Aer Lingus 2012 Annual Report Download - page 109

FINANCIAL STATEMENTS Aer Lingus Group Plc
ANNUAL REPORT 2012
107
Business
repositioning¹
Aircraft
maintenance²Other ³ Total
Analysed as current liabilities
31 December 2012 16,171 9,804 3,757 29,732
31 December 2011 9,967 21,623 2,088 33,678
Analysed as non-current liabilities
31 December 2012 16,250 27,830 11,058 55,138
31 December 2011 19,936 16,368 11,522 47,826
Total provision
31 December 2012 32,421 37,634 14,815 84,870
31 December 2011 29,903 37,991 13,610 81,504
(1) Business repositioning
A provision for business repositioning costs is recognised when a constructive obligation exists. The amount of the provision is based on the
terms of business repositioning measures, including employee severance, which have been communicated to employees. They represent
the Directors’ best estimate of the cost of these measures, having regard to the current status of negotiations. At 31 December 2012, the
majority of the provision relates to the Greenfield cost reduction programme and the closure of the Shannon hangar maintenance operation.
Measurement uncertainty associated with business repositioning provisions arises from the achievement of certain operating and financial
targets and changes in human resources requirements. The provision related to the Greenfield cost reduction programme and the Shannon
hangar maintenance provision are expected to be materially utilised in the next two financial years, with the remaining provision balance
expected to be largely utilised in the next five years.
(2) Aircraft maintenance
A provision is made on a monthly basis for maintenance of aircraft held under operating leases. The provision will be utilised as the major
airframe and engine overhauls take place. Aircraft maintenance also includes provision for the costs to meet the contractual conditions of aircraft.
Measurement uncertainty associated with maintenance provisions arise from the timing and nature of overhaul activity required and sensitivity in
projected flight hours. The provision is expected to be materially utilised over the next twelve financial years. The release during the year relates
to maintenance obligations for the aircraft previously classified as held for sale which will now be recognised on a flown basis going forward.
(3) Other
Other provisions relate mainly to the frequent flyer programme and free flight entitlements in respect of former employees. The frequent
flyer provision is utilised when points are used or when they become non-redeemable. Points are redeemable for a maximum of three years.
Measurement uncertainty associated with the frequent flyer and free flight programmes typically arise from variances in estimates of flight
utilisation and length of sectors flown by programme members and former employees.
29 Contingent liabilities and assets
Sublease of hangar facility at Shannon
In December 2012, the Group entered into an agreement for the assignment of its interest in the lease of a hangar facility at Shannon Airport.
Under the terms of this arrangement, Aer Lingus has provided a guarantee to the Dublin Airport Authority (“DAA”) in respect of rents that would
otherwise have been payable by the Group under the lease up to 31 July 2021. Aer Lingus estimates the maximum amount payable would be
approximately €3.5 million in the event that the guarantee was called.
Air travel tax
On 25 July 2012, the European Commission (“EC”) issued a press release with regard to Irish air travel tax. In 2009, Ireland introduced an air travel
tax for flights departing from Irish airports. The tax was set at €2 for destinations within 300km of Dublin and at €10 for those exceeding 300km.
The EC found that the lower rate favoured flights within Ireland and to nearby parts of the UK, giving the companies concerned an economic
advantage over their competitors and thus distorting competition in the internal market. The EC has ordered Ireland to recover this advantage
from all airlines that had benefited from it.
Notes to the consolidated financial statements (continued)