The accounting principles of the consolidated financial statements are presented below. The accounting principles have been followed in the periods presented in the consolidated financial statements unless otherwise stated.

BASIS OF PREPARATION

Finnair Plc's consolidated financial statements for 2005 have been prepared for the first time according to the International Financial Reporting Standards (IFRS) and in their preparation the IAS and IFRS standards as well as the SIC and IFRIC interpretations in effect on 31 December 2005 have been followed. By International Financial Reporting Standards is meant the standards accepted for application in the EU, and interpretations issued about them, in accordance with the procedure laid down in Finnish law and provisions issued by virtue thereof in the EU Regulation (EC) No.1606/2002. The notes to the consolidated financial statements also comply with Finnish accounting and corporate law.

During 2005 Finnair Group has adopted the IFRS reporting practice and has applied in connection with this the IFRS 1 standard (First-Time Adoption of IFRS Financial Reporting Standards). The transition date is 1 January 2004, except for standards IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Valuation). In terms of these, after the change made in March 2004 to IAS 39 and applied by Finnair Group in its 2005 financial statements, comparative data according to this standard do not need to be prepared for 2004. In presenting financial instruments that fall within the area of application of IAS 32 and 39, Finnish reporting practice has therefore been applied in the 2004 comparative data. Differences resulting from the adoption of IFRS standards have been presented in reconciliation calculations, which are included in item 36 of the notes to the financial statements. Comparative data for 2004 have been changed, with the exception of financial instruments, to comply with IFRS standards.

The 2005 consolidated financial statements have been prepared based on original acquisition costs, except for financial assets recognisable through profit and loss at fair value, financial assets which are available-for-sale, and derivatives contracts, which have been valued at fair value. Combinations of Group operations have taken place before 2004 and goodwill in respect of these corresponds to the carrying amount of the previous financial statement, which has been used as the assumed acquisition cost under IFRS. Financial statement data is presented in millions of euros.

The preparation of financial statements in accordance with IFRS standards requires Group management to make certain estimates and to exercise discretion in applying the accounting principles. Information about the discretion exercised by management in applying the accounting principles followed by the Group and that which has most impact on the figures presented in the financial statements has been presented in the item "ACCOUNTING PRINCIPLES THAT REQUIRE MANAGEMENT DISCRETION AND MAIN UNCERTAINTY FACTORS RELATING TO ESTIMATES".

PRINCIPLES OF CONSOLIDATION

SUBSIDIARIES

Finnair Plc's consolidated financial statements include the parent company Finnair Plc and all its subsidiaries. As subsidiaries are deemed to be those companies in which the parent company directly or indirectly owns more than 50% of the votes or in which it otherwise exercises the right to determine the company's financial and business policies in order to benefit from its activities.

The book value of shares in undertakings included in consolidation has been eliminated using the acquisition cost method. Subsidiaries that have been acquired are consolidated from the date on which the Group has acquired control, and subsidiaries that have been disposed of are no longer consolidated from the date that control ceases. All of the Group's internal transactions, receivables, liabilities and unrealised gains as well as internal distribution of profit are eliminated in the consolidated financial statements. Unrealised losses are not eliminated in the case where the loss results from an impairment. Subsidiaries' financial statements have been converted to correspond with the accounting principles in use in the Group.

ASSOCIATED UNDERTAKINGS

Associated undertakings are undertakings in which the Group generally has 20-50% of the votes or in which the Group has significant influence but in which it does not exercise control.
Holdings in associated undertakings have been included in the consolidated financial statements by the equity method. If the Group's share of the loss of an associated undertaking exceeds the book value of the investment, the investment is entered in the balance sheet at zero value unless the Group has incurred obligations on behalf of the associated undertaking. Unrealised gains between the Group and associated undertakings have been eliminated to the extent of the Group's holding. The Group's share of an associated undertaking includes goodwill arising from its acquisition. Associated undertakings' financial statements have been converted to correspond with the accounting principles in use in the Group.

MINORITY INTEREST

Minority interest is presented in the balance sheet separately from liabilities and the parent company's shareholders' equity as its own item as part of shareholders' equity. In the income statement is presented the distribution of profit for the financial year to the parent company's shareholders and minority interest. Minority interest of accrued losses are recognised in the consolidated financial statements up to a maximum of the amount of the investment.

TRANSLATION OF FOREIGN CURRENCY ITEMS

Items included in each subsidiary's financial statements are valued in the foreign currency that is the main currency of operating environment of each subsidiary ("operational currency"). The consolidated financial statements have been presented in euros, which is the parent company's operational and presentation currency.

Monetary items denominated in foreign currency, except for advances paid and received, have been translated into the operating currency using the mid-market exchange rates on the closing date. Advance payments made and received are entered at the exchange rate of the operating currency on the date of payment. Non-monetary items have been translated into the operating currency using the exchange rate on the date of the transaction. Translation differences on operations are included in the income statement's operating profit, and translation differences on foreign currency loans are included in financial items.

The income statements and balance sheets of foreign subsidiaries have been translated into euros using the exchange rates on the closing date. Translation differences of shareholders' equity items arising from eliminations of the acquisition cost of foreign subsidiaries are recognised in shareholders' equity. When a foreign subsidiary is sold, these translation differences are recognised in the income statement as part of the overall profit or loss arising from the sale. Translation differences that arose before 1 January 2004 are recognised in retained earnings in accordance with the relief permitted by the IFRS 1 standard in connection with the adoption of IFRS. Since the transition date, translation difference arising in the preparation of the consolidated financial statements are presented as a separate item in shareholders' equity.

DERIVATIVES CONTRACTS AND HEDGE ACCOUNTING

According to its financial policies, the Finnair Group uses foreign exchange, interest rate and commodity derivatives to reduce the exchange rate, interest rate and commodity risks which arise from its balance sheet items, foreign exchange purchase contracts, anticipated purchases and sales as well as future jet fuel purchases.

The derivatives are recognised at the time they are made in the balance sheet at original acquisition cost and are subsequently valued at fair value in each financial statement and interim report. Gains and losses on derivatives qualifying for hedge accounting are recognised in accordance with the underlying asset being hedged. Derivatives contracts are designated at inception as hedges for future cash flows and binding purchase contracts (cash flow hedges) or as financial derivatives not meeting the hedge accounting criteria (economic hedges). The valuation principles of the fair value of derivatives is presented in note 29.

At the inception of hedge accounting, the Finnair Group documents the relationship 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.The Group documents and assesses, at the inception of hedging and at least in connection with each financial statements, the effectiveness of hedge relationships by examining the 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.

The Finnair Group implements in accordance with IAS 39 hedge accounting principles the hedging of future cash flows (cash flow hedging) in terms of the price and foreign currency risk of jet fuels as well as foreign currency hedging of leasing fees and aircraft purchases.Hedging of the fair value of the net investments of foreign units was not in used at the closing date.Neither were embedded derivatives in use on the closing date or during the financial year.

The change in the fair value of effective portion of derivative instruments that fulfil the terms of cash flow hedging are entered directly in a hedging reserve in equity to the extent that the requirements for the application of hedge accounting have been fulfilled.The gains and losses recognised in equity are transferred to the income statement in the period in which the hedged item is entered 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 remain in equity until the forecast transaction takes place.If, however, if the forecast hedged transaction is not longer expected to occur, the gain or loss accrued in equity is released immediately to the income statement.

The effectiveness of hedging is tested on a quarterly basis. The effective portion of hedging is recognised in the hedge reserve of shareholders' equity, from which it is transferred to turnover when the hedged item is realised or, in terms of investments, as an acquisition cost adjustment.

To hedge the interest rate and foreign exchange risks of foreign currency loans the Finnair Group uses foreign exchange and interest-rate swap contracts. The translation difference arising from foreign exchange and interest-rate swap contracts that fulfil the conditions of hedge accounting is recognised concurrently against the translation difference arising from the loan, while other changes in fair value are recognised in terms of the effective portion in the hedge reserve of shareholders' equity. Interest income and expenses are recognised in financial income and expenses.

The Finnair Group concludes jet fuel swaps (forward contracts) and options in order to even out future price fluctuations in jet fuel purchases. The changes in the fair value of jet fuel derivatives that fulfill the terms of IAS-39 hedge accounting principles are entered directly in hedging reserve in equity. The gains and losses recognized in equity are transferred to the income statement in the period in which the hedged item is entered in the income statement. If a forecast transaction is no longer expected to occur, any gain or loss is released immediately to the income statement. Ineffective portion of fair value changes of derivatives is presented in other operating income and expense.

Fair value changes of derivatives hedging future cash flows (for which IAS-39 hedge accounting is not applied) are presented in other operating income and expense.
Fair value changes of interest rate derivatives (for which IAS-39 hedge accounting is not applied) are presented in financial items.

PRINCIPLE OF REVENUE RECOGNITION

Scheduled Passenger Traffic and Leisure Traffic sales are recognised as revenue when the flight is flown in accordance with the flight traffic programme. Aviation Services' sales are recognised as revenue when the service is completely performed. Travel Services' sales are recognised as revenue when the service has been conveyed. Discounts granted and indirect taxes, among other things, are deducted from sales as adjustment items.

The recognition as revenue of unused flight tickets is based on the expiry dates of the tickets.

Interest income
Interest income is recognised by the effective yield method.

Dividend income
Dividend income is recognised when the company has acquired a legal right to receive the dividends.

INCOME TAXES

The tax item in the consolidated income statement comprises tax based on taxable income for the financial year, adjustments to taxes of previous financial years and the change in deferred taxes.

A deferred tax liability or asset is calculated for all temporary differences between accounting and taxation using the tax rates prescribed at the closing date.

The largest temporary differences arise from sales of tangible assets, depreciation, revaluations of derivatives contracts, defined-benefit pension schemes, unused tax losses, and valuations at fair value made in connection with acquisitions. Deferred tax is not recognised for subsidiaries' undistributed earnings where it is probable that the difference will not reverse in the foreseeable future.

A deferred tax asset is recognised to the extent that it will probably be available to taxable profit of future financial years, against which the deductible temporary difference can be utilised.

The Group main business takes place in Finland. Taxes based on taxable income for the financial year have been calculated with a tax rate of 26 per cent.Taxes based on income taxable for financial year 2004 have been calculated in Finland at a tax rate of 29 per cent.Taxes based on the taxable income of foreign subsidiaries for the financial year have been calculated at tax rates of 0 - 26 per cent.

Depreciation difference and voluntary reserves have been divided in the consolidated balance sheet into shareholders' equity and deferred tax liability. Under the Finnish Companies Act, the portion calculated for shareholders' equity is not included in distributable equity.

PUBLIC GRANTS
Public grants, for example government aid for simulator training, has been recognised in turnover.Public grants that the Group may receive, for example, for fixed asset acquisitions are recognised as a reduction in original acquisition cost.Grants are recognised in the form of smaller depreciations over the useful life of the asset.The Group has not received during the financial year or the comparison period any public grants for fixed asset acquisitions.During the financial year and the previous financial year, grants amounting to 1.5 million euros have been recognised in turnover.

TANGIBLE FIXED ASSETS

Tangible fixed assets are recognised in the balance sheet when the financial benefit is longer than one year, in acquisition cost, including the direct costs arising from the acquisition. Tangible fixed assets are valued at original acquisition cost less accumulated depreciation and write-downs.

Aircraft and their engines as well as flight simulators are depreciated on a straight-line basis over their expected useful lives.The acquisition cost of aircraft is allocated to the aircraft fuselage, engines and heavy maintenance and these are depreciated as separate assets.Residual value depreciations are made for buildings and other fixed assets.Land areas are not depreciated.

Other equipment includes office equipment, furnishings, cars and transportation vehicles used at airports.

Depreciation is calculated using the following principles, depending on the type of asset:

* Buildings, 3-5 % of their undepreciated residual value
* Aircraft and their engines: on a straight-line basis as follows:
- new Airbus A320 family aircraft, over 20 years to a residual value of 10%
- other jet aircraft acquired earlier as new, over 15 years to a residual value of 10%
- used jet aircraft more than six years old, over 10 years to a residual value of 10%
- new turboprop aircraft, over 12 years to a residual value of 10%
- turboprop aircraft acquired as used, over 10 years to a residual value of 10%
- aircraft to be withdrawn from use, fully on a straight-line basis according to their useful life outlined in the fleet modernisation plan
* Heavy maintenance of aircraft, on a straight-line basis during the maintenance period
* Embraer components, over 20 years to a residual value of 10%
* Airbus components, over 15 years to a residual value of 10%
* Flight simulators are depreciated as per the corresponding type of aircraft
* Depreciation of other tangible fixed assets, 23% of the undepreciated residual value

The residual values and estimated useful lives of assets are adjusted at each closing date and if they differ significantly from previous estimates, the depreciation periods and residual values are changed accordingly.

Ordinary repair and maintenance expenditure is recognised as an expense in the financial period in which it arises. Expenditure of modernisation and improvement projects that are significant in size (mainly aircraft modifications) are capitalised in the balance sheet if it is probable that an additional financial reward will arise to the Group in future. Modernisation and improvement projects are depreciated on a straight-line basis over their expected useful lives.

Depreciation of a tangible fixed asset is discontinued when the tangible fixed asset is classified as being held for sale in accordance with IFRS 5 standard Non-Current Assets Held for Sale and Discontinued Operations.

Gains and losses arising from the disposal and use of fixed assets are included in the income statement in the item other operating income.

INTANGIBLE ASSETS

Intangible fixed assets are recognised in the balance sheet, when the financial benefit is longer than one year, at acquisition cost, including the direct costs arising from the acquisition. Depreciation and impairment of intangible assets are based on the following expected economic lifetimes:

* Goodwill	impairment testing
* Computer programs	3 - 8 years
* Other intangible assets, depending on their nature	3 - 10 years

GOODWILL

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the subsidiary, associated undertaking or joint venture acquired after 1 January 2004. Goodwill from the combination of operations acquired prior to 1 January 2004 corresponds to the carrying amount according to the previous financial statement standards, which has been used as the assumed acquisition cost. The classification or handling in the financial statements of these acquisitions has not been adjusted when preparing the Group's opening IFRS balance sheet. The Finnair Group has made no company acquisitions after 1 January 2004.

Goodwill is tested annually for possible impairment. For this purpose, goodwill has been allocated to cash generating units. If the expected present value of future operational cash flow of some business operation is lower than the carrying amount including goodwill, the impairment is recognised as an expense in the income statement.

The Finnair Group has allocated in the financial statements part of the goodwill arising in an acquisition before 31 December 2005 to the acquired company's intangible asset items, which are depreciated on a straight-line basis over their economic life.

RESEARCH AND DEVELOPMENT EXPENDITURE

Research and development on aircraft, systems and operations is conducted primarily by the manufacturers. Research and product development expenditure relating to marketing and customer service is recognised as an expense at the time at which it is incurred. Expenses are included in the Group's income statement in a cost item according to the nature of the expense.

Development expenditure is recognised in the balance sheet as an intangible asset when it is probable that the development project will succeed both commercially and technically and the project expenses can be reliably assessed.

The Group has no capitalisable development expenditure.

COMPUTER SOFTWARE

Computer software maintenance costs and expenditure on the research stage of software projects are recognised as expenses at the time they are incurred. Software projects' minor development costs, moreover, are not capitalised; they are recognised as an expense.

User rights and licences acquired for IT software are presented in the category intangible rights and in other respects in other intangible assets. Acquired user rights and licences are entered in the balance sheet at acquisition cost, plus the costs of making the licence and software ready for use.Capitalised expenses are depreciated over a useful life of 3 - 8 years.
OTHER INTANGIBLE ASSETS
Other intangible assets, such as e.g. patents, trademarks and licences, are valued at acquisition cost less recognised depreciation and impairment.Intangible assets are depreciated on a straight-line basis over 3-10 years.

LEASE AGREEMENTS

THE GROUP IS THE LESSEE

Tangible fixed asset lease agreements where a substantial part of the risks and rewards of ownership are transferred to the Group are classified as finance leases. The asset item acquired with a finance lease is entered at the start of the agreement as an asset in the balance sheet at the lower of the fair value of the leased property and the present value of the minimum lease payments. A corresponding sum is recognised as a financial asset. The lease payments payable are allocated between finance expenses and debt reduction. The corresponding rental obligations, net of finance charges, are included in other long-term interest-bearing liabilities. Financing interest is recognised in the income statement during the lease so as to achieve a constant interest rate on the finance balance outstanding in each financial period. Asset items leased under a finance lease are depreciated over the shorter of the asset's useful life and the term of the lease.

Tangible fixed asset-related lease agreements where a substantial part of the risks and rewards of ownership are retained by the lessor are classified as other leases. Payments made under other leases are charged to the income statement over the term of the lease.

The operating lease liabilities under other leases of Finnair Group aircraft have been treated as rental expenses in the income statement. Lease payments due in future years under agreements are presented in the notes to the financial statements.

IMPAIRMENT

On every closing date the Group reviews asset items for any indication of impairment losses. If there are such indications, the amount recoverable from the said asset item is assessed. The recoverable amount is also assessed for the following asset items irrespective of whether there are indications of impairment: goodwill and intangible assets which have an indefinite useful life. The need for impairment is examined on the cash generating unit level.

The recoverable amount is the higher of the asset item's fair value, less the cost arising from disposal, and its value in use. By value in use is meant the expected future net cash flows obtainable from the said asset item or cash generating unit, discounted to their present value. The value of the recoverable amount of financial assets is either the fair value or the present value of expected future cash flows discounted at the original effective interest rate. An impairment loss is recognised when the carrying amount of an asset item is greater than the recoverable amount.The impairment loss is recognised in the income statement. The impairment loss is reversed if a change in conditions has occurred and the recoverable amount of the asset has changed since the date when the impairment loss was recognised. The impairment loss is not reversed, however, by more than that which the carrying amount of the asset would be without the recognition of the impairment loss. Impairment losses recognised for goodwill are not cancelled under any circumstances, neither are impairment losses on equity investments classified as available for sale financial assets cancelled through profit and loss. From receivables included according to IAS 39 in the allocated acquisition price, interest income is recovered after impairment using the interest rate that has been used as the discount rate when calculating the impairment.

An impairment test required by the transition standard has been made for goodwill applying IAS 36 to IFRS standards on the transition date 1 January 2004.

INVENTORIES

Inventories are asset items that are intended for sale in the normal course of business, are handled in the production process for sale or are raw materials or supplies intended for consumption in the production process.

Inventories are valued at the lower of their acquisition cost and probable net realisable value. Acquisition cost is determined using the average cost method. The acquisition cost of inventories includes all acquisition-related costs, production costs and other costs that have arisen from the transfer of the inventory item to the location and space where the item is situated at the time of inspection. The production costs of inventories also include a systematically allocated proportion of variable and fixed production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the costs required to complete the product and selling expenses.

TRADE RECEIVABLES
In trade receivables are recognised assets received on an accrual basis for the products and services of the company's operations. Trade receivables are valued at their original carrying amounts on the closing date, provided that they are not considered receivables held for trading purposes.

When the Group has objective evidence that uncertainty is attached to the collection of trade receivables, then they are valued at their lower probable fair value.Public financial problems that indicate that a customer is going into bankruptcy, significant financial restructuring or substantial delays in payments are examples of objective evidence that might cause trade receivables to be valued at probable fair value.Impairment of trade receivables is recognised in other operating expenses.

Trade receivables denominated in foreign currency are valued at the exchange rate on the closing date.

BORROWING COSTS

Borrowing costs are recognised as an expense for the period during which they arise.

LOANS

Loans are valued at their original value. Loans that fall due for payment within 12 months are presented in short-term liabilities.Foreign currency loans are valued at the mid-market exchange rate on the closing date and translation differences are recognised in financial items.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The Group has applied the IAS 39 standard (amended 2004) "Financial Instruments: Recognition and Valuation" from 1 January 2005. In 2004 financial assets and liabilities have been valued in accordance with Finnish reporting practice (see Note 37). From the beginning of 2005 the Group's financial assets have been classified according to the standard into the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and other receivables, and other sale financial assets. The classification is made on the basis of the purpose of the acquisition of the financial assets in connection with the original acquisition. All purchases and sales of financial assets are recognised on the trade date.

The financial asset category recognised at fair value through profit or loss includes assets held for trading purposes and assets measured at fair value through profit or loss on initial recognition. Assets held for trading purposes 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 held for trading purposes and are valued in each financial statement at fair value. Realised and unrealised gains and losses arising from changes in fair value are recognised in the income statement (either in other operating income and expenses or in financial items) in the period in which they arise. Financial assets held for trading as well as those maturing within 12 months are included in current assets. On the closing date all the Group's investments are in the category financial assets at fair value through profit or loss. Group financial assets on the closing date consist of money market deposits, certificate of deposit and commercial papers as well as Finnish Government bonds.

Held-to-maturity investments are financial assets not belonging to derivative contracts which mature on a specified date and which a company has the firm intent and ability to hold to maturity. They are valued at allocated acquisition cost and they are included in long-term assets. On the closing date the Group had no assets belonging to the said group.

Finnair Group assesses on each closing date whether there is any objective evidence that the value of a financial asset item or group of items has been impaired. If there is objective evidence that an impairment loss has arisen for loans and other receivables entered at allocated acquisition cost in the balance sheet or for held-to-maturity investments, the size of the loss is determined as the difference the book value of the asset item and the present value of expected future cash flows of the said financial asset item discounted at the original effective interest rate. The loss is recognised through profit and loss.

Financial liabilities are recognised at fair value on the basis of the original consideration received. Transactions costs have been included in the original carrying amount of the financial liabilities. Later, all financial liabilities are valued at allocated acquisition cost using the effective yield method or at fair value through profit or loss. Financial liabilities are included in long- and short-term liabilities and they can be interest-bearing or non-interest-bearing.

The fair value of other financial assets and liabilities is assumed to correspond approximately to their carrying amount due to their short maturity or because their fair values cannot be easily determined. Other financial assets include trade receivables, prepaid expenses and accrued income and other long-term receivables such as loan receivables, other shares and holdings and aircraft lease guarantee deposits. Other financial liabilities include trade payables as well as accrued liabilities and deferred income.

Derecognition of financial assets takes place when the Group has lost a contractual right to receive the cash flows or when it has transferred substantially the risks and rewards outside the Group.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash reserves, short-term bank deposits and other short-term, highly liquid investments, whose term to maturity is a maximum of three months.

SHAREHOLDERS' EQUITY

The nominal value of a share is recognised in share capital.

At the end of the financial year, the nominal value of paid but as yet unregistered shares is recognised in the bonus issue account.

Share issue gains arising after the Companies Act of 1997 have been recognised in the share premium account, less transaction expenses, reduced by tax effect, relating to increases in share capital. Additionally, costs of the company's share-based payments are recognised in the share premium account as per the IFRS 2 standard. Possible gains from the sale of treasury stock are also recognised, reduced by tax effect, in the share premium account.

Gains from share issues arising before 1997 have been recognised in the general reserve.

The revaluation reserve includes a fair value reserve for available-for-sale investments and a hedge reserve for derivatives used in cash-flow hedging.

Retained earnings include profit from previous financial years, less dividends distributed and acquisitions of own shares. In connection with the sale of own shares (treasury stock) the original acquisition cost is returned to retained earnings. Under the IAS 8 standard, changes in accounting principles and errors are also recognised in the results of previous financial years.

DIVIDEND

The dividend liability to the company's shareholders is recognised as a liability in the consolidated financial statements when a meeting of shareholders has decided on the dividend distribution.

TREASURY STOCK (OWN SHARES)

When the company or its subsidiaries have acquired their own shares, the company's shareholders' equity is deducted by an amount consisting of the consideration paid less transaction costs after taxes unless the own shares are cancelled. No gain or loss is entered in the income statement for the sale, issue or cancellation of own shares; the consideration received is presented as a change of shareholders' equity.

EMPLOYEE BENEFITS

PENSION LIABILITIES

Pension schemes are classified as defined-benefit and defined-contribution schemes. Payments made into defined-contribution pension schemes are recognised in the income statement in the period to which the payment applies. In defined-benefit pension schemes, obligations are calculated using the projected unit credit method. Pension expenses are recognised as an expense over the employees' period of service based on calculations made by authorised actuaries. Actuarial gains and losses are recognised in the income statement over the employees' average remaining term of service to the extent that they exceed the greater of the following: 10% of pension obligations or 10% of the fair value of assets. When calculating the present value of pension obligations the interest rate on government securities is used as the discount rate. The terms to maturity of government securities approximate to the terms to maturity of the related pension liabilities.

The Group's foreign sales offices and subsidiaries have various pension schemes that comply with the local rules and practices of the countries in question. All of the most significant pension schemes are defined-contribution schemes. As of 1 July 2005 the statutory pension cover of the employees of the Group's Finnish companies has been arranged in a Finnish pension insurance company. The pension cover is a defined-contribution scheme. The pension schemes of the parent company's President & CEO and members of the Board of Management as well as those of the managing directors of subsidiaries are individual schemes, and the retirement ages under these schemes vary from 60 to 65 years. All of these pension schemes are also defined-contribution schemes.
Up to 30 June 2005 the statutory pension cover of the employees of the Group's Finnish companies was arranged in Finnair Plc's Pension Fund. Other (voluntary) pension cover has been arranged in Finnair Plc's Pension Fund, in which the pension schemes are entirely defined-benefit schemes. These schemes specify pension benefits, disability compensation, post-retirement health-care and life insurance benefits as well as benefits paid in connection with the termination of employment.

On the transition date to IFRS standards on 1 January 2004 all actuarial gains and losses have been recognised in the opening shareholders' equity according to the relief permitted by the IFRS 1 standard. Actuarial gains and losses arising thereafter have been recognised in the income statement over the employees' average remaining term of service to the extent that they exceed the greater of the following: 10% of pension obligations or 10% of the fair value of assets.

OTHER POST-EMPLOYMENT BENEFITS

All of the Group's post-employment benefits are defined-contribution benefits.

SHARE-BASED PAYMENTS

The Group has applied the IFRS 2 standard (Share-based fees) to all share-based transactions payable as equity in which the equity instruments have been granted after 7 November 2002 and to which no right has arisen before 1 January 2005. The Group has two share-based schemes, namely the 2000 option scheme and the 2004 share bonus scheme. In respect of the option scheme, an arrangement according to the previous reporting practice has been followed and the options are not recognised as an expense. In respect of the share bonus scheme, the IFRS 2 standard has been followed.

In the option scheme, key individuals who have been granted share options can subscribe for Finnair Plc shares at a price which is based on the weighted average price of the shares on the Helsinki Exchanges in the time period specified in the option scheme. The subscription price is lowered by the amount of dividends decided on after the end of the determination period of the subscription price and before the subscription of shares. When shares are subscribed for with the share options, the shareholders' equity is credited with the payment made, less transaction costs.

In the share bonus scheme, key individuals have the possibility to receive as a bonus both company shares and money amounting to 1.5 times the share bonus for a three-year performance period according to how targets set for the performance period have been achieved. The Board of Directors decides annually the targets to be set. The targets are determined on the basis of the Group's financial and/or operational development. Achieving the targets set for the performance period determines how large a proportion of the maximum bonus will be paid. The fair value of the granted shares on the date they are granted is recognised in personnel expenses and as an increase in shareholders' equity during the financial period according to how the degree of fulfilment of the targets is assessed. The monetary bonus is recognised on the basis of the fair value of the shares at each point in time in personnel expenses and as a liability. The expense impact on the period in question is allocated in the interim reports. Own shares for the share bonus system have been acquired in the market, so the granting of these shares does not dilute share ownership.

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. If it is possible to receive compensation for part of the obligation from a third party, the compensation is recognised as an asset item when it is in practice certain that the compensation will be received. Provisions are valued at the net present value of the expenses required to cover the obligation. The discount factor used when calculating present value is selected so that it describes the market view at the time of examination of the time value of the money and the risk relating to the obligation.

Restructuring provisions are recognised when the Group has prepared a detailed restructuring plan and has begun to implement the plan or has announced it will do so. A restructuring plan must include at least the following information: the operations affected, the main operating points affected, the workplace locations, working tasks and estimated number of the people who will be paid compensation for the ending of their employment, the likely costs and the date of implementation of the plan.

SEGMENT REPORTING

Segment information is presented according to the Group's business and geographical segment division. The Group's primary form of segment reporting is according to business segments. Business segments are based on the Group's internal organisational structure and financial reporting of management. The business segments are Scheduled Passenger Traffic, Leisure Traffic, Aviation Services and Travel Services.

The Scheduled Passenger Traffic segment is responsible for sales, service concepts, flight operations and the procurement and financing of aircraft. Scheduled Passenger Traffic leases to the Leisure Traffic division the flight crews it requires. In 2005 the units belonging the Scheduled Passenger Traffic segment were Finnair Scheduled Passenger Traffic, the feeder airline Aero As, the budget airline FlyNordic, Finnair Cargo Oy and Finnair Aircraft Finance Oy, which manages the Group's fleet.

The Leisure Traffic segment consists of Finnair Leisure Flights and the package tour company Aurinkomatkat-Suntours.

The Aviation Services segment comprises aircraft maintenance services, ground handling and the Group's catering operations as well as real-estate management and facility services for Finnair's operational premises. In 2005 the following companies belonged to the Aviation Services business segment: Finnair Catering Oy, Finncatering Oy, Finnair Facilities Management Oy and Northport Oy.

The Travel Services segment consists of the Group's domestic and foreign travel agency operations as well as the operations of the reservations systems supplier Amadeus Finland Oy. In 2005 the following companies belonged to the Travel Services business segment: The most significant subgroups are Finland Travel Bureau Ltd, Matkatoimisto Oy Area and Finnair Catering Oy.

Pricing between segments takes place at the going market price.

The assets and liabilities of segments are business items which the segment uses in its business operations or which on sensible grounds are attributable to the segments. Unattributable items include tax and financial items as well as items common to the whole company. Investments consist of increases in tangible fixed assets and intangible assets which are used in more than one financial year.

Although the Group's four business segments are managed from Finland, they operate in five geographical areas: Finland, Europe, Asia, North America and Others.
The turnover of the geographical segments is presented according to sales destination, and assets according to the location of the asset.

ACCOUNTING PRINCIPLES REQUIRING MANAGEMENT DISCRETION AND THE MAIN UNCERTAINTY FACTORS RELATING TO ESTIMATES

The preparation of financial statements requires the use of estimates and assumptions relating to the future, and the actual outcomes may differ from the estimates and assumptions made. In addition, discretion has to be exercised in applying the accounting principles of the financial statements.

IMPAIRMENT TESTING

The recoverable amounts of cash generating units have been determined in calculations based on value in use. 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 exchange rate, unit revenue and estimated sales volumes.

APPLICATION OF NEW OR AMENDED IFRS STANDARDS

The IASB has announced the following interpretations, standards and amendments made to them that were not in effect on 31 December 2005. Their dates of entry into effect and the Group's estimate of the impact of their introduction are as follows:

IAS 1 Amendment - Capital disclosures	1.1.2007	1)
IAS 19 Amendment - Employee benefits	1.1.2006	2)
IAS 21 Amendment - Net investment in a foreign operation	1.1.2006	3)
IAS 39 Amendment - Hedging of forecast intragroup transactions	1.1.2006	4)
IAS 39 Amendment - Fair value option	1.1.2006	5)
IAS 39 and IFRS 4 Amendment - Insurance contracts	1.1.2006	6)
IFRS 6 - Exploration for and evaluation of mineral resources	1.1.2006	7)
IFRS 7 - Financial instruments: Disclosures	1.1.2007	8)
IFRIC 4 - Determining whether an arrangement contains a lease	1.1.2006	9)
IFRIC 5 - Rights to interests arising from decommissioning, restoration and environmental funds	1.1.2006	10)
IFRIC 6 - Recycling fee liabilities	1.1.2006	11)
IFRIC 7 - Financial reporting in hyperinflationary economies	1.3.2006	12)
IFRIC 8 - Scope of IFRS 2	1.5.2006	13)

1) Impact on disclosures
2) Impact on disclosures, because the accounting practice in terms in terms of actuarial gains and losses is not changed
3) No substantial impact
4) No impact, because the method is enabled but not applied
5) No substantial impact on the classification or valuation of financial assets
6) Not applicable, because the Group has no insurance contracts according to the standard
7) Not applicable, because the Group does not engage in the exploration of mineral resources
8) Impact on disclosures
9) The Group is currently evaluating the impact of the interpretation on current arrangements
10) Not applicable to the business of the Group
11) Not applicable to the business of the Group
12) Not applicable to the business of the Group
13) No substantial impact

The EU has not yet approved for use the following standards: IAS 21, IFRIC 7 and IFRIC 8.

A copy of the consolidated financial statements can be obtained at the internet address www.finnair.com or from the head office of the Group's parent company at the address Tietotie 11 A, Vantaa. The full financial statements containing the financial statements of both the Group and the parent company can be obtained from the head office of the Group's parent company at the address Tietotie 11 A, Vantaa.

These financial statements do not contain all of the parent company's financial statement information under the Finnish Accounting Act.