Singapore Airlines 2011 Annual Report Download - page 176

SINGAPORE AIRLINES
174
NOTES TO THE FINANCIAL STATEMENTS
31 March 2011
37 Financial Instruments (in $ million) (continued)
(b) Fair values (continued)
Financial instruments whose carrying amounts approximate fair value
The carrying amounts of the following financial assets and liabilities approximate their fair values due
to their short-term nature: cash and bank balances, bank overdrafts, funds from subsidiary companies,
amounts owing to/by subsidiary and associated companies, trade debtors, other debtors, trade and
other creditors.
Financial instruments carried at other than fair value
Long-term investments amounting to $35.3 million (2010: $35.3 million) for the Group and $18.8
million (2010: $18.8 million) for the Company are stated at cost because the fair values cannot be
obtained directly from quoted market price or indirectly using valuation techniques supported by
observable market data.
The Group and the Company have no intention to dispose of their interests in the above investments
in the foreseeable future.
Net carrying amounts of long-term liabilities approximate the fair value as the interest rates implicit in
the long-term liabilities approximate the market interest rates.
38 Financial Risk Management Objectives and Policies (in $ million)
The Group operates globally and generates revenue in various currencies. The Group’s airline operations
carry certain financial and commodity risks, including the effects of changes in jet fuel prices, foreign
currency exchange rates, interest rates and the market value of its investments. The Group’s overall risk
management approach is to moderate the effects of such volatility on its financial performance. The Group’s
policy is to use derivatives to hedge specific exposures.
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 a material loss
arising in the event of non-performance by a counterparty is considered to be unlikely.
Financial risk management policies are periodically reviewed and approved by the Board Executive
Committee (“BEC”).
(a) Jet fuel price risk
The Group’s earnings are affected by changes in the price of jet fuel. The Group’s strategy for managing
the risk on fuel price, as defined by BEC, 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.