Reporting Entity

1. Reporting Entity

Icelandair Group hf. ("the Company") is a limited liability company incorporated and domiciled in Iceland. The address of the Company┤s registered office is at ReykjavÝkurflugv÷llur in ReykjavÝk, Iceland. The consolidated financial statements of the Company as at and for the three months period ended 31 December 2006 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group┤s interests in associates. The Group┤s operations are in the airline transportation and tourism industry. The Group was listed on the Iceland Stock Exchange in December 2006.

Icelandair Group hf. was a subsidiary of FL GROUP hf. until October 2006, when it was acquired by Icelandair Group Holding hf., a company incorporated in Iceland in October 2006. The acquisition of Icelandair Group hf. is accounted for by applying the purchase method, where Icelandair Group hf. is the acquiree and Icelandair Group Holding hf. is the acquirer. After the acquisition, Icelandair Group hf. legally merged with Icelandair Group Holding hf. on 1 November 2006, with Icelandair Group hf. as the continuing company. The acquisition and subsequent merger result in that the consolidated income statement and statement of cash flows only cover the three months period from 1 October 2006 to 31 December 2006.

To provide users of the Group┤s consolidated financial statements with more appropriate information of the Group's operations and cash flows, audited pro forma figures based on audited financial statements of all subsidiaries of Icelandair Group hf. for the whole year 2006 are presented in the income statement and statement of cash flows with relevant disclosures in the notes. The basis for preparation of the pro forma figures is described further in note 2e.

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