Ryanair 2016 Annual Report Download - page 137

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fair-value adjustment of €505.9 million (net of tax) within accumulated other comprehensive income in respect of these
contracts, as compared to a positive fair-value adjustment of €589.9 million in the 2015 fiscal year.
Hedging associated with the balance sheet. In prior years, the Company entered into a series of cross currency
interest rate swaps to manage exposures to fluctuations in foreign exchange rates of U.S. dollar-denominated floating rate
borrowings, together with managing the exposures to fluctuations in interest rates on these U.S. dollar-denominated
floating rate borrowings. Cross currency interest rate swaps are primarily used to convert a portion of the Company’s U.S.
dollar-denominated debt to euro and floating rate interest exposures into fixed rate exposures and are set so as to match
exactly the critical terms of the underlying debt being hedged (i.e. notional principal, interest rate settings, re-pricing dates).
These are all classified as cash-flow hedges of the forecasted U.S. dollar variable interest payments on the Company’s
underlying debt and have been determined to be highly effective in achieving offsetting cash flows. Accordingly, no
ineffectiveness has been recorded in the income statement relating to these hedges.
At March 31, 2016, the fair value of the cross currency interest rate swap agreements relating to this U.S. dollar-
denominated floating rate debt was represented by a loss of €7.7 million (gross of tax) compared to a gain of €21.3 million
in fiscal 2015. In the 2016 fiscal year, the Company recorded a negative fair-value adjustment of €11.9 million (net of tax),
compared to a positive fair-value adjustment of €41.3 million in fiscal 2015, within accumulated other comprehensive
income in respect of these contracts.
Hedging associated with capital expenditures. During the 2016 and 2015 fiscal years, the Company also entered
into a series of euro/U.S. dollar contracts to hedge against changes in the fair value of aircraft purchase commitments under
the Boeing contracts, which arise from fluctuations in the euro/U.S. dollar exchange rates. At March 31, 2016, the total
unrealized gain relating to these contracts amounted to €250.5 million, compared to €614.6 million unrealized gain at
March 31, 2015.
Under IFRS, the Company generally accounts for these contracts as either cash-flow hedges or fair-value hedges.
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 has found 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.
At March 31, 2016, the total unrealized gains relating to these contracts amounted to €250.5 million, while at
March 31, 2015 unrealized gains amounted to €614.6 million. Under IFRS, the Company recorded fair-value adjustments
of €219.2 million and fair-value adjustments of €537.8 million for cash-flow hedges in the 2016 and 2015 fiscal years,
respectively. No amounts were recorded for such fair-value hedges from other accumulated comprehensive income in the
2016 and 2015 fiscal years.
A plus or minus change of 10% in relevant foreign currency exchange rates, based on outstanding foreign
currency-denominated financial assets and financial liabilities at March 31, 2016 would have a respective positive or
negative impact on the income statement of €0.1 million (net of tax) (2015: €3.2 million; 2014: €3.0 million). The same
movement of 10% in foreign currency exchange rates would have a positive €567.6 million impact (net of tax) on equity
if the rate fell by 10% and negative €464.4 million impact (net of tax) if the rate increased by 10%. (2015: €818.7 million
positive or €766.4 million negative; 2014: €288.2 million positive or negative).
INTEREST RATE EXPOSURE AND HEDGING
The Company’s purchase of 226 of the 341 Boeing 737-800 aircraft in the fleet as of March 31, 2016 has been
funded by financing in the form of loans supported by a loan guarantee from Ex-Im Bank (with respect to 194 aircraft),
JOLCOs (26 aircraft) and commercial debt (6 aircraft). In addition, the Company has raised unsecured debt via capital
market bond issuances. The Company had outstanding cumulative borrowings under the above facilities of €4,023.0
million with a weighted average interest rate of 1.97% at March 31, 2016. 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-