Ryanair 2016 Annual Report Download - page 40

40
Independent Auditor’s Report to the Members of Ryanair Holdings plc (continued)
Carrying value of aircraft €6,198.7 million (2015 - €5,410.4 million)
Refer to page 21 (Audit Committee Report), page 151 (accounting policy) and pages 160 to 161 (financial disclosures)
The risk:
Ryanair has aircraft with a carrying value of €6,198.7 million at 31 March 2016 (2015: €5,410.4 million) including engines
and related equipment. In accounting for these aircraft, Ryanair makes estimates about their expected useful lives, expected
residual values and the potential for impairment based on the fair value of the assets and the cash flows they generate.
Ryanair flies one aircraft type, the Boeing 737-800, all of which are aged between one and 13 years. There is an active and
established market for this asset class. However, changes to the expected useful lives and/or the residual values of Ryanair’s
aircraft fleet could have a material impact on the profit for the year.
Our response:
The procedures that we performed, among others, to assess the carrying value of aircraft included:
 Assessing the allocation of purchase price to the various components of the aircraft to ensure that the value
allocated to its service potential compares with actual historic experience.
 Comparing Ryanair’s estimates of expected useful life and residual value to manufacturers’ recommendations and
to the published estimates of other international airlines.
 Agreeing the fair value of this aircraft type to independent third party valuation reports prepared by specialist
aircraft valuation experts to assess the accuracy of the residual value estimate.
 Challenging the key assumptions underpinning Ryanair’s near and medium term financial projections against
historical performance and estimates of the likely economic conditions in its principal markets.
 Assessing the adequacy of the related disclosures.
Maintenance provision on leased aircraft €144.4 million (2015 - €176.2 million)
Refer to page 21 (Audit Committee Report), page 151 (accounting policy) and page 181 (financial disclosures).
The risk:
Ryanair had 43 aircraft held under operating lease at 31 March 2016 (2015: 51 aircraft). Under the terms of operating lease
agreements with aircraft lessors, Ryanair is contractually committed to either return the aircraft in a certain condition or to
compensate the lessor based on the actual condition of the airframe, engines and life limited parts upon return. The
estimated airframe and engine maintenance costs and the costs associated with the restitution of life limited parts are
accrued and charged to profit and loss over the lease term for the individual contractual obligation. At each balance sheet
date, the maintenance provision is calculated using a model that incorporates a number of assumptions including: the
lifespan of life-limited parts, likely utilisation of the aircraft by references to the number of hours flown or cycles operated
during the year, the expected cost of the heavy maintenance at the time the overhaul takes place and the discount rate to
be applied to take account of the time value of money.
Our response:
Our audit procedures in this area included, among others:
 Assessing the appropriateness of the methodology applied in calculating the maintenance provision, in addition to
confirming the mathematical accuracy of the model.
 Testing the key assumptions made by Ryanair in estimating future maintenance costs including anticipated use of
the aircraft and the expected cost of maintenance. This included:
 Agreeing the actual cost of incurred maintenance to invoices and comparing this with Ryanair’s estimates.
 Agreeing estimated maintenance costs to maintenance contracts.
 Agreeing the expected use of assets to aircraft utilisation in the prior periods and to Ryanair’s scheduling plan.