Singapore Airlines 2004 Annual Report Download - page 107

105
SIA Annual Report 03/04
Notes to the Financial Statements
31 March 2004
33 Financial Instruments (in $ million) (continued)
(g) Liquidity risk
At 31 March 2004, the Group had at its disposal cash and short-term deposits amounting to $1,518.5 million
(2003: $819.9 million). In addition, the Group had available short-term credit facilities of about $1,565.8 million
(2003: $1,550.0 million). The Group also has an alternative facility to issue notes up to $1,500.0 million (2003:
$300.0 million) under the Medium Term Note Programme. The notes issued by the Company have maturities as may
be agreed with the relevant financial institutions and the notes issued by one of its subsidiary company have
maturity dates between one month to ten years.
The Group’s holdings of cash and short-term deposits, together with committed funding facilities and net cash flow
from operations, are expected to be sufficient to cover the cost of all firm aircraft deliveries due in the next financial
year. It is expected that any shortfall would be met by bank borrowings or public market funding. Due to the
necessity to plan aircraft orders well in advance of delivery, it is not economical for the Group to have committed
funding in place at present for all outstanding orders, many of which relate to aircraft which will not be delivered
for several years. The Group’s policies in this regard are in line with the funding policies of other major airlines.
(h) Derivative financial instruments
The Group’s policy is to use derivatives to hedge 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 the surplus position 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 costs 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 they 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 jet fuel prices. In meeting these objectives, the fuel risk
management programme allows for the judicious use of approved instruments such as swaps and options with
approved counterparties and within approved credit 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, counterparty 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
counterparty is considered to be unlikely.
The Group had outstanding financial instruments to hedge foreign currencies, interest rates and jet fuel purchases as
follows:
The Group
31 March
2004 2003
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Foreign currency contracts
6 months or less 249.3 524.4
Over 6 months to 24 months 231.8 363.0
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481.1 887.4
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Jet fuel swap/option contracts
6 months or less 358.9 399.5
Over 6 months to 24 months 258.1 233.9
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617.0 633.4
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Interest rate swap contracts
6 months or less 61.3 –
Over 6 months to 24 months 867.8 1,758.7
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929.1 1,758.7
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Gains not recognized in financial statements 106.9 19.2
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