Ryanair 2011 Annual Report Download - page 136

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reviewed on an ongoing basis. A revision to an accounting estimate is recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of the revision and future periods if
these are also affected. Principal sources of estimation uncertainty have been set forth in the critical accounting
policies section below. Actual results may differ from estimates.
The Company believes that its critical accounting policies, which are those that require management’s
most difficult, subjective and complex judgements, are those described in this section. These critical accounting
policies, the judgements and other uncertainties affecting application of these policies and the sensitivity of
reported results to changes in conditions and assumptions are factors to be considered in reviewing the
consolidated financial statements.
Long-lived assets
As of March 31, 2011, Ryanair had 14.9 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 current market
value of new aircraft, determined periodically, based on independent valuations and actual aircraft disposals
during the current and prior periods. Aircraft are depreciated over a useful life of 23 years from the date of
manufacture to residual value.
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. In order to fulfill such conditions of the lease, maintenance, in the
form of major airframe overhaul, engine maintenance checks, and restitution of major life-limited parts, is
required to be performed during the period of the lease and upon return of the aircraft to the lessor. The
estimated airframe and engine maintenance costs and the costs associated with the restitution of major life-
limited parts, are accrued and charged to profit or loss 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.