ANNUAL REPORT 2014 - Aer Lingus

1 ANNUAL REPORT 2014 . Contents Financial highlights 1. Chairman's introduction 3. Chief Executive Officer's review 6. Operating review and key performance highlights 8. 2014 Financial review 18. Quarterly trading review of 2014 27. Principal Risks and Uncertainties 29. Board of Directors 34. Executive Management team 37. Safety and Security Statement 38. Corporate Social Responsibility Statement 40. Director's REPORT 42. Director's Responsibilities Statement 45. Corporate governance Statement 47. REPORT of the Remuneration Committee on Director's Remuneration 57. Letter from the Chair of the Audit Committee 71. Independent Auditor's REPORT to the Members of Aer Lingus plc 76. Financial Statements 81. Shareholder Information 140. Operating and Financial Statistics 143. Financial Highlights For the year ended 31 December 2014 . Results 2014 2013 Change 1. Revenue m 1, 1, (2).

2 EBITDAR m (2). Operating profit before net exceptional items m Net exceptional items m ( ) ( ) n/m(3). Operating (loss)/ profit after net exceptional items (2) m ( ) ( ). Net finance expense m ( ) ( ) Share of profit/(loss) in joint venture m - n/m(3). Income tax credit/ (charge) m ( ) (Loss)/ profit for the year m ( ) ( ). Total equity m ( ). (Loss)/ profit per share cent ( ) ( ). (2) (5). Gross cash m Gross debt (2) m Net cash (2) m Key financial statistics Average fare revenue per seat Average fare revenue per passenger cent/. Passenger fare revenue per ASK ASK EBITDAR margin % ppts Operating margin % ppts (2). Return on equity (ROE) % ppts Key operating statistics (4). Passengers carried '000's 9,766 9,625 Revenue Passenger Kilometres (RPK) m 16,088 14,807 Available Seat Kilometres (ASK) m 20,373 18,898 Passenger load factor % ppts The trading results set out above and within certain tables in this document are presented in euro rounded to the nearest thousand.

3 Therefore discrepancies in the tables between totals and the sum of the amounts listed may occur due to such rounding. 1 Sign convention: favourable / (adverse). 2 These metrics are defined in the explanation on the use of non-IFRS measures later in this document 3 Not meaningful 4 Key operating statistics relate to mainline operations and exclude Aer Lingus Regional and contract flying activities 5 Gross cash includes restricted cash of million, of which million relates to the once-off pension solution placed in escrow as at 31 December 2014 and which will be released over time on the receipt of correctly executed waivers by current and former employees 1. Use of non-International Financial Reporting Standards ( IFRS ) measures In discussion of our full year financial results for 2014 , we refer to a number of non-IFRS financial measures at various points in this ANNUAL REPORT .

4 These non-IFRS measures are set out below along with an accompanying description and where appropriate, reconciliation to the relevant IFRS measure. These non-IFRS measures are used to assist an understanding of 2014 performance. Non-IFRS Basis of calculation Reason for use measure EBITDAR Pre-exceptional Earnings Before Interest, Tax, As EBITDAR is a pre-depreciation and lease rental measure, it Depreciation, Amortisation and Aircraft operating is widely used by airline sector analysts and other lease Rental commentators to compare performance of airlines that have differing fleet ownership models Operating Operating profit is defined as revenue less operating Operating profit is a commonly used financial measure which profit costs, before net exceptional items arising within these is not defined in IAS 1, Presentation of Financial captions. It therefore excludes finance income and Statements.

5 The Group uses operating profit as a key internal expense, the results of joint ventures and tax. These measure and this figure is also provided in the income items are excluded since they largely represent the statement because the Directors believe that presenting the impact of market conditions on the Group's investing financial result at this level provides users of the financial and financing activities, as opposed to the results statements with a better understanding of the Group's arising from the operation of the airline. Exceptional underlying trading performance items are also presented separately to assist in understanding the Group's underlying financial performance. Operating margin is defined as operating profit expressed as a percentage of revenue Free Cash generated from operating activities adjusted for Free cashflow is used by some airline sector analysts and other cashflow FX in deposits, less net capital expenditure (purchases commentators as a measure of the cash generated by a of fixed assets exclusive of finance lease debt raised business.)

6 It measures cash flow after capital expenditure to less proceeds from disposals) plus or minus net maintain operations but before discretionary spend such as interest received/paid dividends Gross cash Cash and cash equivalents, bank overdrafts, cash Gross cash is the measure used most commonly by deposits and formerly available for sale bonds held by management to indicate the level of financial resources the Group available to the Group Gross debt Total finance leases plus any other debt Gross debt is the measure used most commonly by management to indicate the level of indebtedness borne by the Group Net cash/ Total gross cash less total gross debt Net cash/ debt is a measure used by management to indicate debt the cash position after indebtedness of the Group Constant Current year passenger fare revenue generated in The Group generates approximately half of passenger bookings currency foreign currencies is retranslated at respective prior outside Ireland.

7 This results in more of our total passenger fare passenger year FX rates and compared to current year foreign revenue being receivable in currencies other than the euro, our fare revenue reporting currency. Movements in FX rates cause variances in currency derived passenger fare revenue at respective total passenger fare revenue outside of normal volume and fare current year FX rates yield. Constant currency calculation allows for a more informative comparison of passenger fare revenue on an overall year-on-year basis Return on Profit before taxation and net exceptional items Return on equity is a measure used by management to assess equity expressed as a percentage of the average opening and returns generated by the business for shareholders closing book value of equity EBITDAR - million 2014 2013. Operating profit before net exceptional items Add back: Depreciation & amortisation Aircraft operating lease costs EBITDAR Free cashflow - million 2014 2013.

8 Cash generated from operating activities (before FX on deposits) Net capital expenditure ( ) ( ). Net interest paid ( ) ( ). Free cashflow 2. Chairman's Introduction Dear fellow shareholders, I am pleased to REPORT that in terms of operating profitability, 2014 was Aer Lingus ' most successful year since the financial crisis. The inherent strength of our business model is evident in the increase in revenue, increase in operating profit (before net exceptional items) and percentage point increase in operating margin achieved year-on-year. Aer Lingus finished 2014 in very strong financial shape with net cash of million, up from our net cash balance at the end of 2013. In January 2015 International Consolidated Airlines Group ( IAG ) made a proposal to acquire 100% of the shares in the Company for a total price of per share (comprising in cash and a five cent dividend).

9 Commercial and strategic highlights During 2014 the following significant commercial and strategic objectives were realised: Route developments: Aer Lingus re-commenced its operations from Dublin to San Francisco and commenced operating from Dublin to Toronto. In 2015 we will increase the San Francisco operation to a daily service and will also commence operations to Washington These transatlantic operations have been made possible by our initiatives to increase connectivity at each end of the routes, and particularly due to the increased synchronization and marketing of our transatlantic and European operations. Our transatlantic passenger numbers have increased by 35% in the last two years. Aircraft order: We have confirmed our agreement with Airbus to take delivery of nine new A350-900 aircraft between 2018 and 2020. These aircraft will progressively replace our existing A330 fleet in addition to expanding our capacity.

10 At list prices this order is valued at approximately US$ billion. Heathrow terminal move: In July we moved from Terminal 1 to Terminal 2 at London Heathrow Airport. This move provides significant benefits to our customers and improves the overall Heathrow travel experience. Cost Optimisation and Revenue Excellence ( CORE ) programme: We concluded several commercial initiatives under our CORE. programme. In 2015, Aer Lingus will seek ANNUAL cost reductions totalling 40 million under CORE, an increase of 10 million compared to the original target announced in early 2014 . Resolution of pension funding issues By the end of 2014 , Aer Lingus Limited had agreed solutions with relevant parties to address the funding difficulties facing the Irish Airlines (General Employees) Superannuation Scheme (the IASS ), the pension scheme in which the majority of the Group's employees are members.