Airbus 2015 Annual Report Download - page 247

AIRBUS GROUP FINANCIAL STATEMENTS 2015 l 65 l
Notes to the IFRSConsolidatedFinancialStatements
2.
2.7 Capital Structure and Financial Instruments
be affected by changes in the €/US$ exchange rate. As the
Group intends to generate profits primarily from its operations
rather than through speculation on exchange rate movements,
it uses hedging strategies to manage and minimise the impact
of exchange rate fluctuations on these profits.
With respect to its commercial aircraft products, the Group
typically hedges firmly committed sales inUSdollars using a
“first flow approach”. Under that approach, the foreign currency
derivatives the Group enters into are designated as a hedge of
the first US dollar inflows received from the customer at aircraft
delivery in a given month. The strategy implies that only a portion
of the expected monthly customer payments made at aircraft
delivery are hedged. For this reason, a reduction of monthly
cash inflows as a result of postponements or order cancellations
have no impact on the effectiveness of the hedge as long as the
actual gross US dollar cash inflows received at aircraft delivery
in a particular month exceed the portion designated as being
hedged in that month.
Similarly, though to a much lesser extent, the Group hedges its
expected foreign currency exposure arising from US dollar or
pound sterling cash outflows in the commercial aircraft business
on a first outflow basis.
In military aircraft and non-aircraft businesses, the Group hedges
in and outflows in foreign currencies from firmly committed
or highly probable forecast sales and purchase contracts.
Here, foreign currency derivatives are typically contracted in
lower volumes; they may be accounted for using a first flow
approach or are designated as hedges of specific agreed
milestone payments. The amount of the expected flows to be
hedged can cover up to 100% of the equivalent of the net US
dollar exposure at inception. The coverage ratio considers the
variability in the range of potential outcomes taking into account
macroeconomic movements affecting spot rates and interest
rates as well as the robustness of the commercial cycle.
In situations where the payment dates for hedged firmly
committed cash flows are not fixed and subject to potentially
significant delays, the Group may use rollover strategies, usually
involving F/X swaps.
For all foreign currency hedges of future cash flows which qualify
for hedge accounting under IAS39, the Group uses the cash
flow hedge model, which requires (i)recognising the effective
portion of the fair value changes of the hedging derivatives in
equity (within other comprehensive income) and (ii)recognising
the effect of the hedge in profit or loss when the hedged cash
flows affect profit or loss.
In addition, the Group hedges currency risk arising from
financial assets or liabilities denominated in currencies other
than the euro, including foreign currency receivable and payable
accounts, as well as foreign currency denominated funding
transactions or securities. The Group applies hedge accounting
if a mismatch in terms of profit or loss recognition of the hedging
instrument and hedged item would otherwise occur. Frequently,
however, the currency-induced gains or losses of the hedging
instrument and the hedged item match in terms of profit or
loss recognition (“natural hedge”), so no hedge accounting
is required. Sometimes such gains or losses may end up in
different sections of the income statement (such as operating
profit for the hedged item and financial result for the hedging
instrument). If so, the Group may choose to present the gains
or losses of both the hedging instrument and the hedged
item in the same income statement line item if certain formal
requirements are met.
As hedging instruments, the Group primarily uses foreign
currency forwards, foreign currency options, some synthetic
forwards and to a minor extent non-derivative financial
instruments.
The Group also has foreign currency derivative instruments
which are embedded in certain purchase contracts
denominated in a currency other than the functional currency
of any substantial party to the contract, principally in US dollar
and pound sterling. If such embedded derivatives are required
to be accounted for separately from the host purchase contract,
related gains or losses are generally recognised in other financial
result. However, if the embedded derivatives qualify for hedge
accounting, the Group might choose to designate them as a
hedging instrument in a hedge of foreign currency risk, in which
case they are accounted for under the cash flow hedge model
as described above.
Interest rate risk — The Group uses an asset-liability
management approach with the objective to limit its interest
rate risk. The Group undertakes to match the risk profile of
its interest-bearing assets with those of its interest-bearing
liabilities. The remaining net interest rate exposure is managed
through several types of interest rate derivatives, such as
interest rate swaps and interest rate futures contracts, in order
to minimise risks and financial impacts.
The vast majority of related interest rate hedges qualify for hedge
accounting, and most of them are accounted for under the fair
value hedge model. As a result, both the fair value changes of
these derivatives and the portion of the hedged items’ fair value
change that is attributable to the hedged interest rate risk are
recognised in profit and loss, where they offset to the extent
the hedge is effective.
A few interest rate swaps that have been entered into as a
hedge of certain of the Group’s variable rate debt (see Note34.3
“Financing liabilities”) are accounted for under the cash flow
hedge model, and related fair value gains are recognised in
OCI and reclassified to profit or loss when the hedged interest
payments affect profit or loss.
The Group invests in financial instruments such as overnight
deposits, certificates of deposits, commercial papers,
other money market instruments and short-term as well as
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