EasyJet 2011 Annual Report Download - page 72

Notes to the accounts
1 Accounting policies
Statement of compliance
easyJet plc (the “Company”) and its subsidiaries (“easyJet” or the “Group” as applicable) is a low cost airline
carrier operating principally in Europe. The Company is a public limited company whose shares are listed on the
London Stock Exchange under the ticker symbol EZJ and is incorporated and domiciled in the United Kingdom.
The address of its registered office is Hangar 89, London Luton Airport, Bedfordshire LU2 9PF.
The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union, taking into account International Financial Reporting Interpretations Committee (IFRIC)
interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Basis of preparation
The accounts are prepared based on the historical cost convention except for certain financial assets and
liabilities including derivative financial instruments that are measured at fair value.
The accounting policies set out below have been applied consistently to all years presented in these accounts.
easyJet’s business activities, together with factors likely to affect its future development and performance, are
described in the business review on pages 8 to 15. Principal risks and uncertainties are described on pages 27 to
30. Note 22 to the accounts sets out the Group’s objectives, policies and procedures for managing its capital
and gives details of the risks related to financial instruments held by the Group.
The Group holds cash and cash equivalents of £1.1 billion as at 30 September 2011. Total debt of £1.3 billion is free
from financial covenants, with £155 million due for repayment in the year to 30 September 2012.
The business is exposed to fluctuations in fuel prices and US dollar and euro exchange rates. The Group’s policy
is to hedge between 65% and 85% of estimated exposures 12 months in advance, and 45% and 65% of
estimated exposures from 13 up to 24 months in advance. The Group was compliant with this policy at the date
of this Annual report and accounts.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group will be
able to operate within the level of available facilities and cash for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the accounts.
Significant judgements, estimates and critical accounting policies
The preparation of accounts in conformity with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the accounts
and the reported amounts of income and expenses during the reporting period. Although these estimates are
based on management’s best knowledge of the amount, events or actions may mean that actual results
ultimately differ from those estimates, and these differences may be material. The estimates and the underlying
assumptions are reviewed regularly.
The following three accounting policies are considered critical accounting policies as they require a significant
amount of management judgement and the results are material to easyJet’s accounts.
Goodwill and landing rights (note 7)
Goodwill and landing rights are tested for impairment at least annually. easyJet has one cash-generating unit,
being its route network. In making this assessment, easyJet has considered the manner in which the business is
managed including the centralised nature of its operations and the ability to open or close routes and redeploy
aircraft and crew across the whole route network.
The value in use of the cash-generating unit is determined by discounting future cash flows to their present
value. When applying this method, easyJet relies on a number of estimates including its strategic plans, fuel
prices, exchange rates, long-term economic growth rates for the principal countries in which it operates and its
pre-tax weighted average cost of capital.
Aircraft maintenance provisions (note 16)
easyJet incurs liabilities for maintenance costs in respect of aircraft leased under operating leases during the
term of the lease. These arise from legal and constructive contractual obligations relating to the condition of the
aircraft when it is returned to the lessor. To discharge these obligations, easyJet will also normally need to carry
out one heavy maintenance check on each of the engines and the airframe during the lease term.
A charge is made in the income statement based on hours or cycles flown to provide for the cost of these
obligations. Estimates required include the likely utilisation of the aircraft, the expected cost of the heavy
maintenance check at the time it is expected to occur, the condition of the aircraft and the lifespan of life-
limited parts.
The bases of all estimates are reviewed annually, and also when information becomes available that is capable
of causing a material change to an estimate, such as renegotiation of end of lease return conditions, increased
or decreased utilisation, or changes in the cost of heavy maintenance services.
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easyJet plc
Annual report
and accounts 2011