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

FORM 20-F

|                                         |  |                                                                                                
|---------------------------------------- |  | -----------------------------------------------------------------------------------------------
|o                                        |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
|                                         |  |                                                                                                
|OR                                      
|                                         |  |                                                                                                
|x                                        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
EXCHANGE ACT OF 1934           
|                                         |  |                                                                                                
|For the fiscal year ended March 31, 2003
|                                         |  |                                                                                                
|OR                                      
|                                         |  |                                                                                                
|o                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES 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
exchange on which registered
|                                |  |                                     
|Common shares, par
value 2 euro |  | New York Stock Exchange             





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##### Table of Contents



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

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
8,812,500
7,050,000
1,275 |  | Common shares
Cumulative preference shares A outstanding
Cumulative preference shares C
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.

|      |  |     
|----- |  | ----
|x Yes |  | o No

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

|          |  |          
|--------- |  | ---------
|o Item 17 |  | x Item 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



|                                                  |                                                                                       |  |  |  |  |  |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                  | WARNING ABOUT FORWARD-LOOKING STATEMENTS                                             
|PART I                                           
|                                                  | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        
|                                                  | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|                                                  | ITEM 3. KEY INFORMATION                                                              
|                                                  | ITEM 4. INFORMATION ON THE COMPANY                                                   
|                                                  | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|                                                  | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|                                                  | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|                                                  | ITEM 8. FINANCIAL INFORMATION                                                        
|                                                  | ITEM 9. THE OFFER AND LISTING                                                        
|                                                  | ITEM 10. ADDITIONAL INFORMATION                                                      
|                                                  | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|                                                  | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                          
|                                                  | ITEM 13. DEFAULTS, DIVIDENDS ARREARRAGES AND DELINQUENCIES                           
|                                                  | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|                                                  | ITEM 15. CONTROLS AND PROCEDURES                                                     
|                                                  | ITEM 16.                                                                             
|PART III                                         
|                                                  | ITEM 17. FINANCIAL STATEMENTS                                                        
|                                                  | 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                                                  
|                                                  | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|                                                  | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                       
|                                                  | COMPANY BALANCE SHEET                                                                
|                                                  | COMPANY STATEMENT OF EARNINGS                                                        
|                                                  | NOTES TO THE COMPANY FINANCIAL STATEMENTS                                            
|SCHEDULE VIII  VALUATION AND QUALIFYING ACCOUNTS
|EXHIBIT 4.1                                      
|EXHIBIT 4.2                                      
|EXHIBIT 4.3                                      
|EXHIBIT 12.1                                     
|EXHIBIT 12.2                                     



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KLM ROYAL DUTCH AIRLINES



Annual Report on Form 20-F
to the Securities and Exchange Commission
for the year ended March 31, 2003



TABLE OF CONTENTS

|         |  |          |  |                                                       |  |                                                                              |    |                                          |    |      |   | 
|-------- |  | -------- |  | ----------------------------------------------------- |  | ---------------------------------------------------------------------------- | -- | ---------------------------------------- | -- | ---- | - | 
|         |  |          |  |                                                       |  |                                                                              |    |                                          |    | Page
|         |  |          |  |                                                       |  |                                                                              |    |                                          |    |     
|         |  |          |  |                                                       |  |                                                                              |    | Warning about Forward-Looking Statements |    |      | 2 | 
|Part I   |  | Item 1.  |  | Identity of directors, senior management and advisors |  |                                                                              | 3  |                                         
|         |  |          |  | Item 2.                                               |  | Offer statistics and expected timetable                                      |    |                                          | 3  |     
|         |  |          |  | Item 3.                                               |  | Key information                                                              |    |                                          | 3  |     
|         |  |          |  | Item 4.                                               |  | Information on the Company                                                   |    |                                          | 9  |     
|         |  |          |  | Item 5.                                               |  | Operating and financial review and prospects                                 |    |                                          | 18 |     
|         |  |          |  | Item 6.                                               |  | Directors, senior management and employees                                   |    |                                          | 28 |     
|         |  |          |  | Item 7.                                               |  | Major shareholders and related party transactions                            |    |                                          | 33 |     
|         |  |          |  | Item 8.                                               |  | Financial information                                                        |    |                                          | 35 |     
|         |  |          |  | Item 9.                                               |  | The offer and listing                                                        |    |                                          | 36 |     
|         |  |          |  | Item 10.                                              |  | Additional information                                                       |    |                                          | 38 |     
|         |  |          |  | Item 11.                                              |  | Quantitative and qualitative disclosures about market risk                   |    |                                          | 48 |     
|         |  |          |  | Item 12.                                              |  | Description of securities other than equity securities                       |    |                                          | 49 |     
|        
|Part II  |  | Item 13. |  | Defaults, dividends arrearages and delinquencies      |  |                                                                              | 50 |                                         
|         |  |          |  | Item 14.                                              |  | Material modifications to the rights of security holders and use of proceeds |    |                                          | 50 |     
|         |  |          |  | Item 15.                                              |  | Controls and procedures                                                      |    |                                          | 50 |     
|         |  |          |  | Item 16.                                              |  | Not applicable                                                               |    |                                          | 50 |     
|        
|Part III |  | Item 17. |  | Financial Statements                                  |  |                                                                              | 51 |                                         
|         |  |          |  | Item 18.                                              |  | Financial Statements                                                         |    |                                          | 51 |     
|         |  |          |  | Item 19.                                              |  | Exhibits                                                                     |    |                                          | 51 |     

1



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WARNING ABOUT FORWARD-LOOKING STATEMENTS

This Form 20-F 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 airline pricing environment;                                                                                                                                                                                                                                                                                                                                                                                
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | competitive actions taken by other airlines;                                                                                                                                                                                                                                                                                                                                                                    
| 
| |  | general economic conditions;                                                                                                                                                                                                                                                                                                                                                                                    
| 
| |  | changes in foreign exchange rates 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; 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 costs
for security, the cost and availability of aviation insurance coverage
and war risk coverage and the price and availability of jet fuel.

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 U.S.
Securities and Exchange Commission, 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 Securities and Exchange Commission filings,
including this annual report on Form 20-F. For further discussion of these and
other factors, see Item 3-Key Information-Risk Factors, Item 4-Information
on the Company, Item 5-Operating and Financial Review and Prospects and
Item 11-Quantitative and Qualitative Disclosures about Market Risk. 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
and the Company refer to KLM 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
(EUR). Previously presented statements denominated in Dutch guilders (NLG)
have been translated into euro using the irrevocably fixed conversion rate
applicable since January 1, 1999 for all periods presented (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 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
translation or any amounts translated from euro into other currencies could
have been converted from euro at the rates indicated.

2



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##### Table of Contents






PART I:




ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.




ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.




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
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 our audited consolidated financial statements 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.

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(1) |  | 2001  |       | 2000 |  | 1999 
|                                                               |          |  |                             |       |         |  |       |       |      |  |      
|Net assets                                                     |          |  | 5,975                       |       |         |  | 6,851 |       |      |  | 6,533 |      |  |  | 6,404 |      |  |  | 6,300 |     
|Total assets                                                   |          |  | 8,165                       |       |         |  | 8,943 |       |      |  | 8,590 |      |  |  | 8,647 |      |  |  | 8,299 |     
|Long-term debt                                                 |          |  | 3,971                       |       |         |  | 4,417 |       |      |  | 3,686 |      |  |  | 3,712 |      |  |  | 3,503 |     
|Capital stock                                                  |          |  | 125                         |       |         |  | 125   |       |      |  | 125   |      |  |  | 125   |      |  |  | 187   |     
|Operating revenues                                             |          |  | 6,485                       |       |         |  | 6,532 |       |      |  | 6,960 |      |  |  | 6,296 |      |  |  | 6,047 |     
|Operating income (loss)                                        |          |  | (133                        | )     |         |  | (94   | )     |      |  | 277   |      |  |  | 95    |      |  |  | 193   |     
|After tax income (loss) before
extraordinary items             |          |  | (186                        | )     |         |  | (156  | )     |      |  | 77    |      |  |  | 3     |      |  |  | 207   |     
|Net income (loss)                                              |          |  | (416                        | )     |         |  | (156  | )     |      |  | 77    |      |  |  | 337   |      |  |  | 207   |     
|Net income (loss) per common share
before extraordinary items: |          |  |                             |       |         |  |       |       |      |  |       |      |  |  |       |      |  |  |       |     
|                                                               | Basic(2) |  |                             | (4.17 | )       |  |       | (3.37 | )    |  |       | 1.61 |  |  |       | 0.04 |  |  |       | 4.02 | 
|                                                               | Diluted  |  |                             | (4.17 | )       |  |       | (3.37 | )    |  |       | 1.61 |  |  |       | 0.04 |  |  |       | 4.02 | 
|Net income (loss) per common share                             |          |  |                             |       |         |  |       |       |      |  |       |      |  |  |       |      |  |  |       |     
|                                                               | Basic(2) |  |                             | (9.26 | )       |  |       | (3.37 | )    |  |       | 1.61 |  |  |       | 7.17 |  |  |       | 4.02 | 
|                                                               | Diluted  |  |                             | (9.26 | )       |  |       | (3.37 | )    |  |       | 1.61 |  |  |       | 7.17 |  |  |       | 4.02 | 



---

|(1) |  | Prior year figures have been adjusted for the presentation of the deferred
tax position (credit balance of EUR 100 million as
of March 31, 2002 presented under Provisions has been transferred to
Financial fixed assets)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | After taking the rights of holders of A-cumulative preference shares and
C-cumulative preference shares into account (see
Item 10-Memorandum and Articles of Association)                                                 

3



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Selected financial data presented in accordance with Netherlands GAAP

|                                                                        |  |                             |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|----------------------------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                                        |  | Fiscal year ended March 31,
|                                                                        |  |                            
|                                                                        |  | 2003                        |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                                        |  |                             |        |      |  |      |        |      |  |     
|Dividend declared per common share                                      |  |                             | 0.10   |      |  |      | 0.20   |      |  |      | 0.60   |  |  |  |       |  |  |  | 0.68   | 
|Dividend declared per common share
(in U.S. dollars)                    |  |                             | 0.11   | (1)  |  |      | 0.22   |      |  |      | 0.66   |  |  |  |       |  |  |  | 0.74   | 
|Average number of common shares
outstanding (in thousands of shares)(2) |  |                             | 45,070 |      |  |      | 46,810 |      |  |      | 46,810 |  |  |  | 46,810 |  |  |  | 50,971 | 



---

|(1) |  | Estimated, not yet known on date of filing       
|--- |  | -------------------------------------------------
|   
|(2) |  | Outstanding excludes shares held by the company

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

|                                                                         |            |  |                             |        |         |  |        |        |      |  |        |        |  |  |        |        |  |  |        |        | 
|------------------------------------------------------------------------ | ---------- |  | --------------------------- | ------ | ------- |  | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                                                                         |            |  | Fiscal year ended March 31,
|                                                                         |            |  |                            
|                                                                         |            |  | 2003                        |        | 2002(1) |  | 2001   |        | 2000 |  | 1999  
|                                                                         |            |  |                             |        |         |  |        |        |      |  |       
|Net assets                                                               |            |  | 8,148                       |        |         |  | 8,361  |        |      |  | 8,304  |        |  |  | 7,840  |        |  |  | 7,679  |       
|Total assets                                                             |            |  | 10,331                      |        |         |  | 10,453 |        |      |  | 10,934 |        |  |  | 10,641 |        |  |  | 10,087 |       
|Long-term debt                                                           |            |  | 4,288                       |        |         |  | 4,799  |        |      |  | 4,314  |        |  |  | 4,199  |        |  |  | 3,998  |       
|Capital stock                                                            |            |  | 125                         |        |         |  | 125    |        |      |  | 125    |        |  |  | 125    |        |  |  | 187    |       
|Operating revenues                                                       |            |  | 6,485                       |        |         |  | 6,532  |        |      |  | 6,960  |        |  |  | 6,296  |        |  |  | 6,047  |       
|Operating income (loss)                                                  |            |  | (163                        | )      |         |  | 41     |        |      |  | 397    |        |  |  | 375    |        |  |  | 422    |       
|After tax income (loss) before extraordinary items                       |            |  | (267                        | )      |         |  | (2     | )      |      |  | 154    |        |  |  | 103    |        |  |  | 354    |       
|Net income (loss)                                                        |            |  | (267                        | )      |         |  | (2     | )(5)   |      |  | 154    | (5)    |  |  | 510    |        |  |  | 354    |       
|Net income (loss) per common share:                                      |            |  |                             |        |         |  |        |        |      |  |        |        |  |  |        |        |  |  |        |       
|                                                                         | Basic      |  |                             | (5.97  | )       |  |        | (0.08  | )    |  |        | 3.26   |  |  |        | 10.88  |  |  |        | 6.90   | 
|                                                                         | Diluted(2) |  |                             | (5.97  | )       |  |        | (0.08  | )    |  |        | 3.26   |  |  |        | 10.88  |  |  |        | 6.90   | 
|Dividend declared per share                                              |            |  | 0.10                        |        |         |  | 0.20   |        |      |  | 0.60   |        |  |  |       |        |  |  | 0.68   |       
|Dividend declared per share (in U.S. dollars)                            |            |  | 0.11                        | (3)    |         |  | 0.22   |        |      |  | 0.66   |        |  |  |       |        |  |  | 0.74   |       
|Average number of common shares
outstanding (in thousands of shares)(4): |            |  |                             |        |         |  |        |        |      |  |        |        |  |  |        |        |  |  |        |       
|                                                                         | Basic      |  |                             | 45,070 |         |  |        | 46,810 |      |  |        | 46,810 |  |  |        | 46,810 |  |  |        | 50,971 | 
|                                                                         | Diluted    |  |                             | 45,070 |         |  |        | 46,810 |      |  |        | 46,810 |  |  |        | 46,810 |  |  |        | 50,971 | 



---

|(1) |  | Prior year figures have been adjusted for the presentation of the deferred
tax position                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | After taking the rights of holders of A-cumulative preference shares and
C-cumulative preference shares into account (see
Item 10 Memorandum and Articles of Association)                                                                                                                                                                                                                                                                                                                                
|   
|(3) |  | Estimated, not yet known on date of filing                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) |  | Outstanding excludes shares held by the company                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(5) |  | As explained in note 28 to our audited consolidated financial statements,
we adopted SFAS 142 on April 1, 2002. Under
FASB 142 goodwill and intangible assets with indefinite lives are no
longer amortized, but instead tested for impairment at
least annually. If such amortizations were excluded from results for prior
periods, net income (loss) and earnings per share
would be increased by EUR 3 million (EUR 0.06 per share) for each of the
years ended on March 31, 2002, and March 31,
2001

4



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##### Table of Contents



Dividends

For the 1998/1999 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 1999/2000 fiscal year, no dividend was paid. For the 2000/2001 fiscal
year a dividend of EUR 0.60 per common share was paid in cash. For the
2001/2002 fiscal year a dividend of EUR 0.20 per common share was paid in cash.

For the 2002/2003 fiscal year, a dividend of EUR 0.10 will be 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.

|                            |  |                         |        |     |  |           |        |                |  |  |        |  |  |  |        | 
|--------------------------- |  | ----------------------- | ------ | --- |  | --------- | ------ | -------------- |  |  | ------ |  |  |  | ------ | 
|                            |  |                         |        |     |  |           |        |                |  |  |        | 
|Fiscal year ended March 31, |  | High                    |        | Low |  | Periodend |        | Averagerate(1)
|                            |  |                         |        |     |  |           |        |               
|                            |  | (U.S. dollars per euro)
|1999                        |  |                         | 1.2147 |     |  |           | 1.0549 |                |  |  | 1.0808 |  |  |  | 1.1226 | 
|2000                        |  |                         | 1.0887 |     |  |           | 0.9524 |                |  |  | 0.9574 |  |  |  | 1.0238 | 
|2001                        |  |                         | 0.9650 |     |  |           | 0.8271 |                |  |  | 0.8773 |  |  |  | 0.9079 | 
|2002                        |  |                         | 0.9277 |     |  |           | 0.8364 |                |  |  | 0.8717 |  |  |  | 0.8847 | 
|2003                        |  |                         | 1.1054 |     |  |           | 0.875  |                |  |  | 1.0915 |  |  |  | 0.9939 | 



---



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

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



---

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.

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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 2002/2003 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 2002/2003
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.

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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.

8



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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 2002/2003, 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.

9



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Select operating statistics

|                                                  |                                                      |  |                             |       |         |  |        |       |  |  |        |       | 
|------------------------------------------------- | ---------------------------------------------------- |  | --------------------------- | ----- | ------- |  | ------ | ----- |  |  | ------ | ----- | 
|                                                  |                                                      |  | Fiscal year ended March 31,
|                                                  |                                                      |  |                            
|                                                  |                                                      |  | 2003                        |       | 2002(1) |  | 2001  
|                                                  |                                                      |  |                             |       |         |  |       
|Capacity                                          |                                                      |  |                             |       |         |  |        |       |  |  |        |      
|* 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    |       |  |  | 370    |      
|                                                  | Hours flown (in thousands)                           |  |                             | 454   |         |  |        | 455   |  |  |        | 471   | 
|                                                 
|Traffic                                           |                                                      |  |                             |       |         |  |        |       |  |  |        |      
|* 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  |       |  |  | 10,183 |      
|                                                  |                                                      |  |                             |       |         |  |        |       |  |  |        |      
|                                                  | Load factor (%)                                      |  |                             | 78.2  |         |  |        | 76.9  |  |  |        | 78.5  | 
|                                                  | Break-even load factor (%)(2)                        |  |                             | 80.2  |         |  |        | 77.7  |  |  |        | 73.8  | 
|* Passenger kilometers                            |                                                      |  | 59,417                      |       |         |  | 58,447 |       |  |  | 60,047 |      
|                                                  | Passenger load factor (%)(3)                         |  |                             | 79.4  |         |  |        | 78.9  |  |  |        | 79.8  | 
|                                                  | Cargo load factor (%)                                |  |                             | 71.7  |         |  |        | 69.6  |  |  |        | 71.7  | 
|                                                 
|* Weight of cargo carried (in kilograms)          |                                                      |  | 489                         |       |         |  | 490    |       |  |  | 502    |      
|                                                  | Average distance flown per passenger (in kilometers) |  |                             | 3,057 |         |  |        | 3,567 |  |  |        | 3,728 | 
|                                                 
|Yield
and Expenses (in cents)                     |                                                      |  |                             |       |         |  |        |       |  |  |        |      
|Yield per revenue passenger ton-kilometer(4)      |                                                      |  | 7.1                         |       |         |  | 7.3    |       |  |  | 7.1    |      
|Yield per revenue cargo ton-kilometer             |                                                      |  | 24.2                        |       |         |  | 25.0   |       |  |  | 26.0   |      
|Yield per RTK                                     |                                                      |  | 51.5                        |       |         |  | 53.4   |       |  |  | 52.2   |      
|Operating expenses per ATK                        |                                                      |  | 41.3                        |       |         |  | 41.5   |       |  |  | 38.6   |      



---

|*   |  | 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) |  | Break-even load factor: The load factor percentage at which operating
revenues equal operating expenses                                                                                                                                                                                                                                                                                               
|   
|(3) |  | Passenger load factor: Revenue passenger-kilometers expressed as a
percentage of available seat-kilometers                                                                                                                                                                                                                                                                                            
|   
|(4) |  | Yield per revenue passenger ton-kilometer: Total passenger traffic revenue
divided by total passenger 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
revenue          |                                      |  |                             |       |      |  |       |       |  |  |       |      
|                         | Passengers                           |  |                             | 4,210 |      |  |       | 4,267 |  |  |       | 4,527 | 
|                         | Cargo                                |  |                             | 1,017 |      |  |       | 1,016 |  |  |       | 1,109 | 
|                         | Charter / Low-cost                   |  |                             | 553   |      |  |       | 543   |  |  |       | 490   | 
|                         |                                      |  |                             |       |      |  |       |       |  |  |       |      
|Total traffic revenue    |                                      |  | 5,780                       |       |      |  | 5,826 |       |  |  | 6,126 |      
|                        
|Other
revenue:           |                                      |  |                             |       |      |  |       |       |  |  |       |      
|                         | Maintenance and other technical work |  |                             | 280   |      |  |       | 273   |  |  |       | 273   | 
|                         | Cargo and mail handling              |  |                             | 40    |      |  |       | 39    |  |  |       | 131   | 
|                         | Tax-free sales                       |  |                             | 115   |      |  |       | 107   |  |  |       | 104   | 
|                         | Aircraft handling                    |  |                             | 105   |      |  |       | 92    |  |  |       | 93    | 
|                         | Miscellaneous                        |  |                             | 165   |      |  |       | 195   |  |  |       | 233   | 
|                         |                                      |  |                             |       |      |  |       |       |  |  |       |      
|Total other revenue      |                                      |  | 705                         |       |      |  | 706   |       |  |  | 834   |      
|                         |                                      |  |                             |       |      |  |       |       |  |  |       |      
|Total 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 revenues 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   |  |  |  | 821    | 
|North Atlantic             |  |                                 | 2,582  |      |  |      | 2,649 |  |  |  | 2,997  | 
|Asia Pacific               |  |                                 | 3,366  |      |  |      | 3,240 |  |  |  | 3,505  | 
|Central and South Atlantic |  |                                 | 1,271  |      |  |      | 1,301 |  |  |  | 1,163  | 
|Middle East/South Asia     |  |                                 | 760    |      |  |      | 799   |  |  |  | 800    | 
|Africa                     |  |                                 | 1,119  |      |  |      | 962   |  |  |  | 897    | 
|                           |  |                                 |        |      |  |      |       |  |  |  |        | 
|Total                      |  |                                 | 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 revenue                   |  |                             |       |      |  |      |       |  |  |  |       | 
|Europe (including domestic lines) |  |                             | 1,505 |      |  |      | 1,176 |  |  |  | 1,260 | 
|North Atlantic                    |  |                             | 1,032 |      |  |      | 1,118 |  |  |  | 1,338 | 
|Asia Pacific                      |  |                             | 1,200 |      |  |      | 1,317 |  |  |  | 1,350 | 
|Central and South Atlantic        |  |                             | 535   |      |  |      | 572   |  |  |  | 508   | 
|Middle East / South Asia          |  |                             | 413   |      |  |      | 335   |  |  |  | 448   | 
|Africa                            |  |                             | 542   |      |  |      | 494   |  |  |  | 442   | 
|                                  |  |                             |       |      |  |      |       |  |  |  |       | 
|Total scheduled services          |  |                             | 5,227 |      |  |      | 5,012 |  |  |  | 5,346 | 
|Subsidiaries revenue             |  |                             | 553   |      |  |      | 814   |  |  |  | 780   | 
|                                  |  |                             |       |      |  |      |       |  |  |  |       | 
|Total                             |  |                             | 5,780 |      |  |      | 5,826 |  |  |  | 6,126 | 
|                                  |  |                             |       |      |  |      |       |  |  |  |       | 
|                                  |  | (in euro cents)            
|Yield per RTK                     |  |                             |       |      |  |      |       |  |  |  |       | 
|Europe (including domestic lines) |  |                             | 146   |      |  |      | 125   |  |  |  | 153   | 
|North Atlantic                    |  |                             | 40    |      |  |      | 42    |  |  |  | 45    | 
|Asia Pacific                      |  |                             | 36    |      |  |      | 41    |  |  |  | 39    | 
|Central and South Atlantic        |  |                             | 42    |      |  |      | 44    |  |  |  | 44    | 
|Middle East / South Asia          |  |                             | 54    |      |  |      | 43    |  |  |  | 56    | 
|Africa                            |  |                             | 48    |      |  |      | 51    |  |  |  | 49    | 
|Total                             |  |                             | 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 2002/2003 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.

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.

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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 world-wide 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.

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.).

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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 2002/2003.

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.

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.

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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 2002/2003 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 KLM 
|                                  |  |                          |  |                  |     | Ownership Interest
|Holding                           |  | Country of Incorporation |  | and Voting Power
|                                  |  |                          |  |                 
|KLM Cityhopper bv                 |  | The Netherlands          |  |                  | 100 |                   
|KLM UK Holdings Ltd               |  | United Kingdom           |  |                  | 100 |                   
|KLM Catering Services Schiphol bv |  | The Netherlands          |  |                  | 100 |                   
|KLM Luchtvaartschool bv           |  | The Netherlands          |  |                  | 100 |                   
|KLM Arbo Services bv              |  | The Netherlands          |  |                  | 100 |                   
|KLM Equipment Services bv         |  | The Netherlands          |  |                  | 100 |                   
|KLM Financial Services bv         |  | The Netherlands          |  |                  | 100 |                   
|Cygnific bv                       |  | The Netherlands          |  |                  | 100 |                   
|KLM Ground Services Ltd           |  | United Kingdom           |  |                  | 100 |                   
|Transavia Airlines bv             |  | The Netherlands          |  |                  | 80  | (1)               
|Martinair Holland nv              |  | The Netherlands          |  |                  | 50  |                   
|Polygon Insurance Company Ltd     |  | Guernsey                 |  |                  | 31  |                   
|Kenya Airways Ltd                 |  | Kenya                    |  |                  | 26  |                   
|H.S.A. Beheer nv                  |  | The Netherlands          |  |                  | 10  |                   
|Opodo Ltd                         |  | United Kingdom           |  |                  | 9   |                   
|Travel Unie International         |  | The Netherlands          |  |                  | 9   |                   
|Nederland nv                      |  |                          |  |                  |     |                    |  | 



---

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

D.     Property, plants and equipment

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

Aircraft

|         |    |      |  |                          |  |             |    |  |  |  |      | 
|-------- | -- | ---- |  | ------------------------ |  | ----------- | -- |  |  |  | ---- | 
|Number   |    |      |  | Term of                  |  |             |    | 
|of       |    |      |  | depreciation             |  | Average age
|aircraft |    | Type |  | in years                 |  | in years   
|         |    |      |  |                          |  |            
|         | 5  |      |  | Boeing 747-400           |  |             | 18 |  |  |  | 12.3 | 
|         | 17 |      |  | Boeing 747-400 Combi     |  |             | 18 |  |  |  | 9.1  | 
|         | 2  |      |  | Boeing 747-300           |  |             | 25 |  |  |  | 22.8 | 
|         | 5  |      |  | Boeing 747-300 Combi     |  |             | 25 |  |  |  | 22.6 | 
|         | 2  |      |  | Boeing 747-300 Freighter |  |             | 25 |  |  |  | 27.3 | 
|         | 8  |      |  | Boeing MD-11             |  |             | 18 |  |  |  | 8.1  | 
|         | 1  |      |  | Boeing 737-900           |  |             | 18 |  |  |  | 1.5  | 
|         | 25 |      |  | Boeing 737-800           |  |             | 18 |  |  |  | 3.2  | 
|         | 2  |      |  | Boeing 737-700           |  |             | 18 |  |  |  | 0.1  | 
|         | 7  |      |  | Boeing 737-400           |  |             | 18 |  |  |  | 11.3 | 
|         | 7  |      |  | Boeing 737-300           |  |             | 18 |  |  |  | 10.5 | 
|         | 3  |      |  | Boeing 757-200           |  |             | 15 |  |  |  | 9.7  | 
|         | 15 |      |  | Fokker 100               |  |             | 12 |  |  |  | 13.9 | 
|         | 17 |      |  | Fokker 70                |  |             | 15 |  |  |  | 7.0  | 
|         | 10 |      |  | Fokker 50                |  |             | 15 |  |  |  | 12.2 | 
|         | 2  |      |  | BAe 146-300              |  |             | 15 |  |  |  | 13.3 | 
|         | 3  |      |  | ATR 72                   |  |             | 15 |  |  |  | 4.9  | 
|         | 23 |      |  | Training aircraft        |  |             |    |  |  |  |      | 

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During the 2002/2003 fiscal year we took delivery of a 747-400ERF aircraft, a
747-400 Combi aircraft, two Boeing 737-700, 4 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.

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 2002/2003. 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 yield per revenue ton-kilometer,
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.

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 2002/2003 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 2002/2003 fiscal year not to continue the development of buzz without a
strong partner

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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.

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.

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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 2002/2003.

2002/2003 compared with 2001/2002

We realized an operating loss for this financial year of EUR 133 million
(2001/2002: EUR 94 million operating loss). The net loss before extraordinary
items amounted to EUR 271 million (2001/2002: EUR 156 million loss). After
extraordinary items (see explanation below), the net loss for the year amounted
to EUR 416 million.

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. Excluding this extraordinary item, the
operating result improved by EUR 75 million in comparison with 2001/2002.

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.
Manageable unit costs increased by 3% excluding exchange rates and fuel price
effects. Including these effects, unit costs were unchanged. 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 (2001/2002: 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

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(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.

Extraordinary items after tax amounted to EUR 230 million. Of this loss EUR
181 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
extraordinary loss (EUR 49 million) related to a provision for restructuring
and relates to redundancy costs for approximately 1,000 full-time equivalents.
In the fiscal year 2001/2002 there were no extraordinary 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. Unit cost was
5% higher. 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% (2001/2002:
78.7%). Measured in passenger kilometers, traffic increased by 2% from 58,447
million in 2001/2002 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 (2001/2002: 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.

Operating results by business segment in 2002/2003

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

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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
2002/2003 came under pressure from fierce competition.

2001/2002 compared with 2000/2001

Operating income fell so substantially that the year closed with an operating
loss of EUR 94 million (2000/2001: EUR 277 million operating income). The net
loss amounted to EUR 156 million (2000/2001: EUR 77 million net income). Net
loss per common share came to EUR 3.37 (2000/2001: EUR 1.61 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 revenue 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 2001/2002 financial
year.

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.

Yield per available ton-kilometer was 4% lower. Currency effects had a limited
negative impact on this figure. Unit costs including currency and fuel
effects, increased by 4%.

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 2001/2002 we set aside EUR 100 million (2000/2001: 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
2000/2001 but due to the capacity reduction and the careful balancing of
capacity and demand, the decline was limited: 78.7% versus 79.8% in 2000/2001.
Measured in passenger kilometers, traffic fell by 5%, from 60,047 million in
2000/2001 to 56,891 million in the 2001/2002 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 2000/2001 to 4,042
in 2001/2002. 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

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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 underutilization 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.

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 2002/2003 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.

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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 2002/2003 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.

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.

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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 restrictions 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.

KLMs cash flow from operating activities amounted to EUR 295 million.
Adjusted for the settlement of the Alitalia arbitration award, cash flow from
operating activities amounted to EUR 467 million. 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.

Our cash position as of March 31, 2003 was EUR 919 million. The position
consisted of EUR 608 million of cash and marketable securities. The remainder
of EUR 311 million comprised AAA bonds and long-term deposits included under
financial fixed assets.

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 2002/2003

Capital expenditures made during the 2002/2003 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.

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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 2001/2002

Capital expenditures made during the 2001/2002 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
2001/2002 financial year), two Boeing 737-800 aircraft (valued, in aggregate,
at EUR 75 million, of which EUR 31 million was paid during the 2001/2002
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.

D.     Trend information

The first two months of financial year 2003/2004 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 2002/2003 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 2002/2003 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 period
|                              |  |                       
|Contractual Obligations       |  | Total                  |       | Less than 1 year |  | 1-3 years |     | 4-5 years |  | After 5 years
|                              |  |                        |       |                  |  |           |     |           |  |              
|Financial Lease Obligations   |  |                        | 317   |                  |  |           | 34  |           |  |               | 140   |  |  |  | 82    |  |  |  | 61    | 
|Long-Term Debt Obligations    |  |                        | 3,743 |                  |  |           | 316 |           |  |               | 1,049 |  |  |  | 680   |  |  |  | 1,698 | 
|Operating Lease Obligations   |  |                        | 1,174 |                  |  |           | 190 |           |  |               | 385   |  |  |  | 244   |  |  |  | 355   | 
|                              |  |                        |       |                  |  |           |     |           |  |               |       |  |  |  |       |  |  |  |       | 
|Total Contractual Obligations |  |                        | 5,234 |                  |  |           | 540 |           |  |               | 1,574 |  |  |  | 1,006 |  |  |  | 2,114 | 

|                           |  |                       |       |           |  |       |     |         |  |  |     |  |  |  |    | 
|-------------------------- |  | --------------------- | ----- | --------- |  | ----- | --- | ------- |  |  | --- |  |  |  | -- | 
|                           |  | Expiration per period
|                           |  |                      
|                           |  | Total                 |       |           |  |       |     |         |  |  |     |  |  | 
|                           |  | amounts               |       | Less than |  | 1-5   |     | After  
|Other Commitments          |  | committed             |       | 1 year    |  | years |     | 5 years
|                           |  |                       |       |           |  |       |     |        
|Fleet Purchase Commitments |  |                       | 1,042 |           |  |       | 516 |         |  |  | 526 |  |  |  | 0  | 
|Guarantees                 |  |                       | 174   |           |  |       | 62  |         |  |  | 21  |  |  |  | 91 | 
|                           |  |                       |       |           |  |       |     |         |  |  |     |  |  |  |    | 
|Total 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.

27



---



##### Table of Contents






ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.     Directors and senior management

We are managed by a Board of Managing Directors (Management), of which the
members are appointed by and act under the direction of our Supervisory Board.
Members of Management serve at the discretion of the Supervisory Board and may
be removed, subject to consultation with our shareholders at a general meeting
of shareholders. The Supervisory Board informs the Works Council, a body of our
employees, elected by our employees in The Netherlands pursuant to our articles
of association and Dutch law, regarding the intended removal.

The members of the Supervisory Board are appointed by the Supervisory Board,
subject to the rights of our shareholders at a general meeting and the Works
Council to render advice and to object. Management also has the right to
render advice regarding the appointment of a Supervisory Board member. The
term of office of each Supervisory Board member ends upon the convening of the
first general meeting of shareholders after the expiration of four years from
the time of his or her appointment.The following is a list of all Supervisory
Board members and members of Management as of the date of this annual report:

|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|---------------------------- |  | -------- | ---- | ----------- |  | -------------------- |  | ---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |  | Year     |      |             |  | First appointment/   |  | Function/Supervisory board        
|Supervisory Board            |  | of birth |      | Nationality |  | Current term         |  | memberships and other functions(1)
|                             |  |          |      |             |  |                      |  |                                   
|Floris A. MaljersChairman(2) |  |          | 1933 |             |  | Dutch                |  | 1991/1999  2003                   |  | Former Chairman &
CEO Unilever nv/SHV
Holdings nv,
Koninklijke VendexKBB nv, BP
plc, Concertgebouw
nv                                                                    
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Arie MaasVice-Chairman       |  |          | 1934 |             |  | Dutch                |  | 1991/1999  2003                   |  | Former Chairman
Board of Managing
Directors
Koninklijke
Bijenkorf Beheer
nv/TPG nv                                                                                       
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Max Albrecht                 |  |          | 1932 |             |  | Dutch                |  | 1976/2001  2004                   |  | Former member Board
of Managing
Directors
Koninklijke
Nederlandse
Hoogovens en
Staalfabrieken nv                                                                         
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Lutgart A.A. van
den Berghe  |  |          | 1951 |             |  | Belgian              |  | 2001/2001  2005                   |  | Professor
University of
Ghent, Executive
Director Vlerick
Leuven Ghent
Management School &
Belgian Directors
Institute / Capco
nv, CSM nv, ING
Groep nv, SHV
Holdings nv
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Dudley G. Eustace            |  |          | 1936 |             |  | British and Canadian |  | 1999/1999  2003                   |  | CFO Koninklijke
Ahold nv/ AEGON nv,
Hagemeijer nv,
Koninklijke KPN nv,
Smith and Nephew
plc, Sendo Holdings
plc,
Sonae.com.SGPS, W&S
Nederland bv                        
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Bauke Geersing               |  |          | 1944 |             |  | Dutch                |  | 1985/2002  2006                   |  | Managing Director Consultancy/Holland
Weather
Services bv, TIE
Holding nv, Dudok
Arena bv, RTV
Utrecht, NIGZ                                                             
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Johan Stekelenburg           |  |          | 1941 |             |  | Dutch                |  | 1997/2001  2005                   |  | Mayor of Tilburg /DSM
nv, ING Groep
nv, TenneT bv, De
Sluis Groep nv, WPG
Uitgevers bv                                                                                   
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Kees J. Storm                |  |          | 1942 |             |  | Dutch                |  | 2002/2002  2006                   |  | Former Chairman
Board of Managing
Directors AEGON nv
/ Koninklijke
Wessanen nv,
Interbrew SA,
Laurus nv, Pon
Holdings nv                                                 
|                             |  |          |      |             |  |                      |  |                                    |  |                                                                                                                                                                          
|Gary L. Wilson               |  |          | 1940 |             |  | American             |  | 2001/2001  2005                   |  | Chairman Board of
Directors Northwest
Airlines Inc. / The
Walt Disney
Company, Yahoo!
Inc.                                                                               



---

|(1) |  | Only memberships of supervisory boards and functions with large
companies as of March 31, 2003 are shown here
|--- |  | -------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Chairman since 2000                                                                                          

28



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##### Table of Contents



The Supervisory Board intends to appoint Wim Kok and Cees J.A. van Lede as
members of the Supervisory Board of the Company. Messrs. Kok and Van Lede will
take the seats vacated by Arie Maas, who will resign at the end of his current
term, and Max Albrecht, who will resign after 27 years on the KLM Supervisory
Board.

Wim Kok was Prime Minister of The Netherlands until the summer of 2002. Mr.
Koks knowledge of the national and international sociopolitical arena and his
experience in public office will be a great asset to the KLM Supervisory Board.
Mr. Kok previously served as Chairman of the Federation of Dutch Trade Unions
(FNV), leader of the parliamentary delegation of the Dutch Labor Party (Partij
van de Arbeid) in the Dutch Lower House, and Minister for Finance. Earlier this
year, Mr. Kok was appointed to the Supervisory Boards of the ING Group, Shell
(Royal Dutch Petroleum Company) and TPG. The intended appointment of Mr. Kok is
based, among other things, on a recommendation of the KLM Works Council.

Cees J.A. van Lede was Chairman of the Board of Managing Directors of Akzo
Nobel nv until May 1 of this year. Mr. van Ledes experience in leading
internationally oriented corporations and in the field of national and
international sociopolitical relations will be of great value to the KLM
Supervisory Board. Mr. van Lede was previously a member of the Board of
Managing Directors of HBG and Chairman of the Confederation of Netherlands
Industry and Employers (VNO). He is currently Chairman of the Supervisory Board
of the Dutch Central Bank and holds seats on the Supervisory Boards of
Heineken, Sara Lee Corporation, Scania, Philips, Reed Elsevier, LAir Liquide,
and Akzo Nobel.

The Supervisory Board will present the intended appointment of Messrs. Kok and
Van Lede to the KLM Annual General Meeting of Shareholders in Amstelveen on
June 25, 2003.

29



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##### Table of Contents



|                    |  |               |      |             |  |             |  |              |      |           |  |                                                                                                                                                                                                                                                                    |  |                                                                                                           
|------------------- |  | ------------- | ---- | ----------- |  | ----------- |  | ------------ | ---- | --------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------
|                    |  |               |      |             |  |             |  |              |      |           |  | Function/Supervisory                                                                                                                                                                                                                                               |  |                                                                                                           
|                    |  |               |      |             |  |             |  |              |      |           |  | Board membership                                                                                                                                                                                                                                                   |  | Past area of                                                                                              
|Board of Managing   |  |               |      |             |  |             |  | First        |      | and other |  | experience within                                                                                                                                                                                                                                                 
|Directors           |  | Year of birth |      | Nationality |  | Appointment |  | functions(1) |      | KLM      
|                    |  |               |      |             |  |             |  |              |      |          
|Leo M. van Wijk     |  |               | 1946 |             |  | Dutch       |  |              | 1991 |           |  | President & Chief
Executive
Officer/member of
Board of Directors
of Northwest
Airlines, Inc.,
member of Advisory
Council of ABN AMRO
Holding nv, member
of Supervisory
Board of AEGON
Nederland nv,
Randstad Holding
nv, Martinair
Holland nv and TUI
Nederland nv |  | Automation
Services, Cargo,
Commercial
Services, Corporate
Development                                    
|                    |  |               |      |             |  |             |  |              |      |           |  |                                                                                                                                                                                                                                                                    |  |                                                                                                           
|Peter F. Hartman    |  |               | 1949 |             |  | Dutch       |  |              | 1997 |           |  | Managing Director &
Chief Operations
Officer/member of
Supervisory Board
of RAI Amsterdam
bv, member of
Supervisory Board
Martinair Holland
bv                                                                                                                     |  | Finance & Control,
Ground Services,
Customer Services,
Personnel &
Organization,
Engineering &
Maintenance
|                    |  |               |      |             |  |             |  |              |      |           |  |                                                                                                                                                                                                                                                                    |  |                                                                                                           
|Cees van Woudenberg |  |               | 1948 |             |  | Dutch       |  |              | 1997 |           |  | Managing Director &
Chief Human
Resources
Officer/member of
Supervisory Board
of DSM nv, Aalsmeer
Flower Auction, De
Bussy Ellerman
Harms bv and
Mercurius Groep
Wormerveer bv,
member of Advisory
Board of Deloitte &
Touche Human
Capital Group                  |  | Personnel &
Organization,
Flight Operations,
Cabin Crew                                                   
|                    |  |               |      |             |  |             |  |              |      |           |  |                                                                                                                                                                                                                                                                    |  |                                                                                                           
|Robert A. Ruijter   |  |               | 1951 |             |  | Dutch       |  |              | 2001 |           |  | Managing Director &
Chief Financial
Officer                                                                                                                                                                                                                        |  |                                                                                                          



---

|(1) |  | Only membership of Supervisory Boards and functions with large non-group
companies as of March 31, 2003 are shown here
|--- |  | ----------------------------------------------------------------------------------------------------------------------

There is no family relationship between any of the above persons. There are no
arrangements with major shareholders, customers, suppliers or any other parties
pursuant to which members of the Supervisory Board or members of Management
were selected or appointed. As of the date of this annual report the members of
the Management and the Supervisory Board had no commitments in respect of
loans, advances or guarantees granted to them by KLM.

B.     Compensation

For the compensation paid to members of the Supervisory Board and Management
and the amounts we accrued to provide pension, retirement or similar benefits
for those persons, please refer to note 36 to our consolidated financial
statements.

C.     Board practices

The Supervisory Board held six scheduled meetings during the 2002/2003 fiscal
year, one of which was a strategy meeting, and met on one further occasion to
discuss the outcome of the arbitration with Alitalia. In the scheduled
meetings, the Supervisory Board considered a wide range of matters including
the approval of investment proposals and the budget for 2003/2004, the current
situation in the aviation industry, alliance developments, KLMs positioning in
the low-cost and leisure segments, the replacement of the intercontinental
fleet, developments in the joint venture with Northwest Airlines and the
relationship with Schiphol Airport.

30



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##### Table of Contents



The Supervisory Boards strategy meeting paid specific attention to the
strategies of KLM and its Passenger, Cargo, Engineering & Maintenance and
Charter/Low-Cost businesses as well as to the performance of the Supervisory
Board, the qualities and experience present on the Supervisory Board, and the
filling of vacancies on the Supervisory Board. It also reviewed the performance
of the Supervisory Boards Committees, the relationship with the Board of
Managing Directors, the composition, quality and remuneration of the Board of
Managing Directors, the contacts with the Works Council and the companys
organizational structure.

During the 2002/2003 fiscal year ample consideration was given to our financial
position, risk profile, liquidity and continuity as well as to our operational
performance. In keeping with previous years, members of the Supervisory Board
attended meetings of the Works Council.

The Supervisory Board has four committees: an Audit Committee, a Nomination
Committee, a Strategy Committee and a Remuneration Committee. All these
Committees have a preparatory function and report on their activities to the
full Supervisory Board.

The Audit Committee met on four occasions during the year to discuss the
quarterly, half-year and annual figures and the related audit reports, and
matters such as risk management, the internal control system, the relationship
with and the quality of the internal and external auditors, the implementation
of the U.S. Sarbanes-Oxley legislation, the dividend policy, fleet financing
and our audit plan. Mr. Kees Storm succeeded Mr. Johan Stekelenburg on the
Audit Committee. In accordance with the US Sarbanes-Oxley Act, the Audit
Committee must approve in advance all audit and non-audit services, including
tax services, provided by KLMs auditors.

Our Audit Committee decides whether financial information provided by
Management meets in a general sense the requirements of material reliability
and completeness. It evaluates the quality of the internal audit, the
independence of our independent auditors, the integrity of management, and the
adequacy of disclosure to shareholders.

The Supervisory Board has determined that at least one of the members of the
Audit Committee qualifies as an audit committee financial expert, as that
term is defined in the SECs rules and regulations.

The Nomination Committee met on two occasions to discuss the composition of the
Supervisory Board and the preparations for appointments and reappointments to
the Supervisory Board. The Nomination Committee held consultations on two
occasions with a representation from the Works Council.

The Strategy Committee met three times during the year to review KLMs
discussions with possible alliance partners. Mrs. Lutgart van den Berghe
succeeded Mr. Max Albrecht on the Strategy Committee

The responsibilities and authorities of the Remuneration Committee are laid
down in a charter. Its primary function is to prepare decision making by the
Supervisory Board with respect to all issues related to the remuneration of
members of the Management, the Supervisory Board and senior officers, more in
particular:



| |  | (elements of) the remuneration package for the individual members of the Management;                                                                                    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the targets set yearly for the individual members of the Management;                                                                                                    
| 
| |  | the performance in relation to targets set and the related yearly granting of (fixed and variable) salary and option rights
to the individual members of the Management;
| 
| |  | the granting to members of the Management of pension benefits and severance payments; and                                                                               
| 
| |  | proposals to the Meeting of Holders of Priority Shares with respect to the remuneration of members of the Supervisory Board
and its Committees.                         

The Remuneration Committee met on one occasion during the 2002/2003 fiscal
year.

The composition of the Supervisory Boards Committees as of the date of this
annual report was as follows:

|                            |  |                       |  |                                                |  |                           
|--------------------------- |  | --------------------- |  | ---------------------------------------------- |  | --------------------------
|Audit Committee:            |  | Nomination Committee: |  | Strategy Committee:                            |  | Remuneration Committee:   
|                            |  |                       |  |                                                |  |                           
|Dudley G. Eustace
Chairman  |  | Arie Maas Chairman    |  | Floris A. Maljers Chairman                     |  | Floris A. Maljers Chairman
|Lutgart A.A. van
den Berghe |  | Bauke Geersing        |  | Bauke Geersing                                 |  | Arie Maas                 
|Kees J. Storm               |  | Johan Stekelenburg    |  | Dudley G. Eustace
Lutgart A. A. van den
Berghe |  |                           

In response to the U.S. Sarbanes-Oxley Act KLM decided to establish a
Disclosure Committee. The initial aim of this committee is to achieve
compliance with the Act and the new U.S. SEC regulations resulting from the Act
and to facilitate improvement of the disclosure control framework. The
committee assists KLMs Management by seeking to ensure its disclosures in all
filed reports are accurate, complete, timely, understandable and that they
fairly present the condition of the group.

31



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##### Table of Contents



D.     Employees

During the 2002/2003 fiscal year our workforce consisted of 33,038 full-time
equivalents, including 1,479 temporary staff.

The following table sets forth the average number of employees divided by main
category of activity and geographic location for the past three financial
years.

|                                     |  |                             |        |      |  |      |        |  |  |  |        | 
|------------------------------------ |  | --------------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                     |  | Fiscal year ended March 31,
|                                     |  |                            
|                                     |  | 2003                        |        | 2002 |  | 2001
|                                     |  |                             |        |      |  |     
|Ground staff in the Netherlands      |  |                             | 18,255 |      |  |      | 17,951 |  |  |  | 19,600 | 
|Ground staff outside the Netherlands |  |                             | 4,848  |      |  |      | 5,421  |  |  |  | 6,439  | 
|Flight staff                         |  |                             | 9,935  |      |  |      | 9,893  |  |  |  | 9,724  | 
|                                     |  |                             |        |      |  |      |        |  |  |  |        | 
|Total                                |  |                             | 33,038 |      |  |      | 33,265 |  |  |  | 33,763 | 

On November 26, 2002 new collective labor agreements were concluded for ground
staff and flight crews for the period to the end of March 2004. The main points
are a salary increase and an increase in a large number of other payments, both
by 3% as of February 1, 2003 an by 2.5% as of October 1, 2003 and a
non-recurring payment of 2.75% of annual salary, of which 2% will replace the
salary increase postponed by the September 11, 2001 attacks. Agreement was also
reached with the ground engineers on their remuneration for studying and
gaining necessary aircraft authorizations in their own time. An agreement was
also concluded with KLMs pilots. Following four months negotiation, the
parties signed an accord in August containing a wide range of agreements on,
for example, codesharing, integration or regional airlines and the phasing in
of the new fleet. For KLMs European strategy, it is important that there are
no more objections to the use of Fokker 100s in continental Europe. The pilots
who fly this aircraft will also be considered for transfer to the KLM fleet if
they wish.

A great deal of attention was paid to KLMs pension policy during the year. On
the advice of the Pension and Insurance Supervisory Authority, the pension
plans for the ground staff and the cabin crews were amended. In both cases, the
applicable age limits were raised. By far the majority of KLMs staff are
members of one of the three large KLM pension funds. KLMs net contributions to
these funds have increased by approximately 60%.

E.     Share ownership

As of the date of this annual report, none of the Supervisory Board members
held securities in KLM and none of the members of Management held securities in
KLM, except for options rights under our option scheme. For information about
options held by members of Management, please refer to note 36 to our
consolidated financial statements

32



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##### Table of Contents






ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.     Major shareholders

The table below sets forth, as of the date of this annual report, the number of
shares of each class of our voting securities held by the only persons known by
us to own beneficially more than 5% of any class of our voting securities.

|                               |  |                                        |  |              |           |                    |  |               |       |  
|------------------------------ |  | -------------------------------------- |  | ------------ | --------- | ------------------ |  | ------------- | ----- | -
|                               |  |                                        |  |              |           |                    |  | Percentage of
|                               |  |                                        |  | Number of    |           | Outstanding Shares
|Title of Class                 |  | Identity of Person or Group            |  | Shares Owned |           | in Class          
|                               |  |                                        |  |              |           |                   
|Cumulative
Preference Shares A |  | State of The Netherlands               |  |              | 8,812,500 |                    |  |               | 100.0 | %
|Cumulative
Preference Shares C |  | Stichting
Luchtvaartbelangen
Nederland |  |              | 7,050,000 |                    |  |               | 100.0 | %
|Priority Shares                |  | State of The Netherlands               |  |              | 1,012.5   | (1)                |  |               | 79.4  | %
|Priority Shares                |  | ABN AMRO Bank nv                       |  |              | 150       |                    |  |               | 11.8  | %
|Common Shares                  |  | Alliance Capital
Management L.P.       |  |              | 5,741,600 | (2)                |  |               | 12.3  | %



---

|(1) |  | Includes 37.5 priority shares held of record by N.S. Groep N.V., the
government-owned railway corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Based on a Schedule 13G dated June 10, 2003 (as amended February 12, 2003),
filed with the SEC by AXA Financial Inc.
on behalf of Alliance Capital Management L.P. and the following parent
companies: AXA Financial, Inc., AXA, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Conseil Vie
Assurance Mutuelle and AXA Courtage
Assurance Mutuelle. According to the amended Schedule 13G, Alliance
Capital Management L.P. owns 5,741,600
common shares acquired solely for investment purposes on behalf of client
discretionary investment advisory accounts.
Since the date of our last annual report, Alliance Capital Management L.P.
has reduced its percentage ownership of common
shares from 21% to 12.3%

Stichting Rechtop is a foundation controlled by KLM that as of the date of this
annual report holds 1,725,730 common shares for purposes of the KLM employee
share option plan. Stichting Rechtop does not vote its shares and has declined
to receive dividends in respect of its shares.

As the date of this annual report, none of our priority or preference shares
and 18,008,289 of our common shares (approximately 40.5% of the outstanding
common shares) were held of record by a total of 338 record holders resident in
the United States. Our knowledge of the ownership of common shares in the
United States is based solely on the records of our New York transfer agent
regarding registered common shares.

B.     Related party transactions

KLM has entered into at arms-length transactions in the ordinary course of
business with unconsolidated entities in which KLM has significant influence.
Those transactions result in current account balances with some minority
holdings. The current account balances with unconsolidated entities reached a
highest level of EUR 5.7 million at June 30, 2002. As of March 31, 2003 current
account balances with unconsolidated entities amounted to EUR 3.8 million.

Except for the employment arrangements referred to in Item 6- Directors,
Senior Management and Employees, KLM is not a party in any material
transaction, or proposed transaction, in which Management, a member of the
Supervisory Board or any senior officer, or any spouse or relative of any of
the foregoing, or any relative of such spouse has or was to have a direct or
indirect material interest

Relation with the State of The Netherlands

From 1929 to March 1986, the State of The Netherlands owned a majority of our
outstanding capital stock. In August 1998, the role of the State of The
Netherlands as holder of our common shares came to an end with the conversion
of its remaining 8,470,723 common shares into cumulative preference shares C,
which were subsequently transferred to Stichting Luchtvaartbelangen Nederland,
an independent foundation whose purpose is to promote Dutch aviation in general
as well as to promote KLM as designated carrier in international aviation.

33



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##### Table of Contents



The State of The Netherlands continues to own a majority of our outstanding
priority shares, which gives it rights of governance including the right to
approve, among other things, the issuance of shares, the limitation or
exclusion of preemptive rights, the payment of dividends in shares, the sale
or transfer of priority shares, any changes to our articles of association and
our dissolution.

The State of The Netherlands also has an option to acquire a number of
preference shares B, each with a par value of two euro, necessary to provide
the State of The Netherlands with an interest of 50.1%, (of our capital stock
and voting power) following exercise of the option, irrespective of the total
issued capital at any given moment. When deemed necessary and reasonable, the
State of The Netherlands, following consultations with us, will exercise its
option in case 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 would not demonstrably be owned by the State of The
Netherlands.

Although the State of The Netherlands maintains an interest in the Company in
its role as holder of priority shares, cumulative preference shares A and its
option, it does not participate in our day-to-day business decision making. The
State of The Netherlands has no rights with respect to us other than those that
derive from its holding of our capital stock or from its options. Since August
27, 2001, our articles of association do not permit the State of The
Netherlands to appoint any members of our Supervisory Board.

C.     Interests of experts and counsel

Not applicable.

34



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##### Table of Contents






ITEM 8. FINANCIAL INFORMATION

A.     Consolidated statements and other financial information

For our consolidated financial statements, see Item 18-Financial Statements.

Litigation

Alitalia claim

As stated in KLMs Form 20-F of 2001/2002 Alitalia disputed the validity of
KLMs termination of its alliance with Alitalia through the termination on
April 28, 2000 of the Master Cooperation Agreement concluded in November 1998.
In August 2000 Alitalia took the dispute to an arbitration tribunal. The
arbitration tribunals decision on the dispute in December, 2002 resulted in a
net loss to KLM of EUR 181 million. The tribunal ruled that KLMs termination
of the agreement was void and allowed Alitalias claim for EUR 250 million plus
interest. The claim brought by KLM against Alitalia to recover EUR 100 million
plus interest paid for the development of Malpensa Airport was also allowed.

We and our consolidated holdings are involved in various other legal actions.
Although we cannot predict the outcome of these actions, 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.

Hall case

In October 1999, a purported class action was filed in State Court in North
Carolina by a North Carolina travel agent, on behalf of herself and similarly
situated North Carolina travel agents, challenging actions by most major
airlines, including KLM, to reduce travel agent base commissions from 8% to 5%
and alleging several state law theories of liability, including conspiracy. In
June 2000, the plaintiff filed a voluntary dismissal and then filed a new case
in federal court. The new case is a class action, now on behalf of a
nation-wide class of travel agents, alleging an unlawful agreement among
airlines to reduce commissions in violation of the Sherman Act, and is based on
the same factual allegations. On November 13, 2001, the court granted the
plaintiffs motion to amend the complaint to include allegations that other
commission reductions in 1997 and 1998 were the result of unlawful agreements
among the airline defendants in violation of the Sherman Act. The complaint was
subsequently amended again to allege that we believe the case to be without
merit and intend to defend against the claim. On September 18, 2002, the Court
entered an Order granting plaintiffs motion for class certification.
Defendants motion for summary judgement is pending. Discovery is completed and
trial is scheduled to commence on September 2, 2003.

Tam Travel case

On April 9, 2003, a similar antitrust complaint was filed against us, together
with eleven U.S. airlines and eight other international airlines, in the
federal district court located in Oakland, California. This case, referred to
as the Tam Travel Case, was filed on behalf of 50 travel agents who elected to
withdraw from the class of plaintiffs in the above mentioned Hall Case.The
allegations in the Tam Case are fundamentally similar to the Hall Case; the
plaintiffs allege that the defendant airlines conspired to reduce and
ultimately eliminate base commissions paid to travel agents. We believe this
case is also without merit, and we intend to defend ourselves against the
claim.

Dividend Policy

KLMs dividend policy is to seek to pay a sustainable dividend, linked to cash
earnings.

Dividend 2002/2003

Despite the current international economic downturn coupled with political
volatility, the Board of Managing Directors has, in keeping with its policy,
decided to make a distribution in cash to shareholders of EUR 0.10 per common
share in respect of fiscal year 2002/03. The distribution will be paid out of
reserves. In respect of the 2001/02 fiscal year, we made a distribution of EUR
0.20 per common share.

B.     Significant changes

Except as otherwise disclosed in this annual report, there has been no material
adverse change in our financial position since March 31, 2003.

35



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ITEM 9. THE OFFER AND LISTING

A.     Offer and listing details

The table below sets forth the high and low closing sales prices for our common
shares on the New York Stock Exchange and the Euronext Stock Exchange in
Amsterdam during the periods indicated (source: Bloomberg). U.S. -$
equivalents are based on the applicable historical exchange rates at
the date of the quoted closing sales prices.

|                                              |  |          |       |           |  |                   |       |     |  |      |       |     |  |  |       |  |  |  |       |  |  |  |       | 
|--------------------------------------------- |  | -------- | ----- | --------- |  | ----------------- | ----- | --- |  | ---- | ----- | --- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                              |  | New York |       | Amsterdam
|                                              |  |          |       |          
|                                              |  | U.S.-$   |       | EUR       |  | U.S.-$-equivalent
|                                              |  |          |       |           |  |                  
|                                              |  | High     |       | Low       |  | High              |       | Low |  | High |       | Low
|                                              |  |          |       |           |  |                   |       |     |  |      |       |    
|Last five financial years                     |  |          |       |           |  |                   |       |     |  |      |       |     |  |  |       |  |  |  |       |  |  |  |       | 
|2002/2003                                     |  |          | 15.71 |           |  |                   | 5.87  |     |  |      | 17.85 |     |  |  | 5.35  |  |  |  | 15.85 |  |  |  | 5.90  | 
|2001/2002                                     |  |          | 20.46 |           |  |                   | 7.55  |     |  |      | 23.00 |     |  |  | 8.50  |  |  |  | 20.35 |  |  |  | 7.71  | 
|2000/2001                                     |  |          | 30.06 |           |  |                   | 15.13 |     |  |      | 32.65 |     |  |  | 18.15 |  |  |  | 30.40 |  |  |  | 15.18 | 
|1999/2000                                     |  |          | 33.63 |           |  |                   | 17.50 |     |  |      | 30.92 |     |  |  | 18.25 |  |  |  | 33.24 |  |  |  | 17.51 | 
|1998/1999                                     |  |          | 48.14 |           |  |                   | 23.31 |     |  |      | 43.51 |     |  |  | 19.28 |  |  |  | 47.20 |  |  |  | 22.96 | 
|                                              |  |          |       |           |  |                   |       |     |  |      |       |     |  | 
|Last six months                               |  |          |       |           |  |                   |       |     |  |      |       |     |  |  |       |  |  |  |       |  |  |  |       | 
|December 2002                                 |  |          | 11.05 |           |  |                   | 8.69  |     |  |      | 11.24 |     |  |  | 8.75  |  |  |  | 11.18 |  |  |  | 8.97  | 
|January 2003                                  |  |          | 9.70  |           |  |                   | 7.48  |     |  |      | 9.79  |     |  |  | 7.40  |  |  |  | 10.19 |  |  |  | 7.94  | 
|February 2003                                 |  |          | 7.63  |           |  |                   | 6.28  |     |  |      | 7.48  |     |  |  | 6.15  |  |  |  | 8.01  |  |  |  | 6.61  | 
|March 2003                                    |  |          | 7.51  |           |  |                   | 5.87  |     |  |      | 6.58  |     |  |  | 5.35  |  |  |  | 6.92  |  |  |  | 5.90  | 
|April 2003                                    |  |          | 8.14  |           |  |                   | 5.99  |     |  |      | 7.45  |     |  |  | 5.40  |  |  |  | 8.04  |  |  |  | 5.89  | 
|May 2003                                      |  |          | 8.35  |           |  |                   | 7.00  |     |  |      | 7.44  |     |  |  | 6.00  |  |  |  | 8.44  |  |  |  | 7.02  | 
|                                              |  |          |       |           |  |                   |       |     |  |      |       |     |  | 
|Last two financial years on a quarterly basis |  |          |       |           |  |                   |       |     |  |      |       |     |  |  |       |  |  |  |       |  |  |  |       | 
|April  June 2001                             |  |          | 20.46 |           |  |                   | 17.15 |     |  |      | 23.00 |     |  |  | 19.35 |  |  |  | 20.35 |  |  |  | 17.22 | 
|July  September 2001                         |  |          | 17.88 |           |  |                   | 8.00  |     |  |      | 21.20 |     |  |  | 8.50  |  |  |  | 17.94 |  |  |  | 7.85  | 
|October  December 2001                       |  |          | 12.75 |           |  |                   | 7.55  |     |  |      | 14.30 |     |  |  | 8.65  |  |  |  | 12.81 |  |  |  | 7.71  | 
|January  March 2002                          |  |          | 16.45 |           |  |                   | 11.30 |     |  |      | 18.60 |     |  |  | 12.57 |  |  |  | 16.29 |  |  |  | 11.36 | 
|April  June 2002                             |  |          | 15.71 |           |  |                   | 11.75 |     |  |      | 17.85 |     |  |  | 11.90 |  |  |  | 15.86 |  |  |  | 11.75 | 
|July  September 2002                         |  |          | 12.23 |           |  |                   | 8.30  |     |  |      | 12.62 |     |  |  | 8.15  |  |  |  | 12.44 |  |  |  | 8.05  | 
|October  December 2002                       |  |          | 12.40 |           |  |                   | 7.76  |     |  |      | 12.90 |     |  |  | 8.10  |  |  |  | 12.84 |  |  |  | 7.95  | 
|January  March 2003                          |  |          | 10.10 |           |  |                   | 5.87  |     |  |      | 9.79  |     |  |  | 5.35  |  |  |  | 10.19 |  |  |  | 5.90  | 

B.     Plan of distribution

Not applicable.

C.     Markets

In the United States, our common shares are traded on the New York Stock
Exchange. Our common shares are also traded on the Euronext Stock Exchange in
Amsterdam. The Euronext Stock Exchange in Amsterdam is the principal non-United
States trading market for our common shares.

Common shares are issuable in registered form, which may be represented by
certificates printed in the English language and registered in New York (New
York registry shares), or in bearer form, which are represented by certificates
printed in the Dutch language (bearer shares). New York registry shares and
bearer shares may be held by residents as well as non-residents of The
Netherlands. Only bearer shares may be traded on the Euronext Stock Exchange
in Amsterdam. Only New York registry shares may be traded on the New York
Stock Exchange. Upon presentation to our transfer agent in the Netherlands,
ABN AMRO Bank N.V., Amsterdam of a certificate representing bearer shares,
accompanied by a request that the common shares represented by such certificate
be exchanged for a certificate representing New York registry shares, The
Netherlands transfer agent will instruct our New York transfer agent, J.P.
Morgan, to issue New York registry shares in respect of those common shares.
Similarly, upon presentation to the New York transfer agent of a certificate
representing New York registry shares accompanied by an appropriate request,
the New York transfer agent will instruct The Netherlands transfer agent to
issue a certificate representing bearer shares in respect of those common
shares. Transfers of bearer shares, which are negotiable instruments, are
accomplished by surrender of the share certificates. New York registry shares
may be transferred on the books maintained for us by the New York transfer
agent.

D.     Selling shareholders

Not applicable.

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E.     Dilution

Not applicable.

F.     Expenses of the issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

A.     Share capital

Not applicable.

B.     Memorandum and articles of association

Our corporate seat is in Amstelveen, The Netherlands. We are registered in the
Commercial Register at Amsterdam under number 33014286. Following is a
description of certain provisions of our articles of association and Dutch law.
This description is only a summary and does not purport to be complete. Our
articles of association are available on our website and are incorporated by
reference as an exhibit to this annual report.

General

Dutch statutory rules for large companies apply to us. Under these rules, we
are required to adopt a two-tier system of corporate governance, comprising a
board of managing directors and a supervisory board. Under these rules, subject
to statutory exceptions, the supervisory board, rather than shareholders,



| |  | appoints members of the Supervisory Board,                            
|- |  | ----------------------------------------------------------------------
| 
| |  | appoints and dismisses members of the Board of Managing Directors, and
| 
| |  | must approve certain resolutions by the Board of Managing Directors.  

Corporate purpose

Pursuant to article 3 of our articles of association, our purpose is to carry
on the business of air transport and to engage in any other activities of a
commercial, industrial or financial nature, including participation in other
enterprises, both for our own account and for the account of, or in
participation or co-operation with, third parties.

Directors

A member of Management or the Supervisory Board may not vote in respect of a
proposal, arrangement or contract in which he or she is materially interested,
including his or her own compensation.

A member of Management or the Supervisory Board is not required to hold our
shares in order to be qualified.

Supervisory Board

The meeting of holders of our priority shares determine the number of
Supervisory Board members, but in all cases our Supervisory Board consists of
at least seven natural persons. Supervisory Board members are appointed by the
Supervisory Board, subject to a right of a general meeting of shareholders or
the Works Council to object. An appointment may be made over this objection if
the Enterprise Division of the Court of Appeals in Amsterdam declares the
objection unfounded. The general meeting of shareholders, the Works Council and
Management may recommend persons to the Supervisory Board for appointment as
Supervisory Directors.

The Supervisory Board advises Management and generally monitors its affairs.
The Supervisory Board approves Managements annual budget, adopts our annual
financial statements and submits them for approval to the general meeting of
shareholders. In performing these duties, the members of the Supervisory Board
are required to be guided by our interests and the enterprise we carry on.

The Board of Management has the power to approve borrowings by KLM. The meeting
of the holders of our priority shares determines the compensation of the
Supervisory Board.

Management

Management manages our affairs under the supervision of the Supervisory Board.
The holders of our priority shares determine the number of members of
Management, but in all cases Management consists of at least three natural
persons. The Supervisory Board appoints members of management and, following
consultation with the general meeting of shareholders, may remove members of
Management. Our Supervisory Board also appoints our President from within
Management.

Remuneration and other conditions of employment for the members of Management
are determined by the Supervisory Board.

We are represented by the members of the Supervisory Board in any case in which
we have a conflicting interest with one or more members of Management.

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Share capital

Our authorized share capital consists of:



| |  | 1,875 priority shares,                    
|- |  | ------------------------------------------
| 
| |  | 37,500,000 cumulative preference shares A,
| 
| |  | 75,000,000 preference shares B,           
| 
| |  | 18,750,000 cumulative preference shares C,
| 
| |  | 18,750,000 common shares C, and           
| 
| |  | 149,998,125 common shares.                

Each share in the classes listed has a par value of two euro. As of the date of
this annual report there were no preference shares B or common shares C
outstanding.

Common shares are, at the election of the holder, issued either as bearer
shares or registered in the holders name. In the United States, registered
common shares are evidenced either by certificates or by entries in the
book-entry system maintained by The Depository Trust Company (New York registry
shares). Priority shares, common shares C and each series of preference shares
are registered in the name of the holder. Our common shares in bearer form are
listed on Euronext Amsterdam. Our New York registry shares are listed on the
New York Stock Exchange.

Dividend rights

We pay profits as dividends after setting aside amounts to establish or
increase reserves. A general meeting of shareholders determines the amounts set
aside as reserves, if any, on the proposal of Management after approval of the
proposal by the Supervisory Board. We may not pay dividends if the payment
would reduce stockholders equity below the sum of nominal share capital and
any reserves required by Dutch law or our articles of association.

We are required to distribute our profits, after setting aside any reserves, as
follows:

Priority shares

First, the holders of priority shares receive the statutory interest percentage
prevailing on the last day of the fiscal year concerned to a maximum of 5% of
the paid-in capital per priority share. To the extent that our profits are not
sufficient to make this distribution, we must make subsequent distributions to
the holders of priority shares until the shortfall is fully paid before we can
distribute profits to holders of other classes of shares.

Cumulative preference shares A

Next, the holders of cumulative preference shares A receive 6% of the par value
of their cumulative preference shares A.

To the extent that our profits are not sufficient to make full payment of this
dividend on the cumulative preference shares A, the shortfall is paid and
charged to our reserves, to the extent that such action is not contrary to the
provisions of Article 105, paragraph 2 of Book 2 of the Dutch Civil Code. To
the extent that the payment cannot be charged to the reserves, then we must
make subsequent distributions to the holders of cumulative preference shares A
until the shortfall is fully paid before we can make distributions to the
holders of classes of shares listed below.

Preference shares B

Next, the holders of preference shares B receive 5% of the par value of their
preference shares B. The holders of preference shares B then receive 0.5% of
the par value of their preference shares B for each percent of the ratio
(expressed as a percentage) of our profits to our operating revenues. This
dividend percentage cannot exceed the dividend percentage received on the
common shares and common shares C described in the first paragraph under
Common Shares and Common Shares C below.

Cumulative preference shares C

Next, the holders of cumulative preference shares C receive the average of the
effective yield on a basket of loans by the State of the Netherlands. This
dividend is currently equal to 4.98% of the paid-in capital per share. This
rate is recalculated every eight years and will be next recalculated on August
14, 2006. Depending on the prevailing market circumstances at the time and
subject to the approval of the Supervisory Board, Management may augment the
recalculated rate of the cumulative preference shares C dividend by a
supplement of no more than 135 basis points.

To the extent that our profits are not sufficient to make full payment of this
dividend on the cumulative preference shares C, the shortfall is paid and
charged to our reserves, to the extent that such action is not contrary to the
provisions of Article 105, paragraph 2 of Book 2 of the Dutch Civil Code. To
the extent that the payment cannot be charged to the reserves, then we must
make subsequent distributions to the holders of cumulative preference shares C
before we can distribute profits to holders of our common shares or common
shares C.

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Common shares and common shares C

Next, the holders of common shares and the holders of common shares C receive
5% of the par value of their shares.

Finally, the holders of common shares and the holders of common shares C
receive payments in proportion to the par value of their shares to the extent
the shareholders in a general meeting have not made further appropriations for
reserves in addition to any reserves established as described above.

Other matters relating to dividends and distributions.

On the recommendation of Management and after approval of that recommendation
by the Supervisory Board and the holders of priority shares, the general
meeting of shareholders may decide that payments to shareholders will be wholly
or partly effected by issuing shares of the same type of our capital stock as
the type of shares to which those payments relate.

Subject to the approval of the Supervisory Board, Management may to the extent permitted by law:



| |  | pay one or more interim dividends against the required dividend, or                                                                                                     
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | make a distribution to the holders of common shares and the holders of common
shares C out of our freely distributable reserves other than our paid-in
surplus reserves.

Except in the case of our dissolution, we may not make distributions on the
priority shares and preference shares other than the distributions described
above.

The person entitled to a dividend, interim dividend or other distribution on a
registered share is the person in whose name the share appears in our register
of shareholders on the date fixed for that purpose by Management.

The person entitled to a dividend, interim dividend or other distribution on a
bearer share is the person holding the share on a date fixed for that purpose
by Management. In order to be entitled to exercise his or her rights the holder
of a bearer share must cause his or her dividend sheet to be in the custody of
a designated depositary on that date.

The right to claim payment of a dividend, interim dividend or other
distribution is barred beginning five years after the date on which it was made
payable.

Voting rights

Each share entitles the holder to cast one vote, unless that right has been
vested in a usufructuary or pledgee at the granting of the usufruct or the
pledge, in which case the usufructuary or the pledgee may exercise the voting
right as long as his right of usufruct or his pledge has not expired. At a
general meeting of shareholders, all classes of shares vote together as a
single class.

Dissolution

In the event of our dissolution, our debts and the costs of dissolution will be
paid from our assets first. The remaining balance will be distributed in the
order stated below so far as the available balance permits:



| |  | first, to the holders of priority shares, in an amount equal to the paid-in capital for every priority share held,                                        
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | next, to the holders of the other shares in an amount equal to the par value of those shares,                                                             
| 
| |  | next, to the holders of priority shares in an amount equal to any dividends accrued and unpaid on their priority shares,                                  
| 
| |  | next, to the holders of cumulative preference shares A in an amount equal to any dividends accrued and unpaid on their
cumulative preference shares A, and
| 
| |  | finally, to the holders of common shares and common shares C in proportion to the par value of their shares.                                              

Redemption and sinking fund provisions

Subject to applicable Dutch law, we may acquire our fully paid shares for
consideration for our own account. Our acquisition of shares requires the
authorization of the general meeting of shareholders based upon a proposal by
our Supervisory Board. There are no provisions of our articles of association
that provide for or prohibit a sinking fund.

Liability to further capital calls

All of our outstanding common shares are fully paid and non-assessable.

Discriminating provisions

There are no provisions of our articles of association that discriminate
against a shareholder because of his or her ownership of a particular number of
shares.

Pre-emptive rights

When we issue common shares or common shares C against payment in cash, the
holders of common shares and the holders of common shares C obtain pre-emptive
rights in proportion to their holdings of common shares and common shares C.

The person entitled to pre-emptive rights on a registered share is the person
in whose name the share appears in our register of shareholders on the date
fixed for that purpose by Management.

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The person entitled to preemptive rights on a bearer share is the person
holding the share on a date fixed for that purpose by Management. In order to
be entitled to exercise his or her rights the holder of a bearer share must
cause his or her dividend sheet to be in the custody of a designated depositary
on that date.

Shareholders have no pre-emptive rights with respect to shares issued to our
employees.

Holders of cumulative preference shares A, preference shares B and cumulative
preference shares C have no pre-emptive rights with respect to shares to be
issued.

The general meeting of shareholders or Management may limit or exclude
pre-emptive rights with the approval of the Supervisory Board and the approval
of the meeting of the holders of priority shares. Management may only limit or
exclude pre-emptive rights to the extent that the general meeting of
shareholders has designated Management to do so, up to a maximum period of five
years. At our June, 2002 annual general meeting of shareholders, our
shareholders approved a resolution granting Management the right to limit or
exclude pre-emptive rights through December 25, 2003. A similar resolution will
be presented to our shareholders at our June, 2003 annual general meeting of
shareholders.

Changing the rights of holders of shares

The rights of holders of stock can only be changed by an amendment to our
articles of association. Resolutions amending our articles of association may
be adopted only by a general meeting of shareholders, after a proposal giving
notice to the effect is approved by a general meeting of holders of priority
shares by a majority of at least two-thirds of the number of votes cast.

A copy of any resolution including the exact text of the proposed amendment to
our articles of association is made available to shareholders free of charge
for inspection at our principal office from the date of the notice of the
general meeting of shareholders to the conclusion of that meeting.

Resolutions amending our articles of association that would change the rights
of the holders of priority shares must also be approved by a meeting of the
holders of priority shares at which at least three-quarters of the issued
priority share capital is represented and at which the approval is given by at
least two-thirds of the votes cast. If the required number of priority shares
is not represented at the meeting of priority shareholders, a new meeting is
called within one month of the previous meeting, at which, irrespective of the
number of priority shares represented, the resolution to amend the articles of
association may be adopted by an absolute majority of the votes cast.

General meetings of shareholders

Management or the Supervisory board calls the annual general meeting of
shareholders, which is held no later than during the month of September. We
normally hold our annual general meeting of shareholders in June.

Other general meetings of shareholders are held as often as Management or the
Supervisory Board considers them necessary. These meetings may also be held if
one or more shareholders representing in the aggregate at least one-tenth of
the issued shares makes a demand in writing to Management and the Supervisory
Board, specifying the subjects to be dealt with, and has deposited the share
certificates, if any, representing their shares. If neither Management nor the
Supervisory Board, who in this case have concurrent authority, complies with
the request in time to permit the meeting to be held within six weeks after the
request, the person or persons making the request may be authorized by the
presiding judge of the District Court (Arrondisementsrechtbank) in Amsterdam,
in accordance with the applicable provisions of law, to call the meeting.

At least three weeks in advance of a meeting, we must give notice of the
meeting to shareholders by publication in The Netherlands and by mail to
holders of registered shares.

All shareholders may attend any general meeting of shareholders, either in
person or by proxy duly authorized in writing. Holders of bearer shares must
have deposited their share certificates before the meeting at such time and
place as is designated in the notice calling the meeting, and holders of
registered shares must have notified Management before the meeting, by means of
a registered letter, of their intention to attend the meeting. The ultimate
date for deposit of shares and for notification is not earlier than seven days
before the meeting.

General meetings must be held in Amstelveen, Amsterdam, The Hague,
Haarlemmermeer, Rotterdam or Utrecht.

Limitations on rights to own shares

There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on
the securities, under our articles of association or the laws of The
Netherlands.

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Change in control provisions

The option agreement with the State of The Netherlands with respect to
preference shares B may have the effect of delaying, deferring or preventing a
change of control.

Obligations of shareholders to disclose holdings

No provision of our articles of association requires disclosure of ownership of
shares.

The Dutch Act on Disclosure of Holdings in Listed Companies 1996 applies to any
person who, directly or indirectly, acquires or disposes of an interest of a
specified size in the voting rights and/or the capital of a public limited
company incorporated under Dutch law with an official listing on a stock
exchange within the European Economic Area. This person is required to notify
us and the Financial Markets Authority of The Netherlands (Autoriteit
Financiële Markten) in writing immediately after the acquisition or disposal of
shares if, as a result of the acquisition or disposal, the change in the
percentage of voting rights or capital interest held by the shareholder is
sufficient to bring the shareholder within a different specified category of
share ownership. The categories referred to in the Disclosure Act are based on
the percentage of voting rights or capital interests held by a person: 0-5%,
5-10%, 10-25%, 25-50%, 50-66.6% and greater than 66.6%.

The Disclosure Act also requires members of Management and the Supervisory
Board to disclose their holdings of our shares.

Failure to comply with the Disclosure Act constitutes an economic offense. In
addition, a civil court can issue sanctions against any person who fails to
notify, or incorrectly notifies us and the Financial Markets Authority in
accordance with the Disclosure Act. Possible court sanctions include the
suspension of voting rights with respect to the shares held by the offending
person.

Discharge of liabilities (decharge)

After the annual accounts have been approved at an annual general meeting of
shareholders, our shareholders are requested to adopt a separate resolution
releasing the members of Management and the members of the Supervisory Board
from actual or potential liabilities in connection with the execution of their
duties during the financial year. The release obtained by Management is limited
to the facts in the financial statements and facts otherwise disclosed to the
annual general meeting of shareholders prior to the approval of the financial
statements. In any event, the scope of a discharge from liabilities is subject
to limitations imposed by law.

Changes in capital

The conditions imposed by our articles of association for changes in capital
are not more stringent than required under Dutch law.

Transfer of shares

In The Netherlands, bearer common shares listed on Amsterdam Euronext, together
with the related dividend sheet are transferable through the book-entry
transfer system maintained by Nederlandse Centraal Instituut voor Giraal
Effectenverkeer. The transfer of record of a registered share requires a deed
of transfer and, unless we are a party to the transaction concerned, our
written acknowledgement of the transfer.

In the United States, registered common shares are evidenced either by
certificates or by entries in the book-entry system maintained by The
Depository Trust Company (DTC). Transfer of registered certificates is effected
by presenting and surrendering the certificates to JP Morgan Chase & Co., our
transfer agent in New York. A valid transfer requires the registered
certificates to be properly endorsed for transfer as provided in the
certificates and accompanied by proper instruments of transfer and stock
transfer tax stamps for, or funds to pay, any applicable stock transfer taxes.
The transfer of uncertificated shares is effected by the transfer agents
causing the appropriate electronic transfer to be made in DTCs book-entry
system.

C.     Material contracts

We have entered into employment agreements with members of Management. See
Exhibit 4.1 to this annual report and note 35 to our consolidated financial
statements.

During the previous two years, we have negotiated and secured purchase
commitments with each of The Boeing Company and Airbus S.A.S. to acquire
aircraft for our fleet. Copies of these contracts are attached to this annual
report as Exhibit 4.2.

D.     Exchange controls

There are no laws, decrees, regulations or other legislation currently in force
in The Netherlands restricting the import or export of capital, including the
availability of cash and cash equivalents for our use or that affect
remittances of dividends, interest or other payments to non-resident holders of
our securities. Cash dividends payable in euro may be officially transferred
from The Netherlands and converted into any other convertible currency.

There are no limitations, under the laws of The Netherlands or our articles of
association on the rights of non-resident or foreign shareholders to hold or
exercise voting rights with respect to our common shares.

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E.     Taxation

Each prospective investor should consult its own tax advisor with respect to
the U.S. Federal, state, local and foreign tax consequences of acquiring,
owning and disposing of our common shares.

Dutch tax

Withholding tax.

We are generally required to withhold tax at a rate of 25% on dividends. This
tax does not apply to stock dividends that are payable out of our paid-in
surplus capital account. Pursuant to the provisions of the Tax Convention of
December 18, 1992, between the United States and The Netherlands (the Treaty),
the rate of withholding tax on dividends paid by us to a shareholder that is a
resident of the United States for purposes of the Treaty and that qualifies for
benefits under the Treaty (a U.S. treaty shareholder) is reduced to 15%. For
purposes of this discussion, a U.S. shareholder is a holder of common shares
that is:



| |  | a resident of the United States,                                                                                                                                            
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a corporation organized under the laws of the United States or of any state or territory of the United States, or                                                           
| 
| |  | any other person subject to United States Federal income tax on a net income basis, provided that the holder is
not also a resident of The Netherlands or any other country.

The reduced rate of withholding discussed above will not apply if:



| |  | the U.S. treaty shareholder carries on business in The Netherlands through a permanent establishment or performs
independent personal services from a fixed base situated in The Netherlands, and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the common shares with respect to which the dividends are paid form part of the business property of that
permanent establishment or pertain to that fixed base.                                 

Moreover, the rate of withholding tax is generally reduced to 0% under the
Treaty in the case of dividends paid to a United States resident trust,
corporation or other organization that is generally exempt from United States
Federal income tax and that is either:



| |  | constituted and operated exclusively to administer or provide benefits
under a fund or plan established to provide pension, retirement or
other employee benefits, or                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | operated exclusively for religious, charitable, scientific,
educational or public purposes, if the trust, corporation or other
organization would be exempt in The Netherlands if it were organized,
and carried on all its activities, in the Netherlands.

In order to qualify for the reduction of or exemption from the withholding tax
described above, a U.S. shareholder may be required to satisfy certain
certification requirements or otherwise provide documentation of its status as
a U.S. treaty shareholder.

Where shares are beneficially or legally owned by a resident or corporation of
any country other than the United States or The Netherlands, the determination
of whether the resident or corporation will be eligible for a full or partial
exemption or refund of Dutch withholding tax will be governed by Dutch internal
law or the terms of any income tax convention which may be in effect between
The Netherlands and the holders country of residence or incorporation.

Gift or estate tax

No gift, estate or inheritance tax is payable in The Netherlands on a gift
of common shares by, or on the death of, a holder that is neither resident nor
deemed resident in The Netherlands, unless the gift is construed as made by or
on behalf of a person who is resident or deemed resident of The Netherlands or
unless the common shares are attributable to a permanent establishment or
permanent representative in The Netherlands of the holders trade or business.

Capital gains tax

Capital gains upon sale or exchange of common shares by an individual or
corporation that is neither resident nor deemed resident in The Netherlands are
generally exempt from Dutch income tax or withholding tax, unless the common
shares are attributable to a permanent establishment or permanent
representative in The Netherlands of the holders trade or business.

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United States Federal income tax

The following discussion is a summary of material U.S. Federal income tax
consequences of the ownership of common shares by holders that will hold the
common shares as capital assets. It does not purport to be a comprehensive
description of all the tax consequences to holders of common shares. In
particular, this summary does not address tax considerations applicable to
holders that may be subject to special tax rules including, without limitation,
the following:



| |  | financial institutions,                                                                                                                                                                                                                  
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | insurance companies,                                                                                                                                                                                                                     
| 
| |  | dealers or traders in securities or currencies,                                                                                                                                                                                          
| 
| |  | tax-exempt entities,                                                                                                                                                                                                                     
| 
| |  | regulated investment companies,                                                                                                                                                                                                          
| 
| |  | persons that will hold the common shares as part of a hedging or conversion transaction or as a position in a straddle or
as part of a synthetic security or other integrated financial transaction for U.S. Federal income tax purposes,
| 
| |  | holders that are subject to mark-to-market rules,                                                                                                                                                                                        
| 
| |  | persons that have a functional currency other that the U.S. dollar,                                                                                                                                                                      
| 
| |  | persons that own or are deemed to own 10% or more, by voting power, of our voting stock, and                                                                                                                                             
| 
| |  | persons who hold common shares through partnerships or other pass-through entities.                                                                                                                                                      

Further, this summary does not address alternative minimum tax consequences or
the indirect effects on holders of equity interests in a holder of common
shares. This summary does not describe any tax consequences arising under any
laws other than the U.S. Federal income tax laws.

This summary is based on the Internal Revenue Code of 1986 (the Code), U.S.
Treasury Regulations and judicial and administrative interpretations, in each
case as in effect and available on the date of this annual report. These laws,
regulations and interpretations are subject to change, and any change could
apply retroactively and affect the tax consequences described below.

For purposes of this summary a U.S. holder is a beneficial owner of common
shares that is, for U.S. Federal income tax purposes:



| |  | a citizen or resident of the United States,                                                                                                                                                    
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a corporation (or other entity treated as a corporation) created or organized in or under the laws of the United States or
any state of the United States (including the District of Columbia),
| 
| |  | an estate, the income of which is subject to U.S. Federal income taxation regardless of its source,                                                                                            
| 
| |  | or a trust, if:                                                                                                                                                                                



| | (1) |  | a court within the United States is able to exercise primary supervision
over its administration, and
| | --- |  | -----------------------------------------------------------------------------------------------------
|
| | (2) |  | one or more U.S. persons have the authority to control all of the
substantial decisions of the trust.

If a partnership holds common shares, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. A partner of a partnership holding common shares should consult
its own tax advisor. A non-U.S. holder is a beneficial owner of common shares
that is not a U.S. holder.

Dividends and other distributions

Subject to the passive foreign investment company (PFIC) rules discussed below,
the gross amount of any distribution (including any amounts withheld in respect
of Dutch withholding tax) actually or constructively received by a U.S. holder
in respect of common shares will be taxable to the U.S. holder as a dividend to
the extent of our current and accumulated earnings and profits as determined
under U.S. Federal income tax principles. The U.S. holder will not be eligible
for any dividends received deduction in respect of the dividend otherwise
allowable to corporations. Distributions in excess of earnings and profits will
be non-taxable to the U.S. holder to the extent of, and will be applied against
and reduce, the U.S. holders adjusted tax basis in the common shares.
Distributions in excess of earnings and profits and the adjusted tax basis will
generally be taxable to the U.S. holder as capital gain from the sale of
exchange of property. We do not maintain calculations of our earnings and
profits under U.S. Federal income tax principles. If we do not report to a U.S.
holder the portion of a distribution that exceeds earnings and profits for U.S.
Federal income tax purposes, the distribution will generally be taxable as a
dividend even if that distribution would otherwise have been treated as a
non-taxable return of capital or as capital gain.

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Dividends received by a U.S. holder with respect to common shares will be
treated as foreign source income for the purposes of calculating that U.S.
holders foreign tax credit limitation. Subject to some conditions and
limitations, and subject to the discussion in the next paragraph, Dutch income
tax withheld on dividends may be deducted from taxable income or credited
against a U.S. holders U.S. Federal income tax liability. The limitation on
foreign taxes eligible for the U.S. foreign tax credit is calculated separately
with respect to specific classes of income. For this purpose, dividends
distributed by us generally will constitute passive income, or, in the case
of some U.S. holders, financial services income. In some circumstances, a
U.S. holder may be unable to claim foreign tax credits for foreign taxes
imposed on a dividend if the U.S. holder:



| |  | has not held the common shares for at least 16 days in the 30-day
period beginning 15 days before the record date for the dividend,
during which it is not protected from risk of loss,
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | is obligated to make payments related to the dividends, or                                                                                                                             
| 
| |  | holds the common shares in arrangements in which the U.S. holders
expected profit, after non-U.S. taxes, is insubstantial.                                                            

In general, upon making a distribution to shareholders, we are required to
remit all amounts withheld as Dutch dividend withholding tax to the Dutch tax
authorities and, in such circumstances, the full amount of the taxes so
withheld will generally (subject to limitations and conditions) be eligible for
the U.S. holders foreign tax deduction or credit as described above. However,
under some circumstances we may be allowed to reduce the amount of Dutch
dividend withholding tax that is required to be remitted to the Dutch tax
authorities by the lesser of:



| |  | 3% of the portion of the gross amount of the dividend paid by us that is
subject to Dutch dividend withholding tax, and                                                                                                                                                                                                                                                          
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | 3% of the gross amount of the dividends and profit distributions received
by us from qualifying non-Netherlands subsidiaries in the current calendar
year (up to the date of the distribution) and the two preceding calendar
years, to the extent that the dividends and profits distributions have not
yet been taken into account for purposes of establishing this reduction.

Although this credit reduces the amount of dividend withholding tax that we are
required to pay to the Dutch tax authorities, it does not reduce the amount of
tax we are required to withhold from dividends. In these circumstances, to the
extent that we are not required to remit the funds to the Dutch tax
authorities, the withholding tax likely will not qualify as a creditable tax
for U.S. foreign tax credit purposes.

Investors are urged to consult their tax advisers regarding the general
creditability or deductibility of Dutch withholding taxes and, in particular,
the effect of our potential ability to receive a credit with respect to
dividends received from any of our qualifying non-Netherlands subsidiaries.

The amount of any distribution paid in euro, including the amount of any
withholding tax on that distribution, will be included in the gross income of a
U.S. holder in an amount equal to the U.S. dollar value of the euro calculated
by reference to the exchange rate in effect on the date the dividend is
actually or constructively received, regardless of whether the euro received
are converted into U.S. dollars. If the euro are converted into U.S. dollars
on the date of receipt, a U.S. holder generally should not be required to
recognize foreign currency gain or loss in respect of the dividend. If the
euro received in the distribution are not converted into U.S. dollars on the
date of receipt, a U.S. holder will have a basis in the euro equal to its U.S.
dollar value on the date of receipt. Any gain or loss on a subsequent
conversion or other disposition of the euro received will be treated as
ordinary income or loss and generally will be treated as U.S. source income or
loss for foreign tax credit limitation purposes.

Subject to the backup withholding rules discussed below, a non-U.S. holder
generally will not be subject to U.S. Federal income or withholding tax on
dividends received on common shares unless that income is effectively connected
with the conduct by that Non-U.S. holder of a trade or business in the United
States.

Sale or other disposition of common shares

A U.S. holder will generally recognize gain or loss for U.S. Federal income tax
purposes upon the sale or exchange of common shares in an amount equal to the
difference between the amount realized (or its U.S. dollar equivalent,
determined at the spot rate on the date of sale (or in the case of cash basis
and electing accrual basis taxpayers, the settlement date), if the amount is
determined in a foreign currency) from the sale or exchange and the U.S.
holders tax basis for the common shares. This gain or loss will be a capital
gain or loss and will generally be treated as from sources within the United
States, except that losses will be treated as foreign source to the extent the
U.S. holder received dividends that were includable in the financial services
income category for purposes of calculating the foreign tax credit limitation
during the 24-month period prior to the sale.

Investors should consult their own tax advisors with respect to the treatment
of capital gains (which may be taxed at lower rates than ordinary income for
taxpayers who are individuals, trusts or estates that hold the common shares
for more than one year) and capital losses (the deductibility of which is
subject to limitations).

If a U.S. holder receives foreign currency upon a sale or exchange of common
shares, gain or loss, if any, recognized on the subsequent sale, conversion or
disposition of that foreign currency will be ordinary income or loss, and will
generally be income or loss from sources within the United States for foreign
tax credit limitation purposes. However, if the foreign currency

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is converted into U.S. dollars on the date received by the U.S. holder, the
U.S. holder generally will not be required to recognize any gain or loss on
that conversion.

Subject to the backup withholding rules discussed below, a non-U.S. holder
generally will not be subject to U.S. Federal income or withholding tax on any
gain realized on the sale or exchange of common shares unless:



| |  | that gain is effectively connected with the conduct by that non-U.S. holder of a trade or business in the United States,                                                                                                
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | in the case of any gain realized by an individual non-U.S. holder, that holder is present in the United States for 183 days
or more in the taxable year of the sale or exchange and certain other conditions are met, or
| 
| |  | the non-U.S. holder is subject to tax pursuant to provisions of the Code applicable to some expatriates.                                                                                                                

PFIC considerations

A corporation organized outside the United States generally will be classified
as a PFIC for U.S. Federal income tax purposes in any taxable year in which,
after applying certain look-through rules, either:



| |  | at least 75% of its gross income is passive income, or                                                                                                          
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | on average at least 50% of the gross value of its assets is
attributable to assets that produce passive income or are held for the
production of passive income.

Passive income for this purpose generally includes dividends, interest,
royalties, rents, annuities and gains from commodities and securities
transactions. Based on our estimated gross income, the average value of our
gross assets and the nature of our business, we do not believe that we will be
classified as a PFIC in the current taxable year. However, because this is a
factual determination made annually at the end of each taxable year, it is
possible that we will be considered a PFIC in the current or any future years.
Our status in any taxable year will depend on our assets and activities in each
year and is subject to change.

If we were a PFIC in any year during which a U.S. holder owns common shares,
the U.S. holder would be subject to additional taxes on any excess
distributions received from us and any gain realized from the sale or other
disposition of the common shares (whether or not we continued to be a PFIC). A
U.S. holder has an excess distribution to the extent that distributions on the
common shares during a taxable year exceed 125% of the average amount received
during the three preceding taxable years (or if shorter, the U.S. holders
holding period). To compute the tax on excess distributions or any gain:



| |  | the excess distribution or gain is allocated rateably over the U.S. holders holding period,                                                                                                                                                        
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the amount allocated to the current taxable year and any year before we became a PFIC is taxed as ordinary income in the
current year, and                                                                                                          
| 
| |  | the amount allocated to other taxable years is taxed at the highest applicable marginal rate in effect for each year and an
interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year.

Some of the rules with respect to distributions and dispositions described
above may be avoided if a U.S. holder makes a valid mark-to-market election
(in which case, subject to limitations, the U.S. holder would be required to
take into account the difference, if any, between the fair market value and the
adjusted tax basis of its common shares at the end of a taxable year as
ordinary income (or, subject to limitations, ordinary loss) in calculating its
income for such year). In addition, gains from an actual sale or other
disposition of the common shares will be treated as ordinary income, and any
losses will be treated as ordinary losses to the extent of any mark to market
gains for prior years. A U.S. holder will be eligible to make the
mark-to-market election with respect to common shares provided that the
common shares are marketable within the meaning of U.S. Treasury Regulations.

Prospective investors should consult their own tax advisors regarding whether
the common shares are marketable for purposes of a mark-to-market election.
Mark-to-market elections cannot be revoked without the consent of the U.S.
Internal Revenue Services (IRS) unless the shares cease to be marketable.

If we were to provide necessary information to U.S. holders, some of the above
rules could also be avoided if a U.S. holder is eligible for and timely makes a
valid qualified electing fund election, in which case the U.S. holder generally
would be required to include in income on a current basis its pro rata share of
our ordinary income and net capital gains. We do not, however, intend to
provide to U.S. holders the information regarding this income that would be
necessary in order for a U.S. holder to make a qualified electing fund election
with respect to the common shares.

If we were a PFIC, each U.S. holder would be required to make an annual return
on IRS Form 8621, reporting distributions received and gains realized with
respect to each PFIC in which it holds a direct or indirect interest.

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Backup withholding tax and information reporting requirements

Backup withholding and information reporting requirements may apply to payments
to U.S. holders of dividends on the common shares and to the proceeds of a sale
or redemption of a common share. We, our agent, a broker or any paying agent,
as the case may be, may be required to withhold tax from any payment that is
subject to backup withholding (currently at a rate of 30%), if the U.S. holder
fails to:



| |  | furnish the U.S. holders taxpayer identification number,                         
|- |  | ----------------------------------------------------------------------------------
| 
| |  | certify that the U.S. holder is not subject to backup withholding, or             
| 
| |  | otherwise comply with the applicable requirements of the backup withholding rules.

Some U.S. holders (including, among others, corporations) are not subject to
the backup withholding and information reporting requirements. Non-U.S. holders
who hold their common shares through a U.S. broker or agent or through the U.S.
office of a non-U.S. broker or agent may be required to comply with applicable
certification procedures to establish that they are not U.S. holders in order
to avoid the application of such information reporting requirements and backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from a payment to a holder of common shares
generally may be claimed as a credit against that holders U.S. Federal income
tax liability provided that the required information is furnished to the IRS.

Holders of common shares should consult their own tax advisers as to their
qualification for exemption from backup withholding and the procedures for
obtaining an exemption.

F.     Dividends and paying agents

Not applicable.

G.     Statements by experts

Not applicable.

H.     Documents on display

We are subject to the informational reporting requirements of the U.S.
Securities Exchange Act of 1934 and file annual reports and other information
with the Securities and Exchange Commission. You may read and copy any document
filed with or furnished to the SEC by us without charge at the SECs public
reference room at 450 Fifth Street, N.W., Washington D.C. 20549. You may also
receive copies of these materials by mail from the SECs Public Reference
Branch at 450 Fifth Street, N.W., Washington D.C. 20549. Our SEC filings are
also available to the public through commercial document retrieval services and
the website maintained by the SEC at www.sec.gov. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room in
Washington D.C. or those in other locations.

As permitted by the SEC, this annual report does not contain all the
information comprising this annual report on Form 20-F. The SEC permits us to
incorporate by reference information into this annual report, which means that:



| |  | incorporated documents are considered part of this annual report, and 
|- |  | ----------------------------------------------------------------------
| 
| |  | we can disclose important information by referring to those documents.

I.     Subsidiary information

Not applicable.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Qualitative disclosures about market risk

As of the date of this annual report, we are exposed to market risks caused by
movements in foreign exchange rates, interest rates and fuel prices. We
constantly work toward reducing these risks. In addition, we have engaged in
various hedging transactions, making use of derivatives in part, that are
subject to internal guidelines. We do not hold derivatives for trading
purposes. To minimize the credit risk of financial instruments, KLM enforces
specific procedures and codes of conduct relating in part to the
creditworthiness of contract parties. In long-term derivatives only
counter-parties with a minimum AA--rating (based on assessments of credit
agencies with a good standing) are selected. For derivatives with a maturity of
less than 12 months, counter-parties with an A-rating are selected.

For each category of risk, the effect of exchange rate, interest rate and fuel
price movements on the fair value of financial instruments is explained in
detail below. No account is taken of the consequences that these movements
would have on the general economic situation, nor is any taken for management
decisions to reduce the risks brought about by these movements. Our market risk
exposure in the 2002/2003 fiscal year compared to the previous fiscal year did
not change materially.

Quantitative disclosures about market risk

Foreign currency

In our operating cash flows, we have a surplus in all major foreign currencies
with the exception of the U.S. dollar, in which we have a limited deficit. We
use forward contracts, options and other financial instruments to hedge
expected cash flows in foreign currency. With regard to translation risk, our
policy is to match assets and liabilities in foreign currency. In principle, we
do not hedge our share in the results and equity of our holdings. The
sensitivity analysis is based on a sudden 10% fall in exchange rates compared
to the level observed on March 31, 2003, if all other variables (including
interest rates) remain constant. As of March 31, 2003, a 10% decline in the
euro against all major foreign currencies (U.S. dollar, Japanese yen, British
pound) would have reduced the fair value of financial instruments by
approximately EUR 32 million.

Interest rate

Our interest rate policy is to minimize long-term net funding costs within an
agreed framework of interest rate sensitivity. This is achieved mainly through
the use of interest rate swaps. As of March 31, 2003, 63% of our outstanding
debt carried a fixed rate of interest and 37% a variable rate. The average rate
of interest on borrowings (excluding subordinated perpetuals) was 4.8%. The
sensitivity analysis is based on a sudden 100-basis-point movement in interest
rates compared to the level observed on March 31, 2003, if all other variables
(including foreign exchange rates) remain constant. Based on our net
interest-bearing debt position as of March 31, 2003, a 100-basis-point movement
in interest rates would have affected the fair value of our net
interest-bearing debt by approximately EUR 121 million. The potential effect on
financial income and expense would have been approximately EUR 8 million.

Commodity risks (fuel prices)

Utilizing forwards and combinations of written put options and purchased call
options, we generally hedge the purchase price in U.S. dollars of a portion of
our fuel requirements in order to reduce the risk of fuel price movements.
During the past financial year, we hedged 63% of our dollar-priced fuel
requirements. The positive effect of these hedging transactions amounted to EUR
53 million. In comparison with the 2001/2002 financial year, average fuel
prices including these derivative commodity instruments decreased by 1%. The
sensitivity analysis is based on a sudden 10% movement in fuel prices compared
to the level observed on March 31, 2003, with the U.S. dollar exchange rate
remaining constant. Such a movement would have affected fuel costs by
approximately EUR 63 million (at the March 31, 2003 U.S. dollar exchange rate
of $1.09 per EUR 1.00), taking into account hedging contracts concluded as of
the 2002/2003 fiscal year-end.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II:




ITEM 13. DEFAULTS, DIVIDENDS ARREARRAGES AND DELINQUENCIES

Not applicable.




ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.




ITEM 15. CONTROLS AND PROCEDURES

Within 90 days prior to the filing of this annual report, we conducted an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective in timely alerting them to material information about
us and our consolidated subsidiaries that is required to be disclosed by us in
the reports that we file or submits under the Securities Exchange Act of 1934.
They further concluded that our disclosure controls and procedures will ensure
the recording, processing, summarizing and reporting of that information within
the time periods specified in the Securities and Exchange Commission rules and
forms.

Subsequent to the date of this evaluation, there have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls.




ITEM 16.

Not applicable.

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PART III:




ITEM 17. FINANCIAL STATEMENTS

We are furnishing our Financial Statements pursuant to Item 18 of Form 20-F.




ITEM 18. FINANCIAL STATEMENTS

See pages F-1 through F-46 and page S-1, which are incorporated by reference
in this annual report.




ITEM 19. EXHIBITS

|     |  |                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Association of KLM (incorporated by reference to Exhibit 1
to our annual report on Form 20-F
filed with the SEC as of June 21, 2002)                                                                                                                                             
|     |  |                                                                                                                                                                                                                                                                                              
|4.1  |  | Form of Employment Agreement with Members of Board of Management                                                                                                                                                                                                                             
|     |  |                                                                                                                                                                                                                                                                                              
|4.2  |  | A330 Purchase Agreement between Airbus and KLM dated as of November
13, 2002 (KLM has
requested that the Commission grant confidential treatment for
certain portions of this document)                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                              
|4.3  |  | Purchase Agreement No. 2399, including exhibits and side letters
thereto, between the Company and Boeing, dated August 19, 2002,
relating to the purchase of Boeing 777 aircraft, (KLM has requested that
the Commission grant confidential treatment for certain portions of this
document).
|     |  |                                                                                                                                                                                                                                                                                              
|12.1 |  | Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                              
|12.2 |  | Certification by Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-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 WIJK                              
| |  |                                                                     |  | L. M. van Wijk                               
| |  |                                                                     |  | President and Chief Executive
Officer        
| |  |                                                                     |  |                                              
| |  | By:                                                                 |  | ROBERT A. RUIJTER                            
| |  |                                                                     |  | R. A. Ruijter                                
| |  |                                                                     |  | Managing Director and Chief
Financial Officer



Date: June 12, 2003

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Section 302 Certification

by the

President & Chief Executive Officer

I, Leo M. van Wijk, certify that:

1.     I have reviewed this annual report on Form 20-F of KLM Royal Dutch Airlines;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |  |  | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| |  |  | (c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the Evaluation Date;                                                                                                                           

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):



| |  |  | (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 12, 2003

LEO M. VAN WIJK

---

53



---



##### Table of Contents



Section 302 Certification

by the

Chief Financial Officer

I, Robert A. Ruijter, certify that:

1.     I have reviewed this annual report on Form 20-F of KLM Royal Dutch Airlines;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |  |  | (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| |  |  | (c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the Evaluation Date;                                                                                                                           

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
the registrants board of directors (or persons performing the equivalent
function):



| |  |  | (a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 12, 2003

ROBERT A. RUIJTER

---

54



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##### Table of Contents






INDEX TO FINANCIAL STATEMENTS

|                                                                                 |                                                                                         |  |      |      | 
|-------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |  | ---- | ---- | 
|Independent Auditors Report                                                     |                                                                                         |  | F-2  |     
|Consolidated Financial Statements
Accounting Policies                            |                                                                                         |  | F-3  |     
|                                                                                 | Consolidated Balance Sheet as of March 31, 2003 and 2002                                |  |      | F-7  | 
|                                                                                 | Consolidated Statements of Earnings for the years ended March 31, 2003, 2002 and 2001   |  |      | F-8  | 
|                                                                                 | Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002 and 2001 |  |      | F-9  | 
|                                                                                 | Notes to the Consolidated Financial Statements                                          |  |      | F-10 | 
|Company Financial Statements
Company Balance Sheet as of March 31, 2003 and 2002 |                                                                                         |  | F-39 |     
|                                                                                 | Company Statements of Earnings for the years ended March 31, 2003, 2002 and 2001        |  |      | F-39 | 
|                                                                                 | Notes to the Company Financial Statements                                               |  |      | F-40 | 
|Financial Statement Schedules                                                    |                                                                                         |  | S-1  |     

F-1



---



##### Table of Contents






Independent Auditors Report

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

We have audited the 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-46. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules as
listed in the index on page S-1. These consolidated financial statements and
financial statement schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules 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 schedules 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
its 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 schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.

Accounting principles generally accepted in The Netherlands vary in certain
respects from those, generally accepted in the United States. Application of
accounting principles generally accepted in the United States would have
required the adjustments described under Note 28 to the consolidated financial
statements of KLM Royal Dutch Airlines and in our opinion are fairly reflected
in all material respects.

|                                          |  |                      
|----------------------------------------- |  | ---------------------
|Amstelveen, The Netherlands
June 12, 2003 |  | KPMG Accountants N.V.

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.

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, 2002
|                       |  |                |  |               
|1 U.S. dollar (USD)    |  | EUR 0.94       |  | EUR 1.13      
|1 pound sterling (GBP) |  | EUR 1.47       |  | EUR 1.61      
|1 Swiss franc (CHF)    |  | EUR 0.68       |  | EUR 0.68      
|100 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



---



##### 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 years
|Inventories, machines and installations  |  | 3 - 15 years 
|Vehicles 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



---



##### 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



---



##### 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.

Extraordinary items

Extraordinary items include non-recurring income and expense not resulting from
normal business operations.

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



---



##### Table of Contents



KLM ROYAL DUTCH AIRLINES




CONSOLIDATED BALANCE SHEET
In millions of euros

Before appropriation of results

|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       |  | 
|--------------------------------------- | --------------------------- |  | ----- | -- | -------------- |  | -------------- | ----- |  |  | ----- | - |  |  | ----- | ----- |  |  | ----- |  | 
|                                        |                             |  | Note1 |    | March 31, 2003 |  | March 31,20022
|                                        |                             |  |       |    |                |  |               
|Fixed assets                            |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        | Intangible fixed assets     |  |       | 1  |                |  |                | 66    |  |  |       |   |  |  |       | 56    |  |  |       |  | 
|                                        | Tangible fixed assets       |  |       | 2  |                |  |                | 4,982 |  |  |       |   |  |  |       | 5,104 |  |  |       |  | 
|                                        | Financial fixed assets      |  |       | 3  |                |  |                | 1,289 |  |  |       |   |  |  |       | 1,264 |  |  |       |  | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        |                             |  |       |    |                |  |                |       |  |  | 6,337 |   |  |  |       |       |  |  | 6,424 | 
|Current assets                          |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        | Accounts receivable         |  |       | 4  |                |  |                | 222   |  |  |       |   |  |  |       | 257   |  |  |       |  | 
|                                        | Accounts receivable         |  |       | 5  |                |  |                | 998   |  |  |       |   |  |  |       | 1,233 |  |  |       |  | 
|                                        | Marketable securities       |  |       |    |                |  |                |      |  |  |       |   |  |  |       | 2     |  |  |       |  | 
|                                        | Cash                        |  |       | 6  |                |  |                | 608   |  |  |       |   |  |  |       | 1,027 |  |  |       |  | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        |                             |  |       |    |                |  | 1,828          |       |  |  |       |   |  |  | 2,519 |       |  |  |       | 
|Current liabilities                     |                             |  | 7     |    |                |  | 2,190          |       |  |  |       |   |  |  | 2,092 |       |  |  |       | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|Current assets less current liabilities |                             |  |       |    |                |  |                |       |  |  | (362  | ) |  |  |       |       |  |  | 427   | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|Assets less current liabilities         |                             |  |       |    |                |  |                |       |  |  | 5,975 |   |  |  |       |       |  |  | 6,851 | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|Long-term debt                          |                             |  | 8     |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        | Subordinated perpetual debt |  |       |    |                |  |                | 544   |  |  |       |   |  |  |       | 591   |  |  |       |  | 
|                                        | Other long-term debt        |  |       |    |                |  |                | 3,427 |  |  |       |   |  |  |       | 3,826 |  |  |       |  | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        |                             |  |       |    |                |  |                |       |  |  | 3,971 |   |  |  |       |       |  |  | 4,417 | 
|Provisions                              |                             |  | 9     |    |                |  |                |       |  |  | 271   |   |  |  |       |       |  |  | 177   | 
|Deferred credits                        |                             |  | 10    |    |                |  |                |       |  |  | 256   |   |  |  |       |       |  |  | 265   | 
|Group equity                            |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        | Stockholders equity        |  |       | 11 |                |  |                | 1,476 |  |  |       |   |  |  |       | 1,992 |  |  |       |  | 
|                                        | Share of third parties      |  |       |    |                |  |                | 1     |  |  |       |   |  |  |       |      |  |  |       |  | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        |                             |  |       |    |                |  |                |       |  |  | 1,477 |   |  |  |       |       |  |  | 1,992 | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 
|                                        |                             |  |       |    |                |  |                |       |  |  | 5,975 |   |  |  |       |       |  |  | 6,851 | 
|                                        |                             |  |       |    |                |  |                |       |  |  |       |   |  |  |       |       |  |  |       | 

---

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

F-7



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




CONSOLIDATED STATEMENTS OF EARNINGS
In millions of euros with the exception of the stock data

|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |       | 
|------------------------------------------------------------ | --------------- |  | ---------- | -- | ---- |  | ----------------------------- | ----- | ---- |  | ---------- | ----- |  |  | ----- | ----- | 
|                                                             |                 |  |            |    |      |  | For the Years Ended March 31,
|                                                             |                 |  |            |    |      |  |                              
|                                                             |                 |  | Note1      |    | 2003 |  | 2002                          |       | 2001
|                                                             |                 |  |            |    |      |  |                               |       |     
|Operating revenues                                           |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|                                                             | Traffic revenue |  |            | 15 |      |  |                               | 5,780 |      |  |            | 5,826 |  |  |       | 6,126 | 
|                                                             | Other revenue   |  |            | 16 |      |  |                               | 705   |      |  |            | 706   |  |  |       | 834   | 
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|                                                             |                 |  |            |    |      |  | 6,485                         |       |      |  | 6,532      |       |  |  | 6,960 |      
|Operating expenses                                           |                 |  | 17         |    |      |  | 6,618                         |       |      |  | 6,626      |       |  |  | 6,683 |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|Operating income (loss)                                      |                 |  |            |    |      |  | (133                          | )     |      |  | (94        | )     |  |  | 277   |      
|Financial income and expense                                 |                 |  | 20         |    |      |  | (98                           | )     |      |  | (134       | )     |  |  | (138  | )    
|Results on sale of assets                                    |                 |  | 21         |    |      |  | (42                           | )     |      |  | 10         |       |  |  | 27    |      
|Results of holdings                                          |                 |  | 22         |    |      |  | (4                            | )     |      |  | (15        | )     |  |  | (21   | )    
|Results on sale of holdings                                  |                 |  | 23         |    |      |  | 6                             |       |      |  | 9          |       |  |  | 4     |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|Pretax income (loss)                                         |                 |  |            |    |      |  | (271                          | )     |      |  | (224       | )     |  |  | 149   |      
|Taxes                                                        |                 |  | 24         |    |      |  | 85                            |       |      |  | 68         |       |  |  | (73   | )    
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|                                                             |                 |  |            |    |      |  | (186                          | )     |      |  | (156       | )     |  |  | 76    |      
|Share of third parties                                       |                 |  |            |    |      |  |                              |       |      |  | 0          |       |  |  | 1     |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|After tax income (loss) before extraordinary items           |                 |  |            |    |      |  | (186                          | )     |      |  | (156       | )     |  |  | 77    |      
|Extraordinary losses                                         |                 |  |            |    |      |  | (351                          | )     |      |  |           |       |  |  |      |      
|Taxes extraordinary losses                                   |                 |  |            |    |      |  | 121                           |       |      |  |           |       |  |  |      |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|Extraordinary items after tax                                |                 |  | 25         |    |      |  | (230                          | )     |      |  |           |       |  |  |      |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|Net income (loss)                                            |                 |  |            |    |      |  | (416                          | )     |      |  | (156       | )     |  |  | 77    |      
|                                                             |                 |  |            |    |      |  |                               |       |      |  |            |       |  |  |       |      
|Net income (loss) attributable to common shares              |                 |  | (418       | )  |      |  | (158                          | )     |      |  | 75         |      
|Average number of common shares outstanding2                 |                 |  | 45,070,544 |    |      |  | 46,809,699                    |       |      |  | 46,809,699 |      
|Average number of common shares outstanding (fully diluted)2 |                 |  | 45,070,544 |    |      |  | 46,809,699                    |       |      |  | 46,809,699 |      
|Net income (loss) per common share                           |                 |  | (9.26      | )  |      |  | (3.37                         | )     |      |  | 1.61       |      

---

|1 |  | The accompanying Notes are an integral part of these Consolidated Financial Statements
|- |  | --------------------------------------------------------------------------------------
|2 |  | Taking repurchased shares into account                                                

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 |  | 2001 
|                                                                                  |                                               |  |                               |      |      |  |      
|Cash flow from operating activities:                                              |                                               |  |                               |      |      |  |       |      |   |  |      |     
|                                                                                  | Net income (loss)                             |  |                               | (416 | )    |  |       | (156 | ) |  |      | 77   |  
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                               |  |                               |      |      |  |       |      |   |  |      |     
|                                                                                  | Depreciation and amortization                 |  |                               | 535  |      |  |       | 487  |   |  |      | 429  |  
|                                                                                  | Provision for losses and
accounts receivable  |  |                               | (9   | )    |  |       | 9    |   |  |      | 12   |  
|                                                                                  | Results on sale of assets                     |  |                               | 42   |      |  |       | (10  | ) |  |      | (27  | )
|                                                                                  | Undistributed earnings of affiliates          |  |                               | 4    |      |  |       | 15   |   |  |      | 19   |  
|                                                                                  | Gain on sale of affiliates                    |  |                               | (6   | )    |  |       | (9   | ) |  |      | (4   | )
|                                                                                  | Deferred taxes                                |  |                               | (201 | )    |  |       | (65  | ) |  |      | 73   |  
|Change in assets and liabilities:                                                 |                                               |  |                               |      |      |  |       |      |   |  |      |     
|                                                                                  | Accounts receivable                           |  |                               | 190  |      |  |       | 122  |   |  |      | 72   |  
|                                                                                  | Supplies                                      |  |                               | 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  | ) |  |      | 20   |  
|                                                                                  | Marketable securities                         |  |                               | 2    |      |  |       | 4    |   |  |      | 57   |  
|                                                                                  | Share of third parties                        |  |                               | 1    |      |  |       |     |   |  |      | (5   | )
|                                                                                  |                                               |  |                               |      |      |  |       |      |   |  |      |     
|Net cash provided by operating activities                                         |                                               |  | 297                           |      |      |  | 530   |      |   |  | 581  |     
|Cash flow from investing activities:                                              |                                               |  |                               |      |      |  |       |      |   |  |      |     
|                                                                                  | Proceeds from sale of tangible fixed assets   |  |                               | 305  |      |  |       | 64   |   |  |      | 167  |  
|                                                                                  | Capital 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  |   |  |      | 626  |  
|                                                                                  | Decrease in long-term debts                   |  |                               | (259 | )    |  |       | (401 | ) |  |      | (523 | )
|                                                                                  | Increase in long-term receivables             |  |                               | (78  | )    |  |       | (161 | ) |  |      | (225 | )
|                                                                                  | Decrease in long-term receivables             |  |                               | 62   |      |  |       | 70   |   |  |      | 401  |  
|                                                                                  | Other                                         |  |                               | (115 | )    |  |       | 49   |   |  |      | (166 | )
|                                                                                  |                                               |  |                               |      |      |  |       |      |   |  |      |     
|Net cash provided by financing activities                                         |                                               |  | (280                          | )    |      |  | (108  | )    |   |  | 111  |     
|Changes in cash                                                                   |                                               |  | (419                          | )    |      |  | 188   |      |   |  | 172  |     
|Cash, opening balance                                                             |                                               |  | 1,027                         |      |      |  | 839   |      |   |  | 667  |     
|                                                                                  |                                               |  |                               |      |      |  |       |      |   |  |      |     
|Cash, closing balance1                                                            |                                               |  | 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 payments |    |   |  | 
|                                           |  |          |    |          |  |              |     |       |  | on software on   |    |   |  | 
|                                           |  |          |    |          |  |              |     |       |  | order or under   |    |   |  | 
|                                           |  | Goodwill |    | Software |  | construction |     | Total
|                                           |  |          |    |          |  |              |     |      
|Purchase value as of March 31, 2002        |  |          | 42 |          |  |              | 56  |       |  |                  | 1  |   |  |  | 99  |  
|Accumulated amortization through
2001/2002 |  |          | 23 |          |  |              | 20  |       |  |                  |   |   |  |  | 43  |  
|                                           |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  
|Book value as of March 31, 2002            |  |          | 19 |          |  |              | 36  |       |  |                  | 1  |   |  |  | 56  |  
|                                           |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  
|Changes in book value                      |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  
|Additions                                  |  |          |   |          |  |              | 18  |       |  |                  | 11 |   |  |  | 29  |  
|Disposals                                  |  |          |   |          |  |              |    |       |  |                  |   |   |  |  |    |  
|Amortization                               |  |          | (4 | )        |  |              | (13 | )     |  |                  |   |   |  |  | (17 | )
|Exchange rate differences                  |  |          | (1 | )        |  |              |    |       |  |                  |   |   |  |  | (1  | )
|Other                                      |  |          |   |          |  |              | 5   |       |  |                  | (6 | ) |  |  | (1  | )
|                                           |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  
|Total changes                              |  |          | (5 | )        |  |              | 10  |       |  |                  | 5  |   |  |  | 10  |  
|Purchase value as of March 31, 2003        |  |          | 40 |          |  |              | 78  |       |  |                  | 6  |   |  |  | 124 |  
|Accumulated amortization through
2002/2003 |  |          | 26 |          |  |              | 32  |       |  |                  |   |   |  |  | 58  |  
|                                           |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  
|Book value as of March 31, 2003            |  |          | 14 |          |  |              | 46  |       |  |                  | 6  |   |  |  | 66  |  
|                                           |  |          |    |          |  |              |     |       |  |                  |    |   |  |  |     |  

2.   Tangible fixed assets

|                                                                         |  |                |       |                |  |  |       | 
|------------------------------------------------------------------------ |  | -------------- | ----- | -------------- |  |  | ----- | 
|                                                                         |  | March 31, 2003 |       | March 31, 2002
|                                                                         |  |                |       |               
|Aircraft, spare engines and spare parts                                  |  |                | 3,793 |                |  |  | 4,329 | 
|Other tangible fixed assets                                              |  |                | 544   |                |  |  | 583   | 
|                                                                         |  |                |       |                |  |  |       | 
|                                                                         |  |                | 4,337 |                |  |  | 4,912 | 
|Advance payments on tangible fixed assets on order or under construction |  |                | 645   |                |  |  | 192   | 
|                                                                         |  |                |       |                |  |  |       | 
|                                                                         |  |                | 4,982 |                |  |  | 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, |  | Vehicles  |     |   |  | 
|                                                                   |  | spare       |       |           |  |               |     | machines     |  | and other |     |   |  | 
|                                                                   |  | engines and |       | Buildings |  | and           |     | tangible     |  |           |     |  
|                                                                   |  | spare parts |       | and land  |  | installations |     | fixed assets |  | Total    
|                                                                   |  |             |       |           |  |               |     |              |  |          
|Purchase value as of March 31, 2002                                |  |             | 7,309 |           |  |               | 734 |              |  |           | 608 |   |  |  | 132 |   |  |  | 8,783 |  
|Accumulated depreciation and
diminution in
value through 2001/2002 |  |             | 2,980 |           |  |               | 379 |              |  |           | 440 |   |  |  | 72  |   |  |  | 3,871 |  
|                                                                   |  |             |       |           |  |               |     |              |  |           |     |   |  |  |     |   |  |  |       |  
|Book value as of March 31, 2002                                    |  |             | 4,329 |           |  |               | 355 |              |  |           | 168 |   |  |  | 60  |   |  |  | 4,912 |  
|Changes in book value                                              |  |             |       |           |  |               |     |              |  |           |     |   |  |  |     |   |  |  |       |  
|Additions                                                          |  |             | 409   |           |  |               | 2   |              |  |           | 35  |   |  |  | 15  |   |  |  | 461   |  
|Disposals                                                          |  |             | (342  | )         |  |               | (2  | )            |  |           |    |   |  |  | (5  | ) |  |  | (349  | )
|Depreciation                                                       |  |             | (382  | )         |  |               | (26 | )            |  |           | (46 | ) |  |  | (12 | ) |  |  | (466  | )
|Write down/impairment                                              |  |             | (78   | )         |  |               |    |              |  |           |    |   |  |  |    |   |  |  | (78   | )
|Exchange rate differences                                          |  |             | (143  | )         |  |               |    |              |  |           | (1  | ) |  |  |    |   |  |  | (144  | )
|Other                                                              |  |             |      |           |  |               | 2   |              |  |           | (1  | ) |  |  |    |   |  |  | 1     |  
|                                                                   |  |             |       |           |  |               |     |              |  |           |     |   |  |  |     |   |  |  |       |  
|Total changes                                                      |  |             | (536  | )         |  |               | (24 | )            |  |           | (13 | ) |  |  | (2  | ) |  |  | (575  | )
|Purchase value as of March 31, 2003                                |  |             | 6,925 |           |  |               | 728 |              |  |           | 605 |   |  |  | 132 |   |  |  | 8,390 |  
|Accumulated depreciation and
diminution in value through 2002/2003 |  |             | 3,132 |           |  |               | 397 |              |  |           | 450 |   |  |  | 74  |   |  |  | 4,053 |  
|                                                                   |  |             |       |           |  |               |     |              |  |           |     |   |  |  |     |   |  |  |       |  
|Book 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               |  |  | 192  |  
|Advance payments                           |  |  | 685  |  
|Tangible 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, 2002
|                             |  |                |       |               
|Holdings                     |  |                | 198   |                |  |  | 201   |  
|Receivables from holdings    |  |                | 18    |                |  |  | 22    |  
|Triple A bonds/deposits      |  |                | 311   |                |  |  | 354   |  
|Derivatives                  |  |                | 482   |                |  |  | 589   |  
|Other financial fixed assets |  |                | 152   |                |  |  | 198   |  
|Deferred taxes               |  |                | 128   |                |  |  | (100  | )
|                             |  |                |       |                |  |  |       |  
|                             |  |                | 1,289 |                |  |  | 1,264 |  
|                             |  |                |       |                |  |  |       |  

|                                    |  |          |     |          |  |             |    |             |  |              |     |       |  |           |     |          |  |  |     |   |  |  |      |   |  |  |       |  
|----------------------------------- |  | -------- | --- | -------- |  | ----------- | -- | ----------- |  | ------------ | --- | ----- |  | --------- | --- | -------- |  |  | --- | - |  |  | ---- | - |  |  | ----- | -
|                                    |  |          |     |          |  | Receivables |    | Triple A    |  |              |     |       |  | Other     |     |          |  |  |     |   |  | 
|                                    |  |          |     |          |  | from        |    | bonds/      |  |              |     |       |  | financial |     | Deferred |  |  |     |  
|                                    |  | Holdings |     | holdings |  | deposits    |    | Derivatives |  | fixed assets |     | taxes |  | Total    
|                                    |  |          |     |          |  |             |    |             |  |              |     |       |  |          
|Balance as of March 31, 2002        |  |          | 201 |          |  |             | 22 |             |  |              | 354 |       |  |           | 589 |          |  |  | 198 |   |  |  | (100 | ) |  |  | 1,264 |  
|New/expansion                       |  |          | 10  |          |  |             | 1  |             |  |              | 19  |       |  |           | 17  |          |  |  | 62  |   |  |  | 237  |   |  |  | 346   |  
|Sale/redemption                     |  |          | (2  | )        |  |             | (2 | )           |  |              |    |       |  |           | (33 | )        |  |  | (48 | ) |  |  | (9   | ) |  |  | (94   | )
|Share in results                    |  |          | 5   |          |  |             |   |             |  |              |    |       |  |           |    |          |  |  |    |   |  |  |     |   |  |  | 5     |  
|Revaluation                         |  |          | (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, 2002
|                               |  |                |     |               
|                               |  | Assets         |     | Liabilities    |  | Assets |     | Liabilities
|                               |  |                |     |                |  |        |     |            
|Fixed assets                   |  |                | 8   |                |  |        | 69  |             |  |  | 5   |  |  |  | 58  | 
|Current assets                 |  |                | 3   |                |  |        | 20  |             |  |  |    |  |  |  | 53  | 
|Deferred liabilities           |  |                | 30  |                |  |        |    |             |  |  | 20  |  |  |  |    | 
|Provisions                     |  |                | 26  |                |  |        | 66  |             |  |  |    |  |  |  | 50  | 
|Current liabilities            |  |                |    |                |  |        |    |             |  |  | 30  |  |  |  |    | 
|Carryforward loss compensation |  |                | 188 |                |  |        |    |             |  |  |    |  |  |  |    | 
|Other items                    |  |                | 86  |                |  |        | 58  |             |  |  | 49  |  |  |  | 43  | 
|                               |  |                |     |                |  |        |     |             |  |  |     |  |  |  |     | 
|                               |  |                | 341 |                |  |        | 213 |             |  |  | 104 |  |  |  | 204 | 
|                               |  |                |     |                |  |        |     |             |  |  |     |  |  |  |     | 
|Net tax position               |  |                | 128 |                |  |        |     |             |  |  |     |  |  |  | 100 | 

Current assets

4.   Operating supplies

|                      |  |                |     |                |  |  |     | 
|--------------------- |  | -------------- | --- | -------------- |  |  | --- | 
|                      |  | March 31, 2003 |     | March 31, 2002
|                      |  |                |     |               
|Maintenance materials |  |                | 160 |                |  |  | 207 | 
|Various supplies      |  |                | 62  |                |  |  | 50  | 
|                      |  |                |     |                |  |  |     | 
|                      |  |                | 222 |                |  |  | 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, 2002
|                          |  |                |     |               
|Debtors                   |  |                | 745 |                |  |  | 944   | 
|Receivables from holdings |  |                | 3   |                |  |  | 2     | 
|Value added tax           |  |                | 37  |                |  |  | 20    | 
|Prepaid expenses          |  |                | 213 |                |  |  | 267   | 
|                          |  |                |     |                |  |  |       | 
|                          |  |                | 998 |                |  |  | 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, 2002
|                                 |  |                |     |               
|Time deposits                    |  |                | 506 |                |  |  | 974   | 
|Cash on hand and demand deposits |  |                | 102 |                |  |  | 53    | 
|                                 |  |                |     |                |  |  |       | 
|                                 |  |                | 608 |                |  |  | 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, 2002
|                                         |  |                |       |               
|Current maturities of long-term debt:    |  |                |       |                |  |  |       | 
|- concerning financial lease commitments |  |                | 251   |                |  |  | 139   | 
|- concerning other long-term debt        |  |                | 65    |                |  |  | 24    | 
|Unearned revenues                        |  |                | 548   |                |  |  | 672   | 
|Creditors                                |  |                | 532   |                |  |  | 518   | 
|Taxes and benefit premiums               |  |                | 29    |                |  |  | 38    | 
|Accruals and other current liabilities   |  |                | 765   |                |  |  | 701   | 
|                                         |  |                |       |                |  |  |       | 
|                                         |  |                | 2,190 |                |  |  | 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, 2002
|                                                           |  |                |       |               
|Perpetual debt                                             |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|Subordinated perpetual loans                               |  |                |       |                |  |  | 544   |  |  |  |       |  |  |  | 591   | 
|                                                           |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|Other long-term debt                                       |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|Bank loans                                                 |  |                | 21    |                |  |  |       |  |  |  | 16    |  |  |  |       | 
|Financial lease commitments                                |  |                | 3,295 |                |  |  |       |  |  |  | 3,645 |  |  |  |       | 
|Other loans                                                |  |                | 427   |                |  |  |       |  |  |  | 328   |  |  |  |       | 
|                                                           |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|                                                           |  |                | 3,743 |                |  |  |       |  |  |  | 3,989 |  |  |  |       | 
|of which maturing in
2003/2004 and 2002/2003

respectively |  |                | 316   |                |  |  |       |  |  |  | 163   |  |  |  |       | 
|                                                           |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|                                                           |  |                |       |                |  |  | 3,427 |  |  |  |       |  |  |  | 3,826 | 
|                                                           |  |                |       |                |  |  |       |  |  |  |       |  |  |  |       | 
|                                                           |  |                |       |                |  |  | 3,971 |  |  |  |       |  |  |  | 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.

Term

|                             |  |            |       |            |  |           |       |       |  |  |     |  |  |  |       | 
|---------------------------- |  | ---------- | ----- | ---------- |  | --------- | ----- | ----- |  |  | --- |  |  |  | ----- | 
|                             |  | Redemption |       | Redemption |  |           |       |       |  |  |     | 
|                             |  | through    |       | after      |  |           |       |       |  |  |     | 
|                             |  | 5 years    |       | 5 years    |  | Perpetual |       | Total
|                             |  |            |       |            |  |           |       |      
|Subordinated perpetual loans |  |            |      |            |  |           |      |       |  |  | 544 |  |  |  | 544   | 
|Financial lease commitments  |  |            | 1,557 |            |  |           | 1,487 |       |  |  |    |  |  |  | 3,044 | 
|Other loans                  |  |            | 172   |            |  |           | 211   |       |  |  |    |  |  |  | 383   | 
|                             |  |            |       |            |  |           |       |       |  |  |     |  |  |  |       | 
|March 31, 2003               |  |            | 1,729 |            |  |           | 1,698 |       |  |  | 544 |  |  |  | 3,971 | 
|                             |  |            |       |            |  |           |       |       |  |  |     |  |  |  |       | 
|March 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  |       | Range    |  |         |     | 
|                             |  | interest |       | interest |  | variable |       | of fixed |  | Average
|                             |  | loans    |       | loans    |  | rate     |       | rates    |  | rate   
|                             |  |          |       |          |  |          |       |          |  |        
|Subordinated perpetual loans |  |          | 68    |          |  |          | 476   |          |  |         | 2.6 |  |  |  | 4.5 - 5.8  |  |  |  | 4.7 | 
|Financial lease commitments  |  |          | 1,326 |          |  |          | 1,718 |          |  |         | 3.8 |  |  |  | 4.5 - 11.3 |  |  |  | 4.9 | 
|Other loans                  |  |          | 58    |          |  |          | 325   |          |  |         | 1.4 |  |  |  | 1.2 - 6.6  |  |  |  | 4.4 | 
|                             |  |          |       |          |  |          |       |          |  |         |     |  |  |  |            |  |  |  |     | 
|March 31, 2003               |  |          | 1,452 |          |  |          | 2,519 |          |  |         |     |  |  |  |            |  |  |  |     | 
|                             |  |          |       |          |  |          |       |          |  |         |     |  |  |  |            |  |  |  |     | 
|March 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 |    | Total
|                             |  |     |       |     |  |     |       |     |  |     |    |      
|Subordinated perpetual loans |  |     | 259   |     |  |     |      |     |  |     |   |       |  |  | 285 |  |  |  |    |  |  |  | 544   | 
|Financial lease commitments  |  |     | 2,156 |     |  |     | 766   |     |  |     |   |       |  |  |    |  |  |  | 122 |  |  |  | 3,044 | 
|Other loans                  |  |     | 290   |     |  |     | 92    |     |  |     |   |       |  |  |    |  |  |  | 1   |  |  |  | 383   | 
|                             |  |     |       |     |  |     |       |     |  |     |    |       |  |  |     |  |  |  |     |  |  |  |       | 
|March 31, 2003               |  |     | 2,705 |     |  |     | 858   |     |  |     |   |       |  |  | 285 |  |  |  | 123 |  |  |  | 3,971 | 
|                             |  |     |       |     |  |     |       |     |  |     |    |       |  |  |     |  |  |  |     |  |  |  |       | 
|March 31, 2002               |  |     | 2,660 |     |  |     | 1,199 |     |  |     | 73 |       |  |  | 331 |  |  |  | 154 |  |  |  | 4,417 | 
|                             |  |     |       |     |  |     |       |     |  |     |    |       |  |  |     |  |  |  |     |  |  |  |       | 

Fair value of long-term debt

|                                  |  |                |       |                |  |  |       | 
|--------------------------------- |  | -------------- | ----- | -------------- |  |  | ----- | 
|                                  |  | March 31, 2003 |       | March 31, 2002
|                                  |  |                |       |               
|Subordinated perpetual loans      |  |                | 499   |                |  |  | 471   | 
|Financial lease commitments       |  |                | 3,222 |                |  |  | 3,373 | 
|of which maturing within one year |  |                | 251   |                |  |  | 139   | 
|Other long-term debt              |  |                | 177   |                |  |  | 267   | 
|of 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 |    | 2003
|                                 |  |                |     |         |  |           |    |     
|Postretirement health costs      |  |                | 67  |         |  |           | 5  |      |  |  | 7   |  |  |           | 69  | 
|Early retirement provision       |  |                | 17  |         |  |           | 8  |      |  |  | 22  |  |  |           | 31  | 
|Other staff commitments          |  |                | 73  |         |  |           | 16 |      |  |  | 15  |  |  |           | 72  | 
|Frequent flyer program           |  |                | 20  |         |  |           |   |      |  |  | 4   |  |  |           | 24  | 
|Reorganization and restructuring |  |                |    |         |  |           |   |      |  |  | 75  |  |  |           | 75  | 
|                                 |  |                |     |         |  |           |    |      |  |  |     |  |  |           |     | 
|                                 |  |                | 177 |         |  |           | 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, 2002
|                                                                      |  |                |     |               
|Investment incentive grants received under the Investment Account Act |  |                | 20  |                |  |  | 30  | 
|Items related to aircraft financing                                   |  |                | 236 |                |  |  | 235 | 
|                                                                      |  |                |     |                |  |  |     | 
|                                                                      |  |                | 256 |                |  |  | 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 page F-42.

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 of
|                |  | of aircraft        |     | buildings
|                |  |                    |     |          
|2003/2004       |  |                    | 190 |           |  |  | 37  | 
|2004/2005       |  |                    | 203 |           |  |  | 26  | 
|2005/2006       |  |                    | 182 |           |  |  | 24  | 
|2006/2007       |  |                    | 149 |           |  |  | 20  | 
|2007/2008       |  |                    | 95  |           |  |  | 17  | 
|after 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 31
|                                 |  |                          |       |                    
|                                 |  | 2003                     |       | 2002                |  | 2003 |       | 2002
|                                 |  |                          |       |                     |  |      |       |     
|Forward exchange contracts       |  |                          | 2,519 |                     |  |      | 1,014 |      |  |  | (55 | ) |  |  | 47  |  
|Interest-currency swap contracts |  |                          | 1,403 |                     |  |      | 1,383 |      |  |  | 274 |   |  |  | 454 |  
|Interest rate swap contracts     |  |                          | 1,907 |                     |  |      | 1,975 |      |  |  | (11 | ) |  |  | 19  |  
|Fuel 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, 2002
|                    |  |                |     |               
|Cash flow hedges    |  |                | 4   |                |  |  | 57  | 
|Fair value hedges   |  |                | 188 |                |  |  | 441 | 
|No hedge accounting |  |                | 5   |                |  |  | 6   | 
|                    |  |                |     |                |  |  |     | 
|Fair 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 |  | 2001
|                 |  |                               |       |      |  |     
|Passengers       |  |                               | 4,210 |      |  |      | 4,267 |  |  |  | 4,527 | 
|Cargo            |  |                               | 1,017 |      |  |      | 1,016 |  |  |  | 1,109 | 
|Charter/Low Cost |  |                               | 553   |      |  |      | 543   |  |  |  | 490   | 
|                 |  |                               |       |      |  |      |       |  |  |  |       | 
|                 |  |                               | 5,780 |      |  |      | 5,826 |  |  |  | 6,126 | 
|                 |  |                               |       |      |  |      |       |  |  |  |       | 

16.   Other revenue

|                                     |  |                               |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ----------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | For the Years Ended March 31,
|                                     |  |                              
|                                     |  | 2003                          |     | 2002 |  | 2001
|                                     |  |                               |     |      |  |     
|Maintenance and other technical work |  |                               | 280 |      |  |      | 273 |  |  |  | 273 | 
|Cargo and mail handling              |  |                               | 40  |      |  |      | 39  |  |  |  | 131 | 
|Tax-free sales                       |  |                               | 115 |      |  |      | 107 |  |  |  | 104 | 
|Aircraft handling                    |  |                               | 105 |      |  |      | 92  |  |  |  | 93  | 
|Miscellaneous                        |  |                               | 165 |      |  |      | 195 |  |  |  | 233 | 
|                                     |  |                               |     |      |  |      |     |  |  |  |     | 
|                                     |  |                               | 705 |      |  |      | 706 |  |  |  | 834 | 
|                                     |  |                               |     |      |  |      |     |  |  |  |     | 

These services have been rendered mainly in The Netherlands.

17.   Operating expenses

|                                             |  |                               |       |      |  |      |       |  |  |  |       | 
|-------------------------------------------- |  | ----------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                             |  | For the Years Ended March 31,
|                                             |  |                              
|                                             |  | 2003                          |       | 2002 |  | 2001
|                                             |  |                               |       |      |  |     
|Salaries and benefits                        |  |                               | 1,907 |      |  |      | 1,747 |  |  |  | 1,675 | 
|Aircraft fuel                                |  |                               | 886   |      |  |      | 983   |  |  |  | 1,038 | 
|Materials and consumables                    |  |                               | 448   |      |  |      | 470   |  |  |  | 465   | 
|Commercial costs                             |  |                               | 499   |      |  |      | 506   |  |  |  | 593   | 
|Landing fees and navigation charges          |  |                               | 541   |      |  |      | 524   |  |  |  | 515   | 
|Third-party handling costs                   |  |                               | 208   |      |  |      | 231   |  |  |  | 222   | 
|Work by third parties                        |  |                               | 489   |      |  |      | 455   |  |  |  | 535   | 
|Depreciation                                 |  |                               | 535   |      |  |      | 487   |  |  |  | 429   | 
|Operational aircraft lease expenses          |  |                               | 171   |      |  |      | 226   |  |  |  | 187   | 
|Cost of housing, vehicles and inventories    |  |                               | 186   |      |  |      | 180   |  |  |  | 211   | 
|Commercial cooperation                       |  |                               | 117   |      |  |      | 176   |  |  |  | 214   | 
|Ad hoc and short-term aircraft/truck rentals |  |                               | 99    |      |  |      | 153   |  |  |  | 153   | 
|Hired personnel                              |  |                               | 108   |      |  |      | 116   |  |  |  | 137   | 
|Other operating expenses                     |  |                               | 424   |      |  |      | 372   |  |  |  | 309   | 
|                                             |  |                               |       |      |  |      |       |  |  |  |       | 
|                                             |  |                               | 6,618 |      |  |      | 6,626 |  |  |  | 6,683 | 
|                                             |  |                               |       |      |  |      |       |  |  |  |       | 

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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 |  | 2001
|                           |  |                               |       |      |  |     
|Salaries                   |  |                               | 1,510 |      |  |      | 1,449 |  |  |  | 1,329 | 
|Benefits                   |  |                               | 167   |      |  |      | 154   |  |  |  | 199   | 
|Pension fund contributions |  |                               | 230   |      |  |      | 144   |  |  |  | 147   | 
|                           |  |                               |       |      |  |      |       |  |  |  |       | 
|                           |  |                               | 1,907 |      |  |      | 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 |  | 2001
|                                     |  |                               |        |      |  |     
|Ground staff in The Netherlands      |  |                               | 18,255 |      |  |      | 17,951 |  |  |  | 17,600 | 
|Ground staff outside The Netherlands |  |                               | 4,848  |      |  |      | 5,421  |  |  |  | 6,439  | 
|Flight staff                         |  |                               | 9,935  |      |  |      | 9,893  |  |  |  | 9,724  | 
|                                     |  |                               |        |      |  |      |        |  |  |  |        | 
|                                     |  |                               | 33,038 |      |  |      | 33,265 |  |  |  | 33,763 | 
|                                     |  |                               |        |      |  |      |        |  |  |  |        | 

19.   Depreciation and amortization

|                                              |  |                               |     |      |  |      |     |   |  |  |     |  
|--------------------------------------------- |  | ----------------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                              |  | For the Years Ended March 31,
|                                              |  |                              
|                                              |  | 2003                          |     | 2002 |  | 2001
|                                              |  |                               |     |      |  |      |    
|Amortization of intangible fixed assets       |  |                               | 17  |      |  |      | 12  |   |  |  | 10  |  
|Depreciation of aircraft and spare components |  |                               | 382 |      |  |      | 383 |   |  |  | 330 |  
|Write down/impairment                         |  |                               | 78  |      |  |      | 17  |   |  |  |    |  
|Depreciation of other tangible fixed assets   |  |                               | 84  |      |  |      | 90  |   |  |  | 99  |  
|                                              |  |                               |     |      |  |      |     |   |  |  |     |  
|                                              |  |                               | 561 |      |  |      | 502 |   |  |  | 439 |  
|Amortization of deferred credits              |  |                               | (26 | )    |  |      | (15 | ) |  |  | (10 | )
|                                              |  |                               |     |      |  |      |     |   |  |  |     |  
|                                              |  |                               | 535 |      |  |      | 487 |   |  |  | 429 |  
|                                              |  |                               |     |      |  |      |     |   |  |  |     |  

20.   Financial income and expense

|                                                                                |  |                               |      |      |  |      |      |   |  |  |      |  
|------------------------------------------------------------------------------- |  | ----------------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                                |  | For the Years Ended March 31,
|                                                                                |  |                              
|                                                                                |  | 2003                          |      | 2002 |  | 2001
|                                                                                |  |                               |      |      |  |     
|Interest income from financial fixed assets                                     |  |                               | 20   |      |  |      | 39   |   |  |  | 59   |  
|Other interest income                                                           |  |                               | 11   |      |  |      | 21   |   |  |  | 12   |  
|Changes 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    |   |  |  | 4    |  
|Unrealized 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 |  | 2001
|                 |  |                               |    |      |  |     
|Aviation         |  |                               | 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 32%. The difference between the effective
and standard rate can be explained as follows:

|                            |  |                               |     |      |  |      |     |   |  |  |     |  
|--------------------------- |  | ----------------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                            |  | For the Years Ended March 31,
|                            |  |                              
|                            |  | 2003                          |     | 2002 |  | 2001
|                            |  |                               |     |      |  |     
|Standard rate taxation      |  |                               | 93  |      |  |      | 79  |   |  |  | (52 | )
|Participation exemption     |  |                               | 1   |      |  |      | (1  | ) |  |  | (6  | )
|Foreign tax issues          |  |                               | (13 | )    |  |      | (13 | ) |  |  | (12 | )
|Other permanent differences |  |                               | 4   |      |  |      | 3   |   |  |  | (3  | )
|                            |  |                               |     |      |  |      |     |   |  |  |     |  
|Effective rate taxation     |  |                               | 85  |      |  |      | 68  |   |  |  | (73 | )
|                            |  |                               |     |      |  |      |     |   |  |  |     |  

25.   Extraordinary items after tax

|                     |  |                               |      |      |  |      |   |  |  |  |   | 
|-------------------- |  | ----------------------------- | ---- | ---- |  | ---- | - |  |  |  | - | 
|                     |  | For the Years Ended March 31,
|                     |  |                              
|                     |  | 2003                          |      | 2002 |  | 2001
|                     |  |                               |      |      |  |     
|Extraordinary losses |  |                               | (351 | )    |  |      |  |  |  |  |  | 
|Taxes                |  |                               | 121  |      |  |      |  |  |  |  |  | 
|                     |  |                               |      |      |  |      |   |  |  |  |   | 
|                     |  |                               | (230 | )    |  |      |  |  |  |  |  | 
|                     |  |                               |      |      |  |      |   |  |  |  |   | 

Extraordinary loss includes a loss of EUR 276 million arising from the
arbitration tribunals award in the legal dispute between KLM and Alitalia
concerning the termination of their alliance as of April 28, 2000. The
extraordinary loss also includes the Reorganization and restructuring provision
to an amount of EUR 75 million.

F-21



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##### 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.

2002/2003

|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|-------------------------------------------------------------------- |  | --------- | ----- | ----- |  | ----------- | ----- | -------- |  | ------------- | --- | -------------- |  | ------------ | --- | - |  | -------------- | ----- | ----- |  |  | ------ | - |  |  | ----- | -
|                                                                     |  |           |       |       |  |             |       |          |  | Engineering & |     | Charter/       |  |              |     |   |  | Elimination of |       | Total
|                                                                     |  | Passenger |       | Cargo |  | Maintenance |       | Low Cost |  | All other     |     | inter-segments |  | consolidated
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |             
|Operating revenues                                                   |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Operating revenues from
external customers                           |  |           | 4,425 |       |  |             | 1,068 |          |  |               | 329 |                |  |              | 590 |   |  |                | 73    |       |  |  |        |   |  |  | 6,485 |  
|Intersegment revenues                                                |  |           | 553   |       |  |             | 31    |          |  |               | 639 |                |  |              |     |   |  |                | 151   |       |  |  | (1,374 | ) |  |  |      |  
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|                                                                     |  |           | 4,978 |       |  |             | 1,099 |          |  |               | 968 |                |  |              | 590 |   |  |                | 224   |       |  |  | (1,374 | ) |  |  | 6,485 |  
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Operating expenses1                                                  |  |           | 5,003 |       |  |             | 1,027 |          |  |               | 927 |                |  |              | 592 |   |  |                | 443   |       |  |  | (1,374 | ) |  |  | 6,618 |  
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Operating income (loss)                                              |  |           | (25   | )     |  |             | 72    |          |  |               | 41  |                |  |              | (2  | ) |  |                | (219  | )     |  |  |       |   |  |  | (133  | )
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Interest revenue                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | 46    |  
|Results of holdings                                                  |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | 2     |  
|Other                                                                |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | (186  | )
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Pretax income (loss)                                                 |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | (271  | )
|Taxes                                                                |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | 85    |  
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|After tax income (loss) before
extraordinary items                   |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | (186  | )
|Extraordinary items after tax                                        |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | (230  | )
|Share of third parties                                               |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |      |  
|                                                                     |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  |       |  
|Net income (loss)                                                    |  |           |       |       |  |             |       |          |  |               |     |                |  |              |     |   |  |                |       |       |  |  |        |   |  |  | (416  | )
|Total assets                                                         |  |           | 4,474 |       |  |             | 254   |          |  |               | 666 |                |  |              | 751 |   |  |                | 2,020 |       |  |  |        |   |  |  | 8,165 |  
|Total liabilities                                                    |  |           | 4,308 |       |  |             | 168   |          |  |               | 632 |                |  |              | 614 |   |  |                | 710   |       |  |  |        |   |  |  | 6,432 |  
|Commitments for tangible fixed assets
on order or under
construction |  |           | 705   |       |  |             | 225   |          |  |               | 11  |                |  |              | 120 |   |  |                | 26    |       |  |  |        |   |  |  | 1,087 |  
|Capital expenditure                                                  |  |           | 554   |       |  |             | 222   |          |  |               | 19  |                |  |              | 116 |   |  |                | 28    |       |  |  |        |   |  |  | 939   |  
|Depreciation 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



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES

2001/2002

|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|-------------------------------------------------------------------- |  | --------- | ---- | ----- |  | ----------- | ---- | -------- |  | ------------- | --- | ------------- |  | ------------ | --- | - |  | -------------- | ---- | ----- |  |  | ----- | - |  |  | ---- | -
|                                                                     |  |           |      |       |  |             |      |          |  | Engineering & |     | Charter/      |  |              |     |   |  | Elimination of |      | Total
|                                                                     |  | Passenger |      | Cargo |  | Maintenance |      | Low Cost |  | All other     |     | intersegments |  | consolidated
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |             
|Operating revenues                                                   |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|Operating revenues from external customers                           |  |           | 4485 |       |  |             | 1067 |          |  |               | 288 |               |  |              | 565 |   |  |                | 127  |       |  |  |       |   |  |  | 6532 |  
|Intersegment revenues                                                |  |           | 567  |       |  |             |      |          |  |               | 675 |               |  |              |     |   |  |                | 146  |       |  |  | (1388 | ) |  |  |     |  
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|                                                                     |  |           | 5052 |       |  |             | 1067 |          |  |               | 963 |               |  |              | 565 |   |  |                | 273  |       |  |  | (1388 | ) |  |  | 6532 |  
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|Operating expenses                                                   |  |           | 5193 |       |  |             | 1020 |          |  |               | 912 |               |  |              | 574 |   |  |                | 315  |       |  |  | (1388 | ) |  |  | 6626 |  
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|Operating income (loss)                                              |  |           | (141 | )     |  |             | 47   |          |  |               | 51  |               |  |              | (9  | ) |  |                | (42  | )     |  |  |      |   |  |  | (94  | )
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|Interest revenue                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | 58   |  
|Results of holdings                                                  |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | (6   | )
|Other                                                                |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | (182 | )
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|Pretax income (loss)                                                 |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | (224 | )
|Taxes                                                                |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | 68   |  
|                                                                     |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |      |  
|After tax income (loss) before
extraordinary items                   |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | (156 | )
|Extraordinary items after tax                                        |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  |     |  
|Net income (loss)                                                    |  |           |      |       |  |             |      |          |  |               |     |               |  |              |     |   |  |                |      |       |  |  |       |   |  |  | (156 | )
|Total assets                                                         |  |           | 4908 |       |  |             | 298  |          |  |               | 641 |               |  |              | 576 |   |  |                | 2520 |       |  |  |       |   |  |  | 8943 |  
|Total liabilities                                                    |  |           | 4866 |       |  |             | 206  |          |  |               | 590 |               |  |              | 413 |   |  |                | 611  |       |  |  |       |   |  |  | 6686 |  
|Commitments for tangible fixed assets
on order or under construction |  |           | 11   |       |  |             | 423  |          |  |               | 1   |               |  |              | 217 |   |  |                | 25   |       |  |  |       |   |  |  | 677  |  
|Capital expenditure                                                  |  |           | 192  |       |  |             | 3    |          |  |               | 3   |               |  |              | 2   |   |  |                | 35   |       |  |  |       |   |  |  | 235  |  
|Depreciation and amortization                                        |  |           | 369  |       |  |             | 27   |          |  |               | 31  |               |  |              | 29  |   |  |                | 31   |       |  |  |       |   |  |  | 487  |  

2000/2001

|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|-------------------------------------------------------------------- |  | ---------- | ---- | ----- |  | ----------- | ---- | ------------- |  | ------------ | --- | ----------- |  | ------------ | ---- | ------------ |  | --------------- | --- | -------- |  |  | --- |  |  |  | ----- | -
|                                                                     |  | Passenger  |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     | Cash and |  |  |     |  |  |  |       |  
|                                                                     |  | incl. KLM  |      |       |  |             |      | Engineering & |  | Consolidated |     |             |  |              |      | marketable   |  | Eliminations of |     | Total   
|                                                                     |  | cityhopper |      | Cargo |  | Maintenance |      | holdings      |  | All other1   |     | securities2 |  | intersegment |      | consolidated
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |             
|Operating revenues                                                   |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Operating revenues from
external customers                           |  |            | 4545 |       |  |             | 1178 |               |  |              | 273 |             |  |              | 964  |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Intersegment revenues                                                |  |            | 540  |       |  |             |      |               |  |              | 536 |             |  |              | 350  |              |  |                 |     |          |  |  |     |  |  |  | (1426 | )
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|                                                                     |  |            | 5085 |       |  |             | 1178 |               |  |              | 809 |             |  |              | 1314 |              |  |                 |     |          |  |  |     |  |  |  | (1426 | )
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Operating expenses                                                   |  |            | 5117 |       |  |             | 1047 |               |  |              | 755 |             |  |              | 1271 |              |  |                 | (81 | )        |  |  |     |  |  |  | (1426 | )
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Operating income                                                     |  |            | (32  | )     |  |             | 131  |               |  |              | 54  |             |  |              | 43   |              |  |                 | 81  |          |  |  |     |  |  |  |       |  
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Interest revenue                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Results of holdings                                                  |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Other                                                                |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Pretax income                                                        |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Taxes                                                                |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|After tax income                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Share of third parties                                               |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|                                                                     |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Net income                                                           |  |            |      |       |  |             |      |               |  |              |     |             |  |              |      |              |  |                 |     |          |  |  |     |  |  |  |       |  
|Total assets                                                         |  |            | 3644 |       |  |             | 278  |               |  |              | 680 |             |  |              | 2212 |              |  |                 | 931 |          |  |  | 845 |  |  |  |       |  
|Commitments for tangible fixed assets
on order or under construction |  |            | 118  |       |  |             | 0    |               |  |              | 1   |             |  |              | 521  |              |  |                 | 8   |          |  |  |     |  |  |  |       |  
|Capital expenditure                                                  |  |            | 337  |       |  |             | 8    |               |  |              | 15  |             |  |              | 237  |              |  |                 | 13  |          |  |  |     |  |  |  |       |  
|Depreciation and amortization                                        |  |            | 240  |       |  |             | 15   |               |  |              | 28  |             |  |              | 115  |              |  |                 | 31  |          |  |  |     |  |  |  |       |  

---

|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

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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, 2001
|                           |  |                |       |                |  |               
|                           |  |                |       |                |  | Tangible/      |       |           |  |               |     |              |  |           |       | Tangible/     |  |              |       |  |  |  |     |  |  | Tangible/ |       |  |  | 
|                           |  | Operating      |       | Intangible     |  | Capital        |       | Operating |  | Intangible    |     | Capital      |  | Operating |       | Intangible    |  | Capital     
|                           |  | revenue        |       | fixed
assets1  |  | expenditure1   |       | revenue   |  | fixed assets1 |     | expenditure1 |  | revenue   |       | fixed assets1 |  | expenditure1
|                           |  |                |       |                |  |                |       |           |  |               |     |              |  |           |       |               |  |             
|Europe                     |  |                | 2,496 |                |  |                | 1,450 |           |  |               | 138 |              |  |           | 2,427 |               |  |              | 1,980 |  |  |  | 124 |  |  |           | 2,602 |  |  |  | 2,414 |  |  |  | 332 | 
|North Atlantic             |  |                | 1,032 |                |  |                |       |           |  |               |     |              |  |           | 1,118 |               |  |              |       |  |  |  |     |  |  |           | 1,338 |  |  |  |       |  |  |  |     | 
|Asia Pacific               |  |                | 1,200 |                |  |                |       |           |  |               |     |              |  |           | 1,318 |               |  |              |       |  |  |  |     |  |  |           | 1,350 |  |  |  |       |  |  |  |     | 
|Central and South Atlantic |  |                | 535   |                |  |                |       |           |  |               |     |              |  |           | 572   |               |  |              |       |  |  |  |     |  |  |           | 508   |  |  |  |       |  |  |  |     | 
|Middle East/South Asia     |  |                | 413   |                |  |                |       |           |  |               |     |              |  |           | 335   |               |  |              |       |  |  |  |     |  |  |           | 460   |  |  |  |       |  |  |  |     | 
|Africa                     |  |                | 542   |                |  |                |       |           |  |               |     |              |  |           | 494   |               |  |              |       |  |  |  |     |  |  |           | 442   |  |  |  |       |  |  |  |     | 
|All Other                  |  |                | 267   |                |  |                | 3,598 |           |  |               | 801 |              |  |           | 268   |               |  |              | 3,180 |  |  |  | 111 |  |  |           | 260   |  |  |  | 2,887 |  |  |  | 278 | 
|                           |  |                |       |                |  |                |       |           |  |               |     |              |  |           |       |               |  |              |       |  |  |  |     |  |  |           |       |  |  |  |       |  |  |  |     | 
|Total 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
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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.

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 pensionfunds. 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.

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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)

The following tables summarise the effects of U.S. GAAP differences on the
Companys net income, stockholders equity, intangible fixed assets, prepaid
expenses, deferred tax liabilities, long-term debt, financial fixed assets and
provisions (in millions, except per share data):
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 |        | 2001                         
|                                               |  |                                                  |      |      |        |                              
|Net 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    |   |     |  | 77     |  
|                                               |  |                                                  |      |      |        |                               |      |   |        |   |     |  |        |   |  | 
|Net income in conformity with US GAAP          |  |                                                  | (267 | )    |        |                               | (2   | ) |        |   | 154 | 
|                                               |  |                                                  |      |      |        |                              
|Net
income per common share1                   |  |                                                  |      |      |        |                               |      |   |        |   |     | 
|                                               |  | Basic                                            |      |      | (5.97  | )                             |      |   | (0.08  | ) |     |  | 3.26   |  
|                                               |  | Diluted                                          |      |      | (5.97  | )                             |      |   | (0.08  | ) |     |  | 3.26   |  
|                                               |  |                                                  |      |      |        |                               |      |   |        |   |     |  |        |   |  | 
|Average number of common shares outstanding2   |  |                                                  |      |      |        |                               |      |   |        |   |     | 
|                                               |  | (in thousands of shares)                         |      |      |        |                               |      |   |        |   |     |  |        |  
|                                               |  | Basic                                            |      |      | 45,071 |                               |      |   | 46,810 |   |     |  | 46,810 |  
|                                               |  | Diluted                                          |      |      | 45,071 |                               |      |   | 46,810 |   |     |  | 46,810 |  

|                                                         |  |                          |       |                |       |   |       |  |       |   |  | 
|-------------------------------------------------------- |  | ------------------------ | ----- | -------------- | ----- | - | ----- |  | ----- | - |  | 
|Stockholders equity                                     |  | March 31, 2003           |       | March 31, 2002
|                                                         |  |                          |       |               
|Stockholders 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 |   |       |  | 1,228 |  
|                                                         |  |                          |       |                |       |   |       |  |       |   |  | 
|Stockholders equity in conformity with US GAAP          |  |                          | 2,827 |                |       |   | 3,220 | 

The extraordinary losses recorded under Netherlands GAAP would not qualify as
such under U.S. GAAP. These losses would be classified as ordinary under U.S.
GAAP.



---

|1 |  | taking account of other beneficiaries in results and equity
|- |  | -----------------------------------------------------------
|2 |  | taking repurchased shares into account                     

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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, 2002
|                                                              |  |                                                                            |       |               
|Intangible fixed assets in conformity with Netherlands GAAP   |  |                                                                            | 66    |                |       |   | 56    |  
|(1)                                                           |  | Goodwill                                                                   |       |                | 4     |   |       |   | 5     |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 
|Intangible fixed assets in conformity with US GAAP            |  |                                                                            | 70    |                |       |   | 61    |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 
|                                                             
|Financial fixed assets                                        |  | March 31, 2003                                                             |       | March 31, 2002
|                                                              |  |                                                                            |       |               
|Financial fixed assets in conformity with Netherlands GAAP    |  |                                                                            | 1,289 |                |       |   | 1,264 |  
|Reclassification of deferred tax position                     |  |                                                                            | (128  | )              |       |   | 100   |  
|(3)                                                           |  | In-substance defeasance of lease obligations                               |       |                | 317   |   |       |   | 382   |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 
|Financial fixed assets in conformity with US GAAP             |  |                                                                            | 1,478 |                |       |   | 1,746 |  
|                                                             
|Deferred taxes                                                |  | March 31, 2003                                                             |       | March 31, 2002
|                                                              |  |                                                                            |       |               
|Net 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, 2002
|                                                              |  |                                                                            |       |               
|Prepaid expenses in conformity with Netherlands GAAP          |  |                                                                            | 213   |                |       |   | 267   |  
|(2)                                                           |  | Pension costs                                                              |       |                | 1,973 |   |       |   | 1,876 |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 
|Prepaid expenses in conformity with US GAAP                   |  |                                                                            | 2,186 |                |       |   | 2,143 |  
|                                                             
|Current liabilities                                           |  | March 31, 2003                                                             |       | March 31, 2002
|                                                              |  |                                                                            |       |               
|Current 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, 2002
|                                                              |  |                                                                            |       |               
|Other long-term debt in conformity with Netherlands GAAP      |  |                                                                            | 3,427 |                |       |   | 3,826 |  
|(3)                                                           |  | In-substance defeasance of lease obligations                               |       |                | 317   |   |       |   | 382   |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 
|Other long-term debt in conformity with US GAAP               |  |                                                                            | 3,744 |                |       |   | 4,208 |  
|                                                              |  |                                                                            |       |                |       |   |       |   |       |   |  | 

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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, 2002
|                                               |  |                            |     |               
|Provisions 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       |  |  | 285   | 
|2004/2005       |  |  | 152   | 
|2005/2006       |  |  | 399   | 
|2006/2007       |  |  | 493   | 
|2007/2008       |  |  | 700   | 
|after 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%.

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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, 2002
|                            |                                |  |                |      |               
|                            |                                |  | Carrying       |      | Estimated      |  | Carrying |      | Estimated 
|                            |                                |  | amount         |      | fair value     |  | amount   |      | fair value
|                            |                                |  |                |      |                |  |          |      |           
|Assets                      |                                |  |                |      |                |  |          |      |            |  |       |      |   |  |       |     
|Financial 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  |   |  |       | 217  |  
|Marketable securities       |                                |  |               |      |                |  |         |      |            |  | 2     |      |   |  | 2     |     
|Cash                        |                                |  | 608            |      |                |  | 608      |      |            |  | 1,027 |      |   |  | 1,027 |     
|                            |                                |  |                |      |                |  |          |      |            |  |       |      |   |  |       |     
|Liabilities                 |                                |  |                |      |                |  |          |      |            |  |       |      |   |  |       |     
|Perpetual debt              |                                |  | 544            |      |                |  | 499      |      |            |  | 591   |      |   |  | 471   |     
|Financial 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  |      | Range    |  |         |             | 
|                             |  | variable |      | of fixed |  | Average
|                             |  | rate     |      | rates    |  | rate   
|                             |  |          |      |          |  |        
|2002/2003                    |  |          |      |          |  |         |             |  |  |  |      | 
|Subordinated perpetual loans |  |          |     |          |  |         | 5.25 - 5.75 |  |  |  | 5.44 | 
|Financial lease commitments  |  |          | 3.66 |          |  |         | 4.4 - 11.3  |  |  |  | 7.04 | 
|Other loans                  |  |          | 1.40 |          |  |         | 1.2 - 6.6   |  |  |  | 4.40 | 
|2001/2002                    |  |          |      |          |  |         |             |  |  |  |      | 
|Subordinated perpetual loans |  |          |     |          |  |         | 5.25 - 5.75 |  |  |  | 5.43 | 
|Financial lease commitments  |  |          | 4.13 |          |  |         | 4.5 - 11.4  |  |  |  | 6.94 | 
|Other loans                  |  |          | 2.55 |          |  |         | 1.15 - 9.25 |  |  |  | 5.55 | 

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 |  | 2001
|                |  |                               |      |      |  |     
|The Netherlands |  |                               | (204 | )    |  |      | (195 | ) |  |  | 182 |  
|Foreign         |  |                               | (67  | )    |  |      | (29  | ) |  |  | (32 | )
|                |  |                               |      |      |  |      |      |   |  |  |     |  
|                |  |                               | (271 | )    |  |      | (224 | ) |  |  | 150 |  
|                |  |                               |      |      |  |      |      |   |  |  |     |  

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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 |  | 2001
|                |                |  |                               |     |      |  |     
|The Netherlands |                |  |                               |     |      |  |      |     |   |  |    |   
|                | Current taxes  |  |                               | (12 | )    |  |      | (17 | ) |  |    |   | 
|                | Deferred taxes |  |                               | (63 | )    |  |      | (54 | ) |  |    | 74 | 
|Foreign         |                |  |                               |     |      |  |      |     |   |  |    |   
|                | Current taxes  |  |                               | (10 | )    |  |      |    |   |  |    |   | 
|                | Deferred taxes |  |                               |    |      |  |      | 3   |   |  |    |   | 
|                |                |  |                               |     |      |  |      |     |   |  |    |    | 
|                |                |  | (85                           | )   |      |  | (68  | )   |   |  | 74 |   
|                |                |  |                               |     |      |  |      |     |   |  |    |    | 

In addition a EUR 123 million income tax benefit was recorded in 2002/2003 as
extraordinary under Netherlands GAAP. It is noted that the extraordinary losses
would not qualify as extraordinary under US GAAP. Furthermore, a EUR 20 million
deferred tax benefit 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 |   |  |  | 35.0 | 
|Tax effect of exempt income and non-deductible expenses           |  |                               | (2.5 | )    |  |      | (5.0 | ) |  |  | 14.0 | 
|                                                                  |  |                               |      |      |  |      |      |   |  |  |      | 
|Effective tax (benefit) rates                                     |  |                               | 32.0 |      |  |      | 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.

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 |  | 2001
|                          |                                |  |                               |     |      |  |     
|Net Periodic Pension Cost |                                |  |                               |     |      |  |      |     |   |  |      |    
|Net service cost          |                                |  | 245                           |     |      |  | 236  |     |   |  | 201  |    
|Interest cost             |                                |  | 353                           |     |      |  | 330  |     |   |  | 297  |    
|Expected return           |                                |  | (545                          | )   |      |  | (518 | )   |   |  | (526 | )  
|Amortization of           |                                |  |                               |     |      |  |      |     |   |  |      |    
|                          | Transition (asset/ obligation) |  |                               | (49 | )    |  |      | (48 | ) |  |      | (48 | )
|                          | Prior service cost             |  |                               | 22  |      |  |      | 22  |   |  |      | 15  |  
|                          | Net actuarial gains            |  |                               | 25  |      |  |      | (18 | ) |  |      | (60 | )
|                          |                                |  |                               |     |      |  |      |     |   |  |      |    
|Net periodic pension cost |                                |  | 51                            |     |      |  | 4    |     |   |  | (121 | )  
|                          |                                |  |                               |     |      |  |      |     |   |  |      |    

|                                     |  |             |       |             |  |  |       |  
|------------------------------------ |  | ----------- | ----- | ----------- |  |  | ----- | -
|                                     |  | March, 2003 |       | March, 2002
|                                     |  |             |       |            
|Change in benefit obligation         |  |             |       |             |  |  |       |  
|Benefit obligation at beginning year |  |             | 6,252 |             |  |  | 5,888 |  
|Service cost                         |  |             | 245   |             |  |  | 236   |  
|Interest cost                        |  |             | 353   |             |  |  | 330   |  
|Plan 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 |  
|                                     |  |             |       |             |  |  |       |  

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KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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

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

|                                                     |  |             |       |             |  |  |       |  
|---------------------------------------------------- |  | ----------- | ----- | ----------- |  |  | ----- | -
|                                                     |  | March, 2003 |       | March, 2002
|                                                     |  |             |       |            
|Funded status                                        |  |             | 684   |             |  |  | 1,534 |  
|Unrecognised net losses                              |  |             | 1,328 |             |  |  | 357   |  
|Unrecognised prior service cost                      |  |             | 137   |             |  |  | 159   |  
|Unrecognised net assets at transition                |  |             | (125  | )           |  |  | (174  | )
|                                                     |  |             |       |             |  |  |       |  
|Net amount recognized                                |  |             | 2,024 |             |  |  | 1,876 |  
|                                                     |  |             |       |             |  |  |       |  
|Amounts recognized in the balance sheet consists of: |  |             |       |             |  |  |       |  
|Prepaid pension costs                                |  |             | 1,973 |             |  |  | 1,876 |  
|Accumulated 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, 2002
|                      |  |             |     |            
|Assumptions           |  |             |     |             |  |  |     |  
|Discount 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 |  | 2001
|                          |                        |  |                               |   |      |  |     
|Net Periodic Benefit Cost |                        |  |                               |   |      |  |      |   |  |  |    |  
|Net service cost          |                        |  | 3                             |   |      |  | 2    |   |  |  | 2  |  
|Interest cost             |                        |  | 6                             |   |      |  | 7    |   |  |  | 6  |  
|Expected return           |                        |  |                              |   |      |  |     |   |  |  |   |  
|Amortization of           |                        |  |                               |   |      |  |      |   |  |  |    |  
|                          | Transition amount      |  |                               | 1 |      |  |      | 2 |  |  |    | 2 | 
|                          | Actuarial gains/losses |  |                               | 2 |      |  |      | 1 |  |  |    |   | 
|                          |                        |  |                               |   |      |  |      |   |  |  |    |  
|Net periodic benefit cost |                        |  | 12                            |   |      |  | 12   |   |  |  | 10 |  
|                          |                        |  |                               |   |      |  |      |   |  |  |    |  

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KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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

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

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

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

|                      |  |             |     |             |  |  |     |  
|--------------------- |  | ----------- | --- | ----------- |  |  | --- | -
|                      |  | March, 2003 |     | March, 2002
|                      |  |             |     |            
|Assumptions           |  |             |     |             |  |  |     |  
|Discount 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.

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KLM ROYAL DUTCH AIRLINES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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       |  |  | 62 | 
|2004/2005       |  |  | 2  | 
|2005/2006       |  |  | 17 | 
|2006/2007       |  |  | 0  | 
|2007/2008       |  |  | 2  | 
|after 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 |  | 2001
|                                      |  |                               |       |      |  |     
|Net income in conformity with US GAAP |  |                               | (267  | )    |  |      | (2    | ) |  |  | 154  | 
|Add back: Amortization of goodwill    |  |                               | 0     |      |  |      | 3     |   |  |  | 3    | 
|                                      |  |                               |       |      |  |      |       |   |  |  |      | 
|Pro forma net income                  |  |                               | (267  | )    |  |      | 1     |   |  |  | 157  | 
|                                      |  |                               |       |      |  |      |       |   |  |  |      | 
|Basic and diluted earnings per share  |  |                               | (5.97 | )    |  |      | (0.08 | ) |  |  | 3.26 | 
|Add back: Amortization of goodwill    |  |                               | 0.00  |      |  |      | 0.06  |   |  |  | 0.06 | 
|                                      |  |                               |       |      |  |      |       |   |  |  |      | 
|Pro forma earnings per share          |  |                               | (5.97 | )    |  |      | (0.02 | ) |  |  | 3.32 | 
|                                      |  |                               |       |      |  |      |       |   |  |  |      | 

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 payments |   |  |  | 
|          |  | Software |    | on software |  | Total           
|          |  |          |    |             |  |                 
|2003/2004 |  |          | 12 |             |  |                  | 2 |  |  |  | 14 | 
|2004/2005 |  |          | 11 |             |  |                  | 2 |  |  |  | 13 | 
|2005/2006 |  |          | 6  |             |  |                  | 2 |  |  |  | 8  | 
|2006/2007 |  |          | 5  |             |  |                  |  |  |  |  | 5  | 
|2007/2008 |  |          | 5  |             |  |                  |  |  |  |  | 5  | 
|          |  |          |    |             |  |                  |   |  |  |  |    | 
|          |  |          | 39 |             |  |                  | 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)

|                                              |  |             |     |              |  |           |     |               |  |  |     |             |  |       |      |  
|--------------------------------------------- |  | ----------- | --- | ------------ |  | --------- | --- | ------------- |  |  | --- | ----------- |  | ----- | ---- | -
|                                              |  |             |     |              |  |           |     |               |  |  |     |             |  | Total
|                                              |  | Foreign     |     |              |  |           |     |               |  |  |     | accumulated
|                                              |  | currency    |     | Unrealized   |  | Minimum   |     | other com-   
|                                              |  | translation |     | gains/losses |  | pension   |     | prehensive   
|                                              |  | adjustments |     | derivatives  |  | liability |     | income (loss)
|                                              |  |             |     |              |  |           |     |              
|Balance sheet at March 31, 2000               |  |             | (21 | )            |  |           |    |               |  |  |    |             |  |       | (21  | )
|Current-period change                         |  |             | 5   |              |  |           |    |               |  |  |    |             |  |       | 5    |  
|                                              |  |             |     |              |  |           |     |               |  |  |     |             |  |       |      |  
|Balance sheet at March 31, 2001               |  |             | (16 | )            |  |           |    |               |  |  |    |             |  |       | (16  | )
|Impact of first time
application SFAS 133/138 |  |             |     |              |  |           | (23 | )             |  |  |     |             |  |       | (23  | )
|Current-period change                         |  |             | 30  |              |  |           | 23  |               |  |  |    |             |  |       | 53   |  
|                                              |  |             |     |              |  |           |     |               |  |  |     |             |  |       |      |  
|Balance sheet at March 31, 2002               |  |             | 14  |              |  |           |    |               |  |  |    |             |  |       | 14   |  
|Current-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 2003
|                                         
|In thousands of euros                     |  | Capital paid-in and called |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |           
|                                          |  |                            |   |            |  |              |        | Accumulated  |  |         |        |            |  |          |        |         
|                                          |  |                            |   |            |  | A-cumulative |        | C-cumulative |  |         |        |            |  |          |        |          |  | other com- |         |  |  |  |          | Total stock-
|                                          |  | Priority                   |   | preference |  | preference   |        | Common       |  | Paid-in |        | prehensive |  | Other    |        | holders'
|                                          |  | shares                     |   | shares     |  | shares       |        | shares       |  | surplus |        | income     |  | reserves |        | equity  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |         
|Balance sheet at March 31, 2000           |  |                            | 3 |            |  |              | 17,625 |              |  |         | 14,100 |            |  |          | 93,619 |          |  |            | 473,736 |  |  |  | (21,377  | )            |  |  | 2,504,542 |   |  |  | 3,082,248 |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Own shares                                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (10,973   | ) |  |  | (10,973   | )
|Allocation from net income 2000/2001      |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | 154,394   |   |  |  | 154,394   |  
|Distributed on priority/pref. shares      |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (1,760    | ) |  |  | (1,760    | )
|Other comprehensive income                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  | 4,938    |              |  |  |           |   |  |  | 4,938     |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Balance sheet at March 31, 2001           |  |                            | 3 |            |  |              | 17,625 |              |  |         | 14,100 |            |  |          | 93,619 |          |  |            | 473,736 |  |  |  | (16,439  | )            |  |  | 2,646,203 |   |  |  | 3,228,847 |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Distribution from net income 2000/2001    |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (29,846   | ) |  |  | (29,846   | )
|Own shares                                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (6,752    | ) |  |  | (6,752    | )
|Other comprehensive income                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  | 30,539   |              |  |  |           |   |  |  | 30,539    |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Balance sheet at March 31, 2002           |  |                            | 3 |            |  |              | 17,625 |              |  |         | 14,100 |            |  |          | 93,619 |          |  |            | 473,736 |  |  |  | 14,100   |              |  |  | 2,609,605 |   |  |  | 3,222,788 |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Distribution from net income 2001/2002    |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (11,122   | ) |  |  | (11,122   | )
|Own shares                                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (10,678   | ) |  |  | (10,678   | )
|Allocation from net income 2001/2002      |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  | (2,495    | ) |  |  | (2,495    | )
|Other comprehensive income                |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  | (104,067 | )            |  |  |           |   |  |  | (104,067  | )
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|                                          |  |                            | 3 |            |  |              | 17,625 |              |  |         | 14,100 |            |  |          | 93,619 |          |  |            | 473,736 |  |  |  | (89,967  | )            |  |  | 2,585,310 |   |  |  | 3,094,426 |  
|                                          |  |                            |   |            |  |              |        |              |  |         |        |            |  |          |        |          |  |            |         |  |  |  |          |              |  |  |           |   |  |  |           |  
|Net 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 earnings (loss) per share are
as follows (based on US GAAP figures):

|                                                                            |  |           |      |             |  |           |            |   |  |  |       |  
|--------------------------------------------------------------------------- |  | --------- | ---- | ----------- |  | --------- | ---------- | - |  |  | ----- | -
|                                                                            |  | Numerator |      | Denominator |  | Per share
|                                                                            |  | (income)  |      | (shares)    |  | amount   
|                                                                            |  |           |      |             |  |          
|Shares outstanding as of March 31, 2003                                     |  |           |      |             |  |           | 46,809,699 |   |  |  |       |  
|Effect 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 | )
|                                                                            |  |           |      |             |  |           |            |   |  |  |       |  

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)

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 35 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 |  | 2001
|                                                                                                   |  |                               |       |      |  |     
|Net income (loss) in accordance with US GAAP (as reported)                                         |  |                               | (267  | )    |  |      | (2    | ) |  |  | 154   |  
|Add 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    | ) |  |  | 152   |  
|                                                                                                   |  |                               |       |      |  |      |       |   |  |  |       |  
|Basic and diluted earnings per share in accordance with US GAAP:                                   |  |                               |       |      |  |      |       |   |  |  |       |  
|as reported                                                                                        |  |                               | (5.97 | )    |  |      | (0.08 | ) |  |  | 3.26  |  
|Add 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                                                                       |  |                               | (5.99 | )    |  |      | (0.13 | ) |  |  | 3.22  |  
|                                                                                                   |  |                               |       |      |  |      |       |   |  |  |       |  

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 |  | 2001
|                                                                       |  |                               |       |      |  |     
|Risk-free interest rate                                                |  |                               | 3.3   |      |  |      | 4.8   |  |  |  | 5.6  | 
|Expected dividend yield                                                |  |                               | 1.5   |      |  |      | 1.4   |  |  |  | 3.2  | 
|Expected option life                                                   |  |                               | 5.0   |      |  |      | 5.0   |  |  |  | 5.0  | 
|Expected stock price volatility                                        |  |                               | 53.4  |      |  |      | 38.4  |  |  |  | 57.7 | 
|Weighted average fair value of options granted
during the year in EUR1 |  |                               | 2.17A |      |  |      | 2.66A |  |  |  | 5.24 | 
|                                                                       |  |                               | 2.57B |      |  |      | 3.59B |  |  |  |      | 



---

| |  | 1 As of fiscal year 2001/2002 Option A and Option B differs in weighted average fair value (see notes to share
option plan, note 35 F-42)
| |  | -----------------------------------------------------------------------------------------------------------------------------------------

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

F-38



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##### Table of Contents



KLM ROYAL DUTCH AIRLINES




COMPANY BALANCE SHEET
In millions of euros

Before appropriation of results

|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       |  | 
|--------------------------------------- | --------------------------- |  | ----- | -- | -------------- |  | --------------- | ----- | - |  | ----- | - |  |  | ----- | ----- | - |  | ----- |  | 
|                                        |                             |  | Note1 |    | March 31, 2003 |  | March 31, 20022
|                                        |                             |  |       |    |                |  |                
|Fixed assets                            |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        | Intangible fixed assets     |  |       |    |                |  |                 | 60    |   |  |       |   |  |  |       | 54    |   |  |       |  | 
|                                        | Tangible fixed assets       |  |       | 29 |                |  |                 | 3,589 |   |  |       |   |  |  |       | 3,398 |   |  |       |  | 
|                                        | Financial fixed assets      |  |       | 30 |                |  |                 | 2,141 |   |  |       |   |  |  |       | 2,379 |   |  |       |  | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        |                             |  |       |    |                |  |                 |       |   |  | 5,790 |   |  |  |       |       |   |  | 5,831 | 
|Current assets                          |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        | Operating supplies          |  |       |    |                |  |                 | 196   |   |  |       |   |  |  |       | 230   |   |  |       |  | 
|                                        | Accounts receivable         |  |       | 31 |                |  |                 | 1,039 |   |  |       |   |  |  |       | 1,208 |   |  |       |  | 
|                                        | Marketable securities       |  |       |    |                |  |                 |      |   |  |       |   |  |  |       | 2     |   |  |       |  | 
|                                        | Cash                        |  |       |    |                |  |                 | 559   |   |  |       |   |  |  |       | 969   |   |  |       |  | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        |                             |  |       |    |                |  | 1,794           |       |   |  |       |   |  |  | 2,409 |       |   |  |       | 
|Current liabilities                     |                             |  |       |    |                |  | 2,191           |       |   |  |       |   |  |  | 2,216 |       |   |  |       | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|Current assets less current liabilities |                             |  |       |    |                |  |                 |       |   |  | (397  | ) |  |  |       |       |   |  | 193   | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|Assets less current liabilities         |                             |  |       |    |                |  |                 |       |   |  | 5,393 |   |  |  |       |       |   |  | 6,024 | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|Long-term debt                          |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        | Subordinated perpetual debt |  |       |    |                |  |                 | 544   |   |  |       |   |  |  |       | 591   |   |  |       |  | 
|                                        | Other long-term debt        |  |       | 32 |                |  |                 | 2,900 |   |  |       |   |  |  |       | 3,074 |   |  |       |  | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        |                             |  |       |    |                |  |                 |       |   |  | 3,444 |   |  |  |       |       |   |  | 3,665 | 
|Provisions                              |                             |  | 33    |    |                |  |                 |       |   |  | 261   |   |  |  |       |       |   |  | 166   | 
|Deferred credits                        |                             |  |       |    |                |  |                 |       |   |  | 212   |   |  |  |       |       |   |  | 201   | 
|Stockholders equity                    |                             |  | 34    |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        | Paid-in and called capital  |  |       |    |                |  |                 | 125   |   |  |       |   |  |  |       | 125   |   |  |       |  | 
|                                        | Paid-in surplus             |  |       |    |                |  |                 | 474   |   |  |       |   |  |  |       | 474   |   |  |       |  | 
|                                        | Other reserves              |  |       |    |                |  |                 | 1,293 |   |  |       |   |  |  |       | 1,549 |   |  |       |  | 
|                                        | Net loss                    |  |       |    |                |  |                 | (416  | ) |  |       |   |  |  |       | (156  | ) |  |       |  | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        |                             |  |       |    |                |  |                 |       |   |  | 1,476 |   |  |  |       |       |   |  | 1,992 | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 
|                                        |                             |  |       |    |                |  |                 |       |   |  | 5,393 |   |  |  |       |       |   |  | 6,024 | 
|                                        |                             |  |       |    |                |  |                 |       |   |  |       |   |  |  |       |       |   |  |       | 




COMPANY STATEMENT OF EARNINGS
In millions of euros

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



---

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

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##### Table of Contents






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



|29. |  | Tangible fixed assets
|--- |  | ---------------------

|                                                                         |  |                |       |                |  |  |       | 
|------------------------------------------------------------------------ |  | -------------- | ----- | -------------- |  |  | ----- | 
|                                                                         |  | March 31, 2003 |       | March 31, 2002
|                                                                         |  |                |       |               
|Aircraft, spare engines and spare parts                                  |  |                | 2,518 |                |  |  | 2,816 | 
|Other tangible fixed assets                                              |  |                | 483   |                |  |  | 517   | 
|                                                                         |  |                |       |                |  |  |       | 
|                                                                         |  |                | 3,001 |                |  |  | 3,333 | 
|Advance payments on tangible fixed assets
on order or under construction |  |                | 588   |                |  |  | 65    | 
|                                                                         |  |                |       |                |  |  |       | 
|                                                                         |  |                | 3,589 |                |  |  | 3,398 | 
|                                                                         |  |                |       |                |  |  |       | 

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

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NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)



|30. |  | Financial fixed assets
|--- |  | ----------------------

|                                       |  |                |       |                |  |  |       | 
|-------------------------------------- |  | -------------- | ----- | -------------- |  |  | ----- | 
|                                       |  | March 31, 2003 |       | March 31, 2002
|                                       |  |                |       |               
|Consolidated holdings                  |  |                | 574   |                |  |  | 639   | 
|Other holdings                         |  |                | 197   |                |  |  | 202   | 
|Receivables from consolidated holdings |  |                | 487   |                |  |  | 673   | 
|Receivables from other holdings        |  |                | 18    |                |  |  | 22    | 
|                                       |  |                |       |                |  |  |       | 
|                                       |  |                | 1,276 |                |  |  | 1,536 | 
|Other financial fixed assets           |  |                | 865   |                |  |  | 843   | 
|                                       |  |                |       |                |  |  |       | 
|                                       |  |                | 2,141 |                |  |  | 2,379 | 
|                                       |  |                |       |                |  |  |       | 

|                             |  |              |     |          |  |           |     |            |  |              |      |             |  |       |    |   |  |  |      |   |  |  |       |  
|---------------------------- |  | ------------ | --- | -------- |  | --------- | --- | ---------- |  | ------------ | ---- | ----------- |  | ----- | -- | - |  |  | ---- | - |  |  | ----- | -
|                             |  |              |     |          |  |           |     |            |  | Receivables  |      |             |  |       |    |   |  |  |      |   |  | 
|                             |  |              |     |          |  |           |     |            |  | from con-    |      | Receivables |  | Other |    |   |  | 
|                             |  | Consolidated |     | Other    |  | solidated |     | from other |  | financial    |      |             |  |      
|                             |  | holdings     |     | holdings |  | holdings  |     | holdings   |  | fixed assets |      | Total      
|                             |  |              |     |          |  |           |     |            |  |              |      |            
|Balance as of March 31, 2002 |  |              | 639 |          |  |           | 202 |            |  |              | 673  |             |  |       | 22 |   |  |  | 843  |   |  |  | 2,379 |  
|New/expansion                |  |              |    |          |  |           | 9   |            |  |              | 56   |             |  |       | 1  |   |  |  | 254  |   |  |  | 320   |  
|Sale/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    |  |              | (9  | )        |  |           | (8  | )          |  |              | (74  | )           |  |       | (3 | ) |  |  | (5   | ) |  |  | (99   | )
|and other                    |  |              |     |          |  |           |     |            |  |              |      |             |  |       |    |   |  |  |      |   |  |  |       |  
|                             |  |              |     |          |  |           |     |            |  |              |      |             |  |       |    |   |  |  |      |   |  |  |       |  
|Balance as of March 31, 2003 |  |              | 574 |          |  |           | 197 |            |  |              | 487  |             |  |       | 18 |   |  |  | 865  |   |  |  | 2,141 |  
|                             |  |              |     |          |  |           |     |            |  |              |      |             |  |       |    |   |  |  |      |   |  |  |       |  

Current assets



|31. |  | Accounts receivable
|--- |  | -------------------

|                                       |  |                |       |                |  |  |       | 
|-------------------------------------- |  | -------------- | ----- | -------------- |  |  | ----- | 
|                                       |  | March 31, 2003 |       | March 31, 2002
|                                       |  |                |       |               
|Debtors                                |  |                | 690   |                |  |  | 878   | 
|Receivables from consolidated holdings |  |                | 154   |                |  |  | 80    | 
|Receivables from other holdings        |  |                | 3     |                |  |  | 2     | 
|Value added tax                        |  |                | 33    |                |  |  | 16    | 
|Prepaid expenses                       |  |                | 159   |                |  |  | 232   | 
|                                       |  |                |       |                |  |  |       | 
|                                       |  |                | 1,039 |                |  |  | 1,208 | 
|                                       |  |                |       |                |  |  |       | 

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##### Table of Contents



NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

Long-term debt



|32. |  | Other long-term debt
|--- |  | --------------------

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



|33. |  | Provisions
|--- |  | ----------

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



|34. |  | 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.

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##### Table of Contents



NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

34.     Stockholdersequity  (Continued)

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

The paid-in surplus is fiscally exempt.

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NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

35. 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).
Individualy, the remuneration of the current and former Supervisory Board
members was as follows:

|                      |  |                  |         |              |  |       |        |       |  |             |         |                  |  |  |         |  |  |  |        |  |  |  |         | 
|--------------------- |  | ---------------- | ------- | ------------ |  | ----- | ------ | ----- |  | ----------- | ------- | ---------------- |  |  | ------- |  |  |  | ------ |  |  |  | ------- | 
|                      |  | 2002/2003        |         |              |  |       |        |       |  |             |         | 2001/2002        |  |  |         |  |  |  |        | 
|                      |  | As member of the |         |              |  |       |        |       |  |             |         | As member of the |  |  |         |  |  |  |        | 
|                      |  | Supervisory      |         | As member of |  |       |        |       |  | Supervisory |         | As member of     |  |  |         | 
|                      |  | Board            |         | Committees   |  | Total |        | Board |  | Committees  |         | Total           
|                      |  |                  |         |              |  |       |        |       |  |             |         |                 
|F.A. Maljers          |  |                  | 36,302  |              |  |       | 907    |       |  |             | 37,209  |                  |  |  | 35,394  |  |  |  |       |  |  |  | 35,394  | 
|A. Maas               |  |                  | 29,495  |              |  |       | 1,361  |       |  |             | 30,856  |                  |  |  | 28,758  |  |  |  | 1,361  |  |  |  | 30,119  | 
|M. Albrecht           |  |                  | 22,689  |              |  |       |       |       |  |             | 22,689  |                  |  |  | 22,121  |  |  |  |       |  |  |  | 22,121  | 
|L.A.A. van den Berghe |  |                  | 22,689  |              |  |       | 2,268  |       |  |             | 24,957  |                  |  |  | 8,886   |  |  |  |       |  |  |  | 8,886   | 
|D.G. Eustace          |  |                  | 22,689  |              |  |       | 6,352  |       |  |             | 29,041  |                  |  |  | 22,121  |  |  |  | 5,445  |  |  |  | 27,566  | 
|B. Geersing           |  |                  | 22,689  |              |  |       | 1,815  |       |  |             | 24,504  |                  |  |  | 22,121  |  |  |  | 1,361  |  |  |  | 23,482  | 
|J. Stekelenburg       |  |                  | 22,689  |              |  |       | 1,815  |       |  |             | 24,504  |                  |  |  | 22,121  |  |  |  | 2,722  |  |  |  | 24,843  | 
|K.J. Storm            |  |                  | 11,344  |              |  |       | 453    |       |  |             | 11,797  |                  |  |  |        |  |  |  |       |  |  |  |        | 
|G.L. Wilson           |  |                  |        |              |  |       |       |       |  |             |        |                  |  |  |        |  |  |  |       |  |  |  |        | 
|former                |  |                  |         |              |  |       |        |       |  |             |         |                  |  |  |         |  |  |  |        |  |  |  |         | 
|J.W. Oosterwijk       |  |                  |        |              |  |       |       |       |  |             |        |                  |  |  | 13,235  |  |  |  | 1,361  |  |  |  | 14,596  | 
|                      |  |                  |         |              |  |       |        |       |  |             |         |                  |  |  |         |  |  |  |        |  |  |  |         | 
|                      |  |                  | 190,586 |              |  |       | 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 renumeration of the Board of Managing Directors was as
follows:

|                  |  |              |           |          |  |          |         |          |  |           |  |  |         |  |           |               |       |  |  |  |           |  |           | 
|----------------- |  | ------------ | --------- | -------- |  | -------- | ------- | -------- |  | --------- |  |  | ------- |  | --------- | ------------- | ----- |  |  |  | --------- |  | --------- | 
|                  |  | 2002/2003    |           |          |  |          |         |          |  |           |  |  |         |  |           |               |       |  |  |  |           | 
|                  |  |              |           |          |  |          |         |          |  |           |  |  |         |  |           |               |       |  |  |  |           | 
|                  |  |              |           |          |  |          |         |          |  | Targets   |  |  |         |  |           | Upon standing | Total | 
|                  |  | Fixed salary |           | Variable |  | realized |         | Pension1 |  | down      |  |  |         | 
|                  |  |              |           |          |  |          |         |          |  |           |  |  |         | 
|L.M. van Wijk     |  |              | 628,193   |          |  |          | 317,802 |          |  | partially |  |  | 388,078 |  |           |               |      |  |  |  | 1,334,073 | 
|P.F. Hartman      |  |              | 514,321   |          |  |          | 271,289 |          |  | partially |  |  | 568,118 |  |           |               |      |  |  |  | 1,353,728 | 
|C. van Woudenberg |  |              | 447,733   |          |  |          | 227,335 |          |  | partially |  |  | 365,367 |  |           |               |      |  |  |  | 1,040,435 | 
|R.A. Ruijter      |  |              | 447,733   |          |  |          | 151,398 |          |  | partially |  |  | 287,194 |  |           |               |      |  |  |  | 886,325   | 
|                  |  |              |           |          |  |          |         |          |  |           |  |  |         |  |           |               |       |  |  |  |           | 
|                  |  |              | 2,037,980 |          |  |          | 967,824 |          |  |           |  |  |         |  | 1,608,757 |               |       |  |  |  |           |  | 4,614,561 | 

|                  |  |              |           |          |  |          |         |          |  |           |  |  |           |               |           |  |   |  |   |  |           |  |           | 
|----------------- |  | ------------ | --------- | -------- |  | -------- | ------- | -------- |  | --------- |  |  | --------- | ------------- | --------- |  | - |  | - |  | --------- |  | --------- | 
|                  |  | 2001/2002    |           |          |  |          |         |          |  |           |  |  |           |               |           |  |   |  |   |  |           | 
|                  |  |              |           |          |  |          |         | Targets  |  |           |  |  |           | Upon standing | Total     | 
|                  |  | Fixed salary |           | Variable |  | realized |         | Pension1 |  | down      |  |  |           |              
|                  |  |              |           |          |  |          |         |          |  |           |  |  |           |              
|L.M. van Wijk     |  |              | 560,725   |          |  |          | 294,960 |          |  | yes       |  |  | 1,477,702 |               |           |  |  |  |   |  | 2,333,387 | 
|P.F. Hartman      |  |              | 452,898   |          |  |          | 238,230 |          |  | yes       |  |  | 942,669   |               |           |  |  |  |   |  | 1,633,797 | 
|C. van Woudenberg |  |              | 401,134   |          |  |          | 189,910 |          |  | partially |  |  | 309,320   |               |           |  |  |  |   |  | 900,364   | 
|R.A. Ruijter      |  |              | 267,273   |          |  |          | 10,550  |          |  | partially |  |  | 148,396   |               |           |  |  |  |   |  | 426,219   | 
|                  |  |              |           |          |  |          |         |          |  |           |  |  |           |               |           |  |   |  |   |  |           | 
|                  |  |              | 1,682,030 |          |  |          | 733,650 |          |  |           |  |  |           |               | 2,878,087 |  |   |  |  |  |           |  | 5,293,767 | 

1 including past service commitments

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##### Table of Contents



NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

35. 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 |  | 2003            
|                  |  |                       |         |                |  |             |       |           |  |                 
|L.M. van Wijk     |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|1998              |  |                       | 25,500  |                |  |             | 36.52 |           |  | August 18, 2003  |  |                 |  |              |   |  | 25,500 |  
|1999              |  |                       | 25,500  |                |  |             | 30.26 |           |  | October 15, 2004 |  |                 |  |              |   |  | 25,500 |  
|2000              |  |                       | 25,000  |                |  |             | 37.70 |           |  | October 21, 2005 |  |                 |  |              |   |  | 25,000 |  
|2001              |  |                       | 25,000  | A              |  |             | 23.45 | A         |  | October 20, 2006 |  |                 |  |              |   |  | 25,000 | A
|2002              |  |                       | 25,000  | A              |  |             | 14.69 | A         |  | October 19, 2007 |  |                 |  |              |   |  | 25,000 | A
|                  |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|                  |  |                       | 126,000 |                |  |             |       |           |  |                  |  |                 |   |              |  |  |        |   | 126,000 | 
|P.F. Hartman      |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|1998              |  |                       | 25,500  |                |  |             | 36.52 |           |  | August 18, 2003  |  |                 |  |              |   |  | 25,500 |  
|1999              |  |                       | 25,500  |                |  |             | 30.26 |           |  | October 15, 2004 |  |                 |  |              |   |  | 25,500 |  
|2000              |  |                       | 25,000  |                |  |             | 37.70 |           |  | October 21, 2005 |  |                 |  |              |   |  | 25,000 |  
|2001              |  |                       | 25,000  | A              |  |             | 23.45 | A         |  | October 20, 2006 |  |                 |  |              |   |  | 25,000 | A
|2002              |  |                       | 25,000  | A              |  |             | 14.69 | A         |  | October 19, 2007 |  |                 |  |              |   |  | 25,000 | A
|                  |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|                  |  |                       | 126,000 |                |  |             |       |           |  |                  |  |                 |   |              |  |  |        |   | 126,000 | 
|C. van Woudenberg |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|1998              |  |                       | 25,500  |                |  |             | 36.52 |           |  | August 18, 2003  |  |                 |  |              |   |  | 25,500 |  
|1999              |  |                       | 25,500  |                |  |             | 30.26 |           |  | October 15, 2004 |  |                 |  |              |   |  | 25,500 |  
|2000              |  |                       | 25,000  |                |  |             | 37.70 |           |  | October 21, 2005 |  |                 |  |              |   |  | 25,000 |  
|2001              |  |                       | 25,000  | A              |  |             | 23.45 | A         |  | October 20, 2006 |  |                 |  |              |   |  | 25,000 | A
|2002              |  |                       | 25,000  | A              |  |             | 14.69 | A         |  | October 19, 2007 |  |                 |  |              |   |  | 25,000 | A
|                  |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|                  |  |                       | 126,000 |                |  |             |       |           |  |                  |  |                 |   |              |  |  |        |   | 126,000 | 
|R.A. Ruijter      |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|2001              |  |                       | 25,000  | A              |  |             | 23.45 | A         |  | October 20, 2006 |  |                 |  |              |   |  | 25,000 | A
|2002              |  |                       | 25,000  | A              |  |             | 14.69 | A         |  | October 19, 2007 |  |                 |  |              |   |  | 25,000 | A
|                  |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|                  |  |                       | 50,000  |                |  |             |       |           |  |                  |  |                 |   |              |  |  |        |   | 50,000  | 
|former            |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|R.J.N. Abrahamsen |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|1998              |  |                       | 25,500  |                |  |             | 36.52 |           |  | August 18, 2003  |  |                 |  |              |   |  | 25,500 |  
|1999              |  |                       | 25,500  |                |  |             | 30.26 |           |  | October 15, 2004 |  |                 |  |              |   |  | 25,500 |  
|2000              |  |                       | 25,000  |                |  |             | 37.70 |           |  | October 21, 2005 |  |                 |  |              |   |  | 25,000 |  
|                  |  |                       |         |                |  |             |       |           |  |                  |  |                 |   |              |   |  |        |   |         | 
|                  |  |                       | 76,000  |                |  |             |       |           |  |                  |  |                 |   |              |  |  |        |   | 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        |  | 2003     
|             |  |                      |           |                |  |             |       |           |  |                  |  |          
|1998         |  |                      | 326,400   |                |  |             | 36.52 |           |  | August 18, 2003  |  |           |  |                 |  |              | 3,570 |  |        |  | 322,830 |  
|1999         |  |                      | 358,530   |                |  |             | 30.26 |           |  | October 15, 2004 |  |           |  |                 |  |              | 3,570 |  |        |  | 354,960 |  
|2000         |  |                      | 332,700   |                |  |             | 37.70 |           |  | October 21, 2005 |  |           |  |                 |  |              | 3,500 |  |        |  | 329,200 |  
|2001         |  |                      | 203,500   | A              |  |             | 23.45 | A         |  | October 20, 2006 |  |           |  |                 |  |              | 1,000 |  |        |  | 202,500 | A
|2001         |  |                      | 104,500   | B              |  |             | 18.61 | B         |  | October 20, 2006 |  |           |  |                 |  |              | 5,000 |  |        |  | 99,500  | B
|2002         |  |                      | 200,500   | A              |  |             | 14.69 | A         |  | October 19, 2007 |  |           |  |                 |  |              |      |  |        |  | 200,500 | A
|2002         |  |                      | 124,000   | B              |  |             | 11.56 | B         |  | October 19, 2007 |  |           |  |                 |  |              | 2,500 |  |        |  | 121,500 | B
|             |  |                      |           |                |  |             |       |           |  |                  |  |           |   |                 |  |              |       |  |        |  |         |   |           | 
|             |  |                      | 1,650,130 |                |  |             |       |           |  |                  |  |           |   |                 |  |              |       |  | 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.

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NOTES TO THE COMPANY FINANCIAL STATEMENTS  (Continued)

35. 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 Shareholders.

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.

36. 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 of
|                |  | of aircraft        |     | buildings
|                |  |                    |     |          
|2003/2004       |  |                    | 191 |           |  |  | 31  | 
|2004/2005       |  |                    | 195 |           |  |  | 22  | 
|2005/2006       |  |                    | 180 |           |  |  | 20  | 
|2006/2007       |  |                    | 148 |           |  |  | 16  | 
|2007/2008       |  |                    | 111 |           |  |  | 13  | 
|after 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.

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##### Table of Contents






SCHEDULE VIII  VALUATION AND QUALIFYING ACCOUNTS

In millions of euros

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



---

|* |  | Accounts deemed to be uncollectable
|- |  | -----------------------------------

S-1