Ryanair 2009 Annual Report Download - page 137

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Aircraft maintenance costs
The accounting for the cost of providing major airframe and certain engine maintenance checks for
owned aircraft is described in the accounting policy for property, plant and equipment.
With respect to the Company’s operating lease agreements, where the Company has a commitment to
maintain the aircraft, provision is made during the lease term for the obligation based on the present value of
estimated future costs of major airframe and certain engine maintenance checks by making appropriate charges
to the income statement, calculated by reference to the number of hours or cycles operated during the year.
All other maintenance costs are expensed as incurred.
Intangible assets - landing rights
Intangible assets acquired are recognised to the extent it is considered probable that expected future
benefits will flow to the Company and the associated costs can be measured reliably. Landing rights acquired as
part of a business combination are capitalised at fair value at that date and are not amortised, where those rights
are considered to be indefinite. The carrying values of those rights are reviewed for impairment at each
reporting date and are subject to impairment testing when events or changes in circumstances indicate that
carrying values may not be recoverable. No impairment to the carrying values of the Company’s intangible
assets has been recorded to date.
Other financial assets
Other financial assets (other than available-for-sale financial assets) comprise cash deposits of greater
than three months’ maturity. All amounts are categorised as loans and receivables and are carried initially at fair
value and then subsequently at amortised cost, using the effective interest method in the balance sheet.
Derivative financial instruments
Ryanair is exposed to market risks relating to fluctuations in commodity prices, interest rates and
currency exchange rates. The objective of financial risk management at Ryanair is to minimise the impact of
commodity price, interest rate and foreign exchange rate fluctuations on the Company’s earnings, cash flows
and equity.
To manage these risks, Ryanair uses various derivative financial instruments, including interest rate
swaps, foreign currency forward contracts and commodity contracts. These derivative financial instruments are
generally held to maturity. The Company enters into these arrangements with the goal of hedging its operational
and balance sheet risk. However, Ryanair’s exposure to commodity price, interest rate and currency exchange
rate fluctuations cannot be neutralised completely.
Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition,
derivative financial instruments continue to be re-measured to fair value, and changes therein are accounted for
as described below.
The fair value of interest rate swaps is computed by discounting the projected cash flows on the
Company’s swap arrangements to present value. The fair value of forward foreign exchange contracts and
commodity contracts is determined based on the present value of the quoted forward price. Recognition of any
resultant gain or loss depends on the nature of the item being hedged.
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability or a highly probable forecasted transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in equity (in the cash flow hedging reserve). When the
hedged forecasted transaction results in the recognition of a non-financial asset or liability, the cumulative gain
or loss is removed from equity and included in the initial measurement of that asset or liability. Otherwise the
cumulative gain or loss is removed from equity and recognised in the income statement at the same time as the
hedged transaction. The ineffective part of any hedging transaction and the gain or loss thereon is recognised in
the income statement immediately.