Singapore Airlines 2002 Annual Report Download - page 97

SIA Annual Report 01/02 97
Notes to the Financial Statements
31 March 2002
32 Financial Instruments (in $ million) (continued)
(h) Derivative financial instruments
The Group’s policy on the use of derivatives is not to trade in them but to use these instruments as hedges against specific
exposures.
As part of its management of treasury risks, the Group has entered into a number of forward foreign exchange contracts to cover a
portion of future capital, revenue and operating payments in a variety of currencies. The Group uses forward contracts purely as a
hedging tool. It does not take positions in currencies with a view to make speculative gains from currency movements. Similarly, the
Group enters into interest rate swaps to manage interest rate risks on its financial assets and liabilities, with the prior approval of the
BFC or Boards of Subsidiaries. Other treasury derivative instruments are considered on their merits as valid and appropriate risk
management tools and require the BFC’s approval before adoption.
The Group’s strategy for managing the risk on fuel price, as defined by BFC, aims to provide the Group with protection against sudden
and significant increases in prices. In meeting these objectives, the fuel risk management programme allows for the judicious use of
approved instruments such as swaps, options and collars with approved counter-parties and within approved limits.
As derivatives are used for the purpose of risk management, they do not expose the Group to market risk because gains and losses
on the derivatives offset losses and gains on the matching asset, liability, revenues or costs being hedged. Moreover, counter-party
credit risk is generally restricted to any hedging gain from time to time, and not the principal amount hedged. Therefore the possibility
of material loss arising in the event of non-performance by a counter-party is considered to be unlikely.
The Group has a number of foreign exchange contracts outstanding as of 31 March 2002 that have been entered into as a hedge of
forecast sales denominated in GBP, Japanese Yen, Euros, Swiss Francs, Australian Dollars, New Zealand Dollars, Indian Rupees,
Hong Kong Dollars, Taiwan Dollars, Chinese Renminbi, Korean Won, Thai Baht and Canadian Dollars. The foreign exchange contracts
provide for the Group to sell these currencies at predetermined forward rates, buying either USD or SGD depending on forecast
requirements, with settlement dates that range from one month up to one year.
The Group had outstanding forward transactions to hedge foreign currencies and jet fuel purchases as follows:-
The Group
31 March
2002 2001
Foreign currency contracts:-
6 months or less 268.6 279.0
Over 6 months to 24 months 314.4 154.9
583.0 433.9
Jet fuel swap/option contracts:-
6 months or less 304.3 386.4
Over 6 months to 24 months 176.8 399.9
481.1 786.3
Gains/(losses) not recognized in the financial statements 14.4 (42.9)