Annual Report 2020

CONTENTS

3

REVIEW OF THE YEAR 2020

5

THE REPORT OF THE BOARD OF DIRECTORS44

FINANCIAL STATEMENTS

98

CORPORATE GOVERNANCE STATEMENT

117

REMUNERATION REPORT122

SUSTAINABILITY APPENDIXREVIEW OF
THE YEAR 2020

Review of
the year 2020

IN 2020, WE RAISEDAPPROXIMATELY 1.8 BILLIONEUROS OF NEW FINANCING
3

THE REPORT OF THE
BOARD OF DIRECTORSThe year 2020 will go down in history
as the most difficult peacetime year incommercial aviation’s 100 years of existence.
The COVID-19 pandemic has been first andforemost a human crisis and health crisis
that has touched hundreds of millions ofpeople. It has also been a severe crisis
for aviation and for the tens of millions ofpeople globally whose livelihoods depend on
international travel, including us at Finnair.
Yet in this uncharted territory we have built
a path for ourselves through the pandemic.
For that, Finnair’s Executive Board and theBoard of Directors are deeply grateful tothe entire Finnair team. The commitment
and resilience of our people during this yearof challenges is a source of inspiration andhope.
Amid lockdowns and exceptional restrictions
to travel across countries and continents,
airlines suffered massive losses as passenger
flows diminished. During the year, we carried
3.5 million passengers (14.7) and our revenue
for the year shrank to 829.2 million euros(3,097.7); a drop of more than 70 per cent on
both measures. Our comparable operating
result was -595.3 million euros (162.8). Ouroperating result was -464.5 million euros

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX(160.0) and the result for the period was-523.2 million euros (74.5).
In the spring, we operated with a capacityof a few per cent only, maintaining criticalconnections for Finland to key European cities.
Even if people did not travel, goods had tokeep moving and we quickly ramped up ourcargo-only operations. All in all, we operated
over 1,300 cargo flights during 2020, andcargo, supported by the shortage of capacity
and increased prices in the market, played asignificant role in our revenue. Among otherthings, cargo included goods and equipment
for managing the pandemic. In summer 2020,
we started increasing the number of passenger
flights, but the pandemic situation continued
to be challenging and we operated a limited
network of approximately 50 destinations and
75 daily flights throughout the rest of the year.
We paid over 460 million euros in refunds
for cancelled flights to our customers. Our
health-related measures and flexible booking
terms enabled travelling for those who
needed to travel. Customers appreciated ouractions and our net promoter score (NPS)
rose to record heights during the year. In thelast quarter, our NPS was 52. We are gratefulfor the trust our customers have shown us.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE IMPORTANCE OF
SOCIAL AND ECONOMICRESPONSIBILITIES WASHIGHLIGHTED

THE REPORT OF THE
BOARD OF DIRECTORS

During the year, we concentrated on securing
the continuation of operations and our longterm competitiveness in a post-pandemic
market that will be different from what it was
before the pandemic. Our financing measures
were timely and comprehensive with which
we secured our equity and cash position.
We raised approximately 1.8 billion euros of
new financing including an oversubscribedrights issue of over 500 million euros. In
addition, together with the State of Finland,
we are preparing a hybrid loan of up to 400
million euros, which awaits EU approval. The
support from the State of Finland and othershareholders has been critically important inthis situation.
We made overarching adjustments to ouroperations and processes during the year
and reduced costs by over 1.5 billion euros
compared to 2019. Of this, 30 per centwas fuel related. Almost all our personnel
were furloughed for a part of the year and,
unfortunately, furloughs continue for alarge share of our personnel. Our savings
programme, targeting a permanent reductionof 140 million euros with full run-rate impact
in 2022, proceeded well as we sought savings
from all parts of our operations. With thesedecisions, the number of personnel at Finnair
decreases altogether by 1,100 persons

4

FINANCIALSTATEMENTS

through reductions, ending of fixed-term
contracts, retirements, and natural attrition.
The job losses are saddening, but necessary.
To support redundant employees find newjobs, we have collaborated with employment
authorities and training organisations to build
a comprehensive NEXT programme that has
started with encouraging results.
In making decisions that are crucial for
Finnair’s survival and future, our long-term
strategy and Finnair values have been ourcompass. The Finnair team have shown theirability to renew ways of working in a rapidlychanging environment. Our employee satisfaction survey shows that our value of working
together has strengthened during the year. As ateam, we have grown stronger amidst the enormous challenges brought by the pandemic.
In the long-term, only a profitable company canshoulder its responsibilities and be a positive
force in society. Our key target during 2020
was to ensure Finnair’s long-term future, ourability to continue to implement our strategy,
and our ability to continue to offer excellent
flight connections and employment for Finland.
We need profitability and investment capability
also for reducing our emissions because newtechnology plays a key role in solving theclimate challenge.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTThe cornerstone of our strategy, the fuelefficient route between Europe and Asia,
enabled by the location of our Helsinki hub,supports global CO2 emission targets. Thismeans that Finland and Finnair can bringsolutions larger than their size to climate
action. The rebuild of our operations enables
us to come back better, and we intend toensure that our emissions do not increase atpace with traffic recovery.
Year 2020 showed concretely how tightly
environmental, social, and economic
responsibilities are interlinked. While CO2
emissions from aviation decreased during
2020, tens of thousands of jobs were lost inaviation and the global travel industry faced
severe difficulties. We saw this also in ourhome market. Air connections provided by
Finnair play a significant role in the Finnish
economy, both for export companies and for
the Finnish travel industry.
At Finnair, sustainability is not a separate
department or process, but an integral
part of everything we do. In line with this,we report sustainability as a part of ourannual report. Finnair’s Annual General
Meeting approved in 2020 an amendment
to our articles of association, enabling us toparticipate more actively in activities thatSUSTAINABILITY
APPENDIX

secure the acceptability of Finnair’s businessand its long-term profitability, such as taking
alternative fuels into use. This change in our
articles of association brought sustainability
to the core of our operations, where it
belongs.
We expect travel to begin to recover fromsummer 2021 onwards as vaccination
coverage increases and countries startlifting their travel restrictions. We intend tocome out stronger and serve our customers
even better when the market starts moving.
We have enhanced the agility of ouroperations so that we can act fast when ourcustomers are again ready to travel.
The year 2020 showed how essential
it is to balance social, economic, andenvironmental aspects of sustainability.
This is a good guideline also in our rebuild
phase, which we start now with the Finnairteam, our customers, and our partners. We
look forward to welcoming our customers
on board again, calling our colleagues at
Finnair back to work, and being able tobring strong value to Finland and to ourshareholders again.

Topi Manner, President and CEO
Anne Larilahti, VP Sustainability

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXThe Report ofthe Board of Directors
6

Business model and operational
environment
10 Financial performance in 2020
15 Financial position and capital
expenditure
18 Fleet
19 Strategy implementation
22 Financial performance 2016–2020
23 Non-financial performance 2020
28 Changes in company management
29 Shares and shareholders
33 Finnair’s risk management principles

535 Significant near-term risks anduncertainties
37 Seasonal variation and sensitivities inbusiness operations
39 Outlook
40 Performance indicators classified asalternative performance measures
42 Reconciliation of performanceindicators classified as alternative
performance measures
43 Other performance indicators

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Business modeland operational
environment

VISIONSHAPING THE
WONDERSOF TRAVEL WITH YOUMISSION
INSPIRE YOU TOEFFORTLESSLYCONNECT AND
EXPERIENCE
THE WORLD IN A MORESUSTAINABLE WAY

6

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair is a network airline that specialises in passenger and cargo traffic between
Asia and Europe. It also offers package
tours under its Aurinkomatkat-Suntours(later Aurinkomatkat) and Finnair Holidays
brands.
The cornerstone of Finnair’s strategy is
its geographical position, which confers acompetitive advantage because it enables
the fastest connections in the growing
market of air traffic between Asia andEurope.
Finnair’s business is impacted by the four
megatrends described in the adjacentpicture. They offer numerous opportunities, but also add new requirements for
conducting business.
Finnair’s business is cyclical in nature, andin addition to long-term megatrends, it
is heavily influenced by external factors
described in the picture on the next page.
Of these external factors, the COVID-19
pandemic had an unprecedented impact
on Finnair’s business in 2020. As many
countries heavily restricted travelling, thecompany was forced to cut its passenger

FINANCIALSTATEMENTS

traffic capacity by over 70 per cent measured in available seat kilometres (ASK) and,thus, total revenue declined by more than70 per cent. Finnair adjusted its operations
significantly which resulted in temporary
and permanent layoffs impacting almost all
personnel during the majority of 2020. Also
other significant volume-driven, but also
permanent, cost adjustment measures wereintroduced to minimise the losses caused by
the very limited operations since Q1 and to
make sure that the company will be competitive and will operate from a more efficient
cost base when passenger traffic gradually
starts to recover. For some time, Finnair will
be a smaller company and, therefore, thenumber of employees was adjusted downwards by approximately 600.
The timing of the recovery in demand will
primarily depend on the implementationof the vaccination programmes, lifting oftravel restrictions and global acceptance ofvaccine passports. Finnair is prepared fora range of outcomes with three different
recovery scenarios, namely an optimistic
case, a base case and a pessimistic case,and is ready to react in an agile and timely
manner to changing circumstances. In the
scenarios, the recovery is expected to mate-

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXMEGATRENDS IMPACTING FINNAIR’S BUSINESS

Increasing significance of sustainability

Urbanisation

Technological progress, increase in the significance of network connections and digitalisation

Shift in economic and political focus from theUnited States and Europe to developing countries

Read more on Finnair’s website.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

rially begin in June, August or October 2021,
respectively. The base case scenario is
considered the most probable of the three.

Business environment in 2020

significantly cut their capacity due to thecontinued strict travel restrictions and theresulting lack of demand for passenger air
travel. This also applied to Finnair, as it cut
its network significantly at the end of Q1.
During Q2, the company only maintained
the flight connections that were critical for
Finland. The number of flights increasedslightly starting from Q3, but the annual
capacity (ASK) in 2020 was only c. 27 percent compared to 2019. Thus, it became
evident in mid-March that Finnair’s performance would not align with the outlook
it had provided in connection with the Q42019 result. As the pandemic is still present
globally, and COVID-19 vaccinations started
only a few weeks ago, Finnair estimates that
it will only be able to meaningfully increase
its traffic starting from the summer of 2021.
The company currently estimates that its
2019 traffic levels measured in ASKs will bereached in 2023.

Early Q1 was still in line with expectations and in accordance with Finnair’s
outlook, even though the first signs of the
COVID-19 pandemic were already visible.
Starting from March, the pandemic drastically impacted the global aviation sector,
including Finnair’s operations. As a result,airlines the world over were forced toStarting from late Q1, market capacity
between Helsinki and many European destinations declined drastically year-on-year.
Measured in ASKs, the scheduled market
capacity between origin Helsinki and
Finnair’s European destinations decreased
by 68.2 per cent (+2.9) compared to

In 2020, Finnair carried out an extensive financing programme, consisting ofe.g. a 500-million-euro rights offering, a
600-million-euro pension premium loan,
several aircraft financing transactions
and up to 400-million-euro hybrid loan
the company is preparing together with
the State of Finland. Due to these measures, Finnair expects to be able to execute
its strategy and business model even if the
impacts of the pandemic were to result infurther deterioration of the demand for air
travel from currently forecasted levels. The
impact of COVID-19 on Finnair’s strategy
is described in more detail in the strategy
section.

7

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

EXTERNAL FACTORS INFLUENCING AIRLINESCHANGES IN CONSUMER PREFERENCE, EXPECTATIONS,PURCHASING PATTERNS AND DEMOGRAPHICS
PRICE OFJET FUELGLOBALECONOMIC CYCLESEXCHANGERATESSEASONALITY IN LEISURE
AND BUSINESS TRAVELPOLITICAL ENVIRONMENT
AND REGULATIONWEATHER,
NATURAL DISASTERS,PANDEMICS AND OTHER
EXTERNAL SHOCKS

2019. After Q1, demand on European anddomestic routes was soft due to the COVID19-related route and frequency cancellations as well as strict travel restrictions.
Similarly, direct market capacity between
Finnair’s Asian and European destinations decreased by 70.4 per cent (+4.5)
year-on-year and the COVID-19 impact
was already visible in Q1 as many Chineseroutes were suspended. Due to continued
travel restrictions, demand between Europe
and Finnair’s Asian destinations strongly
declined during 2020.
Finnair engages in closer cooperation withcertain oneworld partners through partici-

pation in joint businesses, namely the Siberian Joint Business (SJB) on flights between
Europe and Japan, and the Atlantic Joint
Businesses (AJB) on flights between Europe
and North America. During the pandemic,
Finnair and its JB partners have continued
to work together to ensure the uninterrupted delivery of efficiencies and customer
benefits, despite the severely reduced
capacity and revenues. Further, Finnair
continued the preparations to launch a Joint
Business with Juneyao Airlines in H1 2021.
Customer demand for package holidays inthe beginning of the first quarter was still
stronger than during Q1 2019 and, at the

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

STRONG DEMAND FOR CARGOALLEVIATED THE DECLINE IN
FINNAIR’S CARGO REVENUEYEAR-ON-YEAR

8

THE REPORT OF THE
BOARD OF DIRECTORS

same time, travel services allotment-based
package holiday capacity was lower than in
the comparison period. COVID-19 started
to negatively affect demand in February,
and holiday production was interrupted
in mid-March following the travel restrictions set by the authorities in Finland as
well as at the destinations. As a result,customer demand for package holidays
declined significantly in the spring. During
the summer, demand for package holidays started to recover but production
remained low. In Q3, Aurinkomatkat introduced domestic package holidays and theirdemand has been stronger than expected.
During Q4, Aurinkomatkat produced only
domestic holiday packages. Even though
there were promising signs of a demand
recovery in late 2020 especially related tosummer 2021 and winter 2021–2022, theoutlook for the year 2021 continues to be
uncertain and is dependent on COVID-19
developments and related travel restrictions as well as the recovery of customer
demand.

FINANCIALSTATEMENTS

The global air freight market was alsoheavily impacted by COVID-19 in 2020,
decreasing industry cargo volumes significantly as the scheduled traffic capacity
decreased beginning in late Q1. On theother hand, the market for cargo-only operations was available throughout 2020 and,
therefore, Finnair was gradually able to also
increase the number of scheduled Asian
flights carrying belly cargo despite thelow passenger load factor as demand forcargo remained strong. This also alleviatedthe decline in Finnair’s cargo revenue that
resulted from lower cargo volumes year-onyear. The total cargo load factor increased
significantly compared to 2019. Finnair estimates that a similar cargo demand trend
will continue at least during Q1 2021.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

comparison period, but this decline does
not fully impact Finnair’s 2020 fuel costs
due to its hedging policy. Finnair hedges
its fuel purchases and key foreign currency
items; hence, market fluctuations are notreflected directly in its result. Finnair’s
2020 fuel bill, however, decreased significantly due to the capacity decline. As aconsequence, Finnair has also temporarilychanged the lower limit its degree of fuelhedging to 0 per cent.

The US dollar, which is the most significant
expense currency for Finnair after the euro,
depreciated by 2.0 per cent against the euro
year-on-year. The market price of jet fuelwas 43.1 per cent lower in 2020 than in the

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCAPITALSREMUNERATIONREPORTSUSTAINABILITY
APPENDIXIMPACT

BUSINESS ACTIVITIES

Human

Customer Service And Products

Support Services

Increasing Value For Society• Competent Personnel

Finnair and Oneworld Global network
Passenger and cargo traffic
Ancillary services
Package tours
Dynamic travel products

Catering
Aircraft Maintenance
Ground Handling
Airline Training• Enabling safe and free movement of people,
goods and services• Improving Cultural, Societal and Commercial
interaction• Participating and inspiring cross-industry
collaboration• Economic multiplier effects for the Finnish
societyIntellectual And Social• Suppliers and partners• Joint businesses (AJB/SJB)
and alliance cooperation• Distribution channels• Public affairs

STRATEGY AND VALUESIntangible
•
•
•
•
•
•

Traffic & overflight right
Customer base and data
Quality certifications
Route network
Brand
Articles of Association

COMMITMENTTO CARENETWORKAND FLEET

Financial And Material

Natural Resources
•
•
•
•
•

Fuel use (jet and ground)
Energy consumption of facilities
Water use
Purchased goods
Material use

MODERNPREMIUM
AIRLINE

Sustainable Growth

WORKINGTOGETHER• Producing direct and indirect employment(e.g. tourism, international trade and foreign
investments)• Venturing out of our traditional business to findsolutions for our core
• Producing value for shareholders‘ investments• Increased brand value

Satisfied & Competent Personnel• Adjusted interest-bearing
debt €2197,5 million• Equity capital €896,6 million• Modern and efficient fleetof 83 aircraft• COOL Nordic Cargo Terminal,
Helsinki Hub• Maintenance Facilities• Catering Facilities

9

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

•
•
•
•

CULTURE
AND WAYS OFWORKING

Equal opportunities for Personnel
Good Governance
Safe and Healthy work
Support and respect of labour and human rights

Environmental Impact
OPERATIONAL
EXCELLENCESIMPLICITYSUSTAINABILITYCOURAGE••••Air Emissions (CO2 and non-CO2)
Noise Emissions
Liquid waste (De-icing fluids )Material Waste

PURPOSE: ENRICHING LIFE BY BRIDGING THE WORLDANNUAL REPORT 2020

As there was only one passenger flight in
Q2 and none in Q3 or Q4, capacity on North

Also in European traffic, capacity decreased
due to the COVID-19 impact by 71.7 per cent.
RPKs decreased by 78.3 per cent and the
PLF was down by 18.8 percentage points to62.1 per cent.

3,097.7 -958.9-949.6-115.5

lo

ca

20

d
te

tic
al
Un

Do

m

es

pe
ro
Eu

ic
nt
la

-74.3 829.2

20-170.2At

The COVID-19 pandemic had an impact
on the Asian traffic figures beginning in
February; the impact was significant in all
traffic areas from March. This resulted ina material decline in 2020 traffic figures.
Passenger revenue decreased by 78.7 percent and passenger traffic capacity, measured in Available Seat Kilometres (ASK),
declined by 72.6 per cent overall against
the comparison period. The number ofpassengers decreased by 76.2 per cent€ millionia

Passenger traffic

In Asian traffic, capacity declined significantly starting from February and there
were only a few scheduled flights in Q2 anda limited number in Q3 and Q4. Even though
the number of scheduled flights increased
somewhat in Q3 and Q4 from Q2, ASKs were
nevertheless down by 73.6 per cent in 2020.
In total Asian traffic, RPKs decreased by80.1 per cent and the PLF decreased by 20.6
percentage points to 62.3 per cent. The low
PLF causing low yields in Q2–Q4 were, however, supported by the strong Asian cargo
operations and a very high cargo load factor.

Revenue bridge by traffic areah

Unit revenue (RASK) decreased by 2.4
per cent and amounted 6.41 cents (6.56).
The unit revenue at constant currency
decreased by 2.0 per cent.

SUSTAINABILITY
APPENDIX

Atlantic routes decreased by 79.1 per centyear-on-year even though Q1 was still positive due to a new route, Los Angeles, thatwas opened at the end of March 2019 andad hoc frequencies that were added in February when COVID-19 ­measures prompted
cancelled frequencies from Asia. In total,
North Atlantic traffic (RPKs) decreased by
81.4 per cent and the PLF decreased by 9.1
percentage points to 76.2 per cent.

rt

In 2020, Finnair’s revenue decreased significantly due to the impact of the COVID-19
pandemic.

to 3,485,600 passengers. Traffic measured in Revenue Passenger Kilometres(RPK) decreased by 78.8 per cent and thepassenger load factor (PLF) decreased by
18.7 percentage points to 63.0 per cent.

REMUNERATIONREPORT

As

Revenue

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

No

Financialperformance in
2020

THE REPORT OF THE
BOARD OF DIRECTORS20
19REVIEW OF
THE YEAR 2020

Due to the same reasons, domestic traffic
capacity decreased by 54.7 per cent. RPKs
decreased by 58.4 per cent and the PLF
decreased by 5.4 percentage points to 60.2
per cent.

Passenger revenue and traffic data by area, 2020

10

Passenger revenue
Share %
Change, %Traffic area

MEUR

Asia
North Atlantic
EuropeDomestic
Unallocated

186.0
26.4
244.6
69.1
1.9

35.2
5.0
46.3
13.1
0.4

Total

528.1

100.0

ASK

RPK

PLF
Change, %-pMill. km

Change, %Mill. km

Change, %

%

-82.8
-85.3
-75.5
-61.9
-95.0

6,155.9848.9
5,061.1
871.5

-73.6
-79.1
-71.7
-54.7

3,837.7647.1
3,140.5
524.7

-80.1
-81.4
-78.3
-58.4

62.3
76.2
62.1
60.2

-20.6
-9.1
-18.8
-5.4

-78.7

12,937.5-72.6

8,150.0

-78.8

63.0

-18.7

ANNUAL REPORT 2020

Travel services€ million
3,097.7 -1,951.7

vi
er

20

ls

20

s
ce

o
rg

829.2

Tr
av
e

ry
la

-168.4

An

c il

-34.4

Ca

en
ev

an
re d reve t an u ileue-113.9rr

Due to the limited number of scheduled
flights – especially in Q2, but also in Q3 andQ4 – the impact of the COVID-19 pandemic
was visible in Finnair’s 2020 cargo volumes.
Finnair commenced its cargo-only operations in April as demand was strong in themarket due to overall lack of capacity. In Q3,
Finnair was able to increase the number of
Asian scheduled passenger flights carrying
belly cargo as the cargo demand remained
strong even though the passenger load

SUSTAINABILITY
APPENDIX

Revenue bridge by product

ge

Cargo

days and dynamic products in Q2. Further,
Aurinko Estonia operations were discontinued at the end of 2019. As a result, there
was no travel services revenue in Q2 and Q3
saw only a limited amount of production.
On the other hand, Aurinkomatkat opened
domestic package holidays for sale during
Q3 and their demand has been stronger
than estimated. In Q4, Aurinkomatkat
produced only domestic package holidays.
The total number of travel services passengers declined by 81.7 per cent and the loadfactor in Aurinkomatkat’s allotment-based
capacity was 94.5 per cent. Travel services
revenue decreased by 73.4 per cent.

20
19Ancillary revenue consisting of e.g. various
service fees and inflight sales decreased by
64.6 per cent, mainly due to the low number of passengers, especially in Q2–Q4. In
addition to service charges, advance seatreservations and excess baggage were thelargest ancillary categories.

factor was low. The same trend continued
in Q4. In 2020, available scheduled cargo
tonne kilometres decreased by 73.9 per
cent, whereas revenue scheduled cargo
tonne kilometres decreased by 73.2 per
cent. However, cargo related available
tonne kilometres decreased by 61.6 per centand revenue tonne kilometres decreasedby 55.6 per cent as they included also
the cargo-only flights operated primarily
between Asia and Europe but also between
Europe and North America. Cargo revenue
decreased only by 16.2 per cent.

REMUNERATIONREPORT

en

Ancillary

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

ss

THE REPORT OF THE
BOARD OF DIRECTORSPaREVIEW OF
THE YEAR 2020

Despite the improved package holiday
demand in early Q1, travel services development was negatively affected by the lower
allotment-based capacity in Q1 caused by
COVID-19 and later temporarily cancelled
production both in allotment-based holi-

Revenue by product11

EUR million

2020

2019

Change %Passenger revenue
Ancillary revenue
Cargo
Travel services

528.1
62.3
177.7
61.1

2,479.8
176.2
212.1
229.5

-78.7
-64.6
-16.2
-73.4

Total

829.2

3,097.7-73.2

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

Cost development
In 2020, Finnair’s operating expenses
decreased notably less than the decline inrevenue, due to certain fixed cost items.
Finnair has, however, introduced significant cost adjustment initiatives, including
temporary and permanent layoffs, due tothe COVID-19 impact; their effect was visible
in Q2–Q4.
Unit cost (CASK) increased by 77.0 per
cent and totalled 11.01 cents (6.22). CASK
excluding fuel increased by 93.4 per centand totalled 9.21 cents (4.76). The surges
were caused by the limited capacity startingfrom Q2 and certain fixed cost items.

1

Fuel price including impact of currencies and hedging.

12

Operating expenses excluding fueldecreased by 46.2 per cent. Fuel costs,
including hedging results and emissions
trading costs, decreased mainly due to
COVID-19-related capacity cuts and this was
visible especially in Q2–Q4 although theprice impact mitigated it.1 Fuel efficiency(as measured by fuel consumption per ASK)
weakened by 17.7 per cent. Fuel consumption per RTK, which also accounts for developments in both passenger and cargo loadfactors, increased by 20.8 per cent.

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENT

Staff and other crew related costs decreased
as capacity was cut significantly and Finnaircommenced the majority of its planned
temporary layoffs in April 2020 and, thus,
the effect was visible starting from Q2.
On the other hand, items maintaining thecosts were summer holidays in the middleof temporary layoffs, fixed pension fundcosts, an increase in the employer’s healthinsurance contribution in 2020 and a salary
increase due to recently negotiated CLAs.

Operating expenses included incomparable operating result

Passenger and handling costs (including
also tour operation expenses related toe.g. hotels) were driven down by volume
declines in both passenger and cargo traffic.
The category also includes tour operation
expenses.

Key figures – Revenue and profitability

Sales, marketing and distribution costs
decreased even more than revenue due to a
decline in sales commissions and payment
costs added to material marketing costsavings. Further, some booking fees paid,
particularly in Q1, were credited due to thewave of COVID-19-related flight cancellations.
Aircraft materials and overhaul costs also
decreased and notably in Q1, they were

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX€ million
3,500
3,000

2,991.3

2,500

Staff and other crew related
costs, change -47%

Sales, marketing anddistribution costs, change -84%

2,000

Fuel costs, change -66%
Capacity rents, change -31%

Passenger and handlingservices, change -65%

Aircraft materials andoverhaul, change -48%

Depreciation and impairment,change 6%

Traffic charges, change -66%

Property, IT and otherexpenses, change -17%

1,472.9

1,500
1,000
500
0

2019

2020

2020

2019

2018

2017

2016

Revenue
EUR mill.
829.2
3,097.7
2,836.1
2,568.4
2,316.8change from previous year
%
-73.2
9.2
10.4
10.9
2.8
Comparable operating result
EUR mill.
-595.3
162.8
218.4
170.4
55.2
Comparable operating result of
%
-71.8
5.3
7.7
6.6
2.4
revenue
EUR mill.
-558.9205.7
218.4
Comparable operating result
at constant currency and fuelprice*
Operating result
EUR mill.
-464.5
160.0
256.3
224.8
116.2
Comparable EBITDA of revenue
%
-30.3
15.8
18.1
17.0
11.7
Basic and diluted earnings per
EUR
-0.51
0.09
0.13
0.23
0.10
share (EPS)**
Unit revenue per available seatcents/ASK
6.41
6.56
6.69
6.96
6.83
kilometre (RASK)RASK at constant currency*
cents/ASK
6.40
6.53
6.69
Unit revenue per revenue
cents/RPK
6.48
6.44
6.48
6.57
6.71
passenger kilometre (yield)
Unit cost per available seatcents/ASK
11.01
6.22
6.18
6.49
6.67
kilometre (CASK)CASK excluding fuelcents/ASK
9.21
4.76
4.81
5.22
5.22
CASK at constant currency andcents/ASK
10.72
6.10
6.18
fuel price** Key figures at constant currency and fuel price are reported on 2018 level.
** A rights offering was implemented between June and July 2020 and, therefore, 2016-2019 EPS figures have been
restated accordingly.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

positively impacted by a new engine MRO
agreement and related revaluation, but thiswas netted by the decline in the USD-based
discount rates of maintenance reserves.
During Q2–Q4, the capacity decline was themain cause for the cost decrease.
Fleet growth and technical maintenanceincreased depreciation and impairment
costs. Traffic charges decreased somewhat
in line with traffic decline. Capacity rents,
covering purchased traffic from Norra andany wet leases or cargo rents, decreased
from the comparison period due to decline
in capacity despite Norra’s relatively significant operations during Q2–Q4. Property, IT and other expenses were nearly at
the comparison period’s level as they aremainly fixed even though some cost savings
initiatives have already been executed.

ResultFinnair’s 2020 result was heavily impacted
by COVID-19 as the company was forced tocancel tens of thousands of flights and wasable to operate only to a limited numberof destinations as a result of strict travel
restrictions in many countries worldwide
starting from mid-Q1. Therefore, demand
softened significantly.

13

FINANCIALSTATEMENTS

Finnair’s comparable EBITDA and comparable operating result decreased significantly as revenue declined notably morethan operating expenses. Comparable EBIT
margin was -71.8 per cent (5.3), when thetargeted over the cycle level was above 7.5
per cent during the strategy period. The
targeted level will, however, be reassessed
due to the COVID-19 impact.
Unrealised changes in foreign currencies
of fleet overhaul provisions were 12.2
million euros (-1.4) and fair value changesof derivatives where hedge accounting
is not applied totalled -0.2 million euros(1.3). Other items affecting comparability
consisting of changes in defined
benefit plans, sales gains or losses andrestructuring costs totalled 118.7 million
euros (-2.8) of which 132.8 million euros
was related to changes in defined benefit
plans caused by the net impact of Finnair’s
pension fund index increment removals
and pilots’ early retirement costs. Further,-14.9 million euros was related to therestructuring costs caused by the COVID-19
impact. Driven by the changes in thedefined benefit plans, Finnair’s operating
result declined notably less year-on-year
than the comparable operating result.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

2020 result
EUR million

2020

2019

Change %Comparable EBITDA-251.5488.3-151.5

Depreciation and impairment-343.8-325.4

5.6

Comparable operating result-595.3

162.8

<-200

Items affecting comparability

130.8

-2.8

>200

Operating result-464.5

160.0

<-200

Financial income
Financial expenses
Exchange gains and losses
Share of results in associates and joint ventures38.7-255.2
26.6
-

4.8
-83.6
12.7
-0.9

>200
>200
109.5
100.0

Result before taxes-654.4

93.0

<-200

Income taxes

131.1

-18.4

>200

Result for the period-523.2

74.5

<-200

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

FINANCIAL EXPENSES
INCREASED SIGNIFICANTLYDUE TO HEDGING WHICH WAS
RECLASSIFIED FROM OTHERCOMPREHENSIVE INCOME
BUT THIS WAS NETTED BY
MATERIAL COST SAVINGSRELATED TO CHANGES IN
DEFINED BENEFIT PLANS

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Financial expenses increased significantly,
and the growth was mainly related to jet
fuel and foreign exchange hedging. Due
to COVID-19, Finnair operated only limited
capacity and, thus, the underlying fuel priceand foreign exchange exposures did notexist. As a result, Finnair discontinued theapplication of hedge accounting to most of
its fuel and currency hedges and the market
value of those hedges was reclassified to
profit and loss from other comprehensive
income due to IFRS 9 during Q1–Q3. Financial income increased for the same reason,
but the related net expense totalled 136
million euros. Foreign exchange gains weremainly related to USD denominated aircraft
lease payments and liabilities.
Finnair’s result before taxes and result aftertaxes declined more than the other result
key figures primarily due to the increase infinancial expenses.

14

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Financial positionand capital
expenditure

Gearing€ million

%

2,500

200
2,197.5

2,000

153.2%

120

1,500
1,000

896.6

823.7

80

40
24.6%

500
0

160

2019

2020

0

Cash funds
Adjusted Interest-bearing liabilities
EquityGearing

THE REPORT OF THE
BOARD OF DIRECTORS

Balance sheet
The Group’s balance sheet totalled 3,646.5
million euros at the end of the year (3,877.9).
Fleet book value decreased 93.1 million
euros despite the A350 deliveries in
February and September 2020 due to depreciation and two A350 sale-and-leaseback
transactions; the right-of-use fleet increased
by 36.1 million euros despite depreciation
mainly due to the effect of A350 sale-andleaseback transactions. Receivables related
to revenue decreased significantly due to the
COVID-19 impact to 57.5 million euros (160.6).
Netted deferred tax assets have increased
to 84.8 million euros (-64.3) resulting fromtax losses caused by the COVID-19 impact on
Finnair’s result. The pension assets totallingto 31.8 million euros (none in the comparison period) mainly relate to the changes indefined benefit plans (net impact of Finnair’s
pension fund index increment removals
and pilots’ early retirement costs) whereas
pension obligations declined to 1.5 million
euros (77.1) mainly due to the same reason.

Equity ratio

A rights offering was implemented between June andJuly 2020. The shareholders’ equity per share for thecomparison period has been restated accordingly.
2

15

Deferred income and advances received
also decreased significantly to 133.6 million
euros (552.7) mainly due to the decline in

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

ticket related liabilities. The unflown ticket
liability decreased to 55.7 million euros(451.2) mainly as a result of paid out ticket
refunds of 464 million euros related to thecancelled flights.
The loss for the period decreased shareholders’ equity. Shareholders’ equity also
includes a fair value reserve that is affectedby changes in the fair values of jet fuel andcurrency derivatives used for hedging as wellas actuarial gains and losses related to pilots’
defined benefit plans according to IAS 19. The
value of the item at the end of December was-41.8 million euros after deferred taxes (-6.7)
as the decrease in the fair value of hedge
instruments had a decreasing effect onequity especially due to the decline in the jet
fuel price and actuarial losses from defined
benefit pension plans.
During 2020, Finnair booked 502.9 million
euros of net proceeds related to a rights
offering, which was finalised in July. Finnairalso issued a new hybrid bond of 200
million euros in September to refinancethe previous 200-million-euro hybrid bond.
Shareholders’ equity totalled 896.6 million
euros (966.4), or 0.64 euros per share(1.392).

Key figures – Capital structure
Equity ratio
Gearing
Interest-bearing net debt
Interest-bearing net debt /Comparable EBITDA, LTM
Gross capital expenditure
Return on capital employed(ROCE)

2020

2019

2018

2017

2016

%
%
EUR mill.

24.6
153.2
1,373.8
-5.5

24.9
64.3
621.0
1.3

23.3
76.9
706.7
1.4

35.2
24.2
246.0
1.6

33.9
11.2
95.8
2.5

EUR mill.
%

515.9
-15.2

443.8
6.3

474.0
9.3

519.0
13.6

518.9
8.9

Balance sheet€ million
4,000

Assets3,877.9
952.7

3,000

Equity and liabilities

3,646.5

3,646.5

3,877.9
784.1

823.7

437.5
133.6

336.0

279.9

319.5

330.2

2,000

1,000

552.7

2,178.7

2,269.7019

1,574.8

2,212.7

20

896.6

966.4

20

19

Fleet

Other assets

EquityOther fixed assets

Cash and cash equivalents
and other financial assets

Interest-bearing
liabilities

Deferred income andadvances received
Other liabilities

ANNUAL REPORT 2020

16

2019

-1,043.1
351.6
1,001.9

564.5-513.2-225.4

2020

2019

823.7
2,197.5
1,373.8

952.7
1,573.7
621.0

Liquidity and net debt
EUR million
Cash funds
Adjusted interest-bearing liabilities
Interest-bearing net debt

Cash Flow change 2020
Net cash flow frominvesting activities, +351.6

Net cash flow fromoperating activities, -1,043.1€ million

Net cash flow from financing
activities, +1,001.9

1,200

200.0
511.7

800

792.2

872.8

-200.0

-29.6

481.7

400
-353.0-251.5439.9-555.2

7.0

nd

es

ts

th
at
sh

is s
ha

re

Ca

ex

pe

ee

ns

en
ue

re
nd
bo

id

ds

br
Hy

ds
ee

nd

Pr

oc

pa
ym

bo
id
br
hy

m
f ro

b il
lia
se

nd

ue
ei
ar

it y

Sh

re

ss

en

ts

ns

pa
ym

lo a
m
f ro
ds
ee
dl

Hy

br

id

bo

an

ot

ge
an

Ch

Ac

qu

ns

ea

an

oc

c ti
ga
t in

ra
pe
ro
he

Ot

Pr

dd
is p
he
os
rc
als
(m urrofat u e nas
rit t finsey o an
ts
v
c
e
i
a
Ot
r
l
3
he
mo a ssr in
nt et s
ve
hs
s ti
)
ng
ac
tiv
iti
es
in

vit
tio
isi

ie s

-104.3

et
aid
sp

se

le
c ia
an

Fin

Ch

an

ge

in

xp

wo

en

rk

ab
ar
mp

,n

al
pit
ca
in g

le

eg

EB

in n

in g

ITD
A

-243.4

-800

an

-400

16.1

Lo

0

eb

In addition to the currently fully undrawn
175-million-euro revolving credit facility,
Finnair still has a 200-million-euro shortterm commercial paper program, which
was unused at the end of December. The
company also announced in December that
the State of Finland, together with Finnair,
is preparing to make up to 400 million
euros which is expected to be available to
Finnair in Q1 2021 in the form of an unsecured hybrid loan. The possible arrange-

2020

Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities

Co

The equity ratio on 31 December 2020
was almost the same as at the end of 2019
despite the lower result for the period andthe change in the fair value reserve as 502.9
million euros related to the rights offering

SUSTAINABILITY
APPENDIX

EUR millionth

The revolving credit facility includes a financial
covenant based on adjusted gearing. The covenant levelof adjusted gearing was waived during Q2 2020, wasthen reset to 225 per cent until 30 June 2021, reducing to
200 per cent until 30 June 2022 and then to 175 per centthereafter. At the closing date, the figure was 153.2 per
cent.

3

The company’s liquidity remained strong
during the period under review. Even
though Finnair Group’s cash funds declined
due to the purchase of two A350 aircraft(one in Q1 and one in Q3) and negative
net cash flow from operating activities,
the fully-drawn 600-million-euro pension
premium loan, the A350 sale-and-leaseback
transactions in August and December aswell as the export credit agency financing
transaction of an A350 in December netted
the decline. Further, the rights offering net
proceeds of 500.6 million received in cash
also increased the cash funds.

REMUNERATIONREPORT

Cash flowat

In 2020, the COVID-19 impact was clearlyvisible in net cash flow from operating
activities, which turned significantly negative primarily due to working capital movements related to flight cancellations (e.g.
paid ticket refunds of 464 million euros
in total) and the decline in the financial
result. Net cash flow from investments
turned positive mainly due to changes inother current financial assets (maturity overthree months), the A350 sale-and-leaseback transactions in August and December
and lower fleet investments. Also net cash
flow from financing turned positive mainly
due to the fully-drawn 600-million-euro
statutory pension premium loan, the rights
offering net proceeds of 500.6 million
received in cash and the export credit
agency financing transaction of an A350 in
December. The 175-million-euro unsecured
syndicated revolving credit facility3 drawn inMarch was repaid in September. Its maturity
date is in January 2023.

were booked. Gearing, on the contrary, rosesignificantly as interest-bearing net debt
increased.

CORPORATE GOVERNANCE
STATEMENTshCash flow and financial position

FINANCIALSTATEMENTSan

THE REPORT OF THE
BOARD OF DIRECTORSCaREVIEW OF
THE YEAR 2020

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE STATE OF FINLAND,TOGETHER WITH FINNAIR, IS
PREPARING A HYBRID LOAN OF
UP TO 400 MILLION EUROS

THE REPORT OF THE
BOARD OF DIRECTORS

ment is subject to a final decision by the
Finnish Government and it also requires
approval by the EU commission. Further,
Finnair is planning to refinance its existing
200-million-euro senior unsecured bondwhich matures in March 2022.
Interest-bearing liabilities increased from2019 year-end mainly as a result of theA350 sale-and-leaseback transactions, theA350 export credit agency financing andthe pension premium loan. The share oflease liabilities amounted to 1,016.2 million
euros (1,054.0). Interest-bearing net debt
increased from the end of 2019 due to thedecline in cash funds and the increase ininterest-bearing liabilities.

Capital expenditure
Gross capital expenditure, excluding
advance payments, totalled 515.9 million
euros in 2020 (443.8) and was primarily
related to fleet investments.

Fleet value includes right of use assets as well as
prepayments of future aircraft deliveries.
4

17

Cash flow from investments (including
fixed asset investments and divestments,
sublease payments received and advancepayments) totalled -88.3 million euros(-460.6).

FINANCIALSTATEMENTS

Change in other current financial assets(maturity over three months) totalled
439.9 million (-53.4) also forming a part of
the net cash flow from investments, whichamounted to 351.6 million euros (-513.2).
Cash flow from investments (including
only fixed asset investments and advancepayments) for the financial year 2021
relates mainly to fleet and is expected tototal approximately -119 million euros.
Investment cash flow includes bothcommitted investments as well as estimatesfor planned, but not yet committed, investments.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

outlook, financial situation and capitalneeds in the distribution of dividends.
In 2020, earnings per share were -0.51
euros (0.09). Finnair Plc’s distributable
equity amounted to 361,672,701.47 euros on
31 December 2020. The Board of Directors
proposes to the Annual General Meetingthat no dividend be distributed for 2020.

The company has 38 unencumberedaircraft, which account for approximately
46 per cent of the balance sheet value ofthe entire fleet of 2,212.7 million euros.4

Dividend policy and the Board’s
proposal for the distribution of
profit
The aim of Finnair’s dividend policy is topay, on average, at least one-third of theearnings per share as a dividend over an
economic cycle. The aim is to take into
account the company’s earnings trend and

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Fleet

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair’s operating fleet
Finnair’s fleet is managed by Finnair Aircraft
Finance Oy, a wholly-owned subsidiary of
Finnair. At the end of the year, Finnair itself
had 59 aircraft, of which 24 were widebody and 35 narrow-body aircraft. Of theseaircraft, 30 were owned by Finnair Aircraft
Finance Oy and 29 were leased.
At the end of the year, the average age ofthe fleet operated by Finnair was 10.6 years.

Fleet renewal
At the end of the year, Finnair had sixteen
A350 aircraft, which have been delivered
between 2015–2020 and three A350 aircrafton order from Airbus. These aircraft wereoriginally scheduled for delivery from Q22021 to Q2 2022. Based on a new agreed
schedule, the remaining three aircraft
would be delivered to Finnair in Q2 2022, Q42024 and Q1 2025.
In the fourth quarter, Finnair also retired
two of its oldest Airbus A319 aircraft, bothof which were more than 21 years old.

18

FINANCIALSTATEMENTS

Finnair’s investment commitments for property, plant and equipment, totalling 429
million euros, include the upcoming investments in the wide-body fleet.
Finnair has the possibility to adjust thesize of its fleet in line with demand forecasts through the staggered maturities of
its lease agreements and changes in thenumber of owned aircraft.
Finnair continues to proceed with the introduction of the new Premium Economy cabinclass. Due to the COVID-19 impact, the introduction has been postponed from 2021 to
2022.

CORPORATE GOVERNANCE
STATEMENT

Fleet operated by
Finnair* 31.12.2020

Seats

REMUNERATIONREPORT#

Changefrom
31.12.2019

Own**

SUSTAINABILITY
APPENDIX

LeasedNarrow-body fleet
Airbus A319
144
6
-2
5
1
Airbus A320
174
10
8
2
Airbus A321
209
19
4
15
Wide-body fleet
Airbus A330
289/2638
4
4
Airbus A350
297/336
16
2
9
7
Total
59
0
30
29
* Finnair’s Air Operator Certificate (AOC).
** Includes JOLCO-financed (Japanese Operating Lease with Call Option) A350 aircraft.

Fleet operated by
Norra* 31.12.2020

Seats

#

Averageage
31.12.2020

Ordered

19.1
18.4
9.6
11.2
3.4
10.6

Changefrom
31.12.2019

Own**

LeasedAverageage
31.12.2020

ATR
68–72
12
Embraer E190
100
12
Total
24
0
* Nordic Regional Airlines Oy’s Air Operator Certificate (AOC).

6
9
15

6
3
9

11.4
12.5
12.0

3
3

OrderedFleet operated by Norra(purchased traffic)
Nordic Regional Airlines (Norra) operates afleet of 24 aircraft for Finnair on a contract
flying basis. All of the aircraft operated
by Norra are leased from Finnair Aircraft
Finance Oy.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Strategy
implementation

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair is targeting sustainable, profitable growth. The company implements its
strategy for the period of 2020–2025 in five
focus areas, namely: Network and fleet,
Operational excellence, Modern premium
airline, Sustainability, as well as Culture andways of working.
Due to the COVID-19 impact, the company
has decided to reassess its strategy; though
the foundation is still valid – for example,
Finnair is still fully committed to Asian
megacities and transfer traffic between
Asia and Europe – the focus areas related
to growth, network and fleet investments
and their schedules, as well as long-term
financial targets, will be re-evaluated in theautumn of 2021 as a result of the impact on
demand caused by the COVID-19 pandemic.
The company still estimates that it will
return to the path of sustainable, profitable
growth within a rebuilding period of approximately 2 years. At the same time, thecompany realises that the markets and thecompetitive environment will differ fromthe pre-pandemic era going forward.
The company’s sustainability targets remain
the same, even though available measures

19

FINANCIALSTATEMENTS

to reach the targets are being re-evaluated.
The 2020 Annual General Meeting resolvedthat the Articles of Association be amended
to expand the company’s field of business.
This amendment supports Finnair’s sustainability strategy by enabling a more activerole e.g. in the usage of alternative fuels
and in activities that are aimed at ensuring
the acceptability, and thereby the long-term
profitability, of Finnair’s business. It is an
important step and, as a result, sustainability is at the core of Finnair.

Network and fleet
Exclusive of the COVID-19 impact, Finnairis targeting Asian market level growth
focusing primarily on the most profitable
Asian mega cities and transfer traffic. The
previously expected annual capacity growth
between 3–5% was in line with the anticipated market growth. However, the development of the capacity growth rate will bereassessed.
Finnair continues to leverage its home hub’s
unique geographic location, maximizing its
efficiencies. Currently committed aircraft
investments will be made, though Finnair
was able to postpone deliveries of the

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTremaining A350 aircraft by, on average, 24months. The time horizon of the remaining
fleet investment plan (including the narrowbody fleet renewal) will, however, be reassessed. The company will in particularfollow the rapidly evolving aircraft market
when it plans its future fleet investments.

Operational excellence
Finnair is recognised as one of the world’s
safest airlines. The strong safety culture(including health and safety measures),as well as the reliability and productivityof Finnair’s operations, continues to be at
the core of the company’s strategy. In the
future, more effort will be put into technology, automation and utilising data as well as
into working together cross-functionally.
Particular focus will be on fuel efficiency
and on-time performance, which have a significant impact on both cost and productivity as well as customer experience. In termsof on-time performance and fuel efficiency,
Finnair aims to develop from being in linewith peers to being among the leaders. The
company’s on-time performance was excellent (90.2%) during 2020.

SUSTAINABILITY
APPENDIX

In October, Finnair announced that it
was targeting a 140-million-euro permanent cost base decline by 2022, compared
to 2019 levels. The first savings target
published in May was 80 million euros
and the second published in August was
100 million euros. Finnair continues toseek savings in such areas as real estate,aircraft leasing, IT, sales and distribution
and administration as well as employeecompensation structures. The company willfurther continue streamlining its operations
and the digitalisation and automation of its
customer processes. The company will also
renegotiate its supplier and partner agreements. In addition, it carried out staff co-operation negotiations due to the COVID-19
impact, which resulted in a reduction of
approximately 600 employees globally.
Also, indefinite and temporary layoffs were
continued.
The company is preparing for a recovery intraffic and demand with different scenarios
and it has already announced that it wille.g. soon commence training to reactivate
furloughed pilots’ eligibility to fly. With thehelp of these preparations, the company
aims to ensure that the gradual increase

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

IN THE AUTUMN OF 2021,
FINNAIR WILL RE-EVALUATECERTAIN STRATEGY FOCUS
AREAS AND FINANCIAL
TARGETS DUE TO THE COVID-19
IMPACT

THE REPORT OF THE
BOARD OF DIRECTORS

in traffic will be smooth once the demand
recovers.

Modern premium airline
Finnair aims to be defined as a modern,premium airline. This will be achievedby allowing the customers to tailor theway they want to travel and by enabling asmooth travel experience with the help ofdigital services.
To win in the competitive airline market,
Finnair must excel in everyday customer
experience. Finnair’s Net Promoter Score(NPS), measuring customer satisfaction,
was at an excellent level with a score of48 (38) in 2020. The customers especiallyappreciated Finnair’s service and extensive health and safety measures during
the pandemic. As a token of appreciation,
Finnair received a Five-Star Global Airline
rating from APEX (Airline Passenger Experience Association) in December based on
customer reviews.
Due to the COVID-19 pandemic, Finnair
introduced several health and safety measures in 2020 to restore customers’ trustin air travel. These measures included e.g.

20

FINANCIALSTATEMENTS

intensified aircraft cleaning, plastic screensat the airport customer service points, minimisation of unnecessary human contact
onboard, new boarding and disembarkation processes, handing out personal Clean
Kits to the customers and mandatory facemasks during flights. Finnair also added
flexibility to change bookings.
In the autumn, a partnership related to
COVID-19 testing with Finnish healthcare service provider Terveystalo waslaunched. Finnair also offered a complimentary Corona Cover, extending customers’
own travel insurance to all international
flights departing from Finland as well as
to all Aurinkomatkat and Finnair Holidays
international holiday packages between
November–March. The Corona Covercompensates to a great extent potential
COVID-19 related costs accrued during atrip.
Despite the pandemic, Finnair has
continued to develop its distribution channels, Finnair.com and the travel agent
channel. Finnair became the first European
airline to modernize airline product sales
using New Distribution Capabilities (NDC)

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTwith TravelSky, a leading Chinese distribution system and TongchengElong, a leading
Chinese online travel service provider.
During Q4, Finnair launched a new Taste of
Finnair concept where it sells ready-mademeals in K-markets around the Helsinki area
but also in other parts of Finland. The meals
are made by Finnair Kitchen and, thus,
utilises a workforce which would otherwise
be furloughed. The same K-markets also
started selling Finnair’s signature blueberry
juice, which was previously available only
onboard Finnair flights. In addition, Finnair
operated eight virtual flights from Helsinki
to Rovaniemi to meet Santa Claus. The total
virtual flight proceeds of 90,000 euros
went to supporting UNICEF’s work to slow
the spread of COVID-19 and minimise thepandemic’s impact on children worldwide.
In 2020, the average monthly number of
unique Finnair website visitors totalled only
1.1 million (2.0) due to the COVID-19 impact.
Similarly, the number of active users of the
Finnair mobile application decreased by 44
per cent to 187,300 from 2019. Direct salesin Finnair’s digital channels increased to40.7 per cent (25.9) of all tickets sold.

SUSTAINABILITY
APPENDIX

Sustainability
Sustainability is an essential part of Finnair,
Finnair’s sustainability targets will remainunchanged despite the COVID-19 pandemic.
Finnair will, however, reassess how its
action plan to reach the targets should be
amended due to COVID-19.
Finnair’s long-term goal, which is among
the most ambitious ones in the aviation
sector, is carbon neutrality by 2045, with a
50% reduction in net emissions by the endof 2025 compared to the 2019 level. The
company is on track to reach a 50% reduction in single use plastics by the end of 2022
and was able to reach a 50% reduction offood waste by the end of 2020.

Culture and ways of working
The strategy will be implemented byengaging all Finnair personnel and, thus,
the strategy will be closely linked to theeveryday work and targets. The strategyemphasises genuine collaboration,
target-oriented leadership and utilisingof new working methods such as lean
and agile. These measures are emphasised in the pandemic but also during thefuture years. The number of employees

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

has decreased as a result of the COVID-19
impact and, therefore, new, more effective
ways of working as well as extensive collaboration are necessary.
In Q4, Finnair announced a long-term incentive programme for those personnel groups
with which it agreed on permanent costsavings that support Finnair’s recovery
during the rebuild period. The incentive
programme started during 2020 and willend in the third quarter of 2023. Finnairalso reached agreements with some of thepersonnel groups related to Finnair pension
fund’s index increment removals, which
had a positive impact of more than 150
million euros on the 2020 financial result.
These are outstanding examples of Finnair’s
common culture and collaboration during
the pandemic.
Despite the pandemic, Finnair retained
its status as an attractive employer andUniversum ranked Finnair as the most
attractive employer amongst businessstudents in Finland for the fourth consecutive year.

21

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

millionFinancialperformance
2016–2020

Revenue

Number of passengers

Available seat kilometres (ASK) and revenue
passenger kilometres (RPK)€ million

thousandmillion%€ million

%

3,500

15,00050,000

40

300

45

40,000

20

200

30

3,000

12,000

2,500
2,000

9,000

1,500

6,000

1,000

829.2

500
0

16

17

18

19

20

3,486

3,000
0

30,0000

20,000-20

12,9378,150 -40

10,000-60-72.6%-80

0-78.8%

16

17

18

19

20

16

17

18

19

20

Interest-bearing liabilities and cash funds€ million€ million

600

2,500

300

-104.3

-300

1,500

-15

-200

-30

-300

-45

-400

-60
-71.8%

-500
-600

16

17

18

19

-75

20

Available seat kilometres (ASK), %Comparable operating result*, % of revenue-90

The target level of comparable operating result for the
2020–2025 strategy period will be reassessed due to the
COVID-19 impact.
* Comparable operating result excluding changes in
the fair values of derivatives and in the value of foreign
currency denominated fleet maintenance reserves sales
gains and losses on aircraft and other transactions andrestructuring costs.

10

-15.2

0

1,000

-600

823.7

-5
-10

500

-900
-1,043.1

16

17

18

19

20

0

-15

16

17

18

Investment cash flow*

Interest-bearing liabilities

Net cash flow from operations

Cash funds* Including investments and divestments of fixed assets
and group shares.
22

0

-100

Operating result

Return on capital employed (ROCE)

15

5

0

-1,2000

Revenue passenger kilometres (RPK)

15

2,000

-595.3-464.5Comparable operating result*%
2,178.7

100

Available seat kilometres (ASK)

Revenue passenger kilometres (RPK), %Cash flow of investments and net cash flowfrom operations

Comparable operating resultand operating result

19

20

-20

16

17

18

19

20

Return on capital employed (ROCE)
The target level of return on capital employed (ROCE)
for the 2020–2025 strategy period will be reassessed
due to the COVID-19 impact.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Non-financial
performance 2020

Paid taxes and other sustainability costs€ million
150
124.9

125
100

117.7

91.9

75
55.7
50
25
0

17

18

19

20

Direct taxes payable
Indirect taxes collected
EU ETS costs
Other environmentally based costs
Other environmentally based costs include Noise and NOx
costs, and environmental-based taxes

23

THE REPORT OF THE
BOARD OF DIRECTORSAt the end of February, the COVID-19 pandemic started to affect company’s financial prospects, and at the end of March, thevirus hit the aviation industry with its fullforce. Due to travel restrictions and reduced
demand, Finnair adjusted its flight operations, and at the lowest level only operated
less than 10 per cent of its normal traffic
plan.
Minor improvements in traffic were attimes seen during the year, but overall, thecontinued significant travel restrictions leadto over 70 per cent decrease in available
seat kilometres compared to 2019 figures.
This was also directly reflected in the air
emissions of the flying. The exceptional
and unprecedented decrease in flights
during the pandemic makes a comparisonof performance with previous years challenging. Absolute amounts of emissions andwaste have decreased significantly, while
relative indicators have declined. Further
adapting its operations to meet the weakening demand, Finnair began co-operation
negotiations with personnel and adjusted
personnel costs through layoffs and staff
reductions.

FINANCIALSTATEMENTS

Direct and indirect taxes paid during 2020
decreased due to reduced operations andnegative result. Other performance-based
payments, such as environmental
payments, also decreased significantly.

Customers, employees and otherstakeholders
Finnair is committed to transporting
customers, their luggage and cargo toagreed destinations safely, smoothly andon time. In 2020, the arrival punctuality
was 90.0 (79.3). Particular attention was
also paid to in-flight health safety, the useof a face mask was mandatory on flights,
the number of commonly distributed
magazines was reduced, and catering andboarding processes were changed to minimize personal contact. Due to these exceptional service measures, Finnair’s overallcustomer satisfaction as measured by Net
Promoter Score (NPS) increased to 48 (38).
Finnair, together with the Ministry for
Foreign Affairs and the Finnish missions,carried out 16 subsidised repatriationflights for passengers who had difficulties
in finding a return route to Finland due tothe pandemic. We also started to fly directcargo-only routes to deliver surgical masks

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTand respirators the National Emergency
Supply Agency had purchased, as well asother protective equipment to Finland.
We modified three Airbus A330 aircraft
as temporary cargo carriers to transport
these protective equipment and medicines,
among other things.
Finnair employed an average of 6,573(6,771) people in 2020, which is 3 per centless than in the previous year. The numberof employees decreased during 2020 by 683
or 10 per cent, totalling 6,105 at the endof December (6,788). Altogether approximately 600 people were made redundant at
Finnair in 2020. The decrease in personnel
was due to adapting operations to meetthe reduced demand caused by COVID-19.
At the same time, preparations began forsustainable post-crisis growth. Due to the
COVID-19 impact, Finnair has especiallyconcentrated on its social responsibilities byoffering extensive and active support to its
employees who have been, or will be, laid
off. The company has introduced a NEXT
programme which supports the re-employment of those leaving the company. The
programme consists e.g. of personalisedplans to move forward in work life, a wide
range of training options, career coaching,

SUSTAINABILITY
APPENDIX

The diversity of the Personnel: Gender

Men:

Women:All personnel 43.0%

All personnel 57.0%

Leaders/Managers 66.0%

Leaders/Managers 34.0%

Excecutive Board 78.0%

Excecutive Board 22.0%

Number of persons employed by Finnair at
year-end

8,000
6,105

6,000

4,000

4000

2,000

0

16

17

18

19

20

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

services and content that support coping
and well-being, support from the TE Officeand support for those interested in entrepreneurship.

Finnair values good cooperation with labour
unions representing its various employee
groups. In 2020, the following collective
agreements were negotiated:

Full-time staff accounted for 92 per cent(87) of Finnair employees in 2020, and 99
per cent (96) of staff were employed on apermanent basis. The attrition rate for thelast 12 months was 7.4 per cent (3.8). The
average age of employees was 43 years(42). Of the personnel, 33 per cent (29)were over 50 years of age, while 13 percent (18) were under 30 years of age. At theend of 2020, 57 per cent (57) of Finnair’s
employees were women and 43 per cent(43) were men. Four (three) out of the nine(eight) members of Finnair’s Board of Directors are women. Finnair does not maintainstatistics based on ethnicity.

•

LTIF (Lost Time Incident Frequency), whichmeasures the frequency of accidents at thecompany level, decreased when compared
to previous year being 4.4 (9.6). Also, thenumber of absences due to illness was lessthan in the comparison period and was 3.81
per cent (4.62).

24

FINANCIALSTATEMENTS

•

•

•

Finnair Plc’s agreement on Finnish
commercial pilots between the Finnish
Commercial Pilots’ Association (SLL)and the representative association
for service sector businesses andorganisations (Palta). The agreement isvalid until the end of March 2021.
Agreement on Finnair’s senior officers
between Finnair Plc and Finnair’sEngineers and Seniors (FINTO). The
agreement is valid until the end of
February 2022.
Agreement with Aviation Association(IAU) and Palta, representing theemployees of Helsinki Airport’s
customer and ground service, cargo,
technical services and Finnair Kitchen.
The agreement is valid until March 15,2022.
Agreement between PRO and Palta,trade unions representing technicaland air transport clerical workers. The
agreement is valid until the end ofJanuary 2022.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

In 2019, a new collective agreement on
Finnair’s Finnish cabin crew was negotiatedbetween Palta ry and the Transport Workers
Union (AKT), which is valid until the end ofJanuary 2022. In 2017, an agreement wasreached with the AKT on Aurinkomatkat’s
personnel. The agreement is valid until theend of April 2021. In addition, Finnair is stillin the process of collective bargaining with
its associations representing Spanish cabin
crew.

Environmental Performance
In 2020, Finnair’s traffic dropped significantly (73 per cent) when compared to year
2019. This led to carbon dioxide (CO2) emissions of flying decrease of 67.7 per centcompared to the previous year and were1,151,299 tonnes (3,566,389). The pandemic
affected company’s network and trafficplanning, and after the first months of thepandemic Finnair was able to utilise its fleet
composition in more effective way. On theother hand, this led to a relative increase in
the amounts of flights operated by Norra.
Year 2020 Norra operated 57 per cent fromthe Finnair flights where 2019 they operated 42 per cent.

SUSTAINABILITY
APPENDIX

Lost Time Incident Frequency
No/M h
20

15

10

4.4

5

0

17

18

19

20

LTIF

Development in Finnair's emission efficiency
Total CO2,
thousand tonnes

g CO2/RTK

4,000

949

1,000

3,200

800

2,400

600

1,600

400
1,151

800

200

0

0

17

18

19

20

Total CO2
Emissions Efficiency
RTK = revenue tonne kilometres, i.e. capacity use
according to payload weight

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSThe fuel used per revenue tonne kilometreswas 301 g/RTK (249) (without allocation
between passenger and cargo) decreasing
the flight’s fuel efficiency by 20.8 per cent(1.0 per cent). At the same time the average
length of the flights decreased about 6 percent from about 1,700 kilometres to 1,600
and passenger load factor (PLF) decreased
by 18.7 percentage points explaining theefficiency decrease.

Year 2020 the total electricity consumptionof the facilities was 21,495 MWh (27,356)
and heat consumption 18,911 MWh (24,806).
Total energy efficiency was 18.7 kWh/m3(23.6), including both electricity and heatconsumptions. The efficiency improvement
was derived from the reduced operationsin the facilities. Respectively, the carbon
dioxide emissions decreased by 22.4 percent (18.6) being 8,699 tons (11,203).

CO2 emissions figures of flying havealso been calculated by allocating thembetween passengers and cargo using ICAO
recommendations (see the sustainability
appendix, Scope 1 emissions). Calculated
in this way, year 2020 CO2 emissions were
92 gCO2/RPK (79) and 514 gCO2/RTKCargo(488). Emissions per revenue passenger
kilometre (RPK) increased by 17.1 per centand per cargo revenue tonne kilometre(RTKCargo) by 5.3 per cent. The lower
increase in the cargo emissions relates
to the strong cargo market demand andsuccessful increase of the cargo sales.

Total amount of waste generated by Finnair
decreased by 64.8 per cent (5.5), or over
2,816 tonnes (253), from the previous year
total mass being 1,532 tonnes (4,348). The
largest waste stream has been food waste,part of which has been donated as food aid.
The rest is utilised by either composting or
incineration. Finnair continue to work on
reducing food waste and we have set a newgoal to reduce food waste by 30% by theend of 2022 compared to the level achievedin 2019-20. We also continue to work on
developing our serving to be more sustainable. First, however, we use the cutlery,mugs and other serving utensils alreadyexisting in the warehouses to avoid unnecessary waste.

The energy consumption of the Finnair facilities decreased by 22.5 per cent 2020 (11.3).

25

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

Supply chain, Human Rights,
bribery and anti-corruption
After Q1, there were remarkably fewer new
supplier evaluations and bidding processes
due to low production. The procurement
focused on demand management, pricenegotiations with current suppliers andsupplier risk management. Due to thelimited route network and flight operations,the number of active suppliers was reduced
by 18 per cent. The company changed its
approach with respect to supplier evaluations during the fiscal year. The supplier
on-boarding process was updated andenforced, and now compliance checks aredone for all new suppliers against external
databases. Secondly, the use of the company’s own resources in supplier evaluations
was increased and the use of a dedicatedexternal data system for the evaluation ofsocial impacts and traceability in the supply
chain was ended.
Finnair has a Whistleblowing line called
Finnair Ethics Helpline in use, throughwhich both our employees and partners canreport on concerns related to ethical business principles. During 2020, no material

SUSTAINABILITY
APPENDIX

incidents of material misconduct were notified through the Finnair Ethics Helpline nor
were there any such investigations ongoingin the company.

Amounts of waste and utilisation percentage
tonnes

%

5,000

100%

100

4,000

80

3,000

60

2,000

40

1,000

20

0

17

18

19

20

Energy use

Other

Recycling

Landfill

Composting

Utilisation, %0

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Non-financial key performance indicators
Topic

Environmental
responsibility

Targets and KPIs

Performance
2020

2019

Half net CO2 emissions by the end of 2025, compared to 2019 figures.

-67.7*New

Carbon free flying by the end of 2045 (net emissions), 0 g CO2/RTK

949

New

-1.7

New

Key actions during the reporting period

Due to the COVID-19 pandemic, 2020 figures are showing unusual performance, sincepassenger demand was weak and unnecessary flying was minimised.
Two new energy efficient A350 aircraft were received and two narrow-body aircraft at
the end of their lifecycle were sent for dismantlement and parts recycling.
Operative methods to reduce the weight of the flight continued (e.g. rationalise
fuelling, on-board printed material was reduced, potable water intake and cargo ULD
loading were more efficient).

Improving the fuel efficiency of flying by 1% annually. Fuel Efficiency Index(FEI) is used here as a basis for the KPI where wind and payload impacts arenormalised

The improvement of flying procedures were further implemented (e.g. adjusting Cost
Index, Continuous Decent Approach, single-engine taxiing)
Fleet utilisation was improved during the year to meet the passenger and cargodemand. (aircraft type allocation corresponding to the passenger and Cargo amounts)
-23.0

-23.4

The share of plastic cups in onboard catering was reduced, meaning 11.5 tonnes lessplastic consumed per year.
Because of COVID-19, hygiene products were added to the flights and the plastic
packaging of the sandwiches was reintroduced. This increased the use of plastic by
13.3 tonnes.

Reducing single-use plastics in Kitchen operations by 50% by the end of 2022

The amount of plastic purchased in 2020 was 10 percent of the 2019 amount. Of thisshare, more than 33% were related to COVID-19 measures (clean wet wipes, clean kits,plastic-packed products, gloves)
Recycle 50 % of plastics in Kitchen operations for reuse by the end of 2022

Reducing food waste from Kitchen operations by 50% by the end of year 2020

20.7

13.8

In aircraft cleaning, we started recycling the plastic bottles.

-56.0

-34.2

We started a systematic reduction of food loss cases, which includes better monitoring,a root cause investigation and preventive measures.
In 2020, food losses occurred due to obsolescence of stock as there was no demand.
More than 30% of the losses could be donated to food-aid.

* Net emissions in 2020 were exceptionally low due to reduced amount of flights during COVID-19 pandemic.

26

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Non-financial key performance indicators
Topic

Social responsibility

Ethical Businessconduct

Targets and KPIs

Key actions during the reporting period

2020

2019

Arrival punctuality at least 85%

90.2

79.3

Low air-traffic reflected positively on the arrival punctuality.

Customer satisfaction, NPS increase on the previous year

48**

38

We invested in customer health-safety measures and repayment processes.

WeTogether@Finnair Personnel Experience overall grade of at least 3.75 onscale 1–5-

3.66

Absences due to illness decrease from the previous year

3.81

4.62

LTIF (Lost-time injury frequency) of less than 9.0 in 2020 and less than 10.0 in
2019

4.4

9.6

Code of Conduct awareness grade in WeTogether@Finnair survey at least 4 onscale 1–5

4.26

4.14

** NPS is not fully comparable to 2019; customer satisfaction surveys were sent to all passengers
towards the end of the year due to lack of respondents. The distribution of responses was also morestrongly focused on the European Economy-class in 2020.

27

Performance

The WeTogether @ Finnair personnel survey was conducted in 2020 in a more concise
manner than in previous years, and due to this, an overall rating is not available. The
Employee Recommendation Index (eNPS) in 2020 was -1 compared to 17 in 2019.
Decreased level of flight operations had an improving effect on sick leave andoccupational safety.
Continuous training of employees, Renewal of Finnair Ethics helpline

Read more about Finnair sustainability on our Corporate Responsibility web site

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Changes in company
management

28

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

During the first quarter, there were nochanges in the company management.

During the third quarter, there were nochanges in the company management.

Piia Karhu, Senior Vice President, Customer
Experience, and a member of the Finnair
executive board left the company on 30
June 2020. As a result, Finnair’s Customer
Experience unit was organised so that theoperative parts of the unit were transferred to Finnair’s Operations unit, whichis led by Jaakko Schildt, and the travel
service provider Aurinkomatkat, theContact centers and the customer experience and service development functions
became a part of Finnair’s commercial unit,
headed by Ole Orvér. The Commercial unit
was renamed as Commercial and Customer
experience (CX) unit.

Arja Suominen, Senior Vice President,
Communications and Corporate Responsibility and member of the Finnair executive board left the executive board on
31 October 2020 but continued to serveas executive advisor in Finnair until 31
December 2020. Further, Päivyt Tallqvist
was appointed Senior Vice President,
Communications and a member of Finnair’s
Executive Board as of 1 November 2020.
Previously, Tallqvist worked as a Director,
Media Relations at Finnair, and has prior
to her Finnair career served in different
communications leadership roles in Nokia.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Shares andshareholders

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Shares and share capital

Share price development and trading

Key figures - ShareOn 31 December 2020, the number ofFinnair shares entered in the Trade
Register was 1,407,401,265 (128,136,115).
As a result of the rights offering finalisedin July, the number of shares increased by
1,279,265,150. The registered share capitalwas 75,442,904.30 euros. The company’s
shares are quoted on Nasdaq Helsinki. Eachshare has one vote at the General Meeting.

Finnair’s market capitalization was 1,066.1
million euros at the end of December(753.4). The closing price of the shareon 31 December 2020 was 0.76 euros(1.08). During January–December, thehighest price for the Finnair Plc share on
the Nasdaq Helsinki was 1.68 euros, thelowest price 0.36 euros and the average
price 0.63 euros. Some 939.4 million
company shares, with a total valueof 780.1 million euros, were traded in
Nasdaq Helsinki.

Equity/share*
EUR
0.64
1.39
1.33
1.46
1.24
Dividend for the financial year**
EUR mill.
0
0
35
38
13
Dividend/share* **
EUR
0.00
0.00
0.05
0.06
0.02
Dividend/earnings**
%
0.0
0.0
39.4
24.4
18.2
Dividend yield**
%
0.0
0.0
3.9
2.3
2.5
Cash flow from operating
EUR
-0.99
0.82
0.73
0.55
0.32
activities/share*
P/E ratio
-1.47
12.12
10.18
10.43
7.32
* A rights offering was implemented between June and July 2020 and, therefore, 2016-2019 key figures based on thenumber of shares have been restated accordingly.
** The dividend for year 2020 is a proposal of the Board of Directors to the Annual General Meeting.

Finnair share 2016–2020*

Comparison Nasdaq Helsinki

Comparison European Airlines

2020

2019

2018

2017

2016

EUR
2.5
2.0
1.5
1.0
0.5
0

16

17

18

19

20

Average price* A rights offering was implemented between June andJuly 2020 and, therefore, Finnair's share prices havebeen restated accordingly.

29

300

300

250

250

200

200

150

150

100

100

50

50

0

16

17

18

19

20

0

16

17

18

19

Finnair

Finnair

Nasdaq Helsinki

Bloomberg Europe Airline Index

20

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

Shareholders
The number of Finnair shareholders
increased by 216.7 per cent in 2020 to
85,578 shareholders (excluding nominee
registered shareholders). The number ofdomestic retail shareholders increased from
26,210 to 83,711, whereas their combined
share of ownership increased by 87.8 percent. Nominee registered or foreign investors held 7.4 per cent (13.9) of all shares.
Flagging notifications

No flagging notices were issued in 2020.

FINANCIALSTATEMENTS

members of the Executive Board, including
the CEO, owned a total of 1,672,969 shares,
representing 0.01 per cent of all shares andvotes.

Own shares
On 31 December 2019, Finnair held a totalof 552,313 own shares, representing 0.43
per cent of the total number of shares andvotes.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Finnair Plc largest shareholders as at 31 December 2020
Number of shares
786,669,686
37,000,000
35,881,263
23,980,084
22,000,000
14,671,668
8,000,000
5,287,377
4,917,609
4,000,000

%
55.9
2.6
2.5
1.7
1.6
1.0
0.6
0.4
0.3
0.3

Changes 2020
715,154,260
33,994,358
32,619,330
17,729,209
20,300,000
14,671,668
8,000,000
4,484,203
4,663,416
3,340,600

103,961,549
361,032,029
1,407,401,265

7.4
25.7
100

86,121,231
338,186,875
1,279,265,150

Number of shares%

Public bodies
Households
Private companies
Financial institutions
Associations
Finnish shareholders, total

928,140,885
307,578,879
35,148,726
28,158,843
1,817,658
1,300,844,991

Registered in the name of a nominee
Outside Finland
Nominee registered and foreign shareholders, total
Total

103,961,549
2,594,725
106,556,274
1,407,401,265

1
2
3
4
5
6
7
8
9
10

State of Finland, Prime Minister's OfficeIlmarinen Mutual Pension Insurance Company
Varma Mutual Pension Insurance Company
Keva
The State Pension Fund
Elo Mutual Pension Insurance Company
OP-Finland Fund
Veritas Pension Insurance Company Ltd.
OP-Finland Small Cap
Finnair Plc's Personnel Fund
Nominee registered
Others
Total

Shareholding by number of shares owned

Shareholders by type at 31 December 2020%

Government ownership

At the end of 2020, the Finnish Government
owned 55.9 per cent of Finnair’s shares andvotes. According to the decision made by
the Finnish Parliament on 20 June 1994, theGovernment must own more than half ofFinnair Plc’s shares. Decreasing the ownership below this level would require revisionof the Parliament’s decision.

65.9
21.9
2.5
2.0
0.1
92.4

Number ofshareholders
11
83,7111,571
44
52
85,389

%
0.0
97.8
1.8
0.1
0.1
99.8

7.4
0.2
7.6
100.0

12
189
201
85,590

0.0
0.2
0.2
100.0

1–1,000 1.2%

30

Share ownership by management

1,001–10,000 8.4%

On 31 December 2020, members of thecompany’s Board of Directors did not own
any Finnair shares, while the CEO Topi
Manner owned 674,068 shares and the

10,001–100,000 11.1%
100,001–1,000,000 3.8%
1,000,001–10,000,000 2.8%
10,000,001–100,000,000 9.5%
100,000,001– 55.9%
Registered in the name of a nominee 7.4%

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSIn Q1, Finnair transferred, using the authorisation granted by the 2019 AGM, a totalof 72,939 own shares as incentives to theparticipants of the FlyShare employee
share savings plan. It also transferred
269,774 own shares as a reward to the key
personnel included in Finnair’s share-based
incentive scheme 2017–2019.
In Q2 or Q3, Finnair did not exercise theauthorisation granted by the AGM 2019 or2020 to acquire or dispose its own shares.
In Q4, Finnair transferred, using the authorisation granted by the 2020 AGM, a totalof 38,940 own shares as incentives to theparticipants of the FlyShare employee sharesavings plan.
On 31 December 2020, Finnair held a totalof 170,660 own shares, representing 0.01
per cent of the total number of shares andvotes.

Shareholder agreements
Finnair is not aware of any shareholder
agreements pertaining to share ownershipor the use of voting rights.

31

FINANCIALSTATEMENTS

Change of control provisions inmaterial agreements
Some of Finnair’s financing agreements
include a change of control clause underwhich the financier shall be entitled torequest prepayment of the existing loan or
to cancel the availability of a loan facility
in the event that a person other than the
Finnish state acquires control of Finnair
either through a majority of the voting
rights or otherwise.

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIX

Breakdown of shares at 31 December 2020
1–500
501–1,000
1,001–10,000
10,001–100,000
100,001–1,000,000
1,000,001–10,000,000
10,000,001–100,000,000
100,000,001–>
Registered in the name of nominee
Total

Number of shares%

5,980,871
10,302,218
118,490,518
155,895,172
53,574,702
38,993,534
133,533,015
786,669,686
103,961,549
1,407,401,265

0.4
0.7
8.4
11.1
3.8
2.8
9.5
55.9
7.4
100.0

Number ofshareholders
30,526
12,99535,209
6,581
246
15
5
1
12
85,590

%
35.7
15.2
41.1
7.7
0.3
0.0
0.0
0.0
0.0
100.0

Acquisition and delivery of own shares and returns of shares

Share-based incentive schemes

PeriodEmployee share savings plan FlyShareJan 1 2016
2016
2016
2017
2018
2018
2019
2019
2020
Dec 31 2020

In December, Finnair’s Board of Directors
decided to launch its ninth consecutive
12-month savings period under the FlyShare
Employee Share Plan. The objective of
the plan, which was established in 2013,
is to encourage the employees to become
shareholders in the company, and thereby
strengthen the employees’ interest in thedevelopment of Finnair’s shareholder value
and to reward them over the long term. The
share savings plan is described in a stock
exchange release issued on 16 December
2020, in the Remuneration Statement 2020and on the company’s website.

REMUNERATIONREPORT

Number of shares

Acquisition value, EUR

Average price, EUR

325,205
800,000-336,241-355,597
452,000-236,359
164,651-261,346-381,653
170,660

922,678.40
4,327,860.54-975,326.55-1,962,443.86
3,206,965.70-1,264,765.58
1,042,355.90-1,501,496.17-2,701,783.40
1,094,044.98

2.84
5.41
2.90
5.52
7.10
5.35
6.33
5.75
7.08
6.41

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

Effective authorisations grantedby the Annual General Meeting2020

authorisations are effective for a period of
18 months from the resolution of the AGM.

Finnair’s Annual General Meeting washeld in Vantaa on 29 May 2020 under
special arrangements due to the COVID-19
pandemic.

The AGM also authorised the Board of Directors to decide on donations up to an aggregate maximum of EUR 250,000 for charitable or corresponding purposes. The
authorisation is effective until the next
Annual General Meeting.

The AGM authorised the Board of Directors
to decide on the repurchase of the company’s own shares and/or on the acceptance as pledge and on the disposal of own
shares held by the company. The authorisation shall not exceed 5,000,000 shares,
which corresponds to approximately 0.4 percent of all the shares in the company. The

32

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

The resolutions of the AGM are available infull on the company’s website.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Finnair’s risk
management
principles

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair operates in a global and highly
competitive environment that is sensitive to economic fluctuations. In executing
its strategy, Finnair and its operations
are exposed to a broad range of risks andopportunities.
To exploit opportunities to create value,
Finnair is prepared to take and manage
risks within the limits of its risk appetite. In
relation to flight safety matters, compliancewith laws and regulations, and reliability ofreporting, Finnair’s objective is to minimiserisks.
Finnair has in place sufficient insurance
coverage regarding physical hazards andrelated business interruptions, both foraviation as well as non-aviation hazards.
Internal control and risk management activities are an integral part of the management’s overall duties to ensure that thecompany achieves its business objectives. Through efficient systems of internal
control and risk management, deviations from objectives can be prevented or
detected as early as possible. The Boardof Directors is responsible for monitoringand evaluating the efficiency of the compa-

33

FINANCIALSTATEMENTS

ny’s internal control and risk management
systems. The Board of Directors is responsible for approving the top-level policies,
such as the Risk Management Policy, andsetting Finnair’s Risk Appetite.
The primary governance principle isadherence to the Three Lines of Defence
model, with a clear division of roles andresponsibilities with respect to internal
control and risk management. A proper
Three Lines of Defence governance ensuresthat the segregation of duties is defined andestablished between risk management andrisk control.
••

In the first line of defence, the businessorganisation and group functions arerisk owners, and thus responsible for
conducting day-to-day control and risk
management activities in accordancewith Finnair’s Internal Control
Framework.
In the second line of defence, Risk &Compliance acts as a control functionthat is responsible for developing
and maintaining the Internal Control
Framework and Risk Management
Framework as well as for monitoring theimplementation of the policies, rules,

CORPORATE GOVERNANCE
STATEMENT•REMUNERATIONREPORT

procedures and key controls within theframeworks.
In the third line of defence, Internal
Audit performs audits and provides theBoard of Directors with an independent
assessment of the overall effectivenessand maturity of the internal control andrisk management systems.

The main features of the internal control
and risk management systems aredescribed in the Corporate GovernanceStatement.

Policy, framework and process
The Finnair Risk Management Policy defines
the overall framework for risk management.
Finnair has an Enterprise Risk Management
process in place to ensure the identification,
evaluation and management of risks anduncertainties associated with set objectives.
The process is designed to take a corporate-wide portfolio view to ensure thatthe risks and uncertainties are identified,analysed and managed within the boundaries of Finnair’s risk-bearing capacity.
Based on the COSO Enterprise Risk Management Framework, the objectives are split
into four categories: strategic, operational,

SUSTAINABILITY
APPENDIX

compliance and reporting. The Enterprise
Risk Management process integrates theidentification, evaluation and managementof risks and uncertainties by objective categories.
The Enterprise Risk Management process
is executed according to the Annual Cycle
defined in the Risk Management Policy. It
takes place as an integral part of strategy
process and operational objective setting
across the organisation to enable a holistic
view of risks and opportunities. Risk identification and evaluation at Finnair include
the following phases:
•

•
•
•
•

Identification of external and internal
events affecting the achievement ofobjectives;
Distinction between risks andopportunities;
Analysis of identified risks;Integration (aggregation) of risks;
Evaluation and prioritisation of risks
based on their impact and likelihood.

Finnair’s Risk Model and criteria for risk
evaluation have been established to ensurecomprehensive risk identification andsystematic risk evaluation. Assumptions

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

behind strategic objectives are analysedand validated as a part of strategic risk
assessment. A dedicated Risk Coordinator
Forum has been established to support theexecution and coordination of systematic
risk identification and evaluation in units,
functions and subsidiaries, and to ensurethat risk management activities conform to
the requirements set in the Risk Management Policy. Risk response strategies areapplied to prioritised risks in order to reachreasonable assurance that their outcomesfall within an acceptable level.
The Executive Board members are riskowners and they are responsible for planning and implementing risk management
and control activities within units, functions
and subsidiaries to ensure an acceptablelevel of residual risk.
The performance and efficiency of Finnair’s
risk management system is subject tosystematic monitoring. Improving the risk

34

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENT

management process, performance andcapabilities takes place continuously basedon the Plan-Do-Check-Act (PDCA) cycle.

SUSTAINABILITY
APPENDIX

Control Environment

The Risk Management Policy is annually reviewed by the Executive Board andapproved by the Board of Directors.

Establish context and set objectives

Major risks
Risk and uncertainties that are considered to potentially have a significant effecton Finnair’s business, financial results
and future prospects are further classified under risk categories of the Finnair
Risk Model. The model is divided into twoparts, external business environment risks
and internal process risks, both of which
comprise a number of specific risk categories. The risks and Finnair’s risk responses
are further discussed on the company’s
website. Significant near-term risks anduncertainties are described on the next
page.

REMUNERATIONREPORT

Identify risks and opportunities

Analyse risks
Monitor andcontinuously
improve

Inform andcommunicate
Integrate risks

Evaluate risks

Control risks

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Significant nearterm risks anduncertainties

THE REPORT OF THE
BOARD OF DIRECTORSThe risks and uncertainties described
below are considered as potentially having
a significant impact on Finnair’s business,financial result and future outlook within
the next 12 months. This list is not intended
to be exhaustive.
Uncertainties related to the recovery of air
traffic pose a risk to Finnair’s revenue development.

35

FINANCIALSTATEMENTS

main markets. This together with changes inticket prices pose a risk to Finnair’s revenue
development, as do sudden changes in theforeign exchange rates and slowing growthin demand. Generally, Finnair aims to pass
exceptional variations in the fuel price tocustomers via ticket prices, however, themarket conditions prevailing from time totime may not allow this.

The key factors affecting revenue and operating loss, that Finnair can incluence, areoperating cost adjustments and the ability
to respond to changes in demand. Factors
beyond Finnair’s control are mainly related
to the duration of the COVID-19 pandemic
and the measures to fight the pandemic
as well as the recovery of air traffic anddemand. Other general risk factors in theindustry and business, such as the fluctuation in prices of jet fuel, fluctuation in the
demand, currency exchange fluctuations aswell as regulatory and tax changes are also
beyond Finnair’s control.

Capacity increases and product improvements among Finnair’s existing or newcompetitors may have an impact on the
demand for, and yield of, Finnair’s services.
In addition, joint operations involving closer
cooperation than airline alliances andjoint businesses are expected to develop
further. Industry consolidation could have asignificant impact on the competitor landscape. Introduction of new digital distribution technologies and channels in Finnair’s
distribution strategy, including transition
towards differentiation of fare content andavailability between the channels, involves
implementation and commercial risks.

Exceptional variations in the fuel price(including the impact of currencies andhedging) might affect capacity in Finnair’s

The aviation industry is affected by anumber of regulatory trends. Estimating
the impacts of the regulatory changes

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTon airlines’ operational activities and/or
costs in advance is difficult. Examples ofsuch regulatory trends include regulation
related to emissions trading, noise regulation and other environmental regulation, as well as regulations on privacy andconsumer protection. Due to the extraordinary circumstances caused by the COVID-19
pandemic, uncertainties related to agreements and authority policies as well asinterpretation and implementation of legislation, such as approval of state aid, may
increase. This may increase the likelihood of
litigation processes or disputes. Finnair is,
however, not involved with any pending or
threatening litigation processes or disputes
which would include material claims.
Geopolitical uncertainty, the threat of tradewars, the threat of terrorism, cyber-attacks
and pandemic risks (such as COVID-19) as
well as other potential external disruptions
may, if they materialise, significantly affectthe demand for air travel and Finnair’s
operations. The COVID-19 pandemic hada significant negative impact on Finnair’s
operations in all quarters in 2020 and thenegative impact will continue in 2021. A
prolonged COVID-19 pandemic would result

SUSTAINABILITY
APPENDIX

in a deterioration in Finnair’s cash funds,
although the company has already acted tomitigate this risk by introducing a funding
package consisting of a 600-million-europremium pension loan as well as interalia sale and leaseback arrangements andexport credit agency financing of aircraft.
In case of a prolonged pandemic, it will
also reduce the company’s equity significantly. On the other hand, prolonged
unprofitability will increase the risk offleet and other fixed asset impairments.
As a result, Finnair has also introduced asignificant cost adjustment programme(140-million-euro permanent cost basedecline by 2022, compared to 2019 levels),
including e.g. renegotiating vendor agreements. Further, the company was forced toreduce the number of employees by 600
globally. Along with these actions, Finnair
executed a 512-million-euro rights offering
to strengthen the equity and is preparing,
together with the State of Finland, an unsecured hybrid loan of up to 400 million
euros to better ensure that it will weather
a prolonged pandemic and the resulting
impacts within the next 12 months.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

In a changing aviation business environment, it is difficult to predict the impact the
COVID-19 will have on airline market accessand traffic right opportunities in general.
Potentially increasing protectionism in thepolitical environment may have an adverse
impact on the market access required forthe implementation of Finnair’s strategy.
At the same time, it is also possible thatconnectivity needs may increase in somecountries, leading to increasing market
access opportunities and new traffic rights.
Finnair’s risk management and risks related
to the company’s operations are describedin more detail on the company’s website.

36

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Seasonal variationand sensitivities inbusiness operations

THE REPORT OF THE
BOARD OF DIRECTORS

Due to the seasonality of the airline business, the Group’s revenue and result are, ina normal situation, generally at their lowest
in the first quarter and at their highest in
the third quarter of the year. The growing
proportional share of Asian traffic increases
seasonal fluctuation due to destination-specific seasons in Asian leisure and businesstravel.
In addition to operational activities andmarket conditions, the fuel price development has a key impact on Finnair’s result,
as fuel costs are the company’s most significant variable expense item. Finnair’s
foreign exchange risk arises primarily
from fuel and aircraft purchases, divestments of aircraft, aircraft lease payments,
aircraft maintenance, overflight royalties and foreign currency revenue. Significant dollar-denominated expense items arefuel costs and aircraft lease payments. The
largest investments, namely the acquisitionof aircraft and their spare parts, are also
mainly denominated in US dollars. The mostsignificant income currencies after the euro
are the Japanese yen, the Chinese yuan, theUS dollar, the South Korean won and theSwedish krona.

37

FINANCIALSTATEMENTS

The company hedges its currency, interest
rate and jet fuel exposure using a variety
of derivative instruments, such as forward
contracts, swaps and options, in compliancewith the risk management policy approved
annually by the Board of Directors. Under
normal circumstances, fuel purchases arehedged for 24 months forward on a rollingbasis, and the degree of hedging decreases
towards the end of the hedging period. The
higher and lower limits of the degree of
hedging would normally be 90 and 60 per
cent for the following six months but due tothe uncertainty caused by COVID-19, Finnair
has temporarily changed the lower limit
from 60 per cent to 0 per cent during thehedging period. At the moment, Finnair has
hedged its fuel purchases for the next 12months.

Hedging of foreign currency
exposure in balance sheet
Due to the introduction of IFRS 16 in 2019,
Finnair’s asset-related foreign currency
exposure increased with the recognition of
the present value of qualifying operatinglease liabilities in the balance sheet as rightof-use assets. Unrealised foreign exchange
losses/gains caused by the translation of

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Sensitivities in business operations, impact on comparable operating profit(rolling 12 months from date of financial statements)

1 percentage (point)changePassenger load factor (PLF, %)Average yield of passenger traffic
Unit cost (CASK excl. fuel)EUR 11 million
EUR 7 million
EUR 11 million

Fuel sensitivities(rolling 12 months from date of financial statements)

10% change
without hedging

10% change, taking
hedging into account

EUR 14 million

EUR 7 million

Hedged fuel, tonnes*

Average hedge price,
USD/ton* **December 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021

12,00034,00065,00099,00030,000

634
609
521
510
491

Total

240,000

531

Fuel

Fuel hedging ratios and average hedged price(rolling 12 months from date of financial statements)* Based on the hedged period, i.e. not hedging related cash flow.
** Average of swaps and bought call options strikes.

Currency ­distribution,%
Sales currencies

2020

2019

Currency sensitivities USD and
JPY (rolling 12 months fromdate of financial statementsfor operational cash flows)
10%changewithout
hedgingsee below
EUR 11 m-

Hedging ratio for
operational cash
flows (rollingnext 12 months)

10% change,
taking hedging
into account

EUR
55
53
USD*
4
5
see below
see below
JPY7
11
EUR 5 m
44%
CNY
6
7
KRW
3
3
SEK
3
3
Other
21
19
Purchase currencies
EUR
59
57
USD*
35
36
EUR 27 m
EUR 8 m
42%
Other
6
7
* Hedging ratio and sensitivity analysis for USD basket, which consists of net cash flows in USD and HKD. The
sensitivity analysis assumes that the correlation of the Hong Kong dollar with the US dollar is strong.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

the USD denominated liability will havean impact on Finnair’s net result. In the
future, the effect and amount of the foreign
currency exchange could be positive or
negative, depending on the USD-rate at theclosing date. Since the beginning of 2019,
Finnair has mitigated the foreign exchange
volatility introduced by this difference byusing hedges and is looking for alternative solutions to mitigate the effect of thisvolatility on its financial performance. The
annual effect in net result going forward
is dependent on the size of the qualifying
operating lease portfolio, the duration of
the leases and hedging ratio. At the end of
December 2020, the hedging ratio of USD
denominated aircraft lease payments andliabilities was approximately 50 per cent.

38

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Outlook

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

Guidance issued on 28 October
2020:

New guidance on 18 February2021:

Due to the continued strict travel restrictions, the comparable operating loss in Q4
will be of a similar magnitude as in Q2 andQ3.

Due to the continued strict travel restrictions, the comparable operating loss in Q1
2021 will be of a similar magnitude as in Q2,Q3 and Q4 2020.

As Finnair has announced today, certain
amendments to the terms of Finnair
pension fund have been approved andthese and potential other similar changes
are expected to have a significant positive
one-off impact on Finnair’s operating resultin Q4. This impact is not included in the
expected comparable operating result.

In Q1 2021, Finnair continues to operate
a limited network. As the visibility thereafter is weak and there are several potential
scenarios of the timing of the recovery indemand, the company will not provide guidance on full year revenue.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Finnair updates its outlook and guidance inconnection with the Q1 2021 interim report.

Based on the current assumptions, therevenue and capacity (measured in ASKs)
will both decrease more than 70% in 2020
compared to 2019.
Finnair updates its outlook and guidancein connection with the financial statementsbulletin for 2020.

39

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Performanceindicatorsclassified asalternative
performancemeasures40

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Alternative performance measures

Calculation

Reason to use the measure

Items affecting comparability

Unrealized changes in foreign currencies of fleet overhaul provisions + Fair value changes ofderivatives where hedge accounting is not applied + Sales gains and losses on aircraft andother transactions + Restructuring costs

Component used in calculating comparable operating result.

Comparable operating result

Operating result – Items affecting comparability

Comparable operating result is presented to better reflect the Group's business performance
when comparing results to previous periods.

Comparable operating result, % of revenue

Comparable operating result / Revenue x 100

Comparable operating result is presented to better reflect the Group's business performance
when comparing results to previous periods.

Revenue at constant currency

Revenue + Currency impact adjustment at 2018 currency

Component used in calculating comparable operating result at constant currency and fuelprice and RASK at constant currency. All changes in currency levels and hedging results since
2018 are excluded from the measurement.

Costs at constant currency and fuel price

Other operating income + Operating expenses included in comparable operating result +Currency and fuel price impact adjustment at 2018 currency and priceComponent used in calculating comparable operating result at constant currency and fuelprice and CASK at constant currency and fuel price. All changes in fuel price, currency levels
and hedging results since 2018 are excluded from the measurement.

Comparable operating result at constantcurrency and fuel price

Revenue at constant currency + Costs at constant currency and fuel priceComparable operating result at constant currency and fuel price aims to provide a comparative,
currency and fuel price neutral measurement for comparable operating result. All changes infuel price, currency levels and hedging results since 2018 are excluded from the measurement.

RASK at constant currency

Revenue at constant currency / Available seat kilometres (ASK)

Unit revenue (RASK) at constant currency aims to provide a comparative, currency neutral
measurement for unit revenues. All changes in currency levels and hedging results since 2018
are excluded from the measurement.

CASK at constant currency and fuel priceCosts at constant currency and fuel price / Available seat kilometres (ASK)

Unit cost (CASK) at constant currency and fuel price aims to provide a comparative, currency
and fuel price neutral measurement for unit costs. All changes in fuel price, currency levels
and hedging results since 2018 are excluded from the measurement.

Comparable EBITDA

Comparable operating result + Depreciation and impairment

Comparable EBITDA is presented to better reflect the Group's business performance whencomparing results to previous periods. Comparable EBITDA is a common measure in airline
business which aims to reflect comparable operating result excluding capital cost.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

41

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Alternative performance measures

Calculation

Reason to use the measure

Comparable EBITDA, % of revenue

Comparable EBITDA / Revenue x 100

Comparable EBITDA is presented to better reflect the Group's business performance whencomparing results to previous periods. Comparable EBITDA is a common measure in airline
business which aims to reflect comparable operating result excluding capital cost.

Equity ratio, %Equity total / Equity and liabilities total x 100

Equity ratio provides information on the financial leverage used by the Group to fund its
assets.

Adjusted interest-bearing liabilities

Lease liabilities + Other interest-bearing liabilities + Cross currency interest rate swaps inderivative financial instruments

Component used in calculating gearing.

Cash funds

Cash and cash equivalents + Other financial assets

Component used in calculating gearing. Cash funds represent the total amount of financial
assets that are available for use within short notice. Therefore, cash funds provide the trueand fair view of the Group’s financial position.

Interest-bearing net debt

Adjusted interest-bearing liabilities – Cash funds

Interest-bearing net debt provides view of the Group’s total external debt financing.

Gearing, %Interest-bearing net debt / Equity total x 100

Gearing provides view of the level of the Group’s indebtedness.

Interest-bearing net debt /Comparable EBITDA, LTM

Interest-bearing net debt / Comparable EBITDA, for last twelve months

The ratio provides information on the Group’s leverage by comparing the Group’s net
debt to the amount of income generated before covering interest, taxes, depreciation andimpairment.

Gross capital expenditure

Additions in fixed assets + New contracts in right-of-use assets + Reassessments andmodifications in right-of-use assets

Gross capital expenditure provides information on the Group’s capitalized investments andlease modifications.

Return on capital employed (ROCE), LTM, %(Result before taxes + Financial expenses + Exchange rate gains and losses, for the last twelve
months) / (Equity total + Lease liabilities + Other interest-bearing liabilities, average ofreporting period and comparison period)

The ratio provides a view to monitor the return of capital employed.

Cash to sales, LTM, %Cash funds / Revenue for the last twelve months x 100

The ratio provides information about the Group’s liquidity in terms of available cash as apercentage of its sales.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Reconciliationof performanceindicatorsclassified asalternative
performancemeasures

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

Items affecting comparability
EUR million
Operating result
Unrealized changes in foreign currencies of fleet overhaul provisions
Fair value changes of derivatives where hedge accounting is not applied
Sales gains and losses on aircraft and other transactions
Changes in defined benefit pension plans
Restructuring costs
Comparable operating result

REMUNERATIONREPORT

Gearing, interest-bearing net debt and interest-bearing net debt / Comparable EBITDA, LTM
2020-464.5
-12.2
0.2
-0.8
-132.814.9-595.3

2019
160.0
1.4
-1.3
-0.2
3.0
162.8

EUR million, unless otherwise indicatedLease liabilities
Other interest-bearing liabilities
Cross currency interest rate swaps*
Adjusted interest-bearing liabilities

Other financial assets
Cash and cash equivalents
Cash funds
Interest-bearing net debt

Equity total

Comparable operating result, RASK and CASK at constant currency and fuel price
EUR million, unless otherwise indicatedRevenue
Currency impact adjustment at 2018 currency
Revenue at constant currency
Other operating income
Operating expenses included in comparable operating result
Currency and fuel price impact adjustment at 2018 currency and priceCosts at constant currency and fuel priceComparable operating result at constant currency and fuel price

Available seat kilometres (ASK), million
RASK at constant currency, cents/ASK
CASK at constant currency and fuel price, cents/ASK

Gearing, %

2020
829.2
-0.8
828.4
48.4
-1,472.9
37.2-1,387.3-558.912,937
6.40
10.72

2019
3,097.7-14.8
3,082.9
56.4-2,991.3
57.7-2,877.2
205.7

47,1886.53
6.10

Comparable EBITDA, LTM

Equity ratio

Equity ratio, %

2020
896.6
3,646.5
24.6

2019
966.4
3,877.9
24.9

Gross capital expenditure
EUR million
Additions in fixed assets
New contracts in right-of-use assets
Reassessments and modifications in right-of-use assets
Gross capital expenditure

31 Dec 2019
1,054.0
520.8-1.1

31 Dec 2020
-654.4255.2-26.6-425.8896.6
1,016.2
1,162.6
3,075.4
2,808.3-15.2

31 Dec 2019
93.0
83.6
-12.7

31 Dec 2020
358.3
465.3
823.7
829.2
99.3

31 Dec 2019
800.8
151.9

1,573.7-800.8-151.9-952.7
621.0

966.4
64.3

488.3

Return on capital employed (ROCE), LTM
EUR million, unless otherwise indicatedResult before taxes, LTM
Financial expenses, LTM
Exchange rate gains and losses, LTM
Equity total
Lease liabilities
Other interest-bearing liabilities
Capital employed
Capital employed, average of reporting period and comparison period
Return on capital employed (ROCE), LTM, %* Capital employed accounted was EUR 2,692.5 million as at 31 Dec 2018.

163.9

966.4
1,054.0
520.8
2,541.1
2,616.8*
6.3

Cash to sales, LTM
2020
348.3
173.3
-5.7
515.9

2019
420.2
29.2
-5.6
443.8

EUR million, unless otherwise indicated
Other financial assets
Cash and cash equivalents
Cash funds

Revenue, LTM
Cash to sales, LTM %42

31 Dec 2020
1,016.2
1,162.6
18.8
2,197.5-358.3-465.3-823.7
1,373.8
896.6
153.2-251.5-5.5Interest-bearing net debt / Comparable EBITDA, LTM
1.3* Cross-currency interest rate swaps are used for hedging the currency and interest rate risk of interest-bearing loans, but
hedge accounting is not applied. Changes in fair net value correlate with changes in the fair value of interest-bearing liabilities.
Therefore, the fair net value of cross-currency interest rate swaps recognised in derivative assets/liabilities and reported in thenote 3.8 Derivatives, is considered an interest-bearing liability in the net debt calculation.

Return, LTM

EUR million, unless otherwise indicatedEquity total
Equity and liabilities total

SUSTAINABILITY
APPENDIX

952.7

3,097.7
30.8

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Other
performanceindicators

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

Revenue and profitability

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Modern premium airline

Earnings per share (EPS), basic(Result for the period – Hybrid bond expenses net of tax) / Average numberof outstanding shares during the period

Earnings per share (EPS), diluted(Result for the period – Hybrid bond expenses net of tax) / Average numberof outstanding shares during the period taking into account the diluting
effect resulting from changing into shares all potentionally diluting shares

Unit revenue per available seatkilometre (RASK)Unit revenue (RASK) represents the Group's revenue divided by available
seat kilometres (ASK).

Unit revenue per revenue
passenger kilometre (yield)

Passenger revenue by product divided by Revenue passenger kilometres(RPK).

Unit cost per available seatkilometre (CASK)

Unit cost (CASK) represents the Group's operational costs divided byavailable seat kilometres. Other operating income is deducted fromoperational costs.

CASK excluding fuel(Comparable operating result – Revenue – Fuel costs) / ASK x 100

Net Promoter Score (NPS)Net Promoter Score is based on a question: “Thinking about all aspects ofthis journey, how likely would you be to recommend Finnair to a relative,
friend or colleague?” Scale is 0-10: The share of detractors (ratings 0-6) isdeducted from the share of promoters (ratings 9-10).

Share of digital direct ticket sales

Share of ticket sales in Finnair’s own direct channels in relation to total
ticket sales for the period. Direct channels include Finnair.com, Finnair
mobile app, New Distribution Capability (NDC) solutions and Finnair
Holidays.

Sustainability
Flight CO2 emissions

CO2 emissions from jet fuel consumption

Culture and ways of working
Traffic
Available seat kilometres (ASK)

Total number of seats available × kilometres flown

Revenue passenger kilometres(RPK)

Number of revenue passengers × kilometres flown

Passenger load factor (PLF)

Share of revenue passenger kilometres of available seat kilometres

Absences due to illness

Share of sickness absence hours relating to planned work hours

Attrition rate, LTM

Number of leavers on own request during the last twelve months comparedto active employments on reporting date and leavers on own request
during the last twelve months

Share
Operational excellence
On-time performance

43

The share of flights arrived less than 15 minutes late

Equity/share

Equity / Number of outstanding shares at the end of period

Dividend/earnings

Dividend per share / Earnings per share (EPS) x 100

Dividend yield, %Dividend per share / Share price at the end of period x 100

Cash flow fromoperating activities/share

Net cash flow from operating activities /Average number of outstanding shares during the period

P/E ratio

Share price at the end of period / Earnings per share (EPS) x 100

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Financial
Statements

44

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXFINANCIAL STATEMENTS
46

Consolidated income statement55

1.2.4 Deferred income and advances received

72

3.4 Contingent liabilities

Finnair’s financial statements are structured to facilitate
reading and understanding of the financial statements
and to clarify the overall picture derived from it. The
notes to the financial statements have been combined
to business related sections, separately listing the accounting principles, critical accounting estimates andsources of uncertainty in each section. In addition, comments on interesting figures and other highlights areprovided in text areas marked with a star. The financial
statements also include illustrative charts to support
the understanding of the figures.

46

Consolidated statement of comprehensive income

55

1.3 Operating expenses

72

3.5 Management of financial risks

47

Consolidated balance sheet

56

1.3.1 Operating expenses by currency

75

3.6 Classification of financial assets and liabilities

48

Consolidated cash flow statement56

1.3.2 Passenger and handling services

76

3.7 Offsetting financial assets and liabilities

49

Consolidated statement of changes in equity

56

1.3.3 Property, IT and other expenses

76

3.8 Derivatives

56

1.3.4 Inventories and other current assets

79

3.9 Equity-related information

NOTES TO THE CONSOLIDATED

56

1.3.5 Other liabilities

FINANCIAL STATEMENTS

56

1.3.6 Provisions

81

4 CONSOLIDATION

Notes to the financial statement have been combined
into sections based on their context. The aim is to givea more relevant picture of the Finnair Group and its
business. The content of each section is described andexplained in the beginning of that section and marked
with .

50

Accounting principles

57

1.3.7 Items excluded from comparable operating result

81

4.1 General consolidation principles

50

Company information

58

1.3.8 Employee benefits

81

4.2 Subsidiaries

50

Basis of preparation

58

1.3.8.1 Employee benefit expenses

81

4.3 Acquisitions and disposals

50

Impact of the COVID-19 pandemic on theand share-based payments

82

4.4 Investments in associates and joint ventures

61

1.3.8.2 Pensions

82

4.5 Related party transactions

62

2 FLEET AND OTHER FIXED ASSETS

83

5 OTHER NOTESAND LEASING ARRANGEMENTS

83

5.1 Income taxes

How to read Finnair Financial Statements?

Specific accounting principles are attached to therelevant note. The accounting principles can be recognised from character .
Critical accounting estimates and sources of uncertainty have been presented together with the relevant
note and specified with character .
Highlights related to the section are explained in a
separate text box to underline significant matters.

45

50

consolidated financial statements
51

Board’s assessment of Finnair as a going concern

51

Presentation of consolidated income
statement and balance sheet

52

Presentation of alternative performance measures63

2.1 Fleet and other fixed asset

84

5.2 Disputes and litigation

52

Critical accounting estimates and sources of uncertainty

65

2.2 Leasing arrangements

84

5.3 Events after the closing date

53

Changes in accounting principles

67

2.3 Depreciation and impairment
85

6 PARENT COMPANY FINANCIAL STATEMENTS

94

BOARD OF DIRECTORS’ PROPOSAL

53

1 OPERATING RESULT69

3 CAPITAL STRUCTURE AND FINANCING COSTS

53

1.1 Segment information

69

3.1 Financial income and expenses

53

1.2 Operating income

69

3.2 Financial assets

54

1.2.1 Revenue by product and traffic area70

3.2.1 Other current financial assets

54

1.2.2 Revenue by currency

70

3.2.2 Cash and cash equivalents

55

1.2.3 Receivables related to revenue

70

3.3 Financial liabilities

ON THE DIVIDEND95

AUDITOR’S REPORTANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSCONSOLIDATED INCOME STATEMENT

Consolidated income statement

CONSOLIDATED STATEMENT

EUR mill.

Note

2020

2019

Revenue
Other operating income
Operating expenses
Staff and other crew related costs
Fuel costs
Capacity rents
Aircraft materials and overhaul
Traffic charges
Sales, marketing and distribution costs
Passenger and handling services
Property, IT and other expenses
Comparable EBITDA
Depreciation and impairment
Comparable operating result
Unrealized changes in foreign currencies of fleet overhaul provisions
Fair value changes of derivatives where hedge accounting is not applied
Sales gains and losses on aircraft and other transactions
Changes in defined benefit pension plans
Restructuring costs
Operating result
Financial income
Financial expenses
Exchange rate gains and losses
Share of results in associates and joint ventures
Result before taxes
Income taxes
Result for the period

1.1, 1.2

829.2
48.4

3,097.7
56.4

1.3.8

-283.5-232.7-89.3-104.7-112.4-28.2-168.6-109.7-251.5-343.8-595.3
12.2
-0.2
0.8
132.8
-14.9
-464.538.7-255.226.6-534.7-687.3-130.2-201.2-331.3-172.1-476.7-132.4488.3-325.4
162.8
-1.4
1.3
0.2

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTSUSTAINABILITY
APPENDIX

Consolidated statement of comprehensive income

1.3.2
1.3.3
2.3
1.3.7
1.3.7
1.3.7
1.3.7, 1.3.8.2
1.3.7
3.1
3.1
3.1
4.4
5.1

Attributable to
Owners of the parent company
Earnings per share attributable toshareholders of the parent company, EUR
Basic earnings per share
Diluted earnings per share

REMUNERATIONREPORT

3.9
3.9-654.4131.1-523.2

-3.0
160.0
4.8
-83.6
12.7
-0.9
93.0
-18.4
74.5

-523.2

74.5

-0.51
-0.51

0.09
0.09

EUR mill.

Note

Result for the period
Other comprehensive income items
Items that may be reclassified to profit or loss in subsequent periods
Change in fair value of hedging instruments
Translation differences
Tax effectItems that will not be reclassified to profit or loss in subsequent periods
Actuarial gains and losses from defined benefit plans
1.3.8.2
Tax effect
Other comprehensive income items total
Comprehensive income for the period
Attributable to
Owners of the parent company

2020

2019

-523.2

74.5

-29.9
-0.7
6.0

75.8
-15.2

-13.1
2.6
-35.1
-558.4

-50.2
10.0
20.5
95.0

-558.4

95.0

Revenue declined by 73.2% as compared to year 2019

The year 2020 was heavily impacted by the COVID-19 pandemic which led to a significant decrease in demand and passenger revenue. The decline in revenue is also seen in the negative operating result of -464.5 million euro. The operating result
includes a positive one-off effect of 132.8 million euro relating to changes in defined benefit pension plans. The reduced flying also led to a significantly lower jet fuel consumption than anticipated, which is why Finnair discontinued hedge accounting for majority of its fuel and foreign currency hedges. As a result, the financial expenses include a net cost of 135.8 million
euro relating to the discontinued jet fuel and foreign currency hedges.

= Highlights

46

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

Consolidated balance sheet

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTASSETS
Non-current assets
Fleet
Right-of-use fleet
Fleet total
Other fixed assets
Right-of-use other fixed assets
Other fixed assets total
Pension assets
Other non-current assets
Deferred tax assets
Non-current assets total
Current assets
Receivables related to revenue
Inventories and other current assets
Derivative financial instruments
Other financial assets
Cash and cash equivalents
Current assets total
Assets total

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Note

2.1
2.2
2.1
2.2
1.3.8.2
5.1

1.2.3
1.3.4
3.8
3.2.1
3.2.2

2020

2019

1,440.3
772.5
2,212.7
185.3
145.0
330.2
31.8
25.1
84.8
2,684.7

1,533.3
736.4
2,269.7
178.4
141.1
319.5

2,628.7

57.5
68.1
12.4
358.3
465.3
961.8
3,646.5

160.6
80.2
55.7
800.8
151.9
1,249.2
3,877.9

39.5

EUR mill.

EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Other equity
Equity total
Non-current liabilities
Lease liabilities
Other interest-bearing liabilities
Pension obligations
Provisions and other liabilities
Deferred tax liabilities
Non-current liabilities total
Current liabilities
Lease liabilities
Other interest-bearing liabilities
Provisions
Trade payables
Derivative financial instruments
Deferred income and advances received
Liabilities related to employee benefits
Other liabilities
Current liabilities total
Liabilities total
Equity and liabilities total

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Note

2.2, 3.3
3.3
1.3.8.2
1.3.6
5.1

2.2, 3.3
3.3
1.3.6
3.8
1.2.4
1.3.8.1
1.3.5

2020

2019

75.4
821.2
896.6

75.4
890.9
966.4

880.6
1,111.0
1.5
161.1
2,154.2

913.6
477.3
77.1
156.9
64.3
1,689.1

135.6
51.5
20.0
24.8
99.7
133.6
70.7
59.8
595.7
2,749.9
3,646.5

140.4
43.5
17.2
84.7
38.9
552.7
119.4
225.7
1,222.4
2,911.5
3,877.9

Financial position and equity remained strong as a result of the refinancing plan

Finnair’s equity and cash funds remained strong as a result of its refinancing plan put in place to help overcome the COVID-19 pandemic. The refinancing plan included raising new equity financing from a share issue, adding new interest-bearing
debt, entering into two new sale and leaseback transactions for A350 aircraft and receiving export credit support for one
A350 aircraft. Current liabilities were significantly reduced as a result of refunds of prepaid ticket purchases to customers
resulting from the flight cancellations.
The net impact from pension fund term amendments and pilots’ early retirement announcements led to a significant decrease in the Group’s pension obligations and the Group recognized a pension asset related to the affected pension plans. In
addition, Finnair recognized a net deferred tax asset resulting from the significant losses caused by the COVID-19 pandemic.

= Highlights

47

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCONSOLIDATED INCOME STATEMENT

Consolidated cash flow statement

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Cash flow from operating activities
Result before taxes
Depreciation and impairment
Items affecting comparability
Financial income and expenses
Share of results in associates and joint ventures
Comparable EBITDA
Change in provisions
Employee benefits
Other adjustments
Non-cash transactions
Changes in trade and other receivables
Changes in inventories
Changes in trade and other payables
Changes in working capital
Financial expenses paid, net
Income taxes paid
Net cash flow from operating activities
Cash flow from investing activities
Investments in fleet
Investments in other fixed assets
Divestments of fleet and other fixed assets
Lease and lease interest payments received
Change in other current financial assets (maturity over 3 months)
Change in other non-current assets
Net cash flow from investing activities
Cash flow from financing activities
Proceeds from loans
Loan repayments
Repayments of lease liabilities
Share issue
Share issue costs
Hybrid bond repayments
Proceeds from hybrid bondHybrid bond interests and expenses
Acquisitions of own shares
Dividends paid
Net cash flow from financing activities

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

2020-654.4343.8-130.8189.9

2019-251.5
0.8
12.0
0.6
13.4
112.3
4.6
-672.0-555.2-243.4-6.4-1,043.1

93.0
325.4
2.8
66.1
0.9
488.3
29.5
10.6
1.5
41.5
33.4
-2.2
46.9
78.1
-31.5
-11.9
564.5

-300.7
-24.7
221.1
16.1
439.9
0.0
351.6

-453.1
-25.2
1.3
16.3
-53.4
0.8
-513.2872.8-218.0-134.9511.7-11.1-200.0200.0-18.5

1,001.9

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

EUR mill.

2020

2019

Change in cash flows
Liquid funds, at beginning
Change in cash flows
Liquid funds, at end*

310.5
481.7
310.5
792.2

-174.1655.8-174.1
481.7

EUR mill.

2020

2019

Other financial assets
Cash and cash equivalents
Cash funds
Other current financial assets (maturity over 3 months)
Liquid funds

358.3
465.3
823.7
-31.5
792.2

800.8
151.9
952.7
-470.9481.7* Liquid funds

Changes in equity and liabilities arising from financing activities are disclosed in thenote 3.3 Financial liabilities and in the note 3.9 Equity-related information.
The Group’s iiquidity remained strong as a result of the refinancing activities

The COVID-19 pandemic had a significant negative impact on Finnair’s operating cash flow in 2020. The net cash flow fromoperating activities turned negative due to the operating losses and refund payments to customers resulting from the flightcancellations. Finnair’s total liquid funds at year-end remained strong as a result of the refinancing activities which are seenin the positive net cash flow from financing activities and divestments of fleet and other fixed assets.

-42.0-132.2

-15.8
-0.5
-35.0
-225.4= Highlights

48

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Consolidated statement of changes in equity
EUR mill.

Equity 1 Jan 2020
Result for the period
Change in fair value of hedging instruments
Actuarial gains and losses from defined benefit plans
Translation differences
Comprehensive income for the period
Share issue
Share issue costs
Proceeds from hybrid bondHybrid bond repayments
Hybrid bond interests and expenses
Share-based payments
Equity 31 Dec 2020

EUR mill.

Equity 1 Jan 2019
Result for the period
Change in fair value of hedging instruments
Actuarial gains and losses from defined benefit plans
Comprehensive income for the period
Hybrid bond interests and expenses
Dividend
Acquisitions of own shares
Share-based payments
Equity 31 Dec 2019

Share capital

75.4

Other restricted Hedging reserve andfunds
other OCI items

168.1

-6.7

Unrestricted equity
funds

256.1

Retained earnings

Hybrid bondEquity total

275.2-523.2

198.2

-14.6

200.0
-200.0
-0.2

-41.8

0.6
759.5

-262.6

198.0

966.4
-523.2
-23.9
-10.5
-0.7
-558.4
511.7
-8.8
200.0
-200.0
-14.8
0.6
896.6

Other restricted Hedging reserve andfunds
other OCI items

Unrestricted equity
funds

Retained earnings

Hybrid bondEquity total

248.7
74.5

198.2

918.5
74.5
60.7
-40.2
95.0
-12.6
-35.0
-0.5
0.9
966.4

-23.9
-10.5
-0.7
-35.1

-523.2
511.7
-8.8

75.4

Share capital

75.4

168.1

168.1

-27.2

255.2

60.7
-40.2
20.5

75.4

168.1

-6.7

74.5
-12.6
-35.0
-0.5
0.9
256.1

275.2

198.2

Equity ratio at 24.6% in 2020 (24.9%)

The COVID-19 pandemic had a significant negative impact on the the Group’s consolidated result for the period and its equity. The equity decreased to 896.6 million euros from last year level (966.4) with the main contributor being the negative net resultof -523.2 million euros (74.5). As part of its refinancing plan, Finnair completed a rights issue increasing the Group’s equity by 502.9 million euros, which allowed it to maintain strong equity position at the year-end 2020. The proceeds from hybrid bond andhybrid bond repayments shown in the above table relate to a refinancing of an earlier outstanding hybrid note. As a result of the extreme circumstances under the COVID-19-pandemic and in accordance with the decision made at the Annual General Meeting held in May 2020, no dividends relating to year 2019 were paid out during 2020 (35.0).
Finnair hedges against jet fuel price fluctuations with forward contracts and options according to its risk management policy decscribed in note 3.5 Management of financial risk. The negative fair value changes of hedging instruments amounted to -23.9
million (60.7). At the end of the year 2020, the price of jet fuel was lower than at year-end 2019, which contributed to the negative change of the fair value hedging reserve. Changes in hedging reserve and other OCI (other comprehensive income) items arepresented in more detail in note 3.9 Equity-related information.

= Highlights

49

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENT

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

Notes to the consolidated financial statements

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Accounting principles
How should Finnair’s accounting principles be read?

Finnair describes the accounting principles in conjunction with each note with the aim of providing an enhanced understanding of each accounting area. The basis of preparation is described as part of this note at a general level, while the principles
more directly related to a specific note are attached to the corresponding note. The Group focuses on describing the accounting choices made within the framework of the prevailing IFRS policy and avoids repeating the actual text of the standard, unless Finnair considers it particularly important to the understanding of the note’s content. Refer to the table below
to see which notes, accounting principles and IFRS standards are related.

SUSTAINABILITY
APPENDIX

Finnair Plc’s consolidated financial statements for 2020 have been prepared in accordance with the International
Financial ­Reporting Standards (IFRS) as adopted by the European Union, and they comply with the IAS and IFRS
standards and respective SIC and IFRIC Interpretations effective on 31 December 2020. The notes to the consolidated
financial statements also comply with Finnish accounting and corporate law. Changes applied in accounting principles in2020 and future periods are described in the below section Changes in accounting principles.
The 2020 consolidated financial statements have been prepared based on original acquisition costs, except for
financial assets recognised through profit and loss at fair value and derivative contracts measured at fair value.
Financial statement data is presented in millions of euros, rounded to the nearest hundred thousand euro. The sum of
the individual figures may differ from the total shown.

Impact of the COVID-19 pandemic on the consolidated financial statements
Accounting principle

Note

Nr.

IFRS

Segment reporting
Revenue recognition, other income
and trade receivables
Provisions and contingent liabilities
Employee benefits and share-based payments
Pensions
Tangible and intangible assets
LeasesImpairment of assets
Interest income and expenses
Financial assets
Cash and cash equivalents
Financial liabilities
Derivative contracts and hedge accounting
Equity, dividend and treasury shares
Consolidation principles of subsidiaries
Non-controlling interests and transactions
with non-controlling interests

Segment information

1.1

IFRS 8Operating income
Provisions
Employee benefits
Pensions
Fleet and other fixed assets
Leasing arrangements
Depreciation and impairment
Financial income and expenses
Financial assets
Financial assets
Financial liabilities
Derivatives
Equity-related information
Subsidiaries

1.2
IFRS 15, IFRS 9, IFRS 7
1.3.6 IAS 37
1.3.8 IAS 19, IFRS 2
1.3.8.2 IAS 19
2.1
IAS 16, IAS 36, IAS 38
2.2
IFRS 16
2.3
IAS 36
3.1
IFRS 7, IAS 32
3.2
IFRS 9, IFRS 7
3.2
IFRS 9, IFRS 7
3.3
IFRS 9, IFRS 7
3.8
IFRS 9, IFRS 7
3.9
IAS 32, IAS 33
4.2
IFRS 10

Subsidiaries
Investments in associates
and joint ventures
Related party transactions
Income taxes

4.2

IFRS 10

4.4
4.5
5.1

IFRS 11, IAS 28
IAS 24
IAS 12

Investments in associates and joint ventures
Related party disclosures
Income tax and deferred taxes

Company information
Finnair Group engages in worldwide air transport operations and supporting services. The Group’s parent company is
Finnair Plc, which is domiciled in Helsinki at the registered address Tietotie 9, Vantaa. The parent company is listed on
the NASDAQ OMX Helsinki Stock Exchange.
The Board of Directors of Finnair Plc has approved these financial statements for publication at its meeting on 17
February 2021. Under Finland’s Limited Liability Companies Act, shareholders have the option to accept, or reject thefinancial statements in the Annual General meeting of the shareholders, which will be held after the publication of thefinancial statements.

50

REMUNERATIONREPORT

Basis of preparation

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CORPORATE GOVERNANCE
STATEMENTThe year 2020 was extremely challenging for the global aviation industry which has suffered severely from the COVID-19
pandemic and the continued spread of the virus. Airlines across the world, including Finnair, were faced with sudden
lack of demand at the end of first quarter 2020 due to the strict travel restrictions imposed by the governments andwere forced to significantly cut down their capacity. Finnair’s capacity, measured in ASK’s (Available Seat Kilometres),was down by -72.6 per cent as compared to 2019. The total ASK’s in 2020 were 12,937 million (47,188). The sudden lossof demand for air passenger travel had a significant, adverse effect on Finnair’s financial and operating performance
resulting in unprecedented reduction in passenger volumes, revenue and profitability. Finnair’s sales in 2020 totalled
to 829.2 million euro (3,097.7), while the number of passengers decreased by 76.2% to 3.5 million (14.7). The impact oflower sales is seen in the negative operating result of -464.5 million euro (160.0). While Finnair was able to significantly
reduce its variable operating expenses, its result for the period remained negative due to the inflexibility embedded
in certain costs relating to lease and depreciation expenses, aircraft maintenance as well as certain administrative,
property and IT expenses. Also the derecognition of fuel hedges from other comprehensive income to the financial
expenses had a material, negative impact of 135.8 million euro (0) on Finnair’s profitability in 2020. On the other hand,
there was a 132.8 million euro positive one-off effect relating to certain amendments made to Finnair’s pension fundterms and pilot’s early retirement announcements. The loss for the period amounted to -523.2 million euro (74.5).
The Group’s total non-current liabilities increased to 2,154.2 million euro (1,689.1) mainly because of withdrawal of
the 600 million pension premium loan and the receipt of export credit financing in excess of 100 million euro whichwere both part Finnair’s refinancing plan resulting from the COVID-19 pandemic. The above mentioned pension fundterm amendments and pilots’ early retirement announcements led to the significant decrease in the Group’s pension
obligations. The Group’s current liabilities decreased to 595.7 million euro (1,222.4) mainly because of refunds ofprepaid ticket purchases to customers. The refunds of ticket purchases were increased during the pandemic as many ofFinnair’s flights were cancelled. In total, Finnair refunded customers 464 million euro during the year 2020. The Group
recognized a net deferred tax asset of 84,8 million euro (deferred tax liability -64.3) in its consolidated balance sheet,
resulting from the significant losses generated during the year. Despite the negative impact of the loss on equity, theGroup managed to maintain its equity balance at 896.6 million euro (966.4) with the help of the share issue finalized in
July, 2020. The equity increase from the share issue totalled to 502,9 million euro.
The sudden drop in sales revenue and the refunds of ticket purchases resulted in a significant decrease in operating
cash flow during the year, with the cash flow from operating activities being reduced to -1,043.1 million euro (564.5).
Finnair’s liquid funds at the end of the period totalled to 792.2 million euro (481.7) due to the significant, positive
financing cash flow of 1,001.9 million euro (-225.4) resulting from the various refinancing activities carried out during theyear. In addition to the abovementioned withdrawal of the pension premium loan and the completion of the share issue,
activities that contributed into the strenghtening of the cash funds included three aircraft financing transactions relating
to the A350 aircraft and the refinancing of the 200 million euro hybrid loan.
Further detail on the Group’s financial figures can be found in the following notes: revenue and operating expenses(note 1.2 and 1.3), deferred income and advances received (note 1.2.4), pensions (note 1.3.8.2), aircraft financing
transactions in notes 2.1, 2.2 and 3.3), derivatives and jet fuel hedges in notes 3.1 and 3.8, changes in liabilities andequity (notes 3.3 and 3.9) and income taxes (note 5.1).

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

51

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

The COVID-19 pandemic has also had an impact on the critical accounting estimates and sources of uncertainty. This
have been dislosed in more detail in the below section Critical accounting estimates and sources of uncertainty.

Board’s assessment of Finnair as a going concern
The consolidated financial statements have been prepared based on the going concern assumption. The Finnair
Board of Directors has assessed the Group’s ability to continue as a going concern based the Group’s ability to meetits obligations as they fall due at least 12 months after the financial statements are issued. The Board of Directors’
assessment is based on the Group’s latest three-year business plan approved by the Board of Directors. Due to thecurrent uncertainty embedded in the economic environment and the difficulty in forecasting the ultimate durationand impact of the COVID-19 pandemic, the Board of Directors have reviewed three different scenarios preparedby the management that cover a period of 36 months from January 2021 to December 2023. The abovementioned
scenarios have been sensitised to reflect differences on the expected beginning of the recovery. Under all the three
scenarios, Finnair will be able to meet its obligations as they fall due at least 12 months after the date that the financial
statements are issued.
The main differences between the scenarios relate to the timing of the demand recovery, unit revenue development
and development of customer demand. In the optimistic scenario, the demand recovery is expected to materiallystart in June 2021 and in July 2021, Finnair expects to operate around 60% of its capacity (measured in available seatkilometres) as compared to 2019. In the base case scenario, which is considered as the most probable of the three,
the recovery is expected to materially start in August 2021 and the capacity would be around 70% of the 2019 levels
in September 2021. In the pessimistic scenario, the start of the recovery would be expected to materially take place in
October 2021 and the capacity to remain below 80% of the 2019 levels in November 2021. Under each of the scenarios,
the business is expected to return to the operational levels (measured in available seat kilometres) comparable to2019 in year 2023. All of the management forecast scenarios are based on the development of passenger demand andcapacity levels that depend on the implementation of the vaccination programs, lifting of travel restrictions and global
acceptance of vaccine passports. It is assumed in all scenarios, that the unit revenue (RASK) will remain below the 2019
levels throughout the period of the business plan due to lower passenger volumes and lower share of corporate travel.
In the base case scenario, the passenger load factors and thus also the unit revenue would recover slower in 2021 thanin the optimistic scenario, but faster than in the pessimistic scenario. At the same time, the committed cost saving
program included in the scenarios will decrease unit costs. Flight related variable expenses depend on the planned
capacity, whereas aircraft maintenance investments are assumed to stay rather constant between all scenarios.
In 2020, Finnair took immediate and decisive action to mitigate the negative impacts relating to the COVID-19
pandemic by adjusting its operations and targeting both temporary and permanent cost reductions. The temporary
measures include temporary layoffs of employees, limiting spending only to the mandatory and compliance driven
items and the temporary grounding of a large part of its fleet in order to accommodate its cost base to lower level ofoperations until the demand for flying returns again. On 28 October 2020, Finnair announced that it is targeting 140
million euro in permanent cost base reductions (as compared to year 2019) by 2022. As part of the mentioned costsavings program, Finnair has finalized significant co-operation negotiations which resulted in a reduction of ca. 600
jobs.
In addition to the operational measures, Finnair responded quickly in order to secure adequate funding to support
its liquidity. Finnair’s refinancing plan included e.g. raising 500 million euro of new equity through a rights issue,
drawdown of 600 million euro pension premium loan, refinancing of the company’s outstanding 200 million euro
hybrid note, three refinancing transactions related to A350 aircraft and rescheduling of future aircraft deliveries tolater periods.
As a result of the aforementioned actions, Finnair’s liquidity position remained strong and as at 31 December
2020, the Group held liquid funds of 792.2 million euro (481.7). The cash funds including other current financial assets(maturity over 3 months) totalled to 823.7 million euro (952.7). The Group management and the Board of Directors
continue to pay close attention to the Group’s cash position considering the challenging dynamics in its current
operating environment that are negatively impacting the Group’s cash flows. Based on Finnair’s current estimate (basecase scenario), the covenant terms related to Finnair’s undrawn 175 million euro revolving credit facility are estimated

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

to be possibly breached during the second quarter of 2021. The credit facility is not in use as at the date of preparationof the financial statements and Finnair’s financing during the going concern assessment period is not dependent on
the existence of the facility. Finnair plans to initiate negotiations with the syndicate banks with respect to covenant
amendments. The maturities of the Group’s interest-bearing liabilities are presented in note 3.3. and information about
the existing covenants, changes in hedging policies and management of liquidity risk is described in notes 3.4, 3.5 and
3.8.
The main identified uncertainties relating to the management estimates relate to the eventual duration of
the COVID-19 pandemic as well as the timing of the expected demand recovery which depends on the timing andeffectiveness of the vaccination programs, availability of a vaccine passport solution, lifting of the travel restrictions
and increased competition all of which cannot be known with certainty at the time of the publication of the financial
statements. These events are not in the sphere of Finnair management’s influence. The management has beenrequired to apply material judgement relating to the duration of the COVID-19 pandemic and make estimates about theeffectiveness and realization of the vaccination programs as well as the time and speed of the demand recovery for air
passenger travel. This again is heavily impacted by the actions of the governments in many parts of the world and thetime that it takes to get the pandemic under control.
Despite of the abovementioned uncertainties, Finnair’s management has at its disposal other mitigating measuresthat are within the sphere of its influence and with which it believes it will be able to meet its obligations for at least 12
months after the date the financial statements are issued. These include, in addition to the abovementioned 140 million
euro savings plan, Finnair management’s plan to continue to actively seek additional financing and cost adjustment
opportunities, postponement of capital and maintenance investments as well as continuance of structural changes andtemporary cost savings, including e.g. temporary layoffs.
In addition, to ensure adequate funding and sufficient liquidity, and to strengthen its financial position, Finnair hasannounced on 16 December 2020 that the State of Finland is preparing to make a hybrid loan of up to 400 million euros
available to Finnair. The hybrid loan is expected to be finalized during the first quarter of 2021. The final decision on thepossible financing arrangement is still subject to a decision by the Government Plenary session. The hybrid loan also
requires an approval by the EU Commission. In addition, Finnair is planning to refinance its existing 200 million eurosenior unsecured bond which matures in March 2022.
Considering the above-mentioned circumstances and uncertainties, as well as the already realized and planned
measures to mitigate the impacts of the COVID-19 pandemic, the Board of Directors has concluded that the assessment
does not cast significant doubt on the Group’s ability to continue as a going concern and that consequently, the Group
continues to adopt the going concern basis of accounting in preparing these consolidated financial statements. The
Board of Director’s conclusion is based on the information available as at the date of the issuance of the consolidated
financial statements and an assessment conducted based on the information assuming, that the company is able toconduct its adjusted business operations according to the plan and to maintain sufficient financing for period of at least
12 months after the date that the financial statements are issued. The management and the Board of Directors havealso considered events and developments taking place after the balance sheet date and concluded that there is nomaterial impact on the scenarios approved by the Board of Directors and the going concern assessment of the Group.
Despite the various mitigating measures implemented by Finnair, the upcoming months will continue to besignificantly affected by decreased demand for air travel resulting in lower revenues and weaker financial performancefor a duration that is currently uncertain. Should future events or conditions cause the Group to be unable to continue
its operations in accordance with the Board of Director’s current assessment, using the going concern principle may
prove to be no longer justified and the carrying values as well as the classification of the Group’s assets and liabilities
would have to be adjusted accordingly.

Presentation of consolidated income statement and balance sheet
IAS 1 Presentation of Financial Statements standard does not define ‘operating result’. The Group has defined it as the
net amount of operating income and expenses, including revenue and other operating income, less operating expenses,
such as employee benefits, fuel costs, maintenance expenses, lease payments for aircraft and depreciations. Exchange
rate differences and realised changes in fair values of derivatives are included in the operating result if they arise from

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

items related to business operations; otherwise, they are recognised in financial items. The operating result excludes
financial items, share of results from associates and joint ventures and income taxes.
The consolidated income statement includes, in addition to the operating result, comparable operating result
and comparable EBITDA which are presented to better reflect the Group’s business performance when comparing
results to previous periods (see also below, presentation on alternative performance measures). The comparable
operating result does not include capital gains and losses, changes in the value of foreign currency denominated fleet
maintenance reserves, changes in the unrealised fair value of derivatives, a one-off item relating to changes in defined
benefit pension plans or restructuring costs. The basis for this is explained in more detail in note 1.3.7 Items excluded
from comparable operating result. Comparable EBITDA is a common measure in the airline business which aims toreflect comparable operating result excluding capital cost. Therefore, comparable EBITDA is calculated by excluding
depreciations from the comparable operating result.
In the consolidated balance sheet, assets and liabilities are classified as current when they are expected to realise
within 12 months or when they are classified as liquid funds or as financial assets or liabilities classified at fair value
through profit or loss. Other assets and liabilities are classified as non-current assets or liabilities. Interest-bearing
liabilities include loans from financial institutions, bonds, loans taken for aircraft financing (JOLCO-loans & export credit
support), lease liabilities and commercial papers. Interest-bearing net debt is the net amount of interest-bearing assets
and liabilities and cross-currency interest rate swaps that are used for hedging the currency and interest rate risk
arising from interest-bearing loans.

3.

CAPITAL STRUCTURE AND FINANCING COSTS

Presentation of alternative performance measures

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Finnair uses alternative performance measures referred to in the European Securities Markets Authority (ESMA)
Guidelines on Alternative Performance Measures to describe its operational and financial performance, to provide
a comparable view of its business and to enable better comparability relative to its industry peers. The alternative
performance measures do not replace IFRS indicators. Finnair’s alternative performance measures reported in thefinancial statements are comparable operating result and EBITDA (defined above). Comparable operating result isreconciled in the note 1.3.7 Items excluded from comparable operating result.
Finnair applies consistent principles when excluding items from comparable operating result. The main principles
are described in the above section ‘Presentation of consolidated income statement and balance sheet’ and in moredetail in the note 1.3.7 Items excluded from comparable operating result. The calculation principles of key ratios arealso defined in The report of the Board of Directors, in section Calculation of key ratios.

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Critical accounting estimates and sources of uncertainty
The preparation of IFRS financial statements requires Group management to make certain estimates, assumptions
and judgements in applying the accounting principles that affect the reported amounts of assets and liabilities as wellas income and expenses. The application of the accounting policies prescribed by IFRS require making estimates andassumptions relating to the future where the actual outcome may differ from the earlier estimates and assumptions
made. In addition, management discretion has to be exercised in applying the accounting principles especially whenthe IFRS has alternative accounting, valuation or presentation methods. The estimates and assumptions made arebased on past experience and management’s best estimate of future events and other factors, that are believed to bereasonable given the current circumstances. The estimates and associated assumptions are continuously evaluated andany changes therein are reflected in the period that the changes occur.
The COVID-19 pandemic has increased the level of uncertainty relating to the near- and long-term developmentof the economy and its impact on Finnair’s future operating environment. Despite significant actions taken by thegovernments to contain the virus, it is difficult to forecast how long it takes to bring the global pandemic under control.
Given the unpredictability of the duration and the reach of the pandemic, its impact on Finnair’s future profitability,
financial position and cash flows may eventually differ from the current management estimates and assumptions made.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

In 2020, Finnair adopted the value in use model as its primary internal method of measuring the recoverable
amount of the assets. In the comparison period ending 31.12.2019, Finnair was principally using the fair market valueless cost to sell in its impairment review. The decision to change the approach was made because of the deemed impactof the COVID-19-pandemic on the accuracy of the market prices resulting from lower transaction volume and the impactof the distress situations on realized prices.
In order to consider the increased uncertainty in its estimates and assumptions caused by the COVID-19 pandemic,
Finnair management has considered three different forecast scenarios incorporating possible variations of the
expected timing of the recovery begin based on its best estimate at the time. These scenarios are discussed in moredetail in the earlier section of the notes called Board’s assessment of Finnair as a going concern. Further, in order toconsider the increased uncertainty also in its impairment testing performed at the year-end, Finnair is applying the
expected cash flow approach which incorporates expectations about all forecast scenarios instead of relying on just asingle, most likely, cash flow estimate.
Information about the estimates and judgement exercised by management in applying the Group’s accounting
principles and the areas where estimates and judgements have biggest impact on the financial statements arehighlighted in the following table Critical accounting estimates and sources of uncertainty.
The consolidated financial statements have been prepared on a going concern basis. Assessment of the going concern
is made based on management estimates about future events and other information that is available to the management
and the Board of Directors at the time of the assessment. The main identified critical estimates and sources of uncertainty
related to the assessment are presented earlier in this note in section Board’s assessment of Finnair as going concern. The
identified main critical estimates and sources of uncertainty related to separate sections of the financial statements arepresented in connection to the financial items considered to be affected and attached to the corresponding note. The tablebelow shows where to find more information about those estimates and uncertainties.
Critical accounting estimates and sources of uncertainty

Note number

Note

Finnair Plus Customer Loyalty Program
Maintenance reserves of the fleet
Pension obligations
Leasing arrangements
Impairment testing of the fleet and other fixed assets
Derivative contracts and hedge accounting

1.2
1.3.6
1.3.8.2
2.2
2.3
3.8

Operating income
Provisions
Pensions
Leasing arrangements
Depreciation and impairment
Derivatives

Deferred taxes

5.1

Income taxes= Critical accounting estimates

52

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXCONSOLIDATED INCOME STATEMENT

Changes in accounting principles

1 Operating result

CONSOLIDATED STATEMENT

New and amended IFRS standards and IFRIC interpretations

Operating result includes notes related to revenue and operating result from the point of view of income statement and balance sheet.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTThe changes in the IFRS standards effective from periods beginning 1 January 2020 included mainly amendments or
improvements to current standards and did not have an effect on Finnair financial statements.
Other standards issued that are effective from periods on or after 1st of January 2021 mainly include amendments
and improvements to current standards that are not expected to have a material impact on the Group’s consolidated
financial statements.
Changes in presentation of Consolidated income statement, balance sheet and cash flow statement

Finnair has adopted a minor change in the presentation of its consolidated income statements and changed thedescription of the line item ‘Staff cost’ to ‘Staff and other crew related costs’ in order to better describe the nature of
the line item. The change was initially applied in Finnair’s half year report published on 24th July 2020. In addition,
Finnair has renamed two line items presented on its consolidated cash flow statement as at the year end 2020 in order
to better describe the nature of those line items. The line item formerly described as ‘Divestments of fixed assets’ wasrenamed to ‘Divestments of fleet and other fixed assets’ and the line item ‘Net change in financial assets maturing after
more than three months’ was renamed to ‘Change in other current financial assets (maturity over three months)’.
The content of the line items remain unchanged and the change has no impact on the comparability between the
periods.

1.1 Segment information
Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance ofthe operating segments, has been identified as the Group’s Executive Board. Segments are defined based on Group’s business areas. Group has one business and reporting segment: Airline business.
The Finnair Executive Board, defined as the chief operative decision maker according to IFRS 8 Segment reporting,considers the business as one operating segment. Therefore, segment information is not reported.
The revenue by product and geographical area is presented in the note 1.2.1 Revenue by product and traffic area. The
division is based on the destination of Finnair flights. Finnair operates international and domestic routes, but the assets
are almost solely owned in Finland. The fleet composes the major part of the non-current assets (see note 2.1 Fleet andother fixed assets). The fleet is owned or leased by Finnair’s Finnish subsidiary and the aircraft are operated flexibly
across different traffic (geographical) areas. More details about fleet management and ownership can be found in the
management report in the section “Fleet”.
During the financial year Finnair transported 3.5 million passengers (14.7), which was 76.2 per cent less than in
2019. The significant drop in passenger demand was largely due to the COVID-19 pandemic and the following strict
travel restrictions imposed by the governments, which have been used to help curb the global spread of the virus. The
sudden drop in demand at the end of the first quarter continued to be followed with exceptionally low levels of demand
lasting throughout the year and was particularly detrimental to Finnair’s financial performance. With the significant
decline in passenger volumes, Finnair was required to adapt its operations by reducing its flight capacity and targeting
both temporary and permanent cost savings. The effects on revenue and operating expenses as well as the related
receivables and liabilities are presented in more detail in the following notes 1.2 and 1.3.
Due to the wide scale of customers and nature of the business, sales to any individual customer is not material
compared to Finnair’s total revenue.

1.2 Operating income
The operating income section includes both income statement and balance sheet notes that relate to revenue. The
aim is to provide a more coherent picture of income related items affecting Finnair’s result and financial position. Trade
receivables and deferred income containing mainly prepaid flight tickets and travel tour services are presented inconnection with this section, because those are an essential part in revenue recognition.
Revenue recognition= Content of the section= Accounting principles

53

Revenue is recognised when goods or services are delivered. Revenue is measured at fair value of the consideration received
or receivable, net of discounts and indirect taxes.
Passenger revenue includes sale of flight tickets, and is recognised as revenue when the flight is flown in accordance withthe flight traffic program. Recognition of unused tickets as revenue is based on the expected breakage amount of tickets remaining unused in proportion to the pattern of rights exercised by the passenger.
Sales price is allocated to a flight ticket and points in Finnair Plus’ Customer Loyalty Program. Finnair loyalty customers canearn Finnair Plus Points from tickets or services purchased, and use the earned points to buy services and products offeredby Finnair or its cooperation partners. The points earned are measured at fair value and recognised as a decrease of revenue and debt at the time when the points-earning event (for example, flight is flown) is recognised as revenue. Fair value ismeasured by taking into account the fair value of those awards that can be purchased with the points and the customer selection between different awards based on historical customer behaviour. In addition, the fair valuation takes into accountthe expiry of the points. The debt is derecognised when the points are used or expire.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

= Accounting principles= Critical accounting estimates

54

20

al

lo

ca

es

te

tic

d

-74.3 829.2

Un

m
Do

The division of revenue by traffic area is based on the destination of the Finnair flight.
Passenger revenue, ancillary and retail revenue as well as travel services decreased significantly following the COVID-19
related travel restrictions and decrease in passenger demand. Cargo revenue decreased less than the other products dueto the relatively high demand for cargo-only flights. The total revenue decreased by 73.2% from prior year.
During financial year 2020, Finnair conducted repatriation flights for the Ministry for Foreign Affairs of Finland toassist travellers in returning from abroad to Finland and cargo flights for National Emergency Supply Agency to deliver
protective equipment to Finland.

pe

3.7

-115.5829.2

ic-168.4

nt

-34.4

la

-113.9-949.620-170.2

At

8.7

63.7
7.5
21.4
7.4

ia

37.4

528.1
62.3
177.7
61.1
829.2

h

5.7

1.9
30.6
-1.5
-0.2
30.8

rt

44.5

69.1
2.4
0.3
0.5
72.4

As

244.6
9.4
22.0
33.8
309.8

3,097.7 -958.9

3,097.7 -1,951.7

No

26.4
1.4
11.1
8.1
47.0

Total

20
19

186.0
18.5
145.8
19.0
369.3

Domestic Unallocated20

Europe€ million

20

Passenger revenue
Ancillary and retail revenue
Cargo
Travel services
Total
Share, % of revenue
by traffic area

Asia

Share, % ofrevenue by
product€ millions

EUR mill.

North
Atlantic

Revenue bridge by traffic area

ro

2020

Revenue bridge by productEu

1.2.1 Revenue by product and traffic areace

AUDITOR’S REPORTvi

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

181.4
5.2
1.3

The hedging policies against foreign exhange rate fluctuations are described in note 3.5 Management of financial risks.

er

PARENT COMPANY FINANCIAL STATEMENTS

Valuation and revenue recognition related to Finnair Plus debt requires management judgment especially related to fair valuation of points and timing of revenue recognition related to points expected to expire. The fair value of the point is defined byallocating the point to award selection based on historical behaviour of customers, after which the fair value of each award isdefined. The liability is calculated by taking the total amount of points earned by customers, decreased by the expected expiryof the points. These points are then fair valued as described above, and the result is recognised as liability on the balance sheet.
Estimating customer behaviour relating to the expiry of the points has become somewhat more challenging as a result of the
COVID-19 pandemic, which has led to low number of passenger flights and less recent activity of Finnair Plus members. This
leads Finnair to have less recent data available that can be used as a basis of the estimates and thus increase the level of uncertainty about the expected customer behaviour and the point expiry rates in the future.

ls

6.

Finnair Plus Customer Loyalty Programo

OTHER NOTES

1,626.5
351.4
211.4
147.4
101.5
80.3
579.1
3,097.7

rg

5.

3.4

456.0
61.4
50.0
29.5
27.0
27.1
178.3
829.2

Ca

CONSOLIDATION

6.1

Tr
av
e

4.

40.7

EUR
JPY
CNY
USD
SEK
KRW
Other currencies
Total

an
re d reve t an u ile

CAPITAL STRUCTURE AND FINANCING COSTS

7.0

2019

ue

3.

42.9

2020

ry

ARRANGEMENTS

187.9

37.8
60.0
7.3
-0.1
105.0

EUR mill.

la

FLEET AND OTHER FIXED ASSETS AND LEASING

997.9
45.1
32.9
183.6
1,259.5

1.2.2 Revenue by currency

en2.

Finnair Group recognises impairment provisions based on lifetime expected credit losses from trade receivables in accordance withIFRS 9. Finnair has chosen to apply a simplified credit loss matrix for trade receivables as trade receivables do not have a significant financing component. Accordingly, the credit loss allowance is measured at an amount equal to the lifetime expected credit
losses. The expected credit loss model is forward-looking, and expected default rates are based on historical realised credit losses.
The lifetime expected credit loss allowance is calculated using the gross carrying amount of outstanding trade receivables in eachaging bucket and an expected default rate. The changes in expected credit losses are recognised in other operating expenses.

c il

OPERATING RESULT

179.1
11.1
13.8
13.0
217.1

Total

Trade receivables

ev

1.

1,083.6
54.8
156.8
32.9
1,328.2

Domestic Unallocated

80.1
5.7
6.8
7.4

rr

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

EuropeAn

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

North
Atlantic

Share, % ofrevenue by
product

2,479.8
176.2
212.1
229.5
3,097.7

ge

CONSOLIDATED CASH FLOW STATEMENT

Passenger revenue
Ancillary and retail revenue
Cargo
Travel services
Total
Share, % of revenue
by traffic areaen

CONSOLIDATED BALANCE SHEETSUSTAINABILITY
APPENDIXAsia

EUR mill.

20
19

OF COMPREHENSIVE INCOME

REMUNERATIONREPORT

2019

ss

CONSOLIDATED STATEMENT

Customer compensations for delays or cancellations is a variable consideration in the contract and it is recognised as an
adjustment to revenue.
Ancillary revenue includes sale of ticket related services, like advance seat reservations, additional baggage fees as well
as different service fees, and sale of goods in the aircraft. The service revenue is recognized when the flight is flown in accordance with the flight traffic program, since it is considered as a contract modification instead of separate revenue transaction. The sale of goods is recognized when the goods are delivered to the customer.
Cargo revenue is recognized when the cargo has been delivered to the customer.
Tour operations revenue includes sale of flight and hotel considered as separate performance obligations, which are recognized as the service is delivered.
Public subsidies increased slightly due to COVID-19 pandemic, but they were not material in overall. Subsidies are recognised as other operating income.

Pa

CONSOLIDATED INCOME STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEET

1.2.3 Receivables related to revenue
EUR mill.

2020

2019

Trade receivables
Accrued income
Total

37.4
20.1
57.5

108.9
51.8
160.6

The decrease in revenue related receivables during 2020 results from the decrease in passenger demand and therelated revenues. The fair value of trade receivables do not materially differ from balance sheet value.

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Aging analysis of tradereceivables

2020

2019

Trade Probability of
Expected
receivables, not collecting, uncollectible,
EUR mill.
%
EUR mill.

Trade Probability of
Expected
receivables, not collecting, uncollectible,
EUR mill.
%
EUR mill.

Not overdue
Overdue less than 60 days
Overdue more than 60 days
Total

33.0
-0.2
4.6
37.4

0.3%
0.2%
0.8%
0.3%

0.1
0.0
0.0
0.1

108.5
-1.4
1.8
108.9

0.3%
1.3%
1.4%
0.4%

0.4
0.0
0.0
0.4

During the financial year, the Group has recognised total 0.0 million euros (0.3) of credit losses from trade receivables
including received payments relating to previously recognised credit losses. Regardless of uncertainty caused by
COVID-19 pandemic, trade receivables do not contain significant credit risk because of diversity in the customer basis.
The maximum exposure to credit risk at the reporting date is the carrying amount of trade receivables. The Group does
not hold any collateral as security related to trade receivables.
Trade receivables by currency

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTEUR mill.

2020

2019

EUR
JPY
CNY
KRW
HKD
NOK
THB
USD
SEK
Other currencies
Total

15.3
5.7
3.7
3.4
2.2
2.1
1.9
1.6
0.9
0.7
37.4

48.6
9.9
5.6
3.6
4.9
3.7
1.7
11.3
3.7
15.8
108.9

1.2.4 Deferred income and advances received= Content of the section

55

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Deferred income and advances received includes prepaid, yet unflown flight tickets and package tours, for which thedeparture date is in the future. The Finnair Plus liability is related to Finnair’s customer loyalty program, and equals thefair value of the accumulated, unused Finnair Plus points.
Deferred revenue on ticket sales and advances received for tour operations decreased significantly in 2020 due tothe travel restrictions, reduced demand and flights cancellations following the pandemic. In total, Finnair refunded its
customers 464 million euros relating to the flight cancellations. The debt balance related to the Finnair Plus loyalty
program increased as the fair value of the point defined by historical behaviour of customers increased slightly and theexpiry of points was prolonged due to the exceptional circumstances for the benefit of customers, who have not beenable to use earned points in a normal manner during COVID-19 pandemic. The balance of other items increased as aresult of customers being offered gift vouchers in exchange of cancelled flights.

1.3 Operating expenses
The operating expenses section includes the income statement and balance sheet notes related to operating
expenses, aiming to provide a better overview of business operations and related expenses. Maintenance provisionsof leased aircraft that inherently relate to aircraft overhaul costs are included in this operating expenses section. Also
accrued expenses, such as liabilities related to jet fuel and traffic charges, are presented in this section. In addition,items related to employee benefits are presented at the end of this section in a separate note 1.3.8. Employee benefits.
It includes the different forms of benefits received by Finnair employees, including share-based payments andpensions, their effect on staff costs and balance sheet as well as information on management remuneration.
Finnair’s operating expenses decreased notably less than the decline in revenue, due to the inflexibility embedded
in certain costs relating to lease and depreciation expenses, aircraft maintenance as well as certain administrative,
property and IT expenses. Finnair was able to significantly reduce its variable operating expenses directly linked to thelower level of flying and reduced operational activity.
Finnair has introduced significant cost adjustment initiatives due to the effects of COVID-19 pandemic to Finnair’s
operations, such as temporary layoffs and certain amendments to Finnair’s pension fund terms. These are presented
more detailed in note 1.3.8.
Depreciation and impairment increased mainly due to impairment recognised in connection with aircraft part-outs
and two aircraft sale and leaseback agreements. These are presented more detailed in note 2.3.

Operating expenses included incomparable operating result€ million
3,500
3,000

2,991.3

2,500

Staff and other crew related
costs, change -47%

Sales, marketing anddistribution costs, change -84%

2,000

Fuel costs, change -66%
Capacity rents, change -31%

Passenger and handlingservices, change -65%

Aircraft materials andoverhaul, change -48%

Depreciation and impairment,change 6%

Traffic charges, change -66%

Property, IT and otherexpenses, change -17%

EUR mill.

2020

2019

Deferred revenue on ticket sales
Loyalty program Finnair Plus
Advances received for tour operations

55.7
51.9
3.4

451.2
43.3
45.4

1,000

Other items
Total

22.5
133.6

12.7
552.7

0

1,472.9

1,500

500

2019

2020

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

THE REPORT OF THE
BOARD OF DIRECTORS

1.3.1 Operating expenses by currency
EUR mill.

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

EUR
USD
Other currencies
Total

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

2020

2019

875.0
510.7
87.2
1,472.9

1,694.6
1,073.3
223.4
2,991.3

The hedging policies against foreign exchange rate fluctuations are described in note 3.5 Management of financial risks.

EUR mill.

2020

2019

Ground and cargo handling expenses
Expenses for tour operations
Catering expenses
Other passenger services
Total

80.9
27.8
21.2
38.7
168.6

206.2
120.3
74.0
76.3
476.7

Expenses related to passenger and handling services reduced as a result of the lower operating volumes caused by the
pandemic.

EUR mill.

2020

2019

IT expenses
Property expenses
Other expenses
Total

69.4
18.4
21.9
109.7

75.4
22.0
35.0
132.4

Property, IT and other expenses mainly consist of fixed costs.

56

2020

2019

Inventories
Receivables from sublease contracts
Aircraft materials and overhaul
Capacity rent receivables
Interest and other financial items
Jet fuels

22.9
14.2
7.4
7.1
5.3
2.8

27.4
13.2
4.9
10.0
0.3
4.5

VAT receivables
Other items
Total

0.9
7.6
68.1

5.0
14.8
80.2

EUR mill.

2020

2019

Jet fuel and traffic charges
Interest and other financial items
Aircraft materials and overhaul
Liabilities for tour operations

15.6
5.8
4.9
1.5

96.9
10.6
6.9
13.7

31.9
59.8

3.0
94.5
225.7

1.3.5 Other liabilities

Other liabilities decreased significantly as a result of the pandemic, as it mainly includes liabilities relating to variable
operating expenses such as jet fuel and traffic charges, aircraft materials and overhaul as well as tour operations forwhich the amounts are largely correlated with the actual operational volumes. Other items consists of several items,
none of which are individually significant.

1.3.6 Provisions
Provisions

Audit fees in other expenses= Accounting principles

EUR mill.

Income tax liabilities
Other items
Total

1.3.3 Property, IT and other expenses

EUR mill.

2020

2019

Authorised Public Accountants

KPMG

PwC

0.5
0.1
0.2
0.8

0.3
0.0
0.2
0.5

Auditor's fees
Tax advising
Other fees
Total

SUSTAINABILITY
APPENDIX

1.3.4 Inventories and other current assets

1.3.2 Passenger and handling services
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYREMUNERATIONREPORT

The auditor’s fees of KPMG Oy Ab included fees of 519 thousand euros for audit and 3 thousand euros for auditor’s
statements. Non-audit services to entities of Finnair Group were 285 thousand euros in total during the financial year
2020. These services included mainly capital markets services and relocations services. 205 thousand euros of auditor’sfees and 118 thousand euros of other fees were related to the rights issue and the hybrid bond issue and these wererecognized directly in equity.
In 2019 auditor was PricewaterhouseCoopers Oy and its non-audit services were 128 thousand euros, which included
auditors statements 58 thousand euros and other services 70 thousand euros.

Provisions are recognised when the Group has a present legal or constructive obligation as the result of a past event, thefulfilment of the payment obligation is probable, and a reliable estimate of the amount of the obligation can be made. The
amount to be recognised as provision corresponds to the management’s best estimate of the expenses that will be necessary to meet the obligation at the end of the reporting period.
The Group is obliged to return leased aircraft and their engines according to the redelivery condition set in the lease agreement.
If at the time of redelivery, the condition of the aircraft and its engines differs from the agreed redelivery condition, Finnair needs
to either maintain the aircraft so that it meets the agreed redelivery condition or settle the difference in cash to the lessor. To fulfil
these maintenance obligations, the Group has recognised airframe heavy maintenance, engine performance maintenance, engine
life limited part, landing gear, auxiliary power unit and other material maintenance provisions. The provision is defined as a difference between the current condition and redelivery condition of these maintenance components. The provision is accrued basedon flight hours flown until the next maintenance event or the redelivery and recognised in the aircraft overhaul costs in the income
statement. The provision is reversed at the maintenance event or redelivery. The price of the flight hour depends on the market
price development of the maintenance costs. Estimated future cash flows are discounted to the present value. The maintenancemarket prices are mainly denominated in US dollars, which is why the amount of maintenance provision changes due to currency fluctuation of the dollar. The unrealised changes in currencies are recognised in changes in exchange rates of fleet overhauls.
The final check and painting required at redelivery are considered unavoidable maintenance costs that realise when the aircraft is redelivered to the lessor, irrespective of the time or flight hours. The counterpart of the provision is recorded in the bookvalue of the right-of-use asset at the commencement of the lease. Respectively, costs depending on the usage of the aircraft
are not considered as part of the right-of-use asset cost, but these are recognised according to the principles presented above.
Restructuring provisions are recognised when the Group has prepared a detailed restructuring plan and has begun to implement the plan or has announced it.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Maintenance reserves of the fleet

The measurement of aircraft maintenance provisions requires management judgement especially related to timing of maintenance events and valuation of maintenance costs occurring in the future. The future maintenance costs and their timing
are dependent on, for example, how future traffic plans actually realise, the market price development of maintenance costs
and the actual condition of the aircraft at the time of the maintenance event. The ultimate duration of COVID-19 pandemic may have impact on the level of future maintenance expenses, which could cause the actual outcome to differ from theestimates currently made.

CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENT
EUR mill.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

Aircraftmaintenanceprovision

Other
provisions

Aircraftmaintenanceprovision

Other
provisions

2020

2019

166.3
25.4
-18.3
-1.3

3.1
27.2
-6.7
-10.6

169.4
52.6
-25.0
-11.9

132.2
61.6
-31.7

1.0
6.6
-5.7

133.2
68.2
-37.3

2.1

0.1

Provision at the
beginning of period
Provision for the period
Provision used
Provision reversed
Provision for rightof-use assets redelivery
Reclassifications
Unwinding of discountExchange rate
differences
Total

0.9

0.9

2.7

0.1
1.1
2.7

-12.2
162.8

13.0

-12.2
175.8

1.4
166.3

3.1

1.4
169.4

Of which non-current
Of which current
Total

153.6
9.2
162.8

2.2
10.8
13.0

155.8
20.0
175.8

151.8
14.5
166.3

0.4
2.7
3.1

152.2
17.2
169.4

2.1

AUDITOR’S REPORT
Non-current aircraft maintenance provisions are expected to be used by 2032. Other provisions include mainly items
related to restructuring actions due to COVID-19 impacts, which are expected to be used mainly by the end of 2021.
Provision for the period and provision used relating to aircraft maintenance provision were significantly lower due
to decreased flight operations during COVID-19 pandemic. Provision reversed in other provisions is mainly related torestructuring actions, which were originally estimated to be higher than realized as a result of co-operation negotiations.
In balance sheet, non-current provisions and other liabilities 161.1 (156.9) million euros includes, in addition toprovisions, other non-current liabilities 5.2 (4.7) million euros, which mainly consists of received lease deposits.

1.3.7 Items excluded from comparable operating result= Critical accounting estimates

57

Comparable operating result aims to provide a comparable view on business development between periods. Therefore,
items affecting comparability are excluded from the comparable operating result. The principles related to income
statement presentation and principles related to usage of alternative performance measures are described under thesection Notes to the consolidated financial statements. Calculation principles of alternative performance measures arealso defined in The report of the Board of Directors, in the section Calculation of key ratios. The detailed content of items
affecting comparability and the reasoning behind excluding those from comparable operating results is described below.
Unrealised exchange rate differences of US dollar denominated aircraft maintenance provisions are excluded fromcomparable operating result. These exchange rate effects are included in the comparable operating result only whenthe maintenance event or redelivery occurs and the exchange rate differences realise over a long period of time.
Finnair provides for fulfilling maintenance obligations related to leased aircraft according to the principles described in
the note 1.3.6. Provisions.

SUSTAINABILITY
APPENDIX

Further, unrealised fair value changes of derivatives where hedge accounting is not applied, are not included in thecomparable operating result, as the business transactions which they are hedging are recognised to the comparable
operating result only when they occur. The treatment of realised gains and losses on these derivatives is described in
the note 3.8 Derivatives.
In addition to above, gains and losses on aircraft and other transactions, certain changes in defined benefit pension
plans and restructuring costs are not included in the comparable operating result. Gains and losses on transactions
include sales gains and losses as well as other items that can be considered to be directly related to the sale of theasset. Changes in defined benefit pension plans include amendments made to Finnair’s pension fund terms relating topension index increment removals and pilots’ early retirement announcements. Restructuring costs include terminationand other costs that are directly related to the restructuring of operations.
The table below demonstrates, which income statement items included in operating result the items affecting
comparability have affected.
2020
EUR mill.

1.1

REMUNERATIONREPORT

Revenue
Sales gains on aircraftand other transactions
Other operating income
Operating expenses
Staff and other crew
related costs
Fuel costs
Capacity rents
Aircraft materials
and overhaul
Traffic charges
Sales, marketing anddistribution costs
Passenger andhandling services
Sales losses on aircraftand other transactions
Property, IT andother expenses
EBITDA
Depreciation andimpairment
Operating result

2019

Operating Items affecting
result comparability

829.2

Comparable
operatingresultOperating Items affecting
result comparability

829.2

3,097.7
-0.2

48.4

0.2
56.4

Comparable
operatingresult

3,097.7

0.9
48.4

-0.9

-163.9-232.8-89.3-119.70.2-283.5-232.7-89.3-536.6-686.0-130.21.9-1,3-534.7-687.3-130.2-92.5-112.4-12.2-104.7-112.4-202.5-331.31.4-201.2-331.3

-28.2

-28.2

-172.1-172.1-168.6-168.6-476.7-476.7

56.4

-0.1

0.1

-111.5-120.71.8-130.8-109.7-251.5-132.7
486.2

0.3
2,1

-132.4488.3-130.8-343.8-595.3-326.2
160.0

0.8
2,8

-325.4162.8-343.8-464.5

Staff and other crew related costs include items affecting the Group’s result positively by 119.7 million euro. Thisconsists of a 132.8 million euro positive one-off effect relating to amendments made to Finnair’s pension fund terms
and pilots’ early retirement announcements as well as termination benefit costs of 13.1 million euro. These were mainly
related to the cost saving measures and structural changes taken as a response to the COVID-19 pandemic.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCONSOLIDATED INCOME STATEMENT

1.3.8 Employee benefits

CONSOLIDATED STATEMENT

1.3.8.1 Employee benefit expenses and share-based payments

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

OF COMPREHENSIVE INCOME
Share-based payments

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING

Finnair provides a number of share-based compensation plans for its employees, under which the Group receives services from employees as consideration for share-based payments. Regarding share-based incentive plans for key personnel,
the awards are paid only if performance criteria set by the Board of Directors is met. Share-based savings plan for employees (FlyShare) requires the employees to remain in Finnair’s service for the defined period, but payment does not dependon any performance criteria.
The total expense for share-based payments is recognised over the vesting period, which is the period over which all of thespecified vesting conditions are to be satisfied. Share-based payments that are settled net of taxes are considered in their
entirety as equity-settled share-based payment transactions. The reward is valued based on the market price of the Finnair share as of the grant date, and recognised as an employee benefit expense over the vesting period with corresponding
entry in the equity. Income tax paid to tax authorities on behalf of employee is measured based on the market price of the­Finnair share at the delivery date and recognised as a decrease in equity. If the reward includes the portion settled in cash,
it is accounted for as a cash-settled transaction. The liability resulting from the cash-settled transactions is measured basedon the market price of the Finnair share at the balance sheet date and accrued as an employee benefit expense for service
period with corresponding entry in the liabilities until the settlement date.

ARRANGEMENTS

Termination benefits

CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits
when it is demonstrably committed to a termination. Group is demonstrably committed when it has a detailed formal plan toterminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage
voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.
Accounting principles related to pension benefits are described in the note 1.3.8.2 Pensions.
Staff and other crew related costs
EUR mill.

AUDITOR’S REPORT= Accounting principles

58

Wages and salaries
Defined contribution schemes
Defined benefit schemes
Pension expenses total
Other social expenses
Salaries, pension and social costs
Operative staff related costs
Leased and outsourced crew
Other personnel related costs
Total
Staff costs included in items affecting comparability
Total staff and other crew related costs in income statement

2020

2019

222.4
33.9
12.5
46.5
-15.1
253.8
15.8
6.6
7.3
283.5
-119.7
163.9

371.4
63.4
11.2
74.6
16.7
462.7
42.8
16.2
13.0
534.7
1.9
536.6

At Finnair, the total salary of personnel consists of fixed pay, allowances, short- and long-term incentives, fringe
benefits and other personnel benefits. Short-term incentives for the financial year 2020 were cancelled due to theimplementation of the savings program resulting from the pandemic.
Staff costs in items affecting comparability include items effecting on the Group’s result positively by 119.7 million
euro. This consists of 132.8 million euro positive one-off net effect relating to certain amendments made to Finnair’s
pension fund terms and pilots’ early retirement announcements as well as termination benefit costs of 13.1 million
euro. These items are mainly related to the cost saving measures and co-operation negotiations resulting from the
COVID-19 pandemic that ended in October 2020. In 2019, staff costs in items affecting comparability included personnel

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

related restructuring costs of 1.9 million euros. Total staff costs including items affecting comparability amounted to163.9 million euros (536.6). The costs decreased, as capacity was cut significantly due to COVID-19 pandemic and Finnaircommenced the majority of temporary layoffs in April 2020.
In 2020, Finnair established a new long-term Rebuild incentive program for the personnel. As part of the program,
employee can earn a cash reward equals to one month base salary, when the target set by the Board of Directors are
met. A maximum of two months’ base salary can be paid when targets are exceeded. The possible reward is paid during
third quarter 2023. The program is available to those employee groups which have agreed to actions related to staff
cost savings. In 2020, the cost recognised for the Rebuild incentive established for personnel was 2.2 million euros
excluding social security costs. The performance criteria are the same as those of the Rebuild incentive plan established
for the Executive Board, which is described in the section Share-based payments of this note.
Transfer to Personnel Fund
Finnair has a Personnel Fund that is owned and controlled by the personnel. A share of Finnair’s profits is allocated to
the fund. The share of profit allocated to the fund is determined based on the targets set by the Board of Directors. The
participants of the performance share plan (LTI) are not members of the Personnel Fund. Personnel Fund is obliged
to invest part of the bonus in Finnair Plc’s shares. In 2020, no profit was not allocated to the fund because the set
performance criteria were not met. In 2019, 1.5 million euros were allocated to the fund.
Liabilities related to employee benefits
EUR mill.

2020

2019

Holiday payments
Other employee related accrued expenses
Liabilities related to employee benefits

54.6
16.1
70.7

78.9
40.5
119.4

Other employee related accrued expenses mainly include witholding tax and accrued expenses related to social
security costs and remunerations. Liabilities related to employee benefits decreased due to ongoing temporary layoffs,
summer holidays in the middle of temporary layoffs and cancelled short-term incentives for the financial year 2020.
In addition, restructuring provisions related to termination benefits (see note 1.3.6 Provisions) amounted to 8.1 million
euros (1.7).
Management remuneration
The President and CEO and Executive Board remuneration

Thousand euros

President
and CEO
Topi Manner

Executive
Board

Total 2020

President
and CEO
Topi Manner

Executive
Board

Fixed pay
725
1,865
2,590
752
2,078
Short-term incentives
7
7
217
385
Fringe benefits
15
99
114
17
58
Termination benefits
832
Share-based payments
132
568
700
263
390
Pensions (statutory)*
109
301
410
138
439
Pensions (voluntary,defined contribution)
47
47
50
Total
981
2,887
3,868
1,386
4,231
* Statutory pensions include Finnair’s share of the payment to Finnish statutory “Tyel” pension plan.

Total 2019

2,830
602
75
832
653
576
50
5,618

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSManagement remuneration is presented on an accrual basis. Share-based payments include LTI plans and employee
share savings plans and are recognised over the vesting period until the end of lock-up period, according to IFRS 2.
Therefore the costs accrued and recognised for the financial year include effects from several share-based payment
plans independent of when the shares are delivered. Management has not been provided any other long-term
incentives in addition to share-based payments.
During 2020, the CEO and Executive Board voluntarily cut their base salaries for a temporary period.
In conjunction with the rights offering in 2020, the EU commission set restrictions to CEO and Executive Board
remuneration covering years 2020-2022. The restrictions cover variable compensation payouts and any changes to
fixed compensation during year 2020-2022. As a result, Board of Directors decided to cancel the 2018-2020, 2019-2021
and 2020-2022 LTI plans as well as the 2020 STI plan for the CEO and Executive Board. A new share-based long-term
Rebuild incentive program was established for the CEO and Executive Board for the period 7/2020-6/2023.
During 2020 the voluntary pension plans of two members of the Executive Board have been arranged through a
Finnish pension insurance company. At the end of 2020 only one member of the Executive Board had this voluntary
pension plan. The retirement age for these members of the Executive Board is 63 years. The plans are defined
contribution plans.
More information on share-based payment schemes can be found later in this note and in a separate Remuneration
report and on company website.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Compensation paid for board service,
EUR

Board of Directors
Alahuhta-Kasko Tiina
Barrington Colm
Brewer Montie
Du Mengmeng
Erlund Jukka
Karvinen Jouko
Kjellberg Henrik
Strandberg Maija,
from 29 May 2020 onwards
Tuominen Jaana

Total 2020

Fixed
Meetingremuneration compensation Fringe benefits

406,238
42,37546,96544,77544,17543,96568,96844,775

268,915
27,37529,56527,37527,37529,56555,84527,375

135,600
15,00017,40017,40016,80014,40011,40017,40023,87546,365

14,87529,5659,000
16,8001,723

Total 2019

2015

2016

2017

2018

2019

2020

2021

2022

2023

LTI 2015–2017
LTI 2016–2018
LTI 2017–2019
LTI 2018–2020
LTI 2019–2021
LTI 2020–2022
LTI Rebuild
7/2020–6/2023*
Fly Share 2017
Fly Share 2018
Fly Share 2019
Fly Share 2020
Lock-up period for Executive Board
Share delivery* Total incentive rewards cannot exceed 120% of annual base salary in any year,
possible exceeding amount is deferred from 2023 to following years.

422,356

Performance share plan for key personnel (LTI) from 2013 onwards

1,723

The remuneration of the Board of Directors is presented on an accrual basis. The compensation paid to the members of
the Board of Directors include annual remuneration and meeting compensation. The members of the Board of Directors
are entitled to a compensation for travel expenses in accordance with Finnair’s general travel rules. In addition,
the members of the Board of Directors and their spouses have a limited right to use staff tickets in accordance withFinnair’s staff ticket rules. These tickets constitute taxable income in Finland and are reported as fringe benefits in thetable above.
During 2020 the Board of Directors voluntarily cut their annual remunerations for a temporary period.

Share-based payments
The note below provides description and information on effects of the Group’s share-based incentive schemes. Moreinformation on share-based personnel bonus schemes can be found in Remuneration report.

59

SUSTAINABILITY
APPENDIXFINNAIR SHARE-BASED PAYMENT PLANS

Earnings / savings period
Lock-up period

Remuneration paid to Board of Directors

REMUNERATIONREPORT

Finnair’s share-based incentive plan is a performance-based, annually commencing long-term incentive (LTI)
arrangement, and the commencement of each new plan is subject to a separate decision made by Finnair’s Board of
Directors. The purpose of these plans is to encourage the management to work to increase long-term shareholder
value. The Finnish Government’s guidance regarding the remuneration of executive management and key individuals
have been taken into consideration when designing the plans.
Plans launched during 2013–2016 are four-six-year share plans and there are two plans ongoing (2015–2017 and2016–2018). Each LTI plan contains a three-year performance period which is followed by a restriction period, during
which the participant may not sell or transfer the shares received as a reward. The restriction period is three years forthe members of Finnair’s Executive Board and one year for other participants.
In 2017, a new LTI arrangement was launched and there are three plans ongoing (2018–2020, 2019–2021 and 2020–2022). In the revised structure the annually commencing performance share plans retain the three-year performance
period like before. The potential share rewards will be delivered to the participants in one tranche after the
performance period and they are at the participants’ free disposal after delivery. In conjunction with the rights offeringin 2020, according to the restrictions set by EU commission, the Board of Directors decided to cancel the 2018–2020,
2019–2021 and 2020–2022 LTI plans for the CEO and Executive Board.
In 2020, a new Rebuild incentive plan for CEO and Executive Board was launched. The program contains a three-year
performance period (7/2020–6/2023) and it is designed to contain only this one plan. The potential share rewards will
be delivered to the participants in a pre-determined proportion of shares and cash after the end of the performance
period and the rewards are at the participants’ free disposal after delivery. If the combined value of incentive rewards
in 2023 exceeds 120% of executive’s annual salary, the exceeding part is deferred to coming years so that the combined
incentive payout in any year does not exceed 120% of the executive’s annual base salary.
In all ongoing LTI plans, the members of Finnair’s Executive Board are expected to accumulate their share ownershipin Finnair until it corresponds to their annual gross base salary and thereafter retain it for as long as they are membersof the Executive Board.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT60

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

The potential reward will be delivered in Finnair shares. The shares are delivered to the participants during the year
following the performance period, except for the new Rebuild incentive where the performance period ends in June
2023 and the reward is delivered in the same year.
The payout opportunity is defined in the beginning of each plan in relation to the participants annual base salary.
For the plans commencing during 2013–2016, the payout opportunity is defined in a fixed euro amount. In the planscommencing in 2017–2020 as well as in the new Rebuild incentive plan, the payout opportunity is defined as a fixedshare amount and therefore changes in the share price during the performance period impacts the value of the payout
opportunity. If the performance criteria set for the plan are met at the target level, the incentive paid in Finnair sharesto the President and CEO or other member of the Executive Board participating in the plans will be 30% of his or her
annual base salary in the plans commencing 2013–2016 and 20% in the plan commencing in 2017 and a total of 180% in
the Rebuild incentive plan. If the performance criteria set for the plan are met at the maximum level, the incentive paidin Finnair shares will be 60% of the participant’s annual base salary and a total of 360% in the Rebuild incentive plan.
The maximum level for incentives for other key personnel is 20–50% of the person’s annual base salary. As a resultof the rights issue in 2020, the share allocations for the ongoing 2018–2020, 2019–2021 and 2020–2022 plans were
adjusted 5.5-fold in order for the earning opportunities to retain their value.
According to the rules of the share plans commencing in 2017–2020, the maximum combined value of all variable
compensation (including both short- and long-term incentives) paid to an individual participant in any given calendar
year may not exceed 120% of the participant’s annual gross base salary. The amounts of shares paid are stated before
tax. The number of shares delivered will be deducted by an amount corresponding to the income tax and transfer
tax payable for the incentive at the time of payment. In the Rebuild incentive plan, the amount corresponding to tax
payable at the time of payment is first deducted from the gross reward defined as shares. The net reward is delivered in
a combination of cash and shares in a proportion decided by the Board of Directors.
The performance criteria applied to the plans 2015–2017 and 2016–2018 are Return on Capital Employed (ROCE,
50% weight) and Total Shareholder Return (TSR, 50% weight). The performance criteria applied to the plans 2017–2019
and 2018–2020 are earnings per share (EPS, 50% weight) and revenue growth (50% weight). The performance criteria
applied to the plan 2019–2021 are earnings per share (EPS, 50% weight), revenue growth (16.7% weight) and unit costwith constant currencies and fuel price (CASK, 33.3% weight). The performance criteria applied to the plan 2020–2022
are earnings per share (EPS, 50% weight) and unit cost with constant currencies and fuel price (CASK, 50% weight).
In the Rebuild incentive, the performance criteria are set for the whole 3-year period as well as for three 12-month
mid-term periods. The performance criteria for the first mid-term period (7/2020–6/2021) are comparable EBITDA,
gearing, Lost Time Injury Frequency and CO2 emissions (measured through fuel efficiency). The criteria for the whole
3-year period, is cash flow from operating activities which functions as a multiplier (0-2) for the whole program. Thismeans that the threshold level needs to be reached in order for any reward to be paid.
The target levels and maximum levels set for the criteria are based on the long-term strategic objectives set by thecompany’s Board of Directors. Criteria are monitored against the performance on a quarterly basis. The performance
criteria of the plan for 2017-2019 were met at 194% level while the target was at 100% and the maximum earning levelat 200%. In the comparison period, the performance criteria applied to the 2016-2018 plan was met at 187% level.
The total expense for the share-based payments is recognised over the vesting period, which is 4–6 years in theplans commencing 2013–2016 and three years in the plans commencing 2017–2020 and in the Rebuild incentive plan.
For the plans commencing 2013–2016, the compensation is measured during performance period in cash, and only
after performance period at grant date translated into shares. In the plans commencing 2017–2020 and in the Rebuild
incentive plan the grant date is at the beginning of performance period and the compensation is measured in shares.
The expense recognised for 2020 amounted to 0.6 million euros (1.2). The amount expected to be transferred to the tax
authority to settle the employee’s tax obligation is 6.0 million euros (2.1). The cost related to share-based payments is
recognised in staff and other crew related costs and unrestricted equity funds, except the cash-settled portion of the
Rebuild incentive plan in liabilities related to employee benefits.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Rebuild
2015–2017 2016–2018 2017–2019 2018–2020 2019–2021 2020–2022 2020–2023

Grant date
Grant price, euros*
Number of persons at theend of the reporting year
Expenses recognised forthe financial year, LTI’s
total (million euros)of which sharesettled (net of taxes)of which cash-settled
Liability related
to LTI's total
Shares granted,
million shares**Total

17 Dec2014
1.3196

10 Feb2016
1.19707 Feb
2017
0.668515 Feb2018
1.427214 Feb2019
1.19147 Feb
2020
1.04789 Oct
2020
0.3948

1

1

0

29

30

47

9

0.0

0.1

0.4

-0.5

-0.1

0.0

0.7

0.6

0.0

0.1

0.4

-0.5

-0.1

0.0

0.4
0.3

0.4
0.3

0.3

0.3

19.0

23.0

0.2

0.3

0.5

0.6***

1.0***

1.5**** Grant price until plan granted on 7 February 2020 has been adjusted by a bonus element included in the rights issue in 2020.
** At the end of the performance period of 2015–2017 and 2016–2018 plans, the vested euros were translated into shares, andgranted and delivered. In 2017–2019, 2018–2020, 2019–2021, 2020-2022 and 2020-2023 Rebuild plans shares are earned during
vesting period, from the beginning of the program.
*** As a result of the rights issue in 2020, the share allocations for the ongoing 2018–2020, 2019–2021 and 2020–2022 plans were
adjusted 5.5-fold in order for the earning opportunities to retain their value. These plans were cancelled for the CEO and Executive
Board.

FlyShare employee share savings plan 2013 onwards
Finnair offers an annually commencing share savings plan for its employees. Commencing of each plan is subject to thedecision of Finnair’s Board of Directors. The first plan commenced in 2013, and for the time being there are three plans
ongoing. The objective of the plan is to encourage employees to become shareholders in the company, and to thereby
strengthen the employees’ interest in the development of Finnair’s shareholder value and reward them in the longterm.
Each plan consists of one year savings period followed by two year lock-up period. Through the plan, each eligible
Finnair employee is offered the opportunity to save part of his or her salary to be invested in Finnair shares. The
maximum monthly savings are 8% and the minimum 2% of each participant’s gross base salary per month. Shares arepurchased with the accumulated savings at the market price quarterly, after the release of Finnair’s interim reports.
Finnair awards 110 bonus shares (was 20 prior the share issue in 2020) to each employee that participates in theplan for the first time, and continues savings at least the first three months of the plan. The bonus shares are deliveredin October each year, and the effect is recognised as expense for the period. The plan lasts for three years, and Finnairawards each participating employee with one share for each two shares purchased and held at the end of three-year
period. The awarded bonus and additional shares are taxable income for the recipient. The number of shares delivered
will be deducted by an amount corresponding to the income tax and transfer tax payable for the shares at the time of
payment. The cost related to additional shares delivered is recognised as expense during vesting period.
The expense recognised for FlyShare employee share saving plans in 2020 amounted to 1.3 million euros (1.1). The
amount expected to be transferred to the tax authority to settle the employee’s tax obligation is 0.7 million euros (1.1).
The cost related to employee share saving plans is recognised in staff and other crew related costs and unrestrictedequity funds.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

1.3.8.2 Pensions

61

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Defined benefit pension plans
2020

2019

12.5
17.9
-150.7-120.30.6-119.7

10.4
0.9
11.2
0.2
11.5

Amounts recognised through other comprehensive income
Experience adjustment on plan obligation
Changes in financial actuarial assumptions
Net return on plan assets
Amounts recognised through other comprehensive income total

-4.2
22.5
-5.2
13.1

-3.2
93.1
-39.7
50.2

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations.
The note below includes a description of exposure to most significant risks and a sensitivity analysis on impacts of changes
in actuarial assumptions.

Number of persons involved, pension fundNumber of persons involved, other defined benefit plans

4,448
159

4,865
168

Description of pension plans at Finnair

Items recognised in the balance sheet
EUR mill.

2020
PensionPensionassetsobligations

2019
Pensionobligations

Present value of funded obligations
Fair value of plan assets
Pension assets (+) / pension obligations (-) in the balance sheet-397.8429.6
31.8

Defined benefit and defined contribution plans

Pension plans are classified as defined benefit and defined contribution plans. Payments made into defined contribution
pension plans are recognised in the income statement in the period to which the payment applies. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one ormore factors such as age, years of service and compensation. Current service cost is the present value of the post employment benefit, which is earned by the employees during the year and it is recognised as staff and other crew related costs.
The liability recognised in the balance sheet in respect of defined pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligations is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds thatare denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to theterms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. If
fair value of plan assets is higher than present value of funded obligations, the net amount is presented as pension assets
in the Group’s balance sheet.
Pension obligations

The statutory pension cover of the employees of the Group’s Finnish companies has been arranged in a Finnish pension
insurance company. The statutory pension cover is a defined contribution plan. The Group’s foreign sales offices andsubsidiaries have various defined contribution plans that comply with local rules and practices. CEO has no voluntary
pension plan. At the end of 2020, the voluntary pension plan of one member of the Executive Board is arranged ina pension insurance company. The retirement age for this member is 63 years. These pension schemes are defined
contribution schemes. Other (voluntary) pension cover of the Group’s domestic companies has been arranged mainly
through Finnair Plc’s Pension Fund, in which the pension schemes are defined benefit plans. These pension planscover old age pensions, occupational disability and survivors’ pensions. The pension fund is fully funded in accordancewith the provisions of Finnish law. 600 Finnair pilots have, in addition to the voluntary pension arranged in Finnair
Pension Fund, special defined benefit pension scheme. This scheme applies only to pilots who work past 58 years ofage. Voluntary pensions of pilots recruited in 2015 or later are defined contribution schemes arranged through Finnish
insurance company, except for the occupational disability benefit, which is a defined benefit plan arranged through the
Finnair Pension Fund.
In 2020, amendments related to pension index increment removals were done, which lowered pension obligations
significantly. As a result of the amendment, there is no more inflation risk.

Exposure to most significant risks= Accounting principles= Critical accounting estimates

CORPORATE GOVERNANCE
STATEMENT

Volatility of plan assets: Some of the plan assets are invested in equities which causes volatility but one in the long run
expected to provide higher returns than corporate bonds. The discount rate of plan obligations is defined based on theinterest rates of corporate bonds.
Changes in bond yield: A decrease in corporate bond yields increases plan obligations due to the fact that thepension obligation is discounted to net present value with a rate that is based on corporate bond rates. This increase inplan obligations is partially mitigated by a corresponding increase in the value of corporate bonds in plan assets.
Life expectancy: The most significant part of the provided pension benefits relate to old age pensions. Therefore, anincrease in the life expectancy rate results in an increase of plan obligations.

EUR mill.

Items recognised in the income statement
Current service costs
Past service cost
Amendments
Service cost total, recognised in staff costs
Net interest expenses
Total included in the income statement

-7.7
6.2
-1.5

-523.2446.1-77.1

Pension assets 31.8 million euros in 2020 includes 31.0 million euros related to defined benefit plans insured through thepension fund and 0.9 million euros related to other defined benefit plans. Pension obligations in 2020 includes 1.5 million
euros related to other defined benefit plans. Pension obligations in 2019 includes 77.0 million euros related to defined
benefit plans insured through the pension fund and 0.1 million euros related to other defined benefit plans. The change
during 2020 mainly relate to the changes in defined benefit plans (net impact of the saving of 150.7 million euros from
Finnair’s pension fund index increment removals and the cost of 17.9 million euros from pilots’ early retirement).
Changes in pension obligations
EUR mill.

Fair value of pension obligations at 1 January
Current service costs
Past service cost
Amendments
Interest expense
Expense recognised in income statement
Changes in actuarial assumptions
Experience adjustment on plan obligation
Remeasurements recognised through OCI
Benefits paid
Net present value of pension obligations

2020

2019

523.2
12.0
17.9
-150.7
3.8-117.0
22.5
-4.2
18.3
-19.0
405.5

435.1
9.1
0.9
7.4
17.4
93.1
-3.2
89.9
-19.3
523.2

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

2 Fleet and other fixed assets and leasing arrangements

Changes in plan assets
EUR mill.

2020

2019

Fair value of plan assets at 1 January
Administration expenses
Interest income
Items recognised through profit and loss
Acturial gain (loss) on plan assets
Items recognised through OCI
Contributions paid
Benefits paid
Fair value of plan assets at 31 December

446.1
-0.5
3.2
2.7
5.2
5.2
0.8
-19.0
435.8

418.1
-1.2
7.2
6.0
39.7
39.7
1.6
-19.3
446.1

%

2020

2019

Listed shares
Debt instruments
Property
Other
Total

18.8
56.6
20.0
4.6
100.0

22.8
52.2
19.2
5.8
100.0

Plan assets of the pension fund include Finnair Plc shares with a fair value of 1.1 million euros (0.8) and buildings usedby the Group with a fair value of 18.2 million euros (19.7).

Discount rate %Inflation %Annual rate of future salary increases %Future pension increases %Estimated remaining years of service

2020

2019

0.254%
0.98%
1.40%
0.00%
8

0.87%
1.10%
1.60%
1.40%
9

Sensitivity analysis
The sensitivity analysis describes the effect of a change in actuarial assumptions on the net defined benefit obligation. The
analyses are based on the change in the assumption while holding all other assumptions constant. The method used is thesame as that which has been applied when measuring the defined benefit obligation recognised in the balance sheet.
Sensitivity analysis on principal actuarial assumptions

Actuarial assumption

Discount rate %Annual rate of futuresalary increases %Life expectancy at birth62

The assets owned and leased by Finnair consist mostly of aircraft operated by Finnair and Norra. In 2020, the numberof owned aircraft is 45 (47) and leased 38 (36).

FLEET
Owned, 45

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND= Content of the section

Fleet and other fixed assets and leasing arrangements includes notes particularly related to the aircraft fleet. Notes
related to the aircraft operated by the Group are combined in this section so that the general view of the fleet is easierto understand. In addition to owned aircraft, the notes cover leased aircraft under different kinds of aircraft leasearrangements.

Plan assets are comprised as follows

Defined benefit plans: principal actuarial assumptions

AUDITOR’S REPORTSUSTAINABILITY
APPENDIX

Change inassumption

Impact whenincrease inassumption,
EUR mill.

%

Impact whendecrease inassumption,
EUR mill.

%

0.25%

-10.8

-2.8%

11.4

2.9%

0.25%
1 year

2.8
9.9

0.7%
2.5%

-2.7

-0.7%

Lease, 38

Narrow-body, 59

CONSOLIDATED STATEMENTREMUNERATIONREPORT

Wide-body, 24

CONSOLIDATED INCOME STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

A350 (16)A330 (8)E190 Norra operated (12)A321 (19)A320 (10)ATR Norra operated (12)A319 (6)Fleet in Finnair balance sheet
EUR mill.

Advances paid for aircraft
Owned aircraft
Right-of-use fleet
Fleet total
Fleet sublease receivables
Fleet lease liabilities
Depreciation for the period of owned aircraft
Depreciation for the period of right-of-use fleet
Impairment for the period related to owned aircraft

2020

2019

Change117.7
1,322.5772.5
2,212.7
33.7
854.0

117.8
1,415.6
736.4
2,269.7
47.0
901.7

0.0
-93.0
36.1
-57.0
-13.2
-47.7

184.1
107.2
8.2

171.2
106.1

-12.9
-1.0
-8.2

According to Finnish legislation, the pension fund needs to be fully funded. Finnair does not expect to pay contributions
to the pension fund in 2021. The duration of defined benefit obligation is 11 years. The duration is calculated by using a
discount rate of 0.25%.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT63

FINANCIALSTATEMENTS

The number of operated aircraft remained unchanged during the period. Two new A350 aircraft were delivered basedon the existing agreement between Finnair and Airbus. As the demand for passenger flights was significantly decreased
due to COVID-19, not all of the fleet was used in its full capacity. As at the balance sheet date, 54 out of Finnair’s 83
aircraft were kept at Helsinki-Vantaa airport and maintained in such a condition that they are flight-ready. Three widebody aircraft and 26 narrow-body aircraft were not actively used in the operations and were temporarily stored in
Prague or Southern France, where the climate is more suitable for storing of the aircraft. This represents approximately
17% of the year-end carrying value of the total fleet amounting to 350 million euros. All temporarily stored aircraft are
expected to be used in their full capacity within next two to three years.
Finnair responded to the COVID-19 pandemic with several aircraft refinancing transactions with the aim of improving
the Group’s financial position and by decreasing costs of the aircraft not actively used. In December 2020, two older
A319 aircraft were retired early and preparations for dismantling of the aircraft were started. These aircraft havesome components that Finnair is able to keep as spares for its own maintenance operations and thus, reduce future
maintenance costs. Some of the parts were sold or are expected to be sold and the rest will be recycled. In addition,
two A350 aircraft were re-financed by sale and leaseback arrangements and the aircraft were transferred from owned
to leased aircraft. One additional A350 aircraft was re-financed through a finance lease arrangement which transfers
the ownership of the aircraft back to Finnair when fully paid. In the balance sheet, this aircraft is presented as part ofFinnair’s owned aircraft and the loan as interest-bearing liability. Further detail on these transactions is presented innotes 2.1-2.3 and 3.3.
More detailed information regarding the owned aircraft is found in note 2.1 and regarding the leased aircraft in note
2.2. Depreciation and impairment are presented in more detail in note 2.3.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX• Buildings, over 10–50 years from the time of acquisition to a residual value of 10 %• Other tangible assets, over 3–15 years• Computer software, over 3–8 years
The residual values and estimated useful lives of the assets are assessed at each closing date and if they differ significantly
from previous estimates, the depreciation periods and residual values are changed accordingly. Due to the COVID-19 pandemic the fleet has not been used in its full capacity, and therefore Finnair has paid additional attention to the review of useful lives and residual values of the fleet assets. Changes made as a result of the review were not significant due to the relatively long useful life of the fleet assets.
Assets held for saleNon-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered
principally through a sale transaction, a sale is considered highly probable and expected to take place within the next twelve
months. Assets classified as held for sale are stated at the lower of the carrying amount or fair value less cost to sell. Assets
classified as held for sale are no longer depreciated.
Impairment

The Group reviews its fleet and other fixed assets for indication of impairment on each balance sheet date. Impairment loss
is recognized if an asset’s recoverable amount is below its carrying amount. The recoverable amount is determined as thehigher of the asset’s fair value less costs to sell or its value in use. The recoverable amount is defined for a cash generating
unit, and the need for impairment is evaluated at the cash generating unit level. The value in use is based on the present
value of the expected net future cash flows obtainable from the asset or cash-generating unit. Individual assets are excluded from the cash generating unit if they no longer are held for service or are intended to be sold, and are tested for impairment based on their fair value less costs to sell. Impairment testing, including the critical accounting estimates and sourcesof uncertainty inherent in the calculations, is described in more detail in note 2.3.

2.1 Fleet and other fixed asset
Fleet 2020

Fleet and other fixed assets are stated at historical cost less accumulated depreciation and accumulated impairment loss if
applicable. Fleet includes aircraft and aircraft prepayments. The acquisition cost of aircraft is allocated to the aircraft frame,cabin components, engines and maintenace components as separate assets. Maintenance components include heavy maintenance, C-checks, APU (auxiliary power unit) restorations, landing gear overhauls and thrust reversers of aircraft frames,
as well as performance restoration and maintenance of life limited parts of engines. Aircraft frames and engines are depreciated over the useful life of the aircraft. The maintenance components are depreciated during the maintenance cycle. Cabin components are depreciated over their expected useful life. Significant modifications of own or leased aircraft are capitalised as separate items and depreciated over their expected useful life, which in the case of leased aircraft cannot exceed
the lease period. Replaced components are derecognised from the balance sheet.
Advance payments for aircraft are recorded as fleet fixed assets. Interest costs related to advance payments are capitalised as acquisition cost for the period at which Finnair is financing the manufacturing of the aircraft. Hedging gains or losses related to the fair value changes of firm, USD nominated purchase commitments for aircraft are recognised in advancepayments. Advance payments, realised foreign exchange hedges and capitalised interests are recognised as part of the aircraft acquisition cost once the aircraft is delivered and taken to commercial use.
Other fixed assets include rotable aircraft spare parts, other fixed assets and their prepayments. Other fixed assets are depreciated during their expected useful life.
Intangible assets mainly include computer software, connection fees and goodwill. Connection fees and goodwill are notdepreciated.
Gains and losses on disposal of tangible and intangible assets are included in the items affecting comparability.
Useful life and residual value= Accounting principles

THE REPORT OF THE
BOARD OF DIRECTORS

Depreciation of fleet and other fixed assets is based on the following expected economic lifetimes:• New aircraft and engines as well as flight simulators (other equipment) on a straight-line basis as follows:− Airbus A350 fleet, over 20 years to a residual value of 10 %− Airbus A320 and Embraer fleet, over 20 years to a residual value of 10 %− Airbus A330 fleet, over 18 years to a residual value of 10 %− Turboprop aircraft (ATR fleet), over 20 years to a residual value of 10 %• Heavy maintenance, C-checks, APU and landing gear restorations and thrust reversers of aircraft frame, as well as performance maintenance and life limited parts of the engines, on a straight-line basis during the maintenance period• Cabin components, over 7–20 years• Rotable spare parts and components, over 15–20 years to a residual value of 10 %EUR mill.

Aircraft

Advances

Total

Acquisition cost 1 Jan 2020
Additions
Disposals
Currency hedging of aircraft acquisitions
Reclassifications
Transfer to assets held for sale
Acquisition cost 31 Dec 2020

2,460.7
244.4-306.5

117.8
47.0

75.2

32.4
-79.5

2,578.5
291.4-306.532.4-4.3

2,473.8

117.7

2,591.5

Accumulated depreciation and impairment 1 Jan 2020
Disposals
Depreciation for the financial year

-1,045.2
86.2-184.1-1,045.2
86.2-184.1

Impairment for the financial year
Accumulated depreciation and impairment 31 Dec 2020

-8.2
-1,151.3-8.2-1,151.3

Book value 31 Dec 2020

1,322.5

117.7

1,440.3

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Additions to owned aircraft include the acquisition of two new A350 aircraft. Disposals are related to sale and leaseback
arrangements of one new and one older A350 aircraft. The reclassifications relate to the capitalization of the aircraft
prepayments at the time of the recognition of the two new A350 aircraft on Finnair’s balance sheet. The currency
hedging of aircraft acquisitions is described in notes 3.5 Management of financial risks and 3.8 Derivatives. Impairment
for the financial year is presented in more detail in the note 2.3 Depreciation and impairment.

In addition to the aircraft rotable parts included in the other fixed assets, Finnair’s inventories include non-rotable
aircraft parts amounting to 19.2 million euros (23.1). Other equipment includes 3.3 million euros of assets related toretired A319 aircraft, that Finnair is expecting to sell but that are not classified as held for sale as the sale is not deemed
highly probable within 12 months. Intangible assets mainly include computer software, connection fees and goodwill. The
goodwill included in intangible assets amounted to 0.5 million euros (0.5).

Fleet 2019

Other fixed assets 2019

EUR mill.

Aircraft

Advances

Total

Acquisition cost 1 Jan 2019
Additions
Disposals
Currency hedging of aircraft acquisitions
Reclassifications
Transfer to assets held for sale
Acquisition cost 31 Dec 2019

2,082.2
310.7
-9.7

120.4
76.0

2,202.7
386.7
-9.7
-1.1
0,0

77.6
2,460.7

-1.1
-77.6
117.8

2,578.5

Accumulated depreciation and impairment 1 Jan 2019
Disposals
Depreciation for the financial year
Impairment for the financial year
Accumulated depreciation and impairment 31 Dec 2019-882.48.5-171.2-882.48.5-171.2-1,045.2-1,045.2

Book value 31 Dec 2019

1,415.6

117.8

1,533.3

Other fixed assets 2020
EUR mill.

Acquisition cost 1 Jan 2020
Additions
Disposals
Currency hedging ofaircraft acquisitions
Reclassifications
Transfer to assets held for sale
Acquisition cost 31 Dec 202064

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Accumulated depreciationand impairment 1 Jan 2020
Disposals
Depreciation for thefinancial year
Impairment for thefinancial year
Accumulated depreciationand impairment 31 Dec 2020
Book value 31 Dec 2020

Aircraftrotable parts

Buildings
and land

Other
equipment

Intangible
assets

50.1
1.7
-0.4

75.6

96.8
17.3
-3.0

51.6
2.8
-0.4

EUR mill.

Acquisition cost 1 Jan 2019
Additions
Disposals
Currency hedging ofaircraft acquisitions
Reclassifications
Transfer to assets held for sale
Acquisition cost 31 Dec 2019

52.5

75.6

-33.4
0.3

-8.2

-2.8

7.2

306.3

-28.5
4.9

-32.8
0.5

-102.9
5.7

-1.6

-9.5

-9.9

-23.8

-35.8

-9.8

-33.1

-42.3

-121.0

16.7

65.8

82.6

13.0

7.2

0.2
0.1
50.1

-0.1

51.8
6.3
-10.6

6.4
6.9

269.2
33.4
-21.4

1.9

4.2

-6.2

75.6

96.8

51.6

7.1

0.0
0.1
281.2

-30.7
0.6

-6.8
0.4

-27.1
6.9

-31.4
10.6

-96.0
18.6

-3.3

-1.8

-8.3

-11.3

-24.7

-0.8

-0.8
-102.9

16.8

67.4

68.3

18.8

7.1

178.4

Aircraft
2020

2019

Advances
2020

2019

Total
2020

2019

Book value 1 Jan
Additions
Disposals
Reclassifications
Depreciation

17.6

15.3

4.3
3.3

3.6
3.9

-2.9
4.8
-0.9

3.2
-0.9

-4.8

-3.2

Book value 31 Dec

18.6

17.6

2.8

Capitalised borrowing costs

55.3

90.0
13.8
-8.9

0.0

281.2
26.4
-3.8

115.7

76.0
0.1
-0.4

Total

-32.8

7.1
4.7

2.4

45.0
6.4
-1.5

Advances-28.5

Book value 31 Dec 2019

-4.5

Intangible
assets

-8.2

Total

1.3

Other
equipment-33.4

Advances

4.6

Buildings
and landAccumulated depreciationand impairment 1 Jan 2019
Disposals
Depreciation for thefinancial year
Impairment for thefinancial year
Accumulated depreciationand impairment 31 Dec 2019

EUR mill.

1.0

Aircraftrotable parts

4.3

21.9
3.3
-2.9
0.0
-0.9

18.8
3.9

21.4

21.9

-0.9

In 2020, borrowing costs of 3.3 million euros (3.9) were capitalised in tangible assets related to the Airbus A350
investment program. Finnair uses a quarterly effective interest rate to calculate the capitalised borrowing costs, that
represents the costs of the loans used to finance the investment. The average yearly interest rate in 2020 was 4.29%(5.24%). The general borrowings used fo fund the acquisition of capital assets are included in the calculation of thecapitalisation rate.

185.3

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

Assets and liabilities held for saleAt the end of 2020 or 2019, Finnair did not hold any assets or liabilities for classified as held for sale in accordance withIFRS 5.

Pledged assets and other restrictions on fixed assets

CONSOLIDATED BALANCE SHEET

Finnair does not have fixed assets pledged as a security for bank loans. Fleet assets include three A350 aircraft
financed with JOLCO-loans and three owned A330 aircraft and one A350 aircraft where the legal title is transferred to
Finnair after loans are repaid. More details on these arrangements are presented in the note 3.3. Financial liabilities.

CONSOLIDATED CASH FLOW STATEMENT

Investment commitments

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT= Accounting principles

65

Investment commitments as at the end of the year totalled 429 million euros (730) and it includes firm aircraft orders,
other aircraft related investments as well as committed maintenance investments. In response to the decrease inpassenger demand caused by the COVID-19 pandemic, Finnair agreed with Airbus to postpone its three future deliveriesof A350 aircraft to later periods in order to improve its near-term liquidity position and to be able to manage its
capacity better. The amount of the total commitments fluctuates between the order and the delivery date of the aircraft
mainly due to EUR/USD exchange rate changes and escalation clauses included in airline purchase agreements. The
exact amount of the commitments in relation to each aircraft is only known at the time of the delivery.

2.2 Leasing arrangements
The Group as lessee

Finnair assesses whether a contract that relates to tangible assets is, or contains, a lease in accordance with the IFRS 16.
Lease agreements for tangible assets, where the contract conveys the right to use an identified asset for a period of time inexchange for consideration, are classified as leases.
The lease term is the non-cancellable period for which a lessee has the right to use an underlying asset, together with both
periods covered by an option to extend the lease if Finnair is reasonably certain to exercise that option; and periods coveredby an option to terminate the lease if Finnair is reasonably certain not to exercise the option.
The lease recognition requirements are not applied to short-term leases, where at the commencement date, the leaseterm is 12 months or less and does not contain a purchase option. Finnair considers the lease period to be the period that is
enforceable. Hence, for contracts where the contract term is non-fixed and Finnair has the right to terminate the contract
without the permission from the other party with no more than an insignificant penalty and there are no other indications
that the contract is enforceable, Finnair classifies these contracts as short-term. The lease recognition requirements are also
not applied to leases that are not material to Finnair.
For short-term leases and immaterial leases to which these exemptions are applied, the lease payments are recognised
as an expense on either a straight-line basis over the lease term, or on another systematic basis if that basis is more representative of the pattern of Finnair’s benefit.
At the commencement date of a lease, Finnair recognises both a right-of-use asset and a lease liability.
The lease liability is the present value of future lease payments. At Finnair, lease payments for aircraft leases contain typically payments that depend on interest rates and indices, that are included in the measurement of the lease payments included in the measurement of the lease liability, using the interest or index rate at the commencement date of the lease.
The right-of-use asset is measured at cost, comprising• the amount of the initial measurement of the lease liability;• any lease payments made at or before the commencement date, less any incentives received;• any initial direct costs incurred by Finnair; and• an estimate of costs to be incurred by Finnair in restoring the assets to the condition required by the terms and conditionsof the lease.
Finnair is obliged to return leased aircraft and their engines according to the redelivery condition set in the lease agreement.
If at the time of redelivery, the condition of the aircraft and its engines differs from the agreed redelivery condition, Finnair
needs to either maintain the aircraft so that it meets the agreed redelivery condition or settle the difference in cash to the lessor.
The maintenance costs can be divided into two main groups:
1) costs that are incurred independent of the usage of the aircraft / leasing period and2) costs that are incurred dependent on the usage of the aircraft / leasing period
The final check and painting required at redelivery are considered unavoidable maintenance costs that realise when theaircraft is redelivered to the lessor, irrespective of the time or flight hours. The counterpart of the provision is recorded in
the book value of the right-of-use asset at the commencement of the lease.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Respectively, costs depending on the usage of the aircraft are not considered as part of the right-of-use asset cost.
Finnair remeasures the lease liability when there is a lease modification that changes the scope of a lease or the consideration for the lease, that was not part of the original terms and conditions of the lease, including changes in lease payments
resulting from a change in indices and rates used in variable aircraft lease payments. The amount of the remeasurement of
the lease liability is generally recognised as an adjustment to the right-of-use asset. However, if the carrying amount of theright-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the remaining
measurement is recognised in profit or loss.
After initial recognition, right-of-use assets are measured at cost less any accumulated depreciations and accumulated
impairment losses. The assets are depreciated with a straight-line method from the commencement date to the shorter ofend of useful life of the right-of-use asset and the end of lease term. However, if the lease transfers ownership of the asset
to Finnair by the end of lease term or if the cost of the right-of-use asset reflects that Finnair will exercise a purchase option,
the right-of-use asset is depreciated from the commencement date to the end of useful life of the asset.
At Finnair aircraft lease contracts contain the interest rate implicit in the lease, even if the aircraft lease agreements do not
clearly define the interest rate implicit in the lease. Since the fair values of the aircraft are provided publicly by third parties,
Finnair is able to calculate the implicit interest rate for each qualifying aircraft operating lease. The rate implicit in the leaseis defined as the rate that causes the sum of the present value of the lease payments and the present value of the residual
value of the underlying asset at the end of the lease to equal the fair value of the underlying asset. The implicit interest rateis determined by each aircraft lease contract separately.
For other lease contracts at Finnair, an implicit interest rate cannot be usually determined. The incremental borrowing rateis therefore used and it is determined by each class of assets separately, based on management estimate.
Aircraft lease contracts are usually denominated in foreign currency (US dollars) and the foreign currency lease liabilities
are revalued at each balance sheet date to the spot rate. The lease payments (lease payments made) are accounted for asrepayments of the lease liability and as interest expense.
The Group as lessor

Agreements, where the Group is the lessor, are accounted for as operating leases, when a substantial part of the risks andrewards of ownership are not transferred to the lessee. The assets leased under operating lease are included in the tangible
assets and they are depreciated during their useful life. Depreciation is calculated using the same principles as the tangible
assets for own use. Under the provisions of certain aircraft lease agreements, the lessee is required to pay periodic maintenance reserves which accumulate funds for aircraft maintenance. Advances received for maintenance are recognised as liability, which is charged, when maintenance is done. The rents for premises and aircraft are recognised in the income statement as other operating income over the lease term.
Agreements, where the Group is the lessor, are accounted for as finance leases, when a substantial part of the risks andrewards of ownership are transferred to the lessee. Finnair recognises assets held under a finance lease in its statement offinancial position and presents them as a receivable at an amount equal to the net investment of the lease.
Finnair subleases aircraft and a small amount of ground equipment, where by reference to the head lease, the lease term
is for the majority of the remaining economic life arising from the right-of-use asset (i.e. the lease term of the sublease corresponds closely to the lease term of the head lease) and therefore these are classified as finance leases. At the commencement date, for the subleases, a net investment (lease receivable), equaling to the present value of lease payments and thepresent value of the unguaranteed residual value, is recognised. The proportion of the right-of-use asset subleased is derecognised from the balance sheet and the difference between the right-of-use asset and the net investment is recognised in
the profit or loss, in sales gains and losses. Subsequently, the lease payments received are accounted for as repayments of
the lease receivable and as interest income.
Sale and leaseback

In sale and leaseback transactions, where Finnair sells and then leases back aircraft, Finnair measures the right-of-use asset arisingfrom the leaseback at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained by theGroup. Accordingly, Finnair recognises only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.
Impairment

The Group reviews its leased assets for indication of impairment on each balance sheet date. Impairment loss is recognized
if the recoverable amount is below its carrying amount. The recoverable amount is defined for a cash generating unit, andthe need for impairment is evaluated at the cash generating unit level. Recoverable amount is determined as the higher of
the asset’s fair value less costs to sell or its value in use. The value in use is based on the present value of the expected net
future cash flows obtainable from the asset or cash-generating unit. Individual assets are excluded from cash generating
unit if they no longer are held for service or are intended to be sold, and are tested for impairment based on their fair valueless costs to sell. Impairment testing, including the critical accounting estimates and sources of uncertainty inherent in thecalculations, is described in more detail in note 2.3.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Determining the interest rate and lease term used in discounting the lease payments, estimating the redelivery obligationsof aircraft leases and the classification of sublease agreements to operating and financial leases require management discretion in interpretation and application of accounting standards.

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Right-of-use assets 2020

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTSUSTAINABILITY
APPENDIX

Finance lease receivables, Group as lessor

Leasing arrangements

The COVID-19 pandemic did not have a significant impact on the leasing arrangements of the Group, neither did it significantly
increase the amount of discretion related to abovementioned critical accounting estimates and sources of uncertainty. The
pandemic did not, for example, have significant impact on the estimated lease terms as extension options are usually notconsidered in the initial lease term determination. Additionally, the impact of contracts terminated early during the period
was not significant. The carrying value of the right-of-use assets are tested for impairment as part of cash generating unit
at the balance sheet date. More details is presented in the note 2.3.

CONSOLIDATED BALANCE SHEETREMUNERATIONREPORT

Aircraft
2020

EUR mill.

less than 12 months
13-24 months
25-36 months
37-48 months
Total

14.2
15.2
4.3

2019

33.7

13.2
14.2
15.2
4.3
47.0

2020

2019

Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Interest income on sublease receivables
Exchange rate changes of lease liabilities-127.7
-58.1
2.8
68.5

-129.5
-68.5
3.7
-18.7

Hedging result of lease liabilities
Short-term wet leases
Short-term office rents
Variable purchase traffic and cargo capacity rents
Gains and losses on sale and leaseback transactions
Total

-36.1
-6.3
-4.0
-83.0
-4.4
-248.3

31.1
-26.6
-3.7
-103.2

Subleases include sublease arrangements of 9 aircraft that are classified as finance leases.
Leasing arrangements in profit and loss

EUR mill.

Aircraft

Buildings and
land

Other
equipment

Total

Book value 1 Jan 2020
Additions
Changes in contracts
Disposals
Depreciation for the financial year
Book value 31 Dec 2020

736.4
167.5
-24.1
-0.1
-107.2
772.5

124.0
2.6
21.5
0.1
-14.3
133.8

17.1
3.3
-3.0
0.0
-6.2
11.2

877.5
173.3
-5.7
0.0
-127.7917.5

Additions to right-of-use assets in 2020 are mainly related to two sale and leaseback arrangements of A350 aircraft
which were part of the Group’s refinancing plan in response to the pandemic. The changes in contracts relate tochanges either in the scope, or consideration, of leases.

EUR mill.

-315.4Right-of-use assets 2019
EUR mill.

AircraftBook value 1 Jan 2019
Additions
Changes in contracts
Disposals
Depreciation for the financial year
Book value 31 Dec 2019

834.3
10.0
-1.8

Buildings and
land

Other
equipment

153.6
5.3
-3.4
-15.1
-16.4
124.0

10.7
13.9
-0.5

-106.1
736.4

-6.9
17.1

Total

998.6
29.2
-5.6
-15.1
-129.5877.5

Operating expenses include costs related to short-term and capacity based rental agreements, that are not material
for the Group or do not contain a lease according to IFRS 16, and are therefore not recognised in the balance sheet. In
the income statement, the short-term wet leases and variable purchase traffic and cargo capacity rents are included
in capacity rents and the short-term office rents are included in property, IT and other expenses. Losses related to saleand leaseback transactions are classified as impairment in profit and loss. Total cash outflow relating to leases was-284.5 million euros (-317.5).
Off-balance sheet lease commitments, Group as lessee
EUR mill.

Lease liabilities
EUR mill.

Aircraft
2020

2019

less than one year
1–5 years
more than 5 years
Total

118.5
495.1
240.4
854.0

118.9
507.0
275.7
901.7

Buildings and land
2020
2019

12.7
49.9
88.1
150.8

15.8
58.9
60.3
135.0

Other equipment
2020
2019

4.4
7.1
11.5

5,7
11,6
17.3

The Group leases aircraft, premises and other fixed assets, for which the lease liability is recorded on the balance sheet.
The lease agreements have different terms of renewal and include index-linked terms and conditions. The Group was
operating 29 leased aircraft at the end of the year with lease agreements of different tenors. The leased aircraft, that
Finnair is subleasing to other operators is shown in the table below.

less than one year
1–5 years
more than 5 years
Total

Premises rents
2020
2019

2.5
6.3
8.5
17.3

3.0
6.5
7.8
17.2

Other rents
2020

1.1
0.6
0.0
1.8

2019

2.3
0.8
3.1

Off-balance sheet lease commitments are short-term lease agreements and other lease agreements for which theunderlying asset is of low value or contracts that do not contain a lease according to IFRS 16. Therefore, these contracts
are not recognised as right-of-use assets and lease liabilities in the balance sheet. The most significant item in thepremises rents is the right-to-use a test cell, which is excluded from the lease liabilty on the basis that it is not for the
exclusive use of Finnair. Other rents include IT equipment leases, that are not material.

= Critical accounting estimates

66

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

EUR mill.

OF COMPREHENSIVE INCOME

less than 12 months
13-24 months
25-36 months
37-48 months
49-60 months
more than 60 months
Total

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Aircraft
2020

2019

13.2
13.2
9.2

27.0
21.9
9.7
5.1

35.6

63.8

Buildings and land
2020
2019

1.5
1.5
1.5
1.5
1.5
3.6
11.0

2.1
2.1
2.1
2.1
2.1
11.9
22.4

The Group has leased 15 owned aircraft as well as premises with irrevocable lease agreements. These agreements havedifferent terms of renewal and other index-linked terms and conditions.

2.3 Depreciation and impairment
Depreciation

Depreciation of assets is determined based on their expected useful life or maintenance cycle and residual value. The depreciation for all assets is calculated using straight-line method. The depreciation is started when the asset is available foruse. Depreciation is ceased when the asset is either classified as held for sale or derecognised. The useful life and residual
value for assets are described in more detail in the note 2.1.

EUR mill.

2020

2019

Amortisation of intangible assets
Depreciation of own fleet
Depreciation of right-of-use fleet
Depreciation of other tangible assets
Depreciation of other right-of-use assets
Amortisation and depreciation
Impairment of aircraft
Impairment

9.9
184.1
107.2
13.9
20.5
335.6
8.2
8.2

11.3
171.2
106.1
13.5
23.3
325.4

Total
Impairment of goodwill*
Total depreciation and impairment in income statement

343.8

325.4
0.8
326.2

343.8

*The impairment of goodwill recognized in 2019 was classified as an item affecting comparability.

Depreciation and impairment include both planned depreciations on fixed assets as well as impairment. In comparison
to 2019, the planned depreciation increased due to two new A350 aircraft that were delivered during the period.
Impairment recognized during the period is related to aircraft arrangements made as a response to COVID-19
pandemic. An impairment of 4.4 million euro was recognised in connection to sale and leaseback arrangements of two
A350 aircraft and an impairment of 3.8 million euro in connection with early retirement of two A319 aircraft.

= Accounting principles= Critical accounting estimates

67

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Impairment testing

Off-balance sheet lease receivables, Group as lessor

CONSOLIDATED STATEMENTCONSOLIDATED BALANCE SHEETCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Impairment testing

The Group reviews its fleet, other fixed assets and other non-current assets for indication of impairment on each balance
sheet date. The recoverable amount of an asset or a cash generating unit is determined as the higher of value in use and thefair value less cost to sell. Impairment loss is recognized if an asset’s recoverable amount is below its carrying amount. The
recoverable amount is defined for cash generating unit, and the impairment is evaluated at the cash generating unit level.
Starting in 2020, Finnair has adopted the value in use model as its primary method for determining the recoverable amountof the assets. The change in the selected approach was due to the deemed impact of the COVID-19 pandemic on the accuracy of the market prices resulting from the lower transaction volume and the impact of the distressed situations on realized
prices. In the comparison period ending 31 December 2019, Finnair was using the fair market value less cost to sell approachas the primary method in its impairment testing.
Impairment testing of the fleet and other fixed assets

The preparation of the calculations used for impairment testing require significant management judgement and the use ofmanagement estimates. These estimates are based on budgets and forecasts, which already inherently contain some degree of uncertainty. The level of uncertainty is further increased in the current COVID-19 environment where for example,
the eventual duration of the pandemic as well as the timing of the expected recovery of the passenger demand is not known
in advance. Thus the actual outcome may differ from the current management estimates and assumptions made. The main
factors requiring significant management judgement in impairment testing include ultimate duration of the pandemic andthe speed of demand recovery, unit revenue development and cost of jet fuel. In addition, the value in use calculation is sensitive to changes in EBITDA margin, terminal growth rate and discount rate. The key assumptions used and the related sensitivities are described in more detail below.
In order to consider the increased uncertainty in its estimates and assumptions caused by the COVID-19 pandemic, themanagement has considered three different forecast scenarios incorporating plausible variations of the expected timing of
the recovery begin based on its best estimate at the time. In the optimistic scenario, the demand is expected to materiallystart in June 2021. In the base case scenario, which is considered the most probable of the three, the recovery is expected
to materially start in August 2021. In the pessimistic scenario, the demand recovery is expected to materially start in October 2021. These scenarios are discussed in more detail in the beginning of the notes, in the section Board’s assessment ofFinnair as a going concern. In order to consider the possibility of various outcomes also in its impairment testing performedat the year-end 2020, Finnair is applying the expected cash flow approach which incorporates expectations about all three
forecast scenarios instead of relying on just a single, most likely, cash flow estimate. The determination of the probabilities
used for each of the senarios requires the use of significant management judgement and is based on the management’s best
estimate at the time. The expected cash flow approach used in Finnair’s year-end impairment testing is described in moredetail below in this note.
During the period 2020, Finnair has reviewed quarterly whether indications for impairment exist. Finnair considers
various adverse economic and business implications resulting from the COVID-19 pandemic as indications of possible
impairment and therefore, impairment testing has been carried out as at the balance sheet date. Such indicators
include the unprecedented global market disruption, the negative impacts of the pandemic on the Group’s own
operating environment as well as the adverse impact of the currently extremely low passenger demand on the Group’s
financial performance and low capacity utilization rates.
The impairment review is carried out at the level of a cash-generating unit (‘CGU’). Finnair is a network carrier withhighly integrated fleet operations and it considers all its fleet (including right-of-use fleet) and other closely related
assets as one CGU. The intangible assets with indefinite useful life, including goodwill, have been identified to belong to
the aircraft CGU for impairment testing purposes. At year-end 2020, the amount of goodwill in Finnair’s balance sheet
amounted to 0.5 million euro (0.5) and the other intangible assets with indefinite useful life to 1.7 million euro (1.7).
Assets that are held for sale are excluded from CGU and reviewed separately for impairment. The cash generating unit
has been tested for impairment using value in use model based on which the recoverable amount of the CGU exceeds its
carrying value at the balance sheet date. The recoverable amount of the CGU as at 31.12.2020 was 2,897.3 million euros
based on expected cash flow approach as described below, and the carrying value of the assets was 2,498.3 million
euros.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT68

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSThe value in use measurement is based on discounted cash flow model where the cash flow projections are based on
the latest management forecast, covering a five year period. The cash flows beyond the five-year period are projected
to increase in line with management’s long-term growth assumptions. In order to consider the uncertainty caused by
the current COVID-19 pandemic and the future outlook, Finnair is utilizing the expected cash flow approach which isusing multiple, probability-weighted cash flow projections based on the three different forecast scenarios preparedby the management. The scenarios and probabilities allocated to each scenario have been reviewed and approved by
the Board of Directors. When determining the probabilities, the management has reflected on the uncertainty related
to the COVID-19 vaccination timetable, lifting of the travel restrictions and other factors affecting the demand. The
optimistic scenario, where the demand recovery is expected to materially start in June 2021, is considered to have aprobability weight of 5%. The base case scenario, where the recovery is expected to materially start in August 2021, isconsidered to have a 55% probability. The pessimistic scenario with the start of the recovery taking place in October
2021, is given a probability weight of 40%. Under each scenario, the business is expected to return to operational levels(measured in available seat kilometers) comparable to 2019 in year 2023.
Key assumptions used in impairment review

Discount rate (post-tax long-term
weighted average cost of capital), %Discount rate (pre-tax, derived from the longterm weighted average cost of capital), %Long-term growth rate, %Fuel cost range per ton (USD)

Dec 31, 2020

Sep 30, 2020

June 30, 2020

8.2

8.4

8.4

9.3
2.4
540-6109.5
2.4
500-6159.8
2.4
520-650REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Sensitivities of the key assumptions

Due to increased uncertainties related to the use of key assumptions and management estimates, the Group has
prepared a sensitivity analysis to reflect, how the results of the impairment test would react to the changes in key
assumptions and management estimates. The sensitivity analysis considers changes in one assumption at a time,
whereby the other assumptions are kept unchanged. The results of the sensitivity analysis reflect the sensitivity of therecoverable amount based on expected cash flow model. The uncertainty related to the timing of the recovery fromCOVID-19 pandemic is taken into account in the calculation by using multiple forecast scenarios and the expected cash
flow approach in impairment testing.
The table below shows the changes required to decrease the difference between the recoverable amount and thecarrying value of the assets to zero.
ChangeEBITDA margin %Discount rate %Terminal growth rate %Fuel cost, % change in cost level-1.0 %-p+0.9 %-p-1.0 %-p
15 %Key assumptions used in the impairment review are presented in the table above. The assumptions are the same for all
scenarios.
The discount rate used is based on the weighted average cost of capital (WACC), which reflects the market
assessment of the time value of money and the risks specific to Finnair’s business. Both pre-tax and post-tax discountrates are presented above. The increased uncertainty related to the COVID-19 is considered through the multiple
scenarios and the expected cash flow approach used in impairment testing rather than in discount rate.
EBITDA and estimated business growth are based on management’s best assessment of the speed of recovery fromthe current COVID-19 pandemic as well as the future market demand and environment, which are benchmarked against
external information sources, such as long-term average growth estimates for industry.
Fuel price is based on hedge-weighted fuel price based on forward curve, estimated fuel consumption based onplanned flights and the historical data of fuel consumption for each aircraft type.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSCONSOLIDATED INCOME STATEMENT

3 Capital structure and financing costs

CONSOLIDATED STATEMENT

3.1 Financial income and expenses

OF COMPREHENSIVE INCOME

The notes related to financial assets, liabilities and equity have been gathered into the capital structure and financing costs-­
section in order to give a better overview of the Group’s financial position. The note ´Earnings per share´ has been added tothe equity section.

CONSOLIDATED BALANCE SHEETCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTInterest income and expenses are recognised on a time-proportion basis using the effective interest method. Interest expenses related to the financing of significant investments are capitalised as part of the asset acquisition cost and depreciated over the useful life of the asset.
More detailed information about financial assets can be found in Note 3.2 and about interest bearing liabilities in Note 3.3.
EUR mill.

2020

2019

Financial income from discontinued hedges
Interest income on leases
Gains on investment instruments held at FVPL
Interest from assets held at amortised cost
Other interest income
Other financial income
Dividend income
Financial income total

32.5
2.8
3.3
0.0
0.0
0.0
0.0
38.7

3.7
0.4
0.1
0.4
0.2
0.0
4.8

Financial expenses for discontinued hedges
Interest on leases
Other financial expenses
Interest expenses for liabilities measured at amortised cost
Financial expenses total
Foreign exchange gains and losses
Financial expenses, net= Content of the section= Accounting principles

69

SUSTAINABILITY
APPENDIX

Other financial expenses include revolving credit facility and guarantee fees as well as interest and penalties related totaxes.

Interest income and expenses

CONSOLIDATED CASH FLOW STATEMENTREMUNERATIONREPORT-168.3
-58.1
-19.3
-9.5
-255.2

-68.5
-5.5
-9.6
-83.6

26.6

12.7

-189.9-66.1

In the effectiveness testing of the Group’s hedge accounting, both cash flow and fair value hedging were found to beeffective at year end 2020 after discontinuing part of the hedges. Thus, as in the comparison year 2019, no inefficiency
is included in the financial items for 2020. The COVID-19 pandemic has had a negative impact on Finnair’s businessduring the year 2020; as a result, Finnair has discontinued the application of hedge accounting to the majority of its
hedges related to jet fuel price risk and foreign exchange risk. The discontinued hedges are shown in profit and loss
instead of other compherensive income. Financial income and expenses includes an identical amount of profit andloss for fair value hedging instruments and for hedged items resulting from the hedged risk. In 2019, other financial
expenses include the recovered interest on a loan to Nordic Regional Airlines in the amount of 1.8 million euros thatwas written down in 2014.
In 2020, foreign exchange gains and losses recognised in financial expenses consist of a net realised exchange loss of
50.2 million euro and a net unrealised exchange gain of 76.7 million euro. In the financial year 2020, Finnair recognized
an expense of 168.3 million euro from discountinued hedges and 32.5 million euro as a gain. During the year 2020,
3.3 million euros of interest expense was capitalised in connection with the A350 investment program (2.2). Moreinformation about the capitalised interest can be found in note 2.1 Fleet and other fixed assets.

3.2 Financial assets
Financial assets

In the Group, financial assets have been classified into the following categories according to the IFRS 9 standard “Financial
Instruments”: amortised cost and fair value through profit and loss. The classification is made at the time of the original acquisition based on the objective of the business model and the characteristics of contractual cash flows of the investment,
or by applying a fair value option. All purchases and sales of financial assets are recognised on the trade date.
Financial assets at fair value through profit and loss include such assets as investments in bonds and money market funds.
Financial assets at fair value through profit and loss have mainly been acquired to obtain a gain from short-term changes
in market prices. All those derivatives that do not fulfil the conditions for the application of hedge accounting are classified
as financial assets at fair value through profit and loss and are valued at fair value in each financial statement. Realised andunrealised gains and losses arising from changes in fair value are recognised in the income statement in the period in which
they arise. Financial assets recognised at fair value through profit and loss, as well as those maturing within 12 months, areincluded in current assets.
In Finnair Group, unquoted shares are valued at their acquisition price in the absence of a reliable fair value.
Investments in debt securities are measured at amortised cost, but only when the objective of the business model is to holdthe asset to collect the contractual cash flows and the asset’s contractual cash flows represent only payments of principal
and interest. Financial assets recognised at amortised cost are valued using the effective interest method. Financial assets
valued at amortised cost include trade receivables and security deposits for aircraft operating lease agreements. Due to thenature of short-term receivables and other receivables, their book value is expected to be equal to the fair value.
Derecognition of financial assets takes place when the Group has lost its contractual right to receive cash flows or when it
has substantially transferred the risks and rewards outside the Group.
Impairment of financial assets

Finnair Group recognises impairment provisions based on lifetime expected credit losses from trade receivables in accordance with IFRS 9. Finnair has chosen to apply a simplified credit loss matrix for trade receivables as trade receivables do
not have a significant financing component. Accordingly, the credit loss allowance is measured at an amount equal to thelifetime expected credit losses. The expected credit loss model is forward-looking, and expected default rates are based on
historical realised credit losses. The lifetime expected credit loss allowance is calculated using the gross carrying amount ofoutstanding trade receivables in each aging bucket and an expected default rate. The changes in expected credit losses arerecognised in other expenses in the consolidated income statement. More information on the credit loss provision on tradereceivables can be found in the note 1.2.3. Receivables related to revenue.
The impairment model does not apply to financial investments, such as bonds and money market funds, included in otherfinancial assets as those are measured at fair value through profit and loss under IFRS 9, which already takes into accountexpected credit losses. With respect to the assets measured at amortised cost, Finnair is actively following such instruments
and will recognise impairment through profit and loss if there is evidence of deterioration in credit quality.
Cash and cash equivalents

Cash and cash equivalents consist of cash reserves and short-term bank deposits with maturity of less than three months. Foreign exchange-denominated items have been converted to euro using the mid-market exchange rates on the closing date.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

3.2.1 Other current financial assets

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Non-current liabilities
EUR mill.

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOME

Commercial paper, certificates and bonds
Money market funds
Total

CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

2020

2019

358.3
358.3

38.5
762.3
800.8

Ratings of counterparties
BBB
BB
Unrated
Total

14.0
5.0
358.3
358.3

781.8
800.8

As of 31 December 2020, investments in instruments issued by unrated counterparties mostly include investments inmoney market funds of 358.3 million euro.
The Group’s financial asset investments and risk management policy are described in more detail in Note 3.5
Management of financial risks. The IFRS classifications and fair values of the financial assets are presented in Note 3.6
Classification of financial assets and liabilities.

3.2.2 Cash and cash equivalents
EUR mill.

2020

2019

Cash and bank deposits
Total

465.3
465.3

151.9
151.9

The items include cash and bank deposits realised on demand. Foreign currency cash and bank deposits have beenvalued using the closing date mid-market exchange rates. The reconciliation of cash and cash equivalents is illustrated
in the notes of the consolidated cash flow statement.

2020

2019

599.0
312.2
199.8
880.6
1,991.6
5.2
1,996.8

277.6
199.6
913.6
1,390.8
4.7
1,395.5

EUR mill.

2020

2019

JOLCO loans and other
Lease liabilities
Total

51.5
135.6
187.2

43.5
140.4
183.9

Loans from financial institutions, non-current
JOLCO loans and other
Bonds
Lease liabilities
Interest-bearing liabilities total
Non-interest-bearing liabilities
Total
Current interest-bearing liabilities

Finnair’s interest-bearing liabilies increased significantly during the financial year as a result of the refinancing
transactions carried out by the Group in response to the COVID-19 pandemic. The long-term loans from financial
institutions grew as a result of the 600 million euro pension premium loan. Finnair has received a 540 million
euro guarantee for the loan from the state of Finland and the remaining 60 million euro has been guaranteed by acommercial bank. Non-interest-bearing liabilities mainly include leases and maintenance reserves related to the aircraft
leased to other airlines.
The Group’s lease liabilities include two new lease agreements for A350 aircraft as a result of the completion of twosale- and leaseback transactions during the financial year. JOLCO loans and other include the JOLCO loans (JapaneseOperating Lease with Call Option) for three A350 aircraft and Export Credit Support for one A350 and three A330
aircraft. The transactions are treated as loans and owned aircraft in Finnair’s accounting.

3.3 Financial liabilities
Financial liabilities

Finnair Group’s financial liabilities are classified into two different classes: amortised cost and fair value through profit andloss. Financial liabilities are initially recognised at fair value on the basis of the original consideration received. Transaction
costs have been included in the original book value of financial liabilities. Thereafter, all non-derivative financial liabilities
are valued at amortised cost using the effective interest method. Financial liabilities are included in long- and short-term
liabilities, and they can be interest-bearing or non-interest-bearing. Loans that are due for payment within 12 months arepresented in the short-term liabilities. Foreign currency loans are valued at the mid-market exchange rate on the closing
date, and translation differences are recognised in the financial items.
Accounts payable are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method.
Derecognition of financial liabilities takes place when the Group has fulfilled the contractual obligations.

Total liabilities from financing
activities, 1 January 2020
Repayments
Acquisitions
Decreases
Foreign exchange adjustments
Reclassification between shortterm and long-term liabilities
Other non-cash movements
Total liabilities from financing
activities, 31 December 2020

Short-termborrowings

Long-term
borrowings

Short-term Long-term lease
lease liabilities
liabilities

43.5-174.9
175.0

477.3
-43.1
697.8

140.4

-20.7
8.0

51.5

Total

-9.8

913.6
-134.9
170.1
-4.1
-58.3

1,574.8-353.01,046.0
-4.1
-88.8

-8.0
7.7

3.9
-2.0

-3.9
-1.9

0.0
3.8

1,111.0

135.6

880.6

2,178.7

3.1= Accounting principles

70

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Short-termborrowings

Long-term
borrowings

100.5
-61.0

514.2
-42.2

125.1

1.9

6.8

2.1

43.5

Total liabilities from financing
activities, 1 January 2019
Repayments
Additions
Foreign exchange adjustments
Reclassification between shortterm and long-term liabilities
Other non-cash movements
Total liabilities from financing
activities, 31 December 2019
Maturity dates of interest-bearing financial
liabilities 31 Dec 2020 EUR mill.

JOLCO loans and other, fixed interest
JOLCO loans and other, variable interest
Loans from financial institutions,variable interest
Bonds, fixed interest
Lease liabilities, fixed interest
Lease liabilities, variable interest
Interest-bearing financial liabilities total
Payments from currency derivatives
Income from currency derivatives
Commodity derivatives
Trade payables and other liabilities
Interest payments
Total
Maturity dates of interest-bearing financial
liabilities 31 Dec 2019 EUR mill.

2021

51.5

96.4
39.2
187.2
865.9
-826.3
44.4
84.5
65.3
421.0

2022

Total

5.7

1,774.0-235.3
8.3
27.4

-2.1
0.6

9.7

-9.7

0.0
0.6

477.3

140.4

913.6

1,574.8

2023

35.3

300.0
200.0
102.3
41.5
684.7
36.3
-33.2
0.2

300.0

2024

2025

Later

Total

36.4

28.9
77.4

14.5
82.2

43.4
323.7

95.0
43.8
474.1

92.9
46.0
175.2

137.3
35.3
278.9

147.1
139.3
383.1

50.1
524.2

32.3
207.5

41.8
320.8

61.2
444.3

600.0
200.0
671.1
345.1
2,183.3
902.2-859.5
44.6
84.5
314.3
2,669.4

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

The interest rate re-fixing period is three months for variable interest loans and six months for variable interest leaseliabilities. The bonds maturing do not include the amortised cost of 0.2 million euros paid in 2017 and due in 2022.
JOLCO loans do not include the amortised cost of 3.3 million euros paid on 2016 and due in 2025 and loans fromfinancial institutions do not include 1.0 million euros paid as arrangement fee from the pension premium loan in 2020.
Therefore, the total amount of interest-bearing financial liabilities differs from the book value by the amount equal
to the amortised costs. The COVID-19 pandemic impact on Finnair’s business has also increased the interest bearing
liabilities in 2020 in comparison to 2019. The increase mainly consists of the 600 million euro pension premium loanthat was fully drawn during 2020, and aircraft related sale and leaseback agreements, and export credit support
received in connection with the refinancing of one A350
The currency mix of interest-bearing liabilities is as follows:
EUR mill.

EUR
USD
JPY
HKD
SGD
Total

2020

2019

994.5
1,126.8
57.3
0.2
0.0

412.8
1,096.3
65.3
0.4
0.1

2,178.7

1,574.8

2020

2019

24.6%
0.1%
46.5%
28.9%
100.0%

40.5%
3.1%
18.0%
38.4%
100.0%

The weighted average effective interest rate on interest-bearing liabilities was 3.3% (4.5%).
Interest rate re-fixing period of interest-bearing liabilities
Up to 6 months
6-12 months
1-5 years
More than 5 years
Total
Maturity dates of interest-bearing financial liabilities€ million

2020

2021

JOLCO loans and other, fixed interest
JOLCO loans and other, variable interest
43.6
45.3
Bonds, fixed interest
Lease liabilities, fixed interest
94.6
95.7
Lease liabilities, variable interest
45.9
51.9
Other loans-0.1Interest-bearing financial liabilities total
183.9 192.9
Payments from currency derivatives
1,759.5 254.5-1,787.0 -257.9
Income from currency derivatives
Commodity derivatives
16.9
-1.7
Trade payables and other liabilities
989.9
Interest payments
82.5
73.2
Total
1,245.8 261.0

71

Short-term Long-term lease
lease liabilities
liabilities

1,034.3-132.2
8.3
13.0

40.9

63.5
751.6

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

2022

2023

Later

Total

30.3

45.0
96.6

45.0
279.7
200.0
652.5
401.5
-0.1
1,578.6
2,014.0-2,044.9
15.3
989.9
459.5
3,012.3

34.6
200.0
99.4
50.4

91.2
53.2

88.7
47.0

182.9
153.2

384.5

173.6

166.0

477.7

64.0
448.5

29.2

2024

54.4
228.0

44.2
210.2

141.2
618.9

685

700
600

474

500

383

400
279

300
200

175

187

100
0

2021

2022

2023

2024

2025

Later

JOLCO-loans and other, fixed interest

Bonds, fixed interest

Lease liabilities, variable interest

JOLCO-loans and other, variable interest

Lease liabilities, fixed interest

Loans from financial institutions,variable interest

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

State aid relating to Finnair’s refinancing
The European Commission has concluded that the State of Finland’s guarantee of Finnair’s pension premium loan
up to EUR 540 million, which was approved by the European Commission on 18 May 2020, and the State of Finland’s
participation in the rights offering are so closely linked that they must be regarded as an overall transaction that
constitutes State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union.
Under the Commission’s decision, the Company has agreed to certain conditions following the offering, which include,
among other things, a ban on acquisitions, restricting the Company from acquiring a stake of more than 10 per cent incompetitors or other operators in the same line of business, including upstream or downstream operations for a periodof three years from the offering.
As a result of the restrictions based on the Commission’s decision, the remuneration of each member of Finnair’s
management will not go beyond the fixed part of his/her remuneration on 31 December 2019. For persons becoming
members of the management on or after the rights issue, the applicable limit of the remuneration for such newmember will be benchmarked to the remuneration of comparable managerial positions and areas of responsibility in
Finnair applied on 31 December 2019. Finnair will not pay bonuses and other variable or comparable remuneration
elements during the three fiscal years 2020-2022 to the members of the management.
Further, Finnair is committed to publishing information about the use of the aid received within 12 months from thedate of the offering and thereafter periodically every 12 months, for a period of three years. In particular, this should
include information on how the company’s use of the aid received supports its activities in line with EU objectives andnational obligations linked to the green and digital transformation, including the EU objective of climate neutrality by
2050.
Currently, the State of Finland and Finnair are preparing to make up to 400 million euros available to Finnair in theform of an unsecured hybrid loan. The final decision on the possible financing arrangement is subject to a decision by
the Government Plenary session, which will also confirm the final terms and conditions of the loan. The hybrid loanrequires approval by the EU Commission.

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

3.4 Contingent liabilities
AUDITOR’S REPORTEUR mill.

2020

2019

Guarantees on behalf of group companies
Total

32.1
32.1

79.6
79.6

3.5 Management of financial risks
Principles of financial risk management

The nature of Finnair Group’s business operations exposes the company to a variety of financial risks: foreign exchange,interest rate, credit, liquidity and commodity price risks. The Group’s policy is to limit the uncertainty caused by suchrisks on cash flow, financial performance, balance sheet items and equity.
The management of financial risks is based on the risk management policy prepared by the Financial Risk Steering
Committee and approved by the Board of Directors. The policy specifies the minimum and maximum levels permitted
for each type of risk. Financial risk management is directed and supervised by the Financial Risk Steering Committee.
Practical implementation of risk management policy and risk management have been centralized to the parent
company’s treasury department.
In the management of foreign exchange, interest rate and jet fuel the company uses different derivative instruments,
such as forward contracts, swaps and options. At inception, derivatives are designated as hedges of highly probablecash flows (cash flow hedges), hedges of firm orders (hedges of the fair value of firm commitments) or as financial
derivatives where the hedging relationship does not qualifying for hedge accounting (economic hedges). FinnairGroup implements cash flow hedging through foreign exchange hedging of highly probable forecasted sales and costs

72

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

denominated in foreign currencies and jet fuel price risk, in accordance with the hedge accounting principles of IFRS 9.
Hedge accounting compliant fair value hedges of Finnair Group consist of interest rate hedges of the issued bond andfair value hedges of firm aircraft purchase commitments.

Fuel price risk in flight operations
Fuel price risk refers to the uncertainty of the cash flows and financial performance arising from fluctuations in thefuel price. Finnair hedges against jet fuel price fluctuations using jet fuel forward contracts and options. The Jet FuelCIF Cargoes NWE index is used as the underlying asset of jet fuel derivatives, since over 60 per cent of Finnair’s fuelpurchase contracts are based on the benchmark price index for Northwest Europe jet fuel deliveries.
Finnair applies the principle of time-diversification in its fuel hedging. According to the risk management policy, thehedging horizon is two years. The risk management policy states that hedging must be increased during each quarterof the year, so that the hedge ratio is more than 60 per cent for the first six months, and thereafter a lower hedge ratio
applies for each period. However, due to the COVID-19 pandemic and its impacts on Finnair’s business a temporary
amendment regarding hedging ratios was implemented. The temporary amendment description can be found frombelow. Due to hedging, the fuel cost per period is not as low as the spot-based price when prices fall, but when spot
prices rise, the fuel cost rises more slowly.
The hedges of jet fuel consumption are treated as cash flow hedges in accounting, in accordance with the hedge
accounting principles of IFRS 9. During 2020, Finnair has hedged the jet fuel price risk in its entirety, without separating
it into underlying risk components, such as crude oil price risk. However, Finnair has used proxy hedging for certain
layer components of its jet fuel consumption, as described below.
In the hedging of jet fuel price risk, Finnair Group designates layer components of its jet fuel consumption as hedged
items. The layer components are defined as jet fuel consumption linked to different jet fuel price benchmarks. The firstlayer is defined as jet fuel purchases based on the Jet Fuel CIF Cargoes NWE index, with consumption linked to otherprice benchmarks, notably Cargoes FOB Singapore, representing other layers. Since the Jet Fuel CIF Cargoes NWE index
is used as the underlying of all jet fuel derivatives, they are designated as proxy hedges for consumption based onother price benchmarks. Therefore, ineffectiveness may arise if the correlation between the NWE index and the pricebenchmark for the underlying consumption is not high enough for the fair value changes in the hedged item and thehedging instrument to be exactly offsetting. Any ineffectiveness resulting from overhedging or insufficient correlation isrecognised in fair value changes in derivatives and changes in exchange rates of fleet overhauls.

Treasury policy temporary amendment
Due to the COVID-19 pandemic impacts to Finnair’s business, Finnair’s hedging operations regarding foreign exchange
currencies and jet fuel price risk were also impacted. Demand disappearing as a result of COVID-19 pandemic meantthat the amount of underlying risk was significantly reduced from forecasted amounts forcing Finnair to discontinue
applying hedge accounting to majority of its hedges in foreign exchange and jet fuel. Since the uncertainty remains
when the traffic and recovery will start to materialize post COVID-19 pandemic Finnair’s board of directors approved atemporary amendment to the treasury policy. The amendment reduces the lower bound of hedging ratios in balance
sheet position, cash flow position and jet fuel price risk position to zero per cent for the whole hedging period. However,for balance sheet position the target hedging ratio will be 50 per cent. For the cash flow position and jet fuel position
the objective of the amendment is to avoid being on an over hedged situation if the recovery does not materialize dueto the COVID-19 pandemic and for the balance sheet position the objective is to reduce cash flow risk in short-term. The
amendment is in force until treasury policy is reviewed during 2021.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCONSOLIDATED INCOME STATEMENT
Timing of the notional and hedged price

CONSOLIDATED STATEMENT

31 December 2020

OF COMPREHENSIVE INCOME

Jet fuel consumption priced with NWE index
Jet fuel consumption priced with SING index

CONSOLIDATED BALANCE SHEETCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

Hedged price Notional amount$/tonne(tonnes)Maturity
Under 1 year
1 to 2 years

527.7
609.8

237,423
2,577

227,423
2,577

10,000

655.2
682.6

992,382
61,618761,382
61,618231,000

31 December 2019

Jet fuel consumption priced with NWE index
Jet fuel consumption priced with SING index

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT73

The average hedged price of the instruments hedging highly probable jet fuel purchases is calculated by taking into accountonly the hedging (bought) leg of collar option structures, and therefore represents the least favorable hedged rate. The mostfavorable rate, calculated by including only the sold leg of collar option structures, is 527.7 US dollars per tonne for NWE consumption, and 609.8 US dollars for SING consumption. Options excluded from hedge accounting are excluded in both cases.
At the end of the financial year, Finnair had hedged 67 per cent of its forecasted fuel purchases for the first six monthsof 2021 and 33 per cent of the purchases for the second half of the year. In the financial year 2020, fuel used in flight
operations accounted for approximately one quarter of Group’s turnover. At the end of the financial year, the forecast
for 2021 is approximately one quarter of the Group’s turnover. On the closing date, a 10 per cent rise in the market priceof jet fuel – excluding hedging activity – increases annual fuel costs by an estimated 15 million euro. On the closing date– taking hedging into account – a 10 per cent rise in fuel lowers operating profit by around 8 million euro.
Due to the COVID-19 pandemic impacts to Finnair’s business, Finnair’s hedging operations regarding foreign exchange
currencies and jet fuel price risk were also impacted. Demand disappearing as a result of the COVID-19 pandemic meantthat the amount of underlying risk was significantly reduced from forecasted amounts forcing Finnair to discontinue themajority of its hedges in foreign exchange and jet fuel.

Foreign exchange risk
Foreign exchange risk means the uncertainty in cash flows and financial performance arising from exchange rate
fluctuations. Finnair Group’s foreign exchange risk mainly arises from fuel and aircraft purchases, divestments ofaircraft, aircraft lease payments, aircraft maintenance, overflight royalties and foreign currency revenue. About 55
per cent of the Group’s revenue is denominated in euros. The most important foreign revenue currencies are Japaneseyen (7 per cent, percentage of revenue), Chinese yuan (6 per cent), US dollar (4 per cent) and Swedish krona (3 percent). Approximately 40 per cent Group’s operating costs are denominated in foreign currencies. The most importantpurchasing currency is the US dollar, which accounts for approximately 35 per cent of all operating costs. Most
significant dollar-denominated expenses are fuel costs. The largest investments – aircraft and their spare parts – arealso mainly made in US dollars.
The risk management policy divides the foreign exchange position into three parts, namely exposure to forecasted
cash flows, balance sheet position and investment position.
The cash flow exposure mainly consists of sales denominated in a number of different currencies and dollardenominated expenses. Forecasted jet fuel purchases, aircraft materials and overhaul expenses and traffic charges
form a group of similar items that are hedged with the same hedging instrument. The purpose of currency risk hedging– for cash flow exposure – is to reduce the volatility of cash flows and comparable operating result due to fluctuating
currency prices. This is done using a layered hedging strategy for the two biggest sources of currency risk and utilising
diversification benefits of the portfolio of various currencies. The contracts are timed to mature when the cash flows
from operating expenses are expected to be settled. The hedging limits are set only for the main contributors tocurrency risk: the Japanese yen and the US dollar basket consisting of the US dollar and the Hong Kong dollar. For
both of these, the hedging horizon is two years, which is divided into four six-month periods. In order to achieve time
diversification, the minimum hedge ratio for the closest six-month period is 60 per cent with a decreasing slope endingat zero per cent for the fourth six-month period. Currently there is a temporary amendment in force that reduces the

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

minimum hedging ratio to zero percent until the treasury policy is reviewed during 2021. Even though the policy does
not require hedging of smaller currency flows, it is allowed, in which case the layered hedging strategy is partiallyapplied, although no minimum hedging ratio is specified.
The investment position includes all foreign currency denominated aircraft investments for which a binding
purchase agreement has been signed as well as commitments for sale and leaseback transactions in the next four
years. According to its risk management policy, Finnair Group hedges 50-100% of its aircraft investment exposure. New
hedges of investments in aircraft are made as an IFRS 9 fair value hedge of a firm commitment.
Balance sheet exposure consists of foreign currency denominated financial assets and liabilities, as well as otherforeign currency denominated balance sheet items, such as provisions, trade receivables, trade payables and assets
held for sale. Finnair Group hedges 75-100% of net positions in foreign currency denominated financial assets andfinancial liabilities exceeding 10 MEUR. However, the amendment to the treasury policy lowers the minimum hedging
ratio to zero per cent for balance sheet position, but target ratio is set to 50 per cent.
At the end of the financial year, Finnair had a hedge level for net operating cash flows of 42 per cent in the
USD-basket and 44 per cent in JPY for the coming 12 months, and hedge levels of 4 per cent and 2 per cent for 2022,
respectively. On the closing date – excluding hedges – a 10 per cent strengthening of the US dollar against the euro hasa negative impact on the 12-month result of around 27 million euro and a 10 per cent weakening of the Japanese yen
against the euro has a negative impact on 12-month of around 11 million euro. On the closing date – taking hedging into
account – a 10 per cent strengthening of the US dollar weakens the result by around 10 million euro and a 10 per centweakening of the Japanese yen weakens the result by around 5 million euro. In the above numbers, the USD-basket
risk also the Hong Kong dollar, which historical correlation with the US dollar is high. Hedge levels for balance sheet
position at the end of the financial year were 53 per cent for USD and 92 per cent for Japanese yen. On the closing date
– excluding hedges – a 10 per cent strengthening of the US dollar against the euro has a negative impact on the result ofaround 115 million euro and a 10 per cent strengthening of the Japanese yen against the euro has a negative impact ofaround 6 million euro. On the closing date – taking hedging into account – a 10 per cent strengthening of the US dollar
weakens the result by around 44 million euro and a 10 per cent strengthening of the Japanese yen weakens the result
by around 0.5 million euro.
Timing of the notional
EUR mill. 31 December 2020

Notional amount(gross)

USD
JPY

1,100.7
270.6

MaturityLess than 1
year
1 to 2 years

973.6
265.7

127.1
5.0

JPY

USD-basket

474.8
-75.8
120.2
399.1

-1,411.8
273.2
1.14-1,138.6

Cross-currency interest rate swaps are included in the nominal amount calculation.
Foreign exchange P&L exposure
EUR mill. 31 December 2020

Net forecasted operating cash flows, next 24m
Net operating cash flow hedges, next 24m
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from operating cash flows after hedging, next 24m

The average exchange rate of the instruments hedging highly probable forecasted sales and purchases
denominated in foreign currencies is calculated by taking into account only the hedging (bought) leg of collar
option structures, and therefore represents the least favorable hedged rate. The most favorable rate, calculated byincluding only the sold leg of collar option structures, is 1.17 for USD contracts and 118.42 for JPY instruments.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

THE REPORT OF THE
BOARD OF DIRECTORS

Foreign exchange balance sheet exposure
EUR mill. 31 December 2020

Net balance sheet items
Net hedges of balance sheet items
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from balance sheet items after hedging

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS
JPY

USD

-63.3
57.6
126.8
-5.7

-943.6509.0
1.18-434.6CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Foreign exchange investment exposure
EUR mill. 31 December 2020

USD

Net investment position
Net hedges of investment position
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from investment position after hedging-335.5180.4
1.14-155.1NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Foreign exchange P&L exposure
EUR mill. 31 December 2019

Net forecasted operating cash flows, next 24m
Net operating cash flow hedges, next 24m
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from operating cash flows after hedging, next 24m
Foreign exchange balance sheet exposure
EUR mill. 31 December 2019

Net balance sheet items
Net hedges of balance sheet items
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from balance sheet items after hedging
Foreign exchange investment exposure
EUR mill. 31 December 2019

Net investment position
Net hedges of investment position
Weighted average exchange rate of hedging instruments against the euro
Foreign exchange exposure from investment position after hedging

74

JPY

USD-basket

722.9-319.8125.2
403.1-1,852.1
836.7
1.17-1,015.4

JPY

USD

-69.3
66.4
121.3
-2.9

-1,092.6
907.7
1.12-184.9USD-668.0336.5
1.20-331.5REMUNERATIONREPORTSUSTAINABILITY
APPENDIXInterest rate risk
Interest rate risk means the cash flow, financial performance and balance sheet uncertainty arising from interest rate
fluctuations. In Finnair Group, the interest rate risk is measured using the interest rate re-fixing period. If necessary,interest rate derivatives are used to adjust the interest rate re-fixing period. According to the risk management policy,
the mandate for the investment portfolio’s interest rate re-fixing period is 0-12 months and for interest-bearing
liabilities 36-72 months. On the closing date, the investment portfolio’s interest rate re-fixing period was approximately
3 months and approximately 50 months for interest-bearing liabilities. On the closing date, a one percentage point risein interest rates increases the annual interest income of the investment portfolio by approximately 7.1 million euros andthe interest expenses of the loan portfolio by approximately 4.3 million euros. The situation as of December 31 2020 isa reasonable representation of conditions throughout the year given the current market environment.
Future lease agreements expose the group to interest rate risk, as the interest rate is one component of the leaseprice. The interest rate is fixed when the lease payments start. If necessary, the group can hedge this exposure withcash flow hedges.
Timing of the notional and hedged price range
EUR mill. 31 December 2020

Interest rate derivatives

Notional amount(gross)286.0

MaturityLess than 1
year
1 to 2 years

189.4

96.6

Cross-currency interest rate swaps are included in the nominal amount calculation. Finnair has not entered into any
interest rate derivatives on which it is paying a fixed rate.

Credit risk
The Group is exposed to counterparty risk when investing its cash reserves and when using derivative instruments.
The credit risk is managed by only making contracts with financially sound domestic and foreign banks, financial
institutions and brokers, within the framework of risk management policy for counterparty risk limits. Liquid assets
are also invested in money market funds, bonds and commercial papers issued by selected companies, according tocompany-specific limits. This way, risk exposure to any single counterparty is not significant. Changes in the fair valueof Group loans arises from changes in FX and interest rates, not from credit risk. The Group’s credit risk exposure arises
from other current financial assets presented in note 3.2.1, cash and cash equivalents presented in note 3.2.2, tradereceivables presented in Note 1.2.3 and derivatives presented in note 3.8.

Liquidity risk
The goal of Finnair Group is to maintain good liquidity. Liquidity is ensured by cash reserves, bank account limits, liquidmoney market investments and committed credit facilities. Counterparties of groups’ long term loans are solid financial
institutions with good reputations.
The COVID-19 pandemic did not impact the basic principles of Finnair’s liquidity risk management. However, thepandemic has increased the financing risk and due to high uncertainty relating to the duration of the pandemic,
Finnair executed several financing transactions in order to secure liquidity levels. These transactions consisted of:withdrawing the 175 million euro revolving credit facility which has been since repaid in September 2020, securing the
600 million pension premium loan, rights issue of net proceeds over 500 million euro, refinancing the existing 200
million euro hybrid bond and aircraft transactions in the form of two sale and leasebacks in excess of 200 million euro
and one export credit support transaction in excess of 100 million euro. In addition to the aforementioned financing
transactions, Finnair also negotiated a waiver of its financial covenant of adjusted gearing in the revolving credit
facility. Currently, the State of Finland and Finnair are in the process of preparing to make up to 400 million euros
available to Finnair in the form of an unsecured hybrid loan. The final decision on the possible financing arrangement
is subject to a decision by the Government Plenary session, which will also confirm the final terms and conditions of theloan. The hybrid loan requires approval by the EU Commission.
The Group’s cash funds funds were 823.7 million euro at the end of financial year 2020. Finnair Plc has a domestic
commercial paper program of 200 million euro, which was not in use as of the closing date. In addition, Finnair has an

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

unused 175 million euro committed revolving credit facility. The credit facility includes a financial covenant based on
adjusted gearing. The covenant level of adjusted gearing based on the original facility agreement is 175 per cent. Due tothe COVID-19 impact, Finnair negotiated a waiver in May 2020 of the adjusted gearing covenant with the lending banks.
The waiver removed the adjusted gearing covenant fully until either end of the year 2020 or when rights issue would
be completed. Thereafter the adjusted gearing covenant level will be 225 per cent until June 2021, from July 2021 until
June 2022 adjusted gearing covenant will be 200 per cent and from July 2022 onwards 175 per cent. At the closing date
the figure was 153.2 per cent. The maximum level set by the Board of Directors based on the adjusted gearing covenant.
During the financial year 2020 Finnair managed to maintain adequate liquidity in spite of the impacts of the
COVID-19 pandemic on Finnair’s underlying business, executing several financing transactions, which are describedin the above paragraph. These transactions had several impacts on Finnair’s financial position; first, Finnair has 28
per cent more interest-bearing liability on its balance sheet in comparison to the financial year 2019. Second, during
the financial year 2020, Finnair’s gearing rose significantly compared to financial year 2019; in 2019, the gearing was
64.3 per cent whereas at the end of financial year 2020 the gearing was 153.2 per cent. Third, despite being below thecovenant levels defined in the revolving credit facility, based on Finnair’s current estimate, the covenant terms related
to Finnair’s undrawn 175 million euro revolving credit facility are estimated to be possibly breached during the second
quarter of 2021. Therefore, Finnair plans to initiate negotiations with the syndicate banks with respect to covenant
amendments.
If the recovery from the COVID-19 pandemic takes significantly longer than currently expected, Finnair’s available
financing options may be more expensive, more limited, or both.

Capital management
The aim of Finnair’s capital management is to secure the access to capital markets at all times despite volatile businessenvironment, as well as support future business development. Through maintaining optimal capital structure Groupalso aims to minimize the cost of capital and maximize the return on capital employed. The capital structure is
influenced via, for example, dividend distribution and share issues. The Group can vary and adjust the level of dividends
paid to shareholders, the amount of capital returned to them or the number of new shares issued. The Group can alsodecide on sales of asset items in order to reduce debt. The aim of Finnair´s dividend policy is to pay on average at least
one third of the earnings per share as dividend during an economic cycle.
The COVID-19 pandemic has had a significant impact on Finnair’s business and therefore the balance sheet has also
been impacted. During the 2020 Finnair executed financial transactions to strengthen its balance sheet to mitigate
the COVID-19 pandemic impacts and to maintain a healthy adjusted gearing ratio. The main two transactions thatwere executed during the year 2020 were the rights issue and hybrid bond refinancing. The rights issue resulted in net
proceeds of approximately 501 million euro to the company and the hybrid refinancing of 200 million euro enabled
Finnair to further to mitigate the impacts of COVID-19 pandemic on Finnair’s balance sheet.
The development of the Group’s capital structure is continuously monitored using the adjusted gearing. Whencalculating adjusted gearing, adjusted interest-bearing net debt is divided by the amount of shareholders’ equity. The
Group’s adjusted gearing at the end of 2020 was 153.2 per cent (64.3).

Sensitivity analysis of the fair value reserve
If the price of Jet fuel CIF NWE had been 10 per cent higher, the balance of the reserve would have been 6.6 million
euro (50.7) higher. Correspondingly, a 10 per cent weaker Jet fuel CIF NWE price would have reduced the reserve by
6.6 million euro (52.0). In terms of the US dollar, a 10 per cent weaker level would have lowered the balance of the fairvalue reserve by 9.9 million euro (58.4) and a 10 per cent stronger dollar would have had a positive impact of 5.2 million
euro (61.7). In terms of Japanese yen, a 10 per cent stronger yen would have had a negative impact of 5.1 million euro
(20.7), and a 10 per cent weaker level would have increased the balance of the fair value reserve by 4.6 million euro(19.0). The effect of change in interests to the fair value reserve in own equity is not material. The enclosed sensitivity
figures do not take into account any change in deferred tax liability (tax assets).

75

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

3.6 Classification of financial assets and liabilities
EUR mill.

Hedge accounting Fair value throughitems
profit and loss

Amortised cost

Book value

3.1

3.1
358.3
125.7
12.4
465.3
964.9

31 Dec 2020
Financial assets
Receivables
Other financial assets
Trade receivables and other receivables
Derivatives
Cash and cash equivalents
Book value total

7.4

363.3

465.3
594.1

Fair value total

7.4

363.3

594.1

964.9

1,162.6
1,016.2

1,162.6
1,016.2
99.7
84.5
2,362.9

358.3
125.7
7.4

5.0

Financial liabilities
Interest-bearing liabilities
Lease liabilities
Derivatives
Trade payables and other liabilities
Book value total

46.1

53.6

84.5
2,263.2

Fair value total

46.1

53.6

1 244,9

1 344,6

Hedge accounting Fair value throughitems
profit and loss

Amortised cost

Book value

3.3

3.3
800.8
240.9
55.7
151.9
1,252.5

EUR mill.

46.1

53.6

31 Dec 2019
Financial assets
Receivables
Other financial assets
Trade receivables and other receivables
Derivatives
Cash and cash equivalents
Book value total

54.4

802.0

151.9
396.0

Fair value total

54.4

802.0

396.0

1,252.5

520.8
1,054.0

520.8
1,054.0
38.9
999.6
2,613.3
1 566,8

800.8
240.9
54.4

1.2

Financial liabilities
Interest-bearing liabilities
Lease liabilities
Derivatives
Trade payables and other liabilities
Book value total

29.4

9.5

999.6
2,574.4

Fair value total

29.4

9.5

1 527,929.4

9.5

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSIn this note interest rate derivatives (currency and interest-rate swaps) are included in derivatives. Item Receivables
mainly includes USD-denominated security deposits for leased aircraft. Trade payables and other liabilities include:
trade payables and other interest-bearing and non-interest-bearing liabilities.
Derivatives are valued at fair value, with further details in the fair value hierarchy. Financial assets valued at fairvalue are money market funds (fair value hierarchy level 1) and bonds, or commercial papers (fair value hierarchy level2). Loans and receivables are mainly current and the book value is equivalent to the fair value, because the discounteffect is not significant. The current portion of loans valued at amortised cost, excluding bonds, is 187.2 million euro,
and the book value is equivalent to the fair value, because the discount effect is not significant. The issued bond makes
the most significant part of the loans valued at amortised cost. The senior bond maturing in 2022 was quoted at
98.584, which explains the difference between book value and fair value. The valuation principles of financial assets
and liabilities are outlined in the accounting principles. The valuation principles of financial assets and liabilities are
outlined in the accounting principles.

Fair value hierarchy of financial assets and liabilities valued at fair value
Fair values at the end of the reporting period
EUR mill.

31 Dec 2020

Level 1

AssetsFinancial assets at fair value
Securities held for trading

358.3

358.3

Derivatives
Currency derivatives- of which in cash flow hedge accounting
Commodity derivatives- of which in cash flow hedge accounting
Total

8.6
4.3
3.8
3.2
370.8

Liabilities
Financial liabilities at fair value
Derivatives
Currency and interest rate swaps and options
Currency derivatives- of which in fair value hedge accounting- of which in cash flow hedge accounting
Commodity derivatives- of which in cash flow hedge accounting
Total

358.3

Level 2

8.6
4.3
3.8
3.2
12.4

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

3.7 Offsetting financial assets and liabilities
EUR mill.

2020

2019

Derivative assets gross amounts
Amounts of financial assets presented in the balance sheet
Enforceable master netting agreement
Derivative assets net amount

12.4
12.4
-11.8
0.6

55.7
55.7
-22.3
33.4

EUR mill.

Derivative liabilities gross amounts
Amounts of financial liabilities presented in the balance sheet
Enforceable master netting agreement
Derivative liabilites net amount

2019

-99.7
-99.7
11.8
-87.9

-38.9
-38.9
22.3
-16.6

For the above financial assets and liabilities, subject to enforceable master netting arrangements or similararrangements, each agreement between the Group and the counterparty allows net settlement of the relevant financial
assets and liabilities when both parties choose to settle on a net basis. In the absence of such mutual decision, financial
assets and liabilities will be settled on a gross basis. However, each party of the master netting agreement, or similar
agreement, will have the option to settle on a net basis in the event of default of the other party. Depending on theterms of each agreement, an event of default includes failure by a party to make a payment when due, failure by aparty to perform any obligation required by the agreement (other than payment), if such failure is not remedied within
periods of 30 to 60 days after notice of such failure is given to the party, or bankruptcy.

3.8 Derivatives
Derivative contracts and hedge accounting

18.8
32.5
13.8
15.0
48.4
17.3
99.7

18.8
32.5
13.8
15.0
48.4
17.3
99.7

During the financial year, no significant transfers took place between fair value hierarchy Levels 1 and 2.
The fair values of hierarchy Level 1 are fully based on quoted (unadjusted) prices in active markets of the sameassets and liabilities.
The fair values of Level 2 instruments are, to a significant extent, based on input data other than the quoted prices
included in Level 1, but still mainly based on directly observable data (price) or indirectly observable data (derived fromprice) for the particular asset or liability.
On the other hand, the fair values of Level 3 instruments are based on asset or liability input data that is not basedon observable market information (unobservable inputs). The fair values are based on confirmations supplied bycounterparties, based on generally accepted valuation models.

According to its risk management policy, Finnair Group uses foreign exchange, interest rate and commodity derivatives toreduce the exchange rate, interest rate and commodity risks which arise from the Group’s balance sheet items, currency denominated purchase agreements, anticipated currency denominated purchases and sales as well as future jet fuel purchases. It is the Group’s policy not to enter into derivative financial contracts for speculative purposes.
The derivatives are initially recognised as well as subsequently valued at fair value in each financial statement and interim report. The fair values of the derivatives are based on the value at which the instrument could be exchanged between
knowledgeable, willing and independent parties, with no compulsion to sell or buy in the sales situation. The fair values ofderivatives are determined as follows:
The fair values of all derivatives are calculated using the exchange rates, interest rates, volatilities and commodity pricequotations on the closing date. The fair values of currency forward contracts are calculated as the present value of future
cash flows. The fair values of currency options are calculated using the Black-Scholes option pricing model. The fair valuesof interest rate swap contracts are calculated as the present value of future cash flows. The fair values of cross-currency interest rate swap contracts are calculated as the present value of future cash flows. The fair values of interest rate options
are calculated using generally accepted option valuation models. The fair values of commodity forward contracts are calculated as the present value of future cash flows. The fair values of commodity options are calculated using generally accepted option valuation models.
The Group uses credit valuation adjustment for cross-currency interest rate swaps as the maturities of these derivatives
are long. The credit valuation adjustment is not done for the rest of the derivatives as the maturities for these are short andthe impact would not be material. Credit risk management is described in more detail in note 3.5.
Gains and losses arising from changes in the fair value are presented in the financial statements according to the originalclassification of the derivative. Gains and losses on derivatives qualifying for hedge accounting are recognised in accordancewith the nature of the risk being hedged. At inception, derivative contracts are designated as hedges of future cash flows,= Accounting principles

76

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT= Accounting principles= Critical accounting estimates

77

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

hedges of the fair value of recognised assets or liabilities and binding purchase contracts (cash flow hedges or fair value
hedges) or as derivatives not meeting the hedge accounting criteria or to which hedge accounting is not applied (economic
hedges). Hedging of the fair value of net investments of foreign units or embedded derivatives have not been used.
At the inception of hedge accounting, Finnair Group documents the economic relationship and the hedge ratio between
the hedged item and the hedging instrument, as well as the Group’s risk management objectives and the strategy for the inception of hedging. At the inception of hedging, and at least at the time of each financial statement, the Group documents
and assesses the effectiveness of hedge relationships by examining the past and prospective capacity of the hedging instrument to offset changes in the fair value of the hedged item or changes in cash flows. The values of derivatives in a hedging
relationship are presented in the balance sheet item Short–term financial asset and liabilities.
Finnair Group implements the IFRS hedge accounting principles in the hedging of future cash flows (cash flow hedging).
The principles are applied to the price and foreign currency risk of jet fuel, the foreign currency risk of lease payments andthe foreign currency risk of highly probable future sales and costs denominated in foreign currencies. The IFRS fair value
hedge accounting principles are applied to the hedging of foreign exchange and interest rate risk of aircraft.
The change in the fair value of the effective portion of derivative instruments that have been designated and qualify as
cash flow hedges are recognised in comprehensive income and presented within equity in the fair value reserve, to the extent that the requirements for the application of hedge accounting have been fulfilled and the hedge is effective. The gains
and losses, recognised in the fair value reserve, are transferred to the income statement in the period in which the hedged
item is recognised in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or thecriteria for cash flow hedge accounting are no longer fulfilled, but the hedged forecast transaction is still expected to occur,
the cumulative gain or loss at that point remains in the hedge reserve and is recognised in accordance with the above policy when the transaction occurs. If the underlying hedged transaction is no longer expected to take place, the cumulative
unrealised gain or loss recognised in the hedge reserve with respect to the hedging instrument is recognised immediately
in the consolidated income statement.
The effectiveness of hedging is tested on a quarterly basis. The effective portion of hedges is recognised in the fair value
reserve of other comprehensive income, from which it is transferred to the income statement when the hedged item is realised or, in terms of investments, as an acquisition cost adjustment.
Fair value hedging is implemented on firm orders of new aircraft, and in order to hedge the fixed interest rate bond. The
binding purchase agreements for new aircraft are treated as firm commitments under IFRS, and therefore, the fair valuechanges of the hedged part arising from foreign currency movements are recognised in the balance sheet as an asset item,
and corresponding gains or losses recognised through profit and loss. Similarly, the fair value of instruments hedging thesepurchases is presented in the balance sheet as a liability or receivable, and the change in fair value is recognised in profit
and loss.
The gain or loss related to the effective portion of the interest rate swap, which hedges the fixed interest rate bond, is recognised as financial income or expenses in the income statement. The gain or loss related to the ineffective portion is recognised within other operating income and expenses in the income statement. The change in the fair value attributable tothe interest rate risk of the hedged fixed interest rate loans is recognised in the financial expenses in the income statement.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item,
for which the effective interest method is used, is amortized to profit or loss over the period to maturity.
Finnair Group uses cross-currency interest rate swaps in the hedging of the interest rate and foreign exchange risks of foreign currency denominated loans. Cross-currency interest rate swaps are excluded from hedge accounting, and therefore thefair value changes are recognised in derivative assets and liabilities in the balance sheet, as well as in the financial income
and expenses in the income statement. The fair value changes of the loans are simultaneously recognised in the financial
income and expenses. Realised foreign exchange rate differences, as well as interest income and expenses, are recognisedin the financial income and expenses against the exchange rate differences and interest income and expenses of the loan.
Finnair Group uses jet fuel swaps (forward contracts) and options in the hedging of jet fuel price risk. Unrealised gains andlosses on derivatives hedging jet fuel, which are designated as cash flow hedges and fulfil the requirements of IFRS hedge
accounting, are recognised in the hedging reserve within other comprehensive income. Accrued derivative gains and losses, recognised in shareholders’ equity, are recognised as income or expense in the income statement in the same financial
period as the hedged item is recognised in the income statement. If a forecasted cash flow is no longer expected to occur,
and as a result the IFRS hedge accounting criteria are not fulfilled, the fair value changes and the accrued gains and losses
reported in shareholders’ equity are transferred to the items affecting comparability in the income statement. Changes in
the fair value of jet fuel swaps and options excluded from hedge accounting are recognised in fair value changes in derivatives in the income statement, while realised result is presented in fuel costs.
For forward and option contracts, an economic relationship exists between the hedged item and the hedging instrument
the hedging instrument and hedged item are expected to move in opposite directions because of the same underlying risk.
This is true for all hedge relationships except for the SING consumption hedged with NWE hedges (as described in section
3.5). In that case, the underlying is different, but the underlying hedged item (SING) and the hedge (NWE) have a historicalcorrelation of 0.99. Therefore, it can be classified as a relationship where the underlying and the hedge are economically

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

closely related. Ineffectiveness on fuel derivatives can also arise from timing differences on the notional amount between
the hedged instrument and hedged item, significant changes in credit risk of parties to the hedging relationship and changes in the total amount of the hedged item, for instance if the underlying fuel consumption forecast is not accurate enough,that can result in overhedging. However, as Finnair usually hedges less than 100%, the risk of overhedging is insignificant.
Finnair has established a hedge ratio of 1:1 for hedging relationships.
Finnair uses forward contracts and options to hedge its exposure to foreign currency denominated cash flows. The hedges of cash flows denominated in foreign currencies are treated as cash flow hedges in accounting, in accordance with thehedge accounting principles of IFRS 9. Unrealised gains and losses on hedges of forecasted cash flows qualifying for hedge
accounting are recognised in the hedging reserve in OCI, while the change in the fair value of such hedges not qualifying forhedge accounting is recognised in Fair value changes in derivatives and changes in exchange rates of fleet overhauls in theincome statement. The change in fair value recognised in the hedging reserve in equity is transferred to the income statement when the hedged transaction is realised. Forward points are included in the hedging instrument and in the hedge relationship. Potential sources of ineffectiveness include changes in timing of the hedged item, significant changes in credit
risk of parties to the hedging relationship and changes in the total amount of the hedged item, for instance if the underlying cash flow forecast is not accurate enough, that can result in overhedging. However, as Finnair usually hedges less than
100%, the risk of overhedging is insignificant. Realised profit or loss on derivatives hedging JPY-denominated operating
cash flows is presented in revenue, realised profit or loss on derivatives hedging a group of similar USD costs is proportionally recognised in corresponding expense lines, while profit or loss on derivatives hedging cash flows denominated in othercurrencies is presented in Other expenses.
The hedge ratio is defined as the relationship between the quantity of the hedging instrument and the quantity of thehedged item in terms of their relative weighting. With currency hedging, hedge ratio is typically 1:1. For forward and option
contracts, an economic relationship exists between the hedged item and the hedging instrument as there is an expectationthat the value of the hedging instrument and the value of the hedged item would move in the opposite direction becauseof the common underlying.
Changes in the fair value of interest rate derivatives not qualifying for hedge accounting are recognised in financial income
and expenses in the income statement. Changes in the fair value as well as realised gain or loss on forward contracts used
to hedge foreign currency denominated balance sheet items of Finnair Group are recognised in financial expenses. Changes
in the fair value and realised result of hedges of assets held for sale are recognised in Items affecting comparability.
Cost of hedging

At Finnair, the time value of an option is excluded from the designation of a financial instrument and accounted for as a costof hedging. Upon initial recognition, Finnair defers any paid premium in the cost of hedging reserve within other comprehensive income. The fair value changes of the time value are recognised in the cost of hedging reserve within other comprehensive income. The premium will be transferred to the consolidated income statement in the same period that the underlying
transaction affects the consolidated income statement for transaction-related hedges. As of 31 December 2019, Finnair has
deferred premiums only on transaction-related hedges.
Impact of COVID-19 to hedge accounting and derivatives

Due to the COVID-19 pandemic impacts to Finnair’s underlying business, the hedging operations regarding foreign exchange
currencies and jet fuel price risk were also impacted. Demand disappearing as a result of COVID-19 pandemic meant that theamount of underlying risk was significantly reduced from forecasted amounts forcing Finnair to discontinue hedge accounting on majority of its hedges in foreign exchange and jet fuel that were under hedge accounting. The discontinued hedges are shown in profit and loss instead of equity. The realized and unrealized gains or losses from discontinued hedges areshown in financial income and expenses.
Derivative contracts and hedge accounting

Finnair accounts for its cash flow hedges of forecasted foreign currency denominated purchases and sales and future jet
fuel purchases in accordance with the IFRS 9. Under the hedge accounting principles, a forecast transaction can be designated as a hedged item only if that transaction is considered as highly probable. The evaluation of probability is based on
the management forecasts about the future level of Finnair’s operations and cash flows. Such forecasts require the use ofmanagement judgement and assumptions, which inherently contain some degree of uncertainty that is further increased
under the existing COVID-19-pandemic. Should the expected circumstances or outcome change in the future, the management would need to reassess whether a hedged forecast transaction is still highly probable to occur. This could be the case if,for example, the expected recovery and thus the expected jet fuel consumption levels would not realize as expected. Should
the forecast transaction no longer be highly probable, it would no longer qualify as an eligible hedged item and hedge accounting would need to be discontinued. Should it no longer be expected to occur at all, the balance of the cash flow hedge
reserve included in other comprehensive income would need to be reclassified to profit or loss.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENT

2020

2019

Positive Negative
fair
Nominalfair Fair net
value values values
value

Positive Negative
fair
Nominalfair Fair net
value values values
value

Hedged items in hedge relationships

268.4

4.2

924.4

23.6

80.5
74.3
180.4

0.0

3.3

603.7

4.3

-28.8

201.5
201.8
336.5
22.3
-24.5 1,686.5

173.9

4.1

-3.1

1.0

20.3
20.3
267.1
481.6

0.1
0.0
0.1
4.4

-0.1
-0.5
-3.7

0.1
-0.0
-0.4
0.7

775.1
775.1

0.1
0.1

-9.4
-9.4

-9.3
-9.3

1,085.3

8.6

-32.5

-23.8 2,461.6

47.7

-16.8

30.9

CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOME

Currency derivatives
Operational cash flow hedging(forward contracts)
Operational cash flow hedging,bought options
Operational cash flow hedging, sold options
Fair value hedging of aircraft acquisitions
Hedging of lease payments
Hedge accounting items total

CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

Operational cash flow hedging(forward contracts)
Operational cash flow hedging,bought options
Operational cash flow hedging, sold options
Balance sheet hedging (forward contracts)
Items outside hedge accounting total
Currency derivatives total
Commodity derivatives
Jet fuel forward contracts, tonnes
Bought options, jet fuel, tonnes
Sold options, jet fuel, tonnes
Hedge accounting items total

240,000

3.2

-13.1

-8.8

-1.9
-13.8

0.0
-1.9
-13.8

-17.3

3.2

-17.3

-14.2 898,000
57,00057,000
-14.2

0.6

-31.1

-30.5

19.0
1.7
47.5

6.2
0.7

-5.9

-1.0
-0.4
-7.3

-21.5

17.6
3.3
-1.0
18.6
1.7
40.2

6.9

-0.5
-22.0

-15.3
0.7
-0.5
-15.1

-0.1
-0.1

31 December 2020

REMUNERATIONREPORT

Accumulated
amount of fairLine item invalue hedge the statement
adjustmentsof financial
included in theposition in
Carrying amount of carrying amount of
which thethe hedged itemthe hedged item hedged item
is included
Assets Liabilities Assets Liabilities

Cash flow hedges
Jet fuel price risk
- Forecasted jet
fuel purchases
Foreign exchange risk
- Forecasted sales
and purchases- Lease payments
Fair value hedges
Foreign exchange risk
- Aircraft acquisitions

13.8

13.8

Non-current
assetsSUSTAINABILITY
APPENDIX

Changes inChanges infair value offair value ofthe hedged
the hedged
item used for
item used for
calculating hedge calculating hedge
ineffectiveness,ineffectiveness,previous 12
previous 12
monthsmonths

612.7

-29.3

304.4
-33.2

-21.0
-1.7

32.4

-32.4

Ratings of derivative counterparties
EUR mill.

2020

2019

Better than A
A
BBB
Total

-18.9
-54.1
-14.2
-87.2

23.2
-6.5
16.8

EUR mill.

2020

2019

Jet fuel hedging
Fuel costs
Hedging of lease payments
Financial expenses
Operational cash flow hedging
Fuel costs
Operational cash flow hedging
Aircraft materials and overhaul
Operational cash flow hedging
Traffic charges
Operational cash flow hedging
Revenue
Expenses of hedge accounting items total
Jet fuel hedging
Fuel costs
Discontinued Jet fuel hedging
Financial expenses
Balance sheet hedging
Financial expenses
Discontinued foreign currency hedging Financial expenses
Cross-currency interest rate swaps
Financial expenses
Expenses of items outside hedge accounting total

-73.5
1.7
12.1
2.1
4.0
-1.8
-55.4

-5.5
8.1
25.0
3.4
3.9
-10.8
24.1
1.0

AUDITOR’S REPORT
Jet fuel forward contracts, tonnes
Sold options, jet fuel, tonnes
Items outside hedge accounting total

336,000

42,000Commodity derivatives total

0.6

-31.1

-30.5

0.0

-0.1
-0.1

3.8

-48.4

-44.6

6.9

-22.1

-15.2

-18.8
-18.8

217.9
217.9

1.1
1.1

0.0

1.1
1.1

217.9

1.1

0.0

1.1

55.7

-38.9

16.8

Cross currency interest rate swaps
Items outside hedge accounting total

286.0
286.0

0.0

-18.8
-18.8

Interest rate derivatives total

286.0

0.0

-18.8

-18.8

12.4

-99.7

-87.2

Derivatives total ** Positive (negative) fair value of hedging instruments as of 31.12.2020 is presented in the statement of financial position in theitem derivative financial instruments within current assets (derivative financial instruments within current liabilities). Due to theimpacts of the COVID-19 pandemic on Finnair’s business, Finnair discontinued hedge accounting for majority of its hedges which
resulted in having fewer hedges outstanding if comparing to year 2019. Finnair has also adopted a temporary amendment to thetreasury policy reducing the minimum hedging ratios to zero percent until the treasury policy is reviewed during 2021.

78

Derivatives realised through profit and loss

-111.8
-40.3
-5.4
1.9
-155.6

37.2
5.1
43.2

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

3.9 Equity-related information
Shareholders’ equity

The nominal value of shares had been recognised in the share capital before an amendment to the Articles of Association
registered on 22 March 2007. Share issue profit and gains on sale of own shares had been recognised in other restrictedfunds before the change in the Limited Liability Company Act in 2006.
The subscription proceeds from the 2007 share issue and 2020 rights issue less transaction costs after taxes as well asshare-based payments according to IFRS 2 have been recognised in the unrestricted equity funds.
Hedging reserve and other OCI items include changes in the fair value of derivative instruments used in cash-flow hedging,in addition to actuarial gains and losses related to defined benefit pension plans, cost of hedging and translation differences.
The acquisition cost of repurchased owned shares less transaction costs after taxes is charged to equity until the sharesare cancelled or reissued. The consideration received for sale or issue of own shares is included in equity.
The dividend proposed by the Board of Directors is not deducted from distributable equity until decided at the Annual
General Meeting.
The hybrid bond is recognised in equity. It is unsecured and subordinated to all senior debt. The hybrid bond does not confer shareholders’ rights, nor does it dilute the holdings of shareholders. Finnair is not required to redeem the hybrid bondat any time and they are not redeemable on demand of the holders of the hybrid bond. Interest expenses are debited fromretained earnings on cash basis net of tax. In the calculation of earnings per share, interest and transaction expenses of thehybrid bond are included in the earnings for the financial year.
The COVID-19 pandemic and measures undertaken by local and national authorities to prevent the further escalationof the pandemic represent a unique challenge for Finnair. The negative shock caused by the pandemic to the global
economy has resulted in a significant deterioration of macroeconomic conditions in the markets in which Finnair
operates, with a sudden and material reduction in the demand for the company’s services, reinforced by travel
restrictions imposed by public authorities around the world.
Finnair is determined to continue on its long-term strategic path despite temporary adjustments related to the
COVID-19 pandemic, and aims to ensure that the company remains a competitive airline company also in the future.
The company’s management believes that air traffic will, upon expiration of the COVID-19 pandemic related travel
restrictions, still be a growth business, in which Finnair targets sustainable, profitable growth, supported by a strategy
based on a geographical competitive advantage and strong ownership structure.
To achieve the goals of the company despite the exceptional circumstances, Finnair considered that it is prudent toseek to strengthen its balance sheet in these conditions and to lay a foundation for the successful execution of its longterm strategy, ensuring that the company is viable in a post-crisis environment. The rights issue was undertaken as partof Finnair’s recapitalization plan, which has been carried out during 2020 and will continue in 2021.
Finnair decided to raise equity because of the challenging situation caused by the COVID-19 pandemic and thistransaction was part of Finnair’s refinancing plan in response to the COVID-19 pandemic. In Finnair’s rights offering,a total of 1,416,635,293 new shares were subscribed for in the Offering, corresponding to approximately 110.7 percent of the offer shares, and the Offering was oversubscribed. A total of 1,253,946,070 offer shares were subscribedfor pursuant to the exercise of subscription rights. The remaining 25,319,080 offer shares subscribed for without
subscription rights were allocated in the secondary subscription in accordance with the terms and conditions of theoffering. The subscription price was EUR 0.40 per offer share. Finnair received gross proceeds of approximately EUR
512 million euro from the rights issue.
The European Commission has concluded that the State of Finland’s guarantee of Finnair’s pension premium loan up
to EUR 540 million euro, which was approved by the European Commission on 18 May 2020, and the State of Finland’s
participation in the rights offering are so closely linked that they must be regarded as an overall transaction that
constitutes State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union. Moredetailed information about state aid and remedies included can be found in section 3.3 Financial liabilities.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Number of shares

Number of outstanding shares in the beginning of the financial year
Rights issue
Purchase of own shares
Shares granted from the share-bonus scheme 2017-2019
Shares granted from the share-bonus scheme 2016-2018
Shares granted from FlyShare employee share savings plans

2020

2019

127,583,802
1,279,265,150

127,487,107-148,000

269,774
111,879

Paper shares forfeited from the joint account to Finnair’s book-entry account-16,651
1,407,230,605
170,660
1,407,401,265

Number of outstanding shares at the end of the financial year
Own shares held by the parent company
Total number of shares at the end of the financial year

149,894
111,452
127,583,802
552,213
128,136,115

Finnair Plc’s share capital, paid in its entirety and registered in the trade register, was at 75,442,904.30 euros at theend of 2019 and 2020. The shares have no nominal value. During the year 2020, Finnair transferred a total of 111,879
shares to FlyShare participants and a total of 269,774 shares to participants in Finnair’s share-based incentive scheme
2017-2019.
Group’s hedging reserve and other OCI items

EUR mill.

Unrealised
Amounts
reclassified gains and losses Discontinued hedges
reclassified torecognised in
to profit or
financialexpenses
OCI
loss
2020

Line item
affected in
profit or loss
because of the2019 reclassification

Jet fuel price hedging

-14.2

-15.1

Hedging of lease payments
Operating cash flow hedging
Hedging of interest related
to future lease payments
The actuarial gains andlosses of defined benefit plan
Translation differences
Cost of hedging reserve
Tax effect
Total

73.5

-214.8

142.3

-1.7
-10.2

-16.3

-5.0

0.7

-22.5

1.7
-7.1

-6.5

-5.7
-13.1

-0.7
-0.4
10.5
-41.8

55.4

19.6

0.1
8.6
-226.3

135.8

Fuel costs
Lease
payments
for aircraft
Revenue andcost lines*
Lease
payments
for aircraft

-9.4
0.7
-0.4
1.9
-6.7

*Forward and option contracts hedging forecasted sales and purchases denominated in foreign currencies are hedges of a groupof similar hedged items, and the amounts reclassified from OCI to P&L are proportionally allocated to different cost lines based on
the realised cost amounts. Amounts reclassified to revenue and different cost lines are specified in the table “Derivatives realised
through profit or loss” in section 3.8.

= Accounting principles

79

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

Maturity dates of fair values recognised in the hedging reserve
EUR mill.

2021

2022

Jet fuel price hedging
Operating cash flow hedging
Hedging of interest related
to future lease payments
The actuarial gains and losses
of defined benefit plan
Cost of hedging reserve
Tax effect

-14.0
-8.2

-0.2
-2.1

-0.7

-0.7

-22.5
-0.4
9.1

0.6

0.1

0.1

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Total

-36.6

-2.4

-0.5

-0.5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Hybrid bond

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING

The COVID-19 pandemic and measures undertaken by local and national authorities to prevent the further escalationof the pandemic represent a unique challenge for Finnair. The negative shock caused by the pandemic to the global
economy has resulted in a significant deterioration of macroeconomic conditions in the markets in which Finnair
operates, with a sudden and material reduction in the demand for the company’s services, reinforced by travel
restrictions imposed by public authorities around the world. Finnair considered that it is prudent to seek to strengthen
its balance sheet in these conditions and to lay a foundation for the successful execution of its long-term strategy,
ensuring that the company is viable in a post-crisis environment and decided to refinance its outstanding 200 million
euro hybrid bond.
Shareholders’ equity (after equity belonging to the owners) includes a 200 million euro hybrid bond that was issued
during the third quarter of 2020. The hybrid bond coupon is fixed at 10.25 per cent per year for the first three years,
and thereafter fixed, at 15.25 per cent per year. Finnair can postpone the interest payment if it does not distributedividends or any other equity to its shareholders. The bond has no maturity date, but the company has the right toredeem it in three years and on every interest payment date thereafter. The overall hybrid bond net position recognisedin equity is 197.5 million euro, due to issuing expenses. The hybrid bonds are unsecured and in a weaker preference
position than promissory notes. A holder of hybrid bond notes has no shareholder rights. At the same time when the
new hybrid bond was issued Finnair tendered the old hybrid bond issued in 2015. The aggregate principal amount of
the old hybrid bond validly tendered by the holders for purchase pursuant to the tender offer was 157.8 million euro inconjunction of the new issue and the remaining 42.2 million euro was tendered according to the terms and conditions infourth quarter of the 2020.

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTARRANGEMENTS
3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

2023

2024

2025

Later

Total

-14.2
-10.2
-0.7

-0.7

-0.7

-1.6

-5.0

0.1

0.3

-22.5
-0.4
10.5

-0.5

-1.2

-41.8

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

The exercise price in the rights offering in 2020 was less than the fair value of the shares immediately before theexercise of rights. A bonus element included in the rights issue effected on the number of outstanding shares before
the rights issue in the calculation of basic and diluted earnings per share. The fair value per share was EUR 3.90 andtheoretical ex-rights fair value per share was EUR 0.72. The fair value per share divided by theoretical ex-rights fairvalue per share results in bonus element multiplier 5.43.
EUR mill.

2020

2019

Result for the financial year, EUR mill.
Hybrid bond interest, EUR mill.
Transaction costs paid related to redemption of the hybrid bond issued in 2015
Transaction costs of the hybrid bond issued in 2020
Tax effect
Adjusted result for the financial year

-523.2
-17.9
-1.4
-2.5
4.4
-540.774.5-15.8

Weighted average number of shares, mill. pcs
Basic earnings per share, EUR
Diluted earnings per share, EUR

1,052.0
-0.51
-0.51

692.6
0.09
0.09

3.2
61.9

Dividend
The Board of Directors proposes to the Annual General Meeting that no dividend is paid for 2020. In accordance withthe proposal of the Board of Directors, the Annual General Meeting on 29 May 2020 resolved that no dividend be paid
based on the balance sheet adopted for the year 2019.A dividend for 2018 of 0.274 euro per share, amounting to a totalof EUR 35.0 million, was decided in the Annual General Meeting on 20 March 2019. The dividend was paid on 1 April
2019.
Finnair Plc’s distributable equity
EUR mill.

Hedging reserve
Unrestricted equity
Retained earnings at the end of financial year
Result for the financial year
Distributable equity total

2020

-19.8
772.0
175.5
-566.0361.7

Earnings per share
The basic earnings per share figure is calculated by dividing the result for the financial year attributable to the parent
company’s shareholders by the weighted average number of shares outstanding during the financial year. The result for
the financial year is adjusted for the after-tax amounts of hybrid bond interests regardless of payment date, transaction
costs of the new hybrid bond issued and premium paid, when a hybrid bond is redeemed. When calculating the earnings
per share adjusted by dilution, the weighted average of the number of shares takes into account the diluting effectresulting from changeing into shares all potentionally diluting shares. Finnair has not granted any options.

80

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTSCONSOLIDATED INCOME STATEMENT

4 Consolidation

CONSOLIDATED STATEMENT

Notes under the Consolidation section include a description of the general consolidation principles and methods ofconsolidation. The aim of the section is to provide an overall picture of the group’s structure and principles applied in
preparing consolidated financial statements and classifying ownership interests. In addition, notes include information
about subsidiaries, associated companies and joint ventures held, acquired or sold by the group.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

4.1 General consolidation principles
Consolidation
Consolidation, the consolidation method and classification of ownership interests depends on whether Group has power
to control or jointly control the entity or have significant influence or other interests in the entity. When Group has
the power to control the entity, it is consolidated as a subsidiary in the group according to principles described in thenote 4.2 Subsidiaries. When Group has joint control or significant influence over an entity but does not have power tocontrol, entity is accounted for by using equity method according to principles set in note 4.4 Investments in associates
and such joint ventures. If Group does not have power to control nor significant influence in the entity, its ownershipinterests are classified as financial assets available for sale and accounted for according to principles described in thenote 3.2 Financial assets.

3.

CAPITAL STRUCTURE AND FINANCING COSTS

Translation of foreign currency items

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Items included in each subsidiary’s financial statements are measured in the currency that is the main currency of theoperating environment of each subsidiary (“functional currency”). The consolidated financial statements have beenpresented in euro, which is the parent company’s functional and presentation currency. Transactions denominated inforeign currencies in group companies are translated into functional currency by using the exchange rate at the dateof the transaction. Receivables and liabilities that are denominated in foreign currencies and are outstanding on theclosing date are translated using the exchange rate of the closing date. Exchange rate differences are recognised in theincome statement.
Foreign subsidiaries whose functional currency is not euro are translated into euro by using average rate for thefinancial year. Balance sheets are translated by using the closing rate for the financial period. Translation differences
arising from the elimination of acquisition costs of foreign subsidiaries are recognised in other comprehensive income.
When foreign subsidiary is sold, the differences are recognised as part of the sales gain or loss.

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTCORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

4.2 Subsidiaries
Consolidation principles of subsidiaries

Finnair Plc’s consolidated financial statements include the parent company Finnair Plc and all of its subsidiaries. Subsidiaries are defined as companies in which Finnair has control. Control exists when Finnair has rights to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Usually Finnair has
power over the entity when it owns more than 50% of the votes or where Finnair otherwise has the power to govern the financial and operating policies. The acquired subsidiaries are included in the consolidated financial statements from the day
the Group has control, and disposed subsidiaries until the control ceases.
Acquired and established companies are accounted for using the acquisition method of accounting. Accordingly, the acquired company’s identifiable assets, liabilities and contingent liabilities are measured at fair value on the date of acquisition.
The excess between purchase price and fair value of the Group’s share of the identifiable net assets is recognised as goodwill.
All inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated unless there is evidence of impairment related to the transferred asset. The accounting principles of subsidiaries have been changed to correspond Group’s accounting policies.
Non-controlling interest and transactions with non-controlling interest

Non-controlling interests are presented within the equity in the Consolidated Balance Sheet, separated from equity attributable to owners of the parent. For each acquisition the non-controlling interest can be recognised either at fair value orat the non-controlling interest’s proportionate share of the acquirer’s net assets. The carrying amount of non-controllinginterests is the amount of the interests at initial recognition added with the non-controlling interests’ share of subsequentchanges in equity.

Subsidiaries

Name of the company

Finnair Cargo Oy, Finland
Finnair Aircraft Finance Oy, Finland
Finnair Technical Services Oy, Finland
Finnair Engine Services Oy, Finland
Finnair Kitchen Oy, Finland
Kiinteistö Oy Lentokonehuolto, Finland
Northport Oy, FinlandGroupownership % Name of the company

Groupownership %100.0 Balticport Oü, Estonia
100.0 Amadeus Finland Oy, Finland
100.0 Oy Aurinkomatkat - Suntours Ltd Ab, Suomi
100.0 Aurinko Oü, Estonia
100.0 Matkayhtymä Oy, Finland
100.0 FTS Financial Services Oy, Finland
100.0 Finnair Business Services Oü, Estonia

100.0
95.0
100.0
100.0
100.0
100.0
100.0

Finnair Kitchen Oy was merged into Finnair Travel Retail Oy on 31 December 2020. At the same time the company nameof Finnair Travel Retail Oy was changed to Finnair Kitchen Oy.
OOO Aurinko was liquidated on 23 November 2020.

4.3 Acquisitions and disposals
There were no business acquisitions or disposals during 2020 and 2019.

= Content of the section= Accounting principles

81

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORSInformation on the Group’s associates and joint ventures 31 Dec 2019

Associates are companies in which the Group generally holds 20–50 per cent of the voting rights or in which the Group
has significant influence but in which it does not exercise control. Companies where the Group has joint control with another entity are considered as joint ventures. The Group’s interests in associated companies and jointly controlled entities areaccounted for using the equity method. The investment in associates and joint ventures include goodwill recognized at thetime of acquisition. The Group recognises its share of the post-acquisition results in associates and joint ventures in the income statement. When the Group’s share of losses in an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations on behalf of the associate or joint venture.
Results from the transactions between the Group and its associates are recognised only to the extent of unrelated investor’s interests in the associates. The Group determines at each reporting date whether there is any objective evidence thatthe investment in the associates is impaired. In case of such indications, Group calculates the amount of impairment as thedifference between the recoverable amount of the associate and its carrying value. The impairment is recognised in shareof results in associates and joint ventures.
Accounting policies of associates or joint ventures have been changed where necessary to correspond with the accounting
policies adopted by the Group. If financial statements for the period are not available, the share of the profit of certain associated or joint venture companies is included in the consolidated accounts based on the preliminary financial statements
or latest available information.

EUR mill.

Domicile

Assets Liabilities

Nordic Regional Airlines AB
Suomen Ilmailuopisto Oy*

SwedenFinland

169.5
19.4

The Group’s share of the result, asset items and liabilities of associates and joint ventures is presented below.

4.

CONSOLIDATION

EUR mill.

2020

2019

5.

OTHER NOTES

2.5

6.

PARENT COMPANY FINANCIAL STATEMENTS

At the beginning of the financial year
Disposals
At the end of the financial year

3.3
0.9
2.5

2.5

There were no changes in 2020. During 2019, the balance sheet value of Nordic Regional Airlines was revalued,
resulting in a decrease in the share of assets and liabilities of joint operations. More information on transactions withassociated companies and joint ventures can be found in the note 4.5 Related party transactions.
Information on the Group’s associates and joint ventures 31 Dec 2020
EUR mill.

Domicile

Assets Liabilities

Nordic Regional Airlines AB
Suomen Ilmailuopisto Oy*

SwedenFinland

103.2
19.9

104.7
1.4

169.0
1.2

Revenue

Profit/Loss

Holding
%

106.8
10.5

-3.4
0.1

40.00
49.50

* The presented figures have been adjusted according to the final and audited financial statements of 2019.

The associated company owned by Finnair, Suomen Ilmailuopisto Oy, is an unlisted company and is not consideredmaterial compared to Finnair’s operations. The result of associated companies and joint ventures for 2020 was -1.7(-3.3) million euros, of which Finnair’s share was 0.0 (-0.9) million euros.

Suomen Ilmailuopisto Oy
Suomen Ilmailuopisto Oy (the Finnish Aviation Academy) is a vocational special purpose aviation school owned by
Finnair Oyj (49.5%), Finnish Government (49.5%) and the City of Pori (1%). Finnair is not entitled to company’s results
nor net assets, but net results are invested in the development of the school’s curriculum.

Nordic Regional Airlines AB
Nordic Regional Airlines AB (Norra) operates mainly purchased traffic for Finnair. The owners (Finnair 40% and Danish
Air Transport 60%) have joint control over the entity. In the balance sheet of Finnair, Norra has been classified as a joint
venture.

CAPITAL STRUCTURE AND FINANCING COSTS

AUDITOR’S REPORTSUSTAINABILITY
APPENDIX

4.4 Investments in associates and joint ventures

3.

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDENDREMUNERATIONREPORT

Revenue

Profit/Loss

Holding
%

86.6
9.3

-2.0
0.3

40.00
49.50

4.5 Related party transactions
Related parties of the Finnair group includes its subsidiaries, management, associated companies and joint venturesand Finnair pension fund. Subsidiaries are listed in the note 4.2 and associates and joint ventures in note 4.4. Related
party transactions include such operations that are not eliminated in the group’s consolidated financial statement.
The State of Finland which has control over Finnair owns 55.9% (55.8%) of Finnair’s shares. During financial
year 2020 the State of Finland participated in the rights issue in proportion to its holding by 286.1 million euro andguaranteed Finnair’s pension premium loan up to 540 million euro. The European Commission concluded that thesetransactions, in combination, constituted state aid within the meaning of Article 107(1) of the Treaty on the Functioningof the European Union. The conditions relating to the state aid approval are described in the note 3.3. All thetransactions with other government owned companies and other related parties are on arm’s length basis, and are on
similar terms than transactions carried out with independent parties.

* The presented figures for 2020 are preliminary and unaudited.

= Accounting principles

82

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSCONSOLIDATED INCOME STATEMENT

The following transactions have taken place with associated companies, joint ventures and Finnair pension fund:

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Sales of goods and services
Associates and joint ventures
Pension fundEmployee benefits
Pension fund
Purchases of goods and services
Associates and joint ventures
Pension fundFinancial income and expenses
Associates and joint ventures
Pension fundReceivables
Non-current receivables from associates and joint ventures
Non-current receivables from pension fund
Current receivables from associates and joint ventures
Liabilities
Non-current liabilities to associates and joint ventures
Non-current liabilities to pension fund
Current liabilities to associates and joint venturesSUSTAINABILITY
APPENDIX

5 Other notes

2020

2019

28.4
0.4

27.0
0.7

-121.5

10.3

88.2
1.9

107.8
2.5

2.8
-0.6

5.7
-0.3

19.6
31.0
15.9

33.7

3.6

3.6
77.0
1.0

2.1

REMUNERATIONREPORT

Other notes include all such notes that do not specifically relate to any previous subject matters.

5.1 Income taxes
The tax expense for the period includes current and deferred tax and adjustments to previous years’ taxation. Tax is­recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income
or other equity items. Deferred taxes are calculated for temporary differences between accounting and taxation using thevalid tax rates for future years at the closing date.
Deferred taxes are calculated for temporary differences between accounting and taxation using the valid tax rates for future years at the closing date. Deferred tax asset is recognised to the extent that realisation of the related tax benefit throughfuture profits is probable. Temporary differences arise mainly from sales of tangible assets and depreciation, right-of-use
assets, lease liabilities and tax losses. Deferred tax is recognised for foreign subsidiaries’ undistributed earnings only whenrelated tax effects are probable.
Deferred tax assets and liabilities are netted when they are levied by the same taxing authority and Finnair has a legally
enforceable right to set off the balances.
Deferred taxes

23.4

Employee benefits, non-current receivables from pension fund and non-current liabilities to pension fund are related
to defined benefit pension plans in Finnair pension fund. These are described more detailed in the note 1.3.8.2.
Management remuneration is presented in note 1.3.8. Management has not been granted any loans and there have notbeen any other transactions with management.
More information on associated companies and joint ventures can be found in the note 4.4.

Finnair pension fund
The Finnair pension fund in Finland is a stand-alone legal entity which mainly provides additional pension coverage
to Finnair’s personnel in the form of defined benefit plan, and manages related pension assets. The assets include
Finnair’s shares representing 0.1% (0.1%) of the company’s outstanding shares. Real estate and premises owned by thepension fund have been mainly leased to Finnair. In 2020 and 2019 Finnair did not pay any contributions to the fund.
The pension obligation of 77.0 million euros at the end of 2019 was changed to the pension assets of 31.0 million euros
at the end of 2020, as the terms of Finnair pension fund were amended relating to pension index increment removals.
More information on pensions can be found in the note 1.3.8.2.

Recognition of deferred tax asset is based on management estimates and require the use of management judgement in order to assess whether there will be sufficient taxable profits flowing to the company in the future. The expectations used in
the calculation are based on the latest management forecasts at the reporting date and use assumptions that are consistent with those used elsewhere in the financial statements. Due to the current uncertainty embedded in the economic environment and the difficulty in forecasting the ultimate duration and impact of the COVID-19 pandemic, the management has
considered alternative forecast scenarios that have been sensitised to reflect plausible variations relating to the expected
recovery begin of the Finnair business. The scenarios have been discussed in more detail early in the beginning of the notes
section under Board’s assessment of Finnair as a going concern. Finnair expects to be able to use the tax losses well in advance of 10 years expiry date under all of the forecast scenarios.

Income taxes
EUR mill.

Taxes for the financial year
Current tax
Adjustments recognised for current tax of prior periods
Deferred taxes
Total

2020

2019

-3.4
134.5
131.1

-4.8
0.1
-13.8
-18.4

In 2020, Finnair Aircraft Finance Oy recognized an adjustment for prior year deferred taxes, which caused additional
payable taxes of 3.4 million euro relating to the financial year 2019.

= Content of the section= Accounting principles= Critical accounting estimates

83

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Result before taxes
Taxes calculated using the Finnish tax rate 20%
Different tax rates of foreign subsidiaries
Tax-exempt income
Non-deductible expenses
Adjustments recognised for taxes of prior periods
Income taxes total
Effective tax rate

2020

2019

-654.4
130.9
0.1
0.3
-0.2
0.1
131.1
-20.0%

93.0
-18.6
-0.1
0.6
-0.4
0.1
-18.4
19.8%

Deferred tax assets and liabilities

The Group has evaluated the nature and classification of deferred tax assets. Based on the evaluation, deferred tax
assets and liabilities levied by the same taxing authority met the requirements for offset eligibility in accordance with
IAS 12 standard. The deferred tax assets and liabilities are shown net on the balance sheet.

Deferred tax assets and liabilitities
Confirmed losses
Defined benefit pension plans
Property, plant and equipment
LeasesValuation of derivatives at fair value
Other temporary differences
Total

Recognised Recognised inin the income shareholders’2019
statement
equity0.0
15.3-116.4
30.7
0.0
6.1
-64.3

135.6
-24.1
32.5
-13.6

5.9
2.6

6.0
4.2
134.5

14.5

2020

141.5
-6.2
-83.9
17.1
6.0
10.3
84.8

Finnair’s taxable result was highly negative in year 2020 as a result of the impact of the COVID-19 pandemic on its
operations and financial performance and the Group has recognized a deferred tax asset of 84.8 million euro. The
estimated amount of confirmed tax losses after the 2020 taxable result totals to approximately 707 million euros. The
tax losses to be confirmed for the year 2020 will expire in 10 years and Finnair expects that these can be used against
its future taxable results. The assessment is based on Finnair’s latest management forecasts that consider different
plausible scenarios relating to the start of the recovery. Finnair would be able to use the tax losses well in advance of 10
years expiry date under all of the forecast scenarios. This is based on both the expected future profits and allowed tax
planning methods available to Finnair. In 2019, Finnair recognized a deferred tax liability balance of 64.3 million euro.
Distributing retained earnings of foreign subsidiaries as dividends would cause a tax effect of 0.2 million euros (0.2).

84

SUSTAINABILITY
APPENDIX

EUR mill.

Deferred tax assets and liabilitities
Confirmed losses
Defined benefit pension plans
Property, plant and equipment
LeasesValuation of derivatives at fair value
Other temporary differences
Total

Recognised Recognised inin the income shareholders’2018
statement
equity0.1
3.3-100.1
21.8
15.1
12.1
-47.6

-3.2
2.0
-16.3
8.9
-5.0
-13.8

3.2
10.0

-15.2
-0.9
-2.9

2019

0.0
15.3
-116.4
30.7
0.0
6.1
-64.3

5.2 Disputes and litigation
Finnair reports only cases of which the interest is material and that are not insured. As of 31 December 2020 there wereno such disputes pending.

Changes in deferred taxes during 2020:
EUR mill.

REMUNERATIONREPORT

Changes in deferred taxes during 2019:

The reconciliation of income taxes to theoretical tax cost calculated at Finnish tax rate
EUR mill.

CONSOLIDATED STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

5.3 Events after the closing date
On 26 January 2021, Finnair has announced that the Board of Directors of Finnair approved a new individual
performance share plan covering the years 2021–2023. Within the plan, the participants have the opportunity to earn
Finnair shares as a long-term incentive reward if the performance targets set by the Board of Directors are achieved.
The potential share rewards will be delivered to the participants in the spring of 2024. The plan applies to some
70 persons, and it is also described in a stock exchange release, in the Remuneration Statement 2020 and on thecompany’s website.
On 17 February 2021, Finnair announced that it has completed a lease financing arrangement for its next A350 aircraft
delivery where it will assign the purchase of the Airbus A350 aircraft to a third party, and then leases it back for its own
operation. The aircraft is expected to be delivered to Finnair in the second quarter of 2022. The operating lease period
is a minimum of 12 years, including a storage period expected to commence in the fourth quarter of 2021, concurrent
with the aircraft‘s sale. The total positive cash effect of the arrangement for Finnair in 2021–2022 is in excess of 100
million US dollars compared to a situation in which the aircraft had been purchased and owned by Finnair.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSCONSOLIDATED INCOME STATEMENT

6 Parent company financial statements

Finnair Plc balance sheet

CONSOLIDATED STATEMENT

Finnair Plc income statement

EUR mill.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETEUR mill.

Note

2020

2019

Revenue
Other operating income
Operating income

6.2
6.3

791.9
84.1
876.0

2,935.8
84.5
3,020.4

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING

Materials and services
Staff expenses
Depreciation and reduction in value
Other operating expenses
Operating expenses

6.4
6.5
6.6
6.7

Operating profit/loss

574.3
183.7
18.4
812.2
1,588.6

1,431.9350.7
15.1
1,217.7
3,015.4-712.6

4.9-189.8-11.1-902.4-6.1

Current assets
Deferred tax assets
Current receivables
Marketable securities
Cash and bank equivalents
Total current assets
TOTAL ASSETSARRANGEMENTS
3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Financial income and expenses

6.8

Profit/loss before appropriations and taxes

ASSETS
Non-current assets
Intangible assets
Tangible assets
Investments
Holdings in group undertakings
Participating interests
Other shares and similar rights of ownership
Loan and other receivables
Total investments
Total non-current assets

Appropriations

6.9

194.6

33.1

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

Income taxes

6.10

141.8

-4.8

AUDITOR’S REPORT

Profit/loss for the financial year

-566.022.1

SUSTAINABILITY
APPENDIX

Note

2020

2019

6.11
6.12

35.3
93.5

40.9
82.5

640.6
2.5
0.4
218.2
861.6
990.5

440.6
2.5
0.4
1.5
444.9
568.3

147.4
303.5
358.3
464.2
1,273.4

0.0
887.6
800.8
149.7
1,838.1

2,263.9

2,406.3

75.4
24.7

75.4
24.7
258.7
147.7
3.3
153.4
22.1
685.3

6.14
6.13

6.15
6.16
6.17
6.18

EQUITY AND LIABILITIES
EquityShare capital
Share premium account
Other reserves
Unrestricted equity funds
Legal reserve
Hedging reserve
Retained earnings
Profit/loss for the financial year
Total equity

6.19

772.0
147.7
-19.8
175.5
-566.0609.5

Accumulated appropriations

6.20

21.0

26.0

Provisions

6.21

155.9

157.0

Liabilities
Non-current liabilities
Current liabilities
Total liabilities

6.22
6.23

1,002.1475.3
1,477.4

401.8
1,136.2
1,538.0

2,263.9

2,406.3

EQUITY AND LIABILITIES TOTAL85

REMUNERATIONREPORT

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCONSOLIDATED INCOME STATEMENT

Finnair Plc cash flow statement

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT86

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Notes to Finnair Plc financial statements
2020

2019

6.1 Accounting principles

Cash flow from operating activities
Result before appropriations
Depreciation
Other non-cash transactions
Financial income and expenses
Changes in working capitalInterest and other financial expenses paid
Received interest and other financial income
Income taxes paid
Cash flow from operating activities-902.4
18.4
-5.6
189.8
-512.0-199.939.1-3.0-1,375.6

-6.1
15.1
35.4
12.2
62.9
-20.9
11.2
-10.6
99.1

GeneralCash flow from investing activities
Investments in intangible and tangible assets
Change in loan and other receivables
Received dividends
Cash flow from investing activities

-23.9
180.6
0.0
156.7

-22.1
-249.50.0-271.7

Cash flow from financing activities
Purchase of own shares
Proceeds from loans
Loan repayments and changes
Proceed from share issues
Proceeds from hybrid bondHybrid bond repayments
Dividends paid
Received and given group contributions
Cash flow from financing activities

34.1
1,091.0

-35.0
48.3
52.4

Change in cash flows-127.9-120.2

Change in liquid funds
Liquid funds, at beginning
Change in cash flows
Liquid funds, at end

950.4-127.9822.5

1,070.6-120.2
950.4

-0.5
775.0
-229.8511.7
200.0-200.039.5

Finnair Plc is the parent company in Finnair Group, domiciled in Helsinki, Finland. Financial statements are prepared inaccordance with accounting principles required by Finnish law.

Foreign currency items
Business transactions in foreign currencies have been valued using the exchange rate at the date of transaction.
Receivables and liabilities on the balance sheet date are valued using the exchange rate on the balance sheet date.
Advances paid and received are valued in the balance sheet using the exchange rate at the date of payment. Exchange
rate differences on trade receivables and payables are treated as the adjustments to turnover and other operating
expenses. Exchange rate differences on other receivables and liabilities are entered under financial income andexpenses.

Derivative contracts
According to its risk management policy, Finnair uses foreign exchange, interest rate and commodity derivatives toreduce the exchange rate, interest rate and commodity risks which arise from the Finnair’s balance sheet items, currency
denominated purchase agreements, anticipated currency denominated purchases and sales as well as future jet fuelpurchases. The balance sheet exposure is hedged only at group level, except for Finnair Aircraft Finance that has hedged
its own exposures. The combined entity-level exposure for all Group companies differs from the Group-level exposure
by the amount of intercompany items. Therefore, the balance sheet position and contracts hedging it are presented
only in note 3.5. of the Group financial statements. Similarly, the foreign currency cash flow exposure is only hedged at
the Group level to take advantage of the netting effect, and is presented in note 3.5 of the Group financial statements.
Derivative contracts are valued using the rates on the balance sheet date according to Accounting Act 5:2 a §.
The derivatives are initially recognized at original acquisition cost (fair value) in the balance sheet and subsequently
valued at fair value in each financial statement and interim report. The fair values of the derivatives are based on thevalue at which the instrument could be exchanged between knowledgeable, willing and independent parties, with nocompulsion to sell or buy in the sales situation. The fair values of derivatives are determined as follows:
The fair values of all derivatives are calculated using the exchange rates, interest rates, volatilities and commodity
price quotations on the closing date. The fair values of currency forward contracts are calculated as the present valueof future cash flows. The fair values of currency options are calculated using the Black-Scholes option pricing model.
The fair values of interest rate and currency swap contracts are calculated as the present value of future cash flows.
The fair values of interest rate options are calculated using generally accepted option valuation models. The fair valuesof commodity forward contracts are calculated as the present value of future cash flows. The fair values of commodity
options are calculated using generally accepted option valuation models.
Gains and losses arising from changes in the fair value are presented in the financial statements according to theoriginal classification of the derivative. Gains and losses on derivatives qualifying for hedge accounting are recognizedin accordance with the underlying asset being hedged. At inception, derivative contracts are designated as future
cash flows hedges, hedges of binding purchase contracts (cash flow hedges or fair value hedges) or as derivatives notmeeting the hedge accounting criteria or to which hedge accounting is not applied (economic hedges). Hedging of thefair value of net investments of foreign units or embedded derivatives have not been used.
At the inception of hedge accounting, Finnair documents the economic relationship and the hedge ratio between
the hedged item and the hedging instrument, as well as the company’s risk management objectives and the strategy
for the inception of hedging. At the inception of hedging, and at least at the time of each financial statement, Finnair
documents and assesses the effectiveness of hedge relationships by examining the past and prospective capacity of

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

the hedging instrument to offset changes in the fair value of the hedged item or changes in cash flows. The values ofderivatives in a hedging relationship are presented in the balance sheet items current assets and current liabilities.
Finnair implements the IFRS hedge accounting principles in the hedging of future cash flows (cash flow hedging). The
principles are applied to the foreign currency risk of foreign currency denominated purchases and sales, the price riskof jet fuel purchases and the price risk of electricity.
The change in the fair value of the effective portion of derivative instruments that fulfil the terms of cash flow
hedging are directly recognised in the fair value reserve of other comprehensive income, to the extent that therequirements for the application of hedge accounting have been fulfilled. The gains and losses, recognised in fair value
reserve, are transferred to the income statement in the period in which the hedged item is recognised in the income
statement. When an instrument acquired for the hedging of cash flow matures or is sold, or when the criteria forhedge accounting are no longer fulfilled, the gain or loss accrued from hedging instruments remains in equity until theforecast transaction takes place. However, if the forecasted hedged transaction is no longer expected to occur, the gainor loss accrued in equity is immediately recognised in the income statement.

Financial assets and liabilities

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING

Financial assets have been classified into the following categories: amortised cost and fair value through profit andloss. The classification is made at the time of the original acquisition based on the objective of the business modeland the contractual cash flows of the investment. All purchases and sales of financial assets are recognised on the
trade date. Liabilities are recognised at acquisition cost. Financial assets at fair value through profit and loss as wellas assets and liabilities maturing within 12 months are included in current assets and liabilities. Investments in debt
securities are measured at amortised cost, but only when the objective of the business model is to hold the asset tocollect the contractual cash flows and the asset’s contractual cash flows represent only payments of principal andinterest. Financial assets recognised at amortised cost are valued using the effective interest method. Financial assets
valued at amortised cost include trade receivables, deferred charges and security deposits for aircraft operating leaseagreements. Due to the nature of short-term receivables and other receivables, their book value is expected to be equal
to the fair value. Derecognition of financial assets takes place when Finnair has lost its contractual right to receive cash
flows or when it has substantially transferred the risks and rewards outside the company.
Finnair recognises impairment provisions based on lifetime expected credit losses from trade receivables inaccordance with IFRS 9. Finnair has chosen to apply a simplified credit loss matrix for trade receivables as tradereceivables do not have a significant financing component. The expected credit loss model is forward-looking, andexpected default rates are based on historical realised credit losses. The lifetime expected credit loss allowance iscalculated using the gross carrying amount of outstanding trade receivables in each aging bucket and an expected
default rate. The changes in expected credit losses are recognised in other expenses in the consolidated income
statement. The impairment model does not apply to financial investments, such as bonds and money market funds,
included in other financial assets as those are measured at fair value through profit and loss under IFRS 9, which
already takes into account expected credit losses. With respect to the assets measured at amortised cost, Finnairis actively following such instruments and will recognise impairment through profit and loss if there is evidence ofdeterioration in credit quality.

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Leasing
Lease payments for aircraft are significant. Annual lease payments are treated as rental expenses. Lease payments due
in future years under aircraft lease contracts are presented as off-balance sheet items.

Appropriations
The difference between total and planned depreciation is shown as accumulated appropriations in the balance sheet
and the change during the financial year in the income statement. Appropriations contain also given and received
group contributions.

Income taxes
Income taxes in the income statement include taxes calculated for the financial year based on Finnish tax provisions,adjustments to taxes in previous financial years and the change in deferred taxes.

Pension schemes

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ARRANGEMENTS

CORPORATE GOVERNANCE
STATEMENT

Fixed assets and depreciation• Buildings, 10–50 years from the time of acquisition to a residual value of 10 %.
• Other tangible assets, over 3–15 years

The mandatory pension cover of the company’s domestic employees has primarily been arranged through a Finnish
pension insurance company and other additional pension cover through the Finnair pension fund or a Finnish pension
insurance company. Since 1992, the pension fund has no longer accepted employees other than pilots for additional
pension coverage. The Finnair pension fund’s pension obligation is fully covered with respect to additional coverage.
Pension fund liabilities are presented in the notes to the financial statements.

Provisions
Provisions in the balance sheet and entered as expenses in the income statement comprise those items which thecompany is committed to covering through agreements or otherwise in the foreseeable future and which have nocorresponding revenue and whose monetary value can be reasonably assessed.
The company is obliged to return leased aircraft at the required redelivery condition. To fulfil these maintenanceobligations the company has recognised provisions based on flight hours flown during the maintenance period.

6.2 Revenue by business area
EUR mill.

2020

2019

Passenger revenue

791.9
561.4

2,935.8
2,587.8

Ancillary services
Cargo revenue

52.8
178.6

131.0
217.0

9%
36%
55%
100%

6%
38%
55%
100%

Revenue by division

Distribution of turnover by market areas based on flight routes, % of turnover
FinlandEuropeOther countries
Total

Research and development costs
Except for major software development costs, research and development costs are expensed as they occur. Researchand development of aircraft, systems and operations is conducted primarily by the manufacturers.

87

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIXCONSOLIDATED INCOME STATEMENT

6.3 Other operating income

CONSOLIDATED STATEMENT

EUR mill.

2020

2019

EUR mill.

2020

2019

OF COMPREHENSIVE INCOME

Aircraft lease income
Other rental income
Other income
Total

28.0
23.5
32.6
84.1

28.1
26.1
30.4
84.5

Lease payments for aircraft
Other rents for aircraft capacity
Office and other rents
Traffic charges
Sales and marketing expenses
Other expenses
Total

442.6
89.2
29.9
112.4
24.5
113.6
812.2

419.3
129.6
31.3
331.3
161.8
144.4
1,217.7

EUR mill.

2020

2019

Authorised Public Accountants
Auditor's fees
Tax advising
Other fees
Total

KPMG
0.4
0.1
0.1
0.6

PwC
0.2
0.0
0.2
0.4

2020

2019

7.0

10.6

3.3
0.1
10.4

0.4
0.5
11.5

CONSOLIDATED BALANCE SHEET

6.7 Other operating expenses

CONSOLIDATED CASH FLOW STATEMENT

6.4 Materials and services

Audit fees in other expenses

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
EUR mill.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Materials and supplies
Ground handling and catering expenses
Fuel costs
Aircraft materials and overhaul
IT expenses
Other items
Total

2020

116.6
232.7
165.6
11.5
48.0
574.3

2019

323.6
687.3
288.3
19.7
113.1
1,431.9

EUR mill.

6.5 Staff costs

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDENDEUR mill.

2020

2019

AUDITOR’S REPORT

Wages and salaries
Pension expenses
Other social expenses
Total

168.9
27.3
-12.5
183.7

286.6
49.5
14.7
350.7

Salary and bonus expenses of Chief Executive Officer
and Members of the Board of Directors
Chief Executive Officer and his deputy
Board of Directors
Personnel on average

6.8 Financial income and expenses

1.0
0.4

1.4
0.4

4,852

4,796

6.6 Planned depreciation and amortisation
EUR mill.

2020

2019

On other long-term expenditure
On buildings
On other equipment
Total

13.4
1.0
4.0
18.4

13.1
1.2
0.7
15.1

Interest income
From group companies
From other companies
Net gains on debt instruments held mandatorily at FVPLOther interest income
Total
Gains on disposal of sharesInterest expenses
To other companies
Total

-28.5
-28.5

-23.7
-23.7

Other financial income
From other companies
Financial income from discontinued hedges
Other
Total

32.0

0.9
0.9

Other financial expenses
To other companies
Financial expenses for discontinued hedges
Other
Total

-168.3-31.1-199.4

-0.7
-0.7

-4.3

-0.2

-189.8-11.1

Exchange gains and losses
Financial income and expenses total

88

1.1

32.0

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSCONSOLIDATED INCOME STATEMENT

6.9 Appropriations

CONSOLIDATED STATEMENT

EUR mill.

2020

2019

OF COMPREHENSIVE INCOME

Change in depreciation difference
Received group contribution
Total

5.0
189.6
194.6

-1.0
34.1
33.1

CONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTEUR mill.

2020

2019

Income tax for the financial year
Change in deferred taxes
Total

138.2
3.6
141.8

-4.9
0.0
-4.8

6.11 Intangible assets
Other long-term expenditure
Acquisition cost 1 January
Additions
Additions from merger
Disposals
Acquisition cost 31 December
Accumulated depreciation 1 January
Disposals
Depreciation and reduction in value
Accumulated depreciation 31 December
Book value 31 December
Intangible assets Total 31 December

2020

77.8
7.9
-0.3
85.4
-37.0
0.3
-13.4
-50.1
35.3
35.3

Tangible assets 2020

EUR mill.

Land

Buildings

Acquisition cost 1 January
Additions

0.7

54.3

Disposals
Acquisition cost 31 December

0.7

54.3

Other
equipment

Advances
paid

Total

43.6
13.9

5.1
6.6

103.8
20.5

-3.1
54.5

-4.5
7.2

-7.6
116.7

0.0

0.0

-21.3
1.6
-3.5
-23.2

7.2

93.5

Other
equipment

Advances
paid

Total

Accumulated depreciation 1 January
Disposals
Depreciation and reduction in value
Accumulated depreciation 31 December

0.0

-5.2

0.0

-1.0
-6.3

-16.0
1.6
-2.5
-17.0

Book value 31 December

0.7

48.1

37.5

2019

66.2
21.6
0.1
-10.2
77.8
-34.0
8.8
-11.7
-37.0

The share of machines and equipment in thebook value of tangible assets 31 December

39.9%

Tangible assets 2019

EUR mill.

Land

Buildings

Acquisition cost 1 January
Additions
Additions from merger

0.7

54.7
0.0

9.1
3.2
31.7

6.0
3.0
1.9

70.6
6.2
33.6

-0.4
54.3

-0.3
43.6

-5.8
5.1

-6.5
103.8

-4.4
0.3
-0.7
-11.3
-16.0

0.0

0.0

-8.8
0.6
-1.7
-11.3
-21.3

27.6

5.1

82.5

Disposals
Acquisition cost 31 December

0.7

40.9
40.9

Accumulated depreciation 1 January
Disposals
Depreciation and reduction in value
Depreciations from merger
Accumulated depreciation 31 December

0.0

-4.4
0.2
-1.0
0.0
-5.2

Book value 31 December

0.7

49.1

The share of machines and equipment in thebook value of tangible assets 31 December

89

SUSTAINABILITY
APPENDIX

6.12 Tangible assets

6.10 Income taxes

EUR mill.

REMUNERATIONREPORT

0.0

31.0 %

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

6.13 Investments

CONSOLIDATED STATEMENT

EUR mill.

OF COMPREHENSIVE INCOME

Group companies
Acquisition cost 1 January
AdditionsCONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

2020

440.6
200.0

Disposals from merger
Book value 31 December
Associates and joint ventures
Acquisition cost 1 JanuaryBook value 31 December
Shares in other companies
Acquisition cost 1 JanuaryBook value 31.12.

Associates and joint ventures

Suomen Ilmailuopisto Oy, Finland
Nordic Regional Airlines AB, Sweden

2019

EUR mill.

2020

2019

447.3

From group companies
From other companies
Total

216.7
1.5
218.2

1.5
1.5

EUR mill.

2020

2019

Deferred tax assets 1 January
From result for the financial year

0.0
138.2

17.3
-1.9

From temporary differences
From valuation of derivates at fair value
Offset against deferred tax liabilities
Deferred tax assets 31 December

3.6
5.8
-0.1
147.4

0.2
-15.7
0.1
0.0

EUR mill.

2020

2019

Short-term receivables from group companies
Trade receivables
Group contribution receivable

7.5
189.6

21.6
34.1

Accrued income and prepaid expenses
Other receivables
Total

1.5
8.5
207.1

5.3
605.4
666.4

Short-term receivables from associates and joint ventures
Trade receivables
Prepaid expenses
Total

0.1
7.2
7.3

0.0
9.9
10.0

Short-term receivables from others
Trade receivables
Prepaid expenses
Derivative financial instruments
Other receivables
Total

32.6
40.8
12.4
3.3
89.0

102.5
58.3
33.9
16.6
211.3

Short-term receivables total

303.5

887.6

640.6

-6.7
440.6

2.5
2.5

2.5
2.5

0.4
0.4

Group companies

Finnair Cargo Oy, Finland
Finnair Aircraft Finance Oy, Finland
Northport Oy, Finland
Finnair Technical Services Oy, Finland
Finnair Engine Services Oy, Finland
Finnair Kitchen Oy, Finland

0.4
0.4

Share ofparentcompany %
49.50
40.00

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT

Share ofparentcompany %100.00 Kiinteistö Oy Lentokonehuolto, Finland
100.00 Amadeus Finland Oy, Finland
Oy Aurinkomatkat - Suntours
100.00 Ltd Ab, Finland
100.00 FTS Financial Services Oy, Finland
100.00 Finnair Business Services OÜ, Estonia
100.006.15 Deferred tax assets

6.16 Current receivables

Share ofparentcompany%
100.0095.00
100.00100.00100.00Finnair Kitchen Oy, Finland was merged to Finnair Travel Retail Oy, Finland on 31.12.2020. At the same time the company name of
Finnair Travel Retail Oy was changed to Finnair Kitchen Oy.

90

SUSTAINABILITY
APPENDIX

6.14 Non-current loan and other receivables

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

REMUNERATIONREPORT

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

6.17 Investments

REMUNERATIONREPORT

Distributable equity
EUR mill.

CONSOLIDATED STATEMENT

EUR mill.

2020

2019

OF COMPREHENSIVE INCOME

Short-term investments at fair value

358.3

800.8

CONSOLIDATED BALANCE SHEET

6.18 Cash and bank equivalents

CONSOLIDATED CASH FLOW STATEMENT

EUR mill.

2020

2019

Funds in group bank accounts and deposits maturing in three months

464.2

149.7

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

6.19 Equity

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SharecapitalSharepremium
account

Legal
reserve

24.7

147.7

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING

EUR mill.

ARRANGEMENTS

Equity 1.1.2020
Change in fair value ofequity instruments
Share issue
Share-based payments
Result for the financial year

75.4

Equity 31.12.2020

75.4

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

91

Retained earnings
Profit/loss for the financial year
Total

175.5
-566.0
361.7

153.4
22.1
434.2

EUR mill.

2020

2019

Accumulated depreciation difference 1 January

26.0

22.4

Change in depreciation difference
Accumulated depreciation difference 31 December

-5.0
21.0

3.6
26.0

21.0

26.0

6.20 Accumulated appropriations

258.7

175.5

685.3

Accumulated appropriations total

6.21 Provisions-566.0

-23.1
511.7
1.6
-566.0EUR mill.

2020

2019

-390.5609.5

Provisions 1 January

157.0

121.0

Provision for the period
Provision used
Exhange rate differences
Provisions 31 December
Of which long-term
Of which short-term
Total

36.4
-25.2
-12.2
155.9
141.7
14.2
155.9

78.1
-43.5
1.4
157.0
140.1
16.9
157.0

-19.8

772.0

Retainedearnings

Equity
total

188.8

633.6

-0.5
-34.9
22.1

62.9
2.2
-0.5
-34.9
22.1

175.5

685.3

Share
capitalLegalreserve

Hedging
reserve

Equity 31.12.2019
Change in fair value ofequity instruments
Share-based payments
Purchase of own shares
Dividend
Result for the financial year

75.4

24.7

147.7

-59.6

256.5

Equity 31.12.2019

75.4

62.9
2.2

147.7

258.7

3.3

Share
premium
account

24.7

-19.8
772.0

Equitytotal

Unrestrictedequityfunds

EUR mill.

Hedging reserve
Unrestricted equity funds

Retainedearnings

511.7
1.6
147.7

2019

Hedging
reserve

-23.1

24.7

2020

Unrestrictedequityfunds

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTSUSTAINABILITY
APPENDIX

3.3

258.7

Long-term aircraft maintenance provisions are expected to be used by 2032.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

EUR mill.

OF COMPREHENSIVE INCOME

Loans from financial institutions
Bonds
Hybrid loan
Deferred tax liability total
Other liabilities
Total

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

Maturity of interest-bearing liabilies
1–5 years
after 5 years
Total

CAPITAL STRUCTURE AND FINANCING COSTS

EUR mill.

4.

CONSOLIDATION

Current liabilities to group companies

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Trade payables
Accruals and deferred income
Group bank account liabilities
Total

AUDITOR’S REPORT

92

2020

2019

600.0
200.0
200.0
0.0
2.1
1,002.1

0.0
200.0
200.0
0.1
1.7
401.8

Current liabilities to associates and joint ventures
Trade payables
Accruals and deferred income
Total

REMUNERATIONREPORT

Accruals and deferred income
Unflown air transport revenues
Jet fuels and traffic charges
Holiday payment liability
Loyalty program Finnair Plus
Derivative financial instruments
Other items
Total

SUSTAINABILITY
APPENDIX
2020

2019

55.7
15.6
44.0
52.0
66.6
83.8
317.6

450.7
96.9
64.1
43.9
29.1
157.1
841.7

EUR mill.

2020

2019

Guarantees and contingent liabilities
On behalf of group companies
Total

32.1
32.1

79.6
79.6

367.8
1,215.8507.0
2,090.7377.0
1,285.7543.9
2,206.5

2020

2019

Within one year
After one year and not later than 5 years
Later than 5 years
Total

27.5
87.0
162.4
276.9

30.2
91.5
130.9
252.6

Pension obligations
Total obligation of pension fundNon-mandatory benefit covered
Total

345.9
-345.90.0

350.0-350.00.0

6.24 Collateral, contingent liabilities and other commitments
800.0
200.0
1,000.0

200.0
200.0
400.0

6.23 Current liabilities

3.

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDENDCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

6.22 Non-current liabilities

CONSOLIDATED STATEMENTCONSOLIDATED BALANCE SHEETTHE REPORT OF THE
BOARD OF DIRECTORS

2020

2019

22.5
8.8
107.2
138.5

46.3
17.5
162.1
225.9

Aircraft lease payments
Within one year
After one year and not later than 5 years
Later than 5 years
Total
Parent company has leased the aircraft fleet from the fully owned subsidiary.
EUR mill.

0.0
0.3
0.3

0.1
0.1

Current liabilities to others
Trade payables
Accruals and deferred income
Other liabilities
Total

23.8
308.5
4.2
336.5

74.5
824.2
11.5
910.2

Current liabilities total

475.3

1,136.2

Other lease payments

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENT

6.25 Derivatives

OF COMPREHENSIVE INCOME
EUR mill.

CONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND

Currency derivatives
Jet fuel currency hedging
Operational cash flow
hedging (forward contracts)
Operational cash flow
hedging, bought options
Operational cash flow
hedging, sold options
Hedge accounting
items total
Operational cash flow
hedging (forward contracts)
Operational cash flow
hedging, bought options
Operational cash flow
hedging, sold options
Balance sheet hedging(forward contracts)
Items outside hedge
accounting total
Currency derivatives total

Nominalvalue

2020
Positive Negative
fair
fair
valuesvaluesFair netvalue

Nominalvalue

2019
Positive Negative
fair
fair
valuesvaluesJet fuel forward
contracts, tonnes
Sold options, jet fuel, tonnes
Items outside hedge
accounting total

SUSTAINABILITY
APPENDIX

Fair value hierarchy of financial assets and liabilities valued at fair value
Fair values at the end of the reporting period
Fair netvalue

EUR mill.

31 Dec 2020

Level 1

Securities held for trading

404.6

404.6

Derivatives
Currency derivatives- of which in cash flow hedge accounting
Commodity derivatives- of which in cash flow hedge accounting
Total

8.5
4.3
3.8
3.2
417.0

Financial liabilities at fair value
Derivatives
Currency derivatives- of which in cash flow hedge accounting
Commodity derivatives- of which in cash flow hedge accounting
Total

18.1
15.0
48.4
17.3
66.6

Level 2Financial assets at fair value
268.4

4.2

80.5

0.0

74.3

-13.1

-8.8

924.4

23.6

0.0

201.5

3.3

-1.9

-1.9

201.8
1,327.4

423.3

4.3

-15.0

-10.7

173.9

4.1

-3.1

1.0

20.3

0.1

20.3

0.0

5.7

0.0

220.4

4.3

643.5

8.5

26.8

-5.9

17.6
3.3

-1.0

-1.0

-6.9

19.9

0.1
-0.1

0.0
0.0

-3.2
-18.1

404.6

8.5
4.3
3.8
3.2
12.4

1.1
-9.6

1,327.4

26.8

-6.9

19.9

AUDITOR’S REPORT
Commodity derivatives
Jet fuel forward
contracts, tonnes
Bought options, jetfuel, tonnes
Sold options, jet fuel, tonnes
Hedge accounting
items total

REMUNERATIONREPORT

6.26 Financial assets and liabilities measured at fair value

CONSOLIDATED STATEMENTCONSOLIDATED BALANCE SHEETCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

THE REPORT OF THE
BOARD OF DIRECTORS

6.27 Fuel price risk in flight operations
Timing of the notional and hedged price
Maturity

240,000

336,000

3.2

-17.3

-14.2 898,000

6.2

57,00057,000

0.7

3.2

-17.3

-14.2

0.6

-31.1

-30.5

6.9

42,000

-21.5

-15.3

-0.5

0.7
-0.5

-22.0

-15.1

-0.1

-0.1

-0.1

-0.1

0.6

-31.1

-30.5

Commodity derivatives total

3.8

-48.4

-44.6

6.9

-22.1

-15.2

Derivatives total *

12.4

-66.6

-54.2

33.9

-29.1

4.8

31 Dec 2020

Hedged price Notional amount$/tonne(tonnes)

Under 1 year

1 to 2 years

10,000

Jet fuel consumption priced with NWE index

527.7

237,423

227,423

Jet fuel consumption priced with SING index

609.8

2,577

2,577

Foreign exchange risk
Timing of the notional
EUR mill.
31 Dec 2020

Averageexchange rateof hedging
instruments Notional amountagainst the euro
(gross)MaturityLess than 1 year

1 to 2 years

USD

1.14

430.5

399.9

30.5

JPY

120.20

213.1

208.1

5.0

* Positive (negative) fair value of hedging instruments on 31 Dec 2020 is presented in the statement of financial positionin the item derivative assets within current assets (derivative liabilities within current liabilities).

93

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXBOARD OF DIRECTORS’PROPOSAL ON THE DIVIDENDCONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENT

Finnair Plc’s distributable equity on 31 December 2020 amounts to 361,672,701.47 euros, of which the net result for thefinancial year 2020 is -566,008,349.96 euros.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The Board of Directors proposes to the Annual General Meeting that no dividend be paid based on the balance sheet tobe adopted for the financial year, which ended on 31 December 2020, and the result be retained in the equity.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Signing of the Report of the Board of Directors and the Financial Statements

1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

Helsinki, 17 February 2021
The Board of Directors of Finnair Plc

Jouko Karvinen

Tiina Alahuhta-Kasko

Colm Barrington

Montie Brewer

Mengmeng Du

Jukka Erlund

Henrik Kjellberg

Maija Strandberg

Jaana Tuominen

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTopi Manner
President and CEO of Finnair Plc

94

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORS

AUDITOR’S REPORTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIX(This document is an English translation of the Finnish auditor’s report. Only the Finnish version of the report is legally binding.)

To the Annual General Meeting of Finnair Plc

Report on the Audit of the Financial Statements
OpinionKey Audit Matters

We have audited the financial statements of Finnair Plc (business identity code 0108023-3) for the year ended
December 31, 2020. The financial statements comprise the consolidated balance sheet, income statement, statementof comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary ofsignificant accounting policies, as well as the parent company’s balance sheet, income statement, statement of cash
flows and notes.

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of thefinancial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The significant risks of material misstatement referred to in the EU Regulation No 537/2014 point (c) of Article 10(2) are
included in the description of key audit matters below.
We have also addressed the risk of management override of internal controls. This includes consideration of whether
there was evidence of management bias that represented a risk of material misstatement due to fraud.

In our opinion• the consolidated financial statements give a true and fair view of the group’s financial position, financial performanceand cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU• the financial statements give a true and fair view of the parent company’s financial performance and financial position inaccordance with the laws and regulations governing the preparation of financial statements in Finland and comply withstatutory requirements.
Our opinion is consistent with the additional report submitted to the Audit Committee.

Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing
practice are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of ourreport.
We are independent of the parent company and of the group companies in accordance with the ethical requirementsthat are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities inaccordance with these requirements.
In our best knowledge and understanding, the non-audit services that we have provided to the parent company
and group companies are in compliance with laws and regulations applicable in Finland regarding these services, andwe have not provided any prohibited non-audit services referred to in Article 5(1) of regulation (EU) 537/2014. The
non-audit services that we have provided have been disclosed in note 1.3.3 to the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Materiality
The scope of our audit was influenced by our application of materiality. The materiality is determined based on our
professional judgement and is used to determine the nature, timing and extent of our audit procedures and to evaluate
the effect of identified misstatements on the financial statements as a whole. The level of materiality we set is basedon our assessment of the magnitude of misstatements that, individually or in aggregate, could reasonably be expected
to have influence on the economic decisions of the users of the financial statements. We have also taken into accountmisstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of
the financial statements.

95

CORPORATE GOVERNANCE
STATEMENTTHE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN THE AUDIT

Financial position and funding arrangements(Refer to Accounting principles for consolidated financial statements and Notes 3.3 and 3.5)
Resulting from the COVID-19 pandemic the Grouphas incurred a net loss of € 523 million and negative
operating cash flow of € 1,043 million. Liquid funds
amounted to € 792 million and the interest-bearing
liabilities were € 2,184 million.
The refinancing plan executed during the financial
year included several significant funding arrangements
and refinancing transactions.
As disclosed in the accounting principles to thefinancial statements due to the current uncertainty
embedded in the economic environment and the
difficulty in forecasting the ultimate duration and impactof the COVID-19 pandemic, the Board of Directors havereviewed three different scenarios prepared by the
management. According to the assessment of the Boardof Directors Finnair will be able to meet its obligations
under all three scenarios as they fall due at least 12
months after the date of the issuance of the financial
statements.

We assessed the terms of the financing agreements andthe impacts on classification and recognition in relationto accounting principles and accounting standards
applied in the consolidated financial statements.
We obtained an understanding of the financial
forecasting process. We analyzed, among others,
cash flow forecasts based on different scenarios, thereliability of the data underlying the forecasts andwhether effective implementation of management plans
is reasonable.
We challenged the appropriateness of key
assumptions used in the cash flow forecasts that requiresignificant management judgement.
We evaluated the sensitivity calculations prepared by
the management to test the headroom for the Group to
be able to conduct its adjusted business operations.
In addition, we assessed the appropriateness of thedisclosures provided on the financing arrangements andfinancial position.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORT96

THE REPORT OF THE
BOARD OF DIRECTORSTHE KEY AUDIT MATTERFINANCIALSTATEMENTS

HOW THE MATTER WAS ADDRESSED IN THE AUDITCORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN THE AUDIT

Fleet valuation(Refer to Accounting principles for consolidated financial statements and Note 2)

Aircraft maintenance provision(Refer to Accounting principles for consolidated financial statements and Note 1.3.6)

The Group has own aircraft and right of use aircraftwith total carrying value of € 2.213 million representing
61 % of total consolidated assets. The aircraft-related
depreciation charge was € 291 million. As a result of the
COVID-19 pandemic, part of the aircraft fleet has been
grounded and several aircraft refinancing transactions
were completed with an impairment of € 8 million.
The evaluation of the expected useful life of thecomponents of the aircraft, the expected residual
value, impairment of existing aircraft and assessmentof whether onerous contract exists related to the futurecommitted aircraft purchases requires a significant
degree of management judgement.
The valuation of the fleet is considered as a key
audit matter due to the significance to the Group’s
consolidated statement of financial position, and due
to management judgement and inherent uncertainty
increased by pandemic involved in forecasting future
cash flows.

The Group operates aircrafts which are owned orheld under lease agreement. The Group is obliged toreturn leased aircraft and their engines according to
the redelivery condition set in the lease agreement.
To fulfil these maintenance obligations, the Grouphas recognised airframe heavy maintenance, engine
performance maintenance, engine life limited part andother material maintenance provisions which amounted
to € 163 million.
The measurement of aircraft maintenance provisions
requires management judgement especially related
to timing of maintenance events and valuation ofmaintenance costs occurring in the future. The future
maintenance costs and their timing are dependent on, forexample, how future traffic plans realise, the market pricedevelopment of maintenance costs and the actual conditionof the aircraft at the time of the maintenance event.
We identified aircraft maintenance provision as a
key audit matter due to the inherently complex modeland management judgement incorporated in theassumptions used in the calculation.

We assessed the reasonableness of assumptions
made for useful lives, components and residual values
regarding owned and leased aircraft and reconciled
these assumptions against carrying values of aircraftcomponents and associated depreciation recorded in theincome statement.
Our audit procedures, with the involvement of KPMG
valuation specialists, included testing the integrityof the calculations and the technical model. We havechallenged the assumptions used in impairment testing
and their reasonableness by reconciling against externalmarket data, scenarios approved by the Board of
Directors and our own views.
Furthermore, we considered the potential impact of
uncertainties related to COVID-19 on the assumptions
within management’s cash flow estimates. We
performed our own sensitivity analyses over the key
assumptions used.
We assessed the appropriateness of the related
disclosures.

Deferred passenger revenue(Refer Accounting principles for consolidated financial statements and Note 1.2.4)
The deferred passenger revenue amounted to € 134
million. Passenger ticket sale is presented as deferredincome in the consolidated statement of financial
position from the point of sale until the flight is flown
and the sale is recognized as revenue. Recognition ofunused tickets as revenue is based on the expected
breakage amount of tickets remaining unused. The
points earned in the customer loyalty program aremeasured at fair value and recognised as a decrease ofrevenue and debt at the time when the points -earning
event is recognised as revenue or when the points
expire. COVID-19 pandemic has increased the level of
uncertainty about the expected customer behaviour.
Large volumes of transactions flow through various
computer systems from the date of sale until revenue
is recognized in the consolidated statement of profit orloss. The recording process is complex, which gives riseto inherent risk of error, in determining the amount andtiming of the revenue recognition.
Timing and accuracy in the recording of passenger
revenue is therefore determined as a key audit matter in
our audit of the consolidated financial statements.

We obtained an understanding of revenue recognition
process. We used data analytics tools for identifying
revenue flows and risks in revenue recognition of ticket
sales and focused our audit on key risks identified.
Further, we used data analyses in testing deferred
revenue of unflown tickets.
We evaluated the design and tested the operating
effectiveness of key controls over revenue recognition.
We tested the mathematical accuracy and input dataof the calculation used to recognize revenues from thebreakage model.
We also analysed the assumptions used in therevenue recognition of the customer loyalty program.
We tested a sample of passenger revenue recognized
as well as a sample of unused tickets in the deferred
revenue.

SUSTAINABILITY
APPENDIX

We obtained an understanding of the process by which
the lease agreements are analysed and recorded in themaintenance model and by which the variable factors
within the provision are estimated.
We evaluated the appropriateness of the maintenanceprovision model and challenged the key assumptions ofmaintenance provision model such as expected timing
and cost of maintenance checks.
We obtained and inspected a sample of asset leaseagreements to evaluate the completeness of therestoration and return liabilities for obligations at theredelivery at the end of the lease.
We tested the input data and mathematicalaccuracy of the calculations as well as recalculated themaintenance provision by using data analysis tools.
In addition, we performed retrospective analysis on
the accuracy of the provision.

Defined benefit pension plans(Refer to Accounting principles for consolidated financial statements and Note 1.3.8.2)
The liability recognised in the balance sheet in respect ofdefined pension plans is the present value of the defined
benefit obligation at the end of the reporting period
less the fair value of plan assets. The net defined benefit(pension) asset amounted to € 32 million.
The defined benefit obligation is calculated byindependent actuaries using the projected unit credit
method and based on actuarial assumptions. The
present value of the defined benefit obligations isdetermined by discounting the estimated future cash
flows using interest rates of high-quality bonds withconsistent maturities. In the financial year, amendments
related to pension index increment removals decreased
pension obligations by € 151 million.
The plan assets are valued at fair value involving use of
judgment in particular relating to unlisted investments.
We considered valuation of the defined benefit
obligation and plan assets as a key audit matter in theaudit of the Group due to materiality of the relatedbalances, material changes in the terms of pensions andjudgments involved in these estimates.

With the assistance of KPMG pension specialist,
we assessed the appropriateness of the actuarial
assumptions used in calculating the defined pension
benefit obligation.
We assessed the appropriateness of the valuation
methods, estimates and judgements used bymanagement to value the assets.
We tested the valuation of the plan assets related todefined employee benefit plans by testing a sample oflisted equity holdings against prevailing market prices atclosing date.
Related to unlisted investments we have createdindependent expectation based on the nature of theinvestment, historical purchase price and publicly
available information on similar investments andcompared that to the management valuation.
In addition, we assessed the appropriateness of therelated disclosures.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
CONSOLIDATED INCOME STATEMENTCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOMECONSOLIDATED BALANCE SHEETCONSOLIDATED CASH FLOW STATEMENTCONSOLIDATED STATEMENT OF CHANGES IN EQUITYNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

OPERATING RESULT

2.

FLEET AND OTHER FIXED ASSETS AND LEASING
ARRANGEMENTS

3.

CAPITAL STRUCTURE AND FINANCING COSTS

4.

CONSOLIDATION

5.

OTHER NOTES

6.

PARENT COMPANY FINANCIAL STATEMENTS

BOARD OF DIRECTORS’ PROPOSAL ON THE DIVIDEND
AUDITOR’S REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statementsthat give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by theEU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the
preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and theManaging Director are also responsible for such internal control as they determine is necessary to enable the preparationof financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible forassessing the parent company’s and the group’s ability to continue as a going concern, disclosing, as applicable,
matters relating to going concern and using the going concern basis of accounting. The financial statements areprepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or
the group or cease operations, or there is no realistic alternative but to do so.

REMUNERATIONREPORTSUSTAINABILITY
APPENDIXWe also provide those charged with governance with a statement that we have complied with relevant ethicalrequirements regarding independence and communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were ofmost significance in the audit of the financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matteror when, in extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefitsof such communication.

Other Reporting Requirements
Information on our audit engagement

Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance withgood auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintainprofessional scepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent
company’s or the group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.
• Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern
basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the parent company’s or the group’s ability to continue as agoing concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the parent company or the group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, andwhether the financial statements represent the underlying transactions and events so that the financial statements
give a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the group to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timingof the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.

97

CORPORATE GOVERNANCE
STATEMENTWe were first appointed as auditors by the Annual General Meeting on May 29, 2020, and our appointment represents a
total period of uninterrupted engagement of one year.

Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other information
comprises the report of the Board of Directors and the information included in the Annual Report, but does not include
the financial statements and our auditor’s report thereon. We have obtained the report of the Board of Directors andthe Annual Report prior to the date of this auditor’s report. Our opinion on the financial statements does not cover theother information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the financial statementsor our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report ofthe Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has
been prepared in accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of Directors is consistent with the information in thefinancial statements and the report of the Board of Directors has been prepared in accordance with the applicable laws
and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’sreport, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.

Other opinions
We support that the financial statements and the consolidated financial statements should be adopted. The proposalby the Board of Directors regarding the treatment of distributable funds is in compliance with the Limited Liability
Companies Act. We support that the Members of the Board of Directors of the parent company and the Managing
Director should be discharged from liability for the financial period audited by us.

Helsinki, 17 February 2021
KPMG OY AB
Kirsi Jantunen
Authorized Public Accountant, KHT

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Corporate GovernanceStatement 2020

99 Regulatory framework
100 Governing bodies
102 Board of Directors
106 Audit Committee
107 People and Remuneration Committee

98

108 Company management
111 Key events in Finnair governance in 2020
112 Main features of the internal control andrisk management systems

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Regulatory
framework

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair Plc (“Finnair” or “the Company”) isa Finnish public limited liability company
domiciled in Helsinki. Finnair is the ultimate parent of Finnair Group, and its
shares are listed on Nasdaq Helsinki Stock
Exchange. The State of Finland is the
majority owner in Finnair with 55.9% of theshares as of 31 December 2020.
Corporate governance at Finnair is basedon Finnish laws and the Company’s Articles
of Association. Finnair complies fully withand has prepared this corporate governance statement in accordance with the
Finnish Corporate Governance Code 2020.
This corporate governance statement isissued separately from the Board of Directors’ report, and it has been reviewed by
the Audit Committee of Finnair’s Board of
Directors.

FINANCIALSTATEMENTS

prepared in accordance with the Finnish
Companies Act, Accounting Act, Securities
Markets Act, and the opinions and guidelinesof the Finnish Accounting Board. The auditor’s report covers the consolidated financial
statements and the parent company’s financial statements.
This corporate governance statement andother information to be disclosed in accordance with the Finnish Corporate Governance
Code 2020, the Company’s financial statements, the Board of Directors’ report, theauditor’s report, the Company’s Articles of
Association and its published policies areavailable at Finnair’s website.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Regulatory framework for Corporate Governance at Finnair

External framework• Finnish Companies Act• Finnish Securities Markets Act• Market Abuse Regulation (MAR)• Finnish Corporate Governance Code2020
• Regulations and guidelines issued by
the Financial Supervisory Authority
and by Nasdaq Helsinki

Internal framework• Articles of Association• Code of Conduct• Charters of the Board of Directors and
its Committees• Charters of Internal Audit andRisk & Compliance• Policies, Standards, Rules, and Manuals

The Finnish Corporate Governance Code2020 is available on the website of the­Securities Market Association.

Finnair prepares consolidated financial
statements and interim reports in accordance with the International Financial
Reporting Standards (IFRS), the Finnish
Securities Markets Act as well as the Financial Supervision Authority’s regulations
and guidelines and Nasdaq Helsinki’s rules.
The Company’s financial statements are

99

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Governing bodies

THE REPORT OF THE
BOARD OF DIRECTORSThe governing bodies of Finnair pursuant to
the Companies Act and the Articles of Association are the General Meeting of Shareholders, the Board of Directors (the “Board”)
and the Chief Executive Officer (the “CEO”).
The roles of the governing bodies aredescribed below.

General Meeting of Shareholders
The ultimate authority in Finnair is vested
in the General Meeting of Shareholders. An
Annual General Meeting (the “AGM”) mustbe held each year by the end of May.
The competence of the General Meetingof Shareholders is set out in the Companies Act and in Finnair’s Articles of Association. The AGM shall annually decide on thefollowing matters:• adoption of the financial statements andthe consolidated financial statements• the use of the profit shown on thebalance sheet• the discharging of the Members of theBoard and the CEO from liability• the appointment of the Members of theBoard and their remuneration• election of the Chairman of the Board
from among the Members

100•

FINANCIALSTATEMENTS

the election and remuneration of theauditor.

The Board convenes the General Meetingsof Shareholders by publishing a notice noearlier than three months and no later than
three weeks before the date of the meeting
and always at least nine days before therecord date of the meeting. The notice shallbe published as a stock exchange releaseand on Finnair’s website.
Each shareholder who is registered on therecord date as a shareholder in the Company’s public register of shareholders, maintained by Euroclear Finland Oy, has the rightto participate in the General Meeting of
Shareholders. A holder of nominee-registered shares that wishes to participate in themeeting has to register temporarily in theregister of shareholders. Furthermore, inorder to attend the meeting, a shareholder
must register for the meeting in the manner
defined in the notice convening the meeting.
A shareholder has the right to have a matter
falling within the competence of the General
Meeting of Shareholders addressed by themeeting, if the shareholder so demands
in writing from the Board by the dateannounced on Finnair’s website.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

GOVERNING BODIES OF FINNAIR

Shareholders

Shareholders’Nomination Board

General Meeting of
Shareholders

Auditor

People and Remuneration
Committee

Board ofDirectors

Audit
Committee

CEO

The minutes of the General Meeting of Shareholders and the voting results, if any, shall bemade available to shareholders on Finnair’s
website within two weeks of the meeting.
2020 Annual General Meeting
Finnair’s AGM 2020 was held at the headquarters of the Company in Vantaa on 29
May 2020. The Board of Directors of theCompany decided by virtue of Section 2,
Subsection 3 of the temporary legislative act
290/2020 to limit the spread of the Covid-19
pandemic approved by the Finnish Parliament on 24 April 2020 (“Temporary Act”),
that the Company’s shareholders and their
proxy representatives could participate in
the meeting and exercise shareholder rights
only through voting in advance as well as

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

by making counterproposals and asking
questions in advance. A total of 238 shareholders, representing 66.6 per cent of theshares and voting rights of the company,
participated by voting in advance. No counterproposals or questions were presented
by shareholders.
Present at the meeting were Chairman of
the Board of Directors Mr. Jouko
Karvinen, member of the Board of Directors and Chairman of the Audit Committee
Mr. Jukka Erlund, Chief Executive Officer
Mr. Topi Manner, General Counsel Mr. Sami
Sarelius, IR Director Mr. Erkka Salonen(remote access), Chairman of the General
Meeting Mr. Manne Airaksinen, person
to confirm the minutes and to verify thecounting of votes Ms. Vuokko Rajamäki,
the responsible auditor appointed by theCompany’s audit firm Mr. Markku Katajisto
and the new responsible auditor candidate
Ms. Kirsi Jantunen. In addition, the representative of the Company’s annual general
meeting registration and voting service
provider Euroclear Finland Oy, Jarkko
Heinonen, attended by telephone.

THE REPORT OF THE
BOARD OF DIRECTORS

Auditor
The Annual General Meeting 2020 elected
KPMG Oy Ab as the Company’s new auditor,
and Ms. Kirsi Jantunen acted as the auditor
with principal responsibility.
The audit fees paid in 2020 amounted to 0.5
million euros, and the fees for other services
rendered amounted to 0.3 million euros.

Shareholders’ Nomination Board
The AGM 2013 decided to establish a permanent Shareholders’ Nomination Board. The
term of the Nomination Board continues
until further notice.
The purpose and task of the Nomination
Board is to prepare and present to the AGM– and if necessary, to an Extraordinary
General Meeting – proposals on the composition and remuneration of Board of Directors. In addition, the task of the Nomination
Board is to seek potential future candidates
for Board members. The Nomination Board
shall forward its proposals to the Company’s
Board of Directors by 31 January each year.

FINANCIALSTATEMENTS

The Nomination Board consists of four
members nominated annually. The Company’s three largest shareholders appoint
three of the members, and the current
Chairman of the Board serves as the fourth
member. The Nomination Board appoints
its chairman from among its members. The
Company’s largest shareholders entitled toappoint members to the Nomination Board
are determined on the basis of the registered holdings in the Company’s shareholder register held by Euroclear Finland
Oy as of the first working day in September
each year. In the event that a shareholder
does not wish to exercise their right toappoint a representative, such right passes
to the next largest shareholder.
The members of the Nomination Board
are not remunerated by Finnair for theirmembership in the Nomination Board. The
members’ expenses are reimbursable inaccordance with the Company’s expense
policy. In addition, the Nomination Board’s
costs of using external experts shall beborne by the Company.
The Charter of the Nomination Board isavailable at the Company website.

101

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

2019 Nomination Board

2020 Nomination Board

The 2019 Nomination Board consisted of therepresentatives of the first, third and fourthlargest shareholders as at the first working day
in September 2019, i.e. the State of Finland,
Varma Mutual Pension Insurance Company andEtola Oy (through its subsidiaries Tiiviste-GroupOy and Etra Invest Oy), and of the Chairman of
the Board. The composition of the 2019 Nomination Board was the following:• Ms. Minna Pajumaa, b. 1963, Senior
Financial Counsellor, Government
Ownership Steering Department (Chairman)• Mr. Timo Sallinen, b. 1970, Senior Vice
President, Investments, Varma Mutual
Pension Insurance Company• Mr. Mikael Etola, b. 1977, Managing Director,
Etola Oy
• Mr. Jouko Karvinen, b. 1957, Chairman of theBoard of Finnair.

The 2020 Nomination Board consisted of therepresentatives of the first, third and fourthlargest shareholders as at the first working day
in September 2020, i.e. the State of Finland,
Ilmarinen Mutual Pension Insurance Company,
Varma Mutual Pension Insurance Company, andof the Chairman of the Board. The composition of
the 2020 Nomination Board was the following:• Ms. Minna Pajumaa, b. 1963, Senior
Financial Counsellor, Government
Ownership Steering Department (Chairman)• Mr. Esko Torsti, b. 1964, Head of Cross
Asset Allocation, Ilmarinen Mutual Pension
Insurance Company• Mr. Timo Sallinen, b. 1970, Senior Vice
President, Investments, Varma Mutual
Pension Insurance Company• Mr. Jouko Karvinen, b. 1957, Chairman of theBoard of Finnair.

The Nomination Board convened once in 2019
and the participation rate was 100%. On 27
January 2020, the Nomination Board submitted
to the Board its proposals for the 2020 AGM
that was planned to be held on 18 March 2020
but which was postponed due to the Covid-19
containment measures. On 5 May, the Nomination Board submitted its complementary
proposal for the 2020 AGM that was held on
29 May 2020. The proposals are available at
Finnair’s website.

The Nomination Board convened three times
and the participation rate was 100%. On 26
January 2021, the Nomination Board submitted
to the Board its proposals for the 2021 AGM tobe held on 17 March 2021. The proposals areavailable at Finnair’s website.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Board of Directors

THE REPORT OF THE
BOARD OF DIRECTORSThe Chairman and the Members of theBoard are elected by the Annual General
Meeting. According to the Articles of Association, the Board consists of the Chairman
and a minimum of four and a maximum ofnine other members. The Board elects aVice Chairman from among its members.
The term of the office of the members of
the Board ends at the close of the first AGM
following their election.
According to the Companies Act, the Board
represents all shareholders of Finnair andhas the general duty to act diligently in
the interests of the Company. The Boardis accountable to the shareholders for theappropriate governance of the Company
and for ensuring that the operations of theCompany are run adequately.
The accountability for the Company’s
governance pertains specifically to the reliability of the financial reporting and to theefficiency of the Company’s internal control
and risk management systems. The mainfeatures of the internal control and risk
management systems are described later inthis Corporate Governance Statement. The
Board has extensive general competence

102

FINANCIALSTATEMENTS

in the governance of the Company as its
competence covers all matters that are notwithin the powers of other governing bodiesof the Company.

CORPORATE GOVERNANCE
STATEMENT••The main duties of the Board of
Directors:
•

•

•
•

•

approve the Company’s strategic
targets and monitor theachievement of strategic targets
ensure the administration of theCompany and the appropriateorganisation of its operations
confirm the values and top-level
policies of the Company
monitor and ensure theappropriateness of the accounting,financial administration and risk
management
approve significant strategic
matters, business plans,partnerships and other decisions
exceeding the limits of the CEO’s
decision-making power•••

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

decide on guarantees and othercommitments for external parties’
liabilities
appoint and dismiss the CEO andother members of the Executive
Board, as well as evaluate theirperformance and determine
their remuneration, also attend
to the succession planning of the
management
establish and regularly evaluate theCompany’s personnel policies andits compensation systems
evaluate its own work on an annual
basis
prepare and approve the chartersof the Board of Directors and
its Committees and confirm thecharters of the Internal Audit andRisk & Compliance

The Charter of the Board of Directors
is available on the Finnair’s Corporate­Governance website.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Members of theBoard in 2020

103

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Jouko Karvinen

Tiina Alahuhta-Kasko

Colm Barrington

b. 1957, M. Sc. (Tech.)
Chairman of the Finnair Board of Directors since
March 2017 and member of the Board since March
2016
Main occupation:
Board professional
Key positions of trust:Member of the Foundation and Supervisory Boardsof IMD Business School, Lausanne, Switzerland

b. 1981, M. Sc. (Econ.), CEMS MIM.
Member of the Finnair Board of Directors since
2019
Main occupation:
President & CEO of Marimekko Corporation
Key positions of trust:-b. 1946, M. Sc. (Econ.)Vice Chairman and member of the Finnair Board of
Directors since 2017
Main occupation:
CEO and Director of Fly Leasing Limited
Key positions of trust:Member of the Board of Directors ofHibernia REIT Plc

Montie Brewer

Mengmeng Du

Jukka Erlund

Henrik Kjellberg

b. 1957, BA (Business Administration).
Member of the Finnair Board of Directors since
2018
Main occupation:
Board professional
Key positions of trust:Member of the Board of Directors of AllegiantTravel Company

b. 1980, M. Sc. (Econ.), M. Sc. (Computer science)
Member of the Finnair Board of Directors since
2017
Main occupation:
Digital advisor, board professional
Key positions of trust:Member of the Board of Directors of Skandia,
Netonnet Group and Claes Ohlsonb. 1974, M. Sc. (Econ.), eMBA.
Member of the Finnair Board of Directors since
2019
Main occupation:
Executive Vice President, CFO, of Kesko Oyj
Key positions of trust:
The Chair of the Tax and Economic Policy
Committee of Finnish Commerce Federation,
Member of the Economy and Tax Committeeof Confederation of Finnish Industries EK, andMember of the Supervisory Board of Varma Mutual
Pension Insurance Company (until 22.10.2020)b. 1971, M. Sc. (Econ.).
Member of the Finnair Board of Directors since
2018
Main occupation:
CEO of Awaze
Key positions of trust:-

Maija Strandberg

Jaana Tuominenb. 1969, M.Sc. (Econ)
Member of the Finnair Board of Directors
since 29 May 2020
Main occupation:
Senior Financial Counsellor Prime Minister’s office,
Government Ownership Steering Department
Key positions of trust:Member of the Board of Directors and Chairmanof the Audit committee of Nordic Morning Group.
Member of the Board of Directors of Vapo Oyj

b. 1960, M. Sc. (Eng.).
Member of the Finnair Board of Directors since
2014
Main occupation:
AdvisorKey positions of trust:
Chair of the Board of Directors of theConfederation of Finnish Industries (EK)Committees= Audit Committee= People and Remuneration Committee

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSMembers of the Board and their
independence
The 2020 Annual General Meeting heldon 29 May elected Mr. Jouko Karvinen as
Chairman of the Board of Directors and Ms.
Tiina Alahuhta-Kasko, Mr. Colm Barrington,
Mr. Montie Brewer, Ms. Mengmeng Du,
Mr. Jukka Erlund, Mr. Henrik Kjellberg, Ms.
Maija Strandberg and Ms. Jaana Tuominen
as other members of the Board. The Board
elected Mr. Colm Barrington as its Vice
Chairman.
Finnair complies with applicable requirements regarding independence of the Boardof Directors according to Finnish laws andregulations as well as according to the
Finnish Corporate Governance Code. The
Board considers all the members electedby the shareholders, except for Ms. Maija
Strandberg and Mr. Jukka Erlund, to be independent of the Company and independent
in relation to the Company’s major shareholders according to the Code. Ms. Maija
Strandberg is considered dependent on the
Company’s significant owners as she is a civil
servant of the government of Finland. Mr.
Jukka Erlund was considered dependent on
the Company until 30 June 2020 because

104

FINANCIALSTATEMENTS

Piia Karhu, Finnair’s Senior Vice President
in Customer Experience and a member ofthe Executive Board until 30 June 2020, isa member of Kesko Corporation’s Boardof Directors and Jukka Erlund is the Chief
Financial Officer of Kesko Oyj.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Number of the Board meetings and Board Committee meetings in 2020
and the attendance rate of the members
MemberBoard ofDirectors

Audit
Committee

Jouko Karvinen

16/16

The ownership of the Directors
and companies controlled by themin Finnair

Tiina Alahuhta-Kasko

16/16

Colm Barrington

16/16

7/7

At the end of 2019 and 2020, neither themembers of the Board of Directors nor
any companies under their control held
any shares or share-based rights in any
company within Finnair Group.

Montie Brewer

16/16

7/7

Mengmeng Du

16/16

Jukka Erlund

16/16

7/7

Henrik Kjellberg

16/16

7/7

The Committees of the Board

Maija Strandberg (member since 29 May)

9/9

9/9
1/1

8/8

7/7

16/16

9/9

The Board delegates some of its functions
to the Audit Committee and to the People
and Remuneration Committee. The Board
appoints the Committee members and their
Chairs from among the members of theBoard. The minimum number of members isthree in both Committees.

In addition to the sixteen meetings, the board made decisions six times without convening.

Each Committee meets regularly under
their respective charters. The Committees report on their work regularly to theBoard but they do not have decision-making

powers independent from the Board, except
where expressly authorised by the Board.
Copies of the Committees’ charters areavailable on Finnair’s website.

Jaana Tuominen

People andRemuneration
Committee

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

The diversity principles of the Board of Directors

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIX

The diversity of the Board of Directors

The Board of Directors has determined its diversity principles for the useof the Shareholders’ Nomination Board when preparing proposals on thecomposition of the Board to the General Meeting of Shareholders.

AGE
1

The diversity principles of the Board of Directors are:
• The Board as a whole must have sufficient expertise and experience
to conduct the duties carefully and effectively, taking into account thequality, scope and international nature of the Company’s operations, theCompany’s strategic targets and changes in the business environmentand society.
• The members of the Board must be capable of cooperating with the othermembers and the management.
• The members of the Board should have training and experience thatcomplement each other and experience from industries that areimportant for the Company.
• The members should have experience of Board work and conducting
managerial duties in business or other areas of society.
• The Board shall have at least 40 per cent both men and women. The
composition should show diversity also in terms of the age distribution,
length of service and cultural background.
• Sufficient continuity should be ensured in reforming the composition of
the Board, but the continuous term of any member may not exceed 10
years.

REMUNERATIONREPORTNATIONALITY
1

1
1

3

3

5

2
1

>70: 11%50–59: 11%

60–69: 33%
40–49: 33%

Finland: 56%
US: 11%

30–39: 11%

GENDERTENURE1

1

4
3
5

Men: 56%

Women: 44%

4

1 year: 11%
4–5 years: 33%

105

Sweden: 22%
Ireland: 11%

2–3 years: 44%
more than 5 years: 11%

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Audit Committee

THE REPORT OF THE
BOARD OF DIRECTORSThe Audit Committee assists the Board inmatters relating to financial reporting andcontrol in accordance with the duties specified for audit committees in law and in the
Finnish Corporate ­Governance Code.

The main duties of the Audit
Committee:••

The Audit Committee monitors and evaluates the Company’s reporting process offinancial statements and the efficiency of
the internal control and risk management
systems as well as the internal audit. The
Committee monitors the statutory audit andevaluates the independence of the auditor.
In addition, the Audit Committee monitors
the efficiency of the Company’s compliancesystems.
Pursuant to the Finnish Corporate Governance Code, the members of the Audit
Committee shall have the qualifications
necessary to perform the responsibilitiesof the committee, and at least one of themembers shall have expertise specifically inaccounting or auditing.

106

FINANCIALSTATEMENTS

•

•
•

•

•

monitor the financial position of theCompany
monitor and assess the financial
reporting processmonitor and assess the efficiency of
the Company’s internal control andrisk management systems as well asinternal audit
monitor the statutory audit of thefinancial statements
monitor and assess theindependence of the statutory
auditor, and particularly theprovision by auditor of non-audit
services to the Company
prepare the Board’s proposal for
resolution on the election of theauditor and its remuneration
review the auditor’s and internal

CORPORATE GOVERNANCE
STATEMENT

•

•
•

•
•

•
•

auditor’s plans and reports
monitor and assess agreements andtransactions between the Company
and its related parties with respect
to compliance with the governanceand disclosure requirements of thesamereview the Company’s corporate
governance statement
prepare the Board’s decisions on
the Company’s risk management
policies
monitor the processes and risks
relating to cyber security
prepare the Board’s decisions
on significant changes in theaccounting principles or in thevaluations of the group’s assets
assess the efficiency of theCompany’s compliance systems
maintain contact with the auditor

REMUNERATIONREPORTSUSTAINABILITY
APPENDIX

In addition to the Committee members, theCEO, the CFO, the auditor, and the GeneralCounsel as secretary to the Committee
attend the Committee meetings. Other executives attend the meetings as invited by theCommittee.

Audit Committee in 2020
In 2020, the members of the Audit
Committee were Jukka Erlund (Chair), Colm
Barrington, Montie Brewer and Henrik Kjellberg. The Audit Committee met seven times
in 2020 and its attendance rate was 100%.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

People andRemuneration
Committee

THE REPORT OF THE
BOARD OF DIRECTORSThe People and Remuneration Committee
assists the Board in matters pertaining
to the compensation and benefits of the
CEO and other senior management, theirperformance evaluation, appointment
and successor planning. The Committee
assists the Board also in establishing andevaluating the Company’s compensation structures and other personnel policies. Pursuant to the Board’s authorisation, the Committee reviews and confirms
the achievement of targets for short-term
incentives and approves the payment of
the incentives to the CEO and other senior
management.

•

•
•
•
•

•
•
•

The main duties of the People
and Remuneration Committee:
The Committee prepares the following
matters for the Board:• the key principles of the Company’scompensation policies and practices• compensation, pension, benefits
and other material terms ofthe contract of the CEO and the
Executive Board members

107•

FINANCIALSTATEMENTS

CEO’s and the Executive Board
members’ incentive and retention
plans
CEO’s and the Executive Board
members’ performance reviews
nominations of the CEO and the
Executive Board members
composition and responsibilities of
the Executive Board
CEO’s and the Executive Board
members’ succession planning andleadership development
assessment of the people strategy
and key development initiatives
equity-based incentive plans
the remuneration policy for theCompany’s governing bodies
annual remuneration reporting
based on the recommendations of
the Finnish Corporate Governance
Code for listed companies

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

People and Remuneration
Committee in 2020
After the AGM of 29 May 2020, the Board
elected the following members to thePeople and Remuneration Committee:
Jaana Tuominen as the Chair, and Mengmeng Du, Tiina Alahuhta-Kasko and Maija
Strandberg as members. Between 1 Januaryand 29 May 2020, Jaana Tuominen acted
as the Chair of the Committee and Mengmeng Du and Tiina Alahuhta-Kasko acted
as members. Additionally, the Chair of the
Audit Committee, Jukka Erlund, attended
one meeting of the People and Remuneration Committee. The Committee met ninetimes in 2020 and the attendance rate was
100%.

The CEO, the SVP People and Culture, and
the General Counsel as secretary to theCommittee attend the Committee meetings.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Company
management

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair’s corporate structure

FINANCIALSTATEMENTS

tions, Legal Affairs, Risk & Compliance, andInternal Audit.

Finnair’s core airline activities are operated in the Group’s parent company, FinnairPlc, whereas technical services, travel
services (package tours), catering services
and financial business services are run inwholly owned subsidiaries. Finnair business is considered one operating segment,
consisting of the Commercial and Customer
Experience, and Operations units. The
shared functions in Finnair’s Group administration are Finance, People and Culture,
Digital Services, Strategy, Communica-

The CEO
The CEO is appointed by the Board. The
CEO manages the Company’s operations inaccordance with guidelines and instructions
issued by the Board. The CEO acts as the
Chairman of the Executive Board.
The Board determines the CEO’s compensation and sets his short- and long-term
incentive targets. The main contents of the

COMPANY MANAGEMENT
Reports to Board’s
Audit Committee

Board of Directors

Reports to Board’s
Audit Committee

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

CEO’s contract, including his compensation
and benefits, are described in the Remuneration Statement and on Finnair’s corporate
governance website.
Mr. Topi Manner, M.Sc. (Econ.), b. 1974, hasbeen the CEO of Finnair since 1 January
2019. Prior to joining Finnair, Manner had
a long career in management positions
at Nordea, the largest financial group in
the Nordic countries, where he worked
as a member of Nordea’s Group Executive Management and as Head of Personal
Banking.
The CEO belongs to Finnair’s short- and longterm incentive programs, described in moredetail in Note 1.3.8 to the financial statements and in the Remuneration Statement.

Executive Board
Risk & Compliance

CEOInternal audit

Executive Management
Commercial and Customer Experience, Operations, Digital Services, People and Culture,
Finance, Strategy, Communications, Legal Affairs

108

The Executive Board of the Company is led by
the CEO, and it comprises the senior management responsible for Finnair commercial andcustomer experience activities, operations,digital services, finance, people and culture,
strategy, communications and legal affairs.

SUSTAINABILITY
APPENDIXThe Executive Board members areappointed by the Board, which also determines their remuneration.
The Executive Board assists the CEO in
the strategy implementation, coordinatesgroup-wide development projects anddefines policies that guide the Company’s
activities. The Executive Board members
report to the CEO and their main task is tolead the daily operations of their respective
units or shared functions.

Executive Board subsets
The governance structure contains two
Executive Board subsets which are theInvestment Steering Board and Safety
Review Board.
The Investment Steering Board acts as theforum for preparing investment decisions
for the Executive Board’s approval as well
as exercises delegated powers to approve
investments below a given threshold. The
Investment Steering Board is headed by the
Chief Financial Officer.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

Finnair has a Safety Review Board thatis responsible for reviewing the Company’s safety policy and assessing the safety
performance against the safety policy andobjectives. The Safety Review Board reviewsthe effectiveness of the flight safety, security and compliance management systems
relating to safety, and ensures that appropriate resources are allocated to achieve
the targeted safety performance. The Safety
Review Board is headed by the SVP Operations and it convenes at least four times per
year.

Management Board
The Finnair Management Board is principally a communication and co-operation forum designed for the personnel’s
participation in the Company’s governanceprocesses, especially with regard to mattersthat affect the personnel. The Management Board discusses the implementationof the Company’s strategic objectives anddevelopment projects that affect Finnair’s
personnel as well as business plans andfinancial performance of the Group, theoperational quality and customer satisfac-

109

FINANCIALSTATEMENTS

tion. The Management Board comprises the
Executive Board members, certain senior
managers and the representatives of all
personnel groups. In 2020, the Finnair
Management Board met six times.

Corporate Governance in Finnair
subsidiaries
For major subsidiaries, the members of
the boards of directors are selected fromindividuals belonging to Finnair’s senior
management and, in selected subsidiaries, also from representatives proposedby personnel groups. The subsidiaries ofFinnair are presented in the Financial Statements 2020 under Note 4.2.

Governance principles in key
partnerships and outsourcings
Finnair has equity partnership in Nordic
Regional Airlines Oy through Nordic
Regional Airlines AB (Finnair’s ownership 40 per cent as at 31 December2020). 60 per cent of Nordic Regional
Airlines AB is owned by Danish Air Transport (DAT). Nordic Regional Airlines Oy isa Finnish regional passenger airline oper-

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

ating ATR turboprop and Embraer 190
aircraft. Its route network is designed toprovide convenient feeder connections to
Finnair’s European and long-haul routes.
Finnair’s influence over the governance of
the Company is based on shareholding andcontractual rights.
Finnair procures certain important operational services from strategic partners,
such as the ground handling and cargoterminal handling services in Helsinki hubfrom Swissport Finland Ltd, and the engine
and component services from SR Technics,
Lufthansa Technik and Rolls Royce. In thearea of IT and mobile services Finnair partners with Amadeus, IBM and Apple, among
others. The cost and quality targets of these
agreements have been determined so as
to correspond at least to a good generalmarket level.

SUSTAINABILITY
APPENDIX

Finnair’s influence in the joint businesses isbased on contractual arrangements. Decisions by the joint businesses are sought tobe made unanimously.
All Finnair’s service providers are expected
to comply with Finnair’s Supplier Codeof Conduct. Finnair aims to secure in its
supply contracts the rights to audit theSupplier’s governance and security measures.
Finnair’s Code of Conduct and Supplier
Code of Conduct are available on Finnair’s
website.

Finnair participates in joint businesses withcertain airlines belonging to the oneworld
alliance. These joint businesses seek toimprove competitiveness and efficiency
in a manner benefitting the passengers.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Topi Mannerb. 1974, M.Sc. (Econ.)
Main occupation:
CEO as of 1 January 2019
Key positions of trust:Vice Chairman,
Finland Chamber of Commerce
Member of the Board of Directors,
Elisa
Member of the Board,Service Sector Employers Palta
Shareholding 31 December 2020:
674,068

Nicklas Ilebrandb. 1980, M.Sc. (Computer Science)
Main occupation:
SVP Strategy as of 1 May 2019
Key positions of trust:
Chairman of the Board of Directors,
Nordea Hypotek AB 2016–
Shareholding 31 December 2020:
105,705

Johanna Karppi
b. 1968, LLM, (trained on bench)
Main occupation:
SVP People & Culture as of
1 October 2019
Key positions of trust:Shareholding 31 December 2020:
16,115

Ole Orvér
b. 1966, Degree in Market
Economics
Main occupation:
Chief Commercial Officer as of
1 May 2019
Key positions of trust:Shareholding 31 December 2020:
87,682

Tomi Pienimäki
b. 1973, Dr. Tech, M.Sc. (Eng.),
M.Sc. (Econ.)
Main occupation:
Chief Digital Officer as of
1 October 2019
Key positions of trust:Member of the Board of Directors,
Router Group Oy
Shareholding 31 December 2020:
38,375Sami Sareliusb. 1971, LLM
Main occupation:
SVP and General Counsel as of
20 August 2010
Key positions of trust:Shareholding 31 December 2020:
225,000

Jaakko Schildt
b. 1970, B.Sc. (Eng.), MBA
Main occupation:
SVP Operations as of 1 March 2016
Key positions of trust:
Chairman of the Board, Nordic
Regional Airlines Oy
Member of the Board of Directors,
Finnish Aviation Academy Oy
Member of the Board of Directors,
Kallioinen Yhtiöt Oy
Shareholding 31 December 2020:
127,005

Mika Stirkkinenb. 1968, M.Sc. (Econ.)
Main occupation:
Chief Financial Officer (CFO) as of
1 July 2019, interim Chief
Key positions of trust:Member of the Board of Directors,
Nordic Regional Airlines Oy
Shareholding 31 December 2020:
235,680

Päivyt Tallqvist

Piia Karhu(member until 30 Jun 2020)b. 1976, Dr. Business Administration
Main occupation:
SVP Customer Experience from
1 March 2016 until 30 June 2020
Key positions of trust:Member of the Board of Directors,
Kesko Oyj 2018–
Shareholding 31 December 2020:
16,250Arja Suominen(member until 31 Oct 2020)b. 1958, MA, e-MBA
Main occupation:
SVP Corporate Communications
and Corporate Responsibility
from 14 March 2011 until
31 October 2020
Key positions of trust:Member of the Board of Directors,
Savonlinna Opera Festival Ltd
Shareholding 31 December 2020:
163,339

Executive Board
members in 2020

110

THE REPORT OF THE
BOARD OF DIRECTORS

b. 1970, M.Sc. (Econ.)
Main occupation:
SVP Communications as of
1 November 2020
Key positions of trust:Shareholding 31 December 2020:
4,939

The CEO’s and the Executive Board
members’ direct and indirect
shareholdings in Finnair as at 31
December 2020 are shown in thetable above.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Key events in
Finnair governancein 2020

THE REPORT OF THE
BOARD OF DIRECTORS

Shareholders

AuditorThe ownership profile of Finnair Plc
remained unchanged in 2020 as regards
name-registered shareholder. The largest
shareholder at the end of the year was theGovernment of Finland, holding 55.90% of
the shares and votes, followed by mutual
pension insurance company Ilmarinen(2.63%) , mutual pension insurancecompany Varma (2.55%), and Keva (1.70%).
The ownership of nominee-registeredshareholders almost halved from last year,
and was 7.39 % at year-end. The numberof shareholders increased from 27,029 to
85,590 between 1 January and 31 December
2020.

On 29 May 2020, the Annual General
Meeting elected KPMG Oy Ab as the Company’s auditor for the year 2020.

Finnair Plc issued 1,279,265,150 new sharesin its Rights Issue in June 2020.

111

FINANCIALSTATEMENTS

Board of Directors andthe Executive Board
The composition of the Board of Directors
changed in 2020 as one new member was
elected by the Annual General Meeting.
In 2020, the Board of Directors and the
Executive Board focussed on resizing theCompany, mitigating the negative impactof the Covid-19 pandemic on different areasof business, ensuring liquidity, as well as
defining the Company’s post-pandemic
rebuild plan.

The shareholders’ Annual General Meeting
was held on 29 May 2020.

The composition of the Executive Boardchanged in 2020 as the SVP Customer Experience position was discontinued on 30 June
2020.

Subsidiaries

Management Board

Finnair Kitchen Ltd merged into Finnair
Travel Retail Ltd as of 31 December 2020. In
connection with the merger, Finnair Travel
Retail Ltd’s name was changed to Finnair
Kitchen Ltd.

The Management Board’s compositionchanged in 2020 as some of the personnel
groups replaced their representatives.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXInternal Control and Risk
Management
Adherence to the Three Lines of Defence
model – with a clear division of roles andresponsibilities with respect to internal
control and risk management – was further
strengthened in 2020. In the second Lineof Defence the Risk & Compliance function
acts as a control function that is responsiblefor developing and maintaining the Internal
Control Framework and Risk Management
Framework as well as for monitoring theimplementation of the policies, rules, procedures and key controls within the frameworks.

Internal Audit
Internal audit, the independent assurance function in the third Line of Defence,
performed audits according to the annual
plan approved by the Audit Committee of
the Board of Directors and performed also
assignments requested by the management.

ANNUAL REPORT 2020

Main featuresof the internal
control and risk
management
systems

THE REPORT OF THE
BOARD OF DIRECTORS

Based on the limited liability companies act
the management of the Company shall act
with due care and promote the interests of
the Company. The Board of Directors shallsee to the administration of the Company
and the appropriate organisation of its operations. The Board is responsible for theappropriate arrangement of the control of
the Company accounts and finances. The CEOshall see to the executive management of
the Company in accordance with the instructions given by the Board. The CEO shall see
to it that the accounts of the Company are incompliance with the law and that its financial affairs have been arranged in a reliable
manner.
Internal control and risk management activities are an integral part of the management’s
overall duty to ensure that the Company
achieves its business objectives. Throughefficient systems of internal control and risk
management, deviations from objectives
can be prevented or detected as early as
possible. The Board of Directors is responsible for monitoring and evaluating the efficiency of the Company’s internal control andrisk management systems.

112

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

THE ROLE IN THE IMPLEMENTATION OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS

Three lines of defence

External audit

REVIEW OF
THE YEAR 2020

First line ofdefenceBusiness segments and common functions
Business units and group functions
Day to day control and risk management activities pertaining to the financial
Day to day control and risk management activities.
reporting process

Second line ofdefence

Risk& ComplianceCorporateoversight functions
Oversight and continuous improvement of the internal control and risk management
environment.
environment
Operational level

Third line ofdefence

Internal Audit
Assessment of control environment, day to day control and risk management
activities, and overall maturity of the internal control and risk management systemsystem.

Ultimate
responsibility

The Board of Directors
Reasonable assurance of the achievement of Company’s
company’s strategic and operational
objectives, reliability of financial and operational reporting, as well as compliancewith laws, regulations and internal policies.
policies

Finnair’s Internal Control Framework is thedefined set and structure of the Company’s internal policies, rules, procedures andkey controls. The framework is systematically developed and maintained to ensure

the efficiency of the internal control system.
The Internal Control Framework is designed
to ensure effective and efficient operations,adequate identification, measurement andmitigation of risks, prudent conduct of busi-

ness, including safeguarding of assets,sound administrative and accounting­procedures, reliability of financial andnon-financial information both externallyand internally, and compliance with laws,

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

regulations, supervisory requirements andwith Finnair’s internal policies and rules.
The primary governance principle is adherence to the Three Lines of Defence model,
with a clear division of roles and responsibilities with respect to internal control andrisk management. A proper Three Lines of
Defence governance ensures that the segregation of duties is defined and establishedbetween risk management and risk control.
• In the first line of defence, the businessorganisation and shared functions arerisk owners, and thus responsible for
conducting day-to-day control and risk
management activities in accordancewith the Internal Control Framework.
• In the second line of defence, Risk &Compliance acts as a control functionthat is responsible for developing
and maintaining the Internal Control
Framework and Risk Management
Framework as well as for monitoring theimplementation of the policies, rules,
procedures and key controls within theframeworks.
• In the third line of defence, Internal
Audit performs audits and provides the113

FINANCIALSTATEMENTS

Board of Directors with an independent
assessment of the overall effectivenessand maturity of the internal control andrisk management systems.

Internal control and risk
management systems in relation
to financial reporting
The systems for internal control and risk
management of financial reporting aredesigned to provide reasonable assurance
about the reliability of financial reporting
and the preparation of financial statements
for external purposes in accordance withgenerally accepted accounting principles,
applicable laws and regulations, and otherrequirements for listed companies. Internal
control and risk management of financial
reporting at Finnair can be described inaccordance with the COSO framework which
consists of the five components: control
environment, risk assessment, control activities, information and communication, andmonitoring.
Control environment
The control environment constitutes thebasis for Finnair’s internal control system.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTThe control environment encompasses
the culture and values as well as a clear
and transparent organisational structure.
Finnair’s Internal Control Framework is afundamental element in the control environment and consists of the Code of Conduct,
Finnair Policies, Standards, Rules, andManuals, as well as the related key controls.
For the proper functioning of the internal
control and risk management of financial
reporting, clearly defined roles and responsibilities are critical. The risk owners in thefirst line of defence – i.e. business units,
Finance organisation as well as certain
other shared functions – are responsible forthe risk management activities, whereas
Risk & Compliance, being a control function in the second line of defence, facilitates
the identification and evaluation of risks,
assists the first line of defence in defining
the controls, and monitors the implementation of controls and risk management activities. In the third line of defence, Internal
Audit provides the Board of Directors withan assessment of the overall effectivenessof the governance, risk management andcontrol processes.

SUSTAINABILITY
APPENDIX

Risk assessment
Risks are continuously identified andanalysed as part of the risk management
process. Risk management is an integral
part of running the business. Performing
risk assessments as part of the businessactivities improves the relevance andquality of risk assessment. Main responsibility for performing risk assessments
regarding financial reporting risks lies withthe business organisation and shared functions, i.e. the first line of defence. Processes
related to financial reporting are subject toon-going risk assessment by the business
controllers, financial controllers and othershared service staff as part of their activities.
Consistent with the Three Lines of Defence
model, the role of Risk & Compliance function is to develop and maintain the Finnair
Risk Management Framework.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSControl activities
Financial reporting manuals and instructions have been prepared to be followed
across the organisation. The manuals andinstructions outlining the content andschedule for the reporting aim to increase
the overall controllability of the financial
reporting process and ensure that financial statements fulfil the requirements set
in the IFRS standards and other applicablerequirements.
Risks related to financial reporting aremanaged through controls aiming toprovide reasonable assurance that the
information of interim reports and year-end
reports are correct and that they have been
prepared in accordance with legislation,
applicable accounting standards and otherrequirements for listed companies.
Control activities are applied in the business processes and, from the financial reporting perspective, they ensurethat errors or deviations are prevented
or detected and corrected. Controls infinancial reporting pertain to the initiation, recognition, measurement, approval,
accounting and reporting of financial trans-

114

FINANCIALSTATEMENTS

actions as well as disclosure of financial information. The general IT controls
support the financial reporting controls
in areas like access control and back-up
management. Responsibilities are assignedin the Finance function ensuring thatanalyses of the business performance,
including analyses on volumes, revenues,
costs, working capital, and asset values are
performed in accordance with the control
requirements.
Information and communication
The Finance organisation is responsible
for ensuring that the financial reporting
manuals and instructions are up-to-date
and that changes are communicated to therelevant units and functions. The process
owners of the main finance processes are
responsible for informing about upcomingchanges in International Accounting Standards, new accounting principles and otherchanges in reporting requirements.

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

THE KEY COMPONENTS AND ROLES IN CONTROL PLANNING, IMPLEMENTATION AND
MONITORING

Reports
audit
findings

Board of Directors
Reports
internal
controlstatusExecutive Board

Policy owner
Internal
Audit

Risk &
Compliance
Key control ownerStandard, rules, manual
ownerConfirms Company values,
Code of Conduct andtop-level policies
Reviews Company values,
Code of Conduct andtop-level policies,
approves other policies

Implements policy and key
controls derived from thepolicy, identifies risks anddevelops controls

Implements standards,
rules and manuals

The key principles of Finnair’s Disclosure
Policy regarding disclosure to the stock
markets are reliability, openness, consistency and fairness. Finnair publishes press
and stock exchange releases without undue

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORS

delay and makes them available to themarkets and all principal stakeholders
simultaneously.
Monitoring and improvement
The business units and shared functions
regularly assess the maturity of theircontrol activities. The control function –Risk & Compliance – facilitates the identification and evaluation of risks, assists business units and shared functions in defining
the controls, and monitors the implementation of controls and risk management­activities.
The design and effectiveness of the internal
control and risk management systems
are also assessed as part of the audits
by Internal Audit. Audit results, corrective actions and their status, are regularly
reported to the Executive Board and to the
Audit Committee.

Internal Audit
The Internal Audit is established by the
Board of Directors, and its responsibilities
are defined by the Audit Committee of theBoard as part of their oversight responsibility.

115

FINANCIALSTATEMENTS

Internal audit, the independent assurance function in the third Line of Defence,
performed audits according to the annual
plan approved by the Audit Committee of
the Board of Directors and performed also
assignments requested by the management.
The mission of Internal Audit in Finnair is toprovide independent, objective assurance
and consulting services designed to add
value and improve the organisation’s operations. Internal Audit helps the organisation
to mitigate factors that might undermine its
business objectives by bringing a systematic, disciplined approach to evaluate andimprove the effectiveness of risk management, control and governance processes.

Related party transactions
Related party transactions are regulated by
the Finnish Companies Act and the Corporate Governance Code issued by the Securities Market Association, as well as in the IAS
24 Related parties. Finnair related parties
include the subsidiaries, associated companies and joint ventures. Also, the membersof the Board of Directors, the CEO and othermembers of the Executive Board, their close

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

family members and entities controlled
directly or indirectly by them, as defined in
IAS 24, are related to Finnair. Major shareholders with more than 20 per cent ownership of shares or of the total voting rights
in the Company, are included in relatedparties. Finnair has defined procedures inplace for identifying related party transactions.
In relation to any transaction with theCompany the related parties must obtain
permission in advance. The permission canbe given by the Executive Board, or if thepermission concerns the CEO or a memberof the Board of Directors, by the Board of
Directors. The person concerned may notparticipate in discussing the matter on the
Executive Board or the Board of Directors
or participate in preparations, decisions orimplementation of the matter on behalf of
the Company.
In addition, the members of the Executive Board and the Board of Directors are
required to file an annual report of transactions conducted by them or their relatedparties with Finnair during the financial
period, as well as of transactions antici-

SUSTAINABILITY
APPENDIX

pated for the next period. The permission
and notification procedures only apply tonegotiated transactions. Hence, they do
not apply to service or product purchases
available on normal commercial terms or tonormal employee discounts.
Significant transactions between Finnair
and its related parties are announced with astock exchange release in accordance withthe rules of Nasdaq Helsinki. Information
on transactions with related parties is also
provided in note 4.5 to the financial statements and they have been carried out at
market prices.

Managers’ transactions and key
insider management procedures
Inside information within the Company andtransactions on Finnair financial instruments by persons discharging managerial responsibilities in the Company or theirclosely related persons are managed inaccordance with the Market Abuse Regulation (MAR) and the insider guidelinesof Nasdaq Helsinki and of the Company.
The Company’s insider rules also apply toemployees in the so-called informative coreof the Company.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTSREMUNERATIONREPORT

The Company maintains a list of persons
discharging managerial responsibilities in Finnair (managers), including theirclosely related persons and entities, whomust notify the Company and the Financial Supervisory Authority of their transactions on the Company’s financial instruments within three business days of theexecution of the transaction. The Company
must disclose these transactions in a stock
exchange release within two business days
from having received the notification of thetransaction. The Company’s managers are
the members of Finnair’s Board of Directors
and of the Executive Board.

Company must give an advance noticeto the Company before the execution ofa planned transaction. In addition, they
can request an advance assessment of
the legality of a planned transaction. The
advance notice obligation and advanceassessment opportunity are intended toreduce the risk of trading during a closed
trading window or at a time when the
Company has undisclosed inside information. Giving an advance notice does notaffect the responsibility of the Company’s
managers and employees in its so-called
informative core regarding the abuse of
inside information.

The Company’s managers and employees
in the so-called informative core of theCompany are bound by a closed window
on trading, which begins 30 days before
the release of interim or annual results
and continues until the end of the release
date. The Company may also impose othertrading restrictions and grant exemptions inaccordance with its insider rules.

The disclosure policy of the Company
requires, in accordance with the Market
Abuse Regulation (MAR), that the Company
discloses any inside information it may haveas soon as possible. However, the disclosure may be delayed if the requirements
specified in MAR are met. The identification of inside information and decisions
regarding the disclosure or delay of disclosure are made by the Company’s Disclosure Committee, which is comprised ofthe members of the Executive Board. The

The Company’s managers and employees
in the so-called informative core of the116

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIX

Disclosure Committee assesses the Company’s information typically twice a monthand otherwise whenever necessary. If theCompany delays the disclosure of inside
information, it establishes a project-specific insider list and enters the persons withaccess to the relevant information on theinsider list.
The person responsible for insider issues
within the Company is the General Counsel.
Finnair’s insider rules are available at theCompany’s website.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Remuneration
Report 2020

118 Directors’ Remuneration Report 2020
118 Introduction120	Paid remuneration of theBoard of Directors in 2020121	Paid remuneration of the CEO
in 2020117

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

Directors’
Remuneration
Report 2020

THE REPORT OF THE
BOARD OF DIRECTORSThis Report presents the remuneration
paid to members of the Board of Directors
and the CEO of Finnair during 2020. Remuneration paid to members of the Executive
Board is described on Finnair.com website.
The report has been prepared based on the
Finnish Corporate Governance Code 2020
and it complies with the requirements of the
EU’s Second Shareholder Rights Directive.

Introduction
Year 2020 was an exceptionally challenging year for Finnair due to the Covid-19
pandemic and its’ impact on Finnair’s business. This had a major impact also on remuneration for the CEO, Executive Board
members and all employees at Finnair. As
incentive payouts are based on previous
years’ performance, the pandemic’s impact
on paid variable compensation was not
yet visible in 2020. The STI and LTI payouts
in the beginning of 2020 were based on
2019 performance (STI plan) and 2017-2019
performance (LTI plan).
CEO Topi Manner together with other Executive Board members voluntarily cut theirbase salaries by 15% for a 6-month period

118

FINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTduring 2020. Also the Board of Directors
voluntarily cut their annual fees by 15 %starting June 2020 until the 2021 Annual
General Meeting.

period 7/2020–6/2023. At the same time,a rebuild incentive plan for personnel was
launched that is based on the same period
and target setting.

The European Commission issued on 9
June 2020 a state aid decision regarding
the participation of the State of Finlandin Finnair’s Rights Offering finding suchparticipation compatible with the EU state
aid rules under the Treaty on the Functioning of the European Union Article
107(3)(b). Under the Commission’s decision, the Company agreed to certain conditions following the Rights Offering, which
include, among other things, limitations
on management remuneration for a period
from June 2020 till the end of 2022. Theselimitations resulted in Finnair not being
able to implement the STI and LTI structures as described in the Directors’ Remuneration Policy. To comply with the defined
limitations, Finnair cancelled ongoing2020 STI as well as 2018–2020, 2019–2021
and 2020–2022 LTI plans for the CEO and
Executive Board members and launched a
new performance share plan for the CEO
and Executive Board members for theDevelopment of remuneration 2016–2020
Annual fees for the Board of Directors werelast changed in 2020 and before that, in2008. The average paid remuneration to theBoard of Directors in the table below has
mainly varied from year to year dependingon the amount of Board and committee
meetings held during each year. The total
amount paid to the Board has increased as
the number of Board members increased
from 7 to 8 in 2018 and from 8 to 9 in 2020.
The Annual General Meeting held on 29 May
2020 decided to increase the annual board
fee by three percent for the Chair and by
one percent for the other members. The
Board decided to forego the increases andadditionally cut their current annual fees by
15% until the 2021 Annual General Meeting.
A significant share of the CEO’s remuneration is based on performance and variable pay. As the performance targets for
short- and long-term incentives are linked
to Finnair’s business results, this develop-

SUSTAINABILITY
APPENDIX

ment is reflected in the performance-based
rewards paid to the CEO. Remuneration of the CEO increased strongly during
2016-2018 mainly due to increased variable remuneration reflecting the company’s improved financial performance.
2018 CEO remuneration includes both CEO
Pekka Vauramo’s and interim CEO Pekka
Vähähyyppä’s remuneration. CEO Topi
Manner joined Finnair on 1 January 2019,and hence did not receive any short- or
long-term incentives during 2019 basedon previous years’ performance. The CEO’svariable compensation paid in 2020 was
based on 2019 (STI) and 2017–2019 (LTI)
performance.
Average paid remuneration of employees
have been impacted by a number of factors
during the past 5 years. In 2020, the extensive temporary lay-offs decreased the paid
average remuneration per employee (allemployees, including active (at work) andinactive (leave of absence)). Paid average
remuneration per active employee on
the other hand increased as the temporary lay-offs were extensive in operative
employee groups where the salary level is

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

lower than average. The other main items
impacting average remuneration over time
are CLA-based annual salary increases,
personnel incentive plan payouts as well as
the volume of recruitments and retirements(especially in those employee groups where
remuneration structures are heavily basedon seniority).

THE REPORT OF THE
BOARD OF DIRECTORS

Financial performance 2016–2020
The development of Finnair’s businessperformance impacts the CEO’s performance-based variable compensation. During
2016-2018 both Finnair’s business results
and the CEOs remuneration increased
strongly. The challenging year 2020 will
be visible in paid variable compensation in
2021.

Revenue

Comparable operating result€ million€ million

3,500

300

3,000

200
100

2,500

2019

2018

2017

2,000

-100

1,500

-200

0

Chair of the Board

71,96877,90789,30874,22382,800

Deputy Chair of the Board

52,36555,98470,50051,36767,029

829.2

500

2016

-595.3

0

1,000

2020

SUSTAINABILITY
APPENDIX

Financial performance 2016–2020

Paid total remuneration 2016–2020
Member

REMUNERATIONREPORT

CORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

-300
-400
-500

16

17

18

19

20

-600

16

17

18

19

20

Earnings per share

Other members of the Board, average

46,102

43,87853,87349,982

54,613€CEO

1,125,233
Topi Manner

769,205
Topi Manner

1,456,648
Pekka Vauramo
1.1.–31.10.2018

1,241 910
Pekka Vauramo992,886
Pekka Vauramo

66,07257,60856,1311.25
1.00

123,714
Pekka Vähähyyppä
4.9.–31.12.2018
Finnair employees (active employees), average*

1.50

0.75
0.50
0.25

62,88059,766

0
-0.25
-0.50

Finnair employees (active and inactive
employees), average**

33,83554,85253,33359,86656,557

–0.51

-0.75
-1.00

16

17

18

19

20

* Average salary is calculated by dividing the total paid salaries with the average number of active (at work) employees during the year.
**	Average salary is calculated by dividing the total paid salaries with the average number of all employees (includes both active (at work) and inactive (leave of absence) workers) during the year.
Temporary lay-offs have a significant impact on average paid remuneration of all employees.

119

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Paid remuneration of the Board of Directors in 2020
The fees for Board of Directors were paid in cash.

Annual fees

Board meetings(participated/total
number of meetings)

Committee meetings(participated/total
number of meetings)

Meeting feesin total³

Taxable benefits2

Total

Jouko Karvinen (Chair)

55,84516/16

0/0

14,4001,723

71,968Colm Barrington (Deputy Chair)

29,565

16/16

7/7

22,80052,365Mengmeng Du

27,37516/16

9/9

21,00048,375

Jaana Tuominen

29,56516/16

9/9

17,40046,965Montie Brewer

27,375

16/16

7/7

21,60048,975Henrik Kjellberg

27,375

16/16

7/7

21,60048,975

Jukka Erlund

29,565

16/16

8/8

15,00044,565Tiina Alahuhta-Kasko

27,37516/16

9/9

15,60042,975

Members 1.1.–31.12.2020

1

,

,

,

,

Members 29.5.–31.12.2020
Maija Strandberg

14,875

8/8

7/7

7,800

22,675

Annual fees are expressed at the annual level but paid in monthly instalments. Annual fees were cut by 15% starting June 2020 so that the impact for the whole year 2020 was approximately 9%.
The cut continues until 2021 Annual General Meeting.
2
Taxable benefits include Finnair staff tickets. The members of the Board and their spouses have a right to use staff tickets in accordance with Finnair’s staff ticket rule.
³ Meeting fees include fees paid during the year regardless of which year the meeting has been held. In the financial statement meeting fees are reported based on attended meetings and therefore
the figures can be different.
1

120

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

Paid remuneration of the CEO in 2020
Remuneration paid, euros per year

CEO 2020
Topi Manner

CEO 2019
Topi MannerBase Salary1

In total, euros

724,866

751,597

Employee benefits2

In total, euros

14,821

17,488based on 2019
performance:

based on 2018
performance:

216,727

0

28%

0%

based on 2017–2019
performance:

based on 2016–2018
performance:

168,81900120

168,819

120

22%

0%

0

0

1,125,233

769,205

Short-term incentives3

In total, euros
as % of paid base salaryLong-term incentives

Key personnel LTI, monetary and share reward, euros
Fly Share, monetary and share reward, euros
In total, euros
as % of paid base salary
Supplementary pensions

In total, euros

REMUNERATION PAID IN TOTAL
1
2
3

REMUNERATIONREPORTThe 2020 short-term incentive as well as
2018–2020, 2019–2021 and 2020–2022 longterm incentive plans were cancelled for the
CEO due to the limitations set by the European Commission. Hence, there are no due
short or long-term incentive payments thatwill be paid during 2021.
During 2020, a new 3-year performance
share plan was launched for the CEO andthe Executive Board members. The program
contains a three-year performance period(7/2020-6/2023). The potential rewards will
be delivered to the participants in a pre-determined proportion of shares and cash
after the end of the performance period
and the rewards are at the participants’ freedisposal after delivery. To comply with therestrictions set by the European Commission, the program structure differs from the
STI and LTI incentive structures describedin the Director’s Remuneration Policy but
the maximum annual incentive opportunity
remains within the 120% cap defined in the
Policy.

SUSTAINABILITY
APPENDIX

The pandemic’s impact on paid variable compensation was not yet visible in2020 as STI and LTI payouts were basedon 2019 performance (STI plan) and 2017–2019 performance (LTI plan). The 2019 STI
performance (based on a variety of financial and non-financial measures) for the
CEO was slightly below target level andhence resulted in and STI payout equaling
28% of annual base salary. The 2017–2019
EPS and revenue performance significantly
exceeded set targets and resulted in LTI
payout equaling 22% of paid annual basesalary. For CEO Topi Manner the LTI payout
was pro-rated to the length of his service
during the performance period.

Base salary includes holiday bonus.
Benefits include car, phone, staff tickets and possible voluntary health insurance.
CEO Topi Manner joined Finnair on 1 January 2019, and hence did not receive any short- or long-term incentives based on previous years’ performance.

121

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Sustainability
appendix 2020

123 Sustainability reporting principles
124 Global Compact Communication on Progress -report
125 GRI Content Index
153 Independent Practitioner’s Assurance Report122

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Reporting Principles
This Sustainability Appendix is integrated
into the Annual Report and together they
form Finnair’s sustainability reporting. Thisappendix has been prepared in accordance with the GRI Standards: Core option
and Global Compact’s Communication
on Progress (CoP). The report covers theparent company and all Finnish subsidiaries. The descriptions and information
presented in the Annual Report provide an
overview of the operations sustainability
context, while this appendix provides thereader with more detailed information andfigures for the reporting year. The prioritiesof the report are based on the materiality
analysis described on GRI-table Row 102-47
list of Material Topics.
Finnair group does not report on the operations of foreign subsidiaries, because they
are deemed not to be of key significance interms of the group’s sustainability issues
as minor operators. Any exceptions to thisshould be mentioned separately in connection with each indicator. Finnair does notreport on outsourced operations, either.
The business units and subsidiaries coveredby the report are listed in the adjacenttable.

123

FINANCIALSTATEMENTS

The information of the report has beencollected from the group’s internal statistics
systems and from various subcontractors.
In terms of measurement and calculation
methods, the GRI topic-specific accounting
principles have been adhered to whenever
the available data have so allowed. If someother measurement or calculation method
has been used, this shall be mentioned inconnection with the key figure concerned.
The figures have been presented in timeseries when this has been appropriate andreliably possible.
There have been no significant changes
in the data compared with the previous
report. Small amendments have been
made to provide reader with even morereliant comparable data between reporting
periods.
Changes pertaining to Finnair’s organisational structure and the calculation of financial statement data are described in moredetail in connection with Finnair’s financial
key figures.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Global Compact; Communication on Progress -report
Human rights & Labour

Environment

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights;
Principle 2: Make sure that they are not complicit in human rights abuse;Principle 4: The elimination of all forms of forced and compulsory labour; andPrinciple 5: The effective abolition of child labour.

Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: Undertake initiatives to promote greater environmental responsibility; andPrinciple 9: Encourage the development and diffusion of environmentally friendly technologies.

Practical actions

Finnair’s human rights management is described in the Finnair Code of Conduct, The
Supplier Code of Conduct, and the company’s personnel management principles. The
company aims to prevent any violations of human rights and the use of forced or childlabour both within its own operations and its supply chain.

Practical actions

Sustainability Appendix: 102-16, 103

Finnair’s goal is to be an engaging leader in the field of environmental responsibility.
Finnair strives being a pioneer in evaluating, reducing and reporting environmental
impacts. Company is also committed complying with current environmental legislation,
but its environmental work aims at exceeding statutory requirements.
Modern aircraft are always more fuel-efficient and silent than previous-generation
aircraft, and hence Finnair’s most significant environmental action has been
continuous, ongoing investments in a modern fleet.
Sustainability Appendix: 102-1, 103, 300 series (Environmental Topics)

LabourPrinciple 3: Businesses should uphold the freedom of association and the effective recognition of the right tocollective bargaining;
Practical actions

Freedom of association and the collective right to negotiate on occupational issues arerecognised as fundamental rights in Finland. There is a long tradition of trade union
activity in Finnair. Labour market culture in the company has been constructed in sucha way that the organisation of workers and collective negotiations between Finnair andemployee groups are part of normal practice. All Finnair employees have the right andopportunity to agree on terms of employment collectively.
The terms of employment of management employees are agreed on locally. Personnel
and management remuneration principles are described in the Remuneration
statement.

Anti-corruption
Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.
Practical actions

Anti-corruption policies are outlined in Finnair’s Code of Conduct and Supplier Code of
Conduct as well as in the Rules for Anti-Bribery, Corporate Hospitality and Hosting of
Public Officials. Receiving and giving of bribes is strictly prohibited at Finnair.
The group’s Conflict of Interest Guidelines cover the identification and avoidance of
conflicts of interest and related conduct.
Sustainability Appendix: 103, 205-2, 206-1

Sustainability Appendix: 103, 407
Principle 6: The elimination of discrimination in respect of employment and occupation.
Practical actions

Equality and non-discrimination are embedded in the Finnair values, and Finnair
is committed to providing its customers, personnel and partners with equal
opportunities. Finnair does not discriminate based on gender, age, ethnic or national
origin, nationality, language, religion, conviction, opinion, health, disability, sexual
orientation or other personal attributes or circumstances.
Finnair offers everyone equal opportunities for recruitment, work performance, career
progression and development. Finnair implements the equal pay principle based on the
Finnish Equality Act and gives both men and women equal opportunities for balancing
work and family life.
The working group for equality frequently updates the Equality and non-discrimination
plan published internally and externally.

Implementation and Measurement of Outcomes
Practical actions

Finnair has a Whistleblowing line called Finnair Ethics Helpline in use, through which
both internal and external stakeholders can report on concerns for ethical businessconduct.
During 2020 no material incidents of material misconduct were notified through the
Finnair Ethics Helpline nor were there any investigations ongoing in the company.
Annual report p 25, Non-Financial Performance
Sustainability Appendix: 102-17, 300 & 400 series (Social & Environmental topics)

Sustainability Appendix: 103, 406
Company’s Equality and Non-discrimination Plan

124

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102: Organisation Profile
102-1 Name of the organisation					Finnair Plc					102-2 Activities, Brands, Products and Services 					Annual Report pages 6–11

102-3 Location of the Headquarters					Tietotie 9, Vantaa, Finland					102-4 Location of the Operations 					Annual Report pages 50, 18, 6–9

102-5 Ownership and Legal Form
Annual Report pages 30, 50

102-6 Markets Served					Annual Report page 10102-7 Scale of the Organisation					Annual Report pages 10–14, 23–24

125

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102-8 Information on employees and other workers
Annual report, pages 23–24, Non-Financial Performance

Number of employees

Share of females, %Share of permanent contracts, %Employees

6131

57%

99%

Management

73

34%

100%

Executive Board

9

22%

100%

Board of Directors

9

44%

0%

Distribution of employee groups, %
2020

2019

Employee Group

Share from total, %Share of females, %Share from total, %Share of females, %Cabin Crew

38

89

32

89

Pilots

15

3

14

3

White Collar Employees

14

44

15

44

Ground services and Finnair Kitchen

11

59

14

64

Abroad

7

70

9

72

Technical Services

7

5

7

7

Technical Employees

3

13

3

13

Aviation Employees

2

81

3

82

Management

1

34

1

35

Travel Guides

1

76

1

85

Travel Agency Staff

1

95

1

94

Indicators on personnel are based on active employment relationships as at 31 December 2020 and are derived from company’s HR system.
The figures exclude dormant employees and Aurinkomatkat Baltic subsidiary (number of personnel on 31 December 2020).

126

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102-9 Supply chain					A report of the organistaion’s supply chain can be found under the chapter 103 Management Approach.

102-10 Significant changes to the organisation and its supply chain					Annual Report pages 28, 25

102-11 Precautionary Principle of Approach					Finnair has signed the Global Compact initiative, according to Principle 7 of which we support a precautionary approach to environmental challenges. To apply this approach, Finnair has an Environmental Policy in place and has included
systematic risk assessment, management and communication in its environmental management system. All environmental objectives, targets, impacts and promotion are managed and continuously developed through Finnair’s
Environmental Management System (EMS).

102-12 External initiatives					
•
•
•
•
•
•
•
•
•
•
•

UN Global Compact					UN Universal Declaration of Human Rights					UN Women’s Empowerment Principles					Finnish Government’s Society’s Commitment 2050 (UN Agenda2030)					Nordic Network for Electric Aviation					IATA’s 25by2025					IATA resolution against modern slavery and human trfficking					Diversity Charter Finland (by FIBS)					Wildlife Transport Taskforce; Buckingham Palace Declaration					Helsinki Declaration					Feasibility study on producing P2X fuel					102-13 Membership of associations					
•
•
•
•
•
•
•

127

Airlines for Europe (A4E)					International Air Transport Association (IATA)					Global Compact Finland Network					Climate Leadership Council (CLC)					Nordic Initiative for Sustainable Aviation (NISA)					Finnish Business & Society (FIBS)					Nordic CEOs for Sustainable Future					ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102: Strategy
102-14 Statement from senior decision-maker
Annual Report, pages 3–4, CEO Review
Annual Report, pages 6–9, Business Model and Operational Environment
The sustainability strategy is geared at preserving the license to operate from key stakeholders and contributing to the good reputation and long-term shareholder value of Finnair. It also helps protect Finnair from the downside risk thatbreaches of environmental regulations, climate change, human rights abuses or governance issues, such as corruption, can bring to a company.

102-15 Key impacts, risks, and opportunities (comprehensive)
Annual Report, page 9, Value creation
Annual report, page 6, Megatrends
Annual report, pages 33–36, Risk management
Company’s website: https://investors.finnair.com/en/governance/risk-management

102: Ethics and integrity
102-16 Values, principles, standards, and norms of behaviour
Annual report page 9, Value creation model.
Finnair’s corporate sustainability is reflected in its purpose, strategy, mission, vision and values of commitment to care, simplicity, courage and working together. Sustainability is integral to all Finnair operations, as stated in its strategy’s
target; Sustainable, profitable growth. The target of Finnair’s sustainability strategy is to reduce the environmental impact and increase the financial and social return for society.
The Finnair Code of Conduct and Finnair Supplier Code of Conduct lay the foundation of how the company conducts its business responsibly, in all areas. The values, Codes of Conduct and policies implemented thereunder set the standard
for Finnair and its employees across the jurisdictions and environments in which the company operates.
The key areas of the strategy fall under the following themes: Environment, Social and Economic. Finnair is committed to complying with international and national legislation in its operations and the ethical business principles laid out in
the Code of Conduct, as well as continuously developing its sustainability performance. The most significant environmental aspects are the combustion of fuel, aircraft noise, energy usage in corporate facilities and waste generation. The
most important social responsibility areas concern safety, personnel and customers, as well as ethical business conduct and responsible sourcing.
Finnair respects the UN Universal Declaration on Human Rights and the core conventions of the International Labour Organization (ILO). Finnair has also signed the United Nation’s Global Compact initiative and as required by the Global
Compact principles, the company aims to prevent any violations of human rights and the use of forced or child labour both within its own operations and its supply chain. Finnair has been reporting on its corporate responsibility pursuant
to the GRI G4 reporting guidelines since 2015 and from 2018 have followed the GRI standard framework.

102-17 Mechanisms for advice and concerns about ethics (comprehensive)
Finnair conducts its business in a responsible way and in accordance with its Code of Conduct. In order to protect the company and our business, all employees with knowledge of suspected violations of the law, misconduct or fraudulent orunethical conduct in violation of the Code of Conduct are encouraged to raise the concern and report it in accordance with the reporting procedures provided. Primarily, all employees are encouraged to raise concerns and report possible
violations through normal reporting procedures. Supporting this, Finnair has a Whistleblowing line called Finnair Ethics Helpline in use, through which both internal and external stakeholders can report on concerns for ethical businessconduct. All reports through the Ethics Helpline are received and handled directly by the Compliance function.
The identity, or anonymity as the case may be, of the person raising concerns will be protected and Finnair has a strict policy of non-retaliation against anyone raising a concern in good faith. Third party that hosts Ethics Helpline will
never disclose voice-files, IP addresses or phone numbers, unless authorities are involved. The right of non-retaliation is guaranteed under the Finnair Code of Conduct and violation of this right will not be tolerated. Filing a report will not,however, automatically result in immunity for misconduct.

128

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102: Governance102-18 Governance structure
Finnair’s management system is aimed to create value for all its stakeholders by bridging the world in a sustainable and safe manner.
A detailed description of Finnair governance model can be found from Company internet pages: https://investors.finnair.com/en/governance102-19 Delegating Authority (comprehensive)
The company management structure can be viewd on the Company’s website: https://investors.finnair.com/en/governance/company-management102-20 Executive-level Responsibility for Economic, Environmental and Social Topics (comprehensive)
The executive-level responsibilities and reporting structure can be viewed on the company’s website: https://investors.finnair.com/en/governance102-30 Effectiveness of risk management processes

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTThe internal control and risk management system at Finnair - corporate-wide coverage, hence 100% of operations - is the following:
Finnair’s Internal Control Framework is the defined set and structure of the company’s internal policies, rules, procedures and key controls, including those in place in the area of sustainability. The framework is systematically developed
and maintained to ensure the efficiency of the internal control system. The Internal Control Framework is designed to ensure effective and efficient operations, adequate identification, measurement and mitigation of risks, prudent conductof business, including safeguarding of assets, sound administrative and accounting procedures, reliability of financial and non-financial information both externally and internally, and compliance with laws, regulations, supervisory
requirements and with Finnair’s internal policies and rules. The Finnair Internal Control Framework covers the whole Finnair group, and thus all operations. The primary governance principle is adherence to the Three Lines of Defence
model, with a clear division of roles and responsibilities with respect to internal control and risk management. A proper Three Lines of Defence governance ensures that the segregation of duties is defined and established between risk
management and risk control.

102: Stakeholder engagement 					102-40 List of stakeholder groups
Stakeholder groups are listed in a table presented in 102-43; approach to stakeholder engaement.

102-41 Collective bargaining agreements
Annual Report, pages 23–27, Non-Financial Performance
Employees can agree on their terms of employment through collective bargaining in countries in which that is the local practice. Finnair does not limit its employees’ rights to participate in trade union activities. Senior management
constitutes an exception to this, as its terms of employment are agreed on locally or individually.

102-42 Identifying and selecting stakeholders
An open and transparent dialogue with various stakeholder groups provides the basis for an active stakeholder identification and responding process. We pro-actively provide and gather information through social media, print, and otherforms of communication medias.

129

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index
102-43 Approach to stakeholder engagement
Stakeholder Group

TopicsChannelsCustomers

Travel experience, customer service issues, product quality, on-time performance,
emissions and noise reduction, safety, recycling, responsible sourcing,
responsible tourism, corporate responsibility projects via Finnair Plus.

Surveys, research, written feedback, Finnair website, social media, customer events, customer
service encounters at every stage of the journey, messages to Finnair Plus customers,
Finnair mobile app, Blue Wings inflight magazine, In-flight Entertainment system (IFE).

Personnel

Occupational health and wellbeing at work, equality, diversity and inclusion, target setting,Code of Conduct and ethical issues, safety and security, changes to improve profitability,
values and business practices, increasing trust, reducing environmental impact on
the job, corporate responsibility in partnerships, changes affecting personnel.

Intranet, internal blogs, theme weeks, Yammer, personnel events, WeTogether@FinnairWellbeing at Work -survey, occupational health services, performance evaluation anddevelopment planning, discussions with labour organisations, Leadership forum.

Shareholders
and investors

Market environment and competitive landscape, the company’s operations,
corporate responsibility, goals, reporting, strategy and financial position.

Stock exchange bulletins under periodic and ongoing disclosure obligation;interim reports, financial statements, report of the Board of Directors, Corporate
Governance Statement. Annual General Meeting; investor, analyst and media
meetings and events; corporate website; Carbon Disclosure Project.

Aviation sector

Safety, emissions and noise reduction, emissions reduction schemes, air traffic management,
biofuel and supply chain development, sustainable tourism, economic impacts of the sector.

Membership in IATA and A4E; cooperation forum for sustainable tourism;
membership in oneworld alliance; Joint Businesses; cooperation with Finavia andother airport operators; sector seminars and working groups; manufacturers.

Authorities andgovernment

Competitiveness, market access, safety, emissions trading and reduction
schemes, air traffic management, supply chain responsibility, reporting, economic
contribution of aviation, impact of operations on environment and noise, disruptions
and irregularities, biofuels, employee relations, the Transport Code.

Dialogue with local, national, EU-level authorities and governments; dialogue
with governments and authorities in destination and overflight countries, eventsand other cooperation with the Finnish Consumer Agency, Flight Safety Authority(Traficom), embassies and other relevant Finnish and foreign actors.

NGOs

Greenhouse gas emissions and environmental impact reduction, public healthmeasures, human rights, disaster relief, wildlife protection, common interest projects
for sustainability and development cooperation, supply chain responsibility.

Cooperation with the WWF, Finnish Association for Nature Conservation, UNICEF,
Finnish Red Cross, Cancer Society of Finland and other NGOs. Membership in the
Carbon Disclosure Project and the Climate Leadership coalition, Commitment
2050 -cooperation, Science Based Targets initiative -cooperation.

Research,
Development andInnovation Partners

Greenhouse gas emissions and environmental impact reduction, common interest projects
for sustainability and development cooperation, supply chain responsibility.

Finnair website, social media, customer events and cooperation projects.

Suppliers

Cooperation efforts to reduce emissions and other environmental impacts, monitoringof responsibility and business ethics everywhere in the value chain.

Contractual cooperation, Finnair procurement guidelines and Supplier Code of Conduct.

Media

Company strategy and business, Finnair products and network, daily operations irregularities,
investments, emissions reduction, personnel relations, financial sustainability, economic contributionof aviation, ethics, cooperation projects with NGOs, trends in travel and traffic, biofuels, emissions
trading and reduction schemes, noise, impact of aviation on local economy and mobility.

Press releases, press conferences, visits by reporters, press trips, interviews, Finnair
media desk calls and emails, websites social media, Blue Wings magazine.

General public

Customer service, product quality, labour relations, economic contributionof aviation, ethics, emissions reduction, presence in local economies,
cooperation projects with NGOs, corporate citizenship.

Communications via media, websites, email and lectures; social media
including blogs, Facebook, Twitter and Sina Weibo.

102-44 Key topics and concerns raised
Key Topics of the stakeholder groups are listed in a table presented in 102-43; approach to stakeholder engaement

130

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
102: Reporting practice102-45 Entities included in the consolidated financial statements
Annual report pages 81–83, Consolidation

102-46 Defining report content and topic Boundaries
Finnair has performed materiality analysis to identify the key economic, environmental and social values and impacts in Finnair’s value chain as well as impacts on business and stakeholder decision making. The materiality analysis issues
have been identified through an analysis of industry trends, legislation, sustainability reporting guidelines, the reporting of peer companies and issues highlighted by various stakeholders. Priorities have been given for the identified
sustainability topics based on their business impact and stakeholder interest. The material topics defined, as a result of the materiality analysis, have been grouped under four themes and have been used as the basis for 2020 reporting.
Finnair’s sustainability focus areas, material topics, and related GRI standards and boundaries can be found in the table below (102-47).

102-47 List of material topics
FOCUS AREA

MATERIAL TOPICSGRI TOPICSTOPIC BOUNDARIES

Ethical business and responsible sourcing
Ethics and integrity
Code of Conduct

Environmental compliance
Socioeconomic compliance

Ethical business and responsible sourcing

Anti-corruption and bribery

Anti-corruption

Compliance with anti-competition regulations

Anti-competitive behaviour

Supply chain sustainability

Finnair’s own operations, partners and supply chain

Supplier social assessment
Human rights assessment

Environmental
EnergyFuel efficiency

Noise

Flight noiseProtection of the natural environment

Biodiversity

Energy intensity

Biodiversity

Climate change mitigation
Emissions

Renewable fuels

GHG Emissions (Scope 1,2 and 3),
Reduction of GHG emissions

Offsetting

Finnair’s own operations, supply chain, indirect
impacts on greenhouse gas emissions and biodiversity

Reusing products
Waste

Reducing waste
Reducing disposable plastics

Effluents and waste

Recycling of materials

131

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index
FOCUS AREA

MATERIAL TOPICSGRI TOPICS

Employee experience

Employment

Employee brand image

Labour/management relations

Employee well-being

Occupational health and safety

Working conditions

Training and education

TOPIC BOUNDARIESSocial			Caring for our employees

Equality

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT
Respecting our customers

Diversity and equal opportunity
Human rights assessment

Flight safety

Stakeholder engagement

Customer experience

Customer health and safety

Equality

Marketing and labelling

Responsible use of customer data

Finnair’s own operations and customers

Customer privacy
Human rights assessment
Stakeholder engagement

Stakeholders

Finnair’s own operations

Public policy

Finnair’s own operations, society
and local communities

Economic
Economic impact

132

Economic responsibility

Economic performance
Indirect economic impacts

Finnair’s own operations, society
and local communities

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index

GLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)

102-48 Restatements of information

GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

102-49 Changes in reporting

In 2020 restatements have been made to the 2019 figures concerning the facilities’ energy consumption and emissions. Also, 2019 Scope 3 emissions have been amended to include ground vehicles indiect emissions. More detailed
information on these minor changes are provided under the sections on the indicator in question.

There has been no significant changes in the material topics in year 2020.

102-50 Reporting period
1 January–31 December 2020

102-51 Date of most recent reportFebruary 2020

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT102-52 Reporting cycle
Annually

102-53 Contact point for questions regarding the report
Finnair strategy, Finnair Plc, Tietotie 9, 01053,
e-mail: Finnair.comms(at)finnair.com

102-54 Claims of reporting in accordance with the GRI Standards
This sustainability appendix has been prepared in accordance with the GRI Standards: Core option

102-55 GRI content index
The easy-to-navigate index of this GRI appendix content is implemented with a table of contents in the left margin.

102-56 External assurance
Sustainability Appendix pages 153–154

133

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
103: Management approach103-1 Explanation of the material topic and its Boundary
103-2 The management approach and its components
103-3 Evaluation of the management approach
Annual report, pages 6–9, Business model and operational environment
Annual report, pages 19–21, Strategy
Annual report, pages 23–27, Non-Financial Performance

General Management Principles
Company Internet pages: https://investors.finnair.com/en/governance/company-management

Sustainability Management
Finnair’s purpose is to create value for all its stakeholders by bridging the world in a sustainable and safe manner. Finnair’s standpoint in sustainability is reflected in its purpose, strategy, mission and values. Sustainability
is integral to all Finnair operations. Finnair sustainability strategy’s target is to reduce the environmental impact and increase the financial and social return for society. The material topics of sustainability fall under thefollowing themes: Ethical business, Social, Economic and Environment. Sustainability at Finnair concerns everyone and we strive to incorporate the sustainability topics equally in all our processes and product design.

ETHICAL BUSINESSHuman Rights and Code of Conduct
Finnair is committed to comply with international and national legislation in its operations, as well as the ethical business principles laid out in the Code of Conduct and the Sustainable Development Goals(SDG) set by The United Nations General Assembly. The Code of Conduct applies to all Finnair personnel and all locations. Further, Finnair’s Supplier Code of Conduct provide clear principles to ensure e.g.
ethical purchasing and zero-tolerance for corruption. The company requires that its suppliers comply with ethical standards that are essentially similar to those that Finnair complies with in its own operations.
Finnair is working to further integrate sustainability and ethical business conduct into all business processes. Finnair’s Code of Conduct includes an anti-corruption section according to which the receiving
and giving of bribes is strictly prohibited. Preventing corruption is everyone’s responsibility at Finnair, including the heads of business operations, compliance function and the internal audit.
Finnair respects the UN Universal Declaration on Human Rights and the core conventions of the International Labour Organization (ILO). The company has signed the United Nation’s Global Compact initiative andas required by the Global Compact principles, the company aims to prevent any violations of human rights and the use of forced or child labour both within its own operations and its supply chain.

Public affairs and lobbying
Aviation is a strictly regulated industry. Therefore, it is important for Finnair to participate in discussions and decision-making regarding its operating conditions. It is part of the company’s growth strategy to aim towards securing adequate
traffic rights. Finnair pursues its interests in an ethically sustainable manner by appropriately introducing its views, perspectives and expertise. The company does not pressurise or support political decision-makers in any way in pursuing
its interests. The legality and ethicality of lobbying activities is controlled as part of the company’s general supervision and audit processes. The aim of Finnair’s lobbying activities is to maintain relationships concerning relevant policy
and to participate in relevant negotiations and the operations of advocacy organisations. When lobbying on various civil aviation and industry regulation issues, Finnair typically cooperates with various organisations and chambersof commerce. Finnair is an active member of various aviation industry organisations, such as A4E and IATA, but also in the Confederation of Finnish Industries (EK), and its sub-associations and in several chambers of commerce.

Communications
Finnair aims at open, honest and timely communications. In line with these principles, Finnair’s communications are also in compliance with regulations governing listed companies and limited
liability companies, as well as the obligations of the Finnish Act on Cooperation within Undertakings and the communications guidelines of the State Ownership Steering Department.

134

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
Finnair takes different perspectives into consideration and respects all stakeholders’ views of its operations. Finnair’s internal communications are based on reciprocity. Every employee has the duty to communicate
matters related to their area of responsibility to the relevant target groups. Those in supervisory roles have a further duty to communicate goals, operations and results to their own work community and create a work
environment that enables genuine constructive discussion. The company systematically develops its communication channels to enable more efficient communications and to facilitate constructive discussion.

GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

Ethics Helpline

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT

Finnair’s objective is to create sustainable economic added value by producing flight services profitably, cost-competitively and in harmony with the needs of the environmentand society. Sustainable operations are the cornerstone of profitable business activity, and Finnair considers the effects of its operations on society.

Finnair has a Whistleblowing line called Finnair Ethics Helpline in use, through which concerns for ethical business conduct can be raised. This is open for both internal and external stakeholders.
During 2020 no material incidents of material misconduct were notified through the Ethics Helpline nor were there any investigations on-going in the company.

ECONOMIC RESPONSIBILITY
Finnair has substantial direct and indirect financial implications on Finland’s national and local economies. Aviation is a significant industry for Finnish society and the national economy. The accessibility createdby airline traffic is a necessity for Finland’s global competitiveness and its economic impact is considerable; aviation is estimated to account for 3.5-4 per cent of GDP, employment and tax revenue.

Finnair’s Board of Directors set the company’s financial targets which are provided with investors. As a public limited company, Finnair is committed to earning a profit for its shareholders. The company’s
profit distribution principles are expressed in Finnair’s dividend policy. Finnair’s financial reporting aims to transparently provide information about Finnair’s financial position and development.
In financial reporting, Finnair applies the rules relating to listed companies as well as international financial reporting standards. Most of Finnair’s operational activities are based on the official
regulations and are subject to official supervision. Within the group, the legality and acceptability of operations is monitored as part of Finnair’s general control and audit processes.

ENVIRONMENTAL RESPONSIBILITY
Finnair’s goal is to be an engaging leader in the field of environmental responsibility. Finnair’s environmental responsibility management is based on the principle of continuous and systematic
improvement. The company has identified the key environmental aspects of its operations, their impacts, risks and opportunities involved, and set targets related to them.
Finnair shall enforce circular economy principals and pollution prevention hierarchy in its functions; prevent, reduce, reuse, control. Finnair Group is committed to the airline industry’s common goal of carbon
neutral growth from 2020 onwards, to halve the carbon net emissions by 2025 compared to the 2019 level, and fly carbon neutral by the end 2045. Finnair strives being a pioneer in evaluating, reducing
and reporting environmental impacts. Company is also committed complying with current environmental legislation, but its environmental work aims at exceeding statutory requirements.
The biggest environmental impact of an airline is its aircraft engine air emissions. Another easily observed impact is aircraft noise at the areas surrounding airports. Other material environmental impacts arise from common company
operations, including different waste streams and corporate buildings’ energy consumption. Finnair considers environmental aspects and impacts in all its flight and ground operations. In addition to solutions around energy usethat reduce the environmental impact, Finnair’s environmental strategy includes also the implementation of circular economy principals and the preservation and promotion of natural diversity, known as biodiversity thinking.
Finnair participates actively in civil aviation environmental committees as well as in industry workgroups in Finland and the Nordic countries, promoting the reduction of the aviation sector’s environmental load. An open dialogue
with different stakeholders, continuous development of operations according to the latest available information and being active in implementing new technologies are the prerequisites for environmental responsibility.
Finnair report on environmental impacts regularly as part of the annual reporting and as a part of the Carbon Disclosure Project (CDP). Company also
communicate directly with various parties about its operations and gladly answers any questions arising from its stakeholders.
All the above-mentioned environmental objectives, targets, impacts and promotion are managed and continuously developed through Finnair’s Environmental Management System (EMS). The system complies with IATA Environmental
Assessment Program (IEnvA) Stage 2 and ISO 14001. IEnvA is an environmental management system developed by IATA specifically for airlines, which helps the company to make use of the best practices in the industry.

SOCIAL RESPONSIBILITY
Finnair’s operations is by nature very diverse and in many ways highly technical. Company organisation and partners are present in dozens of countries around the globe and are subject to awide range of laws and regulations. The core areas of the company’s social responsibility include safety, care for our employees and customers, and supply chain management.

135

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSSUSTAINABILITYREPORTING PRINCIPLESGRI Content Index

GLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)

SafetyGRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Safety is at the core of all Finnair’s operations. Flight safety and giving priority to it are part of all decision-making at every stage. Finnair has implemented a Safety Management System (SMS) through which it continuously develops thesafety performance of the operations. It covers all aspects of flight safety: policy, risk management, training and communications for the entire personnel and subcontractor chain, continuous compliance evaluation of operations andthe assessment of the potential impact of new factors in the operating environment. Official regulations and standards set the minimum standards for Finnair’s safety management, which the company aims to exceed in all areas.
One of the central elements in Finnair’s safety system is the safety reporting concerning the entire staff. The company encourages its personnel and subcontractors to actively report any
events they come across that could potentially compromise safety. Each report is analysed, classified and assessed for risk, followed by necessary corrective or preventive actions. The
person submitting the report will be notified of the outcome of the investigation. Alongside subjective observations, Finnair extensively monitors and analyses objective indicators, such as
flight data. Ongoing monitoring and analysis enable a transparent risk level in all areas, which in turn enables prompt action on any indication of altered safety level.
Events that seriously jeopardise safety are extremely rare and almost without exception an impartial safety investigation is launched on each such event. Serious incident investigations
are coordinated by public officials (Safety Investigation Authority) or, if the authorities elect not to investigate the event, Finnair will conduct its own internal safety investigation. The
safety investigators always carry out the investigation independently and the company’s management has no opportunity to influence the investigation outcome.
A strong safety culture, objective monitoring of the company’s own operations, continuous development and implementing improving measures as well as open dialogue with the authorities guarantee safe and high-quality airline operations.

Personnel Experience
A core part of Finnair’s social responsibility involves taking care of its employees and their working conditions. Finnair personnel management policies cover all aspects of social responsibility that have been
identified as material. The impacts affecting the personnel and the working conditions are managed as based on the respective national regulations, Finnair values, guidelines and policies.
Finnair does not discriminate based on gender, age, ethnic or national origin, nationality, language, religion, conviction, opinion, health, disability, sexual orientation or otherpersonal attributes or circum­stances. Finnair does not condone harassment in the work community. Reporting infractions is employee’s basic right and the company is determined
to take steps to intervene in all cases brought to its knowledge. Every employee is responsible for acting in a way no one is accorded unequal status.
Finnair offers equal opportunities to everyone with regard to recruitment, work performance, career progression and development. Finnair implements the equal pay principle based on the Finnish Equality Act and gives both
men and women equal opportunities for balancing work and family life. In 2011, Finnair signed the United Nations Women’s Empowerment Principles, which give guidance on the empowerment of women in the workplace,marketplace and community. Year 2019 Finnair signed on an aviation initiative 25by2025, pledging that by 2025 we will have either 25% or women in all work groups or a 25% improvement in the gender equality.
Finnair complies with procedures jointly agreed by the employer and employees for the prevention of harassment, inappropriate conduct, and conflicts. Finnair has also promoted the prevention culture and processesof easily accessible services. The procedures are based on the Finnish Act on Occupational Safety and Health and complies with the model recommended by the Finnish Ministry of Social Affairs and Health.
Leadership and competencies are developed on an individual, team, unit and organisation level. Learning and development solutions are typically either adopted by the entire personnel
or tailored for specific development needs within a unit. They may also be aimed at developing professional skills, based on official requirements or in support of personal development.
Development needs in teams and the organisation are identified and the wellbeing and commitment of the personnel are regularly monitored through a personnel survey.
Finnair has employee wellbeing high on the agenda. Company’s People & Culture roadmap covers all the aspects of employee wellbeing: Leadership and Management, People development,
Strategic resource management, Compensation and Benefits and driving Workability. In workability area sick leave development and means to improve early pensions due to workability
reasons have been top on the agenda and Occupational health and safety has kept on building even more safe working environments at all Finnair locations.
At Finnair, the Finnair Health Services unit is responsible for the implementation of occupational health care services. Finnair Health Services focus on preventive care. The model of early caring and the occupational ability
risk management system provide two examples of preventive health care guidelines. The operational and service quality of Finnair Health Services is based on the European Foundation for Quality Management’s EFQM
Excellence Model. The quality system is used to ensure that Finnair Health Services meets the requirements for good occupational health care practice in both aviation health care and aviation medicine services.
Freedom of association and the collective right to negotiate on occupational issues are recognised as fundamental rights in Finland. There is a long tradition of trade union activity in the company. Labour market culture in thecompany has been constructed in such a way that the organisation of workers and collective negotiations between the company and employee groups are part of normal practice. All Finnair employees have the right and opportunity
to agree on terms of employment collectively. The terms of employment of management employees are agreed on locally. Personnel and management remuneration principles are described Remuneration statement.

136

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSSUSTAINABILITYREPORTING PRINCIPLESGRI Content Index

GLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)

Customer Experience

GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Finnair is committed in transporting customers, their baggage and cargo to appointed destinations safely, smoothly and punctually. The most material product responsibility aspects in the Finnair Group operations are flightsafety, health safety, one-time-performance, food safety, responsibility for individual customers, and responsibility for the cargo carried. The aviation industry consists of regulated value chains comprised of multiple suppliers of
products and services. As an airline and service company at the top of this value chain, Finnair creates added value for the customers by providing them with a variety of product and service choices together with its partners.
Customers must be able to trust in the fact that they will be cared for throughout the entire service chain. Finnair has the responsibility for the customers’ overall quality experience, although some services are produced by its
partners rather than the company itself. Therefore, Finnair pays increased attention to the selection of its partners and they are required to comply with Finnair’s quality assurance policies and ethical guidelines. Monitoring andsupervision of customer service is based on regular auditing, customer feedback and customer satisfaction surveys, as well as external measurements. Finnair’s partners’ operations are also continually evaluated. Monitoring issystematic and is based on set targets and evaluating performance. Finnair continuously develop these processes and assess the possibilities to use new technologies to improve the customer experience and operational efficiency.
At Finnair, situations that deviate from the norm are prepared for in advance. The group has developed processes for various unexpected situations, and they are continually updated and maintained. Flight traffic irregularities
are handled with care, and efforts are made to minimise inconvenience to the customer. Finnair has recently invested in new tools to both serve the customers better and perform the operations in a more optimized way.
Finnair respects the privacy of its customers and is committed to ensuring that personal details and other customer information are processed appropriately. Finnair has implemented the requirements ofthe EUs General Data Protection Regulation (GDPR) in all its business processes. Company do all its best to guarantee the confidentiality, security and accuracy of customer data under all circumstances.
Company processes personal details at all stages of travel in compliance with the legislation on personal data and regulations issued by the authorities in the countries in which we operate.
Finnair Kitchen is responsible for food- and product-safety for all Finnair inflight services. Quality and safety of the catering operations are covered by Finnair Kitchen Quality
Management System. Official regulations and industry standards set the minimum requirements, which the company aims to exceed in all areas.
Finnair’s Ground Operations unit is responsible for the acquisition, quality criteria and quality control of ground handling services required at airports. The unit’s task is to ensurethat the ground services used by Finnair fulfil the requirements set for them, both in terms of quality and with respect of safety and official regulations.
To deliver on their service promises, Finnair Cargo, Kitchen and Ground Operations unit apply a systematic evaluation process to select subcontractors and partners. Partners are required, for example, to ensure andmaintain the competency of their personnel, and to ensure that vehicles, equipment and premises are appropriate. In addition to quality audits, Finnair regularly performs quality inspections to continuously monitor
both its own and subcontractors’ work. Finnair Cargo and Ground Operations are responsible for maintaining and updating their own quality systems and ensuring that operations comply with the requirements.

Supply Chain
The sustainability of the supply chain is very important for the airline as Finnair uses partners and service providers to an increasing degree as it expands its international route network. As provided in
Finnair’s Code of Conduct, its procurement operations are based on the fair treatment of suppliers. Finnair has its own ethical guidelines for suppliers, the Finnair’s Supplier Code of Conduct, and expects
all suppliers and partners to comply with the Supplier Code or essentially similar ethical standards. All partners and subcontractors, moreover, are obliged to comply with the principles of the UN Universal
Declaration of Human Rights as well as local legislation. Finnair’s Responsible Sourcing Manual complements the Supplier Code of Conduct as internal instructions for implementation.
The persons making sourcing decisions must always stay independent in relation with business partners concerned. Finnair employee must declare themselves disqualified due to bias whenever they are required to make a decision pertaining
to a contract or business relationship involving family relationships, ownership in the company concerned (with the exception of a reasonable share of ownership in a listed company), or any other business or debt relationship external
to Finnair. Finnair does not accept corruption in any form and requires that its personnel and partners comply with the principles of the UN’s Universal Declaration of Human Rights. Finnair has a process and guidelines for continuously
improving the sustainability of supply chain and for handling possible non-compliances. Company aspires to continuously develop practices ensuring negative sustainability impacts can be mitigated and responsible sourcing is favoured.
Finnair’s Executive Board group is responsible for the steering of the group’s procurement activity. The management of the Procurement unit has the duty to ensure that the personnel carrying out purchasing has access to valid
purchasing guidelines and that the guidelines are observed. Audits are performed in certain product and service groups and especially among strategic and key suppliers. Auditing focuses on quality and safety factors.
Finnair is aware of the risks related to environment and human rights in geographical and industry-specific areas and aims at continuous
improvement of preventive actions. The dialogue with the suppliers is continuous via themed supplier events.

137

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index
201: Economic Performance
201-1 Direct economic value generated and distributed
EUR mill.

2020

2019

2018

2017

Revenue

829.2

3,097.7

2,836.1

2,568.4

Other operating income

48.4

56.4

73.7

77.0

Sales gains and losses on aircraft and other transactions

0.8

0.2

42.7

44.1

Financial income

38.7

3.3

-2.2

-0.3

Total

917.2

3,157.6

2,950.3

2,689.3

Materials, services and other operating expenses

831.8

2,128.3

1,899.3

1,909.6

Staff costs

158.6

530.9

494.7

418.9

Payments made to shareholders and loan providers

247.2

120.1

181.0

41.9

Dividend

0.0

35.0

38.4

12.8

Hybrid bond interests and expenses

18.5

15.8

15.8

15.8

Financial expenses

228.6

69.4

126.8

13.4

Payments to governments

8.7

14.5

19.2

7.2

Donations and other charitable payments

0.0

0.0

0.0

0.0

Total

1,246.3

2,793.9

2,594.2

2,377.5

Economic value retained for operational development-329.1

363.7

356.2

311.8

Investments in tangible and intangible assets and acquisitions of subsidiaries

515.9

443.8

474.0

511.5

Comparable operating result-595.3

162.8

218.4

170.4

Return on capital employed (ROCE), %

-15.2

6.3

9.3

13.6

Direct economic value generated

Economic value distributed

Figures on economic responsibility are mainly derived from the financial statements and collected from company’s reporting system.

138

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
201-2 Financial implications and other risks and opportunities due to climate change
Annual report pages 33–35, Risk management
Company Internet -pages: https://investors.finnair.com/en/governance/risk-management
Finnair has implemented a systematic Enterprise Risk Management (ERM) framework and process, which is based on the COSO ERM framework. The process considers all potential risks, including climate change-related risks and evaluates
their potential financial impacts. The summary of the process and the list of most significant risks are presented in the Company Internet -pages. Finnair has identified and assessed various short- (1-2 years) and mid-term (3-5 years)
climate-related risks and opportunities against IEA WEO 450 and IPCC RCP4.5 scenarios. In brief, Finnair prepare for jet fuel price increase, advocate on global or regional sustainability charges instead of national ones and upkeeps active
dialogues between different stakeholders to secure the reputation and basic need of the aviation industry.

201-4 Financial assistance received from government
Public subsidies normally consist of subsidies received for training and they are primarily related to the aviation training services provided by Finnair. The Finnair Aviation College, founded in 1964, is a special vocational educational
establishment maintained by Finnair Plc, which operates as a special educational establishment under the Act on Vocational Adult Education (631/1998). The reported public subsidies do not include subsidies paid to the airline business by
the authorities in various countries, as they are considered business secrets.

Public subsidies received		

2020

2019

4.4*

1.3

* 3.3 million euros relate to COVID-19 subsidies.
Figures are derived from the financial statements.

203: Indirect economic impacts 					203-2 Significant indirect economic impacts
Finnair’s sustainable growth and current route network utilising Helsinki Hub’s geographical position enable Finland to have better connections to other parts of the world than domestic demand alone could support. This has a significant
impact on the travel opportunities of Finns and on the Finnish business sector competiveness. In addition, the aviation sector is a major job creator in Finnish society.
Blue Wings: Why travel is essential for Finland (https://www.finnair.com/it-en/bluewings/travel-experience/why-travel-is-essential-for-finland-2167526)

205: Anti-corruption
205-1 Operations assessed for risks related to corruption­During 2020, no incidents of corruption were notified through Finnair Ethics Helpline, available to both internal and external stakeholders, nor were there any material investigations on-going in the company.

205-2 Communication and training about anti-corruption policies and procedures
Finnair’s Code of Conduct includes an anti-corruption section, and the receiving and giving of bribes is strictly prohibited. During 2020, Finnair continued to train its employees on Finnair’s Code of Conduct, and all new employees receive
the mandatory e-learning module on the Code of Conduct.

205-3 Confirmed incidents of corruption and actions taken
No incidents of corruption were reported in 2020.

206: Anti-competitive behaviour
206-1 Legal actions for anti-competitive behaviour, anti-trust, and monopoly practices
No incidents identified.

139

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
207: Tax
207-1 Approach to tax					Finnair’s principle is to pay, collect, remit and report the indirect and direct taxes it is subject to in each country according to local laws and regulations. The aim of Finnair’s tax principles is to support business decisions and to ensure theirappropriate implementation, also from the perspective of taxation.

207-2 Tax governance, control, and risk management
Finnair group does not have any structures in place to transfer taxable income from Finland to jurisdictions with lower tax rates. Finnair’s tax related risk management is based on a responsibility assignment matrix (RACI matrix) and in
addition to Finnair group’s tax function, the risk management processes are monitored by the internal audit function. Potential tax risks are reported also for the Executive Board of Finnair as well as for the Audit Committee.

207-3 Stakeholder engagement and management of concerns related to tax
No incidents

207-4 Country-by-country reporting
Finnair’s international business operations are mainly related to the sales of flight tickets and cargo through Finnair Plc’s foreign sales units, as well as local sales promotion activities. Sales units are not separate legal entities. The sales
units’ income is taxed pursuant to the regulations and double tax treaties pertaining to the international airline business as part of the parent company’s taxable income in Finland. The operations of Finnair’s foreign subsidiaries haveprimarily been related to travel and back office services, and they are very minor in scale relative to the group’s business operations as a whole. Finnair has also had minor holdings (less than 20 per cent) in some insurance captives locatedin Guernsey for business reasons, the results of which are subject to taxation in Finland.
Finnair’s taxable operations in individual countries outside of Finland are minor in scale, which can be seen from the tables presented in the tables on the next page.
Finnair Group’s foreign operative subsidiaries are located in Estonia, where income tax is due in connection with distribution of dividends. The group had also a dormant subsidiary in Russia. It was liquidated at the end of 2020.
Specification for foreign subsidiaries’ external revenue, result before taxes, income tax payable and number of personnel is presented on the next page.
Profits of sales units are taxed in accordance with regulations and double tax treaties pertaining to the international airline business and, hence, revenue, result before taxes, income tax payable and number of personnel in other countries
are not separately adopted in financial statements. Specification of taxes paid and collected in other countries is presented on page 21.
Other taxes primarily include environmental and electricity taxes. Due to the nature of the international airline business, jet fuel is tax-free.
Finnair has confirmed losses in taxation from previous tax periods amounting to approximately 0 million euros. The estimated amount of confirmed tax losses after 2020 taxable result is approximately 707 million euros due to the COVID-19
impact. The confirmed tax losses can be utilised against positive taxable income over the next ten years.
More information on direct taxes, such as the taxes pursuant to the consolidated income statement, deferred tax assets and liabilities and the adjustment of the effective tax rate is presented in Note 5.1 in Finnair’s consolidated financial
statements.
The most significant indirect taxes collected during the financial year are withholding tax liabilities, value added tax and excise taxes.
The passenger tariffs collected from flight passengers are not considered as tax-like payments remitted to the authorities subject to reporting as part of the tax footprint as these payments are usually remitted to the private or public party
responsible for airport operations.
Country specific information for 2020 is presented in the chart on page 21 only regarding countries where the amount of taxes paid, collected or deducted was at least 0.05 million euros. Countries where this threshold was not met arepresented as two separate geographical areas. The figures below include taxes paid and collected by subsidiaries and sales units.
Employer contributions paid relate to mandatory employer payments regarding employees located outside of Finland. Withholding taxes on salary are collected based on local legislation. Value added tax on sales and purchases relate
mainly to passenger sales and cargo services.
Total amount of excise taxes outside Finland in 2020 has been less than 0.1 million euros and, hence, this information is not presented on a country-by-country basis.

140

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

THE REPORT OF THE
BOARD OF DIRECTORSSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index
2020
Finnair’s operations in Finland and in other countries

2019

Finland*

Estonia

Othercountries

Total

Finland

Estonia

Othercountries

Total

Revenue, EUR million

829.0

0.2

0.0

829.2

3,088.2

9.5

0.0

3,097.7

Result before taxes, EUR million-654.60.3

0.0-654.4

93.5

-0.5

0.0

93.0

Number of personnel

5,982

217

374

6,573

6,164

235

372

6,771

* Internal turnover has been eliminated.

2020
Direct taxes payable, EUR million

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTS

2019

Finland

Other
countries

Total

Finland

Other
countries

Total

Employer contributions

4.7

2.3

7.0

4.5

2.2

6.7

Property taxes

0.7

0.0

0.7

0.7

0.0

0.7

Other taxes

0.9

0.0

1.0

2.2

0.0

2.2

Public subsidies received*

-1.9

-2.5

-4.4

-1.3

0.0

-1.3

Taxes included in direct operating expenses and subsidies in total

4.5

-0.2

4.3

6.1

2.3

8.4

Income taxes payable**

0.0

0.0

0.0

8.3

0.0

8.3

Total direct taxes payable

4.5

-0.2

4.3

14.4

2.3

16.7

* 3.3 million euros of public subsidies received were COVID-19 related.
** Income taxes payable are tax expenses recorded based on the taxable result, which has partly been utilised against confirmed tax losses.

2020
Indirect taxes collected for the financial year, EUR million

141

2019

Finland

Other
countries

Total

Finland

Other
countries

Total

Value added taxes, sales

63.1

0.1

63.2

95.0

0.9

96.0

Value added taxes, purchases

84.8

2.6

87.3

125.2

5.1

130.3

Value added taxes, net

-21.7

-2.5

-24.2

-30.1

-4.2

-34.3

Withholding taxes on wages and salaries and other indirect taxes

64.8

2.0

66.8

100.1

2.5

102.6

Excise taxes

0.1

0.0

0.1

0.5

0.0

0.5

Total

43.2

-0.5

42.8

70.5

-1.7

68.8

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index

GLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)2020
Country specification, EUR million

GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

Countries

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT

Employercontributions

Value added taxes,
sales

Value added taxes,
purchases

Value added taxes,
net

Withholding taxes
on wages andsalaries

Total

Estonia

1.1

0.0

0.1

-0.1

0.0

1.0

China

0.3

0.0

0.0

0.0

0.1

0.4

Belgium

0.1

0.0

0.0

0.0

0.2

0.3

USA

0.1

0.0

0.0

0.0

0.2

0.3

Germany

0.0

0.0

0.0

0.0

0.1

0.2

Spain

0.1

0.0

0.1

0.0

0.1

0.2

Russia

0.0

0.0

0.0

0.0

0.0

0.1

Switzerland

0.0

0.0

0.0

0.0

0.1

0.1

South-Korea

0.0

0.0

0.1

-0.1

0.1

0.1

Japan

0.3

0.0

0.7

-0.6

0.5

0.1

Italy

0.0

0.0

0.1

0.0

0.0

0.0

France

0.0

0.0

0.1

-0.1

0.0

0.0

Denmark

0.0

0.0

0.0

0.0

0.1

0.0

Sweden

0.1

0.0

0.3

-0.3

0.1

0.0

Norway

0.0

0.0

0.2

-0.2

0.0

-0.2

The UK

0.0

0.0

0.4

-0.4

0.1

-0.3

Thailand

0.0

0.0

0.5

-0.4

0.0

-0.4

Other European countries*

0.1

0.0

0.0

0.0

0.1

0.1

Rest of the world**

0.0

0.0

0.1

-0.1

0.0

0.0

Total

2.3

0.1

2.6

-2.5

2.0

1.9

Areas

* Austria, Czech Republic, Hungary, Ireland, Latvia, Lithuania, The Netherlands, Poland, Portugal							** Australia, India, Singapore						Figures on economic responsibility are mainly derived from the financial statements. Other information with respect to economic responsibility is derived from the group’s various operators.

142

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
302: Energy
302-1 Energy consumption within the organisation
Annual report pages 23–27, Non-Financial Performance

GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT

Finnair’s primary energy consumption consists of the use of transport fuels. Aviation is very energy-intensive, and Finnair’s largest environmental load arises from flying and particularly from the use of fossil jet fuel. Finnair’s total jet fuelconsumption comprises flights operated by Finnair itself, flights operated by Norra on Finnair’s behalf, as well as so-called wet-lease flights leased on a short-term basis from other operators due to lack of fleet or crew. In addition, jet fuel isconsumed on transfer and training flights, as well as on test runs.

2020
Direct Energy Consumption2019

Non-renewable

Renewable

Non-renewable

Renewable

Jet Fuel, kg

365,491,837

0

1,132,187,001

32,452

Jet Fuel, GJ

15,643,051

0

48,457,604

1,410

Ground Vehicles Fuel, kg

68,807

26,252

203,789

54,887Ground Vehicles Fuel, GJ

2,836

1,119

8,335

2,305

Solar Power, MWh

0

278

0

297

Solar Power, GJ

0

1,001

0

1,069

15,645,887

2,120

48,465,939

4,784

Facilities Electricity, MWh

20,4201,075

27,356*0Facilities Electricity, GJ

73,513

3,869

98,4820Facilities Heat, MWh

15,1293,782

24,806*0Facilities Heat, GJ

54,464

13,61689,3020Total, GJ

127,977

17,485

187,784

0

15,773,864

19,60548,653,723

4,784

Total, GJ

Indirect Energy Consumption

Grand Total, GJ* Year 2019 figures have been amended to include two missing energy figures and due to minor chanages in facilites square meter allocation between different tenants.
Fuel consumption and emission figures for flight operations are derived from the company’s own monitoring systems and based on actual fuel consumptions (Annex 1 EU ETS Directive 2003/87/EC of the European Parliament and of theCouncil, ‘Method A’ EU ETS Monitoring and Reporting Regulation (EU) N:o 601/2012).
The used ‘Method A’ formula: Fuel consumption for each flight = Amount of fuel contained in aircraft tanks once fuel uplift for the flight is complete – Amount of fuel contained in aircraft tanks once fuel uplift for subsequent flight iscomplete + Fuel uplift for that subsequent flight. This method is used in order to capture the fuel consumption by the aircraft’s auxiliary power unit (APU) on the ground also. Where the Method A cannot be used, estimated average fuelburn per block hour per aircraft type is used. For wet-leased flights fuel burn has been requested from wet-lessor. If not received, respective fuel burn has been calculated by aircraft manufacturer specifications or lessor’s information on
aircraft type fuel burn per block hour. Data gaps and erroneous data have been handled using substitution data as close to actual values as possible.
Ground vehicles’ fuel consumption figures have been derived from the company’s own fuel filing station. The densities reported by different fuel vendor(s) have been used for different fuel qualities. Where technical data sheets for fuels
used in ground vehicles (biodiesel, petrol, fuel oil) have not been available from the manufacturer, UK Government Conversion Factors for greenhouse gas (GHG) reporting 2020 have been used.
Solar power production figures have been received from the service provider’s on-line up-to-date web-based reporting channel.
Organisations’ indirect energy consumption includes those corporate facilities where company’s own operations take place. The properties owned and leased by Finnair are mainly located in the Helsinki Airport area. The data include
electricity and heating consumption. The figures have been obtained from service providers and is based on paid invoices. Energy consumption figures are not available for Finnair’s offices abroad (which are mainly sales offices), as theirenergy consumption is typically invoiced as a fixed part of rent. According to the data provided by the energy suppliers 20 % of the purchased district heat and 5% of electricity is produced from renewable sources.

143

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
302-3 Energy intensity
Annual report pages 23–27, Non-Financial Performance
In this report jet fuel is treated as energy because in terms of its purpose and environmental effects it is sensible to understand jet fuel as stored energy. Finnair’s measures to improve its fuel efficiency focus on flights operated by thecompany itself. Finnair monitors the fuel efficiency of its flights primarily by the payload indicator (RTK), which accounts for the passenger load factor, the mass of cargo transported and the distance between the origin and destination.

Jet Fuel consumption

2020

2019

2018

2017

g / RTK (total, pax + cargo)

301.4

249.3

251.3

247.7

g / RPK (allocated)

29.3

25.0

25.2

25.0

liters / Pax / 100km (allocated)

3.7

3.1

3.2

3.1

RTK = Revenue Tonne Kilometer,
RPK = Revenue Passenger Kilometer
PAX = Passenger
The allocated intensity figures have been calculated by dividing the burned fuel between cargo and passenger masses. The total revenue mass of the transport activity has been calculated following
the ICAO emissions allocation principle; An average passenger mass with baggage is assumed as 100 Kg, plus a 50 Kg add-on to account of the on-board equipment and infrastructure associatedwith passenger use (for example, the weight of seats, toilets, galleys and crew). Allocation of fuel consumption between passenger and cargo activities derives from this relation.

302-4 Reduction of energy consumption
Annual Report, pages 23–27, Non-Financial Performance
Finnair discloses its progress in emissions and energy reduction work in detail through CDP reporting. Those who would have interest and have CDP membership can found detailed disclosures at https://www.cdp.net/en.

302-5 Reductions in energy requirements of products and services
Annual Report, page 24; Fuel Efficiency Graph
Finnair is a network airline that specialises in passenger and cargo traffic between Asia and Europe. It also offers package tours under its Aurinkomatkat and Finnair Holidays brands. The energy consumption of Finnair’s services is easiest to
observe with the jet fuel consumption intensity figures presented in the table 302-3.

304: Biodiversity304-2 Significant impacts of activities, products, and services on biodiversity
Finnair takes environmental aspects into consideration on the ground and in the air. Besides energy solutions that reduce the environmental load, Finnair’s environmental policy also includes the preservation and promotion of natural
diversity, known as biodiversity thinking. Finnair has assessed the ecosystem services, or benefits provided to people by nature, that are most relevant to its business, and its operations most significant impacts on them. Of the different
categories of the ecosystem services, cultural services and regulating services are the most relevant to Finnair’s business. Cultural services include tourism, human value and aesthetic value. Regulating services include the regulation of air
quality and climate, disease control, pest control and pollination.
Finnair’s core business and key product areas benefit ecosystem services in various ways. Cultural services are particularly important for travel services. Accordingly, Finnair’s travel agency, Aurinkomatkat, has participated in various local projects
to maintain biodiversity at various destinations for several years. When planning its destination programmes, Aurinkomatkat carefully evaluates their potential effects on the environment and biodiversity. For example, it has stopped all trips to zoos
and other attractions where animals are held captive. The operations aim also to avoid excursions to sites where visits could pose a threat to biodiversity. The customers are informed at destinations on appropriate conduct to preserve biodiversity.
In the airline business, Finnair has supported both cultural and regulating services by prohibiting the transportation of hunting trophies or memorabilia originating from endangered species or their parts in its cargo network. Also, primatesand canines intended for laboratory, experimental or other exploitation use will never be accepted for transport. Furthermore, Finnair has signed the United for Wildlife (UFW) Buckingham Palace declaration of the Duke of Cambridge toprevent the illegal wildlife trade. As a signatory, the company has undertaken to promote the awareness of different stakeholders about this topic.
The significance of biodiversity in Finnair’s airline business will be highlighted further in the coming years through climate change mitigation measures. When Sustainable Aviation Fuels (SAFs) replace fossil fuels in the future, the company
wants to ensure that the primary production of feedstocks for renewable energy sources is used in line with the principles of sustainable development and does not compromise ecosystem services. For example, in the manufacturing of
biofuel, measures must be taken not directing to Indirect Land Use Change (ILUC). The objective is to ensure that arable land used for growing food crops is not used to produce raw material for biofuel, which would result in either theclearing of forests or wetlands to create space for food production or a decline in food production. Regulating services have a significant impact on both the airline business and travel services. The local decline of biodiversity erodes theoperating conditions of the tourism industry and increases the risk of infectious diseases.

144

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
304-3 Habitats protected or restored
In 2020 Finnair collaborated with Snowchange Co-op and the Landscape Rewilding Programme by supporting a 26 hectares namesake boreal peatland plot, Laineensuo. Laineensuo is a highly relevant biodiversity area, with bird life
including European Golden Plover and other relevant species. The site acts as a carbon sink alleviating climate change. The carbon inventory is assessed using latest trace gas analyzers. Laineensuo restoration helps to improve water quality
downstream on Finnish boreal lakes and rivers. The project is part of Finnair’s work to further understand climate change mitigation possibilities as well as contributing to biodiversity.

305: Emissions
305-1 Direct (Scope 1) GHG emissions
Annual report, pages 23–27, Non-Financial Performance
Nearly all of Finnair Group’s greenhouse gas emissions arise from flight operations. Flying primarily causes two kinds of direct greenhouse gas emissions: carbon dioxide and water vapour. Water vapour is the most important greenhousegas in the atmosphere, but it is not generally examined directly as a human-derived greenhouse gas emission, because the water vapour in the atmosphere is mainly the result of natural evaporation. Air transport is in a special position inthis respect because the water vapour generated by the engines is released high in the atmosphere, which increases the atmosphere’s H2O content above the cloud layer. However, not enough is yet known about the impacts of water vapour
and other GHG temissions han CO2 from aviation and while more scientific results are available company report the CO2 emissions only.

Direct GHG Emissions
Jet Fuel, t CO2
Ground Vehicles @ HEL, t CO2

Total, t CO2

2020

2019

2018

2017

1,151,299

3,566,389*

3,248,045

2,902,787

218

650**

755

740

1,151,517

3,567,039

3,248,800

2,903,408* The 2019 figure has been amended; Sustainable aviation fuel (SAF) emissions removed from Scope 1 reporting.
** The 2019 figure has been amended; Biodiesel emissions removed from Scope 1 reporting.
Emission factor for jet fuel used in the report has been 3,15 kg CO2/kg (Default IPCC emission factors, taken from the 2006 IPCC Inventory Guidelines). Fuel mass has been converted to volume using densities provided by fuel vendor.
If density has not been available a default value of 0.80 kg/l has been used. Ground vehicles’ emissions (biodiesel, petrol, fuel oil) have been calculated using emission conversion factors for different fuel qualities originating from UK
Government Conversion Factors for greenhouse gas (GHG) reporting 2020.

305-2 Energy indirect (Scope 2) GHG emissions
Indirect GHG Emissions

2020

2019

2018

2017

Market-based

5,352

6,812*

7,270

8,225

Location-based

3,031

4,322

5,018

5,722

Market-based

3,347

4,391*

6,487

11,040Location-based

2,912

4,068

5,200

7,417

8,699

11,203*

13,757

19,265

Facilities electricity, t CO2

Facilities heat, t CO2

Total (market-based), t CO2* The 2019 emissions figures have been amended to match the emission factors received from the suppliers.
Market-based emission factors used have been received from the energy company. Since the energy company update it’s emissions factor after Q1/2021, the 2019 emissions factors havebeen used for 2020. 2019 factors being 249 kgCO2/MWh for electricity and 177 kgCO2/MWh for heat. Respectively, 2019 figures above have been updated compared to the previous year’s
reporting. Location-based emission factors have been received through Motiva, factors used for year 2020 being 141 kgCO2/MWh for electricity and 154 kgCO2/Mwh for heat.

145

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSSUSTAINABILITY
APPENDIXFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORT

2020

2019

2018

2017

248,755

770,575*

702,790*627,200*

109

326

485

N/A

248,864

770,901

703,186

627,113GRI Content Index
305-3 Other indirect (Scope 3) GHG emissions
Other Indirect GHG Emissions
Fuel transportation & production, t CO2
Business travel, t CO2
Total, t CO2*) Figures have been amended to include ground vehicles indirect emissions and emissions from sustainable aviation fuel (SAF).
Finnair has assessed its Scope 3 emissions based on GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard). The most material scope 3 emissions derives from Category 3 (Fuel and Energy related activities
not included in Scope 1-2). Emission factor source: SFS-EN 16258 standard Table A.1 for Jet A-1, petrol and fuel oil. Biodiesel emission factor (transport and production emissions) has been received from the manucaturer.
Business travel by Finnair employees primarily are made by the company’s own flights, the emissions of which are reported under Direct greenhouse gas emissions (Scope 1). Business travel made by other airline services is reported
under the Other indirect (Scope 3) greenhouse gas emissions. These emissions are estimates, calculated utilising Finnair fuel consumption data from the same or similar (distance-based) Finnair route network.
Finnair fully compensates emissions arising from its employees’ business flights (both Scope 1 and 3, year 2020 total 353 tonnes).

305-4 GHG emissions intensity
Annual report, pages 23–27, Non-Financial performance
Finnair prefers to use RTK (revenue tonne kilometres) to divide its carbon emissions, since it measures emissions in relation to the distance travelled and the combined mass of passengers and cargo. Emission intensity figures below incude
scope 1 emissions only (TTW).

Energy Intensity

2020

2019

2018

2017

g CO2 / RTK (total pax + cargo)

949

785

792

780

g CO2 / RPK (Allocated)

92

79

80

79

g CO2 / RTKCargo (Allocated)

514

488

493

492

RTK = Revenue Tonne Kilometer,
RPK = Revenue Passenger Kilometer
PAX = Passenger
The allocated intensity figures have been calculated by dividing the burned fuel between cargo and passenger masses. The total revenue mass of the transport activity has been calculated following the ICAO emissions allocation principle;
An average passenger mass with baggage is assumed as 100 Kg, plus a 50 Kg add-on to account of the on-board equipment and infrastructure associated with passenger use (for example, the weight of seats, toilets, galleys and crew).
Allocation of fuel consumption between passenger and cargo activities derives from this relation.

305-5 Reduction of GHG emissions
Annual Report, pages 23–27, Non-Financial Performance
Finnair discloses its progress in emissions and energy reduction work in detail through CDP reporting also. Those who are interested and have CDP membership can found detailed disclosures at https://www.cdp.net/en.

305-6 Emissions of ozonedepleting substances (ODS)
Airline operators are bound to use aircraft manufacturers’ certified and safe fire extinguishers. The manufacturers are constantly working on replacing halons from aircrafts but currently there are applications in aircraft where decent
replacements aren’t yet found. There wes one reported event of leakage where halon 1301 was emitted to the air during the year 2020. The amount of halon 1301 emission was 2.3 kg (used in engines).

146

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index
306: Waste
306-2 Waste by type and disposal method
Annual report, pages 23–27, Non-Financial Performance

2020

2019

Hazardous, kg

Non-hazardous, kg

Hazardous, kg

Non-hazardous, kg

Energy use

45,2271,130,864

74,057

3,281,482

Recycling

12,113

279,515

15,134917,232

Composting

064,540013,296

Landfill

0

0

0

0

Other

216

0

47 0340

Total

57,556

1,474,919

136,225

4,212,010

The waste volumes have been obtained from the service providers’ reporting channel.

307: Environmental compliance307-1 Non-compliance with environmental laws and regulations
No incidents

400: Social Standards
401: Employment
401-1 New employee hires and employee turnover
Annual report, pages 23–27, Non-Financial Performance

under 30 years

30–50 years

over 50 years

Total

Men

Women

Men

Women

Men

Women

Men

Women

New employee hires

45

49

32

60

2

9

79

118

Employee turnover (including bothvoluntary and involuntary terminations)

154

294

199

275

97

117

450

686

The figures have been retrieved from Finnair’s HR information system.

147

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
402: Labour/management relations
402-1 Minimum notice periods regarding operational changes
Significant operational changes in Finland are governed by the Finnish Act on Cooperation within undertakings. Depending on the matter in question, the minimum time period applied can range from one day to six weeks. The collective
bargaining agreements that concern Finnair do not include provisions that run counter to these legislative provisions.

403: Occupational health and safety403-1 Occupational health and safety management system
Finnair has implemented an internal occupational health and safety management system in order to systematically maintain and improve occupational health and safety related work in all Finnair units in Finland.

403-2 Hazard identification, risk assessment, and incident investigation
Work-related hazards are identified through systematic risk assessment process. Risk assessments have been carried out for our operations and they are being regularly reviewed and updated, also if a significant change to its scope is
implemented.
All our employees have access to the occupational safety reporting system through which they can report incidents, near misses experienced and hazardous conditions noticed. All reports are investigated, and corrective and preventive
actions set to prevent recurrence. This approach applies similarly to injuries, near misses and occupational safety observations reported.

403-3 Occupational health services					Occupational health services regularly carry out workplace surveys in order to assess the operations’ impact on workers occupational health. Regular health checks are provided for employees that are exposed to health hazards throughtheir work, such as noise, chemicals and working during nighttime. The exposure levels are kept as low as possible.

403-4 Worker participation, consultation, and communication on occupational health and safety
The company’s occupational health and safety management system is developed in close contact with the employees. The employees have access to the occupational safety reports and the risk assessments. There is a formal regularoccupational health and safety committee in place with the employee occupational health and safety representatives from all Finnair units as members.

403-5 Worker training on occupational health and safety
The basic training of occupational health and safety is mandatory for all employees as an e-learning module. In addition, the occupational health and safety is part of all work-related trainings depending on the task.

403-9 Work-related injuries
Occupational accidents

Workplace accidents

Loss time injury frequency*

Commuting accidents

Airline’s flight personnel

8

4

5

4

Airline’s ground personnel**

14

13

5

1

Aurinkomatkat Ltd

1

0

0

1

Total

23

17

4

6

* Loss time injury frequency (LTIF) refers to the number of workplace accidents per million working hours.
** Airline’s ground personnel include group management, support services, ground crew, and operative ground personnel.
Accident statistics are obtained from the insurance company and they are updated retroactively, as a result of which the 2020 figures may be subject to further adjustment.

148

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTFINANCIALSTATEMENTSSUSTAINABILITY
APPENDIXREMUNERATIONREPORTGRI Content Index403-10 Work-related ill health
Number of work-related ill health cases

Number of work-related ill health fatalities

Airline’s flight personnel

00Airline’s ground personnel*

00

Aurinkomatkat Oy

0

0

Total

0

0

* Airline’s ground personnel include group management, support services, ground crew, and operative ground personnel.
Accident statistics are obtained from the insurance company and they are updated retroactively, as a result of which the 2020 figures may be subject to further adjustment.

404: Training and education
404-1 Average hours of training per year per employee
All training hours and share between men & women

Average hours of training

Count of employees

Total, h

Women, %Men, %

Total, h

Women, hMen, hTotal, ea

Women, ea

Men, ea

Office staff

8,935

33%

67%

5

3

8

1,686

919

767

Cabin

75,025

81%

19%

30

27

48

2,534

2,240

294

Pilots

66,644

2%

98%

65

58

65

1,025

28

997

Other Employees

13,294

19%

81%

7

3

11

1,806

813

993

Total

163,898

7,051

4,000

3,051

The training figures have been retrieved from Finnair’s HR information system.

149

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index404-2 Programmes for upgrading employee skills and transition assistance programs
Improving employee competence has a significant effect on the strategy implementation and finding critical competence development areas itself is an integral part of strategic implementation process. The strategic competencies
development requires cooperation with various parties. Thus, in Finnair, learning and development plans are built at the company, unit, team and individual levels. These are further discussed during the annual My Journey development
discussions.
Personnel competency is developed using varieties of different learning methods including; traditional classroom training, on-the-job learning, e-learning, workshops, coaching, shadowing, and mentoring. On-the-job learning, for example,
is a widely utilised effective learning method in ever changing working environment where continuous self-learning is required.
Permanent learning themes include the Code of Conduct, flight safety management, occupational safety and health in aviation, work induction, occupational safety and health awareness for supervisors, and occupational safety card
training. Other vocational training includes outstation training, first aid and emergency training, basic and recurrent trainings, systems training. Also, cooperation with various educational institutions is organised.
The vocational training for Finnair flight crew is conducted in cooperation with Finnair Flight Academy, while Finnair’s Technical Services-Unit handles its own technical-specific training requirements. Our Learning & Development team is
responsible for strategic and general business competency development.
The Finnair Aviation Academy, founded in 1964, is a special vocational educational establishment maintained by Finnair Plc, which operates as a special educational establishment under the Act on Vocational Adult Education (631/1998). Itstask is to arrange further vocational training leading to a vocational or special vocational qualification as well as other further vocational training required for the practice of Finnair Plc’s and its subsidiaries’ operations (Further Vocational
Training Arrangement Permit 551/530/2006, 13 December 2006). As a privately-owned educational establishment, the Aviation Academy funds its operations in accordance with government aid practices and it is a member of Business
Education Establishments ELO (Elinkeinoelämän oppilaitokset Elo ry).

404-3 Percentage of employees receiving regular performance and career development reviews
Performance and career development reviews (called My Journey) cover all Finnair personnel. The My Journey process is a management tool based on (bi-)annual discussions that guide individual performance reviews, target setting,development and wellbeing.

405: Diversity and equal opportunity
405-1 Diversity of governance bodies and employees
Annual report, pages 23–27, Non-Financial Performance406: Non-discrimination
Disclosure 406-1 Incidents of discrimination and corrective actions taken
During 2020, no incidents of discrmination were notified through Finnair Ethics Helpline, available to both internal and external stakeholders, nor were there any material investigations on-going in the company concerning
non-discrimination.

407: Freedom of Association and Collective Bargaining
Disclosure 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk
During 2020, it was assumed that Finnair’s operations did not pose a risk to employees’ freedom of association or collective bargaining rights.

150

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
408: Child Labor
Disclosure 408-1 Operations and suppliers at significant risk for incidents of child labor
The responsibility of our supply chain is very important in the airline’s operations, as Finnair is increasingly using partners and service providers while its international route network expands. In accordance with the UN Global Compact
initiative, Finnair strives to prevent human rights violations and the use of child labor or forced labor both in its own operations and in its chain of operations.
The supply chain, which is directly related to aviation, operates in accordance with aviation regulations, thus these suppliers are closely monitored. International aviation safety regulations require that all airport employees must be
registered and always carry an official identity card. This creates a basis for the fact that Finnair’s own operations do not directly involve a significant risk to children’s rights.
However, there may underlie indirect risks and consequences associated with the supply chain and outsourced operations. Aviation rules require us to inspect aircraft component suppliers and service facilities ourselves. In these
inspections, we have not detected any use of child labor. We use some manufacturing companies in Asian countries where local laws may not exist to protect children’s rights, so full assurance of supply chain cleanliness cannot be
guaranteed.
During 2020, no cases of child labor were reported and there were no ongoing investigations in the company.

INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT

414: Supplier social assessment
414-1 New suppliers that were screened using social criteria414-2 Negative social impacts in the supply chain and actions taken
During 2020 Finnair discontinued using Sedex in assessing suppliers’ social criteria. The company is now developing new processes and guidelines to continuously improve supply chain’s sustainability and handling of non-compliances. The
company is constantly striving to develop practices to mitigate negative sustainability impacts and encourage responsible sourcing.

415: Public policy
415-1 Political contributions
Finnair does not support any political parties or persons.

416: Customer health and safety
416-1 Assessment of the health and safety impacts of product and service categories
Sustainability Appendix; Chapter 103 -Customer expericene
In connection with the coronavirus, the company has continuously assessed the health safety of travel in 2020. Instructions related to safe travel are available on the company’s website at: https://www.finnair.com/en/safe-travel-duringcoronavirus
Blue Wings: Covid and Flying (https://www.finnair.com/it-en/bluewings/travel-experience/covid-19-and-flying---a-medical-expert-s-view-2113316)

416-2 Incidents of non-compliance concerning the health and safety impacts of products and services
No incidents

151

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORT152

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXGRI Content Index
417: Marketing and labelling
417-3 Incidents of non-compliance concerning marketing communications
No incidents.

418: Customer privacy
418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data
No incidents.

419: Socioeconomic compliance419-1 Non-compliance with laws and regulations in the social and economic area
No incidents identified.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020
SUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTTHE REPORT OF THE
BOARD OF DIRECTORSCORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIX

Independent Practitioner’s Assurance Report
To the Management of Finnair Plc

Management’s responsibility

We have been engaged by the Management of Finnair Plc (hereinafter also theCompany) to perform a limited assurance
engagement on selected environmental
performance indicators for the reporting
period 1 January to 31 December 2020
(hereinafter the Selected environmental
information), disclosed in Finnair’s Sustainability Appendix of the Annual Report 2020.

The Management of Finnair Plc is responsible for preparing the Selected environmental information in accordance with theReporting criteria:
For items 1 to 6 of the scope above:• Finnair’s own reporting instructions
as described in Finnair’s Sustainability
Appendix of the Annual Report 2020.
• The Greenhouse Gas Protocol: A
Corporate Accounting and ReportingStandard.

The Selected environmental informationconsists of the following performance indicators:
1. Jet Fuel consumed by all flights under
the Finnair call sign.
2. Fuel consumed by Finnair’s ground vehicles
3. Finnair’s Solar Power
4. Electricity and heating consumed in
Finnair’s properties.
5. CO2 emissions originating from theconsumption referred to in points 1, 2
and 3 (Scope 1).
6. CO2 emissions originating from theconsumption referred to in point 4(Scope 2).
7. CO2 emissions in Scope 3 category 3(Fuel- and energy-related activities) andcategory 6 (Business travel).

153

FINANCIALSTATEMENTS

For item 7 of the scope above:• The Greenhouse Gas Protocol: Corporate
Value Chain (Scope 3) Accounting andReporting Standard as applicable.
• Finnair’s own reporting instructions
as described in Finnair’s Sustainability
Appendix of the Annual Report 2020.
The Management of Finnair Plc is also
responsible for such internal control as the
management determines is necessary toenable the preparation of the Selected environmental information that is free frommaterial misstatement, whether due tofraud or error.

Practitioner’s independence andquality control
We have complied with the independence and other ethical requirements of theCode of Ethics for Professional Accountants
issued by the International Ethics Standards
Board for Accountants, which is foundedon fundamental principles of integrity,
objectivity, professional competence anddue care, confidentiality and professional
behaviour.
PricewaterhouseCoopers Oy applies International Standard on Quality Control 1 andaccordingly maintains a comprehensive
system of quality control including documented policies and procedures regarding
compliance with ethical requirements,
professional standards and applicable legal
and regulatory requirements.

Practitioner’s responsibility
Our responsibility is to express a limited
assurance conclusion on the Selected environmental information based on the procedures we have performed and the evidence
we have obtained. Our assurance reporthas been prepared in accordance with theterms of our engagement. We do not accept,
or assume responsibility to anyone else,
except to Finnair Plc for our work, for thisreport, or for the conclusions that we havereached.
We conducted our limited assurance
engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3410 “Assurance Engagementson Greenhouse Gas Statements”. That
Standard requires that we plan and performthe engagement to obtain limited assurance
about whether the Selected environmental
information is free from material misstatement.

ANNUAL REPORT 2020

REVIEW OF
THE YEAR 2020

THE REPORT OF THE
BOARD OF DIRECTORSFINANCIALSTATEMENTS

CORPORATE GOVERNANCE
STATEMENTREMUNERATIONREPORTSUSTAINABILITY
APPENDIXSUSTAINABILITYREPORTING PRINCIPLESGLOBAL COMPACT COMMUNICATIONON PROGRESS REPORT (CoP)GRI CONTENT INDEXGRI 102 General disclosure
GRI 103 Management approach
GRI 200 Economic
GRI 300 Environmental
GRI 400 Social
INDEPENDENT PRACTITIONER’S
ASSURANCE REPORTIn a limited assurance engagement theevidence-gathering procedures are more
limited than for a reasonable assurance
engagement, and therefore less assurance
is obtained than in a reasonable assurance
engagement. An assurance engagement
involves performing procedures to obtainevidence about the amounts and otherdisclosures in the Selected environmental
information. The procedures selected
depend on the practitioner’s judgement,
including an assessment of the risks ofmaterial misstatement of the Selected environmental information.

Our work consisted of, amongst others, thefollowing procedures:• Visiting virtually the Company’s Head
Office in Finland.
• Interviewing employees responsible forcollecting and reporting the Selectedenvironmental information at the Grouplevel.
• Assessing how Group employees apply
the Company’s reporting instructions
and procedures.
• Testing the accuracy and completenessof the information from original
documents and systems on a sample
basis.
• Testing the consolidation of informationand performing recalculations on asample basis.

Limited assurance conclusion
Based on the procedures we have
performed and the evidence we haveobtained, nothing has come to our attention
that causes us to believe that Finnair Plc’s
Selected environmental information for thereporting period ended 31 December 2020
is not properly prepared, in all material
respects, in accordance with the Reporting
criteria.
When reading our assurance report, theinherent limitations to the accuracy andcompleteness of sustainability information
should be taken into consideration.

Helsinki, 16 February 2021
PricewaterhouseCoopers Oy

Tiina Puukkoniemi
Authorised Public Accountant (KHT)

154

ANNUAL REPORT 2020

Contact
information

House of Travel and Transportation
Finnair Oyj
Tietotie 9 A (Helsinki Airport)
01053 FINNAIR
Tel. +358 600 0 81881(1,25 €/answered call + local charge)
company.finnair.com
investors.finnair.com
www.facebook.com/finnairwww.facebook.com/finnairsuomi
www.twitter.com/Finnair
www.twitter.com/FinnairSuomi
https://blog.finnair.com/en/
https://blog.finnair.com/
www.instagram.com/feelfinnair/

155

ANNUAL REPORT 2020