Remedial Programme For Pll Lot

Remedial programme for PLL LOT Warsaw, 20 August 2008

Table of contents ,[object Object],[object Object],[object Object],[object Object]

Market situation deepens the crisis of LOT Source : International Air Transport Association Cycles in aviation sector Operating margin , 1978-2008 (%) Increasing fuel prices* 1986 2008 1997 0 50 100 150 200 250 300 350 400 Crude oil price Amsterdam spot (US c/gal l on) Change since early 2007 +107% Compared to minimum price +1089% ,[object Object],[object Object],[object Object],1978 2008 1998 1988 3 4 2 1 3 4 2 1 3 4 2 1 1 2 Cycle I Cycle II Cycle III -4 -3 -2 -1 0 1 2 3 4 5 6 7

Current situation of Company - reasons ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Strategy Market Costs Management ,[object Object],[object Object],[object Object],Market Difficult external situation Difficult internal situation – LOT unable to compete on open market

Current situation of the Company - PLL LOT 6-month performance 6 and 2008 forecast * Forecast by LOT Controlling Source: LOT Controlling 1.436 1.326 YTD revenue 6M 07 -130 2.752 2.983 2.866 Revenue (12 -month forecast ) -216 -275 Performance in the first 6 months Annual performance -1 6M 08A 6M 07 6M 08A 2007 2008 P* EBIT YTD EBIT (12 -month forecast ) 2007 2008 P* In PLN million -61

LOT must implement a remedial programme at once External challenges Internal challenges ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],-2 Source: Team analysis

LOT ambitions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],IPO -2 Marketization of PLL LOT Achieving profitability in 2010 Strategic Financial Customers

Financial objectives for Subsidiary Companies * except Petrolot and Casinos Poland ** compared to the 2008 budget *** net financial result based on the 2009 budgets Source: team analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],COMPANY* OBJECTIVE ,[object Object],[object Object],[object Object],[object Object],[object Object],81

Strategy – six leverages of the remedial programme -2 Remedial programme leverages Optimising network and fleet Cost efficiency/CAPEX Stimulating revenues Cooperation strategy within alliance Source: team analysis Customer Reforming the capital group

Leverage 1 - customer -2 ,[object Object],[object Object],[object Object],[object Object],[object Object],Customer ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Cooperation with PPL, Changes in LGS Company economises, customer profits ! Through: ,[object Object],[object Object],Loyalty of key customers, new customers; new, convenient access channels ,[object Object],[object Object],Flights more profitable, destinations reflecting customer needs, developing relations with customers ,[object Object],[object Object],Personalised product for key customers Better control over ground customer service; better quality in areas most influencing customer satisfaction Objective: LOT as first-choice carrier for Polish customers

Leverage 2 - network -2 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: team analysis Optimising network and fleet

Leverage 3 - revenues -2 Source: team analysis Stimulating revenues ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Leverage 4 - costs -2 Source: team analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Cost efficiency/CAPEX

Leverage 5 – the group -2 Source: team analysis ,[object Object],[object Object],[object Object],[object Object],Reforming the capital group

Leverage 6 - alliance -2 Source: team analysis ,[object Object],[object Object],[object Object],Cooperation strategy for alliance

Actions – how do we work ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Actions already taken Optimising the network ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Negotiations within alliance ,[object Object],Sales, New access channels By the end of 2008 we expect to reduce loss in all areas of our activity by PLN 20 million

The remedial programme to reduce loss generated in 2009 Network optimisation Revenue maximisation Cost reduction Overall potential of remedial actions EBIT in 2009 before the cost of financial leasing of fleet Revenue maximisation Reform costs - 60 335 -440 Base 2009 scenario 130 Network optimisation 100 150 Cost reduction -120 EBIT after remedial actions Total 560* 160 150 250 in PLN million Reform costs -70 50 * Excluding one-time reform costs

Achieving full effects of the programme necessary for LOT to become profitable by 2010 Network optimisation Revenue maximisation Cost reduction Overall potential of remedial actions EBIT in 2009 before the cost of financial leasing of fleet 435 -545 Base 2010 scenario 160 Network optimisation 150 Revenue maximisation 250 Cost reduction Reform costs EBIT after remedial actions - 10 Total 560* 160 150 250 In PLN million Reform costs -70 5 * Excluding one-time reform costs ,[object Object],[object Object],[object Object],[object Object]

To achieve the 2010 goal it is necessary to implement the objectives of network optimisation and improved efficiency No. of passengers ( million ) * Additional effect expected in 4th quarter of 2008 in connection with network optimisation and sales activation Source: team analysis 4.200 08 4.400 4.270 2007 4.100 09 2010 455 3.900 08 4.030 4.270 2007 4.100 09 2010 3.990 08 * 4.200 4.270 2007 4.100 09 2010 Base scenario Scenario after network optimisation Scenario after all initiatives

Remedial Programme For Pll Lot

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