Ryanair 2010 Annual Report Download - page 97

95
The shares of the SPVs (which are owned by an unrelated charitable association) are in turn pledged to
a security trustee in favor of Ex-Im Bank and the lenders. Ryanair operates each of the aircraft pursuant to a
finance lease it has entered into with the SPVs, the terms of which mirror those of the relevant loans under the
facilities. Ryanair has the right to purchase the aircraft upon termination of the lease for a nominal amount.
Pursuant to this arrangement, Ryanair is considered to own the aircraft for accounting purposes under IFRS.
Ryanair does not use special purpose entities for off-balance sheet financing or any other purpose which results
in assets or liabilities not being reflected in Ryanair’s consolidated financial statements.
At June 30, 2010, Ryanair had mandated a number of lenders to provide financing for up to 16 of its
firm-order Boeing 737-800 aircraft under Ex-Im Bank guaranteed financing structures (although guarantees
with respect to 10 of such aircraft remain subject to the receipt of Ex-Im Bank’s final commitment and 5 remain
subject to the receipt of Exlm Bank’s preliminary commitment). The Company expects to finance the remaining
72 Boeing 737-800 aircraft it is obligated to purchase under its contracts with Boeing by November 2012 and
any option aircraft it acquires under those agreements through the use of similar financing arrangements based
on Ex-Im Bank guarantees, bank debt provided by commercial banks, and finance and operating leases,
including via sale-and-leaseback transactions such as those described below, as well as cash flow generated
from the Company’s operations. It is expected that any future Ex-Im Bank guarantee-based financing will also
be subject to terms and conditions similar to those described above. However, no assurance can be given that
such financing will be available to Ryanair, or that the terms of any such financing will be as advantageous to
the Company as those available at the time of the facilities. Any inability of the Company to obtain financing for
the new aircraft on advantageous terms could have a material adverse effect on its business, results of operation
and financial condition.
The Company financed 55 of the Boeing 737-800 aircraft delivered between December 2003 and
March 2010 under seven-year, sale-and-leaseback arrangements with a number of international leasing
companies, pursuant to which each lessor purchased an aircraft and leased it to Ryanair under an operating
lease. As a result, Ryanair operates, but does not own, these aircraft, which were leased to provide flexibility for
the aircraft delivery program. Ryanair has no right or obligation to acquire these aircraft at the end of the
relevant lease terms. 15 of these leases are denominated in euro and require Ryanair to make variable rental
payments that are linked to EURIBOR. Through the use of interest rate swaps, Ryanair has effectively
converted the floating-rate rental payments due under 12 of these leases into fixed-rate rental payments. 30 of
these leases are denominated in euro and require Ryanair to make fixed rental payments over the term of the
lease. The remaining 10 operating leases are U.S. dollar-denominated and two require Ryanair to make variable
rental payments that are linked to U.S. dollar LIBOR, while a further eight require Ryanair to make fixed rental
payments. The Company has an option to extend the initial period of seven years on 28 of the operating lease
aircraft on pre-determined terms. Ten operating lease arrangements, including six with extension options, will
mature during January, February or March 2011. The Company has decided not to extend any of these operating
leases for a secondary lease period. In addition to the above, the Company financed 20 of the Boeing 737-800
aircraft delivered between March 2005 and March 2010 with 13-year euro-denominated JOLCOs. These
structures are accounted for as finance leases and are initially recorded at fair value in the Company’s balance
sheet. Under each of these contracts, Ryanair has a call option to purchase the aircraft at a pre-determined price
after a period of 10.5 years, which it may exercise. Six aircraft have been financed through euro-denominated
12-year amortizing commercial debt transactions.
Since, under each of the Company’s operating leases, the Company has a commitment to maintain the
relevant aircraft, an accounting provision is made during the lease term for this obligation based on estimated
future costs of major airframe and certain engine maintenance checks by making appropriate charges to the
income statement calculated by reference to the number of hours or cycles operated during the year. Under
IFRS, the accounting treatment for these costs with respect to leased aircraft differs from that for aircraft owned
by the Company, for which such costs are capitalized and amortized.
In 2000, Ryanair purchased a Boeing 737-800 flight simulator from CAE Electronics Limited of
Quebec, Canada (“CAE”). The simulator is being used for pilot training purposes. The gross purchase price of
the simulator and the necessary software was approximately $10 million, not taking into account certain price
concessions provided by the seller in the form of credit memoranda. The Company financed this expenditure
with a 10-year euro-denominated loan provided by the Export Development Corporation of Canada for up to
85% of the net purchase price, with the remainder provided by cash flows from operations.