Cash Flow Statement

(NOK 1 000)

CASH FLOWS FROM OPERATING ACTIVITIES:

Profit (loss) before tax

Taxes paid

Depreciation, amortisation and write-down

Pension expense without cash effect

Profit from associated company

Compensation expense for employee options

Losses/(gains) on disposal of tangible assets

Fair value (gains)/losses on financial assets

Net financial items

Interest received

Change in inventories, accounts receivable and accounts payable

Change in air traffic settlement liabilities

Change in other current assets and current liabilities

Net cash flow from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Prepayments aircraft purchase

Purchase of tangible assets

Purchase of intangible assets

Payment to subsidiaries

Payment to associated company

Net cash flow from investing activities

CASH FLOWS FROM FINANCIAL ACTIVITIES:

New long term liabilities

Payment long term liabilities

Paid-in equity

Interest on borrowings

Net cash flow from financial activities

Net change in cash and cash equivalents

Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

Note 1

Accounting policies

The financial statement of Norwegian Air Shuttle ASA is prepared in accordance with the Norwegian Accounting Act of 1998 and Generally Accepted Accounting Principles in Norway.

In preparation of the accounts, estimates and assumptions used are influencing reported numbers. The final result may deviate from used estimates.

General valuation rules and classification of assets and liabilities

The assets which the Company intends to own or use permanently are classified as non-current assets. All other assets are classified as current assets. Receivables which are due for payment within 12 months are classified as current assets. The equivalent criteria are applied to the classification of short-term liabilities and long-term liabilities.

Fixed assets are recognized at acquisition cost. Borrowing costs are capitalized as a part of the investment and is included in the acquisition cost. Fixed assets are depreciated using the straight-line method over the estimated economic life of the assets. If fair value of fixed assets is lower than their book value, and the decline is expected to be permanent, the asset is written down to fair value.

Aircraft is decomposed into two components for depreciation purposes. In accordance with official requirements, aircraft must be maintained and significant components must be changed after a specific number of takeoffs or airborne hours. These components are identified as C check and D check on the aircraft body. Power restoration and life limited parts for the two engines on each plane, as well as maintenance on landing gears and the APU. The maintenance and overhaul on these components occur on a defined interval, and the value is depreciated based on the number of takeoffs or airborne hours until the next maintenance occurs. Completed maintenance and overhaul is capitalized and depreciated until the next relevant maintenance and overhaul. The second aircraft component is defined as the remainder of the aircraft and depreciated over the economic useful life.

Current assets are valued at the lower of acquisition cost and fair value.

Borrowings are valued at amortized cost using the effective interest method.

Changes in accounting principles

There have been no changes in accounting principles during the year.

Revenues

Revenues from sales of services are recognized in the income statement once rendered services have taken place and most of the risk has been transferred. Sales revenues are presented net of value added tax and discounts.

Passenger revenue: Ticket sales are reported as traffic revenue when the air transport has been conducted. The value of tickets sold which are still valid but not used at the balance sheet date (amounts sold in excess of revenue recognized) is reported as air traffic settlement liability. This liability is reduced either when the Company or another airline completes the transportation or when the passenger requests a refund.

Ancillary revenue; Ancillary revenue comprises sales of ticket-related products and services, e.g; excess baggage and fees. Some of the products and services are earned at the time of transport, and such revenue is recognized in the same manner as passenger revenue. Other products and services are earned at the time of purchase and immediately recognized in the income statement.

Amounts paid by ‘no show’ customers are recognized as revenue when the booked service is provided. ‘No show’ customers with low fare tickets are not entitled to change flights or seek refunds once a flight has departed.

Other revenue; Other revenue comprises third party revenue and is recognized when the service has been rendered, fees are reliably measurable, collections are probable and when other significant obligations have been fulfilled.

Customer loyalty program – Norwegian Reward

Customers earn cash points in the following circumstances;

• Bank Norwegian customer; 1% of the payment is earned on all purchases, except domestic flights in Norway or flights with competitive airlines in Norway. Cash points are also earned on all ‘low fare’ and ‘full flex’ tickets purchased from Norwegian Air Shuttle ASA and which are paid with Bank Norwegian credit cards, with 4% and 19% of the purchase price, respectively.

• My reward customer; 2% on all low fare tickets and 10% on all full flex tickets

• Corporate reward customer; 3% on all low fare tickets and 7% on all full flex tickets

• Call Norwegian customer; 3% of all purchases

Corporate customers earn cash points on all airfares. Private customers earn cash points on international flights only as domestic flights in Norway are prohibited from rewarding cash points to private customers.

Earned customer cash points on airline tickets and purchases from Call Norwegian are recognized as a liability in the balance sheet and deducted from the value of the purchase at the purchase date. The customer cash point liability is derecognized from the balance sheet and recognized as income when customers utilize their cash points.

Earned customer cash points of 1% from Bank Norwegian are recognized as a liability in the balance sheet and immediately expensed. When the customers utilize earned cash points, the liability is derecognized and cash payment on the Company’s services reduced.

Unutilized cash points are derecognized from the balance sheet after three years. The liability is classified as short term available statistics as of 31 December 2010 indicate that customer cash points are utilized within one year.

Assets and liabilities denominated in foreign currency

Monetary items denominated in foreign currency are converted using the exchange rates on the balance sheet date. Income statement items are converted using the exchange rates prevailing at the time of the transactions. Changes in exchange rates are recognized in the income statement as they occur during the accounting period.

Foreign currency gains and losses on operating activities are recognized in operating profit. Foreign currency gains and losses on financing activities are recognized in net financial items.

Intangible assets

Intangible assets, including development expenses, are capitalized when it is likely that the future financial benefits related to the assets will benefit the Company and the acquisition cost can be measured reliably.

Intangible assets are depreciated using the straight line method. Intangible assets are subject to write-down if the expected financial benefits from the asset are less than book value and remaining development expenses.

Leasing agreements for tangible assets

Assets which are leased on terms where major risk and control is transferred to the Company (financial lease) are capitalized as tangible assets. Future lease obligations are calculated as the net present value of future lease payments and are recognized as other long term liabilities. The tangible assets are depreciated systematically, and the lease obligations are reduced with lease payments reduced for calculated interest expense.

The lease agreements where most of the risk lies with the contracting party are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term. Payments for the lease and payments for other elements are recognized separately.

Deposits made at the inception of operating leases are carried at amortized cost. The difference between the nominal value of a deposit paid, carried at less than market interest and its fair value is considered as additional rent payable to the lessor and is expensed on a straight-line basis over the lease term.

Periodic maintenance on tangible assets that are recognized in the balance sheet is reflected through the assets depreciation plan. For assets which are subject to operational lease, the Company's obligation to perform periodic maintenance in excess of the contractual level is recognized as a provision.

Sale and lease back transactions are treated as financial leases and operational leases depending on the nature of the lease. The Company has completed two sale and lease back transactions during 2010 with regards to the sales of two aircraft and leasing back the same asset. Both of the sale and lease back transactions are defined as operating leases established at fair value and any profit or loss is recognized immediately in the income statement as other income.

Investment in subsidiaries and associates

Subsidiaries are valued at cost in the Company accounts. The investment is valued as cost of acquiring shares in the subsidiary, providing they are not impaired. Write down to fair value will be carried out if the impairment is not considered temporary, and a write down is deemed necessary according to generally accepted accounting principles. Impairments are reversed when the indication no longer exist.

An associate is an entity in which the Company holds a significant influence but does not control the management of its finances and operations (usually when the group owns 20%-50% of the Company). The financial statements include the Company’s share of the profits or losses from associates, which is accounted for using the equity method, from the date when a significant influence is achieved and until the time when such influence ceases. Dilution gains and losses from investments in associates are recognized in the income statement.

When the accumulated share of a loss exceeds the Company’s investment in an associate, the amount carried in the balance sheet is reduced to zero and further losses are not recognized unless the Company has an obligation to cover any such loss.

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of what interest the Company’s has in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of associates have been changed where necessary to ensure consistency with the Company’s policies.

Financial instruments

Financial instruments are initially recognized at cost and subsequently measured at the lower of cost and fair value. Impairment losses arising from fair value lower than initial cost are recognized as loss under ‘other losses/(gains)- net’ in the income statement.

Forward foreign currency contracts are initially recognized at fair value at the date when the contract was entered, and are subsequently measured at fair value through profit or loss. Any changes in fair value are recognized in the income statement under ‘other losses/(gains) –net’.

Other receivables classified as fixed assets

Other receivables are recognized at the acquisition cost. Other receivables are written down to market value if a decline in value is considered to be permanent.

Inventory

Inventory consists of consumables and is valued at the lower of acquisition cost and net realizable value considering obsolescence.

Accounts receivable

Accounts receivable and other receivables are recognized at nominal value less allowances for doubtful debts. Allowances for doubtful debts are calculated on the basis of individual assessments.

Cash and cash equivalents

Cash and cash equivalents includes cash, bank deposits and other liquid assets with maturity dates less than three months from the date of acquisition.

Pensions

The Company operates various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations.

Defined benefit plan

The Company operates a defined benefit pension plan which requires contributions to be made to a separately administered fund. In addition, the Company participates in an early retirement plan (AFP). This is also a defined benefit plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting year exceed 10 % of the greater of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.

The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately.

The defined benefit obligation is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized reduced by past service costs not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

The AFP pension plan was closed in 2010, and replaced with a new AFP pension plan. The new AFP pension plan is a multi-employer defined benefit plan. However, the plan is recognized in the income statement as a defined contribution plan as the plans administrator has not administered the actuarial gains/losses to the members of the AFP pension plan as of 31 December 2010.

Defined contribution plans

In addition to the defined benefit plan described above, the Company operates a defined contribution plan. A defined contribution plan is a pension plan under which the Company pays fixed contributions to a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

Stock Options

Stock options are accounted in accordance with IFRS 2 and Norwegian Accounting Act § 5 – 9a. Stock options are recognized at fair value and expensed over the stock option period; the contra is entered in other paid-in equity. Provisions for employer’s contributions are made.

Taxes

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses which can be utilized.

Deferred income tax assets and deferred income tax liabilities are offset to the extent that

• the Company has a legal and enforceable right to offset the recognized amounts and

• the deferred tax assets and tax liabilities relates to income tax from the same tax authority

Deferred income tax is provided on temporary differences which occur on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Cash Flow Statement

The cash flow statement is prepared in accordance with the indirect method. Cash and cash equivalencies consist of cash, bank deposits and short term investments in money market funds.

Note 2

Financial risk

The Company's activities expose it to a variety of financial risks; market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The Company uses derivative financial instruments to hedge certain financial risk exposures.

Risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates, and hedges financial risk in close co-operation with the Group’s operating units. The Board provides principles for overall risk management such as foreign currency risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, jet-fuel prices and interest rates will affect the Company’s income or value of its holdings of financial instruments.

Foreign Currency Risk

A substantial part of the Company’s income and expenses are denominated in foreign currency. The Company's leases, aircraft borrowings, maintenance, jet-fuel and related expenses are mainly denominated in USD, and airplane operation expenses are partly denominated in EUR. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. In order to reduce currency risk, the Company has a mandate to hedge up to 100% of its currency exposure the next 12 months. The hedging consists of forward currency contracts and flexible forwards.

Cash flow and fair value interest rate risk

As the Company has net interest bearing debt, the Company’s income and operating cash flows are dependent of changes in market interest rates. The Company’s cash flow interest rate risk arises from cash and cash equivalents and floating interest rate borrowings. Floating interest rate borrowings consist of unsecured bond issue, revolving credit facility, loan facility and financial lease liabilities. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. Fixed interest rate borrowings consist of term financing from PEFCO, guaranteed by the Ex-Im Bank of the United States. Long-term borrowings are denominated in USD and NOK.

Jet-fuel prices

Expenses for jet-fuel represents a substantial part of the Company’s operating costs, and fluctuations in the jet-fuel prices influence the projected cash flows. The objective of the jet-fuel price risk management policy is to provide a safeguard from significant and sudden increases in jet-fuel prices whilst retaining access to price reductions. The Company manages jet-fuel price risk using fuel derivatives. The management has a mandate to hedge up to 100 % of its expected consumption next 12 month with forward commodity contracts.

Credit risk

Credit risk is managed on group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to travel agencies and commercial customers, including outstanding receivables and committed transactions. The utilization of credit limits is regularly monitored. The Company’s policy is to maintain credit sales at a minimum level. Sales to personal customers are settled in cash or using major credit card companies.

For a part of the Company's sales, customers pay at the time of booking while the Company receive actual payments from credit card companies or acquires at a later point in time. Delayed payments from credit card companies vary between credit card brands. The risk arising from receivables on credit card companies or credit card acquires are monitored closely.

Credit risk related to bank defaults are closely monitored and partly offset by diversifying the Company’s deposit portfolio.

There are re-invoicing of maintenance costs on aircraft to leasing companies, and the Company regularly evaluates and assesses the value of these credits.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.

Management monitors rolling forecasts of the Company’s liquidity reserve and cash and cash equivalents (note 22) on the basis of expected cash flow. In addition, the Company's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these; monitoring balance sheet liquidity ratios against internal and external regulatory requirements; and maintaining debt financing plans.

The Company will take deliveries of 14 aircraft in 2011, and the remaining 40 aircraft in the period 2012-2016. Pre-delivery payments related to the delivery of the first 10 aircraft were secured in 2008. Of the 10 aircraft, 7 aircraft were delivered in 2009 and 2010, and 3 aircraft will be delivered in first quarter 2011. At the delivery of the aircraft, pre-delivery payments are replaced with other long term financing. The Company has secured the financing of 2 aircraft in 2009 and 5 aircraft in 2010 through guarantees from the Ex-Im Bank of the United States and direct loans from the Private Export Funding Corporation. 2 aircraft were delivered and financed as sale and lease back transactions in 2010. The Company is currently in the process of securing long term financing for 12 deliveries in 2011 and 2012.

Note 3

Revenue

NOK 1 000

By activity:

Passenger transport

Ancillary revenue

Other revenues

Total

By geographic market:

Domestic

International

Total

In 2010 and 2009, the Company has been running low-cost operations exclusively, using its fleet of Boeing 737 aircraft. Revenues from this business are specified in the table above. Passenger revenue consists of revenue generated from sales of airline tickets, while ancillary revenue consists of other services directly generated from ticket sales. Other revenue consists of sales that are not directly related to an airline ticket, e.g cargo and sales of spare parts.

Other income amounts to MNOK 191.3 (2009:0) and include compensation from a SAS law suit and gains from sales of tangible assets (note 9).

Note 4

Operational expenses

NOK 1 000

Sales and distribution expenses

Aviation fuel

Aircraft leases

Airport charges

Handling charges

Technical maintenance expenses

Other operating expenses

Total

Note 4a

Other operating expenses

Other operating expenses amount to MNOK 386.0 (2009: 357.6). Other operating expenses are related to the operation of systems, marketing, back office, consultants and other costs not directly attributable to operation of the aircraft fleet and related airline specific costs.

Note 5

Payroll expenses and number of employees

NOK 1 000

Wages and salaries

Social security tax

Pension expenses

Employee stock options

Other benefits

Total

In 2010, MNOK 7.1 (2009: MNOK 8.4) was charged as an expense to salaries, according to the stock option program (note 17). The Company has a pension scheme covering all employees. The scheme is in compliance with the act on occupational pensions (note 16).

Number of man-labour years

Note 6

Other financial items

NOK 1 000

Foreign exchange income and loss

Appreciation financial current assets

Appreciation financial non - current assets (note 27)

Other financial expenses

Impairment of shares in subsidiary

Total

Impairment of shares in subsidiaries in 2009 relates to shares in Norwegian Air Shuttle Sweden AB (note 25).

Note 7

Taxes

This year's tax expense consists of (NOK 1 000):

Tax payable

Adjustment from previous year

Change in deferred tax

Income tax expense

Reconciliation from nominal to effective tax rate:

NOK 1 000

Profit before tax

Expected tax expense using nominal tax rate (28 %)

Tax effect of the following items:

Non deductible expenses/non taxable income

Adjustment from previous year

Tax expense

Effective tax rate

Specification of tax payable

Tax payable in income tax expense

Group contribution

Tax payable in the balance sheet

Specification of temporary differences and tax loss carry forward:

NOK 1 000

Tangible assets

Long term receivables and borrowings in foreign currency

Financial instruments

Inventories

Receivables

Gain/loss account

Provisions

Pensions

Other 1)

Tax loss carry forward

Total

Deferred tax asset/liability

Net recognized deferred tax asset/liability

1) Other temporary differences consist of book value of firm commitment recognised according to hedge accounting.

Gross movements on deferred income tax:

NOK 1 000

At 1 January (-) liability/(+) asset

Income statement charge

Tax charged directly in equity

31 December

Note 8

Intangible assets

NOK 1 000

Software

Goodwill

Other intangible assets

Total

Acquisition cost at 1 January 2009

Additions

Acquisition cost at 31 December 2009

Acquisition cost at 1 January 2010

Additions

Acquisition cost at 31 December 2010

Accumulated amortisation and write-down at January 1 2009

Amortisation

Accumulated depreciation and write-down at 31 December 2009

Accumulated amortisation and write-down at January 1 2010

Amortisation

Accumulated depreciation and write-down at 31 December 2010

Book value at 31 December 2009

Book value at 31 December 2010

Economic life

3-5 years

Depreciation plan

Linear

Linear

None

Capitalized software is related to external consulting fees for the development of Norwegian's own systems for booking and ticket-less travel, various sales portals, back office and new maintenance system (AMOS). The depreciation of the software commence as each module is completed.

Goodwill consists of purchased goodwill from Norwegian Air Shuttle Sweden AB in 2009. All airline operations were purchased from the subsidiary and the airline operations are run from Norwegian Air Shuttle ASA from 1 July 2009. Payment for the operations exceeding initial goodwill from the purchase of the shares in Norwegian Air Shuttle Sweden AB in 2007 (see note 25) was added to the value of the shares and accounted for under other financial items (see note 6) as impairment of shares in subsidiary in 2009. Goodwill and slots were identified as assets and measured at the value from initial purchase price in 2007.

The management has determined that goodwill related to the Swedish airline operation has a definite economic useful life of 15 years. The assessment is based on an assumption that the Company will earn future benefits from the Swedish operation for all foreseeable future. The depreciation plan of 15 years is based on an average depreciation plan for the Company's total tangible and intangible assets.

Other intangible assets consist of intellectual property rights which are related to the purchases of internet domains. The Company has developed web portals in Norway, Sweden and Denmark. In 2009, the Company purchased slots from Norwegian Air Shuttle Sweden AB with an acquisition cost of MNOK 22.4. Slots are included in other intangible assets. Other intangible assets are determined to have indefinite economic useful lives and are not amortized.

Intangible assets with indefinite economic useful lives are tested for impairment annually. No impairment losses are identified for intangible assets in 2010.

Intangible assets with definite economic useful lives are tested for impairment if there are identified indicators of impairment.

The method used to estimate the recoverable amount is value in use, based on discounted cash flow analysis. The analysis reflects the cash flow projections in the financial business plan covering the next year approved by the Senior Management. In addition, the calculation includes estimated cash flows for the next 5 years. Key assumptions included in the calculation are growth rates, operating costs, terminal value and discount rate. Cash flows beyond the 5 year period are extrapolated with a long term growth rate. Estimated cash flow and discount rate is after tax.

Note 9

Tangible assets

NOK 1 000

Buildings

Aircraft

Prepayment Boeing Contract

Equipment and fixtures

Financial lease

Total

Acquisition cost at 1 January 2009

Additions

Disposals

Acquisition cost at 31 December 2009

Acquisition cost at 1 January 2010

Additions

Disposals

Acquisition cost at 31 December 2010

Accumulated depreciation at 1 January 2009

Depreciation

Reversals

Accumulated depreciation at 31 December 2009

Accumulated depreciation at 1 January 2010

Depreciation

Reversals

Accumulated depreciation at 31 December 2010

Book value at 31 December 2009

Book value at 31 December 2010

Economic life

See below

See below

See below

See below

4-20 years

Depreciation plan

See below

See below

None

Linear

Linear

Residual value

MNOK 563.6

See below

See below

MNOK 0

At 31 December 2010, the Company operated a total of 57 aircraft, whereas 12 were owned and 45 were leased under operational leases. Leases are detailed in note 10.

Aircraft

Aircraft consist of purchased aircraft and the Company owns 12 aircraft at 31 December 2010. The residual value is MNOK 563.6 in total for all aircraft. The residual value is deducted from the depreciable amount of the remainder of the aircraft. The life expectancy of the aircraft is 25 years on all 737 aricraft, and the economic life of the owned aircraft is 25 years less the age of the aircraft at time of purchase.

Installations on leased aircraft

The installations on the leased aircraft include cabin interior modifications and other improvements to the aircraft after lease commencement. The capitalized value is depreciated over the remainder of the aircraft lease, which is between 1-10 years. Linear depreciation is applied and residual value is NOK 0. In 2010 and 2009 several engines on the leased aircraft were in overhaul, and replacements costs for life limited parts were capitalized to the extent that the costs are improvements to the engines which exceed the requirements specified in the leasing contracts. These components are depreciated at a defined rate per engine cycle, limited to the remainder of the aircraft lease.

Spare parts

Spare parts consist of rotable parts for aircraft, and are depreciated over their useful life. The useful life of spare parts ranges between 4 to 10 years. Linear depreciation is applied and 25% of the acquisition cost is calculated as residual value.

Buildings

Buildings consist of 3 apartments in Berlin, purchased in 2007 for the purpose of housing crew and trainees stationed in Berlin on temporary basis. In 2010, the Group purchased an apartment in Seattle for the purpose of housing personnel stationed in Seattle with regards to the delivery of new 737-800 HGW aircraft. Buildings are carried at acquisition cost. The residual value is estimated to equal the acquisition cost.

Prepayments on Boeing contract

In 2007, the Company entered a purchase contract on 42 new 737-800 HGW aircraft with Boeing Corporation, with an option of purchasing 42 additional aircraft. Two aircraft were delivered in 2009, and five aircraft were delivered in 2010. 21 purchase options have been exercised. 54 aircraft will be delivered between 2011 and 2016. Until the delivery of the aircraft, the Company will make prepayments to Boeing, following a defined prepayment schedule. The Company capitalizes borrowing costs incurred for the construction of qualifying assets during the period of time that is required to complete the aircraft. Borrowing costs of MNOK 73.9 (2009: MNOK 33.5) have been capitalized during the year. Average capitalization rate of 6.1% (2009: 7.6%) was used.

Financial lease assets

The Company entered lease agreements in 2009 related to de-ice equipment and electronic flight bag equipment. The lease agreements are classified as financial leases as all risks and rewards are transferred to the Company after the end of the lease agreement. The financial lease assets are depreciated over their economic useful lives. De-ice equipment is depreciated over 20 years, while electronic flight bag equipment is depreciated over 4 years. Residual value of financial lease assets is 0.

Impairment of tangible assets

In 2010 and 2009, management determined that the total operations of the Company were its cash generating unit. Impairment testing of tangible assets are covered by impairment testing on the whole Company, see note 8 for details.

For information regarding assets pledged as collateral, see note 21.

Note 10

Leasing

The lease agreements for the Boeing 737 aircraft last between 3 to 10 years from the date of agreement, with some extension options. 29 aircraft were delivered from 2002 to 2008. 8 aircraft were delivered in 2009 and 8 aircraft were delivered in 2010. Renegotiations have resulted in extensions on some of the shorter leases. The contracts for 13 of the aircraft will expire in 2011, and for 5 of the aircraft in 2012. These aircraft will be redelivered according to schedule. The remaining contracts expire in 2013 or later.

Leasing costs expensed on aircraft lease within operational expenses was MNOK 778.5 in 2010 (2009: MNOK 604.0). Included in leasing costs are operating lease costs on two aircraft from the sale and lease back transaction.

In addition, the Company leases 15 cars and 11 properties in Oslo, Stavanger, Stockholm and Copenhagen. Leasing costs related to cars and properties expensed in operational expenses in 2010 was MNOK 50.1 (2009: MNOK 19.1)

Annual minimum rent on non-cancellable operating lease agreements per 31 December 2010 is as follows:

Nominal value 2010

Nominal value 2009

NOK 1 000

Aircrafts

Cars

Property

Total

Aircrafts

Cars

Property

Total

Within one year

Between 1 and 5 years

After 5 years

The aircraft's minimum lease payments consist of ordinary lease payments, contractual payments for maintenance reserves and expensed deferred lease payments resulting from non- interest bearing deposits paid at inception of the lease agreement. Aircraft leases committed through letter of intent are not included in the table above.

Note 11

Long-term receivables

NOK 1 000

Deposits

Intercompany receivable

Other long-term receivables

Total

The Company pays deposits on aircraft leases. In 2010 and 2009, inter-company receivables relates to a long- term loan to Call Norwegian AS. Inter-company receivables are presented net against inter-company payables in the financial statements for each subsidiary. Receivables denominated in foreign currency are converted using the prevailing exchange rates on the balance sheet date.

Note 12

Inventories

NOK 1 000

Consumables

Parts for heavy maintenance

Other inventory

Total

In 2010 and 2009, the Company bought parts removed from aircraft engines in relation with heavy maintenance. Such parts are held for sale and sold in secondary markets.

Charges for obsolete product in 2010 were MNOK 4.3 (2009: MNOK 4.6).

Note 13

Other Receivables

NOK 1 000

Prepaid costs

VAT refund

Reimbursements claims maintenance costs

Intercompany receivable

Other receivables

Total

Note 14

Shareholder's equity and shareholder information

At 31 December 2010, the share capital consists of the following share classes:

Number

Nominal value

Book value

Class A shares

0.1

Shareholder structure

The largest shareholders at 31 December 2010 were:

Owner-

Voting-

A-shares

ship

rights

HBK INVEST AS

AWILCO INVEST AS

A-shares

ship

SKAGEN KON-TIKI

FINNAIR PLC

VITAL FORSIKRING ASA

SKAGEN VEKST

JPMORGAN CHASE BANK

DNB NOR NORGE (IV)V

STATE STREET BANK AN

GOLDMAN SACHS INT.

HOLBERG NORGE

HOLBERG NORDEN

SKANDINAVISKE ENSKILDA

DANSKE INVEST NORSKE

KLP AKSJE NORGE VPF

AVANSE NORGE (II) VP

DNB NOR SMB VPF

STATE STREET BANK AN

KOMMUNAL LANDSPENSJONSKASSE

STATE STREET BANK &

Other

Total number of shares

Shares and options directly or indirectly held by members of the Board of Directors, the Chief Executive Officer and the Executive Management:

Name

Title

Shares 1)

Options

Bjørn Kise 2)

Chairman

Ola Krohn Fagervoll

Deputy chairman

Liv Berstad

Board Member

Marianne Wergeland Jenssen

Board Member

Linda Olsen

Board Member - Employee repr

Thor Espen Bråten

Board Member - Employee repr

Kenneth Utsikt

Board Member - Employee repr

Bjørn Kjos 3)

Chief Executive Officer

48 184

Frode E Foss

Chief Financial Officer

44 679

Hans-Petter Aanby

Chief IT Officer

24 760

Asgeir Nyseth

Chief Operating Officer

44 931

Daniel Skjeldam

Chief Commercial Officer

42 312

Anne-Sissel Skånvik

Senior Vice President Corporate Communications

Gunnar Martinsen

Senior Vice President HR and Organisation

21 736

1) Including shares held by related parties

2) Bjørn Kise holds 8.2 % of HBK invest AS

3) Bjørn Kjos holds 84.1 % of HBK Invest AS

Note 15

Equity

Share

Share prem.

Other paid-in

Other

Total

NOK 1 000

capital

reserve

equity

equity

equity

Equity at 01 January 2009

Share issue 2009

Expenses for share issue 2009, net of tax

Stock options- share issue 2009

Compensation expense for stock options

Net profit for the year

Equity 31 December 2009

Equity at 01 January 2010

Stock options- share issue

Compensation expense for stock options

Net profit for the year

Equity 31 December 2010

Note 16

Pensions

Defined benefit plan

All employees in Norway participate in a defined benefit plan. The benefits are mainly dependent on pension entitlement earned, salary at the time of retirement and the size of payments from the National Insurance. The liabilities are covered through Vital AS. The plan also covers a life insurance and disability insurance. Per 31 December 2010, a total of 1,857 employees were active members (2009: 1,465), and 32 (2009: 30) were on pension retirement. In addition, employees are included in the early retirement scheme (AFP), which is an unfunded plan for retirement right at the age of 62. The AFP is a multi-employer plan, where the Norwegian government pays a contribution of 40% of paid pensions for the retired persons older than 64 years. The Company’s payments of contribution to the plan are recognized as an expense in the income statement as incurred. The Company also pays 25% of the pension paid to own pensioners. This is an obligation for the Company that is not funded. The AFP obligation for the Company is shown under the heading "unfunded". At 31 December 2010, 0 employees were active in the AFP pension plan (2009:495), and no employees had retired in the AFP pension plan. The AFP pension plan was closed during 2010, causing a settlement transaction of MNOK 4 recognized in the income statement as a cost reduction in pension expenses. The former AFP pension plan is replaced by a new multi-employer plan, where the Norwegian government finances 1/3 of the contribution plan. The new AFP pension plan is a defined benefit plan administered by a separate legal entity (Fellesordningen). The plan is temporarily accounted for as a defined contribution plan, as the plans administrators have not been able to calculate the pension obligation for each entity participating in the plan.

The scheme is in compliance with the Occupational Pensions Act.

The pension obligation in the defined benefit plan is calculated on linear accumulation. Changes in the obligation due to changes in and deviations from the estimated assumptions, are spread over the estimated average remaining vesting period for the part of deviations which exceeds 10% of the gross pension liability. Pension costs for the year for the Company’s defined benefit plans are calculated by independent actuaries and are based on information as of 1 January 2010. The management has made an assessment of changes in estimates and basis of calculation, these changes have no material impact on the pension cost for 2010.

Risk tables for death and disability are based on the most commonly used statistics in Norway, (K-2005) and (IR 02) respectively.

Pension expense (NOK 1 000)

Funded

Unfunded

Total 2010

Total 2009

Net present value of benefits earned

Interest cost on pension liability

Return on plan assets

Administrative expenses

Recognized actuarial gains/losses

Recognized net liability - settlement

Accrual for settlement liability

Social security tax

Net pension expense defined benefit plans

NOK 1 000

Funded

Unfunded

Total 2010

Total 2009

Liabilities on earned pension rights

Calculated liability from future salary increases

Gross pension liabilities

Pension assets (at market value)

Estimate deviations not recognised

Social security tax

Net pension liabilities

Best estimate of actual return on pension funds previous year

6.20%

5.40%

Expected contribution to be paid next year

Expected benefits to be paid nest year

-5 599

-5 163

Economic assumptions:

Discount rate

4.00%

4.40%

Expected growth in salaries

3.75%

4.00%

Expected growth in state pensions

3.75%

4.00%

Expected growth in pensions

1.30%

1.30%

Expected return on pension assets

5.40%

5.60%

Average turnover

2-10 %

2-10 %

The companys pension fund is invested in the following instruments:

Equity

15.1%

9.8%

Bonds

15.4%

19.0%

Money market funds

17.4%

16.3%

Hold-to-maturity bonds

33.7%

36.4%

Real estate

16.8%

16.6%

Various

1.5%

1.2%

Actuarial assumptions related to demographic factors and retirements are based on assumptions commonly used in insurance. The estimated utilization rate for the AFP scheme is 20%.

Historical Information

Present value of defined benefit obligation

Fair value of plan assets

Deficit/(surplus) in the plan

Experience adjustments on plan liabilities

Experience adjustments on plan assets

Note 17

Options

The Board issued 561,301 stock options to employees on 10 September 2008 in accordance with the authorization from the extraordinary general meeting on 5 August 2008. The stock options have an exercise price of NOK 32.06, equal to the 30% discounted volume weighted share price during the period 26-29 August 2008. All options are exercised in 2009 and 2010.

On 20 July 2009 the Board issued, in accordance with the authorization from the general meeting, 384,000 stock options to the management and key personnel. The stock options have an exercise price of NOK 67.00, equal to the average share price the last trading days prior to the date of issue, plus 10%. The stock options may be exercised within a period of two years and 3 months, whereas the first 50% of the stock options were vested on 20 July 2010, and the second 50% of the stock options will vest on 20 July 2011.

The Board issued 292,021 stock options to employees on 1 October 2010 in accordance with the authorization from the general meeting. The stock options have an exercise price of NOK 63.8, equal to the 30% discounted volume weighted share price during the period 20 -23 September 2010. The stock options may be exercised within a period of two years, whereas the first 50% of the stock options will vest on 1 October 2011 and the second 50% of the stock options will vest on 1 October 2012. Stock options which are not exercised within 31 October 2012 will expire.

The following estimates are used in calculating fair value;

Dividend (%)

Expected volatility (%)

Historic volatility (%)

Risk free interest (%)

Expected lifetime (year)

Share price at grant date

Expected lifetime assumes that stock options are exercised at expiration. Expected volatility is based on the historical volatility over the most recent period that corresponds with the expected life of the option. There is a cap on the options granted in 2009 limiting the proceeds from the options to three times the participants' annual base salary. Furthermore, the participants in the 2010 - program must cover the social security tax incurred for option gains where the share price exceeds NOK 127.6. These limitations are taken into account when calculating the option values.

The option program is expensed with MNOK 7.1 in 2010 and MNOK 8.4 in 2009.

Weighted avg.

Weighted avg.

Shares

exerc. Price

Shares

exerc. Price

Outstanding at the beginning of the period

50.9

77.8

Allocated

63.8

67.0

Exercised

39.2

32.1

Terminated

63.8

32.1

Forfeited

67.0

0.0

Expired

0.0

173.1

Outstanding at the end of the period

65.5

50.9

Vested options

67.0

32.1

Weighted average fair value of options allocated in the period

38.1

15.4

Outstanding options

Vested options

Strike price (NOK)

Outstanding options by 31 December 2010

Weighted average remaining lifetime (yrs)

Weighted average strike price

Vested options by 31 December 2010

Weighted average strike price

50.00-66.00

1.8

63.8

0

66.00-70.00

0.8

67.0

67.0

Total

1.4

65.5

67.0

Outstanding options

Vested options

Strike price (NOK)

Outstanding options by 31 December 2009

Weighted average remaining lifetime (yrs)

Weighted average strike price

Vested options by 31 December 2009

Weighted average strike price

0.00 - 35.00

0.8

32.1

32.1

35.00 -

1.8

67.0

0

Total

1.4

50.9

32.1

Norwegian Air Shuttle ASA has implemented a share purchase savings program for the employees, where the employees, by salary deductions, purchase shares in the parent company and the company will fund up to 50% of the purchased shares, limited to NOK 6 000 per year. The Company will also distribute bonus shares depending on the total amount of purchased shares per employee.

Fair value of the bonus shares are measured at the date of grant using Black & Scholes option pricing model. The fair value of the bonus shares and the corresponding estimated social security cost are expensed as personnel costs over the vesting period. Changes in estimated social security cost are expensed over the remaining vesting period. At 31 December 2010, MNOK 1.5 (2009: MNOK 1.5) was expensed and included in the stock option expense of MNOK 7.1.

Note 18

Provisions

NOK 1 000

Periodic maintenance on leased Boeing 737 airplanes

Total provisions

Parts of the periodic maintenance will be performed in 2011, and MNOK 22.7 is classified as short term liability for periodic maintenance (2009: MNOK 62.3). The short term part of periodic maintenance is estimated based on planned maintenance in 2011.

Note 19

Other short term liabilities

NOK 1 000

Acccured holiday allowances

Accured expenses

Short term part of long term borrowings

Short term part of periodic maintenance

Inter-company liabilities

Other short term liabilities

Total

Note 20

Financial instruments

Assets

Liabilities

December 31 2010 (NOK 1 000)

Short term

Long term

Short term

Long term

Foreign exchange hedges fair value

Jet-fuel contracts

Total financial instruments

Assets

Liabilities

December 31 2009 (NOK 1 000)

Short term

Long term

Short term

Long term

Foreign exchange hedges fair value

Jet-fuel contracts

Total financial instruments

Other losses/(gains) - net

NOK 1 000

Financial assets at fair value through profit or loss

- Fair value losses

- Fair value gains

- Foreign exchange (gains)/losses on operating activities

Net losses/(gains)

Losses and gains on financial asset and financial liabilities at fair value through profit or loss are classified as ‘other losses/(gains) – net’. Foreign exchange losses and gains on operating activities are classified as other losses/(gains) – net.

Note 21

Assets pledged as collateral and guarantees

Prepayments on the first 10 aircraft of the purchase contract with Boeing (see note 9) are pledged as collateral for the revolving credit facility (see note 24).

New fully owned 737-800 HGW aircraft (see note 9) are pledged as collateral for the aircraft financing (see note 24).

Five fully owned 737-300 aircraft are pledged as collateral for the loan facility (see note 24).

There are no pledged collateral for the financial lease liability, but the financial lease asset is an actual security for the financial lease liability through fulfillment of the lease agreement.

Book value of assets pledged as security (NOK 1 000):

Cash depot

Prepayment and aircraft

Financial lease asset

Total

Note 22

Cash and cash equivalents

NOK 1 000

Cash in bank

Cash equivalents

Total

Restricted cash items are:

NOK 1 000

Guarantees for leases and credits from suppliers

Taxes withheld

Total restricted cash

Bank guarantees are granted for leasing liabilities for aircraft, suppliers of fuel and handling services, as well as airport charges from airports and governments.

Note 23

Remuneration of the Board of Directors and Executive Management

Board and Management Remuneration

Remuneration of the Board of Directors

Total remuneration paid to the Board in 2010 was MNOK 0.7. The Chairman of the Board, Bjørn Kise, received MNOK 0.1. There were no bonuses or other forms of compensation paid to the Board members in 2010.

Directive of remuneration of the CEO and the Executive Management

The principles of leadership remuneration in Norwegian Air Shuttle ASA are to stimulate a strong and lasting profit oriented culture. The total compensation level should be competitive, however, not market leading compared to similar organizations. The Board determine the remuneration of the CEO, and the guidelines for remuneration of the Executive Management. The remuneration of the Board and the Executive Management must not have negative effects on the Group, nor damage the reputation and standing of the Group in the public eye. There have been no changes to the guidelines or principles for management remuneration during the year. The actual remuneration in 2010 was consistent with the guidelines and principles.

The Executive Management compensation should primarily consist of a fixed yearly salary with additional compensations such as a company car, free telephone, internet and newspapers, and a standard pension and insurance plan. Executive management is also a part of the Group’s stock option plan.

The CEO does not receive compensation in form of performance based salary or bonuses, except for options in the stock option plan. The Executive Management can on an individual basis be awarded with a special compensation for profit enhancing projects.

The Executive Management is part of the Company’s collective pension plan for salaries up to 12 G, which applies to all employees. The Senior Management has not been given any specific rights to terminate employment.

Total compensation year 2010

NOK 1 000

Fee

Salary

Bonus

Other benefits **)

Total Compensation

Pension expense ***)

The Board of Directors

Bjørn Kise (chairman)

Erik Gunnar Braathen (deputy chairman until 26.11.2009)

Liv Berstad

Ola Krohn-Fagervoll

Marianne Wergeland Jenssen

Thor Espen Bråthen*)

Kenneth Utsikt*)

Linda Olsen*)

Total board of directors

Executive Management

Bjørn Kjos (Chief Executive Officer)

a)

Frode Foss (Chief Financial Officer)

b)

Asgeir Nyseth (Chief Operating Officer)

c)

Hans-Petter Aanby (Chief IT Officer)

d)

Daniel Skjeldam (Chief Commercial Officer)

e)

Gunnar Martinsen (Senior Vice President HR and Organisation)

Anne-Sissel Skånvik (Senior Vice President Corporate Communications)

Total executive management

*) For the employee representatives in the Board of Directors, only their fee for serving on the Board of Directors fee is stated.

**) Other benefits include company car, telephone, internet etc.

***) Pension expense reflects paid pension premium less employee contribution

a) Bjørn Kjos exercised share options in 2010 that has been reported as additional taxable income with NOK 214,634

b) Frode Foss exercised share options in 2010 that has been reported as additional taxable income with NOK 176,569

c) Asgeir Nyseth exercised share options in 2010 that has been reported as additional taxable income with NOK 177,369

d) Hans-Petter Aanby exercised share options in 2010 that has been reported as additional taxable income with NOK 544,331

e) Daniel Skjeldam exercised share options in 2010 that has been reported as additional taxable income with NOK 80,981

Total compensation year 2009

NOK 1 000

Fee

Salary

Bonus

Other benefits **)

Total Compensation

Pension expense ***)

The Board of Directors

Bjørn Kise (chairman)

Erik Gunnar Braathen (deputy chairman until 26.11.2009)

Liv Berstad

Ola Krohn-Fagervoll

Marianne Wergeland Jenssen

Halvor Vatnar*)

Sissel Gjelstad Vårum*)

Monika Johansen*)

Total Board of directors