Ryanair 2010 Annual Report Download - page 83
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81
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 utilization of the aircraft, changes to government regulations and increases and 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.