Airbus 2015 Annual Report Download - page 43

AIRBUS GROUP REGISTRATION DOCUMENT 2015 l 11 l
Risk Factors
Registration Document 2015
1 Financial Market Risks
Counterparty Credit
In addition to the credit risk relating to sales financing as
discussed above, the Company is exposed to credit risk to the
extent of non-performance by its counterparties for financial
instruments, such as hedging instruments and cash investments.
However, the Group has policies in place to avoid concentrations
of credit risk and to ensure that credit risk exposure is limited.
Counterparties for transactions in cash, cash equivalents and
securities as well as for derivative transactions are limited to
highly rated financial institutions, corporates or sovereigns. The
Company’s credit limit system assigns maximum exposure
lines to such counterparties, based on a minimum credit rating
threshold as published by Standard & Poor’s, Moody’s and
Fitch Ratings. Besides the credit rating, the limit system also
takes into account fundamental counterparty data, as well
as sector and maturity allocations and further qualitative and
quantitative criteria such as credit risk indicators. The credit
exposure of the Company is reviewed on a regular basis and
the respective limits are regularly monitored and updated. The
Company also seeks to maintain a certain level of diversification
in its portfolio between individual counterparties as well as
between financial institutions, corporates and sovereigns in
order to avoid an increased concentration of credit risk on only
a few counterparties.
However, there can be no assurance that the Company will not
lose the benefit of certain derivatives or cash investments in case
of a systemic market disruption. In such circumstances, the
value and liquidity of these financial instruments could decline
and result in a significant impairment, which may in turn have
a negative effect on the Company’s future results of operation
and financial condition.
Moreover, the progressive implementation of new financial
regulations (Basel III, EMIR, CRD4, Bank Restructuring
Resolution Directive, Dodd Frank Act, Volcker Rules, etc.) will
have an impact on the business model of banks (for example,
the split between investment banking and commercial banking
activities) and on the capital structure and cost of such banks’
activities in relation to over-the-counter derivatives, and
therefore on the funding consequences of central clearing and
collateralisation of over-the-counter derivatives for corporations
like the Company. This may ultimately increase the cost and
reduce the liquidity of the Company’s long-term hedges, for
example, as banks seek to either pass-on the additional costs
to their corporate counterparties or withdraw from low-profit
businesses altogether.
Equity Investment Portfolio
The Company holds several equity investments for industrial
or strategic reasons, the business rationale for which may vary
over the life of the investment. Equity investments are either
accounted for using the equity method (associated companies),
if the Company has the ability to exercise significant influence,
or at fair value. If fair value is not readily determinable, the
investment is measured at cost.
As of 31December 2014, the Company’s principal investment
in associates was Dassault Aviation. The book value of this
investment was € 2.4billion. Following the partial sale, the
remaining equity investment in Dassault Aviation has been
reclassified as asset held for sale. As such, the Company is still
exposed to the risk of unexpected material adverse changes in
the fair value of Dassault Aviation and that of other associated
companies. For equity investments other than associates, which
make up only a fraction of the Company’s total assets, the
Company regards the risk of negative changes in fair value or
impairments on these investments as non-significant.
Treasury shares held by the Company are not considered to
be equity investments. Additionally, treasury shares are not
regarded as being exposed to risk, as any change in value of
treasury shares is recognised directly in equity only when sold
to the market and never affects net income. Treasury shares are
primarily held to hedge the dilution risk arising from employee
stock ownership plans and the exercise by employees of stock
options.
future sales growth depending on the agreement reached
with customers. Despite the measures taken by the Company
to mitigate the risks arising from sales financing activities as
discussed above, the Company remains exposed to the risk of
defaults by its customers or significant decreases in the value
of the financed aircraft in the resale market, which may have a
negative effect on its future results of operation and financial
condition.
Financial Statements 2015
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Annual Report 2015 Financial Statements 2015
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