Air Pacific 2007 Annual Report

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Air Pacific Annual Report 2007

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DEFINITIONSATK: Available Tonne Kilometres Available payload of the aircraft times the kilometre distance travelled.RTK: Revenue Tonne Kilometres Total weight of all products carried i.e. passengers, cargo, mail and excess baggage on the aircraft times the kilometre distance travelled.RPK: Revenue Passenger Kilomentres Number of revenue passengers carried times the kilometre distance travelled.ASK: Available Seat Kilometres Number of saleable seats on the aircraft times the kilometre distance travelled.

AIR PACIFIC GROUP10 YEAR STATISTICS

FROM TIMES TABLES TO THE TOUCH OF A BUTTON

Tony Wong, Executive General Manager Operations/Services, the Company’s longest-serving employee, retired in June 2007 after completing 40 years of continuous service with Air Pacific.

The name Tony Wong has, for the past 40 years, been synonymous with Air Pacific. Tony started his career with Fiji Airways in 1967 as a Traffic Officer at Nausori. In those days, airline operations were a little less sophisticated than they are today.

“We used to calculate loads, fuel estimates and fares using the times table. Today, with a keyboard stroke, you have all the information you need at your fingertips” says Tony, nostalgically. After 40 years working for one company, he has seen a lot of change and a lot of people come and go.

Tony offers a few highlights from his 40 long years working with the airline: “I have worked along side every Chairman, Managing Director and General Manager, with the exception of Mr. C.W. Taylor. I’ve seen pilots go from navigating by sextant through a perspex bubble behind the cockpit of a Heron to today’s sophisticated auto pilot where the aircraft virtually flies itself to and from the destination. Today’s aircrew are more managers than they are drivers.

We’ve endured cyclones, strikes, coups, industrial actions… all the highs and the lows. It has been like one huge roller coaster ride. Ups, downs, thrills, fears and failures, but most of all it has been exhilarating and successful growth.

For forty years, I’ve felt the adrenaline rush; the thrill and the satisfaction that comes from knowing that I am in a business like no other. And in that time, I’ve noticed one thing that stands out, head and shoulders above everything else and that is the resilience, pride and determination of our people. Today we utilise all sorts of technology to help us meet the demands and very high expectations of the travelling public, but as long as we can maintain the enthusiasm and commitment of our people, Air Pacific will continue to be a successful airline.”

And what words of advice does this aviation industry veteran, who by the way, still has his original first pay slip in his possession (received on 28th February 1967 in the princely sum of £27.1.8) offer his fellow employees on the eve of his departure?

“If you want to have a successful and fulfilling career, you have to be disciplined, have to anticipate, innovate and lastly, be prepared to do things that go outside of your job description. I wish the airline every success in the future and I do so safe in the knowledge that I am leaving my job in very capable hands.”

Tony’s very first ever pay slip from 1967

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TABLE OF CONTENTS

Chairman’s Report ... 2

Members of the Board ... 3

Managing Director & Chief Executive Officer’s Report ... 4

Corporate Governance ... 6

Executive Team Management ... 7

The Year in Review ... 8

Route Map ... 14

Financial Statements & Reports ... 15

Air Pacific Offices ... 39

Ten Year Comparative Statistics ... 40

As a concerned corporate citizen, Air Pacific is committed to environmental awareness and to ensuring that the Company acts in a responsible manner where environmental issues are involved.

Whilst the concept and process of environmental reporting is a relatively new and growing discipline in this part of the world, Air Pacific is keen to take a proactive stance in handling environmental risk management issues on a progressive basis.

We ensure that our fleet of aircraft meets the specific environmental certification standards on emissions, developed by ICAO. The Air Pacific fleet comprises the latest technology aircraft and all comply with noise abatement regulations.

As a major business in Fiji, we support the development of tourism in the country. We also support the maintenance of a clean and natural environment to enhance our tourism product. Employees of Air Pacific are encouraged to participate in various ‘clean-up’ campaigns that take place in the community. Air Pacific is a corporate sponsor of the "Clean Up Fiji" rubbish collection initiative.

Air Pacific’s overall commitment is to the maintenance and promotion of a clean and pure environment. We practise recycling wherever possible, for its economic and environmental benefits and reduce waste material and engine emission. We actively seek and use biodegradable and non-polluting chemicals in aircraft maintenance and cleaning tasks.

By taking such a proactive stance we hope that we can serve as a positive role model for all other companies we deal with as well as focusing attention on this important issue.

COMMITMENT TO THEENVIRONMENT

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The financial year ended 31st March 2007 will be remembered as one of the most challenging of Fiji’s international airline fifty-six year history.

On a consolidated Air Pacific Group basis, incorporating the losses from 100% owned subsidiary, Fiji Airlines Limited [operating as Pacific Sun] and

share of losses from investments in Jointly Controlled Entity Richmond Limited [operating as Sofitel Fiji Resort & Spa] Group operating profit before tax amounted to $2.5 million for the financial year ended 31 March 2007, compared to $19.9 million profit before tax for the previous financial year. Operating profit after income tax for the Group was $17,000 for the financial year ended 31 March 2007 compared to $13.3 million in the previous financial year.

The holding company, Air Pacific Limited’s operating profit before tax was $7.7 million for the financial year ended 31 March 2007, a 64% reduction to the $21.5 million profit before tax earned the previous financial year.

Income tax expense of $2.5 million resulted in an after tax profit of $5.2 million compared with $14.9 million the preceding financial year.

Despite the reduced profits, the Board decided, in view of the current economic climate and Air Pacific’s role as a major contributor to the economy of Fiji, to pay a dividend of 15.0 cents (2006 : 17.0 cents) per share amounting to $3.9 million (2006 : $4.4 million).

Income was $500.7 million, an increase of $50.4 million or 11.2% whilst expenditure was $493.1 million, an increase of $64.2 million or 15% compared to the prior year.

The reduced level of profitability was driven by three key factors: extremely high fuel prices, reduced tourism inflows and Fiji resident outbound travel and deeply discounted airfares. The principal expenditure increase was the cost of fuel which rose $36.5 million [25.7%] from $142.5 million in 2005/06 to $179.0 million in 2006/07, net of fuel hedge costs. Fuel prices remained at an all time high and exceeded USD89 per barrel in August 2006.

Passengers carried on Air Pacific flights increased to 857,336 from 838,150, growing only 2.3% whilst average fare increased by $15 to $501 [3.1%] inclusive of foreign exchange effects and fuel surcharges.

Tourism inflows to Fiji, the primary revenue source for Air Pacific, were negatively impacted by competing Pacific and Asian destinations offering better value than Fiji, uncertainty over the introduction of the hotel turnover tax, adverse reporting of Fiji’s stability in the lead up to the General Election in May 2006, military and Government disharmony resulting in the December 2006 military takeover and the negative travel advisories put in place by Australia and New Zealand.

Shareholders’ equity increased slightly from $145.5 million to $146.8 million. A net reduction in cash flow from $201.2 million to $170.2 million is due primarily to the acquisition of assets and funding the start-up of domestic services by Pacific Sun, a wholly owned subsidiary of Air Pacific.

Whilst the greatly reduced profit for 2006/07 is disappointing, the Board appreciated the efforts of staff and management to minimise costs, increase productivity and maximise profit against very challenging circumstances.

Restructuring against a substantially changed competitive background is being considered. The concentration is on providing customers with the services they want at prices which are of value, and at costs which make a satisfactory return for shareholders.

Air Pacific has committed to acquire five Boeing 787-9 Dreamliner aircraft, with a further three purchase-rights, with delivery of the first of these new technology aircraft expected in 2011.

The current year is one of transition and still subject to political uncertainty and the market is expected to remain soft. Fiji’s future performance as a tourism destination will play a critical role in our future.

ChAirmAns’ rePort Nalin Patel

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Financial Year Ending 31 March

Air Pacific: shareholders’ equity

Air Pacific: Profit Before Abnormal items and tax

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top: Paul Edwards, Peter Collins (Qantas alternate), Sekonaia Tui Mailekai, Sitiveni Weleilakeba, Daniel Elishamiddle: Charles Harvey, Simon HickeyBottom: John Campbell, Managing Director and Chief Executive Officer, Nalin Patel, Chairman Absent: Geoff Dixon

I would like to thank my fellow Directors for their commitment to the Company during the year in review.The achievements of the past year would not have been possible without the commitment and dedication of our people. On behalf of my fellow Directors, I thank them for their contribution to Air Pacific’s success and look forward to their continuing support.

In addition, I would like to thank our many loyal customers for their continued support and business over the years.My thanks must also go to the Government and the Honourable Minister and the Ministry of Transport, Works & Energy for their ongoing support of the national airline.

The journey back to acceptable levels of profitability will not be easy, but we have good momentum under a high calibre of leadership. I remain optimistic that progress will be made in the current year.

Nalin Patel Chairman

11%

3%

3%36%

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7%11%

AirportSelling and Marketing

Manpower

Lease and Hire

Fuel

Others

Engineering and Maintenance

Pax and Crew

Depreciation

EDP & Communications

Air Pacific: expenditure Composition

BOARD OF DIRECTORS

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mD & Ceo’s rePort John Campbell

The financial result for Air Pacific for 2006/07, a 64% reduction in pre-tax profit to $7.7 million versus the $21.5 million achieved the preceding year was disappointing but not entirely unexpected against a challenging commercial and operational environment. Income grew strongly to $500.7 million, the first time Air Pacific

has passed the half billion dollar benchmark, an increase of $50.4 million or 11.2%.

Expenditure, however, grew by $64.2 million to $493.1 million or 15% compared to the prior year.

Revenue was driven by improved performance on our South Pacific, New Zealand and North American services, whilst Japan and Australian services lagged in revenue and profitability.

The primary driver for increased expenditure was fuel in that the airline flew only marginally increased hours [3.8%] and trips [4.5%] yet fuel costs ballooned by $36.5 million versus the prior year. Other cost increases have been driven by higher fees and charges from [largely] monopoly service providers including airports, government enroute charges and the Government of Fiji’s increased charges for aviation regulatory overview from CAAFI, Customs Charges and Immigration fees imposed without consultation or negotiation.

Manpower costs increased by $5.8 million, largely driven by pilots’ training costs as we employed additional Second Officers, progressed existing First Officers through the fleet and promoted experienced First Officers as Captains. The loss of national pilots to, mainly, Middle East airlines has driven a greatly increased recruitment and training workload.

To add to the cost burden, Air Pacific experienced a number of birdstrikes to aircraft resulting in severe disruption to customers and schedules, unplanned removal and rebuilding of engines and rectification work on damaged components. The total cost of birdstrikes, which have primarily occurred in Nadi, is to the order of $14.6 million. We are actively working with Airports Fiji Limited to implement a bird and wild life control programme at Nadi in an endeavour to eliminate this costly and safety related hazard.

The Chairman has provided comment on the main external factors which impacted upon Fiji as a destination and Air

Pacific as a business. The most damaging was the military takeover of Government in December 2006 and the adverse publicity which preceded and followed that event, including imposition of travel advisories recommending against travel to Fiji by various Governments. We calculate that this event eroded our revenue base by around $70 million and represents a significant current barrier to improved profitability.

Air Pacific has had to deeply discount airfares from Japan, Australia and New Zealand to keep visitors flowing to Fiji and has expended greatly increased advertising and promotional funds to promote Fiji as a destination against an adverse media background. We have participated with the Tourism Action Group [TAG] in industry promotions to try to recover lost momentum in these markets and this activity continues through the 2007/08 financial year.

In order to maintain the integrity of the destination in the travel distribution system despite reduced demand, Air Pacific maintained scheduled flights but has dynamically managed capacity by changing aircraft size, for example operating a B767 in lieu of a B747 or a B737 in lieu of a B767 to conserve operating costs whilst not distrupting customer journeys. The constant changes to and fine tuning of our network imposed significant additional workload on the Network Development and Operational branches of the Company in rescheduling aircraft, operating crews, changing catering and related equipment and altering engineering and maintenance requirements. I am grateful for the resilience shown by the team in managing so well against difficult circumstances.

In addition to the reduction in tourism inflows to Fiji, traffic in the Business Class cabin of our aircraft virtually collapsed. Traditionally, business travellers, Government, NGO, military, diplomatic, aid delivery donors, consultants, etc were our principal Business Class customers. This high value travel has virtually ceased since the coup and the impact on revenue has been severe, given that Business Class travel normally represented some 8% or $35 million of our turnover.

Freight has not escaped the impact on Fiji’s economy. Historically, most air freight imports were perishable food stuffs consumed by hotels and supermarkets for visitors and wealthier segments of Fiji’s community, including expatriates based in the country. The decline in tourism and departure of many expatriates and Fiji citizens has resulted in deep reductions to the volume of imported foodstuffs and therefore freight. Export crops from Fiji have also diminished significantly and as a consequence our freight performance declined by $5.8 million or 13.2% versus the preceding year.

Our Australian routes have been the underpinning source of strength for Air Pacific but in part as a consequence of the political events and in part because of competitive pressures the routes struggled to retain viability. Overall passengers, primarily visitors from Australia, grew by 3.8% but capacity on the route grew by over 20% in the last two years. Air Pacific has shrunk capacity operated in order to maintain viability whilst a competitor grew capacity

8%

19%

4%

69%

Passenger

Cargo and Mail

Other

Capacity Seat

Sale

Air Pacific: revenue Composition

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to now represent 23% of the seats offered whilst using marginal pricing to drive market share to their aircraft. The competitor now holds 23% market share, in line with capacity, and it is hoped that more rational business practices will be seen in the future.

The Japan route, alluded to earlier, has performed very poorly and continues to struggle. The deep decline in value of the Japanese Yen has made travel to Fiji relatively more expensive as the Yen cost of hotel accommodation has risen sharply. The Yen cost of airfares has shrunk as we have endeavoured to stimulate demand but the airline has reached the point where further dilution of airfares is not possible. Each Japanese visitor arriving into the country has the equivalent of a $350 subsidy from Air Pacific, this being the equivalent loss per passenger incurred in the provision of these services.

Japanese travellers are extremely conservative and at the first sign of political or civil disruption major tour operators in Japan suspend sale of or cease to market holiday products to affected destinations. This occurred for Fiji and it typically takes a year to obtain recovery. We shall continue to support recovery of the Japan market but ultimately, if it continues to reflect deep losses, we will be forced to make the difficult decision to withdraw from the route.

On a more positive note, our investment in Sofitel Fiji Resort & Spa is progressing in line with expectations. The initial year of operation reflected a loss as a consequence of interest paid and writeoff / depreciation of assets purchased and expensed in the launch of the hotel. Guest satisfaction remains very high, occupancy is satisfactory, staff motivation and morale is high and the hotel receives positive feedback on the overall ambience, service and quality of food and beverage. We are confident this investment will continue to grow in value and deliver satisfactory dividends in future years.

Our launch of Fiji Airlines Limited, trading as Pacific Sun, was challenging in that a domestic competitor placed a number of legal obstacles in our way preventing the planned launch in June 2006. The intention had been to acquire the assets and business of Sun Air [Pacific] Limited and to use that airline and its routes as the launch platform for Pacific Sun. Two forty four seat ATR42-500 turbo prop aircraft were purchased, the first delivered in August and the second in December 2006. As a result of our inability to progress the acquisition of Sun Air the aircraft were placed into very limited use flying Air Pacific routes between Suva and Tonga and Nadi and Vila.

We completed the acquisition of Sun Air in February 2007 and launched Pacific Sun into the Fiji market with considerable success and consumer acceptance. Naturally, intense competition was evident and additional capacity

has been added so that whilst the market is growing overall it is doing so under considerable price stimulation and profitability will take slightly longer to be achieved than originally planned.

Pacific Sun experienced operational challenges with engines on Twin Otters requiring re-building and a bird strike on an ATR42 which required removal and re-building of one of the engines, together with the associated service disruptions that unplanned engine removal brings. Nevertheless, Manoa Kamikamica, General Manager Pacific Sun, and his team are working very hard to improve the quality, safety and comfort of domestic services within Fiji, bring competitive prices to the market and to grow the overall domestic travel market as international tourists flow to farther destinations and local residents take to the air versus alternative surface transport. Positive results are being achieved and we have every confidence this investment will be profitable over time.

Air Pacific has not remained idle whilst facing difficult circumstances.

We have continued to invest in IT and to expand our applications and data bases to ensure that the entire airline works from the same information base and receives information and data rapidly and consistently. Improvements in our Revenue Accounting and Finance branch result in profit and loss data being available around ten days from the end of each month, enabling dynamic management of the business.

An internet booking engine [IBE] was established and has subsequently been upgraded. This is achieving acceptance from those customers who wish to make bookings and purchase travel on line or to change bookings held. Travel booked over the internet is growing rapidly with, typically, 100% month on month growth. Air Pacific Holidays will be added to the website to enable consumers to book hotels, transport, activities and tours for a total holiday package on line.

The impact of a soft 2006 tourism year to Fiji followed by damage to tourism as a consequence of the political events of December 2006 has seen a core adjustment to the pricing of holidays in Fiji. Against a significant room shortage with demand exceeding supply, hotel rates and food and beverage charges inexorably rose in 2005/06

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Air Pacific: Productivity

RTK’s per Employee ATK’s per Employee

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CORPORATE GOVERNANCE

BOARD RESPONSIBILITIES• Protect and enhance shareholder value• Set and review corporate strategies and strategic direction• Monitor operating and financial performance• Set and review senior executive succession planning • Risk management• Report to shareholders

BOARD STRUCTURE• Minimum of five and maximum of nine Directors• Four Non-Executive Fiji Directors are appointed by the Fiji Government• One Executive Fiji Director (Chief Executive) is appointed by the Fiji Government• Four Non-Executive Directors are appointed by Qantas providing Qantas holds more than forty percent of all voting shares• Chairman is a Non-Executive Director

To ensure the independence of the Air Pacific Board and to protect the airline’s position as the Fiji flag carrier, the Articles of Association (Articles) provide that:• The location of the Head Office and Principal Operational Centre will be in Fiji;• Fiji Directors (who must be Fiji Nationals) will comprise the majority of Directors;• The Chairman and Deputy Chairman must be a Fiji Citizen;• Whilst Qantas has the right to appoint Qantas Directors and holds more than ten per cent of voting shares in the Company, it cannot vote in any election or removal of Fiji Directors by shareholders;• Each Non-Executive Fiji Director is appointed for a term of three years;• Quorum for a Directors’ meeting is five Directors and must include one Qantas Director while Qantas holds more than ten per cent of voting shares;• Approval by two-thirds of Directors for specific major decisions (as shown in the Articles) by the Board.

BOARD MEETINGS • Minimum of six meetings a year

COMMITTEES • Board does not delegate major decisions to Committees.• Committees are responsible for considering detailed issues and making recommendations to the Board.• Audit Committee - four meetings a year - assists the Board in fulfilling its accounting and financial reporting responsibilities, corporate policies and procedures reviews and monitors internal and external auditors - consists of four Directors, of which one must be a Qantas Director• Remuneration Committee - one meeting a year - recommend to the Board remuneration package for the Managing Director & Chief Executive Officer - consists of three Directors, of which one is a Qantas Director• Safety & Security Committee - four meetings a year - assists the Board in fulfilling its corporate governance

responsibilities in regard to safety and operational security, operational risk management, and compliance with operational, legal and regulatory obligations

- consists of three Directors, of which one must be a Qantas Director

STANDARDS• Formal review of Board performance• Active participation by all Directors at all meetings• Open access to information• Independent professional advice is available to all Directors• Formal Code of Conduct – covering conflict of interest

CODE OF CONDUCTThe Air Pacific Code of Conduct governs Air Pacific commercial operations and the conduct of the Directors, employees, consultants and all other people when they represent Air Pacific.

GENERAL PRINCIPLESAll Directors and employees of Air Pacific are to undertake their duties with honesty and integrity, and in a manner consistent with the highest ethical standards prevailing in the business communities. Air Pacific employees must act in the best interest of Air Pacific.

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to the point that Fiji was not competitive relative to neighbouring Pacific countries and points in Asia which are destination competitors for Fiji. Whilst Air Pacific and competitive airlines reduced airfare prices steeply, the total cost of a visit to Fiji had grown significantly and customer dissatisfaction over value for money was becoming evident.

The addition of more hotel rooms, the botched introduction of a hotel turnover tax and finally the stand off between the military and Government of Fiji leading to a military takeover forced a fundamental recasting of hotel rates and charges to the point that Fiji has substantially regained its competitive positioning.

It is hoped the industry overall has learned from this so that as the market normalises Fiji’s relative value for money will be retained.

Overall, despite the disappointing profit result, Air Pacific can look with reasonable satisfaction to the results achieved in challenging circumstances in 2006/07. The airline performed well operationally, revenue growth was significant, staff remained focused and productive in the face of adversity and customer service ratings continue to show a high level of satisfaction with Air Pacific’s products.

We are, of course, not resting on our laurels and have significant work underway on a recasting of our service

offerings and the introduction of new services and products to benefit our customers.

I am grateful to my colleagues and staff for their efforts and support in difficult circumstances and for the counsel and support of fellow Board members in a testing year. We look to the future with confidence but also the knowledge that more intense efforts are necessary to grow the business profitably in the lead up to arrival of the five B787-9 aircraft ordered by Air Pacific, for delivery from 2011, for which payments commence from April 2009.

We are confident that with the continued support of our staff, our customers, the Government of Fiji and other shareholders that Air Pacific will continue to play an important role in this dynamic industry, with profitability more in line with efforts.

John CampbellMANAGING DIRECTOR & CEO

mD & Ceo’s rePort (continued)

EXECUTIVE MANAGEMENTTEAM

John Campbell Managing Director & Chief Executive Officer

Josephine Yee Joy Executive General Manager Corporate Support & Company Secretary

Tony Wong Executive General Manager Operations/Services

Jimmy Samson General Manager Customer Relations & Service

Dallas FoonGeneral Manager Strategic Planning

Dinesh Chandra General Manager Network Development

Isake Komailevuka General Manager Human Resources

Watson Seeto General Manager Freight & Operational Services

Craig McCarthy General Manager Sales & Marketing

Ranjan NaiduGeneral Manager Information Technology & Communications

Ashwin Singh General Manager Finance

Capt. matereti tuisue General Manager Flight Operations & Chief Pilot

Glen Brabant General Manager Engineering

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THE YEAR IN REVIEW

NETWORK PERFORMANCEAir Pacific achieved 9.7% growth in passenger revenue resulting primarily from an 8% increase in passenger carriage and a marginal yield improvement compared to the previous year. Competition from no frills carriers was strong and visitor arrivals into Fiji were sluggish.

AUSTRALIAAir Pacific was able to hold market share from its largest source market despite increased competitor activity. Campaigns were undertaken in collaboration with key wholesale partners to increase traffic during trough periods. The final five months of the financial year were adversely impacted by the political crisis, dampening the overall revenue result. On the whole, passenger volume increased by 3.8% with marginal yield increase resulting in a 4.4% revenue improvement against the previous year.

On a route basis, Sydney was impacted by aggressive competition causing a 10% yield decline, offset in part by an increase in passenger numbers, delivering an overall revenue result 3% lower than the previous year. Brisbane and Melbourne both recorded revenue improvements with growth in passenger numbers offsetting yield reductions.

NEW ZEALANDThe New Zealand routes performed well despite strong competition and Fiji destination challenges encountered throughout the year. Collaborative campaigns with key wholesalers and the Fiji Visitors Bureau were carried out addressing traditional low demand periods. Overall, yield improved marginally with passenger volume increasing by 3% resulting in a 4% revenue increase compared to the previous year. Seat sale performance by Qantas was positive with unconstrained access from the new Free-sale code-share arrangement (previously seat block allocation) enabling greater conversion for UK/Europe origin traffic.

A continuing trend in both the New Zealand and Australian markets is a shift to late bookings, signalling that consumers no longer plan trips well in advance and are waiting for “last minute” deals. Given the intense destination competition in both these markets, this trend is likely to continue.

NORTH AMERICARestructuring of pricing in North America coupled with aggressive sales strategies enabled passenger numbers to grow by 18%. Niche segments including weddings, honeymoons and diving are growing in popularity and support traditional market segments from this region. Despite high advertising costs, Air Pacific continues to work closely with the Fiji Visitors Bureau and key South Pacific specialists to drive business.

The Honolulu and Vancouver routes performed to expectation delivering 13% revenue improvements compared to the previous year.

JAPANPassenger revenue performance on the Tokyo route declined by 8% over the previous year with passenger volume and yield reducing. The high cost of operation to Japan requires the route to deliver a better profit result.

Competition from Korean Airlines is a challenge as is the strong competition from short-haul destinations, including Bali, Thailand, Korea, China and Vietnam. Overall outbound travel from Japan to the Oceania region has declined in recent years and Fiji must position itself as a value for money destination to be able to grow demand.

Air Pacific together with Japan specialist inbound tour operators, the Fiji Visitors Bureau and leading Fiji hotels have been working together to address the challenges faced in this market.

PACIFIC ISLANDSSignificant growth was experienced in the Pacific Islands with the commencement of services to Tarawa and a full year of Christmas Island operations. These services offer

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Air Pacific: operating revenue

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New Zealand

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Pacific Islands

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Air Pacific: Passenger revenue

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a communications link between the two extremes of Kiribati and to other destinations.

The acquisition of two forty four seat ATR42-500’s by Pacific Sun enabled additional services to Tonga and Vanuatu further stimulating demand. The higher flight frequency is beneficial to Tongan customers who are required to meet with the US Embassy in Suva for visa applications.

New hotel developments were completed in Vanuatu and Samoa and with more developments ear-marked for various Pacific Island locations, a growing holiday base for the region is being created.

FREIGHTReduced consumer spending influenced by political events in Fiji, availability of cheaper modes of transportation via shipping, closure of the Emperor Gold Mine and a weakening Fiji dollar had adverse impact on Air Pacific’s cargo business.

Cargo revenue performance was a disappointment with reduced tonnage compared to the previous financial year. This under performance was due to reduced importation of perishables, reduced carriage of fish exports, high fuel prices and the pricing methodology in place. A conscious decision was taken to not accept freight for carriage if it meant the airline would incur a net loss as a result of the high fuel price.

Given this downward trend pricing was reviewed to recapture lost freight business. This pricing review took time to regain freight business but recovery is now being realised.

As security and regulatory compliance issues intensified and became more complicated (most countries now require pre-cargo alerts on planned and actual uplifts to be sent in advance for filtering by security, customs and other agencies) the cost of complying with these requirements rose.

CUSTOMER SERVICESQuality customer service delivery is an ongoing objective at Air Pacific. We realise this, including the natural Fijian friendliness and warmth of our crew, means more passengers choosing to fly Air Pacific. In keeping with this objective, Customer Service workshops were held Company-wide to review and improve customer service taking into account customer feedback on Air Pacific.

A Care Team of dedicated employees volunteer their time and services to attend to our customers at times of unavoidable major disruptions to scheduled operations. The members of the Care Team are positioned at Nadi Airport to assist with communications, onward bookings, and customer welfare.

A new process of SMS messaging was developed as a means of keeping our customers informed of delays and re-scheduling. To take advantage of this alert the mobile number must be noted in the passenger’s booking details.

We continually review our on board product to provide value for money whilst keeping customers entertained and happy. New digital DVD video units are being purchased for use by our B767 Tabua Class passengers. External wine connoisseurs undertook our wine selection process for Tabua and Pacific Voyager classes.

During the year new Pacific Voyager class meal trays and crockery were introduced. New menus including a third choice (vegetarian) for Pacific Voyager class main meals and a Japanese bento box for Tokyo services from Nadi proved to be popular.

FINANCEIn a year dominated by challenging events and continually escalating fuel prices, cost control and management of expenses in all areas remained a key priority.

Fuel costs were a major cause for concern with prices topping USD89 per barrel in August 2006 compared to a budgeted rate of USD73.60 per barrel. Fuel accounted for 36.3% of overall expenditure compared with 33.2% last year. Whilst hedging was undertaken during the year to provide some certainty to the result a hedge loss was experienced compared to hedge gains the preceding year..With Reserve Bank changes to Banks’ minimum liquidity levels, the liquidity required in Fiji resulted in a high demand for cash. Air Pacific was able to invest its surplus funds in term deposits with commercial banks at record rates of up to 15.5%, greatly improving profitability.

The Company provided financial support to Pacific Sun to cover purchase of the assets, equipment and resources of Sun Air. During the year Air Pacific paid cash for two ATR42-500 aircraft on behalf of Pacific Sun for the regional/domestic operations.

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THE YEAR IN REVIEW

A weakened US dollar also had a positive impact on the Company’s performance. A significant portion of operational expenses, such as aircraft lease and hire, insurance, loan repayments, global distribution charges and aircraft maintenance charges are contracted in US dollars.

COST CONTROLMonitoring and containment of costs is generally a function associated with the Finance division, however, this is not the case at Air Pacific where it is a critical concern and management KPI for all departments. Whilst we are small in size and do not have the same bargaining power as larger organisations, we are proud of our tenacious negotiating efforts to reduce costs and minimise rate increases. We follow stringent tendering procedures to ensure good governance and transparency.

The Corporate Purchasing department contributes with volume purchasing reviews and negotiation of new contracts. It monitors prices in Fiji and searches overseas for better pricing to optimise purchases. The Inflight Supplies department does likewise with drystores and meal purchasing tenders. Three year catering contracts in Tokyo, Los Angeles and Vancouver were negotiated and awarded during the year.

Network Development works closely with Engineering to ensure that aircraft heavy maintenance is scheduled during trough periods so that the balance fleet can maintain operations without incurring relief aircraft charter costs.

The IT department exercises good negotiating skills in purchasing computer equipment and services and has been in the forefront in reducing costs of communications.

e-CommerCeInformation technology plays a pivotal role as Air Pacific continues to grow and expand its operations.

During the year, considerable time and effort was spent planning an improved and more effective website and associated travel booking engine providing customers with more travel choices and fare options. This new, easier to navigate site and more advanced online booking facility has increased the conversion ratio of site visitors to ticketed customers. Changes and upgrades include development of a new dynamic holiday package tool, branded Air Pacific Holidays, which will be released by November 2007.

A major review was undertaken of distribution, reservations, departure control and inventory control systems to drive further reductions in distribution and computer reservations systems costs.

A performance review of the integrated payroll and human resources information system (iPHRIS) was conducted and reflected an 80% achievement of forecast efficiencies within 18 months of implementation. System modifications have since been made to enhance utilisation and

effectiveness. All payslips and personnel information such as leave requests and shift rosters are now accessed by staff online.

Any organisation which is fully reliant on systems automation must have a disaster recovery programme. Such a programme is costly but it ensures business continuity in the event of disruption or damage to the main corporate site. The implementation of the disaster recovery site will be completed by the end of 2007 to provide a full online, real-time system of mirror sites for critical operational systems, 24 hours a day, 7 days a week.

ENGINEERING & MAINTENANCEThe Engineering department continued to maintain its impressive Technical Despatch reliability of 99%. Heavy Maintenance checks on the two B747-400 aircraft and the B767 were outsourced to Singapore Airlines Engineering Company and Qantas respectively.

As one of the first operators of Boeing’s New Generation B737 aircraft, the first overhaul of a B737NG engine, the CFM56-7B fitted to the B737-700 aircraft (DQ-FJF), was a milestone event. These engines have proved to be extremely reliable, leading the aviation world in the number of hours of trouble-free operation.

��

We experienced a high number of bird strikes at our home base, Nadi Airport, resulting in significant damage and repair cost to aircraft. The number of costly incidents is of concern not only to the Company but also to insurers and much work is being done with AFL, the airport operators, to implement a wildlife management programme. As a proactive and preventative measure pulse landing lights were recently installed on B737 aircraft to ward off birds. If this measure proves successful, installation on other aircraft in the fleet will follow.

Other non routine maintenance activities carried out included the installation of luminous cabin escape path lighting to replace the original electronic system and the permanent removal and blanking of cockpit eyebrow windows which were deemed redundant by Boeing on B737 aircraft.

The introduction of two ATR42-500 turbo-prop aircraft to the fleet operated by Pacific Sun means additional responsibilities for the engineers as the maintenance and technical control of these aircraft has been outsourced to Air Pacific.

QUALITY MANAGEMENT SYSTEMSAn IATA Operational Safety Audit (IOSA) will be conducted in September 2007. Successful clearance of this audit must be achieved by 2008 to maintain IATA accreditation and membership. Much time and resources has been spent in preparation to ensure no major compliance issues for the airline.

Prior to the audit IATA requires that airlines have a Quality Management System in place which encompasses the entire Operations Division.

Coupled with this initiative is the implementation of Electronic Data Management Systems for the centralisation and quality control of documentation, including operations manuals, cabin crew manuals and all flight instructions.

FLIGHT OPERATIONS QUALITY ASSURANCE (FOQA)This entails the installation of monitoring equipment to measure pilots’ management of aircraft operating flight systems. A partnership between the Company and the Fiji Airline Pilots Association on FOQA was agreed and implemented to conform with CAAFI regulations to enable use of information for statistical purposes only until the necessary “Protection of Information” legislation is in place.

LOGISTICS & CREW RESOURCESThe rapid growth of airlines in the Middle East and India has led to an insatiable demand for pilots, for whom high salaries are paid, resulting in the ongoing resignation of national and leased pilots. Maintaining operations whilst meeting training needs proved one of the more challenging issues for the Logistics department. Creating better utilisation of crew and reducing operational costs were focal issues as the department continually reviewed options to ensure the Company’s scheduled operations remain intact.

INTEGRATION SAFETY & SECURITY MANAGEMENT SYSTEMDuring the year, Operations has been working to fully implement the Air Pacific Integrated Safety Management System. This system has been further integrated with

security systems to ensure security occurrences are reported, audited and followed through in the same manner as safety occurrences. This is an ongoing process.

SECURITYIncreased security and regulatory compliance requirements have required continuous investment in technology and training. Advance passenger information/profiles (APP) must be sent electronically from departure control systems to ensure arrival approvals. Errors in data or failure to comply could result in an aircraft being refused permission to land or incur significant penalties.

Security costs continue to escalate. The decision to limit liquids, aerosols and gels (LAGs) in carry-on baggage resulted in further costly security controls and measures at airports.

Additional security checks were also introduced with the installation of hold stored baggage inspection systems at airports.

HUMAN RESOURCES, TRAINING & DEVELOPMENTInvestment in and development of our human resources remains a prime focus.

Air Pacific has invested over half a million dollars in a Management Development Programme (MDP) to upskill our senior and middle management. The objective is the broadening of aviation skills and the scope of thinking to build a pool of skilled personnel for succession planning and to cater for more challenging responsibilities. In October 2006, eleven participants in this program graduated with a NZ Diploma in Business and a Praxxis & ATTTO Certificate in Airline Management. The second MDP programme, comprising 17 participants, started in October 2006, with graduation anticipated in October 2008.

A total of 378 in-house and external courses were conducted, with each employee exposed to at least three courses during the year. These covered specific skills such as Pilot’s Emergency Procedures, Annual Proficiency Checks and a number of customer service, safety and security courses. A total of 73 pilots underwent simulator training

�2

THE YEAR IN REVIEW

overseas while five engineers attended courses in the USA and Singapore. Abinitio cabin crew and purser training courses were also conducted.

COMMUNITY SPIRITWe believe in giving back to the community in various ways. Usually charity and medical travel provision is done without fanfare. One publicised initiative is the Company’s Wings of Hope Programme. ‘Cash for Kids’ envelopes are placed in the inflight entertainment kit and through the generosity of passengers giving unwanted foreign currency we assist

needy children in Fiji. The funds collected have been used to build a residential hostel for a school in a rural area so that children do not have to walk long distances on a daily basis and to purchase a mini bus for the Nadi Handicapped School.

INDUSTRIAL RELATIONSRelations with the Unions were cordial during the year. A review of salaries for Transport Workers Union members, dating back three years, was successfully negotiated.

A Memorandum of Agreement was also successfully concluded with the Fiji Airlines Pilots Association for increased productivity in return for salary increases and allowances covering the period from August 2003 to end July 2007.

LOSS OF SKILLSLoss of established staff at different levels due to emigration and poaching continues to be an issue. Operations, administration, finance and specialist staff turnover was experienced.

With pilot skills losses to the Middle East, Flight Operations is constantly recruiting, training and upgrading pilot skills and ratings to service growing operational requirements. A National Pilot Progression program saw a total of 34 local pilots trained and upgraded to assume roles as First and Second Officers, Captains and Check/Training Captains on the Company’s B737, B767 and B747-400 aircraft. Five leased pilots were contracted through a leasing company to fly the B737-700/800 aircraft.

The Company has also lost engineers to migration and a few expatriate engineers have had to be recruited to ensure skill and licence requirements are maintained.

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Starting up an airline is no easy feat, typically taking months of planning to ensure aircraft, equipment, staff, standards, reliability and all the important safety and customer service factors are present.

Manoa Kamikamica, previously General Manager Strategic Planning, was seconded from Air Pacific to plan and co-ordinate the implementation of the new regional and domestic subsidiary airline and subsequently appointed General Manager of Fiji Airlines Limited, trading as Pacific Sun.

Pacific Sun officially commenced operations on 1st February, 2007. The protracted delay caused by a legal wrangle resulted in further costs due to additional requirements in processing operational documentation to obtain certifications and approvals to commence regional operations. Much time and effort was spent to recruit and train staff and ensure operations manuals, policies and procedures based on Air Pacific standards were in place for the new airline.

Starting with two ATR42-500’s, ATR pilots contracted from Mount Cook Airlines in New Zealand and selected aircraft from Sun Air, the airline commenced regular services regionally to Tonga and Vila and domestically between Nadi, Nausori, Labasa, Savusavu, Taveuni, Kadavu, Mana and Malolo Islands.

The support from Air Pacific staff to ensure Pacific Sun’s readiness was phenomenal given the already demanding needs of Air Pacific’s operations. Working closely with specialists within Air Pacific, Pacific Sun developed Customer Service standards, integrated the previous airline reservations and ticketing systems with Air Pacific’s, created operational, administration and engineering systems, recruited pilots, trained cabin crew and engineering staff.

Finance branch provided support to Pacific Sun to establish a financial structure for the airline able to be integrated into Air Pacific’s financial reporting system. Additional clerks were recruited and trained in the Revenue Accounting section to meet processing demands.

IT was heavily involved in helping Pacific Sun become operational. Apart from setting up LAN, internet, email and connectivity services to connect within Pacific Sun and to Air Pacific’s Head Office, IT also installed financial, revenue

accounting and operational systems for the fledgling airline.

A website and booking engine was implemented, so all domestic airports are now e-ticket eligible, helping provide a seamless booking service for customers booking online.

Customer Relations & Services assisted through the training of cabin crew and inflight service delivery design. Additional staff were recruited to fill positions in Nausori Traffic and Reservations to support the introduction of Pacific Sun.

The Air Pacific Training department was responsible for training the 130 Pacific Sun employees. Ninety two have attended a total of 15 courses relating to Amadeus training, weight and balance, dangerous goods, human factors, e-ticketing and ATR-42 familiarisation.

Although there is still a lot of work to do, signs are encouraging with positive feedback from customers on the comfort of the new ATR42 aircraft and reliability of the airline’s schedules.

Air Pacific can now provide a seamless service internationally and domestically for passengers booking online and through travel agents overseas. This will assist in helping make the visitor experience to Fiji more wide-ranging and enjoyable.

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CANADA

Vancouver

UNITED STATES

OF AM

ERICALos Angeles

AUSTRALIABrisbane

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Melbourne

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Auckland

Wellington

Christchurch

JAPANTokyo

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onolulu

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uku’alofa

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Port VilaFIJI

Nadi

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FINANCIAL REPORTING

Directors’ Report 16 Independent Auditors’ Report 17 Income Statements 18

Statements of Changes in Equity 19

Balance Sheets 20

Statements of Cash Flows 21

Notes to and Forming Part of the 22-38Financial Statements

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The Directors of Air Pacific Limited (the Company) present their report together with the financial statements of Air Pacific Group (“the Group”) being the Company and its controlled entity for the year ended 31 March 2007 as set out on pages 18 to 38 and the auditors’ report thereon in accordance with the Companies Act 1983.

DIRECTORSThe Directors of the Company at the date of this report are:

Nalin Patel – Chairman John Campbell Geoff Dixon Paul Edwards Daniel Elisha Charles Harvey Simon Hickey Sekonaia Tui Mailekai Sitiveni Weleilakeba

STATE OF AFFAIRSIn the opinion of the Directors:

(i) the accompanying Income Statements, Statements of Changes in Equity and Statements of Cash Flows are drawn up so as to give a true and fair view of the profit and cash flows of the Company and the Group for the year ended 31 March 2007.

(ii) the accompanying Balance Sheets are drawn up so as to give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2007.

There has been no material change in the nature of the Company’s business or in the classes of business in which the Company has an interest. The Company has a 100% ownership interest in Fiji Airlines Limited. The principal activity of Fiji Airlines Limited is provision of domestic and regional air transport services.

The Company has a 38.8% interest in Richmond Limited. The principal activity of Richmond Limited is the ownership of the Sofitel Fiji Resort & Spa at Denarau Island in Nadi.

OPERATING RESULTSThe operating profit of the Group after income tax expense of $2.451M (2006: $6.598M) for the year ended 31 March 2007 was $0.017M (2006: $13.315M).

The operating profit of the Company after income tax expense of $2.451M (2006: $6.598M) for the year ended 31 March 2007 was $5.231M (2006: $14.863M).

SIGNIFICANT EVENTS DURING THE PERIODThe political events in Fiji Islands since 5th December 2006 have resulted in an uncertain economic environment and subsequent slowdown in economic activity. Notwithstanding these events, at the date of this statement, the Directors believe the basis of preparation of the accounts and classification and carrying amounts of assets and liabilities stated herein are appropriate.

RESERVESThe Directors recommend that no amounts be transferred to or from reserves.

DIVIDENDSThe Directors declared that an interim dividend of fifteen cents (2006: seventeen cents) per share amounting to $3.914M (2006: $4.436M) be paid.

EVENTS SUBSEQUENT TO BALANCE DATE There has not arisen, since balance date, any item, transaction or event of a material nature that, in the opinion of the Directors, has significantly affected or may significantly affect the operations or results of the Company or the Group, or the state of affairs, in future financial years.

Dated at Nadi this 1st day of June, 2007.

Signed in accordance with a resolution of the Directors.

DIRECTOR DIRECTOR

DireCtors’ rePort For the YeAr enDeD 31 mArCh 2007

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SCOPEWe have audited the financial statements of Air Pacific Limited and of the Group (comprising the consolidated financialstatements of the Company and its controlled entity) for the year ended 31 March 2007, consisting of the Income Statements, Statements of Changes in Equity, Balance Sheets, Statements of Cash Flows and accompanying notes, set out on pages 18 to 38. The Company’s directors are responsible for the preparation and presentation of the financial statements and the information they contain. We have conducted an independent audit of these financial statements in order to express an opinion on them to the members of the Company.

Our audit has been conducted in accordance with Fiji Standards on Auditing to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included examination, on a test basis, ofevidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with Fiji Accounting Standards and statutory requirements so as to present a view which is consistent with our understanding of the Company’s and the Group’s financial position and the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

AUDIT OPINIONIn our opinion:

(a) proper books of account have been kept by the Company, so far as it appears from our examination of those books, and

(b) the accompanying financial statements of the Company and the Group which have been prepared in accordance with Fiji Accounting Standards:

(i) are in agreement with the books of account;

(ii) to the best of our information and according to the explanations given to us: (a) give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2007 and of the results and cash flows of the Company and the Group for the year then ended;

(b) give the information required by the Companies Act 1983 in the manner so required.

We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

1st June, 2007 KPMGLautoka, Fiji Islands Chartered Accountants

inDePenDent AUDitors’ rePort to the memBers oF Air PACiFiC LimiteD

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INCOME STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 Revenue 469,377 434,648 468,271 434,648 Other Income 4 18,305 14,741 18,434 14,741 487,682 449,389 486,705 449,389 Manpower and Staff Related Costs 50,032 42,223 48,037 42,223 Operations 5 153,179 142,503 152,694 142,503 Selling and Marketing 35,529 36,153 35,418 36,153 Fuel 179,701 142,456 179,036 142,456 Depreciation and Amortisation 11 18,740 17,167 17,709 17,167 Amortisation of Goodwill 14 27 - - - Administrative Expenses 5 61,267 48,377 60,169 48,377 Share of Net Loss/(Profit) of Jointly 13 118 1,548 - - Controlled Entity 498,593 430,427 493,063 428,879 (Loss)/Profit From operations (10,911) 18,962 (6,358) 20,510 Net Financing (Income) / Costs 6 (13,379) (951) (14,040) (951) operating Profit Before income tax 2,468 19,913 7,682 21,461 Income Tax Expense 7 2,451 6,598 2,451 6,598 operating Profit After income tax 17 13,315 5,231 14,863 Basic Earnings Per Share 17 0.01 0.51 0.20 0.57 Diluted Earnings Per Share 17 0.01 0.51 0.20 0.57

AirPacificGroup AirPacificLtd

The Income Statements are to be read in conjunction with the Notes to and Forming Part of the Financial Statements set out on pages 22 to 38.

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STATEMENTS OF CHANGES IN EQUITY AS AT 31 MARCH 2007

AirPacificGroup ShareCapital Retained Total Earnings $’000 $’000 $’000

Balance at 1 April 2005 26,093 97,902 123,995 Changes in Accounting Policy - 11,018 11,018Operating Profit after Income Tax - 13,315 13,315Dividends Declared - (4,436) (4,436) Balanceat31March2006 26,093 117,799 143,892 Balance at 1 April 2006 26,093 117,799 143,892Operating Profit after Income Tax - 17 17Dividends Declared - (3,914) (3,914)

Balanceat31March2007 26,093 113,902 139,995

AirPacificLtd ShareCapital Retained Total Earnings $’000 $’000 $’000

Balance at 1 April 2005 26,093 97,951 124,044 Changes in Accounting Policy - 11,018 11,018Operating Profit after Income Tax - 14,863 14,863Dividends Declared - (4,436) (4,436) Balanceat31March2006 26,093 119,396 145,489 Balance at 1 April 2006 26,093 119,396 145,489Operating Profit after Income Tax - 5,231 5,231Dividends Declared - (3,914) (3,914)

Balanceat31March2007 26,093 120,713 146,806

The Statements of Changes in Equity are to be read in conjunction with the Notes to and Forming Part of the Financial Statements set out on pages 22 to 38.

20

BALANCE SHEETS AS AT 31 MARCH 2007


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 CurrentAssets Cash 8 14,325 17,430 14,122 17,430 Term Deposits 8 156,109 183,731 156,109 183,731 Trade Receivables 9 26,837 30,132 25,760 30,132 Other Receivables, Prepayments & Deposits 20,061 34,128 20,279 34,128 General Inventories 1,262 681 540 681 TotalCurrentAssets 218,594 266,102 216,810 266,102 Non-CurrentAssets Aircraft, Property, Plant & Equipment 11 198,338 180,707 165,478 180,707 Other Deposits 27,903 10,857 27,905 10,857 Advance to Related Parties 12 769 721 35,000 721 Investments 13 16,200 16,318 19,915 17,915 Goodwill 14 459 - - - Future Income Tax Benefit 7(c) 5,993 11,979 5,993 11,979 TotalNon-CurrentAssets 249,662 220,582 254,291 222,179 TotalAssets 468,256 486,684 471,101 488,281

CurrentLiabilities Lease Liability 15 15,350 16,741 15,336 16,741 Deferred Income 10 2,772 1,597 2,772 1,597 Trade Creditors & Accrued Expenses 123,164 124,239 119,594 124,239 Revenue Received in Advance 49,512 42,403 49,245 42,403 Income Tax Payable 7(d) 1,271 (608) 1,271 (608)Provisions 16 10,602 9,086 10,528 9,086 TotalCurrentLiabilities 202,671 193,458 198,746 193,458 Non-CurrentLiabilities Lease Liability 15 57,187 79,150 57,171 79,150 Deferred Income 10 7,373 5,757 7,373 5,757 Deferred Income Tax Liability 7(b) 46,177 51,594 46,177 51,594 Provisions 16 14,853 12,833 14,828 12,833 TotalNon-CurrentLiabilities 125,590 149,334 125,549 149,334 TotalLiabilities 328,261 342,792 324,295 342,792

NetAssets 139,995 143,892 146,806 145,489

Shareholders’Equity Share Capital 17 26,093 26,093 26,093 26,093 Retained Earnings 113,902 117,799 120,713 119,396 TotalShareholders’Equity 139,995 143,892 146,806 145,489 CommitmentsandContingentLiabilities 20/19

Signed in accordance with a resolution of the Board.

DIRECTOR DIRECTOR

The Balance Sheets are to be read in conjunction with the Notes to and Forming Part of the Financial Statements set out on pages 22 to 38.

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STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2007


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000 CashFlowsfromOperatingActivities Receipts in the Course of Operations 497,506 471,183 496,919 471,183 Payments in the Course of Operations (473,167) (421,833) (471,074) (421,833)Interest Received 6,991 4,631 7,652 4,631 Income Taxes Paid - (500) - (500)Interest Paid – Lease (4,547) (5,361) (4,547) (5,361)NetCashProvidedbyOperatingActivities 26,783 48,120 28,950 48,120 CashFlowsfromInvestingActivities Advance to Richmond Limited (joint venture) - (721) - (721)Advance to Fiji Airlines Limited (subsidiary) - - (34,231) - Investment in Fiji Airlines Limited (subsidiary) - - (2,000) - Investment in Richmond Limited (joint venture) - (4,715) - (4,715)Payments for Property, Plant and Equipment (36,460) (6,895) (2,569) (6,895)Proceeds from Sale of Property, Plant and Equipment 97 22 97 22 NetCash(UsedIn)InvestingActivities (36,363) (12,309) (38,703) (12,309) CashFlowsfromFinancingActivities Repayments of Lease (16,711) (14,773) (16,741) (14,773)Dividend Paid (4,436) (7,306) (4,436) (7,306)NetCash(UsedIn)FinancingActivities (21,147) (22,079) (21,177) (22,079) Net (Decrease) / Increase in Cash Held (30,727) 13,732 (30,930) 13,732 Cash and Cash Equivalents at the Beginning 201,161 187,429 201,161 187,429of the Financial Year CashandCashEquivalentsattheEndofthe 8 170,434 201,161 170,231 201,161 FinancialYear

The Statements of Cash Flows are to be read in conjunction with the Notes to and Forming Part of the Financial Statements set out on pages 22 to 38.

22

1. stAtement oF siGniFiCAnt ACCoUntinG PoLiCies Air Pacific Limited (the ‘Company’) is domiciled in the Fiji Islands. The consolidated Financial Statements for the year

ended 31 March 2007 comprises the Company and its controlled entity (together referred to as the Group) and the Group’s interest in jointly controlled entities.

(a) Basis of Preparation The financial statements have been prepared on a historical cost basis except where stated. The accounting policies

have been consistently applied by the Group, unless otherwise stated.

The financial statements are presented in Fiji Dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated.

(b) statement of Compliance The financial statements have been prepared in accordance with the Accounting Standards and disclosure

requirements of the Fiji Institute of Accountants and the requirements of the Laws of Fiji.

(c) Principles of Consolidation The consolidated Financial Statements comprise the financial statements of the Company, its subsidiary

(Fiji Airlines Limited) and its interest in jointly controlled entity (Richmond Limited).

subsidiary The subsidiary (Fiji Airlines Limited), in which the Company holds a 100% interest, is consolidated. The consolidation

process eliminates intercompany balances, transactions, income and expenses.

Jointly Controlled Entity Jointly controlled entity is an entity over which the Company exercises significant influence or is jointly controlled.

In the consolidated financial statements, investment in the jointly controlled entity is accounted for using equity accounting principles and the Company’s share of the jointly controlled entity’s net profit or loss is recognised in the consolidated Income Statement.

(d) Foreign Currency Transactions Foreign currency transactions are translated to Fiji dollars at the rates of exchange published by the International

Air Transport Association (IATA) at transaction date.

In respect of aircraft, property, plant and equipment and revenue received in advance the values calculated at transaction date are not adjusted at balance date to reflect exchange rates then applying.

Lease liabilities are translated to Fiji dollars at the bank exchange rates ruling at balance date. Other foreign currency assets and liabilities are adjusted by applying the IATA rate ruling at balance date.

Exchange differences relating to long term lease liabilities are amortised over the period of the related lease liabilities. The balance of unrealised exchange gains/losses is carried forward as deferred expenditure/income in the balance sheet.

Other exchange differences are brought to account in the income statement as exchange gains or losses in the financial year in which the exchange rates change.

(e) Aircraft, Property, Plant and equipment Items of aircraft, property, plant and equipment are recorded at cost and depreciated or amortised on a straight line

basis at rates estimated to write off the cost less residual value over the useful life of each class of asset.

AIR PACIFIC GROUPNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2007

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(f) Depreciation Depreciation is charged to the Income Statement on a straight line basis at rates estimated to write off the cost less

residual value over the useful life of each class of asset. The estimated useful lives of aircraft, property, plant and equipment for depreciation purposes are:

Aircraft and spares: - B737-700/800 Aircraft & Spares: 15 years. Residual value being 25% of cost. - B737-700/800 Engines: 11 years. Residual value being 25% of cost. - B737-700/800 Maintenance & Overhaul: Period to next scheduled maintenance - B767 Spares: 15 years. Residual value being 20% of cost. - ATR42-500: 10 years. Residual value being 10% of cost. - Twin Otters and Islanders: Based on actual flying hours

other: - Plant and Equipment: 3 to 10 years - Motor Vehicles - Cars: 4 years - Trucks and Vans: 3 years - Buildings - Concrete: 80 years - Wooden: 40 years Buildings are depreciated at the above rates or over the period of the relevant land lease whichever is the shorter. (g) Aircraft/Engine Overhaul For aircraft under operating lease where there is a contractual obligation to undertake overhauls, provisions are made

for the future expected cost of major airframe and engine overhauls equal to the expected cost per flight hour of such overhauls in respect of flight hours since acquisition or the previous overhaul.

For aircraft under finance lease, costs incurred in respect of heavy maintenance and overhaul of aircraft engines and airframes are capitalised and depreciated over the period to the next scheduled maintenance. Other non-heavy maintenance and overhaul costs are charged to the income statement on consumption or as incurred.

(h) Leased Assets Finance Leases Assets acquired under finance lease are included as non-current assets in the balance sheet. Leased assets are

recognised at the present value of the minimum lease payments and amortised on a straight-line basis to estimated residual value over the expected useful life of the asset. A corresponding liability is also established and each lease payment is allocated between the liability and finance charge.

Operating Leases Operating lease rentals are included in the determination of the operating profit or loss for the year in accordance with

the contractual lease payment obligations.

(i) trade receivables The collectability of trade receivables is assessed at year end and allowance is made for any amounts considered doubtful.

(j) General Inventories General inventories are valued at the lower of cost (calculated using a weighted average formula) and net realisable value.

(k) Employee Entitlements Contributions are paid to the Fiji National Provident Fund or equivalent schemes overseas on behalf of employees

to secure retirement benefits. Costs are included in the income statement.

Outstanding annual leave and long service liabilities due to employees at balance date are brought to account based on current legal and contractual entitlements.

Provision is made for the future expected retirement and long service leave benefits based on current contractual entitlements by applying an actuarial calculation.


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(l) Cash and Cash equivalents Cash and cash equivalents comprise cash balances and short term deposits for the purposes of the statement of cash flows.

(m) Impairment The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there

is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

(n) trade and other Payables Trade and other payables are stated at their cost.

(o) Revenue Passenger and freight sales are recorded as ‘revenue received in advance’ and transferred to revenue earned when

the service is performed. Passenger and freight sales are included in the income statement net of sales discounts. Agents’ commission is included as sales and marketing expense and is recognised on the same basis as revenue.

Where services sold are not availed within the following periods, the sales values are transferred to revenue: - ‘BULA’ fare tickets subject to conditions 6 months - other passenger services 24 months - cargo services 12 months

(p) Net Financing Costs Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method,

interest receivable on funds invested, amortisation of deferred expenditure/income in respect of unrealised exchange differences on future lease payments and realised exchange differences on lease payments made.

Interest income is recognised in the Income Statement as it accrues.

(q) intangible Assets Goodwill Goodwill represents the excess of the cost of acquisition over the net fair value identifiable assets acquired. Goodwill is measured at cost less accumulated impairment losses.

(r) Income Tax The Group adopts the liability method of tax effect accounting.

Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and accounting income. The tax effect of timing differences which arise from items being brought to account in different periods for income tax and accounting purposes is carried forward in the balance sheet as a future income tax benefit or a deferred income tax liability.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt.


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2. ChAnGes in ACCoUntinG PoLiCies

In the previous financial year, the Company adopted new Fiji Accounting Standards. The changes due to these accounting policies have been accounted for by adjusting the opening balance of Retained Earnings at 1 April 2005.


3. risK mAnAGement PoLiCies

CreditRisk Credit risk relates to the possibility of default by customers and agents in settling their obligation to the Company.

The Company has established internal policies to determine the creditworthiness and reliability of potential customers. Agents are also required to provide bank guarantees which the Group can exercise in the event of non-payment of amounts due.

ForeignExchangeRisk The Company incurs foreign currency risks on revenues, expenses and borrowings that are denominated in a currency

other than the Fiji dollar. There is no means of hedging foreign currency payments exchange risks in Fiji Islands. However the Company generates sufficient foreign currency revenue to meet its obligations denominated in foreign currencies and all net exposures are monitored by Management.

FuelHedging Fuel Hedging instruments are used to smooth the impact of sudden and significant increases in fuel prices.

4. other inCome



2007 2006 2007 2006

$’000 $’000 $’000 $’000 FAS 19 Employee Benefits - (812) - (812)

FAS 37 Provisions, Contingent Liabilities and - 13,547 - 13,547 Contingent Assets

FAS 16 Property, Plant and Equipment - (3,061) - (3,061)

FAS 36 Impairment of Assets - 1,344 - 1,344 Retained Earnings Adjustment - 11,018 - 11,018

2007 2006 2007 2006

$’000 $’000 $’000 $’000 Charters 6,905 4,841 6,905 4,841 Gain on Disposal of Assets 8 17 8 17 Sundry Income Related Parties - Fiji Airlines Limited (subsidiary) - - 299 - - Richmond Ltd (joint venture) 30 10 30 10 Other Parties 11,362 9,873 11,192 9,873 18,305 14,741 18,434 14,741

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

5. eXPenses

Operations Operating Lease Rentals and related costs Related Parties - Fiji Airlines Limited (subsidiary) - - 572 - Other Parties 42,184 40,163 42,021 40,163 Airport Related Costs 56,646 53,024 56,615 53,024 Engineering and Maintenance 54,349 49,316 53,486 49,316 153,179 142,503 152,694 142,503

Administrative Expenses Included in the Administrative Expenses are the following items: Directors’ Fees 134 151 134 151 Audit Fees - Remuneration 50 33 37 33 - Other Services 115 117 112 117 Bad Debts Written Off 11 403 11 403 Provision for: - Employee Entitlements 3,138 2,215 2,997 2,215 - Doubtful Debts 178 (891) 178 (891) Operating Lease Rentals 1,326 1,409 1,322 1,409 Exchange Losses/(Gain) 3,157 (1,296) 3,157 (1,296)

6. net FinAnCinG (inCome) / Costs

Interest Income Related Parties - Fiji Airlines Limited (subsidiary) - - (661) - - Richmond Limited (jointly controlled entity) (49) - (49) - Other Parties (13,958) (4,631) (13,958) (4,631)

Interest Expense 4,547 5,360 4,547 5,360 Amortisation of Unrealised Exchange (Gains) (3,853) (2,049) (3,853) (2,049) Realised Exchange (Gains)/Losses (66) 369 (66) 369 (13,379) (951) (14,040) (951)

27



2007 2006 2007 2006

$’000 $’000 $’000 $’000

7. tAXAtion

(a) Income Tax Expense Prima facie income tax expense calculated at 766 6,173 2,382 6,653 31% on operating profit

Increase/(decrease) in income tax expense due to: Non-tax deductible items 308 513 266 33 Income derived from overseas locations not subject to tax in Fiji - (104) - (104) Other (195) 16 (197) 16 Income Tax (benefit) attributable to operating loss not brought to account 1,572 - - - Incometaxexpenseattributabletooperatingprofit 2,451 6,598 2,451 6,598 Income tax expense attributable to operating profit is made up of: Deferred income tax expense (5,417) (3,953) (5,417) (3,953) Future income tax benefit 5,989 10,551 5,989 10,551 Current income tax 1,879 - 1,879 - 2,451 6,598 2,451 6,598

(b) Deferred income tax Liability Deferred income tax liability comprises the estimated expense at current income tax rates on the difference in depreciation of aircraft, property, plant and equipment for accounting and tax purposes 46,177 51,594 46,177 51,594 (c) Future income tax Benefit Future income tax benefit comprises the estimated future benefit at current income tax rates on the following items: Provisions Not Currently Deductible 5,993 5,268 5,993 5,268 Income Tax Losses Carried Forward - 6,711 - 6,711 5,993 11,979 5,993 11,979 The potential future income tax benefit of $1.572M in respect of tax losses not brought to account will only be obtained if: (i) the subsidiary company derives the future assessable

income of a nature and an amount sufficient to enable the benefit to be realised;

(ii) the subsidiary company continues to comply with the conditions for deductibility imposed by law; and

(iii) no changes in tax legislation adversely affect the subsidiary company in realising the benefit.

2�



2007 2006 2007 2006

$’000 $’000 $’000 $’000

7. tAXAtion (continued) (d) IncomeTaxPayable

Balance at beginning of the financial year (608) (108) (608) (108) Income Tax Paid - (500) - (500) Current Income Tax 1,879 - 1,879 - Balance at end of financial year 1,271 (608) 1,271 (608) 8. CAsh AnD CAsh eQUiVALents

Cash on Hand and at Bank 14,325 17,430 14,122 17,430 Term Deposits – current 156,109 183,731 156,109 183,731 170,434 201,161 170,231 201,161

9. trADe reCeiVABLes

Trade Receivables Related Parties - Richmond (jointly controlled entity) 6 7 6 7 Other 28,723 31,689 27,496 31,689 Provision for Doubtful Debts (1,892) (1,564) (1,742) (1,564) 26,837 30,132 25,760 30,132 10. DeFerreD inCome

Current Unrealised Exchange Gains on Future 2,772 1,597 2,772 1,597 Lease Repayments Non-current Unrealised Exchange Gains on Future 7,373 5,757 7,373 5,757 Lease Repayments

2�


AirPacificGroup Aircraft Aircraft Plant,Equipment Land& Total Leased Spares &Spares Building $’000 $’000 $’000 $’000 $’000 11. AirCrAFt, ProPertY, PLAnt AnD eQUiPment Cost Balance at 1 April 2006 237,292 16,598 15,243 21,462 290,595Acquisitions 31,416 2,375 1,155 1,514 36,460Disposals - - (855) - (855)Balanceat31March2007 268,708 18,973 15,543 22,976 326,200

DepreciationandAmortisation Balance at 1 April 2006 84,391 8,191 10,149 7,157 109,888Depreciation and amortisation for the year 14,648 1,468 2,088 536 18,740Disposals - - (766) - (766)Balanceat31March2007 99,039 9,659 11,471 7,693 127,862

CarryingAmount At 1 April 2006 152,901 8,407 5,094 14,305 180,707Asat31March2007 169,669 9,314 4,072 15,283 198,338

AirPacificLtd Aircraft Aircraft Plant,Equipment Land& Total Leased Spares &Spares Building $’000 $’000 $’000 $’000 $’000 Cost Balance at 1 April 2006 237,292 16,598 15,243 21,462 290,595Acquisitions - 931 759 879 2,569Disposals - - (855) - (855)Balanceat31March2007 237,292 17,529 15,147 22,341 292,309

DepreciationandAmortisation Balance at 1 April 2006 84,391 8,191 10,149 7,157 109,888Depreciation and amortisation for the year 13,648 1,453 2,075 533 17,709Disposals - - (766) - (766)Balanceat31March2007 98,039 9,644 11,458 7,690 126,831

CarryingAmount At 1 April 2006 152,901 8,407 5,094 14,305 180,707Asat31March2007 139,253 7,885 3,689 14,651 165,478

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11. AirCrAFt, ProPertY, PLAnt AnD eQUiPment (continued)

Aircraft Market Values

The market values of aircraft tend to fluctuate significantly from year to year. An extended desktop valuation was carried out in March 2007 by AVITAS on jet aircraft to determine the current market values. As at 31 March 2007 there is a deficit between carrying amount and market values.


Valuations of ATR aircraft were obtained using ASCEND market values. There are no published market values for Twin Otter and Islander aircraft. The market values are based on indicative valuations from aircraft vendors overseas.

No provision has been made for the above difference as, in the opinion of the Directors, the recoverable value from continued use of the aircraft exceeds the book value of the aircraft, based on the Directors’ current assessment of the Group’s future trading prospects.

12. ADVAnCe to reLAteD PArties


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Advance to Subsidiary - - 34,231 -

Advance to Richmond Limited (jointly controlled entity) 769 721 769 721 Total Advances 769 721 35,000 721

JetAircraft(B737-700/800) Extended Extended Carrying (Deficit) Valuation Valuation Amount FJD$’000 USD$’000 FJD$’000 FJD$’000

As at 31 March 2006 83,700 145,835 152,901 (7,066)

As at 31 March 2007 77,100 128,520 139,253 (10,733)

Valuation Valuation Carrying (Deficit)/ USD$’000 FJD$’000 Amount Surplus FJD$’000 FJD$’000

ATR as at 31 March 2007 13,700 22,540 25,585 (3,045)

Twin Otters and Islanders as at 31 March 2007 - 4,936 4,832 104

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

13. inVestments

investment in subsidiary Balance as at 31 March - - 2,000 - Investment in Subsidiary represents 100% shares owned in Fiji Airlines Limited (a company incorporated in Fiji on 27th May 2005 servicing regional and domestic air routes).

Investment in Jointly Controlled Entity Balance at beginning of financial year 16,318 17,866 17,915 17,915 Share of (losses)/profits (118) (1,548) - - Balance at end of financial year 16,200 16,318 17,915 17,915

Total Investment 16,200 16,318 19,915 17,915

Investment in Jointly Controlled Entity represents the Company’s 38.8% interest in Richmond Limited pursuant to a Shareholders’ Agreement with Colonial Fiji Life Limited. The principal activity of Richmond Limited is the ownership of the Sofitel Fiji Resort & Spa at Denarau Island in Nadi.

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13. inVestments (continued)

Investment in Jointly Controlled Entity (continued)

38.8% 38.8%

Restated 2007 2006

$’000 $’000

AirPacificLtd

Current Assets 2,489 2,005 non-Current Assets 29,998 30,434

Total Assets 32,487 32,439

Current Liabilities 1,888 1,610 non-Current Liabilities 14,399 14,511

total Liabilities 16,287 16,121

Net Assets 16,200 16,318

total shareholders’ equity 16,200 16,318

Revenue 9,686 1,377 Hotel Operating Expenses (6,867) (1,477) Net Owners Expenses (1,719) (1,219) Net Finance Costs (1,218) (299) Share of (Losses) in Jointly Controlled Entity (118) (1,548)

Air Pacific Limited and Colonial Fiji Life Limited have provided an unlimited guarantee in respect of Richmond Limited’s borrowing. At 31 March 2007, these borrowing totalled $36.0M (2006: $37.2M).

14. GooDWiLL

Fiji Airlines Limited, trading as Pacific Sun, was established as a subsidiary of Air Pacific Limited, with the objective of operating a domestic and regional airline. Air Pacific Limited has a 100% shareholding in Fiji Airlines Limited.

During the year, Fiji Airlines Limited acquired additional aircraft and the business and net assets of Sun Air (Pacific) Limited and Sun Air Holdings Limited (commonly referred to as the Sun Air Holdings Group).

��



2007 2006 2007 2006

$’000 $’000 $’000 $’000

14. GooDWiLL (continued)

The acquisition has the following effect on the assets and liabilities of the Group.

Net identifiable assets & liabilities 31,012 1,395 32,407 Goodwill on acquisition 486 Consideration paid, satisfied in cash 32,893

The period of amortisation of goodwill is over three years.

Recognised FairValue Carrying Values Adjustment Amounts ($’000) ($’000) ($’000)

Goodwill on acquisition 486 - - - Amortisation and impairment loss (27) - - - As at 31 March 459 - - -

15. LeAse LiABiLitY

The finance lease liability in respect of B737-700/800 aircraft and motor vehicles are allocated between current and non-current elements. The principal component of the lease payments due as at the end of the succeeding financial year is shown as current and the remainder of the liability as non-current.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

The future lease payments under finance leases are:

Not later than one year 19,829 21,630 19,814 21,630 Later than one year but not later than two years 19,829 21,630 19,814 21,630 Later than two years but not later than five years 41,881 61,658 41,881 61,658 Later than five years - 5,688 - 5,688 Minimum lease payments 81,539 110,606 81,509 110,606 Deduct: future finance charges 9,002 14,715 9,002 14,715 Provided for in the accounts 72,537 95,891 72,507 95,891 Represented by: Current 15,350 16,741 15,336 16,741 Non-Current 57,187 79,150 57,171 79,150 72,537 95,891 72,507 95,891

��


airPacificGroup Aircraft/Engine Employee Dividends Total Overhaul Entitlements $’000 $’000 $’000 $’000

Balance as at 1 April 2006 10,581 6,902 4,436 21,919 Provisions made during the year 7,059 3,138 3,914 14,111 Provisions utilised during the year (3,736) (2,403) (4,436) (10,575) Balanceasat31March2007 13,904 7,637 3,914 25,455

Current 2,567 4,121 3,914 10,602 Non-Current 11,337 3,516 - 14,853 13,904 7,637 3,914 25,455

airPacificLtd Aircraft/Engine Employee Dividends Total Overhaul Entitlements $’000 $’000 $’000 $’000

Balance as at 1 April 2006 10,581 6,902 4,436 21,919 Provisions made during the year 7,059 2,997 3,914 13,970 Provisions utilised during the year (3,736) (2,361) (4,436) (10,553) Balanceasat31March2007 13,904 7,538 3,914 25,356

Current 2,567 4,047 3,914 10,528 Non-Current 11,337 3,491 - 14,828 13,904 7,538 3,914 25,356

16. ProVisions

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

Authorised Share Capital 100,000,000 Shares of $1 each 100,000 100,000 100,000 100,000

issued and Paid-Up share Capital Shareholders as at 31 March 2007 were:

17. shAre CAPitAL

2007 2006

Called& Paid-Up Paid-Up Paid-Up Capital Capital

Shares % $ $’000 $’000 %

Government of Fiji 13,307,075 51.00 1.00 13,307 13,307 51.00

Qantas Airways Limited 12,084,832 46.32 1.00 12,086 12,086 46.32

Air New Zealand Limited 505,000 1.94 1.00 505 505 1.94

Government of Kiribati 70,400 0.27 1.00 70 70 0.27

Government of Tonga 70,400 0.27 1.00 70 70 0.27

Government of Samoa 32,000 0.12 1.00 32 32 0.12

Government of Nauru 22,800 0.08 1.00 23 23 0.08

26,092,507 100.00 26,093 26,093 100.00

Earnings per Share

(a) Basic earnings per share


2007 2006 2007 2006

Attributable to ordinary shareholders $’000 $’000 $’000 $’000

Net Profit attributable to ordinary shareholders 17 13,315 5,231 14,863 Weighted average number of ordinary shares 26,093 26,093 26,093 26,093 Earnings per Share 0.01 0.51 0.20 0.57

(b) Diluted earnings per share

Diluted earnings per share is the same as basic earnings per share as there are no ordinary shares that are considered diluted.

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18. DiViDenDs

On 30th March 2007, the Board of Directors proposed a dividend payout of 15.0 cents (2006 : 17.0 cents) per share for the year ended 31 March 2007. This amounts to $3,913,876 (2006: $4,435,726).

19. ContinGent LiABiLities

Guarantees and letters of credit to support operating lease commitments and other arrangements entered into by the Group. Bank facilities in respect of the above are secured by a registered mortgage debenture over the Group’s assets.


2007 2006 2007 2006

$’000 $’000 $’000 $’000 14,577 6,785 14,577 6,785

20. Commitments

As at balance date the Group had entered into the following commitments. These commitments are not provided for in the financial statements.

(a) The Group had entered into a nine year operating lease agreement for a Boeing 767-300 Extended Range aircraft effective September 1994 and exercised an extension for a further four years. The lease has been further extended to September 2011 with an option to extend to 2012.

(b) The Group entered into five year operating leases for two Boeing 747-400 aircraft with effect from April and June 2003 with an option for two one year extensions.

(c) The following is a summary of future operating lease commitments for aircraft and properties payable by the Group translated (where applicable) at exchange rates prevailing at balance date:


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Not later than one year 36,805 37,227 36,389 37,227 Later than one year but not later than two years 18,610 29,842 18,194 29,842 Later than two years but not later than five years 40,158 7,984 39,109 7,984 Later than five years 7,094 7,548 6,704 7,548 102,667 82,601 100,396 82,601

The subsidiary, Fiji Airlines Limited, is involved in legal action with a competitor. Based on legal advice, the Directors do not expect the outcome of the action to have a material adverse impact on the Group’s financial position.

The Company will also provide necessary financial support to its subsidiary company, Fiji Airlines Limited, in order to fulfil its debt obligations if and when they are due and payable.

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20. Commitments (continued)

(d) The Group entered into a Purchase Agreement with the Boeing Company for the acquisition of five Boeing 787-9X2 aircraft with the option for three further purchase rights. The scheduled delivery dates are August/November 2011, June/August/October 2012.

(e) The following is a summary of future capital commitments for aircraft and properties payable by the Group translated (where applicable) at exchange rates prevailing at balance date:

21. reLAteD PArties

Details of shareholding of major shareholders are provided in Note 17. Transactions with major shareholders are conducted on a commercial basis and comprise the following:

• Air Pacific provides passenger travel and freight carriage for the Fiji Government;• On certain Air Pacific routes Qantas codeshares for which it retains a percentage of the revenue for seats sold;• The Fiji Government or its controlled entities provide airport, ground handling, catering, landing and air navigation

services to Air Pacific;• Qantas provides ground handling, catering, fuel hedging, insurance purchase and aircraft maintenance services

to Air Pacific.

Transactions and balances with major shareholders included in the Financial Statements are as follows:


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Not later than one year 800 - 800 - Later than one year but not later than two years - - - - Later than two years but not later than five years 274,466 - 274,466 - Later than five years 1,537,009 - 1,537,009 - 1,812,275 - 1,812,275 -


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Revenue 78,725 89,571 78,725 89,571 Expenditure 53,650 48,913 53,650 48,913 Trade receivables 7,558 17,477 7,558 17,477 Trade creditors 1,063 6,945 1,063 6,945

In addition to the Directors’ Fees disclosed in Note 5 the Directors of the Group receive certain travel benefits.

Fiji Airlines Limited is a related party by virtue of it being a subsidiary. Transactions and balances with Fiji Airlines Limited are disclosed elsewhere in the financial statements.

Richmond Limited is a related party by virtue of it being a jointly controlled entity. Transactions and balances with Richmond Limited are disclosed elsewhere in the financial statements.

��


22. mAnPoWer

The average staff strength for the Group and the Company was as follows:

23. PrinCiPAL BUsiness ACtiVitY

The principal business of the Company is to provide air transport services.

24. seGment rePortinG

All assets of the Group (other than investment in jointly controlled entity) are predominantly in one industry segment being the transportation of passengers and cargo on scheduled airline services to or from and within Fiji Islands. The operations of the jointly controlled entity are in the hotel industry and are set out in Note 13. The principal assets are located at Nadi, Fiji Islands.

25. reGistereD oFFiCe

The Company’s registered office is located at:

Air Pacific Maintenance & Administration Centre Nasoso Road Nadi FIJI ISLANDS


2007 2006 2007 2006

Average staff strength 882 754 771 754

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HEAD OFFICEAir Pacific LimitedPrivate Mail BagNadi Airport Fiji IslandsPhone: (679) 6720777 Fax: (679) 6720512www.airpacific.com.fj

CARGOAir Pacific LimitedNadi Airport, Fiji Islands

SUBSIDIARYPacific SunCorner of Koromakawa Road CAAFI CompoundNadi AirportFiji Islandswww.pacificsun.com.fj

reGionAL oFFiCes:

FIJIAir Pacific LimitedGround Floor, CML BuildingVictoria Parade, Suva

Air Pacific LimitedArrival Concourse Nadi Airport

AUSTRALIAAir Pacific Limited World Aviation Systems– GSA Level 2, 410 Queen Street Brisbane QLD 4000

Air Pacific LimitedWorld Aviation Systems– GSALevel 10, 403 George StreetSydney NSW 2000

Air Pacific LimitedWorld Aviation Systems– GSAGround Floor, 310 King StreetMelbourne VIC 3000

HONG KONGHoliday Tour & Travel – GSA Suites 803 – 804, 8th Floor World Finance Centre South Tower, Harbour CityTsimshatsui Kowloon Hong Kong

INDIAGriffon Aviation-GSAShop#4 Cusrow Baug,Colaba, Mumbai 400039INDONESIA Holiday Tours & Travel – GSA Menara BDN Bldg 11th Flr JL. Kebon Sirih No. 83 Jakarta Pusat 10340

ISRAELTal Aviation Limited – Passenger GSA29 Ben Yehuda Street 63 807 Tel Aviv

JAPAN Air Pacific LimitedRoom 251, Kokusai Building3-1-1, MarunouchiChiyoda-Ku, Tokyo 100-0005

Int’l Air Cargo Systems Inc. - Cargo GSAWBG Marine West 26F,2-6 Nakase, Mihama-Ku,Chiba 261-7126

KIRIBATIPacific World Travel – GSALagoon Drive, Bikenibeu Central, Kiribati

Pacific World Travel – GSAWithin Tobaraoi, Ronton Village, Kirimati IslandChristmas Island

KOREAHoliday Tours & Travel (Korea) Ltd – Passenger GSA 15th Floor Soonhwa Building 5-2 Soonhwa-dong Jung-gu Seoul Korea 100-130

International Air Transport Co., Ltd – Cargo GSA6th Floor, Sina Building39-1, Seosomun-dong,Jung-gu, Seoul, Korea 100-752

MALAYSIAMalaysian Airlines System– GSA 3rd Floor, MAS BuildingJalan Sultan IsmailKuala Lumpur 50250

NETHERLANDSQantas – GSAAtlanta BuildingStadhouderskade 6 Amsterdam

NEW CALEDONIAAir Pacific LimitedAgence de Voyages Jean Brock - GSA14 Rue George ClemenceauBP 122, 98845, Noumea

NEW ZEALANDAir Pacific LimitedWorld Aviation Systems-GSALevel 9 Sofrana House 396 Queen Street Auckland

Air Pacific LimitedQantas - GSAGround Floor Price Waterhouse Building119 Armagh StreetChristchurch

Air Pacific LimitedQantas – GSAGround Floor ASB Bank Tower2 Hunter Street, Wellington

NORTH AMERICAU.S.AAir Pacific LimitedSuite 490, 6080 Centre DriveLos Angeles, CA 90045 Cargo Handling Agent-Mercury Air Cargo Inc6041 Avion Drive Los Angeles, CA 90045

HAWAIIAir Pacific Limited300 Rodgers Boulevard #60Honolulu International Airport Hawaii 96819

CANADAWorldwide Flight Services P.O.Box 30382 Richmond BC V7B 1W2 Canada

SAMOAAir Pacific LimitedPolynesian Airlines-GSA 1st Floor, National Provident Fund Building, P.O.Box 599 Apia

SINGAPOREHoliday Tours & Travel (Korea) Ltd – Passenger GSA 15 Cairnhill Road #07-05, Cairnhill PlaceSingapore 229650

Cargo Handling Agent-International Air Cargo Services Pte LtdRoom 230 Sats AirfreightTerminal 2, Core E, Airport Cargo RoadP.O.Box 656Airmail Transit Centre Singapore Changi Airport Singapore 918105

SOLOMON ISLANDSAir Pacific LimitedTravel Industry Services-GSACity Centre BuildingMendana Avenue, Honiara

Cargo Handling Agent-Solomon Airlines–FreightHenderson Airport

TAHITIQantas - GSAShop 44, 2nd Floor, Vaima CentrePlazza BasseP.O.Box 1695Papeete

TAIWAN, ROCHoliday Tours & Travel – Passenger GSA 10F-6, 106, Chang-An West Rd. Taipei 103, Taiwan ROC

JPK Air Freight Co. Ltd- Cargo GSA, 5th Floor, No.1, Nanking Road East Sec. 3, Taipei

THAILAND Holiday Tour & Travel - GSA 942/160-163 Charn Issara Tower 21st Flr Rama 4 Road Surawongse, BangrakBangkok 10500

TONGAAir Pacific LimitedE.M.Jones Limited-GSAP.O.Box 34, Nuku’alofa

UNITED KINGDOMAir Pacific LimitedP.O.Box 4154Maldon Essex CM9 8UR

Qantas–GSA395/403 King StreetHammersmith, London W69NJ

VANUATUAir Pacific LimitedVanuatu Travel Services-GSAC/- South Pacific TravelAnchor House, Kumul HwyPort Vila

VIETNAM Holiday Tour & Travel – GSA Unit 1601, Saigon Trade Centre 37 Ton Duc Thang, District 1 Ho Chi Minh City, Vietnam

QANTAS- GSA

FRANCE Qantas-GSA13/15 Boulevard de la MadeleineParis

ITALY Qantas-GSACorso Italia 8, Milan Via Bissolati 54, Rome

GERMANYQantas-GSAAirport Terminal 2, Level 6Frankfurt

SWEDENQantas-GSADalagatan 21, 113 24 Stockholm

SWITZERLANDQantas-GSALoewemstrasse 29 Zurich 8021

AIR PACIFIC GROUPOFFICES, GENERAL SALES AGENTS AND CARGO

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DEFINITIONSATK: Available Tonne Kilometres Available payload of the aircraft times the kilometre distance travelled.RTK: Revenue Tonne Kilometres Total weight of all products carried i.e. passengers, cargo, mail and excess baggage on the aircraft times the kilometre distance travelled.RPK: Revenue Passenger Kilomentres Number of revenue passengers carried times the kilometre distance travelled.ASK: Available Seat Kilometres Number of saleable seats on the aircraft times the kilometre distance travelled.

AIR PACIFIC LTD10 YEAR STATISTICS

2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 1999/00 1998/99 1997/98

FINANCIAL FINANCIAL Revenue (000) $486,706 $449,389 $440,651 $421,699 $407,502 Revenue (000) $357,703 $266,145 $391,066 $309,279 $236,612Expenditure (000) $479,024 $427,928 $404,721 $387,061 $382,362 Expenditure (000) $348,028 $305,701 $360,625 $286,728 $226,667Operating Profit/(Loss) (000) $7,682 $21,461 $35,930 $34,638 $25,141 Operating Profit/(Loss) (000) $9,675 ($39,556) $30,441 $22,551 $9,945Cost per ATK 70.3c 62.3c 56.7c 54.8c 65.6c Cost per ATK 65.0c 58.7c 47.9c 51.1c 45.0c Yield per RTK 109.5c 99.9c 100.9c 104.8c 111.6c Yield per RTK 109.2c 102.1c 105.9c 101.8c 92.9cPaid up Capital as at 31 March (000) $26,093 $26,093 $26,093 $26,093 $26,093 Paid up Capital as at 31 March (000) $26,093 $26,093 $26,093 $26,093 $19,480 OPERATIONS OPERATIONS Unduplicated Route Km as at 31 March 60,072 58,434 52,095 45,798 47,729 Unduplicated Route Km as at 31 March 54,629 63,296 73,920 73,920 69,606Available Tonne Km (000) 681,368 686,516 713,871 706,831 583,149 Available Tonne Km (000) 535,816 521,073 752,478 560,579 503,151 AIRCRAFT UTILISATION AIRCRAFT UTILISATION (Actual Hours per Aircraft Type) (Actual Hours per Aircraft Type)B744 7,310 7,648 7,625 6,141 - B744 - - - - - B747 - - - 802 4,810 B747 4,431 4,805 8,656 5,791 5,128B767 5,320 5,369 5,226 5,005 5,347 B767 4,263 3,099 4,361 4,348 4,451B737-500 - - - - - B737-500 - - 1,290 3,864 3,865B737-300 - - - - - B737-300 - - 322 3,379 3,624B737-700 3,610 2,881 2,084 1,702 4,017 B737-700 3,259 2,363 3,254 1,498 - B737-800 8,203 7,644 7,757 7,466 8,562 B737-800 7,811 6,752 5,154 - -

TRAFFIC TRAFFIC (Excluding Charters to Other Airlines) (Excluding Charters to Other Airlines)Passengers Carried 642,549 596,285 595,019 540,987 453,709 Passengers Carried 415,521 327,150 458,167 411,926 338,222Revenue Passenger Kilometres (000) 3,451,184 3,310,339 3,353,836 3,214,889 2,871,589 Revenue Passenger Kilometres (000) 2,537,301 1,986,607 2,845,622 2,356,076 1,977,294Available Seat Kilometres (000) 5,190,067 5,188,082 5,093,797 4,734,289 3,956,884 Available Seat Kilometres (000) 3,605,558 3,500,752 5,129,456 3,969,885 3,575,480Revenue Seat Factor 66.5% 63.8% 65.8% 67.9% 72.6% Revenue Seat Factor 70.4% 56.7% 55.5% 59.3% 55.3% Cargo & Excess Baggage Tonne Kilometres (000) 69,855 92,399 80,320 66,389 66,206 Cargo & Excess Baggage Tonne Kilometres (000) 65,171 67,684 99,552 78,831 66,848Mail Tonne Kilometres (000) 776 951 830 777 939 Mail Tonne Kilometres (000) 879 682 791 496 566Revenue Tonne Kilometres (000) 444,520 449,627 436,631 402,493 365,031 Revenue Tonne Kilometres (000) 327,434 260,609 369,172 303,741 254,826Revenue Load Factor 65.2% 65.5% 61.2% 56.8% 62.6% Revenue Load Factor 61.1% 50.0% 49.1% 54.2% 50.6%

AVERAGE KM FLOWN BY PASSENGER AVERAGE KM FLOWN BY PASSENGER Average all Services 5,371 5,552 5,637 5,943 6,329 Average all Services 6,106 6,072 6,211 5,720 5,846 PERSONNEL PERSONNEL Average Staff Strength 771 754 747 730 675 Average Staff Strength 672 707 725 721 772Revenue per Employee $631,266 $596,006 $589,895 $577,670 $603,707 Revenue per Employee $532,560 $376,531 $539,401 $428,958 $306,492ATKs per Employee 883,746 910,499 955,651 968,261 863,924 ATKs per Employee 797,741 737,194 1,037,901 777,502 651,749Expenditure per Employee $621,302 $567,544 $541,796 $530,221 $566,462 Expenditure per Employee $518,156 $432,493 $497,414 $407,681 $293,610

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DEFINITIONSCargo & Excess Baggage Tonne Kilometres: Total weight of cargo and excess baggage carried times the kilometre distance travelled.Mail Tonne Kilometres: Weight of mail carried times the kilometre distance travelled.Revenue Seat Factor: Revenue Passenger Kilometres expressed as a percentage of Available Seat Kilometres.Revenue Load Factor: Revenue Tonne Kilometres expressed as a percentage of Available Tonne Kilometres. Note: All weights are expressed in metric tonnes.

AIR PACIFIC LTD10 YEAR STATISTICS

2006/07 2005/06 2004/05 2003/04 2002/03 2001/02 2000/01 1999/00 1998/99 1997/98

FINANCIAL FINANCIAL Revenue (000) $486,706 $449,389 $440,651 $421,699 $407,502 Revenue (000) $357,703 $266,145 $391,066 $309,279 $236,612Expenditure (000) $479,024 $427,928 $404,721 $387,061 $382,362 Expenditure (000) $348,028 $305,701 $360,625 $286,728 $226,667Operating Profit/(Loss) (000) $7,682 $21,461 $35,930 $34,638 $25,141 Operating Profit/(Loss) (000) $9,675 ($39,556) $30,441 $22,551 $9,945Cost per ATK 70.3c 62.3c 56.7c 54.8c 65.6c Cost per ATK 65.0c 58.7c 47.9c 51.1c 45.0c Yield per RTK 109.5c 99.9c 100.9c 104.8c 111.6c Yield per RTK 109.2c 102.1c 105.9c 101.8c 92.9cPaid up Capital as at 31 March (000) $26,093 $26,093 $26,093 $26,093 $26,093 Paid up Capital as at 31 March (000) $26,093 $26,093 $26,093 $26,093 $19,480 OPERATIONS OPERATIONS Unduplicated Route Km as at 31 March 60,072 58,434 52,095 45,798 47,729 Unduplicated Route Km as at 31 March 54,629 63,296 73,920 73,920 69,606Available Tonne Km (000) 681,368 686,516 713,871 706,831 583,149 Available Tonne Km (000) 535,816 521,073 752,478 560,579 503,151 AIRCRAFT UTILISATION AIRCRAFT UTILISATION (Actual Hours per Aircraft Type) (Actual Hours per Aircraft Type)B744 7,310 7,648 7,625 6,141 - B744 - - - - - B747 - - - 802 4,810 B747 4,431 4,805 8,656 5,791 5,128B767 5,320 5,369 5,226 5,005 5,347 B767 4,263 3,099 4,361 4,348 4,451B737-500 - - - - - B737-500 - - 1,290 3,864 3,865B737-300 - - - - - B737-300 - - 322 3,379 3,624B737-700 3,610 2,881 2,084 1,702 4,017 B737-700 3,259 2,363 3,254 1,498 - B737-800 8,203 7,644 7,757 7,466 8,562 B737-800 7,811 6,752 5,154 - -

TRAFFIC TRAFFIC (Excluding Charters to Other Airlines) (Excluding Charters to Other Airlines)Passengers Carried 642,549 596,285 595,019 540,987 453,709 Passengers Carried 415,521 327,150 458,167 411,926 338,222Revenue Passenger Kilometres (000) 3,451,184 3,310,339 3,353,836 3,214,889 2,871,589 Revenue Passenger Kilometres (000) 2,537,301 1,986,607 2,845,622 2,356,076 1,977,294Available Seat Kilometres (000) 5,190,067 5,188,082 5,093,797 4,734,289 3,956,884 Available Seat Kilometres (000) 3,605,558 3,500,752 5,129,456 3,969,885 3,575,480Revenue Seat Factor 66.5% 63.8% 65.8% 67.9% 72.6% Revenue Seat Factor 70.4% 56.7% 55.5% 59.3% 55.3% Cargo & Excess Baggage Tonne Kilometres (000) 69,855 92,399 80,320 66,389 66,206 Cargo & Excess Baggage Tonne Kilometres (000) 65,171 67,684 99,552 78,831 66,848Mail Tonne Kilometres (000) 776 951 830 777 939 Mail Tonne Kilometres (000) 879 682 791 496 566Revenue Tonne Kilometres (000) 444,520 449,627 436,631 402,493 365,031 Revenue Tonne Kilometres (000) 327,434 260,609 369,172 303,741 254,826Revenue Load Factor 65.2% 65.5% 61.2% 56.8% 62.6% Revenue Load Factor 61.1% 50.0% 49.1% 54.2% 50.6%

AVERAGE KM FLOWN BY PASSENGER AVERAGE KM FLOWN BY PASSENGER Average all Services 5,371 5,552 5,637 5,943 6,329 Average all Services 6,106 6,072 6,211 5,720 5,846 PERSONNEL PERSONNEL Average Staff Strength 771 754 747 730 675 Average Staff Strength 672 707 725 721 772Revenue per Employee $631,266 $596,006 $589,895 $577,670 $603,707 Revenue per Employee $532,560 $376,531 $539,401 $428,958 $306,492ATKs per Employee 883,746 910,499 955,651 968,261 863,924 ATKs per Employee 797,741 737,194 1,037,901 777,502 651,749Expenditure per Employee $621,302 $567,544 $541,796 $530,221 $566,462 Expenditure per Employee $518,156 $432,493 $497,414 $407,681 $293,610

Air Pacific 2007 Annual Report

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