##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F/A

o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934ORx
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2003ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____


Commission File Number 1-4059

Koninklijke Luchtvaart Maatschappij N.V.
(Exact name of Registrant as specified in its charter)

KLM Royal Dutch Airlines
(Translation of Registrants name into English)

The Netherlands
(Jurisdiction of incorporation or organization)

55 Amsterdamseweg, Amstelveen, The Netherlands
(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
    
    Name of each exchange on which registeredCommon shares, par value 2 euro
    
    New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None





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##### Table of Contents



Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report:

46,809,699
    
    Common shares8,812,500
    
    Cumulative preference shares A7,050,000
    
    Cumulative preference shares C1,275
    
    Priority shares*


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

xYes
    
    oNo


Indicate by check mark which financial statement item the registrant has
elected to follow.

oItem 17
    
    xItem 18




---

|* |  | Priority shares: 1,312 shares issued of which 37 shares and 2 scripts are
held by KLM.
|- |  | --------------------------------------------------------------------------------------





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TABLE OF CONTENTS



|                                                     |                                                |  |  |  |  |  |  | 
|---------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  |  | 
|ITEM 3. KEY INFORMATION                             
|ITEM 4. INFORMATION ON THE COMPANY                  
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|ITEM 18. FINANCIAL STATEMENTS                       
|ITEM 19. EXHIBITS                                   
|SIGNATURES                                          
|INDEX TO FINANCIAL STATEMENTS                       
|Independent Auditors Report                        
|CONSOLIDATED FINANCIAL STATEMENTS                   
|                                                     | ACCOUNTING POLICIES                           
|                                                     | CONSOLIDATED BALANCE SHEET                    
|                                                     | CONSOLIDATED STATEMENTS OF EARNINGS(3)        
|                                                     | CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                                                     | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|Exhibit 12.1                                        
|Exhibit 12.2                                        
|Exhibit 13.1                                        
|Exhibit 13.2                                        



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TABLE OF CONTENTS

Item 3
    
    Key Information
    2Item 4
    
    Information on the Company
   8Item 5
    
    Operating and Financial Review and Prospects
    17Item 18
    
    Financial Statements
    28Item 19
    
    Exhibits
    28


EXPLANATORY NOTE

This Form 20-F/A amends Items 3, 4, 5 and 18 of KLMs Annual Report on
Form 20-F for the fiscal year ended March 31, 2003, which was filed with the
U.S. Securities and Exchange Commission (the SEC) on June 12, 2003. In
connection with our proposed combination with Air France, our Annual Report on
Form 20-F will be incorporated by reference by Air France into a registration
statement under the U.S. Securities Act of 1933 on Form F-4. In that
connection, and to increase the comparability of information in the Form F-4 to
that contained in our Annual Report on Form 20-F we have retroactively:



| |  | Restated the selected financial data and note 28 to our
consolidated financial statements to reflect the reclassification
of KLM uks low-cost buzz business as a discontinued operation
in light of its disposal to Ryanair in April 2003.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reclassified our operating income under Netherlands GAAP to
reflect changed accounting rules with respect to the presentation
of extraordinary items that became effective as of April 1, 2003.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have also:



| |  | Restated our earnings per share figures under Netherlands GAAP and
U.S. GAAP for each of the fiscal years ended in the period from
April 1, 1998 through March 31, 2002 to reflect the exclusion from
the calculation of earnings per share of shares held by KLM.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Removed certain non-GAAP information relating to operating costs
per available ton-kilometer (unit costs) and break even load
factors.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  | In the selected financial data:
|- |  | -------------------------------



| |  |  | Reclassified our operating income (loss) under U.S. GAAP to reflect the
inclusion in operating income (loss) of results on sale of holdings and
results on sale of assets, which had been recognized in separate line
items called results on sale of holdings and results on sale of assets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recaptioned net assets as
assets less current liabilities to conform to the
presentation in our balance sheets and
included stockholders equity as a new line item.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revised assets less current liabilities and total assets as of March 31, 2002 under U.S. GAAP to
exclude net non-current deferred tax liabilities, which were previously
included in assets less current liabilities and total assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Added new footnote 29 to our consolidated financial statements to
describe the above changes to the extent they affect the consolidated
financial statements.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

This Form 20-F/A does not reflect events occurring after the filing of the
original Form 20-F and does not modify or update the disclosure therein in any
other way than as required to reflect the amendments discussed above.

The complete text of Items 3, 4, 5 and 18, as amended, have been set forth
in their entirety, in accordance with Rule 12b-15 under the U.S. Securities
Exchange Act of 1934. These items should be read together with the other items included in the original Form 20-F.
Unless otherwise indicated, the exhibits previously filed with the original
Form 20-F are not re-filed herewith.

The filing of this Form 20-F/A shall not be deemed an admission that the
original Form 20-F, when made, included any untrue statement of a material fact
or omitted to state a material fact necessary to make a statement not
misleading.

WARNING ABOUT FORWARD-LOOKING STATEMENTS

This Form 20-F/A contains, and the Company and its representatives may
make, forward-looking statements within the meaning of the U.S. Private
Securities Litigation Act of 1995, either orally or in writing, about KLM and
its business. Forward-looking statements generally can be identified by the use
of terms such as ambition, may, will, expect, intend, estimate,
anticipate, believe, plan, seek, continue or similar terms. These
forward-looking statements are based on current expectations, estimates,
forecasts, projections about the industries in which we operate, managements
beliefs, and assumptions made by management about future events. Any such
statement is qualified by reference to the following cautionary statements.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors, many of which are outside of our control and are difficult
to predict, that may cause actual results to differ materially from any future
results expressed or implied from the forward-looking statements. These
statements are not guarantees of future performance and involve risks and
uncertainties including:



| |  | the proposed combination with Air France,
including such factors as the risk that Air France and KLM will not
be integrated successfully, the ability of Air France to develop an integrated strategy for the combined group and changing relationships with customers, suppliers and strategic partners;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the airline pricing environment;
|- |  | --------------------------------



| |  | competitive actions taken by other airlines;
|- |  | --------------------------------------------



| |  | general economic conditions;
|- |  | ----------------------------



| |  | changes in foreign exchange and jet fuel prices;
|- |  | ------------------------------------------------



| |  | governmental and regulatory actions and political conditions;
|- |  | -------------------------------------------------------------



| |  | developments affecting labor relations or our airline partners;
|- |  | ---------------------------------------------------------------



| |  | the outcome of any material litigation;
|- |  | ---------------------------------------



| |  | the future level of air travel demand;
|- |  | --------------------------------------



| |  | our future load factors and yields;
|- |  | -----------------------------------



| |  | industrial actions or strikes by our employees, employees of the combined group following the proposed combination of Air France and KLM or employees of our suppliers or airports; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the many effects on KLM and the airline industry from terrorist
attacks, the possibility or fear of such attacks and the threat or
outbreak of epidemics, hostilities or war, including the adverse
impact on general economic conditions, demand for travel, the cost of
security, the cost and availability of aviation insurance coverage and
war risk coverage and the price and availability of jet fuel.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1



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Developments in any of these areas, as well as other risks and
uncertainties detailed from time to time in the documents we file with or
furnish to the SEC, could cause actual outcomes and results to differ
materially from those that have been or may be projected by or on behalf of us.
We caution that the foregoing list of important factors is not exhaustive.
Additional information regarding the factors and events that could cause
differences between forward-looking statements and actual results in the future
is contained in our SEC filings, including our Annual Report on Form 20-F. We
undertake no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.

PRESENTATION OF INFORMATION AND EXCHANGE RATES

Unless otherwise specified or the context requires otherwise, us, we,
our, KLM and the Company refer to KLM Royal Dutch Airlines and all its
group companies.

References to dollars, U.S. dollars and $ are to United States
dollars, references to euro and EUR are to the currency introduced at the
start of the second stage of the Economic and Monetary Union (EMU) pursuant to
the Treaty establishing the European Economic Community as amended by the
treaty on the European Union. The conversion rates between the euro and the
participating member states national currencies were irrevocably fixed on
December 30, 1998. Our consolidated financial statements are reported in euro.
Previously presented statements denominated in Dutch guilders (NLG) have been
translated for all periods presented into euro using the irrevocably fixed
conversion rate applicable since January 1, 1999 (EUR 1 = NLG 2.20371).

U.S. dollar amounts presented are unaudited and have been translated
solely for your convenience at and for the year ended March 31, 2003, from euro
into U.S. dollars at an exchange rate of $1.09 per EUR 1.00, the noon buying
rate published by Bloomberg for that date. For information regarding the rate
of exchange between euro and U.S. dollars, see Item 3-Key Information-Exchange
Rates. We do not represent that the U.S. dollar amounts presented in the U.S.
dollar convenience translations or any amounts translated from euro into other
currencies could have been converted from euro at the rates indicated.




ITEM 3. KEY INFORMATION

A. Selected financial data

The selected consolidated financial data presented below for each of the years
ended March 31, 2003, March 31, 2002, and March 31, 2001 has been derived from
information included in our audited consolidated financial statements and the
related notes appearing elsewhere in this annual report. The selected
consolidated financial data for each of the years ended March 31, 2000, and
March 31, 1999 has been derived from information included in our audited
consolidated financial statements which are not included in this annual report.

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in The Netherlands (Netherlands GAAP),
which differ in certain respects from accounting principles generally accepted
in the United States (U.S. GAAP). Note 28 to our consolidated Financial
Statements provides a description of the applicable principal differences
between Netherlands GAAP and U.S. GAAP and a reconciliation of net income and
shareholders equity to US GAAP.

2



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Unless otherwise indicated, all amounts in this report are expressed in
millions of euro.

Selected financial data presented in accordance with Netherlands GAAP

Fiscal year ended March 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Total assets
    
    
    8,165
    
    
    
    8,943
    (1)
    
    
    8,590
    
    
    
    8,647
    
    
    
    8,299Assets
less current liabilities(2)
    
    
    5,975
    
    
    
    6,851
    (1)
    
    
    6,533
    
    
    
    6,404
    
    
    
    6,300Long-term debt
    
    
    3,971
    
    
    
    4,417
    
    
    
    3,686
    
    
    
    3,712
    
    
    
    3,503Stockholders equity
    
    
    1,476
    
    
    
    1,992
    
    
    
    2,061
    
    
    
    2,019
    
    
    
    2,157Capital stock
    
    
    125
    
    
    
    125
    
    
    
    125
    
    
    
    125
    
    
    
    187Operating revenues
    
    
    6,485
    
    
    
    6,532
    
    
    
    6,960
    
    
    
    6,296
    
    
    
    6,047Operating
income (loss)(3)
    
    
    (484
    )
    
    
    (94
    )
    
    
    277
    
    
    
    (18
    )
    
    
    193Net income (loss)
    
    
    (416
    )
    
    
    (156
    )
    
    
    77
    
    
    
    337
    
    
    
    207Net
income (loss) per common share(4)/(5):Basic
    
    
    (9.26
    )
    
    
    (3.46
    )
    
    
    1.63
    
    
    
    7.21
    
    
    
    4.01Diluted
    
    
    (9.26
    )
    
    
    (3.46
    )
    
    
    1.63
    
    
    
    7.21
    
    
    
    4.01Dividend declared per common share
    
    
    0.10
    
    
    
    0.20
    
    
    
    0.60
    
    
    
    
    
    
    
    0.68Dividend
declared per common share (in U.S. dollars)
    
    
    0.11
    
    
    
    0.22
    
    
    
    0.66
    
    
    
    
    
    
    
    0.74Average number of common shares
outstanding (in thousands):Basic
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133
    
    
    
    46,569
    
    
    
    50,965Diluted
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133
    
    
    
    46,569
    
    
    
    50,965




---

|(1) |  | The March 31, 2002 balance sheet included a EUR 100 million deferred tax
liability presented under provisions. Consistent with Netherlands
GAAP, we have reclassified this liability as a negative deferred tax
asset under financial fixed assets for
comparative purposes, since KLMs overall tax position turned into a
deferred tax asset during the fiscal year ended March 31, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Net assets has been recaptioned as
assets less current liabilities to conform to the presentation in our
balance sheets.                                                                                                                                                                                                                                                                   
|   
|(3) |  | Operating income under Netherlands GAAP has been adjusted retroactively
to reflect the changed accounting rules effective for KLM as of April 1,
2003 with respect to the presentation of extraordinary items.                                                                                                                                                                             
|   
|(4) |  | After taking into account the rights of holders of priority shares,
cumulative preference shares A and cumulative preference
shares C
and based on the weighted average outstanding shares during the year.                                                                                                                                                                                
|   
|(5) |  | The
figures for each of the fiscal years ended during the period from
April 1, 1998 through March 31, 2002 have been restated to
exclude shares held by KLM.                                                                                                                                                                                                                               

3



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##### Table of Contents



Selected financial data presented in accordance with U.S. GAAP

Fiscal year ended March 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Total assets
    
    
    10,331
    
    
    
    11,306
    (1)
    
    
    10,934
    
    
    
    10,641
    
    
    
    10,087Assets less current liabilities(2)
    
    
    8,148
    
    
    
    9,214
    (1)
    
    
    8,304
    
    
    
    7,840
    
    
    
    7,679Long-term debt
    
    
    4,288
    
    
    
    4,799
    
    
    
    4,314
    
    
    
    4,199
    
    
    
    3,998Stockholders equity
    
    
    2,827
    
    
    
    3,220
    
    
    
    3,229
    
    
    
    3,081
    
    
    
    3,088Capital stock
    
    
    125
    
    
    
    125
    
    
    
    125
    
    
    
    125
    
    
    
    187Operating revenues
    
    
    6,367
    
    
    
    6,412
    
    
    
    6,869
    
    
    
    6,286
    
    
    
    6,047Operating income (loss)(3)
    
    
    (244
    )
    
    
    86
    
    
    
    458
    
    
    
    731
    
    
    
    572Net income (loss)
    
    
    (267
    )
    
    
    (2
    )(4)
    
    
    154
    (4)
    
    
    510
    (4)
    
    
    354
    (4)Income (loss) from
continuing operations(5)
    
    
    (234
    )
    
    
    28
    
    
    
    209
    
    
    
    530
    
    
    
    354Income (loss) from
discontinued operations(5)
    
    
    (33
    )
    
    
    (30
    )
    
    
    (55
    )
    
    
    (20
    )
    
    
    Net income (loss) per common share(6)/(7):Basic
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30
    
    
    
    10.91
    
    
    
    6.90Diluted
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30
    
    
    
    10.91
    
    
    
    6.90Income (loss) from continuing
operations per common share(5)/(6)/(7):Basic
    
    
    (5.23
    )
    
    
    0.57
    
    
    
    4.49
    
    
    
    11.34
    
    
    
    6.90Diluted
    
    
    (5.23
    )
    
    
    0.57
    
    
    
    4.49
    
    
    
    11.34
    
    
    
    6.90Income (loss) from discontinued
operations per common share(5)/(7):Basic
    
    
    (0.74
    )
    
    
    (0.65
    )
    
    
    (1.19
    )
    
    
    (0.43
    )
    
    
    Diluted
    
    
    (0.74
    )
    
    
    (0.65
    )
    
    
    (1.19
    )
    
    
    (0.43
    )
    
    
    Dividend declared per common share
    
    
    0.10
    
    
    
    0.20
    
    
    
    0.60
    
    
    
    
    
    
    
    0.68Dividend declared per common share (in U.S. dollars)
    
    
    0.11
    (6)
    
    
    0.22
    
    
    
    0.66
    
    
    
    
    
    
    
    0.74Average number of common shares
outstanding (in thousands):Basic
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133
    
    
    
    46,569
    
    
    
    50,965Diluted
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133
    
    
    
    46,569
    
    
    
    50,965




---

|(1) |  | Total assets and assets less
current liabilities as of March 31, 2003 were reduced by
853 to mainly exclude
net non-current deferred tax liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Net assets has be recaptioned as
assets less current liabilities to conform to the presentation in our
balance sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) |  | Operating income under US GAAP has been reclassified to reflect the inclusion of results on sale of holdings and results on
sale of assets, which had been previously recognized in separate line
items called results on sale of holdings and results on sale of
assets. The reclassification resulted in a decrease in operating income
for the year ended March 31, 2003 of EUR 36 million, an increase of EUR 19 million for the year ended
March 31, 2002, an increase of EUR 31 million for the
year ended March 31, 2001, an increase of
EUR 456 million for the year ended March 31, 2000 and
an increase of EUR 150 million for the year ended
March 31, 1999.                                                      
|   
|(4) |  | As explained in note 28 to KLMs annual consolidated financial
statements, KLM adopted SFAS 142 on April 1, 2002. Under SFAS 142 goodwill
and intangible assets with indefinite lives are no longer amortized, but
instead tested for impairment at least annually. If this amortization had
been excluded from KLMs results for prior periods, net income (loss) and
net income (loss) per share would have been increased by EUR 7 million
(EUR 0.15 per share) for the year ended March 31, 2002, EUR 11 million
(EUR 0.24 per share) for the year ended March 31, 2001, EUR 13 million
(EUR 0.28 per share) for the year ended March 31, 2000 and EUR 18 million
(EUR 0.35 per share) for the year ended March 31, 1999.
|   
|(5) |  | For comparative purposes, restated to reflect buzz as a discontinued operation effective April 1, 1998. On April 11, 2003, KLM sold KLM uks low fare business, buzz, to Ryanair.
Under U.S. GAAP, buzz is considered a discontinued operation as from April
11, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(6) |  | After taking into account the rights of holders of priority shares,
cumulative preference shares A and cumulative preference shares C and based on the weighted average outstanding shares during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(7) |  | Exclusive of any shares held by KLM; the figures for each of the fiscal years ended during the period from April 1, 1998 through March 31, 2002 have been restated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   

4



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Dividends

For the 1998/99 fiscal year, a dividend of EUR 0.68 per common share was paid
on each common share, either wholly in cash or in wholly in common shares. The
value of the dividends paid in shares was 2.7% lower than the cash dividend.
For the 1999/00 fiscal year, no dividend was paid. For the 2000/01 fiscal year
a dividend of EUR 0.60 per common share was paid in cash. For the 2001/02
fiscal year a dividend of EUR 0.20 per common share was paid in cash.

For the 2002/03 fiscal year, a dividend of EUR 0.10 was charged out of our
reserves and distributed in respect of each common share fully in cash.

Exchange rates

The following tables set forth the noon buying rates published by Bloomberg for
the Dutch guilder, restated in euro for all periods prior to January 1, 1999,
and, for all subsequent periods, the noon buying rates for the euro. For the
calculation of the euro amounts for all periods prior to December 31, 1998, we
have restated the applicable noon buying rate for the Dutch guilder into euro
at the official fixed conversion rate of NLG 2.20371 per EUR 1.00. This
restatement matches the restatement into euro of our consolidated financial
statements, which for all periods prior to January 1, 1999, were prepared in
Dutch guilders and the Dutch guilder amounts were restated into euro amounts.

Period
    
    AverageFiscal year ended March 31,
    
    High
    
    Low
    
    end
    
    rate(1)(U.S. dollars per euro)1999
    
    
    1.2147
    
    
    
    1.0549
    
    
    
    1.0808
    
    
    
    1.12262000
    
    
    1.0887
    
    
    
    0.9524
    
    
    
    0.9574
    
    
    
    1.02382001
    
    
    0.9650
    
    
    
    0.8271
    
    
    
    0.8773
    
    
    
    0.90792002
    
    
    0.9277
    
    
    
    0.8364
    
    
    
    0.8717
    
    
    
    0.88472003
    
    
    1.1054
    
    
    
    0.875
    
    
    
    1.0915
    
    
    
    0.9939




---

Source: Bloomberg




|(1) |  | Average of the noon buying rates on the last day of each month during the
year
|--- |  | ------------------------------------------------------------------------------

Highest
    
    LowestMonth
    
    rate
    
    rate(U.S. dollars per euro)December 2002
    
    
    1.0492
    
    
    
    0.9968January 2003
    
    
    1.0853
    
    
    
    1.0362February 2003
    
    
    1.0884
    
    
    
    1.0688March 2003
    
    
    1.1054
    
    
    
    1.0524April 2003
    
    
    1.1184
    
    
    
    1.0695May 2003
    
    
    1.1909
    
    
    
    1.1233




---

Source: Bloomberg


On June 12, 2003, the noon buying rate was $1.00 = EUR 1.1745.

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

5



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##### Table of Contents



D. Risk factors

Key risks to our company and the airline industry as a whole are outlined
below. The risks we face are not limited to the risks listed here. Some risks
are not yet known to us and some of the risks that we currently do not believe
to be material to our operations could prove to be material at a later date.
All of these risks can materially affect our business, revenues, operating
income, net income, net assets, liquidity, and capital resources.

Risk factors relating to the airline industry

The effects of September 11, 2001 terrorist attacks and the threat of future
terrorist attacks may increase the cost of our operations and reduce demand for
our services, thereby harming the results of our operations.

The terrorist attacks of September 11, 2001 adversely affected the airline
industry generally as well as our financial condition, the results of our
operations and our future financial prospects specifically by increasing
operational costs and reducing demand. These effects continue to persist to a
degree and were further intensified by the period of military build-up and the
conduct of war in Iraq. Moreover, additional terrorist attacks, even if not
made directly on the airline industry, or the fear of such attacks, could
further negatively impact the airline industry by escalating costs and
depressing demand. After the September 11, 2001 terrorist attacks, we
immediately experienced the following adverse effects: the necessary cost of
significantly increased security measures, increased insurance and other costs,
decreased load factors and reduced yields. Additionally, war-risk coverage or
other insurance coverages responsive to the terrorist threat might cease to be
made available to us on favorable terms, if at all. In the uncertain future,
these coverages might be available only at significantly increased premiums or
only for significantly reduced amounts. This would further inflate costs that
cannot effectively be passed on to our customers during sustained periods of
reduced demand and adversely impact our operations.

Deteriorating economic conditions and changes in consumer behavior may reduce
demand for our services and decrease our earnings.

The demand for the leisure and business air transportation services we provide
may decline in response to worsening regional, national or international
economic conditions. Economic downturns, or changes in consumer preferences,
perceptions or spending patterns, could negatively affect our ability to
sustain our traffic volumes and yields.

Intense competition in the airline industry and future competitive price
discounting may reduce our revenues.

The airline industry in which we compete is highly competitive and susceptible
to price discounting, which may depress our future income. Competing carriers
use discount fares to stimulate their traffic during periods of slack demand to
generate cash flow and to increase their market share. Some of our competitors
have substantially lower cost structures than we have. Furthermore, some of
our competitors receive direct or indirect government subsidies, which we do
not receive.

Changes in foreign exchange rates, interest rates, and fuel prices may increase
our operational costs and reduce our revenues.

We are susceptible to market risks beyond our control, e.g. movements in
interest rates, fuel prices and foreign exchange rates, which could materially
affect our operating results. Fuel costs rose to historically high levels
during the 2002/03 financial year and threaten to continue climbing higher.
The ongoing conflicts in the Middle East, political turmoil in Venezuela and
other major uncertainties concerning the availability and price of oil amplify
this risk. We also have operating revenues, operating expenses and assets and
liabilities denominated in various foreign currencies. Fluctuations in those
currencies can materially affect our operating revenues, the values of our
assets and our costs.

Legislative or regulatory changes may impose greater costs on us and reduce our
operating efficiency.

Our operations are subject to the risk of changes in legislation, taxation,
charges and regulation and environmental regulation which could negatively
affect our result of operations by imposing additional compliance costs.
Additional laws, regulations, taxes on airport rates and charges have been
proposed from time to time that could significantly increase the cost of
airline operations. We are subject to a number of different environmental laws
and regulations. We incur costs with each measure we take to comply with
regulations regarding the prevention, control, abatement or elimination of
regulated releases into the environment, as well as for our efforts toward the
disposal and handling of regulated wastes at our operating facilities.

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Fluctuations in seasonal demand may reduce our revenue.

Our operations are affected by seasonal changes in demand. Due to greater
demand for air travel during the summer months, our revenue in the second and
third quarters of the year is generally stronger than our revenue in the first
and fourth quarters due to increased leisure travel during the spring and
summer months.

Consolidation or new alliances in the airline industry may reduce our relative
competitiveness and degrade our strategic position.

The airline industry has undergone substantial consolidation over the last
decade. This global trend may continue in the future. Continued consolidation
may increase the competitive pressures on us, reduce revenues and threaten our
strategic position. The impact of any future consolidation within the U.S. or
European sectors of the airline industry cannot be predicted at this time, but
could adversely affect our financial results and condition.

Changes in the political landscape may result in KLM being subject to air
transportation treaties with less favorable terms.

The European Court of Justices ruling of November 5, 2002 seems to have
changed the Member States position on negotiating aviation treaties with
non-Member States. As of June 5, 2003 the European Transport Council decided to
authorize the European Commission to open negotiations with the United States
in the field of air transport. Furthermore, it was decided to authorize the
European Commission to open negotiations with non-Member States on the
replacement of certain provisions in existing bilateral agreements with a
Community agreement. Future aviation treaties might be less favorable to us and
thus weaken our competitiveness.

The outbreak of medical epidemics may reduce passenger traffic.

The outbreak of the SARS virus in 2003 had an adverse impact on our Asian
operations. While it is not clear what the long-term effects of this new
disease will be on passenger traffic, the recent developments, including
international travel warnings and restrictions, clearly show the vulnerability
of the airline industry to the outbreak of medical epidemics.

Risk factors relating to KLM

High labor costs may place us at a competitive disadvantage to other airlines.

Labor costs comprised 29% of our total operating expenses in the 2002/03
financial year. Wage rates have a significant impact on our operating results.
Our profitability could suffer if we are not able to conclude future
collective labor agreements on satisfactory terms with our employees. Most of
our major competitors are seeking to reduce their labor costs by renegotiating
their labor agreements in their favor.

Labor disruptions could result in reduced revenues and increased costs.

Strikes, work stoppages and slowdowns could negatively affect our results and
disrupt our operations. Actions by large unions or even relatively small, but
influential, groups of our employees could seriously disrupt our operations.
Additionally, actions leading to labor disruptions of our operations may occur
for reasons unrelated to our collective labor agreements with any particular
union or group of employees. If we are not able to renew our collective labor
agreement, or any other key agreements, with our employees in a satisfactory
way, or if a strike, work stoppage or work slowdown occurs for whatever reason,
our revenues and operating results could be adversely affected.

Our realization of benefits from our alliances with other airlines is uncertain
and the actual results of these alliances may be lower than our expectations.

Our ability to successfully achieve the anticipated benefits of our alliances
with other airlines is subject to many risks, including those risks associated
with any disapproval or delay of our allied plans by regulatory authorities or
any adverse regulatory developments, competitive pressures, customer reactions
or modifications to any contracts relevant to our alliances (either on our part
or on the part of our allied partners). We are currently a party to several
important alliances with other airlines, including our joint venture with
Northwest Airlines. We are also considering entering into additional
alliances. Our ability to grow our route network by entering into alliances
also depends upon the availability of suitable alliance partner candidates and
our abilities as well as those of our alliance partners to meet business
objectives and to perform each obligation under the alliance agreements.

Unfavorable outcomes of lawsuits may weaken our liquidity position.

We and our consolidated holdings are involved in various legal actions.
Unfavorable outcomes of these actions could further weaken our results and
liquidity position.

See Item 8-Litigation.

Our highly leveraged status may affect our ability to satisfy financing needs
or meet our obligations.

We carry a high proportion of debt compared to equity, as well as significant
operating leases and facility rental costs. Though we have sufficient cash
resources, this may not be the case in the future.

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ITEM 4. INFORMATION ON THE COMPANY

A. History and development of the company

Koninklijke Luchtvaart Maatschappij N.V., commonly known by is trade name, KLM,
is a public limited liability stock corporation organized in 1919 under the
laws of The Netherlands. Our registered office is at Amsterdamseweg 55, 1182
GP Amstelveen, The Netherlands. We may be contacted via telephone at +31 20
649 9123. We have operated continuously as a corporate entity longer than any
other scheduled airline. Since 1929 the State of The Netherlands (the State)
has owned a substantial interest in our issued share capital (as of March 31,
2003 approximately 14%). However, we have been managed and operated as a
private business enterprise at all times since our organization.

We are an international airline operating worldwide. Our home base is
Amsterdam Airport Schiphol, one of the most modern major airports in the world.
KLM forms the core of the KLM Group, other members being KLM cityhopper, and
Transavia. Through its strong alliance with Northwest Airlines and close
cooperation with European and intercontinental network and route partners, the
KLM Group offers passengers and airfreight shippers more than 125,000 city-pair
connections throughout the world via one or more air transport hubs.

B. Business overview

We have four core activities: passenger transport, cargo transport,
engineering and maintenance and the operation of charters and
low-cost/low-fare scheduled flights. These activities are performed by our
Passenger, Cargo, Engineering & Maintenance businesses and Transavia
respectively. We and our partners serve more than 350 cities, in 73 countries
on six continents.

In fiscal year 2002/03, we carried more than 23.4 million passengers and
489,000 tons of cargo and provided engineering and maintenance services to
more than 20 airlines. Measured by international revenue ton-kilometers, KLM
ranks fifth among the 270-plus members of the International Air Transport
Association (IATA). We operate a modern fleet of 219 aircraft, many
configured for combined passenger/cargo flights. The number of our employees
as of March 31, 2003 was 37,487, of whom 31,638 were employed in The
Netherlands and 5,849 abroad.

We are a key player in a global alliance that commands an important position
in the worlds three major trading areas: America, Europe and Asia. Our goal
is to be the first choice passenger and cargo airline and provider of
maintenance services, while consistently enhancing our shareholder value,
providing a stimulating and dynamic working environment for our staff, and
participating in mutually beneficial relationships with our partners.

We are aware of our influence on the people, society and the environment and
seek to balance our interests with those of the broader society. The high
profile of the aviation industry, the involvement of a large number of
stakeholders and the political implications of local and global issues make it
essential to strike the right balance. To KLM, sustainability is a
pre-condition for it to realize our business objectives. The controlled
expansion of the Amsterdam Airport Schiphol is part of this objective.

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Selected operating statistics

Fiscal year ended March 31,2003
    
    2002(1)
    
    2001Capacity* Available ton-kilometers (ATK)
    
    
    12,952
    
    
    
    12,859
    
    
    
    12,978* Available seat-kilometers (ASK)
    
    
    74,825
    
    
    
    74,051
    
    
    
    75,222* Available freight ton-kilometers (AFTK)
    
    
    5,852
    
    
    
    5,817
    
    
    
    5,783* Kilometers flown
    
    
    349
    
    
    
    370
    
    
    
    370Hours flown (in thousands)
    
    
    454
    
    
    
    455
    
    
    
    471Traffic* Revenue passengers and baggage (ton-kilometers)
    
    
    5,935
    
    
    
    5,840
    
    
    
    6,037* Revenue cargo (ton-kilometers)
    
    
    4,197
    
    
    
    4,050
    
    
    
    4,146* Total revenue ton-kilometers (RTK)
    
    
    10,132
    
    
    
    9,890
    
    
    
    10,183Load factor (%)
    
    
    78.2
    
    
    
    76.9
    
    
    
    78.5* Passenger kilometers
    
    
    59,417
    
    
    
    58,447
    
    
    
    60,047Passenger load factor (%)(2)
    
    
    79.4
    
    
    
    78.9
    
    
    
    79.8Cargo load factor (%)
    
    
    71.7
    
    
    
    69.6
    
    
    
    71.7* Weight of cargo carried (in kilograms)
    
    
    489
    
    
    
    490
    
    
    
    502Average distance flown per passenger (in kilometers)
    
    
    3,057
    
    
    
    3,567
    
    
    
    3,728Yield per revenue passenger kilometer(3)
    
    
    7.1
    
    
    
    7.3
    
    
    
    7.1Yield per revenue cargo ton kilometer(4)
    
    
    24.2
    
    
    
    25.0
    
    
    
    26.0Yield per RTK(5)
    
    
    51.5
    
    
    
    53.4
    
    
    
    52.2




---

|*   |  | in millions                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | As of April 1, 2002, traffic and capacity figures comprise KLM, KLM
cityhopper bv and KLM cityhopper uk Ltd. Prior-year figures have been restated
for comparative purposes. In the prior years the figures of KLM cityhopper uk
(former KLM uk feeder operation) were not included in the statistics. As of
April 1, 2002, KLM cityhopper uk solely acts as a capacity provider for the KLM operation
|   
|(2) |  | Passenger load factor: Revenue passenger-kilometers expressed as a
percentage of available seat-kilometers                                                                                                                                                                                                                                                                                            
|   
|(3) |  | Yield per revenue passenger-kilometer: Total passenger traffic revenue
divided by total passenger-kilometers                                                                                                                                                                                                                                                                                          
|   
|(4) |  | Yield per revenue cargo ton kilometers: Total cargo traffic revenues
divided by total cargo ton-kilometers                                                                                                                                                                                                                                                                                            
|   
|(5) |  | Yield per RTK: Total passenger and cargo traffic revenues divided by
total revenue ton kilometers                                                                                                                                                                                                                                                                                                     

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Operating revenues by category of activity

Fiscal year ended March 31,2003
    
    2002
    
    2001(in millions of euro)Traffic revenuePassengers
    
    
    4,210
    
    
    
    4,267
    
    
    
    4,527Cargo
    
    
    1,017
    
    
    
    1,016
    
    
    
    1,109Charter / Low-cost
    
    
    553
    
    
    
    543
    
    
    
    490Total traffic revenue
    
    
    5,780
    
    
    
    5,826
    
    
    
    6,126Other revenue:Maintenance and other technical work
    
    
    280
    
    
    
    273
    
    
    
    273Cargo and mail handling
    
    
    40
    
    
    
    39
    
    
    
    131Tax-free sales
    
    
    115
    
    
    
    107
    
    
    
    104Aircraft handling
    
    
    105
    
    
    
    92
    
    
    
    93Miscellaneous
    
    
    165
    
    
    
    195
    
    
    
    233Total other revenue
    
    
    705
    
    
    
    706
    
    
    
    834Total operating revenues
    
    
    6,485
    
    
    
    6,532
    
    
    
    6,960


Other revenue represents revenue from our ancillary activities (see Information
on the Company  Ancillary Activities). These activities generally employ many
of the same facilities employed by us in our airline operations and,
accordingly, any allocation of expenses between airline and ancillary
activities is arbitrary. However, our ancillary activities contribute
positively to our overall results.

Geographical data

We conduct worldwide operations. We break down our traffic statistics and yield
by geographic market in the following tables:

Fiscal year ended March 31,2003
    
    2002
    
    2001(in millions of ton-kilometers)Traffic(1)Europe
    
    
    1,034
    
    
    
    939
    
    
    
    821North Atlantic
    
    
    2,582
    
    
    
    2,649
    
    
    
    2,997Asia Pacific
    
    
    3,366
    
    
    
    3,240
    
    
    
    3,505Central and South Atlantic
    
    
    1,271
    
    
    
    1,301
    
    
    
    1,163Middle East / South Asia
    
    
    760
    
    
    
    799
    
    
    
    800Africa
    
    
    1,119
    
    
    
    962
    
    
    
    897Total
    
    
    10,132
    
    
    
    9,890
    
    
    
    10,183




---

|(1) |  | As of April 1, 2002, traffic and capacity figures comprise KLM, KLM
cityhopper bv and KLM cityhopper uk Ltd. Prior-year figures have been
restated for comparative purposes. In the prior years the figures of KLM
cityhopper uk (former KLM uk feeder operation) were not included in the
statistics. As of April 1, 2002, KLM cityhopper uk solely acts as a
capacity provider for the KLM operation
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Fiscal year ended March 31,2003
    
    2002
    
    2001(in millions of euro)Traffic revenueEurope (including domestic lines)
    
    
    1,505
    
    
    
    1,176
    
    
    
    1,260North Atlantic
    
    
    1,032
    
    
    
    1,118
    
    
    
    1,338Asia Pacific
    
    
    1,200
    
    
    
    1,317
    
    
    
    1,350Central and South Atlantic
    
    
    535
    
    
    
    572
    
    
    
    508Middle East / South Asia
    
    
    413
    
    
    
    335
    
    
    
    448Africa
    
    
    542
    
    
    
    494
    
    
    
    442Total scheduled services
    
    
    5,227
    
    
    
    5,012
    
    
    
    5,346Subsidiaries revenue
    
    
    553
    
    
    
    814
    
    
    
    780Total
    
    
    5,780
    
    
    
    5,826
    
    
    
    6,126Yield per RTK
    
    
    (in euro cents)Europe (including domestic lines)
    
    
    146
    
    
    
    125
    
    
    
    153North Atlantic
    
    
    40
    
    
    
    42
    
    
    
    45Asia Pacific
    
    
    36
    
    
    
    41
    
    
    
    39Central and South Atlantic
    
    
    42
    
    
    
    44
    
    
    
    44Middle East/South Asia
    
    
    54
    
    
    
    43
    
    
    
    56Africa
    
    
    48
    
    
    
    51
    
    
    
    49Total
    
    
    52
    
    
    
    51
    
    
    
    52


Seasonality

Our operations are affected by the seasonality associated with the airline
industry. Due to a greater demand for air travel during the summer months,
revenue in the first and second quarters of our fiscal year is generally
greater than the revenue in the third and fourth quarters of the fiscal year.
The results of our operations generally reflect this seasonality, but these
results are also affected by numerous other factors that are not necessarily
seasonal, such as fare levels, fuel prices, weather, air traffic control
delays, foreign currency exchange rates and general economic conditions.

Marketing and sales

On March 31, 2003 KLM maintained over 134 passenger sale offices worldwide
staffed by KLM personnel. In the USA, Canada and Mexico, we are represented by
our partner Northwest Airlines. In addition, we have appointed 123 general
sales agents, mainly in countries where we do not offer air transport services.
Through its participation in the International Air Transport Association, an
association which includes most other major international air carriers, our
tickets are sold by approximately 46,000 sales agents. Travel agent
commissions vary depending on the country and/or market segment and range from
0% to 9% or are set by the IATA Traffic Conferences based on the type of
transportation sold by the sale agents and the countries of sale destination.
Certain agents have contracts with us, which provide for incentive commission.
During the 2002/03 fiscal year, sales agents accounted for approximately 93% of
our total gross air transportation sales.

Franchises and landing rights

Our authorization to operate our routes and to serve destinations inside and
outside The Netherlands is subject, among other things, to obtaining and
retaining the requisite permits and authorizations from the appropriate Dutch
and foreign governmental authorities as well as to the possession of required
local operating concessions, franchises and permits relating, to operating
rights, the use of airports and facilities and the utilization of radio and
meteorological services.

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The various necessary concessions, franchises and permits that we hold differ
widely as to the rights granted, the obligations or restrictions imposed, their
terms and conditions, the duration of their effect and other miscellaneous
details. In the majority of cases, our rights stem from bilateral air services
agreements entered into between the State of The Netherlands and another
country, in which the Dutch government has designated KLM as the air carrier
officially authorized to operate the routes and enjoy the rights accorded to
the State of The Netherlands under these bilateral agreements. The Dutch
government has traditionally followed a civil aviation policy favorable to
competition. In conformity with international practice, the great majority of
the bilateral air services agreements concluded by The Netherlands can be
terminated after one years notice given by either contracting governments.
Some rights are of a unilateral nature, terminable at will by the government
that granted them. In practice, termination is normally preceded by
consultations.

On some of our routes or route segments, governmental limitations are imposed
on the number of services, the number of passengers, the amount of cargo and
other matters relating to traffic. Our activities and the possibilities for
our growth are limited by these restrictions. We continually strive to
maintain and improve our traffic and operating rights.

Cooperation with Northwest Airlines

We operate our transatlantic routes between The Netherlands and the United
States under a far-reaching alliance with Northwest Airlines (Northwest), which
offers our customers seamless travel options between North America and Europe,
Africa, The Middle East and India. The KLM-Northwest alliance was originally
established in 1989 when we made a major equity investment in NWA Corp., the
parent company of Northwest. In September 1992, the United States and The
Netherlands agreed to expand their bilateral Air Transport Agreement to create
an open skies environment. This agreement authorizes the carriers of both
countries to provide air transportation between any U.S.-Netherlands city pair
and to operate connecting services to any third country that has granted the
reciprocal right to do so. We no longer possess an equity investment in NWA
Corp.

Based primarily on the open-entry market created by this expansion, KLM and
Northwest petitioned the U.S. Department of Transportation (DOT) for immunity
from the United States antitrust laws for the KLM-Northwest Commercial
Co-operation and Integration Agreement and were granted that immunity by the
DOT in January 1993. The antitrust immunity allows KLM and Northwest to act
jointly in most commercial operations, including cost and revenue sharing,
pricing, yield management, scheduling, product integration, marketing, market
allocation, advertising, purchasing and cost reduction activities.

KLM and Northwest expanded their alliance in September 1997 by entering into an
Enhanced Alliance Implementation Agreement providing for a minimum term of 13
years. Under this enhanced alliance agreement, the two airlines expanded their
areas of cooperation to include services between the United States, Canada and
Mexico, on the one hand, and Europe, Africa, the Middle East and India, on the
other hand. In addition, the two companies increased the level of co-operation
between their respective cargo divisions. KLM and Northwest continue to
explore the potential for extending their alliance to include additional
partners and to further develop strategies for joint marketing and product
development.

Code sharing arrangements, through which airlines sell under their own code or
prefix seats on another carriers services, have been introduced on all
routes between Amsterdam and Northwests hubs as well as to destinations in the
United States, Europe, Africa and Asia served by the alliance.

In 2002, KLM and Northwest synchronized their respective frequent flyer
programs to create increased opportunities to earn frequent flyer miles and to
offer additional worldwide destinations as travel awards.

Through the co-ordination of route schedules and aircraft deployment, KLM and
Northwest have the ability to improve their utilization of assets such as
aircraft and gates. KLM and Northwest have also combined certain sales and
distribution channels to improve the products offered at reduced costs to their
corporate customers and travel agents and to market a common World Business
Class product.

The alliance between KLM and Northwest Airlines is described in more detail in
Item 5 Operating and Financial Review and Prospects.

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Cooperation with Continental Airlines

In October 2001, KLM and Continental Airlines announced a limited and, for the
time being, temporary commercial co-operation. In the first instance, code
sharing was introduced on connecting flights between Newark International
Airport in the United States and other domestic destinations in the United
States and on connecting flights between Amsterdam Airport Schiphol and other
European destinations. KLM and Continental also concluded a fully reciprocal
Frequent Flyer Agreement. The agreement was reached in close consultation with
Northwest Airlines. Subsequently, as of May 2002, a code share agreement
between KLM and Continental was renewed for a further period of one year
covering selected connecting flights between Newark and Houston and other
domestic destinations in the United States and on selected connecting flights
between Amsterdam Airport Schiphol and other destinations in Europe, Africa,
and the Middle East. As of June 10, 2003, this contract was further expanded
in scope and extended so as to make it co-terminous with the KL/NWA Enhanced
Alliance Implementation Agreement as referenced to above.

Cooperation with other airlines

Interline Agreements enable passengers and shippers to arrange with us to pay
for transportation to any point in the world in one transaction under a single
contract. More intensive cooperation exists between KLM and a select number of
carriers in either the commercial field (such as code sharing arrangements and
the carriage of feeder traffic for each others services) or the operational
field (such as pooling of spare parts or equipment, joint handling of
passengers or cargo, etc.).

These agreements, which are intended to reduce the participating airlines cost
of operation and to offer better service to the public, are of course subject
to applicable rules and regulations including the competition and anti-trust
rules of the United States, the EU and other countries as the case may be.

The alliances between KLM and other airlines are described in more detail in
Item 5 Operating and Financial Review and prospects.

Fuel supplies

We purchase most of our fuel pursuant to local fuel supply contracts, which
generally have terms varying from one to two years. The prices of fuel set
forth in these contracts fluctuate with market indicators and are subject to
periodic adjustment. We cannot predict the extent to which fuel prices may
fluctuate or fuel shortages may occur in the future. See Item 11 Quantitative
and Qualitative Disclosures about Market Risk  Fuel Prices.

Insurance

We procure insurance to cover our operational risks. Following the events of
September 11, 2001, European governments temporarily assumed responsibility for
underwriting risks that could no longer be properly insured in the market. As
of November 1, 2002, we replaced all of our insurance in the market at
competitive rates.

Competition and traffic restrictions

In most areas we service, we are subject to intense direct and indirect
competition by other air carriers operating scheduled or chartered services.
Our future operations may be affected by expanded services offered by competing
air carriers, some of which receive direct or indirect government subsidies, by
the entry of new air carriers into the market, by restricted low fares offered
by carriers that are protected by their governments policies, by the
imposition of traffic restrictions, by the limitation of our operating rights
in foreign countries, by other applicable governmental or regulatory action or
by changes in the international political or economic situation.

We are currently the major scheduled airline providing service between the
United States and The Netherlands. Under the bilateral Air Transport Agreement
between The Netherlands and the United States, American and Dutch scheduled and
charter carriers may operate services between the United States and The
Netherlands without restrictions as to frequency and capacity. The North
Atlantic route sector, comprising routes between The Netherlands and each of
Canada, the United States and Mexico, accounted for approximately 25% of our
total traffic ton-kilometers in fiscal year 2002/03.

The Dutch Government, with our support, is pursuing an air transport policy
that is favorable to competition in the EU, of which The Netherlands is a
member.

The EU has liberalized its internal air transport market gradually. Under the
articles establishing a common transport policy and the competition rules of
the Rome Treaty of 1957, the Council of Transport Ministers of the EU adopted
legislation regarding intra-EU air transport, which came into force on January
1, 1988. On January 1, 1993, the third and last phase of the rules developed
pursuant to this pro-competitive policy came into force. As of April 1, 1997,
the free intra-EU air transport market came into effect. This market includes
three non-EU countries as well: Norway, Iceland and Liechtenstein. In the past
year, the European Commission finalized negotiations, pursuant to a specific
mandate by the EU member states, which granted to a number of Central European
countries (the three Baltic states, Poland, the Czech Republic, Slovakia,
Hungary, Romania, Bulgaria and Slovenia) as well as Cyprus and Malta accession
to the intra-EU market. All of these countries  with the exception of
Romania and Bulgaria  will become part of the EU Aviation Area as per their
date of accession to the European Union (May 1, 2004). The accession of
Bulgaria and Romania is expected to occur on different, later dates. The last
country to achieve full accession is expected to do so by 2008.

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In general, however, air transportation rights between EU countries and other
countries are presently governed by bilateral treaties. This situation will
change in view of the decision by the European Court of Justice of November 5,
2002 in which the European Commission brought claims against certain EU member
states (The Netherlands not being among these). In these proceedings the
European Commission specifically challenged the right of individual EU member
states to enter into so-called open skies agreements with the United States.
The decision holds that while EU member states retain exclusive competence to
negotiate traffic rights with third countries, the European Commission is
competent in areas where the Commissions exclusive authority had already been
established (these areas include computer reservation systems, slots and
intra-EU fares). The court also held that nationality clauses as they appear in
present day bilateral air services agreements violate the right of free
establishment for EU member states anywhere within the EU. This finding has
created the obligation for the member states to replace the typical nationality
clause with a new clause that is compatible with EU law. Negotiations between
EU member states and the European Commission are being held to establish a
procedure that will facilitate this replacement in a total of over 1000
bilateral agreements between member states and third party countries. The
consequences of the courts decision will change forever the political
landscape for airlines operating from Europe.

Governmental regulations

In The Netherlands the two main legislative acts are applicable to aviation are
called Wet Luchtvaart and the Luchtvaartwet. These are administered by the
Ministry of Transport, Public Works and Water Management, and they define the
nature and extent of the regulation of airports and of civil aircraft operating
within and/or registered in The Netherlands. These acts provide the framework
for safety regulation, air traffic control rules, aircraft airworthiness, pilot
competency certificates, airport and air navigation standards and environmental
protection measures.

In addition to the bilateral air services agreements mentioned above, our
operations are also subject to treaties and international agreements, including
the International Civil Aviation Convention of December 7, 1944, as amended, to
which The Netherlands is a party, and to economic, safety, environmental and
other regulations by the governmental authorities of many countries and
organizations, including of course The Netherlands itself and the EU. The
legislatures and other governmental bodies of many foreign jurisdictions have
adopted or are considering various noise-reducing measures, including
limitations on hours of operation applicable to jet aircraft generally or to
specific types of aircraft. The extent to which these regulations will affect
us is unclear, but compliance with these regulations could have an effect upon
the cost of our future operations.

Rates and tariffs

Passenger tariffs on our international routes are generally established in
consultation with members of the IATA Passenger Tariff Coordinating
Conferences, which includes most international airlines. Where applicable,
these tariffs need the expressed or implied approval of the governments
concerned. Additionally, The Netherlands is a party to bilateral agreements
with a number of foreign countries, most of which provide for foreign
government approval of our fares, rates and charges for routes covered by those
agreements. Within the EU and within the area covered by the European Civil
Aviation Conference, approval by the governments concerned is automatic if
fares fall within certain agreed-upon ranges.

The laws of some of the countries that we service, such as Canada and the
United States of America, require us to publish and file with those countries
aeronautical authorities our general pricing policies, tariffs showing
passenger fares, freight rates and other charges.

We endeavor to base our pricing policy on market requirements as much as
possible. In addition to devoting considerable attention to the demands of our
most important sub-market, the business travel market, we make use of
promotional fares, which substantially increase total revenues. In the freight
sector, we also aim to achieve a rate structure suited to the needs of the
freight industry.

We also charter aircraft to third parties for their individual use, or for
purposes of group travel, at prices that we determine in accordance with
government regulations.

We determine our compensation for the delivery of both Dutch and foreign mail,
including United States mail, transported by our international services on the
basis of rates officially established by the Universal Postal Union, a body
composed of representatives of the postal systems of the various countries of
the world.

Ancillary activities

We also engage in other business activities, which are ancillary to our air
transport operations. We service, maintain and modify airframes, engines and
spare parts operated by third parties, including other air carriers, and we
manufacture a limited number of aircraft accessories. We also operate tax-free
shops at Schiphol Airport and engage in on-board sales of a variety of
products. We provide technical, operational and commercial handling,
management, advisory, training and catering services, as well as computerized
hotel and flight reservation systems, to third parties. Gross revenues from
ancillary activities during the 2002/03 fiscal year were EUR 705 million, or
11% of KLMs operating revenues.

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C. Organizational structure

As of the date of this annual report, the KLM group consisted of KLM and the
significant subsidiaries detailed below as consolidated holdings.

Proportion of KLMOwnership InterestHolding
    
    Country of Incorporation
    
    and Voting PowerKLM Cityhopper bv
    
    The Netherlands
    
    
    100KLM UK Holdings Ltd
    
    United Kingdom
    
    
    100KLM Catering Services Schiphol bv
    
    The Netherlands
    
    
    100KLM Luchtvaartschool bv
    
    The Netherlands
    
    
    100KLM Arbo Services bv
    
    The Netherlands
    
    
    100KLM Equipment Services bv
    
    The Netherlands
    
    
    100KLM Financial Services bv
    
    The Netherlands
    
    
    100Cygnific bv
    
    The Netherlands
    
    
    100KLM Ground Services Ltd
    
    United Kingdom
    
    
    100Transavia Airlines bv
    
    The Netherlands
    
    
    80
    (1)Martinair Holland nv
    
    The Netherlands
    
    
    50Polygon Insurance Company Ltd
    
    Guernsey
    
    
    31Kenya Airways Ltd
    
    Kenya
    
    
    26H.S.A. Beheer nv
    
    The Netherlands
    
    
    10Opodo Ltd
    
    United Kingdom
    
    
    9Travel Unie International
    
    The Netherlands
    
    
    9Nederland nv




---

|(1) |  | Economic ownership is 100%.
|--- |  | ---------------------------

D. Property, plants and equipment

On March 31, 2003, we owned or financially leased the following aircraft:

Aircraft

Term ofdepreciation
    
    Average ageNumber of aircraft
    
    Type
    
    in years
    
    in years5
    
    
    Boeing 747-400
    
    
    18
    
    
    
    12.317
    
    
    Boeing 747-400 Combi
    
    
    18
    
    
    
    9.12
    
    
    Boeing 747-300
    
    
    25
    
    
    
    22.85
    
    
    Boeing 747-300 Combi
    
    
    25
    
    
    
    22.62
    
    
    Boeing 747-300 Freighter
    
    
    25
    
    
    
    27.38
    
    
    Boeing MD-11
    
    
    18
    
    
    
    8.11
    
    
    Boeing 737-900
    
    
    18
    
    
    
    1.525
    
    
    Boeing 737-800
    
    
    18
    
    
    
    3.22
    
    
    Boeing 737-700
    
    
    18
    
    
    
    0.17
    
    
    Boeing 737-400
    
    
    18
    
    
    
    11.37
    
    
    Boeing 737-300
    
    
    18
    
    
    
    10.53
    
    
    Boeing 757-200
    
    
    15
    
    
    
    9.715
    
    
    Fokker 100
    
    
    12
    
    
    
    13.917
    
    
    Fokker 70
    
    
    15
    
    
    
    7.010
    
    
    Fokker 50
    
    
    15
    
    
    
    12.22
    
    
    BAe 146-300
    
    
    15
    
    
    
    13.33
    
    
    ATR 72
    
    
    15
    
    
    
    4.923
    
    
    Training aircraft


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During the 2002/03 fiscal year we took delivery of a 747-400ERF aircraft, a
747-400 Combi aircraft, two Boeing 737-700, four Boeing 737-800 and six Boeing
737-300.

Two MD-11 aircraft, one Boeing 737-300 Combi aircraft, three Boeing 737-900
aircraft and seven Boeing 737-300 aircraft were sold and leased back from the
owner for our operational use. Three Boeing 737-300 aircraft were retired from
our operational fleet and one Boeing 757-200 was sold to the lessor.

At March 31, 2003, we had the following aircraft on order for utilization in
our future passenger transport, cargo transport, charters, and scheduled flight
operations:



| |  | Ten Boeing 777-200ER aircraft
|- |  | -----------------------------



| |  | Six Airbus 330-200 aircraft
|- |  | ---------------------------



| |  | Two Boeing 747-400ERF aircraft
|- |  | ------------------------------



| |  | Two Boeing 737-700 aircraft, scheduled for delivery in the period May 2003 through June 2003
|- |  | --------------------------------------------------------------------------------------------



| |  | Two Boeing 737-800 aircraft, scheduled for delivery in the period April 2004 through May 2004
|- |  | ---------------------------------------------------------------------------------------------

The expenditures already paid on these assets amounted to EUR 604 million.

Encumbrances

The book value of tangible fixed assets for which, as of March 31, 2003,
encumbrances were in effect, amounted to EUR 2,722 million (55% of the book
value as per March 31, 2003). Of this amount EUR 2,538 million relates to
encumbrances on fleet resulting from concluded financial lease agreements. The
remaining part (EUR 184 million) relates to other tangible fixed assets whose
availability is based on limited right of use, such as buildings on land held
under long-term rental agreements.

Ground facilities

The Company owns its head office buildings in Amstelveen in which its corporate
management and various staff bureaus and divisions are located. The Company
maintains and operates complete and modern facilities at Amsterdam Airport
Schiphol for the servicing, overhauling and repair of aircraft and engines and
of a wide range of aircraft parts and accessories. These facilities include
hangars, engine, communications and other workshops, engine test cells and
warehousing facilities. In addition, we house our operations, engineering and
purchasing personnel at Schiphol Airport. All such facilities are either
leased or constructed on leased land. The land leases typically have a term
varying from 75 to 99 years. The airport is operated by a corporation owned
jointly by the State of The Netherlands, the City of Amsterdam and the City of
Rotterdam.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating results

You should read the following discussion in conjunction with the consolidated
financial statements included in this document. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles in The Netherlands, which differ in certain significant respects
from U.S. GAAP. A discussion of the principal differences between Dutch
accounting policies and U.S. GAAP and a reconciliation from Dutch accounting
policies to U.S. GAAP of net income and shareholders equity as of March 31,
2002 and 2003 and in respect of the three years ended March 31, 2003, is
described in note 28 to our consolidated financial statements.

Earnings per share calculations for the year ended March 31, 2003 are exclusive
of any shares held by KLM. Outstanding shares used for the earnings per share
calculations are based on the weighted average outstanding shares during the
year. As described in the explanatory note to this Form 20-F/A, the earnings per share figures under Netherlands GAAP and US GAAP for each of the years ended March 31, 2002
through March 31, 1999 have been restated due to the erroneous inclusion in the
past of treasury stock in the average number of common shares outstanding.

Where reference is made to extra-ordinary items in the Form 20F filed on June
12, 2003, we have accordingly adjusted the wording of our comments below. We
note that extraordinary items relate to reorganization costs and the settlement
of the Alitalia arbitration award. As described in the explanatory note to this Form 20-F/A, these items have been reclassified to
operating income under Netherlands GAAP. All other comments have remained
unchanged in comparison with those included in the Form 20F filed on June 12,
2003.

Strategic perspective

Momentous changes in the aviation market, worldwide economic weakness,
geo-political instability, the emergence of the SARS virus and an unforeseen
financial setback were the overriding elements in what was a turbulent year for
KLM. The year was again closed with a net loss. Following the recovery that
commenced at the beginning of the fiscal year, this was a disappointing result,
one that was not alleviated by the fact that KLM still ranks among the
strongest players in its industry.

Conditions in most of our markets changed rapidly in 2002/03. Many businesses
economized on their travel policies, while demand for leisure flights fell.
Necessary price reductions exerted even more pressure on our tight margins.

By controlling both capacity and costs, KLM initially mitigated the negative
consequences. But the decline in demand for transport, compounded by the new
capacity of the low-cost carriers in Europe, again led to overcapacity in the
industry. Far-reaching measures were announced at the end of the fiscal year
designed to effect an improvement in results in both the short- and the
long-term.

Our short-term efforts will concentrate on restoring the companys earning
capacity by increasing productivity and further reducing the cost base.
Although the current downturn has cyclical elements, many of the changes
occurring in our business environment are structural. The aviation industry
will not find a fitting response to these changes unless it thoroughly reviews
the concepts underlying the airlines themselves. KLMs strength is that it
remains an intercontinental network carrier with a sophisticated hub-and-spoke
system that allows fast and comfortable connections between many, even
relatively small, airports. As a network carrier, KLM must introduce new
service concepts and cost structures that satisfy the differing priorities of
business and leisure passengers. What is certain, however, is that airlines as
we know them today are about to undergo fundamental change.

Focused margin management

One of the structural causes of the current situation is the cost structure of
our network organization. Given the drop in yields, our cost base is too high
despite the rationalizations of recent years. With limited influence on
short-term labor costs and virtually no influence on the cost of fuel,
airports, air traffic control, flyover rights, booking systems and security and
insurance, the pressure on results is intense. Further cost control is
possible and necessary, but there is a point at which the network structure is
in danger of being compromised and further economizing is counterproductive.
Cooperation between airlines in the form of alliances or other partnerships is
designed primarily to enlarge markets and not to address this problem.

There will have to be a fundamental redesign of our network organizations cost
structure. Within the Association of European Airlines (AEA), European
carriers recently commissioned a study of the future and preferred structure of
the European aviation industry. Its clear conclusions form a platform for
improvement and perhaps the first step towards necessary new business concepts.
In broad lines, KLM is continuing its strategy to strengthen its position in
the near term. The driving forces behind the strategy are the four businesses:
Passenger (KLM, KLM cityhopper/KLM cityhopper uk), Cargo, Engineering &
Maintenance (E&M) and Charter/Low-Cost (Transavia/BASIQ AIR). Each business
will concentrate on one or more specific markets in which it can achieve a
sustainable profit. Their success will be determined by the development of
distinctive price and cost structures, the prevention of non-profitable growth,
the outsourcing of non-core activities, and we will seek participation in
alliances to achieve economies of scale or enhance market profile and so gain a
better position in the value chain. The central organization will need to
create the right conditions for success. Key building blocks in this respect
are human resources, information technology, activities relating to the
infrastructure in the air and on the ground, and developments in the air
political environment. The extensive fleet replacement program being
implemented is also essential.

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Low-cost is here to stay

Although they initially tapped new markets, low-cost carriers have turned their
attention to the established carriers connections over the years. In reply,
KLM uk set up buzz in 1999, which grew into the third largest low-cost airline
in Europe with ambitious plans for expansion. But the prospect of an
independent, profitable operation faded rapidly during the 2002/03 fiscal year
as a large number of new carriers entered the market and the regular airlines
presented their response to them. A decision taken in the middle of the
2002/03 fiscal year not to continue the development of buzz without a strong
partner ultimately resulted in its sale of its activities to the Irish carrier
Ryanair. KLM is now represented in the low-cost market through Transavias
BASIQ AIR label.

The arrival of low-cost carriers has clearly demonstrated the difference
between the network carrier and the low-cost point-to-point airline. When both
are measured by the same standards, the network carriers higher costs cannot
be denied, but they are a direct consequence of the higher service level, the
hub-and-spoke model to carry passengers on complicated itineraries as
comfortably and as quickly as possible and the assurance of transportation
within an agreed time frame. A matter of some concern is that the general
public is led to believe that a network carrier can offer extremely low prices
while retaining a full service package and that a low-cost airline can maintain
low prices in the longer term without making concessions on its flight
operations. The high cost of fleet maintenance, insurance and security and the
forthcoming compulsory minimum service guarantee must raise doubts about the
latter. Low-cost companies, however, have established their own, permanent
position in the aviation landscape.

Cooperation

The future of aviation is unthinkable without close cooperation between
airlines. Our long-standing alliance with Northwest Airlines has shown that the
benefits can be high, even in a difficult year and in the face of strong
competition. There are currently three major alliances in the airline
industry, and we expect that KLM will eventually become a member of one of
them: OneWorld in Europe, built around British Airways; SkyTeam, with Air
France and others; and Star Alliance, with Lufthansa. We are in talks with
OneWorld and SkyTeam. What form the cooperation will take has not yet been
decided. Moreover, KLM believes the decision is too important to all concerned
for it to be taken hastily. Furthermore, the situation in the U.S. aviation
industry is still uncertain. The U.S. Department of Transportations initial
objections to an alliance between KLMs partners Northwest Airlines and
Continental Airlines, on the one hand, and Delta Airlines, on the other, have
been settled, but some of the other U.S. airlines are in great financial
difficulties. A reordering on the American continent will inevitably have
consequences for European carriers.

In making its choice, KLM will focus on strengthening its market position, the
continuity of the company and of the Schiphol hub and, last but not least, the
development of KLMs value to its customers, shareholders and employees.

Schiphol and the operation

The opening of the new Polder Runway at Schiphol on February 20, 2003 was a
significant milestone for KLM, the airport and not least the region itself.
New legislation will enable further long-term growth within the limits of a new
system of safety and environmental standards. We expect that KLM will reap the
benefits not only now but also in the future when it ties up with partners.
The new runway at Schiphol has not yet resulted in a direct increase in
capacity but it has enhanced the ability to use the airport in a variety of
weather conditions. Punctuality should benefit.

KLMs hub operation, which has been thoroughly redesigned in the past six
years, has proven its worth in numerous areas. In particular, closer
cooperation between platform and gate and local management of the turnaround
teams have considerably accelerated the process and increased punctuality.
Peaks due to the coincidence of critical connections at specific times of the
day still form a problem. Additional manpower has to be deployed for a brief
period of time, after which it is effectively no longer needed. Methods are
being devised to reduce the peaks by changing flight schedules with minimal
loss of quality in the connections. A frustration during the year was the
continued poor performance of the Schiphol baggage system. It is a source not
only of high additional costs but also of substantial damage to KLMs image.

A long-term solution has not been found to the congestion in European airspace
but the decline in flight numbers during the year did make the problem less
acute. In anticipation of renewed growth, however, the debate on the
integration of European air traffic control must be forcefully continued.

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Safe and secure flights

We made substantial investments in aircraft and airports during the year
designed to prevent terrorist or other incidents compromising passenger and
building security. In accordance with new regulations, many of our aircraft
were equipped with additional security features. On the whole, the operation
has been extremely expensive and we have had to bear the costs. In some
countries, such as the U.S., however, the government pays these costs.
Together with the soaring cost of insurance, these commitments exerted further
pressure on our profitability. It is therefore difficult to accept the
complete lack of uniformity and standardization in airport security. Each
country and each national authority has its own approach and standards. Not
all of them are effective; some are even counterproductive.

KLM and the environment

KLM has made sustainable business an integral part of its operations, and not
without good cause. However important flying is for people to explore new
countries, strengthen family ties or do business, it also has negative effects.
Just like road, rail or water transport, aircraft pollute the environment.
And for local residents, the aviation industry is a particular source of
nuisance. In brief, it has a large and very visible ecological footprint. It
is in KLMs interest to make the footprint as small as possible and thus earn
the license to grow that is vital for the continuity of the company.

For KLM, sustainable business means striking the right balance between people,
planet and profit. In many instances, commercial and social interests run
parallel to environmental interests. Engineering & Maintenance, for example,
started construction of a new center to overhaul aircraft engines at Schiphol
during the year. From the very first design, account was taken of
environmental factors, which are extremely critical at such a location. On
completion, the center will have many modern environmental requirements. It
will also boast the latest facilities for optimal working conditions and
provide high-quality and knowledge-intensive employment for the region.

Fleet replacement also marries the interests of the economy with those of the
environment. Phasing in a large number of new aircraft to replace older ones
is one of the most visible environmental improvements. Their engines are
without exception quieter, cleaner and more economical than those of their
predecessors. The lower energy consumption and maintenance requirements
represent an important part of the savings KLM is seeking to achieve in the
years ahead.

All of KLMs activities, apart from ground operations at outstations, have
operated ISO 14001 certified environmental management systems since 1999. Such
certification is not obtained easily, and we believe that KLM is one of the
very few airlines to have integrated environmental management so deeply into
its operations. The re-certification process was successfully completed during
the past year thanks to the hard work of management and staff.

To provide a clear view of the scope and implementation of its sustainability
policy, KLM issues an annual Sustainability Report, explaining the balance
between people, planet and profit. The report is also available on the
Internet.

Inflation

Approximately 75% of our cost basis is affected by inflation. The remaining
part (25% of our cost basis) relates to fuel expenses (principally affected by
changes in market prices) and depreciation charges. The effects of general
inflation on our cost basis is only to a limited extent compensated at the
revenue side, since fierce competition in the airline industry puts continuous
pressure on our yields. The airline industry in general and KLM in particular
is therefore adversely impacted by inflation. Nevertheless, in recent years
inflation has been at historically low levels and inflation has not materially
affected our results.

Impact of foreign currency fluctuations

Our results were to a limited extent affected by foreign currency movements,
since our exposures in major currencies (U.S. dollar, British pound, and
Japanese yen) are hedged. Operational cash flow exposures are hedged within a
range of 40-80% on a 12 month-rolling basis. Long-term exposures in foreign
currencies (especially U.S. dollar purchase options of aircraft) are hedged
through U.S. dollar-denominated deposits. Net investments in subsidiaries are
not hedged. The differences arising from the translation of assets and
liabilities into euro, however, do not affect our results since these
differences are accounted for through equity. See also note 28 to our
consolidated financial statements and Item 11.

Other factors

Governmental, economic, fiscal, monetary or political policies or factors did
not materially affect our operations in the financial year 2002/03.

2002/03 compared with 2001/02

We realized an operating loss for this financial year of EUR 484 million
(2001/02: EUR 94 million operating loss). The net loss before tax amounted to
EUR 622 million (2001/02: EUR 224 million loss). After tax, the net loss for
the year amounted to EUR 416 million
(2001/02: EUR 156 million loss).

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Operating income was negatively affected by higher depreciation and phasing-out
charges of EUR 87 million for the Boeing 747-300 fleet. The operating result
in the previous year had included a EUR 27 million contribution from the State
of the Netherlands following the closure of U.S. airspace for three days in the
wake of the September 11, 2001 attacks.

Operating revenues decreased by 1% to EUR 6,485 million. Total traffic, in
ton-kilometers, was 2% higher than in the previous year. Since capacity was 2%
higher, the load factor increased by 1.3 percentage points to 78.2%. Due to the
changing market conditions, yield per revenue ton-kilometer decreased by 4%.
Operating expenses decreased by EUR 8 million to EUR 6,618 million. Salary
costs were 9% higher, principally due to general salary increases (in part from
new contractual pay agreements) and due to additional costs for pre pension and
retirement plans.

The EUR 42 million loss on the sale of assets (2001/02: EUR 10 million income)
was caused by the sale of KLM uks low-cost buzz activities (EUR 9 million) and
the sale of assets from our fleet (EUR 33 million). The result on the sale of
KLM uks low-cost activities is the net effect of sales proceeds received from
Ryanair on the transfer of assets (EUR 20 million, received at April 11, 2003),
costs arising from arrangements under the sales agreement (EUR 20 million) and
staff redundancies costs (EUR 9 million) which will be borne by KLM uk. The
result on the sale of fleet assets arose principally from sale and leaseback
transactions entered into to limit future residual value risks on these
aircraft.

Financial income and expense improved by EUR 36 million (27% compared to the
previous year) principally due to lower interest expense in connection with
investments in the fleet.

Results on holdings were EUR 11 million better at EUR 4 million negative. The
increase was attributable in part to an improvement in Martinairs earnings.

Operating expenses included exceptional costs to an amount of EUR 351 million.
Of these exceptional costs EUR 276 million related to the arbitration
tribunals decision on the dispute between KLM and Alitalia regarding the
termination of their alliance as of April 28, 2000. The tribunal ruled that
our termination of the agreement was void and allowed Alitalias claim for EUR
250 million plus interest. The claim brought by us against Alitalia to recover
EUR 100 million plus interest paid for the development of Malpensa Airport was
also awarded. The remaining exceptional loss (EUR 75 million) related to a
provision for restructuring and relates to redundancy costs for approximately
1,000 full-time equivalents. In the fiscal year 2001/02 there were no
exceptional items.

The results of the joint venture between KLM and Northwest Airlines improved
significantly in comparison with the previous year, which had been negatively
influenced by the September 11, 2001 attacks. On balance, the joint ventures
capacity was gradually reduced over the fiscal year. The number of
seat-kilometers was 3% lower than in the previous year. Revenue rose by 6%,
chiefly because of the improved yield per revenue ton-kilometer. The settlement
of the joint venture contribution is recognized as revenue or expense under the
heading Commercial cooperation (included in operating expenses).

Passenger load factor for the financial year as a whole was 79.4% (2001/02:
78.7%). Measured in passenger kilometers, traffic increased by 2% from 58,447
million in 2001/02 to 59.417 million. The passenger business realized an
operating loss of EUR 25 million.

Over the year as a whole, freight capacity increased by 1%. In freight
ton-kilometers, traffic increased by 4% to 4,197 million (2001/02: 4,050
million). The load factor rose from 69.6% to 71.7%.

The decline in traffic had an indirect effect on engineering and maintenance
activities. Thanks to an active sales policy, the engineering and maintenance
division maintained its volumes. Third party revenue amounted to EUR 329
million. The engineering and maintenance business operating income came to
EUR 41 million.

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Operating results by business segment in 2002/03

Passenger business

At
the beginning of the fiscal year, demand for flights continued the recovery
that had begun relatively soon after the fall in the market following the
attacks of September 11, 2001. Beginning in the third quarter, however, the
number of passengers started to decline, mainly because of the disappointing
economy and the unrest in the Middle East, followed by the war in Iraq. The
number of business class passengers in particular was lower. Since nearly all
network carriers were affected by this downturn, the response was a general
reduction in prices. We also used this means to keep our load factor high, but
the yield was inevitably significantly lower. The decline was most marked on
North Atlantic routes and connections with South Asia. African destinations
remained remarkably firm. The increase in fuel prices in the course of the year
forced us to introduce a fuel surcharge on March 1, 2003. Immediately after the
outbreak of war in Iraq, we revised the schedule for a number of destinations
in the Middle East. Toward the end of the fiscal year, concern about the SARS
virus triggered a sharp fall in passenger traffic from and to the Far East.

Cargo business

Due to the weak economy, Cargo generally reported only a slight rise in
volumes, mainly in the United States. Furthermore, competition on the North
Atlantic route was fierce. Connections with Asia, especially Southeast Asia and
China picked up though. Exports from Europe also remained at a reasonable
level. The economic slowdown exacerbated the overcapacity and exerted pressure
on prices. On balance, revenue rose by approximately 3% over the previous
fiscal year. Higher fuel prices were again a factor on the cost side and forced
Cargo to introduce a fuel surcharge and then increase it twice in accordance
with the applicable rules during the year.

Engineering & Maintenance

The decline in traffic had an indirect effect on the maintenance activities.
Thanks to an active sales policy, E&M maintained its volumes. Third-party
revenue amounted to EUR 329 million. The Engineering & Maintenance businesss
operating income came to EUR 41 million. One of the largest maintenance
contracts ever, for the maintenance of 12 Virgin Atlantic Boeing 747-400s, took
full effect in the course of the fiscal year. Although demand for maintenance
services was slightly lower, maintenance capacity in the market remained
unchanged; the outcome was overcapacity. The resultant fierce competition, in
combination with a weaker dollar against the euro, placed prices under
pressure. Further growth is essential if E&M is to meet the needs of its
clients, who are also growing through alliances. The alliances with General
Electric, Hamilton Sundstrand and others illustrate how broadening the basis
can facilitate growth. In addition, E&M is seeking to expand by winning more
military contracts, performing maintenance services for regional airlines and
by further increasing its presence outside The Netherlands in order to work
closer to its customers.

Charter/low-cost business

The Charter/low-cost business had an operating loss of EUR 2 million, which was
the balance of a positive result at Transavia and a negative result at buzz.
Despite lower economic growth, volumes on the charter market were slightly
firmer and Transavia grew its market share. The scheduled services some
operated as traditional scheduled flights and some in accordance with the Basiq
Air concept reported good load factors. Passenger numbers on the three new
destinations served by Basiq Air, Bordeaux, Marseille and Madrid, were mainly
good. In response to the concepts success, all scheduled services were
reorganized as Basiq Air flights at the beginning of 2003. Buzzs results for
2002/03 came under pressure from fierce competition.

2001/02 compared with 2000/01

Operating income fell so substantially that the year closed with an operating
loss of EUR 94 million (2000/01: EUR 277 million operating income). The net
loss amounted to EUR 156 million (2000/01: EUR 77 million net income). Net
loss per common share came to EUR 3.46 (2000/01: EUR 1.63 net income).

The fall in operating income was due principally to a drop in passenger
revenues, which fell by 4% to EUR 4,810 million owing to the 5% decline in
passenger traffic. Yield per passenger kilometer was the same as in the
previous year. Cargo revenue was 8% lower, due in almost equal measure to the
decline in traffic and the decline in yield per cargo ton-kilometer. Total
traffic, in ton-kilometer, was 4% lower than in the previous year. Since
capacity was 2% lower, the load factor declined by 1.6 percentage points.

Due to a number of targeted actions to improve cost control, operating expenses
excluding fuel costs were unchanged from the previous year. The actions were
designed chiefly to reduce capacity and to control personnel expenses. This
latter measure was realized through the postponement of a general salary
increase and a reduction in staff numbers by about 1,200 full time employees,
which was achieved without forced redundancies. The effects of these measures
were seen mainly in the third and fourth quarters of the 2001/02 financial
year.

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For the first time in two years, fuel costs declined and were EUR 55 million
lower than in the previous year. This decline was the outcome of both lower
fuel prices and less consumption due to the reduction in capacity.

Results on holdings were EUR 6 million higher than in the pervious year, partly
because of an increase in Martinairs results. Results on the sale of holdings
benefited from the sale of the remaining interest in Equant (EUR 22 million),
but were also depressed by the sale of Braathens (EUR 14 million).

In fiscal year 2001/02 we set aside EUR 100 million (2000/01: EUR 96 million)
for the settlement with Northwest Airlines. This amount has been recognized as
an operating expense under the heading Commercial Cooperation. Joint venture
revenue fell by more than 14% during the year to US$2,076 million. Joint
venture expenses fell by about 7%, chiefly because of the lower capacity
contribution. The number of our available seat-kilometers was 14% lower than
in the previous year. The fall in Northwest Airlines available
seat-kilometers in this route area was 6%. The number of passengers was 11%
lower at approximately 5.1 million.

The passenger load factor for the year was lower than in the record year
2000/01 but due to the capacity reduction and the careful balancing of capacity
and demand, the decline was limited: 78.7% versus 79.8% in 2000/01. Measured
in passenger kilometers, traffic fell by 5%, from 60,047 million in 2000/01 to
56,891 million in the 2001/02 financial year.

The cargo division saw a decline in demand as early as the first quarter of the
fiscal year, particularly on flights to Asia. In Europe, too, growth in
traffic fell sharply. The organization accordingly took measures to bring
costs into line with the projected lower level of activity. Fewer changes were
therefore required following the events of September 11, 2001. Freight
capacity remained virtually unchanged. An increase in traffic with a narrower
margin, however, led to a modest decline in traffic revenue. In cargo
ton-kilometers, traffic declined by 3% from 4,146 million in 2000/01 to 4,042
in 2001/02. The load factor weakened from 71.7% to 69.4%.

A significant part of engineering and maintenances work consists of periodic,
planned maintenance carried out in accordance with strict schedules based on
the number of flying hours. Fluctuations in fleet utilization owing to
changing traffic patterns therefore have an immediate impact on the workplaces.
The decline in traffic from virtually the beginning of the fiscal year and the
sharp drop in demand for maintenance following the September attacks curbed the
service packages growth considerably. We took immediate measures to bring
costs into line with the drop in volume. Additional services and several new
customers subsequently brought some stability to revenue and income. Although
under utilization at competitor maintenance companies exerted some pressure on
margins, the engineering and maintenance division responded to the developments
with such innovations as e-trading, supply chain initiatives and organizational
flexibility. High priority was given to reducing working capital.

Critical accounting policies

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with Netherlands GAAP. The preparation of these
financial statements requires us to make estimates and judgements that affect
the reported amount of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of our
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgements and uncertainties, and potentially result in materially
different results under different assumptions. We believe that our critical
accounting policies are limited to those described below. See the accounting
policies section beginning on page F-3 of our consolidated financial
statements for additional discussion of our accounting policies.

Frequent flyer accounting

We utilize a number of estimates in accounting for our frequent flyer program,
which we believe are consistent with industry practices.

We record a liability for the estimated incremental costs of providing travel
awards, which include costs for catering, fuel and taxes payable by us. Costs
of non-travel awards are based on contracts, which have been concluded with
partners. Costs for travel and non-travel awards are calculated per frequent
flyer point, based on our members behavior, and are evaluated annually. Costs
of usage of points through airline partners are based on the same incremental
cost basis.

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Outstanding frequent flyer points may not always be redeemed for travel. A
member may not reach the threshold necessary for a free ticket or may not take
any initiative to redeem his or her awarded points. Therefore, based on prior
years experience, we estimate how many miles will never be used and do not
record a liability for those points. Furthermore, members may use their points
for upgrades, which do not lead to incremental costs for us. Points that are
used for upgrades are therefore not recorded as a liability.

Passenger revenue

Passenger revenue is initially recorded as a liability for sales in advance of
carriage. Revenue from ticket sales is recognized at the time when we provide
the transportation. We make estimates based on historical trends regarding
liability for tickets sold but not yet reported, the timing and amount of
tickets used for travel on other airlines and the amount of tickets sold that
will not be used. Changes to these estimation methods could have a material
effect on the presentation of our financial results. Moreover, in light of the
uncertainties surrounding the effects of the events of September 11, 2001,
these historical trends may not be representative of future results.

Impairment

We evaluate impairment of long-lived assets in compliance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. We record impairment losses on long-lived
assets used in operations when events and circumstances indicate the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount.

In the 2002/03 financial year an impairment loss of EUR 78 million was
recognized for the Boeing 747-300 fleet due to an accelerated phasing out
process.

New U.S. accounting standards

In June 2001, FASB Statement 143, Accounting for Asset Retirement Obligations,
was issued. The statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of the fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying value of the relevant
long-lived asset. This statement is effective for us on April 1, 2003. We are
currently evaluating the impact of adopting Statement 143 on our financial
statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This statement requires that only certain debt extinguishment transactions be
classified as an extraordinary item. Additionally, under this statement,
capital leases that are modified so that the resulting agreement is an
operating lease, shall be accounted for under the sale-leaseback provisions of
SFAS No. 98. SFAS No. 145 also includes minor modifications to existing U.S.
Generally Accepted Accounting Principles literature. SFAS No. 145 is effective
for us on April 1, 2003. The adoption of this statement is not expected to have
a material impact on the Companys financial position, results of operations or
cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. The statement is effective for exit or disposal
activities initiated after December 31, 2002 and is not expected to have a
material impact on the Companys financial position, results of operations or
cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. Interpretation No. 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees. Disclosures under Interpretation No. 45
are effective for us in the 2002/03 financial statements. Additionally,
Interpretation No. 45 clarifies the requirements for recognizing a liability at
the inception of the guarantee equal to the fair value of the obligation
undertaken in issuing the guarantee and incorporates the guidance in FASB
Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others. KLM is currently assessing the impact of the adoption of this
interpretation on its financial position, results of operations and cash flows.
The recognition provisions of FIN 45 are required for certain guarantees issued
or modified after December 31, 2002.

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In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure an amendment of FASB Statement No. 123.
This Statement amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, it requires more prominent
disclosures in both annual and interim financial statements. KLM does not
intend to adopt either of the transition provisions allowed within SFAS 148.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, which requires the consolidation of variable
interest entities, as defined. Interpretation No. 46 is effective for us on
April 1, 2003. KLM is currently assessing the impact of this Interpretation.

In April 2003, the FASB issued FASB Statement No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, which amends FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. Statement 149 has multiple effective date provisions depending on
the nature of the amendment to Statement 133. The Company is currently
evaluating the impact of adopting Statement 149 on its financial statements.

In May 2003, the FASB issued FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classifies a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of nonpublic entities. We are currently evaluating the impact on
our financial statements of adopting Statement 150.

B. Liquidity and capital resources

Internal and external sources of liquidity

Currently our liquidity position exceeds the minimum required levels of
liquidity to sustain our business adequately. Currently there are no unusual
provisions in any of our financial guarantees, debt or lease agreements or
other arrangements that could trigger a requirement for an early payment,
additional collateral support, changes in terms, acceleration of maturity, or
the creation of additional financial obligations to any material extent. If
required, we believe that our liquidity position could be extended further by
the use of internal and external resources.

Our internal source of liquidity consists of operating cash flows. The
availability of these funds could be reduced by risk relating to the airline
industry such as the threat or effects of terrorists attacks, deteriorating
economic conditions, intense competition in the airline industry and seasonal
changes in demand.

Our external sources of liquidity consist of our EUR 500 million commercial
paper program, mortgages secured by aircraft and non-fleet assets,
sale-and-lease back transactions of aircraft and non-fleet assets. As of March
31, 2003, no amounts were outstanding under our commercial paper program. The
program is scheduled to be automatically renewed in September 2003. The book
value of our unencumbered fleet and non-fleet assets (as of March 31, 2003, EUR
1,615 million) offers a possible source of liquidity through the financing and
the sale (and lease back) of assets. Despite the current situation in the
airline industry, we have demonstrated ourselves to be a strong and attractive
party in fleet financing programs and sale/lease back transactions.

Our overall liquidity position is expected to decrease temporarily as a result
of our planned fleet renewal program. Furthermore, this program will decrease
our borrowing capacity. We expect, however, that our overall liquidity
position will be in excess of minimum required levels to sustain our business.
Furthermore we expect that our working capital is sufficient to meet our
present requirements.

Evaluation of the sources and amounts of our cash flows

We invest our liquid reserves in short-term instruments at current interest
rates. Nonetheless in some of our foreign establishments exchange controls,
transfer formalities and currency shortages restrict a portion of our funds.
The part of our liquid reserves subject to these restriction amounts to EUR 15
million generally does not earn interest and is subject to the risk of currency
devaluation. These restrictions however do not affect our ability to meet any
cash obligations. We have covered our Japanese yen and parts of our U.S.
dollar long-term commitments with forward exchange contracts. The euro portion
of our long-term debt, excluding perpetual loans, as of March 31, 2003 of this
annual report amounted to 71% of those commitments. A 25% portion of the
commitments is in U.S. dollars and 4% is in British sterling.

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KLMs cash flow from operating activities amounted to EUR 297 million. Included
in this amount is a payment of EUR 172 million for the settlement of the
Alitalia arbitration award. KLMs liquidity position was reduced, however, by
substantial investment expenditure, principally on fleet replacements, and loan
repayments. Cash flow used by investing activities amounted to EUR 346 million,
of which EUR 637 million related to the purchase of and advance payments for
aircraft. Cash outflow from financing activities amounted to EUR 280 million.
Financing was arranged for two aircraft and existing debt relating to aircraft
financing was repaid during the financial year. In addition, we repurchased our
own shares to an amount of EUR 6 million. We constantly seek opportunities to
optimize our current debt position in order to further reduce our weighted
average cost of capital.

Cash and marketable securities as of March 31, 2003 were EUR 608 million.
Furthermore the Company holds triple A bonds and long-term deposits to an
amount of EUR 311 million, which are included in financial fixed assets. Triple
A bonds and long-term deposits are available on call to the Company.

Group equity fell from EUR 1,992 million as of March 31, 2002 to EUR 1,477
million as of March 31, 2003. Our net-debt-to equity ratio deteriorated from
1.31 as of March 31, 2002 to 1.95 as of March 31, 2003.

Information on borrowings

Borrowings principally consist of deposits. We have placed deposits in legal
structures that accomplish either legal defeasance or defeasance in-substance.
Defeasance is accomplished by linking deposits placed with investment grade
financial institutions to lease commitments, in some cases through pledge and
escrow agreements. Deposits amounting to EUR 248 million, EUR 382 million and
EUR 658 million as of March 31, 2003, March 31, 2002, and March 31, 2001,
respectively, were pledged, held in escrow or on deposit to satisfy all
scheduled payments on the related lease commitments. In order to hedge
interest rate and currency risk, the deposits are in the same currencies as the
related lease commitments and have the same scheduled dates and amounts for
payments. We believe that the possibility that we will be required to make
future payments with respect to these obligations is relatively remote.

Information on debt

For information on the types of our financial instruments, the maturity profile
of our debt, the currency and interest rate structure of our debt please see
notes 8 and 14 to our consolidated financial statements.

Capital Expenditures

Capital Expenditures 2002/03

Capital expenditures made during the 2002/03 financial year amounted to EUR 715
million and included the purchase of one Boeing 747-400 aircraft (valued at EUR
169 million), two Boeing 737-700 aircraft (valued at EUR 80 million) and one
Fokker 70 aircraft (valued at EUR 20 million). Capital expenditures on other
material tangible fixed assets totaled EUR 50 million, mainly invested in
equipment and buildings. Capital expenditures on intangible fixed assets
totaled 28 million.
On March 31, 2003, our total commitments, net of amounts prepaid, with respect
to current orders for aircraft amounted to EUR 1,042 million and for other
assets to EUR 45 million. Approximately EUR 150 million (21%) of the capital
expenditures were funded externally.

Prepayments were made on three Boeing 747-400 aircraft (EUR 219 million), four
Boeing 777-200 aircraft (EUR 203 million), six Airbus 330-200 aircraft (EUR 18
million) and two Boeing 737-700 aircraft (EUR 15 million).

Capital Expenditures 2001/02

Capital expenditures made during the 2001/02 financial amounted to EUR 430
million and included the purchase of four Boeing 737-900 aircraft (valued, in
aggregate, at EUR 180 million, of which EUR 115 million was paid during the
2001/02 financial year), two Boeing 737-800 aircraft (valued, in aggregate, at
EUR 75 million, of which EUR 31 million was paid during the 2001/02 financial
year). Capital expenditures on spare engines and spare parts totaled EUR 61
million. Capital expenditures on other tangible fixed assets totaled EUR 66
million, mainly invested in equipment and buildings. Capital expenditures on
intangible fixed assets totaled EUR 7 million. Approximately EUR 130 million
(30%) of the capital expenditures were funded externally.

Prepayments were made on three Boeing 747-400 aircraft (EUR 86 million), four
Boeing 737-700 aircraft (EUR 37 million) and two Boeing 737-800 aircraft (EUR 1
million).

C. Research and development, patents and licenses etc.

None.

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D. Trend information

The first two months of financial year 2003/04 showed a year-on-year decline in
revenue passenger kilometers of 8%. This was mainly due to the outbreak of the
SARS-virus, which affected traffic to Asian destinations, and the impact of the
war in Iraq. Cargo traffic showed a year-on-year increase of 5% which was
mainly due to the deployment of two new full-freighters and the full deployment
of our combi fleet on Asia Pacific routes.

On the basis of current economic conditions and uncertainties surrounding the
SARS-virus, we do not anticipate a short-term improvement in the operating
environment. We are firmly set on implementing necessary measures aimed at a
structural reduction of our cost levels as well as short-term measures that
contribute immediately to an improvement in results.

E. Off-Balance sheet arrangements

We have entered into several transactions with special purpose entities (SPEs)
in connection with fleet financing structures for aircraft. These structures do
not qualify as off balance sheet structures. Except for 3 structures which we
established in the 2002/03 financial year (the nature and extent of which is
described below), we generally transfer aircraft to SPEs and obtain the right
to use these assets for our operations based on financial lease agreements.
Since we retain the majority of the residual and ownership risks related to
these assets in substance, these SPEs are fully consolidated within our
financial statements and form an integral part of the disclosures on assets and
liabilities that are included in this annual report.

During 2002/03 we entered into 3 off balance sheet structures with SPEs,
concerning a total of 10 aircraft. Furthermore we entered into one sale and
leaseback transaction (concerning 2 aircraft) which did not involve SPEs. In
general, these transactions were conducted to reduce any further residual value
risk for certain fleet types. Since we transferred the risks related to these
assets in substance to third parties, these transactions result in a reduction
of our fleet assets.

The first structure with SPEs was concluded in the first quarter of the 2002/03
fiscal year. We entered into a sale and leaseback transaction of 4 aircraft,
which resulted in sales proceeds of US$65 million. In substance, we transferred
the risks related to the aircraft to a SPE in which we have no equity interest
or voting interest. The amount of equity provided by third parties is
approximately 10% of the SPEs total assets. We lent the SPE an amount of US$31
million, which is secured by a first mortgage on the aircraft.

The remaining 2 structures with SPEs were concluded in the second and third
quarter of the 2002/03 fiscal year and concerned 3 aircraft each. We entered
into sale and leaseback transactions, which resulted in sales proceeds of EUR
165 million. In substance, we transferred the risks related to the aircraft to
SPEs in which we have no equity interest or voting interest. We did not provide
funding to these SPEs.

There are no events, trends or uncertainties that will result or are reasonably
likely to result in the termination or material reduction in availability of
off-balance sheet arrangements to KLM.

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F. Tabular disclosure of contractual obligations

Overview of contractual obligations and commitments as of March 31, 2003:

Payments due by periodLess than
    
    1-3
    
    4-5
    
    AfterContractual Obligations
    
    Total
    
    1 year
    
    years
    
    years
    
    5 yearsFinancial Lease Obligations
    
    
    317
    
    
    
    34
    
    
    
    140
    
    
    
    82
    
    
    
    61Long-Term Debt Obligations
    
    
    3,743
    
    
    
    316
    
    
    
    1,049
    
    
    
    680
    
    
    
    1,698Operating Lease Obligations
    
    
    1,174
    
    
    
    190
    
    
    
    385
    
    
    
    244
    
    
    
    355Total Contractual Obligations
    
    
    5,234
    
    
    
    540
    
    
    
    1,574
    
    
    
    1,006
    
    
    
    2,114


Expiration per periodTotalamounts
    
    Less than
    
    1-5
    
    AfterOther Commitments
    
    committed
    
    1 year
    
    years
    
    5 yearsFleet Purchase Commitments
    
    
    1,042
    
    
    
    516
    
    
    
    526
    
    
    
    0Guarantees
    
    
    174
    
    
    
    62
    
    
    
    21
    
    
    
    91Total Other Commitments
    
    
    1,216
    
    
    
    578
    
    
    
    547
    
    
    
    91


More information is presented in note 8 to our consolidated financial
statements

As of the end of May 2003, our contractual obligations and other commitments
had not changed materially compared to the information included in the tables
above.

The majority of our future fleet purchases are expected to be financed by
external borrowings.

G. Safe Harbor

Please see Warning about Forward-Looking Statements at the beginning of this
annual report.

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ITEM 18. FINANCIAL STATEMENTS

See
pages F-1 through F-48 and page S-1, which are incorporated by reference in this annual
report.




ITEM 19. EXHIBITS

12.1
    
    Certification by Chief Executive Officer pursuant to Rule 13a-14(a)12.2
    
    Certification by Chief Financial Officer pursuant to Rule 13a-14(a)13.1
    
    Certification by Chief Executive Officer
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of
theSarbanes-Oxley Act of 2002.13.2
    
    Certification by Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of
theSarbanes-Oxley Act of 2002.


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SIGNATURES

The registrant certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.

KONINKLIJKE LUCHTVAART MAATSCHAPPIJ
N.V. (KLM Royal Dutch Airlines)By:
    
    LEO M. VAN WIJKL.M. van WijkPresident and Chief Executive OfficerBy:
    
    ROBERT A. RUIJTERR.A. RuijterManaging Director
and Chief Financial OfficerDate: January 9, 2004


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INDEX TO FINANCIAL STATEMENTS

Independent Auditors Report
    
    
    F-2Consolidated Financial StatementsAccounting Policies
    
    
    F-3Consolidated Balance Sheet as of March 31, 2003 and 2002
    
    
    F-7Consolidated Statements of Earnings for the years ended March 31, 2003, 2002 and 2001
    
    
    F-8Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002 and 2001
    
    
    F-9Notes to the Consolidated Financial Statements
    
    
    F-10Company Financial StatementsCompany Balance Sheet as of March 31, 2003 and 2002
    
    
    F-41Company Statements of Earnings for the years ended March 31, 2003, 2002 and 2001
    
    
    F-41Notes to the Company Financial Statements
    
    
    F-42


F-1



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##### Table of Contents






Independent Auditors report

To the Management Board and Supervisory Board of KLM Royal Dutch Airlines and
Subsidiaries:

We have audited the consolidated financial statements of KLM Royal Dutch
Airlines and its Subsidiaries (the Company) as listed in the index on page
F-1 and included on the pages F-3 through F-48. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the index on page S-1. These consolidated
financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial statement schedule are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KLM Royal Dutch Airlines and
Subsidiaries at March 31, 2003 and 2002 and the results of their operations and
their cash flows for each of the years in the three-year period ended March 31,
2003, in conformity with generally accepted accounting principles in The
Netherlands. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.

As discussed in note 29 to the consolidated financial statements, the earnings
per share data for the years ended March 31, 2002 and 2001 have been restated.

As discussed in note 29 to the consolidated financial statements, KLM has
changed the method of presenting extraordinary items as a result of the
adoption of RJ 270 Revenue Recognition.

Accounting principles generally
accepted in The Netherlands vary in certain significant respects from
accounting principles generally accepted in the United States of America (US
GAAP). Information relating to the nature and effect of such differences is
presented in note 28 to the consolidated financial statements. As discussed in
note 29 to the consolidated financial statements, the earnings per share data
under US GAAP for the years ended March 31, 2002 and 2001 have been restated.

Amstelveen, the Netherlands,
    
    KPMG Accountants N.V.June 12, 2003, except for Note 29,
which is as of January 9, 2004


F-2



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##### Table of Contents






CONSOLIDATED FINANCIAL STATEMENTS




ACCOUNTING POLICIES

General

The company financial data of KLM are incorporated in the consolidated balance
sheet and the consolidated statement of earnings. The company statement of
earnings is presented in simplified form in accordance with article 402, Title
9, Book 2, of The Netherlands Civil Code. All amounts are in millions of euros
unless stated otherwise.

Changes in accounting policies

There were no changes in accounting policies during fiscal year 2002/2003. As
of April 1 2003, there was a change of accounting policy with respect to
extra-ordinary items. Please refer to note 29 for further explanation of this
change.

Basis of consolidation

The consolidation includes the financial data of KLM and its Group companies.
Group companies are those holdings with which KLM forms a financial and
organizational entity and over which KLM exercises direct or indirect control.
Group companies are consolidated in full. The share of third parties in the
Group result and Group equity is stated separately.

A list of capital interests within the meaning of articles 379 and 414, Title
9, Book 2, of The Netherlands Civil Code has been filed with the Trade Register
of the Chamber of Commerce in Amsterdam.

Accounting Policies

General

The balance sheet and the statement of earnings are prepared under the
historical cost convention unless stated otherwise. For information regarding
U.S. GAAP please refer to note 28 to the consolidated accounts.

Foreign currency

Assets and liabilities denominated in foreign currencies are translated at the
rates of exchange ruling at balance sheet date.

Unearned revenues relating to future transportation commitments included under
current liabilities are carried at the euro value at the date on which the
transportation commitment was made.

Exchange rate differences arising on the translation of assets and liabilities
are taken to the statement of earnings as other operating expenses. Exchange
rate differences arising on the translation of purchased goodwill, the share in
the permanent financing of foreign holdings and the share in the equity and
results of those holdings are taken directly to stockholders equity.

Amounts in the statement of earnings denominated in foreign currencies are
translated at weighted average monthly exchange rates.

The most important exchange rates at balance sheet date were:

March 31, 2003
    
    March 31, 20021 U.S. dollar (USD)
    
    EUR 0.94
    
    EUR 1.131 pound sterling (GBP)
    
    EUR 1.47
    
    EUR 1.611 Swiss franc (CHF)
    
    EUR 0.68
    
    EUR 0.68100 Japanese yen (JPY)
    
    EUR 0.79
    
    EUR 0.87


Derivatives

KLM uses derivatives to hedge its exposure to fuel prices, foreign currencies
and interest rates. In accordance with SFAS 133/138, derivatives are carried in
the balance sheet at fair value as financial fixed assets and long-term debt.
Revenues or expenses arising from movements in the fair value of derivatives
are in principle recognized in the statement of earnings.

Movements in the fair value of derivatives that are held as effective hedges to
exposures that influence the fair value of assets, liabilities and unrecognized
firm commitments (fair value hedges) are recognized together with the
movements in the fair value of the underlying positions in the statement of
earnings. Where hedges are no longer effective, the derivatives are carried at
fair value without the underlying positions being adjusted for movements in
fair value. In such circumstances, only movements in the value of derivatives
are recognized in the statement of earnings.

F-3



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##### Table of Contents



Movements in the fair value of derivatives that are held as effective hedges of
future cash flows (cash flow hedges) are included under Other reserves up to
the date on which the effects of the results on the underlying positions
materialize. As of that date, value movements included in Other reserves are
taken to the statement of earnings together with those effects on the
underlying positions.

Where hedges are no longer effective, the derivatives are carried at fair value
and value movements are released to the statement of earnings as from that
date. The accumulated results included in Other reserves are released to the
statement of earnings together with the effects of the results on the remaining
underlying exposure. If there is no longer an exposure, the results included in
Other reserves are released directly to the statement of earnings.

Intangible fixed assets

Purchased goodwill is capitalized and amortized on a straight-line basis. The
amortization period is determined for each individual holding up to a maximum
of twenty years based on the period in which the interest acquired is expected
to contribute to results. Due account is taken of lower realizable value,
defined as the higher of net selling price and value in use. Value in use is
defined as discounted estimated future operating cash flow.

Substantial investments in software are capitalized insofar as the software is
essential to bring about changes in core business processes that lead directly
to future revenue increases or cost savings. Software is carried at cost less
amortization, or lower realizable value. Cost includes both expenses incurred
internally and expenditure paid to third parties. The amortization period for
software is determined on the basis of the useful life of each investment up to
a maximum period of ten years. As from the date on which it is taken into
service, software is fully amortized on a straight-line basis over the
amortization period. Until it is taken into service, software is capitalized as
a prepayment under Intangible fixed assets.

Tangible fixed assets

Aircraft, spare engines and spare parts are carried at cost (including purchase
expenses, such as financing expenses up to the date aircraft are taken into
service) less depreciation, or lower realizable value, defined as the higher of
net selling price and value in use. Value in use is defined as discounted
estimated future operating cash flow.

Aircraft held under financial lease agreements are also included under this
heading following the same valuation policy.

KLM has a foreign Group company that uses the U.S. dollar to value and
depreciate aircraft that are purchased in U.S. dollars and related financing.
For their inclusion in the consolidated financial statements of KLM, these
aircraft are translated into euros at the U.S. dollar exchange rate ruling at
balance sheet date. The net book value of these aircraft is included under
Tangible fixed assets.

Aircraft are depreciated on a straight-line basis over their useful lives to
estimated residual values of 0% to 25%. Depending on the type of aircraft, the
useful life varies from 10 to 25 years.

Spare engines are depreciated to their estimated residual value on a
straight-line basis over the remaining estimated useful life of the engine
type. Spare parts are depreciated to their estimated residual value on a
straight-line basis over the remaining estimated useful life of the associated
aircraft or engine type.

Heavy maintenance costs are capitalized and depreciated on a straight-line
basis over the period to the next heavy maintenance. These costs include both
internal costs and external expenditures. Significant modernization and
improvement costs are capitalized and depreciated over, at maximum, the
remaining life of the aircraft concerned.

Other tangible fixed assets are carried at cost less straight-line
depreciation, or lower realizable value. Financing costs for major projects are
included in cost until the date of first usage. Straight-line depreciation to
residual value is based on the following estimated useful lives:

Buildings (land is not depreciated)
    
    10 - 40 yearsInventories, machines and installations
    
    3 - 15 yearsVehicles and other tangible fixed assets
    
    5 - 20 years


Tangible fixed assets are translated at the exchange rates ruling at the date
of payment or at the date deposits in foreign currencies are applied or at the
exchange rates of forward exchange contracts.

Tangible fixed assets on order are carried in the balance sheet at the amount
of advance payments made. Remaining balances due are included in the Notes to
the consolidated balance sheet under commitments and contingent liabilities.

F-4



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##### Table of Contents



Financial fixed assets

Holdings in which KLM exercises a significant influence on the business and
financial policies are carried at net-equity value, where possible in
accordance with KLMs accounting policies, less any exceptional diminutions in
value. Holdings in which KLM does not exercise a significant influence on the
business and financial policies are carried at cost less any exceptional
diminutions in value.

KLMs share in the holdings carried at net asset value is included under
Results of holdings in accordance with KLMs accounting policies. Dividends
declared by holdings carried at cost are included in Results of holdings.

Accounts receivable from holdings and other financial fixed assets are carried
at face value less necessary provisions. Amounts falling due within one year
are included under Current assets.

KLM holds a portfolio of zero-coupon triple A bonds to hedge the foreign
exchange exposure on part of the financial lease commitments. These securities
are at the free disposal of KLM and are included under Financial fixed assets
at cost plus realized interest.

For the valuation of derivatives, reference is made to the notes above.

Other Financial fixed assets are valued at the lower of face value or
realizable value.

Operating supplies

Supplies are carried at average cost net of a provision for economic
obsolescence where applicable. Supplies are translated at the exchange rates
ruling at the date of receipt of the materials.

Accounts receivable

Accounts receivable are carried at face value less necessary provisions for bad
debts.

Marketable securities and cash

Marketable securities other than the Triple A bonds recognized under Financial
fixed assets are carried at market value. Realized and unrealized results are
recognized in the statement of earnings under Financial income and expense.

Cash on hand, demand deposits and time deposits are carried at face value less
necessary provisions for transfer risk.

Deferred credits

Deferred credits are carried at face value and are credited to the statement of
earnings generally in accordance with movements in the related items. A maximum
of twenty years is maintained for investment grants received under the
Investment Account Act.

Provisions

Provisions are carried at face value with the exception of the provision for
postretirement health insurance costs and the provision for the Frequent Flyer
program. These provisions are carried at the present value of future
commitments discounted at 5.5% and 9% respectively.

All pension commitments have been placed with independent pension funds.
Expenses relating to pension benefits accrued by employees are allocated to the
years in which the employees performed the work on which the benefits are
based.

Postretirement health insurance costs are determined in accordance with SFAS
106, Postretirement Benefits other than Pensions.

Long-term debt

Long-term debt is carried at face value. Debt hedged by means of fair value
hedges, however, is adjusted for movements in the fair value of the positions
hedged.

Financial lease obligations are initially stated at net present value,
discounted at the contracted interest rate. Loans to finance companies in this
respect are set off against lease obligations, provided offsetting of
receivables and debts is legally permitted or agreed upon. Long-term debt
falling due within one year is included under Current liabilities.

Current liabilities

Current liabilities are carried at face value.

F-5



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##### Table of Contents



Operating revenues

Traffic revenue includes revenues from transportation performed, translated at
exchange rates ruling at the date on which the transportation commitment was
made. Other revenue comprises proceeds on deliveries and services to third
parties at the date that goods are delivered or services performed.

Financial income and expense

Interest payments on long-term debt are included at their effective rates after
deduction of finance benefits amortized. Costs relating to financing
transactions are also included under Financial income and expense. Financing
costs are capitalized under Tangible fixed assets on the basis of the average
interest rate on borrowed capital. The ineffective part of the unrealized
result on derivatives that do not qualify as effective hedges within the
meaning of SFAS 133/138 or that are considered partially ineffective is
included under Financial income and expense.

Taxes

Taxes on result are calculated at current income tax rates on the current
result. Deferred investment grants, tax-exempt profit components, loss
carryforwards and permanent differences between fiscal accounting policies and
KLMs accounting policies are taken into account.

Deferred tax assets and liabilities are formed in respect of timing differences
between the valuation of assets and liabilities for accounting purposes and for
fiscal purposes. Deferred tax assets are recognized insofar as future
realization is probable.

Cash flow statement

Cash flow from operating activities is calculated by means of the indirect
method. Reported net income is therefore adjusted for non-cash items from both
the statement of earnings and movements in the balance sheet.

F-6



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




CONSOLIDATED BALANCE SHEET

In millions of euros


Before appropriation of results

Note(1)
    
    March 31, 2003
    
    March 31, 2002(2)Fixed assetsIntangible fixed assets
    
    
    1
    
    
    
    66
    
    
    
    56Tangible fixed assets
    
    
    2
    
    
    
    4,982
    
    
    
    5,104Financial fixed assets
    
    
    3
    
    
    
    1,289
    
    
    
    1,2646,337
    
    
    
    6,424Current assetsOperating supplies
    
    
    4
    
    
    
    222
    
    
    
    257Accounts receivable
    
    
    5
    
    
    
    998
    
    
    
    1,233Marketable securities
    
    
    
    
    
    
    
    
    
    
    2Cash
    
    
    6
    
    
    
    608
    
    
    
    1,0271,828
    
    
    
    2,519Current liabilities
    
    
    7
    
    
    
    2,190
    
    
    
    2,092Current assets less current liabilities
    
    
    
    
    
    
    (362
    )
    
    
    427Assets less current liabilities
    
    
    
    
    
    
    5,975
    
    
    
    6,851Long-term debt
    
    
    8Subordinated perpetual debt
    
    
    
    
    
    
    544
    
    
    
    591Other long-term debt
    
    
    
    
    
    
    3,427
    
    
    
    3,8263,971
    
    
    
    4,417Provisions
    
    
    9
    
    
    
    271
    
    
    
    177Deferred credits
    
    
    10
    
    
    
    256
    
    
    
    265Group equityStockholders equity
    
    
    11
    
    
    
    1,476
    
    
    
    1,992Share of third parties
    
    
    
    
    
    
    1
    
    
    
    1,477
    
    
    
    1,9925,975
    
    
    
    6,851




---

|    |  |                                                                                       
|--- |  | --------------------------------------------------------------------------------------
|(1) |  | The accompanying Notes are an integral part of these Consolidated Financial
Statements
|   
|(2) |  | Prior-year figures have been reclassified with regard to deferred taxes               

F-7



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




CONSOLIDATED STATEMENTS OF EARNINGS(3)

In millions of euros with the exception of the stock data

For the Years Ended March 31,Note(1)
    
    2003
    
    2002
    
    2001Operating revenuesTraffic revenue
    
    
    15
    
    
    
    5,780
    
    
    
    5,826
    
    
    
    6,126Other revenue
    
    
    16
    
    
    
    705
    
    
    
    706
    
    
    
    8346,485
    
    
    
    6,532
    
    
    
    6,960Operating expenses (see note 29)
    
    
    17
    
    
    
    6,969
    
    
    
    6,626
    
    
    
    6,683Operating income (loss)
    
    
    
    
    
    
    (484
    )
    
    
    (94
    )
    
    
    277Financial income and expense
    
    
    20
    
    
    
    (98
    )
    
    
    (134
    )
    
    
    (138
    )Results on sale of assets
    
    
    21
    
    
    
    (42
    )
    
    
    10
    
    
    
    27Results of holdings
    
    
    22
    
    
    
    (4
    )
    
    
    (15
    )
    
    
    (21
    )Results on sale of holdings
    
    
    23
    
    
    
    6
    
    
    
    9
    
    
    
    4Pretax income (loss)
    
    
    
    
    
    
    (622
    )
    
    
    (224
    )
    
    
    149Taxes (see note 29)
    
    
    24
    
    
    
    206
    
    
    
    68
    
    
    
    (73
    )(416
    )
    
    
    (156
    )
    
    
    76Share of third parties
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    1Net income (loss)
    
    
    
    
    
    
    (416
    )
    
    
    (156
    )
    
    
    77Net income (loss) attributable to common shares
    
    
    
    
    
    
    (418
    )
    
    
    (158
    )
    
    
    75Average
number of common shares outstanding(2)
(restated, see note 29)
    
    
    
    
    
    
    45,070,544
    
    
    
    45,681,707
    
    
    
    46,133,032Average number of common shares outstanding, fully diluted(2)
(restated, see note 29)
    
    
    
    
    
    
    45,070,544
    
    
    
    45,681,707
    
    
    
    46,133,032Net
income (loss) per common share (restated, see note 29)
    
    
    
    
    
    
    (9.26
    )
    
    
    (3.46
    )
    
    
    1.63




---

|    |  |                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | The accompanying Notes are an integral part of these Consolidated
Financial Statements                                                                                                                                               
|   
|(2) |  | Taking repurchased shares into account                                                                                                                                                                                               
|   
|(3) |  | Operating income has been adjusted for the year ended March 31, 2003 to
reflect the changed accounting rules effective for KLM
as of April 1, 2003 with respect to the presentation of extra-ordinary
items. Please refer to note 29.

F-8



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




CONSOLIDATED STATEMENTS OF CASH FLOWS

In millions of euros

For the Years Ended March 31,2003
    
    2002
    
    2001Cash flow from operating activities:Net income (loss)
    
    
    (416
    )
    
    
    (156
    )
    
    
    77Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    535
    
    
    
    487
    
    
    
    429Provision for losses and
accounts receivable
    
    
    (9
    )
    
    
    9
    
    
    
    12Results on sale of assets
    
    
    42
    
    
    
    (10
    )
    
    
    (27
    )Undistributed earnings of affiliates
    
    
    4
    
    
    
    15
    
    
    
    19Gain on sale of affiliates
    
    
    (6
    )
    
    
    (9
    )
    
    
    (4
    )Deferred taxes
    
    
    (201
    )
    
    
    (65
    )
    
    
    73Change in assets and liabilities:Accounts receivable
    
    
    190
    
    
    
    122
    
    
    
    72Supplies
    
    
    35
    
    
    
    40
    
    
    
    (1
    )Prepaid expenses
    
    
    104
    
    
    
    (43
    )
    
    
    (25
    )Change in provisions
    
    
    87
    
    
    
    (21
    )
    
    
    (63
    )Current liabilities
    
    
    (40
    )
    
    
    152
    
    
    
    (32
    )Taxes and social insurance premiums
    
    
    (9
    )
    
    
    21
    
    
    
    (21
    )Deferred credits
    
    
    (22
    )
    
    
    (16
    )
    
    
    20Marketable securities
    
    
    2
    
    
    
    4
    
    
    
    57Share of third parties
    
    
    1
    
    
    
    
    
    
    
    (5
    )Net cash provided by operating activities
    
    
    297
    
    
    
    530
    
    
    
    581Cash flow from investing activities:Proceeds from sale of tangible fixed assets
    
    
    305
    
    
    
    64
    
    
    
    167Capital expenditures
    
    
    (725
    )
    
    
    (430
    )
    
    
    (614
    )Net expansion of other holdings
    
    
    (26
    )
    
    
    149
    
    
    
    (49
    )Investment in inventory
    
    
    10
    
    
    
    (17
    )
    
    
    (15
    )Changes in the group of consolidated holdings
    
    
    
    
    
    
    
    
    
    
    (9
    )Net cash (used in) provided by investing activities
    
    
    (436
    )
    
    
    (234
    )
    
    
    (520
    )Cash flow from financing activities:Dividend paid
    
    
    (11
    )
    
    
    (30
    )
    
    
    (2
    )Increase in long-term debt
    
    
    121
    
    
    
    365
    
    
    
    626Decrease in long-term debts
    
    
    (259
    )
    
    
    (401
    )
    
    
    (523
    )Increase in long-term receivables
    
    
    (78
    )
    
    
    (161
    )
    
    
    (225
    )Decrease in long-term receivables
    
    
    62
    
    
    
    70
    
    
    
    401Other
    
    
    (115
    )
    
    
    49
    
    
    
    (166
    )Net cash provided by financing activities
    
    
    (280
    )
    
    
    (108
    )
    
    
    111Changes in cash
    
    
    (419
    )
    
    
    188
    
    
    
    172Cash, opening balance
    
    
    1,027
    
    
    
    839
    
    
    
    667Cash, closing balance(1)
    
    
    608
    
    
    
    1,027
    
    
    
    839


In fiscal 2002 interest paid amounted to EUR 178 million, as compared to fiscal
2001 EUR 211 million and fiscal 2000 EUR 181 million. In fiscal 2002 no income
taxes were
paid on a preliminary basis. In fiscal 2001 EUR 4 million and in fiscal 2000
EUR 1 million income taxes were paid on a preliminary basis.



---

|(1) |  | Including Triple A bonds and deposits the overall cash position amounts to
EUR 919 million as of March 31, 2003 (as of March 31, 2002: EUR 1,383 million,
as of March 31, 2001: EUR 1,148 million)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In millions of euros

Fixed assets

1. Intangible fixed assets

Advance paymentson software onorder or underGoodwill
    
    Software
    
    construction
    
    TotalPurchase value as of March 31, 2002
    
    
    42
    
    
    
    56
    
    
    
    1
    
    
    
    99Accumulated amortization through 2001/2002
    
    
    23
    
    
    
    20
    
    
    
    
    
    
    
    43Book value as of March 31, 2002
    
    
    19
    
    
    
    36
    
    
    
    1
    
    
    
    56Changes in book valueAdditions
    
    
    
    
    
    
    18
    
    
    
    11
    
    
    
    29Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    (4
    )
    
    
    (13
    )
    
    
    
    
    
    
    (17
    )Exchange rate differences
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Other
    
    
    
    
    
    
    5
    
    
    
    (6
    )
    
    
    (1
    )Total changes
    
    
    (5
    )
    
    
    10
    
    
    
    5
    
    
    
    10Purchase value as of March 31, 2003
    
    
    40
    
    
    
    78
    
    
    
    6
    
    
    
    124Accumulated amortization through 2002/2003
    
    
    26
    
    
    
    32
    
    
    
    
    
    
    
    58Book value as of March 31, 2003
    
    
    14
    
    
    
    46
    
    
    
    6
    
    
    
    66


2. Tangible fixed assets

March 31, 2003
    
    March 31, 2002Aircraft, spare engines and spare parts
    
    
    3,793
    
    
    
    4,329Other tangible fixed assets
    
    
    544
    
    
    
    5834,337
    
    
    
    4,912Advance payments on tangible fixed assets on order or under construction
    
    
    645
    
    
    
    1924,982
    
    
    
    5,104


F-10



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

2. Tangible fixed assets  (Continued)

Aircraft,
    
    
    
    
    
    Inventories,
    
    Vehiclesspare
    
    
    
    
    
    machines
    
    and otherengines and
    
    Buildings
    
    and
    
    tangiblespare parts
    
    and land
    
    installations
    
    fixed assets
    
    TotalPurchase value as of March 31, 2002
    
    
    7,309
    
    
    
    734
    
    
    
    608
    
    
    
    132
    
    
    
    8,783Accumulated depreciation and diminution in
value through 2001/2002
    
    
    2,980
    
    
    
    379
    
    
    
    440
    
    
    
    72
    
    
    
    3,871Book value as of March 31, 2002
    
    
    4,329
    
    
    
    355
    
    
    
    168
    
    
    
    60
    
    
    
    4,912Changes in book valueAdditions
    
    
    409
    
    
    
    2
    
    
    
    35
    
    
    
    15
    
    
    
    461Disposals
    
    
    (342
    )
    
    
    (2
    )
    
    
    
    
    
    
    (5
    )
    
    
    (349
    )Depreciation
    
    
    (382
    )
    
    
    (26
    )
    
    
    (46
    )
    
    
    (12
    )
    
    
    (466
    )Write down/impairment
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )Exchange rate differences
    
    
    (143
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (144
    )Other
    
    
    
    
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    1Total changes
    
    
    (536
    )
    
    
    (24
    )
    
    
    (13
    )
    
    
    (2
    )
    
    
    (575
    )Purchase value as of March 31, 2003
    
    
    6,925
    
    
    
    728
    
    
    
    605
    
    
    
    132
    
    
    
    8,390Accumulated depreciation and diminution in
value through 2002/2003
    
    
    3,132
    
    
    
    397
    
    
    
    450
    
    
    
    74
    
    
    
    4,053Book value as of March 31, 2003
    
    
    3,793
    
    
    
    331
    
    
    
    155
    
    
    
    58
    
    
    
    4,337


This overview includes aircraft for which financial lease agreements have been
concluded. Their book value amounts to EUR 2,538 million (last fiscal year EUR
2,839 million).

Other tangible fixed assets include assets whose availability is based on
limited right of use, such as buildings on land held under long-term rental
agreements or on leasehold, and assets acquired through financial lease
agreements. The book value of these assets amounts to EUR 184 million (last
fiscal year EUR 226 million).

In fiscal year 2002/2003 a write down of EUR 78 million was recognized for the
Boeing 747-300 fleet in connection with an accelerated phasing out. The
remaining book value of the Boeing 747-300 fleet amounted to EUR 60 million as
of March 31, 2003.

Advance payments on tangible fixed assets on order or under construction

Balance as of March 31, 2002
    
    
    192Advance payments
    
    
    685Tangible fixed assets taken into operation
    
    
    (232
    )Balance as of March 31, 2003
    
    
    645


Aircraft on order as of March 31, 2003:
2 Boeing 737-700
3 Boeing 747-400ERF
4 Boeing 777-200ER
6 Airbus 330-220

F-11



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

3. Financial fixed assets

March 31, 2003
    
    March 31, 2002Holdings
    
    
    198
    
    
    
    201Receivables from holdings
    
    
    18
    
    
    
    22Triple A bonds/deposits
    
    
    311
    
    
    
    354Derivatives
    
    
    482
    
    
    
    589Other financial fixed assets
    
    
    152
    
    
    
    198Deferred taxes
    
    
    128
    
    
    
    (100
    )1,289
    
    
    
    1,264


Receivables
    
    Triple A
    
    
    
    
    
    Otherfrom
    
    bonds/
    
    
    
    
    
    financial
    
    DeferredHoldings
    
    holdings
    
    deposits
    
    Derivatives
    
    fixed assets
    
    taxes
    
    TotalBalance as of March 31, 2002
    
    
    201
    
    
    
    22
    
    
    
    354
    
    
    
    589
    
    
    
    198
    
    
    
    (100
    )
    
    
    1,264New/expansion
    
    
    10
    
    
    
    1
    
    
    
    19
    
    
    
    17
    
    
    
    62
    
    
    
    237
    
    
    
    346Sale/redemption
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    (33
    )
    
    
    (48
    )
    
    
    (9
    )
    
    
    (94
    )Share in results
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Revaluation
    
    
    (6
    )
    
    
    (4
    )
    
    
    (53
    )
    
    
    (91
    )
    
    
    (42
    )
    
    
    
    
    
    
    (196
    )Dividends received
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Exchange rate differences and other
    
    
    (8
    )
    
    
    1
    
    
    
    (9
    )
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (34
    )Balance as of March 31, 2003
    
    
    198
    
    
    
    18
    
    
    
    311
    
    
    
    482
    
    
    
    152
    
    
    
    128
    
    
    
    1,289


Triple A bonds and deposits are available on call to the Company.

Movements relating to revaluations had virtually no effect on the result on
account of the hedging policy.

The fair value of Financial fixed assets does not differ materially from the
disclosed book value.

KLM has carryforward losses to an amount of EUR 570 million relating to losses
incurred in The Netherlands and abroad. These losses may be carried forward and
offset against future income indefinitely. A deferred tax asset is recognized
to an amount of EUR 188 million under Deferred taxes.

The deferred tax assets and liabilities can be explained as follows:

March 31, 2003
    
    March 31, 2002Assets
    
    Liabilities
    
    Assets
    
    LiabilitiesFixed assets
    
    
    8
    
    
    
    69
    
    
    
    5
    
    
    
    58Current assets
    
    
    3
    
    
    
    20
    
    
    
    
    
    
    
    53Deferred liabilities
    
    
    30
    
    
    
    
    
    
    
    20
    
    
    
    Provisions
    
    
    26
    
    
    
    66
    
    
    
    
    
    
    
    50Current liabilities
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    Carryforward loss compensation
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    Other items
    
    
    86
    
    
    
    58
    
    
    
    49
    
    
    
    43341
    
    
    
    213
    
    
    
    104
    
    
    
    204Net tax position
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    100


Current assets

4. Operating supplies

March 31, 2003
    
    March 31, 2002Maintenance materials
    
    
    160
    
    
    
    207Various supplies
    
    
    62
    
    
    
    50222
    
    
    
    257


F-12



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

5. Accounts receivable

March 31, 2003
    
    March 31, 2002Debtors
    
    
    745
    
    
    
    944Receivables from holdings
    
    
    3
    
    
    
    2Value added tax
    
    
    37
    
    
    
    20Prepaid expenses
    
    
    213
    
    
    
    267998
    
    
    
    1,233


Accounts receivable are stated net of a provision for bad debts of EUR 25
million (last fiscal year EUR 34 million).

The item Debtors as of March 31, 2002 included an amount of EUR 100 million
receivable from Alitalia in respect of KLMs contribution to the cost of
developing Malpensa Airport, Italy. This item was settled in fiscal year
2002/2003 as part of the award in the arbitration between KLM and Alitalia
concerning the termination of their alliance as of April 28, 2000.

6. Cash

March 31, 2003
    
    March 31, 2002Time deposits
    
    
    506
    
    
    
    974Cash on hand and demand deposits
    
    
    102
    
    
    
    53608
    
    
    
    1,027


As a result of transfer formalities and scarcity of foreign currency, EUR 15
million in cash (last fiscal year EUR 6 million) is not freely transferable
from foreign establishments.

7. Current liabilities

March 31, 2003
    
    March 31, 2002Current maturities of long-term debt:- concerning financial lease commitments
    
    
    251
    
    
    
    139- concerning other long-term debt
    
    
    65
    
    
    
    24Unearned revenues
    
    
    548
    
    
    
    672Creditors
    
    
    532
    
    
    
    518Taxes and benefit premiums
    
    
    29
    
    
    
    38Accruals and other current liabilities
    
    
    765
    
    
    
    7012,190
    
    
    
    2,092


F-13



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

8. Long-term debt

March 31, 2003
    
    March 31, 2002Perpetual debtSubordinated perpetual loans
    
    
    
    
    
    
    544
    
    
    
    
    
    
    
    591Other long-term debtBank loans
    
    
    21
    
    
    
    
    
    
    
    16Financial lease commitments
    
    
    3,295
    
    
    
    
    
    
    
    3,645Other loans
    
    
    427
    
    
    
    
    
    
    
    3283,743
    
    
    
    
    
    
    
    3,989of which maturing in 2003/2004 and 2002/2003 respectively
    
    
    316
    
    
    
    
    
    
    
    1633,427
    
    
    
    
    
    
    
    3,8263,971
    
    
    
    
    
    
    
    4,417


Subordinated loans

In certain circumstances, KLM has the right to redeem the subordinated
perpetual loans, with or without payment of a premium.

These loans are subordinated to all other existing and future KLM debts. The
subordinations are equal in rank.

Financial lease commitments

As of March 31, 2003, loans to financing institutions, which are deducted from
the financial lease commitments, amounted to EUR 317 million (last fiscal year
EUR 382 million).

Covenants

Several loans, including subordinated perpetual loans, can be called if KLM can
no longer be regarded as the most important Dutch international airline.
Pari-passu clauses have been agreed for a number of loans. With regard to a
number of other loans included under Long-term debt, KLM has undertaken not to
encumber the aircraft and real estate legally owned now or in the future
without prior consent of the lenders.

Redemption
    
    Redemptionthrough
    
    afterTerm
    
    5 years
    
    5 years
    
    Perpetual
    
    TotalSubordinated perpetual loans
    
    
    
    
    
    
    
    
    
    
    544
    
    
    
    544Financial lease commitments
    
    
    1,557
    
    
    
    1,487
    
    
    
    
    
    
    
    3,044Other loans
    
    
    172
    
    
    
    211
    
    
    
    
    
    
    
    383March 31, 2003
    
    
    1,729
    
    
    
    1,698
    
    
    
    544
    
    
    
    3,971March 31, 2002
    
    
    1,482
    
    
    
    2,344
    
    
    
    591
    
    
    
    4,417


F-14



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

8. Long-term debt  (Continued)

Interest rates

The financing benefits including the effects of derivatives amortized are
included in the average interest rates.

Variable
    
    Fixed
    
    Average
    
    Rangeinterest
    
    interest
    
    variable
    
    of fixed
    
    Averageloans
    
    loans
    
    rate
    
    rates
    
    rateSubordinated perpetual loans
    
    
    68
    
    
    
    476
    
    
    
    2.6
    
    
    
    4.5 - 5.8
    
    
    
    4.7Financial lease commitments
    
    
    1,326
    
    
    
    1,718
    
    
    
    3.8
    
    
    
    4.5 - 11.3
    
    
    
    4.9Other loans
    
    
    58
    
    
    
    325
    
    
    
    1.4
    
    
    
    1.2 - 6.6
    
    
    
    4.4March 31, 2003
    
    
    1,452
    
    
    
    2,519March 31, 2002
    
    
    1,660
    
    
    
    2,757


Variable interest rates are based on London and Euro Interbank Offered Rates.

Currencies

The amounts stated in the table below including the effects of derivatives are
presented in millions of euros for each currency.

EUR
    
    USD
    
    JPY
    
    CHF
    
    GBP
    
    TotalSubordinated perpetual loans
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    544Financial lease commitments
    
    
    2,156
    
    
    
    766
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    3,044Other loans
    
    
    290
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    383March 31, 2003
    
    
    2,705
    
    
    
    858
    
    
    
    
    
    
    
    285
    
    
    
    123
    
    
    
    3,971March 31, 2002
    
    
    2,660
    
    
    
    1,199
    
    
    
    73
    
    
    
    331
    
    
    
    154
    
    
    
    4,417


Fair value of long-term debt

March 31, 2003
    
    March 31, 2002Subordinated perpetual loans
    
    
    499
    
    
    
    471Financial lease commitments
    
    
    3,222
    
    
    
    3,373of which maturing within one year
    
    
    251
    
    
    
    139Other long-term debt
    
    
    177
    
    
    
    267of which maturing within one year
    
    
    65
    
    
    
    24


The fair value estimates referred to above are based on the present value of
the debt (including the effects of derivatives) based on a current interest
rate.

F-15



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

9. Provisions

March 31,March 31, 2002
    
    Charges
    
    Additions
    
    2003Postretirement health costs
    
    
    67
    
    
    
    5
    
    
    
    7
    
    
    
    69Early retirement provision
    
    
    17
    
    
    
    8
    
    
    
    22
    
    
    
    31Other staff commitments
    
    
    73
    
    
    
    16
    
    
    
    15
    
    
    
    72Frequent flyer program
    
    
    20
    
    
    
    
    
    
    
    4
    
    
    
    24Reorganization and restructuring
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75177
    
    
    
    29
    
    
    
    123
    
    
    
    271


The Postretirement health costs provision relates to health insurance
contributions payable in respect of retired employees.

In accordance with the collective labor agreement, an Early retirement
provision has been formed in respect of existing early retirement entitlements.

Other staff commitments include commitments in respect of redundancy and
supplementary schemes.

The provision for the Frequent flyer program represents the estimated
commitments in respect of the KLM loyalty program.

The Reorganization and restructuring provision relates to the estimated staff
redundancy costs for the plans announced on March 31, 2003, and which had been
communicated to those concerned before the preparation of these financial
statements.

With the exception of the Reorganization and restructuring provision,
provisions are mainly long-term in nature.

10. Deferred credits

March 31, 2003
    
    March 31, 2002Investment incentive grants received under the Investment Account Act
    
    
    20
    
    
    
    30Items related to aircraft financing
    
    
    236
    
    
    
    235256
    
    
    
    265


The investment incentive grants received under the Investment Account Act
included under this heading relate to the grants claimed before the amendment
of the Act as of May 1, 1986.

Items related to aircraft financing relate to the upfront financing benefits to
be amortized.

F-16



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

11. Stockholders equity

For a break-down of Stockholders
equity, please refer to Note 35.

12. Commitments and contingent liabilities

Commitments for tangible fixed assets on order or under construction

As of March 31, 2003, KLM had commitments for previously placed orders of EUR
1,087 million (last fiscal year
EUR 677 million). Of this amount EUR 1,042 million related to aircraft
(last fiscal year EUR 639 million), of which EUR 516 million is due in fiscal
year 2003/2004. The remainder of the commitments as of March 31, 2003 amounted
to EUR 45 million (last fiscal year EUR 38 million) and related to other
tangible fixed assets.

Contingent liabilities regarding
fleet retirement

For a number of aircraft held under operational leases, there is a contractual
obligation to the lessor to redeliver the aircraft in accordance with an agreed
maintenance state. Any costs incurred for the fulfillment of this obligation
will depend in part on the flight hours of the aircraft to the end of fiscal
year 2008/2009 and cannot be reasonably estimated at present.

Rental agreements

KLM has long-term rental commitments amounting to EUR 1,517 million (last
fiscal year EUR 752 million). Commitments for the next five fiscal years and
thereafter:

Operational leases
    
    Rental ofof aircraft
    
    buildings2003/2004
    
    
    190
    
    
    
    372004/2005
    
    
    203
    
    
    
    262005/2006
    
    
    182
    
    
    
    242006/2007
    
    
    149
    
    
    
    202007/2008
    
    
    95
    
    
    
    17after 2007/2008
    
    
    355
    
    
    
    219


13. Lawsuits

KLM and its consolidated holdings are involved in various legal actions.
Although the outcome of these actions cannot be predicted, on the basis of
information currently available and views expressed by counsel KLM does not
expect their outcome to adversely affect the financial position of the company
to any material degree.

F-17



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

14. Derivatives and risk management

The table below indicates the notional amounts of forward exchange contracts,
interest rate and currency swap contracts and fuel collar and swap contracts.
In principle, the terms of the contracts are equal to the terms of the
positions hedged. These derivatives are used to ensure that financings are
concluded in the currency required and to reduce interest risks resulting from
financings and investments to levels acceptable to KLM. Derivatives are also
used to hedge the currency risks on all or part of the operating and investment
cash flow and to limit the price risk on fuel purchases.

Notional amount March 31
    
    Fair value March 312003
    
    2002
    
    2003
    
    2002Forward exchange contracts
    
    
    2,519
    
    
    
    1,014
    
    
    
    (55
    )
    
    
    47Interest-currency swap contracts
    
    
    1,403
    
    
    
    1,383
    
    
    
    274
    
    
    
    454Interest rate swap contracts
    
    
    1,907
    
    
    
    1,975
    
    
    
    (11
    )
    
    
    19Fuel collar and swap contracts
    
    
    368
    
    
    
    545
    
    
    
    (11
    )
    
    
    (16
    )197
    
    
    
    504


The fair value of the above derivatives is recognized in KLMs balance sheet
under Financial fixed assets (EUR 482 million) and Long-term debt (EUR 285
million). In view of the purpose for which they are held, derivatives may be
qualified as follows:

March 31, 2003
    
    March 31, 2002Cash flow hedges
    
    
    4
    
    
    
    57Fair value hedges
    
    
    188
    
    
    
    441No hedge accounting
    
    
    5
    
    
    
    6Fair value
    
    
    197
    
    
    
    504


F-18



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Operating revenues

15. Traffic revenue

For the Years Ended March 31,2003
    
    2002
    
    2001Passengers
    
    
    4,210
    
    
    
    4,267
    
    
    
    4,527Cargo
    
    
    1,017
    
    
    
    1,016
    
    
    
    1,109Charter / Low Cost
    
    
    553
    
    
    
    543
    
    
    
    4905,780
    
    
    
    5,826
    
    
    
    6,126


16. Other revenue

For the Years Ended March 31,2003
    
    2002
    
    2001Maintenance and other technical work
    
    
    280
    
    
    
    273
    
    
    
    273Cargo and mail handling
    
    
    40
    
    
    
    39
    
    
    
    131Tax-free sales
    
    
    115
    
    
    
    107
    
    
    
    104Aircraft handling
    
    
    105
    
    
    
    92
    
    
    
    93Miscellaneous
    
    
    165
    
    
    
    195
    
    
    
    233705
    
    
    
    706
    
    
    
    834


These services have been rendered mainly in The Netherlands.

17. Operating expenses

For the Years Ended March 31,2003
    
    2002
    
    2001Salaries and benefits
    
    
    1,907
    
    
    
    1,747
    
    
    
    1,675Aircraft fuel
    
    
    886
    
    
    
    983
    
    
    
    1,038Materials and consumables
    
    
    448
    
    
    
    470
    
    
    
    465Commercial costs
    
    
    499
    
    
    
    506
    
    
    
    593Landing fees and navigation charges
    
    
    541
    
    
    
    524
    
    
    
    515Third-party handling costs
    
    
    208
    
    
    
    231
    
    
    
    222Work by third parties
    
    
    489
    
    
    
    455
    
    
    
    535Depreciation
    
    
    535
    
    
    
    487
    
    
    
    429Operational aircraft lease expenses
    
    
    171
    
    
    
    226
    
    
    
    187Cost of housing, vehicles and inventories
    
    
    186
    
    
    
    180
    
    
    
    211Commercial cooperation
    
    
    117
    
    
    
    176
    
    
    
    214Ad hoc and short-term aircraft/truck rentals
    
    
    99
    
    
    
    153
    
    
    
    153Hired personnel
    
    
    108
    
    
    
    116
    
    
    
    137Other operating expenses
    
    
    424
    
    
    
    372
    
    
    
    309Reorganization costs(1)
    
    
    75
    
    
    
    
    
    
    
    Costs arising from arbitration in legal
dispute between KLM and Alitalia(1)
    
    
    276
    
    
    
    
    
    
    
    6,969
    
    
    
    6,626
    
    
    
    6,683




---

|    |  |                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------
|   
|(1) |  | These costs of exceptional nature were previously classified as
extra-ordinary items, see note 29

F-19



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

18. Salaries

For the Years Ended March 31,2003
    
    2002
    
    2001Salaries
    
    
    1,510
    
    
    
    1,449
    
    
    
    1,329Benefits
    
    
    167
    
    
    
    154
    
    
    
    199Pension fund contributions
    
    
    230
    
    
    
    144
    
    
    
    1471,907
    
    
    
    1,747
    
    
    
    1,675


The increase in Pension fund contributions was due largely to higher basic
contributions and higher prepension and retirement charges. Pension fund
contributions also include the positive effects of the restitution of ground
staff pension fund surpluses to an amount of EUR 46 million (last fiscal year
EUR 53 million).

During the fiscal year KLM and its Group companies employed combined average
workforce of 33,038 full-time equivalents (last fiscal year 33,265 full-time
equivalents), as follows:

For the Years Ended March 31,2003
    
    2002
    
    2001Ground staff in The Netherlands
    
    
    18,255
    
    
    
    17,951
    
    
    
    17,600Ground staff outside The Netherlands
    
    
    4,848
    
    
    
    5,421
    
    
    
    6,439Flight staff
    
    
    9,935
    
    
    
    9,893
    
    
    
    9,72433,038
    
    
    
    33,265
    
    
    
    33,763


19. Depreciation and amortization

For the Years Ended March 31,2003
    
    2002
    
    2001Amortization of intangible fixed assets
    
    
    17
    
    
    
    12
    
    
    
    10Depreciation of aircraft and spare components
    
    
    382
    
    
    
    383
    
    
    
    330Write down/impairment
    
    
    78
    
    
    
    17
    
    
    
    Depreciation of other tangible fixed assets
    
    
    84
    
    
    
    90
    
    
    
    99561
    
    
    
    502
    
    
    
    439Amortization of deferred credits
    
    
    (26
    )
    
    
    (15
    )
    
    
    (10
    )535
    
    
    
    487
    
    
    
    429


20. Financial income and expense

For the Years Ended March 31,2003
    
    2002
    
    2001Interest income from financial fixed assets
    
    
    20
    
    
    
    39
    
    
    
    59Other interest income
    
    
    11
    
    
    
    21
    
    
    
    12Changes in the value of marketable securities
    
    
    15
    
    
    
    (2
    )
    
    
    (1
    )Interest expense
    
    
    (155
    )
    
    
    (193
    )
    
    
    (212
    )Capitalized interest incurred through advance payments
on tangible fixed assets
    
    
    11
    
    
    
    2
    
    
    
    4Unrealized results on derivatives
    
    
    
    
    
    
    (1
    )
    
    
    (98
    )
    
    
    (134
    )
    
    
    (138
    )


F-20



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

21. Results on sale of assets

The 2002/2003 loss on sale of assets of EUR 42 million relates to principally
to the sale of aircraft (EUR 33 million) and the sale of KLM uks low cost buzz
activities (EUR 9 million), which were sold on April 11, 2003.

22. Results of holdings

For the Years Ended March 31,2003
    
    2002
    
    2001Aviation
    
    
    1
    
    
    
    (14
    )
    
    
    (17
    )Aviation-related
    
    
    (8
    )
    
    
    (1
    )
    
    
    Other holdings
    
    
    3
    
    
    
    
    
    
    
    (4
    )(4
    )
    
    
    (15
    )
    
    
    (21
    )


23. Results on sale of holdings

Results on sale of holdings relates to the sale of aviation-related holdings
and other holdings.

24. Taxes

The effective tax burden differs from the current tax rate (34.5%). For
2002/2003 the effective tax rate was 33%. The difference between the effective
and standard rate can be explained as follows:

For the Years Ended March 31,2003
    
    2002
    
    2001Standard rate taxation
    
    
    214
    
    
    
    79
    
    
    
    (52
    )Participation exemption
    
    
    1
    
    
    
    (1
    )
    
    
    (6
    )Foreign tax issues
    
    
    (13
    )
    
    
    (13
    )
    
    
    (12
    )Other permanent differences
    
    
    4
    
    
    
    3
    
    
    
    (3
    )Effective rate taxation
    
    
    206
    
    
    
    68
    
    
    
    (73
    )


25. Extraordinary items after tax

Note has been deleted, please refer to
note 29

F-21



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

26. Segmentation

The segmental breakdown is based on the classification of KLMs four core
activities and accountability areas as agreed upon in fiscal year 2002/2003.
The classification differs slightly from the segmentation presented in previous
fiscal years. Figures for 2001/2002 have been restated for comparative
purposes.

The segment Other includes the cost of shared-services, such as overheads and
certain expense and revenue items that are not attributable to the core
activities. The decline in operating income in this segment was due chiefly to
higher prepension and retirement costs, higher insurance premiums and the
compensation received from the Dutch government in 2001/2002 in connection with
the closure of U.S. airspace in the period September 11  14, 2001.

Engineering
    
    
    
    
    
    
    
    
    
    Elimination&
    
    Charter /
    
    
    
    
    
    of inter-
    
    Total2002/2003
    
    Passenger
    
    Cargo
    
    Maintenance
    
    Low Cost
    
    All other
    
    segments
    
    consolidatedOperating revenuesOperating revenues from
external customers
    
    
    4,425
    
    
    
    1,068
    
    
    
    329
    
    
    
    590
    
    
    
    73
    
    
    
    
    
    
    
    6,485Intersegment revenues
    
    
    553
    
    
    
    31
    
    
    
    639
    
    
    
    
    
    
    
    151
    
    
    
    (1,374
    )
    
    
    4,978
    
    
    
    1,099
    
    
    
    968
    
    
    
    590
    
    
    
    224
    
    
    
    (1,374
    )
    
    
    6,485Operating expenses(1)
    
    
    5,003
    
    
    
    1,027
    
    
    
    927
    
    
    
    592
    
    
    
    794
    
    
    
    (1,374
    )
    
    
    6,969Operating income (loss)
    
    
    (25
    )
    
    
    72
    
    
    
    41
    
    
    
    (2
    )
    
    
    (570
    )
    
    
    
    
    
    
    (484
    )Interest revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46Results of holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (186
    )Pretax income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (622
    )Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206After tax income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )Share of third parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )Total assets
    
    
    4,474
    
    
    
    254
    
    
    
    666
    
    
    
    751
    
    
    
    2,020
    
    
    
    
    
    
    
    8,165Total liabilities
    
    
    4,308
    
    
    
    168
    
    
    
    632
    
    
    
    614
    
    
    
    710
    
    
    
    
    
    
    
    6,432Commitments for tangible fixed
assets on order or under
construction
    
    
    705
    
    
    
    225
    
    
    
    11
    
    
    
    120
    
    
    
    26
    
    
    
    
    
    
    
    1,087Capital expenditure
    
    
    554
    
    
    
    222
    
    
    
    19
    
    
    
    116
    
    
    
    28
    
    
    
    
    
    
    
    939Depreciation and amortization
    
    
    426
    
    
    
    14
    
    
    
    33
    
    
    
    28
    
    
    
    34
    
    
    
    
    
    
    
    535




---

|(1) |  | Operating expenses includes a write down of EUR 78 million for the Boeing
747-300 fleet: Passenger EUR 58 million, Cargo EUR 20 million
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

F-22



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES

EliminationEngineering &
    
    Charter /
    
    
    
    
    
    of inter-
    
    Total2001/2002
    
    Passenger
    
    Cargo
    
    Maintenance
    
    Low Cost
    
    All other
    
    segments
    
    consolidatedOperating revenuesOperating revenues from
external customers
    
    
    4,485
    
    
    
    1,067
    
    
    
    288
    
    
    
    565
    
    
    
    127
    
    
    
    
    
    
    
    6,532Intersegment revenues
    
    
    567
    
    
    
    
    
    
    
    675
    
    
    
    
    
    
    
    146
    
    
    
    (1,388
    )
    
    
    5,052
    
    
    
    1,067
    
    
    
    963
    
    
    
    565
    
    
    
    273
    
    
    
    (1,388
    )
    
    
    6,532Operating expenses
    
    
    5,193
    
    
    
    1,020
    
    
    
    912
    
    
    
    574
    
    
    
    315
    
    
    
    (1,388
    )
    
    
    6,626Operating income (loss)
    
    
    (141
    )
    
    
    47
    
    
    
    51
    
    
    
    (9
    )
    
    
    (42
    )
    
    
    
    
    
    
    (94
    )Interest revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Results of holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182
    )Pretax income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68After tax income (loss)
before extraordinary items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )Extraordinary items after tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )Total assets
    
    
    4,908
    
    
    
    298
    
    
    
    641
    
    
    
    576
    
    
    
    2,520
    
    
    
    
    
    
    
    8,943Total liabilities
    
    
    4,866
    
    
    
    206
    
    
    
    590
    
    
    
    413
    
    
    
    611
    
    
    
    
    
    
    
    6,686Commitments for tangible fixed assets
on order or under construction
    
    
    11
    
    
    
    423
    
    
    
    1
    
    
    
    217
    
    
    
    25
    
    
    
    
    
    
    
    677Capital expenditure
    
    
    192
    
    
    
    3
    
    
    
    3
    
    
    
    2
    
    
    
    35
    
    
    
    
    
    
    
    235Depreciation and amortization
    
    
    369
    
    
    
    27
    
    
    
    31
    
    
    
    29
    
    
    
    31
    
    
    
    
    
    
    
    487


Passenger
    
    
    
    
    
    Engineering
    
    
    
    
    
    
    
    
    
    Cash andincl. KLM
    
    
    
    
    
    &
    
    Consolidated
    
    
    
    
    
    marketable
    
    Eliminations
    
    Total2000/2001
    
    cityhopper
    
    Cargo
    
    Maintenance
    
    holdings
    
    All other(1)
    
    securities(2)
    
    of inter-
    
    consolidatedOperating revenuesOperating revenues from
external customers
    
    
    4,545
    
    
    
    1178
    
    
    
    273
    
    
    
    964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,960Intersegment revenues
    
    
    540
    
    
    
    
    
    
    
    536
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    (1,426
    )
    
    
    5,085
    
    
    
    1178
    
    
    
    809
    
    
    
    1,314
    
    
    
    
    
    
    
    
    
    
    
    (1426
    )
    
    
    6,960Operating expenses
    
    
    5,117
    
    
    
    1047
    
    
    
    755
    
    
    
    1,271
    
    
    
    (81
    )
    
    
    
    
    
    
    (1,426
    )
    
    
    6,683Operating income
    
    
    (32
    )
    
    
    131
    
    
    
    54
    
    
    
    43
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    277Interest revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Results of holdings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (181
    )Pretax income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )After tax income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Share of third parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77Total assets
    
    
    3,644
    
    
    
    278
    
    
    
    680
    
    
    
    2,212
    
    
    
    931
    
    
    
    845
    
    
    
    
    
    
    
    8,590Commitments for tangible
fixed assets
on order or under construction
    
    
    118
    
    
    
    0
    
    
    
    1
    
    
    
    521
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    648Capital expenditure
    
    
    337
    
    
    
    8
    
    
    
    15
    
    
    
    237
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    610Depreciation and amortization
    
    
    240
    
    
    
    15
    
    
    
    28
    
    
    
    115
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    429




---

|(1) |  | All other includes other KLM Company departments and unallocated gains and
losses                        
|--- |  | ---------------------------------------------------------------------------------------------------------
|   
|(2) |  | Cash and marketable securities are stated separately because they form a
significant part of total assets

F-23



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES

26. Segmentation  (Continued)

Consolidated information by geographic area (route areas)

In millions of euros

March 31, 2003
    
    March 31, 2002
    
    March 31, 2001Tangible/
    
    
    
    
    
    
    
    
    
    Tangible/
    
    
    
    
    
    
    
    
    
    Tangible/Operating
    
    Intangible
    
    Capital
    
    Operating
    
    Intangible
    
    Capital
    
    Operating
    
    Intangible
    
    Capitalrevenue
    
    fixed assets(1)
    
    expenditure(1)
    
    revenue
    
    fixed assets(1)
    
    expenditure(1)
    
    revenue
    
    fixed assets(1)
    
    expenditure(1)Europe
    
    
    2,496
    
    
    
    1,450
    
    
    
    138
    
    
    
    2,427
    
    
    
    1,980
    
    
    
    124
    
    
    
    2,602
    
    
    
    2,414
    
    
    
    332North Atlantic
    
    
    1,032
    
    
    
    
    
    
    
    
    
    
    
    1,118
    
    
    
    
    
    
    
    
    
    
    
    1,338Asia Pacific
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    1,318
    
    
    
    
    
    
    
    
    
    
    
    1,350Central and South
Atlantic
    
    
    535
    
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    508Middle East/South Asia
    
    
    413
    
    
    
    
    
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    
    
    
    
    460Africa
    
    
    542
    
    
    
    
    
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    
    
    
    
    442All Other
    
    
    267
    
    
    
    3,598
    
    
    
    801
    
    
    
    268
    
    
    
    3,180
    
    
    
    111
    
    
    
    260
    
    
    
    2,887
    
    
    
    278Total consolidated
    
    
    6,485
    
    
    
    5,048
    
    
    
    939
    
    
    
    6,532
    
    
    
    5,160
    
    
    
    235
    
    
    
    6,960
    
    
    
    5,301
    
    
    
    610


27. Related-party transactions

As part of its normal activities, KLM enters into arms length transactions
with related parties in respect of the temporary chartering of aircraft and the
financing of certain minority holdings.



---

|(1) |  | KLMs tangible fixed assets consist principally of aircraft. The narrow body fleet is flown in the European
route area only and can therefore be disclosed separately. The wide body fleet is mobile across geographical markets and is
therefore included at book value under Other
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-24



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. Differences between Netherlands GAAP and US GAAP

The Netherlands accounting principles (Netherlands GAAP) applied in the
preparation of the Consolidated Financial Statements of the Company differ in
some respects from those generally accepted in the United States (US GAAP). It
is noted that KLMs accounting policy for post-retirement benefits other than
pensions and the policy for derivatives and hedge accounting as applied in the
consolidated Financial Statements follow SFAS 106 and SFAS 133/138
respectively.

On April 11, 2003, the company sold KLM UKs low fare business, buzz, to
Ryanair. Under Netherlands GAAP, the company recorded a loss of  9 million in
fiscal year 2002/03 to reflect the net effect of sales proceeds to be received
from Ryanair, costs arising from arrangements under the buzz sales agreement
(which can be characterized as impairment losses on certain fleet assets) and
staff redundancy costs to be borne by KLM UK in connection with the
transaction.

Under Netherlands GAAP the sale of the buzz operation is not considered as a
discontinued operation since KLM has not disposed of a significant separate
activity as defined under Netherlands GAAP. KLM is still operating a low cost
business segment consisting of Transavias Basiqair.
Under US GAAP, buzz is considered as a discontinued operation from April 11,
2003 as it qualifies as a component of an entity under SFAS 144. The financial statements have been
amended to reflect this discontinued operation, please refer to
note 29 for further explanation thereof. Buzz was part
of KLMs charter/low cost business segment.

Certain costs, including impairment charges, totalling  9 million were
recognized in 2002/03. The sales proceeds
(
20 million), less book value of related assets
(1 million), less relating
operating costs, including termination benefits, were recognized in April 2003
and netted out to be approximately zero.

Operating revenues from the
discontinued operation for the years ended March 31, 2003, 2002 and
2001 were
 118
million,  120 million and
 91 million
respectively.

Pretax losses from the discontinued
operation for the years ended March 31, 2003, 2002 and 2001
were  33 million,  30 million and  55 million respectively.

Other differences which have a material effect on the financial statements

(1) Under Netherlands GAAP, goodwill acquired prior to March 31, 1994 was
charged directly to equity. KLM now
amortises goodwill over 5 to 10 years in response to the rapidly evolving
environment in the airline industry. Under US
GAAP goodwill and intangible assets with indefinite useful lives are no
longer amortized but annually tested for
impairment.

(2) Pension costs included in the Consolidated Statements of Earnings is
computed in accordance with Netherlands GAAP. For the Companys defined benefit
plans, those amounts are based on the actuarially determined premiums which the
Company is required to pay, adjusted for restitutions of structural surpluses
and discounts received by KLM from its pension funds. Pension expense for US
GAAP purposes is determined in accordance with FASB Statement No. 87,
Employers Accounting for Pensions. The US GAAP adjustment is the difference
between amounts recorded under Netherlands GAAP and pension expense as
determined under SFAS No. 87.

SFAS 106 Postretirement benefits is already implemented in the Netherlands
GAAP financial statements.

(3) Under Netherlands GAAP, KLM recognises an in-substance defeasance of
certain financial lease commitments when the Company places deposits with
financial institutions and matches the cash flows from the deposits with
scheduled payments on the lease commitments through pledge and escrow
agreements. Under US GAAP, debt can not be extinguished by providing
arrangements designed to set aside assets dedicated to eventually settling a
liability. The US GAAP adjustment increases financial fixed assets and lease
commitments classified as other long-term debt. These financial fixed assets
are restricted solely for the payment of the related lease commitments.

(4) Under Netherlands GAAP, KLM formed a provision for reorganization and
restructuring related to the estimated staff redundancy costs for the plans
announced on March 31, 2003. Under US GAAP costs of this nature generally are
recorded when they are incurred. The reorganization costs recognized under
Netherlands GAAP do not meet the criteria of recognition under US GAAP.
Consequently charges against this provision in later years are reconciled in
net income for US GAAP purposes.

(5) Under Netherlands GAAP the cumulative effects of changes in accounting
policies were included as direct movements in Other reserves in fiscal year
2001/2002. Under US GAAP the effects of changes in accounting policies are
included in income. Furthermore, Netherlands GAAP allows direct equity
movements in a limited number of circumstances. US GAAP however has severe
restrictions with respect to the application of direct equity movements.
Consequently some direct equity movements under Netherlands GAAP need to be
included in earnings under US GAAP. Retroactive application of the accounting
change would have had a limited impact on (pro forma) net income for the year
2000/2001.

F-25



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

The following tables summarise the effects of US GAAP differences on the net
income, stockholders equity, intangible fixed assets, financial fixed assets,
deferred taxes, prepaid expenses, current liabilities, long-term debt and
provisions (in millions, except per share data):

For the years ended March 31,Net income
    
    2003
    
    2002
    
    2001Net income in conformity with Netherlands GAAP
    
    
    (416
    )
    
    
    (156
    )
    
    
    77(1) Goodwill
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )(2) Pensions
    
    
    172
    
    
    
    168
    
    
    
    211(4) Reorganization provision
    
    
    75
    
    
    
    (25
    )
    
    
    (88
    )(5) Adjustment in respect of direct equity movements
    
    
    (12
    )
    
    
    (9
    )
    
    
    (5) Changes in accounting policies
    
    
    
    
    
    
    109
    
    
    
    (6) Income tax effect
    
    
    (85
    )
    
    
    (86
    )
    
    
    (43
    )Total adjustments
    
    
    149
    
    
    
    154
    
    
    
    77Net income in conformity with US GAAP
    
    
    (267
    )
    
    
    (2
    )
    
    
    154Result from continuing operations
    
    
    (234
    )
    
    
    28
    
    
    
    209Result from discontinued operations
    
    
    (33
    )
    
    
    (30
    )
    
    
    (55
    )Net income in conformity with US GAAP
    
    
    (267
    )
    
    
    (2
    )
    
    
    154Net Income per common share(1,2) (restated, see note 29)Basic
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30Diluted
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30Income from continuing operations per common share(1,2)Basic
    
    
    (5.23
    )
    
    
    0.57
    
    
    
    4.49Diluted
    
    
    (5.23
    )
    
    
    0.57
    
    
    
    4.49Income from discontinued operations per common share(2)Basic
    
    
    (0.74
    )
    
    
    (0.65
    )
    
    
    (1.19
    )Diluted
    
    
    (0.74
    )
    
    
    (0.65
    )
    
    
    (1.19
    )Average number of common shares outstanding(2) (restated, see note 29)(in thousands of shares)Basic
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133Diluted
    
    
    45,071
    
    
    
    45,682
    
    
    
    46,133


Stockholders equity
    
    March 31, 2003
    
    March 31, 2002Stockholders equity in conformity with Netherlands GAAP
    
    
    1,476
    
    
    
    1,992(1) Goodwill
    
    
    4
    
    
    
    5(2) Pensions
    
    
    2,010
    
    
    
    1,876(4) Reorganization provision
    
    
    75
    
    
    
    0(6) Income tax effect
    
    
    (738
    )
    
    
    (653
    )Total adjustments
    
    
    1,351
    
    
    
    1,228Stockholders equity in conformity with US GAAP
    
    
    2,827
    
    
    
    3,220


The results of sale of assets and results of sale of holdings are presented as
separate line items below operating income under Netherlands GAAP. Under US
GAAP, these results are included in operating income.



---

|(1) |  | Taking account of other beneficiaries in results and equity                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Earnings per share calculations calculations for the year ended March 31,
2003 are exclusive of any shares held by KLM. Outstanding shares
used for the earnings per share calculations are based on the weighted
average outstanding shares during the year. The earnings per share
figures for each of the years ended March 31, 2002 and March 31, 2001 have
been restated as explained in note 29.
|   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                       

F-26



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Intangible fixed assets
    
    March 31, 2003
    
    March 31, 2002Intangible fixed assets in conformity with Netherlands GAAP
    
    
    66
    
    
    
    56(1) Goodwill
    
    
    4
    
    
    
    5Intangible fixed assets in conformity with US GAAP
    
    
    70
    
    
    
    61


Financial fixed assets
    
    March 31, 2003
    
    March 31, 2002Financial fixed assets in conformity with Netherlands GAAP
    
    
    1,289
    
    
    
    1,264Reclassification of deferred tax position
    
    
    (128
    )
    
    
    100(3) In-substance defeasance of lease obligations
    
    
    317
    
    
    
    382Financial fixed assets in conformity with US GAAP
    
    
    1,478
    
    
    
    1,746


Deferred taxes
    
    March 31, 2003
    
    March 31, 2002Net deferred tax position in conformity with Netherlands GAAP
    
    
    128
    
    
    
    (100
    )(2) Income tax effect on OCI movement with regard to minimum
pension liability
    
    
    13
    
    
    
    (6) Income tax effect
    
    
    (738
    )
    
    
    (653
    )Net deferred tax liability in conformity with US GAAP
    
    
    (597
    )
    
    
    (753
    )


Prepaid expenses
    
    March 31, 2003
    
    March 31, 2002Prepaid expenses in conformity with Netherlands GAAP
    
    
    213
    
    
    
    267(2) Pension costs
    
    
    1,973
    
    
    
    1,876Prepaid expenses in conformity with US GAAP
    
    
    2,186
    
    
    
    2,143


Current liabilities
    
    March 31, 2003
    
    March 31, 2002Current liabilities in conformity with Netherlands GAAP
    
    
    2,190
    
    
    
    2,092(2) Pension costs
    
    
    (7
    )
    
    
    Current liabilities in conformity with US GAAP
    
    
    2,183
    
    
    
    2,092


Long-term debt
    
    March 31, 2003
    
    March 31, 2002Other long-term debt in conformity with Netherlands GAAP
    
    
    3,427
    
    
    
    3,826(3) In-substance defeasance of lease obligations
    
    
    317
    
    
    
    382Other long-term debt in conformity with US GAAP
    
    
    3,744
    
    
    
    4,208


F-27



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Provisions
    
    March 31, 2003
    
    March 31, 2002Provisions in conformity with Netherlands GAAP
    
    
    271
    
    
    
    177(2) Early retirement provision
    
    
    (17
    )
    
    
    (5) Reorganization provision
    
    
    (75
    )
    
    
    Provisions in conformity with US GAAP
    
    
    179
    
    
    
    177


The following are additional disclosures to comply with generally accepted
accounting principles in the United States of America:

Accounting for leases (SFAS 13 / SFAS 125)

KLM has entered into several cross-border financial lease transactions. In
general these transactions involve the purchase of an aircraft by a tax paying
investor (the lessor) and the simultaneous contracting by KLM (lessee) for the
use of the aircraft in return for specified rental payments over a specific
term of 12 to 15 years. Notwithstanding the ownership of the aircraft by the
lessor, KLM wants to be able to control and operate the aircraft in the same
manner as it would if it was the owner.

The leveraged cross-border lease is a variation that introduces a third party
lender into the transaction. The lessor, in conjunction with the lessee, will
seek to finance 50-90 per cent of the assets cost by borrowing the funds on a
non-recourse basis from banks. While the lessor actually invests only 10-50
percent of the cost of the aircraft, it will be entitled to 100 per cent of the
tax benefits of ownership and thus can be said to have leveraged its equity
investment by utilizing the non-recourse borrowing. The advantage of the lessor
in such circumstances is in part transferred to KLM resulting in lower rental
payments.

KLM concluded (leveraged) cross-border capital leases for a total of 72
aircraft, where the risk and return of ownership remains with KLM as lessee.

As per March 31, 2003 and 2002 the Company had financial lease commitments for
EUR 3,612 million and EUR 4,027 million, respectively.

The redemption of financial leases for each of the following fiscal years are
(in millions):

2003/2004
    
    
    2852004/2005
    
    
    1522005/2006
    
    
    3992006/2007
    
    
    4932007/2008
    
    
    700after 2007/2008
    
    
    1,583


As of March 31, 2003 and 2002 the book value of assets (aircraft) for which
financial lease commitments have been concluded amounted to EUR 2,538 million
and EUR 2,839 million, respectively.

The majority of the financial lease commitments had fixed interest rates which
ranged from 4.5% to 11.3%. Variable rate commitments averaged, after taking
interest rate contracts into account, 3.8% for fiscal 2002/2003. The overall
average interest percentage on financial lease commitments was 4.9%.

F-28



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Disclosure on the fair value of financial instruments (SFAS 107)

Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price, if
one exists. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
Although management uses its best judgement in estimating the fair value of
these financial instruments, there are inherent weaknesses in any estimation
technique. Therefore the estimates presented are not necessarily indicative of
the amounts that the Company could realise in a current market exchange or the
value that ultimately will be realised by the Company upon maturity or
disposition.

The following table summarises the carrying amounts and estimated fair values
of the Groups financial
instruments:

March 31, 2003
    
    March 31, 2002Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAssets
    
    amount
    
    fair value
    
    amount
    
    fair valueFinancial fixed assets- Receivables from holdings
    
    
    18
    
    
    
    18
    
    
    
    22
    
    
    
    22- Triple A bonds/deposits
    
    
    311
    
    
    
    371
    
    
    
    354
    
    
    
    395- Derivatives
    
    
    482
    
    
    
    482
    
    
    
    589
    
    
    
    589- Other financial fixed assets
    
    
    152
    
    
    
    152
    
    
    
    198
    
    
    
    217Marketable securities
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Cash
    
    
    608
    
    
    
    608
    
    
    
    1,027
    
    
    
    1,027LiabilitiesPerpetual debt
    
    
    544
    
    
    
    499
    
    
    
    591
    
    
    
    471Financial lease commitments
    
    
    3,295
    
    
    
    3,222
    
    
    
    3,645
    
    
    
    3,373- maturing within one year
    
    
    (251
    )
    
    
    (251
    )
    
    
    (139
    )
    
    
    (139
    )Other long-term debt
    
    
    448
    
    
    
    177
    
    
    
    344
    
    
    
    267- maturing within one year
    
    
    (65
    )
    
    
    (65
    )
    
    
    (24
    )
    
    
    (24
    )Current liabilities
    
    
    2,190
    
    
    
    2,190
    
    
    
    2,092
    
    
    
    2,092


Concentration of credit risk (SFAS 105)

Most of the holdings are air transport related holdings. As of March 31, 2003
and 2002 total holdings and receivables from holdings in air transport or
related industries amounted to EUR 164 million and EUR 171 million
respectively.

Of the commitments for tangible fixed assets on order or under construction,
EUR 1,042 million and EUR 639 million as of March 31, 2003 and 2002
respectively, relates to aircraft. The advance payments on aircraft amounted to
EUR 604 million and EUR 23 million as of March 31, 2003 and 2002, respectively.

Other disclosures concerning these statements are included in Item
11-Quantitative and qualitative disclosures about market risk.

Interest rates

Interest rates excluding the effects of derivatives are as follows:

Average
    
    Rangevariable
    
    of fixed
    
    Averagerate
    
    rates
    
    rate2002/2003Subordinated perpetual loans
    
    
    
    
    
    
    5.25 - 5.75
    
    
    
    5.44Financial lease commitments
    
    
    3.66
    
    
    
    4.4 - 11.3
    
    
    
    7.04Other loans
    
    
    1.40
    
    
    
    1.2 - 6.6
    
    
    
    4.402001/2002Subordinated perpetual loans
    
    
    
    
    
    
    5.25 - 5.75
    
    
    
    5.43Financial lease commitments
    
    
    4.13
    
    
    
    4.5 - 11.4
    
    
    
    6.94Other loans
    
    
    2.55
    
    
    
    1.15 - 9.25
    
    
    
    5.55


See
pages F-1 through F-48 and page S-1, which are incorporated by reference in this annual
report.

Income Taxes

Income before taxes based on Netherlands GAAP, but discussed in accordance with
SFAS 109, is analysed over its component parts as follows:

For the years ended March 31,2003
    
    2002
    
    2001The Netherlands
    
    
    (555
    )
    
    
    (195
    )
    
    
    182Foreign
    
    
    (67
    )
    
    
    (29
    )
    
    
    (32
    )(622
    )
    
    
    (224
    )
    
    
    150


F-29



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and U.S. GAAP  (Continued)

The components of income tax are as follows:

For the years ended March 31,2003
    
    2002
    
    2001The NetherlandsCurrent taxes
    
    
    (133
    )
    
    
    (17
    )
    
    
    Deferred taxes
    
    
    (63
    )
    
    
    (54
    )
    
    
    74ForeignCurrent taxes
    
    
    (10
    )
    
    
    
    
    
    
    Deferred taxes
    
    
    
    
    
    
    3
    
    
    
    (206
    )
    
    
    (68
    )
    
    
    74


The components of income tax entirely relate to taxation on continuing
operations.

A deferred tax benefit of EUR 20 million was recorded through other
comprehensive income in 2002/2003.

The weighted average statutory tax rates reflected in the following table are
computed by applying the applicable current rates to the Companys earnings in
each country.

A reconciliation of the provision for income taxes based on the weighted
average rates with the effective tax rate is summarised below:

For the years ended March 31,2003
    
    2002
    
    2001%
    
    %
    
    %Weighted average percentage, based on current tax rates (benefit)
    
    
    34.5
    
    
    
    35.0
    
    
    
    35.0Tax effect of exempt income and non-deductible expenses
    
    
    (2.5
    )
    
    
    (5.0
    )
    
    
    14.0Effective tax (benefit) rates
    
    
    33.0
    
    
    
    30.0
    
    
    
    49.0


Deferred tax assets are recognized for net operating losses as it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize the deferred tax assets. Deferred tax balances relate
substantially to continuing operations. The net tax benefits on the
discontinued operation for the years ended March 31, 2003, 2002 and
2001 amounted to
15 million,
10 million and
19 million
respectively and have been fully provided for.

The net deferred tax assets or liabilities are determined per fiscal entity.
Offsetting of deferred tax assets and deferred tax liabilities within the same
fiscal entity is restricted to deferred tax assets and liabilities that reverse
in the same period.

Current and non-current deferred taxes, are included in the balance sheet under
receivables in the event, and to the extent, that per fiscal entity total
deferred tax assets exceed total deferred tax liabilities.
Conversely, current and non-current deferred tax liabilities are included under
provisions in the event, and to the extent, that per fiscal entity total
deferred tax liabilities exceed total deferred tax assets.

More detailed information concerning tax effects is disclosed in Note 3
Financial fixed assets of the Notes to the Consolidated Financial
Statements.

F-30



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Pension Costs (SFAS 87/SFAS 132)

Pension benefits of the Companys staff in The Netherlands as well as those of
expatriate Dutch employees are covered by one of three separate contributory
pension plans depending on the category of personnel. Separate plans for ground
staff, cockpit staff and cabin staff are carried out by an independent
foundation. Each plan is administered by a separate independent Board. The
Company has no influence on investments and no direct influence on funding.
Plan assets consist primarily of government and corporate debt securities,
marketable equity securities, real estate (funds) and money market fund shares.
No investment exist in KLM shares or in KLM real estate. For UK based staff
two separate contributory pension plans exist with different sections for
different groups of employees. Each plan is administrated by an independent
trustee. Other plans, which principally relate to defined contribution schemes,
provide pension benefits for personnel in various countries outside The
Netherlands and the UK.

For Netherlands GAAP for fiscal 2003 a net pension expense of EUR 230 million
is included, for fiscal 2002 EUR 144 million and for fiscal 2001 EUR 147
million was included. Participation in the respective plans is mandatory.
Pension costs, which are actuarially determined, are funded and with minor
exceptions fully vested.

The Companys benefit plans cost and funded status for 2002, 2001 and 2000 were
also computed in accordance with Statement of Financial Accounting Standards
No. 87 (SFAS 87) Employers Accounting for Pensions and disclosed in
accordance with SFAS 132 Employers disclosures about pensions and other
postretirement benefits as follows:

For the years ended March 31,2003
    
    2002
    
    2001Net Periodic Pension CostNet service cost
    
    
    245
    
    
    
    236
    
    
    
    201Interest cost
    
    
    353
    
    
    
    330
    
    
    
    297Expected return
    
    
    (545
    )
    
    
    (518
    )
    
    
    (526
    )Amortization of
Transition (asset/ obligation)
    
    
    (49
    )
    
    
    (48
    )
    
    
    (48
    )Prior service cost
    
    
    22
    
    
    
    22
    
    
    
    15Net actuarial gains
    
    
    25
    
    
    
    (18
    )
    
    
    (60
    )Net periodic pension cost
    
    
    51
    
    
    
    4
    
    
    
    (121
    )


March, 2003
    
    March, 2002Change in benefit obligationBenefit obligation at beginning year
    
    
    6,252
    
    
    
    5,888Service cost
    
    
    245
    
    
    
    236Interest cost
    
    
    353
    
    
    
    330Plan amendments
    
    
    
    
    
    
    Benefits paid
    
    
    (207
    )
    
    
    (200
    )Effect of change of assumptions
    
    
    81
    
    
    
    Actuarial result
    
    
    29
    
    
    
    (2
    )Benefit obligation at end of year
    
    
    6,753
    
    
    
    6,252


F-31



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

March, 2003
    
    March, 2002Change in plan assetsFair value at beginning of year
    
    
    7,786
    
    
    
    7,915Plan amendments
    
    
    
    
    
    
    Actual return
    
    
    (288
    )
    
    
    (97
    )Contributions
    
    
    146
    
    
    
    168Benefits paid
    
    
    (207
    )
    
    
    (200
    )Fair value at end of year
    
    
    7,437
    
    
    
    7,786


March, 2003
    
    March, 2002Funded status
    
    
    684
    
    
    
    1,534Unrecognised net losses
    
    
    1,328
    
    
    
    357Unrecognised prior service cost
    
    
    137
    
    
    
    159Unrecognised net assets at transition
    
    
    (125
    )
    
    
    (174
    )Net amount recognized
    
    
    2,024
    
    
    
    1,876Amounts recognized in the balance sheet consists of:Prepaid pension costs
    
    
    1,973
    
    
    
    1,876Accumulated other comprehensive income
    
    
    51
    
    
    
    2,024
    
    
    
    1,876


The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans of KLM uks staff with accumulated benefit
obligations in excess of plan assets, included in the prepaid pension costs
disclosed above, were EUR 209 million, EUR 143 million and EUR 106 million,
respectively, as of March 31, 2003. A minimum pension liability of EUR 51
million is recognized through Other Comprehensive Income in the current year.

March, 2003
    
    March, 2002AssumptionsDiscount rate
    
    
    5.5
    %
    
    
    5.5
    %Total salary increase
    
    
    4.0
    %
    
    
    4.0
    %Rate of return
    
    
    7.0
    %
    
    
    7.0
    %


Postretirement Benefits (SFAS 106/SFAS 132)

SFAS 106 Postretirement Benefits is already implemented in The Netherlands
GAAP financial statements.

For Netherlands GAAP for fiscal 2003 a net provision of EUR 69 million is
included, for fiscal 2002
EUR 67 million and for fiscal 2001 EUR 61 million was included.

The Companys benefit plans cost and funded status for 2003, 2002 and 2001 were
computed in accordance with Statement of Financial Accounting Standards No. 106
(SFAS 106) Postretirement Benefits and disclosed in accordance with SFAS 132
Employers disclosures about pensions and other postretirement benefits as
follows:

For the years ended March 31,2003
    
    2002
    
    2001Net Periodic Benefit CostNet service cost
    
    
    3
    
    
    
    2
    
    
    
    2Interest cost
    
    
    6
    
    
    
    7
    
    
    
    6Expected return
    
    
    
    
    
    
    
    
    
    
    Amortization ofTransition amount
    
    
    1
    
    
    
    2
    
    
    
    2Actuarial gains/losses
    
    
    2
    
    
    
    1Net periodic benefit cost
    
    
    12
    
    
    
    12
    
    
    
    10


F-32



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and U.S. GAAP  (Continued)

March, 2003
    
    March, 2002Change in benefit obligationBenefit obligation at beginning year
    
    
    102
    
    
    
    95Service cost
    
    
    3
    
    
    
    2Interest cost
    
    
    6
    
    
    
    7Plan amendments
    
    
    
    
    
    
    Benefits paid
    
    
    (4
    )
    
    
    (4
    )Effect of change of assumptions
    
    
    (3
    )
    
    
    (6
    )Actuarial result
    
    
    8
    
    
    
    8Foreign currency effect
    
    
    (5
    )
    
    
    Benefit obligation at end of year
    
    
    107
    
    
    
    102


March, 2003
    
    March, 2002Change in plan assetsFair value at beginning of year
    
    
    
    
    
    
    Actual return
    
    
    
    
    
    
    Contributions
    
    
    4
    
    
    
    3Benefits paid
    
    
    (4
    )
    
    
    (3
    )Fair value at end of year
    
    
    
    
    
    
    


March, 2003
    
    March, 2002Funded status
    
    
    (107
    )
    
    
    (102
    )Unrecognised net losses
    
    
    36
    
    
    
    23Unrecognised prior service cost
    
    
    (9
    )
    
    
    Unrecognised obligation at transition
    
    
    11
    
    
    
    12Net amount recognized
    
    
    (69
    )
    
    
    (67
    )


March, 2003
    
    March, 2002AssumptionsDiscount rate
    
    
    5.5
    %
    
    
    5.5
    %Increase rate benefit
    
    
    3.0
    %
    
    
    2.5
    %


For measurement purposes, a 3.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2003/2004 and the years
thereafter.

Disclosure of Certain Risks and Uncertainties (SOP 94-6)

Preparation of KLMs financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

F-33



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

28. Differences between Netherlands GAAP and U.S. GAAP  (Continued)

Guarantees

Guarantees have been provided up to an amount of EUR 174 million (last fiscal
year EUR 120 million). EUR 114 million relates to various guarantees provided
by KLM on behalf of consolidated holdings (last fiscal year EUR 95 million). No
obligation has been recorded in relation to these guarantees.

Guarantees were further provided for a number of consolidated holdings in
accordance with Article 403, Book 2, of The Netherlands Civil Code. This
information is part of the information on capital interests which has been
filed with the Trade Register of the Chamber of Commerce in Amsterdam. The
debts of the companies, which are included in the consolidated balance sheet as
of March 31, 2003 amounted to EUR 74 million (last fiscal year EUR 48 million).
The maximum undiscounted amount of guarantees by expiry date are:

2003/2004
    
    
    622004/2005
    
    
    22005/2006
    
    
    172006/2007
    
    
    02007/2008
    
    
    2after 2007/2008
    
    
    91


Goodwill and Other Intangible Assets

In connection with the annual goodwill impairment evaluation required by SFAS
142, we determined an impairment loss of EUR 1 million in the 2002/2003 US GAAP
income statement.

The following table shows US GAAP net income in prior years on a pro forma
basis to show the effects of non-amortisation of goodwill:

For the years ended March 31,2003
    
    2002
    
    2001Net income in conformity with US GAAP
    
    
    (267
    )
    
    
    (2
    )
    
    
    154Add back: Amortization of goodwill
    
    
    0
    
    
    
    7
    
    
    
    11Pro forma net income
    
    
    (267
    )
    
    
    5
    
    
    
    165Basic and diluted earnings per share (restated, see note 29)
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30Add back: Amortization of goodwill (restated, see note 29)
    
    
    0.00
    
    
    
    0.15
    
    
    
    0.24Pro forma earnings per share  (restated, see note 29)
    
    
    (5.97
    )
    
    
    0.07
    
    
    
    3.54


The aggregate amortization expense for the year ended March 31, 2003 was EUR 13
million. The following table summarises the estimated amortization expense for
the coming five years:

Advance paymentsSoftware
    
    on software
    
    Total2003/2004
    
    
    12
    
    
    
    2
    
    
    
    142004/2005
    
    
    11
    
    
    
    2
    
    
    
    132005/2006
    
    
    6
    
    
    
    2
    
    
    
    82006/2007
    
    
    5
    
    
    
    
    
    
    
    52007/2008
    
    
    5
    
    
    
    
    
    
    
    539
    
    
    
    6
    
    
    
    45


F-34



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Reporting Comprehensive Income (SFAS 130)

The figures stated in the table below are net of tax amounts.
(in millions of euros)

TotalForeign
    
    
    
    
    
    
    
    
    
    accumulatedcurrency
    
    Unrealized
    
    Minimum
    
    other com-translation
    
    gains/losses
    
    pension
    
    prehensiveadjustments
    
    derivatives
    
    liability
    
    income (loss)Balance sheet at March 31, 2000
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )Current-period change
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Balance sheet at March 31, 2001
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Impact of first time
application SFAS 133/138
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Current-period change
    
    
    30
    
    
    
    23
    
    
    
    
    
    
    
    53Balance sheet at March 31, 2002
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Current-period change
    
    
    (27
    )
    
    
    (39
    )
    
    
    (38
    )
    
    
    (104
    )Balance sheet at March 31, 2003
    
    
    (13
    )
    
    
    (39
    )
    
    
    (38
    )
    
    
    (90
    )


Summary of changes in stockholders equity in conformity with US-GAAP:

Years ended March 31, 2001, 2002 and 2003Capital paid-in and calledAccumulatedA-cumulative
    
    C-cumulative
    
    
    
    
    
    
    
    
    
    other com-
    
    
    
    
    
    TotalPriority
    
    preference
    
    preference
    
    Common
    
    Paid-in
    
    prehensive
    
    Other
    

stockholdersIn thousands of euros
    
    shares
    
    shares
    
    shares
    
    shares
    
    surplus
    
    income
    
    reserves
    
    equityBalance sheet at March 31, 2000
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    (21,377
    )
    
    
    2,504,542
    
    
    
    3,082,248Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,973
    )
    
    
    (10,973
    )Allocation from net income 2000/2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,394
    
    
    
    154,394Distributed on priority/pref. shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,760
    )
    
    
    (1,760
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,938
    
    
    
    
    
    
    
    4,938Balance sheet at March 31, 2001
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    (16,439
    )
    
    
    2,646,203
    
    
    
    3,228,847Distribution from net income 2000/2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,846
    )
    
    
    (29,846
    )Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,752
    )
    
    
    (6,752
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,539
    
    
    
    
    
    
    
    30,5393
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    14,100
    
    
    
    2,609,605
    
    
    
    3,222,788Net loss 2001/2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,495
    )
    
    
    (2,495
    )Equity as of March 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,607,110
    
    
    
    3,220,293Distribution from net income 2001/2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,122
    )
    
    
    (11,122
    )Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,678
    )
    
    
    (10,678
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,067
    )
    
    
    
    
    
    
    (104,067
    )3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    (89,967
    )
    
    
    2,585,310
    
    
    
    3,094,426Net loss 2002/2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (267,145
    )Equity as of March 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,827,281


For fiscal year 2002/2003 a distribution will de made to holders of common
shares of EUR 0.10 per share, charged to Other reserves, involving an amount of
EUR 4,418,816. The following distributions will be made to holders of
cumulative preference shares and charged to Other reserves:

- A-cumulative preference shares: EUR 0.12 per share, involving an amount of EUR 1,057,500

- C-cumulative preference shares: EUR 0.10 per share, involving an amount of EUR 702,180

F-35



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28.  Differences between Netherlands GAAP and US GAAP  (Continued)

Earnings per common share

The computational components of basic and diluted net income (loss) per share
and net income (loss) per share from continuing operations are as follows
(based on US GAAP figures):

The earnings per common share have been restated, please refer to page F37.

Net income (loss) per share (restated, see note 29)

Numerator
    
    Denominator
    
    Per share(income)
    
    (shares)
    
    amountShares outstanding as of March 31, 2003
    
    
    
    
    
    
    46,809,699Effect of purchased own shares
(weighted average during the year 2002/2003)
    
    
    
    
    
    
    (1,739,155
    )Net income
    
    
    (267
    )Attributable to holders of preference shares
    
    
    (2
    )(269
    )
    
    
    45,070,544
    
    
    
    (5.97
    )


Income (loss) per share from continuing operations

Numerator
    
    Denominator
    
    Per share(income)
    
    (shares)
    
    amountShares outstanding as of March 31, 2003
    
    
    
    
    
    
    46,809,699Effect of purchased own shares
(weighted average during the year 2002/2003)
    
    
    
    
    
    
    (1,739,155
    )Net income from continuing operations
    
    
    (234
    )Attributable to holders of preference shares
    
    
    (2
    )(236
    )
    
    
    45,070,544
    
    
    
    (5.23
    )


Income (loss) per share from discontinued operations

Numerator
    
    Denominator
    
    Per share(income)
    
    (shares)
    
    amountShares outstanding as of March 31, 2003
    
    
    
    
    
    
    46,809,699Effect of purchased own shares
(weighted average during the year 2002/2003)
    
    
    
    
    
    
    (1,739,155
    )Net income from continuing operations
    
    
    (33
    )(33
    )
    
    
    45,070,544
    
    
    
    (0.74
    )


F-36





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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28.  Differences between Netherlands GAAP and US GAAP  (Continued)

Basic and diluted earnings per share have been
restated (we refer to footnote 29 for further explanation)

Effect of Restatement
This restatement does not reflect any change to previously reported net earnings, but rather computation errors in the determination of weighted average shares used to calculate earnings per share. The increase of diluted EPS
results from the exclusion of treasury stock in the computation of weighted average shares outstanding. The impact of the treasury stock was excluded from the previous computations of average shares outstanding.

Basic and diluted EPS according to US GAAP
as previously reported and restated are as follows (in thousands):

|            |  |            |       |             |  |            |       |          |  |  |       |   |  |  |       |  
|----------- |  | ---------- | ----- | ----------- |  | ---------- | ----- | -------- |  |  | ----- | - |  |  | ----- | -
|            |  |            |       |            
|            |  | Basic EPS  |       | Diluted EPS
|            |  |            |       |            
|            |  | previously |       |             |  | previously |       |         
|Fiscal year |  | reported   |       | Restated    |  | reported   |       | Restated
|            |  |            |       |             |  |            |       |         
|2000/2001   |  |            | 3.26  |             |  |            | 3.30  |          |  |  | 3.26  |   |  |  | 3.30  |  
|2001/2002   |  |            | (0.08 | )           |  |            | (0.08 | )        |  |  | (0.08 | ) |  |  | (0.08 | )
|2002/2003   |  |            | (5.97 | )           |  |            | (5.97 | )        |  |  | (5.97 | ) |  |  | (5.97 | )

Shares outstanding for basic and diluted EPS as
previously reported and restated are as follows:

|            |  |            |        |             |  |            |        |          |  |  |        |  |  |  |        | 
|----------- |  | ---------- | ------ | ----------- |  | ---------- | ------ | -------- |  |  | ------ |  |  |  | ------ | 
|            |  |            |        |            
|            |  | Basic EPS  |        | Diluted EPS
|            |  |            |        |            
|            |  | previously |        |             |  | previously |        |         
|Fiscal year |  | reported   |        | Restated    |  | reported   |        | Restated
|            |  |            |        |             |  |            |        |         
|2000/2001   |  |            | 46,810 |             |  |            | 46,133 |          |  |  | 46,810 |  |  |  | 46,133 | 
|2001/2002   |  |            | 46,810 |             |  |            | 45,682 |          |  |  | 46,810 |  |  |  | 45,682 | 
|2002/2003   |  |            | 45,070 |             |  |            | 45,071 |          |  |  | 45,070 |  |  |  | 45,071 | 

F-37



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Disclosure about Accounting for Stock-Based Compensation (SFAS 123)

The Companys remuneration and share option plans are disclosed in the Notes to
the Company Financial Statements (See Note 36 Remuneration and share
options). Awards in the context of the share option plan are accounted for
under APB 25.

The pro forma net income, calculated as if the fair value of the options
granted to option holders would have been considered as compensation costs, is
as follows:

For the years ended March 31,2003
    
    2002
    
    2001Net income (loss) in accordance with US GAAP (as reported)
    
    
    (267
    )
    
    
    (2
    )
    
    
    154Add back: Stock-based employee compensation included
in reported net income
    
    
    
    
    
    
    
    
    
    
    Stock-based employee compensation that would have been
included in the determination of net income
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Pro forma net income (loss)
    
    
    (268
    )
    
    
    (4
    )
    
    
    152Basic and diluted earnings per share in accordance with US GAAP:as reported (restated, see note 29)
    
    
    (5.97
    )
    
    
    (0.08
    )
    
    
    3.30Add back: Stock-based employee compensation included
in reported net income
    
    
    
    
    
    
    
    
    
    
    Stock-based employee compensation that would have been
included in the determination of net income
    
    
    (0.02
    )
    
    
    (0.05
    )
    
    
    (0.04
    )Pro
forma earnings per share (restated, see note 29)
    
    
    (5.99
    )
    
    
    (0.13
    )
    
    
    3.26


The fair value of the Companys 2003, 2002 and 2001 option grants was estimated
using a Black-Scholes option pricing model and the following assumptions:

For the years ended March 31,2003
    
    2002
    
    2001Risk-free interest rate
    
    
    3.3
    
    
    
    4.8
    
    
    
    5.6Expected dividend yield
    
    
    1.5
    
    
    
    1.4
    
    
    
    3.2Expected option life
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Expected stock price volatility
    
    
    53.4
    
    
    
    38.4
    
    
    
    57.7Weighted average fair value of options granted
during the year in EUR(1)
    
    
    2.17A
    
    
    
    2.66A
    
    
    
    5.242.57B
    
    
    
    3.59B




---

|(1) |  | As of fiscal year 2001/2002 Option A and Option B differ in weighted
average fair value (see notes to share
option plan, note 36 F-42)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

F-38



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

28. Differences between Netherlands GAAP and US GAAP  (Continued)

Disclosure about Derivative and hedge accounting (SFAS 133/138)

Currency risks

In its operating cash flow, the Company has a substantial surplus in all major
foreign currencies, with the exception of the US dollar, in which it has a
virtually neutral position. KLM hedges a part of its non-US Dollar cash flows
by cash flow hedges. Changes in the fair value of these contracts are included
in Other Comprehensive Income up to the date on which the effects of the
results on the underlying positions materialize, in general when traffic
occurs. Some currencies that have a strong correlation with the US dollar are
not being hedged to euros but to US dollars instead. For this category of
derivatives hedge accounting is not applied.

In its cash flow from investing activities, the Company has a short position.
KLM uses fair value hedges to hedge these cash flows.

It is KLMs intention to match assets and liabilities accurately. KLM uses
cross currency swaps either as cash flow hedge or fair value hedge in order to
achieve this matching.

Interest rate risks

It is KLMs policy to minimize long-term net funding costs within the agreed
framework of interest rate sensitivity. KLM uses cross currency interest rate
swaps, in combination with its hedging policies on foreign currencies, to
create a favorable mix of fixed and floating interest-bearing positions. In
this respect the Company uses both cash flow hedges and fair value hedges.

Fuel price risks

KLM is significantly exposed to price risk on its fuel requirements. The
Company uses cash flow hedges to reduce this price risk. Changes in the fair
value of these derivatives are include in Other Comprehensive Income and are
released in the profit and loss account (as a part of fuel expenses) when the
hedged fuel consumption materializes.

Impact on equity and earnings

The result on derivatives, which did not qualify for hedge accounting under
SFAS 133/138 during fiscal 2002/2003, amounted to EUR 11 million positive. The
positive impact on earnings of the ineffective part of cash flow hedges and
fair value hedges is EUR 5 million. None of the derivatives, which initially
qualified as hedges, exceeded its effectiveness criteria before expiration.

The debit balance of Other Comprehensive Income as of March 31, 2003 with
respect to effective cash flow hedges amounted EUR 39 million. During the
fiscal year 2003/04 it is expected that an amount of EUR 16 million will be
credited in earnings. The remainder (debit amount of EUR 23 million) will be
released in earnings over a period of 16 years.

Movements in Other Comprehensive Income during fiscal 2002/2003
In million of euros, net of tax

Balance as of March 31, 2002
    
    
    0Released to profit and loss account
    
    
    2Changes in fair value during the year
    
    
    (41
    )Balance as of March 31, 2003
    
    
    (39
    )


F-39



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

29. Amendments to the consolidated financial statements



|1. |  | Compared to the consolidated financial statements included in the annual report
filed on Form 20-F on June 12, 2003 a number of amendments were made of which
the nature and background are explained below:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have restated earnings per share figures under Netherlands GAAP and
U.S. GAAP for each of the fiscal years ended in the period from April 1,
2000 through March 31, 2002 to reflect the exclusion from the calculation
of earnings per share of treasury shares held by KLM. This restatement
does not reflect any change to previously reported net earnings, but
rather corrections of computational errors in the determination of
weighted average shares outstanding used to calculate earnings per share.
Basic and diluted earnings per share according to Netherlands GAAP were
previously reported and restated as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Basic EPS
    
    
    
    
    
    Diluted EPSpreviously
    
    
    
    
    
    previouslyFiscal year
    
    reported
    
    Restated
    
    reported
    
    Restated2000/2001
    
    
    1.61
    
    
    
    1.63
    
    
    
    1.61
    
    
    
    1.632001/2002
    
    
    (3.37
    )
    
    
    (3.46
    )
    
    
    (3.37
    )
    
    
    (3.46
    )2002/2003
    
    
    (9.26
    )
    
    
    (9.26
    )
    
    
    (9.26
    )
    
    
    (9.26
    )


Shares outstanding for basic and diluted EPS as previously reported and restated are as follows (in thousands):

Basic EPS
    
    
    
    
    
    Diluted EPSpreviously
    
    
    
    
    
    previouslyFiscal year
    
    reported
    
    Restated
    
    reported
    
    Restated2000/2001
    
    
    46,810
    
    
    
    46,133
    
    
    
    46,810
    
    
    
    46,1332001/2002
    
    
    46,810
    
    
    
    45,682
    
    
    
    46,810
    
    
    
    45,6822002/2003
    
    
    45,070
    
    
    
    45,071
    
    
    
    45,070
    
    
    
    45,071




| |  | We refer to footnote 28 for further explanation of the changes under US
GAAP.
| |  | -----------------------------------------------------------------------------



|2. |  | The following reclassifications have been made to the consolidated financial
statements included in the original Form 20-F filed with the Securities and
Exchange Commission on June 12, 2003. These reclassifications arise from
matters that occurred subsequent to March 31, 2003, and which were therefore
not reflected in such originally filed financial statements.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | As described more fully in note 28 to the consolidated financial
statements we have reclassified the results of KLM uks low-cost buzz
business to reflect the business as a discontinued operation under US GAAP
in light of its disposal to Ryanair in April 2003.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | We have also reclassified operating income under Netherlands GAAP to
reflect new accounting rules with respect to the presentation of
extraordinary items that became effective as of April 1, 2003. Retroactive
application, as required by Netherlands GAAP, of the new accounting policy
leads to a downward adjustment of operating income in the year ended March
31, 2003 of EUR 351 million with no impact on operating income for the
years ended March 31, 2002 and March 31, 2001. The impact on net income
for all three years is nil.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-40



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

COMPANY BALANCE SHEET

In millions of euros

Before appropriation of results

Note(1)
    
    March 31, 2003
    
    March 31, 2002(2)Fixed assetsIntangible fixed assets
    
    
    
    
    
    
    60
    
    
    
    54Tangible fixed assets
    
    
    30
    
    
    
    3,589
    
    
    
    3,398Financial fixed assets
    
    
    31
    
    
    
    2,141
    
    
    
    2,3795,790
    
    
    
    5,831Current assetsOperating supplies
    
    
    
    
    
    
    196
    
    
    
    230Accounts receivable
    
    
    32
    
    
    
    1,039
    
    
    
    1,208Marketable securities
    
    
    
    
    
    
    
    
    
    
    2Cash
    
    
    
    
    
    
    559
    
    
    
    9691,794
    
    
    
    2,409Current liabilities
    
    
    
    
    
    
    2,191
    
    
    
    2,216Current assets less current liabilities
    
    
    
    
    
    
    (397
    )
    
    
    193Assets less current liabilities
    
    
    
    
    
    
    5,393
    
    
    
    6,024Long-term debtSubordinated perpetual debt
    
    
    
    
    
    
    544
    
    
    
    591Other long-term debt
    
    
    33
    
    
    
    2,900
    
    
    
    3,0743,444
    
    
    
    3,665Provisions
    
    
    34
    
    
    
    261
    
    
    
    166Deferred credits
    
    
    
    
    
    
    212
    
    
    
    201Stockholders equity
    
    
    35Paid-in and called capital
    
    
    
    
    
    
    125
    
    
    
    125Paid-in surplus
    
    
    
    
    
    
    474
    
    
    
    474Other reserves
    
    
    
    
    
    
    1,293
    
    
    
    1,549Net loss
    
    
    
    
    
    
    (416
    )
    
    
    (156
    )1,476
    
    
    
    1,9925,393
    
    
    
    6,024


COMPANY STATEMENT OF EARNINGS

In millions of euros

For the Years Ended March 31,2003
    
    2002
    
    2001Results of holdings
    
    
    (22
    )
    
    
    (7
    )
    
    
    (17
    )KLM company income after tax
    
    
    (394
    )
    
    
    (149
    )
    
    
    94Net income (loss)
    
    
    (416
    )
    
    
    (156
    )
    
    
    77




---

|(1) |  | The accompanying Notes are an integral part of these Consolidated
Financial Statements
|--- |  | --------------------------------------------------------------------------------------
|   
|(2) |  | Prior-year figures have been reclassified with regard to deferred taxes               

F-41



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS

In millions of euros

General

Reference is made to the Notes to the consolidated financial statements unless
stated otherwise.

Fixed assets

30. Tangible fixed assets

March 31, 2003
    
    March 31, 2002Aircraft, spare engines and spare parts
    
    
    2,518
    
    
    
    2,816Other tangible fixed assets
    
    
    483
    
    
    
    5173,001
    
    
    
    3,333Advance payments on tangible fixed assets
on order or under construction
    
    
    588
    
    
    
    653,589
    
    
    
    3,398


Aircraft,
    
    
    
    
    
    Inventories,
    
    Vehiclesspare
    
    
    
    
    
    machines
    
    and otherengines and
    
    Buildings
    
    and
    
    tangiblespare parts
    
    and land
    
    installations
    
    fixed assets
    
    TotalPurchase value as of March 31, 2002
    
    
    5,095
    
    
    
    710
    
    
    
    502
    
    
    
    96
    
    
    
    6,403Accumulated depreciation and diminution in
value through 2001/2002
    
    
    2,279
    
    
    
    370
    
    
    
    369
    
    
    
    52
    
    
    
    3,070Book value as of March 31, 2002
    
    
    2,816
    
    
    
    340
    
    
    
    133
    
    
    
    44
    
    
    
    3,333Changes in book valueAdditions
    
    
    275
    
    
    
    2
    
    
    
    27
    
    
    
    9
    
    
    
    313Disposals
    
    
    (260
    )
    
    
    (2
    )
    
    
    1
    
    
    
    (3
    )
    
    
    (264
    )Depreciation
    
    
    (260
    )
    
    
    (25
    )
    
    
    (36
    )
    
    
    (9
    )
    
    
    (330
    )Write down/impairment
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Other
    
    
    6
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    8Total changes
    
    
    (298
    )
    
    
    (24
    )
    
    
    (7
    )
    
    
    (3
    )
    
    
    (332
    )Purchase value as of March 31, 2003
    
    
    4,885
    
    
    
    704
    
    
    
    508
    
    
    
    94
    
    
    
    6,191Accumulated depreciation and diminution in
value through 2002/2003
    
    
    2,367
    
    
    
    388
    
    
    
    382
    
    
    
    53
    
    
    
    3,190Book value as of March 31, 2003
    
    
    2,518
    
    
    
    316
    
    
    
    126
    
    
    
    41
    
    
    
    3,001


This overview includes aircraft for which financial lease agreements have been
concluded. Their book value amounts to EUR 1,838 million (last fiscal year EUR
1,880 million).

Other tangible fixed assets include assets whose availability is based on
limited right of use, such as buildings on land held under long-term rental
agreements or on leasehold, and assets acquired through financial lease
agreements. The book value of these assets amounts to EUR 180 million (last
fiscal year EUR 220 million).

In fiscal year 2002/2003 a write down of EUR 59 million was recognized for the
Boeing 747-300 fleet in connection with an accelerated phasing out. The
remaining book value of the Boeing 747-300 fleet amounted to EUR 25 million as
of March 31, 2003.

F-42



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

31.  Financial fixed assets

March 31, 2003
    
    March 31, 2002Consolidated holdings
    
    
    574
    
    
    
    639Other holdings
    
    
    197
    
    
    
    202Receivables from consolidated holdings
    
    
    487
    
    
    
    673Receivables from other holdings
    
    
    18
    
    
    
    221,276
    
    
    
    1,536Other financial fixed assets
    
    
    865
    
    
    
    8432,141
    
    
    
    2,379


Receivablesfrom con-
    
    Receivables
    
    OtherConsolidated
    
    Other
    
    solidated
    
    from other
    
    financialholdings
    
    holdings
    
    holdings
    
    holdings
    
    fixed assets
    
    TotalBalance as of March 31, 2002
    
    
    639
    
    
    
    202
    
    
    
    673
    
    
    
    22
    
    
    
    843
    
    
    
    2,379New/expansion
    
    
    
    
    
    
    9
    
    
    
    56
    
    
    
    1
    
    
    
    254
    
    
    
    320Sale/redemption
    
    
    
    
    
    
    (2
    )
    
    
    (168
    )
    
    
    (2
    )
    
    
    (93
    )
    
    
    (265
    )Share in results
    
    
    (29
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Revaluation
    
    
    (24
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (134
    )
    
    
    (164
    )Dividends received
    
    
    (3
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Exchange rate differences
and other
    
    
    (9
    )
    
    
    (8
    )
    
    
    (74
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (99
    )Balance as of March 31, 2003
    
    
    574
    
    
    
    197
    
    
    
    487
    
    
    
    18
    
    
    
    865
    
    
    
    2,141


Current assets

32.  Accounts receivable

March 31, 2003
    
    March 31, 2002Debtors
    
    
    690
    
    
    
    878Receivables from consolidated holdings
    
    
    154
    
    
    
    80Receivables from other holdings
    
    
    3
    
    
    
    2Value added tax
    
    
    33
    
    
    
    16Prepaid expenses
    
    
    159
    
    
    
    2321,039
    
    
    
    1,208


F-43



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

Long-term debt

33.  Other long-term debt

March 31, 2003
    
    March 31, 2002Reference is made to page F-14 (Note 8)
    
    
    3,427
    
    
    
    3,826Loans obtained or repaid by consolidated holdings
    
    
    (527
    )
    
    
    (752
    )2,900
    
    
    
    3,074


34.  Provisions

March 31, 2003
    
    March 31, 2002Postretirement health costs
    
    
    69
    
    
    
    67Early retirement provision
    
    
    21
    
    
    
    6Other staff commitments
    
    
    72
    
    
    
    73Frequent flyer program
    
    
    24
    
    
    
    20Reorganization and restructuring
    
    
    75
    
    
    
    261
    
    
    
    166


35.  Stockholders equity

The authorized capital of the Company is EUR 600 million. Of this amount, EUR
125.3 million is issued and fully paid-in.

In connection with the minority interest of the State of The Netherlands in
KLMs share capital, KLM and the State of The Netherlands are parties to an
option agreement. Pursuant to the terms of this agreement, KLM grants the State
of the Netherlands the right to acquire such a number of B-preference shares,
with a par value of EUR 2.00, as is necessary to provide the State with a
majority interest of 50.1%, when exercising the option, irrespective of the
total issued capital at any given moment.

If deemed reasonable by the State, after consultation with KLM, the State will
exercise its option insofar as necessary if a country imposes or contemplates
imposing restrictions or onerous conditions on KLM in the operation of
scheduled air services as a consequence of that countrys view that a
substantial or majority part of the share capital of KLM cannot demonstrably be
Netherlands owned.

The State of The Netherlands currently holds 8,812,500 A-cumulative preference
shares and 975 priority shares, to which a voting right attaches of nearly
14.1%.

As of March 31, 2003, the Company held 2,621,542 purchased common shares with
a total value of EUR 38 million. This amount has been deducted from Other
reserves. The repurchase of own shares is related to cover future commitments
arising from option rights granted to members of the Board of Managing
Directors and senior managers as well as to the own share repurchase program
announced on February 11, 2003.

In 2002/2003 1,307,358 common shares were purchased to this end at an average
purchase price of EUR 8.16.

The nominal value of the purchased common shares amounts to EUR 3 million.

In line Exchange rate differences and other in Other reserves includes a
decrease of EUR 37 million in respect of the fair value of cash flow hedges
arising from the application of SFAS 133/138. The accumulated movement in value
as of March 31, 2003 amounted to EUR 39 million. Of this amount, EUR 16 million
is expected to be charged to the statement of earnings in 2003/2004. The
remainder (EUR 23 million) will be charged to the statement of earnings over a
period of 16 years.

F-44



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

35.  Stockholders equity  (Continued)

Years ended March 31, 2001, 2002, 2003Capital paid-in and calledA-cumulative
    
    C-cumulative
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stock-Priority
    
    preference
    
    preference
    
    Common
    
    Paid-in
    
    Other
    
    holders'In thousands of euros
    
    shares
    
    shares
    
    shares
    
    shares
    
    surplus
    
    reserves
    
    equityBalance as of March 31, 2000
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    1,420,413
    
    
    
    2,019,496Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,973
    )
    
    
    (10,973
    )Net income 2000/2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,106
    
    
    
    77,106Dividend 2000/2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,846
    )
    
    
    (29,846
    )Exchange rate differences and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,938
    
    
    
    4,938Balance as of March 31, 2001
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    1,461,638
    
    
    
    2,060,721Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,752
    )
    
    
    (6,752
    )Change in accounting policies for
heavy maintenance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,396
    
    
    
    77,396Change in accounting policies for derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,258
    )
    
    
    (6,258
    )Exchange rate differences and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,211
    
    
    
    23,211Balance as of March 31, 2002
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    1,549,235
    
    
    
    2,148,318Net result 2001/2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156,293
    )
    
    
    (156,293
    )Dividend paid 2001/2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,122
    )
    
    
    (11,122
    )Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,678
    )
    
    
    (10,678
    )Exchange rate differences and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,214
    )
    
    
    (78,214
    )Balance as of March 31, 2003
    
    
    3
    
    
    
    17,625
    
    
    
    14,100
    
    
    
    93,619
    
    
    
    473,736
    
    
    
    1,292,928
    
    
    
    1,892,011Net result 2002/2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (415,641
    )Equity as of March 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,476,370


The paid-in surplus is fiscally exempt.

F-45





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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

36. Remuneration and share option plan

Supervisory Board

The remuneration of the members of the Supervisory Board consists of a fixed
fee per annum (EUR 36,302 for the Chairman, EUR 29,495 for the Vice-Chairman
and EUR 22,689 for the other Board members) and a fee for each meeting of the
Boards Committees attended (EUR 1,361 for the Chairman of the Committee
concerned, unless also the Vice-Chairman or Chairman of the Board, and EUR 453
for the other members of the Boards Committees). In connection with KLMs
situation following the events of September 11, 2001, it was decided in October
2001 to voluntarily reduce the Supervisory Board members remuneration by 15%
for a period of five months. The total remuneration of current and former
Supervisory Board members for the fiscal year was EUR 205,557 (last fiscal year
EUR 187,007). Individually, the remuneration of the current and former
Supervisory Board members was as follows:

2002/2003
    
    2001/2002As member of the
    
    
    
    
    
    
    
    
    
    As member of theSupervisory
    
    As member of
    
    
    
    
    
    Supervisory
    
    As member ofBoard
    
    Committees
    
    Total
    
    Board
    
    Committees
    
    TotalF.A. Maljers
    
    
    36,302
    
    
    
    907
    
    
    
    37,209
    
    
    
    35,394
    
    
    
    
    
    
    
    35,394A. Maas
    
    
    29,495
    
    
    
    1,361
    
    
    
    30,856
    
    
    
    28,758
    
    
    
    1,361
    
    
    
    30,119M. Albrecht
    
    
    22,689
    
    
    
    
    
    
    
    22,689
    
    
    
    22,121
    
    
    
    
    
    
    
    22,121L.A.A. van den Berghe
    
    
    22,689
    
    
    
    2,268
    
    
    
    24,957
    
    
    
    8,886
    
    
    
    
    
    
    
    8,886D.G. Eustace
    
    
    22,689
    
    
    
    6,352
    
    
    
    29,041
    
    
    
    22,121
    
    
    
    5,445
    
    
    
    27,566B. Geersing
    
    
    22,689
    
    
    
    1,815
    
    
    
    24,504
    
    
    
    22,121
    
    
    
    1,361
    
    
    
    23,482J. Stekelenburg
    
    
    22,689
    
    
    
    1,815
    
    
    
    24,504
    
    
    
    22,121
    
    
    
    2,722
    
    
    
    24,843K.J. Storm
    
    
    11,344
    
    
    
    453
    
    
    
    11,797
    
    
    
    
    
    
    
    
    
    
    
    G.L. Wilson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    formerJ.W. Oosterwijk
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,235
    
    
    
    1,361
    
    
    
    14,596190,586
    
    
    
    14,971
    
    
    
    205,557
    
    
    
    174,757
    
    
    
    12,250
    
    
    
    187,007


None of the Supervisory Board members held securities in KLM as of March 31,
2003. Supervisory Board members may not participate in the share option plan
described below. As of March 31, 2003, the Supervisory Board members had no
commitments in respect of loans, advances or guarantees granted to them by KLM.

Board of Managing Directors

The Supervisory Board determines the remuneration package, targets and
performance of the members of the Board of Managing Directors each year. In
addition to a fixed annual salary, the members of the Board of Managing
Directors receive an annual variable remuneration up to a maximum of 50% of the
fixed salary (30% relating to targets with respect to company results, 20%
relating to targets with respect to personal performance). The variable
remuneration paid and recognized in a year relates to the targets realized in
the previous year. Members of the Board of Managing Directors are also granted
options on KLM shares each year. The receipt of options is based on the
achievement of targets with respect to company results and personal
performance. Options also serve to increase longer-term commitment to the
company. The maximum number of options that a member of the Board of Managing
Directors may receive each year is 25,000.

In connection with KLMs situation following the events of September 11, 2001,
it was decided in October 2001 to voluntarily reduce the remuneration of the
members of the Board of Managing Directors by 15% for a period of five months.

The total remuneration, including employer pension contributions, of members of
the Board of Managing Directors for the fiscal year, amounted to EUR 4,614,561
(last fiscal year EUR 5,293,767).

Individually, the remuneration of the Board of Managing Directors was as
follows:

2002/2003
    
    
    
    
    
    Targets
    
    
    
    
    
    Upon standingFixed salary
    
    Variable
    
    realized
    
    Pension(1)
    
    down
    
    TotalL.M. van Wijk
    
    
    628,193
    
    
    
    317,802
    
    
    
    partially
    
    
    
    388,078
    
    
    
    
    
    
    
    1,334,073P.F. Hartman
    
    
    514,321
    
    
    
    271,289
    
    
    
    partially
    
    
    
    568,118
    
    
    
    
    
    
    
    1,353,728C. van Woudenberg
    
    
    447,733
    
    
    
    227,335
    
    
    
    partially
    
    
    
    365,367
    
    
    
    
    
    
    
    1,040,435R.A. Ruijter
    
    
    447,733
    
    
    
    151,398
    
    
    
    partially
    
    
    
    287,194
    
    
    
    
    
    
    
    886,3252,037,980
    
    
    
    967,824
    
    
    
    
    
    
    
    1,608,757
    
    
    
    
    
    
    
    4,614,561


2001/2002
    
    
    
    
    
    Targets
    
    
    
    
    
    Upon standingFixed salary
    
    Variable
    
    realized
    
    Pension(1)
    
    down
    
    TotalL.M. van Wijk
    
    
    560,725
    
    
    
    294,960
    
    
    
    yes
    
    
    
    1,477,702
    
    
    
    
    
    
    
    2,333,387P.F. Hartman
    
    
    452,898
    
    
    
    238,230
    
    
    
    yes
    
    
    
    942,669
    
    
    
    
    
    
    
    1,633,797C. van Woudenberg
    
    
    401,134
    
    
    
    189,910
    
    
    
    partially
    
    
    
    309,320
    
    
    
    
    
    
    
    900,364R.A. Ruijter
    
    
    267,273
    
    
    
    10,550
    
    
    
    partially
    
    
    
    148,396
    
    
    
    
    
    
    
    426,2191,682,030
    
    
    
    733,650
    
    
    
    
    
    
    
    2,878,087
    
    
    
    
    
    
    
    5,293,767




---

|(1) |  | including past service commitments
|--- |  | ----------------------------------

F-46



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

36. Remuneration and share option plan  (Continued)

As of March 31, 2003, the members of the Board of Managing Directors together
held no securities in KLM other than the options below. As of March 31, 2003,
the members of the Board of Managing Directors had no commitments in respect of
loans, advances or guarantees granted to them by KLM.

The current and former members of the Board of Managing Directors had the
following positions with respect to options on KLM shares as of March 31, 2003:

Options granted
    
    
    
    
    
    
    
    
    
    Number of
    
    Total number(number of shares
    
    Exercise price
    
    
    
    
    
    options
    
    as of March 31,Year granted
    
    that can be obtained)
    
    per share
    
    Expiry date
    
    exercised
    
    2003L.M. van Wijk1998
    
    
    25,500
    
    
    
    36.52
    
    
    August 18, 2003
    
    
    
    
    
    
    25,5001999
    
    
    25,500
    
    
    
    30.26
    
    
    October 15, 2004
    
    
    
    
    
    
    25,5002000
    
    
    25,000
    
    
    
    37.70
    
    
    October 21, 2005
    
    
    
    
    
    
    25,0002001
    
    
    25,000
    A
    
    
    23.45
    A
    
    October 20, 2006
    
    
    
    
    
    
    25,000
    A2002
    
    
    25,000
    A
    
    
    14.69
    A
    
    October 19, 2007
    
    
    
    
    
    
    25,000
    A126,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,000P.F. Hartman1998
    
    
    25,500
    
    
    
    36.52
    
    
    August 18, 2003
    
    
    
    
    
    
    25,5001999
    
    
    25,500
    
    
    
    30.26
    
    
    October 15, 2004
    
    
    
    
    
    
    25,5002000
    
    
    25,000
    
    
    
    37.70
    
    
    October 21, 2005
    
    
    
    
    
    
    25,0002001
    
    
    25,000
    A
    
    
    23.45
    A
    
    October 20, 2006
    
    
    
    
    
    
    25,000
    A2002
    
    
    25,000
    A
    
    
    14.69
    A
    
    October 19, 2007
    
    
    
    
    
    
    25,000
    A126,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,000C. van Woudenberg1998
    
    
    25,500
    
    
    
    36.52
    
    
    August 18, 2003
    
    
    
    
    
    
    25,5001999
    
    
    25,500
    
    
    
    30.26
    
    
    October 15, 2004
    
    
    
    
    
    
    25,5002000
    
    
    25,000
    
    
    
    37.70
    
    
    October 21, 2005
    
    
    
    
    
    
    25,0002001
    
    
    25,000
    A
    
    
    23.45
    A
    
    October 20, 2006
    
    
    
    
    
    
    25,000
    A2002
    
    
    25,000
    A
    
    
    14.69
    A
    
    October 19, 2007
    
    
    
    
    
    
    25,000
    A126,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,000R.A. Ruijter2001
    
    
    25,000
    A
    
    
    23.45
    A
    
    October 20, 2006
    
    
    
    
    
    
    25,000
    A2002
    
    
    25,000
    A
    
    
    14.69
    A
    
    October 19, 2007
    
    
    
    
    
    
    25,000
    A50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000formerR.J.N. Abrahamsen1998
    
    
    25,500
    
    
    
    36.52
    
    
    August 18, 2003
    
    
    
    
    
    
    25,5001999
    
    
    25,500
    
    
    
    30.26
    
    
    October 15, 2004
    
    
    
    
    
    
    25,5002000
    
    
    25,000
    
    
    
    37.70
    
    
    October 21, 2005
    
    
    
    
    
    
    25,00076,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,000


Senior officers

Options on KLM shares had also been granted to approximately 120 senior
officers as of March 31, 2003:

Options granted
    
    
    
    
    
    
    
    
    
    Number of
    
    Number of
    
    Total number(number of shares
    
    Exercise price
    
    
    
    
    
    options
    
    options
    
    as of March 31,Year granted
    
    that can be obtained)
    
    per share
    
    Expiry date
    
    exercised
    
    withdrawn
    
    20031998
    
    
    326,400
    
    
    
    36.52
    
    
    August 18, 2003
    
    
    
    
    
    
    3,570
    
    
    
    322,8301999
    
    
    358,530
    
    
    
    30.26
    
    
    October 15, 2004
    
    
    
    
    
    
    3,570
    
    
    
    354,9602000
    
    
    332,700
    
    
    
    37.70
    
    
    October 21, 2005
    
    
    
    
    
    
    3,500
    
    
    
    329,2002001
    
    
    203,500
    A
    
    
    23.45
    A
    
    October 20, 2006
    
    
    
    
    
    
    1,000
    
    
    
    202,500
    A2001
    
    
    104,500
    B
    
    
    18.61
    B
    
    October 20, 2006
    
    
    
    
    
    
    5,000
    
    
    
    99,500
    B2002
    
    
    200,500
    A
    
    
    14.69
    A
    
    October 19, 2007
    
    
    
    
    
    
    
    
    
    
    200,500
    A2002
    
    
    124,000
    B
    
    
    11.56
    B
    
    October 19, 2007
    
    
    
    
    
    
    2,500
    
    
    
    121,500
    B1,650,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,140
    
    
    
    1,630,990


The receipt of options is based on achievement of targets with respect to
Company results, business unit results and personal performance; options also
serve to increase longer-term commitment to the Company. The maximum number of
options that may be received is related to the recipients job grade.

F-47



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

36. Remuneration and share option plan  (Continued)

Notes to the share option plan

The main features of the share option plan under which option rights are
granted to members of the Board of Managing Directors and senior officers each
year are as follows. The exercise price of the options is based on a vesting
price equal to the weighted average quote as calculated by Bloomberg for KLM
shares on the tenth working day after the day of KLMs Annual General Meeting
of Stockholders.

Until 1998, the exercise price of the option rights was equal to the vesting
price. As a result of amended tax rates, the exercise price of the option
rights in 1999 and 2000 consisted of an amount equal to such a percentage of
the vesting price that the fiscal value of the option was 4% of the value of
the KLM share.

Following the introduction of fiscal legislation enabling option recipients to
elect for taxation upon the vesting of an option or upon the exercise of an
option, the share option plan allows option recipients to elect with effect
from 2001 for (i) an exercise price that is equal to a percentage of the
vesting price such that the fiscal value of the option is 4% of the value of
the KLM share (Option A, as indicated in the above tables), or (ii) an exercise
price that is equal to the vesting price (Option B, as indicated in the above
table). Options may be exercised at any moment during the exercise period,
subject to applicable regulations on the prevention of insider trading and a
waiting period of two years in the case of options granted in 1998 and three
years in the case of options granted onwards from 1999.

To settle the tax liability on options received in 1998, option recipients were
offered a five-year loan carrying interest at the rate referred to in article
59 of the Salary Tax Act 1969 Implementation Regulations with a repayment
commitment on the exercise of the option rights. To settle any possible tax
liability on options received from 1999 onwards, option recipients have been
offered a six-month interest-free loan with a commitment to repay one sixth of
the loan per month.

As of March 31, 2003 obligations in connection with options granted had been
covered through the repurchase of own shares and the purchase of share options.
Such hedging transactions take place at the moment options are granted. The
purchase price of the KLM shares is charged to Other reserves (see note to
Stockholders equity). The premium paid for the share options (EUR 1.3 million)
is amortized through salaries and benefits on a straight-line basis over five
years.

37. Commitments and contingent liabilities

Tangible fixed assets on order

Commitments relating to orders of tangible fixed assets amount to EUR 965
million (last fiscal year EUR 37 million), of which EUR 441 million is due in
fiscal year 2003/2004.

Rental agreements

KLM has long-term rental commitments amounting to EUR 1,521 million (last
fiscal year EUR 1,030 million). Commitments for the next five fiscal years and
thereafter:

Operational leases
    
    Rental ofof aircraft
    
    buildings2003/2004
    
    
    191
    
    
    
    312004/2005
    
    
    195
    
    
    
    222005/2006
    
    
    180
    
    
    
    202006/2007
    
    
    148
    
    
    
    162007/2008
    
    
    111
    
    
    
    13after 2007/2008
    
    
    397
    
    
    
    197


Guarantees

Guarantees have been provided up to an amount of EUR 174 million (last fiscal
year EUR 120 million). EUR 114 million relates to consolidated holdings (last
fiscal year EUR 95 million).

Guarantees were further provided for a number of consolidated holdings in
accordance with Article 403, Book 2, of The Netherlands Civil Code. This
information is part of the information on capital interests which has been
filed with the Trade Register of the Chamber of Commerce in Amsterdam. The
debts of the companies, which are included in the consolidated balance sheet as
of March 31, 2003 amounted to EUR 74 million (last fiscal year EUR 48 million).

The Company is a member of a fiscal unity and is accordingly jointly and
separately liable for taxes payable by the fiscal unity as a whole.

F-48





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##### Table of Contents



SCHEDULE VIII  VALUATION AND QUALIFYING ACCOUNTS

In millions of euros

Years ended March 31, 2001, 2002 and 2003Balance at
    
    Additions
    
    Additionsbeginning
    
    Charged to
    
    Charged to
    
    
    
    
    
    Balance atof year
    
    cost and expenses
    
    other accounts
    
    Deductions *
    
    End of yearYear ended March, 2001Allowance for doubtful accounts
(deducted from accounts
receivable)
    
    
    37
    
    
    
    4
    
    
    
    
    
    
    
    16
    
    
    
    25Year ended March, 2002Allowance for doubtful accounts
(deducted from accounts
receivable)
    
    
    25
    
    
    
    12
    
    
    
    
    
    
    
    3
    
    
    
    34Year ended March, 2003Allowance for doubtful accounts
(deducted from accounts
receivable)
    
    
    34
    
    
    
    6
    
    
    
    
    
    
    
    15
    
    
    
    25


*  Accounts deemed to be uncollectable

S-1