================================================================================
As filed with the Securities and Exchange Commission on September 27, 2006
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: March 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|_| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report:___________
For the transition period from _________ to _________
0-29304
(Commission file number)
Ryanair Holdings plc
(Exact name of registrant as specified in its charter)
Ryanair Holdings plc
(Translation of registrant's name into English)
Republic of Ireland
(Jurisdiction of incorporation or organization)
c/o Ryanair Limited
Corporate Head Office
Dublin Airport
County Dublin, Ireland
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each national market on which registered
American Depositary Shares, Nasdaq National Market
each representing
five Ordinary Shares
Ordinary Shares, par value Nasdaq National Market*
1.27 euro cent per Share
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
771,016,623 Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes |X| No |_|
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes |_| No |X|
Note-Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer |X| Accelerated filed |_| Non-accelerated filer |_|
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 |_| Item 18 |X|
If this an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes |_| No |_|
_____________
* Not for trading, but only in connection with the registration of the
American Depositary Shares.
ii
TABLE OF CONTENTS
Page
Presentation of Financial and Certain Other Information..........................................................iv
Cautionary Statement Regarding Forward Looking Information....................................................... v
PART I
Item 1. Identity of Directors, Senior Management and Advisers...................................................1
Item 2. Offer Statistics and Expected Timetable.................................................................1
Item 3. Key Information.........................................................................................1
THE COMPANY........................................................................................1
SELECTED FINANCIAL DATA............................................................................1
EXCHANGE RATES.....................................................................................4
SELECTED OPERATING AND OTHER DATA..................................................................6
RISK FACTORS.......................................................................................7
Item 4. Information on the Company.............................................................................19
INTRODUCTION......................................................................................19
STRATEGY..........................................................................................20
INDUSTRY OVERVIEW.................................................................................23
European Airline Market.......................................................................23
Ireland, U.K. and Continental European Markets................................................24
The Acquisition of Buzz.......................................................................25
ROUTE SYSTEM, SCHEDULING AND FARES................................................................26
Route System and Scheduling...................................................................26
Low and Widely Available Fares................................................................27
MARKETING AND ADVERTISING.........................................................................28
RESERVATIONS/RYANAIR.COM..........................................................................28
AIRCRAFT..........................................................................................28
Aircraft......................................................................................29
Training and Regulatory Compliance............................................................30
ANCILLARY SERVICES................................................................................31
MAINTENANCE AND REPAIRS...........................................................................32
General.......................................................................................32
Heavy Maintenance.............................................................................32
SAFETY RECORD.....................................................................................33
AIRPORT OPERATIONS................................................................................33
Airport Handling Services.....................................................................33
Airport Charges...............................................................................34
FUEL..............................................................................................36
INSURANCE.........................................................................................37
FACILITIES........................................................................................37
TRADEMARKS........................................................................................38
GOVERNMENT REGULATION.............................................................................38
Liberalization of the EU Air Transportation Market............................................38
Regulatory Authorities........................................................................39
Registration of Aircraft......................................................................41
Regulation of Competition.....................................................................42
Environmental Regulation......................................................................42
Slots.........................................................................................44
Other.........................................................................................45
DESCRIPTION OF PROPERTY...........................................................................45
i
Item 5. Operating and Financial Review and Prospects...........................................................45
HISTORY...........................................................................................45
BUSINESS OVERVIEW.................................................................................46
RECENT OPERATING RESULTS..........................................................................47
CRITICAL ACCOUNTING POLICIES......................................................................48
RESULTS OF OPERATIONS.............................................................................49
FISCAL YEAR 2006 COMPARED WITH FISCAL YEAR 2005...................................................50
QUARTERLY FLUCTUATIONS............................................................................54
U.S. GAAP RECONCILIATION..........................................................................54
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS.........................................54
RECENTLY ISSUED ACCOUNTING STANDARDS..............................................................54
LIQUIDITY AND CAPITAL RESOURCES...................................................................55
OFF-BALANCE SHEET TRANSACTIONS....................................................................62
TREND INFORMATION.................................................................................62
INFLATION.........................................................................................62
Item 6. Directors, Senior Management and Employees.............................................................63
DIRECTORS.........................................................................................63
Action and Powers of Board of Directors.......................................................65
Composition and Term of Office................................................................65
Exemptions from Nasdaq Corporate Governance Rules.............................................66
SENIOR MANAGEMENT.................................................................................67
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT...................................................68
Compensation..................................................................................68
Employment Agreements.........................................................................69
EMPLOYEES AND LABOR RELATIONS.....................................................................69
Item 7. Major Shareholders and Related Party Transactions......................................................71
DESCRIPTION OF CAPITAL STOCK......................................................................71
MAJOR SHAREHOLDERS................................................................................71
RELATED PARTY TRANSACTIONS........................................................................71
Item 8. Financial Information..................................................................................71
CONSOLIDATED FINANCIAL STATEMENTS.................................................................71
OTHER FINANCIAL INFORMATION.......................................................................71
Legal Proceedings.............................................................................72
Dividend Policy...............................................................................74
SIGNIFICANT CHANGES...............................................................................74
Item 9. The Offer and Listing..................................................................................74
TRADING MARKETS AND SHARE PRICES..................................................................74
Item 10. Additional Information................................................................................77
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................................77
MEMORANDUM AND ARTICLES OF ASSOCIATION............................................................78
MATERIAL CONTRACTS................................................................................80
EXCHANGE CONTROLS.................................................................................80
LIMITATIONS ON SHARE OWNERSHIP BY NON-EU NATIONALS................................................80
TAXATION..........................................................................................82
Irish Tax Considerations......................................................................82
United States Tax Considerations..............................................................85
DOCUMENTS ON DISPLAY..............................................................................87
Item 11. Quantitative and Qualitative Disclosures About Market Risk............................................87
GENERAL...........................................................................................87
FUEL PRICE EXPOSURE AND HEDGING...................................................................88
FOREIGN CURRENCY EXPOSURE AND HEDGING.............................................................89
ii
INTEREST RATE EXPOSURE AND HEDGING................................................................90
Item 12. Description of Securities Other than Equity Securities................................................91
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.......................................................91
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..........................91
Item 15. Controls and Procedures...............................................................................91
Item 16A. Audit Committee Financial Expert.....................................................................91
Item 16B. Code of Ethics.......................................................................................91
Item 16C. Principal Accountant Fees and Services...............................................................92
Item 16D. Exemptions from the Listing Standards for Audit Committees...........................................92
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers...............................92
PART III
Item 17. Financial Statements..................................................................................92
Item 18. Financial Statements..................................................................................93
Item 19. Exhibits..............................................................................................93
iii
Presentation of Financial and Certain Other Information
As used herein, the term "Ryanair Holdings" refers to Ryanair
Holdings plc. The term the "Company" refers to Ryanair Holdings together with
its consolidated subsidiaries. The terms "Ryanair Limited" and "Ryanair" refer
to Ryanair Limited, a wholly-owned subsidiary of Ryanair Holdings, together with
its consolidated subsidiaries. The term "fiscal year" refers to the twelve-month
period ended on March 31 of such year. All references to "Ireland" herein are
references to the Republic of Ireland. All references to the "U.K." herein are
references to the United Kingdom and all references to the "United States" or
"U.S." herein are references to the United States of America. References to
"U.S. dollars," "dollars," "$" or "U.S. cents" are to the currency of the United
States, references to "U.K. pounds sterling," "sterling," "U.K.GBP" and U.K.
pence" are to the currency of the U.K. and references to "EUR," "euro" and "euro
cents" are to the euro, the common currency of twelve Member States of the
European Union (the "EU"), including Ireland. Various amounts and percentages
set out in this annual report on Form 20-F have been rounded and accordingly may
not total.
The Company owns or otherwise has rights to the trademark RYANAIR(R)
in certain jurisdictions. See "Item 4. Information on the Company - Trademarks."
This report also makes reference to trade names and trademarks of companies
other than the Company.
Until March 31, 2005, the Company published its annual and interim
Consolidated Financial Statements in accordance with accounting principles
generally accepted in Ireland ("Irish GAAP"), which differ in certain respects
from accounting principles generally accepted in the United States ("U.S.
GAAP"). From April 1, 2005, Ryanair Holdings is required to prepare its annual
consolidated financial statements in accordance with International Financial
Reporting Standards as adopted for use in the EU ("IFRS"), in accordance with
applicable EU law.
In relation to this transition to IFRS, in April 2005 the U.S.
Securities and Exchange Commission ("SEC") adopted amendments to Form 20-F to
provide a one-time accommodation relating to first financial statements prepared
under IFRS for foreign private issuers registered with the SEC. This
accommodation permits Ryanair Holdings for its first year of reporting under
IFRS to report two years rather than three years of statements of income,
changes in shareholders' equity and cash flows prepared in accordance with IFRS,
with appropriate related disclosure and respective reconciliation of financial
statement items to U.S. GAAP. For a detailed discussion of the differences
between IFRS and U.S. GAAP that affect the Company's Consolidated Financial
Statements, see Note 27 to the Consolidated Financial Statements included in
Item 18. See also "Item 5. Operating Review and Financial Prospects - Transition
to International Financial Reporting Standards" for information on material
differences between IFRS and Irish GAAP that affect the Company's Consolidated
Financial Statements.
The Company publishes its Consolidated Financial Statements in euro.
Solely for the convenience of the reader, this report contains translations of
certain euro amounts into U.S. dollars at specified rates. These translations
should not be construed as representations that the converted amounts actually
represent such U.S. dollar amounts or could be converted into U.S. dollars at
the rates indicated or at any other rate. Unless otherwise indicated, such U.S.
dollar amounts have been translated from euro at a rate of EUR1.00=$1.2139 or
$1.00=EUR0.8238, the noon buying rate in New York City for cable transfers of
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate") on March 31, 2006. The Noon Buying Rate for
euro on September 15, 2006 was EUR1.00=$1.2648 or $1.00=EUR0.7906. See "Item 3.
Key Information - Exchange Rates" for information regarding historical rates of
exchange relevant to the Company, and "Item 5. Operating and Financial Review
and Prospects" and "Item 11. Quantitative and Qualitative Disclosure About
Market Risk" for a discussion of the effects of changes in exchange rates on the
Company.
iv
Cautionary Statement Regarding Forward Looking Information
Except for the historical statements and discussions contained
herein, statements contained in this Report constitute "forward looking
statements" within the meaning of Section 27A of the U.S. Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward looking
statements may include words such as "expect," "estimate," "project,"
"anticipate," "should," "intend" and similar expressions or variations on such
expressions. Any filing of the Company with the SEC may include forward looking
statements. In addition, other written or oral statements which constitute
forward looking statements have been made and may in the future be made by or on
behalf of the Company, including statements concerning its future operating and
financial performance, the Company's share of new and existing markets, general
industry and economic trends and the Company's performance relative thereto and
the Company's expectation as to requirements for capital expenditures and
regulatory matters. The Company's business is to provide a low fares airline
service in Europe, and its outlook is predominately based on its interpretation
of what it considers to be the key economic factors affecting that business and
the European economy. Forward looking statements with regard to the Company's
business rely on a number of assumptions concerning future events and are
subject to a number of uncertainties and other factors, many of which are
outside the Company's control, that could cause actual results to differ
materially from such statements. It is not reasonably possible to itemize all of
the many factors and specific events that could affect the outlook and results
of an airline operating in the European economy. Among the factors that are
subject to change and could significantly impact Ryanair's expected results are
the airline pricing environment, fuel costs, competition from new and existing
carriers, market prices for replacement aircraft and aircraft maintenance
services, aircraft availability, costs associated with environmental, safety and
security measures, terrorist attacks, actions of the Irish, U.K., EU and other
governments and their respective regulatory agencies, fluctuations in currency
exchange rates and interest rates, airport handling and access charges,
litigation, labor relations, the economic environment of the airline industry,
the general economic environment in Ireland, the U.K. and elsewhere in Europe,
the general willingness of passengers to travel and other factors discussed
herein. The Company disclaims any obligation to update or revise any forward
looking statements, whether as a result of new information, future events or
otherwise.
v
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
THE COMPANY
Ryanair operates a low fares scheduled passenger airline serving
short-haul, point-to-point routes in Europe from its bases at Dublin, London
(Stansted), Glasgow (Prestwick), Brussels (Charleroi), Frankfurt (Hahn),
Milan (Bergamo), Stockholm (Skavsta), Rome (Ciampino), Barcelona (Girona),
Nottingham East Midlands, London (Luton), Liverpool, Shannon, Pisa and Cork
airports, which together are referred to as "Ryanair's bases of operations"
or "Ryanair's bases." An additional base at Marseille, France was announced
during May 2006 and is expected to commence operations in November 2006. In
addition, on September 19, 2006, Ryanair announced a new base at Bremen,
Germany, expected to commence operations in April 2007. In operation since
1985, Ryanair pioneered the low fares operating model in Europe under a new
management team in the early 1990s. As of September 15, 2006, the Company
offered over 750 scheduled short-haul flights per day serving 115 locations
throughout Europe, including 24 locations in the U.K. and Ireland, with an
operating fleet of 107 aircraft flying approximately 305 routes.
A detailed description of the Company's business can be found in "Item 4.
Information on the Company.
SELECTED FINANCIAL DATA
The following tables set forth certain of the Company's selected
consolidated financial information as of and for the periods indicated and
should be read in conjunction with the audited Consolidated Financial Statements
of the Company and related notes thereto included in Item 18 and with "Item 5.
Operating and Financial Review and Prospects."
1
Profit and Loss Account Data:
Fiscal Year ended
--------------------------------------------------------------------------------
March 31,
IFRS 2006 (a) 2006 2005
(in thousands, except per Ordinary Share and per ADS data)
--------------------------------------------------------------------------------
Total operating revenues......... $2,054,562 EUR1,692,530 EUR1,319,037
Total operating expenses......... (1,599,294) (1,317,484) (978,299)
----------- ------------- ------------
Operating income................. 455,268 375,046 340,738
----------- ------------- ------------
Net interest (expense) income.... (43,383) (35,739) (29,287)
Other non-operating (expense)
income........................ (509) (419) (2,255)
----------- ------------- ------------
Profit before taxation........... 411,376 338,888 309,196
Taxation......................... (39,058) (32,176) (29,153)
----------- ------------- ------------
Profit after taxation............ $372,318 EUR306,712 EUR280,043
----------- ------------- ------------
Ryanair Holdings basic earnings
per Ordinary Share
(U.S. cents)/(euro cent)...... 48.56 40.00 36.85
Ryanair Holdings diluted
earnings per Ordinary Share
(U.S. cents)/(euro cent)...... 48.24 39.74 36.65
Ryanair Holdings basic earnings
per ADS (U.S. cents)/(euro
cent)(b)...................... 242.78 200.00 184.25
Fiscal Year ended
------------------------------------------------------------------------------
March 31,
2006 (a) 2006 2005 2004 2003 2002
(in thousands, except per Ordinary Share and per ADS data)
------------------------------------------------------------------------------
U.S. GAAP
Total operating revenues...... $2,054,562 EUR1,692,530 EUR1,319,037 EUR1,074,224 EUR842,508 EUR624,050
Total operating expenses...... (1,597,978) (1,316,400) (980,365) (822,769) (577,809) (459,814)
----------- ------------ ------------ ------------ ----------- ----------
Operating income.............. 456,584 376,130 338,672 251,455 264,699 164,236
Net interest (expense) income. (33,706) (27,767) (21,442) (16,460) 5,739 12,966
Other non-operating (expense)
income..................... (509) (419) (2,255) 3,217 (3,561) 1,502
----------- ------------ ------------ ------------ ----------- ----------
Income before taxation........ 422,369 347,944 314,975 238,212 266,877 178,704
Taxation...................... (40,193) (33,111) (31,561) (22,782) (25,067) (23,155)
----------- ------------ ------------ ------------ ----------- -----------
Net income.................... $382,176 EUR314,833 EUR283,414 EUR215,430 EUR241,810 EUR155,549
=========== ============ ============ ============ =========== ===========
Basic earnings per Ordinary Share
(U.S. cents)/(euro cent)....... 49.83 41.05 37.29 28.44 32.03 21.35
Diluted earnings per Ordinary
Share (U.S. cents)/(euro cent) 49.51 40.79 37.09 28.15 31.56 21.02
Basic earnings per ADS
(U.S. cents)/(euro cent) (b).. 249.15 205.28 186.49 142.20 160.15 106.75
__________________________
See notes on next page.
Balance Sheet Data:
As of March 31,
--------------------------------------------------------------------------------
IFRS 2006(a) 2006 2005
--------------------------------------------------------------------------------
(in thousands)
Cash and cash equivalents......... $1,746,807 EUR1,439,004 EUR872,258
Total assets.................. 5,625,478 4,634,219 3,818,153
Long-term debt, including capital
lease obligations............... 2,036,594 1,677,728 1,414,857
Shareholders' equity.............. 2,418,071 1,991,985 1,734,503
2
As of March 31,
--------------------------------------------------------------------------------
U.S. GAAP 2006(a) 2006 2005 2004 2003 2002
--------------------------------------------------------------------------------
(in thousands)
Cash and cash equivalents......... $1,746,807 EUR1,439,004 EUR872,258 EUR744,605 EUR537,476 EUR482,492
Total assets...................... 5,672,442 4,672,907 3,870,392 2,961,891 2,479,868 1,896,686
Long-term debt, including capital
lease obligations............... 2,036,594 1,677,728 1,414,857 952,981 837,225 550,503
Shareholders' equity.............. 2,452,621 2,020,447 1,629,819 1,356,281 1,177,187 1,019,607
Cash Flow Statement Data:
As of March 31,
---------------------------------------------------------------
IFRS 2006(a) 2006 2005
---------------------------------------------------------------
(in thousands)
Net cash inflow from operating
activities.......................... $741,170 EUR610,570 EUR511,203
Net cash (outflow) from investing
activities.......................... (409,430) (337,285) (850,462)
Net cash inflow from financing
activities.......................... 356,232 293,461 467,257
Increase in cash....................... $687,972 EUR566,746 EUR127,998
========== ========== ==========
As of March 31,
-------------------------------------------------------------------
U.S. GAAP 2006(a) 2006 2005 2004 2003 2002
-------------------------------------------------------------------
(in thousands)
Net cash inflow from operating
activities.......................... $749,062 EUR617,071 EUR516,648 EUR447,177 EUR353,462 EUR324,687
Net cash (outflow) from investing
activities.......................... (417,321) (343,786) (855,907) (361,512) (581,068) (561,435)
Net cash inflow from financing
activities............................. 356,232 293,461 467,257 121,734 282,590 330,181
--------- ---------- --------- --------- ---------- ----------
Increase in cash and cash equivalents.. 687,972 566,746 127,998 207,129 54,984 93,433
Cash and cash equivalents at beginning
of ................................year 1,058,834 872,258 744,260 537,476 482,492 389,059
--------- ------------ ---------- ---------- ---------- ----------
Cash and cash equivalents at end of
the year............................ $1,746,807 EUR1,439,004 EUR872,258 EUR744,605 EUR537,476 EUR482,492
========== ============ ========== ========== ========== ==========
__________________________
(a) Dollar amounts are translated from euro solely for convenience at the Noon
Buying Rate on March 31, 2006, of EUR1.00=$1.2139 or $1.00=EUR0.8238.
(b) Represents basic earnings per Ordinary Share or net income per Ordinary
Share multiplied by five.
3
EXCHANGE RATES
The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between (i) the U.S. dollar and the
euro, (ii) the U.K. pound sterling and the euro, and (iii) the U.K. pound
sterling and the U.S. dollar. Such rates are provided solely for the convenience
of the reader and are not necessarily the rates used by the Company in the
preparation of its Consolidated Financial Statements included in Item 18. No
representation is made that any of such currencies could have been, or could be
converted into any of the other such currencies at such rates or at any other
rate.
U.S. dollars per EUR1.00 (1)
End of
Year ended December 31, period Average(2) Low High
2001.............................................................. 0.882 0.892 - -
2002.............................................................. 1.050 0.946 - -
2003.............................................................. 1.260 1.141 - -
2004.............................................................. 1.354 1.248 - -
2005.............................................................. 1.184 1.239 - -
------------------------------------------------------------------
Month ended
March 31, 2006.................................................... - - 1.189 1.219
April 30, 2006.................................................... - - 1.209 1.262
May 31, 2006...................................................... - - 1.260 1.288
June 30, 2006..................................................... - - 1.252 1.291
July 31, 2006..................................................... - - 1.249 1.282
August 31, 2006................................................... - - 1.273 1.291
Period ending September 15, 2006.................................. - - 1.265 1.273
U.K. pounds sterling per EUR1.00 (3)
End of
Year ended December 31, period Average(2) Low High
2001.............................................................. 0.611 0.620 - -
2002.............................................................. 0.652 0.629 - -
2003.............................................................. 0.706 0.694 - -
2004.............................................................. 0.708 0.679
2005.............................................................. 0.689 0.682 - -
-----------------------------------------------------------------
Month ended
March 31, 2006................................................... - - 0.680 0.697
April 30, 2006................................................... - - 0.690 0.701
May 31, 2006..................................................... - - 0.680 0.689
June 30, 2006.................................................... - - 0.682 0.692
July 31, 2006.................................................... - - 0.683 0.695
August 31, 2006.................................................. - - 0.673 0.684
Period ending September 15, 2006................................. - - 0.674 0.676
4
U.K. pounds sterling per US$1.00(4)
End of
Year ended December 31, period Average(2) Low High
2001..................................................................... 0.688 0.695 - -
2002..................................................................... 0.621 0.666 - -
2003..................................................................... 0.560 0.608 - -
2004..................................................................... 0.522 0.545 - -
2005..................................................................... 0.581 0.551 - -
Month ended
March 31, 2006..................................................... - - 0.569 0.579
April 30, 2006..................................................... - - 0.555 0.575
May 31, 2006....................................................... - - 0.528 0.546
June 30, 2006...................................................... - - 0.531 0.552
July 31, 2006...................................................... - - 0.535 0.549
August 31, 2006.................................................... - - 0.534 0.524
Period ending September 15, 2006................................... - - 0.531 0.533
____________________________
(1) Based on the Noon Buying Rate for euro.
(2) The average of the relevant exchange rates on the last business day
of each month during the relevant period.
(3) Based on the composite exchange rate as quoted at 5 p.m. New York time by
Bloomberg.
(4) Based on the Noon Buying Rate for U.K. pounds sterling.
As of September 15, 2006, the exchange rate between the U.S. dollar
and the euro was EUR1.00=$1.2648, or $1.00=0.7906; the exchange rate between the
U.K. pound sterling and the euro was U.K.GBP1.00=EUR1.4842, or
EUR1.00=U.K.GBP0.6738; and the exchange rate between the U.K. pound sterling and
the U.S. dollar was U.K.GBP1.00=$1.8769, or $1.00=U.K.GBP0.5328. For a
discussion of the impact of exchange rate fluctuations on the Company's results
of operations, see "Item 11. Quantitative and Qualitative Disclosures About
Market Risk."
5
SELECTED OPERATING AND OTHER DATA
The following table sets forth certain operating data of
Ryanair for each of the two fiscal years shown. Such data are derived from the
Consolidated Financial Statements prepared in accordance with IFRS (except as
otherwise indicated) and certain other data and are not audited. For definitions
of the terms used in this table, see the Glossary in Appendix A. See the notes
following the table for explanatory material and Note 27 to the Consolidated
Financial Statements included in Item 18 for a detailed discussion of the
principal differences between IFRS and U.S. GAAP.
Fiscal Year ended March 31,
----------------------------------------------------------------
Operating Data: (IFRS) 2006 2005
----------------------------------------------------------------
Average Yield per RPM (EUR)............... 0.076 0.081
Average Yield per ASM (EUR)............... 0.058 0.063
Average Passenger Spend per Flight (EUR).. 2.021 1.975
Average Fuel Cost per U.S. Gallon (EUR)... 1.479 1.060
Cost per ASM (CASM) (EUR)................. 0.052 0.053
Operating Margin........................ 22% 25%
Total Break-even Load Factor(b)......... 61% 59%
Average Flown Passenger Fare (EUR)........ 44.53 43.95
Average Booked Passenger Fare (EUR)....... 41.23 40.85
Fiscal Year ended March 31,
------------------------------------------------------------------
Other Operating Data: 2006 2005 2004 2003 2002
------------------------------------------------------------------
Revenue Passengers Booked............... 34,768,813 27,593,923 23,132,936 15,736,936 11,091,066
Revenue Passengers Flown................ 32,188,184 25,641,508 21,244,130 14,427,329 10,202,193
Revenue Passenger Miles (RPMs).......... 18,832,515,231 13,862,254,136 10,425,878,625 6,781,128,672 4,505,861,947
Available Seat Miles (ASMs)............. 24,282,100,345 17,812,432,791 13,996,127,688 8,744,373,118 6,081,007,925
Flown Passenger Load Factor............. 77% 78% 74% 78% 74%
Booked Passenger Load Factor............ 83% 84% 81% 85% 81%
Break-even Load Factor(a)............... 68% 65% 62% 57% 58%
Average Length of Passenger Haul
(miles)............................... 585 541 491 473 442
Sectors Flown........................... 227,316 187,470 171,726 115,325 90,124
Number of Airports Served at Period End. 111 95 84 62 52
Average Daily Flight Hour Utilization
(hours)............................... 9.60 9.32 8.37 8.02 7.28
Employees at Period End................. 3,453 2,717 2,302 1,897 1,531
Employees per Aircraft at Period End ... 35 31 32 35 37
Booked Passengers per Employee at
Period End............................ 10,069 10,156 10,049 8,296 7,244
Operating Data: (U.S. GAAP)
Average Yield per RPM (EUR)............... 0.076 0.081 0.089 0.108 0.122
Average Yield per ASM (EUR)............... 0.058 0.063 0.066 0.084 0.091
Average Passenger Spend per Flight (EUR).. 2.021 1.975 2.082 2.341 2.536
Average Fuel Cost per U.S. Gallon (EUR)... 1.479 1.060 0.816 0.930 1.007
Cost per ASM (CASM) (EUR)(a).............. 0.052 0.053 0.055 0.061 0.071
Operating Margin........................ 22% 25% 23% 31% 26%
Other Operating Data: (U.S. GAAP)
Break-even Load Factor (a).............. 68% 65% 62% 57% 58%
______________________
(a) For the purposes of calculating Cost per ASM, and Break-even Load Factor,
costs for fiscal 2002 through fiscal 2004 include the costs of
Ryanair's charter operations, but not the revenues or seat miles of
such charter operations. The costs and revenues of all other ancillary
services are also excluded in calculating these measures. Ryanair
ceased its charter operations in April 2003.
(b) Total Break-even Load Factor is calculated on the basis of total costs and
revenues, including the costs and revenues from all ancillary
services.
6
RISK FACTORS
Risks Related to the Company
Changes in Fuel Costs and Fuel Availability Affect the Company's Results
Jet fuel costs are subject to wide fluctuations as a result of many
economic and political factors and events occurring throughout the world that
Ryanair can neither control nor accurately predict, including increases in
demand, sudden disruptions in and other concerns about global supply, as well as
market speculation. Fuel prices increased substantially in fiscal years 2005 and
2006 and are currently at historically high levels, which has had a significant
impact on Ryanair's costs, and in turn, on its operating results. As
international prices for jet fuel are denominated in U.S.dollars, Ryanair's
fuel costs are also subject to certain exchange rate risks. Substantial price
increases, adverse exchange rates or the unavailability of adequate supplies,
including, without limitation, any such events resulting from prolonged
hostilities in the Middle East or other oil-producing regions, or the suspension
of production by any significant producer, could have a material adverse effect
on Ryanair's profitability. In the event of a fuel shortage resulting from a
disruption of oil imports or otherwise, additional increases in fuel prices or a
curtailment of scheduled services could result.
While Ryanair had historically entered into arrangements providing
for substantial protection against fluctuations in fuel prices, generally
through forward contracts covering 12-18 months of anticipated jet fuel
requirements, in light of the significant increases in oil prices in recent
years, the Company now enters into any such hedging arrangements on a more
selective basis. Ryanair paid spot market prices for its jet fuel during the
period from May to August 2005. At September 15, 2006, Ryanair had entered into
forward jet fuel (jet kerosene) contracts covering approximately 90% of its
estimated requirements for the period from September 2006 through March 2007 at
prices equivalent to approximately $70 per barrel of Brent crude oil
(September-October), $74 per barrel of Brent crude oil (November-December) and
$73 per barrel of Brent crude oil (January-March). Ryanair has not otherwise
entered into agreements to seek to guarantee its supply of fuel. As a result of
Ryanair's decision to be more selective in entering into new hedging
arrangements, the Company may be more exposed to risks arising from fluctuations
in the price of fuel, especially in light of recent significant increases. There
can be no assurance that Ryanair's current or any future such arrangements will
be adequate to protect Ryanair from further increases in the price of fuel, or
that fuel prices will decline from their current historically high levels any
time in the near future. See "Item 11. Quantitative and Qualitative Disclosures
About Market Risk - Fuel Price Exposure and Hedging."
Based upon Ryanair's fuel consumption for the fiscal year ended
March 31, 2006, a change of one U.S.cent in the average annual price per gallon
of aviation fuel would have caused a change of approximately EUR2.5 million in
the Company's annual fuel costs. Ryanair's fuel costs in the fiscal year ended
March 31, 2006, after giving effect to the Company's fuel hedging activities,
increased by 74.3% over the comparable period ended March 31, 2005, to EUR462.5
million, primarily due to the increase in the average price of fuel, an increase
in the number of sectors flown and the average sector length as a result of the
expansion of Ryanair's fleet and route network, offset in part by improvements
in fuel burn per hour and the positive impact on fuel costs of the strengthening
of the euro against the dollar. Ryanair estimates that its fuel cost would have
been approximately EUR489.5 million in fiscal year 2006, compared to EUR304.5
million in fiscal 2005 (excluding de-icing costs of EUR6.1 million in 2006 and
EUR4.8 million in 2005) had Ryanair not had any hedging arrangements in place.
Because of Ryanair's low fares policy, its ability to pass on increased fuel
costs to passengers through increased fares or otherwise is somewhat limited.
Moreover, the anticipated substantial expansion of Ryanair's fleet will result
in a substantial increase, in absolute terms, in Ryanair's aggregate fuel costs.
7
Terrorism in the United Kingdom or Elsewhere in Europe Could Have a Material
Detrimental Effect on the Company
On August 10, 2006, U.K. security authorities arrested and
subsequently charged eight individuals in connection with an alleged plot to
attack aircraft operating on transatlantic routes. As a result of these arrests,
U.K. authorities immediately introduced increased security measures on all
U.K. outbound flights, which resulted in all passengers being body searched,
and banned the transportation in carry-on baggage of certain liquids and
gels. The introduction of these measures led to passengers suffering severe
delays while passing through these airport security checks. As a result,
Ryanair cancelled 279 flights in the days immediately following the incident
and refunded a total of EUR2.7 million in fares to approximately 40,000
passengers. In the days following the arrests, Ryanair also suffered reductions
in bookings estimated to have resulted in a loss of an additional approximately
EUR1.9 million in revenue. As in the past, the Company reacted to these adverse
events by initiating system-wide fare sales to stimulate demand for air travel.
On September 1, 2006, Ryanair filed a claim for EUR4.6 million in
compensation against the U.K. Department of Transport under section 93 of the
U.K. Transport Act 2000. The case is to be heard in the London High Court. There
can be no assurance that the Company will be successful in its legal action or
in obtaining any compensation in connection with its claims.
On August 14, 2006, the U.K. security authorities reduced the number
of body searches and allowed some limited carry-on baggage to be stowed in
aircraft cabins.
The Company is not currently suffering any significant delays as a
result of these security measurers and carry-on baggage restrictions. However,
the Company is in the process of filing a separate action in the U.K. courts
challenging the legality of these security measures and seeking a return to
those measures in effect prior to August 2006.
In addition, reservations on Ryanair's flights to London dropped
materially for a number of days in the immediate aftermath of the terrorist
attacks in London on July 7, 2005, and the failed attacks on July 21, 2005. In
fiscal 2005, flights into and out of London accounted for 15.4 million, or
approximately 56%, of passengers traveling on the Company's network. In fiscal
2006, flights into and out of London accounted for 17.5 million, or
approximately 50%, of passengers traveling on the Compan's network.
Future acts of terrorism or significant terrorist threats,
particularly in London or other markets that are significant to Ryanair, could
have a material adverse effect on the Company's profitability or financial
condition should the public's willingness to travel to and from those markets be
reduced as a result. See also "Risks Related to the Airline Industry - The 2001
Terrorist Attacks on the United States Had a Severe Negative Impact on the
International Airline Industry."
The Company Is Subject to Legal Proceedings Alleging Unlawful State Aid at
Certain Airports
In December 2002, the European Commission announced the launch of an
investigation into the April 2001 agreement between Ryanair and Brussels
(Charleroi) airport and the airport's owner, the government of the Walloon
Region of Belgium which enabled the Company to launch new routes and base up to
four aircraft at Brussels (Charleroi).
In February 2004, the European Commission claimed that a portion of
the arrangements between Ryanair, the airport and the region constituted
illegal state aid, and ordered Ryanair to repay the amount of the benefit
received in connection with those arrangements. In May 2004, Ryanair appealed
the decision of the European Commission to the European Court of First Instance,
requesting the decision be annulled. Ryanair expects the case to be heard before
the end of calendar year 2006. In addition, in April 2004, the Walloon Region
wrote to Ryanair requesting repayment of all amounts that had been deemed
illegal, although it acknowledged Ryanair's right to offset against these
amounts certain costs incurred in relation to the establishment of the base, in
accordance with the European Commission's decision. In September 2004, the
Walloon Region issued a formal demand that Ryanair repay a total of
approximately EUR4 million, excluding any interest that may be due. Ryanair
believes that no repayment is due when such offsets are taken into account,
although it has placed this amount in escrow pending the outcome of its appeal.
8
In May 2005, the Walloon Region initiated a new proceeding currently
pending before the Irish High Court to recover a further EUR2.3 million in
start-up costs that had been reimbursed to Ryanair in connection with its
establishment of the base. Ryanair does not believe any such payment is due and
is currently defending the action. For additional details on this matter, please
see "Item 8. Financial Information--Other Financial Information-Legal
Proceedings."
On September 6, 2005, the European Commission announced new
guidelines on the financing of airports and provision of start-up aid to
airlines by certain publicly owned airports based on the European Commission's
finding in the Charleroi case. See "Item 8. Financial Information - Consolidated
Financial Information - Legal Proceedings."
In an unrelated, though similar, matter, in July 2003, a Strasbourg
court ruled (on the basis of a complaint by the Air France Group ("Air
France")) that marketing support granted by the Strasbourg Chamber of
Commerce to Ryanair in connection with its launch of services from Strasbourg
to London (Stansted) constituted unlawful state aid. The judgment took effect
on September 24, 2003 and was upheld on the initial appeal. Ryanair appealed
this decision to the French Administrative Supreme Court (Conseil d'Etat)
on the basis that the marketing support granted was not state aid. In
February 2006, the Conseil d'Etat rejected this appeal and no further appeal
can be filed. As a result of the initial decision of the Strasbourg Court to
annul Ryanair's contract with Strasbourg Airport, Ryanair decided to close
the Strasbourg route and instead opened a route from Baden-Karlsruhe in
Germany to London (Stansted) (Baden airport is located some 40 kilometers
from Strasbourg).
Ryanair is facing similar legal challenges by third parties with
respect to agreements with certain other airports. In July 2006, a local court
in Germany required the City of Lubeck to disclose to a competing German airline
operating out of the main airport in Hamburg details of an agreement between
Hamburg Lubeck Airport and Ryanair. However, the ruling does not affect
Ryanair's costs at Lubeck Airport, as the airport was subsequently acquired by a
private owner who is offering the same arrangements to Ryanair and all other
airlines. There have also been complaints by competitors regarding Ryanair's
arrangements with Shannon Airport and Frankfurt Hahn Airport. Air France also
recently announced that it has filed an action against Marseille Airport in
connection with a new low-cost terminal at which Ryanair is expecting to base
aircraft starting in November 2006.
Adverse rulings in these or similar cases could be used as precedents
by other competitors to challenge Ryanair's agreements with other publicly owned
airports and could cause Ryanair to strongly reconsider its growth strategy in
relation to public or state-owned airports across Europe. This could in turn
lead to a scaling back of Ryanair's growth strategy due to the smaller number of
privately-owned airports available for development. No assurance can be given as
to the outcome of these proceedings, nor as to whether any unfavorable outcomes
may, individually or in the aggregate, have a material adverse effect on the
results of operation or financial condition of the Company.
The Company Faces Significant Price and Other Pressures in a Highly Competitive
Environment
Ryanair operates in a highly competitive marketplace, with a large
number of new entrants, traditional airlines and charter airlines competing
throughout the route network. Airlines compete primarily with respect to fare
levels, frequency and dependability of service, name recognition, passenger
amenities (such as access to frequent flyer programs) and the availability and
convenience of other passenger services. Unlike Ryanair, certain of Ryanair's
principal and potential competitors are state-owned or controlled flag carriers
and may have greater name recognition and resources and may have received or may
receive in the future significant amounts of subsidies and other state aid from
their respective governments. In addition, negotiations between the EU and the
United States on a comprehensive "open skies" agreement could result in the
removal of current barriers to the entry of U.S. carriers into the intra-EU
market. See "Item 4. Information on the Company - Government Regulation -
Liberalization of the EU Air Transportation Market."
9
The airline industry is highly susceptible to price discounting, in
part because airlines incur very low marginal costs for providing service to
passengers occupying otherwise unsold seats. The number of new entrant low fares
airlines and traditional carriers offering lower, more competitive fares in
direct competition with Ryanair across its route network has increased
significantly as a result of the liberalization of the EU air transport market
and greater public acceptance of the low fares product. Increasing price
competition and the resulting lower fares, combined with the continuing
increases in the Company's capacity in recent years (including an increase of
approximately 27% during fiscal 2006) have combined to put downward pressure on
the Company's yields, although this price pressure was mitigated during fiscal
2005 and 2006 (when Ryanair's yields per passenger increased by approximately 2%
and 1%, respectively) by multiple fuel surcharges imposed by many of the
Company's competitors (but not Ryanair) as a result of significantly higher fuel
prices. Should the current high oil prices decline, downward pressure on yields
in Europe could return.
Although Ryanair intends to compete vigorously and to assert its
rights against any predatory pricing or other conduct, price competition among
airlines could reduce the level of fares or passenger traffic on the Company's
routes to the point where profitable levels of operations may not be achieved.
In addition to traditional competition among airline companies and
charter operators who have entered the "low fares" market, the industry also
faces competition from ground and sea transportation alternatives as businesses
and recreational travelers seek lower-cost substitutes for air travel.
The Company Will Incur Significant Costs Acquiring New Aircraft
Ryanair's continued growth is dependent upon its ability to
acquire additional aircraft to meet additional capacity needs and to replace
aging aircraft.
Ryanair expects to have at least 133 aircraft in its fleet by
March 31, 2007. With the Company's current orders for aircraft it is obligated
to buy (or "firm" orders) under its contracts with The Boeing Company
("Boeing"), the Company expects to increase the size of its fleet to consist of
249 737-800 "next generation" aircraft by December 2012, and may elect to
enlarge its fleet further by exercising any of the 169 options to purchase new
aircraft it currently has for periods through fiscal 2014 under its agreements
with Boeing. For additional information on the Company's aircraft fleet and
expansion plans, see "Item 4. Information on the Company - Aircraft" and "Item
5. Operating and Financial Review and Prospects--Liquidity and Capital
Resources." There can be no assurance that this planned expansion will not
outpace the growth of passenger traffic on Ryanair's routes, or that traffic
growth will not prove to be greater than the expanded fleet can accommodate; in
either case, such developments could have a material adverse effect on the
Company's business, results of operations and financial condition.
Ryanair plans to finance its existing firm order aircraft
through a combination of new bank loan facilities supported by a guarantee from
the Export-Import Bank of the United States and similar to those already in
place, bank debt provided by commercial bankers, operating and finance leases
via sale and leaseback transactions, Enhanced Equipment Trust Certificates and
cash flow generated from the Company's operations. However, no assurance can be
given that such financing will be available to Ryanair, or that the terms of any
such financing will be favorable. Any inability of the Company to obtain
financing for the new aircraft on advantageous terms could have a material
adverse effect on its business, results of operations and financial condition.
In addition, the financing of new and existing 737-800 aircraft has already and
will continue to significantly increase the total amount of the Company's
outstanding debt and the payments it is obliged to make to service such debt.
Furthermore, Ryanair's ability to draw down funds under its existing bank loan
facilities to pay for aircraft as they are delivered is subject to various
conditions imposed by the counterparties to the bank loan facilities and related
loan guarantees, and any future financing is expected to be subject to similar
conditions. The Company currently has a preliminary commitment from the Export
Import Bank of the United States to provide a loan guarantee covering nine of
the 142 firm order aircraft. In addition, the Company has awarded mandates to
various parties to finance up to 12 aircraft via sale and leaseback transactions
and four aircraft under finance lease arrangements, and is currently assessing
other proposals for financing aircraft due for delivery in the medium term. For
additional details on Ryanair's financings, see "Item 5. Operating and Financial
Review and Prospects - Liquidity and Capital Resources."
10
In addition, Ryanair is dependent on its contracts with Boeing for
the acquisition of the additional aircraft needed to implement its expansion
plans. A strike by Boeing machinists halted Boeing's aircraft assembly
operations for most of the month of September 2005, resulting in the delay of
certain aircraft deliveries to the Company and minor modifications to the
Company's operating schedule in September and October 2005. See "Item 4.
Information on the Company - Aircraft" for additional information. As a result
of the strike, which terminated on September 29, 2005, scheduled aircraft
deliveries for the period through April 2007 have been affected, the retirement
of some of the Company's Boeing 737-200s and the launch of certain routes were
delayed and the Company was required to lease in additional aircraft capacity
between January and April 2006 at a cost of EUR5.6 million. See "Item 4.
Information on the Company - Aircraft."
The Company's Rapid Growth May Expose It To Risks
Ryanair's operations have grown rapidly since it pioneered the low
fares operating model in Europe in the early 1990s. See "Item 5. Operating and
Financial Review and Prospects--History." During fiscal year 2006, Ryanair
announced 159 new routes and extended its operations to three new countries,
adding destinations in Slovakia, Morocco and Croatia. Ryanair intends to
continue to expand its fleet and add new destinations and additional flights to
its schedule, which are expected to increase Ryanair's scheduled passenger
volumes in fiscal year 2007 to approximately 42 million passengers, an increase
of approximately 20% over fiscal year 2006 levels of nearly 35 million
passengers, although no assurance can be given that these targets will in fact
be met. If growth in passenger traffic and Ryanair's revenues do not keep pace
with the planned expansion of its fleet, Ryanair could suffer from overcapacity
and its results of operations and financial condition (including its ability to
fund scheduled aircraft purchases and related debt) could be materially
adversely affected. Ryanair has also entered into significant derivative
transactions intended to hedge its current aircraft acquisition-related debt
obligations. These derivative transactions expose Ryanair to certain risks that
could have an adverse effect on its results of operations and financial
condition. See "Item 11. Quantitative and Qualitative Disclosures About Market
Risk."
The expansion of Ryanair's fleet and operations, in addition to other
factors, may also strain existing management resources and related operational,
financial, management information and information technology systems, including
its internet-based reservation system, to the point that they may no longer be
adequate to support Ryanair's operations. This would require Ryanair to make
significant additional expenditures. This expansion will also require additional
skilled personnel, equipment facilities and systems. An inability to hire
skilled personnel or to secure the required equipment and facilities efficiently
and in a cost-effective manner may adversely affect Ryanair's ability to achieve
growth plans and sustain or increase its profitability.
Ryanair's New Routes and Expanded Operations May Have an Adverse Financial
Impact on Its Results
Currently, a substantial number of low fares carriers operate
routes that compete with the Company's, and Ryanair expects to face further
intense competition. See "Item 4. Information on the Company - Industry
Overview--European Market."
11
When Ryanair commences new routes, its load factors initially
tend to be lower than those on its established routes and its advertising and
other promotional costs tend to be higher, which may result in initial losses
that could have a material negative impact on the Company's results of
operations as well as require a substantial amount of cash to fund. In addition,
there can be no assurance that Ryanair's low fares service will be accepted on
new routes. Ryanair also periodically runs special promotional fare campaigns,
in particular in connection with the opening of new routes. Promotional fares
may have the effect of increasing load factors and reducing Ryanair's yield and
passenger revenues on such routes during the period that they are in effect. See
"Item 4. Information on the Company - Route System, Scheduling and Fares."
Ryanair expects to have other substantial cash needs as it expands, including
cash required to fund aircraft purchases or aircraft deposits related to the
acquisition of additional 737-800s. There can be no assurance that the Company
will have sufficient cash to fund such projects, and to the extent Ryanair may
be unable to expand its route system successfully, its future revenue and
earnings growth would in turn be limited.
Ryanair's Continued Growth Is Dependent on Access to Suitable Airports; Charges
for Airport Access Are Subject to Increase
Airline traffic at certain European airports is regulated by a
system of "grandfather" rights in relation to "slot" allocations. Each slot
represents authorization to take-off and land at the particular airport during a
specified time period. Although the majority of Ryanair's bases of operations
currently have no slot allocations, traffic at 26 of the airports Ryanair
serves, including its bases at London (Stansted), Milan (Bergamo), Barcelona
(Girona) and Rome (Ciampino), is currently regulated through slot allocations.
In addition, the Irish Commission for Aviation Regulation had imposed full slot
coordination at Dublin airport, effective March 2006. Ryanair challenged this
decision in the Irish High Court and the decision was subsequently overturned.
However, there is no guarantee that full slot coordination will not be reimposed
at Dublin Airport in the future. Applicable EU regulations currently prohibit
the buying or selling of slots for cash, and there is no assurance that Ryanair
will be able to obtain a sufficient number of slots at slot-controlled airports
that it may wish to serve in the future at the time it needs them or on
acceptable terms. There can also be no assurance that its non-slot bases or the
other airports Ryanair serves will continue to operate without slot allocations
in the future. See "Item 4. Information on the Company - Government
Regulation - Slots."
Airports may impose other operating restrictions such as curfews,
limits on aircraft noise levels, mandatory flight paths, runway restrictions and
limits on number of average daily departures. Such restrictions may limit the
ability of Ryanair to provide service to or increase service at such airports.
Ryanair's future growth is also materially dependent on its ability
to access suitable airports located in its targeted geographic markets at costs
that are consistent with Ryanair's low fares strategy. Any condition that
denies, limits or delays Ryanair's access to airports it serves or seeks to
serve in the future would constrain Ryanair's ability to grow. A change in the
terms of Ryanair's access to these facilities or any increase in the relevant
charges paid by Ryanair as a result of the expiration or termination of such
arrangements and Ryanair's failure to renegotiate comparable terms or rates
could have a material adverse effect on the Company's financial condition and
results of operations. For example, in March 2006, Ryanair announced a reduction
in services at Cork Airport following an announcement by the airport that it was
increasing various airport charges, in some cases by as much as 300%. These
price increases were the result of debts incurred in the airport's development
of certain facilities, to which Ryanair had strongly objected in light of their
significant cost. In addition, July 2006, Ryanair announced that it was reducing
services to Sweden as a result of the Swedish government's introduction of a
substantial environmental tax. See "Item 4. Information on the Company - Airport
Operations - Airport Charges." See also "The Company Is Subject to Legal
Proceedings Alleging Unlawful State Aid at Certain Airports."
12
Labor Relations Could Expose the Company to Risk
A variety of factors, including, but not limited to, the Company's
recent profitability, may make it more difficult to maintain its current base
salary levels and current employee productivity and compensation arrangements.
Consequently, there can be no assurance that Ryanair's existing employee
compensation arrangements may not be subject to change or modification at any
time.
In line with Ryanair's fleet replacement program, the Company
completed the retirement of all of its Boeing 737-200A aircraft based in Dublin
from the fleet in December 2005 and replaced them with Boeing 737-800 aircraft.
As a result of the retirement of the Boeing 737-200A aircraft, Ryanair has
required its pilots who lack the necessary training to undergo a conversion
training process to enable them to fly the new Boeing 737-800 aircraft. Starting
in the fall of 2004, Ryanair made a number of written offers to its Dublin-based
pilots to enable them to participate in a re-training process in order to obtain
the correct type rating for flying the Boeing 737-800 aircraft. After rejecting
a series of offers, all of these pilots have now been trained on the Boeing
737-800 aircraft, either by paying in advance the EUR15,000 cost of the
conversion training, or by executing a five-year bond, under which the training
is provided free of charge unless the pilots do not maintain their employment
with Ryanair for a period of at least five years, in which case they are
obligated to reimburse Ryanair for the training costs. However, some of these
pilots are at the same time challenging the terms of these bonds before the
Irish Labour Relations Commission and the Irish Labour Court. The Labour Court
proceedings are currently being challenged by Ryanair on jurisdictional grounds.
In separate proceedings, 64 of these pilots (only 39 of whom remain in the
Company's employment) have also initiated proceedings before the Irish High
Court, claiming that the terms of the bond infringed their freedom of
association rights and their right to allow trade unions to negotiate on their
behalf.
While Ryanair believes these court proceedings to be without merit
and is contesting the pilots' claims, Ryanair could face potential sanctions in
an amount up to a maximum of twice the annual salary of the pilots involved if
the Labour Relations Commission ruled in favor of the pilots. With respect to
the Irish High Court proceedings, Ryanair estimates that damages up to a total
of EUR100,000 could be awarded to each pilot. The pilots involved in these
proceedings and currently employed by Ryanair represent 3.5% of the total
Ryanair pilot workforce. There can be no assurance that the Company will be
successful in defending against these claims.
In separate proceedings, Ryanair is currently appealing to the
Irish Supreme Court a ruling of the Labour Court related to the application of
the terms of the 2001/2004 Industrial Relations legislation to the collective
bargaining structures for our Dublin pilots. A decision is expected in October
2006. A Supreme Court ruling in favor of the pilots could result in the Labour
Court's ultimately deciding on compensation and working conditions for Ryanair
pilots.
Ryanair currently negotiates with groups of employees,
including its pilots, through "Employee Representation Committees," regarding
pay, work practices and conditions of employment, including conducting formal
binding negotiations with these internally elected collective bargaining units.
Ryanair considers its relationship with its employees to be good, although the
Company has once in the past (in 1999) experienced work stoppages by a small
group of its employees. In addition, in the United Kingdom, the British
Airline Pilots Association ("BALPA") in 2001 unsuccessfully sought to represent
Ryanair's U.K. based pilots in their negotiations with the Company. However,
BALPA can request that a new ballot on representation be undertaken among
Ryanair's U.K. pilot body, which if successful would allow the U.K. pilots to
be represented by BALPA in negotiations over pilot salaries and working
conditions. For additional details, see "Item 6. Directors, Senior Management
and Employees - Employees and Labor Relations."
If any future occurrence of such events were to alter Ryanair's
historical experience of flexibility in dealing with employees or were to alter
the public's perception of Ryanair generally, it could have a material adverse
effect on the Company's business, operating results and financial condition.
13
The Company Is Dependent on Third Party Service Providers
Ryanair currently contracts its heavy airframe maintenance
overhauls, engine overhauls and "rotable" repairs to outside contractors
approved under the terms of Part 145, the European airline industry standard for
maintenance. The Company also contracts its passenger and aircraft handling and
ground handling services at airports other than Dublin and those served by
Ryanair in Spain to established third party providers. See "Item 4. Information
on the Company - Maintenance and Repairs - Heavy Maintenance" and "Item 4.
Information on the Company - Airport Operations--Airport Handling Services."
The loss or expiration of any of Ryanair's third party service
contracts or any inability to renew them or negotiate replacement contracts with
other service providers at comparable rates could have a material adverse effect
on the Company's results of operations. Ryanair will need to enter into airport
services agreements in any new markets it enters, and there can be no assurance
that it will be able to obtain the necessary facilities and services at
competitive rates in new markets. In addition, although Ryanair seeks to monitor
the performance of third parties that provide passenger and aircraft handling
services, the efficiency, timeliness and quality of contract performance by
third party providers are largely beyond Ryanair's direct control. Ryanair
expects to be dependent on such third party arrangements for the foreseeable
future.
The Company Is Dependent on Key Personnel
The Company's success depends to a significant extent upon the
efforts and abilities of its senior management team, including Michael O'Leary,
the Chief Executive of Ryanair, and key financial, commercial, operating and
maintenance personnel. Mr. O'Leary's current contract may be terminated by
either party upon 12 months' notice. See "Item 6. Directors, Senior Management
and Employees - Compensation of Directors and Senior Management - Employment
Agreements." The Company's success also depends on the ability of its executive
officers and other members of senior management to operate and manage
effectively both independently and as a group. Although the Company's employment
agreements with Mr. O'Leary and its other senior executives contain
non-competition and non-disclosure provisions, there can be no assurance that
these provisions will be enforceable in whole or in part. Competition for highly
qualified personnel is intense, and the loss of any executive officer, senior
manager or other key employee without adequate replacement or the inability to
attract new qualified personnel could have a material adverse effect upon the
Company's business, operating results and financial condition.
14
The Company Faces Risks Related to Its Internet Reservations Operations
As of September 1, 2006, in excess of 98% of Ryanair's daily flight
reservations were made through its website. Although the Company has established
a contingency program whereby the website is hosted in three separate locations,
each of these locations accesses the same booking engine, located at the single
center, in order to make reservations.
Ryanair has installed a stand-alone booking engine to support its existing
platform in the event of a breakdown in this facility. However, there can be no
assurance that Ryanair would not suffer a significant loss of reservations in
the event of a major breakdown of these systems, which in turn could have a
material adverse affect on the Company's operating results or financial
condition.
In addition, in March 2006, Ryanair also commenced its Check'N'Go web-based
check-in service, giving passengers with an EU passport traveling with hand
luggage only the opportunity to check-in online across its entire route network,
as part of a package of measures intended to improve service by reducing air
fares and check-in and boarding gate lines. See "Item 4. Information on the
Company-Reservations/Ryanair.Com." The Company has rolled this new system out
across its network, although passengers departing from Italy to the U.K. cannot
make use of the system because of a general prohibition by the Italian aviation
authority on such facilities for carriers flying to the U.K. Any disruptions to
the web check-in service as a result of a breakdown in the relevant computer
systems or otherwise could have a material adverse impact on these service
improvement efforts and make passengers less likely to use these services, and,
as a result, negatively affect the Company's operating results.
Risks Related to the Airline Industry
EU Regulation on Passenger Compensation Could Significantly Increase Related
Costs
The EU has passed legislation for compensating airline passengers who have
been denied boarding on a flight for which they hold a valid ticket (Regulation
(EC) No. 261/2004), which came into force on February 17, 2005. This legislation
also imposes fixed levels of compensation to passengers for cancelled flights,
except where the airline can prove that such cancellation is caused by
extraordinary circumstances, such as weather, air-traffic control delays or
safety issues. The regulation calls for compensation of either EUR250, EUR400 or
EUR600 per passenger, depending on the length of the flight. As Ryanair's
average flight length is less than 1,500 km and therefore considered a
short-haul flight, the amount payable would therefore generally be EUR250 per
passenger, per occurrence. Passengers subject to long delays (in excess of two
hours for short haul flights) would also be entitled to "assistance" including
meals, drinks and telephone calls, as well as hotel accommodation if the delay
extends overnight. For delays of over five hours, the airline would be required
to reimburse the cost of the ticket or provide re-routing to the passenger's
final destination.
Implementation of the Montreal Convention for Lost, Damaged or Delayed Luggage
Could Also Increase Costs
The Montreal Convention on the Unification of Certain Rules for
International Air Carriage was adopted in Montreal in May 1999. The Convention
consolidated, updated and has replaced all previous agreements on air carrier
liability, including the 1929 Warsaw Convention. The Convention came into force
for all EU countries on June 28, 2004. Passengers can now claim up to 1,000
Special Drawing Rights (SDRs) (currently approximately EUR1,167) for lost,
damaged or delayed luggage. Passengers submitting baggage claims will have to
provide evidence to back up these claims. This compares to the previous
weight-based compensation system under the 1929 Warsaw Convention, which limited
liability for lost, damaged or delayed luggage to 17 SDRs (currently
approximately EUR20) per kilo of checked hold baggage.
15
Although Ryanair has a record for losing fewer bags in comparison to many
other major European carriers, and the Convention's coming into force has had no
material impact on the Company to date, there can be no assurance that the
Company will not incur a significant increase in costs in connection with lost
baggage, which could have an adverse effect on the Company's operating costs and
in turn reduce its profitability.
The Company Is Dependent on the Continued Acceptance of Low fares Airlines
In past years, accidents or other safety-related incidents involving
certain low fares airlines have had a negative impact on the public's acceptance
of those airlines. Any adverse event potentially relating to the safety or
reliability of low fares airlines (including accidents or negative reports from
regulatory authorities) could adversely impact the public's perception of, and
confidence in, airlines like Ryanair and could have a material adverse effect on
the Company's financial condition and results of operations.
The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on
the International Airline Industry
The terrorist attacks on the United States on September-11, 2001, in which
four commercial aircraft were hijacked, had a severe negative impact on the
international airline industry, particularly on U.S. carriers and carriers
operating international service to and from the U.S. Although carriers such as
Ryanair that operate exclusively in Europe have generally been spared from such
material adverse impacts on their businesses to date, the cost to all commercial
airlines of insurance coverage for certain third party liabilities arising from
"acts of war" or terrorism has increased dramatically since these attacks. See
"Item 4. Information on the Company-Insurance." In addition, Ryanair's insurers
have indicated that the scope of the Company's current act of war-related
insurance may exclude certain types of catastrophic incidents, such as
biological, chemical or "dirty bomb" attacks. This could result in the Company's
seeking alternative coverage, including government insurance or self insurance,
which could lead to further increases in costs. Although Ryanair to date has
passed on the increased insurance costs to passengers by means of a special
"insurance levy" on each ticket, there can be no assurance that it will continue
to be successful in doing so. In response to the dramatic drop in revenue and
expected increases in costs, airlines in the U.S. and certain European carriers
with significant U.S. operations have sought, and in certain cases, already
received, governmental assistance in the form of financial aid, although Ryanair
has not sought or received any such aid. Ryanair does not fly to the U.S., and
although it experienced a decline of approximately 10% in reservations in the
week following the 9/11 terrorist attacks, the number of flight bookings had
returned to normal levels by the end of September 2001.
Because a substantial portion of airline travel (both business and
personal) is discretionary and because Ryanair is substantially dependent on
discretionary air travel, any prolonged general reduction in airline passenger
traffic may adversely affect the Company. Similarly, any significant increase in
expenses related to security, insurance or related costs could have a material
adverse effect on the Company. Any further terrorist attacks in the U.S. or in
Europe, particularly in London or other markets that are significant to Ryanair,
any significant new military actions by the U.S. and any allies (such as the war
in Iraq) or any related economic downturn would be likely to have a material
adverse effect on demand for air travel and thus on Ryanair's business,
operating results and financial condition. See also "-Risks Related to the
Company-Further Terrorist Attacks in London and Other Destinations Could Have a
Detrimental Effect on the Company."
16
The Company Faces the Risk of Loss and Liability
Ryanair is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident or terrorist incident. Any such accident or
incident could involve not only repair or replacement of a damaged aircraft and
its consequent temporary or permanent loss from service, but also significant
potential claims of injured passengers and others. Ryanair currently maintains
passenger liability insurance, employer liability insurance, aircraft insurance
for aircraft loss or damage, insurance for pilots' loss of license and other
business insurance in amounts per occurrence that are consistent with industry
standards. Although Ryanair currently believes its insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not
need to be increased, that insurance premiums will not increase significantly or
that Ryanair will not be forced to bear substantial losses from any accidents.
Airline insurance costs increased dramatically following the September-2001
terrorist attacks on the United States. See "-The 2001 Terrorist Attacks on the
United States Had a Severe Negative Impact on the International Airline
Industry" above. Substantial claims resulting from an accident in excess of
related insurance coverage could have a material adverse effect on the Company's
results of operations and financial condition. Moreover, any aircraft accident,
even if fully insured, could cause a public perception that Ryanair's aircraft
are less safe or reliable than those operated by other airlines, which could
have a material adverse effect on Ryanair's business.
EU Regulation No. 2027/97, as amended by Regulation No. 889/2002, governs
air carrier liability. See "Item 4. Information on the Company-Insurance" for
details on this legislation. This legislation increased the potential exposure
of air carriers, such as Ryanair, and although Ryanair has extended its
liability insurance accordingly to meet the requirements of the legislation, no
assurance can be given that other laws, regulations or policies will not be
applied, modified or amended in a manner that has a material adverse effect on
the Company's financial condition or results of operations.
Airline Industry Margins Are Subject to Significant Uncertainty
The airline industry is characterized by high fixed costs and revenues that
generally exhibit substantially greater elasticity than costs. The operating
costs of each flight do not vary significantly with the number of passengers
flown and, therefore, a relatively small change in the number of passengers or
in fare pricing or traffic mix could have a disproportionate effect on operating
and financial results. Accordingly, a relatively minor shortfall from expected
revenue levels could have a material adverse effect on the Company's growth or
financial performance. See "Item 5. Operating and Financial Review and
Prospects." The very low marginal costs incurred for providing services to
passengers occupying otherwise unsold seats are also a factor in the industry's
high susceptibility to price discounting. See "-The Company Faces Significant
Price and Other Pressures in a Highly Competitive Environment" above.
Safety-Related Undertakings Could Affect the Company's Results
Aviation authorities in Europe and the United States periodically require
or suggest that airlines implement certain safety-related procedures on their
aircraft. In recent years, the U.S. Federal Aviation Administration (the "FAA")
has required a number of such procedures with regard to Boeing 737 aircraft,
including checks of rear pressure bulkheads and flight control modules, redesign
of the rudder control system and limitations on certain operating procedures.
Ryanair's policy is to implement any such required procedures in accordance with
FAA guidance, and to perform such procedures in close collaboration with Boeing.
To date, all such procedures have been conducted as part of Ryanair's standard
maintenance program and have not interrupted flight schedules or required any
material increases in Ryanair's maintenance expenses. However, there can be no
assurance that the FAA or other regulatory authorities will not recommend or
require other safety-related undertakings or that such undertakings would not
adversely impact the Company's results of operations or financial condition.
17
There also can be no assurance that new regulations will not be implemented
in the future that would apply to Ryanair's aircraft and result in an increase
in Ryanair's cost of maintenance or other costs beyond management's current
estimates. In addition, should Ryanair's aircraft cease to be sufficiently
reliable or should any public perception develop that Ryanair's aircraft are
less than completely reliable, the Company's business could be materially
adversely affected.
Currency Fluctuations Affect the Company's Results
Although the Company is headquartered in Ireland, a significant portion of
its operations is conducted in the U.K. Consequently, the Company has operating
revenues and operating expenses, as well as assets and liabilities, denominated
in currencies other than the euro; for example, fuel, aircraft, insurance and
some maintenance obligations are denominated in U.S. dollars, and U.K.-related
revenues and expenses are denominated in U.K. pounds sterling. The Company's
results of operations and financial condition can therefore be significantly
affected by fluctuations in the respective values of those currencies. Ryanair's
operations are also subject to significant direct exchange rate risks between
the euro and the U.S. dollar because of the significant portion of its operating
costs incurred in U.S. dollars, as none of its revenues are denominated in U.S.
dollars. Although the Company engages in foreign currency hedging transactions
between the euro and the U.S. dollar, between the euro and sterling, and between
sterling and the U.S. dollar, hedging activities cannot be expected to eliminate
currency risks. See "Item-11. Quantitative and Qualitative Discussion About
Market Risk."
Risks Related to Ownership of Ryanair's Ordinary Shares or ADSs
EU Rules Impose Restrictions on the Ownership of Ryanair Holdings' Ordinary
Shares by Non-EU Nationals, and the Company has Instituted a Ban on the Purchase
of Ordinary Shares by Non-EU Nationals
EU Regulation No. 2407/92 requires that, in order to obtain and retain an
operating license, an EU air carrier must be majority owned and effectively
controlled by EU nationals. The regulation does not specify what level of share
ownership will confer effective control on a holder or holders of shares. The
Board of Directors of Ryanair Holdings are given certain powers under Ryanair
Holdings' Articles of Association (the "Articles") to take action to ensure that
the amount of shares held in Ryanair Holdings by non-EU nationals ("Affected
Shares") does not reach a level which could jeopardize the Company's entitlement
to continue to hold or enjoy the benefit of any license, permit, consent or
privilege which it holds or enjoys and which enables it to carry on business as
an air carrier. The directors will, from time to time, set a "Permitted Maximum"
on the number of the Company's Ordinary Shares that may be owned by non-EU
nationals at such level as they believe will comply with EU law. The Permitted
Maximum is currently set at 49.9%. In addition, under certain circumstances, the
directors can take action to safeguard the Company's ability to operate that
include identifying those shares, American Depositary Shares ("ADSs") or
Affected Shares which give rise to the need to take action and treat such
shares, ADSs, or Affected Shares as "Restricted Shares." The Board of Directors
may, under certain circumstance, deprive holders of Restricted Shares of their
rights to attend, vote and speak at general meetings, and/or require such
holders to dispose of their Restricted Shares to an EU national within as little
as 21 days. The directors are also given the power to transfer such shares
themselves if the holder fails to comply. The Company in 2002 also implemented
measures to restrict the ability of non-EU nationals to purchase Ordinary
Shares, and non-EU nationals are currently effectively barred from purchasing
Ordinary Shares, and will remain so for as long as these restrictions remain in
place. There can be no assurance that these restrictions will ever be lifted.
See "Item 10. Additional Information-Limitations on Share Ownership by Non-EU
Nationals" for a detailed discussion of the restrictions on share ownership and
the current ban on share purchases by non-EU nationals.
As of June-30, 2006, EU nationals owned at least 54.0% of Ryanair Holdings'
Ordinary Shares (assuming conversion of all outstanding ADSs into Ordinary
Shares).
18
Holders of Ordinary Shares are Currently Unable to Convert those Shares into
American Depository Shares
In an effort to increase the percentage of its share capital held by EU
nationals, on June 26, 2001, Ryanair Holdings instructed The Bank of New York,
the depositary for its ADS program, to suspend the issuance of new ADSs in
exchange for the deposit of Ordinary Shares until further notice to its
shareholders. Holders of Ordinary Shares cannot convert their Ordinary Shares
into ADSs during this suspension, and there can be no assurance that the
suspension will ever be lifted. See also "-EU Rules Impose Restrictions on the
Ownership of Ryanair Holdings' Ordinary Shares by Non-EU nationals and the
Company has Instituted a Ban on the Purchase of Ordinary Shares by Non-EU
Nationals" above.
The Company's Results of Operations Can Fluctuate Significantly
The Company's results of operations have varied significantly from quarter
to quarter, and management expects these variations to continue. See "Item 5.
Operating and Financial Review and Prospects-Quarterly Fluctuations." Among the
factors causing these variations are the airline industry's sensitivity to
general economic conditions and the seasonal nature of air travel. Because a
substantial portion of airline travel (both business and personal) is
discretionary, the industry tends to experience adverse financial results during
general economic downturns. The Company is substantially dependent on
discretionary air travel.
The trading price of Ryanair Holdings' Ordinary Shares and ADSs may be
subject to wide fluctuations in response to quarterly variations in the
Company's operating results and operating results of other airlines. In
addition, the global stock markets from time to time experience extreme price
and volume fluctuations that affect the market prices of many airline company
stocks. These broad market fluctuations may adversely affect the market price of
the Ordinary Shares and ADSs.
Ryanair Holdings Does Not Intend to Pay Dividends
Since its organization as the holding company for Ryanair in 1996, Ryanair
Holdings has not declared or paid dividends on its Ordinary Shares, and does not
anticipate paying any cash or share dividends on its Ordinary Shares in the
foreseeable future, although at the annual general meeting of the shareholders
held on September 21, 2006, the Board of Directors of Ryanair received
shareholder approval for a share buy-back plan allowing a maximum repurchase of
38,585,934 Ordinary Shares, representing 5% of the Company's currently
outstanding share capital. See "Item 8. Financial Information-Other Financial
Information-Dividend Policy." As a holding company, Ryanair Holdings does not
have any material assets other than interests in the shares of Ryanair.
Item 4. Information on the Company
INTRODUCTION
The Company operates a low fares scheduled passenger airline serving
short-haul, point-to-point routes between Ireland, the U.K. and Continental
Europe. In operation since 1985, the Company began to introduce a low fares
operating model under a new management team in the early 1990s. See "Item 5.
Operating and Financial Review and Prospects--History." At September 15, 2006,
with its operating fleet of 107 new Boeing 737-800 "next generation" aircraft,
the Company offered more than 750 scheduled short-haul flights per day serving
115 locations throughout Europe, including 24 in the U.K. and Ireland. See
"--Route System, Scheduling and Fares--Route System and Scheduling" for more
details of Ryanair's route network.
Offering widely-available low fares, Ryanair carried more than 30.9 million
passengers during calendar year 2005. On the basis of the U.K. Airports Annual
Statement of Movements, Passengers and Cargo (the "CAA Statistics") published by
the CAA in calendar year 2005, Ryanair had the leading market share (in terms of
passenger volume) on most of its scheduled routes between Ireland and provincial
cities in the U.K. and carried approximately 45% of all scheduled passenger
traffic between Dublin and London, a share favorably comparable to the 33% share
of Aer Lingus plc ("Aer Lingus"), its primary competitor on its U.K./Ireland
routes. According to the CAA Statistics, Ryanair has also achieved competitive
market share results on the routes it launched from the U.K. to continental
Europe from the dates it began service on these routes.
19
By generating an average scheduled flown passenger load factor of
approximately 77% and average scheduled passenger yield of EUR0.058 per
available seat mile ("ASM") and focusing on maintaining low operating costs
(EUR0.052 per ASM), Ryanair achieved a net margin of 17.8% on operating revenues
of EUR1,692.5 million for the fiscal year ended March 31, 2006. See "Item-5.
Operating and Financial Review and Prospects" and the Glossary in Appendix A.
The market's acceptance of Ryanair's low fares service is reflected in the
"Ryanair Effect" - Ryanair's history of stimulating significant growth in annual
passenger traffic on the new routes it has entered since 1991. On the basis of
the CAA Statistics and statistics released by the International Civil Aviation
Organization (the "ICAO"), the number of scheduled airline passengers traveling
between Dublin and London increased from approximately 1.7 million passengers in
1991 to approximately 4.35 million passengers in 2005. Most international routes
Ryanair has entered since 1991 have recorded significant traffic growth in the
period following Ryanair's commencement of service, with Ryanair capturing the
largest portion of such growth on each such route. Although a variety of factors
contributed to this increase in air passenger traffic, including the relative
strength of the Irish, U.K. and European economies, management believes that the
most significant factor driving such growth across all its European routes has
been Ryanair's low fares policy and its delivery of better on-time flight
punctuality, lower levels of lost bags and fewer cancellations when compared to
its competitors.
Ryanair Holdings' registered office is located c/o Ryanair Limited,
Corporate Head Office, Dublin Airport, County Dublin, Ireland. The general
telephone number is +353-1-812-1212. Under its current Articles of Association,
Ryanair Holdings has an unlimited corporate duration.
STRATEGY
Ryanair's objective is to firmly establish itself as Europe's leading
scheduled passenger airline through continued improvements and expanded
offerings of its low fares service. Ryanair aims to offer low fares that
generate increased passenger traffic while maintaining a continuous focus on
cost-containment and operating efficiencies. The key elements of Ryanair's
strategy are:
Low Fares. Ryanair's low fares are designed to stimulate demand,
particularly from fare-conscious leisure and business travelers who might
otherwise have used alternative forms of transportation or would not have
traveled at all. Ryanair sells seats on a one-way basis, thus eliminating
minimum stay requirements from all travel on Ryanair scheduled services,
regardless of fare. Ryanair sets fares on the basis of the demand for particular
flights and by reference to the period remaining to the date of departure of the
flight, with higher fares charged on flights with higher levels of demand for
bookings made nearer to the date of departure. Ryanair also periodically runs
special promotional fare campaigns. See "-Route System, Scheduling and Fares-Low
and Widely Available Fares" below.
Customer Service. Ryanair's strategy is to deliver the best customer
service performance in its peer group. According to reports by the Association
of European Airlines and the airlines' own published statistics, Ryanair has
achieved better punctuality, fewer lost bags and fewer cancellations than all of
the rest of its peer grouping in Europe. Ryanair achieves this by focusing
strongly on the execution of these services and by operating from uncongested
airports.
20
Point-to-Point Flights on Short-Haul Routes. Ryanair provides
point-to-point service on short-haul routes to secondary and regional airports
in and around major population centers and travel destinations. In the
fiscal year ended March 31, 2006, Ryanair flew an average of approximately 1.27
round-trips per route per day with an average route length of 585 miles and an
average flight duration of approximately 1.43 hours. Short-haul routes allow
Ryanair to offer frequent service, while eliminating the necessity to provide
"frill" services otherwise expected by customers on longer flights.
Point-to-point flying (as opposed to hub-and-spoke service) allows Ryanair to
offer direct, non-stop routes and avoid the costs of providing through service
for connecting passengers, including baggage transfer and transit passenger
assistance costs.
In choosing its routes, Ryanair favors secondary airports with convenient
transportation to major population centers and regional airports. Secondary and
regional airports are generally less congested than major airports and, as a
result, can be expected to provide higher rates of on-time departures, faster
turnaround times (the time an aircraft spends at a gate loading and unloading
passengers), fewer terminal delays and more competitive airport access and
handling costs. Ryanair's "on time" performance record (arrivals within 15
minutes of schedule) for calendar year 2005 was 81%, exceeding that of its
principal competitors, including Air France (74%), easyJet (73%), and British
Airways (67%), according to CAA statistics. Faster turnaround times are a key
element in Ryanair's efforts to maximize aircraft utilization. Ryanair's average
scheduled turnaround time for the fiscal year ended March 31, 2006 was
approximately 25 minutes. Secondary and regional airports also generally do not
maintain slot requirements or other operating restrictions that can increase
operating expenses and limit the number of allowed take-offs and landings.
Low Operating Costs. Management believes that Ryanair's operating costs are
among the lowest of any European scheduled passenger airline. Ryanair strives to
reduce or control four of the primary expenses involved in running a major
scheduled airline: (i)-aircraft equipment costs; (ii)-personnel productivity;
(iii)-customer service costs; and (iv)-airport access and handling costs:
Aircraft Equipment Costs. Ryanair's primary strategy for controlling
aircraft acquisition costs is to narrow its fleet of aircraft to a
single type. In March 1998, Ryanair announced that it would start
purchasing new Boeing 737-800 "next generation" aircraft, the latest
generation of Boeing's 737 aircraft. Ryanair completed the retirement
of its Boeing 737-200As in December 2005 and currently operates a
single fleet type of "next generation" Boeing 737-800s. Although
Ryanair's acquisition of the 737-800s has already and will continue to
significantly increase the size of its fleet and thus significantly
increase its aircraft equipment and related costs (both on an
aggregate and per aircraft basis), the purchase of aircraft from a
single manufacturer enables it to limit the costs associated with
personnel training, maintenance and the purchase and storage of spare
parts, as well as affording greater flexibility in the scheduling of
crews and equipment. Management also believes that the terms of its
Boeing contracts are very favorable to Ryanair. See "--Aircraft" below
for additional information on Ryanair's fleet.
Personnel Productivity. Ryanair endeavors to control its labor costs by
seeking to continually improve the productivity of its already
highly-productive work force. Compensation for employees emphasizes
productivity-based pay incentives, including commissions for on-board
sales of products for flight attendants and payments based on the
number of hours or sectors flown by pilots and cabin crew personnel
within limits set by industry standards or regulations fixing maximum
working hours, as well as participation in Ryanair's stock option
programs.
Customer Service Costs. Ryanair has entered into agreements on competitive
terms with third-party contractors at certain airports for passenger
and aircraft handling, ticketing and other services that management
believes can be more cost efficiently provided by third parties.
Management attempts to obtain competitive rates for such services by
negotiating fixed-price multi-year contracts. The development of its
own internet booking facility and reservations center has allowed
Ryanair to eliminate travel agent commissions. Ryanair generates
virtually all of its scheduled passenger revenues through direct sales
over its website and direct telephone reservations.
21
Airport Access and Handling Costs. Ryanair attempts to control airport
access and service charges by focusing on airports that offer
competitive cost terms. Management believes that Ryanair's record of
delivering a consistently high volume of passenger traffic growth at
many of these airports has allowed it to negotiate favorable contracts
with such airports for access to their facilities. Ryanair further
endeavors to reduce its airport charges by opting, when practicable,
for less expensive gate locations as well as outdoor boarding stairs
rather than more expensive jetways.
Taking Advantage of the Internet. In 2000, Ryanair converted its host
reservation system to a new system called Flightspeed, which it operates under a
10-year hosting agreement with Accenture Open Skies ("Open Skies"). As part of
the implementation of the new reservation system, Open Skies developed an
internet booking facility called Skylights. The Skylights system allows internet
users to access Ryanair's host reservation system and to make and pay for
confirmed reservations in real time through Ryanair's Ryanair.com website. Since
the launch of the Skylights system, Ryanair has heavily promoted its website
through newspaper, radio and television advertising. As a result, internet
bookings have grown rapidly, accounting for in excess of 99% of all reservations
on a daily basis as of September 2006. In addition, in March 2006, Ryanair also
commenced its Check'N'Go web-based check-in service, giving passengers with an
EU passport traveling with hand luggage only the opportunity to check-in online
across most of its route network.
Commitment to Safety and Quality Maintenance. Ryanair's commitment to
safety is the primary priority of the Company and its management. This
commitment begins with the hiring and training of Ryanair's pilots, cabin crews
and maintenance personnel and includes a policy of maintaining its aircraft in
accordance with the highest European airline industry standards. Ryanair has not
had a single incident involving major injury to passengers or flight crew in its
21-year operating history. Although Ryanair seeks to maintain its fleet in a
cost-effective manner, management does not seek to extend Ryanair's low cost
operating strategy to the areas of safety, maintenance, training or quality
assurance. Routine aircraft maintenance and repair services are performed at
Dublin, London (Stansted), Glasgow (Prestwick), Barcelona (Girona), East
Midlands Nottingham, Luton, Shannon and Cork by Ryanair and, at other airports,
by maintenance contractors approved under the terms of Part 145, the European
airline industry standard for maintenance. Ryanair currently contracts heavy
airframe maintenance, engine overhaul services and rotable repairs to
contractors. These contractors also provide similar services to a number of
other airlines, including British Airways and Aer Lingus. Ryanair assigns a Part
145 certified mechanic to oversee heavy maintenance and authorize engine
overhauls performed by third parties.
Enhancement of Operating Results through Ancillary Services. Ryanair
provides various ancillary services and engages in other activities connected
with its core air passenger service, including non-flight scheduled services,
the in-flight sale of beverages, food and merchandise and internet-related
services. As part of its non-flight scheduled and internet-related services,
Ryanair distributes accommodation services and travel insurance as well as car
rentals principally through its website. Management believes that providing
these services through the internet allows Ryanair to increase sales, while at
the same time reducing costs on a per unit basis.
For the fiscal year ended March 31, 2006, ancillary services accounted for
15.3% of Ryanair's total operating revenues, as compared to 14.5% of such
revenues in the fiscal year ended March 31, 2005. See "-Ancillary Services"
below and "Item 5. Operating and Financial Review and Prospects-Results of
Operations-Fiscal Year 2006 Compared with Fiscal Year 2005-Ancillary Revenues"
for additional information.
22
Focused Criteria for Growth. Building on its success in the Ireland-U.K.
market and its expansion of service to continental Europe, Ryanair intends to
follow a manageable growth plan targeting specific markets. Ryanair believes it
will have opportunities for continued growth by: (i)-initiating additional
routes in the EU and in countries party to a European Common Aviation Agreement
with the EU that are currently served by higher-cost, higher-fare carriers;
(ii)-increasing the frequency of service on its existing routes; (iii)-starting
new domestic routes within EU countries; (iv)-considering possible acquisitions
that may become available in the future; (v)-connecting airports within its
existing route network ("triangulation"); (vi)-establishing more new bases in
continental Europe; and (vii) initiating new routes not currently served by any
carrier.
INDUSTRY OVERVIEW
European Airline Market
The Western European air transport market has historically been subject to
significant governmental regulation, encompassing both domestic regulations
imposed by individual countries and rules-enacted by the EU that apply
throughout its territory. The EU commenced a program to reduce the level of
regulation during the 1980s, followed by a package of liberalization measures
substantially reducing the ability of individual EU-Member States to restrict
access to routes for air travel that were originally adopted in 1992. Since
April-1997, EU-carriers have been able to provide passenger service on domestic
routes within individual EU-Member States outside their home country of
operation without restriction.
Partially as a result of this progressive movement towards deregulation,
there has been a significant increase in the number of airlines providing
scheduled passenger service in the EU over the course of the past decade. The
prospects for additional market liberalization measures provided further impetus
for new entrants, including the conversion of some charter airlines into
operators of both scheduled and charter flights. Management expects that other
new carriers may be formed to capitalize on these opportunities. Notwithstanding
the overall increase in the number of carriers, a large majority of the new
entrants are quite small, although this may change, and the overall market has
been volatile, with several of the new entrants ceasing operations. Among the
major causes of their failure were the competitive responses from major airlines
and other low cost carriers (including Ryanair) serving the same routes,
including a number of sustained price wars, rapid, unmanageable expansion at
higher cost base than existing carriers, and the impact of increased costs of
operating aircraft arising from higher interest rates and fuel prices.
Air carriers operating in the intra-EU market generally have traditionally
fallen into one of four principal categories: flag carriers, independent
airlines, franchises of major airlines and charter operators. The flag carriers,
which fly inter-continental routes as well as those within Western Europe, are
now largely "commercial" flag carriers, such as British Airways, Air France,
KLM, Scandinavian Airline System ("SAS") and Lufthansa, which operate with
little or no state aid, although some flag carriers (such as Alitalia) continue
to be heavily dependent on aid from their respective governments. The
independent carriers include low fares carriers, such as Ryanair and easyJet,
and carriers providing "frills" services more comparable to those of the flag
carriers but at slightly lower fares than the flag carriers, such as British
Midland Airways Ltd. ("British Midland"). Certain small carriers have become
franchises of major airlines, sharing some ticketing and other distribution
systems with the flag carriers. These franchises serve mainly regional routes
where flag carriers cannot operate profitably due to their high overhead costs
and serve to feed regional passengers to their flag carrier partners for
interline service. For the flag carriers, franchises represent a possible means
of competing with low fares start-up carriers, although in Germany, Lufthansa
has chosen to compete with the low fares carriers by maintaining a 49% stake in
Germanwings, a low fares carrier based in Germany. Charter flight operators are
significantly more established and more competitive in Europe than in the United
States, with many charter operations being owned by major travel groups or
commercial airlines. A number of charter operators have recently established
their own low fares subsidiaries, including Hapag-Lloyd Express in Germany (a
subsidiary of TUI AG). Charter operators currently account for a significant
portion of total intra-EU annual passenger traffic and operate primarily on
routes between northern and southern Europe, targeting mainly price-conscious
leisure travelers. There have also been a large number of recent start-up
airlines throughout Europe following the increased availability of aircraft as a
result of capacity reductions by larger airlines post-9/11 and the low interest
rate environment of recent years.
23
Although the liberalization measures adopted by the EU were expected to
reduce air fares and increase competition significantly, the European market
continues to be characterized by higher operating costs per ASM than those with
respect to scheduled passenger service in the United States. While active
competition has increased with the launch of the low fares carriers, fares for
scheduled passenger services on intra-EU routes continue to be generally higher
than those on domestic U.S. routes of comparable distances. Ryanair believes
that the higher fares are the result of carriers passing on their higher costs
to passengers and the lack of significant competition on some intra-EU routes.
In addition, EU Member States may intervene to stop further fare reductions on a
route or group of routes where market forces have led to a sustained downward
movement in fares deviating from seasonal norms and resulting in widespread
losses among all carriers on the routes concerned.
At the same time, there is also a trend in Europe towards re-regulation of
air transport. The European Commission has proposed certain legislation aimed
exclusively at the air transport sector, while ignoring competing sectors such
as railroads and ferry transportation. These modes of transport have
traditionally been heavily subsidized by national governments and Ryanair
believes continuing protection of these sectors is having a negative effect on
the competitiveness of the air transport sector. The Company believes that these
new measures - which include legislation for compensating or otherwise providing
"assistance" to airline passengers who have been denied boarding on flights for
which they hold valid tickets, for cancelled flights or who are subject to long
delays (Regulation (EC) No. 261/2004); the European Commission's new guidelines
on the financing of airports and start-up aid to airlines by certain regional
airports; and recent proposals on extending the European Emissions Trading
Scheme (ETS) to airlines - will all have the effect of increasing costs of air
transport, without adding any significant benefits. See "Item 3. Key
Information-Risk Factors-Risks Related to the Company-EU Regulation on Passenger
Compensation Could Significantly Increase Related Costs", "Item 4. Information
on the Company--Government Regulation-- Regulatory Authorities and "--
Environmental Regulation."
Ireland, U.K. and Continental European Markets
The market for scheduled passenger air travel between Ireland and the U.K.
can be divided into two principal segments, the Dublin-London route and the
routes between Ireland and other locations in the U.K. outside of London.
Dublin-London Route. The Dublin-London route (including service from Dublin
to each of Heathrow, Gatwick, Stansted, Luton and London City airports) is
currently served by five carriers. Ryanair serves three London airports
(Stansted, Gatwick and Luton), Aer Lingus serves one airport (Heathrow), while
British Midland, British Airways and Air France's subsidiary CityJet each serve
one airport (Heathrow, Gatwick, and London City, respectively).
Before Ryanair entered the Dublin-London route in 1986, it was serviced
only by British Airways and Aer Lingus. Management believes that Ryanair's
introduction of competition based on low fares contributed to the significant
growth in passenger volume and the heightened competition between airlines that
has characterized the Dublin-London route since Ryanair first commenced service.
British Midland entered the route in 1989 and British Airways withdrew in 1991,
then re-entered in 1992, while British Airways and CityJet entered the route in
1994, then temporarily withdrew from this route from January 2001 through
October 2003. As a result of increased competition, the lowest available fares
have declined while the route has experienced substantial annual traffic growth.
By calendar year 2005, according to the CAA Statistics, annual traffic had risen
to more than 4.35 million passengers.
24
Ireland-U.K. Routes. Prior to 1993, the market for air travel between
Ireland and other locations in the U.K. was dominated by Aer Lingus. As with the
London-Dublin route prior to Ryanair's entry, routes to provincial cities in the
U.K. were generally characterized by high fares, service on small-capacity
turboprop aircraft and slow traffic growth. Ryanair entered this market by
launching low fares service using jet aircraft between Dublin and Birmingham in
1993 and has since expanded its service between Ireland and the U.K. to include
31 routes. Since Ryanair's entry into these routes with jet aircraft service and
low fares, each of the routes has experienced a significant reduction in fares
and, according to the CAA Statistics, a significant increase in traffic growth.
In each of these cases, Ryanair has captured a majority of this incremental
growth, and, as a result, Ryanair is currently the market leader in terms of
passenger volume on most of its routes between Ireland and provincial cities in
the U.K.
Continental Europe. In 1997, Ryanair began service on new routes to four
locations in continental Europe (Dublin to Paris (Beauvais) and Brussels
(Charleroi), and London (Stansted) to Stockholm (Skavsta) and Oslo (Torp)).
Since that time Ryanair has substantially expanded its continental European
service and now serves more than 115 locations in 21 European countries
(including England, Scotland and Northern Ireland). Ryanair has established
continental European bases at Brussels (Charleroi), Frankfurt (Hahn), Milan
(Bergamo), Stockholm (Skavsta), Barcelona (Girona), Rome (Ciampino) and Pisa. An
additional two-aircraft base at Marseille, France, was announced in May 2006 and
is expected to commence operations in November 2006. In June 2006, Ryanair
announced the addition of Croatia to its route network through services to Pula.
It is expected that further non-EU destinations will be added to the network in
the future as new states sign and ratify the European Common Aviation Area
Agreement (ECAA), an EU initiative designed to liberalize air transport among
ECAA member states, or sign bilateral Open Skies treaties with the EU. Ryanair
currently competes with a number of flag carriers, including British Airways,
Lufthansa, Air France, KLM, Iberia and Alitalia, and a larger number of smaller
carriers, including low fares airlines such as easyJet, BMI Baby and Fly Be in
the United Kingdom and Hapag Lloyd Express, Germanwings and easyJet in Germany,
with the number and identity of its competitors varying according to the route
flown. On September 19, 2006, Ryanair announced a new base at Bremen, Germany,
which is expected to commence operations in April 2007 and to serve nine
destinations using three aircraft.
Other Routes. In May 2006, Ryanair announced the execution of a five-year
agreement with the Government of Morocco to develop low-cost air access and
tourism in Morocco from Ryanair's bases throughout Europe. The agreement covers
most of the regional airports in Morocco and involves a commitment by Ryanair to
develop up to 20 routes, and to carry nearly 1 million passengers per year by
the end of the five-year period.
The Acquisition of Buzz
On April-10, 2003, Buzz Stansted Limited ("Buzz Stansted" or "Buzz"), a
newly-formed subsidiary of Ryanair, purchased certain assets of Buzz, KLM's
former low fares subsidiary, from KLM U.K. Limited for EUR20.8 million. These
assets primarily comprised trademarks, domain names, computer equipment, ticket
desk equipment and certain aircraft documents, records and manuals. As part of
the transaction, KLM U.K. Limited agreed to transfer certain landing and takeoff
slots at London (Stansted) Airport to Ryanair. In addition, Buzz Stansted agreed
to take over leases with International Lease Finance Corporation ("ILFC") on six
Boeing 737-300s, which were novated by KLM U.K. Limited to Buzz Stansted, as
well as to sub-lease four BAe146 aircraft from KLM during the period from
April-10, 2003 to March 31, 2004, at which time the BAe146s were returned to
KLM.
The leases with ILFC for the six Boeing 737-300 aircraft, which had a
formal term of approximately eight years, ending between October 2010 and
February 2011, had monthly lease payments that were substantially higher than
market rates. However, in August 2004, Buzz Stansted finalized an agreement with
ILFC for the early return of these aircraft, in October 2004. Following the
return of the aircraft to ILFC, Buzz Stansted ceased operations on October 30,
2004, and Ryanair now uses aircraft from its existing fleet and those acquired
under its fleet delivery program to service the routes previously operated by
Buzz Stansted.
26
Buzz Stansted's results for periods in which it operated have been fully
consolidated with those of Ryanair and are included in the financial and
operating data included in this annual report.
Ryanair recorded goodwill in the amount of EUR46.8 million in connection
with the Buzz acquisition. This figure is comprised of the purchase price of
EUR20.8 million and excess lease costs in the amount of EUR26.0 million, which
latter amount was calculated on the basis of a report from Avitas, independent
aircraft valuers. This independent valuation highlighted that the monthly
payments on the leases novated to Buzz Stansted were substantially higher than
existing market rates for leases on similar aircraft. The Company calculated the
amount of these excess lease costs over the remaining term of the leases at
EUR26.0 million, based on a calculation of the difference between the
contractual rates and these estimates of then-current market rates. All of the
purchase price in excess of the value of the net assets acquired was assigned to
the slot take-off and landing rights at Stansted Airport that Ryanair acquired
as part of the transaction. The slots do not have a limited life, and therefore
these rights are not amortized. As noted above, Buzz Stansted in 2004 returned
certain leased aircraft to ILFC. Under both IFRS and U.S. GAAP, the timeframe
for making such adjustments is limited to 12 months post-acquisition, and
therefore the reversal against goodwill of the EUR11.9 million onerous lease
provision was taken as a credit to Ryanair's IFRS and U.S. GAAP income
statements. See Note 26 to the Consolidated Financial Statements included in
Item 18 for additional information.
ROUTE SYSTEM, SCHEDULING AND FARES
Route System and Scheduling
As of September 15, 2006, the Company offers over 750 scheduled short-haul
flights per day serving 115 locations throughout Europe, including 24 locations
in the U.K. and Ireland, flying approximately 305 routes.
The following table lists Ryanair's top ten routes during calendar year
2005 by number of passengers, including the date service commenced on such route
and how many round-trip flights are scheduled on these routes per day. These
routes in the aggregate accounted for approximately 15% of the Company's
scheduled passenger volume in fiscal 2006.
Round trip flights
Route Served Date service commenced scheduled per day
------------ ---------------------- -----------------
Between Dublin and London (Stansted) Nov-88 10
Between London (Stansted) and Rome (Ciampino) Apr-02 5
Between Glasgow (Prestwick) and London (Stansted) Oct-95 5
Between London (Stansted) and Cork Oct-91 3
Between Dublin and London (Gatwick) Nov-94 5
Between London (Stansted) and Barcelona (Girona) Feb-03 4
Between London (Stansted) and Frankfurt (Hahn) Apr-99 4
Between Dublin and London (Luton) Jan-86 4
Between London (Stansted) and Venice (Treviso) May-98 3
Between London (Stansted) and Shannon Apr-00 3
Management's objective is to schedule a sufficient number of flights per
day on each of Ryanair's routes to satisfy demand for Ryanair's low fares
service. Ryanair schedules departures on its most popular routes at frequent
intervals normally between approximately 6:30-a.m. and 11:00-p.m. Management
regularly reviews the need for adjustments in the number of flights on all of
its routes.
26
During fiscal 2006, the Company announced 159 new routes (some of which
have yet to begin service) and extended its operations to three new countries,
adding destinations in Slovakia, Morocco and Croatia from airports in the U.K.
and elsewhere in Europe. In March 2006, Ryanair announced further expansion of
its European base at Pisa, Italy with an increase in the number of aircraft
based there from two to three and the addition of five new routes starting in
September 2006. Ryanair also announced in March 2006 the expansion of its
Shannon base with an increase in aircraft from three to four starting in October
2006. In April 2006, Ryanair announced the expansion of its Liverpool base
starting in October 2006 with the addition of two aircraft and 11 routes,
bringing the number of aircraft based in Liverpool to a total of seven. Two
aircraft and nine new routes are expected to be added to Ryanair's Frankfurt
Hahn base starting in late October 2006. Ryanair also expects to add three
aircraft to the Dublin base between December 2006 and February 2007, bringing
the total number of aircraft based in Dublin to 18.
In May 2006, the Company announced a new base at Marseille, France,
expected to commence operations in November 2006. The Company plans to base two
new aircraft at Marseille to serve thirteen routes, including Marseille to
Brussels (Charleroi), Dublin, Eindhoven, Fez, Frankfurt (Hahn), Glasgow,
Karlsruhe Baden, London (Stansted), Marrakech, Oujda, Oslo, Porto and Rome
(Ciampino).
In September 2006, the Company announced a new base at Bremen, Germany,
expected to commence operations in April 2007, which would bring the number of
bases to 17. The Company plans to base three new aircraft at Bremen to serve
nine routes, including Bremen to Riga, London (Stansted), Tampere, Torp, Venice
(Treviso), Verona, Barcelona (Girona), Murcia and Pisa.
Low and Widely Available Fares
Ryanair offers low, multi-tier fare pricing, with prices generally varying
depending on advance booking, seat availability and demand. Ryanair sells seats
on a one-way basis, thus removing minimum stay requirements from all travel on
Ryanair scheduled services, regardless of fare. All tickets can be changed
subject to certain conditions, including payment of a fee and applicable upgrade
charge, but are non-cancellable and non-refundable and must be paid for when the
reservation is made.
Ryanair's discounted fares are "capacity controlled" in that Ryanair
allocates a specific number of seats on each flight to each fare category to
accommodate projected demand for seats at each fare level leading up to flight
time. Ryanair generally makes its lowest fares widely available by endeavoring
to allocate a majority of its seat inventory to its lowest fare categories.
Management believes that its unrestricted fares as well as its advance purchase
fares are attractive to both the business and the leisure traveler.
When launching a new route, Ryanair's policy is to price its lowest fare so
that it will be significantly lower than other carriers' lowest fares, but still
provide a satisfactory operating margin.
Ryanair also periodically runs special promotional fare campaigns, in
particular in connection with the opening of new routes, and endeavors to
underprice attempts by its competitors to lower their fares on a particular
route. Ryanair offers weekday one-way fares starting at EUR0.99 on many of its
routes, and offers lower-fare trips on certain routes from time to time. Ryanair
promotions are made during a limited period of time and are only available for
travel during a specific period. Other promotional fares generally are available
only for mid-week travel, for a limited period and for a limited number of seats
per flight, and also require reservations in advance. Promotional fares may have
the effect of increasing load factors and reducing Ryanair's yield and passenger
revenues on the relevant routes during the period they are in effect. Ryanair
expects to continue to offer significant fare promotions to stimulate demand in
periods of lower activity or during off-peak times for the foreseeable future.
27
MARKETING AND ADVERTISING
Ryanair's primary marketing strategy is to emphasize its widely-available
low fares. In doing so, Ryanair primarily advertises its services in national
and regional newspapers in Ireland and the U.K. In continental Europe, Ryanair
advertises primarily through regional and national newspapers, as well as
through controversial and topical advertising, press conferences, publicity
stunts, and on billboards and other local media. Currently, the slogan
"Ryanair.com, Fly Cheaper" is prominently featured in all of the airline's
marketing to build its brand identity. Other marketing activities include the
distribution of advertising and promotional material and cooperative advertising
campaigns with other travel-related entities, including local tourist boards.
Ryanair generally runs special promotions in coordination with the
inauguration of service into new markets. Starting approximately four to six
weeks before the launch of a new route, Ryanair undertakes a major advertising
campaign in the target market and local media and editorial attention frequently
focuses on the introduction of Ryanair's low fares. Ryanair's sales teams also
visit each area and target pubs, clubs, shopping malls, factories, offices and
universities with a view to increasing consumer awareness of the new service.
RESERVATIONS/RYANAIR.COM
Passenger airlines generally rely on travel agents for a significant
portion of their ticket sales and pay travel agents a commission for their
services. Following the introduction of its internet-based reservations and
ticketing service, which now allows passengers to make reservations and purchase
tickets directly through the Company's website, Ryanair's reliance on travel
agents has been eliminated. See "-Strategy-Taking Advantage of the Internet"
above for additional information.
Ryanair currently uses Flightspeed from Open Skies to provide its core seat
inventory and booking system. In return for access to these systems, Ryanair
pays transaction fees that are generally based on the number of passenger seat
journeys booked through such systems. In September 2005, Ryanair completed the
installation of a stand-alone booking engine to support its Open Skies platform
in the event of a breakdown in this facility.
In addition, in March 2006, Ryanair commenced its Check'N'Go web-based
check-in service, giving passengers with an EU passport traveling with hand
luggage only the opportunity to check-in online across its route network (with
the exception of passengers traveling from Italy to the U.K.), as a result of a
general prohibition by the Italian aviation authority on such facilities for
carriers flying to the U.K., as part of a package of measures intended to
improve service by reducing air fares and check-in and boarding gate queues. At
the same time, Ryanair imposed new per-bag fees on passengers traveling with
checked luggage
AIRCRAFT
As of September 15, 2006, Ryanair's operating fleet included 107 Boeing
737-800 "next generation" aircraft, each having 189 seats.
During fiscal 2005, Ryanair also leased six Boeing 737-300 aircraft, each
having 148 seats, through its subsidiary Buzz Stansted. These leases were
terminated in October 2004. See "-Industry Overview-The Acquisition of Buzz."
Ryanair's fleet totaled 103 Boeing 737-800s at March 31, 2006. The Company
expects to have an operating fleet comprising 133 737-800s at March 31, 2007.
28
Aircraft
Boeing 737-800s: Between March 1999 and September 15, 2006, Ryanair took
delivery of 107 new Boeing 737-800 "next generation" aircraft under its
contracts with Boeing. The new 737-800s share certain basic characteristics with
Ryanair's prior fleet of 737-200A aircraft, all of which were retired by
December 2005, but are larger (seating up to 189 passengers, as compared to 130
in the 727-200As), capable of longer flights without refueling and incorporate
more advanced aviation technology. The 737-800s also comply with Chapter 3 noise
reduction requirements established by the International Civil Aviation
Organization, which took effect in the EU in 2002.
Ryanair entered into a series of agreements with Boeing for 737-800 "next
generation" aircraft starting in 1998, entering into a subsequent contract in
2002 and a supplemental agreement in 2003. As of January 2005, 89 firm aircraft
remained to be delivered under those agreements, and the Company had options to
purchase an additional 123 aircraft. On February 24, 2005, the Company announced
that it had entered into a new agreement with Boeing for the purchase of a
further 70 new Boeing 737-800s, as well as purchase options for an additional 70
such aircraft.
Under the terms of the 2005 Boeing contract, while the Basic Price per
aircraft that was applicable will continue to apply to the firm aircraft that
remained to be delivered and purchase options outstanding under the prior
contracts at January 1, 2005, these firm and option aircraft became subject to
the commercial and other terms applicable to the firm aircraft under the 2005
Boeing contract, including benefiting from the more favorable price concessions.
In addition, as part of the 2005 contract with Boeing, the Company has
secured that "winglets," or wing-tip extensions, manufactured by Aviation
Partners Boeing ("APB") will be incorporated on all aircraft to be delivered to
the Company under its contracts with Boeing from January 2006 onwards. The cost
of these winglets will be included in the aircraft net price. With regard to the
existing fleet of 737-800s and aircraft to be delivered prior to January 2006,
APB has agreed to supply the winglets to the Company at a discounted rate. The
Company is currently retrofitting these winglets on all existing aircraft, and
expects this process to be completed over a period of 24 months. The cost of
retrofitting these winglets will be borne by the Company and will be carried out
during routine maintenance at the Company's facility at Glasgow (Prestwick) or
during heavy maintenance checks by Part 145-approved contract maintenance
providers. The winglets supplied by APB are attached to the existing wing and
improve the aerodynamics of the aircraft; as a result, the aircraft consumes
less fuel per flight hour. The winglet modification program has proved
effective, with better aircraft performance and a reduction of between 2% and 4%
in the aircraft's consumption of fuel per hour flown.
In October 2005, the Company exercised nine purchase options, for aircraft
to be delivered from September to November 2007. The Company also exercised 10
purchase options in June 2006, for aircraft scheduled to be delivered from March
2008 through June 2008. Ryanair currently expects to take delivery of an
additional 142 aircraft under its contracts with Boeing. These deliveries will
increase the size of Ryanair's fleet to 249 by December 2012, or more should
Ryanair choose to exercise any of the additional 169 options to purchase
aircraft remaining under its existing purchase contracts with Boeing.
For additional details on the Boeing contracts, scheduled aircraft
deliveries and related expenditures and their financing, see "Item 5. Operating
and Financial Review and Prospects-Liquidity and Capital Resources."
Management believes that the purchase of the additional new Boeing 737-800
aircraft will allow Ryanair to continue to grow over the next six years and that
the significant size of its orders allowed Ryanair to obtain favorable purchase
terms, guaranteed deliveries and a standard configuration for all of the
aircraft.
29
The Boeing 737 is the world's most widely-used commercial aircraft and
exists in a number of generations, of which the 737-800s represent the latest.
Management believes that spare parts and cockpit crews qualified to fly these
aircraft are likely to be more widely available on favorable terms than similar
resources for other types of aircraft, and that its strategy of generally
reducing its fleet to one aircraft type enables Ryanair to limit the costs
associated with personnel training, maintenance and the purchase and storage of
spare parts, as well as affording greater flexibility in the scheduling of crews
and equipment. The 737-800s are fitted with CFM 56-7B26 and CFM 56-7B27 engines
and have advanced CAT III Autoland capability, advanced traffic collision
avoidance systems, and enhanced ground proximity warning systems.
At March 31, 2006, the average aircraft age of the Company's 737-800 fleet
was 2.4 years, and no aircraft was older than seven years.
In September 2005, Boeing suspended aircraft assembly because of a strike
by its machinists. The strike, which ended on September 29, 2005, caused delays
in scheduled aircraft deliveries for the period through April 2007, as well as
in the retirement schedule of some of the Company's Boeing 737-200s (which were
however all retired by the end of 2005 as planned) and the launch of certain
routes. The Company was also required to lease in additional aircraft capacity
between January and April 2006 at a cost of EUR5.6 million. The Company had been
scheduled to receive three 737-800s during September 2005 and an additional nine
aircraft in the last three months of calendar 2005. See "Item 3. Key
Information-Risk Factors-Risks Related to the Company-The Company Will Incur
Significant Costs Acquiring New Aircraft" and "-Route System, Scheduling and
Fares." See also "Item 5. Operating and Financial Review and Prospects-Liquidity
and Capital Resources-Capital Expenditures" for additional information on the
Company's aircraft delivery schedule.
Boeing 737-200As: Ryanair completed the phase-out of its 737-200A aircraft
in December 2005, with the retirement of its nine remaining aircraft.
On October 4, 2004, Ryanair announced that it had sold all but one of its
fleet of 21 Boeing 737-200A aircraft, including spare engines and parts, to
Autodirect Aviation LLC ("Autodirect") for total consideration of $10 million.
The 20 aircraft sold were delivered to Autodirect between October 2004 and
December 2005. All of the aircraft, spare parts and engines were fully
depreciated at their respective dates of surrender to Autodirect, and,
accordingly, the Company recorded no gain or loss in connection with their
disposal.
Training and Regulatory Compliance
Ryanair currently owns and operates two 737-800 flight simulators for pilot
training and has contracted to purchase two additional 737-800 flight simulators
from CAE Electronics Ltd. of Quebec, Canada (CAE) in 2002. In September 2006,
Ryanair entered into a new contract with CAE to purchase five B737NG Level B
flight simulators. The first of these simulators is expected to be delivered in
fiscal year 2009. This contract also provides Ryanair with an option to purchase
another five such simulators. The gross price of each simulator is approximately
US$8 million, not taking into account certain price concessions provided by the
seller in the form of credit memoranda and discounts.
Management believes that Ryanair is currently in compliance with all
applicable directives concerning its fleet of Boeing 737-800 aircraft and will
comply with any regulations or directives that may come into effect in the
future. However, there can be no assurance that the FAA or other regulatory
authorities will not recommend or require other safety-related undertakings or
that such undertakings would not adversely impact the Company's results of
operations or financial condition. See "Item 3. Key Information-Risk
Factors-Safety-Related Undertakings Could Affect the Company's Results."
30
ANCILLARY SERVICES
Ryanair provides various ancillary services and engages in other activities
connected with its core air passenger service, including non-flight scheduled
services, the in-flight sale of beverages, food and merchandise, and
internet-related services.
As part of its non-flight scheduled and internet-related services, Ryanair
distributes accommodation services and travel insurance through both its website
and its traditional telephone reservation offices. Ryanair sells bus and rail
tickets on-board its aircraft and also sells rail tickets through its website.
Ryanair incentivizes ground service providers at all of the airports it serves
to collect established excess baggage charges on any baggage that exceeds
Ryanair's published baggage allowances. The Company also charges customers a
fixed fee to defray the administrative costs incurred in processing debit and
credit card transactions. In addition, excess baggage charges are recorded as
components of non-flight scheduled revenue.
For car rental services, Ryanair has a contract with the Hertz Corporation
("Hertz"), pursuant to which Hertz handles all automobile-related aspects of
such services and pays a per-rental fee to Ryanair.com (or other relevant
reservations agent) as well as a set amount to Ryanair for marketing support.
Ryanair also receives a commission on all Hertz car rentals booked through the
Ryanair.com website.
Internet-related revenues comprise revenue generated from Ryanair.com,
including hotel accommodation, travel insurance and car hire revenue. Management
believes that providing these services through the internet allows Ryanair to
increase sales, while at the same time reducing costs on a per unit basis.
Ryanair also acts as an agent for MBNA and Barclaycard, both issuers of Visa
credit cards. As part of its agreements with MBNA and Barclaycard, Ryanair
promotes a Ryanair-branded credit card supplied by MBNA and Barclaycard on board
the aircraft, on Ryanair's internet site, and via direct marketing at the
airports served by Ryanair in the U.K. and Ireland. Ryanair generates revenues
from MBNA and Barclaycard on the basis of the number of cards issued and the
revenues generated through use of the credit cards.
In September 2006, Ryanair entered into a letter of intent with On Air, a
provider of mobile voice and data solutions for aircraft, for the equipment for
Ryanair aircraft to provide mobile phone and blackberry services to passengers.
Ryanair will bear the cost of the equipment and its installation on Ryanair
aircraft and will receive commissions on mobile calls (as well as on text and
blackberry messages) made using the service based on international roaming
rates. If regulatory approval is obtained on time, Ryanair expects to launch its
six-month trial period in July 2007, and to install the necessary equipment
on-board up to 50 aircraft during this period. If the trial is successful,
Ryanair plans to install this equipment on all of its aircraft.
See "Item 5. Operating and Financial Review and Prospects-Results of
Operations-Fiscal Year 2006 Compared with Fiscal Year 2005-Ancillary Revenues"
for additional information.
31
MAINTENANCE AND REPAIRS
General
As part of its commitment to safety, Ryanair endeavors to hire qualified
maintenance personnel, provide proper training to such personnel and maintain
its aircraft in accordance with European industry standards. While Ryanair seeks
to maintain its fleet in a cost-effective manner, management does not seek to
extend Ryanair's low cost operating strategy to the area of maintenance,
training or quality control.
Ryanair's quality assurance department deals with the overall supervision
of all maintenance activities in accordance with Part 145, the European
regulatory standard for aircraft maintenance and standards established by the
European Aviation Safety Agency (EASA). EASA came into being on September 28,
2003, through the adoption of Regulation (EC) No. 1592/2002 of the European
parliament, and its standards superseded the previous Joint Aviation Authority
(JAA) requirements (or "JARs," which were developed and adopted by the JAA, an
associated body of the European Civil Aviation Conference, formed to enhance
co-operation between the national civil aviation authorities of participating
European countries, including Ireland). See "--Government Regulation--Regulatory
Authorities."
Ryanair is itself an EASA Part 145-approved maintenance contractor and
provides its own routine aircraft maintenance and repair services on its
aircraft other than scheduled heavy maintenance. Ryanair also performs certain
checks on its aircraft, including pre-flight, daily and transit checks at some
of its bases, as well as A checks at its Dublin facility. Maintenance and repair
services that may become necessary while an aircraft is located at one of the
other airports served by Ryanair are provided by other Part 145-approved
contract maintenance providers. Aircraft return each evening to Ryanair's bases,
where they are examined by Ryanair's approved engineers (or, in the case of
Brussels (Charleroi), Stockholm (Skavsta), Rome (Ciampino), Frankfurt (Hahn),
Milan (Bergamo), Prestwick and Liverpool, by local Part 145-approved companies).
In December 2003, Ryanair started operations at a new two-bay hangar
facility at its base at Glasgow (Prestwick) in Scotland, where it now carries
out A checks and light C checks on the fleet of 737-800 aircraft. The facility
is capable of performing two light C-checks per week, enabling Ryanair to
perform the majority of the maintenance required on its 737-800 fleet in-house.
All heavy maintenance C checks continue to be outsourced to third parties. The
new facility is expected to have cost a total of up to U.K.GBP10 million and to
employ up to approximately 180 people when it becomes fully operational sometime
in 2007.
Heavy Maintenance
As noted above, while Ryanair is now able to carry out the majority of the
maintenance work required on its 737-800 fleet, Ryanair contracts with outside
maintenance providers for heavy maintenance services. Ryanair currently has
short-term, ad hoc contracts with a number of reputable Part 145-approved
suppliers of heavy maintenance in the U.K. and Europe, including ATC Lasham and
BASCO (a U.K. subsidiary of Singapore Technologies), for the carrying out of the
heavy maintenance overhauls currently required on its relatively new fleet.
Ryanair continues to negotiate with various large maintenance repair and
overhaul ("MRO") companies, with a view to having a long-term contract in place
by the start of 2007, when it expects a more consistent volume of heavy
maintenance to begin to be required. Ryanair is also currently negotiating with
an existing global MRO supplier to create a joint venture for the construction
of a new maintenance facility in Eastern Europe.
Ryanair contracts out engine overhaul service for the 737-800 aircraft to
GE Engine Services of Cardiff, Wales, a Part 145 approved contractor, pursuant
to a 10-year agreement, with an option for a 10-year extension, signed in 2004.
This comprehensive maintenance contract includes the repair and overhaul of
engine components, the provision of spare parts, technical support of the fleet
and the maintenance and overhaul of all the CFM56-7 series engines for the
Company's current fleet of 737-800 aircraft, as well as the firm aircraft
deliveries and any option aircraft to be delivered pursuant to the Company's
current contracts with Boeing over the period up to December 2011.
32
By contracting with Part 145-approved maintenance providers, management
believes it is better able to control the quality of its aircraft and engine
maintenance. Ryanair assigns a Part 145 certified mechanic to oversee all heavy
maintenance and to authorize all engine overhaul performed by third parties.
Maintenance providers are also monitored closely by the national authorities
under EASA and national regulations.
Ryanair expects to be dependent on third party service contracts for the
foreseeable future, notwithstanding the additional capabilities provided by its
new maintenance facility at Glasgow (Prestwick). See "Item 3. Key
Information-Risk Factors-Risks Related to the Company-The Company Is Dependent
on Third Party Service Providers."
SAFETY RECORD
During its 21-year operating history, Ryanair has not had a single incident
involving major injury to passengers or flight crew. Ryanair's commitment to
safe operations is manifested by its safety training procedures, its investment
in safety-related equipment and the adoption of an internal confidential
reporting system for safety issues. The Company's Board of Directors also has an
Air Safety Committee to review and discuss air safety and related issues.
Ryanair's flight training is oriented towards accident prevention and
covers all aspects of flight operations. Ryanair conducts all of its own flight
crew training, both initial and recurrent, with the approval of the Irish
Aviation Authority (the "IAA"), which regularly audits both operation control
standards and flight training standards.
All of the Boeing 737-800s which Ryanair has bought or committed to buy
operate in accordance with the Category IIIA minimum landing criteria, which
require the aircraft to be able to land given a minimum horizontal visibility of
200 meters and no vertical visibility.
Ryanair has a comprehensive and documented safety management system.
Management encourages flight crews to report any safety-related issues through
the use of a confidential reporting system which is available through Ryanair's
Flight Safety Offices. The confidential reporting system affords flight crews
the opportunity to report directly to senior management any event, error or
discrepancy in flight operations that they do not wish to report through
standard channels. The confidential reporting system is designed to increase
management's awareness of problems that may be encountered by flight crews in
their day-to-day operations. Management uses the information reported through
the system to modify operating procedures and improve flight operation
standards.
Ryanair has installed an OFDM (Operational Flight Data Monitoring) system
on all of its 737-800 aircraft that automatically provides a confidential report
on the procedures followed by pilots. Based on an analysis of these reports,
Ryanair is able to identify and take steps to rectify any deviations from normal
operating procedures, thereby ensuring adherence to its flight safety standards.
AIRPORT OPERATIONS
Airport Handling Services
Ryanair provides its own aircraft and passenger handling and ticketing
services at Dublin Airport. Third parties provide these services to Ryanair at
the other airports it serves. Servisair plc provides Ryanair's ticketing,
passenger and aircraft handling and ground handling services at many of these
airports in Ireland and the U.K., excluding London (Stansted) (where these
services are provided primarily by Swissport Ltd.), while similar services in
continental Europe are generally provided by the local airport authority, either
directly or through sub-contractors. Management attempts to obtain competitive
rates for such services by negotiating multi-year contracts at fixed prices,
although some may have periodic increases linked to inflation. These contracts
are generally scheduled to expire in one to five years, unless renewed, and
certain of such contracts may be terminated by either party before their fixed
term upon prior notice. Ryanair will need to enter into similar agreements in
any new markets it may enter. See "Item 3. Key Information-Risk Factors-Risks
Related to the Company-The Company Is Dependent on Third Party Service
Providers."
33
Airport Charges
As with other airlines, Ryanair is assessed airport charges each time it
lands and accesses facilities at the airports it serves. Depending on the policy
of the individual airport, such charges can include landing fees, passenger
loading fees, security fees and parking fees. Noise surcharges have also been
imposed by a limited number of European airports in response to concerns
expressed by local residents. Ryanair attempts to negotiate advantageous terms
for such fees by delivering a consistently high volume of passenger traffic and
opts, when practicable, for less expensive facilities, such as less convenient
gates, as well as the use of outdoor boarding stairs rather than more expensive
jetways. Nevertheless, there can be no assurance that the airports Ryanair uses
will not impose higher airport charges in the future and that any such increases
would not adversely affect the Company's operations.
The Irish Commission for Aviation Regulation (the "CAR") is currently
responsible for regulating charges at Dublin Airport. In August 2001, the CAR
issued a determination in relation to charges which are to remain in effect for
five years, beginning September-24, 2001. The base charges for 2002 were
approximately 5% lower than the charges previously in effect, and an efficiency
factor (RPI-X) provides that the charges will decrease by the efficiency factor
minus the level of inflation in Ireland. The maximum charges permitted to be
levied at Dublin Airport remained essentially unchanged from calendar 2003 to
2005. However, in late September 2005, the CAR approved an increase in airport
charges of more than 22%, to take effect on January 1, 2006. On March 30, 2006,
following an appeal by the Dublin Airport Authority ("DAA"), charges at Dublin
Airport were increased by an additional 3%. On September 5, 2006, the CAR
announced the launch of a public consultation to review and obtain feedback on
the levels of airport charges at Dublin Airport. Ryanair is vigorously opposed
to these increases in charges; however, as a result of these increases, the
Company increased the amount of charges added to its base fares and,
accordingly, does not anticipate any material adverse impact on the Company's
financial results.
In July 2004, the Irish government enacted the State Airports Act 2004 (the
"State Airports Act"), which contemplates the break up of Aer Rianta, the former
Irish Airport Authority, into three competing airports at Dublin, Cork, and
Shannon managed by independent airport authorities under state ownership. Under
the State Airports Act, Aer Rianta was re-named as the DAA as of October 1,
2004.
On February 12, 2004, the European Commission ruled that certain
concessions granted to Ryanair by the Walloon Government in connection with its
operations in Brussels (Charleroi) constituted illegal state aid. Ryanair is
currently appealing this decision to the European Court of Justice. The Walloon
Region also initiated proceeding in 2005 to recover start-up costs that had been
reimbursed to Ryanair in connection with its establishment of the Charleroi
base. Following the Charleroi decision, several competing airlines have
challenged other agreements between Ryanair and publicly owned airports. Air
France challenged Ryanair's agreement with Strasbourg Airport, leading to the
cancellation of the London to Strasbourg route in 2003. In July 2006, Air France
announced that it was challenging Ryanair's arrangement with Marseille Airport
for the use of a low cost facility. A competing airline in Germany has
challenged Ryanair's agreement with Hamburg Lubeck Airport, even though this
airport is now privately owned and offering the same arrangements to Ryanair and
all other airlines. Separate similar proceedings relating to a number of other
European airports are currently pending in lower courts. As Ryanair currently
benefits from similar concessions on a number of its routes, negative outcomes
in these proceedings could have a material adverse effect on its airport charges
and profitability. In addition, on September 6, 2005, the European Commission
announced new guidelines on the financing of airports and the provision of
start-up aid to airlines by certain publicly owned airports. See "Item-3. Risk
Factors--Risks Related to the Company--The Company Is Subject to Legal
Proceedings Alleging Unlawful State Aid at Certain Airports" and "Item-8.
Financial Information--Other Financial Information--Legal Proceedings."
34
In April 2005, Ryanair announced that it had reached an out-of-court
settlement of all of the legal challenges surrounding fuel levy charges at
Stansted Airport imposed by BAA plc and Stansted Airport Limited (together
"BAA"), the companies that operate London's Heathrow, Gatwick and Stansted
Airports. Ryanair had commenced an action against BAA in July 2004 on grounds of
overcharging in respect of fuel levies at Stansted. BAA responded by filing a
separate action against Ryanair alleging that Ryanair had repudiated its
contract with BAA and sought payment of fuel levies withheld by Ryanair in
connection with the dispute. As part of the April 2005 settlement, Ryanair paid
BAA the amounts it had been withholding, while BAA has withdrawn its claims that
Ryanair breached its contract at Stansted. For the period from April 1, 2005,
through the next regulatory review period starting in April 2008, BAA has
reduced its fuel levy charge at Stansted from 0.680 U.K. pence per liter to
0.412 U.K. pence per liter. As a result of this agreement, Ryanair expects its
fuel levy savings to exceed GBP1million per year.
Following the December 2003 publication of the U.K. government's White
Paper on Airport Capacity in the Southeast of England, BAA in 2004 announced
plans to spend up to U.K. GBP4 billion on a multi-year project to construct a
second runway and additional terminal facilities at London Stansted Airport,
with a target opening date of 2013. The project is subject to regulatory
approvals and pending legal challenges, and remains in the planning stage.
Ryanair and other airlines using Stansted support the principle of a second
runway at Stansted but are opposed to this profligate development because they
believe that the financing of what they consider to be an overblown project will
lead to airport costs approximately tripling from the current level. Any such
increase could mean that low fares airlines will not be able to grow at Stansted
and their existing operations could be at risk. BAA has failed to consult with
users of Stansted on the project, and Ryanair intends to oppose these attempts
by BAA to proceed with a U.K.GBP4 billion project when in Ryanair's opinion a
second runway and a terminal extension should not cost more than U.K.GBP1
billion. The U.K. Office of Fair Trading ("OFT") announced in July 2006 that it
would investigate BAA's dominant position in London and other markets in the
U.K. As part of its submissions to the OFT, Ryanair has called for the break-up
of BAA.
In March 2006, Ryanair announced a reduction in services at Cork Airport
following an announcement by the airport that it was increasing various airport
charges, in some cases by as much as 300%. These price increases were the result
of debts incurred in the development of certain facilities, to which Ryanair had
strongly objected in light of their significant cost. In July 2006, Ryanair
announced that it was reducing services to Sweden as a result of the Swedish
government's introduction of a substantial environmental tax. Ryanair will
continue to resist airport charge increases and the introduction of significant
additional taxes by national governments.
In September 2006, the DAA announced that it was planning to build a new
terminal (Terminal 2) at Dublin airport at a cost of approximately EUR609
million. If such a project is approved by the planning authorities, it could
mean that charges at Dublin Airport would increase significantly, possibly
tripling from their current level. Such a level of increase could impede the
growth of low fares carriers and could negatively affect their existing
operations in Dublin.
35
FUEL
The cost of jet fuel accounted for 34.5% and 26.3% of Ryanair's total
operating expenses in the fiscal years ended March 31, 2006 and 2005,
respectively, in each case after giving effect to the Company's fuel hedging
activities and excluding de-icing costs. Jet fuel costs increased substantially
in the fiscal years ended March 31, 2006 and 2005 and are currently near
historically high levels.
The future availability and cost of jet fuel cannot be predicted with any
degree of certainty, and because of Ryanair's low fares policy, its ability to
pass on increased fuel costs to passengers through increased fares or otherwise
may be limited.
Ryanair has historically entered into arrangements providing for
substantial protection against fluctuations in fuel prices, generally through
forward contracts covering 12-18 months of anticipated jet fuel requirements. In
light of the recent significant and unpredictable increases in oil prices, the
Company now enters into any such hedging arrangements on a more selective basis.
See "Item 3. Risk Factors-Risks Related to the Company-Changes in Fuel Costs and
Fuel Availability Affect the Company's Results" and "Item 11. Quantitative and
Qualitative Disclosures About Market Risk-Fuel Price Exposure and Hedging" for
additional information on recent trends in fuel costs and the Company's related
hedging activities, as well as certain associated risks. See also "Item 5.
Operating and Financial Review and Prospects-Fiscal Year 2006 Compared with
Fiscal Year 2005-Fuel and Oil."
The following table details Ryanair's fuel consumption and costs for
scheduled operations (thus excluding fuel costs related to now-discontinued
charter operations and de-icing costs), after giving effect to the Company's
fuel hedging activities, for the fiscal years ended March 31, 2005 and 2006. The
excluded de-icing costs amounted to EUR4,726,830 and EUR6,090,400, respectively,
for the fiscal years ended March 31, 2005 and 2006. De-icing costs, which are
costs incurred for the labor and anti-freeze used to de-ice aircraft, have
increased significantly in recent years as the Company's route network, types of
aircraft operated and number of sectors flown have increased; the Company
therefore believes including these costs would distort the year-to-year cost
comparison.
Fiscal Year ended March 31,
-------------------------------------
2006 2005
Scheduled fuel consumption -------------------------------------
(U.S.-gallons)................................. 308,742,674 245,817,605
Available seat miles (ASM)......................... 24,282,100,345 17,812,432,791
Scheduled fuel consumption (U.S.-gallons)
per ASM........................................ 0.013 0.014
Total scheduled fuel costs......................... EUR456,375,897 EUR260,549,213
Cost per gallon.................................... EUR1.478 EUR1.060
Total scheduled fuel costs as a percentage
of total operating costs....................... 34.5% 26.3%
36
INSURANCE
Ryanair is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident or terrorist incident. Any such accident or
incident could involve not only repair or replacement of a damaged aircraft and
its consequent temporary or permanent loss from service, but also significant
potential claims of injured passengers and others. Ryanair currently maintains
passenger liability insurance, employer liability insurance, aircraft insurance
for aircraft loss or damage, insurance for pilots' loss of license and other
business insurance in amounts per occurrence that is consistent with industry
standards. Although Ryanair currently believes its insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not
need to be increased, that insurance premiums will not increase significantly or
that Ryanair will not be forced to bear substantial losses from accidents.
The cost of insurance coverage for certain third party liabilities arising
from "acts of war" or terrorism increased dramatically as a result of the 9/11
terrorist attacks. Aircraft hull war liability indemnities for amounts above $50
million were, in the absence of any alternative cover, provided by the Irish
Government at pre-September-11 levels of coverage on the basis of a per
passenger surcharge. In March 2002, once such coverage was again commercially
available, Ryanair arranged cover to replace that provided by the Government
indemnity on the basis of a per passenger surcharge and an additional surcharge
based on hull values. As a result, Ryanair's insurers have indicated that the
scope of the Company's current act of war-related insurance coverage may exclude
certain types of catastrophic incidents, which may result in the Company seeking
alternative coverage. Ryanair to date has passed increased insurance costs on to
passengers by means of a special "insurance levy" on each ticket.
During fiscal year 2006, Ryanair established Ladoga Insurance Ltd, now a
wholly owned insurance company subsidiary, to provide the Company with
self-insurance as part of its ongoing risk-management strategy. Ladoga's
activities are currently limited to underwriting a portion of the Company's
aviation insurance program, which covers not only the Company's aircraft but
also its liability to passengers and to third parties. Ladoga reinsures
virtually all of the risk it underwrites with recognized third parties in the
aviation reinsurance market, with the amount of Ladoga's current maximum
aggregate exposure not presently subject to such reinsurance agreements being
equal to approximately US$8 million.
Council Regulation (EC) No. 2027/97, as amended by Council Regulation (EC)
No. 889/2002, governs air carrier liability. This legislation provides for
unlimited liability of an air carrier in the event of death or bodily injuries
suffered by passengers, implementing the Warsaw Convention of 1929 for the
Unification of Certain Rules Relating to Transportation by Air, as amended by
the Montreal Convention of 1999. This legislation also limits the ability of an
air carrier to rely on certain defenses in an action for damages, which would
otherwise have been available to it at law, and provides for uniform liability
limits for loss of, damage to or destruction of baggage and for damage
occasioned by delay. Ryanair has extended its liability insurance accordingly to
meet the requirements of the legislation.
You should read "Item 3. Key Information-Risk Factors- Risks Related to the
Airline Industry-The Company Faces the Risk of Loss and Liability" for
information on the Company's risks of loss and liability.
37
FACILITIES
The following are the principal properties owned or leased by the Company:
Site Area Floor Space
Location (Sq. Meters) (Sq. Meters) Tenure Activity
-------------------- ------------ ------------ -------- ----------------------
Dublin Airport 1,116 1,395 Leasehold Corporate Headquarters
Phoenix House, 2,566 3,899 Freehold Reservations Center
Conyngham Road,
Dublin
Satellite 3, 605 605 Leasehold Sales Office and Operations Center
Stansted Airport
Dublin Airport (Hangar) 2,993 2,175 Leasehold Aircraft Maintenance
East Midlands Airport 3,647 3,647 Freehold Simulator and training center
Skavsta Airport (Hangar) 1,936 1,936 Leasehold Aircraft Maintenance
Prestwick Airport (Hangar) 4,052 4,052 Leasehold Aircraft Maintenance
Stansted Storage Facilities 378 531 Leasehold Aircraft Maintenance
Ryanair has agreements with the DAA (the successor to Aer Rianta), the
Irish government authority charged with operating Dublin airport, to lease
ticket counters and other space at the passenger and cargo terminal facilities
at Dublin Airport. The airport office facilities used by Ryanair at London
Stansted are leased from the airport authority; similar facilities at each of
the other airports Ryanair serves are provided by Servisair plc or other service
providers.
In May 2002, the then-Minister for Transport of Ireland completed a review
of Ireland's airport facilities and requested proposals from interested parties
for the development of new terminals and piers at Dublin Airport. Ryanair
submitted a proposal to the government, as did several other interested parties.
However, in June 2005, the Irish government announced that it would allow the
DAA to build and operate the new terminal, and in September 2005 the DAA
proposed a EUR1.2 billion, 10-year program for its construction. In July 2005,
Ryanair initiated legal proceedings in the Irish High Court against the
government on the basis that its decision violated EU and Irish competition and
public procurement laws. Ryanair subsequently withdrew from these proceedings
but continues to campaign against the DAA's construction plans in light of what
it views as the excessive cost of these new facilities.
TRADEMARKS
Ryanair's logo and the slogans "Ryanair.com The Low Fares Website" and
"Ryanair The Low Fares Airline" have been registered as Community Trade Marks
("CTM"). A CTM allows trademark owners to obtain a single registration of their
trademarks, which registration affords uniform protection for those trademarks
in all EU member states. The registrations give Ryanair an exclusive monopoly
over the use of its trade name with regard to similar services and the right to
sue for trademark infringement should a third party use an identical or
confusingly similar trade mark in relation to identical, or similar services.
Ryanair has also registered the CTM for the word "Ryanair" and for
"Ryanairhotels.com." Ryanair has not registered either its name or its logo as a
trademark in Ireland, as CTM registration provides all of the protection
available from an Irish registration, and management believes there are
therefore no advantages in making a separate Irish application.
GOVERNMENT REGULATION
Liberalization of the EU Air Transportation Market
Ryanair began its flight operations in 1985, during a decade in which the
governments of Ireland and the U.K. liberalized the bilateral arrangements for
the operation of air services between the two countries. In 1992, the Council of
Ministers of the EU adopted a package of measures intended to liberalize the
internal market for air transportation in the EU, including measures allowing EU
air carriers substantial freedom to set air fares, allowing EU air carriers
greatly enhanced access to routes within the EU and introducing a licensing
procedure for EU air carriers. Beginning in April-1997, EU air carriers have
generally been able to provide passenger services on domestic routes within any
EU Member State outside their home country of operations without restriction.
See also "--Industry Overview--European Airline Market."
38
The European Court of Justice in November 2002 ruled that bilateral
agreements between certain member states and the United States fell within the
exclusive competence of the EU and should not therefore be entered into by the
member states individually. As a result of these rulings, the European
Commission has been granted a mandate to negotiate with the United States to
replace the existing bilateral agreements between individual member states and
the United States with a single comprehensive EU-U.S. agreement establishing an
open aviation area between the two territories. These negotiations will cover
all arrangements covering air transport between and within the EU and United
States. It is proposed that this would include the rules governing market access
(routes, capacity, frequency), how airfares are set, how to ensure effective
application of competition rules and how to ensure maintenance of high standards
of airline safety and aviation security. The negotiations will also address
opening up each side's internal market to the airlines of the other side. A key
element will be the removal of the special restrictions that currently apply to
foreign ownership and control of airlines in the United States and EU.
Regulatory Authorities
As an Irish air carrier with routes to the U.K. and other EU countries,
Ryanair is subject to Irish and EU regulation, which is implemented primarily by
the Department of Transport, the IAA, the JAA and EASA. Management believes that
the present regulatory environment in Ireland and the EU is characterized by an
increased sensitivity to safety and security issues and an increased intensity
of review of safety-related procedures, training and equipment by the national
and EU regulatory authorities.
Commission for Aviation Regulation. The CAR is currently primarily
responsible for deciding maximum airport charges only at Dublin Airport. See
"--Airport Operations--Airport Charges" above.
The CAR also has responsibility for licensing Irish airlines, subject to
the requirements of EU law. It issues operating licenses under the provisions of
Council Regulation 2407/92. An operating license is an authorization permitting
the holder to carry out carriage by air of passengers, mail and/or cargo. The
criteria for granting an operating license include, inter alia, an air carrier's
financial fitness, the adequacy of its insurance, and the fitness of the persons
who will manage the air carrier. In addition, in order to obtain and maintain an
operating license, Irish and EU regulations require that (i)-the air carrier
must be owned and continue to be owned directly or through majority ownership by
EU Member States and/or nationals of EU Member States and (ii)-the air carrier
must at all times be effectively controlled by such EU Member States or EU
nationals. The CAR has broad authority to revoke an operating license. See-"Item
10. Additional Information--Limitations on Share Ownership by Non-EU Nationals."
Ryanair's current operating license was awarded effective December 1, 1994,
reviewed on November-30, 1999, and is subject to review and renewal each year.
The CAR is also responsible for deciding whether a regulated airport should
be co-ordinated or fully co-ordinated under Council Regulation No. 95/93 on
slots, and authorizing ground handling operations under Council Directive
96/67/EC and its implementing legislation. In April 2005, the CAR announced that
Dublin Airport would be fully slot coordinated beginning in March 2006. Ryanair
successfully challenged this decision in the Irish High Court and the decision
was overturned in July 2006. See "-Slots" below for additional information.
39
Irish Aviation Authority. The IAA is primarily responsible for the
operational and regulatory function and services relating to the safety and
technical aspects of aviation in Ireland. To operate in Ireland and the EU, an
Irish air carrier is required to hold an operator's certificate granted by the
IAA attesting to the air carrier's operational and technical competence to
conduct an air service with specified types of aircraft. The IAA has broad
authority to amend or revoke an operator's certificate, with Ryanair's ability
to continue to hold its operator's certificate being subject to on-going
compliance with applicable statutes, rules and regulations pertaining to the
airline industry, including any new rules and regulations that may be adopted in
the future.
The IAA is responsible for overseeing and regulating the operations of
Irish air carriers. Matters within the scope of the IAA's regulatory authority
include air safety, aircraft certification, personnel licensing and training,
maintenance, manufacture, repair, airworthiness and operation of aircraft,
implementation of JARs, aircraft noise and ground services. Each of the
Company's aircraft has received an airworthiness certificate issued by the IAA
and any additional aircraft the Company adds to the fleet will be required to
obtain an airworthiness certificate. These airworthiness certificates are issued
for a period of 12 months, after which application for a further certificate
must be made. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the IAA. The IAA has broad and powerful regulatory and enforcement
authority, including the authority to require reports, inspect the books,
records, premises and aircraft of a carrier and investigate and institute
enforcement proceedings. Failure to comply with IAA Regulations can result in
revocation of operating certification.
In July 1999, the IAA awarded Ryanair an air operator's certificate, which
is subject to routine audit and review, in recognition of Ryanair's satisfaction
of the relevant JAR OPS 1 regulatory requirements.
Department of Transport. The Department of Transport is responsible for
implementation of EU and Irish legislation and international standards relating
to air transport, e.g., noise levels, aviation security, etc.
In June 2005, the Minister for Transport enacted legislation strengthening
rights for air passengers following the EU's passage of legislation requiring
compensation of airline passengers who have been denied boarding on a flight for
which they hold a valid ticket (Regulation (EC) No. 261/2004), which came into
force on February 17, 2005. See "Item 3. Risk Factors-Risks Related to the
Airline Industry-EU Regulation on Passenger Compensation Could Significantly
Increase Related Costs."
Joint Aviation Authorities. The JAA is an associated body of the European
Civil Aviation Conference representing civil aviation authorities of
participating European states who have agreed to co-operate in developing and
implementing common safety regulatory standards and procedures. The purpose is
to provide high and consistent standards of safety. The aim of the JAA is to
ensure that each individual Joint Aviation Requirement (JAR) becomes a uniform
code for all JAA member states without any national regulatory differences. EU
regulations provide for the harmonization of technical requirements and
administrative procedures on the basis of the JAR codes of the JAA and for the
acceptance of certification in accordance with common technical requirements and
administrative procedures.
The European Aviation Safety Agency. EASA is an agency of the EU which has
been given specific regulatory and executive tasks in the field of aviation
safety. EASA was established through Regulation (EC) No. 1592/2002 of the
European Parliament and the Council of July 15, 2002, on common rules in the
field of civil aviation and establishing a European Aviation Safety Agency. The
purpose of EASA is to draw-up common standards to ensure the highest levels of
safety; oversee their uniform application across Europe; and promote them at the
global level. EASA formally started its work on September 28, 2003, taking over
the responsibility for regulating airworthiness and maintenance issues within
the EU Member States.-
40
In order to achieve continuity in the mutual acceptance and recognition of
certificates and approvals between EASA and non-EASA states, a framework has
been developed under which the JAA retains its functions and responsibilities in
operations and licensing, while acting as a service provider to EASA in
certification and maintenance.
Eurocontrol. The European Organization for the Safety of Air Navigation
("Eurocontrol") is an autonomous European organization established under the
Eurocontrol Convention of December-13, 1960. Eurocontrol is responsible for,
inter alia, the safety of air navigation and the collection of route charges for
en route air navigation facilities and services throughout Europe. Ireland is a
party to several international agreements concerning Eurocontrol. These
agreements have been implemented into Irish law, which provides for the payment
of charges to Eurocontrol in respect of air navigation services provided for
aircraft in airspace under the control of Eurocontrol. The relevant legislation
imposes liability for the payment of any charges upon the operators of the
aircraft in respect of which services are provided, upon the owners of such
aircraft or the managers of airports used by such aircraft. Ryanair, as an
aircraft operator, is primarily responsible for the payment to Eurocontrol of
charges incurred in relation to its aircraft.
The legislation authorizes the detention of aircraft in the case of default
in the payment of any charge for air navigation services by the aircraft
operator or the aircraft owner, as the case may be. This power of detention
extends to any equipment, stores or documents, which may be on board the
aircraft when it is detained, and may result in the possible sale of the
aircraft.
The European Commission is in the process of introducing a "single European
sky policy," which would bring changes to air traffic management and control
within the EU.- The "single European sky policy" currently consists of the
Framework Regulation (Reg. (EC) No. 549/2004) plus three technical regulations
on the provision of air navigation services, organization and the use of the
airspace and the interoperability of the European air traffic management
network. The objective of the policy is to enhance safety standards and the
overall efficiency for general air traffic in Europe.
On September 6, 2005, the European Commission announced new guidelines on
the financing of airports and start-up aid to airlines by certain regional
airports, based on the European Commission's finding in the Charleroi case,
which Ryanair has appealed. The guidelines apply only to publicly owned regional
airports and place restrictions on the incentives these airports can offer
airlines to deliver traffic. The guidelines, however, apply only in cases where
the terms offered by a public airport are in excess of what a private airport
would have offered in a similar situation. Ryanair deals with airports, both
public and private, on an equal basis and receives the same cost deals from
both. Ryanair therefore considers that the guidelines will have no impact on its
business.
The European Commission has proposed legislation calling for the
transparency of airline fares, which would require the inclusion of all taxes,
fees and charges in the advertised price. Ryanair currently includes this
information in its advertised fares where other airlines in the market do so.
Registration of Aircraft
Pursuant to the Irish Aviation Authority (Nationality and Registration of
Aircraft) Order 2002 (the "Order"), the IAA regulates the registration of
aircraft in Ireland. In order to be registered or continue to be registered in
Ireland, an aircraft must be wholly owned by either (i)-a citizen of Ireland or
a citizen of another Member State of the EU having a place of residence or
business in Ireland or (ii)-a company registered in and having a place of
business in Ireland and having its principal place of business in Ireland or
another Member State of the EU and not less than two-thirds of the directors of
which were citizens of Ireland or of another Member State of the EU. As of the
date of this report, eight of the nine directors of Ryanair Holdings are
citizens of Ireland or of another Member State of the EU. An aircraft will also
fulfill these conditions if it is wholly owned by such citizen or company in
combination. Notwithstanding the fact that these particular conditions may not
be met, the IAA retains discretion to register an aircraft in Ireland so long as
it is in compliance with the other conditions for registration under the Order.
Any such registration may, however, be made subject to certain conditions. In
order to be registered, an aircraft must also continue to comply with any
applicable provisions of Irish law. The registration of any aircraft can be
cancelled if it is found that it is not in compliance with the requirements for
registration under the Order and, in particular, (i)-if the ownership
requirements are not met, (ii)-the aircraft has failed to comply with any
applicable safety requirements specified by the IAA in relation to the aircraft
or aircraft of a similar type or (iii)-if the IAA decides in any case that it is
satisfied that it is inexpedient in the public interest for the aircraft to
remain registered in Ireland.
41
Regulation of Competition
Competition/Antitrust Law. It is a general principle of EU competition law
that no agreement may be concluded between two or more separate economic
undertakings that prevents, restricts or distorts competition in the common
market or any part of the common market. Such an arrangement may nevertheless be
exempted by the European Commission, on either an individual or category basis.
The second general principle of EU competition law is that any business or
businesses having a dominant position in the common market or any substantial
part of the common market may not abuse such a dominant position. Ryanair is
subject to the application of the general rules of EU competition law as well as
specific rules-on competition in the airline sector (principally, Council
Regulation (EEC) 3975/87, as amended).
An aggrieved person may sue for breach of EU competition law in the courts
of the Member States and/or complain to the European Commission for an order to
terminate the breach of competition law. The European Commission also may impose
fines and daily penalties on businesses and the courts of the Member States may
award damages and other remedies (such as an injunction) in appropriate
circumstances.
Competition law in Ireland is primarily embodied in the Competition Act
2002. This Act is modeled on the EU competition law system. The Irish
rules-generally prohibit anti-competitive arrangements among businesses and
prohibit the abuse of a dominant position. These rules-are enforced either by
public enforcement (primarily by the Competition Authority) through both
criminal and civil sanctions or by private action in the courts. These
rules-apply to the airline sector, but are subject to EU rules that override any
contrary provision of Irish competition law.
State Aid. The EU rules control aid granted by Member States to businesses
on a selective or discriminatory basis. The EU Treaty prevents Member States
granting such aid unless approved in advance by the EU. Any such grant of state
aid to an airline is subject to challenge before the EU or, in certain
circumstances, national courts. If aid is held to have been unlawfully granted
it may have to be repaid by the airline to the granting Member State, together
with interest thereon. See "Item-3. Key Information--Risk Factors--Risks Related
to the Company-The Company Is Subject to Legal Proceedings Alleging Unlawful
State Aid at Certain Airports" and "Item-8. Financial Information--Other
Financial Information--Legal Proceedings."
Environmental Regulation
Aircraft Noise Regulations. Ryanair is subject to international, national
and, in some cases, local noise regulation standards. EU and Irish regulations
have required that all aircraft operated by Ryanair comply with Stage 3 noise
requirements since April 1, 2002. All of Ryanair's aircraft currently comply
with these regulations. Certain airports in the U.K. (including London
(Stansted) and London (Gatwick)) and continental Europe have established local
noise restrictions, including limits on the number of hourly or daily operations
or the time of such operations.
42
Company Facilities. Environmental controls are generally imposed under
Irish law through property planning legislation specifically the Local
Government (Planning and Development) Acts of 1963 to 1999, the Planning and
Development Act 2000 and regulations made thereunder. At Dublin Airport, Ryanair
operates on land controlled by the DAA. Planning permission for its facilities
has been granted in accordance with both the zoning, and planning requirements
of Dublin Airport. There is also specific Irish environmental legislation
implementing applicable EU Directives and Regulations, which Ryanair adheres to.
From time to time, noxious or potentially toxic substances are held on a
temporary basis within Ryanair's engineering facilities at Dublin Airport and
Glasgow (Prestwick). However, at all times Ryanair's storage and handling of
these substances complies with the relevant regulatory requirements. In our
Glasgow (Prestwick) maintenance facility, all normal waste is removed under the
Environmental Protection Act of 1996 and Duty of Care Waste Regulations. For
special waste removal, Ryanair operates under the Special Waste Regulations 1998
(contaminated waste). At all other facilities Ryanair adheres to all local and
EU regulations.
Ryanair's Policy on Noise and Emissions. Ryanair is committed to reducing
emissions and noise through investments in "next generation" aircraft and engine
technologies and the implementation of certain operational and commercial
decisions to minimize the environmental impact of its operations. Ryanair is
currently the industry leader in terms of environmental efficiency and is
constantly working towards improving its performance.
In December 2005, Ryanair completed the fleet replacement program it
commenced in 1999. All of Ryanair's older Boeing 737-200A aircraft have been
replaced with Boeing 737-800 "next generation" aircraft and as of September 15,
2006, Ryanair operates a single aircraft type fleet of 107 aircraft with an
average age of only 2.75 years. The design of the new aircraft is aimed at
minimizing drag, thereby further reducing the rate of fuel burn and noise
levels. The engines are also quieter and more fuel-efficient. Ryanair has a
further 142 aircraft of this type on order from Boeing and options on another
169. See "-Aircraft" above for details on Ryanair's fleet plan.
Ryanair has undertaken the process of installing winglets on all of its
existing aircraft and all future aircraft will also be fitted with winglets.
Ryanair expect the installation of winglets on its Boeing 737-800 "next
generation" aircraft to reduce both the rate of fuel burn and carbon dioxide
emissions by a further 2% to 4% and also to reduce noise emissions. The Company
plans to have its winglet program on existing aircraft completed by December 31,
2006.
Furthermore, by moving to an all Boeing 737-800 "next generation" fleet,
Ryanair has reduced the unit emissions per passenger due to the inherent
capacity increase in the 737-800 aircraft. The Boeing 737-800 "next generation"
aircraft have a significantly superior fuel burn to passenger mile ratio than
Ryanair's former fleet of 737-200A aircraft.
In addition, Ryanair has distinctive operational characteristics that
management believes are helpful to the general environment; it:
o operates with a high-seat density of 189 seats and an all economy
configuration, as opposed to the 162 seats and two-class
configuration of the Boeing 737-800 aircraft used by traditional
network airlines, reducing fuel burn and emissions per seat
kilometer flown;
o has reduced per-passenger emissions through higher load factors;
o better utilizes existing infrastructure by operating out of
underutilized secondary and regional airports throughout Europe,
which limits the use of holding patterns and taxiing times, thus
reducing fuel burn and emissions, and reduces the need for new
airport infrastructure;
43
o seeks to provide direct services as opposed to connecting
flights, in order to limit the need for passengers to transfer at
main hubs and thus reduce the number of take-offs and landings
per journey from four to two, reducing fuel burn and emissions
per journey; and
o has no late night departures of aircraft, reducing noise
emissions.
Emissions Trading. The European Commission is currently considering
proposals to include air transportation in the European Emissions Trading Scheme
(ETS). The ETS is likely to result in the imposition of an "emission levy" on
airlines, particularly on those that have already heavily invested in cleaner
aircraft technology and more efficient operations, as they will have much less
ability to further reduce emissions in a cost effective manner. We believe that
this additional cost imposed on airlines will increase fares and damage the
competitiveness of the industry.
Ryanair and the European Low Fares Airline Association have called on the
European Commission to conduct a proper cost/benefit analysis before proceeding
with any legislative proposals that could impose significant costs on the
airline industry.
Ryanair takes its environmental responsibilities seriously and intends to
continue to improve its environmental efficiency and to minimize emissions.
Ryanair believes that the application of the ETS will only increase airline
costs.
Fuel Taxes/Emissions Levies. Ryanair is fundamentally opposed to the
introduction of any fuel tax or emissions levy. Ryanair has and continues to
offer the lowest fares in Europe, to make passenger air travel affordable and
accessible to European consumers. Ryanair believes that the imposition on
airlines of a tax on fuel or emissions will not only increase airfares, but will
discourage new entrants into the market, resulting in less choice for consumers.
Ryanair believes this would ultimately have adverse effects on the European
economy in general.
As a company, Ryanair believes in free market competition and that the
imposition of any of the above measures would favor the flag carriers - which
generally have smaller and older aircraft, lower load factors, a much higher
fuel burn per passenger, and operate primarily into congested airports - and
reduce competition. Furthermore, the introduction of a fuel tax or emissions
levy at a European level only would distort competition between airlines
operating solely within Europe and those operating also outside of Europe. We
believe that the introduction of such a tax or levy would also be incompatible
with international law.
Slots
Currently, 26 of the airports served by Ryanair, including its bases at
London (Stansted), Milan (Bergamo), Rome (Ciampino) and Barcelona (Girona), are
regulated by means of "slot" allocations, which represent authorizations to take
off or land at a particular airport within a specified time period. In April
2005, the CAR announced that Dublin Airport will be fully slot coordinated,
beginning in March 2006. Ryanair challenged this decision in the Irish High
Court on grounds that the CAR failed to apply the criteria in Regulation 95/93,
which require a thorough capacity analysis at the airport and consultation with
the airlines and airport on ways to avoid the need for full coordination, prior
to taking its decision. The Irish High Court overturned the decision of the CAR
and Dublin Airport has reverted to a "schedules facilitated" scheme. On August
1, 2006, the CAR announced that it would commission an analysis of the service
capacity of Dublin Airport, in order to assess the appropriate organization of
schedules at Dublin Airport.
EU law currently regulates the acquisition, transfer and loss of slots.
Applicable EU regulations currently prohibit the buying or selling of slots for
cash. The European Commission adopted a regulation in April 2004 (Regulation
(EC) No. 793/2004) that made some minor amendments to the current allocation
system. It allows for limited transfers of, but not trading in, slots. Slots may
be transferred from one route to another by the same carrier, transferred within
a group or as part of a change of control of a carrier, or swapped between
carriers. The European Commission is now conducting a consultation that will
allow it to propose further measures to introduce a market mechanism for the
allocation of slots which will allow more flexibility and mobility in the use of
slots and will further enhance possibilities for market entry. Any future
proposals that might create a secondary market for the auction of slots or allow
trading of slots among airlines could create a potential source of revenue for
certain of Ryanair's current and potential competitors, many of which have many
more slots allocated at present than Ryanair. Slot values depend on several
factors, including the airport, time of day covered, the availability of slots
and the class of aircraft. Ryanair's ability to gain access to and develop its
operations at slot-controlled airports will be affected by the availability of
slots for takeoffs and landings at these specific airports. New entrants to an
airport are currently given certain privileges in terms of obtaining slots, but
such privileges are subject to the "grandfather rights" of existing operators
who are utilizing their slots. While Ryanair generally seeks to avoid
slot-controlled airports, there is no assurance that Ryanair will be able to
obtain a sufficient number of slots at the slot-controlled airports that it
desires to serve in the future at the time it needs them or on acceptable terms.
44
Other
Health and safety at work issues relating to the Company are largely
controlled in Ireland by compliance with the Safety, Health and Welfare at Work
Act, 1989, the Safety, Health and Welfare at Work (General Application)
Regulations, 1993, and other regulations under that Act. Although licenses or
permits are not issued under such legislation, compliance is monitored by the
Health and Safety Authority (the "Authority"), which is the regulating body in
this area. The Authority periodically reviews Ryanair's health and safety record
and where appropriate, issues improvement notices/prohibition notices. Ryanair
has responded to all such notices to the satisfaction of the Authority. Other
safety issues are covered by the Irish Aviation Orders, which may vary from time
to time.
The Company's operations are subject to the general laws of Ireland and, in
so far as they are applicable in Ireland, the laws of the EU. The Company may
also become subject to additional regulatory requirements in the future. The
Company is also subject to local laws and regulations at locations where it
operates and the regulations of various local authorities that operate the
airports it serves.
DESCRIPTION OF PROPERTY
For certain information about each of the Company's key facilities, see
"-Facilities" above. Management believes that the Company's facilities are
suitable for its needs and are well maintained.
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements of the Company and the notes thereto included
in Item-18. Those financial statements have been prepared in accordance with
IFRS. For a detailed discussion of differences between IFRS and U.S. GAAP, see
Note-27 to the Consolidated Financial Statements included in Item 18.
HISTORY
Ryanair's current business strategy dates to the early 1990s, when a new
management team, including the current chief executive, commenced the
restructuring of Ryanair's operations to become a low fares airline based on the
low cost operating model pioneered by Southwest Airlines Co. in the United
States. During the period between 1992 and 1994, Ryanair expanded its route
network to include scheduled passenger service between Dublin and Birmingham,
Manchester and Glasgow (Prestwick). In 1994, Ryanair began standardizing its
fleet by purchasing used Boeing 737-200A aircraft to replace substantially all
of its leased aircraft. Beginning in 1996, Ryanair continued to expand its
service from Dublin to new provincial destinations in the U.K. In August-1996,
Irish Air, L.P., an investment vehicle led by David Bonderman and certain of his
associates at the Texas Pacific Group, acquired a minority interest in the
Company. Ryanair Holdings completed its initial public offering in June 1997.
45
From 1997 through September 2006, Ryanair launched service on approximately
370 routes throughout Europe, and also increased the frequency of service on a
number of its principal routes. During that period, in addition to Dublin,
Ryanair established Dublin, London (Stansted), Glasgow (Prestwick), Brussels
(Charleroi), Frankfurt (Hahn), Milan (Bergamo), Stockholm (Skavsta), Rome
(Ciampino), Barcelona (Girona), Nottingham East Midlands, London (Luton),
Liverpool, Shannon, Pisa and Cork airports as bases of operations. Ryanair has
increased the number of passengers flown from 4.9 million in 1999 to
approximately 35 million in fiscal 2006, taken delivery of 107 Boeing 737-800
aircraft, and now serves 115 airports while employing over 3,850 people.
Ryanair expects to have 133 aircraft in its operating fleet by March 31,
2007. During the period through December 2012, the Company expects to take
delivery of additional Boeing 737-800 aircraft that, net of further scheduled
retirements and lease terminations, are expected to increase the size of the
Company's fleet to 249 aircraft by that date, with that number increasing should
Ryanair choose to exercise any of the 169 options remaining under its current
contracts with Boeing. See "--Liquidity and Capital Resources" and "Item-4.
Information on the Company--Aircraft" for additional details.
BUSINESS OVERVIEW
Since Ryanair pioneered its low fares operating model in Europe in the
early 1990s, its passenger volumes and scheduled passenger revenues have
increased significantly as Ryanair has substantially increased capacity.
Ryanair's annual scheduled flown passenger volume has grown from approximately
945,000 passengers in the calendar year 1992 to approximately 35 million
passengers in fiscal year 2006.
Ryanair's revenue passenger miles ("RPMs") increased from 13,862.3 million
in fiscal year 2005 to 18,832.5 million in fiscal year 2006, due primarily to an
increase in scheduled available seat miles ("ASMs") from 17,812.4 million in
fiscal year 2005 to 24,282.1 million in fiscal year 2006. Scheduled passenger
revenues increased from EUR1,128.1 million in fiscal year 2005 to EUR1,433.3
million in fiscal year 2006. During this period, flown passenger load factors
were 78% in fiscal year 2005 and 77% in fiscal year 2006. Average yield per RPM
was EUR0.081 in fiscal year 2005 and EUR0.076 in fiscal year 2006. The decrease
in average yield per RPM in fiscal years 2005 and 2006 was principally
attributable to an increase in seat capacity, increased competition in the
market and an increase in average sector length without a corresponding increase
in average yield per passenger, or the amount of scheduled revenues per
passenger flown. The Company expects average yields to be relatively stable
during fiscal year 2007, largely as a result of reduced price pressure as a
result of fuel surcharges imposed by many of Ryanair's competitors (but not by
Ryanair).
The combination of expanding passenger volumes and capacity, high load
factors and aggressive cost containment has enabled Ryanair to continue to
generate operating profits and profits after taxation despite increasing price
competition. Ryanair's break-even load factor was 65% in fiscal year 2005 and
68% in fiscal year 2006. Cost per ASM remained flat at EUR0.053 in both fiscal
year 2005 and fiscal year 2006, primarily due to higher fuel costs. Ryanair
recorded an operating profit of EUR340.7 million in fiscal year 2005 and
EUR375.0 million in fiscal year 2006, and profit after taxation of EUR280.0
million in fiscal year 2005 and EUR306.7 million in fiscal year 2006. Ryanair
recorded seat capacity growth of approximately 27% in fiscal 2006, compared to
15% in fiscal 2005, and expects capacity to increase by approximately 21% in
fiscal 2007, reflecting the current aircraft delivery timetable under the
Company's contracts with Boeing.
46
The historical results of operations discussed herein may not be indicative
of Ryanair's future operating performance. Ryanair's future results of
operations will be affected by, among other things, overall passenger traffic
volume, the availability of new airports for expansion, fuel prices, the airline
pricing environment in a period of increased competition, the ability to finance
its planned acquisition of aircraft and to discharge the resulting debt service
obligations, economic and political conditions in Ireland, the U.K. and the EU,
terrorist threats or attacks within the EU, seasonal variations in travel,
developments in government regulations, litigation and labor relations, foreign
currency fluctuations, competition and the public's perception regarding the
safety of low fares airlines and changes in aircraft acquisition, leasing, and
other operating costs, as well as the rates of income taxes paid. Ryanair
expects its depreciation, staff and fuel charges to continue to increase as
additional aircraft and related flight equipment are acquired. Future fuel costs
may also increase as a result of the current shortage of fuel production
capacity and/or production restrictions imposed by fuel oil producers, as well
as the Company's decision to enter into fuel hedging arrangements on a more
selective basis. Maintenance expenses may also increase as a result of Ryanair's
fleet expansion and replacement program. In addition, the financing of new and
existing 737-800 aircraft will significantly increase the total amount of the
Company's outstanding debt and the payments it is obliged to make to service
such debt. The cost of insurance coverage for certain third party liabilities
arising from "acts of war" or terrorism increased dramatically following the
9/11 terrorist attacks. Although Ryanair currently passes on increased insurance
costs to passengers by means of a special "insurance levy" on each ticket, there
can be no assurance that it will continue to be successful in doing so. See
"Item 3. Key Information-Risk Factors-The 2001 Terrorist Attacks on the United
States Had a Severe Negative Impact on the International Airline Industry;
Further Terrorist Attacks, particularly in Markets Significant to Ryanair, Could
Have a Material Adverse Impact on the Company."
RECENT OPERATING RESULTS
As of April 1, 2005, Ryanair prepares its consolidated financial
statements, in accordance with IFRS as adopted by the European Union. See
"-Transition to International Financial Reporting Standards" below for a
discussion of the most significant differences between IFRS and Irish GAAP that
affect the Company's financial statements.
For the quarter ended June 30, 2006 (the first quarter of the Company's
fiscal year 2007), Ryanair recorded an increase in operating profit of 71.1%,
from EUR79.9 million in the first quarter of fiscal 2006 to EUR136.7 million in
the first quarter of fiscal 2007. Total operating revenues increased 40.0%, from
EUR404.6 million in the first quarter of fiscal year 2006 to EUR566.6 million in
the first quarter of fiscal 2007, primarily as a result of an increase of
approximately 41.5% in scheduled passenger revenues, which totaled EUR490.0
million for the quarter, as well as a 31.3% increase in ancillary revenues to
EUR76.6 million. Operating expenses increased at a lower rate, rising by 32.4%,
from EUR324.8 million in the three months ended June-30, 2005 to EUR429.9
million in the three months ended June-30, 2006, as fuel costs increased by
52.4%, totaling EUR167.5 million, and other costs related to the growth of
Ryanair's fleet and route network and the general level of activity
(particularly route charges and airport and handling costs) also increased. The
Company had total cash of EUR2,184.4 million at June 30, 2006, as compared with
EUR1,972.0 million at March 31, 2006. The Company had cash and liquid resources
of EUR1,042.4 million at June 30, 2006, as compared with EUR1,439.0 million at
March 31, 2006, as increased cash flows from operating activities were offset by
an increase in cash > 3 months, from EUR328.9 million at March 31, 2006 to
EUR938.0-million at June 30, 2006, to benefit from increased long-term interest
rates. Capital expenditures for the quarter, primarily relating to deposit
payments for future aircraft deliveries, totaled EUR21.3 million, as compared
with EUR13.4 million in the first quarter of 2006.
47
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of Ryanair's financial condition and
results of operations is based on its Consolidated Financial Statements, which
are included in Item-18 and prepared in accordance with IFRS. IFRS differs in
certain significant respects from U.S. GAAP. For additional information
regarding differences between IFRS and U.S. GAAP, please refer to Note 27 to the
Consolidated Financial Statements included in Item 18. IFRS also differs from
Irish GAAP, under which the Company prepared its financial statements for
periods ending before April 1, 2005. See "-Transition to International Financial
Reporting Standards" below. The preparation of these financial statements
requires the use of estimates, judgments, 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 periods
presented. Actual results may differ from these estimates under different
conditions or assumptions.
Ryanair believes that its critical accounting policies, which are those
that require management's most difficult, subjective and complex judgments, are
those described in this section. These critical accounting policies, the
judgments and other uncertainties affecting application of those policies and
the sensitivity of reported results to changes in conditions and assumptions are
factors to be considered in reviewing the Consolidated Financial Statements
included in Item 18 and the discussion and analysis below. For additional detail
on these policies, see Note 1, "Significant accounting policies," to the
Consolidated Financial Statements included in Item 18.
Long lived assets
As of March 31, 2006, Ryanair had EUR2.53 billion of long-lived assets,
including EUR2.52 billion of aircraft. In accounting for long-lived assets,
Ryanair must make estimates about the expected useful lives of the assets, the
expected residual values of the assets and the potential for impairment based on
the fair value of the assets and the cash flows they generate.
In estimating the lives and expected residual values of its aircraft,
Ryanair has primarily relied on industry experience and recommendations from
Boeing, the manufacturer of all of the Company's owned aircraft. Subsequent
revisions to these estimates, which can be significant, could be caused by
changes to Ryanair's maintenance program, changes in utilization of the
aircraft, governmental regulations on aging of aircraft and changing market
prices for new and used aircraft of the same or similar types. Ryanair evaluates
its estimates and assumptions in each reporting period, and when warranted
adjusts these assumptions. Generally, these adjustments are accounted for on a
prospective basis, through depreciation expense.
Ryanair periodically evaluates its long-lived assets for impairment.
Factors that would indicate potential impairment would include, but are not
limited to, significant decreases in the market value of long-lived assets, a
significant change in a long-lived asset's physical condition, and operating or
cash-flow losses associated with the use of the long-lived asset. While the
airline industry as a whole has experienced many of these factors from time to
time, Ryanair has not yet been seriously impacted and continues to record
positive cash flows from these long-lived assets. Consequently, Ryanair has not
yet identified any impairments related to its existing aircraft fleet. The
Company will continue to monitor its long-lived assets and the general airline
operating environment.
Heavy maintenance
An element of the cost of an acquired aircraft is attributed on acquisition
to its service potential, reflecting the maintenance condition of the engines
and airframe. Additionally, where Ryanair has a lease commitment to perform
aircraft maintenance, a provision is made during the lease term for this
obligation. Both of these accounting policies involve the use of estimates in
determining the quantum of both the initial maintenance asset and/or the amount
of provision to be set aside and the respective periods over which such amounts
are charged to income. In making such estimates, Ryanair has primarily relied on
industry experience, industry regulations and recommendations from Boeing;
however, these estimates can be subject to revision, depending on a number of
factors, such as the timing of the planned maintenance, the ultimate utilization
of the aircraft, changes to government regulations and increases and decreases
in the estimated costs. Ryanair evaluates its estimates and assumptions in each
reporting period and, when warranted, adjusts these assumptions, which generally
impact on maintenance and depreciation expense in the income statement, on a
prospective basis.
48
Reclassification of certain ancillary revenues and costs
In order to more accurately reflect the structure of certain of the
Company's ancillary contracts, starting with the quarter ended June 30, 2005,
and for future periods, the Company has chosen to change the method of recording
certain ancillary revenues and costs (primarily relating to car hire and travel
insurance, which are now predominantly booked through Ryanair.com, rather than
the Company's call center, as historically had been the case). The change in
method reflects the fact that the Company now receives revenues from these
services primarily in the form of commissions from the third-party service
provider, with few associated costs being incurred; previously, the Company had
simultaneously recorded the full amount of the revenues received from the end
customer for given services and a related cost for the significant portion of
such revenues owed to the third-party service providers. This change resulted in
reductions in ancillary revenues of EUR25.8 million in the fiscal year ended
March 31, 2006, and EUR17.5 million in the fiscal year ended March 31, 2005,
from the amounts that would have been recorded under the previous method in
those periods, with corresponding reductions in other costs for those periods.
The change in method did not have any effect on the Company's operating income
or net income in either period.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data (calculated
under IFRS) for Ryanair expressed as a percentage of Ryanair's total revenues
for each of the periods indicated:
Fiscal Year ended March 31,
-------------------------------------
2006 2005
-------------------------------------
Total Revenues........................................ 100% 100%
Scheduled Revenues.................................. 84.7 85.5
Ancillary Revenues.................................. 15.3 14.5
Total Operating Expenses.............................. 77.8 74.2
Staff Costs......................................... 10.1 10.7
Depreciation and Amortization....................... 7.4 8.4
Fuel and Oil........................................ 27.3 20.1
Maintenance, Materials and Repairs.................. 2.2 2.0
Marketing and Distribution Costs.................... 0.8 1.5
Aircraft Rentals.................................... 2.8 2.5
Route Charges....................................... 9.7 10.3
Airport and Handling Charges........................ 12.8 13.6
Other............................................... 5.1 6.0
Purchase Accounting Adjustment(a)................... - (0.9)
Aircraft Insurance Claim(b)......................... (0.4) -
-------------------------------------
Operating Profit...................................... 22.2 25.8
Net interest (expense) income......................... (2.1) (2.2)
Other Income (Expenses)............................... (0.1) (0.2)
-------------------------------------
Profit before Taxation................................ 20.0 23.4
Taxation.............................................. 1.9 2.2
-------------------------------------
Profit after Taxation................................. 18.1 21.2
=====================================
49
(a) Subsequent to the acquisition of Buzz Stansted Ltd. in April
2003, Ryanair renegotiated the terms and conditions of certain
onerous leases and agreed to return the aircraft to the lessors
in late 2004, thereby releasing Ryanair from any remaining lease
obligations at that time. IFRS 3 provides that such an adjustment
must be made only in the 12-month period following the
acquisition, and, accordingly, as the event occurred more than 12
months after the acquisition date, this adjustment resulted in a
one-off, non-cash credit to the income statement for the fiscal
year ended March 31, 2005 of EUR11.9 million.
(b) Operating expenses in fiscal 2006 included a credit of EUR5.9
million arising from the settlement of an insurance claim for the
scratches on six Boeing 737-200 aircraft.
FISCAL YEAR 2006 COMPARED WITH FISCAL YEAR 2005
Profit after Taxation. Ryanair's profit on ordinary activities after
taxation increased by 9.5%, from EUR280.0 million in the fiscal year ended
March 31, 2005, to EUR306.7 million in the fiscal year ended March 31, 2006,
primarily reflecting a 28.3% increase in total operating revenues from
EUR1,319.0 million to EUR1,692.5 million. The increase in revenues reflected an
increase of 27.1% in scheduled revenues and of 35.7% in ancillary revenues, each
as described in more detail below. Total revenue per passenger increased by
approximately 2%, primarily due to an approximately 1% increase in average fares
and the growth in ancillary revenues. Ryanair's profit on ordinary activities
before taxation increased 9.6%, from EUR309.2 million in the fiscal year ended
March 31, 2005 to EUR338.9 million in the fiscal year ended March 31, 2006.
Scheduled Revenues. Ryanair's scheduled passenger revenues increased 27.1%,
from EUR1,128.1 million in the fiscal year ended March 31, 2005, to EUR1,433.4
million in the fiscal year ended March 31, 2006, as overall passengers booked
increased 26.1%, from 27.6 million to 34.8 million, reflecting increased
scheduled passenger volumes on existing passenger routes, the successful launch
of new bases at Liverpool, Shannon and Pisa and in Cork and Nottingham East
Midlands in the third and fourth quarters of fiscal 2006, respectively. The
higher scheduled revenues also reflected an increase of approximately 1% in
average fares. Booked passenger load factors decreased from 84% to 83%.
Passenger capacity (as measured in ASMs) during fiscal 2006 increased by
approximately 36% due to the addition of 21 Boeing 737-800 aircraft, offset in
part by the retirement of nine Boeing 737-200A aircraft, as well as an 8.1%
increase in the average length of passenger haul and a 21.2% increase in sectors
flown. Scheduled passenger revenues accounted for 84.7% of Ryanair's total
revenues for the fiscal year ended March 31, 2006, compared with 85.5% of total
revenues in fiscal year ended March 31, 2005.
The following tables set forth the components of ancillary revenues earned
by Ryanair and each component expressed as a percentage of total ancillary
revenues for each of the periods indicated:
Fiscal Year ended March 31,
-----------------------------------------------------------------------
2006 2005
-----------------------------------------------------------------------
(in thousands of euro, except percentage data)
Non-flight Scheduled.............. EUR166,796 64.4% EUR115,916 60.7%
Car Rental........................ EUR19,752 7.6% EUR15,706 8.2%
In-flight Sales................... EUR45,306 17.5% EUR34,939 18.3%
Internet-Related.................. EUR27,299 10.5% EUR24,360 12.8%
----------- ----------------- ------------------- ------------------
Total............................. EUR259,153 100.0% EUR190,921 100.0%
=========== ================= =================== ==================
Ancillary Revenues. Ryanair's ancillary revenues, which comprise revenues
from non-flight scheduled operations, car rentals, in-flight sales and
internet-related services, increased 35.7%, from EUR190.9 million in the fiscal
year ended March 31, 2005 to EUR259.2 million in the fiscal year ended March 31,
2006. The overall increase reflected higher revenues in each of the components.
Revenues from non-flight scheduled operations, including revenues from excess
baggage charges, debit and credit card transactions, and sales of rail and bus
tickets, hotel accommodation and travel insurance, increased 43.9% to EUR166.8
million from EUR115.9-million in fiscal 2005, while car rental revenues
increased by 25.8%, to EUR19.8 million from EUR15.7 million. Revenues from
in-flight sales increased 29.7%, to EUR45.3 million from EUR34.9 million in
fiscal year 2005, although average passenger spending per flight decreased to
EUR3.06 from EUR3.12. Revenues from internet-related services, primarily
commissions received from products sold on websites linked to the Ryanair.com
website and those earned on services (such as hotel reservations) offered
through the website, increased 12.1%, from EUR24.4 million in fiscal year 2005
to EUR27.3 million in fiscal year 2006.
50
Operating Expenses. As a percentage of total revenues, Ryanair's operating
expenses increased from 74.1% in the fiscal year ended March 31, 2005 to 77.8%
in the fiscal year ended March 31, 2006, reflecting the fact that operating
expenses grew at a faster rate than our revenues. In absolute terms, total
operating expenses increased 34.7%, from EUR978.3 million in the fiscal year
ended March 31, 2005, to EUR1,317.5 million in the fiscal year ended March 31,
2006, principally as a result of the increase in scheduled passenger volume and
the 21.2% increase in number of sectors flown, which were reflected in increases
in fuel expenses, route charges, staff costs and airport and handling charges.
The increase in operating expenses also reflected the adverse impact of an
increase of approximately 8% in average sector length and higher jet kerosene
prices in U.S. dollars that were only partially offset by the strength of the
euro against the U.S currency. Nonetheless, total operating expenses per ASM
declined by approximately 1.2%, reflecting declines on a per ASM basis in all
components other than fuel and oil costs and aircraft rentals.
The following table sets forth the amounts in euro cents and percentage
changes of Ryanair's operating expenses (on a per ASM basis) for the fiscal
years ended March 31, 2006 and March 31, 2005 under IFRS. These data are
calculated by dividing the relevant expense amount (as shown in the Consolidated
Financial Statements) by the number of ASMs in the relevant year as shown in the
table of "Selected Operating and Other Data" in Item 3 and rounding to the
nearest euro cent; the percentage change is calculated on the basis of the
relevant figures before rounding.
Fiscal Year Fiscal Year
Ended Ended
March 31, 2006 March 31, 2005 % Change
________________ _______________ _________
Staff Costs................................................. 0.71 0.80 -11.2%
Depreciation and Amortization............................... 0.51 0.62 -17.3%
Fuel and Oil................................................ 1.90 1.49 27.9%
Maintenance, Materials and Repairs.......................... 0.15 0.15 4.4%
Marketing and Distribution.................................. 0.06 0.11 -48.0%
Aircraft Rentals............................................ 0.20 0.19 3.8%
Route Charges............................................... 0.68 0.76 -11.0%
Airport and Handling Charges................................ 0.89 1.00 -11.1%
Other Operating Expenses.................................... 0.35 0.45 -21.0%
Purchase Accounting Adjustment (a).......................... - -0.07 -%
Aircraft Insurance Claim (b)................................ -0.02 - -%
________________ _______________ _________
Total Operating Expenses.................................... 5.43 5.50 -1.21%
______________________ ================ =============== =========
(a) Subsequent to the acquisition of Buzz Stansted Ltd. in April 2003,
Ryanair renegotiated the terms and conditions of certain onerous leases and
agreed to return the aircraft to the lessors in late 2004, thereby
releasing Ryanair from any remaining lease obligations at that time. IFRS 3
provides that such an adjustment must be made only in the 12-month period
following the acquisition, and, accordingly, as the event occurred more
than 12 months after the acquisition date, this adjustment resulted in a
one-off, non-cash credit to the income statement for the year to March 31,
2005 of EUR11.9 million.
(b) Operating expenses in fiscal 2006 included a credit of EUR5.9 million
arising from the settlement of an insurance claim for the scratches on six
Boeing 737-200 aircraft.
Staff Costs. Ryanair's staff costs, which consist primarily of salaries,
wages and benefits, decreased 11.2% on a per ASM basis, while in absolute terms,
these costs increased 21.0%, from EUR141.7 million in the fiscal year ended
March 31, 2005, to EUR171.4 million in the fiscal year ended March 31, 2006,
primarily reflecting an 17.6% increase in average employee numbers to 3,063 and
the impact of pay increases of 3% granted during the year.
51
Depreciation and Amortization. Ryanair's depreciation and amortization per
ASM decreased by 17.3%, while in absolute terms these costs increased 12.7% from
EUR110.4 million in the fiscal year ended March 31, 2005, to EUR124.4 million in
the fiscal year ended March 31, 2006, primarily reflecting higher depreciation
as a result of the net increase in the size of Ryanair's "owned" fleet from 74
to 86, offset by lower amortization charges due to the retirement of nine
737-200A aircraft and a decline in the cost of amortization of capitalized
maintenance of 737-800 aircraft as a result of more favorable terms in Ryanair's
new engine maintenance agreement with GE. The increase was also offset in part
by the effect of the strength of the euro against the U.S. dollar on the
depreciation and amortization charges relating to new aircraft deliveries when
expressed in euro.
Fuel and Oil. Ryanair's fuel and oil costs increased by 27.9% per ASM, and
by 74.3% in absolute terms to EUR462.5 million from EUR265.3 million in the
fiscal year ended March 31, 2005, in each case after giving effect to the
Company's fuel hedging activities. The increase reflected a 21.2% increase in
the number of sectors flown, an increase of approximately 8% in the average
sector length and the significant increase in the average dollar-denominated
fuel price, offset in part by the positive impact of the strengthening of the
euro against the U.S. dollar during the period. Fuel and oil costs include the
direct cost of fuel, the cost of delivering fuel to the aircraft and aircraft
de-icing costs. The average fuel price paid by Ryanair (calculated by dividing
total scheduled fuel costs by the number of U.S. gallons of fuel consumed)
increased nearly 39.6% from EUR1.06 per U.S. gallon in the fiscal year ended
March 31, 2005 to EUR1.48 per U.S. gallon in the fiscal year ended March 31,
2006, in each case after giving effect to the Company's fuel hedging activities.
Maintenance, Materials and Repairs. Ryanair's maintenance, materials and
repair expenses, which consist primarily of the cost of routine maintenance and
the overhaul of spare parts, increased 4.4% on a per ASM basis, while in
absolute terms these expenses increased by 42.2%, from EUR26.3 million in the
fiscal year ended March 31, 2005, to EUR37.4 million in the fiscal year ended
March 31, 2006. The absolute increase reflected the higher number of leased
737-800 aircraft, which grew to 17 from 13 during the year, offset in part by a
lower level of maintenance costs incurred due to the improved reliability of the
737-800s operated, the release of maintenance overhaul provisions of EUR5.9
million pre-tax during the year associated with the earlier-than-scheduled
return of six leased 737-300s, the retirement of the remaining nine 737-200As
and the positive impact of the strengthening of the euro against the U.S. dollar
during the period. Under IFRS, the accounting treatment for these costs with
respect to leased aircraft differs from that for aircraft owned by the Company,
for which such costs are capitalized and amortized.
Marketing and Distribution Costs. Ryanair's marketing and distribution
costs per ASM decreased 48.0%, while in absolute terms these costs decreased by
29.1%, from EUR19.6 million in the fiscal year ended March 31, 2005 to EUR13.9
million fiscal year ended March 31, 2006. The decrease in absolute terms was
primarily the result of a reduction in the level of marketing activity and
related expenditures.
Aircraft Rentals. Ryanair recorded EUR47.4 million in aircraft rental
expense during the fiscal year ended March 31, 2006, a 119.8% increase from the
EUR21.5 million reported in fiscal year 2005, reflecting the additional four
737-800 aircraft on lease during the year. This EUR21.5 million amount for
fiscal year 2005 included an EUR11.9 million credit due to a change in the
accounting treatment of business combinations following the adoption of IFRS,
which related to the reversal of certain aircraft lease provisions arising on
the acquisition of Buzz and was reflected in a reduction of aircraft rentals in
the income statement for fiscal year 2005. An additional expenditure of $5.5
million was incurred on short-term leases during the fourth quarter of fiscal
2006, due to a combination of a delay in aircraft deliveries due to a strike of
Boeing machinists in September 2005 and the impact of the delayed conversion
training of some Dublin pilots to enable them to fly the new Boeing 737-800
aircraft, was largely offset by the decrease in costs resulting from the early
return of six leased 737-300 aircraft to ILFC.
52
Route and Airport and Handling Charges. Ryanair's route charges per ASM
decreased 11.0% in the fiscal year ended March 31, 2006, while airport and
handling charges per ASM decreased 11.1%. In absolute terms, route charges
increased 21.3%, from EUR135.7-million in the fiscal year ended March 31, 2005,
to EUR164.6-million in the fiscal year ended March 31, 2006, primarily as a
result of the 21.2% increase in sectors flown and the increase of approximately
8% in average sector length, as well as an increase in route charges based on
aircraft weight, as the average weight of the fleet increased due to the higher
proportion of 737-800s, offset in part by a reduction in enroute charges in
certain EU countries. In absolute terms, airport and handling charges increased
21.3%, from EUR178.4 million in the fiscal year ended March 31, 2005, to
EUR216.3 million in the fiscal year ended March 31, 2006, reflecting the overall
growth in passenger volumes as well as increased costs at certain airports
already served by Ryanair, the effects of which were offset in part by lower
average costs at new airports and bases.
Other Expenses. Ryanair's other operating expenses, including those
applicable to the generation of ancillary revenues, decreased 21.0% on a per ASM
basis in the fiscal year ended March 31, 2006, although in absolute terms these
costs remained virtually unchanged, from EUR79.5 million in the fiscal year
ended March 31, 2005 to EUR79.6 million in the fiscal year ended March 31, 2006.
Other expenses recorded in fiscal year 2006 reflected an exceptional credit of
EUR5.9 million, arising from the settlement of an insurance claim relating to
scratches on six 737-200A aircraft that were retired early during 2003. The
decline on a per ASM basis reflected improved margins on some new and existing
products, as well as cost reductions realized in relation to certain indirect
overhead costs, while the increase in absolute terms was primarily attributable
to the increased passenger volumes.
Operating Profit. As a result of the factors outlined above, operating
profit decreased 19.3% on a per ASM basis in the fiscal year ended March 31,
2006, but increased 10.1% in absolute terms, from EUR340.7 million in the fiscal
year ended March 31, 2005, to EUR375.0 million in the fiscal year ended March
31, 2006.
Finance Income. Ryanair's interest receivable and similar income increased
34.8%, from EUR28.3 million in the fiscal year ended March 31, 2005 to EUR38.2
million in the fiscal year ended March 31, 2006, primarily reflecting higher
average cash balances on hand due to Ryanair's continuing profitability, as well
as higher average interest rates on deposit during the year.
Finance Expense. Ryanair's interest payable and similar charges increased
28.3%, from EUR57.6 million in the fiscal year ended March 31, 2005, to EUR74.0
million in the fiscal year ended March 31, 2006, reflecting the increase in debt
related to the acquisition of additional 737-800 aircraft. These costs are
expected to continue to increase as Ryanair further expands its fleet.
Foreign Exchange Gains (Losses). Ryanair's foreign exchange losses
decreased to EUR1.2 million in the fiscal year ended March 31, 2006, from EUR2.3
million in the fiscal year ended March 31, 2005, primarily due to the positive
impact of changes in the sterling and U.S. dollar exchange rates against the
euro.
Taxation. The effective tax rate for the fiscal year ended March 31, 2006
was 9.5%, compared to 9.4% in the fiscal year ended March 31, 2005. The
effective tax rate reflects the statutory rate of Irish corporation tax of
12.5%, the positive impact of Ryanair.com (which benefits from a reduced
corporation tax rate) and the continued benefit of Ryanair's international
leasing and internet-related businesses. Profits from qualifying activities at
Ryanair.com are currently levied at an effective 10% tax rate in Ireland.
Ryanair.com will continue to be eligible for the 10% preferential tax treatment
until the scheduled expiration of its license in 2010. Ryanair recorded an
income tax provision of EUR32.2 million for the fiscal year ended March 31,
2006, compared to an income tax provision of EUR29.2 million for the fiscal year
ended March 31, 2005.
53
QUARTERLY FLUCTUATIONS
The Company's results of operations have varied significantly from quarter
to quarter, and management expects these variations to continue. Among the
factors causing these variations are the airline industry's sensitivity to
general economic conditions and the seasonal nature of air travel. Historically,
Ryanair has experienced its lowest load factors and yields for the year in
January and February. As a result, the Company's operating revenues and profit
before taxation have generally been significantly lower in the last quarter of a
fiscal year ended March 31 than in the other quarters of the year.
U.S. GAAP RECONCILIATION
The Company's consolidated net income determined in accordance with U.S.
GAAP was EUR314.8 million and EUR283.4 million for the fiscal years ended
March 31, 2006 and 2005, respectively, as compared with net income of EUR306.7
million and EUR280.0 million, respectively, for the same periods, as determined
under IFRS.
The Company's total assets determined in accordance with U.S. GAAP were
EUR4,672.9 million and EUR3,870.40 million at March 31, 2006 and 2005,
respectively, as compared with EUR4,634.2 million and EUR3,818.2 million,
respectively, under IFRS. Shareholders' equity determined in accordance with
U.S. GAAP was EUR2,020.4 million and EUR1,629.8 million at March 31, 2006 and
2005, respectively, as compared with EUR1,992.0 million and EUR1,734.5 million,
respectively, under IFRS. The main differences affecting the determination of
shareholders' equity at March 31, 2006 include the different treatment of
pension costs and capitalized interest on aircraft acquisitions. For a
discussion of the principal differences between IFRS and U.S. GAAP as they
relate to the Company's consolidated net income and shareholders' equity, see
Note-27 to the Consolidated Financial Statements included in Item 18.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
From April 1, 2005, Ryanair Holdings is required to prepare its annual
consolidated financial statements under IFRS as adopted for use in the EU. The
Company's first results to be reported under IFRS were its interim results for
the quarter ended June 30, 2005. The Company's first annual report under IFRS
was prepared for the fiscal year ending March 31, 2006. In relation to this
transition to IFRS, in April 2005 the SEC adopted amendments to Form 20-F to
provide a one time accommodation relating to first financial statements prepared
under IFRS for foreign private issuers registered with the SEC. This
accommodation permits Ryanair Holdings for its first year of reporting under
IFRS to report two years rather than three years of statements of income,
changes in recognized income and expense and cash flows prepared in accordance
with IFRS, with appropriate related disclosure and respective reconciliation of
financial statement items to U.S. GAAP. For a description of the changes
resulting from the transition to IFRS, see Note-26 to the Consolidated Financial
Statements included in Item 18.
RECENTLY ISSUED ACCOUNTING STANDARDS
Please see Note 1 to the Consolidated Financial Statements included in Item
18 for information on recently issued accounting standards that are material to
the Company.
54
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company finances its working capital requirements through a
combination of cash generated from operations and bank loans for the acquisition
of aircraft. The Company had cash and liquid resources under IFRS at March 31,
2005 and 2006 of EUR1,605.7 million and EUR1,972.0-million, respectively, with
the increase at March 31, 2006 primarily reflecting the growth in profits,
offset in part by cash used to fund the purchase of tangible assets, primarily
the new Boeing 737-800 aircraft. During the year, the Company funded its
EUR546.2 million in purchases of tangible assets with EUR386.8 million in loans
and EUR159.4 million in cash generated from operations. Cash and liquid
resources at both March 31, 2005 and March 31, 2006 included EUR200.0 million in
"restricted cash" held on deposit as collateral for certain derivative financial
instruments entered into by the Company with respect to its aircraft financing
obligations, as well as EUR4.0 million held in escrow relating to ongoing legal
proceedings. See "Item 8. Financial Information--Other Financial
Information--Legal Proceedings."
The Company's net cash inflow from operating activities in fiscal years
2005 and 2006 totaled EUR511.2 million and EUR610.6 million, respectively,
reflecting the strong growth in the Company's profitability and increases in
cash received for ticket purchases during these periods. During the last two
fiscal years, Ryanair's primary cash requirements have been for operating
expenses, additional aircraft, including advance payments in respect of the new
fleet of Boeing 737-800s and related flight equipment, payments on related
indebtedness and payments of corporation tax. Cash generated from operations has
been the principal source for these cash requirements, supplemented primarily by
aircraft-related bank loans.
The Company's net cash used in investing activities in fiscal years 2005
and 2006 totaled EUR850.5 million and EUR337.3 million, respectively, primarily
reflecting the Company's capital expenditures, as described in more detail
below.
The Company's net cash provided by financing activities totaled EUR467.3
million in fiscal 2005 and EUR293.5 million in fiscal 2006, largely reflecting
the proceeds from long-term borrowings of EUR550.0 million and EUR386.8 million
in fiscal years 2005 and 2006, respectively, offset in part by repayments of
long-term borrowings of EUR88.2 million and EUR123.9 million in fiscal years
2005 and 2006, respectively.
Capital Expenditures. The Company's net cash outflows for capital
expenditures in fiscal years 2005 and 2006 were EUR632.0 million and EUR546.2
million, respectively. Ryanair has funded a significant portion of its
acquisition of new Boeing 737-800 aircraft and related equipment through
borrowings under facilities provided by international financial institutions on
the basis of guarantees issued by the Export-Import Bank of the United States
("ExIm"), as described in more detail below.
At March 31, 2006, Ryanair had taken delivery of 82 Boeing 737-800
aircraft, the purchase of which was funded in part by ExIm guaranteed financing.
The remaining 21 Boeing 737-800 aircraft in Ryanair's fleet at March 31, 2006
were financed through lease arrangements.
Ryanair has generally been able to generate sufficient funds from
operations to meet its non-aircraft acquisition related working capital
requirements. Management believes that the working capital available to the
Company is sufficient for its present requirements and will be sufficient to
meet its anticipated requirements for capital expenditures and other cash
requirements for fiscal year 2007.
The following table summarizes the delivery schedule for each of the Boeing
737-800 aircraft Ryanair has purchased, or is required to purchase, under its
past and current contracts with Boeing, including through the exercise of
purchase options. These Boeing 737-800s are identical in all significant
respects, having 189 seats and the same cockpit and engine configuration. The
table also provides details of the "Basic Price" (equivalent to a standard list
price for an aircraft of this type) for each of these aircraft. The Basic Price
for each of the firm aircraft to be delivered pursuant to the 2005 Boeing
contract, as well as for each of the firm aircraft that remained to be delivered
and purchase options outstanding under the prior contracts at January 1, 2005,
will be increased by (a) an estimated US$900,000 per aircraft for certain "buyer
furnished" equipment the company has asked Boeing to purchase and install on
each of the aircraft, and (b) an "Escalation Factor" designed to increase the
Basic Price of any individual aircraft to reflect increases in the published
U.S. Employment Cost and Producer Price indices from the time the Basic Price
was set through the period of six months prior to the delivery of such aircraft.
The Basic Price is also subject to decrease to take into account certain
concessions granted to the Company by Boeing pursuant to the terms of the
contracts. These concessions take the form of credit memoranda, which the
Company may apply towards the purchase of goods and services from Boeing or
towards certain payments in respect of the purchase of the aircraft. Boeing and
CFM International S.A. (the manufacturer of the CFM56-7B engines that power the
Boeing 737-800 aircraft) have also agreed to give the Company certain allowances
for promotional and other activities, as well as providing other goods and
services to the Company on concessionary terms.
55
These credit memoranda and allowances will effectively reduce the price of
each aircraft to the Company. As a result, the Company expects the effective
price of each aircraft will be significantly below the unadjusted Basic Price in
the table below.
Aircraft Delivery Schedule
Deliveries and Scheduled 1998 Boeing 2002 Boeing 2003 Boeing 2005 Boeing Post-2006 Total
Deliveries in the Fiscal Contract Contract Contract Contract Contract No. of
Year (Incl. (Incl. (Incl. (Incl. Option 737-800
ending March 31, Options) Options) Options) Options) Aircraft Aircraft
____________ _____________ ____________ ____________ __________ __________
1999................... 1 - - - - 1
2000................... 4 - - - - 4
2001................... 10 - - - - 10
2002................... 5 - - - - 5
2003................... 8 5 - - - 13
2004................... - 18 - - - 18
2005................... - 13 14 - - 27
2006................... - 16 9 - - 25
____________ _____________ ____________ ____________ __________ __________
Total as of
March 31, 2006....... 28 52 23 - - 103
============ ============= ============ ============ ========== ==========
2007................... - 27 1 2 - 30
2008................... - 21 - 12 3 36
2009................... - 3 - 17 7 27
2010................... - - - 20 - 20
2011................... - - - 20 - 20
2012................... - - - 13 - 13
____________ _____________ ____________ ____________ __________ __________
Expected Total as of
March 31, 2012....... 28 103 24 84 10 249
============ ============= ============ ============ ========== ==========
Basic Price per
aircraft (unadjusted)
(in millions).......... US$46.632 US$50.885 US$50.889 US$50.916 US$51.014
============ ============ ========== ========== ==========
The following table summarizes the aggregate purchase options available to
the Company under its contracts with Boeing at the start and end of fiscal 2006
and at September 15, 2006, broken down by periods in which the relevant option
aircraft are deliverable.
56
For Deliveries For Deliveries Total
in fiscal 2007 in fiscal 2012 737-800
- 2011 - 2014 Options
Options available as of April 1, 2005................... 123 70 193
Options granted in the period........................ - - -
Options exercised in the period...................... (14) - (14)
Options cancelled in the period...................... - - -
_________ __________ ________
Total options available as of March 31, 2006............ 109 70 179
Options granted after March 31, 2006................. - - -
Options exercised after March 31, 2006............... (10) - (10)
Options cancelled after March 31, 2006............... - - -
_________ __________ ________
Total options available as of September 15, 2006........ 99 70 169
========= ========== ========
As can be seen from the delivery schedule table above, delivery of the
Boeing 737-800s already ordered will enable the Company to increase the size of
its summer schedule fleet by between 13 and 36 additional aircraft each fiscal
year during the period from fiscal 2007 to 2012, significantly increasing the
size of the fleet, which is expected to total 249 (including the ten advance
purchase options exercised after year-end fiscal 2006, as evidenced in the above
table of purchase options) at the end of that period. If traffic growth proves
to be greater than can be satisfied by these new aircraft, the Company may
exercise its rights to acquire some of the 169 option aircraft to cater to this
demand.
Capital Resources. Ryanair's long-term debt (including current maturities)
totaled EUR1,414.9 million at March 31, 2005 and EUR1,677.7 million at March 31,
2006, with the increase being primarily attributable to the financing of new
aircraft. Please see the table "Obligations Due by Period" in "-Contractual
Obligations" below for more information on Ryanair's long-term debt (including
current maturities) and finance leases as of March 31, 2006. See also Note 10 to
the Consolidated Financial Statements included in Item 18 for further
information on the maturity profile, interest rate structure and other
information on the Company's borrowings.
The Company's purchase of 82 of the 103 Boeing 737-800 aircraft delivered
as of March 31, 2006, has been funded in part by bank financing in the form of
loans under facilities supported by a loan guarantee from ExIm. At March 31,
2006, ABN AMRO Bank N.V. (as Loan Agent on behalf of other institutions and/or
for itself, "ABN"), BNP Paribas ("BNP"), ING Capital LLC ("ING"), The Royal Bank
of Scotland plc ("RBS") and Lloyds TSB Bank PLC ("Lloyds TSB") had provided
financing under these ExIm-guaranteed loan facilities for 28, 19, 17, 12 and 6
aircraft respectively. Each of these facilities takes essentially the same form
and is based on the documentation developed for the initial ABN facility, which
follows standard market forms for this type of financing. On the basis of an
ExIm guarantee with regard to the financing of up to 85% of the eligible U.S.
and foreign content represented in the net purchase price of the relevant
aircraft, the financial institution enters into a commitment letter with the
Company to provide financing for a specified number of aircraft benefiting from
such a guarantee; loans are then drawn down as the aircraft are delivered and
payments to Boeing become due. Each of the loans under the facilities is on
substantially similar terms, having a maturity of twelve years from the drawdown
date and being secured by a first priority mortgage in favor of a security
trustee on behalf of ExIm. The initial loans under the ABN facilities were
denominated in dollars and bore interest at a floating rate linked to U.S.
dollar LIBOR; these loans, however, have been converted into a euro-based fixed
rate so that Ryanair's exchange and interest-rate risk is fully hedged, while
subsequent loans under that facility, as well as under the BNP, ING, RBS and
Lloyds TSB facilities, are denominated in euro and bear interest at floating
rates linked to EURIBOR.
Through the use of interest rate swaps, Ryanair has effectively converted a
significant portion of its floating rate debt under each of the other facilities
into fixed rate debt. Loans for approximately 30% of aircraft acquired under the
above facilities are not covered by such swaps and have therefore remained at
floating rates linked to EURIBOR; the interest rate exposure from these loans is
hedged by placing a similar amount of cash on deposit at floating interest
rates. The net result is that Ryanair has effectively drawn down fixed rate
euro-denominated debt with a maturity of twelve years in respect of more than
70% of its financing for the 82 Boeing 737-800 aircraft purchased through March
31, 2006, using these facilities.
57 The table below illustrates the effect of swap transactions (each of
which is with an established international financial counterparty) on the
profile of Ryanair's total outstanding debt at March 31, 2006. See "Item 11.
Quantitative and Qualitative Disclosures About Market Risk-Interest Rate
Exposure and Hedging" for additional details on the Company's hedging
transactions.
At March 31, 2006 EUR EUR
Fixed Floating
EUR000 EUR000
_____________ _____________
Euro borrowing profile before swap transactions................... 478,971 1,198,757
Interest rate swaps............................................... 698,464 (698,464)
_____________ ____________
Borrowing profile after swap transactions......................... EUR1,177,435 EUR 500,293
============= ============
The weighted average interest rate on the cumulative borrowings under these
facilities of EUR1,677.7 million at March 31, 2006 was 4.66%. Ryanair's ability
to obtain additional loans pursuant to each of the facilities in order to
finance a portion of the purchase price of Boeing 737-800 aircraft to be
delivered in the future is subject to the issuance of further commitments by the
banks and satisfaction of various conditions contained in the documentation for
the facilities. These conditions include, among other things, the execution of
satisfactory documentation, the requirement that Ryanair perform all of its
obligations under the Boeing agreements and provide satisfactory security
interests in the aircraft (and related assets) in favor of the lenders and ExIm,
and that Ryanair does not suffer a material adverse change in its conditions or
prospects (financial or otherwise).
ExIm's policy on facilities of this type is to issue a binding final
commitment approximately six months prior to delivery of each aircraft being
financed. ExIm has already issued final binding commitments and related
guarantees with respect to the 82 ExIm-financed Boeing 737-800 aircraft
delivered between 1999 and March 2006. ExIm's final binding commitment is also
subject to certain conditions set forth in the documentation for facilities and
the ExIm guarantee. These conditions include, among other things, the execution
of satisfactory documentation, the creation and maintenance of the lease and
related arrangements described below, that Ryanair provide satisfactory security
interest in the aircraft (and related assets) in favor of ExIm and the lenders,
and that the subject aircraft be registered in Ireland, be covered by adequate
insurance and maintained in a manner acceptable to ExIm. Ryanair expects that
any future commitments or guarantees issued by ExIm will contain similar
conditions. The terms of the facilities and the ExIm guarantee require that
Ryanair pay certain fees in connection with such financings. In particular,
these fees include arrangement fees paid to the facility arranger, and a
commitment fee based on the unutilized and uncancelled portion of the guarantee
commencing 60 days from date of issuance of the guarantee and payable
semi-annually in arrears. An exposure fee for the issuance of the guarantee on
the date of delivery is also payable to ExIm (based on the amount of the
guarantee). Ryanair's payment of the 3% exposure fee to ExIm of the amount of
the loan provided is eligible for financing under the facilities. All such fees
are capitalized and amortized over the life of the aircraft. Ryanair anticipates
that similar fees will be incurred as additional aircraft are delivered and
financed.
As part of its ExIm guarantee-based financing of the Boeing 737-800's,
Ryanair has entered into certain lease agreements and related arrangements.
Pursuant to these arrangements, legal title to 82 aircraft delivered to date
rests with a number of United States special purpose vehicles (the "SPV's") in
which Ryanair has no equity or other interest. The SPV's are the borrower of
record under the loans made or to be made under the facilities, with all of its
obligations under the loans being guaranteed by Ryanair Holdings plc. The shares
of the SPV's (which are owned by an unrelated charitable association) are in
turn pledged to a security trustee in favor of ExIm and the lenders. Ryanair
Limited operates each of the aircraft pursuant to a finance lease it has entered
into with the SPV's, the terms of which mirror those of the relevant loan under
the facilities. Ryanair has the right to purchase the aircraft upon termination
of the lease for a nominal amount. Pursuant to this arrangement, Ryanair is
considered to own the aircraft for accounting purposes under both IFRS and U.S.
GAAP. Ryanair does not engage in the use of special purpose entities for
off-balance sheet financing or any other purpose which results in assets or
liabilities not being reflected in Ryanair's Consolidated Financial Statements.
58
Ryanair has a commitment from ING to provide financing for up to nine more
of its firm order Boeing 737-800 aircraft under ExIm guaranteed financing
structures. The company expects to finance the remaining 142 Boeing 737-800
aircraft it is obligated to purchase under its contracts with Boeing by December
2011 and any option aircraft it acquires under those agreements (including the
ten options exercised in June 2006) through the use of similar financing
arrangements based on an ExIm guarantee, bank debt provided by commercial banks,
and finance and operating leases via sale and leaseback transactions such as
those described below, Enhanced Equipment Trust Certificates and cash flow
generated from the Company's operations. At March 31, 2006, the Company had
received a preliminary commitment from ExIm in relation to 9 aircraft which are
to be delivered over the period from September 2006 to March 2007. The terms of
this preliminary commitment are the same as those outlined above in relation to
the guarantees already issued. It is expected that any future ExIm
guarantee-based financing will also be subject to terms and conditions similar
to those described above. However, no assurance can be given that such financing
will be available to Ryanair, or that the terms of any such financing will be as
advantageous to the Company as those available at the time of the facilities.
Any inability of the Company to obtain financing for the new aircraft on
advantageous terms could have a material adverse effect on its business, results
of operation and financial condition.
The Company financed 17 of the Boeing 737-800 aircraft delivered between
December 2003 and March 2006 by way of operating leases. As a result, Ryanair
operates, but does not own, these aircraft, which were leased to provide
flexibility to the aircraft delivery program. The Company has no right or
obligation to acquire these aircraft at the end of the relevant leases, each of
which has a seven-year term. Most of these leases are denominated in euro and
require Ryanair to make variable rental payments that are linked to EURIBOR.
Through the use of interest rate swaps, Ryanair has effectively converted the
floating rate rental payments due under a number of these leases into fixed rate
rental payments, as more fully described in Note 4 to the Consolidated Financial
Statements included in Item 18. At March 31, 2006, the fair value of the
interest rate swaps relating to these leases on a mark-to-market basis was
equivalent to a loss of EUR34.2 million. Ryanair financed an additional four
aircraft, delivered in April 2006, by way of fixed rental operating leases. In
fiscal year 2005, the Company also financed four Boeing 737-800 aircraft under
thirteen-year euro-denominated "Japanese operating lease" structures. These
structures are accounted for as finance leases and recorded at fair value in the
Company's balance sheet. Under each of these contracts, Ryanair has a call
option to purchase these aircraft at a predetermined price after a period of ten
years, which it intends to exercise.
In 2000, Ryanair purchased a Boeing 737-800 flight simulator from CAE
Electronics Limited of Quebec, Canada ("CAE"). The simulator is being used for
pilot training purposes. The gross purchase price of the simulator and the
necessary software was approximately US$10 million, not taking into account
certain price concessions provided by the seller in the form of credit
memoranda. The Company financed this expenditure with a 10-year euro-denominated
loan provided by the Export Development Corporation of Canada for up to 85% of
the net purchase price, with the remainder provided by cash flows from
operations.
59
In 2002, Ryanair entered into a contract to purchase two additional Boeing
737-800 flight simulators from CAE. The first of these simulators was delivered
in January 2004 and the second simulator is expected to be delivered in fiscal
year 2007. The gross price of each simulator is approximately US$10.3 million,
not taking into account certain price concessions provided by the seller in the
form of credit memoranda. In September, 2006 Ryanair entered into a new contract
with CAE to purchase five B737NG Level B flight simulators. The first of these
simulators is expected to be delivered in fiscal year 2009. This contract also
provides Ryanair with an option to purchase another five simulators. The gross
price of each simulator is approximately US$8 million, not taking into account
certain price concessions provided by the seller in the form of credit memoranda
and discounts.
In September 2004, the Company refinanced the first simulator delivered
under the 2002 contract with a 10-year euro-denominated loan provided by the
Export Development Corporation of Canada for up to 85% of the net purchase
price, with the remainder provided by cash flows from operations. The Company
anticipates financing future simulators through a combination of bank debt
provided by commercial banks and cash flow from its operations.
Contractual Obligations. The following table sets forth the contractual
obligations and commercial commitments of the Company with definitive payment
terms which will require significant cash outlays in the future, as of March 31,
2006. These obligations primarily relate to Ryanair's aircraft purchase and
related financing obligations, which are described in more detail above. For
additional information on the Company's contractual obligations and commercial
commitments, see Note 22 to the Consolidated Financial Statements included in
Item 18.
The amounts listed under "Finance Lease Obligations" reflect the Company's
obligations under its Japanese operating leases. See "Item-5. Operating and
Financial Review and Prospects-- Liquidity and Capital Resources."
The amounts listed under "Purchase Obligations" in the table reflect
obligations for aircraft purchases and are calculated by multiplying the number
of aircraft the Company is obligated to purchase under its current agreements
with Boeing during the relevant period by the Basic Price for each aircraft
pursuant to the relevant contract, with the dollar-denominated Basic Price being
converted into euro at an exchange rate of US$1.2139=EUR1.00. The relevant
amounts therefore exclude the effect of the price concessions granted to Ryanair
by Boeing and CFM, as well as any application of the Escalation Factor. As a
result, Ryanair's actual expenditures for aircraft during the relevant periods
will be lower than the amounts listed under "Purchase Obligations" in the table.
With respect to purchase obligations under the terms of the 2005 Boeing
contract, the Company was required to pay Boeing 1% of the Basic Price of each
of the 70 firm order Boeing 737-800 aircraft at the time the contract was signed
in February 2005, and will be required to make periodic advance payments of the
purchase price for each aircraft it has agreed to purchase during the course of
the two year period preceding the delivery of each aircraft. These payments
terms also apply for the 89 aircraft that remained to be delivered under the
2002 and 2003 Boeing contracts as of January 2005. As a result of these required
advance payments, the Company will have paid up to 30% of the Basic Price of
each aircraft prior to its delivery (including the addition of an estimated
"Escalation Factor" but before deduction of any credit memoranda and other
concessions); the balance of the net price is due at the time of delivery.
60
The amounts listed under "Operating Lease Obligations" reflect the
Company's obligations under its aircraft operating lease arrangements.
61
Obligations Due by Period
Less than
Contractual Obligations Total 1-year 1-2 years 2-5 years After 5-years
(EUR000)
________________________________________________________________________________________________________________________
Long-term Debt*...................... 1,940,746 219,896 239,472 623,199 858,179
Finance Lease Obligations............ 130,694 8,276 8,361 25,615 88,442
Purchase Obligations................. 6,172,756 1,257,613 1,526,171 2,837,108 551,864
Operating Lease Obligations ......... 233,896 45,097 45,097 129,508 14,194
_________ _________ _________ _________ _________
Total Contractual Obligations........ 8,478,092 1,530,882 1,819,101 3,615,430 1,512,679
========= ========= ========= ========= =========
*Amounts presented include the related interest expense that will be paid when due. For additional information
on our long-term debt obligations, see Note 10 to the Consolidated Financial Statements included in Item 18.
OFF-BALANCE SHEET TRANSACTIONS
Ryanair uses certain off-balance sheet arrangements in the ordinary course
of business, including financial guarantees and derivative transactions. Details
of each of these arrangements that have or are reasonably likely to have a
current or future material effect on the Company's financial condition, results
of operations, liquidity or capital resources are discussed below. The
derivative financial instruments used by the Company are recorded on the balance
sheet under IFRS, and are described in more detail in "Item 11. Quantitative and
Qualitative Disclosure About Market Risk" and Note 10 to the Consolidated
Financial Statements in Item 18.
Sale and Leasebacks. The Company has entered into a number of sale and
leaseback transactions in connection with the financing of a number of aircraft
in its fleet. See "-Liquidity and Capital Resources-Capital Resources" above for
additional information on these transactions.
Guarantees. Ryanair Holdings has provided an aggregate of EUR30.5 million
in letters of guarantee to secure obligations of certain of its subsidiaries in
respect of loans and bank advances, including those relating to aircraft
financing and related hedging transactions.
TREND INFORMATION
For information on Ryanair's results of operations in the quarter ended
June-30, 2006, see "-Recent Operating Results" above. For information on the
principal trends and uncertainties affecting the Company's results of operations
and financial condition, see "Item 3. Key Information-Risk Factors" and
"-Business Overview," "-Results of Operations" and "-Liquidity and Capital
Resources" above.
INFLATION
Inflation has not had a significant effect on the Company's results of
operations and financial condition during the two fiscal years ended March 31,
2006.
62
Item 6. Directors, Senior Management and Employees
Ryanair Holdings was established in 1996 as a holding company for Ryanair.
The management of Ryanair Holdings and Ryanair are integrated, with the two
companies having the same Board of Directors and all executive officers of
Ryanair Holdings being executive officers of Ryanair.
DIRECTORS
The following table sets forth certain information concerning the directors
of Ryanair Holdings as of September 22, 2006:
Name Age Positions
___________________________________________________________________________________________________
David Bonderman (a)(f)........................... 64 Chairman of the Board and Director
Emmanuel Faber (c)............................... 42 Director
Michael Horgan(e)................................ 70 Director
Klaus Kirchberger (b)............................ 48 Director
Kyran McLaughlin(c).............................. 62 Director
Michael O'Leary(a)(d)(f)......................... 45 Director and Chief Executive
James R. Osborne(b)(c)........................... 57 Director
Paolo Pietrogrande(b)............................ 49 Director
T. Anthony Ryan(a)(f)............................ 70 Director
____________________
(a) Member of the Executive Committee.
(b) Member of the Remuneration Committee.
(c) Member of the Audit Committee.
(d) Mr. O'Leary is also the chief executive officer of Ryanair Holdings and Ryanair Limited. None of the
other directors are executive officers of Ryanair Holdings or Ryanair Limited.
(e) Member of the Air Safety Committee.
(f) Member of the Nomination Committee.
David Bonderman has served as a director of Ryanair Holdings and Ryanair
Limited since August 23, 1996 and as Chairman of the Board of Ryanair Holdings
and Ryanair Limited since December 1996. In 1992, Mr. Bonderman co-founded Texas
Pacific Group, a private equity investment firm. He currently serves as an
officer and director of the general partner and manager of Texas Pacific Group.
Mr. Bonderman is also an officer, director and shareholder of 1996 Air G.P.,
Inc., which owns shares of Ryanair. Mr. Bonderman serves on the Board of
Directors of the following public companies: Burger King Holdings, Inc., CoStar
Group, Inc. and GemAlto N.V.
Emmanuel Faber has served as a director of Ryanair Holdings since
September-25, 2002, and currently serves as Senior Vice President - Asia Pacific
and a director of Groupe Danone. Mr. Faber is also a director of Legris
Industries. Prior to his current appointment, he was head of the Mergers and
Acquisitions and the Corporate Strategy department of Groupe Danone. Between
1993 and 1997, he served as a director and Chief Financial Officer of Legris
Industries, a French public company specializing in mechanical engineering. From
1988 to 1993, Mr. Faber held a number of senior positions in the Corporate
Finance department of Barings Bank.
Michael Horgan has served as a director of Ryanair Holdings since
January-12, 2001. A former Chief Pilot of Aer Lingus, he sometimes acts as a
consultant to a number of international airlines, civil aviation authorities,
the European Commission and the European Bank for Reconstruction and
Development. Mr. Horgan chairs the Air Safety Committee of the Board.
Klaus Kirchberger has served as director of Ryanair Holdings since
September-25, 2002. He has been Chief Executive Officer of Thurn und Taxis
Group, the asset management holding of Thurn und Taxis family in Regensburg,
since August 2002, and a director of that company since 1997. Prior to serving
as CEO, Mr. Kirchberger was the Head of the Controlling and Tax department of
Thurn und Taxis. Between 1990 and 1994, he was a Senior Manager at
Pricewaterhouse Coopers in Munich. He also held senior management positions at
IKB Industriebank AG, Munich and is a qualified German lawyer and auditor. Mr.
Kirchberger is also a non-executive director of the German listed companies
DIBAG AG and TTL Information Technology AG, as well as of Deutsche Immobilien
Chancen AG & Co. KGaA and TTL International AG.
63 Kyran McLaughlin has served as a director of Ryanair Holdings since
January 12, 2001 and is Deputy Chairman and Head of Capital Markets at Davy
Stockbrokers. Mr. McLaughlin is also Chairman of Elan Corporation plc and he
serves as a director of a number of private companies.
Michael O'Leary has served as a director of Ryanair Holdings since July 2,
1996 and a director of Ryanair Limited since November 25, 1988. Mr. O'Leary has
been Chief Executive of Ryanair Limited since January 1, 1994.
James R. Osborne has served as a director of Ryanair Holdings since August
22, 1996, as a Director of Ryanair Limited since April 12, 1995. Mr. Osborne was
the managing partner of the law firm of A & L Goodbody Solicitors from May 1982
to April 30, 1994 and currently serves as a consultant to that firm. Mr. Osborne
also serves on the Board of Directors of a number of Irish private companies.
Paolo Pietrogrande has served as a director of Ryanair since 2001. Mr.
Pietrogrande is currently President of Netplan Management Consulting, LLC. Mr.
Pietrogrande is also Director of the Executive MBA program at Alma Graduate
School, University of Bologna. Mr. Pietrogrande's past positions include CEO of
Enel Green Power S.p.A. (power generation in Italy, North and Latin America),
Business Development Director at General Electric Power Systems, Europe+,
Manager at Bain and Company, Vice President Marketing at Kinetics Technology
International B.V and CEO of Nuovi Cantieri Apuania, a designer and supplier of
merchant ships.
T. Anthony Ryan has served as a director of Ryanair Holdings since July 2,
1996 and as a director of Ryanair Limited since April 12, 1995. Dr. Ryan served
as Chairman of the Board of Ryanair Holdings from August 23, 1996 until December
1996 and as Chairman of the Board of Ryanair Limited from January 1996 until
December 1996. Dr. Ryan was one of the founders in 1975 of GPA Group plc
("GPA"), an operating lessor of commercial aircraft, and served as Chairman of
GPA from 1985 to 1993. Following a restructuring of GPA involving General
Electric Capital Corporation ("GECC") in 1993, Dr. Ryan served as Executive
Chairman of GE Capital Aviation Services, Limited, a company established by GECC
to manage the aircraft assets of GPA, from 1993 to 1996.
The Board of Directors has established a number of committees, including
the following:
Executive Committee. The Board of Directors established the Executive
Committee in August 1996. The Executive Committee can exercise the powers
exercisable by the full Board of Directors in circumstances where action by the
Board of Directors is required and it is impracticable to convene a meeting of
the full Board of Directors. Messrs. O'Leary, Bonderman and Ryan are the members
of the Executive Committee.
Remuneration Committee. The Board of Directors established the Remuneration
Committee in September-1996 to have authority to determine the remuneration of
senior executives of Ryanair Holdings and to administer the Ryanair Holdings
Stock Option Plan. The Board as a whole determines the remuneration and bonuses
of the Chief Executive Officer, who is the only executive director.
Messrs.-Pietrogrande, Kirchberger and Osborne are the members of the
Remuneration Committee.
64
Audit Committee. The Board of Directors established the Audit Committee in
September-1996 to make recommendations concerning the engagement of independent
chartered accountants; to review with the accountants the plans for and scope of
the audit, the audit procedures to be utilized and the results of the audit; to
approve the professional services provided by the accountants; to review the
independence of the accountants; and to review the adequacy and effectiveness of
the Company's internal accounting controls. Messrs.- McLaughlin, Faber and,
since September 21, 2006, Mr. Osborne are the members of the Audit Committee.
Mr. Osborne was appointed to the Audit Committee to replace Mr. Raymond
MacSharry, who retired from the Board of Directors and thus from the Audit
Committee on September 21, 2006. See "-Composition and Term of Office". In
accordance with the recommendations of the Irish Combined Code of Corporate
Governance (the "Combined Code"), a senior independent non-executive director,
Kyran McLaughlin, is Chairman of the Audit Committee. All members of the Audit
Committee are also independent for purposes of the listing rules of the Nasdaq
National Market ("Nasdaq") and the U.S. federal securities laws.
Nomination Committee. The Board of Directors established the Nomination
Committee in May 1999 to make recommendations to the full Board of Directors
concerning the selection of individuals to serve as executive and non-executive
directors and to make proposals to the Board of Directors. The Board of
Directors as a whole then makes an appropriate determination. Messrs. O'Leary,
Bonderman and Ryan are the members of the Nomination Committee.
Air Safety Committee. The Board of Directors established the Air Safety
Committee in March 1997 to review and discuss air safety and related issues. The
Air Safety Committee reports to the full Board of Directors each quarter. The
Air Safety Committee comprises director Michael Horgan (chairperson), as well as
the following executive officers of Ryanair: Messrs. Conway, Hickey, O'Brien and
Wilson.
Action and Powers of Board of Directors
The Board of Directors is empowered by the Articles of Association of
Ryanair Holdings to carry on the business of Ryanair Holdings, subject to the
Articles of Association, provisions of general law and the right of stockholders
to give directions to the directors by way of ordinary resolution. Every
director of Ryanair Holdings who is present at a meeting of the Board of
Directors shall have one vote. In the case of a tie on a vote, the Chairman of
the Board of Directors shall not have a second or tie-breaking vote. A director
may designate an alternate to attend any Board of Directors meeting, and such
alternate shall have all the rights of a director at such meeting.
The quorum for a meeting of the Board of Directors, unless another number
is fixed by the directors, consists of three directors. A majority of the
directors present must be EU nationals. The Articles of Association of Ryanair
Holdings require the vote of a majority of the directors (or alternates) present
at a duly convened meeting for the approval of all actions by the Board of
Directors.
Composition and Term of Office
The Articles of Association provide that the Board of Directors shall
consist of no fewer than three and no more than 15 directors, unless otherwise
determined by the stockholders. There is no maximum age for a director and no
director is required to own any shares of Ryanair Holdings.
Directors are elected (or have their appointment by the directors
confirmed) at the annual general meeting of stockholders. Save in certain
circumstances, at every annual general meeting, one-third (rounded down to the
next whole number if it is a fractional number) of the directors (being the
directors who have been longest in office) will retire by rotation and be
eligible for re-election. Accordingly, Mr. Michael Horgan, Mr. Kyran McLaughlin
and Mr. Paolo Pietrogrande retired, and were re-elected at the annual general
meeting on September 21, 2006. Mr. Raymond MacSharry, who had been a member of
the Board of Directors from August 1996 through the 2006 fiscal year, retired,
effective at the conclusion of the annual general meeting held on September 21,
2006.
65
Exemptions from Nasdaq Corporate Governance Rules
At the time of Ryanair's listing on the Nasdaq in 1997, the Company
received certain exemptions from the Nasdaq corporate governance rules. These
exemptions, and the practices the Company follows, are as follows:
o The Company is exempt from Nasdaq's quorum requirements
applicable to meetings of shareholders, which require a minimum
quorum of 33% for any meeting of the holders of common stock,
which in the Company's case are its Ordinary Shares. In keeping
with Irish generally accepted business practice, the Articles of
Association provide for a quorum for general meetings of
shareholders of three shareholders, regardless of the level of
their aggregate share ownership.
o The Company is exempt from the Nasdaq's requirement with respect
to audit committee approval of related-party transactions, as
well as its requirement that shareholders approve certain stock
or asset purchases where a director, officer or substantial
shareholder has an interest. The Company is subject to extensive
provisions under the Listing Rules of the Irish Stock Exchange
(the "Irish Listing Rules") governing transactions with related
parties, as defined therein, and the Irish Companies Act also
restricts the extent to which Irish companies may enter into
related party transactions. In addition, the Company's Articles
of Association contain provisions regarding disclosure of
interests by the directors and restrictions on their votes in
circumstances involving a conflict of interest. The concept of a
related party for purposes of each of the Nasdaq's audit
committee and shareholder approval rules differs in certain
respects from the definition of a transaction with a related
party under the Irish Listing Rules.
o The Nasdaq requires shareholder approval for certain transactions
involving the sale or issuance by a listed company of common
stock other than in a public offering. Under the Nasdaq rules,
whether shareholder approval is required for such transactions
depends, among other things, on the amount of shares to be issued
or sold in connection with a transaction, while the Irish Listing
Rules require shareholder approval where the size of the
transaction exceeds a certain percentage of the size of the
listed company undertaking the transaction.
The Company also follows certain other practices under the Combined Code in
lieu of those set forth in the Nasdaq corporate governance rules, as expressly
permitted thereby. Most significantly:
o Independence. The Nasdaq requires that a majority of an issuer's
Board of Directors be "independent" under the standards set forth
in the Nasdaq rules and that directors deemed independent be
identified in the Company's annual report on Form 20-F. The Board
of Directors has determined that each of the Company's nine
non-executive directors is "independent" under the standards set
forth in the Combined Code. Under the Combined Code, there is no
bright-line test establishing set criteria for independence, as
there is under Nasdaq Rule 4200(a)(15). Instead, the board
determines whether the director is "independent in character and
judgment," and whether there are relationships or circumstances
which are likely to affect, or could appear to affect, the
director's judgment. Under the Combined Code, the board may
determine that a director is independent notwithstanding the
existence of relationships or circumstances which may appear
relevant to its determination, but should state its reasons if it
makes such a determination. The Combined Code specifies that
relationships or circumstances that may be relevant include
whether the director has (i) been an employee of the relevant
company or group within the last five years, (ii) has had within
the last three years a direct or indirect material business
relationship with such company; (iii) has received payments from
such company, subject to certain exceptions, (iv) has close
family ties with any of the company's advisers, directors or
senior employees; (v) holds cross-directorships or other
significant links with other directors; (vi) represents a
significant shareholder; or (vii) has served on the board for
more than nine years. In determining that each of the nine
non-executive directors is independent under the Combined Code
standard, the Ryanair board identified such relevant factors with
respect to Messrs. Bonderman, McLaughlin, Osborne and Ryan. The
Nasdaq independence criteria specifically state that an
individual may not be considered independent if, within the last
three years, such individual or a member of his/her immediate
family has certain specified relationships with the company, its
parent, any consolidated subsidiary, its internal or external
auditors, or any company that has significant business
relationships with the company, its parent or any consolidated
subsidiary. Neither ownership of a significant amount of stock
nor length of service on the board is a per se bar to
independence under the Nasdaq rules.
66
o CEO compensation. The Nasdaq rules require that an issuer's chief
executive officer not be present during voting or deliberations
by the Board of Directors on his or her compensation. There is no
such requirement under the Combined Code, and the Company does
not follow this practice.
SENIOR MANAGEMENT
The following table sets forth certain information concerning the executive
officers of Ryanair Holdings and Ryanair Limited at September-30, 2006:
Name Age Position
_______________________________________________________________________________________________________
Jim Callaghan.............................. 38 Head of Regulatory Affairs and Company Secretary
Michael Cawley............................. 52 Deputy Chief Executive and Chief Operating Officer
Ray Conway................................. 51 Chief Pilot
Caroline Green............................. 43 Head of Customer Service
Michael Hickey............................. 43 Director of Engineering
Howard Millar.............................. 45 Deputy Chief Executive and Chief Financial Officer
David O'Brien.............................. 42 Director of Flight Operations and Ground Operations
Michael O'Leary............................ 45 Chief Executive
Edward Wilson.............................. 43 Director of Personnel and In-flight
Jim Callaghan was appointed Company Secretary in June 2002 and has also
served as Head of Regulatory Affairs of Ryanair since May 2000. Prior to joining
Ryanair, Jim practiced as a competition lawyer for the Brussels office of
Linklaters & Alliance. Jim is a U.S.-trained lawyer and completed a dual degree
in Law and Public and International Affairs at the University of Pittsburgh in
Pennsylvania.
Michael Cawley was appointed Chief Operating Officer on January-1, 2003,
having served as Chief Financial Officer and Commercial Director since February
1997. From 1993 to 1997, Michael served as Group Finance Director of Gowan Group
Limited, one of Ireland's largest private companies and the main distributor for
Peugeot and Citroen automobiles in Ireland.
Captain Ray Conway was appointed as Chief Pilot in June 2002, having joined
Ryanair in 1987. He has held a number of senior management positions within the
Flight Operations Department over the last 16 years, including Fleet Captain on
the BAC1-11 and Boeing 737-200 fleets. Ray was Head of Training between 1998 and
June 2002. Prior to joining Ryanair, Ray served as an officer with the Irish Air
Corps for 14 years where he was attached to the Training and Transport Squadron,
which was responsible for the government jet.
67
Caroline Green was appointed Head of Customer Services in February 2003.
Prior to this, Caroline served as Chief Executive of Ryanair.com between
November 1996 and January 2003. Before joining Ryanair, Caroline worked in
senior positions at a number of airline computerized reservations system
providers, including Sabre.
Michael Hickey has served as Head of Engineering and Chief Engineer since
January 2000. Michael has held a wide range of senior positions within the
Ryanair engineering department since 1988 and was Deputy Director of Engineering
between 1992 and January 2000. Prior to joining Ryanair in 1988, Michael worked
as an aircraft engineer with Fields Aircraft Services and McAlpine Aviation,
working primarily on executive aircraft.
Howard Millar was appointed Chief Financial Officer on January-1, 2003,
having served as Director of Finance of Ryanair since March-1993. Between April
1992 and March 1993 he served as Financial Controller of Ryanair. Howard was the
Group Finance Manager for the Almarai Group, an international food processing
company in Riyadh, Saudi Arabia, from 1988 to 1992.
David O'Brien was appointed Director of Operations in December 2002;
previously, he served as Director of Flight Operations of Ryanair since May
2002, having served as Director of U.K. Operations since April 1998. Prior to
that, David served as Regional General Manager-Europe and CIS for Aer Rianta
International. Between 1992 and 1996, David served as Director of Ground
Operations and In-flight with Ryanair.
Michael O'Leary has served as a director of Ryanair since November 1988 and
was appointed Chief Executive on January-1, 1994.
Edward Wilson was appointed Director of Personnel and Inflight in December
2002, prior to which he served as Head of Personnel since joining Ryanair in
December 1997. Prior to joining Ryanair he served as Human Resources Manager for
Gateway 2000 and held a number of other human resources related positions in the
Irish financial services sector.
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Compensation
The aggregate amount of compensation paid by Ryanair Holdings and its
subsidiaries to the 10 directors and nine executive officers named above in the
fiscal year ended March 31, 2006 was EUR4.2 million. For details of
Mr. O'Leary's compensation in such fiscal year, see "-Employment
Agreements-Employment and Bonus Agreement with Mr. O'Leary" below. For details
of stock options that have been granted to the Company's employees, including
the executive Directors named above, see "Item-10. Additional
Information-Options to Purchase Securities from Registrant or Subsidiaries."
Each of Ryanair Holdings' nine non-executive directors is entitled to
receive EUR32,000 plus expenses per annum, as remuneration for his services to
Ryanair Holdings. Each of Messrs. Bonderman and Ryan executed an agreement with
Ryanair Holdings waiving his respective entitlement to receive this remuneration
for the fiscal year ended March 31, 2006. The additional remuneration paid to
audit committee members for service on that committee is EUR15,000 per annum.
Mr. Horgan receives EUR40,000 in connection with his additional duties in
relation to the Air Safety Committee.
68
Each of the 11 non-executive directors then in office were issued 50,000
share options after the 2-for-1 share split in December 2001 in respect of an
equivalent number of Ordinary Shares having a strike price of EUR3.70 under
Ryanair's Share Option Plan 2000. See "Item-10. Additional Information-Options
to Purchase Securities from Registrant or Subsidiaries."
Emmanuel Faber and Klaus Kirchberger were appointed to the Board as
non-executive directors on September-25, 2002, and the appointments were
approved by the Company's shareholders at the annual general meeting held on
September-24, 2003. In connection with his appointment, each of Messrs. Faber
and Kirchberger was granted 25,000 share options, exercisable between June 2008
and June 2010, at a strike price of EUR5.65.
As of September 1, 2006, the directors and executive officers of Ryanair
Holdings as a group owned 48,529,631 Ordinary Shares, representing 6.4% of
Ryanair Holdings' outstanding Ordinary Shares as of such date. See Note 18(d) to
the Consolidated Financial Statements in Item 18. See also "Item 7. Major
Shareholders and Related Party Transactions-Major Shareholders."
Employment Agreements
Employment and Bonus Agreement with Mr.O'Leary. Mr. O'Leary's current
employment agreement with Ryanair Limited is dated July 1, 2002 and can be
terminated by either party upon twelve months notice. Pursuant to the agreement,
Mr. O'Leary serves as Chief Executive at a current annual gross salary of
EUR579,000, subject to any increases that may be agreed between Ryanair Limited
and Mr. O'Leary. Mr. O'Leary also is eligible for annual bonuses as determined
by the Board of Directors of Ryanair Limited; the amount of such bonuses paid to
Mr. O'Leary in fiscal year 2006 totaled EUR200,000. Mr.O'Leary is subject to a
covenant not to compete with Ryanair within the EU for a period of two years
after the termination of his employment with Ryanair. Mr. O'Leary's employment
agreement does not contain provisions providing for compensation on its
termination.
EMPLOYEES AND LABOR RELATIONS
The following table sets forth the number of Ryanair's employees at each of
March 31, 2006 and 2005:
Number of Employees at March 31, Number of Employees at March 31,
Classification 2006 2005
________________________________________ _______________________________ _______________________________
Management................................ 93 87
Administrative............................ 163 156
Reservations.............................. 83 95
Maintenance............................... 150 145
Ground Operations......................... 410 284
Cockpit Crew.............................. 1,116 798
Flight Attendants......................... 1,438 1,152
_______________________________ _______________________________
Total..................................... 3,453 2,717
=============================== ===============================
Ryanair's flight crew, maintenance and customer ground operations personnel
undergo training, both initial and recurrent. A substantial portion of the
initial training for Ryanair's cabin crews is devoted to safety procedures, and
cabin crews are required to undergo annual evacuation and fire drill training
during their tenure with the airline. Ryanair pays for the recurrent training of
all employees. Ryanair utilizes its own Boeing 737-800 aircraft simulators for
pilot training. Ryanair has established an in-house apprenticeship program to
train maintenance engineers that currently produces five qualified engineers per
year. Ryanair also provides salary increases to its engineers who complete
advanced training in certain fields of aircraft maintenance.
69
IAA regulations require pilots to be licensed as commercial pilots with
specific ratings for each aircraft to be flown and to be medically certified as
physically fit. At March 31, 2006, the average age of Ryanair's pilots was 36
years and their average period of employment with Ryanair was 2.3 years.
Licenses and medical certification are subject to periodic re-evaluation
requirements, including recurrent training and recent flying experience.
Maintenance engineers must be licensed and qualified for specific aircraft.
Flight attendants must have initial and periodic competency fitness training.
Training programs are subject to approval and monitoring by the IAA. In
addition, the appointment of senior management personnel directly involved in
the supervision of flight operations, training, maintenance and aircraft
inspection must be satisfactory to the IAA.
Based on its experience in managing the airline's growth to date,
management believes that there is a sufficient pool of qualified and licensed
pilots, engineers and mechanics in Ireland, the U.K. and within the EU to
satisfy Ryanair's anticipated future needs in the areas of flight operations,
maintenance and quality control and that Ryanair will not face significant
difficulty in hiring and continuing to employ the required personnel. Ryanair
has also been able to satisfy its short-term needs for additional pilots by
contracting with certain employment agencies that represent experienced flight
personnel and as of March 31, 2006, Ryanair had 212 such pilots under contract.
These contract pilots are included as cockpit crew in the table above.
Ryanair has licensed a number of JAA-approved type organizations in Sweden,
the Netherlands, Germany and the U.K. to operate pilot training courses which
result in 737 type-ratings based on the Ryanair syllabus. Each trainee pilot
must pay these training organizations for their own type-rating and, based on
their performance, some of the pilots may be offered positions within Ryanair.
This program enables Ryanair to secure a continuous stream of type-rated
co-pilots.
Ryanair's employees earn productivity-based pay incentives, including
commissions on in-flight sales for flight attendants and payments based on the
number of hours or sectors flown by pilots and cabin crew personnel within
limits set by industry standards or regulations fixing maximum working hours.
During the fiscal year ended March 31, 2006, such productivity-based pay
incentives accounted for approximately 50% of an average flight attendant's
total pay package and approximately 42% of the typical pilot's compensation.
Reservations personnel also receive incentive payments based on the number of
bookings made and sales of ancillary services such as car rentals and travel
insurance. In November 2000, Ryanair's pilots approved a five-year pay
arrangement which expired in the first quarter of calendar 2006 and which, in
return for certain productivity enhancements, provided for annual increases in
base salary of 3% and increases in daily allowances of between 3% and 20%
(depending on the number of hours flown). In April 2006, negotiations on new
pilot pay arrangements successfully concluded at all of Ryanair's bases with the
exception of Dublin. Pilots at 13 of these bases approved a one-year deal with a
basic pay increase of 1.8%, while pilots at the Luton base voted in favor of a
5-year deal. Ryanair's Dublin pilots chose not to participate in these
negotiations and as a result, they received no pay increase. Pilots who were
eligible to exercise share options under the share option plan approved by the
shareholders in 2000 had their first opportunity to do so starting on December
1, 2005, and generally did so, with many realizing a pre-tax gain of
approximately EUR60,000.
Ryanair's pilots are currently subject to IAA-approved limits of 100-flight
hours per 28-day cycle, 300 flight hours every three months and 900-flight hours
per fiscal year. For the fiscal year ended March 31, 2006, the average flight
hours for each of Ryanair's pilots were approximately 72 hours per full working
month and approximately 861 hours for the complete year. Were more stringent
regulations on flight hours to be adopted, Ryanair's flight personnel could
experience a reduction in their total pay due to lower compensation for the
number of hours or sectors flown and Ryanair could be required to hire
additional flight personnel.
Ryanair considers its relationship with its employees to be good. Ryanair
currently negotiates with groups of employees, including its pilots, through
"Employee Representation Committees" ("ERCs") regarding pay, work practices and
conditions of employment, including conducting formal binding negotiations with
these internal collective bargaining units. Ryanair senior management has
quarterly meetings with the different ERCs to discuss all aspects of the
business and those issues that specifically relate to the relevant employee
group.
70
In 2001, BALPA sought to obtain a formal recognition agreement in 2001
under schedule A1 of Trade Union & Labour Relations (consolidation) Act 1992,
but a secret ballot resulted in more than 82% of eligible Ryanair Pilots opting
not to have BALPA recognized for collective bargaining purposes. The result of
this ballot precluded BALPA from seeking a recognition agreement with Ryanair
for a period of three years (until October 2004). Since October 2004, BALPA is
again authorized to seek a formal recognition agreement for collective
bargaining purposes.
Ryanair Holdings' shareholders have approved a number of share option plans
for employees and directors. Ryanair Holdings has also issued share options to
certain of its senior managers. For details of all outstanding share options,
see "Item-10.--Additional Information--Options to Purchase Securities from
Registrant or Subsidiaries."
Item 7. Major Shareholders and Related Party Transactions
DESCRIPTION OF CAPITAL STOCK
Ryanair Holdings' capital stock consists of Ordinary Shares, par value 1.27
euro cents. As of March 31, 2006, a total of 771,016,623 Ordinary Shares were
outstanding. On December-7, 2001, Ryanair effected a 2-for-1 share split by
which each of its then existing Ordinary Shares, par value 2.54 euro cents, was
split into two new Ordinary Shares, par value 1.27 euro cents.
MAJOR SHAREHOLDERS
Based on information available to Ryanair Holdings, the following table
summarizes the holdings of those shareholders holding 3% or more of the Ordinary
Shares as of the dates indicated, the latest practicable date prior to the
Company's publication of its statutory annual report in each of the relevant
years.
As of July 31, As of July 16,
2006 2005 2004
No. of Shares % of Class No. of % of Class No. of % of Class
Shares Shares
____________ ________ ____________ _____ ___________ ______
Fidelity Investments............... 111,322,806 14.4% 106,328,375 13.9% 113,147,344 14.9%
Wellington Investment Management... 60,516,720 7.7% 66,738,827 8.8% - -
Capital Group Companies Inc........ 54,040,463 7.0% 45,517,733 6.0% 63,691,665 8.4%
Gilder Gagnon Howe & Co LLC........ 52,582,244 6.8% 68,350,940 9.0% 68,710,100 9.1%
Michael O'Leary (1) 35,000,008 4.5% 35,000,008 4.6% 41,000,008 5.4%
________________________
(1) On June-7, 2005, Michael O'Leary sold 6 million Ordinary Shares at EUR6.50 per share in a private sale
conducted outside the United States in accordance with Regulation S under the Securities Act.
RELATED PARTY TRANSACTIONS
The Company has not entered into any "related party transactions" as
defined in Item 7.B. of Form 20-F in the three fiscal years ending March 31,
2006.
Ladoga Insurance Ltd., a wholly owned insurance company subsidiary
established by Ryanair in fiscal year 2006, provides the Company with
self-insurance as part of Ryanair's ongoing risk-management strategy. See "Item
4. Information on the Company-Insurance."
Item 8. Financial Information
CONSOLIDATED FINANCIAL STATEMENTS
Please refer to "Item 18. Financial Statements."
71
OTHER FINANCIAL INFORMATION
Legal Proceedings
The Company is engaged in litigation arising in the ordinary course of its
business. Although no assurance can be given as to the outcome of these
proceedings, except as otherwise described below, management does not believe
that any of these proceedings will, individually or in the aggregate, have a
material adverse effect on the results of operation or financial condition of
the Company.
EU State Aid-Related Proceedings
On December 11, 2002, the European Commission announced the launch of an
investigation into the April 2001 agreement among Ryanair and Brussels
(Charleroi) airport and the government of the Walloon region of Belgium, the
owner of the airport, which enabled the Company to launch new routes and base up
to four aircraft at Brussels (Charleroi).- The European Commission's
investigation was based on an anonymous complaint alleging that Ryanair's
arrangements with Brussels (Charleroi) constituted illegal state aid.
The European Commission issued its decision on February 12, 2004.- As
regards the majority of the arrangements between Ryanair, the airport and the
Region, the European Commission found that although they constituted state aid,
they were nevertheless compatible with the EC Treaty provisions and therefore
did not require repayment.- However, the European Commission found certain of
these arrangements constituted illegal state aid and therefore ordered Ryanair
to repay the amount of the benefit received in connection with those
arrangements. On April 20, 2004, the Walloon Region wrote to Ryanair requesting
repayment of all deemed illegal state aid, although it acknowledged that Ryanair
could offset against these amounts certain costs incurred in relation to the of
establishment of the base, in accordance with the European Commission's
decision.-
On May 25, 2004, Ryanair appealed the decision of the European Commission
to the European Court of First Instance, requesting the Court to annul the
decision on the bases that:
o The European Commission infringed Article 253 of the EC Treaty by
failing to provide adequate reasons for its decision; and
o The European Commission misapplied Article 87 of the Treaty by
failing to properly apply the Market Economy Investor Principle
("MEIP"), which generally holds that an investment made by a
public entity that would have been made on the same basis by a
private entity does not constitute state aid.
In September 2004, the Walloon Region issued a formal demand that Ryanair
repay a total of approximately EUR4 million, excluding any interest that may be
due. Ryanair has informed the Walloon authorities that it does not believe it is
obliged to make any repayment as Ryanair's costs of establishing the base far
exceeded the concessions granted by the Walloon region. However, Ryanair agreed
with the Walloon Region to place this amount into an escrow account pending the
outcome of the appeal to the European Court of First Instance. In addition, in
May 2005, the Walloon Region initiated a new proceeding currently pending before
the Irish High Court to recover a further EUR2.3 million in start-up costs that
had been reimbursed to Ryanair in connection with its establishment of the base.
Ryanair does not believe any such payment is due and is currently defending this
action before the Irish Supreme Court.
In an unrelated, though similar, matter, in July 2003, a Strasbourg court
ruled (on the basis of a complaint by Air France that marketing support granted
by the Strasbourg Chamber of Commerce to Ryanair in connection with its launch
of services from Strasbourg to London (Stansted)) constituted unlawful state
aid. The judgment took effect on September 24, 2003 and was upheld on appeal.
Ryanair appealed this decision to the Conseil d'Etat on the basis that the
marketing support granted was not state aid. In February 2006, the Conseil
d'Etat rejected this appeal and no further appeal can be filed. As a result of
the initial decision of the Strasbourg Court to annul Ryanair's contract with
Strasbourg Airport, Ryanair decided to close the Strasbourg route and instead
opened a route from Baden-Karlsruhe in Germany to London (Stansted) (Baden
airport is located some 40 kilometers from Strasbourg).
72
Ryanair is facing similar legal challenges by third parties with respect to
agreements with certain other airports. In July 2006, a local court in Germany
required the City of Lubeck to disclose to a competing German airline operating
out of the main airport in Hamburg details of an agreement between Hamburg
Lubeck Airport and Ryanair. This competing airline is seeking to have Ryanair's
agreement with the airport annulled on the basis of state aid. However, the
ruling does not affect Ryanair's costs at Lubeck Airport, as the airport was
subsequently acquired by a private owner who is offering the same arrangements
to all airlines as were offered to Ryanair. There have also been complaints by
competitors regarding Ryanair's arrangements with Shannon Airport and Frankfurt
Hahn Airport. Air France also recently announced that it has filed an action
against Ryanair's low-cost base in Marseille Airport.
Adverse rulings in these or similar cases could be used as precedents by
other competitors to challenge Ryanair's agreements with other publicly owned
airports and could cause Ryanair to strongly reconsider its growth strategy in
relation to public or state-owned airports across Europe. This could in turn
lead to a scaling back of Ryanair's growth strategy due to the smaller number of
privately-owned airports available for development. No assurance can be given as
to the outcome of these proceedings, nor as to whether any unfavorable outcomes
may, individually or in the aggregate, have a material adverse effect on the
results of operation or financial condition of the Company.
On September 6, 2005, the European Commission announced new guidelines on
the financing of airports and start-up aid to airlines by certain regional
airports, based on the European Commission's finding in the Charleroi case,
which Ryanair has appealed. The guidelines apply only to publicly owned regional
airports, and place restrictions on the incentives these airports can offer
airlines to deliver traffic. The guidelines, however, apply only in cases where
the terms offered by a public airport are in excess of what a similar private
airport would have offered. Ryanair deals with airports, both public and
private, on an equal basis and receives the same cost agreements from both.
Ryanair therefore considers that the guidelines will have no impact on its
business.
Challenge to U.K. Security Measures
On August 10, 2006, U.K. security authorities arrested and subsequently
charged eight individuals in connection with an alleged plot to attack aircraft
operating on transatlantic routes. As a result of these arrests, U.K.
authorities introduced increased security measures, which resulted in all
passengers being body searched, and banned the transportation in carry-on
baggage of certain liquids and gels. The introduction of these measures led to
passengers suffering severe delays while passing through these airport security
checks. As a result, Ryanair cancelled 279 flights in the days following the
incident and refunded fares to 40,000 passengers for a total of EUR2.7 million.
In the days following the arrests, Ryanair also suffered reductions in bookings
estimated to have resulted in a further loss of revenue of approximately EUR1.9
million. As in the past, the Company reacted to these adverse events by
initiating system-wide fare sales to stimulate demand for air travel.
On September 1, 2006, Ryanair filed a claim for EUR4.6 million against the
U.K. Department of Transport under section 93 of the U.K. Transport Act 2000 to
recoup the lost revenues. The case is to be heard in the London High Court.
There can be no assurance that the Company will be successful in its legal
action or in obtaining any damages in connection with its claims.
On August 14, 2006, the U.K. security authorities reduced the level of
security searches and at the same time introduced additional baggage
restrictions in relation to the size of baggage that can be stowed in aircraft
cabins. The Company is not currently suffering any significant delays as a
result of these increased security measures and carry-on baggage restrictions.
However, the Company is in the process of filing a separate action in the U.K.
courts challenging the legality of these increased security measures and seeking
a return to previous levels. See also "Risk Factors-Risks Related to the
Company-Terrorism in the United Kingdom or Elsewhere in Europe Could Have a
Material Detrimental Effect on the Company."
73
Dividend Policy
Since its organization as the holding company for Ryanair in 1996, Ryanair
Holdings has not declared or paid dividends on its Ordinary Shares. Ryanair
Holdings anticipates, for the foreseeable future, that it will retain any future
earnings in order to fund the business operations of the Company, including the
acquisition of additional aircraft needed for Ryanair's planned entry into new
markets and its expansion of its existing service, as well as replacement
aircraft for its current fleet. Ryanair Holdings does not, therefore, anticipate
paying any cash or share dividends on its Ordinary Shares in the foreseeable
future.
Any cash dividends or other distributions, if made, are expected to be made
in euro, although Ryanair Holdings' Articles of Association provide that
dividends may be declared and paid in U.S. dollars. For owners of ADSs, The Bank
of New York, as depositary will convert all cash dividends and other
distributions payable to owners of ADSs into U.S. dollars to the extent that in
its judgment it can do so on a reasonable basis and will distribute the
resulting U.S. dollar amount (net of conversion expenses) to the owners of ADSs.
SIGNIFICANT CHANGES
No significant change in the Company's financial condition has occurred
since the date of the Consolidated Financial Statements included in this annual
report.
Item 9. The Offer and Listing
TRADING MARKETS AND SHARE PRICES
The primary market for Ryanair Holdings' Ordinary Shares is the Irish Stock
Exchange Limited (the "Irish Stock Exchange" or "ISE"); Ordinary Shares are also
traded on the London Stock Exchange. The Ordinary Shares were first listed for
trading on the Official List of the Irish Stock Exchange on June-5, 1997 and
were first admitted to the Official List of the London Stock Exchange on
July-16, 1998.
ADSs, each representing five Ordinary Shares, are traded on the Nasdaq. The
Bank of New York is Ryanair Holdings' depositary for purposes of issuing
American Depositary Receipts ("ADRs") evidencing the ADSs. The following tables
set forth, for the periods indicated, the reported high and low closing sales
prices of the ADSs on Nasdaq and for the Ordinary Shares on the Irish Stock
Exchange and the London Stock Exchange, and have been adjusted to reflect the
two-for-one splits of the Ordinary Shares and ADSs effected on February-28, 2000
and December 7, 2001:
74
ADSs
____________________________
(in U.S. dollars)
High Low
____________________________
2000.................................................................. 27.8438 13.5625
2001.................................................................. 32.0500 17.4950
2002.................................................................. 48.0000 28.0000
2003.................................................................. 52.0500 34.3800
2004
First Quarter...................................................... 57.8800 31.1900
Second Quarter..................................................... 37.5200 30.2300
Third Quarter...................................................... 36.3700 29.2000
Fourth Quarter..................................................... 49.6500 26.1600
2005
First Quarter...................................................... 42.9500 40.7900
Second Quarter..................................................... 46.4750 40.8280
Third Quarter...................................................... 48.6420 45.2700
Fourth Quarter..................................................... 56.9220 45.4720
2006
First Quarter...................................................... 56.6775 52.3350
Month ending:
March 31, 2006..................................................... 55.4940 54.0980
April 30, 2006..................................................... 54.9200 47.8940
May 31, 2006....................................................... 49.7200 48.5000
June 30, 2006...................................................... 52.4654 49.1975
July 31, 2006...................................................... 56.9340 54.4375
August 31, 2006.................................................... 57.0900 51.5200
Period ending September 15, 2006...................................... 58.3600 56.2900
Ordinary Shares
(Irish Stock Exchange)
____________________________
(in euros)
High Low
____________________________
2000.................................................................. 5.88 2.61
2001.................................................................. 7.10 3.75
2002.................................................................. 8.20 4.95
2003.................................................................. 7.30 5.10
2004
First Quarter...................................................... 7.59 4.27
Second Quarter..................................................... 5.38 4.34
Third Quarter...................................................... 4.96 4.01
Fourth Quarter..................................................... 5.62 3.62
2005
First Quarter...................................................... 6.69 5.43
Second Quarter..................................................... 6.66 5.60
Third Quarter...................................................... 6.94 6.32
Fourth Quarter..................................................... 8.30 6.62
2006
First Quarter...................................................... 8.10 7.52
Month ending:
March 31, 2006..................................................... 7.85 7.65
April 30, 2006..................................................... 7.75 6.64
May 31, 2006....................................................... 6.97 6.50
June 30, 2006...................................................... 7.20 6.64
July 31, 2006...................................................... 7.91 7.13
August 31, 2006.................................................... 7.60 7.08
Period ending September 15, 2006...................................... 7.88 7.60
75
Ordinary Shares
(London Stock Exchange)
____________________________
(in euros)
High Low
____________________________
2000.................................................................. 5.80 2.63
2001.................................................................. 6.90 3.77
2002.................................................................. 8.19 5.00
2003.................................................................. 7.26 5.17
2004
First Quarter...................................................... 7.55 4.25
Second Quarter..................................................... 5.36 4.34
Third Quarter...................................................... 4.95 4.00
Fourth Quarter..................................................... 5.63 3.65
2005
First Quarter...................................................... 6.69 5.45
Second Quarter..................................................... 6.66 5.58
Third Quarter...................................................... 6.91 6.32
Fourth Quarter..................................................... 8.30 6.63
2006
First Quarter...................................................... 8.10 7.54
Month ending:
March 31, 2006..................................................... 7.87 7.68
April 30, 2006..................................................... 7.78 6.61
May 31, 2006....................................................... 6.97 6.47
June 30, 2006...................................................... 7.28 6.66
July 31, 2006...................................................... 7.90 7.14
August 31, 2006.................................................... 7.63 7.06
Period ending September 15, 2006...................................... 7.86 7.60
As of September 1, 2006, 771,776,476 Ordinary Shares were outstanding. At
that date, 59,167,930 ADRs, representing 295,839,650 Ordinary Shares, were held
of record in the United States by 80 holders, and represented in the aggregate
38.3% of the number of Ordinary Shares then outstanding.
Since certain of the Ordinary Shares are held by brokers or other nominees,
the number of direct record holders in the United States may not be fully
indicative of the number of direct beneficial owners in the United States or of
where the direct beneficial owners of such shares are resident.
In order to increase the percentage of its share capital held by EU
nationals, beginning June-26, 2001, Ryanair Holdings instructed The Bank of New
York to suspend the issuance of new ADSs in exchange for the deposit of Ordinary
Shares until further notice. Holders of Ordinary Shares cannot convert their
Ordinary Shares into ADSs. The Bank of New York will continue to convert
existing ADSs into ordinary shares at the request of the holders of such ADSs.
The Company in 2002 implemented additional measures to restrict the ability of
non-EU nationals to purchase Ordinary Shares, and non-EU nationals are currently
effectively barred from purchasing Ordinary Shares. See "Item 10. Additional
Information-Limitations on Share Ownership by Non-EU Nationals" for additional
information.
At the annual general meeting of the shareholders held on September 21,
2006, the Board of Directors of Ryanair received shareholder approval for a
share buy-back plan allowing a maximum repurchase of 38,585,934 Ordinary Shares,
representing 5% of the Company's currently outstanding share capital. The
maximum price at which the Company may repurchase Ordinary Shares will, in
accordance with the Listing Rules of the Irish Stock Exchange and of the
Financial Services Authority, be the higher of 5% above the average market value
of the Company's Ordinary Shares for the five business days prior to the day of
the repurchase and the price stipulated by Article 5(1) of Commission Regulation
(EC) of 22 December 2003 (No. 2273/2003) (which is the higher of the last
independent trade and the highest current independent bid on the Irish Stock
Exchange). The minimum price at which the Company may repurchase Ordinary Shares
is their nominal value, currently EUR1.27. Any Ordinary Shares repurchased will
be cancelled. Authorization for the repurchases will be valid for fifteen months
from the date of the annual general meeting at which the resolution approving
the buyback plan was approved or, if earlier, until the day following the
Company's next annual general meeting.
76
As of the date of this report, the Board of Directors has not made any
decision to proceed with the share buy back plan and will exercise the authority
granted by the shareholders only if the Board of Directors considers such
exercise to be in the best interests of the Company and its shareholders
generally. The Board of Directors remains firmly of the view that the first call
on free cash flow generated by the Company is business needs, and having
fulfilled that, may consider returning some surplus cash to shareholders via
share repurchases.
As at August 11, 2006, the total number of options over Ordinary Shares
outstanding under all of the Company's share option plans was 20,544,122,
representing 2.7% of the Company's issued share capital at that date. The number
of outstanding options could potentially represent 2.8% of the issued share
capital of the Company if the Company were to purchase all of the Ordinary
Shares it is authorized to repurchase under the share buyback plan authorized by
the Company's stockholders at the annual general meeting on September 21, 2006.
Item 10. Additional Information
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
In April 1998, the Board of Directors of Ryanair Holdings adopted an
employee share option plan (the "Option Plan 1998"), with all employees of the
Company being eligible to participate. The Option Plan 1998 was approved by
Ryanair Holdings' shareholders at the annual general meeting held on
September-29, 1998. Options under this plan were granted over a five-year period
beginning in 1998.
Ryanair Holdings' shareholders approved subsequent share option plans in
2000 (the "Option Plan 2000") and 2002 (the "Option Plan 2002").
For the Option Plan 2000, all employees and directors are eligible to
participate, and grants of options may be made in any of the ten years beginning
with fiscal year 2000 only if the Company's net profit after tax for the
relevant fiscal year has exceeded its net profit after tax for the preceding
fiscal year by at least 20%, or if an increase of 1% in net profit after tax for
any relevant year would have resulted in such criterion being met. Under the
terms of the plan, options will become exercisable five years from the time of
the first grant under the program, provided that the grantee is still employed
by the Company. If the grantee has ceased to be a full-time employee before this
vesting date, the grantee will generally lose his or her complete option
entitlement automatically.
The Option Plan 2002 was established in accordance with a tax-favorable
approved share option scheme regime available in Ireland so that employees will
not be taxed on the exercise of options (subject to certain conditions). The
Option Plan 2002 was approved by the Revenue Commissioners on July-4, 2003 for
the purposes of Chapter-4, Part-17, of the Irish Taxes Consolidation Act, 1997
and Schedule 12C of that act. All employees and full-time directors are eligible
to participate in the plan, under which grants of options may be made in any of
the ten years beginning with fiscal year 2002 only if the Company's net profit
after tax for the relevant fiscal year has exceeded its net profit after tax for
the preceding fiscal year by at least 25%, or if an increase of 1% in net profit
after tax for any relevant year would have resulted in such criterion being met.
Under the terms of the plan, options will become exercisable five years from the
time of the first grant under the program.
77 As of March 31, 2006, twelve separate grants of an aggregate total of
38,130,164 options in respect of an equivalent number of Ordinary Shares had
been made to eligible employees under the Company's various option plans, and an
aggregate of 21,317,001 options to purchase an equal number of Ordinary Shares
were outstanding.
Under Option Plan 1998, 5,400,000 options were granted to 15 key senior
executives and managers at a strike price equal to the closing price of the
Ordinary Shares on the date of the grant. These options became exercisable in
June 2003 and were exercisable through June 2005, but only for managers who were
still employed by the Company in June 2002. Under the Option Plan 2000, 23
senior managers were granted 4,558,000 share options at a strike price of
EUR5.65 on June-30, 2002. These options become exercisable between June-1, 2007
and June-1, 2009, but only for managers who continue to be employed by the
Company through June-1, 2007. Under the Option Plan 2002, 47 senior managers
were granted 2,775,000 share options at a strike price of EUR4.69 on November 3,
2004. These options become exercisable between November 3, 2009 and November 3,
2011, but only for managers who continue to be employed by the Company through
November 3, 2009.
The aggregate of 21,317,001 Ordinary Shares that would be issuable upon
exercise in full of the options described in this section that were outstanding
as of March 31, 2006 would represent approximately 2.8% of the current issued
share capital of Ryanair Holdings. Of such total, options in respect of an
aggregate of 8,120,380 Ordinary Shares are held by the directors and executive
officers of Ryanair Holdings.
MEMORANDUM AND ARTICLES OF ASSOCIATION
The following is a summary of certain provisions of the Memorandum and
Articles of Association of Ryanair Holdings. This summary does not purport to be
complete and is qualified in its entirety by reference to complete text of the
Memorandum and Articles of Association, which are filed as an exhibit to this
Report.
Objects. The Company's objects, which are detailed in its Memorandum of
Association, are broad and include carrying on business as an investment and
holding company. The Company's registered number is 249885.
Directors. Subject to certain exceptions, directors may not vote on matters
in which they have a material interest. The ordinary remuneration of the
directors is determined from time to time by ordinary resolution of the Company.
Any director who holds any executive office, serves on any committee or
otherwise performs services which, in the opinion of the directors, are outside
the scope of the ordinary duties of a director may be paid such extra
remuneration as the directors may determine. The directors may exercise all the
powers of the Company to borrow money. These powers may be amended by special
resolution of the shareholders. The directors are not required to retire at a
particular age. There is no requirement for directors to hold shares. One third
of the directors retire and offer themselves for re-election at each annual
general meeting of the Company. The directors to retire by rotation are those
who have been longest in office since their last appointment or reappointment.
As between persons who became or were appointed directors on the same date,
those to retire are determined by agreement between them or, otherwise, by lot.
All of the shareholders entitled to attend and vote at the annual general
meeting of the company may vote on the re-election of directors.
Annual and General Meetings. Annual and extraordinary meetings where
special resolutions are to be voted upon are called by 21 days clear notice.
Extraordinary general meetings where ordinary resolutions are to be voted upon
are called by 14 days clear notice. All holders of ordinary shares are entitled
to attend, speak and vote at general meetings of the Company, subject as
described below under "Limitations on the Right to Own Shares."
78
Rights, Preferences and Dividends Attaching to Shares. The Company has only
one class of shares, being ordinary shares of EUR0.0127 each. All such shares
rank equally with respect to payment of dividends and on any winding-up of the
Company. Any dividend, interest or other sum payable to a shareholder which
remains unclaimed for one year after having been declared may be invested by the
directors for the benefit of the Company until claimed. If the directors so
resolve, any dividend which has remained unclaimed for 12 years from the date of
its declaration shall be forfeited and cease to remain owing by the Company. The
Company is permitted under its Articles of Association to issue redeemable
shares on such terms and in such manner as the Company may, by special
resolution, determine. The ordinary shares currently in issue are not
redeemable. The liability of shareholders to invest additional capital is
limited to the amounts remaining unpaid on the shares held by them. There are no
sinking fund provisions in the Memorandum and Articles of Association of the
Company.
Action Necessary to Change the Rights of Shareholders. The rights attaching
to shares in the Company may be varied by special resolution passed at a meeting
of the shareholders of the Company.
Limitations on the Rights to Own Shares. The Articles of Association
contain detailed provisions enabling the directors of the Company to limit the
number of shares in which non-EU nationals have an interest or the exercise by
non-EU nationals of rights attaching to shares. See "Item-10. Additional
Information-Limitations on Share Ownership by Non-EU Nationals." Such powers may
be exercised by the directors if they are of the view that any license, consent,
permit or privilege of the Company or any of its subsidiaries which enables it
to operate an air service may be refused, withheld, suspended or revoked or have
conditions attached to it which inhibit its exercise and exercise of the powers
referred to above could prevent such an occurrence. The exercise of such powers
could result in non-EU national holders of shares being prevented from
attending, speaking or voting at general meetings of the Company and/or being
required to dispose of shares held by them to EU nationals.
Disclosure of Share Ownership. Under Irish law, the Company can require
parties to disclose their interests in shares. The Articles of Association of
the Company entitle the directors to require parties to complete declarations
indicating their nationality and the nature and extent of any interest, which
such party holds in shares before allowing such parties to transfer shares in
the Company. See "Item-10. Additional Information-Limitations on Share Ownership
by non-EU nationals." Under Irish law, if a party acquires or disposes of shares
in the Company bringing his interest above or below 5% of the total issued share
capital of the Company or changing his percentage interest above 5% (once his
interest has been rounded down to the nearest percentage), he must notify the
Company of that. The Irish Stock Exchange must also be notified of any
acquisition or disposal of shares which bring the shareholding of a party above
or below certain specified percentages i.e., 10, 25, 50 and 70%.
Other Provisions of the Memorandum and Articles of Association. There are
no provisions in the Memorandum and Articles of Association:
o Delaying or prohibiting a change in the control of the Company,
but which operate only with respect to a merger, acquisition or
corporate restructuring;
o discriminating against any existing or prospective holder of
shares as a result of such shareholder owning a substantial
number of shares; or
o governing changes in capital
where such provisions are more stringent than those required by law.
79
MATERIAL CONTRACTS
In February 2005, the Company and Boeing entered into a new series of
agreements for the purchase by the Company of new 737-800 aircraft for delivery
during the period from April 2008 through December 2011, as well as for options
to purchase additional aircraft. See "Item 4. Information on the
Company-Aircraft" and "Item 5. Operating and Financial Review and
Prospects-Liquidity and Capital Resources" for a detailed discussion of the 2005
Boeing contract.
EXCHANGE CONTROLS
Except as indicated below, there are no restrictions on non-residents of
Ireland dealing in Irish securities (including shares or depositary receipts of
Irish companies such as the Company), and dividends and redemption proceeds also
continue to be freely transferable to non-resident holders of such securities.
Under the Financial Transfers Act 1992 (the "1992 Act"), the Minister for
Finance of Ireland may make provision for the restriction of financial transfers
between Ireland and other countries. Financial transfers are broadly defined,
and the acquisition or disposal of the ADSs, which represent shares issued by an
Irish incorporated company, the acquisition or the disposal of Ordinary Shares
and associated payments may fall within this definition. Dividends or payments
on the redemption or purchase of shares and payments on a liquidation of an
Irish incorporated company would fall within this definition. Orders made by the
Minister for Finance pursuant to the 1992 Act prohibit certain financial
transfers to (or in respect of funds held by the government of) the Federal
Republic of Yugoslavia, Slobodan Milosevic and associated persons, Zimbabwe
(including senior members of the Zimbabwean government), Iraq, Liberia,
Burma/Myanmar, the Republic of Serbia, Al Qaeda, Osama Bin Laden and the Taliban
of Afghanistan.
The Company does not anticipate that Irish exchange controls or orders
under the 1992 Act will have a material effect on its business.
LIMITATIONS ON SHARE OWNERSHIP BY NON-EU NATIONALS
The Board of Directors of Ryanair Holdings are given certain powers under
Ryanair Holdings' Articles to take action to ensure that the amount of shares
held in Ryanair Holdings by non-EU nationals does not reach a level which could
jeopardize the Company's entitlement to continue to hold or enjoy the benefit of
any license, permit, consent or privilege which it holds or enjoys and which
enables it to carry on business as an air carrier (a "License"). In particular,
EU Regulation 2407/92 requires that, in order to obtain and retain an operating
license, an EU air carrier must be majority owned and effectively controlled by
EU nationals. The regulation does not specify what level of share ownership will
confer effective control on a holder or holders of shares. As described below,
the directors will, from time to time, set a "Permitted Maximum" on the number
of Ordinary Shares that may be owned by non-EU nationals at such level as they
believe will comply with EU law. The Permitted Maximum is currently set at
49.9%.
Ryanair Holdings maintains a separate register (the "Separate Register") of
shares in which non-EU nationals, whether individuals, bodies corporate or other
entities, have an interest (such shares are referred to as "Affected Shares" in
the Articles). Interest in this context is widely defined and includes an
interest held through ADRs in the shares underlying the relevant ADSs. The
directors can require relevant parties to provide them with information to
enable a determination to be made by them as to whether shares are, or are to be
treated as, Affected Shares. If such information is not available or forthcoming
or is unsatisfactory then the directors can, at their discretion, determine that
shares are to be treated as Affected Shares. Registered holders of shares are
also obliged to notify the Company if they are aware that any share which they
hold ought to be treated as an Affected Share for this purpose. With regard to
ADSs, the directors can treat all of the relevant underlying shares as Affected
Shares unless satisfactory evidence as to why they should not be so treated is
forthcoming.
80
In the event that, inter alia, (i)-the refusal, withholding, suspension or
revocation of any License or the imposition of any condition which materially
inhibits the exercise of any License (an "Intervening Act") has taken place,
(ii)-the Company receives a notice or direction from any governmental body or
any other body which regulates the provision of air transport services to the
effect that an Intervening Act is imminent, threatened or intended or (iii)-an
Intervening Act may occur as a consequence of the level of non-EU ownership of
shares or an Intervening Act is imminent, threatened or intended because of the
manner of share ownership or control of Ryanair Holdings generally, the
directors can take action pursuant to the Articles to deal with the situation.
They can, inter alia, (i)-remove any Directors or change the Chairman of the
Board, (ii)-identify those shares, ADSs or Affected Shares which give rise to
the need to take action and treat such shares, ADSs, or Affected Shares as
Restricted Shares (see below) or (iii)-set a "Permitted Maximum" on the number
of Affected Shares which may subsist at any time (which may not, save in the
circumstances referred to below, be lower than 40% of the total number of issued
shares) and treat any Affected Shares (or ADSs representing such Affected
Shares) in excess of this Permitted Maximum as Restricted Shares (see below).
Also, if as a consequence of a change of law or a direction, notice or
requirement of any state, authority or person it is necessary to reduce the
total number of Affected Shares below 40% or reduce the number of Affected
Shares held by any particular stockholder or stockholders in order to overcome,
prevent or avoid an Intervening Act, the directors may resolve to (i)-set the
Permitted Maximum at such level below 40% as they consider necessary in order to
overcome, prevent or avoid such Intervening Act, or (ii)-treat such number of
Affected Shares (or ADSs representing Affected Shares) held by any particular
stockholder or stockholders as they consider necessary (which could include all
of such Affected Shares or ADSs) as Restricted Shares (see below). The directors
may serve a Restricted Share Notice in respect of any Affected Share, or any ADR
representing any ADS, which is to be treated as a Restricted Share. Such Notices
can have the effect of depriving the recipients of the rights to attend, vote
and speak at general meetings, which they would otherwise have had as a
consequence of holding such shares or ADSs. Such Notices can also require the
recipients to dispose of the shares or ADSs concerned to an EU national (so that
the relevant shares (or shares underlying the relevant ADSs) will then cease to
be Affected Shares) within 21 days or such longer period as the directors may
determine. The directors are also given the power to transfer such shares
themselves where there is non-compliance with the Restricted Share Notice.
To enable the directors to identify Affected Shares, transferees of
Ordinary Shares generally will be required to provide a declaration as to the
nationality of persons having interests in those shares and each stockholder is
obliged to notify Ryanair Holdings if any of his, her or its Ordinary Shares
become Affected Shares. Purchasers or transferees of ADSs need not complete a
nationality declaration because the directors expect to treat all of the
Ordinary Shares held by the Depositary as Affected Shares. An American
Depositary Receipt holder must open an American Depositary Receipt account
directly with the Depositary if he, she or it wishes to provide to Ryanair
Holdings a nationality declaration or such other evidence as the directors may
require in order to establish to the directors' satisfaction that the Ordinary
Shares underlying such holder's American Depositary Receipts are not Affected
Shares.
In deciding which Affected Shares are to be selected as Restricted Shares,
the directors can take into account which Affected Shares have given rise to the
necessity to take action. Subject to that they will, insofar as practicable,
firstly view as Restricted Shares those Affected Shares in respect of which no
declaration as to whether or not such shares are Affected Shares has been made
by the holder thereof and where information which has been requested by the
directors in accordance with the Articles has not been provided within specified
time periods and, secondly, have regard to the chronological order in which
details of Affected Shares have been entered in the Separate Register and,
accordingly, treat the most recently registered Affected Shares as Restricted
Shares to the extent necessary. Transfers of Affected Shares to Affiliates (as
that expression is defined in the Articles) will not affect the chronological
order of entry in the Separate Register for this purpose. The directors do
however have the discretion to apply another basis of selection if, in their
sole opinion, that would be more equitable. Where the directors have resolved to
treat Affected Shares held by any particular stockholder or stockholders as
Restricted Shares (i)-because such Affected Shares have given rise to the need
to take such action or (ii)-because of a change of law or a requirement or
direction of a regulatory authority necessitating such action (see above), such
powers may be exercised irrespective of the date upon which such Affected Shares
were entered in the Separate Register.
81
After having initially resolved to set the maximum level at 49%, the
directors increased the maximum level to 49.9% on May-26, 1999, after the number
of Affected Shares exceeded the initial limit. This maximum level could be
reduced if it becomes necessary for the directors to exercise these powers in
the circumstances described above. The decision to make any such reduction or to
change the Permitted Maximum from time to time will be published in at least one
national newspaper in Ireland and in any country in which the Ordinary Shares or
ADSs are listed. The relevant notice will specify the provisions of the relevant
Article which can apply to Restricted Shares and the name of the person or
persons who will answer queries relating to Restricted Shares on behalf of
Ryanair Holdings. The directors shall publish information as to the number of
shares held by EU nationals annually.
As of June 30, 2006, EU nationals owned at least 54.0% of Ryanair Holdings'
Ordinary Shares (assuming conversion of all outstanding ADSs into Ordinary
Shares). Ryanair continues to monitor the EU national ownership status of its
Ordinary Shares, which changes on a daily basis.
In an effort to increase the percentage of its share capital held by EU
nationals, on June 26, 2001, Ryanair Holdings instructed The Bank of New York,
the depositary for its ADS program, to suspend the issuance of new ADSs in
exchange for the deposit of Ordinary Shares until further notice to its
shareholders. Holders of Ordinary Shares cannot convert their Ordinary Shares
into ADSs during such suspension, and there can be no assurance that the
suspension will ever be lifted.
As a further measure to increase the percentage of shares held by EU
nationals, on February 7, 2002, the Company issued a notice to shareholders to
the effect that any purchase of Ordinary Shares by a non-EU national after such
date will immediately result in the issue of a Restricted Share Notice to such
non-EU national Purchaser. The Restricted Share Notice compels the non-EU
national purchaser to sell the affected shares to an EU national within 21 days
of the date of issuance. In the event that any such non-EU national shareholder
does not sell its shares to an EU national within the specified time period, the
Company can then take legal action to compel such a sale. As a result, non-EU
nationals are effectively barred from purchasing Ordinary Shares for as long as
these restrictions remain in place. There can be no assurance that these
restrictions will ever be lifted.
TAXATION
Irish Tax Considerations
The following is a discussion of certain Irish tax consequences of the
purchase, ownership and disposition of Ordinary Shares or ADSs. This discussion
is based upon tax laws and practice of Ireland at the date of this document
which are subject to change, possibly with retroactive effect. Particular rules
may apply to certain classes of taxpayers (such as dealers in securities) and
this discussion does not purport to deal with the tax consequences of purchase,
ownership or disposition of owning the relevant securities for all categories of
investors.
The discussion is intended only as a general guide based on current Irish
law and practice and is not intended to be, nor should it be considered to be,
legal or tax advice to any particular investor or stockholder. Accordingly,
current stockholders or potential investors should satisfy themselves as to the
overall tax consequences by consulting their own tax advisers.
Dividends. As discussed herein, it is not currently anticipated that
Ryanair Holdings will pay dividends. However, if it does pay dividends or makes
other relevant distributions, the following is relevant:
82
Withholding Tax. Unless exempted, a withholding at the standard rate of
income tax (currently 20%) will apply to dividends or other relevant
distributions paid by an Irish resident company. The withholding tax requirement
will not apply to distributions paid to certain categories of Irish resident
stockholders nor to distributions paid to certain categories of non-resident
stockholders.
The following Irish resident stockholders are exempt from withholding if
they make to the Company, in advance of payment of any relevant distribution, an
appropriate declaration of entitlement to exemption:
o An Irish resident company;
o An Irish Revenue approved pension scheme;
o A qualifying fund manager or qualifying savings manager;
o A Personal Retirement Savings Account ("PRSA") administrator
who is receiving the relevant distribution as income arising #
in respect of PRSA assets;
o A qualifying employee share ownership trust;
o A collective investment undertaking;
o A tax exempt charity;
o A designated broker receiving the distribution for a special
portfolio investment account;
o A person who is entitled to exemption from income tax under
Schedule F on dividends in respect of an investment in whole
or in part of payments received in respect of a civil
action or from the Personal Injuries Assessment Board for
damages in respect of mental or physical infirmity;
o Certain qualifying trusts established for the benefit of an
incapacitated individual and/or persons in receipt of income
from such a qualifying trust;
o A person entitled to exemption to income tax under
Schedule F by virtue of Section-192(2) Taxes Consolidation
Act ("TCA") 1997; and
o A unit trust to which Section 731(5)(a) TCA 1997 applies.
The following non-resident stockholders are exempt from withholding if they
make to the Company, in advance of payment of any dividend, an appropriate
declaration of entitlement to exemption:
o Persons (other than a company) who (i) are neither resident nor
ordinarily resident in Ireland and (ii) are resident for tax
purposes in (a)-a country which has in force a tax treaty with
Ireland (a "tax treaty country") or(b) an EU Member State other
than Ireland;
o Companies not resident in Ireland which are resident in an EU
Member State or a tax treaty country, by virtue of the law of a
tax treaty partner country or an EU Member State, and are not
controlled, directly or indirectly, by Irish residents;
o Companies not resident in Ireland which are directly or
indirectly controlled by a person or persons who are, by virtue
of the law of a tax treaty partner country or an EU Member State
resident for tax purposes in a tax treaty country or an EU
Member State other than Ireland and who are not controlled
directly or indirectly by persons who are not resident for tax
purposes in a tax treaty country or EU Member State;
o Companies not resident in Ireland the principal class of shares
of which is substantially and regularly traded on a recognized
stock exchange in a tax treaty country or an EU Member State
other than Ireland or on an approved stock exchange; or
83
o companies not resident in Ireland that are 75% subsidiaries of a
single company, or are wholly-owned by two or more companies, in
either case the principal class(es) of shares of which is/are
substantially and regularly traded on a recognized stock
exchange in a tax treaty country or an EU Member State other
than Ireland or on an approved stock exchange.
In the case of a non-resident stockholder resident in an EU Member State or
tax treaty country, the declaration must be accompanied by a current certificate
of residence from the revenue authorities in the stockholder's country of
residence. In addition, in the case of non-resident companies controlled by
residents of an EU Member State other than Ireland or of a tax treaty country or
whose shares are substantially and regularly traded on a stock exchange in an EU
Member State other than Ireland or a tax treaty country, certain certification
by their auditors is required. The declaration also must contain an undertaking
by the non-resident or non-ordinarily resident person that he or she will advise
the relevant person accordingly if he or she ceases to be non-resident or
non-ordinary resident. No declaration is required where the stockholder is a 5%
parent company in another EU Member State pursuant to the Parent/Subsidiary
directive. Neither is a declaration required on the payment by a company
resident in Ireland to another company so resident where the company making the
dividend is a 51% subsidiary of that other company. American Depositary
Receipts. Special arrangements with regard to the dividend withholding tax
obligation apply in the case of Irish companies using ADRs through U.S.
depositary banks which have been authorized by the Irish Revenue Commissioners.
Such banks, which receive dividends from the company and pass them on to the
U.S. ADR holders beneficially entitled to such dividends, will be allowed to
receive and pass on the gross dividends (i.e., before withholding) based on an
"address system" where the recorded address of such holder, as listed in the
depository bank's register of depository receipts, is in the U.S.
Taxation on Dividends. Companies resident in Ireland other than those
taxable on receipt of dividends as trading income are exempt from corporation
tax on distributions received from other Irish resident companies. Stockholders
which are "close" companies for Irish taxation purposes may, however, be subject
to a 20% corporation tax surcharge on undistributed investment income.
Individual stockholders who are resident or ordinarily resident in Ireland
are taxable on the gross dividend at their marginal rate, but are entitled to a
credit for the tax withheld by the company paying the dividend. An individual
stockholder who is not liable or not fully liable to income tax by reason of
exemption or otherwise may be entitled to receive an appropriate refund of tax
withheld. A charge to Irish social security taxes/levies can also arise for
individuals on the amount of any dividend received from the Company.
Except in certain circumstances, a person who is neither resident nor
ordinarily resident in Ireland and is entitled to receive dividends without
deductions is not chargeable to Irish tax on the dividend. Where a person who is
neither resident nor ordinarily resident in Ireland is subject to withholding
tax on the dividend received due to not benefiting from any exemption from such
withholding, generally the amount of that withholding will satisfy such person's
liability for Irish tax, but such person may have a liability at a higher rate
of income tax depending on their level of Irish income.
Capital Gains Tax. A person who is either resident or ordinarily resident
in Ireland will generally be liable for Irish capital gains tax on any gain
realized on the disposal of the Ordinary Shares or ADSs. The current capital
gains tax rate is 20%. A person who is neither resident nor ordinarily resident
in Ireland and who does not carry on a trade in Ireland through a branch or
agency will not be subject to Irish capital gains tax on the disposal of the
Ordinary Shares or ADSs.
Irish Capital Acquisitions Tax. A gift or inheritance of the Ordinary
Shares or ADSs will be within the charge to Irish Capital Acquisitions Tax
("CAT") notwithstanding that the disponer (e.g., a donor) or the donee/successor
in relation to such gift or inheritance is resident outside Ireland. CAT is
charged at a rate of 20% above a tax-free threshold. This tax-free threshold is
determined by the amount of the current benefit and of previous benefits taken
since December 5, 1991, as relevant, within the charge to CAT and the
relationship between the donor and the successor or donee. Gifts and
inheritances between spouses (and in certain cases former spouses) are not
subject to CAT.
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In a case where an inheritance of the Ordinary Shares or ADSs is subject to
both Irish CAT and either U.S. federal estate tax or U.K. inheritance tax, the
Irish CAT paid on the inheritance may in certain circumstances be credited in
whole or in part against the tax paid on the inheritance in the United States or
U.K., as the case may be under the relevant Estate Tax Convention between
Ireland and the United States or U.K. Neither Convention provides for relief
from Irish CAT paid on gifts.
Irish Stamp Duty. It is assumed for the purposes of this paragraph that
ADSs are dealt in on a recognized stock exchange in the United States (the
Nasdaq National Market is a recognized stock exchange in the United States for
this purpose). Under current Irish law, no stamp duty will be payable on the
acquisition of ADSs by persons purchasing such ADSs or on any subsequent
transfer of ADSs. A transfer of Ordinary Shares (including transfers effected
through CREST) wherever executed and whether on sale, in contemplation of a sale
or by way of a gift, will attract duty at the rate of 1% of the consideration
given or, in the case of a gift or where the purchase price is inadequate or
unascertainable, on the market value of the Ordinary Shares. Transfers of
Ordinary Shares which are not liable to duty at the rate of 1% (e.g., transfers
under which there is no change in beneficial ownership) may attract a fixed duty
of EUR12.50.
The Irish Revenue Commissioners (the "Irish Revenue") treat a conversion of
Ordinary Shares to ADSs made in contemplation of a sale or a change in
beneficial ownership (under Irish law) as an event chargeable to stamp duty at a
rate of 1%. The Irish Revenue has indicated that a re-conversion of ADSs to
Ordinary Shares made in contemplation of a sale or a change in beneficial
ownership (under Irish law) will not be treated as a stampable event. However,
the subsequent sale of the re-converted Ordinary Shares will give rise to a
charge to Irish stamp duty at the 1% rate. If the transfer of the Ordinary
Shares is a transfer under which there is no change in the beneficial ownership
(under Irish law) of the Ordinary Shares being transferred, nominal stamp duty
only will be payable on the transfer. Under Irish law, it is not free from doubt
that the mere deposit of Ordinary Shares for ADSs or ADSs for Ordinary Shares
would not be deemed to constitute a change in beneficial ownership. Accordingly,
it is not certain that holders would not be subject to stamp duty at the 1% rate
when merely depositing Ordinary Shares for ADSs or ADSs for Ordinary Shares and,
consequently, the Depositary reserves the right in such circumstances to require
payment of stamp duty at the rate of 1% from the holders.
The person accountable for payment of stamp duty is the transferee or, in
the case of a transfer by way of a gift or for a consideration less than the
market value, all parties to the transfer. Stamp duty is normally payable within
30-days after the date of execution of the transfer. Late or inadequate payment
of stamp duty will result in a liability to interest, penalties and fines.
United States Tax Considerations
Except as described below under the heading "Non-U.S. Holders," the
following is a summary of certain U.S. federal income tax considerations
relating to the purchase, ownership and disposition of Ordinary Shares or ADSs
by a holder that is a citizen or resident of the United States, a U.S. domestic
corporation or that is otherwise subject to U.S. federal income tax on a net
income basis in respect of the Ordinary Shares or the ADSs ("U.S. Holders").
This summary does not purport to be a comprehensive description of all of the
tax considerations that may be relevant to a decision to purchase the Ordinary
Shares or the ADSs. In particular, the summary deals only with U.S. Holders that
will hold Ordinary Shares or ADSs as capital assets and generally does not
address the tax treatment of U.S. Holders that may be subject to special tax
rules such as banks, insurance companies, dealers in securities or currencies,
traders in securities electing to mark-to-market, persons that own 10% or more
of the stock of the Company, U.S. Holders whose "functional currency" is not
U.S. dollars or persons that hold the Ordinary Shares or the ADSs as part of an
integrated investment (including a "straddle") consisting of the Ordinary Shares
or the ADSs and one or more other positions.
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Holders of the Ordinary Shares or the ADSs should consult their own tax
advisors as to the U.S. or other tax consequences of the purchase, ownership,
and disposition of the Ordinary Shares or the ADSs in light of their particular
circumstances, including, in particular, the effect of any foreign, state or
local tax laws.
For U.S. federal income tax purposes, holders of the ADSs will be treated
as the owners of the Ordinary Shares represented by those ADSs.
Taxation of Dividends. Dividends, if any, paid with respect to the Ordinary
Shares, including Ordinary Shares represented by ADSs, will be included in the
gross income of a U.S. Holder when the dividends are received by the holder or
the Depositary, as the case may be. Such dividends will not be eligible for the
dividends received deduction allowed to U.S. corporations in respect of
dividends from a domestic corporation. Dividends paid in euros will be
includible in the income of a U.S. Holder in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day they are received by the
holder or the Depositary, as the case may be. U.S. Holders generally should not
be required to recognize any foreign currency gain or loss to the extent such
dividends paid in euros are converted into U.S. dollars immediately upon
receipt.
Subject to certain exceptions for short-term and hedged positions, the U.S.
dollar amount of dividends received by an individual prior to January 1, 2011
with respect to the Ordinary Shares or ADSs will be subject to taxation at a
maximum rate of 15% if the dividends are "qualified dividends." Dividends paid
during or after the 2005 taxable year on the Ordinary Shares or ADSs will be
treated as qualified dividends if (i) the issuer is eligible for the benefits of
a comprehensive income tax treaty with the United States that the IRS has
approved for the purposes of the qualified dividend rules and (ii) the Company
was not, in the year prior to the year in which the dividend was paid, and is
not, in the year in which the dividend is paid a passive foreign investment
company. The income tax treaty between Ireland and the United States has been
approved for the purposes of the qualified dividend rules. Based on the
Company's audited financial statements and relevant market data, the Company
believes that it was not treated as a PFIC for U.S. federal income tax purposes
with respect to its 2005/6 taxable year. In addition, based on the Company's
audited financial statements and its current expectations regarding the value
and nature of its assets, the sources and nature of its income, and relevant
market data, the Company does not anticipate becoming a PFIC for its 2006/7
taxable year.
Under the U.S.-Ireland Income Tax Treaty currently in effect, in the event
the Company were to pay any dividend, the tax credit attaching to the dividend
(as used herein the "Tax Credit"; see "-Irish Tax Considerations") generally
will be treated as a foreign income tax eligible for credit against such U.S.
Holder's United States federal income tax liability, subject to generally
applicable limitations and conditions. Any such dividend paid by the Company to
such U.S. Holder will constitute income from sources without the United States
for foreign tax credit purposes, and generally will constitute "passive income"
for such purposes.
Foreign tax credits may not be allowed for withholding taxes imposed in
respect of certain short-term or hedged positions in securities. U.S. Holders
should consult their own tax advisors concerning the implications of these rules
in light of their particular circumstances.
Distributions of Ordinary Shares that are made as part of a pro rata
distribution to all stockholders generally will not be subject to U.S. federal
income tax.
Sale or Disposition of Ordinary Shares or ADSs. Gains or losses realized by
a U.S. Holder on the sale or other disposition of ADSs generally will be treated
for U.S. federal income tax purposes as capital gains or losses, which generally
will be long-term capital gains or losses if the ADSs have been held for more
than one year. The net amount of long-term capital gain recognized by an
individual holder after May-5, 2003 and before January-1, 2009 generally is
subject to taxation at a maximum rate of 15%. The net long-term capital gain
recognized by an individual holder before May-6, 2003 or after December-31, 2008
generally is subject to taxation at a maximum rate of 20%.
86
Deposits and withdrawals of Ordinary Shares by U.S. Holders in exchange for
ADSs will not result in the realization of gain or loss for U.S. federal income
tax purposes.
Non-U.S. Holders. A holder of Ordinary Shares or ADSs that is, with respect to
the United States, a foreign corporation or a nonresident alien individual (a
"Non-U.S. Holder") generally will not be subject to U.S. federal income or
withholding tax on dividends received on such Ordinary Shares or ADSs unless
such income is effectively connected with the conduct by such holder of a trade
or business in the United States. A Non-U.S. Holder of ADSs or Ordinary Shares
will not be subject to U.S. federal income tax or withholding tax in respect of
gain realized on the sale or other disposition of Ordinary Shares or ADSs,
unless (i)-such gain is effectively connected with the conduct by such holder of
a trade or business in the United States or (ii)-in the case of gain realized by
an individual Non-U.S. Holder, such Non-U.S. Holder is present in the United
States for 183-days or more in the taxable year of the sale and certain other
conditions are met.
DOCUMENTS ON DISPLAY
Copies of Ryanair Holdings' Articles of Association may be examined at its
registered office and principal place of business at its Corporate Head Office,
Dublin Airport, County Dublin, Ireland.
Ryanair Holdings also files reports, including annual reports on Form-20-F,
periodic reports on Form-6-K and other information, with the SEC pursuant to the
rules and regulations of the SEC that apply to foreign private issuers. You may
read and copy any materials filed with the SEC at its Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
GENERAL
Ryanair is exposed to market risks relating to fluctuations in commodity
prices, interest rates and currency exchange rates. The objective of financial
risk management at Ryanair is to minimize the negative impact of commodity
price, interest rate and foreign exchange rate fluctuations on the Company's
earnings, cash flows and equity.
To manage these risks, Ryanair uses various derivative financial
instruments, including interest rate swaps, foreign currency forward contracts
and commodity swaps. These derivative financial instruments are generally held
to maturity and are not actively traded. The Company enters into these
arrangements with the goal of hedging its operational and balance sheet risk.
However, Ryanair's exposure to commodity price, interest rate and currency
exchange rate fluctuations cannot be neutralized completely.
In executing its risk management strategy, Ryanair selectively enters into
forward contracts for the purchase of aviation fuel. It also uses foreign
currency forward contracts intended to reduce its exposure to certain
currencies, principally the U.S. dollar and U.K. pound sterling. It also enters
into interest rate contracts with the objective of fixing certain borrowing
costs and hedging principal repayments, particularly those associated with the
purchase of new aircraft such as the Boeing 737-800s. Ryanair is also exposed to
the risk that the counterparties to its derivative financial instruments may not
be creditworthy. Were a counterparty to default on its obligations under any of
the instruments described below, Ryanair's economic expectations when entering
into these arrangements might not be achieved and its financial condition could
be adversely affected. Transactions involving derivative financial instruments
are also relatively illiquid as compared with those involving other kinds of
financial instruments. It is Ryanair's policy not to enter into transactions
involving financial derivatives for speculative purposes.
87
The following paragraphs describe Ryanair's fuel hedging, foreign currency
and interest rate swap arrangements and analyze the sensitivity of the market
value, earnings and cash flows of the financial instruments to hypothetical
changes in commodity prices, interest rates and exchange rates as if these
changes had occurred at March 31, 2006. The range of changes selected for this
sensitivity analysis reflects Ryanair's view of changes which are reasonably
possible over a one-year period.
FUEL PRICE EXPOSURE AND HEDGING
Fuel costs constitute a substantial portion of Ryanair's operating expenses
(approximately 27.1% and 35.1% of such expenses in fiscal years 2005 and 2006,
respectively, after taking into account Ryanair's fuel hedging activities).
Ryanair engages in fuel price hedging transactions from time to time, pursuant
to which Ryanair and a counterparty agree to exchange payments equal to the
difference between a fixed price for a given quantity of jet fuel and the market
price for such quantity of jet fuel at a given date in the future, with Ryanair
receiving the amount of any excess of such market price over such fixed price
and paying to the counterparty the amount of any excess of such fixed price over
such market price.
Ryanair has historically entered into arrangements providing for
substantial protection against fluctuations in fuel prices, generally through
swap contracts covering 12-18 months of anticipated jet fuel requirements. In
light of the significant increases in oil prices in recent years and their
volatility, the Company starting in fiscal 2004 has entered into such
arrangements on a more selective basis. While these hedging strategies can
cushion the impact on Ryanair of fuel price increases in the short term, in the
medium to longer-term, such strategies cannot be expected to eliminate the
impact on the Company of an increase in the market price of aviation fuel. The
unrealized gains on the outstanding forward agreements at March 31, 2005 and
March 31, 2006, based on their fair values, amounted to EUR5.9 million and nil,
respectively. Based on Ryanair's fuel consumption for the fiscal year ended
March 31, 2006, a change of one U.S. cent in the average annual price per U.S.
gallon of aviation fuel would have caused a change of approximately EUR2.5
million in Ryanair's fuel costs. See "Item 3. Key Information-Risk Factors-Risks
Related to the Company-Changes in Fuel Costs and Fuel Availability Affect the
Company's Results."
Under both IFRS and U.S. GAAP, the Company's fuel forward contracts
generally qualify for treatment as cash flow hedges of forecasted fuel purchases
for risks arising from the commodity price of fuel. The contracts are recorded
at fair value in the balance sheet and are re-measured to fair value at the end
of each fiscal period through either the income statement or equity, depending
on their effectiveness. The Company has considered these hedges to be highly
effective in offsetting variability in future cash flows arising from
fluctuations in the market price of fuel because the fuel forward contracts
typically relate to the same quantity and time and location of delivery as the
forecasted fuel purchase being hedged and the duration of the contracts is
typically short. Accordingly, the quantification of the change in expected cash
flows of the forecasted fuel purchase is based on the fuel forward price, and in
the fiscal year ended March 31, 2006, the Company recorded no hedge
ineffectiveness within earnings. Since its creation, the Company has never
recorded any material level of ineffectiveness within earnings on its fuel
hedges.
In the fiscal year ended March 31, 2005, the Company recorded a positive
fair value adjustment of EUR5.1 million (net of tax) within accumulated other
comprehensive income. The Company was unhedged at March 31, 2006.
88
FOREIGN CURRENCY EXPOSURE AND HEDGING
In recent years, Ryanair's revenues have been denominated primarily in two
currencies, the euro and U.K. pound sterling. The euro accounted for
approximately 48% of Ryanair's total revenues in fiscal year 2006, as compared
to approximately 49% in fiscal year 2005, with the U.K. pound sterling
accounting for a large portion of the balance in each period. As Ryanair reports
its results in euro, the Company is not exposed to any material currency risk as
a result of its euro-denominated activities. Ryanair's operating expenses are
primarily denominated in euro, U.K. pounds sterling and U.S. dollars. Ryanair's
operations can be subject to significant direct exchange rate risks between the
euro and the U.S. dollar because a significant portion of its operating costs
(particularly those related to fuel purchases) is incurred in U.S. dollars,
while none of its revenues is denominated in U.S. dollars. Appreciation of the
euro versus the U.S. dollar positively impacts Ryanair's operating income
because the euro equivalent of its U.S. dollar operating costs decreases, while
depreciation of the euro versus the U.S. dollar negatively impacts operating
income. It is Ryanair's policy to hedge against a certain portion of its
exposure to fluctuations in the exchange rate between the U.S. dollar and the
U.K. pound sterling at the time Ryanair enters into U.S. dollar-denominated
purchases. In general, Ryanair does not hedge its operating surpluses and
shortfalls in currencies other than the U.S. dollar and the U.K. pound sterling.
Management seeks to manage Ryanair's exposure to changes in the value of
the U.K. pound sterling by matching its sterling revenues against its U.K. pound
sterling costs. Any unmatched U.K. pound sterling revenues are generally used to
fund forward exchange contracts to hedge U.S. dollar currency exposure which
arises in relation to Ryanair's dollar-denominated operating expenses, such as
fuel, maintenance and aviation insurance, as well as capital expenditure costs,
including the payments to Boeing on the Boeing 737-800s.
Hedging associated with operating expenses. As Ryanair's volume of traffic
originating in the U.K. has increased, the volume of Ryanair's unmatched U.K.
pound sterling revenues has also increased. Accordingly, in fiscal year 2005 and
fiscal year 2006, the Company entered into a series of U.S. dollar/U.K. pound
sterling and U.S. dollar/euro forward contracts to hedge against variability in
cash flows arising from market fluctuations in foreign exchange rates associated
with its forecasted fuel, maintenance and insurance costs. At March 31, 2006,
the total unrealized gain relating to these contracts amounted to EUR12.3
million, compared to a EUR1.0 million unrealized loss at March 31, 2005. In the
fiscal years ended March 31, 2006 and March 31, 2005, the Company also entered
into a series of U.K. pound sterling/euro forward contracts to hedge against
variability in cash flows arising from market fluctuations in foreign exchange
rates associated with its forecasted U.K. pound sterling expenses. At March 31,
2006, the total unrealized loss relating to these contracts amounted to EUR0.2
million compared to a EUR0.7 million unrealized gain at March 31, 2005.
Under both IFRS and U.S. GAAP, these foreign currency forward contracts are
treated as cash flow hedges of forecasted U.S. dollar and U.K. pound sterling
purchases and sales for risks arising from U.S. dollar and U.K. pound sterling
exchange rates against the euro. The derivatives are recorded at fair value in
the balance sheet and are re-measured to fair value at the end of each fiscal
period through either the income statement or equity, depending on their
effectiveness. Ryanair considers these hedges to be highly effective in
offsetting variability in future cash flows arising from fluctuations in
exchange rates, because the forward contracts are timed so as to match exactly
the quantity, currency and maturity date of the forecasted U.S.
dollar-denominated expense or U.K. pound sterling-denominated revenue being
hedged. Since its creation, the Company has never recorded any material level of
ineffectiveness within earnings on these contracts. In the fiscal year ended
March 31, 2006, the Company recorded a positive fair value adjustment of EUR10.8
million (net of tax) relating to its U.S. dollar forward contracts. These gains
have been included within accumulated other comprehensive income and are all
expected to impact on earnings in fiscal year 2007 and 2008. This compares to a
negative fair value adjustment of EUR0.8 million (net of tax) relating to
similar forward contracts in fiscal year ended March 31, 2005.
89
Hedging associated with capital expenditures. During fiscal years 2006 and
2005, the Company also entered into a series of U.S. dollar/U.K. pound sterling
and U.S. dollar/euro contracts to hedge against changes in the fair value of
aircraft purchase commitments under the Boeing contracts which arise from
fluctuations in the U.S. dollar/U.K. pound sterling and U.S. dollar/euro
exchange rates. At March 31, 2006, the total unrealized gains relating to these
contracts amounted to EUR7.5 million, while at March 31, 2005, unrealized gains
amounted to EUR2.7 million. Under both IFRS and U.S. GAAP, the Company accounts
for these contracts as fair value hedges and accordingly, such financial
instruments are recorded in the balance sheet at fair value. Any gains or losses
arising on these instruments, as well as the related gain or loss on the
underlying aircraft purchase commitment, are recorded in the income statement.
Any related ineffectiveness is measured by the amount by which these adjustments
to earnings do not match. The Company expects these hedges to be highly
effective in offsetting changes in the fair value of the aircraft purchase
commitments arising from fluctuations in exchange rates because the forward
exchange contracts are always for the same amount, currency and maturity dates
as the corresponding aircraft purchase commitments. Accordingly, since its
creation, the Company has never recorded any material level of ineffectiveness
within earnings on these contracts.
Holding other variables constant, if there were an adverse change of ten
percent in relevant foreign currency exchange rates, the market value of
Ryanair's foreign currency contracts outstanding at March 31, 2006 would
decrease by approximately EUR58 million, all of which would ultimately impact
earnings when such contracts mature.
INTEREST RATE EXPOSURE AND HEDGING
The Company's purchase of 82 of the 103 Boeing 737-800 aircraft delivered
as of March 31, 2006, has been funded in part by bank financing in the form of
loans under facilities supported by a loan guarantee from ExIm. With respect to
these 82 aircraft, at March 31, 2006, the Company had outstanding cumulative
borrowings under these facilities of EUR1,550.6 million with a weighted average
interest rate of 4.80%. See "Item 5. Operating and Financial Review and
Prospects-Liquidity and Capital Resources-Capital Resources" for additional
information on these facilities and the related swaps, including a tabular
summary of the "Effective Borrowing Profile" illustrating the effect of the swap
transactions (each of which is with an established international financial
counterparty) on the profile of Ryanair's aircraft-related debt at March 31,
2006. At March 31, 2006, the fair value of the interest rate swap agreements
relating to this floating rate debt was represented by a loss of EUR75.1
million, as compared with a loss of EUR105.3 million at March 31, 2005. See Note
10 to the Consolidated Financial Statements included in Item 18 for additional
information.
The Company also enters into interest rate swaps to hedge against floating
rate rental payments associated with certain aircraft financed through operating
lease arrangements. Through the use of interest rate swaps, Ryanair has
effectively converted the floating rental payments due under eleven of these
leases into fixed rate payments. At March 31, 2006, the fair value of the
interest rate swap agreements relating to leases on a mark-to-market basis was
equivalent to a loss of EUR34.2 million, as compared with a loss of EUR46.6
million at March 31, 2005. These financial instruments are, accordingly,
recorded at fair value in the balance sheet and are subsequently re-measured to
fair value either through the income statement or as equity, depending on their
effectiveness. Since its creation, the Company has never recorded any material
level of ineffectiveness within earnings on these swaps as they have the same
critical terms as the underlying item being hedged. Under both IFRS and U.S.
GAAP, the Company accounts for all of its swaps as cash flow hedges of variable
rental payments or variable rate debt payments. At March 31, 2006, the Company
recorded a total negative fair value adjustment of EUR95.6 million (net of tax)
relating to these arrangements (of which EUR24.0 million is the current year
impact), which was included within accumulated other comprehensive income, as
compared with a EUR132.9 million negative fair value adjustment at March 31,
2005. This loss will be realized within earnings over the period from the
expected drawdown of the related financing (i.e., over a period of up to 12
years from March 31, 2006), with an increase in the related interest expense.
90
If Ryanair had not entered into such derivative agreements, a plus or minus
one percentage point movement in interest rates would impact the fair value of
this liability by approximately EUR49 million. The earnings and cash flow impact
of any such change in interest rates would have been approximately plus or minus
EUR10 million per year.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
Item 15. Controls and Procedures
The Company has evaluated, with the participation of its chief executive
officer and chief financial officer, the effectiveness of the Company's
disclosure controls and procedures as of March 31, 2006. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon the Company's evaluation, the
chief executive officer and chief financial officer concluded that the
disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by Ryanair in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the applicable
rules and forms, and that it is accumulated and communicated to the management,
including the chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. There has
been no change in the Company's internal control over financial reporting during
the fiscal year ended March 31, 2006 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item 16A. Audit Committee Financial Expert
The Company's Board of Directors has determined that Emmanuel Faber
qualifies as an "audit committee financial expert" within the meaning of this
Item 16A. Mr. Faber is "independent" for purposes of the listing rules of the
Nasdaq.
Item 16B. Code of Ethics
The Company has adopted a broad Code of Conduct that meet the requirements
for a "code of ethics" as defined in Item 16B of Form 20-F. The Code of Conduct
applies to the Company's chief executive officer, chief financial officer, chief
accounting officer, controller and persons performing similar functions, as well
as to all of the Company's other officers, directors and employees. The Code of
Conduct is available on Ryanair's website at http://www.ryanair.com.
(Information appearing on the website is not incorporated by reference into this
annual report.) The Company has not made any amendment to, or granted any waiver
from, the provisions of this Code of Conduct that apply to its chief executive
officer, chief financial officer, chief accounting officer, controller or
persons performing similar functions during its most recently completed fiscal
year.
91
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees billed to the Company by its
independent auditors, KPMG, during the fiscal years ended March 31, 2006 and
2005:
Year ended March 31,
_____________________
2006 2005
_______ ________
EUR'000 EUR'000
Audit fees........................................................................ 213 196
Audit-related fees................................................................ 67 39
Tax fees.......................................................................... 188 232
Other fees........................................................................ 0 0
_______ ________
Total fees................................................................. 468 467
======= ========
Audit fees in the above table are the aggregate fees billed by KPMG in
connection with the audit of the Company's annual financial statements as well
as work that generally only the independent auditor can reasonably be expected
to provide, including comfort letters, statutory audits, and discussions
surrounding the proper application of financial accounting and/or reporting
standards.
Audit-related fees in the above table are the aggregate fees billed by KPMG
for assurance and related services that are traditionally performed by the
independent auditor, including due diligence related to mergers and acquisitions
and employee benefit audit plans.
Tax fees include all services, except those services specifically related
to the audit of financial statements, performed by the independent auditor's tax
personnel, including tax analysis, supporting other tax related regulatory
requirements, and tax compliance reporting.
Other fees are those associated with services not captured in the other
categories.
Audit Committee Pre-Approval Policies and Procedures
The audit committee expressly pre-approves any engagement of Ryanair's
independent auditors for all audit and non-audit services provided to the
Company.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
Neither the Company nor any affiliated purchaser purchased any of the
Company's Ordinary Shares or ADSs during fiscal year 2006.
PART III
Item 17. Financial Statements
Not applicable.
92
Item 18. Financial Statements
RYANAIR HOLDINGS PLC
INDEX TO FINANCIAL STATEMENTS
Page
_______
Report of the Independent Registered Public Accounting Firm................................ F-1
Consolidated Balance Sheets of Ryanair Holdings plc at March 31, 2005 and March 31, 2006... F-2
Consolidated Income Statements of Ryanair Holdings plc for the Years ended March 31, 2005
and March 31, 2006........................................................................ F-3
Consolidated Cash Flow Statements of Ryanair Holdings plc for the Years Ended March 31,
2005 and March 31, 2006................................................................... F-4
Consolidated Statements of Recognized Income and Expense of Ryanair Holdings plc for the
Years ended March 31, 2005 and March 31, 2006............................................. F-5
Notes forming part of the Financial Information............................................ F-6
Item 19. Exhibits
1.1 Memorandum and Articles of Association of Ryanair Holdings in effect
as of the date of this Report.
1.2 The total amount of long-term debt securities of Ryanair Holdings
authorized under any instrument does not exceed 10% of the total
assets of the Company on a consolidated basis. Ryanair Holdings hereby
agrees to furnish to the Securities and Exchange Commission upon
request a copy of any instrument defining the rights of holders of
long-term debt of the registrant or of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be
filed.
4.1 Purchase Agreement No. 2403 between The Boeing Company and Ryanair
Holdings plc relating to Model 737-800 aircraft, together with
ancillary documents (subject to a request for confidential treatment
that has been granted) (incorporated herein by reference to Exhibit
4.1 of Ryanair Holdings' Annual Report on Form 20-F filed on September
30, 2002 (commission file No. 0-2930)).
4.2 Supplemental Agreement No. 6 to Purchase Agreement 2403 between The
Boeing Company and Ryanair Holdings plc relating to Model 737-800
aircraft, dated as of February 28, 2005, together with ancillary
documents (subject to a request for confidential treatment that has
been granted) (incorporated herein by reference to Exhibit 4.2 of
Ryanair Holdings' Annual Report on Form 20-F filed on September 30,
2005 (commission file No. 0-2930)).
8.1 Principal subsidiaries of the registrant.
12.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
13.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
93
Appendix A
GLOSSARY
Certain of the terms included in the section on Selected Operating and
Other Data and elsewhere in this annual report on Form 20-F have the meanings
indicated below and refer only to Ryanair's scheduled passenger service.
Available Seat Miles (ASMs) Represents the number of seats available for scheduled passengers
multiplied by the number of miles those seats were flown.
Average Booked Passenger Fare Represents the average fare paid by a scheduled fare paying
passenger who has booked a ticket.
Average Daily Flight Hour Utilization Represents the average number of flight hours flown in scheduled
service per day per aircraft for the total fleet of operated
aircraft.
Average Flown Passenger Fare Represents the average fare paid by a scheduled fare paying
passenger who has flown.
Average Fuel Cost Per U.S. Gallon Represents the average cost per U.S. gallon of jet fuel for the
fleet (including fueling charges) after giving effect to fuel
hedging arrangements.
Average Length of Passenger Haul Represents the average number of miles traveled by a scheduled
fare paying passenger.
Average Passenger Spend per Flight Represents the average revenue generated per scheduled passenger
flown including in-flight purchases and car rental services.
Average Yield per ASM Represents the average scheduled flown passenger fare revenue for
each available seat mile ("ASM").
Average Yield per RPM Represents the average scheduled passenger fare revenue for each
revenue passenger mile ("RPM"), or each mile a scheduled revenue
passenger is flown.
Booked Passenger Load Factor Represents the total number of seats sold as a percentage of total
seat capacity on all sectors flown.
Break-even Load Factor Represents the number of RPMs at which scheduled passenger
revenues would have been equal to operating expenses (excluding
Non-Charter Ancillary Costs) divided by ASMs (based on Average
Yield per RPM). For the purposes of this calculation, the number
of RPMs at which scheduled passenger revenues would have been
equal to operating expenses (excluding Non-Charter Ancillary
Costs) is calculated by dividing operating expenses (excluding
Non-Charter Ancillary Costs) by Average Yield per RPM.
Cost Per ASM (CASM) Represents operating expenses (excluding Non-Charter Ancillary
Costs) divided by ASMs.
Flown Passenger Load Factor Represents RPMs divided by ASMs.
Net Margin Represents profit after taxation as a percentage of total revenues.
Number of Airports Served Represents the number of airports to/from which the carrier
offered scheduled service at the end of the period.
Number of Owned Aircraft Operated Represents the number of aircraft owned and operated at the end of
the period.
Operating Margin Represents operating profit as a percentage of total revenues.
Revenue Passenger Miles (RPMs) Represents the number of miles flown by scheduled fare paying
passengers.
Revenue Passengers Booked Represents the number of scheduled fare paying passengers booked.
Revenue Passengers Flown Represents the number of scheduled fare paying passengers flown.
Sectors Flown Represents the number of scheduled passenger flight sectors flown.
A2
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
RYANAIR HOLDINGS PLC
/s/ Michael O' Leary
Name: Michael O'Leary
Title: Chief Executive Officer and Director
Date: September 27, 2006
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ryanair Holdings plc:
We have audited the accompanying consolidated financial statements of Ryanair
Holdings plc and subsidiaries (collectively, 'the Company') as listed in the
accompanying index on page 93 of this Form 20F. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ryanair
Holdings plc and subsidiaries as of March 31, 2006 and 2005, and the results of
operations, cash flows and recognized income and expense for the years then
ended, in conformity with International Financial Reporting Standards as adopted
by the European Union (EU) ("IFRS").
IFRS as adopted by the EU vary in certain significant respects from U.S.
generally accepted accounting principles. Information relating to the nature and
effect of such differences is presented in Note 27 to the consolidated financial
statements. As allowed upon initial adoption of IFRS and as further described in
Note 1, the Company has elected to adopt International Accounting Standards 32
and 39 regarding financial instrument accounting and disclosure, on a
prospective basis effective April 1 2005.
KPMG
Chartered Accountants
Dublin, Ireland
September 27, 2006
F-1
Consolidated Balance Sheets
At March 31, At March 31,
2005 2006
------------ ------------
Note EUR000 EUR000
Current assets
Cash and cash equivalents......................................... 872,258 1,439,004
Financial assets: cash > 3 months................................. 529,407 328,927
Restricted cash................................................... 2 204,040 204,040
Trade receivables................................................. 3 20,644 29,909
Derivative financial instruments.................................. 4 - 18,872
Other assets ..................................................... 5 24,612 29,453
Inventories ...................................................... 6 2,460 3,422
------------ ------------
Total current assets................................................. 1,653,421 2,053,627
------------ ------------
Non-current assets
Property, plant and equipment..................................... 7 2,117,891 2,532,988
Intangible assets................................................. 8 46,841 46,841
Derivative financial instruments.................................. 4 - 763
------------ ------------
Total non-current assets............................................. 2,164,732 2,580,592
------------ ------------
Total assets......................................................... 3,818,153 4,634,219
============ ============
Current liabilities
Trade payables................................................... 92,118 79,283
Accrued expenses and other liabilities............................ 9 418,653 570,614
Current maturities of long term debt.............................. 10 120,997 153,311
Derivative financial instruments.................................. 4 - 27,417
Current tax....................................................... 11 17,534 15,247
------------ ------------
Total current liabilities............................................ 649,302 845,872
------------ ------------
Non-current liabilities
Provisions........................................................ 12 7,236 16,722
Derivative financial instruments.................................. 4 - 81,897
Deferred income tax liability..................................... 11 104,180 127,260
Other creditors.................................................. 13 29,072 46,066
Long term debt.................................................... 10 1,293,860 1,524,417
------------ ------------
Total non-current liabilities........................................ 1,434,348 1,796,362
------------ ------------
Shareholders' equity
Issued share capital.............................................. 14 9,675 9,790
Share premium account............................................. 14 565,756 596,231
Retained earnings................................................. 1,158,584 1,467,623
Other reserves.................................................... 488 (81,659)
------------ ------------
Shareholders' equity................................................. 1,734,503 1,991,985
------------ ------------
Total liabilities and shareholders' equity........................... 3,818,153 4,634,219
============ ============
The accompanying notes are an integral part of the financial information.
F-2
Consolidated Income Statements
Year ended Year ended
March 31, March 31,
2005 2006
------------ ------------
Note EUR000 EUR000
Operating Revenues
Scheduled revenues........................................... 1,128,116 1,433,377
Ancillary revenues........................................... 15 190,921 259,153
------------ ------------
Total operating revenues - continuing operations................ 15 1,319,037 1,692,530
------------ ------------
Operating expenses
Staff costs.................................................. 16 (141,673) (171,412)
Depreciation................................................. 7 (110,357) (124,405)
Fuel & oil................................................... (265,276) (462,466)
Maintenance, materials & repairs............................. (26,280) (37,417)
Marketing & distribution costs............................... (19,622) (13,912)
Aircraft rentals............................................. 17 (21,546) (47,376)
Route charges................................................ (135,672) (164,577)
Airport & handling charges................................... (178,384) (216,301)
Other........................................................ 17 (79,489) (79,618)
------------ ------------
Total operating expenses........................................ (978,299) (1,317,484)
------------ ------------
Operating profit - continuing operations........................ 340,738 375,046
------------ ------------
Other income/(expenses)
Finance income............................................... 28,342 38,219
Finance expense.............................................. 19 (57,629) (73,958)
Foreign exchange (losses).................................... (2,302) (1,234)
Gain on disposal of property, plant and equipment............ 47 815
------------ ------------
Total other income/(expenses)................................... (31,542) (36,158)
------------ ------------
Profit before tax............................................... 309,196 338,888
Tax on profit on ordinary activities......................... 11 (29,153) (32,176)
------------ ------------
Profit for the year -all attributable to equity holders of
parent.......................................................... 280,043 306,712
============ ============
Basic earnings per ordinary share Euro cent.................. 21 36.85 40.00
Diluted earnings per ordinary share Euro cent................ 21 36.65 39.74
Number of ordinary shares (in 000's)......................... 21 759,911 766,833
Number of diluted shares (in 000's).......................... 21 764,003 771,781
============ ============
The accompanying notes are an integral part of the financial information.
F-3
Consolidated Cash Flow Statements
Year ended Year ended
March 31, March 31,
------------ ------------
2005 2006
EUR000 EUR000
Operating activities
Profit before tax................................ 309,196 338,888
Adjustments to reconcile profits before tax to net
cash provided by operating activities
Depreciation..................................... 110,357 124,405
(Increase) in inventories......................... (424) (962)
(Increase) in trade receivables.................. (5,712) (9,265)
(Increase) in other current assets................ (4,855) (882)
Increase/(decrease) in trade payables............. 24,182 (12,835)
Increase in accrued expenses..................... 89,406 150,083
(Decrease)/increase in other creditors........... (10,986) 11,403
Increase in maintenance provision................. 714 9,486
(Gain) on disposal of fixed assets................ (47) (815)
Interest receivable.............................. (505) (3,959)
Interest payable................................. 3,420 1,159
Retirement costs.................................. 167 507
Share based payments.............................. 488 2,921
Income tax........................................ (4,198) 436
------------ ------------
Net cash provided by operating activities......... 511,203 610,570
------------ ------------
Investing activities
Capital expenditure (purchase of property, plant
and equipment) ................................... (631,994) (546,225)
Proceeds from sale of property, plant and equipment 2,234 8,460
(Investment) in restricted cash................... (4,040) -
(Investment)/reduction in financial assets: cash >
3 months.......................................... (216,662) 200,480
------------ ------------
Net cash used in investing activities............. (850,462) (337,285)
------------ ------------
Financing activities
Net proceeds from shares issued................... 5,382 30,590
Proceeds from long term borrowings................ 550,021 386,809
Repayments of long term borrowings................ (88,146) (123,938)
------------ ------------
Net cash provided by financing activities......... 467,257 293,461
------------ ------------
Increase in cash and cash equivalents............. 127,998 566,746
Cash and cash equivalents at beginning of year.... 750,584 872,591
Effects of exchange rates on foreign currency
balances.......................................... (6,324) (333)
------------ ------------
Cash and cash equivalents at end of year......... 872,258 1,439,004
============ ============
The accompanying notes are an integral part of the financial information.
F-4
Consolidated Statements of Recognized Income and Expense
At March 31,
-----------------------------
2005 2006
------------ ------------
EUR000 EUR000
Net actuarial (losses)/gains from retirement benefit plans ................ (4,733) 2,327
------------ ------------
Cash flow hedge reserve
New movements into cash flow hedge reserve (net of tax of EUR9.4m)........... - 65,966
Movements from cash flow hedge reserve (net of tax of EUR3.2m)............... - (22,960)
------------ ------------
Net movements into cash flow hedge reserve (net of tax of EUR6.2m)........... - 43,006
------------ ------------
Profit for the year........................................................ 280,043 306,712
------------ ------------
Total recognized income and expense........................................ 275,310 352,045
------------ ------------
Transition to IFRS - impact of IAS 39-cash flow hedge reserve (net of tax
of EUR18.3m)................................................................. - (128,074)
------------ ------------
Total recognized income and expense, as restated, attributable to equity
shareholders............................................................... 275,310 223,971
============ ============
The following note analyses our consolidated changes in shareholders' equity
Share
Ordinary premium Retained Other
shares account earnings Reserves Total
----------- ----------- ---------- ----------- ----------
EUR000 EUR000 EUR000 EUR000 EUR000
Balance at April 1, 2004................................ 9,643 560,406 883,274 - 1,453,323
----------- ----------- ---------- ----------- ----------
Issue of ordinary equity shares (net of issue costs)...... 32 5,350 - - 5,382
Profit for the financial year............................. - - 280,043 - 280,043
Share-based payments..................................... - - - 488 488
Retirement benefits...................................... - - (4,733) - (4,733)
----------- ----------- ---------- ----------- ----------
9,675 565,756 1,158,584 488 1,734,503
----------- ----------- ---------- ----------- ----------
Balance at March 31, 2005...............................
Adjustment for impact of first time adoption
of IAS 39................................................. - - - (128,074) (128,074)
+-----------------------------------------------------------------------------------------------------------------------+
| New movements into cash flow hedge reserve................ - - - 65,966 65,966 |
| Movements from cash flow hedge reserve.................... - - - (22,960) (22,960) |
| ----------- ----------- ---------- ----------- ----------|
| Net movements into cash flow hedge reserve................ - - - 43,006 43,006 |
+-----------------------------------------------------------------------------------------------------------------------+
Issue of ordinary equity shares (net of issue costs)...... 115 30,475 - - 30,590
Profit for the financial year............................. - - 306,712 - 306,712
Share-based payments..................................... - - - 2,921 2,921
Retirement benefits...................................... - - 2,327 - 2,327
----------- ----------- ---------- ----------- ----------
Balance at March 31, 2006............................... 9,790 596,231 1,467,623 (81,659) 1,991,985
=========== =========== ========== =========== ==========
The total share based payments reserve at March 31, 2006 was EUR3.4m
(2005:EUR0.5m) and the cash flow hedging reserve amounted to EUR85.1m at March
31, 2006 (2005: nil). Further details of the Group's derivatives are set out in
notes 4, 10 and 26. The accumulated balance on retained earnings is stated after
a write off of goodwill on a previous Group reorganization of EUR4.1m which
arose in the year ended March 31, 1997. The Group has elected not to restate
this transaction in accordance with provisions of IFRS 1.
F-5
Notes forming part of the Financial Information
Basis of preparation and significant accounting policies
1a Business activity
Ryanair Limited and subsidiaries (Ryanair Limited) has operated as an
international airline since it commenced operations in 1985. On August23, 1996,
Ryanair Holdings Limited, a newly formed holding company, acquired the entire
issued share capital of Ryanair Limited. On May16, 1997, Ryanair Holdings
Limited re-registered as a public limited company, Ryanair Holdings plc (the
Company). Ryanair Holdings plc and subsidiaries are hereafter referred to as
Ryanair Holdings plc (the Group or Ryanair Holdings). All trading activity
continues to be undertaken by the Group of companies headed by Ryanair Limited.
1b Significant accounting policies
Ryanair Holdings plc is a public limited company incorporated and domiciled
in the Republic of Ireland, (also referred to hereafter as "we", "our", "us",
"Ryanair"or "the Company" and is a low fares airline headquartered in Dublin,
Ireland. These financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as more particularly detailed
below. The following accounting policies have been applied consistently to all
periods presented except as otherwise set out below.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the European
Union (EU) that are effective at March 31, 2006 with the exception of the
Amendment to IAS 19, which the Group has chosen to adopt early. IFRS as adopted
by the EU differs in certain respects from IFRS as issued by the International
Accounting Standards Board ("IASB). However, none of these differences are
relevant in the context of Ryanair and the consolidated financial statements for
the periods presented would be no different had IFRS endorsed by the IASB been
applied. These are our first consolidated financial statements prepared in
accordance with IFRS. Comparative information, which was previously presented in
accordance with Irish generally accepted accounting principles (Irish GAAP), for
the year ended March 31, 2005, has been restated under IFRS, with the exception
of IAS 32 and 39 which were adopted with effect from April 1, 2005. An
explanation of the effect of the transition to IFRS is provided in Note 26 to
the consolidated financial statements.
These consolidated financial statements are presented in Euro rounded to
the nearest thousand, being the functional currency of the Company and the
majority of the Group companies. They are prepared on the historical cost basis,
except for financial instruments and derivative financial instruments, which are
stated at fair value. Any non-current assets classified as held for sale are
stated at the lower of cost or fair value less costs to sell.
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, the
results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results could differ materially from these estimates. These underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized 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.
F-6
Statement of compliance
The consolidated financial statements have been prepared in accordance with
IFRS as adopted by the EU and were effective at March 31, 2006 further to the
IAS Regulation (EC 1606/2002) with the exception of the Amendment to IAS 19,
which the Group has chosen to adopt early. As these are our first consolidated
financial statements prepared in accordance with IFRS, IFRS 1, "First-time
Adoption of International Financial Reporting Standards," has been applied. For
additional information on the transition to IFRS, please refer to note 26 to the
consolidated financial statements.
The IFRS as adopted by the EU and applied by us in the preparation of these
financial statements are those that were effective at March 31, 2006 with the
exception of IAS 19, which the Group has chosen to adopt early. The following
provides a brief outline on the likely impact on future financial statements of
relevant IFRSs adopted by the EU which are not yet effective and have not been
adopted in these financial statements:
- Amendments to IAS 1 - Capital disclosures (effective January 1, 2007):
this amendment will require additional disclosure about our capital
structure.
- Amendments to IAS 39 - Cash Flow Hedge Accounting of Forecast
Intragroup Transactions (effective for fiscal periods beginning on or
after January 1, 2006): this amendment is not expected to affect us
significantly.
- Amendments to IAS 39 and IFRS 4: Financial Guarantee Contracts
(effective for fiscal periods beginning on or after January 1, 2006):
this amendment requires financial guarantee contracts to be accounted
for as financial instruments under IAS 39 unless they have been
explicitly dealt with as insurance contracts in the past in which case
the previous accounting may continue. When the Company enters into
financial guarantee contracts to guarantee the indebtedness of other
companies within the Group, we consider these to be insurance
arrangements and account for them as such. We treat the guarantee
contract as a contingent liability until such time as it becomes
probable that we will be required to make a payment under the guarantee.
We do not enter into financial guarantee contracts with third parties.
We do not expect the amendments to have any impact on the financial
statements for the period commencing April 1, 2006.
- Amendments to IAS 39 "The Fair Value Option" (effective for fiscal
periods beginning on or after January 1, 2006): this amendment is not
expected to affect us significantly.
- IFRS 7 - Financial Instruments: Disclosures (effective January 1,
2007). This will require us to make further disclosures relating to our
financial instruments than are currently required under IAS 32.
- IFRIC 4 - Determining Whether an Arrangement Contains a Lease (effective
for fiscal periods beginning on or after January 1, 2006). This amendment
is not expected to affect us significantly.
Basis of consolidation
The consolidated financial statements comprise the financial statements of
Ryanair Holdings plc and its subsidiary undertakings as of March 31, 2005 and
2006. Subsidiaries are entities controlled by us. Control exists when we have
the power either directly or indirectly to govern the financial and operating
policies of the entity so as to obtain benefit from its activities.
All intercompany account balances have been eliminated in preparing the
consolidated financial statements.
F-7
The results of subsidiary undertakings acquired or disposed of in the
period are included in the consolidated income statement from the date of
acquisition or up to the date of disposal. Upon the acquisition of a business,
fair values are attributed to the separable net assets acquired.
2005 Comparative information
Using the exemptions within IFRS 1, IAS 32 and 39 only came into effect
from April 1, 2005. Where the implementation of these standards resulted in a
change in accounting policy from April 1, 2005, the March 31, 2005 comparatives
do not reflect the requirements of these standards. The policies applied in
respect of such 2005 comparative information have been set out at the end of
this section (under the heading "2005 Accounting Policies" see F-13). The
related 2006 accounting policies have been annotated with an asterisk in the
heading to indicate the change in policy. Where there is no asterisk, the 2005
policy has been applied consistently to both periods.
Business combinations
The purchase method of accounting is employed in accounting for the
acquisition of businesses. In accordance with IFRS 3, the cost of a business
combination is measured as the aggregate of the fair values at the date of
exchange of assets given and liabilities incurred or assumed in exchange for
control, together with any directly attributable expenses. The assets and
liabilities and contingent liabilities of the acquired entity are measured at
their fair values at the date of acquisition. When the initial accounting for a
business combination is determined provisionally, any adjustments to the
provisional values allocated are made within twelve months of the acquisition
date and are effected prospectively from that date.
Trade and other receivables and payables
Trade and other receivables and payables are stated at cost less impairment
losses, which approximates to fair value given the short dated nature of these
assets and liabilities.
Revenues
Scheduled revenues comprise the invoiced value of airline and other
services, net of government taxes. Revenue from the sale of flight seats is
recognized in the period in which the service is provided. Unearned revenue
represents flight seats sold but not yet flown and is included in accrued
expenses and other liabilities. It is released to the profit and loss account as
passengers fly. Unused tickets are recognized as revenue on a systematic basis.
Miscellaneous fees charged for any changes to flight tickets are recognized in
revenue immediately.
Ancillary revenues are recognized in the profit and loss account in the
period the ancillary services are provided.
Property, plant & equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation and provisions for impairments, if any. Depreciation is
calculated so as to write off the cost, less estimated residual value, of assets
on a straight line basis over their expected useful lives at the following
annual rates:
Rate of
Depreciation
Plant and equipment.............................................................. 20-33.3%
Fixtures and fittings............................................................ 20%
Motor vehicles................................................................... 33.3%
Buildings........................................................................ 5%
F-8
Aircraft are depreciated on a straight line basis over their estimated
useful lives to estimated residual values. The current estimates of useful lives
and residual values are:
Number of Aircraft
Aircraft Type at March 31, 2006 Useful Life Residual Value
------------------- ----------------------- ------------------------------------ ---------------------
Boeing 737-800s 86 23 years from date of manufacture 15% of original cost
An element of the cost of an acquired aircraft is attributed on acquisition
to its service potential reflecting the maintenance condition of its engines and
airframe. This cost, which can equate to a substantial element of the total
aircraft cost, is amortized over the shorter of the period to the next check
(usually between 8 and 12 years for 737-800 aircraft) or the remaining life of
the aircraft. The costs of subsequent major airframe and engine maintenance
checks are capitalized and amortized over the shorter of the period to the next
check or the remaining life of the aircraft.
Advance and option payments made in respect of aircraft purchase
commitments and options to acquire aircraft are recorded at cost and separately
disclosed within property, plant and equipment. On acquisition of the related
aircraft, these payments are included as part of the cost of aircraft and are
depreciated from that date.
Rotable spare parts held by the Group are classified as property, plant and
equipment if they are expected to be used more than one period and are accounted
for in the same manner as the related aircraft.
Intangible assets-landing rights
Intangible assets acquired are recognized to the extent it is considered
probable that expected future benefits will flow to the Group and the associated
costs can be measured reliably. Landing rights acquired as part of a business
combination are capitalized at fair value at that date and are not amortized,
where those rights are considered to be indefinite. The carrying value of these
rights are reviewed for impairment at each reporting date and are subject to
impairment testing when events or changes in circumstances indicate that
carrying values may not be recoverable. No impairment to the carrying values of
the Group's intangible assets has been recorded to date.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is based on invoiced price on an average basis for all stock categories. Net
realizable value is calculated as estimated selling price net of estimated
selling costs.
Interest bearing loans & borrowings
All loans and borrowings are initially recorded at fair value, being the
fair value of the consideration received, net of attributable transaction costs.
Subsequent to initial recognition, non-current interest bearing loans are
measured at amortized cost, using the effective interest yield methodology.
F-9
Segment reporting
A segment is a distinguishable component of the Group that is engaged
either in providing products or services (business segment), or in providing
products or services within a particular economic environment (geographical
segment), which is subject to risks and returns different to those of other
segments.
The Group's primary reporting segments comprise geographic segments
relating to the origin of its turnover, as the Group only operates in one
business segment, the provision of a low fares scheduled airline service across
a European route network.
Share based payments
The Group engages in equity settled share-based payment transactions in
respect of services received from certain of its employees. The fair value of
the services received is measured by reference to the fair value of the share
options granted on the date of the grant. The cost of the employee services
received in respect of the share options granted is recognized in the income
statement over the period that the services are received, which is the vesting
period, with a corresponding credit to equity. The fair value of the options
granted is determined using the Binomial Lattice option pricing model, which
takes into account the exercise price of the option, the current share price,
the risk free interest rate, the expected volatility of the Ryanair Holdings plc
share price over the life of the option and other relevant factors. Non market
vesting conditions are taken into account by adjusting the number of shares or
share options included in the measurement of the cost of employee services so
that ultimately, the amount recognized in the income statement reflects the
number of vested shares or share options.
In accordance with the transition provisions in IFRS 1, Ryanair has applied
this fair value calculation to share option grants that were made after November
7, 2002, but which had yet to vest by January 1, 2005.
Foreign currency translation
Items included in the financial statements of each of the Group's entities
are measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). The consolidated financial
statements are presented in Euro, which is the functional currency of each of
the Group's entities.
Transactions arising in foreign currencies are recorded at the rates of
exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange
prevailing at the balance sheet date and all related exchange gains or losses
are accounted for through the income statement. Non-monetary assets and
liabilities denominated in foreign currencies are translated to Euro at foreign
exchange rates ruling at the dates the transactions were effected.
Derivative financial instruments*
Ryanair is exposed to market risks relating to fluctuations in commodity
prices, interest rates and currency exchange rates. The objective of financial
risk management at Ryanair is to minimize the impact of commodity price,
interest rate and foreign exchange rate fluctuations on the Group's earnings,
cash flows and equity.
F-10
To manage these risks, Ryanair uses various derivative financial
instruments, including interest rate swaps, foreign currency forward contracts
and commodity contracts. These derivative financial instruments are generally
held to maturity and are not actively traded. The Group enters into these
arrangements with the goal of hedging its operational and balance sheet risk.
However, Ryanair's exposure to commodity price, interest rate and currency
exchange rate fluctuations cannot be neutralized completely.
From April 1, 2005, the Group has applied the provisions of IAS 39 in
accounting for derivatives. Derivative financial instruments are recognized
initially at fair value. Subsequent to initial recognition, derivative financial
instruments continue to be restated to fair value. Recognition of any resultant
gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the
Group would receive or pay to terminate the swap at the balance sheet date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. The fair value of forward exchange contracts and
commodity contracts is their quoted market price at the balance sheet date,
being the present value of the quoted forward price.
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows or a recognized asset or liability or a highly
probable forecasted transaction, the effective part of any gain or loss on the
derivative financial instrument is recognized directly in equity (in the cash
flow hedging reserve). When the forecasted transactions results in the
recognition of an asset or liability, the cumulative gain or loss is removed
from equity and included in the initial measurement of the asset or liability
for non financial items being hedged. Otherwise the cumulative gain or loss is
removed from equity and recognized in the income statement at the same time as
the hedged transaction. The ineffective part of any hedging transaction and the
gain or loss thereon is recognized in the income statement immediately.
When a hedging instrument or hedge relationship is terminated but the
hedged transaction still is expected to occur, the cumulative gain or loss at
that point remains in equity and is recognized in accordance with the above
policy when the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealized gain or loss recognized in
equity is recognized in the income statement immediately.
Where a derivative financial instrument hedges the changes in fair value of
a recognized asset or liability or an unrecognized firm commitment, any gain or
loss on the hedging instrument is recognized in the income statement. The hedged
item also is stated at fair value in respect of the risk being hedged, with any
gain or loss also being recognized in the income statement.
Income taxes including deferred income taxes
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognized in the income statement except to the
extent that it relates to items recognized directly in equity (derivative
financial instruments and pensions and other post retirement obligations), in
which case it is recognized in equity. Current tax payable on taxable profits is
recognized as an expense in the period in which the profits arise using tax
rates enacted or substantially enacted at the balance sheet date.
Deferred income tax is provided in full, using the liability method, on
temporary timing differences arising from the tax basis of assets and
liabilities and their carrying accounts in the consolidated financial
statements. Deferred income tax is determined using tax rates and legislation
enacted or substantially enacted by the balance sheet date and expected to apply
when the deferred tax asset is realized or the deferred tax liability is
settled. The following temporary differences are not provided for: the initial
recognition of assets and liabilities that effect neither accounting nor taxable
profit and differences relating to investments in subsidiaries to the extent
that it is probable they will not reverse in the future.
F-11
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that a
sufficient taxable profit would be available to allow all or part of the
deferred tax asset to be utilized.
Leases
Assets held under finance leases are capitalized in the balance sheet and
are depreciated over their estimated useful lives. The present values of the
future lease payments are recorded as obligations under finance leases and the
interest element of the lease obligation is charged to the profit and loss
account over the period of the lease in proportion to the balances outstanding.
Expenditure arising under operating leases is charged to the profit and
loss account as incurred. The Group also enters into sale and leaseback
transactions whereby it sells the rights to acquire an aircraft to a third party
and subsequently leases the aircraft back, by way of an operating lease. Any
profit or loss on the disposal where the price achieved is not considered to be
at fair value is spread over the period the asset is expected to be used. The
profit or loss amount deferred is included within other creditors and analyzed
into its components of greater or less than one year.
Aircraft maintenance costs
The accounting for the cost of providing major airframe and certain engine
maintenance checks is described in the accounting policy for property, plant and
equipment and depreciation.
With respect to the Group's operating lease agreements, where the Group has
a commitment to maintain the aircraft, provision is made during the lease term
for the obligation based on estimated future costs of major airframe and certain
engine maintenance checks by making appropriate charges to the income statement
calculated by reference to the number of hours or cycles operated during the
year.
All other maintenance costs are expensed as incurred.
Pensions and other post retirement obligations
The Group provides employees with post retirement benefits in the form of
pensions. The Group operates a number of defined contribution and defined
benefit pension schemes.
Costs arising in respect of the Group's defined contribution pension
schemes are charged to the income statement in the period in which they are
incurred. Any contributions unpaid at the balance sheet date are included as a
liability.
The liabilities and costs associated with the Group's defined benefit
pension schemes are assessed on the basis of the projected unit credit method by
professionally qualified actuaries and are arrived at using actuarial
assumptions based on market expectations at the balance sheet date. The discount
rates employed in determining the present value of each scheme's liabilities are
determined by reference to market yields at the balance sheet date of high
quality corporate bonds in the same currency and term that is consistent with
those of the associated pension obligations. The net surplus or deficit arising
on the Group's defined benefit schemes is shown within non-current assets or
liabilities on the balance sheet. The deferred tax impact of any such amount is
disclosed separately within deferred tax.
The Group separately recognizes the operating and financing costs of
defined benefit pensions in the income statement. The standard permits a number
of options for the recognition of actuarial gains and losses. All cumulative
actuarial gains and losses as at the IFRS transition date (April 1, 2004) were
accordingly recognized in retained earnings at that date.
F-12
Provisions and contingencies
A provision is recognized in the balance sheet when we have a present legal
or constructive obligation as a result of a past event, and it is probable that
an outflow of economic benefit will be required to settle the obligation. If the
effect is material, provisions are determined by discounting the expected future
outflow at a pre-tax rate that reflects current market assessments of the time
value of money and, when appropriate, the risks specific to the liability.
We assess the likelihood of any adverse outcomes to contingencies,
including legal matters, as well as probable losses. We record provisions for
such contingencies when it is probable that a liability will be incurred and the
amount of the loss can be reasonably estimated. A contingent liability is
disclosed where the existence of the obligation will only be confirmed by future
events, or where the amount of the obligation cannot be measured with reasonable
reliability. Provisions are remeasured at each balance sheet date based on the
best estimate of the settlement amount.
In relation to legal matters, we develop estimates in consultation with
outside counsel handling our defence in these matters using the current facts
and circumstances known to us. The factors that we consider in developing our
legal provisions include the merits and jurisdiction of the litigation, the
nature and number of other similar current and past litigation cases, the nature
of the subject to the litigation, and the likelihood of settlement and current
state of settlement discussions, if any.
Cash and cash equivalents
Cash represents cash held at banks and available on demand.
Cash equivalents are current asset investments (other than cash) that are
readily convertible into known amounts of cash. Cash equivalents include
investments in commercial paper, certificates of deposit and cash deposits of
more than one day, but less than three months. Deposits with a maturity of
greater than three months are recognized as short tem investments.
Financial assets*
Financial assets comprise cash deposits of greater than three months
maturity. All are classified as held to maturity as there is a significant
financial disincentive from redeeming such amounts at an earlier stage. All such
amounts are carried initially at fair value and then subsequently at amortized
cost in the balance sheet.
2005 Accounting policies
The 2005 comparatives do not reflect the provisions of the IFRS standards
in respect of IAS 32 and 39. The policies in respect of the 2005 comparative
information have been set out below.
These policies are in addition to those previously identified where the
2006 policy has been applied consistently to both periods presented in the
accounts.
Derivative financial instruments
The Group enters into transactions in the normal course of business using a
variety of financial instruments in order to hedge against exposures to
fluctuating aviation fuel prices, foreign exchange and interest rates.
Derivative financial instruments are utilized to fix aircraft fuel prices,
foreign exchange and interest rate exposures. Gains and losses on derivative
financial instruments were recognized in the income statement when realized as
an offset to the related income or expense, and the Group does not enter into
any such transactions for speculative purposes.
F-13
Financial assets
Financial assets are shown at cost less provisions for impairments, if
any.
2 Restricted cash
Restricted cash consists of EUR200m (2005: EUR200m) placed on deposit as
collateral for certain derivative financial instruments and debt financing
arrangements entered into by the Group, and a further EUR4m (2005: EUR4m) held
in escrow relating to ongoing legal proceedings.
3 Trade receivables
At March 31,
-----------------------------
2005 2006
------------ ------------
EUR000 EUR000
Trade receivables......................................................... 21,049 30,362
Provision for impairment.................................................. (405) (453)
------------ ------------
20,644 29,909
============ ============
All amounts fall due within one year.
The movement in the provision for receivable impairments is as follows:
Balance at Additions
beginning charged to Balance at end
of year expenses Deductions of year
------------- ------------- ------------- -------------
EUR000 EUR000 EUR000 EUR000
Year ended March 31, 2005................. 352 53 - 405
Year ended March 31, 2006................. 405 48 - 453
============= ============= ============= =============
4 Derivative financial instruments
Derivative financial instruments, which have been recognized at fair value in
the Group's balance sheet, are analyzed as follows:
2006
-------------
EUR000
Current assets
Gains on fair value hedging instruments - maturing within one year...................... 7,543
Gains on cash flow hedging instruments - maturing within one year....................... 11,329
-------------
18,872
-------------
Non-current assets
Gains on cash flow hedging instruments - maturing after one year........................ 763
-------------
Total derivative assets................................................................. 19,635
-------------
Current liabilities
Losses on cash flow hedging instruments - maturing within one year...................... (27,417)
Non-current liabilities
Losses on cash flow hedging instruments - maturing after one year....................... (81,897)
-------------
Total derivative liabilities............................................................ (109,314)
-------------
Net derivative financial instrument position at year end ............................... (89,679)
=============
F-14
The Audit Committee of the Board of Directors has responsibility for
setting the treasury policies and objectives of the Group, which include
controls over the procedures used to manage the main financial risks arising
from the Group's operations. Such risks comprise commodity price, foreign
exchange and interest rate risks. The Group uses financial instruments to manage
exposures arising from these risks. These instruments include borrowings, cash
deposits and derivatives (principally jet fuel derivatives, interest rate swaps
and forward foreign exchange contracts). It is the Group's policy that no
speculative trading in financial instruments takes place.
The Group's historical fuel risk management policy has been to hedge
between 70% and 90% of the forecasted rolling annual volumes required to ensure
that the future cost per gallon of fuel is locked in. This policy was adopted to
prevent the Group being exposed, in the short term, to adverse movements in
world jet fuel prices. However, when deemed to be in the best interests of the
Group, it may deviate from this policy. In more recent times, due to fundamental
changes in the world fuel markets, the Group has adopted a more short term and
strategic approach to fuel hedging. At August, 2006 the Group had hedged 90% of
its fuel exposure for the period June to December 2006 inclusive.
Foreign currency risk in relation to the Group's trading operations largely
arises in relation to non-Euro currencies. These currencies are primarily
Sterling pounds and US dollar. The Group manages this risk by matching Sterling
revenues against Sterling costs. Any unmatched Sterling revenues are used to
fund forward foreign exchange contracts to hedge US dollar currency exposures
that arise in relation to fuel, maintenance, aviation insurance, and capital
expenditure costs - including advance payments to Boeing for future aircraft
deliveries.
The Group's objective for interest rate risk management is to reduce
interest risk through a combination of financial instruments which lock in
interest rates on debt and by matching a proportion of floating rate assets with
floating rate liabilities. In addition, the Group aims to achieve the best
available return on investments of surplus cash - subject to credit risk and
liquidity constraints. Credit risk is managed by limiting the aggregate amount
and duration of exposure to any one counterparty based on third party market
based ratings. In line with the above interest rate risk management strategy the
Group has entered into a series of interest rate swaps to hedge against
fluctuations in interest rates for certain floating rate financial arrangements.
The Group has also entered into floating rate financing for certain aircraft
which is matched with floating rate deposits. Additionally, certain cash
deposits have been set aside as collateral (subject to an agreed capped amount
of EUR200m) to mitigate certain counterparty risk of fluctuations on certain
derivative and financing arrangements ("restricted cash"). At March 31, 2006
such restricted cash amounted to EUR200.0m (2005: EUR200.0m). Additional
numerical information on these swaps and on other derivatives held by the Group
is set out below and in note 10.
The Group utilizes a range of derivatives designed to mitigate these risks.
All of the above derivatives have been accounted for at fair value in the
Group's balance sheet and have been utilized to hedge against these particular
risks arising in the normal course of the Group's business. All have been
designated as hedges for the purposes of IAS 39. The Group has availed of the
exemption contained in IFRS 1 and is not retrospectively applying the provisions
of IAS 39 to its financial instruments to any period prior to April 1, 2005. In
the prior year all gains and losses on such derivatives were permitted to be
deferred until the underlying hedged item impacted earnings and accordingly,
prior year disclosures for such items are not dealt with in the table above but
are included in note 10 to these financial statements. Details of the transition
adjustments arising on the initial application of IAS 39 are set out in note 26.
F-15
The table above includes the following derivative arrangements:
Fair value
2006
-------------
EUR000
Interest rate swaps
Less than one year...................................................................... (27,417)
More than one year...................................................................... (81,897)
-------------
(109,314)
-------------
Foreign currency forward contracts
Less than one year...................................................................... 18,872
More than one year...................................................................... 763
-------------
19,635
-------------
Net derivative position at year end..................................................... (89,679)
=============
Additional information in relation to the above interest rate swaps and
forward currency contracts (i.e. notional value and weighted average interest
rates) can be found in note 10.
Interest rate swaps are primarily used to convert a portion of the Group's
floating rate exposures on borrowings and operating leases into fixed rate
exposures and are set so as to match exactly the critical terms of the
underlying debt or lease being hedged (i.e. notional principal, interest rate
settings, repricing dates). These are all classified as cash flow hedges of the
forecasted variable interest payments and rentals due on the Group's underlying
debt and operating leases and have been determined to be highly effective in
achieving offsetting cash flows. Accordingly no material level of
ineffectiveness has been recorded in the income statement relating to these
hedges in the current year.
Foreign currency forward contracts are utilized in a number of ways:
- Forecast Sterling and Euro revenue receipts are converted into US
dollars to hedge against committed aircraft payments. These forward
contracts are arranged so as to match exactly against future aircraft
commitments, as to timing, quantum and currency. These are classified as
fair value hedges of the Group's US dollar aircraft commitments and have
been determined to be highly effective in offsetting changes in the fair
value of committed aircraft purchases in US dollars.
- Forecast Sterling and Euro revenue receipts are also converted into
US dollars to hedge against forecasted US dollar payments principally
for jet fuel, insurance and other aircraft related costs. These are
also arranged so as to match exactly against forecasted US dollar
payments as to timing, quantum and currency. These are classified as cash
flow hedges of forecasted US dollar payments and have been determined to
be highly effective in offsetting variability in future cash flows
arising from the fluctuation in the US dollar to Sterling and Euro
exchange rates for the forecasted US dollar purchases.
No material level of ineffectiveness has been recorded for these foreign
currency forward contracts in the current year as the underlying hedged items
and hedging instruments have been consistently closely matched.
The Group also ordinarily utilizes jet fuel forward contracts to manage exposure
to jet fuel prices, however, there were none at hand at March 31, 2006.
(EUR5.9m at 2005).
Unrealized losses on the Group's interest rate swaps of EUR109.3m (2005:
EUR151.9m) will be amortized to the income statement over the period in which
forecasted interest and lease payments will be made (typically 1-12 years
from the year end), as an offset to the related interest and rental expense.
F-16
5 Other assets
At March 31,
---------------------------
2005 2006
---------- ----------
EUR000 EUR000
Prepayments............................................................. 15,187 14,643
Interest receivable..................................................... 5,117 9,076
Value Added Tax recoverable............................................. 4,308 5,734
---------- ----------
All amounts fall due within one year. 24,612 29,453
========== ==========
6 Inventories
At March 31,
---------------------------
2005 2006
---------- ----------
EUR000 EUR000
Consumables.............................................................. 2,460 3,422
========== ==========
In the view of the directors, there are no material differences between the
replacement cost of inventories and the balance sheet amounts.
7 Property, plant and equipment
Hangar Plant Fixtures
& & & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
----------- ----------- ----------- ---------- --------- -----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
(i) Year ended March 31, 2005
Cost
At March 31, 2004....................1,980,477 13,081 4,247 9,718 466 2,007,989
Additions in year......................627,180 48 1,115 988 174 629,505
Disposals in year.....................(62,886) - (5) (21) - (62,912)
----------- ----------- ----------- ---------- --------- -----------
At March 31, 2005....................2,544,771 13,129 5,357 10,685 640 2,574,582
----------- ----------- ----------- ---------- --------- -----------
Depreciation
At March 31, 2004......................393,438 2,549 2,868 7,828 376 407,059
Charge for year........................107,656 385 1,075 1,105 136 110,357
Eliminated on disposals...............(60,720) - (5) - - (60,725)
----------- ----------- ----------- ---------- --------- -----------
At March 31, 2005......................440,374 2,934 3,938 8,933 512 456,691
----------- ----------- ----------- ---------- --------- -----------
Net book value
At March 31, 2005....................2,104,397 10,195 1,419 1,752 128 2,117,891
=========== =========== =========== ========== ========= ===========
Hangar Plant Fixtures
& & & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
----------- ----------- ----------- ---------- --------- -----------
(ii) Year ended March 31, 2006
Cost
At March 31, 2005....................2,544,771 13,129 5,357 10,685 640 2,574,582
Additions in year......................542,518 136 1,183 1,136 341 545,314
Disposals in year....................(217,204) - - (48) - (217,252)
----------- ----------- ----------- ---------- --------- -----------
At March 31, 2006....................2,870,085 13,265 6,540 11,773 981 2,902,644
----------- ----------- ----------- ---------- --------- -----------
Depreciation
At March 31, 2005......................440,374 2,934 3,938 8,933 512 456,691
Charge for year........................121,611 740 938 1,022 94 124,405
Eliminated on disposals..............(211,408) - - (32) - (211,440)
----------- ----------- ----------- ---------- --------- -----------
At March 31, 2006......................350,577 3,674 4,876 9,923 606 369,656
----------- ----------- ----------- ---------- --------- -----------
Net book value
At March 31, 2006....................2,519,508 9,591 1,664 1,850 375 2,532,988
=========== =========== =========== ========== ========= ===========
F-17
At March 31, 2006, aircraft with a net book value of EUR2,124.4m (March 31,
2005: EUR1,789.5m) were mortgaged to lenders as security for loans. Under the
security arrangements for the Group's new Boeing 737-800 "next generation"
aircraft, the Group does not hold legal title to those aircraft while these loan
amounts remain outstanding.
At March 31, 2006, the cost and net book value of aircraft includes
EUR301.5m (March 31, 2005: EUR292.5m) in respect of advance payments and options
on aircraft. This amount is not depreciated. The cost and net book value also
includes capitalized aircraft maintenance, aircraft simulators and the stock of
rotable spare parts.
The net book value of assets held under finance leases at March 31, 2006
and 2005 was EUR91.6m and EUR95.3m respectively.
8 Intangible assets
Landing Rights
----------------
EUR000
----------------
At March 31, 2005......................................................................... 46,841
================
----------------
At March 31, 2006......................................................................... 46,841
================
Landing slots were acquired with the acquisition of Buzz Stansted Limited
in April 2003. As these landing slots have no expiry date and are expected to be
used in perpetuity, they are considered to be of indefinite life and accordingly
are not amortized. The directors also consider that there has been no impairment
of the value of these rights to date. The recoverable amount of these rights has
been determined on a value in use basis, using discounted cash flow projections
for a twenty year period for each route which has an individual landing right.
The calculation of value in use is most sensitive to the operating margin and
discount rate assumptions. Operating margins are based on the existing margins
generated from these routes and adjusted for any known trading conditions. The
trading environment is subject to both regulatory and competitive pressures that
can have a material affect on the operating performance of the business.
Foreseeable events, however, are unlikely to result in a change of projections
of a significant nature so as to result in the landing rights carrying amounts
exceeding their recoverable amounts. These projections have been discounted
using a rate that reflects management's estimate of the long term pre tax return
on capital employed for its scheduled airline business, estimated to be 5.0% for
2006 and 5.5% for 2005.
9 Accrued expenses and other liabilities
At March 31,
--------------------------
2005 2006
--------- ---------
Current: EUR000 EUR000
Accruals...................................................................... 87,778 109,681
Taxation...................................................................... 84,936 111,291
Unearned revenue.............................................................. 245,939 349,642
--------- ---------
418,653 570,614
========= =========
Taxation above comprises:
At March 31,
--------------------------
2005 2006
--------- ---------
Current: EUR000 EUR000
PAYE (payroll taxes).......................................................... 3,656 4,012
Other tax (principally air passenger duty).................................... 81,280 107,279
--------- ---------
84,936 111,291
========= =========
F-18
10 Financial instruments
The Group utilizes financial instruments to reduce exposures to market
risks throughout its business. Borrowings, cash and cash equivalents and liquid
investments are used to finance the Group's operations. Derivative financial
instruments are contractual agreements with a value which reflects price
movements in an underlying asset. The Group uses derivative financial
instruments, principally jet fuel derivatives, interest rate swaps and forward
foreign exchange contracts to manage commodity risks, interest rate risks,
currency exposures and achieve the desired profile of borrowings and leases. It
is the Group's policy that no speculative trading in financial instruments shall
take place.
The main risks attaching to the Group's financial instruments and the
details of the derivatives employed to hedge against these risks have been given
in note 4.
(a) Commodity risk
The Group's exposure to price risk in this regard is primarily for jet fuel
used in the normal course of operations, however, at year end, the Group had no
jet fuel derivatives in place.
(b) Maturity and interest rate risk profile of financial assets and financial
liabilities
At March 31, 2006, the Group had borrowings equivalent to EUR1,677.7m
(2005: EUR1,414.9m) from various financial institutions provided primarily on
the basis of guarantees granted by the Export-Import Bank of the United States
to finance the acquisition of 82 Boeing 737-800 "next generation" aircraft. The
guarantees are secured with first fixed mortgages on the delivered aircraft. The
remaining balance of long term debt relates to 4 aircraft held under finance
leases, totalling EUR115.8m (2005: EUR120.6m) and borrowings to finance aircraft
simulators totalling EUR11.3m (2005: EUR12.9m).
The maturity profile of the Group's financial liabilities at March 31, 2005
is as follows:
Year ended March 31,
Weighted
average
fixed 2006 2007 2008 2009 Thereafter Total
rate (%) EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------- --------- --------- --------- --------- --------- ---------
Fixed rate
Secured long term debt.... 5.17% 50,437 54,307 57,472 60,841 273,033 496,090
Debt swapped from floating to
fixed..................... 5.91% 61,437 62,947 64,492 66,072 504,478 759,426
--------- --------- --------- --------- --------- --------- ---------
Secured long term debt after
swaps..................... 5.62% 111,874 117,254 121,964 126,913 777,511 1,255,516
Finance leases............ 2.70% - - - - 33,490 33,490
--------- --------- --------- --------- --------- ---------
Total fixed rate debt..... 111,874 117,254 121,964 126,913 811,001 1,289,006
========= ========= ========= ========= ========= =========
Floating rate
Secured long term debt.... 64,866 66,450 68,071 69,728 529,087 798,202
Debt swapped from floating to
fixed..................... (61,437) (62,947) (64,492) (66,072) (504,478) (759,426)
--------- --------- --------- --------- --------- ---------
Secured long term debt after
swaps..................... 3,429 3,503 3,579 3,656 24,609 38,776
Finance leases............ 5,694 5,939 6,195 6,462 62,785 87,075
--------- --------- --------- --------- --------- ---------
Total floating rate debt.. 9,123 9,442 9,774 10,118 87,394 125,851
--------- --------- --------- --------- --------- ---------
Total financial liabilities 120,997 126,696 131,738 137,031 898,395 1,414,857
========= ========= ========= ========= ========= =========
F-19
The maturity profile of the Group's financial liabilities at March 31, 2006
is as follows:
Year ended March 31,
Weighted
average
fixed 2007 2008 2009 2010 Thereafter Total
rate (%) EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------- --------- --------- --------- --------- --------- ---------
Fixed rate
Secured long term debt... 5.17% 54,174 57,363 60,758 64,379 207,902 444,576
Debt swapped from floating
to fixed................. 5.91% 63,091 64,612 66,166 67,786 436,809 698,464
--------- --------- --------- --------- --------- --------- ---------
Secured long term debt after
swaps.................... 5.62% 117,265 121,975 126,924 132,165 644,711 1,143,040
Finance leases........... 2.70% - - - - 34,395 34,395
--------- --------- --------- --------- --------- ---------
Total fixed rate debt.... 117,265 121,975 126,924 132,165 679,106 1,177,435
========= ========= ========= ========= ========= =========
Floating rate
Secured long term debt... 93,198 95,655 98,280 100,977 729,267 1,117,377
Debt swapped from floating
to fixed................. (63,091) (64,612) (66,166) (67,786) (436,809) (698,464)
--------- --------- --------- --------- --------- ---------
Secured long term debt after
swaps.................... 30,107 31,043 32,114 33,191 292,458 418,913
Finance leases........... 5,939 6,195 6,462 6,740 56,044 81,380
--------- --------- --------- --------- --------- ---------
Total floating rate debt. 36,046 37,238 38,576 39,931 348,502 500,293
--------- --------- --------- --------- --------- ---------
Total financial liabilities 153,311 159,213 165,500 172,096 1,027,608 1,677,728
========= ========= ========= ========= ========= =========
All of the above debt which matures after 2010 will mature over each of
the periods between 2011 and 2018.
Analysis of changes in borrowings during the year
At March 31,
------------------------------
2005 2006
---------- ----------
EUR000 EUR000
Balance at start of year...................................... 952,982 1,414,857
Loans raised to finance aircraft/simulator purchases.......... 550,021 386,809
Repayments of amounts borrowed................................ (88,146) (123,938)
---------- ----------
Balance at end of year..................................... 1,414,857 1,677,728
========== ==========
Less than one year............................................ 120,997 153,311
More than one year............................................ 1,293,860 1,524,417
---------- ----------
1,414,857 1,677,728
========== ==========
Interest rate repricing:
Floating interest rates on financial liabilities are generally referenced
to European inter-bank interest rates (EURIBOR). Secured long term debt and
interest rate swaps typically reprice on a quarterly basis with finance leases
repricing on a semi-annual basis.
Fixed interest rates on financial liabilities are fixed for the duration
of the structures (typically between 10 and 12 years).
The Group holds significant cash balances that are invested on a short-term
basis. At March 31, 2006 all of the Group's cash and liquid resources had a
maturity of one year or less and attracted a weighted average interest rate of
2.71% (2005: 2.19%). The Group had no other financial assets at either March 31,
2005 or 2006. All interest rates attaching to these balances are floating rate
and will reprice within the year.
F-20
Within 2005 Within 2006
Financial assets: 1 year Total 1 year Total
---------- ---------- ---------- ----------
EUR000 EUR000 EUR000 EUR000
Cash and cash equivalents................. 872,258 872,258 1,439,004 1,439,004
Cash > 3 months........................... 529,407 529,407 328,927 328,927
Restricted cash........................... 204,040 204,040 204,040 204,040
---------- ---------- ---------- ----------
Total financial assets.................... 1,605,705 1,605,705 1,971,971 1,971,971
========== ========== ========== ==========
Interest rates on cash and liquid resources are generally based on the
appropriate EURIBOR, LIBOR or bank rates dependant on the principal amounts on
deposit.
(c) Foreign currency risk
The Group has exposure to various reporting currencies (principally
Sterling and US dollars) due to the international nature of its operations. The
Group manages this risk by matching Sterling revenues against Sterling costs.
Any unmatched Sterling revenues are used to fund forward foreign exchange
contracts to hedge the US dollar currency exposures that arise in relation to
fuel, maintenance, aviation insurance and capital expenditure costs - including
advance payments to Boeing for future aircraft deliveries. Further details of
the hedging activity carried out by the Group are given in note 4.
The following table shows the net amount of monetary assets of the Group
that are not denominated in Euro at March 31, 2005 and March 31, 2006 and have
been translated using the following year end foreign currency rates: 2006 GBP to
EUR 0.6964, USD to EUR 1.2104 (2005: GBP to EUR 0.6885, USD to EUR 1.2964)
March 31, 2005 March 31, 2006
------------------------------- -------------------------------
Euro Euro
GBP US$ equiv GBP US$ equiv
--------- --------- --------- --------- --------- ---------
Monetary assets GBP000 $000 EUR000 GBP000 $000 EUR000
GBP cash and liquid resources......... 39,824 - 57,842 79,424 - 114,049
USD cash and liquid resources......... - 5,900 4,551 - 54,839 45,307
--------- --------- --------- --------- --------- ---------
39,824 5,900 62,393 79,424 54,839 159,356
========= ========= ========= ========= ========= =========
The Group also enters into US dollar and Sterling currency forward
contracts in order to manage currency risk which arises on its forecasted
aircraft payments, fuel, maintenance and aviation insurance costs, which are
primarily denominated in US dollars, and certain of its revenue income streams
which arise in Sterling. See further details in note 4.
The following table gives details of the notional amounts of the Group's
currency forward contracts as at March 31, 2005 and at March 31, 2006:
March 31, 2005 March 31, 2006
------------------------------- -------------------------------
Euro Euro
Currency forward contracts GBP US$ equiv GBP US$ equiv
--------- --------- --------- --------- --------- ---------
GBP000 $000 EUR000 GBP000 $000 EUR000
US dollar currency forward contracts
- for aircraft purchases.............. - 425,000 324,676 - 480,000 384,268
- for fuel and other purchases........ - 332,713 256,450 - 592,923 470,775
GBP currency forward contracts
- for other airline costs............. 31,682 - 44,905 37,039 - 53,044
--------- --------- --------- --------- --------- ---------
31,682 757,713 626,031 37,039 1,072,923 908,087
========= ========= ========= ========= ========= =========
F-21
(d) Fair values
Fair value is the amount at which a financial instrument could be exchanged
in an arm's length transaction between informed and willing parties, other than
as part of a forced liquidation sale. The following methods and assumptions were
used to estimate the fair value of each material class of the Group's financial
instruments:
- Cash and liquid resources: carrying amount approximates to fair value due
to the short term nature of these instruments.
- Fixed rate long term debt: the repayments which Ryanair is committed to
make have been discounted at the relevant rates of interest applicable at
March 31, 2005 and March 31, 2006, which would be payable to a third party
to assume the obligation.
- Derivative - interest rate swaps: discounted cash flow analyses have
been used to determine the estimated amount Ryanair would receive or pay
to terminate the contracts. Discounted cash flow analyses are based on
estimated future interest rates.
- Derivative - currency forward and aircraft fuel: a comparison of the
contracted rate to the market rate for contracts providing a similar risk
management profile at March 31, 2005 and March 31, 2006 has been made.
The fair value of the Group's financial instruments at March 31, 2005 and
March 31, 2006 was as follows:
2005 2006
Carrying 2005 Carrying 2006
amount Fair value amount Fair value
------------ ------------ ------------ ------------
EUR000 EUR000 EUR000 EUR000
Cash and liquid resources
Cash on cash equivalents.......................... 872,258 872,258 1,439,004 1,439,004
Cash > 3 months................................... 529,407 529,407 328,927 328,927
Restricted cash................................... 204,040 204,040 204,040 204,040
------------ ------------ ------------ ------------
Debt instruments
Long term debt.................................... (1,414,857) (1,457,124) (1,677,728) (1,703,431)
------------ ------------ ------------ ------------
Derivative instruments
Interest rate swaps (loss)........................ - (151,926) (109,314) (109,314)
US dollar currency forward contracts gain......... - 1,785 19,837 19,837
Sterling currency forward contracts gain/(loss) .. - 666 (202) (202)
Aircraft fuel price contracts gain................ - 5,851 - -
============ ============ ============ ============
(e) Credit risk
The Group holds significant cash balances which are invested on a short-tem
basis and are classified as either cash equivalents or liquid investments. These
deposits and other financial instruments (principally certain derivatives and
loans as identified above) give rise to credit risk on amounts due from
counterparties. Credit risk is managed by limiting the aggregate amount and
duration of exposure to any one counterparty primarily depending on its third
party market based ratings and by regular review of these ratings. The Group
typically enters into deposits and derivative contracts with parties that have
at least an "A" or equivalent credit rating. The maximum exposure arising in the
event of default on the part of the counterparty is the carrying value of the
relevant financial instrument.
The Group's revenues derive principally from airline travel on scheduled
services, car hire, inflight and related sales. Revenue is wholly derived from
European routes. No individual customer accounts for a significant portion of
total revenue.
(f) Details of the Group's guarantees and the related accounting have been
given in note 22.
F-22
(g) Sensitivity analysis
Interest rate risk: If the Group had not entered into its interest rate
derivative agreements, a plus or minus one percentage point movement in interest
rates would impact the fair value of its liability at March 31, 2006 by
approximately EUR49m. The earnings and cashflow impact of such a change in
interest rates would have been approximately plus or minus EUR10m per year.
Foreign currency risk: If the Group had not entered into its foreign
currency forward contracts, holding other variables constant, if there was an
adverse change of 10% in relevant foreign currency exchange rates, the market
value of the Group's foreign currency forward contracts outstanding at March 31,
2006 would decrease by EUR58m, the majority of which would have an impact on the
income statement in the period to March 31, 2007.
11 Deferred and current taxation
The components of the deferred and current taxation in the balance sheet
were as follows:
At March 31,
-------------------------
2005 2006
--------- ---------
EUR000 EUR000
Current income tax liabilities
Corporation tax provision....................................................... 17,534 15,247
--------- ---------
Total current tax............................................................... 17,534 15,247
========= =========
Deferred income tax liabilities (non-current)
Temporary differences on property, plant and equipment, derivatives and
pensions........................................................................ 104,180 127,260
--------- ---------
Total non current............................................................... 104,180 127,260
========= =========
Total tax liabilities (net)..................................................... 121,714 142,507
========= =========
At March 31,
-------------------------
2005 2006
--------- ---------
Reconciliation of current tax EUR000 EUR000
At beginning of year...................................................... 9,765 17,534
Corporation tax charge in year............................................ 11,967 1,950
Reversal of prior year overprovision...................................... - (4,673)
Tax (paid)/refund......................................................... (4,198) 436
--------- ---------
At end of year............................................................ 17,534 15,247
========= =========
At March 31,
-------------------------
2005 2006
--------- ---------
Reconciliation of deferred tax EUR000 EUR000
At beginning of year...................................................... 87,670 104,180
Temporary differences on property, plant and equipment, derivatives,
pensions and other items.................................................. 16,510 23,080
--------- ---------
At end of year............................................................ 104,180 127,260
========= =========
Temporary differences for the year to March 31, 2006 principally consisted
of EUR34.9m for property, plant and equipment in the income statement, EUR0.3m
for pensions and a deferred tax credit of EUR12.1m for derivatives in equity.
The charge to March 31, 2005 consisted of EUR17.2m for property, plant and
equipment and a deferred tax credit of EUR0.7m for pensions.
F-23
Year ended Year ended
March 31, March 31,
2005 2006
--------- ---------
The components of the tax expense in the income statement were as follows: EUR000 EUR000
Tax charge for year....................................................... 11,967 1,950
Release of prior year overprovision....................................... - (4,673)
Deferred tax charge relating to origination and reversal of temporary 17,186
differences............................................................... 34,899
--------- ---------
29,153 32,176
========= =========
The following table reconciles the statutory rate of Irish corporation tax
to the Group's effective current corporation tax rate:
Year ended Year ended
March 31, March 31,
2005 2006
--------- ---------
% %
Statutory rate of Irish corporation tax................................... 12.5 12.5
Adjustments for earnings taxed at higher rates............................ 0.9 1.1
Adjustments for earnings taxed at lower rates............................. (4.2) (4.5)
Other differences......................................................... 0.2 0.4
--------- ---------
Total effective rate of taxation.......................................... 9.4 9.5
========= =========
Deferred tax applicable to items charged or credited directly to equity were as
follows:
At March 31,
------------------------
2005 2006
--------- ---------
EUR000 EUR000
Defined benefit pension obligations....................................... 676 332
Derivative financial instruments.......................................... - (12,151)
--------- ---------
Total tax charge/(credit) in equity....................................... 676 (11,819)
========= =========
At March 31, 2006 the Group had unused net operating losses carried forward
of EUR20.3m, and the resultant deferred tax asset has been netted off against
the Group's deferred income tax liability. These unused net operating losses
have no expiry date. The Company has recognized a deferred tax asset on these
unused operating losses as the directors believe there is sufficient evidence
that these losses will be utilized in future periods. The majority of current
and deferred tax recorded in each of fiscal 2005 and 2006 relates to domestic
tax charges. In fiscal 2005, the Irish headline corporation tax rate remained at
12.5%.
Ryanair.com Limited is engaged in international data processing and
reservation services. In these circumstances, Ryanair.com Limited is entitled to
claim 10% corporation tax rate on profits derived from qualifying activities in
accordance with Section 448 of the Taxes Consolidated Act, 1997. This
legislation provides for the continuation of the 10% effective corporation tax
rate until 2010. It also obtains a continued benefit from the impact of its
international leasing and internet-related businesses.
The principal components of deferred tax were:
At March 31,
---------------------------
2005 2006
--------- ---------
EUR000 EUR000
Arising on capital allowances and other temporary differences............ 105,509 143,032
Arising on unused net operating losses carried forward................... - (2,537)
Arising on derivatives................................................... - (12,151)
Arising on pensions...................................................... (1,329) (1,084)
--------- ---------
Total.................................................................... 104,180 127,260
========= =========
F-24
At March 31, 2005 and 2006, the Group had fully provided for all required
deferred tax liabilities. No deferred tax has however, been provided on the
unremitted earnings of overseas subsidiaries because there is no intention to
remit these to Ireland.
12 Provisions
At March 31,
---------------------------
2005 2006
--------- ---------
Provision for aircraft maintenance on operating leased aircraft:
At beginning of year....................................................... 6,522 7,236
Released during the year *................................................. (6,169) -
Charge for the year........................................................ 6,883 9,486
--------- ---------
At end of year............................................................. 7,236 16,722
========= =========
* During 2005 Ryanair released EUR6.2m in provisions relating to leased
aircraft which were returned to the lessor.
13 Other creditors
This consists of:
- Deferred gains arising from the sale and leaseback of aircraft. During
fiscal year 2006, Ryanair entered into a sale and leaseback arrangement
for 4 new Boeing 737-800 "next generation" aircraft in addition to a
further 13 in previous years.
- The present value of the net pension obligation of EUR8.7m (2005: EUR10.6m)
in Ryanair Limited. See note 20 for further details.
- Loss on fair value movement in firm commitments to acquire aircraft -
maturing within one year of EUR7.5m (2005: Nil). Ryanair has taken
advantage of the exemption from the requirement to restate comparative
information for IAS 39 contained in IFRS 1. As a result of this
exemption, the information presented for all periods in relation to
hedge accounting up to March 31, 2005 has been accounted for in accordance
with Irish/UK GAAP as more fully set out in note 26.
14 Issued share capital, share premium account and share options
(a) Share capital
At March 31,
---------------------------
2005 2006
--------- ---------
Authorized:
840,000,000 ordinary equity shares of 1.27 Euro cent each.................. 10,668 10,668
========= =========
Allotted, called up and fully paid:
761,963,108 ordinary equity shares of 1.27 Euro cent each.................. 9,675 -
771,016,623 ordinary equity shares of 1.27 Euro cent each............. - 9,790
========= =========
F-25
(b) Share premium account
At March 31,
---------------------------
2005 2006
--------- ---------
EUR000 EUR000
Balance at beginning of year.......................................... 560,406 565,756
Share premium arising from the exercise of options (2,691,968 in
fiscal 2005 and 9,053,515 in fiscal 2006)........................... 5,350 30,475
--------- ---------
Balance at end of year..................................................... 565,756 596,231
========= =========
(c) Share options and share purchase arrangements
The Group has adopted a number of share option plans, which allow current
or future employees or executive directors to purchase shares in the Company up
to an aggregate of approximately 5% (when aggregated with other ordinary shares
over which options are granted and which have not yet been exercised) of the
outstanding ordinary shares of Ryanair, subject to certain conditions. These are
exercisable at a price equal to the market price of the ordinary shares at the
time options are granted.
The key terms of these option plans include:
- Certain non-market performance conditions to be met;
- Approval of the remuneration committee to be given; and
- Certain employees to remain in employment with the Group for a specified
period of time.
Details of the share options outstanding are set out below:
Weighted Average
Share Options Exercise Price
--------------- -----------------
Outstanding at March 31, 2004............................................ 24,206,538 EUR4.13
Exercised................................................................ (2,691,968) EUR2.00
Granted.................................................................. 5,405,547 EUR4.55
Expired.................................................................. (963,623) EUR5.42
--------------- -----------------
Outstanding at March 31, 2005............................................ 25,956,494 EUR4.39
--------------- -----------------
Exercised................................................................ (9,053,515) EUR3.46
Granted.................................................................. 5,200,000 EUR6.42
Expired.................................................................. (785,978) EUR2.60
--------------- -----------------
Outstanding at March 31, 2006............................................ 21,317,001 EUR5.34
--------------- =================
The mid-market price of Ryanair Holdings plc's ordinary shares on the Irish
Stock Exchange at March 31, 2006 was EUR7.83. The highest and lowest prices at
which the Company's shares traded on the Irish Stock Exchange in the year ended
March 31, 2006 were EUR8.30 and EUR5.60, respectively. There were 3,510,847
options exercisable at March 31, 2006. The average share price for the year was
EUR6.96 (2005: EUR4.94)
The Group has accounted for its share option grants to employees at fair
value, in accordance with IFRS 2, using a binomial lattice model to value the
option grants. This has resulted in a charge of EUR2.9m (2005: EUR0.5m) being
recognized within the income statement in respect of employee services rendered,
which was based on 8.0 million share options within the scope of IFRS 2 (2005:
2.7 million) as compared to the total share options disclosed above
F-26
The weighted average fair value of the individual options granted during
the years ended March 31, 2006 and 2005 were estimated, using a binomial lattice
model, based on the following assumptions:
Options Granted
2005 2005 2006
-------------------------------------------
Date Granted................................................ Jul 4, 2004 Nov 9, 2004 Aug 10, 2005
Date of earliest exercise................................... Jul 4, 2009 Nov 9, 2009 Aug 10, 2010
Date of expiration.......................................... Jul 4, 2011 Nov 9, 2011 Aug 10, 2012
Fair Value.................................................. EUR1.93 EUR2.11 EUR2.86
Assumptions:
Risk-free interest rate.................................. 3.7% 3.4% 3.0%
Volatility*.............................................. 40% 40% 40%
Dividend Yield........................................... Nil Nil Nil
Expected life (years).................................... 5.5 5.5 5.5
*historical monthly volatility over a three year average period
15 Analysis of operating revenues and segmental analysis
All revenues derive from the Group's principal activity and business
segment as a low fares airline and includes scheduled services, car hire,
internet income and related sales to third parties.
Revenue is analyzed by geographical area (by country of origin) as follows:
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
United Kingdom....................................................... 645,537 809,706
Other European countries............................................. 673,500 882,824
----------- ------------
1,319,037 1,692,530
=========== ============
Ancillary revenues included in total revenue above comprise:
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
Non-flight scheduled................................................. 115,916 166,796
Car hire............................................................. 15,706 19,752
In-flight............................................................ 34,939 45,306
Internet income...................................................... 24,360 27,299
----------- ------------
190,921 259,153
=========== ============
All of the Group's operating profit arises from low fares airline-related
activities, its only business segment. The major revenue earning assets of the
Group are comprised of its aircraft fleet, which is registered in Ireland and
therefore principally all profits accrue in Ireland. Since the Group's aircraft
fleet is flexibly employed across its route network, there is no suitable basis
of allocating such assets and related liabilities to geographical segments.
Internet income comprises revenue generated from Ryanair.com, excluding internet
car hire revenue, which is included under the heading car hire. Non-flight
scheduled revenue arises from the sale of rail and bus tickets, hotel
reservations and other revenues generated, including excess baggage charges, all
directly attributable to the low fares business.
F-27
16 Staff numbers and costs
The average weekly number of employees, including the executive director,
during the year, analyzed by category, was as follows:
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
Flight and cabin crew...........................................................1,813 2,271
Sales, operations and administration............................................ 791 792
----------- ------------
2,604 3,063
=========== ============
The aggregate payroll costs of these persons were as follows:
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
Salaries and related costs....................................................127,740 151,962
Social welfare costs...........................................................10,512 13,339
Other pension costs.............................................................2,933 3,191
Share based payments ........................................................... 488 2,920
----------- ------------
141,673 171,412
=========== ============
17 Aircraft rentals and other expenses
(a) Aircraft rentals-Purchase accounting adjustment
Subsequent to the acquisition of Buzz Stansted Ltd in April 2003 Ryanair
renegotiated the terms and conditions of certain onerous leases and agreed
to return the aircraft to the lessors in late 2004, thereby releasing
Ryanair from any remaining lease obligations at that time. IFRS 3 only
allows an adjustment to the provisional values of assets and liabilities
acquired in the 12 month period following the acquisition, and accordingly
as the event occurred more than 12 months after the acquisition date, this
resulted in a credit to the income statement for the year to March 31,
2005 of EUR11.9m. This amount is included as a reduction to aircraft
rentals in the 2005 income statement.
(b) Other expenses-Insurance claim
Included in the income statement for the year to March 31, 2006 is a
credit of EUR5.2m (net of tax) arising from the settlement of an
insurance claim for the scribing of 6 Boeing 737-200 aircraft. This
credit has been included as a reduction to insurance costs included within
operating expenses in the 2006 income statement.
F-28
18 Statutory and other information
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
Directors' emoluments:
-Fees............................................................ 280 265
-Other emoluments, including bonus and pension contributions..... 721 877
----------- ------------
Depreciation of owned tangible fixed assets........................... 110,063 120,877
Depreciation of tangible fixed assets held under finance leases....... 294 3,528
Auditors' remuneration
- audit (i)...................................................... 196 213
- audit-related (ii)............................................. 39 67
- tax services (iii)............................................. 232 188
Operating lease charges, principally aircraft......................... 33,471 47,376
=========== ============
(i) Audit services include audit work performed on the consolidated
financial statements, as well as work that generally only the
independent auditor can reasonably be expected to provide,
including comfort letters, statutory audits, and discussions
surrounding the proper application of financial accounting and/or
reporting standards.
(ii) Audit-related services are for assurance and related services that
are traditionally performed by the independent auditor, including
due diligence related to mergers and acquisitions, employee benefit
plan audits, and special procedures required to meet certain
regulatory requirements.
(iii) Tax services include all services, except those services
specifically related to the audit of financial statements,
performed by the independent auditor's tax personnel, including
tax analysis; supporting other tax-related regulatory
requirements; and tax compliance and reporting.
(a) Fees and emoluments - Executive Director
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
Basic salary........................................................... 505 579
Performance related bonus.............................................. 127 200
Pension contributions.................................................. 49 58
----------- ------------
681 837
=========== ============
During the years ended March 31, 2005 and 2006 Michael O'Leary was the only
Executive Director.
F-29
(b) Fees and emoluments - Non Executive Directors
Year ended Year ended
March 31, March 31,
2005 2006
----------- ------------
EUR000 EUR000
Fees
Emmanuel Faber......................................................... 50 47
Michael Horgan......................................................... 32 32
Klaus Kirchberger...................................................... 32 32
Raymond MacSharry...................................................... 47 47
Kyran McLaughlin....................................................... 47 47
James R. Osborne....................................................... 40 28
Paolo Pietrogrande..................................................... 32 32
----------- ------------
280 265
----------- ------------
Emoluments
Michael Horgan......................................................... 40 40
----------- ------------
320 305
=========== ============
(c) Pension benefits
Transfer Value
Increase in Equivalent of Increase in Total Accumulated
Directors Accrued Benefit Accrued Benefit Accrued Benefit
------------------------ ------------------------- ------------------------- -------------------------
Fiscal 2005 Fiscal 2006 Fiscal 2005 Fiscal 2006 Fiscal 2005 Fiscal 2006
----------- ----------- ----------- ----------- ----------- -----------
EUR EUR EUR EUR EUR EUR
Michael O'Leary......... 6,128 8,885 33,735 49,549 93,139 104,244
=========== =========== =========== =========== =========== ===========
There have been no changes in pension benefits provided to directors during
the year. No pension benefits are provided for non-executive directors. The
executive director is a member of a defined benefit plan. The cost of the
death-in-service and disability benefits provided during the accounting year is
not included in the above figures. The pension benefits set out above have been
computed in accordance with Section 12.43(x) of the Listing Rules of the Irish
Stock Exchange. The increases in transfer values of the accrued benefits have
been calculated as at each year-end in accordance with Actuarial Guidance Note
GN11.
F-30
(d) Shares and share options
(i) Shares
Ryanair Holdings plc is listed on the Irish, London and Nasdaq Stock
Exchanges.
The beneficial interests as at March 31, 2005 and 2006 of the directors
and of their spouses and minor children in the share capital of the Company are
as follows:
March 31, March 31,
----------------- -----------------
2005 2006
----------------- -----------------
No. of Shares No. of Shares
David Bonderman........................................................... 7,008,680 7,008,680
Raymond MacSharry......................................................... 7,280 7,280
Michael O'Leary........................................................... 41,000,008 35,000,008
James R. Osborne.......................................................... 705,128 705,128
T. Anthony Ryan........................................................... 5,758,535 5,758,535
Kyran McLaughlin 25,000 25,000
Michael Horgan............................................................ 4,000 25,000
Directors not referred to above held no shares.
(ii) Share options
The number of share options held by directors in office at the end of
fiscal 2006 were:
March 31, March 31,
------------------- -------------------
2005 2006
------------------- -------------------
Number of Options Number of Options
David Bonderman*...................................................... 50,000 50,000
Emmanuel Faber**...................................................... 25,000 25,000
Michael Horgan*....................................................... 50,000 -
Klaus Kirchberger**................................................... 25,000 25,000
Kyran McLaughlin*..................................................... 50,000 50,000
Raymond MacSharry*.................................................... 50,000 -
Michael O'Leary***.................................................... 40,620 40,620
James R. Osborne*..................................................... 50,000 50,000
Paolo Pietrogrande*................................................... 50,000 50,000
T. Anthony Ryan*...................................................... 50,000 50,000
* These options were granted to these directors at EUR3.70
(the market value at date of grant) during the year ended
March 31, 2001 and are exercisable between June 2005 and June 2007.
** These options were granted to these directors at EUR5.65 each
(the market value at date of grant) during the year ended
March 31, 2003 and are exercisable between June 2007 and June 2009.
*** These options were granted to Michael O'Leary as follows:
17,701 in fiscal 2003 at EUR5.71 and 22,919 in fiscal 2004 at
EUR4.41 (the market value at date of grant), in either case under
the 2003 share option plan these are exercisable between
2009 and 2011.
19 Finance expense
Year ended Year ended
March 31, March 31,
--------------- -----------------
2005 2006
EUR000 EUR000
Interest payable on bank loans wholly repayable after five years 57,499 73,758
Interest arising on pension liabilities, net.................... 130 200
---------------
57,629 73,958
=============== ==================
F-31
20 Pensions
The Group accounts for pensions in accordance with IAS 19, "Employee
Benefits," (IAS 19).
The Company operates defined benefit and defined contribution schemes.
(i) Defined benefit schemes.
The Group funds the pension entitlements of certain employees through defined
benefit plans. Two plans are operated for eligible Irish and UK employees. In
general, on retirement, a member is entitled to pension calculated at 1/60th of
final pensionable salary for each year of pensionable service, subject to a
maximum of 40 years. Theses plans are fully funded on a discontinuance basis and
the related pension costs and liabilities are assessed in accordance with the
advice of a professionally qualified actuary. The investments of the plans at
March 31, 2006 consisted of units held in independently administered funds. The
most recent full actuarial valuations of the plans were carried out at December
31, 2003 in accordance with local regulatory requirements using the projected
unit credit method and the valuation reports are not available for public
inspection.
The actuarial report showed that at the valuation date the market value of the
scheme's assets was EUR11.5m, which was sufficient to cover more than 100% of
the accrued liabilities, based on current earnings and 78% of the accrued
liabilities allowing for expected future increases in earnings. The actuarial
report recommends payment of contributions at 11.5% of staff and 17.8% of
pilots' pensionable salaries respectively, which is an increase from previous
contribution rates, intended to make good the shortfall on accrued liabilities
allowing for expected future increases in earnings.
A separate annual actuarial valuation has been performed for the purposes of
preparing these financial statements. The principal actuarial assumptions used
for the purpose of this actuarial valuation were as follows:
At March 31,
------------------------
2005 2006
------- -------
% %
Discount rate used for Irish plan............................................ 4.50 4.75
Discount rate used for UK plan............................................... 5.35 4.90
Return on plan assets for Irish plan......................................... 6.43 6.61
Return on plan assets for UK plan............................................ 6.61 6.93
Rate of Euro inflation....................................................... 2.00 2.25
Rate of UK inflation......................................................... 2.75 2.75
Future pension increases..................................................... 2.75 2.75
Future salary increases for Irish plan....................................... 3.50 3.25
Future salary increases for UK plan.......................................... 4.25 3.75
======= ======
The key mortality assumptions used at March 31, 2006 are:
Irish scheme
Pre-retirement: 100% PMA92 (c=2025) for males, 100% PFA92 (c=2025) for
females
Post retirement: 100% PMA92 (c=2025) for males, 100% PFA92 (c=2025) for
females
UK scheme
Pre-retirement: none
Post retirement: 100% PMA92 (c=2025) for males, 100% PFA92 (c=2025) for
females
F-32
The amount recognized in the Consolidated balance sheet in respect of our
defined benefit plans is as follows:
At March 31,
--------------------------
2005 2006
--------- --------
EUR000 EUR000
Present value of benefit obligations..................................... (29,213) (33,367)
Fair value of plan assets................................................ 18,585 24,690
--------- --------
Present value of net obligations......................................... (10,628) (8,677)
Related deferred tax asset............................................... 1,329 1,084
--------- --------
Net pension (liability).................................................. (9,299) (7,593)
========= ========
The amount recognized in the Consolidated income statement in respect of our
defined benefit plans is as follows:
Year ended Year ended
March 31, March 31,
------------- --------------
2005 2006
EUR000 EUR000
Included in payroll costs
Service cost............................................................. 1,417 1,812
------------- --------------
Included in finance costs
Interest on pension scheme liabilities................................... 1,207 1,460
Expected return on plan assets........................................... (1,077) (1,260)
-------------- --------------
Net finance costs........................................................ 130 200
------------- --------------
Net periodic pension cost................................................ 1,547 2,012
============= ==============
Analysis of amounts included in the Statements of Recognized Income and Expense
(SORIE);
Year ended Year ended
March 31, March 31,
------------- ------------
2005 2006
EUR000 EUR000
Actual return less expected return on pension schemes assets............. 932 3,531
Opening deficit on UK Scheme*............................................ (1,982) -
Experience (losses)/gains on scheme liabilities.......................... (257) 62
Changes in assumptions underlying the present value of scheme liabilities (4,102) (934)
------------- ------------
Actuarial (losses)/gains recognized in the SORIE......................... (5,409) 2,659
------------- ------------
Related deferred tax asset/(liability)................................... 676 (332)
------------- ------------
Net actuarial (losses)/gains recognized in the SORIE (4,733) 2,327
============= ============
*Recognized for first time in 2005.
F-33
Changes in the present value of the defined benefit obligation of the plans are
as follows:
At March 31,
-----------------------------
2005 2006
----------- ---------
EUR000 EUR000
Projected benefit obligation at beginning of year........................ 16,955 29,213
Opening present benefit obligation on UK scheme.......................... 4,930 -
Service cost............................................................. 1,417 1,812
Interest cost............................................................ 1,207 1,460
Plan participants' contributions......................................... 707 681
Actuarial loss........................................................... 4,378 978
Benefits paid............................................................ (354) (672)
Foreign exchange rate changes............................................ (27) (105)
----------- ---------
Projected benefit obligation at end of year.............................. 29,213 33,367
=========== =========
Changes in fair values of the plans' assets are as follows:
At March 31,
-----------------------------
2005 2006
------------ -----------
EUR000 EUR000
Fair value of plan assets at beginning of year........................... 12,033 18,585
Opening fair value of UK scheme assets................................... 2,911 -
Actual gain on plan assets............................................... 2,029 4,867
Employer contribution.................................................... 1,279 1,305
Plan participants' contributions......................................... 707 681
Benefits paid............................................................ (354) (672)
Foreign exchange rate changes............................................ (20) (76)
------------- -----------
Fair value of plan assets at end of year................................. 18,585 24,690
============= ===========
The fair value of the plans' assets at March 31 is analyzed as follows:
At March 31,
------------------------------
2005 2006
------------ -----------
EUR000 EUR000
Equities................................................................. 14,359 20,147
Bonds.................................................................... 2,498 2,469
Property................................................................. 684 1,012
Other assets............................................................. 1,044 1,062
------------ ----------
Total fair value of plan assets.......................................... 18,585 24,690
============ ==========
The plans' assets do not include any of our own financial instruments, nor any
property occupied by, or other assets used by us.
The expected long-term rate of return on assets of 6.61% for the Irish Scheme
was calculated based on the assumptions of the following returns for each asset
class: Equities 7.25%; Bonds 3.75%; Property 6.25%; and Cash 2.25%. The expected
long-term rate of return on assets of 6.93% for the UK Scheme was calculated
based on the assumptions of the following returns for each asset class: Equities
7.25%; Corporate and Overseas Bonds 4.90%; UK Government Bonds 4.20%; and Other
4.25%.
Since there are no suitable Euro-denominated AA rated corporate bonds, the
expected return is estimated by adding a suitable risk premium to the rate
available from Government bonds. The assumptions are based on long-term
expectations at the beginning of the reporting period and are expected to be
relatively stable.
F-34
The history of the plans for the current and prior period is as follows:
At March 31,
-----------------------------
History of the plans for the current and prior period is as follows: 2005 2006
---------- ----------
EUR000 EUR000
Difference between expected and actual return on assets.................. 932 3,531
Expressed as a percentage of scheme assets............................... 5% 14%
---------- ----------
Experience (losses)/gains on scheme liabilities.......................... (257) 62
Expressed as a percentage of scheme liabilities.......................... (1%) -
---------- ----------
Total actuarial (losses)/gains........................................... (5,409) 2,659
Expressed as a percentage of scheme liabilities.......................... (18%) 8%
========== ==========
In accordance with the transitional provision for the amendments to IAS 19 in
December 2004, the disclosures in the above table are determined prospectively
from the 2005 reporting period.
We expect to contribute approximately EUR1.3m to our defined benefit plans in
2007.
(ii) Defined contribution schemes
We operate defined contribution retirement plans in Ireland and the UK. The
costs of these plans are charged to the Consolidated income statement in the
period they are incurred. The pension cost of these defined contribution plans
was EUR1.4m in 2006 (2005: EUR1.5m)
21 Earnings per share
Basic earnings per ordinary share (EPS) for Ryanair Holdings plc for the
years ended March 31, 2005 and 2006 has been computed by dividing the profit
attributable to shareholders by the weighted average number of ordinary shares
outstanding during the period.
Year ended Year ended
March 31, March 31,
2005 2006
-------------- -------------
Basic weighted average number of shares outstanding.................. 759,910,690 766,832,502
Dilutive effect of employee share options............................ 4,092,416 4,948,771
-------------- -------------
Dilutive weighted average number of shares outstanding............... 764,003,106 771,781,273
============== =============
22 Commitments and contingencies
Commitments
a) In January 2002, the Group entered into a contract with The Boeing Company
("Boeing") (the "2002 Boeing contract"); whereby the Group agreed to
purchase 100 new Boeing 737-800 "next generation" aircraft, and received
purchase rights to acquire a further 50 such aircraft. The 2002 Boeing
contract was superceded by a contract entered into with Boeing in January
2003 (the "2003 Boeing contract") whereby the Group agreed to purchase 125
new Boeing 737-800 "next generation" aircraft, thus adding "firm" orders
for 22 aircraft to the existing "firm" orders (100 "firm" plus 3 options
exercised) under the 2002 Boeing contract. In addition, the Group acquired
purchase rights over a further 78 aircraft, bringing the number of option
aircraft to 125.
In February 2005, the Group entered into a contract with Boeing (the "2005
Boeing contract") whereby the Group agreed to purchase 70 new Boeing
737-800 "next generation" aircraft and acquired additional purchase rights
to acquire a further 70 such aircraft over a five year period from 2006 to
2011. The aircraft to be delivered after January 1, 2005, arising from the
2002 and 2003 Boeing contracts, benefit from the discounts and concessions
under the 2005 Boeing contract. In addition, the orders for the 89 "firm"
aircraft still to be delivered at January 1, 2005 and the remaining
additional purchase rights in respect of 123 aircraft granted under the
2002 and 2003 Boeing contracts are governed by the 2005 Boeing contract
from January 2005.
F-35
In June 2006 the group exercised 10 options under the 2005 contract whereby it
will increase its firm aircraft deliveries by this amount during fiscal 2008 (3)
and 2009 (7).
The table below details the firm aircraft delivery schedule at March 31, 2006
and March 31, 2005 for the Group respectively:
Firm Aircraft
Deliveries
Aircraft Firm Aircraft Basic price Fiscal
Delivered at Deliveries Total "Firm" per aircraft 2006-2011 at
March 31, 2006 Fiscal 2007-2012 Aircraft (US$'m) March 31, 2005
--------------- ------------------- ------------------ -------------- ---------------
2002 Contract.............. 52 51 103 50.885 67
2003 Contract.............. 23 1 24 50.889 10
2005 Contract.............. - 84 84 50.916 70
--------------- ------------------- ------------------ -------------- ---------------
--------------- ------------------- ------------------ -------------- ---------------
Total.................... 75 136 211 147
=============== =================== ================== ============== ===============
The "Basic Price" (equivalent to a standard list price for an aircraft of this
type) for each aircraft governed by the 2005 Boeing contract will be increased
by (a) an estimated US$900,000 per aircraft for certain "buyer furnished"
equipment the Group has asked Boeing to purchase and install on each of the
aircraft, and (b) an "Escalation Factor" designed to increase the Basic Price of
any individual aircraft by applying a formula which reflects increases in the
published US Employment Cost and Producer Price indices between the time the
Basic Price was set and the period of six months prior to the delivery of such
aircraft.
Boeing has granted Ryanair certain price concessions with regard to the Boeing
737-800 "next generation" aircraft. These take the form of credit memoranda to
the Group for the amount of such concessions, which the Company may apply toward
the purchase of goods and services from Boeing or toward certain payments, in
respect of the purchase of the aircraft under the various Boeing contracts.
Boeing and CFMI (the manufacturer of the engines to be fitted on the purchased
aircraft) have also agreed to give the Group certain allowances in addition to
providing other goods and services to the Group on concessionary terms. These
credit memoranda and allowances will effectively reduce the price of each
aircraft to the Group. As a result, the effective price of each aircraft will be
significantly below the Basic Price mentioned above. At March 31, 2006, the
total potential commitment to acquire all 136 "firm" aircraft, not taking such
increases and decreases into account, will be up to US$6.9 billion. (At March
31, 2005 the potential commitment was US$7.5 billion to acquire 147 "firm"
aircraft).
F-36
b) Total future minimum payments due under operating leases
At March 31,
------------------------
2005 2006
--------- ---------
EUR000 EUR000
Due within one year...................................................... 34,753 45,097
Due between one and two years............................................ 34,753 45,097
Due between two and three years.......................................... 34,753 45,097
Due between three and four years......................................... 34,753 45,097
Due between four and five years.......................................... 34,754 39,314
Due after five years..................................................... 34,128 14,194
--------- ---------
Total.................................................................... 207,894 233,896
========= =========
The above table sets out the committed future cost of leasing 17 Boeing 737-800
"next generation" aircraft at March 31, 2006 and 2005, respectively.
c) Commitments resulting from the use of derivative financial instruments by
the Group are described in notes 4 and 10.
Contingencies
d) The Group is engaged in litigation arising in the ordinary course of its
business. Management does not believe that any such litigation will
individually or in aggregate have a material adverse effect on the
financial condition of the Group. Should the Group be unsuccessful in these
litigation actions, management believes the possible liabilities then
arising cannot be determined but are not expected to materially adversely
affect the Group's results of operations or financial position.
e) The Company has provided EUR30.5m in letters of guarantee to secure
obligations of subsidiary undertakings in respect of loans and bank
advances (see also Note 10).
f) In order to avail itself of the exemption contained in Section 17 of the
Companies (Amendment) Act, 1986, the holding company, Ryanair Holdings plc,
has guaranteed the liabilities of its subsidiary undertakings registered in
Ireland. As a result, the subsidiary undertakings have been exempted from
the provisions of Section 7 of the Companies (Amendment) Act, 1986. Details
of the Group's principal subsidiaries have been included at note 25. The
Irish subsidiaries of the Group covered by the Section 17 exemption are
listed at note 25 also. One additional Irish subsidiary covered by this
exemption, which is not listed as a principal subsidiary at note 25 is
Airport Marketing Services Limited. At March 31, 2006, the liabilities of
Ryanair Holdings plc's subsidiary undertakings registered in Ireland
amounted to EUR2,501.5 million.
g) The Group has also entered into a series of interest rate swaps to hedge
against fluctuations in interest rates for certain floating rate financing
arrangements. Cash deposits have been set aside as collateral (subject to
an agreed capped amount EUR200.0m) to mitigate certain counterparty risk of
fluctuations on long-term derivative and financing arrangements
("restricted cash"). At March 31, 2006, such collateral amounted to
EUR200.0m (2005: EUR200.0m). Additional numerical information on these
swaps and on other derivatives held by the Group is set out in notes 4 and
10 of the financial statements.
h) In February 2004, the European Commission ruled that Ryanair had received
illegal state aid from the Walloon regional government in connection with
its establishment of a low cost base at Brussels (Charleroi).
Subsequently Ryanair was requested by the regional government to repay all
deemed illegal state aid, but in accordance with the Commission ruling Ryanair
may deduct various costs incurred in establishing its base at Brussels
(Charleroi) from this amount. Ryanair has advised the regional government that
it believes no money is repayable as the cost of establishing the base exceeded
the amount determined to be illegal state aid.
F-37
Ryanair is also appealing the decision of the European Commission to the
European Court of First Instance, requesting that the Court annul the decision
on the basis that Ryanair's agreement at Brussels (Charleroi) was consistent
with agreements at similar privately owned airports and therefore did not
constitute illegal state aid. The Company has placed EUR4m in an escrow account
pending the outcome of this appeal.
23 Note to cash flow statements
At March 31,
-----------------------------
2005 2006
----------- ----------
EUR000 EUR000
Net funds at beginning of year........................................... 304,023 190,848
----------- ----------
Increase in cash and cash equivalents in year............................ 127,998 566,746
Movement in financial assets > 3 months.................................. 216,662 (200,480)
Movement in restricted cash.............................................. 4,040 -
Net cash flow from (increase) in debt.................................... (461,875) (262,871)
Movement in net funds/(debt) resulting from cash flows................... (113,175) 103,395
----------- ----------
Net funds at end of year................................................. 190,848 294,243
=========== ==========
Analysed as
Cash & restricted cash................................................... 1,605,705 1,971,971
Total borrowings......................................................... (1,414,857) (1,677,728)
----------- -----------
190,848 294,293
=========== ===========
Net funds arise when cash and liquid resources exceed debt.
24 Post balance sheet events
On September 21, 2006 the shareholders approved a share buy back plan for
up to 5% of the total issued share capital.
In September, 2006 Ryanair entered into a new contract with CAE to purchase
five B737NG Level B flight simulators. The first of these simulators is expected
to be delivered in fiscal year 2009. This contract also provides Ryanair with an
option to purchase another five simulators. The gross price of each simulator is
approximately US$8 million, not taking into account certain price concessions
provided by the seller in the form of credit memoranda and discounts.
F-38
25 Subsidiary undertakings and related party transactions
The following are the principal subsidiary undertakings of Ryanair
Holdings plc:
Registered Nature of
Effective date of ------------------------- ----------
Name acquisition/incorporation Office Business
------------------------- ---------- --------
Ryanair Limited............... August 23, 1996 Corporate Headquarters Airline operator
(acquisition) Dublin Airport
Co Dublin
Darley Investments Limited*... August 23, 1996 Corporate Headquarters Investment holding
(acquisition) Dublin Airport Company
Co Dublin
Ryanair.com Limited*.......... August 23, 1996 Corporate Headquarters International data
(acquisition) Dublin Airport processing services
Co Dublin
* These subsidiaries are wholly owned by Ryanair Limited, which is, in turn,
wholly owned by Ryanair Holdings plc.
All of the above subsidiaries are 100% owned by the Group. The shares owned
by the Group comprise one class (ordinary shares) in respect of each subsidiary.
Information regarding all other subsidiaries will be filed with the
Company's next Annual Return as provided for by S.16 (3) (a) of Companies
(Amendment) Act, 1986.
In accordance with the basis of consolidation policy as described in note 1
of these financial statements, the subsidiary undertakings referred to above
have been consolidated in the financial statements of Ryanair Holdings plc for
the years ended March 31, 2006 and March 31, 2005.
The total amount of remuneration paid to senior key management (defined as
the executive team reporting to the Board) in the Group amounted to EUR3.1m in
the year (2005: EUR2.6m) the majority of which comprises short term employee
benefits.
F-39
26 Transition to IFRS
The following summary sets out the most significant changes required to
Ryanair's consolidated financial statements as a result of the transition to
IFRS from Irish GAAP during the fiscal year ended March 31, 2006. The effect of
these changes is set out in the tables below.
(a)IAS 19: Pension and other Post Retirement Benefits
As at April 1, 2004 in accordance with IAS 19 ("Employee Benefits"), the
assets and liabilities of the defined benefit pension plans operated by Ryanair
have been recognised, gross of deferred tax, in the balance sheet at the date of
transition to IFRS in accordance with the valuation and measurement requirements
of the standard.
Deferred tax has been computed in respect of the Group's pension
liabilities arising as a result of the application of IAS 19 and the related
deferred tax assets have been included in the IFRS results at the various
balance sheet dates.
In accordance with the exemption afforded under the amendment to IFRS 1,
the Group has elected to recognise all cumulative actuarial gains and losses
attributable to its defined benefit pension schemes as at the transition date.
Also in line with the amendment to IAS 19, actuarial gains and losses
arising after the transition date are dealt with in retained income via the
Statement of Recognised Income and Expense, and all other pension scheme
movements have been accounted for in the Group's income statement.
(b) IFRS 3: Business Combinations
The Group has elected to restate the acquisition of Buzz (KLM UK. Limited)
on April 10, 2003 (the Group's only third party business combination to date) in
accordance with the provisions of IFRS 3 ("Business Combinations"). As the
principal assets and liabilities acquired at that time related to take-off and
landing slots at Stansted airport, and onerous leases for aircraft, the
restatement of the business combination under IFRS 3 has given rise to the
following cumulative adjustments in the periods to March 31, 2005:
(i) Reversal of goodwill amortisation since the date of the acquisition
amounting to EUR4.5 million.
(ii) Reallocation of all of the fair value of assets acquired at the time
(being EUR46.8 million) from goodwill to intangible assets, represented by
take-off and landing rights ("slots") at Stansted airport. This adjustment was
required to recognise the fair value of assets required to be recognised under
the provisions of IFRS 3 and IAS 38 "Intangible Assets". This asset is
considered to be indefinite lived because the slots do not expire as long as
they continue to be utilised and it is Ryanair's intention to utilise these
slots for the foreseeable future. Accordingly, the slots acquired have not been
amortised. The slots acquired have also been subsequently reviewed for
impairment in accordance with the provisions of IAS 36 "Impairment of Assets"
and no impairment of this asset is considered to have occurred since the date of
acquisition.
(iii) A provision for onerous leases was recognized in the balance sheet at
the date the business combination was effected. On transition to IFRS, no change
was recorded to the provisional fair value of onerous leases taken over on
acquisition as the impact of discounting such amounts was not considered to be
material in the context of the Group's results. Subsequent to the acquisition,
however, Ryanair renegotiated the terms and conditions of these leases and
agreed to return the aircraft to the lessors in late 2004, thereby releasing
Ryanair from any remaining lease obligations at that time. Irish GAAP permitted
that such an adjustment could be made to the provisional value of the assets and
liabilities acquired as part of the original business combination, provided that
the adjustment was made either in the reporting period that the combination took
place or in the first full financial period following the transaction. IFRS 3,
however, only allows such an adjustment to be made in the 12 month period
following the acquisition, and accordingly, as the event occurred more than 12
months after the acquisition date, under IFRS this adjustment was made to the
Group's income statement instead. This gives rise to a credit of EUR11.9m to the
income statement in the period to 31 March 2005.
F-40
(c) IFRS 2: Share Based Payments
IFRS 2 ("Share Based Payment") requires the Group to recognise any share
based payments made to employees during a reporting period as a charge to the
income statement over the vesting period of the options, together with a
corresponding increase in equity. The charge of EUR0.5 million for the year
ended 31 March 2005 for share option grants has been computed using the Binomial
Lattice methodology.
Ryanair has availed of the transition provisions in IFRS 1 for share based
payments by only applying the fair value calculation to share option grants that
were made after November 7, 2002 but which had not vested by January 1, 2005.
There was no share based payment charge in the periods prior to March 31, 2005
accordingly. Had Ryanair recognised all vested grants of shares between November
7, 2002 and January 1, 2005, the Group's equity at March 31, 2005 would have
increased by EUR9.4m with a corresponding reduction in retained earnings.
(d) IAS 16: Property, Plant and Equipment
IAS 16 requires that all spare parts held by an entity are classified as
Property, Plant and Equipment if they are expected to be used for more than one
period and not held for resale. This has resulted in a reclassification of the
stock of spare aircraft parts from inventories to Property, Plant and Equipment.
The related depreciation expense relating to the stock of spare aircraft parts
has also been reclassified from "maintenance, materials & repairs" to
"depreciation". This reclassification was made following the release of our
published explanation of the financial impact following the adoption of IFRS.
(e)IAS 39: Financial Instruments
IAS 39 ("Financial Instruments: Recognition and Measurement") requires that
all financial instruments are recorded at fair value or amortised cost dependant
on the nature of the financial asset or financial liability. Derivatives are
measured at fair value with changes in value arising from fluctuations in
interest rates, foreign exchange rates or commodity prices. Under Irish GAAP,
where the derivatives formed part of a hedging agreement, these were not
initially measured on the balance sheet and any related gains or losses arising
were deferred until the underlying hedged item impacted on the financial
statements.
Ryanair has taken advantage of the exemption from the requirement to
restate comparative information for IAS 39 contained in IFRS 1. As a result of
the exemption the information presented for all periods up to March 31, 2005 has
been accounted for in accordance with Irish/UK GAAP.
At April 1, 2005 Ryanair has accounted for all of its derivatives in
accordance with IAS 39, with the result that an opening charge of EUR146.4
million together with a related deferred tax benefit of EUR18.3 million was
recorded directly in the opening cash flow hedging reserve, principally relating
to the Company's interest rate swaps, which were entered into at a time when
underlying interest rates were higher than present market rates. The Company
also recorded the following entries in respect of fair value hedges for firm
commitments; an increase of EUR2.7 million in derivative financial assets held
and a corresponding increase in other creditors, with no amount of
ineffectiveness recorded in the income statement. The unrealized losses on these
interest rate swaps continue to be significant and amounted to EUR109.3m as at
March 31, 2006. These will have a consequent impact on future operating profits
until they expire for up to 12 years from the balance sheet date. Further
numerical details on these amounts are in notes 4 and 10 to the financial
statements.
F-41
Reconciliation of Impact of IFRS on the Consolidated Balance Sheet at April 1,
2004.
Stock of IFRS
Retirement Share A/C Spare ----------
IR/UK GAAP Benefits Business Based Parts Total April 1,
------------ ----------- Combination Payment ---------- Effect 2004
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Current assets
Cash and cash equivalents.... 744,260 - - - - - 744,260
Financial assets - cash > 3
months....................... 312,745 - - - - - 312,745
Restricted cash.............. 200,000 - - - - - 200,000
Trade receivables............ 14,932 - - - - - 14,932
Other assets................. 19,251 - - - - - 19,251
Inventories.................. 26,440 - - - (24,404) (24,404) 2,036
------------- --------- ---------- -------- -------- ------- ---------
Total current assets......... 1,317,628 - - - (24,404) (24,404) 1,293,224
------------- --------- ---------- -------- -------- ------- ---------
Non-current assets
Property, plant and equipment 1,576,526 - - - 24,404 24,404 1,600,930
Intangible assets............ 44,499 - 2,342 - - 2,342 46,841
------------- --------- ---------- -------- -------- -------- ---------
Total non-current assets..... 1,621,025 - 2,342 - 24,404 26,746 1,647,771
------------- --------- ---------- -------- -------- -------- ---------
Total assets................. 2,938,653 - 2,342 - - 2,342 2,940,995
============ ========== ========== ======== ========= ======== =========
Current liabilities
Trade payables............... 67,936 - - - - - 67,936
Accrued expenses and other
liabilities.................. 324,963 - - - - - 324,963
Current maturities of long
term debt.................... 80,337 - - - - - 80,337
Current tax.................. 13,245 - - - - - 13,245
------------- --------- ---------- -------- -------- -------- ---------
Total current liabilities.... 486,481 - - - - - 486,481
------------- --------- ---------- -------- -------- -------- ---------
Non current liabilities
Provisions for liabilities
and charges.................. 6,522 - - - - - 6,522
Deferred income tax liability 87,670 (615) - - - (615) 87,055
Other creditors.............. 30,047 4,922 - - - 4,922 34,969
Long term debt............... 872,645 - - - - - 872,645
------------- --------- ---------- -------- -------- -------- ---------
Total non-current liabilities 996,884 4,307 - - - 4,307 1,001,191
------------- --------- ---------- -------- -------- -------- ---------
Shareholders' equity
Issued share capital......... 9,643 - - - - - 9,643
Share premium account........ 560,406 - - - - - 560,406
Retained earnings............ 885,239 (4,307) 2,342 - - (1,965) 883,274
------------- --------- ---------- -------- -------- -------- ---------
Shareholders' equity......... 1,455,288 (4,307) 2,342 - - (1,965) 1,453,323
------------- --------- ---------- -------- -------- -------- ---------
Total liabilities and
shareholders' equity......... 2,938,653 - 2,342 - - 2,342 2,940,995
============= ========= ========== ========= ======== ======== ==========
F-42
Reconciliation of Impact of IFRS on the Consolidated Balance Sheet at March 31, 2005.
Apr 01, Share Stock of IFRS
IR/UK GAAP 2004 Retirement Business Based A/C Spare Total Mar 31,
Benefits Combination Payment Parts Effect 2005
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------ --------- ---------- ----------- -------- --------- --------- ----------
Current assets
Cash and cash equivalents.. 872,258 - - - - - - 872,258
Financial assets - cash > 3 -
months..................... 529,407 - - - - - 529,407
Restricted cash............ 204,040 - - - - - - 204,040
Trade receivables.......... 20,644 - - - - - - 20,644
Other assets............... 24,612 - - - - - - 24,612
Inventories................ 28,069 (24,404) - - - (1,205) (25,609) 2,460
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total current assets....... 1,679,030 (24,404) - - - (1,205) (25,609) 1,653,421
------------ --------- ---------- ----------- -------- --------- --------- ---------
Non-current assets
Property, plant and equipment 2,092,282 24,404 - - - 1,205 25,609 2,117,891
Intangible assets.......... 30,449 2,342 - 14,050 - - 16,392 46,841
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total non-current assets... 2,122,731 26,746 - 14,050 - 1,205 42,001 2,164,732
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total assets............... 3,801,761 2,342 - 14,050 - - 16,392 3,818,153
============ ========= ========= =========== ======== ========= ======== =========
Current liabilities
Trade payables............. 92,118 - - - - - - 92,118
Accrued expenses and other -
liabilities................ 418,653 - - - - - 418,653
Current maturities of long -
term debt.................. 120,997 - - - - - 120,997
Current tax................ 17,534 - - - - - - 17,534
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total current liabilities.. 649,302 - - - - - - 649,302
------------ --------- ---------- ----------- -------- --------- --------- ---------
Non current liabilities
Provisions for liabilities and -
charges.................... 7,236 - - - - - 7,236
Deferred income tax liability 105,509 (615) (714) - - - (1,329) 104,180
Other creditors............ 18,444 4,922 5,706 - - - 10,628 29,072
Long term debt............. 1,293,860 - - - - - - 1,293,860
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total non-current liabilities 1,425,049 4,307 4,992 - - - 9,299 1,434,348
------------ --------- ---------- ----------- -------- --------- --------- ---------
Shareholders' equity
Issued share capital....... 9,675 - - - - - - 9,675
Share premium account...... 565,756 - - - - - - 565,756
Retained earnings.......... 1,151,979 (1,965) (4,992) 14,050 (488) - 6,605 1,158,584
Other reserves............. - - - - 488 - 488 488
------------ --------- ---------- ----------- -------- --------- --------- ---------
Shareholders' equity....... 1,727,410 (1,965) (4,992) 14,050 - - 7,093 1,734,503
------------ --------- ---------- ----------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity....... 3,801,761 2,342 - 14,050 - - 16,392 3,818,153
============ ========= ========= =========== ======== ========= ======== =========
F-43
Reconciliation of Impact of IFRS on the Consolidated Income Statement at March 31, 2005
PY Adj Stock
Apr 1, Share of A/C IFRS
Retirement Business Based Spare Total Mar 31,
IR/UK 2004 Benefits Combination Payment Parts Effect 2005
GAAP EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------- -------- ------------ --------- --------- -------- -----------
Operated revenue
Scheduled revenue.......... 1,128,116 - - - - - - 1,128,116
Ancillary revenue *........ 208,470 - - - - - - 208,470
------------- ------- -------- ------------ --------- --------- -------- -----------
Total operating revenue.... 1,336,586 - - - - - - 1,336,586
------------- ------- -------- ------------ --------- --------- -------- -----------
Operating expenses
Staff costs................ (140,997) - (188) - (488) - (676) (141,673)
Depreciation............... (98,703) - - - - (11,654) (11,654) (110,357)
Fuel & oil................. (265,276) - - - - - - (265,276)
Maintenance, materials & 11,654
repairs.................... (37,934) - - - - 11,654 (26,280)
Marketing & distribution costs (19,622) - - - - - - (19,622)
Aircraft rentals........... (33,471) - - 11,925 - - 11,925 (21,546)
Route charges.............. (135,672) - - - - - - (135,672)
Airport & handling costs... (178,384) - - - - - - (178,384)
Other*..................... (97,038) - - - - - - (97,038)
------------- ------- -------- ------------ --------- --------- -------- -----------
Total operating expenses... (1,007,097) - (188) 11,925 (488) - 11,249 (995,848)
------------- ------- -------- ------------ --------- --------- -------- -----------
Operating profit - before
amortization of goodwill... 329,489 - (188) 11,925 (488) 11,249 340,738
------------- ------- -------- ------------ --------- --------- -------- -----------
Goodwill................... (2,125) - - 2,125 - - 2,125 -
------------- ------- -------- ------------ --------- --------- -------- -----------
Operating profit after
amortization of goodwill... 327,364 - (188) 14,050 (488) - 13,374 340,738
------------- ------- -------- ------------ --------- --------- -------- -----------
Other (expenses)/income
Foreign exchange (losses).. (2,323) - 21 - - - 21 (2,302)
Gain on disposal of property, -
plant and equipment........ 47 - - - - - 47
Finance income............. 28,342 - - - - - - 28,342
Finance expense............ (57,499) - (130) - - - (130) (57,629)
------------- ------- -------- ------------ --------- --------- -------- -----------
Total other (expenses)/income (31,433) - (109) - - - (109) (31,542)
------------- ------- -------- ------------ --------- --------- -------- -----------
Profit before taxation..... 295,931 - (297) 14,050 (488) - 13,265 309,196
------------- ------- -------- ------------ --------- --------- -------- -----------
Tax on profit on ordinary -
activities................. (29,190) - 37 - - 37 (29,153)
Profit for the financial year 266,741 - (260) 14,050 (488) - 13,302 280,043
============ ======= ======== =========== ========= ======== ======== ===========
Earnings per share......... 0.35 - - 0.02 - - 0.02 0.37
------------- ------- -------- ------------ --------- --------- -------- -----------
Diluted earnings per share. 0.35 - - 0.02 - - 0.02 0.37
------------- ------- -------- ------------ --------- --------- -------- -----------
*Commission on ancillary revenues has been presented gross within other costs
rather than being netted off against the ancillary revenue to which it relates.
This reclassification has the following impact on the final IFRS income
statement for 2005: Ancillary revenue decrease of EUR17.5m and an other costs
decrease of an equivalent amount.
27 Summary of differences between IFRS and United States generally
accepted accounting principles
Summary of differences
The financial statements of Ryanair Holdings plc are prepared in accordance
with IFRS which differs significantly in certain respects from those generally
accepted in the United States (US). The adjustments necessary to state net
income and shareholders equity under US GAAP are described below.
F-44
(i)Pensions
Under IFRS, the liabilities and costs associated with the Group's defined
benefit pension schemes are assessed on the basis of the projected unit credit
method by professionally qualified actuaries and are arrived at using actuarial
assumptions based on market expectations at the balance sheet date. The discount
rates employed in determining the present value of the schemes' liabilities are
determined by reference to market yields at the balance sheet date on
high-quality corporate bonds of a currency and term consistent with the currency
and term of the associated post-retirement benefit obligations. When the
benefits of a defined scheme are improved, the portion of increased benefit
relating to past service by employees is recognized as an expense in the income
statement on a straight line basis over the average period until the benefits
become vested. To the extent that the enhanced benefits vest immediately, the
related expense is recognized immediately in the income statement. The net
surplus or deficit arising on the Groups' defined benefit pension schemes,
together with the liabilities associated with the unfunded schemes, are shown
either within non-current assets or liabilities on the face of the Group balance
sheet. The deferred tax impact of pension scheme surpluses and deficits is
disclosed separately within deferred tax assets or liabilities, as appropriate.
The Group has elected to avail of the Amendment to IAS 18 "Actuarial Gains and
Losses, Group Plans and Disclosures" to recognize post transition date actuarial
gains and losses immediately in the statement of recognized income and expense.
This treatment contrasts with US GAAP where the corridor methodology is employed
impacting both the Group income statement and balance sheet. In summary, the
corridor methodology under US GAAP, which is a permitted alternative under IAS
19 "Employee Benefits", requires that any gain or loss which exceeds 10% of the
greater of the actuarial value of the liabilities and the fair value of the
schemes' assets be amortized to net income on a periodic basis over the average
remaining working lives of the active participants in the schemes.
Under IFRS, the defined benefit pension asset or liability in the Group
balance sheet comprises the total for each scheme of the present value of the
defined benefit obligation (using a discount rate based on high quality
corporate bonds) less any past service cost not yet recognized and less the fair
value of plan assets (measured at bid value) out of which the obligations are to
be settled directly.
Akin to IFRS, US GAAP specifically requires the use of the projected unit
credit method for costing purposes, and the assumptions used must be based on
current market rates as at the balance sheet date. The assets of defined benefit
pension schemes are valued at mid-market under US GAAP with the bid value being
the requirement under IFRS. In applying pension accounting under US GAAP, the
Group has elected to apply the corridor methodology and not to smooth the value
of the pension scheme assets.
Furthermore, under US GAAP an additional or reduced minimum pension
liability relating to the excess of any unfunded accumulated benefit obligation
over unrecognized prior service cost must be included within other accumulated
comprehensive income.
F-45
The Application of SFAS 132 "Employers disclosures about Pensions and Other
Post-retirement Benefits - an amendment of FASB Statements No, 87, 88 and 106"
under US GAAP has resulted in the recognition of incremental income of
EUR430,000 in the US GAAP income statement (2005: EUR242,000) representing the
difference between the expense recorded under IFRS and that recorded under US
GAAP.
At March 31,
-----------------------------
2005 2006
------------ ---------
EUR000 EUR000
Projected benefit obligation at beginning of year........................ 16,955 29,213
Opening present benefit obligation on UK scheme.......................... 4,930 -
Service cost............................................................. 1,417 1,812
Interest cost............................................................ 1,207 1,460
Plan participants' contributions......................................... 707 681
Actuarial loss........................................................... 4,378 978
Benefits paid............................................................ (354) (672)
------------ ----------
Foreign exchange rate changes............................................ (27) (105)
Projected benefit obligation at end of year.............................. 29,213 33,367
------------ ----------
Change in plan assets
Fair value of plan assets at beginning of year........................... 12,033 18,585
Opening fair value of UK scheme assets................................... 2,911 -
Actual gain on plan assets............................................... 2,029 4,867
Employer contribution.................................................... 1,279 1,305
Plan participants' contributions......................................... 707 681
Benefits paid............................................................ (354) (672)
Foreign exchange rate changes............................................ (20) (76)
------------ ----------
Fair value of plan assets at end of year................................. 18,585 24,690
============ ==========
The funded status of the Group's retirement plans under SFAS No. 132(R) is as follows:
At March 31,
------------------------------
2005 2006
EUR000 EUR000
------------ ----------
Accumulated benefit obligations.......................................... 24,590 29,834
------------ ----------
Projected benefit obligations............................................ (29,213) (33,367)
Plan assets at fair value................................................ 18,585 24,690
------------ ----------
Benefit obligations in excess of plan assets............................. (10,628) (8,677)
Unrecognized net actuarial loss.......................................... 11,850 9,122
Unrecognized net obligation on implementation............................ 148 118
Additional pension liability recognized ................................. (7,424) (4,908)
------------ ----------
Pension (liability)...................................................... (6,054) (4,345)
============= ==========
Reconciliation to shareholders' equity adjustments to US GAAP reconciliation:
At March 31,
------------------------------
2005 2006
EUR000 EUR000
Pension (liability) recognized under IFRS................................ (10,628) (8,677)
Pension (liability) recognized under US GAAP............................. (6,054) (4,345)
------------ ----------
Difference for US GAAP purposes.......................................... 4,574 4,332
============= ==========
Recognised within US GAAP reconciliation as follows:
At March 31,
-------------------------------
2005 2006
EUR000 EUR000
Pension adjustment to US GAAP income statement........................... 11,998 9,240
Minimum pension liability (gross of tax of 2005: EUR0.9m and 2006: EUR0.6m) (7,424) (4,908)
4,574 4,332
F-46
Plan assets comprised primarily of investments in Irish and overseas equity
and fixed interest securities.
The principal assumptions used in the plan for SFAS No. 132(R) purposes
were as follows: At March 31,
-------------------------------
2005 2006
-------------- ----------
% %
Discount rate used for Irish plan........................................ 4.50 4.75
Discount rate used for UK plan........................................... 5.35 4.90
Rate of increase in remuneration for Irish plan.......................... 3.50 3.25
Rate of increase in remuneration for UK plan............................. 4.25 3.75
Expected long term rate of return on assets for Irish plan............... 6.43 6.61
Expected long term rate of return on assets for UK plan.................. 6.61 6.93
============== ===========
The net periodic pension cost in accordance with SFAS No. 132 (R) were
as follows: At March 31,
-------------------------------
2005 2006
--------------- -------------
EUR000 EUR000
Service cost - present value of benefits earned during the year.......... 1,417 1,812
Interest cost on projected benefit obligations........................... 1,207 1,460
Return on assets......................................................... (1,077) (1,260)
Deferrals and amortization............................................... 255 430
--------------- -------------
Net periodic pension cost................................................ 1,802 2,442
=============== =============
The expected return on plan assets of the Irish plan 6.61% and the UK
plan of 6.93% was based on the assumptions of the following returns from
each asset class: At March 31,
---------------------------------
2005 2006
--------------- -------------
% %
Irish plan
Equities................................................................. 7.25 7.25
Bonds.................................................................... 3.75 3.75
Property/Other........................................................... 6.25 6.25
Cash..................................................................... 2.25 2.25
---------------- -------------
Overall Average Weighted 6.43 6.61
================= =============
UK plan
Equities................................................................. 7.00 7.25
Corporate and Overseas Bonds............................................. 5.35 4.90
UK Government Bonds...................................................... 4.75 4.20
Other.................................................................... 4.00 4.25
---------------- -------------
Overall Average Weighted 6.61 6.93
================ =============
Assumptions used to determine projected benefit obligation: At March 31,
----------------------------------
2005 2006
---------------- --------------
% %
Discount rate used for Irish plan........................................ 4.50 4.75
Discount rate used for UK plan........................................... 5.35 4.90
Rate of compensation increase used for Irish plan........................ 3.50 3.25
Rate of compensation increase used for UK plan........................... 3.75 4.25
================ ==============
Benefit payments from the plan are expected to be less than 3% of the
liabilities in each of the next ten years.
Ryanair expects to pay EUR1.3m to the plan during the year ended March
31, 2007.
F-47
The plan assets are invested in a passively managed unit trust that is
invested primarily in a range of Eurozone and international equities,
bonds, property and cash. The asset allocation is normally within the
following ranges:
At March 31,
-----------------------------------
2005 2006
---------------- -------------
Irish scheme: % %
Equities................................................................. 50-80 50-80
Bonds.................................................................... 10-40 10-40
Property/Other........................................................... 5-15 5-15
Cash..................................................................... 0-10 0-10
UK scheme:
Equity securities........................................................ 83 88
Debt securities.......................................................... 8 6
Real estate.............................................................. 1 1
Other.................................................................... 8 5
================ ============
(ii) Share based payments
IFRS requires that the fair value of share-based payments is expensed to
the income statement over the period the related services are received, together
with a corresponding increase in equity. There is no corresponding charge for
share-based payments under US GAAP for the periods presented because the Group
applied Accounting Principles Board Opinion No. 25 (APB 25) in accounting for
its stock option plans and accordingly, except for one grant in May 1997, no
compensation cost has been recognized. The costs recognized under IFRS have been
added back in the US GAAP reconciliation, accordingly. Ryanair has implemented
Statement of Financial Accounting Standards (SFAS) No. 123R, "Share-Based
Payment - An amendment of FASB Statements No. 123 and 95", with effect from
April 1, 2006, which applies similar fair value recording principles to the
Group's share options as are required under IFRS. The Group has elected to apply
the modified prospective basis of accounting for this new standard and will not
be restating its 2006 results for this change. Had the revised standard been
applied, however, an additional charge of EUR2.9m (2005: EUR5.7m) would have
been recorded within the US GAAP income statement.
Summarized information regarding options outstanding at March 31, 2006:
Options
Options Outstanding exercisable
Weighed-average Weighted-average Weighted-average
Range of exercise price Number remaining exercise price Number exercise
EUR outstanding contractual life EUR exercisable price EUR
-------------- ------------------- ------------------ -------------- ---------------
2.00-5.00 8,682,064 3.60 4.41 3,276,517 4.20
5.65-6.42 12,684,937 4.59 5.98 234,330 5.77
-------------- ------------------- ------------------ -------------- ---------------
2.00-6.42 21,367,001 4.19 5.34 3,510,847 4.30
============== =================== ================== ============== ===============
Year ended
Year ended March 31, March 31,
2005 2006
---------------- -------------
EUR000 EUR000
Net income in accordance with US GAAP (as reported).............. 283,414 314,832
Total stock based employee compensation expense as determined under
fair-value method of SFAS 123(R)............................. (5,515) (2,921)
---------------- --------------
Pro-forma net income............................................. 277,899 311,911
---------------- --------------
EUR cent EUR cent
Basic earnings per ADS (as reported)............................. 186.48 205.28
Pro-forma basic earnings per ADS................................. 182.70 203.35
Diluted earnings per ADS (as reported)........................... 185.48 203.97
Pro-forma diluted earning per ADS................................ 181.70 202.05
================ ===============
(iii) Capitalized interest
Under US GAAP interest costs associated with the cost of acquiring certain
qualifying assets and making them ready for their intended use must be
capitalized as part of the acquisition cost of the asset. Ryanair pays deposits
in respect of its aircraft acquisition program and in accordance with US GAAP
capitalizes interest costs which could have been avoided if the expenditure had
not been made. These amounted to EUR22.9m at 2005 and EUR29.4m at 2006.
F-48
Under IFRS there is no mandatory requirement to capitalize interest costs
in such circumstances.
(iv) Darley Investments Limited
Under IFRS, the acquisition of Darley Investments Limited ("Darley") at
March 31, 1996 has been treated as an acquisition of a business and the acquired
assets and liabilities have been recorded upon adoption of IFRS and in these
consolidated financial statements of Ryanair Limited at their fair values. Under
IFRS, the assets acquired were recorded at their fair values and a fair value
adjustment of EUR844,915 arose. Under USGAAP, the assets are recorded at
historical cost which is fair value at acquisition date and are not subsequently
written up to fair value. Consequently, additional depreciation on the fair
value adjustment on the headquarters building under IFRS is not recorded.
(b) Net income under US GAAP
Year ended Year ended
March 31, March 31,
--------------- ---------------
2005 2006
EUR000 EUR000
Net income in accordance with IFRS
280,043 306,712
Adjustments:
Pensions.............................................................. (242) (430)
Share based payments.................................................. 488 2,921
Capitalized interest re aircraft acquisition program.................. 5,445 6,501
Darley Investments Limited............................................ 88 63
Taxation - effect of above adjustments................................ (2,408) (935)
---------------- -------------
Net income in accordance with US GAAP.................................... 283,414 314,832
================ =============
(c) Shareholders' equity
At March 31,
------------------------------
2005 2006
-------------- -----------
EUR000 EUR000
Shareholders' equity as reported in the Consolidated balance sheets and in
accordance IFRS
1,734,503 1,991,985
Adjustments:
Pensions................................................................ 11,998 9,240
Capitalized interest re aircraft acquisition program, net............... 22,947 29,448
Darley Investments Limited.............................................. (63) -
Minimum pension liability (net of tax)(i)............................... (6,496) (4,295)
Unrealized (losses) on derivative financial instruments (net of tax)(ii) (128,074) -
Tax effect of adjustments (excluding pension and derivative adjustments) (4,996) (5,931)
--------------- ------------
Shareholders' equity as adjusted in accordance with US GAAP............. 1,629,819 2,020,447
=============== ============
Opening shareholders' equity under US GAAP.............................. 1,356,281 1,629,819
Comprehensive Income
Minimum pension liability (net of tax).................................. (3,865) 2,201
Unrealized (losses)/gains on derivative financial instruments (net of
tax).................................................................... (11,393) 43,005
Net income in accordance with US GAAP................................... 283,414 314,832
--------------- ------------
Total comprehensive income.............................................. 268,156 360,038
--------------- ------------
Stock issued for cash................................................... 5,382 30,590
--------------- ------------
Closing shareholders' equity under US GAAP.............................. 1,629,819 2,020,447
=============== ============
(i) Minimum pension liability is stated net of tax of EUR614,000 (2005:
EUR928,000).
(ii) Unrealized losses on derivative financial instruments are net of tax
of EUR18.3m. No reconciling items arise in 2006 because the Group
adopted IAS39 with effect from April 1, 2005 which is similar to the
required derivative accounting under US GAAP.
F-49
(d) Total assets
At March 31,
--------------------------------
2005 2006
---------------- ------------
EUR000 EUR000
Total assets as reported in the Consolidated balance sheets and in
accordance with IFRS................................................ 3,818,153 4,634,219
Adjustments:
Pension......................................................... 11,998 9,240
Derivative instruments.......................................... 17,357 -
Darley Investments Limited...................................... (63) -
Capitalized interest re aircraft acquisition program ........... 22,947 29,448
---------------- ------------
Total assets as adjusted in accordance with U.S. GAAP........... 3,870,392 4,672,907
================= ============
(e) Cashflow
The IFRS and US GAAP cashflow statements are identical for both years with
the exception of capitalized interest, which would be required to be disclosed
as a non cash reconciling item within operating and investing activities of
EUR5.4m for 2005 and EUR6.5m for 2006 in the US GAAP cashflow.
F-50
(f) Income statement as presented under US GAAP
Year ended Year ended
March 31, March 31,
-------------- -------------
2005 2006
EUR000 EUR000
Operating revenues
Scheduled revenues....................................................... 1,128,116 1,433,377
Ancillary revenues....................................................... 190,921 259,153
-------------- --------------
Total operating revenues-continuing operations.............................. 1,319,037 1,692,530
-------------- --------------
Operating expenses
Staff costs.............................................................. (141,427) (168,921)
Depreciation............................................................. (112,757) (125,876)
Fuel & oil............................................................... (265,276) (462,466)
Maintenance, material & repairs.......................................... (26,280) (37,417)
Marketing & distribution costs........................................... (19,622) (13,912)
Aircraft rentals......................................................... (21,546) (47,376)
Route charges............................................................ (135,672) (164,577)
Airport & handling charges............................................... (178,384) (216,301)
Other.................................................................... (79,401) (79,555)
-------------- --------------
Total operating expenses.................................................... (980,365) (1,316,401)
-------------- --------------
Operating profit............................................................ 338,672 376,129
-------------- --------------
Other income/(expenses)
Foreign exchange (losses)................................................ (2,302) (1,234)
Gain on disposal of fixed assets......................................... 47 815
Finance income........................................................... 28,342 38,219
Finance expense.......................................................... (49,784) (65,986)
-------------- --------------
Total other income/(expenses)............................................... (23,697) (28,186)
-------------- --------------
Income before taxation...................................................... 314,975 347,943
Taxation................................................................. (31,561) (33,111)
-------------- --------------
Net income attributable to equity holders of parent......................... 283,414 314,832
============== ==============
Basic earnings per ADS (Euro cent)....................................... 186.48 205.28
Diluted earnings per ADS (Euro cent)..................................... 185.48 203.97
No. of ordinary shares (in '000's)*...................................... 759,911 766,833
Diluted no of ordinary shares (in '000's)................................ 764,003 771,781
============== ==============
*Five ordinary shares equal 1 ADS
F-51
(g) New US accounting pronouncements
IFRS as adopted by the EU differ in certain respects from US GAAP. The
following discussion considers the potential impact of recently issued US GAAP
accounting pronouncements on the financial statements of the Company.
Accounting Changes and Error Corrections
In May 2005 the FASB issued Statement of Financial Reporting No.154 ("SFAS
154") Accounting Changes and Error Corrections - a replacement of APB Opinion
No. 20 and FASB Statement No. 3. SFAS 154 replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in
Interim financial statements, and changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed.
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change.
When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balance
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement.
This Statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. Early adoption is
permitted for accounting changes and corrections of errors made in fiscal years
beginning after the date this Statement is issued. This Statement does not
change the transition provisions of any existing accounting pronouncements,
including those that are in a transition phase as of the effective date of this
Statement. The Group does not anticipate that the adoption of this statement
will have a material impact on its financial statements.
Share Based Payments
In December 2004, the FASB issued SFAS No. 123 "Share Based Payment"
("SFAS 123R"). This Statement replaces FASB Statement No. 123, "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No.25, "Accounting for
Stock Issued to Employees", and its related implementation guidance.
This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services".
This Statement requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). The cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award-the requisite service period (usually the
vesting period). No compensation cost is recognized for equity instruments for
which employees do not render the requisite service.
F-52
This Statement eliminates the alternative to use Opinion 25's intrinsic
value method of accounting that was provided in Statement 123 as originally
issued. Under Opinion 25, issuing stock options to employees generally resulted
in recognition of no compensation cost. This Statement is effective for public
entities as of the beginning of the first annual reporting period that begins
after June 15, 2005.
Under SFAS 123R, the Group must determine the appropriate fair value model
to be used for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used to date of adoption. The
transition methods include prospective and retroactive adoption options. Ryanair
has assessed the impact of applying this standard and details are set out in
note 27 (a) (ii)
Inventory Costs
The Financial Accounting Standards Board ("FASB") issued SFAS 151,
"Inventory Costs - an amendment of ARB No. 43, Chapter 4", in November 2004.
This standard amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing",
to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). Paragraph 5 or ARB 43,
Chapter 4, previously stated that "under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and re-handling costs may
be so abnormal as to require treatment as current period charges...".
This amendment removes the ambiguity and requires that all abnormal amounts
of idle facility expense, freight, re-handling costs, and wasted material
(spoilage) be treated as current period costs. In addition, this statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
The provisions of this Statement shall be effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Group does not
anticipate that adoption of SFAS 151 will have a material impact on its
financial statements.
Exchanges of Non-monetary Assets-an amendment of APB Opinion No.29
The FASB issued SFAS 153, "Exchange of Non-monetary Assets - an amendment
of APB Opinion No. 29" in December 2004. The guidance in APB Opinion No.29,
"Accounting for Non-monetary Transactions", is based on the principle that
exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29, to eliminate the
exception for non-monetary exchanges of similar productive assets and replaces
it with general exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of this statement are effective for non-monetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. The
Group does not anticipate that the adoption of SFAS 153 will have a material
impact on its financial statements.
F-53
Uncertain tax positions
In June 2006 the FASB issued FASB Interpretation No.48 "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No.109" ("FIN
48") - FIN 48 clarifies the accounting for uncertainity in income taxes by
prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The interpretation also provides guidance on
derecognition, classification, interest and penalties accounting in interim
periods and disclosure. FIN 48 is effective for fiscal years beginning after
December 15, 2006. We are in the process of evaluating the impact this FIN will
have on our consolidated financial statements.
Planned Major Maintenance Activities
On September 8, 2006, the FASB issued FASB Staff Position No. Aug Air-1
"Accounting for Planned Major Maintenance Activities". This amends the existing
major maintenance accounting guidance contained within the AICPA Industry Audit
Guide "Audits of Airlines" and prohibits the use of the accrue in advance method
of accounting for planned major maintenance activities for owned aircraft. The
provisions of the announcement are applicable for fiscal years beginning after
December 15, 2006, however are not expected to have a material impact on
Ryanair's consolidated financial statements.
Financial Statement Misstatements
The Securities and Exchange Commission issued Staff Accounting Bulletin No.
108 "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB108") which is designed
to address diversity in practice in quantifying financial statement
misstatements and their consequent impact and requires that certain qualitative
and quantitative factors must be considered in evaluating such misstatements.
SAB 108 is effective for annual financial statements ending after November 15,
2006. The Group is in the process of evaluating the impact this SAB will have on
its financial statements.
F-54