FINAVIA STATE-OWNED GROUP

Interim Financial Report 1 January 2008 –- 30 June 2008

Air traffic trends

Growth in air traffic slowed down during the first half of the year. The number of passengers using Finavia's airports increased by 2.5% from January to June, compared to an increase of 5.4% during the same period last year. During the second quarter of the year, there were 2.3% (3.4%) more passengers than in 2007.

The number of passengers in domestic traffic fell by almost 5% in January–June (-1.1%) and June was a particularly slow month for domestic traffic, with the number of passengers down nearly 11% from a year earlier (-2.2%). International traffic continued to grow, however, although the growth slowed down from last year. During the second quarter, the number of international passengers was 4.7% (7.2%) higher, and in January–June it was 6.6% (9.5%) higher. The number of passengers to Asia and European countries outside the EU continued to grow sharply, although less rapidly than last year. The number of passengers to Asia was up 20.5% (36.8%) while the number of passengers to European countries outside the EU was up 14.0% (13.8%). The number of passengers travelling inside the EU was nearly unchanged from January–June of last year. June was also quieter than other months in international traffic, with the number of passengers up 2.2% compared to an increase of nearly 9% last year.

Growth in air traffic also slowed down elsewhere in Europe. Nevertheless, growth in Finland remained slower than average growth in Europe, as according to ACI the number of passengers in Europe increased by 3.1% in January–June (5.2%). In Scandinavia , growth was faster than on average in Europe: In January–June growth was 5.6% (4.4%), although the figure was reduced by the fact that growth at Helsinki-Vantaa was slower than elsewhere in Scandinavia.

Although growth in the number of passengers using Finavia's airports has slowed down, the development in the number of operations has been the reverse. The number of landings in commercial traffic was 3.6% higher in January–June than in 2007, compared with a change of
-2.0% during the corresponding period last year. International traffic grew more sharply than last year: 8.6% (5.2%).The reduction in the number of domestic landings was not as sharp as last year.-1.6% (-8.3%). The volume of landing aircraft in tonnes increased more than the number of landings, so average aircraft size has continued to increase. The development of operations and passenger numbers in January–June indicates that the aircraft occupancy rate has fallen.

According to Statistics Finland, during January–June airfares fell in Finland by an average of 8% (+2%) compared with January–June of last year. Domestic air journeys were on average 6% more expensive (+11%) and international journeys were 11% less expensive (0%). Statfor reported that airfares in Europe increased by an average of 6% in May.

Finavia Group's financial development

1 April – 30 June 2008

Finavia Group comprises the State-owned company Finavia and its subsidiaries. The largest subsidiaries are Finavia's wholly owned subsidiaries LAK Oyj and Airpro Oy.

The Group's turnover increased by 10.5% during the second quarter compared with the previous year and stood at EUR 84.4 million (76.3). Finavia accounted for EUR 6.9 million of the growth, LAK Oyj's turnover grew by EUR 0.7 million and Airpro Oy's turnover grew by EUR 0.4 million.

The Group's expenses increased by 3% compared with the corresponding period during the previous year and stood at EUR 57.2 million (55.5). External services grew the most, and were up 20.8% from the second quarter of last year. Staff costs included a one-off pension contribution rebate of EUR 2.2 million for 2007. During the same period last year, a one-off expense item of EUR 1 million was recognised under pension contributions. Excluding non-recurring pension contributions, expenses grew by 9%. Staff costs increased by 2.5% and other operating expenses grew by 12%.

The Group's operating result was EUR 14.7 million (9.2), which was EUR 5.5 million higher than during the corresponding period last year. The improved operating result was due to growth in turnover. Profit during the period under review was EUR 12.3 million (8.2).

1 January -– 30 June 2008

The Group’s turnover increased by EUR 16 million (10.4%) from the start of the year compared with January–June of last year. Of the growth, EUR 14.6 million resulted from growth in Finavia’s turnover and EUR 1.4 million from the increase in LAK Oyj's turnover.

The Group's expenses increased by EUR 4.2 million (3.7%) in January-June compared with the previous year. Other expenses grew the most (EUR 3.9 million). The largest increases in expenses were in municipal engineering charges (EUR 0.9 million) and security check services (EUR 0.7 million).

The Group’s operating result from the start of the year was EUR 30 million. The result includes the non-recurring item of a capital gain of EUR 4.4 million from the disposal of real estate. The operating result increased by EUR 15 million compared with last year. When non-recurring income of EUR 4.4 million and the pension contribution rebate of EUR 2.2 million during the first half of the year are deducted from the operating result, it comes to EUR 23.4 million for January–-June (16.4). The improved operating result was due to growth in turnover.

Profit during the period under review was EUR 24.6 million (13.8). Profit after extraordinary items was EUR 19.2 million (14.8).

Finavia’s finances

1 April – 30 June 2008

Finavia's turnover increased by 9.6% during the second quarter compared with the previous year and stood at EUR 79 million (72.0). Traffic income increased by 10.2% and other income by 8.2%. Within traffic income, turnover from international traffic increased by 11.5%, and turnover from domestic traffic increased by 6.3%, compared with the corresponding period last year. The growth in turnover is due to an increase in the number of passengers and the increase in passenger fees that entered into force on 1 April.

Finavia's expenses increased by 2% compared with the second quarter of the previous year and stood at EUR 54.8 million (53.7). Staff costs decreased by 9% and other costs increased by 11.1%.

The reduction in staff costs is a result of the pension contribution rebate (EUR 2.2 million). Excluding this rebate, staff costs increased by 4.4%. Part of the growth is a result of the general rise in the level of wages and another part is a result of the increase in the unemployment insurance contribution percentage from 1.95% to 2.90%.

The operating result of the period under review was EUR 13.5 million (8.2). The operating result after extraordinary items was EUR 11.3 million (9.2).

1 January –- 30 June 2008

Finavia's turnover from the start of the year increased by 10.2% compared with the previous year and stood at EUR 157.9 million (143.2). Traffic income increased by 8.9% and other income by 13.0%. Within traffic income, turnover from international traffic increased by 13.3%, and turnover from domestic traffic increased by 1% compared with the corresponding period last year.

Finavia's expenses in January–-June increased by 3.5% compared with the previous year and stood at EUR 113.1 million (109.3). Staff costs decreased by 0.8% and other costs increased by 6.7%.

The reduction in staff costs is a result of the pension contribution rebate (EUR 2.2 million). Excluding this rebate, staff costs increased by 6%. External services increased by 7.9%. The largest increases in expenses were in security check services and municipal engineering charges.

The operating result of the period under review was EUR 27.6 million (15.9). This was an increase of EUR 11.7 million from last year. When non-recurring income of EUR 4.2 million and the pension contribution rebate of EUR 2.2 are deducted from the operating result, the operating result for the period under review comes to EUR 21.2 million (12.4).

The result during January–June was EUR 24.2 million and it was EUR 8.2 million better than in 2007. Financial items reduced the result. Net financial items stood at EUR -3.4 million (EUR 46,000). Financial income fell by EUR 1.0 million and interest expenses increased by EUR 1.2 million. In addition, a one-off write down of EUR 1.2 million was booked from losses in investment operations.

Finavia's cash flow from operations was EUR 40 million (30). This was an increase of 32% from last year.

Group operations

Finavia has reformed in business structure and as of the start of 2008, operations have started in line with the new structure. Each business operation is responsible for its own offerings and the development of its own operations throughout the whole network of airports. Airports and the regional air navigation services implement services as directed by regional demand.

Airport Operations is responsible for Finavia's network of airports. It provides airport services, is responsible for the infrastructure of airports and their development.

The income of Airport Operations comprises airport charges, which include, for example, landing fees, aircraft parking charges, passenger and security charges. Income is affected by the number of passengers and landings and the weight of aircraft.

Finavia's passenger fees changed on 1 April 2008. The fees increased by an average of 2 per cent and the INT transit passenger fee decreased from EUR 6.10 to EUR 5.11. The reduction in the INT-INT transit passenger charge compensates for the change that entered into force on 1 September 2007, when security charges started to be charged for INT-INT transit passengers. The security charge will remain at EUR 4.51 in 2008.

The good development of international traffic during the first half of the year and the increases in passenger fees boosted the income of Airport Operations by 10.7% compared with the corresponding period last year. Income in January–June stood at EUR 88.8 million (80.2).

On 7 April 2008, the Eastern Finland Environmental Permit Authority granted an environmental permit pursuant to the Environmental Protection Act to Joensuu Airport. The permit concerns Finavia's operations at the airport.

On 20 May 2008, the Northern Finland Environmental Permit Authority granted an environmental permit pursuant to the Environmental Protection Act to Oulu Airport, which concerns the operations of Finavia and the Lapland Squadron of the Finnish Air Force at the airport.

The expansion and renovation of Kuusamo Airport started in April. The project will increase the capacity of the airport and thereby promote the development of tourism in the region and create jobs.

On Wednesday, 2 April, Hungary's Wizz Air started direct flights from Turku to Gdansk, Poland. On 17 April, Latvia's airBaltic started direct flights from Kuopio to Riga, capital of Latvia. On 28 April, Finncomm Airlines started flights from Savonlinna to Varkaus.

Air Navigation Operations is responsible for controlling the use of Finnish airspace and providing air navigation services at Finavia's airports.

The income of the Air Navigation Operations is comprised mainly of the air navigation charges and route charges of airports. Air navigation charges are determined on the basis of the so-called TN unit, which is affected by the size of the landing aircraft. In January–June, the TN units of international traffic increased by 10.5% whilst the TN units of domestic traffic decreased by 0.2%. Due to growth in volume, income increased by 7.7% and stood at EUR 31.4 million (29.1).

On 5 April 2008, new software was taken into use for the Eurocat V2 presentation system at the Southern Finland Air Navigation Centre. The Eurocat V2 system will be expanded by the end of the year to include all airports in Finland except Helsinki-Vantaa Airport and Malmi Airport.

A new control tower was taken into use at Rovaniemi Airport on 11 April 2008. The control tower was refurbished to meet modern technical and structural requirements.

Commercial Operations is responsible for the commercial services at Finavia's airports. The services are offered directly to passengers or in cooperation with other service providers operating at the airport.

Income is strongly dependant on total passenger numbers. The services provided vary from airport to airport. Commercial income increased during January–June by 15.2% compared with the corresponding period last year and stood at EUR 32.6 million (28.3). The positive development is due to growth in volume and price increases.

Finavia's Real Estate Operations are handled by Lentoasemakiinteistöt Oyj. As a real estate investment company, it functions as a developer of various construction projects and owns buildings. The turnover of the Real Estate Operations increased in January–June by 40% and stood at EUR 5.0 million (3.6). The growth came mainly from the hotel owned by LAK Oyj, which was opened in August of last year.

Airpro Oy develops and provides traffic, airport and travel services for travel and tourism companies and directly for passengers. The development of Airpro's turnover during the early part of the year was slightly better than during the corresponding period last year. The turnover of the period under review was EUR 13.2 million (13.1).

Capital investments

The Group's investments were implemented according to plan. Net investments were EUR 46 million since the beginning of the year and were primarily expansion projects of the State-owned company.

The largest ongoing investments are the expansion of the Helsinki-Vantaa terminal and the multi-storey car park.

Investment sites completed during the first half of the year include a de-icing area at Helsinki-Vantaa, Turku's low cost terminal and Kuopio's lake terminal.

Organisation

At its meeting in June, Finavia's Board of Directors approved a plan for equity between employees for the period 1 June 2008 – 31 May 2009. The plan focuses on two topics: recruitment and the payroll system. It also includes a report on the equity situation and an assessment of the success of the plan for equity between employees in 2003–-2007.

Outlook for the rest of 2008

Statfor forecasts that air traffic in Europe will increase by 3.8% this year. The forecast was downgraded in May; early in the year, the growth forecast for 2008 was 4.1%. Air traffic in Northern and Eastern Europe is forecast to increase faster than in the rest of Europe and Statfor forecasts that air traffic in Finland will increase by 6.9% this year.

Finavia forecasts that the total number of passengers in 2008 will be unchanged from 2007 at 17 million. Domestic traffic volumes are forecast to decline slightly more than initially expected due to the fall in domestic demand and weaker economic growth. Growth in international traffic is also more moderate than in the previous year. Traffic to the main markets in Europe remains the foundation of international traffic. The total number of direct long-distance destinations in the latter part of the year will be ten. Flights to Seoul, South Korea started in June and flights to Canton will cease at the end of October, when the summer schedule ends. New air services will be provided by the low-cost carrier EasyJet, which will start flights between London and Helsinki at the beginning of November.

The high cost of fuel and the fall in demand have a negative effect on the development of air traffic in Finland and the whole of the eurozone. Finavia forecasts that growth in air traffic will be more moderate than in the previous year. Growth will come solely from international traffic. The increase in the number of international transit passengers will fall short of the target of 20%. Marketing efforts will focus on the main European markets.

Based on the traffic forecast at the beginning of August, Finavia is prepared to adjust its original objectives for full-year 2008. The period of rapid growth has now been passed. Weaker-than-expected growth prospects will slow down the growth of turnover and weaken the development of the result because the cost structure of the Finavia State-owned company is very fixed. The biggest single cost item is staff costs, the growth of which is mainly a result of last year's wage settlement. A decision has been made to pay particular attention to the recruitment of new personnel. With respect to other costs, Finavia has started measures to moderate the growth of costs.

¹At 49 airports in Europe.
²Stockholm-Arlanda, Copenhagen, Oslo-Gardemoen and Helsinki-Vantaa.
³Statfor, part of the Eurocontrol Agency, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector.
⁴INT-INT transit passenger, i.e. a passenger who arrives from a foreign airport, continues his or her journey to another foreign airport and spends the time between flights at the terminal area.
⁵Statfor, part of the Eurocontrol Agency, produces statistics and forecasts on air traffic in Europe and monitors and analyses trends in the aviation sector.
⁶IFR operations (incl. take-offs and landings).