Annual Report 1999 in PDF - Aer Lingus

AER LINGUS GROUP PLCJKLMLeasesAssets held under finance leases, which transfer substantially all the risks and rewards of ownership to the Group, areinitially recorded at their fair value at the inception of the lease. The equivalent liability, categorised as appropriate, isincluded under "Creditors due within and after one year". Assets are depreciated over the lease term or their usefuleconomic lives, as appropriate. Finance lease charges are allocated over the periods of the leases to produce constantrates of return on the outstanding balances.Rentals under operating leases are charged on a straight line basis over the lease term.Aircraft MaintenanceProvision is made, on a time apportioned basis, for aircraft maintenance costs to be incurred in connection with majorairframe and engine overhauls on leased aircraft where the lease terms impose obligations on the lessee to have theseoverhauls carried out. The actual costs of the overhauls are charged against the provision.As indicated in accounting policy F, the costs of major mainframe and engine overhauls in respect of owned aircraft arecapitalised as part of the cost of the related aircraft. This represents a change in accounting policy arising from theadoption of FRS12 (Provisions, contingent liabilities and contingent gains), as previously provision was made on a timeapportioned basis for aircraft maintenance costs in respect of all aircraft. The effect of the change in policy is notmaterial.Foreign CurrencyIn the accounts of individual companies, transactions denominated in foreign currencies are recorded in the local currencyat actual exchange rates at the date of the transaction or, where appropriate, at the rates of exchange in related forwardexchange contracts. Monetary assets and liabilities denominated in foreign currencies are translated using the rates ofexchange prevailing at the balance sheet date or, where appropriate, the rates of exchange in related forward exchangecontracts.Gains and losses arising from foreign currency translations and on settlement of amounts receivable and payable inforeign currency are dealt with in the profit and loss account.In prior years, changes in the reporting currency value of outstanding foreign currency liabilities which financed aircraftwere offset as reserve movements to the extent of the exchange differences arising on the translation of related aircraft.In the light of movements in exchange rates the policy has been changed with all such exchange differences now dealtwith in the profit and loss account. This policy is considered more appropriate given developments in internationalfinancial markets and as a result the carrying value of aircraft in the balance sheet is not exposed to exchange ratemovements. The effect of this change in policy is set out in Note 1.For the purposes of consolidation of subsidiaries and application of the equity method of accounting in respect ofassociated undertakings, the closing rate/net investment method is used, under which translation gains or losses areshown as movements on reserves. Profit and loss accounts of overseas subsidiaries are translated at average exchangerates.Treasury InstrumentsThe Group enters into transactions in the normal course of business using a variety of treasury instruments in order tohedge against exposures to fluctuating exchange rates, interest rates and fuel costs. These transactions are accounted forin accordance with their economic substance.The principal transactions are forward contracts and currency swaps entered into in order to change the currencyexposure of foreign currency debt positions. Such forward contracts and swaps are revalued at closing spot rates ofexchange and the resulting gains and losses are accounted for on a consistent basis with gains and losses on theretranslation of the related debt (Accounting Policy L). The interest effect of these transactions is accounted for evenlyover the duration of the contracts.Forward contracts and related instruments designated to hedge future transactions, such as foreign currency expenditure,are disclosed in the accounts as commitments and are accounted for on a consistent basis with the related transactions.31