TIDMDNA3
RNS Number : 4972I
Doric Nimrod Air Three Limited
12 August 2021
DORIC NIMROD AIR THREE LIMITED
(Legal Entity Identifier: 213800BMYMCBKT5W8M49)
ANNUAL FINANCIAL REPORT - CORRECTION
The following amendment has been made to the 'ANNUAL FINANCIAL
REPORT' announcement released on 2 August 2021 at 6.34 p.m. under
RNS No 3181H.
The eighth sentence of the third paragraph of the Chairman's
statement on page 9 should have read: "This unencumbered cash is,
in the absence of any unforeseen costs or event of default,
forecast to grow to approximately GBP10 million by the time the
last Lease expires."
All other details remain unchanged.
The full amended text is shown below.
The Board of the Company is pleased to announce its results for
the year ended 31 March 2021.
To view the Company's Annual Financial Report please follow the
link below:
http://www.rns-pdf.londonstockexchange.com/rns/4972I_1-2021-8-12.pdf
In addition, to comply with DGTR 4.1 please find below the full
text of the annual financial report. The report will also shortly
be available on the Company's website, www.dnairthree.com .
ANNUAL GENERAL MEETING
Notice of the Annual General Meeting of the shareholders of the
Company (the "AGM") will be published in due course.
For further information, please contact:
For administrative and company information:
JTC Fund Solutions (Guernsey) Limited
+44 (0) 1481 702400
For shareholder information:
Nimrod Capital LLP
+44 (0) 20 7382 4565
OF ANNOUNCEMENT
E&OE - in transmission
Doric Nimrod Air Three Limited
Consolidated Annual
Financial Report
From 1 April 2020 to
31 March 2021
DEFINITIONS
"Administrative Subordinated administrative shares
Shares"
"AED" United Arab Emirates dirham
"AGM" Annual general meeting
"Amedeo" or Amedeo Management Limited
the Asset
Manager
"AR Committee" Audit and Risk Committee
"Articles" Company's Articles of Incorporation
"ASKs" Available seat kilometers
"Asset(s)" Airbus A380 Aircraft
or the "Aircraft"
"ATAG" Air Transport Action Group
"BA" British Airways
"Board" Company's Board of directors
"CDS's" Credit Default Swaps
"Certificates" DNA Alpha Pass Through Certificates issued
in August 2013
"Chair" Chair of the Board
"Code" The UK Corporate Governance Code
"CORSIA" Carbon Offsetting and Reduction Scheme for
International Aviation
"Deloitte" Deloitte LLP
"DGTRs" Disclosure Guidance and Transparency Rules
"DNA3" or Doric Nimrod Air Three Limited
the "Company"
"DNA Alpha" DNA Alpha Limited
"DWC" Dubai World Central International Airport
"EETC" or Enhanced equipment trust certificates
"Certificates"
"Emirates" Emirates Airlines
or the "Lessee"
" EPS or LPS Earnings / loss per Share
"
"ESG" Environmental, Social and Governance
"EU" European Union
"EU ETS" European Union Emission Trading Scheme
"FCA" Financial Conduct Authority
"FRC" Financial Reporting Council
"FVOCI" Fair value through other comprehensive income
"FVTPL" Fair value through profit or loss
" GBP", "GBP" Pound Sterling
or "Sterling"
" GFSC" Guernsey Financial Services Commission
" GHG" Greenhouse gas
"Group" the Company and its subsidiary
"IAS 1" International Accounting Standard 1 - Presentation
of financial statements
"IAS 8" International Accounting Standard 8 - Accounting
policies
"IAS 16" International Accounting Standard 16 - Property,
Plant and Equipment
"IAS 36" International Accounting Standard 36 - Impairment
of Assets
"IASB" International Accounting Standards Board
"IATA" International Air Transport Association
"ICAO" International Civil Aviation Organization
"IFRIC" International Financial Reporting Interpretations
Committee
"IFRS" International Financial Reporting Standards
"IFRS 16 " IFRS 16 - Leases
"IPCC" Intergovernmental Panel on Climate Change
"ISAE 3402" International Standard on Assurance Engagement
3402
"ISTAT" International Society of Transport Aircraft
Trading
"JTC" or "Secretary" JTC Fund Solutions (Guernsey) Limited
or "Administrator"
"Registrar" JTC Registrars Limited
"Law" The Companies (Guernsey) Law, 2008, as amended
"Lease(s)" Lease of Aircraft to Emirates
"Loan(s)" Borrowings obtained by the Group to part-finance
the acquisition of Aircraft
"LSE" London Stock Exchange's
"NBV" Net book value
"Nimrod" or Nimrod Capital LLP
"Corporate
and Shareholder
Adviser"
"Pandemic" COVID-19 pandemic
"Period" 1 April 2020 until 31 March 2021
"PIES" Public Interest Entities
"PLF" Passenger load factor
"Registrar" JTC Registrars Limited
"RPKs" Revenue passenger kilometers
"SDG" Sustainable Development Goals
"SFS" Specialist Fund Segment
"Shareholders" Shareholders of the Company
"Shares " Ordinary Preference Shares
"Share Capital" Share capital of the Company
" SID " Senior Independent Director
"Subsidiary" DNA Alpha Limited
"TAP" TAP Air Portugal
"UAE" United Arab Emirates
"UK" United Kingdom
"USD" or "$" US dollars
"VIU" Value-in-use
"WACC" Weighted average costs of capital
SUMMARY INFORMATION
Listing Specialist Fund Segment of the London
Stock Exchange's Main Market
Ticker DNA3
--------------------------------------------
Share Price 35.00 pence (as at 31 March 2021)
44.00 pence (as at 30 July 2021)
--------------------------------------------
Market Capitalisation GBP96.80 million (as at 30 July 2021)
--------------------------------------------
Current / Future Anticipated Current dividends are 2.0625 pence
Dividend per quarter per share (8.25 pence
per annum) and it is anticipated that
this will continue until the aircraft
leases begin to terminate in 2025
--------------------------------------------
Dividend Payment Dates April, July, October, January
--------------------------------------------
Currency Sterling
--------------------------------------------
Launch Date / Share Price 2 July 2013 / 100 pence
--------------------------------------------
Incorporation and Domicile Guernsey
--------------------------------------------
Aircraft Registration A6-EEK (29 August 2025)
Number A6-EEO (29 October 2025)
(Lease Expiry Dates including A6-EEM (14 November 2025)
2 year extension) A6-EEL (27 November 2025)
--------------------------------------------
Asset Manager Amedeo Management Limited
--------------------------------------------
Corporate and Shareholder Nimrod Capital LLP
Adviser
--------------------------------------------
Administrator JTC Fund Solutions (Guernsey) Limited
--------------------------------------------
Auditor Deloitte LLP
--------------------------------------------
Market Makers finnCap Ltd
Investec Bank
Jefferies International Ltd
Numis Securities Ltd
Shore Capital Limited
Winterflood Securities Ltd
--------------------------------------------
SEDOL, ISIN, LEI B92LHN5, GG00B92LHN58, 213800BMYMCBKT5W8M49
--------------------------------------------
Year End 31 March
--------------------------------------------
Stocks & Shares ISA Eligible
--------------------------------------------
Website www.dnairthree.com
--------------------------------------------
Please note that the Group has determined that the operating
Leases on the Assets are for 12 years based on an initial term of
10 years followed by an extension term of 2 years. Should the
Lessee choose to exit a Lease at the end of the initial term of 10
years an early termination payment equal to the present value of
the sterling rent that would have been payable for the extension
term of 2 years would be due. For the purpose of this report the
Leases are all referred to as 12 year leases.
COMPANY OVERVIEW
DNA3 is a Guernsey company incorporated on 29 March 2012.
Pursuant to the Company's Prospectus dated 20 June 2013, the
Company, on 2 July 2013, offered its Shares for issue by means of a
placing and raised approximately GBP211 million by the issue of
Shares at an issue price of 100 pence per share. The Company's
Shares were admitted to trading on the SFS on 2 July 2013.
As at 30 July 2021, the last practicable date prior to the
publication of this report, the Company's total issued Share
capital consisted of 220,000,000 Shares and these Shares were
trading at 44.00 pence per Share.
Investment Objectives and Policy
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling aircraft. To pursue its investment objective, the
Company has used the net proceeds of placings and other equity
capital raisings, together with debt facilities (or instruments),
to initially acquire four Airbus A380 Aircraft which are leased to
Emirates, the national carrier owned by The Investment Corporation
of Dubai based in Dubai, United Arab Emirates.
DNA Alpha
The Company has one wholly-owned subsidiary: DNA Alpha which
holds the Assets for the Company.
The first Asset was acquired by DNA Alpha on 29 August 2013 for
a purchase price of $245 million. Upon delivery, DNA Alpha entered
into an operating Lease with Emirates, pursuant to which the first
Asset has been leased to Emirates for an expected initial term of
10 years, ending August 2023, with an extension period of two years
ending August 2025, in which rental payments reduce. The present
value of the remaining rentals in the extension period at the end
of the initial 10 year Lease must be paid even if the option is not
taken.
The second Asset was acquired by DNA Alpha on 29 October 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating Lease with Emirates, pursuant to which
the second Asset has been leased to Emirates for an expected
initial term of twelve years, with fixed lease rentals for the
duration. The initial Lease is for 10 years ending October 2023,
with an extension period of two years ending October 2025, in which
rental payments reduce. The present value of the remaining rentals
in the extension period at the end of the initial 10 year Lease
term must be paid even if the option is not taken.
The third Asset was acquired by DNA Alpha on 14 November 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating Lease with Emirates, pursuant to which
the third Asset has been leased to Emirates for an expected initial
term of twelve years, with fixed lease rentals for the duration.
The initial Lease is for 10 years ending November 2023, with an
extension period of two years ending November 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year Lease term must
be paid even if the option is not taken.
The fourth Asset was acquired by DNA Alpha on 27 November 2013
for a purchase price of $245 million. Upon delivery, DNA Alpha
entered into an operating Lease with Emirates, pursu ant to which
the fourth Asset has been leased to Emirates for an expected
initial term of twelve years, with fixed Lease rentals for the
duration. The initial Lease is for 10 years ending November 2023,
with an extension period of two years ending November 2025, in
which rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10 year
Lease term must be paid even if the option is not taken.
DNA Alpha acquired the Assets, using a combination of a portion
of the proceeds of the issue of the Ordinary Shares by the Company
together with the proceeds of the sale of equipment notes issued by
DNA Alpha and the initial rent payment pursuant to the relevant
operating Leases. The equipment notes were acquired by two separate
pass through trusts using the proceeds of their issue of EETCs as
detailed within the offering circular issued by DNA Alpha dated 10
July 2013.
Further information about the construction of these Leases is
available in note 3 to the financial statements.
The EETCs, with an aggregate face amount of approximately $630
million, are admitted to the official list of the Euronext Dublin
and to trading on the Main Securities market thereof and will
mature on 30 May 2025.
Emirates bears all costs (including maintenance, repair; and
insurance) relating to the Aircraft during the lifetime of the
Lease.
Distribution Policy
The Company currently targets a distribution of 2.0625 pence per
Share per quarter.
There can be no guarantee that dividends will be paid to
Shareholders and, if dividends are paid, as to the timing and
amount of any such dividend. There can also be no guarantee that
the Company will, at all times, satisfy the solvency test required
to be satisfied pursuant to section 304 of the Law enabling the
directors to effect the payment of dividends.
Performance Overview
All payments by Emirates have, to date, been made in accordance
with the terms of the respective Leases.
During the financial year under review and in accordance with
the Distribution Policy the Company declared four interim dividends
of 2.0625 pence per Share. Two interim dividends of 2.0625 pence
per Share have been declared after the reporting period. Further
details of dividend payments can be found on page 26.
Return of Capital
The Company intends to return to Shareholders the net capital
proceeds if and when the Company is wound up (pursuant to a
Shareholder resolution, including the Liquidation Resolution),
subject to compliance with the Articles and the applicable laws
(including any applicable requirements of the solvency test
contained therein).
Liquidation Resolution
Although the Company does not have a fixed life, the Articles
require that the directors convene a general meeting of the Company
in November 2026 where an ordinary resolution will be proposed that
the Company proceed to an orderly wind-up at the end of the term of
the Leases. In the event that the liquidation resolution is not
passed, the directors will consider alternatives for the future of
the Company, including re-leasing the Assets, or selling the Assets
and reinvesting the capital received from the sale of the Assets in
other aircraft.
CHAIR'S STATEMENT
During the Period the Company has declared and paid four
quarterly dividends of 2.0625 pence per Share each, a rate of
dividend payment equivalent to 8.25 pence per Share per annum.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling aircraft. The structures of the operating Leases
relating to the Company's four Aircraft are described on pages 7
and 8.
The debt portion of the funding is designed to be fully
amortised over the term of the Leases, which would leave the
Aircraft unencumbered on the conclusion of the ultimate Lease.
Emirates bears all costs (including maintenance, repair and
insurance) relating to the Aircraft during the lifetime of the
Leases. At 30 July 2021, the latest practical date prior to this
report, the Company had outstanding debt associated with the
Aircraft totaling USD113.6 million (18% of the initial balance) as
well as unencumbered cash resources of GBP7.4 million (net of the
upcoming quarterly dividend payable at the end of July which
amounts to approximately GBP 4.5 million). This unencumbered cash
is, in the absence of any unforeseen costs or event of default,
forecast to grow to approximately GBP10 million by the time the
last Lease expires. At the time of writing the share price is 46.20
pence, representing a market capitalisation of GBP101.640 million
based on the 220,000,000 Shares in issue. The Company's first Lease
expiry falls due in August 2025.
All payments by Emirates during the Period and throughout the
Lease have been made in accordance with the terms of the Lease. All
four of the Company's Aircraft were put into storage in March 2020.
MSNs 132 and 136 have since remained stored at DWC. MSNs 133 and
134 returned to service in late November 2020 but were subsequently
placed back into storage at DWC in late January 2021.
COVID-19 has obviously had a devastating impact globally and has
precipitated the biggest disruption to the global aviation industry
in its entire history, adversely impacting the prospects for many
widebody aircraft, including the A380. IATA has recently increased
its forecast for an airline industry-wide net loss for 2021 to USD
47.7 billion while many airlines do not anticipate a full recovery
until 2023/4. In the face of such news, it is reassuring to know
that Emirates is one of the world's largest, most dynamic and
stable airlines. Wholly owned by the Government of Dubai, the
airline received financial support from its shareholder in the
third quarter of last year and recent comments give no indication
that further support would not be forthcoming if the recovery is
delayed.
Emirates results for the year to 31 March 2021 reported an
annual loss of USD 5.5 billion, the first non-profitable year in
over three decades. Emirates ended the year with a cash balance of
USD 1 billion. Emirates received capital injections totaling USD
3.1 billion from their ultimate shareholder, the Government of
Dubai. Despite a significant strain on cash assets, Emirates
assured the market that they continued to honour all financial
obligations. Further, Emirates announced that new credit lines and
facilities have been set up to ensure appropriate liquidity is
maintained to mitigate any short term shocks in case the crisis
continues for longer than they anticipate.
Emirates has invested to upgrade its signature A380 experience
with new Premium Economy seats and other product enhancements.
Specifically regarding the A380 Emirates president Sir Tim Clark
recently commented that it "will figure in the Emirates fleet for
the next 15 years" and that "It's hugely popular. 85% of our
profits prior to COVID-19 came from the A380. It was always full
... It was popular in all classes."
Whilst Emirates do not have a formal credit rating, they have
previously issued unsecured USD bonds with maturities in 2023, 2025
and 2028. At the time of writing these instruments are trading at
approximately 101.1, 102.3 and 102.4 cents respectively, equivalent
to USD running yields in the range of roughly 3.8 to 4.4%. Further
details on Emirates and the A380 can be found in the Asset
Manager's report by Amedeo.
In line with the appraisals obtained last year your Board has
elected to use 'future soft values' for the A380 with the published
figure based on the average of three independent appraisers all of
which have remained the same since the Company's launch. These
values are characterised by less favourable market conditions for
the seller, including but not limited to an imbalance of supply and
demand in the aircraft type. As a result of the COVID-19 pandemic
the vast majority of A380 worldwide remain grounded and therefore,
with a limited number of operators, a high degree of uncertainty
remains over future values. Following a steep decline last year
where the appraised value essentially halved in USD terms the
latest value of the Company's Assets reflects a more modest decline
of GBP39.2m (approximately 28%) to GBP139.3m on a future soft value
(uninflated) basis. On a USD basis the decline is approximately 14%
year-on-year. Based on the current Share price of the Company the
market appears to be discounting the latest appraisal value by in
excess of 50%. The Company's quarterly factsheet provides a useful
sensitivity analysis of the potential returns to Shareholders,
after Lease expiry, under different scenarios for A380 appraisal
values. Further details on residual values can be found in notes
2(m), 3 and 10 of the accounts.
The Company's first Lease with Emirates expires in August 2025,
approximately four years from now. The redelivery procedure for a
widebody aircraft is complex and highly technical and as we move
closer to the first Lease expiry your Board will provide more
details on the high-level considerations and also the implications
of the various potential outcomes for Shareholders.
This report delivers the second iteration of the Company's ESG
Policy. This provides Shareholders with further detail on the
Company's business model and matters such as the environmental and
social considerations of the aviation industry and the importance
of high standards of corporate governance. Your Board recognises
the increasing importance of ESG matters in relation to
Shareholders' investment considerations and has sought to address
the topic in a pragmatic fashion, as detailed in our ESG report on
page 36.
Amedeo continues to monitor the Leases and is in frequent
contact with the Lessee, and reports regularly to the Board. Nimrod
continues to liaise with Shareholders on behalf of the Board and
has provided valuable feedback on the views of Shareholders in the
current climate.
Shareholders should note that although the underlying cash flows
received and paid during the Period have been received and paid as
anticipated and in accordance with contractual obligations; it may
not be obvious that this is so because of the application of the
accounting treatments for foreign exchange, rental income and
finance costs mandated by IFRS.
For instance, the entirety of the rental income that is
receivable under the 12 year Leases (including advance rental
received as part of the initial acquisition of the Assets) is
credited evenly over each of the 144 months of the Leases. However
rental income has been received in advance of this uniform pattern
in order to match and fund the accelerated payment down of debt.
Thus as at 31 March 2021, 82% of income receivable under the Leases
has been received, which has funded the payment down of 78% initial
borrowings, whereas under the relevant accounting standard only 62%
may be recognised. This mismatch in timing between the receipt and
recognition of rental income results in a deferred income creditor
of GBP128.1 million or 58 pence per Share in the 31 March 2021
balance sheet. This is an artificial accounting adjustment in the
sense that it does not represent a liability to pay GBP128.1
million to third parties. The faster that income is received and
debt repaid the larger the resultant creditor producing a reduction
in reported net asset value.
Similarly, the relevant accounting standards require that
transactions denominated in currencies other than the presentation
currency (including, most importantly, the cost of the Aircraft)
are translated into the presentation currency at the exchange rate
ruling at the date of the transaction whilst monetary items
(including also very significantly, the outstanding borrowings) are
translated at the rate prevailing on the reporting date. The result
is that the figures sometimes show large mismatches which are
reported as unrealised foreign exchange differences - although the
distortive effect becomes less pronounced over time as debt is paid
down.
On an on-going basis and assuming the Lease rental is received,
and the Loan payments are made as anticipated, such exchange
differences do not reflect the commercial substance of the
situation in the sense that the key transactions denominated in USD
are in fact closely matched. Rental income received in USD is used
to make Loan repayments due which are likewise denominated in USD.
Furthermore, the USD Lease rentals and Loan repayments are fixed at
the inception of the respective Leases and are very similar in
amount and timing .
The Board encourages Shareholders to read the Company's
quarterly fact sheets which we believe provide a great deal of
interesting information. We hope these regular reports, in addition
to the communication you receive from Nimrod, are useful and
informative. The directors welcome Shareholder engagement and
feedback and encourage you to contact Nimrod to request a meeting
or to relay any feedback.
Finally, on behalf of the Board, I would like to thank our
service providers for all their help and, most importantly, all
Shareholders for their continuing support of the Company during
these difficult times. I look forward to keeping all Shareholders
up to date with further progress.
Charles Wilkinson
Chair
2 August 2021
ASSET MANAGER'S REPORT
At the request of the directors of the Company, this commentary
has been provided by the Asset Manager of the Company.
COVID-19
The Pandemic continues to impact private and economic life
worldwide. The consequences of COVID-19 are far reaching and
changing at a significant pace. The impact of this Pandemic on the
aviation sector has been significant with a large part of the
global passenger aircraft fleet grounded. This Asset Manager's
report is exclusively based on known facts at the time of writing
and does not seek to draw on any speculation about any possible
future, long-term impacts of the Pandemic on the aviation sector or
the Company specifically and should be read in such context.
1. The Assets
The Company acquired four Airbus A380 aircraft by the end of
November 2013. Since delivery, each of the four Aircraft has been
leased to Emirates - the national carrier owned by the Investment
Corporation of Dubai, based in Dubai, United Arab Emirates - for a
term of 12 years with fixed Lease rentals for the duration. In
order to complete the purchase of the Aircraft, DNA Alpha issued
two tranches (Class A & Class B) of EETC - a form of debt
security - in July 2013 in the aggregate face amount of USD 630
million. The Certificates are admitted to the official list of the
Euronext Dublin and to trading on the Main Securities market
thereof. DNA Alpha used the proceeds from both the equity and the
Certificates to finance the acquisition of the four new Airbus A380
aircraft.
Due to the effects of COVID-19, all four Aircraft were put into
storage in March 2020. MSNs 132 and 136 have since remained stored
at DWC. MSNs 133 and 134 returned to service in late November 2020
but were subsequently placed back into storage at DWC in late
January 2021.
Maintenance Status
Emirates maintains its A380 aircraft fleet based on a
maintenance programme according to which minor maintenance checks
are performed every 1,500 flight hours, and more significant
maintenance checks (C checks) at 36-month or 18,000-flight hour
intervals, whichever occurs first.
Due to the continuing Pandemic, Emirates has stored the Aircraft
owned by the Group in Dubai. The Lessee has "a comprehensive
aircraft parking and reactivation programme [in place], that
strictly follows manufacturer's guidelines and maintenance
manuals". In addition, Emirates has enhanced standards and
protocols of their own, to protect and preserve the Assets during
the downtime. This includes the watertight sealing of all apertures
and openings through which environmental factors - sand, water,
birds, and insects - can find their way inside an aircraft. During
parking, maintenance teams complete periodic checks at different
intervals. Depending on the reactivation date of a specific
aircraft, Emirates might defer due maintenance checks, which are
calendar-based, until that time. This would allow the airline to
make use of the full maintenance interval once the operation of a
specific aircraft resumes.
Emirates bears all costs relating to the Aircraft during the
lifetime of the respective Leases (including for maintenance,
repairs and insurance).
Inspections
The Asset Manager conducted physical inspections and records
audits of the Aircraft as per the below table. Due to the storage
of some the Aircraft and the protective measures associated with
this, the inspections of some Aircraft were limited to viewing the
outside of the Aircraft from ground level. The condition of the
Aircraft - to the extent visible - and the records were in
compliance with the provisions of the respective Lease
agreements.
MSN Last Inspection MSN Last Inspection
132 11/2020 134 01/2021
---------------- ---- ----------------
133 01/2021 136 01/2021
---------------- ---- ----------------
2. Market Overview
The impact of COVID-19 on the global economy has been severe,
resulting in an estimated contraction in global GDP of 4.3% for
2020, according to the World Bank. This is expected to be followed
by a recovery in growth of 5.5% in 2021. In its latest economic
impact analysis from April 2021, ICAO estimates that the full year
2020 has seen an overall reduction in seats offered by airlines of
50% compared with the previous baseline forecast for that year.
Furthermore, ICAO anticipates this trend to continue through 2021
with airlines reducing seats offered by 34% to 39% compared to 2019
levels. However, the actual impact of COVID-19 on the airline
industry will depend on several factors, including the duration and
magnitude of the outbreak and containment measures, the degree of
consumer confidence in air travel as well as general economic
conditions.
IATA anticipates an airline industry-wide net loss of USD47.7
billion in 2021, according to its latest update from April 2021. On
this occasion it also revised the net loss estimate for the
previous year from nearly USD119 billion to more than USD126
billion, due to larger than anticipated losses in the final quarter
of 2020.
While air passenger demand began its recovery from the low point
in April 2020, IATA notes that the recovery in air travel has been
stagnating due to the global resurgence of the virus and the
related shutdowns during the fourth quarter of 2020. In total,
industry-wide RPKs fell by 65.9% in 2020 - the largest decline in
the history of aviation. Similarly, industry-wide capacity,
measured in ASKs, contracted by 56.7% last year. As a result, the
worldwide PLF fell by 17.5 percentage points to 65.1%.
Due to their reliance on international long-haul routes, Middle
Eastern carriers like Emirates experienced the greatest decline in
RPKs (-72.2%) of any region in 2020. Capacity also fell by 63.3%
during that period. This resulted in an 18.5 percentage point
decrease in PLF to 57.6%.
The latest IATA passenger traffic data from February 2021
demonstrate renewed weakness in air travel following new variants
of the virus leading to a record-high level of confirmed cases in
January 2021 and governments increasing travel restrictions.
However, global new cases of COVID-19 were on a downward trend in
February, around 40% below the record level from January. Despite
this, RPKs in February contracted by 74.7% compared to pre-crisis
February 2019 levels. This deterioration in the air travel recovery
was primarily driven by domestic markets, especially in China,
where citizens were asked to stay at home during the traditional
Chinese New Year travel period. IATA notes that this decline could
reverse in March with flights scheduled in domestic China rising
above pre-crisis levels.
IATA cautions that vaccine distribution efforts are progressing
slowly. At the end of February, there were only 3.3 doses given per
100 people worldwide. Countries have kept international travel
restricted to avoid importing new variants and because both sides
of the route require low infection rates. Only Africa and the
Middle East have begun to ease flight restrictions as of February
2021.
Source: IATA, ICAO
(c) International Air Transport Association, 2021. Air Passenger
Market Analysis December 2020. Air Passenger Market Analysis
February 2021. Outlook for the Global Airline Industry - Update
April 2021. All Rights Reserved. Available on the IATA Economics
page.
(c) International Civil Aviation Organization. Effects of Novel
Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis,
20 April 2021.
3. Lessee - Emirates
Network
Emirates' recovery efforts continued at the beginning of 2021
with the restart of operations to destinations in the Americas. As
of the beginning of March, Emirates had resumed flights to 10
destinations in North America: Boston, Chicago, Dallas, Houston,
Los Angeles, New York JFK, San Francisco, Seattle, Toronto, and
Washington DC. Emirates also increased the frequencies of its
services to New York, Los Angeles, and Sao Paulo. Additionally,
Emirates announced plans to increase services to the Maldives and
Seychelles ahead of the Easter holiday. Emirates is primarily using
Boeing 777 aircraft to serve these destinations.
However, Emirates has also had to demonstrate flexibility in its
recovering operations amid worsening COVID-19 cases. At the end of
January, the UK restricted the entry of passengers who arrived from
or transited through the UAE to those with British or Irish
passports or UK residency and banned direct flights from the
country. In response, Emirates is providing outbound passenger
services from the UK to Dubai, primarily for UAE residents. By the
end of March 2021, Emirates had restored services to over 120
passenger and cargo destinations worldwide, reaching 42% of its
total capacity compared to the previous year. Emirates operated
flights to 157 destinations in 82 countries before the pandemic
started.
Emirates' president Sir Tim Clark stated in February that the
carrier will recover from the COVID-19 crisis without any
fundamental changes to its business model. Rather, Emirates intends
to use its mix of widebody aircraft to take advantage of
anticipated supply-side shortages in medium- and long-haul sectors
in the coming years. At the same time, he revised his earlier
prediction according to which medium- and long-haul international
traffic would ramp up significantly in July and August this year.
He now expects such developments in the last quarter of 2021: "At
the end of the day, my view is that once we are through this,
demand for air travel will return, consumer confidence will
return."
In February, Emirates announced that it has become among the
first airlines in the world to operate a flight with fully
vaccinated frontline teams across all customer touchpoints,
including check-in and security personnel, as well as engineers,
pilots, and cabin crew. About a month into its vaccination
programme, close to 26,000, or 44%, of Emirates Group's UAE
frontline aviation workforce, which includes Emirates Airline and
air service provider dnata, have already received both doses of the
vaccine.
In March, Emirates and TAP signed a Memorandum of Understanding
to expand the codeshare partnership currently in place between both
airlines. TAP passengers will gain access to Emirates' destinations
in East Asia, while Emirates passengers will be able to access
additional domestic destinations in Portugal as well as to cities
in the USA, Canada, Mexico, Brazil, Senegal, Guinea-Bissau,
Guinea-Conakry, Morocco, Tunisia, Gambia, and Cape Verde. The
carriers also intend to explore ways to cooperate on their
respective frequent flyer and stopover programmes.
In April, Emirates commenced trials of IATA's Travel Pass on a
flight from Dubai to Barcelona. The Travel Pass is a mobile
application with an integrated registry of travel requirements
designed to enable passengers to manage their travel in line with
any government requirements for COVID-19 testing or vaccine
information.
Fleet
For the last year or so, Emirates' operations have largely
focused on cargo services using its fleet of Boeing 777 aircraft.
To meet the global demand for the transport of essential supplies,
Emirates SkyCargo introduced freighter services using passenger
aircraft as well as 19 Boeing 777-300ER 'mini-freighters' converted
for cargo operations. Emirates SkyCargo also made use of A380
'mini-freighters' on select cargo charter operations during this
time. As of mid-March, Emirates SkyCargo has operated more than
27,800 cargo-only flights on passenger aircraft, which have
transported more than 100,000 tonnes of essential supplies. In
total, about a third of Emirates' passenger aircraft was used for
cargo operations.
The table below details the passenger aircraft fleet activity as
of 31 March 2021:
Passenger Fleet Activity
Aircraft Type Grounded In Service
-------- ----------
A380 102 15
-------- ----------
777 1 134
-------- ----------
Total 103 149
-------- ----------
% 41 % 59 %
-------- ----------
Source: Cirium as of 31 March 2021
In late January 2021, Boeing announced a further delay to the
777X programme, now pushing the delivery of the first of the type
to at least late 2023. Given the delay, the 777X might not enter
into service with Emirates as late as 2025 and so the carrier now
intends to operate the A380 on trunk routes through to the
mid-2030s with the 777X gradually replacing A380s leaving the
fleet. In this context, Emirates President Sir Tim Clark has even
raised the prospect of switching orders from the 777X to the 787
Dreamliner, a smaller aircraft family compared to the 777X. He also
noted that the use of generally smaller aircraft will result in
slot capacity issues, once traffic levels return after the
Pandemic.
According to the airline's chief operating officer, Emirates is
discussing dates and schedules of new aircraft deliveries with
Airbus and Boeing. Additionally, amid the uncertainty of the new
deliveries, Sir Tim Clark emphasized that the A380 will continue to
play an ongoing role at Emirates for at least another 15 years,
underscoring that the A380 accounted for 85% of profits and was
"always full" prior to the Pandemic.
Key Financials
In the financial year ending 31 March 2021, Emirates recorded
its first loss in over 30 years. Revenues fell 66.4% to AED 30.9
billion (USD 8.4 billion) due to the global Pandemic. As a result,
Emirates recorded a net loss of AED 20.3 billion (USD 5.5 billion)
compared to a profit of AED 1.1 billion (USD 287.7 million) in the
previous financial year.
The number of passengers Emirates carried fell 88% to 6.6
million during the financial year following the suspension of
passenger operations in the early part of the year and the
subsequent sluggish recovery . As a result, Emirates reduced its
ASKs by 83% in the 2020/21 financial year, while RPKs were down by
90%. During this period, Emirates' average PLF fell to 44.3%,
compared to last year's pre-pandemic figure of 78.5%.
In response to the crisis, Emirates took a number of actions to
reduce costs, including reducing its workforce by 32.0%. It also
trimmed its fleet by a net 11 units. This includes five A380. One
was retired during the financial year. A further four were taken
out of operations as they are currently grounded and not expected
to be used before their scheduled retirement dates within the
2021/22 financial year. Additionally, the carrier sought to
restructure certain financial obligations, renegotiate contracts,
and consolidate its operations. Overall, Emirates reduced its total
operating costs by 46.4%. This was attributable to lower nominal
cost in all but one operating cost category. Charges for
depreciation, amortization and impairment increased, and its share
in total operating costs amounted to 42.9%. Jet fuel, traditionally
the single largest cost category with Emirates, represented a share
of 13.9% in the total operating cost. Despite this significant
reduction in operations, the carrier's EBITDA remained positive at
AED 4.6 billion (USD 1.3 billion).
While demand for air passenger travel was down during the
2020/21 financial year, air freight demand rose strongly. In fact,
Emirates SkyCargo increased its revenues by 52.6% to AED 17.1
billlion (USD 4.7 billion) during this period The volume of cargo
uplifted decreased by 21.6% to 1.9 billion tonnes, due to the lower
belly capacity available, while the yield nearly doubled. This
development reflects the extraordinary market situation during the
global Pandemic.
In February 2021, Adel Al Redha, Emirates COO, noted that
freight revenues exceeded the airline's. Revenue from cargo
operations amounted to 56.6% of Emirates' total revenues during the
last financial year, up from 12.8% in the period before. However,
passenger travel revenues appear to be volatile, depending on the
measures taken by countries to overcome the Pandemic.
As of 31 March, Emirates' total liabilities decreased by 11.3%
to AED 131.6 billion (USD 35.9 billion USD) compared to the end of
the previous financial year. Total equity decreased by 14.6% to AED
20.1 billion (USD 5.5 billion) with an equity ratio of 13.3%.
Emirates' cash position amounted to AED 4 billion (USD 1 billion)
at the end of March 2021. This compares to AED 20.2 billion (USD
5.5 billion) in cash assets at the beginning of the 2020/21
financial year. The drop in liquid funds was mainly driven by
ticket refund payments to customers in the amount of AED 8.5
billion (USD 2.3 billion), while the cash flow from operating
activities was AED 4.0 billion (USD 1.1 billion) positive.
On the ongoing financial position of Emirates in light of the
global pandemic, HH Sheikh Ahmed bin Saeed Al Maktoum, chairman and
chief executive of Emirates, stated: " Our top priorities
throughout the year were: the health and wellbeing of our people
and customers, preserving cash and controlling costs, and restoring
our operations safely and sustainably. Emirates received a capital
injection of AED 11.3 billion (USD 3.1 billion) from our ultimate
shareholder, the Government of Dubai. This helped us sustain
operations and retain the vast majority of our talent pool."
As at the end of June 2021, Emirates has outstanding USD debt
issuances with maturities in 2023, 2025, and 2028. These respective
bonds were trading at above par (100 cents) each and with running
yields ranging from approximately 3.8% to 4.4% in USD. There has
also been no upward pressure on yields. This level of yields does
not appear to indicate that the market sees any significant
financial stress to the issuer. In its latest annual financial
report the auditor PricewaterhouseCoopers issued an unqualified
audit report and the airline stated it "remains confident to meet
our financial commitments as they fall due in the coming year and
beyond through proactive working capital management and utilisation
of available credit lines and facilities".
Source: Bloomberg, Cirium, Emirates, Khaleej Times
4. Aircraft - A380
As of the end of March 2021, the global A380 fleet consisted of
240 planes with airline operators. Only 23 of these aircraft were
in service, the remainder of the fleet is currently parked due to
COVID-19. The fifteen operators are Emirates (117), Singapore
Airlines (19), Deutsche Lufthansa (14), Qantas (12), BA (12),
Korean Air Lines (10), Etihad Airways (10), Qatar Airways (10), Air
France (9), Malaysia Airlines (6), Thai Airways (6), Asiana
Airlines (6), China Southern Airlines (5), and All Nippon Airways
(3), and Hi Fly (1). Another five aircraft are on order.
In February 2021, Qantas chief executive officer Alan Joyce
contradicted earlier suggestions that the Australian carrier's
parked A380s could be permanently removed from future fleet plans:
"So we do believe that there's a need for that fleet and we do
believe it's going to generate cash, and it's all going to be about
cash when we start up international." The airline is now planning
to restart regular international passenger flights to most
destinations from 31 October 2021.
At the Royal Aeronautical Society conference on 15 March, BA CEO
Sean Doyle confirmed the carrier's intentions to return the A380 to
service, stating that the aircraft type is "an important part of
our fleet, and at the minute our plans are to obviously fly [it
again]". He added that the A380 "works very well in a number of
larger markets". BA has not provided a timeline for the return of
the A380 to operations.
Also in March, Lufthansa Group CEO Carsten Spohr confirmed that
the A380 will be phased out as a part of its fleet remodelling. In
total, Lufthansa plans to reduce its group fleet size by
approximately 200 aircraft (approximately 25% of its current fleet)
by 2023.
Thai Airways International has begun to gauge market interest
for two of its six A380s. In March, the carrier issued a request
for indication of interest for the 2013-built aircraft (MSNs 125
and 131). The carrier added that, given the ongoing preparation of
its rehabilitation plan, it will formally invite bidders to submit
"official proposals" following a court order approving that
plan.
With the final production A380 aircraft ferried to Hamburg in
March for interior outfitting and painting, Airbus will now
concentrate on supporting the in-service fleet of A380s "for as
long as possible", according to its chief executive Guillaume
Faury.
An April analysis report from Cirium stated that, while older
A380 aircraft are more likely to be phased out, airlines will be at
least partially incentivized to retain and operate their A380s for
at least the next five years, because of the cost of an early
phase-out. In fact , the report notes that there have been very few
formal decisions to remove the A380 from fleets since the beginning
of the COVID-19 crisis, with Air France being the only operator to
have explicitly retired aircraft. This is also because, for some
operators, such as BA, Emirates and Qantas, the A380 remains an
important part of the fleet and hub network, as industry experts
state in the report. However, the report adds that growing concerns
around sustainability and other factors could further decrease the
likelihood of a second-hand market developing for the A380.
Regarding Emirates, the report stated that " it remains unclear how
many of Emirates' A380s will return to service - and at what speed"
but the carrier is better positioned than any other carrier to
sustain large-scale A380 fleet capacity.
Source: Cirium
DIRECTORS
As at 31 March 2021 the Company had four directors all of whom
were independent and non-executive.
Charles Edmund Wilkinson - Chair of the Company and of the
Nomination Committee
Charles Wilkinson is a solicitor who retired from Lawrence
Graham LLP in March 2005. While at Lawrence Graham he specialised
in corporate finance and commercial law, latterly concentrating on
investment trust and fund work.
Charles is Chair of Doric Nimrod Air One Limited and a director
of Doric Nimrod Air Two Limited. Charles is also a director of
Landore Resources Ltd, a Guernsey based mining exploration company.
He is resident in Guernsey.
Geoffrey Alan Hall - Chair of the AR Committee
Geoffrey Hall has extensive experience in asset management,
having previously been Chief Investment Officer of Allianz
Insurance plc, a major UK general insurance company and an
investment manager at HSBC Asset Management, County Investment
Management, and British Railways Pension Funds. Geoffrey is also a
director and Chair of the Audit and Risk Committee of Doric Nimrod
Air One Limited and Chair of Doric Nimrod Air Two Limited.
Geoffrey earned his master's degree in Geography at the
University of London and is an associate of the CFA Society of the
UK. He is resident in the United Kingdom.
Suzanne Elaine Procter- SID
Suzie Procter brings over 39 years' experience in financial
markets, with specific expertise in asset management. She was
previously a non-executive director of TR Property Investment Trust
plc, an investment company listed on the FTSE 250 index. Her
executive roles included Partner and member of the Executive
Management Committee at Cantillon Capital Management LLC, Managing
Director of Lazard Asset Management, Head of Institutional Sales at
INVESCO Asset Management, Director and Head of Fixed Income
Business at Pictet International Management Ltd and Head of Fixed
Income at Midland Montagu Asset Management.
Suzie is also the SID of Doric Nimrod Air One Limited and Doric
Nimrod Air Two Limited. She is resident in the United Kingdom.
Andreas Josef Tautscher - Chair of the Management Engagement
Committee
Andreas Tautscher brings over 32 years' financial services
experience. He serves as a non-executive director and member of the
Audit Committee of BH Global Limited, a Guernsey closed-ended
investment company whose shares are traded on the Main Market of
the London Stock Exchange. He is also a director and Chair of
Arolla Partners , an independent director services business in the
Channel Islands. From 1994 to 2018 Andreas held various roles at
Deutsche Bank and was most recently CEO of the Channel Islands and
Head of Financial Intermediaries for EMEA. He was previously a
non-executive director of the Virgin Group. Andreas qualified as a
Chartered Accountant in 1994.
Andreas is also Chair of the Audit and Risk Committee of Doric
Nimrod Air Two Limited, Chair of the Management Engagement
Committee of Doric Nimrod Air One Limited and Doric Nimrod Air Two
Limited, and a director of Doric Nimrod Air One Limited. He is
resident in Guernsey.
SERVICE PROVIDERS
Management and the Delegation of Functions
The directors, whose details are set out on page 18 are
responsible for reviewing the business affairs of the Group in
accordance with the Articles and have overall responsibility for
the Group's activities including all business decisions, review of
performance and authorisation of distributions. The Company has
delegated management of the Group's Aircraft to Amedeo, which is a
company incorporated in Ireland. Further details are outlined below
under the heading Asset Manager. The directors delegate secretarial
and administrative functions to JTC which is a company incorporated
in Guernsey and licenced by the GFSC for the provision of
administration services. The registrar function is delegated to the
Registrar, which is licensed and regulated by the GFSC.
Asset Manager and Lease and Debt Arranger
Amedeo has been appointed by the Company to provide asset
management services to the Group. Pursuant to the Asset Management
Agreement, Amedeo will: (i) monitor Emirates' and any subsequent
lessees' performance of its obligations under the respective
operating Leases and any subsequent lease respectively (which shall
include the obligations relating to the maintenance of insurance
cover); (ii) provide the Group with information regarding
alternatives with respect to any potential sale or re-lease of the
Assets; (iii) carry out mid-lease inspections of the Assets; (iv)
provide the Group with asset monitoring reports describing the
state and any material changes to the state of the Assets; and (v)
liaise, as and when necessary, with lenders, on all matters
relating to the loans, as required. Amedeo has further undertaken
that it will dedicate sufficient time and resources as it
reasonably believes is required from time to time to fulfil any
contractual arrangements it enters into with the Company.
Amedeo has also been appointed by the Company, pursuant to the
Agency Agreement, to assist the Group, and act as the Group's
agent, in relation to the arrangement, negotiation, review,
approval, execution and management on behalf of the Group of the
acquisition of the Assets, the borrowings of the Group relating to
the acquisition of the Assets, and the operating Leases. Amedeo is
a subsidiary of Amedeo Capital Limited, a Cayman company engaged in
the business of aircraft operating leasing and management.
Amedeo Services (UK) Limited has been appointed by the Group,
pursuant to the Liaison Services Agreement, to: (i) coordinate the
provision of services by Amedeo to the Group under the Asset
Management Agreement and the Agency Agreement, as relevant; and
(ii) facilitate communication between the Group and Amedeo. Amedeo
Services (UK) Limited is authorised by the FCA and is part of the
Amedeo Group of companies.
Amedeo is a leading aircraft asset manager and principal
investor in leasing transactions to customer airlines globally. The
aircraft portfolio currently managed by the Amedeo Group, includes
39 aircraft under management and an additional 8 aircraft under
oversight. The volume of assets under management is c. $7 billion,
which include commercial airliners including A380, A350, A330 and
Boeing 777 and 747-F. Amedeo is a member of the ISTAT.
Corporate and Shareholder Adviser
Nimrod, which is authorised by the FCA has been appointed as the
Corporate and Shareholder Adviser by the Company.
Nimrod was founded in 2008 as an independent organisation which
specialises in generating and sourcing interesting investment
funds, themes and solutions managed by experts in their fields for
the professional investor marketplace. It has launched nine listed
investment companies since its formation and it also provides
investment, marketing, distribution and advisory services to
investment companies and their boards and managers.
Secretary & Administrator
JTC is an independent provider of institutional and private
client services to clients in numerous jurisdictions and is a
member of the JTC Group. For further information about the JTC
Group, please visit www.jtcgroup.com.
JTC is a Guernsey incorporated company and provides
administration and secretarial services to the Group pursuant to an
Administration and Secretarial Agreement. In such capacity, JTC is
responsible for the general secretarial functions required by the
Law and assists the Group in its compliance with its continuing
legal and regulatory obligations, as well as providing advice on
good corporate governance and best practice for a publicly traded
company.
JTC is also responsible for the Group's general administrative
functions and for the preparation of unaudited half-yearly and
audited annual financial reports, subject to the direction and
oversight of the Board.
Registrar
The Registrar, is the Company's CREST compliant registrar. The
Registrar is responsible for the maintenance of the Company's Share
register and for the processing of dividend payments and stock
transfers. The Registrar is licensed and regulated by the GFSC and
further information about Registrar may be found at
www.jtcgroup.com.
Review
The Board keeps under review the performance of the Asset
Manager, Corporate and Shareholder Adviser, Secretary,
Administrator and the Registrar and the powers delegated to each
service provider. In the opinion of the Board, the continuing
appointments of the service providers on the terms agreed are in
the interests of the Company's Shareholders as a whole.
A full list of the Company's service providers is set out on
page 91.
MANAGEMENT REPORT
A description of important events which have occurred during the
financial year under review, their impact on the performance of the
Group as shown in the consolidated financial statements and a
description of the principal risks and uncertainties facing the
Group are given in the Chair's Statement, Asset Manager's Report,
Statement of Principal Risks and the notes to the consolidated
financial statements contained on pages 64 to 90 and are
incorporated here by reference.
Principal Risks and Uncertainties
The Board has undertaken a robust assessment of the principal
risks facing the Group and have undertaken a detailed review of the
effectiveness of the risk management and internal control systems.
The Board is comfortable that the risks are being appropriately
monitored on a regular basis.
The risks set out below are those which are considered to be the
material risks relating to an investment in the Shares but are not
the only risks relating to the Shares or the Group. Additional
risks and uncertainties of which the Group is presently unaware or
that the Group currently believes are immaterial may also adversely
affect its business, financial condition, results of operations or
the value of the Shares.
The principal risks associated with the Group are:
-- Operational risk: The Board is ultimately responsible for all
operational facets of performance including cash management, asset
management, regulatory and listing obligations. The Group has no
employees and so enters into a series of contracts/legal agreements
with a series of service providers to ensure both operational
performance and the regulatory obligations are met. This risk has
been mitigated by the Group using well established, reputable and
experienced service providers and assessing service providers'
continued appointment on at least an annual basis.
-- Investment risk: There are a number of risks associated with
the Group's Assets in relation to the occurrence of technical
faults with the Assets or actions by third parties causing both
damage to the Assets and also damaging the demand for global air
travel. This risk has been mitigated by the Lessee's contractual
responsibility to insure, repair and maintain the Aircraft for the
duration of the Leases.
-- Borrowings and financing risk: There is a risk that the Group
is exposed to fluctuations in market interest rates and foreign
exchange rates. This risk has been mitigated by ensuring that debt
repayments are made from lease rental revenues received in the
matching currency and by fixing the interest rates on debt and
lease rentals.
-- Credit risk: Emirates is the sole lessee of the Assets and is
headquartered in the Middle East. Should Emirates default on the
rental payments due to domestic events, events in the wider airline
industry or other reasons it is unlikely the Company will be able
to meet its targeted dividends or, in the case of ongoing default,
continue as a going concern. The risk of default is potentially
mitigated by the ability of the Group to sell or re-lease the
Assets in the event of a single default. However, this could be
impacted by market conditions at the time.
-- Secondary market risk: There is a risk that the Group would
not be able to achieve the projected resale value of the Assets due
to changes in demand for second hand aircraft of the type owned by
the Group. The Board monitors and revises the residual value of the
Aircraft on an annual basis.
-- Regulatory risk: The Group is required to comply with the
DGTRs of the FCA and the requirements imposed by the Law and the
GFSC. Any failure to comply could lead to criminal or civil
proceedings. Although responsibility ultimately lies with the
Board, the Secretary also monitors compliance with regulatory
requirements.
-- Valuation risk : There is a risk that the useful life or
residual value used in determining depreciation are not appropriate
or accurately calculated. The Board assess, based on the latest
forecast valuations, particularly in light of COVID-19, whether the
selected residual values remains as an appropriate basis of
valuation and with consideration to the range of estimates provided
by the external valuers. The Group has a robust audit process to
ensure that valuations accurately reflect the requirements of
IFRS.
-- Global Pandemic: The emergence of a global pandemic has had a
profound and negative impact on the operations and performance of
the Group and may directly or indirectly affect some of the other
risks mentioned in this table. The Board and its key service
providers all act to the best of their abilities to protect the
welfare of the various teams involved in the affairs of the Group
to ensure operations are maintained to the extent possible and to
protect and support the Assets of the Group for as long as is
required . Please refer to the Chair's Statement, the Asset
Manager's Report and the going concern statement below for more
information on how the Group is being affected by COVID-19.
Data Protection
The Company has implemented measures designed to ensure its
compliance with the EU General Data Protection Regulation (EU)
2016/679 and associated legislation in Guernsey. The Company has
also issued a privacy notice explaining the data it holds, how the
data is processed and its procedures for processing this data. This
notice is available for review and download at the Company's
website.
Going Concern
The Group's principal activities are set out within the Company
Overview on pages 7 to 8. The financial position of the Group is
set out on page 61. In addition, note 20 to the consolidated
financial statements includes the Group's objectives, policies and
processes for managing its capital, its financial risk management
objectives and its exposures to credit risk and liquidity risk.
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Group's aircraft values
and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the
global economy and it remains possible that the Group's future
performance could be impacted in this prolonged period of
uncertainty. In many jurisdictions restrictions on the ability of
people to travel still adversely affect the airline sector, and by
extension the aircraft leasing sector. The risk therefore remains
that some airlines may not be able to pay rent as it falls due. The
impact of this Pandemic on the aviation industry has been
significant with a large part of the global passenger aircraft
fleet temporarily grounded. These factors, together with wider
economic uncertainty and disruption, have had an adverse impact on
the future value of the Aircraft owned by the Group, and could also
negatively impact the sale, re-lease, refinancing or other
disposition of the relevant Aircraft.
Given the prolonged impact of the Pandemic, increased Lessee
counterparty credit risk remains in existence and there could be
requests for Lease rental deferrals. Reduced rents receivable under
the Leases may not be sufficient to meet the fixed Loan or
equipment note interest and regular repayments of debt scheduled
during the life of each Loan and may not provide surplus income to
pay for the Group's expenses and permit the declaration of
dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
The directors consider that the going concern basis of
accounting remains appropriate. Based on current information the
directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, although the risk to this is clearly higher compared to a
pre-COVID-19 environment.
Whilst there is some uncertainty as to the airline industry in
general, and specifically Emirates' financial position and credit
risk profile, on the basis that (i) Emirates has shown no intention
of failing to meet its obligations (ii) Emirates has the financial
backing to continue paying these rentals, the directors believe
that it is appropriate to prepare these financial statements under
the going concern basis of preparation.
The directors have considered Emirates' ability to continue
paying the Lease rentals over the next 12 months and are satisfied
that the Group can meet its liabilities as they fall due over this
period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement
below.
Viability Statement
In accordance with Provision 31 of the Code, the directors of
the Company have considered the prospects of the Group over the
period from present until the liquidation resolution is put to
Shareholders six months before the last Lease is due to terminate
in 2025, a period of four years. In choosing the period of
viability for the Group the Board has considered the prospect of
Emirates performing their obligations until the end of their
Leases.
The Board, in assessing the viability of the Group, has paid
particular attention to the principal risks faced by the Company as
disclosed in the Management Report and the notes to the
consolidated financial statements, reviewing on an ongoing basis
the risks faced and ensuring that any mitigation measures in place
are functioning correctly.
In addition, the Board has considered a detailed cash flow
projection for the running costs of the Group and has assumed that
Emirates is a going concern. The Board believes that it is
reasonable to assume as of the date of the approval of the annual
financial report that Emirates will continue with the contracted
lease rental payments due to the following:
- Emirates continues to be a going concern as at the date of the
Lessee's latest signed annual financial report for the financial
year ended on March 31, 2021.
- Challenged by an unprecedented drop in passenger air travel
during 2020, the Lessee reacted quickly and temporarily adjusted
its business model with a particular focus on air cargo services.
The high pandemic-driven demand in this space helped the Lessee to
contain its losses in the passenger segment.
- Although Emirates concluded its last financial year with the
first net loss in more than 30 years and refunded already paid
tickets in the amount of US$ 2.3 billion, it still has a
substantial cash position, which also benefited from the support of
its ultimate shareholder.
- Emirates confirmed to have access to the capital markets and
was able already able to secure committed offers for the financing
of two upcoming aircraft deliveries.
- The Government of Dubai has injected capital in the combined
amount of US$3.1 billion into Emirates so far, since the Pandemic
brought global air travel to a near halt. It previously had
publicly confirmed that they will financially support Emirates
during this period.
- Emirates' listed debt and CDS's are trading at non-distressed
levels, indicating the trust capital markets have in Emirates.
- As of the date of the annual financial report, the Board is
not aware of a formal request to the Group for a lease payment
deferral or any other efforts that would result in the
restructuring of the existing transaction.
- Emirates has paid all the lease rentals to the Group in a timely manner.
- if end of lease negotiations with Emirates have not been
concluded by the end of the terms of each current Lease, the Lease
rentals due under the existing agreements must continue to be
paid.
The Group retains sufficient cash to cover the forecast
operating costs of the Group until the termination date of the
Leases in 2025, assuming receipt of planned rental income.
The directors believe that their assessment of the viability of
the Company over the period chosen was sufficiently robust and
encompassed the risks which would threaten the business model,
future performance, solvency or liquidity of the Company.
As a result of their review, the directors of the Group have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due until the
Leases are due to terminate in 2025.
Responsibility Statement
The directors jointly and severally confirm that to the best of
their knowledge:
(a) the financial statements, prepared in accordance with IFRS
give a true and fair view of the assets, liabilities, financial
position and profits of the Group and performance of the Group;
(b) this Management Report includes or incorporates by reference
a fair review of the development and performance of the business
and the position of the Group, together with a description of the
principal risks and uncertainties that it faces; and
(c) the annual report taken as a whole is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group's position, performance, business
model and strategy.
Charles Wilkinson Geoffrey Hall
Chair Director
2 August 2021
DIRECTORS' REPORT
The directors present their annual report and audited financial
statements of the Group for the financial year ended 31 March
2021.
Principal Activities and Business Review
The principal activity of the Group is to acquire, lease and
then sell aircraft. The directors do not envisage any change in
these activities for the foreseeable future. A description of the
activities of the Group in the year under review is given in the
Chair's Statement and the Asset Manager's Report respectively on
pages 9 to 11 and 12 to 17.
Status
The Company is a Guernsey domiciled company the Shares of which
are admitted to trading on the SFS. Its registered number is 54908.
The Company operates in accordance with the Law.
Results and Dividends
The results of the Group for the financial year are set out on
page 60.
The Company declared dividends during the financial year under
review as follows:
Quarter End Announcement Date Payment Date Dividend per Share
(pence)
31 March 2020 16 April 2020 30 April 2020 2.0625
------------------- ----------------- -------------------
30 June 2020 16 July 2020 31 July 2020 2.0625
------------------- ----------------- -------------------
30 September 2020 15 October 2020 30 October 2020 2.0625
------------------- ----------------- -------------------
31 December 2020 14 January 2021 29 January 2021 2.0625
------------------- ----------------- -------------------
The Company declared the following dividends after the financial
year end:
Announcement Date Payment Date Dividend per Share (pence)
14 April 2021 30 April 2021 2.0625
------------------------ ---------------------------
30 July 2021 (expected
15 July 2021 payment date) 2.0625
------------------------ ---------------------------
The Company aims to continue to pay quarterly dividends of
2.0625 pence per Share, in line with the distribution policy. There
is no guarantee that any future dividends will be paid.
Directors
The directors in office are shown on page 18 and all directors
remain in office as at the date of signing of these financial
statements. Further details of the directors' responsibilities are
given on page 25.
No director has a contract of service with the Company, nor are
any such contracts proposed.
The following interests in Shares of the Company are held by
persons discharging directorial responsibility and their persons
closely associated:
Number of Shares held Number of Shares held
as at 31 March 2021 as at 30 July 2021
Charles Wilkinson 150,000 150,000
Geoffrey Hall 90,000 90,000
Suzie Procter 35,756 35,756
Andreas Tautscher 16,279 16,279
Other than the above shareholdings, none of the directors nor
any persons connected with them had a material interest in any of
the Company's transactions, arrangements or agreements during the
year and none of the directors has or has had any interest in any
transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was effected
by the Company during the reporting year.
At the financial year end and as at the date of this report,
there are no outstanding loans or guarantees between the Company
and any director.
There were no material related party transactions which took
place in the financial period, other than those disclosed in the
Directors' Report and at note 23 to the financial statements.
Substantial Controllers of Voting Rights
The Company has identified the following substantial controlling
interests in voting rights attached to the Company's issued Share
capital in accordance with Chapter 5 of the DGTRs. These are based
on notifications made to the Company since inception and may differ
substantially from positions recorded on the Company's Share
register.
There have been no material changes in the below list of
substantial controlling interests between the end of the year under
review and 30 July 2021, being the latest practicable date prior to
the date of approval of this report.
Name % of Total Number of Shares
Voting Rights
Nortrust Nominees Limited 12.87% 28,305,000
State Street Nominees Limited 9.11% 20,040.008
Schroders plc 5.80% 12,767,100
Seneca IM Limited 5.58% 12,279,500
Quilter Cheviot Limited 5.09% 11,207,020
FIL Limited 5.01% 11,026,443
Corporate Governance
Statement of Compliance with the Code, as published in July
2018
As a Guernsey incorporated company and under the DGTRs, the
Company was not, for the year under review, required to comply with
the Code. The Company has, however, voluntarily committed to comply
with the Code or explain any departure. A copy of the Code is
available for download from the FRC's web-site ( www.frc.org.uk
).
Having reviewed the Code, the Board considers that it has
maintained procedures during the year to ensure that it has
complied with the Code, other than the following exceptions:
(i) Provisions 2: The board should assess and monitor culture.
Provision 5: The board should understand the views of the
company's other key stakeholders and describe in the annual report
how their interests and the matters set out in section 172 of the
Companies Act 2006 have been considered in board discussions and
decision-making. The board should keep engagement mechanisms under
review so that they remain effective.
For engagement with the workforce, one or a combination of the
following methods should be used:
-- a director appointed from the workforce;
-- a formal workforce advisory panel;
-- a designated non-executive director.
Provision 6: There should be a means for the workforce to raise
concerns in confidence and - if they wish - anonymously.
Company Response: the Company does not have any employees and
therefore does not assess and monitor culture or engage with the
workforce;
(ii) Provision 10: The board should identify in the annual
report each non-executive director it considers to be independent.
Circumstances which are likely to impair, or could appear to
impair, a non-executive director's independence include, but are
not limited to, whether a director:
-- has, or has had within the last three years, a material
business relationship with the company, either directly or as a
partner, shareholder, director or senior employee of a body that
has such a relationship with the company;
-- holds cross-directorships or has significant links with other
directors through involvement in other companies or bodies;
-- has served on the board for more than nine years from the date of their first appointment.
Where any of these or other relevant circumstances apply, and
the board nonetheless considers that the non-executive director is
independent, a clear explanation should be provided.
Provision 19: The chair should not remain in post beyond nine
years from the date of their first appointment to the board. To
facilitate effective succession planning and the development of a
diverse board, this period can be extended for a limited time,
particularly in those cases where the chair was an existing
non-executive director on appointment. A clear explanation should
be provided.
Company Response: on appointment, the Chair was Chair of Doric
Nimrod Air One Limited and a director of Doric Nimrod Air Two
Limited. The Board considers the directors to be independent. The
directors of the Company are also directors of other DNA Companies
and therefore the Board has implemented measures to manage any
conflicts which might arise as a result of these appointments. The
Chair and one other director have been on the Board since
incorporation of the Company in March 2012. The Group's Assets each
have a fixed Lease term of 12 years ending at different times and
as such the Board remain of the opinion that continuity is
important in the final years of the Company's life;
(iii) Provision 9: The chair should be independent on
appointment when assessed against the circumstances set out in
Provision 10. The roles of chair and chief executive should not be
exercised by the same individual.
Company Response: there is no chief executive;
(iv) Provision 20: Open advertising and / or an external search
consultancy should generally be used for the appointment of the
chair and non-executive directors. If an external search
consultancy is engaged it should be identified in the annual report
alongside a statement about any other connection it has with the
company or individual directors.
Company Response: due to the specific nature of the Company, it
has thus far used industry contacts to identify a list of suitable
candidates and undertakes a rigorous interview process;
(v) Provision 13: Non-executive directors have a prime role in
appointing and removing executive directors. Non-executive
directors should scrutinise and hold to account the performance of
management and individual executive directors against agreed
performance objectives. The chair should hold meetings with the
non-executive directors without the executive directors
present.
Provision 32: The board should establish a remuneration
committee of independent non-executive directors, with a minimum
membership of three, or in the case of smaller companies [i.e. not
in the FTSE 350], two.
Provision 33: The remuneration committee should have delegated
responsibility for determining the policy for executive director
remuneration and setting remuneration for the chair, executive
directors and senior management.
Provision 35: Where a remuneration consultant is appointed, this
should be the responsibility of the remuneration committee.
Provision 41: There should be a description of the work of the
remuneration committee in the annual report.
Company Response: the Company has no executive directors, senior
management or employees. It does not have a remuneration committee
given the small size of the exclusively non-executive and
independent board. Remuneration provision is set out in this
Directors' Report.
Board Evaluation
The Board is committed to ensuring that on an annual basis the
strengths of the Board are recognised and any weaknesses are
addressed. Each director has undertaken to engage with the
evaluation process and take appropriate action when development
needs have been identified. An external facilitation of the
performance evaluation is considered by the Chair of the Nomination
Committee on an annual basis.
For the financial year under review, the Nomination Committee
agreed that an external facilitation of the performance evaluation
required by provision 21 of the Code was not required and instead
the evaluation was performed by the Nomination Committee.
Directors were asked to complete individual questionnaires on
the performance of the Board and its committees on an anonymous
basis and the completed questionnaires were considered at a meeting
of the Nomination Committee. At the conclusion of its evaluation,
the Nomination Committee made minor suggestions for improvements
and also concluded that the Board generally operated well within
its compact size.
Board Responsibilities
The Board comprises four directors, and their biographies appear
on page 18 demonstrating the wide range of skills and experience
they each bring to the Board. All the directors are non-executive
and independent, with Charles Wilkinson acting as Chair and Suzie
Procter acting as SID.
The Nomination Committee regularly reviews the balance,
knowledge and effectiveness of the Board, to identify if any
additional experience or skills are needed and to ensure that the
current directors have sufficient available time to undertake the
tasks required and remain independent. The directors are able and
encouraged to provide statements to the Board of their concerns and
ensure that any items of concern are recorded in the Board minutes.
When undertaking a search for a new director the Board would be
mindful of diversity and meritocracy.
The other significant commitments of the current Chair are
detailed in his biography on page 18. The Board was satisfied
during the year and remains satisfied that the Chair's other
commitments do not interfere with the day-to-day performance of his
duties to the Company and that he has the commitment and time to
make himself available at short notice should the need arise.
In accordance with the Articles the directors shall determine
the directors' fees payable provided that the aggregate amount of
such fees paid in respect of services rendered to the Company shall
not exceed GBP150,000 per annum. All directors receive an annual
fee and there are no share options or other performance related
benefits available to them. All directors are currently paid a fee
of GBP23,000 per annum. The Chair is paid an additional fee of
GBP6,000 per annum and the chair of the AR Committee is entitled to
be paid an additional GBP4,000 per annum. The terms and conditions
of appointment of non-executive directors are available for
inspection at the Company's registered office by prior arrangement
with the Company's Secretary.
T he Board usually meets in Guernsey at least four times per
year to consider the business and affairs of the Company, at which
meetings the directors review the Group's assets and all other
important issues to ensure control is maintained. Due to travel
restrictions imposed as a result of COVID-19 the UK resident
directors have been unable to travel to Guernsey. However, the
Board continues to operate effectively utilising both telephone and
video conferencing to maintain contact with each other and with
their advisors and auditors. The directors hold a Dividend
Committee meeting in Guernsey each quarter to consider and, if
thought suitable, approve the payment of a dividend in accordance
with the Company's distribution policy.
Between these regular meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. Additionally the directors may hold
strategy meetings with its relevant advisors as appropriate.
The directors are kept fully informed by the Asset Manager and
Secretary of all matters that are relevant to the business of the
Group and should be brought to the attention of the directors and /
or the Shareholders. All directors have direct access to the
Secretary who is responsible for ensuring that Board procedures are
followed and that there are effective information flows both within
the Board and between the committees and the Board.
The directors also have access to the advice and services of the
Asset Manager and Corporate and Shareholder Adviser and may also,
in the furtherance of their duties, take independent professional
advice at the Company's expense.
During the year the number of full Board meetings and committee
meetings attended by the directors was as follows:
Director Board Meetings Audit and Risk Nomination Management Dividend
Committee Meetings Committee Engagement Committee
Meetings Committee Meetings***
meetings
Charles Wilkinson 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
Geoffrey 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
Hall
--------------- -------------------- ----------- ------------ -------------
Suzie Procter 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
Andreas Tautscher 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
*** refer to page 32 for the composition and function of the
Dividend Committee.
Audit and Risk Committee
Mr Hall, Mr Tautscher and Miss Procter are all members of the AR
Committee, with Mr Hall acting as Chair. The AR Committee has
regard to the Guidance on Audit and Risk Committees published by
the FRC in September 2012 and as updated in April 2016. The AR
Committee examines the effectiveness of the Group's and its service
providers' internal control systems as appropriate, the annual and
half-yearly reports and financial statements, the auditor's
remuneration and engagement, as well as the auditor's independence
and any non-audit services provided by them.
The FRC published updated Ethical and Auditing Standards in
December 2019, which further restrict the provision of non-audit
services by audit firms to their clients. The previous list of
prohibited non-audit services list has been replaced with a short
list of permitted services. Auditors of PIES can now only provide
non-audit services which are closely linked to the audit itself or
are required by law or regulation. Also, whereas PIES were
previously limited to those entities incorporated in the EU, the
FRC now defines PIES as all issuers whose transferable securities
have been admitted to trading on a UK regulated market, which
includes the London Stock Exchange but not AIM . The Crown
Dependency rules were also changed so that Market Traded Companies
incorporated in the Crown Dependencies are also included in this
requirement.
The AR Committee considers the nature, scope and results of the
auditor's work and reviews annually prior to providing a
recommendation to the Board on the re-appointment or removal of the
auditor. When evaluating the external auditor the AR Committee has
regard to a variety of criteria including industry experience,
independence, reasonableness of audit plan, ability to deliver
constructive criticism, effectiveness of communication with Board
and the Group's service providers, quality control procedures,
effectiveness of audit process and added value beyond assurance in
audit opinion.
Auditor independence is maintained through limiting non-audit
services to specific audit-related work that falls within defined
categories. All engagements with the auditor are subject to
pre-approval from the AR Committee and fully disclosed within the
annual financial report for the relevant period. A new lead audit
partner is appointed every five years and the AR Committee ensures
the auditor has appropriate internal mechanisms in place to ensure
its independence.
The AR Committee usually meets in Guernsey at least twice per
year, shortly before the Board meets to consider the Group's
half-yearly and annual financial reports, and reports to the Board
with its deliberations and recommendations and also holds annual
planning and final meetings with the auditor. In addition the Board
also meets during the audit process with the auditors to discuss
issues relating to the residual values of the Assets. The AR
Committee operates within clearly defined terms of reference based
on the Institute of Chartered Secretaries and Administrators
recommended terms and provides a forum through which the Group's
external auditor report to the Board.
The AR Committee can request information from the Group's
service providers with the majority of information being directly
sourced from the Asset Manager, the Secretary, the Administrator
and the external auditor. The terms of reference of the AR
Committee are available on the Company's website and on request
from the Secretary.
Each year the Board examines the AR Committee's performance and
effectiveness and ensures that its tasks and processes remain
appropriate. Key areas covered included the clarity of the AR
Committee's role and responsibilities, the balance of skills among
its members and the effectiveness of reporting its work to the
Board. The Board is satisfied that all members of the AR Committee
have relevant financial experience and knowledge and ensure that
such knowledge remains up to date. Overall the Board considers that
the AR Committee has the right composition in terms of expertise
and has effectively undertaken its activities and reported them to
the Board during the year under review.
During the financial year the AR Committee met six times. The AR
Committee considered the annual financial report for the year ended
31 March 2020 and the half-yearly financial report for the period
ended 30 September 2020. The AR Committee also met in January 2021,
with the external auditor in attendance, to approve the 2021 audit
plan. The AR Committee also undertook a review of the Company's
auditor during the year.
Dividend Committee
The Dividend Committee consists of any one or more director, who
has been given full power and authority to consider and, if thought
suitable, declare and approve the payment of a dividend in
accordance with the Company's distribution policy, provided all
directors had been provided with prior notice of the proposal to
declare each dividend and no director had raised any objection to
the declaration of each dividend.
Nomination Committee
The Nomination Committee consists of all directors of the
Company, with Mr Wilkinson acting as Chair of the committee, except
when the Nomination Committee considers any matter in relation to
the chairmanship of the Company, in which case an alternative chair
would be appointed.
The functions of the Nomination Committee include to regularly
review the structure, size and composition (including the skills,
knowledge, experience, diversity and how effectively members work
together to achieve objectives) of the Board and make
recommendations to the Board with regard to any changes, and to
perform a formal and rigorous performance evaluation of the Board,
its committees, the chair and individual directors, including the
consideration of having a regular externally facilitated Board
evaluation.
During the financial year the Nomination Committee met twice, to
consider the appointment of a SID and to undertake the annual
performance evaluation of the Board and its committees.
Management Engagement Committee
The Management Engagement Committee was established on 15
October 2020 and consists of all directors of the Company, with
Andreas Tautscher acting as Chair. The Management Engagement
Committee meets at least once a year and the principal duties of
the Management Engagement Committee are to review the terms of the
agreements between the Company and its key service providers to
ensure that they are competitive, fair and reasonable for
Shareholders, to review and make recommendations on any proposed
amendment or material breach of those agreements and to monitor and
evaluate the performance of the key service providers including the
on-going suitability of the key service providers to provide advice
to the Company .
During the financial year the Management Engagement Committee
met once, to perform a review of the Company's service providers
.
Internal Control and Financial Reporting
The Board is responsible for the Group's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an on-going process for identifying, evaluating and
monitoring the significant risks faced by the Group.
The internal control systems are designed to meet the Group's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against misstatement and loss.
The Board on an annual basis conducts a full review of the
Group's risk management systems including consideration of a risk
matrix which covers various areas of risk including corporate
strategy, accuracy of published information, compliance with laws
and regulations, relationships with service providers and business
activities.
Asset management services are provided to the Company by Amedeo.
Corporate and shareholder advisory services are provided to the
Company by Nimrod. Administration and secretarial duties for the
Group are performed by JTC.
The Board clearly defines the duties and responsibilities of
their agents and advisors. The appointment of agents and advisers
is conducted by the Board after consideration of the quality of the
parties involved and the Board monitors their on-going performance
and contractual arrangements. The Board also specifies which
matters are reserved for a decision by the Board and which matters
may be delegated to its agents and advisers.
Management of Conflicts of Interest
The Company has adopted a formal conflict of interest policy and
is committed to ensuring that all directors and service providers
facilitate the Company conducting its business in a manner that is
consistent with its reputation, conducive to maintaining high
standard of integrity in all its business dealings, in the best
interests of the Company's Shareholders.
The Board considers the directors conflicts of interest at each
Board meeting by reviewing a schedule of each directors other
directorships and other interests held. Each director is required
to notify the Secretary of any potential, or actual, conflict
situations that would need to be considered by the Board.
No director has a service contract with the Company, although
directors are issued with letters of appointment, nor did any
director have any interest in contracts with the Company during the
financial year under review, or subsequently.
Anti Bribery Policy
The directors have undertaken to operate the business in an
honest and ethical manner and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this
approach are implemented as follows:
-- The Board is committed to acting professionally, fairly and
with integrity in all its business dealings and relationships.
-- The Group has implemented and enforces effective procedures to counter bribery.
-- The Group requires all its service providers and advisors to
adopt equivalent or similar principles.
Dialogue with Shareholders
All holders of Shares in the Company have the right to receive
notice of, and attend, the general meetings of the Company, during
which members of the Board will be available to discuss issues
affecting the Group.
The primary responsibility for shareholder relations lies with
the Company's Corporate and Shareholder Adviser. The Corporate and
Shareholder Adviser regularly meets with Shareholders to discuss
the Company and seek feedback. The views of Shareholders are
discussed by the Board at every Board meeting, and action would be
taken to address any shareholder concerns. The Company provides
regular updates to Shareholders through the annual and half-yearly
financial reports and quarterly factsheets.
In addition the directors are available to enter into dialogue
with Shareholders and the Chair is willing to meet Shareholders as
the Company believes such communication to be important. The
Company's directors can be contacted at the Company's registered
office or via the Secretary.
Stakeholders and Section 172
The Code requires that the Company should understand the views
of the Company's key stakeholders and describe in the annual report
how their interests and the matters set out in section 172 of the
UK's Companies Act 2006 have been considered in Board discussions
and decision-making. Section 172 is not strictly applicable as this
is a Guernsey company. However, its application is being considered
as part of the Code requirements.
The Company has no employees and all of the directors are
non-executive, so the Board considers that its key stakeholders are
its Shareholders, its service providers, society, the government
and regulators.
The Board's engagement with Shareholders is described in the
"Dialogue with Shareholders" section above . All Shareholders are
treated equally and no Shareholder receives preferential treatment.
When making decisions of relevance to Shareholders, the Board
considers first and foremost the likely consequences of their
decisions in light of their duty to act in the best interests of
the Company. The Board also considers what is likely to be in the
best interests of Shareholders as a whole, but does not consider
individual Shareholders' specific circumstances or desires when
making its decisions.
In addition to the regular reporting provided by key service
providers, the Management Engagement undertakes a review of the
performance of these key service providers on an annual basis. The
services provided by the key third party service providers are
critical to the ongoing operational performance of the Company. The
Board believes that fostering constructive and collaborative
relationships with the Company's service providers will assist in
their promotion of the success of the Company for the benefit of
all Shareholders.
As described in detail in the Company's viability statement, the
Board considers the prospects of the Company for at least the next
four years whenever it considers the Company's long-term
sustainability. All strategic decisions are therefore taken with
the success of the Company in mind and the Board would take
external advice whenever it considered that such would be
beneficial to its decision making process, primarily from its
retained service providers (including legal counsel), but also from
other external consultants.
The Board recognises that responsible investment and the
associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying
investment opportunities and long-term value creation for
Shareholders. Please see more information regarding ESG in the
report on pages 36 to 49.
The Board ascribes to the highest standards of business conduct
and has policies in place to ensure compliance with all applicable
laws and regulations. In addition to the monitoring of the
Company's compliance with its own obligations, the Board also
monitors compliance by its service providers with their own
obligations. The Board encourages openness and transparency and
promotes proactive compliance with new regulation .
Statement of Directors' Responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable Guernsey
law and regulations. Under the Law the directors are required to
prepare financial statements for each financial year. The directors
have chosen to prepare the Group financial statements in accordance
with IFRS.
Under the Law the directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and of the profit or loss of the Group for
that period.
In preparing these financial statements, International
Accounting Standard 1 requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements comply with the Law. They are also responsible
for safeguarding the assets of the Group and for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Disclosure of Information to the Auditor
The directors who held office at the date of approval of this
Directors' Report confirm in accordance with the provisions of
Section 249 of the Law that, so far as they are each aware, there
is no relevant audit information of which the Group's auditor is
unaware; and each director has taken all the steps that they ought
to have taken as a director to make themselves aware of any
relevant audit information and to establish that the Group's
auditor is aware of that information.
Auditor
During the period the AR Committee undertook an audit tender
process as an exercise of good corporate governance procedures, on
the basis that Deloitte have been in situ as Auditors of the Group
8 years. As a result, it is expected that Deloitte will resign and
Grant Thornton Limited will be appointed as external auditor by the
Board, both with effect from 2 August 2021. A resolution proposing
Grant Thornton Limited's reappointment will be submitted at the
forthcoming annual general meeting to be held pursuant to section
199 of the Law.
Charles Wilkinson Geoffrey Hall
Chair Director
Signed on behalf of the Board
on 2 August 2021
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
The Board recognises that responsible investment and the
associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying
investment opportunities and long-term value creation for
Shareholders. This report sets out our policy and approach to
ensuring that the level of engagement on ESG matters is
commensurate to the size, nature and complexity of the
business.
This policy seeks to address ESG matters on two levels; firstly,
with regard to the Company itself and secondly, in relation to the
Assets which the Group owns. The direct and practical management of
the Company seeks to uphold ESG standards where possible and
applicable. This is greatly influenced by the nature of the Group's
activities and the legal structure of the associated Leases.
The Company
The Company is a self-managed Guernsey company incorporated on
29 March 2012. Its Shares were admitted to trading on the SFS on 2
July 2013.
The Company is under the control of its Board of directors on
behalf of Shareholders. All directors are independent and
non-executive. The Board are responsible for reviewing the business
affairs of the Company in accordance with the Articles and have
overall responsibility for the Company's activities including all
business decisions, review of performance and authorisation of
distributions.
The Company has delegated the following activities to its
appointed service providers;
-- Asset Management - Amedeo
-- Liaison Agents - Amedeo Services (UK) Limited
-- Corporate and Shareholder Adviser - Nimrod
-- Secretary and Administrator - JTC
-- Registrar - JTC Registrars Limited
The Company has no executive directors or employees and no
physical office premises. The Company's business is carried out in
a series of meetings held in the offices of its administrator JTC,
in Guernsey, the Company's place of incorporation.
Subject to any travel restrictions imposed, the directors are
required to travel in the fulfilment of their duties. Where
circumstances allow, travel is kept to a minimum. The directors are
required to travel to Guernsey on at least a quarterly basis for
Board and other committee meetings, and to the UK to visit
Shareholders and service providers as and when required. Regular
dialogue with the Asset Lessee is maintained via the Asset
Manager.
The Company consequently has a limited physical footprint and
therefore its environmental impact is considered to be low.
The Modern Slavery Act
Due to the nature of the Company's business, being a company
that does not offer goods or services to customers, the Board
considers there are no relevant disclosures with regard to modern
slavery in relation to the Company's own operations. The Board
considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in this regard.
The Assets
The principal activity of the Company is to acquire, lease and
then sell aircraft. The Company has a wholly-owned subsidiary, DNA
Alpha . The Group owns four Airbus A380 Aircraft which are leased
for twelve years to the Lessee, the national carrier owned by The
Investment Corporation of Dubai based in Dubai, United Arab
Emirates.
The Group's own operational influence in the fields of climate
change, air quality, and resource efficiency is minimal. The nature
of the Lease with the Lessee means that control over the usage of
the Asset rests with the Lessee. The Group has leased the Assets
for a term of twelve years, with fixed Lease rentals for the
duration, to the Lessee. The Lessee bears all costs (including for
maintenance, repairs and insurance) relating to the Aircraft during
the lifetime of the Lease. This would include any modifications or
modernisations related to ESG requirements as mandated by
regulatory agencies. However, in all other respects, the influence
of the Group over the Lessee with regard to voluntary ESG concerns
is limited due to existing quiet enjoyment arrangements between the
Group and the Lessee.
The Airbus A380 is the world's largest commercial passenger
aircraft. It is the first and only aircraft with two full-length
passenger decks, giving it a maximum capacity of up to 853
passengers. In a typical three-class configuration (First, Business
and Economy Class), the Airbus A380 has capacity for approximately
525 passengers. Additionally, developments with respect to the
aircraft's aerodynamics, control elements and flight systems,
coupled with the use of advanced, lightweight composite materials
make the A380 an attractive and efficient aircraft. In comparison
with other modern long-range passenger aircraft of the same
category (the so-called Very Large Aircraft segment), the Airbus
A380 consumes less fuel per passenger, using approx. three litres
of kerosene per 100 passenger kilometers, when equipped with Engine
Alliance engines. Furthermore, the A380 offers an efficient way to
capture traffic at the most concentrated airports and times by
giving airlines the ability to consolidate routes, thereby
increasing seat capacity while creating economies of scale.
The most critical environmental issue related to aircraft
operations is GHG emissions generated from fossil energy
consumption. Air transportation is one of the most energy and
carbon dioxide intensive modes of transport, whether measured per
passenger kilometer or per hour in transit. According to Oxford
University, the global aviation industry (including domestic and
international; passenger and freight) accounts for:
-- 1.9% of GHG emissions (e.g. all greenhouse gases, not only CO(2) );
-- 2.5% of carbon emissions; and
-- 3.5% of 'effective radiative forcing' - a measure of impact on global warming.
The first figure refers to 2016, while the latter two refer to
2018, each being the latest year for which such data are
available.
The Aviation Industry
Despite aviation's important role in local and global economic
development, the aviation industry faces the challenge of meeting
long term strong growth in passenger demand while simultaneously
reducing its environmental impacts. In addition to GHG emissions,
these environmental impacts could also include noise and nuisance,
as well as water pollution (due to aircraft de-icing, cleaning, and
other chemical-heavy aircraft operations).
To address these growing environmental concerns, the
cross-industry ATAG developed the 'Wayward 2025' action plan in
line with the Paris Agreement on climate change. The blueprint
builds on IATA's 2009 commitment to (1) increase fuel efficiency by
1.5% every year between 2010-20, (2) to cap carbon emissions
(carbon neutral growth) from 2020, and (3) to achieve the 50%
emissions reduction by the middle of the century, as the first two
goals have already been accomplished. Annual fuel efficiency gains
have exceeded expectations with annual improvements greater than
2%. The mechanism for ensuring carbon neutral growth, known as
CORSIA, started as a pilot scheme in 2021 with approx. 100
countries participating and the remaining scheduled to join by
2027.
In pursuit of the final goal, Wayward 2050 has identified three
key technological developments to accelerate the reduction of
carbon emissions:
1. Improved aircraft and engine designs for lighter, more efficient aircraft;
2. Hydrogen and electric powered aircraft; and
3. SAF.
The analysis performed for Wayward 2050 revealed that SAF will
play a key role, driving between 50% and 75% of the emissions'
reductions. SAFs, such as drop-in power fuels like biofuels that
can be used in today's aircraft and engines without modification,
are already commercially available and are expected to increase in
prominence once initial costs can be reduced through scale.
Evolutionary concepts, such as the second-generation geared turbo
fan engine, could become widely commercially available in the
medium-term. Revolutionary concepts such as hydrogen and electric
powered aircraft, represent the greatest potential improvements,
but will most likely not be commercially available until the 2050s,
based on current forecasts.
As these technological developments progress, the aviation
industry is taking additional measures to curb its environmental
impact, while maintaining its commitment to local and global
economic development. For example, alongside CORSIA, the aviation
industry is able to participate in other carbon dioxide emissions
trading markets, such as the EU ETS.
Furthermore, a number of countries currently levy passenger
taxes on air tickets over and above infrastructure charges and
there are a number of proposals for additional environmental taxes
to be imposed on the aviation industry. However, as IATA notes, the
income generated from an environmental tax is usually seen as
general revenue by governments, thus it can be used to fund any
variety of public sector programs and initiatives. As such, IATA
takes the position that, while the overall goal of an environmental
tax is laudable, it has distortionary effects on jobs and the
economy, while at the same time not effectively incentivising the
development or use of newer and greener technology. The effects of
any newly introduced environmental taxes on the aviation industry
will have to be monitored. The aviation industry plays a critical
role in local and global economic development, contributing 4.1% to
global gross GDP and supporting 87.7 million jobs worldwide.
The Wayward 2050 plan can be found here:
https://aviationbenefits.org/media/167187/w2050_full.pdf
Further environmental information can be found on the IATA
website: https://www.iata.org/en/policy/environment/ .
ICAO have used the United Nations' Sustainable Development Goals
("SDG") as a basis to identify the contributions the aviation
industry is making to sustainable development. For further
information and the full working paper on aviation's contributions
towards the United Nations' 2030 agenda for sustainable development
from ICAO's 40(th) session please refer to the ICAO website:
https://www.icao.int/Meetings/A40/Documents/WP/wp_189_en.pdf
Concerning the role of aircraft in sustainable development,
Aircraft Assets are likely to contribute to at least five of the
SDG. Specifically, airlines are able to utilize aircraft in a
manner consistent with the achievement of the following
targets:
1. SDG 5: Aviation is working to achieve gender balance across
the sector. In Europe, aviation is the most gender-balanced of all
transport modes with 41 per cent female employees. More work is
still needed to encourage balance in technical and executive
roles;
2. SDG 8.1: Devise and implement policies to promote sustainable
tourism that creates jobs and promotes local culture and
products;
3. SDG 9.1: Develop quality, reliable, sustainable and resilient
infrastructure, including regional and trans-border infrastructure,
to support economic development and human wellbeing, with a focus
on affordable and equitable access for all;
4. SDG 12.2: Achieve sustainable management and efficient use of
natural resources productions; and
5. SDG 13: Invest in the transition to net-zero carbon dioxide
energy, energy efficiency and the reduction of GHG emissions from
transport operations.
Detailed information on the SDG can be found on the United
Nations website: https://sustainabledevelopment.un.org/ .
Emirates, the Lessee, is committed to efforts to reduce resource
consumption while also investing in wildlife conservation and
protection. This includes participation in CORSIA as well as
internal initiatives.
For further information on Emirates' environmental policy and
initiatives, please visit the Emirates website where annual
environmental reports are also available:
https://www.emirates.com/english/about-us/our-planet/
In the context of the Assets and the associated Lease, the Board
are committed to responsible decision making throughout the
lifecycle of the Group. The Board is in continuous dialogue with
its service providers and regularly reviews processes to guarantee
transparency and accountability. The Board will continue to monitor
the sustainability efforts of the industry and the Lessee and keep
Shareholders abreast of developments.
AUDIT AND RISK COMMITTEE REPORT
Membership
Geoffrey Hall - Chair of the AR Committee
Andreas Tautscher - Non-executive Director
Suzie Procter - SID
Key Objective
The provision of effective governance over (i) the
appropriateness of the Group's financial reporting including the
adequacy of related disclosures, (ii) the performance of the
Company's external auditor, (iii) monitoring of the systems of
internal controls operated by the Company and (iv) the Company's
principal service providers and the management of the Company's
regulatory compliance activities.
Responsibilities
The key duties of the AR Committee are as follows:
-- reviewing the Company's financial results announcements and
financial statements and monitoring compliance with relevant
statutory and listing requirements;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices including critical
accounting policies and practices;
-- advising the Board on whether the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for Shareholders to assess the Company's
position, performance, business model and strategy;
-- overseeing the relationship with the external auditor and
reviewing the effectiveness of the external audit process; and
-- Monitoring the systems of internal controls operated by the
Company and by the Company's principal service providers.
AR Committee Meetings
The AR Committee usually meets in Guernsey at least twice a
year. The AR Committee reports to the Board as part of a separate
agenda item, on its activities and on matters of particular
relevance to the Board in the conduct of its work. During the
financial year under review the AR Committee formally reported to
the Board on three occasions.
Main Activities of the AR Committee during the Financial
Year
The AR Committee assisted the Board in carrying out its
responsibilities in relation to financial reporting requirements,
compliance and the assessment of internal controls. The AR
Committee also managed the Group's relationship with the external
auditor and undertook an audit tender process.
Fair, Balanced and Understandable
In order to comply with the Code, the Board requested that the
AR Committee advises them on whether it believes the annual report
and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group's performance, business model and
strategy.
The AR Committee engaged with the Group's auditor and the
Administrator in order to ensure that the financial statements were
fair, balanced and understandable.
Financial Reporting and Significant Issues
The AR Committee's primary role in relation to financial
reporting is to review, with its service providers and the external
auditor, the appropriateness of the half-year and annual financial
statements, the significant financial reporting issues and
accounting policies and disclosures in the financial statements.
The AR Committee has considered the key risks identified as being
significant to these accounts and the most appropriate treatment
and disclosure of any new significant issues identified during the
audit and half-year reviews as well as any recommendations or
observations made by the external auditor, Deloitte. To aid its
review the AR Committee considered reports prepared by external
service providers, including Amedeo and Nimrod, and reports from
Deloitte on the outcome of their annual audit. The significant
issues considered by the AR Committee in relation to the 2021
accounts and how these were addressed are detailed below:
Significant issues for How the AR Committee addressed these
the year under review significant issues
Residual value of aircraft The Group has engaged three internationally
assets recognised expert appraisers to provide
the Group with independent third party
The non-current Assets consultancy valuation services. In
of the Group comprise the absence of sales data for similar
of four Airbus A380 used Assets, appraisers are heavily
aircraft. An annual reliant on databases containing historical
review is required of data points of aircraft sales relating
the residual value of to large commercial aircraft. Interpretation
the Assets as per IAS of historical data, as well as the
16, which defines residual landscape within the aviation industry
value as "the estimated is the basis for the current market
amount that an entity value and provides, together with the
would currently obtain expected developments in the future,
from disposal of the the foundation for their opinions on
Asset, after deducting future values. Furthermore, the appraisers'
the estimated costs valuations take into account specific
of disposal, if the technical and economic developments
Asset were already of as well as general future trends in
an age and in the condition the aviation industry and the macro-economic
expected at the end outlook.
of its useful life."
In the aftermath of Airbus' February
2019 decision to discontinue the A380
production in 2021, a number of A380
operators disclosed plans to withdraw
at least parts of their A380 fleets
earlier than originally anticipated.
Furthermore, it became obvious that
A380s returned following the expiration
of operating lease agreements could
not be placed with a new operator within
a reasonable period of time and owners
were forced to explore alternative
scenarios for revenue generation like
engine lease. This also includes part-out
activities for the first few A380s
returned from Singapore Airlines.
The ongoing spread of COVID-19 and
comprehensive travel restrictions around
the world came along with an unprecedented
drop in air travel. About a year into
the Pandemic, 90% of all A380s worldwide
were still on the ground in the first
quarter of 2021. The financial difficulties
most of the airlines currently experience,
result in various measures to weather
the consequences of the Pandemic, as
many expect the recovery to pre-pandemic
passenger flows take much longer than
in previous situations, where demand
was negatively affected, like 9/11.
Due to the A380-specific developments
over the last few years and the generally
dimmed market sentiment in the aviation
sector since the COVID-19 outbreak,
which is not over yet, there is an
increasing risk that the underlying
assumptions of the Base Value concept
might not be met at the time when the
Leases expire. For this reason the
Asset Manager recommended to continue
with making use of a more conservative
approach by deploying Future Soft Values
instead of Base Values. Soft Values
are more conservative, also applicable
under "abnormal conditions" and do
not necessarily require a balanced
market as the Base Value concept does.
The Group's estimation technique is
to make reference to the most recently
produced forecast soft value (excluding
inflation), not an estimate of the
amount that would currently be achieved
and which therefore could be different,
and so this is not a direct application
of the IAS 16 definition. This approach
has been taken because current market
values in today's prices for comparable
twelve year old A380 were not available
at the reporting date.
A decrease in USD terms in the residual
value of the Aircraft from the prior
year has resulted in an adjustment
made to depreciation in the current
year, details of which have been disclosed
in note 10.
As updated valuations of all Assets
as at the financial year end were commissioned
and received from third party professional
valuers and analysed by the Asset Manager
and the directors, the AR Committee
believes that those valuations are
appropriate for use in preparing the
financial statements. Therefore, the
average residual values excluding inflation
used in the accounts are based on these
appraisals .
Upon review of the advice they have
received from Amedeo and the appraisers,
the AR Committee is of the opinion
that, the latest estimate of the residual
soft values excluding inflation of
the Assets is a reasonable approximation
of the residual value of the Aircraft
within the IAS 16 definition.
Residual values remain exposed to estimation
uncertainty. This is disclosed in note
3 and has been highlighted by the auditor
in their key observations section of
the valuation and ownership of aircraft
key audit matter.
------------------------------------------------
Recording foreign exchange In assessing foreign exchange, the
gains/losses AR Committee has considered the issue
at length and is of the opinion that,
IFRS require that certain on an on-going basis and assuming the
transactions denominated lease and loan payments are made as
in currencies other anticipated, such exchange differences
than the presentation do not reflect the commercial substance
currency (including, of the situation in the sense that
most importantly, the the key transactions denominated in
cost of the Assets) US dollars are in fact closely matched.
be translated into presentation Rental income received in US dollars
currency at the exchange is used to pay loan repayments due
rate ruling at transaction which are likewise denominated in US
date, whilst monetary dollars. US dollar lease rentals and
balances (principally loan repayments are furthermore fixed
the outstanding borrowings) at the outset of the Group's life and
are translated at the are very similar in amount and timing.
rate prevailing on the
reporting date. The The AR Committee concluded that the
resultant figures sometimes matching of the lease rentals to settle
show very large mismatches loan repayments therefore mitigates
which are reported as risks of foreign exchange fluctuations.
unrealised foreign exchange
differences. The AR Committee carefully considered
the disclosure in note 20 (b) to the
During the year the Consolidated Financial Statements to
Group recorded a significant ensure that the reality of the Group's
foreign exchange rate foreign exchange risk exposure is properly
profit due to the appreciation explained.
of Sterling against
the US dollar and the
consequent decrease
in the Sterling value
of the US dollar denominated
debt.
------------------------------------------------
Going concern risk The AR Committee received quarterly
reports from Amedeo during the year
Emirates are the sole which comment on the performance of
Lessee of the Assets. Emirates. The Lessee recorded its first
Should Emirates default loss in over 30 years during its 2020-21
on the rental payments, financial year, which ended on 31 March
it will result in the 2021. The airline reported a loss of
Group failing to service AED 20.3 billion (USD 5.5 billion)
debt and it is unlikely after last year's AED 1.1 billion (USD
the Group will be able 288 million) profit. Emirates also
to meeting its targeted recorded strong reserves of AED 4 billion
dividend or, in the (USD 1 billion) in cash assets that
case of ongoing default, will help the carrier sustain the impact
continue as a going of a slow recovering international
concern. market. The airline received a generous
capital injection of AED 11.3 billion
(USD 3.1 billion) from its largest
shareholder, the Government of Dubai.
Emirates is well positioned for a recovery
once the landscape for international
travel improves, particularly since
the carrier has worked hard to increase
its flight network to over 120 destinations
across the globe and is anticipating
a busy summer travel period.
While Emirates maintains that it has
a strong balance sheet with a substantial
cash position, the airline has taken
additional measures to protect its
cash flow through cost savings measures,
reductions to discretionary capital
expenditure, and engaging with business
partners to improve working capital.
These initiatives resulted in estimated
savings of 7.7 billion AED (USD 2.1
billion) for the combined operations
of Emirates and dnata. Emirates reduced
its total operating costs by 46%. Hence,
Emirates is mindful of its reputation
and is continuously working on measures
to maintain is ability to pay all of
its obligations in full and on time.
In line with IFRS 16 Emirates is recording
its future lease payment liabilities
(including its right-of-use asset)
in its latest annual financial statements.
Furthermore, the management of the
airline came to the conclusion that
the company is a going concern. The
auditors did not raise a material uncertainty
on going concern in its independent
auditor's report, which is dated May
6, 2021 - and hence should take COVID-19
and the potentially negative effects
on the lessee's (future) financial
position into consideration.
The airline confirmed in its annual
report that it obtained financial support
from the Government of Dubai which
provided an additional equity injection,
11.3 billion AED (USD3.1billion) if
required from its ultimate shareholder,
the Government of Dubai, and was able
to generate a cash surplus of 4.0 billion
AED (USD 1.1 billion) from operating
activities.
During the financial year, Emirates
shifted its operations to focus on
cargo services using its fleet of Boeing
777 aircraft to meet the global demand
for the transport of essential supplies
and other goods. Emirates SkyCargo
introduced freighter services using
passenger aircraft as well as 19 Boeing
777-300ER 'mini-freighters' converted
for cargo operations. As of mid-March
2021, Emirates SkyCargo has operated
more than 27,800 cargo-only flights
on passenger aircraft. The company
has transported more than 100,000 tonnes
of essential supplies. The cargo services
were very profitable for Emirates,
as the carrier could nearly double
its cargo yield.
The Asset Manager is not aware of a
formal request addressed to the Group
for a lease deferral or any other efforts
that would result in the restructuring
of the existing transaction and could
potentially have an impact on the committed
future lease rental receipts.
Emirates is owned by the Investment
Corporation of Dubai, a state-owned
holding company that can be characterized
as a sovereign wealth fund owned by
the Government of Dubai. It is neither
listed nor carry its bond issuances
an issuer rating. However, Emirates'
senior unsecured USD bonds with maturities
in 2023, 2025 and 2028 are trading
and the markets' pricing for such instruments
provide proxies for the credit risk
of the lessee. As the operating lease
agreements between Emirates and the
Company include a hell or high water
clause, the lease rental stream and
any other contractual payment primarily
depends to Emirates' ability to meet
its financial obligations whenever
they fall due. As of 22 June 2021,
Emirates' bonds were trading at around
101.15 cents (2023 maturity), 102.45
cents (2025 maturity), and 102.48 cents
(2028 maturity), representing US Dollar
running yields from approximately 3.8%
to 4.8%. This level of yields certainly
does not appear to indicate any significant
financial stress to the issuer. Another
readily available indicator for the
lessee's financial health are Credit
Default Swaps on Emirates bonds. The
quote informs about the annual cost
in basis points of insuring against
an Emirates credit event for a five-year
period. On 22 June 2021, the annual
insurance premium on one US Dollar
face value in Emirates bonds was approximately
142bps, which is below the longer-term
average of around 150bps. Considering
that aviation is one of the hardest
hit sectors by COVID-19, the Credit
Default Swap indicates that the market
perceives Emirates as a trustworthy
company, which is very likely able
to meet its obligations in the next
five years.
The AR Committee concluded that it
would continue to receive regular updates
from Amedeo on the performance of Emirates
and would continue to monitor Emirates'
overall performance .
The AR Committee carefully considered
the disclosure in note 20(c) to the
financial statements to ensure that
this concentration of credit risk is
properly reflected.
------------------------------------------------
Significant issues for How the Committee addressed these significant
the year under review issues
------------------------------------------------
Consideration of any The AR Committee has considered the
triggers for impairment issue at length and accordingly an
impairment review has been undertaken
IAS 36 Impairment of as at 31 March 2021. Refer to note
Assets requires that 3 for further detail on the factors
a review for impairment triggering the review and the sensitivity
be carried out by the analysis performed on the discount
Group when there is rates and residual value inputs. A
an indication of impairment s a result of current year review,
of an asset and if events an impairment loss of GBP48,655,256
or changes in circumstances was booked in the accounts as disclosed
indicate that the carrying in note 3.
amount of an asset may
not be recoverable. Contributing factors, which triggered
The review will compare the AR Committee's decision to perform
the carrying amount an impairment review, included the
of the Asset with its Pandemic and the global travel restrictions
recoverable amount, leading to a temporary halt of A380
since it was not possible operations worldwide. It was also necessary
to measure fair value as the Group continued to adhere to
less costs of disposal the concept of Future Soft Values for
because there is no measuring the residual value of the
basis for making a reliable Aircraft.
estimate of the price
at which an orderly
transaction to sell
the asset would take
place between market
participants at the
measurement date under
current market conditions
hence, the entity used
the asset's value in
use as it recoverable
amount.
------------------------------------------------
Global Pandemic Risk The COVID-19 pandemic continues with
rising numbers of infections in many
The emergence of a global countries around the world. Restrictions
Pandemic may have a on people socialising and travelling
profound and negative have begun to ease in some countries
impact on the operations but remain in a significant number
and performance of the of others and this continues to have
Group and may directly a significant effect on many industries
or indirectly affect and in particular the airline industry.
some of the other risks
mentioned in this table. Due to restriction on travel imposed
by many countries, a significant share
of passenger aircraft remain grounded.
The consequent lack of income for airlines
may cause bankruptcy and, in a worse
case, repossession of aircraft which
would need to be stored pending remarketing
when restrictions are eased.
The Board and its key service providers
have all acted to the best of their
abilities to protect the welfare of
the various teams involved in the affairs
of the Group to ensure operations are
maintained to the extent possible and
to protect and support the Assets of
the Group for as long as is required.
The impact of COVID-19 on financial
reporting has been considered in respect
of other risks such as residual value,
impairment and going concern.
More information of COVID-19 is set
out in the Chair's Statement on pages
9 to 11 and the Asset Manager's Report
on pages 12 to 17.
------------------------------------------------
We note that the auditor also considers the recognition of
rental income within their key audit matters. This item has been
considered by the AR Committee in the current year, but, as there
have been no changes in respect of this risk, it has not been a
primary area of focus of the AR Committee in the current year.
Going Concern
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Group's Aircraft values
and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the
global economy and it remains possible that the Group's future
performance could be impacted in this prolonged period of
uncertainty. In many jurisdictions widespread restrictions on the
ability of people to travel continues to adversely affect the
airline sector, and by extension the aircraft leasing sector. The
risk therefore remains that some airlines may not be able to pay
rent as it falls due. The impact of this Pandemic on the aviation
industry has been significant with a large part of the global
passenger aircraft fleet remaining grounded during the Period.
These factors, together with wider economic uncertainty and
disruption, have an adverse impact on the future value of the
Aircraft Assets owned by the Group, as well as on the sale,
re-lease, refinancing or other disposition of the relevant
Aircraft.
Given the prolonged impact of the Pandemic, increased Lessee
counterparty credit risk remains and there could still be requests
for Lease rental deferrals. Reduced rents receivable under the
Leases may end up not being sufficient to meet the fixed loan or
equipment note interest and regular capital repayments of debt
scheduled during the life of each Loan and may not provide surplus
income to pay for the Group's expenses and permit the declaration
of dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
The directors consider that the going concern basis of
accounting remains appropriate. Based on current information the
directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, although the risk to this is clearly higher since the
Pandemic hit the sector.
Whilst there is some uncertainty as to the airline industry in
general, and specifically Emirates' financial position and credit
risk profile, on the basis that (i) Emirates has shown no intention
of failing to meet its obligations (ii) Emirates has the financial
backing to continue paying these rentals, the directors believe
that it is appropriate to prepare these financial statements under
the going concern basis of preparation.
Internal Controls
The AR Committee has made due enquiry of the internal controls
of the Administrator. The AR Committee is satisfied with the
controls currently implemented by the Administrator. However, it
has requested that the Administrator keeps the Committee informed
of any developments and improved internal control procedures.
The most recent report on the internal control of JTC's
administration services, prepared in accordance with the ISAE 3402,
for the period from 1 April 2020 to 31 March 2021, has been
provided to the AR Committee.
Internal Audit
The Group has no employees and operates no systems of its own,
relying instead on the employees and systems of its external
service providers. Following a recommendation from the AR
Committee, the Board has therefore taken the decision that it would
be of insufficient benefit for the Group to engage an internal
auditor.
External Audit
The effectiveness of the external audit process is dependent on
appropriate audit risk identification at the start of the audit
cycle. The AR Committee receives from Deloitte a detailed audit
plan identifying their assessment of the key risks. For the
financial year under review, the primary risks identified were in
respect of valuation of the Group's Assets, the recognition of
lease rental income and the presumed risk on management override of
controls.
Using its collective skills the AR Committee evaluates the
effectiveness of the audit process in addressing the matters raised
through the reporting it received from Deloitte at the conclusion
of the audit. In particular the AR Committee formally appraise
Deloitte against the following criteria:
-- Independence
-- Ethics and conflicts
-- Knowledge and experience
-- Challenge
-- Promptness
-- Cost
-- Overall quality of service
In addition the AR Committee also seek feedback from the
Administrator on the effectiveness of the audit process.
For the financial year under review, the AR Committee was
satisfied that there had been appropriate focus on the primary
areas of audit risk and assessed the quality of the audit process
to be good.
The AR Committee holds meetings with the external auditor to
provide additional opportunity for open dialogue and feedback from
the auditor. Should it be necessary, the AR Committee members meet
with the external auditor without the Administrator and Asset
Manager being present. Matters typically discussed include the
auditor's assessment of business risks and management activity
thereon, the transparency and openness of interactions with the
Administrator, confirmation that there has been no restriction in
scope placed on them by the Administrator on the independence of
their audit and how they have exercised professional
scepticism.
Appointment and Independence
Deloitte provided audit services to the Company for the
financial year under review. Deloitte had been the Company's
external auditor since October 2012 , with the first audit being
carried out for the year ended 31 March 2012.
The external auditor is required to rotate the audit partner
responsible for the audit every five years. The lead audit partner
had been in place since January 2020 with his first audit reporting
period being the year to 31 March 2020. This was his second year of
involvement.
During the financial year under review the AR Committee
undertook a review of the audit function, undertaking a tender
process with a number of audit firms which resulted in the
recommendation to the Board, to appoint Grant Thornton Limited as
auditor for the financial year ended 31 March 2022, which the Board
accepted.
It is expected that Deloitte will resign and Grant Thornton
Limited will be appointed as external auditor to the Company on 30
July 2021. Grant Thornton Limited's tenure is therefore not
currently an area of consideration for the AR Committee.
The AR Committee considered Deloitte and Grant Thornton Limited,
the Company's new auditor, to be independent of the Company. The AR
Committee has provided the Board with its recommendation to
Shareholders on the ratification of the appointment of Grant
Thornton Limited as external auditor for the year ending 31 March
2022 at the forthcoming AGM.
Non-Audit Services
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the AR Committee has a
formal policy governing the engagement of the external auditor to
provide non-audit services. No changes have been made to this
policy during the year. This policy specifies that the external
auditor should only be engaged for non-audit services where there
is considered to be a very low threat to auditor independence. No
non-audit services had been provided by Deloitte during the
year.
The external auditor is prohibited from providing any other
services without the AR Committee's prior approval. In reaching
such a determination the AR Committee will take into consideration
whether it is in the best interests of the Group that such services
should be supplied by the Group's external auditor (rather than
another service provider) and, if so whether any safeguards
regarding auditor objectivity and independence in the conduct of
the audit should be put in place, whether these would be effective
and how such safeguards should be disclosed.
Committee Evaluation
The AR Committee's activities formed part of the review of Board
effectiveness performed in the year under review.
An internal evaluation of the AR Committee's effectiveness will
be carried out in 2021.
Geoffrey Hall
Chair of the Audit and Risk Committee
2 August 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF DORIC NIMROD AIR
THREE LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Doric Nimrod Air
Three Limited (the 'parent Company') and its subsidiary (together
'the Group'):
-- give a true and fair view of the state of the Group's affairs
as at 31 March 2021 and of its loss for the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
-- have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
-- the statement of consolidated comprehensive income;
-- the statement of consolidated financial position;
-- the statement of consolidated cash flows;
-- the statement of consolidated changes in equity; and
-- the related notes 1 to 24.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to the
Group.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
a. Key audit matters b. The key audit matters that we identified in the
current year were:
* Valuation of aircraft;
* Recognition of lease rental income;
* Impact of COVID-19 on the going concern assumption.
c.
d. Within this report, key audit matters are identified
as follows: Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
e.
-------------------------------- ----------------------------------------------------------------------
f. Materiality g. The materiality that we used in the current year
was GBP1,510,000 which was determined on the basis
of 2% of shareholders' equity. This is consistent
with the prior year.
-------------------------------- ----------------------------------------------------------------------
h. Scoping i. The financial statements of the Group incorporate
its special purpose subsidiary through which aircraft
are held and through which debt finance has been
obtained. Whilst statutory audits of the financial
statements of the subsidiary is not required, they
are included within the scope of our audit of the
financial statements. Audit work to respond to the
risks of material misstatement was performed directly
by the audit engagement team.
-------------------------------- ----------------------------------------------------------------------
j. Significant k. Ownership of aircraft has been removed from the
changes in our key audit matter "Valuation and ownership of aircraft"
approach as disclosed in the prior year. From the results
of our work in the prior year and understanding of
the balance we have reassessed the risk in the current
year as the ownership of aircraft is not complex
and does not involve judgement.
l. The risk relating to valuation of aircraft has
been increased in the current year due to the uncertainty
arising from the impact of the COVID-19 pandemic
and the very limited secondary market for A380 aircraft
indicating a material level of uncertainty over the
residual values which can be achieved by the Group.
m. We have also removed the accounting for debt using
the effective interest method as a key audit matter
in the current year. From the results of our work
in prior year and understanding of the balance we
have reassessed the risk in the current year as the
calculations are not complex or involve significant
judgements or estimation uncertainty.
-------------------------------- ----------------------------------------------------------------------
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the Group's
ability to continue to adopt the going concern basis of accounting
is discussed in Section 5.3.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's and parent company's ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK
Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors' statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation of aircraft
n. Key audit matter o. Included in the Group's consolidated statement
description of financial position as at 31 March 2021 are aircraft
assets amounting to GBP292.6 million (2020: GBP385.8
million) as disclosed in Note 10 to the financial
statements.
p.
q. As explained in Note 2(m), the Group's accounting
policy is to measure its aircraft asset at depreciated
historic cost less impairment. The asset is being
depreciated on a straight-line basis over the term
of the lease to an estimated residual value at the
end of that period.
r.
s. As stated in Note 3, estimation of aircraft residual
value is a significant source of estimation uncertainty
and is a key determinant in preparing the financial
statements. The Group uses external valuers who provide
an estimate of the residual value which is based
on significant judgement and assumptions about current
and future market conditions.
t.
u. Note 2(k) and Note 3 describe the effects of the
uncertainties created by the COVID-19 pandemic and
the very limited secondary market for the A380 aircraft
on the residual values of the Group's assets. The
outbreak has caused extensive disruptions to businesses
and economic activities and, in particular, the airline
industry. There has been slow recovery of the widebody
aircrafts market with Emirates Airlines ("Emirates")
being the single largest operator of the A380. Due
to this impact by COVID-19 and Airbus cancelling
the A380 programme, airlines are retiring their A380
fleet earlier. The market for the A380 remains illiquid
with virtually no transactions in the last 12 months
and the prospect of significant oversupply expected
in the market driven by lower demand and a number
of airlines choosing to retire or reduce their fleet.
As a result, the Group's has used soft market values
as the basis of residual values rather than base
value. As disclosed in note 3, if the assumptions
used in the determining the valuations prove to be
false, actual results of operations and the realisation
of the Group's asset differ from estimates set forth
in the financial statements, the difference in the
valuation of the aircraft could be material.
v.
w. For the year ended 31 March 2021 a further impairment
of GBP48.6 million (2020: GBP56.1 million) has been
recognised.
x.
y. The valuation of aircraft was deemed to be a key
audit matter as:
* judgement is required in assessing whether any
indicators of impairment exist and estimation is
required for key data inputs to the impairment review
model such as the residual value or terminal value
and expected useful life of the aircraft as well as
the discount rate and inflation rate used;
* the determination of residual values, used in
determining depreciation, requires significant
judgement. The basis of valuation used to determine
these residual values may either not be appropriate
or that the assumptions made by the Group's valuers
may not appropriately reflect the current market
conditions, including the impact of COVID-19 as well
as the limited market for the A380; and
z. The Audit and Risk Committee have referred to
this risk in their report on page 41 of the financial
statements.
----------------------------------- ------------------------------------------------------------------------
aa. How the scope bb. Our procedures included:
of our audit responded * obtaining an understanding of the relevant business
to the key audit processes and controls associated with the valuation
matter of aircraft assets;
* evaluating relevant triggers and indicators of
impairment such as;
* market value decline;
* negative developments with regards to market,
technology and economy i.e. retirement of A380;
* assessing the reasonabless of the key inputs used in
the impairment model such as discount rate and useful
economic life;
* reconciled the cash flows within the model to rent
schedules;
* engaged our valuation specialists to assess the
reasonableness of the weighted average cost of
capital ("WACC") used by management;
* evaluating sensitivity analysis of the key inputs to
the model;
* assessing the completeness and accuracy of the
disclosures in the financial statements;
* assessing and challenging the residual value
estimates used by management by;
* assessing the basis of determination of residual
values in light of current market conditions;
* we worked with our internal aviation industry
specialists in assessing the conclusions reached by
the Group on the appropriateness of the selected
residual values when considered against available
market information, contradictory evidence, the terms
of the aircrafts lease agreements as well as
valuations obtained by the Group's from expert
aircraft valuers;
* evaluating the competence, capability and objectivity
of the valuers used by management; and
* assessing the completeness and accuracy of the
disclosure related to this estimation uncertainty as
set out in Note 3.
cc.
----------------------------------- ------------------------------------------------------------------------
dd. Key observations ee. While we note the increased estimation uncertainty
as a result of COVID-19 and the very limited secondary
market for the A380 aircraft in relation to residual
values of the Group's assets, we consider the basis
of valuation and assumptions used to be appropriate.
In addition, we concluded that the inputs used in
the impairment review including these residual values,
the resulting impairment adjustment of GBP48.6 million
and the disclosures of the resulting sensitivities
in note 3 are appropriate.
----------------------------------- ------------------------------------------------------------------------
5.2. Recognition of lease rental income
ff. Key audit gg. The Group's lease has been classified as an operating
matter description lease and as such rental income which amounts to
GBP75.7 million (2020: GBP78.2million) is recognised
on a straight-line basis over the lease term, which
differs from the profile of actual rental payments.
As stated in Note 2 (L) the lease relating to the
aircraft asset has been classified as an operating
lease. As further stated in Note 3, classification
of leases as operating leases is a significant judgement
in preparing the financial statements. Note 4 of
the financial statements sets out that a significant
portion of the lease rentals is receivable in US
Dollars and must be appropriately translated into
the Sterling functional and presentation currency.
The recognition of revenue also requires consideration
of all terms of the signed lease contract.
hh.
ii. The recognition of revenue was deemed to be a
key audit matter as:
* revenue might not be properly recorded on a
straight-line basis in accordance with requirements
of IFRS 16 Leases and the lease contract term;
* deferred or accrued income might not be recognised
appropriately; and
* revenue transactions and related amortisation of
deferred income are significant to the Group's
financial performance, hence any material
misstatements in revenue will have an impact on the
consolidated statement of comprehensive income.
----------------------------------- -------------------------------------------------------------------
jj. How the scope kk. Our procedures included:
of our audit responded * obtaining an understanding of the relevant business
to the key audit processes and controls and adopted a control reliance
matter approach on recognition of lease income;
* assessing on whether the classification of the leases
as operating is appropriate with reference to the
lease terms and the nature of the asset and the
requirements of IFRS 16 Leases;
* developing independent expectations of lease income
for the year based on total lease rentals receivable,
the lease term and the applicable foreign exchange
rates during the year.
* testing the cut-off of lease rental income and the
measurement of deferred income at the year-end;
* tracing a sample of rental income receipts to bank
statements; and
* recalculating deferred and accrued rental income
recognised in the consolidated statement of financial
position and testing accuracy of related translation
differences.
----------------------------------- -------------------------------------------------------------------
ll. Key observations mm. Having performed the procedures above, we concluded
that classification of the lease is appropriate and
that revenue recognition is in line with the terms
of the signed lease contract and is in line with
IFRS 16 Leases.
nn. We also concluded that deferred and accrued income
balances recorded were appropriate.
----------------------------------- -------------------------------------------------------------------
5.3. Impact of COVID-19 on the going concern assumption
oo. Key audit pp. COVID-19 has had a significant impact on the
matter description travel industry resulting in many of the world's
aircraft being grounded since the pandemic took hold.
The Group leases its aircraft to Emirates and the
financial wellbeing of this entity and its ability
to continue to meet lease rentals as they fall due
are a key factor in assessing whether the Group is
able to continue as a going concern.
qq.
rr. Any default in the rentals receivable from Emirates
would result in a default on the loan obligations
of the Group which could ultimately result in the
sale of the aircraft to meet those obligations.
ss.
tt. Note 2k of the financial statements provides
further disclosures on considerations on Going Concern.
----------------------------------- --------------------------------------------------------------------
uu. How the scope vv. Our procedures included:
of our audit responded * evaluated the ability of Emirates to meet the lease
to the key audit obligations as they fall due through the analysis of
matter publicly available financial information and through
our own independent investigations, including
checking credit rating of Emirates;
* confirmed with the directors and Investment Manager
as to whether any rental restructuring has been
requested by Emirates and collaborated responses with
other evidence such as adherence to lease payment
schedules;
* assessed whether there have been any lease payment
defaults since the year end by comparing scheduled
lease payments to amounts received; and
* evaluated the financial support available to Emirates
through its main investor the United Arab Emirates
("UAE") and our independent assessment on the main
investor's ability to provide support. This included
evaluation of publicly available announcements from
Emirates, UAE as well as review of financial
statements of Emirates.
----------------------------------- --------------------------------------------------------------------
ww. Key observations xx. Having carried out the procedures, we concluded
that the adoption of going concern basis of accounting
is appropriate.
----------------------------------- --------------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
yy. Materiality zz. GBP1,510,000 (2020: GBP1,900,000)
------------------------------------ ---------------------------------------------------------------
aaa. Basis for bbb. 2% (2020: 2%) of shareholders' equity.
determining materiality
------------------------------------ ---------------------------------------------------------------
ccc. Rationale ddd. Our materiality is based on shareholders'
for the benchmark equity of the Group. Comprehensive income
applied is significantly influenced by fluctuations
in exchange rates, hence it will not be a
stable benchmark to use in our determination
of materiality. We consider shareholders'
equity to be the most important balance on
which the shareholders would judge the performance
of the Group.
------------------------------------ ---------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2021 and 2020 audit. In determining performance
materiality, we considered the following factors:
eee. the quality of the control environment and whether we were
able to rely on controls on over a number of business processes;
and
fff. our past experience of the audit, which has indicated a low
number of corrected and uncorrected misstatements.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP0.075m (2020:
GBP0.095m), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the Group
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team.
7.2. Our consideration of the control environment
The Group is administered by a third party Guernsey regulated
service provider, as part of our audit we assessed ISAE 3402 report
of the service organisations and obtained an understanding of the
relevant controls for debt, cash, expenses and revenue. In
addition, we also adopted a controls reliance approach in our
testing of recognition of lease rental income.
8. Other information
The other information comprises the information included in the
annual report other than the financial statements and our auditor's
report thereon. The directors are responsible for the other
information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the Group's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management and the audit
committee about their own identification and assessment of the
risks of irregularities;
-- any matters we identified having obtained and reviewed the
Group's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including tax, aviation industry and
internal valuation specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of
fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the valuation of
aircraft and recognition of lease rental income. In common with all
audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Guernsey) Law, 2008.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Group's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified valuation of
aircraft and recognition of lease rental income as key audit
matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response
to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance
and correspondence with the regulator; and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
We are required to review the directors' statement in relation
to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group's compliance
with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 23;
-- the directors' explanation as to its assessment of the
Group's prospects, the period this assessment covers and why the
period is appropriate set out on page 24;
-- the directors' statement on fair, balanced and understandable set out on page 25;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on page
22;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 22; and
-- the section describing the work of the audit committee set out on page 31.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Becker,
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
02 August 2021
CONSOLIDA T ED S T A T E M ENT OF COM PREHENSIVE INCOME
For the year ended 31 March 2021
Year ended Year ended
Notes 31 Mar 2021 31 Mar 2020
GBP GBP
INCOME
A rent income 4 55,249,852 57,607,083
B rent income 4 20,472,384 20,528,473
Bank interest received 7,837 101,216
------------- --------------
75,730,073 78,236,772
EXPENSES
Operating expenses 5 (1,731,914) (1,555,971)
Depreciation of Aircraft 10 (44,554,550) (47,506,703)
Impairment of Aircraft 10 (48,655,256) (56,167,300)
------------- --------------
(94,941,720) (105,229,974)
Net loss for the year
before finance costs and
foreign exchange losses (19,211,647) (26,993,202)
Finance costs 11 (7,318,998) (10,549,991)
Net loss for the year
after finance costs before
foreign exchange losses (26,530,645) (37,543,193)
Unrealised foreign exchange
gain/(loss) 7 25,146,182 (15,994,153)
------------- --------------
Loss for the year (1,384,463) (53,537,346)
Other Comprehensive Income - -
------------- --------------
Total Comprehensive Losses
for the year (1,384,463) (53,537,346)
------------- --------------
Pence Pence
Loss per Share for the
year - Basic and Diluted 9 (0.63) (24.34)
In arr i v ing at the results for the f inancial year, all
amounts above relate to continuing operation s.
T he notes on pages 64 to 90 form an integral part of these con
sol idated f inancial statements.
CONSOLIDA T ED S T A T E M ENT OF FINANCIAL POSITION
A s at 31 March 2021
31 Mar 2021 31 Mar 2020
Notes GBP GBP
NON-CURRENT ASSETS
Aircraft 10 292,634,892 385,844,698
-------------- --------------
CURRENT ASSETS
Receivables 13 124,564 60,243
Cash and cash equivalents 18 13,749,583 13,719,497
-------------- --------------
13,874,147 13,779,740
TOTAL ASSETS 306,509,039 399,624,438
-------------- --------------
CURRENT LIABILITIES
Borrowings 15 39,933,913 42,306,342
Deferred income 3,184,479 3,184,479
Rebates 16 339,805 381,116
Payables - due within one year 14 99,211 75,896
-------------- --------------
43,557,408 45,947,833
NON-CURRENT LIABILITIES
Borrowings 15 61,758,176 112,658,700
Deferred income 124,922,062 144,783,039
Rebates 16 509,707 938,717
-------------- --------------
187,189,945 258,380,456
-------------- --------------
TOTAL LIABILITIES 230,747,353 304,328,289
-------------- --------------
TOTAL NET ASSETS 75,761,686 95,296,149
-------------- --------------
EQUITY
Share capital 17 208,953,833 208,953,833
Retained loss (133,192,147) (113,657,684)
-------------- --------------
75,761,686 95,296,149
-------------- --------------
Pence Pence
Net Asset Value per Share based
on 220,000,000 (31 March 2020:
220,000,000) shares in issue 34.44 43.32
The consolidated financial statements were approved by the Board
of directors and authorised for issue on 2 August 2021 and are
signed on its behalf by:
Charles Wilkinson Geoffrey Hall
Director Director
T he notes on pages 64 to 90 form an integral part of these con
sol idated f inancial statements.
CONSOLIDA T ED S T A T E M ENT OF
CA SH FLOWS
For the for the year ended 31 March
2021 Year ended Year ended
31 Mar 2021 31 Mar 2020
Notes GBP GBP
OPERA TING ACTIVITIES
L oss for the year (1,384,463) (53,537,346)
Mo vement in deferred income (6,713,552) 17,188,328
Interest received (7,837) (101,216)
Deprec iation of Aircraft 10 44,554,550 47,506,703
Impairment of Aircraft 10 48,655,256 56,167,300
Loan interest payable 11 6,931,660 10,161,592
Increase in payables 23,315 12,712
Increa se in receivables (64,321) (2,203)
Foreign exchange movement 7 (25,146,182) 15,994,153
A m orti sation of debt arrange ment
costs 11 387,338 388,399
-------------------------- --------------------------
NET CA SH FROM OPERA TING ACTIVITIES 67,235,764 93,778,422
-------------------------- --------------------------
INVES TING ACTIVITIES
Interest received 7,837 101,216
-------------------------- --------------------------
NET CA SH FROM INVES TING ACTIVITIES 7,837 101,216
-------------------------- --------------------------
FINANCING ACTIVITIES
Di v idends paid 8 (18,150,000) (18,150,000)
Repa y ments of capital on borrow
ings 21 (41,716,622) (65,123,634)
I nterest on borrow ings 21 (7,185,167) (10,094,475)
-------------------------- --------------------------
NET CA SH USED IN FINANCING ACTIVITIES (67,051,789) (93,368,109)
-------------------------- --------------------------
CA SH AND CA SH EQUIV ALENTS AT BEGINNING
OF YEAR 13,719,497 13,113,249
Increa se in cash and cash equi valents 191,812 511,529
Effects of foreign exchange rates (161,726) 94,719
-------------------------- --------------------------
CA SH AND CA SH EQUIV ALENTS AT
OF YEAR 18 13,749,583 13,719,497
-------------------------- --------------------------
T he notes on pages 64 to 90 form an integral part of these con
sol idated f inancial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2021
Notes Share Retained Total
Capital Loss
GBP GBP GBP
Balance as at 1 April
2020 208,953,833 (113,657,684) 95,296,149
Total Comprehensive
Losses for the year - (1,384,463) (1,384,463)
Dividends paid 8 - (18,150,000) (18,150,000)
------------ -------------- -------------
Balance as at 31 March
2021 208,953,833 (133,192,147) 75,761,686
------------ -------------- -------------
Share Retained Total
Capital Loss
GBP GBP GBP
Balance as at 1 April
2019 208,953,833 (41,970,338) 166,983,495
Total Comprehensive
Losses for the year - (53,537,346) (53,537,346)
Dividends paid 8 - (18,150,000) (18,150,000)
------------ -------------- -------------
Balance as at 31 March
2020 208,953,833 (113,657,684) 95,296,149
------------ -------------- -------------
T he notes on pages 64 to 90 form an integral part of these
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2021
1 GENERAL INFORMATION
The consolidated financial statements incorporate the results of
Company, Subsidiary (together known as the Group).
The Company was incorporated in Guernsey on 29 March 2012 with
registered number 54908. The address of the registered office is
given on page 91. Its Share Capital consists of Shares and
Administrative Shares. The Company's Shares have been admitted to
trading on the SFS of the LSE Main Market.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling of the Aircraft. The principal activities of the
Company are set out in the Chair's Statement and Management Report
on pages 9 to 11 and 12 to 17 respectively.
2 ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are as
follows:
(a) Basis of Preparation
The consolidated financial statements have been prepared in
conformity with IFRS, as adopted by the EU, which comprise
standards and interpretations approved by the IASB and IFRIC as
adopted by the EU and applicable Guernsey law. The consolidated
financial statements have been prepared on a historical cost
basis.
The accounting policies adopted are consistent with those of the
previous financial year, except for the adoption of the new and
amended standards set out below.
(b) Adoption of new and revised Standards
New and amended IFRS Standards that are effective for current
year
The following Standard and Interpretations have been adopted in
the current year. Their adoption has not had a material impact on
the amounts reported in these consolidated financial statements and
is not expected to have any impact on future financial periods
except where stated otherwise:
-- IAS 1 and IAS 8, changes in accounting estimates and error'
on definition of material - These amendments to IAS 1, IAS 8 and
consequential amendments to other IFRSs: use a consistent
definition of materiality throughout IFRSs and the Conceptual
Framework for Financial Reporting; clarify the explanation of the
definition of material; and incorporate some of the guidance in IAS
1 about immateriality information. The effective date is for annual
periods beginning on or after 1 January 2020. The standard has not
had a material impact on the financial statements or performance of
the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the year ended 31 March 2021
2 ACCOUNTING POLICIES (continued)
(b) Adoption of new and revised Standards (continued)
New and Revised Standards in issue but not yet effective
IFRS 16 - Covid-19 related rent concessions. As a result of the
coronavirus (COVID-19) pandemic, rent concessions have been granted
to lessees. Such concessions might take a variety of forms,
including payment holidays and deferral of lease payments. Lessees
can elect to account for such rent concessions in the same way as
they would if they were not lease modifications. In many cases,
this will result in accounting for the concession as variable lease
payments in the period(s) in which the event or condition that
triggers the reduced payment occurs. The standard is not expected
to have a material impact on the financial statements or
performance of the Group as it is applicable to lessees. The
effective date is for annual periods beginning on or after June
2020. The standard is not expected to have a material impact on the
financial statements or performance of the Group and is not
endorsed by the EU.
IAS 1 Classification of Liabilities as Current or Non-current.
The IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current. The effective date is for annual periods beginning on
or after 1 January 2023. The standard is not expected to have a
material impact on the financial statements or performance of the
Group and is not endorsed by the EU.
(c) Basis of Consolidation
The consolidated financial statements incorporate the results of
the Company and its Subsidiary.
The Company owns 100 per cent. of all the shares in the
Subsidiary, and has the power to govern the financial and operating
policies of the Subsidiary so as to obtain benefits from its
activities. Intra-group balances and transactions, and any
unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated
financial statements.
(d) Taxation
The Company and its Subsidiary have been assessed for tax at the
Guernsey standard rate of 0 per cent.
(e) Share Capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of Shares are recognised as a deduction
from equity.
(f) Expenses
All expenses are accounted for on an accruals basis.
(g) Interest Income
Interest income is accounted for on an accruals basis.
(h) Foreign Currency Translation
The currency of the primary economic environment in which the
Group operates (the "functional currency") is GBP, GBP or Sterling,
which is also the presentation currency. Transactions denominated
in foreign currencies are translated into Sterling at the rate of
exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into the functional
currency at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the
Consolidated Statement of Comprehensive Income.
(i) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three
months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(j) Segmental Reporting
The directors are of the opinion that the Group is engaged in a
single segment of business, being acquiring, leasing and then
selling of the Aircraft.
(k) Going Concern
The directors have prepared these financial statements for the
year ended 31 March 2021 on the going concern basis.
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Group's aircraft values
and financial wellbeing of its Lessee both now and in the future.
The Pandemic continues to have a pervasive impact on the global
economy and it remains possible that the Group's future performance
could be impacted in this prolonged period of uncertainty. In many
jurisdictions restrictions on the ability of people to travel still
adversely affect the airline sector, and by extension the aircraft
leasing sector. The risk therefore remains that some airlines may
not be able to pay rent as it falls due. The impact of the Pandemic
on the aviation industry has been significant with a large part of
the global passenger aircraft fleet temporarily grounded. These
factors, together with wider economic uncertainty and disruption,
have had an adverse impact on the future value of the Aircraft
Assets owned by the Group, and could also negatively impact the
sale, re-lease or other disposition of the relevant Aircraft.
Given the prolonged impact of the Pandemic, increased Lessee
counterparty credit risk remains in existence and there could be
requests for Lease rental deferrals . Reduced rents receivable
under the Leases may not be sufficient to meet the debt interest
and regular repayments of debt scheduled during the life of each
Loan and the EETC, and may not provide surplus income to pay for
the Group's expenses and permit the declaration of dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
The directors consider that the going concern basis of
accounting remains appropriate. Based on current information the
directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future, although the risk to this is clearly higher since the
Pandemic hit the sector.
The Board will continue to actively monitor the financial impact
on Group from the evolving position with its aircraft lessee and
lenders whilst bearing in mind its fiduciary obligations and the
requirements of Guernsey law which determine the ability of the
Company to make dividends and other distributions.
Note 15 ('Borrowings') describes the borrowings obtained by the
Group to part-finance the acquisition of its Aircraft. The Group
has obligations under the Loans to make scheduled repayments of
principal and interest, which are serviced by the receipt of lease
payments from Emirates. The equipment notes were issued by DNAFA to
Wilmington Trust and the proceeds from the sale of the equipment
notes financed a portion of the purchase price of the four Airbus
A380-861 aircraft, with the remaining portion being financed
through contribution from the Company of the C Share issue
proceeds.
The Group's aircraft with carrying values of GBP292,634,890 are
pledged as security for the Group's borrowings (see note 15).
The directors, with the support of its Asset Manager, believe
that it is reasonable to assume as of date of approval of annual
financial statements that Emirates will continue with the
contracted lease rental payments due to the following:
- Emirates continues to be a going concern as at the date of the
Lessee's latest signed annual financial report for the financial
year ended on March 31, 2021.
- Challenged by an unprecedented drop in passenger air travel
during 2020, the Lessee reacted quickly and temporarily adjusted
its business model with a particular focus on air cargo services.
The high pandemic-driven demand in this space helped the Lessee to
contain its losses in the passenger segment.
- Although Emirates concluded its last financial year with the
first net loss in more than 30 years and refunded already paid
tickets in the amount of US$ 2.3 billion, it still has a
substantial cash position, which also benefited from the support of
its ultimate shareholder.
- Emirates confirmed to have access to the capital markets and
was able already able to secure committed offers for the financing
of two upcoming aircraft deliveries.
- The Government of Dubai has injected capital in the combined
amount of US$3.1 billion into Emirates so far, since the Pandemic
brought global air travel to a near halt. It previously had
publicly confirmed that they will financially support Emirates
during this period.
- Emirates' listed debt and CDS's are trading at non-distressed
levels, indicating the trust capital markets have in Emirates.
- As of the date of the annual financial report, the Board is
not aware of a formal request to the Group for a lease payment
deferral or any other efforts that would result in the
restructuring of the existing transaction.
- Emirates has paid all the lease rentals to the Group in a timely manner.
- if end of lease negotiations with Emirates have not been
concluded by the end of the terms of each current Lease, the Lease
rentals due under the existing agreements must continue to be
paid.
Whilst there is some uncertainty as to the airline industry in
general, and specifically Emirates' financial position and credit
risk profile, on the basis that (i) Emirates has shown no intention
of failing to meet its obligations (ii) Emirates has the financial
backing to continue paying these rentals, the directors believe
that it is appropriate to prepare these financial statements under
the going concern basis of preparation.
The directors have considered Emirates' ability to continue
paying the lease rentals over the next 12 months and are satisfied
that the Group can meet its liabilities as they fall due over this
period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement on
page 19. Refer to note 12 for expiry dates of the leases.
(l) Leasing and Rental Income
The Leases relating to the Assets have been classified as
operating leases as the terms of the Leases do not transfer
substantially all the risks and rewards of ownership to the Lessee.
The Assets are shown as non-current assets in the Consolidated
Statement of Financial Position. Further details of the Leases are
given in note 12.
Rental income and advance lease payments from operating leases
are recognised on a straight-line basis over the term of the
relevant Lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of
the leased Asset and amortised on a straight-line basis over the
lease term.
(m) Property, Plant and Equipment - Aircraft
In line with IAS 16, each Asset is initially recorded at the
fair value of the consideration paid. The cost of the Asset is made
up of the purchase price of the Asset plus any costs directly
attributable to bringing it into working condition for its intended
use. Costs incurred by the Lessee in maintaining, repairing or
enhancing the Aircraft are not recognised as they do not form part
of the cost to the Group. Accumulated depreciation and any
recognised impairment losses are deducted from cost to calculate
the carrying amount of the Asset.
Depreciation is recognised so as to write off the cost of each
Asset less the estimated residual value over the estimated useful
life of the Asset of 12 years, using the straight line method. As
at 31 March 2021, the estimated residual value of the four planes
ranges from GBP34.4 million to GBP34.8 million (31 March 2020:
GBP44.4 million to GBP45.1 million). Residual values have been
arrived at by taking the average amount of three independent
external valuers and after taking into account disposition fees
where applicable. The residual values of the A380 Aircraft were
determined using soft values excluding inflation, which best
approximates residual value as required by IAS 16.
Due to the change in the estimate of residual value of the
Aircraft which have been translated at the foreign exchange rate
prevailing as at 31 March 2021, there has been a GBP7,286,619
increase in the annual depreciation charge as compared to what
the charge would have been if based on residual value determined as
at 31 March 2020 translated at the foreign exchange prevailing as
at 31 March 2020.
The depreciation method reflects the pattern of benefit
consumption. The residual value is reviewed annually and is an
estimate of the fair amount the entity would receive today. Useful
life is also reviewed annually and, for the purposes of the
financial statements represents the likely period of the Group's
ownership of these Assets. Depreciation starts when the Asset is
available for use.
At each audited Consolidated Statement of Financial Position
date, the Group reviews the carrying amounts of its Aircraft to
determine whether there is any indication that those Assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the Asset is estimated to determine the
extent of the impairment loss (if any). Further details are given
in note 3.
Recoverable amount is the higher of fair value less costs to
sell and the VIU. In assessing VIU, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the Asset for which the estimates of
future cash flows have not been adjusted.
An impairment loss exists when the carrying value of an asset or
cash generating unit exceeds its recoverable amount, since it was
not possible to measure fair value less costs of disposal because
there is no basis for making a reliable estimate of the price at
which an orderly transaction to sell the asset would take place
between market participants at the measurement date under current
market conditions hence, the Group used the asset's value in use as
it recoverable amount.
(n) Financial instruments
A financial instrument is recognised when the Group becomes a
party to the contractual provisions of the instrument. Financial
liabilities are derecognised if the Group's obligations, specified
in the contract, expire or are discharged or cancelled.
Financial assets are derecognised if the Group's contractual
rights to the cash flows from the financial assets expire, are
extinguished, or if the Group transfers the financial assets to a
third party and transfers all the risks and rewards of ownership of
the Asset, or if the Group does not retain control of the asset and
transfers substantially all the risk and rewards of ownership of
the Asset.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
- Amortised cost;
- FVOCI; or
- FVTPL.
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Group only has
financial assets that are classified as amortised cost.
i) Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost.
These assets are subsequently measured at amortised cost using
the effective interest method. The effective interest method
calculates the amortised cost of financial instruments and
allocates the interest over the period of the instrument.
The Group's financial assets held at amortised cost include
trade and other receivables and cash and cash equivalents.
The Group assesses on a forward looking basis the expected
credit losses associated with its financial assets held at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
ii) Financial liabilities held at amortised cost
Financial liabilities consist of payables and borrowings. The
classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was issued
and its characteristics. All financial liabilities are initially
measured at fair value, net of transaction costs. All financial
liabilities are recorded on the date on which the Group becomes
party to the contractual requirements of the financial liability.
Financial liabilities are subsequently measured at amortised cost
using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of the financial liability and of allocating
interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or,
where appropriate, a shorter period, to the net carrying amount on
initial recognition.
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
3 S IGNIFICANT JUDGE M ENTS AND ES TIM A T ES
In the application of the Group's accounting policies, which are
described in note 2, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The following are the critical judgements and estimates that the
directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the consolidated financial
statements.
Estimates
Residual Value, Impairment and Useful Life of Aircraft
As described in note 2 (m), the Group depreciates the Assets on
a straight line basis over the estimated useful life of the Assets
after taking into consideration the estimated residual value.
IAS 16 requires residual value to be determined as an estimate
of the amount that the Group would currently obtain from the
disposal of the Asset, after deducting the estimated costs of
disposal, if the Asset were of the age and condition expected at
the end of its useful life. However, there are currently no data
for aircraft of a similar type of sufficient age for the directors
available to make a direct market comparison in making this
estimation. The residual values of the A380 Aircraft are determined
using soft values excluding inflation since directors consider this
best approximates to residual value as required by IAS 16.
In estimating residual value for the year, the directors refer
to future soft values (excluding inflationary effects) for the
Asset obtained from three independent expert aircraft valuers. This
has resulted in a further reduction in the anticipated residual
value of the Aircrafts since the prior financial year. Details of
which have been disclosed in note 10.
The Group's future performance can potentially be impacted
should COVID-19 have a pervasive and prolonged impact on the
aviation industry and on the business of its lessee and also affect
the residual values of the aircraft it owns. This together with the
wider economic uncertainty, disruption and illiquid market for the
A380, are likely to have an adverse impact on the future value of
the aircraft assets owned by the Group, as well as on the sale,
re-lease, or other disposition of the relevant aircraft. Therefore
the estimation of residual value remains subject to material
uncertainty.
If the estimate of uninflated residual value for use in
calculating depreciation had been decreased by 30 per cent with
effect from the beginning of this year, the depreciation charge for
the year would have increased by approximately GBP7.4 million (31
March 2020: GBP5.5 million). However because residual value is a
component of the VIU calculation that forms part of the impairment
loss calculation, the overall impact on profit for the period would
be GBP33.3 million.
An increase in residual value by 30 per cent would have had an
equal but opposite effect. This reflects the range of estimates of
residual value that the directors believe would be reasonable at
this time. The useful life of each Asset, for the purpose of
depreciation of the Asset under IAS 16, is estimated based on the
expected period for which the Group will own and lease the
Aircraft. The Board of directors expects that the Aircraft will
have a working life in excess of this period.
The impairment assessment was performed by comparing the
depreciated cost of the Aircraft with VIU (since it was not
possible to measure fair value less costs of disposal because there
is no basis for making a reliable estimate of the price at which an
orderly transaction to sell the asset would take place between
market participants at the measurement date under current market
conditions hence, the entity used the asset's value in use as it
recoverable amount). Rental cash flows to the end of the contracts
have been used in the calculation of VIU as the cash flows are
contractual. Any assumptions with regards to issues in counterparty
credit risk would be reflected in the discount rate used to
calculate the net present value of future cash flows. In
determining the VIU, the gross value of future contractual cash
flows including a residual value assumption was discounted to
present value using the companies WACC (6.5 per cent.). The present
value of the cash flows was lower than depreciated cost which
therefore gave rise to an impairment loss.
Residual values for the purpose of the impairment test are
determined to be the soft values (at an inflation rate of 1.5 per
cent at the end of the Aircraft's useful life), being considered
the most appropriate. A soft market is considered where the world's
principal traffic generating regions are in the middle of a
recession or a period of economic stagnation, which historically
have a negative impact on aircraft values. This is when airlines
experience low growth or even traffic reductions, make losses, cut
their fleets and staff or reduce fleet growth plans. The market
becomes imbalanced, with supply outstripping demand, resulting in
more parked aircraft and lower utilisation rates, which in turn,
increase aircraft availability. The prevailing conditions, the lack
of transactional data and the limited second hand market for A380
aircraft that currently exists means that the independent expert
aircraft valuers have attributed a more significant weighting to a
part out value when determining their soft value point estimate. It
is also assumed that a market will exist under each scenario
contemplated when determining those
valuations. If the assumptions prove to be false, actual results
of operations and realisation of the Company's Aircraft asset could
differ from the estimates set forth in these financial statements,
and the difference could be could be material.
Additionally, these values have been tested with regards its
sensitivity to the discount rates. Discount rates at a -0.5 per
cent. and +0.5 per cent. interval have been tested on either side
of the WACC (6.5 per cent.) initially, with -1 per cent. and +1 per
cent. intervals used for the analysis thereafter.
The Asset Manager considers that the inflated future soft value
is the most appropriate measures to use for the residual value for
the following reasons:
-- The residual value is discounted at the WACC which would
include a return for the time value of money (inflation). The
inflated values (1.5 per cent. p.a. inflation assumed) are
therefore used to avoid double counting when producing the
discounted future cash flow value.
-- The calculation of cash flow is an assumption on the Group's
best estimation of a) contracted cash flows and b) residual.
Pricing increases of 1.5 per cent. p.a. is considered to be the
best estimation as to what the Group would receive for residual
value in future years on a like for like basis, taking the current
economic climate into account.
Rental cash flows to the end of the contract has been used in
the calculation of the future cash flow as the cash flows are
contractual. Any assumptions with regards issues in counterparty
credit risk would be reflected in the discount rate used to
calculate the net present value of future cash flows.
The directors, with the support of its Asset Manager believe
that for the Group it is reasonable to assume as of date of
approval of annual financial statements that Emirates will continue
with the contracted lease rental payments and there is no evidence
at this time that either
Emirates will default. The marketability of the aircraft post
Lease will depend on how demand for air travel will bounce back in
a post COVID-19-crisis environment.
The directors on the advice of the Asset Manager considers that
6.5 per cent. is the most appropriate WACC for the following
reasons:
-- The discount rate should be a rate commensurate with what a
normal market participant would consider to be the risk inherent in
the assets.
-- The risk profile of Emirates. Emirates unsecured USD bonds
indicate a running USD yield of 3.8 per cent. to 4.4 per cent.,
depending on the maturity .
-- By using soft values to approximate residual values (and 1.5
per cent. p.a. inflation), the discount rate is considered
appropriate to avoid double counting of risk.
Based on the impairment review performed, an impairment loss of
GBP48,655,256 was recognized the current year (31 March 2020:
GBP56,167,300), which resulted in an updated carrying value of the
Aircraft in total to GBP 292,634,890 at year end (31 March 2020:
GBP 385,844,698), as reflected in note 10 .
If the discount rates had been decreased by 0.5 percentage
points with effect from the beginning of this year, the net profit
for the year and closing Shareholders' equity would have been
increased by approximately GBP3.6 million. An increase in the
discount rates by 0.5 percentage points would have had an equal but
opposite effect.
If the latest residual value estimates had been decreased by 30
per cent., the impairment loss would have increased by GBP25.6
million. This together with the increased depreciation charge of
GBP7.4 million (see page 60) means that the overall impact of a 30
per cent. fall in residual values would be to reduce net profit for
the year and closing Shareholders equity by 33.3 million. An
increase in residual value estimates would have an equal and
opposite effect
Impairment
As described in note 2(m), an impairment loss exists when the
carrying value of an asset or cash generating unit exceeds its
recoverable amount, since it was not possible to measure fair value
less costs of disposal because there is no basis for making a
reliable estimate of the price at which an orderly transaction to
sell the asset would take place between market participants at the
measurement date under current market conditions hence, the Group
used the asset's VIU as it recoverable amount.
The directors review the carrying amount of its Assets at each
audited Statement of Financial Position date and monitor the Assets
for any indications of impairment as required by IAS 16 and IAS
36.
In assessing VIU, the estimated future cash flows expected to be
generated by the Assets (i.e. the income streams associated with
the Lease and the expected future soft value of the Aircraft at the
end of the Lease) are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the Assets and
the credit risk profile of the Lessee.
In determining fair value less costs of disposal, recent market
transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is
used. Such valuation reflects the current use given the fact that
the Aircraft are held for use in a leasing business.
Factors that are considered important which could trigger an
impairment review include, but are not limited to, significant
decline in the market value beyond that which would be expected
from the passage of time or normal use, significant changes in the
technology and regulatory environments, evidence from internal
reporting which indicates that the economic performance of the
Assets are, or will be, worse than expected.
The Board together with the Asset Manager have conducted an
impairment review in the current year as the below items may result
in pricing changes for the Aircraft:
-- The impact of COVID-19 on the business of airlines and
indirectly aircraft values, as well as on the credit risk profile
of the Company's Lessee could indicate the need for impairment.
Judgements
Operating Lease Commitments - Group as Lessor
The Group has entered into operating leases on four (31 March
2020: four) Assets. The Group has determined, based on an
evaluation of the terms and conditions of the arrangements, that it
retains all the significant risks and rewards of ownership of these
Assets and accounts for the contracts as operating leases.
Functional Currency
The currency of the primary economic environment in which the
Group operates (the functional currency) is GBP, which is also the
presentation currency.
This judgement is made on the basis that this is representative
of the operations of the Group due to the following:
-- the Company's share capital was issued in GBP;
-- its dividends are paid to Shareholders in GBP, and that
certain of the Group's significant operating expenses as well as
portion of the Groups' rental income are incurred/earned in
GBP.
In addition, the set-up of the leasing structures was designed
to offer a GBP return to GBP investors.
4 RENT AL INCOME
1 Year ended Year ended
31 Mar 2021 31 Mar 2020
GBP GBP
A rent income 48,536,299 74,851,499
Revenue received but not yet earned (21,404,111) (47,506,653)
Revenue earned but not received or due
in the Period 25,219,816 27,368,093
A m orti sation of ad van ce rental
income 3,184,479 3,193,203
Dedu ction of rebate monies (286,631) (299,059)
--------------------------- ---------------------------
55,249,852 57,607,083
--------------------------- ---------------------------
B rent income 20,472,385 20,472,385
Revenue received but not yet earned (84,133) (28,044)
Revenue received but not received in
the Period 84,132 84,132
--------------------------- ---------------------------
20,472,384 20,528,473
--------------------------- ---------------------------
T otal rental income 75,722,236 78,135,556
--------------------------- ---------------------------
Rental income is derived from the leasing of the Assets. Rent is
split into A rent, which is received in $ and B rent, which is
received in Sterling. Rental income received in US dollars is
translated into the functional currency (Sterling) at the date of
the transaction.
An adjustment has been made to spread the actual total income
receivable over the term of the respective Lease on an annual
basis. In addition, advance rentals received have also been spread
over the full term of the leases.
5 OPERATING EXPENSES
Year ended Year ended
31 Mar 2021 31 Mar 2020
GBP GBP
Corporate shareholder and advisor fee
(note 23) 478,443 466,775
A ss et management fee (note 23) 645,961 630,152
Liaison agent fee (note 23) 71,517 70,017
A dm ini stration fees (note 23) 91,890 121,136
B ank interest and charges 2,898 10,007
A cc ountancy fees 21,480 23,253
Regi strar fees (note 23) 18,494 19,787
A udit fee 33,900 33,900
Directors' remuneration (note 6) 102,000 104,169
Directors' and off i cers' insurance* 186,512 27,583
Legal and profess ional expenses 24,468 20,569
A nnual fees 13,910 10,659
Other operating expenses** 40,441 17,964
------------------ ------------------
1,731,914 1,555,971
------------------ ------------------
* Due to market conditions at renewal, the Directors' and
officers' insurance premium was subject to a large increase.
** Expenses have been incurred by Amedeo Management Limited to
the amount of GBP13,653 which is in relation to marketing and board
meeting expenses and have been reimbursed during the current year.
The remaining balance in other operating expenses consist mainly of
printing and stationery and also a small amount of operational
sundry expenses.
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each director is paid a fee of
GBP23,000 per annum by the Group, except for the Chair, who
receives GBP29,000 per annum and the Chair of Audit committee, who
receives GBP27,000 per annum. The rate of remuneration per director
has remained unchanged.
7 UNREALISED FOREIGN EXCHANGE GAINS/(LOSSES)
Year ended Year ended
31 Mar 2021 31 Mar 2020
G BP G BP
Cash at bank (161,721) 94,719
Deferred income 13,147421 (7,257,596)
Borrowings 12,055,651 (8,761,701)
Rebates 104,831 (69,575)
-------------- ----------------
25,146,182 (15,994,153)
-------------- ----------------
The foreign exchange gain in the year reflects the 9.89 per
cent. movement in the Sterling/US dollar exchange rate from 1.242
as at 31 March 2020 to 1.3783 as at 31 March 2021.
8 DIVIDS IN RESPECT OF EQUITY SHARES
Year ended
31 Mar 2021
Pence
GBP per
Share
First interim dividend 4,537,500 2.0625
Second interim dividend 4,537,500 2.0625
Third interim dividend 4,537,500 2.0625
Fourth interim dividend 4,537,500 2.0625
----------- -------
18,150,000 8.25
----------- -------
Year ended
31 Mar 2020
Pence
GBP per
Share
First interim dividend 4,537,500 2.0625
Second interim dividend 4,537,500 2.0625
Third interim dividend 4,537,500 2.0625
Fourth interim dividend 4,537,500 2.0625
----------------- -----------
18,150,000 8.25
----------------- -----------
Refer to the Subsequent Events in note 24 in relation to dividends
declared and paid in April and July 2021.
9 LOSS PER SHARE
LPS is based on the net loss for the year attributable to
holders of Shares in the Company of GBP1,384,463 (31 March 2020:
net loss for the year of GBP53,537,346) and 220,000,000 (31 March
2020: 220,000,000) Shares being the weighted average number of
Shares in issue during the year.
There are no dilutive instruments and therefore basic and
diluted LPS are identical.
10 PROPERTY, PLANT AND EQUIPMENT - AIRCRAFT
Aircraft
GBP
COST
As at 1 Apr 2020 618,050,915
------------
As at 31 Mar 2021 618,050,915
------------
ACCUMULATED DEPRECIATION AND IMPAIRMENT
As at 1 Apr 2020 232,206,217
Depreciation charge based on previous residual
values 37,267,931
Adjustment due to change in US dollar residual
values 4,564,502
Adjustment due to FX movements on residual values 2,722,117
------------
Net depreciation charge for the year 44,554,550
------------
Adjustment due to impairment 48,655,256
As at 31 Mar 2021 325,416,023
------------
CARRYING AMOUNT
As at 31 Mar 2021 292,634,892
------------
As at 31 Mar 2020 385,844,698
------------
The Group used forecast soft values excluding inflation which
best approximates residual value as required per IAS 16 (refer to
note 3). The combined effect of translating residual values at the
Sterling /US Dollar exchange rate prevailing at 31 March 2021 of
1.3783 (31 March 2020: 1.2420) and a 14.2 per cent. decrease in
average appraised residual values in US Dollar terms, resulted in a
GBP7,286,619 increase in the annual depreciation charge for the
current year as compared to the charge which would have been made
if based on the 31 March 2020 residual value and foreign exchange
rates.
The Group can sell the Assets during the term of the Leases
(with the Lease attached and in accordance with the terms of the
transfer provisions contained therein).
Under IFRS 16 the direct costs attributed in negotiating and
arranging the operating leases have been added to the carrying
amount of the leased Asset and therefore are being recognised as an
expense over the lease term. The costs have been allocated to each
Aircraft based on the proportional cost of the Asset.
Refer to note 3 for details on the impairment review,
sensitivities conducted and residual value assumptions and
estimates.
11 FINANCE COSTS
Year ended Year ended
31 Mar 2021 31 Mar 2020
GBP GBP
Amortisation of debt arrangements
costs 387,338 388,399
Interest payable 6,931,660 10,161,592
------------- -------------
7,318,998 10,549,991
------------- -------------
12 OPERATING LEASES
The amounts of minimum future lease receipts at the reporting
date under non-cancellable operating leases are detailed below:
31 Mar 2021 Next 12
months 1 to 5 years After 5 years Total
GBP GBP GBP GBP
Aircraft- A rental
receipts 44,025,219 65,853,895 - 109,879,114
Aircraft- B rental
receipts 20,472,384 71,662,728 - 92,135,112
----------- ------------- -------------- ------------
64,497,603 137,516,623 - 202,014,226
----------- ------------- -------------- ------------
31 Mar 2020 Next 12
months 1 to 5 years After 5 years Total
GBP GBP GBP GBP
Aircraft - A rental
receipts 49,626,580 122,314,602 - 171,941,182
Aircraft - B rental
receipts 20,472,384 81,889,536 10,245,576 112,607,496
----------- -------------- -------------- ----------------
70,098,964 204,204,138 10,245,576 284,548,678
----------- -------------- -------------- ----------------
The operating leases are for four Airbus A380-861 aircraft. The
terms of the leases are as follows:
MSN132 Limited - term of the lease is for 12 years ending August
2025. The initial lease is for 10 years ending August 2023, with an
extension period of two years ending August 2025, in which rental
payments reduce. The present value of the remaining rentals in the
extension period at the end of the initial 10 year lease must be
paid even if the option is not taken.
MSN133 Limited - term of the lease is for 12 years ending
November 2025. The initial lease is for 10 years ending November
2023, with an extension period of two years ending November 2025,
in which rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10 year
lease term must be paid even if the option is not taken.
MSN134 Limited - term of the lease is for 12 years ending
November 2025. The initial lease is for 10 years ending November
2023, with an extension period of two years ending November 2025,
in which rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10 year
lease term must be paid even if the option is not taken.
MSN136 Limited - term of the lease is for 12 years ending
October 2025. The initial lease is for 10 years ending October
2023, with an extension period of two years ending October 2025, in
which rental payments reduce. The present value of the remaining
rentals in the extension period at the end of the initial 10 year
lease term must be paid even if the option is not taken.
13 RECEIVABLES
31 Mar 2021 31 Mar 2020
GBP GBP
Prepayments 124,524 60,203
Sundry debtors 40 40
124,564 60,243
------------ ------------
The above carrying value of receivables is equivalent to fair
value.
14 PAYABLES (amounts falling due within one year)
31 Mar 2021 31 Mar 2020
GBP GBP
Accrued administration fees 9,838 12,032
Accrued audit fee 33,200 20,460
Accrued registrar fees (note 23) 4,259 3,881
Other accrued expenses 51,914 39,523
99,211 75,896
------------ ------------
The above carrying value of payables is equivalent to the fair
value.
15 BORROWINGS
31 Mar 2021 31 Mar 2020
GBP GBP
Equipment Notes 103,460,047 157,120,338
Associated costs (1,767,958) (2,155,296)
101,692,089 154,965,042
------------ ------------
Current portion 39,933,913 42,306,342
----------- ------------
Non-current portion 61,758,176 112,658,700
----------- ------------
Notwithstanding the fact that GBP41.7 million (31 March 2020:
GBP65.1 million) debt was repaid during the year, as per the
Consolidated Statement of Cash Flows, the value of the borrowings
has decreased by GBP53.3 million (31 March 2020: GBP55.5 million)
due to the 9.89 per cent per cent. movement in the Sterling / US
dollar exchange rate for the period from 1.242 at 31 March 2020 to
1.3783 at 31 March 2021. See note 21.
The amounts below detail the future contractual undiscounted
cash flows in respect of the Loans and equipment notes, including
both the principal and interest payments, and will not agree
directly to the amounts recognised in the Consolidated Statement of
Financial Position:
31 Mar 2021 31 Mar 2020
GBP GBP
A m ount due for settlement w ithin
12 months 44,355,945 49,616,510
--------------- --------------
A m ount due for settlement a fter 12
months 65,835,747 122,284,388
--------------- --------------
In order to finance the acquisition of the Assets, the
Subsidiary used the Certificates. The Certificates have an
aggregate face amount of approximately $630 million, made up of
"Class A" certificates and "Class B" certificates. The Class A
certificates in aggregate have a face amount of $462 million with
an interest rate of 5.250 per cent and a final expected
distribution date of 30 May 2023. The Class B certificates in
aggregate had a face amount of $168 million with an interest rate
of 6.125 per cent. and were repaid on 30 November 2019. There is a
separate trust for each class of Certificate. The trusts used the
funds from the Certificates to acquire equipment notes. The
equipment notes were issued to Wilmington Trust, National
Association as pass through trustee in exchange of the
consideration paid by the purchasers of the Certificates. The
equipment notes were issued by the Subsidiary and the proceeds from
the sale of the equipment notes financed a portion of the purchase
price of the four airbus A380-861 Aircraft, with the remaining
portion being financed through contribution from the Group of the
Share issue proceeds. The holders of the equipment notes issued for
each Aircraft have the benefit of a security interest in such
Aircraft. The remaining balance is being repaid by continuing to
amortise borrowings that pays both principal and interest through
periodic payments.
In the directors' opinion, the carrying values of the equipment
notes are approximate to their fair value.
16 REBATES
Upon entering into the leases it was agreed that the Lessee
would pay to the Group such amount as estimated to be necessary to
fund the payment by the Group of certain costs, fees and expenses
associated with the transactions arising from the leases. Following
payment of the costs, fees and expenses, it was agreed that such
amount paid by the lessee exceeded the amount actually necessary.
It was agreed that the Group would return the excess to the Lessee
over the remaining life of the leases in May and November of each
year. Upon any termination of a lease prior to its end the Group
shall pay the entire remaining unpaid excess relating to such
Aircraft to such account as is directed by the Lessee, but without
any interest accrued thereon.
17 SHARE CAPITAL
The Share Capital of the Company is represented by an unlimited
number of shares.
Issued Administrative
Shares Shares
Issued shares as at 31 Mar 2021 and
31 Mar 2020 2 220,000,000
--------------- -------------
Issued Administrative
Shares Shares Total
GBP GBP GBP
Shares
Share Capital as at 31 Mar
2021 and 31 Mar 2020 - 208,953,833 208,953,833
----------------- ------------- -------------
Members holding Shares are entitled to receive and participate
in any dividends out of income attributable to the Shares; other
distributions of the Group available for such purposes and resolved
to be distributed in respect of any accounting period; or other
income or right to participate therein.
Upon winding up, Shareholders are entitled to the surplus assets
attributable to the share class remaining after payment of all the
creditors of the Group. Members have the right to receive notice of
and to attend, speak and vote at general meetings of the Group.
However the Board has considered the potential impact of the
Pandemic on the arrangements for the AGM. The Group is required by
The Companies (Guernsey) Law, 2008, as amended, to hold an AGM.
Measures taken by the States of Guernsey in response to the
Pandemic mean that attendance at the AGM by Shareholders who are
not residents of Guernsey is not reasonably practicable.
Due to the Pandemic there will be little opportunity to
physically interact with the directors therefore AGM's are not
performed in person. However, the Board considers it important that
all Shareholders have the opportunity to make their views known and
to exercise their voting rights at the AGM. The Group strongly
encourages all Shareholders to exercise their votes in respect of
the meeting in advance and to submit any questions they may have to
either the Secretary or the Corporate and Shareholder Adviser.
The holders of Administrative Shares are not entitled to
receive, and participate in, any dividends out of income; other
distributions of the Group available for such purposes and resolved
to be distributed in respect of any accounting period; or other
income or right to participate therein. On a winding up, holders
are entitled to a return of capital paid up on them after the
Shares have received a return of their capital paid up but ahead of
the return of all additional capital to the holders of Shares.
The holders of Administrative Shares shall not have the right to
receive notice of and no right to attend, speak and vote at general
meetings of the Group, except for the Liquidation Proposal Meeting
(general meeting convened six months before the end term of the
Lease where the Liquidation Resolution will be proposed) or if
there are no Shares in existence.
18. CASH AND CASH EQUIVALENTS
31 Mar 2021 31 Mar 2020
GBP GBP
Cash at bank 13,749,583 13,719,497
13,749,583 13,719,497
------------- -----------------
Cash and cash equivalents are highly liquid, readily convertible
and are subject to insignificant risk of changes in value.
19. FINANCIAL INSTRUMENTS
The Group's main financial instruments comprise:
Cash and cash equivalents that arise directly from the Group's
(a) operations; and
(b) The debt secured on non-current assets.
20. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's objective is to obtain income and returns and a
capital return for its Shareholders by acquiring, leasing and then
selling Aircraft.
The following table details the categories of financial assets
and liabilities held by the Group at the reporting date:
31 Mar 2021 31 Mar 2020
GBP GBP
Financial assets
Cash and cash equivalents 13,749,583 13,719,497
Receivables (excluding prepayments) 40 40
------------ ------------
Financial assets measured at amortised
cost 13,749,623 13,719,537
------------ ------------
Financial liabilities
Payables 99,209 75,897
Borrowings 101,692,089 154,965,042
------------ ------------
Financial liabilities measured at amortised
cost 101,791,298 155,040,939
------------ ------------
The main risks arising from the Group's financial instruments
are capital management risk, foreign currency risk, credit risk,
liquidity risk and interest rate risk. The Board regularly review
and agrees policies for managing each of these risks and these are
summarised below:
(a) Capital Management
The Group manages its capital to ensure that the Group will be
able to continue as a going concern while maximising the return to
Shareholders through the optimisation of the debt and equity
balance.
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 15, cash and cash
equivalents disclosed in note 18 and equity attributable to equity
holders, comprising issued capital and retained earnings.
The Group's Board reviews the capital structure on a bi-annual
basis.
Equity includes all capital and reserves of the Group that are
managed as capital.
No changes were made in the objectives, policies or processes
for managing capital during the years ended 31 March 2021 and
2020.
(b) Foreign Currency Risk
The Group's accounting policy under IFRS requires the use of a
Sterling historic cost of the Assets and the value of the US dollar
debt as translated at the spot exchange rate on every reporting
date. In addition US dollar operating lease receivables are not
immediately recognised in the statement of financial position and
are accrued over the period of the Leases. The directors consider
that this introduces an artificial variance due to the movement
over time of foreign exchange rates. In actuality, the US dollar
operating lease should offset the US dollar payables on the
amortising debt. The foreign exchange exposure in relation to the
equipment notes is thus almost entirely hedged.
Lease rentals (as detailed in notes 4 and 12) are received in US
dollars and Sterling. Those lease rentals received in US dollars
are used to pay the equipment note repayments due, also in US
dollars (as detailed in note 16). Both US dollar lease rentals and
equipment note repayments are fixed and are for similar sums and
similar timings. The matching of lease rentals to settle equipment
note repayments therefore minimise risks caused by foreign exchange
fluctuations.
The carrying amounts of the Group's foreign currency denominated
monetary assets and liabilities at the reporting date are as
follows:
31 Mar 2021 31 Mar 2020
GBP GBP
Debt (US dollar) - Liabilities 103,460,047 (157,120,337)
Cash and cash equivalents (US dollar)
- Asset 1,363,793 1,893,324
------------ --------------
The following table details the Group's sensitivity to a 25 per
cent. (31 March 2020: 25 per cent.) appreciation and depreciation
in Sterling against US dollar. 25 per cent. (31 March 2020: 25 per
cent.) represents the directors' assessment of the reasonably
possible change in foreign exchange rates. The sensitivity analysis
includes only outstanding foreign currency denominated monetary
items and adjusts their translation at the period end for a 25 per
cent. (31 March 2020: 25 per cent.) change in foreign currency
rates. A positive number below indicates an increase in profit and
other equity where Sterling strengthens 25 per cent. (31 March
2020: 25 per cent.) against the US dollar. For a 25 per cent. (31
March 2020: 25 per cent.) weakening of Sterling against the US
dollar, there would be a comparable but opposite impact on the
profit and other equity:
31 Mar 2021 31 Mar 2020
US dollar US dollar
Impact Impact
GBP GBP
Profit or loss (20,964,768) 31,045,402
Assets (272,759) (378,665)
Liabilities (20,692,009) 31,424,067
------------- ------------
On the eventual sale of the Assets, the Group may be subject to
foreign currency risk if settled in a currency other than Sterling.
Transactions in similar assets are typically priced in US
dollars.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group.
Refer to the going concern section page 18 where an assessment
of Emirates is made.
The credit risk on cash transactions are mitigated by
transacting with counterparties that are regulated entities subject
to prudential supervision, or with high credit ratings assigned by
international credit rating agencies.
The Group's financial assets exposed to credit risk are as
follows:
31 Mar 2021 31 Mar 2020
GBP GBP
Receivables (excluding prepayments) 40 40
Cash and cash equivalents 13,749,583 13,719,497
13,749,623 13,719,537
------------ ------------
Surplus cash in the Company is held with RBSI. Surplus cash in
the Subsidiary is held in accounts with RBSI and Wilmington Trust.
The banks have credit rating given by Moody's of Baa1 and A3
respectively. The banks are shown as having a stable rating.
There is a contractual credit risk arising from the possibility
that the Lessee may default on the lease payments. This risk is
mitigated, as under the terms of the lease agreements between the
Lessee and the Group, any non payment of the lease rentals
constitutes a "Special Termination Event", under which the Lease
terminates and the Group may either choose to sell the Asset or
lease the Assets to another party.
At inception of the Lease, the Group selected a Lessee with a
strong balance sheet and financial outlook. The financial strength
of Emirates is regularly reviewed by the Board and the Asset
Manager.
(d) Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in realising assets or otherwise raising funds to meet
financial commitments. The Group's main financial commitments are
its ongoing operating expenses and payments on equipment notes.
Ultimate responsibility for liquidity risk management rests with
the Board, which established an appropriate liquidity management
framework at the incorporation of the Group, through the timings of
lease rentals and debt repayments. The Group manages liquidity risk
by maintaining adequate reserves, banking facilities and borrowing
facilities, by monitoring forecast and actual cash flows, and by
matching profiles of financial assets and liabilities.
The table below details the residual contractual maturities of
financial liabilities. The amounts below are contractual
undiscounted cash flows, including both the principal and interest
payments, and will not agree directly to the amounts recognised in
the consolidated statement of financial position:
Over 5
1-3 months 3-12 months 1-2 years 2-5 years years
31 Mar 2021 GBP GBP GBP GBP GBP
Financial liabilities
Payables - due
within one year 99,209 - - - -
Equipment Notes 22,223,184 22,132,761 43,986,298 21,849,450 -
----------- ------------ ----------- ----------- -------
22,322,393 22,132,761 43,986,298 21,849,450 -
----------- ------------ ----------- ----------- -------
Over 5
1-3 months 3-12 months 1-2 years 2-5 years years
31 Mar 2020 GBP GBP GBP GBP GBP
Financial
liabilities
Payables -
due
within one
year 75,897 - - - -
Equipment
Notes 24,856,303 24,760,207 49,223,671 73,060,717 -
----------------- ------------------- --------------------- ---------------------- ----------------------
24,932,200 24,760,207 49,223,671 73,060,717 -
----------------- ------------------- --------------------- ---------------------- ----------------------
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows. It is the risk that
fluctuations in market interest rates will result in a reduction in
deposit interest earned on bank deposits held by the Group.
The Group mitigates interest rate risk by fixing the interest
rate on the equipment notes debt and the lease rentals.
The following table details the Group's exposure to interest
rate risks:
31 Mar 2021 Variable Fixed Non-interest Total
interest interest Bearing
GBP GBP GBP GBP
Financial Assets
Receivables (excluding
prepayments) - - 40 40
Cash and cash equivalents 13,749,583 - - 13,749,583
Total Financial Assets 13,749,583 - 40 13,749,623
----------- ------------ ------------- ------------
Financial Liabilities
Payables - - 99,209 99,209
Equipment Notes - 103,460,047 - 103,460,047
Total Financial Liabilities - 103,460,047 99,209 103,559,256
----------- ------------ ------------- ------------
Total interest sensitivity
gap 13,749,583 103,460,047
----------- ------------
31 Mar 2020 Variable Fixed Non-interest Total
interest interest Bearing
GBP GBP GBP GBP
Financial Assets
Receivables (excluding
prepayments) - - 40 40
Cash and cash equivalents 13,719,497 - - 13,719,497
Total Financial Assets 13,719,497 - 40 13,719,537
----------------- ------------------- ------------- ------------
Financial Liabilities
Payables - - 75,897 75,897
Equipment Notes - 157,120,337 - 157,120,337
Total Financial Liabilities - 157,120,337 75,897 157,196,234
----------------- ------------------- ------------- ------------
Total interest sensitivity
gap 13,719,497 157,120,337
----------------- -------------------
If interest rates had been 50 basis points higher throughout the
year and all other variables were held constant, the Group's net
assets attributable to Shareholders as at 31 March 2021 would have
been GBP68,748 (31 March 2020: GBP68,597) greater due to an
increase in the amount of interest receivable on the bank
balances.
If interest rates had been 50 basis points lower throughout the
year and all other variables were held constant, the Group's net
assets attributable to Shareholders as at 31 March 2021 would have
been GBP68,748 (31 March 2020: GBP68,597) lower due to a decrease
in the amount of interest receivable on the bank balances.
20 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table discloses the effects of the amendments to
IAS 7 Statement of Cash Flows which requires additional disclosures
that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash flows. This table
below excludes non-cash flows arising from the amortisation of
associated costs (see note 15).
31 Mar 2021 31 Mar 2020
GBP GBP
Opening Balance 157,120,338 213,048,544
Cash flows paid - capital (41,716,622) (65,123,634)
Cash flows paid - interest (7,185,167) (10,094,475)
Non-cash flows
- Interest accrued 6,931,660 10,161,592
- Rebates movement 470,320 297,036
- Effects of foreign exchange
- Rebates (104,831) 69,574
- Effects of foreign exchange
- Loans (12,055,651) 8,761,701
------------- ---------------------
Closing Balance 103,460,047 157,120,338
------------- -----------------
21 ULTIMATE CONTROLLING PARTY
In the opinion of the directors, the Group has no ultimate
controlling party.
22 RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS
A m edeo is the Group's A sset Manager.
During the year, the Group incurred GBP731,131 (31 March 2020:
GBP700,744) of expenses with Amedeo of which GBP645,960. (31 March
2020: GBP630,152) related to asset management fees as shown in note
5, GBP71,517 (31 March 2020: GBP70,017) was liaison agent fees and
GBP13,653 (31 March 2020: GBP575) reimbursed expenses. As at 31
March 2021, GBP90,935 (31 March 2020: GBP53,491) was prepaid to
this related party.
Ni mrod is the Group's Corporate and Shareholder A dv i sor.
During the year, the Group incurred GBP484,903 (31 March 2020:
GBP467,484) of expenses with Nimrod. As at 31 March 2021, GBPnil
(31 March 2020: GBPnil) was owing to this related party.
JTC Registrars Limited is the Group's registrar, transfer agent
and paying agent.
During the year, the Group incurred GBP18,494 (31 March 2020:
GBP19,787) of expenses with JTC Registrars as shown in note 5. As
at 31 March 2021 GBP4,259 (31 March 2020: GBP3,881) was owing to
this related party.
JTC Fund Solutions (Guernsey) Limited is the Group's Company
Secretary and Administrator.
During the year, the Group incurred GBP91,890 (31 March 2020:
GBP121,136) of expenses with JTC Fund Solutions (Guernsey) Limited
as shown in note 5. As at 31 March 2021, GBP9,838 (31 March 2020:
GBP12,032) was owing to this related party.
24 SUBSEQUENT EVENTS
On 15 April 2021, a further dividend of 2.0625 pence per Share
was declared and this was paid on 30 April 2021.
On 15 July 2021, a further dividend of 2.0625 pence per Share
was declared and this will be paid on 31 July 2021.
KEY A D V I SE RS A ND C O N T A CT I N F O R M A T ION
K E Y I N F O R M A T ION
E x chan ge: Special ist Fund S e gme nt of t he London S t o ck
E xchan g e's M a in M ark et
T i c k e r: DNA3
Li st ing Da te: 2 July 2013
Financial Year End: 31 M arch
Ba se Curre ncy: Pound Sterling
I S I N: GG00B92LHN58
SED O L: B92LHN5
LEI: 213800BMYMCBKT5W8M49
Coun t ry of I ncorpora t ion:
Guernsey
Registration number: 54908
M A N A G E ME NT A ND A DMI
N I S T R A T ION
Reg i s tered Off i ce Sec retary a nd A dmi n i s trator
D o ric Nimrod A ir T hree L JTC Fund Solutions ( G uernse y)
imi t ed Limi t ed
G round Floor G round Floor
Do rey Court Do rey Court
Ad miral Pa rk Ad miral Pa rk
S t Pe t er P ort S t Pe t er P ort
G ue rnse y, G Y1 2 HT G ue rnse y, G Y1 2 HT
A s se t Manager L i a i so n A gent
A medeo M ana g eme nt Limi t A medeo Serv ices (UK) L imi t ed
ed
T h e O v al 29 -30 Cornhill
Shelbou rne Road London
Ba ll sbri d ge En g land, E C 3 V 3 NF
D ub li n 4, Ireland
Corporate and Shareholder Advisor Reg i s trar
Nimrod Capital LLP JTC Registrars Limited
1-3 Norton Folgate Ground Floor, Do rey Court
London Ad miral Pa rk
E1 6DB S t Pe t er P ort
G ue rnsey, G Y1 2 HT
A d voca tes to the Co m pa ny
Lease and Debt Arranger (as to G u ernsey L a w)
A medeo M ana g eme nt Limi t Ca rey O lsen
ed
The Oval Ca rey House
Shelbourne Road Le s Ba n q ues
Ballsbridge S t Pe t er P ort
D ub li n 4, Ireland G ue rnse y, G Y1 4BZ
A u d i tor So li c i tors to the Comp a ny
(as to Eng l i sh L a w)
Deloi tt e LLP He rbert Smi th Freehills LLP
Re g en cy Cou rt E x chan ge House
G la t e g n y Esplanade P rimrose S treet
S t Pe t er P ort Londo n
G ue rnse y, G Y1 3 HW England, E C 2 A 2 HS
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END
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