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Aer Lingus Limited
Directors’ report and financial statements
Financial year ended 31 December 2018
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Contents
Page
Directors and other information 3
Directors’ report 4 to 10
Independent auditor’s report 11 to 13
Income Statement 14
Statement of Other Comprehensive Income 15
Statement of Financial Position 16
Statement of Changes in Equity 17
Statement of Cash Flows 18
Notes to the financial statements 19 to 60
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Directors and other information
Board of Directors at 1 March 2019
Sean Doyle (Chief Executive Officer) Rachel Izzard (Chief Financial Officer)
Mike Rutter (Chief Operating Officer)
Stephen Kavanagh (Non-Executive Director) Willie Walsh (Parent Company Executive)
Robert Boyle (Parent Company Executive)
Secretary and registered office
Méabh Gallagher
Dublin Airport
Co. Dublin Ireland
Registered number: 9215
Independent auditors
Ernst & Young Chartered Accountants
Harcourt Centre
Harcourt Street Dublin 2
Ireland
Bankers
Ulster Bank
Dublin Airport Branch Swords Road
Cloghran
Co. Dublin Ireland
Legal advisors
Arthur Cox Earlsfort Centre
Earlsfort Terrace
Dublin 2 Ireland
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Directors’ report
The Directors submit their report together with the audited financial statements for the year ended 31 December 2018.
Directors' responsibility statement
The Directors are responsible for preparing the Directors’ report and the financial statements in accordance with Irish law. Irish law requires
the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
Under Irish law the Directors shall not approve the financial statements unless they are satisfied that they give a true and fair view of the Company’s assets, liabilities and financial position as at the end of the financial year and of the profit or loss of the Company for the
financial year.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether the financial statements have been prepared in accordance with IFRS and ensure that they contain the additional information required by the Companies Act 2014; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to:
correctly record and explain the transactions of the Company;
enable, at any time, the assets, liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy; and
enable the Directors to ensure that the financial statements comply with the Companies Act 2014 and enable those financial statements to be audited.
The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s and the parent Company’s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Audit Committee
The Company does not have an Audit Committee of its Board in accordance with section 167 of the Companies Act 2014, but instead relies on the independent Audit Committee of its ultimate parent, International Consolidated Airlines Group, S.A. (‘IAG’, together with its
subsidiaries ‘Group’), which is maintained in compliance with its listing obligations.
Directors’ Compliance Statement
It is the policy of Aer Lingus Limited to comply with its relevant obligations as defined in section 225 of the Companies Act 2014. The Directors have drawn up a compliance policy statement as defined in section 225(3)(a) of the Companies Act 2014. Arrangements and
structures have been put in place that are, in the Directors’ opinion, designed to secure a material compliance with the Company’s relevant
obligations. These arrangements and structures were reviewed during the financial year. As required by section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for the Company’s compliance with the relevant obligations. In discharging
their responsibilities under section 225, the Directors relied on the advice of third parties who the Directors believe have the requisite
knowledge and experience to advise the Company on compliance with its relevant obligations.
Accounting records
The measures taken by the Directors to secure compliance with the Company’s obligation to keep adequate accounting records are the use of
appropriate systems and procedures and employment of competent persons. The books of account are kept at Dublin Airport, Co. Dublin, Ireland.
Accounting policies
The accounts are prepared under International Financial Reporting Standards as adopted by the EU. The principal accounting policies,
together with the basis of preparation of the accounts are set out in Notes 2 and 3 to the financial statements.
Disclosure of information to the auditor
The Directors confirm that:
in so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware;
they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of such information.
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Results for the year and state of affairs at 31 December 2018
The Income Statement for the year ended 31 December 2018 and the Statement of Financial Position as at that date are set out on pages 14
and 16 respectively. The profit after taxation for the year amounted to €258.2 million (2017: €234.5 million). The movement in retained
earnings for the year was as follows:
€ m
Balance, 1 January 2018 110.8
Profit for the year 258.2
Other comprehensive income for the year 0.4
Dividend paid (225.0)
Balance, 31 December 2018 144.4
Total retained earnings increased by €33.6 million since 1 January 2018. The Directors propose no other transfers to or from reserves.
Dividends
A dividend was paid in two tranches during 2018 to Aer Lingus Group DAC for a total of €225.0 million (2017: €200.0 million).
Principal activities
The principal activities of the Company during the year continued to be the provision of air travel services.
Business overview and commercial developments
Aer Lingus achieved a record operating profit in 2018 of €303.5 million (2017: operating profit of €266.8 million) and maintained high
levels of guest satisfaction, whilst ASK capacity increased by 10%. Net promoter score and on-time performance metrics continued to be strong, with external validation reconfirmed via a Skytrax 4-star ranking and APEX 5-star ranking.
In a year where Aer Lingus celebrated 60 years flying to North America, we continued on our mission to be the leading value carrier across
the North Atlantic, enabled by a sustainable short haul network. We grew our long haul network by 18%, introducing Ireland’s first direct
service to Seattle, and a new daily service to Philadelphia. We believe that Aer Lingus is delivering on this ambition, with a compelling position in the markets we serve, and an operational and financial performance which we believe is sustainable, creating opportunities for
further profitable growth. The opportunity remains for Aer Lingus to grow Dublin as a major hub connecting Europe and North America.
This will be enabled by investments in airport infrastructure at Dublin and will also provide significant social and economic benefits for a range of stakeholders in Ireland.
Demand conditions improved through 2018, with strong demand across both the premium transatlantic and short haul markets. With
significant long haul capacity growth and rigorous cost control, we continued to improve our non-fuel unit cost. This facilitated further
investment in price for our guests, through the application of the value carrier model, while maintaining strong load factors. This in turn
drove strong profit improvement, achieved in spite of significant fuel commodity price increases. Long haul growth was supported by the
addition of two A330 aircraft, which entered service during the year.
For the second year in a row, Aer Lingus placed in the top 10 most punctual airlines globally and won two Irish Travel Industry Awards for
‘Best Business Class’ and ‘Ireland’s Favourite Airline’. We are a guest-focused business and our value model is simple by design, demand-led and centred on cost, product and service.
Aer Lingus has a competitive product and well positioned brand. During 2018 we continued to invest in our product. The Aer Lingus loyalty
programme, AerClub, announced a member milestone as one million guests have joined the scheme to make it Ireland's largest travel
rewards programme. During December, we announced a brand refresh and unveiled a new brand livery in January 2019. The new livery reflects the value proposition offered, and remains faithful to the brand heritage and the proud legacy of 82 years of successful operations in
Ireland, whilst recognising the modern brand that Aer Lingus has become.
Investment will continue in 2019, a year in which Aer Lingus will introduce new technology long-range Airbus A321neo LR aircraft into
our fleet, to add frequency and capacity across existing North American gateways, and to unlock new gateway opportunities across North America. There will be investment in brand spend and product changes. Two new direct services will launch from Dublin, to Montreal and
Minneapolis-St. Paul.
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Trading highlights
In 2018, the Company generated revenue of €2,020 million representing a 9% increase compared with prior year (2017: €1,858 million).
This revenue performance was mainly driven by growth in long haul passenger services and additional frequencies as detailed within the Business overview above.
The key revenue statistics are as follows:
Revenue statistics 2018 2017 % increase/
(decrease)
Passenger revenue (€ million) 1,952.6 1,798.8 9%
Passenger numbers ('000s) 11,371 10,884 4%
Number of seats (‘000s) 14,511 13,905 4%
Available Seat Kilometres (ASKs) (million) 29,029 26,386 10%
Load factor RPK1/ASK (%) 80.9% 81.2% 0%
Passenger revenue per ASK (€cent) 6.73 6.82 (1%)
Total cargo revenue (€ million) 53.6 47.6 13%
Other revenue (€ million) 13.7 11.3 21% 1Revenue Passenger Kilometres
Revenues increased on 2017 by 9% in total, driven by growth on the North Atlantic network. Passenger revenue per ASK decreased by 1%
driven by significant capacity growth on new routes through the delivery of the value carrier strategy.
The key operating costs and unit cost measures are as follows:
Operating costs
(€ million unless otherwise stated) 2018 2017
% increase/
(decrease)
Fuel, oil costs and emissions charges 381.7 316.0 21%
Landing fees and en-route charges 328.9 331.1 (1%)
Employee costs 379.3 350.3 8%
Other operating costs1 626.6 593.6 6%
Total operating costs 1,716.5 1,591.0 8%
Operating cost per ASK (€ cent) 5.91 6.03 (2%)
Non-fuel operating cost per ASK (€ cent) 4.60 4.85 (5%)
1 Other operating costs includes aircraft and property lease costs, handling fees, catering and selling costs, depreciation and amortisation,
expenditure with other Group entities, see related party transactions note 33.
The decrease in non-fuel unit cost was driven by productivity improvements, scale benefits of additional flying, efficient growth and
rigorous cost control. Unit costs (excluding fuel) are 5% lower than 2017, with absolute costs, including fuel, growing 8% in the context of a capacity increase of 10%.
2018 balance sheet movements:
The Company’s balance sheet remains healthy with net assets of €441.5 million at 31 December 2018 (December 2017: net assets of €520.2
million). Gross cash was €1,088.7 million (December 2017: €1,088.4 million). Gross debt fell by 72.2 million as a result of finance lease
repayments.
There were a number of significant balance sheet movements between 31 December 2017 and 31 December 2018:
Property, Plant and Equipment and Intangible assets combined, decreased by a net amount of €1.4 million, being the net effect of capital additions, less depreciation and amortisation, less disposals. Capital expenditure of €83.2 million was incurred during the
year (2017: €148.5 million). This was across a range of asset classes, with no new aircraft coming on balance sheet during the
year (2017: two A330-300 aircraft acquired on balance sheet). The depreciation and amortisation charges for the year were €70.7 million and €12.0 million.
Other non-current assets comprise long term loans, prepayments made for a period greater than one year, and USD denominated deposits with a maturity profile of greater than one year. Other non-current assets increased by €122.3 million during 2018, due
primarily to an increase in intergroup deposits. This was offset by a transfer of USD deposits to current assets to match our
current lease obligations in relation to leases maturing in 2019.
Other reserves principally include cash flow hedging reserves deficit, a capital contribution reserve, a capital conversion reserve
fund and retained earnings. Movements within reserves are detailed within Note 29. The overall movement in reserves is mainly
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due to profit after tax of €258.2 million, a decrease of €112.3 million in the cash flow hedging reserves, due to items having been
reclassified to net profit, fair value movements in equity and dividend paid to Aer Lingus Group DAC of €225.0 million. Overall,
other reserves, and net assets, have decreased by €78.7 million, with no change to issued share capital during the year.
Interest-bearing long-term borrowings, amounting to €337.8 million at the balance sheet date (2017: €410 million), relate to finance lease obligations, a number of which are denominated in US dollars, and the remaining denominated in Euro. The
movement during 2018 relates to scheduled lease repayments.
Deferred tax liability balance sheet position decreased by €13.0 million. This net decrease mainly relates to an increase in the deferred tax asset arising from derivative financial instruments of €16.0 million.
Provisions increased by €29.8 million, with the main movement being increases in maintenance provisions.
The net derivative hedging position amounted to a €63.5 million liability position at the end of 2018 (2017: a net asset position of
€53.2 million). At the end of 2018, the hedging position comprises a significant mark to market loss on the Company’s portfolio of both fuel and foreign exchange hedges. This was driven by a decrease in market fuel prices during the latter part of 2018
combined with fluctuations in both the US dollar and GBP sterling rates. The Financial Risk Management disclosures within
Note 17 to these financial statements provide further background on the Company’s positions.
Fleet summary
A summary of our operating fleet as at 31 December 2018 was:
By aircraft type and financing structure:
Aircraft type Owned Finance lease Operating lease Wet lease Total
A320 12 4 18 34
A321 3 3
A330-200 2 1 2 5
A330-300 1 5 2 8
B757 4 4
Avro RJ-85 2 2
Total 18 10 22 6 56
Our short haul fleet consists of 39 aircraft (2017: 37) with 17 aircraft in our long haul fleet (2017: 16).
An A330-300 acquired in November 2017 was placed into a storage programme upon delivery and entered into service in March 2018. An A330-200 entered into service in May 2018 under an operating lease. Two Avro RJ-85s entered service in October 2018, operated by
CityJet, on a wet lease basis.
A summary of our operating fleet as at 31 December 2017 was:
By aircraft type and financing structure:
Aircraft type Owned Finance lease Operating lease Wet lease Total
A320 10 6 18
34
A321 3
3
A330-200 2 1 1
4
A330-300 1 5 2
8
B757
4 4
Total 16 12 21 4 53
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Principal Risks and Uncertainties
The Directors are responsible for oversight of the Company’s risk management systems, which are designed to identify, manage and
mitigate potential material risks to the Company’s strategic and business objectives. The Company carries out detailed risk management reviews under the IAG risk management framework. A separate but parallel management system monitors flight safety risks.
The principal corporate, non-flight risks that may threaten the Company’s business model, future performance and solvency are described
below. This list is not intended to be exhaustive.
Airport Infrastructure – Strategic Enablers
Aer Lingus has proposed defined growth ambitions in its Business Plan, notably to develop and expand its value carrier model on the North
Atlantic. This growth is significantly dependent on the timely delivery of appropriate infrastructure by the daa.
Alliance Risk
The cost/benefit analysis required to facilitate Aer Lingus’ entry into the Atlantic Joint Business with British Airways, American Airlines and other airlines on the North Atlantic, has been completed. This analysis indicates that there continues to be both opportunities and
significant cost implications to the Atlantic Joint Business.
Business Continuity & Disaster Recovery
Long term disruption or the inability to promptly recover from short term disruptions, can have an adverse material impact on the
Company’s business in terms of lost bookings and revenue, additional cost and damaged customer confidence. We have scenario based business continuity plans in place for all foreseeable contingencies, and a robust and independently validated Emergency Response Plan for
aircraft related crisis events.
Commodity Risk
Aer Lingus operates in a sector where certain market parameters can strongly impact on our performance. Jet fuel prices and foreign
exchange rates are volatile and airport charges are largely outside the Company’s control. Aer Lingus is particularly vulnerable to increases in charges at Dublin, which is our hub airport. Fuel hedging is actively managed in accordance with treasury policy and Board approvals.
Competition Risk
Aer Lingus operates in an intensely competitive market across all our main route groups. Several new entrants have entered our key markets.
Any failure to maintain our ability to compete so as to maintain and grow our market share in those key markets may result in erosion of our
revenue and margins. We pro-actively manage our capacity, services, revenues and costs to optimise our ability to retain and grow market share.
Cyber Security
Aer Lingus could face financial loss, disruption or damage to brand reputation arising from an attack on its systems by criminals, terrorists
or foreign governments. If the Company does not adequately protect our customer and employee data, it could breach regulation and face
penalties and loss of customer trust. Aer Lingus follows the IAG initiatives to enhance defences and response plans, ensures that it is up to
date with industry standards and addresses identified weaknesses.
There is oversight of critical systems and suppliers to ensure that data is secure, and the Company adheres to regulations and understands the
data that is held. A General Data Protection Regulation (GDPR) programme was implemented across the IAG Group in 2018 as part of its
ongoing privacy programmes.
The fast-moving nature of this risk means that we will always retain a level of vulnerability.
Fleet - Sourcing
In accordance with the business plan, maintaining the correct fleet specification, aircraft number and mix is critical for our business. Over
the last couple of years a number of mitigation actions have been implemented to reduce single supplier (OEM and lessor) and aircraft
availability risk. We have expanded our aircraft lessor portfolio from four lessors to over ten and established commercial relations with main aircraft and engine OEMs. This has permitted increased buying and negotiating power and preferential access to aircraft production slots.
IT systems and IT infrastructure
The Company is dependent on IT systems for most of its primary business processes. The performance and reliability of these systems is
critical to our ability to operate and compete effectively. The Company works with world class partners and is increasing resilience by
implementing agreed plans which include investing in new technology, updates and a robust operating platform.
People - Industrial relations
The Company has a largely unionised workforce and collective bargaining takes place on a regular basis across a range of issues. A successful relationship with our staff stakeholders is vital to our performance.
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Political and Economic Conditions
Any uncertainty in the political and economic environment in the markets in which Aer Lingus operates may increase volatility in foreign
exchange or pose a threat to continued economic recovery and growth.
Following the UK referendum decision in 2016, the UK is expected to leave the European Union (EU) on March 29, 2019. Our parent
undertaking, IAG, has continued to engage extensively with the relevant authorities to ensure IAG’s and Aer Lingus’ views on post-Brexit aviation arrangements are understood and taken into account. This has included frequent dialogue with the UK, Spanish and Irish
governments, as well as the European Commission and Members of the European Parliament. The completion of a Withdrawal Agreement
between the negotiators confirmed that there would be no change to aviation arrangements until the end of the transition period on December 31, 2020 and that the future relationship between the parties would include a comprehensive air transport agreement.
As the Withdrawal Agreement is subject to ratification by the UK and EU parliaments, both the European Commission and the UK
Government published separate plans to allow air services to continue in the event that the Withdrawal Agreement (or an amended version
of it) cannot be ratified. These include mechanisms to permit flights between the UK and the EU and recognition of each other’s safety certification, approvals and security regimes for a limited period of time following the UK’s departure from the EU pending agreement on
more comprehensive arrangements. As part of this, the EU is in the process of adopting a Regulation on basic connectivity between the EU
and UK that may result in some restrictions on code share flexibility. In addition, in November, the UK signed new air services agreements with the USA and Canada to replace existing EU-wide agreements once the UK leaves the EU, securing market access and regulatory
arrangements for the future. IAG has had detailed and constructive engagement with its national regulators and governments about
ownership and control. Those discussions will continue, including with the European Commission, and IAG remains confident that its operating companies, including Aer Lingus, will comply with relevant ownership rules post Brexit. IAG’s and Aer Lingus’ assessment
remains that, even in the event of no-deal, Brexit will have no significant long-term impact on its business.
Regulatory Compliance Risk
Any breach of laws and regulations would pose a risk to the company. Aer Lingus actively manages compliance with competition and data
protection regulations to ensure compliance.
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Directors and Secretary
The names of the current Directors appear on page 3. The Directors who served during the year ended 31 December 2018 are listed in the
table below.
Director Status Executive/Non-Executive
Robert Boyle Current Parent Company Executive
Rachel Izzard Current Executive
Stephen Kavanagh Current Executive
Mike Rutter Current Executive
Willie Walsh Current Parent Company Executive
Stephen Kavanagh resigned as Chief Executive Officer and was appointed non-executive director with effect from 1 January 2019. Sean
Doyle was appointed Chief Executive Officer, and was appointed to the board, with effect from 1 January 2019.
Directors’ and Secretary’s interests in shares and debentures
The Directors and the Secretary were not interested in, at either the beginning of the financial year (or, if he or she was not then a Director,
when he or she became a Director) or at the end of the financial year, any shares in or debentures of the Company or any group undertaking
of the Company required to be recorded in the Company’s register of interests under section 267 of the Companies Act 2014.
Payment practices
The Directors acknowledge their responsibility for ensuring compliance, in all material respects, with the provisions of the European
Communities (Late Payments in Commercial Transactions) Regulations 2002 (the “Regulations”). Procedures have been implemented to identify the dates upon which invoices fall due for payment and to ensure that payments are made by such dates. Such procedures provide
reasonable assurance against material non-compliance with the Regulations. The payment policy throughout 2018 was to comply with the
requirements of the Regulations.
Research and Development
The Company did not engage in any research and development activities during the year.
Political contributions
No political donations were made by the Company during the year.
Subsidiary companies
Details of the principal subsidiary companies are set out in Note 14 to the financial statements.
Financial Risk Management
Details regarding financial risk management are set out in Note 17 to the financial statements.
Independent auditors
The independent auditors, Ernst & Young, are prepared to continue in office in accordance with the provisions of section 383(2) of the
Companies Act 2014.
Events after the reporting date
Events after the reporting date are disclosed in Note 34 to the financial statements.
On behalf of the Board
RACHEL IZZARD SEAN DOYLE
Director Director
1 March 2019 1 March 2019
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DRAFT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AER LINGUS LIMITED
Opinion
We have audited the financial statements of Aer Lingus Limited (‘the Company’) for the year ended 31
December 2018, which comprise the Income Statement, the Statement of Other Comprehensive Income, the
Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and notes to
the financial statements, including the summary of significant accounting policies set out in note 3. The financial
reporting framework that has been applied in their preparation is Irish Law and International Financial
Reporting Standards (IFRS) as adopted by the European Union as applied in accordance with the provisions of
the Companies Act 2014.
In our opinion the financial statements:
give a true and fair view of the assets, liabilities and financial position of the company as at 31
December 2018 and of its profit for the year then ended;
have been properly prepared in accordance with IFRS as adopted by the European Union; and
have been properly prepared in accordance with the requirements of the Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and
applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the Company in
accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including
the Ethical Standard as applied to public interest entities issued by the Irish Auditing and Accounting
Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters, in relation to which ISAs (Ireland) require us to
report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements
is not appropriate: or
the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the Company’s ability to continue to adopt the going concern basis of
accounting for a period of at least twelve months from the date when the financial statements are
authorised for issue.
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DRAFT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AER LINGUS LIMITED
Other information
The directors are responsible for the other information. The other information comprises the directors report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2014
Based solely on the work undertaken in the course of the audit, we report that:
in our opinion, the information given in the directors’ report is consistent with the financial statements;
and
in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014
We have obtained all the information and explanations which we consider necessary for the purposes of our
audit.
In our opinion the accounting records of the Company were sufficient to permit the financial statements to be
readily and properly audited and the Company statement of financial position is in agreement with the
accounting records.
Matters on which we are required to report by exception
Based on the knowledge and understanding of the company and its environment obtained in the course of the
audit, we have not identified material misstatements in the directors' report.
The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’
remuneration and transactions required by sections 305 to 312 of the Act are not made. We have nothing to
report in this regard.
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DRAFT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AER LINGUS LIMITED
Respective responsibilities
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 4, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the IAASA's
website at: http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-
a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf .
This description forms part of our auditor's report.
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with section 391 of the
Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
for and on behalf of
Ernst & Young Chartered Accountants and Statutory Audit Firm
Dublin
Date: 1 March 2019
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All reported results arise from continuing operations.
The notes on pages 19 to 60 form an integral part of these financial statements.
Approved by the Board of Directors on 1 March 2019.
Income Statement Year ended 31 December
2018 2017
As restated
Note €'000 €'000
Passenger revenue 1,952,611 1,798,803
Cargo revenue 53,639 47,622
Other revenue 13,716 11,328
Total revenue 2,019,966 1,857,753
Employee costs 379,288 350,258
Fuel, oil costs and emission charges 381,723 316,025
Handling, catering and other operating costs 200,191 180,139
Landing fees and en-route charges 328,882 331,073
Engineering and other aircraft costs 97,551 97,464
Property, IT and other costs 57,528 58,456
Selling costs 86,859 79,207
Depreciation and amortisation 6 82,753 76,968
Aircraft operating lease costs 6 103,352 96,946
Currency differences (1,622) 4,457
Total expenditure on operations 1,716,505 1,590,993
Operating profit 303,461 266,760
Finance costs 7 (9,199) (10,032)
Finance income 7 5,760 4,015
Net currency retranslation (charges)/credits (3,653) 6,589
(Loss)/Gain on derivatives not qualifying for hedge accounting (136) 403
Net gain related to sale of property, plant, equipment and investments 50 848
Net financing charge relating to pensions 7 (73) (88)
Profit before taxation 296,210 268,495
Tax 10 (37,984) (34,018)
Profit after taxation 258,226 234,477
Attributable to:
Equity holders of the parent 258,226 234,477
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Statement of other comprehensive income Year ended 31 December
2018 2017
As restated
Note €'000 €'000
Items that may be reclassified subsequently to net profit/(loss)
Cash flow hedges:
Fair value movements in equity 29 (87,026) 43,777
Deferred tax impact 27 10,878 (5,472)
Reclassified and reported in net profit 29 (41,362) (57,379)
Deferred tax impact 27 5,170 7,172
Items that will not be reclassified to net profit/(loss)
Re-measurements of post-employment benefit obligations 24 434 134
Deferred tax impact 27 (54) (17)
Total other comprehensive income/(loss) for the year, net of tax (111,960) (11,785)
Profit after tax for the year 258,226 234,477
Total comprehensive income for the year 146,266 222,692
Total comprehensive income is attributable to:
Equity holders of the parent 146,266 222,692
All reported results arise from continuing operations.
The Notes on pages 19 to 60 form an integral part of these financial statements.
Approved by the Board of Directors on 1 March 2019.
16
Statement of financial position
At At At
31 December
2018
31 December
2017
31 December
2016
As restated As restated
Note €'000 €'000 €'000
Non-current assets
Property, plant and equipment 11 618,440 639,457 571,067
Intangible assets 12 54,514 34,853 33,138
Investment in subsidiaries 13 113,708 113,708 113,710
Employee benefit assets 24 406 385 349
Loans and receivables 16 200,195 195 195
Derivative financial instruments 17 5,195 13,503 11,214
Other non-current assets 19 19,879 89,314 135,360
1,012,337 891,415 865,033
Current assets
Inventories 18 8,420 6,675 6,727
Trade receivables 19 29,239 23,432 36,182
Other current assets 19 79,695 102,608 67,567
Derivative financial instruments 17 9,426 44,095 38,906
Other current interest bearing-deposits 20 671,388 805,880 666,782
Cash and cash equivalents 20 217,110 216,706 185,187
1,015,278 1,199,396 1,001,351
Assets classified as held for sale 15 327 - 14,598
Total current assets 1,105,605 1,199,396 1,015,949
Total assets 2,027,942 2,090,811 1,880,982
Shareholders' equity
Issued share capital 28 337,991 337,991 337,991
Other reserves 29 103,523 182,257 159,565
Total shareholders' equity 441,514 520,248 497,556
Total equity 441,514 520,248 497,556
Non-current liabilities
Interest-bearing long-term borrowings 21 202,076 327,709 264,523
Employee benefit obligations 24 1,860 2,299 3,355
Deferred tax liability 27 32,161 45,128 35,669
Provisions for liabilities 25 134,246 103,563 87,400
Derivative financial instruments 17 28,896 662 3,447
Other long-term liabilities 22 135,565 136,104 136,065
534,804 615,465 530,459
Current liabilities
Current portion of long-term borrowings 21 135,725 82,249 31,809
Deferred revenue on ticket sales 22 221,096 212,791 206,065
Trade and other payables 22 579,746 589,565 528,891
Derivative financial instruments 17 49,177 3,716 10,398
Provisions for liabilities 25 65,880 66,777 75,804
1,051,624 955,098 852,967
Total liabilities 1,586,428 1,570,563
1,383,426
Total equity and liabilities 2,027,942 2,090,811
1,880,982
The Notes on pages 19 to 60 form an integral part of these financial statements.
On behalf of the Board
RACHEL IZZARD SEAN DOYLE
Director Director
1 March 2019 1 March 2019
17
Statement of changes in equity Year ended 31 December 2018
Called-up share
capital
Capital
conversion
reserve fund
Cash flow
hedging reserve
Capital
contribution
reserve
Share based
payment reserve
Retained
earnings
As Restated
Total equity
As Restated
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Balance at 1 January 2017 (as restated) 337,991 1,705 68,498 13,207 - 76,155 497,556
Profit for the year - - - - - 234,477 234,477
Other comprehensive income for the year:
Cash flow hedges reclassified and reported in net profit: - - (50,207) - - - (50,207)
Net change in fair value of cash flow hedges - - 38,305 - - - 38,305
Re-measurement of post-employment benefit obligations - - - - - 117 117
Total comprehensive income/(loss) for the year - - (11,902) - - 234,594 222,692
Share based payment vesting charge - - - - 1,780 - 1,780
Share based payment intercompany settlement
- - - - (1,780) - (1,780)
Dividends paid - - - - - (200,000) (200,000)
Balance at 31 December 2017 337,991 1,705 56,596 13,207 - 110,749 520,248
Balance at 1 January 2018 337,991 1,705 56,596 13,207 - 110,749 520,248
Profit for the year - - - - 258,226 258,226
Other comprehensive income for the year:
Cash flow hedges reclassified and reported in net profit: - - (36,192) - - - (36,192)
Net change in fair value of cash flow hedges - - (76,148) - - - (76,148)
Re-measurement of post-employment benefit obligations - - - - - 380 380
Total comprehensive income/(loss) for the year - - (112,340) - - 258,606 146,266
Share based payment vesting charge - - - - 2,431 - 2,431
Share based payment intercompany settlement
- - - - (2,431) - (2,431)
Dividends paid - - - - - (225,000) (225,000)
Balance at 31 December 2018 337,991 1,705 (55,744) 13,207 - 144,355 441,514
The Notes on pages 19 to 60 form an integral part of these financial statements.
18
Statement of cash flows Year ended 31 December
2018
2017
As restated
Note €'000 €'000
Cash flows from operating activities
Cash generated from operations 32 456,660 367,213
Interest paid (5,195) (5,709)
Taxation (paid)/refunded (61,229) 37
Net cash flows from operating activities 390,236 361,541
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (89,357) (168,174)
Proceeds from sales of property, plant and equipment and intangible assets 50 1,469
Proceeds from sale of investment in joint venture - 15,415
Increase in interest-bearing and other deposits 801 (114,572)
Interest received 6,180 5,516
Net cash flows from investing activities (82,326) (260,346)
Cash flows from financing activities
Drawdown of long-term interest-bearing borrowings - 168,413
Repayments of loans (to)/from fellow group companies 1,215 (15)
Repayments of long-term interest-bearing borrowings (84,587) (37,062)
Dividends paid (225,000) (200,000)
Net cash flows from financing activities (308,372) (68,664)
Net increase in cash and cash equivalents (462) 32,531
Net foreign exchange differences on cash and cash equivalents 866 (1,012)
Cash and cash equivalents at 1 January 20 216,706 185,187
Cash and cash equivalents at year end 20 217,110 216,706
The Notes on pages 19 to 60 form an integral part of these financial statements.
19
Notes to the financial statements
1 General information
Aer Lingus Limited (“the Company”) operates as an Irish airline primarily providing passenger and cargo transportation services from Ireland to the UK and Europe (“short haul”) and also to North America (“long haul”). The Company, registered number 9215, is a limited
liability company incorporated and domiciled in Ireland. The address of its registered office is Dublin Airport, Co. Dublin, Ireland. The
Company is a wholly owned subsidiary of Aer Lingus Group DAC, a company incorporated and domiciled in Ireland. The address of its registered office is Dublin Airport, Co. Dublin, Ireland. The ultimate parent of Aer Lingus Limited is International Consolidated Airlines
Group, S.A. hereinafter “IAG”. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. IAG shares are
traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock Exchanges Interconnection System (Mercado Continuo Español).
2 Basis of preparation
The financial statements of the Company have been prepared on a going concern basis in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU), IFRS Interpretations Committee (IFRIC) interpretations and the Companies Act 2014 applicable to companies reporting under IFRS.
The financial statements presented are separate financial statements. Details of the principal subsidiary undertakings are included in Note 14. The Company has availed of an exemption from preparing consolidated financial statements, as set out under section 299 of the
Companies Act 2014 and IFRS 10, Consolidated Financial Statements, as it is a wholly owned subsidiary of Aer Lingus Group DAC, a
company incorporated and domiciled in Ireland. The ultimate parent of the Company is International Consolidated Airlines Group, S.A.
(‘IAG’) which presents consolidated financial statements, including the results of the Company, prepared in accordance with the
International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU). The registered office of IAG
is S.A El Caserío, Iberia Zona Industrial no 2 (La Munoza) Camino de La Munoza, s/n, 28042 Madrid, Spain and the consolidated financial statements are publicly available on the IAG’s website at http://www.iairgroup.com/.
The financial statements are presented in euro, rounded to the nearest thousand unless otherwise stated. These financial statements have been
prepared on a historical cost basis except for certain financial assets and liabilities, including derivative financial instruments and available-
for-sale financial assets that are measured at fair value.
IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. References to IFRS hereafter should be construed as
references to IFRS adopted by the EU.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions,
actual results ultimately may differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements are disclosed in Note 4.
The Company’s financial statements for the year to 31 December 2018 were authorised for issue, and approved by the Board of Directors on
1 March 2019.
3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
3.1 Foreign currency translation
(a) Functional and presentation currency
The financial statements are presented in euro, which is the functional and presentation currency of the Company.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions, or at the reporting date where items are remeasured. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the Income statement in either “Currency differences” or “Net currency retranslation charges” except when deferred in equity as qualifying cashflow hedges. Foreign exchange differences on long-term balances reported are included within Net
currency retranslation charges whilst foreign exchange differences on short-term and working capital balances are included within
Currency differences.
3.2 Property, plant and equipment
Property, plant and equipment is held at cost. Depreciation is calculated to write off the cost less the estimated residual value on a straight
line basis over the economic life of the asset. Residual values, where applicable, are reviewed annually against prevailing market values for
equivalently aged assets and depreciation rates adjusted accordingly on a prospective basis.
20
(a) Capitalisation of interest on progress payments
Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account of aircraft and
other qualifying assets under construction are capitalised and added to the cost of the asset concerned. All other borrowing costs are recognised in the Income statement in the year in which they are incurred.
(b) Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets owned or
held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual value at the end of their planned operational lives on a straight-line basis.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five years and the remaining life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are carried as property, plant and equipment and generally depreciate in line with the fleet to which they relate.
Major engine overhaul expenditure is capitalised and depreciated over the average expected life between major overhauls. The costs of replacement engine LLPs (life limited parts) are capitalised and depreciated over the remaining life of the fleet to which they relate. All
other replacement spares and other costs relating to maintenance of fleet assets (including maintenance provided under ‘pay-as-you-go’
contracts) are charged to the Income statement on consumption or as incurred respectively.
(c) Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land, is depreciated
over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 2 to 20 years.
(d) Leased assets
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred to the
Company, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced by the
appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding paragraphs on
fleet and the interest element of lease payments made is included as an interest expense in the Income statement. Total minimum
payments, measured at inception, under all other lease arrangements, known as operating leases, are charged to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease arrangements allow the Company to
terminate the leases after a limited initial period, without further material financial obligations. In certain cases the Company is entitled
to extend the initial lease period on predetermined terms; such leases are described as extendable operating leases.
(e) Depreciation
Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as
follows:
Useful lives Residual values¹
Flight equipment
Aircraft fleet and major spares
- short haul aircraft 21 years 7% of cost
- long haul aircraft 20 years 10% of cost
Rotable spares
- short haul aircraft 21 years 7% of cost
- long haul aircraft 20 years 10% of cost
Modifications to leased aircraft No greater than 5 years Nil
Property
Freehold Principally 50 years Nil
Leasehold Period of lease Nil
Equipment
Ground equipment 3 – 20 years Nil
Other equipment 2 – 10 years Nil
21
1The residual values and useful lives of assets are reviewed and adjusted if appropriate, at the end of each reporting period. An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount written off.
3.3 Intangible assets
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised separately and amortised
on a straight-line basis over a period not exceeding five years.
In 2011, as part of the surrender of the lease over its former head office building, the Company acquired a ten year license for the use of
certain property owned by the Dublin Airport Authority. This license is held at cost and amortised over the ten year license term on a straight line basis.
Landing rights are capitalised at fair value at the date of purchase. Subsequently they are accounted for at cost less any accumulated impairment losses. Landing rights are considered to have an indefinite life as they will remain available for use for the foreseeable future
provided minimum utilisation requirements are met, and therefore they are not amortised. The carrying value of these rights is subject to
impairment testing annually or when events or changes in circumstances indicate that carrying values may not be recoverable.
Purchased emissions allowances are recognised at cost. Emissions allowances are considered to be indefinite lived assets and are not
revalued or amortised but are tested for impairment whenever indicators exist that the carrying value may not be recoverable.
3.4 Impairment of non-financial assets
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Indefinite lived assets are tested for impairment at least annually. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows. Non-financial assets that have been impaired are reviewed for possible reversal of the impairment at each reporting date. Refer to Note 11 and Note 12 for further detail.
3.5 Investment in subsidiaries
The investments in subsidiaries are stated in the Company’s financial statements at cost less impairment. On disposal of such an investment,
the difference between the net disposal proceeds and its carrying amount is included in the Income statement.
3.6 Financial Instruments
The Company classifies its financial assets and liabilities in those categories set out below. The classification depends on the purpose for
which the financial assets or liabilities were acquired. Management determines the classification of its financial assets and liabilities at initial
recognition.
(a) Loans and receivables
After initial recognition, interest-bearing loans and receivables are subsequently measured at amortised cost using the EIR method. Gains
and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance income in the statement of comprehensive income.
(b) Trade and other receivables
For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit
risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic
environment. Loans to third parties are initially measured at the fair value of the consideration given plus any directly attributable
transaction costs, and measured thereafter at amortised cost using the effective interest method.
(c) Other current and non-current interest-bearing deposits
Other current interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried at amortised
cost using the effective interest method.
(d) Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging derivatives are
initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The
method of recognising the resulting gain or loss arising from revaluation depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged (as detailed below under cash flow hedges). The gains or losses related to derivatives not used as effective hedging instruments are recognised in the Income statement.
The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy, for undertaking various hedging transactions. The Company also documents its assessment, both
at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.
22
Exchange gains and losses on monetary assets and liabilities are taken to the Income statement unless the item has been designated and is
assessed as an effective hedging instrument. Exchange gains and losses on non-monetary assets and investments are reflected in equity until
the investment is sold when the cumulative amount recognised in equity is recognised in the Income statement.
i. Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Income statement, together
with any changes in the fair value of the hedged asset or liability. The Company only applies fair value hedge accounting for hedging fixed interest risk on assets and borrowings. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate assets and
borrowings is recognised in the Income statement within “finance costs”. The gain or loss relating to the ineffective portion of the interest
rate swaps is recognised in the Income statement within “Gains/(losses) on derivatives not qualifying for hedge accounting”.
If a hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective
interest method is used is amortised to profit or loss over the period to maturity.
ii. Cash flow hedges
Cash flow hedges are principally used to hedge the commodity price risk associated with the Company’s forecasted fuel purchases as well as
certain foreign exchange and interest rate exposures. Gains and losses on derivative financial instruments designated as cash flow hedges
and assessed as effective for the year, are recorded in equity. The gain or loss relating to the ineffective portion of the interest rate swaps is recognised in the Income statement within “Gains/(losses) on derivatives not qualifying for hedge accounting”. Gains and losses recorded
in equity are reclassified to the income statement when either the hedged cash flow impacts income or the hedged item is no longer expected
to occur.
3.7 Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it has been settled, sold, cancelled or has expired.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition
of a new liability, such that the difference in the respective carrying amounts are recognised in the Income statement.
3.8 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of financial position when there is a legally
enforceable right to offset the recognised amounts which is not contingent on a future event and there is an intention to settle on a net basis,
or realise the asset and settle the liability simultaneously, which is enforceable, as well as in the normal course of business, in the event of default or of insolvency or bankruptcy of any of the counterparties.
3.9 Impairment of financial assets
The Company recognises an allowance for expected credit losses (ECLs) for trade receivables. The Company applies a simplified approach
in calculating ECLs. An allowance for expected credit losses is calculated by considering on a discounted basis the cash shortfalls the
Company would incur in various default scenarios for prescribed future periods and multiplying the shortfalls by the probability of each
shortfall occurring.
3.10 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average cost. Net realisable value is the estimated selling price in the ordinary course of business, less applicable disposal costs.
3.11 Cash and cash equivalents and deposits
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with
original maturities of three months or less. Bank overdrafts are shown within current liabilities on the Statement of financial position.
Deposits with original maturities of less than three months are classified as cash and cash equivalents. Deposits with an original maturity of
more than 3 months are classified as current assets if maturing within 12 months and otherwise as non-current assets.
3.12 Share capital
Ordinary shares issued are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in the
statement of comprehensive income as a deduction, net of tax, from the proceeds received.
3.13 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within 12 months or less (or in the normal operating cycle of the
business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
23
3.14 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost;
any difference between the net proceeds and the redemption value is recognised in the Income statement over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least
12 months after the end of the reporting period.
3.15 Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it
relates to items recognised in other comprehensive income or directly in equity. In this case the tax is recognised in other comprehensive income or directly in equity, respectively.
The current tax charge is calculated on the basis of the tax rates and laws enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit
or loss. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date and which
are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Company controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the taxable entity or different
taxable entities where there is an intention to settle the balances on a net basis.
The tax effects of tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be
available against which these losses can be utilised.
3.16 Employee benefits
Post-employment benefit obligations
The Company operates various pension schemes. The schemes are generally funded through payments to trustee-administered funds. The
Company contributes to defined contribution and defined benefit plans.
For defined contribution schemes, the Company pays contributions into the pension schemes in accordance with the trust deed. The
Company has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future
payments is available.
For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each reporting date. Actuarial gains and losses (re-measurements) are recognised in full in the period in which they
occur. They are recognised outside the Income statement and are presented in other comprehensive income.
The discount rate applied by the Company in determining the present value of the schemes’ liabilities is determined by reference to market
yields at the reporting date, on high quality corporate bonds of a currency and term consistent with the currency and term of the associated post-employment benefit obligation. Where a deep market for high quality corporate bonds of a term consistent with the post retirement
obligations of a particular scheme does not exist, a rate which is extrapolated (with assistance from actuarial experts) from available high
quality corporate bonds of shorter maturities is used.
Past service cost is recognised immediately as an expense at the earlier of the following dates (a) when a plan amendment or curtailment
occurs; and (b) upon recognition of related restructuring costs or termination benefits.
The post-employment benefit obligation recognised in the Statement of financial position represents the present value of the defined benefit
obligation as adjusted for unrecognised past service cost and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an
employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits at the earlier of the
following dates; (a) when the Company can no longer withdraw the offer of these benefits following communication to employees; and (b) when the Company recognises costs for a restructuring which is within the scope of IAS 37 and involves the payment of termination
benefits. They represent the Directors’ best estimate of the cost of these measures.
24
3.17 Share-based payment
As at 31 December 2018 Aer Lingus did not operate any equity-settled, share-based compensation plans.
IAG has a number of equity-settled share-based employee incentive plans in which the Group’s employees participate. Awards are made
under the Performance Share Plan (PSP) operated by IAG and represent rights over its ordinary shares. The cost of these awards is
recharged from IAG to the Company and recognised as an intercompany payable to IAG.
3.18 Provisions
Provisions are made when:
the Company has a present legal or constructive obligation as a result of a past event;
it is probable that an outflow of resources will be required to settle the obligation, and;
the amount is capable of reliable estimation.
If the effect is material, expected future cash flows are discounted using a rate that reflects, where appropriate, the risks specific to the provision. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
Provisions are made for aircraft maintenance costs which the Company incurs in connection with engine overhauls and end-of-lease airframe checks on operating leased aircraft, where the terms of the lease impose obligations on the lessee to have this maintenance work
carried out. Provisions reflect the cost rates expected to apply at the time the work is carried out and to meet the contractual end of lease
return conditions. The actual cash outflow of the overhauls is charged against the provision when incurred. Any residual balance is transferred to the Income statement. Routine maintenance is expensed as incurred.
A provision for restructuring costs is recognised when a constructive obligation exists. The amount of the provision is based on the terms of business repositioning measures, including employee severance measures which have been communicated to employees. They represent the
Directors’ best estimate of the cost of these measures.
3.19 Frequent Flyer Programme (“FFP”) AerClub, with Avios, is the loyalty platform for Aer Lingus. The programme awards guests with Avios points which can be redeemed for
various rewards, primarily for redemption travel, including flights, hotels and car hire. The programme is administered by Avios Group
Limited, who recharge the Company for the Avios issued to AerClub members. The revenue recognised when the transportation service is provided is reduced by the price of the loyalty points issued.
3.20 Revenue recognition
The Company recognises revenue when the amount of revenue can be reliably measured, it is probable that the future economic benefits will
flow to the entity and when specific criteria have been met for each of the Company’s activities as described below.
Revenue comprises the fair value of consideration received or receivable for the sale of the Company’s services in the ordinary course of the
Company’s activities, and can be divided into scheduled passenger, cargo, ancillary and other revenue. Scheduled passenger revenue is shown inclusive of passenger charges and other fees to the extent that these are recovered directly from customers at the point of sale, but
exclusive of applicable government taxes including taxes levied by governments for travel to and from their respective countries and sales
taxes such as VAT. The point of recognition differs according to the various revenue streams as set out below:
(a) Revenues
Amounts in respect of transportation of passengers and cargo are deferred and are not recognised as revenue until the point at which
the passenger or cargo has flown; the point at which the performance obligations associated with these services has been satisfied.
The value of bookings made for which transportation has not been provided at the reporting date is included in “Deferred revenue on ticket sales”. Unused tickets are recognised as revenue using estimates based on historical trends.
Fees charged for bags, seat selection, charges for any changes to flight tickets and other administration fees are recognised when the passenger has flown.
Other revenues, including maintenance, handling and commissions, are recognised in the Income statement in the period in which the associated services are provided. Revenues arising from the Company’s franchise agreement with Stobart Air are recognised on a net
(as agent) basis with the agreed franchise fee reported within “Other revenue”.
(b) Lessor accounting
The Company acts as an operating lessor of aircraft, including crew and other services. Amounts in respect of these leases are billed in advance and recorded as deferred revenue. Revenue and costs are recognised as the services are provided, with the costs associated
with this revenue recognised within the relevant Income statement categories (staff costs, maintenance, depreciation, aircraft hire and
overheads). Revenue is recorded within other revenues.
(c) Interest income
Interest income is accrued by reference to the principal outstanding using the effective interest rate applicable.
25
(d) Dividend income
Dividend income is recognised when the right to receive payment is established.
3.21 New and amended standards adopted by the Company
IFRS 15 ‘Revenue from contracts with customers’ is effective for periods beginning on or after January 1, 2018. The standard establishes a
five-step model that will apply to revenue arising from contracts with customers. Revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for goods and services and at a point when the performance obligations
associated with these goods and services have been satisfied.
The Company identified the following change to revenue recognition on adoption of the standard:
Passenger revenue – revenue associated with ancillary services that were previously recognised when paid, such as administration fees and change fees, will be deferred to align with the recognition of revenue associated with the related
travel.
The Company has applied the standard on a fully retrospective basis. On adoption of the standard, the adjustment to retained earnings as at
January 1, 2017 was a charge of €7.9 million. For the year to December 31, 2017, adjustments to reflect the new standard were: reduction to
revenue €1.5 million resulting in a reduction in operating profit of €1.5 million.
IFRS 9 ‘Financial Instruments’ is effective from January 1, 2018. The standard amends the classification and measurement models for financial assets and adds new requirements to address the impairment of financial assets. It also introduces a new hedge accounting model to
more closely align hedge accounting with risk management strategy and objectives. The standard allows the Company to hedge account for
specific risk components of its fuel purchases, such as price risk. It also requires movements in the time value of options (currently recognised in the Income statement) to be recognised in other comprehensive income as they are considered to be a cost of hedging. On
adoption of the standard, there has been limited impact to the financial statements.
The Company identified the following change to impairment of financial assets on adoption of the standard:
The Company has adopted a new impairment model for trade receivables and other financial assets, with no material adjustment to existing provisions. The Company will continue to recognise most financial assets at amortised cost.
3.22 New standard, amendment and interpretation not yet effective
The IASB and IFRIC issued the following standard, amendment and interpretation with an effective date after the year end of these financial
statements which management believe could impact the Company in future periods. Unless otherwise stated, the Company plans to adopt the following standard, interpretation and amendment on its effective date:
IFRS 16 ‘Leases’ is effective from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. The Company is currently assessing the impact of the new standard.
Interest-bearing borrowings and non-current assets will increase on implementation of this standard as obligations to make future payments under leases currently classified as operating leases will be recognised on the Statement of financial position, along with the related ‘right-
of-use’ (ROU) asset. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are
replaced with depreciation and lease interest expense. Foreign exchange movements on lease obligations, which are predominantly denominated in US Dollars, will be remeasured at each Statement of financial position date. Details of the Company’s operating lease
commitments are disclosed in Note 31.
The Company intends to apply the standard on a modified retrospective basis. As at 1 January 2019, adjustments to reflect the new standard
are expected to be: introduction of ROU Asset €276.0 million and an increase in Lease Liability of €275.5 million with an overall impact to
reserves of €0.5 million.
The Company has not early adopted any standard, amendment or interpretation that has been issued but is not yet effective.
3.23 Changes in accounting policies and disclosures
IFRS 15 supersedes IAS 18 Revenue and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that
revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring
goods or services to a customer.
IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each
step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires extensive disclosures.
The Company adopted IFRS 15 using the full retrospective method of adoption. The effect of the transition on the current period has not been disclosed as the standard provides an optional practical expedient.
The effect of adopting IFRS 15 is, as follows:
26
Impact on financial statements
The following tables summarise the impact of adopting IFRS 15 on the income statement for the 12 months to December 31, 2017 and the
Statement of financial position as at December 31, 2017 and December 31, 2016.
Income statement (extract for the 12 months ended December 31, 2017)
€ 000 As previously
reported IFRS 15
adjustments Restated
Passenger revenue
1,798,803 - 1.798,803
Cargo revenue
47,622 - 47,622
Other revenue
12,871 (1,543) 11,328
Total revenue
1,859,296 (1,543) 1,857,753
Expenditure on operations
1,590,993 - 1,590,993
Total expenditure on operations
1,590,993 - 1,590,993
Operating profit 268,303 (1,543) 266,760
Other non-operating items
1,735 - 1,735
Profit before tax
270,038 (1,543) 268,495
Tax
(34,211) 193 (34,018)
Profit after tax for the year
235,827 (1,350) 234,477
Statement of financial position (extract at December 31, 2017)
€ 000
As previously reported IFRS 15 adjustments Restated
Non-current assets
Other non-current assets
891,415 - 891,415
891,415 891,415
Current assets
Other current assets
1,199,396 - 1,199,396
Total assets
2,090,811 - 2,090,811
Total equity
528,517 (8,269) 520,248
Non-current liabilities
Deferred tax liability
46,309 (1,181) 45,128
Other non-current liabilities
570,337 - 570,337
616,646 (1,181) 615,465
Current liabilities
Deferred revenue on ticket sales 203,341 9,450 212,791
Other current liabilities
742,307 - 742,307
Total liabilities
1,562,294 8,269 1,570,563
Total equity and liabilities
2,090,811 - 2,090,811
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Statement of financial position (extract at December 31, 2016)
€ 000
As previously
reported
IFRS 15
adjustments Restated
Non-current assets
Other non-current assets
865,033 - 865,033
865,033 - 865,033
Current assets
Other current assets
1,015,949 - 1,015,949
Total assets
1,880,982 - 1,880,982
Total equity
504,475 (6,919) 497,556
Non-current liabilities
Deferred tax liability
36,657 (988) 35,669
Other non-current liabilities
494,790 - 494,790
531,447 (988) 530,459
Current liabilities
Deferred revenue on ticket sales
198,158 7,907 206,065
Other current liabilities
646,902 - 646,902
845,060 7,907 852,967
Total liabilities
1,376,507 6,919 1,383,426
Total equity and liabilities
1,880,982 - 1,880,982
The Company has not adopted any other standards, amendments or interpretations in the 12 months to December 31, 2018 that have had a
significant change to its financial performance or position.
4 Critical accounting estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on
historical experience and various other factors believed to be reasonable under the circumstances. Actual results in the future may differ from estimates upon which financial information has been prepared. These underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if these are also affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed as follows.
(a) Provisions The Company makes provisions for legal and constructive obligations which are outstanding at the reporting date. These provisions are
made based on historical or other relevant information, adjusted for recent trends where appropriate. However, provisions represent
estimates of the financial costs of events that may not occur for some years. The basis for these estimates are reviewed and updated at least annually and where information becomes available that may give rise to a material change. Measurement uncertainty associated with end of
lease aircraft maintenance provisions also arises from the timing and nature of overhaul activity required, lease return dates and conditions,
and likely utilisation of the aircraft. As a result of this and the level of uncertainty attaching to the final outcomes, the actual results may differ significantly from those estimates. Refer to Note 25 for further details.
(b) Impairment of non-financial assets Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. In addition, indefinite lived assets are also reviewed for impairment annually at each reporting date. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As this assessment involves long term projections which may not be realised, this is an area of judgement for management.
(c) Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in active markets (for example, “over the counter” derivatives) is determined using
valuation techniques. The Company exercises judgement in selecting valuation methods and makes assumptions that are mainly based on
observable market data and conditions existing at each reporting date. The specific valuation techniques used to value financial instruments are set out in Note 17. Further judgement is exercised by management in considering the probability of occurrence of underlying hedge
transactions, in particular the likelihood and timing of future fuel, US dollar and aircraft purchases.
(d) Estimation of residual values of aircraft
The Company has determined the residual values of its aircraft as being 7% of original cost for short haul aircraft and 10% of original cost
for long haul aircraft. The Company periodically examines its estimate of residual values in light of results of actual aircraft disposals and changing market conditions.
28
(e) Post-employment benefits – Irish Airlines (General Employees) Superannuation Scheme and Irish Airlines (Pilots’) Superannuation Scheme (collectively the “Irish pension schemes”)
As the provisions of the trust deeds governing these schemes are such that no changes to the contribution rates are possible without the prior
consent of the Company, the Directors have concluded that it has no obligation, legal or constructive, to increase its contributions beyond those levels. As such, these schemes have been accounted for as defined contribution schemes under the provisions of IAS 19 Employee
Benefits (Revised) (“IAS 19R”), and, as a result, any surplus or deficit in the schemes is not recognised in the Statement of financial position
of Aer Lingus Limited.
If any legal or constructive obligation to vary the Company’s contributions based on the funding status of the schemes were to arise, IAS
19R would require the Company to include any pension fund surplus or deficit on its Statement of financial position and reflect any period on period movements in their Income statement or the Statement of other comprehensive income. Refer to Note 23 for further detail.
5 Going Concern
After making enquiries, considering the net cash available at the reporting date and considering the projections in the Company’s 2019 budget, the Directors consider that the Company has adequate resources to continue operating for the foreseeable future. For this reason they
have continued to adopt the going concern basis in preparing the financial statements.
6 Operating profit
Operating profit is stated after charging:
2018 2017
€'000 €'000
Depreciation on property, plant and equipment (Note 11)
- owned 40,948 40,537
- held under finance leases 29,764 26,788
Amortisation of intangible assets (Note 12) 12,041 9,643
Operating lease rentals payable
- aircraft 103,352 96,946
- property 8,191 8,287
Auditor's remuneration
- audit fee of the entity financial statements 340 340
- auditor’s fee for other assurance services 108 109
- auditor’s fee for non-assurance services 153 -
29
7 Finance income and expense
2018 2017
€'000 €'000
(a) Finance costs
Bank borrowings and interest cost on pensions escrow (272) (268)
Finance leases (8,832) (9,577)
Provisions unwinding of discount (32) (37)
Other interest costs (63) (150)
(9,199) (10,032)
(b) Finance income
Interest receivable 5,259 3,354
Other finance income 501 661
Interest on interest-bearing deposits 5,760 4,015
(c) Net financing charge relating to pensions
Net financing charge relating to pensions (73) (88)
8 Staff costs and numbers
The average number of persons (Full Time Equivalents) employed by the Company in the year was 2,658 (2017: 2,662) analysed as follows:
2018 2017
Operations and administration 2,638 2,643
Sales and marketing 20 19
2,658 2,662
The associated payroll costs of these persons were as follows:
2018 2017
€'000 €'000
Wages and salaries 226,910 221,915
Social insurance costs 19,313 17,321
Pension costs 24,668 22,981
Share based payments 2,431 1,780
273,322 263,997
The Company has an agreement with a fellow subsidiary company for human resource support. The charge for these payroll services
amounted to €90.0 million for the year ended 31 December 2018 (2017: €71.0 million). The staff cost total for the year including this charge
was €363.3 million (2017: €335.0 million).
Of the total staff costs €4.0 million (2017: €2.3 million) has been capitalised as part of the cost of intangible assets, with all remaining costs treated as an expense in the Income Statement.
30
9 Directors’ remuneration
Amounts paid to all Directors of the Company, who held office during the year, were as follows:
2018 2017
€'000 €'000
Emoluments 2,795 3,049
Benefits under long-term incentive schemes 1,448 1,191
Contributions to defined contribution retirement benefit schemes 50 77
4,293 4,317
Amounts disclosed under this category include payments made to the current directors by IAG which were subsequently recharged to the
Company.
10 Taxation
The tax charge recognised in the Income statement comprises:
2018
2017
As restated
€'000 €'000
Current taxation
Current tax charge 34,928 22,942
Foreign taxes paid 29 37
34,957 22,979
Deferred tax
Origination and reversal of temporary differences 3,027 11,039
Tax charge 37,984 34,018
2018 2017
€'000 €'000
Profit on ordinary activities before tax multiplied by
standard Irish corporation tax rate of 12.5% (2017:12.5%) 37,026 33,562
Effects of:
Expenses not deductible for tax purposes / (Income not taxable) 927 (15)
Differences in tax rates 13 6
Other adjusting items 18 465
Tax charge 37,984 34,018
31
11 Property, plant and equipment
Fleet Property Equipment Total
€'000 €'000 €'000 €'000
Cost
1 January 2017 1,234,016 48,878 86,125 1,369,019
Additions 132,835 1,019 1,916 135,770
Disposals (4,296) (1,938) (752) (6,986)
31 December 2017 1,362,555 47,959 87,289 1,497,803
Accumulated depreciation
1 January 2017 682,872 38,338 76,742 797,952
Depreciation charge for the period 59,929 3,997 3,399 67,325
Disposals (4,296) (1,938) (697) (6,931)
31 December 2017 738,505 40,397 79,444 858,346
Fleet Property Equipment Total
€'000 €'000 €'000 €'000
Cost
1 January 2018 1,362,555 47,959 87,289 1,497,803
Additions 42,345 2,244 5,258 49,847
Transfers to assets held for sale - - (162) (162)
Disposals (670) (8,200) (13,077) (21,947)
31 December 2018 1,404,230 42,003 79,308 1,525,541
Accumulated depreciation
1 January 2018 738,505 40,397 79,444 858,346
Depreciation charge for the period 65,884 2,752 2,076 70,712
Transfers to assets held for sale - - (122) (122)
Disposals (625) (8,182) (13,028) (21,835)
31 December 2018 803,764 34,967 68,370 907,101
Net book value
31 December 2018 600,466 7,036 10,938 618,440
31 December 2017 624,050 7,562 7,845 639,457
Leased assets included above (net book
value)
31 December 2018 346,007 - - 346,007
31 December 2017 375,446 - - 375,446
Finance lease obligations are secured on flight equipment with a net book value of €346.0 million (2017: €375.4 million). Depreciation of
€29.8 million (2017: €26.8 million) was charged on these assets during the year.
At 1 January 2017 fleet assets included €56.8 million of progress payments on future aircraft deliveries. At 31 December 2017, fleet assets
included €23.5 million of progress payments on future aircraft deliveries, following a net movement of €33.3m during the year. During 2018, a further €24.3 million of progress payments were made. At 31 December 2018, fleet assets include € 47.8 million of progress
payments on future aircraft deliveries.
Impairment tests for items of property, plant and equipment are performed on a cash generating unit basis when impairment triggers arise.
No impairment charges of long-lived assets arose during 2018 or 2017.
32
12 Intangible assets
Computer
software Licence1 Landing Rights
Emissions
allowances Total
€'000 €'000 €'000 €'000 €'000
Cost
At 1 January 2017 99,544 3,000 4,423 2,606 109,573
Additions 12,741 - - - 12,741
Disposal (4,749) - - (1,383) (6,132)
At 31 December 2017 107,536 3,000 4,423 1,223 116,182
Aggregate amortisation
At 1 January 2017 73,295 1,665 1,475 - 76,435
Charge for the year 9,308 333 - - 9,643
Impairment - - - - -
Disposal (4,749) - - - (4,749)
At 31 December 2017 77,854 1,998 1,475 - 81,329
Cost
At 1 January 2018 107,536 3,000 4,423 1,223 116,182
Additions 25,124 - - 8,344 33,468
Transfers to assets held for sale (515) - - - (515)
Disposal (3,772) - - (1,450) (5,222)
At 31 December 2018 128,373 3,000 4,423 8,117 143,913
Aggregate amortisation
At 1 January 2018 77,856 1,998 1,475 - 81,329
Charge for the year 11,708 333 - - 12,041
Transfers to assets held for sale (228) - - - (228)
Disposal (3,743) - - - (3,743)
At 31 December 2018 85,593 2,331 1,475 - 89,399
Net book value
31 December 2018 42,780 669 2,948 8,117 54,514
31 December 2017 29,682 1,000 2,948 1,223 34,853 1Licence to occupy certain DAA owned property
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13 Investments in subsidary undertakings
2018 2017
€’000 €'000
Investment in Subsidiaries 113,708 113,708
Details of the principal subsidiary undertakings are included in Note 14. The fair value of the investments in subsidiary undertakings is
considered not to be less than their carrying value.
14 Principal subsidiary undertakings
Details of the Company’s subsidiary undertakings are as follows:
Name of entity
Country of
incorporation and
place of business Registered office Nature of business
Proportion of
ordinary share
capital held %
Dirnan Insurance Company Limited Bermuda Canon’s Court
22 Victoria Street
Hamilton, Bermuda, HM 12
Dormant 100
Aer Lingus Beachey Limited Isle of Man Penthouse Suite,
Analyst House,
Peel Road, Douglas,
Isle of Man, IM1 4LZ
Dormant 100
Aer Lingus Northern Ireland Limited UK Aer Lingus Base Offices,
Belfast City Airport,
Sydenham Bypass, Belfast,
Co. Antrim, BT3 9JH
Dormant 100
Shinagh Limited Republic of Ireland Dublin Airport,
Ireland
Dormant 100
Santain Developments Limited Republic of Ireland Dublin Airport, Ireland
Dormant 100
15 Assets classified as held for sale
2018 2017
€'000 €'000
At 31 December 327 -
At 31 December 2018, the Company classified IT hardware assets as held for sale having met the conditions of IFRS 5 Non-current
Assets Held-for-sale and discontinued operations.
34
16 Loans and receivables
2018 2017
€’000 €'000
At 31 December 200,195 195
During the year, the Company provided a €200m unsecured, fixed interest-bearing loan at prevailing market rates at the date of transaction
to IAG that is repayable within five years. There were no other loans to fellow group companies at 31 December 2018 and 2017.
There were no impairment provisions recognised against loans and receivables in the current or prior year.
17 Derivative financial instruments
Financial risk management objectives and policies
17.1 Financial risk factors
The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, commodity price and interest rate risk), credit risk and liquidity risk. The Company’s risk management programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to
hedge certain risk exposures.
Financial risk management is carried out by a central treasury department (Company treasury) under policies approved by the Board of
Directors. Company treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s business areas. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange
risk, interest rate risk, credit risk, commodity price risk, use of derivative financial instruments and non-derivative financial instruments, and
investment of excess liquidity.
(a) Market risk
(i) Foreign exchange risk
The main currency exposures result from a structural trading surplus in US Dollars and in Sterling. A large proportion of the Company
treasury function’s work in relation to foreign exchange rate risk relates to the management of the Company’s cashflow exposures.
Significant currency exposures are managed for the current and future financial years on a systematic, amortising basis within pre-set bands. The US Dollar surplus arises because the US Dollar sales exceed US Dollar costs. The Sterling surplus also arises because Sterling sales
exceed Sterling costs. Profits are reduced by a weaker US Dollar and/or a weaker Sterling.
Additionally, significant currency exposure results from the capital commitments relating to the purchase of aircraft which are priced in US
Dollars. Acquisition costs are increased by a stronger US Dollar.
The Company treasury function manages both cashflow exposures and financial position exposures arising from currency risk. The
products used by the Company treasury function in managing currency risk are predominantly forward foreign exchange contracts.
Based on the trading surplus in US Dollar for the year ended 31 December 2018, a 5% weakening of the EUR to US Dollar exchange rate
over the year-end rate would result in an increase in profit of €5.3 million for the year (2017: a 5% weakening of the EUR to US Dollar
exchange rate would have resulted in a reduction in profit of €4.1 million for the year). Based on the trading surplus in Sterling for the year ended 31 December 2018, a 5% strengthening of the EUR to Sterling exchange rate over the year end rate would result in an reduction in
profit of €4.8 million for the year (2017: reduction in profit of 5.7million). The impact of such currency movements after taking account of
hedging would have been negligible for both 2018 and 2017.
(ii) Interest rate risk
The Company is exposed to interest rate risk associated with its long term funding requirements and its programme of surplus funds
investment. Higher interest rates increase the costs of gross debt and lower interest rates reduce the returns from cash investments.
Overall the Company is in a net cash position. Interest rate exposure on foreign currency debt is managed by placing matching investments,
which serve as natural hedges in relation to both interest rate and currency exposures on the debt. In addition to these investments, the Company holds further cash, predominantly in euro, and therefore the major interest rate exposure the Company has is to movements in the
euro interest rate. This exposure is actively reviewed and managed. A 1% fall in interest rates based on net surplus cash throughout 2018
would reduce profits by €6.9 million (2017: €7.9 million). Interest rate risk on borrowings is also managed through determining the right balance of fixed and floating debt within the financing
structure. To manage this, the Company enters into interest rate swaps, to exchange floating rate debt on finance lease obligations for fixed
rate debt.
35
(iii) Commodity price risk
Aviation jet fuel requirements expose the Company to the market volatility of jet fuel prices. The volatility of jet fuel prices has been
significant in recent years and can have a significant effect on profitability. The primary policy objective for the management of fuel price exposure in the Company is to reduce the volatility and increase the predictability of future fuel costs in a risk managed and cost effective
manner.
The Company treasury function manages fuel price risk within a tightly controlled framework. The Company operates a systematic fuel
hedging policy covering a rolling three year period. This hedging policy targets specific cover levels for each period on a rolling basis
ranging from 70% to 100% cover for the following month to between zero and 20% cover 36 months out. This generates average cover levels of between approximately 75% for the next 12 month period (rolling year 1) and 35% for the following 12 months (rolling year 2) and
15% for rolling year 3. Under the policy, Company treasury can request Board approval to derogate from this systematic hedging
requirement, in the event of unusual market conditions.
The products used by the Company treasury function in managing commodity price risk are predominantly jet fuel swaps. A US $10
increase in the price per tonne of jet fuel in 2018 would have increased fuel costs by approximately $6.9 million, based on usage of 694,000 metric tonnes, absent hedging (2017: increase of $6.3 million based on usage of 630,000 metric tonnes). In light of the Company’s hedging
strategy, the impact of a US$10 increase in jet fuel per tonne would have been negligible in both 2018 and 2017.
(iv) Carbon Allowances Price Risk
The Company is exposed to market volatility of the price of EU-ETS allowances in respect of the need to purchase the non-free element of annual allowances. The Company treasury function manages this risk by making purchase decisions based on market prices. The entire
non-free allowance requirement for 2018 was purchased in advance of the year end. The Company operates a systematic carbon credit
hedging policy covering a rolling three year period. This hedging policy targets specific cover levels for each period on a rolling basis.
(b) Credit risk
Credit risk arises from trade receivables due from customers, and from loans and receivables, derivative financial instruments, deposits and
cash and cash equivalents with banks and financial institutions (“financial counterparties”). The maximum exposure to credit risk is represented by the carrying amount of each financial asset.
Company policy requires financial counterparties to hold minimum credit ratings from independent rating agencies. The appropriateness of
Board approved credit limits are regularly monitored and reviewed in light of the commercial requirements of the Company.
At 31 December 2018 the Company had a total credit exposure of €737 million (2017: €1.1 billion) relating to bonds, deposits, cash and
derivatives which was spread over 32 (2017: 31) counterparties. Of this €737 million (2017: €1.1 billion) was due to mature within 12
months. The Company does not have any material credit risk arising from the ageing of trade and other receivables (see Note 19).
42.5% (2017: 38%) of the total credit exposure was held with financial institutions holding long-term credit ratings equivalent to AA2 to
AA3 (Moody’s). 54.5% (2017: 41%) of the total credit exposure was held with financial institutions holding long term-ratings equivalent to
A1 to A2. The remaining 3% (2017: 21%) was held with financial institutions with long-term credit ratings below A2.
(c) Liquidity risk
The principal policy objectives in relation to liquidity are to ensure that the Company has access at minimum cost, to sufficient liquidity to
enable it to meet its obligations as they fall due and to provide adequately for contingencies. In implementing this policy, the Company is
required to maintain, at all times, access to Board approved minimum liquidity requirements. In addition, this liquidity requirement, once drawn, must continue to be accessible for an agreed further period. Cash balances in excess of these levels are normally maintained in order
to enable the Company to take advantage of commercial opportunities and withstand business shocks.
The Company has long-term debt associated with aircraft acquisitions. All borrowing is undertaken by the Company treasury function. Company policy is to maintain, at all times, cash and/or committed facilities for substantially all of the net forecasted debt repayments for
the following 12 months.
At 31 December 2018 the Company had capital commitments of €1,297.8 million (2017: €1,102.8 million) of which €1,294.3 million (2017: €1,099.4 million) relates to aircraft and equipment. The Company currently expects to finance these commitments with a combination of
finance and operating leases.
The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, including interest. Trade and
other payables exclude ticket sales in advance (excluding taxes and charges).
36
Less than 1 year 1-2 years 2-5 years Over 5 years Total
€'000 €'000 €'000 €'000 €'000
At 31 December 2018
Finance lease obligations 143,236 37,715 98,583 82,840 362,374
Loans from fellow group companies 416,295 - - 133,963 550,258
Trade and other payables 163,450 1,603 - - 165,053
Less than 1 year 1-2 years 2-5 years Over 5 years Total
€'000 €'000 €'000 €'000 €'000
At 31 December 2017
Finance lease obligations 93,350 136,443 120,017 95,736 445,546
Loans from fellow group companies 414,966 - - 133,971 548,937
Trade and other payables 174,601 2,132 - - 176,732
The table below analyses the Company’s derivative financial instruments, which will be settled on a gross basis with regard to forward
foreign currency contracts and on a net basis with regard to forward fuel contracts, into relevant maturity groupings based on the remaining
period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than 1 year 1-2 years 2-5 years Total
€'000 €'000 €'000 €'000
At 31 December 2018
Forward foreign currency contracts
Outflow 241,751 149,256 75,134
466,141
Inflow 241,199 144,821 70,153
456,173
Forward fuel price contracts
Net outflow 41,802 17,865 7,365 67,032
Less than 1 year 1-2 years 2-5 years Total
€'000 €'000 €'000 €'000
At 31 December 2017
Forward foreign currency contracts
Outflow 195,443 81,759 29,474 306,676
Inflow 190,820 80,742 29,322 300,885
Forward fuel price contracts
Net outflow 34,978 9,485 909 45,373
17.2 Capital Risk Management
The Company’s objectives when managing capital (comprising total equity and debt) are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure which
reduces the cost of capital as far as practical.
The Board regularly reviews the Company statement of financial position with a view to improving flexibility for the future.
In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt.
17.3 Fair value estimation
The following table analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (Level 2); and
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
37
The following table presents the Company’s net assets and liabilities that are measured at fair value at 31 December 2018.
Level 1 Level 2 Level 3 Total
Assets €'000 €'000 €'000 €'000
Derivative financial instruments - 14,621 - 14,621
Liabilities
Derivative financial instruments - 78,073 - 78,073
The following table presents the Company's net assets and liabilities that are measured at fair value at 31 December 2017.
Level 1 Level 2 Level 3 Total
Assets €'000 €'000 €'000 €'000
Derivative financial instruments - 57,598 - 57,598
Liabilities
Derivative financial instruments - 4,378 - 4,378
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as
possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included
in Level 2.
Specific valuation techniques used to value financial instruments include:
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
The fair value of forward foreign exchange contracts is determined using forward exchange rates at the Statement of financial position date, with the resulting value discounted back to present value.
The fair value of fuel price swaps is determined using forward fuel prices at the reporting date, with the resulting value discounted back to present value.
17.4 Master netting arrangements
There are no financial assets and financial liabilities netted and offset against each other on the Statement of financial position at the reporting dates. However, certain financial assets and financial liabilities are subject to enforceable master netting arrangements which
could create a potential right of offset within the scope of the amendment to IFRS 7 "Offsetting Financial Assets and Financial Liabilities".
These arrangements are contained within ISDA (International Swaps and Derivatives Association) Master Agreements ("ISDA's") and relate to derivative financial instruments only.
Each party to the master netting arrangements has a right of offset between financial assets and financial liabilities where there is an early termination event such as a default or change of ownership of the counterparty. Such events of default include failure to perform obligations
or to make prompt payment when due. The right of offset is only enforceable in those situations and as such does not meet the criteria for
offset in the Statement of financial position, nor is there any intention by the Company or its counterparties to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
The carrying value of derivative financial instruments in the Statement of financial position would potentially be reduced by approximately €5.1 million (2017: €4.1 million) if all master netting arrangements were enforced (as reflected in the following tables):
38
Derivative Financial Assets
As at 31 December 2018 Related Amounts Not Offset
Gross amounts
of recognised
Financial
Assets
Gross amounts
of recognised
financial
liabilities set
off in the
balance sheet
Net amounts of
financial assets
presented in
balance sheet
Financial
Instruments
Cash
Collateral
Received
Net Amount
€'000's €'000's €'000's €'000's €'000's €'000's
Derivative Financial Assets 14,621 - 14,621 (5,067) - 9,554
As at 31 December 2017 Related Amounts Not Offset
Gross amounts
of recognised
Financial
Assets
Gross amounts
of recognised
financial
liabilities set
off in the
balance sheet
Net amounts of
financial assets
presented in
balance sheet
Financial
Instruments
Cash
Collateral
Received
Net Amount
€'000's €'000's €'000's €'000's €'000's €'000's
Derivative Financial Assets 57,598 - 57,598 (4,050) - 53,548
Derivative Financial Liabilities
As at 31 December 2018 Related Amounts Not Offset
Gross amounts
of recognised
financial
liabilities
Gross amounts
of recognised
financial assets
set off in the
balance sheet
Net amounts of
financial
liabilities
presented in
the balance
sheet
Financial
instruments
Cash
Collateral
Pledged
Net Amount
€'000's €'000's €'000's €'000's €'000's €'000's
Derivative Financial Liabilities 78,073 - 78,073 (5,067) - 73,006
As at 31 December 2017 Related Amounts Not Offset
Gross amounts
of recognised
financial
liabilities
Gross amounts
of recognised
financial assets
set off in the
balance sheet
Net amounts of
financial
liabilities
presented in
the balance
sheet
Financial
instruments
Cash
Collateral
Pledged
Net Amount
€'000's €'000's €'000's €'000's €'000's €'000's
Derivative Financial Liabilities 4,378 - 4,378 (4,050) - 328
17.5 Summary of derivatives by instrument
2018 2018 2017 2017
€'000 €'000 €'000 €'000
Assets Liabilities Assets Liabilities
Forward foreign exchange contracts 11,587 (8,442) 12,816 (4,378)
Forward fuel price contracts 3,034 (69,631) 44,782 -
Total 14,621 (78,073) 57,598 (4,378)
Non-current portion:
Forward foreign exchange contracts 4,775 (4,422) 4,505 (662)
Forward fuel price contracts 420 (24,474) 8,998 -
Total non-current portion 5,195 (28,896) 13,503 (662)
Current portion:
Forward foreign exchange contracts 6,812 (4,020) 8,311 (3,716)
Forward fuel price contracts 2,614 (45,157) 35,784 -
Total current portion: 9,426 (49,177) 44,095 (3,716)
39
Derivative financial instruments represent the fair value of open foreign exchange forward contracts and fuel price swaps to which the
Company is a party at the reporting date and are within level 2 of the fair value hierarchy. The fair value of these open positions is calculated
by reference to the forward foreign exchange rates and forward fuel prices at the reporting date.
The gains and losses arising from cash flow hedging positions are recognised in reserves until they are realised. The position in reserves is
recognised net of deferred tax.
The Statement of other comprehensive income shows fair value losses to 31 December 2018 of €87.0 million (2017: fair value gains of
€43.8 million). These represent the mark to market losses on the Company’s portfolio of both fuel and foreign exchange hedges at year end.
Foreign exchange contracts
The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2018 were €453.0 million (2017:
€308.7 million).
Aircraft fuel price contracts
The Company enters into derivative contracts to fix the price of a proportion of its forecast aircraft fuel purchases. The notional principal amounts of the outstanding contracts at 31 December 2018 were €559.4 million (2017: €269.2 million).
The maximum exposure to credit risk at the reporting date is the value of the derivative assets in the Statement of financial position.
A credit relating to ineffectiveness of fuel hedges of €0.6 million is reflected in the Income statement in 2018 (2017: credit of €0.7 million).
Cash flows in respect of derivative financial instruments are expected to occur as they mature at various points over the next 34 months for
foreign exchange positions, and over the next 36 months for fuel positions. The fair value of the instruments at settlement will impact the
Income statement as the hedged transaction occurs.
18 Inventory
Inventory primarily comprises maintenance consumables and aircraft spare parts.
2018 2017
€'000 €'000
Inventory 8,420 6,675
There were no material write-downs of inventory during the current or prior year. €11.1 million (2017: €11.0 million) of inventories were expensed to the P&L in the period.
40
19 Trade receivables and other assets
2018 2017
€'000 €'000
Amounts falling due within one year
Trade receivables 29,955 24,769
Provision for doubtful receivables (716) (1,337)
Net trade receivables 29,239 23,432
Prepayments and accrued income 51,590 74,870
Current tax asset 3,171 -
Other current assets 24,934 27,738
108,934 126,040
Amounts falling due after one year
Prepayments and accrued income 19,879 23,650
Non-current deposits - 65,664
19,879 89,314
Movements in the provision for doubtful receivables were as follows:
2018 2017
€'000 €'000
At beginning of year 1,337 1,146
Increase during the year 913 1,555
Write-off during the year (1,534) (1,364)
716 1,337
The creation and release of provisions for impairment of trade receivables have been included in "Handling, catering and other operating
costs" within the Income statement. Amounts receivable are charged to the provision account when there is no expectation of recovering the amounts outstanding.
2018 2017
€'000 €'000
Up to 1 month past due 13,591 13,172
Over 1 month past due 769 668
14,360 13,840
41
20 Gross Cash
Gross cash comprises the following:
2018 2017
€'000 €'000
Non-current
Loans and receivables 200,195 195
Non-current interest-bearing deposits - 65,664
200,195 65,859
Current
Current interest-bearing deposits 671,388 805,880
Cash and cash equivalents 217,110 216,706
888,498 1,022,586
Total gross cash 1,088,693 1,088,445
Included within current interest-bearing deposits is a restricted deposit of €42.2 million (2017: €43.4 million) held in escrow and relating to
the once-off IASS contribution.
The carrying amount of the Company’s cash, cash equivalents and other deposits are denominated in the following currencies:
2018 2017
€'000 €'000
Euro 758,382 909,390
Sterling 3,504 2,064
US dollar 117,615 169,727
Other 9,192 7,264
1,088,693 1,088,445
The Company holds deposits in order to meet certain finance lease obligations, which are denominated in the same currency. The deposits,
together with the interest receivable thereon, will be sufficient to meet in full the lease obligations and related lease interest over the period
of the leases.
Current deposits have maturity terms of between three and twelve months at year end. Given that the maturity of these investments falls
outside the three month time frame for classification as cash and cash equivalents under IAS 7, Statement of Cash Flows, the related balances have been treated as “deposits”. The effective interest rate on financial assets classified as current deposits as at 31 December 2018
was negative 0.17% (2017: negative 0.2%). These deposits have a weighted average maturity of 132 days (2017: 156 days) as at 31
December 2018. The carrying value of the Company’s deposits approximates to their fair value at 31 December 2018.
Non-current deposits have a maturity date between over 53 months to 54 months and an interest rate between 2.32% -2.41 %
42
21 Interest-bearing long-term borrowings
2018 2017
€'000 €'000
Repayable - within one year 135,725 82,249
- from one to two years 32,378 129,175
- from two to five years 88,550 106,630
- after five years 81,148 91,904
337,801 409,958
Less current portion (135,725) (82,249)
Non-current portion 202,076 327,709
Fair value of interest-bearing long term borrowings are as follows:
Carrying amounts Carrying amounts Fair value Fair value
2018 2017 2018 2017
€'000 €'000 €'000 €'000
Finance Lease Obligations 337,801 409,958 337,801 410,232
The fair values are based on cash flows discounted using a rate on prevailing forward market rates. In 2018, these rates ranged from negative
0.404% to positive 2.81% and are within level 2 of the fair value hierarchy.
The carrying amounts of the current portion of long-term interest-bearing borrowings approximate their fair values.
The carrying amounts of the Company’s interest-bearing borrowings are denominated in the following currencies:
2018 2017
€'000 €'000
US dollar 105,562 152,139
Euro 232,239 257,819
Total 337,801 409,958
The effective interest rates at the reporting date were as follows:
2018 2017
€ $ € $
Finance lease obligations 1.63% 3.33% 1.69% 2.89%
Finance lease obligation - minimum lease payments
2018 2017
€'000 €'000
No later than one year 143,236 93,350
Later than one year but no later than five years 136,298 256,460 Later than five years 82,840 95,736
362,374 445,546
Future finance charges on finance leases (24,573) (35,588)
Capital value of finance lease liabilities 337,801 409,958
43
22 Trade and other payables
2018
2017
As restated
€'000 €'000
Trade creditors 68,889 50,646
Other creditors 22,376 17,647
Other taxation and social insurance 9,072 31,366
Accruals 58,737 73,722
Deferred income 2,347 3,351
Deferred revenue on ticket sales 221,096 212,791
Loans from fellow group companies 553,890 548,937
936,407 938,460
Shown as: 2018 2017
€'000 €'000
Non-current liability 135,565 136,104
Current liability 800,842 802,356
936,407 938,460
Loans from fellow group companies is split between non-current and current as follows:
2018 2017
€'000 €'000
Loans from fellow Group companies (non-current) 133,963 133,971
Loans from fellow Group companies (current) 419,927 414,966 553,890 548,937
The carrying amounts and fair value of borrowings are as follows:
Carrying amounts Carrying amounts Fair value Fair value
2018 2017 2018 2017
€'000 €'000 €'000 €'000
Loans from fellow Group companies 553,890 548,937 553,890 548,937
Amounts owed to fellow group and subsidiary undertakings are unsecured and interest free, and amounts shown as current are repayable on
demand. The carrying amount of loans from fellow group companies, which are denominated in euro, approximates their fair value.
The Company had no undrawn borrowing facilities at 31 December 2018 or 31 December 2017.
44
23 Defined contribution pension schemes
In 2018, Aer Lingus participated in a number of pension schemes including the Aer Lingus Defined Contribution Pension Scheme, for
general employees, and the Irish Airlines (Pilots) Superannuation Scheme (the “Pilots Scheme”), for its pilots. The Company has also
historically been involved in the Irish Airlines (General Employees) Superannuation Scheme (the “IASS”), a multi-employer scheme.
Aer Lingus Limited is the sponsoring company for Aer Lingus Group’s participation in these pension schemes. The Company’s
contributions, including those in respect of Aer Lingus Ireland Limited, to defined contribution schemes are set out in the table below. 2018 2017
€'000 €'000
Irish Airlines (Pilots) Superannuation Scheme 12,160 13,843
Other defined contribution schemes 15,077 11,227
Total 27,237 25,070
Aer Lingus Defined Contribution Pension Scheme and IASS
Aer Lingus Limited began contributing in 2015 to the Aer Lingus Defined Contribution Pension Scheme on behalf of current employees who were previously members of the IASS. This arrangement was part of a funding solution for the IASS. This solution comprised a
number of elements including a once-off payment by Aer Lingus, the cessation of benefit accrual and contributions with regard to the IASS,
the revision of the existing defined contribution scheme to accommodate employees who were previously IASS members and the establishment of a deferred defined contribution pension scheme in respect of deferred Aer Lingus IASS members.
It further provided that the once-off payment would be transferred to an escrow account and would only be released into individual accounts
in the Aer Lingus Defined Contribution Pension Scheme and the deferred defined contribution pension scheme on receipt of correctly
executed waivers. These waive any and all rights to legal action against Aer Lingus Limited and the IASS Trustee in relation to the IASS.
At the end of December 2018, 69.6% of these waivers had been executed (active members 82.9%, deferred members 58.8%) and €148.5 million had been paid from the pension escrow account. Therefore, at that date, €42.2 million of the €190.7 million remained in escrow to be
administered; €26.9 million of which relates to active members with the remaining €15.3 million relating to deferred members.
Proceedings have been issued by a deferred IASS member against a number of parties involved in the IASS funding solution, including Aer
Lingus Limited. These proceedings will be strenuously defended. If, contrary to the firm legal advice that Aer Lingus Limited has received (that such proceedings were unlikely to succeed), a Court were to find against Aer Lingus Limited in such litigation, loss could arise. It is
not practicable to estimate the financial exposure, if any, of Aer Lingus Limited, should any such proceedings succeed.
Irish Airlines (Pilots) Superannuation Scheme
At 31 December 2018 (the most recent date for which Pilots Scheme membership data is available), the Pilots Scheme had 1,130 members,
comprising 662 active members, 96 deferred members and 372 pensioners.
Following discussions between Aer Lingus Limited, the Trustee of the Pilots Scheme and IALPA, a funding proposal was submitted to the Pensions Authority, and approved by it on 3 December 2014. This proposal, which is subject to review annually in March, does not involve
any capital contribution by Aer Lingus Limited either within the Pilots Scheme or outside of the Pilots Scheme. Based on market conditions
at 31 March 2018, the Scheme Actuary is satisfied that this funding proposal is on track and can reasonably be expected to satisfy the funding standard, and funding standard reserve, by 31 December 2023.
Aer Lingus’ consistent position is that its liability to contribute to the Pilots Scheme is fixed at its current contribution rate and, accordingly
that it has neither a constructive nor a legal obligation to increase its rate of contribution to the Pilots Scheme, even if the scheme is found to
have insufficient funds to pay all employees expected benefits relating to their current and past employment service.
45
24 Employment benefit obligations
The Company operated two defined benefit schemes, one of which is funded and one of which is unfunded, during 2018. The North
America Pension scheme was closed in February 2017. The following is a summary of the Company's net defined benefit obligations/(assets) for each of the schemes, split between funded and unfunded. Background to each scheme is given below.
Summary of net defined benefit obligations/(assets): 2018 2017
€'000 €'000
Funded
Other (406) (385)
Net defined benefit asset for funded schemes (406) (385)
Unfunded
North America Post Retirement Medical Benefits 1,860 2,299
Net defined benefit obligation for unfunded schemes 1,860 2,299
Net defined benefit obligation in total 1,454 1,914
2018 2017
Shown as: €'000 €'000
Employee benefit assets 406 385
Employee benefit (obligations) (1,860) (2,299)
Net defined benefit asset/(obligation) in total (1,454) (1,914)
The following is a summary of the Company's total net employee benefit obligation, and the related funding status, analysed on a total basis:
2018 2017
€'000 €'000
Present value of funded obligations (1,623) (1,827)
Fair value of plan assets 2,029 2,212
Asset (deficit) in funded plans 406 385
Present value of wholly unfunded obligations (1,860) (2,299)
Net defined benefit obligation in total (1,454) (1,914)
The net (credits)/charges to the Income statement in respect of these obligations are as follows: The net (credits)/charges to the Income statement in respect of these obligations are as follows:
2018 2017
€'000 €'000
Funded (a) (7) (60)
Unfunded (b) 31 (107)
24 (167)
Actuarial (gains)/losses (gross of deferred tax) recognised in the Statement of other comprehensive income during the year: Actuarial (gains)/losses (gross of deferred tax) recognised in the Statement of other comprehensive income during the year:
2018 2017
€'000 €'000
Funded (a) 74 32
Unfunded (b) 360 102
434 134
46
The dates of the most recent actuarial valuation in respect of the various schemes are as follows:
Valuation date
Funded
Other 31 December 2018
Unfunded
North American Post Retirement Medical Benefits 31 December 2018
Valuations are not available for public inspection; however they are available to the members of the above schemes.
The North American Post Retirement Medical Benefits scheme applies the regulations of The Employee Retirement Income Security Act of
1974 and The Internal Revenue Code. The Employee Retirement Income Security Act of 1974 is a federal law that sets minimum standards
for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. The Internal Revenue Code, as set forth by the Internal Revenue Service, also provides regulations and guidance for the administration of pension and
medical schemes. The pension schemes set up under trust and operated by Aer Lingus in Ireland are exempt approved schemes under the
Taxes Consolidation Act 1997 and are regulated by the Pensions Authority under the Pensions Act 1990 (Amended).
(a) Funded
The Company operated a defined benefit scheme for qualifying employees and former employees of its operation in North America.
A decision had been made previously by the Company to close the scheme and settle all of the liabilities arising under the scheme by
purchasing annuities. Following an annuity placement exercise with effect from February 2017, the scheme has been terminated and the liabilities for all members have been placed with an insurance company in the form of individual annuities in each member’s name.
The Company operates a defined benefit scheme in respect of two retired Irish former executives of the Company and their spouses.
The risks of the scheme relate primarily to demographic assumptions around mortality and to future asset performance. Future financial
statement liabilities and expense will also be affected by future changes in the rate used to discount the liabilities. The Company seeks to match the assets it holds in respect of funded schemes to the liabilities of the plans, in terms of currency and maturity, and also seeks to
balance risk and return in making asset investment decisions which match investment yield to expected cash outflows. The Company has
not changed the process used to manage its risks from previous periods.
As at 31 December 2018 there was an employee benefit asset of €406,000 (2017: employee benefit liability: €385,000). Employer
contributions of €nil (2017: €nil) were paid into the remaining funded scheme which meant there was a net asset surplus for the years ending 31 December 2017 and 31 December 2018.
The rules of the scheme allow for any surplus to be returned to the employer on the death of the last pensioner. Therefore, the asset is not expected to be returned to the Company until the last of the current pensioners has died.
The movement in the defined benefit obligation in respect of funded arrangements during the year is as follows:
2018 2017
€'000 €'000
At 1 January 1,827 10,170
Interest cost 28 28
Remeasurement - effects of changes in demographic assumptions (96) (18)
Remeasurement - effects of changes in financial assumptions (19) -
Remeasurement - effects of experience adjustments (21) (26)
Settlement of North America Pension Scheme - (7,650)
Benefits paid (96) (98)
Retranslation - (579)
At 31 December 1,623 1,827
The movement in the fair value of related plan assets during the year is as follows: 2018 2017
€'000 €'000
At 1 January 2,212 9,743
Interest income 35 30
Remeasurements - effect of experience adjustments (122) (12)
Settlement of North America Pension Scheme - (6,928)
Benefits paid (96) (94)
Retranslation - (527)
At 31 December 2,029 2,212
47
The movement in the net defined pension obligation is as follows:
2018 2017
€'000 €'000
At 1 January (385) 427
Interest cost (7) (2)
Remeasurements (14) (32)
Loss on settlement of North America Pension Scheme - (722)
Retranslation - (56)
At 31 December (406) (385)
The amounts recognised in the Income statement are as follows:
2018 2017
€'000 €'000
Interest cost - recognised in finance expense 28 28
Interest income (35) (30)
Retranslation - recognised in other gains/losses - (471)
Total recognised in the Income statement (7) (473)
The actual return on plan assets was €125,000 (2017: €45,000)
Key Assumptions
2018 2017
Discount rate - Other 1.60% 1.60%
Inflation rate 1.75% 1.75%
Future pension increases - Other 1.75% 1.75%
Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience.
These assumptions translate into the following average life expectancy in years for a pensioner retiring at age 65:
2018 2017
Retiring at the end of the reporting period:
-Male (Other) 23.5 24.8
-Female (Other) 24.9 26.2
48
Sensitivities
The sensitivity of the post employment benefit liabilities to changes in the weighted principal assumptions is:
Change in assumption Impact on overall liability
Discount rate Other Increase/decrease by 0.25% Decrease by 2.46%/increase by 1.08%
Inflation rate Other Increase/decrease by 0.25% Increase by 3.64%/decrease by 3.52%
The above sensitivity analyses are based on a change in the assumption noted while holding all other assumptions constant. In practice, this is
unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the post employment liabilities
the same method has been applied as when calculating the liability recognised within the Statement of financial position. Changes in assumptions could lead to an increase in actuarial deficits which would affect future cash flows of the business due to increased contributions.
Plan assets are comprised as follows:
2018 2018 2017 2017
€'000 % of plan assets €'000 % of plan assets
Quoted
Debt instruments 1,315 65% 1,427 65%
Other 714 35% 785 35%
Total 2,029 100% 2,212 100%
Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of
scheme assets. The largest proportion of assets is invested in bonds, although the schemes also invest in cash.
(b) Unfunded
The Company operates a post employment medical benefit scheme for certain former employees of the operation in North America. The scheme has 56 members (2017: 51). Both participation in the plan and accrual of benefits are frozen.
The Company previously recognised a liability in regards to an income streaming arrangement in respect of certain current and former employees who have an elective post-retirement entitlement. These arrangements were to provide an income equating to a pension until
members reach the age of 65 at which point benefits cease.
The risks of these schemes relate primarily to future medical cost inflation and to financial assumptions including changes to discount rates.
The Company has not changed the process used to manage its risks from previous periods.
The amounts recognised in the Statement of financial position are as follows:
2018 2017
€'000 €'000
Present value of unfunded obligations, being scheme deficits and liability in the statement
of financial position 1,860 2,299
49
The movement in the defined benefit obligation in respect of unfunded arrangements during the year is as follows:
2018 2017
€'000 €'000
At 1 January 2,229 2,579
Current service cost 38 38
Interest cost 68 77
Remeasurements - effect of changes in demographic assumptions (3) (2)
Remeasurements - effect of changes in financial assumptions (114) 69
Remeasurements - effect of experience adjustments (243) (165)
Benefits paid (40) (74)
Retranslation (75) (223)
At 31 December 1,860 2,299
The amounts recognised in the Income statement are as follows:
2018 2017
€'000 €'000
Current service costs - recognised in staff costs 38 38
Interest cost - recognised in finance expense 68 77
Retranslation recognised in Net currency retranslation charges (75) (223)
Total recognised in the Income statement 31 (108)
Key Assumptions
The principal actuarial assumptions relating to unfunded schemes are as follows:
2018 2017
Discount rate - North America Post Retirement Medical Benefits 3.87% 3.20%
Immediate medical cost rate 5.81% 5.96%
Sensitivities
The sensitivity of the post employment benefit liabilities to changes in the weighted principal assumptions is:
Change in assumption Impact on overall liability
Medical cost trend rate
North American Medical
Scheme Increase/decrease by 0.50%
Increase by 5.10%/decrease by
4.79%
Discount rate
North American Medical
Scheme Increase/decrease by 0.25%
Decrease by 2.36%/increase by
2.44%
The above sensitivity analyses are based on a change in the assumption noted while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the post
employment liabilities the same method has been applied as when calculating the liability recognised within the Statement of financial
position. Changes in assumptions could lead to an increase in actuarial deficits which would affect future cash flows of the business due to increased contributions.
Due to the unfunded nature of these arrangements, no employer contributions were paid during the year ended 31 December 2018.
50
Maturity analysis
The expected maturities of the undiscounted funded and unfunded schemes over the next 10 years are as follows:
Less than a year
Between 1-2
years
Between 2-5
years
Between 5-10
years Total
At 31 December 2018 €'000 €'000 €'000 €'000 €'000
Funded 99 207 326 440 1,072
Unfunded 99 125 403 864 1,491
Total 198 332 729 1,304 2,563
Weighted average duration of the obligation (years)
The weighted average duration of the funded and unfunded schemes is as follows:
At 31 December 2018 Years
Funded
Other 9.00
Unfunded
North America Post Retirement Medical Benefits 9.66
51
25 Provisions for other liabilities
IASS solution - once
off pension
contribution¹
Business
Repositioning²
Aircraft
Maintenance³ Other4 Total
€'000 €'000 €'000 €'000 €'000
At 1 January 2017 46,553 11,926 82,892 21,833 163,204
Provided during the year - 4,000 33,437 10,567 48,004
Written back during the year - (2,388) (1,337) (2,684) (6,409)
Utilised during the year (3,153) (4,740) (15,882) (1,424) (25,199)
Unwind of discounting - 9 (25) 60 44
Retranslation - 13 (9,317) - (9,304)
At 31 December 2017 43,400 8,820 89,768 28,352 170,340
At 1 January 2018 43,400 8,820 89,768 28,352 170,340
Provided during the year - 2,371 37,879 5,422 45,672
Written back during the year - (941) (2,497) (348) (3,786)
Utilised during the year (1,167) (3,071) (2,902) (9,191) (16,331)
Unwind of discounting - 7 (24) 49 32
Retranslation - - 4,199 - 4,199
At 31 December 2018 42,233 7,186 126,423 24,284 200,126
Analysed as current liabilities
31 December 2018 42,233 4,754 2,627 16,266 65,880
31 December 2017 43,400 5,655 1,046 16,676 66,777
Analysed as non-current liabilities
31 December 2018 - 2,432 123,796 8,018 134,246
31 December 2017 - 3,165 88,722 11,676 103,563
Total Provision
31 December 2018 42,233 7,186 126,423 24,284 200,126
31 December 2017 43,400 8,820 89,768 28,352 170,340
1 Provision for IASS solution - once off pension contribution
In December 2014, Aer Lingus Group plc shareholders voted in favour of the IASS solution which sought to address issues arising from the funding deficit in the IASS. The approval of the IASS solution involved a once-off exceptional contribution of €190.7 million.
This once off contribution was placed in an escrow structure at this time, and held as a restricted deposit balance in the Statement of financial position as at 31 December 2014. The liability reduced by €1.2 million in 2018 (2017: €3.1 million) and reduces further and
potentially to nil as the correctly executed waivers referred to in Note 23 are received. At 31 December 2018 the restricted deposit cash
balance remaining was €42.2 million (2017: €43.4 million) which is included within gross cash as set out in Note 20. 2 Business repositioning
Business repositioning costs include provisions for restructuring costs recognised in accordance with IAS 37 when a constructive obligation
exists and a provision for termination benefits that are not part of a restructuring plan, and are therefore recognised in accordance with IAS
19R when the entity can no longer withdraw the offer of benefits.
The amount of the restructuring provision is based on the terms of the restructuring measures, including certain employee benefits and
employee severance, which have been communicated to employees. It represents the Directors’ best estimate of the cost of these measures.
The provision relating to the voluntary severance programme has been recorded in respect of individuals who at the reporting date had
accepted the offer of voluntary severance but had not yet received payment.
Measurement uncertainty associated with restructuring provisions arises from the achievement of certain operating and financial targets and
changes in human resources requirements. Uncertainty associated with the provision in respect of the voluntary severance programme
52
relates to the timing of employee exit dates. The voluntary severance provision is expected to be materially utilised in the next financial
year, with the remaining provision balance expected to be largely utilised in the next 5 years. 3 Aircraft maintenance Provisions are made for aircraft maintenance costs which the Company incurs in connection with engine overhauls and end of lease airframe checks on operating leased aircraft, where the terms of the lease impose obligations on the lessee to have this maintenance work carried out.
Provisions reflect the cost rates expected to apply at the time the work is carried out and to meet the contractual end of lease return
conditions. Other airframe check costs on operating leased aircraft are expensed as incurred to the Income statement. Measurement uncertainty associated with aircraft maintenance provisions arises from the timing and nature of overhaul activity required, lease return dates
and conditions, and likely utilisation of the aircraft. As a result of this, and the level of uncertainty attaching to the final outcomes, the
actual results may differ significantly from those estimated. 4 Other
Other provisions relate mainly to an employer’s liability provision, free flight entitlements in respect of former employees, a dilapidation provision and provisions in relation to other potential legal cases, including those relating to historic pension calculation issues which arose
in our former capacity as pension scheme administrators of a number of pension schemes.
26 Contingent liabilities and assets
Arrangement relating to Stobart Air
Aer Lingus Regional flights are operated by Stobart Air. However, passengers book their flights using the Aer Lingus website and booking
channels. Should Stobart Air fail to meet its obligations to passengers and if such passengers were to then seek refunds and/or re-routing, Aer Lingus may have an obligation to reimburse those passengers for losses incurred. In such circumstances, Aer Lingus would have a
corresponding claim against Stobart Air.
No amounts have been provided in respect of this matter.
Litigation and claims
The Company is party to various uninsured legal proceedings. The Company makes provision for any amounts for which it expects to
become liable. At 31 December 2018, these provisions were less than the total amounts claimed by plaintiffs because the Company does not
believe that it has any liability for the balance and the proceedings are being defended.
53
27 Deferred Tax
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when deferred taxes relate to the same fiscal authority. The offset amounts are as follows:
2018
2017
As Restated
€'000 €'000
Deferred tax asset 15,648 13,661
Deferred tax liability (47,809) (58,789)
Deferred tax liability (32,161) (45,128)
2018 2017
€'000 €'000
Deferred tax (liability) at 1 January (45,128) (35,669)
Tax charged to the Income statement (3,027) (11,039)
Tax credited/(charged) directly to equity 15,994 1, 580
Deferred tax liability at 31 December (32,161) (45,128)
The movement in deferred tax assets and liabilities during the period, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax assets Provisions Tax losses
Share
based
payments
IASS
pension
adjustment
Derivative
financial
instruments Other
IFRS 15
As Restated
Total
As Restated
€'000 €'000 €'000 €’000 €’000 €’000 €’000 €'000
At 1 January 2017 713 10,454 202 14,302 - 550 988 27,209
(Charged)/credited to the Income
statement (43) (8,934) 21 (4,768) - - - (13,724)
(Charged)/credited directly to equity - - - - - (17) 193 176
At 31 December 2017 670 1,520 223 9,534 - 533 1,181 13,661
(Charged)/credited to the Income statement (514) (493) 81 (4,768) - - (236) (5,930)
Charged)/credited directly to equity - - - - 7,971 (54) - 7,917
At 31 December 2018 156 1,027 304 4,766 7,971 479 945 15,648
Deferred tax liabilities
Accelerated tax
depreciation
Derivative
financial
instruments Other Total
€'000 €'000 €'000 €'000
At 1 January 2017 49,885 9,777 3,216 62,878
Credited to the Income statement (2,484) - (8) (2,492)
Adjustment in respect of prior year - - 103 103
Credited directly to equity - (1,700) - (1,700)
At 31 December 2017 47,401 8,077 3,311 58,789
Charged/(credited) to the Income statement (2,893) - (10) (2,903)
Credited directly to equity - (8,077) - (8,077)
Adjustment in respect of prior year - - - -
At 31 December 2018 44,508 - 3,301 47,809
54
Deferred Tax charged directly to equity is as follows:
2018 2017
€’000 €’000
Fair value reserves in shareholders' equity - -
Cash flow hedging reserve 16,048 1,700
Revaluation reserve on available-for-sale financial assets - -
Other (54) (17)
15,994 1,683
The Directors are satisfied, based on expected future performance, as indicated by the Company’s five year projections, that the recognition
of the deferred tax assets is appropriate on the basis that their recoverability is probable.
The Company holds unutilised capital losses forward of €24.7 million in respect of which no deferred tax asset is recognised.
55
28 Called-up share capital
2018 2017
€'000 €'000
Authorised
260,000,000 ordinary shares of €1.25 each (2017: 260,000,000) 325,000 325,000
15,000,000 preferred ordinary shares of €1.25 each 18,750 18,750
At 31 December 343,750 343,750
Allotted, called up and fully paid - presented as equity
255,393,003 ordinary shares of €1.25 each (2017: 255,393,003) 319,241 319,241
15,000,000 preferred ordinary shares of €1.25 each 18,750 18,750
At 31 December 337,991 337,991
The capital conversion reserve fund was attributable to the re-denomination of the nominal value of the Company’s shares from Irish Pound
to Euro in 2000.
29 Other reserves
2018 2017
As Restated
€'000 €'000
Capital conversion reserve fund
At 1 January and 31 December 1,705 1,705
Cashflow hedging reserve
At 1 January 56,596 68,498
Fair value movements in equity in the period (87,026) 43,777
Deferred tax on fair value movements in equity in the period 10,878 (5,472)
Reclassified and reported in net profit (41,362) (57,379)
Deferred tax on amounts reclassified and reported in net profit in the period 5,170 7,172
At 31 December (55,744) 56,596
Capital Contribution reserve
At 1 January and 31 December 13,207 13,207
Retained earnings
At 1 January 110,749 76,155
Profit for the year 258,226 234,477
Re-measurements of post-employment benefit obligations 380 117
Dividends Paid (225,000) (200,000)
At 31 December 144,355 110,749
Total other reserves 103,523 181,257
56
30 Share Based Payments
IAG operates share-based payment schemes as part of the total remuneration package provided to employees.
The IAG Performance Share Plan (PSP) is granted to key senior executives and managers of the Group who are directly involved in shaping and delivering business success over the medium to long term. The awards were made as nil-cost options, and are subject to the achievement
of pre-defined performance conditions measured over a performance period of at least three financial years and are subject to the employee
remaining employed by the Group. There is a two-year additional holding period after the end of the performance period, before vesting
takes place. The awards will vest based one-third on achievement of IAG’s TSR performance targets relative to the MSCI European
Transportation Index, one-third based on achievement of earnings per share targets, and one-third based on achievement of return on
invested capital targets.
The cost of these awards is recharged from IAG based on their determination of award fair values. The cost recharged in the year was €2.4m
(2017: €1.8m). 31 Financial commitments
(a) Capital commitments
The Company had capital commitments as follows:
2018 2017
€'000 €'000
Contracted for but not provided
- Aircraft and equipment 1,294,298 1,099,386
- Other 3,541 3,440
1,297,839 1,102,826
Included within capital commitments in respect of aircraft and equipment are unhedged amounts denominated in US dollars of US$1,477
million (2017: US$1,323 million). These have been translated at the appropriate rate of $1.141 (December 2017: $1.176).
(b) Lease commitments
At 31 December 2018, the Company had commitments, which were the total of future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Property Aircraft
€'000 €'000
No later than one year 7,152 93,073
Later than one year but no later than five years 15,183 306,117
Later than five years 13,174 374,888
35,509 774,078
At 31 December 2017, the Company had commitments, which were the total of future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Property Aircraft
€'000 €'000
No later than one year 8,493 74,142
Later than one year but no later than five years 19,055 292,670
Later than five years 16,163 421,052
43,711 787,864
Capital conversion reserve fund
The capital conversion reserve fund was attributable to the re-denomination of the nominal value of the Company’s shares from Irish Pound
to Euro in 2000.
Cash flow hedging reserve
The cash flow hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (net of tax), principally relating to fuel and forward currency contracts.
Capital contribution reserve
The reserve comprises the cumulative expense recognised in the Income statement in respect of awards made by the Company’s parent (Aer
Lingus Group DAC) to employees of Aer Lingus Limited under the terms of the Aer Lingus Long Term Incentive Plan and share option
arrangements.
57
The Company has entered into commercial leases on certain properties, equipment and aircraft. These leases have durations ranging from
less than one year for aircraft to 15 years for property leases.
The Company does not have contingent rents. Some aircraft lease agreements contain a fixed and variable element, with the variable element
dependent on the number of block hours flown in the period.
Some of the existing aircraft operating leases have options to extend. None of the existing operating leases have options to purchase the
aircraft.
58
32 Cash flows from operating activities
2018 2017
As Restated
€'000 €'000
Profit before tax 296,210 268,495
Adjustments for:
- Depreciation, amortisation and impairment 82,753 76,968
- Net movement in provisions for other liabilities 30,054 16,535
- Other unrealised non-cash (losses) (4,896) (8,240)
- Post employment benefit obligations (240) (739)
- Finance Costs 9,199 10,032
- Finance Income (5,760) (4,015)
- Net Currency retranslation charges/(credits) 3,653 (6,589)
- Loss/(Gain) 136 (403)
- Net gain related to sale of property, plant, equipment and investments (50) (848)
- Net financing charge relating to pensions 73 88
Changes in working capital
- Inventories (4,061) 53
- Trade and other receivables 15,285 (29,001)
- Trade and other payables (including deferred revenue on ticket sales) 34,304 44,877
Cash flows from operating activities 456,660 367,213
Changes in liabilities arising from financing activities
1 January 2018
€’000
Net Cash Flows
€’000
Foreign Exchange
Movements
€’000
31 December 2018
€’000
Obligations under finance leases (409,959) 84,587 (6,210) (331,582)
Total liabilities from financing activities (409,959) 84,587 (6,210) (331,582)
1 January 2017
€’000
Net Cash Flows
€’000
Foreign Exchange
Movements
€’000
31 December 2017
€’000
Obligations under finance leases (296,332) (131,351) 17,724 (409,959)
Total liabilities from financing activities (296,332) (131,351) 17,724 (409,959)
33 Related party transactions
Key management compensation1
2018 2017
€'000 €'000
Short-term employee benefits 5,772 5,346
Post employment benefits 250 211
Share based payments 62 72
Termination benefits - 82
6,085 5,710
¹Key management compensation comprises all amounts in respect of Directors, Non-Executive Directors and members of the Executive
Management Team.
Of the total amount of key management compensation €2.1 million, (2017: €2.0 million) was outstanding at 31 December 2018.
Related party transactions as part of IAG group
59
During the ordinary course of business, the Company has transactions with IAG and fellow subsidiary companies, which are considered to
be related parties. A summary of these transactions is given below:
2018 2017
€’000 €’000
Interline settlement of ticket sales2
Outward billings to subsidiaries & significant shareholders of IAG 101,307 103,342
Inward billings from subsidiaries & significant shareholders of IAG 11,381 11,263
Sales/purchases transactions with subsidiary undertakings of IAG
Recharges to IAG3 - -
Purchases and recharges from IAG3 3,641 5,399
Sales to subsidiaries of IAG4 4641 1,964
Purchases from subsidiaries of IAG4 23,964 27,330
Amounts owed to IAG3 7,233 6,298
Amounts owed to subsidiaries of IAG4 20,154 3,312
Amounted owed from IAG5 200,000 -
2When a passenger purchases a ticket for a flight from Aer Lingus but is flown by another airline, the other airline will subsequently invoice
Aer Lingus and the transaction will be recorded as an Inward billing. If a passenger purchases a ticket for a flight from another Airline but flies with Aer Lingus, the Company will subsequently raise an invoice to the other Airline and the transaction will be recorded as an
Outward billing. This practice is common across the airline industry with settlement of these interline transactions processed through IATA
Systematic Interline Settlement (“SIS”).
3The transactions between the Company and IAG comprise management fees in respect of services provided by IAG and recharges between
the entities in respect of invoices settled on behalf of the other party. Transactions with IAG and fellow subsidiaries are carried out on an arm’s length basis.
4The transactions between the Company and subsidiaries of IAG include services provided to the Company in respect of Engineering and Handling, as well as transactions with Avios Group Limited in respect of the AerClub loyalty program. AerClub members can earn and
redeem Avios when flying with Aer Lingus and partner airlines. The Company purchases points accrued by members from Avios Group
Limited and transactions are included above, within ‘Purchases from subsidiaries of IAG’.
5During the year, the Company provided a €200.0 million unsecured, fixed interest-bearing loan at prevailing market rates at the date of
transaction to IAG that is repayable within five years.
Transactions with fellow subsidiaries of IAG are carried out on an arm’s length basis.
The Company has not benefitted from any guarantees for any related party receivables or payables. In addition the Company has not made
any provision for doubtful debts relating to amounts owed by related parties.
Other related party transactions
The Company’s investment in its subsidiary companies is set out in Note 13. Amounts due to the Company from subsidiary undertakings
and fellow group companies are disclosed in Note 19. Amounts due by the Company to fellow group companies are disclosed in Note 22.
The Company’s contributions to its post-employment benefit obligations are disclosed in Notes 23 and 24.
In addition, the Company has an agreement with a fellow subsidiary company, Aer Lingus Ireland Limited, for the provision of human
support services and jet fuel and related services.
Aer Lingus Ireland Limited earns a mark-up on the provision of human support services and on some operating costs equivalent to industry
standards. During the year, the Company incurred expenditure of €90.0 million (2017: €71.0 million) on services provided by Aer Lingus
Ireland Limited. During the year, the Company incurred expenditure of €56.9 million (2017: €nil) on jet fuel and related services provided
by Aer Lingus Ireland Limited.
At the reporting date, there was a balance of €17.8 million outstanding to Aer Lingus Ireland Limited from the Company (2017: €13.7
million).
60
34 Events after the reporting period
There have been no other significant events occurring after the reporting period, up to and including the date of approval of the financial information within these financial statements by the Board of Directors.
35 Approval of financial statements
The Directors approved the financial statements and authorised them for issue on 1 March 2019.