As filed with the Securities and Exchange Commission on September 29, 2004
================================================================================
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, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
American Depositary Shares, which registered
each representing five Ordinary Shares Nasdaq National Market
Ordinary Shares, par value
1.27 euro cent per Share Nasdaq National Market*
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.
759,271,140 Ordinary Shares
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 which financial statement item the registrant has
elected to follow.
Item 17 |_| Item 18 |X|
* Not for trading, but only in connection with the registration of the
American Depositary Shares.
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.....................................................................................6
SELECTED OPERATING AND OTHER DATA..................................................................8
RISK FACTORS.......................................................................................9
Item 4. Information on the Company.............................................................................22
INTRODUCTION......................................................................................22
STRATEGY..........................................................................................23
INDUSTRY OVERVIEW.................................................................................26
European Airline Market.......................................................................26
Ireland, U.K. and Continental European Market.................................................28
The Acquisition of Buzz.......................................................................29
ROUTE SYSTEM, SCHEDULING AND FARES................................................................30
Route System and Scheduling...................................................................30
Low and Widely-Available Fares................................................................35
MARKETING AND ADVERTISING.........................................................................35
RESERVATIONS/RYANAIR.COM..........................................................................35
AIRCRAFT..........................................................................................36
Aircraft......................................................................................36
Fleet Expansion...............................................................................37
Training and Regulatory Compliance............................................................38
ANCILLARY SERVICES................................................................................38
MAINTENANCE AND REPAIRS...........................................................................39
General.......................................................................................39
Heavy Maintenance.............................................................................40
SAFETY RECORD.....................................................................................41
AIRPORT OPERATIONS................................................................................42
Airport Handling Services.....................................................................42
Airport Charges...............................................................................42
FUEL..............................................................................................43
INSURANCE.........................................................................................44
FACILITIES........................................................................................46
TRADEMARKS........................................................................................47
GOVERNMENT REGULATION.............................................................................47
Liberalization of the EU Air Transportation Market............................................47
Regulatory Authorities........................................................................48
Registration of Aircraft......................................................................50
Regulation of Competition.....................................................................50
Environmental Regulation......................................................................51
Slots.........................................................................................52
Other.........................................................................................53
DESCRIPTION OF PROPERTY...........................................................................53
Item 5. Operating and Financial Review and Prospects...........................................................53
HISTORY...........................................................................................53
BUSINESS OVERVIEW.................................................................................54
RECENT OPERATING RESULTS..........................................................................55
CRITICAL ACCOUNTING POLICIES......................................................................56
RESULTS OF OPERATIONS.............................................................................57
FISCAL YEAR 2004 COMPARED WITH FISCAL YEAR 2003...................................................58
FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002...................................................62
QUARTERLY FLUCTUATIONS............................................................................66
U.S. GAAP RECONCILIATION..........................................................................66
RECENTLY ISSUED ACCOUNTING STANDARDS..............................................................66
LIQUIDITY AND CAPITAL RESOURCES...................................................................69
OFF-BALANCE SHEET TRANSACTIONS....................................................................75
TREND INFORMATION.................................................................................76
INFLATION.........................................................................................76
Item 6. Directors, Senior Management and Employees.............................................................76
DIRECTORS.........................................................................................76
Action and Powers of Board of Directors.......................................................79
Composition and Term of Office................................................................79
SENIOR MANAGEMENT.................................................................................81
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT...................................................82
Compensation..................................................................................82
Employment Agreements.........................................................................83
EMPLOYEES AND LABOR RELATIONS.....................................................................83
Item 7. Major Shareholders and Related Party Transactions......................................................87
DESCRIPTION OF CAPITAL STOCK......................................................................87
MAJOR SHAREHOLDERS................................................................................87
RELATED PARTY TRANSACTIONS........................................................................87
Item 8. Financial Information..................................................................................88
CONSOLIDATED FINANCIAL STATEMENTS.................................................................88
OTHER FINANCIAL INFORMATION.......................................................................88
Legal Proceedings.............................................................................88
Dividend Policy...............................................................................90
SIGNIFICANT CHANGES...............................................................................90
Item 9. The Offer and Listing..................................................................................90
TRADING MARKETS AND SHARE PRICES..................................................................90
Item 10. Additional Information................................................................................93
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................................93
MEMORANDUM AND ARTICLES OF ASSOCIATION............................................................94
MATERIAL CONTRACTS................................................................................96
EXCHANGE CONTROLS.................................................................................97
LIMITATIONS ON SHARE OWNERSHIP BY NON-EU NATIONALS................................................97
TAXATION..........................................................................................99
Irish Tax Considerations......................................................................99
United States Tax Considerations.............................................................102
DOCUMENTS ON DISPLAY.............................................................................104
Item 11. Quantitative and Qualitative Disclosures About Market Risk...........................................104
GENERAL..........................................................................................104
FUEL PRICE EXPOSURE AND HEDGING..................................................................105
FOREIGN CURRENCY EXPOSURE AND HEDGING............................................................106
INTEREST RATE EXPOSURE AND HEDGING...............................................................107
ii
Item 12. Description of Securities Other than Equity Securities...............................................109
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies......................................................109
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.........................109
Item 15. Controls and Procedures..............................................................................109
Item 16A. Audit Committee Financial Expert....................................................................109
Item 16B. Code of Ethics......................................................................................109
Item 16C. Principal Accountant Fees and Services..............................................................110
PART III
Item 17. Financial Statements.................................................................................110
Item 18. Financial Statements.................................................................................111
Item 19. Exhibits.............................................................................................111
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. POUND" and "U.K.
pence" are to the currency of 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. References to "Irish pounds" or
"IR POUND" are to the former currency of Ireland. Various amounts and
percentages set out in this Annual Report on Form 20-F (this "Report") 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.
The Company publishes its 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"). For a detailed discussion of the differences
between Irish GAAP and U.S. GAAP that affect the Company's Consolidated
Financial Statements, see Note 31 to the Consolidated Financial Statements
included in Item 18.
The company publishes its 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 EUR 1.00=$1.2292 or
$1.00=EUR 0.8135, 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, 2004. The Noon Buying Rate for
euro on September 15, 2004 was EUR 1.00=$1.214 or $1.00=EUR 0.824. See "Item 3.
Key Information-Exchange Rates" for information regarding rates of exchange
between the euro and the U.S. dollar, between the U.K. pound sterling and the
euro and between the U.K. pound sterling and the U.S. dollar from 1999 to the
present, 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 of exchange rates on the Company.
Prior to March 31, 2000, the reporting currency of the Company was Irish
pounds. To facilitate a comparison, Irish pound-denominated financial data for
periods prior to March 31, 2000 included in this Report have been restated from
Irish pounds to euro at the fixed rate of IR POUND 0.787564=EUR 1.00 set by the
European Central Bank as of December 31, 1998. The comparative balances for
prior years now reported in euro depict the same trends as would have been
presented had the Company continued to report such amounts in Irish pounds. The
Company's financial data for periods prior to March 31, 2000 may not be
comparable to that of other companies reporting in euro if those companies had
restated from a reporting currency other than Irish pounds, due to the fact that
prior to the adoption of the euro the currencies of the other euro area
countries fluctuated against the Irish pound.
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 and Section
21E of the U.S. Securities Exchange Act of 1934. 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 U.S. Securities and Exchange Commission 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 the provision of
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, costs associated with
environmental, safety and security measures, 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), Shannon, London (Luton), Glasgow (Prestwick), Brussels (Charleroi),
Frankfurt (Hahn), Milan (Bergamo), Stockholm (Skavsta), Barcelona (Girona) and
Rome (Ciampino) airports, which together are referred to as "Ryanair's bases of
operations" or "Ryanair's bases." In operation since 1985, Ryanair began to
introduce a low cost operating model under a new management team in the early
1990s. The Company offers over 500 scheduled short-haul flights per day serving
24 locations in the U.K. and Ireland and 64 locations in continental Europe,
with an operating fleet of 76 aircraft flying a total of 161 routes.
A detailed description of the Company's business can be found in "Item 4.
Information on the Company.
SELECTED FINANCIAL DATA
On January 1, 1999, the euro was introduced as the common legal currency of
then eleven of the Member States of the EU, including Ireland. The Company has
adopted the euro as its reporting currency in the Consolidated Financial
Statements included in Item 18 and all Irish pound-denominated financial data
for periods prior to March 31, 2000 included in this Report have been restated
from Irish pounds to euro at the fixed rate of IR POUND 0.787564=EUR 1.00 set by
the European Central Bank as of December 31, 1998. The comparative balances for
prior years now reported in euro depict the same trends as would have been
presented had the Company continued to report such amounts in Irish pounds.
However, they may not be directly comparable to the financial statements of
other companies that have been restated in euro if those companies had restated
from a reporting currency other than Irish pounds, due to the fact that prior to
the adoption of the euro, the currencies of euro-area countries fluctuated
against the Irish pound.
The following tables set forth certain of the Company's selected
consolidated financial information 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,
Irish GAAP 2004 (a) 2004 2003 2002 2001 2000
(in thousands, except per Ordinary Share and per ADS data)
Total operating revenues......... $1,320,436 EUR 1,074,224 EUR 842,508 EUR 624,050 EUR 487,405 EUR 370,137
Total operating expenses......... (1,011,554) (822,937) (579,034) (461,117) (373,394) (286,082)
Operating income before goodwill
amortization.................. 308,882 251,287 263,474 162,933 114,011 84,055
Goodwill amortization............ (2,879) (2,342) - - - -
Operating income after goodwill
amortization.................. 306,003 248,945 263,474 162,933 114,011 84,055
Net interest (expense) income.... (29,098) (23,673) 477 7,939 7,704 3,717
Other non-operating income ...... 3,943 3,208 599 1,502 1,673 2,322
Profit before taxation........... 280,848 228,480 264,550 172,374 123,388 90,094
Taxation......................... (26,881) (21,869) (25,152) (21,999) (18,905) (17,576)
Profit after taxation............ $253,967 EUR 206,611 EUR 239,398 EUR 150,375 EUR 104,483 EUR 72,518
Ryanair Holdings basic earnings
per Ordinary Share
(U.S. cents)/(euro cent) (b).. 33.53 27.28 31.71 20.64 14.81 10.81
Ryanair Holdings diluted
earnings per Ordinary Share
(U.S. cents)/(euro cent)...... 33.20 27.00 31.24 20.32 14.63 10.74
Ryanair Holdings basic earnings
per ADS (U.S. cents)/(euro
cent)(c)...................... 167.66 136.40 158.55 103.20 74.05 54.05
See notes on page 5.
2
Profit and Loss Account Data:
Fiscal Year ended
March 31,
U.S. GAAP 2004(a) 2004 2003 2002 2001 2000
(in thousands, except per Ordinary Share and per ADS data)
Total operating revenues...... $1,320,436 EUR 1,074,224 EUR 842,508 EUR 624,050 EUR 487,405 EUR 370,137
Total operating expenses...... (1,011,336) (822,760) (577,780) (459,814) (370,455) (283,915)
Operating income.............. 309,100 251,464 264,728 164,236 116,950 86,222
Net interest(expense) income.. (20,232) (16,460) 5,739 12,966 7,704 3,717
Other non-operating income
(expenses)................. 3,943 3,208 (3,590) 1,502 8,476 (1,433)
Income before taxation........ 292,811 238,212 266,877 178,704 133,130 88,506
Taxation...................... (28,004) (22,782) (25,067) (23,155) (20,742) (16,640)
Net income.................... $264,807 EUR 215,430 EUR 241,810 EUR 155,549 EUR 112,388 EUR 71,866
Basic earnings per Ordinary Share
(U.S. cents)/(euro cent) (b)... 34 28 32 21 15 11
Diluted earnings per Ordinary
Share (U.S. cents)/(euro
cent)(b)................... 34 28 31 20 15 11
Net income per ADS
(U.S. cents)/(euro cent) (c).. 175 142 160 103 74 55
See notes on page 5.
3
Balance Sheet Data:
As of March 31,
Irish GAAP 2004(a) 2004 2003 2002 2001 2000
(in thousands)
Cash at bank and liquid resources. $1,545,535 EUR 1,257,350 EUR 1,060,218 EUR 899,275 EUR 626,720 EUR 355,248
Total assets.................. 3,612,616 2,938,998 2,466,707 1,889,572 1,277,252 712,701
Long-term debt, including capital
lease obligations............... 1,171,405 952,982 837,225 550,503 402,750 121,979
Shareholders' equity.............. 1,788,840 1,455,288 1,241,728 1,002,274 669,898 441,357
As of March 31,
U.S. GAAP 2004(a) 2004 2003 2002 2001 2000
(in thousands)
Cash and cash equivalents......... $915,268 EUR 744,605 EUR 537,476 EUR 482,492 EUR 389,059 EUR 121,430
Total assets...................... 3,640,757 2,961,892 2,479,868 1,896,686 1,279,088 713,399
Long-term debt, including capital
lease obligations............... 1,171,404 952,981 837,225 550,503 402,750 121,979
Shareholders' equity.............. 1,667,141 1,356,281 1,177,187 1,019,607 674,386 439,340
See notes on page 5.
4
Cash Flow Statement Data:
As of March 31,
Irish GAAP 2004(a) 2004 2003 2002 2001 2000
(in thousands)
Net cash inflow from operating
activities.......................... $567,966 EUR 462,062 EUR 351,003 EUR 309,109 EUR 229,802 EUR 149,575
Net cash (outflow)/inflow from returns
on .investment and servicing of finance (24,969) (20,313) 608 10,360 5,569 1,953
Taxation............................... (2,527) (2,056) (3,410) (5,071) (13,813) (15,545)
Net cash (outflow) from capital
expenditure......................... (407,601) (331,599) (469,847) (372,024) (356,213) (154,079)
Net cash (outflow) from acquisition of
subsidiary undertakings................ (40,190) (32,696) - - - -
Net cash inflow/(outflow) before
financing and management of liquid resources 92,679 75,398 (121,646) (57,626) (134,655) (18,096)
Net cash (outflow)/inflow from
financing and management of liquid resources (155,512) (126,515) 120,449 78,513 174,196 18,752
(Decrease)/increase in cash............ ($62,833)(EUR 51,117) (EUR 1,197) EUR 20,887 EUR 39,541 EUR 656
As of March 31,
U.S. GAAP 2004(a) 2004 2003 2002 2001 2000
(in thousands)
Net cash inflow from operating
activities.......................... $540,472 EUR 439,694 EUR 348,200 EUR 314,398 EUR 221,558 EUR 135,983
Net cash (outflow) from investing
activities.......................... (435,504) (354,299) (575,806) (551,146) (360,056) (327,006)
Net cash inflow from financing......... 149,635 121,734 282,590 330,181 406,127 214,749
Increase in cash and cash equivalents.. 254,603 207,129 54,984 93,433 267,629 23,726
Cash and cash equivalents at beginning
of ................................year 660,665 537,476 482,492 389,059 121,430 97,704
Cash and cash equivalents at end of
the year............................ $915,268 EUR 744,605 EUR 537,476 EUR 482,492 EUR 389,059 EUR 121,430
(a) Dollar amounts are translated from euro solely for convenience at the Noon
Buying Rate on March 31, 2004 of EUR 1.00=$1.2292 or $1.00=EUR 0.8135.
(b) Earnings per share and net income per share data have been adjusted to give
effect to the two-for-one stock splits effected in February 2000 and
December 2001 and those shares issued in connection with the stock
offerings conducted outside the United States in accordance with Regulation
S under the Securities Act (the "Regulation S Offerings") in March 2000,
February 2001 and February 2002.
(c) Represents earnings per Ordinary Share or net income per Ordinary Share
multiplied by five.
5
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 EUR 1.00 (1)
End of
Year ended December 31, period Average(2) Low High
1999................................................................ 1.007 1.059 - -
2000................................................................ 0.939 0.920 - -
2001................................................................ 0.882 0.892 - -
2002................................................................ 1.050 0.946 - -
2003................................................................ 1.260 1.141 - -
Month ended
March 31, 2004..................................................... - - 1.209 1.243
April 30, 2004..................................................... - - 1.180 1.236
May 31, 2004....................................................... - - 1.180 1.227
June 30, 2004...................................................... - - 1.201 1.232
July 31, 2004...................................................... - - 1.203 1.244
August 31, 2004.................................................... - - 1.203 1.237
September 15, 2004................................................. - - 1.205 1.228
U.K. pounds sterling per EUR 1.00 (3)
End of
Year ended December 31, period Average(2) Low High
1999................................................................ 0.622 0.656 - -
2000................................................................ 0.630 0.609 - -
2001................................................................ 0.611 0.620 - -
2002................................................................ 0.652 0.629 - -
2003................................................................ 0.706 0.694 - -
Month ended
March 31, 2004...................................................... - - 0.664 0.682
April 30, 2004...................................................... - - 0.657 0.674
May 31, 2004........................................................ - - 0.665 0.680
June 30, 2004....................................................... - - 0.657 0.670
July 31, 2004....................................................... - - 0.660 0.673
August 31, 2004..................................................... - - 0.658 0.677
September 15, 2004.................................................. - - 0.678 0.684
6
U.K. pounds sterling per US$1.00(4)
End of
Year ended December 31, period Average(2) Low High
1999..................................................................... 0.619 0.619 - -
2000..................................................................... 0.667 0.662 - -
2001..................................................................... 0.688 0.695 - -
2002..................................................................... 0.621 0.666 - -
2003..................................................................... 0.560 0.608 - -
Month ended
March 31, 2004....................................................... - - 0. 535 0. 556
April 30, 2004....................................................... - - 0. 539 0. 566
May 31, 2004......................................................... - - 0. 545 0. 570
June 30, 2004........................................................ - - 0. 542 0. 553
July 31, 2004........................................................ - - 0. 534 0. 551
August 31, 2004...................................................... - - 0.542 0.558
September 15, 2004................................................... - - 0.556 0.564
(1) Based on the Noon Buying Rate for euro, and, for periods prior to January
1, 1999, the Noon Buying Rate for Irish pounds, calculated on the basis of
the fixed exchange rate of EUR 1.00=IR POUND 0.787564, as established by
the European Central Bank.
(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, 2004, the exchange rate between the U.S. dollar and the
euro was EUR 1.00=$1.214, or $1.00=EUR 0.824 the exchange rate between the U.K.
pound sterling and the euro was U.K. POUND 1.00=EUR 1.463, or EUR 1.00=U.K.
POUND 0.684; and the exchange rate between the U.K. pound sterling and the U.S.
dollar was U.K. POUND 1.00=$1.777, or $1.00=U.K. POUND 0.563. The fixed exchange
rate between the Irish pound and the euro, as established by the European
Central Bank, is EUR 1.00=IR POUND 0.787564. 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."
7
SELECTED OPERATING AND OTHER DATA
The following table sets forth certain operating data of Ryanair for each
of the fiscal years ended March 31, 2000, 2001, 2002, 2003 and 2004. Such data
are derived from the Consolidated Financial Statements prepared in accordance
with Irish GAAP (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 31 to the Consolidated Financial Statements included in Item 18 for a
detailed discussion of the principal differences between Irish GAAP and U.S.
GAAP.
Fiscal Year ended March 31,
Operating Data: 2004 2003 2002 2001 2000
Irish GAAP and U.S. GAAP................
Average Yield per RPM (EUR)............... 0.089 0.108 0.122 0.139 0.157
Average Yield per ASM (EUR)............... 0.066 0.084 0.091 0.098 0.106
Average Passenger Spend per Flight (EUR).. 3.070 3.518 3.630 3.600 3.910
Average Fuel Cost per U.S. Gallon (EUR)... 0.816 0.930 1.007 0.750 0.630
Irish GAAP..............................
Cost per ASM (CASM) (EUR)(a).............. 0.055 0.062 0.071 0.079 0.085
Operating Margin........................ 23% 31% 26% 23% 23%
U.S. GAAP...............................
Cost per ASM (CASM) (EUR)(a).............. 0.055 0.061 0.071 0.078 0.085
Operating Margin........................ 23% 31% 26% 24% 23%
Other Data: (Irish GAAP, except where
described as U.S. GAAP)
Revenue Passengers Booked............... 23,132,936 15,736,936 11,091,066 8,051,633 N/A
Revenue Passengers Flown 21,244,130 14,427,329 10,202,193 7,434,640 5,501,272
Revenue Passenger Miles (RPMs).......... 10,425,878,625 6,781,128,672 4,505,861,947 3,118,098,414 2,103,848,249
Available Seat Miles (ASMs)............. 13,996,127,688 8,744,373,118 6,081,007,925 4,439,036,540 3,126,069,535
Flown Passenger Load Factor............. 74% 78% 74% 70% 67%
Booked Passenger Load Factor 81% 85% 81% 77% N/A
Break-even Load Factor (a).............. 62% 57% 58% 57% 54%
Break-even Load Factor (U.S. GAAP) (a).. 62% 57% 58% 56% 54%
Average Length of Passenger Haul
(miles)............................... 491 473 442 419 382
Sectors Flown........................... 171,726 115,325 90,124 72,655 59,140
Average Flown Passenger Fare (EUR)........ 43.52 50.73 54.01 58.23 60.09
Average Booked Passenger Fare (EUR)....... 39.97 46.51 49.68 53.77 N/A
Number of Airports Served at Period End. 84 62 52 45 35
Average Daily Flight Hour Utilization
---------------------------------------
(hours)................................. 8.37 8.02 7.28 6.82 6.37
Employees at Period End................. 2,302 1,897 1,531 1,476 1,388
Employees per Aircraft at Period End ... 32 35 37 41 53
Booked Passengers per Employee at
Period End.............................. 10,049 8,296 7,244 5,455 N/A
(a) For the purposes of calculating Cost per ASM, and Break-Even Load Factor,
costs include the costs of Ryanair's charter operations (excluding
non-charter ancillary costs) but not the revenues or seat miles of such
charter operations.
8
RISK FACTORS
Risks Related to the Company
Changes in Fuel Costs and Fuel Availability Affect the Company's Results
Jet fuel costs have been subject to wide fluctuations as a result of
increases in demand, sudden disruptions in and other concerns about global
supply, as well as market speculation. As a result, prices continue to exhibit
substantial volatility. Both the cost and availability of fuel are subject to
many economic and political factors and events occurring throughout the world
that Ryanair can neither control nor accurately predict. 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, higher fuel prices or a curtailment of scheduled
services could result.
While Ryanair has in the past 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 months, the Company
has not entered into any such arrangements beyond October 2004, when its current
contracts expire. Ryanair does not expect to enter into new arrangements until
it believes forward prices have returned to more favorable levels. 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 high levels any time in the near
future. Ryanair has not otherwise entered into agreements to guarantee its
supply of fuel. See "Item 11. Quantitative and Qualitative Disclosures About
Market Risk-Fuel Price Exposure and Hedging."
As a result of Ryanair's decision not to enter into new hedging
arrangements, the Company will be more exposed to risks arising from
fluctuations in the price of fuel, especially in light of recent significant
increases. In the quarter ended June 30, 2004, one gallon of jet fuel cost on
average 0.91 U.S. cents per gallon, an increase of 9.6 % as compared to 0.83
U.S. cents per gallon in the comparable period in 2003. Based upon Ryanair's
fuel consumption for the fiscal year ended March 31, 2004, a change of one U.S.
cent in the average annual price per gallon of aviation fuel would have caused a
change of approximately EUR 2 million in the Company's annual fuel costs.
Ryanair's fuel costs in the fiscal year ended March 31, 2004, after giving
effect to the Company's fuel hedging activities, increased by approximately 36%
over the comparable period ended March 31, 2003, to EUR 175.0 million, primarily
due to 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 the cost
per gallon of the strengthening of the euro against the dollar. Ryanair
estimates that its fuel cost would have been approximately EUR 194.3 million in
fiscal year 2004, compared to EUR 171.3 million (excluding de-icing costs of EUR
3.7 million in each case) 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 may be 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.
In addition, of Ryanair's total operating fleet of 76 aircraft, 13 are
Boeing 737-200As which are generally less fuel efficient than newer aircraft
used by many of Ryanair's competitors. A significant increase in the price of
jet fuel would therefore result in a higher percentage increase in Ryanair's
average overall operating costs than those of its competitors that use more fuel
efficient aircraft. See "Item 4. Information on the Company--Fuel."
9
The Company's Legal Dispute Regarding Fuel Levies at Stansted Airport Could
Result in Increased Costs
In July 2004, Ryanair commenced an action in the High Court of England and
Wales (Chancery Division) against BAA plc and Stansted Airport Limited (together
"BAA"), the companies that operate London's Heathrow, Gatwick and Stansted
Airports, on several grounds, including abuse of dominant position and
overcharging, in connection with a fuel levy that BAA has unilaterally imposed
on Ryanair and other airlines at London (Stansted). BAA responded by filing a
separate action against Ryanair alleging that Ryanair has repudiated its
contract with BAA and seeking payment of fuel levies withheld by Ryanair as a
result of the fuel levy dispute in an amount of approximately EUR 1.5 million
(or roughly 3% of the total aeronautical charges that Ryanair paid BAA during
fiscal 2004). BAA further claims that it is now no longer bound by its contract
with Ryanair in relation to airport charges and that it can instead charge
Ryanair the published airport tariffs at London (Stansted), as opposed to the
lower amounts charged under the contract. See "Item 8. Financial
Information--Other Financial Information--Legal Proceedings" for additional
details on this matter.
While the Company believes that its contract with BAA remains valid,
Ryanair cannot predict the final outcome of these actions, and does not expect
any final decision to be rendered in the near term. However, should the courts
declare Ryanair's contract with BAA is no longer binding, the Company would
likely face materially increased costs at London (Stansted), its principal base,
or could be forced to cut back its London (Stansted) operations. See also
"--Ryanair's Continued Growth Is Dependent on Access to Suitable Airports"
below. Flights to or from London (Stansted) accounted for approximately 61% of
the Company's passenger volumes in fiscal 2004.
The Company Could Incur Significant Additional Costs Arising from Legal
Proceedings Alleging Unlawful State Aid at Brussels Charleroi and Certain Other
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 found that a portion of the
Company's arrangements between Ryanair, the airport and the region constituted
illegal state aid, and therefore 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. No assurance can be given that
this appeal will be successful. In addition, in April 2004, the Walloon Region
wrote to Ryanair requesting repayment of all deemed illegal state aid, 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
Commission's decision. In September 2004, the Walloon Region issued a formal
demand that Ryanair repay a total of approximately EUR 4 million, excluding any
interest that may be due. Ryanair believes that no repayment is due when such
offsets are taken into account.
In an unrelated, though similar, matter, in July 2003, a Strasbourg
court ruled (on the basis of a complaint by 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 has been upheld by one appeals court. Ryanair has appealed this decision to
a higher court on the basis that the marketing support granted was not state
aid; however, pending the outcome of this appeal, Ryanair decided to close the
Strasbourg route and has instead opened a route from Baden-Karlsruhe in Germany
to London (Stansted) (Baden airport is located some 40 kilometres from
Strasbourg). Ryanair has confirmed that it will reopen the route if its appeal
is successful, although no assurance can be given that Ryanair will in fact
prevail.
10
Ryanair is facing similar legal challenges by competitors with respect
to its agreements with Pau Airport in southern France and Palermo Airport in
Sicily. These actions are currently pending before local courts and are unlikely
to be resolved in the near future.
The 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. For additional details on
these matters, please see "Item 8. Financial Information--Other Financial
Information--Legal Proceedings."
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. In addition, unlike Ryanair, certain of
Ryanair's principal actual 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--Regulation of Competition."
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 a 54% increase in the
Company's capacity during the 2004 fiscal year, in turn have resulted in the
Company's average revenue per passenger, or yield, declining by approximately
14% compared to fiscal 2003, which in turn led to the Company's posting a
quarterly loss of EUR 3.3 million in the fourth quarter of fiscal 2004, its
first quarterly loss since its initial public offering in June 1997. The Company
expects this price competition, and the resulting downward pressure on yields,
to continue to intensify through the second half of the current 2005 fiscal
year, particularly during the winter period, as loss-making carriers reduce
their fares in order to attract business and generate needed revenues and cash
flow in an industry characterized by rising losses.
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.
Furthermore, if Ryanair were to achieve a dominant position on any route it
operates, it would be prevented by EU competition law from setting fares at a
level below the cost of providing the relevant service.
11
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 currently provides service on 161 routes to/from the U.K. and
in continental Europe, and has also increased the frequency of service on a
number of its principal routes. The new routes and expanded service are expected
to increase Ryanair's scheduled passenger volumes in fiscal year 2005 to
approximately 27.5 million passengers, an increase of approximately 19% over
current levels of 23.1 million passengers, although no assurance can be given
that these targets will in fact be met.
Taking into account the retirement of certain of Ryanair's Boeing
737-200As and the expected termination of aircraft leases, Ryanair expects to
have at least 87 aircraft in its fleet by April 2005. Over the period through
2008, the Company expects to take delivery of an additional 98 Boeing 737-800
aircraft which it is obligated to purchase under existing contracts with The
Boeing Company ("Boeing"). These deliveries, net of further scheduled
retirements and lease terminations, are expected to increase the size of the
Company's fleet to 155 aircraft by December 2008. Ryanair may elect to enlarge
its fleet further by exercising any of the 123 options to purchase new aircraft
it currently has under its agreements with Boeing. For additional information on
the Company's aircraft and their delivery dates, 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 the 98 firm order aircraft expected to be
delivered from October 2004 through December 2008 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 Transit 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 14 of the 98 firm order aircraft,
anticipates obtaining a preliminary financing commitment for a further 29
aircraft by the end of October 2004, and is assessing 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."
12
The Company's Rapid Growth May Expose It To Risks
Ryanair's operations have grown rapidly since it introduced a low cost
operating model in the early 1990s. In recent years, Ryanair has expanded its
fleet, added new destinations and flights to its schedule and established
several new bases of operations, bringing its total to 11, while almost
quadrupling the number of passengers flown from 5.5 million to 23.1 million and
increasing the number of people it employs by approximately 65%. Ryanair intends
to continue to expand its fleet (which is scheduled to increase to a minimum of
155 aircraft by December 2008) and add new destinations and additional flights
to its schedule. 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 both its current aircraft
acquisition-related debt obligations and a portion of the substantial debt
obligations it expects to incur in the future as it expands its fleet. 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
between the U.K., Ireland and continental Europe. See "Item 4. Information on
the Company-Industry Overview--Ireland, U.K. and Continental European Market."
Ryanair expects to face more intense competition in these markets, and there can
be no assurance that Ryanair's low-fares service will be accepted on new routes.
When Ryanair commences new routes, its load factors 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. 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 as additional aircraft or replacement aircraft are bought to
service new routes and increase flight frequencies on existing routes, including
the substantial cash commitments related to the acquisition of the new fleet of
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.
13
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 16 of the airports Ryanair serves,
including its bases at London (Stansted), Milan (Bergamo), Barcelona (Girona)
and Rome (Ciampino), is currently regulated through slot allocations. 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. See "Item 4. Information
on the Company--Airport Operations--Airport Charges." 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.
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.
Although Ryanair currently consults with groups of employees,
including its pilots, through "Employee Representation Committees," regarding
work practices and conditions of employment, it does not conduct formal binding
negotiations with collective bargaining units, as is the case at many other
airlines. Ryanair considers its relationship with its employees to be good,
although the Company has in the past experienced industrial actions or work
stoppages by certain groups of its employees. In addition, in the United
Kingdom, the British Airline Pilots Association ("BALPA") unsuccessfully sought
to represent Ryanair's U.K. based pilots in their negotiations with the Company.
However, under U.K. employment law, BALPA can request that a new ballot on
representation be undertaken among Ryanair's U.K. pilot body in October 2004 or
thereafter, which if successful would allow the U.K. pilots to be represented by
BALPA in negotiations over pilot salaries and working conditions. The Company
could also potentially be exposed to claims arising from former employees of KLM
UK Limited employed by Buzz Stansted Limited ("Buzz Stansted"), a subsidiary of
Ryanair Limited, following Buzz Stansted's April 2003 acquisition of certain
assets of KLM UK Limited if, pursuant to U.K. legislation, a "transfer of
undertaking" is found to have occurred as part of the acquisition. For
additional details on these matters, see "Item 6. Directors, Senior Management
and Employees-Employees and Labor Relations."
14
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.
The Company Is Dependent on the Ireland-U.K. Market
For the fiscal years ended March 31, 2003 and 2004, passengers on Ryanair's
routes between Ireland and the U.K. accounted for 35.9% and 28.6% of total
passenger revenues respectively, with Dublin and London accounting for
approximately 13.4% and 10.7%, respectively, of total passenger revenues, and
the Dublin-London (Stansted) route alone accounting for approximately 7.6% and
6.0%, respectively, of such total. Ryanair's business would be adversely
affected by any circumstance causing a reduction in general demand for air
transportation services in Ireland or the U.K., including, but not limited to,
adverse changes in local economic conditions, political disruptions or violence
(including terrorism) or significant price increases linked to increases in
airport access costs or taxes imposed on air passengers. In addition, so long as
the Company's operations remain dependent on routes between Ireland and the
U.K., the Company's future operations and growth will be adversely affected if
this market does not grow and if there is increased competition in this market.
See "Item 4. Information on the Company-Industry Overview-Ireland-U.K. Market."
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/JAR 145, the European airline industry standard for
maintenance. The Company also contracts its ticketing, 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."
Ryanair has recently terminated one of its engine repair and overhaul
maintenance contracts and is in the process of negotiating a replacement. In
addition, the Company's heavy maintenance agreement expires in January 2005. Any
inability to successfully negotiate replacement contracts, 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
agreement with Mr. O'Leary and its employment agreements with 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.
15
The Company May Face Increased Costs In Connection with Buzz Stansted
On April 10, 2003, Buzz Stansted, then a newly formed 100% subsidiary of
Ryanair Limited, purchased certain assets from KLM UK Limited for EUR 20.8
million. See "Item 4. Information on the Company--Acquisition of Buzz." As part
of the transaction, Buzz Stansted agreed to take over the leases on six Boeing
737-300s that Buzz Stansted is currently operating on a sub-service basis on
Ryanair's route network.
The monthly payments due the lessor, International Lease Finance
Corporation ("ILFC"), on these leases were substantially higher than the market
rates for leases on similar aircraft, leading Buzz Stansted to incur operating
losses and therefore to seek to renegotiate or terminate these leases. On August
6, 2004, Buzz Stansted finalized an agreement with ILFC for the early return of
the aircraft by the end of October 2004. The commercial terms of the agreement
include a settlement in relation to the maintenance return conditions of the
aircraft.
As a result of the return of the aircraft to ILFC, Buzz Stansted intends to
cease operations. Ryanair plans to utilize aircraft from its existing fleet and
those acquired under its fleet delivery program to service those routes
previously operated by Buzz Stansted. A number of employees of Buzz Stansted,
consisting almost entirely of pilots, have individually applied for positions
with a third-party firm which has an agreement to provide contract pilots to
Ryanair. Ryanair could also be exposed to costs associated with the cessation of
operations by Buzz Stansted, including, but not limited to, claims arising from
any redundancy of the remaining Buzz Stansted employees.
Ryanair is Subject to Aircraft Maintenance Requirements and the Risks of
Aircraft Reliability
As 13 out of Ryanair's operating fleet of 76 aircraft are 737-200As
manufactured between 1980 and 1983, it is likely that they will require greater
maintenance expenditures than would a newer fleet. The average age of Ryanair's
fleet of owned 737-200A aircraft at March 31, 2004 was approximately 23 years.
The Company plans to retire these 13 737-200A aircraft between September 2004
and December 2005 and replace them with new 737-800 aircraft. In general, the
cost of maintaining or operating aging aircraft exceeds that of maintaining or
operating newer aircraft. In addition, there can be no assurance that Ryanair's
new 737-800 aircraft will not cause the Company to incur significant maintenance
or other operating costs. 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 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. See "Item 4. Information on the
Company-Maintenance and Repairs."
The Company Faces Risks Related to Its Internet Reservations Operations
As of August 2004, in excess of 96% 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 two separate locations,
each of these locations accesses the same Open Skies booking engine, located at
the single center, in order to make reservations. Although there are backup
procedures at one of these locations, there can be no assurance that Ryanair
would not suffer a significant loss of reservations in the event of a breakdown
of such system, which in turn could have a material adverse affect on the
Company's financial condition or results of operations.
16
Risks Related to the Airline Industry
Pending EU Regulations on Denied Boarding Compensation for Passengers Could
Significantly Increase Related Costs
The European Union 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 comes 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
("ATC") delays or safety issues. The regulation calls for compensation of either
EUR 250, EUR 400 or EUR 600 per passenger, depending on the length of the
flight. As Ryanair's average flight duration is less than 1,500 km and therefore
considered a short-haul flight, the amount payable would therefore generally be
EUR 250 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. Ryanair does not currently
offer any such compensation or other benefits to its passengers as part of its
low-fares service.
The European Low Fares Airline Association (ELFAA), of which Ryanair is a
member, has sought and received from the U.K. High Court a reference to the
European Court of Justice challenging the validity of this regulation, on the
basis that the legislation is unfair and does not benefit consumers. ELFAA has
also argued that the regulation is anti-competitive as it does not apply to
other competing modes of transport, such as trains, ferries and bus coaches. The
U.K. High Court has requested the European Court to expedite the hearing of this
case given the "existence of a significant risk that airlines will suffer
serious damage following the coming into force of the Regulation".
Although Ryanair does not overbook its flights as a general rule (and
therefore generally does not need to deny boarding to "bumped" passengers) and
has one of the best on-time and completed flights records of major European
carriers, there can be no assurance that this legislation (if not successfully
challenged in the European courts) would not cause the Company to incur
significant costs in connection with denied boarding compensation, compensation
for certain cancellations or the provision of "assistance" to delayed or
cancelled passengers, which could have a material adverse effect on the
Company's operating costs and in turn reduce its profitability.
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 EUR 835) 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 EUR 14) per kilo of checked hold baggage.
17
Although Ryanair has a record for losing fewer bags in comparison to the
major European carriers, 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 recently advised the Company that they intend to narrow the scope of the
Company's current act of war-related insurance coverage to exclude certain types
of catastrophic incidents, such as biological, chemical or "dirty bomb" attacks,
which could lead to further increases in costs if the Company is forced to seek
additional coverage. 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 terrorist attacks,
the number of flight bookings had returned to normal levels by the end of
September 2001. Nonetheless, 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 particularly in Europe, any
significant new military actions by the U.S. and any allies (such as the spring
2003 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.
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." 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.
18
EU Regulation No. 2027/97, as amended by Regulation 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. The
potential exposure of air carriers, such as Ryanair, has therefore been
increased 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."
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.
19
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 costs and some maintenance
and insurance 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 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 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
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 (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. EU
Regulation 2407/92 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 Regulation 2407/92. The Permitted Maximum is
currently set at 49.9%.
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 Director or change the Chairman of the
Board, (ii) identify 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 (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.
20
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
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.
As of June 30, 2004, EU nationals owned at least 54.6% of Ryanair Holdings'
Ordinary Shares (assuming conversion of all outstanding ADSs into Ordinary
Shares). Ryanair Holdings continues to monitor the EU national ownership status
of its Ordinary Shares, which changes on a daily basis. Ryanair Holdings has
undertaken to notify its shareholders annually of the percentage of Ordinary
Shares held by EU nationals.
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 such 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. 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. Any prolonged general reduction in airline passenger
traffic may adversely affect the Company, particularly since it is substantially
dependent on discretionary air travel. In addition, the airline industry tends
to be seasonal in nature. 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 thereof.
21
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. 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. As a holding company, Ryanair Holdings does not have any material assets
other than interests in the shares of Ryanair. See "Item 8. Financial
Information-Other Financial Information-Dividend Policy."
Future Sales of Ordinary Shares Could Depress Ryanair Holdings' Stock Price
Sales of substantial amounts of ADSs or Ordinary Shares (including Ordinary
Shares issued upon the exercise of stock options) in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the ADSs and the Ordinary Shares or the Company's ability to
raise capital though a public offering of its equity securities.
The Company seeks to attract and retain employees in part by offering its
employees stock options and other rights to purchase Ordinary Shares, which vest
over time. As of March 31, 2004, a total of 24,206,538 options to purchase an
equal number of Ordinary Shares were outstanding; not all of these options are
currently exercisable. Future grants of stock options under the Company's
existing plans are made at the discretion of the Board of Directors of Ryanair
Holdings and can only be considered by the Board if the Company meets certain
financial performance targets. The issuance of Ordinary Shares for such purposes
may have the effect of reducing the percentage ownership in Ryanair Holdings of
the then existing stockholders. See "Item 10. Additional Information-Options to
Purchase Securities from Registrant or Subsidiaries."
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 cost
operating model under a new management team in the early 1990s. See "Item 5.
Operating and Financial Review and Prospects--History." At September 1, 2004,
with its operating fleet of 76 aircraft, including 13 Boeing 737-200A jet
aircraft, 57 new Boeing 737-800 "next generation" aircraft and six Boeing
737-300 aircraft, the Company offered approximately 500 scheduled short-haul
flights per day serving 88 locations in the U.K., Ireland and continental
Europe. See "--Route System, Scheduling and Fares--Route System and Scheduling"
for more details of Ryanair's route network.
22
Offering widely-available low fares, Ryanair carried more than 21 million
passengers during calendar year 2003. 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 2003, 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 43% of all scheduled passenger
traffic between Dublin and London, a share favorably comparable to the 35% 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.
By generating an average scheduled flown passenger load factor of
approximately 74% and average scheduled passenger yield of EUR 0.066 per
available seat mile ("ASM") and focusing on maintaining low operating costs (EUR
0.055 per ASM), Ryanair achieved a net margin of 19.2% on operating revenues of
EUR 1,074 million for the fiscal year ended March 31, 2004. See "Item 5.
Operating and Financial Review and Prospects" and "Glossary."
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 4.4 million passengers in 2003. Each international route
Ryanair has entered since 1991 has 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
low-fares 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's Dublin to London
(Stansted) route is its largest route in terms of passenger volume, with fares
ranging from EUR 0.99 to EUR 199.99 (excluding government taxes and passenger
service charges). Ryanair's competitors generally do not operate a one-way
pricing policy, so direct comparison is not possible, but current round-trip
fares on Aer Lingus, Ryanair's largest competitor on the London-Dublin route,
for travel in September 2004 were EUR 82.27 for economy restricted return
tickets, EUR 218.27 for economy flexible return and EUR 353.75 for business
class tickets. In July 2004, Ryanair launched a fare promotion offering a total
of one million seats on certain routes for "EUR 0.99" (excluding government
taxes and passenger service charges) for travel during the period between
September 7, 2004 and January 31, 2005, and launched a similar fare promotion in
August 2004 offering a total of 900,000 seats on certain routes for "EUR 0.90"
(excluding government taxes and passenger service charges) for travel during the
period from September 2, 2004, and February 10, 2005.
23
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.
Frequent Point-to-Point Flights on Short-Haul Routes. Ryanair provides
frequent 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, 2004, Ryanair flew an average of approximately 1.83
round-trips per route per day with an average route length of 491 miles and an
average flight duration of approximately 1.2 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 the first six months of 2004 was 92%, exceeding that of
its principal competitors, including Lufthansa AG ("Lufthansa") 84%, Air France
84%, easyJet Plc ("easyJet") 82%, British Airways 81% and Alitalia S.p.A.
("Alitalia") 80%, according to the Association of European Airlines' reports and
the airlines' own published 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, 2004 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 initial strategy for controlling
aircraft acquisition costs was to purchase used aircraft of a single type.
From 1994 to 1998, Ryanair purchased used Boeing 737-200A aircraft that
were, at the date of purchase, between 11 and 17 years old (with an average
age of 23 years at March 31, 2004). In the late 1990s, however, there was a
significant reduction in the number of such used aircraft available for
purchase in the market. Accordingly, in March 1998, Ryanair announced that
it would start purchasing new Boeing 737-800 "next generation" aircraft.
See "--Aircraft." The 737-800s represent the latest generation of Boeing's
737 aircraft and share certain basic attributes in common with Ryanair's
current fleet. Although Ryanair's acquisition of the 737-800s has already,
and will continue to significantly increase the size of its fleet from that
in 1998 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 the Boeing contracts are very favorable to Ryanair. Management expects
Ryanair to be operating a single fleet type of "next generation" Boeing
737-800s from December 2005 onwards.
24
Personnel Productivity. Ryanair endeavors to control its labor costs
by continually improving the productivity of its already highly-productive
work force. In the year ended March 31, 2004 productivity calculated on the
basis of passengers booked per employee continued to improve, increasing to
10,049 passengers, a 21% improvement on the year ended March 31, 2003.
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. Ryanair's average pay per employee for the year ended
March 31, 2004 of EUR 50,582 compares favorably to that of its competitors
Iberia, easyJet, Lufthansa, Aer Lingus, British Airways, where average
salaries are EUR 42,077, EUR 41,384, EUR 41,377, EUR 38,329 and EUR 37,602
respectively, as published in the latest annual reports.
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 multi-year contracts at prices that are fixed or subject only
to periodic increases linked to inflation. The development of its own
internet booking facility and reservations center has allowed Ryanair to
eliminate travel agent commissions. For the fiscal year ended March 31,
2004, Ryanair generated virtually all of its scheduled passenger revenues
through direct sales, with sales through Ryanair's website and direct
telephone reservations generating approximately 96% and approximately 4% of
the total, respectively.
Airport Access Fees. 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. During January 2000, Ryanair converted
its host reservation system from the BABS (British Airways Booking 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 96% of all reservations on a daily
basis as of September 2004.
25
Commitment to Safety and Quality Maintenance. Ryanair's commitment to
safety is a 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
20-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), Shannon and Milan (Bergamo) by
Ryanair and, at other airports, by maintenance contractors approved under the
terms of Part 145/JAR 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/JAR 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 through both its website and its traditional telephone reservation
offices. 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, 2004, ancillary services accounted for
13.9% of Ryanair's total operating revenues, as compared to 13.1% of such
revenues in the fiscal year ended March 31, 2003. The increase reflected higher
revenues from non-flight scheduled operations, car rentals, in-flight sales and
internet-related services. These increases more than offset the elimination of
charter revenue from April 2003, when the Company re-directed its charter
capacity to scheduled services. See "-Ancillary Services" and "Item 5. Operating
and Financial Review and Prospects-Results of Operations-Fiscal Year 2004
Compared with Fiscal Year 2003-Ancillary Revenues" for additional information.
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 from the U.K. or Ireland to other locations in continental Europe 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"); and (vi) establishing more new bases in continental
Europe.
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.
26
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 higher 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,
include both those that have traditionally been heavily dependent on aid from
their respective governments (including Air France Group ("Air France"),
Alitalia, Aer Lingus, and Iberia, S.A.) and "commercial" flag carriers such as
British Airways, KLM, Scandinavian Airline System ("SAS") and Lufthansa that
have operated with no or little state aid in recent years. 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) and My Travel Ltd in the U.K. (a subsidiary of My Travel.com).
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.
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. Further, certain European
nations outside the EU could reserve the right to set minimum fares.
27
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/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
in 1986. British Midland entered the route in 1989 and British Airways withdrew
in 1991, while British Airways and CityJet Limited (a former Virgin Atlantic
franchise) entered the route in 1992 and 1994, respectively, although CityJet
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 2003,
according to the CAA Statistics, annual traffic had risen to more than 4.4
million passengers.
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 to include 24 routes. See "-Route
System, Scheduling and Fares-Route System and Scheduling" for a complete list of
routes and the dates of their introduction. 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 a total of 64 locations. See "-Route System, Scheduling
and Fares-Route System and Scheduling" for a complete list of routes and the
dates of their introduction. Ryanair established continental European bases at
Brussels (Charleroi), Frankfurt (Hahn), Milan (Bergamo), Stockholm (Skavsta),
Barcelona (Girona) and Rome (Ciampino). 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.
28
The Acquisition of Buzz
On April 10, 2003, Buzz Stansted, a newly-formed subsidiary of Ryanair,
purchased certain assets of Buzz, KLM's former low-fares subsidiary, from KLM UK
Limited for EUR 20.8 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 UK 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
ILFC on six Boeing 737-300s, which were novated by KLM UK 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.
As part of the acquisition, Buzz Stansted agreed to employ 110 of the
approximately 500 former Buzz staff, each of whom was offered and accepted new
contracts of employment with Buzz Stansted. The balance of the former Buzz staff
were made redundant by KLM UK Ltd, and, under the purchase agreement governing
the transaction, any liabilities arising from resultant claims by these staff
were settled by KLM UK Ltd. The acquisition agreement also contains an indemnity
from KLM UK Ltd in favor of Buzz Stansted covering any further claims arising
from these redundancies of the former Buzz staff.
The leases 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, Buzz Stansted was permitted to terminate any or all six of these leases
48 months prior to the contractual lease termination date for each aircraft, or
between October 2006 and February 2007. On August 6, 2004, Buzz Stansted
finalized an agreement with ILFC for the early return of these aircraft, with
two aircraft to be returned on October 15, 2004, and the remaining four aircraft
on or before October 31, 2004. As part of the commercial terms of the agreement
for the early return of the aircraft, the parties reached an agreement in
relation to the maintenance and other return conditions of the aircraft.
As a result of the return of the aircraft to ILFC, Ryanair intends to cease
operations at Buzz Stansted and to utilize aircraft from its existing fleet and
those acquired under its fleet delivery program to service those routes
previously operated by Buzz Stansted. A number of employees of Buzz Stansted,
consisting almost entirely of pilots, have individually applied for positions
with a third-party firm which has an agreement to provide contract pilots to
Ryanair. The Company could also be exposed to costs associated with the
cessation of operations at Buzz Stansted. See "Item 3. Key Information--Risk
Factors--Risks Related to the Company--The Company May Face Increased Costs In
Connection with Buzz Stansted."
Buzz Stansted's results have been fully consolidated with those of Ryanair
and are included in the financial and operating data included in this annual
report.
Buzz Stansted did not operate any services between April 10, 2003 and May
1, 2003, while its staff were being retrained and the airline obtained the
required U.K. air operators' certificate. As a result, the Company recorded
exceptional costs amounting to EUR 3.1 million (equal to Buzz Stansted's
operating costs during this period of inactivity) in the fiscal quarter ending
June 30, 2003. The Company was also required to give a guarantee of U.K. POUND
12 million to the CAA to discharge any liabilities to third parties that might
arise from the termination of Buzz's business. This guarantee was withdrawn on
September 19, 2004.
29
Ryanair recorded goodwill in the amount of EUR 46.8 million in connection
with the Buzz acquisition. This figure is comprised of the purchase price of EUR
20.8 million and excess lease costs in the amount of EUR 26.0 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 are substantially higher than
existing market rates for leases on similar aircraft. The Company has calculated
the amount of these excess lease costs over the remaining term of the leases at
EUR 26.0 million, based on a calculation of the difference between the
contractual rates and these estimates of current market rates. Under Irish GAAP,
this goodwill will be amortized in the Company's profit and loss account over a
20-year period in the amount of EUR 2.3 million per annum. In accordance with
U.S. GAAP, the Company has performed a valuation of the Buzz assets acquired to
attribute value to separable intangible assets. As these assets do not have a
limited life, they will not be depreciated and, except for the straight-line
goodwill amortization which is not required under U.S. GAAP, the Company does
not expect there will be any income statement differences under Irish and U.S.
GAAP in accounting for this acquisition.
ROUTE SYSTEM, SCHEDULING AND FARES
Route System and Scheduling
The following table lists each of the routes served by Ryanair and sets
forth certain information with respect to Ryanair's route system based upon the
flight schedule in effect at September 1, 2004:
Round trip
flights
Date service scheduled per Number of passengers booked in
Route served commenced day calendar year 2003
Between Dublin and London:
London (Luton) January 1986 5 411,920
London (Stansted) November 1988 12 1,200,582
London (Gatwick) November 1994 6 439,322
Between Dublin and U.K. Provincial Airports:
Liverpool May 1988 3 264,180
Birmingham November 1993 2 287,917
Manchester May 1994 5 254,297
Glasgow (Prestwick) May 1994 3 254,908
Cardiff May 1996 1 75,178
Bournemouth May 1996 1 77,289
Leeds/Bradford May 1996 3 251,268
Bristol May 1997 3 220,467
Teesside November 1997 1 72,798
Edinburgh August 2001 3 306,004
Aberdeen April 2002 1 75,726
Newcastle January 2003 2 129,806
Blackpool May 2003 1 46,290
East Midlands April 2004 3 -
Between Dublin and Continental Europe:
Paris (Beauvais) May 1997 3 287,775
Brussels (Charleroi) May 1997 4 295,254
Malaga March 2003 3 per week 24,007
Faro March 2003 3 per week 15,840
Barcelona (Girona) April 2003 1 12,050
30
Round trip
flights
Date service scheduled per Number of passengers booked in
Route served commenced day calendar year 2003
Reus April 2004 1 -
Between Shannon and Continental Europe:
Paris (Beauvais) February 2002 1 78,948
Between London (Stansted) and Irish Provincial
Airports:
Cork October 1991 3 398,751
Knock May 1991 1 121,441
Kerry June 1997 1 125,097
City of Derry July 1999 2 143,574
Shannon April 2000 2 328,267
Between London (Stansted) and U.K. Provincial
Airports:
Newquay April 2002 2 146,109
Blackpool May 2003 2 78,964
Between London (Stansted) and Germany:
Altenburg May 2003 1 55,590
Frankfurt (Hahn) April 1999 4 581,749
Friedrichshafen April 2002 1 108,219
Hamburg (Lubeck) June 2000 4 262,877
Niederrhein April 2003 3 179,182
Berlin Schoenefeld May 2003 2 208,025
Baden-Karlsruhe September 2003 2 51,588
Erfurt January 2004 1 -
Between London (Stansted) and Italy:
Venice (Treviso) May 1998 3 402,507
Pisa June 1998 4 342,223
Genoa May 1999 2 160,776
Ancona July 1999 1 91,696
Turin July 1999 2 156,810
Alghero (Sardinia) July 2000 2 174,057
Brescia July 2000 2 133,438
Trieste April 2001 1 108,948
Pescara April 2001 1 97,314
Bologna (Forli) November 2001 2 162,389
Rome (Ciampino) April 2002 6 656,989
Palermo May 2003 2 103,685
Bari January 2004 1 -
Between Pisa Airport and Germany:
Hamburg (Lubeck) May 2003 1 65,039
Between London (Stansted) and France:
Lyon (St. Etienne) May 1998 1 103,569
Toulouse (Carcassonne) June 1998 2 147,710
Biarritz April 1999 3 143,090
Brittany (Dinard) April 1999 1 95,485
Nimes June 2000 2 110,143
31
Round trip
flights
Date service scheduled per Number of passengers booked in
Route served commenced day calendar year 2003
Perpignan June 2000 2 125,329
Montpellier April 2002 1 101,231
Strasbourg (a) October 2002 - 138,001
Pau April 2003 1 56,650
Reims (b) April 2003 - 43,150
Rodez May 2003 1 47,644
Bergerac May 2003 2 71,428
Brest (c) May 2003 - 50,485
Clermont Ferrand (b) May 2003 - 46,384
Limoges May 2003 2 68,794
La Rochelle May 2003 1 46,893
Poitiers May 2003 1 56,904
Tours May 2003 1 44,646
Between London (Stansted) and Scandinavia:
Oslo (Torp) June 1997 3 244,335
Aarhus September 1999 2 149,614
Malmo July 2000 2 185,237
Esbjerg April 2001 2 83,339
Stockholm (Vasteras) April 2001 1 159,762
Gothenburg April 2001 3 208,571
Haugesund April 2003 2 45,380
Tampere October 2003 1 19,413
Between London (Stansted) and the Netherlands:
Eindhoven April 2002 2 141,046
Maastricht (c) April 2003 - 61,118
Groningen (d) May 2003 - 44,951
Between London (Stansted) and Austria:
Salzburg April 2001 2 219,637
Graz April 2002 1 111,018
Klagenfurt April 2002 1 85,044
Linz January 2004 1 -
Between London (Stansted) and Belguim:
Ostend-Bruges (c) May 2003 - 44,468
Between London (Stansted) and Spain:
Barcelona (Girona) February 2003 4 368,922
Murcia May 2003 4 152,261
Jerez May 2003 2 21,303
Valladolid November 2003 1 16,715
Barcelona (Reus) November 2003 2 20,106
Between Glasgow (Prestwick) and:
London (Stansted) October 1995 6 802,511
Paris (Beauvais) November 1998 2 150,945
Frankfurt (Hahn) March 2000 1 108,547
Oslo (Torp) April 2002 1 73,919
Bournemouth February 2003 1 92,316
32
Round trip
flights
Date service scheduled per Number of passengers booked in
Route served commenced day calendar year 2003
Barcelona (Girona) May 2003 1 58,527
Gothenburg October 2003 1 16,881
Shannon December 2003 1 5,345
Milan (Bergamo) January 2004 1 -
Between Brussels Charleroi and:
London (Stansted) (d) April 2001 - 364,599
Toulouse (Carcassonne) April 2001 1 122,152
Prestwick April 2001 1 91,788
Pisa April 2001 2 193,716
Shannon April 2001 1 110,662
Venice (Treviso) April 2001 2 246,144
Liverpool (b) June 2002 - 109,471
Rome (Ciampino) June 2002 2 139,324
Barcelona (Girona) May 2003 2 74,570
Valladolid January 2004 1 -
Between Frankfurt (Hahn) and:
Shannon May 2000 1 per week 38,224
Bournemouth (b) February 2002 - 78,951
Milan (Bergamo) February 2002 2 217,795
Pescara February 2002 1 112,801
Oslo (Torp) February 2002 1 112,832
Montpellier March 2002 1 105,843
Pisa March 2002 2 210,801
Barcelona (Girona) December 2002 2 261,475
Rome (Ciampino) December 2002 2 230,020
Bologna (Forli) December 2002 1 102,794
Stockholm (Skavsta) December 2002 2 170,286
Gothenburg February 2003 1 95,981
Malmo (c) March 2003 - 78,593
Kerry April 2003 1 79,737
Perpignan (b) March 2002 - 19,018
Treviso October 2003 1 18,197
Alghero October 2003 1 17,619
Barcelona (Reus) January 2004 2 -
Tampere January 2004 1 -
Between Milan (Bergamo) and:
London (Stansted) April 2002 4 387,349
London (Luton) February 2003 2 183,087
Paris (Beauvais) February 2003 2 215,215
Brussels (Charleroi) February 2003 2 203,693
Barcelona (Girona) February 2003 2 232,396
Hamburg (Lubeck) February 2003 1 100,882
Between Stockholm (Skavsta) and:
London (Stansted) June 1997 3 305,813
Aarhus (c) April 2003 - 58,028
Paris (Beauvais) April 2003 2 144,687
Hamburg April 2003 1 131,896
33
Round trip
flights
Date service scheduled per Number of passengers booked in
Route served commenced day calendar year 2003
Glasgow (Prestwick) April 2003 1 74,639
Tampere (c) April 2003 - 78,324
Oslo (Torp) (c) April 2003 - 71,771
Brussels (Charleroi) October 2003 1 16,823
Rome (Ciampino) January 2004 1 -
Milan (Bergamo) January 2004 1 -
Between Barcelona (Girona) and:
Bournemouth October 2003 1 15,407
Birmingham (d) October 2003 - 14,519
Paris (Beauvais) February 2004 2 -
Liverpool February 2004 1 -
Baden February 2004 1 -
Turin February 2004 1 -
Treviso February 2004 1 -
Eindhoven February 2004 2 -
Alghero February 2004 1 -
Rome (Ciampino) February 2004 2 -
Between Birmingham and:
Murcia (d) October 2003 - 18,272
Between Rome (Ciampino) and:
Klagenfurt January 2004 1 -
Baden January 2004 1 -
Paris (Beauvais) January 2004 2 -
(a) Service to Strasbourg was discontinued in September 2003 after a Strasbourg
court ruled that the marketing support granted by the Strasbourg Chamber of
Commerce to Ryanair in connection with the route was illegal and
constituted unlawful state aid to Ryanair. Ryanair is appealing this
decision; pending the outcome of this appeal, it has opened a route from
Baden Karlsruhe in Germany to London (Stansted). See "Item 8. Financial
Information--Other Financial Information--Legal Proceedings."
(b) Services from Frankfurt (Hahn) to Bournemouth and Perpignan were
discontinued on October 25, 2003 and March 28, 2004, respectively.
(c) On January 14, Ryanair discontinued services between London (Stansted) and
Reims, Clermont Ferrend, Ostend and Maastricht; Frankfurt (Hahn) and Malmo;
Stockholm (Skavsta) and Aarhus, Tampere and Oslo (Torp); and Brussels
(Charleroi) and Liverpool.
(d) On April 28, 2004 Ryanair discontinued services between London (Stansted)
and Brest, Groningen and Charleroi; Barcelona (Girona) and Birmingham; and
Birmingham and Murcia.
Management's objective is to schedule a sufficient number of flights per
day on each route 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.
34
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-cancelable 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 EUR 9.99 on many of its
routes, and is offering lower-fare trips on certain routes from time to time.
Ryanair promotions must be 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.
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 on
radio, 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 website-based reservations program,
Ryanair's reliance on travel agents has been eliminated.
35
In August 1999, Ryanair launched an internet-based reservation and
ticketing service that allows passengers to access its reservations system
through Ryanair's website at www.ryanair.com. Information included on Ryanair's
website is not incorporated by reference into this Report. In January 2000, the
system was enhanced and integrated with Ryanair's new Flightspeed reservations
system. Passengers can now make reservations and purchase tickets directly
through the website. The level of internet bookings has grown rapidly,
accounting for approximately 96% of all daily reservations as of September 1,
2004.
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.
Management anticipates that the internet-based direct sales system will
allow it to continue to benefit from substantially reduced distribution costs.
However, Ryanair may incur additional costs in the promotion and advertising of
Ryanair.com, and overall passenger revenues may also be negatively affected by
discounted fares used to promote the internet site.
AIRCRAFT
As of September 30, 2004, Ryanair's operating fleet included 13 Boeing
737-200A aircraft, each having 130 seats, and 57 Boeing 737-800 "next
generation" aircraft, each having 189 seats. Ryanair also, through its
subsidiary Buzz Stansted, leased six Boeing 737-300 aircraft, each having 148
seats. During fiscal 2004, Ryanair, also through Buzz Stansted, sub-leased and
operated four BAe146 aircraft, each having 110 seats.
The table below sets forth details of Ryanair's operating fleet of aircraft
at March 31, 2004 and September 30, 2004, as well as the number of aircraft it
expects to be operating at March 31, 2005.
No. of operating aircraft in fleet
March 31, 2004 September 30, 2004 March 31, 2005
Boeing 737-200As 15 13 9
Boeing 737-300s 6 6 -
Boeing 737-800s 51 57 78
Total operating aircraft 72 76 87
Aircraft
Boeing 737-200As: Ryanair is in the process of phasing out its 737-200A
aircraft, which currently comprise 13 operating aircraft with an average age of
23 years. Eight 737-200As have already been retired from the fleet and the
Company expects to complete this phase-out by December 2005. In 2003, Ryanair
accelerated the retirement schedule with respect to six of these aircraft after
scratches were found on the outer skin of these planes during a routine
maintenance check. Two additional Boeing 737-200As were subsequently retired as
scheduled in July 2004, with the remaining 13 due for retirement on or before
December 2005. During 2003, Ryanair arranged for the short-term lease from
October 2003 of six aircraft to cover for the retired 737-200As. All of these
leases had expired by the end of fiscal 2004.
Boeing 737-800s: Between March 1999 and March 2004, Ryanair took delivery
of 51 new Boeing 737-800 "next generation" aircraft under its contracts with
Boeing. Six additional Boeing 737-800s have been delivered through September 30,
2004. The new 737-800s share certain basic characteristics with the Company's
fleet of 737-200A aircraft, 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.
36
On January 24, 2002, Ryanair announced that it had entered into a new
series of agreements with Boeing to purchase an additional 100 new Boeing
737-800 seat aircraft over a six-year period from December 2002 to December
2008; the contract also provided Ryanair with options to purchase up to an
additional 50 such aircraft. In June 2002, the Company exercised three of these
50 options, bringing its firm orders to 103 aircraft.
On January 31, 2003, the Company entered into a supplemental agreement to
the 2002 Boeing contract, pursuant to which Ryanair exercised a further 18 of
the purchase options granted under the 2002 Boeing contract and purchased an
additional four 737-800 aircraft. This in turn brought total firm orders with
Boeing for 737-800 series aircraft to 125. In addition, as part of the
supplemental agreement, the number of purchase options remaining was increased
from 29 to 125. In January 2004, Ryanair exercised two purchase options for
aircraft due for delivery in December 2005 bringing the total firm aircraft
order with Boeing to 155 aircraft and 123 options. Similar commercial terms
apply to the additional firm aircraft ordered and to the additional options
granted. For additional details on the Boeing contracts and scheduled aircraft
deliveries, see "Item 5. Operating and Financial Review and Prospects--Liquidity
and Capital Resources" and "Item 10. Additional Information-Material Contracts."
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 the original and supplemental orders allowed Ryanair to
obtain favorable purchase terms, guaranteed deliveries, and a standard
configuration for all of the aircraft. The purchase is also expected to allow
Ryanair to phase out its remaining 13 Boeing 737-200As, which are on average 23
years old, over a two-year period ending in 2005.
The Boeing 737 exists in a number of generations and is the world's most
widely-used commercial aircraft. The 737-800s represent the latest generation of
Boeing's 737 aircraft and share certain basic attributes in common with
Ryanair's fleet of 737-200As. Management believes that spare parts and cockpit
crews qualified to fly the 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 limiting its fleet to related aircraft types 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.
Boeing 737-300s: As part of the acquisition of certain assets of Buzz,
Ryanair's Buzz Stansted subsidiary took over the leases on six 737-300 aircraft,
which as of March 31, 2003, had an average age of eight years. During 2004, Buzz
Stansted operated these aircraft on a sub-service basis for Ryanair. On August
6, 2004, Buzz Stansted finalized an agreement with the lessor, ILFC, for the
early return of the aircraft by the end of October 2004. See "--Industry
Overview--The Acquisition of Buzz."
Fleet Expansion
Ryanair expects to take delivery of an additional 98 aircraft under its
current contracts with Boeing. Together with the retirement of its Boeing
737-200 as well as the planned termination of Buzz Stansted's leases for the six
Boeing 737-300s in the fall of 2004, these deliveries will increase the size of
Ryanair's fleet to 155 by December 2008, or more should Ryanair choose to
exercise any of the additional 123 options to purchase aircraft remaining under
its existing purchase contracts with Boeing.
37
Ryanair anticipates financing the expansion of its fleet 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. The financing of the 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. In
addition, Ryanair's ability to draw down funds to pay for aircraft as they are
delivered under the 2002 Boeing contract and the 2003 supplemental agreement is
subject to various conditions imposed by the counterparties to the bank loan
facilities and loan guarantees, and any future financing is expected to be
subject to similar conditions. For additional details on this financing, see
"Item 5. Operating and Financial Review and Prospects-Liquidity and Capital
Resources."
Training and Regulatory Compliance
Ryanair currently owns and operates 737-200 and 737-800 flight simulators
for pilot training and has entered into a contract to purchase two additional
737-800 flight simulators from CAE Electronics Ltd. of Quebec, Canada. The first
of these additional simulators was delivered in January 2004 and the second
simulator is expected to be delivered in 2007. The CAE contract also provides
Ryanair with an option to purchase another such simulator for delivery in 2007.
Management believes that Ryanair is currently in compliance with all
applicable directives concerning its fleet of Boeing 737-200A, 737-300 and
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".
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. Revenues from ancillary services totaled EUR 149.7
million in fiscal 2004, compared to EUR 110.6 million in fiscal 2003. See "Item
5. Operating and Financial Review and Prospects-Results of Operations-Fiscal
Year 2004 Compared with Fiscal Year 2003-Ancillary Revenues."
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 also sells rail
tickets and plans to start distributing them through its website during the
autumn of 2005. The Company also plans to introduce 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.
Both excess baggage charges and these processing fees are recorded as components
of non-flight scheduled revenue.
For car rental services, Ryanair has entered into 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.
38
Ryanair's merchandise sales on all of its scheduled flights and
merchandise, food, and beverage sales on flights within the U.K., are on a
duty-paid, rather than duty-free basis. In fiscal year 2004, the in-flight sale
of beverages and duty-free merchandise accounted for 2.8% of Ryanair's revenues,
or EUR 30.1 million, as compared to 2.7% of Ryanair's revenues, or EUR 23.1
million, in fiscal year 2003. Starting in November 2004, Ryanair also plans to
introduce handheld in-flight entertainment devices available for rental on a
limited number of flights.
Internet-related revenues comprises revenue generated from Ryanair.com,
including hotel accommodation and travel insurance, but excluding 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. Revenue generated from internet services was EUR 17.7 million and
EUR 12.1 million in the years ending March 31, 2004 and March 31, 2003,
respectively. Ryanair also provides certain financial services and acts as an
agent for MBNA, an issuer of Visa credit cards. As part of this agreement with
MBNA, Ryanair and MBNA jointly promote a Ryanair-branded credit card supplied by
MBNA 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 on the basis of the number of cards issued and the revenues
generated through use of the credit cards.
In fiscal year 2004, Ryanair's revenues from charter operations decreased
to EUR 0.1 million from EUR 12.4 million in fiscal year 2003 as a result of a
decline in excess capacity available for charter service as the Company
continued to focus on its scheduled operations. Since April 2003, the Company
has no longer offered charter services, as remaining charter capacity was
reallocated to scheduled services, with the Company now offering scheduled
flights to many of the destinations previously served by charters.
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/JAR 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 (JARs 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/JAR 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 and B 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/JAR 145
approved contract maintenance providers. Aircraft return each evening to
Ryanair's bases, where they are examined each night by Ryanair's approved
engineers (or, in the case of Brussels (Charleroi), London (Luton), Stockholm
(Skavsta), Rome (Ciampino) and Frankfurt (Hahn), by local Part 145/JAR 145
approved companies).
39
In August 2002, Ryanair announced that it would be expanding its in-house
maintenance capability to include light C checks by building a new two-bay
hangar facility at its base at Glasgow (Prestwick) in Scotland. The facility
started operations in December 2003 and is initially set up to carry out A
checks on Ryanairs fleet of 737-800 aircraft. The facility is capable of
performing two light C-checks per week, enabling Ryanair to perform these checks
in-house. All heavy maintenance C checks will continue to be outsourced to third
parties. The new facility is expected to cost up to U.K. POUND 10 million and to
employ up to approximately 180 people when it becomes fully operational sometime
in 2006.
Heavy Maintenance
Ryanair contracts with outside maintenance providers for heavy maintenance
services. Ryanair currently contracts its heavy airframe maintenance overhauls
for its core Boeing 737 fleet to a single Part 145/JAR 145-approved contractor,
FLS Aerospace Ltd. ("FLS") and engine overhaul service for these aircraft to
two Part 145/JAR 145-approved contractors, Lufthansa Airmotive Ireland
("Airmotive"), which is responsible for maintenance of the CFM 56-7 engines that
power the Boeing 737-800 aircraft, and Israeli Aircraft Industries Limited
("IAI"), which is responsible for the JT8D engines fitted to the Boeing 737-200A
aircraft. Ryanair also contracts its "rotable" repairs to IAI. Services provided
by FLS include heavy airframe maintenance, technical engineering and various
maintenance support services, while those provided by IAI include engine
overhauls, wheel and brake services, landing gear overhaul and auxiliary power
unit repair services.
In January 2000, Ryanair entered into a new heavy maintenance agreement
with FLS covering both its Boeing 737-200A and 737-800 aircraft. The agreement
formally expires in January 2005,and Ryanair has started negotiations with a
number of maintenance and repair organizations (MRO's) (including FLS) to carry
out this work after that date. Under this existing contract, man-hour rates for
maintenance on the Boeing 737-200A aircraft are fixed for the first three years
and then are subject to escalation on the basis of the annual increase in the
cost index for the Manufacturers of Aircraft and Spacecraft in the U.K. The
Boeing 737-800 aircraft checks are initially to be completed on the basis of the
number of man-hours incurred at a fixed rate per hour, plus the actual cost of
the materials consumed. Once the first series of checks have been completed, the
contract provides for both parties to agree to fix the price for labor and
materials for each check thereafter.
The contract also provides for penalties and a bonus incentive for FLS for
the on-time completion of checks, which have been capped at a specific level for
each year of the contract. In relation to the major P12 checks on the 737-200A
aircraft, the Company does not have a fixed materials cost, but will instead pay
FLS on the basis of the manufacturer's list price, with Ryanair having an option
to supply spare parts to FLS either in advance of the aircraft check or to pay
FLS for such parts.
In November 1999, Ryanair entered into a 10-year contract with Airmotive
for the repair and overhaul of the CFM56-7 engines fitted to its 737-800
aircraft, which was terminable after 5 years by either party, upon six months
notice. Ryanair has given Airmotive notice and the contract is to be terminated
on December 1, 2004. Ryanair is currently in the final stages of concluding a
new 10-year cost-per-cycle agreement with an engine MRO provider for all repair
and overhaul services for these engines at agreed rates per cycle flown
throughout the period of the contract. There can be no assurance that the
Company will conclude these negotiations successfully or on favorable terms. In
the existing agreement with Airmotive, labor charges for the repair and overhaul
of engines were fixed until January 2003. Thereafter, the rate per hour was
increased to a new fixed rate, to be adjusted annually based on rates
established by the mechanics trade union.
40
Effective November 1, 2001, Ryanair entered into an agreement with IAI,
which is based at Ben Gurion Airport in Israel, for the repair and overhaul of
all of the Pratt & Whitney JT8D engines on its Boeing 737-200A aircraft,
including seven spare engines. The contract terminates on December 31, 2005, and
requires IAI to complete all scheduled and unscheduled shop visits for these
engines, including spare parts and labor, at a fixed rate per engine cycle. IAI
will also provide other repair and overhaul services for these engines at fixed
rates throughout the period of the contract. Ryanair can terminate the contract
upon 30 days notice if there is material default in IAI's performance or in the
event of IAI's bankruptcy, or upon six months notice if certain delays occur.
IAI can terminate the contract upon 30 days notice if Ryanair fails to pay,
except where items are disputed in good faith, or if Ryanair is declared
bankrupt. The scheduled termination date for this contract corresponds to the
date by which Ryanair expects to have retired all of the 737-200As from its
fleet.
The Buzz Stansted aircraft are currently being maintained on a line
maintenance basis by Ryanair Limited under its Part 145/JAR 145 approval. The
heavy maintenance in respect of engines for the six Boeing 737-300s is
contracted to Snecma, while that for the airframe has not been contracted to any
specific maintenance organization.
By contracting with Part 145/JAR 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/JAR 145-certified mechanic to
oversee all heavy maintenance or engine overhaul performed by third parties.
Maintenance providers are also monitored closely by the national authorities
under JAA and national regulations.
The loss or expiration of these or any other 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 business, results of operations and financial
condition. Ryanair expects to be dependent on such third party arrangements for
the foreseeable future, notwithstanding the additional capabilities provided by
its new maintenance facility at Glasgow (Prestwick).
SAFETY RECORD
During its 20-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.
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. Buzz Stansted separately conducts its
own training, under the approval of the CAA.
All of the Boeing 737-800s which Ryanair has bought or committed to buy and
the Boeing 737-300's operated by Buzz Stansted operate in accordance with the
Category IIIA minimum landing criteria, which require 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
and Buzz Stansted'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.
41
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 Groundstar 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 by prior notice. The
loss or expiration of such contracts or any inability to renew such contracts or
negotiate contracts with other providers at comparable rates could have a
material adverse effect on the Company's business, results of operations and
financial condition. Ryanair will need to enter into similar agreements in any
new markets it may enter, and there can be no assurance that Ryanair will be
able to obtain the necessary facilities and services at competitive rates in
such new markets.
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.
In February 2001, the Irish Government established a Commission for
Aviation Regulation (the "CAR"). The CAR is currently responsible for regulating
charges at Dublin, Cork and Shannon airports. 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 with a possibility of a review by the CAR
after two years. 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. On September 24, 2003, the CAR announced a 9% increase in the maximum
charges permitted at Dublin airport to compensate for claimed under-recovery of
costs by Aer Rianta and legal costs incurred by the CAR in defending a legal
challenge by Aer Rianta of the CAR's original price determination. However, on
March 26, 2004, the CAR published its "two-year" review of the changes, in
accordance with the Aviation Regulation Act, and reduced the maximum charges
permitted to be levied by Aer Rianta by approximately 9% based on errors in the
CAR's original regulatory formula. As a result, the maximum charges permitted to
be levied by Aer Rianta at Dublin airport have remained essentially unchanged
from 2003 to 2004.
The State Airports Act 2004 was introduced by the Irish government to
provide the legislative basis for the restructuring of Aer Rianta and the
establishment of Dublin, Cork and Shannon airports as independent airport
authorities under state ownership. The Act provides for Aer Rianta to be
re-named as the Dublin Airport Authority. The Act also provides for the
establishment of two new state-owned companies, namely Cork Airport Authority
plc and Shannon Airport Authority plc.
In respect of changes, the State Airports Act 2004 provides that the CAR
will retain price regulation responsibilities solely for Dublin airport. Dublin
airport will be subject to a new determination in respect of landing charges by
the CAR within a year of the renaming of Dublin Airport Authority plc. Landing
charges will become deregulated at Cork and Shannon airports on the earlier of
the vesting day or the issuance of a new determination by the CAR in respect of
Dublin airport. At this point, Cork Airport Authority plc and Shannon Airport
Authority plc will have sole discretion to fix landing fees at their airports.
42
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, while a
Strasbourg court in September 2003 ruled Ryanair received illegal state aid from
the Strasbourg Chamber of Commerce in connection with the Company's launch of
its Strasbourg-London (Stansted) service. Ryanair is currently appealing both of
these decisions, while separate similar proceedings relating to Pau and Palermo
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. See "Item 3. Risk Factors--Risks Related to the Company--The
Company Could Incur Significant Additional Costs Arising from Legal Proceedings
Regarding Brussels (Charleroi) and Strasbourg" and "Item 8. Financial
Information--Other Financial Information--Legal Proceedings."
In July 2004, Ryanair commenced an action in the High Court of England and
Wales (Chancery Division) against BAA plc and Stansted Airport Limited (together
"BAA"), the companies that operate London's Heathrow, Gatwick and Stansted
Airports. The action relates to a fuel levy that BAA has unilaterally imposed on
Ryanair and other airlines at Stansted Airport. Despite representations by BAA
that the fuel levy was imposed to recover its original capital investment, and
further representations that the fuel levy would be eliminated or reduced once
the capital costs had been recovered as fuel uplift volumes increased, BAA has
failed to either eliminate or reduce the fuel levy in circumstances where
Ryanair believes BAA has now recovered its original capital investment some
three times over and where the volumes of fuel uplifted at Stansted Airport have
increased dramatically, largely driven by increasing passenger volumes delivered
by Ryanair. Ryanair claims damages and other relief against BAA for breaches of
statutory duty and abuse of dominant position arising out of BAA's overcharging
in respect of the fuel levy and BAA's continuing failure to provide transparent
and accurate information about the fuel levy.
BAA has responded by filing a separate action against Ryanair alleging that
Ryanair has repudiated its contract with BAA and is seeking payment of fuel
levies withheld by Ryanair. These sums were withheld by Ryanair as a result of,
and in response to, BAA's abuses in relation to the fuel levy and overcharging.
Ryanair currently accounts for in excess of 60% of the fuel volumes at London
(Stansted) airport. The amount in dispute in BAA's claim in relation to fuel
levies against Ryanair is approximately EUR 1.5 million (or roughly 3% of the
total aeronautical charges that Ryanair paid BAA in fiscal 2004). BAA further
claims that it is now no longer bound by its contract with Ryanair in relation
to airport charges and that it can instead charge Ryanair the published airport
tariffs, as opposed to the lower amounts charged under the contract. Ryanair
denies all of BAA's claims and counterclaims against BAA for breach of contract,
breaches of statutory duty, abuse of dominant position and misrepresentation and
overcharging in relation to the fuel levy. However, should the courts declare
Ryanair's contract with BAA is no longer binding, the Company would likely face
materially increased costs at London (Stansted), its principal base, or could be
forced to cut back its London (Stansted) operations. Flights to or from London
(Stansted) accounted for approximately 61% of the Company's passenger volumes in
fiscal 2004. See "Item 3. Key Information--Risk Factors--Risks Related to the
Company-The Company's Legal Dispute Regarding Fuel Levies at Stansted Airport
Could Result in Increased Costs" and "Item 8. Financial Information--Other
Financial Information--Legal Proceedings."
FUEL
The cost of jet fuel accounted for 20.8% and 22.3% of Ryanair's total
operating expenses in the fiscal years ended March 31, 2004 and 2003,
respectively, in each case after giving effect to the Company's fuel hedging
activities and excluding de-icing costs. Jet fuel costs have been subject to
wide fluctuations as a result of sudden disruptions in supply and market
speculation and continued to exhibit substantial volatility in the fiscal years
ended March 31, 2003 and 2004.
43
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 entered into fuel and currency hedging agreements
with various counterparties providing for price protection in connection with
the purchase of fuel covering periods only through October 2004. Ryanair has not
otherwise entered into agreements to hedge the cost of or otherwise guarantee
its supply of fuel. As a result of Ryanair's decision not to enter into new
hedging arrangements, the Company will be more exposed to risks arising from
fluctuations in the price of fuel, especially in light of recent significant
increases. In the quarter ended June 30, 2004, one gallon of jet fuel cost on
average 0.91 U.S. cents per gallon, an increase of 9.6 % as compared to 0.83
U.S. cents per gallon in the comparable period in 2003. Based upon Ryanair's
fuel consumption for the fiscal year ended March 31, 2004, a change of one U.S.
cent in the average annual price per gallon of aviation fuel would have caused a
change of approximately EUR 2 million in the Company's annual fuel costs.
Ryanair's fuel costs in the fiscal year ended March 31, 2004, after giving
effect to the Company's fuel hedging activities, increased by approximately 36%
over the comparable period ended March 31, 2003, to EUR 175.0 million, primarily
due to 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 the cost
per gallon of the strengthening of the euro against the dollar. Ryanair
estimates that its fuel cost would have been approximately EUR 194.3 million in
fiscal year 2004, compared to EUR 171.3 million (excluding de-icing costs of EUR
3.7 million in each case) had Ryanair not had any hedging arrangements in place.
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."
The following table details Ryanair's fuel consumption and costs for
scheduled operations (thus excluding fuel costs related to charter operations
and de-icing costs), after giving effect to the Company's fuel hedging
activities, for the fiscal years ended March 31, 2002, 2003 and 2004. The
excluded de-icing costs amounted to EUR 1,347,336, EUR 2,282,003 and EUR
3,701,892, respectively, for the fiscal years ended March 31, 2002, 2003 and
2004. 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,
2004 2003 2002
Scheduled fuel consumption
(U.S. gallons)................................. 210,024,169 133,782,854 101,903,433
Available seat miles (ASM)......................... 13,996,127,688 8,744,373,118 6,081,007,925
Scheduled fuel consumption (U.S. gallons)
per ASM........................................ 0.015 0.014 0.017
Total scheduled fuel costs......................... EUR 171,289,098 EUR 124,429,232 EUR 102,616,757
Cost per gallon.................................... EUR 0.8156 EUR 0.9301 EUR 1.007
Total scheduled fuel costs as a percentage
of total operating costs....................... 20.8% 22.3% 22.25%
44
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 terrorist
attacks on the U.S. in September 2001. Following the attacks, all insurance
underwriters withdrew aircraft hull war liability cover and imposed a per
passenger surcharge of $1.25 for reinstatement of such cover up to a $50 million
limit. 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. However, Ryanair's insurers have recently advised the Company that they
intend to narrow the scope of the Company's current act of war-related insurance
coverage to exclude certain types of catastrophic incidents, such as biological,
chemical or "dirty bomb" attacks, which could lead to further increases in costs
if the Company is forced to seek additional coverage. Ryanair to date has passed
these increased insurance costs on to passengers by means of a special
"insurance levy" on each ticket. Substantial claims resulting from an accident
in excess of related insurance coverage could also 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.
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. The potential exposure of air carriers, such as Ryanair,
has therefore been increased 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.
45
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
(Corporate Headquarters)
Phoenix House, 2,566 3,899 Freehold Reservations Center
Conyngham Road,
Dublin
Satellite 3, 605 605 Leasehold Sales Office and
Stansted Airport Operations Center
Dublin Airport 2,993 2,175 Leasehold
(Hangar) Aircraft Maintenance
East Midlands Airport 3,647 3,647 Freehold Simulator and
training center
Skavsta Airport 1,936 1,936 Leasehold Aircraft
(Hangar) Maintenance
Prestwick Airport 4,052 4,052 Leasehold Aircraft
(Hangar) Maintenance
Stansted Storage Facilities 378 531 Leasehold Aircraft Maintenance
Ryanair has agreements with Aer Rianta, the Irish government authority
charged with operating Ireland's major airports, to lease ticket counters and
other space at the passenger and cargo terminal facilities at Dublin Airport.
Ryanair also financed the construction of and leased a new hangar extension at
Dublin Airport, which was completed in May 1997. 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, a new minister was appointed to lead the Department of
Transport in Ireland following the general election. The minister has completed
a review of Ireland's airport facilities and recently requested proposals from
interested parties for the development of new terminals and piers at Dublin
Airport. Ryanair has submitted a proposal to the government, as have several
other interested parties. Management expects that its proposal, if accepted and
implemented, would either involve Ryanair building and operating a terminal and
pier at Dublin Airport itself or it becoming the "anchor tenant" for a terminal
built by another consortium. Although the total cost to Ryanair of such a role
in the development of any such facilities cannot be determined at this time, any
such project could require substantial capital expenditures, as well as
significant additional costs in relation to the maintenance and operation of the
terminal and pier. In July 2004, the Minister for the Department of Transport
announced legislation enacting plans for the break up of Aer Rianta into three
competing airports at Dublin, Cork, and Shannon managed by three separate
boards. This break-up of Aer Rianta is contingent on seprate business plans to
be ratified by the Minister for Finance and the Minister for Transport. This
would enable each airport to compete with the others on a commercial basis for
new and existing business. The break up of Aer Rianta has already commenced and
the Government is in the process of appointing directors to the board of the
companies that will manage the three airports. Ryanair anticipates that the new
boards of management for the three airports will not be fully operational until
the end of 2004. On implementation of the new board at Dublin airport and
following the approval of the business plan for competing airports by the
Minister of Finance, it is anticipated that the government will consider plans
for independent competing airport terminals at Dublin airport.
TRADEMARKS
Ryanair's name, logo and slogans "Ryanair.com The Low Fares Website" and
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 throughout
the EU.
Ryanair has also registered its name as a trademark in the Benelux
countries, Germany and the U.K. The registrations give Ryanair an exclusive
monopoly over the use of its trade name with regard to similar services in these
jurisdictions 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. The registrations in each of these jurisdictions
is due for renewal in January 2005 and management currently intends to maintain
these registrations notwithstanding its CTM registration.
At present, 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 "--Regulation of Competition--State Aid."
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.
47
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 and the JAA. 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 was established on February 27,
2001 under the Aviation Regulation Act, 2001 ("Aviation Regulation Act"). The
CAR is primarily responsible for deciding maximum airport charges at Ireland's
major airports, namely Dublin, Cork and Shannon. 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.
Finally, CAR has responsibility 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.
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.
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. An operator's certificate attests 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.
48
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. Ryanair's current operating
certificate, in accordance with the routine annual schedule, is set to expire on
January 31, 2005.
Civil Aviation Authority. Buzz Stansted's current air operator's
certificate was issued by the U.K. CAA with effect from June 29, 2004. This
certificate allows Buzz Stansted to operate the six 737-300 aircraft it leases.
The CAA has similar powers to those of the IAA.
Department of Transport. The Department of Transport ("DOT") has a more
limited role in the regulation of Irish air transport as the majority of its
regulatory functions have been transferred to CAR under the Aviation Regulation
Act. DOT retains responsibility for implementation of EU and national
legislation and international standards relating to air transport, e.g., noise
levels, aviation security, etc.
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 European
Union 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. The JAA retains its current functions for operations and
licensing as well as airworthiness and maintenance issues for the JAA member
states outside EASA. However, the EASA is expected to take over these JAA
functions as the agency continues to develop and establish itself, in
co-operation with the EU Commission and with the other divisions of the JAA.
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.
49
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 by the end of 2004. The "single European sky policy" currently
consists of the Framework Regulation (Reg. E.C. 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.
Registration of Aircraft
Pursuant to the Irish Aviation Authority (Nationality and Registration of
Aircraft) Order, 2001 (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 September 15, 2004, nine of the ten 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. Similar measures apply to Buzz Stansted, which
operates under a U.K. air operators certificate issued by the CAA and whose six
aircraft are all registered in the U.K. As of September 15, 2004, all of the
directors of Buzz Stansted are citizens of EU Member States.
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).
50
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--The Company
Could Incur Significant Additional Costs Arising from Legal Proceedings
Regarding Brussels Charleroi and Strasbourg" 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.
Group 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 Aer Rianta. 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 and has entered into its fleet replacement program to
replace the Boeing 737-200A aircraft with Boeing 737-800 "next generation"
aircraft with lower emissions, lower fuel burn, greater seat density and quieter
engines, which significantly reduce the impact on the environment. This
replacement program is expected to be completed by December 2005. The Company's
future growth plans provide for a fleet consisting entirely of more
environmentally friendly Boeing 737-800 "next generation" aircraft from the end
of 2005. See "--Aircraft" above for details on Ryanair's fleet plan.
51
Furthermore, by moving to an all Boeing 737-800 "next generation" fleet,
Ryanair is reducing 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
the 737-200A aircraft.
In addition, Ryanair has distinctive operational characteristics
that are helpful to the general environment; it:
- has no late night departures of aircraft, reducing noise emissions;
- has reduced per passenger emissions through higher load factors;
- operates fuel efficient Boeing 737-800 "next generation" aircraft,
thereby reducing fuel usage per seat by 45% compared to the older
Boeing 737-200As; and
- better utilizes existing infrastructure by operating out of
underutilized airports throughout Europe.
Emissions Charges. Ryanair is fundamentally opposed to the imposition of
regulatory charges tied to aircraft emissions, as have been suggested by certain
European politicians. Ryanair has and continues, to offer the lowest fares in
Europe, to make passenger travel affordable and accessible to European
consumers. Ryanair believes that to impose a charge on the emissions of aircraft
will not only increase airfares, but will discourage new entrants into the
market, resulting in less choice for consumers. As a company, Ryanair believes
in free market competition and believes that the proposed imposition of an
emissions trading scheme on airlines, particularly growing airlines, would
continue to enable the flag carriers to achieve their objectives of reducing
competition, and would also limit expansion and create a further barrier to
entry into the market. This would benefit the traditional flag carriers of the
European Union who have smaller aircraft, lower load factors, a much higher fuel
burn per passenger and already tend to operate into inefficient, congested
airports.
Slots
Currently, only sixteen airports served by Ryanair - London (Stansted),
London (Gatwick), Turin, Manchester, Milan (Bergamo), Rome (Ciampino), Palermo,
Murcia, Barcelona (Girona), Barcelona (Reus), Malaga, Faro, Jerez, Berlin
Schoenefeld, Eindhoven and Valladolid - are regulated by means of "slot"
allocations, which represent authorizations to take off or land at a particular
airport within a specified time period. 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 (Reg EC 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.
52
EU regulations require the use of each slot at least 80% of the time during
the season to which the slot relates and provide for forfeiture of slots without
compensation in certain circumstances. A minor amendment was made to the
legislation in 2003 to reflect the fact that, due to the war launched in March
2003 in Iraq, as well as the outbreak of SARS, many airlines could not meet this
"use it or lose it" requirement for maintaining their slots. The amendment
recognized that these events were exceptional circumstances, which merited
deviation from the rule. This exemption lasted until the end of the summer
season in 2004.
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
Irish GAAP. For a discussion of certain differences between Irish GAAP and U.S.
GAAP, see Note 31 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.
53
From 1997 through September 2004, Ryanair launched service on 149 routes
to/from the U.K. and in continental Europe, and also increased the frequency of
service on a number of its principal routes. During that period, Ryanair also
established London (Stansted), Glasgow (Prestwick), London (Luton), Shannon,
Brussels (Charleroi), Frankfurt (Hahn), Milan (Bergamo), Stockholm (Skavsta),
Barcelona (Girona) and Rome (Ciampino) airports as additional bases of
operations. Since 1999, Ryanair has increased the number of passengers flown
from 4.9 million in 1999 to 21.2 million in 2004, taken delivery of 57 Boeing
737-800 aircraft, and now serves 88 airports while employing over 2,300 people.
Taking into account scheduled retirements of Ryanair's Boeing 737-200As,
Ryanair expects to have 87 aircraft in its operating fleet by April 2005. Over
the next five years, the Company expects to take delivery of an additional 98
Boeing 737-800 aircraft which it is obligated to purchase under existing
contracts with Boeing. These deliveries, net of further scheduled retirements
and lease terminations, are expected to increase the size of the Company's fleet
to 155 aircraft by December 2008, with that number increasing should Ryanair
choose to exercise any of the 123 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 began to introduce its low cost operating model 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 increased more than tenfold over the past
decade, from approximately 945,000 passengers in calendar year 1992 to
approximately 23.1 million passengers in fiscal year 2004.
Ryanair's revenue passenger miles ("RPMs") increased from 4,505.9 million
in fiscal year 2002 to 6,781.1 million in fiscal year 2003 and to 10,425.9
million in fiscal year 2004, due primarily to an increase in scheduled available
seat miles ("ASMs") from 6,081.0 million in fiscal year 2002 to 8,744.4 million
in fiscal year 2003 and to 13,996.1 million in fiscal year 2004. Scheduled
passenger revenues increased from EUR 551.0 million in fiscal year 2002 to EUR
732.0 million in fiscal year 2003 and to EUR 924.6 million in fiscal year 2004.
During this period, flown passenger load factors were 74% in fiscal year 2002,
78% in fiscal year 2003 and 74% in fiscal year 2004. Average yield per RPM was
EUR 0.122 in fiscal year 2002, EUR 0.108 in fiscal year 2003 and EUR 0.089 in
fiscal year 2004. The decrease in average yield per RPM in fiscal years 2003 and
2004 was principally attributable to an increase in the company's 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
decline further in the near term due to continuing price competition.
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 58% in fiscal year 2002, 57%
in fiscal year 2003 and 62% in fiscal year 2004. Cost per ASM declined from EUR
0.071 in fiscal year 2002 to EUR 0.062 in fiscal year 2003 and to EUR 0.055 in
fiscal year 2004. Ryanair recorded an operating profit after goodwill
amortization of EUR 162.9 million in fiscal year 2002, EUR 263.5 million in
fiscal year 2003 and EUR 249.0 million in fiscal year 2004, and profit after
taxation of EUR 150.4 million in fiscal year 2002, EUR 239.4 million in fiscal
year 2003 and EUR 206.6 million in fiscal year 2004. Ryanair recorded seat
capacity growth of approximately 54% in fiscal 2004, compared to 35% and 31% in
fiscal years 2003 and 2002, and expects capacity growth to slow to approximately
16% in fiscal 2005, as a result of the Company's early termination in August
2004 of the leases for Buzz Stansted's six 737-300 aircraft. See "Item 4.
Information on the Company--Acquisition of Buzz" for additional information on
these terminations.
54
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,
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 not to enter
into fuel hedging arrangements beyond October 2004 at current market rates.
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 has increased dramatically as a result of the
terrorist attacks on the U.S. in September 2001. 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."
RECENT OPERATING RESULTS
For the quarter ended June 30, 2004 (the first quarter of the Company's
fiscal year 2005), Ryanair recorded an increase in profit after taxation of
29.8%, from EUR 40.5 million in the three months ended June 30, 2003 to EUR 52.6
million, including in each case exceptional costs and goodwill amortization
arising from the April 2003 acquisition of Buzz.
Total operating revenues increased 23.5%, from EUR 245.2 million in the
first quarter of fiscal year 2004 to EUR 302.8 million in the first quarter of
fiscal 2005, primarily as a result of an increase of approximately 21.0% in
scheduled passenger revenues, which totalled EUR 259.1 million for the quarter,
as well as a 40.4% increase in ancillary revenues to EUR 43.7 million. Operating
expenses increased at approximately the same rate, rising by 23.9%, from EUR
192.1 million in the three months ended June 30, 2003 to EUR 238.0 million in
the three months ended June 30, 2004, reflecting increased costs (particularly
staff, fuel, route charges, and airport and handling costs) related to the
growth of Ryanair's fleet and route network and the general level of activity.
As a result, Ryanair's operating profit after goodwill amortization increased by
28.9% to EUR 64.2 million. The Company had cash and liquid resources of EUR
1,327.0 million at June 30, 2004, as compared with EUR 1,257.4 million in cash
and liquid resources at March 31, 2004, as increased cash flows from operating
activities reflected Ryanair's profitable performance. Capital expenditures for
the quarter, primarily relating to deposit payments for future aircraft
deliveries, totalled EUR 60.5 million.
55
Buzz Stansted did not operate any services between April 10, 2003 and May
1, 2003, while staff were being retrained and the airline obtained the required
U.K. air operators' certificate. As a result, the Company recorded exceptional
costs amounting to EUR 3.0 million (equal to Buzz Stansted's operating costs
during this period of inactivity) in the fiscal quarter ending June 30, 2003.
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of Ryanair's financial condition and
results of operations are based on its Consolidated Financial Statements, which
are included in Item 18 and prepared in accordance with Irish GAAP. Irish GAAP
differs in certain significant respects from U.S. GAAP. For additional
information regarding the material differences between Irish GAAP and U.S. GAAP,
please refer to Note 31 to the Consolidated Financial Statements included in
Item 18. 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 most 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 1b to the Consolidated Financial
Statements included in Item 18.
Long lived assets
As of March 31, 2004, Ryanair had EUR 1.58 billion of long-lived assets,
including EUR 1.56 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, 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.
56
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.
Inventory obsolescence
In accounting for inventory, which principally comprises rotable aircraft
spares, Ryanair must make estimates regarding the useful lives of the aircraft
on which the inventory will be used, in addition to estimates of any excess
inventory on hand, and provides an allowance for such amounts. In estimating the
useful lives of the aircraft and related inventory, and any excess inventory,
Ryanair has primarily relied on the experience of its own operations and that of
the aircraft industry. Subsequent revisions to such estimates, which could be
significant, can be affected by changes to Ryanair's maintenance program,
changes to utilization of aircraft, governmental regulations on aging of
aircraft and changing market prices for rotable aircraft spares. Ryanair
evaluates these estimates and assumptions in each reporting period and adjusts
these as needed.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data (calculated
under Irish GAAP) for Ryanair expressed as a percentage of Ryanair's total
revenues for each of the periods indicated:
Fiscal Year ended March 31,
2004 2003 2002
Total Revenues........................................ 100% 100% 100.0%
Scheduled Revenues.................................. 86.1 86.9 88.3
Ancillary Revenues.................................. 13.9 13.1 11.7
Total Operating Expenses.............................. 76.6 68.7 73.9
Staff Costs......................................... 11.5 11.0 12.5
Depreciation and Amortization....................... 9.1 9.1 9.5
Fuel and Oil........................................ 16.3 15.3 16.7
Maintenance, Materials and Repairs.................. 4.0 3.5 4.2
Marketing and Distribution Costs.................... 1.5 1.7 2.0
Aircraft Rentals.................................... 1.1 0.0 0.6
Route Charges....................................... 10.3 8.1 7.5
Airport and Handling Charges........................ 13.7 12.8 13.6
Other Ancillary and Operating Expenses.............. 7.3 7.2 7.3
Exceptional Costs*.................................. 1.8 - -
Operating Profit before goodwill amortization......... 23.4 31.3 26.1
Goodwill Amortization** 0.2 - -
Operating Profit after goodwill amortization.......... 23.2 31.3 26.1
Net interest (expense) income......................... (2.2) 0.0 1.3
Other Income (Expenses)............................... 0.3 0.1 0.2
Profit before Taxation................................ 21.3 31.4 27.6
Taxation.............................................. 2.0 3.0 3.5
Profit after Taxation................................. 19.3 28.4 24.1
57
* Exceptional costs totaled EUR 19.6 million, comprising lease costs of EUR
13.3 million arising from the early retirement of six Boeing 737-200A
aircraft, an additional depreciation charge of EUR 3.3 million relating to
an adjustment to the residual value of these aircraft and EUR 3.0 million
in costs we incurred to reorganize Buzz's operations following its
acquisition.
** Goodwill amortization of EUR 2.3 million arising from the "Buzz"
acquisition was recorded during the period.
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,
2004 2003 2002
(in thousands of euro, except percentage data)
Non-flight Scheduled.............. EUR 66,616 44.5% EUR 35,291 31.9% EUR 16,662 22.8%
Car Rental........................ EUR 35,110 23.4% EUR 27,615 25.0% EUR 18,905 25.9%
In-flight Sales................... EUR 30,100 20.1% EUR 23,142 20.9% EUR 18,030 24.7%
Internet-Related.................. EUR 17,721 11.8% EUR 12,159 11.0% EUR 4,831 6.6%
Charter........................... EUR 111 0.2% EUR 12,350 11.2% EUR 14,631 20.0%
Total............................. EUR 149,658 100.0% EUR 110,557 100% EUR 73,059 100.0%
FISCAL YEAR 2004 COMPARED WITH FISCAL YEAR 2003
Profit after Taxation. Ryanair's profit on ordinary activities after
taxation declined 13.7%, from EUR 239.4 million in the fiscal year ended March
31, 2003 to EUR 206.6 million in the fiscal year ended March 31, 2004, despite a
27.5% increase in total operating revenues from EUR 842.5 million to EUR 1,074.2
million. The decrease in profitability was largely attributable to a reduction
of approximately 14% in average fares, and also reflected the negative impact of
the exceptional costs described in more detail below, as well as goodwill
arising from the "Buzz" acquisition of EUR 2.3 million amortized during the
period. These negative factors were offset only in part by continued strong
growth in passenger volumes due to the launch of 73 new routes and two
additional continental European bases during the year, increased capacity on
existing routes and the acquisition of Buzz in April 2003, as well as the
Company's continued focus on tight cost controls. Ryanair's profit on ordinary
activities before taxation decreased 13.6%, from EUR 264.6 million in the fiscal
year ended March 31, 2003 to EUR 228.5 million in the fiscal year ended March
31, 2004.
Scheduled Revenues. Ryanair's scheduled passenger revenues increased 26.3%,
from EUR 731.9 million in the fiscal year ended March 31, 2003 to EUR 924.6
million in the fiscal year ended March 31, 2004. This increase reflected growth
of 47.3% in scheduled passenger volumes, from 14.4 million to 21.2 million
passengers flown, and a 48.9% increase in sectors flown from 115,325 to 171,726.
The increase in scheduled revenues was achieved despite the approximately 14%
decrease in average fares, of which approximately four percentage points was
attributable to the depreciation of the U.K. pound sterling against the euro, as
well as a decrease in average yield per RPM from EUR 0.108 to EUR 0.089 and a
decline in flown passenger load factor from 78% to 74%.
58
The increase in scheduled passenger revenue was directly attributable to
the increase in sectors flown due to the impact of operating 18 new Boeing
737-800 aircraft and the expansion of Ryanair's route network during the period,
as 73 new routes were launched. The increase in scheduled passenger revenues and
sectors flown also reflected an increase in frequencies on certain of its
existing routes and the use of larger aircraft on certain of its routes.
Passenger capacity (as measured in ASMs) increased 60.1% during this period due
to the addition of 18 Boeing 737-800 aircraft, as well as an increase in the
average length of passenger haul and the increase in sectors flown. Scheduled
passenger revenues accounted for 86.1% of Ryanair's total revenues for the
fiscal year ended March 31, 2004, compared with 86.9% of total revenues in
fiscal year ended March 31, 2003.
Ancillary Revenues. Ryanair's ancillary revenues, which comprise revenues
from non-flight scheduled operations, car rentals, in-flight sales and charter
revenues, increased 35.4%, from EUR 110.6 million in the fiscal year ended March
31, 2003 to EUR 149.7 million in the fiscal year ended March 31, 2004. The
overall increase reflected improved results in each of the components other than
charter revenues. Revenues from non-flight scheduled operations, primarily
excess baggage charges, income from debit and credit card transactions, and
sales of rail tickets, hotel accommodation and travel insurance, increased 88.9%
to EUR 66.6 million from EUR 35.3 million in fiscal 2003, while car rental
revenues increased by 23.4%, to EUR 35.1 million from EUR 27.6 million. Revenues
from in-flight sales increased 30.1%, from EUR 23.1 million in fiscal year 2003
to EUR 30.1 million in fiscal year 2004, although average passenger spending per
flight declined from EUR 3.52 to EUR 3.07. 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 45.7%, from EUR 12.2
million in fiscal year 2003 to EUR 17.7 million in fiscal year 2004. Charter
revenues decreased from EUR 12.4 million to EUR 0.1 million, reflecting the fact
that the Company ceased offering charter services in April 2003 in order to
focus on its scheduled operations.
Operating Expenses. As a percentage of total revenues, Ryanair's operating
expenses increased from 68.7% in the fiscal year ended March 31, 2003 to 76.8%
in the fiscal year ended March 31, 2004, as a result of the faster growth in
expenses during the year compared to revenues, which were negatively affected by
the decline in fares described above. In absolute terms, total operating
expenses increased 42.5%, from EUR 579.0 million in the fiscal year ended March
31, 2003 to EUR 825.3 million in the fiscal year ended March 31, 2004,
principally as a result of the increase in scheduled passenger volume and the
48.9% increase in number of sectors flown, which were reflected in increases in
fuel expenses and route and airport and handling charges, which were offset only
in part by the weakening of the U.K. pound sterling against the euro as well as
efficiencies arising from the increased proportion of 737-800 aircraft in the
Company's fleet. Nonetheless, total operating expenses per ASM declined by
10.9%, reflecting declines on a per ASM basis in all components other than
aircraft rentals and route charges.
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, 2003 and March 31, 2004 under Irish GAAP:
59
Fiscal Year Fiscal Year
Ended Ended
March 31, 2004 March 31, 2003 % Change
Staff Costs................................................. 0.88 1.06 -17.0%
Depreciation and Amortization............................... 0.70 0.88 -20.2%
Fuel and Oil................................................ 1.25 1.47 -15.1%
Maintenance, Materials and Repairs.......................... 0.31 0.34 -8.7%
Marketing and Distribution.................................. 0.12 0.17 -31.0%
Aircraft Rentals............................................ 0.08 0.00 nm(d)
Route Charges............................................... 0.79 0.78 0.7%
Airport and Handling Charges................................ 1.05 1.24 -14.8%
Other Operating Expenses.................................... 0.56 0.68 -18.1%
Exceptional costs(a)........................................ 0.14 - nm(d)
Operating Expenses before goodwill amortization............. 5.88 6.62 -13.3%
Goodwill amortization(b).................................... 0.02 - nm(d)
Total Operating Expenses after goodwill amortization(c)..... 5.90 6.62 -10.9%
* For the purposes of calculating Operating Expenses per Available Seat Mile
(ASM), operating expenses include the costs of the Company's charter
operations.
** 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.
(a) Exceptional costs totaled EUR 19.6 million, comprising lease costs of EUR
13.3 million arising from the early retirement of six Boeing 737-200A
aircraft, an additional depreciation charge of EUR 3.3 million relating to
an adjustment to the residual value of these aircraft and EUR 3.0 million
in costs we incurred to reorganize Buzz's operations following their
acquisition.
(b) Goodwill of EUR 2.3 million arising from the "Buzz" acquisition was
recorded during the period.
(c) Total Operating Expenses per ASM does not equal the Cost per ASM (CASM)
reported in the table of "Selected Operating and Other Data" in Item 3, as
the latter figure excludes Non-Charter Ancillary Costs, which were 0.46
euro cents and 0.14 euro cents per ASM in the fiscal years ended March 31,
2003 and 2004, respectively.
(d) Not meaningful.
Staff Costs. Ryanair's staff costs, which consist primarily of salaries,
wages and benefits, decreased 17.0% on a per ASM basis, while in absolute terms,
these costs increased 32.8%, from EUR 93.1 million in the fiscal year ended
March 31, 2003 to EUR 123.6 million in the fiscal year ended March 31, 2004,
reflecting a 31% increase in average employee numbers to 2,288 as well as a 3%
pay increase granted to employees during the year, offset in part by savings
arising from the strengthening of the euro against the U.K. pound sterling.
Productivity calculated on the basis of passengers booked per employee continued
to improve, increasing 21.1% to 10,049 passengers during the year.
Depreciation and Amortization. Ryanair's depreciation and amortization per
ASM decreased by 20.2%, while in absolute terms these costs increased 27.7% from
EUR 76.9 million in the fiscal year ended March 31, 2003 to EUR 98.1 million
(excluding exceptional costs) in the fiscal year ended March 31, 2004,
reflecting an increase in the number of owned aircraft from 54 to 62 and the
amortization of capitalized maintenance costs, offset in part by savings arising
from the base cost of all 737-200A aircraft now having been fully depreciated.
Fuel and Oil. Ryanair's fuel and oil costs per ASM decreased 15.1%,
although in absolute terms these costs increased 35.8%, from EUR 128.8 million
in the fiscal year ended March 31, 2003 to EUR 175.0 million in the fiscal year
ended March 31, 2004, in each case after giving effect to the Company's fuel
hedging activities. The increase was principally due to the 58.2% increase in
overall number of hours flown resulting from the expansion of Ryanair's fleet
and route network, offset in part by a decrease in the Company's cost of fuel as
a result of the weakness of the dollar against the euro and an improvement in
the fleet fuel burn rate due to the increased proportion of 737-800 aircraft
operated. 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) decreased from EUR 0.930 per U.S.
gallon in the fiscal year ended March 31, 2003 to EUR 0.816 per U.S. gallon in
the fiscal year ended March 31, 2004, in each case after giving effect to the
Company's fuel hedging activities.
60
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, decreased 8.7% on a per ASM basis, while in
absolute terms these expenses increased 46.2%, from EUR 29.7 million in the
fiscal year ended March 31, 2003 to EUR 43.4 million in the fiscal year ended
March 31, 2004. The increase in absolute terms was largely due to the increase
in the size of the fleet operated and flight hours, as well as higher
maintenance charges relating to the Buzz aircraft, the effects of which were
partially offset by savings reflecting improved reliability due to the higher
proportion of 737-800 aircraft in the fleet. In addition, the entry into
operation of 10 aircraft under operating lease as a result of the acquisition of
Buzz and the early retirement of certain 737-200s resulted in the recognition of
the maintenance costs as provisions made for future overhauls. Under Irish GAAP,
the accounting treatment for these costs 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 31.0%, while in absolute terms these costs increased
10.4%, from EUR 14.6 million in the fiscal year ended March 31, 2003 to EUR 16.1
million in the fiscal year ended March 31, 2004. The increase in absolute terms
was primarily the result of higher spending on the promotion of new routes, as
well as the initial launch costs arising from the commencement of two new bases
at Barcelona (Girona) and Rome (Ciampino) in the fiscal fourth quarter of the
year.
Aircraft Rentals. Ryanair recorded EUR 11.5 million in aircraft rental
expense during the fiscal year ended March 31, 2004, compared to none during the
fiscal year ended March 31, 2003. This reflects the lease rental costs
associated with the acquired Buzz aircraft and the operating leases entered into
for 10 of the new 737-800 aircraft, nine of which were delivered during the
fourth quarter of fiscal 2004. See "Item 4. Information on the
Company--Aircraft" for more information on these leases.
Route and Airport and Handling Charges. Ryanair's route charges per ASM
increased 0.7% in the fiscal year ended March 31, 2004, while airport and
handling charges per ASM decreased 14.8%. In absolute terms, route charges
increased 61.2%, from EUR 68.4 million in the fiscal year ended March 31, 2003
to EUR 110.3 million in the fiscal year ended March 31, 2004, primarily as a
result of the 48.9% increase in sectors flown and the increase 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 737-800s,
offset in part by the impact of the weakening of the British pound, in which
costs at our bases in London (Stansted) and Glasgow (Prestwick) and other
airports in the United Kingdom are denominated, against the euro. In absolute
terms, airport and handling charges increased 36.3%, from EUR 108.0 million in
the fiscal year ended March 31, 2003 to EUR 147.2 million in the fiscal year
ended March 31, 2004, reflecting the growth in passenger volume and increased
costs on certain existing routes, the effects of which were offset in part by
lower average costs on new routes to continental Europe.
Other Ancillary and Operating Expenses. Ryanair's other operating expenses,
including those applicable to the generation of ancillary revenues, decreased
18.1% on a per ASM basis in the fiscal year ended March 31, 2004, although in
absolute terms these costs increased by 31.1%, from EUR 59.5 million in the
fiscal year ended March 31, 2003 to EUR 78.0 million in the fiscal year ended
March 31, 2004. 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 increases in passenger volumes.
61
Exceptional Costs. The Company recorded exceptional costs in fiscal 2004
consisting of lease costs of EUR 13.3 million arising from the early retirement
of six Boeing 737-200A aircraft, an additional depreciation charge of EUR 3.3
million relating to an adjustment to the residual value of these aircraft and
EUR 3.0 million in costs we incurred to reorganize Buzz's operations following
its acquisition. The Company did not record any exceptional costs in fiscal
2003.
Goodwill Amortization. The Company recorded goodwill amortization in fiscal
2004 of EUR 2.3 million, arising from the "Buzz" acquisition. The Company had no
goodwill amortization in fiscal 2003.
Operating Profit after Goodwill Amortization. As a result of the factors
described above, Ryanair's operating profit after goodwill amortization as a
percentage of total revenues decreased from 31.3% in the fiscal year ended March
31, 2003 to 23.2% in the fiscal year ended March 31, 2004. In absolute terms,
operating profit after goodwill amortization decreased 5.5%, from EUR 263.5
million in the fiscal year ended March 31, 2003 to EUR 249.0 million in the
fiscal year ended March 31, 2004.
Interest Receivable and Similar Income. Ryanair's interest receivable and
similar income decreased 23.8%, from EUR 31.4 million in the fiscal year ended
March 31, 2003 to EUR 23.9 million in the fiscal year ended March 31, 2004,
primarily reflecting reductions in deposit interest rates during the year,
offset only in part by higher average cash balances on hand due to Ryanair's
continuing profitability.
Interest Payable and Similar Charges. Ryanair's interest payable and
similar charges increased 54.0%, from EUR 30.9 million in the fiscal year ended
March 31, 2003 to EUR 47.6 million in the fiscal year ended March 31, 2004,
reflecting the increase in debt related to the acquisition of nine 737-800
aircraft. These costs are expected to continue to increase as Ryanair expands
its fleet.
Other Income. Ryanair's other income, comprising foreign exchange gains and
losses as well as gains and losses on disposals of assets, increased from EUR
0.6 million in the fiscal year ended March 31, 2003 to EUR 3.2 million in the
fiscal year ended March 31, 2004, primarily due to the year-end conversion to
euro of U.K. pound sterling and U.S. dollar bank balances, as well as foreign
currency receivable and payable balances.
Taxation. The effective tax rate for the fiscal year ended March 31, 2004
was 9.6%, compared to 9.5% in the fiscal year ended March 31, 2003. The
effective tax rate reflects a reduction in the statutory rate of Irish
corporation tax to 12.5%, the positive impact of Ryanair.com (which benefits
from a reduced income tax rate) and the continued benefit of Ryanair's
international leasing and internet-related businesses. Profits from certain
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 EUR 21.9 million for the
fiscal year ended March 31, 2004, compared to an income tax provision of EUR
25.2 million for the fiscal year ended March 31, 2003.
FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002
Profit after Taxation. Ryanair's profit on ordinary activities after
taxation increased 59.2%, from EUR 150.4 million in the fiscal year ended March
31, 2002 to EUR 239.4 million in the fiscal year ended March 31, 2003, while
total operating revenues increased 35.0% from EUR 624.1 million to EUR 842.5
million. The increase in profitability was driven by continued strong growth in
passenger volumes due to the increase in seat capacity on existing routes and
the launch of a further 29 routes and an additional continental European base
during the year. The continued focus on tight cost controls also contributed to
the increase in profitability. Ryanair's profit on ordinary activities before
taxation increased 53.5%, from EUR 172.4 million in the fiscal year ended March
31, 2002 to EUR 264.6 million in the fiscal year ended March 31, 2003.
62
Scheduled Revenues. Ryanair's scheduled passenger revenues increased 32.8%,
from EUR 551.0 million in the fiscal year ended March 31, 2002 to EUR 731.9
million in the fiscal year ended March 31, 2003. This increase reflected growth
of 41.4% in scheduled passenger volumes, from 10.2 million to 14.4 million
passengers flown, and a 28.0% increase in sectors flown from 90,124 to 115,325.
The increase in scheduled revenues was achieved despite a decrease in average
yield per RPM from EUR 0.122 to EUR 0.108, the negative effects of which were
partially offset by the increase in flown passenger load factor from 74% to 78%.
Much of the increase in scheduled passenger revenue was directly
attributable to the increase in sectors flown due to the impact of operating 13
new Boeing 737-800 aircraft and the expansion of Ryanair's route network during
the period. The increase in scheduled passenger revenues and sectors flown also
reflected Ryanair's launch of 29 additional routes during the period, an
increase in frequencies on certain of its existing routes and the use of larger
aircraft on certain of its routes. Passenger capacity (as measured in ASMs)
increased 43.8% during this period due to the addition of 13 737-800 aircraft,
as well as an increase in the average length of passenger haul and the increase
in sectors flown. Scheduled passenger revenues accounted for 86.9% of Ryanair's
total revenues for the fiscal year ended March 31, 2003, compared with 88.3% of
total revenues in fiscal year ended March 31, 2002.
Ancillary Revenues. Ryanair's ancillary revenues, which consist primarily
of revenues from car rentals, in-flight sales of beverages, food, and
merchandise, sales of rail tickets, hotel accommodation and travel insurance,
internet-related activities and charter services, increased 51.3%, from EUR 73.1
million in the fiscal year ended March 31, 2002 to EUR 110.6 million in the
fiscal year ended March 31, 2003. The increase was primarily attributable to a
significant increase in revenues from car rentals, non-flight scheduled
services, and internet-related activities. Revenues from car rentals rose during
the period from EUR 18.9 million to EUR 27.6 million, or 46.1%; and revenues
from non-flight scheduled operations (primarily sales of rail tickets, hotel
accommodation and travel insurance, as well as excess baggage charges and credit
card revenues) more than doubled from EUR 16.7 million to EUR 35.3 million.
Revenues from in-flight sales increased 28.4%, from EUR 18.0 million in fiscal
year 2002 to EUR 23.1 million in fiscal year 2003, as average passenger spending
per flight declined from EUR 3.63 to EUR 3.52. Charter revenues decreased from
EUR 14.6 million to EUR 12.4 million, or 15.6%, due to a reduction in the seat
capacity available, as charter capacity has been transferred to scheduled
flights and the Company now offers service to some of the destinations
previously served by charters. Revenues from internet-related services,
primarily commissions received from products sold on websites linked to the
Ryanair.com website, more than doubled, from EUR 4.8 million in fiscal year 2002
to EUR 12.2 million in fiscal year 2003. Revenues from internet-related services
also reflect revenues from the financial services the Company offers.
Operating Expenses. As a percentage of total revenues, Ryanair's operating
expenses decreased from 73.9% in the fiscal year ended March 31, 2002 to 68.7%
in the fiscal year ended March 31, 2003. In absolute terms, total operating
expenses increased 25.6%, from EUR 461.1 million in the fiscal year ended March
31, 2002 to EUR 579.0 million in the fiscal year ended March 31, 2003,
principally as a result of the increase in scheduled passenger volume and the
28% increase in number of sectors flown, which were reflected in increases in
fuel expenses, route and airport and handling charges and staff and depreciation
costs in absolute terms. Nonetheless, total operating expenses per ASM declined
by 12.7%, reflecting declines on a per ASM basis in all components other than
route charges.
63
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, 2002 and March 31, 2003 under Irish GAAP:
Fiscal Year Fiscal Year
Ended Ended
March 31, 2003 March 31, 2002 % Change
Staff Costs...................................................... 1.06 1.29 -17.3%
Depreciation and Amortization.................................... 0.88 0.97 -9.4%
Fuel and Oil..................................................... 1.47 1.71 -13.8%
Maintenance, Materials and Repairs............................... 0.34 0.43 -21.7%
Marketing and Distribution....................................... 0.17 0.20 -17.7%
Aircraft Rentals................................................. 0.00 0.07 -10.0%
Route Charges.................................................... 0.78 0.77 1.9%
Airport and Handling Charges..................................... 1.24 1.40 -11.5%
Other Operating Expenses......................................... 0.68 0.74 -9.2%
Total Operating Expenses(a)...................................... 6.62 7.58 -12.7%
* For the purposes of calculating Operating Expenses per Available Seat Mile
(ASM), operating expenses include the costs of the Company's charter
operations.
** 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.
(a) Total Operating Expenses per ASM does not equal the Cost per ASM (CASM)
reported in the table of "Selected Operating and Other Data" in Item 3, as
the latter figure excludes Non-Charter Ancillary Costs, which were 0.50
euro cents and 0.46 euro cents per ASM in the fiscal years ended March 31,
2002 and 2003, respectively.
Staff Costs. Ryanair's staff costs, which consist primarily of salaries,
wages and benefits, decreased 17.3% on a per ASM basis, while in absolute terms,
these costs increased 19.0%, from EUR 78.2 million in the fiscal year ended
March 31, 2002 to EUR 93.1 million in the fiscal year ended March 31, 2003, due
to an increase in the number of staff employed, increased productivity payments
to pilots and cabin crew reflecting the growth of the airline and the impact of
increases in basic pay granted to certain employees.
Depreciation and Amortization. Ryanair's depreciation and amortization per
ASM decreased by 9.4%, while in absolute terms these costs increased 30.3% from
EUR 59.0 million in the fiscal year ended March 31, 2002 to EUR 76.9 million in
the fiscal year ended March 31, 2003, reflecting the increased costs arising
from the purchase of 13 new Boeing 737-800 aircraft.
Fuel and Oil. Ryanair's fuel and oil costs per ASM decreased 13.8%,
although in absolute terms these costs increased 24.0%, from EUR 103.9 million
in the fiscal year ended March 31, 2002 to EUR 128.8 million in the fiscal year
ended March 31, 2003, in each case after giving effect to the Company's fuel
hedging activities. The increase was principally due to an increase in the
dollar-denominated cost of fuel and the 28% increase in sectors flown (resulting
from the expansion of Ryanair's fleet), as well as an increase in average sector
length. 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) decreased from EUR 1.007 per U.S.
gallon in the fiscal year ended March 31, 2002 to EUR 0.9301 per U.S. gallon in
the fiscal year ended March 31, 2003, 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, decreased 21.7% on a per ASM basis, while in
absolute terms these expenses increased 12.6%, from EUR 26.4 million in the
fiscal year ended March 31, 2002 to EUR 29.7 million in the fiscal year ended
March 31, 2003. The increase in absolute terms was largely due to the increase
in flight hours (resulting from the expansion of Ryanair's fleet) and the
increase in sector length, the effects of which were partially offset by savings
reflecting improved reliability due to the higher proportion of 737-800 aircraft
in the fleet. 64
Marketing and Distribution Costs. Ryanair's marketing and distribution
costs per ASM decreased 17.7%, while in absolute terms these costs increased
18.3%, from EUR 12.4 million in the fiscal year ended March 31, 2002 to EUR 14.6
million in the fiscal year ended March 31, 2003. The increase in absolute terms
was primarily the result of higher spending on the promotion of new routes,
including those launched from Frankfurt (Hahn) following an increase in the
number of aircraft based there, as well as the initial launch costs arising from
the commencement of two new bases at Milan (Bergamo) and Stockholm (Skavsta).
Aircraft Rentals. Ryanair did not record any aircraft rental expense during
the period, as compared to EUR 4.0 million in such expenses in the fiscal year
ended March 31, 2002. This reflected the reduced requirements to rent additional
seat capacity arising from the delivery of the new 737-800 aircraft.
Route and Airport and Handling Charges. Ryanair's route charges per ASM
increased 1.9% in the fiscal year ended March 31, 2003, while airport and
handling charges per ASM decreased 11.5%. In absolute terms, route charges
increased 46.5%, from EUR 46.7 million in the fiscal year ended March 31, 2002
to EUR 68.4 million in the fiscal year ended March 31, 2003, primarily as a
result of the 28% increase in sectors flown and the increase 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 acquisition of 13 new 737-800s.
In absolute terms, airport and handling charges increased 27.2%, from EUR 84.9
million in the fiscal year ended March 31, 2002 to EUR 108.0 million in the
fiscal year ended March 31, 2003, reflecting the growth in passenger volume and
increased costs on certain existing routes, the effects of which were offset in
part by lower average costs on new routes to continental Europe and at Ryanair's
new bases.
Other Ancillary and Operating Expenses. Ryanair's other operating expenses,
including those applicable to the generation of ancillary revenues, decreased
9.2% on a per ASM basis in the fiscal year ended March 31, 2003, although in
absolute terms these costs increased by 30.5%, from EUR 45.6 million in the
fiscal year ended March 31, 2002 to EUR 59.5 million in the fiscal year ended
March 31, 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 costs, while the increase in absolute terms was primarily
attributable to the increases in sectors flown, average sector length and
passenger volumes.
Operating Profit. As a result of the factors described above, Ryanair's
operating profit as a percentage of total revenues increased from 26.1% in the
fiscal year ended March 31, 2002 to 31.3% in the fiscal year ended March 31,
2003. In absolute terms, operating profit increased 61.7%, from EUR 162.9
million in the fiscal year ended March 31, 2002 to EUR 263.5 million in the
fiscal year ended March 31, 2003.
Interest Receivable and Similar Income. Ryanair's interest receivable and
similar income increased 13.8%, from EUR 27.5 million in the fiscal year ended
March 31, 2002 to EUR 31.4 million in the fiscal year ended March 31, 2003,
primarily reflecting higher average cash balances on hand due to the increase in
Ryanair's profitability.
Interest Payable and Similar Charges. Ryanair's interest payable and
similar charges increased 57.5%, from EUR 19.6 million in the fiscal year ended
March 31, 2002 to EUR 30.9 million in the fiscal year ended March 31, 2003,
reflecting the increase in debt related to the acquisition of 13 new 737-800
aircraft. These costs are expected to continue to increase as Ryanair expands
its fleet.
65
Other Income. Ryanair's other income decreased significantly from EUR 1.5
million in the fiscal year ended March 31, 2002 to EUR 0.6 million in the fiscal
year ended March 31, 2003, primarily reflecting the fact that other income for
the prior fiscal year included a gain on disposal of fixed assets of EUR 0.5
million.
Taxation. The effective tax rate for the fiscal year ended March 31, 2003
was 9.5%, compared to 12.8% in the fiscal year ended March 31, 2002. The decline
in the effective tax rate reflects a reduction in the statutory rate of Irish
corporation tax to 12.5%, the positive impact of Ryanair.com (which benefits
from a reduced income tax rate) and the continued benefit of Ryanair's
international leasing and internet-related businesses. Profits from certain
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 EUR 25.2 million for the
fiscal year ended March 31, 2003, and an income tax provision of EUR 22.0
million for the fiscal year ended March 31, 2002.
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 thereof.
U.S. GAAP RECONCILIATION
The Company's consolidated net income determined in accordance with U.S.
GAAP was EUR 215.4 million, EUR 241.8 million and EUR 155.5 million, for the
fiscal years ended March 31, 2004, 2003 and 2002, respectively, as compared with
net income of EUR 206.6 million, EUR 239.4 million and EUR 150.4 million,
respectively, for the same periods, as determined under Irish GAAP.
The Company's total assets determined in accordance with U.S. GAAP were EUR
2,961.9 million, EUR 2,479.9 million and EUR 1,896.7 million at March 31, 2004,
2003 and 2002, respectively, as compared with EUR 2,939.0 million, EUR 2,466.7
million and EUR 1,889.6 million, respectively, under Irish GAAP. Shareholders'
equity determined in accordance with U.S. GAAP was EUR 1,356.3 million, EUR
1,177.2 million and EUR 1,019.6 million at March 31, 2004, 2003 and 2002,
respectively, as compared with EUR 1,455.3 million, EUR 1,241.7 million and EUR
1,002.3 million, respectively, under Irish GAAP. The main differences affecting
the determination of shareholders' equity at March 31, 2004 include the
different treatment of derivative financial instruments, pension costs,
capitalized interest on aircraft acquisitions, the treatment of goodwill and
employment grants received from Forbairt under U.S. GAAP. For a discussion of
the principal differences between Irish GAAP and U.S. GAAP as they relate to the
Company's consolidated net income and shareholders' equity, see Note 31 to the
Consolidated Financial Statements included in Item 18.
RECENTLY ISSUED ACCOUNTING STANDARDS
International Financial Reporting Standards
Ryanair will be required to adopt International Financial Reporting
Standards ("IFRS"), which incorporate International Accounting Standards
("IAS"), in the preparation of its Consolidated Financial Statements from April
1, 2005. The new standards are the result of an extensive exercise undertaken by
International Accounting Standards Board ("IASB") to develop new standards and
improve existing ones.
66
There are significant differences between IFRS and Irish GAAP. Some of the
principal policy and disclosure changes required and expected to impact on the
Company's results under IFRS are set out below.
Business combinations, intangible assets and goodwill
The more significant policy changes resulting from the transition to
IFRS include:
- Replacement of goodwill amortization with an annual impairment test;
and
- A broader definition of "intangible assets" to be recognized at
acquisition.
Financial instruments
The Company's adoption of IAS 32 and 39 (revised) will require it to
recognize all derivatives on the balance sheet at fair value. Subsequent changes
in fair values are either taken to equity, if the criteria for hedge accounting
are met, or to the income statement. Currently, derivatives qualifying as hedges
in accordance with Irish GAAP have been held off balance sheet, and their fair
value disclosed within a note to the financial statements. Any derivatives
embedded within the terms of contractual obligations that are not considered
closely related to the underlying host contract will also be separately
identified and recorded at fair value in the income statement.
Deferred tax
Under IFRS, deferred tax is to be recognized at acquisition as part of an
accounting fair value exercise and will be provided on some balances previously
excluded from provision under Irish accounting rules, such as revaluations and
fair value adjustments.
Employee benefit schemes: post retirement and share option remuneration
IAS 19 requires companies to recognize the full deficit (or surplus) of
defined benefit pension schemes on the balance sheet, but permits a choice
whereby companies can choose to defer actuarial gains or losses within a defined
range (the "corridor" approach).
Under IFRS, options granted by the Company to employees are to be recorded
at fair value at the grant date using an option pricing model, and charged
through the income statement over the vesting period of the options.
Presentation and disclosure of financial information.
The transition to an international accounting framework will give rise to
an increase in certain disclosures to the financial statements. There will also
be some presentational changes. For example, financial statements will include a
detailed reconciliation of reserve movements for the current year, including a
comparison to previous years
In December 2003, the Committee of European Securities Regulators (CESR)
recommended that when European companies publish their 2005 financial
statements, they should present comparable IFRS information for 2004, but not
for 2003. Instead, issuers would present information for 2003 and 2004 under
their home-country accounting principles (with 2005 information would
consequently be published under two sets of accounting principles). Ryanair
expects that it will follow these recommendations in preparing its fiscal 2006
financial statements.
67
U.S. GAAP
In December 2003, the FASB issued Interpretation No. 46,
revised-Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51 ("FIN 46R"). FIN 46R addresses the consolidation of variable interest
entities ("VIEs"), which included entities that have one or more of the
following characteristics:(1) The equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
financial support; (2) The equity investors lack essential characteristics of a
controlling financial interest (as defined by FIN46R); and (3) The equity
investors have voting rights that are not proportionate to their economic
interests, and the activities of the entity involve or are conducted on behalf
of an investor with a disproportionately small voting interest. In addition, FIN
46R provides for certain scope exceptions to its application. Adoption of this
interpretation is required in financial statements of entities that have
interests in VIEs or potential VIEs, commonly referred to as special-purpose
entities, for periods ending after December 15, 2003. Application for all other
types of entities is required in financial statements for period ending after
March 15, 2004. The adoption of FIN 46R has not had a material impact on the
Company's financial statements.
In December 2003, the FASB issued SFAS Statement No. 132
(revised)"Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132 (revised)"). SFAS No. 132 (revised) revises employer's
disclosures about pension plans and other postretirement benefit plans. It does
not change the measurement or recognition of those plans. SFAS No. 132 retains
and revises the disclosure requirements contained in the original SFAS No. 132.
It also requires additional disclosures about the assets, obligations, cash
flows, and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The Statement generally is effective for fiscal
years ending after December 15, 2003. The additional disclosures required by
SFAS No. 132 have been included within the U.S. GAAP pensions disclosures
provided within this section of the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No, 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for certain mandatory redeemable financial instruments or
non-public utilities. The adoption of SFAS No. 150 did not impact on the
Company's financial statements.
In April 2003, the FASB issued SFAS Statement No.149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No.
149"), which amends SFAS Statements No. 133, to address (1) decisions reached by
the Derivatives Implementation Group, (2) developments in other FASB projects
that address financial instruments, and (3) implementation issues related to the
definition of a derivative. SFAS No. 149 has multiple effective date provisions
depending on the nature of the amendments to SFAS No. 133. SFAS No. 149 did not
have a material impact on the Company's results for the year.
68
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 Irish GAAP at March
31, 2002, 2003 and 2004 of EUR 899.3 million, EUR 1,060.2 million and EUR
1,257.4 million, respectively, with the increase at March 31, 2004 primarily
reflecting the growth in profits, offset in part by cash used to fund the
purchase of tangible assets. During the year, the Company funded its EUR 331.6
million in purchases of tangible assets with cash generated from operations and
EUR 187.0 million in loans. Cash and liquid resources under Irish GAAP of EUR
1,257.4 million at March 31, 2004 included EUR 200.0 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.
The amount of restricted cash was EUR 120.9 million and nil at the end of fiscal
years 2003 and 2002, respectively.
The Company's net cash inflow from operating activities in fiscal year
2002, fiscal year 2003 and fiscal year 2004 totaled EUR 309.1 million, EUR 351.0
million and EUR 462.1 million, respectively. During the last three 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 and, in fiscal 2002,
equity offerings have been the principal sources for these cash requirements,
supplemented primarily by aircraft-related bank loans.
The Company's net cash flow from returns on investments and servicing of
finance in totaled inflows of EUR 10.4 million and EUR 0.6 million in fiscal
year 2002 and fiscal year 2003, respectively, and an outflow of EUR 20.3 million
in fiscal year 2004, primarily reflecting interest earned by the Company on its
cash balances, as offset by interest payments on long-term aircraft purchase
loans. In fiscal year 2004, interest income decreased from EUR 31.4 million in
fiscal year 2003 to EUR 23.9 million (in line with the lower market interest
rates during the period, offset by an increase in cash and liquid resources
during the year), while at the same time interest payable increased from EUR
30.9 million to EUR 47.6 million as a result of increased bank loans to fund the
purchase of an additional eight new Boeing 737-800 aircraft during the year.
The Company's net cash flow from financing and management of liquid
resources in fiscal year 2002 and fiscal year 2003 totaled inflows of EUR 78.5
million and EUR 120.4 million, respectively, and an outflow of EUR 126.5 million
in fiscal year 2004. The inflows in 2002 and 2003 principally reflected the
increase in long-term aircraft-related debt and, in 2002, the issuance of new
Ordinary Shares in that year's Regulation S Offering, which contributed EUR
182.0 million to cash flow in that year, while the outflow in fiscal year 2004
reflected increased investment in liquid resources of EUR 249.2 million, offset
in part by an increase in long-term aircraft related debt raised during the
year.
Under U.S. GAAP, the Company's cash and cash equivalents at March 31, 2002,
2003, and 2004 were EUR 482.5 million, EUR 537.5 million and EUR 744.6 million,
respectively. Under U.S. GAAP, the cash inflows from operating activities in
fiscal years 2002, 2003, and 2004 were EUR 314.4 million, EUR 348.2 million and
EUR 439.7 million, respectively, reflecting the strong growth in the Company's
profitability during the period. The cash outflows from investing activities in
fiscal years 2002, 2003 and 2004 were EUR 551.1 million, EUR 575.8 million and
EUR 354.3 million respectively, predominantly comprising payments for aircraft
deliveries and advance payments on future deliveries. The cash inflows from
financing activities were EUR 330.2 million, EUR 282.6 million and EUR 121.7
million, respectively. See Note 31 to the Consolidated Financial Statements
included in Item 18.
69
Capital Resources. Ryanair has generally been able to generate sufficient
funds from operations to meet its non-aircraft acquisition related working
capital requirements. A significant portion of the Company's capital
expenditures (consisting of purchases of new Boeing 737-800 aircraft and related
equipment) have been funded through drawdowns under borrowing 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. Ryanair's long-term debt (including current maturities)
totaled EUR 550.5 million at March 31, 2002, EUR 837.2 million at March 31, 2003
and EUR 953.0 million at March 31, 2004, with the increase being primarily
attributable to the financing of new aircraft. The ExIm guarantees are secured
with a first fixed mortgage on the delivered aircraft, and the terms of each of
the facilities are substantially similar, with borrowings maturing twelve years
from the date they are drawn down. At March 31, 2004, Ryanair had taken delivery
of 41 Boeing 737-800 aircraft, the purchase of which was funded in part by
ExIm-guaranteed financing, and the Company took delivery of an additional six
such aircraft bringing the total to 47 during the period between March 31 and
September 30, 2004. The remaining ten 737-800 aircraft currently in the
operating fleet are subject to the sale and leaseback arrangements described in
more detail below.
The following table summarizes the maturity profile of Ryanair's long-term
debt (including current maturities) as of March 31, 2004; additional details
about both the ExIm guaranteed debt and the simulator debt are presented under
"Capital Expenditures" below. For more information on the maturity profile of
debt and currency structure of the Company's borrowings, see Notes 10 and 14
through 17 to the Consolidated Financial Statements included in Item 18.
Total Long-Term ExIm Guaranteed Simulator
Debt Debt Debt
EUR'000 EUR'000 EUR'000
Repayments fall due as follows:
Within one year........................... 80,337 79,338 999
Between one and two years................. 84,209 83,210 999
Between two and five years................ 276,715 273,718 2,997
After five years.......................... 511,721 508,723 2,998
Total long-term debt................... 952,982 944,989 7,993
Weighted average interest rate......... 5.46% 5.46% 5.81%
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 2005.
Capital Expenditures. The Company's net cash outflows for capital
expenditures in fiscal year 2002, fiscal year 2003 and fiscal year 2004 were EUR
372.0 million, EUR 469.8 million and EUR 331.6 million, respectively. Ryanair
has funded its acquisition of aircraft and related equipment primarily through
borrowings under the ExIm guaranteed bank facilities described herein, net
proceeds from equity offerings aggregating EUR 182.0 million in the period from
fiscal year 2002 through fiscal year 2004 and funds generated from operations.
The following table summarizes the delivery schedule for each of the Boeing
737-800 aircraft Ryanair has purchased, or is required to purchase, under the
1998 Boeing contract, the 2002 Boeing contract and the 2003 supplemental
agreement. 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 as to the number of firm commitment and option aircraft covered
by each of the agreements and the current status of the existing options, as
well as the "Basic Price" (or gross price) for each of these aircraft, including
certain equipment purchased and fitted by Boeing on the Company's behalf in
millions of U.S. dollars. The Basic Price is subject to increase to take into
account an "Escalation Factor" reflecting the changes in the U.S. Employment
Cost and Producer Price Indices and subject to decrease to take account of
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, other than advance 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.
70
Aircraft Delivery Schedule
Deliveries and Scheduled 1998 Boeing 2002 Boeing Total
Deliveries in the Fiscal 1998 Boeing Contract 2002 Boeing Contract 2003 No. of
Year Contract Option Contract Option Supplemental 737-800
ending March 31, Firm Orders Aircraft Firm Orders Aircraft Agreement Aircraft
1999................... 1 - - - - 1
2000................... 4 - - - - 4
2001................... 10 - - - - 10
2002................... 5 - - - - 5
2003................... 5 3 5 - - 13
2004................... - - 15 3 - 18
Total as of
March 31, 2004....... 25 3 20 3 - 51
2005................... - - 13 - 14 27
2006................... - - 19 2 8 29
2007................... - - 19 - - 19
2008................... - - 19 - - 19
2009................... - - 10 - - 10
Expected Total as of
March 31, 2009....... 25 3 100 5 22 155
Options Granted........ - 20 - 50 96 166
Options Exercised...... - (3) - (23)(1) - (26)
Options Cancelled...... - (17) - - - (17)
Total as of
March 31, 2004....... - - - 27 96 123
Basic Price per
aircraft (unadjusted
for escalation factor
or concessions)(in
millions).............. US$46.632 US$46.632 US$51.851 US$51.851 US$51.855
------------------------------------------
(1) Including 18 exercised pursuant to the 2003 Supplemental Agreement.
Management believes that the purchase of the additional Boeing 737-800
aircraft will allow Ryanair to continue to grow over the next five years and
that the significant size of the orders has allowed Ryanair to obtain favorable
purchase terms, guaranteed deliveries and a standard configuration for all of
the aircraft. The purchase is also expected to allow Ryanair to phase out its
remaining 13 Boeing 737-200s, which are an average 23 years old, over the period
ending in December 2005. Ryanair's fleet is thus expected to consist entirely of
Boeing 737-800 "next generation" aircraft by December 2005.
As can be seen from the table above, delivery of the 127 Boeing 737-800s
(including the two advance purchase options exercised during the year) already
ordered under the 2002 Boeing contract and the 2003 supplemental agreement will
enable the Company to increase the size of its summer schedule fleet by between
10 and 29 additional aircraft each fiscal year during the period from 2005 to
2009, significantly increasing the size of the fleet, which is expected to total
155 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 123 option aircraft to cater to this demand.
71
The Company's purchase of 41 of the 51 Boeing 737-800 aircraft delivered as
of March 31, 2004, 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,
2004, Private Export Funding Corporation ("PEFCO"), acting through ABN AMRO Bank
N.V. as Loan Agent, ABN AMRO Bank N.V. ("ABN"), The Royal Bank of Scotland
("RBS") and BNP Paribas ("BNP") had provided financing under these
ExIm-guaranteed loan facilities for twenty-three, five, eight and five aircraft
respectively. Lloyds TSB Bank PLC ("Lloyds TSB") provided financing under such a
facility for an additional six aircraft delivered during the period July 2004 to
September 2004. Each of these facilities takes essentially the same form and is
based on the documentation initially developed for the PEFCO 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 PEFCO facilities are
denominated in dollars and bear interest at a floating rate linked to U.S.
dollar LIBOR and which is converted into a euro-based fixed rate through the use
of the cross currency swaps described below, so that Ryanair's exchange and
interest-rate risk is fully hedged, while subsequent loans under the ABN, RBS,
BNP and Lloyds TSB facilities, are denominated in euro and bear interest at
floating rates linked to EURIBOR.
Through the use of cross currency swaps, Ryanair has fully hedged its
ongoing interest rate and currency risk by effectively converting its
dollar-denominated debt under the initial ABN and PEFCO facilities into an
approximately equivalent amount of euro-denominated fixed rate debt. Through the
use of interest rate swaps, Ryanair has effectively converted almost all of its
floating rate debt under each of the facilities into fixed rate debt. Loans for
approximately 4% 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 drawn down fixed rate euro-denominated debt with a maturity of
twelve years in respect of more than 96% of its financing for the 41 Boeing
737-800 aircraft purchased through March 31, 2004, using these facilities. 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
aircraft-related debt at March 31, 2004 (prior to the drawdown for the six
aircraft financed under the Lloyds TSB facility). See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk -- Interest Rate Exposure and Hedging"
for additional details on the Company's hedging transactions.
Effective Borrowing Profile of Aircraft-Related Debt
At March 31, 2004 EUR EUR
Fixed Floating
EUR 000 EUR 000
Euro borrowings................................................... - 408,271
Aircraft borrowing profile before swap transactions............... - 408,271
Cross currency interest rate swaps................................ 536,718
Interest rate swaps............................................... 372,686 (372,686)
Aircraft borrowing profile after swap transactions................ 909,404 35,585
---------------------------------------------------------------------
72
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 only six months prior to delivery of each aircraft being financed.
ExIm has already issued final binding commitments and related guarantees with
respect to the 47 Exlm-financed Boeing 737-800 aircraft delivered between 1999
and September 2004. 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 of 47 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 Irish GAAP 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.
73
Ryanair has a firm commitment from BNP to provide financing for up to 14
more of its firm order Boeing 737-800 aircraft under ExIm guaranteed financing
structures. The company expects to finance the remaining 84 of the 98 Boeing
737-800 aircraft it is obligated to purchase under the 2002 Boeing contract and
the 2003 supplemental agreement by December 2008 and any option aircraft it
acquires under those agreements through the use of similar financing
arrangements based on an ExIm guarantee, bank debt provided by commercial banks,
operating and finance 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, 2004, the Company had received a
preliminary commitment from ExIm in relation to 20 aircraft which were to be
delivered over the period from December 2002 to March 2005. The terms of this
preliminary commitment are the same as those outlined above in relation to the
guarantees already issued. Six of these preliminary commitments have already
been converted into final commitments by ExIm for deliveries during the period
from July 2004 to March 2005, and were used to support the financing under the
Lloyds TSB facility. The Company anticipates the remaining 14 will be converted
to final commitments in early October 2004.
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.
In connection with its expected financing of additional Boeing 737-800
aircraft to be delivered under the 2002 Boeing Contract and the 2003
supplemental agreement after March 31, 2003, Ryanair has entered into a series
of forward-starting 12-year interest rate swaps. These swaps have the effect of
capping the effective interest rate in euro terms on an estimated total of EUR
412.7 million in borrowings commencing between October 2004 and March 2005 and
terminating between October 2016 and March 2017 (with the starting dates
corresponding to the scheduled delivery dates for the aircraft) at interest
rates from 5.70% to 5.73%. See Note 16 to the Consolidated Financial Statements
included in Item 18 and "Item 11. Quantitative and Qualitative Disclosures About
Market Risk -- Interest Rate Risk Exposure and Hedging."
In fiscal year 2004, the Company financed 10 Boeing 737-800 aircraft
delivered between December 2003 and March 2004 under a seven-year sale and
leaseback arrangement with RBS Aviation Capital (RBS Aviation) pursuant to which
RBS Aviation purchased the aircraft from Ryanair and leased them back to Ryanair
pursuant to 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 an option to extend the initial period of
seven years on five of these aircraft on pre-determined terms. 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 rental payments due under these leases into
fixed rental payments. At March 31, 2004, the fair value of the interest rate
swap agreements relating to these leases on a mark-to-market basis was
equivalent to a loss of EUR 39.5 million.
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.
74
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 2007.
The CAE contract also provides Ryanair with an option to purchase another such
simulator for delivery in 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 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 the second
simulator 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,
2004. These obligations primarily relate to Ryanair's aircraft purchase and
related financing obligations, which are described in more detail above. 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 "Base Price" for each aircraft pursuant to the
relevant contract, with the dollar-denominated Base Price being converted into
euro at an exchange rate of US$1.2292=EUR 1.00. 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. The amounts listed
under "Operating Lease Obligations" reflect EUR 215.6 million due on the Boeing
737-300s taken over with the acquisition of Buzz Stansted and the 10 Boeing
737-800s sale and operating leaseback transactions entered into during fiscal
2004. Obligations with respect to engine maintenance relate to the Company's
long-term maintenance contracts with third parties. See "Item 4. Information on
the Company--Maintenance and Repairs" for information on these contracts.
Obligations due by Period
Less than After
Contractual Obligations Total 1 year 1-2 years 2-5 years 5 years
(EUR in thousands)
Long term Debt Obligations........... 952,982 80,337 84,209 276,715 511,721
Purchase Obligations................. 4,385,648 1,138,609 1,222,927 2,024,112 -
Operating Lease Obligations ......... 215,607 37,055 37,055 91,155 50,342
Engine Maintenance................... 1,567 1,567 - - -
Total Contractual Obligations........ 5,555,804 1,257,568 1,344,191 2,391,982 562,063
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. For
additional information, see Notes 14-17 to the Consolidated Financial Statements
included in Item 18.
75
Guarantees. Ryanair Holdings has provided an aggregate of EUR 56.5 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. In addition, during fiscal year 2004
Ryanair Holdings had provided a guarantee for U.K.POUND 12 million to the U.K.
Civil Aviation Authority in relation to liabilities of Buzz Stansted, which
guarantee has since expired.
Derivatives. Ryanair uses various derivative financial instruments,
including forward starting interest rate swaps, foreign currency forward
contracts and commodity contracts, to manage its exposure 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. See
"Item 11. Quantitative and Qualitative Disclosures About Market Risk Interest
Rate Exposure and Hedging" and Notes 14-17 to the Consolidated Financial
Statements for additional information on the Company's derivative instruments.
These derivatives are recorded on the balance sheet under US GAAP. See Note 31
to the Consolidated Financial Statements.
TREND INFORMATION
For information on Ryanair's results of operations in the quarter ended
June 30, 2004, 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 three years ended March 31, 2004.
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 15, 2004:
Name Age Positions
David Bonderman (a).............................. 62 Chairman of the Board and Director
Emmanuel Faber (c)(e)............................ 40 Director
Michael Horgan(f)................................ 68 Director
Klaus Kirchberger (e)............................ 46 Director
Raymond MacSharry(b)(c).......................... 65 Director
Kyran McLaughlin(b)(c)........................... 60 Director
Michael O'Leary(a)(d)............................ 43 Director and Chief Executive
James R. Osborne(b)(a)........................... 55 Director
Paolo Pietrogrande............................... 47 Director
T. Anthony Ryan.................................. 68 Director
----------------------
76
(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) Emmanuel Faber and Klaus Kirchberger were appointed to the Board of
Directors on September 25, 2002; and were approved by the Company's
shareholders at the annual general meeting held on September 24,
2003.
(f) Member of the Air Safety 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. Mr. Bonderman is a director and officer
of 1996 Air G.P., Inc., the general partner Irish Air GenPar, and founder and
Principal of Texas Pacific Group ("TPG"), which organized Irish Air, L.P. and
Irish Air GenPar, L.P. Prior to forming TPG, Mr. Bonderman was Chief Operating
Officer and Chief Investment Officer of Keystone Inc., the personal investment
vehicle of Texas-based investor Robert M. Bass. Prior to joining Keystone Inc.
in 1983, Mr. Bonderman was a partner in the law firm of Arnold & Porter in
Washington, D.C. Mr. Bonderman serves on the Board of Directors of public
companies CoStar Group, Inc., Ducati Motor Holdings S.p.A., Gemplus
International S.A. and ProQuest Company.
Emmanuel Faber has served as a director of Ryanair Holdings since September
25, 2002, and currently serves as Chief Financial Officer and Executive Vice
President of Groupe Danone and was elected a director of the board of Groupe
Danone in 2002. 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, furthermore he is a non-executive
director of Deutsche Immobilien Chancen AG & Co. KGaA and TTL International AG.
77
Raymond MacSharry has served as a Director of Ryanair Holdings since August
22, 1996, and as a Director of Ryanair Limited since February 11, 1993. From
1993 to 1995, Mr. MacSharry served as Chairman of the Board of Ryanair Limited.
From 1993 to 1996 and from April 1997 to March 2000, Mr. MacSharry served as a
consultant to Ryanair. From 1989 to 1993, Mr. MacSharry served as the European
Commissioner for Agriculture. Prior to his service on the European Commission,
Mr. MacSharry served in the Irish Parliament for over 20 years and was the
Minister for Finance of Ireland in 1982 and from 1987 to 1988. Mr. MacSharry
currently serves as a member of the Court of the Bank of Ireland, and as the
non-executive chairman of London City Airport.
Kyran McLaughlin has served as a director of Ryanair Holdings since January
12, 2001. Mr. McLaughlin is Head of Equities at Davy Stockbrokers. Mr.
McLaughlin advised Ryanair during its initial flotation on the Dublin and NASDAQ
stock markets in 1997. Mr. McLaughlin is also a director of Elan Corporation plc
and he serves as a director of a number of Irish private companies.
Michael O'Leary has served as a Director of Ryanair Limited since November
25, 1988 and a Director of Ryanair Holdings since July 2, 1996. Mr. O'Leary was
the Deputy Chief Executive of Ryanair Limited from 1991 to December 1993, and
has been Chief Executive from 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 served as a consultant to the firm from May 1, 1994 to
March 2000. Mr. Osborne also serves on the Board of Directors of a number of
Irish private companies.
Paolo Pietrogrande has served as member of the board of directors of
Ryanair since 2001. A Chemical Engineering graduate from University of Roma,
Italy, Mr.Pietrogrande is currently Managing Director of Nuovi Cantieri Apuania,
a designer and supplier of merchant ships with its shipyard in Carrara, Italy.
Mr Pietrogrande is also Director of Executive MBA programme at Almaweb,
University of Bologna, and is a board member of Ducati Motor Holding S.p.A.
Prior assignments of Mr Pietrogrande 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
and Vice President Marketing, Kinetics Technology International B.V.
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, and subsequently as a consultant to, 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 and Bonderman 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. Messrs. Pietrogrande, Kirchberger and Osborne are the members
of the Remuneration Committee.
78
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
MacSharry are the members of the Audit Committee. In accordance with the
recommendations of the Irish Combined Code of Corporate Governance, a senior
independent non-executive Director, Kyran McLaughlin, is Chairman of both the
Audit Committee and the Remuneration Committee. The criteria for Director
independence under the Combined Code differ in certain respects from those
scheduled to become applicable to Ryanair and other foreign private issuers in
2005 under the U.S. federal securities laws and the listing rules of the Nasdaq
National Market ("Nasdaq"). Ryanair expects to be in compliance with such U.S.
standards at or before the time they become applicable to Ryanair.
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. Messrs. O'Leary and
Bonderman 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 is comprised of the following executive officers of
Ryanair: Messrs. Conway, Hickey, O'Brien, and director Michael Horgan
(chairperson).
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 less than three Directors 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 Annual General Meetings 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 Richard P. Schifter, Michael O'Leary, and
Raymond MacSharry retired, and Michael O'Leary and Raymond MacSharry were
re-elected at the annual general meeting on September 24, 2003. Richard P.
Schifter although eligible, did not seek re-election at that meeting. Declan F.
Ryan resigned from the Board on June 24, 2003.
79
Emmanuel Faber and Klaus Kirchberger were appointed to the Board as
non-executive Directors on September 25, 2002; the appointments were approved by
the Company's shareholders at the annual general meeting held on September 24,
2003.
Exemptions from Certain Nasdaq Corporate Governance Rules
The Nasdaq may grant a foreign private issuer exemptions from the Nasdaq
corporate governance rules for listed companies when those rules impose
standards that are contrary to a law, rule or regulation of any public authority
exercising jurisdiction over such issuer or are contrary to generally accepted
business practices in the issuer's country of domicile. 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:
- The Company is exempt from Nasdaq's quorum requirements applicable
to meetings of shareholders, which require a minimum quorum of
331/3% 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.
- 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
circumstanes 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.
- 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.
80
SENIOR MANAGEMENT
The following table sets forth certain information concerning the executive
officers of Ryanair Holdings and Ryanair Limited at September 30, 2004:
Name Age Position
Jim Callaghan.............................. 36 Head of Regulatory Affairs and Company Secretary
Michael Cawley............................. 50 Deputy Chief Executive and Chief Operating Officer
Ray Conway................................. 49 Chief Pilot
Caroline Green............................. 41 Head of Customer Service
Michael Hickey............................. 41 Director of Engineering
Howard Millar.............................. 43 Deputy Chief Executive and Chief Financial Officer
David O'Brien.............................. 40 Director of Flight Operations and Ground Operations
Michael O'Leary............................ 43 Chief Executive
Edward Wilson.............................. 41 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.
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.
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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 Inflight with Ryanair.
Michael O'Leary has served as a Director of Ryanair since November 1988 and
was appointed Chief Executive on January 1, 1994. Prior to this, Michael was the
Deputy Chief Executive of Ryanair from 1991 to May 1993 and Chief Operating
Officer from June 1993 to December 1993.
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 Directors and executive officers named above in the fiscal
year ended March 31, 2004 was EUR 3,869,850 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 EUR 32,000 plus expenses per annum, as remuneration for his services to
Ryanair Holdings. Each of Messrs. Bonderman and T.A. Ryan has executed an
agreement with Ryanair Holdings by which he has waived his respective
entitlement to receive annual remuneration of EUR 32,000 in respect of his
service as a Director for the fiscal year ended March 31, 2004. The remuneration
of audit committee members was increased to EUR 15,000 per annum effective
January 1, 2004. Mr. Michael Horgan receives EUR 40,000 in connection with his
additional duties in relation to the Air Safety Committee.
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 EUR 3.70 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 EUR 5.65.
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As of September 1, 2004, the Directors and executive officers of Ryanair
Holdings as a group owned 59,637,669 Ordinary Shares, representing 7.9% of
Ryanair Holdings' outstanding Ordinary Shares as of such date. See Note 21(d) to
the Consolidated Financial Statements in Item 18. See "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 EUR
505,000, 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 2004 totalled EUR 127,000. 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, 2003 and 2004:
Number of Employees at March 31, Number of Employees at March 31,
Classification 2004 2003
Management................................ 79 82
Administrative............................ 115 103
Reservations.............................. 120 167
Maintenance............................... 144 184
Ground Operations......................... 263 236
Cockpit Crew.............................. 702 551
Flight Attendants......................... 879 574
Total..................................... 2,302 1,897
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 737-200A and Boeing 737-800
aircraft simulators for pilot training. Ryanair has established an in-house
apprenticeship program to train maintenance engineers that currently produces
four qualified engineers per year. Ryanair also provides salary increases to its
engineers who complete advanced training in certain fields of aircraft
maintenance.
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, 2004, the average age of Ryanair's pilots was 36
years and their average period of employment with Ryanair was 4 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.
83
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 currently has 121 such pilots under contract.
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, 2004, such productivity-based pay
incentives accounted for approximately 46% of an average flight attendant's
total pay package and approximately 38% 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 new five-year pay
arrangement (subject to review in "exceptional circumstances" after three
years), which, in return for certain productivity enhancements, provides 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).
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, 2004, the average flight
hours for each of Ryanair's pilots were approximately 71 hours per full working
month and approximately 850 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.
Although Ryanair currently consults with groups of employees, including its
pilots, through "Employee Representation Committees" ("ERCs"), regarding work
practices and conditions of employment, it does not conduct formal binding
negotiations with collective bargaining units, as is the case in many other
airlines. For example, Ryanair senior management has quarterly meetings with the
pilot ERC to discuss all aspects of the business and those issues that
specifically relate to pilots.
Ryanair considers its relationship with its employees to be good. However,
from January 9 to March 9, 1998, 39 of Ryanair's ground-handling employees
participated in industrial action with respect to terms and conditions of their
employment. Although the action did not have a material effect on Ryanair's
ability to fulfill its flight schedules or on its results of operations or
financial condition, a secondary action on the weekend of March 7 and 8, 1998 by
members of the Service, Industrial, Professional and Technical Union ("SIPTU")
working for other airlines and airport service providers led to the closure of
Dublin Airport for certain periods. As part of a government-sponsored
arrangement to end the secondary action, Ryanair agreed to cooperate with a
governmental inquiry into the facts of the dispute and the reasons for the
closure of the airport. The governmental inquiry report, which was issued in
July 1998, was critical of the actions of both Ryanair and SIPTU during the
dispute. Management believes that the dispute and related governmental and
judicial action will not have any impact on Ryanair's historical policy of not
conducting formal binding negotiations with collective bargaining units or on
the public's perception of the Company generally.
84
In the United Kingdom, the British Airline Pilots Association ("BALPA")
sought in 2001 to represent Ryanair's U.K. based pilots in their negotiations
with the company. A legally-required ballot of the pilots conducted by the
Central Arbitration Committee in September 2001 resulted in only 18% of those
eligible to vote opting for formal recognition of BALPA, well below the required
51% threshold for recognition of the union. Under applicable U.K. labor
legislation, BALPA cannot reapply for recognition at Ryanair until October 2004.
In addition, the Company offered contracts of employment which were
accepted by 110 of the approximately 500 former KLM UK Limited staff. The
balance of the former KLM UK Limited staff were made redundant, and, under the
purchase agreement governing the transaction, any liabilities arising from
resultant claims by these staff were settled by KLM UK Limited. The acquisition
agreement also contains an indemnity from KLM UK Limited in favor of Buzz
Stansted covering any further claims arising from the redundancies of the former
Buzz staff.
The Company could potentially be exposed to claims arising from the
transfer of employees from Buzz to Buzz Stansted, if, pursuant to U.K.
legislation, a "transfer of undertaking" is found to have occurred as part of
the Buzz acquisition. This would enable employees to transfer certain rights
under their employment contracts with Buzz to Ryanair, including existing terms
and conditions in relation to redundancy, periods of service, redundancy
entitlements and payments, and other benefits associated with their previous
contracts. A related legal action has been initiated by BALPA on behalf of a
small number of former KLM UK Limited pilots and a hearing is scheduled for
December 2004.
In addition, Ryanair is planning to cease operations at Buzz Stansted. A
number of employees of Buzz Stansted, consisting almost entirely of pilots, have
individually applied for positions with a third-party firm which has an
agreement to provide contract pilots to Ryanair. Ryanair could also be exposed
to costs associated with the cessation of operations by Buzz Stansted,
including, but not limited to, claims arising from any termination of employment
of Buzz Stansted employees. If any of these 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.
In April 1998, the Board of Directors of Ryanair Holdings adopted an
employee share option plan (the "Option Plan"), with all employees being
eligible to participate. The Option Plan was approved by the Company's
shareholders at the Annual General Meeting held on September 29, 1998. 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."
The Option Plan allows for eligible employees to be granted options to
purchase up to an aggregate of 5% of the outstanding Ordinary Shares of Ryanair
Holdings at an exercise price equal to the closing price of such shares on the
Irish Stock Exchange on the date of the grant of the option. Options may be
granted over a five-year period beginning in 1998, with the amount of options
granted to any individual employee being determined at the time they became
eligible to participate in the scheme with reference to the amount of emoluments
paid in May 1998 to such employee in the current or previous tax year, whichever
is greater. The first tranche of options became exercisable on June 24, 2003 and
639 employees were entitled to exercise options under the scheme.
85
Management has designed the Option Plan, so that, subject to the Board of
Directors' discretion, employees can be rewarded for achieving certain financial
performance criteria over a five-year period, thus allowing them to participate
in the increase in the value of the Company over the coming years. Grants of
options under the Option Plan are thus subject to the Company's achievement of
the following criteria during the five-year period beginning with fiscal year
1998, as follows:
1. The Company's net profit after tax for each fiscal year must exceed
its net profit after tax for the preceding fiscal year by at least 20%.
2. If the first criterion is not met, options will still be granted
if the aggregate growth in the Company's net profit after tax
(as compounded annually) during the period beginning with fiscal
1998 and ending with the fiscal year ending in the year in which the
grant of yearly options is being considered is equal to, or greater
than, an annual rate of 20%.
If, in any year, either of these two criteria are met, the Remuneration
Committee may select eligible employees who will be invited to apply for options
that were not granted in any prior year as a result of neither such criterion
being met.
Ryanair Holdings' shareholders approved a share option plan at the Annual
General Meeting held on September 22, 2000 (the "Option Plan 2000"). All
employees and Directors are eligible to participate in the plan, under which
grants of options can only be made in any of the ten years beginning with fiscal
year 2000 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. The Option Plan 2000 is part of an
incentive program for Ryanair's employees and Directors. 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 their complete option entitlement
automatically.
A new share option plan (the "Option Plan 2003") was established by
resolution of the Board of Directors of Ryanair Holdings and approved by the
shareholders of Ryanair Holdings at the Annual General Meeting held on September
25, 2002. As Ireland currently operates a tax favorable approved share option
scheme regime, it was decided to adopt the Option Plan 2003 in accordance with
this regime so that employees will be subject to Capital Gains Tax at 20%
compared to income tax at 42% on the exercise of options (subject to certain
conditions). The Option Plan 2003 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.
The Option Plan allows for eligible employees to be granted options to
purchase up to an aggregate of 5% of the outstanding Ordinary Shares of Ryanair
Holdings at an exercise price equal to the closing price of such shares on the
Irish Stock Exchange on the date of the grant of the option. Options may be
granted over a five-year period beginning in 2003, with the amount of options
granted to any individual employee being determined at the time they became
eligible to participate in the scheme with reference to the amount of emoluments
paid in May 2003 to such employee in the current or previous tax year, whichever
is greater.
Management has designed the Option Plan, so that, subject to the Board of
Directors' discretion, employees can be rewarded for achieving certain financial
performance criteria over a five-year period, thus allowing them to participate
in the increase in the value of the Company over the coming years. Grants of
options under the Option Plan are thus subject to the Company's achievement of
the following criteria during the five-year period beginning with fiscal year
2003, as follows:
86
1. The Company's net profit after tax for each fiscal year must
exceed its net profit after tax for the preceding fiscal year by
at least 25%.
2. If the first criterion is not met, options will still be
granted if the aggregate growth in the Company's net profit
after tax (as compounded annually) during the period beginning
with fiscal 2003 and ending with the fiscal year ending in the
year in which the grant of yearly options is being considered is
equal to, or greater than, an annual rate of 25%.
If, in any year, either of these two criteria are met, the Remuneration
Committee may select eligible employees who will be invited to apply for options
that were not granted in any prior year as a result of neither such criterion
being met.
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, 2004, a total of 759,271,140 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 5% or more of the Ordinary
Shares as of the dates indicated.
As of March 31,
2004 2003 2002
No. of Shares % of Class No. of % of Class No. of % of Class
Shares Shares
Fidelity Investments............... 113,147,344 14.9% 91,000,000 12.1% 104,408,500 13.8%
Putnam Investments................. - - 69,068,700 9.1% 70,570,400 9.3%
Guilder Gagnon Howe & Co........... 66,335,175 8.7% 67,597,305 8.9% - -
Janus.............................. - - 55,759,575 7.4% 70,548,175 9.3%
Michael O'Leary (1) 41,000,008 5.4% 45,000,008 6.0% 52,000,008 6.9%
Capital Group Companies Inc........ 69,010,578 9.1% 52,159,800 6.9% 37,797,275 5.1%
________________________
(1) On June 10, 2003, Michael O'Leary sold 4 million shares at EUR 5.95 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,
2004.
87
Item 8. Financial Information
CONSOLIDATED FINANCIAL STATEMENTS
Please refer to "Item 18. Financial Statements."
OTHER FINANCIAL INFORMATION
Legal Proceedings
The Company is engaged in litigation arising in the ordinary course of its
business. 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.
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 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 Commission found certain of these arrangements
did constitute 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 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:
- The Commission infringed Article 253 of the EC Treaty by
failing to provide adequate reasons for its decision; and
- The 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 EUR 4 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.
In an unrelated, though similar, matter, on July 24, 2003, a Strasbourg
court ruled (on the basis of a complaint by Air France) that marketing support
granted by the city of Strasbourg to Ryanair in connection with its launch of
services from Strasbourg to London (Stansted) constituted unlawful state aid to
Ryanair. The judgment took effect on September 24, 2003. Ryanair appealed this
decision on the basis that the marketing support granted was not state aid as it
complied with the MEIP test. The Appeals Court in Nancy (France) confirmed the
decision of the lower court and Ryanair subsequently appealed this decision to
the French Administrative Supreme Court, where it is currently pending. Pending
the outcome of this appeal, Ryanair decided to close the route and has instead
opened a route from Baden-Karlsruhe in Germany to London (Stansted) (Baden
Airport is located some 40 kilometers from Strasbourg). Ryanair has also
confirmed that it will reopen the Strasbourg route if the appeal is successful,
although no assurance can be given that Ryanair will in fact prevail.
88
Ryanair is facing similar legal challenges by competitors with respect to
its agreements with Pau Airport in southern France and Palermo Airport in
Sicily. These actions are currently pending before local courts and are unlikely
to be resolved in the near future.
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 its growth strategy due to the smaller number of
privately-owned airports available for development.
In July 2004, Ryanair commenced an action in the High Court of England and
Wales (Chancery Division) against BAA, which operate London's Heathrow, Gatwick
and Stansted Airports. The action relates to a fuel levy that BAA has
unilaterally imposed on Ryanair and other airlines at London (Stansted). Despite
representations by BAA that the fuel levy was imposed to recover its original
capital investment, and further representations that the fuel levy would be
reduced once the capital costs had been recovered and as fuel uplift volumes
increased, BAA has failed to either eliminate or reduce the fuel levy in
circumstances where Ryanair believes it has now recovered its original capital
investment some three times over and where the volumes of fuel uplifted at
Stansted Airport have increased dramatically, largely driven by increasing
passenger volumes delivered by Ryanair. Ryanair claims damages and other relief
against BAA for breaches of statutory duty and abuse of dominant position
arising out of BAA's overcharging in respect of the fuel levy and BAA's
continuing failure to provide transparent and accurate information about the
fuel levy.
BAA has responded by filing a separate action against Ryanair alleging that
Ryanair has repudiated its contract with BAA and is seeking payment of fuel
levies withheld by Ryanair. These sums were withheld by Ryanair as a result of,
and in response to, BAA's abuses in relation to the fuel levy and overcharging.
Ryanair currently accounts for in excess of 60% of the fuel volumes at London
(Stansted) airport. The amount in dispute in BAA's claim against Ryanair in
relation to fuel levies is approximately EUR 1.5 million (or roughly 3% of the
total aeronautical charges that Ryanair paid BAA in fiscal 2004). BAA further
claims that it is now no longer bound by its contract with Ryanair in relation
to airport charges and that it can instead charge Ryanair the published airport
tariffs at London (Stansted), as opposed to the lower amounts charged under the
contract.
While the Company believes that its contract with BAA remains valid,
Ryanair cannot predict the final outcome of these actions, and does not expect
any final decision to be rendered in the near term. However, should the courts
declare Ryanair's contract with BAA no longer binding, the Company would likely
face materially increased costs at London (Stansted), its principal base, or
could be forced to cut back its London (Stansted) operations. Flights to or from
London (Stansted) accounted for approximately 61% of the Company's passenger
volumes in fiscal 2004.
89
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 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:
90
ADSs
(in U.S. dollars)
High Low
1999.................................................................. 14.0938 7.6250
2000.................................................................. 27.8438 13.5625
2001.................................................................. 32.0500 17.4950
2002
First Quarter...................................................... 34.2000 29.9800
Second Quarter..................................................... 36.7700 28.0000
Third Quarter...................................................... 35.4500 28.3900
Fourth Quarter..................................................... 48.0000 29.9300
2003
First Quarter...................................................... 43.9400 34.3800
Second Quarter..................................................... 44.9200 39.0000
Third Quarter...................................................... 46.2500 39.9500
Fourth Quarter..................................................... 52.0500 42.6400
2004
First Quarter...................................................... 57.8800 31.1900
Month ending:
March 31, 2004..................................................... 35.7600 31.1900
April 30, 2004..................................................... 37.5200 33.3200
May 31, 2004....................................................... 32.7500 30.2300
June 30, 2004...................................................... 32.8200 30.9000
July 31, 2004...................................................... 36.3700 31.3100
August 31, 2004.................................................... 31.2900 29.4800
Ordinary Shares
(Irish Stock Exchange)
(in euros)
High Low
1999.................................................................. 2.69 1.33
2000.................................................................. 5.88 2.61
2001.................................................................. 7.10 3.75
2002
First Quarter...................................................... 7.20 6.15
Second Quarter..................................................... 6.95 5.66
Third Quarter...................................................... 6.32 4.95
Fourth Quarter..................................................... 8.20 5.20
2003
First Quarter...................................................... 7.23 5.10
Second Quarter..................................................... 6.90 5.52
Third Quarter...................................................... 6.72 5.73
Fourth Quarter..................................................... 7.30 5.83
2004
First Quarter...................................................... 7.59 4.27
Month ending:
March 31, 2004..................................................... 4.90 4.27
April 30, 2004..................................................... 5.38 4.67
May 31, 2004....................................................... 4.71 4.34
June 30, 2004...................................................... 4.69 4.34
July 31, 2004...................................................... 4.96 4.50
August 31, 2004.................................................... 4.41 4.06
91
Ordinary Shares
(London Stock Exchange)
(in U.K. pence)
High Low
1999.................................................................. 171.50 93.75
2000.................................................................. 356.25 165.63
2001.................................................................. 420.00 236.25
2002
First Quarter...................................................... 434.50 381.00
Second Quarter..................................................... 450.00 356.00
Third Quarter...................................................... 404.50 316.00
Fourth Quarter..................................................... 437.50 336.50
2003
First Quarter...................................................... 470.50 353.00
Second Quarter..................................................... 469.00 391.00
Third Quarter...................................................... 472.00 399.50
Fourth Quarter..................................................... 496.50 410.00
2004
First Quarter...................................................... 523.75 284.50
Month ending:
March 31, 2004..................................................... 330.50 284.50
April 30, 2004..................................................... 359.10 308.90
May 31, 2004....................................................... 317.40 289.20
June 30, 2004...................................................... 313.10 289.20
July 31, 2004...................................................... 330.00 297.50
August 31, 2004.................................................... 298.50 271.90
As of September 15, 2004, 759,524,911 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 64 holders, and represented in the aggregate
39% 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.
Ryanair Holdings is seeking to increase the percentage of its share capital
held by EU nationals. Accordingly, beginning June 26, 2001, Ryanair Holdings has
instructed The Bank of New York 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. The
Bank of New York will continue to convert existing ADSs into ordinary shares at
the request of the holders of such ADSs.
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 the 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.
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Item 10. Additional Information
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
In May 1997, Ryanair Holdings granted options to seven members of the
Company's senior management to purchase an aggregate total of 2,871,792 Ordinary
Shares. The consideration for the grant of such options was EUR 1.27 per
participant in each case. The exercise price of the options is 90% of the price
per Ordinary Share at the time of the IPO (or EUR 0.557 per Ordinary Share).
These options first became exercisable in May 2000 and must be exercised within
seven years of the date of their grant. As of March 31, 2004, options in respect
of 2,861,716 Ordinary Shares had been exercised. The balance of these options
have been exercised since the end of the 2004 fiscal year.
In April 1998, the Board of Directors of Ryanair Holdings adopted an
employee share option plan (the "Option Plan"), with all employees of the
Company being eligible to participate. The Option Plan was approved by Ryanair
Holdings' shareholders at the Annual General Meeting held on September 29, 1998
and replaced a comparable plan adopted at the time of the IPO, under which no
options had been granted.
The Option Plan allows for eligible employees to be granted options to
purchase up to an aggregate of 5% of the outstanding Ordinary Shares of Ryanair
Holdings at an exercise price to be equal to the closing price of such shares on
the Irish Stock Exchange on the date of the grant of the option. Options would
be granted over a five-year period beginning in 1998, with the amount of options
granted to any individual employee being determined with reference to the amount
of emoluments paid to eligible employees. All of these options became
exercisable beginning in June 2003 and will be exercisable through June 2007.
Management has designed the Option Plan, so that, subject to the Board of
Directors' discretion, employees can be rewarded for achieving certain financial
performance criteria over a five-year period, thus allowing them to participate
in the increase in the value of the Company over the coming years. Grants of
options under the Option Plan are thus subject to the Company's achievement of
the following criteria during the five-year period beginning with fiscal year
1998, as follows:
1. The Company's net profit after tax for each fiscal year must
exceed its net profit after tax for the preceding fiscal year by
at least 20%.
2. If the first criterion is not met, options will still be
granted if the aggregate growth in the Company's net profit
after tax (as compounded annually) during the period beginning
with fiscal 1998 and ending with the fiscal year ending in the
year in which the grant of yearly options is being considered is
equal to, or greater than, an annual rate of 20%.
If, in any year, either of these two criteria are met, the Remuneration
Committee may select eligible employees who will be invited to apply for options
that were not granted in any prior year as a result of neither such criterion
being met.
Ryanair Holdings' shareholders approved a share option plan at the Annual
General Meeting held on September 22, 2000 (the "Option Plan 2000"). All
employees and Directors are eligible to participate in the plan, under which
grants of options can only be made in any of the ten years beginning with fiscal
year 2000 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. The Option Plan 2000 is part of a
incentive program for Ryanair's employees and Directors. 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 their complete option entitlement
automatically.
93
A new share option plan (the "Option Plan 2003") was established by
resolution of the Board of Directors of Ryanair Holdings and approved by the
shareholders of Ryanair Holdings at the Annual General Meeting held on September
25, 2002. As Ireland operates a tax favorable approved share option scheme
regime, it was decided to adopt the Option Plan 2003 in accordance with this
regime so that employees will not be taxed on the exercise of options (subject
to certain conditions). The Option Plan 2003 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 can only be made in any of the ten years beginning with fiscal
year 2002 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. The Option Plan 2003 is part of an
incentive program for Ryanair's employees and Directors. Under the terms of the
plan, options will become exercisable five years from the time of the first
grant under the program.
As of March 31, 2004, ten separate grants of an aggregate total of
32,724,617 options in respect of an equivalent number of Ordinary Shares had
been made to eligible employees under the Option Plan, the Option Plan 1998,
Option Plan 2000 and Option Plan 2003 together, and an aggregate of 24,206,538
options to purchase an equal number of Ordinary Shares were outstanding. Of this
total, which includes options granted to senior management in 1997 that have not
yet been exercised, 10,276 options are currently exercisable, and the balance
become exercisable between June 2004 and June 2007. All of the options granted
under the Option Plan have a strike price equal to the closing price of the
Ordinary Shares on the date of the grant. The terms of the 5,400,000 options
granted under the Option Plan on December 9, 1998, which were granted to 15 key
senior executives and managers as part of an incentive and retention program,
are generally similar to those generally granted under the Option Plan, except
for the requirement that the executives/managers must continue to be employed by
the Company until June 2002. If they should leave or resign during the period
they automatically lose their complete option entitlement; if they die or their
contract of employment is terminated by the Company, the number of options to
which they will be entitled will be limited to the proportion of their initial
grant that is equal to the proportion of the complete period represented by the
time elapsed from the date of the grant to the date of their death or
termination. Under the Option Plan 2002, 23 senior managers were granted
4,558,000 share options at a strike price of EUR 5.65 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.
The aggregate of 24,206,538 Ordinary Shares that would be issuable upon
exercise in full of the options described in this section that were outstanding
as of March 31, 2004 would represent approximately 3.2% of the current issued
share capital of Ryanair Holdings. Of such total, options in respect of an
aggregate of 4,520,757 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.
94
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."
Rights, Preferences and Dividends Attaching to Shares. The Company has only
one class of shares, being ordinary shares of EUR 0.0127 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.
95
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:
- Delaying or prohibiting a change in the control of the Company, but
which operate only with respect to a merger, acquisition or corporate
restructuring;
- discriminating against any existing or prospective holder of shares as a
result of such shareholder owning a substantial number of shares; or
- governing changes in capital
where such provisions are more stringent than those required by law.
MATERIAL CONTRACTS
In January 2002, the Company and Boeing entered into a series of agreements
for the purchase by the Company of new 737-800 aircraft for delivery during the
period from December 2002 through December 2008, 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 these contracts.
A copy of the agreements comprising the 2002 Boeing contract, which was the
subject of a request for confidential treatment that was granted, was filed as
Exhibit 4.1 to Ryanair's Annual Report on Form 20-F for the fiscal year ended
March 31, 2002.
EXCHANGE CONTROLS
Irish exchange control regulations ceased to apply from and after December
31, 1992. 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). Except as indicated below, dividends
and redemption proceeds also continue to be freely transferable to non-resident
holders of such securities.
The Financial Transfers Act 1992 (the "1992 Act") was enacted in December
1992. The 1992 Act gives power to the Minister for Finance of Ireland to make
provision for the restriction of financial transfers between Ireland and other
countries. Financial transfers are broadly defined and include all transfers,
which would be movements of capital or payments within the meaning of the
treaties governing the EU. The acquisition or disposal of the ADSs, which
represent shares issued by an Irish incorporated company, the acquisition or the
disposal of the shares and associated payments may fall within this definition.
In addition, 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.
96
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 of Association (the "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. EU Regulation
2407/92 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 Regulation 2407/92. 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.
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.
97
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.
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.
98
As of June 30, 2004, EU nationals owned at least 54.6% 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 the Republic 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:
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:
- An Irish resident company;
- An Irish Revenue approved pension scheme;
- A qualifying fund manager or qualifying savings manager;
- A qualifying employee share ownership trust;
- A collective investment undertaking;
- A tax exempt charity;
- A designated broker receiving the distribution for a special
portfolio investment account;
- 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
for damages in respect of mental or physical infirmity;
- Certain qualifying trusts established for the benefit of an
incapacitated individual and/or persons in receipt of income
from such a qualifying trust; and
- A person entitled to exemption to income tax under Schedule F
by virtue of Section 192(2) TCA 1997.
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:
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- Persons (other than a company) who are (i) neither resident
nor ordinarily resident in Ireland and (ii) who 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;
- Companies not resident in Ireland which are resident in an
EU Member State or a tax treaty country and are not
controlled, directly or indirectly, by Irish residents;
- Companies not resident in Ireland which are directly or
indirectly controlled by a person or persons who are
resident for tax purposes under the law of a tax treaty
country or an EU Member State in a tax treaty country or an
EU Member State other than Ireland and which are not
controlled directly or indirectly by persons who are not
resident for tax purposes in that tax treaty country or EU
Member State;
- Companies the principal class of shares of which, or of a
company of which it is a 75% subsidiary, or where the company
is wholly-owned by two or more companies, of each of those
companies, 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.
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 the case of non-resident companies which are 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 contains an undertaking by
the non resident and non ordinarily resident person that they will advise the
relevant person accordingly if they cease to be non resident or non ordinary
resident. No declarations are 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 U.S. ADR holders beneficially entitled to such dividends will be
allowed to receive and pass on the dividends gross based on an "address system"
where the recorded address of such holder, as listed in depository bank's
register of depository receipts, is in the U.S.
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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 (i.e., before withholding) 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) 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, (b) where a
withholding is made on a payment to a person neither resident nor ordinarily
resident in Ireland it will satisfy a liability to Irish tax of such a corporate
stockholder but such an individual may have a liability to the 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 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 2, 1988 or 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. To the extent that Ordinary Shares or ADSs pass under a will or
on intestacy, the Ordinary Shares or ADSs would be within the charge to this tax
notwithstanding that the disponer or the successor is resident outside Ireland.
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 may 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 an ADS. 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 EUR 12.50.
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The transfer by a stockholder to the Depositary or Custodian of Ordinary
Shares for deposit in return for ADSs and a transfer of Ordinary Shares from the
Depositary or Custodian in return for the surrender of ADSs will be stampable at
the rate of 1% if the transfer of Ordinary Shares relates to a sale or
contemplated sale or any other change in the beneficial ownership (under Irish
law) of such Ordinary Shares. If, however, 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.
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.
102
Subject to certain exceptions for short-term and hedged positions, the U.S.
dollar amount of dividends received by an individual with respect to the
Ordinary Shares or ADSs before January 1, 2009, will be subject to taxation at a
maximum rate of 15% if the dividends are "qualified dividends." Dividends
received with respect to the Ordinary Shares or ADSs will be qualified dividends
if 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 ("PFIC"), foreign personal holding company ("FPHC") or
foreign investment company ("FIC"). Based on the Company's audited financial
statements and relevant market and shareholder data, the Company believes that
it was not treated as a PFIC, FPHC, or FIC for U.S. federal income tax purposes
with respect to its 2003 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 and shareholder data, the Company does not anticipate becoming a PFIC,
FPHC, or FIC for its 2004 taxable year.
Under the U.S.-Ireland Income Tax Treaty currently in effect, in the event
the Company were to pay any dividends, the tax credit attaching to the dividend
(as used herein the "Tax Credit"; see "--Irish Tax Considerations") will
generally 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 dividends payable 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" or, in the case of certain U.S. Holders, "financial services income."
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 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%.
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.
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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 Securities and
Exchange Commission 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 450 Fifth Street, N.W., Washington, D.C.
20459. 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 forward starting 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
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.
The Company also does not use derivative financial instruments to counter other
kinds of ambient risks that could affect its results of operations and financial
condition.
In executing its risk management strategy, Ryanair has traditionally
entered into forward contracts for the purchase of aviation fuel, although it
has no such contracts in place for the period after October 2004. 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 forward starting and regular 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.
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, 2004. The range of changes selected for this
sensitivity analysis reflects Ryanair's view of changes which are reasonably
possible over a one-year period.
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FUEL PRICE EXPOSURE AND HEDGING
Fuel costs constitute a substantial portion of Ryanair's operating expenses
(approximately 22.5%, 22.3% and 21.2% of such expenses in fiscal years 2002,
2003 and 2004, respectively, after taking into account Ryanair's fuel hedging
activities). Ryanair has historically engaged 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. Starting from
the end of 1995 through 2004, Ryanair generally sought to hedge its expected
fuel requirements for the coming 12 to 18 months on a rolling basis. Although
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. In addition, Ryanair currently has hedging
contracts in place only through October 2004, and, given the recent significant
increases in fuel prices, management does not intend to enter into new forward
contracts to hedge its fuel price risk until prices return to more favorable
levels. The unrealized gains on the outstanding forward agreements at March 31,
2002, March 31, 2003 and March 31, 2004, based on their fair values, amounted to
EUR 5.9 million, EUR 3.3 million and EUR 16.7 million, respectively. Based on
Ryanair's fuel consumption for the fiscal year ended March 31, 2004, 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 EUR 2 million in Ryanair's fuel costs.
Ryanair expects its fuel costs to increase following expiry of the current
hedging contracts in October 2004. 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 Irish GAAP, the Company's fuel forward contracts are treated as
hedges, and any unrealized gains or losses arising on those contracts are
deferred and recognized as an offset to fuel expenses, when realized. Under U.S.
GAAP, Ryanair accounts for its fuel forward contracts as cash flow hedges. In
accordance with Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), these financial
instruments are recorded at fair value as an offset to accumulated other
comprehensive income, net of applicable income taxes and the amount of estimated
hedge ineffectiveness, and are recorded as a component of fuel expenses when the
underlying fuel being hedged is used. The Company has generally 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 relate to the same quantity and time and location of delivery as the
forecasted fuel purchase being hedged. 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, 2004, the Company
recorded no material hedge ineffectiveness within earnings.
In the fiscal year ended March 31, 2004, the Company recorded a positive
fair value adjustment relating to fuel forward contracts of EUR 14.6 million,
net of tax, within accumulated other comprehensive income. All of this gain is
expected to impact on Ryanair's earnings in fiscal 2005. In the fiscal year
ended March 31, 2003, the Company recorded a corresponding positive fair value
adjustment of EUR 2.9 million, net of tax, within accumulated other
comprehensive income.
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 52% of Ryanair's total revenues in fiscal year 2004, as compared
to approximately 45% in fiscal year 2003 and approximately 43% in fiscal year
2002, with the U.K. pound sterling accounting for most 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.
105
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 fuel, maintenance, aviation insurance and
capital expenditure costs, including the payments to Boeing on the Boeing
737-800s.
As Ryanair's volume of traffic originating in the U.K. has increased,
however, the volume of Ryanair's unmatched U.K. pound sterling revenues has also
increased. Accordingly, in fiscal year 2003 and fiscal year 2004, 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, 2004, the total unrealized loss
relating to these contracts amounted to EUR 14.7 million, compared to a EUR 5.2
million unrealized loss at March 31, 2003.
In the fiscal year ended March 31, 2003, 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 revenues. At March 31,
2003, the total unrealized loss relating to these contracts amounted to EUR 0.9
million. There were no such contracts at March 31, 2004.
Under Irish GAAP, the Company's foreign currency forward contracts are
treated as hedges and any unrealized gains or losses arising on those contracts
are deferred and recognized as an offset to the related income or expense when
realized. Under U.S. GAAP, the Company accounts for these contracts as cash flow
hedges in accordance with SFAS 133, and the change in fair value of these
contracts is recorded as an offset to accumulated other comprehensive income,
net of applicable income taxes and the amount of estimated hedge
ineffectiveness. 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 always for the same quantity,
currency and maturity date as the forecasted U.S. dollar-denominated expense or
U.K. pound sterling-denominated revenue being hedged. Accordingly, the
quantification of the change in expected cash flows of the forecasted U.S.
dollar expense or U.K. pound sterling revenue is based on the forward contract
price and in the fiscal year ended March 31, 2004, no material hedge
ineffectiveness was recorded in earnings. In the fiscal year ended March 31,
2004, the Company recorded a negative fair value adjustment of EUR 12.9 million
relating to its U.S. dollar forward contracts. These losses have been included
within accumulated other comprehensive income and are all expected to impact on
earnings in fiscal year 2005. In the fiscal year ended March 31, 2003, the
Company recorded a negative fair value adjustment of EUR 4.6 million relating to
its U.S. dollar forward contracts and a negative fair value adjustment of EUR
0.8 million relating to its U.K. pound sterling/euro forward contracts.
106
During fiscal years 2004 and 2003, 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, 2004, the total
unrealized losses relating to these contracts amounted to EUR 21.5 million,
while at March 31, 2003, such unrealized losses amounted to EUR 3.8 million.
Under U.S. GAAP, the Company accounts for these contracts as fair value
hedges in accordance with SFAS 133, and accordingly, such financial instruments
are recorded at fair value. Any gains or losses arising on these instruments are
recorded currently in earnings while the related gain or loss on the underlying
aircraft purchase commitment adjusts the carrying amount of aircraft purchase
commitments and is also recognized currently in earnings. 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, the quantification of
the change in the fair value of the aircraft purchase commitment is based on the
foreign currency forward rate, and in the fiscal year ended March 31, 2004, no
material hedge ineffectiveness was recorded in earnings.
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, 2004 would
decrease by EUR 22.4 million, all of which would ultimately impact earnings when
such contracts mature.
INTEREST RATE EXPOSURE AND HEDGING
The Company's purchase of 41 of the Boeing 737-800 aircraft delivered to
date 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, 2004, Private
Export Funding Corporation ("PEFCO"), acting through ABN AMRO Bank N.V. as Loan
Agent, ABN AMRO Bank N.V. ("ABN"), The Royal Bank of Scotland ("RBS") and BNP
Paribas ("BNP") had provided financing under these ExIm-guaranteed loan
facilities for twenty-three, five, eight and five aircraft respectively. Lloyds
TSB provided financing under such a facility for an additional six aircraft
delivered between July 2004 and September 2004. 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 PEFCO
facility are denominated in dollars and bear interest at a floating rate linked
to U.S. dollar LIBOR, while subsequent loans under that facility, as well as all
of those under the ABN, RBS, BNP and Lloyds TSB facilities, are denominated in
euro and bear interest at floating rates linked to EURIBOR.
Through the use of cross currency swaps, Ryanair has effectively converted
its dollar-denominated debt under the ABN facility into euro-denominated debt.
Additionally, using interest rate swaps, Ryanair has effectively converted
almost all of its floating rate debt under each of the facilities into fixed
rate debt. Loans for approximately 4% 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 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 96% of the financing cost of
41 of the 57 Boeing 737-800 aircraft delivered to date and is fully hedged in
respect of this debt. At March 31, 2004, the Company had outstanding cumulative
borrowings under the PEFCO, RBS and BNP facilities of EUR 945.0 million with a
weighted average interest rate of 5.46%. See "Item 5. Operating and Financial
Review and Prospects--Liquidity and Capital Resources--Capital Expenditures" for
a tabular summary of the "Effective Borrowing Profile of Aircraft-Related Debt"
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, 2004. At March 31, 2004, the fair value of
the interest rate swap agreements relating to this floating rate debt was
represented by a loss of EUR 50.9 million. See Note 19 to the Consolidated
Financial Statements include in Item 18 for additional information. If Ryanair
had not entered into such swap agreements, a plus or minus one-percentage point
movement in interest rates would impact the unrealized fair market value of this
liability by approximately EUR 23.0 million. The earnings and cash flow impact
of any such change would be approximately plus or minus EUR 9 million per year,
holding other variables constant.
107
In fiscal year 2004, the Company financed 10 Boeing 737-800 aircraft
delivered between December 2003 and March 2004 under a sale and leaseback
structure with RBS Aviation Capital (RBS Aviation) pursuant to which RBS
Aviation purchased the aircraft from Ryanair and leased than back to Ryanair
pursuant to operating leases. As a result, Ryanair operates, but does not own,
these aircraft, and it has no right or obligation to acquire these aircraft at
the end of the lease term. The RBS Aviation leases are denominated in euro and
have floating rentals that are linked to EURIBOR. Through the use of interest
rate swaps, Ryanair has effectively converted the floating rental payments due
under these leases into fixed rate payments. At March 31, 2004, the fair value
of the interest rate swap agreements relating to leases on a mark-to-market
basis was equivalent to a loss of EUR 39.5 million.
In connection with its expected financing of additional Boeing 737-800
aircraft to be delivered under the 2002 Boeing Contract and the 2003
supplemental agreement after March 31, 2004, Ryanair has entered into a series
of forward-starting 12-year interest rate swaps. These swaps have the effect of
capping the effective interest rate in euro terms on an estimated notional value
of EUR 412.7 million in borrowings commencing between October 2004 and March
2005 and terminating between October 2016 and March 2017 (with the starting
dates corresponding to the scheduled delivery dates for the aircraft) at
interest rates from 5.70% to 5.73%. At March 31, 2004, the fair value of the
forward starting interest rate swap agreements relating to forecasted debt
drawdowns on a mark-to-market basis was represented by a loss of EUR 44.9
million.
Under Irish GAAP, the Company's interest rate swaps and forward starting
interest rate swaps are accounted for as hedges and any unrealized gains or
losses on those swaps are deferred and recognized as an offset to these related
financing charges once the debt is drawn down. Under U.S. GAAP, the Company
accounts for its swaps as cash flow hedges in accordance with SFAS 133. These
financial instruments are, accordingly, recorded at fair value with an offset to
accumulated other comprehensive income, net of applicable income taxes and the
estimated amount of hedge ineffectiveness, and are deferred and recorded in
earnings on the same basis as the underlying interest expense once the debt is
drawn-down, shown as an offset to interest expense.
The Company considers these hedges to be highly effective in offsetting
variability in future cash flows arising from the fluctuation of interest rates
associated with forecasted drawdowns of debt and operating lease payments,
because the notional amounts of debt, and operating leases and the interest rate
swaps match, the formula for computing net settlements under the swaps are
uniform, the repricing dates match and both the swap and the forecast debt
draw-downs are based on the same index. Additionally, the other conditions set
out in SFAS 133 for highly effective interest rate hedges have, in the opinion
of the Company, been met. Accordingly, the quantification of the change in
expected cash flows of the loan and lease drawdowns is based on the interest
swap rate, and in fiscal year 2004, no material hedge ineffectiveness has been
recorded in earnings. In the fiscal year ended March 31, 2004, the Company
recorded a negative fair value adjustment of EUR 118.4 million relating to these
arrangements, which was included within accumulated other comprehensive income.
This loss will be realized within earnings over the period from the expected
drawdown of the related financing as an offset to the related interest expense.
108
Assuming that Ryanair had fully drawn down all of this debt on March 31,
2004, but that it 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 EUR 26 million. The earnings and cash
flow impact of any such change in interest rates would have been approximately
plus or minus EUR 4 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
As of March 31, 2004, the Company carried out an evaluation under the
supervision and with the participation of its management, including its chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. 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 and as of the date
of the Company's evaluation, the chief executive officer and chief financial
officer concluded that the disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
reports Ryanair file and submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported as and when required.
There has been no change in the Company's internal control over financial
reporting during the fiscal year ended March 31, 2004 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
Our board of directors has determined that Emmanuel Faber qualifies as an
"audit committee financial expert" within the meaning of this Item 16A.
Item 16B. Code of Ethics
The Company has adopted a broad Code of Conduct applicable to all of its
employees. As part of this Code of Conduct, the Company adopted a specific code
of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act
of 1934, as amended, that is applicable to the Company's chief executive
officer, chief financial officer, chief accounting officer and controller, as
well as to its general counsel, and persons performing similar functions to any
of the foregoing. The Company will provide a copy of this code of ethics to any
person free of charge, upon request to the company secretary at Ryanair
Corporate Headquarters, Dublin Airport, Co. Dublin, Ireland. If the Company
amends the provisions of this code of ethics that apply to its chief executive
officer, chief financial officer, chief accounting officer, controller and
persons performing similar functions, or if the Company grants any waiver of
such provisions, it will disclose such amendment or waiver on its website at the
same address.
109
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, 2003 and
2004:
Year ended December 31,
2004 2003
EUR'000 EUR'000
Audit fees........................................................................ 169 180
Audit-related fees................................................................ 17 14
Tax fees.......................................................................... 167 213
Other fees........................................................................ - 2
Total fees................................................................. 353 409
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, employee benefit audit plans, and special procedures required to
meet certain regulatory requirements.
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 approves any engagement of Ryanair's
independent auditors for all audit and non-audit services provided to the
Company.
PART III
Item 17. Financial Statements
Not applicable.
110
Item 18. Financial Statements
RYANAIR HOLDINGS PLC
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report............................................................... F-2
Consolidated Balance Sheets of Ryanair Holdings plc at March 31, 2003 and March 31, 2004... F-3
Consolidated Profit and Loss Accounts of Ryanair Holdings plc for the Years ended March 31,
2002, March 31, 2003 and March 31, 2004................................................... F-4
Consolidated Cash Flow Statements of Ryanair Holdings plc for the Years Ended March 31,
2002, March 31, 2003 and March 31, 2004................................................... F-5
Consolidated Statements of Changes in Shareholders' Funds-Equity of Ryanair Holdings plc
for the Years ended March 31, 2002, March 31, 2003 and March 31, 2004..................... F-6
Notes to Consolidated Financial Statements................................................. F-7
Item 19. Exhibits
1.1 Memorandum and Articles of Association of Ryanair Holdings in
effect as of the date of this Report (incorporated herein by
reference to Exhibit 1.1 of Ryanair Holdings' Annual Report
on Form 20-F/A filed on November 2, 2001 (Commission file No.
0-2930)).
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 737-8AS 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)).
8.1 Principal subsidiaries of the registrant.
12.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Ryanair Holdings PLC
We have audited the accompanying consolidated balance sheets of Ryanair
Holdings plc and subsidiaries (Ryanair Holdings plc) as of March 31, 2003 and
2004 and the related consolidated profit and loss accounts, consolidated cash
flow statements and consolidated statements of changes in shareholders'
funds-equity for each of the years in the three year period ended March 31,
2004. These consolidated financial statements are the responsibility of Ryanair
Holdings plc's management. Our responsibility is to express an opinion on each
of these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Ireland and the standards of the Public 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ryanair
Holdings plc at March 31, 2003 and 2004 and the results of their operations and
cash flows for each of the years in the three year period ended March 31, 2004
in conformity with generally accepted accounting principles in Ireland.
Accounting principles generally accepted in Ireland vary in certain
significant respects from accounting principles generally accepted in the United
States. Information relating to the nature and effect of such differences is
presented in Note 31 to the consolidated financial statements.
KPMG
Chartered Accountants
Dublin, Ireland
August 13, 2004
F-2
Consolidated Balance Sheets
At March 31, At March 31,
2003 2004
Note EUR 000 EUR 000
Current assets
Cash and liquid resources......................................... 2 1,060,218 1,257,350
Accounts receivable............................................... 3 14,970 14,932
Other assets ..................................................... 4 16,370 19,251
Inventories ...................................................... 5 22,788 26,440
Total current assets................................................. 1,114,346 1,317,973
Fixed assets
Tangible assets................................................... 6 1,352,361 1,576,526
Intangible assets................................................. 7 - 44,499
Total assets......................................................... 2,466,707 2,938,998
Current liabilities
Accounts payable.................................................. 8 61,604 67,936
Accrued expenses and other liabilities............................ 9 251,328 338,208
Current maturities of long term debt.............................. 10 63,291 80,337
Short term borrowings............................................. 11 1,316 345
Total current liabilities............................................ 377,539 486,826
Other liabilities
Provisions for liabilities and charges............................ 12 67,833 94,192
Accounts payable due after one year............................... 8 5,673 30,047
Long term debt.................................................... 10 773,934 872,645
847,440 996,884
Shareholders' funds-equity
Called-up share capital........................................... 13 9,588 9,643
Share premium account............................................. 13 553,512 560,406
Profit and loss account........................................... 678,628 885,239
Shareholders' funds-equity........................................... 1,241,728 1,455,288
Total liabilities and shareholders' funds............................ 2,466,707 2,938,998
F-3
The accompanying notes are an integral part of the financial information.
Consolidated Profit and Loss Accounts
Year ended Year ended
March 31, Year ended March 31,
2002 March 31, 2003 2004
Note EUR 000 EUR 000 EUR 000
Operating Revenues
Scheduled revenues......................................... 550,991 731,951 924,566
Ancillary revenues......................................... 73,059 110,557 149,658
Total operating revenues-continuing operations................ 19 624,050 842,508 1,074,224
Operating expenses
Staff costs................................................ 20 (78,240) (93,073) (123,624)
Depreciation and amortization.............................. 6 (59,010) (76,865) (101,391)
Other operating expenses................................... 21 (323,867) (409,096) (597,922)
Total operating expenses excluding goodwill................... (461,117) (579,034) (822,937)
Operating profit-continuing operations before amortization
of goodwill............................................. 22 162,933 263,474 251,287
Amortization of goodwill................................... - - (2,342)
Operating profit - continuing operations after amortization
of goodwill............................................. 162,933 263,474 248,945
Other income/(expenses)
Interest receivable and similar income..................... 27,548 31,363 23,891
Interest payable and similar charges....................... 23 (19,609) (30,886) (47,564)
Foreign exchange gains..................................... 975 628 3,217
Gain / (loss) on disposal of fixed assets.................. 527 (29) (9)
Total other income/(expenses)................................. 9,441 1,076 (20,465)
Profit on ordinary activities before tax...................... 172,374 264,550 228,480
Tax on profit on ordinary activities....................... 24 (21,999) (25,152) (21,869)
Profit for the financial year................................. 150,375 239,398 206,611
Basic earnings per ordinary share euro
cent.................................................... 26 20.64 31.71 27.28
Diluted earnings per ordinary share euro
cent.................................................... 26 20.32 31.24 27.00
Number of ordinary shares ................................. 26 728,726,484 755,055,374 757,446,873
Number of diluted shares................................... 739,960,901 766,278,569 765,131,091
The accompanying notes are an integral part of the financial information.
F-4
Consolidated Cash Flow Statements
Year ended Year ended Year ended
March 31, 2002 March 31, 2003 March 31, 2004
Note EUR 000 EUR 000 EUR 000
Net cash inflow from operating activities............ 28(a) 309,109 351,003 462,062
Returns on investments and servicing of finance
Interest received.................................. 30,193 30,171 26,292
Interest paid...................................... (19,830) (29,563) (46,605)
Interest paid on finance leases.................... (3) - -
Net cash inflow / (outflow) from returns on
investments and servicing of finance........... 10,360 608 (20,313)
Taxation
Corporation tax paid............................... (5,071) (3,410) (2,056)
Capital expenditure and financial investment
Purchase of tangible fixed assets.................. (372,587) (469,878) (331,603)
Sales of financial and tangible fixed assets....... 563 31 4
Net cash (outflow) from capital expenditure and
financial investment........................... (372,024) (469,847) (331,599)
Acquisitions
Purchase consideration............................. (20,795)
Onerous lease payments............................. - - (11,901)
Net cash (outflow) from acquisition of subsidiary
undertakings................................... - - (32,696)
Financing and management of liquid resources
Loans raised....................................... 175,746 331,502 187,035
Debt repaid........................................ (27,886) (44,779) (71,278)
Issue of share capital............................. 188,331 56 6,948
Share issue costs.................................. (6,330) - -
Capital element of finance leases.................. (107) (1) -
Financing............................................ 329,754 286,778 122,705
(Increase) in liquid resources..................... 28(c) (251,241) (166,329) (249,220)
Net cash inflow / (outflow) from financing and
management of liquid resources................. 78,513 120,449 (126,515)
Increase/(decrease) in cash.......................... 28(e) 20,887 (1,197) (51,117)
The accompanying notes are an integral part of the financial information.
F-5
Consolidated Statements of Changes in Shareholders' Funds-Equity
Share Profit and
Ordinary premium loss
shares account account Total
EUR 000 EUR 000 EUR 000 EUR 000
Balance at March 31, 2001............................... 9,194 371,849 288,855 669,898
Issue of ordinary equity shares (net of issue costs)... 393 181,608 - 182,001
Profit for the financial year.......................... - - 150,375 150,375
Balance at March 31, 2002............................... 9,587 553,457 439,230 1,002,274
Issue of ordinary equity shares (net of issue costs)... 1 55 - 56
Profit for the financial year.......................... - - 239,398 239,398
Balance at March 31, 2003............................... 9,588 553,512 678,628 1,241,728
Issue of ordinary equity shares (net of issue costs)... 55 6,894 - 6,949
Profit for the financial year.......................... - - 206,611 206,611
Balance at March 31, 2004............................... 9,643 560,406 885,239 1,455,288
Details of movements in the number of shares and in the share premium
account are set out in Note 13.
The accompanying notes are an integral part of the financial information.
F-6
Notes forming part of the Financial Information (Continued)
1a Business activity
Ryanair Limited and subsidiaries (the Group or Ryanair Limited) has
operated as an international airline since it commenced operations in 1985. On
August 23, 1996 Ryanair Holdings Limited, a newly formed holding company,
acquired the entire issued share capital of Ryanair Limited. On May 16, 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
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Group's financial
statements. These financial statements are prepared in accordance with generally
accepted accounting principles (GAAP) in Ireland under the historical cost
convention and comply with financial reporting standards of the Accounting
Standards Board, as promulgated by the Institute of Chartered Accountants in
Ireland. Where possible, however, financial information has been presented in
accordance with the presentation and terminology of United States (U.S.) GAAP
except where such presentation is not consistent with Irish GAAP. A summary of
the differences between Irish GAAP and U.S. GAAP as applicable to the Group is
set out in Note 31.
Basis of preparation
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles in Ireland and the UK requires the use of
management estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.
The consolidated financial statements are prepared in euro.
Basis of consolidation
The Group's consolidated financial statements comprise the consolidated
balance sheets of Ryanair Holdings plc and its subsidiary undertakings as of
March 31, 2003 and 2004 and the related consolidated profit and loss accounts,
consolidated cash flow statements and consolidated statements of changes in
shareholders' funds equity for each of the years in the three year period ended
March 31, 2004.
The results of subsidiary undertakings acquired or disposed of in the
period are included in the consolidated profit and loss account 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. In the
Company's financial statements, investments in subsidiary undertakings are
stated at cost less any amounts written off.
A separate profit and loss account for the Company is not presented, as
provided by Section 3 (2) of the Companies (Amendment) Act 1986. The retained
profit for the year attributable to the Company was EUR Nil (2003: EUR Nil,
2002: EUR Nil).
Goodwill
With effect from April 1, 1998, purchased goodwill, being the excess of the
consideration over the fair value of net assets acquired at the date of
acquisition, is capitalized and amortized over its estimated useful economic
life, currently considered to approximate to 20 years. Purchased goodwill
arising prior to that date was written off immediately against reserves and was
not reinstated on implementation of Financial Reporting Standard 10 - Goodwill
and Intangible Assets (FRS 10) as permitted by that standard.
F-7
Notes forming part of the Financial Information (Continued)
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 and 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.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation and
provisions for impairments, if any. Depreciation is calculated 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:
Plant and equipment.............................................................. 20-33.3%
Fixtures and fittings............................................................ 20%
Motor vehicles................................................................... 33.3%
Buildings........................................................................ 5%
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, 2004 Useful Life Residual Value
15 20 years from date of manufacture EUR 500,000
Boeing 737-200's 6 20 years from date of manufacture EUR 250,000
Boeing 737-800's 41 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. On acquisition of the related aircraft, these payments are included
as part of the cost of aircraft and are depreciated from that date.
Financial Fixed Assets
Financial fixed assets are shown at cost less provisions for impairments,
if any.
Inventories
Inventories, principally representing rotable aircraft spares, 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.
Foreign currency
Transactions arising in currencies other than the euro are translated into
euro at the rates of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are generally stated at
the rates of exchange prevailing at the year end and all exchange gains or
losses are accounted for through the profit and loss account.
F-8
Notes forming part of the Financial Information (Continued)
Derivative financial instruments
The Group enters into transactions in the normal course of business using a
variety of derivative financial instruments in order to hedge against its
exposures to fluctuating aircraft fuel prices and changes in foreign exchange
and interest rates. Derivative financial instruments are utilized to cap
aircraft fuel prices, foreign exchange and interest rate exposures. Gains and
losses on derivative financial instruments are recognized in the profit and loss
account when realized as an offset to the related income or expense, as the
Group does not enter into any such transactions for speculative purposes.
Taxation
Corporation tax is provided on taxable profits at current rates. Full
provision is made for all timing differences at the balance sheet date in
accordance with Financial Reporting Standard No. 19 "Deferred Tax." Provision is
made at tax rates that are expected to apply in the periods in which the timing
differences are expected to reverse.
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 operating lease. Any profit
or loss on the disposal is spread over the lease term. 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 tangible fixed
assets 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 profit and loss
account calculated by reference to the number of hours or cycles operated during
the year.
All other maintenance costs are expensed as incurred.
Pension costs
The Group operates both defined benefit and defined contribution schemes.
In relation to the defined benefit scheme the cost of providing pensions to
employees is charged to the profit and loss account on a systematic basis over
the service lives of those employees. Pension costs are determined by an actuary
by reference to a funding plan and funding assumptions. The regular pension cost
is expressed as a substantially level proportion of current and expected future
pensionable payroll. Variations from regular cost are spread over the remaining
service lives of the current employees.
To the extent that the pension cost is different from the cash contribution
to the pension scheme, a provision or prepayment is recognized in the balance
sheet.
The cost of providing the defined contribution benefit plan is expensed as
incurred.
F-9
Notes forming part of the Financial Information (Continued)
Statement of cash flows
Cash represents cash held at bank available on demand, offset by bank
overdrafts.
Liquid resources are current asset investments (other than cash) that are
readily convertible into known amounts of cash and restricted cash balances.
Liquid resources include investments in commercial paper, certificates of
deposit and cash deposit of less than one year.
Operating profit before amortization of goodwill
Operating profit is presented before the charge for goodwill amortization
because management believes this presentation is helpful to investors as
goodwill amortization is considered to be a non-operational item. This
presentation may also facilitate comparison with other companies' financial
statements and management believes that this measure is used by investors in
their assessment of the underlying performance of the company.
2 Cash and liquid resources
Cash and liquid resources, net of overdrafts of EUR 0.3m (2003: EUR 1.3m)
amounted to EUR 1,257.0m (2003: EUR 1,058.9m). This includes EUR 200.0m (2003:
EUR 120.9m) held on deposit as collateral for certain derivative financial
instruments and debt financing arrangements entered into by the group.
3 Accounts receivable
At March 31, At March 31,
2003 2004
EUR 000 EUR 000
Trade receivables...................................................... 15,316 15,284
Provision for doubtful debts........................................... (346) (352)
14,970 14,932
All amounts fall due within one year.
The movement in the provision for bad debts is as follows:
Balance at Additions
beginning charged to Balance at
of year expenses Deductions end of year
EUR 000 EUR 000 EUR 000 EUR 000
Year ended March 31, 2003............... 359 - (13) 346
Year ended March 31, 2004............... 346 6 - 352
4 Other assets
At March 31,
2003 2004
EUR 000 EUR 000
Prepayments............................................................. 5,679 11,674
Interest Receivable..................................................... 7,013 4,611
Value Added Tax recoverable............................................. 3,678 2,966
16,370 19,251
All amounts fall due within one year.
5 Inventories
At March 31,
2003 2004
EUR 000 EUR 000
Aircraft spares ........................................................ 21,596 24,669
Duty free and other inventories......................................... 1,192 1,771
22,788 26,440
There are no material differences between the replacement cost of
inventories and the balance sheet amounts.
F-10
Notes forming part of the Financial Information (Continued)
6 Tangible fixed assets
Hangar Plant Fixtures
& & & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
EUR 000 EUR 000 EUR 000 EUR 000 EUR 000 EUR 000
(i) Year ended March 31, 2003
Cost
At March 31, 2002..................1,163,694 6,558 2,727 7,541 986 1,181,506
Additions............................474,757 156 663 1,559 345 477,480
Disposals.............................. (42) (13) - - (635) (690)
At March 31, 2003..................1,638,409 6,701 3,390 9,100 696 1,658,296
Depreciation
At March 31, 2002....................219,852 1,641 1,751 5,511 945 229,700
Charge for year.......................74,683 404 436 1,182 160 76,865
Disposals.............................. (42) (4) - - (584) (630)
At March 31, 2003....................294,493 2,041 2,187 6,693 521 305,935
Net book value
At March 31, 2003..................1,343,916 4,660 1,203 2,407 175 1,352,361
Hangar Plant Fixtures
& & & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
EUR 000 EUR 000 EUR 000 EUR 000 EUR 000 EUR 000
(ii) Year ended March 31, 2004
Cost
At March 31, 2003..................1,638,409 6,701 3,390 9,100 696 1,658,296
Additions............................317,664 6,380 858 618 49 325,569
Disposals.............................. - - (1) - (279) (280)
At March 31, 2004..................1,956,073 13,081 4,247 9,718 466 1,983,585
Depreciation
At March 31, 2003....................294,493 2,041 2,187 6,693 521 305,935
Charge for year.......................98,945 508 682 1,135 121 101,391
Disposals.............................. - - (1) - (266) (267)
At March 31, 2004....................393,438 2,549 2,868 7,828 376 407,059
Net book value
At March 31, 2004..................1,562,635 10,532 1,379 1,890 90 1,576,526
At March 31, 2004, aircraft with a net book value of EUR 1,204,431,888
(March 31, 2003, EUR 1,002,841,729) were mortgaged to lenders as security for
loans. Under the security arrangements for the Group's new 737-800 aircraft, the
Group does not hold legal title to those aircraft while related loan amounts
remain outstanding.
At March 31, 2004, the net book value of fixed assets held under finance
leases was EUR nil (March 31, 2003, EUR nil). Depreciation on these assets for
the years ended March 31, 2004 and March 31, 2003 amounted to EUR nil and EUR
164,590 respectively.
At March 31, 2004, the cost and net book value of aircraft included EUR
327,029,831 in respect of advance payments on aircraft (March 31, 2003: EUR
259,358,902). This amount is not depreciated. The cost and net book value also
includes capitalized aircraft maintenance and aircraft similators.
F-11
Notes forming part of the Financial Information (Continued)
At March 31, 2004 fixed asset additions of EUR 325,567,390 (March 31, 2003:
EUR 477,480,249) was comprised of assets paid for of EUR 325,567,390 (March 31,
2003: EUR 469,878,312) and the balance represented unpaid additions.
The depreciation charge for the year includes an exceptional charge of EUR
3.3m which relates to aircraft which were retired early as a result of scratch
marks that occurred during an aircraft painting programme.
7 Intangible assets
7(a) Intangible fixed assets
Group
Purchased Goodwill
EUR 000
Cost
At beginning of year....................................................... -
Acquisitions in year....................................................... 46,841
At end of year............................................................. 46,841
Amortization
At beginning of year....................................................... -
Amortization in year....................................................... 2,342
At end of year............................................................. 2,342
Net Book Value
At March 31, 2004.......................................................... 44,499
At March 31, 2003.......................................................... -
7(b) Acquisition of subsidiary undertakings
On April 10, 2003 the group acquired certain assets of KLM UK Limited from
KLM Royal Dutch Airlines (known as the "Buzz" acquisition). This has been
accounted for using the acquisition method of accounting. The assets acquired
and consideration paid were as follows:
Group
Book value
at date of Fair value Purchased
acquisition adjustments Goodwill
EUR 000 EUR 000 EUR 000
Provisions for onerous lease contracts..................... - (26,046) (26,046)
Goodwill arising on acquisition............................ 46,841
Purchase consideration..................................... 20,795
Satisfied by:
Cash Consideration......................................... 20,795
Total cost of acquisition.................................. 20,795
F-12
Notes forming part of the Financial Information (Continued)
In addition in the period to March 31, 2004 Ryanair had paid EUR 11.9m in
respect of the onerous lease provision set out above.
The acquisition of certain assets from KLM UK Limited principally comprised:
- Aircraft operating leases of six Boeing 737-300's and four BAE
146-200's. Because the fixed cost of these leases was substantially
above market value at the date of acquisition, the group has provided
for the onerous element of these leases.
- Transfer of 110 Buzz employees to Buzz Stansted Limited; and
- Transfer of certain landing and take-off slots at Stansted Airport.
7(c) Re-organization costs relating to acquisition
Buzz Stansted Limited, the new operating company, was closed from April 11,
2003 to May 1, 2003, to allow the group to re-organize the assets acquired and
integrate them into its existing operations. The costs incurred relating to this
reorganization amounted to EUR 3.0 m (EUR 2.7 m net of tax); (see note 21).
8 Accounts payable
Accounts payable: represents trade creditors payable within one year.
Accounts payable falling due after one year: consists of long term minimum
obligations arising from an engine maintenance contract and deferred gains
arising from the sale and leaseback of aircraft. During the year, Ryanair
entered into a sale and leaseback arrangement for 10 new Boeing 737-800
aircraft. The aircraft are operated under a seven year lease arrangement
and Ryanair does not have the right or obligation to acquire the aircraft at
the end of seven years.
9 Accrued expenses and other liabilities
At March 31,
2003 2004
EUR 000 EUR 000
Current:
Accruals................................................................... 48,196 70,915
Taxation................................................................... 58,907 76,122
Unearned revenue........................................................... 144,225 191,171
251,328 338,208
Taxation above comprises:
At March 31,
2003 2004
EUR 000 EUR 000
PAYE (payroll taxes)....................................................... 3,370 3,482
Corporation tax............................................................ 9,789 9,764
Other tax (including air passenger duty)................................... 45,748 62,876
58,907 76,122
10 Maturity analysis of long term debt
At March 31,
2003 2004
EUR 000 EUR 000
Due within one year:
Secured debt............................................................... 63,291 80,337
Obligations under finance leases........................................... - -
63,291 80,337
Due between one and two years:
Secured debt .............................................................. 66,480 84,209
Obligations under finance leases........................................... - -
Due between two and five years:
Secured debt .............................................................. 220,869 276,715
Due after 5 years:
Secured debt............................................................... 486,585 511,721
773,934 872,645
837,225 952,982
F-13
Notes forming part of the Financial Information (Continued)
Notes on long term debt other than finance leases
(i) Aircraft Facility
At March 31, 2003 and March 31, 2004, the Group had borrowings equivalent
to EUR 828,233,318 and EUR 944,989,060, from various financial institutions
provided on the basis of guarantees issued by the Export-Import Bank of the
United States to finance the acquisition of forty one Boeing 737-800 "next
generation" aircraft. The guarantees are secured with a first fixed mortgage on
the delivered aircraft. At March 31, 2004 the group had taken delivery of 41 of
these aircraft. The remaining balance of long term debt relates to debt drawn
down to fund the acquisition of an aircraft simulator. Details of the interest
rates and terms of such debt are set out in Note 15.
(ii) CAE Financing
At March 31, 2003 and March 31, 2004, the Group had other borrowings of EUR
8,991,678 and EUR 7,992,603. This loan has been provided by Export Development
Canada, a Canadian government agency, to finance the acquisition of an aircraft
simulator. The loan was originally drawn down in February 2002. A Canadian
governmental guarantee for the financing is secured with a mortgage on the
delivered aircraft simulator.
(iii) Maturity analysis of long term debt other than finance leases
The following table sets out the maturities of the loans described above,
analyzed by year of repayment:
At March 31,
Years ending March 31, 2004
EUR 000
2005 80,337
2006 84,209
2007 88,076
2008 92,162
2009-2016 608,198
952,982
(v) Analysis of changes in borrowings during the year
Total Fiscal Total Fiscal
Bank Loans 2004 2003
EUR 000 EUR 000 EUR 000
Opening balance at start of year.............................837,225 837,225 550,502
Loans raised to finance aircraft/simulator purchases.........187,035 187,035 331,502
Repayments of amounts borrowed..............................(71,278) (71,278) (44,779)
Closing balance at end of year......................... 952,982 952,982 837,225
F-14
Notes forming part of the Financial Information (Continued)
11 Short term borrowings
At March 31,
2003 2004
EUR 000 EUR 000
Bank overdrafts (represented by unpresented cheques)..............................1,316 345
12 Provisions for liabilities and charges
At March 31,
2003 2004
EUR 000 EUR 000
Provision for aircraft maintenance:
At beginning of year....................................................... - -
Charge for the year........................................................ - 6,522
At end of year............................................................. - 6,522
Deferred taxation: (see Note 24)
At beginning of year....................................................... 49,317 67,833
Charge for the year........................................................ 18,516 19,837
At end of year............................................................. 67,833 87,670
Total provision at end of year................................................ 67,833 94,192
13 Share capital and share premium account
(a) Share Capital
At March 31,
2003 2004
EUR 000 EUR 000
Authorized:
840,000,000 ordinary equity shares of 1.27 euro cent each.................. 10,668 10,668
Allotted, called up and fully paid:
755,130,716 ordinary equity shares of 1.27 euro cent each at
March 31, 2003 and 759,217,140 ordinary equity shares of 1.27 euro
cent each at March 31, 2004................................................ 9,588 9,643
During the year ended March 31, 2003, 100,000 ordinary shares were issued
upon the exercise of options.
(b) Share premium account
EUR 000
Balance at March 31, 2003............................................... 553,512
Share premium arising from the exercise of 4,140,424 options............ 6,894
Balance at March 31, 2004............................................... 560,406
(c) Share options and share purchase arrangements
On May 21, 1997 the Group granted seven senior managers options over
ordinary shares with an equivalent value of IR POUND 200,000 (EUR 253,948) each
at the Initial Public Offering (the "IPO") strike price of IR POUND 1.95 (EUR
2.48) less a discount of 10%, resulting in the issue of 717,948 options
(equivalent to 2,871,792 after the stock splits in both December 2001 and
February 2000). At March 31, 2004, the equivalent of 2,861,716 of these options
have been exercised. The balance of these options have been exercised since the
year end.
F-15
Notes forming part of the Financial Information (Continued)
In addition, the Group adopted a stock option plan (the "Stock Option
Plan") following shareholder approval in 1998. Under the Stock Option Plan,
current or future employees or executive directors of the Company may be granted
options to purchase an aggregate of up to approximately 5% (when aggregated with
other ordinary shares over which options are granted which have not been
exercised) of the outstanding ordinary shares of Ryanair at an exercise price
equal to the market price of the ordinary shares at the time the options are
granted. Options were granted each year between fiscal 1998 and fiscal 2003. The
terms of the Stock Option Plan, and the number of ordinary shares subject to
options granted under the Stock Option Plan, may be changed from time to time.
During 2003 the company implemented a new staff share option scheme which has
been approved by the revenue authorities in the UK and Ireland. There were
2,280,177 options granted under the scheme, which under the plan rules will
become exercisable in 2009. At March 31, 2004, 24,206,538 options in aggregate
had been issued under these plans. Under plan rules 10,799,401 options issued
under the 1998 plan became exercisable in June 2003. The options outstanding
under the various stock option plans are set out below:
Weighted
Average
Share Options Exercise Price
Outstanding at March 31, 2002.......................................... 20,936,631 EUR 3.09
Exercised.............................................................. (100,000) EUR 0.56
Granted................................................................ 5,763,407 EUR 5.65
Expired................................................................ (146,183) EUR 5.00
Outstanding at March 31, 2003.......................................... 26,453,855 EUR 3.62
Exercised.............................................................. (4,140,424) EUR 1.68
Granted................................................................ 2,280,177 EUR 5.71
Expired................................................................ (387,070) EUR 5.00
Outstanding at March 31, 2004.......................................... 24,206,538 EUR 4.13
The mid-market price of Ryanair Holdings plc's ordinary shares on the Irish
Stock Exchange at March 31, 2004 was EUR 4.58. The highest and lowest prices at
which the shares traded on the Irish Stock Exchange in the year ended March 31,
2004 were EUR 7.59 and EUR 4.27, respectively.
14 Financial instruments
Ryanair utilizes financial instruments to reduce exposure to market risks
resulting from fluctuations in foreign exchange rates, interest rates and
aircraft fuel prices. The Group does not enter into these instruments for
speculative purposes.
Derivative financial instruments are contractual agreements whose value
reflects price movements in an underlying asset. Ryanair uses derivative
financial instruments, where appropriate, to generate the desired effective
profile of currency, interest and aircraft fuel price risk.
Notes 15 to 17 below give details as to the Group's financial instruments
held, in accordance with the requirements of Financial Reporting Standard No. 13
"Derivatives and Other Financial Instruments: Disclosures" (the "Standard"). As
permitted by this Standard, short term debtors and creditors have been excluded
from all numerical disclosures shown in notes 15 to 17.
F-16
Notes forming part of the Financial Information (Continued)
15 Interest rate risk
Financial liabilities
The net interest rate risk profile of Ryanair's financial liabilities at
March 31, 2003 and 2004 was as follows:
At March 31, 2003 At March 31, 2004
Fixed Floating Total Fixed Floating Total
EUR 000 EUR 000 EUR 000 EUR 000 EUR 000 EUR 000
Short-term borrowings......................... - 1,316 1,316 - 345 345
Current maturities of long-term debt.......... 63,291 - 63,291 77,578 2,759 80,337
Non-current maturities of long term debt...... 773,934 - 773,934 839,819 32,826 872,645
837,225 1,316 838,541 917,397 35,930 953,327
Average interest rates applicable to fixed financial liabilities shown
above are as follows:
Weighted Weighted Weighted Weighted
average average Total at average average Total at
years interest March 31, years interest March 31,
remaining rate 2003 remaining rate 2004
EUR 000 EUR 000
Fixed euro denominated long term debt. 9.7 5.28% 828,233 10.3 5.59% 909,404
Other euro debt....................... 9.0 5.81% 8,992 7.8 5.81% 7,993
837,225 917,397
All long term euro fixed debt shown above matures between 2011 and 2016 (at
March 31, 2003: 2011 and 2015) and attracts a range of fixed interest rates of
between 4.93% and 5.97% (at March 31, 2003: 4.93% and 5.60%).
Floating interest rates on financial liabilities are generally referenced
to inter-bank interest rates (principally Euribor).
Financial assets
The Group holds significant cash balances that are invested on a short-term
basis. At March 31, 2004 all of the Group's cash and liquid resources had a
maturity of one year or less and attracted a weighted average rate of interest
of 2.11% (2003: 2.79%).
Interest rates on financial assets are generally based on the appropriate
Libor, Euribor and Euribor-based bank offered rates.
Interest rate related derivative arrangements
The group's objective is to reduce interest rate 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 line with
this strategy, the group has entered into a series of interest rate swaps
whereby it has effectively converted almost all of its floating rate debt under
each of its long term debt facilities into fixed rate debt. Loans for
approximately 4% of long term debt 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 a similar amount of cash on deposit at
floating rates. Interest rate swaps have also been used to convert floating rate
rentals on various aircraft operating leases into fixed rate rentals.
The table below illustrates the effect of swap transactions (each of which
is with an established international financial counterparty) on the profile of
the group's debt.
F-17
Notes forming part of the Financial Information (Continued)
At March 31, 2003 At March 31, 2004
Fixed Floating Total Fixed Floating Total
EUR 000 EUR 000 EUR 000 EUR 000 EUR 000 EUR 000
Short-term borrowings..................... - 1,316 1,316 - 345 345
Long term debt............................ 581,447 246,786 828,233 536,718 408,271 944,989
Other debt................................ 8,992 - 8,992 7,993 - 7,993
Borrowing profile before swap transactions 590,439 248,102 838,541 544,711 408,616 953,327
Interest rate swaps....................... 246,786 (246,786) - 372,686 (372,686) -
Borrowing profile after swap transactions. 837,225 1,316 838,541 917,397 35,930 953,327
The profile of the group's interest rate swaps for existing debt and
operating lease commitments are as follows:
Notional Debt Debt Interest Rate
Amount Commencement Termination Payable
EUR 000 Dates Dates
2004 - interest rate swaps................. 710,972 2002 - 2004 2010 - 2016 5.37 - 5.97%
2003 - interest rate swaps................. 246,786 2002 - 2003 2014 - 2015 5.37 - 5.91%
In addition to the above, the group has entered into a series of forward
starting interest rate swaps in order to cap interest rate risk which arises in
respect of its forecasted draw-downs of long term debt. Details of these are as
follows:
Notional Loan Loan Interest Rate
Amount Commencement Termination Payable
EUR 000 Dates Dates
2004 - Forward starting interest rate swaps 412,700 2004 - 2005 2016 - 2017 5.70 - 5.73%
2003 - Forward starting interest rate swaps 875,000 2003 - 2005 2015 - 2017 5.63 -5.75%
16 Currency rate risk and aircraft fuel price risk
Currency rate risk
Ryanair has exposure to various reporting currencies (principally sterling
and US dollars) due to the international nature of its operations. The following
table shows the net amount of monetary assets of Ryanair that are not
denominated in euro at March 31, 2003 and March 31, 2004:
At March 31, 2003 At March 31, 2004
euro euro
GBP US$ Equiv GBP US$ Equiv
Monetary assets POUND 000 $000 EUR 000 POUND 000 $000 EUR 000
Sterling cash and liquid resources...... 43,344 - 66,464 27,151 - 40,774
USD cash and liquid resources........... - 7,240 6,645 - 42,477 37,749
43,344 7,240 73,109 27,151 42,477 78,523
Ryanair also enters into US dollar and sterling currency forward contracts
in order to manage functional currency risk which arises on its forecasted
aircraft payments, fuel, maintenance and aviation insurance costs, which are
primarily denominated in US dollars and certain of its revenue income streams,
which arise in sterling. The following table gives details of Ryanair's currency
forward contracts as at March 31, 2003 and March 31, 2004:
At March 31, 2003 At March 31, 2004
euro euro
Currency Forward Contracts GBP US$ Equiv GBP US$ Equiv
POUND 000 $000 EUR 000 POUND 000 $000 EUR 000
US dollar currency forward contracts for
aircraft purchases................... - 203,500 189,417 - 441,500 362,268
US dollar currency forward contracts for fuel
and other purchases.................. - 169,000 156,526 - 144,500 119,520
Sterling currency forward contracts for
sterling revenues.................... 7,000 - 10,124 - - -
F-18
Notes forming part of the Financial Information (Continued)
Aircraft fuel price risk
Ryanair enters into derivative contracts to fix the price of its forecasted
aircraft fuel purchases. At March 31, 2003 and 2004, the following fuel price
contracts were outstanding:
At March 31,
2003 2004
(000 Metric (000 Metric
Tonnes) Tonnes)
Aircraft fuel fixed price contracts................................. 393 323
17 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 or sale. The following methods and assumptions
were used to estimate the fair value of each material class of Ryanair's
financial instruments:
o Cash and liquid resources, current portions of bank loans and overdrafts:
carrying amount approximates to fair value due to the short term nature of
these instruments.
o Bank loans carrying fixed rates of interest: the repayments which Ryanair
is committed to make have been discounted at the relevant rates of interest
applicable at March 31, 2003 and March 31, 2004, which would be payable by
a third party to assume the obligation.
o Off balance sheet interest rate contracts: 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.
o Off balance sheet currency forward and aircraft fuel contracts: a
comparison of the contracted rate to the market rate for contracts
providing a similar risk management profile at March 31, 2003 and March 31,
2004 has been made.
The fair value of Ryanair's financial instruments at 2003 and 2004 was as
follows:
At March 31, 2003 At March 31, 2004
Carrying Carrying
amount Fair value amount Fair value
EUR 000 EUR 000 EUR 000 EUR 000
On balance sheet instruments
Cash on hand...............................................77,866 77,866 25,778 25,778
Liquid resources..........................................982,352 982,352 1,231,572 1,231,572
Short term borrowings.....................................(1,316) (1,316) (345) (345)
Long term debt..........................................(837,225) (912,576) (952,982) (997,685)
Derivative instruments
Forward starting interest rate swaps (loss).....................- (81,024) - (44,875)
Interest rate swaps (loss) - - - (90,420)
US dollar currency forward contracts (loss)....................- (9,045) - (36,181)
Sterling currency forward contracts (loss)......................- (925) - -
Aircraft fuel price contracts gain..............................- 3,306 - 16,723
All of the off-balance sheet instruments shown above were held for hedging
purposes. The fair value of the off-balance sheet instruments in the table above
equates to the net unrealized gains and losses on these instruments which were
unrecognized at March 31, 2003 and March 31, 2004.
F-19
Notes forming part of the Financial Information (Continued)
On the basis of no movement in fuel prices and exchange rates, these
unrealized gains and losses will impact on Ryanair's profit and loss account in
the following years:
Total at Total at
Maturing March 31, Maturing March 31,
Off balance sheet instruments in 2004 2003 in 2005 2004
EUR 000 EUR 000 EUR 000 EUR 000
US dollar currency forward contracts (loss)..............(9,045) (9,045) (36,181) (36,181)
Sterling currency forward contracts (loss).................(925) (925) - -
Aircraft fuel price contracts gain.........................3,306 3,306 16,723 16,723
(6,664) (6,664) (19,458) (19,458)
Unrealized gains and losses on the Group's forward starting interest rate
swaps and interest rate swaps of EUR 135.3 million (at March 31, 2003: EUR 81.0
million) will be amortized to the profit and loss account over the period from
the date of the draw-down of the long term debt and operating leases (typically
7 to 12 years from the year end), as an offset to the related interest and
rental expense.
18 Concentrations of credit risk
The Group's revenues derive principally from airline travel on scheduled
and chartered services, car hire, in-flight and related sales. Revenue is wholly
derived from European routes. No individual customer accounts for a significant
portion of total revenue.
19 Analysis of operating revenues
All revenues derive from the Group's principal activity as an airline and
include scheduled and chartered services, car hire, in-flight, internet,
non-flight-scheduled and related sales.
Revenue is analyzed by geographical area (by country of origin) as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
United Kingdom................................................ 355,708 466,749 518,528
Other European countries...................................... 268,342 375,759 555,696
624,050 842,508 1,074,224
Ancillary revenues included in total revenue above comprise:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Car hire...................................................... 18,905 27,615 35,110
In-flight..................................................... 18,030 23,142 30,100
Internet income............................................... 4,831 12,159 17,721
Non-flight scheduled.......................................... 16,662 35,291 66,616
Charter....................................................... 14,631 12,350 111
73,059 110,557 149,658
All of the Group's operating profit arises from airline-related activities.
The major revenue earning assets of the Group are comprised of its aircraft
fleet, which is registered in Ireland and the United Kingdom and therefore all
profits accrue in Ireland and the United Kingdom. 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.
F-20
Notes forming part of the Financial Information (Continued)
20 Staff numbers and costs
The average weekly number of employees, including the executive director,
during the years presented, analyzed by category, was as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
Flight and cabin crew..................................................792 983 1,530
Sales, operations and administration...................................755 763 758
1,547 1,746 2,288
The aggregate payroll costs of these persons were as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Wages and salaries and related costs...............................70,551 82,633 112,258
Social welfare costs................................................6,462 7,835 9,660
Other pension costs.................................................1,227 2,605 1,706
78,240 93,073 123,624
21 Other operating expenses
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Fuel and oil......................................................103,918 128,842 174,991
Maintenance, materials and repairs.................................26,373 29,709 43,420
Marketing and distribution costs...................................12,356 14,623 16,141
Aircraft rentals....................................................4,021 - 11,541
Route charges......................................................46,701 68,406 110,271
Airport & handling charges.........................................84,897 107,994 147,221
Other costs........................................................45,601 59,522 78,034
323,867 409,096 581,619
Exceptional costs
Aircraft rentals........................................................- - 13,291
Buzz re-organization....................................................- - 3,012
- - 16,303
323,867 409,096 597,922
Exceptional items are those items that are material items which derive from
events or transactions that fall within the ordinary activities of the group but
which in management judgement need to be disclosed by virtue of their size or
incidence. The exceptional costs relate to the closure of Buzz for one month
post acquisition to restructure the business and integrate it into Ryanair and
the exceptional lease costs associated with the early permanent retirement of 6
Boeing 737-200 aircraft which are no longer operated due to scratch marks which
occurred during an aircraft painting programme. The costs are treated as
exceptional as they are material to the results for the year.
F-21
Notes forming part of the Financial Information (Continued)
Fuel and oil
Fuel and oil costs include fuel costs for scheduled services of EUR
101,390,040, EUR 126,711,235 and EUR 174,990,990 in respect of the years ended
March 31, 2002, March 31, 2003 and March 31, 2004, respectively.
22 Statutory and other information
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Directors' emoluments:
Fees.......................................................... 160 198 269
Other emoluments, including consultancy fees, bonus and
pension contributions..................................... 694 822 721
Depreciation of tangible fixed assets......................... 59,010 76,865 101,391
Auditors' remuneration (including expenses) (i)............... 121 180 169
Audit related services (ii)................................... 35 14 17
Taxation services (iii)....................................... 153 213 167
All other fees (iv)........................................... - 2 -
Operating lease charges-
aircraft (note 27(b)):........................................ 4,021 - 24,832
Amortization of goodwill...................................... 2,342
(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.
(iv) Other fees are those associated with services not captured in the
other categories.
(a) Fees and emoluments - executive director
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Basic salary.................................................. 474 505 505
Performance related bonus..................................... 180 228 127
Pension contributions......................................... 40 49 49
694 782 681
During each year Michael O'Leary was the only executive director.
(b) Fees and emoluments-Non executive directors
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Fees.......................................................... 160 198 269
Emoluments.................................................... - 40 40
160 238 309
At March 31, 2004 there were nine non-executive directors.
F-22
Notes forming part of the Financial Information (Continued)
(c) Pension benefits
Transfer Value
Increase in Equivalent of Increase Total Accumulated
Directors Accrued Benefit in Accrued Benefit Accrued Benefit
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2002 2003 2004 2002 2003 2004 2002 2003 2004
EUR EUR EUR EUR EUR EUR EUR EUR EUR
Michael O'Leary......... 15,648 11,216 12,374 53,848 43,919 61,529 57,097 70,394 85,067
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 the year-end in accordance with Actuarial Guidance Note
GN11.
(d) Shares and share options
(i) Shares
Ryanair Holdings plc is listed on the Irish, London and Nasdaq Stock
Exchanges. The beneficial interests of the directors as at March 31, 2004 and of
their spouses and minor children are as follows:
At March 31, At March 31, At March 31,
2002 2003 2004
David Bonderman......................................... 7,056,680 7,056,680 7,008,680
Raymond MacSharry....................................... 7,280 7,280 7,280
Michael O'Leary......................................... 52,000,008 45,000,008 41,000,008
James R. Osborne........................................ 705,128 705,128 705,128
Declan F. Ryan.......................................... 21,922,600 19,408,273 -
T. Anthony Ryan......................................... 13,272,878 10,758,535 10,758,535
Richard P. Schifter..................................... 104,820 104,820 -
Non-executive directors not referred to above held no shares.
On June 24, 2003 Declan F. Ryan resigned from the board of directors.
Richard P. Schifter did not stand for re-election at the last shareholders'
annual general meeting on September 24, 2003.
(ii) Share options
The number of share options held by directors at the year end were:
March 31, March 31, March 31,
2002 2003 2004
Number of Number of Number of
Options Options Options
David Bonderman*................................... 50,000 50,000 50,000
Emmanuel Faber**................................... - 25,000 25,000
Michael Horgan*.................................... 50,000 50,000 50,000
Klaus Kirchberger**................................ - 25,000 25,000
Raymond MacSharry*................................. 50,000 50,000 50,000
Michael O'Leary***................................. - - 88,504
James R. Osborne*.................................. 50,000 50,000 50,000
Cathal M. Ryan*.................................... 50,000 - -
Paolo Pietrogrande*................................ 50,000 50,000 50,000
Declan F. Ryan****................................. 50,000 50,000 50,000
T. Anthony Ryan*................................... 50,000 50,000 50,000
Richard P. Schifter****............................ 50,000 50,000 -
Jeffrey A. Shaw*................................... 50,000 - -
Kyran McLaughlin*.................................. 50,000 50,000 50,000
F-23
* The share options were granted to these directors at EUR 3.70 (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 EUR 5.65 each (the
market value at date of grant), are exercisable between June 2008 and
June 2010.
*** These options were granted to Michael O'Leary at EUR 5.71 (the market
value at date of grant) under the 2003 share option plan.
**** On June 24, 2003 Declan F. Ryan resigned from the board of directors.
Richard P. Shifter did not stand for re-election at the shareholders'
annual general meeting on September 24, 2003. Accordingly, the share
options granted to these directors have lapsed.
23 Interest payable and similar charges
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Interest repayable on bank loans, wholly repayable after
five years............................................ 19,608 30,886 47,564
Finance lease and hire purchase charges..................... 1 - -
19,609 30,886 47,564
24 Taxation
The components of income tax expense were as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Current corporation tax........................................ 2,804 6,636 2,032
Deferred tax (See Note 12)..................................... 19,195 18,516 19,837
21,999 25,152 21,869
All of the deferred tax charge above arose from the origination and
reversal of timing differences.
The following table reconciles the statutory rate of Irish corporation tax
to the Group's effective current corporation tax rate.
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
% % %
Statutory rate of Irish corporation tax......................... 19.0 15.1 12.5
Adjustments for earnings taxed at higher rates.................. 1.0 1.1 1.0
Adjustments for earnings taxed at lower rates
(including those qualifying for relief under
section 448, TCA 1997)...................................... (7.5) (6.6) (3.9)
Capital allowances in excess of depreciation.................... (7.5) (6.4) (7.5)
Other timing differences........................................ (3.4) (0.7) (1.0)
Current effective rate of taxation.............................. 1.6 2.5 1.1
Provision of deferred tax on timing differences................. 11.1 7.0 8.5
Total effective rate of taxation................................ 12.7 9.5 9.6
At March 31, 2002, March 31, 2003 and March 31, 2004 the Group had no
unused net operating losses carry forwards. In fiscal 2005 the Irish headline
corporation tax rate remains at 12.5%. The majority of corporation and deferred
tax recorded in each of fiscal 2004 and 2003 relates to domestic tax charges.
F-24
Notes forming part of the Financial Information (Continued)
Ryanair.com Limited is engaged in international data processing and
reservation services. In these circumstances, Ryanair.com Limited is entitled to
claim an effective 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.
The principal components of deferred tax liabilities were as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Aircraft including maintenance provisions, property and
fixtures and fittings.................................... 49,063 67,833 87,670
Other reversing timing differences principally in relation
to unearned revenue and foreign exchange adjustments........ 254 - -
49,317 67,833 87,670
At March 31, 2002, March 31, 2003 and March 31, 2004 the Group had fully
provided for deferred tax liabilities. As explained above, profits from certain
qualifying activities are levied at an effective 10% rate in Ireland until 2010.
No deferred tax had been provided on the unremitted earnings of overseas
subsidiaries because there is no intention to remit these to Ireland.
25 Pensions
The Group operates both a defined benefit and a defined contribution
scheme.
The Group has continued to account for pensions in accordance with the
accounting standard SSAP 24 and the disclosures given in (a) below are those
required by that standard. A new accounting standard on pensions (Financial
Reporting Standard No. 17 "Retirement Benefits" ("FRS 17") was issued in
November 2000. In July 2002, the Accounting Standards Board deferred the
requirement for the full adoption of FRS 17 until the International Accounting
Standards Board has reconsidered its international standard, IAS 19 "Employee
Benefits". FRS 17 has, accordingly, not been adopted in the profit and loss
account or the balance sheet, however the phased disclosures required by FRS 17
have been outlined in (b) below:
(a) SSAP 24 disclosures
Pensions for certain employees are funded through a defined benefit pension
scheme, the assets of which are vested in independent trustees for the benefit
of employees and their dependants. The contributions are based on the advice of
an independent professionally qualified actuary obtained at three yearly
intervals. The latest actuarial valuation of the scheme was at December 31, 2003
and used the projected unit method.
The principal actuarial assumptions used were as follows:
o Rate of long term investment returns will exceed the rate of pensionable
salary increases by 3.0%,
o Rate of long term investment returns will exceed the rate of post
retirement pension increases by 6.5%.
The actuarial report showed that at the valuation date the market value of
the scheme's assets was EUR 11.5 million 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.
F-25
Notes forming part of the Financial Information (Continued)
The total pension charge for the Group for the year to March 31, 2004 was
EUR 1,706,184 of which EUR 1,274,000 relates to defined benefit pension schemes.
While the actuarial report is not available for public inspection, the results
are advised to the members of the scheme.
(b) FRS 17 disclosures
The valuation of Ryanair's defined benefit scheme used for the purposes of
the FRS 17 disclosures has been based on the most recent triennial actuarial
valuation of the scheme identified above and updated to March 31, 2004 by an
independent qualified actuary.
The financial assumptions used for the Ryanair defined benefit pension
scheme are:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
% % %
Rate of general increase in salaries......................... 4.25 3.50 3.50
Discount rate................................................ 6.25 5.25 5.00
Rate of price inflation...................................... 3.25 2.50 2.00
The assets in the Ryanair pension scheme (excluding additional voluntary
contributions) and the expected rates of return were:
Expected Value at Expected Value at Expected Value at
Rate of March 31, Rate of March 31, Rate of March 31,
Return 2002 Return 2003 Return 2004
% EUR 000 % EUR 000 % EUR 000
Equities........................... 8.50 7,337 8.50 5,430 7.50 8,868
Properties......................... 7.50 713 7.50 458 7.00 602
Bonds.............................. 5.50 1,834 5.50 1,878 4.50 2,106
Cash............................... 3.25 306 3.25 400 2.50 457
Outstanding contributions at year
end (paid subsequent to year
end)........................... 91 112 -
Total market value of scheme assets 10,281 8,278 12,033
Actuarial value of scheme
liabilities........................ (9,209) (13,343) (16,955)
Recoverable surplus/(deficit) in
scheme......................... 1,072 (5,065) (4,922)
Related deferred tax
(liability)/asset.................. (134) 633 615
Net pension asset/(liability)...... 938 (4,432) (4,307)
If these amounts had been recognized in the financial statements, the
Group's net assets and revenue reserves would be as follows:
At March 31, At March 31, At March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Net assets
Net assets excluding pension asset.......... 1,002,274 1,241,728 1,455,288
Net pension asset/(liability)............... 938 (4,432) (4,307)
Net assets including pension
asset/(liability)........................... 1,003,212 1,237,296 1,450,981
Revenue reserve
Revenue reserves per balance sheet.......... 439,320 678,628 885,239
Net FRS 17 pension asset/(liability)........ 938 (4,432) (4,307)
Net reserves including pension
asset/(liability)........................... 440,258 674,196 880,932
Year ended Year ended
Included in finance costs March 31, March 31,
2003 2004
EUR 000 EUR 000
Expected return on pension scheme assets................. (795) (664)
Interest on pension scheme liabilities................... 509 766
Net finance costs........................................ (286) 102
Year ended Year ended
Included in payroll costs March 31, March 31,
2003 2004
EUR 000 EUR 000
Current service costs.................................... 960 704
Year ended Year ended
March 31, March 31,
2003 2004
EUR 000 EUR 000
Total costs in accordance with FRS 17.................... 674 806
F-26
Notes forming part of the Financial Information (Continued)
The following tables set out the components of the defined benefit costs
which would have been included in the profit and loss account for the year ended
March 31, 2004 and March 31, 2003 if FRS 17 had been applied:
The analysis of the amounts that would have been recognized in the
Statement of Total Recognized Gains and Losses (STRGL) is as follows:
March 31, March 31,
2003 2004
EUR 000 EUR 000
Actual return less expected return on pension scheme assets... (2,910) 1,903
Experience losses on scheme liabilities....................... (784) (407)
Changes in financial and demographic assumptions underlying
present value of scheme liabilities........................ (1,992) (1,193)
Actuarial (losses)/gains recognized in the STRGL.............. (5,686) 303
Movement in surplus/(deficit) during the year is as follows:
Surplus/ (deficit) in scheme at beginning of year............. 1,072 (5,065)
Movement in year
Current service costs......................................... (960) (704)
Contributions................................................. 795 646
Other finance income/investment return........................ (286) (102)
Actuarial losses.............................................. (5,686) 303
Deficit in scheme at end of year.............................. (5,065) (4,922)
History of actuarial gains and losses March 31, March 31,
2003 2004
EUR 000 EUR 000
Difference between expected and actual return on assets....... (2,910) 1,903
Expressed as a percentage of scheme assets.................... (35%) 16%
Experience losses on scheme liabilities....................... (784) (407)
Expressed as a percentage of scheme liabilities............... (6%) (2%)
Total actuarial losses/ gains................................. (5,686) 303
Expressed as a percentage of scheme liabilities............... (43%) 2%
F-27
Notes forming part of the Financial Information (Continued)
26 Earnings per share and adjusted earnings per share
Basic earnings per ordinary share (EPS) for Ryanair Holdings plc for the
years ended March 31, 2002, March 31, 2003 and March 31, 2004 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 Year ended
March 31, March 31, March 31,
2002 2003 2004
Basic weighted average number of shares outstanding..........728,726,484 755,055,374 757,446,873
Dilutive effect of employee share options.....................11,234,417 11,223,195 7,684,218
Dilutive weighted average number of shares outstanding.......739,960,901 766,278,569 765,131,091
27 Commitments and contingencies
Commitments
a) On January 24, 2002 the company entered into a contract with The Boeing
Company ("Boeing") (the "2002 Boeing contract") whereby the company agreed
to purchase 100 new Boeing 737-800 "next generation" aircraft, and has
additional purchase options to acquire a further 50 such aircraft. The
group has since exercised 5 of these purchase options (2 in the current
year) and taken delivery of 23 aircraft (18 in the current year).
Additional deliveries are scheduled between 2004 and 2009. The "Basic
Price" (equivalent to a standard list price for an aircraft of this type)
for each of the Boeing 737-800 "next generation" aircraft (defined as a per
aircraft airframe price, including engines, plus the per aircraft price for
certain optional features agreed between the parties) is US$50,885,100.
This "Basic Price" 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 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 will 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, other than advance payments, in respect of the
purchase of the aircraft under the 2002 Boeing Contract. 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. The
total potential commitment to acquire all 155 aircraft, not taking such
increases and decreases into account, will be up to US$7.6 billion.
On January 31, 2003 the company entered into a contract with Boeing (the
"2003 Boeing contract") for the delivery of an additional 22 new Boeing
737-800 "next generation" aircraft, bringing its total firm orders
(including options exercised at that date) to 125 aircraft. In addition the
company increased its purchase options to 125. The same commercial terms
apply to the additional firm aircraft ordered and to the additional options
granted. At March 31, 2004, 102 firm aircraft and 2 options exercised
remain due for delivery.
F-28
Notes forming part of the Financial Information (Continued)
b) Operating Leases
Year ended
March 31,
2004
EUR'000
Due within one year........................................................... 37,055
Due between one and two years................................................. 37,055
Due between two and five years................................................ 91,155
Due after five years.......................................................... 50,342
215,607
The above table sets out the committed future cost of leasing 10 Boeing
737-800 "next generation" and 6 Boeing 737-300's at March 31, 2004.
As part of the "Buzz" acquisition 6 Boeing 737-300's which were leased by
KLM UK Ltd from International Lease Finance Corporation "ILFC" were novated
to Buzz Stansted Limited, a subsidiary of Ryanair Limited. Subsequent to
the year end Buzz Stansted Limited entered into an agreement with ILFC to
return the 6 Boeing 737-300's between October 15, 2004 and October 31, 2004
with no early termination penalty.
c) Commitments resulting from the use of derivative financial instruments by
the group are described in notes 14 to 17.
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 EUR 56.5m in letters of guarantee to secure
obligations of subsidiary undertakings in respect of loans and bank
advances.
f) In order to avail of the exemption contained in Section 17 of the Companies
(A m e n d m e n t) 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 30. The
Irish subsidiaries of the group covered by the Section 17 exemption are
listed at note 30 also. One additional Irish subsidiary covered by this
exemption which is not listed as a principal subsidiary at note 30 is
Airport Marketing Services Limited.
g) Ryanair Holdings plc has given a guarantee to the Civil Aviation Authority
regarding the payment and discharge of all liabilities of Buzz Stansted
Limited, a subsidiary of the group. The guarantee amounts to Stg POUND 12m
and is required by the Civil Aviation Authority (CAA) for Buzz Stansted
Limited to obtain and maintain an operating license in the United Kingdom.
h) 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 EUR 200.0m) to mitigate certain counterparty risk of
fluctuations on long-term derivative and financing arrangements ("restricted
cash"). At March 31, 2004 restricted cash amounted to EUR 200.0m (2003: EUR
120.9m). Additional numerical information on these swaps and on other
derivatives held by the group is set out in notes 15 to 17 of the financial
statements.
F-29
Notes forming part of the Financial Information (Continued)
i) 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.
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.
j) In July 2004, Ryanair commenced an action in the High Court of England and
Wales (Chancery Division) against BAA plc and Stansted Airport Limited
(together "BAA"), the companies that operate London's Heathrow, Gatwick and
Stansted Airports, on several grounds, including abuse of dominant position
and overcharging, in connection with a fuel levy that BAA has unilaterally
imposed on Ryanair and other airlines at London (Stansted). BAA responded
by filing a separate action against Ryanair alleging that Ryanair has
repudiated its contract with BAA and is seeking payment of airport charges
withheld by Ryanair as a result of the fuel levy dispute in an amount of
approximately EUR 1.5 million (or roughly 3% of the total aeronautical
charges that Ryanair paid BAA during fiscal 2004). BAA further claims that
it is now no longer bound by its contract with Ryanair in relation to
airport charges and that it can instead charge Ryanair the published
airport tariffs at London (Stansted), as opposed to the lower amounts
charged under the contract.
While the Company believes that its contract with BAA remains valid,
Ryanair cannot predict the final outcome of these actions, and does not
expect any final decision to be rendered in the near term.
28 Notes to cash flow statements
(a) Reconciliation of operating profit to net cash inflow from
operating activities
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Operating profit excluding goodwill amortization.... 162,933 263,474 251,287
Foreign exchange gains.............................. 975 628 3,217
Depreciation of tangible fixed assets............... 59,010 76,865 101,391
(Increase) in inventories........................... (1,150) (5,663) (3,652)
(Increase)/decrease in accounts receivable.......... (1,636) (4,639) 38
(Increase) in other assets.......................... (1,445) (4,143) (5,283)
Increase in accounts payable........................ 16,781 14,825 6,332
Increase in accrued expenses and other liabilities.. 73,641 22,069 87,433
(Decrease)/Increase in accounts payable > one year - (12,413) 14,777
Increase in maintenance provision (Note 12) - - 6,522
Net cash inflow from operating activities........... 309,109 351,003 462,062
(b) Analysis of cash and liquid resources balances
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Cash at bank, available on demand net of
overdraft........................................... 77,747 76,550 25,433
Liquid resources ................................... 816,023 982,352 1,231,572
Total cash and liquid resources..................... 893,770 1,058,902 1,257,005
Liquid resources comprise bank fixed deposits with maturities of
greater than one day.
F-30
Notes forming part of the Financial Information (Continued)
(c) Analysis of movements in liquid resources
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Liquid resources at beginning of year............... 564,782 816,023 982,352
Increase in year.................................... 251,241 166,329 249,220
Liquid resources at end of year..................... 816,023 982,352 1,231,572
(d) Analysis of movements in cash
Year ended March 31, 2002
Cash at Bank
Bank Overdraft Total
EUR 000 EUR 000 EUR 000
At beginning of year................................ 61,938 (5,078) 56,860
Net cash inflow..................................... 21,314 (427) 20,887
At end of year...................................... 83,252 (5,505) 77,747
Year ended March 31, 2003
Cash at Bank Bank Overdraft Total
EUR 000 EUR 000 EUR 000
At beginning of year................................ 83,252 (5,505) 77,747
Net cash (outflow).................................. (5,386) 4,189 (1,197)
At end of year...................................... 77,866 (1,316) 76,550
Year ended March 31, 2004
Cash at Bank Bank Overdraft Total
EUR 000 EUR 000 EUR 000
At beginning of year................................ 77,866 (1,316) 76,550
Net cash (outflow).................................. (52,088) 971 (51,117)
At end of year...................................... 25,778 (345) 25,433
(e) Reconciliation of net cash flow to movement in net funds
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Increase/(decrease) in cash in year................. 20,887 (1,197) (51,117)
Movement in liquid resources........................ 251,241 166,329 249,220
Cash flow from (increase) in debt................... (147,858) (286,723) (115,757)
Movement in net (debt)/funds resulting from cash
flows............................................... 124,270 (121,591) 82,346
Movement in finance leases.......................... 107 1 -
Movement in net (debt)/funds in the year............ 124,377 (121,590) 82,346
Net funds at beginning of year...................... 218,892 343,267 221,677
Net funds at end of year............................ 343,269 221,677 304,023
Net funds arise when cash and liquid resources exceed debt.
F-31
Notes forming part of the Financial Information (Continued)
29 Post balance sheet events (unaudited)
There were no significant post balance sheet events.
30 Subsidiary undertakings and acquisitions during the period
The following are the principal subsidiary undertakings of Ryanair
Holdings plc:
Effective date of Registered Nature 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 and
Co Dublin reservations
services
Aircraft trading
Buzz Stansted Limited*........ April 10, 2003 Satellite 3 and
(acquisition) London Stansted Airport leasing
Essex CM 24-1QW
______________________________
* These subsidiaries are wholly owned by Ryanair Limited, which in turn
is 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 described in Note 1b,
the subsidiary undertakings referred to above have been consolidated in the
respective financial statements of Ryanair Holdings plc from the date of
acquisition.
31 Summary of differences between Irish and United States generally accepted
accounting principles
(a) Significant differences
The financial statements of Ryanair Holdings plc are prepared in accordance
with generally accepted accounting principles ("GAAP") applicable in Ireland
which differ significantly in certain respects from those generally accepted in
the United States (US GAAP). These significant differences are described below:
(i) Deferred tax
Under Irish GAAP, Ryanair Holdings plc provides for deferred taxation using
the full liability method on all material timing differences that have
originated but not reversed at the balance sheet date. Deferred tax assets are
recognized to the extent that they are regarded as recoverable. Under US GAAP,
as set out in Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," deferred taxation is provided on all temporary
differences between the financial statement carrying value of assets and
liabilities and the tax value of such assets and liabilities on a full provision
basis. Deferred tax assets are recognized if their realization is considered to
be more likely than not. The differences in these accounting treatments have not
resulted in any material reconciling items for US GAAP purposes.
F-32
Notes forming part of the Financial Information (Continued)
(ii) Accounting for derivatives
Under Irish and UK GAAP, unrealized gains and losses on derivative
financial instruments utilized for hedging purposes are deferred and recognized
in the profit and loss account when realised, as an offset to the related income
or expense being hedged.
Ryanair accounts for derivatives under US GAAP according to SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities," as amended by
SFAS No. 137 and 138. SFAS No. 133 requires that all derivative instruments are
recognized as assets or liabilities on the balance sheet and measured at fair
value, regardless of the purpose or intent for holding them. Changes in the fair
value of derivative instruments are recognized periodically either in earnings
or stockholders' equity (as a component of other comprehensive income),
depending on whether the derivative is designated as a hedge of changes in fair
value or cash flows. For derivatives designated as fair value hedges, changes in
the fair value of the hedged item and the derivative are recognized as
offsetting amounts in the profit and loss account. For derivatives designated as
cash flow hedges, fair value changes of the effective portion of the hedging
instrument are recognized in accumulated other comprehensive income (US GAAP
equivalent to the statement of total recognized gains and losses) on the balance
sheet until the hedged item is recognized in the profit and loss account. The
ineffective portion of the fair value changes are recognized in the profit and
loss account immediately. SFAS No. 133 also requires that certain derivative
instruments embedded in host contracts be accounted for separately as
derivatives.
Ryanair qualifies for hedge accounting under SFAS No. 133 for all of its
derivative financial instruments. Ryanair's US dollar currency forward contracts
for aircraft purchases are accounted for as fair value hedges. All other
derivative financial instruments are accounted for as cash flow hedges. There
was no material ineffectiveness recorded for either cash flow or fair value
hedges during the current or preceding years. The maximum length of time over
which the group is hedging its exposure to the variability in future cash flows
for forecasted transactions is 13 years. Of the EUR 43.3m loss (net of EUR 6.2m
of tax) recorded at March 31, 2004 in other comprehensive income, EUR 17.0m is
expected to be reclassified into earnings within the next 12 months.
(iii) Darley Investments Limited
Under Irish GAAP, the acquisition of Darley Investments Limited ("Darley")
at March 31, 1996 has been treated as an acquisition and the acquired assets and
liabilities have been recorded in the consolidated financial statements of
Ryanair Limited at their fair values.
Under Irish GAAP, the assets acquired were recorded at their fair values
and a fair value adjustment on the headquarters building of EUR 844,915 arose.
Under U.S. GAAP, the assets are presented at historical cost and consequently,
additional depreciation on the fair value adjustment on the headquarters
building is not recorded.
(iv) Acquisition of certain aircraft
Under Irish GAAP, the aggregate consideration of U.S.$25 million paid by
Ryanair Limited to Northill Limited in August 1994 in respect of the acquisition
of four aircraft is included in fixed assets as aircraft cost.
Under U.S. GAAP, as Northill Limited was controlled by T.A. Ryan, a
connected person with the controlling shareholders of Ryanair Limited, the cost
of the aircraft is recorded based on their cost to Northill Limited of U.S.$22
million and the difference between that cost and the amount paid by Ryanair
Limited to Northill Limited is treated as a reduction of shareholders' equity.
(v) Pensions
Under Irish GAAP, plan assets are valued on the basis of discounted present
value of expected future income. US GAAP requires that plan assets are valued by
reference to their market value. Under Irish GAAP, pension costs for defined
benefit plans are assessed in accordance with the advice of independent
actuaries using assumptions and methods which produce the actuaries' best
estimates of the cost of providing the relevant pension benefits. US GAAP
requires the use of the projected unit credit method and the matching of the
projected benefit obligation against the fair value of the plan's assets, as
adjusted to reflect any unrecognized obligations or assets. Under Irish GAAP,
the measurement of plan assets and obligations may be based on the most recent
actuarial valuation. Under US GAAP, calculations must be made as of the date of
the financial statements or a date not more than three months prior to that
date. Under US GAAP, where the accumulated benefit obligation (being the
actuarial present value of benefits attributed by the pension to employee
service rendered, based on current and past compensation levels) exceeds the
fair value of plan assets, a liability must be recognized in the statement of
financial position. Under Irish GAAP, such deficiencies are usually recognized
over the remaining average service lives of the employees by way of increased
contribution rates except where a major event or transaction has occurred which
has not been allowed for in the actuarial assumptions, giving rise to a material
deficit necessitating significant additional contributions to the scheme. In
such circumstances, a material deficit so arising may be recognized over a
shorter period.
F-33
Notes forming part of the Financial Information (Continued)
Under Irish GAAP, pension credits are not recognized in the financial
statements unless a refund of, or reduction in, contributions is likely. Under
US GAAP, a negative pension cost may arise where a significant unrecognized net
asset or gain exists at the time of implementation. This is required to be
amortized on a straight line basis over the average remaining service period of
employees. Note 25 to the financial statements gives the Group pension
disclosure under Irish GAAP.
For the purposes of disclosure requirements under US GAAP, the pension cost
of the Group's retirement plan has been restated in the following tables, which
are presented in accordance with the requirements of SFAS 132(R).
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Projected benefit obligation at beginning of year..... 8,782 10,819 14,267
Service Cost....................................... 951 797 771
Interest Cost...................................... 443 655 747
Employee contributions............................. 485 558 545
Actuarial loss..................................... 826 1,576 628
Benefits paid...................................... (668) (138) (3)
Projected benefit obligation at end of year........... 10,819 14,267 16,955
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Change in plan assets
Fair value of scheme assets at beginning of year...... 10,273 9,927 8,166
Actual return on assets............................ (758) (2,853) 2,679
Employer contributions paid........................ 595 672 646
Employee contributions paid........................ 485 558 545
Benefits paid...................................... (668) (138) (3)
Fair value of scheme assets at end of year............ 9,927 8,166 12,033
F-34
Notes forming part of the Financial Information (Continued)
The funded status of the Group's retirement plan under SFAS No. 132 is as
follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Actuarial present value of vested benefit
obligations........................................... 8,777 12,390 14,214
Accumulated benefit obligations....................... 8,777 12,390 14,214
Projected benefit obligations......................... (10,819) (14,267) (16,955)
Plan assets at fair value............................. 9,927 8,166 12,033
Plan assets in excess of benefit obligations.......... (892) (6,101) (4,922)
Unrecognized net gain................................. 2,261 7,436 5,748
Unrecognized net obligation on implementation......... 238 208 178
Additional pension liability recognized - - (3,185)
Prepaid pension asset/(liability)..................... 1,607 1,543 (2,181)
Plan assets consist 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:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
% % %
Discount rate......................................... 6.25 5.25 5.25
Rate of increase in remuneration...................... 4.25 3.50 3.50
Expected long term rate of return on assets........... 9.00 7.75 7.75
The net periodic pension cost in accordance with SFAS No. 132(R) for the
fiscal years ended March 31, 2002, 2003 and 2004 comprised:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Service cost - present value of benefits earned during the year... 951 797 771
Interest cost on projected benefit obligations.................... 443 655 747
Return/(loss) on assets........................................... 737 2,853 (2,679)
Deferrals and amortization........................................ (1,655) (3,608) 2,346
Net periodic pension cost......................................... 476 697 1,185
The expected return on plan assets of 7.75% was based on the assumptions of
the following returns from each asset class:
Year ended
March 31,
2004
%
Equities............................................................................. 8.50
Bonds................................................................................ 5.50
Property/Other....................................................................... 7.50
Cash................................................................................. 3.25
Assumptions used to determine projected benefit obligation
Year ended Year ended
March 31, March 31,
2003 2004
% %
Discount rate..............................................5.25 5.00
Rate of compensation increase..............................3.50 3.50
F-35
Notes forming part of the Financial Information (Continued)
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 EUR 900,000 to the plan during the year ended March
31, 2005.
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:
Asset allocation
%
Equities.................................................................... 50-80
Bonds....................................................................... 10-40
Property/Other.............................................................. 5-15
Cash........................................................................ 0-10
(vi) Employment grants
Under Irish GAAP, employment grants paid by an Irish government agency are
recognized in the profit and loss account on receipt and a contingent liability
is disclosed for amounts which may become repayable in certain predefined
circumstances.
Under US GAAP, these revenues are recognized in the profit and loss account
over the period for which minimum employment levels apply under the terms of the
agreement and the unamortized balance is treated as deferred income.
(vii) Share option compensation expense
Under US GAAP, any excess of the fair market value over the exercise price
under a share option plan on the date of the grant is recognized as compensation
expense over the period the services are provided. Under Irish and UK GAAP, in
effect in May 1997, when we first granted share options, compensation was not
recognized for stock issued at a price less than market price.
Under US GAAP, the Group applies Accounting Principles Board Opinion No. 25
(APB 25) in accounting for its stock option plans and, accordingly, except for
the grant in May 1997, no compensation cost has been recognized for its stock
option grants. Had Ryanair Holdings plc determined compensation cost based on
the fair value of the options at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123 (SFAS 123), its U.S. GAAP
net income would have been reduced by EUR 6,124,448, EUR 13,085,399 and EUR
2,222,730 for the years ended March 31, 2004, March 31, 2003 and March 31, 2002,
respectively, and the corresponding earnings per share and diluted earnings per
share would have been reduced by EUR nil, EUR 0.02 euro cent and EUR 0.01 euro
cent per share, respectively, in the years ended March 31, 2004, 2003 and 2002,
as presented below.
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Net income in accordance with US GAAP (as reported).......... 155,549 241,810 215,430
Deduct: total stock based employee compensation expense as
determined under fair-value method....................... (2,223) (13,085) (6,124)
Pro-forma net income......................................... 153,326 228,725 209,306
Basic earnings per ordinary share (as reported).............. EUR 0.21 EUR 0.32 EUR 0.27
Pro-forma basic earnings per ordinary share.................. EUR 0.21 EUR 0.30 EUR 0.27
Diluted earnings per ordinary share (as reported)............ EUR 0.20 EUR 0.31 EUR 0.27
Pro-forma diluted earning per ordinary share................. EUR 0.20 EUR 0.30 EUR 0.27
The weighted average fair value of the individual options granted during
the years ended March 31, 2002, 2003, and 2004 is estimated based on the
following assumptions.
F-36
Notes forming part of the Financial Information (Continued)
Options Granted
Date Granted.................................... Jul 5, 2001 Jul 3, 2002 Jul 4, 2003
Date of earliest exercise....................... Jun 23, 2003 Jun 23, 2003 Jul 4, 2008
Fair Value...................................... EUR 2.18 EUR 2.61 EUR 2.69
Assumptions:
Risk-free interest rate...................... 4.48% 4.11% 4.64%
Volatility................................... 40% 40% 40%
Dividend Yield............................... Nil Nil Nil
Maximum life (years)......................... 7.0 7.0 7.0
(viii) Capitalized interest
Under US GAAP interest costs associated with the cost of acquiring and
making ready for their intended use certain 'qualifying' assets must be
capitalized as part of the acquisition cost of the asset. Ryanair makes 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.
Under Irish GAAP there is no mandatory requirement to capitalize interest
costs in such circumstances.
(ix) Business combinations
In accordance with acquisition accounting rules, Irish and US GAAP require
the fair value of purchase consideration to be allocated to the net assets
acquired based on their fair values at the acquisition date.
On April 10, 2003 Ryanair acquired assets comprising operating leases and
certain landing and takeoff slots at Stansted Airport from KLM UK Limited for
EUR 20.795m. The difference between the purchase consideration and the fair
value of the net liabilities amounting to EUR 46.841m has been treated as
goodwill under Irish GAAP as there is no regular market for landing and takeoff
slots at Stansted airport. Goodwill is amortized to the profit and loss account
over its estimated useful life which is 20 years.
The definition of intangible assets set out in SFAS No. 141 "Business
Combinations" includes assets arising from contractual or legal rights
regardless of whether these rights are transferable or separable. For US GAAP
purposes Ryanair has determined that the fair value of the acquired landing
rights and takeoff slots at Stansted Airport is EUR 46.841m. This intangible
asset is not amortized as Ryanair has a right to use the landing and takeoff
slots in perpetuity and the intangible asset has an indefinite life. Ryanair
will test this intangible asset for impairment annually or more frequently if
events or changes in circumstances indicate that the asset might be impaired.
There was no impairment to these rights in the current year.
(b) Net income under U.S. GAAP
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Profit for the financial year as reported in the consolidated
profit and loss accounts and in accordance with Irish GAAP 150,375 239,398 206,611
Adjustments:
Pensions........................................................ 751 697 89
Derivative financial instruments (net of tax)................... - (4,189) -
Amortization of goodwill........................................ - - 2,342
Employment grants............................................... 464 469 -
Capitalized interest re aircraft acquisition program............ 5,027 5,262 7,213
Darley Investments Limited...................................... 88 88 88
Taxation-effect of above adjustments............................ (1,156) 85 (913)
Net income in accordance with U.S. GAAP............................ 155,549 241,810 215,430
F-37
Notes forming part of the Financial Information (Continued)
(c) Shareholders' equity
Year ended Year ended
March 31, March 31,
2003 2004
EUR 000 EUR 000
Shareholders' equity as reported in the consolidated balance sheets
(Irish GAAP)................................................................ 1,241,728 1,455,288
Adjustments:
Pension.................................................................. 3,111 3,200
Amortization of goodwill................................................. - 2,342
Employment grants........................................................ - -
Capitalized interest re aircraft acquisition program..................... 10,289 17,502
Darley Investments Limited............................................... (239) (151)
Minimum pension liability (net of tax)(i)................................ (2,656) (2,631)
Unrealized (losses) on derivative financial instruments
(net of tax)(ii)......................................................... (73,371) (116,681)
Tax effect of above adjustments.......................................... (1,675) (2,588)
Shareholders' equity as adjusted to accord with U.S. GAAP................ 1,177,187 1,356,281
Opening shareholders' equity under U.S. GAAP............................. 1,019,607 1,177,187
Comprehensive Income
Investments.............................................................. - -
Minimum pension liability (net of tax)................................... (2,656) 25
Unrealized (losses) on derivative financial instruments.................. (81,630) (43,310)
Net income in accordance with U.S. GAAP.................................. 241,810 215,430
Total comprehensive income............................................... 157,524 172,145
Stock issued for cash.................................................... 56 6,949
Closing shareholders' equity under U.S. GAAP............................. 1,177,187 1,356,281
(i) Minimum pension liability net of tax of EUR 375,800 (2003:
EUR 379,428).
(ii) Unrealized losses on derivative financial instruments are
net of tax of EUR 16,668,752 in March 2004 (2003: EUR 10,481,571).
(d) Total assets
Year ended Year ended
March 31, March 31,
2003 2004
EUR 000 EUR 000
Total assets as reported in the consolidated balance sheets
(Irish GAAP)....................................................... 2,466,707 2,938,998
Adjustments:
Pension......................................................... 3,111 3,200
Unrealized gains on derivative financial instruments............ 2,893 14,632
Amortization of goodwill........................................ - 2,342
Darley Investments Limited...................................... (239) (151)
Capitalized interest re aircraft acquisition program ........... 10,289 17,502
Total assets as adjusted to accord with U.S. GAAP............... 2,482,761 2,976,523
(e) Cash flows
In accordance with Irish GAAP, the Group complies with Financial Reporting
Standard No. 1-"Cash flow statements" (FRS 1). Its objective and principles are
similar to those set out in SFAS No. 95 "Statement of Cash Flows." The principal
difference between the standards is in respect of classification. Under FRS 1,
the Group presents its cash flows for: (a) operating activities; (b) returns on
investments and servicing of finance; (c) taxation; (d) capital expenditure; (e)
acquisitions and disposals; and (f) financing activities. SFAS No. 95 requires
only three categories of cash flow activity: (a) operating; (b) investing; and
(c) financing. Additionally, restricted cash is excluded from cash and cash
equivalents for US GAAP purposes, but not under Irish GAAP.
F-38
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 are included as operating activities under SFAS No. 95.
In addition, under FRS 1, cash and liquid resources include short term
borrowings repayable on demand. SFAS No. 95 requires movements in such
borrowings to be included in financing activities.
Disclosure of accounting policy
For the purposes of cash flows under US GAAP, the Group considers all
highly liquid deposits with a maturity of three months or less to be cash
equivalents. Under Irish GAAP, cash represents cash held at bank available on
demand, offset by bank overdrafts, and liquid resources comprise bank fixed
deposits with maturities of greater than one day.
Under Irish and US GAAP, transactions that are undertaken to hedge another
transaction are reported under the same classification as the underlying
transaction that is the subject of the hedge.
A summarized consolidated cash flow under US GAAP is as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Cash inflow from operating activities........................ 314,398 348,200 439,694
Cash (outflow) from investing activities..................... (551,146) (575,806) (354,299)
Cash inflow from financing activities........................ 330,181 282,590 121,734
Increase in cash and cash equivalents........................ 93,433 54,984 207,129
Cash and cash equivalents at beginning of year............... 389,059 482,492 537,476
Cash and cash equivalents at end of year*.................... 482,492 537,476 744,605
* The group's cash outflow from investing activities includes an
increase in restricted cash balances at March 31, 2002, March 31, 2003
and March 31, 2004 of EUR nil, EUR 120.9 million and EUR 79.1 million
to hedge its exposure to adverse movements in currency and interest
rates in relation to its current and planned debt financing.
The following table reconciles cash and cash equivalents as presented under
U.S. GAAP with cash and liquid resources as presented under Irish GAAP:
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Cash and cash equivalents under U.S. GAAP.................... 482,492 537,476 744,605
Restricted cash.............................................. - 120,890 200,000
Deposits with a maturity between three and six months........ 416,783 401,852 312,745
Cash and liquid resources under Irish GAAP................... 899,275 1,060,218 1,257,350
Supplemental schedule of Non-Cash Investing and Financing Activities.
The Group did not enter into capital leases for new fixtures and fittings,
plant and equipment and motor vehicles during the current or preceding two
fiscal years. Principal payments under lease obligations entered into prior to
March 31, 2004 totaled EUR nil (March 31, 2003: EUR 1,000; March 31, 2002: EUR
107,000) for the year.
F-39
Notes forming part of the Financial Information (Continued)
(f) Profit and loss account as presented under US GAAP
Year ended Year ended Year ended
March 31, March 31, March 31,
2002 2003 2004
EUR 000 EUR 000 EUR 000
Operating revenues
Scheduled revenues............................................550,991 731,951 924,566
Ancillary revenues.............................................73,059 110,557 149,658
Total operating revenues-continuing operations............. 624,050 842,508 1,074,224
Operating expenses
Staff costs (77,025) (91,907) (123,535)
Depreciation and amortization................................(59,010) (76,865) (101,391)
Other operating expenses....................................(323,779) (409,008) (597,834)
Total operating expenses................................... (459,814) (577,780) (822,760)
Operating income-continuing operations..................... 164,236 264,728 251,464
Other income/(expenses)
Interest receivable and similar income.........................27,548 31,363 23,891
Interest payable and similar charges.........................(14,582) (25,624) (40,351)
Foreign exchange gains/(losses)................................. 975 (3,561) 3,217
Gain/(losses) on disposal of fixed assets....................... 527 (29) (9)
Total other income/(expenses).............................. 14,468 2,149 (13,252)
Income before taxation..................................... 178,704 266,877 238,212
Taxation.....................................................(23,155) (25,067) (22,782)
Net income....................................................155,549 241,810 215,430
Basic earnings per ordinary share (euro cent)................... 21 32 28
Diluted earnings per share (euro cent).......................... 21 31 28
No. of ordinary shares (in '000's)*...........................728,726 755,055 757,447
Diluted no of ordinary shares (in '000's).....................739,961 766,279 765,131
*Five ordinary shares equal to one ADS
Total comprehensive income amounted to EUR 172.1 million, EUR 157.5 million and
EUR 163.2 million in the year ending March 31, 2004, 2003 and 2002 respectively.
F-40
Notes forming part of the Financial Information (Continued)
(g) New US accounting pronouncements
In December 2003, the FASB issued Interpretation No. 46,
revised-Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51 ("FIN 46R"). FIN 46R addresses the consolidation of variable interest
entities ("VIEs"), which includes entities that have one or more of the
following characteristics:(1) The equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
financial support; (2) The equity investors lack essential characteristics of a
controlling financial interest (as defined by FIN46R); and (3) The equity
investors have voting rights that are not proportionate to their economic
interests, and the activities of the entity involve or are conducted on behalf
of an investor with a disproportionately small voting interest. In addition, FIN
46R provides for certain scope exceptions to its application. Adoption of this
interpretation is required in financial statements that have interests in VIEs
or potential VIEs, commonly referred to as special-purpose entities, for periods
ending after December 15, 2003. Application for all other types of entities is
required in financial statements for periods ending after March 15, 2004. The
adoption of FIN 46R has not had a material impact on the group's financial
statements.
In December 2003, the FASB issued SFAS Statement No. 132 (revised)
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
No. 132 (revised)"). SFAS No. 132 (revised) revises employers' disclosures about
pension plans and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. SFAS No. 132 retains and revises the
disclosure requirements contained in the original SFAS No. 132. It also requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other postretirement
benefit plans. The Statement generally is effective for fiscal years ending
after December 15, 2003. The additional disclosures required by SFAS No. 132
have been included within the US GAAP pensions disclosures provided within this
section of the financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No, 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for certain mandatory redeemable financial instruments or
non-public utilities. The adoption of SFAS No. 150 did not impact on the group's
financial statements.
In April 2003, the FASB issued SFAS Statement No.149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No.
149"), which amends SFAS Statements No. 133, to address (1) decisions reached by
the Derivatives Implementation Group, (2) developments in other FASB projects
that address financial instruments, and (3) implementation issues related to the
definition of a derivative. SFAS No. 149 has multiple effective date provisions
depending on the nature of the amendments to SFAS No. 133. SFAS No. 149 did not
have a material impact on the group's results for the year.
F-41
Appendix A
GLOSSARY
Certain of the terms included in the section on Selected Operating and Other Data and elsewhere in
this Report 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.
A-1
Net Margin Represents profit after taxation as a percentage of total revenues.
Non-Charter Ancillary Costs Represents the direct cost of Ryanair's ancillary revenues,
excluding costs in relation to Ryanair's charter operations.
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.
A-2
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 29, 2004
Exhibit 8.1 Principal Subsidiaries of the Registrant
Name Jurisdiction of Incorporation
Ryanair Limited Ireland
Darley Investments Limited* Ireland
Ryanair.com Limited Ireland
Buzz Stansted Ltd.* United Kingdom
* These subsidiaries are wholly owned by Ryanair Limited, which in turn is
wholly owned by Ryanair Holdings plc.
Exhibit 12.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
I, Michael O'Leary, certify that:
1. I have reviewed this Annual Report on Form 20-F of Ryanair
Holdings plc;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the company, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's
internal control over financial reporting that
occurred during the period covered by this report
that has materially affected, or is reasonably likely
to materially affect, the company's internal control
over financial reporting; and
5. The company's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the company's auditors and the audit
committee of the company's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the company's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the company's internal control over financial reporting.
Date: September 29, 2004
/s/ Michael O'Leary
Michael O'Leary
Chief Executive Officer
I, Howard Millar, certify that:
1. I have reviewed this Annual Report on Form 20-F of Ryanair
Holdings plc;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the
periods presented in this report;
4. The company's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the company, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the company's
internal control over financial reporting that
occurred during the period covered by this report
that has materially affected, or is reasonably likely
to materially affect, the company's internal control
over financial reporting; and
5. The company's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the company's auditors and the audit
committee of the company's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely
affect the company's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the company's internal control over financial reporting.
Date: September 29, 2004
/s/ Howard Millar
Howard Millar
Chief Financial Officer
Exhibit 13.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of Ryanair Holdings plc (the "Company"), does hereby
certify, to such officer's knowledge, that:
The Annual Report on Form 20-F for the fiscal year ended March 31, 2004
(the "Form 20-F") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained
in the Form 20-F fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: September 29, 2004
/s/ Michael O'Leary
Name: Michael O'Leary
Title: Chief Executive Officer
Dated: September 29, 2004
/s/ Howard Millar
Name: Howard Millar
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Ryanair Holdings plc and will be retained by Ryanair Holdings plc.
and furnished to the Securities and Exchange Commission or its staff upon
request