale investments measured at fairvalue or cost, if the fair value cannot be reliablydetermined. Any gains or losses on availablefor- sale investments are recognized in equityas net unrealized capital gains on available-Adria Airways / Annual Report 2009 / Financial Statements 87

for-sale investments until the investment issold or otherwise disposed of. In the eventof investment impairment, the impairment isrecognized in profit or loss. Purchases and salesof individual financial investments designatedas available-for-sale are recognized on thetrading day i.e. the day when the Companymakes a commitment to either purchase or sellan individual financial asset.Among long-term financial investments inthe equity of other companies, classified asfinancial assets intended for sale, the Companyhas also made such investments that couldnot be evaluated at fair value. Shares of thesecompanies are not listed on stock exchange.The Company estimates that there is no otherunbiased and impartial evidence that thepurchase price of the financial investment couldnot be compensated for and consequently itwas not impaired in accordance with the note1 to SAS 3.Investments in Subsidiaries and JointVenturesInvestments in subsidiaries are recognizedby Adria Airways d.d. at cost, reduced by anyimpairment loss.Investments in associated companies arerecognized by Adria Airways d.d. at cost,reduced by any potential impairment loss.Loans and ReceivablesLoans and receivables are financial assets withfixed or determinable payments that are notquoted in an organized market. They includeloans and receivables acquired by the Companyas well as loans and receivables derived fromthe Company. Loans and receivables aremeasured at amortized cost using the effectiveinterest method and are recognised on thesettlement date.Amounts of long-term financial investments inloans that mature within a period of one yearfrom the balance sheet date are recognized asshort-term financial investments.ReceivablesOperating receivables may be long-term orshort-term receivables comprising: tradereceivables, other receivables associated withoperating revenue, receivables associated withfinancial revenue, receivables associated withequity payments and other receivables.Receivables of all categories are initiallyrecognized at amounts recorded in the relevantdocuments under the assumption that theywill be collected.Receivables believed not to be settled or notsettled within the set period and which aresubject to a dispute are recognized as doubtfuland disputed receivables. Allowances of thetotal amount are made against doubtful anddisputed receivables.Receivables due from foreign legal or naturalentities are translated into the local currencyon the accrual date. Exchange rate differencesarising by the settlement date or the balancesheet date are recognized as financial revenueor expenses.TaxesCurrent TaxCurrent tax is the amount of income tax AdriaAirways d.d. expects to pay to or recover fromthe Tax Authorities in respect of the presentand past periods. Current income tax payableor recoverable is measured on the basis of taxrates applicable at the balance sheet date.Deferred TaxDeferred tax assets and liabilities are accountedfor under the balance sheet liability method.Only deferred tax assets and liabilities arisingfrom temporary differences are recognized.At the balance sheet date, the Companyrecognized no deferred taxes.InventoriesInventories are carried at cost.The use of materials is accounted for under theFIFO method.At the year-end, inventories are checkedfor obsolescence and allowances of the100% amount are made against all obsoleteinventories.Inventory allowances are made to account forinventory value reduction to the recoverable88

amount and are part of the operating expenses.CashCash comprises: cash on hand, deposit moneyand cash in transit. Cash on hand is cash in theform of bank notes, coins and cheques received.Deposit money is cash in bank accounts ordeposited with another financial institution tobe used for payments. Cash in transit is cashbeing transferred from a cash register to arelevant account in a bank or another financialinstitution, and is not credited to that accounton that same day.An item of cash is initially recognized at theamount arising from the relevant documentafter the verification of its nature.Cash expressed in a foreign currency istranslated into the local currency at the Bankof Slovenia middle exchange rate prevailing onthe date of receipt.EquityEquity reflects the Company’s equity financeand is the entity’s liability to owners from theCompany’s point of view. It is determined byboth the amounts invested by the owners aswell as amounts generated in the course of theCompany’s operations.Total equity consists of: called-up capital, capitalsurplus, revenue reserves, revaluation surplus,retained earnings from previous years andundistributed net profit of the financial year.Share capital is carried in the local currency.LiabilitiesLiabilities are: long-term or short-term financialor operating liabilities.Initially short-term and long-term liabilitiesof all categories are recognized at amountsrecorded in the relevant documents underthe assumption that creditors demand theirrepayments.Long-term liabilities are reduced by repaidamounts and any potential other settlementsagreed with the creditor. They are also reducedby the amounts maturing within a period ofless than one year and are disclosed as shorttermliabilities.Operating liabilities expressed in a foreigncurrency are translated into the local currencyon the accrual date. Exchange rate differencesarising up to the balance sheet date arerecognized as financial expenses or revenue.Prior to the compilation of the financialstatements, the Company reviews the fairvalue of the short-term operating liabilitieson the basis of the contracts, account balanceconfirmations, and other financial tools.Short-term Accrued and Deferred ItemsDeferred costs and accrued revenue compriseof short-term deferred costs or short-termdeferred expenses and short-term accruedrevenue. Short-term deferred costs or shorttermdeferred expenses are amounts incurredbut not yet charged against an entity’s activity.Short-term accrued revenue arises whenpayments have not been received and invoicescould not have been issued, but where anentity has good reasons to include the revenuein its profit or loss.Accrued costs and deferred revenue compriseshort-term accrued costs or short-term accruedexpenses and short-term deferred revenue.Accrued costs or accrued expenses arise fromcharging the expected and not yet incurredcosts against an entity’s profit or loss. Shorttermdeferred revenue arises when services tobe rendered in the future have been alreadyinvoiced. Revenue may also be deferred whenat the time of the sale, entitlement to revenuerecognition is doubtful.Finance and Operating LeasesAdria Airways d.d. recognizes a finance leasewhen substantially all the risks and rewardsincidental to the ownership of an asset aretransferred to Adria Airways d.d. A financelease is recognized in the balance sheet asan asset and a liability in the amount whichon initial recognition equals the fair value ofan asset obtained under finance lease or thepresent value of the minimum amount ofrent, whichever is lower. Rent repayments areallocated to financial expenses and reduce theoutstanding amount of the liability. Financialexpenses are allocated over the whole of thelease period to derive to the effective interestrate applicable to the remaining balance of aAdria Airways / Annual Report 2009 / Financial Statements 89

liability of each individual lease period. Financialexpenses are recognized directly in profit orloss. Assets obtained under a finance lease aredepreciated over the shorter of the estimateduseful life or duration of the finance lease.An operating lease is a lease where the lessorretains substantially all the risks and rewardsincidental to the ownership of an asset. Leasepayments are recognized by Adria Airwaysd.d. in profit and loss as expenses under thestraight-line method over the lease period.Financial Instruments: DerecognitionA financial instrument is derecognized in thebooks of account when the entity has no longercontrol of the contractual rights that comprisethat asset. A financial liability is derecognizedon its repayment, expiration or when it fallsunder the statute of limitation.Derivative Financial InstrumentsAdria Airways d.d. applies financial instrumentssuch as forward contracts and interest swaps tohedge against the risks associated with interestrate changes, foreign currency fluctuations,and aviation fuel price oscillation. Derivativefinancial instruments are recognized at fairvalue.The fair value of a forward contract is designatedas the current price of contracts with similarmaturity. The fair value of interest rate swapsis determined as the market value of similarinstruments. Hedge accounting is classified asfair value hedge i.e. the hedge of the exposure tochanges in the fair value of recognized assets orliabilities, and as cash flow hedge i.e. the hedgeof the exposure to variability of cash flows thatis attributable to a particular risk associatedwith a recognized asset, liability or highlyprobable forecast transaction. The gain or lossfrom re-measuring the hedging instrumentused as the fair value hedge is immediatelyrecognized in profit or loss. The gain or lossassociated with the re-measurement of thehedged item and associated with the hedgedrisk of the hedged item, is credited or debitedto the hedged item and recognized in profitor loss. When the hedged item is an interestbearing asset or liability, the cumulative gain orloss is amortized over the period to maturity.In cash flow hedges, gains and losses on thehedging instrument that is determined to bean effective hedge are recognized in equity.The ineffective portion is recognized in profitor loss. When a hedged firm commitmentsubsequently results in the recognition ofa non-financial asset, the associated gainsor losses that were recognized in equity areincluded in the asset. In all other circumstancesgains or losses on hedging instrument are inthe next years transferred to profit or lossand the effect of changes in the value ofthe hedged item is offset in profit and loss.The effects of re-measurement of derivativefinancial instruments which no longer meetcriteria for hedge accounting are recognizeddirectly in profit or loss. Hedge accounting isdiscontinued when the hedging instrumentexpires or is sold, or no longer meets the criteriafor hedge accounting. The cumulative gainor loss on the derivative financial instrumentrecognized by Adria Airways d.d. in equity,remains in equity until the forecast transactionoccurs. If the forecast transaction is no longerexpected to occur, the cumulative gain orloss on the hedging instrument that remainsin equity is recognized in profit or loss of thecurrent period.Revenue RecognitionRevenue is recognized if increases in economicbenefits during the accounting period areassociated with increases in assets or decreasesin liabilities, and those increases can bemeasured reliably.Sales revenue is measured at selling pricesstated in invoices or other documents relatingto the services rendered and merchandise andmaterials sold during the accounting period if itcan be reliably expected that cash receipts willflow from them to the entity. Selling prices aredecreased by discounts and rebates granted atthe time of sale or subsequently, including thevalue of returned goods.Revaluation operating revenue arises ondisposal of intangible assets and property, plant90

and equipment as an excess of their sales valueover their carrying amount reduced by therevaluation surplus resulting from a previousincrease in the value of the assets.Financial revenue is revenue generated byinvestment activities. Financial revenue arises inrelation to investments, as well as in associationwith receivables. Financial revenue is recognizedupon statements of accounts, irrespective ofreceipts, unless there is a substantiated doubtas to their amount, maturity, or repayment.Interest is charged on a time proportion basiswith regard to the principal outstanding andthe applicable interest rate.Other revenue comprises unusual items. Theyare disclosed in the actual amounts.Recognition of ExpensesExpenses are recognized if decreases ineconomic benefits during the accountingperiod are associated with decreases in assetsor increases in liabilities and such decreasescan be measured reliably.Revaluation operating expenses are recognizedwhen the relevant adjustments are madeirrespective of their impact on profit or loss.Revaluation operating expenses arise inassociation with intangible assets, property,plant and equipment, and current assets as aresult of their impairment.Financial expenses are financing expensesand investment expenses. Revaluationfinancial expenses arise in association withthe impairment of long-term and short-termfinancial investments as well as in associationwith the increase in the value of long-term andshort-term liabilities.Other expenses consist of unusual items. Theyare disclosed in the actual amounts incurred.Cash Flow StatementThe cash flow statement is compiled under theindirect method on the basis of the balancesheet data as at 31 December 2009 and 31December 2008, the income statement datafor the year ended 31 December 2009, as wellas additional information necessary to adjustthe receipts and disbursements, and for therelevant classification of significant items.DisclosuresIn the 2009 annual report, the Companyhas disclosed all significant transactions,receivables, liabilities, expenses, revenue, andrisks, as well as all significant events subsequentto the balance sheet date.The cost and sales value of aircraft is notdisclosed by the Company.The Company has not disclosed any informationthat is designated as confidential, any personaldata, or any other confidential information,which could be detrimental to the Companyor an individual.Adria Airways / Annual Report 2009 / Financial Statements 91

6. Classificationsa n d No t e s t ot h e Fi n a n c i a lSt a t e m e n t s6.1. AdditionalDisclosures of theBalance Sheet Items6.2. AdditionalDisclosures of theIncome StatementItems6.1. Additional Disclosures of the Balance Sheet Items6.1.1.Intangible Assets and Long-Term Deferred CostsIntangible assets and long-term deferred costs represent software applications (software, Navisionsoftware, online ticket, information system for the operational flight support) which are amortizedunder the straight-line basis at the annual rate of 25%; pilot licences, and licences issued to themechanics, all of which are amortized at the annual rates of 50%, 33.33%, 25% or 14.28%.Movements in Intangible Assets in 2009Movements in Intangible Assetsin 2009(EUR)CostLicencesSoftwareapplicationsAssets beingacquiredOtherdeffered costsBalance at 31 December 2008 1,573,620 2,991,985 128,924 1,009,341 5,703,870Direct increase – investments - - 701,928 374,052 1,075,980Transfer from assets being acquired 62,686 731,268 -793,954 - -Disposals - 261,722 - 381,751 643,473Balance at 31 December 2009 1,636,306 3,461,531 36,898 1,001,642 6,136,377AllowancesBalance at 31 December 2008 638,728 1,520,354 - - 2,159,082Amortization expense for the period 383,934 578,378 - - 962,312Disposals - 261,722 - - 261,722Balance at 31 December 2009 1,022,662 1,837,010 - - 2,859,672Carrying amount at 31 December 2009 613,644 1,624,521 36,898 1,001,642 3,276,705Carrying amount at 31 December 2008 934,892 1,471,631 128,924 1,009,341 3,544,788TotalMovements in Intangible Assets in 2008Movements in Intangible Assetsin 2008EUR)LicencesSoftwareapplicationsAssets beingacquiredOther defferedcostsTotalCostBalance at 31 December 2007 1,159,649 2,014,352 12,069 681,609 3,867,679Direct increase – investments - - 1,581,537 584,669 2,166,206Transfer from assets being acquired 461,700 1,002,982 -1,464,682 - -Decrease during the year 47,729 25,349 - 256,939 330,017Balance at 31 December 2008 1,573,620 2,991,985 128,924 1,009,339 5,703,868AllowancesBalance at 31 December 2007 296,206 1,140,963 - - 1,437,169Depreciation expense of the period 366,097 404,740 - - 770,837Decrease during the year 23,575 25,349 - - 48,924Balance at 31 December 2008 638,728 1,520,354 - - 2,159,082Carrying amount at 31 December 2008 934,892 1,471,631 128,924 1,009,339 3,544,786Carrying amount at 31 December 2007 863,443 873,389 12,069 681,609 2,430,510At 31 December 2009, the Company reports no liabilities for the acquisition of intangible assets.92

6.1.2. Property, Plant and EquipmentProperty, Plant and Equipment (EUR) 31.12.2009 31.12.2008Land 487,183 487,183Buildings 16,949,300 6,198,253Equipment, of which: 94,014,738 110,266,964* Plant and machinery 92,120,732 108,489,094- Aircraft 87,183,682 102,874,026- Replacement parts 4,937,050 5,615,068* Other plant and equipment 1,894,006 1,777,870- Other equipment 1,890,002 1,775,292- Small tools 4,004 2,578Assets in process of acquisition, of which: 553,570 1,375,404*Advance payments for property, plant and equipment 383,596 248,262*Assets under construction 169,974 1,127,142Total 112,004,791 118,327,804In the 2009 financial year, € 11,972,812 wasinvested in property, plant and equipment.The greatest part in the amount of € 6,305,759is attributable to the construction of the newbusiness building and the increase in the valueof aircraft due to investment maintenance ofaircraft fuselage and engines. In addition, thevalue of roto spare part increased with thepurchase of parts due to the enlargement ofthe CRJ-900 fleet and the purchase of furniturefor the new business premises.The increase in the value of buildings, inaddition to the new business building, alsocomes from the revaluation of buildingsaccording to the fair value model in theamount of € 6,343,601. As the fair value ofrevaluated assets for comparative data couldnot be reliably determined, the Companydid not demonstrate the change of theaccounting policy retrospectively but appliedthe revaluation to the current financial year.In 2009, the Company took out a finance leasefor the restaurant equipment in the amount of€ 54,000 and a new company vehicle for therepresentative office in Zürich in the amountof € 23,926. The already existing property, plantand equipment in finance lease also include theflight simulator (€ 246,461) and the companyvehicle in Vienna (€ 2,745).The major share of property, plant andequipment are represented by an Airbus A-320aircraft and five (5) CRJ-200-LR regional aircraft.The increase in the value of aircraft concernsexclusively the A-320 aircraft due to higherinvestment maintenance and the increase inthe value of CRJ-200 aircraft due to investmentmaintenance of engines and fuselages, and thedecrease is attributable to the sale of two A 320aircraft and the calculated amortization at theconstant rate of 4.38% for A-320 aircraft and 5%for CRJ-200-LR and CRJ-900 aircraft and ratesfrom 10% to 66.67% for additional investmentsinto aircraft.The net sales value of the aircraft is verifiedtwice a year based on the values reported inThe Aircraft Value Reference publication issuedby the Aircraft Value Analysis Company (AVAC).The Company assessed the value in use of itsCanadair aircraft fleet as at 1.1.2010 (CRJ-200aircraft fleet represents an independent cashgenerating unit). The valuation showed anexcess of replaceable value over the carryingamount. The Management Board believesthere are no indications of impairment.All the long-term financial liabilities of theCompany are secured by first pledges on oneA-320 aircraft (S5-AAA), on five CRJ-200-LRregional aircraft (S5-AAD, S5-AAE, S5-AAF, S5-AAG and S5-AAJ), and on two CRJ-900 aircraft(S5-AAK, S5-AAL). All the aircraft pledged areowned by Adria.In 2009 year, five aircraft were under theoperating lease, namely: for the whole yearone CRJ-100 aircraft, for the whole year oneAdria Airways / Annual Report 2009 / Financial Statements 93

CRJ-200 aircraft, until October 2009 one Boeing737-500 aircraft and for the whole year twoCRJ-900 aircraft.In the change of fixed assets table for 2008 thereis a correction of the incorrectly recognizedexchange rate differences for the Airbus S5-AAAaircraft over the past years, which is reflectedas an additionally charged amortization for thepast years in the amount of € 822,922.is the valuation report of the authorizedvaluer. The carrying amount of the buildingsthat would be recognized if it was indicatedaccording to the cost model would amount to€ 10,174,615 on 31 December 2009.On 31 December 2009 the financial obligationsfor the acquisition of property, plant andequipment amount to € 73,061,793.The revaluation of buildings was performed on31 December 2009. The basis for the revaluationMovements in Property, Plant and Equipment in 2009(EUR)LandBuildingsProductionequipment− aircraftRotosparepartsOtherequipmentSmalltoolsProperty, plantand equipmentunderconstructionAdvance paymentfor property, plantand equipmentTotalCostBalance at 31 December 2008 487,183 11,328,522 199,699,587 14,578,297 5,940,398 53,512 1,127,142 248,262 233,462,903Direct increase – investments - - - - - - 11,831,659 141,153 11,972,812Transfer from assets beingcquired- 6,305,759 5,227,536 734,377 518,441 2,714 -12,788,827 - -Disposals - 1,907,692 47,895,544 620,731 485,612 12,363 - - 50,921,942Revaluation - 6,343,601 - - - - - - 6,343,601Other* - -2,687,440 - - - - - -5,819 -2,693,259Balance at 31 December 2009 487,183 19,382,750 157,031,579 14,691,943 5,973,227 43,863 169,974 383,596 198,164,115AllowancesBalance at 31 December 2008 - 5,130,269 96,825,561 8,963,229 4,165,106 50,934 - - 115,135,099Amortization expense for theyear- 143,857 11,843,340 994,778 378,891 1,288 - - 13,362,154Disposals - 153,236 38,821,004 203,114 460,772 12,363 - - 39,650,489Revaluation - - - - - - - - -Other* - -2,687,440 - - - - - - -2,687,440Balance at 31 December 2009 - 2,433,450 69,847,897 9,754,893 4,083,225 39,859 - - 86,159,324Carrying amountat 31 December 2009 487,183 16,949,300 87,183,682 4,937,050 1,890,002 4,004 169,974 383,596 112,004,791Carrying amountat 31 December 2008487,183 6,198,253 102,874,026 5,615,068 1,775,292 2,578 1,127,142 248,262 118,327,804The amount € -2,687,440 (stated under Other at the cost and allowances) refers to the abrogatedallowance in the revaluation of buildings.94

Movements in Property, Plant and Equipment in 2008(EUR)CostLandBuildingsProductionequipment− aircraftRotosparepartsOtherequipmentSmalltoolsProperty, plantand equipmentunderconstructionAdvance paymentfor property, plantand equipmentBalance at 31 December 2007 487,183 11,328,522 195,555,690 13,123,291 5,824,870 59,201 134,188 578,546 227,091,491Direct increase – investments - - - - - - 8,735,514 64,691 8,800,205Transfer from assets beingcquired- - 5,336,464 1,972,130 432,614 1,352 -7,742,560 - -Decrease during the year - - 1,192,567 517,124 317,086 7,041 - 414,858 2,448,676Other changes –exchange rate differences- - - - - - - 19,883 19,883Balance at 31 December 2008 487,183 11,328,522 199,699,587 14,578,297 5,940,398 53,512 1,127,142 248,262 233,462,903AllowancesBalance at 31 December 2007 - 4,993,220 84,977,836 7,959,563 4,116,850 55,058 - - 102,102,527Additionally chargedamortization for the past years882,922 882,922Balance at 31 December2007after allowances- 4,993,220 85,860,758 7,959,563 4,116,850 55,058 - - 102,985,449Amortization expense for the year - 137,049 11,183,440 1,153,846 350,871 2,918 - - 12,828,124Decrease during the year - - 218,637 150,180 302,615 7,042 - - 678,474Increase during the year - - - - - - - - -Other changes –exchange rate differences- - - - - - - - -Balance at 31 December 2007after allowances- 5,130,269 96,825,561 8,963,229 4,165,106 50,934 - - 115,135,099Carrying amountat 31 December 2008487,183 6,198,253 102,874,026 5,615,068 1,775,292 2,578 1,127,142 248,262 118,327,804Carrying amountat 31 December 2007after allowances487,183 6,335,302 109,694,932 5,163,728 1,708,020 4,143 134,188 578,546 124,106,042Total6.1.3. Investment PropertyThe investment property comprises ofbuildings leased under an operating leaseand holiday apartments and other apartmentsintended for leasing.(EUR) 31.12.2009 31.12.2008Buildings 3,244,541 216,742Total 3,244,541 216,742As of 31 December 2009 the Companyrevaluated the investment property accordingto the fair value model and the profit in theamount of € 1,2818,276 that is based on thechange of the value and was recognized in theincome statement.Since it was not possible to reliably evaluatethe fair value of investment property for thefirst comparable period, the Company did notapply the change of the accounting policyretrospectively.Adria Airways / Annual Report 2009 / Financial Statements 95

Movements in Investment Property in 2009(EUR) Buildings TotalCostBalance at 31 December 2008 360,570 360,570Direct increase of investments 1,907,692 1,907,692Transfer of assets being acquiredDisposalsRevaluation 1,281,276 1,281,276Other -304,997 -304.997Balance at 31 December 2009 3,244,541 3,244,541AllowancesBalance at 31 December 2008 143,828 143,828Depreciation expense of the period 7,933 7,933Increase during the year 153,236 153,236DisposalsRevaluationOther -304,997 -304,997Balance at 31 December 2009 - -Carrying amount at 31 December 2009 3,244,541 3,244,541Carrying amount at 31 December 2008 216,742 216,742Movements in Investment Property in 2008(EUR) Buildings TotalCostBalance at 31 December 2007 375,578 375,578Decrease during the year 15,008 15,008Balance at 31 December 2008 360,570 360,570AllowancesBalance at 31 December 2007 145,387 145,387Depreciation expense of the period 8,015 8,015Decrease during the year 9,574 9,574Balance at 31 December 2008 143,828 143,828Carrying amount at 31 December 2008 216,742 216,742Carrying amount at 31 December 2007 230,191 230,19196

6.1.4. Long-Term Financial Investments(EUR) 31.12.2009 31.12.2008Investments in shares and interests in the group 793,332 793,332Investments in shares and interests of associates 400 400Other shares and interests 42,652 48,018Long-term loans to others 107,070 126,683Total 943,454 968,433Adria Airways does not compile a consolidated annual report, since the inclusion of the financialstatements of both subsidiaries in the consolidated report is not significant for a true and fairpresentation of the financial statements of the Adria Airways group as a whole.Subsidiary(EUR)AmadeusSlovenija d.o.o.AA KosovoHeadofficeDunajska 122,LjubljanaEqrenz Qabey 119PrištinaCompany’scountryShare inequity at31.12.2009Equity of thesubsidiarycompany at31.12.2009Profit or lossof for theperiod2009Shares and interestsin subsidiaries31.12.2009 31.12.2008Slovenija 95% 631,224 -13,735 599,663 771,996100% 2,500 - 2,500 2,500TOTAL 633,724 602,163 774,496Investments in shares and interests of associates include the investment in NMC d.o.o. Skopje andNMC d.o.o. Tirana where the Company holds a 5% equity interest in the amount of € 200.Movements in Long-Term Financial Investments in 2009(EUR)GroupcompaniesAssociatesOthercompaniesLoans toothersTotalBalance at 31 December 2008 793,332 400 58,370 126,683 978,785Increase - - 5,141 - 5,141Decrease - - 19,327 19,647 38,974Revaluation - - -1,527 34 -1,493Balance at 31 December 2009 793,332 400 42,657 107,070 943,459AllowancesBalance at 31 December 2008 - - 10,352 - 10,352Increase - - - - -Decrease - - 9,778 - 9,778Revaluation - - -569 - -569Balance at 31 December 2009 - - 5 - 5Net value at 31 December 2008 793,332 400 48,018 126,683 968,433Net value at 31 December 2009 793,332 400 42,652 107,070 943,454The investment in shares and interests of the companies in the group refers to the Amadeus Slovenijad.o.o. in the amount of € 790,832 and the affiliate Adria Airways Kosovo in the amount of € 2,500.Adria Airways / Annual Report 2009 / Financial Statements 97

6.1.5. Long-Term Operating ReceivablesLong-Term Operating Receivables (EUR) 31.12.2009 31.12.2008Long-term securities and operating receivables 852,991 685,200Allowances -145,445 -145,445Total 707,546 539,755Long-term securities and receivables represent in the majority of cases securities given for theaircraft and the spare engine in the form of a long-term operating lease. Allowances of the longtermsecurity for Aurora Airlines in the amount of € 145,445 were designed on the basis of aninitiated legal proceeding.6.1.6. InventoriesInventories (EUR) 31.12.2009 31.12.2008Material 8,772,489 9,929,183Allowances -1,846,700 -2,460,493Total 6,925,789 7,468,690Inventories mainly represent spare parts and material used in the aircraft servicing. The value ofinventories and their optimum use depend on the recommendations of the aircraft manufacturersand the number of aircraft in the fleet.There are no discrepancies between the book value and the realisable value of inventories.The examination of inventories at the end of 2009 showed no obsolete inventories.At 31 December 2009, no inventories are pledged as collateral.Discrepancies in the amount of € 26,186, discovered during the inventory of stocks of technicalmaterial on 31 December 2009, will be recorded in the year 2010 due to the technical limitationsof the programme.6.1.7. Short-Term Financial InvestmentsShort-Term Financial Investments (EUR) 31.12.2009 31.12.2008Short-term loans- to others 147,170 147,292Other short-term investments - 720,175Total 147,170 867,467Short-term loans to others (€ 147,170) comprise deposits with banks that are fixed in form of asecurity for the guarantee given by the bank with limited disposal as well as the current amountof the loans for the education of employees.In 2009, the Company sold bonds received as denationalisation compensation from SOD, hencethe other short-term investments decreased in the amount of € 720,175.98

6.1.8. Short-Term Operating ReceivablesShort-Term Operating Receivables (EUR) 31.12.2009 31.12.2008Short-term operating receivables due from subsidiaries - 6,106Short-term operating trade receivables 9,809,514 11,507,495Short-term operating interest receivables 66,858 37,579Other short-term operating receivables 6,950,425 5,718,769Allowances for short-term operating receivables -326,964 -326,654Total 16,499,833 16,943,295In comparison to the previous year, short–termoperating receivables from customers werereduced by 15%. The reason is a reduceddemand for services. Other short–termoperating receivables increased by 21%, mainlydue to higher planned debits of air carriersarising from the control of foreign coupons.Short-term operating trade receivables(gross value) are recognised as domesticand international trade receivables (of which€ 5,815,477 from international trade and €3,994,037 from domestic trade). It is importantthat continuous monitoring of customers iscarried out and the receivables are realistic andrecoverable.Regular aircraft operators, members of theIATA (International Air Transport Association),account for their monthly receivables andliabilities through the Clearing House registeredin Montreal, which provides weekly offsetting.In its own way those receivables are secured asnon-compliance with the agreed contractualterms representing a severe breach againstthe airline and leads to the exclusion from theassociation. At 31 December 2009, the balanceof receivables towards IATA is € 813,450 and hasbeen partially offset. The remaining balancewas offset and the payments were made in fullin January 2010.Adria Airways d.d. also sells air tickets throughits representatives at home and abroad. Asimilar monthly account and payment disciplineapplicable to the airlines, also applies to therepresentatives and the receivables are offsetthrough the Bank Settlement Plan (BSP) set up inthe locations where the air tickets are sold. BSPregularly verifies credit rating of all its businesspartners. If certain financial ratios are not met(these are unique for each individual country)a collateral is required which is, in the event ofpayment default, shared among the airlines inproportion of the outstanding amount of thereceivables. At 31 December 2009, receivablesdue from various BSPs amount to € 2,960,615,which accounts for 30% of all the receivables.No receivables are due from Members ofthe Management and Supervisory Board,employees with special authorizations orinternal owners.Allowances are made against receivablesin accordance with the criteria describedunder the Accounting policies section. In2009, additional allowance was made againstshort–term operating trade receivables(€ 90,033) and previously written-off receivablesin the amount of € 4,758 were recovered. Inthe 2009 financial year, € 6,785 of receivableswas written-off and charged directly to therevaluation expenses.Classification of operating receivables per maturity31.12.2009 Not past due Up to 30 daysFrom 31to 60 daysFrom 61to 90 daysFrom 91to 180 daysFrom 181to 365 daysMore than366 days9,809,514 7,047,736 106,369 392,799 362,414 838,039 426,705 635,452% 71.9 1.1 4.0 3.7 8.5 4.3 6.570% or € 6,834,532 of total short-term operating trade receivables are secured as follows: ClearingHouse – included are also the companies for which the receivables are not cleared via a CH,however, we do have this possibility (11% or € 1,030,496), BSP (30% or € 2,960,615), with deposits(1% or € 100,432), bank guarantees and letters of credit (1% or € 75,159), with advances (6%Adria Airways / Annual Report 2009 / Financial Statements 99

or € 566,066), offsetting arrangements (14% or€ 1,327,997), bills of exchange (2% or € 219,902)and secured receivables due from budget users(4% or € 377,788); however 30% (€ 2,974,982) oftotal short-term receivables is not secured.Other short-term operating receivables representshort-term advances paid for leased aircraftand collaterals, VAT receivable, receivablesdue from the sale outlets in respect of air ticketsales, and receivables from suppliers for creditsrecognised but not yet issued.6.1.9. CashCash (EUR) 31.12.2009 31.12.2008Cash in hand and cheques 39,162 50,696Cash at bank 622,984 1,139,072Total 662,146 1,189,7686.1.10. Short-Term Deferred Costs andAccrued RevenueAt 31 December 2009, € 2,649,456 (€ 1,203,936at 31 December 2008) represents short-termdeferred costs and expenses mainly on accountof the invoiced maintenance of A320 engines,education of the aircrew, reservation systemservices and costs of the passenger and aircraftinsurances.6.1.11. EquityEquity (EUR) 31.12.2009 31. 12. 2008I. Called-up capital 7,676,900 6,782,1561. Share capital 7,676,900 6,782,156II. Capital surplus 16,077,621 28,180,234III. Revenue reserves - 3,465,3714. Statutory reserves - 774,1085. Other revenue reserves - 2,691,263IV. Revaluation surplus 4,125,926 -4,418,103V. Retained earnings - -3,038,960VI. Net profit or loss for the period - -Total 27,880,447 30,970,698Called-up capital represents the share capitaldefined in the Company’s statute, registeredat the court, and subscribed to by theshareholders. The share capital increased by €894,744 in 2009 and amounts € 7,676,900. It isdivided into 919,591 ordinary, nominal non parvalue shares.All the shares are of the same class, issued asdematerialised shares. The number of sharesincreased during the year by 107,155.The company holds no treasury shares and didnot hold any during the year.At 31 December 2009, the carrying amount ofone share was € 30.32.In 2010, in accordance with Article 64 of theCompanies Act and the Company’s Statute thenet loss of € 13,991,691 generated in the 2009financial year and the transferred net loss of theprevious years in the amount of 3,038,960 wascovered by the Management Board as follows:100

• € 2,691,263 from other revenue reserves• € 774,108 from statutory reserves and• € 13,565,280 from capital reserves, as follows::• general valuation adjustment of capital€ 5,455,668• payments for the acquisition ofadditional rights from shares or interests€ 8,109,612In its Statute, the revenue reserves are specifiedfor the following purposes:• The capital surplus resulted from the privatisationand injection of the equity capital and isto be used under the conditions and for thepurposes set out by the law. After the coverageof the loss of the financial year the capitalreserves amount to € 16,077,621.• Revenue reserves:• in accordance with the provisions of theStatute the statutory reserves decreaseddue to the coverage of the loss of thefinancial year in the amount of € 774,108and• in accordance with the law, the Statuteand the business policy of the Companyother revenue reserves were used to coverthe losses of the financial year 2009 in theamount of € 2,691,263.The surplus from revaluation increased due tothe revaluation of real property on the basis ofthe market value in the amount of € 6,343,601and the decrease of the negative part of thevaluation of derivative financial instrumentsto be used as cash flow hedges in 2010 in theamount of € 2,200,428 and as of 31 December2009 amount to € 4,125,926.The Company has no approved non-issuedshares (exercise the right of holders of fungiblebonds to exchange these for shares or theexercise of the pre-emptive right to acquirenew shares).Due to the incorrectly recognized exchangerate differences for the A 320 (S5-AAA) inthe past years in the amount of € 882,922and additionally determined costs for themaintenance of A320 engines, the Companyhad a transferred loss from the previous years inthe amount of € 3,038,960 in compliance withthe contract with the IAE for the past years.6.1.12. Provisions and Long-Term AccruedCosts and Deferred RevenueProvisions of € 1,441,626 were made onaccount of pensions, anniversary bonuses andtermination bonuses upon retirement: Theprovisions were calculated in accordance withthe provisions of the collective and individualemployment contracts, taking into accountthe employees’ fluctuation in terms of theirretirement age and the years of service withthe Company.EUR 31.12.2009 31.12.2008Provisions for pensions, termination bonuses, anniversary bonuses 1,441,626 1,558,283Movements in Provisions in 2009EURBalance at1.1.2009Utilisation,reversalFormationBalance at31.12.2009Provisions for pensions, termination bonuses,anniversary bonuses1,558,283 161,043 44,386 1,441,626Total 1,558,283 161,043 44,386 1,441,626Movements in Provisions in 2008EURBalance at1.1.2009Utilisation,reversalFormationBalance at31.12.2009Provisions for pensions, termination bonuses,anniversary bonuses1,543,735 45,937 60,485 1,558,283Total 1,543,735 45,937 60,485 1,558,283Adria Airways / Annual Report 2009 / Financial Statements 101

6.1.13. Financial LiabilitiesEURLong-term Short-term TOTAL2009 2008 2009 2008 2009 2008Financial liabilities to groupcompanies- - - 155,287 - 155,287Financial liabilities to banks 64,718,007 69,729,107 16,771,563 15,275,426 81,489,570 85,004,533Other financial liabilities 200,459 223,009 2,357,448 4,540,482 2,557,907 4,763,491TOTAL 64,918,466 69,952,116 19,129,011 19,971,195 84,047,477 89,923,311Weighted average interest rates at 31 December 200931.12.2009 EUR (%)Financial liabilities to banks 3.20 %31.12.2008 EUR (%)Financial liabilities to banks 4.51 %Disclosure of the interest rate risk per individual type of LOANsYear ended31 December 2009(EUR)Interest ratechangeswithin 6months orlessInterest ratechangeswithin 6−12monthsInterest ratechanges in1–5 yearsOver 5 yearsTotalTotal loans 79,126,772 - 2,362,798 - 81,489,570Interest rate swap effect -22,727,273 - 16,000,000 6,727,273 -Total 56,399,499 - 18,362,798 6,727,273 81,489,570Year ended31 December 2008(EUR)Interest ratechangeswithin 6months orlessInterest ratechangeswithin 6−12monthsInterest ratechanges in1–5 yearsOver 5 yearsTotalTotal loans 81,591,603 - 3,412,930 - 85,004,533Interest rate swap effect -848,485 - - 848,485 -Total 80,743,118 - 3,412,930 848,485 85,004,533The current amount of long-term loans thatmatures in the 2010 financial year in theamount of € 12,121,563 is reported undershort-term financial liabilities.Short-term liabilities to banks increased at theend of 2009 by 9.7% in comparison to 2008due to a higher current amount of long-termliabilities that mature in 2010, and mainly dueto new long-term credits approved in 2009.Long-term liabilities to banks decreased by 7%in 2009 in comparison to 2008 due to regularand irregular repayment of credit principals.The current amount of long-term loans underfinance leases that matures in the 2010 financialyear in the amount of € 88,153 is reportedunder short-term financial liabilities.All the long-term and short-term loanswere raised from the local banks and aredenominated in the euro.The principal amounts and the interest arerepaid in monthly instalments.All long-term financial liabilities are securedwith a pledge placed on the aircraft, and fromnow on also on the business buildings.102

Classification of Long-Term Financial Liabilities to Banks per Maturity(EUR) 2009From 1 to 2 years 11,825,098From 2 to 5 years 32,181,370Over 5 years 20,711,539Total 64,718,007Short-Term Financial Liabilities to Banks(EUR) 31.12.2009 31.12.2008Current amounts of bank loans 12,121,563 10,115,426Short-term financial liabilities to banks 4,650,000 5,160,000Total 16,771,563 15,275,426The current amounts of bank loans extendedby the local banks represent the amounts oflong-term loans that mature within a period ofone year.The current amounts of long-term loans aresecured with a pledge on aircraft and businessbuildings.The short-term financial liabilities to banksrepresent on 31 December 2009 revolvingcredits taken out for operating and fixed assetsand bridging credits secured with the pledgeon business buildings and the aircraft engine.6.1.14. Short-Term Operating LiabilitiesShort-Term Operating Liabilities (EUR) 31.12.2009 31.12.2008Short-term operating liabilities to companies in the group 40,176 38,976Short-term operating liabilities to suppliers 29,116,060 22,470,018Short-term operating liabilities for advances 412,153 835,893Other short-term operating liabilities 3,592,941 3,819,492Total 33,161,330 27,164,379Short-term operating liabilities are not collateralized.Short-Term Operating Liabilities to SuppliersShort-Term Operating Liabilities to Suppliers (EUR) 31. 12. 2009 31. 12. 2008Short-term operating liabilities to local suppliers 12,860,065 8,123,183Short-term operating liabilities to foreign suppliers 16,255,995 14,346,835Total 29,116,060 22,470,018Short-term operating liabilities to suppliersrepresent amounts due to the suppliers ofgoods and services at home and abroad. Theshort-term operating liabilities mature withina period of 8 to 60 days from the date of thesupply of goods, the rendering of services, orthe invoice date.Adria Airways / Annual Report 2009 / Financial Statements 103

Other Short-Term Operating LiabilitiesOther Short-Term Operating Liabilities (EUR) 31. 12. 2009 31. 12. 2008Short-term operating liabilities to the government 490,972 487,417Short-term operating liabilities to the employees 2,352,604 2,629,708Other short-term operating liabilities 749,365 702,367Total 3,592,941 3,819,492As at 31 December 2009, no operatingliabilities are due to the management and thesupervisory board or the employees, otherthan the amounts due for December 2009wages and salaries.Other short-term operating liabilities mainlyrepresent court damages due to JAT AirwaysBeograd.6.1.15. Short-Term Accrued Costs and Deferred RevenueEUR 31.12.2009 31.12.2008Short-term accrued costs and deferred revenue 530,551 1,724,408A total € 530,551 of accrued costs and deferredrevenues comprise short-term accrued costs orexpenses (interests for credits) in the amountof € 61,114, and deferred revenues (charterflights and tickets sold for future flights) in theamount of € 469,435.6.1.16. Off-Balance Sheet Assets/LiabilitiesOff-Balance Sheet Assets/Liabilities (EUR) 31.12.2009 31.12.2008Mortgages 112,654,140 108,733,078Guarantees 4,528,798 3,211,466Other 28,474 28,474Total 117,211,412 111,973,018The increase in the mortgage volume isattributable to the insurance of received newlong-term loans and an additional insurance ofshort-term loans.The mortgage volume with a maturity longerthan five years amounts to € 91,244,166. Forall other items the period of obligations is notlonger than five years.The off-balance sheet records representmortgages (pledges) entered for the benefitof the local banks against long-term credits forthe purchase of aircraft and short-term creditsfor operating and fixed assets.As at 31 December 2010, a total of € 81,489,570of loans is secured with mortgages.Guarantees represent payment guaranteesgranted to the suppliers for the purchase ofgoods and services at home and abroad (€3,137,476.71), and guarantees received as asecurity against receivables (€ 1,391,321.58).The Company is involved in court proceedingseither as a plaintiff or a defendant. These courtactions mainly relate to breach of obligationsor labour disputes. As a result of a requestfor judicial protection, Adria Airways is alsosubject to procedures of the supervisory andgovernment institutions.No additional provisions were made for thesedisputes as we do not expect the outcome ofthese to have a significant financial impact.104

6.1.17. Financial InstrumentsFair ValueThe majority of investments recognisedthrough profit or loss and as available-for-saleinvestments, are recognised at fair value, whilstreceivables and loans are reported at amortisedcost.Since the majority of the receivables, liabilities,and loans are short-term, the fair value of thesefinancial instruments does not significantlydeviate from their carrying amount.Derivative Financial InstrumentsAt 31 December 2009, the Company reports the following outstanding financial instruments:Interest Rate Hedge InstrumentsInstrument (EUR) Notional amount Fair Value31, 12, 2009 31, 12, 2008 31, 12, 2009 31, 12, 2008Interest rate swap 22,727,273 848,485 -413,682 -6,408Interest rate collar 8,704,253 10,531,612 -265,432 -158,046Instrument (EUR) Notional amount Fair Value31, 12, 2009 31, 12, 2008 31, 12, 2009 31, 12, 2008Interest rate cap 27,705,000 9,002,500 -477,974 66,305The interest rate swaps and collars areaccounted for as future cash flow hedges.Interest rate caps are not entirely accounted forin 2009 as hedge accounting.Currency forwards(EUR) Notional amount Fair value31, 12, 2009 31, 12, 2008 31, 12, 2009 31, 12, 2008Currency acquisition 20,187,614 - -1,021,375 -Currency sales 26,951,082 - 354,507 -Interest Rate RiskThe interest rate risk, which the Group isexposed to, arises primarily from the financingof the Group as disclosed under the financialliabilities section, 6.1.13.Credit RiskThe Company is not exposed to any significantcredit risk concentration.Forwards for the Purchase of FuelPeriod% of the forward purchase of the plannedkerosene amountsJanuary –March 09April – June09July –September 09October –December 0935% 55% 40% 6%The valuation of the forwards for the purchaseof fuel at 31 December 2009 shows that thefair value decreased by € 421,376. The negativeeffect is recognised via the Company’s equity.Adria Airways / Annual Report 2009 / Financial Statements 105

6.2. AdditionalDisclosures of theIncome StatementItemsCosts in terms of functional groups (EUR) 2009 2008Production costs 152,520,556 180,431,248Selling expenses 16,135,186 18,676,692General and administrative costs 5,847,454 5,364,961Total 174,503,196 204,472,901Production costs of goods sold comprisedirect costs of the airport and other services,costs of material, costs of labour, amortizationand depreciation expenses, and productionoverheads.Selling expenses represent marketing costs,costs of sales made at home and abroad, andcosts of agency sales at home and abroad(commission other selling costs).General and administrative costs representcosts of administrative services for the wholeof the Company.Classification of revenue and expenses perindividual types is presented below.6.2.1. Net SalesNet sales per Business SegmentsNet Sales per Business Segments (EUR) 2009 2008* Scheduled passenger services 115,767,185 143,581,293* Scheduled cargo services 2,032,918 2,739,072* Charter passenger flights 23,869,597 28,113,198* Aircraft servicing for third persons 8,542,134 12,832,819* Aircraft charter services 6,324,756 11,119,249* Other 4,888,124 7,004,166Total 161,424,714 205,389,797The activity of the Company is classed asan international air passenger service andaccounts for 87% of total sales revenues.5% of the sales revenues represent aircraftservicing for third persons, whereas justover one percent of the total sales revenuesaccounts for cargo transport, as it representsonly an additional service on our scheduledflights since we cancelled our own cargooperations in 2007.4% of the net sales are achieved by the aircraftlease.Net sales – Classification: Slovenia and AbroadNet sales – Classification: Slovenia, Abroad 2009 2008Sales revenue in Slovenia 2,302,879 2,389,410Sales revenue abroad 159,121,835 203,000,387Total 161,424,714 205,389,7976.2.2. Costs of Goods, Material and ServicesCosts of Goods, Material and Services (EUR) 2009 2008Costs of goods sold 18,287 76,663Costs of material 42,320,660 58,064,655Costs of services 76,175,572 86,117,973Total 118,514,519 144,259,291106

Compared to the previous year, the costs ofgoods, material and services have decreasedby 18%, which is primarily due to the drop inaviation fuel prices, reduced volume of flightsand the decreased number of passengers.Costs of MaterialCosts of Material (EUR) 2009 2008Aviation fuel 32,749,506 49,006,382Merchandise and material used in passenger care 3,824,278 4,365,065Replacement parts used in aircraft servicing 3,411,423 2,182,537Other costs of material 2,335,453 2,510,671Total 42,320,660 58,064,655Costs of ServicesCosts of Services (EUR) 2009 2008Airport costs 26,859,806 28,959,098Navigation costs 9,356,089 9,777,309Maintenance costs 8,540,936 10,090,414Rent 14,472,881 16,509,321Costs of computer reservation system 3,937,800 4,853,254Reimbursements of costs 1,814,907 2,015,557Costs of transport services 1,130,991 944,387Other costs of services 10,062,162 12,968,633Total 76,175,572 86,117,973Other costs of services comprise costs oftraining, cargo, bank charges, costs of studentwork, passenger tax, intellectual and personalservices, and other costs.The costs of the audit of the financial statementsand the annual report for the financial yearended 31 December 2009 of € 54,862 relate tothe following services:• Auditing of the annual report (€ 40,920)• Other services of giving guarantees –€ 13,942.6.2.3. Labour CostsLabour Costs (EUR) 2009 2008Payroll costs 26,329,929 29,294,623Social insurance costs 1,805,549 1,933,627Retirement insurance costs 3,674,852 3,898,380Other labour costs 3,930,011 5,018,841Total 35,740,341 40,145,471Other labour costs for 2009 comprise: holidaybonus, travel allowance, termination bonuses,anniversary bonuses, payroll taxes, and salariesof the staff employed at the representativeoffices abroad.None of the employees’ claims based on theprovisions of the law, collective agreement,general rules of the Company or employmentcontracts are disputed by the Company.Adria Airways / Annual Report 2009 / Financial Statements 107

6.2.4. Write-DownsAmortization and DepreciationAmortization and Depreciation (EUR) 2009 2008Amortization and depreciation of intangible assets andproperty, plant and equipment14,332,399 13,606,976Revaluation expenses associated with intangible assets andproperty, plant and equipment1,341,558 441,144Total 15,673,957 14,048,120Revaluation expenses from intangible assetsand property, plant and equipment areattributable to the sale of the S5-AAB and theexclusion of unusable roto spare parts.Revaluation operating expenses fromoperating assetsRevaluation operating expenses in the amountof € 96,818 from operating assets represent thewrite-off receivables.6.2.5. Financial RevenuesFinancial Revenues (EUR) 2009 2008Financial revenues from shares and interests 183,394 24,336- in group companies 167,669 15,133- in associates 10,506 9,125- in other companies 5,219 78- other investments - -Financial revenues from operating receivables 29,348 891,425- due to group companies - -- due from others 29,348 891,425Total 212,742 915,761Financial revenues almost entirely representrevenues from shares and interests incompanies of the group (Amadeus Slovenija)and associates (Adria Airways Skopje).The exchange rate gains in the amount of €2,685,146 arising in the translation of foreigncurrencies are disclosed under the offsettingbalance of financial expenses.6.2.6. Financial ExpensesFinancial Expenses (EUR) 2009 2008Financial expenses due to impairment and write-off ofinvestments10 10,346Financial expenses from financial liabilities 2,680,786 4,868,961- loans received from group companies 5,694 5,685- loans received from banks 2,632,749 4,689,888- other financial liabilities 42,343 173,388Financial expenses from operating liabilities 872,924 866,542- to suppliers 116,432 74,190- other operating liabilities 756,492 792,352Total 3,553,720 5,745,849108

The majority of the financial expensesrepresent interest paid on long-term credits inthe amount of € 2,632,749.Financial expenses from other financial liabilitiesrepresent expenses form interest instrumentsfor the protection on the cash flow.The exchange rate losses in the amount of €2,891,922 are disclosed under the financialexpenses from operating liabilities in theoffsetting balance of € 206,776.6.2.7. Other RevenuesOther Revenues (EUR) 2009 2008Financial revenues from valuation of investment propertyaccording to fair value1,281,276 -Received compensations and penalties 341,286 594,009Other Revenues 41,989 42,400Total 1,664,551 636,409On 31 December 2009, the Company revaluatedthe investment property according to the fairvalue model and disclosed financial revenuesof the valuation in the amount of € 1,281,276.Due to the damaged caused on the aircraft –push of the S5 AAN the Company recordedcompensation in the amount of € 239,909.6.2.8. ExpensesOther Expenses (EUR) 2009 2008Financial penalties and compensations 99,798 264,459Other Expenses 9,797 -Total 109,595 264,4596.2.9. Income TaxIn 2009, the Company does not haveobligations arising from the tax on incomeof legal persons due to the tax loss. Theuncovered tax loss amounts to € 24,622,602and there is no time limit for its use. Due to theprecautionary principle we did not recognizetax assets. On the other hand, we also did notrecognize deferred tax liabilities arising fromthe revaluation of buildings.(EUR) 2009 2008Pre-tax profit or loss -13,991,691 -3,240,977Expenses not recognised as expenditure 472,358 816,783Allowances for inventories and receivables 96,518 18,735Provisions formation 22,193 30,243Non-taxed revenues -172,505 -41,535Tax relieves - -Tax losses - -Other -3,191,615 -44,721Total -16,764,742 -2,461,472Income tax (21%) - -Adria Airways / Annual Report 2009 / Financial Statements 109

6.2.10. Net Profit or LossNet Profit or Loss (EUR) 2009 2008Net profit or loss of the period -13,991,691 -3,240,977Weighted average number of ordinary shares 913,377 812,436Net profit/loss per share -15.32 -3.99In 2009, the Company generated a net loss of €12,205,669, which is primarily the result of thedrop in demand in 2009.The Company reports a financial loss of€ 3,340,978, which is lower than the financialloss in 2008. This is primarily due to the decreasein key interest rates for the financial liabilities.The result is a net loss in the amount of€ 13,991,691.(EUR)Consumer priceindex in 2009Consumer priceindex in 2008Change in % 1.8% 2.10%General revaluation adjustment 501,848 650,385Profit or loss after the revaluation to preserve the purchasingpower of the equity-14,493,539 -3,891,362If equity was restated by the consumer priceindex, the result achieved by Adria Airways d.d.in the 2009 financial year would be lower by€ 501,848.110

Transactions with Major ShareholdersOverview of transactions with affiliated persons – the major owners in 2009Title of affiliated personPDP Posebna družba zapodjetniško svetovanje, d.d.KADKapitalska družba pokojninskegain invalidskega zavarovanja, d.d.NLBNova ljubljanska banka, d.d.Turnover of thecurrent yearBalance at31 Dec. .2009- -10,140Type of transactionreceivables (revenues fromthe sale of air tickets)2,344,738 - capital injection182,982 9,479receivables (revenues fromthe sale of air tickets)142,313 759liabilities (bank commissionfor payment transactions)2,226,941 - interests arising from received loans7,700,000 57,437,734 received loans-9,105,475 - payment of principals1,701,045 - received guarantees7. Ot h e rDi s c l o s u r e s7.1. Information onGroups of Persons• Transactions withMajor Shareholders• Remuneration of theSupervisory BoardMembers of AdriaAirways d.d.• Remuneration of theManagement BoardMembersRemuneration of the Supervisory Board Members of Adria Airways d.d.(EUR)MeetingfeesOtherremuneration– dailyallowancesTotalGrabeljšek Anton – member of the SB until 12 July 2009 1,782 0 1,782Znoj Bogdan – vice president of the SB until 12 July 2009 1,518 0 1,518Vehar Aleš – member of the SB until 12 July 2009 1,782 0 1,782Grošelj Branko Franc – president of the SB until 12 July 2009 2,976 0 2,976dr. Tajnikar Maks – president of the SB from 13 July 2009 1,716 0 1,716dr. Magister Tone – member of the SB from 13 July 2009 1,320 0 1,320Gorjup Ivan – member of the SB until 13 July 2009 660 0 660Klemen Primož – member of the SB from 13 July 2009 1,320 0 1,320Pečnik Tomaž – member of the SB from 18 June 2008,vice president of the SB from 13 July 20093,102 0 3,102Demšar Urban – member of the SB from 18 June 2008 2,772 365 3,137Total 18,948 365 19,313Remuneration of the Management Board Members'EUR)Fixed part of theremunerationRecoveryof costsOtherremunerationand bonusesTotalTufek Tadej, M.Sc. 149,996 2,043 9,548 161,587Ravnikar Marjan, M.Sc. 146,608 2,146 9,859 158,614Total 296,604 4,190 19,408 320,201Other remuneration and bonuses include theholiday bonus, food allowance and bonuses forinsurance premiums and the use of companyvehicles.The total remuneration paid in 2009 to employeesaccording to individual contracts, for which thetariff schedule of the general collective contract(excluded the Management Board members) isnot used, amounts to € 2,446,832.As of 31 December 2009 the Company has noreceivables or liabilities to the members of theSupervisory Board.On 31 December 2009 the Company has noreceivables or liabilities to the members of theSupervisory Board, except the liabilities for the wagesfrom December that were paid in January 2010.Adria Airways / Annual Report 2009 / Financial Statements 111

8. Ev e n t s a f t e rt h e Ba l a n c eSh e e t Da t eAfter the report date there are no events that would significantly impact the disclosed statementsfor 2009.9. Fi n a n c i a lSt a t e m e n t s− Ex p a n d e dFo r m a t9.1. Balance Sheet –Expanded Formatunder SAS9.2 Income Statement- Expanded Formatunder SAS9.1. Balance Sheet – Expanded Format under SAS(EUR) 31.12.2009 31.12.2008ASSETS 147,061,431 151,341,079A/ LONG-TERM ASSETS 120,177,037 123,597,522I. Intangible assets and long-term deferred costs: 3,276,705 3,544,7881. Long-term property right 613,644 934,8925. Other long-term deferred costs 2,663,061 2,609,896II. Property, plant and equipment 112,004,791 118,327,8041. Land and buildings: 17,436,483 6,685,436a) Land 487,183 487,183b) Buildings 16,949,300 6,198,2532. Production equipment and machines 92,120,732 108,489,0943. Other plant and equipment 1,894,006 1,777,8704. Property, plant and equipment being acquired: 553,570 1,375,404a) Property, plant and equipment under construction 169,974 1,127,142b) Advances for acquisition of property, plant and equipment 383,596 248,262III. Investment property 3,244,541 216,742IV. Long-term financial investments 943,454 968,4331. Long-term financial investments, excluding loans: 836,384 841,750a) Shares and interests in group companies 793,332 793,332b) Shares and interests in associates 400 400c) Other shares and interests 42,652 48,0182. Long-term loans: 107,070 126,683b) Long-term loans to others 107,070 126,683V. Long-term operating receivables 707,546 539,7553. Long-term operating receivables due from others 707,546 539,755VI. Deferred receivables from tax - -B/ SHORT-TERM ASSETS 24,234,938 26,539,621I. Assets (disposal groups) held for sale - 70,401II. Inventories 6,925,789 7,468,6901. Material 6,925,789 7,468,690III. Short-term financial investments 147,170 867,4671. Short-term financial investments, excluding loans - 720,175c) Other short-term financial investments - 720,1752. Short-term loans: 147,170 147,292b) Short-term loans to others 147,170 147,292IV. Short-term operating receivables 16,499,833 16,943,2951. Short-term operating receivables due from group companies - 6,1062. Short-term operating trade receivables 9,482,550 11,180,8413. Short-term operating receivables due from others 7,017,283 5,756,348V. Cash 662,146 1,189,768C/ SHORT-TERM DEFERRED COSTS AND ACCRUED REVENUE 2,649,456 1,203,936Off-balance sheet assets 117,211,412 111,973,018112

Publisher: Adria Airways, Slovenski letalski prevoznik d.d. / The Airline of Slovenia d.d.AD & CD, realization: IMAGO, marketinška agencija / marketing agencyPhoto: Adria Airways archivesTranslation: Almudena, Mojca Žnidarič s.p.Print: Design studio, junij 2010Adria Airways / Annual Report 2009 / Financial Statements 115

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