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CHAIRMAN'S AND CEO'S PRESENTATION TO ANNUAL GENERAL MEETING

Direct News Source

17-May-2012 Set out below are the texts of presentations to be given by the Chairman of the Board of Directors of Airlines PNG, Mr Simon Wild, and the Chief Executive Officer of the company, Mr Gary Toomey, to the Annual General Meeting of Shareholders of the Company to be held this morning in Port Moresby:

CHAIRMAN'S ADDRESS:

I am pleased to report to shareholders that board and management have delivered on the commitment made to you 12 months ago to continue with successive years of profitability.

In reflecting on our year we again take time to remember those people affected by the tragic events outside of Madang last 13 October. Twenty-eight lives were lost on that day while four others continue to recover from the accident. The airline continues to mourn with the country as we pray that those lost rest in peace with God.

Authorities continue to investigate the cause of the accident and the final report remains some way off. That said, in the immediate aftermath of the accident regulatory bodies around the world including those in Australia, Canada and PNG have already mandated aircraft systems changes required to be undertaken by Dash 8 operators. Airlines PNG plans to be the first local operator to have these changes completed throughout its fleet later in 2012.

Turning back to the airline's 2012 performance: our overall performance was inevitably affected by the tragic Madang incident. The airline endured at its own initiative a six week grounding of its Dash 8 fleet while allowing regulatory bodies complete access to its systems and aircraft. Only after approvals from the PNG regulator did the airline commence flying again. That had significant financial impact.

That the airline sustained this temporary grounding and still managed to return a profit for its shareholders demonstrates the strength of the airline's balance sheet and cash flows. It also indicates the airline was on course to achieve greater potential profits than it was in fact able to.

The Group is however pleased to deliver an improved full year financial result of K3.9m in line with previous guidance to the market. The continued improvement in performance validates the strategic decision taken by your Board to concentrate on:

- Increasing management expertise

- Devoting additional resources to safety and efficiency enhancements

- Increasing capacity to capitalise on market growth fuelled by the current resources boom.

In order to support the transition from General Aviation to a more regional airline operation it was considered necessary to improve systems, procedures and above all people. Many improvements have occurred, but there will always be a need for continued development in the airline. That can only be supported by revenue growth, which in turn should also lead to higher levels of profits. Key to the airline's continued growth is capacity and that in turn is highly dependent upon the airline's ability to introduce additional aircraft into the business.

The airline introduced two additional aircraft during 2011 - one DHC 8 and one Twin Otter. These acquisitions increased the fleet size to 22 by year end. These additional aircraft were mostly utilised to provide increased capacity in the domestic RPT sectors where new routes and additional seats on existing routes have been introduced during the period. The demand for additional air services exists, both in the form of specialised charter contracts currently underpinned by the resource sector, and in the scheduled RPT market. During the year the airline introduced new services to Hoskins and Rabaul. This was a significant step for the airline as it continues to encroach into competitive markets previously the heartland of the national carrier. While the launch of Travel Air has also intensified competition, Airlines PNG continues to perform well on these new routes.

Airlines PNG would like to thank all stakeholders from the Islands region for their support on the new routes. We hope to provide additional services beyond the existing destinations in the future.

While the CEO will touch more on the details of the operating performance of the business I want to make specific comments on the issues of dividend and share price, both of which I know are at the forefront of shareholders' minds. Not for the first time I say that it is the view of the Board that it is in the interests of the long term positive financial performance of the Group that available moneys be invested in the Group's business rather than distributed as dividends.

With revenue growing at 40% year on year the company still requires continuing investment to increase capacity and service increasing demand. This will also serve to enhance the company's economies of scale meaning a greater percentage of revenue will be profit going forward.

The investment the Group is making is mainly directed towards the acquisition of additional aircraft. This is an on-going process, with inspections and due diligence being conducted on additional Dash 8 and Twin Otter aircraft.

There will also be other significant capital expenditure commitments in maintaining a larger operation.

While these commitments requires additional funding which is achievable given the company's strong balance sheet position, equally the company needs to carefully manage its cash reserves to support these obligations and also to cater for contingencies such as movements in fuel price and exchange rates.

On the matter of share price the Board is certainly cognisant of the lack of bounce in recent times notwithstanding the announcement of our 2011 result and the current positive outlook.

We can only say this is most likely a function of the market and a lack of liquidity in the exchange rather than being related to the company's financial performance.

We suspect the liquidity issue is a matter for the exchange as a whole and we look forward to working with stakeholders as to how these limitations may be addressed.

In the meantime we will continue to operate on the basis that share values are influenced by future expectations of a business. The Board's focus is to ensure we have a profitable business to support those expectations and future share values.

We certainly do not take the view that the current exchange listed price reflects the true value of the business, either from an asset point of view or in relation to the future earnings potential of the business.

We have also consciously attempted to improve our communications with you over the period. This has included electronic distribution of company announcements. I hope many of you are already taking advantage of this facility.

I certainly trust that you are now more satisfied as to the level of information now available as to the Group's activities and performance and we will look to continually improving on this in the coming year.

Finally, I would like to thank our shareholders for their continuing support as we begin to leverage the strong foundations restored to the business over the past 2 years.

Simon Wild, Chairman

CEO'S ADDRESS

Introduction

Firstly let me reiterate the words of our chairman with respect to those who lost their lives on October 13. It is an event and time in our lives that we will always remember and feel deeply. Our thoughts and prayers are with those who are lost and with their families as they remember their loved ones.

The 2011 financial year marked the second full year of my tenure as CEO. We can look back with some sense of achievement on delivering a K3.9m pre-tax profit for the company in that year, more than 50% above the previous year's result.

In 2010 the airline had to turn around its fortunes converting what was a significant loss in 2009 into profitable operations. 2011 was seen as a building year as the airline implemented many new policies and procedures and rolled out a large expansion of our RPT network with the introduction of new island services in June.

This move was significant for the airline as it represented a new area of the country being serviced, outside our previously established mainland routes. It was also significant for the people of the islands and highlands, as it provided additional options to them and created a reliable and frequent connection between the two. The route very quickly became one of the airline's most profitable services as it answered a market demand for reliability, frequency and freight services which had not been adequately met previously by other airlines.

Introduction of the airline's service to the islands was met by the introduction of another airline, Travel Air, into the market. We believe that we can cope with this competition and that our service offering and flight frequency in the islands mean we are there to stay.

2011 provided many challengers for management including:

· volatile foreign exchange rates as the Kina strengthened against both the Australian and US dollars;

· volatility in fuel prices as the world navigated conflicts or widespread unrest in Libya, Egypt and Syria;

· a global down turn as key markets in America and western Europe continued in recession and smaller European nations threatened to default, in turn resulting in a drying up of business travel and tourism towards the end of the second quarter.

We were fortunate that the price of gold reached its highest point in history, and other commodity prices held up, which continued to support resource activity in the country.

Highlights

Let me draw your attention to some of the year's highlights. The Group achieved:

- Profit before tax of K3.9m, up from just under K2.5m in 2010

- Charter revenue of K142m, up 21% year on year

- Regular passenger transport revenue K97m, up 18% year on year

- Freight revenue K13m, up 25% year on year

The Group is pleased to deliver this improved full year financial result in line with previous guidance to the market.

2012 opportunities

In 2012 we will look to consolidate and build on last year's profitable result by entering additional charter contracts with new and existing clients as well as expanding scheduled services - all of which will require more aircraft and resources.

The airline is looking at the introduction of additional services to the islands in addition to widening its network in the Highlands and Mamaose regions of PNG. These regions are viewed as vital manning and supply networks for the resource boom in PNG. The airline is focusing on introducing additional airframes to support these new services and to capitalise on other growth opportunities.

Resources industry activity remain on the rise with the LNG project moving into full swing and subcontractors beginning to better understand their aviation requirements.

Further, seismic work on the West Papuan boarder and developments at Parari River and Wafi have created real stimulus for Twin Otter services.

The airline is in the process of tendering for other major charter contracts. Our experience and professionalism in servicing existing contracts sees us well placed to compete for these contracts.

2012 challenges

Despite the undoubted potential in the PNG market the company needs to be aware of various macro-economic challenges.

With PNG experiencing one of the highest GDP growth rates in the world, domestic inflation is affecting salaries, accommodation and utilities levels making retention of skilled staff one of our main challenges and priorities.

Fuel price volatility and uncertainty in foreign exchange markets could potentially materially affect financial performance.

By far the largest challenge to management is introducing additional aircraft to the fleet. Capital challenges, lack of available aircraft in the market, and crew and engineering restrictions all represent difficulties that the airline must overcome to ensure its future success.

Outlook

With the loss of P2 MCJ in October the airline must rebuild market confidence and earn back the support of the business community. The loss of the capacity alone significantly impacted on the airline's growth curve which I see as being pushed back 12 to 18 months.

Overall I remain confident that we have a great team behind us who are working diligently to ensure that we deliver value for shareholders and secure the future growth of the business both in the context of current opportunities and the long-term sustainability of the business.

Finally, I would like to personally thank the Board for their counsel and support. Without this support the significant turnaround of the company would not have been possible.

Gary Toomey, Chief Executive Officer

For further information contact:


Media Relations:

Ph: 3023194 Email: media.relations@apng.com