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Emirates

Emirates Airlines' financial position for the year ending March 2009 is analyzed. Key points include: - Property, plant and equipment decreased to AED 10.8 billion from pre-delivery aircraft payments being reduced due to the global recession. - Intangible assets included goodwill of AED 0.5 billion allocated to subsidiaries and a AED 73 million impairment loss on investments. - Cash and deposits declined to AED 7.4 billion from payments for new aircraft but remained adequate to cover debt obligations. - Revenue was impacted by the economic downturn while expenses increased for aircraft leases and fuel costs. However, Emirates took delivery of 21 new aircraft financed through various funding

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323 views

Emirates

Emirates Airlines' financial position for the year ending March 2009 is analyzed. Key points include: - Property, plant and equipment decreased to AED 10.8 billion from pre-delivery aircraft payments being reduced due to the global recession. - Intangible assets included goodwill of AED 0.5 billion allocated to subsidiaries and a AED 73 million impairment loss on investments. - Cash and deposits declined to AED 7.4 billion from payments for new aircraft but remained adequate to cover debt obligations. - Revenue was impacted by the economic downturn while expenses increased for aircraft leases and fuel costs. However, Emirates took delivery of 21 new aircraft financed through various funding

Uploaded by

nikejaveri
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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c

A Comprehensive Study
On the Financials of

Emirates Airlines
Project Prepared by:
Name : Nikhil Javeri
Roll No : 21
Subject : Financial Accounting
c
Consolidated Balance Sheet
As on 31st March·09
Consolidated Income Statement
For the year ended 31st March·09
Analysis of the Financial Statements
Consolidated Balance Sheet

Assets:

Property, plant and equipment:


The net amount of property, plant and equipment includes AED 10,469.4 million (2008: AED 6,385.4
million) in respect of aircraft and AED 369.3 million (2008: AED 431.7 million) in respect of aircraft
engines held under finance leases.

The net amount of land and buildings, aircraft and aircraft engines amounted to AED 339.0 million
(2008: AED 540.0 million) in respect of assets provided as security against term loans.

No depreciation is charged on land carried at AED 277.6 million (2008: AED 277.6 million).

Capital projects include pre-delivery payments of AED 3,529.6 million (2008: AED 4,012.5 million)
which reduced significantly due to the recession which has affected the whole world

Intangible Assets:
Goodwill amounting to AED 159.2 million is allocated to the consumer goods. AED 368.5 million is
allocated to the in-flight catering services.

Goodwill allocated to the food and beverages in Australia amount to AED 3.0 million (2008: AED Nil)

Other investments
The Emirates holds depository certificates as a part of its investments. Depository certificates
represent an investment in SITA Inc. and are without fixed maturity.

An impairment loss of AED 73.0 million (2008: AED Nil) has been recognised in the consolidated
income in relation to the equity instrument on account of the downturn arising from the global
economic environment.
Loans and other receivables
The fair value of loans and receivables amounts to AED 1,043.2 million (2008: AED 1,227.5 million).
At the balance sheet date, loans and other receivables were neither past due nor impaired.

Inventories
The value of inventories increased significantly from AED 751 million in 2008 to AED 1052 million in
the year 2009.

Trade and other receivables


The charge on trade receivables relates to ticketing agents who are in unexpected difficult economic
situations and are unable to meet their obligations under the IATA agency.

Short term bank deposits and cash and cash equivalents


Cash and bank balances of the Emirates declined to almost half in the year 2009 from its previous
year since the company was due to make payments for delivery of its new fleet of A380·s to the
Airbus Company and some other big payments which were also made during the year.
Liabilities:

Capital and Reserves


Capital represents the permanent capital of Emirates. The capital and reserves of the Emirates
remained constant over the year. The company did not buy any new capital neither did it set aside
any amount for reserves since the expenses had become quite burden-some and the company made
provisions to provide for the same.

Borrowings and lease liabilities:


The Emirates borrowed money from the public by issuing bonds. The net value of bonds amounted
to AED 6,325.4 million (2008: AED 6,728.4 million). The net value of the Singapore Dollar bonds is
AED 700.8 million (2008: AED 1,035.2 million), which carry a fixed interest rate over their term.

The fair value of lease liabilities amounts to AED 6,977.9 million (2008: AED 6,061.4 million). The fair
value is determined by discounting projected cash flows using the interest rate yield curve for the
remaining term to maturities and currencies adjusted for credit spread.

Provisions:
The Emirates Airlines also provides various provisions to its employees like Employee end of service
benefits,cfunded scheme, unfunded schemes and also various frequent flying programmes to its
customers. The amount given out for provision has reduced, however, due to the problems of global
recession affecting the Emirates.

Deferred income tax liability:


The deferred income tax liability is on account of accelerated tax depreciation.cA deferred tax asset
has not been recognised in respect of carried forward tax losses amounting to AED 391.3 million
(2008: AED 351.0 million).

Derivative financial instruments:


During the year, majority of Emirates fuel contracts that have been transferred to its parent company.
The company has also issued letters of credit as collateral against fuel derivative liability.
Consolidated Income Statement

Revenue:
The major revenue earning asset is the aircraft fleet which is registered in the UAE. Since the aircraft
fleet is deployed flexibly across Emirates· route network, there is no suitable basis of allocating such
assets to geographical segments. Other non-cash items are primarily related to the Middle East
segment.cTransport revenue is allocated to the segments based on turnover by destination.cRevenue
from inbound and outbound airline operations between UAE and the overseas point are attributed to
the geographical area in which the respective overseas points are located.

Other operating income


Other operating income includes AED 319.3 million (2008: AED 404.0 million) from liquidated
damages, AED 213.5 million (2008: AED 176.3 million) being the gross income from the frequent flyer
programme, AED 30.4 million (2008: AED 553.8 million) being the gain on sale and leaseback of
aircraft, AED Nil (2008: AED 720.4 million) being the sale of purchase rights in certain aircraft and a
net foreign exchange gain of AED Nil (2008: AED 223.8 million).

Operating costs:
(a) Employee costs include AED 236.1 million (2008: AED 315.5 million) in respect of post-
employment benefits and AED Nil (2008: AED 664.6 million) in respect of an employee profit share
scheme.

(b) Aircraft operating lease charges include AED 3,273.4 million (2008: AED 2,908.8 million) in respect
of ninety four aircraft (2008: eighty five) and AED 523.2 million (2008: AED 670.0 million) in respect
of wet leases of freighter aircraft.

(c) Corporate overheads includes non-aircraft operating lease charges amounting to AED 308.0
million (2008: AED 176.3 million), net foreign exchange loss of AED 708.4 million (2008: Nil) and AED
143.5 million (2008: Nil) loss on realisation of available-for-sale financial assets.
Other gains and losses:
Other gains and losses represent changes in the fair value of financial instruments. Emirates uses
derivatives as part of its programme of managing fuel costs that do not qualify for hedge accounting.

Finance income and costs:


Net financing costs of AED Nil (2008: AED 42.4 million) were capitalised during the year.

Income tax credit / expense:


Emirates have secured tax exemptions by virtue of double taxation agreements and airline reciprocal
arrangements in most of the jurisdictions in which it operates. Therefore, the income tax expense
relates only to certain overseas stations where Emirates is subject to income tax. Providing
information on effective tax rates is therefore not meaningful. The income tax credit during the year
arises from a write back of a tax provision of AED 131.2 million (2008: Nil) consequent to the
acceptance of Emirates' position in the applicable tax jurisdiction.

Financial Position:
At 31 March 2009, Emirates cash position was AED 7,368 million (USD 2,008 million) compared to
AED 12,619 million (USD 3,438 million) in 2007-08. Emirates cash balance more than adequately
covers its traditional benchmark of maintaining cash balances for at least six months debt obligations
and lease rentals.

During the Ànancial year, Emirates took delivery of 21 aircraft, 17 from Boeing and 4 from Airbus.
Despite the challenging environment nearly USD 2.6 billion was raised during the Ànancial year to
Ànance these aircraft deliveries, using six different types of Ànancing structures and 12 funding
sources. This clearly establishes the Àrm support that Emirates has from global Ànancial institutions.
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