THE DEVELOPMENT OF FINAVIA’S BUSINESS ENVIRONMENT IN 2007

THE TRENDS IN AVIATION

Air traffic continued its positive growth in 2007. According to statistics drawn up by Statfor, Eurocontrol’s Statistics and Forecast Service, air traffic in Europe grew by 5.1% (4.1%) in 2007 measured by the number of fl ights. Flights by discount airlines and fl ights to Eastern Europe increased particularly rapidly. The Airports Council International, ACI Europe, reported that the number of passengers in Europe had increased by 5.9 per cent on 2006 (5.5) at 49 main airports.

In Finland, the total number of fl ights in air traffic increased by 1.0 per cent (1.7). The number of domestic regular fl ights, charter fl ights and taxi fl ights decreased by 9.7 per cent (+2.7). The number of international fl ights increased by 4.8 per cent (3.9) from a year earlier; the figure includes overfl ights.

Growth in the number of passengers in Finland slowed down somewhat from the previous year. Growth was at the same level as in Europe on average: the number of passengers at Finavia’s airports was 5.9 per cent higher than in 2006 (8.0). The number of passengers in international traffic increased by 10.1 per cent (10.2). The number of passengers in domestic traffic decreased by 1.8 per cent (+4.2). A total of 17 million passengers (16) travelled passed through Finavia’s airports. The number of passengers at Helsinki-Vantaa airport increased by 8.2 per cent (9.1) to 13 million.

Measured by the number of operations, traffic in Finland developed in the opposite direction than the European average. There were 2.1 per cent fewer take-offs and landings than during the previous year (+3.0). In Europe as a whole, the corresponding figure was 5.1%. In Finland, their number decreased by 9.7 per cent (+2.7), but their number in international traffic increased by 5.8 per cent (3.4). The figures include the take-offs and landings of regular, charter and taxi fl ights.

The number of overfl ights continued the growth that began in 2000. In 2007, there were 1.8 per cent more overfl ights (excluding the Kvarken region) than in 2006 (9.8). The number of overfl ights along the Transpolar route between Europe and the Far East, which is important to Finland, decreased by 0.5 per cent from 2006 (+6.3). The tonnage of freight traffic was up 4.7 per cent from the previous year (7.2).

CHANGE FROM THE PREVIOUS YEAR, %
	2005	2006	2007
PASSENGERS (DEPARTING, ARRIVING AND TRANSFER)	3,6	8,0	5,9
COMMERCIAL AVIATION MOVEMENTS	- 0,2	3,0	- 2,1
OVERFLIGHTS(INCLUDING KVARKEN REGION)	5,7	5,9	1,0

KEY EVENTS DURING THE FINANCIAL YEAR

A total of 17 million passengers passed through Finavia’s airports in 2007, an increase of nearly one million from 2006. Total traffic between Asia and Finland increased by 39 per cent (30%). As of the beginning of September, a EUR 4.51 security charge started to be collected for each international transfer passenger.

In June, Finavia’s Board of Directors made a decision to transform the organisation of the group into one based on business principles. In December, the Board of Directors approved Finavia’s new Corporate Governance guidelines.

A major renovation of a taxiway lasting from April to the second half of September was carried out at Helsinki-Vantaa Airport, which led to the closure of runway 1 as of July. Air traffic returned to normal at the end of September. Despite the renovation work, air traffic was smooth, and delays occurred mainly during congested hours in the afternoons and lasted less than 15 minutes.

In December, the second-largest passenger terminal in Finland in terms of surface area was completed at Kittilä. The previous terminal was partly destroyed in a fire in the summer of 2006. The total value of the investment was EUR 5.1 mil lion. Regular airline service to Lappeenranta ended on 1 September 2007 but started again in January 2008. The Hilton Helsinki-Vantaa Airport hotel, owned by Finavia’s subsidiary LAK – Lentoasemakiinteistöt Oyj, was taken into use in August 2007. The investment was completed according to budget, and its value was EUR 30.5 million.

On 20 December 2007, the Finnish Civil Aviation Authority granted Finavia a new licence for the provision of air navigation services. The licence is in force until 20 December 2012. In September, Finavia obtained an environmental permit for Tampere-Pirkkala Airport following a six-year application process. The permit was the first major decision concerning an airport operating in continental Finland. An air force base operating at the airport had an impact on the scale of the permit. An environmental permit application concerning Helsinki- Vantaa Airport was submitted in December.

The new strategy approved at the end of 2006 functioned as the basis for supervisor training and management development activities in 2007. A strategy workshop was held for supervisors, and in November a training event preparing for the new business structure was held.

FINAVIA’S SERVICE OBJECTIVES 2007

Parliament approved Finavia’s key service objectives in connection with the approval process of the State budget. On the basis of section 8(2) of the State Enterprise Act (1185/2002), the Ministry of Transport and Communications decided on the service targets and performance target to be set for Finavia. The objectives and their implementation in 2007 are set out below.

THE SAFETY AND EFFICIENCY OF AIRPORT AND AIR NAVIGATION SERVICES

“Finavia’s aim is to provide airport and air navigation services for the needs of air traffic as safely and efficiently as possible. Finavia also provides services that are required by the defence administration, and the rescue authorities, and for training operations in the aviation sector. Finavia manages its range of air traffic and other services in the manner required of a profitable business. The aim is that the necessary operating requirements for commercial aviation are provided at the airports maintained by Finavia and within Finnish airspace at a high and safe level, and that air traffic delays resulting from Finavia’s operations are less than half the European average.”

SAFETY

Finavia is continually developing the management of the safety of its own operations. Finavia’s accurate reporting produced accurate data on discrepancies in aviation. A total of 1,266 (1,210) notifications were received from air navigation and airport units. The majority of these concerned the operations of aircraft or their technical problems, but also to a considerable extent Finavia’s own operations. Finavia’s figures for technical fault reporting are not included in the figure. Reporting can be used to continually develop safety management. There were no accidents caused by Finavia’s operations (0) but failure to act was a contributing factor in one (1) case of damage. There were two (2) instances of serious dangerous situations whose occurrence was not related to Finavia’s operations.

Ten (10) people worked in Finavia’s safety and quality unit in 2007. In the 2007 accounting period, operations were expanded, especially in research, audits and safety inspections.

All of Finavia’s units were audited during the accounting period. A total of 35 audits were carried out. At airports, air navigation and airport business operations were audited (an auditing process in accordance with the ISO standard), as well as maintenance, air navigation and rescue operations. Based on the audits, it was concluded that Finavia’s safety culture is at a good level.

The methodicality of safety and quality management was developed by updating the structure, quality and content of Finavia’s operating manual. Control of operations was improved through clearer and more comprehensive process descriptions. During 2007, the safety and quality unit trained 30 people to become compilers of safety inspections. The trained individuals are from regional air navigation, airports and group management. At the end of 2007, 59 individuals had been trained. Safety audits are part of the safety management system which is used to identify, analyse and manage aircraft risks relating to the system for the whole duration of the life cycle, right from the planning stage.

The management groups of the safety management organisation operated regularly in 2007. The Safety and Quality Committee met seven (7) times; likewise, the safety and quality committee of the Air Navigation Operations met eleven (11) times, the safety and quality committee of the Airports Operations ten (10) times and the safety and quality management groups of the airports and units met a total of 173 times.

EFFICIENCY

The efficiency of Finavia’s key business areas, i.e. airport services and air navigation services, are measured through personnel working years and the services produced.

The efficiency of Finavia’s airport services measured by passenger numbers per personnel working year improved by 6.1 per cent (14.0) compared with the previous year. The number of personnel decreased only slightly so the change was a result of the increase in the number of passengers. The number of fl ights per personnel working year increased by just 0.3 per cent (7.4) which is due to the decrease in the number of fl ights by 0.2 per cent.

CHANGE COMPARED TO PREVIOUS YEAR, %
	2005	2006	2007
NUMBER OF PASSENGERS/ PERSONNEL WORKING YEAR	4,3 %	14,0 %	6,1 %
NUMBER OF FLIGHTS/ PERSONNEL WORKING YEAR	0,3 %	7,4 %	0,3 %

In the latest cost efficiency comparison of the air navigation sector published by Eurocontrol and based on the figures for 2005, Finavia was placed among the top ten most efficient service providers. Costs per fl ight hour were EUR 283 (2004: EUR 273) in Finland, whereas the costs in the comparison countries were on average EUR 395 (EUR 392). The comparison contained over 30 Eurocontrol countries and the publication found the cost efficiency of both the en-route service as well as the airports’ air navigation service (costs/fl ight hours). A report based on the figures for 2006 will be completed by the end of the spring in 2008.

FINAVIA’S POSITION IN THE REPORT
	2004	2005
FINAVIA’S POSITION IN THE REPORT	8.	10.
NUMBER OF ORGANISATIONS IN THE REPORT	34	35
COSTS EUROS/FLIGHT HOUR IN FINLAND	273	283
COSTS EUROS/FLIGHT HOUR IN EUROPE	392	395

PUNCTUALITY

Finavia monitors delays via the regional air navigation service primarily on the basis of the data from Eurocontrol’s Central Flow Management Unit (CFMU). The CFMU coordinates and if necessary implements, at the request of member states, regulation on air traffic and air traffic fl ow on a Europe-wide basis.

According to the punctuality statistics, Finavia’s operations at Helsinki-Vantaa were punctual in 2007. Only 0.9 per cent (0.7) of all departing fl ights were delayed by more than 15 minutes as a result of Finavia’s operations. The share of departures delayed by various amounts of time due to air traffic control decreased somewhat and was 4 per cent (4.4) last year. Air traffic operations at Helsinki-Vantaa increased by 1.4 per cent in 2007 from 2006 (5.4).

According to the Association of European Airlines (AEA), Helsinki-Vantaa was the eighth most punctual airport in Europe during the third quarter of 2007 when all delays are included in the comparison, including delays not connected to the operations of the airport. The AEA surveys the punctuality of airlines and airports each quarter and prepares a summary for the year. In compiling the statistics, only delays of over 15 minutes to scheduled fl ights are taken into consideration.

INTERNATIONAL COMPETITIVENESS

“Finavia’s airports are maintained and developed as one entity; similarly the commercial demand for their services. Finavia’s aim is to provide airport and air navigation services that are internationally competitive in price and quality.”

Finavia constantly monitors the development of air traffic charges in Europe, and aims to retain its current position in relation to the setting of prices by other airports. The international comparison of charges includes all major European airports (24 airports) and the most common type of aircraft. The comparison considers all airport and air navigation charges, including en-route fees.

Helsinki-Vantaa was placed among the ten most affordable airports. The position changes slightly depending on the type of aircraft. In the comparison for the Airbus 320 aircraft, for example, Helsinki-Vantaa was the seventh most affordable airport in the group. The top airports were Madrid, Rome, Tallinn, St Petersburg, Riga and Dublin. The most expensive airports were Amsterdam, Zürich, Vilnius, Paris and Frankfurt. The air traffic charges at Helsinki-Vantaa are 14–18 per cent cheaper than the charges of the 23 other airports in the comparison.

In the comparison of the air traffic charges of the major airports in the Nordic countries, Helsinki-Vantaa’s position, compared with Oslo and Stockholm, varies between the most affordable and the second most expensive. In the comparison of the charges for the Airbus 320, for example, Helsinki-Vantaa is the most affordable, while the charges for the MD-11 and Airbus 340 are more affordable at both Oslo and Stockholm than at Helsinki- Vantaa. Copenhagen is the most expensive major airport in the Nordic countries. Finavia applies the same traffic charges at all the airports it maintains. Overall, Finavia has lost some of its relative pricing position among the group of airport operators. This is partly due to the fact Finavia manages a national network of airports unlike the majority of other operators in Europe, but is also due to Finavia’s significant investment program and its financing.

In 2007, passengers rated Helsinki- Vantaa as the third best airport in Europe. Porto airport was chosen as the best airport in Europe, with Zürich in second place. Helsinki-Vantaa and Münich shared the third place.

In the ASQ study for 2007, passengers were asked to evaluate 34 areas that measure the quality of the service at airports. The study was carried out by ACI (Airports Council International). Ninety airports participated in the 2007 survey, where nearly 200,000 travellers from around the world were interviewed.

In the Skytrax opinion survey based on feedback from air travellers, Helsinki- Vantaa had the second best luggage handling in the world in 2007. Helsinki-Vantaa has placed among the top airports in international comparisons since 1997. The most important factors of success have included the general ambience of the airport, politeness of the staff, cleanliness of the terminal premises and the feeling of security.

Finavia regularly surveys the satisfaction of domestic air travellers in the service. The survey of the service is carried out by scheduling season, and the summary feedback is reported once a year.

In 2007, the overall grade of all domestic airports on a scale from 1 to 7 remained nearly unchanged and was 5.59 (5.63). The slight decrease in the overall grade is explained by changes in the general ambience of airports and the smoothness of security checks.

EFFICIENCY AND QUALITY OF SECURITY CHECKS

“Security checks are carried out in such a way that the requirements placed on the smooth functioning of the airport’s operations are fulfilled and the waiting time for security checks during busy periods is a maximum of 15 minutes.”

Finavia has invested considerably in developing security measures to bring security checks at the airports up to the level required of Regulation (EC) 2320/2002 and the regulations and official provisions adopted pursuant to it. At the same time, more attention has been paid to the smooth operation of the entire security inspection process and to a customer focus as part of the package of services. The security check is generally smooth, and there are no long waiting times. The target level of the waiting time at busy periods has been met. The entire security inspection process is being constantly improved as part of terminal services.

OTHER OBJECTIVES SET BY THE MINISTRY OF TRANSPORT AND COMMUNICATIONS

“The ability of Finavia Group to produce public and financial value is estimated by defining indicators and calculation models connected to the owner’s financial value and effectiveness.” On 31 December 2007, the process started on the basis of the ownership strategy survey commissioned by the Ministry of Transport and Communications was still incomplete.

“Finavia Group’s planning, accounting and reporting will be developed to become more comprehensive and better able to make forecasts.”

Finavia made two profit forecasts in 2007. In addition, four Group interim financial reports were released. The development of the accounting and reporting systems is continuing.

“In its targets and financial statements, Finavia must clarify the scope of operations in its subsidiaries and their significance with respect to Finavia’s core operations.”

More information on the operations of the subsidiaries was added to the information on their operations in the notes to Finavia’s financial statements.

“Finavia will carry out an evaluation for the Ministry of Transport and Communications on the functionality and appropriateness of the Government’s decision (29 December 2005) on the restriction of liability for damages and insuring. The evaluation will consider the overall benefit to central government finances, the implementation of competition neutrality and the provision of public administrative tasks and Finavia’s risk management system. The evaluation will be used in the preparation of a new Government decision.”

The evaluation was carried out and delivered to the Ministry of Transport and Communications in October 2007.

PROFIT TARGET

”The Ministry of Transport and Communications sets Finavia’s profit target as EUR 27.3 million for 2007.”

The profit target for 2007 was achieved, and the operating profit was EUR 31.4 million.

PROFIT-CREDITING TARGET

“The Ministry of Transport and Communications sets the profit-crediting target of Finavia as 50 per cent of the profit for 2007, however a minimum of EUR 5 million.”

(The Government’s service and other targets for Finavia in 2007) The Board of Directors of Finavia proposes half of the profit of the financial year, i.e. EUR 15.7 million, be credited as profit for 2007.

FINAVIA’S ENVIRONMENTAL WORK

The most important environmental considerations in the airports include skid prev ention of the runways maintained by Finavia itself, ice protection and removal from aircraft by ground agents, and the fl ight operations of aircraft belonging to air carriers, private individuals and the Finnish Defence Forces. In addition, the air navigation business controls the use of airspace and has an indirect effect on emissions and noise from aircraft.

Environmental impacts connected to airports are evaluated and regulated in the environmental permit process, which includes widespread consultations with stakeholder groups. The environmental permit applications for the Kuopio, Joensuu and Helsinki-Malmi airports were announced during the accounting period. The authorities continued the processing of the applications for the Turku, Oulu and Halli airports. The environmental permit application for Helsinki-Vantaa was submitted in December 2007.

During the year under review, Finavia received a permit decision concerning Tampere-Pirkkala airport whose most important provisions concern the degree of collection of the mixture of water and glycol used in de-icing, and the amount of load on the water system caused by water on the runways. The key environmental figures for the airports are published separately in the 2007 Environmental Review.

PROFIT DEVELOPMENT

AIR TRAFFIC PRICES

Finavia aims to keep price changes at a reasonable level so that any possible increase is a maximum of 50 per cent of the estimated infl ation. The objective does not include costs, which may be incurred due to unforeseen external factors such as security regulations. As a result of the tightening of the EU’s security regulations, Finavia’s security costs have increased significantly and for the most part without due warning. Air traffic charges increased by an average of 4.98 per cent (4.07). The increase was exclusively a result of the increase in the security charge from EUR 3.24 to EUR 4.51; traffic charges were not increased at all. As of 1 September 2007 a security charge was collected on international transfer passengers.

FINAVIA’S PROFIT

The profit made by Finavia in 2007 stood at EUR 31.4 million (22.8). The profit increased by EUR 8.6 million compared with 2006 (0.6). The profit target set for Finavia by the Government was EUR 27.3 million (17.0) and the target was exceeded by EUR 4.1 compared with the previous year (5.8).

Finavia’s turnover in 2007 stood at EUR 290.2 million (266.9). This was an increase of EUR 23.2 million (23.9) or 8.7 per cent (9.8) from the previous year. Most of the growth in turnover, EUR 17.6 million, accrued from the increase of traffic revenues (17.2). Commercial revenues increased by EUR 5.9 million (9.1). Revenues from international traffic increased by EUR 15.4 million (10.1) on the previous year and revenues from domestic traffic increased by EUR 1.2 million (4.5). Revenues from military aviation increased by EUR 1.2 million (2.2). The growth of traffic revenues was a result of the increase in international traffic and the increase in the security charge.

Commercial revenues increased by EUR 5.9 million (9.1). The increase came on the back of higher car parking revenues and retail sales revenues in line with rising passenger numbers. Other operating income increased by EUR 2.8 million compared with 2006, which was a result of real estate transactions concluded in 2007.

Actual operating expenses were EUR 218.4 million (203.3), which was EUR 1.0 million over the budget (9.8).

Staff costs increased by EUR 4.5 million (-0.2) compared with 2006. The increase was the result of rising wages and an increase in the pension contribution percentage. Staff costs exceeded the budgeted figure of EUR 1.2 million, which was the result of the payment in 2007 of the final pension contributions for 2006.

Other expenses exceeded the budgeted amount by EUR 0.1 million (9.1), and compared with the previous year other expenses increased by EUR 10.6 million (22.8). Expenses of airport operations increased as a result of growth in traffic and stricter security check requirements. Contracted security check services increased by EUR 8.0 million (9.3), purchases by retail sales operations increased by EUR 1.2 million, and electricity and energy costs increased by EUR 0.7 million.

FINAVIA GROUP’S PROFIT IN 2007

Finavia Group’s turnover in 2007 was EUR 310.3 million (285.6). Turnover increased by 8.6 per cent (10.4). The Group’s operating expenses stood at EUR 228 million (211.9), up 7.6 per cent (12.6) from the previous year. The Group’s profit was EUR 28.7 million (23.7), an increase of EUR 5.0 million from the previous year (-2.1). The changes in the Group’s profit are mainly a result of Finavia’s result.

CAPITAL INVESTMENTS 2007

In the 2007 State budget, Finavia was given the right to invest a total of EUR 100 million in 2007 (75). Finavia was authorised to make commitments concerning investments which result in total expenses of EUR 150 million in the future.

Finavia’s investments for the accounting period totalled EUR 74.4 million (59.9). Total commitments on investments concerning the time period after the accounting period stood at EUR 67.8 million.

The expansion of Helsinki-Vantaa Airport’s international terminal progressed according to schedule in 2007 (budget EUR 143 million). A new maintenance centre and office building (EUR 11.4 million) were taken into use at the airport during the year. In addition, a centralised ice protection centre was built in the area between runways. The ice protection centre will be completed in the winter of 2008 (cost estimate EUR 4.0 million). The smoothness of traffic was improved by renovating taxiway Z (EUR 7.3 million). During 2007, construction of the new P3 car park building got underway at Helsinki-Vantaa Airport (the cost estimate EUR 27 million).

As a part of Finavia’s modernisation programme for air transport areas, renovations of Kuopio Airport’s air transport areas were carried out in the summer of 2007 (EUR 3.2 million). In addition, construction work on the Lake Terminal started at Kuopio Airport. The Lake Terminal was completed in January 2008. The expansion and renovation of Kittilä Airport’s terminal was completed in time for Christmas traffic in 2007 following the fire in 2006.

The investments of the entire Group in 2007 totalled EUR 93.5 million (84.2). The subsidiary company Lentoasemakiinteistöt Oyj invested EUR 15.1 million (18.8). Almost this entire amount was spent on the hotel property completed at Helsinki- Vantaa Airport in the summer.

FINANCING 2007

The Government authorised Finavia to take out a maximum of EUR 50 million (40) in new long-term loans. In addition to this, Finavia was authorised to give personal securities, without requiring countersecurity, to a maximum of EUR 50 million as collateral on loans taken out by property companies connected to Finavia’s field of activity or its subsidiary companies providing airport and air navigation services (60).

During the year, Finavia took out a EUR 50 million loan from the European Investment Bank. The loan will be used to finance the expansion of the international terminal being built at Helsinki-Vantaa Airport. Finavia did not give personal securities as collateral for the loans of its subsidiaries during 2008. Two subsidiaries of the Group raised long-term capital totalling EUR 19.25 million without a personal security from Finavia.

The interest-bearing loans of Finavia and its subsidiaries totalled EUR 279.0 million at the end of the year, which included the instalments to be paid during 2008 (222.3). Long-term interest-bearing loans totalled EUR 260.6 million at the end of the year (219.3) and short-term interest-bearing loans totalled EUR 18.4 million (3.0). A total of EUR 69.3 million (26.3) was taken out in new loans and EUR 12.4 million was repaid on old loans (15.1). The amount of interest-bearing loans increased by EUR 56.7 million on the previous year (10.8).

Finavia’s interest-bearing loans at the end of the year stood at EUR 157.8 million (116.4), which includes the repayments for 2008. Finavia repaid its loan portfolio during the year to the sum of EUR 8.5 million (8.5).

The average rate of interest on Finavia’s interest-bearing loans was around 4.41 per cent at the end of the year (3.59). According to the Group’s interest rate risk policy, 25–100 per cent of the loan portfolio must be hedged. Finavia’s hedging rate at the end of 2007 was 43 per cent (35). The impact of hedged agreements has been taken into account in calculating the average rate of interest of the loans. The short and long-term interest rate investments included in the balance sheet also reduce the Group’s open interest rate risk. Interest rate investments and derivatives together covered nearly 90 per cent of the Group’s interest rate risk at the turn of the year.

Finavia’s cash fl ow from operations before investments was EUR 65.5 million (59.7), which was EUR 5.8 million higher than in the previous year. Cash fl ow after investments stood at EUR 11.2 million (3.3). Capital gains of around EUR 2.2 million were entered against long-term securities investments held as liquid assets (2.0). All financial investments have been valued in the financial statements in profit or loss at the lower of acquisition price or probable redemption price.

PERSONNEL

Finavia employed an average of 1,703 (1,707) persons in 2007, measured in personnel working years. The number of personnel employed by the entire Group at the end of 2007 was 2,571 (2,536). The number of personnel in the Group rose by around 1.3 per cent (6). The largest increase in personnel was at Airpro Oy, which had an average of 530 employees (470). During the accounting period, Finavia’s personnel strategy emphasised transferring from one task to another within the company. Personnel mostly had a positive attitude to the rotation of tasks, but only a small number of people transferred to another task.

The new strategy approved during the previous accounting period formed the foundation for all the supervisor training and management development work carried out in 2007. A two-day strategy workshop was held for supervisors, and in November a training event connected to the new business structure lasted one working day.

Many campaigns supporting wellbeing at work were carried out during 2007. A study of supervisors was also carried out in which the supervisor themselves, their subordinates and their own supervisor evaluated the person’s supervisory work. In the organisational reform implemented in the autumn of 2007, personnel administration was focused on operational, developmental and strategic matters. Operations were made more effective by concentrating payroll administration and the operational activity of personnel administration organisationally into Group management. Personnel administration that really supports staff and supports business operations was set as the objective.

A profit bonus on the basis of the operating profit has been paid to staff since 2003. In accordance with the bonus criteria, Finavia will pay the staff a total of EUR 1.8 million (EUR 1.027 million) from the profit for 2007 into the staff fund as a profit bonus. This cost is included in staff costs in the income statement.

Finavia also has a performance-related pay scheme approved by the Board of Directors for the group management, managers of business areas, regional managers, airport managers and the members of the management group of Helsinki-Vantaa Airport. Staff members who receive performance- related pay are not members of the personnel fund. A total of about EUR 0.08 million (2005: 0.03) in performancerelated pay was paid in 2006. The information on performance-related pay for 2007 is not yet available. The Board of Directors approves the amount of performancerelated pay.

CHANGES IN ADMINISTRATION

The term of Finavia’s Board of Directors is three years. The 2007 accounting period was the second year of the term of the Board appointed in 2006.

Jussi Järventaus, Managing Director of the Federation of Finnish Enterprises, served as the Chairman of the Board of Directors of Finavia. Leena Kostiander, Special Adviser at the Ministry of Transport and Communications, served as Deputy Chairman from 1 January 2006 – 31 October 2007, and Rita Linna, Special Adviser at the Ministry of Transport and Communications, served as Deputy Chairman as of 1 November 2007. The other Board members were Eeva Niskavaara, M.Sc. (Econ.), Sinikkä Mönkäre, Managing Director of Finland’s Slot Machine Association, Professor Hannu Seristö, Auditor Heikki Vaalgamaa as the staff representative, Mona Bjöklund, B.Sc. (Econ.) from 1 January 2006 – 31 October 2007, and Pirkko Juntti, Master of Laws, as of 1 November 2007. The Board of Directors met 11 times during the accounting period. Leena Kostiander and Mona Björklund resigned from the Board on 31 October 2007. The Board of Directors appointed the Audit Committee from among its members. Eeva Niskavaara was the Chairman of the Audit Committee, and Leena Kostiander and Hannu Seristö were members. Rita Linna and Pirkko Juntti served as members of the Audit Committee as of 1 November 2007. The Audit Committee met four times during the accounting period.

The Board of Directors appointed the Compensation Committee from among its members in the 2007 accounting period. The Compensation Committee met six times during the accounting period. Jussi Järventaus was the Chairman of the Compensation Committee and Mona Björklund and Leena Kostiander were members. As of 1 November 2007, Rita Linna and Hannu Seristö were members of the Compensation Committee. Erkki Pitkänen served as secretary of the Board of Directors and its committees. In June, the Board of Directors took the decision to make Finavia’s Group organisation refl ect its business operations. As of 1 July 2007, the Board of Directors appointed Reijo Tasanen as Director of Airport Operations, Martti Huomo as Director of Air Navigation Operations in addition to his duties as Deputy CEO, Mats Rosin as Director of Commercial Operations, Antti Ala-Heikkilä as Director of Real Estate Operations, and Gun Näse as Director of Airpro.

Juha-Pekka Pystynen was appointed the Director of the Helsinki-Vantaa Airport as of 1 December 2007. Upon the retirement of Martti Huomo on 31 December 2007, the Board of Directors appointed Ari Haapanen, CFO, as Deputy CEO of Finavia as of 1 January 2008. The Board of Directors appointed Anne Ilola as Director of Air Navigation Operations as of 12 November 2007.

OPERATING RISKS AND RISK MANAGEMENT

Risk management is part of Finavia’s internal control system. The Board of Directors has approved the Group’s risk management policy which specifies the vision, objectives, operational principles, responsibilities and reporting of risk management. Finavia takes business risks relating to the implementation of the strategy, which can be managed to an acceptable level or the effects, were they to materialise, are considered to be reasonable. Finavia’s non-statutory insurances for personnel and motor vehicles are obtained from the open market. Finavia’s assets and activity have been insured in accordance with an insurance policy approved by the Board of Directors.

Finavia aims to further develop risk management as part of management. Safety functions and security functions play a significant role in Finavia’s risk management. The Audit Committee appointed by the Board of Directors from among its members assists the Board in carrying out its supervisory duty. The Audit Committee prepares, guides and assesses issues relating to risk management, internal monitoring systems, financial reporting organisations, audits and internal auditing in accordance with the rules of procedure. The internal auditing unit assists the Audit Committee by producing information through the auditing work on the functioning and adequacy of monitoring systems and risk management. The internal auditing unit observes in its operations the operating guidelines drawn up for it, which have been approved by the management and Board of Directors of Finavia. The internal auditing unit is also committed to observing international professional standards for internal auditing. During the accounting period, the unit carried out audits and internal oversight evaluations in the group, in line with the annual plan approved by the Audit Committee.

The subjects of the audits included auditing of procurement operations, contract management, system procurements, management of the registers of insured property, and management of incomplete investments in fixed assets. In addition, internal oversight evaluations were carried out. In addition to the headquarters units, audit visits were carried out at the regional air navigation centre, in subsidiaries and at airports. During the year, Finavia has initiated actions in many areas to rectify oversight deficiencies found in the audits.

Based on the audits carried out during 2007, it can be concluded that the functioning and effectiveness of Finavia’s risk management and risk control processes, and management and administration processes, are at a sufficient level.

The most significant risks affecting Finavia’s finances and operations concern factors impacting on the development of international air traffic that include, for example, the price of oil, possible international disturbances and the global development of the economy. There are also risk factors for the abovementioned reasons associated with the investments in the new terminal required by the strong growth in traffic to Asia, and they have been taken into consideration by phasing the additional construction and by preparing the terminal for alternative uses.

IMPORTANT PROCESSES OF THE AUTHORITIES

On 20 December 2007, the Finnish Civil Aviation Authority granted Finavia a new licence for the provision of air navigation services. The licence is in force until 20 December 2012.

A decision on the environmental permit for Tampere-Pirkkala Airport was received on 3 September 2007. During the accounting period, environmental permit applications were submitted for the Halli, Joensuu and Jyväskylä airports. The environmental permit application for Helsinki- Vantaa was submitted in December 2007. On 10 July 2007, the European Commission made a decision to start a formal investigation procedure of the practices at Tampere-Pirkkala Airpot’s low-cost terminal pursuant to article EC 88(2) concerning State aid. The European Commission investigated and evaluated whether these arrangements are in agreement with the regulations on State aid and whether they are suitable to the Single Market. In its response on 13 November 2007, the State of Finland declared that the actions carried out do not constitute State aid. The handling of the case is pending in the European Commission.

No significant trials are expected that could result in material consequences for the Finavia Group.

GROUP STRUCTURE AND CHANGES IN GROUP RELATIONSHIPS DURING THE ACCOUNTING PERIOD

There were no changes in the structure of the Finavia Group during the accounting period.

MATERIAL EVENTS AFTER THE ACCOUNTING PERIOD AND OUTLOOK FOR 2008

Despite the slowdown in the growth of the world economy, growth in air traffic will remain moderately strong in international traffic. Domestic traffic will not increase compared with 2007. Finavia’s profit is expected to decrease somewhat compared with the profit in the 2007 accounting period.

In January 2008, the Cabinet Committee on Economy Policy started a study of the organisation of State enterprises in the future. The study was based on the decision by the European Commission that an actor that is protected against bankruptcy cannot engage in true competition on the market.

In January 2007, the European Commission released a proposal for an airport charge directive. Its objective is to harmonise airport practices in pricing services, which would improve the transparency of pricing and the equality of customers. The Commission’s proposal contains changes that are positive for Finavia and support current pricing practices. Finavia believes that the propositions of the proposed directive can be implemented and do not force any changes. The European Commission discussed the proposed directive during 2007 and the decision of the European Parliament is expected at the end of 2008.

Finavia expects that air traffic will increase in 2008 at a slower rate than during 2007. Growth continues to be strongest in international traffic, and Finavia expects that the decrease in domestic traffic will stop. Finavia expects that its result in 2008 will be at the same level as in 2007. The profit target set by the Ministry of Transport and Communications for Finavia is EUR 30.5 million. The profit target set will be achieved in normal conditions.

KEY FIGURES (EUR MILLION)
	2004	2005	2006	2007 ACT	2007 BUDG	2007
TURNOVER	233,8	243,1	266,9	265,1	287,7	290,2
– CHANGE, %	6,8	4,0	9,8	- 0,7	7,8	8,7
OPERATING MARGIN	57,1	63,6	64,9	65,8	73,1	75,8
– OPERATING MARGIN AS A PERCENTAGE OF TURNOVER	24,4	26,2	24,3	24,8	25,4	26,1
OPERATING PROFIT	17,2	23,6	23,3	23,7	30,9	33,1
– OPERATING PROFIT AS A PERCENTAGE OF TURNOVER	7,4	9,7	8,7	8,9	10,7	11,4
PROFIT	15,0	22,2	22,8	18,5	27,3	31,4
– PROFIT AS A PERCENTAGE OF TURNOVER	6,4	9,1	8,5	7,0	9,5	10,8
RETURN ON INVESTMENT,%(1)	2,8	3,8	3,9	3,2	4,3	5,1
RETURN ON BASIC EQUITY, %	8,1	12,0	12,4	10,0	14,8	17,0
RETURN ON TOTAL EQUITY, %	2,1	3,1	3,1	2,3	3,4	4,0
SOLVENCY RATIO, % (2)	76,2	76,4	77,6	73,4	74,7	73,7
CAPITAL INVESTMENTS	48,2	48,2	59,9	85	99,4	74,4
– CAPITAL INVESTMENTS AS A PERCENTAGE OF TURNOVER	20,6	19,8	22,4	32,1	34,5	25,6
AVERAGE TRAFFIC PRICE CHANGE, % (3)	- 2,3	- 0,5	4,1	0,6	4,98	4,98
NUMBER OF PERSONNEL	1 819	1 807	1 707	1770	1734	1 703
SALARIES AND BONUSES	68,6	71,1	69,5			71,5

(1) PROFIT BEFORE EXTRAORDINARY ITEMS + FINANCING EXPENSES / INVESTED CAPITAL (BALANCE SHEET TOTAL - INTEREST-FREE DEBT) (2) OWN EQUITY + PROVISIONS / BALANCE SHEET TOTAL (3) MOST OF THE PRICE CHANGE IN 2006 IS EXPLAINED BY THE INCREASE IN THE SECURITY CHARGE. THE INCREASE IN TRAFFIC CHARGES EXCLUDING THE CHANGE IN THE SECURITY CHARGE WAS 0.86%.

FINAVIA INCOME DISTRIBUTION	2007	2006
	1000	1000
TURNOVER AND OTHER OPERATING INCOME	294 195	268 134
COSTS OF PROVIDING SERVICES	-110 371	-100 953
FINANCING INCOME	4 389	3 427
NON-RECURRING INCOME	0	0
AMOUNT TO BE DISTRIBUTED	188 212 100 %	170 608 100 %
TAX DEDUCTED AT SOURCE	21 052	20 716
SOCIAL SECURITY CHARGES	2 177	2 016
UNEMPLOYMENT INSURANCE PREMIUM	1 531	1 385
ACCIDENT AND FINANCIAL SUPPORT CHARGE	485	466
TAX ON REAL PROPERTY	1 706	1 523
FEES PAID TO THE AUTHORITIES	8 205	7 621
OTHER PUBLIC FEES	376	343
1. SOCIETY	35 532 19 %	34 071 20 %
WAGES PAID	71 503	69 540
TAX DEDUCTED AT SOURCE	-21 052	-20 716
PENSION CONTRIBUTIONS	15 709	13 474
SOCIAL SECURITY AND UNEMPLOYMENT INSURANCE FEES	(-4194)	(-3867)
OTHER STAFF EXPENSES	2 416	2 241
TRAINING	3 906	3 729
2. PERSONNEL	72 483 39 %	68 268 40 %
FINANCING COSTS, INCLUDING MEASUREMENT ITEMS	6 041	3 966
3. FINANCIERS	6 041 3 %	3 966 2 %
MAINTENANCE OF CAPITAL ASSETS	42 759	41 523
CHANGE IN PROVISIONS	0	0
UNDISTRIBUTED PROFIT	31 399	22 789
4. INFRASTRUCTURE DEVELOPMENT	74 158 39 %	64 313 38 %

DISTRIBUTABLE AMOUNT IN RELATION TO NUMBER OF FLIGHTS AND AIR PASSENGERS
NUMBER OF FLIGHTS	316 063	312 853
NUMBER OF AIR PASSENGERS	14 430 992	13 419 828
DISTRIBUTABLE AMOUNT (EUROS)
PER FLIGHT	595	545
PER AIR PASSENGER	13	13

KEY FIGURES FOR THE FINAVIA GROUP (EUR MILLIONS)
	2005	2006	2007
TURNOVER	258,6	285,6	310,3
- CHANGE, %	5,1	10,4	8,6
OPERATING PROFIT	30,2	27,4	33,9
PERCENTAGE OF TURNOVER	11,7	9,6	10,9
PROFIT	25,8	23,7	28,7
- PROFIT AS A PERCENTAGE OF TURNOVER	10,0	8,3	9,2
SOLVENCY RATIO, %	67,7	66,7	63,1
CAPITAL INVESTMENTS, EUR MILLION	62,7	84,2	93,5
PERSONNEL WORKING YEARS	2 129	2 182	2 239