Aer Lingus 2013 Annual Report Download - page 37

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As with the IASS, the liability of Aer
Lingus to contribute to the Pilots’ Scheme
is fixed at the current contribution rates
and, accordingly Aer Lingus has neither a
constructive nor a legal obligation to
increase its rate of contributions to the
Pilots’ Scheme, even if the scheme is
found to have insufficient funds to pay all
members the benefits relating to their
current or past service.
As is the case with the IASS, the process of
discussion will be complex and involve many parties.
There can be no certainty that agreement will be
reached between all parties involved.
Notwithstanding Aer Lingus’ involvement in the two
sets of discussions outlined above, it remains the
Group’s position, supported by firm legal advice, that
it has no legal or constructive obligation in respect of
either the IASS or the Pilots’ Scheme, other than to
continue to pay the fixed rate contributions as set out
in the trust deeds of these schemes.
Banking
The Group has substantial cash, cash
equivalents, deposits and debt securities
totalling €897.4 million at 31 December
2013. Of this amount, €28.3 million has
been placed since 2008 on long term
deposits with various Irish banks. The
balance of the funds are deposited across a
range of banks with deposit limits and
maturities linked to credit rating. The bulk
of the money is placed with banks in the
UK, US, the Netherlands, France,
Australia, Germany, Canada, Denmark,
Sweden, China, Ireland and Norway. The
deposits are broadly split between US$
(37%) and euro (63%). Any failure of a
bank holding deposits is likely to result in
significant loss to the Group. In addition,
any restructuring of the Eurozone or its
membership could result in significant loss
to the Group if it caused the failure of one
of the counterparty banks, or result in the
creation of a foreign exchange exposure
which does not currently exist. Any such
restructuring, if it were to occur, would
also be likely to have a significant adverse
impact on consumer confidence and
therefore on the Group’s bookings and
revenues.
The Group actively monitors its counterparty
exposures and moves funds if credit ratings fall to an
unacceptable level. The Group does, however,
remain exposed to systematic risks affecting the
eurozone and its members. As at 31 December 2013,
deposits are allocated across a wide portfolio of
banks. 97% of all cash, cash equivalents and deposits
are deposited with banks incorporated in AAA rated
and / or AA rated sovereign jurisdictions (as
indicated by Moody’s and Standard & Poor’s rating
agencies). 3% of all cash is deposited with banks
incorporated in Ireland, linked to long-term deposits
connected to debt. As at 31 December 2013 Aer
Lingus had deposits or investments with 34
counterparties in order to reduce concentration risk.
Economic conditions in the Eurozone remain
challenging but indicators have shown there are signs
of stabilisation and improvement in the wider
European banking sector. The Group however
continues to closely monitor ratings and outlook.
Financial Risk
Factors (Market
risk, credit risk,
liquidity)
Details of the principal financial risks to
which the Group is exposed, and the
approach to mitigating them, are set out in
Note 3 to the financial statements
OPERATIONAL
Risk
Impact
Current mitigation
Change from
2012
Fleet Programme
Maintaining the correct fleet specification
is critical to both the continued success of
the business and to the generation of the
required level of financial return. Failure to
prepare for and appropriately adopt to new
technologies may result in a competitive
disadvantage as new variants, more
efficient engines and other cost saving
measures are brought to market. On the
other hand, the cost of investment in new
technology may be incommensurate with
the benefits actually generated and this
may reduce financial returns for the
business over time.
The Group seeks to maintain a balance
between owned and leased aircraft to give
it the flexibility to reduce capacity at short
notice by handing back leased aircraft.
Maintaining this flexibility can result in
higher operating costs.
Commercial operations, network planning, fleet
management and fleet supplier management are
integrated under the Chief Commercial Officer to
give the best overview of likely fleet requirements.
The Group also undertakes an ongoing review, in
terms of production and possible delays, of the
ordered aircraft programme. The Group regularly
prepares and updates 5 year plans to assist it in
managing its fleet and order book. The Group
maintains significant cash balances, partly in
response to its aircraft order book.
The Group also considers whether investment in new
aircraft technology will be reflected in the level of
financial return which is likely to be generated. The
purchase of second hand aircraft or older
technologies could actually result in higher financial
returns for the business over time. The Group
undertakes significant modelling and review prior to
aircraft and aircraft related purchase decisions.