Cathay Pacific 2014 Annual Report Download - page 86

Cathay Pacific Airways Limited
84 Notes to the Financial Statements Supplementary Information
30. Capital commitments and contingencies (continued)
The Company was a respondent (together with a number of other airlines) in an Australian civil antitrust class action
in respect of its cargo operations. The Company, together with other airlines, settled the Australian civil cargo
antitrust class action in which it is a respondent. Under the terms of settlement, which was approved by the Federal
Court of Australia in June 2014, the Company made a payment to settle this litigation without any admission of
liability or wrongdoing whatsoever. Any settlement amounts payable by individual airlines under the terms of
settlement are to remain confidential. The amount payable by the Company is not material to its financial position.
An amount sufficient to cover the amount payable by the Company was provided in the financial statements of the
Company before 2014.
The Company is a defendant in various putative class action cases filed in the United States, in which the plaintiffs
allege the Company and other carriers that provide air cargo services fixed the prices of various air cargo charges
and surcharges in violation of United States federal and state antitrust laws, and certain foreign competition laws.
Those were consolidated into one case for all pre-trial purposes,In re Air Cargo Shipping Services Antitrust
Litigation, MDL No. 1775, EDNY. Damages were demanded, but the amounts are not specified. The Company
reached an agreement to settle this matter in February 2014, by paying the plaintiffs US$65 million (approximately
HK$504 million at the exchange rate current at date of payment).The settlement, which is subject to Court approval,
will resolve claims against all putative class members who choose not to opt out of the agreement.
The Company is a defendant in various putative class action cases filed in the United States, in which the plaintiffs
allege the Company and other carriers fixed certain elements of the price charged for passenger air transportation
services in violation of United States antitrust laws. Those cases were consolidated into one case for all pre-trial
purposes, In re Transpacific Passenger Air Transportation Antitrust Litigation, MDL No. 1913, N.D. Cal. Damages
were demanded, but the amounts were not specified. The Company reached an agreement to settle this matter in
July 2014 by paying the plaintiffs US$7.5 million (approximately HK$58.1 million at the exchange rate current at date
of payment). The settlement, which is subject to Court approval, will resolve claims against all putative class
members who choose not to opt out of the agreement.
The proceedings and civil actions, except as otherwise stated above, are ongoing and the outcomes are subject to
uncertainties. The Company is not in a position to assess the full potential liabilities but makes provisions based on
facts and circumstances in line with the accounting policy set out above in this note.
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 prices
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”) which 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.