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ANNUAL FINANCIAL REPORT

AT 31 December 2010

Fly Meridiana S.p.A.


Company subject to management and coordination by Meridiana S.p.A. pursuant to Article 2497-bis of the Italian Civil Code -
Registered Office in Olbia (OT), Costa Smeralda Airport Headquarters
Share Capital 20,901,419.34 fully paid-up
VAT No. 03184630964
Tax Code no. and Sassari Companies Register no.05763070017
www.meridianafly.com

Meridiana fly - Annual Financial Report at 31 December 2010 - 1


SUMMARY OF PERFORMANCE IN FY 2008-2009-2010
The key performance indicators of the consolidated and separate financial statements for the 2010 financial year compared with
those from the previous two years are presented below; 2010 individual data refer to the Separate Financial Statements of
Meridiana Fly S.p.A., while consolidated data take into account the consolidation of the two subsidiaries Sameitaly S.r.l. and
Wokita S.r.l. as from FY 2010.

Unless otherwise specified, /


Consolidated data Individual data Individual data Individual data
000

Key performance indicators Financial year 2010 Financial year 2010 Financial year 2009 Financial year 2008
Total flight hours 91,572 91,572 42,287 48,027
Passengers carried 4,587,255 4,587,255 1,585,150 1,965,948

Summary income statement Financial year 2010 Financial year 2010 Financial year 2009 Financial year 2008
Sales revenue 604,812 604,129 290,192 368,378
Total revenue 645,428 644,624 293,571 378,773
EBITDAR (1) 31,828 31,711 18,177 35,329
As a % of revenue from sales 5.3% 5.2% 6.3% 9.6%
and services
EBITDA (2) (21,563) (21,680) (23,286) (7,410)
As a % of revenue from sales -3.6% -3.6% -8.0% -2.0%
and services
EBIT (3) (41,283) (37,834) (28,918) (16,752)
As a % of revenue from sales -6.8% -6.3% -10.0% -4.5%
and services
Net Profit (loss) for the year /
period (46,411) (51,861) (34,059) (18,498)

Summary balance sheet 31.12.2010 31.12.2010 31.12.2009 31.12.2008


Total non-current assets 141,397 143,532 50,433 48,327
Total current assets 151,912 152,058 76,428 91,732
Total assets 293,309 295,590 126,861 140,059

Equity 8,439 10,109 (3,146) 28,438


Total non-current liabilities 52,293 52,186 11,023 9,903
Total current liabilities 232,577 233,294 118,984 101,717
Total equity and liabilities 293,309 295,590 126,861 140,059

Capex Financial year 2010 Financial year 2010 Financial year 2009 Financial year 2008

Capital expenditure 8,460 8,453 8,129 795

Other data 31.12.2010 31.12.2010 31.12.2009 31.12.2008


Net financial position (4) (19,327) (20,197) (19,612) 5,557

Number of FTE employees 1,517 1,465 740 718

1) EBITDAR: Earnings Before Interest, Taxes, Depreciation, Amortization and aircraft Rentals (i.e. EBIT before costs of aircraft operating leases -
excluding wet leases - depreciation, write-downs of non-current assets as well as the item "Other adjusting provisions "; the latter does not include
"Provision for liabilities and charges"). In this regard it should be noted that in the financial statements of prior years, the item "Provision for liabilities
and charges" did not contribute to the determination of EBITDAR (the item "Provision for liabilities and charges" for FY 2010 amounted to 7,741
thousand while it amounted to 2,625 thousand as at 31 December 2009). 2) EBITDA: Earnings Before Interest, Taxes, Depreciation,
Amortization. For the purposes of drafting this Interim Report, with reference to the EBITDA indicator and its comparative measurements, the
"Provision for liabilities and charges" was treated as mentioned above with reference to EBITDAR.

It should be observed that the comparability of data in absolute value is affected by the contribution of the Aviation branch of
Meridiana as from 28 February 2010. Therefore, the "key indicators", the "Summary income statement and "Summary balance
sheet," in absolute terms cannot be compared. In this regard, as explained below, the performance of the period with respect to
comparative data was discussed, where possible, in terms of percentage of revenues.

Moreover, as better explained in section "4.2 - Comparability of accounting data", comparable data are provided on a like-for-like
basis through Accounting Statements and Other Pro-forma Information contained in this Annual Report.

Meridiana fly - Annual Financial Report at 31 December 2010 - 2


Operational activities in terms of total flight hours increased by approximately 117% compared to 2009 reflecting the contribution
of the Aviation Branch of Meridiana, resulting from the contribution of business unit mentioned above.

Consolidated revenues from sales and services amounted to 604,812 thousand with a 6.6% decline compared to pro-
forma data for 2009 as a result of both lower volumes and lower average unit prices reflecting the economic downturn
and strong competition.

Consolidated EBITDAR, amounting to 31,828 thousand, worsened by 35% compared to 2009 pro forma data. As a
percentage of revenues, EBITDAR decreased from 6.3% and 7.6% in 2009 (respectively separate and pro-forma) to
5.3% in 2010 (consolidated). The decline in performance reflects the increased impact of fuel costs, sales and marketing
costs, staff costs and provision for liabilities and charges.

Operating profit - EBIT - was negative in absolute terms (consolidated operating loss of 41,283 thousand) with a
deterioration compared to 2009 pro-forma data (operating loss of 28,703 thousand), caused by a drop in EBITDAR,
despite a lesser impact of operating leases reflecting the better rental conditions of the Aviation Branch fleet.

The bottom line was a consolidated loss of 46,411 thousand (net loss of 51,861 thousand in the separate financial
statements), compared to a net loss of 34,059 thousand in 2009 (loss of 34,793 thousand in the 2009 pro-forma
data). In addition to the negative trend in EBIT both net financial expenses and tax charges increased, the latter reflecting
the partial write-down of deferred tax assets; in the separate financial statements the investments in Sameitaly and
Wokita were written-down for a total amount of 8,575 thousand as a result of the impairment test.
1
As at 31 December 2010 the Group ( ) has a positive net equity of 8,439 thousand, while the parent company
Meridiana fly has a net equity of 10,109 thousand. Given the loss for the year, the Company falls within the cases
provided by Article. 2446 of the Italian Civil Code (loss of more than one third of the share capital which currently
amounts to 20,901 thousand); the extraordinary shareholders meeting was therefore convened on 28 April 2011 on
first call and, if necessary, on 29 April 2011 on second call, for appropriate action. The capitalization of the Company is
discussed more in detail in section 2.26.4 Capitalisation of the Company and commitments of the major shareholder.

The net financial position at year end reported a deficit of 19,327 thousand ( 20,197 thousand in the separate financial
statements), compared to net financial indebtedness of 19,612 thousand in the separate financial statements for 2009.

The average employees headcount in 2010 was 1,517 (1,465 in the separate financial statements), a significant increase
compared to 740 employees in 2009 as a result of the contribution of Meridiana Aviation Branch.

1
Please note that in this Report "Group" means, unless otherwise specified, Meridiana fly and its subsidiaries.
Meridiana fly - Annual Financial Report at 31 December 2010 - 3
TABLE OF CONTENTS
1 CORPORATE BODIES ......................................................................................................................................................6
2. MANAGEMENT REPORT ..................................................................................................................................................7
2.1. Macroeconomic scenario ..........................................................................................................................................9
2.2. Industry Scenario ......................................................................................................................................................9
2.3. Key financial performance indicators for 2010.........................................................................................................11
2.4. The fleet ..................................................................................................................................................................14
2.5. Actions to improve the standard of services ............................................................................................................15
2.6. Commercial Business..............................................................................................................................................15
2.7. Statistics ..................................................................................................................................................................17
2.8. Human Resources...................................................................................................................................................18
2.8.1. Organizational Structure..........................................................................................................................................18
2.8.2. Employees...............................................................................................................................................................18
2.9. Environment ............................................................................................................................................................20
2.10. Performance of the Parent Company and its subsidiaries.......................................................................................21
2.11. Corporate Offices ....................................................................................................................................................22
2.12. Research and development activities......................................................................................................................23
2.13. Capex......................................................................................................................................................................23
2.14. Significant events in FY2010...................................................................................................................................23
2.14.1. Extraordinary transactions for the reorganization of the group................................................................................23
2.14.2. Volcano eruption in Iceland .....................................................................................................................................24
2.14.3. Renewal of the Board of Directors and appointment of the new CEO.....................................................................24
2.14.4. Capital increase.......................................................................................................................................................24
2.14.5. Difficult connections to Greece................................................................................................................................25
2.14.6. Issues in fleet management.....................................................................................................................................25
2.14.7. Adoption of Forecast updated as of June 2011 and concurrent commitments by AKFED ......................................25
2.14.8. Defining the balance due on the contribution ..........................................................................................................26
2.14.9. Agreement with SEA ...............................................................................................................................................26
2.14.10. Termination of the agreement with Lauda Livingston ..............................................................................................26
2.14.11. Agreement with Opera Romana Pellegrinaggi ........................................................................................................27
2.14.12. Bank debt restructuring ...........................................................................................................................................27
2.15. Management and coordination activities and transactions with related parties .......................................................29
2.16. Regulation on transactions with related parties .......................................................................................................31
2.17. Significant litigation..................................................................................................................................................32
2.18. Security Policy Document .......................................................................................................................................38
2.19. Update of the Model of organisation, management and control pursuant to Legislative Decree 231/2001 .............38
2.20. Legal and regulatory framework ..............................................................................................................................39
2.21. Share Capital...........................................................................................................................................................39
2.22. Certification pursuant to Art. 37 of Consob Regulation............................................................................................40
2.23. Report on Corporate Governance and Ownership ..................................................................................................41
2.24. Shareholdings owned by directors, statutory auditors and managers with strategic functions ................................44
2.25. Main risks and uncertainties for the current year.....................................................................................................45
2.26. Significant events subsequent to year end..............................................................................................................49
2.26.1. Staff reduction plan .................................................................................................................................................49
2.26.2. Operational problems for the tensions in Egypt.......................................................................................................50
2.26.3. New Business Plan 2011-2015 ...............................................................................................................................50
2.26.4. Capitalisation of the Company and commitments of the Major Shareholder. ..........................................................51
2.27. Other information.....................................................................................................................................................52
2.28. Business Outlook ....................................................................................................................................................52
Proposals by the Board of Directors to the Shareholders' meeting ........................................................................................54
3. FY 2010 ONSOLIDATED FINANCIAL STATEMENTS....................................................................................................55
3.1. Consolidated statement of financial position ...........................................................................................................55
3.2. Consolidated Income Statement .............................................................................................................................56
3.3. Statement of changes in consolidated equity ..........................................................................................................57
3.4. Consolidated Statement of Cash Flow (*) ...............................................................................................................58
4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ....................................................................................59
4.1. Accounting standards and measurement criteria ....................................................................................................59
4.1.1. General Considerations...........................................................................................................................................59
4.1.2. Accounting standards, measurement criteria and use of estimates in preparing the consolidated financial statements
................................................................................................................................................................................60
4.1.3. Going concern assumption......................................................................................................................................71
4.2. Comparability of accounting data ............................................................................................................................71
4.3. Seasonality of the business.....................................................................................................................................75
4.4. Consolidation scope and criteria .............................................................................................................................75
4.5. Accounting treatment of the contribution of the Aviation Branch .............................................................................75
4.6. Analysis of the statement of financial position as at 31 December 2010.................................................................77
4.7. Analysis of the operating performance for the year .................................................................................................90
4.8. Analysis of changes in consolidated equity .............................................................................................................94
4.9. Financial management ............................................................................................................................................96
4.10. Net financial position ...............................................................................................................................................97
4.11. Guarantees given, commitments and other contingent liabilities.............................................................................99
Meridiana fly - Annual Financial Report at 31 December 2010 - 4
4.12. Segment reporting...................................................................................................................................................99
4.13. Related party transactions.....................................................................................................................................100
4.14. List of equity investments ......................................................................................................................................102
4.15. Compensation paid to Directors and Statutory Auditors........................................................................................102
4.16. Fees paid to Independent Auditors........................................................................................................................103
4.17. Disclosure concerning financial risks.....................................................................................................................103
4.18. Other information...................................................................................................................................................106
5. CERTIFICATION OF ANNUAL REPORT PURSUANT TO ART. 154-bis of Legislative Decree. 58/98. ....................108
6. INDEPENDENT AUDITORS REPORT ON CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2010109
7. STATUTORY AUDITORS REPORT ON FINANCIAL STATEMENTS AT 31 DECEMBER 2010 ................................112
8. MERIDIANA FLY S.P.A. - DRAFT FINANCIAL STATEMENTS AT 31 DECEMBER 2010...........................................136
8.1. Statement of financial position of Meridiana fly S.p.A............................................................................................136
8.2. Statement of comprehensive income of Meridiana fly S.p.A .................................................................................137
8.3. Statement of changes in shareholders' equity of Meridiana fly S.p.A....................................................................138
8.4. Statement of Cash Flows of Meridiana fly S.p.A. ..................................................................................................139
9. NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF MERIDIANA FLY S.P.A. .............................................140
9.1. Accounting standards and measurement criteria ..................................................................................................140
9.1.1. General Considerations.........................................................................................................................................140
9.1.2. Accounting standards, measurement criteria and use of estimates in preparing the financial statements ............141
9.1.3. Going concern assumption....................................................................................................................................151
9.2. Comparability of accounting data ..........................................................................................................................151
9.3. Seasonality of the business...................................................................................................................................154
9.4. Statement of financial position for the contribution of the Aviation branch ............................................................155
9.5. Accounting treatment of the contribution of the Aviation Branch ...........................................................................156
9.6. Significant Non-recurring Events and Transactions...............................................................................................158
9.7. Analysis of the statement of financial position as at 31 December 2010...............................................................159
9.8. Analysis of the operating performance for the year ...............................................................................................174
9.9. Analysis of changes in equity ................................................................................................................................179
9.10. Financial management ..........................................................................................................................................181
9.11. Net financial position .............................................................................................................................................182
9.12. Guarantees given, commitments and other contingent liabilities...........................................................................184
9.13. Segment reporting.................................................................................................................................................184
9.14. Related party transactions.....................................................................................................................................185
9.15. List of equity investments ......................................................................................................................................188
9.16. Compensation paid to Directors and Statutory Auditors........................................................................................189
9.17. Fees paid to Independent Auditors........................................................................................................................189
9.18. Disclosure concerning financial risks.....................................................................................................................190
9.19. Additional disclosure .............................................................................................................................................194
10. CERTIFICATION OF ANNUAL REPORT PURSUANT TO ART. 154-bis of Legislative Decree. 58/98. ....................195
11. INDEPENDENT AUDITORS REPORT ON SEPARATE FINANCIAL STATEMENTS AT 31 DECEMBER 2010 .......196

Meridiana fly - Annual Financial Report at 31 December 2010 - 5


1 CORPORATE BODIES

BOARD OF DIRECTORS.
(in office until shareholders' approval of Annual Financial Report for year ended 31 December 2010

President Marco RIGOTTI


Chief Executive Officer: Massimo CHIELI (1)
Vice President Franco TRIVI (4)
Directors Luca RAGNEDDA
Claudio MIORELLI (1)
Claudio ALLAIS (3)
Salvatore VICARI (2)(3)(4)
Gian Carlo ARDUINO (2) (4)
Giuseppe LOMONACO (2) (3)

BOARD OF STATUTORY AUDITORS


(in office until shareholders' approval of Annual Financial Report for year ended 31 December 2011)

President Luigi GUERRA


Standing statutory auditors Cesare CONTI
Antonio MELE
Substitute statutory auditors: Luca BOCCI
Guido Giorgio ZAFFARONI

Independent auditor DELOITTE & TOUCHE


(Mandate extended to 2008-13 by the AGM;of 8 May 2007)

(1) Executive Director


(2) Independent Director
(3) Member of the Internal Control Committee
(4) Member of the Compensation Committee

Meridiana fly - Annual Financial Report at 31 December 2010 - 6


2. MANAGEMENT REPORT

Dear Shareholders,

In the last financial year economic stagnation continued to affect Western economies, especially the Italian one, where modest
growth prevailed compared to other EU economies (GDP grew at 1.3% in Italy according to Istat sources); the prospect for GDP
and consumption growth in 2011 are also very limited and consistently lower than the average for the Eurozone (+1.1% vs.
+1.6%).

In this framework, there is still uncertainty over future consumption trends and the final end of the economic and financial crisis.

Unemployment remained high, despite various measures put in place to temporarily tackle the problem by using the various state
subsidized arrangements for redundancies (e.g. CIGS- state temporary layoff fund).

After the heavy losses incurred in 2009 in terms of activities and economic performance, the air transport sector, although not
reaching the pre-crisis levels of 2008, showed some signs of recovery in 2010, especially on international routes and with regard
to business travels; during April 2010, however, air traffic was disrupted by repeated halts caused by an ash cloud from the
eruption of a volcano in Iceland.

The above-mentioned volcanic eruption resulted in the closure of several airports in Europe for approximately ten days in the
month of April; the interruption of air traffic caused substantial losses to the airlines operating in the area, including Meridiana fly,
resulting both from cancellation of flights as well as the decision of many passengers to postpone or cancel their travels.

Pricing was affected by strong competition resulting in a decrease in average unit revenue (yield).

Forecasts for 2011 still show modest economic growth in the European Union (especially the Italian economy), with limited
increase in passenger and freight traffic.

Estimates on airlines economic performance have recently been revised downwards for the 2011 period, reflecting increased price
elasticity of the number of passengers, the existing strong industry competition and the steady increase in operating costs, in
particular fuel costs, which were pushed upward by the political crisis in various countries of North Africa.

In this respect, it should be pointed out that fuel prices in February stood above the threshold of USD 100 per barrel; this increase
is not usually completely offset by an increase in tickets prices for scheduled and charter flights, with a consequent negative
impact on the profitability of carriers.

The USD/EUR average exchange rate has strengthened compared to 2009, partly as a result of the financial crisis of some
member states (Greece in particular), reaching an average of 1.3270 from 1.3932, resulting in an increase, all things being equal,
in the cost of procurement of goods and services denominated in Dollars, which account for a significant part of airlines costs,
including Meridiana fly (e.g. costs of fuel and aircraft leasing, maintenance and, outside the European Union, costs of handling
and taxes).

It should also be noted that in recent years the air transport sector in Italy has undergone a radical reorganization, mainly due to
the entry and rapid spread of so called low cost companies, resulting in a strong pressure on average earnings and margins, with
some companies going bankrupt while the others had to implement major reorganization plans. The leading European low-cost
airline, Ryanair, has invested significantly in the Italian market and is now the second player in terms of number of passenger
traffic.

Against this background, Meridiana Fly is facing the pressing competition of low cost carriers as well as the national companies (in
particular CAI, which was created by the business combination of Alitalia and Airone), even in its historical target markets such as
Sardinia and Verona. This weakened Meridiana Fly's competitiveness, whose results in 2010 were significantly lower than
expected.

Meridiana fly - Annual Financial Report at 31 December 2010 - 7


With the exception of some routes, all the bases from which scheduled flights are operated showed deterioration in profitability
compared to 2009 with an average reduction in contribution margin exceeding 35%. Even the charter business, while showing an
improvement compared to 2009, remained virtually stagnant, and, at present, there are no signs of recovery.

The 2010 summer season showed worrying signs of deterioration, both in the core business and in the leisure sector, due to the
economic downturn as well as the intense competition on domestic scheduled air traffic by Italian and foreign low-cost carriers,
with consequent reductions in average revenue, load factor and overall margins.

For example in August passenger numbers were down by about 2% compared to 2009 and were 4% lower than the company's
forecast.

In order to cope with these difficulties, the Company had to cancel several routes, especially scheduled routes, so as to optimize
supply in terms of frequencies and seats, as well as in terms of pricing.

We provide hereinafter a specific comment of the business combination Meridiana / Eurofly.

Meridiana fly, with the full support of its major shareholder, S.A. Karim Aga Khan, through AKFED (an entity controlled by the
above shareholder) and Meridiana S.p.A. (which in turn holds a controlling interest in Meridiana fly and is also controlled by the
above shareholder), in late February 2010, implemented a combination of its aviation activities with those of the parent Meridiana
S.p.A. by means of a contribution of a business branch of the latter (the "Aviation Branch") to Meridiana fly. At the same time both
companies have implemented the spin-off of their branch of business dedicated to aircraft maintenance (MRO) in a new company
(Meridiana Maintenance S.p.A.).

During the summer of 2010 a paid capital increase of 40 million was carried out in order to recapitalise Meridiana fly and cover
the financial needs resulting from the implementation of the 2010-2015 Business Plan approved by the Board of Directors on 19
November 2009.

Meridiana fly S.p.A., is the only airline company listed on the Italian Stock Exchange and the second national carrier, with a
market share of domestic traffic of approximately 16%, behind CAI / Alitalia, Airone Group (which has a 50% market share).
Meridiana fly operates from the main Italian airports in the scheduled and charter flights market and boasts a strong position on
Sardinian routes and is a leader in the so-called leisure transport segment especially high-end, in particular with regard to
destinations in the Indian Ocean / East Africa, Egypt and the Mediterranean area.

Through the combination with the Aviation Branch of Meridiana, the Company's size and standing grew to achieve a 2010
turnover of approximately 605 million (without the contribution of Meridiana for the first 2 months of 2010 of approximately 35
million, which therefore was not included in the overall data), an average of 1,517 employees (FTE), a total fleet of 37 aircraft and
over 4.6 million passengers in 2010 (besides 0.4 million passengers carried by Meridiana in the first two months of 2010, bringing
the overall figure to around 5 million). Among the main objectives pursued through the business combination, there are significant
economic synergies over the next five years.

Following the business combination there were labour tensions with the maintenance personnel and crews resulting in stops,
cancelled flights, delays in services which reduced productivity and caused significant additional charges. These events bore
heavily on the Company's bottom line, which was already penalized by the losses caused by external factors (such as the rising
fuel price, the effects of the volcanic ash cloud, reduced yield and margins on some routes reflecting the economic and industry
downturn mentioned earlier).

It should also be noted that due to the operational complexity of the business combination there were some delays in
commissioning some A320 aircraft (medium haul), resulting in additional unexpected costs.

The completion of the business combination between Meridiana and Eurofly caused a generalized structural personnel surplus
with regard to the crews and the ground staff. This fact, already planned and anticipated in the business combination procedures,
was further exacerbated by the need to cut operational activities given the negative business situation mentioned above.

For these reasons, in February 2011, Meridiana fly initiated a process of significant restructuring, as discussed in more detail in
section 2.26 "Significant events after year end " in order to streamline operations and the structure bringing them in line with the
market best references and recover profitability in future years.

Meridiana fly - Annual Financial Report at 31 December 2010 - 8


Single Management Report for the Consolidated and Separate Financial Statements

In accordance with Article 40 of Legislative Decree no. 127 of 9 April 1991, paragraph 2 - bis, for the purposes of the preparation of
this Annual Report, the management report accompanying the financial statements and the separate financial statements of the
parent company Meridiana fly S.p.A. are presented together; in Chapter 2 herein, where appropriate, we provide adequate
disclosure on issues that are relevant for all the consolidated companies, as required by the above mentioned provision.

2.1. Macroeconomic scenario

Oil prices, which in the middle months of 2010 were back down from the levels reached at the beginning of the year, touched $ 90
a barrel at the end of 2010. On average, oil prices during 2010 were 30% higher than in 2009.

Crude Oil
USD / barrel
Crude Oil 2010 2009 dic-10 dic-09
WTI - USA 79.40 61.70 89.15 74.50
Brent - Europe 79.51 61.50 91.45 74.50

Source: Energy Information Administration - U.S. Government

On average, during 2010 the European currency depreciated against the USD and the exchange rate was down from 1.3932 to
1.3270. The EUR/USD exchange rate at the end of the period also weakened, going from 1.4406 to 1.3362.

Foreign exchange rates


2010 2009 31-dic-10 31-dic-09
EUR / USD 1.3270 1.3932 1.3362 1.4406

Source: Il sole 24 ore

Interest rates show a significant drop in average values in 2010 compared to the same period of 2009, reflecting the monetary
policies implemented by central banks to tackle the economic crisis.

Interest rates (3 m)
2010 2009 dic-10 dic-09
EURIBOR 0.820 1.263 1.037 0.724
LIBOR (U.S. $) 0.343 0.692 0.302 0.253

Source: British Bankers Association

2.2. Industry Scenario

In 2010 the number of passengers carried worldwide grew by 8% over the same months of 2009, with the exception of the month of
April 2010, which was affected by the volcanic eruption in Iceland.

The load factor of the sector was on average higher than 78%, compared to an average figure of 75% in 2009.

Meridiana fly - Annual Financial Report at 31 December 2010 - 9


15% 85%

10%
80%

5%
75%

0%
Jan- Feb- Mar- Apr May- Jun Jul Aug- Sep- Oct- Nov- Dec- Jan- Feb Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10 70%
-5%

65%
-10%

-15% Passengers international traffic (% change vs previous year)- lhs Load factor - rhs 60%

Source: International Air Transport Association

Signs of recovery can also be observed in traffic data in the main Italian airports, as illustrated in the following chart.
Assareoporti's statistics show a 9% increase in the number of passengers on average for the period (excluding April which shows
a decline of 7.9% over the same month last year, due to the mentioned volcanic eruption in Iceland).

Passengers in transit in Italian airports


(/000)

18,000

16,000

14.000

12,000

10,000

8,000

6,000

4,000

2,000

0
January February March April May June July August September October November
December

2009 2010

Source: Assaeroporti

Meridiana fly - Annual Financial Report at 31 December 2010 - 10


2.3. Key financial performance indicators for 2010

The Consolidated Income Statement reclassified in accordance with management criteria is presented below; it includes, with
reference to FY 2010, 10 months operations of the Aviation Branch of Meridiana, which was contributed at the end of February
2010.

For comparability purposes with the previous period, the pro forma data for the 2009 financial year are also presented, on a
consolidated basis, as more fully described below in section 4.2 - Comparability of accounting information.

Financial Year % revenues Financial Year % revenues


2010 from sales 2009 from sales Change
000 Consolidated data Proforma

Sales revenue 604,812 100.0% 647,762 100.0% (42,950)


Other Revenue 40,616 6.7% 42,178 6.5% (1,562)

Total revenues 645,428 106.7% 689,940 106.5% (44,512)

Fuel (158,231) -26.2% (132,220) -20.4% (26,011)


Materials and maintenance services (86,565) -14.3% (97,301) -15.0% 10,736
Selling expenses (22,427) -3.7% (25,719) -4.0% 3,292
Other operating costs and wet leases (213,889) -35.4% (230,395) -35.6% 16,506
Sundry costs and other services (32,936) -5.4% (36,987) -5.7% 4,051
Staff costs (91,811) -15.2% (112,126) -17.3% 20,315
Provision for liabilities and charges (7,741) -1.3% (6,225) -1.0% (1,516)

EBITDAR 31,828 5.3% 48,967 7.6% (17,139)

Operating lease (53,391) -8.8% (62,579) -9.7% 9,188

EBITDA (21,563) -3.6% (13,612) -2.1% (7,951)

Amortisation, depreciation and write-downs (14,750) -2.4% (12,692) -2.0% (2,058)


Other adjustment provisions (4,970) -0.8% (2,399) -0.4% (2,571)

EBIT (41,283) -6.8% (28,703) -4.4% (12,580)

Net financial income (expenses) (1,829) -0.3% (1,089) -0.2% (740)

Pre-tax profit (loss) (43,112) -7.1% (29,792) -4.6% (13,320)

Income taxes (3,299) -0.5% (5,001) -0.8% 1,702

Net profit (loss) (46,411) -7.7% (34,793) -5.4% (11,618)

As mentioned above, data comparability in absolute terms is affected by the contribution of the Aviation Branch executed on 28
February 2010 by Meridiana S.p.A.; consequently the income statement for the first two months of 2010 is attributable to the
shareholder Meridiana S.p.A. and does not contribute to the Group's annual performance.

In addition, the "provision for liabilities and charges" in the Reclassified Consolidated Income statement contributes to the
determination of EBITDAR, in contrast to the former practice in which it only contributed to the determination of EBIT. In order to
improve data comparability, similar reclassifications have been made with regard to comparative data as at 31 December 2009.

The 2010 economic performance was significantly influenced - not only by the lower average revenue per passenger (yield) due
to the economic crisis and pressure from competitors on some domestic routes - but also by the extraordinary operations carried
out in the period: the contribution of the Aviation Branch of Meridiana and the contribution to Meridiana Maintenance S.p.A. of the
respective MRO Maintenance Divisions by the Company and by Meridiana S.p.A. (the above operations had a negative non-
recurring impact of approximately 1.5 million caused by the resulting labour tensions). The above situation was also negatively
impacted by the temporary closure of air spaces caused by the volcanic eruption in Iceland (which caused estimated losses of
around 3 million for the Company), some delays in the availability of new aircraft (resulting in unexpected wet leases with other
carriers for about 1.6 million).

These non-recurring material events are discussed more in detail in section 9.6 of the Notes to the separate financial statements -
"Significant Non-recurring Events and Transactions".

Meridiana fly - Annual Financial Report at 31 December 2010 - 11


Total revenue for 2010 was 645,428 thousand ( 644,624 in the separate financial statements), compared to 293,571 of the
separate financial statements of the previous year 689,940 thousand in the 2009 pro-forma).

Sales revenue, including revenue from scheduled and charter air traffic, along with other ancillary revenue amounted to
604,812 thousand ( 604,129 thousand in the separate financial statements) compared to 290,192 thousand in the separate
financial statements for 2009 ( 647,762 thousand in the 2009 pro-forma).

Sales revenue included revenue from code-sharing activities with other carriers amounting to approximately 10.8 million ( 10.9
million in 2009).

Other revenue amounted to 40,616 thousand ( 40,495 thousand in the separate financial statements) compared to 3,379
thousand in the previous year ( 42,178 thousand in 2009 pro-forma); it mainly comprises operating grants (relative to certain
domestic routes subject to State control - i.e. Sardinia, Sicily and the smaller islands), revenue recognized on an accrual basis,
revenue from "prepaid" tickets calculated as an estimate, based on historical data, of tickets already sold, that will not be used by
customers nor refund will be requested within the contractual time limit, as well as other minor revenue from services performed.

EBITDAR (which as described above also includes "Provision for liabilities and charges") amounted to 31,828 thousand (
31,711 thousand in the separate financial statements) compared to 18,177 thousand in 2009 and 48,967 thousand in 2009
pro-forma.

The impact of fuel costs on revenue in 2010 amounted to 26.2% (as in the separate financial statements), up compared to the
2009 financial year (24.5%) and the 2009 pro-forma (20.4 %) due to the higher price of jet fuel (which on average increased by
approximately 29% in dollars compared to FY2009).

Staff costs as a percentage of revenue was 15.2% (14.7% in the separate financial statements), compared with 13.5% in FY2009
and 17.3% in the 2009 pro-forma; until September 2010 "solidarity contracts" with the crew were in force, whose positive
contribution to the income statement amounted to 9.6 million before tax; in 2009 these contracts were also in force for most of
the year.

It should also be noted that the length of service, the average wage and number of employees in the Aviation Branch of Meridiana
are higher than those of Meridiana fly stand-alone, which, everything else being equal, causes a higher impact of labour costs as
a percentage of corporate revenue.

Selling expenses as a percentage of revenue in 2010 were 3.7% (4.2% in the separate financial statements) compared to 1.7%
in the 2009 financial statements (4% in the 2009 pro-forma) almost exclusively due to "scheduled flights" of the former Meridiana
Aviation branch characterized by higher brokerage costs (agencies and other distribution channels).

On the contrary, the component costs for purchases of materials and maintenance services weighted less as a percentage of
revenue, at 14.3% in 2010, compared with 15.9% of the 2009 financial statements and 15.0% of the 2009 pro-forma, especially
reflecting non-recurring expenses incurred in 2009 for the phase-out of two long haul aircraft (a cost of approximately 3.8
million).

Wet lease costs and other operating costs amounted to 35.4% of revenue in 2010 (as in the separate financial statements),
compared to 31.6% in 2009 and 35.6% in the 2009 pro-forma as a result of the strengthening of the dollar exchange rate by
almost 5% on average.

The other operating expenses and other services as a percentage of revenue in 2010 were 5.4% (5.3% in the separate
financial statements) compared to 6.8% of 2009 financial statements (5.7% in the 2009 pro-forma ) due to the downsizing of the
structure and general service staff (overheads) as a result of the synergies achieved from the business combination.

Finally, 7,741 thousand were charged to the provision for liabilities and charges (compared to 2,625 thousand in the 2009
financial statements and 6,225 thousand in 2009 pro-forma) taking into account the development of litigations during the period.

EBITDA (which also includes the "Provision for liabilities and charges") reported a loss of 21,563 thousand ( 21,680 thousand
in the separate financial statements) compared with a loss of 23,286 thousand in the 2009 financial statements and the loss of
13,612 thousand in the 2009 pro-forma; this indicator deteriorated as a percentage of revenue (- 3.6% compared to 8% in the
2009 financial statements, and compared with -2.1% of the 2009 pro-forma).
Meridiana fly - Annual Financial Report at 31 December 2010 - 12
The weight of operating lease costs, equal to 8.8% (as in the separate financial statements), decreased in comparison to the
2009 separate financial statements (14.3%) due to two fewer A330 Long Haul aircraft than in 2009, as well as to lower costs of
aircraft operating lease in the Aviation Branch, reflecting both the type (MD-80) and the age of such aircraft. The comparable
figure for the 2009 pro-forma financial statements was 9.7%.

As a result of the facts discussed above, the operating profit (loss) - EBIT - was negative for 41,283 thousand (negative EBIT
of 37,834 thousand in the separate financial statements), compared with a loss of 28,918 thousand in the separate financial
statements for 2009 and a loss of 28,703 thousand in 2009 pro-forma; the components of cost represented by depreciation
and amortization and other adjusting provisions amounted to 3.2% as a percentage of revenue (2.7% in the separate
financial statements), compared with 1.9 % of the 2009 separate financial statements and 2.4% of the 2009 pro-forma. It should
be noted that in FY2010 the write-downs of investments as a result of impairment, which in the separate financial statements were
recognized in the item financial income and charges, as described below, in the consolidated data were instead included in the
write-downs for 3,438 thousand.

2010 net financial income and charges show a negative balance of 1,829 thousand (a negative balance of 10,901 thousand
in the separate financial statements, of which 8,575 thousand due, as previously mentioned, to the write-down of investments as
a result of the impairment test); this indicator was negative for 2,290 thousand in the 2009 separate financial statements and
1,089 thousand in the 2009 pro-forma.

Net of estimated tax for the period (current and deferred), the 2010 financial year closed with a Group net loss of 46,411
thousand (net loss of 51,861 thousand in the separate financial statements) against a net loss of 34,793 thousand registered
in the 2009 pro-forma (net loss on an individual basis of 34,059 thousand in 2009).

Given that there were 1,394,086,688 ordinary shares at the end of 2010, net loss per share on a consolidated basis was 0.033
(net loss per share amounted to 0.037 in the separate financial statements).

As at 31 December 2010, after accounting for the extraordinary transactions carried out, i.e. capital increase through contribution
in kind (February 2010) and paid capital increase (in August 2010), the Group shareholders' equity amounts to 8,439
thousand ( 10,109 thousand in the separate financial statements) as discussed in detail in sections 4.8 and 9.9 - Analysis of
changes in equity).

Given that the share capital amounts to 20,901 thousand as at 31 December 2010, the Company falls within the case provided
by art. 2446 of the Italian Civil Code, (loss exceeding 1/3 of the share capital), the extraordinary shareholders' meeting was
therefore convened on 28/29 April 2011 pursuant to art. 2446 of the Italian Civil Code in order to adopt the necessary measures.

Within this framework, AKFED, implementing its commitment of 26 August 2010 and through a further contribution of additional
15 million not originally envisaged in the commitment , supported Meridiana S.p.A. in making payments to the future capital
increase account that in the first quarter of 2011 amounted to 28,900 thousand ( 6,400 thousand on 25 January 2011, 7500
thousand on 24 February 2011 as fulfilment of the original commitment, as well as additional 15,000 thousand on 22 March
2011).

Net financial debt as at 31 December 2010 amounted to 19,327 thousand ( 20,197 thousand in the separate financial
statements at 31 December 2010), compared to net financial debt of 19,612 thousand recorded in the financial statements at 31
December 2009.

The following is a reconciliation between shareholders' equity and net profit/loss of the parent company and the same data for the
Group consolidated financial statements.

Equity Reconciliation

000 Shareholders' equity 31.12.2010 Profit (loss) for the period

Parent Company Meridiana fly 10,109 -51,861

Losses of consolidated companies from 28 February 2010 to 31 December 2010 -187 -187

Elimination of the carrying value of consolidated investments -1,483 5,637

Consolidated Meridiana fly 8,439 -46,411

Meridiana fly - Annual Financial Report at 31 December 2010 - 13


2.4. The fleet

Meridiana fly today operates with a fleet of nineteen Airbus aircraft (twelve A320s, three A330s and four A319s) under operating
lease and sixteen MD-82, six of which under operating lease and ten owned by the Company (plus two ATR 42 acquired through
wet lease agreements).

Following the business combination with Meridiana Aviation Branch that took place in late February 2010, which contributed four
A319 and seventeen MD-82, Meridiana fly operates a mixed fleet made up of Airbus and MD82; the two commercial divisions
(scheduled and charter) operate through a unitary management, thereby optimizing the use of crews, of the fleet and of support
activities (administrative, staff and operational).

The composition of the commercial fleet and the changes that took place until 31 December 2010 are shown in the table below.

Ownership,

Mar-09

May-09

May-10
Nov-09

Nov-10
Aug-09

Aug-10
Dec-09

Dec-10
Apr-09

Jun-09

Mar-10
Sep-09

Sep-10
Jan-09

Feb-09

Feb-10
Oct-09

Apr-10

Jun-10

Oct-10
Jan-10
Jul-09

Jul-10
Registered operating lease,
brand Tyoe financial lease Entry into fleet

I-EEZB A330 Operating lease Aug-02


I-EEZA A330 Operating lease Sep-02
I-EEZJ A330 Operating lease May-05
EI-EZL A330 Operating lease Dec-06
I-EEZM A330 Operating lease Mar-09
Operating lease
I-EEZC A320 Operating lease Oct-02
I-EEZD A320 Operating lease Feb-03
I-EEZE A320 Operating lease Mar-03
I-EEZF A320 Operating lease Apr-03
I-EEZG A320 Operating lease May-03
I-EEZH A320 Operating lease Dec-04
I-EEZI A320 Operating lease Dec-04
I-EEZK A320 Operating lease Feb-05
EI-EZN A320 Operating lease Mar-09
EI-EZO A320 Operating lease Mar-09
I-EEZP A320 Operating lease May-09
EI-EZR A320 Operating lease Jul-10
EI-EZS A320 Operating lease Jul-10
EI-EZT A320 Operating lease ago-10

EI-DFP A319 Operating lease Feb-10


I-EEZQ A319 Operating lease Jun-10
EI-DEY A319 Operating lease Feb-10
EI-DEZ A319 Operating lease Feb-10
EI-DFA A319 Operating lease Feb-10

EI-CIW MD82 Operating lease Feb-10


EI-CKM MD82 Operating lease Feb-10
EI-CRE MD82 Operating lease Feb-10
I-SMEC MD82 Operating lease Feb-10
EI-CRH MD82 Operating lease Feb-10
EI-CRW MD82 Operating lease Feb-10
EI-CNR MD82 Operating lease Feb-10
I-SMEN MD82 Ownership Feb-10
I-SMEL MD82 Ownership Feb-10
I-SMEM MD82 Ownership Feb-10
I-SMET MD82 Ownership Feb-10
I-SMEV MD82 Ownership Feb-10
I-SMEP MD82 Ownership Feb-10
I-SMER MD82 Ownership Feb-10
I-SMES MD82 Ownership Feb-10
I-SMEZ MD82 Ownership Feb-10
I-SMEB MD82 Ownership Feb-10

Meridiana fly - Annual Financial Report at 31 December 2010 - 14


In addition to the combination with the fleet of Meridiana Aviation Branch, the following additional changes took place:

 entry of three A320 aircraft (EI-EZR, EI-EZS and EI-EZT) in dry-lease with full operation since July-August 2010;

 phase-out of an MD-82 (EI-CIW) in October 2010;

 exit of an A319 aircraft (EI-DEY) in June 2010, with simultaneous addition of an A319 (I-EEZQ) located at more
competitive conditions.

2.5. Actions to improve the standard of services

During the year 2010, following the combination Meridiana - Eurofly, new projects were designed and implemented in order to
improve the quality of services to external and internal customers, particularly in terms of punctuality of flights and resulting
reduced inconvenience to passengers; some of these projects are described below:

 Introduction throughout the Meridiana fly fleet of a single system of shifts and management both for the aircraft and the
crew resulting in an increasing trend of operational efficiencies.

 Planning, Programming and Operational Management of the crew through increased synergy of the functions involved in
order to achieve greater productivity.

 Implementation of the automatic boarding procedure in some airports of the operating network thus achieving efficiency
gains and cost savings. Upon completion of the testing phase, the same procedure will be implemented in the remaining
airports.

These projects represent a first contribution of the synergy effects of the business combination towards a reduction of the loss;
indeed, had the two COA (Air Operator Certification) remained separate, it would not have been possible to develop such quality
improvements as the operating structures would have been required to operate separately.

2.6. Commercial Business

As shown below, following the completion of the strategic business combination with the aviation activities of Meridiana, the
corporate entity resulting from this process - Meridiana fly S.p.A. - has become a single business unit, since there are no separate
production units within the air transport business that may constitute a stand-alone system with decision-making autonomy.

Only from a strictly commercial viewpoint, does Meridiana fly manage the scheduled and charter flight sales channel in a different
way; these products are necessarily marketed separately, given the typical characteristics that distinguish the two commercial
areas and customer segments to which they relate.

Charter business

With regard to charter flights, Meridiana fly primarily sells its capacity to tour operators, which buy it in order to organize their own
tour packages, through semi-annual and annual contracts defined well in advance of the beginning of the season (summer and
winter) and mainly with the "Advanced blocked sale" procedure, through which the risk for filling the aircraft is practically shifted to
tour operators. In most cases the sale is of the "split charters" type, (i.e. the same flight is sold with separate allotments to several
tour operators).

In order to take into account the possible changes in non-controllable factors, such as changes in the exchange rate (Euro / USD)
and the trend in fuel prices, all contracts are indexed to these parameters and provide, within certain limits or exclusions, an
automatic adjustment mechanism of the prices offered to tour operators.

Charter flights, both medium and long haul, reach domestic and especially international destinations, with particular reference to
the high-end leisure segment, serving passengers travelling for vacation.

Meridiana fly - Annual Financial Report at 31 December 2010 - 15


There are two distinct areas of activity in charter air traffic:

Medium-haul flights operated by A320 aircraft: this business traditionally includes flights lasting less than five hours
with destinations mainly in Italy, Europe and the Mediterranean basin. Among the main medium-haul destinations
operated by Meridiana fly there are the traditional areas of Egypt, Greece, Spain, as well as recent destinations such as
Tel Aviv (Israel) and Lourdes (France). The medium haul traffic is characterized by high seasonality (excluding Egypt)
associated with the climatic characteristics of the regions that can be reached by medium-haul flights, which make these
destinations more popular during the summer than in winter.

Long-haul flights operated by A330 aircraft: this business traditionally includes flights longer than five hours with
mostly intercontinental destinations. The main long-haul destinations currently operated by the Company with charter
flights are in the Indian Ocean, such as the Maldives, Sri Lanka, Kenya, Zanzibar and Mauritius.

Scheduled flights

Scheduled flights, unlike charter flights described above, cover "Point to Point" routes and fixed destinations. During the 2010
summer season Meridiana fly flights served about 30 destinations in Italy and in Europe, serving both the leisure and business
target, by covering market areas that, during the summer season are mainly characterised by tourist traffic, while in winter there is
a strong component of ethnic and business traffic.

Among the main destinations of Meridiana fly there are several domestic flights starting from various bases (including to and from
Sardinia); some destinations with prevailing business traffic (such as flights from Milan Linate to Naples, Palermo, Catania, as well
as from Naples to Paris), flights to the Mediterranean countries (Egypt, Greece, Israel), to the east European countries (e.g. for
predominantly ethnic traffic to the Republic of Moldova and Kosovo, respectively Pristina and Chisinau and fights from Bologna to
Moscow), to countries in Africa (Senegal), as well as scheduled flights to New York (which in the summer are operated from
Naples and Palermo).

With regard in particular to the Florence-based network, flights are usually operated with A319 aircraft and the main destinations
served are London Gatwick, Amsterdam, Barcelona and Catania.

Business under the "territorial continuity" regime

It should be noted that Meridiana fly also carries out activities covered by the so-called territorial continuity regime, covering
flights to and from Sardinia and several cities of the peninsula, Sicily and Minor Islands; within this regime, Meridiana fly fulfils
special public service obligations against which it receives periodic government grants designed to ensure the economic and
financial balance of the activities carried out by the carrier.

In particular, Meridiana fly is currently the assignee for Sardinia routes, from Olbia and Cagliari to Rome and Milan Linate as well
as for the peripheral routes Olbia-Bologna, Olbia-Verona, Cagliari-Bologna, Cagliari-Torino Cagliari-Verona, Cagliari-Florence,
Cagliari-Napoli and Cagliari -Palermo. Under the territorial continuity regime, it also operates fights from Pantelleria and
Lampedusa to Sicily using two ATR42 aircraft in wet lease as well with a directly owned MD-80.

As from 10 December 2010, Meridiana fly started to serve the Olbia to Florence and Turin to Venice routes.

Meridiana fly will presumably continue to operate the Sardinia routes under the current system of territorial continuity, which
expires at the end of March 2011; in fact, the new decrees issued by the Ministry of Transport on 14 January 2011, which provided
for a maximum fee with State charges to be applied to non-residents, were repealed, while the current system was instead
extended until at least October 2011, according to which the rates provided for in the existing decree will be applied.

With regard to the territorial continuity concerning Sicily and the Minor Islands, expiring at the end of March 2011, Meridiana fly is
preparing the documentation to participate in the new tender, by reviewing operating procedures and the consequent use of
resources (staff / fleet) to meet the new charges imposed by the said tender, notwithstanding the extension of the current regime
until at least October 2011.

Code-sharing activities

Scheduled flights cover additional domestic and international destinations, due to a growing number of commercial code-sharing
agreements developed in recent years, which currently include Air Malta, Air Moldova, British Airways (on the Florence-London
Meridiana fly - Annual Financial Report at 31 December 2010 - 16
Gatwick route operated by Meridiana fly ), Finnair (on the Florence-Helsinki route operated by Meridiana fly and on flight operated
by the Finnish carrier from Italy to Helsinki, as well as agreements for continuing destinations), Wind Jet (exchange of seats on
flights between Turin, Verona, Venice and Catania, Palermo, Bucharest and Pristina) and Iberia (on the Florence-Madrid flights
operated by Meridiana fly and on flights operated by the Spanish carrier between Milan Linate and Madrid, as well as agreements
for continuing destinations).

On 31 August 2010 Meridiana fly and Olympic Air, signed a new code-sharing agreement, which provides for the supply of all
scheduled flights between Italy and Greece operated by the two companies, to their customers, who can thereby take advantage
of both networks.

2.7. Statistics

Statistical data on flights performed during the period are shown below; please note:

- FY2010 includes 10 months of activity combined with the Aviation Branch contributed by Meridiana, as from March 2010;

- the "separate" FY2009 refers to the actual data of the Aviation division operated as former Eurofly;

- the "separate" January-February 2010 period only refers to the actual data of the Aviation division operated as former Eurofly.

Analysis of flight hours


flight hours
January-December 2010 % March-December 2010 % Jan-Feb 2010 individual % Jan-Feb 2009 individual %

Medium Haul 78,136 85.3% 74,029 87.3% 4,107 61.1% 26,543 62.8%

Long Haul 13,435 14.7% 10,816 12.7% 2,620 38.9% 15,744 37.2%

Total flight hours 91,571 100.0% 84,845 100.0% 6,727 100.0% 42,287 100.0%

In 2010, the actual number of flight hours was 91,572, more than doubled compared with the 2009 financial year, of which 84,845
hours in the period March-December 2010, with a weight of medium haul flights that increased to over 85% (compared to around
63% in 2009).

The changes that took place in the medium haul flights data were largely determined by the contribution of Meridiana Aviation
Branch as well as by the greater availability of A320 aircraft during the period (nine-twelve A320 Airbus in 2010, compared to six-
eight aircraft in 2009).

The changes that took place in long-haul flights (these data are comparable as assets contributed by Meridiana are only medium
haul aircraft) show a 15.2% decrease in flight hours, reflecting lower capacity and cancellation of non-profitable routes.

Fleet productivitiy
Annualized flight hours
Jan - Dec 2010 Mar-Dec 2010 Jan - Febr 2010 separate Jan - Dec 2009 separate
A320 fleet 3,242 3,327 2,730 3,178

A330 fleet 4,478 4,326 5,136 4,841

Md82 fleet 2,109 1,751 1,763 (*) 2,382 (*)

A319 fleet 2,729 2,299 2,091 (*) 3,079 (*)

Productivity per aircraft, in terms of annualized flight hours, shows a decrease of 7.5% on long-haul reflecting the cut of some
unprofitable routes (NYC during the winter), while the A320 fleet productivity remained substantially stable.

With regard to the MD-82 and A319 aircraft contributed by Meridiana, productivity remains at lower levels compared to the entire
2009 year, partly resulting from the aforementioned problems of integration with Meridiana (e.g. labour unrest, cancellations and
delays in the maintenance area, etc...).

Meridiana fly - Annual Financial Report at 31 December 2010 - 17


Passengers carried - scheduled and charter
January-December 2010 % March-December 2010 % Jan-Feb 2010 individual % Jan-Feb 2009 individual %

Medium Haul 4,165,913 90.8% 3,992,426 92.3% 173,487 66.0% 1,148,663 72.5%

Long Haul 421,342 9.2% 332,032 7.7% 89,310 34.0% 436,487 27.5%

Total Passengers 4,587,255 100.0% 4,324,458 100.0% 262,797 100.0% 1,585,150 100.0%

The total number of passengers, inclusive of scheduled and charter flights, was 4,587,255, with a substantial increase over 2009
(3,002,105), mainly due to the contribution of the Aviation Branch as from March 2010, exclusively relating to medium haul flights,
which resulted in a weight of the medium haul traffic as a percentage of total activity of approximately 91% (versus 72.5% in
2009).

Regarding the long-haul (this segment is fully comparable) the number of Meridiana fly passengers in the period was lower by
approximately 3.4% reflecting decreased capacity; the overall load factor, however, (the load factor of aircraft) improved.

2.8. Human Resources

2.8.1. Organizational Structure

During the year the Meridiana fly Group has undergone a significant reorganization process aimed at adjusting the structure and
management of the Group to the business combination and to fully respond to future prospects.
In particular the offices of Meridiana fly, previously divided between Olbia and Milan, were largely centralized in Sardinia, at the
headquarters of the parent company Meridiana S.p.A. in Olbia at the - Costa Smeralda Airport Headquarters, thereby implementing
one of the expected synergies of the business combination.

2.8.2. Employees

As shown in the table below, the comparison of the average workforce in 2010 and 2009 is not significant due to the contribution
of the Aviation Branch, which entailed a significant transfer of employees from Meridiana (approximately 1070 employees) to
Meridiana fly, as well as the transfer of employees from Meridiana fly as a result of the spin-off of the branch of maintenance
activities in Meridiana Maintenance (about 80 employees).

In 2010 the number of FTE employees was 1,517.3, 1,464.5 of whom related to the parent company Meridiana fly S.p.A.
(compared to 740.0 in 2009 related solely to the former Eurofly), as shown in the table below.

In accordance with union agreements, during 2010 the Company applied solidarity contracts for the crew, including the employees
transferred from Meridiana through the contribution of the Aviation Branch; these contracts expired between July and September
2010.

Departure and hiring rates were significantly affected by the reorganization under way.

Meridiana fly - Annual Financial Report at 31 December 2010 - 18


Consolidated data Individual data Individual data
Financial Year Financial Year Financial Year
Full Time Equivalent 2010 2010 2009
Managers 20.5 18.5 11.8
Employees and workers 485.5 434.7 227.7
Total Ground Staff 506.0 453.2 239.5
Pilots 322.8 322.8 146.4
Flight Attendants 688.5 688.5 354.1
Total Flight Staff 1,011.3 1,011.3 500.5
Total staff 1,517.3 1,464.5 740.0

With regard to employment seniority, seniority by length of service and type of employment is detailed below; data is referred to
headcount, at the end of the financial year on a consolidated basis.

Number of Employees

Categories
Seniority - years Managers Employees Pilots Flight Attendants Total
0 -2 3 78 22 141 244
2 -5 7 162 53 156 378
5 -8 3 55 41 166 265
>8 7 261 233 410 911
Total 20 556 349 873 1,798

Categories
Seniority - years Managers Employees Pilots Flight Attendants Total
0 -2 15% 14% 6% 16% 14%
2 -5 35% 29% 15% 18% 21%
5 -8 15% 10% 12% 19% 15%
>8 35% 47% 67% 47% 51%
Total 100% 100% 100% 100% 100%

During the year, discussions with the unions and the company's employees representatives continued, with the objective of
maintaining a peaceful atmosphere inside the Company and reach shared solutions to specific problems both concerning ordinary
operations as well as those associated with the combination of Meridiana and Eurofly airlines.

Some labour tensions, however, did occur, as well as issues about the assignment of flight attendants, which took place after the
business combination with Meridiana, resulting from applying, as required by law, Meridiana fly employment contracts instead of
those of Meridiana; this caused operational inefficiencies and lower crew productivity, with effects on in-flight service and
economic performance.

It should also be noted that, as a result of the worsening relations with flight attendants, in 2010 labour disputes increased
significantly concerning requests for permanent employment contracts or, for staff already employed on a permanent basis,
request for the recognition of seniority as from the beginning of the first fixed-term contract. As mentioned before, the provision for
liabilities and charges for the year reflects this situation; in addition, restructuring of these employment relationships is a key
objective for the year 2011, so that, as later explained in paragraph 2.26 "Significant events after year-end", on 9 February 2011
Meridiana fly, within the time limit allowed by the legislation in force, initiated the procedure for collective dismissal, with regard to
910 employees divided between ground staff, pilots and flight attendants, including those who were reinstated in their job as a
result of the disputes mentioned above.

With regard to training, due to the economic downturn and taking also into account the extraordinary period during which the
Aviation branch combination was being implemented, it was not possible to develop meaningful training programs for the staff.

Meridiana fly - Annual Financial Report at 31 December 2010 - 19


On the contrary, the "technical" mandatory training, both for ground personnel and for the crew, (such as Basic Courses for non-
certified flight attendants, airport security courses, simulator sessions for pilots) continued, focusing in particular on training on the
use of Airbus by employees transferred from Meridiana in order to start developing the operational synergies provided by the Plan.

The overall cost for external training courses in 2010 was 1,111 thousand.

Regarding the legislation on occupational safety (Legislative Decree 81/2008), Meridiana fly and the Group updated the Risk
Assessment Report of the various sites in accordance with that legislation, taking into account the business combination and the
specific risks of aviation activities as well as the special applicable regulations on Safety and Security.

In particular, Meridiana fly and the Group constantly monitor all potential risks, defining the methods to carry out the risk
assessment and the characteristics on which the models of organization and management should be based in order to ensure the
prevention and protection of workers . This monitoring is done through regular meetings, as required by law, during which the risk
assessment reports are examined as well as the trend in occupational accidents and diseases, the selection criteria, the technical
features and efficiency of personal protective equipment as well as information and training programs for managers, supervisors
and workers.

During the year 2010 the Group was not involved in any legal action nor was it subject to significant penalties for occupational
diseases; there were no serious accidents at work, nor deaths.

Finally, it should be pointed out that the corporate reorganization resulting from the combination of Meridiana and Eurofly air
transport operations, notwithstanding the need to maintain some operational and commercial offices in Milan and Malpensa,
involved the transfer of the main administrative and management activities, of the staff and the management of Meridiana fly in the
Olbia offices, with the aim of achieving staff savings as provided for by the Plan.

2.9. Environment

The Airbus fleet used by Meridiana fly, given the level of modernity that characterizes it, complies with current environmental
requirements, both in terms of air and noise pollution. Therefore, there are no significant risks with regard to environmental
protection that may affect the company's use of its aircraft.

Meridiana fly is monitoring the specific legislation that is currently being implemented on Emission Trading (EU Directive
2008/101/EC), which requires airlines to comply with certain organizational and procedural requirements in the near future in order
to contribute to limit greenhouse gases emissions on a worldwide scale. In particular, the unification of monitoring reporting
required by the regulation is under way, as a result of the contribution of the Aviation branch by Meridiana.

With regard to issues of noise pollution, the fleet aircraft are provided with the noise certification, as provided for by the Navigation
Code, Title V of the Second Part Air Traffic" and the Royal Decree No 356 of 11 January 1925, which certifies compliance with
both European and American regulation.

During the year 2010 Meridiana fly was not involved in any legal action nor was it subject to penalties due to environmental
damages or crimes.

Some of the aspects related to the environmental impact and related legislation are specified below.

Reduction of costs caused by ETS by reducing fuel consumption


CO2 emissions are directly proportional to fuel consumption, therefore, in order to reduce the economic impact of the entry into
force of the Emission Trading Scheme, engines manufacturers are working on technological improvements in aircraft that reduce
fuel consumption. In turn, airlines are introducing specific fuel saving maintenance and operational procedures. Meridiana fly has
started providing new mobile communication devices to A320/330 Captains and Pilots thereby placing itself among the European
airlines most committed in terms of fuel policy.

Current efforts to reduce fuel consumption


Meridiana fly is currently monitoring all aircraft in the fleet to define optimal consumption and performance.

Meridiana fly - Annual Financial Report at 31 December 2010 - 20


The MD80 and Airbus fleet are using advanced communications systems of the mobile type. Through this information, and an
analysis of the operating reports and flight plans it is possible to identify the optimal fuel quantity to fly a given route.
Since December 2010 the system for monitoring fuel consumption of each aircraft in the fleet has been improved, with the aim of
obtaining a planning tool leading to greater fuel savings.

2.10. Performance of the Parent Company and its subsidiaries

As at 31 December 2010, Meridiana fly S.p.A. controls 100% of the share capital of Wokita S.r.l. and Sameitaly S.r.l. (50% of the
shares were contributed by Meridiana S.p.A. as part of the capital increase by contribution in kind completed in February 2010,
while the previously held interest of 50% was acquired in a prior contribution operation that took place in 2008), 100% of the share
capital of EF USA Inc (non-operational), 100% of Meridiana Express S.r.l. (Established in March 2010, also a non-operational
company).

Meridiana fly also holds a minority interest in Meridiana S.p.A. Maintenance amounting to 16.38% (a subsidiary of Meridiana
S.p.A.).

The main operating and financial results of the parent company Meridiana fly S.p.A. and its two consolidated subsidiaries for the
financial year 2010 are shown in the table below:

Data year 2010 Meridiana fly S.p.A. Sameitaly S.r.l. Wokita S.r.l
(Separate financial statements) 000 000 000

Sales revenue 604,129 4,342 3,888


EBIT (37,834) 6 (785)
as a % of revenue -6.3% 0.1% -20.2%
Pre-tax profit (loss) (48,735) 58 (521)
Net profit (loss) for the year (51,861) (108) (527)
Equity 10,109 545 12
Net financial position (20,197) 41 829
Cash flow for the period 11,312 (28) 31
Capital expenditure 8,453 9 0

For a detailed description of the performance and financial situation of Meridiana fly S.p.A. reference is made to section 2.3 - Key
financial performance indicators for FY2010 - as these substantially represent the totality of operations, given the not-significant
impact of the above mentioned subsidiaries; this is shown in the aforementioned table showing key data from the separate
financial statements. Furthermore, the notes referred to in sections 2.3 also contain data resulting from the separate financial
statements of the parent company Meridiana fly S.p.A.

The performance of the two consolidated subsidiaries is detailed below.

The subsidiaries Sameitaly and Wokita, included in these consolidated financial statements with financial effect as from 1 March,
2010, report a net loss for the financial year 2010, mainly due to the continuing economic crisis, the consequent stagnation of
demand, including demand for services related to tourism.

Sameitaly, formed in late September 2007, acts as general agent (General Sales Agent) for Italy, USA, S. Marino, Canton Ticino,
Croatia and Slovenia of Meridiana fly and the tour operator Wokita, with regard to the segment of travel agencies, organizations
and businesses with the aim of creating strong group synergies and optimize commercial distribution costs.

Sameitaly 2010 turnover from ordinary operations amounted to approximately 4.3 million, with EBIT substantially breaking even
(+ 6 thousand) and a net loss of 108 thousand.

The travel agencies segment continued to perform poorly due to lower demand, increasingly focused on price, which leads to
lower volume and margins for all parties concerned; there have also been extraordinary external events (volcanic cloud effect in
April and May), as well as within the Group (start-up issues arising from the business combination with Meridiana Eurofly) that
have limited the performance of the subsidiary.

Meridiana fly - Annual Financial Report at 31 December 2010 - 21


Sameitaly continued to carry out sales, promotional and marketing activities throughout the period, expanding its target market to
the U.S., while seeking to acquire new customers in segments adjacent to the air transport sector.

Wokita, formed in February 2006 to promote the development of the tour operating business via the Internet within the Meridiana
Group, operates in the creation and marketing of package tours and the sale, through its portal, of individual services directly to
consumers. Meridiana fly currently has business relationships with Wokita for the sale of online tickets and packages.

For FY year 2010 Wokita reported a significant reduction in total revenue compared to 2009 ( 3.9 million compared to 6.8
million in 2009) reflecting lower demand, the reorganization process taking place at Group level, and the reduced allotment
availability on charter flights.

As a result of these factors, EBIT reported a loss of 785 thousand as at 31 December 2010 (compared with a loss of 154
thousand in 2009), closing with a net loss of 527 thousand.

Given the interim results for the 2010 financial year, already reporting a severe loss which completely eroded capital, during the
year 2010 Meridiana fly carried out a capital contribution of 500 thousand, to be used inter alia to cover losses.

In addition Wokita reported an overall loss exceeding one third of the capital, falling within the situation provided for by art. 2482-
bis. In this regard, the Directors proposed to convene the extraordinary shareholders' meeting on 29 April 2011 for appropriate
action.

Wokita poor performance was in line with current market conditions which penalize tour operators; it also reflected the general
stagnation of consumption that led to the decline in demand for tourism products and increased consumers focus on prices as well
as competition from various players, with an associated reduction of already tight margins. Moreover, the bankruptcy of classic
brands such as I Viaggi del Ventaglio contributed to greater uncertainty among Italian customers who perceive greater risk in
relying on tour operators.

Wokita is responding to this negative scenario by reorganizing its online and off-line sales including through the strengthening of
operational services to consumers and the optimization of products offered as well as through new or renewed marketing and
promotional efforts. (e.g. newsletter).

In light of these results, the Directors of Meridiana fly S.p.A. deemed it necessary to carry out an impairment test and for this
purpose they appointed an independent expert to assess the recoverability - in the manner prescribed by IAS / IFRS - of the
carrying amount, as indicated in the separate financial statements, of Samitaly and Wokita subsidiaries as well as the goodwill
recognized in the consolidated financial statements in relation to the activities developed by such subsidiaries. The document
supporting the impairment test has been examined and approved by the Board of Directors of Meridiana fly on 18 March 2011.

As described in more detail in the Notes to the separate financial statements of Meridiana fly S.p.A., this document presented an
estimate of the recoverable value of the investments - made by determining the value in use through the discounting of cash flows
expected from operating activities (resulting from estimates included in the updated subsidiaries Business Plans approved by their
respective Boards of Directors on 17 March 2011, which are largely independent of the outcome of the restructuring of operating
and overhead costs of Meridiana fly S.p.A.) - which led to a write-down of the value of the investments reported in the separate
financial statements of Meridiana fly S.p.A. of 8,575 thousand, of which 4,626 thousand relating to Sameitaly and 3949
thousand to Wokita. In the consolidated financial statements goodwill related to the consolidation and Samitaly and Wokita was
written-down by 3,438 thousand, of which 2,003 thousand relating to Sameitaly and 1,435 thousand to Wokita.

Lastly, following the contribution of Meridiana's shareholdings in Sameitaly and Wokita, the shareholders' agreement previously
signed by Meridiana and Eurofly for the joint control of the two companies has ceased.

2.11. Corporate Offices

Following the contribution of Meridiana's air transport operations to Eurofly, the registered and administrative office of Meridiana
fly S.p.A. , were transferred with effect from 28 February 2010, in Olbia, at the Costa Smeralda Airport Headquarters, which is also
the registered office of the parent company Meridiana S.p.A.

Meridiana fly - Annual Financial Report at 31 December 2010 - 22


On the same date, the branch office in New Delhi (India) was closed as it is no longer operational.

The only branch of Meridiana fly is the New York branch (USA); it also manages the local unit in Malpensa airport at Terminal T1
and the one in Via Bugatti, Milan, as well as, starting from 2011, the new representative offices in Rome, Piazza Capranica.

Sameitaly S.r.l. has its registered office in Olbia, near the Costa Smeralda Airport Headquarters, while the administrative and
commercial activities are carried out in the Milan offices, in Via Bugatti.

After the reorganization that occurred in the second half of the year, Wokita S.r.l. centralized its operations in its registered office
located in Olbia at the Costa Smeralda Airport Headquarters.

2.12. Research and development activities

Given the nature of its business, the Company and the Group did not carry out any significant research and development activities
during FY2010.

2.13. Capex

During the year 2010 new expenditure in tangible assets were carried out for a total amount of 8,460 thousand (of which 8,453
thousand by Meridiana fly), compared to 8,129 thousand in the separate financial statements for 2009; they consisted of:

 improvements to and reconfiguration of several aircraft operated under operating leases amounting to 3,551 thousand
(for the medium-haul fleet);

 major maintenance on engines and airframes of owned aircraft amounting to 2,674 thousand ( medium-haul fleet);

 rotating material relating to the owned fleet amounting to 1,466 thousand (medium-haul fleet );

 new hardware and software purchases for 218 thousand and 292 thousand respectively;

 new facilities related to the integration for 113 thousand;

 new furniture and furnishings for the headquarters in Olbia for 55 thousand related to integration;

 equipment and other assets for 81 thousand.

 improvements to the Malpensa offices for 10 thousand.

2.14. Significant events in FY2010

The most significant events occurred during FY2010 are highlighted below.

2.14.1. Extraordinary transactions for the reorganization of the group

At the end of February the air transport operations of Meridiana and 50% shareholding in Sameitaly and Wokita were contributed
to Eurofly through the share capital increase reserved to the parent company Meridiana for a total of 52.56 million. At the same,
Meridiana and AKFED have provided Meridiana fly with the capital and financial support necessary to complete the corporate
reorganization, pending the signing of new agreements with banks, for a total of 70 million, of which 30 million as bridge loan
and 40 million as underwriting commitment of the unsubscribed portion of the capital increase.

In particular, effective 28 February 2010, Meridiana air transport operations were contributed to Eurofly, against issue of
325,247,524 shares at a price of 0.1616 each. On the same day the company name has changed from Eurofly to Meridiana fly,
with the simultaneous transfer of the registered office from Milan to Olbia, where the parent company Meridiana is also located.

Meridiana fly - Annual Financial Report at 31 December 2010 - 23


After the contribution operation Meridiana fly S.p.A. share capital consisted of 680,042,294 ordinary shares, of which 536,628,025
(representing 78.91% of the capital itself) owned by Meridiana S.p.A.

In addition to creating a single entity that would include the aviation activities, the reorganization included:

1) the signing of a new joint venture agreement with SFIRS S.p.A. - Societ Finanziaria Industriale Rinascita Sardegna -
Iberia Lineas Aereas de Espana SA and Meridiana S.p.A. for the organization and management of maintenance activities
through the newly formed Meridiana Maintenance;

2) the establishment on 9 March 2010 of Meridiana express S.r.l., with a minimum share capital of 10 thousand, a wholly
owned subsidiary of Meridiana fly to which the MD-82 aircraft in the Meridiana fly fleet were to be transferred. Meridian
Express S.r.l. is not currently operational due to the revision of the group's business plan, as explained in the following
section 2.26.3 - New Business Plan 2011-2015.

Following the completion in late February 2010 of the above extraordinary operations (transfer of the Aviation Branch and spin-off
of the MRO maintenance business), starting from 1 March 2010, for about 10 days, significant labour protest by workers took
place that resulted in more than 80 cancellations of scheduled flights, flight delays in general, as a consequence thereof and of
personnel shifts, causing a worsening of productivity and punctuality / regularity parameters.

The above protest, which ceased due to the opening of negotiations with trade unions on new employment contracts for Meridiana
Maintenance staff and former Meridiana staff transferred to Meridiana fly, had a negative non-recurring impact on the Company's
results of approximately 1.5 million.

2.14.2. Volcano eruption in Iceland

Due to the eruption of the Eyjafjallajkull volcano, located in Iceland, which took place in mid-April 2010 and the subsequent
emission of ash and silicon dust which were deemed dangerous to the safety of flights in Europe, the air space was closed first in
northern Europe and later in southern Europe for about 10 days and fully reopened on 20 April 2010. This flights interruption
resulted in significant losses for the airlines, the airports and the tourism industry in general, having involved a total of 313 airports.
The IATA (International Air Transport Association) estimates that airlines in general have lost revenue of USD 1.7 billion ( 1.26
billion).

Meridiana fly was significantly affected by the extraordinary volcanic cloud as, in addition to having to cancel over 350 flights,
almost exclusively medium-haul flights, and reschedule the flights among the various airports (without revenue), it also organized
flights to recover passengers. The lost revenue is estimated at approximately 4.5 million, while the lost margin, net of savings in
variable costs, but gross of the estimated costs of refunding and re-booking passengers, can be estimated at approximately 3
million.

2.14.3. Renewal of the Board of Directors and appointment of the new CEO

On 30 April 2010, the Shareholders Meeting renewed the Board of Directors, which will remain in office for one financial year,
setting at nine the number of its members. The following candidates included in the list submitted by the parent company
Meridiana were appointed: Marco Rigotti, as Chairman of the Board of Directors, Claudio Allais, Giancarlo Arduino, Massimo
Chieli, Giuseppe Lomonaco, Claudio Miorelli, Luca Ragnedda, Franco Trivi and Salvatore Vicari.

On the same date, the Board of Directors granted powers and responsibilities, appointing Massimo Chieli as CEO, confirming
Franco Trivi as Vice-President of the Company and finally granting the director Claudio Miorelli the mandate for the management
of the company's external and press relations.

2.14.4. Capital increase

Meridiana fly - Annual Financial Report at 31 December 2010 - 24


On 13 July 2010 Consob announced the authorization to publish the Prospectus relating to (i) the admission to listing of
325,247,524 ordinary shares, issued on 1 March 2010, resulting from the capital increase by contribution in kind, for an amount of
approximately 52.56 million carried out at the end of February 2010 and (ii) rights offering to shareholders and admission to
trading of the shares resulting from the paid divisible capital increase, in accordance with the powers granted by resolution of the
Extraordinary Shareholders' Meeting on 3 November 2009, as amended on 21 December 2009.

On 25 August 2010 Meridiana fly announced the completion of the rights offering associated with the cash capital increase,
including the partial underwriting of unsubscribed rights. Following this operation, the new share capital of Meridiana fly is
20,901,419.34, represented by 1,394,086,688 ordinary shares, with no par value.

The parent company Meridiana S.p.A. holds a 78.05% controlling interest in Meridiana fly, directly owning 1,088,108,395 shares.

2.14.5. Difficult connections to Greece

In the second half of July, for a few days connections between the Italian airports and those of Greece main resorts were
disrupted by some technical problems related to air traffic control. Meridiana fly activities to Greece, and indirectly to Egypt, where
the company is a leader in leisure traffic from Italy, also suffered from such conditions resulting in delays and cancellations of
rotations; the company's flights directly or indirectly involved in this situation were 44 as well as 8,000 customers, whom the
Company constantly assisted and kept informed.

2.14.6. Issues in fleet management

Due to labour unrest resulting from the business combination, with reference to the maintenance management and service sector
subject to spin-off, some planned maintenance on MD-82 aircraft was postponed.

In addition there were delays in delivery and commissioning of new A320 aircraft caused by the postponement of the integration
process between Meridiana and Eurofly; therefore, the lease contracts selection and negotiation which had been suspended
during the previous months, could only resume in the month of March 2010.

As a result of the above, during the months of July and August 2010 the company had to make greater use of wet-lease
temporary contracts with other companies in the period of maximum activity: this resulted in additional costs for non-recurring wet-
lease charges and accessories for approximately 1,600 thousand.

2.14.7. Adoption of Forecast updated as of June 2011 and concurrent commitments by


AKFED

At the end of August 2010, when it approved the Half-year financial report, the Board of Directors approved an updated forecast
for the next twelve months (until the end of June 2011), in order to take into account the most recent expectations on
macroeconomic developments and traffic, as well as the actual data of the first half of the year. The new estimates did not change
the basic strategy of the previous business plan nor the forecast presented in the Prospectus for the cash and in kind capital
increase, nor the expectations on cost savings that would result from the said plan.

From the review of prospective data contained in the Forecast as at 30 June 2011 the complete erosion of the equity of Meridiana
fly and the Group emerged as well as a temporary cash imbalance- additional with respect to what was envisaged in the Business
Plan - of approximately 27 million; the provision of this additional requirement was guaranteed by AKFED (financial institution
controlled by the major shareholder SA Karim Aga Khan) with irrevocable letters of commitment dated 26 August 2010. Through
these commitments AKFED renewed its financial and capital support to the Company on the basis of the new needs arising from
the 30June 2011 Forecast; these commitments are as follows:

against the original commitment by Meridiana S.p.A. to underwrite the newly issued shares not subscribed by the market
up to a maximum of 40 million, AKFED informed the Directors of Meridiana fly that it will not reduce the overall AKFED

Meridiana fly - Annual Financial Report at 31 December 2010 - 25


total financial commitment to an extent equivalent to the value of the shares subscribed by the market up to a maximum
of 8.5 million. As the value of newly issued shares subscribed by the market amounted to approximately 9.1 million,
AKFED is committed to disburse 8.5 million as non-interest bearing subordinated loan either directly or through
Meridiana S.p.A., with maturity set at 31 December 2016.

Following this commitment, on 12 November 2010, AKFED, through the parent company Meridiana S.p.A., disbursed at the
request of the Company, an interest free loan amounting to 8,500 thousand.

With the objective of ensuring the capital and financial balance appropriate for operating as a going concern for a period
of at least 12 months, AKFED informed the Directors of Meridiana fly that it would take an irrevocable commitment to
provide financial resources to Meridiana fly - either directly, if it is a shareholder of the Company or through Meridiana
S.p.A. - for additional 19 million. This firm commitment may be fulfilled by subscribing a new capital increase or in any
other form that allows the company to reach the capital and financial balance necessary for a going concern. In the event
that the financing takes the form of a loan, this shall have to be repaid by 31 August, 2016 or partially or fully repaid
before that date but after 31 December 2011, should the Company have structural cash surplus compared to the
condition of financial equilibrium; the interest will be determined at Euribor plus 200 basis points and shall be paid
quarterly.

With regard to this second commitment, to date the Company has received the following payments as advances for future capital
increase by Meridiana S.p.A., which completely fulfil the above commitment:

- 5 million on 13 December 2010;

- 6.4 million on 25 January 2011;

- 7.5 million on 24 February 2011;

These payments were recorded as shareholders' equity at the dates they were received.

As further confirmation of the support from the parent company Meridiana S.p.A. and from the major shareholder, as further
explained in section 2.28 - Business Outlook, on 22 March 2011, the company received an additional advance payment for future
capital increase of 15 million, which was also recorded as shareholders' equity.

2.14.8. Defining the balance due on the contribution

During the month of October 2010 the process of joint verification of the balance sheet items of the Aviation Branch was
completed.

Such review resulted in a net balance due by Meridiana fly to Meridiana S.p.A. of 5,627 thousand, mainly related to changes
occurred in the accounting items being contributed between the valuation date of the Aviation Branch and the date of the actual
transfer thereof. This debt was paid on 12 November 2010, in accordance with contractual provisions.

For more details please refer to section 9.4 - "Balance sheet for the contribution of the Aviation Branch" in the Notes.

2.14.9. Agreement with SEA

On 4 October 2010 the litigation with SEA S.p.A. - Societ Esercizi Aeroportuali- was amicably settled - as described in Section
2.6 - Significant Litigation -to which reference is made.

The above mentioned settlement agreement resulted in a benefit of approximately 1.1 million from the write-off of the existing
debt, reflected in the income statement for the fourth quarter of 2010.

2.14.10. Termination of the agreement with Lauda Livingston

Meridiana fly - Annual Financial Report at 31 December 2010 - 26


Due to the problems of the Livingston airline to continue operating as a going concern pursuant to the Community legislation on
air transport, with effect from 14 October 2010 the Civil Aviation Authority decided to suspend the aviation license of the
aforementioned company.

Meridiana fly therefore notified the termination of the code sharing collaboration on the Caribbean and Indian Ocean area, which,
by the way, had already been reduced compared to the previous year due to a different business organization; the company
started the necessary legal proceedings to protect its interests represented by the remaining trade receivables to be recovered for
approximately 0.3 million, which were taken into account in updating the estimates of the provision for bad debt.

2.14.11. Agreement with Opera Romana Pellegrinaggi

During the fourth quarter of 2010, the Company signed an agreement with the Opera Romana Pellegrinaggi (O.R.P.), the
organization of the Vicariate of Rome, which promotes and organizes pilgrimages.

Through this agreement, the Company has undertaken the organization of trips to Lourdes and Israel on behalf of the ORP, in
accordance with a plan that provides for revenue of 12.5 million already in 2011 with increasing amounts up to 35 million in
2015, with a guaranteed minimum on an annual basis equal to eighty per cent of these amounts.

This agreement provides for a commitment by the Company of a total of 5 million (of which 2 million already paid in 2010 and
the remaining 3 million to be paid in equal instalments of 0.6 million between 2012 and 2015) as a contribution to promotional
activities in favour of the ORP for the development and organization of religious and cultural pilgrimages as well as additional
minimum brokerage and advisory fees to third parties corresponding to 4% of turnover.

2.14.12. Bank debt restructuring

On 23 December 2010 Meridiana fly signed with Banca Nazionale del Lavoro S.p.A., UniCredit S.p.A. and Intesa Sanpaolo S.p.A.
(i) an agreement amending the financing agreement signed on 27 November 2007 for 15 million, which would extend the term
thereof for three years and (ii) also concluded with Banca Nazionale del Lavoro S.p.A. and Unicredit S.p.A. a financing agreement
providing a medium-term revolving credit facility for maximum amount of 7,550,000 with a duration of 18 months.

The main terms and conditions of the first agreement (amending the loan agreement) are as follows:
duration of 36 months;
amount of 15 million;
repayment in a lump sum at maturity;
variable interest rate equal to EURIBOR + spread of around 4%, with quarterly payment;
interest rate risk hedging for at least 50% of the share capital (hedging signed in 2011).

The second agreement (revolving credit facility) provides the following main terms and conditions:
duration of 18 months;
amount of 7.55 million;
1/3/6 months drawdowns of at least 500 thousand;
variable interest rate equal to EURIBOR + spread of around 3.25%, with payment in arrear after each maturity;
commissions of 0.75% on the unused amounts of the facility.

Both agreements also provide for the following limitations, restrictions and obligations that failure to comply with may result, at the
discretion of the lending banks in the obligation to immediately repay of the loan in question:
limitations to the disposal of assets of 1.5 million, without the prior consent of the banks;
Meridiana fly - Annual Financial Report at 31 December 2010 - 27
maximum limit of debt overdue beyond 180 days of 6 million, net of any disputed amounts, any amounts due to related
parties and taking into account any subsequent agreements to reschedule overdue loans;
limit to additional debt of 7.45 million, excluding shareholders or AKFED loans the repayment of which is subordinated
with respect to bank loans;
limit to additional sureties or guarantees issued for 15 million;
permitted investments not to exceed 8 million per year, excluding from the calculation those related to maintenance
checks and other changes to aircraft or parts thereof to be implemented under regulatory or contractual obligation;
absence of significant adverse events or events of insolvency, liquidation or bankruptcy proceedings;
disclosure of financial statements and interim reports as soon as they become available to the public;
immediate notification of any extraordinary event, any event of revocation or termination, or resolutions or measures of
any kind which may result in significant adverse events;
disclosure of any transaction of intercompany reorganization;
commitment to ensure that shareholders and AKFED loans are unsecured, subordinated and postponed to the
repayment of principal and interest;
limit to dividends distribution of 500 thousand on an annual basis;
restriction of 2 million related to acquisitions of shareholdings, companies, corporations and the like;
restriction to corporate extraordinary transactions (e.g. mergers, demergers, contribution of assets etc.), without the prior
consent of the banks;
prohibition of speculative transactions in derivatives, except for the interest rate hedging above and other hedging
instruments to stabilize operating costs as deemed reasonable by the banks.

The financing agreements shall also be revoked in case of adverse opinion or inability to express an opinion or positive opinion,
but with indication of substantial irregularities (leading to a significant adverse event) by the independent auditors with respect to
the financial statements and half-year reports of Meridiana fly.

Finally the agreement in question are subject to financial covenants which are calculated on the basis of the annual financial
statements and half-year report as from 2011; failure to comply may result, at the discretion of the lending banks, in the request of
immediate repayment of the loan.

More specifically, these covenants refer to the ratios Net Debt / EBITDAR and Net Debt / Equity; the reference values thereof are
listed below.

I. Ratio of net debt to EBITDAR,

(i) at 31/12/2011, not exceeding 1.35;

(ii) at 30/06/2012, not exceeding 1.00;

(ii) at 31/12/2012, not exceeding 0.75;

(ii) at 30/06/2013, not exceeding 0.75;

II. Ratio of Net Debt to Equity,

(i) at 31/12/2011, not exceeding 2.25;

(ii) at 30/06/2012, not exceeding 2.25;

(ii) at 31/12/2012, not exceeding 1.75;

(ii) at 30/06/2013, not exceeding 1.50;

III. Net debt not exceeding 30 million between 30/06/2011 and 30/06/2013 as it results every six months.

Meridiana fly - Annual Financial Report at 31 December 2010 - 28


The calculation of EBITDAR for the purposes of the ratio net debt / EBITDAR is made semi-annually with reference to the last 12
months (rolling year) preceding the date of calculation.

In case of non-compliance with these parameters, the lending banks may request the early repayment of the loaned sums, unless
otherwise agreed at a subsequent time.

The terms and conditions of the agreements are in line with market terms and conditions for similar loans granted to comparable
companies.

Concurrently with these agreements Meridiana S.p.A. has renewed the existing lines of credit granted by way of suretyships to
Meridiana S.p.A. (former Eurofly) and Meridiana fly itself for a total of 26.1 million.

Both the cash loans that the suretyships are counter-guaranteed by a first demand surety issued by the major shareholder
Meridiana S.p.A. as well as a comfort letter issued by AKFED.

For sake of completeness it should be noted that for the conclusion of the restructuring agreements with the banks Meridiana fly
has incurred costs for consulting fees and miscellaneous advisory fees of 742 thousand, which were accounted for under the
amortized cost method as a deduction to the corresponding loans.

2.15. Management and coordination activities and transactions with related parties

Meridiana fly S.p.A. is subject to management and coordination by Meridiana S.p.A.

As mentioned in section 2.14.4 - Increase in capital following the capital increase in cash concluded in August, Meridiana
subscribed 500,879,400 new shares at a price of 28,049 thousand; in addition Meridiana, in accordance with the commitment
previously made to underwrite the rights offer unsubscribed by the market, purchased additional 50,600,970 new shares (at a
price of 2,834 thousand), finally bringing its controlling interest to approx. 78.05% (previously 78.91%). Following this share
capital increase, the new share capital of Meridiana fly is 20,901,419.34, represented by 1,394,086,688 ordinary shares, with no
par value (1,088,108,395 of which owned by Meridiana). Meridiana S.p.A. is indirectly controlled by His Highness Prince Karim
Aga Khan.

At the end of 2010 there were no other shareholders holding ordinary shares in excess of 2%.

Pursuant to Article 2497-bis and sexies of the Italian Civil Code, the main figures of Meridiana S.p.A. last available financial
statements, (as at 31 December 2009), both separate and consolidated, are shown below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 29


Consolidated Financial
financial statement Statements
000 2009 2009
Total revenue 704,923 380,045
Cost of services (398,673) (202,150)
Other operating costs (335,462) (177,571)
EBIT (29,212) 324
Net financial expenses and other adjustments (2,232) (409)
Pre-tax profit (loss) (31,444) (85)
Income taxes (5,301) (2,077)
Net profit (loss) (36,745) (2,162)

Non-current assets 128,628 158,976


Current assets 174,255 93,803
Other assets
Total assets 302,883 252,779
Shareholders' equity (5,263) 75,746
Non-current liabilities 59,553 41,308
Current liabilities 248,593 135,725
Total equity and liabilities 302,883 252,770
Net financial position (3,302) 4,692
No. FTE 2,380 1,292

With regard to transactions carried out by Meridiana fly and Meridian fly Group with related parties, they mainly refer to the
provision of services and financial transactions with the parent company Meridiana and AKFED, as well as with companies
controlled by Meridiana S.p.A. (Meridiana Maintenance, Geasar, Alisarda) and other related parties of the Group (including Air
Mali, Air Uganda, Air Burkina).

The above operations, which were concluded at market values, fall within the ordinary operations of the Company and were
performed in the interest of the Company and of the Meridiana fly Group.

For better information, the Group's structure after the corporate reorganization carried out in the early months of 2010 is shown
below.

It should be noted that in 2010 Meridiana fly, together with its subsidiaries Sameitaly and Wokita, exercised the option to be
included in the National Tax Consolidation Regime (referred to in Articles 117-129 of the Income Tax Code) applied by Meridiana
S.p.A. (the Consolidating entity) for the period 2010-2012.

For more information on related party transactions, please refer to section 4.13 and 9.14 - Transactions with related parties -
included in the notes to consolidated and separate financial statements.

Meridiana fly - Annual Financial Report at 31 December 2010 - 30


2.16. Regulation on transactions with related parties

With Decision No. 17221 of 12 March 2010 and by subsequent resolution No.17389 of 23 June 2010, Consob approved the
regulation on transactions with related parties, with the goal of determining rules designed to ensure transparency as well as
procedural and substantial fairness of transactions with related parties in order to strengthen the protection of minority
shareholders and other stakeholders.

The regulation's objective is to organize the rules referring to: (i) the principles relating to the procedures that companies must
adopt in order to ensure that transactions with related parties are carried out at fair terms, namely the procedural system, (ii) the
obligations regarding disclosure to the market of this type of transactions, namely the transparency system.

As regards the procedural system, the regulation requires the Boards of Directors to adopt procedures that ensure the
transparency and procedural fairness of transactions with related parties, providing for the establishment of a committee
composed exclusively of non- executive, not-related, mostly independent, directors who will give advice, although not binding, on
the suitability and fairness of the transactions in question.

For transactions of lesser importance there is a special procedure, which provides, inter alia, that the Committee expresses a non-
binding reasoned opinion on the Issuer's interest in the transaction and the suitability and substantial fairness thereof; in addition
disclosure should be provided at least quarterly to Directors and Statutory Auditors on implemented transactions and an
information document should be disclosed to the public containing information on transactions that are carried out despite the
negative opinion of the Committee.

For more significant transactions a special more rigorous procedure is adopted, that requires, inter alia, greater involvement of the
aforementioned Committee, composed entirely of independent and not related directors, even in the preliminary stage as well as
its positive opinion on the transaction; where the governing body intends to approve the most significant transactions despite the
negative opinion of the Committee, the transaction must be approved by the Shareholders' Meeting.

With regard to transparency vis vis the market and with regard to the most significant transactions, the regulation introduced the
requirement for an immediate disclosure describing the characteristics of the transaction, the economic rationale thereof and the
cost-effectiveness to the Issuer as well as a periodic reporting included in the interim or annual report on operations, disclosing,
with respect to the reporting period, information on individual most significant transactions carried out with related parties, on the
other related party transactions that materially affected the financial position or results of the company, any change or
development of related party transactions previously carried out that had a significant effect on the financial position or results of
the company.

In order to meet this new regulation, the Board of Directors of Meridiana fly at its meeting on 18 October 2010 approved the
establishment of a special committee composed of three independent non-executive directors.

Furthermore Meridiana fly, after an analysis of the legislation and the Group's structure aimed at identifying related parties, has
implemented the following activities, during the financial year:
 mapping of activities and processes for the prior identification of transactions with related parties;
 definition and elaboration of operational and control procedures concerning related parties in order to implement the
authorization and information flows to be submitted to the corporate bodies and the Market;
 drafting of the Group Regulation;
 implementation of measures concerning the organization, the processes and the information systems necessary to
adequately comply with the legislation in question.

Finally, Meridiana fly adopted all the procedures and transparency rules in the meeting of the Board of Directors on 26 November
2010, so that the new decision-making mechanisms are implemented as of 1 January 2011.

Meridiana fly - Annual Financial Report at 31 December 2010 - 31


2.17. Significant litigation

The Meridiana fly Group is involved in a number of commercial legal actions brought by and against it, and in tax litigation against
which, as better explained in the Explanatory Notes, the provisions for doubtful debt, for liabilities and charges and payables
recognized in the financial statements, are considered adequate, despite the inherent uncertainty of estimation procedures.

The most significant litigation concerning receivables is described below.

Essevi S.r.l. (formerly Teorema Tour S.p.A.)

With reference to the arbitration proceedings brought by Meridiana fly against Teorema Tour S.p.A. to recover a receivable of
approximately 3 million and USD 3 million in flights, as well as a credit for penalties on flights cancellations, totalling 14.7
million (which is not recognized in the balance sheet), the arbitration board on 25 November 2009 issued an arbitration award
in favour of the Company ordering Essevi S.r.l. (formerly Teorema Tour S.p.A.) to pay a total sum exceeding 11.8 million.

Following the bankruptcy, declared on September 2009, of Teorema S.a.s. and its general partner Essevi S.r.l., all actions
undertaken by the Company to protect its claims were interrupted, including the revocatory action on the sale of real estate by
Essevi S.r.l.

On 23 December 2009 the company submitted proofs of debt in the bankruptcy. At the hearing on 28 April 2010 the claim
was admitted for 11,983 thousand.

By order of 16 June 2010 the Bankruptcy Judge declared the enforceability of claims. On 17 February 2011 the Receiver
prepared the interim report for the second half of 2010, which shows the potential partial recoverability of the claim, although
in the medium to long term, subject to successful completion of the revocatory actions currently in progress.

MG Viaggi S.r.l. (In liquidation)

Following the arbitration proceedings initiated by Meridiana fly in October 2006, by means of ruling on 26 November 2008 the
arbitration board ordered MG Viaggi S.r.l. to pay to the Company the total sum of 1.1 million and 75% of legal costs. The
award was declared enforceable and enforcement procedures were initiated for recovering the credit.

On 23 June 2009 MG Viaggi S.r.l. was placed in voluntary liquidation. On 25 September 2009, the Company filed an
application asking that MG Viaggi S.r.l. be declared bankrupt. At the hearing on 15 June 2010, date set for the declaration of
bankruptcy, the judge acknowledged of the application for admission to the composition procedure by MG Viaggi S.r.l., and
postponed the hearing to 26 October 2010, which was further postponed to 24.2.2011. On 1 February 2011 hearing for the
approval of the arrangement requested by MG Viaggi S.r.l. was held; however, due to the lack of formalization of the transfer
of MG S.r.l. receivable - which should have been given as guarantee backing the arrangement - the hearing was postponed
to 24 February 2011; during this hearing MG Viaggi S.r.l. provided evidence for the formalization of the transfer of receivable.

To date MG Viaggi S.r.l. in liquidation has made a proposal for the full payment of secured creditors and 17.83% of the
unsecured creditors; the proposal was approved by creditors in the forms of law, but its formal approval is still underway. The
Company has substantially adjusted the recoverable amount of the claim to the aforementioned proposal.

Air Comet

At the end of the arbitration procedure initiated by the Company, in August 2008, for the recovery of its claim against Air
Comet Inc. for failure to pay the instalments of the sub-lease of an A330 (USD 2,763 thousand and 580 thousand), on 30
September 2009 the International Chamber of Commerce, London Office issued an arbitration award accepting all the
requests of the Company and ordering Air Comet Inc. to pay a total amount of 1,411 thousand. By decision of 25 March
2010 the Court of First Instance of Madrid ordered the enforceability of the award and authorized enforcement against the
assets of Air Comet Inc. On 20 April 2010 Air Comet Inc. was declared bankrupt; given this decision the Company on 28 May
2010 submitted proofs of debt in the bankruptcy.

Meridiana fly - Annual Financial Report at 31 December 2010 - 32


From an initial examination of creditors, the Company's claims should consist of 1,452 thousand (ordinary debt), 85
thousand (subordinated debt) and 56 thousand (contingent ordinary credit).

The date of the hearing examining the creditors claims has yet to be fixed.

Given that the recovery of the claim is unlikely, the receivable was fully written down in the financial statements.

Ministry of Defence

Litigation initiated by Meridiana fly to recover the claim against the Ministry of Defence for approximately 4.2 million,
resulting from an agreement signed in July 2004 and concluded in June 2006.

For a part of the above amount (approximately 1.1 million), on 5 October 2007 Meridiana fly obtained from the Court of
Rome the issue of an injunction against the Ministry, which was opposed by the latter. The hearing for clarification of the
conclusions has been set for 29 April 2011.

For the remainder of the receivable claimed by the Company from the Ministry of Defence (approximately 3.1 million),
Unicredit Factoring S.p.A. to which the Company transferred the receivable with a factoring contract of 11 July 2005
obtained the issue, by the Court of Rome, of an injunction later opposed by the Ministry of Defence.

The case was postponed to 8 June 2011 to examine the court appointed expertise.

For sake of full disclosure, it should be noted that additional contracts were signed with the Ministry of Defence and are
currently on-going against which there are outstanding receivables of approximately 15.4 million as at 31 December 2010.

Maxitraveland S.p.A.

Litigation initiated by the Meridiana fly for the recovery of an approximately 5.5 million receivable (for both aircraft lease
instalments and contractual penalties) due by Maxitraveland S.p.A. In September 2008, the Milan court issued two injunctions
against Maxitraveland S.p.A. and granted the provisional enforcement of the injunction supported by checks amounting to
approximately 1.25 million.

In response to the bankruptcy of Maxitraveland S.p.A., which was declared on 15 October 2008, the Company filed proofs of
debt for about 6.44 million, of which approximately 5.56 million as principal amount. At the verification hearing on 13
February 2009, the Bankruptcy Judge admitted the Company's claims as unsecured credit for an amount of approximately
2.97 million. On 27 March 2009 the Company challenged the statement of liabilities and on 21 December 2009 the Company
was served a summons for the revocation under bankruptcy of a sum of 426 thousand which the Company received from
Maxitraveland S.p.A. in the 6 months prior to the declaration of bankruptcy. An appropriate provision has been set aside in
the financial statements to account for this risk.

At the hearing on 8 April 2010, the judge granted the time limit for the filing of pleadings, adjourning the hearing to 2
December 2010 for the examination of the preliminary statements. At the subsequent hearing on 21 December 2010 the
judge admitted witness evidence and let the Company submit rebuttal evidence.

The next hearing is scheduled for 12 May 2011.

Financial intermediaries for credit card sales in the U.S.

Litigation initiated by Meridiana fly for the recovery of a receivable of approximately USD 2.2 million (for sales of air tickets)
claimed against financial intermediaries involved in the management of credit card sales on the American market. In 2007 the
Company notified a writ against these financial intermediaries and a number of individuals involved and the preliminary stage
of the proceedings is currently in progress.

Following a specific settlement with one of the defendant parties (Bank of America), the amount of USD 658 thousand was
paid to the Company on 31 January 2011.

The Company continues to carry on the dispute against First Independent Bank and other counterparts for the remaining
credit, including through a possible final arbitration to be held as from the summer of 2011.

Mare Club S.r.l. (Now Incoming & Outgoing Tour Operating Group S.r.l.)

Meridiana fly - Annual Financial Report at 31 December 2010 - 33


The Company obtained, against Mare Club S.r.l., an injunction to pay 328 thousand for the non-payment and/or partial
payment of invoices relating to special air transport contracts signed before the contribution by Meridiana S.p.A. Mare Club
S.r.l. opposed the order, requesting by way of counterclaim the payment in its favour of 277 thousand. The Company
initiated a proceeding requesting confirmation of the injunction for payment.

At the hearing on 14 May 2010, the case was adjourned, having the counterpart's attorney noted that Mare Club S.r.l. (Now
Incoming & Outgoing Tour Operating Group S.r.l.) had been declared bankrupt by ruling of the Court of Bergamo on 7 May
2010.

On 6 July 2010 the Company lodged proof of debt in the bankruptcy proceedings, but the Bankruptcy Judge did not accept
the request. On 21 October 2010 the Company objected to that exclusion. Currently, the Judge reserved his decision on
future evaluations. Given that recovery is unlikely, the Group has fully written down the receivable in the financial statements.

Societ Aertre - Aeroporto di Treviso S.p.A.

Litigation initiated by Meridiana fly for compensation for damages suffered by the same owing to an event occurred in 2002 at
the airport of Aertre (TV). The Court of Venice, on 25 July 2008, ordered Aertre Aeroporto di Treviso S.p.A. and the Ministry
of Defence jointly to pay the Company damages of 1,290 thousand. In relation to this ruling, on 3 October 2008 Aertre paid
the Company the amount of 700 thousand and on 15 June 2009 the further amount of 700 thousand for the part due by
the Ministry of Defence. In October 2008 the Ministry of Defence appealed against the decision of the Court of Venice. The
Company, Aertre - Treviso Airport S.p.A., Assicurazioni Generali and the Civil Aviation Authority filed an appearance before
the Court. By ruling on 17 March 2009, the Judge rejected the application for suspension of the provisional enforceability of
the judgment, lodged by the Ministry of Defence, and adjourned the hearing to 11 February 2015 for definition of the
conclusions. Pending a final decision, the amounts indicated were not recognised in the Company's income statement.

In relation to major litigation for payables to suppliers and other counterparties, the following should be noted:

Societ Esercizi Aeroportuali - SEA S.p.A.

Litigation initiated by Meridiana fly in 2008 to obtain an order against SEA S.p.A. to repay 35% of the consideration paid in
excess from 2001 to 2006 for the use of centralized infrastructures. This dispute was closed on 4 October 2010 through a
settlement agreement between the parties as described in paragraph 2.14.9 above - Agreement with SEA.

Myair.com S.p.A.

With a writ notified to Meridiana fly on 18 April 2008, Myair.com S.p.A. requested payment of 500 thousand as a penalty for
delays of Meridiana fly in communications related to the availability of aircraft under a Wet Lease contract. With an order
issued by the Court of Vicenza in January 2010 Myair.com S.p.A. was declared bankrupt.

By agreement on 13 December 2010, the Company discontinued the dispute and committed to pay 110 thousand in full and
final settlement, plus legal costs. The provisions for liabilities and charges reflect this liability.

Corporate Aircraft

Writ notified by Corporate Aircraft to Meridiana fly in November 2007, to obtain payment of approximately 1 million as
consideration for mediation carried on in relation to the transfer of a Financial Leasing contract regarding an A319 aircraft,
which occurred in June 2007.

At the hearing on 29 October 2009 evidence was heard from witnesses and the case was adjourned to 17 June 2010 for
continuation of the witness evidence. At the hearing of 17 June 2010 part of the witness evidence was heard and the Judge
adjourned the hearing to 3 March 2011, which was duly held with continuation of witness evidence and for the formal
questioning of Corporate Aircraft legal representative.

The judge adjourned the hearing to 16 January 2013 for the definition of conclusions. The provision for liabilities and charges
takes into account the risk of adverse outcome of the litigation in question.
Meridiana fly - Annual Financial Report at 31 December 2010 - 34
ENI S.p.A.

With a writ notified to Meridiana fly and to other airlines ENI S.p.A. requested payment of an amount of 242 thousand for the
concession fee due to airport managers (so-called "Fuel royalties"). On 20 April 2007, the Company filed an appearance
requesting rejection of all the demands put forward by ENI S.p.A. and, by way of counterclaim, requesting an order for the
latter to repay the amounts received from 1997 onwards, as a surcharge on the supply of fuel at airports, for a total of
approximately 3.5 million. At the hearing of 3 February 2010, at the request of ENI S.p.A. the judge adjourned the case to
the hearing on 10 June 2010 for exhibition of documents and admission of the court appointed accounting expertise.

As a result of contribution of the Aviation Business, the proceedings for the same causa petendi - with which ENI S.p.A.
requested an order against Meridiana for payment of 352 thousand must also be considered. At the hearing on 10 June
2010, set for admission of the preliminary evidence, the Judge admitted the court appointed expertise for the accounting
verification and adjourned the hearing to 1 December 2010.

The proceedings are suspended due to the bankruptcy of one of the defendants.

Payables to suppliers, in any case, include the full disputed amount.

Exxonmobil Petroleum&Chemical S.p.A.

Writ notified to Meridiana fly in May 2008 by the oil company, in relation to fuel royalties for an amount of approximately 173
thousand. The Company filed an appearance requesting rejection of all the demands put forward by Exxonmobil Petroleum &
Chemical S.p.A. and, by way of counterclaim, requesting an order for the latter to repay the amounts received from 1998
onwards, as a surcharge on the supply of fuel at airports, for a total of approximately 927 million. The Investigating Judge
reserved the decision on admission of the evidence requested and adjourned the case for definition of the conclusions.

As a result of contribution of the Aviation Business, the proceedings for the same causa petendi - with which ENI S.p.A.
requested an order against Meridiana for payment of 245 thousand must also be considered.

Meridiana filed an appearance requesting rejection of the plaintiffs demand and, by way of counterclaim, the repayment of
the amount already paid of approximately 230 thousand.

At the hearing on 11 June 2010 the judge reserved the decision.

By ruling of 11 June 2010, the judge accepted the claims and ordered the Company to pay the legal costs as the latter had
already settled its debts with Exxonmobil Petroleum & Chemical S.p.A.

Servair AirChef S.r.l.

Injunction notified by Servair AirChef S.r.l. to Meridiana fly in January 2008 for the recovery of an amount of approximately
55 thousand for catering royalties. Meridiana fly filed a notice of objection, asking the Court to reject all the demands put
forward by the plaintiff. At the hearing on 26 May 2010, set for the definition of the conclusions, the parties requested a short
adjournment for negotiations in progress and the judge set the hearing for 7 April 2011. The Company reached an agreement
with the counterparty that has already issued the relevant credit notes.

Sogaer S.p.A.

Sogaer S.p.A. brought four proceedings against the Company, three of which were initiated in 2006 and one on 22 January
2010, for a partial failure to pay the sums due for the use of centralized infrastructures at Cagliari Airport, for a total amount of
approximately 2.6 million. This litigation was closed on 21 July 2010 through an amicable settlement between the parties
which did not result in any significant expense or income in the income statement.

Sagat S.p.A.

Sagat S.p.A. obtained an injunction against Meridiana for payment of 610 thousand in relation to an alleged difference in
the consideration due for the use of centralized infrastructures at Torino Caselle airport. Meridiana opposed the injunction
asserting the illegitimacy of the sums claimed by Sagat S.p.A. The opposing party's petition to grant the provisional
enforcement of the opposite injunction was rejected, as requested by Meridiana, while the court expert advice was admitted.
The case was adjourned to 15 June 2011. Trade payables already include the full amount claimed by the other party.
Meridiana fly - Annual Financial Report at 31 December 2010 - 35
Aironjet Travel S.r.l.

Aironjet Travel S.r.l. brought legal proceedings against the Company, among others, in order to be hold harmless and obtain
guarantee against payment of 210 thousand, requested by means of revocatory action initiated by the Official Receiver of
Sportiva Calcio Napoli S.p.A. As there was no proof that the writ had been notified, the Judge granted an additional time limit
to Aironjet Travel S.r.l., until 29 April 2010, to enable a new notification of the writ and subsequently set a new hearing for
additional cross examination on 28 October 2010. The case was adjourned to 12 May 2011. The provisions for liabilities and
charges take into account the risk of adverse outcome of the aforementioned legal dispute.

In relation to the existing litigation with the Alitalia group, the following should be noted:

Alitalia - Linee Aeree Italiane S.p.A. in receivership

The dispute regards 10 injunctions issued in favour of Alitalia in receivership against Meridiana fly for a total amount of 2.6
million. Following the start of the receivership procedure, all the proceedings initiated by the Company to object to the
injunctions were broken off and then recommenced in the second half of 2009.

With regard to the proceedings pending before the Court of Rome, six hearings were adjourned to January 2013, the other
two hearings were scheduled between May and June 2011; one was defined with a ruling that admitted the objection of
settlement through arbitration raised by the Company and declared the invalidity of the injunction; with regard to the
proceedings pending before the Court of Milan, at the hearing on 27 October 2010 the judge reserved the decision.

As for the proofs of debt lodged in the Alitalia insolvency proceedings for a total sum of 7.3 million, the discussion on the
admission thereof was postponed for further investigation and examination at the hearing on 16 December, 2009, in which
the Bankruptcy Judge stated that a decision would be taken on the merit of each application only at the end of the
examination of all the applications presented. Therefore, there is no substantial news on the progress of such litigation
against which no further liabilities are expected since the related liabilities have already been fully recognized.

Alitalia Servizi S.p.A. in receivership

Meridiana lodged proof of debt in the arrangement proceedings of Alitalia Servizi for an unsecured claim of 65 thousand,
deriving from unpaid invoices. It also asked the Official Receiver, by means of a claim for restitution, the return of a number of
MD82 aircraft components on the basis of the technical assistance contract signed on 27 April 2007, with which Alitalia
Servizi S.p.A. had undertaken to provide services for the maintenance and reconditioning of aircraft components owned by
Meridiana.

The proceedings are at the stage of due investigation to verify the basis of this last request as well as admission of the proofs
of debt. The receivables were fully written down.

Alitalia - Linee Aeree Italiane S.p.A. in receivership

On 14 November 2008, the Company filed proof of debt in the proceedings of Alitalia - Linee Aeree Italiane S.p.A. in
Receivership, for an amount of 30,624 thousand or for any higher amount deriving from the prejudicial conduct of Alitalia in
relation to the issue of certain Slots on Milan Linate airport. Following the declaration of enforceability of claims in the Alitalia
proceedings, we are waiting for the Official Receiver to notify the outcome of our application.

Overall, the receivables from Alitalia Group in extraordinary administration recognised in the separate and consolidated
financial statements amounted to 1.7 million and were fully written down.

With reference to other types of disputes, the most significant of them are discussed below.

GCVA former shareholders of EF-USA

Litigation initiated by the Company, on 11 September 2009, before the Court of New York, for the recovery of a receivable
due by EF-USA for approximately USD 2.4 million, relating to sales of air transport services of Meridiana fly made by EF-USA

Meridiana fly - Annual Financial Report at 31 December 2010 - 36


on the American market during 2009 and to the balance of the sales made in 2008 pursuant to the terms and conditions of
the Service Agreement in force with the Company.

On 19 October 2009 EF-USA filed an appearance submitting a counterclaim for compensation for damages for a total of USD
935 thousand. The proceedings, following disagreements between EF-USA shareholders, in particular between Meridiana fly
and GCVA, were suspended by the judge in order to enable further legal actions regarding the ownership of and control over
EF-USA.

Meridiana fly, which held 49% of the share capital of EF-USA, in fact, with a letter dated 4 February 2010 following the
resignations from their respective positions of the top managers of EF-USA, who were also holders through GCVA of a 51%
interest in the share capital of EF-USA exercised the option provided for in the shareholders agreement signed with CGVA,
in order to become sole shareholder of EF-USA. As of today GCVA has disputed the above acquisition and on 8 April 2010
Meridiana fly therefore initiated proceedings before the American Arbitration Association in New York, requesting to be
declared the owner of 100% of the share capital of EF-USA and to enjoin GCVA to cooperate in order to ensure full control
over the capital and assets of EF-USA by the latter new management, under the direction of Meridiana fly.

In the meantime the top managers of EF-USA initiated an arbitration procedure against EF-USA requesting USD 640
thousand and USD 351 thousand respectively on the basis of their employment contracts with EF-USA. Meridiana fly was
summoned to appear before the court as guarantor of the obligations taken by EF-USA.

The consolidation of the above arbitrations is currently being verified by the organizations involved. It is believed, according to
the advice of our lawyers, that the Group has a reasonable chance to recover the amounts recognised in the financial
statements, taking into account the provisions for liabilities already set aside.

Employment law litigation

As already mentioned, with reference to the employment law litigation of Meridiana fly, most of the disputes involved the
recognition of permanent contracts of employees repeatedly hired under fixed-term contracts and the request for the
recognition of seniority for past periods by staff with permanent contracts. With regard to the first type of disputes, Meridiana
fly provided for the reinstatement of a large number of employees, mostly belonging to the crew, pursuant to the news rules
contained in Law 183/2010 ("work legislation attachment").

It is believed that, in light of the legislation in question, the provisions for liabilities and charges set aside in this financial
statements for 12.1 million (of which 5.4 million set aside in the year) are reasonable, reflecting the best estimate of
liabilities which we deem, also on the basis of the opinion of the Company's legal advisors, the Company may incur in case of
adverse outcome of outstanding disputes, although the progress of the litigation is extremely diverse and constantly evolving.

With reference to the dispute with trade unions on the application of Meridiana's employment contract to employees who were
transferred to Meridiana fly, the risk of a final adverse outcome in the proceedings before the competent bodies to date is only
possible, since, in relation to such proceedings, on the basis of the opinion of the Company's legal advisors, and within the
framework of the European Union and national legislation, there are in legal practice and in case law guidelines favourable to
the Company's position. For this reason, no provision for risks relating to that litigation has been allocated in the Company's
financial statements.

Litigation with passengers

Finally, there are other legal proceedings brought by passengers for compensation for damages, for which the Company,
albeit in the climate of uncertainty surrounding any lawsuit, set aside provisions for liabilities and charges that it considers
adequate to cover the estimated liabilities taking into account historical data on this kind of charges.

Meridiana fly - Annual Financial Report at 31 December 2010 - 37


2.18. Security Policy Document

As required by Legislative Decree no. 196/03 "Personal Data Protection Code", the Company and the Group have updated in
the year 2010, the Security Policy Document (DPS).

The Security Policy Document lists the processing of personal data carried out by the Group, the distribution of tasks and
responsibilities within the structures responsible for processing, analysis of the risks to which the data are subject, the
description of the criteria and how to restore data availability following destruction or damage and the measures taken and to
be taken to ensure the integrity and availability of data as well as the protection of areas and premises, relevant for their
custody and accessibility.

Following the contribution of the Aviation branch of Meridiana S.p.A., Meridiana fly benefited from the Information Security
Management System (ISMS) already in place in Meridiana, designed in accordance with ISO 27001:2005 standard and in
"Compliance" with PCI/DSS standard on the secure processing of data of credit cards holders.

To this end, during the year, specific training courses on data protection and information security continued to be organised
for the Call Center personnel, as persons in charge of data processing; for 2011 we expect that training courses on the same
subjects will be carried out for other departments involved in personal data processing.

Finally, in compliance with the regulation issued by the Italian data protection authority "Measures and mechanisms required
from data controllers of processing with electronic instruments with regard to the functions of system administrator (O.G. No
300 of 24 December 2008)" the Group is using specific software which provides for the monitoring required by the
aforementioned regulation and issued a specific internal procedure.

2.19. Update of the Model of organisation, management and control pursuant to


Legislative Decree 231/2001

Legislative Decree 231/2001 on "Regulation on the administrative liability of legal persons, companies and associations
without legal personality" introduced in the Italian legislation a system of administrative liability for companies with regard to
offences committed in the interest or for the benefit of companies themselves by top management or persons under the
latter's direction or supervision.

The organizational management and control model pursuant to Legislative Decree 231/01, issued in its first version in
accordance with the "Guidelines" issued by Confindustria (published in May 2004) was approved by Eurofly Board of
Directors on 17 February 2009.

Given the numerous regulatory interventions and the profound corporate and organizational changes occurred, during the
year 2010 and early 2011 Meridiana fly took steps to update the Model in order to align it to the new company resulted from
the contribution of Meridiana aviation branch to Eurofly

At the same time, the entire risk mapping pursuant to Legislative Decree 231/01 was reviewed, through "self-assessment
interviews and questionnaires carried out with the heads of the various business functions.

With regard to the Group's organizational structure, the review took into account the Group's investments in other companies,
mapping the risks arising from transactions with related parties and providing the appropriate prevention protocols.

The updated model of organization management and control pursuant to Legislative Decree 231/01, which includes new
offences, was approved by the Board of Directors of Meridiana fly S.p.A. on 23 March 2011.

During the year 2010 the Supervisory Board (SB) of Meridiana fly provided for by the Model in question was formed with 3
members, two external experts plus the Head of the Internal Audit function of the Company.

The members that comprise the Supervisory Board ensure the requirements of autonomy, independence, professionalism
and continuity of action needed to efficiently carry out the required task.

Meridiana fly - Annual Financial Report at 31 December 2010 - 38


During the financial year 2010, several meetings were held in which the SB met with the Board of Statutory Auditors with the
aim of mutually exchanging information on matters within their respective competence.

There were also meetings with the Supervisory Board of Meridiana S.p.A. to discuss, with due regard to their mutual
independence, issues of corporate responsibility within the Group and to establish common guidelines to prevent criminal
offences.

2.20. Legal and regulatory framework

The most significant legislative measures impacting on the air transport sector issued during 2010 were the following:

1) Ministerial Decree of 4 October 2010, gazetted on 11 December 2010 O.G. .No 289, in force since 10 January 2011 which
redefined the extent of airport fees

This legislative measure defines the extent of airport fees provided for in Ministerial Decree of 8 October 2009 and 16 April 2010,
updating it in accordance with art. 5, par. 6 of Decree-Law No 194 of 30 December 2009, converted, with amendments, by law No
25 of 26 February 2010, in order to take into account the expected inflation rate for the year 2010 which, in the Economic and
Financial Planning Document 2010-2013, is forecast at 1.5%.

The extent of airport fees in Naples, Pisa, Brindisi and Bari was otherwise fixed by ministerial decrees No.812 and No.813 of 7
October 2009 within their respective planning contracts which were approved by the aforementioned legislative measures. The
rights provided by this regulation are the passengers boarding fees (EU / non EU), the landing/departure fess and parking and
shed fees.

2) Decree of the Ministry of Infrastructures and Transport of 15 December 2010, which imposed new public service charges
on some routes to / from Sicily and the smaller islands of Lampedusa and Pantelleria

This provision lays down the applicable frequency of flights, schedules and rates which were defined by the Services Committee.
Operating routes are increased over the previous requirements. If no carrier accepts to operate the routes provided in accordance
with the defined charges, without requesting any financial compensation, the routes operations will be awarded following the
completion of a public tender.

3) Two decrees of the Ministry of Infrastructure and Transport on 14 January 2011, which imposed new service charges on
several routes to / from Sardinia

These decrees lay down the applicable frequency of flights, schedules and rates which were defined by the Services Committee.
With the publication of these measures the operation of routes subject to taxation shall be subject to the acceptance of the service
according to the specifications required; otherwise a tender will be held in accordance with the applicable Community regulations.

At present the two decrees have been revoked pending the redefinition of public service charges.

2.21. Share Capital

At 31 December 2010 Meridiana fly S.p.A. share capital amounted to 20,901,419.34 and consisted of 1.394.086.688 ordinary
shares, with no par value.

The share capital consists solely of ordinary shares, registered, freely transferable, providing the same the rights and obligations,
as provided for by the current statutory regulations.

Meridiana fly - Annual Financial Report at 31 December 2010 - 39


Therefore each ordinary share confers the right to a proportionate share of any earnings allocated for distribution and any equity
resulting upon a final winding-up, as well as the right to vote without any restrictions.

As at the date of this Report:


there are no other classes of shares or other securities issued by the Company;
there are no shares not representing the capital;
The Company holds no treasury shares in portfolio, either directly or indirectly;
The Company has not issued convertible bonds, exchangeable bonds or bonds with warrants;
There are no share-based incentive plans (stock options, stock-grants, etc..) that involve share capital increases,
including free share capital increases ;
there are no restrictions on the transfer of shares;
no shares have been issued which grant special rights of control;
there is no system of employee shareholding;
There are no restrictions on voting rights, there are no shareholders' agreements known to the Company pursuant to art.
122 of Legislative Decree 58/98 (TUF-finance consolidation act).

The By-laws provide that 5% of net profits resulting from the financial statements be allocated to the legal reserve until the same
reaches one-fifth of the share capital; the remaining profits are allocated as per resolution of the shareholders meeting.

As at 31 December 2010 the only significant equity investment in the capital of the Company, according to the disclosures made
pursuant to art. 120 of Legislative Decree 58/98 (TUF), was that of Meridiana S.p.A., which held No. 1,088,108,395 shares,
representing 78.05% of share capital. Meridiana S.p.A. is in turn indirectly controlled by His Highness Prince Karim Aga Khan.

The additional disclosure required by Article 123-bis of Legislative Decree 58/98 is contained in the Report on Corporate
Governance published in conjunction with this Report.

The stock prices recorded at the year-end together with relevant capitalisation are provided in the following table:

Stock market price Meridiana fly

30.12.2010 30.12.2009 Change

Price- 0.0451 0.1558 (0.1107)

No. shares issued. 1,394,086,688 354,794,770 1,039,291,918

Capitalization- 62,873,310 55,277,025 7,596,284

2.22. Certification pursuant to Art. 37 of Consob Regulation

Pursuant to Article 37 of the Regulations for the implementation of Legislative Decree no.58 of 24 February 1998 on financial
markets (Consob Resolution No. 16191/07) and of art. 2.6.2, paragraph 13 of the Regulation of Markets Organised and Operated
by Borsa Italiana S.p.A., the Company, with regard to the provisions that prohibit the listing of shares of companies subject to
management and co-ordination by another company, Meridiana fly, which is subject to management and coordination activities by
Meridiana S.p.A., herewith certifies that:

a) it has complied with the public notice obligations pursuant to Article 2497-bis of the Italian Civil Code;
b) it has the ability to negotiate with customers and suppliers on an arm's length basis;

Meridiana fly - Annual Financial Report at 31 December 2010 - 40


c) it has no centralised cash pooling arrangements with the company that exercises group management or with other companies
of the group to which it belongs;
d) it has a sufficient number of independent directors to ensure that their opinions have a material impact on decisions made by
the board of directors.

2.23. Report on Corporate Governance and Ownership

In compliance with regulatory obligations, every year the Company prepares a "Corporate Governance Report". Besides
providing a general description of the corporate governance system applied by the Company, the report provides information about
ownership and about compliance with individual requirements of the Corporate Governance Code for Italian listed companies,
which the Company endorses. This report is available on the website www.meridianafly.com, under "Corporate Governance".

Below is a summary of the report; readers are invited to consult the complete document for full details.

Corporate governance system. The Company is organised according to the traditional management and control model
indicated in articles 2380-bis et seq. of the Italian Civil Code, i.e. with the General Shareholders Meeting, Board of Directors, and
Board of Statutory Auditors.

In addition to these corporate bodies there are: the Independent Auditors, the Financial Reporting Officer, the Internal Auditing
Committee, the Compensation Committee, the Manager in charge of the Internal Auditing, the Supervisory Board provided for by
Legislative Decree no.231/2001 and the Committee for Related Party Transactions.

During the period 2007-2010, the Board of Directors adopted certain measures to implement the principles and recommendations
contained in the new Code of Conduct.

The Company has already examined the provisions of the By-laws in order to make them compliant with the new regulations
concerning the protection of shareholder rights and in particular with Legislative Decree no.27 of 27 January 2010, as well as with
the new provisions introduced by Consob Resolution No. 17221 of 12 March 2010 concerning transactions with related parties and
independent directors. The Company will therefore present the proposed amendments to the By-laws at the next shareholders'
meeting scheduled for 28/29 April 2011.

Shareholders' Meeting. The ordinary and extraordinary shareholders' meetings are convened within the deadlines established
by the legislation in force, by notice published in the Official Gazette of the Italian Republic or in the newspaper Il Sole 24 Ore or
the newspaper MF. Mercati Finanziari/Milano Finanza.

Where the Shareholders meeting is not convened in the manner specified above, it is validly constituted and may validly deliberate
when the entire share capital is represented and the majority of the directors in office and the majority of the Statutory Auditors are
attending.

Shareholders' meetings are held at the Company's registered office or in any other specified place in Italy. The By-laws also
provide that the shareholders' meeting can take place in multiple adjacent or remote locations that are linked by a
telecommunications system.

Pursuant to Article 8 of the By-laws all shareholders entitled to vote may attend the Meeting. In case the shares of the Company
are admitted to trading in an Italian regulated market, the shareholders for which the Company has received at least two days
before the first call, the communication of the intermediary in charge of the related accounts, as per art. 2370, second paragraph of
the Italian Civil Code, are entitled to attend the Meeting. Each ordinary share confers the right to cast one vote.

Shareholders who are entitled to attend the Meeting, either personally or on behalf of other shareholders, may give a written proxy
to attend and vote in the General Meeting in accordance with statutory provisions.

The ordinary and extraordinary shareholders' meetings are validly held and resolutions are validly passed when the provisions
established by law and in the By-laws are complied with. The conduct of the Meeting is governed by law and the Articles of
Associations as well as the specific Regulations for Shareholders' Meetings approved by resolution of 30 April 2009.

Meridiana fly - Annual Financial Report at 31 December 2010 - 41


The minutes of the Meeting are prepared in accordance with the law; they are approved and signed by the Chairman and the
Secretary or, if drafted by a Notary, by the latter.

The text of the Regulations for Shareholders Meetings is available on the Company's website www.meridianafly.com.

The Board of Directors approves the "Explanatory Report on the proposals relating to the matters on the agenda" of the
Shareholders' Meeting; this document is disclosed in the manner prescribed by law and in any case also through the company's
website.

Board of Directors. Pursuant to Article 14 of the Company By-laws, the Company is managed by a Board of Directors,
consisting of a number of members from five to nine, as resolved by the Ordinary Shareholders Meeting. The directors can be re-
elected.

The number of directors reflects the need to structure the Board of Directors in the way best suited to the Companys needs. It also
allows the Company to hire professionals from different backgrounds and to integrate different skills and experiences, maximizing
shareholders' value. The Board of Directors currently consists of nine members (of which four independent) and its term of office
will lapse when shareholders approve the financial statements for the year ended at 31 December 2010.

The Directors professional rsums are filed at the companys registered office and are available on the Issuers institutional site
www.meridianafly.com in the section Investor Relations/Information for Shareholders.

As the corporate body responsible for the Companys corporate governance system, the Board of Directors plays a key role in
corporate organisation. Its responsibilities and functions include strategic and organisational guidelines and verification that the
controls necessary to monitor the Issuers performance are in place. Pursuant to Article 19 of the Company's By-laws, it is vested
with all the widest powers to manage the Company. To this end, it can resolve or accomplish all acts that it deems necessary or
useful for the accomplishment of the corporate purpose, except for those that the law and the Company's By-laws reserve to the
Shareholders Meeting.

Internal Board committees In accordance with the provisions established by the Code of Conduct, the Board of Directors
exercising the powers conferred upon it by Article 19 of the Company's By-laws has set up some internal Board committees with
consultative, idea-generating or control functions, which are assured the right of access to relevant information.

The internal committees can draw on the services of external advisors and can be endowed with adequate resources within the
limits of a budget established by the Board of Directors. They consist of three members. The committees currently in place are:

a) Compensation Committee - Albeit in the absence of a specific by-law provision in this respect, on 30 April 2009 the Board of
Directors, in compliance with the guidance contained in the Code of Conduct, passed a resolution appointing the new members of
the Compensation Committee. The latter had been previously set up by Board resolution of 16 March 2007, which also approved
the regulation governing the committees tasks and operation.

b) Internal Auditing Committee. Board resolution of April 30, 2010, the Board of Directors has appointed the members of the
Audit Committee, already established by resolution of July 18, 2006, and adopted by resolution of the Board on 16 March 2007 the
regulations governing the tasks and functioning of the Committee. The Internal Control Committee performs preparatory support
activities for the Board of Directors for matters concerning internal control and risk management, it makes proposals and performs
advisory functions; it also cooperates with the Board of Statutory Auditors with regard to the supervisory functions of the internal
control system over the preparation of accounting documents; together with the Independent Auditors, it monitors the correct
application of accounting standards and their consistency for the purposes of preparing the consolidated financial statements.

c) Committee for related party transactions. In implementation of the provisions of art. 2391-bis of the Italian Civil Code and
Consob Regulation 17221 of 12 March 2010, as amended, at the meeting of 18 October 2010 the Board of Directors appointed the
Committee for Related Party Transactions, consisting of three non-executive independent directors. On 26 November 2010 the
Committee for Related Party Transactions and the Board of Directors approved the new procedure governing transactions with
related parties, which entered into force on 1 January 2011, entirely replacing, as from that date, the procedures on this matter
previously applied by the Company.

Meridiana fly - Annual Financial Report at 31 December 2010 - 42


The procedure defines the guidelines and criteria for analysing and performing transactions with related parties; it also defines the
roles, responsibilities and operating procedures to ensure, for such transactions, adequate transparency as well as procedural and
substantial fairness. The above procedure has been published on the Company's website www.meridianafly.com., to which the
reader should refer for details.

Internal control system The Board of Directors sets the guidelines for the internal control system namely the set of rules,
procedures and organisational structures that, through an appropriate process of identification, measurement, management and
monitoring of key risks, facilitate a healthy and fair management of the business, consistent with the company's stated objectives.

In order to monitor the efficiency of business operations, the reliability of financial information, legal and regulatory compliance as
well as the safeguarding of corporate assets, the Board of Directors is responsible for the prevention and management of business
risks concerning the Issuer. By defining guidelines for the internal control system it ensures that such risks are properly identified
and adequately measured, monitored, managed and assessed.
The Board also regularly checks and assesses the internal control systems adequacy, efficacy and effective operation.

In this respect the Company has put in place organisational and information systems that overall ensure adequate monitoring of the
administrative system and guarantee the adequacy and reliability of accounting records as well as compliance with procedures by
the various company functions.

Independent auditors. In view of the requirements of Article 159, paragraph 4, of the Italian Consolidated Finance Act as
amended by Legislative Decree 303/2006 in co-ordination with Law no. 262 of 28 December 2005 concerning rules for legal
auditing of issuers, on 30 April 2007 the General Shareholders Meeting resolved pursuant to Article 8, paragraph 7, of
Legislative Decree 303 of 29 December 2006 to extend the assignment to Deloitte & Touche S.p.A. for the legal auditing of the
statutory annual financial statements of the Company for a further 6 (six) financial years, i.e. for FYs 2008-2013.

Financial reporting officer On 28 May 2008, the Board of Directors, having taken note of the positive opinion of the Board of
Statutory Auditors, decided to appoint as Financial Reporting Officer, effective as of 3 June 2008, Maurizio Cancellieri, Chief
Financial Officer of the Company.

Pursuant to Article 19 of the Issuers Bylaws, the financial reporting officer besides meeting the requisites of integrity established
by current regulations for those who perform administrative and senior management functions has also a professional
competence in administrative and accounting matters. This competence, duly ascertained by the Board of Directors, has been
acquired through professional experience holding positions of responsibility for an appropriate period of time.
The financial reporting officer was appointed by the Board of Directors after receiving the favourable opinion of the Board of
Statutory Auditors.

The Board of Statutory Auditors. The Board of Statutory Auditors consists of three standing statutory auditors and two
substitute statutory auditors. The statutory auditors hold office for three financial years, until the date of the shareholders meeting
called to approve the financial statements relating to their last FY of office, and can be re-elected. Their compensation is decided by
the shareholders meeting at the time of their appointment for the entire term of office. Statutory auditors must possess the
requisites established by law and by other applicable regulations. As far as the professional requisites are concerned, the subjects
and business sectors strictly relating to the Company's business are the aviation and airport sectors and related sectors, as well as
disciplines concerning the private and administrative law, economics, and those relating to corporate auditing and business
management. The number of offices that statutory auditors may hold in administration and control is limited in accordance with
CONSOB (Italian security & exchange commission) regulations.

Meridiana fly - Annual Financial Report at 31 December 2010 - 43


The Board of Statutory Auditors in force as at the date of this Report was appointed by the Ordinary General Meeting of
Shareholders on 30 April 2009 and will remain in office until shareholders approval of the financial statements for the year ended
on 31 December 2011.

The Board of Statutory Auditors, exercising the powers conferred upon it by law and by the By-laws, has performed, and performs,
a monitoring activity over the Company management, overseeing compliance with regulatory and statutory requirements, as well as
with the principles of proper administration and, in particular, the adequacy of the company's organisation, administration and
accounting system and their respective operation.

Finally, as part of its functions as Internal Financial Audit Committee, its tasks may be summarised as follows:

together with the manager responsible for Internal Control and the Committee for Internal Control, it oversees the
preparation of financial reports and, together with the independent auditors, it supervises the correct application of
accounting principles and their consistency in the preparation of financial statements;

it supervises the financial reporting process;

it supervises the effectiveness of the internal control, internal audit and risk management systems;

it supervises the statutory audit of annual accounts and consolidated accounts;

it monitors the independence of the independent auditors, in particular as regards the provision of non-audit services to
the audited company.

In accordance with art. 19 of the by-laws, disclosure to the Board of Statutory Auditors is normally made at the Board of Directors
meetings; where special circumstances make it appropriate, this disclosure can also be made in writing to the Chairman of the
Board of Statutory Auditors.

The Board of Auditors in the conduct of its tasks regularly communicates with the internal audit function and the Committee for
Internal Control.

Codes and models. As regards additional corporate governance tools in place, the following Codes should be mentioned:

Regulation for the management of privileged information with the related register of persons having access to such information and
the associated procedure for external disclosure of corporate documents and information, particularly of a price-sensitive nature.

Internal Dealing Code, governing procedures for transactions carried out in financial instruments related to the Companys shares
by relevant parties and by persons closely linked to such parties.

Model pursuant to Legislative Decree no. 231/2001 on corporate organization, management and control in order to prevent the
offences committed in the interest or benefit of the Company, as referred to in the aforementioned Legislative Decree; in this
regard, on 27 March 2009 the Company appointed a specific Supervisory Board composed of 3 members, with a duration of three
years. The organizational model is available on the Company's website www.meridianafly.com.

2.24. Shareholdings owned by directors, statutory auditors and managers with strategic
functions
Pursuant to Article 79 of the CONSOB Regulation for Issuers no. 11971/1999, it is herewith stated that no director, statutory
auditor or manager with a strategic function owns directly or indirectly or through subsidiaries any shareholdings in the
Company as at 31 December 2010, nor did they own any shareholdings at the beginning of the financial year.

Meridiana fly - Annual Financial Report at 31 December 2010 - 44


2.25. Main risks and uncertainties for the current year
In conducting its business, the Company and the Group are exposed to risks and uncertainties stemming from external factors
relating to the general macroeconomic environment or specific to the industry sectors in which operations take place. It is also
exposed to risks stemming from strategic decisions and internal operating risks.

The identification and mitigation of such risks was systematically performed by the departments concerned, to allow for a timely
management of any emerging risk.

Among business risks, the main risks identified, monitored and managed by Meridiana fly are the following:

1. Risk associated with the implementation of the business combination

During 2010, the Company and the Group underwent a major reorganisation following the combination of the Meridiana air
transportation business with Eurofly. The process of combining the organisation, procedures and personnel of the two companies,
a process which is still under way, entails risks related to industrial and management issues that may emerge in the future,
remaining implementation stages; all of this may result in a partial or incomplete implementation of development activities with
material effects on expected results. In particular, with reference to the strategic actions envisaged in the New Business Plan
2011-2015, the actions for the containment of personnel cost and the negotiation of suppliers payables past due, albeit dependent
on management actions, are subject to uncertainties inherent in negotiations with counterparties, including in litigation, which
could slow down the execution of the plan.

All this could lead to partial or incomplete implementation of development activities with significant effects on the expected results
and the adequacy of the support provided by Meridiana S.p.A. and the major Shareholder to ensure that the company may
continue to operate as a going concern in the foreseeable future.

2. Risks associated with the contribution of the Aviation Branch and the recoverability of goodwill

A significant amount of assets in the financial statements at 31 December 2010 is represented by the goodwill recorded following

the business combination with Meridiana Aviation Branch. The value attributed to goodwill depends on the achievement of

incremental cash flows resulting from the synergies expected on the basis of the New Business Plan 2011-2015 compared to
cash flows that could have been achieved separately by the two airlines.

In this regard, as best illustrated in the Notes to the consolidated and separate financial statements, the Directors believe that -
even in the restructuring environment underlying the short-term strategies of the New Business Plan 2011 -2015 (see Section
2.26.3. New Business Plan 2011-2015) - there are significant synergies related to the reduction of overheads, the unification of
labour agreements, the increased efficiency of the fleet operations and productivity (through reduction of MD-80 aircraft ) with a
focus on more profitable destinations. These synergies reduce the expected losses that would have been achieved if the business
combination had not taken place, although in the short term they do not bring the Company back to a financial equilibrium.

On the other hand, given the significant negative cash flow expected over the period spanned by the plan and mainly
concentrated in the year 2011 when the restructuring impacts the most, the goodwill impairment test was carried out by the
independent expert - appointed for the study as prescribed by IAS / IFRS - based on the fair value of the Company, determined
on the basis of stock market prices using as control method the multiples of comparable companies. This study led the directors to
confirm the value of goodwill recognized in the financial statements.

It cannot be ruled out that the fair value of the Company - as determined by the methods mentioned above - may in the short
term, contract as a result of significant expected losses (see Section 2.28 Business Outlook); this would lead to the realisation of
significant write-downs not envisaged, as of today, in the New Business Plan 2011-2015 and therefore not considered for the
purposes of determining the commitments made by Meridiana S.p.A. and the Major Shareholder in order to ensure that the
company continue to operate as a going concern in the foreseeable future.

3. Risks associated with the uncertainty related to the hypothetical assumptions underlying the new Business Plan

The expected and estimated results of the New Business Plan 2011-2015 approved on 18 March 2011 by the Board of Directors
of Meridiana fly are based on a hypothetical set of assumptions about future events that may not occur and actions of the
company's directors and management that may not be undertaken, in whole or in part.
Meridiana fly - Annual Financial Report at 31 December 2010 - 45
It should be noted in this regard, that the actual and full implementation of the New Business Plan 2011-2015 and the
achievement of expected results, expected synergies and planned objectives may depend on economic conditions or events that
the Company and the Group cannot foresee or control, such as, for example, the trend of the Euro/USD exchange rate, of interest
rates and the cost of jet fuel, of the load factor of the aircraft as well as the level of average revenues.

In particular, the forecasts contained in the New Business Plan 2011-2015 are based on internal assessments with respect to
future events which are subject to uncertain variables that are outside the control of the directors and the management of the
Company and the Group. The uncertainty associated with the occurrence of future events may also produce significant deviations
between forecasts and actual values.

Consequently, if one or more of the assumptions underlying the forecasts on which the New Business Plan 2011-2015 is based,
do not materialize, or should they occur only in part, the Company and the Group may not achieve the expected objectives and/or
fail to meet the synergies assumed. The expected results may therefore differ, even significantly, from the forecasts.

Failure to achieve the objectives set in the New Business Plan 2011-2015, the expected synergies and/or the estimated results
could impact negatively on the financial and equity position of Meridiana fly and its business, with possible repercussions on the
ability of the company to operate as a going concern in the foreseeable future, and within the specific time span of the plan.

4. Risk associated with the territorial continuity

Some connections operated by Meridiana fly between the airports of Olbia, Cagliari, Lampedusa and Pantelleria and other Italian
airports are governed by the so-called territorial continuity regime; this is a legal instrument aimed at ensuring, for specific
categories of users, favourable conditions of access to air transport services on certain routes, even in exchange of government
grants to companies that operate on these routes.

The renewal of the tenders (usually held annually) and any changes in the applicable regulations and the relevant provisions by
ENAC or the regions concerned (for example in terms of further liberalization of the routes or a single rate imposed for residents
and non-residents) may have significant impact on the activities and results of Meridiana fly and the Group.

5. Risk associated with financial management

On 23 December 2010 Meridiana fly signed an agreement with Banca Nazionale del Lavoro S.p.A., UniCredit S.p.A. and Intesa
Sanpaolo S.p.A., which would extend the 15 million loan expired on 27 November 2010 for an additional 36 months and a new
financing agreement for a revolving credit facility of up to 7.5 million with duration of 18 months. This agreement allowed
rescheduling of Meridiana fly's debt, which was previously characterized by a current component considerably larger than the long
term component. In this regard it should be noted that failure to achieve the objectives envisaged in the new Business Plan could
result in failure to meet the financial parameters and other conditions in the above-mentioned loan agreements. Such an event
may, at the discretion of the lending banks, entail the immediate repayment of the loans in question.

Nevertheless, a negative net working capital and a significant amount of loans overdue, may lead to situations of financial stress
associated with difficulties for the Company to fulfil its obligations promptly and at cost-effective conditions, even taking into
account the commitments made by Meridiana S.p.A. and the major Shareholder on 23 March 2011.

In addition, specific problems of trading partners (tour operators, financial intermediaries that deal with the collection of payments
through credit cards, etc.) may lead to failure to collect receivables or to collection delays. Finally, additional financing
requirements arising from adverse changes in external, non-controllable variables - such as the volatility of fuel prices, the
exchange rates/interest rates, the load factor, the average unit revenue per passenger (scheduled flights), and revenue per flight
hour (charter flights) - may affect negatively the ability of the Company and the Group to meet their obligations due to insufficient
support provided by Meridiana S.p.A. and the major Shareholder in order for the company to continue to operate as a going
concern in the foreseeable future.

6. Risks associated with relations with trade unions

As a rule, the air transport business is highly subject to workers strikes or other events of conflict that may lead to service
disruptions or operating inefficiencies; this was the case in the first six months of 2010 following the business combination of
Meridiana Aviation Branch with Eurofly and the concurrent spin-off of maintenance activities (MRO) in a new company. The sector

Meridiana fly - Annual Financial Report at 31 December 2010 - 46


is historically subject to repeated periods of labour tension. One cannot rule out services disruptions caused by trade union
activities, with a resulting negative impact on operations and results of the Company and the Group, especially in light of the
personnel reduction and reorganisation that were announced. This will be even more so during the restructuring that will
characterize the year 2011 as more fully described in paragraph 2.26.1 - Personnel reduction plan.

7. Risks dependent on non-controllable variables

The results of Meridiana fly and the Group are contingent upon a number of macroeconomic variables (trends in the economic
cycle, exchange rates, interest rates, oil prices), which are not directly controllable. Despite the contractual and trade
arrangements (such as tariff adjustments provided for in the agreements with tour operators or fuel surcharges) designed to curb
these risks, the Company and the Group are nevertheless partly exposed to the effects of an adverse trend in these variables.
The occurrence of these circumstances, combined with the prevalence of fixed costs compared to variables ones, can result in
pressure on margins and overall profitability, as already occurred in 2009 and 2010. In view of this, the Company and the Group
undertake actions aimed at improving the efficiency of the operating leverage in order to mitigate the effect of lower revenues on
margins; they also monitor the impacts on the going concern basis to enable timely actions necessary for the company to continue
operating as a going concern. Unpredictable trends in these variables (and, in particular, given the current crisis, the cost of jet
fuel) could result in failure to achieve the objectives set in the New Business Plan 2011-2015, with possible repercussions on the
ability of the Company to continue operate as a going concern in the foreseeable future and in the stated time span of the plan.

8. Risk relating to competitiveness

Air transport is characterised by strong competition, which has grown over the last few years following the evolution of the industry
and increasing liberalisation of air routes; competition is mainly brought by carriers already operating in the market as well as new
carriers or new means of connection. In light of the current stagnation of the economic cycle and limited public spending capacity,
airlines are trying to protect their business volume, intensifying price competition. This is reflected in an increasing pressure on
prices and consequent tension on margins. The Company and the Group confront this situation by stepping up the offer of specific
destinations, thus reinforcing their position and placing themselves as a privileged interlocutor of tour operators and passengers
for these specific routes; at the same time they improve the quality of on-board services in order to obtain a competitive position in
line with higher prices.

9. Risks associated with attacks / disasters / political events or serious accidents

The occurrence of natural disasters, epidemics, terrorist attacks or other adverse political events, especially in countries outside
Europe, which being major tourist attractions, are subject to significant demand for air travel, may cause, generally in the short-
medium term (depending on the seriousness of events) a significant downturn in consumer demand for air transport. The
Company and the Group, although they diversify the services offered in terms of covered geographical areas, are exposed to the
risk that the occurrence of such events may lead to adverse financial and earnings effects.

Finally, as an inherent aspect of the air transport business, there is the risk, albeit remote, of the occurrence of more or less
serious incidents relating to the fleet, the occurrence of which could affect the ability of the company to continue operating as a
going concern.

10. Commercial risks

In view of the strong exposure to the tour operating business, which is covered by the charter activities of Meridiana fly, the
Company and the Group are exposed to possible negative developments in this sector (such as the trend towards
disintermediation of the tourism business in favour of "do it yourself" approaches or the tendency towards industry concentration,
leading to gradually fewer operators). Meridiana, however, thanks to its established presence and in-depth knowledge of the
industry has successfully increased business with the most important and reliable tour operators, giving greater assurance of
contractual compliance (contracts are in any case always covered by performance deposits and suretyships provided by tour
operators and by clauses providing for cash-in before the flight and possibly also the power to suspend the flight in the event of
non-payment)

Meridiana fly - Annual Financial Report at 31 December 2010 - 47


Against the benefits in terms of counterparty solidity resulting from focusing on the top tour operators, there is the risk of possible
discontinuation of dealings with one of these customers, fewer in number but relatively more significant in terms of business for
the Company For example, the top 5 tour operators accounted for about 52% of the Company's charter traffic in 2010.

11. Risk associated with the occurrence of operational disruption

The Company and the Group are exposed to the risk of occurrence of operational disruption. This may concern problems
regarding both the fleet with the risk of temporary suspension of normal operations as well as the non-fulfilment or partial
fulfilment in the provision of services/supplies by third-party operators In this regard it should be noted that Meridiana outsources
some services (air traffic control, management of airport services and ground services, catering, maintenance services)
concerning ground operations, consisting of preparatory flight activities for passengers, baggage and cargo in the airport, as well
as for the efficient maintenance of the aircraft. There is therefore a risk of failure or inadequate monitoring on the output of the
service rendered by third parties. Additional operational and commercial difficulties that may arise, which may be accentuated by
the seasonality of the business, may make it difficult to handle the adverse event, including the cost of re-booking passengers. In
order to reduce these risks, Meridiana fly, has developed agreements with other carriers and suppliers that guarantee their
support in case of operational adverse events, especially in foreign airports.

12. Operating management risks

The Group is exposed to a series of risks concerning, among others: 1) the possibility of fraud relating to credit collection for sales
completed via credit cards, whose risk is managed by means of good knowledge of such occurrences and the elimination of the
collection channel in the more serious cases, or by agreements with parties specialised in managing such events; 2) failure to
comply with regulations in the event of amendments or incorrect interpretation of the same, both in the purely business sphere
and, more generically, as regards our status as a listed company. This risk is managed by means of internal and external control
systems, also with the aid of advisors who ensure compliance with current regulations; 3) a major dependence on information
systems to ensure an adequate, seamless and efficient air transport service. For this risk, the Company has implemented back-up
and constant-assistance procedures, also with the aid of specialised providers; 4) the importance of relations with trade unions,
which are particularly active in the flight personnel category and, in the case of union tensions, including in relation to possible
restructuring plans, can affect the Companys operations and the expected results From this point of view, the Company has set
up a dialogue-based approach with trade unions with the aim of ensuring respect of workers rights as part of an effective and
efficient management of the value generation processes of the Group.

13. Financial risks

With regard to the financial risks not previously discussed, it should be noted that the Company and the Group, while monitoring
and managing these risks in the most effective way is exposed to the following financial risks associated with its operations:

credit risk: it refers to the risk of insolvency of a counterparty or the deterioration of the attributed credit rating ;

market risks: resulting from the exposure to fluctuating interest and exchange rates;

liquidity risk: in terms of reduced availability of financial resources and access to the credit market.

These financial risks impact directly on the ability in the foreseeable future to manage the business while preserving a financial
and equity balance which is a prerequisite to operate as a going concern and therefore represents a significant risk for the Group.
Given these risks, however, it should be noted that Meridiana S.p.A. and the major Shareholder have always in the past supported
the Company, as also demonstrated by the commitments made on 23 March 2011 in response to the needs of liquidity and equity
balancing emerging from the New Business Plan 2011-2015 in the foreseeable future.

14. Environmental and safety risks

As regards environmental risks, reference should be made to section 2.9 - Environment

With regard to issues of safety at work, the Company and the Group are committed to safeguard occupational safety, in
accordance with Italian Legislative Decree no.81 of 9 April 2008 (Italian Consolidated Safety Act) and with specific regulations,
including through the implementation of the organisational, management and control model envisaged by Legislative Decree no.
231 of 8 June 2001. With specific regard to issues of health and safety of workers in the workplaces, the Company and the Group

Meridiana fly - Annual Financial Report at 31 December 2010 - 48


constantly monitor all potential risks, the risk assessment procedures, and the characteristics necessary for organisational and
management models in order to ensure prevention and workers protection. This monitoring is done through regular meetings, as
required by law, during which the risk assessment reports are examined as well as the trend in occupational accidents and
diseases, the selection criteria, the technical features and efficiency of personal protective equipment as well as information and
training programs for managers, supervisors and workers.

2.26. Significant events subsequent to year end


The main events that occurred subsequent to year end were the following:

2.26.1. Staff reduction plan


On 12 January 2011, the Board of Directors of Meridiana fly, upon recommendation of the Chief Executive Officer, decided to
implement a series of actions in FY2011 aimed at strengthening the Company's competitive position by focusing on the areas of
greatest strategic interest to Meridiana fly. These actions represent a major strategic factor in the New Business Plan 2011-
2015with reference to the year 2011These actions are intended, inter alia, to improve the cost structure, strengthen market
positioning, including through a more focused definition of the network scope, and will result in a reduction in the number of MD80
aircraft included in the Company's fleet (it was originally planned to transfer them to the subsidiary Meridiana Express), a
streamlining of staff and the outsourcing of non-core activities.

As no different viable alternative was deemed available, on 9 February 2011 the Company formally announced the opening of the
subsidised redundancy procedure pursuant to Law 223/1991 for 910 employees (FTE); this measure was due to the structural
oversupply resulting from the business combination, the negative performance exacerbated by the highly detrimental external
scenario, the reinstatement of a considerable number of employees with fixed-term contracts, as a result of the employment-law
litigation in which the fixed term clause was declared null (see Section 2.17 Significant Litigation) as well as the outsourcing
projects concerning some activities considered as non-core for the industry.

In fact, this critical situation requires an immediate capacity reduction on the main routes in order to focus activities on core
markets, where market share and growth prospects in the medium and long term may lead to improved performance and a return
to profitability; this implies a consequent abandonment of structurally loss-making routes.

Given the downsizing of activities and the necessary reduction in costs, the structural overstaffing involves the crew, the ground
operating personnel as well as personnel in the headquarters; the plan also involves the full revision of the Company's
organizational structure in order to recover and increase labour productivity as well as a review of the company's overall cost
structure in line with industry benchmarks.

In particular, the staff surplus totalling 910 employees, is broken down as follows (FTE):

- 84 employees in the Technical Flight Crew category, including 40 pilots and 44 Captains
- 520 employees in the cabin crew category (flight attendants)
- 360 employees in the ground personnel category (bases and offices)

Since the commencing of the redundancy procedures, there have been various negotiating tables with trade unions, but no
agreement was reached so far to manage the redundancy issue, possibly avoiding harsh conflicts.

On 25 March 2011 the first phase of negotiations shall end; they were initiated pursuant to the legislation, which envisages a
second round of negotiations after a period of 30 days to be held at the ministry offices.

Meridiana fly - Annual Financial Report at 31 December 2010 - 49


2.26.2. Operational problems for the tensions in Egypt
At the end of January 2011, Egypt was affected by significant protests from citizens, that led first to the resignation of the
government and finally to the resignation of President Mubarak in the month of February.

The riots, which mainly involved the city of Cairo, had an impact on traffic from Italy to the tourist areas of the Red Sea reflecting
the negative recommendation issued by the Italian Foreign Ministry.

The activity of Meridiana fly, which is one of the major Italian carriers operating the routes between Italy and Egypt, with particular
reference to tourist destinations for holidays, was significantly affected by the events occurred; just in the month of February 2011,
Meridiana fly had to cancel 94% of planned flights (both scheduled and charter) with a direct loss of revenue of 5.5 million and of
EBIT of 1.1 million in the said month.

2.26.3. New Business Plan 2011-2015


As already partly mentioned in section 2.26.1 - staff reduction plan - given the results achieved and those expected in the very
short-term, Meridiana fly has important and critical issues to face, including of a structural nature, which need to be solved in the
coming years in order to bring the Company to appropriate levels of profitability in line with the industry benchmarks.

The Board of Directors of Meridiana fly, noting the difficult state of the sector, the macroeconomic framework of reference, the
current competitive positioning of the Company and the Group, as well as their specific situation, examined and approved in its
meeting of 18 March 2011 a new Plan proposed by the CEO and developed with the support of strategic consultants.

In particular, the New Business Plan 2011 - 2015, in order to implement the necessary turnaround with a view to achieving long-
term profitability, envisages the implementation of the following actions.

a) streamlining of the network, with a revision of rotations and routes and the closing of structurally loss-making activities;
b) focusing of activities on strategic and more profitable routes (e.g. scheduled flights to Sardinia and on some national and
international routes, charter flights to the Indian Ocean and to destinations in the Mediterranean / North Africa), consequently also
opening up new routes and new operational solutions;
c) reducing the number of MD80 type aircraft in the fleet and focus on the Airbus family, maximizing the opportunities and
operational synergies (e.g. optimize the use of flight crew) arising from the standardization of aircraft; the gradual introduction of
aircraft with reduced capacity in order to maximize the load factor;
d) increasing the flexibility and productivity of crews, including through the revision of the agreed employment conditions;
e) strengthening and developing partnerships with other carriers in the various contract types (e.g. code-sharing, block space or
other);
f) focusing on core clients, improving customer pre and post-flight service as well as the service in the various airports stops and
in the cabin as well as promoting more advanced customer loyalty programs;
g) reviewing pricing policy and promotion in order to increase market penetration in the various customer segments;
h) rationalising "ancillary" revenue in order to capture and develop business opportunities with other business entities;
i) as more fully described above, significantly reducing personnel: (a) staff, including through streamlining the organizational
structure of headquarters and operational processes, reducing where possible middle managers and closing down some non-
essential offices and functions, (b) flight crew, due to the concentration of operations and the resulting streamlining of the network
and bases;
l) Implementing the outsourcing of non-core activities such as the departments of Information Technology, Revenue Accounting,
Control of Suppliers' Invoices, Personnel Administration (payroll) and the Call Center, assigning these specialized services to
other companies, at a lower final cost;
m) rationalising the information systems in order to improve the business structure performance by optimising operating
processes, as well as to significantly reduce their operating costs;

Meridiana fly - Annual Financial Report at 31 December 2010 - 50


n) renegotiating contracts in the operational field (such as handling, maintenance and catering etc...), in the commercial field (e.g.
agencies network and reservation systems, sales through various payment systems, advertising and promotion, etc...) as well as
concerning the structure ( e.g. consulting, insurance, overhead, and so on).

From a review of prospective data contained in the New Business Plan 2011-2015 described above, the complete erosion of the
net assets of the Company and the Group as well as a temporary cash imbalance - emerged to a larger extent than originally
estimated in the Forecast updated at 30 June 2011 - for an amount of approximately 69.5 million; this is due to significant
negative cash flow expected mainly in 2011 reflecting the implementation of the restructuring described above as well as adverse
events and trends factored in the scenario variables. Following this cash imbalance, on 22 March 2011 Meridiana provided an
advance payment for future capital increases of 15 million, while the additional requirements of 54.5 million was also
guaranteed by Meridiana through an irrevocable letter of commitment dated 23 March, the content of which is described more in
detail in section 2.26.4. - Capitalisation of the Company and commitments of the Major Shareholder.

As a result of these additional irrevocable commitments, the Plan envisages a financial and equity balance, with specific reference
to a short-term horizon (12 months) which was taken as a reference for the verification of the going concern basis, despite an
expected loss for the year 2011 comparable to that of 2010, as indicated in section 2.28 - Business Outlook.

2.26.4. Capitalisation of the Company and commitments of the Major Shareholder.


As stated above, during 2010 and up to date, the parent Meridiana S.p.A. with the support of the Aga Khan Fund for Economic
Development (AKFED) has made advance payments for future capital increase, fulfilling the commitments made on 26 August
2010 described in section 2.14.7, for an overall amount of 18.9 million and carried out on 22 March 2011 an additional payment
of 15 million, again as an advance payment for future capital increase.

These payments are part of the capitalisation strategy of Meridiana fly S.P.A. by the parent company, supported in this effort by
the Major Shareholder; the parent formally notified the Company on 23 March 2011 of a further commitment to provide financial
resources up to a maximum of 47 million, to ensure that Meridiana fly may continue to operate as a going concern for a period of
at least 12 months; these resources shall be provided in the following manner:

subscription and payment of new shares to be issued as part of a capital increase not yet approved by Meridiana fly
S.p.A.;

advance payment on future capital increase, or

a combination of the two previous methods.

Moreover, in order to provide the financial resources needed to ensure the going concern basis, Meridiana S.p.A. has also
formally committed to providing additional resources to Meridiana fly in the form of payments for future capital increase up to a
maximum of additional 7.5 million (thereby reaching a total amount of financial requirements of 54.5 million) if and insofar as
Meridiana fly does not reach an agreement for new bank loans up to the amount stated above.

The transactions described above:

are transactions with related parties in accordance with the regulation on related-party transactions approved by Consob
Resolution No. 17221 of 12 March 2010, as amended by Consob Resolution No. 17389 of 23 June 2010 1722 (the
"Regulation"), as Meridiana is the majority shareholder, holding the legal control of Meridiana fly, pursuant to art. 2359,
paragraph 1, No. 1 and 93 of Legislative Decree no.58 of 24 February 1998, and AKFED is related with the majority
shareholder of Meridiana S.p.A.;

exceed the threshold set out in Article. 4, paragraph 1, letter a) of that Regulation;

have been approved in accordance with the procedure relating to transactions with related parties adopted by Meridiana
fly S.p.A. on 26 November 2010;

Meridiana fly - Annual Financial Report at 31 December 2010 - 51


will be exhaustively described in the prospectus that will be made available to the public in the manner and terms
provided by art. 5, paragraph 3 of the said Regulation.

2.27. Other information


Pursuant to Consob communication no. DEM/6064293 of 28 July 2006 it is hereby stated that in the year 2010 no atypical and
unusual transactions have been carried out as defined by the above Communication.

No purchases or sales of own shares were made, directly or indirectly, during the financial year. At 31 December 2010 Meridiana
fly does not hold own shares.

2.28. Business Outlook


The general economic trend and market demand in Italy continued to remain low, in particular when compared with the economies
of the Old Continent, largely affecting the spending power of families, especially for personal services and leisure.

The demand for air travel is expected to increase slightly, mainly due to the contribution of the business and freight traffic
components.

The aviation business is still characterized by difficult market conditions and strong price competition between operators in the
industry, both in the low-cost (LCC) and traditional sectors.

Political tensions that have arisen in recent months in North Africa and the further increase in oil prices, permanently settling
above 100 dollars a barrel, are external factors that may significantly affect the final results of the current year; as a result travel
demand from tourists lowered and operational costs increased, with no possibility to achieve a proportional reduction in the impact
of costs on revenues.

In addition the year 2011 is for Meridiana fly an important year of major restructuring after the completion of the business
combination with the Aviation Branch and the launch of the New Business Plan 2011-2015.The plan aims at an improvement in
earnings and in financial performance, by achieving over the next few years significant savings, synergies and optimizations made
possible also by the business combination with Meridiana, which will in any case lead to a reduction in expected losses. In
particular, with reference to the latter issue, it should be noted that as a result of significant planned restructuring, whose benefits
will not be immediate, and given the current internal and market environment, the expected results included in the New Business
Plan 2011-2015 for FY year 2011 are still expected to record a significant net loss comparable to that of 2010.

Based on the New Business Plan 2011-2015 approved on 18 March 2011 and with reference to a 12 months time horizon from
the date of approval of these financial statements, to be considered in assessing the going concern assumption- the Board of
Directors, taking into account the commitments made by Meridiana and the major Shareholder, confirms that it has a reasonable
expectation that the Company and the Group will continue to operate for the foreseeable future and has therefore prepared the
separate and consolidated financial statements on a going concern basis.

In this regard, given the extent of the commitment made by the major Shareholder, through the parent Meridiana S.p.A. - as
described in section 2.26.4 Capitalisation of the Company and commitments of the major Shareholder - the Directors assessed as
limited the risk of a financial and equity imbalance that may result from the final results of 2011 and first quarter of 2012, given the
that losses are expected to reach a level comparable to that of 2010.

It should be emphasized, however, that the forecasts contained in the New Business Plan 2011 - 2015 and, consequently, the
financial and capital balance are significantly dependent on (i) the performance of uncontrollable external factors (e.g. political
events and operational disruption, the volatility of fuel costs, exchange rates and interest rates, the level of average unit revenue -
yield - as well as the load factor of the aircraft ) whose evolution, by itself hard to estimate, is made even more uncertain amid the
political and economic turmoil brought about by recent international events - (ii) and / or the actual achievement of the expected
reduction in staff and costs envisaged in the Plan for FY2011 (iii) and / or the adverse outcome of litigation, the worsening in the

Meridiana fly - Annual Financial Report at 31 December 2010 - 52


creditworthiness of counterparties, or in credit and supply conditions as well as in the management of overdue payables to
suppliers. These uncertain and uncontrollable variables may result in significant deviations between forecasts and actual values.

Failure to achieve the objectives set in the New Business Plan 2011-2015, the expected synergies and/or the estimated results
could impact negatively on the financial and equity position of Meridiana fly and its business, with possible repercussions on the
ability of the company to operate as a going concern as well as entailing the risk of impairment of some specific assets of the
Company and the Group.

Despite the uncertain conditions described above, due to the possible significant deviations from the expected losses over the
next 12 months, reflecting unforeseen circumstances that may affect both external factors and / or the implementation of the
restructuring plan, the Directors - based on the best estimates currently available of the trend in non-controllable variables and of
the probability that planned strategic actions for the execution of the restructuring plan will be implemented, also taking into
account the new commitments made today by Meridiana and the major Shareholder, (possibly reformulated, as shown by past
experience, should the need for additional financial support arise ) believe that the Company will continue to operate and will be
able to meet its obligations in the foreseeable future. Consequently the Directors consider it appropriate to prepare the financial
statements at 31 December 2010 on the going concern basis.

Milan, 23 March 2011

On behalf of the Board of Directors:

Chairman

Marco Rigotti

Meridiana fly - Annual Financial Report at 31 December 2010 - 53


Proposals by the Board of Directors to the Shareholders' meeting

Dear Shareholders,

The financial statements of Meridiana fly S.p.A. for the year 2010 closed with an overall loss of 51,861,451 and equity of
10,109,414, less than the share capital for more than 1 / 3 and as a result the Company falls within the case provided for by Art.
2446 of the Italian Civil Code; therefore the extraordinary Shareholders meeting was convened for appropriate action on 28 April
2011 on first call and on 29 April 2011 on second call.

The Board of Directors proposes to:

- Approve the financial statements for the year ended 31 December 2010 which reports an overall loss of 51,861,451;
- carry forward the loss for the year amounting to 51,861,451.

Milan, 23 March 2011

On behalf of the Board of Directors:

Chairman

Marco Rigotti

Meridiana fly - Annual Financial Report at 31 December 2010 - 54


3. FY 2010 ONSOLIDATED FINANCIAL STATEMENTS

3.1. Consolidated statement of financial position

31.12
2010
Notes 000

1 Intangible assets 61,432


2 Fleet 29,750
3 Other Property, plant and equipment 18,511
4 Deferred tax assets 7,480
5 Equity investments 1,978
6 Other non-current financial assets 21,659
7 Other non-current receivables 587

Non-current assets 141,397

8 Inventories 627
9 Trade receivables and other current assets 138,136
10 Current financial assets 479
11 Cash and cash equivalents 12,670

Current assets 151,912

TOTAL ASSETS 293,309

12 Share capital 20,901


13 Reserves and retained earnings (losses) brought forward 33,949
14 Net Profit (loss) for the year (46,411)

Group equity 8,439

15 Long-term borrowings 24,531


16 post-employment benefits and other defined benefit funds 13,371
17 Non-current provisions for liabilities and charges 11,222
18 Deferred tax liabilities 3,169

Non-current liabilities 52,293

19 Current loans 7,342


20 Current portion of long-term borrowings 603
21 Current provision for liabilities and charges 24,210
22 Trade payables and other current liabilities 200,422

Current liabilities 232,577

Total current and non-current liabilities 284,870


TOTAL EQUITY AND LIABILITIES 293,309

Meridiana fly - Annual Financial Report at 31 December 2010 - 55


3.2. Consolidated Income Statement

Financial year as a % of
2010 revenue
Notes /000

23 Sales revenue 604,812 100.0%


24 Other revenue 40,616 6.7%

Total revenues 645,428 106.7%

25 Fuel (158,231) -26.2%


26 Materials and maintenance services (86,565) -14.3%
27 Operating lease costs (53,391) -8.8%
28 Selling expenses (22,427) -3.7%
29 Other operating and wet lease costs (213,889) -35.4%
30 Sundry costs and other services (32,936) -5.4%
31 Staff costs (91,811) -15.2%
32 Amortisation, depreciation and write-downs (14,750) -2.4%
33 Provision for liabilities and charges (7,741) -1.3%
34 Other adjustment provisions (4,970) -0.8%

Operating profit (loss) (41,283) -6.8%

35 Net financial income (expenses) (1,829) -0.3%

Pre-tax profit (loss) (43,112) -7.1%

36 Income taxes (3,299) -0.5%

Net profit (loss) from operating activities (46,411) -7.7%

Gains/(losses) from actuarial valuations (IAS 19)


16 net of related tax effects (871) -0.1%
Tax effect of profit (loss) from actuarial
16 valuations 43 0.0%

Total profit (loss) (47,239) -7.8%

Meridiana fly - Annual Financial Report at 31 December 2010 - 56


3.3. Statement of changes in consolidated equity

Reserves and
Share Payments for retained earnings Net Profit
Share premium Other Losses covered future capital (accumulated (loss) for
capital reserve reserves during the year increases losses) the year Net Equity
/000
Balance at 31 December 2009 11,084 - 39 19,789 - - (34,059) (3,146)

- Prior years net profit (loss) - - - (19,789) - (14,270) 34,059 -


- Coverage losses carried forward (3,828) - - - - 3,828 - -
- Capital increase in-kind from contribution 6,505 46,055 - - - - - 52,560
- Changes in equity reflecting accounting effects of the
- (37,232) - - - - - (37,232)
contribution
- Costs related to capital increase - - (1,490) - - - - (1,490)
- Payments for future capital increase - - 5,000 - - - - 5,000
- Capital increase in cash 7,140 32,846 - - - - - 39,986
- Total profit (loss) - - (828) - - - (46,411) (47,239)

Balance at 31 December 2010 20,901 41,669 2,721 - - (10,442) (46,411) 8,439


* The balances at December 31, 2009 relate to the individual financial statements at that date

Meridiana fly - Annual Financial Report at 31 December 2010 - 57


3.4. Consolidated Statement of Cash Flow (*)

Financial Year
2010
000 Consolidated data

Cash and cash equivalents at beginning of period (6,854)

Effects of the Aviation Branch contribution


Provisional Goodwill from Aviation Branch Contribution (56,371)
Other non-current assets (41,969)
Current assets (67,912)
Non-current liabilities 24,100
Current liabilities 114,077
Capital increase in kind 52,560
Changes in equity reflecting accounting effects of the contribution (30,112)
Cash flows from Aviation Branch contribution (5,627)

Effect of Sameitaly and Wokita consolidation


Provisional goodwill on consolidation of Sameitaly and Wokita (6,876)
Elimination of equity investments 7,721
Other non-current assets (90)
Current assets 1,016
Non-current liabilities 106
Current liabilities (1,007)
870
Cash flows related to Sameitaly and Wokita change in scope

Pre-tax profit (loss) (43,112)


Adjustments for:
- Depreciation and amortisation for the year 11,312
- Write-down of goodwill 3,438
- Net financial income (expense) 1,829
- Gains on disposal of assets (105)
Change in trade receivables and other current assets and other non-current receivables (5,493)
Change in inventories (1,579)
Change in trade payables and other payables (incl.risks provision ) 8,175
Payment of interest and other financial charges (1,171)

Cash flows absorbed by operating activities (26,706)

Net change in non-current assets:

* Intangible (291)
* Tangible (7,460)
* Financial (6,529)
* Equity investments (10)
Cash flow absorbed by investment activities (14,290)

Payment of loan instalments (616)


Other changes in loans 22,963
Cash in of Hedging derivatives 2,092
Cash flows generated from financing activities 24,439

Share capital increase 28,496


Payments for future capital increase 5,000

Cash flow generated from share capital transactions 33,496

Net increase in Cash and cash equivalents 12,182

Cash and cash equivalents at end of period 5,328

(*) The consolidated cash flow statement is drawn out presenting as "Cash and cash equivalents at the beginning of the period", the results from
the separate financial statements of Meridiana fly S.p.A. at 31 December 2009 as the financial statements for the year ended 31 December 2010
are the first annual financial statements prepared on a consolidated basis.

Meridiana fly - Annual Financial Report at 31 December 2010 - 58


4. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.1. Accounting standards and measurement criteria

4.1.1. General Considerations

These consolidated financial statements at 31 December 2010 have been prepared in accordance with existing regulation on listed
companies and are drawn up in Euro as this is the currency in which the Group operates. They are prepared in accordance with IAS
/ IFRS international accounting standards as adopted by the European Union.

The financial statements and the amounts reported in the Notes are presented in thousand of euros, taking into account the
rounding of individual items.
Following the execution of the contribution of the Aviation Branch with effect on 28 February 2010, Meridiana fly S.p.A. (The
"Company" or the "Parent Company") owns 100% controlling interest in Sameitaly and Wokita, previously 50% owned and
controlled by Meridiana S.p.A. Therefore, at 31 December 2010, pursuant to Article 93 of the Consolidated Finance Act, the
Company prepares for the first time the consolidated financial statements for the year ended 31 December 2010 reflecting the
consolidation as from 1 March 2010 that is the effective date of the contribution of the investments.

With regard to the consolidated financial statements, the Group presents the consolidated statement of financial position with the
distinction of assets and liabilities between current and non-current, while the Consolidated Statement of Comprehensive Income
provides for the classification of revenues and expenses by nature, which is considered as a more representative form than the so-
called classification by function. The statement of changes in consolidated equity includes all recorded changes in equity. With
regard to the circumstances described above, namely that the financial statements at 31 December 2010 are prepared for the first
time on a consolidated basis in 2010, the statement of changes in equity is drawn up on the basis of balances at 31 December 2009
presented separately. Similarly, the consolidated statement of cash flows is drawn up presenting as "Cash and cash equivalents at
the beginning of the period", the amounts resulting from the separate financial statements of Meridiana fly S.p.A. at 31 December
2009; the statement of cash flows is drawn up by using the "indirect" method.

An asset/liability is classified as current when it satisfies one of the following criteria:


- it is expected to be recovered/settled or it is expected to be sold or used in the normal operating cycle of the Group or
- it is held primarily for trading or
- it is expected to be realised/discharged within 12 months from the date of the financial statements.
In the absence of all three conditions, assets / liabilities are classified as non-current.

With regard to Consob Resolution No. 15519 of 27 July 2006, in the consolidated statement of comprehensive income those gains
and losses arising from non-recurring transactions or events that occur infrequently in the ordinary management of the Group, due
to their non-significance, were not reported separately. These items are however described in section 9.6. "Significant Non-recurring
Events and Transactions."

With reference to the identification in separate lines items of related party transactions, as required by Consob Resolution No.15519
of 27 July 2006, in the income statement of financial position and statement of cash flows there is no separate evidence of
transactions with related parties, as these were deemed insignificant.

It should also be noted, with regard to the financial statements, that the summary of financial transactions with related parties for the
year 2010 is provided in Section 4.13 - Related Party Transactions, with evidence of the impact of these transactions on the total
amount reported in the corresponding line item.

The consolidated financial statements are audited by Deloitte & Touche S.p.A.

Meridiana fly - Annual Financial Report at 31 December 2010 - 59


4.1.2. Accounting standards, measurement criteria and use of estimates in preparing the
consolidated financial statements

These consolidated financial statements as at 31 December 2010 has been prepared in accordance with International Accounting
Standards IAS / IFRS issued by the International Accounting Standards Board (IASB) and endorsed by the European Union as
well as the measures implementing art. 9, of Legislative Decree No. 38/2005. "IFRS" also includes International Accounting
Standards (IAS) still in force, and all interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC), previously known as the Standing Interpretations Committee (SIC).

The accounting standards, measurement criteria and the use of estimates used by the Company for the purpose of preparing the
consolidated financial statements at 31 December 2010 are described below.

The financial statements are prepared based on the historical cost, adjusted as required for the measurement of certain financial
instruments, and on the going concern basis, which was confirmed by the Directors in accordance with paragraphs 25 and 26 of
IAS 1 on the basis of the considerations in section 2.28 - Business Outlook.

The most important accounting policies adopted are as follows:

Principles of consolidation

Subsidiaries

These are companies on which the Group exercises control as defined in IAS 27 - Consolidated and separate financial statements.
Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so
as to obtain benefits from its activities. In the evaluation of control, we also consider the potential voting rights currently exercisable
or convertible, as well as the positions of "actual control" on the basis of the voting power, and not only, exercisable at the
shareholders' meeting.

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the moment when that control ceases. The data used for the consolidation are those prepared by the directors of
each company, which may have already been approved by the respective Shareholders' Meetings, appropriately reclassified and
adjusted in order to comply with the accounting principles and measurement criteria of the Group Meridiana fly.

The share capital and reserves attributable to non-controlling interests in subsidiaries and the share of non-controlling interests of
profit or loss of consolidated subsidiaries are identified separately in the consolidated statement of financial position and in the
consolidated income statement. Losses attributable to non-controlling interests in excess of the interest held in a subsidiary are
allocated to equity attributable to non-controlling interests. Changes in ownership interest in a subsidiary that do not result in an
acquisition/loss of control are accounted for as equity transactions.
Subsidiaries that are inactive or that generate a not significant annual turnover are not included in the consolidated financial
statements. Their influence over total assets, liabilities, financial position and profit / (loss) attributable to owners of the parent is
not relevant.

Transactions eliminated on consolidation


The consolidation is done using the line-by-line consolidation method. The criteria for the application of this method include, among
other things:

 eliminating the carrying value of investments in consolidated companies against the related equity and concurrently
recording all their assets and liabilities;

 the elimination of intragroup balances and significant transactions, as well as unrealized gains and losses on intragroup

Meridiana fly - Annual Financial Report at 31 December 2010 - 60


transactions. Unrealised gains on transactions with associates and jointly controlled entities are eliminated in proportion to
the Group's interest in those entities. Unrealised losses are eliminated except where they cannot later be recovered.

Business Combinations
Business combinations are recognized using the acquisition method. According to this method, the amount transferred in a
business combination is measured at fair value, calculated as the sum of the fair value of the assets transferred and liabilities
assumed by the Group at the date of acquisition and equity instruments issued in exchange for control of the acquiree. The
additional charges associated with the transaction are generally recognized in the income statement when incurred.
At the date of acquisition, the identifiable assets acquired and liabilities assumed are recorded at fair value at the acquisition date;
the following items are exceptions and are measured according to their reference principle:
Deferred tax assets and liabilities;
Assets and liabilities for employee benefits;
Liabilities or equity instruments related to share-based payments transactions of the acquiree or shared-based payments
transactions of the Group issued in replacement of the acquiree's contracts;
Assets held for sale and discontinued operations.
Goodwill is determined as the difference between the aggregate of consideration transferred in the business combination, the
amount of any non-controlling interest in the acquiree and the fair value of the acquirers previously held equity interest in the
acquiree over the fair value of net assets acquired and liabilities assumed at the date of acquisition. If the value of net assets
acquired and liabilities assumed at the date of acquisition exceeds the sum of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the fair value of the acquirers previously held equity interest in the acquiree, the
resulting gain is immediately recognised in profit or loss as gain from the business combination.
The share of non-controlling interest in the acquiree's net assets, at the acquisition date, can be measured at fair value or the pro
rata share in the recognised amounts of the acquirees identifiable net assets. The choice of the measurement method is made
transaction by transaction.
Any contingent consideration provided in the business combination agreement is measured at the acquisition date fair value and
included in the amount of the consideration transferred in the business combination for the purposes of determining goodwill. Any
changes in fair value of contingent consideration, which are classified as measurement period adjustments, are retrospectively
included in goodwill. Changes in fair value classified as measurement period adjustments are those that result from new
information about facts and circumstances that existed as of the acquisition date, obtained during the measurement period (which
shall not exceed a period of one year from the business combination).
In the case of business combinations that occurred in stages, the Group's previously held equity interest in the acquiree is
remeasured at fair value at the date of acquisition of control and any resulting gain or loss is recognised in the income statement.
Any amount resulting from previously held equity interest recognised in other comprehensive income is reclassified in the income
statement as if the equity interest had been disposed of.

As of 31 December 2010 all the subsidiaries that are consolidated using the line-by-line method are wholly-owned subsidiaries;
therefore there are no net assets attributable to non-controlling interests to be included as a separate component of equity, nor is
there a share of profit or loss attributable to non-controlling interests to be highlighted separately in the consolidated income
statement.

If the initial accounting for a business combination is incomplete at the end of the reporting period in which the business
combination occurs, the Group reports in its consolidated financial statements the provisional amounts of items for which the
measurement cannot be completed. These provisional amounts are adjusted during the measurement period to reflect new
information obtained about facts and circumstances existing at the acquisition date that, if known, would have affected the amount
of assets and liabilities recognised as of that date.

Please refer to the next section 4.6 -Method of recognition of the aviation business contribution operation- for a discussion in
relation to the business combinations carried out during the year 2010.

The reader should also refer to section 4.9 - Analysis of changes in equity - for a detailed analysis of the consolidation of the 50%
Meridiana fly - Annual Financial Report at 31 December 2010 - 61
share in Wokita and Sameitaly obtained from the contribution of the Aviation branch, for which both the IFRS 3 and OPI 4 have been
applied.

Recognition of costs and revenues


Sales and purchases of goods are recognised when goods are respectively delivered to the customer or to the Company, with
transfer of the significant risks and rewards associated with ownership of the goods. Sales and purchase of services are
recognised to the extent of their execution and completion on each reporting date, taking into account, in particular, the flight date
for passenger transport services, calculated according to the total value of the service rendered or received.
With reference to tickets for scheduled passenger transport, which, as at the financial statements date, are issued but not yet used
or refund thereof has not been requested, are reported as income under item "Other Revenue" (the so-called "Proceeds from
prepaid items") estimated on the basis of the historically observed percentage of passengers not using or not requesting refund of
the tickets issued, in order to ensure full recognition of revenue in the financial statements in accordance with the accrual basis.
Interest income and expense are recognized in accordance with the accrual principle. The costs for taking out loans are
recognised in profit or loss when incurred. Ancillary costs for the issue of a financial instrument or for a capital increase are directly
deducted from the proceeds of the loan or capital increase to which they refer. Commissions paid to agencies for the sale of air
tickets are recognised in profit or loss when the related revenues are recognised.
Charge-backs of costs incurred on behalf of third parties are recognised as a reduction of the cost to which they relate.
Dividends are recognised when the shareholders right to collect them arises. This usually occurs in the financial year when the
investee companys shareholder' meeting approving the distribution of earnings takes place.

Non-current assets

Intangible assets
Goodwill arising from business combinations are initially recorded at cost at the acquisition date, as defined above in relation to
"Business Combinations". Goodwill is not amortised but is tested for impairment annually or more frequently if events or changes
in circumstances indicate that it may be impaired. After initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
Upon disposal of part or whole of a company previously acquired and for which goodwill had been recognised upon acquisition, in
the determination of the gain or loss on disposal, the corresponding residual value of goodwill is taken into account.
Intangible assets include the costs, inclusive of ancillary costs, incurred to acquire resources lacking physical substance on
condition that their amount can be reliably measured and the asset is clearly identifiable and controlled by the Company.
These are stated at purchase or production cost including ancillary costs and are amortised according to their useful life. If there is
indication that an asset may be impaired, the intangible asset is written down accordingly, following the criteria indicated in the
subsequent policy Impairment of assets.
The amortisation periods applied for the various categories of intangible assets are indicated below:
development costs relating to initial training of pilots are amortised over a three-year period, while those relating to the
launch of new products/services from which long-lasting future economic benefits are expected are amortised over five
years;
concessions, licenses, trademarks and similar rights are amortised over a five/ ten-year period;
Costs relating to preparation of the website are amortised over five years.
The useful life and the amortisation criterion are reviewed regularly. If significant changes are found compared with previously
made assumptions, the amortisation rate is corrected using the prospective method.

Tangible assets
Tangible assets are recorded as "Fleet", for which it was considered appropriate to provide separate exposure due to the
significance of this item following the business combination with the Aviation Branch of Meridiana, and as "Other Property, Plant
and Equipment", which includes all other tangible assets.
Tangible assets are recognised on condition that their cost can be reliably measured and that the Group will be able to enjoy their
future economic benefits.

Meridiana fly - Annual Financial Report at 31 December 2010 - 62


They are recorded at purchase or production cost, inclusive of ancillary costs and of the portion of direct and indirect costs that
can reasonably be attributed to the asset. Investment grants obtained are recognised in the income statement over the period
necessary to match them with related costs and are directly deducted from such costs. If there is indication that an asset may be
impaired, the tangible asset is written down accordingly, following the criteria indicated in the subsequent policy Impairment of
assets.
Property, plant and equipment are systematically depreciated on a straight-line basis according to economic/technical rates
established in relation to the assets residual useful life. Assets consisting of components with different useful lives are considered
separately when calculating depreciation. The useful life and the amortisation criterion are reviewed regularly. If significant
changes are found compared with previously made assumptions, the amortisation rate is corrected using the prospective method.
Generally speaking, the assets useful life is subject to annual verification. It is changed if, during the period, enhancement
maintenance is performed or replacements are made that modify the useful life of the asset to which they refer.
Enhancement and maintenance expenses that significantly increase the production capacity or safety of tangible assets, or that
lengthen the useful life of such assets, are capitalised and recorded as an increase in the amount of the tangible asset to which
they refer. Routine maintenance costs are directly recognized in the income statement.
The applied depreciation rates are reduced, with reference to the increases in tangible assets of the period, according to the
effective commissioning of the assets. Depreciation starts when the assets are ready for use.
Specifically, the annual depreciation rates applied are as follows:
- land not amortised
- buildings, 50 years 2%
- light constructions, 10 years 10%
- plant, 10 years 10%
- equipment, 7 years 14%
- rolling components, 12 years 8.33%
- data processing machines, 5 years 20%
- office machinery and furniture, 8.3 years 12%
- internal means of transport, 5 years 20%
- vehicles, 4 years 25%
- systems of communication, 5 years 20%
- Modifications and standardisations performed on fleet aircraft are depreciated based on the duration of operating lease
contracts.
Leasehold improvements are classified as tangible assets, according to the nature of the cost. The amortisation period is the
lesser of the remaining useful life of the tangible asset and the residual term of the contract.

Costs incurred for regular reconditioning of company-owned engines and cells are recognized as an increase in the book value of
the asset to which they refer, separately from the physical parts. Any book value net of the cost of the previous reconditioning is
derecognized, irrespective of whether the cost of the previous reconditioning was explicitly mentioned in the transaction in which
the element was purchased or constructed. In this case, the estimated cost of similar future reconditioning is used as an indication
of what the cost of the reconditioning of the existing component was when the element was purchased or constructed.

In particular, the useful life of the fleet (aircraft and their components) is estimated in relation to the date of presumed
decommissioning, which according to current forecasts, is set at the end of 2015. The estimated useful lives of the fleet are as
follows:

- Engine maintenance 10 years

- Cell maintenance 20 years

The depreciation of the aircraft is determined on the basis of the components.

Meridiana fly - Annual Financial Report at 31 December 2010 - 63


Leases are classified as finance leases whenever the terms of the contract are such as to substantially transfer all the risks and
rewards of ownership to the lessee. All other leases are considered as operating leases.

Assets held under finance leases are recorded as assets of the Group at their fair value as at the contract date, adjusted for
ancillary costs incurred for the stipulation of the contract and any costs incurred to take over the lease or, if lower, at the present
value of minimum lease payments due for the lease. The corresponding liability vis vis the lessor is recognized in the statement
of financial position as a financial liability. Payments for rentals are apportioned between principal and interest in order to achieve
a constant interest rate on the residual liability. Financial expense is charged directly to the income statement for the period.
Rental costs relating to operating leases are recognised on a straight-line basis over the term of the contract. The benefits
received or to be received or paid or payable as an incentive to enter into operating leases are also recorded on a straight-line
basis over the term of the contract.
Periodic maintenance and end-of-contract reconditioning costs are capitalised as an increase in the tangible asset to which they
refer and depreciated respectively for the period of validity of periodic maintenance or over the term of the aircrafts operating
lease.

Impairment of tangible and intangible assets


At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets are impaired. If such an indication exists, the recoverable amount of these assets is measured in
order to determine the extent of the impairment. If it is not possible to measure the recoverable amount of an asset separately
identified, the Group measures the recoverable amount of the cash-generating unit to which the asset belongs. In particular, the
smallest group of assets is represented by the cash-generating unit; for the identification of a cash generating unit for the
purposes of preparing the consolidated financial statements the reader should refer to section 4.7 Ref 1 Intangible Assets.
The recoverable amount is the higher of fair value less costs to sell and value in use.
The fair value is the market price (net of costs of disposal), provided that the asset is traded in an active market. A market can
reasonably be considered active based on transactions frequency and volumes.
In assessing value in use, future cash flows, related to a time period not exceeding five years are estimated on the basis of
conservative assumptions based on historical data and making prudential forecast about the future performance of the reference
sector; the cash flows are discounted to their present value using a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the asset, the terminal value is determined on the basis of a perpetuity.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss no longer exists, the carrying amount of the asset (or cash-generating unit), except for goodwill (which
for investments corresponds to the positive difference emerged as of the acquisition date, between the acquisition cost and the
fair value of the share of the investee's net assets attributable to the Group), is increased to the new value resulting from the
measurement of its recoverable amount, but not exceeding the carrying amount that would have been determined had no
impairment loss been recognised. A reversal of impairment loss is recognised immediately in profit or loss.

Investments in associates
Investments in associates are carried at cost (in the absence of a fair value that can be reasonably determined), adjusted for
impairment losses. Any positive difference, emerging at the acquisition date, between the cost of acquisition and the fair value of
the share of the investee's net assets attributable to the Group, is therefore included in the carrying amount of the investment. Any
write-down of this positive difference (which represents the goodwill recognized to the investee's business at the time of
acquisition) is not reversed in subsequent years even if the conditions that led to the write-down no longer exist. If the Groups
proportional share of any losses made by the associate exceeds the investments carrying value, the investments value is written
off and the portion of any further losses is recognised as a provision in liabilities if the Company is under the obligation to cover
such losses.
Dividends received are recognized in the income statement, when the right to receive payment is established, only if resulting
from a distribution of earnings subsequent to the acquisition of the investee. If, instead, they result from the distribution of the
investee's reserves prior to acquisition, the dividends are recorded as a reduction in the cost of the investment.

Meridiana fly - Annual Financial Report at 31 December 2010 - 64


Other non-current assets
Other non-current assets and other non-current receivables are stated at their nominal value, which coincides with the estimated
realisable value.

Non-current assets and liabilities held for sale


Non-current assets (or groups of assets held for sale) classified as "held for sale" are measured at the lower of their previous
carrying value and market value less costs to sell.
Non-current assets (or groups of assets held for sale) are classified as "held for sale" when it is expected that their carrying
amount will be recovered through a disposal rather than through their use in the company's operations. This condition is met only
when at the reporting date the sale is highly probable, the asset (or group of assets) is available for immediate sale in its present
condition and management has made a commitment to the sale, which is set to take place within twelve months from the date of
classification under this item.
The profit or loss generated by the operation of the assets and liabilities held for sale for the months between the last approved
financial statements and the date of disposal - in accordance with IFRS 5 - is classified as "Results of discontinued operations "
together with the economic effects of the operations, net of ancillary costs to sell.

Current assets and liabilities


Inventories
Inventories, consisting of stocks of technical materials, catering materials and scheduled air tickets, are recorded at their specific
purchase cost or, if lower, at their realisable value based on market trends. This lower value is not maintained in subsequent years
if the reasons for it no long exist and value is reinstated, if the conditions exist to do so, within the limits of the original purchase
cost.
Financial Instruments
Financial assets and liabilities are recognised at the time when the Group becomes a party to the instruments contractual
clauses.
- Trade receivables
Trade receivables are stated at their nominal value less an appropriate write-down to reflect estimated losses on receivables.
- Financial assets
Financial receivables relating to capital redemption contracts are measured at cost, i.e. nominal value, plus interest accrued. This
value is not lower than the value of initial insured capital plus guaranteed minimum return. Financial receivables relating to
performance deposits are posted at nominal value, which coincides with estimated realisable value.
Receivables for security deposits for utilities are measured at nominal value, which coincides with estimated realisable value.
Receivables for deposits against contractual commitments with third parties are posted at nominal value and adjusted, if
necessary, to align the amount paid with presumed recovery value.
On subsequent reporting dates, financial assets that the Group intends and is able to hold to maturity are recognised at amortised
cost net of any impairment write-downs.
Financial assets other than those held to maturity are classified as held for trading or available for sale and are measured at fair
value at the end of each period. When financial assets are held for trading, gains and losses arising from changes in fair value are
recognized in the income statement for the period. Conversely, in the case of financial assets available for sale, gains and losses
arising from changes in fair value are recognized directly in equity until they are sold or have been impaired; in such cases, the
overall gains or losses previously recognized in equity are recognized in the income statement for the period.
- Cash and cash equivalents
The item relating to cash and cash equivalents includes cash and current bank accounts, demand deposits, and other short-term,
highly liquid financial investments that can be readily monetised and are subject to insignificant risk of changes in value.
- Bank and other loans and bank overdrafts
Loans and interest-bearing bank loans and bank overdrafts are recorded based on the amounts received, net of transaction costs
and subsequently measured at amortized cost using the effective interest rate method.
- Trade payables

Meridiana fly - Annual Financial Report at 31 December 2010 - 65


Trade payables are stated at their nominal value.

Derivative financial Instruments

In carrying out its business the Company is exposed to the risks of changes in exchange rates (mainly Euro/USD) and in fuel
prices. To minimize these risks, derivatives contracts are entered into hedging both specific transactions and total exposures,
making use of the instruments offered by the market.

Derivative hedging instruments, in keeping with the provisions of IAS 39, are accounted for in accordance with the methods laid
down for hedge accounting only when:

at the start of the hedge there is formal designation and documentation of the hedging relationship;

the hedge is highly effective;

the effectiveness can be reliably demonstrated.

When a financial instrument is designated as a hedge of exposure to the variability of cash flows of the hedged transactions (cash
flow hedge; e.g. hedging the variability of cash flows of expected future transactions against the effect of fluctuations in exchange
rates), the gains and losses deriving from the fair value changes of the hedging instrument are accounted for directly in
shareholders equity for the effective part (any ineffective part is instead accounted for immediately in the income statement under
the item gains/(losses) on foreign exchange).

The amounts recognized in equity are subsequently reflected in the income statement for the period in which the contracts and
expected transactions are manifested in the income statement.

If an instrument is designated as a hedge of exposure to changes in the fair value of hedged instruments (e.g. hedging of the
variability of the fair value of receivables and payables in foreign currencies), it is recognized at fair value with the effects booked
to the income statement; accordingly, the hedged instruments are adjusted to reflect the fair value changes associated with the
hedged risk.

Changes in the fair value of derivatives that do not meet the conditions to qualify as hedges are recognized in profit or loss. In the
presence of alternative treatments permitted by IAS 39 for the classification of such transactions, the Group has decided that the
change in fair value of contracts on commodities is to be classified in the income statement as an adjustment to the operating
costs.

Financial and non-financial contracts are analysed to identify the existence of embedded derivatives to be unbundled and
measured at fair value. Gains and losses resulting from subsequent changes in fair value are recognized in profit or loss.

Employee Post-employment benefits


Payments for defined contribution plans are charged to the income statement in the period in which they are due.
Post-employment benefit provision [formerly known as employee severance indemnity provision] expresses the liability towards
employees for the benefits accrued as up to reporting date in compliance with current laws and contractual agreements. This
liability is considered similar to a defined-benefit plan, the cost of which is calculated using the actuarial Projected Unit Credit
method; actuarial valuations are performed at the end of each financial year. Gains and losses are recognized in the statement of
comprehensive income and included in income components such as income and expenses defined as "changes resulting from
transactions with non-shareholders". The cost related to employees' past service is recognized immediately the extent that the
benefits have already accrued or otherwise is amortised on a straight-line basis over the average period in which benefits are
expected to accrue.
Until 31 December 2006 the post-employment benefit provision (TFR) was considered a defined benefit plan. The rules for such
provision were changed by Italian Law no. 296 of 27 December 2006 (the 2007 National Budget Law) and by subsequent decrees
and regulations enacted in the early months of 2007.They now envisage payment of post-employment benefits as they accrue to a
separate entity (pension fund or central treasury fund of the INPS (state pension & welfare agency). In light of these changes, and
in particular as regards companies with at least 50 employees, under IAS 19 the post-employment benefit provision should be

Meridiana fly - Annual Financial Report at 31 December 2010 - 66


considered as a defined-benefit plan solely for benefits accrued before 1 January 2007 (and not yet paid out as at the reporting
date), whereas after this date it should be considered as a defined contribution plan.

The right granted to employees and former employees to buy an air ticket at a discount compared to its price list is a long-term
benefit, and the corresponding liability is recorded in the financial statements according to the actuarial valuation methodology
provided for under IAS 19. The provision specifically established (the "provision for subsidised tickets") is released periodically
and recorded as an increase in the amount of revenue from the sale of tickets.

Income taxes
Income taxes for the period are the sum of current and deferred taxes.
Current taxes are based on the period's taxable profit. Taxable profit differs from profit as reported in the income statement
because it excludes items of income and expense that are taxable or deductible in other years (temporary tax differences) and it
further excludes items that are never taxable or deductible (tax permanent differences). Current tax liability is calculated using
current tax rates or the rates substantially in force at the end of the reporting period.
Deferred taxes are taxes that the Group expects to be payable or recoverable on the temporary differences between the book
value of assets and liabilities and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are
generally recognized for all taxable temporary differences while deferred tax assets are recognized to the extent that it is probable
that there will be future taxable profits in the future based on business plans approved by the Group. In particular, the carrying
value of deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient
taxable profits will be available to allow all or part of the assets to be recovered.
Deferred taxes are calculated at the tax rates that the Group expects to be in force when the asset is recovered or the liability
settled. Deferred taxes are directly booked to the statement of comprehensive income, except for those relating to transactions
with shareholders' which are recognized directly in equity, in which case the corresponding deferred taxes are also recognized in
equity.
Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities and when they
relate to taxes due to the same tax authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Grants

Grants are recognized at fair value when there is reasonable assurance that they will be received and that the conditions attaching
to them will be met. Grants for operating expenses are recognized in full in the income statement at the moment in which the
conditions for recognition are met. Capital grants are deducted directly from the purchase cost of the asset to which they refer.

Provisions
Provisions are made when the Group has a present obligation as a result of a past event and it is likely that it will be required to
settle the obligation. Provisions are based on management's best estimate of the costs required to settle the obligation at the
reporting date and are discounted to present value when the effect is material.

Items in foreign currency or subject to "foreign exchange risk"


Receivables and payables originally denominated in the foreign currency of countries outside the Eurozone are translated into
Euro at the exchange rates in force at the date of the underlying transactions. Foreign exchange differences incurred on collection
of receivables and settlement of payables in foreign currencies are recorded in the income statement. Non-current assets
denominated in foreign currencies are recorded at the exchange rate in force at the time of purchase or at the lower exchange
rate in force at the end of the period if the reduction is deemed as long-lasting.
Assets and liabilities, originally denominated in foreign currency of countries outside the Eurozone, still outstanding at year end,
including non-current assets of a monetary nature, are aligned at the spot exchange rate at the reporting date; the related
exchange gains and losses are recorded in the income statement and any net profit is allocated to a special non-distributable
reserve until realisation.

Use of estimates
The preparation of consolidated financial statements and related notes requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date.

Meridiana fly - Annual Financial Report at 31 December 2010 - 67


Estimates and assumptions are based on previous experience and other factors deemed relevant. Actual results may therefore
differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of any changes made to them are
reflected in the income statement in the period in which the estimates are revised, if the revision affects only that period, or also in
subsequent years if the revision affects both the current year and future years.

Below we summarise the critical assessments and key assumptions used by management in applying accounting standards and
policies with regard to the future, that may have material effects on reported amounts or for which there is a risk of adjustments to
the carrying value of assets and liabilities in the financial year following the one to which these financial statements refer.

Provision for doubtful receivables


Provision for doubtful receivables reflects managements estimates about the losses on doubtful accounts concerning end
customers.
The estimate of this provision is based on the losses expected by the Company based on experience with similar receivables,
current and historical past-due receivables, losses and collections, careful monitoring of credit quality, and on forecasts of
economic and market conditions supported in this by the opinions of the legal advisors representing the Company in pre-
litigation and litigation phases. The reader should refer to section "Ref 9 - Trade and other receivables "of this explanatory notes
for considerations on the main disputes underway concerning the recovery of receivables.

Recoverable amount of non-current assets


Non-current assets include goodwill, the fleet and property, plant and equipment and other assets, intangible assets as well as
non-controlling equity investments. The Management periodically reviews the carrying value of non-current assets held and used
in operations as well as assets held for sale, when facts and circumstances make such review necessary. This activity is
performed using estimates of future cash flows and appropriate discount rates to calculate present value or to estimate fair value
less costs to sell, based on assessments conducted with the support of third party experts' opinions. Therefore, this audit of the
carrying value of non-current assets is based on a hypothetical set of assumptions regarding future events and actions of the
administrative bodies that may not necessarily occur in the expected manner and timing. More specifically,
in order to determine the recoverable amount of goodwill resulting from the consolidation of Sameitaly and Wokita
(assessed separately from goodwill of the sole CGU Meridiana fly, due to a specific impairment test carried out to
measure the recoverability of the carrying value of investments recorded in the separate financial statements, extended to
the goodwill relating to those subsidiaries in the consolidated financial statements) estimates have been made about the
subsidiaries' expected cash flows, which, being dependent on the operations of the Parent Company only with regard to
the volume of business generated by the latter, as indicated in paragraph 2.28 "Business Outlook", are affected by
external factors that the parent is unable to control; these factors include the trend of the Euro / Dollar exchange rate,
interest rates, the cost of aviation fuel, the overall load factor, the average unit revenue per passenger and the income per
hour of flight on charter flights, in addition to the success of strategic actions to reduce personnel and renegotiate
contracts with suppliers. Failure to implement the 2011-2015 New Business Plan by the parent company, may result in a
failure to achieve the objectives of prospective profitability of the investee companies and consequently the goodwill
associated with such activities could not achieve the amounts recorded in the consolidated financial statements at 31
December 2010.
in order to determine the recoverable amount of the Cash Generating Unit Meridiana fly, inclusive of goodwill, we relied on
a fair value estimate carried out by an independent expert on the basis of stock prices measured in accordance with the
criteria described in more detail in the next section Ref 4.6 1 "Intangible Assets". Development of these prices at
significantly lower levels than those recorded in the period in question could result in the recognition of impairment losses
for the CGU Meridiana fly (see Section 2.25 "Main risks and uncertainties for the current year Ref-2").
in order to determine the recoverable value of the real estate owned in via Bugatti in Milan we made use of the appraisal
of an expert specifically appointed for this purpose; in fact, for the purposes of preparing the financial statements, a
specific recoverability analysis has been made for this non-current asset that does not contribute to the profitability of the
Group, as it is destined for rental to third parties after the transfer of the registered offices from Milan to Olbia. Changes in
the scenario of the reference real estate market could lead to the recognition of further impairment losses in addition to the

Meridiana fly - Annual Financial Report at 31 December 2010 - 68


write-down of 855 thousand already recorded to reflect the results of the expert's assessment, net of estimated costs to
sell.

Deferred tax assets and liabilities


The Group recognizes current and deferred taxes in accordance with applicable regulations. The recognition of taxes requires
using estimates and assumptions concerning the interpretation of applicable regulations and their effect on the Companys taxation,
with regard to the transactions completed during the financial year in question. In addition, recognition of deferred tax assets and
liabilities requires use of estimates concerning prospective taxable income and its development, as well as applicable tax rates.
These activities are performed through an analysis of completed transactions and their tax profile, also with the support, when
necessary, of external advisors on the various aspects addressed. They also take the form of simulations and sensitivity analyses
of prospective income. In particular, the recoverability of deferred tax assets as at 31 December 2010, partly associated with the
use in future years of tax losses carried forward, depends on the achievement of the 2011-2015 New Business Plan; this plan is
subject to uncertainties given that future income is dependent on the performance of external non controllable factors. Failure to
implement the 2011-2015 New Business Plan would result in the inability of the Group to realise deferred tax assets at values
corresponding to those recorded in the consolidated financial statements at 31 December 2010.

Income from unused tickets (so-called "Proceeds from prepaid tickets")

The estimate of income from unused issued tickets (the so-called "Proceeds from prepaid tickets") estimated on the basis of the
historically observed percentage of passengers not using or not requesting refund of the tickets issued, in order to ensure full
recognition of revenue in the financial statements in accordance with the accrual basis. Different trends from those historically
experienced in the actual number of tickets unused by passengers or the real charges of unused tickets refund may result in
revenues different from those measured at the reporting date based on estimates made by management.

Defined benefit plans


Post-employment benefit provision is classifiable as a defined-benefit plan for the portion accrued before 31 December 2006.
Management uses various statistical assumptions and assessment factors with the aim of anticipating future events in order to
calculate the costs, liabilities and assets relating to such plans. Assumptions relate to discount rate, the expected return on assets
on which the plan is based, and the rates of future pay increases. In addition, the actuaries advising the Company also use
subjective factors such as, for example, mortality and employees turnover rates.

Contingent liabilities
The Group is involved in lawsuits and tax disputes relating to complex and difficult problems and with a varying degree of
uncertainty, including the facts and circumstances regarding each case, jurisdiction and the different applicable laws.
Given the uncertainties inherent in these issues, it is difficult to predict the outlay that may arise from such disputes.
Consequently, management after consultation with its legal advisors and legal and tax experts recognises a liability for such
litigation when it considers that a cash outlay is likely to occur and the amount of the resulting losses can be reasonably
estimated. If a cash outlay becomes possible but the amount cannot be determined, this fact is disclosed in the notes to the
financial statements.

New accounting standards and interpretations

Accounting standards, amendments and interpretations applicable as from 1 January 2010


The new accounting standards, amendments and interpretations which, being applicable as from 1 January 2010, supplement as
from that date the accounting policies used in preparing the consolidated financial statements.

IAS 27 and revised IFRS 3 (business combinations)

The revised IFRS 3 (2008) has introduced major changes, including, in particular the following aspects:
Meridiana fly - Annual Financial Report at 31 December 2010 - 69
- regulation of step acquisitions of subsidiaries;
- option to measure a non-controlling interest acquired in a partial acquisition at fair value;
- acquisition related costs charged to the income statement;
Contingent consideration recognised at the acquisition date.

Step acquisition of a subsidiary


In the case of step acquisition of a subsidiary, IFRS 3 (2008) states that a business combination takes place only when control is
acquired and that, at this time, all the identifiable net assets of the acquiree should be measured at fair value; non-controlling
interests should be measured based on their fair value or based on the proportional share of the fair value of identifiable net
assets of the acquiree.
In an acquisition where the control of an investee is achieved in stages, the investment previously held, which until then was
accounted for as set out in IAS 39 - Financial Instruments: Recognition and Measurement, or IAS 28 - Investments in Associates
or IAS 31 - Investments in joint ventures, should be treated as if it had been sold, and purchased again at the date on which
control is acquired.
This equity interest should therefore be measured at its acquisition date fair value and the resulting gain or loss must be
recognized in the income statement. In addition, any amount previously recognized in equity.
as "Other comprehensive gains and losses" which should be recognised in the income statement following the sale of the asset to
which it relates, shall be reclassified in the income statement.
Goodwill or the proceeds from the acquisition of control of a subsidiary must be determined as the sum of the price paid for the
acquisition of control, the value of non-controlling interests (as measured by one of the methods permitted by the standard), the
fair value of the non-controlling interest previously held, net of the fair value of identifiable net assets acquired.
According to the previous version of the standard, an acquisition of control achieved in stages was measured as if each
transaction were part of a series of separate acquisitions that generated a total goodwill determined as the sum of the goodwill
generated by each individual transaction.

Acquisition-related costs
IFRS 3 (2008) provides that acquisition-related costs be expensed in the period in which they are incurred. Previously these
charges were recorded as part of the cost of acquisition of the acquiree's net assets.

Contingent consideration recognition


IFRS 3 (2008) provides that contingent consideration be considered part of the transfer price of net assets acquired and be
measured at the acquisition date fair value. Similarly, if the business combination contract provides for the right to a refund of
some components of the price upon certain conditions, this right is classified as an asset by the buyer. Any subsequent changes
in fair value are recognised as an adjustment to the original accounting treatment only if they result from additional or better
information about the fair value and if they occur within 12 months from the date of acquisition; all other changes must be
recognised in profit or loss.

The previous version of the standard provided that contingent consideration is recognised at the acquisition date only if its
payment was considered probable and the amount could be determined reliably. Any subsequent change in the value of such
consideration was also always recognized as an adjustment to goodwill.

IAS 27 (2008) - Consolidated and separate financial statements


The amendments to IAS 27 relate mainly to the accounting treatment of transactions or events that cause a change in the equity
interest in subsidiaries and the allocation of the subsidiary's losses to non-controlling interests; these amendments shall be
applied prospectively.
IAS 27 (2008) provides that, once the parent company has acquired the control of a company, the transactions in which the parent
company acquires or disposes of non-controlling interest without modifying the control exercised over the subsidiary, are
transactions with shareholders and therefore should be recognised in equity. It follows that the carrying value of the controlling
interest and of non-controlling interests should be adjusted to reflect the change in interest in the subsidiary and any difference

Meridiana fly - Annual Financial Report at 31 December 2010 - 70


between the amount of the adjustment made to non-controlling interests and the fair value of the price paid or received as a result
of this transaction is recognized directly in equity and attributed to the owners of the parent. There will be no adjustment to
goodwill nor gains or losses recognized in the income statement. The charges arising from these transactions must also be
recognized in equity in accordance with the requirements of IAS 32 section 35.

The following amendments, improvements and interpretations, effective from 1 January 2010, should also be mentioned:
- IAS 32 - Classification of rights in a foreign currency as an equity instrument.
- Amendment to IAS 39 - Financial Instruments: Recognition and Measurement - Eligible Hedged Items.
- Amendment to IFRS 2 - Share-based payments: payments based on shares where the company receiving the service is
different from the company having the obligation.
- IFRIC 17 - Distribution of non-monetary assets to shareholders, using fair value to measure these activities.
- IFRIC 18 - Transfer of tangible assets from customers for regular supply of goods and services.
- IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments.

In FY2010 the above-mentioned changes in accounting standards and interpretations had no material management or accounting
impact on the Group.

Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the Group

The following standards and interpretations should be mentioned in particular:

- Revised IAS 24 - Related party disclosures, which simplify the type of information required with regard to transactions
with related parties when public entities are involved and clarifies the definition of related party. The principle is
applicable from 1 January 2011.
- IFRS 9- Financial Instruments: issued to replace over time IAS 39, it introduces new criteria for the classification and
measurement of financial assets and liabilities and the derecognition of financial assets.
- IFRIC 14 - Prepayments for minimum funding contribution- companies are permitted to recognise as assets,
prepayments for minimum funding contributions. The principle is applicable from 1 January 2011.
- IFRS 1 - First-time Adoption of IFRS: application of fair value measurement to assets related to special operations such
as IPO or privatization in response to a local law in the preparation of IFRS financial statements even though the
company had already determined a fair value of assets and liabilities in the financial statements at the date of transition
to IFRS.
- IFRS 7 Financial instruments Additional disclosure: it regulates in an integrated way the qualitative and quantitative
information required by the standard about the nature and extent of risks inherent in financial instruments, including
cases of transfer of assets to a third party but with the "continuing involvement" of the transferor.

In FY2010 the above-mentioned changes in accounting standards and interpretations had no impact on the Group.

4.1.3. Going concern assumption

The reader should refer to section 2.28. "Business Outlook" for a detailed analysis of the considerations on the basis of which,
despite various uncertainties, the Directors believe that the Group can continue to operate as going concern in the foreseeable
future for at least 12 months, therefore considering appropriate the preparation of the annual report on a going concern basis.

4.2. Comparability of accounting data

The financial statements, set out in the previous Chapter 3 - "Financial Statements of 2010" do not have comparative data since
the financial statements for the year ended 31 December 2010 were prepared for the first time on a consolidated basis.

Meridiana fly - Annual Financial Report at 31 December 2010 - 71


The opening balances in the statements of changes in shareholders' equity at 31 December 2010 and the statement of cash flows
at the same date refer to the individual financial statements of the Company at 31 December 2009.

However, for the purposes of disclosure requirements relating to the execution of the contribution operation and the subsequent
implementation of the in kind and in cash capital increase, pro-forma consolidated financial statements at 31 December 2009 were
prepared and included in the Prospectus in compliance with the requirements set forth in EC Regulation 809/2004. These pro-
forma data have been audited in accordance with reference standards.

In these notes, for a better examination of the financial and equity performance of the Group, the changes in the consolidated
statement of financial position contained in section 4.6 and the changes in the income statement contained in section 4.7 shall be
discussed by comparing the consolidated data at 31 December 2010, set out in Chapter 3, with the pro-forma consolidated data at
31 December 2009.

With regard to the net financial position, consolidated data at 31 December 2010 are compared with data resulting from the
individual financial statements at 31 December 2009, indicating, where applicable, the effect on the consolidated assets and
liabilities of the contribution of the Aviation Branch and the consolidation of the wholly owned subsidiaries Wokita and Sameitaly
with effect from 28 February 2010.

The comparability of the data presented in the above financial statements is also affected by the Aviation Business contribution
operation, which took place with effectiveness from 28 February 2010, and which entailed a change in the size of the Company
and, as a result of the acquisition of control over the subsidiaries Wokita S.r.l. and Sameitaly S.r.l., the obligation to prepare also
the consolidated financial statements.

In particular, the pro-forma statement of financial position at 31 December 2009 used for the above purposes is presented below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 72


31.12 31.12
2010 2009 Change
Consolidated Consolidated
/000 data Proforma data

Intangible assets 61,432 62,071 (639)


Fleet 29,750 30,090 (340)
Other Property, plant and equipment 18,511 20,181 (1,670)
Deferred tax assets 7,480 9,111 (1,631)
Equity investments 1,978 1 1,977
Other non-current financial assets 21,659 15,075 6,584
Other non-current receivables 587 1,774 (1,187)

Non-current assets 141,397 138,303 3,094

Inventories 627 4,207 (3,580)


Trade receivables and other current assets 138,136 117,841 20,295
Current financial assets 479 3,849 (3,370)
Cash and cash equivalents 12,670 14,476 (1,806)

Current assets 151,912 140,373 11,539

TOTAL ASSETS 293,309 278,676 14,633

Group equity 8,439 4,749 3,690

Long-term borrowings 24,531 2,184 22,347


Post-employment benefits and other defined benefit funds 13,371 12,688 683
Non-current provisions for liabilities and charges 11,222 19,437 (8,215)
Deferred tax liabilities 3,169 3,989 (820)

Non-current liabilities 52,293 38,298 13,995

Current loans 7,342 20,384 (13,042)


Current loans from the parent company - 13,136 (13,136)
Current portion of long-term borrowings 603 1,574 (971)
Current provision for liabilities and charges 24,210 13,905 10,305
Trade payables and other current liabilities 200,422 186,630 13,792

Current liabilities 232,577 235,629 (3,052)

Total current and non-current liabilities 284,870 273,927 10,943


TOTAL EQUITY AND LIABILITIES 293,309 278,676 14,633

Meridiana fly - Annual Financial Report at 31 December 2010 - 73


The pro-forma income statement at 31 December 2009 used for the above purposes is presented below.

Financial year as a % of Financial year as a % of


2010 revenue 2009 revenue Change
Proforma consolidated
/000 Consolidated data data

Sales revenue 604,812 100.0% 647,762 100.0% (42,950)


Other Revenue 40,616 6.7% 42,178 6.5% (1,562)

Total revenues 645,428 106.7% 689,940 106.5% (44,512)

Fuel (158,231) -26.2% (132,220) -20.4% (26,011)

Materials and maintenance services (86,565) -14.3% (97,301) -15.0% 10,736


Operating leases (53,391) -8.8% (62,579) -9.7% 9,188
Selling expenses (22,427) -3.7% (25,719) -4.0% 3,292
Other operating costs and wet leases (213,889) -35.4% (230,395) -35.6% 16,506

Sundry costs and other services (32,936) -5.4% (36,987) -5.7% 4,051
Staff costs (91,811) -15.2% (112,126) -17.3% 20,315
Amortisation, depreciation and write-downs (14,750) -2.4% (12,692) -2.0% (2,058)

Provision for liabilities and charges (7,741) -1.3% (6,225) -1.0% (1,516)

Other provisions for doubtful receivables (4,970) -0.8% (2,399) -0.4% (2,571)

Operating Profit (loss) (41,283) -6.8% (28,703) -4.4% (12,580)

Net financial income (expenses) (1,829) -0.3% (1,089) -0.2% (740)

Pre-tax profit (loss) (43,112) -7.1% (29,792) -4.6% (13,320)

Income taxes (3,299) -0.5% (5,001) -0.8% 1,702

Net profit (loss) (46,411) -7.7% (34,793) -5.4% (11,618)

Gains / (losses) on actuarial valuations (IAS 19), net of related tax effect (828) -0.1% (57) 0.0% (771)

Total Profit (loss) (47,239) (34,850) (12,389)

With reference to the comments in section 4.8, it should also be noted that the comparison of the performance in the 2010 income
statement with that of the 2009 pro-forma statement shown above, is in any case affected by the fact that, as the contribution of
the Aviation Branch occurred with effect from 28 February 2010, the 2010 income statement reflects the operations of this unit for
a period of 10 months (from 1 March to 31 December 2010) against a pro-forma 2009 comparative figure which was determined
considering a full year of business of the said Aviation Branch. As mentioned, the comparison in absolute terms loses significance
and the trends in the costs and revenues are analysed comparing, where relevant, the percentage impact on revenues.

It should be recalled that the aim of the preparation of the pro-forma data was to represent, according to measurement criteria
consistent with historical data and compliant with the relevant legislation, the effects of the contribution in kind on the financial
performance and equity position of Meridiana fly S.p.A., as if it had taken place on 31 December 2009 or on 1 January 2009
respectively for the Statement of Financial Position and for the Income Statement. However, it should be noted that if the
contribution in kind had really taken place at that hypothetical date, the results obtained might have differed from the pro-forma
data.

It should also be noted that the preparation of the 2009 pro-forma data not including the activities of the first two months of the
Aviation Business and of the subsidiaries Wokita and Sameitaly would not have been possible without the use of disproportionate
and non-cost-effective resources with respect to the disclosure purposes of this annual report.

Meridiana fly - Annual Financial Report at 31 December 2010 - 74


4.3. Seasonality of the business

The demand for air transport, above all in the leisure/holiday segment, is characterized by significant seasonality. As regards the
Meridiana fly Group, the business is concentrated in the third quarter of the year (35% of total revenue is concentrated in this
quarter) and is more limited in the second and fourth quarter, with the exception of the periods around holidays (Christmas/New
Year, Easter and long weekends). The Medium Haul business is particularly significant in the summer period, while the Long Haul
leisure business to exotic and tropical destinations has inverse seasonality, as it is concentrated in the winter period (November
April).

For a discussion on significant non-recurring events and transactions with reference to the consolidated financial statements,
please refer to section 9.6, containing this information for the separate financial statements, since the consolidation of the
subsidiaries Sameitaly and Wokita did not result in the recognition of any significant non-recurring events and transactions.

4.4. Consolidation scope and criteria

These consolidated financial statements at 31 December 2010 include the data of Meridiana fly and those of its subsidiaries,
Sameitaly and Wokita, prepared at the same date.

A list of the consolidated companies, together with the related information set out in Art. 38 of Legislative Decree 127/91, is
provided below:

Scope of consolidation

Registered Share Capital Percentage owned Ownership


office
Direct Indirect Total Total
Parent Company:
Meridiana fly S.p.A. Olbia 20,901,419.34 - - - -

Fully consolidated subsidiaries:


Wokita S.r.l. Olbia 35,000.00 100.00% 0.00% 100.00% 100.00%

Sameitaly S.r.l. Olbia 95,000.00 100.00% 0.00% 100.00% 100.00%


.

Associates accounted for with equity method:


EF USA Inc. New Jersey $1,000.00 100.00% 0.00% 100.00% 100.00%
USA
Meridiana express Olbia 10,000.00 100.00% 0.00% 100.00% 100.00%

It should be noted that the subsidiary EF USA Inc. (100% direct subsidiary, with registered offices in the United States - New
Jersey, share capital $ 1,000) is not consolidated as this subsidiary is no longer operational and therefore its consolidation would
have no material effects. As indicated in the Notes and in Section 2.17 Significant Litigation, legal proceedings had been initiated
for the recovery of receivables in the second half of 2009 when the company was associated at 49%.

In addition, Meridiana express S.r.l. (100% direct subsidiary with registered offices in Olbia, share capital 10,000) was not
consolidated as it was incorporated in March 2010 and is not yet operational. Also in this case, the consolidation of the data of the
subsidiary would have no significant effect on the consolidated financial statements at 31 December 2010.

4.5. Accounting treatment of the contribution of the Aviation Branch

The contribution of the Aviation Branch can be defined as a "business combination of entities under common control" given that
Meridiana S.p.A., before the transfer in question, already held 59.58% of the shares of the Company.
Meridiana fly - Annual Financial Report at 31 December 2010 - 75
Since the operations of "business combination of entities or businesses under common control" are excluded from the mandatory
application of IFRS 3, in the absence of IFRIC-IFRS references, for the purposes of accounting for the contribution operation in
the financial statements, reference was made to the document OPI 1 - Preliminary Guidelines by Assirevi regarding IFRS entitled
"Accounting for business combinations of entities under common control in the statutory and consolidated financial statements";
the goal of these guidelines is precisely to identify the appropriate accounting treatment under IFRS to be applied in the financial
statements of entities under common control involved in the operation.

More specifically, the material economic impact of the operation is the discriminating factor for the purposes of recognising
contributed assets at fair value rather than at historical values.

Pursuant to OPI 1, the material economic impact is demonstrated when the sum of the results and cash flows obtained on the
basis of the two stand-alone business plans of the Parent Company and Meridiana is significantly lower than the result and cash
flows resulting from the group's business plan after the business combination.

In this specific case, as further specified below, this condition is satisfied with respect to the forecast period considered (2011-
2015) and consequently the net assets acquired may be recognised at fair value.

From another perspective, with reference to the identification of assets and liabilities acquired, it is important to identify whether
the buyer in this contribution operation is the Aviation Branch or Meridiana fly. From this point of view it should be noted that in
the absence of reference standards for the "business combination of entities under common control", the IFRS 3 standard has
been applied by analogy for the purposes of identifying the buyer.

By applying this standard, the Aviation branch was identified as the buyer, given its greater size compared to Meridiana fly both in
terms of amount of revenue and fair value of net assets, considering in this respect also the net cash attributable to the branch on
the basis of historical evidence of cash and cash equivalents, although this item has not been allocated in the identification of
assets and liabilities contributed, given the considerable size of the capital increase planned after the contribution.

The accounting treatment applied to recognise the effects of the contribution (in particular goodwill) resulted, therefore, in the
recognition at fair value of Meridiana fly net assets, while the net liabilities contributed by the Aviation Branch were recorded at
historical values. Consequently, the 15.3 million increase in the equity of the Group recognised for the purposes of preparing
these financial statements (before transaction related costs) is the difference between the capital gains arising from the
recognition at fair value of Meridiana fly net assets as of 28 February 2010, amounting to 56.4 million and the net liabilities
contributed by the Aviation Branch. It should be noted that these net liabilities, as determined by the Directors on 31 August 2009,
amounting to 37.1 million are adjusted (i) upward for the depreciation of the Aviation Branch ( 2.0 million) accrued in the period
as specified in the deed of contribution, (ii) upward for the amount of 7.1 million corresponding to the 50% interest in Sameitaly
and Wokitarecorded at historical values in the consolidated financial statements of the buyer, identified as Meridiana S.p.A., as
more fully described in section 4.9 and (iii) downward for the adjustment (equal to 5.2 million) of the Aviation Branch to the
recognition criteria of the so-called "Proceeds from prepaid tickets" which was measured on an accrual basis (as outlined in the
preceding section 4.1.2 - Accounting standards and measurement criteria). The fair value of the Aviation branch, albeit not
impacting on the accounts due to the accounting treatment used, was quantified in 52.56 million by an independent third party
surveyor, who had been appointed ad hoc for the contribution operation.

In light of the expiry of the12 months period set by IFRS 3 (also in this case applied mutatis mutandis to the business
combinations of entities under common control, given the absence of reference standards) according to which the accounting for
the business combination can be changed to take into account additional information available about the existence, measurement
and allocation of the resulting surplus, the Directors have verified the assumptions used and described above for the recognition
of the operation at fair value.

In this regard, the Directors have confirmed, in the final allocation of the surplus emerged, that no specific asset was identified to
which the surplus, determined by the accounting treatment indicated above, should be allocated. Therefore, goodwill was
recognized as intangible asset, confirming its original recognition.

In addition, the Directors examined the new strategies and actions described in section 2.26.3 - New Business Plan 2011-2015 -
in order to assess, despite some changes in strategy compared to the previous plan, consistency in terms of achieving synergic

Meridiana fly - Annual Financial Report at 31 December 2010 - 76


effects from the combination with the aviation business of Meridiana Aviation branch. Indeed, as described in this section, the
achievement of results and cash flows significantly higher than those that the two entities would have achieved in the absence of
the business combination is the essential prerequisite to the final recognition of the business combination at fair value.

In this framework, the Directors have identified significant incremental cash flows - measured as lower short-term negative cash
flows related to operating losses - compared to those that would have been achieved in the absence of the business combination.
This finding is primarily founded on the scale achieved by the Group following the business combination, which allows for the
implementation of strategies for sizing and restructuring that would not have been achievable by two separate entities.

In particular, the business combination allows for significant savings in overhead costs represented by headquarters staff and
consultancy costs; the management of a single AOC (Air Operator Certificate) leads to a reduction in staff assigned to oversee
ground operations while with two separate AOCs, due to regulatory constraints, this staff would have been duplicated for some
functions; in addition, strategic action designed to focus the business on profitable routes, discontinuing unprofitable ones, due to
the existence of a single AOC, may result in an optimization of the fleet - with the non-renewal of operating leases for six MD80 -
with the resulting savings in variable costs of flight, mainly represented by (i) operating lease instalments (ii) the crew, which
would have not occurred with separate AOCs, due to regulatory constraints of minimum capacity required to cover the routes
operated; finally, a single AOC allows for the renegotiation of a single employment contract, compared with the previous two; this
would have not been possible in the case of two separate companies. These synergies, throughout the plan, are estimated to be
at least 35 million.

Following these considerations, the Directors have definitively confirmed the recognition of the business combination in the
consolidated financial statements at 31 December 2010 using the above mentioned accounting treatment.

4.6. Analysis of the statement of financial position as at 31 December 2010

Non-current assets

Non-current assets at 31 December 2010 amounted to 141,397 thousand, up by 3,094 thousand compared to the value of
138,303 in 2009 pro-forma.

Ref 1 Intangible assets

Intangible assets amounted to 61,432 thousand decreasing by 639 thousand compared to 62,071 thousand of the pro-forma
financial statements at 31 December 2009. The breakdown of intangible assets is described below.

"Goodwill", the recognition of which should be considered as final, as mentioned in section 4.5, amounted to 59,809 thousand.
No specific assets were identified to which all or part of that goodwill could be allocated; goodwill includes the effects of the
Aviation branch contribution as well as the consolidation of Sameitaly and Wokita, accounted for as follows:

The recognition of goodwill amounting to 56.4 million resulting from (i) the recognition at fair value rather than at
historical values of the aforementioned contribution operation in accordance with the provisions of the OPI 1 document for
"business combination of entities or businesses under common control "and (ii) identification of the Aviation branch as the
buyer in the business combination, given its greater size compared to Meridiana fly both in terms of the amount of revenue
and value of net assets For more details about the accounting treatment of the Aviation branch contribution, the reader
should refer to the previous Section 4.5.

The recognition of goodwill amounting to EUR 6.9 million resulting from the consolidation of Sameitaly and Wokita which,
as a result of the impairment test performed at the reporting date, was written down by 3.4 million (of which 2.0 million
relating to Sameitaly and 1.4 million relating to Wokita). Following this write-down, net goodwill recognized in the financial
statements amounts to 3.4 million (of which 2.0 million relating to Sameitaly and 1.4 million related to Wokita).

Meridiana fly - Annual Financial Report at 31 December 2010 - 77


More specifically, as required by the accounting standards described in section 4.1, the Directors, supported by ad hoc appointed
experts, performed the impairment test of goodwill in accordance with IFRS / IAS international standards, in particular IAS 36
"Impairment of assets". In particular, the Directors relied on two different experts, appointed respectively:

to carry out the impairment test of the net invested capital - "carrying amount" of CGU Meridiana fly;

to carry out the impairment test of goodwill resulting from the consolidation of Sameitaly and Wokita, as, for the
preparation of the separate financial statements, impairment tests were performed on the recoverability of the carrying
amount of the investments in question, which are also relevant for the purposes of assessing the surplus value allocated
to goodwill in the consolidated financial statements with specific reference to the assets managed by the subsidiaries
themselves.

The supporting documents to the impairment tests have been reviewed and approved by the Board of Directors on 18 March
2011, with regard to impairment test of Sameitaly and Wokita and on 23 March 2011, prior to the approval of the consolidated
financial statements, with regard to the CGU Meridiana fly. The considerations made in relation to the impairment tests performed
are described below.

Impairment test on the CGU Meridiana fly

Following the completion of the strategic business combination with the aviation activities of Meridiana, the corporate entity
resulting from this process - Meridiana fly S.p.A. - is now a single business unit which, for the purposes of the "impairment"
analysis may not be "split" into different CGUs. In this regard it should be noted that the allocation, for the purposes of the
impairment test between scheduled and charter activities, between activities with and without the constraints of territorial
continuity, between medium and long haul flights, would not be consistent with the Directors' strategic vision of the Company and
would be characterized by the absence of autonomy in the formulation of competitive strategy. In addition, it should be noted that
the joint management of resources (human, material and financial resources) would make it impossible to identify autonomous
cash flows attributable to the individual operating units, especially in light of the internal organisation adopted by management for
the new post-combination entity; this organisation, in fact, expressly provides that activities carried out respond to a single central
structure, which is responsible for defining management guidelines applicable across the various business functions.

Consequently there is no production units as part of aviation activity by the group, constitute the complete set of decision-making
autonomy with respect to the entity and therefore likely to be identified in CGU in accordance with IAS 36, the exercise impairment
on the activity of air transport has been carried out with reference to the airline as a whole. Consequently, the recoverable amount
is determined by reference to the single CGU Meridiana fly.

Remember that, after integration, as further described in section 4.12, the segment reporting required by IFRS 8 is not provided at
interim results of separate business unit, as the "reporting tools for decision making "do not separate direct and indirect inputs but
they are uniformly consistent with the strategies and management structures, as well as the functional organization of the
company described above.

According to IAS 36, the recoverable amount is the higher of the fair value and the value in use. Fair value is the amount
obtainable from the sale in an arm's length transaction between knowledgeable, willing parties, less any directly attributable
expenses. Depending on circumstances, this amount is determined according to the agreed price if there is a binding sale
agreement stipulated in a transaction between independent parties (net of disposal costs) or the market price, fewer costs to sell if
the asset is traded in an active market.

On the other hand the value in use results from discounting, using an appropriate discount rate, expected positive and negative
cash flows to be derived from using the asset / CGU until the end of its useful life. The impairment loss resulting from the
impairment test is measured by the excess of the carrying amount of the asset compared to its recoverable amount.

In this regard, the Directors believe, that the financial projections underlying the New Industrial Plan 2011-2015, approved by the
Board of Directors on 18 March 2011, are not suitable for the purposes of a possible measurement of economic value, in terms of
value in use, of the CGU Meridiana; this opinion is in line with the objective to immediately implement a particularly incisive
restructuring process which may lead to improved profitability and, subsequently, to establishing the basis for a possible broad
strategic alliance providing a sustainable growth in the long run. In fact, any value that would result from discounting these

Meridiana fly - Annual Financial Report at 31 December 2010 - 78


amounts, would not in any case account for the even minimal growth assumptions in the medium or long term (e.g. in terms of
new business strategies, strategic alliances with other operators, etc..) while it would be penalized by heavy negative cash flows
expected during 2011; in this financial year in fact the restructuring activities which constitute the basis for the recovery of
profitability in the medium term, would still be on-going.

Moreover, the inclusion in the financial projections of the Business Plan of both the benefits of the restructuring, in terms of higher
revenues and lower outflows, due to cost cutting, and the costs of the restructuring in terms of increased outflows included in the
related provisions in accordance with international accounting standards, makes the Plan effectively unusable for the purposes of
the impairment test; IAS 36, paragraph 44 states in fact that "The future cash flows of the assets must be estimated with reference
to current conditions. The estimates of future cash flows should not include estimated future cash inflows or outflows that are
expected to arise from: (a) a future restructuring to which an entity is not yet committed, and (b) the improvement or optimization
of a business performance".

Given the above, the fact that Meridiana fly is a company listed on the Italian stock exchange allows compliance with the
conditions laid down by international accounting standards, for the purposes of considering the company value as measurable
based on market prices expressed by stock prices. In this regard, including on the basis of the opinion expressed by the expert
appointed, the following considerations been taken into account:

For the purposes of determining fair value, the market data resulting at year-end closing on 30.12.2010 was considered,
amounting to 0.0451 per share, resulting in a total value of 62,873 thousand. This value is significant for the purposes
of estimating fair value because it coincides with the FY end and because it is lower than the average for the year.

As an additional scenario, the average of the last 4 months of 2010 was also considered; this was the period after
completion of the capital increase. During this period, the stock was affected by a fall in stock market prices and the
average price in this four-month period was 0.048873, which results in a comprehensive assessment of Meridiana fly of
68,133 thousand. The weighted average price for the same period is slightly higher, amounting to 0.04905.

It should be noted that, after 31.12.2010, and especially after 11 February 2011, there was an increase in the company's stock
prices, and, concurrently an increase in trading volume, following the dramatic announcement to the market of the launch of the
restructuring plan resulting in the beginning of procedures for subsidised redundancy schemes and collective layoff for a
significant number of employees.

Finally, for information purposes, it should be noted that, even if one were to consider, as a limit case, the minimum closing price
recorded in the past 12 months, amounting to 0.0397 on 30 November 2010, the total capitalization of the Company would stand
at 55,345 thousand.

Based on the above information, the following table shows the different levels of capitalization of the entire company for the
various stock market prices.

Day / Time Price / Avg Price Capitalisation

(000)

1) 30.12.2010 0.0451 62,873

2) 1.9.2010 - 30.12.2010 0.048873 68,133

3) 30.11.2010 0.0397 55,345

Just for comparison, it should be noted that the capitalisation based on the average price recorded by the stock during 2011
(period 1.1 - 21.3.2011) would amount to 81,562 thousand, and the capitalisation referred to the average price recorded so far in
the month of March (period 1.3 - 21.3.2011) would be 101,136 thousand.

Meridiana fly - Annual Financial Report at 31 December 2010 - 79


It is believed that the market value, given a free float of about 20%, is sufficiently representative to determine the market liquidity
and marketability of the share on the stock exchange, taking into account the average daily trading volume recorded in the period
of observation. In this regard it should be noted that the average daily volume of trading in the last quarter of 2010 totalled 3.35
million shares, and, given an average stock price in the same period of 0.0476, it corresponds to an average daily trade
amounting to about 160,000. The period 1.10-30.12.2010 is used because it is subsequent to the capital increase completed in
August 2010 and therefore is not affected by the change in the number of shares.

According to estimates made, the market value (fair value) - which, moreover, for the purposes of consistent comparison with the
carrying value should be increased by the amount of net debt - was significantly higher than the book net invested capital as at the
date of the financial statements ("carrying value"), estimated at approximately 45 million.

Therefore no impairment loss is applicable to the CGU Meridiana fly and the related Goodwill. This conclusion was confirmed by
tests carried out - for the sole purpose of assessing the measurement made according to the methods described above - making
use of the multiples method, expressed by the market and identified only with regard the income statement indicators of sales and
Ebitdar. In both cases, the valuation of the CGU based on market multiples would be higher than the carrying value.

Please refer to Section 2.25 above Ref 2 for a discussion on the risks related to the impairment evaluation process, given the
conditions in which the Company and the Group are currently operating.

Impairment test on goodwill arising upon consolidation of Sameitaly and Wokita

As mentioned, the performance of the impairment test related to Sameitaly and Wokita, carried out by an appointed expert, resulted
in an overall write-down amounting to 3.4 million. This impairment was recognised for 50% of the total value of goodwill recorded,
as this impairment is attributable only to the share (amounting precisely to 50%) of these subsidiaries already held by the Company
prior to 28 February 2010. In fact, upon consolidation, the value of the investments, by applying the historical values in accordance
with OIC (Italian Accounting Board) Principle 4 and with reference to the separate and consolidated financial statements of
Meridiana S.p.A., has been recognised - for the remaining 50% held by the Aviation Branch of Meridiana which was identified as
the acquiring party in the business combination - at historical values as therein recorded, with no additional surplus.

Please refer to the information given in paragraph 9.7 Ref. 5 - Investments - for a discussion on the impairment test carried out to
determine the recoverable amount of Sameitaly and Wokita, which was estimated by discounting operating cash flows (method
UDCF Unleveraged Discounted Cash Flow ) in the time horizon of the new business plan approved by the Boards of Directors of
the two subsidiaries on 17 March 2011, to which the terminal value of cash flows normalised through the perpetuity formula and the
value of Net debt at the date of the estimate were added.

The discount rate used (equal to the weighted average cost of capital - WACC) was 11% for Sameitaly and 16% for Wokita.

The estimates were made taking into account past experience as well as the objective difficulties in making projections in the
current economic and financial environment, in particular in the reference industry; as a result, no expected growth rate ("g) was
calculated to mitigate the risks that the assumptions underlying the plan could not be fully met.

Given the significant sensitivity of the value in use to changes in the discount rate or the rate of growth used in the estimates - in a
situation where revenues (in volume and value) and operating costs, as well as the rate of discount itself, are dependent on the
evolution of macroeconomic variables that cannot be controlled by the Company - the Board of Directors cannot rule out that, in
the future, differences in the performance of these variables compared to those reasonably foreseeable on the basis of current
knowledge and scenario forecasts obtained from third-party sources, and used to pinpoint the underlying assumptions of forecast
data, may lead to further write-downs of goodwill arising upon consolidation of these investments.

"Concessions, licenses, trademarks and similar rights" amounted to 839 thousand, of which 583 thousand obtained from the
contribution operation. They include the value of Meridiana brand, the costs incurred for the use of software licenses,
implementation/upgrade of the website platform and the acquisition of software. The increase during the year is linked to
investments in new software.

Meridiana fly - Annual Financial Report at 31 December 2010 - 80


"Start-up and expansion costs", amounting to 31 thousand, mainly include the net residual costs of pilots training; these costs
are guaranteed by surety in favour of Meridiana fly in the event of staff leaving in the three years following the training.

"Other intangible assets" amounting to 753 thousand, are mainly related to the residual net value of the ancillary charges
incurred for new aircraft of the A320 and A330 type, acquired through operating leases.

Ref 2 Fleet

Within the Aviation Branch, ten owned MD-82 aircraft were contributed to Meridian fly.

As a result the net book value of the fleet at 31 December 2010 amounted to 29,750 thousand ( 30,090 thousand in the pro
forma financial statements at 31 December 2009). The new investments made during the period for extraordinary maintenance
and purchases of rotating material amounted to 4,140 thousand, while depreciation amounted to 4,330 thousand.

With reference to the "Fleet" item, presented in the financial statements as a separate item following the contribution of the
Aviation Branch and resulting primarily from this operation, it should be noted that - based on the assumptions included in the
Business Plan - the date of decommissioning (the so-called "phase out ") of the aircraft is set in 2015. Consistent with this
assumption the useful life of such assets was confirmed and the related depreciation was calculated. With reference to the
individual components, the useful life was estimated taking into account the possible use of the individual components, also
considering the disposal of the fleet.

As part of the impairment test carried out in relation to the CGU Meridiana fly, the value of the fleet was included in its carrying
amount, and therefore, on the basis of our previous discussion on the criteria used in the identification of the CGU, we consider
that the conclusions reached confirm the amount at which the aircraft were recognised, based on the impairment test performed
on the CGU Meridiana fly as a whole.

Ref 3 Other property, plant and equipment

"Other property, plant and equipment" amounted to 18,511 thousand, decreasing by 1,670 thousand compared to the pro-
forma data at 31 December 2009, amounting to 20,181 thousand. Capital expenditure during the year amounted to 4,029
thousand, while depreciation was 5,351 thousand.

This item includes:

Land and buildings ( 6,090 thousand) which relate to the office building in Via Ettore Bugatti 15, Milan, to which a total
mortgage of 10,000 thousand is attached in the lender banks favour. In view of the transfer of the registered office to Olbia,
which took place in early 2010, and the organisational changes underway, which include moving general and administrative
offices currently in Milan to Olbia, the carrying value of the property was verified by the Directors with reference to its market
value based on a fair value estimate, net of selling cost. This valuation was made with the help of an independent expert.
This audit revealed an impairment loss, taking into account the destination of the property, its characteristics and the current
difficult real estate market, amounting to 855 thousand; the loss was recorded in the 2010 income statement in item
"Depreciation and write-downs ".

"Equipment on leased aircraft" ( 8,763 thousand), which refers to the net value of improvements made to the fleet under
operating lease, and the net value of provisions for maintenance for aircraft reconditioning and phase out, which are
capitalised and systematically depreciated.

"Plant and Machinery" ( 842 thousand), which include rolling components, improvements to leased aircraft in the fleet, and
capitalised maintenance costs.

"Equipment" ( 1,243 thousand), relating mainly to the operational equipment in use.

"Other assets" ( 1,573 thousand), including the net book value of electronic equipment (approximately 1.1 million), as well
as the residual net value of furniture, furnishings, vehicles and other property in use.

Following is the statement of changes in intangible and tangible assets from 31 December 2009, on an individual basis, to 31 Dec.
2010, where the "Change in scope" includes the amounts from the Aviation Branch contribution, as well as the spin-off of fixed
assets to Meridiana Maintenance; both transactions were completed in late February 2010.
Meridiana fly - Annual Financial Report at 31 December 2010 - 81
Summary of changes in tangible and intangible assets (*)

000 Historical cost Depreciation Write-down/Write-up Net book value


Change Change Write-Down Change 31.12
Intangible 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
assets 2009 in scope changes 2010 2009 in scope changes 2010 2009 Write-ups in scope 2010 2009 2010
Goodwill - 63,247 - - - 63,247 - - - - - - - (3,438) - (3,438) - 59,809
Start-up and expansion costs 5,673 - - (168) - 5,505 (5,490) (50) - 66 - (5,474) - - - - 183 31
Development costs 464 - - - - 464 (459) (5) - - - (464) - - - - 5 -
Concessions, licenses, trademarks and similar rights 2,161 284 - 5,035 - 7,480 (1,712) (477) - (4,452) - (6,641) - - - - 449 839
Other intangible assets 1,694 7 - 275 - 1,976 (763) (244) - (216) - (1,223) - - - - 931 753
Total 9,992 63,538 - 5,142 - 78,672 (8,424) (776) - (4,602) - (13,802) - (3,438) - (3,438) 1,568 61,432

000 Historical cost Depreciation Write-down/Write-up Net book value


Change Change Write-Down Change 31.12
Fleet 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
2009 in scope changes 2010 2009 in scope changes 2010 2009 Write-ups in scope 2010 2009 2010
Aircraft - - - 211,480 - 211,480 - (1,553) - (175,170) - (176,723) - - (24,810) (24,810) - 9,947
Maintenance - 2,674 - 32,557 - 35,231 - (1,259) - (20,731) - (21,990) - - - - - 13,241
Rolling material 4,565 1,466 (167) 31,991 - 37,855 (2,065) (1,518) 164 (27,301) - (30,720) - - (573) (573) 2,500 6,562
Total 4,565 4,140 (167) 276,028 - 284,566 (2,065) (4,330) 164 (223,202) - (229,433) - - (25,383) (25,383) 2,500 29,750

000 Historical cost Depreciation Write-down/Write-up Net book value


Change Change Write-Down Change 31.12
Other property, plant 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
and equipment 2009 in scope changes 2010 2009 in scope changes 2010 2009 Write-ups in scope 2010 2009 2010
Systems on third party aircraft 12,727 3,551 (806) 11,707 10,444 37,623 (7,246) (4,059) 805 (9,465) (8,895) (28,860) - - - - 5,481 8,763
Land, buildings and works on third party property 8,881 10 (567) 1,606 - 9,930 (1,210) (222) - (1,553) - (2,985) - (855) - (855) 7,671 6,090
Plant and machinery 1,245 113 - 1,291 - 2,649 (599) (151) - (1,057) - (1,807) - - - - 646 842
Equipment 1,675 81 - 6,384 41 8,181 (715) (217) - (6,006) - (6,938) - - - - 960 1,243
Other assets 2,454 274 (78) 11,343 - 13,993 (1,987) (702) 45 (9,801) - (12,445) - - - - 467 1,548
Assets under construction 14 - - 126 (115) 25 - - - - - - - - - - 14 25
Total 26,996 4,029 (1,451) 32,457 10,370 72,401 (11,757) (5,351) 850 (27,882) (8,895) (53,035) - (855) - (855) 15,239 18,511

(*)Amounts at 31 December 2009 are those resulting from the separate financial statements.

Meridiana fly - Annual Financial Report at 31 December 2010 - 82


Ref 4 Deferred tax assets

This item amounted to 7,480 thousand, decreasing by 1,631 thousand compared to the corresponding item in the pro-forma
statements at 31 December 2009, amounting to 9,111 thousand; the decrease mainly reflected the updated estimate of deferred
tax assets based on recoverable tax losses under the New Business Plan 2011-2015 and the recognition of deferred tax assets
related to IRES and IRAP resulting from positive temporary differences which will flow into future financial years reporting a tax
profit in accordance with the provisions of the Plan.

The changes in FY2010 of deferred tax assets compared to the amounts in the individual financial statements of Meridiana fly at 31
December 2009 are summarized in the table below.

Changes 2010 Taxes


Change in
recognized in
31.12 scope 31.12
equity
000 2009 Increases Decreases 2010
Provisions for liabilities and charges 383 660 (383) - - 660
Provision for doubtful receivables 381 1,238 - - - 1,619
Entertainment expenses and gifts - - - - - -
Trademark amortisation 12 3 - - - 15
Unrealised foreign exchange gains and losses 244 - (244) - - -
Costs for capital increases (deducted from equity) 79 - - - 116 195

Tax losses carries forward 7,357 - (3,126) - - 4,231


Other employee benefits - - (364) 364 - -
Depreciation repairable material not deducted - - (199) 199 - -
Total Deferred tax assets IRES (corporate tax) 8,456 1,901 (4,316) 563 116 6,720

Provisions for liabilities and charges 166 537 - - - 703


Write-down of Assets 26 33 (26) - - 33
Write-down of inventory - 2 - - - 2
Entertainment expenses and gifts - - - - - -
Trademark amortisation 3 3 - - - 6
Listing costs (deducted from equity -IAS ) 29 - - - (29) -
Depreciation repairable material not deducted - - (12) 28 - 16
Total Deferred tax assets IRAP (Regional Business 224 575 (38) 28 (29) 760
Tax)
Total Deferred tax assets 8,680 2,476 (4,354) 591 87 7,480

Deferred tax assets include the estimated benefit on tax losses carried forward from fiscal years 2008, 2009 and 2010 amounting to
4.2 million corresponding to 15.4 million of future taxable income, against 22 million of expected taxable income according to
the New Business Plan 2011-2015. The downward adjustment to taxable income taken as reference for the recognition of deferred
tax assets on tax losses carried forward was prudentially made to take into account the risk component related to the high exposure
of expected income to scenario variables that the Company cannot control.
The reader should refer to section 4.1 "Accounting standards and criteria" for a discussion on the effects on the measurement of
deferred tax assets, resulting from a failure to realize the future taxable income envisaged in the Plan.
It should be noted that the total amount of tax losses carried forward in the financial years included in the new business plan
amounted to approximately 111.7 million.
As already noted, the analysis of recoverability of deferred tax assets, which led to a net reduction in these assets for an amount of
1.9 million (including a reduction of 3.1 million relating to the benefits associated to the tax losses carried forward, partially
offset by the recognition in this financial year of deferred tax assets for IRES and IRAP taxes relating to positive temporary
differences that will flow into future financial years reporting a tax profit ) was based on the expected taxable income that could be
inferred from the new business plan for the financial years 2011-2015.

Meridiana fly - Annual Financial Report at 31 December 2010 - 83


Ref 5 Equity investments

31.12 31.12
Change
/000 2010 2009 Proforma
Other equity investments 1.978 1 1.977
Total investments held for sale 1.978 1 1.977

Investments in other companies amounted to 1,978 thousand at the end of 2010 compared to 1 thousand in the pro forma
financial statements at 31 December 2009.

The item includes the investment in Meridiana Maintenance following the contribution of the maintenance branch ( 1,967
thousand) and the investment in Meridiana Express ( 10 thousand); With reference to the assessments on the recoverability of
the carrying amount of Meridiana Maintenance, the draft financial statements of this subsidiary at 31 December 2010 reported a
non-significant loss.

Ref 6 Other non-current financial assets

Non-current financial assets amounted to 21,659 thousand compared to the pro-forma data of 31 December 2009 of 15,075
thousand. They are primarily represented by security deposits in favour of lessors for use of aircraft and other security deposits in
favour of other suppliers ( 18,494 thousand) as well as the fixed-term deposit with Intesa Sanpaolo S.p.A. for the issuance of
sureties in favour of the aircraft lessor ( 3,165 thousand).

Ref 7 Other non-current receivables

The amount of 587 thousand ( 1,774 thousand in the pro-forma financial statements at 31 December 2009) refers to the non-
current portion of receivables from Airbus for the purchase of aviation goods and services as a result of the termination of the
contract for the purchase of three long-haul A350 aircraft signed in previous periods.

Current assets

Current assets at 31 December 2010 amounted to 151,912 thousand, up by 11,539 thousand compared to 140,373 in the
2009 pro-forma financial statements.

Ref 8 Inventories

Inventories amounted to 627 thousand ( 4,207 thousand in the pro-forma financial statements at 31 December 2009).
Inventories are made up of catering and office supplies.

The decrease is largely represented by the value attributed to aircraft consumables in the contribution of the maintenance branch
to Meridiana Maintenance at the end of February 2010.

Ref 9 Trade receivables and other current assets

"Trade receivables and other current assets" amounted to 138,136 thousand, recording an increase of 20,295 thousand
compared to pro-forma data at 31 December 2009. The changes are shown in the table below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 84


31.12 31.12
Change
/000 2010 proforma2009
Trade receivables 108,395 92,297 16,098
Provision for doubtful receivables (20,627) (18,251) (2,376)
Total trade receivables 87,768 74,046 13,722
Receivable for "solidarity"contracts 15,799 13,214 2,585
Receivable for contributions from ENAC 13,821 10,043 3,778
Accrued income and prepaid expenses 9,679 6,641 3,038
Receivable from parent for claim collection 3,789 - 3,789
Current portion of AIRBUS receivable 1,077 934 143
Other current assets 7,403 12,963 (5,560)
Provision for doubtful receivables -other debtors (1,200) - (1,200)
Total current assets 50,368 43,795 6,573
Total trade receivables and other current assets 138,136 117,841 20,295

Trade receivables consist primarily of receivables from tour operators, private clients, airlines and agencies. They are adjusted by
the provision for doubtful receivables; the table below shows the changes in this item starting from the individual financial
statements at 31 December 2009:

Other
31.12.2009 Provisions Utilisations Change in scope 31.12.2010
000 changes
Provision for doubtful tra de receivables (12,844) (3,643) 1,267 (5,407) - (20,627)
Provision for doubtful receivables -other debtors - (1,200) - - - (1,200)
Provision for doubtful receivables (12,844) (4,843) 1,267 (5,407) - (21,827)

"Trade receivables" include amounts due from related parties which are described in detail in Section 4.13 - Related Party
Transactions.

Given pending litigation, the Directors considered that the allocations to the provision for doubtful receivables reflected in these
financial statements are appropriate and adequate to represent the risk of write-off of receivables due from counterparties.

The item, "Other current assets" includes in particular the "social security receivables for staff Solidarity Agreements" concerning
the amounts due by the competent pubic authorities on the basis of the procedure provided for solidarity agreements of Meridiana
fly which expired in September 2010. With regard to this receivable, 5.4 million were collected in the first quarter of 2011.

The item "Receivables for ENAC (Civil Aviation Authority) contributions" includes amounts receivables from the Civil Aviation
Authority relating to the balance of contribution for the territorial continuity of Sardinia and Sicily due for the periods 2007-2010,
resulting mainly from the Aviation Branch contribution.

The "Accrued income and prepaid expenses" increased by 3,038 thousand compared to the pro-forma amount at 31 December
2009 of 6,641 thousand, due to the increase in prepayments on operating costs. They include, among others, the prepayment of
2 million for a promotional contribution paid in the fourth quarter of 2010 in favour of ORP (Opera Romana Pellegrinaggi); an
agreement was signed with ORP that provides for significant increases in charter and scheduled flights on some medium haul
destinations (see Section 2.14.11).

The item "Due from Parent Company" of 3,789 thousand refers to sums collected by the parent Meridiana S.p.A. as
reimbursement for claims by aircraft lessors with regard to maintenance for which Meridiana fly is responsible since the
contribution of the Aviation branch. The reimbursement of such amounts by the parent company is expected in 2011.

The "Current portion of Airbus receivable" of 1,077 thousand refers to the proportion of short-term receivables for the purchase
of aviation goods and services following the agreement to terminate the contract for the purchase of three A350 long-haul aircraft
(see also Ref 7).

The item "Other current assets" mainly includes advances to suppliers ( 1,494 thousand), receivables from intermediaries for
credit card sales ( 962 thousand), due from employees ( 333 thousand), deferred income tax assets ( 551 thousand), net

Meridiana fly - Annual Financial Report at 31 December 2010 - 85


receivables from travel agencies collection systems (BSP - 478 thousand) and the clearing system for air carriers and operators
(ICH - 1,744 thousand), as well as other smaller receivables.

Ref 10 Current financial assets

"Current financial assets" amounted to 479 thousand ( 3,849 thousand in the pro-forma financial statements at 31 December
2009) and refer to the fair value measurement of derivative contracts on jet fuel transferred by Meridiana S.p.A. with the Aviation
Branch contribution operation.

Ref 11 Cash and cash equivalents

Cash and cash equivalents at 31 December 2010 amounted to 12,670 thousand compared to 14,476 thousand in the pro-
forma financial statements at 31 December 2009 ( 6,647 thousand in the 2009 financial statements).

Group equity

At 31 December 2010 the share capital of Meridiana fly, fully paid up, amounted to 20,901 thousand divided into 1.394.086.688
shares with no par value.

The consolidated shareholders' equity, after the extraordinary operations of in cash and in kind capital increase carried out during
FY2010, amounted to 8,439 thousand, taking into account the effects of the consolidation of the subsidiaries Sameitaly S.r.l. and
Wokita S.r.l. as well as of the net loss for the year, amounting to 46,411 thousand,

For additional details on shareholders' equity, please refer to section 4.8 - Analysis of changes in consolidated equity.

Non-current liabilities

Non-current liabilities at 31 December 2010 amounted to 52,293 thousand, up by 13,995 thousand compared to the value
recorded in the 2009 pro-forma financial statements ( 38,298 thousand).

Ref 15 Long-term borrowings

The long-term borrowings, which amounted to 24,531 thousand, consist of the Banca Profilo mortgage loan obtained in 2003 for
1,568 thousand (debt secured by mortgage on the property in Milan for 10 million), the new 36 months maturity syndicated
loan amounting to 14,463 thousand (net of expenses recorded in accordance with the amortised cost) and the non-interest
bearing loan granted by the parent Meridiana S.p.A. for 8,500 thousand.

In particular, the mortgage loan was reduced by 616 thousand due to the repayment of the half-yearly instalments of the
mortgage.

All the instalments payable on the mortgage fall due within five years; the repayment plan of the loan is shown below:

Repayment of principal per year / 000

2011 603
2012 618
2013 641
2014 309
total 2171

Therefore, the Group's debt with maturity over five years amounted to 8,500 thousand represented solely by the interest free
loan granted by Meridiana S.p.A., due to expire on 31 August 2016.

16 ref-provisions for post-employment benefits (TFR) and other defined benefit plans

Meridiana fly - Annual Financial Report at 31 December 2010 - 86


This item amounted to 13,371 thousand, recording an increase of 683 thousand compared to the 31 December 2009 pro-
forma data. The breakdown is as follows:

000 31.12.2010 Pro forma 31.12.2009 Change


Post-employment benefits provision 11,883 11,074 809
Provision for subsidised tickets 1,488 1,614 (126)
Total 13,371 12,688 683

Following the contribution of the Meridiana Aviation Branch, Meridiana's employees (approx. 1070), their employment contracts as
well as the subsidized tickets provision, were transferred to Meridiana fly.

This item comprises the "post-employment benefit provision" (TFR) for the termination of employment contracts, and the
"subsidised tickets provision" on the routes operated by the Company granted to retired former employees of Meridiana (and their
spouses) with at least ten years of service and having retired while employed by the Company.

Both of these liabilities are considered "defined-benefit plans" and therefore are determined at year-end by using actuarial
methods in accordance with the provisions of IAS 19.

The assessment of the post-employment benefit provision, in accordance with IAS 19, resulted in a liability at 31 December 2010 of
11,883 thousand.
This assessment was made taking into account the new rules on post-employment benefit provision established by Law no. 296 of
27 December 2006.

The table shows the changes, during the year, in the "post-employment benefit provision" in comparison with the2009 individual
financial statements:

Description 2010 2009


Net liability at 1 January 2,478 2,708
Change for contribution 8,829 -
Other adjustments to initial provision 283 -
Current cost for the year - -
Interest expense (income), net 273 61
Actuarial (Gains) losses 786 (54)
Cost for the year 1,059 7
(services paid) (766) (273)
Net liability at 31 January 11,883 2,478

The table below shows the changes in the "subsidised tickets provision" occurred during the year:

Description 2010 2009


Net liability at 1 January - -
Change for contribution 1,429 -
Current cost for the year 47 -
Interest expense (income), net 41 -
Actuarial (Gains) losses 85 -
(services paid) (114) -
Net liability at 31 January 1,488 -

Please note that for both the liabilities mentioned above, actuarial losses were recognized in the comprehensive income statement
for an amount of 871 thousand before tax.

The main assumptions underlying the actuarial calculations were the following:
- technical demographic basis according to statistical tables by independent sources, split by sex;
- probability of advance payment request of the post-employment benefit at a 4% rate of 70% of the benefits accrued;
- retirement age as provided for by the most current legislation;
- rising yield curve (from 2.31% in the 1st year -to 5.43% in the 30th year)

Meridiana fly - Annual Financial Report at 31 December 2010 - 87


- average annual inflation rate of 2%
- for subsidised tickets, reduced propensity to fly in old age with a 3% annual cost reduction
until 80 years of age.

Ref 17 Provisions for non-current liabilities and charges

Provisions for non-current liabilities and charges amounted to 11,222 thousand ( 19,437 thousand in the pro-forma financial
statements at 31 December 2009), down by 8,215 thousand compared to pro-forma figures at 31 December 2009.

They consist of maintenance provisions for reconditioning and phase-out of aircraft under operating leases.

The changes in this item, based on opening balances from the individual financial statements as at 31 December 2009, are shown
in the table below.

Change in scope of consolidation and


000 31.12.2009 Provisions Utilisations other movements 31.12.2010
Reconditioning provision for leased Airbus 6,275 2,036 (231) 3,142 11,222
Total non-current provisions for liabilities and charges 6,275 2,036 (231) 3,142 11,222

In FY2010 utilisations of the provision concerned the phase out of an Airbus A319 in June 2010.

The increases relate to the provisions booked in relation to new aircraft added to the fleet in 2010 (three A320 and one A319).
Changes in the scope of the fleet and other changes include the contribution of Meridiana Aviation Branch (MD-82 and A319), the
estimates subsequently revised to take into account the sums to be paid for the phase out of the MD-80 aircraft during FY2011
and the reallocation of a portion of the existing provision between current and non-current provisions for liabilities and charges.

Ref 18 Deferred tax liabilities

Deferred tax liabilities amounted to 3,169 thousand, decreasing by 820 thousand compared to the corresponding item in the
pro-forma financial statements at 31 December 2009 amounting to 3,989 thousand (EUR 86 thousand in the 2009 financial
statement).

This item includes deferred tax liabilities already recognized in the financial statements of the parent Meridiana S.p.A. and
transferred to Meridiana fly S.p.A. as a result of the contribution of the Aviation branch under the neutral tax regime.

More specifically, these are deferred tax liabilities for IRES (corporate income tax) and IRAP (regional tax on productive activities)
taxes relating to negative temporary differences associated primarily with the misalignment between the carrying amounts and the
corresponding tax base of certain assets (owned MD-82 fleet and investments in companies) and the adjustment of post-
employment benefit provision in accordance with IAS 19.

The changes in deferred tax liabilities is summarised in the table below.

31.12 Changes 2010 Income taxes 31.12


Increases Decreases Change in scope Recorded in
000 2009 equity 2010
post-employment benefits (TFR) 86 - - 125 (44) 167
Write-up of assets -no tax effect - 36 (181) 2,759 - 2,614
Write-down of assets - no tax effect - - - (155) - (155)
Reversal of previously deducted FTA funds - - (36) 203 - 167
Investments in subsidiaries at fair value - - (96) 96 - -
Effect of IAS 17 - - - 3 - 3
Assets and liabilities in foreign currency - - (443) 443 - -
Total Deferred taxes IRES (corporate tax) 86 36 (756) 3,474 (44) 2,796
Write-up of assets -no tax effect - 5 (25) 391 - 371
Write-down of assets - no tax effect - - - (22) - (22)
Reversal of previously deducted FTA funds - - (5) 29 - 24
Total Deferred taxes IRAP (Regional Business Tax) - 5 (30) 398 - 373
Total Deferred taxes 86 41 (786) 3,872 (44) 3,169

Meridiana fly - Annual Financial Report at 31 December 2010 - 88


Current liabilities

Current liabilities at 31 December 2010 amounted to 232,577 thousand, recording a decrease of 3,052 thousand compared to
pro-forma financial statements at 31 December 2009.

Ref 19 Short-term borrowings

"Short-term borrowings" amounted to 7,342 thousand, down by 13,042 thousand compared to the 2009 pro-forma data (they
amounted to 13,501 thousand in the 2009 financial statements); they consist of the stand-by revolving cash loan with18 months
maturity, provided by a syndicate of banks and subject to financial covenants as well as to commitments and restrictions as
explained in section 2.14.12 "Bank debt restructuring.

This amount is valued at amortised cost in order to take into account the costs related to the signing of the above agreement,
which were recorded as a reduction to the gross amount received of 7,550 thousand.

Ref 20 Current portion of long-term borrowings

The current portion of long-term borrowings amounted to 603 thousand, down by 971 thousand compared to the pro-forma
data at 31 December 2009 and the 2009 financial statements.

It includes only the current portion of the mortgage loan granted by Banca Profilo for the purchase of the property in Via Bugatti,
Milan.

Ref 21 Provisions for current liabilities and charges

The "Provisions for current liabilities and charges" amounted to 24,210 thousand, increasing by 10,305 thousand compared to
the pro-forma data at 31 December 2009 amounting to 13,905 thousand.

The changes are shown in the table below.

Change in scope of
consolidation and other
000 31.12.2009 Provisions Utilisations changes 31.12.2010
Provision for litigation 1,800 7,597 (4,212) 10,100 15,285
Reconditioning provision for leased MD aircraft - 1,549 5,871 7,420
Maintenance provision 456 (456) -
Provisions for other risks 1,616 144 (533) 278 1,505
Total current provisions for liabilities and charges 3,872 9,290 (4,745) 15,793 24,210

These provisions have increased, as a result of the provisions contributed by the Aviation Branch (change in scope for 10,378
thousand) as well as for the allocations made in the year 2010 for 9,290 thousand to cover for the risks associated with the
disputes and legal proceedings underway with passengers, staff, suppliers and other counterparties (see paragraph 2.17
Significant Litigation).

Among the changes in scope and other changes there was the reclassification under the provision for "current" liabilities and
charges of the instalment of the six MD-82 aircraft under operating leases for which the activities for reconditioning and phase-out
will be carried out by the year 2011 according to the new Business Plan ( 5,871 thousand).

Referring to section 4.1.2 above "Accounting standards, measurement criteria and use of estimates in the preparation of financial
statements" for a discussion on the estimating nature of the process for assessing the adequacy of the provisions for liabilities and
charges and the inherent resulting uncertainties, it was considered - also based on the opinions of independent legal support - that

Meridiana fly - Annual Financial Report at 31 December 2010 - 89


the provisions for liabilities and charges resulting from the financial statements at 31 December 2010 are adequate and reflect the
liabilities of the Group in accordance with IAS 37.

Ref 22 Trade payables and other current liabilities

Trade payables and other current liabilities amounted to 200,422 thousand, up by 13,792 thousand compared to the pro-forma
financial statements at 31 December 2009, as shown below.

31.12 31.12
Change
/000 2010 proforma 2009
Trade payables 147,879 120,969 26,910
Payables to social security institutions 3,570 4,084 (514)
Payables for pre-paid/invoiced tickets and taxes 34,110 48,644 (14,534)
Accrued liabilities and deferred charges 1,126 1,099 27
Advances 154 845 (691)
Taxes payable 3,111 913 2,198
Other payables 10,472 10,076 396
Total trade payables and other current liabilities 200,422 186,630 13,792

"Trade payables" include amounts due to related parties which are described in detail in Section 4.13 - Related Party
Transactions.

"Payables for pre-paid/pre-invoiced tickets and taxes" of 34,110 thousand refer to scheduled flights sold and cashed in still to be
carried out, as well as pre-sales of charter flights to tour operators to be carried out in January 2011.

"Tax liabilities" refer to withholding taxes payable, VAT and income taxes payable, net of the related tax credit from the previous
year (the latter amounting to 362 thousand).

The item "Other payables" refers primarily to amounts due to employees for holidays not taken and additional monthly payments
( 6,677 thousand), deposits received as collateral, payments due to directors and statutory auditors and other smaller payables.

At 31 December 2010 there were pending injunctions amounting to 2.6 million, primarily related to Alitalia in extraordinary
administration.

4.7. Analysis of the operating performance for the year

Ref 23 Revenues from sales

Revenues from sales totalled 604,812 thousand compared to 647,762 thousand in the 2009 pro-forma income statement.

These revenues include revenues from direct flights (scheduled/charter), boarding fees, income from code-sharing activities,
ACMI revenues and other ancillary traffic revenues.

It should be noted that sales revenues from activities in code-sharing in the period were approximately 10.8 million, in
collaboration with national and international carriers.

The 6.6% decrease in revenues, compared to the 2009 pro-forma data, was due to reduced activity in code sharing (e.g. with
Lauda-Livingston), as well as to reduced capacity offered on the scheduled and charter market and lower brokerage activities
conducted through the subsidiaries.

Ref 24 Other revenues

"Other revenues, which amounted to 40,616 thousand, are summarized in the following table; they record a decrease of 1,562
thousand compared to the 2009 pro-forma data of 42,178 thousand.

Meridiana fly - Annual Financial Report at 31 December 2010 - 90


Financial Financial
Year Year
Change
pro
000 2010
forma2009
Contributions for operating expenses 16,491 19,308 (2,817)
Income on prepaid tickets 11,748 12,696 (948)
Other income with related parties 3,189 2,181 1,008
Freight income on aircraft and rolling material 56 2,102 (2,046)
Other income and extraordinary income 9,132 5,891 3,241
Total 40,616 42,178 (1,562)

The contributions for operating expenses are represented by the revenues of Sicily and Sardinia "territorial continuity" (typical
activity of Meridiana Aviation Branch), while revenues related to prepayments result from an estimate of unused tickets already
issued, which is based on the historical percentage recorded of unused tickets or tickets for which passengers did not ask for
reimbursement, in order to recognise all revenues in the financial statements on an accrual basis. Please refer to section 4.1.2
"Accounting standards, measurement criteria and use of estimates in the preparation of financial statements" for a discussion on
the estimate nature of the process of recognition of these revenues.

The decrease in "aircraft rentals" resulted primarily from lower revenues from sub-lease of an A330 (contract ended on March
2009).

Ref 25 Fuel

Jet fuel costs amounting to 158,231 thousand compared to 132,220 thousand in the 2009 pro-forma data, accounted for
26.2% (20.4% in 2009 pro-forma data) of revenues; this resulted both from the significant increase in the price of jet fuel,
approximately 29% higher on average compared to 2009, as well as lower revenues from fair value on fuel derivatives amounting
to 696 thousand in 2010 ( 2,888 thousand in the 2009 pro-forma income statement).

Ref 26 Materials and maintenance services

The costs of materials and maintenance services amounted to 86,565 thousand compared to 97,301 thousand in 2009 pro-
forma income statement and their impact on total revenues amounted to 14.3% compared to 15% in 2009 proforma income
statement.

The change was, in addition to not fully comparable data in 2010 which includes the outsourcing of maintenance services carried
out for 10 months of Sundial Maintenance, including non-recurring charges incurred in 2009 for the rehabilitation and release of
two A330s to lessors ( approximately 3.8 million).

Financial Financial
year year
Change
proforma
2010
/000 2009
Material for catering and meals 10,610 12,291 (1,681)
Technical assistance and breakdowns 243 2,017 (1,774)
Net Aircraft Maintenance 10,568 12,884 (2,316)
Maintenance, freight and catering services with related parties 33,326 40,630 (7,304)
Freight engines and rolling materials 2,788 3,486 (698)
Maintenance reserves 20,747 19,909 838
Other materials and maintenance services 8,283 6,084 2,199
Total 86,565 97,301 (10,736)

It should be stressed that, on a comparable basis, the costs of these activities decreased compared to 2009 pro forma income
statement also reflecting reduced levels of activity (flight hours and number of movements) and number of passengers
transported.

Ref 27 Operating Leases

Aircraft operating leases, which amounted to 53,391 thousand compared to 62,579 thousand in 2009 pro forma income
statement, showed an impact on revenues of 8.8% versus 9.7% in the 2009 pro-forma income statement, reflecting in particular

Meridiana fly - Annual Financial Report at 31 December 2010 - 91


the decommissioning of two A330 (present for almost the entire first half of 2009) and significantly lower cost of operating leases
for aircraft contributed by Meridiana.

Commitments for future lease payments for the Airbus and MD-80 fleet, on the basis of current contract terms and conditions are
shown in the following table:

Within 12 Between one Over five


Total
k months and five years years
Future minimum payments due under operating leases

56,166 141,536 1,886 199,522


Total 56,166 141,536 1,886 199,522

Ref 28 Selling expenses

Selling expenses, consisting of brokerage fees and other brokerage costs on the various distribution channels, amounted to
22,427 thousand compared to 25,719 thousand in 2009 pro forma income statement.

In terms of impact on revenues, this item accounts for 3.7% compared to 4% in the 2009 pro forma income statement.

It should be noted that following the contribution of Meridiana Aviation Branch, the weight and value of these costs increased
reflecting the greater focus of Meridiana on the sector of scheduled flights which involves greater use of these distribution
channels (e.g. travel agencies and booking systems).

Ref 29 Other operating costs and wet leases

Wet leases and operating costs amounted to 213,889 thousand compared to 230,395 thousand in 2009 pro-forma income
statement, with a decrease of 16,506 thousand, as shown in the following table.

Financial Financial
year year
Change
proforma
2010
/000 2009
Handling 126,682 141,131 (14,449)
Route charges 38,890 40,728 (1,838)
Blocked space (seats bought from other carriers) 16,023 10,257 5,766
Wet lease 11,918 14,362 (2,444)
Handling and wet lease with related parties 8,885 7,510 1,375
Passenger assistance and damage reimbursement 888 2,918 (2,030)
Other 10,603 13,488 (2,885)
Total 213,889 230,395 (16,506)

Their impact on turnover stood at 35.4% against 35.6% in 2009 pro forma financial statements.

Wet lease costs were lower, mainly with reference to seats purchases on flights operated by Lauda-Livingston (Long Haul), which
decreased significantly compared to 2009 reflecting different commercial operations.

Commitments for future wet lease payments, on the basis of current contract terms and conditions are shown in the following
table:

Within 12 Between one and Over five


Total
k months five years years
Future minimum payments due under operating "wet leases" 2,482 - - 2,482
Total 2,482 - - 2,482

Ref 30 Other operating costs and other services

Meridiana fly - Annual Financial Report at 31 December 2010 - 92


The "Other operating costs and other services" amounted to 32,936 thousand compared to 36,987 thousand in 2009 pro-
forma financial statements showing a decrease of 4,051 thousand. Their impact on turnover stood at 5.4% against 5.7% in 2009
pro forma financial statements.

This item includes the costs for consulting and collaboration services, advertising and promotion, insurance, utilities, leases, other
rentals, and various other services, and various extraordinary losses.

Ref 31 Staff costs

Personnel costs amounted to 91,811 thousand compared to 112,126 thousand in 2009 pro-forma financial statements; their
impact on turnover, after the business combination stood at 15.2% (17.3% in 2009 pro forma financial statements).

It should be noted that staff costs benefited from the application of solidarity contracts for approximately 9.6 million; in the first
nine months of 2010 these contracts were applied to flight crew (pilots and flight attendants),

As a result of the business combination with the Aviation Branch and the concurrent spin-off of the maintenance branch MRO,
employees increased in terms of FTE by approximately 1,000.

Ref 32 Depreciation and amortization

They amounted to 14,750 thousand compared to 12,692 thousand in 2009 pro forma financial statements.

The increase over the previous year is related to (i) the contribution of the Aviation Branch of Meridiana, which contributeda
significant amount of tangible assets (owned fleet of aircraft and other fixed assets of over 32 million); (ii) the amortisation of
goodwill upon consolidation of subsidiaries Sameitaly and Wokita for 3,438 thousand (see Ref 1), as well as the write-down
made to the value of the headquarters building of 855 thousand to reflect the lower estimated realizable value (see Ref 3).

Ref 33 Allocation to the provision for liabilities and charges

This item amounted to 7,741 thousand compared to 6,225 thousand in 2009 pro forma.

This item includes the provisions set aside to meet outstanding litigation with passengers, employees, suppliers and other
counterparties, taking into account the specific assessments carried out with the support of legal opinions, which led to more
conservative allocations for the year given the large number and the weight of the individual proceedings.

Ref 34 Other adjustment provisions

The item "Other adjustment provisions" amounted to 4,970 thousand compared to 2,399 thousand in 2009 pro forma financial
statements.

This item mainly consists of the write-downs to doubtful receivables ( 4,913 thousand) based on historical experience and
detailed analysis of individual doubtful debts.

Ref 35 Net financial income (expenses)

The balance of Net financial expenses" amounted to 1,829 thousand compared to a balance of 1,089 thousand in 2009 pro
forma financial statements.

The amount above is primarily the result of net foreign exchange losses ( 110 thousand), net interest and other financial charges
( 792 thousand), various fees on sureties and bank charges ( 613 thousand), as well as the interest cost resulting from actuarial
valuation of post-employment benefit provisions and other benefits for 314 thousand.

The details of this item are shown below.

Financial income
Financial Year Financial Year
Change
000 2010 Proforma 2009
Bank interest income 80 51 29
Foreign exchange gains 7,156 2,707 4,449
Other income 127 178 (51)
Total 7,363 2,936 4,427

Meridiana fly - Annual Financial Report at 31 December 2010 - 93


Net financial income (expenses)
Financial Year Financial Year
Change
2010 Proforma 2009
000
Interest costs, post-employment benefits and subsidized tickets 314 213 101
Interest expenses on bank loans 273 171 102
Charges on bank current accounts 383 285 98
Foreign exchange losses 7,266 2,960 4,306
Interest expense on mortgage 55 100 (45)
Commissions on sureties 226 152 74
Other 675 144 531
Total 9,192 4,025 5,167

Ref 36 Income taxes for the period

Taxes for the period amounted to 3,299 thousand compared to 5,001 thousand in 2009 pro-forma financial statements; they
consist of:

000 Financial year 2010


Current IRES 71
Current IRAP 2,082
Reversal of temporary differences IRES / IRAP previous years (745)
Partial Reversal of deferred tax assets IRES / IRAP previous years 2,429
Deferred Tax assets IRES / IRAP recognised (538)
Total 3,299

In FY year 2010 corporate income tax for IRES was not allocated given the estimated tax loss for the period.

Meridiana fly has significant tax losses carried forward amounting to approximately 111.7 million, including tax loss realized
during the 2010, which gave rise to the recognition in the consolidated financial statements of deferred tax assets linked to the
future use of some of these losses for an amount of 4,231 thousand, in view of expected taxable profits envisaged in the new
Strategic Plan 2011-2015 and taking into account the time limit in which these losses can be carried forward.

For more details on this issue, please refer to the previous section. ref. 4 - Deferred tax assets.

4.8. Analysis of changes in consolidated equity


The extraordinary corporate transactions that affected the changes in equity during FY 2010 are summarised below:

The Extraordinary Shareholders' meeting of 21 December 2009 passed resolution to cover the losses incurred during the
period 1 September 2009 - 31 October 2009 amounting to 3,828,247 through the use, for an equivalent amount, of the
share capital, which was reduced to 7,256,024.92, with no changes in the number of shares registered in the Register
of Companies of Milan on 10 February 2010.

On 28 February 2010 the in-kind capital increase was completed, with the exclusion of the pre-emptive right pursuant to
article 2441 of the Italian Civil Code approved by the Extraordinary Shareholders' Meeting on 21 December 2009; the
capital increase was paid in kind through the contribution of the Aviation Branch by Meridiana S.p.A.; more specifically,
325,247,524 shares were issued at a price of 0.1616, of which 0.02 to cover the implicit par value, and 0.1416 as
share premium for a total of approximately 52.56 million. Therefore there was a net increase in share capital and
reserves of 52,560 thousand ( 6,505 thousand and 46,055 thousand respectively), adjusted for the effects of the
business contribution of 37,232 thousand.

As, at 31 March 2010, Meridiana fly fell within the cases provided by Article 2446 of the Italian Civil Code (losses of more
than one third of the capital), Meridiana S.p.A. announced that it would convert the interest-free loan of 10 million
granted on 21 December 2009 in a payment of equal amount as advance for future capital increase, thereby increasing
the equity reserves of the Company.

Meridiana fly - Annual Financial Report at 31 December 2010 - 94


On 15 July 2010, following the approval by Consob, the company published the prospectus relating to the listing of shares
issued as part of the capital increase in kind previously described; to the pre-emptive right granted to shareholders and to
the listing of maximum 714,044,394 ordinary shares of Meridiana fly at a price of 0.056 , of which 0.01 to cover the
implicit par value and 0.046 in share premium. At the completion of this transaction 663,275,424 newly issued ordinary
shares were subscribed and paid up during the pre-emption period as well as168,000 new shares which were issued at
the end of the offer on the Stock Exchange of non-exercised rights. Finally, as a result of the commitment assumed by
Meridiana, 50,600,970 new ordinary shares were further subscribed and paid up by the latter for a total consideration of
2,834 thousand. As a result of the above the share capital increased by 7,140 thousand and reserves by 32,846
thousand.

During FY 2010 some expenses directly related to Meridiana fly capital increase in cash and in kind mentioned above
were incurred, amounting to 1,490 thousand, net of tax effect, and booked as a direct reduction from the capital
increase.

On 13 December 2010 the parent Meridiana S.p.A. made an advance payment for future capital increase of Euro 5,000
thousand which was recorded as "Other reserves" in shareholders' equity.

In view of the changes discussed above and of the net loss of 46,411 thousand reported for the 2010 financial year, the equity at
31 December 2010 amounted to 8,439 thousand.

The loss per share in 2010 was 0.0333.

The following table presents a reconciliation of shareholders' equity with the loss for the period of Parent Meridiana fly S.P.A. as
well as the corresponding consolidated figures.

Net equity riconciliation Shareholders' Profit (loss) for


000 equity 31.12.2010 the period

Parent Company Meridiana fly 10,109 -51,861

Losses of consolidated companies from 28 February 2010 to 31 December 2010 -187 -187

Elimination of the carrying value of consolidated investments -1,483 5,637

Consolidated Meridiana fly 8,439 -46,411

The effect on shareholders' equity of the consolidation adjustment relating to the elimination of the carrying amount of the
investments is as follows:

decrease of 7,119 thousand resulting from the application of the provisions of OIC Principle 4 to recognise at historical
values in the separate and consolidated financial statements of Meridiana S.p.A. the contribution of the 50% share of
Sameitaly and Wokita (contributed in the Aviation Branch), as described in the remainder of this section;

increase of 5,637 thousand, which reflects the reversal of the write-down of the equity investments being consolidated,
amounting to 9,075 thousand (of which 8,575 thousand, due to the impairment test and 500 thousand relating to the
capital contribution madeby the Parent in Wokita in the first half of 2010 and already recognized as write-down on 30
June 2010), net of the write-down of goodwill arisen upon consolidation of the subsidiaries recognised for 3438
thousand (for details see also Section 4.6- Ref 1 Intangible assets ).

Please note that, as explained in Section 4.5 - Accounting treatment of the contribution of the Aviation branch, the branch was
identified as the "buyer" for the purposes of recognising the effects of the contribution in accordance with IFRS 3, which was
applied by analogy.

Consequently, the values must be the same as those obtained from the consolidated reporting of the Aviation branch, because, in
preparing its consolidated financial statements, Meridiana S.p.A. neutralizes the benefits it recognised in equity in the separate
financial statements as a result of the fair value measurement of the mentioned investments (amounting to 7,119 thousand), the
Meridiana fly - Annual Financial Report at 31 December 2010 - 95
same accounting treatment should be undertaken by the Company pursuant to OIC Principle 4 in its consolidated financial
reporting.

Therefore, against the recognition of the investments in Sameitaly and Wokita in the separate financial statements of the Company
at the amount resulting from the contribution (corresponding to the amount reported in the separate financial statements of
Meridiana S.p.A. and measured at fair value), for the purposes of preparing these consolidated financial statements the positive
effect on consolidated shareholders' equity resulting from the contribution for an amount of 7,119 thousand, was neutralized; this
amount correspond to the aforementioned benefits resulting from recognising the contributed investments at a carrying value which
is the same as the one resulting from the fair value measurement in the financial statements of the transferor, Meridiana S.p.A.

4.9. Financial management


As shown in the consolidated cash flow statement, which illustrated the changes in cash and cash equivalents with the indirect
method, FY 2010 was characterized by an increase in cash, net of current bank loans (similar to bank overdrafts), for 12,182
thousand.

Riconciliation net cash and cash equivalents


Financial year
2010
Net Cash and cash equivalents (*)-at the beginning of period (6,854)
Cash and cash equivalents 6,646
Current bank loans (13,500)

Net Cash and cash equivalents (*)-at end of period 5,328


Cash and cash equivalents 12,670
Current bank loans (7,342)
(*) Opening balances for the individual financial statements

The main changes in cash flows are analysed below.

- Cash flows used as settlement of the balance due on the Aviation Branch contribution

The contribution operation led to a cash settlement by Meridiana fly to the transferor Meridiana S.p.A. for 5,627 thousand. This
adjustment was actually paid in the fourth quarter of 2010. Please refer also to Section 4.5 for a more detailed description of the
accounting treatment used for the contribution of the Aviation Branch.

- Cash flows generated by the consolidation of the investments in Sameitaly and Wokita

With the consolidation of the investments in Sameitaly and Wokita as from 28 February 2010, a net positive final result of 870
thousand emerged, corresponding to the cash flows resulting from the contribution.

- Cash flow absorbed by operations

In the financial year, operations resulted in a net negative change of 26,706 thousand, which was due, in particular, to the
negative change in net working capital as well as to an operating loss before taxes, which resulted in a very negative impact on
cash flow despite the adjustments related to accrual changes such as amortisation and depreciation.

- Cash flow absorbed by investments

This area resulted in a decrease of 14,290 thousand, mainly due to the net change in tangible assets as well as new security
deposits granted to lessors in order to guarantee the transfer of the finance lease agreements formerly held by Meridiana. In
particular, capital expenditure in tangible and intangible assets amounted to 8,460 thousand.

- Cash flows generated from financing activities

In the financial year, cash flow generated from financing activities was positive for 24,439 thousand; it resulted largely from the
additional loan of 8.5 million granted by Meridiana S.p.A. and from the conversion of a stand-by revolving facility of 15 million
Meridiana fly - Annual Financial Report at 31 December 2010 - 96
(arranged with Banca Nazionale del Lavoro S.p.A., UniCredit S.p.A. and Intesa Sanpaolo S.p.A.) into a 36 months loan with
repayment at maturity.

- Cash flow generated from capital transactions

In the financial year positive cash flows were generated from the capital increase in cash, net of expenses directly related, for
28,496 thousand as well as from the last payment for future capital increase, made by Meridiana for 5 million.

The reclassified net financial position is shown below:

31.12
000 2010

Intangible assets 61,432


Property, plant and equipment 48,261
Long-term Investments 23,637
A) Non current assets 133,330

Inventory 627
Trade receivables 87,768
Other receivables 50,368
Trade payables (147,879)
Other payables (76,753)
B) Working capital (85,869)
C) Invested Capital, net of current liabilities 47,461
D) Other non-financial non-current assets and liabilities (19,695)
E) Net invested capital 27,766

Group equity 8,439


F) Shareholders' equity 8,439

Long-term borrowings 24,531


Non-current financial receivables -
G) Non-current net financial debt 24,531

Current loans 7,945


Liquid funds and current financial receivables (13,149)
G) Current net financial debt (5,204)
Net financial debt (G + H) 19,327
I) Total, as in E) 27,766

4.10. Net financial position

The consolidated net financial position at 31 December 2010 was negative for 19,327 thousand.

Meridiana fly - Annual Financial Report at 31 December 2010 - 97


000 31.12.2010
consolidated

A Cash and deposits with bank (1) 12,670


B. Derivative Instruments included in cash equivalents (1) -
C. Cash and cash equivalents (A) + (B) 12,670
D. Current financial receivables 479
E. Current Bank loans(1) (2) 7,342
F. Derivative Instruments included in bank loans (1) (2) -
G. Current portion of long-term borrowings 603
H. Other current financial liabilities -
I. Current financial debt (E) + (F) + (G) + (H) 7,945
J. Net current debt (I) - (C) - (D) (5,204)
K. Non-current financial receivables -
L. Long-term borrowings 16,031
M. Bonds issued -
H. Other non-current financial liabilities 8,500
O. Non-current financial debt (L) + (M) + (N) 24,531
P. Net financial debt (J) - (K) + (O) 19,327

Reconciliation with statement of cash flow and statement of financial position:


(1) Net cash and cash equivalents 5,328
(2) Due to banks 7,342

In particular, with reference to letters C, D, I and O of the table above, the following should be noted:

C - Cash and cash equivalents

Cash and cash equivalents at 31 December 2010 amounted to 12,670 thousand and consisted of cash on hand and positive
balances on bank current accounts.

D - Current financial receivables

This item also includes the fair value of 479 thousand at 31 December 2010 of derivative contracts held for trading related to
hedging on the price of jet fuel, denominated in USD.

I - Current financial debt

Amounted to 7,945 thousand and it consisted of: (i) bank debt for short-term revolving loans amounting to 7,342 thousand ii)
the current portion of non-current loans amounting to 603 thousand.

O - Non-Current financial debt

Non-current financial debt consisted of (i) long term borrowings from banks of 1,568 thousand, represented by the over 12
months portion of the mortgage loan taken out with Banca Profilo for the purchase of the property located in Milan, (ii) bank debt
for loans with a 36 months maturity for 14,463 thousand, (iii) interest-free loan provided by Meridiana S.p.A. for 8,500
thousand due to expire in 2016.

At 31 December 2010 the total credit lines amounted to 71.3 million, of which 22.5 million on a cash basis (used 100%) and
48.7 million as endorsements and guarantees and as derivative transactions (overall use of 82 %).

Meridiana fly - Annual Financial Report at 31 December 2010 - 98


4.11. Guarantees given, commitments and other contingent liabilities

Sureties and other guarantees given


At 31 December 2010 the guarantees given to third parties by banks on behalf of the Group amounted to approximately 45
million. These bank sureties mainly refer to guarantees issued in favour of Cartas ( 20 million), ENAC for tender participation on
the routes under territorial continuity ( 10.3 million), aircraft lessors ( 6.1 million), oil companies ( 2.3 million), handlers ( 2
million) and other suppliers of materials, operational and financial services.

At 31 December 2010, a surety issued by an insurance company in favour of the Ministry of Defence to guarantee the 2011
contract of 2.4 million, and a pledge in favour of a bank for a total of USD 4.2 million, were outstanding.

A first mortgage of the value of 10 million is recorded on the Company's registered office in Via Bugatti, Milan, 15 in favour of
Banca Profilo as a guarantee of the mortgage loan granted by it for the purchase of the said property.

Commitments and other agreements


Commitments for operating leases of Airbus A330 / A320 aircraft at 31 December 2010 amounted to 199.5 million, taking into
account all maturities until 2016.

The annual commitments for real estate leases amounted to approximately 2.1 million; it should also be noted that outsourcing
agreements with Meridiana Maintenance for the provision of exclusive maintenance services determine a financial commitment
which varies according to the maintenance activities carried out.

Finally, the reader should refer to Section 2.14.11 Agreement with ORP for details on the commitments undertaken with this
counterparty.

Contingent liabilities
With regard to on-going disputes and the situation concerning these proceedings, as outlined in section 2.17 - Significant litigation,
although the Company may be required to pay higher amounts than those allocated to the provision for liabilities and charges, it is
not possible to reasonably predict the outcome of the proceedings and assess the likelihood of additional charges against the
company.

4.12. Segment reporting

With reference to IFRS 8 on segment reporting, the operating segments that are deemed as necessary by the management for the
purposes of assessing operating performance and make consequential decisions, are currently established, after the complete
integration of the Aviation branch of Meridiana, in the Group as a whole.
Indeed, following the completion of the strategic business combination with the aviation activities of Meridiana, the corporate entity
resulting from this process - Meridiana fly S.p.A. - is now a single business unit which cannot be "split" into different CGUs

In this regard it should be noted that the allocation, for the purposes of the impairment test between scheduled and charter
activities, between activities with and without the constraints of territorial continuity, between medium and long haul flights, would
not be consistent with the Directors' strategic vision of the Company and would be characterized by the absence of autonomy in
the formulation of competitive strategy. In addition, it should be noted that the joint management of resources (human, material
and financial resources) would make it impossible to identify autonomous cash flows attributable to the individual operating units,
especially in light of the internal organisation adopted by management for the new post-combination entity; this organisation, in
fact, expressly provides that activities carried out respond to a single central structure, which is responsible for defining
management guidelines applicable across the various business functions.

Meridiana fly - Annual Financial Report at 31 December 2010 - 99


Therefore there are no production units within the aviation business carried out by the Group such as to represent independent
decisions making systems with respect to the entity and therefore to be identified in distinct reporting segments pursuant to IFRS
8.

From another perspective, the revenues and total assets attributable to the subsidiaries Sameitaly (General Sales Agent) and
Wokita (tour operator) cannot be considered as significant.

Therefore, in these notes, there are no data or tables presented for distinct business segments at a more detailed level than that of
the entire Group.

4.13. Related party transactions

At 31 December 2010 Meridiana fly S.p.A. is controlled by Meridiana S.p.A. with a share of 78.05% (at the end of 2009 it was
59.58%).

Transactions entered into by the Company with related parties during 2010 mainly concerned the provision of financial services and
transactions with the parent Meridiana S.p.A. and other companies of the Meridiana Group.

These transactions fall within the ordinary management of the Company, are made on an arm's length basis, i.e. at the conditions
that would be applied between two independent parties and are performed in the interest of the Company.

Related party transactions at December 31, 2010 identified in accordance with IAS 24, as well as some details on the main
commercial and operational relationships with related parties are summarised in the tables below.

31.12.2010
000 Receivables Payables
Geasar S.p.A. 1,067 6,718
Meridiana S.p.A. 4,097 8,693
Alisarda S.r.l. - -
Cortesa S.r.l. 13 529
Eccelsa S.r.l. 25 32
Prima S.r.l. 3 -
Meridiana Maintenance S.r.l. 946 13,481
EF USA Inc. 2,078 441
AKFED 96 92
Finaircraft 1,220 1,033
Air Burkina 18 -
Air Uganda 14 -
CAM (Compagnie Aerienne Du Mali) 20 -
Total 9,597 31,019

Financial year 2010


/000 Costs Revenues
Geasar S.p.A. 9,810 1,135
Meridiana S.p.A. 1,419 3,015
SameItaly S.r.l. 126 -
Alisarda S.r.l. 522 13
Cortesa S.r.l. 493 14
Eccelsa S.r.l. - 6
Meridiana Maintenance S.r.l. 33,024 1,600
EF USA Inc. - -
AKFED 742 430
Total 46,136 6,213

Meridiana fly - Annual Financial Report at 31 December 2010 - 100


Receivables / Payables
At 31 December 2010 receivables from Meridiana S.p.A. amounted to 4,097 thousand; they mainly related to the collection by
Meridiana S.p.A. of receivables from lessors for assets claims ( 3,789 thousand) transferred to Meridiana fly as part of the
business combination on 28 February 2010 and the Sameitaly receivable from Meridiana S.p.A. resulting from domestic tax
consolidation for the tax year 2010 ( 150 thousand). Amounts due to Meridiana S.p.A. of 8,693 thousand are mainly related to
non-current loans of 8.5 million disbursed by the latter at the end of 2010.
Other receivables and payables to related companies are mainly trade receivables- payables, accrued for services rendered or
received with the various related companies as per their existing relationships, which are described in a subsequent section.

Total %
000 Related parties
Trade receivables and other current assets 138,136 9,597 7%
Long-term borrowings 24,531 8,500 35%
Trade payables and other current liabilities 200,422 22,519 11%

Revenues / costs for purchase and supply of services


At 31 December 2010 revenues from related parties amounted to 6,213 thousand, mainly due to billing to Meridiana for flights
performed in ACMI mode, during the first two months of 2010 ( 2.5 million); global services, payroll management services,
administrative services and tax services provided to Meridiana Maintenance ( 1.6 million).
The costs, amounting to a total of 46,136 thousand, were mainly triggered by maintenance activities provided by Meridiana
Maintenance ( 33 million), handling activities provided by GEASAR ( 8.8 million), and for oversight activities, consulting and other
services provided by Meridiana S.p.A. as well as from commissions earned on code-sharing sales by Meridiana, on flights of the
Company in the first two months of 2010 ( 1.4 million).

Total %
000 Related parties
Revenues 604,812 2,584 0%
Other Revenue 40,616 3,629 9%
Operating leases 53,391 742 1%
Materials and maintenance services 86,565 33,326 38%
Selling expenses 22,427 290 1%
Other operating and wet lease costs 213,889 8,885 4%
Sundry costs and other services 32,936 2,893 9%

Relations with Meridiana S.p.A.

After the contribution operation, relations with the parent Meridiana S.p.A. are related to a greater extent to financial agreements
(temporary funding and guarantees on Meridiana fly loans from a syndicate of banks).

Relations with Geasar

Supply relations with Geasar (a company controlled by Meridiana S.p.A.) concern the following activities currently carried out by
Meridiana fly:

1. services of advertising and commercial contributions;

2. payroll services;

3. information management services.

Purchasing relations concern the following activities currently carried out by Geasar:

1. handling / catering services for aircraft and passengers at the airport of Olbia;

Meridiana fly - Annual Financial Report at 31 December 2010 - 101


2. use of offices and other spaces (e.g., VIP lounges) at the airport of Olbia;

3. provision of advertising space at the airport of Olbia.

Relations with Meridiana Maintenance

Purchasing relations in place with Meridiana Maintenance (a subsidiary of Meridiana S.p.A. and 16.38% owned by Meridiana fly)
cover maintenance services, technical management and other services related to the management of special service agreements
relating to the fleet of Meridiana fly.

Meridiana fly provides the following services:

1. administrative, legal and corporate services;

2. payroll services and human resources management;

3. other services in global service

Relations with Finaircraft

The relations with this company, wholly owned by AKFED, concern maintenance services of aircraft in use at the African
companies of the Group, provided by Finaircraft and recharged to the same.

Relations with AKFED

An agreement is in place with AKFED for the provision of consulting services in the field of air transport by Meridiana fly. For
completeness it should be noted that AKFED has made financial commitments as part of the company restructuring.

The services provided by AKFED are mainly related to the operating lease of the A319 I-EEZQ included in the fleet in June 2010.

Relations with Alisarda

Services provided by Alisarda (a subsidiary of Geasar S.p.A.) currently concern the leasing of offices and equipment at the Olbia
Headquarters and other spaces at the airport of Olbia; Meridiana fly provides instead various administrative services.

Relations with Cortesa

Services provided by Cortesa (a subsidiary of Geasar S.p.A.) are related to the canteen services at the Olbia Headquarters and
the use of airport parking, while Meridiana provides payroll services.

Relations with Air Uganda, Air Burkina, Air Mali

Relations with these airlines, controlled by AKFED, concern the technical management of Web sites carried out by Meridiana fly.

Relations with EF USA

The activity of EF-USA (100% owned by Meridiana fly but not consolidated - see. Section 4.4) was the provision of brokerage
services for scheduled flights sales on behalf of the Company, with exclusivity on the territory of North America; these services
were remunerated with sales commissions. As previously mentioned, the agency relationship with the above company ceased in
November 2009 and a dispute is currently on-going with the same, as indicated in the section on significant litigation.

4.14. List of equity investments


Please refer to Section 9.15 of the separate financial statements

4.15. Compensation paid to Directors and Statutory Auditors


Please refer to Section 9.16 of the separate financial statements

Meridiana fly - Annual Financial Report at 31 December 2010 - 102


4.16. Fees paid to Independent Auditors

Please refer to Section 9.17 of the separate financial statements

4.17. Disclosure concerning financial risks

The section below provides a general analysis of the main financial risks identified and managed by the Group.
The Group is exposed to the following financial risks associated with its operations:

credit risk: which includes the possibility of default by a counterparty or the possibility of deterioration of the
creditworthiness assigned to counterparties;
market risk: resulting from exposure to fluctuating interest and exchange rates;
liquidity risk: the risk of available financial resources being insufficient and lack of access to the credit market

The quantitative data reported below have no predictive value. In particular, sensitivity analyses concerning market risks cannot
reflect the complexity and the associated reactions of the markets possibly arising from each hypothetical variable.

As required by IFRS 7, below we detail the financial assets and liabilities at 31 December 2010 identified for the purposes of this
analysis.

31.12
2010
Notes 000
6 Other non-current financial assets 21,659
Non-current financial assets 21,659

9 Trade receivables and other current assets 138,136


10 Current financial assets 479

Current financial assets 138,615


Total financial assets 160,274
15 Long-term borrowings 24,531
Future interest 13,371

Non-current liabilities 37,902

19 Current loans 7,342


21 Current portion of long-term borrowings 603
23 Trade payables and other current liabilities 200,422

Current liabilities 208,367

Total financial liabilities 246,269


Total financial liabilities 246,269

Credit risk
The maximum theoretical credit risk is represented by the accounting value of financial assets, current and non-current, realised
as part of sales to third parties or for providing guarantees to third parties The Group currently generates most of its turnover
through the sales of scheduled flights and seats on charter flights, with the consequence that its ordinary customer base consists

Meridiana fly - Annual Financial Report at 31 December 2010 - 103


mainly of private entities, tour operators and travel agencies. The risk of non-collection of credit is addressed contractually by
requiring payment in advance of actual flight dates and guarantees or performance deposits guaranteeing fulfilment of contractual
obligations. At operating level, compliance with the terms of payment is constantly monitored. It should be noted that the tour
operator industry has recently undergone a consolidation process, which involved reducing the number of operators, with too
much concentration of customers (the first five customers in 2010 accounted for about 52% of charter revenues; this percentage is
unchanged since 2009).
The Group also adopts a very restrictive policy with regard to late payments, selecting and evaluating its customers on the basis
of their reliability and financial as well as commercial soundness.
The Group also provides adequate impairment on individual positions corresponding to problem loans, doubtful loans and non-
performing loans; it also write-down debt on an overall basis, taking into account historical experience or statistical data.
The tables below provide information about the Group's exposure to credit risk at 31 December 2010.

Be tween 0 Between 30 Between 60 Between 90 and Over 120 31.12.2010


and 30 days and 60 days and 90 days 120 days days
000
Breakdown of trade receivables not yet expired:

Trade receivables 32,935 10,711 6,587 - - 50,233

Breakdown of trade receivables past due:

Trade receivables 11,350 2,847 5,285 1,411 37,269 58,162

Total 44,285 13,558 11,872 1,411 37,269 108,395


Provision for doubtful receivables (20,627)
Total 87,768
Trade receivables past due by over 120 days include trade payables in litigation

With respect to loans overdue by more than 120 days which are not covered by the provision for doubtful receivables, taking into
account historical experience, the progress of litigation and legal opinions relating to them as well as the existence of guarantees
issued by customers, the credit risk is considered to be mitigated.

Market Risk
Foreign exchange risk
The Group is exposed to the risks arising from fluctuations in exchange rates, as outlined in paragraph 2.25 to which the reader is
referred for details. Overall, the main business in foreign currency is transacted in USD, which represents nearly 11% of trade
receivables and 11.8% of trade payables at year end. In financial terms, the costs of goods and services denominated in USD
account for approximately 46% of total operating costs of the Company.

31.12.2010
000 Euro USD Other Tot

Trade receivables 96,433 11,962 - 108,395


Provision for doubtful receivables (21,827) - - (21,827)
Other non-current financial assets 2,316 19,339 4 21,659
Total current and non-current loans (32,476) - - (32,476)
Trade payables (129,841) (17,509) (529) (147,879)

Net exposure (85,395) 13,792 (525) (72,128)

As regards the management of risks arising from changes in exchange rates, it should be remembered that:
The cost of airline tickets for scheduled flights contains a variable fuel surcharge component that is charged to the customer.

Meridiana fly - Annual Financial Report at 31 December 2010 - 104


The charter contracts entered into by the Group with tour operators provide the option to adjust prices according to the EUR/
USD exchange rate at the time of flight.

Price Risk
The hedging policy implemented by the Group aims to reduce the risks of fluctuations in expected cash flows resulting from
purchases of jet fuel, hence they can be classified as highly likely transactions, according to IAS standards.
To this end, in 2010, a series of financial products designed to hedge the volatility of fuel prices, have been activated, as detailed
in the table below.
Hedged underlying amount

Fair value at Notional amount


Maturity of derivative
Type Hedging purpose Counterpart Currency 31.12.2010 in Description (total amount
contract
/ 000 hedged in M/t)

Derivatives with positive fair value

Fluctuation in Jet Cash Flow Hedge on


Asian Swap Banca MPS USD 13/03/2009 28/02/2011 479 2,900
Fuel price jet Fuel

Total change recognised in Income statement 479

The use of these instruments is governed by policies approved by the Board of Directors, consistent with risk management
strategies.
Derivative hedging instruments, in keeping with the provisions of IAS 39, are accounted for with the methods set out for hedge
accounting only when:
at the start of the hedge there is a formal designation and documentation of the hedging relationship;
the hedge is highly effective;
the effectiveness can be reliably demonstrated.
When a financial instrument is designated as a hedge of exposure to the variability of cash flows of the hedged transactions (cash
flow hedge; e.g. hedging the variability of cash flows of expected future transactions against the effect of fluctuations in exchange
rates), the gains and losses deriving from the fair value changes of the hedging instrument are accounted for directly in
shareholders equity for the effective part (any ineffective part is instead accounted for immediately in the income statement under
the item gains/(losses) on foreign exchange).
The amounts recognized in equity are subsequently reflected in the income statement for the period in which the contracts and
expected transactions are manifested in the income statement.
If an instrument is designated as a hedge of exposure to changes in the fair value of hedged instruments (e.g. hedging of the
variability of the fair value of receivables and payables in foreign currencies), it is recognized at fair value with the effects booked
to the income statement; accordingly, the hedged instruments are adjusted to reflect the fair value changes associated with the
hedged risk.

Changes in the fair value of derivatives that do not meet the conditions to qualify as hedges are recognized in profit or loss.
Therefore, although the operations carried out in 2010 were completely inherent this risk, in terms of both the "underlying" amount
covered, and the financial products used, it was not possible to fully comply with IAS 39, and particularly with regard to the
comparison between "hypothetical derivative" and "financial derivative", the time element was excessively misaligned. Based on
the "Mark To Market" results, the positive change in the fair value of these financial instruments at 31 December 2010 was then
directly recognised in the income statement as a reduction in fuel costs.

Interest rate risk


Given that the Group has floating rate financial liabilities and that the reference rate in certain aircraft operating leases is variable,
the Group is exposed to the risks of increases in interest rates.

Meridiana fly - Annual Financial Report at 31 December 2010 - 105


Liquidity Risk
Liquidity risk is represented by the inability to secure enough financial resources at economic conditions to cover all the
obligations falling due

Below is the schedule presenting the time frame of the financial liabilities of the Group at 31 December 2010, based on non-
discounted contractual payments.
Value Contractual 6 months Over
/000 book cash flows or less 6-12 months 1-2 years 2-5 years 5 years 5 years

Non-derivative financial liabilities

Non-current liabilities for financial leasing -


Current loans (7,342) (7,550) - - (7,550) - - -
Current portion of long-term borrowings (603) (603) (300) (303) - - - -
Long-term borrowings (24,531) (25,068) - - (618) (15,950) - (8,500)
Trade payables and other current liabilities (200,422) (153,995) (98,784) (55,211) - - - -
Interest on loans - (2,816) (564) (564) (938) (750) - -

Derivative financial assets/liabilities

Derivative instruments to hedge jet fuel:


Cash-in 479 479 479 - - - - -
Cash-out - - - - - - - -
Total (232,419) (189,553) (99,169) (56,078) (9,106) (16,700) - (8,500)
* Contractual cash flows do not include payables in litigation and liabilities for prepaid tickets

At 31 December 2010, there are no past due tax or social security payables. In addition, there are no past due payables to
employees. As regards payables of a commercial nature, trade payables past due amounted to 94.9 million, of which 23.0
million past due by more than 120 days (the latter relating for approximately 8.8 million to trade relations involved in legal
disputes). There were no suspensions in supplies. There were no demands for payment on overdue debts, outside of those
within the ordinary course of business.

Be tween 0 Between 30 Between 60 Between 90 and More than 31.12.2010


and 30 days and 60 days and 90 days 120 days 120 days
/000

Breakdown of trade receivables not yet expired:

Trade payables 27,404 15,901 9,714 - - 53,019

Breakdown of trade receivables past due:

Trade payables 27,532 15,313 14,823 14,168 23,025 94,860

Total 54,936 31,213 24,537 14,168 23,025 147,879

At 31 December 2009 there were pending injunctions for a total of 2.6 million, which mostly relate to Alitalia in extraordinary
administration.

As a result of commitments made by Meridiana major Shareholder as better described in Section 2.26.4 above, it is believed that
liquidity risk has been mitigated even if considering the uncertainty related to the outlook discussed in Section 2.28.

4.18. Other information

At the date of this report there are no shareholders with holdings of more than 2% of capital in addition to the parent Meridiana
S.p.A.
Meridiana fly - Annual Financial Report at 31 December 2010 - 106
Pursuant to Consob communication no. DEM/6064293 of 28 July 2006 it is hereby stated that in the year 2010 no atypical and
unusual transactions have been carried out as defined by the above Communication.

No purchases or sales of own shares were made, directly or indirectly, during the financial year. At 31 December 2010, Meridiana
fly and the other companies of the Meridiana fly Group do no not hold own shares.

The Group has incurred significant non-recurring events and transactions, with effects on the financial results of 2010 as shown in
the summary table below. For a detailed analysis please refer to Section 9.6 - Significant non-recurring events and transactions -
included in the Notes to the separate financial statements,

Euro/000 Net financial position


Description Equity Profit (loss) of the
Cash
Value % Value % Value % Value
flows*) %
Carrying amount (A) 8.439 (46.411) (19.327) 5.328
Solidarity contracts (9.600) -113,8% (9.600) -20,7% 0 0
Operational events March 2010 1.500 17,8% 1.500 3,2% 1.500 7,8% 1.500 28,2%
Volcano eruption in Iceland 3.000 35,5% 3.000 6,5% 3.000 15,5% 3.000 56,3%
Aircraft Wet lease 1.600 19,0% 1.600 3,4% 1.600 8,3% 1.600 30,0%
Tax effects on events (1.729) -20,5% (1.729) -3,7%
Total non recurring events (B) (5.229) -62,0% (5.229) -11,3% 6.100 31,6% 6.100 114,5%
Gross notional amount (A+B) 3.210 (51.640) (13.227) 11.428
(*) they refer to an increase or decrease in net cash and cash equivalents in the year

For sake of completeness, even if the processes for assessing the recoverability of non-current assets and estimate the risk of
adverse outcome of litigation, are part of the ordinary processes of preparing the consolidated financial statements, is should be
remembered that the consolidated loss for the year was influenced by the write-down recorded on goodwill of 3,438 thousand,
the write-down of the property in Via Bugatti for 855 thousand, as well as by provisions for liabilities and charges of 5,369
thousand related to increasing labour litigation caused by the business combination (See Section 2.17 Significant Litigation).

These consolidated financial statements were authorized for publication by the Board of Directors of the Company at its meeting
in Milan on 23 March 2011 and will be disclosed to the public, together with the report of the Independent Auditors and Statutory
Auditors in the manners prescribed by law.

Milan, 23 March 2011

On behalf of the Board of Directors:

Chairman

Marco Rigotti

Meridiana fly - Annual Financial Report at 31 December 2010 - 107


5. CERTIFICATION OF ANNUAL REPORT PURSUANT TO ART. 154-bis of
Legislative Decree. 58/98.

1. The undersigned Massimo Chieli, in his capacity as Chief Executive Officer, and Maurizio Cancellieri, in his capacity as
Financial Reporting Officer of Meridiana fly S.p.A., also considering the requirements of Article 154-bis, sections 3 and 4 of
Italian Legislative Decree no. 58 of 24 February 1998, herewith certify
- The adequacy in relation to the characteristics of enterprise and
- The effective application of administrative and accounting procedures in preparing the consolidated financial statements during
the financial year ended on 31 December 2010

2. In this regard there were no significant issues.

3. It is further certified that the consolidated financial statements at 31 December 2010:


were prepared in compliance with applicable international accounting standards endorsed by the European Union pursuant to
regulation (EC) no. 1606/2002 of the European Parliament and the Council, dated 19 July 2002,
b) correspond to the underlying documentary and accounting books and records;
c) are suitable, to their knowledge, to provide a true and fair view of the assets and liabilities, business status, and financial
position of the Issuer and of all the companies included in the scope of consolidation.

The management report includes a reliable analysis of the operating performance and results as well as of the financial situation
of the Issuer and the companies included in the scope of consolidation, together with a description of the main risks and
uncertainties to which they are exposed.

Milan, 23 March 2011

Massimo Chieli Maurizio Cancellieri


Chief Executive Officer Financial Reporting Officer

________________________ _____________________________

Meridiana fly - Annual Financial Report at 31 December 2010 - 108


6. INDEPENDENT AUDITORS REPORT ON CONSOLIDATED FINANCIAL
STATEMENTS AT 31 DECEMBER 2010

Meridiana fly - Annual Financial Report at 31 December 2010 - 109


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Meridiana fly - Annual Financial Report at 31 December 2010 - 111
7. STATUTORY AUDITORS REPORT ON FINANCIAL STATEMENTS AT 31
DECEMBER 2010

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8. MERIDIANA FLY S.P.A. - DRAFT FINANCIAL STATEMENTS AT 31 DECEMBER 2010

8.1. Statement of financial position of Meridiana fly S.p.A.

31.12 31.12
2010 2009 Change
Notes

1 Intangible assets 57,963,716 1,567,662 56,396,054


2 Fleet 29,749,557 2,500,153 27,249,404
3 Other Property, plant and equipment 18,453,342 15,239,204 3,214,138
4 Deferred tax assets 7,480,102 8,679,719 (1,199,617)
5 Equity investments 7,641,367 7,120,313 521,054
6 Other non-current financial assets 21,656,837 13,551,673 8,105,164
7 Other non-current receivables 586,974 1,774,104 (1,187,130)

Non-current assets 143,531,895 50,432,828 93,099,067

8 Inventories 626,928 3,901,646 (3,274,718)


9 Trade receivables and other current assets 139,152,401 65,880,005 73,272,396
10 Current financial assets 478,762 - 478,762
11 Cash and cash equivalents 11,799,815 6,646,727 5,153,088

Current assets 152,057,906 76,428,378 75,629,528

TOTAL ASSETS 295,589,801 126,861,206 168,728,595

12 Share capital 20,901,419 11,084,272 9,817,147


13 Reserves and retained earnings (accumulated losses) 41,069,446 19,828,387 21,241,059
14 Profit (loss) for the period (51,861,451) (34,059,067) (17,802,384)

Net equity 10,109,414 (3,146,408) 13,255,822

15 Long-term borrowings 24,530,653 2,184,480 22,346,173


16 Post-employment benefits and other defined benefit funds 13,264,751 2,478,486 10,786,265
17 Non-current provisions for liabilities and charges 11,222,123 6,274,575 4,947,548
18 Deferred tax liabilities 3,168,836 85,988 3,082,848

Non-current liabilities 52,186,363 11,023,529 41,162,834

19 Current loans 7,342,475 13,500,506 (6,158,031)


20 Current loans from the parent company - 10,000,000 (10,000,000)
21 Current portion of long-term borrowings 602,777 573,774 29,003
22 Current provision for liabilities and charges 24,210,179 3,872,017 20,338,162
23 Trade payables and other current liabilities 201,138,593 91,037,788 110,100,805

Current liabilities 233,294,024 118,984,085 114,309,939

Total current and non-current liabilities 285,480,387 130,007,614 155,472,773


TOTAL EQUITY AND LIABILITIES 295,589,801 126,861,206 168,728,595

Meridiana fly - Annual Financial Report at 31 December 2010 - 136


8.2. Statement of comprehensive income of Meridiana fly S.p.A

Financial Year % revenues Financial Year % revenues


2010 from sales 2009 from sales Change
Notes

24 Sales revenue 604,129,317 100.0% 290,191,798 100.0% 313,937,519


25 Other Revenue 40,494,677 6.7% 3,379,193 1.2% 37,115,484

Total revenues 644,623,994 106.7% 293,570,991 101.2% 351,053,003

26 Fuel (158,231,413) -26.2% (71,006,487) -24.5% (87,224,926)


27 Materials and maintenance services (86,551,953) -14.3% (46,085,637) -15.9% (40,466,316)
28 Operating leases (53,391,088) -8.8% (41,463,316) -14.3% (11,927,772)
29 Selling expenses (25,544,330) -4.2% (5,067,106) -1.7% (20,477,224)
30 Other operating and wet leases costs (213,889,075) -35.4% (91,803,348) -31.6% (122,085,727)
31 Sundry costs and other services (31,871,154) -5.3% (19,636,006) -6.8% (12,235,148)
32 Staff costs (89,084,090) -14.7% (39,170,759) -13.5% (49,913,331)
33 Amortisation, depreciation and write-downs (11,254,476) -1.9% (3,231,732) -1.1% (8,022,744)
34 Provision for liabilities and charges (7,740,636) -1.3% (2,625,483) -0.9% (5,115,153)
35 Other adjustment provisions (4,899,996) -0.8% (2,399,158) -0.8% (2,500,838)

Operating Profit (loss) (37,834,217) -6.3% (28,918,042) -10.0% (8,916,175)

36 Net financial income (expense) (2,325,928) -0.4% (1,408,681) -0.5% (917,247)


37 Impairment of financial assets (8,575,000) -1.4% (880,998) -0.3% (7,694,002)

Pre-tax profit (loss) (48,735,145) -8.1% (31,207,721) -10.8% (17,527,424)

38 Income taxes (3,126,306) -0.5% (2,851,347) -1.0% (274,959)

Net profit (loss) (51,861,451) -8.6% (34,059,068) -11.7% (17,802,383)

16 Gains / (losses) from actuarial valuations (IAS 19) (871,296) -0.1% 54,399 0.0% (925,695)

Tax effect of profit (loss) from actuarial valuations 43,523 0.0% (14,959) 0.0% 58,482

Total Profit (loss) (52,689,224) -8.7% (34,019,628) -11.7% (18,669,596)

Meridiana fly - Annual Financial Report at 31 December 2010 - 137


8.3. Statement of changes in shareholders' equity of Meridiana fly S.p.A

Share Losses covered Reserves and retained earnings Net Profit


Other Payments for future
Share capital premium during the year (losses) carried forward (loss) for the Net Equity
reserves capital increases
reserve year

/000
Balance at 31 December 2008 6,503 16,958 (555) - 29,974 (5,943) (18,498) 28,438

- Prior years net profit (loss) - - - - - (18,498) 18,498 -


- Payments for future capital increase 29,974 - - - (29,974) - - -
- Conclusion of capital increase in January 2009
2,701 - (267) - - - - 2,435

- Coverage losses carried forward (8,305) (16,958) 822 24,441 -


- Coverage of losses from January to August 2009
(19,789) - - 19,789 - - - -

- Total profit (loss) - - 39 - - - (34,059) (34,020)

Balance at 31 December 2009 11,084 - 39 19,789 - - (34,059) (3,146)

- Prior years net profit (loss) - - - (19,789) - (14,270) 34,059 -


- Coverage losses carried forward (3,828) - - - - 3,828 - -
- Capital increase in-kind from contribution 6,505 46,055 - - - - - 52,560
- Changes in equity reflecting accounting effects of the
- (30,112) - - - - - (30,112)
contribution
- Costs related to capital increase - - (1,490) - - - - (1,490)
- Payments for future capital increase - - 5,000 - - - - 5,000
- Capital increase in cash 7,140 32,846 - - - - - 39,986
- Total profit (loss) - - (828) - - - (51,861) (52,689)

Balance at 31 December 2010 20,901 48,789 2,721 - - (10,442) (51,861) 10,109

Meridiana fly - Annual Financial Report at 31 December 2010 - 138


8.4. Statement of Cash Flows of Meridiana fly S.p.A.

Financial Year Financial Year


2010 2009
/000
Net cash and cash equivalents at beginning of period (6,854) 8,849

Effects of the Aviation Branch contribution


Provisional Goodwill from Aviation Branch Contribution (56,371) -
Other non-current assets (41,969) -
Current assets (67,912) -
Non-current liabilities 24,100 -
Current liabilities 114,077 -
Capital increase in kind 52,560 -
Changes in equity reflecting accounting effects of the contribution (30,112) -
Cash flows from Aviation Branch contribution (5,627) -

Pre-tax profit (loss) (48,735) (31,208)


Adjustments for:
- Depreciation and write-downs for the year 11,254 3,232
- Net financial income (expense) 2,326 1,005
- Gains on disposal of assets (105) -
- Impairment of investments in subsidiaries 8,575 881

Change in trade receivables and other current assets and other non-current receivables (6,512) 14,024
Change in inventories (1,579) (686)
Change in trade payables and other payables (incl.risks provision ) 9,732 (3,106)
Payment of interest and other financial charges (1,671) (1,037)

Cash flows absorbed by operating activities (26,715) (16,895)

Net change in non-current assets:


* Intangible (284) (895)
* Tangible (7,460) (7,234)
* Financial (6,527) (1,740)
* Equity investments (10) (1)
Interest received - 32
Disposal value of other non-current asset - (871)
Cash flow absorbed by investment activities (14,281) (10,710)

Payment of loan instalments (616) (533)


Other changes in loans 22,963 -
Cash in of Hedging derivatives 2,092 -
Shareholders' loan - 10,000
Cash flows generated from financing activities 24,439 9,467

Share capital increase 28,496 2,435


Payments for future capital increase 5,000

Cash flow generated from share capital transactions 33,496 2,435

Net increase in Cash and cash equivalents 11,312 (15,703)

Cash and cash equivalents at end of period 4,458 (6,854)

Meridiana fly - Annual Financial Report at 31 December 2010 - 139


9. NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF MERIDIANA FLY
S.P.A.

9.1. Accounting standards and measurement criteria

9.1.1. General Considerations

These separate financial statements at 31 December 2010 have been prepared in accordance with existing regulation on listed
companies and are drawn up in Euro as this is the currency in which the Company operates. They are prepared in accordance with
the international accounting standards as adopted by the European Union.

The statement of comprehensive income and the statement of financial position are presented in euros, taking into account the
rounding off of individual items, while the cash flow statement and the statement of changes in shareholders' equity are presented in
thousand of euros, as are the amounts reported in the Notes.

Following the execution of the contribution of the Aviation Branch with effect on 28 February 2010, the Company owns 100%
controlling interest in Sameitaly and Wokita, previously 50% owned and controlled by Meridiana S.p.A. Therefore, pursuant to
Article 93 of the Consolidated Finance Act, the Company also prepares the consolidated financial statements for the year ended 31
December 2010, with effect as from the date of the contribution.

With regard to the financial statements the Company presents the statement of financial position with the distinction of assets and
liabilities between current and non-current, while the Statement of Comprehensive Income provides for the classification of
revenues and expenses by nature, which is considered as a more representative form than the so-called classification by function.
The statement of changes in equity includes all recorded changes in equity. The Statement of cash flows is prepared using the
"indirect" method.

An asset/liability is classified as current when it satisfies one of the following criteria:


- it is expected to be recovered/settled or it is expected to be sold or used in the normal operating cycle of the Company or
- it is held primarily for trading or
- it is expected to be realised/discharged within 12 months from the date of the financial statements.
In the absence of all three conditions, assets / liabilities are classified as non-current.

With regard to Consob Resolution No. 15519 of 27 July 2006, gains and losses arising from non-recurring transactions or events
that occur infrequently in the ordinary management of the Company, were not reported separately in the income statement due to
their non-significance. These items are however are described in section 9.6. "Significant Non-recurring Events and Transactions."

With reference to the identification in separate lines items of related party transactions, as required by Consob Resolution No.15519
of 27 July 2006, in the income statement, statement of financial position and statement of cash flows there is no separate evidence
of transactions with related parties, as these were deemed insignificant.

It should also be noted, with regard to the financial statements, that the summary of financial transactions with related parties for the
year 2010 is provided in the next Section - 9.14 Related Party Transactions, with evidence of the impact of these transactions on
the total amount reported in the corresponding line item.

Meridiana fly - Annual Financial Report at 31 December 2010 - 140


With regard to the presentation of items relating to assets and liabilities, revenues and costs, in the separate financial statements
of Meridiana fly, the integration has led to the reclassification of some items which was also reflected in the comparative figures for
2009, and in particular:

The item "Fleet" is reported as a separate item, having became significant following the contribution of aircraft and owned
spare parts, which resulted in the reclassification of 2,500 thousand from "Tangible Assets" for improvements to aircraft
under operating lease.

Unification of "Financial assets from parent" in "Other non-current financial assets" for the elimination of the related
balance at 31 December 2010.

Unification of the items "Trade and other receivables from parent" and "Other" under "Trade and other receivables" given
the insignificance of these items following the contribution.

Item "Employee post-employment benefits and defined benefit plans" is presented separately from "Provisions for non-
current liabilities and charges " due to the greater significance of this item following the contribution.

Unification of the items "Trade payables and other payables to Parent Company" into the item "trade payables and other
payables" given the insignificance of these items following the contribution.

Separate presentation in item "Impairment of financial assets" in the income statement of the write-downs of investments
in Sameitaly and Wokita made in 2009 for 881 thousand, previously stated in item "Impairment of non-current assets".

These reclassifications had no impact on shareholders' equity and the loss included in the financial statements at 31 December
2009 and represented in the comparative data and approved by the competent bodies.

The separate financial statements are audited by Deloitte & Touche S.p.A.

9.1.2. Accounting standards, measurement criteria and use of estimates in preparing the
financial statements

These financial statements as at 31 December 2010 have been prepared in accordance with International Accounting Standards
IAS / IFRS issued by the International Accounting Standards Board (IASB) and endorsed by the European Union as well as the
measures implementing art. 9, of Legislative Decree No. 38/2005. "IFRS" also include International Accounting Standards (IAS)
still in force, and all interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), previously
known as the Standing Interpretations Committee (SIC).

The accounting standards, measurement criteria and the use of estimates used by the Company for the purpose of preparing the
separate financial statements at 31 December 2010 are described below.

The financial statements are prepared based on the historical cost, adjusted as required for the measurement of certain financial
instruments, and on the going concern basis, which was confirmed by the Directors in accordance with paragraphs 25 and 26 of
IAS 1 on the basis of the considerations in section 2.28 - Business Outlook.

The most important accounting policies adopted are as follows:


Recognition of costs and revenues
Sales and purchases of goods are recognised when goods are respectively delivered to the customer or to the Company, with
transfer of the significant risks and rewards associated with ownership of the goods. Sales and purchase of services are
recognised to the extent of their execution and completion on each reporting date, taking into account, in particular, the flight date
for passenger transport services, calculated according to the total value of the service rendered or received.
With reference to tickets for scheduled passenger transport, which, as at the financial statements date, are issued but not yet used
or refund thereof has not been requested, are reported as income under item "Other Revenue" (the so-called "Proceeds from

Meridiana fly - Annual Financial Report at 31 December 2010 - 141


prepaid items") estimated on the basis of the historically observed percentage of passengers not using or not requesting refund of
the tickets issued, in order to ensure full recognition of revenue in the financial statements in accordance with the accrual basis.
Interest income and expense are recognized in accordance with the accrual principle. The costs for taking out loans are
recognised in profit or loss when incurred. Ancillary costs for the issue of a financial instrument or for a capital increase are directly
deducted from the proceeds of the loan or capital increase to which they refer. Commissions paid to agencies for the sale of air
tickets are recognised in profit or loss when the related revenues are recognised.
Charge-backs of costs incurred on behalf of third parties are recognised as a reduction of the cost to which they relate.
Dividends are recognised when the shareholders right to collect them arises. This usually occurs in the financial year when the
investee companys shareholder' meeting approving the distribution of earnings takes place

Non-current assets

Intangible assets
Goodwill resulting from business combinations is initially recorded at cost at the acquisition date. Goodwill is not amortised but is
tested for impairment annually or more frequently if events or changes in circumstances indicate that it may be impaired. After
initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Upon disposal of part or whole of a company previously acquired and for which goodwill had been recognised upon acquisition, in
the determination of the gain or loss on disposal, the corresponding residual value of goodwill is taken into account.
Intangible assets include the costs, inclusive of ancillary costs, incurred to acquire resources lacking physical substance on
condition that their amount can be reliably measured and the asset is clearly identifiable and controlled by the Company.
These are stated at purchase or production cost including ancillary costs and are amortised according to their useful life. If there is
indication that an asset may be impaired, the intangible asset is written down accordingly, following the criteria indicated in the
subsequent policy Impairment of assets.
The amortisation periods applied for the various categories of intangible assets are indicated below:
development costs relating to initial training of pilots are amortised over a three-year period, while those relating to the
launch of new products/services from which long-lasting future economic benefits are expected are amortised over five
years;
concessions, licenses, trademarks and similar rights are amortised over a five/ ten-year period;
Costs relating to preparation of the website are amortised over five years.
The useful life and the amortisation criterion are reviewed regularly. If significant changes are found compared with previously
made assumptions, the amortisation rate is corrected using the prospective method

Tangible assets
Tangible assets are recorded as "Fleet", for which it was considered appropriate to provide separate exposure due to the
significance of this item following the business combination with the Aviation Branch of Meridiana, and as "Other Property, Plant
and Equipment", which includes all other tangible assets.
Tangible assets are recognised on condition that their cost can be reliably measured and that the Company will be able to enjoy
their future economic benefits.
They are recorded at purchase or production cost, inclusive of ancillary costs and of the portion of direct and indirect costs that
can reasonably be attributed to the asset. Investment grants obtained are recognised in the income statement over the period
necessary to match them with related costs and are directly deducted from such costs. If there is indication that an asset may be
impaired, the tangible asset is written down accordingly, following the criteria indicated in the subsequent policy Impairment of
assets.
Property, plant and equipment are systematically depreciated on a straight-line basis according to economic/technical rates
established in relation to the assets residual useful life. Assets consisting of components with different useful lives are considered
separately when calculating depreciation. The useful life and the amortisation criterion are reviewed regularly. If significant
changes are found compared with previously made assumptions, the amortisation rate is corrected using the prospective method.

Meridiana fly - Annual Financial Report at 31 December 2010 - 142


Generally speaking, the assets useful life is subject to annual verification. It is changed if, during the period, enhancement
maintenance is performed or replacements are made that modify the useful life of the asset to which they refer.
Enhancement and maintenance expenses that significantly increase the production capacity or safety of tangible assets, or that
lengthen the useful life of such assets, are capitalised and recorded as an increase in the amount of the tangible asset to which
they refer. Routine maintenance costs are directly recognized in the income statement.
The applied depreciation rates are reduced, with reference to the increases in tangible assets of the period, according to the
effective commissioning of the assets.
Depreciation starts when the assets are ready for use.
Specifically, the annual depreciation rates applied are as follows:
- land not amortised
- buildings, 50 years 2%
- light constructions, 10 years 10%
- plant, 10 years 10%
- equipment, 7 years 14%
- rolling components, 12 years 8.33%
- data processing machines, 5 years 20%
- office machinery and furniture, 8.3 years 12%
- internal means of transport, 5 years 20%
- vehicles, 4 years 25%
- systems of communication, 5 years 20%
- Modifications and standardisations performed on fleet aircraft are depreciated based on the duration of operating lease
contracts.
Leasehold improvements are classified as tangible assets, according to the nature of the cost. The amortisation period is the
lesser of the remaining useful life of the tangible asset and the residual term of the contract.

Costs incurred for regular reconditioning of company-owned engines and cells are recognized as an increase in the book value of
the asset to which they refer, separately from the physical parts. Any book value net of the cost of the previous reconditioning is
derecognized, irrespective of whether the cost of the previous reconditioning was explicitly mentioned in the transaction in which
the element was purchased or constructed. In this case, the estimated cost of similar future reconditioning is used as an indication
of what the cost of the reconditioning of the existing component was when the element was purchased or constructed.

In particular, the useful life of the fleet (aircraft and their components) is estimated in relation to the date of presumed
decommissioning, which according to current forecasts, is set at the end of 2015. The estimated useful lives of the fleet are as
follows:

- Engine maintenance 10 years

- Cell maintenance 20 years

The depreciation of the aircraft is determined on the basis of the components.

Leases are classified as finance leases whenever the terms of the contract are such as to substantially transfer all the risks and
rewards of ownership to the lessee. All other leases are considered as operating leases.

Assets held under finance leases are recorded as assets of the Company at their fair value as at the contract date, adjusted for
ancillary costs incurred for the stipulation of the contract and any costs incurred to take over the lease or, if lower, at the present
value of minimum lease payments due for the lease. The corresponding liability vis vis the lessor is recognized in the statement
of financial position as a financial liability. Payments for rentals are apportioned between principal and interest in order to achieve
a constant interest rate on the residual liability. Financial expense is charged directly to the income statement for the period.

Meridiana fly - Annual Financial Report at 31 December 2010 - 143


Rental costs relating to operating leases are recognised on a straight-line basis over the term of the contract. The benefits
received or to be received or paid or payable as an incentive to enter into operating leases are also recorded on a straight-line
basis over the term of the contract.
Periodic maintenance and end-of-contract reconditioning costs are capitalised as an increase in the tangible asset to which they
refer and depreciated respectively for the period of validity of periodic maintenance or over the term of the aircrafts operating
lease.

Equity investments
Investments in subsidiaries, associates and other investments are carried at cost (in the absence of a fair value that can be
reasonably determined), adjusted for impairment losses. Any positive difference, emerging at the acquisition date, between the
cost of acquisition and the fair value of the share of the investee's net assets attributable to the Company, is therefore included in
the carrying amount of the investment. Any write-down of this positive difference (which represents the goodwill recognized to the
investee's business at the time of acquisition) is not reversed in subsequent years even if the conditions that led to the write-down
no longer exist. If the Companys proportional share of any losses made by the investee exceeds the investments carrying value,
the investments value is written off and the portion of any further losses is recognised as a provision in liabilities if the Company is
under the obligation to cover such losses.
Dividends received are recognized in the income statement, when the right to receive payment is established, only if resulting
from a distribution of earnings subsequent to the acquisition of the investee. If, instead, they result from the distribution of the
investee's reserves prior to acquisition, the dividends are recorded as a reduction in the cost of the investment.

Impairment of tangible assets, intangible assets and investments


At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets and its investments to
determine whether there is any indication that those assets are impaired. If such an indication exists, the recoverable amount of
these assets is measured in order to determine the extent of the impairment. If it is not possible to measure the recoverable
amount of an asset separately identified, the Company measures the recoverable amount of the cash-generating unit to which the
asset belongs. In particular, the smallest group of assets is represented by the cash-generating unit; for the identification of a cash
generating unit for the purposes of preparing the financial statements the reader should refer to section 9.7 Ref 1 Intangible
Assets.
The recoverable amount is the higher of fair value less costs to sell and value in use.
The fair value is the market price (net of costs of disposal), provided that the asset is traded in an active market. A market can
reasonably be considered active based on transactions frequency and volumes.
In assessing value in use, future cash flows, related to a time period not exceeding five years are estimated on the basis of
conservative assumptions based on historical data and making prudential forecast about the future performance of the reference
sector; the cash flows are discounted to their present value using a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the asset, the terminal value is determined on the basis of a perpetuity.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss no longer exists, the carrying amount of the asset (or cash-generating unit), except for goodwill (which
for investments corresponds to the positive difference resulting as of the acquisition date, between the acquisition cost and the fair
value of the share of the investee's net assets attributable to the Company), is increased to the new value resulting from the
measurement of its recoverable amount, but not exceeding the carrying amount that would have been determined had no
impairment loss been recognised. A reversal of impairment loss is recognised immediately in profit or loss.

Other non-current assets


Other non-current assets and other non-current receivables are stated at their nominal value, which coincides with the estimated
realisable value.

Meridiana fly - Annual Financial Report at 31 December 2010 - 144


Non-current assets and liabilities held for sale
Non-current assets (or groups of assets held for sale) classified as "held for sale" are measured at the lower of their previous
carrying amount and market value less costs to sell.
Non-current assets (or groups of assets held for sale) are classified as "held for sale" when it is expected that their carrying
amount will be recovered through a disposal rather than through their use in the company's operations. This condition is met only
when at the reporting date the sale is highly probable, the asset (or group of assets) is available for immediate sale in its present
condition and management has made a commitment to the sale, which is set to take place within twelve months from the date of
classification under this item.
The profit or loss generated by the operation of the assets and liabilities held for sale for the months between the last approved
financial statements and the date of disposal - in accordance with IFRS 5 - is classified as "Results of discontinued operations "
together with the economic effects of the operations, net of ancillary costs to sell.

Current assets and liabilities


Inventories
Inventories, consisting of stocks of technical materials, catering materials and scheduled air tickets, are recorded at their specific
purchase cost or, if lower, at their realisable value based on market trends. This lower value is not maintained in subsequent years
if the reasons for it no long exist and value is reinstated, if the conditions exist to do so, within the limits of the original purchase
cost.

Financial Instruments
Financial assets and liabilities are recognised at the time when the Company becomes a party to the instruments contractual
clauses.
- Trade receivables
Trade receivables are stated at their nominal value less an appropriate write-down to reflect estimated losses on receivables.
- Financial assets
Financial receivables relating to capital redemption contracts are measured at cost, i.e. nominal value, plus interest accrued. This
value is not lower than the value of initial insured capital plus guaranteed minimum return. Financial receivables relating to
performance deposits are posted at nominal value, which coincides with estimated realisable value.
Receivables for security deposits for utilities are measured at nominal value, which coincides with estimated realisable value.
Receivables for deposits against contractual commitments with third parties are posted at nominal value and adjusted, if
necessary, to align the amount paid with presumed recovery value.
On subsequent reporting dates, financial assets that the Company intends and is able to hold to maturity are recognised at
amortised cost net of any impairment write-downs.
Financial assets other than those held to maturity are classified as held for trading or available for sale and are measured at fair
value at the end of each period. When financial assets are held for trading, gains and losses arising from changes in fair value are
recognized in the income statement for the period. Conversely, in the case of financial assets available for sale, gains and losses
arising from changes in fair value are recognized directly in equity until they are sold or have been impaired; in such cases, the
overall gains or losses previously recognized in equity are recognized in the income statement for the period.
- Cash and cash equivalents
The item relating to cash and cash equivalents includes cash and current bank accounts, demand deposits, and other short-term,
highly liquid financial investments that can be readily monetised and are subject to insignificant risk of changes in value.
- Bank and other loans and bank overdrafts
Loans and interest-bearing bank loans and bank overdrafts are recorded based on the amounts received, net of transaction costs
and subsequently measured at amortised cost using the effective interest rate method.
- Trade payables
Trade payables are stated at their nominal value.

Derivative financial Instruments


Meridiana fly - Annual Financial Report at 31 December 2010 - 145
In carrying out its business the Company is exposed to the risks of changes in exchange rates (mainly Euro/USD) and in fuel
prices. To minimize these risks, derivatives contracts are entered into, hedging both specific transactions and total exposures,
making use of the instruments offered by the market.

Derivative hedging instruments, in keeping with the provisions of IAS 39, are accounted for in accordance with the methods laid
down for hedge accounting only when:

at the start of the hedge there is formal designation and documentation of the hedging relationship;

the hedge is highly effective;

the effectiveness can be reliably demonstrated.

When a financial instrument is designated as a hedge of exposure to the variability of cash flows of the hedged transactions (cash
flow hedge; e.g. hedging the variability of cash flows of expected future transactions against the effect of fluctuations in exchange
rates), the gains and losses deriving from the fair value changes of the hedging instrument are accounted for directly in
shareholders equity for the effective part (any ineffective part is instead accounted for immediately in the income statement under
the item gains/(losses) on foreign exchange).

The amounts recognized in equity are subsequently reflected in the income statement for the period in which the contracts and
expected transactions are manifested in the income statement.

If an instrument is designated as a hedge of exposure to changes in the fair value of hedged instruments (e.g. hedging of the
variability of the fair value of receivables and payables in foreign currencies), it is recognized at fair value with the effects booked
to the income statement; accordingly, the hedged instruments are adjusted to reflect the fair value changes associated with the
hedged risk.

Changes in the fair value of derivatives that do not meet the conditions to qualify as hedges are recognized in profit or loss. In the
presence of alternative treatments permitted by IAS 39 for the classification of such transactions, the Company has decided that
the change in fair value of contracts on commodities is to be classified in the income statement as an adjustment to the operating
costs.

Financial and non-financial contracts are analysed to identify the existence of embedded derivatives to be unbundled and
measured at fair value. Gains and losses resulting from subsequent changes in fair value are recognized in profit or loss.

Employee Post-employment benefits


Payments for defined contribution plans are charged to the income statement in the period in which they are due.
Post-employment benefit provision [formerly known as employee severance indemnity provision] expresses the liability towards
employees for the benefits accrued as up to reporting date in compliance with current laws and contractual agreements. This
liability is considered similar to a defined-benefit plan, the cost of which is calculated using the actuarial Projected Unit Credit
method; actuarial valuations are performed at the end of each financial year. Gains and losses are recognized in the statement of
comprehensive income and included in income components such as income and expenses defined as "changes resulting from
transactions with non-shareholders". The cost related to employees' past service is recognized immediately the extent that the
benefits have already accrued or otherwise is amortised on a straight-line basis over the average period in which benefits are
expected to accrue.
Until 31 December 2006 the post-employment benefit provision (TFR) was considered a defined benefit plan. The rules for such
provision were changed by Italian Law no. 296 of 27 December 2006 (the 2007 National Budget Law) and by subsequent decrees
and regulations enacted in the early months of 2007.They now envisage payment of post-employment benefits as they accrue to a
separate entity (pension fund or central treasury fund of the INPS (state pension & welfare agency). In light of these changes, and
in particular as regards companies with at least 50 employees, under IAS 19 the post-employment benefit provision should be
considered as a defined-benefit plan solely for benefits accrued before 1 January 2007 (and not yet paid out as at the reporting
date), whereas after this date it should be considered as a defined contribution plan.

Meridiana fly - Annual Financial Report at 31 December 2010 - 146


The right granted to employees and former employees to buy an air ticket at a discount compared to its price list is a long-term
benefit, and the corresponding liability is recorded in the financial statements according to the actuarial valuation methodology
provided for under IAS 19. The provision specifically established (the "provision for subsidised tickets") is released periodically
and recorded as an increase in the amount of revenue from the sale of tickets.

Income taxes
Income taxes for the period are the sum of current and deferred taxes.
Current taxes are based on the period's taxable profit. Taxable profit differs from profit as reported in the income statement
because it excludes items of income and expense that are taxable or deductible in other years (temporary tax differences) and it
further excludes items that are never taxable or deductible (tax permanent differences). Current tax liability is calculated using
current tax rates or the rates substantially in force at the end of the reporting period.
Deferred taxes are taxes that the Company expects to be payable or recoverable on the temporary differences between the book
value of assets and liabilities and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are
generally recognized for all taxable temporary differences while deferred tax assets are recognized to the extent that it is probable
that there will be future taxable profits based on business plans approved by the Group. In particular, the carrying value of
deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient taxable
profits will be available to allow all or part of the assets to be recovered.
Deferred taxes are calculated at the tax rates that the Company expects to be in force when the asset is recovered or the liability
settled. Deferred taxes are directly booked to the statement of comprehensive income, except for those relating to transactions
with shareholders' which are recognized directly in equity, in which case the corresponding deferred taxes are also recognized in
equity.
Deferred tax assets and liabilities are offset when there is a legal right to offset current tax assets and liabilities and when they
relate to taxes due to the same tax authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Grants

Grants are recognized at fair value when there is reasonable assurance that they will be received and that the conditions attaching
to them will be met. Grants for operating expenses are recognized in full in the income statement at the moment in which the
conditions for recognition are met. Capital grants are deducted directly from the purchase cost of the asset to which they refer.

Provisions
Provisions are made when the Company has a present obligation as a result of a past event and it is likely that it will be required
to settle the obligation. Provisions are based on management's best estimate of the costs required to settle the obligation at the
reporting date and are discounted to present value when the effect is material.

Items in foreign currency or subject to "foreign exchange risk"


Receivables and payables originally denominated in the foreign currency of countries outside the Euro zone are translated into
Euro at the exchange rates in force at the date of the underlying transactions. Foreign exchange differences incurred on collection
of receivables and settlement of payables in foreign currencies are recorded in the income statement. Non-current assets
denominated in foreign currencies are recorded at the exchange rate in force at the time of purchase or at the lower exchange
rate in force at the end of the period if the reduction is deemed as long-lasting.
Assets and liabilities, originally denominated in foreign currency of countries outside the Euro zone, still outstanding at year end,
including non-current assets of a monetary nature, are aligned at the spot exchange rate at the reporting date; the related
exchange gains and losses are recorded in the income statement and any net profit is allocated to a special non-distributable
reserve until realisation.

Use of estimates
The preparation of consolidated financial statements and related notes requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date.
Estimates and assumptions are based on previous experience and other factors deemed relevant. Actual results may therefore

Meridiana fly - Annual Financial Report at 31 December 2010 - 147


differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of any changes made to them are
reflected in the income statement in the period in which the estimates are revised, if the revision affects only that period, or also in
subsequent years if the revision affects both the current year and future years.

Below we summarise the critical assessments and key assumptions used by management in applying accounting standards and
policies with regard to the future, that may have material effects on reported amounts or for which there is a risk of adjustments to
the carrying value of assets and liabilities in the financial year following the one to which these financial statements refer.

Provision for doubtful receivables


Provision for doubtful receivables reflects managements estimates about the losses on doubtful accounts concerning end
customers.
The estimate of this provision is based on the losses expected by the Company based on experience with similar receivables,
current and historical past-due receivables, losses and collections, careful monitoring of credit quality, and on forecasts of
economic and market conditions supported in this by the opinions of the legal advisors representing the Company in pre-
litigation and litigation phases. The reader should refer to section "Ref 9 - Trade and other receivables "of this explanatory notes
for considerations on the main disputes underway concerning the recovery of receivables.

Recoverable amount of non-current assets


Non-current assets include goodwill, the fleet and property, plant and equipment and other assets, intangible assets as well as
equity investments. The Management periodically reviews the carrying value of non-current assets held and used in operations as
well as assets held for sale, when facts and circumstances make such review necessary. This activity is performed using
estimates of future cash flows and appropriate discount rates to calculate present value or using estimate of fair value less costs
to sell, based on assessments conducted with the support of third party experts' opinions. Therefore, this audit of the carrying
value of non-current assets is based on a hypothetical set of assumptions regarding future events and actions of the
administrative bodies of the Company that may not necessarily occur in the expected manner and timing. More specifically,
for the determination of the recoverable value of the controlling interests held in Sameitaly and Wokita, estimates of
expected cash flows of the subsidiaries were used, which - being dependent on the Company's operations in so far as the
amount of turnover generated by the Company is concerned- as indicated in paragraph 2.28 "Business Outlook", are
influenced by scenario variables not controllable by the Company, including the trend in the euro / dollar exchange rate
and in interest rates, the cost of jet fuel, the load factor of aircraft, the average unit revenues per passenger and per flight
hour related to charter flights in addition to the success of the internal strategic actions of staff reductions and
renegotiation of contracts with suppliers. Failure to implement the 2010-2015 New Business Plan by the Company, may
result in a failure to achieve the objectives of prospective profitability of the investee companies and consequently the
value of the subsidiaries could not achieve the amounts at which these investments were recorded in the separate
financial statements at 31 December 2010.
in order to determine the recoverable amount of the Cash Generating Unit Meridiana fly, inclusive of goodwill, we relied on
a fair value estimate carried out by an independent expert on the basis of stock prices measured in accordance with the
criteria described in more detail in the next section 9.7 Ref.1 "Intangible Assets". Development of these prices at
significantly lower levels than those recorded in the period in question may result in the recognition of impairment losses
for the CGU Meridiana fly (see Section 2.25 "Main risks and uncertainties- Ref-2" ).
in order to determine the recoverable value of the real estate owned in via Bugatti in Milan we made use of the appraisal
of an expert specifically appointed for this purpose; in fact, a specific recoverability analysis has been made for this non-
current asset that does not contribute to the profitability of the Group, as it is destined for rental to third parties after the
transfer of the registered offices from Milan to Olbia. Changes in the scenario of the reference real estate market or
different timing in the disposal of the property with respect to the medium-term envisaged in the Business Plan, could lead
to the recognition of further impairment losses in addition to the write-down of 855 thousand already recorded to reflect
the results of the expert's assessment, net of estimated costs to sell.

Meridiana fly - Annual Financial Report at 31 December 2010 - 148


Deferred tax assets and liabilities
The Company recognizes current and deferred taxes in accordance with applicable regulations. The recognition of taxes requires
using estimates and assumptions concerning the interpretation of applicable regulations and their effect on the Companys taxation,
with regard to the transactions completed during the financial year in question. In addition, recognition of deferred tax assets and
liabilities requires use of estimates concerning prospective taxable income and its development, as well as applicable tax rates.
These activities are performed through an analysis of completed transactions and their tax profile, also with the support, when
necessary, of external advisors on the various aspects addressed. They also take the form of simulations and sensitivity analyses
of prospective income. In particular, the recoverability of deferred tax assets as at 31 December 2010, partly associated with the
use in future years of tax losses carried forward, depends on the achievement of the 2011-2015 New Business Plan; this plan is
subject to uncertainties given that future income is dependent on the performance of external non controllable factors. Failure to
implement the 2011-2015 New Business Plan would result in the inability of the Company to realise deferred tax assets at values
corresponding to those recorded in the consolidated financial statements at 31 December 2010.

Income from unused tickets (so-called "Proceeds from prepaid tickets")

The estimate of income from unused issued tickets (the so-called "Proceeds from prepaid tickets") estimated on the basis of the
historically observed percentage of passengers not using or not requesting refund of the tickets issued, in order to ensure full
recognition of revenue in the financial statements in accordance with the accrual basis. Different trends from those historically
experienced in the actual number of tickets unused by passengers or the real charges of unused tickets refund may result in
revenues different from those measured at the reporting date based on estimates made by management.

Defined benefit plans


Post-employment benefit provision is classifiable as a defined-benefit plan for the portion accrued before 31 December 2006.
Management uses various statistical assumptions and assessment factors with the aim of anticipating future events in order to
calculate the costs, liabilities and assets relating to such plans. Assumptions relate to discount rate, the expected return on assets
on which the plan is based, and the rates of future pay increases. In addition, the actuaries advising the Company also use
subjective factors such as, for example, mortality and employees turnover rates.

Contingent liabilities
The Company is involved in lawsuits and tax disputes relating to complex and difficult problems and with a varying degree of
uncertainty, including the facts and circumstances regarding each case, jurisdiction and the different applicable laws.
Given the uncertainties inherent in these issues, it is difficult to predict the outlay that may arise from such disputes.
Consequently, management after consultation with its legal advisors and legal and tax experts, recognises a liability for such
litigation when it considers that a cash outlay is likely to occur and the amount of the resulting losses can be reasonably
estimated. If a cash outlay becomes possible but the amount cannot be determined, this fact is disclosed in the notes to the
financial statements.

New accounting standards and interpretations

Accounting standards, amendments and interpretations applicable as from 1 January 2010


The new accounting standards, amendments and interpretations which, being applicable as from 1 January 2010, supplement as
from that date the accounting policies used in preparing the separate financial statements at 31 December 2009.
IAS 27 and revised IFRS 3 (business combinations)

The revised IFRS 3 (2008) has introduced major changes, including, in particular the following aspects:
- regulation of step acquisitions of subsidiaries;
- option to measure a non-controlling interest acquired in a partial acquisition at fair value;
- acquisition related costs charged to the income statement
Meridiana fly - Annual Financial Report at 31 December 2010 - 149
Contingent consideration recognised at the acquisition date.

Step acquisition of a subsidiary


In the case of step acquisition of a subsidiary, IFRS 3 (2008) states that a business combination takes place only when control is
acquired and that, at this time, all the identifiable net assets of the acquiree should be measured at fair value; non-controlling
interests should be measured based on their fair value or based on the proportional share of the fair value of identifiable net
assets of the acquiree.
In an acquisition where the control of an investee is achieved in stages, the investment previously held, which until then was
accounted for as set out in IAS 39 - Financial Instruments: Recognition and Measurement, or IAS 28 - Investments in Associates
or IAS 31 - Investments in joint ventures, should be treated as if it had been sold, and purchased again at the date on which
control is acquired.
This equity interest should therefore be measured at its acquisition date fair value and the resulting gain or loss must be
recognized in the income statement. In addition any amount previously recognised in equity as "Other comprehensive gains and
losses" which should be recognised in the income statement following the sale of the asset to which it relates, shall be reclassified
in the income statement.
Goodwill or the proceeds from the acquisition of control of a subsidiary must be determined as the sum of the price paid for the
acquisition of control, the value of non-controlling interests i(as measured by one of the methods permitted by the standard ), the
fair value of the non-controlling interest previously held, net of the fair value of identifiable net assets acquired.
According to the previous version of the standard, an acquisition of control achieved in stages was measured as if each
transaction were part of a series of separate acquisitions that generated a total goodwill determined as the sum of the goodwill
generated by each individual transaction.

Acquisition-related costs
IFRS 3 (2008) provides that acquisition-related costs be expensed in the period in which they are incurred. Previously these
charges were recorded as part of the cost of acquisition of the acquiree's net assets.

Contingent consideration recognition


IFRS 3 (2008) provides that contingent consideration be considered part of the transfer price of net assets acquired and be
measured at the acquisition date fair value. Similarly, if the business combination contract provides for the right to a refund of
some components of the price upon certain conditions, this right is classified as an asset by the buyer. Any subsequent changes
in fair value are recognised as an adjustment to the original accounting treatment only if they result from additional or better
information about the fair value and if they occur within 12 months from the date of acquisition; all other changes must be
recognised in profit or loss.
The previous version of the standard provided that contingent consideration be recognised at the acquisition date only if its
payment was considered probable and the amount could be determined reliably. Any subsequent change in the value of such
consideration was also always recognized as an adjustment to goodwill.

IAS 27 (2008) - Consolidated and separate financial statements


The amendments to IAS 27 relate mainly to the accounting treatment of transactions or events that cause a change in the equity
interest in subsidiaries and the allocation of the subsidiary's losses to non-controlling interests; these amendments shall be
applied prospectively.
IAS 27 (2008) provides that, once the parent company has acquired the control of a company, the transactions in which the parent
company acquires or disposes of non-controlling interest without modifying the control exercised over the subsidiary, are
transactions with shareholders and therefore should be recognised in equity. It follows that the carrying value of the controlling
interest and of non-controlling interests should be adjusted to reflect the change in interest in the subsidiary and any difference
between the amount of the adjustment made to non-controlling interests and the fair value of the price paid or received as a result
of this transaction is recognized directly in equity and attributed to the owners of the parent. There will be no adjustment to

Meridiana fly - Annual Financial Report at 31 December 2010 - 150


goodwill nor gains or losses recognized in the income statement. The charges arising from these transactions must also be
recognized in equity in accordance with the requirements of IAS 32 section 35.
The following amendments, improvements and interpretations, effective from 1 January 2010, should also be mentioned:
- IAS 32 - Classification of rights in a foreign currency as an equity instrument.
- Amendment to IAS 39 - Financial Instruments: Recognition and Measurement - Eligible Hedged Items
- Amendment to IFRS 2 - Share-based payments: payments based on shares where the company receiving the service is
different from the company having the obligation.
- IFRIC 17 - Distribution of non-monetary assets to shareholders, using fair value to measure these activities.
- IFRIC 18 - Transfer of tangible assets from customers for regular supply of goods and services.
- IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments

In FY2010 the above-mentioned changes in accounting standards and interpretations had no material management or accounting
impact on the Company.

Accounting standards, amendments and interpretations not yet effective and not adopted in advance by the
Company

The following standards and interpretations should be mentioned in particular:

- Revised IAS 24 - Related party disclosures, which simplify the type of information required with regard to transactions
with related parties when public entities are involved and clarifies the definition of related party. The principle is
applicable from 1 January 2011.
- IFRS 9- Financial Instruments: issued to replace over time IAS 39, it introduces new criteria for the classification and
measurement of financial assets and liabilities and the derecognition of financial assets.
- IFRIC 14 - Prepayments for minimum funding contribution- companies are permitted to recognise as assets,
prepayments for minimum funding contributions. The principle is applicable from 1 January 2011.
- IFRS 1 - First-time Adoption of IFRS: application of fair value measurement to assets related to special operations such
as IPO or privatization in response to a local law in the preparation of IFRS financial statements even though the
company had already determined a fair value of assets and liabilities in the financial statements at the date of transition
to IFRS.
- IFRS 7 Financial instruments Additional disclosure: it regulates in an integrated way the qualitative and quantitative
information required by the standard about the nature and extent of risks inherent in financial instruments, including
cases of transfer of assets to a third party but with the "continuing involvement" of the transferor.

In FY2010 the above-mentioned changes in accounting standards and interpretations had no impact on the Company.

9.1.3. Going concern assumption

The reader should refer to section 2.28. "Business Outlook" for a detailed analysis of the considerations on the basis of which,
despite various uncertainties, the Directors believe that the Company can continue to operate as going concern in the foreseeable
future for at least 12 months, therefore considering appropriate the preparation of the annual report on a going concern basis.

9.2. Comparability of accounting data

The financial statements, presented in Chapter 8 - Financial statements for 2010 - compare the amounts of assets and liabilities of
the Company at 31 December 2010 and the amounts of revenues and costs of 2010 with the individual data of Meridiana fly S.p.A
as of 31 December 2009 and FY2009. The same comparisons are made with regard to the statement of changes in equity at 31
December 2010 and the statement of cash flows at the same date.

Meridiana fly - Annual Financial Report at 31 December 2010 - 151


The comparability of the data presented in the above financial statements is also affected by the Aviation Business contribution
operation, which took place with effectiveness from 28 February 2010, and which entailed a change in the size of the Company as
well as the obligation to prepare the consolidated financial statements.

However, for the purposes of disclosure requirements relating to the execution of the contribution operation and the subsequent
implementation of the in kind and in cash capital increase, pro-forma consolidated financial statements at 31 December 2009 were
prepared and included in the Prospectus in compliance with the requirements set forth in EC Regulation 809/2004. From these pro
forma consolidated data, the pro forma data on a separate basis were obtained, which are used in order to better compare the
Company's data after the business combination with the Aviation Branch of Meridiana with those of the previous year. These pro
forma at 31 December 2009 prepared on a separate basis have not been audited.

Therefore, in these notes, for a better analysis of the equity and financial performance of the Company, comments on changes in
the statement of financial position of the Company contained in section 9.7 are made by comparing the figure at 31 December
2010 set out in Chapter 8 with the pro-forma data at 31 December 2009; instead, comments to the changes in the income
statement contained in section 9.8 are made by comparing the data presented in Chapter 8 with the pro forma data for the year
ended 31 December 2009.

With regard to the net financial position, data at 31 December 2010 are compared with data resulting from the individual financial
statements at 31 December 2009, indicating, where applicable, the effect on the consolidated assets and liabilities acquired
through the contribution of the Aviation Branch with effect from 28 February 2010.

In particular, the pro-forma statement of financial position at 31 December 2009 used for the above purposes is presented below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 152


31.12 31.12
2010 2009 Change
/000 Proforma

Intangible assets 57,964 55,578 2,386


Fleet 29,750 30,090 (340)
Other Property, plant and equipment 18,453 20,097 (1,644)
Deferred tax assets 7,480 9,104 (1,624)
Equity investments 7,641 14,239 (6,598)
Other non-current financial assets 21,657 15,074 6,583
Other non-current receivables 587 1,774 (1,187)

Non-current assets 143,532 145,956 (2,424)

Inventories 627 4,207 (3,580)


Trade receivables and other current assets 139,152 116,423 22,729
Current financial assets 479 3,849 (3,370)
Cash and cash equivalents 11,800 13,610 (1,810)

Current assets 152,058 138,089 13,969

TOTAL ASSETS 295,590 284,045 11,545

Net equity 10,109 11,868 (1,759)

Long-term borrowings 24,531 2,184 22,347


Post-employment benefits and other defined benefit funds 13,265 12,511 754
Non-current provisions for liabilities and charges 11,222 19,437 (8,215)
Deferred tax liabilities 3,169 3,989 (820)

Non-current liabilities 52,187 38,121 14,066

Current loans 7,342 20,384 (13,042)


Current loans from the parent company - 13,136 (13,136)
Current portion of long-term borrowings 603 1,574 (971)
Current provision for liabilities and charges 24,210 13,905 10,305
Trade payables and other current liabilities 201,139 185,057 16,082

Current liabilities 233,294 234,056 (762)

Total current and non-current liabilities 285,481 272,177 13,304


TOTAL EQUITY AND LIABILITIES 295,590 284,045 11,545

The pro-forma income statement at 31 December 2009 used for the above purposes is presented below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 153


Financial Year % revenues Financial Year % revenues
2010 from sales 2009 from sales Change
/000 Proforma

Sales revenue 604,129 100.0% 639,532 100.0% (35,403)


Other Revenue 40,495 6.7% 41,089 6.4% (594)

Total revenues 644,624 106.7% 680,621 106.4% (35,997)

Fuel (158,231) -26.2% (132,220) -20.7% (26,011)


Materials and maintenance services (86,552) -14.3% (97,301) -15.2% 10,749
Operating leases (53,391) -8.8% (62,579) -9.8% 9,188
Selling expenses (25,544) -4.2% (25,719) -4.0% 175
Other operating costs and wet leases (213,889) -35.4% (225,344) -35.2% 11,455
Sundry costs and other services (31,871) -5.3% (36,077) -5.6% 4,206
Staff costs (89,084) -14.7% (109,019) -17.0% 19,935
Amortisation, depreciation and write-downs (11,254) -1.9% (11,724) -1.8% 470
Provision for liabilities and charges (7,741) -1.3% (6,225) -1.0% (1,516)
Other provisions for doubtful receivables (4,900) -0.8% (2,399) -0.4% (2,501)

Operating Profit (loss) (37,834) -6.3% (27,986) -4.4% (9,848)

Net financial income (expenses) (2,326) -0.4% (1,098) -0.2% (1,228)


Impairment of financial assets (8,575) -1.4% (881) -0.1% (7,694)

Pre-tax profit (loss) (48,735) -8.1% (29,965) -4.7% (18,770)

Income taxes (3,126) -0.5% (4,763) -0.7% 1,637

Net profit (loss) (51,861) -8.6% (34,728) -5.4% (17,133)

Gains / (losses) on actuarial valuations (IAS 19), net of


related tax effect (828) -0.1% (133) 0.0% (695)

Total Profit (loss) (52,689) (34,861) (17,828)

With reference to the comments in section 9.8, it should also be noted that the comparison of the performance in the 2010 income
statement with that of the 2009 pro-forma statement shown above, is in any case affected by the fact that, as the contribution of
the Aviation Branch occurred with effect from 28 February 2010, the 2010 income statement reflects the operations of this unit for
a period of 10 months (from 1 March to 31 December 2010) against a pro-forma 2009 comparative figure which was determined
considering a full year of business of the said Aviation Branch. As mentioned, the comparison in absolute terms loses significance
and the trends in the costs and revenues are analysed comparing, where relevant, the percentage impact on revenues.

It should be recalled that the aim of the preparation of the pro-forma data was to represent, according to measurement criteria
consistent with historical data and compliant with the relevant legislation, the effects of the contribution in kind on the financial
performance and equity position of Meridiana fly S.p.A., as if it had taken place on 31 December 2009 or on 1 January 2009
respectively for the Statement of Financial Position and for the Income Statement. However, it should be noted that if the
contribution in kind had really taken place at that hypothetical date, the results obtained might have differed from the pro-forma
data.

It should also be noted that the preparation of the 2009 pro-forma data not including the activities of the first two months of the
Aviation Business would not have been possible without the use of disproportionate and non cost-effective resources with respect
to the disclosure purposes of this annual report.

9.3. Seasonality of the business

The demand for air transport, above all in the leisure/holiday segment, is characterized by significant seasonality. As regards the
Meridiana fly Group, the business is concentrated in the third quarter of the year (35% of total revenue is concentrated in this

Meridiana fly - Annual Financial Report at 31 December 2010 - 154


quarter) and is more limited in the second and fourth quarter, with the exception of the periods around holidays (Christmas/New
Year, Easter and long weekends). The Medium Haul business is particularly significant in the summer period, while the Long Haul
leisure business to exotic and tropical destinations has inverse seasonality, as it is concentrated in the winter period (November
April).

9.4. Statement of financial position for the contribution of the Aviation branch
Before going on to comment on the Statement of financial position at 31 December 2010 and the related changes since the close
of 2009, it should be remembered that on 28 February 2010, following the contribution of the Aviation Branch, the Company
became the owner of the rights, assets and liabilities relating to that business unit, as identified in the deed of contribution dated
25 February 2010. More specifically, such rights and relationships consist of:

 Personnel employment contracts (about 1070),

 the fleet, both owned and leased (17 MD-80 aircraft and 4 Airbus A319) and other property, plant and equipment,

 derivative hedging contracts on the cost of fuel,

 real estate lease contracts (Registered Office in Olbia),

 license agreements for use of IT,

 Web domains and registered trademarks,

 slots,

 50% equity investments in Sameitaly and Wokita,

 other assets and liabilities attributed to the branch

 all other contracts and rights pertaining to the branch

Certain assets and liabilities, including bank loans and positive balances on bank current accounts, taxes payables, other equity
investments.

In accounting terms, a pro-forma statement of financial position of the contribution has been prepared on 28 February 2010
(hereinafter the "Financial Position") by the transferor Meridiana S.p.A This Statement of financial position, different from the one
originally used as a reference for the evaluation of the contribution (as of 31 August 2009) given the normal development of the
items being contributed and the subsequent adjustments and additions made by the management of the Company, led to the
recognition, in agreement with the transferor Meridiana S.p.A, in October 2010 of a final financial debt to the transferor Meridiana
in the form of a balance on the contribution of 5,627, which was settled in the manner prescribed by the deed of contribution in
November 2010.

The Final Statement of financial position, together with that one used by the expert in the preparation of the report on 31August
2009 are shown below.

Meridiana fly - Annual Financial Report at 31 December 2010 - 155


28.02 31.08
2010 2009
Contribution from Appraisal Aviation
/000 Meridiana S.p.A. Branch

Intangible assets 584 706


Fleet 27.441 26.306
Other property, plant and equipment 4.656 2.585
Deferred tax assets 591 591
Equity investments 7.119 7.123
Other non current financial assets 1.578 1.589
Non current assets 41.969 38.900

Inventories 160 219


Trade receivables and other current assets 65.181 63.218
Current financial assets 2.571 2.154
Cash and cash equivalents - -
Current assets 67.912 65.591

TOTAL ASSETS' 109.881 104.491

Post-employment benefits and other defined benefits funds 10.410 9.816


Non current provision for liabilities and charges 9.819 18.132
Deferred tax liabilities 3.871 3.699

Non current liabilities 24.100 31.647

Current loans 29 101


Current provision for liabilities and charges 10.377 -
Trade payables and other current liabilities 108.879 102.504
Current financial liabilities - 7.330
Current liabilities 119.285 109.935

Total current and non current liabilities 143.385 141.582


Shareholders equity (33.504) (37.091)

TOTAL LIABILITIES AND SHAREHOLDERS EQUITY' 109.881 104.491

Estimated depreciation 31 August 2009-28 February 2010


Not to be included in the balance due 2.040

Balance due 5.627

9.5. Accounting treatment of the contribution of the Aviation Branch

As explained in the Notes to the consolidated financial statements (see Section 4.5 Accounting treatment of the contribution of the
Aviation Branch), the contribution of the Aviation Branch can be defined as a "business combination of entities under common
control" given that Meridiana S.p.A., before the transfer in question, already held 59.58% of the shares of the Company.

Since the operations of "business combination of entities or businesses under common control" are excluded from the mandatory
application of IFRS 3, in the absence of IFRIC-IFRS references, for the purposes of accounting for the contribution operation in
the financial statements, reference was made to the document OPI 1 - Preliminary Guidelines by Assirevi regarding IFRS entitled
"Accounting for business combinations of entities under common control in the statutory and consolidated financial statements";
the goal of these guidelines is precisely to identify the appropriate accounting treatment under IFRS to be applied in the financial
statements of entities under common control involved in the operation.

More specifically, the material economic impact of the operation is the discriminating factor to recognise contributed assets at fair
value rather than at historical values.

Pursuant to OPI 1, the material economic impact is demonstrated when the sum of the results and cash flows resulting from the

two stand-alone business plans of the Parent Company and Meridiana is significantly lower than the result and cash flows
resulting from the Company's business plan after the business combination.
Meridiana fly - Annual Financial Report at 31 December 2010 - 156
In this specific case, as further specified below, this condition is satisfied with respect to the forecast period considered (2011-
2015) and consequently the net assets acquired may be recognised at fair value.

From another perspective, with reference to the identification of assets and liabilities acquired, it is important to identify whether
the buyer in this contribution operation is the Aviation Branch or the Company. From this point of view it should be noted that in
the absence of reference standards for the "business combination of entities under common control", the IFRS 3 standard has
been applied by analogy for the purposes of identifying the buyer.

By applying this standard, the Aviation branch was identified as the buyer, given its greater size compared to the Company both in
terms of the amount of revenue and fair value of net assets, considering in this respect also the net cash attributable to the branch
on the basis of historical evidence of cash and cash equivalents, although this item has not been allocated in the identification of
assets and liabilities contributed, given the considerable size of the capital increase planned after the contribution.

The accounting treatment applied to recognise the effects of the contribution resulted, therefore, in the recognition at fair value of
the Company net assets, while the net liabilities contributed by the Aviation Branch were recorded at historical values.
Consequently, the increase in the equity of the Company recognised for the purposes of preparing these separate financial
statements (before transaction related costs) is the difference between the capital gains arising from the recognition at fair value of
the Company net assets as of 28 February 2010, amounting to 56.4 million and the net liabilities contributed by the Aviation
Branch, of 37.1 million, as determined by the Directors on 31 August 2009. These liabilities have been adjusted (i) upward for
the depreciation of the Aviation Branch ( 2.0 million) accrued in the period as specified in the deed of contribution, (ii) downward
for the adjustment (equal to 5.2 million) of the Aviation Branch to the recognition criteria of the so-called "Proceeds from prepaid
tickets" which was measured on an accrual basis as outlined in the preceding section 9.1.2 - Accounting standards and
measurement criteria used in the preparation of the Financial Statements. The fair value of the Aviation branch, albeit not
impacting on the accounts due to the accounting treatment used, was quantified in 52.56 million by an independent third party
surveyor, who had been appointed ad hoc for the contribution operation.

In light of the expiry of the12 months period set by IFRS 3 (also in this case applied mutatis mutandis to the business
combinations of entities under common control, given the absence of reference standards) according to which the accounting
for the business combination can be changed to take into account additional information available about the existence,
measurement and allocation of the resulting surplus, the Directors have verified the assumptions used and described above for
the recognition of the operation at fair value.

In this regard, the Directors have confirmed, in the final allocation of the surplus emerged, that no specific asset was identified to
which the surplus, determined by the accounting treatment indicated above, should be allocated. Therefore, goodwill was
recognized as intangible asset, confirming its original recognition.

In addition, the Directors examined the new strategies and actions described in section 2.26.3 - New Business Plan 2011-2015 -
in order to assess, despite some changes in strategy compared to the previous plan, consistency in terms of achieving synergic
effects from the combination with the aviation business of Meridiana Aviation branch. Indeed, as described in this section, the
achievement of results and cash flows significantly higher than those that the two entities would have achieved in the absence of
the business combination is the essential prerequisite to the final recognition of the business combination at fair value. In this
framework, the Directors have identified significant incremental cash flows - measured as lower short-term negative cash flows
related to operating losses - compared to those that would have been achieved in the absence of the business combination. This
finding is primarily founded on the scale achieved by the Company following the business combination, which allows for the
implementation of strategies for sizing and restructuring that would not have been achievable by two separate entities.

In particular, the business combination allows for significant savings in overhead costs represented by headquarters staff and
consultancy costs; the management of a single AOC (Air Operator Certificate) leads to a reduction in staff assigned to oversee
ground operations while with two separate AOCs, due to regulatory constraints, this staff would have been duplicated for some
functions; in addition, strategic action designed to focus the business on profitable routes, discontinuing unprofitable ones, due to
the existence of a single AOC, may result in an optimization of the fleet - with the non renewal of operating leases for six MD80 -

Meridiana fly - Annual Financial Report at 31 December 2010 - 157


with the resulting savings in variable costs of flight, mainly represented by (i) operating lease instalments (ii) the crew, which would
have not occurred with separate AOCs, due to regulatory constraints of minimum capacity required to cover the routes operated;
finally, a single AOC allows for the renegotiation of a single employment contract, compared with the previous two; this would
have not been possible in the case of two separate companies. These synergies, throughout the plan, are estimated to be at least
35 million.

Following these considerations, the Directors have definitively confirmed the recognition of the business combination in the
separate financial statements at 31 December 2010 using the above mentioned accounting treatment.

9.6. Significant Non-recurring Events and Transactions.

Some significant non-recurring events, the consequences of which were reflected in the financial and equity performance of FY
2010, are described below.

Staff Solidarity Contract

As already mentioned in the Management Report, solidarity contracts were applied to various categories of employees; these
contracts are alternative to collective redundancies pursuant to law 223/91.
In particular, new solidarity contracts were entered into with the cabin crew on 20 July 2009 and the technical personnel (captains
and pilots) on 17 September 2009, both lasting for 12 months.
Such instrument of personnel management has been in force until August 2010 for the former Meridiana crew transferred after the
contribution of the relevant branch as from 28 February 2010.

As a result of the above agreements, the result of FY 2010 benefited from a positive contribution which amounted to
approximately 9.6 million before tax, which was not reflected in corporate cash, given that - at the reporting date - this amount
was still to be reimbursed by the competent authorities. In the first quarter of 2011, the Company received reimbursements of
approximately 5.4 million.

Operating events at the beginning of March 2010

Following the completion in late February 2010 of the above extraordinary operations, starting from 1 March 2010, for about 10
days, significant labour protest by workers took place that resulted in more than 80 cancellations of scheduled flights, flight delays
in general, as a consequence thereof and of personnel shifts, causing a worsening of productivity and punctuality / regularity
parameters.

The above protest had a negative non-recurring impact on the Company's results in 2010 of approximately 1.5 million before
tax.

Volcano eruption in Iceland

Because of the significant eruption occurred in mid April 2010 in a volcano in Iceland, the closing of airspace in Europe was
ordered for about five days.

The Company had to cancel over 350 flights, almost exclusively medium-haul flights and reposition flights on the various airports
(without revenues), as well as re-book passengers. The lost revenue is estimated at approximately 4.5 million, while the lost
margin, net of savings in variable costs, but gross of the estimated costs of refunding and re-booking passengers, can be
estimated at approximately 3 million.

Extraordinary wet lease

Meridiana fly - Annual Financial Report at 31 December 2010 - 158


In the period from June to August 2010, the Company had to resort to temporary wet lease agreements with various operators in
order to cope with the unavailability of aircraft, both for labour problems in Meridiana Maintenance (where two MD-82 aircraft were
being serviced) as well as for the delayed entry of two new A320 aircraft (also due to the integration process), thus incurring
additional unexpected costs estimated at approximately 1.6 million before tax.

The following is a summary of the notional effects of non-recurring transactions on key operating and financial data.

Euro/000

Description Net equity Profit (loss) for the year Net financial Cash flows(*)
position
Value % Value % Value % Value %
Carrying amounts(A) 10.109 (51.861) (20.197) 4.458
Solidarity contract (9.600) -95,0% (9.600) -18,5% 0 0
Operational event March 2010 1.500 14,8% 1.500 2,9% 1.500 7,4% 1.500 33,6%
Volcano eruption in Iceland 3.000 29,7% 3.000 5,8% 3.000 14,9% 3.000 67,3%
Aircraft Wet lease 1.600 15,8% 1.600 3,1% 1.600 7,9% 1.600 35,9%
Tax effects on events (1.729) -17,1% (1.729) -3,3%
Total non recurring operations (B) (5.229) -51,7% (5.229) -10,1% 6.100 30,2% 6.100 136,8%
Gross notional amount (A+B 4.880 (57.090) (14.097) 10.558
(*) they refer to an increase or decrease in net cash and cash equivalents in the year

For sake of completeness, even if the processes for assessing the recoverability of non-current assets and estimate the risk of
adverse outcome of litigation, are part of the ordinary processes of preparing the separate financial statements, is should be
remembered that the loss for the year was influenced by the write-down on investments of 8,575 thousand ( 881 thousand in
the 2009 individual financial statements), the write-down of the property in Via Bugatti for 855 thousand (not included in FY
2009) as well as by provisions for liabilities and charges of 5,369 thousand related to increasing labour litigation caused by the
business combination (See Section 2.17 Significant Litigation).

9.7. Analysis of the statement of financial position as at 31 December 2010

Non-current assets

Non-current assets at 31 December 2010 amounted to 143,532 thousand, up by 2,424 thousand compared to 145.956 in the
2009 pro-forma financial statements ( 50,433 thousand in the 2009 separate financial statements).

Ref 1 Intangible assets

Intangible assets amounted to 57,964 thousand increasing by 2,386 thousand compared to 55,578 thousand of the pro-
forma financial statements at 31 December 2009 (they were 1,568 thousand in the 2009 separate financial statements). The
breakdown of intangible assets is described below.

Goodwill, the recognition of which, as previously mentioned in Section 9.5, should be considered as final pursuant to IFRS 3,
which was applied by analogy, amounted to 56,371 thousand. No specific assets were identified to which, all or part of the
Goodwill, which includes the effects of the contribution of the Aviation branch, could be allocated.

The recognition of goodwill results from (i) the recognition at fair value rather than at historical values of the aforementioned
contribution operation in accordance with the provisions of the OPI 1 document for "business combination of entities or
businesses under common control "and (ii) identification of the Aviation branch as the buyer in the business combination, given its
greater size compared to Meridiana fly both in terms of the amount of revenue and value of net assets For more details about the
accounting treatment of the Aviation branch contribution, the reader should refer to the previous Section 9.5.

Meridiana fly - Annual Financial Report at 31 December 2010 - 159


More specifically, as required by the accounting standards described in section 9.1.2, the Directors, supported by an ad hoc
appointed expert, performed the impairment test of goodwill in accordance with IFRS / IAS international standards, in particular
IAS 36 "Impairment of assets".

The document supporting the impairment test has been examined and approved by the Board of Directors on 23 March 2011,
prior to the approval of the separate financial statements, relative to the CGU Meridiana fly. The considerations made in relation to
the impairment test performed are described below.

Following the completion of the strategic business combination with the aviation activities of Meridiana, the corporate entity
resulting from this process - Meridiana fly S.p.A - is now a single business unit which, for the purposes of the "impairment"
analysis may not be "split" into different CGUs. In this regard it should be noted that the allocation, for the purposes of the
impairment test between scheduled and charter activities, between activities with and without the constraints of territorial
continuity, between medium and long haul flights, would not be consistent with the Directors' strategic vision of the Company and
would be characterized by the absence of autonomy in the formulation of competitive strategy. In addition, it should be noted that
the joint management of resources (human, material and financial resources) would make it impossible to identify autonomous
cash flows attributable to the individual operating units, especially in light of the internal organisation adopted by management for
the new post-combination entity; this organisation, in fact, expressly provides that activities carried out respond to a single central
structure, which is responsible for defining management guidelines applicable across the various business functions.

Consequently, as there are no production units as part of the aviation activity carried out by the Company, that constitute decision-
making systems that are independent with respect to the economic entity, and therefore such as to be identified as a CGU in
accordance with IAS 36, the impairment test on the air transport activity was carried out with reference to the airline as a whole.
Consequently, the recoverable amount is determined by reference to the single CGU Meridiana fly.

Finally it should be remembered that after the business combination, as previously described in section 9.13, the segment
reporting required by IFRS 8 is not provided with regard to interim results of separate business units, as the "reporting tools for
decision making "do not separate direct and indirect inputs but rather they present them in a uniform and consistent way with
management strategies and structures, as well as with the functional organization of the company.

According to IAS 36, the recoverable amount is the higher of the fair value and the value in use. Fair value is the amount
obtainable from the sale in an arm's length transaction between knowledgeable, willing parties, less any directly attributable
expenses. Depending on circumstances, this amount is determined according to the agreed price if there is a binding sale
agreement stipulated in a transaction between independent parties (net of disposal costs) or the market price, less cost to sell if
the asset is traded in an active market.

On the other hand the value in use results from discounting, using an appropriate discount rate, expected positive and negative
cash flows to be derived from using the asset / CGU until the end of its useful life. The impairment loss resulting from the
impairment test is measured by the excess of the carrying amount of the asset compared to its recoverable amount.

In this regard, the Directors believe, that the financial projections underlying the New Industrial Plan 2011-2015, approved by the
Board of Directors on 18 March 2011, are not suitable for the purposes of a possible measurement of economic value, in terms of
value in use, of the CGU Meridiana; this opinion is in line with the objective to immediately implement a particularly incisive
restructuring process which may lead to improved profitability and, subsequently, to establishing the basis for a possible broad
strategic alliance providing a sustainable growth in the long run. In fact, any value that would result from discounting these
amounts, would not in any case account for the even minimal growth assumptions in the medium or long term (e.g. in terms of
new business strategies, strategic alliances with other operators, etc..) while it would be penalized by heavy negative cash flows
expected during 2011; in this financial year in fact the restructuring activities which constitute the basis for the recovery of
profitability in the medium term, would still be ongoing.

Moreover, the inclusion in the financial projections of the Business Plan of both the benefits of the restructuring, in terms of higher
revenues and lower outflows, due to cost cutting, and the costs of the restructuring in terms of increased outflows included in the
related provisions in accordance with international accounting standards, makes the Plan effectively unusable for the purposes of
the impairment test; IAS 36, paragraph 44 states in fact that "The future cash flows of the assets must be estimated with reference
Meridiana fly - Annual Financial Report at 31 December 2010 - 160
to current conditions. The estimates of future cash flows should not include estimated future cash inflows or outflows that are
expected to arise from: (a) a future restructuring to which an entity is not yet committed, and (b) the improvement or optimization
of a business performance".

Given the above, the fact that Meridiana fly is a company listed on the Italian stock exchange allows compliance with the
conditions laid down by international accounting standards, for the purposes of considering the company value as measurable
based on market prices expressed by stock prices. In this regard, including on the basis of the opinion expressed by the expert
appointed, the following considerations been taken into account:

For the purposes of determining fair value, the market data resulting at year-end closing on 30.12.2010 was considered,
amounting to 0.0451 per share, resulting in a total value of 62,873 thousand. This value is significant for the purposes
of estimating fair value because it coincides with the FY end and because it is lower than the average for the year.

As an additional scenario, the average of the last 4 months of 2010 was also considered; this was the period after
completion of the capital increase. During this period, the stock was affected by a fall in stock market prices and the
average price in this four-month period was 0.048873, which results in a comprehensive assessment of Meridiana fly of
68,133 thousand. The weighted average price for the same period is slightly higher, amounting to 0.04905.

It should be noted that, after 31.12.2010, and especially after 11 February 2011, there was an increase in the company's stock
prices, and, concurrently an increase in trading volume, following the dramatic announcement to the market of the launch of the
restructuring plan resulting in the beginning of procedures for subsidised redundancy schemes and collective layoff for a
significant number of employees.

Finally, for information purposes, it should be noted that, even if one were to consider, as a limit case, the minimum closing price
recorded in the past 12 months, amounting to 0.0397 on 30 November 2010, the total capitalization of the Company would stand
at 55,345 thousand.

Based on the above information, the following table shows the different levels of capitalization of the entire company for the
various stock market prices.

Day / Time Price / Avg Price Capitalisation

(000)

1) 30.12.2010 0.0451 62,873

2) 1.9.2010 - 30.12.2010 0.048873 68,133

3) 30.11.2010 0.0397 55,345

Just for comparison, it should be noted that the capitalisation based on the average price recorded by the stock during 2011
(period 1.1 - 21.3.2011) would amount to 81,562 thousand, and the capitalisation referred to the average price recorded so far in
the month of March (period 1.3 - 21.3.2011) would be 101,136 thousand.

It is believed that the market value, given a free float of about 20%, is sufficiently representative to determine the market liquidity
and marketability of the share on the stock exchange, taking into account the average daily trading volume recorded in the period
of observation. In this regard it should be noted that the average daily volume of trading in the last quarter of 2010 totalled 3.35
million shares, and, given an average stock price in the same period of 0.0476, it corresponds to an average daily trade
amounting to about 160,000. The period 1.10-30.12.2010 is used because it is subsequent to the capital increase completed in
August 2010 and therefore is not affected by the change in the number of shares.

Meridiana fly - Annual Financial Report at 31 December 2010 - 161


According to estimates made, the market value (fair value) - which, moreover, for the purposes of consistent comparison with the
carrying value should be increased by the amount of net debt - was significantly higher than the book net invested capital as at the
date of the financial statements ("carrying value"), estimated at approximately 45 million.

Therefore no impairment loss is applicable to the CGU Meridiana fly and the related Goodwill. This conclusion was confirmed by
tests carried out - for the sole purpose of assessing the measurement made according to the methods described above - making
use of the multiples method, expressed by the market and identified only with regard the income statement indicators of sales and
Ebitdar. In both cases, the valuation of the CGU based on market multiples would be higher than the carrying value.

Please refer to Section 2.25 above Ref 2 for a discussion on the risks related to the impairment evaluation process, given the
conditions in which the Company and the Group are currently operating.

Concessions, licenses, trademarks and similar rights" amounted to 839 thousand, (of which 583 thousand obtained from the
contribution operation); in the 2009 financial statements they amounted to 449 thousand. They include the value of the
Company brand, the costs incurred for the use of software licenses, implementation/upgrade of the website platform and the
acquisition of software.

"Start-up and expansion costs" mainly include the net residual costs of pilots training; these costs are guaranteed by surety in
favour of Meridiana fly in the event of staff leaving in the three years following the training. The increase during the year is linked
to investments in new software.

"Other intangible assets" amounting to 723 thousand, are mainly related to the residual net value of the ancillary charges
incurred for new aircraft of the A320 and A330 type, acquired through operating leases.

Ref 2 Fleet

Within the Aviation Branch, ten owned MD-82 aircraft were contributed to Meridian fly.

As a result the net book value of the fleet at 31 December 2010 amounted to 29,750 thousand ( 30,090 thousand in the pro
forma financial statements at 31 December 2009 ). The new investments made during the period for extraordinary maintenance
and purchases of rotating material amounted to 4,140 thousand, while depreciation amounted to 4,330 thousand.

With reference to the "Fleet" item, presented in the financial statements as a separate item following the contribution of the
Aviation Branch and resulting primarily from this operation, it should be noted that - based on the assumptions included in the
Business Plan - the date of decommissioning (the so-called "phase out ") of the aircraft is set in 2015. Consistent with this
assumption the useful life of such assets was confirmed and the related depreciation was calculated. The useful life was
estimated taking into account the possible use of the individual components, also considering the disposal of the fleet.

As part of the impairment test carried out in relation to the CGU Meridiana fly, the value of the fleet was included in its carrying
amount, and therefore, on the basis of our previous discussion on the criteria used in the identification of the CGU, we consider
that the conclusions reached confirm the amount at which the aircraft were recognised, based on the impairment test performed
on the CGU Meridiana fly as a whole.

Ref 3 Other property, plant and equipment

"Other property, plant and equipment" amounted to 18,453 thousand, decreasing by 1,644 thousand compared to the pro-
forma data at 31 December 2009, amounting to 20,097 thousand. ( 15,239 in the 2009 financial statements). Capital
expenditure during the year amounted to 4,029 thousand, while depreciation was 5,330 thousand.

This item includes:

Land and buildings ( 6,090 thousand) which relate to the office building in Via Ettore Bugatti 15, Milan, to which a total
mortgage of 10,000 thousand is attached in the lender banks favour. In view of the transfer of the registered office to Olbia,
which took place in early 2010, and the organisational changes underway, which include moving general and administrative
offices currently in Milan to Olbia, the carrying value of the property was verified by the Directors with reference to its market
value based on a fair value estimate, net of selling cost. This valuation was made with the help of an independent expert.

Meridiana fly - Annual Financial Report at 31 December 2010 - 162


This audit revealed an impairment loss, taking into account the destination of the property, its characteristics and the current
difficult real estate market, amounting to 855 thousand; the loss was recorded in the 2010 income statement in item
"Depreciation and write-downs ".

"Equipment on leased aircraft" ( 8,763 thousand), which refers to the net value of improvements made to the fleet under
operating lease, and the net value of provisions for maintenance for aircraft reconditioning and phase out, which are
capitalised and depreciated systematically.

"Plant and Machinery" ( 842 thousand), which include rolling components, improvements to leased aircraft in the fleet, and
capitalised maintenance costs.

"Equipment" ( 1,243 thousand), relating mainly to the operational equipment in use at the bases of the Company.

"Other assets" ( 1,490 thousand), including the net book value of electronic equipment (approximately 1.1 million), as well
as the residual net value of furniture, furnishings, vehicles and other property in use.

Following is the statement of changes in intangible and tangible assets from 31 December 2009, on an individual basis, to 31 Dec.
2010, where the "Change in scope" includes the amountsfrom the Aviation Branch contribution, as well as the spin-off of fixed
assets to Meridiana Maintenance; both transactions were completed in late February 2010.

Meridiana fly - Annual Financial Report at 31 December 2010 - 163


Summary of changes in tangible and intangible assets

000 Historical cost Depreciation Write-down/Write-up Net book value


Change in scope Change in scope Write-Down Change 31.12
Intangible 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
assets 2009 of consolidation changes 2010 2009 of consolidation changes 2010 2009 Write-ups in scope 2010 2009 2010
Goodwill - 56,371 - - - 56,371 - - - - - - - - - - - 56,371
Start-up and expansion costs 5,673 - - (168) - 5,505 (5,490) (50) - 66 - (5,474) - - - - 183 31
Development costs 464 - - - - 464 (459) (5) - - - (464) - - - - 5 -
Concessions, licenses, trademarks and similar rights 2,161 284 - 5,035 - 7,480 (1,712) (477) - (4,452) - (6,641) - - - - 449 839
Other intangible assets 1,694 - - - - 1,694 (763) (208) - - - (971) - - - - 931 723
Total 9,992 56,655 - 4,867 - 71,514 (8,424) (740) - (4,386) - (13,550) - - - - 1,568 57,964

000 Historical cost Depreciation Write-down/Write-up Net book value


Change in scope Change in scope Write-Down Change 31.12
Fleet 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
2009 of consolidation changes 2010 2009 of consolidation changes 2010 2009 Write-ups in scope 2010 2009 2010
Aircraft - - - 211,480 - 211,480 - (1,553) - (175,170) - (176,723) - - (24,810) (24,810) - 9,947
Maintenance - 2,674 - 32,557 - 35,231 - (1,259) - (20,731) - (21,990) - - - - - 13,241
Rolling material 4,565 1,466 (167) 31,991 - 37,855 (2,065) (1,518) 164 (27,301) - (30,720) - - (573) (573) 2,500 6,562
Total 4,565 4,140 (167) 276,028 - 284,566 (2,065) (4,330) 164 (223,202) - (229,433) - - (25,383) (25,383) 2,500 29,750

000 Historical cost Depreciation Write-down/Write-up Net book value


Change in scope Change in scope Write-Down Change 31.12
Other property, plant 31.12 Increases Decreases Other 31.12 31.12 Increases Decreases Other 31.12 31.12 31.12 31.12
and equipment 2009 of consolidation changes 2010 2009 of consolidation changes 2010 2009 Write-ups in scope 2010 2009 2010
Systems on third party aircraft 12,727 3,551 (806) 11,707 10,444 37,623 (7,246) (4,059) 805 (9,465) (8,895) (28,860) - - - - 5,481 8,763
Land, buildings and works on third party property 8,881 10 (567) 1,606 - 9,930 (1,210) (222) - (1,553) - (2,985) - (855) - (855) 7,671 6,090
Plant and machinery 1,245 113 - 1,291 - 2,649 (599) (151) - (1,057) - (1,807) - - - - 646 842
Equipment 1,675 81 - 6,384 41 8,181 (715) (217) - (6,006) - (6,938) - - - - 960 1,243
Other assets 2,454 274 (78) 11,111 - 13,761 (1,987) (681) 45 (9,648) - (12,271) - - - - 467 1,490
Assets under construction 14 - - 126 (115) 25 - - - - - - - - - - 14 25
Total 26,996 4,029 (1,451) 32,225 10,370 72,169 (11,757) (5,330) 850 (27,729) (8,895) (52,861) - (855) - (855) 15,239 18,453

Meridiana fly - Annual Financial Report at 31 December 2010 - 164


Ref 4 Deferred tax assets

This item amounted to 7,480 thousand, decreasing by 1,624 thousand compared to the corresponding item in the pro-forma
statements at 31 December 2009, amounting to 9,104 thousand ( 8,680 thousand in 2009 Annual Report), mainly reflecting the
updated estimate of deferred tax assets based on recoverable tax losses under the New Business Plan 2011-2015 and the
recognition of deferred tax assets related to IRES and IRAP resulting from positive temporary differences which will flow into
future financial years reporting a tax profit in accordance with the provisions of the Plan.

The changes in deferred tax assets is summarised in the table below.

Changes 2010 Taxes


31.12 31.12
Change in scope recognized
/000 2009 Increases Decreases 2010
in equity
Provisions for liabilities and charges 383 660 (383) - - 660
Provision for doubtful receivables 381 1,238 - - - 1,619
Entertainment expenses and gifts - - - - - -
Trademark amortisation 12 3 - - - 15
Unrealised foreign exchange gains and losses 244 - (244) - - -
Costs for capital increases (deducted from equity) 79 - - - 116 195

Tax losses carries forward 7,357 - (3,126) - - 4,231


Other employee benefits - - (364) 364 - -
Depreciation repairable material not deducted - - (199) 199 - -
Total Deferred tax assets IRES (corporate tax) 8,456 1,901 (4,316) 563 116 6,720

Provisions for liabilities and charges 166 537 - - - 703


Write-down of Assets 26 33 (26) - - 33
Writ-down of inventory - 2 - - - 2
Entertainment expenses and gifts - - - - - -
Trademark amortisation 3 3 - - - 6
Listing costs (deducted from equity -IAS ) 29 - - - (29) -
Depreciation repairable material not deducted - - (12) 28 - 16
Total Deferred tax assets IRAP (Regional Business 224 575 (38) 28 (29) 760
Tax)
Total Deferred tax assets 8,680 2,476 (4,354) 591 87 7,480

Deferred tax assets include the estimated benefit on tax losses carried forward from fiscal years 2008, 2009 and 2010 amounting to
4.2 million corresponding to 15.4 million of future taxable income, against 22 million of expected taxable income according to
the New Business Plan 2011-2015. The downward adjustment to taxable income taken as reference for the recognition of deferred
tax assets on tax losses carried forward was prudentially made to take into account the risk component related to the high exposure
of expected income to scenario variables that the Company cannot control.
The reader should refer to section 9.1 "Accounting standards and criteria" for a discussion on the effects on the measurement of
deferred tax assets, resulting from a failure to realize the future taxable income envisaged in the Plan.
It should be noted that the total amount of tax losses carried forward in the financial years included in the new business plan
amounted to approximately 111.7 million.
As already noted, the analysis of recoverability of deferred tax assets, which led to a net reduction in these assets for an amount of
1.9 million (including a reduction of 3.1 million relating to the benefits associated to the tax losses carried forward, partially
offset by the recognition in this financial year of deferred tax assets for IRES and IRAP taxes relating to positive temporary
differences that will flow into future financial years reporting a tax profit ) was based on the expected taxable income that could be
inferred from the new business plan for the financial years 2011-2015.

Meridiana fly - Annual Financial Report at 31 December 2010 - 165


Ref 5 Equity investments

/000 31.12.2010 Pro forma 31.12.2009


Change
Investments in subsidiaries 5,663 14,238 (8,575)
Investments in associates 1,978 1 1,977
Total investments held for sale 7,641 14,239 (6,598)

Equity investments amounted to 7,641 thousand at the end of 2010 compared to 14,239 thousand in the pro-form financial
statements at 31 December 2009 ( 7,120 in the 2009 financial statements).

This item had the following changes:

increase for the investment in Meridiana Maintenance following the contribution of the maintenance branch ( 1,967
thousand) and the investment in Meridiana Express ( 10 thousand);

increase for the acquisition of the remaining 50% in Sameitaly S.r.l. and Wokita S.r.l. through the contribution of the
Aviation Branch of Meridiana for 7,119 thousand;

decrease due to the write-down of the investments in the above mentioned Sameitaly S.r.l. and Wokita S.r.l. for 8,575
thousand, based on a specific impairment test performed at the reporting date, with the support of an expert appointed
for the purpose.

In particular, the recoverable value of the holdings in question was measured by an independent third party appointed for this
purpose, through the determination of the value in use obtained by discounting expected operating cash flows (method UDCF -
Unleveraged Discounted Cash Flow) . These expected operating cash flows resulted from forecasts inherent in the new business
plan approved by the Boards of Directors of the two subsidiaries on 17 March 2011.

The estimates were made taking into account past experience as well as the objective difficulties in making projections in the
current economic and financial environment, in particular in the reference industry; as a result, no expected growth rate ("g" ) was
calculated to mitigate the risks that the assumptions underlying the plan could not be fully met. A terminal value was added to the
cash flows, representing the operating cash flows that the subsidiaries will generate as from the last year of the plan for an
indefinite period and calculated as perpetuity. For both the subsidiaries, the terminal value represents a significant portion of the
"value in use", calculated on the basis of the following parameters:

Discount rate Growth Rate


Wokita s.r.l. 16.00% 0%
Sameitaly s.r.l. 11.00% 0%

The "value in use" determined on the basis of the assumptions and valuation techniques mentioned above, has led to the following
write-down:

Value before Carrying amount at


impairment write-down 31.12.2010
Wokita s.r.l. 5,296 (3,949). 1,347
Sameitaly s.r.l. 8,942 (4,626). 4,316
Total 14,238 (8,575). 5,663

The use of discount rates and growth rates lower or higher would have led to a different value in use, as shown in the following
table:

Meridiana fly - Financial Statements at 31 December 2010 - 166


Sameitaly Discount rate

10.5% 11.0% 11.5%


-
0.5% 4,353 4,157 3,976
Growth Rate
0.0% 4,529 4,316 4,121
0.5% 4,723 4,490 4,279

Wokita Discount rate

15.5% 16.0% 16.5%


-0.5% 1,359 1,319 1,282
Growth Rate 0.0% 1,389 1,347 1,308
0.5% 1,421 1,377 1,335

The financial performance of the subsidiaries Sameitaly and Wokita is illustrated in the previous section 2.10, to which the reader
should refer for more details.

Given the significant sensitivity of the value in use to changes in the discount rate or the rate of growth used in the estimates - in a
situation where revenues (in volume and value) and operating costs, as well as the rate of discount itself, are dependent on the
evolution of macroeconomic variables that can not be controlled by the Company - the Board of Directors cannot rule out that, in
the future, differences in the performance of these variables compared to those reasonably foreseeable on the basis of current
knowledge and scenario forecasts obtained from third-party sources, and used to pinpoint the underlying assumptions of forecast
data, may lead to further write-downs of the carrying amount of these investments.

Finally, with reference to the assessments on the recoverability of the carrying amount of Meridiana Maintenance, the draft
financial statements of this subsidiary at 31 December 2010 reported a non significant loss.

Ref 6 Other non-current financial assets

Other non-current financial assets amounted to 21,657 thousand compared 15,074 thousand in the pro-forma financial
statements at 31 December 2009 ( 13,551 thousand in 2009 financial statements). They are primarily represented by security
deposits in favour of lessor for use of aircraft and other security deposits in favour of other suppliers ( 18,492 thousand) as well
as the fixed-term deposit with Intesa Sanpaolo S.p.A. for the issuance of sureties in favour of the aircraft lessor ( 3,165
thousand).

Ref 7 Other non-current receivables

The amount of 587 thousand ( 1,774 thousand in the pro-forma financial statements at 31 December 2009 ) refers to the non-
current portion of receivables from Airbus for the purchase of aviation goods and services as a result of the agreement to
terminate the contract for the purchase of three long-haul A350 aircraft signed in previous periods.

Current assets

Current assets at 31 December 2010 amounted to 152,058 thousand, up by 13,969 thousand compared to 130,089
thousand in the 2009 pro-forma financial statements ( 76,428 thousand in 2009 financial statements)

Ref 8 Inventories

Inventories amounted to 627 thousand ( 4,207 thousand in the pro-forma financial statements at 31 December 2009 and
3,902 thousand in the 2009 financial statements). Inventories are made up of catering and office supplies

Meridiana fly - Financial Statements at 31 December 2010 - 167


The decrease is largely represented by the value attributed to aircraft consumables in the contribution of the maintenance branch
to Meridiana Maintenance at the end of February 2010.

Ref 9 Trade receivables and other current assets

"Trade receivables and other current assets" amounted to 139,152 thousand, recording an increase of 22,728 thousand
compared to pro-forma data at 31 December 2009 ( 65,880 thousand in the 2009 financial statements) The changes are shown
in the table below.

31.12 31.12
Change
/000 2010 2009 proforma
Trade receivables 109.820 93.076 16.744
Provision for doubtful receivables (20.627) (18.251) (2.376)
Total trade receivables 89.193 74.825 14.368
Receivables for solidarity contracts 15.799 13.214 2.585
Receivables for ENAC contributions 13.821 10.043 3.778
Prepaid expenses and accrued income 9.634 6.641 2.993
Receivables from Parent for claim collection 3.789 - 3.789
Current portion AIRBUS receivable 1.077 934 143
Other current assets 7.039 10.766 (3.728)
Provision for doubtful receivables (1.200) - (1.200)
Total other current assets 49.959 41.598 8.360
Total trade receivables and other current assets 139.152 116.423 22.728

Trade receivables consist primarily of receivables from tour operators, private clients, airlines and agencies. They are adjusted by
the provision for doubtful receivables; the table below shows the changes in this item starting from the individual financial
statements at 31 December 2009:

Change in Other
31.12.2009 Provisions Utilisations 31.12.2010
/000 Scope changes
Provision for doubtful trade receivables (12.844) (3.643) 1.267 (5.407) - (20.627)
Provision for doubtful receivables-other debtors - (1.200) - - - (1.200)
Total provision for doubtful receivables (12.844) (4.843) 1.267 (5.407) - (21.827)

"Trade receivables" include amounts due from related parties which are described in detail in Section 9.14- Related Party
Transactions.

Given pending litigation - with particular reference to the most significant disputes in Section 2.17 - the Directors considered that
the allocations to the provision for doubtful receivables reflected in these separate financial statements are appropriate and
adequate to represent the risk of write-off of receivables due from counterparties.

It should be noted, however, that guarantees were issued by commercial partners in favour of Meridiana Group made up of
security deposits ( 400 thousand) and sureties ( 3,310 thousand) for the fulfilment of contractual obligations on sales activities.

The item, "Other current assets" includes in particular the "social security receivables for staff solidarity contracts" relating to the
amounts due by the competent pubic authorities on the basis of the procedure provided for solidarity contract expired in
September 2010. In FY year 2010 6.2 million were collected for this kind of receivables, while in the first quarter of 2011 an
additional amount of 5.4 million was collected.

The item "Receivables for ENAC (Civil Aviation Authority) contributions" includes amounts receivables from the Civil Aviation
Authority relating to the balance of contribution for the territorial continuity of Sardinia and Sicily due for the periods 2007-2010,
resulting mainly from the Aviation Branch contribution.

The "Accrued income and prepaid expenses" increased by 2,993 thousand compared to the pro-forma amount at 31 December
2009 of 6,641 thousand, due to the increase in prepayments on operating costs. They include, among others, the prepayment of
2 million for a promotional contribution paid in the fourth quarter of 2010 in favour of ORP (Opera Romana Pellegrinaggi); an
Meridiana fly - Financial Statements at 31 December 2010 - 168
agreement was signed with ORP that provides for significant increases in charter and scheduled flights on some medium haul
destinations (see Section 2.14.11).

The item "Due from Parent Company" of 3,789 thousand refers to sums collected by the parent Meridiana S.p.A. as
reimbursement for claims by aircraft lessor with regard to maintenance for which Meridiana fly is responsible since the contribution
of the Aviation branch. The reimbursement of such amounts by the parent company is expected by FY 2011.

The "Current portion of Airbus receivable" of 1,077 thousand is referred to the proportion of short-term receivables for the
purchase of aviation goods and services following the agreement to terminate the contract for the purchase of three A350 long-
haul aircraft (see also Ref 7 ).

The item "Other current assets" mainly includes advances to suppliers ( 1,494 thousand), receivables from intermediaries for
credit card sales ( 962 thousand), due from employees ( 333 thousand), income tax credits ( 200 thousand), net receivables
from travel agencies collection systems (BSP - 478 thousand) and the clearing system for air carriers and operators (ICH -
1,744 thousand), as well as other smaller receivables.

Ref 10 Current financial assets

"Current financial assets" amounted to 479 thousand ( 3,849 thousand in the pro-forma financial statements at 31 December
2009 ) and refer to the fair value measurement of derivative contracts on jet fuel transferred by Meridiana S.p.A. with the
Aviation Branch contribution operation.

Ref 11 Cash and cash equivalents

Cash and cash equivalents at 31 December 2010 amounted to 11,800 thousand compared to 13,610 thousand in the pro-
forma financial statements at 31 December 2009 ( 6,647 thousand in the 2009 financial statements).

Net equity

At 31 December 2010 the share capital of Meridiana fly, fully paid up, amounted to 20,901 thousand divided into 1.394.086.688
shares with no par value.

The shareholders' equity, after the extraordinary operations of in cash and in kind capital increase carried out during FY2010,
amounted to 10,109 thousand, taking into account the net loss for the year, amounting to 51,861 thousand.

For additional details on shareholders' equity, please refer to section 9.9 - Analysis of changes in equity.

Non-current liabilities

Non-current liabilities at 31 December 2010 amounted to 52,187 thousand, up by 14,066 thousand compared to the value
recorded in the 2009 pro-forma financial statements ( 38,121 thousand).

In the 2009 financial statements this item amounted to 11,024 thousand.

Ref 15 Long-term borrowings

The long-term borrowings, which amounted to 24,531 thousand, consist of the Banca Profilo mortgage loan obtained in 2003 for
1,568 thousand (debt secured by mortgage on the property in Milan for 10 million), the new 36 months maturity syndicated
loan amounting to 14,463 thousand (net of expenses recorded in accordance with the amortised cost) and the non-interest
bearing loan granted by the parent Meridiana S.p.A for 8,500 thousand.

In particular, the mortgage loan was reduced by 616 thousand due to the repayment of the half-yearly instalments of the
mortgage.

All the instalments payable on the mortgage fall due within five years; the repayment plan of the loan is shown below:

Meridiana fly - Financial Statements at 31 December 2010 - 169


Repayment of principal per year /000

2011 603
2012 618
2013 641
2014 309
Total 2,171

Therefore, the Group's debt with maturity over five years amounted to 8,500 thousand represented solely by the interest free
loan granted by Meridiana S.p.A., due to expire on 31 August 2016.

16 ref-provisions for post-employment benefits (TFR) and other defined benefit plans

This item amounted to 13,265 thousand, recording an increase of 754 thousand compared to the 31 December 2009 pro-
forma data. The breakdown is as follows:

/000 31.12.2010 Pro forma 31.12.2009 Change


Post-employment benefits provision 11,777 10,897 880
Provision for subsidised tickets 1,488 1,614 (126)
Total 13,265 12,511 754

Following the contribution of the Meridiana Aviation Branch, Meridiana's employees (approx. 1070), their employment contracts as
well as the subsidized tickets provision, were transferred to Meridiana fly.

This item comprises the "post employment benefit provision" (TFR) for the termination of employment contracts, and the
"subsidised tickets provision" on the routes operated by the Company granted to retired former employees of Meridiana (and their
spouses) with at least ten years of service and having retired while employed by the Company.

Both of these liabilities are considered "defined-benefit plans" and therefore are determined at year-end by using actuarial
methods in accordance with the provisions of IAS 19.

The assessment of the post-employment benefit provision, in accordance with IAS 19, resulted in a liability at 31 December 2010 of
11,777 thousand.
This assessment was made taking into account the new rules on post-employment benefit provision established by Law no. 296 of
27 December 2006.

The table shows the changes, during the year, in the "post-employment benefit provision" in comparison with the2009 individual
financial statements:

Description 2010 2009


Net liability at 1 January 2,478 2,708
Change for contribution 8,642 -
Other adjustments to initial provision 283 -
Current cost for the year - -
Interest expense (income), net 273 61
Actuarial (Gains) losses 786 (54)
Cost for the year 1,059 7
(services paid) (685) (237)
Net liability at 31 January 11,777 2,478

The table below shows the changes in the "subsidised tickets provision" occurred during the year:

Meridiana fly - Financial Statements at 31 December 2010 - 170


Description 2010 2009
Net liability at 1 January - -
Change for contribution 1,429
Current cost for the year 47 -
Interest expense (income), net 41 -
Actuarial (Gains) losses 85 -
(services paid) (114) -
Net liability at 31 January 1,488 -

Please note that for both the liabilities mentioned above, actuarial losses were recognized in the comprehensive income statement
for an amount of 871 thousand before tax.

The main assumptions underlying the actuarial calculations were the following:
- technical demographic basis according to statistical tables by independent sources, split by sex;
- probability of advance payment request of the post-employment benefit at a 4% rate of 70% of the benefits accrued;
- retirement age as provided for by the most current legislation;
- rising yield curve (from 2.31% in the 1st year -to 5.43% in the 30th year)
- average annual inflation rate of 2%
- for subsidised tickets, reduced propensity to fly in old age with a 3% annual cost reduction
until 80 years of age.

Ref 17 Provisions for non-current liabilities and charges

Provisions for non-current liabilities and charges amounted to 11,222 thousand ( 19,437 thousand in the pro-forma financial
statements at 31 December 2009 ), down by 8,215 thousand compared to pro-forma figures at 31 December 2009.

In the 2009 financial statements this item amounted to 6,275 thousand.

They consist of maintenance provisions for reconditioning and phase-out of aircraft under operating leases.

The changes in this item, based on opening balances from the individual financial statements as at 31 December 2009, are shown
in the table below.

Change in scope of
Other
31.12.2009 Provisions Utilisations consolidation and other 31.12.2010
/000 changes
changes
Reconditioning provision for leased Airbus 6,275 2,036 (231) 3,142 - 11,222
Total non-current provisions for liabilities and charges 6,275 2,036 (231) 3,142 - 11,222

In FY2010 utilisations of the provision concerned the phase out of an Airbus A319 in June 2010.

The increases relate to the provisions booked in relation to new aircraft added to the fleet in 2010 (three A320 and one A319),
while changes in the scope of the fleet and other changes include the contribution of Meridiana Aviation Branch (MD-82 and
A319), the estimates subsequently revised to take into account the sums to be paid for the phase out of the MD-80 aircraft during
FY2011 and the reallocation of a portion of the existing provision between current and non current provisions for liabilities and
charges.

Ref 18 Deferred tax liabilities

Deferred tax liabilities amounted to 3,169 thousand, decreasing by 820 thousand compared to the corresponding item in the
pro-forma financial statements at 31 December 2009, amounting to 3,989 thousand ( 86 thousand in the 2009 financial
statement).

This item includes deferred tax liabilities already recognized in the financial statements of the parent Meridiana S.p.A. and
transferred to Meridiana fly S.p.A. as a result of the contribution of the Aviation branch under the neutral tax regime.

Meridiana fly - Financial Statements at 31 December 2010 - 171


More specifically, these are deferred tax liabilities for IRES (corporate income tax) and IRAP (regional tax on productive activities)
taxes relating to negative temporary differences associated primarily with the misalignment between the carrying amounts and the
corresponding tax base of certain assets (owned MD-82 fleet and investments in companies) and the adjustment of post-
employment benefit provision in accordance with IAS 19.

The changes in deferred tax liabilities is summarised in the table below.

31.12 Changes 2010 Income taxes 31.12


Change in scope
/000 2009 Increases Decreases Recorded in e quity 2010
Post-employment benefit (TFR) 86 - - 125 (44) 167
Write-up of assets -no tax effect - 36 (181) 2,759 - 2,614
Write-down of assets - no tax effect - - - (155) - (155)
Reversal of previously deducted FTA funds - - (36) 203 - 167
Investments in subsidiaries at fair value - - (96) 96 - -
Effect of IAS 17 - - - 3 - 3
Assets and liabilities in foreign currency - - (443) 443 - -
Total Deferred taxe s IRES (corporate tax) 86 36 (756) 3,474 (44) 2,796
Write-up of assets -no tax effect - 5 (25) 391 - 371
Write-down of assets - no tax effect - - - (22) - (22)
Reversal of previously deducted FTA funds - - (5) 29 - 24
Total Deferred taxe s IRAP (Regional Business Tax) - 5 (30) 398 - 373

Total Deferred taxe s 86 41 (786) 3,872 (44) 3,169

Current liabilities

Current liabilities at 31 December 2010 amounted to 233,294 thousand, recording a decrease of 762 thousand compared to
pro-forma financial statements at 31 December 2009. ( 118,984 thousand in the 2009 financial statements).

Ref 19 Short-term borrowings

"Short-term borrowings" amounted to 7,342 thousand, down by 13,042 thousand compared to the 2009 pro-forma data (they
amounted to 13,501 thousand in the 2009 financial statements); they consist of the stand-by revolving cash loan with18 months
maturity, provided by a syndicate of banks and subject to financial covenants as well as to commitments and restrictions as
explained in section 2.14.12 "Bank debt restructuring." This amount is valued at amortised cost in order to take into account the
costs related to the signing of the above agreement, which were recorded as a reduction to the gross amount received of 7,550
thousand.

Ref 20 Short-term borrowings from the parent company

Short-term borrowings from the parent company were fully reimbursed during the financial year. They amounted to 13,136
thousand in 2009 pro-forma, inclusive of an amount of 3,136 thousand for temporary balance on the contribution of the Aviation
Branch.

Ref 21 Current portion of long-term borrowings

The current portion of long-term borrowings amounted to 603 thousand, down by 971 thousand compared to the pro-forma
data at 31 December 2009 and the 2009 financial statements.

It includes only the current portion of the mortgage loan granted by Banca Profilo for the purchase of the property in Via Bugatti,
Milan.

Ref 22 Provisions for current liabilities and charges

The "Provisions for current liabilities and charges" amounted to 24,210 thousand, increasing by 10,305 thousand compared to
the pro-forma data at 31 December 2009 of 13,905 thousand ( 3,872 thousand in the 2009 financial statements).

The changes are shown in the table below.

Meridiana fly - Financial Statements at 31 December 2010 - 172


Change in scope of
31.12.2009 Provisions Utilisations consolidation and other 31.12.2010
/000 changes
Provision for litigation 1,800 7,597 (4,212) 10,100 15,285
Reconditioning provision for leased MD aircraft - 1,549 - 5,871 7,420
Maintenance provision 456 - - (456) -
Provisions for other risks 1,616 144 (533) 278 1,505
Total current provisions for liabilities and charges 3,872 9,290 (4,745) 15,793 24,210

These provisions have increased, as a result of the provisions contributed by the Aviation Branch (change in scope for 10,378
thousand, mainly relating to provisions for labour disputes, disputes with passengers and other legal proceedings as described in
Section 2.17 Significant Litigation,) as well as for the allocations made in the year 2010 for 9,290 thousand to cover for the risks
associated with the disputes and legal proceedings under way with passengers, staff, suppliers and other counterparties (see
section 2.17 Significant Litigation ).

Among the changes in scope and other changes there was the reclassification under the provision for "current" liabilities and
charges of the instalment of the six MD-82 aircraft under operating leases for which the activities for reconditioning and phase-out
will be carried out by the year 2011 according to the new Business Plan ( 5,871 thousand).

Referring to section 9.1.2 above "Accounting standards, measurement criteria and use of estimates in the preparation of financial
statements" for a discussion on the estimating nature of the process for assessing the adequacy of the provisions for liabilities and
charges and the inherent resulting uncertainties, it was considered - also based on the opinions of independent legal support - that
the provisions for liabilities and charges resulting from the financial statements at 31 December 2010 are adequate and reflect the
liabilities of the Company in accordance with IAS 37.

Ref 23 Trade payables and other current liabilities

Trade payables and other current liabilities amounted to 201,139 thousand, up by 16,082 thousand compared to the pro-forma
financial statements at 31 December 2009, as shown below.(they amounted to 91,038 thousand in the 2009 individual financial
statements).

31.12 31.12
Change
/000 2010 Proforma 2009
Trade payables 149,275 119,394 29,881
Payables to social security institutions 3,401 4,084 (683)
Payables for pre-paid/invoiced tickets and taxes 34,110 48,644 (14,534)
Accrued liabilities and deferred charges 1,034 1,099 (65)
Advances - 845 (845)
Taxes payable 3,002 913 2,089
Other payables 10,317 10,078 239
Total trade payables and other current liabilities 201,139 185,057 16,082

"Trade payables" include amounts due to related parties which are described in detail in Section 9.14 - Related Party
Transactions.

"Payables for pre-paid/pre-invoiced tickets and taxes" of 34,110 thousand refer to scheduled flights sold and cashed in still to be
carried out, as well as pre-sales of charter flights to tour operators to be carried out in January 2011.

"Tax liabilities" refer to withholding taxes payable, VAT and income taxes payable, net of the related tax credit from the previous
year (the latter amounting to 362 thousand).

The item "Other payables" refers primarily to amounts due to employees for holidays not taken and additional monthly payments
( 6,677 thousand), deposits received as collateral, payments due to directors and statutory auditors and other smaller payables.

Meridiana fly - Financial Statements at 31 December 2010 - 173


At 31 December 2010 there were pending injunctions amounting to 2.6 million, primarily related to Alitalia in extraordinary
administration.

9.8. Analysis of the operating performance for the year

Ref 24 Revenues from sales

Revenues from sales totalled 604,129 thousand compared to 639,532 thousand in the 2009 pro-forma income statement.(
290,192 thousand in the 2009 separate financial statements).

These revenues include revenues from direct flights (scheduled/charter), boarding fees, income from code-sharing activities,
ACMI revenues and other ancillary traffic revenues.

It should be noted that sales revenue from activities in code-sharing in the period was approximately 10.8 million, in
collaboration with national and international carriers.

The 5.5% decrease in revenues, compared to the 2009 pro-forma data, was due to reduced activity in code sharing (e.g. with
Lauda-Livingston), as well as to reduced capacity offered on the scheduled and charter market.

Ref 25 Other revenues

"Other revenues", which amounted to 40,495 thousand ( 3,379 in the 2009 separate financial statements) are summarized in
the following table; they recorded a decrease compared to the 594 pro-forma data of 41,089 thousand.

Financial year Financial year


Change
/000 2010 Proforma 2009
Contributions for operating expenses 16,491 19,308 (2,817)
Income on prepaid tickets 11,748 12,696 (948)
Other income with related parties 3,917 1,698 2,219
Freight income on aircraft and rolling material 56 2,102 (2,046)
Other income and extraordinary income 8,283 5,285 2,998
Total 40,495 41,089 (594)

The contributions for operating expenses are represented by the revenues of Sicily and Sardinia "territorial continuity" (typical
activity of Meridiana Aviation Branch), while revenues related to prepayments result from an estimate of unused tickets already
issued, which is based on the historical percentage recorded of unused tickets or tickets for which passengers did not ask for
reimbursement, in order to recognise all revenues in the financial statements on an accrual basis. Please refer to section 9.1.2
"Accounting standards, measurement criteria and use of estimates in the preparation of financial statements" for a discussion on
the estimate nature of the process of recognition of these revenues.

The decrease in "aircraft rentals" resulted primarily from lower revenues from sub-lease of an A330 (contract ended on March
2009).

Ref 26 Fuel

Jet fuel costs amounting to 158,231 thousand compared to 132,220 thousand in the 2009 pro-forma data, ( 71,006 thousand
in the 2009 separate financial statements) accounted for 26.2% of revenues;(20.7% in 2009 pro-forma data and 24.5% in the
2009 separate financial statements); this resulted both from the significant increase in the price of jet fuel , approximately 29%
higher on average compared to 2009, as well as lower revenues from fair value on fuel derivatives amounting to 696 thousand
in 2010 ( 2,888 thousand in the 2009 pro-forma data).

Ref 27 Materials and maintenance services

The costs of materials and maintenance services amounted to 86,552 thousand compared to 97,301 thousand in 2009 pro-
forma financial statements ( 40,086 thousand in the 2009 separate financial statements) and their impact on total revenues
amounted to 14.3% compared to 15.2% in 2009 proforma income statement.(15.9% in 2009 separate financial statements).

Meridiana fly - Financial Statements at 31 December 2010 - 174


The change was due in part to the lack of comparability of data which in 2010 included the outsourcing of maintenance services
carried out for 10 months by Meridiana Maintenance, and in part to non-recurring charges incurred in 2009 for the reconditioning
and phase-out of two A330s to lessor ( approximately 3.8 million).

Financial Year Financial Year


Change
2010 Proforma 2009
/000
Material for catering and meals 10,610 12,291 (1,681)
Technical assistance and breakdowns 243 2,017 (1,774)
Net Aircraft Maintenance 10,568 12,884 (2,316)
Maintenance, freight and catering services with related parties 33,326 40,630 (7,304)
Freight engines and rolling materials 2,788 3,486 (698)
Maintenance reserves 20,747 19,909 838
Other materials and maintenance services 8,270 6,084 2,186
Total 86,552 97,301 (10,749)

It should be stressed that, on a comparable basis, the costs of these activities decreased also reflecting reduced levels of activity
(flight hours and rotations) and number of passengers transported.

Ref 28 Operating Leases

Aircraft operating leases, which amounted to 53,391 thousand compared to 62,579 thousand in 2009 pro forma income
statement, ( 41,463 thousand in the 2009 separate financial statements) showed an impact on revenues of 8.8% versus 9.8% in
the 2009 pro-forma income statement (14.3% in the 2009 separate financial statements), reflecting in particular the
decommissioning of two A330 (present for almost the entire first half of 2009) and significantly lower cost of leased MD-80
contributed by Meridiana.

Commitments for future lease payments for the Airbus and MD-80 fleet, on the basis of current contract terms and conditions are
shown in the following table:

Between one and five Over five


Within 12 months Total
/000 years years
Future minimum payments due under operating leases 56,100 141,536 1,886 199,522
Total 56,100 141,536 1,886 199,522

Ref 29 Selling expenses

Selling expenses, consisting of brokerage fees and other brokerage costs on the various distribution channels, amounted to
25,544 thousand compared to 25,719 thousand in 2009 pro forma financial statements.( 5,067 thousand in the 2009 separate
financial statements).

In terms of impact on revenues, this item accounts for 4.2% compared to 4% in the 2009 pro forma income statement.(1.7% in the
2009 separate financial statements).

It should be noted that following the contribution of Meridiana Aviation Branch, the weight and value of these costs increased
reflecting the greater focus of Meridiana on the sector of scheduled flights which involves greater use of these distribution
channels (e.g. travel agencies and booking systems).

Ref 30 Other operating costs and wet leases

Wet leases and operating costs amounted to 213,889 thousand compared to 225,344 thousand in 2009 pro-forma financial
statements ( 91,803 thousand in the 2009 separate financial statements), with a decrease of 11,455 thousand, as shown in the
following table.

Meridiana fly - Financial Statements at 31 December 2010 - 175


Pro forma financial
/000 Financial year 2010 year 2009 Change
Handling 126,682 141,131 (14,449)
route charges (radio weather forecast) 38,890 40,728 (1,838)
Blocked space (seats bought from other carriers) 16,023 10,257 5,766
Wet lease 11,918 14,362 (2,444)
Handling and wet lease with related parties 8,885 7,510 1,375
Passenger assistance and damage reimbursement 888 2,918 (2,030)
Other 10,603 8,437 2,166
Total 213,889 225,343 (11,454)

Their impact on turnover stood at 35.4% against 35.2 % in 2009 pro forma financial statements (31.6% in the 2009 separate
financial statements)

Wet lease costs were lower, mainly with reference to seats purchases on flights operated by Lauda-Livingston (Long Haul), which
decreased significantly compared to 2009 reflecting different commercial operations.

Commitments for future wet lease payments, on the basis of current contract terms and conditions are shown in the following
table:

Between one and five


Within 12 months Over five years Total
/000 years
Future minimum payments due under operating "wet leases"

2,482 - - 2,482
Total 2,482 - - 2,482

Ref 31 Other operating costs and other services

The "Other operating costs and other services" amounted to 31,871 thousand compared to 36,077 thousand in 2009 pro-
forma financial statements ( 19,636 thousand in 2009 separate financial statements) showing a decrease of 4,206 thousand.
Their impact on turnover stood at 5.3% against 5.6% in 2009 pro forma financial statements (6.8% in the 2009 separate financial
statements)

This item includes the costs for consulting and collaboration services, advertising and promotion, insurance, utilities, leases, other
rentals, and various other services, and various extraordinary losses.

Ref 32 Staff costs

Personnel costs amounted to 89,084 thousand compared to 109,019 thousand in 2009 pro-forma financial statements (it
amounted to 39,171 thousand in 2009 separate financial statements); their impact on turnover, after the business combination
stood at 14.7 % (17 % in 2009 pro forma financial statements and 13.5% in 2009 separate financial statements).

It should be noted that staff costs benefited from the application of solidarity contracts for approximately 9.6 million; in the first
nine months of 2010 these contracts were applied to flight crew (pilots and flight attendants),

As a result of the business combination with the Aviation Branch and the concurrent spin-off of the maintenance branch MRO,
employees increased in FTE terms by approximately 1,000, reaching the number of 1,515 employees at the end of December
2010.

Ref 33 Depreciation and amortization

Meridiana fly - Financial Statements at 31 December 2010 - 176


They amounted to 11,254 thousand compared to 11,724 thousand in 2009 pro forma financial statements ( 3,232 thousand
in the 2009 separate financial statements). The increase over the previous year is related to (i) the contribution of the Aviation
Branch of Meridiana, which contributeda significant amount of tangible assets (owned fleet of aircraft and other fixed assets for
over 32 million); as well as the write-down made to the value of the headquarters building of 855 thousand to reflect the lower
estimated realizable value (see Ref 3).

Ref 34 Allocation to the provision for liabilities and charges

This item amounted to 7,741 thousand compared to 6,225 thousand in 2009 pro forma.( 2,625 thousand in the 2009 separate
financial statements).

This item includes the provisions set aside to meet outstanding litigation with passengers, employees, suppliers and other
counterparties, taking into account the specific assessments carried out with the support of legal opinions, which led to more
conservative allocations for the year given the large number and the weight of the individual proceedings.

Ref 35 Other adjustment provisions

The item "Other adjustment provisions" amounted to 4,900 thousand compared to 2,399 thousand in 2009 pro forma financial
statements and in 2009 separate financial statements.

This item mainly consists of the write-downs to doubtful receivables ( 4,843 thousand) based on historical experience and
detailed analysis of individual doubtful debts.

Ref 36 Net financial income (expenses)

The balance of "Net financial expenses" amounted to 2,326 thousand compared to a balance of 1,098 thousand in 2009 pro
forma financial statements.(balance of 1,409 thousand in 2009 separate financial statements).

The amount above is primarily the result of net foreign exchange losses ( 110 thousand), net interest and other financial charges
( 793 thousand), various fees on sureties and bank charges ( 609 thousand), as well as the capital contribution to cover Wokita
S.r.l. losses ( 500 thousand) made in the financial year and the interest cost arising from the actuarial valuation of post-
employment benefit provision (TFR) and other employees benefits for 314 thousand.

The details of this item are shown below.

Financial income

Financial Year Financial Year


Change
/000 2010 Proforma 2009

Bank interest income 80 51 29


Foreign exchange gains 7,156 2,707 4,449
Other income 127 178 (51)
Total 7,363 2,936 4,427

Meridiana fly - Financial Statements at 31 December 2010 - 177


Net financial income (expenses)

Financial Year Financial Year


Change
/000 2010 Proforma 2009

Provision to cover losses in subsidiaries 500 - 500


Interest costs, post-employment benefits and subsidized tickets 314 213 101
Interest expenses on bank loans 273 171 102
Charges on bank current accounts 383 285 98
Foreign exchange losses 7,266 2,960 4,306
Interest expense on mortgage 55 100 (45)
Commissions on sureties 226 152 74
Other 672 153 519
Total 9,689 4,034 5,655

Ref 37 Impairment of financial assets

The impairment of financial assets relates to the write-downs of investments in subsidiaries Sameitaly S.r.l. and Wokita S.r.l.
based on the review of their respective business plans and evaluations performed by an independent professional on the value of
these companies. The directors considered it appropriate to recognize a write-down of 8,575 thousand in 2010 ( 881 thousand
in 2009), as follows:

- For Sameitaly 4,626 thousand;

- For Wokita 3,949 thousand;

Please refer to ref. 5 - Investments - for details related to the impairment carried out.

Ref 38 Income taxes for the period

Taxes for the period amounted to 3,126 thousand compared to 4,763 thousand in 2009 pro-forma financial statements (
2,851 thousand in the 2009 separate financial statements); they consist of:

Financial Year
/000 2010
Current IRAP 1,994
Reversal of temporary differences IRES / IRAP previous years (745)
Partial Reversal of deferred tax assets IRES / IRAP previous years 2,415
Deferred Tax assets IRES / IRAP recognised (538)
Total 3,126

In the year 2010 corporate income taxes (IRES) were not allocated as a result of the tax loss realized in the same period
amounting to approximately 22.4 million. Meridiana fly has significant tax losses carried forward amounting to approximately
111.7 million, including the tax loss realized during 2010, which gave rise to the recognition in the financial statements of deferred
tax assets linked to the future use of some of these losses for an amount of 4,231 thousand, in view of expected taxable profits
envisaged in the new Strategic Plan 2011-2015 and taking into account the time limit in which these losses can be carried
forward.

For more details on this issue, please refer to the section. ref. 4 - Deferred tax assets.

The following table shows the reconciliation between tax charge in the financial statements and the theoretical tax charge.

Meridiana fly - Financial Statements at 31 December 2010 - 178


Reconciliation between tax charge in financial statements and theoretical tax charge

/000

IRES Taxable Tax

Loss of the year (51,861)


Theoretical tax charge (tax rate 27.5%) (14,262)

Temporary differences taxable in future years (5,071)


Temporary differences deductible in future years 20,327
Recovery of temporary differences from previous years (7,647)
Permanent tax changes 21,789

Taxable income (tax loss) (22,463)


Theoretical ires charge on tax loss (6,177)

Ires booked to financial statements 0

IRAP Taxable Tax

EBIT (37,834)
Staff costs 89,084
Write-down of non-current assets 855
Other adjustment provisions 4,900
Provision for liabilities and charges 7,741
Adjusted EBIT 64,746
Theoretical tax charge (tax rate 3.9%) 2,525

Costs and revenues not included in IRAP 9,887


Tax wedge (23,506)

Taxable income for irap 51,127


IRAP booked to financial statements 1,994

9.9. Analysis of changes in equity

Following the Extraordinary Shareholders' Meeting of 21 December 2009, which resolved to cover the losses incurred during the
period 1 September 2009 - 31 October 2009 of 3,828,247 by using the share capital for an equivalent amount, the share capital
was reduced to 7,256,024.92 without changing the number of shares. This last reduction in the share capital was filed with the
Register of Companies of Milan on 10 February 2010.

In addition on 28 February 2010 the in kind capital increase was executed with the exclusion of the pre-emptive rights pursuant to
article 2441 of the Italian Civil Code approved by the Extraordinary Shareholders' Meeting on 21 December 2009 and paid up
through the contribution of the Aviation Branch by Meridiana S.p.A.

In detail, 325,247,524 shares were issued at a price of 0.1616, of which 0.02 to cover the implicit par value and 0.1416 as
share premium, for a total of approximately 52.56 million.

As a result of this transaction there was a net increase in capital and reserves of 52,560 thousand ( 6,505 thousand, and
46,055 thousand respectively), adjusted for the effects of the financial contribution of 30,112 thousand (see section 9.5 -
Accounting treatment of the Aviation Branch contribution).

As, at 31 March 2010, Meridiana fly fell within the cases provided by Article 2446 of the Italian Civil Code (losses of more than one
third of the capital), Meridiana S.p.A. announced that it would convert the interest-free loan of 10 million granted on 21
December 2009 in a payment of equal amount as advance for future capital increase, thereby increasing the equity reserves of
the Company.

Meridiana fly - Financial Statements at 31 December 2010 - 179


On 15 July 2010, following the approval by Consob, the company published the prospectus relating to the listing of shares issued
as part of the capital increase in kind previously described; to the pre-emptive right granted to shareholders and to the listing of
maximum 714,044,394 ordinary shares of Meridiana fly at a price of 0.056, of which 0.01 to cover the implicit par value and
0.046 in share premium. At the completion of this transaction (i) 663,275,424 newly issued ordinary shares were subscribed and
paid up during the pre-emption period as well as (ii) 168,000 new shares which were issued on the basis of non-exercised rights
offered on the Stock Exchange. Finally, as a result of the commitment assumed by Meridiana, 50,600,970 new ordinary shares
were further subscribed and paid up by the latter for a total consideration of 2,834 thousand. As a result of the above the share
capital increased by 7,140 thousand and reserves by 32,846 thousand.

During FY 2010 some expenses directly related to Meridiana fly capital increase in cash and in kind mentioned above were
incurred, amounting to 1,490 thousand, net of tax effect, and booked as a direct reduction from the capital increase.

On 13 December 2010 the parent Meridiana S.p.A. made an advance payment for future capital increase of 5,000 thousand
which was recorded as "Other reserves" in shareholders' equity.

In view of the changes discussed above and of the net loss of 51,861 thousand reported for the 2010 financial year, the equity at
31 December 2010 amounted to 10,109 thousand and consisted of:

o Share Capital 20,901 thousand;


o Share premium reserve of 48,789 thousand;
o Other reserves of 2,721 thousand;
o Losses carried forward for 10,442 thousand;
o Operating loss of 51,861 thousand.

The loss per share in 2010 was 0.037.

The following table shows the breakdown of shareholders' equity according to possible utilisations.

Available for Available Summary of the uses


use amount Distributable made in the previous 2
/000 Amount amount periods
Nature / Description Coverage of losses other reasons
28,094
Share capital 20,901 b
Capital reserves
payments for future capital increase 5,000 a 5,000
Share premium reserve 48,789 abc 48,789 48,789 16,958
retained earnings
legal reserve 0 b
statutory reserve 0 bc
other reserves (2,279)
losses carried forward (10,441)
total 61,969 53,789 48,789 45,052

Key:
A: for capital increase
B: to cover losses
C: for distribution to shareholders

At 31 December 2010, the Company falls in the case of under-capitalization. provided for by art. 2446 of the Italian Civil Code
(losses of more than one third of the capital); therefore on 28/29 April 2011the extraordinary shareholders' meeting was convened
to adopt appropriate measures.

Meridiana fly - Financial Statements at 31 December 2010 - 180


9.10. Financial management

As shown in the consolidated cash flow statement, which illustrated the changes in cash and cash equivalents with the indirect
method, FY 2010 was characterized by an increase in cash, net of current bank loans (similar to bank overdrafts), for 11,312
thousand.

Financial Year Financial Year


2010 2009
/000

Net Cash and cash equivalents at the beginning of period (6,854) 8,849
Cash and cash equivalents 6,646 13,175
Current bank loans (13,500) (4,326)

Net Cash and cash equivalents at end of period 4,458 (6,854)


Cash and cash equivalents 11,800 6,646
Current bank loans (7,342) (13,500)

The main changes in cash flows are analysed below.

- Effects of the contribution of the Aviation Branch

The contribution led to a cash settlement by Meridiana fly to the transferor Meridiana S.p.A. amounting to 5,627 thousand.

This adjustment was actually paid in the fourth quarter of 2010. Please refer also to Section 9.5 for a more detailed description of
the accounting treatment used for the contribution of the Aviation Branch.

- Cash flow absorbed by operations

In the financial year, operations resulted in a net negative change of 26,715 thousand, which was due, in particular, to the
negative change in net working capital as well as to an operating loss before taxes, which resulted in a very negative impact on
cash flow despite the adjustments related to accrual changes such as amortisation and depreciation.

- Cash flow absorbed by investments

This area resulted in a decrease of 14,281 thousand, mainly due to the net change in tangible assets as well as new security
deposits granted to lessors in order to guarantee the transfer of the finance lease agreements formerly held by Meridiana. In
particular, capital expenditure in tangible and intangible assets amounted to 8,453 thousand.

- Cash flows generated from financing activities

In the financial year, cash flow generated from financing activities was positive for 24,439 thousand; it resulted largely from the
additional loan of 8.5 million granted by Meridiana S.p.A and from the conversion of a stand-by revolving facility of 15 million
(arranged with Banca Nazionale del Lavoro S.p.A, UniCredit S.p.A and Intesa Sanpaolo S.p.A) into a 36 months loan with
repayment at maturity.

- Cash flow generated from capital transactions

In the financial year positive cash flows were generated from the capital increase in cash, net of expenses directly related, for
28,496 thousand as well as from the last payment for future capital increase, made by Meridiana for 5,000 thousand.

The reclassified net financial position is shown below:

Meridiana fly - Financial Statements at 31 December 2010 - 181


31.12 31.12
Change
/000 2010 2009

Intangible assets 57,964 1,568 56,396


Property, plant and equipment 48,203 17,739 30,464
Long-term Investments 29,298 20,672 8,626
A) Non current assets 135,465 39,979 95,486

Inventory 627 3,902 (3,275)


Trade receivables 87,993 42,705 45,288
Other receivables 51,159 23,175 27,984
Trade payables (149,275) (49,468) (99,807)
Other payables (76,074) (45,442) (30,632)
B) Working capital (85,570) (25,128) (60,442)

C) Invested Capital, net of current liabilities 49,895 14,851 35,044


D) Other non-financial non-current assets and
liabilities (19,589) 1,615 (21,204)
E) Net invested capital 30,306 16,466 13,840

Net equity 10,109 (3,146) 13,255


F) Shareholders' equity 10,109 (3,146) 13,255

Long-term borrowings 24,531 2,184 22,347


Non-current financial receivables - - -
G) Non-current net financial debt 24,531 2,184 22,347

Current loans 7,945 24,075 (16,130)


Liquid funds and current financial receivables (12,279) (6,647) (5,632)
G) Current net financial debt (4,334) 17,428 (21,762)
Net financial debt (G + H) 20,197 19,612 585
I) Total, as in E) 30,306 16,466 13,840

9.11. Net financial position

The net financial position at 31 December 2010 was negative for 20,197 thousand. The changes in financial debt compared to
19,612 thousand reported in the separate financial statements at 31 December 2009 are highlighted below.

Meridiana fly - Financial Statements at 31 December 2010 - 182


/000 31.12.2010 31.12.2009 Change

A Cash and deposits with bank (1) 11,800 6,647 5,153


B. Derivative Instruments included in cash equivalents (1) - - -
C. Cash and cash equivalents (A) + (B) 11,800 6,647 5,153
D. Current financial receivables 479 - 479
E. Current Bank loans(1) (2) 7,342 13,501 (6,159)
F. Derivative Instruments included in bank loans (1) (2) - - -
G. Current portion of long-term borrowings 603 574 29
H. Other current financial liabilities - 10,000 (10,000)
I. Current financial debt (E) + (F) + (G) + (H) 7,945 24,075 (16,130)
J. Net current debt (I) - (C) - (D) (4,334) 17,428 (21,762)
K. Non-current financial receivables - - -
L. Long-term borrowings 16,031 2,184 13,847
M. Bonds issued - - -
H. Other non-current financial liabilities 8,500 - 8,500
O. Non-current financial debt (L) + (M) + (N) 24,531 2,184 22,347
P. Net financial debt (J) - (K) + (O) 20,197 19,612 585

Reconciliation with statement of cash flow and statement of


financial position:
(1) Net cash and cash equivalents 4,458 (6,854) 11,312
(2) Due to banks 7,342 13,501 (6,159)

In particular, with reference to letters C, D, I and O of the table above, the following should be noted:

C - Cash and cash equivalents

Cash and cash equivalents at 31 December 2010 amounted to 11,800 thousand and consisted of cash on hand and positive
balances on bank current accounts.

D - Current financial receivables

This item also includes the fair value of 479 thousand at 31 December 2010 of derivative contracts held for trading related to
hedging on the price of jet fuel, denominated in USD.

I - Current financial debt

Amounted to 7,945 thousand and it consisted of: (i) bank debt for short-term revolving loans amounting to 7,342 thousand ii)
the current portion of non-current loans amounting to 603 thousand.

O - Non-Current financial debt

Non-current financial debt consisted of (i) long term borrowings from banks of 1,568 thousand, represented by the over 12
months portion of the mortgage loan taken out with Banca Profilo for the purchase of the property located in Milan, (ii ) bank debt
for loans with a 36 months maturity for 14,463 thousand, (iii) interest-free loan provided by Meridiana S.p.A. for 8,500
thousand due to expire in 2016.

At 31 December 2010 the total credit lines amounted to 71.3 million, of which 22.5 million on a cash basis (used 100%) and
48.7 million as endorsements and guarantees and as derivative transactions (overall use of 82 %).

Please note that the new type of bank agreements such as the stand-by revolving facility ( 7,342 thousand 18 months maturity)
and the Term Loan, ( 14,463 thousand maturity 36 months), signed on 23 December 2010 with a syndicate of banks are subject

Meridiana fly - Financial Statements at 31 December 2010 - 183


to financial covenants calculated on the basis of the annual and interim financial reports from the year ended 31 December 2011,
as detailed in the Management Report.

In case of non-compliance with these parameters, the lending banks may request the early repayment of the loaned sums, unless
otherwise agreed at a subsequent time.

9.12. Guarantees given, commitments and other contingent liabilities

Sureties and other guarantees given

At 31 December 2010 the guarantees given to third parties by banks on behalf of the Group amounted to approximately 45
million. These bank sureties mainly refer to guarantees issued in favour of Cartas ( 20 million), ENAC for tender participation on
the routes under territorial continuity ( 10.3 million), aircraft lessors ( 6.1 million ), oil companies ( 2.3 million), handlers( 2
million) and other suppliers of materials, operational and financial services.

At 31 December 2010, a surety issued by an insurance company in favour of the Ministry of Defence to guarantee the 2011
contract of 2.4 million, and a pledge in favour of a bank for a total of USD 4.2 million, were outstanding.

A first mortgage of the value of 10 million is recorded on the Company's registered office in Via Bugatti, Milan, 15 in favour of
Banca Profilo as a guarantee of the mortgage loan granted by the bank for the purchase of the said property.

Commitments and other agreements


Commitments for operating leases of Airbus A330 / A320 aircraft at 31 December 2010 amounted to 199.5 million, taking into
account all maturities until 2016.

The annual commitments for real estate leases amounted to approximately 2.1 million.
It should also be noted that outsourcing agreements with Meridiana Maintenance for the provision of exclusive maintenance
services determine a financial commitment which varies according to the maintenance activities carried out.

Finally, the reader should refer to Section 2.14.11 Agreement with ORP for details on the commitments undertaken with this
counterparty.

Contingent liabilities
With regard to ongoing disputes and the situation concerning these proceedings, as outlined in section 2.17 - Significant litigation,
although the Company may be required to pay higher amounts than those allocated to the provision for liabilities and charges, it is
not possible to reasonably predict the outcome of the proceedings and assess the likelihood of additional charges against the
company.

9.13. Segment reporting

With reference to IFRS 8 on segment reporting, the operating segments that are deemed as necessary by the management for the
purposes of assessing operating performance and make consequential decisions, are currently established, after the complete
integration of the Aviation branch of Meridiana, in the Group as a whole, which is considered as a stand-alone cash generating unit
(CGU).

Indeed, following the completion of the strategic business combination with the aviation activities of Meridiana, the corporate entity
resulting from this process - Meridiana fly S.p.A - is now a single business unit which cannot be "split" into different CGUs.

Meridiana fly - Financial Statements at 31 December 2010 - 184


In this regard it should be noted that the allocation, for the purposes of the impairment test between scheduled and charter
activities, between activities with and without the constraints of territorial continuity, between medium and long haul flights, would
not be consistent with the Directors' strategic vision of the Company and would be characterized by the absence of autonomy in
the formulation of competitive strategy. In addition, it should be noted that the joint management of resources (human, material
and financial resources) would make it impossible to identify autonomous cash flows attributable to the individual operating units,
especially in light of the internal organisation adopted by management for the new post-combination entity; this organisation, in
fact, expressly provides that activities carried out respond to a single central structure, which is responsible for defining
management guidelines applicable across the various business functions.

Therefore there are no production units within the aviation business carried out by the Group such as to represent an independent
decisions making system with respect to the entity and therefore to be identified in distinct reporting segments pursuant to IFRS 8.

Therefore, in these notes, there are no data or tables presented for distinct business segments at a more detailed level than that of
the entire Group.

9.14. Related party transactions

At 31 December 2010 Meridiana fly S.p.A is controlled by Meridiana S.p.A with a share of 78.05% (at the end of 2009 it was
59.58%).

Transactions entered into by the Company with related parties during 2010 mainly concerned the provision of financial services and
transactions with the parent Meridiana S.p.A, the other subsidiaries (Sameitaly S.r.l., Wokita S.r.l. ed EF USA Inc) and the other
companies of the Meridiana Group.

These transactions fall within the ordinary management of the Company, are made on an arm's length basis, i.e. at the conditions
that would be applied between two independent parties and are performed in the interest of the Company.

Related party transactions at December 31, 2010 identified in accordance with IAS 24, as well as some details on the main
commercial and operational relationships with related parties are summarised in the tables below.

31.12.2010
/000 Receivables Payables
Geasar S.p.A. 1,067 6,718
Meridiana S.p.A. 3,947 8,684
Alisarda S.r.l. - -
Cortesa S.r.l. 13 529
Eccelsa S.r.l. 25 32
Prima S.r.l. 3 -
Meridiana Maintenance S.r.l. 946 13,481
Wokita S.r.l. 1,765 1,094
Sameitaly S.r.l. 512 1,288
EF USA Inc. 2,078 441
AKFED 96 92
Finaircraft 1,220 1,033
Air Burkina 18 -
Air Uganda 14 -
CAM (Compagnie Aerienne Du Mali) 20 -
Total 11,724 33,392

Meridiana fly - Financial Statements at 31 December 2010 - 185


Financial year 2010
/000 Costs Revenues
Geasar S.p.A. 9,810 1,135
Meridiana S.p.A. 1,418 3,016
Sameitaly S.r.l. 3,895 495
Alisarda S.r.l. 522 13
Cortesa S.r.l. 493 14
Eccelsa S.r.l. - 6
Wokita S.r.l. 135 2,110
Meridiana Maintenance S.r.l. 33,024 1,600
AKFED 742 430
Total 50,039 8,819

Receivables / Payables
At 31 December 2010 receivables from Meridiana S.p.A amounted to 3,947 thousand; they mainly related to the collection by
Meridiana S.p.A. of receivables from lessors for assets claims ( 3,789 thousand) transferred to Meridiana fly as part of the
business combination on 28 February 2010. Amounts due to Meridiana S.p.A of 8,684 thousand are mainly related to non-current
loans of 8.5 million disbursed by the latter at the end of 2010.
Other receivables and payables to related companies are mainly trade receivables- payables, accrued for services rendered or
received with the various related companies as per their existing relationships, which are described in a subsequent section.

Related
Total %
/000 parties
Trade receivables and other current assets 139,152 11,724 8%
Long-term borrowings 24,531 8,500 35%
Trade payables and other current liabilities 201,139 24,892 12%

Revenues / costs for purchase and supply of services


At 31 December 2010 revenues from related parties amounted to 8,819 thousand, mainly due to billing to Meridiana for flights
performed in ACMI mode, during the first two months of 2010 ( 2.5 million); global services, payroll management services,
administrative services and tax services provided to Meridiana Maintenance ( 1.6 million).and the sale of charter flights to the
subsidiary Wokita ( 1.9 million).

The costs, amounting to a total of 50,039 thousand, were mainly triggered by maintenance activities provided by Meridiana
Maintenance ( 33 million), handling activities provided by GEASAR ( 8.8 million), and for oversight activities, consulting and other
services provided by Meridiana as well as from commissions earned on code-sharing sales by Meridiana on flights of the Company
in the first two months of 2010 ( 1.4 million) and from commissions in favour of Sameitaly for its travel agent activity ( 3.9 million).

Related
Total %
/000 parties
Revenues 604,129 4,471 1%
Other Revenue 40,495 4,347 11%
Operating leases 53,391 742 1%
Materials and maintenance services 86,552 33,326 39%
Selling expenses 25,544 3,920 15%
Other operating costs and wet leases 213,889 8,885 4%
Sundry costs and other services 31,871 3,166 10%

Relations with Wokita

The provision of services to Wokita (a company 100% controlled by Meridiana S.p.A) currently concern the following activities
carried out by Meridiana fly:

1. sell seats on charter flights;

Meridiana fly - Financial Statements at 31 December 2010 - 186


2. payroll services;

3. call center services;

4. internal audit services;

5. information management services.

Services provided by Wokita are related to brokerage services on the sale of tickets for scheduled flights and seats on charter
flights.

Relations with Sameitaly

The provision of services to Wokita (a company 100% controlled by Meridiana S.p.A) currently concern the following activities
carried out by Meridiana fly:

1. sell seats on charter flights;

2. payroll services;

3. call center services;

4. office rentals

5. information management services and mobile telephone services

Sameitaly mainly provides distribution and promotion services carried out on behalf of Meridiana.

Relations with Meridiana S.p.A.

After the contribution operation, relations with the parent Meridiana S.p.A. are related to a greater extent to financial agreements
(temporary funding and guarantees on Meridiana fly loans from a syndicate of banks).

Relations with Geasar

Supply relations with Geasar (a company controlled by Meridiana S.p.A) concern the following activities currently carried out by
Meridiana fly:

1. services of advertising and commercial contributions;

2. payroll services;

3. information management services.

Purchasing relations concern the following activities currently carried out by Geasar:

1. handling / catering services for aircraft and passengers at the airport of Olbia;

2. use of offices and other spaces (e.g., VIP lounges) at the airport of Olbia;

3. provision of advertising space at the airport of Olbia.

Relations with Meridiana Maintenance

Purchasing relations in place with Meridiana Maintenance (a subsidiary of Meridiana S.p.A and 16.38% owned by Meridiana fly)
cover maintenance services, technical management and other services related to the management of special service agreements
relating to the fleet of Meridiana fly.

Meridiana fly provides the following services:

1. administrative, legal and corporate services;

2. payroll services and human resources management;

3. other services in global service

Meridiana fly - Financial Statements at 31 December 2010 - 187


Relations with Finaircraft

The relations with this company, wholly owned by AKFED, concern maintenance services of aircraft in use at the African
companies of the Group, provided by Finaircraft and recharged to the same.

Relations with AKFED

An agreement is in place with AKFED for the provision of consulting services in the field of air transport by Meridiana fly. For
completeness it should be noted that AKFED has made financial commitments as part of the company restructuring.

The services provided by AKFED are mainly related to the operating lease of the A319 I-EEZQ included in the fleet in June 2010.

Relations with Alisarda

Services provided by Alisarda (a subsidiary of Geasar S.p.A) currently concern the leasing of offices and equipment at the Olbia
Headquarters and other spaces at the airport of Olbia; Meridiana fly provides instead various administrative services.

Relations with Cortesa

Services provided by Cortesa (a subsidiary of Geasar S.p.A) are related to the canteen services at the Olbia Headquarters and
the use of airport parking, while Meridiana provides payroll services.

Relations with Air Uganda, Air Burkina, Air Mali

Relations with these airlines, controlled by AKFED, concern the technical management of Web sites carried out by Meridiana fly.

Relations with EF USA

The activity of EF-USA (100% owned by Meridiana fly but not consolidated - see. Section 4.4) was the provision of brokerage
services for scheduled flights sales on behalf of the Company, with exclusivity on the territory of North America; these services
were remunerated with sales commissions. As previously mentioned, the agency relationship with the above company ceased in
November 2009 and a dispute is currently ongoing with the same, as indicated in the section on significant litigation.

9.15. List of equity investments

Pursuant to Consob Regulation no. 11971. Art. 126, shareholders with holdings in unlisted companies of more than 10% of the
shares with voting rights as at 31 December 2010, are listed here.

Profit (loss)
last Book
Registered Share Percentage Type of Net F.Y. value
Name Office capital(4) ownership ownership equity ('000) ('000) ('000)
Sameitaly S.r.l. Olbia 95.000 100% Direct 545 (108) 4.316
Wokita S.r.l. Olbia 35.000 100% Direct 12 (527) 1.347
EF USA Inc (1) New Jersey (USA) $ 1.000 100% Direct $ - 141 $ - 141 $ 0,49
Meridiana express S.r.l. (2) Olbia 10.000 100% Direct N.A. N.A.. 10
Meridiana maintenance S.p.A. (3) Olbia 12.015.000 16,38% Direct 9,63 -0,37 1.968
(1) last available date 2008.Non operational company .Legal proceedings under way
(2) Company incorporated in March 2010 , currently non operational.
(3) Company fully operational since 2010. Last available data at 2009
(4) subscribed and paid up capital

Meridiana fly - Financial Statements at 31 December 2010 - 188


9.16. Compensation paid to Directors and Statutory Auditors

Pursuant to Article 78 of Consob Regulation No. 11971/99, compensation paid to individual members of the administrative and
control bodies and, collectively, the compensation paid to key management personnel, are presented below; the amounts are
denominated in euro.
The Company has no share-based incentive plans for directors, key managers or other employees (stock options or similar).
A non-competition agreement has been signed with the CEO and an overall compensation has been set to be paid out periodically.
There are no agreements in place with the directors providing for benefits in the event of resignation or dismissal without just cause
or if their employment is terminated due to a takeover bid.

Office of which for Bonuses


Term of Compensation for Non-cash Other of which not
Name Office held expiration participation in and other Total
office office held (3) benefits compensation yet paid
date (1) committees incentives

Board of Directors.
President of the Board of 01/01/2010 -
Marco Rigotti 2011 168,278 2,778 (10) - - 168,278
Directors 31/12/2010
27/04/2010 -
Massimo Chieli Chief Executive Officer 2011 392,192 - - 70,000 (4) 392,192
31/12/2010
01/01/2010 -
Giovanni Rossi Chief Executive Officer - 66,667 - - 400,000 (4) 466,667
27/04/2010
01/01/2010 -
Franco Trivi Vice President 2011 73,333 3,333 (5) - - 73,333
31/12/2010
27/04/2010 -
Claudio Miorelli Director 2011 33,333 - - - 33,333
31/12/2010
01/01/2010 -
Luke Ragnedda Director 2011 40,000 - - - 40,000
31/12/2010
01/01/2010 -
Sergio Rosa Director - 23,333 - - - 23,333
27/04/2010
01/01/2010 -
Claudio Allais Director 2011 28,333 5,000 (6) - - 28,333
31/12/2010
01/01/2010 -
Salvatore Vicari Director 2011 36,111 12,778 (7) - - 36,111
31/12/2010
01/01/2010 -
Giuseppe Lomonaco Director 2011 34,173 9,445 (8) - - 34,173
31/12/2010 16,900
01/01/2010 -
Gian Carlo Arduino Director 2011 28,333 5,000 (9) - - 28,333
31/12/2010

Board Of Statutory Auditors


01/01/2010 -
Luigi Guerra President of the Board 2012 41,678 - - - 41,678 13,511
31/12/2010
01/01/2010 -
Antonio Mele Statutory auditor 2012 36,844 - - - 36,844 12,116
31/12/2010
01/01/2010 -
Cesare Conti Statutory auditor 2012 35,427 - - - 35,427 12,517
31/12/2010
Managers with strategic responsibilities - - 18,917.00 1,564,091.00 1,583,008 40,000

(1) Year in which AGM is held for shareholders' approval of the financial statements relating
to last FY of office
(2) Includes car fringe benefits and other compensation in kind
(3) Including. for some directors, compensation for Internal Control Committee and
Compensation Committee
(4) Indemnity for non-competition agreement
(5) Participation in Compensation Committee for Euro 3,333
(6) Participation in Internal Control Committee for Euro 5,000
(7) participation in Compensation Committee for Euro 3,333 and Internal Control Committee
for Euro 9,444
(8) participation in Compensation Committee for Euro 1,667 and Internal Control Committee
for Euro 7,778
(9) participation in Compensation Committee for Euro 1,667 and Internal Control Committee
for Euro 3,333
(10) Participation in Internal Control Committee for Euro 2,778 until 30 April 2010
(11) in addition to the Financial Reporting Officer it includes Directors reporting directly to
CEO

9.17. Fees paid to Independent Auditors

Meridiana fly - Financial Statements at 31 December 2010 - 189


In compliance with the provisions of art. 149- duodecies of Consob Issuers Regulation, the fees paid to the independent auditors
Deloitte & Touche S.p.A. in charge of auditing the companies accounts, broken down between auditing services provided to the
Company and other type of services provided to the same Company, divided by type, are detailed below. There are no other
services provided by entities belonging to its network.

Entity providing the Fees for financial year 2010


Type of service
service
/000

Auditing service Deloitte & Touche SpA 275


Certification services (1) Deloitte & Touche SpA 79
Other services (2) Deloitte & Touche SpA 4
Total - 358
(1) auditing of pro-forma data pursuant to Consob DEM / 1061609
(2) certification of tax returns and conduct of agreed procedures

9.18. Disclosure concerning financial risks

The section below provides a general analysis of the main financial risks identified and managed by the Company.

The Company is exposed to the following financial risks associated with its operations:
credit risk: which includes the possibility of default by a counterparty or the possibility of deterioration of the
creditworthiness assigned to counterparties;
market risk: resulting from exposure to fluctuating interest and exchange rates;
liquidity risk: the risk of available financial resources being insufficient and lack of access to the credit market
The quantitative data reported below have no predictive value. In particular, sensitivity analyses concerning market risks cannot
reflect the complexity and the associated reactions of the markets possibly arising from each hypothetical variable.

As required by IFRS 7, below we detail the financial assets and liabilities at 31 December 2010 identified for the purposes of this
analysis.
/000 31.12.2010
Other non-current financial assets 21,657
Other non-current financial assets 21,657
Trade receivables and other current assets 139,152
Current financial assets 479
Current financial assets 139,631
Total financial assets 161,288

Long-term borrowings 24,531


interest on mortgages 2,816

Non-current liabilities 27,347

Current loans 7,342


Current loans from subsidiaries
Current portion of long-term borrowings 603
Trade payables and other current liabilities 201,139
Current liabilities 209,084
Total financial liabilities 236,430

Credit risk

Meridiana fly - Financial Statements at 31 December 2010 - 190


The maximum theoretical credit risk is represented by the accounting value of financial assets, current and non-current, realised
as part of sales to third parties or for providing guarantees to third parties The Company currently generates most of its turnover
through the sales of scheduled flights and seats on charter flights, with the consequence that its ordinary customer base consists
mainly of private entities, tour operators and travel agencies. The risk of non-collection of credit is addressed contractually by
requiring payment in advance of actual flight dates and guarantees or performance deposits guaranteeing fulfilment of contractual
obligations. At operating level, compliance with the terms of payment is constantly monitored. It should be noted that the tour
operator industry has recently undergone a consolidation process, which involved reducing the number of operators, with too
much concentration of customers (the first five customers in 2010 accounted for about 52% of charter revenues; this percentage is
unchanged since 2009).
The Company also adopts a very restrictive policy with regard to late payments, selecting and evaluating its customers on the
basis of their reliability and financial as well as commercial soundness.
The Company also provides adequate impairment on individual positions corresponding to problem loans, doubtful loans and non-
performing loans; it also write-down debt on an overall basis, taking into account historical experience or statistical data.
The tables below provide information about the Company's exposure to credit risk at 31 December 2010.

Between 0 Between 30 Between 60 Between 90 Over 120 31.12.2010


and 30 days and 60 days and 90 days and 120 days days
/000
Breakdown of trade receivables not yet expired:

Trade receivables 32,935 10,711 6,587 - - 50,233

Breakdown of trade receivables past due:

Trade receivables 11,800 2,847 5,285 1,411 38,244 59,587

Total 44,735 13,558 11,872 1,411 38,244 109,820


Provision for doubtful receivables (20,627)
Total 89,193
Trade receivables past due by over 120 days include trade payables in litigation

With respect to loans overdue by more than 120 days which are not covered by the provision for doubtful receivables, taking into
account historical experience, the progress of litigation and legal opinions relating to them as well as the existence of guarantees
issued by customers, the credit risk is considered to be mitigated.

Market Risk
Foreign exchange risk
The Company is exposed to the risks arising from fluctuations in exchange rates, as outlined in paragraph 2.25 to which the
reader is referred for details. Overall, the main business in foreign currency is transacted in USD, which represents nearly 10.9%
of trade receivables and 11.7% of trade payables at year end. In financial terms, the costs of goods and services denominated in
USD account for approximately 46% of total operating costs of the Company.
31.12.2010
/000 Euro USD Other Tot

Trade receivables 97.858 11.962 - 109.820


Provision for doubtful receivables (21.827) - - (21.827)
Other non current financial assets 2.314 19.339 4 21.657
Total current and non current loans (32.476) - - (32.476)
Trade payables (131.237) (17.509) (529) (149.275)

Net exposure (85.368) 13.792 (525) (72.101)

Meridiana fly - Financial Statements at 31 December 2010 - 191


As regards the management of risks arising from changes in exchange rates, it should be remembered that:
The cost of airline tickets for scheduled flights contains a variable fuel surcharge component that is charged to the customer.
The charter contracts entered into by the Company with tour operators provide the option to adjust prices according to the EUR/
USD exchange rate at the time of flight.

Price Risk
The hedging policy implemented by the Company aims to reduce the risks of fluctuations in expected cash flows resulting from
purchases of jet fuel, hence they can be classified as highly likely transactions, according to IAS standards.
To this end, in 2010, a series of financial products designed to hedge the volatility of fuel prices, have been activated, as detailed
in the table below.

Hedged underlying amount

Fair value at Notional amount


M aturity of derivative
Type Hedging purpose Counterpart Currency 31.12.2010 in Description (total amount
contract
/ 000 hedged in M/t)

Derivatives with positive fair value

Fluctuation in Jet Cash Flow Hedge on


Asian Swap Banca MPS USD 13/03/2009 28/02/2011 479 2,900
Fuel price jet Fuel

Total change recognised in Income statement 479

The use of these instruments is governed by policies approved by the Board of Directors, consistent with risk management
strategies.
Derivative hedging instruments, in keeping with the provisions of IAS 39, are accounted for with the methods set out for hedge
accounting only when:
at the start of the hedge there is a formal designation and documentation of the hedging relationship;
the hedge is highly effective;
the effectiveness can be reliably demonstrated.
When a financial instrument is designated as a hedge of exposure to the variability of cash flows of the hedged transactions (cash
flow hedge; e.g. hedging the variability of cash flows of expected future transactions against the effect of fluctuations in exchange
rates), the gains and losses deriving from the fair value changes of the hedging instrument are accounted for directly in
shareholders equity for the effective part (any ineffective part is instead accounted for immediately in the income statement under
the item gains/(losses) on foreign exchange).
The amounts recognized in equity are subsequently reflected in the income statement for the period in which the contracts and
expected transactions are manifested in the income statement.
If an instrument is designated as a hedge of exposure to changes in the fair value of hedged instruments (e.g. hedging of the
variability of the fair value of receivables and payables in foreign currencies), it is recognized at fair value with the effects booked
to the income statement; accordingly, the hedged instruments are adjusted to reflect the fair value changes associated with the
hedged risk.

Changes in the fair value of derivatives that do not meet the conditions to qualify as hedges are recognized in profit or loss.
Therefore, although the operations carried out in 2010 were completely inherent this risk, in terms of both the "underlying" amount
covered, and the financial products used, it was not possible to fully comply with IAS 39, and particularly with regard to the
comparison between "hypothetical derivative" and "financial derivative", the time element was excessively misaligned. Based on
the "Mark To Market" results, the positive change in the fair value of these financial instruments at 31 December 2010 was then
directly recognised in the income statement as a reduction in fuel costs.

Meridiana fly - Financial Statements at 31 December 2010 - 192


Interest rate risk
Given that the Group has floating rate financial liabilities and that the reference rate in certain aircraft operating leases is variable,
the Group is exposed to the risks of increases in interest rates.

Liquidity Risk
Liquidity risk is represented by the inability to secure enough financial resources at economic conditions to cover all the
obligations falling due

A schedule presenting the time frame of the financial liabilities of the Company at 31 December 2010, based on non-discounted
contractual payments is presented below.

Value Cash flows 6 months Over


/000 book contractual or less 6-12 months 1-2 years 2-5 years 5 years 5 years

Non-derivative financial liabilities

Non-current liabilities for financial leasing -


Current loans (7,342) (7,550) - - (7,550) - - -
Current portion of long-term borrowings (603) (603) (300) (303) - - - -
Long-term borrowings (24,531) (25,068) - - (618) (15,950) - (8,500)
Trade payables and other current liabilities (201,139) (153,995) (99,117) (54,878) - - - -
Interest on loans - (2,816) (564) (564) (938) (750) - -

Derivative financial assets/liabilities

Derivative instruments to hedge jet fuel:


Cash-in 479 479 479 - - - - -
Cash-out - - - - - - - -
Total (233,136) (189,553) (99,502) (55,745) (9,106) (16,700) - (8,500)
* Contractual cash flows do not include payables in litigation and liabilities for prepaid tickets

At 31 December 2010, there are no past due tax or social security payables. In addition, there are no past due payables to
employees. As regards payables of a commercial nature, trade payables past due amounted to 96.1 million ( 24.9 million at
31.12.2009), of which 23.3 million past due by more than 120 days (the latter relating for approximately 8.8 million to trade
relations involved in legal disputes). There were no suspensions in supplies. There were no demands for payment on overdue
debts, outside of those within the ordinary course of business.
Between 0 Between 30 Between 60 Between 90 Over 120 31.12.2010
and 30 days and 60 days and 90 days and 120 days days
/000
Breakdown of trade payables not yet expired:

Trade payables 27,404 15,993 9,799 - - 53,196

Breakdown of trade payables past due:

Trade payables 27,817 15,762 14,830 14,368 23,300 96,079

Total 55,221 31,755 24,629 14,368 23,300 149,275

At 31 December 2010 there were pending injunctions for a total of 2.6 million, (substantially unchanged compared to 2009)
which mostly relate to Alitalia in extraordinary administration.

As a result of commitments made by Meridiana major Shareholder, as better described in Section 2.26.4 above, it is believed that
liquidity risk has been mitigated even considering the uncertain outlook discussed in Section 2.28.

Meridiana fly - Financial Statements at 31 December 2010 - 193


9.19. Additional disclosure

At the date of this report there are no shareholders with holdings of more than 2% of capital in addition to the parent Meridiana
S.p.A.

Pursuant to Consob communication no. DEM/6064293 of 28 July 2006 it is hereby stated that in the year 2010 no atypical or
unusual transactions were carried out as defined by the above Communication.

No purchases or sales of own shares were made, directly or indirectly, during the financial year. At 31 December 2010, Meridiana
fly and the other companies of the Meridiana fly Group do no not hold own shares.

Taking into account the shares comprising the share capital at 31 December 2010, the net loss per share in the year amounts to
0.037.

These financial statements were authorized for publication by the Board of Directors of the Company at its meeting in Milan on 23
March 2011 and will be disclosed to the public, together with the report of the Independent Auditors and Statutory Auditors in the
manners prescribed by law.

Milan, 23 March 2011

On behalf of the Board of Directors:

President

Marco Rigotti

Meridiana fly - Financial Statements at 31 December 2010 - 194


10. CERTIFICATION OF ANNUAL REPORT PURSUANT TO ART. 154-bis of
Legislative Decree. 58/98.

1. The undersigned Massimo Chieli, in his capacity as Chief Executive Officer, and Maurizio Cancellieri, in his capacity as
Financial Reporting Officer of Meridiana fly S.p.A, also considering the requirements of Article 154-bis, sections 3 and 4 of
Italian Legislative Decree no. 58 of 24 February 1998, herewith certify
- the adequacy in relation to business characteristics and
- the effective application of administrative and accounting procedures in preparing the consolidated financial statements during
the financial year ended on 31 December 2010

2. In this regard there were no significant issues.

3. It is further certified that the financial statements at 31 December 2010:


were prepared in compliance with applicable international accounting standards endorsed by the European Union pursuant to
regulation (EC) no. 1606/2002 of the European Parliament and the Council, dated 19 July 2002,
b) correspond to the underlying documentary and accounting books and records;
c) are suitable, to his knowledge, to provide a true and fair view of the assets and liabilities, business status, and financial position
of the Issuer and of all the companies included in the scope of consolidation.

The management report includes a reliable analysis of the operating performance and results as well as of the financial situation
of the Issuer and the companies included in the scope of consolidation, together with a description of the main risks and
uncertainties to which they are exposed.

Milan, 23 March 2011

Massimo Chieli Maurizio Cancellieri


Chief Executive Officer Financial Reporting Officer
_____________________________ __________________________________

Meridiana fly - Financial Statements at 31 December 2010 - 195


11. INDEPENDENT AUDITORS REPORT ON SEPARATE FINANCIAL
STATEMENTS AT 31 DECEMBER 2010

Meridiana fly - Financial Statements at 31 December 2010 - 196