Ryanair 2011 Annual Report Download - page 148

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to divest its minority shareholding in Aer Lingus and that, as part of that decision, Ryanair’s shareholding did
not confer control of Aer Lingus (Judgment of the General Court (Third Chamber) Case No. T-411/07 dated
July 6, 2010).
On December 1, 2008 Ryanair made a second offer to acquire 70.2% of the ordinary shares of Aer
Lingus plc that it does not already own. However, the Company was unable to secure the shareholders’ support
and accordingly on January 28, 2009 withdrew its offer for Aer Lingus.
The United Kingdom’s Office of Fair Trading (OFT) wrote to Ryanair in September 2010, advising
that it intends to investigate Ryanair’s minority stake in Aer Lingus. Ryanair objected to this investigation on
the basis that the OFT’s investigation became time-barred within four months from the European Commission’s
June 2007 decision to prohibit Ryanair’s takeover of Aer Lingus. The OFT agreed in October 2010 to suspend
its investigation pending the outcome of Ryanair’s appeal against the OFT’s investigation.
5 Derivative financial instruments
The Audit Committee of the Board of Directors has responsibility for monitoring the treasury policies
and objectives of the Company, which include controls over the procedures used to manage the main financial
risks arising from the Company’s operations. Such risks comprise commodity price, foreign exchange and
interest rate risks. The Company uses financial instruments to manage exposures arising from these risks. These
instruments include borrowings, cash deposits and derivatives (principally jet fuel derivatives, interest rate
swaps, cross-currency interest rate swaps and forward foreign exchange contracts). It is the Company’s policy
that no speculative trading in financial instruments takes place.
The Company’s historical fuel risk management policy has been to hedge between 70% and 90% of the
forecast rolling annual volumes required to ensure that the future cost per gallon of fuel is locked in. This policy
was adopted to prevent the Company being exposed, in the short term, to adverse movements in global jet fuel
prices. However, when deemed to be in the best interests of the Company, it may deviate from this policy. At
March 31, 2011, the Company had hedged approximately 77% of its estimated fuel exposure for the year ending
March 31, 2012. At March 31, 2010, the Company had hedged approximately 85% of its estimated fuel
exposure for the year ending March 31, 2011. At March 31, 2009, the Company had hedged approximately 75%
of its estimated fuel exposure for the year ending March 31, 2010.
Foreign currency risk in relation to the Company’s trading operations largely arises in relation to non-
euro currencies. These currencies are primarily U.K. pounds sterling and the U.S. dollar. The Company manages
this risk by matching pounds sterling revenues against pounds sterling costs. Surplus pounds sterling revenues
are sometimes used to fund forward foreign exchange contracts to hedge U.S. dollar currency exposures that
arise in relation to fuel, maintenance, aviation insurance, and capital expenditure costs and excess pounds
sterling are converted into euro. Additionally, the Company swaps euro for U.S. dollars using forward currency
contracts to cover any expected dollar outflows for these costs. From time to time, the Company also swaps euro
for U.K. pounds sterling using forward currency contracts to hedge expected future surplus pounds sterling.
During the year ended March 31, 2011, the Company also entered into a series of cross-currency interest rate
swaps to hedge against fluctuations in foreign exchange rates and interest rates in respect of US dollar
denominated borrowings made during the year ended March 31, 2011.
The Company’s objective for interest rate risk management is to reduce interest-rate risk through a
combination of financial instruments, which lock in interest rates on debt and by matching a proportion of
floating rate assets with floating rate liabilities. In addition, the Company aims to achieve the best available
return on investments of surplus cash – subject to credit risk and liquidity constraints. Credit risk is managed by
limiting the aggregate amount and duration of exposure to any one counterparty based on third-party market-
based ratings. In line with the above interest rate risk management strategy, the Company has entered into a
series of interest rate swaps to hedge against fluctuations in interest rates for certain floating rate financial
arrangements and certain other obligations. The Company has also entered into floating rate financing for
certain aircraft, which is matched with floating rate deposits. Additionally, certain cash deposits have been set
aside as collateral for the counterparty’s exposure to risk of fluctuations on certain derivative and other
financing arrangements with Ryanair (restricted cash). At March 31, 2011, such restricted cash amounted to
142.9 million (2010: 167.8 million; 2009: 1291.6 million). Additional numerical information on these swaps and
on other derivatives held by the Company is set out below and in Note 11 to the consolidated financial
statements.