4Q'25 Earning Call Transcript

05 March 2026

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Head of Inves tor Relations

Ladies and gentlemen, welcome to Turkish Airlines' Fourth Quarter 2025 Earnings Call. We will have a Q&A session following the presentation. With that, I will now leave the floor to our hosts, Professor Murat Seker, he's the Member of Board and the Executive Committee, as well as Chief Financial Officer Mehmet Fatih Korkmaz, the Head of Investor Relations. Gentlemen, the floor is yours.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Thank you, Rob. Good afternoon everyone, and thank you for joining us.

2025 passed with a rapidly changing and at times rather volatile operating environment for the global airline industry. While passenger demand remained mostly supportive, airlines across the world navigated geopolitical and macroeconomic uncertainties along with aircraft delivery delays and engine reliability issues. These dynamics carried over to the new year, with extremely heightened geopolitical tensions in the Middle East adding a further layer of uncertainty to the operating landscape.

In this environment, Turkish Airlines leverages its diversified business model and flexible operating structure. These capabilities have been repeatedly tested in recent periods by various external shocks, and each time they enabled us to respond swiftly while preserving financial discipline. 2025 was no exception. During the year, we selectively deployed capacity and carefully managed costs under the inflationary environment, with a clear focus on cash generation.

As a result, our performance demonstrated clear separation from the industry across key operational and financial metrics. We recorded capacity growth of 7.5%, 2 percentage points higher than the industry, and more than 45% above 2019 levels, a performance rarely matched among comparable full-service carriers. More importantly, this growth translated into profitability, with our EBITDAR margin remaining above 23%, ahead of sector benchmarks. At the same time, our Return on Invested Capital continued to materially outperform, reflecting a track record of disciplined capital allocation, prudent financial management and agile execution. Supported by our structural advantages, we remain on track with our 2033 strategic roadmap.

Before going into details of the results, I would like to take a moment to discuss key drivers that shaped last year's operating environment.

Throughout 2025, we further strengthened our fleet and network depth, reinforcing our unique global positioning. With 24 net aircraft growth, our total fleet exceeded the 500-milestone reaching 516 aircraft. We also completed our planned Boeing wide-body order, supporting our long-haul growth targets and operational efficiency. Furthermore, with the addition of four new destinations, we expanded our international network to 303 destinations across 131 countries maintaining our leadership as the airline flying to more countries than any other.

Our service quality and brand strength attracted global attention over the years. We were honored with the APEX World Class Award for the fifth consecutive year and named Best in Class for Sustainability for the second year in a row. In addition, Skytrax recognized us as the Best Airline in Europe for the tenth time demonstrating our ongoing focus on improving our customer experience. On the financing side, one of our most notable achievements was having "European Overall Deal of the Year" award by Airline Economics for our innovative Islamic finance lease transaction denominated in Swiss francs.

We also advanced several strategic initiatives across our investment and subsidiary portfolio. Our minority share acquisition in Air Europa aimed creating additional connectivity opportunities at Latin America, Europe and Türkiye. We also further deepened our commercial cooperation in Asia through a Joint Bus iness Agreement with Thai Airways, establishing a revenue sharing structure on the Istanbul-Bangkok route to unlock additional passenger traffic. Moreover, Turkish Technic signed an agreement with Rolls-Royce to establish a regional wide-body engine maintenance hub at Istanbul Airport which is expected to become operational in late 2027.

Furthermore, in line with our long-term vision, we broke ground on infrastructure investments spanning cargo, technical maintenance, catering, data centers, and training facilities with a total value exceeding

2.5 billion Dollars. These investments are designed to secure our future capacity growth and elevate operational capabilities. Our digital capabilities were expanded with the launch of TKPAY, which streamlines payment processes and reduce friction across the travel value chain.

In addition, Turkish Airlines Holidays was rolled out globally enabling passengers to plan their entire travel experience through a single integrated platform. All these initiatives support our strategy of strengthening core operations while selectively expanding into adjacent, high-value segments.

Now I would like to turn your attention to our financial results.

In 2025, capacity grew by 7.5%, building on our position as owning the busiest operation in Europe among the network carriers. We carried more than 92 million passengers, with a load factor of 83.2%. As we focus more on operational reliability, our on-time-performance improved by 4.6 percentage points, placing us among the top 10 carriers in Cirium's 2025 global on-time performance rankings.

On cargo side, Turkish Cargo increased its annual volume by over 8%, maintaining its spot as the world's third-largest air cargo carrier according to data published by the International Air Transport Association (IATA).

Despite elevated market volatility throughout the year, our 2025 results materialized broadly in line with our expectations. Total revenues increased by more than 6% year-on-year, reaching 24 billion Dollars. Passenger revenues rose 7%, supported by healthy international and premium demand. Meanwhile, cargo revenues were slightly down by 3% and stood at around 3.4 billion Dollars, in a challenging year shaped by tariff tensions and decelerating global trade. On the other hand, Turkish Technic's revenues increased by 21% to 2.7 billion Dollars, as aircraft production bottlenecks push airlines to operate older aircraft.

Inflationary pressures on cost items, especially in personnel were less pronounced in the fourth quarter. With strong revenue performance, our Profit from Main Operations improved by 23% in the last quarter. As a result, full year operating profit recorded as 2.2 billion Dollars. A sizable return from our investment portfolio further supported the bottom line. Consequently, Net Income reached 2.9 billion Dollars.

Strong operational cash inflow and lower aircraft pre-delivery payments resulted in 2.8 billion Dollars Free Cash Flow, representing a 45% increase compared to previous year. We are comfortable with the current level of 10% Free Cash Flow Margin as it ensures financial flexibility while executing our longterm strategy.

Looking ahead, our forward bookings for 2026 are robust, both passenger volume and unit revenue readings are above previous year. We entered the year with strong momentum carried over from the fourth quarter and our January-February results have been encouraging. We expect this positive trend to continue, unless disrupted by the recent turmoil in the Middle East region.

In closing, 2025 was marked by resilience, growth, and strategic progress. Despite a challenging operating environment, momentum to achieving our decade-long targets was preserved. We thank our employees, passengers, and shareholders for their ongoing trust in Turkish Airlines. With strong fundamentals and sound execution, we remain confident in our ability to deliver sustainable long-term value.

I will now pass the call over to Fatih Bey to elaborate on our results and provide additional insights. Thank you.

Head of Investor Relations

Thank you Murat Bey, and good afternoon.

We now move into the details of our operational and financial performance.

As briefly outlined earlier by Murat Bey, 2025 was shaped by aircraft delivery delays, GTF groundings and regional conflicts. Within this environment, we maintained a measured capacity expansion throughout the year and continued to deploy aircraft selectively. As a result, in the fourth quarter, passenger capacity increased by 11% annually, bringing full year growth to 7.5%.

In 2025, transfer traffic expanded at a marginally faster pace than direct traffic, especially during the summer season, while demand from Latin America, Africa, and Asia to Turkiye showed notable strength. For the full year, our international market share reached 3.5% reinforcing our position among leading global network carriers. Turkish tourism growth remained positive and the country continued to attract international visitors. This sustained demand environment, combined with our broad geographic presence, supported traffic performance across our network.

Another important development last year was the scaling of TKCONNECT. What started as a commercial initiative has evolved into a structural shift in our distribution model. As a result, Direct channel penetration increased in the year, exceeding 80% of total sales. Accordingly, direct distribution led to 60 million Dollars cost savings last year. This transition not only improved cost efficiency but also enhanced our ability to customize offers and grow our ancillary revenues.

From a regional perspective, Far East and Africa were our top performing regions as the year progressed, with their performance further strengthening in the fourth quarter.

In the Far East, demand remained firm throughout the year with a 9% increase in capacity and a 2.6 percentage points higher load factor compared to 2024. This performance was mainly driven by additional frequencies in Japan and Thailand, as well as in China following the expansion of our traffic rights. Strong demand in these markets allowed us to deploy the incremental supply effectively and maintain healthy load factors. We observe robust momentum entering into 2026.

Africa also delivered a stronger performance. Following the capacity increases implemented earlier in the year, demand proved resilient across both transit and local segments. Newly launched routes, particularly in Libya contributed positively while growing connectivity between China and West Africa supported additional flows. In the fourth quarter, capacity in the region increased by around 12% while maintaining a balanced yield and higher load factor. Top performing routes including Mauritius, Accra, Libya, and Dar es Salam are set to support the growth trajectory.

In Europe, competitive intensity remained elevated, driven by significant capacity additions from both legacy and low-cost carriers. Pricing pressure was more vis ible in Northern and Eastern markets, while Southern Europe showed relatively firmer demand. Although transit traffic provided partial support, direct flows from certain markets to Türkiye softened compared to last year. Consequently, ex-currency basis yields declined by 6 percent annually.

In North America, the impact of the U.S. policy changes negatively influenced ethnic travel appetite, most visibly in the third quarter. As a result, we reallocated part of our capacity toward Asia where demand conditions were more favorable during the last quarter of the year. Conversely, Latin America sustained its positive trajectory, with routes such as Panama and Argentina performing strongly and supporting overall regional results.

Overall, looking at our key performance indicators for the full year, total passenger numbers increased by 8.8% to 92.6 million. Load factor improved by 1 percentage point, reaching 83.2%, reflecting demand strength despite 7.5% capacity increase. Revenue yield and, Revenue per Available Seat Kilometer -including cargo decreased by the same amount, 1.4%. Although weakening Dollar index was a major theme last year, its impact on unit revenues was not material at the network level as indicated by the change differential between reported and ex-currency yields.

In 2025, passenger revenues rose by 7.4%, especially with the momentum provided by the 13% increase in the fourth quarter. Turkish Technic's revenue contribution to the top line was remarkable in the last year. External technical revenues increased by 44% in the fourth quarter and 25% for the full year, reflecting sustained demand for maintenance services amid ongoing production constraints and extended utilization of existing fleets. We expect this trend to continue in the following years, given the limited new aircraft availability.

On the cargo side, last quarter's performance was promising after the first nine month's challenging operating environment. In the fourth quarter, cargo revenues rose by 3% on the back of 16% higher carried cargo with 11% erosion in cargo yields, indicating a 6 percentage points of sequential yield improvement.

In 2025, AJet strengthened its low-cost platform, building on its rebranding and operational setup. During the year, it carried more than 23 million passengers, with capacity increasing by 16% and load factors improving 4 percentage points, reflecting disciplined network development and greater schedule consistency despite ongoing GTF engine related groundings. RASK also improved by 4.4% as operations stabilized and the network became more balanced across domestic and international markets.

Fleet modernization remains a central element of AJet's strategy. The share of new-generation aircraft is expected to increase from around 40% toward 75% this year, enhancing fuel efficiency, unit cost advantage and seat density.

Revenue development over the year was largely driven by passenger operations, while cargo performance reflected the impact of trade restrictions. On the cost side, dynamics remained mixed where brent prices remained relatively supportive, however higher crack spreads elevated fuel costs in last quarter. Inflation levels and real appreciation of Turkish Lira continued to put pressure on cost items, fortunately to a lesser extent than 2024. As a result of these factors, profitability moderated annual basis. For full year, Profit from Main operations amounted to around 2.2 billion Dollars, while EBITDAR recorded flat at 5.7 billion Dollars. With the strong contribution from our portfolio returns, net income realized higher than operating profit and reached 2.9 billion Dollars. Looking specifically at fourth quarter, the deceleration in cost pressures translated into a notable recovery in profitability, with an improvement of more than 20% year-on-year.

During 2025, total CASK increased by approximately 1% for the full year. Personnel expenses remained the primary driver, reflecting half-year inflation adjustment and 9 percentage point appreciation of Turkish Lira. We also saw a positive base effect since prior year included a one-off bonus payment, amounting 150 million Dollars. This supported a more moderate increase in personnel-related unit costs on an annual basis.

Airport and air traffic-related unit costs remained elevated, mainly due to revised tariff structures at major European hubs and currency effects. Aircraft maintenance expenses reflected the operational impact of GTF engine groundings, keeping ex-fuel unit costs under pressure, though the impact netted of by the compensation recorded on the operating profit line.

Turning to our balance sheet, on-hand liquidity increased by around 1.8 billion Dollars in 2025 to 9 billion Dollars. This improvement was mainly driven by stronger cash generation, along with new commercial borrowings to support and maintain financial flexibility for upcoming aircraft deliveries prepayments.

Net debt increased to 8.3 billion Dollars at the end of the year. Higher figure was largely attributable to fleet and infrastructure investments along with debt revaluation due to the weakening Dollar against hard currencies. Despite this, leverage remains comfortably below our targeted range of 2-2.5 times.

Currently, global travel appetite except Middle East is healthy. However, geopolitical developments and fuel cost uncertainty are key downside risk factors. In this environment, we project revenue growth broadly in line with planned passenger capacity expansion of 7-9%.

On the cost side, we expect ex-fuel CASK increase to normalize, rising by a low-single digit percent compared to 2025. Based on these assumptions, we anticipate an EBITDAR margin between 22 and 24%, aligned with mid-term our targets.

Sustainability remains a fundamental pillar of our long-term strategy. Throughout 2025, we advanced our decarbonization roadmap by accelerating fleet renewal, expanding the use of Sustainable Aviation Fuel and enhancing energy efficiency across our operations. These initiatives support our commitment to achieve carbon neutral operations by 2050. During last year, we further structured our SAF roadmap through strategic partnerships and preliminary agreements aimed at securing long-term supply and supporting domestic production capacity.

In parallel, we maintained our focus on operational efficiency through a number of fuel-saving initiatives implemented across the network. These efforts resulted in 67 thous and tons of fuel savings, and prevented 213 thousand tons of associated carbon emissions.

From a governance and transparency perspective, we enhanced our sustainability reporting framework. During the year, we published our first sustainability report prepared in accordance with IFRS Sustainability Disclosure Standards, enabling investors to assess climate-related risks and opportunities in a globally comparable format.

Additionally, we introduced our Board of Directors Diversity Policy, targeting at least 25% female representation within five years as part of our broader commitment to inclusivity.

This concludes the prepared remarks section of our earnings call. Now, back to Rob for the investor questions.

Thank you, speakers. Indeed, ladies and gentlemen, we now move on to the Q&A session. Like I said at the start, we will take your questions. With that, back to our speakers for those written questions. Gentlemen.

Welcome back, Murat Bey. Fatih, Head of Investor Relations here. We got a number of questions from our analysts, investors, and this time from media as well. So, we got at least 20 or more questions. I'm starting with the first question.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Sure. Thank you, Fatih. Well, especially the strong increase in the passenger load factor and belly cargo load factor, which was about 4 percentage points, and then passenger load factor was up by about 2 percentage points. These reflected the strong Christmas travel period. Cargo carried in terms of the volume was up by about 16%. So, it showed that there was a sustained market penetration in the air freight sector. And then the third-party revenue of our Turkis h Technic, our MRO company was also strongly up by about 40%. On the other hand, ex-fuel CASK decreased by 2% despite of the continuous increase of the previous three quarters. The decrease was by about 2%, mainly led by the lower personnel CASK of about 9%. This was something mentioned by Fatih already. The sales expens e kept declining about 15% due to higher utilization of our direct sales channels. We kept receiving some part of the engine compensation.

On the negative side, there was still some volatility geopolitics in the region and the cargo volumes were strongly up, but the yields were still down. In particularly on the cost side, the crack spread went up 19% and which put a lot of pressure on our fuel expenses. Airport fees was up by about 20%. CORSIA, United Nation's ICAO's initiative on sustainability also started to bring in some additional costs in our fuel expense. So overall, the positive sides were stronger than the negative developments and we had a what we believe to be a strong fourth quarter result.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Well, this is definitely a rather challenging question as there are so many uncertainties. We don't have a clear idea how widespread the conflict is going to last. So, that's why make our cancellations very short term. At the moment, all the Middle East region flights make about 6% of our capacity and revenue. Saudi Arabia and Oman are continuing. The flights there are ongoing. But we have suspended many operations, namely, of course, Iran, Iraq, Syria, Lebanon, Kuwait, Bahrain, Qatar, and UAE. So before the war, to this region overall, we had about 100 daily flights. Right now, with the continuation of Saudi and Oman mainly, we are having 35 daily operations. So the situation is still very uncertain.

We are making the flight cancellations very short-term. Just today we announced that Iran is going to be cancelled until the 20th of March, Iraq, Syria, Lebanon until the 9th, and then the other countries are going to be evaluated daily. We hope to have more clarity about the direction of the events and have more forward-looking guidance, but at the moment it is quite challenging.

On the financial impact, February is our lowest capacity production month. Together this year in particular with Ramadan starting in the last part of February and continuing into March, it's usually seasonally a low month of operations for us. But in addition, until the 10th of March, we have been seeing some additional passenger demand towards our network from Asia, passengers that want to travel to Europe in particular or westbound, more generally saying. We believe this is a short-term demand as the passengers who are stranded in their destinations and who want to go back home or to their final destinations, it will be short-term. Long-term evaluation is going to take a little bit more.

On the cargo side, because of the sea traffic being stopped or affected on the negative side, we are seeing some increase in the yields as sea freight is being impacted. But how permanent this impact is going to be is yet to be seen. Lastly, we have seen a huge increase in the Brent prices. And overall, if Brent stays around $80 expecting a monthly impact of about $70 million on our fuel expenses. If this situation lasts for about a month, hypothetically, we would see about a $90 million revenue loss.

So, of course, the contribution margin and contribution loss are going to be smaller, but overall, we can say roughly about a $120 million loss could be expected if this uneasiness lasts up to a month. If it does last longer, then it will start to impact the Ramadan Eid holiday season and Easter in April, then we have to sit and make more through calculations.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

We finished the year 2025 with about 39 aircrafts being grounded. As we have been repeatedly saying that Pratt & Whitney is putting hard work to solve the problem for good, but turnaround times are still long, induction periods are long in overhaul of these engines. Currently we have 110 GTF-powered neo aircrafts and in the coming years, in 2026, the number of grounded aircrafts is likely to increase to maybe around 50 aircrafts. About the compensation, we have already had some compensation and for the follow-up, for the continuation of the issue, we keep our discussions with Pratt & Whitney.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

So up until the recent, of course, development uneasiness in the region, the booking had been very strong actually. We have been seeing a strong demand environment, I could say globally. In the first two quarters of into 2026, we were planning 10% to 11% capacity growth. And when we divide this into the regions in Europe, about 7% in the first half capacity growth and the yield evolution of about like a 2 percentage points increase. In Far East, about 15% capacity growth. In particular, after we had the additional flight drives to China and the visa requirements being removed from Chinese tourists to Turkiye, we are expecting a strong demand from Far East to Turkiye. And from America's about 4% capacity growth and about the percent point 1% increase in the yields. Overall, on the international market, we were expecting about 10% capacity growth and 2% yield growth. In the domestic market, we are also expecting a strong growth about a 6.5% increase in capacity and roughly 1% increase in the yield evolution for the first half of the year.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Last year the growth was not strong. There was some maturization in the incoming demand to Turkiye over the last three years, we have had a very strong growth passing 10% year-over-year and reaching to $62 million at the beginning of 2025. Last year, the increase was by about 3%. We had $64 million. This year, we are expecting about 4% to 5% increase. Of course, we'll see it's going to be easier for us to make a projection on the incoming tourists after we have a bit more clarity on the developments in our region, but base scenario was 4%, 5% increase in incoming tourists to Turkiye.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

So, well, network wide, we have been seeing a stronger premium segment performance than the main cabin. Demand especially is being driven in the long-haul segments from Americas and Far East to Europe region, in particular, China, Hong Kong and Australia on the Asian routes.

In Americas premium segment revenues, grew by about 17 percentage points higher than the economy segment, and in Europe, unit revenue change was 5 percentage points higher in the business class. Overall, in terms of yield, we saw a 5 percentage points higher yield growth in the business class than the economy class. This partially has to do with the investment we have been making to advertise and advocate our business class.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Even though we have been still facing a relatively high inflation and high interest rate environment in Turkiye, in 2025, domestic air traffic -- domestic travel demand was strong. The load factor increased by 5 percentage points and the yield went up by 9% last year. So which shows domestic travel is resilient mainly due to its attractiveness. Air travel makes a lot of destinations in the country quite easily accessible. In the first two months of the year, we saw quite strong domestic traffic and our target for the whole year is by an increase of 11% in terms of capacity going forward into 2026.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

As I answered in the first question, the traffic demand was strong in 2025. We expect this to continue into 2026. We finished the year with about $3.4 billion revenues. We expect the revenue to go up by about 6% to 8% and the total amount of cargo carried to go up by about 5% to 6%.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Well, this is going to be a little difficult, but excluding this recent Middle Eastern cris is, when we did the budget, our expectation, our guidance based on our budget at the beginning of the year, we are targeting to increase our capacity in terms of ASK by 7% to 9% this year. And we expect the passenger demand to closely match this capacity and with stable load factors. Our total revenue is expected to increase by 6% to 9% and our EBITDAR expectation is around $6 billion and EBITDAR margin we expect that to be between 22% to 24%. But I want to underline the fact that, when we did the budget our assumption on the Brent was around $65, $66 and jet fuel was around probably close to $800. Current situation is much, much different than that. So it will have a lot of cons and maybe some advantages too but all these are yet to be seen.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

So during the as I said budgeting period our expectation, our budget value of the Brent price was about

$66 and currently we have not made any estimation but give or take as what we are seeing it is around

$78 to $80 levels. How long it's going to stick at these levels? Is yet to be seen. But what we can say is every any dollar increase on Brent results in about $50 million additional fuel cost. Our current hedge ratio for '26 is around 34% and our breakeven price is around $62.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

We started the discussions with the union about a month ago the discussions are still continuing. We are expecting to come to a final decision soon but at the moment I can only say that the discussions are still ongoing with the union.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Well, the salary increases definitely, we pay the salaries in Turkis h lira and then based on the impact of the inflation, even without any additional impact of the bargaining agreement, we would adjust the salaries at the rate of the inflation. And for the beginning of the year, it would be around 12.5% to 13% levels. And based on these inflationary adjustments and other cost expectations, our ex-fuel CASK increase expectation for 2026 is low-single digits or mid-single digits.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

With the updated aircraft delivery timelines, which we recently got the revision from Airbus and Boeing, our 2026 year-end fleet expectation is between 560 to 570 aircraft. This year, we are going to be receiving overall 85 aircrafts and there will be 32 exits. And if I divide this into our different operational groups for Turkish Air, for TK, our red flag main network carrier, there will be 26 entries and 4 exits. For AJet, as they are highly renewing their fleet, they will have 58 entries and 26 exits. And all these 58 entries are new generation aircrafts. It will allow AJet to have roughly 70% of its fleet in new generation aircrafts. And in cargo, there will be one entry and two exits. And for the following years, as we have mostly completed our fleet expansion plan, for 2027, we expect to reach an overall total fleet s ize of around 610 and for 2028, 630.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

So net debt increase in 2025 primarily due to the new aircraft deliveries, we had about 24 net growth this year and the capital expenses and also in addition to the fleet expansion, we had infrastructure payments and the euro appreciation also affected our net debt.

In 2024, we had quite a bit of wet lease aircrafts in the fleet and they are not classified under financial lease debt. So they were in the operating expense part. But this year in 2025, we had operating lease and financial lease aircrafts. Most of the wet aircraft were returned. So this also contributed to attaining a higher debt.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

I just said a few words actually about it. We are investing heavily in renewing the fleet of Ajet which has a big impact on reducing their ex-fuel CASK and also actually overall CASK. Despite the aircraft groundings due to the GTF engine issue, their capacity, passenger capacity was up by 24% in the last quarter of 2025. This year, we are expecting about 16% growth in the capacity and the load factor also we are expecting that to improve from almost 80% to 84% levels and number of passengers should also increase by about 15% to 16% in 2026.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

The Turkish Technic's revenue last year was up by 18% and it reached $2.6 billion. It was the third biggest MRO provider in Europe. And in the same period, its profitability also increased by about 2 percentage points which constituted around 10% of Turkish Airlines total operating profit.

We have a recent collaboration with Rolls-Royce in establishing the engine overhaul facility in Istanbul along with the new hangar investments in Istanbul Airport in particular and a few other locations that we are investigating currently. These investments will contribute to Turkish Technic's profitability as the demand environment in MRO business is rather strong. By 2033, our 100th year anniversary, we are targeting to increase Turkish Technic's hangar capacity from around its current level of 60 aircrafts to 120 aircrafts in different airports in Turkey. Corres pondingly, we expect Turkish Technic's revenue to reach from the current level of $2.6 billion to $8 billion. And its overall share in Turkish Airlines' revenue should go up to 15%.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

So, Euro's appreciation has a positive impact on our operating profit as our Euro-based income exceeds our Euro-based expenses. On the balance sheet side, we are short in euro because we have quite a bit of aircraft financing attained in Euro denomination. So, the appreciation of euro against dollar has a negative impact on the financial side. However, effect on operating profit compensates for this balance sheet impact, and overall impact of Euro appreciation on net profit stays positive. We have $2.9 billion aircraft debt in also Japanese Yen, another currency that we have a big exposure. However, our Japanese base income allows us to hedge this debt up to 45%. Thus, appreciating of the Japanese yen has some negative impact on the net profit.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

The application process in Spain, in EU, and some non-EU jurisdictions for the competition is continuing. Our target is to complete the whole regulatory processes before the summer ends. If that would be the case, the expected synergies from this transaction should be started to seen towards the last quarter of 2026.

Currently, we have already submitted our application to Spanish Foreign Direct Investment Board, and at the end of January, to European Union's Foreign Subsidies Regulation, FSR. And then we have also provided draft to European Commission for Merger Control. And so, at full speed, we are continuing the application process.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Well, last year, when we paid our first dividend, we expressed our intention to continue to do so as long as our financials are going to permit that. And we are committed to shareholder returns within this framework. And last year, we announced that as long as our EBITDAR margin is higher than 22% and net debt to EBITDA is less than 2.5x, we will be inclined to pay the dividends. So we are working towards that. We have not made the announcement yet, but once we get the Board approval at the amount and then the timing, we will be disclosing that information.

We consider many factors when deciding on the share buybacks. Considering our strong cash flow and peer multiples, I can say that our shares are trading far away from its intrinsic value. So we prefer to signal the market with buybacks, which we recently have done some amount, when we see unwarranted share price formation due to some of the noises in the market. All in all, we are expecting about 5% to 7% payout ratio inclusive of maybe potentially some share cancellations. It could be possible, but we have not really thoroughly finalized these evaluations yet.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

Our ROIC realized around 12% last year, which was down by almost 5 percentage points from the highest level attained in 2022. Why it did decline? We have seen the normalization in profits after the post-pandemic demand surge. The competition is back its level where it was before the pandemic, and there was a significant increase in invested capital as we invested our profitability to the company.

According to our current projections, our profitability will stabilize between 22% to 25% EBITDAR margin in line with our long-term targets. And in additions to our fleet and infrastructure, we'll increase our efficiency as well. As a result, we project somewhere between 8% to 12% ROIC going forward materially higher than the industry, which is around 7% levels.

Chief Financial Officer / Member of the Board of Directors and the Executive Committee

EU regulation is requiring currently mandatory self-blending in all the flights departing from EU airports, regardless of the country where the airline is based. So we are operating under this regulation, completing the same situation with all European carriers. On top of this, Turkish Civil Aviation SAF directive introduces a parallel obligation. SAF must be supplied and uplifted to all flights departing from Turkish airports. And this applies to all relevant departures from Turkiye and perfectly aligns with the EU regulation of 6% self-blend by 2030. So we are completely on the same boat with our EU peer airlines. And as a result, we are obliged to purchase SAF for the flights departing from Turkiye, just as EU carriers must do for the flights departing from EU. Furthermore, when Turkish Airlines operates from the EU airports, we are also subject to EU SAF obligations. Meaning, we face dual expos ure, EU carriers are able to obtain certain incentives and emission grants from the governments. On top of that, they can reflect SAF costs to passengers where we are not doing this. Therefore, it is not true to suggest that Turkish Airlines is less affected by the SAF regulations implemented in Europe.

Head of Investor Relations

Thank you, Murat Bey. With this question, we conclude our earnings call. Thank you all for your participation, and we look forward to being with you next quarter.

Thank you, speakers. Ladies and gentlemen, we appreciate your participation, and

we appreciate our speakers and the answering of the questions. And like was just said, that concludes today's conference call. Thank you for your participation. You may now disconnect.