Singapore Airlines 2012 Annual Report Download - page 181
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179ANNUAL REPORT 2011/2012
Notes to the Financial Statements
31 March 2012
38 Financial Risk Management Objectives and Policies (in $ million) (continued)
(c) Interest rate risk
The Group’s earnings are also affected by changes in interest rates due to the impact such changes have on interest
income and expense from short-term deposits and other interest-bearing financial assets and liabilities. The Group
enters into interest rate swap contracts and interest rate cap contracts to manage interest rate costs on its financial
assets and liabilities, with the prior approval of the BEC or Boards of subsidiary companies.
Cash flow hedges
As at 31 March 2012, the Company has interest rate cap contracts at a strike rate of 6.50% (2011: 6.50%), maturing
in 5 to 6 years, to hedge against risk of increase in aircraft lease rentals. The cash flow hedges of the interest rate cap
contracts are assessed to be highly effective.
In FY2009-10, the Company entered into interest rate swap contracts to protect a portion of the future operating
lease rent payments from exposure to fluctuations in interest rates. These contracts were settled during the previous
financial year and the balance in the fair value reserve will be recognised in the profit and loss account over the lease
term of the respective aircraft.
As at 31 March 2012, other than those instruments entered into by the Company, the Group has interest rate swap
agreements in place whereby it pays fixed rates of interest ranging from 3.00% to 4.95% (2011: 3.00% to 4.95%)
and receives a variable rate linked to LIBOR. These contracts are used to protect a portion of the finance lease
commitments from exposure to fluctuations in interest rates. The maturity period of these swaps ranges from 1 March
2014 to 5 March 2016.
The cash flow hedges for the interest rate swaps are assessed to be highly effective and are included in the statement
of financial position as follows:
The Group The Company
31 March 31 March
2012 2011 2012 2011
Derivative assets and liabilities:
Fair value loss on interest rate cap contracts (15.9) (2.3) (15.9) (2.3)
Fair value loss on interest rate swap contracts (44.9) (56.8) (34.8) (44.9)
(60.8) (59.1) (50.7) (47.2)
Deferred tax:
Deferred tax credit on interest rate cap contracts 2.7 0.4 2.7 0.4
Deferred tax credit on interest rate swap contracts 7.6 9.6 5.9 7.6
10.3 10.0 8.6 8.0
Fair value reserve:
Net fair value loss on interest rate cap contracts (13.2) (1.9) (13.2) (1.9)
Net fair value loss on interest rate swap contracts (37.3) (47.2) (28.9) (37.3)
(50.5) (49.1) (42.1) (39.2)