Aer Lingus 2010 Annual Report Download - page 65

Financial Statements Aer Lingus Group Plc – Annual Report 2010 63
3 Financial risk management (continued)
Under the policy the Group can derogate from this systematic hedging requirement, in event of unusual market conditions.
The products used by the group treasury function in managing commodity price risk are predominantly jet fuel swaps.
A US $10 increase in the price per tonne of jet fuel price in 2010 would have increased fuel costs by approximately $4.5m, based
on an estimated burn/MT of 450,000 tonnes, absent hedging (2009: $5.0m).
(b) Credit risk
Credit risk is managed on group basis. Credit risk arises from loans and receivables, derivative fi nancial instruments, deposits and cash and
cash equivalents with banks and fi nancial institutions and trade and other receivables. The maximum exposure to credit risk is represented
by the carrying amount of each fi nancial asset.
Group policy requires fi nancial counterparties to hold minimum credit ratings from independent rating agencies. The appropriateness and
utilisation of Board approved credit limited are regularly monitored and reviewed in light of the commercial requirements of the Group.
At 31 December 2010 the Group had a total credit exposure of €0.9bn relating to bonds, deposits, cash and derivatives which was spread
over 30 counterparties. Of this €0.7bn was due to mature within 12 months. The Group does not have any material credit risk arising from
the ageing of trade and other receivables.
67% of the total credit exposure of €0.9bn, was held with fi nancial institutions, holding long-term credit ratings equivalent to AAA to AA3
(Moody’s). 24% of the total credit exposure was held with fi nancial institutions, holding long term-ratings equivalent to A1 to A2. The
remaining 9% was held with fi nancial institutions with long-term credit ratings below A2. At 22 March 2011, the respective %s were 68%,
28% and 4%.
(c) Liquidity risk
The principal policy objective in relation to liquidity is to ensure that the Group has access at minimum cost, to suffi cient liquidty to enable
it to meet its obligations as they fall due and to provide adequately for contingencies. In implementing this policy, the Group is required to
maintain, at all times, access to Board approved minimum requirements. In addition, this liquidity requirement, once drawn, must continue
to be accessible for an agreed further period. Cash balances in excess of these levels are normally maintained in order to enable the Group
to take advantage of commercial opportunities and withstand business shocks.
The Group has long-term debt almost exclusively associated with aircraft acquisitions. All borrowing is undertaken by the group treasury
function. Group policy is to maintain, at all times, cash and/or committed facilities for a high proportion of the net forecasted borrowing
requirements for the following 12 months. Where borrowings are made to fund the acquisition of aircraft, policy requires at least 80% of
such borrowings must be from facilities that are committed for a period of not less than fi ve years.
The table below analyses the Group’s fi nancial liabilities into relevant maturity groupings based on the remaining period at the balance sheet
date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash fl ows.
Less than 1 year 1 – 2 years 2 – 5 years Over 5 years Total
€’000 €’000 €’000 €’000 €’000
At 31 December 2010
Finance lease obligations 78,381 53,808 271,798 251,314 655,301
Trade and other payables 299,117 - - - 299,117
At 31 December 2009
Finance lease obligations 70,952 67,338 197,852 278,987 615,129
Trade and other payables 340,710 - - - 340,710