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As part of its Ex-Im Bank guarantee-based financing of the Boeing 737-800s, Ryanair has entered into certain lease agreements and related arrangements. Pursuant to these arrangements, legal title to the 210 aircraft delivered and remaining in the fleet as of March 31, 2014 rests with a number of United States special purpose vehicles (the ―SPVs‖). The SPVs are the borrowers of record under the loans made or to be made under the facilities, with all of their obligations under the loans being guaranteed by Ryanair Holdings.
These Aircraft are financed using a standard Ex-Im Bank ―orphan‖ ownership structure. The shares of the SPVs (which are owned by an unrelated charitable association and not by Ryanair) are in turn pledged to a security trustee in favor of Ex-Im Bank and the lenders. Ryanair operates each of the aircraft pursuant to a finance lease it has entered into with the SPVs, the terms of which mirror those of the relevant loans 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 IFRS.
Ryanair does not use 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. In addition to its purchase option under the finance lease, Ryanair is entitled to receive the balance of any proceeds received in respect of the aircraft that remain after Ex-Im Bank and the lenders are paid what they are owed under the loan guarantees.
Ryanair has a track record in securing finance for similar sized aircraft purchases. The 1998, 2002, 2003 and 2005 Boeing Contracts totaling 348 aircraft were financed with approximately 66% US Ex-Im Bank loan guarantees and capital markets (with 85% loan to value) financing, 24% through sale and operating leaseback financing, and 10% through Japanese operating leases with call options (―JOLCOs‖). See ―Item 5.
Operating and Financial Review and Prospects—Liquidity and Capital Resources.‖ Under the new Aviation Sector Understanding which came into effect from January 1, 2013, the fees payable to Ex-Im Bank for the provision of loan guarantees have significantly increased, thereby making it more expensive than more traditional forms of financing. As a result, Ryanair intends to finance the New Aircraft obtained under the 2013 Boeing Contract through a combination of internally generated cash flows, debt financing from commercial banks, debt financing through the capital markets in a secured and unsecured manner, commercial debt through JOLCOs and sale and operating leasebacks. These forms of financing are generally accepted in the aviation industry and are currently widely available for companies who have the credit quality of Ryanair. Ryanair may periodically use Ex-Im Bank loan guarantees when appropriate. Ryanair intends to finance pre-delivery payments (―Aircraft Deposits‖) to Boeing in respect of the New Aircraft via internally generated cash flows similar to all previous Aircraft Deposit payments.
At March 31, 2014, Ryanair had 51 operating lease aircraft in the fleet. As a result, Ryanair operates, but does not own, these aircraft, which were leased to provide flexibility for the aircraft delivery program.
Ryanair has no right or obligation to acquire these aircraft at the end of the relevant lease terms. 18 leases are denominated in euro and require Ryanair to make fixed rental payments over the term of the lease. The remaining 33 operating leases are U.S. dollar-denominated and require Ryanair to make fixed rental payments.
The Company has an option to extend the initial period of seven years on 34 of the 51 remaining operating lease aircraft as at March 31, 2014 on pre-determined terms. This includes 3 operating lease arrangements which are due to mature during the year ended March 31, 2015 but have been extended for a further 7 years. In addition to the above, the Company financed 30 of the Boeing 737-800 aircraft delivered between March 2005 and March 2014 with 13-year euro-denominated JOLCOs. These structures are accounted for as finance leases and are initially recorded at fair value in the Company‘s balance sheet. Under each of these contracts, Ryanair has a call option to purchase the aircraft at a pre-determined price after a period of 10.5 years, which it may exercise. Six aircraft have been financed through euro-denominated 12-year amortizing commercial debt transactions.
Since, under each of the Company‘s operating leases, the Company has a commitment to maintain the relevant aircraft, an accounting provision is made during the lease term for this obligation based on estimated future costs of major airframe, engine maintenance checks and restitution of major life limited parts by making appropriate charges to the income statement calculated by reference to the number of hours or cycles operated during the year. 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.
Ryanair recently obtained a BBB+ (stable) corporate rating from both Standard & Poor‘s and Fitch Ratings and established a €3 billion EMTN program. In June 2014, Ryanair issued €850.0 million in unsecured eurobonds with a 7 year tenor at a coupon of 1.875% under this program that are guaranteed by Ryanair Holdings. The Company intends to use the proceeds from this issuance for general corporate purposes, including the financing of aircraft.
Contractual Obligations. The table below 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, 2014. These obligations primarily relate to Ryanair‘s aircraft purchase and related financing obligations, which are described in more detail above, and do not reflect the €850.0 million in eurobonds issued in June 2014. For additional information on the Company‘s contractual obligations and commercial commitments, see Note 23 to the consolidated financial statements included in Item 18.
The amounts listed under ―Finance Lease Obligations‖ reflect the Company‘s obligations under its JOLCOs. 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 $1.3788 =€1.00 (based on the European Central Bank Rate on March 31, 2014). 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 described below. 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 2013 Boeing Contract, the Company was required to pay Boeing 1% of the Basic Price of each of the 175 firm-order Boeing 737-800 aircraft at the time the contract was signed in April 2013 (such deposit being fully refundable if the Company had not received the shareholder approval it received at an extraordinary general meeting on June 18, 2013), 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. 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. Similar terms applied under the 2005 Boeing contract, with the first payment due when the contract was signed in February 2005.
The amounts listed under ―Operating Lease Obligations‖ reflect the Company‘s obligations under its aircraft operating lease arrangements.
For additional information on Ryanair‘s long-term debt obligations, see Note 11 and Note 23 to the consolidated (a) financial statements included in Item 18.
These are noted at a non-discounted ―list‖ price.
(b) (c) In determining an appropriate methodology to estimate future interest payments we have applied either the applicable fixed rate or currently applicable variable rate where appropriate. These interest rates are subject to change and amounts actually due may be higher or lower than noted in the table above.
OFF-BALANCE SHEET TRANSACTIONS
Ryanair uses certain off-balance sheet arrangements in the ordinary course of business, including financial guarantees and operating lease commitments. 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.
Operating Lease Commitments. 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 €4,805.4 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. This amount excludes guarantees given in relation to the 2013 Boeing Contract which total approximately $14.1 billion at list prices and which became effective following Ryanair Holdings shareholder approval at an extraordinary general meeting on June 18, 2013. In addition, Ryanair Holdings guarantees the €850.0 million eurobond issuance in June 2014 (maturing in June 2021).
For information concerning the principal trends and uncertainties affecting the Company‘s results of operations and financial condition, see ―Item 3. Key Information—Risk Factors,‖ ―Item 5. Operating and Financial Review and Prospects—Business Overview,‖ ―—Results of Operations,‖ ―—Liquidity and Capital Resources‖ and ―Item 4. Information on the Company—Strategy—Responding to Current Challenges” above.
Inflation did not have a significant effect on the Company‘s results of operations and financial condition during the three fiscal years ended March 31, 2014.
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 directors and executive officers.
The following table sets forth certain information concerning the directors of Ryanair Holdings and
Ryanair as of July 25, 2014:
Name Age Positions David Bonderman (a)(b)
Michael Horgan (d)
Charles McCreevy (c)
Declan McKeon (c)
Kyran McLaughlin (a)(b)
Dick Milliken (c)
Michael O‘Leary (a)(b)(f)
Julie O‘Neill (e)
James Osborne (a)(e)
Louise Phelan (e)
(a) Member of the Executive Committee.
(b) Member of the Nomination Committee.
(c) Member of the Audit Committee.
(d) Member of the Air Safety Committee.
(e) Member of the Remuneration Committee.
(f) Mr. O‘Leary is also the chief executive officer of Ryanair Holdings and Ryanair. None of the other directors are executive officers of Ryanair Holdings or Ryanair.
David Bonderman (Chairman). David Bonderman has served as a director since August 1996 and has served as the chairman of the Board of Directors since December 1996. Mr. Bonderman also serves on the Boards of the following public companies: Caesars Entertainment Corporation and CoStar Group, Inc. He also serves on the Supervisory Board for VTB Bank. In addition, he serves on the Boards of The Wilderness Society, the Grand Canyon Trust, and the American Himalayan Foundation and is a U.S. citizen.
Michael Horgan (Director). Michael Horgan has served as a director since January 2001. A former Chief Pilot of Aer Lingus, he has acted 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 is the Chairman of the Company‘s Air Safety Committee and is an Irish citizen.
Charles McCreevy (Director). Charles McCreevy has served as a director since May 2010. Mr. McCreevy has previously served as EU Commissioner for Internal Markets and Services (2004-2010) and has held positions in several Irish Government Ministerial Offices, including Minister for Finance (1997-2004), Minister for Tourism & Trade (1993-1994) and Minister for Social Welfare (1992-1993) and is an Irish citizen.
Declan McKeon (Director). Declan McKeon has served as a director since May 2010. Mr. McKeon is a former audit partner of PricewaterhouseCoopers and continues to act as a consultant to PricewaterhouseCoopers. He is currently a director, chairman of the audit committee, and a member of the compensation committee of Icon plc and is an Irish citizen.
Kyran McLaughlin (Director). Kyran McLaughlin has served as a director since January 2001, and is also Deputy Chairman and Head of Capital Markets at Davy Stockbrokers. Mr. McLaughlin also advised Ryanair during its initial flotation on the Dublin and NASDAQ stock markets in 1997. Mr. McLaughlin also serves as a director of a number of other Irish private companies and is an Irish citizen.
R.A. (Dick) Milliken (Director). Dick Milliken has served as a director since July 2013. Mr. Milliken is a former CFO of the Almac Group and former CEO of Lamont plc. A qualified Chartered Accountant, Mr.