Qantas 2003 Annual Report Download - page 54

page 52
2003 Qantas Annual Report
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 30 June 2003
8. Contingent liabilities
Details of contingent liabilities arising outside the normal course of business, where the probability of future payments is not considered remote,
are set out below. The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future
sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Qantas Group
2003 2002
$M $M
Guarantees and letters of comfort to support operating lease commitments
and other arrangements entered into with other parties by controlled entities 24.0 24.8
Guarantees and letters of comfort to support leveraged and operating lease commitments
to other parties on behalf of associated companies 0.1 0.1
General guarantees in the normal course of business 130.7 134.2
Contingent liabilities relating to current and threatened litigation 56.6 49.8
211.4 208.9
TERMINAL FUEL FACILITIES
The Qantas Group, together with other airlines, has entered into various agreements in order to facilitate the funding and installation of jet turbine
fuel hydrant systems and terminal equipment facilities at Los Angeles and Hawaii airports. The airlines have jointly and severally agreed to repay any
unpaid balance (including interest) of the loans totalling $225.3 million (2002: $294.1 million) in the event the agreements are terminated prior to
expiry of the loans.
AIRCRAFT FINANCING
As part of the financing arrangements for the acquisition of aircraft, the Qantas Group has provided certain guarantees and indemnities to various
lenders and equity participants in leveraged lease transactions. In certain circumstances, including the insolvency of major international banks, Qantas
Group may be required to make payments under these guarantees. The Qantas Group has guaranteed that the lessors will receive all of the funds
due to them under the lease arrangements.
Qantas and certain controlled entities have entered into asset value underwriting arrangements with lenders under certain aircraft secured
financings. These arrangements protect the value of the aircraft security to the lenders to a pre-determined level. This is reflected by the balance
of aircraft security deposits held with certain financial institutions.
The Qantas Group has provided standard tax indemnities to the equity investors in certain leveraged leases. The indemnities effectively guarantee
the after-tax rate of return of the investors and the Qantas Group may be subject to additional financing costs on future lease payments if certain
assumptions made at the time of entering the transactions, including assumptions as to the rate of income tax, subsequently become invalid.
UNREALISED LOSSES – BACK-TO-BACK HEDGES
Where long-term borrowings are held in foreign currencies in which Qantas derives surplus net revenue, offsetting forward foreign exchange
contracts have been used to match the cash flows arising under the borrowings with the expected revenue surpluses used to hedge the borrowings.
To the extent a gain or loss is incurred, this is deferred until the net revenue is realised. As at 30 June 2003, total unrealised exchange gains on
hedges of net revenue designated to service long-term debt were $117.7 million (2002: $206.2 million loss).