Interest rate swaps were used to hedge the fair value risk of fixed-interest euro-denominated liabilities. The fair values of these interest rate swaps amount to €57 million (previous year: €34 million). The significant increase in the fair values compared with 2008 is explained by the change in market rate levels. As at 31 December 2009, there was also a €24 million (previous year: €30 million) adjustment to the carrying amount of the underlying hedged item arising from an interest rate swap unwound in the past. The adjustment to the carrying amount is amortised over the remaining term of the liability using the effective interest method, and reduces future interest expense.
In addition, cross-currency swaps were used to hedge liabilities in foreign currency against negative changes in the market, with the liability being transformed into a variable-interest euro-denominated liability. This hedged the fair value risk of the interest and currency component. The fair value of this interest rate swap position was € –14 million as at 31 December 2009 (previous year: € –19 million).
The following table gives an overview of the gains and losses arising from the hedged items and the respective hedging transactions:
|Ineffective portion of fair value hedges|
|Gains (–)/losses (+) on hedged items||56||16|
|Gains (–)/losses (+) on hedging transactions||–56||–17|
|Balance (ineffective portion)||0||–1|
The Group uses currency forwards and currency swaps to hedge the future cash flow risks from foreign currency revenue and expenses. The fair values of currency forwards and currency swaps amounted to € –7 million (previous year: €74 million). In addition, there were currency options at a fair value of €1 million (previous year: €13 million) at the reporting date for operating receivables and liabilities. The hedged items will be recognised in the income statement in 2010.
Currency forwards with a fair value of € –21 million (previous year: € –26 million) as at the reporting date were entered into to hedge the currency risk of future lease payments and annuities denominated in foreign currencies. The payments for the hedged items are made in instalments, with the final payment due in 2013.
Cash flow risks are arising for the Group from contracted aircraft purchases in connection with future payments in US dollars. These risks were hedged using forward transactions. The fair value of these cash flow hedges amounted to € –3 million as at 31 December 2009 (previous year: €3 million). The aircraft will be added in 2012. Gains or losses on hedges are offset against cost and recognised in profit or loss upon the amortisation of the asset.
Risks arising from fixed-interest foreign currency investments were hedged using synthetic cross-currency swaps, with the investments being transformed into fixed-interest euro investments. These synthetic cross-currency swaps hedge the currency risk, and their fair values at the reporting date amounted to €28 million (previous year: €15 million). The investments relate to internal Group loans which mature in 2014.
The Group is exposed to cash flow risks arising from a variable interest rate liability. These risks were hedged using an interest rate swap which offsets the interest rate risk in the hedged item. The respective cash flow hedge had a fair value of € –24 million as at 31 December 2009 (previous year: € –53 million). The hedged liability becomes due in 2037. In addition, a fixed-interest currency liability was transformed into a fixed-interest euro-denominated liability using a cross-currency swap. The fair value of the derivative was € –7 million (previous year: € –12 million).
Some of the risks from the purchase of diesel and marine diesel fuels, which cannot be passed on to customers, were hedged using commodity swaps. The fair value of these cash flow hedges amounted to €1 million as at year-end (previous year: €0 million). There were minor inefficiencies.