Ryanair 2011 Annual Report Download - page 124

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currency interest rate swaps are primarily used to convert a portion of the Company’s US dollar-denominated
debt to euro and floating rate interest exposures into fixed rate exposures and are set so as to match exactly the
critical terms of the underlying debt being hedged (i.e. notional principal, interest rate settings, re-pricing dates).
These are all classified as cash-flow hedges of the forecasted US dollar variable interest payments on the
Company’s underlying debt and have been determined to be highly effective in achieving offsetting cash flows.
Accordingly, no ineffectiveness has been recorded in the income statement relating to these hedges in the 2011
fiscal year. The Company did not enter into cross currency interest rate swaps in fiscal years ended March 31,
2010 or 2009.
At March 31, 2011, the fair value of the cross currency interest rate swap agreements relating to this
US dollar-denominated floating rate debt was represented by a loss of 17.9 million (gross of tax). In the 2011
fiscal year, the Company recorded a negative fair-value adjustment of 16.9 million (net of tax) within
accumulated other comprehensive income in respect of these contracts. The Company did not enter into cross-
currency interest rate swap arrangements or hold foreign currency denominated borrowings during the 2010
fiscal year.
Hedging associated with capital expenditures. During the 2010 and 2009 fiscal years, the Company
also entered into a series of euro/U.S. dollar contracts to hedge against changes in the fair value of aircraft
purchase commitments under the Boeing contracts, which arise from fluctuations in the U.K. pound
sterling/U.S. dollar and euro/U.S. dollar exchange rates.
Under IFRS, the Company generally accounts for these contracts as either cash-flow hedges or fair-
value hedges. Fair-value hedges are recorded in the balance sheet at fair value. Any gains or losses arising on
these instruments, as well as the related gain or loss on the underlying aircraft purchase commitment, are
recorded in the balance sheet. Any related ineffectiveness is measured by the amount by which these
adjustments to earnings do not match. Cash-flow hedges are recorded at fair value in the balance sheet and are
re-measured to fair value at the end of the financial period through equity to the extent effective, with any
ineffectiveness recorded through the income statement. The Company expects these hedges to be highly
effective in offsetting changes in the fair value of the aircraft purchase commitments arising from fluctuations in
exchange rates because the forward exchange contracts are always for the same amount, currency and maturity
dates as the corresponding aircraft purchase commitments.
At March 31, 2011, the total unrealized gains relating to these contracts amounted to 13.7 million,
while at March 31, 2010 unrealized gains amounted to 159.5 million. Under IFRS, the Company recorded
positive fair-value adjustments of 13.2 million and negative fair-value adjustments of 159.5 million for cash-
flow hedges in the 2011 and 2010 fiscal years, respectively. No amounts were recorded for such fair-value
hedges from other accumulated comprehensive income in the 2011 and 2010 fiscal years.
Holding other variables constant, if there were an adverse change of ten percent in relevant foreign
currency exchange rates, the market value of Ryanair’s foreign currency contracts outstanding at March 31,
2011 would decrease by approximately 1201.1 million (net of tax), all of which would ultimately impact
earnings when such contracts mature.
INTEREST RATE EXPOSURE AND HEDGING
The Company’s purchase of 221 of the 272 Boeing 737-800 aircraft in the fleet as of March 31, 2011
has been funded by bank financing in the form of loans supported by a loan guarantee from Ex-Im Bank (with
respect to 185 aircraft), JOLCOs and commercial debt. With respect to these 221 aircraft, at March 31, 2011, the
Company had outstanding cumulative borrowings under these facilities of 13,649.4 million with a weighted
average interest rate of 2.9%. See “Item 5. Operating and Financial Review and Prospects—Liquidity and
Capital Resources—Capital Resources” for additional information on these facilities and the related swaps,
including a tabular summary of the “Effective Borrowing Profile” illustrating the effect of the swap transactions
(each of which is with an established international financial counterparty) on the profile of Ryanair’s aircraft-
related debt at March 31, 2011. At March 31, 2011, the fair value of the interest rate swap agreements relating to
this floating rate debt was represented by a loss of 136.4 million (gross of tax), as compared with a loss of 163.1
million at March 31, 2010. See Note 11 to the consolidated financial statements included in Item 18 for
additional information.