Ryanair 2010 Annual Report Download - page 143

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in the fair value below its cost. All impairment losses are recognised in the income statement and any
cumulative loss in respect of an available-for-sale asset recognised previously in other comprehensive income is
also transferred to the income statement.
Long-lived assets
As of March 31, 2010, Ryanair had 14.3 billion of property, plant and equipment long-lived assets,
virtually all of which consisted of aircraft. In accounting for long-lived assets, Ryanair must make estimates
about the expected useful lives of the assets, the expected residual values of the assets and the potential for
impairment based on the fair value of the assets and the cash flows they generate.
In estimating the lives and expected residual values of its aircraft, Ryanair has primarily relied on its
own and industry experience, recommendations from Boeing, the manufacturer of all of the Company’s aircraft,
and other data available in the marketplace. Subsequent revisions to these estimates, which can be significant,
could be caused by changes to Ryanair’s maintenance program, changes in utilisation of the aircraft, changes to
governmental regulations on aging aircraft, and changing market prices for new and used aircraft of the same or
similar types. Ryanair evaluates its estimates and assumptions in each reporting period, and, when warranted,
adjusts these assumptions. Generally, these adjustments are accounted for on a prospective basis, through
depreciation expense.
Ryanair periodically evaluates its long-lived assets for impairment. Factors that would indicate
potential impairment would include, but are not limited to, significant decreases in the market value of an
aircraft, a significant change in an aircraft’s physical condition and operating or cash flow losses associated with
the use of the aircraft. While the airline industry as a whole has experienced many of these factors from time to
time, Ryanair has not yet been seriously impacted and continues to record positive cash flows from these long-
lived assets. Consequently, Ryanair has not yet identified any impairments related to its existing aircraft fleet.
The Company will continue to monitor its long-lived assets and the general airline operating environment.
The Company’s estimate of the recoverable amount of aircraft residual values is 15% of market value,
determined periodically, based on independent valuations and actual aircraft disposals during the current and
prior periods.
Heavy maintenance
An element of the cost of an acquired aircraft is attributed, on acquisition, to its service potential,
reflecting the maintenance condition of the engines and airframe.
For aircraft held under operating lease agreements, Ryanair is contractually committed to either return
the aircraft in a certain condition or to compensate the lessor based on the actual condition of the airframe,
engines and life-limited parts upon return. A provision is made over the lease term for this contractual
obligation, based on the present value of the estimated future cost of the major airframe overhaul, engine
maintenance checks, and restitution of major life-limited parts, calculated by reference to the number of hours
flown or cycles operated during the year.
Ryanair’s aircraft operating lease agreements typically have a term of seven years, which closely
correlates with the timing of heavy maintenance checks. The contractual obligation to maintain and replenish
aircraft held under operating lease exists independently of any future actions within the control of Ryanair.
While Ryanair may, in very limited circumstances, sub-lease its aircraft, it remains fully liable to perform all of
its contractual obligations under the ‘head lease’ notwithstanding any such sub-leasing.
Both of these elements of accounting policies involve the use of estimates in determining the quantum
of both the initial maintenance asset and/or the amount of provisions to be recorded and the respective periods
over which such amounts are charged to income. In making such estimates, Ryanair has primarily relied on its
own and industry experience, industry regulations and recommendations from Boeing; however, these estimates
can be subject to revision, depending on a number of factors, such as the timing of the planned maintenance, the
ultimate utilisation of the aircraft, changes to government regulations and increases or decreases in estimated
costs. Ryanair evaluates its estimates and assumptions in each reporting period and, when warranted, adjusts its
assumptions, which generally impact maintenance and depreciation expense in the income statement on a
prospective basis.