Cathay Pacific 2009 Annual Report Download - page 88

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Notes to the Accounts SUPPLEMENTARY INFORMATION
30. Commitments and contingencies (continued)
On 24th November 2009, the Company received an Examiner’s Report from the Korean Fair Trade Commission
with regard to the Company’s air cargo operations. The Company, with the assistance of legal counsel, has
responded.
The Company has been named as a defendant in a number of civil class action complaints in the United States,
Canada and Australia alleging violations of applicable competition laws arising from the Company’s conduct
relating to its air cargo operations. In addition, civil class action claims have been filed in the United States and
Canada alleging violations of applicable competition laws arising from the Company’s conduct relating to certain
of its passenger operations. The Company is represented by legal counsel in the actions filed in the United
States, Canada and Australia and is defending those actions.
The investigations, proceedings and civil actions are ongoing and the outcomes are subject to uncertainties.
Cathay Pacific is not in a position to assess the full potential liabilities but has made a provision of HK$80 million
in respect of such liabilities in its 2009 accounts. The information usually required by HKAS 37 “Provisions,
Contingent Liabilities and Contingent Assets” is not disclosed on the grounds that it can be expected to
prejudice seriously the outcomes.
31. Financial risk management
In the normal course of business, the Group is exposed to fluctuations in foreign exchange rates, interest rates and
jet fuel prices. These exposures are managed, sometimes with the use of derivative financial instruments, by the
Treasury Department of Cathay Pacific in accordance with the policies approved by the Finance Committee.
Derivative financial instruments are used solely for financial risk management purposes and the Group does not hold
or issue derivative financial instruments for proprietary trading purposes. Derivative financial instruments which
constitute a hedge do not expose the Group to market risk since any change in their market value will be offset by a
compensating change in the market value of the hedged items. Exposure to foreign exchange rates, interest rates
and jet fuel price movements are regularly reviewed and positions are amended in compliance with internal
guidelines and limits.
(a) Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The
Group normally grants a credit term of 30 days to customers or follows the local industry standard with the debt
in certain circumstances being partially protected by bank guarantees or other monetary collateral.
Trade debtors mainly represented passenger and freight sales due from agents and amounts due from airlines
for interline services provided. The majority of the agents are connected to the settlement systems operated by
the International Air Transport Association (“IATA”) who is responsible for checking the credit worthiness of such
agents and collecting bank guarantees or other monetary collateral according to local industry practice. In most
cases amounts due from airlines are settled on net basis via an IATA clearing house. The credit risk with regard
to individual agents and airlines is relatively low.
To manage credit risk, derivative financial transactions, deposits and funds are only carried out with financial
institutions which have high credit ratings and all counterparties are subject to prescribed trading limits which are
regularly reviewed. Risk exposures are monitored regularly by reference to market values.
At the reporting date there was no significant concentration of credit risk. The maximum exposure to credit risk
is represented by the carrying amount of each financial asset, including derivative financial instruments, in the
statement of financial position and the amount of guarantees granted as disclosed in note 30 to the accounts.
Collateral and guarantees received in respect of credit terms granted as at 31st December 2009 is HK$2,562
million (2008: HK$2,911 million).
Impairment is recognised when the recoverability of the debt is in doubt resulting from financial difficulty of a
customer or the debt in dispute. The movement in the provision for bad debt in respect of trade debtors during
the year is set out in note 19 to the accounts.
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