Air New Zealand 2011 Annual Report Download - page 30

16. PROVISIONS
GROUP
2011
$M
GROUP
2010
$M
COMPANY
2011
$M
COMPANY
2010
$M
Provisions
Aircraft lease return costs 166 202 165 202
Other 1---
167 202 165 202
Represented by:
Current 79 65 77 65
Non-current 88 137 88 137
167 202 165 202
Aircraft lease return costs
Balance at the beginning of the year 202 198 202 196
Amount provided 60 64 59 63
Amount utilised (64) (47) (64) (45)
Foreign exchange differences (32) (13) (32) (12)
Balance at the end of the year 166 202 165 202
Represented by:
Current 78 65 77 65
Non-current 88 137 88 137
166 202 165 202
Where a commitment exists to maintain aircraft held under operating lease arrangements, a provision is made during the lease term for
the lease return obligations specified within those lease agreements. The provision is based on the present value of the estimated future
costs of major airframe inspections and engine overhauls by making appropriate charges to the Statement of Financial Performance,
calculated by reference to the number of hours or cycles operated during the year. The provision is expected to be utilised over the
shorter of the period to the next inspection or overhaul or the end of the lease.
Other provisions include amounts relating to insurance and warranties. Insurance provisions are expected to be utilised within 12
months based on historical claim experience. Warranty provisions represent an estimate of potential liability for future rectification work
in respect of past engineering services performed. The usual warranty period is less than 12 months from the date of delivery of the
serviced aircraft. The Group recognised additions of $1 million in the year ended 30 June 2011 (30 June 2010: Nil).
17. FINANCIAL RISK MANAGEMENT
Air New Zealand is subject to credit, foreign currency, interest rate, and fuel price risks. These risks are managed with various financial
instruments, using a set of policies approved by the Board of Directors. Compliance with these policies is reviewed and reported monthly
to the Board and is included as part of the internal audit programme. Group policy is not to enter, issue or hold financial instruments for
speculative purposes.
CREDIT RISK
Credit risk is the potential loss from a transaction in the event of default by a counterparty during the term of the transaction or on
settlement of the transaction. Air New Zealand incurs credit risk in respect of trade receivable transactions and other financial instruments
in the normal course of business. The maximum exposure to credit risk is represented by the carrying value of financial assets.
Air New Zealand places cash, short term deposits and derivative financial instruments with good credit quality counterparties, having a
minimum Standard and Poors credit rating of A. Limits are placed on the exposure to any one financial institution.
Credit evaluations are performed on all customers requiring direct credit. Air New Zealand is not exposed to any concentrations of credit
risk within receivables, other assets and derivatives. Air New Zealand does not require collateral or other security to support financial
instruments with credit risk. A significant proportion of receivables are settled through the International Aviation Travel Association
(IATA) clearing mechanism which undertakes its own credit review of members.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 30 JUNE 2011
AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2011