Ryanair 2011 Annual Report Download - page 150

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148
Interest rate swaps are primarily used to convert a portion of the Company’s floating rate exposures on
borrowings and operating leases into fixed rate exposures and are set so as to match exactly the critical terms of
the underlying debt or lease being hedged (i.e. notional principal, interest rate settings, re-pricing dates). These
are all classified as cash-flow hedges of the forecasted variable interest payments and rentals due on the
Company’s underlying debt and operating leases 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 current and preceding years.
The Company also utilises cross currency interest rate swaps to manage exposures to fluctuations in
foreign exchange rates of US dollar denominated floating rate borrowings, together with managing the
exposures to fluctuations in interest rates on these US dollar denominated floating rate borrowings. Cross
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
current year. The Company did not enter into cross currency interest rate swaps in fiscal years ended March 31,
2010 or 2009.
Foreign currency forward contracts are utilised in a number of ways: forecast U.K. pounds sterling and
euro revenue receipts are converted into U.S. dollars to hedge against forecasted U.S. dollar payments
principally for jet fuel, insurance, capital expenditure and other aircraft related costs. These are classified as
either cash-flow or fair-value hedges of forecasted and committed U.S. dollar payments and have been
determined to be highly effective in offsetting variability in future cash flows and fair values arising from the
fluctuation in the U.S. dollar to pounds sterling and euro exchange rates for the forecast and committed U.S.
dollar purchases. Because the timing of anticipated payments and the settlement of the related derivatives is very
closely coordinated, no ineffectiveness has been recorded for these foreign currency forward contracts in the
current or preceding years (the underlying hedged items and hedging instruments have been consistently closely
matched).
The Company also utilises jet fuel forward contracts to manage exposure to jet fuel prices. These are
used to hedge the Company’s forecasted fuel purchases, and are arranged so as to match as closely as possible
against forecasted fuel delivery and payment requirements. These are classified as cash-flow hedges of
forecasted fuel payments and have been determined to be highly effective in offsetting variability in future cash
flows arising from fluctuations in jet fuel prices. No ineffectiveness has been recorded on these arrangements in
the current or preceding years.
The (gains)/losses on the aircraft firm commitments are recognised as part of the capitalised cost of
aircraft additions, within property, plant and equipment. The (gains)/losses on interest rate swaps, commodity
forward contracts and forward currency contracts (excluding aircraft firm commitments) are recognised in the
income statement when the hedged transaction occurs. The (gains)/losses on the hedged item attributable to the
hedged risk for fair-value hedges associated with foreign currency on aircraft firm commitments, which equalled
nil in the 2011 fiscal year (2010: nil; 2009: gains of 10.7 million), are matched by the (gains)/losses recognised
in relation to the fair value of hedging instruments of the same amount in the above table, due to the
effectiveness of the Company’s hedge arrangements.