FINANCIAL INFORMATION 2019

THE REPORT OF THE BOARD OF DIRECTORS

When I look back at 2019, which was my first year at Finnair, what stands out the most are our fantastic and highly committed personnel, and Finnair's rapid growth. We set a new record of 14.7 million passengers and we opened new and interesting routes.

The foundation for our success and good customer experience lies in our highly competent personnel, and we had a strong focus on the development of their wellbeing and skills. The Finnair team also grew during the year, as we hired approximately 1,000 new employees. An excellent employee experience is directly reflected in our customer satisfaction, which developed favourably last year. Our goal is to maintain this trend in the years to come.

Due to the uncertain environment, 2019 was a volatile year for us, but it ended with a strong quarter as the market situation improved. Capacity growth of 11.3 per cent in passenger traffic and an increase of 10.3 per cent in passenger volume led to 9.2 per cent growth in revenue. Our revenue for the year amounted to 3.1 billion euros, compared to 2.8 billion euros in 2018. Our comparable operating result for the full year was 162.8 million euros.

The new A350 aircraft introduced in early 2019 increased our capacity, and we added flights to our Asian traffic, especially to strategically important destinations such as Osaka and Hong Kong. The new routes that opened in the Asian network included Beijing Daxing and Sapporo, which was introduced late in the year. In addition, we opened a new route to Los Angeles and several new routes to Europe. We also made decisions on new long-haul routes to be introduced in 2020: in the summer, we will start flying to Busan, the second-largest city in South Korea, and in the spring, we will introduce a route to Tokyo Haneda, which offers a faster connection to central Tokyo compared to Narita Airport.

Towards the end of the year, Helsinki-Vantaa airport became the biggest Nordic hub for intercontinental flights as a result of determined work within the last few years. This is notable especially when taking into consideration the ongoing airport extension project. Excellent collaboration between Finnair and Finavia has enabled this growth.

In November 2019, we announced our updated strategy for 2020–2025, and we have now moved into a new phase of

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"YEAR 2019 ENDED WITH A STRONG QUARTER AS THE MARKET SITUATION IMPROVED."

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sustainable, profitable growth. With our new strategy, the aim is growth in line with Asian markets. A central objective for sustainable profitable growth is to grow cost-effectively, allowing us to maintain our healthy balance sheet and cash flow, while carrying out significant investments of approximately 3.5–4.0 billion euros to substantially reduce our emissions and enable profitable growth. Above all, these investments are aimed at the renewal of our narrow-body fleet to make it more fuel-efficient, economic and environmentally friendly.

Our aim is to be a modern premium airline, and our new strategy also includes investments in a Premium Economy travel class. Combined with our growing service selection and the different pricing tiers of our travel classes, the introduction of Premium Economy will allow our customers to customise their journeys in more diverse ways than before. At Finnair, we invest heavily in developing digital services which enable a smooth travel experience and allow customers to tailor the way they want to travel.

Investing in the customer experience has played a central role in our operations and will continue to do so. Finnair's Net Promoter Score of 38 compares well with the peer group of airlines. In the annual Skytrax survey, customers chose Finnair as the best airline in the Nordic region for the tenth consecutive time.

Our home market of Finland – and especially Lapland - has also emerged as an attractive travel destination thanks to the determined cooperative efforts of various parties, and we believe that Finland as well as the Nordics will also attract passengers in the future. This is important for the local economy: tourism has become a prominent employer in the Nordic region and air travel an enabler of new businesses.

Last year was strongly characterised by increased consciousness and public discussion concerning climate change, which also appeared as a major item on the political agenda. At Finnair, I can say that sustainability and endeavouring to reduce emissions are at the heart of our strategy. We have committed ourselves to long-term carbon neutrality.

"OUR AIM IS TO BE A MODERN PREMIUM AIRLINE."

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As aviation undoubtedly has a positive economic impact, we need solutions to significantly decrease emissions despite increased flying in the future. As an optimist, I am confident that the need for change will create the required solutions: new technologies and new practices.

Finnair actively participates in mapping those solutions and takes daily actions to cut emissions. A good example of this is the company-wide fuel efficiency programme that was initiated last year. In addition, we see significant long-term opportunities in new technologies such as new fuels and electric aircraft.

We also recognise that emissions tariffs and compensation schemes, such as Europe's emissions trading system EU ETS, and its global equivalent the CORSIA emissions reduction scheme, play a role in the fight against climate change. At the same time,

we believe that the actions of individual passengers are significant, which is why we have taken steps to provide more information on the factors which affect fuel consumption, and which every passenger can influence.

The reduction of emissions is often the most visible aspect of the airlines' sustainability efforts, but social and economic responsibility also play a significant role in our operations. We have been committed to the UN Global Compact initiative since 2013. It serves as our guideline as we develop our operations in accordance with the 10 basic principles of the Global Compact. We plan and evaluate everything we do through the lens of sustainability.

More information on our sustainability targets is provided elsewhere in this report, and in the sustainability plan which we aim to launch soon.

WE ARE CONTINUOUSLY LOOKING FOR NEW WAYS TO REDUCE EMISSIONS.

During my first year as the CEO, I have been pleased to see how passionate our customers and employees are about Finnair. This provides an ideal foundation for the implementation of our new strategy. I want to take this opportunity to thank our shareholders and customers for their trust in Finnair, and I am also grateful to everyone at Finnair for their strong commitment and hard work in 2019.

Topi Manner President and CEO of Finnair Plc

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7 Business model and operational environment
9 Financial performance in 2019
13 Financial position and capital expenditure
15 Fleet
16 Strategy
19 Sustainable Finnair Reporting of Non-Financial Information
29 Changes in company management
30 Shares and shareholders
34 Finnair's risk management principles
36 Significant near-term risks and uncertainties
37 Seasonal variation and sensitivities in business operations
39 Outlook
40 Calculation of key ratios
42 Restated 2018 key figures

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MEGATRENDS IMPACTING FINNAIR'S BUSINESS

BUSINESS MODEL AND OPERATIONAL ENVIRONMENT

Finnair is a network airline that specialises in passenger and cargo traffic between Asia and Europe. It also offers package tours under its Aurinkomatkat-Suntours (later Aurinkomatkat) and Finnair Holidays brands. The cornerstone of Finnair's strategy is Finnair's competitive geographical advantage, which enables the fastest connections in the growing market of air traffic between Asia and Europe.

Finnair's business is impacted by the four megatrends listed on the right. They offer numerous opportunities, but also add new requirements for conducting business.

Finnair's business is cyclical in nature, and in addition to long-term megatrends, it is heavily influenced by external factors described in the picture on the next page.

Business environment in 2019

The continuing impact of global uncertainties, such as Brexit and the US-China trade war, was reflected in our operations in 2019, particularly affecting cargo. Traffic grew at a slower pace than in the comparison period between Asia and Europe, whereas Finnair's main markets still produced solid demand growth in 2019.

Competitors' capacity reductions, especially on some Nordic routes and from Finland to the Mediterranean, had a beneficial effect on the competitive situation in European traffic. Measured in available seat kilometres, scheduled market capacity between origin Helsinki and Finnair's European destinations increased by only 2.9 per cent (13.5). Demand developed well in Asia-Europe transfer traffic and in intra-European and point-to-point traffic. In European traffic, Finnair's market share increased to 60.0 per cent (56.9).1

Direct market capacity between Finnair's Asian and European destinations grew by 4.5 per cent (8.9) year-on-year. Finnair's capacity growth was focused on Hong Kong and on Japanese routes. Demand from Europe to Asian destinations, especially to Hong Kong, softened during the period. In Asian traffic, Finnair's market share increased to 6.0 per cent (5.9).1

Finnair engages in closer cooperation with certain oneworld partners through participation in joint businesses, namely the Siberian Joint Business (SJB) on flights between Europe and Japan, and the Atlantic Joint Businesses (AJB) on flights between Europe and North America. Joint busiUrbanisation

Technological progress, increase in the signifi cance of network connections and digitalisation

Increasing significance of sustainability

¹ Based on external sources (capacity data from SRS Analyser and market share data based on DDS passenger volume estimates for January-November). The basis for calculation is Finnair's non-seasonal destinations.

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EXTERNAL FACTORS INFLUENCING AIRLINES

nesses strengthen Finnair's market position, reduce the risks related to growth and make a significant contribution to Finnair's revenue. For customers, they provide more route and pricing options whereas for airlines, joint businesses are a way to gain benefits typically associated with consolidation. In both joint businesses, revenue growth was close to capacity growth in 2019, resulting in good development within the joint business traffic.

In Finland, customer demand for travel services improved from the previous year, when exceptionally warm weather weakened demand. However, the competitive environment for tour operators operating in Finland remained challenging due to high market capacity. The business environment was challenging also internationally, as illustrated by the bankruptcy of tour operator Thomas Cook in September 2019. Despite the recent global market developments, the demand for packaged holidays in Finland remained stable and Aurinkomatkat improved its position as the largest tour operator in Finland measured by both the number of customers and by revenue.

was visible particularly in Finnair's key cargo markets in Asia. Finnair's global cargo volumes continued to grow year-on-year driven by the capacity increase, but the load factor decreased.

The US dollar, which is the most significant expense currency for Finnair after the euro, appreciated by 5.2 per cent against

euro. The market price of jet fuel was 7.8 per cent lower in 2019 than in the comparison period, but this decline does not fully impact Finnair's 2019 fuel costs due to its hedging policy. Finnair hedges its fuel purchases and key foreign currency items; hence, market fluctuations are not reflected directly in its result. Finnair's 2019 fuel bill was approximately 18 per cent higher than in the comparison period.

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FINANCIAL PERFORMANCE IN 2019

Revenue in 2019

Finnair revenue grew by 9.2 per cent to 3,097.7 million euros (2,836.1). Passenger revenue grew by 10.4 per cent, ancillary revenue by 9.5 per cent, cargo revenue by 2.4 per cent and travel services revenue by 3.1 per cent.

Unit revenue (RASK) decreased by 1.9 per cent and amounted to 6.56 euro cents (6.69). The unit revenue at constant currency decreased by 2.4 per cent.

Passenger traffic

Passenger traffic capacity, measured in Available Seat Kilometres (ASK), grew by 11.3 per cent overall against the comparison period. The number of passengers increased by 10.3 per cent to 14,650,400 passengers, a new annual record. Traffic measured in Revenue Passenger Kilometres (RPK) grew by

11.2 per cent and the Passenger Load Factor (PLF) decreased by 0.1 percentage points to 81.7 per cent.

In long-haul traffic, capacity increased yearon-year following the two new A350 aircraft that entered service after the comparison period. The maximum weekly number of flights to Asia in the winter season 2019/20 is 104 (101 in 2018/19) and in summer season 2019 it was 104 (97). In Asian traffic, ASKs increased by 10.7 per cent. The capacity growth was allocated especially to additional flights to Hong Kong and to Japanese destinations as well as to a new yearround destination, Nanjing. In total Asian traffic, RPKs increased by 7.4 per cent and the PLF decreased by 2.6 percentage points to 82.9 per cent.

Capacity on the North Atlantic traffic increased by 29.7 per cent year-on-year,

Revenue

Revenue by product

Ancillary revenue

Travel services

Number of passengers

Revenue bridge by product

€ million

Revenue by product

EUR million	2019	2018	Change %
Passenger revenue	2,479.8	2,245.4	10.4
Ancillary revenue	176.2	160.8	9.5
Cargo	212.1	207.2	2.4
Travel services	229.5	222.6	3.1
Total	3,097.7	2,836.1	9.2

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and additional capacity was directed in particular to a new route to Los Angeles which was opened at the end of March, and additional frequencies to San Francisco and Chicago. RPKs increased by 32.1 per cent and the PLF increased by 1.5 percentage points to 85.3 per cent.

In European traffic, capacity increased primarily due to the additional seats that were installed on some of the existing Airbus narrow-body aircraft. ASKs grew by 9.8 per cent. The new capacity was allocated to the longer southern European routes, capacity additions to central European destinations, and to the UK and the opening of new destinations such as Bordeaux and Bologna. In addition, the increased use of wet leases and operating certain routes with widebodies for cargo purposes further

uled cargo tonne kilometres increased by 15.0 per cent, whereas revenue scheduled cargo tonne kilometres increased by 10.6 per cent. The cargo revenue increased by 2.4 per cent, amounting to 212.1 million euros (207.2).

Travel services

The total number of travel services passengers grew by 8.1 per cent. The load factor in Aurinkomatkat's fixed seat allotment was 94.3 per cent (93.6). The largest passenger growth came from the growth of Finnair Holidays and Aurinkomatkat city holidays. Travel Services revenue increased by only 3.1 per cent to 229.5 million euros (222.6), and it was driven by weak H1 performance. Also in 2019, Aurinkomatkat was the largest tour operator in Finland measured by both the number of customers and by revenue.

increased ASKs. RPKs increased by 13.0 per cent and the PLF was up by 2.3 percentage points to 80.9 per cent. Domestic traffic capacity increased by 1.2 per cent. Also, RPKs were up by 2.6 per cent and the PLF increased by 0.9 percentage points to 65.6 per cent.

Ancillary

Ancillary revenue increased by 9.5 per cent and amounted to 176.2 million euros (160.8), or 12.03 euros per passenger (12.11). Advance seat reservations, service charges, inflight sales and excess baggage were the largest ancillary categories.

Cargo

Similarly to passenger traffic, cargo's growth was especially related to Tokyo and Hong Kong routes. Available sched-

Passenger revenue and traffic data by area, 2019
Passenger revenue		ASK		RPK		PLF
Traffic area	MEUR	Change, %	Mill. km	Change, %	Mill. km	Change, %	%	Change, %-p
Asia	1,083.6	8.4	23,303.6	10.7	19,329.0	7.4	82.9	-2.6
North Atlantic	179.1	30.3	4,068.4	29.7	3,470.4	32.1	85.3	1.5
Europe	997.9	11.1	17,893.4	9.8	14,472.4	13.0	80.9	2.3
Domestic	181.4	1.9	1,922.8	1.2	1,261.8	2.6	65.6	0.9
Unallocated	37.8	16.6
Total	2,479.8	10.4	47,188.1	11.3	38,533.6	11.2	81.7	-0.1

Revenue by traffic area
-------------------------	--	--	--

Revenue bridge by traffic area

Available seat kilometres (ASK) and revenue

passenger kilometres (RPK)

Available seat kilometres (ASK) Revenue passenger kilometres (RPK)

Available seat kilometres (ASK), %

Revenue passenger kilometres (RPK), %

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Cost development in 2019

Finnair's operating expenses increased by 11.1 per cent to 2,991.3 million euros (2,691.4). Unit cost (CASK) increased by 0.7 per cent and totalled 6.22 euro cents (6.18). CASK excluding fuel at constant currency decreased by 1.2 per cent.

Operating expenses excluding fuel increased by 9.2 per cent and amounted to 2,304.0 million euros (2,110.4). Fuel costs, including hedging results and emissions trading costs, increased by 18.3 per cent to 687.3 million euros (581.0). Of this cost increase, 42 million euro is due to the increase in fuel price2 paid and Finnair's capacity growth explains the remainder. Fuel efficiency (as measured by fuel consumption per ASK) improved by 1.4 per cent. Fuel consumption per RTK, which also accounts for developments in both passenger and cargo load factors, improved by 0.8 per cent.

As of 1 January 2019, staff costs include all staff-related costs, whereas earlier staff travel costs and training, for example, were presented in other costs. Staff costs increased by 7.0 per cent to 534.7 million

euros (499.6). Staff costs grew with the increase in the average number of people employed by 6.5 per cent and capacity growth (affecting volume related travel costs) as well as the cancellation of the pilots' long-term incentive scheme in Q4 2018 but was netted by lower volumes of entering flight crew that impacted training costs.

Passenger and handling costs increased by 8.3 per cent to 476.7 million (440.3), driven by increased volumes in both passenger and cargo traffic. The category also includes tour operation expenses. In its September 2019 meeting, the IFRS interpretation committee (IFRIC) concluded that customer (passenger) compensations related to delayed or cancelled flights need to be treated as deductions from revenue instead of passenger and handling costs. Due to this, Finnair has made a decision to apply the change retrospectively for quarterly and full-year figures for 2018 and 2019 in order for the years to be comparable.

Fleet growth, annual price escalations and exceptional maintenance events increased aircraft materials and overhaul costs by 23.5 488.3 million euros (512.6). The compa- ²

per cent to 201.2 million euros (162.9). Fleet growth also increased depreciation and impairment costs. Traffic charges increased due to traffic growth and contractual price escalations. Increase in capacity rents, covering purchased traffic from Norra and any wet leases or cargo rents, was mainly driven by higher utilisation of wet leases related to regional fleet's upgrade program. Property, IT and other expenses were at the comparison period's level.

Result in 2019

Finnair's comparable EBITDA was

Fuel price including impact of currencies and hedging.

Operational expenses

Staff costs, change 7% Fuel costs, change 18% Capacity rents, change 6% Aircraft materials and overhaul, change 24% Traffic charges, change 10%

Sales, marketing and distribution costs, change 8%

Passenger and handling services, change 8%
Depreciation and impairment, change 11%
Property, IT and other expenses, change 1%

rable operating result, or operating result excluding changes in the value of foreign currency-denominated fleet maintenance reserves, changes in the fair value of derivatives, capital gains and other items affecting comparability, decreased to 162.8 million euros (218.4). Comparable EBIT margin was 5.3 per cent (7.7), when the targeted over the cycle level was above 6 per cent in 2019. Unrealised changes in foreign currencies of fleet overhaul provisions were -1.4 million euros (-4.9) and fair value changes of deriv-

atives where hedge accounting is not applied totalled 1.3 million euros (0.2).

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Items affecting comparability (sales gains or losses or restructuring costs) totalled -2.8 million euros during the period (42.6). The operating result totalled 160.0 million euros (256.3).

Financial expenses were -83.6 million euros (-84.6) and they also include interest expenses related to lease liabilities. In 2019, the foreign exchange impact was a gain of 12.7 million euros and it was mainly associated with USD-denominated aircraft lease payments and liabilities, whereas in the comparison period, a foreign exchange loss of -42.3 million euros was almost entirely related to unhedged lease liabilities.

Finnair's result before taxes was 93.0 million euros (127.2) and the result after taxes was 74.5 million euros (101.6).

Key figures – Revenue and profitability		2019	2018	2017	2016	2015
Revenue*	EUR mill.	3,097.7	2,836.1	2,568.4	2,316.8	2,254.5
change from previous year	%	9.2	10.4	10.9	2.8	-1.3
Comparable operating result	EUR mill.	162.8	218.4	170.4	55.2	23.7
Comparable operating result of revenue	%	5.3	7.7	6.6	2.4	1.1
Operating result	EUR mill.	160.0	256.3	224.8	116.2	121.7
Comparable EBITDA of revenue	%	15.8	18.1	17.0	11.7	10.3
Basic and diluted earnings per share (EPS)	EUR	0.49	0.70	1.23	0.55	0.57
Unit revenue per available seat kilometre (RASK)	cents/ASK	6.56	6.69	6.96	6.83	7.08
RASK at constant currency	cents/ASK	6.53	6.69	6.98	6.88	6.90
Unit revenue per revenue passenger kilometre (yield)	cents/RPK	6.44	6.48	6.57	6.71	6.90
Unit cost per available seat kilometre (CASK)	cents/ASK	6.22	6.18	6.49	6.67	7.01
CASK excluding fuel	cents/ASK	4.76	4.81	5.22	5.22	5.14
CASK excluding fuel at constant	cents/ASK	4.75	4.81	5.24	5.15	4.99

Comparable operating result of revenue


Basic and diluted earnings per share (EPS)
Unit revenue per available seat kilometre (RASK)

Unit revenue per revenue passenger kilometre (yield)
Unit cost per available seat kilometre (CASK)

CASK excluding fuel at constant currency

* Revenue from non-core businesses, is reclassified from revenue to other operating income from 2015 onwards

Comparable operating result*

Operating result

Comparable operating result*, % of revenue

Financial target: comparable operating result 6% or more over the cycle. The target level has been raised to over 7.5% over the cycle for the 2020–2025 strategy period.

* Comparable operating result excluding changes in the fair values of derivatives and in the value of foreign currency denominated fleet maintenance reserves sales gains and losses on aircraft and other transactions and restructuring costs.

Comparable operating result and operating result

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FINANCIAL POSITION AND CAPITAL EXPENDITURE

Balance sheet

The Group's balance sheet totalled 3,877.9 million euros at the end of December (3,943.6). Advance payments related to A350 aircraft and the purchases of two A350 aircraft increased the fleet by 213.1 million euros during the year, and the right-of-use fleet decreased by 97.9 million euros, mainly due to depreciation. Receivables related to revenue increased, driven by the normal seasonality of the business, to 160.6 million euros (152.4).

The profit for the period increased shareholders' equity, whereas the payment of dividends in early April had the opposite effect. The increase in the fair value of jet fuel used in hedge accounting had a strengthening effect on equity due to the increase in the jet fuel price. Shareholders' equity totalled 966.4 million euros (918.5), or 7.57 euros per share (7.20).

Shareholders' equity includes a fair value reserve that is affected by changes in the fair values of jet fuel and currency derivatives used for hedging, as well as actuarial gains and losses related to pilots' defined benefit plans according to IAS 19. The value of the item at the end of December was -6.7 million euros after deferred taxes (-27.2).

Cash flow and financial position

Finnair has a strong financial position, which supports its business development and future investments. Following the adoption of IFRS 16, repayments of lease liabilities were moved from operating cash flow to financing cash flow as of 1 January 2019.

In 2019, net cash flow from operating activities amounted to 564.5 million euros (503.6). Net cash flow from investments amounted to -513.2 million euros (-202.6).

The equity ratio on 31 December 2019 stood at 24.9 per cent (23.3) and gearing was 64.3 per cent (76.9). Interest-bearing liabilities amounted to 1,573.7 million euros (1,779.8), of which the share of lease liabilities amounted to 1,054.0 million euros (1,159.3). Interest-bearing net debt was 621.0 million euros (706.7).

The company's liquidity was strong during 2019. The Group's cash funds at year-end amounted to 952.7 million euros (1,073.1). During the year, Finnair refinanced its unused 175 million euro unsecured syndicated revolving credit facility, with the same size and terms substantially in line with the previous facility. The new facility has a maturity date in January 2022, and it includes two one-year extension options.

Finnair has a 200 million euro shortterm commercial paper program, which was unused at the end of December. Net cash flow from financing amounted to

-225.4 million euros (-289.2). Financial income was 4.8 million euros (-2.2), while financial expenses were -83.6 million euros (-84.6).

Capital expenditure

Capital expenditure excluding advance payments totalled 443.8 million euros (474.0) and was primarily related to fleet investments. Cash flow from investments totalled -478.2 million euros (-335.7), including advance payments.

Key figures – Capital structure		2019	2018	2017	2016	2015
Equity ratio	%	24.9	23.3	35.2	33.9	35.5
Gearing	%	64.3	76.9	24.2	11.2	49.8
Interest-bearing net debt	EUR mill.	621.0	706.7	246.0	95.8	362.0
Interest-bearing net debt / Comparable EBITDA, LTM		1.3	1.4	1.6	2.5	1.4
Gross capital expenditure	EUR mill.	443.8	474.0	519.0	518.9	329.7
Return on capital employed (ROCE)	%	6.3	9.3	13.6	8.9	12.2

Gearing

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investments as well as estimates for planned, but not yet committed, investments.

The current favourable state of the credit markets and Finnair's good debt capacity support the financing of future fixed-asset investments on competitive terms. The company has 41 unencumbered aircraft, which account for approximately 52 per cent of the balance sheet value of the entire fleet of 2,269.7 million euros.3

Cash flow from divestments totalled 1.3 million (213.8). Net change in financial assets maturing after more than three months totalled -53.4 million (-81.8). Net cash flow from investments amounted to -513.2 million euros (-202.6).

Cash flow from investments for the financial year 2020 relates mainly to the fleet and is expected to total approximately 432 million euros, including advance payments. Investment cash flow includes both committed

Dividend policy and the Board's proposal for the distribution of profit

The aim of Finnair's dividend policy is to pay, on average, at least one-third of the earnings per share as a dividend over an economic cycle. The aim is to take into account the company's earnings trend and outlook, financial situation and capital needs in the distribution of dividends. In 2019, earnings per share were 0.49 euros (0.70).

3 Fleet value includes right of use assets as well as prepayments of future aircraft deliveries.

15 10 5

or more. The target level has been raised to over 10% over the cycle for the 2020–2025 strategy period.

Return on capital employed (ROCE)

Cash flow of investments and net cash flow from operations

Investment cash flow*
Net cash flow from operations

* Including investments and divestments of fixed assets and group shares.

Equity ratio Gearing

Financial target: Gearing not more than 175%

Equity ratio and gearing

Finnair Plc's distributable equity amounted to 434,179,503.56 euros on 31 December 2019. The Board of Directors proposes to the Annual General Meeting that a dividend of 0.20 euros per share be distributed for 2019.

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Finnair's operating fleet

Finnair's fleet is managed by Finnair Aircraft Finance Oy, a wholly owned subsidiary of Finnair. At the end of December, Finnair itself operated 59 aircraft, of which 22 were wide-body and 37 narrow-body aircraft. Of these aircraft, 32 were owned by Finnair Aircraft Finance Oy and 27 were leased.

At the end of the year, the average age of the fleet operated by Finnair was 10.3 years.

Fleet renewal

At the end of the year, Finnair operated fourteen A350 XWB aircraft, which have been delivered between 2015–2019. According to the current delivery schedule, Finnair will receive the remaining five A350 XWB aircraft as follows: two in H1 2020, two in 2021 and one in 2022. Finnair's investment commitments for property, plant and equipment, totalling 730 million euros, include the upcoming investments in the wide-body fleet.

Finnair will initiate a narrow-body fleet renewal within the strategy period extending to 2025.

Furthermore, in autumn 2018, Finnair announced that it is, as a part of its normal fleet maintenance operations, preparing for a gradual cabin renewal in its current long-haul fleet. This renewal is expected to amount to approximately 200 million euros and focus on the years 2020 and 2021. At the same time, Finnair announced that it will introduce a new Premium Economy cabin class for its long-haul fleet. This has been elaborated in more detail under the Strategy. FLEET Fleet operated by

Finnair has the possibility to adjust the size of its fleet in line with demand forecasts through the staggered maturities of its lease agreements and changes in the number of owned aircraft.

Fleet operated by Norra (purchased traffic) Nordic Regional Airlines (Norra) operates a fleet of 24 aircraft for Finnair on a contract flying basis. All of the aircraft operated by Norra are leased from Finnair Aircraft Finance Oy.

Finnair* 31.12.2019	Seats	#	Change from 31.12.2018	Own**	Leased	Average age 31.12.2019	Ordered
Narrow-body fleet
Airbus A319	144	8		7	1	18.6
Airbus A320	174	10		8	2	17.4
Airbus A321	209	19		4	15	8.6
Wide-body fleet
Airbus A330	289/263	8		4	4	10.2
Airbus A350	297/336	14	2	9	5	2.8	5
Total		59	2	32	27	10.3	5
* Finnair's Air Operator Certificate (AOC).

** Includes JOLCO-financed (Japanese Operating Lease with Call Option) A350 aircraft.

Fleet operated by Norra* 31.12.2019	Seats	#	Change from 31.12.2018	Own**	Leased	Average age 31.12.2019
ATR	68–72	12		6	6	10.4
Embraer E190	100	12		9	3	11.5
Total		24	0	15	9	11.0
* Nordic Regional Airlines Oy's Air Operator Certificate (AOC).

"AT THE END OF 2019, FINNAIR OPERATED FOURTEEN A350 XWB AIRCRAFT."

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After the accelerated growth phase, Finnair is now targeting sustainable, profitable growth. Due to the updated strategy for the period of 2020–2025 introduced in November 2019, it will implement its strategy in five focus areas, namely: Network and fleet, Operational excellence, Modern premium airline, Sustainability as well as Culture and ways of working.

The foundation for the strategy is in the high quality and safety of Finnair's operations, Helsinki's favourable geographic position, growing focus markets, clear goals to increase revenue, modern fuel-efficient fleet as well as a strong balance sheet.

Finnair's Board of Directors has defined the following targets for the 2020–2025 strategy period:

Comparable EBIT of over 7.5% over the cycle (at constant fuel and currency), after a 12–18-month build-up period
ROCE of over 10% over the cycle (at constant fuel and currency), after a 12–18-month build-up period
On-time-performance of over 85%
Improved Net Promoter Score and improved employee Net promoter score

Finnair aims to deliver these targets through a focused strategy that leverages the geographical advantage of Finnair's hub in connecting Europe and Asia.

Additional guidance for the 2020–2025 strategy period includes the following indic-

ative items:

• Capacity growth, measured in Available Seat Kilometres (ASK) of 3–5% CAGR • Optimise liquidity, keeping cash-tosales ratio above 15% (31% as per • Gearing ratio 175% at maximum (64% as per 31 December 2019) • Assess renewal and downsizing of the

31 December 2019)
hybrid bond
Increase the share of owned aircraft vs. leased aircraft
Keep the dividend policy unchanged

Network and fleet

Based on the updated strategy, Finnair is targeting Asian market level growth focusing primarily on the most profitable Asian mega cities and transfer traffic. The expected annual capacity growth between 3–5% is in line with the anticipated market growth.

Transfer traffic brings half of Finnair's total revenue and two thirds of ticket sales. Three quarters of the transfer traffic is between Asia and Europe. It is anticipated that the growth will come from the transfer traffic in the future as well.

Finnair continues to leverage its home hub's unique geographical location and getting the maximum efficiencies out of it. Building a fourth bank of flights enables better utilisation of the aircraft as well as airport capacity and, thus, traffic growth will be mostly outside the main afternoon bank. As a result, the network and fleet will be further optimised, and aircraft investments will be made to improve the narrow-body to wide-body ratio enabling better utilisation of the whole fleet.

The indicative amount of investments is between 3.5 and 4.0 billion euros out of which two thirds will be into renewal and one third into growth. This includes all investments, including those committed of 730 million euros.

Operational excellence

Finnair is recognised as one of the safest airlines. The safety culture and efficiency as well as reliability and productivity of the operations continue to be at the core of the company's strategy. As a result, more effort will be put into technology, automation and utilising data as well as into working together cross-functionally.

Even though Finnair has reached its previous growth targets, productivity can be improved. The focus will be especially in fuel efficiency and on-time performance which have a great impact on both cost and productivity as well as customer experience.

STRATEGY

Number of persons employed by Finnair at year-end

FINNAIR INTRODUCED AN UPDATED STRATEGY FOR THE PERIOD OF 2020–2025.

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In terms of on-time performance and fuel efficiency, Finnair aims to develop from being in line with peers to being one of the leaders. See more on page 28.

Modern premium airline

Finnair aims to be defined as a modern, premium airline. This will be achieved by offering even more extensive destination and product portfolios as well as additional frequencies and by enabling a smooth travel experience. The extensive destination and product portfolios together with added frequencies cover different customer needs and ancillary products allow the customers to tailor the way they want to travel. Finnair will additionally continue to develop its distribution channels, Finnair.com and the travel agent channel.

The indicative investments of 3.5 to 4.0 billion euros during 2020–2025 also include the new long-haul travel class, Premium Economy, which will be installed in the whole long-haul fleet starting from Q4 2020. Located in its own cabin, the Premium Economy class will feature highly customized designs for Finnair and

provide customers with increased space and comfort along with an enhanced service offering. The rollout is expected to be completed by the end of 2022. Detailed planning of the cabin design and service concept as well as the commercial aspects will be communicated in 2020.

Sustainability

Sustainability is an essential part of Finnair and, thus, it is visible in everything done at

Finnair.

Finnair's long-term goal is carbon neutrality. In order to achieve this goal, Finnair will e.g. continue the biofuel flights it has operated since 2011, investigate the use of other sustainable aviation fuels, utilise recycling and reduce single-use plastic waste, take part in the voluntary and non-voluntary offsetting schemes and target significant operational improvements to secure more fuel-efficient flying.

The fleet-related investment is not only impacting the customer experience but is also a significant investment in more sustainable flying.

Finnair wants to be a frontrunner in sustainability and is, therefore, working on a sustainability program which will be presented in more detail during the first half of 2020.

Culture and ways of working

The updated strategy will be implemented by engaging the entire Finnair personnel and thus the strategy will be closely linked to their everyday work and targets. The strategy emphasises genuine collaboration, target-oriented leadership and utilising of new working methods such as lean and agile.

A genuine service culture resonates well with customers in the NPS scores, which is something Finnair wants to continue improving on during the strategy period. See more on page 28.

Finnair employed an average of 6,771 (6,360) people in 2019, which is 6.5 per cent more than in the corresponding period. The number of employees increased during 2019 by 326 or 5.0 per cent, totalling 6,788 at the end of December (6,462). Altogether 969 new people were hired at Finnair in

The increase in personnel was mostly due to growth in the number of Cabin Crew members, Aurinkomatkat Travel Guides as well as Helsinki Airport Gate Service Agents and Service Guides. The attrition rate for the last 12 months was 3.8 per cent (3.3). LTIF (Lost Time Incident Frequency), which measures the frequency of accidents at the company level, was 9.6 (11.7) in 2019, and the number of absences due to illness was slightly higher than in the comparison period and was 4.62 per cent (4.24).

Finnair values good cooperation with labour unions representing its various employee groups. During 2019, a new Collective Labour Agreement (CLA) was negotiated between Service Sector Employers Palta and Transport Workers' Union AKT representing Finnair's cabin crew in Finland. The Finnish Cabin Crew CLA will expire on 31 January 2022.

"SUSTAINABILITY IS VISIBLE IN EVERYTHING DONE AT FINNAIR."

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At the end of 2019, Finnair or Palta had CLAs to be renewed with:

Transport Workers' Union AKT, representing travel agencies and applicable to the Aurinkomatkat. CLA effective until 30 April 2021.
Finnish Airline Pilots' Association SLL. CLA effective until 31 March 2020.
Finnish Aviation Union (IAU), representing ground customer service, ground handling, cargo, technical services and Finnair Kitchen employees. CLA effective until 15 January 2020.
Trade Union Pro, representing upper technical workers. CLA effective until 31 January 2020.
Trade Union Pro, representing clerical workers. CLA effective until 31 January 2020.
FINTO, representing upper white-collar workers. CLA effective until 29 February 2020.

In addition, Finnair has ongoing CLA negotiations with the unions representing its Spanish Cabin Crew.

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As a network airline specialising in both passenger and cargo traffic between Asia and Europe, Finnair is well-positioned to benefit from market growth – but growth can only be justified if Finnair can create sustainable value for its various stakeholders.

The creation of value for Finnair's shareholders and other stakeholders is based on:

the company's ability to operate and grow its route network resource sustainably, efficiently and profitably,
the way it treats customers, employees and other stakeholders and gains their commitment to the company, and
the ability to take environmental, social and other external impacts on operations into consideration.

Finnair's corporate sustainability is reflected in its purpose, strategy, mission, vision and values of commitment to care, simplicity, courage and working together. Sustainability is integral to all Finnair operations, as stated in its strategy target; Sustainable, profitable growth.

The target of Finnair's sustainability strategy is to reduce the environmental impact and increase the financial and social return for society. The key areas of the strategy fall under the following themes: Environment, Social and Economic. Finnair is committed to complying with international and national legislation in its operations and the ethical business principles laid out in the Code of Conduct, as well as continuously developing its sustainability performance.

Finnair's value creation for shareholders and other stakeholders is illustrated on the

next page.

SUSTAINABLE FINNAIR – REPORTING OF NON-FINANCIAL INFORMATION

FINNAIR TARGETS SUSTAINABLE,

PROFITABLE GROWTH.

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Human capital

Personnel of 6,771, training hours 52.0/person, expertise

Financial

Adjusted interest-bearing debt €1,573.7 million, equity capital €966.4 million

Immaterial

Traffic rights, overflight rights customer data, quality certifications, route network, brand and customer base

Social and partnerships

Supplier and partners, joint businesses (AJB/SJB) and alliance cooperation, distribution channels, public affairs

Fleet and infrastructure

Modern and efficient fleet of 83 aircraft, COOL Nordic Cargo Terminal, Helsinki hub

Natural resources

Jet fuel use 1,132,219 tonnes, energy consumption of facilities 190,230 GJ, use of renewable fuels

VALUE CREATED / IMPACTS

STRATEGIC FIVE AREAS

Modern premium airline

Network and fleet

Operational excellence

Sustainability

Culture and ways of working

CODE OF CONDUCT

INPUTS / RESOURCES

Value creation

SAFETY

EFFICIENCY

Value for society

Flight connections for business and leisure travellers, GDP contribution, taxes, innovative and sustainable products

Value for shareholders

Market cap €753.4 million, return on capital employed (ROCE) 6.2%

Value for customers

The fastest connections between Europe and Asia, customer satisfaction NPS 38, safe and reliable operations

Value for personnel

Salaries and benefits €530.9 million, people experience 3.66/5

Environmental impacts

Greenhouse gas emissions 3,566,409 tonnes (jet fuel), noise and waste

Network

Over 130 destinations in Finnair's network and over 1,000 in oneworld network

Passenger transportation 14.7 million passengers,

ancillary services

Cargo transportation 173,282 tonnes

Travel services Package tours, dynamic travel products

PRODUCTS / OUTPUTS

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Finnair's sustainability approach

Finnair's sustainability strategy is grounded in its values; Commitment to Care, Courage, Simplicity, and Working together. The Finnair Code of Conduct and Finnair Supplier Code of Conduct lay the foundation of how the company conducts its business responsibly, in all areas. The values, Codes of Conduct and policies implemented thereunder set the standard for Finnair and its employees across the jurisdictions and environments in which the company operates.

The sustainability strategy is geared at preserving the license to operate from key stakeholders and contributing to the good reputation and long-term shareholder value of Finnair. It also helps protect Finnair from the downside risk that breaches of environmental regulations, climate change, human rights abuses or governance issues, such as corruption, can bring to a company.

The most significant environmental aspects are the combustion of fuel, aircraft noise, energy usage in corporate facilities and waste generation. The most important social responsibility areas concern safety,

personnel and customers, as well as ethical business conduct and responsible sourcing.

Finnair respects the UN Universal Declaration on Human Rights and the core conventions of the International Labour Organization (ILO). Finnair has also signed the United Nation's Global Compact initiative and as required by the Global Compact principles, the company aims to prevent any violations of human rights and the use of forced or child labour both within its own operations and its supply chain. Finnair has been reporting on its corporate responsibility pursuant to the GRI G4 reporting guidelines since 2015 and from 2018 have followed the GRI standard framework.

Environmental matters

Finnair's sustainability strategy as well as environmental and energy efficiency policy lays out the targets for environmental management. Finnair's environmental responsibility is managed with the company's environmental management system, which complies with IATA Environmental Assessment (IEnvA) program and ISO 14001:2015. Through the management system, Finnair has identified the most

significant environmental aspects, impacts and risks relevant to its operations. The system effectiveness is assessed by thirdparty auditors authorised by IATA.

Climate-related risk management

Finnair's risk assessment process takes place in close relation to the company strategy process and operational target setting to enable a holistic view of risks and opportunities. Finnair's business strategy is evaluated and revised annually based on a comprehensive operating environment analysis. Sustainability and climate change are considered especially in relation to the impact on financials and brand value. The sustainability of our product offering is also continuously evaluated to meet changing customer needs. A fuel efficient fleet, the shortest possible flight times, an optimised network, continuous improvement in efficient operating practices, participating in sustainable aviation fuel development and finding the most effective offsetting practices are at the core of Finnair's strategy.

The Board of Directors of Finnair Plc (BoD) sets the company's strategic direction and monitors the implementation of the

strategy regularly, at a minimum once a year, including sustainability and climate change-related economic impact initiatives. The CEO attends the BoD meetings and has the responsibility for managing the company's daily operations and ensuring that the BoD's directions are followed in implementing the strategy. The CEO chairs the company's Executive Board (EB) and acts as a link between the BoD and the company's operational management. As the CEO is responsible for the strategy, the CEO is also responsible for sustainable strategy and the climate-related issues. The EB reviews the sustainability strategy regularly and monitors and ensures the effectiveness of its implementation. Finnair has implemented a systematic Enterprise Risk Management (ERM) frame-

work and process, which is based on the COSO ERM framework. The process considers all potential risks, including climate change-related risks and evaluates their potential financial impacts. (Finnair's risk management is discussed under the heading Risk management of this report on page 34). Within the ERM framework and process, Finnair is following IEnvA Program

CLIMATE-RELATED IMPACTS HAVE BEEN ACKNOWLEDGED TO HAVE LEGAL, MARKET-BASED, TECHNOLOGICAL AND REPUTATION-BASED ECONOMICAL ASPECTS.

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(IATA environmental assessment program) requirements according to which all potential environmental risks and opportunities associated with environmental aspects, their impacts and likelihood, are evaluated.

The sufficiency of current risk management activities is reviewed and evaluated on a half-year basis. Further risk management activities required are discussed, planned, decided and implemented also on a halfyear basis. The risk management activities are the responsibility of the business units and common functions. Therefore, this risk management is integrated into business management and is performed on a continuous basis. In addition, the corporate function Risk Management & Compliance facilitates the systematic and regular top-down and bottom-up risk management processes to ensure a holistic understanding and management of climate-related risks. Risk Management & Compliance is also regularly monitoring the implementation status of climate-related risk management activities within different risk categories and reporting the summary status to the Board of Directors. This process has been implemented to ensure that all climate-related

risks are managed in an appropriate and sufficient way.

Opportunities and challenges Finnair has identified and assessed various short- (1–2 years) and mid-term (3–5 years) climate-related opportunities against a scenario of 1.5 degrees centigrade, examples of which are described below. However, according to the latest 2019 reviewed assessment, these opportunities were considered not to have a substantive financial impact on Finnair business. The rationale is that all airlines are increasingly making efforts to decrease the environmental impact, and therefore it is difficult to obtain a significant competitive advantage in this area although in the longer run, this might change. In addition, the current business environment is limiting opportunities for airlines. These business environment aspects include e.g. the congested airspace especially in Europe and the oligopolistic situation among aircraft manufacturers.

For example, the following climate-related opportunities have been identified:

Transitional opportunity Improved attractiveness for customers based on environmental performance. Positive product differentiation toward competitors could lead to enhanced customer loyalty and/or bring new customers to Finnair. Currently, customers tend to buy their airline tickets based on price. However, a growing climate change awareness might change customers' behaviour to prefer to fly with companies/airlines having a good track record on climate change and sustainability.
Transitional opportunity Awareness in climate-related issues has been seen to effect a positive perception by also on suppliers, employees and society in general. A key component to take advantage of this opportunity as a leader in sustainable travelling is the introduction of new technologies, short routings between destinations and an open mind toward any additional voluntary actions to reduce climaterelated negative impacts.
Transitional opportunity Finnair considers that the geographic location

of the Finnair home base, Helsinki Hub, is an opportunity for the business operations because it is less exposed to major physical risks (i.e. weather and natural incidents). Moreover, HEL HUB offers special snow-how against heavy snowfall. change such as increased extreme

Finnair has identified and assessed short- (1–2 years), mid- (3–5 years) and long-term (> 5 years) climate change economic challenges Finnair might face through strategic, and the ERM framework and processes. The total risk score of each potential risk, considering both estimated impact and likelihood, have been evaluated. According to the latest review made during 2019, no substantive financial impact on Finnair business was yet seen. 1.5 -degree scenario hypothesises that physical threats are not significantly materialised, and the most material risks arise from transitional risks, e.g. possible carbon price development. Examples of identified potential risks are as follows: • Physical risks arising from climate

weather conditions, e.g. hard snowfall,

CLIMATE CHANGE CHALLENGES ARE AN ESSENTIAL PART OF FINNAIR'S STRATEGY PROCESS.

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fog events, atmospheric turbulence, typhoons in Asia, or thunderstorms in Europe. Although Finnair cannot control the physical risks resulting from climate change, the company is able to improve the monitoring of events and trends, as well as to enhance the capability in forecasting and crisis response. For example, together with our partner, Finnair has developed a weather forecast solution, based on artificial intelligence, which is considered pioneering. This has been in test use in winter season 2018/2019. Regarding extreme weather conditions, Finnair has inherent risk mitigation in place, i.e. the geographic location of the Finnair home base, Helsinki Hub, which is less exposed to major physical risks (i.e. weather and natural incidents). Moreover, Helsinki Hub has special snow-how to deal with heavy snowfall, as well as adequate runway capacity, which mitigates the risk in the event of extreme weather conditions.

• Transitional challenge - Increased regulation and associated costs of compliance or increasing carbon pricing have also been assessed. Risk of cost incurring from changes in the EU Emissions Trading Scheme (ETS) regulation and CORSIA agreement. Risk of negative financial impact due to the possible tightening of the ETS. Also, increased taxation on fossil fuel and energy, national mandates for mixing biofuel, and/or tighter regulation risk could increase operational costs. In case these regulations would be regional/ national regulations, the risk of a competitive disadvantage would arise. Estimating the impacts of regulatory changes on an airline's operational activities and/or costs is challenging, and key risks relate to regulatory changes in the areas of market-based emission reduction schemes, biofuel mandate, noise regulation and other environmental regulations and their impact on cost competitiveness.

• Transitional challenge - Risk of a negative reputation in case of not responding to environmental issues in an appropriate way. This risk can be perceived through risk on a company level or as the industry as a whole. It could result in a loss of reputation as well as the shift

of consumer attitude and demand. To manage the reputational risk, Finnair aims to be the first choice for the sustainable traveller. Furthermore, Finnair has included sustainability in its overall strategy.

The detailed financial implications of the consumer behaviours are hard to estimate; thus, climate-related risks and opportunities are not currently assessed to present substantive financial impact. Climate-related impacts have been acknowledged to have legal, market-based, technological and reputation-based economical aspects.

Environmental actions taken

Flight emissions being the most significant environmental impact that an airline has, Finnair's most significant environmental action has been investing in a modern fleet that is quieter and more energy-efficient than previous-generation aircraft. Finnair is committed to the aviation sector's common goals of carbon-neutral growth from 2020 onwards and cutting carbon dioxide emissions from the 2005 level in half by 2050. In addition, Finnair has set in its new sustainability strategy a long-term goal to achieve

Carbon dioxide emissions from years 2019 and 2018
	2019	2018
Direct (Scope 1) GHG emissions
Jet Fuel, t CO2	3,566,409	3,248,045
Ground vehicles @ HEL, t CO2	668	755
Total, t CO2	3,567,078	3,248,800
Indirect (Scope 2) GHG emissions
Facilities, electricity, t CO2	7,068	9,673
Facilities, heat, t CO2	6,205	8,434
Total, t CO2	13,274	18,107
Other indirect (Scope 3) GHG emission
Fuel transportation & production, t CO2	770,476	701,701
Business travel	326	485
Total, t CO2	770,802	702,186
Grand total, t CO2	4,351,153	3,969,093

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carbon neutral flying. Its current target – to cut 17 per cent of carbon dioxide emissions by the year 2020 (from the year 2013 level) is estimated to be unreachable during the coming year. At the end of the 2019 emission efficiency has decreased 8.8% and Finnair predicts it can reach 12–13% reduction by 2020 leaving the performance 4–5% short from the target. The main contributor to this is that the original fleet renewal schedule made years ago changed from the one that had previously been estimated and could not be fully implemented. Further, the accelerated growth strategy required Finnair to keep some of the aircraft in its fleet during the period.

New technology implementation and reducing the fuel burn are not enough to reduce carbon dioxide emissions. In the medium-term, sustainable aviation fuels provide promising opportunities in low-carbon flying. Finnair is an active member of the Nordic Initiative for Sustainable Aviation working group comprised of Nordic airlines, airport operators and government ministries who are working together with aircraft manufacturers to expedite the development of

biofuel in the aviation industry. Further, in 2019 Finnair joined a research consolidation where the feasibility of an industrial-pilot of carbon-neutral fuel (Power to X -technology) is researched and developed. Currently, Finnair is increasingly fuelling its flights with biofuels and provides biodiesel in all ground equipment refuelling, and these together reduced 237 tonnes of CO2 emissions in 2019. Also, Finnair joined a Nordic initiative to drive the development of electric aircraft launched 2019. This is funded by Nordic Innovation (an organization under the Nordic Council of Ministers) gathering Nordic players together to develop the future of electric aviation.

Our environmental performance metrics and some examples of our environmental actions taken are listed in the above table and on the page 28, and further discussed under the sustainability report.

Social and employee matters

As Finnair is a significant employer in Finland, social responsibility is mainly related to the company's personnel and working conditions. A key risk relating to personnel is Finnair's inability to execute its

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Engagement survey overall grade includes self-reported measures of the overall wellbeing of Finnair's personnel.

In occupational safety, Finnair's long-term target is zero accidents, both in its own operations as well as in its partners' and contractors' operations. In 2019, LTIF (Lost Time Incident Frequency) decreased by 17.9 per cent to 9.6 (11.7). The number of absences due to illness remained at the same level as in the comparison period and was 4.62 per cent (4.24).

To enhance Finnair's strategic workability management, the company has built processes to support workability and in case of serious illnesses, Finnair offers the best possible means to rehabilitate employees back to their prior work or provide training in finding a new career within or outside of Finnair. Finnair's focus is on prevention, and developing and providing managers with good tools recognising early signals of workability issues helps in this objective.

Finnair has zero-tolerance for bullying and any kind of harassment. Operative methods and procedures have been agreed upon together with the personnel to prevent

harassment and inappropriate treatment, and efforts are made to enhance communication about these issues. Finnair has trained internal conciliators to enhance interaction and problem-solving skills improving working atmosphere and mutual understanding of different parties. Finnair has also introduced an eLearning 'Harmoniously at workplace' to all employees.

Diversity, equality and non-discrimination Finnair does not discriminate based on gender, age, ethnic or national origin, nationality, language, religion, conviction, opinion, health, disability, sexual orientation or other personal attributes or circumstances.

Finnair offers equal opportunities to everyone with regard to recruitment, work performance, career progression and development. Finnair implements the equal pay principle based on the Finnish Equality Act and gives both men and women equal opportunities for balancing work and family life. The working group for equality frequently updates the Equality and non-discrimination plan published internally and externally. The most recent update to the plan was done in 2018.

In 2011, Finnair signed the United Nations Women's Empowerment Principles, which give guidance on the empowerment of women in the workplace, marketplace and community. Finnair has also signed the Diversity Charter Finland, by Finnish Business & Society (FIBS). By signing this Charter, it pledges to develop management and service practices supporting diversity within its own organisation. In 2019, Finnair signed on an aviation initiative 25by2025, pledging that by 2025 we will have either 25% or women in all work groups or a 25% improvement in the gender equality.

Equality and non-discrimination are embedded in the Finnair values, and Finnair is committed to providing its customers, personnel and partners with equal opportunities. By working with Finland's Paralympic committee and Association of disabled people, Finnair gets valuable information about the accessibility of its services and how to develop them further. Special attention is paid to designing more accessible services.

strategy in the event of inadequate quality, commitment or resourcing of human capital.

Finnair's personnel-related action plans and policies cover all aspects of social responsibility that have been identified as material and the annual Employee Engagement survey (WeTogether@Finnair) helps the company decide upon developments in this area. Risks and effects on society are identified and assessed bi-annually by the people and culture, corporate responsibility, and risk management services as a part of the company's general risk management process.

Occupational safety and well-being In the area of well-being at work, improving our occupational safety performance is one of the key focus areas at Finnair. Finnair has published an occupational safety policy, which is part of Finnair's Occupational Safety Management System implemented in all units. Workability management and general wellbeing of employees are at the core of strategy and people processes, well employees are more productive and innovative. The WeTogether@Finnair Employee

GENDER IS ONLY ONE DIMENSION OF FINNAIR'S BROADER DIVERSITY AGENDA. DIVERSITY IS SEEN AS A PERFORMANCE DRIVER.

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Customer experience

The second material theme for social responsibility at Finnair relates to our customers and covers topics such as passenger well-being and safety, customer satisfaction and punctuality. The key risks in this area relate to Finnair being unable to ensure customer safety and well-being or to drive increased customer satisfaction.

Safety is at the core of all Finnair's operations. Finnair has implemented a Safety Management System (SMS) through which it continuously develops the safety performance of the operations. It covers all aspects of flight safety: policy, risk management, training and communications for the entire personnel and subcontractor chain, continuous compliance evaluation of operations and the assessment of the potential impact of new factors in the operating environment. Official regulations and standards set the minimum standards for Finnair's safety management, which the company aims to exceed in all areas. A good example of the Finnair's safety performance during 2019 was a biannual IOSA audit (IATA Operational Safety Audit) made by external auditor resulting in zero findings.

One of the central elements in Finnair's safety system is safety reporting concerning the entire staff. The company encourages its personnel and subcontractors to actively report any events they come across that could potentially compromise safety. Each report is analysed, classified and assessed for risk, followed by necessary corrective or preventive actions. The person submitting the report will be notified of the outcome of the investigation. Alongside subjective observations, Finnair extensively monitors and analyses objective indicators, such as flight data. Ongoing monitoring and analysis enable a transparent risk level in all areas, which in turn enables prompt action on any indication of altered safety level.

A strong safety culture, objective monitoring of the company's own operations, continuous development and implementing improvement measures as well as an open dialogue with the authorities guarantee safe and highquality airline operations.

Finnair has taken measures to better accommodate the different needs of passengers by continuously developing its booking process and the Inflight Entertainment system to

make services more accessible. The Inflight Entertainment system has a special channel devoted to supporting Responsible Finnair concept communications.

Finnair collects customer satisfaction feedback continuously. Survey results and other customer feedback are reported to the unit concerned at least once per month. In 2019, Finnair's overall customer satisfaction measured by Net Promoter Score (NPS) was 38 (47)4 . Customer feedback is utilised, for example, in defining the customer experience strategic targets and roadmaps for development, as well as in targets of Finnair partners and employees.

Finnair's new long-term goal for arrival punctuality is over 85 per cent. In 2019, Finnair's arrival punctuality was 79.3 per cent (79.7).

Human rights and responsible sourcing

Finnair's own operations involve no significant direct human rights risks or impacts. However, indirect risks and implications may exist in relation to the supply chain and outsourced operations. In line with Finnair's endorsement of the Global Compact, Finnair aims to prevent any violations of human rights and the use of forced or child labour both within its own operations and its supply chain. Finnair has its own ethical guidelines for suppliers, Finnair's Supplier Code of Conduct, and it expects all suppliers and partners to comply with the Supplier Code or essentially similar ethical standards. All partners and subcontractors, moreover, are obliged to comply with the principles of the UN Universal Declaration of Human Rights as well as local legislation. Finnair's Responsible Sourcing Manual complements the Supplier Code of Conduct as internal instructions for implementation.

Finnair cooperates with several partners in order to improve assessment of risks and the realisation of social responsibility and human rights in its operations and in the supply chain. Finnair has implemented the SEDEX supplier auditing tool, chosen together with the oneworld alliance, into its purchasing processes in order to improve risk management, the evaluation of social impacts and traceability in the supply chain. Finnair is actively involved with the work of IOM (International Organisation for Migration) and IATA in order to combat

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⁴ A new Customer satisfaction survey was launched in the beginning of January 2019. Because of this, data in 2018 is not fully comparable to 2019. In the new survey, NPS is calculated based on responses from all customers whereas in 2018, NPS was calculated based on responses from Finnair Plus members only. Therefore, 2018 and 2019 results are not comparable to each other.

and prevent human trafficking and advance human rights in the aviation sector.

In June 2018, Finnair signed the IATA Resolution against modern slavery and human trafficking, in addition to having published the Finnair modern slavery and trafficking statement. Finnair is committed to raising the awareness of its crew members and ground personnel on this serious issue. In 2019, Finnair continued cooperation with the SEDEX system and altogether over 80 key suppliers have completed the SEDEX self-assessment.

Anti-corruption and bribery

Anti-corruption policies are outlined in Finnair's Code of Conduct and Supplier Code of Conduct as well as in the Rules for Anti-Bribery, Corporate Hospitality and Hosting of Public Officials. Finnair's Code of Conduct includes an anti-corruption section, and the receiving and giving of bribes is strictly prohibited. During 2019, Finnair continued to train its employees on Finnair's Code of Conduct, and all new employees receive the mandatory e-learning module on the Code of Conduct.

Finnair requires that its suppliers comply with ethical standards essentially similar to those that Finnair complies within its own operations. Finnair's Supplier Code of Conduct provides clear principles to ensure ethical purchasing, including zero tolerance for corruption. Finnair's Responsible Sourcing Manual complements the Code as internal instructions for implementation. Finnair's aim is to include the Supplier Code of Conduct in all the new supply and subcontracting agreements, as well as to existing contracts as these are renewed.

Finnair does not support any political parties or persons.

The identification and assessment of risks related to corruption are part of the general risk assessment of the company and its business units, and Finnair's business units analyse risks related to corruption as part of the company's general risk assessment process. Although based on these assessments, Finnair's own operations and services are not viewed as high risk from the perspective of corruption, Finnair aims to include responsible business practices in all elements of its operations. Preventing corruption is the responsibility of everyone at Finnair, including the heads of business operations, compliance and the internal audit.

In 2019, Finnair renewed its Finnair Ethics Helpline, thereby increasing even more the transparency and effectiveness of incident reporting; this whistleblowing system is now open to both internal and external stakeholders. During 2019, no incidents of corruption were notified through Finnair's whistleblowing line, nor were there any material corruption-related investigations on-going in the company.

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Topic	Targets and KPIs		Performance	Key actions during the reporting period
		2019	2018
Environmental responsibility	17% reduction in CO2 emissions/RTK 2013–2020, cumulative compared to year 2013	-8.8	-8.1	Two new energy-efficient A350 aircraft (total 19), three biofuel flights, improved operative methods to reduce weight of the flight (e.g. rationalise fuelling, potable water intake and cargo
	Reduction in CO 2 emissions/ASK	-1.4	-2.5	ULD loading), further improvement of flying procedure (e.g. Continuous Decent Approach and single-engine taxiing)
	Reducing single used plastics in Kitchen operations by 50% by 2022	-23.4	-2.3	Reduced use of single packaged milk on board, introduced cardboard packaged hot meals to replace cPET casseroles, reduced plastic in amenity kits, redesigned packaging at onboard sales-" Nordic Kitchen"
	Recycle 50 % of plastics in Kitchen operations for reuse by 2022	13.8	3.6	Included circular economy design principles in our service design; Slippers are made from recycled PET, salad containers are made from recycled PET, cups shall be made from recycled PET from 05/2020 onwards
Social responsibility	Arrival punctuality of over 85%	79.3	79.7	Continued to implement Most Reliable Airline project (e.g. quick turn-around process, schedule planning processes, service in irregularity situations). Close co-operation with airport operator Finavia during the expansion of Helsinki hub and in exceptional weather conditions.
	Customer satisfaction, NPS increase on the previous year	38*	47	Developed further digital solutions in customer experience (e.g. disruption handling, customer contacts, meal pre-ordering, Chabla service for hearing impaired customers)
	WeTogether@Finnair Personnel Experience overall grade increase on the previous year	3.66	3.77	Continued leadership and working methods development, implemented new learning
	Absences due to illness decrease from the previous year	4.62	4.24	platform, Created a 'Harmonious Workplace' -framework, Substance Abuse prevention program launched, phase 2 for occupational health and safety management system implementation completed
	LTIF (Lost-time injury frequency) of less than 10.0	9.6	11.7
Ethical Business conduct	Code of Conduct awareness grade in WeTogether@Finnair survey at least 4 on scale 1–5	4.14	4.24	Continuous training of employees, Renewal of Finnair Ethics helpline
	* A new Customer satisfaction survey was launched in the beginning of January 2019. Because of this, data in 2018 is not fully comparable to 2019. In the new survey, NPS is calculated based on responses from all customers whereas in 2018, NPS was calculated based on responses from Finnair Plus members only. Therefore, 2018 and 2019 results are not comparable to each other.			Read more about Finnair sustainability on our Corporate Responsibility web site

CHANGES IN COMPANY MANAGEMENT

Topi Manner started as Finnair CEO on 1 January 2019. Manner transferred to Finnair from Nordea, where he worked as a member of Nordea's Group Executive Management and as Head of Personal Banking. Mika Stirkkinen, Vice president, Revenue Management and Pricing, started as interim Head of Commercial unit and interim member of the Executive Board on 1 January 2019, as Finnair's former CCO Juha Järvinen left the company.

Finnair appointed two new members to its Executive Board on 16 April 2019. Ole Orvér was appointed as Chief Commercial Officer, and Nicklas Ilebrand as Senior Vice President, Strategy. Both new Executive Board members started in their roles on May 1, 2019. Ole Orvér has a long international career in several airlines, where he has mainly served in leadership positions in strategy, network management and sales. Nicklas Ilebrand has previously worked at Nordea mainly in strategy and product and business development roles. Prior to that, he worked in international business consulting at McKinsey. He has also served on the board of several companies.

During the third quarter, three members of Finnair's Executive Board changed. Finnair's CFO Pekka Vähähyyppä left the company on July 1, 2019, and his successor Mika Stirkkinen took up the position on the same day. Previously, Mr Stirkkinen has also held several financial management positions at Finnair. Eija Hakakari, Finnair's SVP, Human Resources and Katri Harra-Salonen, Finnair's Chief Digital Officer, left the company on September 30, 2019. Johanna Karppi, appointed Ms Hakakari's successor, and Tomi Pienimäki, appointed successor to Ms Harra-Salonen, took up their duties on 1 October 2019. Johanna Karppi joined Finnair from Terveystalo, where she was SVP, Human Resources. She has previously held HR leadership positions at both Rautaruukki and Orion. Tomi Pienimäki has served as the CEO of Vincit and Jolla, and as the Chief Information Officer of Itella and Hackman.

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SHARES AND SHAREHOLDERS

Shares and share capital

On 31 December 2019, the number of Finnair shares entered in the Trade Register was 128,136,115 and the registered share capital was 75,442,904.30 euros. The company's shares are quoted on Nasdaq Helsinki. Each share has one vote at the General Meeting.

Share price development and trading Finnair's market capitalization was 753.4 million euros at the end of December

Share		2019	2018	2017	2016	2015
Equity/share	EUR	7.57	7.20	7.95	6.73	5.69
Dividend for the financial year*	EUR mill.	26	35	38	13	0
Dividend/share*	EUR	0.20	0.274	0.30	0.10	0.00
Dividend/earnings*	%	40.8	39.3	24.4	18.2	0.0
Dividend yield*	%	3.4	3.9	2.3	2.5	0.0
Cash flow from operating activities/share	EUR	4.43	3.94	3.00	1.73	1.34
P/E ratio		12.12	10.17	10.43	7.32	9.46

* The dividend for year 2019 is a proposal of the Board of Directors to the Annual General Meeting.

Comparison European Airlines

(31/12/2018: 907.8). The closing price of the share on 31 December 2019 was 5.88 euros (31/12/2018: 7.09 euros). During January–December, the highest price for the Finnair Plc share on the Nasdaq Helsinki was 8.56 euros, the lowest price 5.50 euros and the average price 7.02 euros. Some 36.8 million company shares, with a total value of 257.7 million euros, were traded on Nasdaq Helsinki.

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Shareholding by number of shares owned

1–1,000 4.0% 1,001–10,000 5.5% 10,001–100,000 2.9% 100,001–1,000,000 5.0% 1,000,001–10,000,000 12.8% 10,000,001– 55.8%

Registered in the name of a nominee 13.9%

Shareholders

The number of Finnair shareholders increased by 9.8 per cent in 2019 to 27,018 shareholders (excluding nominee registered shareholders). The number of domestic retail shareholders increased from 23,864 to 26,210, whereas their combined share of ownership increased by 5.9 per cent. Nominee registered or foreign investors held 13.9 per cent (18.4) of all shares.

Flagging notifications

No flagging notices were issued in 2019.

Government ownership

At the end of 2019, the Finnish Government owned 55.8 per cent of Finnair's shares and votes. According to the decision made by the Finnish Parliament on 20 June 1994, the Government must own more than half of Finnair Plc's shares. Decreasing the ownership below this level would require revision of the Parliament's decision.

Share ownership by management

On 31 December 2019, members of the company's Board of Directors did not own any Finnair shares, while the CEO Topi Manner owned 37,538 shares and the

members of the Executive Board, including the CEO, owned a total of 249,207 shares, representing 0.19 per cent of all shares and

votes.

Own shares

In January 2019, Finnair ended the share buy-back scheme initiated in December 2018. After share buy-backs that ended on 10 January 2019, Finnair held a total of

Finnair Plc largest shareholders as at 31 December 2019

		Number of shares	%	Changes 2019
1	State of Finland; Office Counsil Of State	71,515,426	55.8	0
2	KEVA	6,250,875	4.9	0
3	Varma Mutual Pension Insurance Company	3,261,933	2.5	2,879,447
4	Ilmarinen Mutual Pension Insurance Company	3,005,642	2.3	1,060,642
5	Tiiviste-Group Oy	2,150,000	1.7	0
6	The State Pension Fund	1,700,000	1.3	0
7	Oy Etra Invest Ab	1,000,000	0.8	0
8	Veritas Pension Insurance Company Ltd.	803,174	0.6	-46,826
9	Laakkonen Mikko Kalervo	740,000	0.6	0
10	Evli Finland Select Fund	700,000	0.5	160,000

	Nominee registered	17,840,318	13.9	-5,685,208
	Others	19,168,747	15.0
	Total	128,136,115	100

Shareholders by type at 31 December 2019

	Number of shares	%	Number of shareholders	%
Public bodies	86,677,879	67.6	10	0.0
Households	14,730,566	11.5	26,210	97.0
Private companies	4,181,632	3.3	617	2.3
Financial institutions	4,311,935	3.4	42	0.2
Associations	205,836	0.2	54	0.2
Finnish shareholders, total	110,107,848	85.9	26,933	99.6

Registered in the name of a nominee	17,840,318	13.9	11	0.0
Outside Finland	187,949	0.1	85	0.3
Nominee registered and foreign shareholders, total	18,028,267	14.1	96	0.4
Total	128,136,115	100.0	27,029	100.0

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797,008 own shares, representing 0.62 per cent of the total number of shares.

In 2019, Finnair did not exercise the authorisation granted by the AGM 2019 to acquire or dispose of, its own shares. In Q1, Finnair transferred, using the authorisation granted by the AGM, a total of 105,112 own shares as incentives to the participants of the FlyShare employee share savings plan. It also transferred, in March, 149,894 own shares as a reward to the key personnel included in Finnair's share-based incentive scheme 2015–2017.

The shares remaining on the joint bookentry account, totalling 16,651 after Finnair Plc's AGM 2019 that decided on the forfeiture of the shares registered on the joint book-entry account and the rights carried by such shares, were transferred to Finnair Plc's book-entry account on 9 April 2019. After the transfer, the total number of own shares owned by Finnair was 558,653, which corresponded to 0.44 per cent of Finnair Plc's total number of shares and votes.

In October, 6,340 own shares were transferred to the participants of the FlyShare employee share savings plan using the authorisation granted by the AGM. On 31 December 2019, Finnair held a total of 552,313 own shares (649,008), representing 0.43 per cent (0.51) of the total number of shares and votes.

Shareholder agreements

Finnair is not aware of any shareholder agreements pertaining to share ownership or the use of voting rights.

Change of control provisions in material agreements

Some of Finnair's financing agreements include a change of control clause under which the financier shall be entitled to request prepayment of the existing loan or to cancel the availability of a loan facility in the event that a person other than the Finnish state acquires control of Finnair either through a majority of the voting rights or otherwise.

Share-based incentive schemes

Employee share savings plan FlyShare In December, Finnair's Board of Directors decided to launch a new, in order the eighth, 12-month savings period under the

Breakdown of shares at 31 December 2019

	Number of shares	%	Number of shareholders	%
1–200	1,252,697	1.0	16,320	60.4
201–1,000	3,908,877	3.1	7,836	29.0
1,001 -10,000	7,089,947	5.5	2,703	10.0
10,001–100,000	3,748,352	2.9	135	0.5
100,001–1,000,000	6,412,048	5.0	18	0.1
1,000,001–10,000,000	16,368,450	12.8	5	0.0
10,000,001–>	71,515,426	55.8	1	0.0
Registered in the name of nominee	17,840,318	13.9	11	0.0
Total	128,136,115	100.0	27,029	100.0

Acquisition and delivery of own shares and returns of shares

Period	Number of shares	Acquisition value, EUR	Average price, EUR
Jan 1 2014	279,168	808,241.18	2.90
2014	33,864	85,801.22	2.53
2014	-940	-2,334.40	2.48
2015	14,893	37,734.40	2.53
2015	-1,780	-6,764.00	3.80
2016	800,000	4,327,860.54	5.41
2016	-336,241	-975,326.55	2.90
2017	-355,597	-1,962,443.86	5.52
2018	452,000	3,206,965.7	7.10
2018	-236,359	-1,264,765.58	5.35
2019	164,651	1,042,355.90	6.33
2019	-261,346	-1,501,496.17	5.75
Dec 31 2019	552,313	3,795,828.38	6.87

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FlyShare Employee Share Plan. The objective of the plan, established in 2013, is to encourage the employees to become shareholders in the company, and thereby strengthen the employees' interest in the development of Finnair's shareholder value and to reward them over the long term. The share savings plan is described in a stock exchange release issued on 18 December 2019, in the Remuneration Statement 2019 and on the company's website.

Share-based incentive plan for key personnel In December, the Board of Directors of Finnair also approved a new individual performance share plan covering the years 2020–2022. Within the plan, the participants have the opportunity to earn Finnair shares as a long-term incentive reward, if the performance targets set by the Board of Directors for the plan are achieved. The potential share rewards will be delivered to the participants in the spring of 2023. The plan applies to some 70 persons, and it is described in a stock exchange release issued on 18 December 2019, in the Remuneration Statement 2019 and on the company's website.

Authorisations granted by the Annual General Meeting 2019

Finnair's Annual General Meeting was held in Helsinki on 20 March 2019. The AGM authorised the Board of Directors to decide on the repurchase of the company's own shares and/or on the acceptance as pledge and on the disposal of own shares held by the company. The authorisation shall not exceed 5,000,000 shares, which corresponds to approximately 3.9 per cent of all the shares in the company. The authorisations are effective for a period of 18 months from the resolution of the AGM.

The AGM also authorised the Board of Directors to decide on donations up to an aggregate maximum of EUR 250,000 for charitable or corresponding purposes. The authorisation is effective until the next Annual General Meeting.

The resolutions of the AGM are available in full on the company's website.

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Finnair operates in a global and highly competitive environment that is sensitive to economic fluctuations. In executing its strategy, Finnair and its operations are exposed to a broad range of risks and opportunities.

To exploit opportunities to create value, Finnair is prepared to take and manage risks within the limits of its risk appetite. In relation to flight safety matters, compliance with laws and regulations, and reliability of reporting, Finnair's objective is to minimise risks.

Internal control and risk management activities are an integral part of the management's overall duties to ensure that the company achieves its business objectives. Through efficient systems of internal control and risk management, deviations from objectives can be prevented or detected as early as possible. The Board of Directors is responsible for monitoring and evaluating the efficiency of the company's internal control and risk management systems. The Board of Directors is responsible for approving the top-level policies, such as the Risk Management Policy, and setting Finnair's risk appetite.

The primary governance principle is adherence to the Three Lines of Defence model, with a clear division of roles and responsibilities with respect to internal control and risk management. A proper Three Lines of Defence governance ensures that the segregation of duties is defined and established between risk management and risk control. • In the first line of defence, the business organisation and group functions are risk owners, and thus responsible for conducting day-to-day control and risk management activities in accordance with Finnair's Internal Control Framework.

• In the second line of defence, Risk & Compliance acts as a control function that is responsible for developing and maintaining the Internal Control Framework and Risk Management Framework as well as for monitoring the implementation of the policies, rules, procedures and key controls within the

frameworks.

• In the third line of defence, Internal Audit performs audits and provides the Board of Directors with an independent assessment of the overall effectiveness and maturity of the internal control and risk management systems.

The main features of the internal control and risk management systems are described in the Corporate Governance Statement.

Policy, framework and process

The Finnair Risk Management Policy defines the overall framework for risk management. Finnair has an Enterprise Risk Management process in place to ensure the identification, evaluation and management of risks and uncertainties associated with set objectives. The process is designed to take a corporate-wide portfolio view to ensure that the risks and uncertainties are identified, analysed and managed within the boundaries of Finnair's risk-bearing capacity.

Based on the COSO Enterprise Risk Management Framework, the objectives are split into four categories: strategic, operational, compliance and reporting. The Enterprise Risk Management process integrates the identification, evaluation and management of risks and uncertainties by objective categories.

The Enterprise Risk Management process is executed according to the Annual Cycle defined in the Risk Management Policy. It takes place as an integral part of strategy process and operational objective setting across the organisation to enable a holistic view of risks and opportunities. Risk identification and evaluation at Finnair include the following phases:

Identification of external and internal events affecting the achievement of objectives;
Distinction between risks and opportunities;
Analysis of identified risks;
Integration (aggregation) of risks;
Evaluation and prioritisation of risks based on their impact and likelihood.

Finnair's Risk Model and criteria for risk evaluation have been established to ensure comprehensive risk identification and systematic risk evaluation. Assumptions behind strategic objectives are analysed and validated as a part of strategic risk assessment. A dedicated Risk Coordinator Forum has been established to support the execution and coordination of systematic risk identification and evaluation in units, functions and subsidiaries, and to ensure

FINNAIR'S RISK MANAGEMENT PRINCIPLES

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that risk management activities conform to the requirements set in the Risk Management Policy. Risk response strategies are applied to prioritised risks in order to reach reasonable assurance that their outcomes fall within an acceptable level.

The Executive Board members are risk owners and they are responsible for planning and implementing risk management and control activities within units, functions and subsidiaries to ensure an acceptable level of residual risk.

Performance and efficiency of Finnair's risk management system is subject to systematic monitoring. Improving the risk management process, performance and capabilities takes place continuously based on the Plan-Do-Check-Act (PDCA) cycle.

The Risk Management Policy is annually reviewed by the Executive Board and approved by the Board of Directors.

Major risks

Risk and uncertainties that are considered to potentially have a significant effect on Finnair's business, financial results and future prospects are further classified under risk categories of the Finnair Risk Model. The model is divided into two parts, external business environment risks and internal process risks, both of which comprise a number of specific risk categories. The risks and Finnair's risk responses are further discussed on the company's website. Significant near-term risks and uncertainties are described below. Inform and

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The risks and uncertainties described below are considered as potentially having a significant impact on Finnair's business, financial result and future outlook within the next 12 months. This list is not intended to be exhaustive.

Exceptional variations in the fuel price affect capacity growth in Finnair's main markets. This together with changes in ticket prices pose a risk to Finnair's revenue development, as do sudden adverse changes in the foreign exchange rates and slowing growth in demand. Generally, Finnair aims to pass exceptional variations in the fuel price to customers via ticket prices, however, the market conditions prevailing from time to time may not allow this.

Capacity increases and product improvements among Finnair's existing or new competitors may have an impact on the demand for, and yield of, Finnair's services. In addition, joint operations involving closer cooperation than airline alliances and joint businesses are expected to develop further. Potential industry consolidation could have

a significant impact on the competitor landscape. Introduction of new digital distribution technologies and channels in Finnair's distribution strategy, including transition towards differentiation of fare content and availability between the channels, involves implementation and commercial risks.

The aviation industry is affected by a number of regulatory trends. Estimating the impacts of the regulatory changes on airlines' operational activities and/or costs in advance is difficult. Examples of such regulatory trends include regulation related to emissions trading, noise regulation and other environmental regulation, as well as regulations on privacy and consumer protection.

Geopolitical uncertainty, the threat of trade wars, the threat of terrorism, cyber-attacks and pandemic risks (such as coronavirus) as well as other potential external disruptions may, if they materialise, significantly affect the demand for air travel and Finnair's operations. Potentially increasing protectionism in the political environment

may have an adverse impact on the market access required for the implementation of Finnair's strategy.

The UK's exit from the European Union at the end of January is not expected to have an immediate effect on the aviation industry. However, the transition period until the end of 2020 includes many commercial threats. In case of unsuccessful trade and traffic negotiations, there is a danger that the traffic rights of the UK and European airlines regarding flights between and via the UK and EU would be reduced, which may have a considerable effect on the airlines' businesses, including that of Finnair. Such effects may be negative or positive and may not be the same for all airlines.

The overall labour market situation in Finland is challenging and it may also have an impact on the negotiations in which Finnair is a party. No specific issues have been identified with collective labour agreements on which negotiations have already been commenced.

SIGNIFICANT NEAR-TERM RISKS AND UNCERTAINTIES

The construction work associated with the extension of Helsinki Airport, which will continue until 2022, may cause traffic delays and consequently a decline in the customer experience.

Finnair's risk management and risks related to the company's operations are described in more detail on the company's website.

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Distribution of revenue and costs by currency

Sensitivities in business operations, impact on comparable operating profit (rolling 12 months from date of financial statements)	1 percentage (point) change
Passenger load factor (PLF, %)	EUR 32 million
Average yield of passenger traffic	EUR 25 million
Unit cost (CASK excl. fuel)	EUR 23 million

Due to the seasonal variation of the airline business, the Group's revenue and profit are generally at their lowest in the first quarter and at their highest in the third quarter of the year. The growing proportional share of Asian traffic increases seasonal fluctuation due to destination-specific seasons in Asian leisure and business travel.

In addition to operational activities and market conditions, the fuel price development has a key impact on Finnair's result, as fuel costs are the company's most significant expense item. Finnair's foreign exchange risk arises primarily from fuel and aircraft purchases, divestments of aircraft, aircraft lease payments, aircraft maintenance, overflight royalties and foreign currency revenue. Significant dollar-denominated expense items are fuel costs and aircraft lease payments. The largest investments, namely the acquisition of aircraft and their spare parts, are also mainly denominated in US dollars. The most significant income currencies after the euro are the Japanese yen, the Chinese yuan, the US dollar and the Swedish krona.

Fuel sensitivities	10% change	10% change, taking
(rolling 12 months from date of financial statements)	without hedging	hedging into account
Fuel	EUR 65 million	EUR 32 million

Fuel hedging ratios and average hedged price rolling 12 months from date of financial statements)	Hedging ratio	Average hedge price, USD/ton*
Q1 2020	69%	686
Q2 2020	67%	681
Q3 2020	57%	665
Q4 2020	46%	640

* Average of swaps and bought call options strikes.

Currency distribution, %	Q4 2019	Q4 2018	2019	2018		Currency sensitivities USD and JPY (rolling 12 months from date of financial statements for operational cash flows)	Hedging ratio for operational cash flows (rolling next 12 months)
Sales currencies					10% change without hedging	10% change, taking hedging into account
EUR	55	56	53	55	-	-
USD*	5	4	5	4	see below	see below	see below
JPY	9	10	11	10	EUR 36 m	EUR 16 m	65%
CNY	6	6	7	7	-	-
KRW	2	3	3	3	-	-
SEK	3	4	3	3	-	-
Other	19	18	19	17	-	-
Purchase currencies
EUR	57	59	57	60	-	-
USD*	36	33	36	32	EUR 84 m	EUR 26 m	66%
Other	8	7	7	7

* Hedging ratio and sensitivity analysis for USD basket, which consists of net cash flows in USD and HKD. The sensitivity analysis assumes that the correlation of the Hong Kong dollar with the US dollar is strong.

The company hedges its currency, interest rate and jet fuel exposure using a variety of derivative instruments, such as forward contracts, swaps and options, in compliance with the risk management policy approved annually by the Board of Directors. Fuel purchases are hedged for 24 months forward on a rolling basis, and the degree of

SEASONAL VARIATION AND SENSITIVITIES IN BUSINESS OPERATIONS

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hedging decreases towards the end of the hedging period. The higher and lower limits of the degree of hedging are 90 and 60 per cent for the following six months.

Hedging of foreign currency exposure in balance sheet

Finnair's asset-related foreign currency exposure increased with the recognition of the present value of qualifying operating lease liabilities in the balance sheet as right-of-use assets. The sensitivities related to interest expenses (related to lease liabilities) and foreign exchange losses/gains associated with USD denominated aircraft lease payments and liabilities are not included in the sensitivity figures in the above table, that describe impacts on comparable operating result. Unrealised

foreign exchange losses/gains caused by the translation of the USD denominated liability will have an impact on Finnair's net result. In the future, the effect and amount of the foreign currency exchange could be positive or negative, depending on the USD-rate at the closing date. As at January 2019, Finnair mitigates the foreign exchange volatility introduced by this difference by using hedges and is looking for alternative solutions to hedge this position. The annual effect in net result going forward is dependent on the size of the qualifying operating lease portfolio, the duration of the leases and hedging ratio. At the end of December 2019, the hedging ratio of USD denominated aircraft lease payments and liabilities was approximately 80 per cent.

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We are currently seeing strong performance continuing in Europe. As stated earlier, the direct financial impact of coronavirus during Q1 2020 is relatively limited, even if the mainland China cancellations continued until end of Q1 2020.

We currently forecast our capacity to increase by approximately 4 per cent in 2020. Due to the situation with coronavirus, we do not provide a full year revenue estimate at this time. The guidance will be updated in connection to Q1 2020 interim report.

OUTLOOK

				STATEMENTS

Alternative performance measures	Calculation	Reference to reason to use the measure	Reference to reconciliation
Items affecting comparability	Unrealized changes in foreign currencies of fleet overhaul provisions + Fair value changes of derivatives where hedge accounting is not applied + Sales gains and losses on aircraft and other transactions + Restructuring costs	Presentation of Consolidated Income Statement and Balance Sheet, Presentation of alternative performance measures, Note 1.3.7 Items excluded from comparable operating result	Note 1.3.7 Items excluded from comparable operating result
Comparable operating result	Operating result - Items affecting comparability	Presentation of Consolidated Income Statement and Balance Sheet, Presentation of alternative performance measures	Income statement, Note 1.3.7 Items excluded from comparable operating result
Comparable EBITDA	Comparable operating result + Depreciation and impairment	Presentation of Consolidated Income Statement and Balance Sheet	Income statement
Adjusted interest-bearing liabilities	Lease liabilities + Other interest-bearing liabilities + Cross currency interest rate swaps in derivative financial instruments	Component used in calculating gearing	Additional information to Balance Sheet: Interest-bearing net debt and gearing
Cash funds	Cash and cash equivalents + Other financial assets	Component used in calculating gearing. Cash funds represent the total amount of financial assets that are available for use within short notice. Therefore, cash funds provide the true and fair view of the Group's financial position.	Additional information to Balance Sheet: Interest-bearing net debt and gearing, Notes to consolidated cash flow statement
Interest-bearing net debt	Adjusted interest-bearing liabilities - Cash funds	Presentation of Consolidated Income Statement and Balance Sheet, Presentation of alternative performance measures	Additional information to Balance Sheet: Interest-bearing net debt and gearing
Gearing, %	Interest-bearing net debt / Equity x 100	Presentation of alternative performance measures	Additional information to Balance Sheet: Interest-bearing net debt and gearing

CALCULATION OF KEY RATIOS

FINANCIAL INFORMATION 2019

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Other key ratios - Revenue and profitability

Earnings per share (EPS)	(Result for the period - Hybrid bond expenses net of tax) / Average number of outstanding shares during the period
Unit revenue per available seat kilometre (RASK)	Unit revenue (RASK) represents the Group's revenue divided by available seat kilometres (ASK). Unit revenue (RASK) with constant currency aims to provide a comparative, currency neutral measurement for unit revenues. All the currency changes and currency hedging results are excluded from the measurement.
Unit revenue per revenue passenger kilometre (yield)	Passenger Revenue by product divided by Revenue passenger kilometres (RPK).
Unit cost per available seat kilometre (CASK)	Unit cost (CASK) represents the Group's operational costs divided by available seat kilometres. Other operating income is deducted from operational costs. Unit cost (CASK) with constant currency aims to provide a comparative, currency neutral measurement for unit costs. All the currency changes and currency hedging results are excluded from the measurement.

	Other key ratios - Capital structure
	Equity ratio, %	Equity / Equity and liabilities total x 100
	Gross capital expenditure	Investments in intangible and tangible assets excluding advance payments
	Return on capital employed (ROCE)	(Result before taxes + Financial expenses + Exchange rate gains and losses) / (Equity + Lease liabilities + Other interest-bearing liabilities, average of reporting period and comparison period)

Other key ratios - Growth and traffic

Available seat kilometres (ASK)	Total number of seats available × kilometres flown
Revenue passenger kilometres (RPK)	Number of revenue passengers × kilometres flown
Passenger load factor (PLF)	Share of revenue passenger kilometres of available seat kilometres

Other key ratios - Share
Equity/share	Equity / Number of outstanding shares at the end of period
Dividend/earnings	Dividend per share / Earnings per share (EPS) x 100
Dividend yield, %	Dividend per share / Share price at the end of period x 100
Cash flow from operating activities/ share	Net cash flow from operating activities / Average number of outstanding shares during the period
P/E ratio	Share price at the end of period / Earnings per share (EPS) x 100

STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

CEO'S REVIEW FINANCIAL THE REPORT OF THE BOARD OF DIRECTORS

Key figures, restatement effects in 2018

Key figures	Reported 1.1.- 31.12.2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Customer compensations restatement effect*	Restated 1.1.- 31.12.2018
Revenue, EUR million	2,834.6	15.1			-13.6	2,836.1
Operating expenses total, EUR million	2,739.0	15.1	-54.7	5.7	-13.6	2,691.4
Operating expenses excl. fuel, EUR million	2,158.0	15.1	-54.7	5.7	-13.6	2,110.4
Comparable operating result, EUR million	169.4		54.7	-5.7		218.4
Comparable operating result, % of revenue	6.0		1.9%-p	-0.2%-p	0.0%-p	7.7
Operating result, EUR million	207.5		54.8	-6.0		256.3
Comparable EBITDAR, % of revenue	16.8	-5.5%-p	6.5%-p	0.3%-p		18.0
Comparable EBITDA, % of revenue	11.3	-0.1%-p	6.5%-p	0.3%-p	0.1%-p	18.1
Earnings per share (EPS), EUR	1.08		-0.35	-0.04		0.70
Equity per share, EUR	8.01		-0.78	-0.03		7.20
Unit revenue per available seat kilometre, (RASK), cents/ASK	6.69	0.04			-0.03	6.69
Unit revenue per revenue passenger kilometre (yield), cents/RPK	6.48	0.04			-0.04	6.48
Unit cost per available seat kilometre (CASK), cents/ASK	6.29	0.04	-0.13	0.01	-0.03	6.18
CASK excluding fuel, cents/ASK	4.92	0.04	-0.13	0.01	-0.03	4.81
Equity ratio, %	34.7		-11.3%-p	-0.2%-p		23.3
Gearing, %	-38.9		115.6%-p	-0.1%-p		76.9
Adjusted gearing, %	67.2		-67.2%-p
Interest-bearing net debt, EUR million	-397.9		1,104.7			706.7
Adjusted net debt, EUR million	686.8		19.9			706.7
Adjusted net debt / Comparable EBITDAR, LTM	1.4	0.7	-0.7	-3.4		1.4
Interest-bearing net debt / Comparable EBITDA, LTM			1.4	-1.2		1.4
Gross capital expenditure, EUR million	331.0		134.5	8.6		474.0
Return on capital employed (ROCE), LTM, %	11.9		-2.4%-p	-0.3%-p		9.3

Comparable EBITDAR has been a common key figure in the airline industry, which has aimed to reflect comparable operating result excluding capital cost, independent of whether the aircraft are owned or leased. It differs from Comparable EBITDA in that it excludes the lease payments for aircraft. When IFRS 16 was adopted, EBITDA no longer included aircraft operating lease payments so the key figure Comparable EBITDAR is replaced with Comparable EBITDA.

Adjusted gearing, % has been a common key figure in the airline industry. It differs from Gearing, % in that it takes into account in the calculation of adjusted net debt the future operating lease payments in the following way: aircraft lease costs for the last twelve months are multiplied by 7 and added to the interest-bearing net debt. As the IFRS 16 standard is in effect, aircraft operating lease payments are no longer recognized in aircraft lease costs. Instead,

*IFRS interpretation committee (IFRIC) concluded in its meeting in September 2019 that customer (passenger) compensations related to delayed or cancelled flights need to be treated as deductions of revenue instead of passenger and handling costs. Due to this, Finnair has made a decision to apply the change retrospectively for quarterly and full-year figures for 2018 and 2019 in order for the years to be comparable.

Line item or account that is removed because of chart of accounts restructuring or IFRS 16 standard. Line item or account that is added because of chart of accounts restructuring or IFRS 16 standard.

the net present value of future aircraft lease payments is recognized in interest-bearing net debt, which is already included in the calculation of Gearing. KPI Adjusted gearing is therefore replaced with Gearing. Calculation of adjusted interest-bearing net debt, interest-bearing net debt and adjusted gearing as well as gearing are presented in the additional information to the balance sheet.

Net debt / Comparable EBITDAR, LTM is no longer presented since due to adoption of IFRS 16, as mentioned above, adjusted net debt can be replaced by interest-bearing net debt and Comparable EBITDAR with Comparable EBITDA. Instead, Interest bearing net debt / Comparable EBITDA, LTM is presented after the adoption of IFRS 16. Finnair restates key figures that use rolling 12-months income statement figures from 31.12.2018 onwards. Earlier periods are not restated because income statement is restated only from 1.1.2018 onwards.

RESTATED 2018 KEY FIGURES

STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

CEO'S REVIEW FINANCIAL THE REPORT OF THE BOARD OF DIRECTORS

AUDITOR'S REPORT

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

FINANCIAL STATEMENTS

THE REPORT OF THE BOARD OF DIRECTORS

CEO'S REVIEW

FINANCIAL STATEMENTS

How to read Finnair Financial Statements?

Finnair's financial statements are structured to facilitate reading and understanding of the financial statements and to clarify the overall picture derived from it. The notes to the financial statements have been combined to business related sections, separately listing the accounting principles, critical accounting estimates and sources of uncertainty in each section. In addition, comments on interesting figures and other highlights are provided in text areas marked with a star. The financial statements also include illustrative charts to support the understanding of the figures.

Finnair has adopted new accounting standards as well as made some structural changes to its financial statements as of 1 January 2019. All the periods presented in the consolidated financial statements, including the comparison periods, have been restated to account for the new reporting practices. These changes are described in more detail in Notes to the consolidated financial statements.

Notes to the financial statement have been combined into sections based on their context. The aim is to give a more relevant picture of the Finnair Group and its business. The content of each section is described and explained in the beginning of that section and marked with .

Specific accounting principles are attached to the relevant note. The accounting principles can be recognised from character .

Critical accounting estimates and sources of uncertainty have been presented together with the relevant note and specified with character .

Highlights related to the section are explained in a separate text box to underline significant matters.

45 Consolidated income statement
45 Consolidated statement of comprehensive income
46 Consolidated balance sheet
47 Consolidated cash flow statement
48 Consolidated statement of changes in equity

49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

49 Accounting principles
49 Description of the company
49 Basis of preparation
49 Presentation of consolidated income statement and balance sheet
49 Presentation of alternative performance measures
50 Use of estimates
50 Critical accounting estimates and sources of uncertainty
50 Changes in accounting principles and restated financials 2018

56 1 OPERATING RESULT

56 1.1 Segment information
56 1.2 Operating income
57 1.2.1 Revenue by product and traffic area
58 1.2.2 Revenue by currency
58 1.2.3 Receivables related to revenue
58 1.2.4 Deferred income and advances received
58 1.3 Operating expenses
58 1.3.1 Operational expenses by currency
59 1.3.2 Passenger and handling services
59 1.3.3 Property, IT and other expenses
59 1.3.4 Inventories and prepaid expenses
59 1.3.5 Other liabilities
59 1.3.6 Provisions
60 1.3.7 Items excluded from comparable operating result
61 1.3.8 Employee benefits
61 1.3.8.1 Employee benefit expenses and share-based payments
63 1.3.8.2 Pensions

65 2 FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

66 2.1 Fleet and other fixed asset
68 2.2 Leasing arrangements

70 3 CAPITAL STRUCTURE AND FINANCING COSTS

70 3.1 Financial income and expenses
70 3.2 Financial assets
71 3.2.1 Other current financial assets
71 3.2.2 Cash and cash equivalents
71 3.3 Financial liabilities
73 3.4 Contingent liabilities
73 3.5 Management of financial risks
75 3.6 Classification of financial assets and liabilities
77 3.7 Offsetting financial assets and liabilities
77 3.8 Derivatives
79 3.9 Equity-related information

81 4 CONSOLIDATION

81 4.1 General consolidation principles
81 4.2 Subsidiaries
81 4.3 Acquisitions and disposals
82 4.4 Investments in associates and joint ventures
83 4.5 Related party transactions

85 6 PARENT COMPANY FINANCIAL STATEMENTS

94 BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND
95 AUDITOR'S REPORT

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Revenue reached a record high in 2019 with increased operating expenses

2019 revenue reached a record high 3,097.7 million euros while the comparable operating result declined by 55.6 million euros to 162.8 million, driven by an increase in fuel costs, aircraft materials and overhaul expenses. The decrease in 2019 financial expenses relates to the unrealized foreign currency gains and losses in the 2018 profit and loss that relate to the USD denominated IFRS 16 liability. The IFRS 16 standard was implemented in the beginning of 2019 with full retrospective application to the prior periods presented. Finnair has been using hedges to mitigate the impact from year 2019 onward.

EUR mill.	Note	2019	Restated 2018	EUR mill. Note	2019	Restated 2018
Revenue	1.1, 1.2	3,097.7	2,836.1	Result for the period	74.5	101.6
Other operating income		56.4	73.7	Other comprehensive income items
Operating expenses				Items that may be reclassified to profit or loss in subsequent periods
Staff costs	1.3.8	-534.7	-499.6	Change in fair value of hedging instruments	75.8	-113.5
Fuel costs		-687.3	-581.0	Tax effect	-15.2	22.7
Capacity rents		-130.2	-122.4	Items that will not be reclassified to profit or loss in subsequent periods
Aircraft materials and overhaul		-201.2	-162.9	Actuarial gains and losses from defined benefit plans 1.3.8.2	-50.2	0.7
Traffic charges		-331.3	-300.8	Tax effect	10.0	-0.1
Sales, marketing and distribution costs		-172.1	-159.0	Other comprehensive income items total	20.5	-90.2
Passenger and handling services	1.3.2	-476.7	-440.3	Comprehensive income for the period	95.0	11.4
Property, IT and other expenses	1.3.3	-132.4	-131.3
Comparable EBITDA		488.3	512.6	Attributable to
Depreciation and impairment	2.1, 2.2	-325.4	-294.2	Owners of the parent company	95.0	11.4
Comparable operating result		162.8	218.4	Change in comparable operating result 2019
Unrealized changes in foreign currencies of fleet overhaul provisions	1.3.7	-1.4	-4.9	€ million
Fair value changes of derivatives where hedge accounting is not applied	1.3.7	1.3	0.2	261.6 -17.3 -35.1 500
Sales gains and losses on aircraft and other transactions	1.3.7	0.2	42.7	-106.3
Restructuring costs	1.3.7	-3.0	-0.1	400
Operating result		160.0	256.3	-7.8 -38.3 300 -30.4
Financial income	3.1	4.8	-2.2	-13.1 -36.4 218.4
Financial expenses	3.1	-83.6	-84.6	-31.2 200 -1.2 162.8
Exchange rate gains and losses	3.1	12.7	-42.3	100	Increase in operating income (+)
Share of results in associates and joint ventures	4.4	-0.9			Decrease in operating income (-)
Result before taxes		93.0	127.2	0 2018	Increase in operating expenses (-)
Income taxes	5.1	-18.4	-25.6	Revenue Staff costs Traffic charges 2019 Fuel costs Capacity rents
Result for the period		74.5	101.6
				Aircraft materials and overhaul Other operating income Depreciation and impairment Property, IT and other expenses Passenger and handling services
Attributable to
Owners of the parent company		74.5	101.6	Sales, marketing and distribution costs
				Change in operating result 2019
Earnings per share attributable to shareholders of the parent company, EUR				€ million
Basic earnings per share		0.49	0.70	256.3 -55.6
Diluted earnings per share		0.49	0.70	1.1 -42.5 3.6
				-2.9 160.0

Consolidated income statement

Consolidated statement of comprehensive income

Restructuring costs

Change in comparable

operating result

Unrealized changes in foreign

currencies of fleet

overhaul provisions

Fair value changes of

derivatives where hedge

accounting is not applied

Sales gains and losses

on aircraft and

other transactions

Operating result 2018

Operating result 2019

= Highlights

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Consolidated balance sheet

									Restated	Restated 1 Jan 2018

			31 Dec 2018	1 Jan 2018
										75.4
										884.5
O	2.1	1,533.3	1,320.2	1,218.2						960.0
O	2.2	736.4	834.3	881.8	Non-current liabilities
O		2,269.7	2,154.5	2,100.1	Lease liabilities	I	2.2, 3.3	913.6	1,034.3	1,048.5
O	2.1	178.4	173.2	171.5	Other interest-bearing liabilities	I	3.3	477.3	514.2	539.9
O	2.2	141.1	164.3	186.4	Pension obligations	O	1.3.8.2	77.1	17.0	6.4
O		319.5	337.5	357.9	Provisions and other liabilities	O	1.3.6	156.9	107.1	94.7
O		39.5	53.3	8.1	Deferred tax liabilities	O	5.1	64.3	47.6	60.1
		2,628.7	2,545.3	2,466.0	Non-current liabilities total			1,689.1	1,720.2	1,749.6
					Current liabilities
O	1.2.3	160.6	152.4	268.6	Lease liabilities	I	2.2, 3.3	140.4	125.1	68.7
O	1.3.4	80.2	120.7	61.9	Other interest-bearing liabilities	I	3.3	43.5	100.5	125.6
O/I*	3.8	55.7	52.1	104.5	Provisions	O	1.3.6	17.2	30.9	25.8
I	3.2.1	800.8	892.2	833.0	Trade payables	O		84.7	72.6	90.7
I	3.2.2	151.9	180.9	150.2	Derivative financial instruments	O/I*	3.8	38.9	107.1	81.3
		1,249.2	1,398.3	1,418.2	Deferred income and advances received	O	1.2.4	552.7	548.9	475.3
O	2.1		0.1	16.7	Liabilities related to employee benefits	O	1.3.8.1	119.4	105.6	139.2
		3,877.9	3,943.6	3,900.9	Other liabilities	O	1.3.5	225.7	214.2	173.4
					Current liabilities total			1,222.4	1,304.9	1,180.1
Fleet growth continued					Liabilities related to assets held for sale	O				11.2
In 2019, the Finnair fleet continued to grow with two new A350 aircraft with an overall passenger capacity growth of 11.3%.					Liabilities total			2,911.5	3,025.1	2,940.9
			Note 31 Dec 2019	Restated	Restated	EUR mill. EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Other equity Equity total	O O		Note 31 Dec 2019 75.4 890.9 966.4	31 Dec 2018 75.4 843.0 918.5

	Restated
	1 Jan 2018

	5.4
1.	5
	0.0

		5
		9

	۔
0 0 0 2 0 0 00		a in in is

	.




م ان مان والساع الدول التي تعالق الماركة المستوى المنتجات المحافظة الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع الموقع ا		10 N H & N W W W > 00 0 >

Equity and liabilities total 3,877.9 3,943.6 3,900.9

Finnair reports its interest-bearing debt, net debt and gearing to give an overview of the Group's financial position. Balance sheet items included in interest-bearing net debt are marked with an "I". Other items are marked with an "O".

Additional information to Balance Sheet: Interest-bearing net debt and gearing 31 Dec 2019		Restated 31 Dec 2018	Restated 1 Jan 2018
Lease liabilities	1,054.0	1,159.3	1,117.2
Other interest-bearing liabilities	520.8	614.7	665.5
Cross currency interest rate swaps*	-1.1	5.8	18.5
Adjusted interest-bearing liabilities	1,573.7	1,779.8	1,801.2
Other financial assets	-800.8	-892.2	-833.0
Cash and cash equivalents	-151.9	-180.9	-150.2
Interest-bearing net debt	621.0	706.7	818.1
Equity total	966.4	918.5	960.0
Gearing, %	64.3%	76.9%	85.2%

* Cross-currency interest rate swaps are used for hedging the currency and interest rate risk of interest-bearing loans, but hedge accounting is not applied. Changes in fair net value correlate with changes in the fair value of interest-bearing liabilities. Therefore, the fair net value of cross-currency interest rate swaps recognised in derivative assets/liabilities and reported in note 3.8, is considered an interest-bearing liability in the net debt calculation.

Balance sheet

= Highlights

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

EUR mill.	2019	Restated 2018
Cash flow from operating activities
Result before taxes	93.0	127.2
Depreciation and impairment	325.4	294.2
Items affecting comparability	2.8	-37.9
Financial income and expenses	66.1	129.0
Share of results in associates and joint ventures	0.9
Comparable EBITDA	488.3	512.6
Change in provisions	29.5	20.6
Employee benefits	10.6	3.0
Other adjustments	1.5	-3.1
Non-cash transactions	41.5	20.5
Changes in trade and other receivables	33.4	-18.4
Changes in inventories	-2.2	-1.8
Changes in trade and other payables	46.9	70.6
Changes in working capital	78.1	50.4
Financial expenses paid, net	-31.5	-79.9
Income taxes paid	-11.9
Net cash flow from operating activities Cash flow from investing activities	564.5	503.6
Investments in fleet	-453.1	-309.7
Investments in other fixed assets	-25.2	-26.0
Divestments of fixed assets	1.3	213.8
Lease and lease interest payments received	16.3
Net change in financial assets maturing after more than three months	-53.4	-81.8
Change in other non-current assets	0.8	1.2
Net cash flow from investing activities	-513.2	-202.6
Cash flow from financing activities
Loan repayments	-42.0	-112.5
Repayments of lease liabilities	-132.2	-118.9
Hybrid bond interests and expenses	-15.8	-15.8
Acquisitions of own shares	-0.5	-3.7
Dividends paid	-35.0	-38.4
Net cash flow from financing activities	-225.4	-289.2
Change in cash flows	-174.1	11.8
Liquid funds, at beginning	655.8	643.9

EUR mill.	2019	Restated 2018
Cash flow from operating activities
Result before taxes	93.0	127.2
Depreciation and impairment	325.4	294.2
Items affecting comparability	2.8	-37.9
Financial income and expenses	66.1	129.0
Share of results in associates and joint ventures	0.9
Comparable EBITDA	488.3	512.6
Change in provisions	29.5	20.6
Employee benefits	10.6	3.0
Other adjustments	1.5	-3.1
Non-cash transactions	41.5	20.5
Changes in trade and other receivables	33.4	-18.4
Changes in inventories	-2.2	-1.8
Changes in trade and other payables	46.9	70.6
Changes in working capital	78.1	50.4
Financial expenses paid, net	-31.5	-79.9
Income taxes paid	-11.9
Net cash flow from operating activities	564.5	503.6
Cash flow from investing activities
Investments in fleet	-453.1	-309.7
Investments in other fixed assets	-25.2	-26.0
Divestments of fixed assets	1.3	213.8
Lease and lease interest payments received	16.3
Net change in financial assets maturing after more than three months	-53.4	-81.8
Change in other non-current assets	0.8	1.2
Net cash flow from investing activities	-513.2	-202.6
Cash flow from financing activities
Loan repayments	-42.0	-112.5
Repayments of lease liabilities	-132.2	-118.9
Hybrid bond interests and expenses	-15.8	-15.8
Acquisitions of own shares	-0.5	-3.7
Dividends paid	-35.0	-38.4
Net cash flow from financing activities	-225.4	-289.2
Change in cash flows	-174.1	11.8
Liquid funds, at beginning	655.8	643.9
Change in cash flows	-174.1	11.8
Liquid funds, at end*	481.7	655.8

* Liquid funds

EUR mill.	2019	Restated 2018
Other financial assets	800.8	892.2
Cash and cash equivalents	151.9	180.9
Cash funds	952.7	1,073.1
Maturing after more than three months	-470.9	-417.3
Liquid funds	481.7	655.8

Changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, are disclosed in the note 3.3 Financial liabilities.

Further fleet investments supported by strenghtened operating cash flow

Finnair's liquidity continued to remain strong despite investments into two new A350 aircraft shown under cash flow from financing activities. Operating cash flow increased by 60.9 million euros, driven by changes in working capital and lower financing costs.

Consolidated cash flow statement

Cash Flow change 2019, -174.1€ million

= Highlights

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

EUR mill.	Share capital

EUR mill.	Share capital	Other restricted funds	Hedging reserve and other OCI items	Unrestricted equity funds	Retained earnings	Hybrid bond	Equity total
Equity 1 Jan 2019	75.4	168.1	-27.2	255.2	248.7	198.2	918.5
Result for the period					74.5		74.5
Change in fair value of hedging instruments			60.7				60.7
Actuarial gains and losses from defined benefit plans			-40.2				-40.2
Comprehensive income for the period			20.5		74.5		95.0
Hybrid bond interests and expenses					-12.6		-12.6
Dividend					-35.0		-35.0
Acquisitions of own shares					-0.5		-0.5
Share-based payments				0.9			0.9
Equity 31 Dec 2019	75.4	168.1	-6.7	256.1	275.2	198.2	966.4

EUR mill.	Share capital

EUR mill.	Share capital	Other restricted funds	Hedging reserve and other OCI items	Unrestricted equity funds	Retained earnings	Hybrid bond	Equity total
Equity 31 Dec 2017	75.4	168.1	63.0	250.3	205.0	198.2	960.0
Change in accounting principles				3.8	-4.7		-1.0
Equity 1 Jan 2018	75.4	168.1	63.0	254.0	200.2	198.2	959.0
Result for the period					101.6		101.6
Change in fair value of hedging instruments			-90.8				-90.8
Actuarial gains and losses from defined benefit plans			0.6				0.6
Comprehensive income for the period			-90.2		101.6		11.4
Hybrid bond interests and expenses					-12.6		-12.6
Dividend					-38.4		-38.4
Acquisitions of own shares					-3.7		-3.7
Share-based payments				1.1			1.1
Adjustment of sublease contracts					1.6		1.6
Equity 31 Dec 2018	75.4	168.1	-27.2	255.2	248.7	198.2	918.5

Retained earnings was adjusted with -4.7 million euros due to implementation of IFRS 15 Revenue from Contracts with Customers. Unrestricted equity funds increased 3.8 million euros due to amendment to IFRS 2 Share-based Payment.

Equity ratio improved to 24.9% in 2019 (23.3%)

The Group's equity increased to 966.4 million euros from last year level (918.5), with main contributors being the net result of 74.5 million together with positive fair value changes of hedging instruments amounting to 60.7 million (-90.8). In 2019, Finnair paid dividends of 35.0 million euros relating to the year 2018 (38.4) in accordance with the decision made at the Annual General Meeting held in 2019. At the end of the year 2019, the jet fuel price remained relatively stable in comparison to year-end 2018, which contributed to the positive change of the fair value hedging reserve. Finnair hedges against jet fuel price fluctuations with forward contracts and options according to its risk management policy decscribed in note 3.5 Management of financial risk.

Consolidated statement of changes in equity

= Highlights

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

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Accounting principles

How should Finnair's accounting principles be read?

Finnair describes the accounting principles in conjunction with each note with the aim of providing an enhanced understanding of each accounting area. The basis of preparation is described as part of this note (accounting principles), while the principles more directly related to a specific note are attached to the corresponding note. The Group focuses on describing the accounting choices made within the framework of the prevailing IFRS policy and avoids repeating the actual text of the standard, unless Finnair considers it particularly important to the understanding of the note's content. Refer to the table below to see which notes, accounting principles and IFRS standards are related.

Accounting principle	Note	Nr.	IFRS
Segment reporting	Segment information	1.1	IFRS 8
Revenue recognition, other income and trade receivables	Operating income	1.2	IFRS 15, IFRS 9, IFRS 7
Provisions and contingent liabilities	Provisions	1.3.6	IAS 37
Employee benefits and share-based payments	Employee benefits	1.3.8	IAS 19, IFRS 2
Pensions	Pensions	1.3.8.2	IAS 19
Tangible and intangible assets	Fleet and other fixed assets	2.1	IAS 16, IAS 36, IAS 38
Leases	Leasing arrangements	2.2	IFRS 16
Interest income and expenses	Financial income and expenses	3.1	IFRS 7, IAS 18, IAS 32
Financial assets	Financial assets	3.2	IFRS 9, IFRS 7
Cash and cash equivalents	Financial assets	3.2	IFRS 9, IFRS 7
Financial liabilities	Financial liabilities	3.3	IFRS 9, IFRS 7
Derivative contracts and hedge accounting	Derivatives	3.8	IFRS 9, IFRS 7
Equity, dividend and treasury shares	Equity-related information	3.9	IAS 32, IAS 33
Consolidation principles of subsidiaries	Subsidiaries	4.2	IFRS 10
Non-controlling interests and transactions with non-controlling interests	Subsidiaries	4.2	IFRS 10
Investments in associates and joint ventures	Investments in associates and joint ventures	4.4	IFRS 11
Related party disclosures	Related party transactions	4.5	IAS 24
Income and deferred taxes	Income taxes	5.1	IAS 12

Description of the company

The Finnair Group engages in worldwide air transport operations and supporting services. The Group's parent company is Finnair Plc, which is domiciled in Helsinki at the registered address Tietotie 9, Vantaa. The parent company is listed on the NASDAQ OMX Helsinki Stock Exchange.

The Board of Directors of Finnair Plc has approved these financial statements for publication at its meeting on 6 February 2020. Under Finland's Limited Liability Companies Act, shareholders have the option to accept, or reject the financial statements in the Annual General meeting of the shareholders, which will be held after the publication of the financial statements.

Notes to the consolidated financial statements Basis of preparation

Finnair Plc's consolidated financial statements for 2019 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union, and they comply with the IAS and IFRS standards and respective SIC and IFRIC Interpretations effective on 31 December 2019. The notes to the consolidated financial statements also comply with Finnish accounting and corporate law.

As of 1 January 2019, Finnair has adopted the new IFRS 16 Leases standard using full retrospective method. Finnair has also changed its accounting principle relating to aircraft frame components and made changes to its presentation of income statement, balance sheet and cash flow line items. The new standards and accounting principles applied in 2019 are described in more detail in the below section 'Changes in accounting principles and restated financials 2018'.

The 2019 consolidated financial statements have been prepared based on original acquisition costs, except for financial assets recognised through profit and loss at fair value, financial assets available-for-sale, and derivative contracts, which have been measured at fair value. Financial statement data is presented in millions of euros, rounded to the nearest hundred thousand euro. This means that the sum of the individual figures may differ from the total shown.

Presentation of consolidated income statement and balance sheet

IAS 1 Presentation of Financial Statements standard does not define 'operating result'. The Group has defined it as the net amount of operating income and expenses, including revenue and other operating income, less operating expenses, such as employee benefits, fuel costs, maintenance expenses, lease payments for aircraft and depreciations. Exchange rate differences and realised changes in fair values of derivatives are included in the operating result if they arise from items related to business operations; otherwise, they are recognised in financial items. The operating result excludes financial items, share of results from associates and joint ventures and income taxes.

The consolidated income statement includes, in addition to the operating result, comparable operating result and EBITDA which are presented to better reflect the Group's business performance when comparing results to previous periods (see also below, presentation on alternative performance measures). The comparable operating result does not include capital gains and losses, changes in the value of foreign currency denominated fleet maintenance reserves, changes in the unrealised fair value of derivatives or restructuring costs. The basis for this is explained in more detail in note 1.3.7 Items excluded from comparable operating result. Comparable EBITDA is a common measure in the airline business which aims to reflect comparable operating result excluding capital cost. Therefore, comparable EBITDA is calculated by excluding depreciations from the comparable operating result.

In the Consolidated balance sheet, assets and liabilities are classified as current when they are expected to realise within 12 months or when they are classified as liquid funds or as financial assets or liabilities classified at fair value through profit or loss. Other assets and liabilities are classified as non-current assets or liabilities. Interest-bearing liabilities include bonds, loans taken for aircraft financing (JOLCO-loans), bank loans, lease liabilities, commercial papers and the loans from internal bank ("huoltokonttori"). Interest-bearing net debt is the net amount of interest-bearing assets and liabilities and cross-currency interest rate swaps that are used for hedging the currency and interest rate risk arising from interest-bearing loans.

Presentation of alternative performance measures

Finnair uses alternative performance measures referred to in the European Securities Markets Authority (ESMA) Guidelines on Alternative Performance Measures to describe its operational and financial performance, to provide a comparable view of its business and to enable better comparability relative to its industry peers. The alternative performance measures do not replace IFRS indicators. Finnair's alternative performance measures reported in the financial statements are comparable operating result and EBITDA (defined above). Comparable operating result is reconciled in the note 1.3.7 Items excluded from comparable operating result. Finnair applies consistent principles when excluding items from comparable operating result. The main principles are described in the above section 'Presentation of consolidated income statement and balance sheet' and in more detail in the note 1.3.7 Items excluded from comparable operating result.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

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Use of estimates

The preparation of IFRS financial statements requires Group management to make certain estimates and judgements in applying the accounting principles. Information about the judgement exercised by management in applying the Group's accounting principles and the areas where estimates and judgements have biggest impact on the financial statements are presented in the following paragraph Critical accounting estimates and sources of uncertainty.

Critical accounting estimates and sources of uncertainty

The preparation of financial statements requires the use of estimates and assumptions relating to the future, and the actual outcome may differ from the estimates and assumptions made. In addition, discretion has to be exercised in applying the accounting principles of the financial statements. Estimates are based on management's best estimate at the balance sheet date. Changes in estimates and assumptions affect the financial statements in the period the changes occur, and in all the subsequent financial periods.

The identified main critical estimates and sources of uncertainty are presented in connection to the items considered to be affected, attached to the corresponding note. The table below shows where to find more information about those estimates and uncertainties.

Critical accounting estimates and sources of uncertainty Note number Note

Finnair Plus Customer Loyalty Program	1.2	Operating income
Maintenance reserves of the fleet	1.3.6	Provisions
Pension obligations	1.3.8.2	Pensions
Impairment testing	2.1	Fleet and other fixed assets
Leasing arrangements	2.2	Leasing arrangements

Changes in accounting principles and restated financials 2018

The calculation principles of key ratios are also defined in The report of the Board of Directors, in the section Calculation of key ratios. Changes in accounting principles did not have an effect on calculating alternative performance measures. However, due to IFRS 16 implementation, the key ratios called adjusted net debt and adjusted gearing are no longer presented. are recognized as right-of-use assets (named as 'right-of-use fleet' and 'right-of-use other fixed assets' on Finnair's balance sheet) with corresponding interest-bearing lease liabilities. Previously, future operating lease payments were presented in the notes as off-balance sheet commitments. Assets at 31.12.2018 increased by 992.3 million euros due to the recognition of right-of-use assets, of which

As of 1 January 2019, Finnair has adopted the new IFRS 16 Leases standard using the full retrospective method. Finnair has also changed its accounting principle relating to aircraft frame components, including cabin components and frame overhauls, and made structural changes in its financial reporting chart of accounts, including income statement, balance sheet and cash flow reporting changes. The comparable financial reporting periods presented in the consolidated financial statements have been restated to account for the new reporting practices.

Finnair has published a separate Stock Exchange Release on 21 March 2019 related to the changes, which encloses the restated financials, including tables for each quarter of 2018 with the combined effect of all three restatements. Tables are also available in excel-format on Finnair´s investor relations website at https://investors.finnair.com/en

Impact of the IFRS 16 implementation on the prior period 2018 financials

The new standard has a significant impact on the Finnair Group financial statements and key ratios. The present value of the future operating lease payments for aircraft, real estate and other qualifying operating lease arrangements approximately 80 % are aircraft. Liabilities increased by 1,091.6 million euros due to the recognition of the present value of qualifying operating lease liabilities. The comparative information was restated, and the cumulative effect of applying IFRS 16 was recognized as an adjustment to the opening equity of 2018. The change decreased Finnair's equity at 31.12.2018 by 99.3 million euros.

The change had a significant impact on Finnair's 2018 reported key ratios. The increase of interest-bearing net debt was also reflected in the gearing ratio, which increased by 115.6 p.p. due to the implementation of IFRS 16. The equity ratio decreased by 11.3 p.p. Due to the implementation of IFRS 16, Finnair also ceased reporting two alternative key performance indicators from 1st January 2019 onwards. Adjusted net debt and adjusted gearing, which previously included adjustments for operating lease payments on aircraft, are no longer presented. Interest-bearing lease liability is now recognized on the balance sheet and therefore already included in the calculation of interest-bearing net debt and gearing, without the need for separate adjustment.

The leasing standard is also impacting Finnair's income statement. Based on the IFRS 16, operating lease expenses are divided into a depreciation of the right-of-use asset and interest costs on the lease liability. The interest costs for the liability are at their highest in the beginning of the lease term, decreasing towards the end of the term as the lease liability is amortized. Previously, operating lease expenses were accrued over the lease term on a straight-line basis and recognized in the operating result as lease payments for aircraft and other rents.

Below is presented the summary of changes to figures and accounting principles as well as the restatement effects tables, where the different restatement effects to 2018 financials are specified separately for each restatement. The new leasing standard IFRS 16 is effective from 1 January 2019 onwards. It replaces the previous standard IAS 17 Leases. Finnair has adopted the new standard from 2019 onwards and has applied the full retrospective method to each prior reporting period presented. Finnair uses the exemption provided by the standard not to account for lease liability for operating leases which have a term of 12 months or less, and which do not include an option to purchase the underlying asset. In addition, Finnair does not account for IFRS 16 lease liability for leases for which the underlying asset is not material to Finnair. The assessment of whether the underlying asset is material and is within the scope or excluded from the recognition requirements of IFRS 16 is based on the concept of materiality in the Conceptual Framework and IAS 1. Finnair recognizes the lease payments associated with such short-term and immaterial leases as an expense on a straight-line basis.

Finnair's 2018 comparable operating result improved by 54.7 million euros and operating result improved by 54.8 million euros due to the implementation of the new standard. Finnair's net result in 2018 however decreased by 44.3 million euros due to interest expenses and foreign exchange losses associated with USD denominated aircraft lease payments and liability. The majority of the decrease in Finnair's net result is derived from unrealized foreign exchange losses caused by the translation of the USD denominated liability.

The majority of Finnair's existing lease agreements and lease payments for aircraft are denominated in USD. In the future, the effect and amount of foreign currency exchange rate changes on the value of the right-of-use asset and lease liability recognized in the balance sheet may either be positive or negative, depending on the USD-rate at the balance sheet date. The annual effect in net result going forward is dependent on the size of the qualifying operating lease portfolio and the duration of the leases. Finnair aims to mitigate the foreign exchange volatility by using hedges.

In the cash flow statement, repayments of lease liabilities are moved from operating cash flow to financing cash flow in accordance with IFRS 16. Operating cash flow increased by 111.9 million euros in the comparison period 2018, with a corresponding reduction in financing cash flow.

IFRS 16 impacts in Finnair accounting policies

The leases recognized as right-of-use assets under IFRS 16 at Finnair are comprise of leased aircraft and spare engines, real estate, cars and ground equipment. Aircraft account for the majority (~80%) of the balance sheet value of the right-of-use asset and lease liability. The majority of the remaining right-of-use assets (~20%) comprise of real estate contracts.

= Critical accounting estimates

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
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Aircraft

Lease term: For the aircraft operating lease contracts, the lease term corresponds to the non-cancellable duration of the contracts signed except in cases where the Group is reasonably certain of exercising either an extension option or an early termination option that is included in the contract. At the initial measurement of the lease, Finnair does not normally include any option period in the lease term as there is significant uncertainty whether Finnair will continue the lease term, even if the lease allows for extensions. The negotiation of possible extension typically begins 12–18 months prior to the initial operating lease term expiry. Finnair remeasures the lease liability when it decides to use the extension option or when there is some other significant indication that the lease period will be extended. For example, major modifications to leased aircraft may be considered as indications of extending the lease, especially if done close to the end of the leasing period.

Maintenance costs: Finnair recognizes provisions for leased aircraft to maintain the aircraft during the period of the lease. For owned aircraft, provisions are not recognized because the cost is avoidable, by for instance selling the asset. IFRS 16 requires including restoration costs in the right-of-use asset. Finnair uses the criteria of whether the maintenance cost is avoidable or unavoidable in determining whether the maintenance cost is capitalised to the rightof-use asset or not.

Finnair is obliged to return leased aircraft and their engines according to redelivery conditions set in the lease agreements. If at the time of redelivery, the condition of the aircraft and its engines differs from the agreed redelivery condition, Finnair needs to either maintain the aircraft so that it meets the agreed redelivery condition or settle the difference in cash to the lessor. The maintenance costs can be divided into two main groups:

1) costs that are incurred independent of the usage of the aircraft / leasing period and

2) costs that are incurred dependent on the usage of the aircraft / leasing period The final check and painting required at redelivery are considered unavoidable maintenance costs that realize when the aircraft is redelivered to the lessor, irrespective of the time or flight hours. The counterpart of the provision is recorded in the book value of the right-of-use asset at the commencement of the lease in accordance with IFRS 16 (IFRS 16:25). Respectively, costs depending on the usage of the aircraft are not considered as part of the right-of-use asset cost.

Excluded contracts: Excluded, non-qualifying, aircraft lease contracts include wet leases and spare engines that have been mainly excluded based on short-term exemption. Finnair analyses the lease term separately for each lease contract based on the contract term and possible extension or early termination options. When the lease term is 12 months or less and Finnair does not intend to continue the lease period after that, the lease agreement is excluded from lease liabilities.

Discount rate: Aircraft lease agreements do not clearly define the interest rate implicit in a lease. Since the fair values of the aircraft are provided publicly by third parties, Finnair is able to calculate the implicit interest rate for each qualifying aircraft operating lease. The rate implicit in the lease is defined as the rate that causes the sum of the present value of the lease payments and the present value of the residual value of the underlying asset at the end of the lease to equal the fair value of the underlying asset. these contracts have been mainly excluded from the lease liability. Other leases (cars and ground equipment) Other leases are comprised mainly of company cars and ground equipment, where the lease is considered long term and therefore are qualified as IFRS 16 leases.

Wet lease agreements are made to lease airline capacity typically on a short-term basis, for example when there are shortages in resourcing. The lease term of a typical wet lease agreement can vary from one day to one year. Spare engines that have been leased on a short-term basis in exceptional cases (e.g., when the owned engine is unusable), are excluded from the lease liability. The lease term is usually only few days up to few months and Finnair does not intend to lease the spare engines for a longer period of time than they are needed.

Real estate

Lease term: The lease term corresponds to the non-cancellable duration of the contracts signed, except in cases where Finnair is reasonably certain of exercising either an extension option or an early termination option included in the contract.

Discount rate: Since facility agreements do not clearly specify the implicit interest rate in the lease contracts, Finnair uses an estimate of the incremental borrowing cost for a portfolio of facilities, meaning that all of the facilities' (land and real estate) lease contracts are discounted using the same discount rate. A management estimate of the incremental borrowing cost is used in determining the interest rate.

Excluded contracts: Based on Finnair's evaluation, service contracts that relate to the usage of airports and terminals (HEL hub) do not qualify as lease arrangements for IFRS 16 purposes. In the contracts, the lessor has a substitution right to substitute the leased area with another area, which leads to classifying the contracts as non-leases. As an exception from this principle, there are specific lounge areas at Helsinki-Vantaa airport that are dedicated for Finnair's use, and these are therefore included in lease contracts.

Finnair has analyzed lease contracts where the lease term is not fixed but both the lessor and lessee have an option to terminate the lease within 1–12 months' notice and has concluded that these contracts are not material and termination of these contracts is practically realistic within the time of the notice (e.g. small storage space). Therefore,

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. Finnair has used this practical expedient for those company car and ground equipment leases that include service components.

The lease term corresponds to the non-cancellable duration of the contracts signed except in cases where Finnair is reasonably certain of exercising either an extension option or an early termination option included in the contract. Current lease contracts do not include such options that would be reasonably certain to be exercised, so the lease term of the current contracts corresponds to the lease duration of the signed contract.

Finnair uses an estimate of incremental borrowing cost for each portfolio of cars and ground equipment, meaning that all of the lease contracts are discounted using the same discount factor. A management estimate is used to determine the incremental interest rate. Lease contracts that individually (or by asset class) are not material to Finnair have been excluded from the lease liability. These contracts include small IT-equipment and office equipment.

Subleases

IFRS 16 did not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. Under IFRS 16, an intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the rightof-use asset arising from the head lease (and not by reference to the underlying asset as was the case under IAS 17). Because of this change, Finnair has reclassified certain of its sublease agreements as finance leases as at 1st January 2019. Finnair subleases 9 (nine) aircraft and a small amount of ground equipment, whereby reference to the head lease, the lease term is for the majority of the remaining economic life arising from the right-of-use asset and therefore these are classified as finance leases in accordance with IFRS 16. The right-of-use asset arising from the head lease is derecognized and a net investment corresponding to the discounted lease payments is recognized on the Finnair balance sheet. In accordance with IFRS 16, for subleases where Finnair is the lessor and are reclassified from operating subleases to

finance leases due to IFRS 16, contracts ongoing at 1.1.2019 (date of initial application) are accounted for as new finance leases and the gain arising on the subleases is included in the cumulative catch-up adjustment in retained earnings.

Change in accounting principles of aircraft frame components and overhauls

Finnair has revised the accounting principles of its aircraft frame components and overhauls. Finnair's financial reporting has been restated to each prior reporting period presented. Previously, only the heavy maintenance of airframes had been separated out into maintenance components. From 1 January 2019 onwards, other material maintenance and cabin components, such as landing gear and business class seats, are accounted for as separate

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

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components. The different components are depreciated based on their economic useful lives or during their maintenance period. Previously, overhauls have been booked as expenses when incurred. Finnair also changed its accounting principle for leased aircraft, so that a provision is recognized following the

renewed component approach.

As a result of the change, the assets as at 31.12.2018 increased by 4.0 million euros. The acquisition cost of the capitalised overhauls increased the assets, and the shorter depreciation period of the cabin components compared to the old policy decreased the asset value. Liabilities increased by 7.9 million euros due to the recognition of provisions for maintenance events. The comparative information was restated, and the cumulative effect of initially applying the accounting principle was made as an adjustment to opening equity of 2018. The change decreased Finnair's equity at 31.12.2018 by 3.9 million euros.

The change had also some impact to the income statement and key ratios reported. 2018 comparable operating result decreased due to the change by 5.7 million euros, operating result decreased by 6.0 million euros and the net result decreased by 4.7 million euros. The equity ratio decreased by 0.2 p.p. and gearing decreased by 0.1 p.p. In cash flow, the investments to owned aircraft maintenance events are now presented in investing cash flow instead of operating cash flow.

Changes in presentation of Consolidated income statement, balance sheet and cash flow statement Finnair has renewed the presentation of its consolidated income statement, balance sheet and cash flow statement by grouping costs in the consolidated income statement to better reflect business development and operations and to include the new line items required by the IFRS 16 standard. In all statements, the lines are named to be clearer. Structural changes did not have an effect on figures, but rather the line items in income statement, balance sheet and cash flow.

In the new income statement structure, customer compensations have been transferred from revenue to passenger and handling expenses. The volume-driven operating expenses have been transferred from other expenses to relevant line items:

Personnel related expenses and hired and outsourced crew have been transferred to staff costs.
Booking fees and credit card commissions have been transferred to sales, marketing and distribution costs.
Lounge costs, cancellations costs, rerouting compensations, wifi-costs and IT fees based on passengers' amount have been transferred to passenger and handling services.

Groupings and naming have been changed to be more relevant:

Other rents account name has been changed to capacity rents. Property related costs have been transferred to account property, IT and other expenses.
Ground handling, catering and tour operation expenses have been combined to account passenger and handling services.

Due to implementing IFRS 16, operational lease payments are no longer presented under lease expenses in the profit and loss so the lease payments for aircraft account has been removed.

In non-current assets the fixed assets have been split to fleet and to other fixed assets, which include other than fleet related tangible and intangible assets. Due to the IFRS 16 implementation, additional accounts for the right-of-use assets of fleet and other fixed assets have been added. Respectively, additional accounts have been added for the non-current and current lease liabilities.

In non-current assets the investments in associates and joint ventures have been combined to other non-current assets. In current assets the inventories have been combined with prepaid expenses. The new account receivables related to revenue include trade receivables and accrued income. In non-current liabilities the other non-current liabilities have been combined to the new account provisions and other non-current liabilities.

Cash flow structure has been changed to begin from result before taxes and line item income taxes has been removed from the structure. Comparable EBITDA, which is presented in the Finnair's income statement, has been added to the structure and EBITDA, that is not presented in the income statement, is removed. Items affecting comparability, which are specified in a separate note of interim and financial statements, have been added as a new line item to cash flow and the gains and losses on aircraft and other transactions, that belong to the items affecting comparability account group, have been moved there. In net cash flow from investing activities, the structure has been changed to correspond to the balance sheet presentation of fleet and other fixed assets. Divestments of fixed assets are now presented separately from divestments of group shares. Investments and divestments of group shares have been moved to line item change in other non-current assets.

Due to implementing IFRS 16, a new line item for repayments of lease liabilities has been added to the net cash flow from financing activities.

Compensations for Delays or Cancellations

IFRS interpretation committee (IFRIC) made an agenda decision in September 2019 of Compensations for Delays or Cancellations (IFRS 15 Revenue from Contracts with Customers). IFRIC concluded in its decision, that customer compensations for delays or cancellations is a variable consideration in the contract. Therefore, it should be recognized as an adjustment to revenue.

Finnair has previously considered the customer compensations as penalties and consequently accounted for those in passenger and handling expenses. Following the IFRIC decision, Finnair has decided to revise its accounting policy for the year 2019 and will reclass customer compensations for delays and cancellations as to its revenue. The amount is not material for Finnair's financial statements. However, as the reclassification from operating expenses to revenue will have a small effect on some of the key operating ratios reported by Finnair, Finnair has decided to also restate the 2018 figures to ensure comparability between the reported years. The impact of the accounting change on Finnair's financial statement is shown in separate tables provided at the end of this section.

New and amended IFRS standards and IFRIC interpretations after the ended period

The currently known future changes in the IFRS standards that are effective from periods on or after 1st of January 2020, mainly include amendments and improvements to current standards that are not expected to have a material impact on the Group's consolidated financial statements.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

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Consolidated income statement, restatement effects in 2018

EUR mill.	Reported 1 Jan– 31 Dec 2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 1 Jan– 31 Dec 2018	EUR mill.	Reported 31 Dec 2017	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 1 Jan 2018
Revenue	2,834.6	15.1			2,849.7	ASSETS
Other operating income	73.7				73.7	Non-current assets
Operating expenses						Intangible assets	15.5	-15.5
Staff costs	-433.4	-72.4	6.3		-499.6	Tangible assets	1,422.1	-1,422.1
Fuel costs	-581.0				-581.0	Fleet		1,251.4	-42.2	9.0	1,218.2
Other rents	-154.9	154.9				Right-of-use fleet			881.8		881.8
Capacity rents		-277.8	155.4		-122.4	Fleet total		1,251.4	839.7	9.0	2,100.1
Aircraft materials and overhaul	-169.1	-2.0	0.5	7.8	-162.9	Other fixed assets		186.2	-14.7		171.5
Traffic charges	-300.8				-300.8	Right-of-use other fixed assets			186.4		186.4
Sales and marketing expenses	-92.4	92.4				Other fixed assets total		186.2	171.7		357.9
Sales, marketing and distribution costs		-159.0			-159.0	Investments in associates and joint ventures	2.5	-2.5
Ground handling and catering expenses	-256.9	256.9				Loan and other receivables	5.6	-5.6
Expenses for tour operations	-113.4	113.4				Other non-current assets		8.1			8.1
Passenger and handling services		-455.7	1.7		-453.9	Non-current assets total	1,445.7	0.0	1,011.4	9.0	2,466.0
Other expenses	-330.9	330.9				Current assets
Property, IT and other expenses		-151.7	20.4		-131.3	Inventories	17.2	-17.2
Comparable EBITDAR	475.4	-155.0	184.4	7.8	512.6	Trade and other receivables	319.8	-319.8
Comparable EBITDA		320.5	184.4	7.8	512.6	Receivables related to revenue		268.6			268.6
Lease payments for aircraft	-155.0	155.0				Inventories and prepaid expenses		68.4	-6.5		61.9
Depreciation and impairment	-151.1		-129.6	-13.5	-294.2	Derivative financial instruments	104.5				104.5
Comparable operating result	169.4	0.0	54.7	-5.7	218.4	Other financial assets	833.0				833.0
Unrealized changes in foreign currencies						Cash and cash equivalents	150.2				150.2
of fleet overhaul provisions	-4.7			-0.3	-4.9	Current assets total	1,424.6	0.0	-6.5		1,418.2
Fair value changes of derivatives where hedge accounting is not applied	0.2				0.2	Assets held for sale Assets total	16.7 2,887.1	0.0	1,004.9	9.0	16.7 3,900.9
Sales gains and losses on aircraft and other transactions	42.7		0.0		42.7
Restructuring costs	-0.1				-0.1
Operating result	207.5	0.0	54.8	-6.0	256.3
Financial income	-2.9		0.7		-2.2
Financial expenses	-16.0		-110.8		-126.8
Result before taxes	188.6	0.0	-55.4	-6.0	127.2
Income taxes	-37.9		11.1	1.3	-25.6
Result for the period	150.7	0.0	-44.3	-4.7	101.6

Attributable to
Owners of the parent company	150.7		-44.3	-4.7	101.6
Earnings per share attributable to shareholders of the parent company, EUR (basic and diluted)	1.08		-0.35	-0.04	0.70

Consolidated balance sheet, restatement effects on the 2018 opening balance

= Line item or account that is removed because of chart of accounts restructuring or IFRS 16 standard.

= Line item or account that is added because of chart of accounts restructuring or IFRS 16 standard.

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

EUR mill.	Reported 31 Dec 2017	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 1 Jan 2018
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	75.4				75.4
Other equity	940.3		-56.5	0.8	884.5
Equity total	1,015.7	0.0	-56.5	0.8	960.0
Non-current liabilities
Lease liabilities		103.3	945.2		1,048.5
Other interest-bearing liabilities	586.2	-103.3	57.0		539.9
Pension obligations	6.4				6.4
Provisions	79.0	-79.0
Other liabilities	1.1	-1.1
Provisions and other liabilities		80.1	11.4	3.2	94.7
Deferred tax liabilities	73.9		-14.1	0.3	60.1
Non-current liabilities total	746.7	0.0	999.5	3.4	1,749.6
Current liabilities
Lease liabilities		22.4	46.4		68.7
Other interest-bearing liabilities	132.4	-22.4	15.5		125.6
Provisions	21.1			4.7	25.8
Trade payables	90.7				90.7
Derivative financial instruments	81.3				81.3
Deferred income and advances received	475.3				475.3
Liabilities related to employee benefits	139.2				139.2
Other liabilities	173.4				173.4
Current liabilities total	1,113.4	0.0	61.9	4.7	1,180.1
Liabilities related to assets held for sale	11.2				11.2
Liabilities total Equity and liabilities total	1,871.4 2,887.1	0.0 0.0	1,061.4 1,004.9	8.1 9.0	2,940.9 3,900.9

Additional information to Balance Sheet: Interest-bearing net-debt and gearing	Reported 31 Dec 2017	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 1 Jan 2018
Lease liabilities		125.6	991.6		1,117.2
Other interest-bearing liabilities	718.6	-125.6	72.6		665.5
Cross currency Interest rate swaps	18.5				18.5
Adjusted interest-bearing liabilities	737.1	0.0	1,064.1		1,801.2
Other financial assets	-833.0				-833.0
Cash and cash equivalents	-150.2				-150.2
Interest-bearing net debt	-246.0		1,064.1		818.1
7 x Lease payments for aircraft for the last twelve months	956.4		-956.4
Adjusted interest-bearing net debt	710.3		107.8		818.1
Equity total	1,015.7		-56.5	0.8	960.0
Adjusted gearing, %	69.9%		-69.9%-p
Gearing, %	-24.2%		109.5%-p	0.0%-p	85.2%

-

Consolidated balance sheet, restatement effects on the ending 2018 balance sheet

EUR mill.	Reported 31 Dec 2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 31 Dec 2018
ASSETS
Non-current assets
Intangible assets	20.4	-20.4
Tangible assets	1,526.6	-1,526.6
Fleet		1,361.1	-44.8	4.0	1,320.2
Right-of-use fleet			834.3		834.3
Fleet total		1,361.1	789.5	4.0	2,154.5
Other fixed assets		186.0	-12.7		173.2
Right-of-use other fixed assets			164.3		164.3
Other fixed assets total		186.0	151.5		337.5
Investments in associates and joint ventures	3.3	-3.3
Loan and other receivables	4.3	-4.3
Other non-current assets		7.7	45.6		53.3
Non-current assets total	1,554.7	0.0	986.6	4.0	2,545.3
Current assets
Inventories	25.1	-25.1
Trade and other receivables	242.2	-242.2
Receivables related to revenue		152.4			152.4
Inventories and prepaid expenses		114.9	5.8		120.7
Derivative financial instruments	52.1				52.1
Other financial assets	892.2				892.2
Cash and cash equivalents	180.9				180.9
Current assets total	1,392.5	0.0	5.8		1,398.3
Assets held for sale	0.1				0.1
Assets total	2,947.3	0.0	992.3	4.0	3,943.6

= Line item or account that is removed because of chart of accounts restructuring or IFRS 16 standard.
= Line item or account that is added because of chart of accounts restructuring or IFRS 16 standard.

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

EUR mill.	Reported 31 Dec 2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 31 Dec 2018
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital	75.4				75.4
Other equity	946.2		-99.3	-3.9	843.0
Equity total	1,021.7	0.0	-99.3	-3.9	918.5
Non-current liabilities
Lease liabilities		87.5	946.8		1,034.3
Other interest-bearing liabilities	561.0	-87.5	40.7		514.2
Pension obligations	17.0				17.0
Provisions	91.3	-91.3
Other liabilities	4.8	-4.8
Provisions and other liabilities		96.1	11.8	-0.7	107.1
Deferred tax liabilities	73.5		-24.8	-1.0	47.6
Non-current liabilities total	747.6	0.0	974.4	-1.8	1,720.2
Current liabilities
Lease liabilities		24.1	101.0		125.1
Other interest-bearing liabilities	108.4	-24.1	16.2		100.5
Provisions	21.2			9.7	30.9
Trade payables	72.6				72.6
Derivative financial instruments	107.1				107.1
Deferred income and advances received	548.9				548.9
Liabilities related to employee benefits	105.6				105.6
Other liabilities	214.2				214.2
Current liabilities total	1,178.0	0.0	117.2	9.7	1,304.9
Liabilities total	1,925.6	0.0	1,091.6	7.9	3,025.1
Equity and liabilities total	2,947.3	0.0	992.3	4.0	3,943.6
Additional information to Balance Sheet:	Reported	Chart of Accounts restructuring	IFRS 16 restatement	Aircraft component restatement	Restated

Additional information to Balance Sheet: Interest-bearing net-debt and gearing	Reported 31 Dec 2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aircraft component restatement effect	Restated 31 Dec 2018
Lease liabilities		111.6	1,047.8		1,159.3
Other interest-bearing liabilities	669.4	-111.6	56.9		614.7
Cross currency Interest rate swaps	5.8				5.8
Adjusted interest-bearing liabilities	675.2	0.0	1,104.7		1,779.8
Other financial assets	-892.2				-892.2
Cash and cash equivalents	-180.9				-180.9
Interest-bearing net debt	-397.9		1,104.7		706.7
7 x Lease payments for aircraft for the last twelve months	1,084.7		-1,084.7
Adjusted interest-bearing net debt	686.8		19.9		706.7
Equity total	1,021.7		-99.3	-3.9	918.5
Adjusted gearing, %	67.2%		-67.2%-p
Gearing, %	-38.9%		115.6%-p	-0.1%-p	76.9%

Consolidated cash flow statement, restatement effects in 2018

	Reported 1 Jan–	Chart of Accounts restructuring	IFRS 16 restatement	Aicraft component restatement	Restated 1 Jan–
EUR mill.	31 Dec 2018	effect	effect	effect	31 Dec 2018



































Net cash flow from financing activities	-177.3		-111.9		-289.2

= Line item or account that is removed because of chart of accounts restructuring or IFRS 16 standard.
= Line item or account that is added because of chart of accounts restructuring or IFRS 16 standard.

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

EUR mill.	Reported 1 Jan– 31 Dec 2018	Chart of Accounts restructuring effect	IFRS 16 restatement effect	Aicraft component restatement effect	Restated 1 Jan– 31 Dec 2018
Change in cash flows	11.8	0.0	0.0	0.0	11.8
Liquid funds, at beginning	643.9				643.9
Change in cash flows	11.8				11.8
Liquid funds, at end**	655.8				655.8

Notes to consolidated cash flow statement
* Non-cash transactions
Employee benefits	3.0				3.0
Change in provisions	24.9	-4.8	-0.2	0.8	20.6
Other adjustments	-2.1	0.2	-1.2		-3.1
Total	25.7	-4.6	-1.4	0.8	20.5
** Liquid funds
Other financial assets	892.2				892.2
Cash and cash equivalents	180.9				180.9
Cash funds	1,073.1				1,073.1
Maturing after more than three months	-417.3				-417.3
Liquid funds	655.8				655.8

Consolidated income statement, restatement of customer compensations 31 Dec 2019

EUR mill.	Restated 1 Jan – 31 Dec 2018 (21 Mar 2019)	Restatement effect	Restated 1 Jan – 31 Dec 2018 (31 Dec 2019)
Revenue	2,849.7	-13.6	2,836.1
Passenger and handling services	-453.9	13.6	-440.3

Restatement did not have effect on operating result.

1 Operating result

Operating result includes notes related to revenue and operating result from the point of view of income statement and balance sheet.

1.1 Segment information

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group's Executive Board. Segments are defined based on Group's business areas. Group has one business and reporting segment: Airline business.

The Finnair Executive Board, defined as the chief operative decision maker according to IFRS 8 Segment reporting, considers the business as one operating segment. Therefore, segment information is not reported.

The revenue by product and geographical area is presented in the note 1.2.1 Revenue by product and traffic area. The division is based on the destination of Finnair flights. Finnair operates international and domestic routes, but the assets are almost solely owned in Finland. The fleet composes the major part of the non-current assets (see note 2.1 Fleet and other fixed assets). The fleet is owned or leased by Finnair's Finnish subsidiary and the aircraft are operated flexibly across different traffic (geographical) areas. More details about fleet management and ownership can be found in the management report in the section "Fleet". Finnair transported 14.7 million passengers in 2019. Due to the large number of customers and nature of business,

sales to any individual customer is not material compared to Finnair's total revenue.

1.2 Operating income

The operating income section includes both income statement and balance sheet notes that relate to revenue. The aim is to provide a more coherent picture of income related items affecting Finnair's result and financial position. Trade receivables and deferred income containing mainly prepaid flight tickets and travel tour services are presented in connection with this section, because those are an essential part in revenue recognition.

Revenue recognition

or receivable, net of discounts and indirect taxes.

Revenue is recognised when goods or services are delivered. Revenue is measured at fair value of the consideration received Passenger revenue includes sale of flight tickets, and is recognised as revenue when the flight is flown in accordance with the flight traffic program. Recognition of unused tickets as revenue is based on the expected breakage amount of tickets remaining unused in proportion to the pattern of rights exercised by the passenger. Sales price is allocated to a flight ticket and points in Finnair Plus' Customer Loyalty Program. Finnair loyalty customers can earn Finnair Plus Points from tickets or services purchased, and use the earned points to buy services and products offered by Finnair or its cooperation partners. The points earned are measured at fair value and recognised as a decrease of revenue and debt at the time when the points-earning event (for example, flight is flown) is recognised as revenue. Fair value is measured by taking into account the fair value of those awards that can be purchased with the points and the customer selection between different awards based on historical customer behaviour. In addition, the fair valuation takes into account the expiry of the points. The debt is derecognised when the points are used or expire. Customer compensations for delays or cancellations is a variable consideration in the contract and it is recognised as an adjustment to revenue. Ancillary revenue includes sale of ticket related services, like advance seat reservations, additional baggage fees as well as different service fees, and sale of goods in the aircraft. The service revenue is recognized when the flight is flown in accordance with the flight traffic program, since it is considered as a contract modification instead of separate revenue trans-

action. The sale of goods is recognized when the goods are delivered to the customer.

Cargo revenue is recognized when the cargo has been delivered to the customer.

Tour operations revenue includes sale of flight and hotel considered as separate performance obligations, which are recognized as the service is delivered.

= Content of the section = Accounting principles

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Trade receivables

Finnair Group recognises impairment provisions based on lifetime expected credit losses from trade receivables in accordance with IFRS 9. Finnair has chosen to apply a simplified credit loss matrix for trade receivables as trade receivables do not have a significant financing component. Accordingly, the credit loss allowance is measured at an amount equal to the lifetime expected credit losses. The expected credit loss model is forward-looking, and expected default rates are based on historical realised credit losses. The lifetime expected credit loss allowance is calculated using the gross carrying amount of outstanding trade receivables in each aging bucket and an expected default rate. The changes in expected credit losses are recognised in other operating expenses.

Finnair Plus Customer Loyalty Program

Valuation and revenue recognition related to Finnair Plus debt requires management judgment especially related to fair valuation of points and timing of revenue recognition related to points expected to expire. The fair value of the point is defined by allocating the point to award selection based on historical behaviour of customers, after which the fair value of each award is defined. The liability is calculated by taking the total amount of points earned by customers, decreased by the expected expiry of the points. These points are then fair valued as described above, and the result is recognised as liability on the balance sheet.

1.2.1 Revenue by product and traffic area

2019

EUR mill.	Asia	North Atlantic	Europe		Domestic Unallocated	Total	Share, % of revenue by product
Passenger revenue	1,083.6	179.1	997.9	181.4	37.8	2,479.8	80.1
Ancillary and retail revenue	54.8	11.1	45.1	5.2	60.0	176.2	5.7
Cargo	156.8	13.8	32.9	1.3	7.3	212.1	6.8
Travel services	32.9	13.0	183.6		-0.1	229.5	7.4
Total	1,328.2	217.1	1,259.5	187.9	105.0	3,097.7
Share, % of revenue by traffic area	42.9	7.0	40.7	6.1	3.4

The division of revenue by traffic area is based on the destination of the Finnair flight.

2018

EUR mill.	Asia	North Atlantic	Europe		Domestic Unallocated	Total	Share, % of revenue by product
Passenger revenue	999.3	137.5	898.1	178.0	32.4	2,245.4	79.2
Ancillary and retail revenue	45.3	7.5	40.7	4.4	62.9	160.8	5.7
Cargo	155.7	12.0	32.4	0.6	6.5	207.2	7.3
Travel services	35.9	13.3	165.2	1.3	7.0	222.6	7.8
Total	1,236.2	170.3	1,136.4	184.4	108.8	2,836.1
Share, % of revenue by traffic area	43.6	6.0	40.1	6.5	3.8

Revenue bridge by product

€ million

Revenue bridge by traffic area

Revenue by traffic area

Revenue by product

Passenger revenue Ancillary revenue Cargo Travel services

= Accounting principles

= Critical accounting estimates

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

1.2.2 Revenue by currency

EUR mill.	2019	2018
EUR	1,626.5	1,552.6
JPY	351.4	296.8
CNY	211.4	199.3
USD	147.4	113.9
SEK	101.5	98.7
KRW	80.3	84.1
Other currencies	579.1	490.7
Total	3,097.7	2,836.1

The hedging policies against foreign exhange rate fluctuations are described in note 3.5 Management of financial risks.

1.2.3 Receivables related to revenue

EUR mill.	2019	2018
Trade receivables	108.9	116.8
Accrued income	51.8	35.6
Total	160.6	152.4

The fair value of trade receivables do not materially differ from balance sheet value.

The Group has recognised total 0.3 million euros (0.5) of credit losses from trade receivables during the financial year. Trade receivables do not contain significant credit risk because of diversity in the customer basis. The maximum exposure to credit risk at the reporting date is the carrying amount of trade receivables. The Group does not hold any collateral as security related to trade receivables.

Trade receivables by currency

EUR mill.	2019	2018
EUR	48.6	55.1	3,500
USD	11.3	11.5	3,000		2,991.3
JPY	9.9	10.7		2,691.4
CNY	5.6	5.8	2,500
GBP	5.2	5.1	2,000
HKD	4.9	5.1	1,500
SEK	3.7	5.2
NOK	3.7	3.3	1,000
KRW	3.6	3.3	500
Other currencies	12.3	11.8	0
Total	108.9	116.8		2018	2019

Operational expenses

		2019			2018
Aging analysis of trade	Trade receivables,	Probability of not collecting,	Expected uncollectible,	Trade receivables,	Probability of not collecting,	Expected uncollectible,	1.3.1 Operational expenses by currency EUR mill.	2019	2018
receivables	EUR mill.	%	EUR mill.	EUR mill.	%	EUR mill.	EUR	1,694.6	1,625.4
Not overdue	108.5	0.3%	0.4	107.9	0.7%	0.8
Overdue less than 60 days	-1.4	1.3%		5.0	0.5%		USD Other currencies	1,073.3 223.4	867.6 198.4
Overdue more than 60 days	1.8	1.4%		4.0	1.1%		Total	2,991.3	2,691.4
Total	108.9	0.4%	0.4	116.8	0.7%	0.8

1.2.4 Deferred income and advances received

EUR mill.	2019	2018
Deferred revenue on ticket sales	451.2	444.8
Loyalty program Finnair Plus	43.3	45.4
Advances received for tour operations	45.4	44.9
Other items	12.7	13.8
Total	552.7	548.9

Deferred income and advances received includes prepaid, yet unflown flight tickets and package tours, which departure date is in the future. The Finnair Plus liability is related to Finnair's customer loyalty program, and equals the fair value of the accumulated, unused Finnair Plus points.

1.3 Operating expenses

The operating expenses section includes the income statement and balance sheet notes related to operating expenses, aiming to provide a better overview of business operations and related expenses. Maintenance provisions of leased aircraft that inherently relate to aircraft overhaul costs are included in this operating expenses section. Also accrued expenses, such as liabilities related to jet fuel and traffic charges, are presented in this section. In addition, items related to employee benefits are presented at the end of this section in a separate note 1.3.8. Employee benefits. It includes the different forms of benefits received by Finnair employees, including share-based payments and pensions, their effect on staff costs and balance sheet as well as information on management remuneration.

The hedging policies against foreign exchange rate fluctuations are described in note 3.5 Management of financial risks.

= Content of the section

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND AUDITOR'S REPORT

2019	2018
1,626.5	1,552.6
351.4	296.8
211.4	199.3
147.4	113.9
101.5	98.7
80.3	84.1
579.1	490.7
3.097.7	2.836.1

2019	2018
108.9	116.8
51.8	35.6
160.6	152.4

2019	2018
48.6	55.1
11.3	11.5
9.9	10.7
5.6	5.8
5.2	5.1
4.9	5.1
3.7	5.2
3.7	3.3
3.6	3.3
12.3	11.8
108.9	116.8

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

1.3.2 Passenger and handling services

EUR mill.	2019	2018
Ground and cargo handling expenses	206.2	188.7
Expenses for tour operations	120.3	113.4
Catering expenses	74.0	71.0
Other passenger services	76.3	67.1
Total	476.7	440.3

1.3.3 Property, IT and other expenses

EUR mill.	2019	2018
IT expenses	75.4	68.5
Property expenses	22.0	21.0
Other expenses	35.0	41.8
Total	132.4	131.3

Audit fees in other expenses

EUR mill.	2019	2018
PricewaterhouseCoopers
Auditor's fees	0.3	0.3
Tax advising		0.1
Other fees	0.2	0.2
Total	0.5	0.5

PricewaterhouseCoopers Oy has provided non-audit services to entities of Finnair Group totaling 128,000 euros (194,000) during the financial year 2019. These services included auditors statements 58,000 euros (85,000) and other services 70,000 euros (109,000).

1.3.4 Inventories and prepaid expenses

EUR mill.	2019	2018
Inventories	27.4	25.1
Prepaid expenses	20.6	60.5
Receivables from sublease contracts	13.2	12.7
VAT receivables	5.0	7.6
Other items	13.9	14.7
Total	80.2	120.7

The change in prepaid expenses is mainly related to the decrease in aircraft overhaul prepayments.

1.3.5 Other liabilities

EUR mill.	2019	2018
Jet fuel and traffic charges	96.9	89.5
Liabilities for tour operations	13.7	11.7
Interest and other financial items	10.6	8.0
Aircraft materials and overhaul	6.9	11.8
Income tax liabilities	3.0	11.1
Other items	94.5	82.2
Total	225.7	214.2

Other items consists of several items, none of which are individually significant.

1.3.6 Provisions

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as the result of a past event, the fulfilment of the payment obligation is probable, and a reliable estimate of the amount of the obligation can be made. The amount to be recognised as provision corresponds to the management's best estimate of the expenses that will be necessary to meet the obligation at the end of the reporting period. The Group is obliged to return leased aircraft and their engines according to the redelivery condition set in the lease agreement. If at the time of redelivery, the condition of the aircraft and its engines differs from the agreed redelivery condition,

Finnair needs to either maintain the aircraft so that it meets the agreed redelivery condition or settle the difference in cash to the lessor. To fulfil these maintenance obligations, the Group has recognised airframe heavy maintenance, engine performance maintenance, engine life limited part, landing gear, auxiliary power unit and other material maintenance provisions. The provision is defined as the difference between the current condition and redelivery condition of these maintenance components. The provision is accrued based on flight hours flown until the next maintenance event or the redelivery and recognised in the aircraft overhaul costs in the income statement. The provision is reversed at the maintenance event or redelivery. The price for the flight hour depends on the market price development of the maintenance costs. Estimated future cash flows are discounted to the present value. The maintenance market prices are mainly denominated in US dollars, which is why the amount of maintenance provision changes due to currency fluctuation of the dollar. The unrealised changes in currencies are recognised in changes in exchange rates of fleet overhauls.

Restructuring provisions are recognised when the Group has prepared a detailed restructuring plan and has begun to implement the plan or has announced it.

= Accounting principles

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2019	2018
75.4	68.5
22.0	21.0
35.0	41.8
132.4	131.3

2019	2018

0.3	0.3
	0.1
0.2	0.2
0.5	0.5

2019	2018
27.4	25.1
20.6	60.5
13.2	12.7
5.0	7.6
13.9	14.7
80.2	120.7

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Aircraft maintenance provision

The measurement of aircraft maintenance provisions requires management judgement especially related to timing of maintenance events and valuation of maintenance costs occurring in the future. The future maintenance costs and their timing are dependent on, for example, how future traffic plans actually realise, the market price development of maintenance costs and the actual condition of the aircraft at the time of the maintenance event.

EUR mill.	Aircraft maintenance provision	Other provisions	2019	Aircraft maintenance provision	Other provisions	2018
Provision at the
beginning of period	132.2	1.0	133.2	116.7	2.7	119.4
Provision for the period	61.6	6.6	68.2	49.5	0.5	50.0
Provision used	-31.7	-5.7	-37.3	-41.9	-2.2	-44.1
Provision for right of-use assets redelivery	0.1		0.1	0.3		0.3
Reclassifications		1.1	1.1
Unwinding of discount	2.7		2.7	2.7		2.7
Exchange rate differences	1.4		1.4	4.9		4.9
Total	166.3	3.1	169.4	132.2	1.0	133.2

Of which non-current	151.8	0.4	152.2	102.1	0.3	102.3
Of which current	14.5	2.7	17.2	30.1	0.8	30.9
Total	166.3	3.1	169.4	132.2	1.0	133.2

Non-current aircraft maintenance provisions are expected to be used by 2031. Other provisions include mainly items related to restructuring actions.

In addition, non-current provisions and other liabilities includes received lease deposits of 4.7 (4.8) million euros.

1.3.7 Items excluded from comparable operating result

The comparable operating result aims to provide a comparable view on business development between periods. Therefore, items affecting comparability are excluded from the comparable operating result. The principles related to income statement presentation and principles related to usage of alternative performance measures are described under the section Notes to the consolidated financial statements. Calculation principles of alternative performance measures are also defined in The report of the Board of Directors, in the section Calculation of key ratios. The detailed content of items affecting comparability and the reasoning behind excluding those from comparable operating results is described below.

Unrealised exchange rate differences of US dollar denominated aircraft maintenance provisions are excluded from comparable operating result. These exchange rate effects are included in the comparable operating result only when the maintenance event or redelivery occurs and the exchange rate differences realise over a long period of time. Finnair provides for the redelivery condition related to leased aircraft according to the principles described in the note 1.3.6. Provisions.

Further, unrealised fair value changes of derivatives where hedge accounting is not applied, are not included in the comparable operating result, as the business transactions which they are hedging are recognised to the comparable operating result only when they occur. The treatment of realised gains and losses on these derivatives is described in the note 3.8 Derivatives.

In addition to above, gains and losses on aircraft and other transactions and restructuring costs are not included in the comparable operating result, as those events are considered exceptional transactions that happen within unexpected intervals and may vary significantly between periods, and are not related to normal course of business operations. Gains and losses on transactions include sales gains and losses as well as other items that can be considered to be directly related to the sale of the asset. For example, a write-down that might occur when an asset is classified as "Assets held for sale" in accordance with IFRS 5, is included in gains and losses on the transactions. Restructuring costs include termination and other costs that are directly related to the restructuring of operations.

Below table demonstrates, which income statement items included in operating result the items affecting comparability have affected.

		2019		2018
EUR mill.	Operating result	Items affecting comparability	Comparable operating result	Operating result	Items affecting comparability	Comparable operating result
Revenue	3,097.7		3,097.7	2,836.1		2,836.1
Sales gains on aircraft and other transactions	0.2	-0.2		44.1	-44.1
Other operating income	56.4		56.4	73.7		73.7
Operating expenses
Staff costs	-536.6	1.9	-534.7	-499.7	0.1	-499.6
Fuel costs	-686.0	-1,3	-687.3	-581.0		-581.0
Capacity rents	-130.2		-130.2	-122.4		-122.4
Aircraft materials and overhaul	-202.5	1.4	-201.2	-167.8	4.9	-162.9
Traffic charges	-331.3		-331.3	-300.8		-300.8
Sales, marketing and distribution costs	-172.1		-172.1	-159.0		-159.0
Passenger and handling services	-476.7		-476.7	-440.3		-440.3
Sales losses on aircraft and other transactions				-1.3	1.3
Property, IT and other expenses	-133.5	1.0	-132.4	-131.1	-0.1	-131.3
EBITDA	485.4	2,8	488.3	550.4	-37.9	512.6
Depreciation and impairment	-325.4		-325.4	-294.2		-294.2
Operating result	160.0	2,8	162.8	256.3	-37.9	218.4

= Critical accounting estimates

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

= Accounting principles

1.3.8 Employee benefits

1.3.8.1 Employee benefit expenses and share-based payments

Share-based payments

Finnair provides a number of share-based compensation plans for its employees, under which the Group receives services from employees as consideration for share-based payments. Regarding share-based incentive plans for key personnel, the awards are paid only if performance criteria set by the Board of Directors is met. Share-based savings plan for employees (FlyShare) requires the employees to remain in Finnair's service for the defined period, but payment does not depend on any performance criteria.

The total expense for share-based payments is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Share-based payments that are settled net of taxes are considered in their entirety as equity-settled share-based payment transactions. The reward is valued based on the market price of the Finnair share as of the grant date, and recognised as an employee benefit expense over the vesting period with corresponding entry in the equity. Income tax paid to tax authorities on behalf of employee is measured based on the market price of the Finnair share at the delivery date and recognised as a decrease in equity.

Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination. Group is demonstrably committed when it has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.

Accounting principles related to pension benefits are described in the note 1.3.8.2 Pensions.

Staff costs

EUR mill.	2019	2018
Wages and salaries	371.4	339.2
Defined contribution schemes	63.4	63.2
Defined benefit schemes	11.2	13.2
Pension expenses total	74.6	76.4
Other social expenses	16.7	17.8
Salaries, pension and social costs	462.7	433.4
Operative staff related costs	42.8	34.6
Leased and outsourced crew	16.2	17.3
Other personnel related costs	13.0	14.3
Total	534.7	499.6
Staff costs included in items affecting comparability	1.9	0.1
Total staff costs in income statement	536.6	499.7

At Finnair, the total salary of personnel consists of fixed pay, allowances, short- and long-term incentives, fringe benefits and other personnel benefits. The total amount of short-term incentives excluding social security costs recognised for 2019 were 8.9 million euros (6.8).

Items affecting comparability include personnel related restructuring costs of 1.9 million euros (0.1). Total staff costs including items affecting comparability amounted to 536.6 million euros (499.7).

Transfer to Personnel Fund

Finnair has a Personnel Fund that is owned and controlled by the personnel. A share of Finnair's profits is allocated to the fund. The share of profit allocated to the fund is determined based on the targets set by the Board of Directors. The participants of the performance share plan (LTI) are not members of the Personnel Fund. Personnel Fund is obliged to invest part of the bonus in Finnair Plc's shares. In 2019, the comparable operating result exceeded the limit set by the board of directors. Therefore Finnair has recognised 1.5 million euros to the staff costs and liability, to be transferred to the personnel fund. In 2018, 6.8 million euros were allocated to the fund.

Liabilities related to employee benefits

EUR mill.	2019	2018
Holiday payments	78.9	75.8
Other employee related accrued expenses	40.5	29.9
Liabilities related to employee benefits	119.4	105.6

Other employee related accrued expenses mainly include witholding tax and accrued expenses related to social security costs and remunerations. In addition, restructuring provisions related to termination benefits (see note 1.3.6 Provisions) amounted to 1.7 million euros (0.9).

Management remuneration

The President and CEO and Executive Board remuneration

Thousand euros	President and CEO Topi Manner	Executive	Board Total 2019	Interim President and CEO Pekka Vähähyyppä, from 4.9.2018 onwards*	President and CEO Pekka Vauramo, until 31.10.2018**	Executive	Board* Total 2018
Fixed pay	752	2,078	2,830	119	682	1,743	2,544
Short-term incentives*	217	385	602	23	77	261	361
Fringe benefits	17	58	75	5	2	73	80
Termination benefits		832	832
Share-based payments	263	390	653	35	-89	508	455
Pensions (statutory)**	138	439	576	23	154	410	586
Pensions (voluntary, defined contribution)		50	50		104	51	155
Total	1,386	4,231	5,618	204	931	3,047	4,182

* Pekka Vähähyyppä's compensation is included in Executive Board until 3 September 2018.

** Pekka Vauramo was Finnair's CEO until 4 September 2018, but service term ended 31 October 2018. He was no longer eligible for share-based payments for 2016–2018, 2017–2019 and 2018–2020 plans and the related costs were reversed in 2018. *** Short-term incentives for the financial year 2019 are estimates as at the balance sheet date the final review of targes has not been done. Short-term incentives for 2018 realised seven thousand euros smaller than expected in 2018 financial statements. The difference has been reported, according to accrual basis, in 2019.

**** Statutory pensions include Finnair's share of the payment to Finnish statutory "Tyel" pension plan.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Management remuneration is presented on an accrual basis. Share-based payments include LTI plans and employee share savings plans and are recognised over the vesting period until the end of lock-up period, according to IFRS 2. Therefore the costs accrued and recognised for the financial year include effects from several share-based payment plans independent of when the shares are delivered. Management has not been provided any other long-term incentives in addition to share-based payments.

The voluntary pension plans of two members of the Executive Board have been arranged through a Finnish pension insurance company. The retirement age for the two members of the Executive Board is 63. The plans are defined contribution plans.

More information on share-based payment schemes can be found later in this note and in a separate Remuneration statement and on company website.

Remuneration paid to Board of Directors

Compensation paid for board service, EUR	Total 2019	Fixed remuneration	Meeting	compensation Fringe benefits	Total 2018
Board of Directors	422,356	278,400	128,400	15,556	443,177*
Alahuhta-Kasko Tiina, from 20 March 2019 onwards	29,100	22,500	6,600
Barrington Colm	60,784	32,400	24,000	4,384
Brewer Montie	52,200	30,000	22,200
Du Mengmeng	48,376	30,000	16,800	1,576
Erlund Jukka, from 20 March 2019 onwards	30,900	24,300	6,600
Friman Maija-Liisa, until 20 March 2019	11,488	8,100	1,200	2,188
Karvinen Jouko	80,307	61,200	15,600	3,507
Kjellberg Henrik	52,200	30,000	22,200
Mårtensson Jonas, until 20 March 2019	14,304	7,500	5,400	1,404
Tuominen Jaana	42,697	32,400	7,800	2,497

* 2018 Board of Directors remuneration presented on an accrual basis. In the 2018 financial statement, the remuneration was presented on a cash basis.

Share-based payments

The note below provides description and information on effects of the Group's share-based incentive schemes. More information on share-based personnel bonus schemes can be found in Remuneration statement.

Performance share plan for key personnel (LTI) from 2013 onwards

Finnair's share based incentive plan is a performance-based, annually commencing long-term incentive (LTI) arrangement, and the commencement of each new plan is subject to a separate decision made by Finnair's Board of Directors. The purpose of these plans is to encourage the management to work to increase long-term shareholder

The compensation paid to the members of the Board of Directors include annual remuneration and meeting compensation. The members of the Board of Directors are entitled to a compensation for travel expenses in accordance with Finnair's general travel rules. In addition, the members of the Board of Directors and their spouses have a limited right to use staff tickets in accordance with Finnair's staff ticket rules. Under the rules, the Directors and their spouses are entitled to four return or eight one-way tickets on Finnair flights per calendar year in Economy or Business Class. The fare of these tickets is zero, exclusive of any airport taxes, fees and charges, which are payable by the Directors and their spouses. These tickets constitute taxable income in Finland and are reported as fringe benefits in the table above. In 2017, a new LTI arrangement was launched and there are three plans ongoing (2017–2019, 2018–2020 and 2019– 2021). In the revised structure the annually commencing performance share plans retain the three-year performance period. The potential share rewards will be delivered to the participants in one tranche after the performance period and they are at the participants' free disposal after delivery. The members of Finnair's Executive Board are expected to accumulate their share ownership in Finnair until it corresponds to their annual gross base salary and thereafter retain it for as long as they are members of the Executive Board.

value. The Finnish Government's guidance regarding the remuneration of executive management and key individuals have been taken into consideration when designing the plans.

Plans launched during 2013–2016 are four-six-year share plans and there are three plans ongoing (2014–2016, 2015– 2017 and 2016–2018). Each LTI plan contains a three-year performance period which is followed by a restriction period, during which the participant may not sell or transfer the shares received as a reward. The restriction period is three years for the members of Finnair's Executive Board and one year for other participants. In addition, the President and CEO, and members of Finnair's Executive Board are required to accumulate and, once achieved, to maintain, a share ownership in Finnair corresponding to his or her annual base salary as long as he or she holds a position as a member of Finnair's Executive Board.

The potential reward will be delivered in Finnair shares. The shares are delivered to the participants during the year following the performance period. The payout opportunity is defined in the beginning of each plan in relation to the participants annual base salary. For the plans commencing during 2013–2016, the payout opportunity is defined in a fixed euro amount. In the plans commencing in 2017–2019, the payout opportunity is defined as a fixed share amount and therefore changes in the share price during the performance period impacts the value of the payout opportunity. If the performance criteria set for the plan are met at the target level, the incentive paid in Finnair shares to the President and CEO or other member of the Executive Board participating in the plans will be 30% of his or her annual base salary in the plans commencing 2013–2016 and 20% in the plans commencing in 2017–2019. If the performance criteria set for the plan are met at the maximum level, the incentive paid in Finnair shares will be 60% of the participant's annual base salary. The maximum level for incentives for other key personnel is 25–50% of the person's annual base salary.

FINNAIR SHARE-BASED PAYMENT PLANS

Lock-up period Share delivery

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

According to the rules of the 2017–2019, 2018–2020 and 2019–2021 share plans, the maximum combined value of all variable compensation paid to an individual participant in any given calendar year may not exceed 120 per cent of the participant's annual gross base salary. The amounts of shares paid are stated before tax. The number of shares delivered will be deducted by an amount corresponding to the income tax and transfer tax payable for the incentive at the time of payment.

The performance criteria applied to the plans 2014–2016, 2015–2017 and 2016–2018 are Return on Capital Employed (ROCE, 50% weight) and Total Shareholder Return (TSR, 50% weight). The performance criteria applied to the plans 2017–2019 and 2018–2020 are earnings per share (EPS, 50% weight) and revenue growth (50% weight). The performance criteria applied to the plan 2019–2021 are earnings per share (EPS, 50% weight), revenue growth (16.7% weight) and unit cost with constant currencies and fuel price (CASK, 33.3% weight). The target levels and maximum levels set for the criteria are based on the long-term strategic objectives set by the company's Board of Directors. Criteria are monitored against the performance on a quarterly basis. The performance criteria of the plan for 2016– 2018 were met at 187% level while the target was at 100% and the maximum earning level at 200%. In the comparison period, the performance criteria applied to the 2015–2017 plan was met at 192% level.

The total expense for the share-based payments is recognised over the vesting period, which is 4–6 years in the plans commencing 2013–2016 and 3 years in the plans commencing 2017–2019. For the plans commencing 2013–2016, the compensation is measured during performance period in cash, and only after performance period at grant date translated into shares. In the plans commencing 2017–2019 the grant date is at the beginning of performance period and the compensation is measured in shares. The expense recognised for 2019 amounted to 1.2 million euros (1.1). The amount expected to be transferred to the tax authority to settle the employee's tax obligation is 2.1 million euros (3.7). The cost related to share-based payments is recognised in staff costs and unrestricted equity funds.

			2014–2016 2015–2017 2016–2018 2017–2019 2018–2020 2019–2021				Total
Maximum earning, million euros	2.5	2.8	2.3	2.8*	1.3*	2.5*	14.2*
Maximum earning, million shares	0.4	0.5	0.4	0.5*	0.2*	0.4*	2.4*
Target earning, million euros	1.2	1.4	1.2	0.9	0.4	0.8	6.0
Target earning, million shares	0.2	0.2	0.2	0.2	0.1	0.1	1.0
Expenses recognised for the financial year, LTI's total (million euros)	-0.1	0.2	0.7	-0.1	0.2	0.2	1.2
Shares granted, million shares**			0.3	0.5	0.2	0.4	1.4

* Maximum total earnings (including both short- and long-term incentives) for 2017–2019, 2018–2020 and 2019–2021 plans are capped at 120% of participants' annual base salary.

** At the end of the performance period of 2016–2018 plan, the vested euros were translated into shares, and granted and delivered. In 2017–2019, 2018–2020 and 2019–2021 programs shares are earned during vesting period, from the beginning of the program.

FlyShare employee share savings plan 2013 onwards

Finnair offers an annually commencing share savings plan for its employees. Commencing of each plan is subject to the decision of Finnair's Board of Directors. The first plan commenced in 2013, and currently there are three plans ongoing. The objective of the plan is to encourage employees to become shareholders in the company, and to thereby strengthen the employees' interest in the development of Finnair's shareholder value and reward them in the long-term. Each plan consists of one year savings period followed by two year lock-up period. Through the plan, each eligible Finnair employee is offered the opportunity to save part of his or her salary to be invested in Finnair shares. The maximum monthly savings are 8 per cent and the minimum 2 per cent of each participant's gross base salary per month. Shares are purchased with the accumulated savings at the market price quarterly, after the release of Finnair's interim reports.

Finnair awards 20 bonus shares to each employee that participates in the plan for the first time, and continues savings at least the first three months of the plan. The bonus shares are delivered in October each year, and the effect is recognised as expense for the period. The plan lasts for three years, and Finnair awards each participating employee with one share for each two shares purchased and held at the end of three-year period. The awarded bonus and additional shares are taxable income for the recipient. The number of shares delivered will be deducted by an amount corresponding to the income tax and transfer tax payable for the shares at the time of payment. The cost related to additional shares delivered is recognised as expense during vesting period.

The expense recognised for FlyShare employee share saving plans in 2019 amounted to 1.1 million euros (0.8). The amount expected to be transferred to the tax authority to settle the employee's tax obligation is 1.1 million euros (1.1). The cost related to employee share saving plans is recognised in staff costs and unrestricted equity funds.

1.3.8.2 Pensions

Defined benefit and defined contribution plans

Pension plans are classified as defined benefit and defined contribution plans. Payments made into defined contribution pension plans are recognised in the income statement in the period to which the payment applies. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Current service cost is the present value of the post employment benefit, which is earned by the employees during the year and it is recognised as staff cost. The liability recognised in the balance sheet in respect of defined pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligations is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

Critical accounting estimates and sources of uncertainty

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations. The note below includes a description of exposure to most significant risks and a sensitivity analysis on impacts of changes in actuarial assumptions.

Description of pension plans at Finnair

The statutory pension cover of the employees of the Group's Finnish companies has been arranged in a Finnish pension insurance company. The statutory pension cover is a defined contribution plan. The Group's foreign sales offices and subsidiaries have various defined contribution plans that comply with local rules and practices. CEO has no voluntary pension plan. The voluntary pension plans of two members of the Executive Board are arranged in a pension insurance company. The retirement age for the two members is 63 years. These pension schemes are defined contribution schemes. Other (voluntary) pension cover of the Group's domestic companies has been arranged mainly through Finnair Plc's Pension Fund, in which the pension schemes are defined benefit plans. These pension plans cover old age pensions, occupational disability and survivors' pensions. The pension fund is fully funded in accordance with the provisions of Finnish law. 700 Finnair pilots have, in addition to the voluntary pension arranged in Finnair Pension Fund, special defined benefit pension scheme. This scheme applies only to pilots who work past 58 years of age. Voluntary pensions of pilots recruited in 2015 or later are defined contribution schemes arranged through Finnish insurance company, except for the occupational disability benefit, which is a defined benefit plan arranged through the Finnair Pension Fund.

= Accounting principles = Critical accounting estimates

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT

1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Exposure to most significant risks

Volatility of plan assets: Some of the plan assets are invested in equities which causes volatility but one in the long run expected to provide higher returns than corporate bonds. The discount rate of plan obligations is defined based on the interest rates of corporate bonds.

Changes in bond yield: A decrease in corporate bond yields increases plan obligations due to the fact that the pension obligation is discounted to net present value with a rate that is based on corporate bond rates. This increase in plan obligations is partially mitigated by a corresponding increase in the value of corporate bonds in plan assets. Life expectancy: The most significant part of the provided pension benefits relate to old age pensions. Therefore, an

increase in the life expectancy rate results in an increase of plan obligations.

Inflation risk: Pension obligations are linked to inflation which is why higher inflation leads to increased obligations. As only some of the plan assets increase with inflation, an increase in inflation will likely decrease the solvency of the pension plan.

Defined benefit pension plans

Items recognised in the balance sheet

EUR mill. 2019 2018 Present value of funded obligations 523.2 435.1 Fair value of plan assets -446.1 -418.1 Net defined benefit liability 77.0 17.0

The net defined benefit liability in 2019 includes 77.0 million euros (16.5) related to defined benefit plans insured through the pension fund and 0.1 million euros (0.5) related to other defined benefit plans. In 2019, the pension

EUR mill.	2019	2018	Benefits paid	-19.3	-18.9
Items recognised in the income statement			Net present value of pension obligations	523.2	435.1
Current service costs	10.4	10.8
Past service cost	0.9	2.4	Changes in plan assests
Service cost total, recognised in staff costs	11.2	13.2	EUR mill.	2019	2018
Net interest expenses	0.2	0.1	Fair value of plan assets at 1 January	418.1	435.6
Total included in the income statement	11.5	13.2	Interest income	7.2	6.7
			Items recognised through profit and loss	7.2	6.7
Amounts recognised through other comprehensive income			Acturial gain (loss) on plan assets	39.7	-7.2
Experience adjustment on plan obligation	-3.2	4.0	Items recognised through OCI	39.7	-7.2
Changes in financial actuarial assumptions	93.1	-12.1	Contributions paid	1.6	1.9
Net return on plan assets	-39.7	7.2	Benefits paid	-19.3	-18.9
Amounts recognised through other comprehensive income total	50.2	-0.8	Administration expenses	-1.2
			Fair value of plan assets at 31 December	446.1	418.1
Number of persons involved, pension fund	4,865	4,894
Number of persons involved, other defined benefit plans	168	175

obligation increased mainly due to lower discount rate and changes in demographic assumptions caused by the change in disability rates and provision for future professional disability pensions.

Changes in pension obligations
EUR mill.	2019	2018
Fair value of pension obligations at 1 January	435.1	442.0
Current service costs	9.1	10.8
Past service cost	0.9	2.4
Interest expense	7.4	6.8
Expense recognised in income statement	17.4	20.0
Changes in actuarial assumptions	93.1	-12.1
Experience adjustment on plan obligation	-3.2	4.0
Remeasurements recognised through OCI	89.9	-8.0
Benefits paid	-19.3	-18.9
Net present value of pension obligations	523.2	435.1

Plan assets are comprised as follows

%	2019	2018
Listed shares	22.8	22.0
Debt instruments	52.2	52.7
Property	19.2	19.0
Other	5.8	6.3
Total	100.0	100.0

Plan assets of the pension fund include Finnair Plc shares with a fair value of 0.8 million euros (1.0) and buildings used by the Group with a fair value of 19.7 million euros (19.7).

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2019	2018
523.2	435.1
-446.1	-418.1
77.0	17.0

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

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Defined benefit plans: principal actuarial assumptions

2019	2018

Discount rate %	0.87%	1.66%
Inflation %	1.10%	1.08%
Annual rate of future salary increases %	1.60%	1.56%
Future pension increases %	1.40%	1.38%
Estimated remaining years of service	9	10

Sensitivity analysis

The sensitivity analysis describes the effect of a change in actuarial assumptions on the net defined benefit obligation. The analyses are based on the change in the assumption while holding all other assumptions constant. The method used is the same as that which has been applied when measuring the defined benefit obligation recognised in the balance sheet.

2 Fleet and other fixed assets and leasing arrangements

Fleet and other fixed assets and leasing arrangements includes notes particularly related to the aircraft fleet. Notes related to the aircraft operated by the Group are combined in this section so that the general view of the fleet is easier to understand. In addition to owned aircraft, the notes cover leased aircraft under different kind of aircraft lease arrangements.

balance sheet. Sensitivity analysis on principal actuarial assumptions							Owned, 47	Lease, 36
Actuarial assumption	Change in assumption	Impact when increase in assumption, EUR mill.	%	Impact when decrease in assumption, EUR mill.	%	Narrow-body, 61
Discount rate %	0.25%	-19.0	-3.7%	20.2	4.0%
Annual rate of future salary increases %	0.25%	5.7	1.1%	-5.6	-1.1%
Future pension increases % Life expectancy at birth	0.25% 1 year	13.1 15.6	2.6% 3.1%	-12.5 -15.4	-2.5% -3.0%
According to Finnish legislation, the pension fund needs to be fully funded. Finnair does not expect to pay contributions to the pension fund in 2020. The duration of defined benefit obligation is 15 years. The duration is calculated by using discount rate of 0.87%.						Wide-body, 22
							A350 (14) A330 (8) A321 (19) E190 Norra operated (12) ATR Norra operated (12)	A320 (10) A319 (8)

The assets owned and leased by Finnair consist mostly of aircraft operated by Finnair and Norra. In 2019, the owned aircraft is 47 (42) and leased 36 (39). More detailed information regarding the owned aircraft is found in note 2.1 and regarding the leased aircraft in note 2.2.

Fleet in Finnair balance sheet

EUR mill.	2019	2018	Change
Advances paid for aircraft	117.8	120.4	-2.7
Owned aircraft in use	1,415.6	1,199.8	215.8
Right-of-use fleet	736.4	834.3	-97.9
Fleet total	2,269.7	2,154.5	115.2
Fleet sublease receivables	47.0	58.3	-11.3
Fleet lease liabilities	948.7	984.3	-35.6

Depreciation for the period of owned aircraft	171.2	136.5	34.7
Depreciation for the period of right-of-use fleet	106.1	112.9	-6.8

FLEET

= Content of the section

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

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2.1 Fleet and other fixed asset

Fleet and other fixed assets are stated at historical cost less accumulated depreciation and impairment loss if applicable. Fleet includes aircraft and aircraft prepayments. The acquisition cost of aircraft is allocated to the aircraft frame, cabin components, engines and maintenace components as separate assets. Maintenance components include heavy maintenance, C-checks, APU (auxiliary power unit) restorations, landing gear overhauls and thrust reversers of aircraft frames, as well as performance restoration and maintenance of life-limited parts of engines. The maintenance components are depreciated during the maintenance cycle. Aircraft frames and engines are depreciated over the useful life of the aircraft. Cabin components are depreciated over their expected useful life. Significant modifications of own or leased aircraft are capitalised as separate items and depreciated over their expected useful life, which in the case of leased aircraft cannot exceed the lease period. Replaced components are derecognised from the balance sheet.

Advance payments for aircraft are recorded as fleet fixed assets. Interest costs related to advance payments are capitalised as acquisition cost for the period at which Finnair is financing the manufacturing of the aircraft. Hedging gains or losses related to the fair value changes of firm, USD nominated purchase commitments for aircraft are recognised in advance payments. Advance payments, realised foreign exchange hedges and capitalised interests are recognised as part of the aircraft acquisition cost once the aircraft is delivered and taken to commercial use.

Other fixed assets include rotable aircraft spare parts, other fixed assets and their prepayments. Other fixed assets are depreciated during their expected useful life.

Intangible assets mainly include computer software, connection fees and goodwill. Connection fees and goodwill are not depreciated.

Depreciations of fleet and other fixed assets is based on the following expected economic lifetimes: • New aircraft and engines as well as flight simulators (other equipment) on a straight-line basis as follows:

− Airbus A350 fleet, over 20 years to a residual value of 10 %
− Airbus A320 and Embraer fleet, over 20 years to a residual value of 10 %
− Airbus A330 fleet, over 18 years to a residual value of 10 %
− Turboprop aircraft (ATR fleet), over 20 years to a residual value of 10 %
Heavy maintenance, C-checks, APU and Landing gear restorations and thrust reversers of aircraft frame, as well as performance maintenance and life limited parts of the engines, on a straight-line basis during the maintenance period
Cabin components, over 7–20 years
Rotable spare parts and components, over 15–20 years to a residual value of 10 %
Buildings, over 10–50 years from the time of acquisition to a residual value of 10 %
Other tangible assets, over 3–15 years
Computer software, over 3–8 years

The residual values and estimated useful lives of the assets are assessed at each closing date and if they differ significantly from previous estimates, the depreciation periods and residual values are changed accordingly. Gains and losses on disposal of tangible and intangible assets are included in the items affecting comparability. Finnair changed its accounting principles of aircraft frame components and overhauls at the beginning of 2019. Cabin components (for example business seats) and significant frame overhauls (for example landing gear) are accounted for as separate components. Previously, only heavy maintenance of airframes had been separated into its own frame component. Impacts of the change are described in more detail in section 'Changes in accounting principles and restated financials 2018'

provided under the notes to the consolidated financial statements.

Assets held for sale

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction, a sale is considered highly probable and expected to take place within the next twelve months. Assets classified as held for sale are stated at the lower of the carrying amount or fair value less cost to sell. Depreciation of the assets is no longer continued.

Impairment

The Group reviews its fixed assets for indication of impairment on each balance sheet date. Impairment loss is recognized if an asset's recoverable amount is below its carrying amount. Recoverable amount is determined as the higher of the asset's fair value less costs to sell or its value in use. The recoverable amount is defined for a cash generating unit, and the need for impairment is evaluated at the cash generating unit level. The value in use is based on the present value of the expected net future cash flows obtainable from the asset or cash-generating unit.

= Accounting principles

= Critical accounting estimates

Impairment testing

The recoverable amounts of cash generating units have been determined based either on the value in use or on the sale price less sale related expenses. The preparation of these calculations requires the use of estimates. Estimates are based on budgets and forecasts, which inherently contain some degree of uncertainty. The main uncertainty factors in calculations are the USD/EUR and JPY/EUR exchange rates, unit revenue, estimated sales volumes and jet fuel price.

Fleet 2019

EUR mill.	Aircraft	Advances	Total
Acquisition cost 1 Jan 2019	2,082.2	120.4	2,202.7
Additions	310.7	76.0	386.7
Disposals	-9.7		-9.7
Currency hedging of aircraft acquisitions		-1.1	-1.1
Reclassifications	77.6	-77.6	0,0
Transfer to assets held for sale
Acquisition cost 31 Dec 2019	2,460.7	117.8	2,578.5

Accumulated depreciation and impairment 1 Jan 2019	-882.4		-882.4
Disposals	8.5		8.5
Depreciation for the financial year	-171.2		-171.2
Accumulated depreciation and impairment 31 Dec 2019	-1,045.2		-1,045.2

Book value 31 Dec 2019	1,415.6	117.8	1,533.3

The carrying value of the owned aircraft at the end of year 2019 includes the acquisition of two new A350 aircraft. The reclassifications relate to the capitalization of the aircraft prepayments at the time of the recognition of the aircraft on Finnair's balance sheet. The currency hedging of aircraft acquisitions is described in notes 3.5 Management of financial risks and 3.8 Derivatives.

Fleet 2018

EUR mill.	Aircraft	Advances	Total
Acquisition cost 1 Jan 2018	1,882.8	96.0	1,978.8
Additions	243.3	100.0	343.3
Disposals	-84.7		-84.7
Currency hedging of aircraft acquisitions		-34.9	-34.9
Reclassifications	40.9	-40.7	0.1
Transfer from assets held for sale
Acquisition cost 31 Dec 2018	2,082.2	120.4	2,202.7
Accumulated depreciation and impairment 1 Jan 2018	-760.6		-760.6
Disposals	14.7		14.7
Depreciation for the financial year	-136.5		-136.5
Accumulated depreciation and impairment 31 Dec 2018	-882.4		-882.4
Book value 31 Dec 2018	1,199.8	120.4	1,320.2

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
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Other fixed assets 2019

EUR mill.	Aircraft rotable parts	Buildings and land	Other equipment	Intangible assets	Advances	Total
Acquisition cost 1 Jan 2019	45.0	76.0	90.0	51.8	9.5	272.3
Additions	6.4	0.1	13.8	6.3	6.9	33.4
Disposals	-1.5	-0.4	-8.9	-10.6		-21.4
Currency hedging of aircraft acquisitions
Reclassifications	0.2	-0.1	1.9	4.2	-6.2	0.0
Transfer to assets held for sale	0.1					0.1
Acquisition cost 31 Dec 2019	50.1	75.6	96.8	51.6	10.2	284.3

Accumulated depreciation and impairment 1 Jan 2019	-30.7	-6.8	-27.1	-31.4	-3.1	-99.1
Disposals	0.6	0.4	6.9	10.6		18.6
Depreciation for the financial year	-3.3	-1.8	-8.3	-12.0		-25.5
Accumulated depreciation and impairment 31 Dec 2019	-33.4	-8.2	-28.5	-32.8	-3.1	-105.9

Book value 31 Dec 2019	16.8	67.4	68.3	18.8	7.1	178.4

In addition to the aircraft rotable parts included in the other fixed assets, Finnair's inventories include non-rotable aircraft parts amounting to 23.1 million euros (20.4). Intangible assets mainly include computer software, connection fees and goodwill. The goodwill included in intangible assets amounted to 0.5 million euros (1.3).

Other fixed assets 2018

EUR mill.	Aircraft rotable parts	Buildings and land	Other equipment	Intangible assets	Advances	Total
Acquisition cost 1 Jan 2018	47.4	75.7	63.5	44.8	28.1	259.5
Additions	4.5	0.3	10.9	6.4	5.4	27.5
Disposals	-1.1		-2.0	-5.5		-8.6
Reclassifications	-5.9		17.6	6.0	-24.0	-6.3
Transfer from assets held for sale	0.1					0.1
Acquisition cost 31 Dec 2018	45.0	76.0	90.0	51.8	9.5	272.3

Accumulated depreciation and impairment 1 Jan 2018	-28.5	-5.2	-22.1	-29.3	-3.1	-88.1
Disposals	0.8		2.0	5.5		8.3
Depreciation for the financial year	-3.0	-1.7	-7.0	-7.6		-19.3
Accumulated depreciation and impairment 31 Dec 2018	-30.7	-6.8	-27.1	-31.4	-3.1	-99.1

Book value 31 Dec 2018	14.4	69.2	62.8	20.4	6.4	173.2

Capitalised borrowing costs

		Aircraft	Advances		Total
EUR mill.	2019	2018	2019	2018	2019	2018
Book value 1 Jan	15.3	14.6	3.6	4.0	18.8	18.7
Additions			3.9	2.2	3.9	2.2
Disposals		-1,3				-1.3
Reclassifications	3.2	2.6	-3.2	-2.6		0,0
Depreciation	-0.9	-0.7			-0.9	-0.7
Book value 31 Dec	17.6	15.3	4.3	3.6	21.9	18.8

In 2019, borrowing costs of 3.9 million euros (2.2) were capitalised in tangible assets related to the Airbus A350 investment program. Finnair uses a quarterly effective interest rate to calculate the capitalised borrowing costs, that represents the costs of the loans used to finance the investment. The average yearly interest rate in 2019 was 5.24% (2.64%). Finnair applies the amendment of IAS 23 standard effective from 1 Jan 2019 and allows general borrowings used to fund the acquision of capital assets to be included in the calculation of the capitalisation rate. Previously only the bond rate was included in the calculation.

Assets and liabilities held for sale

At the end of 2019, Finnair did not hold any assets or liabilities for sale. At the end of 2018, the balance sheet value of assets held for sale was 0.1 million euro. Finnair did not hold any liabilities for sale at end of 2018.

Pledged assets and other restrictions on fixed assets

Finnair does not have fixed assets pledged as a security for bank loans. Fleet assets include three A350 aircraft financed with JOLCO-loans (see 3.3 Financial liabilities) and three owned A330 aircraft where the legal title is transferred to Finnair after loans are repaid.

Impairment test

The aircraft has been tested for impairment based on fair value less cost to sell on the balance sheet date with no indication for impairment. The test is sensitive to the exchange rate EUR/USD. The weakening of USD decreases the fair value of the aircraft. The fair value of the aircraft would still be higher than the carrying value, if USD would weaken by 10 per cent. Finnair has recognized a goodwill impairment of 0.9M€ related to discontinuation of travel services in Estonia. There was no indication of any further impairment of goodwill on the closing date.

Investment commitments

At the end of financial year investment commitments totalled 730 million euros (975) and it includes firm aircraft orders. The total commitment fluctuates between the order and the delivery of the aircraft mainly due to exchange rate EUR/USD and the escalation clauses included in airline purchase agreements. The final amount of the commitment in relation to each aircraft is only known at the time of the delivery.

Investment commitments

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CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
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= Accounting principles = Critical accounting estimates

The Group as lessee

Finnair assesses whether a contract that relates to tangible assets is, or contains, a lease in accordance with the IFRS 16. Lease agreements for tangible assets, where the contract conveys the right to use of an identified asset for a period of time in exchange for consideration, are classified as leases.

The lease term is the non-cancellable period for which a lessee has the right to use an underlying asset, together with both periods covered by an option to extend the lease if Finnair is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if Finnair is reasonably certain not to exercise the option.

The lease recognition requirements are not applied to short-term leases, where at the commencement date, the lease term is 12 months or less and does not contain a purchase option. Finnair considers the lease period to be the period that is enforceable. Hence, for contracts where the contract term is non-fixed and Finnair has the right to terminate the contract without the permission from the other party with no more than an insignificant penalty and there are no other indications that the contract is enforceable, Finnair classifies these contracts as short-term. The lease recognition requirements are also not applied to leases that are not material to Finnair.

For short-term leases and to immaterial leases to which these exemptions are applied, the lease payments are recognised as an expense on either a straight-line basis over the lease term, or on another systematic basis if that basis is more representative of the pattern of Finnair's benefit.

At the commencement date of a lease, Finnair recognises both a right-of-use asset, and a lease liability. The lease liability is the present value of future lease payments. At Finnair, lease payments for aircraft leases contain typically payments that depend on interest rates and indices, that are included in the measurement of the lease payments included in the measurement of the lease liability, using the interest or index rate at the commencement date of the lease. The right-of-use asset is measured at cost, comprising

the amount of the initial measurement of the lease liability;
any lease payments made at or before the commencement date, less any incentives received;
any initial direct costs incurred by Finnair; and
an estimate of costs to be incurred by Finnair in restoring the assets to the condition required by the terms and conditions of the lease.

Finnair is obliged to return leased aircraft and their engines according to the redelivery condition set in the lease agreement. If at the time of redelivery, the condition of the aircraft and its engines differs from the agreed redelivery condition, Finnair needs to either maintain the aircraft so that it meets the agreed redelivery condition or settle the difference in cash to the lessor. The maintenance costs can be divided into two main groups:

1) costs that are incurred independent of the usage of the aircraft / leasing period and 2) costs that are incurred dependent on the usage of the aircraft / leasing period

The final check and painting required at redelivery are considered unavoidable maintenance costs that realise when the aircraft is redelivered to the lessor, irrespective of the time or flight hours. The counterpart of the provision is recorded in the book value of the right-of-use asset at the commencement of the lease.

Respectively, costs depending on the usage of the aircraft are not considered as part of the right-of-use asset cost. Finnair remeasures the lease liability when there is a lease modification that changes the scope of a lease or the consideration for the lease, that was not part of the original terms and conditions of the lease, including changes in lease payments resulting from a change in indices and rates used in variable aircraft lease payments. The amount of the remeasurement of the lease liability is generally recognised as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the remaining measurement is recognised in profit or loss.

After initial recognition, right-of-use assets are measured at cost less any accumulated depreciations and impairment losses. The assets are depreciated with a straight-line method from the commencement date to the shorter of end of useful life of the right-of-use asset and the end of lease term. However, if the lease transfers ownership of the asset to Finnair by the end of lease term or if the cost of the right-of-use asset reflects that Finnair will exercise a purchase option, the right-of-use asset is depreciated from the commencement date to the end of useful life of the asset.

At Finnair aircraft lease contracts contain the interest rate implicit in the lease, even if the aircraft lease agreements do not clearly define the interest rate implicit in the lease. Since the fair values of the aircraft are provided publicly by third parties, Finnair is able to calculate the implicit interest rate for each qualifying aircraft operating lease. The rate implicit in the lease is defined as the rate that causes the sum of the present value of the lease payments and the present value of the residual value of the underlying asset at the end of the lease to equal the fair value of the underlying asset. The implicit interest rate is determined by each aircraft lease contract separately.

For other lease contracts at Finnair, implicit interest rate cannot be usually determined. The incremental borrowing rate is therefore used and it is determined by each class of assets separately, based on management estimate.

Aircraft lease contracts are usually denominated in foreign currency (US dollars) and the foreign currency lease liabilities are revalued at each balance sheet date to the spot rate. The lease payments (lease payments made) are accounted for as repayments of the lease liability and as interest expense.

The Group as lessor

Agreements, where the Group is the lessor, are accounted for as operating leases, when a substantial part of the risks and rewards of ownership are not transferred to the lessee. The assets leased under operating lease are included in the tangible assets and they are depreciated during their useful life. Depreciation is calculated using the same principles as the tangible assets for own use. Under the provisions of certain aircraft lease agreements, the lessee is required to pay periodic maintenance reserves which accumulate funds for aircraft maintenance. Advances received for maintenance are recognised as liability, which is charged, when maintenance is done. The rents for premises and aircraft are recognised in the income statement as other operating income over the lease term.

Agreements, where the Group is the lessor, are accounted for as finance leases, when a substantial part of the risks and rewards of ownership are transferred to the lessee. Finnair recognises assets held under a finance lease in its statement of financial position and presents them as a receivable at an amount equal to the net investment of the lease.

Finnair subleases aircraft and a small amount of ground equipment, where by reference to the head lease, the lease term is for the majority of the remaining economic life arising from the right-of-use asset (i.e. the lease term of the sublease corresponds closely to the lease term of the head lease) and therefore these are classified as finance leases. At the commencement date, for the subleases, a net investment (lease receivable), equaling to the present value of lease payments and the present value of the unguaranteed residual value, is recognised. The proportion of the right-of-use asset subleased is derecognised from the balance sheet and the difference between the right-of-use asset and the net investment is recognised in the profit or loss, in sales gains and losses. Subsequently, the lease payments (lease payments received) are accounted for as repayments of the lease receivable and as interest income.

Sale and leaseback

In sale and leaseback transactions, where Finnair sells and then leases back aircraft, Finnair measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained by the Group. Accordingly, Finnair recognises only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.

Critical accounting estimates and sources of uncertainty

The classification of all leasing arrangements in the Group, determining the interest rate and lease term used in discounting the lease payments and estimating the redelivery obligations of aircraft leases require management discretion in interpretation and application of accounting standards.

Right-of-use assets 2019

EUR mill.	Aircraft	Buildings and land	Other equipment	Total
Book value 1 Jan 2019	834,3	153.6	10.7	998.6
Additions	10,0	5.3	13.9	29.2
Changes in contracts	-1.8	-3.4	-0.5	-5.6
Disposals		-15.1		-15.1
Depreciation for the financial year	-106.1	-16.4	-6.9	-129.5
Book value 31 Dec 2019	736.4	124.0	17.1	877.5

Additions to right-of-use aircraft in 2019 are related to two new lease agreements for spare engines and the increase in other equipment relates to renewal of company car agreements. The changes in contracts relate to changes either in the scope, or consideration, of leases. Disposals of buildings and land comprise of sublease agreement of land which was recognised at the beginning of the year 2019.

2.2 Leasing arrangements

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
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1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Operating expenses include costs related to short-term and capacity based rental agreements, for which a lease liability and right-of-use asset is not recognised. In the income statement, the short-term wet leases and variable purchase traffic and cargo capacity rents are included in capacity rents and the short-term office rents are included in property, IT and other expenses. Total cash outflow relating to leases was -317.5 million euros (-315.7).

Off-balance sheet lease commitments, Group as lessee, Group as lessee

		Premises rents	Other rents
EUR mill.	2019	2018	2019	2018
less than one year	3.0	2.9	2.3	3.6
1–5 years	6.5	6.6	0.8	2.2
more than 5 years	7.8	11.7		0.1
Total	17.2	21.1	3.1	5.8

The irrevocable lease agreements include short-term and other lease contracts that are not included in lease liabilities. The most significant item in the premises rents is the right-to use a test cell, which is excluded from the lease liabilty on the basis that it is not for the exclusive use of Finnair. Other rents include IT equipment leases, that are not material.

Off-balance sheet lease assets, Group as lessor

	Aircraft		Buildings and land
EUR mill.	2019	2018	2019	2018
less than one year	27.0	27.1	2.1	2.1
1–5 years	36.8	63.8	8.4	8.3
more than 5 years			11.9	14.0
Total	63.8	90.9	22.4	24.4

The Group has leased 15 owned aircraft as well as premises with irrevocable lease agreements. These agreements have different terms of renewal and other index-linked terms and conditions.

Right-of-use assets 2018

EUR mill.	Aircraft	Buildings and land	Other equipment	Total
Book value 1 Jan 2018	881.8	170.9	15.5	1,068.3
Additions	109.3	0.5	3.3	113.1
Changes in contracts	12.4	-0.6		11.8
Disposals	-56.3			-56.3
Depreciation for the financial year	-112.9	-17.2	-8.2	-138.4
Book value 31 Dec 2018	834.3	153.6	10.7	998.6

Lease liabilities

	Aircraft			Buildings and land		Other equipment
EUR mill.	2019	2018	2019	2018	2019	2018
less than one year	118.9	102.3	15.8	16.2	5,7	6.6
1–5 years	507.0	584.3	58.9	61.1	11,6	4.1
more than 5 years	275.7	297.8	60.3	87.0
Total	901.7	984.4	135.0	164.2	17.3	10.7

The Group leases aircraft, premises and other fixed assets, for which the lease liability is recorded on the balance sheet. The lease agreements have different terms of renewal and include index-linked terms and conditions. The Group was operating 27 leased aircraft at the end of the year with lease agreements of different tenors. The leased aircraft, that Finnair is subleasing to other operators is shown in note Finance lease receivables, Group as a lessor.

Finance lease receivables, Group as lessor

	Aircraft			Other equipment
EUR mill.	2019	2018	2019	2018
less than one year	13.2	11.0		0.3
1–5 years	33.7	47.0
more than 5 years
Total	47.0	58.0		0.3

Subleases include sublease arrangements of 9 aircraft, as well as subleased ground equipment, that have been reclassified as finance leases at the time of IFRS 16 implementation.

Leasing arrangements in profit and loss

EUR mill.	2019	2018
Depreciation expense of right-of-use assets	-129.5	-138.4
Interest expense on lease liabilities	-68.5	-69.3
Interest income on sublease receivables	3.7
Exchange rate differences	-18.7	-40.1
Hedging result of lease liabilities	31.1
Short-term wet leases	-26.6	-15.8
Short-term office rents	-3.7	-5.1
Variable purchase traffic and cargo capacity rents	-103.2	-107.0
Total	-315.4	-375.7

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

3.2 Financial assets

Financial assets

In the Group, financial assets have been classified into the following categories according to the IFRS 9 Financial Instruments standard: amortised cost and fair value through profit and loss. The classification is made at the time of the original acquisition based on the objective of the business model and the characteristics of contractual cash flows of the investment, or by applying a fair value option. All purchases and sales of financial assets are recognised on the trade date.

Financial assets at fair value through profit and loss include such assets as investments in bonds and money market funds. Financial assets at fair value through profit and loss have mainly been acquired to obtain a gain from short-term changes in market prices. All those derivatives that do not fulfil the conditions for the application of hedge accounting are classified as financial assets at fair value through profit and loss and are valued at fair value in each financial statement. Realised and unrealised gains and losses arising from changes in fair value are recognised in the income statement in the period in which they arise. Financial assets recognised at fair value through profit and loss, as well as those maturing within 12 months, are included in current assets.

Investments in debt securities are measured at amortised cost, but only when the objective of the business model is to hold the asset to collect the contractual cash flows and the asset's contractual cash flows represent only payments of principal and interest. Financial assets recognised at amortised cost are valued using the effective interest method. Financial assets valued at amortised cost include trade receivables, deferred charges and security deposits for aircraft operating lease agreements. Due to the nature of short-term receivables and other receivables, their book value is expected to be equal to the fair value. Derecognition of financial assets takes place when the Group has lost its contractual right to receive cash flows or when it has substantially transferred the risks and rewards outside the Group.

Impairment of financial assets

The impairment model does not apply to financial investments, such as bonds and money market funds, included in other financial assets as those are measured at fair value through profit and loss under IFRS 9, which already takes into account expected credit losses. With respect to the assets measured at amortised cost, Finnair is actively following such instruments and will recognise impairment through profit and loss if there is evidence of deterioration in credit quality.

Cash and cash equivalents

Cash and cash equivalents consist of cash reserves and short-term bank deposits with maturity of less than three months. Foreign exchange-denominated items have been converted to euro using the mid-market exchange rates on the closing date.

= Content of the section = Accounting principles

3 Capital structure and financing costs

3.1 Financial income and expenses

The notes related to financial assets, liabilities and equity have been gathered into the capital structure and financing costs-section in order to give a better overview of the Group's financial position. The note ´Earnings per share´ has been added to the equity section.

Interest income and expenses

Interest income and expenses are recognised on a time-proportion basis using the effective interest method. Interest expenses related to the financing of significant investments are capitalised as part of the asset acquisition cost and depreciated over the useful life of the asset.

More detailed information about financial assets can be found in note 3.2 and about interest bearing liabilities in note 3.3.

EUR mill.	2019	2018
Gains on investment instruments held at FVPL	0.4	-3.6
Interest from assets held at amortised cost	0.1	0.1
Other interest income	0.4	0.5
Interest income on leases	3.7
Other financial income	0.2	0.9
Financial income total	4.8	-2.2
Interest expenses for liabilities measured at amortised cost	-9.6	-9.8
Interest on leases	-68.5	-70.1
Other financial expenses	-5.5	-4.7
Interest rate swaps, fair value hedges		-0.7
Fair value adjustment to bond book value attributable to interest rate risk		0.7
Financial expenses total	-83.6	-84.6
Foreign exchange gains and losses	12.7	-42.3
Financial expenses, net	-66.1	-129.0

In the effectiveness testing of the Group's hedge accounting, both cash flow and fair value hedging were found to be effective. Thus, as in the comparison year 2018, no inefficiency is included in the financial items for 2019. Financial income and expenses includes an identical amount of profit and loss for fair value hedging instruments and for hedged items resulting from the hedged risk. In 2019, other financial expenses include the recovered interest on a loan to Nordic Regional Airlines in the amount of 1.8 million euros that was written down in 2014.

In 2019, foreign exchange gains and losses recognised in financial expenses consist of net realised exchange gains of 39.3 million euros and net unrealised exchange loss of 26.6 million euros. During the year 2019, 3.9 million euros of interest expense was capitalised in connection with the A350 investment program (2.2). More information about the capitalised interest can be found in note 2.1 Fleet and other fixed assets.

Other financial expenses include revolving credit facility and guarantee fees as well as interest and penalties related to taxes.

Non-current liabilities

2019	2018
38.5	55.5
762.3	836.6
800.8	892.2


14.0	23.0
5.0
	2.0
781.8	867.1
800.8	892.2

2019	2018
151.9	180.9
151.9	180.9

EUR mill.	2019	2018
JOLCO loans and other	277.6	314.7
Bonds	199.6	199.5
Lease liabilities	913.6	1,034.3
Interest-bearing liabilities total	1,390.8	1,548.4
Non-interest-bearing liabilities	4.7	4.8
Total	1,395.5	1,553.2

Non-interest-bearing liabilities mainly include leases and maintenance reserves related to the aircraft leased to other airlines.

Current interest-bearing liabilities

EUR mill.	2019	2018
JOLCO loans	43.6	100.8
Lease liabilities	140.4	125.1
Other loans	-0.1	-0.3
Total	183.9	225.6

JOLCO loans include the JOLCO loans (Japanese Operating Lease with Call Option) for three A350 aircraft. The transactions are treated as loans and owned aircraft in Finnair's accounting.

	Cash and bank deposits	151.9	180.9		Short-term	Long-term	Short-term	Long-term lease
BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND	Total	151.9	180.9		borrowings	borrowings	lease liabilities	liabilities	Total
	The items include cash and bank deposits realised on demand. Foreign currency cash and bank deposits have been			Total liabilities from financing activities, 1 Jan 2019	100.5	514.2	125.1	1,034.3	1,774.0
AUDITOR'S REPORT	valued using the period end exchange rates. The reconciliation of cash and cash equivalents is illustrated in the notes of	Cash flows	-61.0	-42,2		-132.2	-235.3
	the consolidated cash flow statement.							8.3	8.3
				Foreign exchange adjustments	1.9	6.8	5.7	13.0	27.4
	3.3 Financial liabilities	Reclassification between short term and long-term liabilities	2.1	-2.1	9.7	-9.7	0.0
	Financial liabilities	Other non-cash movements		0.4			0.4
	Finnair Group's financial liabilities are classified into two different classes: amortised cost and fair value through profit and loss. Financial liabilities are initially recognised at fair value on the basis of the original consideration received. Transaction	Total liabilities from financing activities, 31 Dec 2019	43.5	477.1	140.4	913.7	1,574.8
	costs have been included in the original book value of financial liabilities. Thereafter, all non-derivative financial liabilities are valued at amortised cost using the effective interest method. Financial liabilities are included in long- and short-term liabilities, and they can be interest-bearing or non-interest-bearing. Loans that are due for payment within 12 months are		Short-term borrowings	Long-term borrowings	Short-term lease liabilities	Long-term lease liabilities	Total
	presented in the short-term liabilities. Foreign currency loans are valued at the mid-market exchange rate on the closing date, and translation differences are recognised in the financial items.	Total liabilities from financing activities, 1 Jan 2018	125.6	539.9	68.7	1,048.5	1,782.7
	Accounts payable are initially recognised at fair value and subsequently measured at amortised cost using the effective	Cash flows	-9.3	-103.5		-118.9	-231.7
	interest method.	Additions	-55.4			120.9	65.5
	Derecognition of financial liabilities takes place when the Group has fulfilled the contractual obligations.	Decreases	45.9				45.9
				Foreign exchange adjustments	1.2	15.0		40.1	56.4
				Reclassification between short term and long-term liabilities	-62.2	62.2	56.3	-56.3	0.0
				Other non-cash movements	54.7	0.6			55.3
= Accounting principles				Total liabilities from financing activities, 31 Dec 2018	100.5	514.2	125.1	1,034.3	1,774.0

3.2.1 Other current financial assets

EUR mill.	2019	2018
Commercial paper, certificates and bonds	38.5	55.5
Money market funds	762.3	836.6
Total	800.8	892.2

Ratings of counterparties
BBB	14.0	23.0
BB	5.0
B		2.0
Unrated	781.8	867.1
Total	800.8	892.2

As of 31 December 2019, investments in instruments issued by unrated counterparties mostly include investments in money market funds (EUR 762 mill).

The Group's financial asset investments and risk management policy are described in more detail in note 3.5 Management of financial risks. The IFRS classifications and fair values of the financial assets are presented in note 3.6 Classification of financial assets and liabilities.

3.2.2 Cash and cash equivalents

EUR mill.	2019	2018
Cash and bank deposits	151.9	180.9
Total	151.9	180.9

3.3 Financial liabilities

Financial liabilities

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Maturity dates of interest-bearing financial liabilities 31 Dec 2019 EUR mill.	2020	2021	2022	2023	2024	Later	Total	The currency mix of interest-bearing liabilities is as follows:
JOLCO loans and other, fixed interest						45.0	45.0	EUR mill.	2019	2018
JOLCO loans and other, variable interest	43.6	45.3	34.6	29.2	30.3	96.6	279.7	EUR	412.8	456.9
Bonds, fixed interest			200.0				200.0	USD	1,096.3	1,247.5
Lease liabilities, fixed interest	94.6	95.7	99.4	91.2	88.7	182.9	652.5	JPY	65.3	69.5
Lease liabilities, variable interest	45.9	51.9	50.4	53.2	47.0	153.2	401.5	HKD	0.4	0.1
Other loans	-0.1						-0.1	SGD	0.1
Interest-bearing financial liabilities total	183.9	192.9	384.5	173.6	166.0	477.7	1,578.6	Total	1,574.8	1,774.0
Payments from currency derivatives	1,759.5	254.5					2,014.0
Income from currency derivatives	-1,787.0 -257.9						-2,044.9
Commodity derivatives	16.9	-1.7					15.3	The weighted average effective interest rate on interest-bearing long-term liabilities was 4.5% (4.6%).
Trade payables and other liabilities	989.9						989.9	Interest rate re-fixing period of interest-bearing liabilities
Interest payments	82.5	73.2	64.0	54.4	44.2	141.2	459.5		2019	2018
Total	1,245.8	261.0	448.5	228.0	210.2	618.9	3,012.3	Up to 6 months	40.5%	40.9%
Maturity dates of interest-bearing financial								6–12 months	3.1%	6.4%
liabilities 31 Dec 2018 EUR mill.	2019	2020	2021	2022	2023	Later	Total	1–5 years	18.0%	15.3%
JOLCO loans and other, fixed interest	55.7					43.6	99.4	More than 5 years	38.4%	37.4%
JOLCO loans and other, variable interest	45.1	43.0	44.7	34.0	28.7	124.5	320.0	Total	100.0%	100.0%
Bonds, fixed interest				200.0			200.0
Lease liabilities, fixed interest	86.0	169.8	90.4	95.0	87.4	168.0	696.6
Lease liabilities, variable interest	44.8	48.2	48.3	50.8	53.7	216.7	462.6	Maturity dates of interest-bearing financial liabilities
Other loans	-0.3						-0.3
Interest-bearing financial liabilities total	231.3	261.1	183.4	379.9	169.8	552.9	1,778.3	€ million
Payments from currency derivatives	954.3	375.2					1,329.5
Income from currency derivatives	-981.4	-385.3					-1,366.7	500	478
Commodity derivatives	38.6	35.9	0.3				74.8	385 400
Trade payables and other liabilities	938.2						938.2
Interest payments	90.6	98.4	87.6	76.9	61.4	203.3	618.3	300
Total	1,271.6	385.3	271.4	456.8	231.1	756.2	3,372.4

The interest rate re-fixing period is three months for variable interest loans and six months for variable interest lease liability. The bonds maturing do not include the amortised cost of 0.4 million euros paid in 2017 and due on 2022. Respectively, JOLCO loans do not include the amortised cost of 3.5 million euros paid on 2016 and due on 2025. Therefore, the total amount of interest-bearing financial liabilities differs from the book value by the amount equal to the amortised costs.

The minimum lease payments, discount values and present values of lease liabilities are presented in note 2.2 Leasing arrangements.

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EUR mill.	2019	2018
EUR	412.8	456.9
USD	1,096.3	1,247.5
JPY	65.3	69.5
HKD	0.4	0.1
SGD	0.1
Total	1,574.8	1,774.0

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

hedging instrument to be exactly offsetting. Any ineffectiveness resulting from overhedging or insufficient correlation is recognised in fair value changes in derivatives and changes in exchange rates of fleet overhauls.

	Hedged	Notional	Maturity
Timing of the notional and hedged price	price \$/ tonne	amount (tonnes)	Under 1 year	1 to 2 years
Tuesday, 31 December 2019
Jet fuel consumption priced with NWE index	655.2	992,382	761,382	231,000
Jet fuel consumption priced with SING index	682.6	61,618	61,618
Monday, 31 December 2018
Jet fuel consumption priced with NWE index		667.6 1,275,246	948,246	327,000
Jet fuel consumption priced with SING index	636.8	134,754	134,754

The average hedged price of the instruments hedging highly probable jet fuel purchases is calculated by taking into account only the hedging (bought) leg of collar option structures, and therefore represents the least favorable hedged rate. The most favorable rate, calculated by including only the sold leg of collar option structures, is 650.2 US dollars per tonne for NWE consumption, and 675.7 US dollars for SING consumption. Options excluded from hedge accounting are excluded in both cases.

At the end of the financial year, Finnair had hedged 68 per cent of its fuel purchases for the first six months of 2020 and 52 per cent of the purchases for the second half of the year. In the financial year 2019, fuel used in flight operations accounted for approximately one fifth of Group's turnover. At the end of the financial year, the forecast for 2020 is approximately one fifth of the Group's turnover. On the closing date, a 10 per cent rise in the market price of jet fuel – excluding hedging activity – increases annual fuel costs by an estimated 65 million euros. On the closing date – taking hedging into account – a 10 per cent rise in fuel lowers operating profit by around 32 million euros. The situation as of 31 December 2019 is a reasonable representation of conditions throughout the year given the current market environment.

Foreign exchange risk

Foreign exchange risk means the uncertainty in cash flows and financial performance arising from exchange rate fluctuations.

Finnair Group's foreign exchange risk mainly arises from fuel and aircraft purchases, divestments of aircraft, aircraft lease payments, aircraft maintenance, overflight royalties and foreign currency revenue. About 55 per cent of the Group's revenue is denominated in euros. The most important foreign revenue currencies are Japanese yen (10 per cent, percentage of revenue), Chinese yuan (7 per cent), US dollar (4 per cent) and Swedish krona (3 per cent). Approximately half of the Group's operating costs are denominated in foreign currencies. The most important purchasing currency is the US dollar, which accounts for almost 40 per cent of all operating costs. Significant dollardenominated expenses are fuel costs and aircraft lease payments. The largest investments – aircraft and their spare

parts – are also mainly made in US dollars. The risk management policy divides the foreign exchange position into three parts, namely exposure to forecasted cash flows, balance sheet position and investment position.

The cash flow exposure mainly consists of sales denominated in a number of different currencies and dollardenominated expenses. Forecasted jet fuel purchases, aircraft materials and overhaul expenses and traffic charges form a group of similar items that are hedged with the same hedging instrument. The purpose of currency risk hedging – for cash flow exposure – is to reduce the volatility of cash flows and comparable operating result due to fluctuating currency prices. This is done using a layered hedging strategy for the two biggest sources of currency risk and utilising diversification benefits of the portfolio of various currencies. The contracts are timed to mature when the cash flows from operating expenses are expected to be settled. The hedging limits are set only for the main contributors to currency risk: the Japanese yen and the US dollar basket consisting of the US dollar and the Hong Kong dollar. For

3.4 Contingent liabilities

EUR mill.	2019	2018
Guarantees on behalf of group companies	79.6	82.6
Total	79.6	82.6

3.5 Management of financial risks

Principles of financial risk management

The nature of Finnair Group's business operations exposes the company to a variety of financial risks: foreign exchange, interest rate, credit, liquidity and commodity price risks. The Group's policy is to limit the uncertainty caused by such risks on cash flow, financial performance, balance sheet items and equity.

The management of financial risks is based on the risk management policy prepared by the Financial Risk Steering Committee and approved by the Board of Directors. The policy specifies the minimum and maximum levels permitted for each type of risk. Financial risk management is directed and supervised by the Financial Risk Steering Committee. Practical implementation of risk management policy and risk management have been centralised to the parent company's treasury department.

In the management of foreign exchange, interest rate and jet fuel the company uses different derivative instruments, such as forward contracts, swaps and options. At inception, derivatives are designated as hedges of highly probable cash flows (cash flow hedges), hedges of firm orders (hedges of the fair value of firm commitments) or as financial derivatives not qualifying for hedge accounting (economic hedges). Finnair Group implements cash flow hedging through foreign exchange hedging of highly probable forecasted sales and costs denominated in foreign currencies, foreign exchange hedging of lease payments and jet fuel price risk, in accordance with the hedge accounting principles of IFRS 9. Hedge accounting compliant fair value hedges of Finnair Group consist of interest rate hedges of the issued bond and fair value hedges of firm aircraft purchase commitments.

Fuel price risk in flight operations

Fuel price risk means the cash flow and financial performance uncertainty arising from fuel price fluctuations. Finnair hedges against jet fuel price fluctuations using jet fuel forward contracts and options. The Jet Fuel CIF Cargoes NWE index is used as the underlying asset of jet fuel derivatives, since over 60 per cent of Finnair's fuel purchase contracts are based on the benchmark price index for Northwest Europe jet fuel deliveries.

Finnair applies the principle of time-diversification in its fuel hedging. According to the risk management policy, the hedging horizon is two years. The risk management policy states that hedging must be increased during each quarter of the year, so that the hedge ratio is more than 60 per cent for the first six months, and thereafter a lower hedge ratio applies for each period. Due to hedging, the fuel cost per period is not as low as the spot-based price when prices fall, but when spot prices rise, the fuel cost rises more slowly.

The hedges of jet fuel consumption are treated as cash flow hedges in accounting, in accordance with the hedge accounting principles of IFRS 9. During 2019, Finnair has hedged the jet fuel price risk in its entirety, without separating it into underlying risk components, such as crude oil price risk. However, Finnair has used proxy hedging for certain layer components of its jet fuel consumption, as described below.

In the hedging of jet fuel price risk, Finnair Group designates layer components of its jet fuel consumption as hedged items. The layer components are defined as jet fuel consumption linked to different jet fuel price benchmarks. The first layer is defined as jet fuel purchases based on the Jet Fuel CIF Cargoes NWE index, with consumption linked to other price benchmarks, notably Cargoes FOB Singapore, representing other layers. Since the Jet Fuel CIF Cargoes NWE index is used as the underlying of all jet fuel derivatives, they are designated as proxy hedges for consumption based on other price benchmarks. Therefore, ineffectiveness may arise if the correlation between the NWE index and the price benchmark for the underlying consumption is not high enough for the fair value changes in the hedged item and the

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Interest rate risk

Interest rate risk means the cash flow, financial performance and balance sheet uncertainty arising from interest rate fluctuations.

In Finnair Group, the interest rate risk is measured using the interest rate re-fixing period. If necessary, interest rate derivatives are used to adjust the interest rate re-fixing period. According to the risk management policy, the mandate for the investment portfolio's interest rate re-fixing period is 0–12 months and for interest-bearing liabilities 36–72 months. On the closing date, the investment portfolio's interest rate re-fixing period was approximately 4 months and approximately 41 months for interest-bearing liabilities. On the closing date, a one percentage point rise in interest rates increases the annual interest income of the investment portfolio by approximately 6.4 million euros and the interest expenses of the loan portfolio by approximately 4.2 million euros. The situation as of December 31 2019 is a reasonable representation of conditions throughout the year given the current market environment.

both of these, the hedging horizon is two years, which is divided into four six-month periods. In order to achieve time				Foreign exchange balance sheet exposure EUR mill. 31 December 2019 JPY USD
diversification, the minimum hedge ratio for the closest six-month period is 60 per cent with a decreasing slope ending at zero per cent for the fourth six-month period. Even though the policy does not require hedging of smaller currency flows, it is allowed, in which case the layered hedging strategy is partially applied, although no minimum hedging ratio is specified.					Net balance sheet items	-69.3	-1,092.6
					Net hedges of balance sheet items	66.4	907.7
					Weighted average exchange rate of hedging instruments against the euro	121.3	1.12
The investment position includes all foreign currency denominated aircraft investments for which a binding					Foreign exchange exposure from balance sheet items after hedging	-2.9	-184.9
purchase agreement has been signed as well as commitments for sale and leaseback transactions in the next four
years. According to its risk management policy, Finnair Group hedges 50–100% of its aircraft investment exposure. New					Foreign exchange investment exposure
hedges of investments in aircraft are made as an IFRS 9 fair value hedge of a firm commitment.					EUR mill. 31 December 2019 USD Net investment position -668.0
Balance sheet exposure consists of foreign currency denominated financial assets and liabilities, as well as other
foreign currency denominated balance sheet items, such as provisions, trade receivables, trade payables and assets					Net hedges of investment position		336.5
held for sale. Finnair Group hedges 75–100% of net positions in foreign currency denominated financial assets and financial liabilities exceeding 10 MEUR.					Weighted average exchange rate of hedging instruments against the euro		1.20
At the end of the financial year, Finnair had a hedge level for net operating cash flows of 67 per cent in the					Foreign exchange exposure from investment position after hedging		-331.5
USD-basket and 65 per cent in JPY for the coming 12 months, and hedge levels of 23 per cent and 24 per cent for 2021,
respectively. On the closing date – excluding hedges – a 10 per cent strengthening of the US dollar against the euro					Foreign exchange P&L exposure
has a negative impact on the 12-month result of around 94 million euros and a 10 per cent weakening of the Japanese					EUR mill. 31 December 2018		JPY USD-basket
yen against the euro has a negative impact on 12-month of around 36 million euros. On the closing date – taking					Net forecasted operating cash flows, next 24m	662.9	-1,801.5
hedging into account – a 10 per cent strengthening of the US dollar weakens the result by around 32 million euros and					Net operating cash flow hedges, next 24m	-284.9	781.7
a 10 per cent weakening of the Japanese yen weakens the result by around 17 million euros. In the above numbers,					Weighted average exchange rate of hedging instruments against the euro	132.4	1.20
the USD-basket risk also the Hong Kong dollar, which historical correlation with the US dollar is high. The situation					Foreign exchange exposure from operating cash flows after hedging, next 24m	378.0	-1,019.8
as of 31 December 2019 is a reasonable representation of conditions throughout the year given the current market
environment.					Foreign exchange balance sheet exposure EUR mill. 31 December 2018	JPY	USD
	Notional		Maturity		Net balance sheet items	-70.6	-326.5
Timing of the notional	amount	Less than 1			Net hedges of balance sheet items	70.7	280.7
EUR mill. 31 December 2019	(gross)	year	1 to 2 years	2 to 4 years	Weighted average exchange rate of hedging instruments against the euro	128.2	1.12
USD	2,169.7	1,786.3	383.4		Foreign exchange exposure from balance sheet items after hedging	0.1	-45.8
JPY	444.9	338.1	106.8
Cross-currency interest rate swaps are included in the nominal amount calculation.					Foreign exchange investment exposure
					EUR mill. 31 December 2018		USD
Foreign exchange P&L exposure					Net investment position		-1,015.9
EUR mill. 31 December 2019				JPY USD-basket	Net hedges of investment position		510.0
Net forecasted operating cash flows, next 24m			722.9	-1,852.1	Weighted average exchange rate of hedging instruments against the euro		1.22
Net operating cash flow hedges, next 24m			-319.8	836.7	Foreign exchange exposure from investment position after hedging		-505.9

Weighted average exchange rate of hedging instruments against the euro 125.2 1.17

Foreign exchange exposure from operating cash flows after hedging, next 24m 403.1 -1,015.4

The average exchange rate of the instruments hedging highly probable forecasted sales and purchases denominated in foreign currencies is calculated by taking into account only the hedging (bought) leg of collar option structures, and therefore represents the least favorable hedged rate. The most favorable rate, calculated by including only the sold leg of collar option structures, is 1.18 for USD contracts and 121.1 for JPY instruments.

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JPV	USD-basket
722.9	-1,852.1
-319.8	836.7
125.2	1.17
403.1	-1,015.4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Sensitivity analysis of the fair value reserve

If the price of Jet fuel CIF NWE had been 10 per cent higher, the balance of the reserve would have been 50.7 million euros (48.5) higher. Correspondingly, a 10 per cent weaker Jet fuel CIF NWE price would have reduced the reserve by 52.0 million euros (48.5). In terms of the US dollar, a 10 per cent weaker level would have lowered the balance of the fair value reserve by 58.4 million euros (49.7) and a 10 per cent stronger dollar would have had a positive impact of 61.7 million euros (54.2). In terms of Janapese yen, a 10 per cent stronger yen would have had a negative impact of 20.7 million euros (19.0), and a 10 per cent weaker level would have increased the balance of the fair value reserve by 19.0 million euros (15.6). The effect of a change in interests to the fair value reserve in own equity is not essential. The enclosed sensitivity figures do not take into account any change in deferred tax liability (tax assets).

3.6 Classification of financial assets and liabilities

EUR mill.	Hedge accounting items	Fair value through profit and loss	Amortised cost	Book value
31 Dec 2019
Financial assets
Receivables			3.3	3.3
Other financial assets		800.8		800.8
Trade receivables and other receivables			240.9	240.9
Derivatives	54.4	1.2		55.7
Cash and cash equivalents			151.9	151.9
Book value total	54.4	802.0	396.0	1,252.5
Fair value total	54.4	802.0	396.0	1,252.5
Financial liabilities
Interest-bearing liabilities			520.8	520.8
Lease liabilities			1,054.0	1,054.0
Derivatives	29.4	9.5		38.9
Trade payables and other liabilities			999.6	999.6
Book value total	29.4	9.5	2,574.4	2,613.3

Fair value total	29.4	9.5	2,580.2	2,619.1

Future lease agreements expose the group to interest rate risk, as the interest rate is one component of the lease price. The interest rate is fixed when the lease payments start. If necessary, the group can hedge this exposure with cash flow hedges.

			Maturity
Timing of the notional and hedged price range EUR mill. 31 December 2019	Notional amount (gross)	Less than 1 year	1 to 2 years	2 to 4 years
Interest rate derivatives	244.7	97.9	146.9

Cross-currency interest rate swaps are included in the nominal amount calculation. Finnair has not entered into any interest rate derivatives on which it is paying a fixed rate.

Credit risk

The Group is exposed to counterparty risk when investing its cash reserves and when using derivative instruments. The credit risk is managed by only making contracts with financially sound domestic and foreign banks, financial institutions and brokers, within the framework of risk management policy for counterparty risk limits. Liquid assets are also invested in money market funds, bonds and commercial papers issued by conservatively selected companies, according to company-specific limits. This way, risk exposure to any single counterparty is not significant. Change in the fair value of Group loans arises from changes in FX and interest rates, not from credit risk. The Group's credit risk exposure arises from other current financial assets presented in note 3.2.1, cash and cash equivalents presented in note 3.2.2, trade receivables presented in note 1.2.3 and derivatives presented in note 3.8.

Liquidity risk

The goal of Finnair Group is to maintain good liquidity. Liquidity is ensured by cash reserves, bank account limits, liquid money market investments and committed credit facilities. Counterparties of groups' long term loans are solid financial institutions with good reputations.

The Group's liquid assets were 953 million euros at the end of financial year 2019. Finnair Plc has a domestic commercial paper program of 200 million euros, which was not in use as of the closing date. In addition, Finnair has an unused 175 million euros committed revolving credit facility. The credit facility includes a financial covenant based on adjusted gearing. The covenant level of adjusted gearing is 175 per cent, while at the closing date the figure was 64.3 per cent. The maximum level set by the Board of Directors is 175 per cent.

Capital management

The aim of Finnair's capital management is to secure access to capital markets at all times despite volatile business environment, as well as to support future business development. Through maintaining an optimal capital structure Group also aims to minimize the cost of capital and maximize the return on capital employed. The capital structure is influenced via, for example, dividend distribution and share issues. The Group can vary and adjust the level of dividends paid to shareholders, the amount of capital returned to them or the number of new shares issued. The Group can also decide on sales of asset items in order to reduce debt. The aim of Finnair´s dividend policy is to pay on average at least one third of the earnings per share as dividend during an economic cycle.

The development of the Group's capital structure is continuously monitored using the adjusted gearing. When calculating adjusted gearing, adjusted interest-bearing net debt is divided by the amount of shareholders' equity. The Group's adjusted gearing at the end of 2019 was 64.3 per cent (67.2).

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

During the financial year, no significant transfers took place between fair value hierarchy Levels 1 and 2.

The fair values of hierarchy Level 1 are fully based on quoted (unadjusted) prices in active markets of the same assets and liabilities.

EUR mill.	Hedge accounting items	Fair value through profit and loss	Amortised cost	Book value	Fair value hierarchy of financial assets and liabilities valued at fair value
31 Dec 2018					Fair values at the end of the reporting period
Financial assets					EUR mill.	31 Dec 2019	Level 1	Level 2
Receivables			4.3	4.3	Assets
Other financial assets		892.2		892.2	Financial assets at fair value through profit and loss
Trade receivables and other receivables			242.2	242.2	Securities held for trading	800.8	762.3	38.5
Derivatives	50.3	1.8		52.1	Derivatives held for trading
Cash and cash equivalents			180.9	180.9	Currency and interest rate swaps and options	1.1		1.1
Book value total	50.3	893.9	427.4	1,371.7	Currency derivatives	47.7		47.7
					- of which in fair value hedge accounting	19.0		19.0
Fair value total	50.3	893.9	427.4	1,371.7	- of which in cash flow hedge accounting	28.6		28.6
					Commodity derivatives	6.9		6.9
					- of which in cash flow hedge accounting	6.9		6.9
Financial liabilities					Total	856.4	762.3	94.2
Interest-bearing liabilities			614.7	614.7
Lease liabilities			1,159.3	1,159.3	Liabilities
Derivatives	100.1	7.0		107.1	Financial liabilities recognised at fair value through profit and loss
Trade payables and other liabilities			943.0	943.0	Derivatives held for trading
Book value total	100.1	7.0	2,717.1	2,824.1	Currency derivatives	16.8		16.8
					- of which in fair value hedge accounting	0.4		0.4
Fair value total	100.1	7.0	2,724.7	2,831.8	- of which in cash flow hedge accounting	6.9		6.9
					Commodity derivatives	22.1		22.1
					- of which in cash flow hedge accounting	22.0		22.0
In this note interest rate derivatives (currency and interest-rate swaps) are included in derivatives. Item Receivables					Total	38.9		38.9

The fair values of Level 2 instruments are, to a significant extent, based on input data other than the quoted prices included in Level 1, but still mainly based on directly observable data (price) or indirectly observable data (derived from price) for the particular asset or liability.

On the other hand, the fair values of Level 3 instruments are based on asset or liability input data that is not based on observable market information (unobservable inputs). The fair values are based on confirmations supplied by counterparties, based on generally accepted valuation models.

mainly includes USD-denominated security deposits for leased aircraft. Trade payables and other liabilities include: trade payables, deferred expenses, pension obligations as well as other interest-bearing and non-interest-bearing liabilities.

Derivatives are valued at fair value, with further details in the fair value hierarchy. Financial assets valued at fair value are money market funds (fair value hierarchy level 1) and bonds, or commercial papers (fair value hierarchy level 2). Loans and receivables are mainly current and the book value is equivalent to the fair value, because the discount effect is not significant. The current portion of loans valued at amortised cost, excluding bonds, is 107 million euros, and the book value is equivalent to the fair value, because the discount effect is not significant. The issued bond makes the most significant part of the loans valued at amortised cost. The senior bond maturing in 2022 was quoted at 102.5, which explains the difference between book value and fair value. The valuation principles of financial assets and liabilities are outlined in the accounting principles. The valuation principles of financial assets and liabilities are outlined in the accounting principles.

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Fair value hierarchy of financial assets and liabilities valued at fair value
-------------------------------------------------------------------------------	--	--	--	--	--	--	--

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

3.7 Offsetting financial assets and liabilities

EUR mill.	2019	2018
Derivative assets gross amounts	55.7	51.7
Net amounts of financial assets presented in the balance sheet	55.7	51.7
Enforceable master netting agreement	-22.3	-123.3
Derivative assets net amount	33.4	-71.6

EUR mill.	2019	2018
Derivative liabilities gross amounts	-38.9	-107.1
Net amounts of financial liabilities presented in the balance sheet	-38.9	-107.1
Enforceable master netting agreement	22.3	123.3
Derivative liabilites net amount	-16.6	16.2

For the above financial assets and liabilities, subject to enforceable master netting arrangements or similar arrangements, each agreement between the Group and the counterparty allows net settlement of the relevant financial assets and liabilities when both parties choose to settle on a net basis. In the absence of such mutual decision, financial assets and liabilities will be settled on a gross basis. However, each party of the master netting agreement, or similar agreement, will have the option to settle on a net basis in the event of default of the other party. Depending on the terms of each agreement, an event of default includes failure by a party to make a payment when due, failure by a party to perform any obligation required by the agreement (other than payment), if such failure is not remedied within periods of 30 to 60 days after notice of such failure is given to the party, or bankruptcy.

3.8 Derivatives

Derivative contracts and hedge accounting

According to its risk management policy, Finnair Group uses foreign exchange, interest rate and commodity derivatives to reduce the exchange rate, interest rate and commodity risks which arise from the Group's balance sheet items, currency denominated purchase agreements, anticipated currency denominated purchases and sales as well as future jet fuel purchases. It is the Group's policy not to enter into derivative financial contracts for speculative purposes.

The derivatives are initially recognised as well as subsequently valued at fair value in each financial statement and interim report. The fair values of the derivatives are based on the value at which the instrument could be exchanged between knowledgeable, willing and independent parties, with no compulsion to sell or buy in the sales situation. The fair values of derivatives are determined as follows:

The fair values of all derivatives are calculated using the exchange rates, interest rates, volatilities and commodity price quotations on the closing date. The fair values of currency forward contracts are calculated as the present value of future cash flows. The fair values of currency options are calculated using the Black-Scholes option pricing model. The fair values of interest rate swap contracts are calculated as the present value of future cash flows. The fair values of cross-currency interest rate swap contracts are calculated as the present value of future cash flows. The fair values of interest rate options are calculated using generally accepted option valuation models. The fair values of commodity forward contracts are calculated as the present value of future cash flows. The fair values of commodity options are calculated using generally accepted option valuation models.

The Group uses credit valuation adjustment for cross-currency interest rate swaps as the maturities of these derivatives are long. The credit valuation adjustment is not done for the rest of the derivatives as the maturities for these are short and the impact would not be material. Credit risk management is described in more detail in note 3.5.

Gains and losses arising from changes in the fair value are presented in the financial statements according to the original classification of the derivative. Gains and losses on derivatives qualifying for hedge accounting are recognised in accordance with the nature of the risk being hedged. At inception, derivative contracts are designated as hedges of future cash flows,

= Accounting principles

hedges of the fair value of recognised assets or liabilities and binding purchase contracts (cash flow hedges or fair value hedges) or as derivatives not meeting the hedge accounting criteria or to which hedge accounting is not applied (economic hedges). Hedging of the fair value of net investments of foreign units or embedded derivatives have not been used.

At the inception of hedge accounting, Finnair Group documents the economic relationship and the hedge ratio between the hedged item and the hedging instrument, as well as the Group's risk management objectives and the strategy for the inception of hedging. At the inception of hedging, and at least at the time of each financial statement, the Group documents and assesses the effectiveness of hedge relationships by examining the past and prospective capacity of the hedging instrument to offset changes in the fair value of the hedged item or changes in cash flows. The values of derivatives in a hedging relationship are presented in the balance sheet item Short–term financial asset and liabilities.

Finnair Group implements the IFRS hedge accounting principles in the hedging of future cash flows (cash flow hedging). The principles are applied to the price and foreign currency risk of jet fuel, the price risk of electricity, the foreign currency risk of lease payments and the foreign currency risk of highly probable future sales and costs denominated in foreign currencies. The IFRS fair value hedge accounting principles are applied to the hedging of foreign exchange and interest rate risk of aircraft purchases and the hedges of the pilot incentive plan.

The change in the fair value of the effective portion of derivative instruments that have been designated and qualify as cash flow hedges are recognised in comprehensive income and presented within equity in the fair value reserve, to the extent that the requirements for the application of hedge accounting have been fulfilled and the hedge is effective. The gains and losses, recognised in the fair value reserve, are transferred to the income statement in the period in which the hedged item is recognised in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or the criteria for cash flow hedge accounting are no longer fulfilled, but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in the hedge reserve and is recognised in accordance with the above policy when the transaction occurs. If the underlying hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in the hedge reserve with respect to the hedging instrument is recognised immediately in the consolidated income statement.

The effectiveness of hedging is tested on a quarterly basis. The effective portion of hedges is recognised in the fair value reserve of other comprehensive income, from which it is transferred to the income statement when the hedged item is realised or, in terms of investments, as an acquisition cost adjustment.

Fair value hedging is implemented on firm orders of new aircraft, in order to hedge the fixed interest rate bond, and to hedge the incentive plan negotiated with pilots. The binding purchase agreements for new aircraft are treated as firm commitments under IFRS, and therefore, the fair value changes of the hedged part arising from foreign currency movements are recognised in the balance sheet as an asset item, and corresponding gains or losses recognised through profit and loss. Similarly, the fair value of instruments hedging these purchases is presented in the balance sheet as a liability or receivable, and the change in fair value is recognised in profit and loss.

The gain or loss related to the effective portion of the interest rate swap, which hedges the fixed interest rate bond, is recognised as financial income or expenses in the income statement. The gain or loss related to the ineffective portion is recognised within other operating income and expenses in the income statement. The change in the fair value attributable to the interest rate risk of the hedged fixed interest rate loans is recognised in the financial expenses in the income statement.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item, for which the effective interest method is used, is amortized to profit or loss over the period to maturity.

Finnair Group uses cross-currency interest rate swaps in the hedging of the interest rate and foreign exchange risks of foreign currency denominated loans. Cross-currency interest rate swaps are excluded from hedge accounting, and therefore the fair value changes are recognised in derivative assets and liabilities in the balance sheet, as well as in the financial income and expenses in the income statement. The fair value changes of the loans are simultaneously recognised in the financial income and expenses. Realised foreign exchange rate differences, as well as interest income and expenses, are recognised in the financial income and expenses against the exchange rate differences and interest income and expenses of the loan.

Finnair Group uses jet fuel swaps (forward contracts) and options in the hedging of jet fuel price risk. Unrealised gains and losses on derivatives hedging jet fuel, which are designated as cash flow hedges and fulfil the requirements of IFRS hedge accounting, are recognised in the hedging reserve within other comprehensive income. Accrued derivative gains and losses, recognised in shareholders' equity, are recognised as income or expense in the income statement in the same financial period as the hedged item is recognised in the income statement. If a forecasted cash flow is no longer expected to occur, and as a result the IFRS hedge accounting criteria are not fulfilled, the fair value changes and the accrued gains and losses reported in shareholders' equity are transferred to the items affecting comparability in the income statement. Changes in the fair value of jet fuel swaps and options excluded from hedge accounting are recognised in fair value changes in derivatives in the income statement, while realised result is presented in fuel costs.

For forward and option contracts an economic relationship exists between the hedged item and the hedging instrument as hedging instrument and the hedged item are expected to move in opposite directions because of the same underlying. This is true for all hedge relationships except for the SING consumption hedged with NWE hedges (as described in section

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

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1. PARENT COMPANY FINANCIAL STATEMENTS

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3.5). In that case, the underlying is different, but the underlying hedged item (SING) and the hedge (NWE) have a historical correlation of 0.99. Therefore, it can be classified as a relationship where the underlying and the hedge are economically closely related. Ineffectiveness on fuel derivatives can also arise from timing differences on the notional amount between the hedged instrument and hedged item, significant changes in credit risk of parties to the hedging relationship and changes in the total amount of the hedged item, for instance if the underlying fuel consumption forecast is not accurate enough, that can result in overhedging. However, as Finnair usually hedges less than 100%, the risk of overhedging is insignificant. Finnair has established a hedge ratio of 1:1 for hedging relationships.

Finnair uses forward contracts and options to hedge its exposure to foreign currency denominated cash flows. The hedges of cash flows denominated in foreign currencies are treated as cash flow hedges in accounting, in accordance with the hedge accounting principles of IFRS 9. Unrealised gains and losses on hedges of forecasted cash flows qualifying for hedge accounting are recognised in the hedging reserve in OCI, while the change in the fair value of such hedges not qualifying for hedge accounting is recognised in Fair value changes in derivatives and changes in exchange rates of fleet overhauls in the income statement. The change in fair value recognised in the hedging reserve in equity is transferred to the income statement when the hedged transaction is realised. Forward points are included in the hedging instrument and in the hedge relationship. Potential sources of ineffectiveness include changes in the timing of the hedged item, significant changes in the credit risk of parties to the hedging relationship and changes in the total amount of the hedged item, for instance if the underlying cash flow forecast is not accurate enough, that can result in overhedging. However, as Finnair usually hedges less than 100%, the risk of overhedging is insignificant. Realised profit or loss on derivatives hedging JPY-denominated operating cash flows is presented in revenue, realised profit or loss on derivatives hedging a group of similar USD costs is proportionally recognised in corresponding expense lines, while profit or loss on derivatives hedging cash flows denominated in other currencies is presented in Other expenses.

The hedge ratio is defined as the relationship between the quantity of the hedging instrument and the quantity of the hedged item in terms of their relative weighting. With currency hedging, hedge ratio is typically 1:1. For forward and option contracts, an economic relationship exists between the hedged item and the hedging instrument as there is an expectation that the value of the hedging instrument and the value of the hedged item would move in the opposite direction because of the common underlying.

Changes in the fair value of interest rate derivatives not qualifying for hedge accounting are recognised in financial income and expenses in the income statement. Changes in the fair value as well as realised gain or loss on forward contracts used to hedge foreign currency denominated balance sheet items of Finnair Group are recognised in financial expenses. Changes in the fair value and realised result of hedges of assets held for sale are recognised in Items affecting comparability.

Cost of hedging

At Finnair, the time value of an option is excluded from the designation of a financial instrument and accounted for as a cost of hedging. Upon initial recognition, Finnair defers any paid premium in the cost of hedging reserve within other comprehensive income. The fair value changes of the time value are recognised in the cost of hedging reserve within other comprehensive income. The premium will be transferred to the consolidated income statement in the same period that the underlying transaction affects the consolidated income statement for transaction-related hedges. As of 31 December 2019, Finnair has deferred premiums only on transaction-related hedges.

= Accounting principles

	2019			2018
EUR mill.	Nominal value	Positive fair values	Negative fair values	Fair net value	Nominal value	Positive fair values	Negative fair values	Fair net value
Currency derivatives
Operational cash flow hedging (forward contracts)	924.4	23.6	-5.9	17.6	700.1	17.0	-6.9	10.1
Operational cash flow hedging, bought options	201.5	3.3		3.3	242.6	5.6		5.6
Operational cash flow hedging, sold options	201.8		-1.0	-1.0	242.0		-2.8	-2.8
Fair value hedging of aircraft acquisitions	336.5	19.0	-0.4	18.6	445.4	18.1	-0.6	17.5
Hedging of lease payments	22.3	1.7		1.7	107.4	5.2		5.2
Hedge accounting items total	1,686.5	47.5	-7.3	40.2	1,737.6	45.9	-10.3	35.5
Balance sheet hedging (forward contracts)	775.1	0.1	-9.4	-9.3	131.8	1.8	-0.1	1.7
Items outside hedge accounting total	775.1	0.1	-9.4	-9.3	131.8	1.8	-0.1	1.7
Currency derivatives total	2,461.6	47.7	-16.8	30.9	1,869.4	47.7	-10.5	37.2
Commodity derivatives
Jet fuel forward contracts, tonnes	898,000	6.2	-21.5	-15.3	924,500	3.8	-78.1	-74.3
Bought options, jet fuel, tonnes	57,000	0.7		0.7	169,500	0.7		0.7
Sold options, jet fuel, tonnes	57,000		-0.5	-0.5	169,500		-11.6	-11.6
Hedge accounting items total		6.9	-22.0	-15.1		4.5	-89.7	-85.2
Sold options, jet fuel, tonnes Items outside hedge	42,000		-0.1	-0.1	146,500		-1.1	-1.1
accounting total			-0.1	-0.1			-1.1	-1.1
Commodity derivatives total		6.9	-22.1	-15.2		4.5	-90.8	-86.4
Interest rate derivatives
Cross currency interest rate swaps	217.9	1.1		1.1	232.7		-5.8	-5.8
Items outside hedge accounting total	217.9	1.1		1.1	232.7		-5.8	-5.8

Interest rate derivatives total	217.9	1.1		1.1	232.7		-5.8	-5.8
Derivatives total*		55.7	-38.9	16.8		52.1	-107.1	-54.9

* Positive (negative) fair value of hedging instruments as of 31 December 2019 is presented in the statement of financial position in the item derivative financial instruments within current assets (derivative financial instruments within current liabilities).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

	Changes in fair value of the hedged item used for calculating hedge ineffectiveness, previous 12 months	Changes in fair value of the hedging instrument used for calculating hedge ineffectiveness,












assets	-1.1	1.1

2019	2018
	-16.5
23.2	-13.1
-6.5	-25.4
16.8	-54.9

2019	2018
-5.5	89.9
8.1	-5.3
25.0	-5.7
3.4	-0.2
3.9	-1.7
-10.8	3.7
24.1	80.7
1.0	2.0
	0.6
37.2	5.2
5.1	5.8
43.2	13.6

	lle

Hedged items in hedge relationships
	Carrying amount of the hedged item	Accumulated amount of fair value hedge adjustments included in the carrying amount of the hedged item	Line item in the statement of financial position in which the hedged item	Changes in fair value of the hedged item used for calculating hedge ineffectiveness, previous 12	Changes in fair value of the hedging instrument used for calculating hedge ineffectiveness,
31 December 2019		Assets Liabilities Assets Liabilities	is included	months	previous 12 months
Cash flow hedges
Jet fuel price risk
- Forecasted jet fuel purchases				-123.6	60.5
Foreign exchange risk
- Forecasted sales and purchases				17.8
- Lease payments				49.6	-3.5
Fair value hedges
Foreign exchange risk
			Non-current
		-18.6	assets	-1.1
- Aircraft acquisitions Ratings of derivative counterparties	-18.6
EUR mill. Better than A					2019 2018 -16.5
A					23.2 -13.1
BBB					-6.5 -25.4
Total					16.8 -54.9
Derivatives realised through profit and loss
EUR mill.					2019 2018
Jet fuel hedging	Fuel costs				-5.5 89.9
Hedging of lease payments		Financial expenses			8.1 -5.3
Operational cash flow hedging	Fuel costs				25.0 -5.7
Operational cash flow hedging		Aircraft materials and overhaul			3.4 -0.2
Operational cash flow hedging	Traffic charges				3.9 -1.7
Operational cash flow hedging	Revenue				-10.8 3.7
Expenses of hedge accounting items total Jet fuel hedging	Fuel costs				24.1 80.7 1.0 2.0
Hedging of aircraft sales transactions		Items affecting comparability			0.6
Balance sheet hedging		Financial expenses			37.2 5.2
Cross-currency interest rate swaps		Financial expenses			5.1 5.8

3.9 Equity-related information

Shareholders' equity

The nominal value of shares had been recognised in the share capital before an amendment to the Articles of Association registered on 22 March 2007. Share issue profit and gains on sale of own shares had been recognised in other restricted funds before the change in the Limited Liability Company Act in 2006.

The subscription proceeds from the 2007 share issue less transaction costs after taxes as well as share-based payments according to IFRS 2 have been recognised in the unrestricted equity funds.

Hedging reserve and other OCI items include changes in the fair value of derivative instruments used in cash-flow hedging, in addition to actuarial gains and losses related to defined benefit pension plans, fair value gains and losses of available for sale financial assets and translation differences.

The acquisition cost of repurchased owned shares less transaction costs after taxes is charged to retained earnings. The consideration received for sale or issue of own shares is included in unrestricted equity funds.

The dividend proposed by the Board of Directors is not deducted from distributable equity until decided at the Annual General Meeting.

The hybrid bond is recognised in equity. It is unsecured and subordinated to all senior debt. The hybrid bond does not confer shareholders' rights, nor does it dilute the holdings of shareholders. Interest expenses are debited from retained earnings on cash basis net of tax. In the calculation of earnings per share, interest expenses of the hybrid bond are included in the earnings for the financial year.

Number of shares	2019	2018
Number of outstanding shares in the beginning of the financial year	127,487,107	127,702,748
Purchase of own shares	-148,000	-452,000
Shares granted from the share-bonus scheme 2016–2018	149,894
Shares granted from the share-bonus scheme 2015–2017		123,430
Shares granted from FlyShare employee share savings plans	111,452	112,929
Paper shares forfeited from the joint account to Finnair's book-entry account	-16,651
Number of outstanding shares at the end of the financial year	127,583,802	127,487,107
Own shares held by the parent company	552,313	649,008
Total number of shares at the end of the financial year	128,136,115	128,136,115

Finnair Plc's share capital, paid in its entirety and registered in the trade register, was at 75,442,904.30 euros at the end of 2018 and 2019. The shares have no nominal value. During the year 2019, Finnair transferred a total of 111,452 shares to FlyShare participants and a total of 149,894 shares to participants in Finnair's share-based incentive scheme 2016–2018.

= Accounting principles

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS

3. CAPITAL STRUCTURE AND FINANCING COSTS

1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Group's hedging reserve and other OCI items

EUR mill.	2019	Amounts reclassified to profit or loss	Unrealised gains and losses recognised in OCI	2018	Line item affected in profit or loss because of the reclassification
Jet fuel price hedging	-15.1	-5.5	79.6	-89.2	Fuel costs
Hedging of lease payments	1.7	8.1	-11.6	5.2	Lease payments for aircraft
Operating cash flow hedging	19.6	21.6	-14.5	12.5	Revenue and cost lines*
Hedging of interest related to future lease payments	-5.7	0.7		-6.4	Lease payments for aircraft
The actuarial gains and losses of defined benefit plan	-9.4		-50.2	40.8
Translation differences	0.7			0.7
Cost of hedging reserve	-0.4		-2.5	2.1
Tax effect	1.9		-5.1	7.0
Total	-6.7	24.8	-4.3	-27.2

* Forward and option contracts hedging forecasted sales and purchases denominated in foreign currencies are hedges of a group of similar hedged items, and the amounts reclassified from OCI to P&L are proportionally allocated to different cost lines based on the realised cost amounts. Amounts reclassified to revenue and different cost lines are specified in the table "Derivatives realised through profit or loss" in section 3.8.

Maturity dates of fair values recognised in the hedging reserve

EUR mill.	2020	2021	2022	2023	2024	Later	Total
Jet fuel price hedging	-16.8	1.7					-15.1
Hedging of lease payments	1.7						1.7
Operating cash flow hedging	16.8	2.8					19.6
Hedging of interest related to future lease payments	-0.7	-0.7	-0.7	-0.7	-0.7	-2.3	-5.7
The actuarial gains and losses of defined benefit plan	-9.4						-9.4
Translation differences						0.7	0.7
Cost of hedging reserve	-0.4						-0.4
Tax effect	1.8	-0.8	0.1	0.1	0.1	0.5	1.9
Total	-7.0	3.0	-0.5	-0.5	-0.5	-1.1	-6.7

Hybrid bond

Shareholders' equity (after equity belonging to the owners) includes a 200 million euro hybrid bond issued in 2015. The hybrid bond coupon is fixed at 7.875 per cent per year for the first five years, and thereafter floating, at least 12.875 per cent per year. Finnair can postpone interest payment if it does not distribute dividends or any other equity to its shareholders. The bond has no maturity date, but the company has the right to redeem it in five years and on every interest payment date thereafter. The overall hybrid bond net position recognised in equity is 198.2 million euros, due to issuing expenses. The hybrid bonds are unsecured and in a weaker preference position than promissory notes. A holder of hybrid bond notes has no shareholder rights.

Earnings per share

The basic earnings per share figure is calculated by dividing the result for the financial year attributable to the parent company's shareholders by the weighted average number of shares outstanding during the financial year. The result for the financial year is adjusted for the after-tax amounts of hybrid bond interests regardless of payment date, transaction costs of the new hybrid bond issued and premium paid, when a hybrid bond is redeemed. When calculating the earnings per share adjusted by dilution, the weighted average of the number of shares takes into account the diluting effect resulting from changing into shares all potentionally diluting shares. Finnair has not granted any options.

EUR mill.	2019	2018
Result for the financial year, EUR mill.	74.5	101.6
Hybrid bond interest, EUR mill.	-15.8	-15.8
Tax effect	3.2	3.2
Adjusted result for the financial year	61.9	89.0

Weighted average number of outstanding shares, mill. pcs	127.5	127.9
Basic earnings per share, EUR	0.49	0.70
Diluted earnings per share, EUR	0.49	0.70
Effect of own shares, EUR	0.00	0.00

Dividend

The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.20 per share be paid for 2019. A dividend for 2018 of 0.274 euro per share, amounting to a total of EUR 35.0 million, was decided in the Annual General Meeting on 20 March 2019. The dividend was paid on 1 April 2019.

Finnair Plc's distributable equity

EUR mill.	31 Dec 2019
Retained earnings at the end of financial year	153.4
Unrestricted equity	258.7
Result for the financial year	22.1
Distributable equity total	434.2

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS

4. CONSOLIDATION

1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

4 Consolidation

Notes under the Consolidation section include a description of the general consolidation principles and methods of consolidation. The aim of the section is to provide an overall picture of the group's structure and principles applied in preparing consolidated financial statements and classifying ownership interests. In addition, notes include information about subsidiaries, associated companies and joint ventures held, acquired or sold by the group as well as information about assets held for sale.

4.1 General consolidation principles

Consolidation

Consolidation, the consolidation method and classification of ownership interests depends on whether Group has power to control or jointly control the entity or have significant influence or other interests in the entity. When Group has the power to control the entity, it is consolidated as a subsidiary in the group according to principles described in the note 4.2 Subsidiaries. When Group has joint control or significant influence over an entity but does not have power to control, entity is accounted for by using equity method according to principles set in note 4.4 Investments in associates and such joint ventures. If Group does not have power to control nor significant influence in the entity, its ownership interests are classified as financial assets available for sale and accounted for according to principles described in the note 3.2 Financial assets.

Translation of foreign currency items

Items included in each subsidiary's financial statements are measured in the currency that is the main currency of the operating environment of each subsidiary ("functional currency"). The consolidated financial statements have been presented in euro, which is the parent company's functional and presentation currency. Transactions denominated in foreign currencies in group companies are translated into functional currency by using the exchange rate at the date of the transaction. Receivables and liabilities that are denominated in foreign currencies and are outstanding on the closing date are translated using the exchange rate of the closing date. Exchange rate differences are recognised in the income statement.

Foreign subsidiaries whose functional currency is not euro are translated into euro by using average rate for the financial year. Balance sheets are translated by using the closing rate for the financial period. Translation differences arising from the elimination of acquisition costs of foreign subsidiaries are recognised in other comprehensive income. When foreign subsidiary is sold, the differences are recognised as part of the sales gain or loss.

4.2 Subsidiaries

Consolidation principles of subsidiaries

Finnair Plc's consolidated financial statements include the parent company Finnair Plc and all its subsidiaries. Subsidiaries are defined as companies in which Finnair has control. Control exists when Finnair has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Usually Finnair has power over the entity when it owns more than 50% of the votes or where Finnair otherwise has the power to govern the financial and operating policies. The acquired subsidiaries are included in the consolidated financial statements from the day the Group has control, and disposed subsidiaries until the control ceases.

Acquired and established companies are accounted for using the acquisition method of accounting. Accordingly, the acquired company's identifiable assets, liabilities and contingent liabilities are measured at fair value on the date of acquisition. The excess between purchase price and fair value of the Group's share of the identifiable net assets is recognised as goodwill.

All inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless there is evidence of impairment related to the transferred asset. The accounting principles of subsidiaries have been changed to correspond Group's accounting policies.

Non-controlling interest and transactions with non-controlling interest

Non-controlling interests are presented within the equity in the Consolidated Balance Sheet, separated from equity attributable to owners of the parent. For each acquisition the non-controlling interest can be recognised either at fair value or at the non-controlling interest's proportionate share of the acquirer's net assets. The carrying amount of non-controlling interests is the amount of the interests at initial recognition added with the non-controlling interests' share of subsequent changes in equity.

Subsidiaries

Group

		Group ownership %
100.0	Finnair Kitchen Oy, Finland	100.0
100.0	Amadeus Finland Oy, Finland	95.0
100.0	Oy Aurinkomatkat - Suntours Ltd Ab, Suomi	100.0
100.0	Aurinko Oü, Estonia	100.0
100.0	Matkayhtymä Oy, Finland	100.0
100.0	OOO Aurinko, Russia	100.0
100.0	FTS Financial Services Oy, Finland	100.0
100.0	Finnair Business Services Oü, Estonia	100.0
		Group ownership % Name of the company

Finnair Flight Academy Oy was merged to its parent company Finnair Oyj on 31 December 2019.

4.3 Acquisitions and disposals

There were no business acquisitions or disposals during 2019.

Finnair sold 60% of Nordic Regional Airlines AB (Norra) to Danish Air Transport in 2018. After the transaction, Finnair owns 40% of the company. Norra transferred to the full ownership of Finnair on an interim basis in 2017.

= Content of the section = Accounting principles

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS

4. CONSOLIDATION

1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

4.4 Investments in associates and joint ventures

Associates are companies in which the Group generally holds 20–50 per cent of the voting right or in which the Group has significant influence but in which it does not exercise control. Companies where the Group has joint control with another entity are considered as joint ventures. The Group's interests in associated companies and jointly controlled entities are accounted for using the equity method. The investment in associates and joint ventures include goodwill recognized at the time of acquisition. The Group recognises its share of the post-acquisition results in associates and joint ventures in the income statement. When the Group's share of losses in an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations on behalf of the associate or joint venture.

Results from the transactions between the Group and its associates are recognised only to the extent of unrelated investor's interests in the associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associates is impaired. In case of such indications, Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value. The impairment is recognised in share of results in associates and joint ventures.

Accounting policies of associates or joint ventures have been changed where necessary to correspond with the accounting policies adopted by the Group. If financial statements for the period are not available, the share of the profit of certain associated or joint venture companies is included in the consolidated accounts based on the preliminary financial statements or latest available information.

The Group's share of the result, asset items and liabilities of associates and joint ventures is presented below.

EUR mill.	2019	2018
At the beginning of the financial year	3.3	2.5
Additions		0.9
Disposals	0.9
At the end of the financial year	2.5	3.3

At the beginning of the financial year	3.3	2.5
Additions		0.9
Disposals	0.9
At the end of the financial year	2.5	3.3

During 2019, the balance sheet value of Nordic Regional Airlines was revalued, resulting in a decrease in the share of assets and liabilities of joint operations. More information on transactions with associated companies and joint ventures can be found in the note 4.5 Related party transactions.

= Accounting principles

Information on the Group's associates and joint ventures 31 Dec 2019

EUR mill.	Domicile		Assets Liabilities	Revenue	Profit/ Loss	Holding %
Nordic Regional Airlines AB	Sweden	169.5	169.0	106.8	-3.4	40.00
Suomen Ilmailuopisto Oy*	Finland	19.5	1.6	10.5	0.2	49.50

*The presented figures for 2019 are preliminary and unaudited.

Information on the Group's associates and joint ventures 31 Dec 2018

EUR mill.	Domicile		Assets Liabilities	Revenue	Profit/ Loss	Holding %
Nordic Regional Airlines AB	Sweden	35.8	31.9	105.0	1.3	40.00
Suomen Ilmailuopisto Oy	Finland	19.3	1.1	10.2	0.1	49.50

The associated company owned by Finnair, Suomen Ilmailuopisto Oy, is an unlisted company and is not considered material compared to Finnair's operations. The result of associated companies and joint ventures for 2019 was -3.2 (1.4) million euros, of which Finnair's share was -0.9 (0.0) million euros. Changes in assets and liabilities of Nordic Regional Airlines AB (Norra) in 2019 are mainly due to adopting IFRS 16 standard. Norra did not restate comparison year 2018 according to the modified retrospective approach.

Suomen Ilmailuopisto Oy

Suomen Ilmailuopisto Oy (the Finnish Aviation Academy) is a vocational special purpose aviation school owned by Finnair Oyj (49.5%), Finnish Government (49.5%) and the City of Pori (1%). Finnair is not entitled to company's results nor net assets, but possible results need to be used for developing school's activities.

Nordic Regional Airlines AB

Nordic Regional Airlines AB (Norra) operates mainly purchase traffic for Finnair. The owners (Finnair 40% and Danish Air Transport 60%) have joint control over the entity. In the balance sheet of Finnair, Norra has been classified as a joint venture.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Related parties of the Finnair group includes its subsidiaries, management, associated companies and joint ventures and Finnair pension fund. Subsidiaries are listed in the note 4.2 and associates and joint ventures in note 4.4. Related party transactions include such operations that are not eliminated in the group's consolidated financial statement. Finnish government owns 55.8% (55.8%) of Finnair's shares. All the transactions with other government owned

companies are with arms length basis.

The following transactions have taken place with associated companies, joint ventures and Finnair pension fund:

Transactions with related parties are arm length, and are with similar terms than transactions carried out with independent parties. Management remuneration is presented in note 1.3.8. Management has not been granted any loans and there have not been any other transactions with management. More information on associated companies and joint ventures can be found in the note 4.4.

Finnair pension fund

The Finnair pension fund in Finland is a stand-alone legal entity which mainly provides additional pension coverage to Finnair's personnel in the form of defined benefit plan, and manages related pension assets. The assets include Finnair's shares representing 0.1% (0.1%) of the company's outstanding shares. Real estate and premises owned by the pension fund have been mainly leased to Finnair. In 2019 and 2018 Finnair did not pay any contributions to the fund. Pension obligation was 77.0 million euros (16.5) at the end of the financial year.

EUR mill.	2019	2018	valid tax rates for future years at the closing date. Finnair has no uncertain tax positions. Deferred tax asset is recognised to the extent that realisation of the related tax benefit through future profits is probable.
Sales of goods and services			Temporary differences arise mainly from sales of tangible assets and depreciation, right-of-use assets, lease liabilities and tax
Associates and joint ventures	27.0	44.1	losses. Deferred tax is recognised for foreign subsidiaries' undistributed earnings only when related tax effects are probable.
Pension fund	0.7	0.2	Deferred tax assets and liabilities are set off when they are levied by same taxing authority and Finnair has a legally en forceable right to set off the balances.
Purchases of goods and services
Associates and joint ventures	107.8	105.4
Pension fund	12.8	15.1
Financial income and expenses			Income taxes
Associates and joint ventures	5.7	2.0
Pension fund	-0.3	-0.1	EUR mill.	2019	2018
Receivables			Taxes for the financial year
Non-current receivables from associates and joint ventures	33.7		Current tax	-4.8	-11.1
Current receivables from associates and joint ventures	23.4	9.2	Adjustments recognised for current tax of prior periods	0.1
Liabilities			Deferred taxes	-13.8	-14.4
Non-current liabilities to associates and joint ventures	3.6	3.6	Total	-18.4	-25.6
Non-current liabilities to pension fund	77.0	16.5	The table below explains the difference between theoretical tax cost calculated with Finnish nominal tax rate 20.0%
Current liabilities to associates and joint ventures	1.0	2.1	(20.0%) and tax expense in the consolidated income statement:

5 Other notes

Other notes include all such notes that do not specifically relate to any previous subject matters.

5.1 Income taxes

The tax expense for the period includes current and deferred tax and adjustments to previous years' taxation. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or other equity items. Deferred taxes are calculated for temporary differences between accounting and taxation using the valid tax rates for future years at the closing date. Finnair has no uncertain tax positions.

EUR mill.	2019	2018







Effective tax rate	19.8%	20.1%

The effective tax rate was 19.8% (20.1%). The current tax relates to tax cost accrued in Finnair Oyj.

= Content of the section = Accounting principles

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION

5. OTHER NOTES

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Deferred tax assets and liabilities

The Group has evaluated the nature and classification of deferred tax assets. Based on the evaluation, deferred tax assets and liabilities levied by the same taxing authority met the requirements for offset eligibility in accordance with IAS 12 standard. The deferred tax assets and liabilities are shown net on the balance sheet.

Changes in deferred taxes during 2019:

EUR mill.	2018	Recognised in the income statement	Recognised in shareholders' equity	2019
Deferred tax assets and liabilitities
Confirmed losses	0.1	-3.2	3.2	0.0
Employee benefits	3.3	2.0	10.0	15.3
Property, plant and equipment	-100.1	-16.3		-116.4
Right-of-use assets	-176.1	13.5		-162.6
Lease liabilities	209.5	-6.9		202.7
Subleases	-11.7	2.3		-9.4
Other temporary differences	12.1	-5.0	-0.9	6.1
Valuation of derivatives at fair value	15.1		-15.2	0.0
Total	-47.6	-13.8	-2.9	-64.3

After the 2019 taxable result, there are no confirmed tax losses available. Distributing retained earnings of foreign subsidiaries as dividends would cause a tax effect of 0.2 million euros (0.3).

Changes in deferred taxes during 2018:

EUR mill.	2017	Change in accounting principles (IFRS 15, Revenue from Contracts with Customers)	Recognised in the income statement	Recognised in shareholders' equity	2018
Deferred tax assets and liabilities
Confirmed losses	13.7	1.2	-17.9	3.2	0.1
Employee benefits	0.9		2.6	-0.1	3.3
Property, plant and equipment	-93.6		-6.4		-100.1
Right-of-use assets	-180.1		4.1		-176.1
Lease liabilities	191.2		18.4		209.5
Subleases			-11.7		-11.7
Other temporary differences	15.5		-3.5	0.4	12.1
Valuation of derivatives at fair value	-7.6			22.7	15.1
Total	-60.1	1.2	-14.4	26.1	-47.6

5.2 Disputes and litigation

Finnair reports only cases of which the interest is material and that are not insured. On 31 December 2019 there were no such disputes pending.

5.3 Events after the closing date

In early 2020, Finnair has decided to cancel all its flights to mainland China due to coronavirus-related effects between 6 February and 29 February 2020 as well as some of its flights to Guangzhou, Beijing Daxing airport and Nanjing.

As the first quarter and especially the weeks following the Chinese New Year are typically seasonally weak for Finnair's mainland China routes in terms of profitability, Finnair estimates in its stock exchange release dated 31.1.2020 that the direct financial impact of group cancellations, ticket refunds and flight cancellations during the first quarter in 2020 will remain relatively limited.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6 Parent company financial statements

Finnair Plc income statement

EUR mill.	Note	2019	2018
Revenue	6.2	2,935.8	2,677.8
Other operating income	6.3	84.5	84.3
Operating income		3,020.4	2,762.1

Materials and services	6.4	1,431.9	1,264.8
Staff expenses	6.5	350.7	320.6
Depreciation and reduction in value	6.6	15.1	11.4
Other operating expenses	6.7	1,217.7	1,107.5
Operating expenses		3,015.4	2,704.3

EUR mill.	Note	2019	2018
Revenue	6.2	2,935.8	2,677.8
Other operating income	6.3	84.5	84.3
Operating income		3,020.4	2,762.1

Materials and services	6.4	1,431.9	1,264.8
Staff expenses	6.5	350.7	320.6
Depreciation and reduction in value	6.6	15.1	11.4
Other operating expenses	6.7	1,217.7	1,107.5
Operating expenses		3,015.4	2,704.3

Operating profit/loss		4.9	57.8

Financial income and expenses	6.8	-11.1	-18.4

Profit/loss before appropriations and taxes		-6.1	39.4

Appropriations	6.9	33.1	46.4

Income taxes	6.10	-4.8	-16.9

Profit/loss for the financial year		22.1	68.9

Finnair Plc balance sheet

EUR mill.	Note	2019	2018
ASSETS
Non-current assets
Intangible assets	6.11	40.9	32.3
Tangible assets	6.12	82.5	61.7
Investments
Holdings in group undertakings		440.6	447.3
Participating interests		2.5	2.5
Other shares and similar rights of ownership		0.4	0.4
Loan and other receivables	6.14	1.5	18.2
Total investments	6.13	444.9	468.4
Total non-current assets		568.3	562.3
Current assets
Deferred tax assets	6.15		17.3
Current receivables	6.16	887.6	664.6
Marketable securities	6.17	800.8	892.2
Cash and bank equivalents	6.18	149.7	178.5
Total current assets		1,838.1	1,752.6
TOTAL ASSETS		2,406.3	2,314.9
EQUITY AND LIABILITIES
Equity
Share capital		75.4	75.4
Share premium account		24.7	24.7
Other reserves
Unrestricted equity funds		258.7	256.5
Legal reserve		147.7	147.7
Hedging reserve		3.3	-59.6
Retained earnings		153.4	119.9
Profit/loss for the financial year		22.1	68.9
Total equity	6.19	685.3	633.6
Accumulated appropriations	6.20	26.0	22.4
Provisions	6.21	157.0	121.0
Liabilities
Non-current liabilities	6.22	401.8	400.9
Current liabilities	6.23	1,136.2	1,137.1
Total liabilities		1,538.0	1,538.0
EQUITY AND LIABILITIES TOTAL		2,406.3	2,314.9

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Finnair Plc cash flow statement

EUR mill.	2019	2018
Cash flow from operating activities
Result before appropriations	-6.1	39.4
Depreciation	15.1	11.4
Other non-cash transactions	35.4	5.1
Financial income and expenses	12.2	18.6
Changes in working capital	62.9	67.0
Interest and other financial expenses paid	-20.9	-22.3
Received interest and other financial income	11.2	7.3
Income taxes paid	-10.6
Cash flow from operating activities	99.1	126.4

Cash flow from investing activities

Cash flow from financing activities

Cash flow from operating activities
Result before appropriations	-6.1	39.4
Depreciation	15.1	11.4
Other non-cash transactions	35.4	5.1
Financial income and expenses	12.2	18.6
Changes in working capital	62.9	67.0
Interest and other financial expenses paid	-20.9	-22.3
Received interest and other financial income	11.2	7.3
Income taxes paid	-10.6
Cash flow from operating activities	99.1	126.4

Cash flow from investing activities
Investments in intangible and tangible assets	-22.1	-16.8
Change in long-term receivables	-249.5	74.3
Investments in subsidiaries		0.1
Proceeds from sales of subsidiaries		0.4
Cash flow from investing activities	-271.7	58.0

Cash flow from financing activities
Purchase of own shares	-0.5	-3.7
Loan repayments and changes	39.5	-81.1
Dividends paid	-35.0	-38.4
Received and given group contributions	48.3	30.0
Cash flow from financing activities	52.4	-93.2

Change in cash flows	-120.2	91.3

Change in liquid funds
Liquid funds, at beginning	1,070.6	979.4
Change in cash flows	-120.2	91.3
Liquid funds, at end	950.4	1,070.6

Notes to Finnair Plc financial statements

6.1 Accounting principles

General Finnair Plc is the parent company of Finnair Group, domiciled in Helsinki, Finland. Financial statements are prepared in accordance with accounting principles required by Finnish law. 2018 comparative figures have been restated due to changes in accounting principles. More detailed information of the restatement is available in the note to the Consolidated Financial statements Changes in accounting principles and restated financials 2018.

Foreign currency items Business transactions in foreign currencies have been valued using the exchange rate at the date of transaction. Receivables and liabilities on the balance sheet date are valued using the exchange rate on the balance sheet date. Advances paid and received are valued in the balance sheet using the exchange rate at the date of payment. Exchange rate differences on trade receivables and payables are treated as the adjustments to turnover and other operating expenses. Exchange rate differences on other receivables and liabilities are entered under financial income and expenses.

Derivative contracts

According to its risk management policy, Finnair uses foreign exchange, interest rate and commodity derivatives to reduce the exchange rate, interest rate and commodity risks which arise from the Finnair's balance sheet items, currency denominated purchase agreements, anticipated currency denominated purchases and sales as well as future jet fuel purchases. The balance sheet exposure is hedged only at the Group level. The combined entity-level exposure for all Group companies differs from the Group-level exposure by the amount of intercompany items. Therefore, the balance sheet position and contracts hedging it are presented only in note 3.5. of the Group financial statements. Similarly, the foreign currency cash flow exposure is only hedged at the Group level to take advantage of the netting effect, and is presented in note 3.5 of the Group financial statements. Derivative contracts are valued using the rates on the balance sheet date according to Accounting Act 5:2 a §.

The derivatives are initially recognized at original acquisition cost (fair value) in the balance sheet and subsequently valued at fair value in each financial statement and interim report. The fair values of the derivatives are based on the value at which the instrument could be exchanged between knowledgeable, willing and independent parties, with no compulsion to sell or buy in the sales situation. The fair values of derivatives are determined as follows:

The fair values of all derivatives are calculated using the exchange rates, interest rates, volatilities and commodity price quotations on the closing date. The fair values of currency forward contracts are calculated as the present value of future cash flows. The fair values of currency options are calculated using the Black-Scholes option pricing model. The fair values of interest rate and currency swap contracts are calculated as the present value of future cash flows. The fair values of interest rate options are calculated using generally accepted option valuation models. The fair values of commodity forward contracts are calculated as the present value of future cash flows. The fair values of commodity options are calculated using generally accepted option valuation models. Gains and losses arising from changes in the fair value are presented in the financial statements according to the

original classification of the derivative. Gains and losses on derivatives qualifying for hedge accounting are recognized in accordance with the underlying asset being hedged. At inception, derivative contracts are designated as future cash flows hedges, hedges of binding purchase contracts (cash flow hedges or fair value hedges) or as derivatives not meeting the hedge accounting criteria or to which hedge accounting is not applied (economic hedges). Hedging of the fair value of net investments of foreign units or embedded derivatives have not been used.

At the inception of hedge accounting, Finnair documents the economic relationship and the hedge ratio between the hedged item and the hedging instrument, as well as the company's risk management objectives and the strategy for the inception of hedging. At the inception of hedging, and at least at the time of each financial statement, Finnair documents and assesses the effectiveness of hedge relationships by examining the past and prospective capacity of

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

the hedging instrument to offset changes in the fair value of the hedged item or changes in cash flows. The values of derivatives in a hedging relationship are presented in the balance sheet items current assets and current liabilities.

Finnair implements the IFRS hedge accounting principles in the hedging of future cash flows (cash flow hedging). The principles are applied to the foreign currency risk of foreign currency denominated purchases and sales, the price risk of jet fuel purchases and the price risk of electricity.

Financial assets and liabilities

Financial assets have been classified into the following categories: amortised cost and fair value through profit and loss. The classification is made at the time of the original acquisition based on the objective of the business model and the contractual cash flows of the investment. All purchases and sales of financial assets are recognised on the trade date. Liabilities are recognised at acquisition cost. Financial assets at fair value through profit and loss as well as assets and liabilities maturing within 12 months are included in current assets and liabilities. Investments in debt securities are measured at amortised cost, but only when the objective of the business model is to hold the asset to collect the contractual cash flows and the asset's contractual cash flows represent only payments of principal and interest. Financial assets recognised at amortised cost are valued using the effective interest method. Financial assets valued at amortised cost include trade receivables, deferred charges and security deposits for aircraft operating lease agreements. Due to the nature of short-term receivables and other receivables, their book value is expected to be equal to the fair value. Derecognition of financial assets takes place when Finnair has lost its contractual right to receive cash flows or when it has substantially transferred the risks and rewards outside the company.

The change in the fair value of the effective portion of derivative instruments that fulfil the terms of cash flow hedging are directly recognised in the fair value reserve of other comprehensive income, to the extent that the requirements for the application of hedge accounting have been fulfilled. The gains and losses, recognised in fair value reserve, are transferred to the income statement in the period in which the hedged item is recognised in the income statement. When an instrument acquired for the hedging of cash flow matures or is sold, or when the criteria for hedge accounting are no longer fulfilled, the gain or loss accrued from hedging instruments remains in equity until the forecast transaction takes place. However, if the forecasted hedged transaction is no longer expected to occur, the gain or loss accrued in equity is immediately recognised in the income statement. Lease payments for aircraft are significant. Annual lease payments are treated as rental expenses. Lease payments due in future years under aircraft lease contracts are presented as off-balance sheet items. Appropriations The difference between total and planned depreciation is shown as accumulated appropriations in the balance sheet and the change during the financial year in the income statement. Appropriations contain also given and received group contributions. Income taxes

Finnair recognises impairment provisions based on lifetime expected credit losses from trade receivables in accordance with IFRS 9. Finnair has chosen to apply a simplified credit loss matrix for trade receivables as trade receivables do not have a significant financing component. The expected credit loss model is forward-looking, and expected default rates are based on historical realised credit losses. The lifetime expected credit loss allowance is calculated using the gross carrying amount of outstanding trade receivables in each aging bucket and an expected default rate. The changes in expected credit losses are recognised in other expenses in the consolidated income statement. The impairment model does not apply to financial investments, such as bonds and money market funds, included in other financial assets as those are measured at fair value through profit and loss under IFRS 9, which already takes into account expected credit losses. With respect to the assets measured at amortised cost, Finnair is actively following such instruments and will recognise impairment through profit and loss if there is evidence of deterioration in credit quality.

Fixed assets and depreciation

Tangible and intangible assets are stated at historical cost less accumulated depreciation and impairment loss if applicable. Depreciations of buildings and other fixed assets is based on the following expected economic lifetimes:

Computer software, over 3–8 years • Office repairs, over 10 years
Buildings, 10–50 years from the time of acquisition to a residual value of 10%
Flight simulators, over 10–20 years
Other tangible assets, over 3–15 years

Research and development costs

Except for major software development costs, research and development costs are expensed as they occur. Research and development of aircraft, systems and operations is conducted primarily by the manufacturers.

Leasing

Income taxes in the income statement include taxes calculated for the financial year based on Finnish tax provisions, adjustments to taxes in previous financial years and the change in deferred taxes.

Pension schemes

The mandatory pension cover of the company's domestic employees has primarily been arranged through a Finnish pension insurance company and other additional pension cover through the Finnair pension fund or a Finnish pension insurance company. Since 1992, the pension fund has no longer accepted employees other than pilots for additional pension coverage. The Finnair pension fund's pension obligation is fully covered with respect to additional coverage. Pension fund liabilities are presented in the notes to the financial statements.

Provisions

Provisions in the balance sheet and entered as expenses in the income statement comprise those items which the company is committed to covering through agreements or otherwise in the foreseeable future and which have no corresponding revenue and whose monetary value can be reasonably assessed.

The company is obliged to return leased aircraft at the required redelivery condition. To fulfil these maintenance obligations the company has recognised provisions based on flight hours flown during the maintenance period.

6.2 Revenue by business area

EUR mill.	2019	2018
Revenue by division
	2,935.8	2,677.8
Passenger revenue	2,587.8	2,344.8
Ancillary services	131.0	121.1
Other	217.0	212.0

Distribution of turnover by market areas based on flight routes, % of turnover
Finland	6%	7%
Europe	38%	38%
Other countries	55%	55%
Total	100%	100%

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BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.3 Other operating income

EUR mill.	2019	2018
Aircraft lease income	28.1	28.0
Other rental income	26.1	26.5
Other income	30.4	29.8
Total	84.5	84.3

6.4 Materials and services

EUR mill.	2019	2018
Materials and supplies
Ground handling and catering expenses	323.6	308.3
Fuel costs	687.3	581.0
Aircraft materials and overhaul	288.3	254.7
IT expenses	19.7	16.5
Other items	113.1	104.3
Total	1,431.9	1,264.8

6.5 Staff costs

EUR mill.	2019	2018
Wages and salaries	286.6	253.5
Pension expenses	49.5	48.6
Other social expenses	14.7	18.5
Total	350.7	320.6

Salary and bonus expenses of Chief Executive Officer and Members of the Board of Directors
Chief Executive Officer and his deputy	1.4	1.1
Board of Directors	0.4	0.5

EUR mill.	2019	2018
Wages and salaries	286.6	253.5
Pension expenses	49.5	48.6
Other social expenses	14.7	18.5
Total	350.7	320.6

Salary and bonus expenses of Chief Executive Officer and Members of the Board of Directors
Chief Executive Officer and his deputy	1.4	1.1
Board of Directors	0.4	0.5

Personnel on average	4,592	4,291

2019	2018
13.1	9.8
1.2	1.0
0.7	0.7
15.1	11.4

6.6 Planned depreciation and amortisation

EUR mill.	2019	2018
On other long-term expenditure	13.1	9.8
On buildings	1.2	1.0
On other equipment	0.7	0.7
Total	15.1	11.4

6.7 Other operating expenses

2019	2018
28.1	28.0
26.1	26.5
30.4	29.8
84.5	84.3

EUR mill.	2019	2018
Lease payments for aircraft	419.3	366.0
Other rents for aircraft capacity	129.6	117.5
Office and other rents	31.3	32.9
Traffic charges	331.3	300.8
Sales and marketing expenses	161.8	148.0
Other expenses	144.4	142.2
Total	1,217.7	1,107.5

6.8 Financial income and expenses

EUR mill.	2019	2018
Interest income
From group companies	10.6	6.6
From other companies
Net gains on debt instruments held mandatorily at FVPL	0.4	-3.6
Other interest income	0.5	0.5
Total	11.5	3.5
Gains on disposal of shares	1.1	0.2
Interest expenses
To other companies	-23.7	-25.2
Total	-23.7	-25.2
Other financial expenses
To other companies	0.9
Total	0.9
Other financial expenses
To other companies	-0.7	-0.5
Total	-0.7	-0.5
Exchange gains and losses	-0.2	3.6

Financial income and expenses total	-11.1	-18.4

	2019	2018

	323.6	308.3
	687.3	581.0
	288.3	254.7
	19.7	16.5
	113.1	104.3
	1,431.9	1,264.8

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.9 Appropriations

EUR mill.	2019	2018
Change in depreciation difference	-1.0	-1.9
Received group contribution	34.1	48.3
Total	33.1	46.4

6.10 Income taxes

EUR mill.	2019	2018
Income tax for the financial year	-4.9	-10.6
Change in deferred taxes		-6.3
Total	-4.8	-16.9

6.11 Intangible assets

Other long-term expenditure

EUR mill.	2019	2018
Other long-term expenditure
Acquisition cost 1 January	66.2	52.9
Additions	21.6	18.0
Additions from merger	0,1
Disposals	-10.2	-4.7
Acquisition cost 31 December	77.8	66.2

Accumulated depreciation 1 January	-34.0	-28.9
Disposals	8.8	4.7
Depreciation and reduction in value	-11.7	-9.8
Accumulated depreciation 31 December	-37.0	-34.0

Book value 31 December	40.9	32.3

Intangible assets Total 31 December	40.9	32.3

Intangible assets Total 31 December 40.9 32.3

6.12 Tangible assets

Tangible assets 2019

2019	2018
-1.0	-1.9
34.1	48.3
33.1	46.4

EUR mill.	Land	Buildings	Other equipment	Advances paid	Total
Acquisition cost 1 January	0.7	54.7	9.1	6.0	70.6
Additions			3.2	3.0	6.2
Additions from merger			31.7	1.9	33.6
Disposals		-0.4	-0.3	-5.8	-6.5
Acquisition cost 31 December	0.7	54.3	43.6	5.1	103.8

Accumulated depreciation 1 January		-4.4	-4.4		-8.8
Disposals		0.2	0.3		0.6
Depreciation and reduction in value		-1.0	-0.7		-1.7
Depreciations from merger			-11.3		-11,3
Accumulated depreciation 31 December		-5.2	-16.0		-21.3

Book value 31 December	0.7	49.1	27.6	5.1	82.5

The share of machines and equipment in the book value of tangible assets 31 December			31.0%

Tangible assets 2018

EUR mill.	Land	Buildings	Other equipment	Advances paid	Total
Acquisition cost 1 January	0.7	54.4	7.9	7.7	70.8
Additions		0.3	1.4	5.0	6.6
Disposals			-0.2	-6.7	-6.9
Acquisition cost 31 December	0.7	54.7	9.1	6.0	70.6
Accumulated depreciation 1 January		-3.4	-3.9		-7.4
Disposals			0.2		0.2
Depreciation and reduction in value		-1.0	-0.6		-1.6
Accumulated depreciation 31 December		-4.4	-4.4		-8.8
Book value 31 December	0.7	50.3	4.7	6.0	61.7
The share of machines and equipment in the book value of tangible assets 31 December			1.1%

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BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

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			CONSOLIDATED INCOME STATEMENT
--	--	--	-------------------------------

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.13 Investments

EUR mill.	2019	2018
Group companies
Acquisition cost 1 January	447.3	447.6
Disposals from merger	-6.7	-0.3
Book value 31 December	440.6	447.3

Associates and joint ventures
Acquisition cost 1 January	2.5	2.5
Book value 31 December	2.5	2.5

Shares in other companies
Acquisition cost 1 January	0.4	0.4

EUR mill.	2019	2018
Group companies
Acquisition cost 1 January	447.3	447.6
Disposals from merger	-6.7	-0.3
Book value 31 December	440.6	447.3

Associates and joint ventures
Acquisition cost 1 January	2.5	2.5
Book value 31 December	2.5	2.5

Shares in other companies
Acquisition cost 1 January	0.4	0.4
Book value 31 December	0.4	0.4

	Share of parent
Associates and joint ventures	company %
Suomen Ilmailuopisto Oy, Finland	49.50
Nordic Regional Airlines AB, Sweden	40.00

Group companies	Share of parent company %		Share of parent company %

Finnair Cargo Oy, Finland	100.00	Finnair Kitchen Oy, Finland	100.00
Finnair Aircraft Finance Oy, Finland	100.00	Kiinteistö Oy Lentokonehuolto, Finland	100.00
Northport Oy, Finland	100.00	Amadeus Finland Oy, Finland	95.00
Finnair Technical Services Oy, Finland	100.00	Oy Aurinkomatkat - Suntours Ltd Ab, Finland	100.00
Finnair Engine Services Oy, Finland	100.00	FTS Financial Services Oy, Finland	100.00
Finnair Travel Retail Oy, Finland	100.00	Finnair Business Services OÜ, Estonia	100.00

Finnair Flight Academy Oy, Finland was merged to Finnair Plc on 31 December 2019.

6.14 Non-current loan and other receivables

EUR mill.	2019	2018
From group companies		16.7
From other companies	1.5	1.5
Total	1.5	18.2

6.15 Deferred tax assets

EUR mill.	2019	2018
Change in accounting principles		2.3
Deferred tax assets 1 January	17.3
From result for the financial year	-1.9	-6.2
From temporary differences	0.2	-0.4
From valuation of derivates at fair value	-15.7	25.6
Offset against deferred tax liabilities	0.1	-4.0
Deferred tax assets 31 December	0.0	17.3

6.16 Current receivables

EUR mill.	2019	2018
Short-term receivables from group companies
Trade receivables	21.6	19.1
Received Group contribution	34.1	48.3
Accrued income and prepaid expenses	5.3	0.7
Other receivables	605.4	351.1
Total	666.4	419.3

Short-term receivables from associates and joint ventures
Trade receivables		0.1
Prepaid expenses	9.9	9.1
Total	10.0	9.2
Short-term receivables from others
Trade receivables	102.5	109.5
Prepaid expenses	58.3	84.4
Derivative financial instruments	33.9	27.0
Other receivables	16.6	15.2
Total	211.3	236.1

Short-term receivables total	887.6	664.6

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.17 Investments

EUR mill. 2019 2018 Short-term investments at fair value 800.8 892.2 EUR mill. 2019 2018

6.18 Cash and bank equivalents

Funds in group bank accounts and deposits maturing in three months 149.7 178.5

6.19 Equity

EUR mill.	Share capital	Share premium account	Legal reserve	Hedging reserve	Un restricted equity funds	Retained	earnings Equity total
Equity 1 Jan 2019	75.4	24.7	147.7	-59.6	256.5	188.8	633.6
Change in fair value of equity instruments				62.9			62.9
Share-based payments					2.2		2.2
Purchase of own shares						-0.5	-0.5
Dividend						-34.9	-34.9
Result for the financial year						22.1	22.1
Equity 31 Dec 2019	75.4	24.7	147.7	3.3	258.7	175.5	685.3

Un restricted equity funds	Retained	earnings Equity total







Un
restricted equity funds	Retained	earnings Equity total

Equity 31 Dec 2018	75.4	24.7	147.7	-59.6	256.5	188.8	633.6
Change in accounting principles						-0.8	-0.8
Result for the financial year						69.7	69.7
Dividend						-38.4	-38.4
Purchase of own shares						-3.7	-3.7
Share-based payments					2.8		2.8
Change in fair value of equity instruments				-102.4			-102.4
Equity 1 Jan 2018	75.4	24.7	147.7	42.8	253.7	162.0	706.4
Change in accounting principles						-8.3	-8,3
Equity 31 Dec 2017	75.4	24.7	147.7	42.8	253.7	170.3	714.7
EUR mill.	Share capital	Share premium account	Legal reserve	Hedging reserve	restricted equity funds	Retained	earnings Equity total

Distributable equity

EUR mill.	2019	2018
Hedging reserve		-59.6
Unrestricted equity funds	258.7	256.5
Retained earnings	153.4	119.9
Profit/loss for the financial year	22.1	68.9
Total	434.2	385.7

6.20 Accumulated appropriations

EUR mill.	2019	2018
Accumulated depreciation difference 1 January	22.4	20.5
Change in depreciation difference	3.6	1.9
Accumulated depreciation difference 31 December	26.0	22.4

Accumulated appropriations total	26.0	22.4

6.21 Provisions

EUR mill. 2019 Provisions 1 January 121.0 Provision for the period 78.1 Provision used -43.5 Exhange rate differences 1.4 Provisions 31 December 157.0 Of which long-term 140.1
	2018
	106.3
	52.7
	-42.9
	4.9
	121.0
	90.3
Of which short-term 16.9	30.7
Total 157.0	121.0

Long-term aircraft maintenance provisions are expected to be used by 2031.

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.22 Non-current liabilities

EUR mill.	2019	2018
Bonds	200.0	200.0
Hybrid loan	200.0	200.0
Deferred tax liability total	0.1
Other liabilities	1.7	0.9
Total	401.8	400.9

Maturity of interest-bearing liabilies
1–5 years	200.0	200.0
after 5 years	200.0	200.0
Total	400.0	400.0

6.23 Current liabilities

EUR mill.	2019	2018
Current liabilities to group companies
Trade payables	46.3	47.5
Accruals and deferred income	17.5	23.7
Group bank account liabilities	162.1	122.7
Total	225.9	194.0

Current liabilities to associates and joint ventures
Trade payables	0.1
Advance payments received		2.1
Total	0.1	2.1

Current liabilities to others
Advance payments received		0.1
Trade payables	74.5	60.7
Accruals and deferred income	824.2	861.6

EUR mill.	2019	2018
Current liabilities to group companies
Trade payables	46.3	47.5
Accruals and deferred income	17.5	23.7
Group bank account liabilities	162.1	122.7
Total	225.9	194.0

Current liabilities to associates and joint ventures
Trade payables	0.1
Advance payments received		2.1
Total	0.1	2.1

Current liabilities to others
Advance payments received		0.1
Trade payables	74.5	60.7
Accruals and deferred income	824.2	861.6
Other liabilities	11.5	18.7
Total	910.2	941.0

Current liabilities total 1,136.2 1,137.1

Accruals and deferred income	2019	2018
Unflown air transport revenues	450.7	444.4
Jet fuels and traffic charges	96.9	89.5
Holiday payment liability	64.1	61.0
Loyalty program Finnair Plus	43.9	45.8
Derivative financial instruments	29.1	100.5
Other items	157.1	146.3
Total	841.7	887.4

6.24 Collateral, contingent liabilities and other commitments

EUR mill.	2019	2018
Guarantees and contingent liabilities
On behalf of group companies	79.6	82.0
On others companies		0.6
Total	79.6	82.6

Aircraft lease payments
Within one year	377.0	338.8
After one year and not later than 5 years	1,285.7	1,207.6
Later than 5 years	543.9	657.7
Total	2,206.5	2,204.1

Parent company has leased the aircraft fleet from the fully owned subsidiary.

EUR mill.	2019	2018
Other lease payments
Within one year	30.2	29.3
After one year and not later than 5 years	91.5	91.4
Later than 5 years	130.9	140.6
Total	252.6	261.3

Pension obligations
Total obligation of pension fund	350.0	339.8
Non-mandatory benefit covered	-350.0	-339.8
Total	0.0	0.0

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

2019	2018
200.0	200.0
200.0	200.0
0.1
1.7	0.9

401.8	400.9


200.0	200.0
200.0	200.0

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

6.25 Derivates

	2019			2018			Fair value hierarchy of financial assets and liabilities valued at fair value
EUR mill.	Nominal value	Positive fair values	Negative fair values	Fair net value	Nominal value	Positive fair values	Negative fair values	Fair net value	Fair values at the end of the reporting period
Currency derivatives									EUR mill.	31 Dec 2019	Level 1	Level 2
Operational cash flow									Financial assets at fair value through profit and loss
hedging (forward contracts)	924.4	23.6	-5.9	17.6	700.1	17.0	-6.9	10.1	Securities held for trading	800.8	762.3	38.5
Operational cash flow									Derivatives held for trading
hedging, bought options		3.3		3.3		5.6		5.6	Currency derivatives	27.0		27.0
Operational cash flow									- of which in cash flow hedge accounting	26.8		26.8
hedging, sold options			-1.0	-1.0			-2.8	-2.8	Commodity derivatives	6.9		6.9
Hedge accounting items total		26.8	-6.9	19.9	700.1	22.6	-9.7	12.8	- of which in cash flow hedge accounting	6.9		6.9
Currency derivatives total	924.4	26.8	-6.9	19.9	700.1	22.6	-9.7	12.8	Total	834.6	762.3	72.4
Commodity derivatives									Financial liabilities recognised at fair value through profit and loss
Jet fuel forward contracts, tonnes	898,000	6.2	-21.5	-15.3	924,500	3.8	-78.1	-74.3	Derivatives held for trading
Bought options, jet									Currency derivatives	7.0
fuel, tonnes	57,000	0.7		0.7	169,500	0.7		0.7	- of which in cash flow hedge accounting	6.9
Sold options, jet fuel, tonnes	57,000		-0.5	-0.5	169,500		-11.6	-11.6	Commodity derivatives	22.1
Hedge accounting									- of which in cash flow hedge accounting	22.0
items total		6.9	-22.0	-15.1		4.5	-89.7	-85.2	Total	29.1
Sold options, jet fuel, tonnes			-0.1	-0.1	146,500		-1.1	-1.1
Items outside hedge accounting total							-1.1	-1.1
Commodity derivatives total		6.9	-22.1	-15.2		4.5	-90.8	-86.4	6.27 Fuel price risk in flight operations
Derivatives total*		33.9	-29.1	4.8		27.0	-100.5	-73.5	Timing of the notional and hedged price

* Positive (negative) fair value of hedging instruments on 31 Dec 2019 is presented in the statement of financial position in the item derivative assets within current assets (derivative liabilities within current liabilities).

6.26 Financial assets and liabilities measured at fair value

			Maturity
31 Dec 2019	Hedged price \$/tonne	Notional amount (tonnes)	Under 1 year	1 to 2 years
Jet fuel consumption priced with NWE index	655.2	992,382	761,382	231,000
Jet fuel consumption priced with SING index	682.6	61,618	61,618

Foreign exchange risk

	Average		Maturity
Timing of the notional EUR mill. 31 Dec 2019	exchange rate of hedging instruments against the euro	Notional amount	(gross) Less than 1 year	1 to 2 years
USD	1.17	921.3	685.4	235.9
JPY	125.2	378.1	271.3	106.8

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

Finnair Plc's distributable equity on 31 December 2019 amounts to 434,179,503.56 euros, of which the net result for the financial year 2019 is 22,141,346.13 euros. There have been no material changes in the company's financial position since the end of the financial year.

The Board of Directors proposes to the Annual General Meeting that a dividend of 0.20 euros per share be paid based on the balance sheet to be adopted for the financial year, which ended on 31 December 2019, and the remaining portion of the result be retained in the equity. Based on the number of outstanding shares as of 6 February 2020, the total amount of dividend proposed to be paid is 25,516,760.40 euros.

Signing of the Report of the Board of Directors and the Financial Statements

Helsinki, 6 February 2020 The Board of Directors of Finnair Plc

Jouko Karvinen Tiina Alahuhta-Kasko Colm Barrington

Montie Brewer Mengmeng Du Jukka Erlund

Henrik Kjellberg Jaana Tuominen

Topi Manner President and CEO of Finnair Plc

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

To the Annual General Meeting of Finnair Oyj

Report on the Audit of the Financial Statements

Opinion

In our opinion

the consolidated financial statements give a true and fair view of the group's financial position and financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements.

Our opinion is consistent with the additional report to the Audit Committee.

What we have audited

We have audited the financial statements of Finnair Oyj (business identity code 0108023-3) for the year ended 31 December 2019. The financial statements comprise:

the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and notes to the consolidated financial statements, including a summary of significant accounting policies
the parent company's balance sheet, income statement, statement of cash flows and notes.

Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 1.3.3 to the Financial Statements.

Our Audit Approach

Overview

Materiality Key audit matters Group scoping
Overall group materiality: € 15 million (€ 14 million) which represents approximately 0.5% of Group's revenues
Audit scope: We have audited parent company and three the most significant subsidiaries. In addition, we have performed group level procedures over specific consolidated accounts and analytical procedures to assess unusual movements across all entities.
First-time implementation of IFRS 16
Deferred revenue on ticket sales
Aircraft maintenance provision
Defined employee benefit plans

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole. Overall group materiality € 15 million (previous year € 14 million) How we determined it 0.5 % of revenues

Overall group materiality	€ 15 million (previous year € 14 million)
How we determined it	0.5 % of revenues
Rationale for the materiality benchmark applied	The group's profitability has been volatile over the last few years and has been significantly impacted by items affecting comparability. Therefore, we chose revenues as the benchmark as we considered that this provides us with a consistent year-on-year basis for determining materiality, reflecting the group's growth and investment plans, and which we believe is also the benchmark against which the performance of the Group is commonly measured by users, and is a generally accepted benchmark. We chose 0.5% which is within the range of acceptable quantitative materiality thresholds in auditing standards.

AUDITOR'S REPORT (Translation of the Finnish Original)

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

How we tailored our group audit scope

We tailored the scope of our audit, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

Group operates domestically through several legal entities. In addition, Group has few small legal entities outside Finland. Group's sales is mainly generated by parent company and we have audited the parent company as part of our audit of consolidated financial statements. In addition, we have audited three the most significant subsidiaries. We have considered that the remaining subsidiaries don't present a reasonable risk of material misstatement for consolidated financial statements and thus our procedures have been limited to analytical procedures performed at Group level. By performing the procedures above at legal entities, combined with additional procedures at the Group level, we have obtained sufficient and appropriate evidence regarding the financial information of the Group as a whole to

provide a basis for our opinion on the consolidated financial statements.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement

due to fraud.

of-use assets with corresponding lease liabilities on the balance sheet. Rent expenses in consolidated income statement were replaced by depreciations from rightof-use assets and financial expenses from lease liabilities. Previously the operating lease payments due in future were presented in the notes of the financial statements as lease commitments at their nominal value.

Key audit matter in the audit of the group	How our audit addressed the key audit matter
First-time implementation of IFRS 16
Refer to note 2.2 to the consolidated financial statements for the related disclosures.
The company implemented IFRS 16 Leases in 2019	We have tested a sample of lease contracts
by applying the full retrospective approach. The	recognized as right-of-use assets and liabilities in the
implementation had significant impacts on the group's	comparison period and balance sheet date.
financial statements and comparison periods.
In accordance with IFRS 16 the present values of the	completeness of lease arrangements included in the
future lease payments for aircraft, real estate and other qualifying lease arrangements are recognized as right	lease accounting We have tested the mathematical accuracy of lease

The right-of-use assets amounted € 877,5 million and the corresponding lease liabilities totalled € 1.054,0 million as of 31 December 2019.

The standard requires management discretion and estimates in e.g. determining the interest rate and lease term used in discounting the lease payments.

Due to magnitude of the balance and related estimates we consider this as a key audit matter in the audit of the Group.

We have evaluated the design and tested the operating effectiveness of certain controls over lease accounting. We have tested a sample of lease contracts recognized as right-of-use assets and liabilities in the comparison period and balance sheet date. We have performed substantive testing to ensure the completeness of lease arrangements included in the

We have tested the mathematical accuracy of lease

We have assessed the appropriateness of the assumptions used, such as discount rate and extension

calculations. options, in lease accounting.

We also assessed the appropriateness of the

disclosures in note 2.2 to the consolidated financial statements.

Key audit matter in the audit of the group How our audit addressed the key audit matter

Deferred revenue on ticket sales

Refer to note 1.2.4 to the consolidated financial statements for the related disclosures. Airline tickets are typically sold in advance when payments received are recognized as deferred revenue.

The deferred revenue related to unflown tickets amounted € 451,2 million as of 31 December 2019.

Airline ticket sales are recognised as revenue when the flight is flown. Part of the tickets expire without usage. For these tickets revenue is recognized based on the expected breakage amount as revenue in proportion to the pattern of rights exercised by the passenger, using historical trend information.

Due to magnitude of the balance and related manual adjustment we consider this as a key audit matter in the audit of the Group.

We evaluated the design and tested the operating effectiveness of certain controls over revenue recognition.

We have tested a sample of tickets recognized as revenues.

We have tested a sample of unused tickets in the deferred revenue.

We have tested the mathematical accuracy and input data of the calculation used to recognize revenues from the breakage model.

We have performed computer assisted audit procedures to deferred revenue related to unflown tickets.

Aircraft maintenance provision

Refer to note 1.3.6 to the consolidated financial statements for the related disclosures.

The Group operates aircrafts which are owned or held under lease arrangements. The Group is obligated to return leased aircraft at the required redelivery condition agreed with the lessor. To fulfil these maintenance obligations the Group has recognized e.g. airframe heavy maintenance, engine performance maintenance and engine life limited part provisions which amounted € 166,3 million as of 31 December 2019.

Liabilities for maintenance costs are incurred during the term of the lease in respect of leased aircrafts. These arise from legal and contractual obligations relating to the condition of the aircraft when it is returned to the lessor.

At each balance sheet date, the maintenance provision is calculated using a model that incorporates a number of variable factors and assumptions including: likely utilisation of the aircraft; the expected cost of the heavy maintenance check at the time it is expected to occur; and the expected occurrence of the heavy maintenance check.

We focused on this area because of an inherent level of management judgement required in calculating the amount of provision needed as a result of the complex and subjective elements around these variable factors and assumptions.

We evaluated the maintenance provision model and tested the calculations therein. This included assessing the process by which the variable factors within the provision were estimated, evaluating the reasonableness of the assumptions, testing the input data and testing mathematical accuracy of the calculations.

In particular, we challenged the key assumptions that were based on the Group's internal data, such as expected timing and cost of maintenance checks and maintenance contract terms. We also evaluated the provision and the key assumptions in the light of actual utilisation in the year.

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Key audit matter in the audit of the group How our audit addressed the key audit matter

Defined employee benefit plans

Refer to note 1.3.8.2 to the consolidated financial statements for the related disclosures.

The group has defined employee benefit plans where amount of pension benefit that an employee will receive on retirement is defined and that is usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the balance sheet in respect of defined pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The net defined benefit liability amounted to € 77,1 million as of 31 December 2019.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. Calculation of the defined benefit obligation requires use of actuarial assumptions such as life expectancy, inflation and future salary increases. The present value of the defined benefit obligations is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.

The plan assets are valued at fair value as of 31 December 2019 and valuation involve use of judgment in particular relating to unlisted investments.

We considered valuation of the defined benefit obligation and plan assets as a key audit matter in the audit of the Group due to materiality of the related balances and judgments involved in these estimates.

We have used auditors expert to review the actuarial statement prepared by independent actuaries. This has included assessment of the appropriateness of the actuarial assumptions used in calculating the defined benefit obligation.

We have tested valuation of the plan assets related to defined employee benefit plans by testing a sample of listed equity holdings against prevailing market prices at the year end. Related to unlisted investments we have created independent expectation based on the nature of the investment, historical purchase price or prior year audited valuation and publicly available information on similar investments and compared that to the management valuation.

We have no key audit matters to report with respect to our audit of the parent company financial statements. There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the consolidated financial statements or the parent company financial statements.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements

The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are

prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATING RESULT
1. FLEET AND OTHER FIXED ASSETS AND LEASING ARRANGEMENTS
1. CAPITAL STRUCTURE AND FINANCING COSTS
1. CONSOLIDATION
1. OTHER NOTES
1. PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

Other Reporting Requirements

Appointment

PricewaterhouseCoopers Oy was first appointed as auditor of Finnair Oyj by the annual general meeting on 14 August 1964 and our appointment represents a total period of uninterrupted engagement of 55 years. Back then Authorised Public Accountant, employed by PricewaterhouseCoopers Oy, was appointed.

Other Information

The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report, but does not include the financial statements and our auditor's report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor's report and the Annual Report is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

In our opinion

the information in the report of the Board of Directors is consistent with the information in the financial statements
the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Other Statements

We support that the financial statements and the consolidated financial statements should be adopted. The proposal by the Board of Directors regarding the use of the profit shown in the balance sheet is in compliance with the Limited Liability Companies Act. We support that the Members of the Board of Directors and the Managing Director of the parent company should be discharged from liability for the financial period audited by us.

Helsinki 6 February 2020

PricewaterhouseCoopers Oy Authorised Public Accountants

Markku Katajisto Authorised Public Accountant (KHT)

CEO'S REVIEW THE REPORT OF THE BOARD OF DIRECTORS

BOARD OF DIRECTORS' PROPOSAL ON THE DIVIDEND

AUDITOR'S REPORT

CONTACT INFORMATION

House of Travel and Transportation Finnair Oyj Tietotie 9 A (Helsinki Airport) 01053 FINNAIR

Tel. +358 600 0 81881 (1,25 €/answered call + local charge)

www.company.finnair.com

www.investors.finnair.com

www.facebook.com/finnair www.facebook.com/finnairsuomi

www.twitter.com/Finnair www.twitter.com/FinnairSuomi

https://blog.finnair.com/en/ https://blog.finnair.com/

www.instagram.com/feelfinnair/

			FINANCIAL
				STATEMENTS

AI Terminal

3266_10-k_2020-02-07_5f4908db-3559-4d6a-ba8c-217d1e669223.pdf

FINANCIAL INFORMATION 2019

CONTENTS

CEO'S REVIEW

"YEAR 2019 ENDED WITH A STRONG QUARTER AS THE MARKET SITUATION IMPROVED."

CEO'S REVIEW

"OUR AIM IS TO BE A MODERN PREMIUM AIRLINE."

WE ARE CONTINUOUSLY LOOKING FOR NEW WAYS TO REDUCE EMISSIONS.

THE REPORT OF THE BOARD OF DIRECTORS

MEGATRENDS IMPACTING FINNAIR'S BUSINESS

BUSINESS MODEL AND OPERATIONAL ENVIRONMENT

Business environment in 2019

was visible particularly in Finnair's key cargo markets in Asia. Finnair's global cargo volumes continued to grow year-on-year driven by the capacity increase, but the load factor decreased.

FINANCIAL PERFORMANCE IN 2019

Revenue in 2019

Passenger traffic

Revenue

Revenue by product

Number of passengers

Revenue by product

Travel services

Ancillary

Cargo

Revenue bridge by traffic area

Cost development in 2019

Result in 2019

Operational expenses

Comparable operating result and operating result

FINANCIAL POSITION AND CAPITAL EXPENDITURE

Balance sheet

Cash flow and financial position

Capital expenditure

Gearing

Dividend policy and the Board's proposal for the distribution of profit

Return on capital employed (ROCE)

Cash flow of investments and net cash flow from operations

Equity ratio and gearing

Finnair's operating fleet

Fleet renewal

"AT THE END OF 2019, FINNAIR OPERATED FOURTEEN A350 XWB AIRCRAFT."

Network and fleet

Operational excellence

STRATEGY

Number of persons employed by Finnair at year-end

FINNAIR INTRODUCED AN UPDATED STRATEGY FOR THE PERIOD OF 2020–2025.

Modern premium airline

Sustainability

Culture and ways of working

"SUSTAINABILITY IS VISIBLE IN EVERYTHING DONE AT FINNAIR."

SUSTAINABLE FINNAIR – REPORTING OF NON-FINANCIAL INFORMATION

FINNAIR TARGETS SUSTAINABLE,

Human capital

Financial

Immaterial

Social and partnerships

Fleet and infrastructure

Natural resources

VALUE CREATED / IMPACTS

STRATEGIC FIVE AREAS

INPUTS / RESOURCES

Value creation

SAFETY

Value for society

Value for shareholders

Value for customers

Value for personnel

Environmental impacts

Network

Passenger transportation 14.7 million passengers,

Cargo transportation 173,282 tonnes

PRODUCTS / OUTPUTS

Finnair's sustainability approach

Environmental matters

Climate-related risk management

CLIMATE-RELATED IMPACTS HAVE BEEN ACKNOWLEDGED TO HAVE LEGAL, MARKET-BASED, TECHNOLOGICAL AND REPUTATION-BASED ECONOMICAL ASPECTS.

CLIMATE CHANGE CHALLENGES ARE AN ESSENTIAL PART OF FINNAIR'S STRATEGY PROCESS.

Environmental actions taken

Social and employee matters

GENDER IS ONLY ONE DIMENSION OF FINNAIR'S BROADER DIVERSITY AGENDA. DIVERSITY IS SEEN AS A PERFORMANCE DRIVER.