Ryanair 2009 Annual Report Download - page 121

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unrealized losses amounted to €65.2 million. Under IFRS, in the 2009 fiscal year, the Company recorded
positive fair-value adjustments of €143.3 million for cash-flow hedges and €0.7 million for fair-value hedges.
Under IFRS, the Company generally accounts for these contracts as either cash-flow hedges or fair-value
hedges. Fair-value hedges are recorded in the balance sheet at fair value. Any gains or losses arising on these
instruments, as well as the related gain or loss on the underlying aircraft purchase commitment, are recorded in
the balance sheet. Any related ineffectiveness is measured by the amount by which these adjustments to
earnings do not match. Cash-flow hedges are recorded at fair value in the balance sheet and are re-measured to
fair value at the end of the financial period through equity to the extent effective, with any ineffectiveness
recorded through the income statement. The Company expects these hedges to be highly effective in offsetting
changes in the fair value of the aircraft purchase commitments arising from fluctuations in exchange rates
because the forward exchange contracts are always for the same amount, currency and maturity dates as the
corresponding aircraft purchase commitments.
Holding other variables constant, if there were an adverse change of ten percent in relevant foreign
currency exchange rates, the market value of Ryanair’s foreign currency contracts outstanding at March 31,
2009 would decrease by approximately €189.8 million (net of tax), all of which would ultimately impact
earnings when such contracts mature.
INTEREST RATE EXPOSURE AND HEDGING
The Company’s purchase of 135 of the 181 Boeing 737-800 aircraft in the fleet as of March 31, 2009
has been funded by bank financing in the form of loans supported by a loan guarantee from ExIm Bank (with
respect to 109 aircraft), JOLCOs and commercial debt. With respect to these 135 aircraft, at March 31, 2009, the
Company had outstanding cumulative borrowings under these facilities of €2,398.4 million with a weighted
average interest rate of 3.77%. See “Item 5. Operating and Financial Review and Prospects—Liquidity and
Capital Resources—Capital Resources” for additional information on these facilities and the related swaps,
including a tabular summary of the “Effective Borrowing Profile” illustrating the effect of the swap transactions
(each of which is with an established international financial counterparty) on the profile of Ryanair’s aircraft-
related debt at March 31, 2009. At March 31, 2009, the fair value of the interest rate swap agreements relating to
this floating rate debt was represented by a loss of €60.9 million (gross of tax), as compared with a loss of €42.4
million at March 31, 2008. See Note 11 to the consolidated financial statements included in Item 18 for
additional information.
The Company also enters into interest rate swaps to hedge against floating rental payments associated
with certain aircraft financed through operating lease arrangements. Through the use of interest rate swaps,
Ryanair has effectively converted the floating-rate rental payments due under 12 of these leases into fixed-rate
payments. At March 31, 2009, the fair value of the interest rate swap agreements relating to leases on a mark-to-
market basis was equivalent to a loss of €23.9 million (gross of tax), as compared with a loss of €18.9 million at
March 31, 2008. These financial instruments are, accordingly, recorded at fair value in the balance sheet and are
subsequently re-measured to fair value through equity to the extent effective, with ineffectiveness recorded
through the income statement. The Company has recorded no material level of ineffectiveness on these swaps as
they have the same critical terms as the underlying item being hedged. Under IFRS, the Company accounts for
all of its swaps as cash-flow hedges of variable rental payments or variable rate debt payments. At March 31,
2009, the Company recorded a total negative fair-value adjustment of €20.9 million (net of tax) relating to these
arrangements, which was included within accumulated other comprehensive income, as compared with a €16.5
million negative fair-value adjustment at March 31, 2008. This loss will be realized within earnings over the
period from the expected drawdown of the related financing (i.e., over a period of up to 12 years from March
31, 2009), with an increase in the related interest expense.
If Ryanair had not entered into such derivative agreements, a plus or minus one percentage point
movement in interest rates would impact the fair value of this liability by approximately €21.3 million. The
earnings and cash-flow impact of any such change in interest rates would have been approximately plus or
minus €17.3 million per year.
Item 12. Description of Securities Other than Equity Securities
Not applicable.