FAIR VALUE HEDGES

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 €32 million (previous year: €53 million). As at 31 December 2011, there was also a €13 million (previous year: €19 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 €–2 million as at 31 December 2011 (previous year: €–8 million).

The following table gives an overview of the gains and losses arising from the hedged items and the respective hedging transactions:

CASH FLOW HEDGES

The Group uses currency forwards and swaps to hedge the cash flow risks from future foreign currency operating revenue and expenses. The fair values of currency forwards and swaps amounted to €–26 million at the reporting date (previous year: €–15 million). The hedged items will affect cash flow for the most part in 2012.

Currency forwards with a fair value of €–3 million (previous year: €–10 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.

The Group is exposed to cash flow risks from contracted aircraft purchases in connection with future payments in US dollars. These risks were hedged using forward transactions and currency swaps. The fair value of these cash flow hedges amounted to €6 million as at 31 December 2011 (previous year: €5 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 €12 million (previous year: €15 million).

The risks from the purchase of diesel and marine diesel fuels, which cannot be passed on to customers, were hedged using commodity swaps that fall due in 2012. The fair value of these cash flow hedges amounted to €1 million as at year-end (previous year: €5 million). There was minor hedge ineffectiveness.

• Previous Note |
• Next Note