Aer Lingus 2010 Annual Report Download - page 14

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12
Annual Report 2010
Operating and fi nancial review Aer Lingus Group Plc
announced on 24 February 2011, from €32.5
million to €29.5 million. The exceptional
provision relates to PAYE, PRSI, interest,
penalties and related costs arising from
payments to 715 staff under a restructuring
programme negotiated in 2008 at the Labour
Relations Commission and implemented in
2009. The reduced exceptional provision
represents the revised likely total cost of
dealing with this matter.
Finance income and expense
Finance income declined by 39.3% due to
falling interest rates and lower average cash
balances which amounted to €948.7m during
the year (2009: €1061.0m). Finance expense
decreased by 29.3% during the period mainly
refl ecting the maturity of two fi nance leases
at the end of 2009 and lower interest rates.
Average debt during 2010 amounted to
€551.9m (2009: €569.8m).
Tax charge
There was a tax credit for the year of €15.8m
(2009: €24.8m). The Group has signifi cant tax
losses and at the end of 2009 an impairment
provision of €12m was set up against the
associated deferred tax asset as there was
doubt about the Group’s ability to make use
of all these losses in the foreseeable future.
Following the Group’s return to profi tability in
2010, this provision has been released and is
the principal reason for the tax credit in 2010.
Cash fl ow, cash and debt
Gross cash (loans and receivables, deposits,
cash and cash equivalents and bank overdrafts)
increased by €56.5m during the year to
€885.0m (31 December 2009: €828.5m). During
2010, the Group made payments totalling
€74.0m for the delivery of an A330 aircraft and
deposits for future aircraft deliveries. The Group
realised signifi cant gains on hedging positions
matching those payments, thus reducing the
overall cost. The Group obtained new fi nance
lease fi nancing of €58.5m for the new aircraft.
The Group made redundancy payments of
€41.9m during the period.
We have US dollar denominated fi nance lease
obligations which we generally match with US
dollar denominated deposits.
Finance lease obligations at 31 December
2010, which increased due to the addition of
the new A330 and the strengthening US dollar
offset by scheduled repayments, totalled
€535.2m (31 December 2009: €492.6m).
The value of gross cash and fi nance lease
obligations both increased during the period
due to the strengthening of the US dollar.
Fuel and currency hedging
To achieve greater certainty on costs we
manage our exposure to fl uctuations in the
prices of fuel and foreign currency through
hedging. At 31 December 2010, our estimated
fuel requirements for 2011 and for 2012 were
449,000 tonnes in each year, which were
hedged as follows:
2011 2012
% hedged 62% 12%
Average price per tonne $788 $813
The Group’s major foreign currency exposure
is to the US dollar. At 31 December 2010,
the Group’s forward purchases of US dollars
comprised: $225m of the estimated trading
requirements for 2011 at an average rate of
€1=$1.43 and $125m of the estimated trading
requirements for 2012 at an average rate of
€1=$1.44. In addition, the Group has hedged
98% of the cost of four new A320 aircraft due
for delivery in the fi rst half of 2011 at an
average rate of €1=$1.50.
Fleet
In the fi rst half of 2011, the Group will take
delivery of four new A320 short-haul aircraft.
The fi rst of these aircraft was delivered in
January. These aircraft are being acquired on
fi nance leases and approximately €100m of
new debt will be raised. Over the same period
three A321 aircraft currently held on operating
leases will be returned to their lessors and one
short-haul aircraft is planned to be sold.
The Group currently has eight A330 long-haul
aircraft, one of which is employed in the
extended codeshare agreement with United
Airlines. This fl eet is larger than we currently
require and it is intended that one aircraft will
be sold in 2011. The Group intends to exercise
an option to defer 3 A330 aircraft which would
otherwise be due for delivery from Airbus in
2013 and 2014 and to replace them with 3
A350 aircraft for delivery no earlier than 2018.
As a result of this change, the Group’s long-haul
order book will comprise 9 A350 aircraft with 4
scheduled for delivery in 2015, 2 in 2016 and
3 in 2018 or later. We expect to incur capital
expenditure for aircraft purchases of €103m in
2011 (all of which will be fi nanced with new
leases) with a further €639m to be incurred
between 2012 and 2016 or later.