As filed with the Securities and Exchange Commission on September 30, 2003
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: March 31, 2003
0-29304
(Commission file number)
Ryanair Holdings plc
(Exact name of registrant as specified in its charter)
Ryanair Holdings plc
(Translation of registrant's name into English)
Republic of Ireland
(Jurisdiction of incorporation or organization)
c/o Ryanair Limited
Corporate Head Office
Dublin Airport
County Dublin, Ireland
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each national market
on which registered
American Depositary Shares, each representing Nasdaq National Market
five Ordinary Shares
Ordinary Shares, par value
1.27 euro cent per Share Nasdaq National Market*
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
755,130,716 Ordinary Shares
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 |_| Item 18 |X|
* Not for trading, but only in connection with the registration of the
American Depositary Shares.
TABLE OF CONTENTS
Page
Presentation of Financial and Certain Other Information.........................................................iv
Cautionary Statement Regarding Forward Looking Information.......................................................v
PART I
Item 1. Identity of Directors, Senior Management and Advisers...................................................1
Item 2. Offer Statistics and Expected Timetable.................................................................1
Item 3. Key Information.........................................................................................1
THE COMPANY........................................................................................1
SELECTED FINANCIAL DATA............................................................................1
EXCHANGE RATES.....................................................................................6
SELECTED OPERATING AND OTHER DATA..................................................................8
RISK FACTORS.......................................................................................9
Item 4. Information on the Company.............................................................................22
INTRODUCTION......................................................................................22
STRATEGY..........................................................................................23
INDUSTRY OVERVIEW.................................................................................26
European Airline Market.......................................................................26
Ireland-U.K. Market...........................................................................27
Service to Continental Europe.................................................................28
The Acquisition of Buzz.......................................................................28
ROUTE SYSTEM, SCHEDULING AND FARES................................................................29
Route System and Scheduling...................................................................29
Low and Widely-Available Fares................................................................33
MARKETING AND ADVERTISING.........................................................................33
RESERVATIONS/RYANAIR.COM..........................................................................34
AIRCRAFT..........................................................................................34
Aircraft......................................................................................34
Fleet Expansion...............................................................................36
Training and Regulatory Compliance............................................................37
ANCILLARY SERVICES................................................................................37
MAINTENANCE AND REPAIRS...........................................................................38
General.......................................................................................38
Heavy Maintenance.............................................................................39
SAFETY RECORD.....................................................................................40
AIRPORT OPERATIONS................................................................................41
Airport Handling Services.....................................................................41
Airport Charges...............................................................................41
FUEL..............................................................................................42
INSURANCE.........................................................................................42
FACILITIES........................................................................................43
TRADEMARKS........................................................................................44
GOVERNMENT REGULATION.............................................................................44
Liberalization of the EU Air Transportation Market............................................44
Regulatory Authorities........................................................................45
Registration of Aircraft......................................................................47
Regulation of Competition.....................................................................47
i
Environmental Regulation......................................................................48
Slots.........................................................................................48
Other.........................................................................................49
DESCRIPTION OF PROPERTY...........................................................................49
Item 5. Operating and Financial Review and Prospects...........................................................49
HISTORY...........................................................................................50
BUSINESS OVERVIEW.................................................................................51
RECENT OPERATING RESULTS..........................................................................51
CRITICAL ACCOUNTING POLICIES......................................................................52
RESULTS OF OPERATIONS.............................................................................54
FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002...................................................55
FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001...................................................58
QUARTERLY FLUCTUATIONS............................................................................62
U.S. GAAP RECONCILIATION..........................................................................62
RECENTLY ISSUED ACCOUNTING STANDARDS..............................................................62
LIQUIDITY AND CAPITAL RESOURCES...................................................................65
TREND INFORMATION.................................................................................72
INFLATION.........................................................................................72
Item 6. Directors, Senior Management and Employees.............................................................72
DIRECTORS.........................................................................................72
Action and Powers of Board of Directors.......................................................75
Composition and Term of Office................................................................75
SENIOR MANAGEMENT.................................................................................76
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT...................................................77
Compensation..................................................................................77
Employment Agreements.........................................................................78
EMPLOYEES AND LABOR RELATIONS.....................................................................78
Item 7. Major Shareholders and Related Party Transactions......................................................82
DESCRIPTION OF CAPITAL STOCK......................................................................82
MAJOR SHAREHOLDERS................................................................................82
RELATED PARTY TRANSACTIONS........................................................................82
Item 8. Financial Information..................................................................................82
CONSOLIDATED FINANCIAL STATEMENTS.................................................................82
OTHER FINANCIAL INFORMATION.......................................................................82
Legal Proceedings.............................................................................82
Dividend Policy...............................................................................84
SIGNIFICANT CHANGES...............................................................................84
Item 9. The Offer and Listing..................................................................................84
TRADING MARKETS AND SHARE PRICES..................................................................84
Item 10. Additional Information................................................................................87
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................................87
MEMORANDUM AND ARTICLES OF ASSOCIATION............................................................89
MATERIAL CONTRACTS................................................................................91
EXCHANGE CONTROLS.................................................................................91
LIMITATIONS ON SHARE OWNERSHIP BY NON-EU NATIONALS................................................92
TAXATION..........................................................................................94
ii
Irish Tax Considerations......................................................................94
United States Tax Considerations..............................................................97
DOCUMENTS ON DISPLAY..............................................................................99
Item 11. Quantitative and Qualitative Disclosures About Market Risk............................................99
GENERAL...........................................................................................99
FUEL PRICE EXPOSURE AND HEDGING...................................................................99
FOREIGN CURRENCY EXPOSURE AND HEDGING............................................................100
INTEREST RATE EXPOSURE AND HEDGING...............................................................102
Item 12. Description of Securities Other than Equity Securities...............................................104
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies......................................................104
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.........................104
Item 15. Controls and Procedures..............................................................................104
Item 16A. Audit Committee Financial Expert....................................................................105
Item 16B. Code of Ethics......................................................................................105
PART III
Item 17. Financial Statements.................................................................................105
Item 18. Financial Statements.................................................................................105
Item 19. Exhibits.............................................................................................105
iii
Presentation of Financial and Certain Other Information
As used herein, the term "Ryanair Holdings" refers to Ryanair Holdings plc.
The term the "Company" refers to Ryanair Holdings together with its consolidated
subsidiaries. The terms "Ryanair Limited" and "Ryanair" refer to Ryanair
Limited, a wholly-owned subsidiary of Ryanair Holdings, together with its
consolidated subsidiaries. The term "fiscal year" refers to the twelve-month
period ended on March 31 of such year. All references to "Ireland" herein are
references to the Republic of Ireland. All references to the "U.K." herein are
references to the United Kingdom and all references to the "United States" or
"U.S." herein are references to the United States of America. References to
"U.S. dollars," "dollars," "$" or "U.S. cents" are to the currency of the United
States, references to "U.K. pounds sterling," "sterling," "U.K.GBP" and "U.K.
pence" are to the currency of U.K. and references to "EUR," "euro" and "euro
cents" are to the euro, the common currency of twelve Member States of the
European Union (the "EU"), including Ireland. References to "Irish pounds" or
"IR GBP" are to the former currency of Ireland. Various amounts and percentages
set out in this Annual Report on Form 20-F (this "Report") have been rounded and
accordingly may not total.
The Company owns or otherwise has rights to the trademark RYANAIR (R) in
certain jurisdictions. See "Item 4. Information on the Company-Trademarks." This
Report also makes reference to trade names and trademarks of companies other
than the Company.
The Company publishes its Consolidated Financial Statements in accordance
with accounting principles generally accepted in Ireland ("Irish GAAP"), which
differ in certain respects from accounting principles generally accepted in the
United States ("U.S. GAAP"). For a detailed discussion of the differences
between Irish GAAP and U.S. GAAP that affect the Company's Consolidated
Financial Statements, see Note 30 to the Consolidated Financial Statements
included in Item 18.
The company publishes its Financial Statements in euro. Solely for the
convenience of the reader, this Report contains translations of certain euro
amounts into U.S. dollars at specified rates. These translations should not be
construed as representations that the converted amounts actually represent such
U.S. dollar amounts or could be converted into U.S. dollars at the rates
indicated or at any other rate. Unless otherwise indicated, such U.S. dollar
amounts have been translated from euro at a rate of EUR1.00 = $1.0900 or $1.00 =
EUR0.9174, the noon buying rate in New York City for cable transfers of foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on March 31, 2003. The Noon Buying Rate for euro
on September 24, 2003 was EUR1.00 = $1.1472 or $1.00 = EUR0.8717. See "Item 3.
Key Information-Exchange Rates" for information regarding rates of exchange
between the euro and the U.S. dollar, between the U.K. pound sterling and the
euro and between the U.K. pound sterling and the U.S. dollar from 1998 to the
present, and "Item 5. Operating and Financial Review and Prospects" and "Item
11. Quantitative and Qualitative Disclosure About Market Risk" for a discussion
of the effects of changes of exchange rates on the Company.
Prior to March 31, 2000, the reporting currency of the Company was Irish
pounds. To facilitate a comparison, Irish pound-denominated financial data for
periods prior to March 31, 2000 included in this Report have been restated from
Irish pounds to euro at the fixed rate of IR GBP 0.787564 = EUR1.00 set by the
European Central Bank as of December 31, 1998. The comparative balances for
prior years now reported in euro depict the same trends as would have been
presented had the Company continued to report such amounts in Irish pounds. The
Company's financial data for periods prior to March 31, 2000 may not be
comparable to that of other companies reporting in euro if those companies had
restated from a reporting currency other than Irish pounds, due to the fact that
prior to the adoption of the euro the currencies of the other euro area
countries fluctuated against the Irish pound.
iv
Cautionary Statement Regarding Forward Looking Information
Except for the historical statements and discussions contained herein,
statements contained in this Report constitute "forward looking statements"
within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section
21E of the U.S. Securities Exchange Act of 1934. Forward looking statements may
include words such as "expect," "estimate," "project," "anticipate," "should,"
"intend" and similar expressions or variations on such expressions. Any filing
of the Company with the U.S. Securities and Exchange Commission may include
forward looking statements. In addition, other written or oral statements which
constitute forward looking statements have been made and may in the future be
made by or on behalf of the Company, including statements concerning its future
operating and financial performance, the Company's share of new and existing
markets, general industry and economic trends and the Company's performance
relative thereto and the Company's expectation as to requirements for capital
expenditures and regulatory matters. The Company's business is the provision of
a low-fares airline service in Europe, and its outlook is predominately based on
its interpretation of what it considers to be the key economic factors affecting
that business and the European economy. Forward looking statements with regard
to the Company's business rely on a number of assumptions concerning future
events and are subject to a number of uncertainties and other factors, many of
which are outside the Company's control, that could cause actual results to
differ materially from such statements. It is not reasonably possible to itemize
all of the many factors and specific events that could affect the outlook and
results of an airline operating in the European economy. Among the factors that
are subject to change and could significantly impact Ryanair's expected results
are the airline pricing environment, fuel costs, competition from new and
existing carriers, market prices for replacement aircraft, costs associated with
environmental, safety and security measures, actions of the Irish, U.K., EU and
other governments and their respective regulatory agencies, fluctuations in
currency exchange rates and interest rates, airport access and charges, labor
relations, the economic environment of the airline industry, the general
economic environment in Ireland, the U.K. and elsewhere in Europe, the general
willingness of passengers to travel and other factors discussed herein. The
Company disclaims any obligation to update or revise any forward looking
statements, whether as a result of new information, future events or otherwise.
v
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
THE COMPANY
Ryanair operates a low-fares scheduled passenger airline serving
short-haul, point-to-point routes in Europe from its bases at Dublin, London
(Stansted), Shannon, London (Luton), Glasgow (Prestwick), Brussels (Charleroi),
Frankfurt (Hahn), Milan (Bergamo) and Stockholm (Skavsta) airports. In operation
since 1985, Ryanair began to introduce a low cost operating model under a new
management team in the early 1990s. At September 20, 2003, Ryanair had a fleet
of 67 aircraft, including 16 Boeing 737-200A jet aircraft, 41 Boeing 737-800
"next generation" aircraft, four BAe146 aircraft and six Boeing 737-300
aircraft. The Company offers approximately 475 scheduled short-haul flights per
day serving 13 locations in England, five locations in Ireland, three locations
in Scotland, one in each of Wales and Northern Ireland and 60 locations in
continental Europe. A detailed description of the Company's business can be
found in "Item 4. Information on the Company."
SELECTED FINANCIAL DATA
On January 1, 1999, the euro was introduced as the common legal currency of
then eleven of the Member States of the EU, including Ireland. The Company has
adopted the euro as its reporting currency in the Consolidated Financial
Statements included in Item 18 and all Irish pound-denominated financial data
for periods prior to March 31, 2000 included in this Report have been restated
from Irish pounds to euro at the fixed rate of IR GBP0.787564 = EUR1.00 set by
the European Central Bank as of December 31, 1998. The comparative balances for
prior years now reported in euro depict the same trends as would have been
presented had the Company continued to report such amounts in Irish pounds.
However, they may not be directly comparable to the financial statements of
other companies that have been restated in euro if those companies had restated
from a reporting currency other than Irish pounds, due to the fact that prior to
the adoption of the euro, the currencies of euro-area countries fluctuated
against the Irish pound.
The following tables set forth certain of the Company's selected
consolidated financial information and should be read in conjunction with the
audited Consolidated Financial Statements of the Company and related notes
thereto included in Item 18 and with "Item 5. Operating and Financial Review and
Prospects."
1
Profit and Loss Account Data:
Fiscal Year ended
March 31,
Irish GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands, except per Ordinary Share and per ADS data)
Total operating revenues......... $918,334 EUR842,508 EUR624,050 EUR487,405 EUR370,137 EUR295,759
Total operating expenses......... (631,147) (579,034) (461,117) (373,394) (286,082) (227,898)
Operating profit................. 287,187 263,474 162,933 114,011 84,055 67,861
Net interest income (expense).... 520 477 7,939 7,704 3,717 6,373
Other non-operating income
(expenses).................... 653 599 1,502 1,673 2,322 1,576
Profit before taxation........... 288,360 264,550 172,374 123,388 90,094 75,810
Taxation......................... (27,416) (25,152) (21,999) (18,905) (17,576) (18,339)
Profit after taxation............ $260,944 EUR239,398 EUR150,375 EUR104,483 EUR72,518 EUR57,471
Ryanair Holdings basic earnings
per Ordinary Share
(U.S. cents)/(euro cent) (b).. 34.57 31.71 20.64 14.81 10.81 8.72
Ryanair Holdings diluted
earnings per Ordinary Share
(U.S. cents)/(euro cent)...... 34.06 31.24 20.32 14.63 10.74 8.69
Ryanair Holdings basic earnings
per ADS (U.S. cents)/(euro
cent)(c)...................... 172.85 158.55 103.20 74.05 54.05 43.60
See notes on page 5.
2
Profit and Loss Account Data:
Fiscal Year ended
March 31,
U.S. GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands, except per Ordinary Share and per ADS data)
Total operating revenues........ $918,334 EUR842,508 EUR624,050 EUR487,405 EUR370,137 EUR295,759
Total operating expenses........ (629,780) (577,780) (459,814) (370,455) (283,915) (225,664)
Operating income................ 288,554 264,728 164,236 116,950 86,222 70,095
Net interest income............. 6,256 5,739 12,966 7,704 3,717 6,373
Other non-operating income
(expenses)................... (3,913) (3,590) 1,502 8,476 (1,433) 4,594
Income before taxation.......... 290,897 266,877 178,704 133,130 88,506 81,062
Taxation........................ (27,323) (25,067) (23,155) (20,742) (16,640) (19,291)
Net income before cumulative
effect of accounting change.. 263,574 241,810 155,549 112,388 71,866 61,771
Cumulative effect of changes in
accounting principles........ - - - - - 23,122
Net income...................... $263,574 EUR241,810 EUR155,549 EUR112,388 EUR71,866 EUR84,893
Basic earnings per Ordinary
Share (U.S. cents)/(euro
cent) before cumulative
effect of accounting changes 35 32 21 15 11 9
Cumulative effect on prior years
of accounting changes
(U.S. cents)/(euro cent)...... - - - - - 4
Basic earnings per Ordinary
Share (U.S. cents)/(euro
cent) (b)..................... 35 32 21 15 11 13
Diluted earnings per Ordinary
Share (U.S. cents)/(euro
cent)(b)...................... 34 31 20 15 11 13
Net income per ADS
(U.S. cents)/(euro cent) (c).. 175 160 103 74 55 65
See notes on page 5.
3
Balance Sheet Data:
As of March 31,
Irish GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands)
Cash at bank and liquid resources. $1,155,638 EUR1,060,218 EUR899,275 EUR626,720 EUR355,248 EUR158,595
Total assets.................. 2,688,711 2,466,707 1,889,572 1,277,252 712,701 399,839
Long-term debt, including capital
lease obligations............... 912,575 837,225 550,503 402,750 121,979 24,969
Shareholders' equity.............. 1,353,484 1,241,728 1,002,274 669,898 441,357 250,964
As of March 31,
U.S. GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands)
Cash and cash equivalents......... $585,608 EUR537,476 EUR482,492 EUR389,059 EUR121,430 EUR97,704
Total assets...................... 2,703,056 2,479,868 1,896,686 1,279,088 713,399 397,964
Long-term debt, including capital
lease obligations............... 912,575 837,225 550,503 402,750 121,979 24,969
Shareholders' equity.............. 1,283,134 1,177,187 1,019,607 674,386 439,340 249,913
See notes on page 5.
4
Cash Flow Statement Data:
Fiscal Year ended March 31,
Irish GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands)
Net cash inflow from operating
activities...................... $382,593 EUR351,003 EUR309,109 EUR229,802 EUR149,575 EUR124,411
Net cash inflow from returns of
investment and servicing of
finance.......................... 663 608 10,360 5,569 1,953 6,043
Taxation.......................... (3,717) (3,410) (5,071) (13,813) (15,545) (11,125)
Net cash (outflow) from capital
expenditure....................... (512,133) (469,847) (372,024) (356,213) (154,079) (107,123)
Net cash (outflow)/inflow before
financing and management of
liquid resources................ (132,594) (121,646) (57,626) (134,655) (18,096) 12,206
Net cash inflow from financing
and management of liquid
resources....................... 131,289 120,449 78,513 174,196 18,752 434
(Decrease)/increase in cash....... ($1,305) (EUR1,197) EUR20,887 EUR39,541 EUR656 EUR12,640
Fiscal Year ended March 31,
U.S. GAAP 2003(a) 2003 2002 2001 2000 1999
(in thousands)
Net cash inflow from operating
activities........................... $379,608 EUR348,200 EUR314,398 EUR221,558 EUR135,983 EUR119,330
Net cash (outflow) from investing
activities........................... (627,628) (575,806) (551,146) (360,056) (327,006) (158,664)
Net cash inflow from financing......... 308,080 282,590 330,181 406,127 214,749 81,671
Increase in cash and cash equivalents.. 60,060 54,984 93,433 267,629 23,726 42,337
Cash and cash equivalents at
beginning of year.................... 526,013 482,492 389,059 121,430 97,704 55,367
Cash and cash equivalents at end of
the year............................. $586,073 EUR537,476 EUR482,492 EUR389,059 EUR121,430 EUR97,704
(a) Dollar amounts are translated from euro solely for convenience at the
Noon Buying Rate on March 31, 2003 of EUR1.00 = $1.0900 or $1.00 =
EUR0.9174.
(b) Earnings per share and net income per share data have been adjusted to give
effect to the two-for-one stock splits effected in February 2000 and
December 2001 and those shares issued in connection with the stock
offerings conducted outside the United States in accordance with Regulation
S under the Securities Act (the "Regulation S Offerings") in July 1998,
March 2000, February 2001 and February 2002.
(c) Represents earnings per Ordinary Share or net income per Ordinary Share
multiplied by five.
5
EXCHANGE RATES
The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between (i) the U.S. dollar and the
euro, (ii) the U.K. pound sterling and the euro, and (iii) the U.K. pound
sterling and the U.S. dollar. Such rates are provided solely for the convenience
of the reader and are not necessarily the rates used by the Company in the
preparation of its Consolidated Financial Statements included in Item 18. No
representation is made that any of such currencies could have been, or could be
converted into any of the other such currencies at such rates or at any other
rate.
U.S. dollars per EUR1.00(1)
End of
Year ended December 31, period Average(2) Low High
1998.......................................................................... 1.174 1.122 1.071 1.183
1999.......................................................................... 1.007 1.059 1.007 1.137
2000.......................................................................... 0.939 0.920 0.827 1.034
2001.......................................................................... 0.882 0.892 0.837 0.954
2002.......................................................................... 1.050 0.946 0.859 1.054
Month ended
March 31, 2003................................................................ - - 1.052 1.106
April 30, 2003................................................................ - - 1.063 1.116
May 30, 2003.................................................................. - - 1.122 1.189
June 30, 2003................................................................. - - 1.141 1.187
July 31, 2003................................................................. - - 1.119 1.158
August 31, 2003............................................................... - - 1.087 1.138
September 24, 2003............................................................ - - 1.085 1.149
U.K. pounds sterling per EUR1.00(3)
End of
Year ended December 31, period Average(2) Low High
1998.......................................................................... 0.708 0.676 0.640 0.708
1999.......................................................................... 0.621 0.659 0.621 0.712
2000.......................................................................... 0.631 0.610 0.573 0.639
2001.......................................................................... 0.612 0.622 0.596 0.643
2002.......................................................................... 0.652 0.629 0.608 0.653
Month ended
March 31, 2003................................................................ - - 0.673 0.691
April 30, 2003................................................................ - - 0.683 0.698
May 30, 2003.................................................................. - - 0.698 0.724
June 30, 2003................................................................. - - 0.688 0.722
July 31, 2003................................................................. - - 0.687 0.714
August 31, 2003............................................................... - - 0.690 0.708
September 24, 2003............................................................ - - 0.690 0.705
6
U.K. pounds sterling per US$1.00(4)
End of
Year ended December 31, period Average(2) Low High
1998.......................................................................... 0.601 0.602 0.581 0.621
1999.......................................................................... 0.619 0.619 0.599 0.645
2000.......................................................................... 0.667 0.662 0.606 0.714
2001.......................................................................... 0.688 0.695 0.665 0.728
2002.......................................................................... 0.621 0.666 0.621 0.710
Month ended
March 31, 2003................................................................ - - 0.620 0.640
April 30, 2003................................................................ - - 0.625 0.645
May 30, 2003.................................................................. - - 0.605 0.627
June 30, 2003................................................................. - - 0.594 0.615
July 31, 2003................................................................. - - 0.580 0.630
August 31, 2003............................................................... - - 0.620 0.637
September 24, 2003............................................................ - - 0.603 0.637
(1) Based on the Noon Buying Rate for euro, and, for periods prior to January
1, 1999, the Noon Buying Rate for Irish pounds, calculated on the basis of
the fixed exchange rate of EUR1.00=IRGBP0.787564, as established by the
European Central Bank.
(2) The average of the relevant exchange rates on the last business day of each
month during the relevant period.
(3) Based on the mid-market quote, as fixed by the Central Bank of Ireland at 4
p.m. local time on the relevant date and, for periods after January 1,
1999, the mid-range rate of trading in New York among banks in amounts of
$1 million or more, as quoted at 4 p.m. New York time by Telerate.
(4) Based on the Noon Buying Rate for U.K. pounds sterling.
As of September 24, 2003, the exchange rate between the U.S. dollar and the
euro was EUR0.8717 = $1.00, or $1.1472 = EUR1.00, the exchange rate between the
U.K. pound sterling and the euro was U.K.GBP0.6927 = EUR1.00, or EUR1.4436 =
U.K.GBP1.00; and the exchange rate between the U.K. pound sterling and the U.S.
dollar was U.K.GBP0.6039 = $1.00, or $1.6558 = U.K.GBP1.00. The fixed exchange
rate between the Irish pound and the euro, as established by the European
Central Bank, is EUR1.00 = IRGBP0.787564. For a discussion of the impact of
exchange rate fluctuations on the Company's results of operations, see "Item 11.
Quantitative and Qualitative Disclosures About Market Risk."
7
SELECTED OPERATING AND OTHER DATA
The following table sets forth certain operating data of Ryanair for each
of the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003. Such data
are derived from the Consolidated Financial Statements prepared in accordance
with Irish GAAP (except as otherwise indicated) and certain other data and are
not audited. For definitions of the terms used in this table, see the Glossary
in Appendix A. See the notes following the table for explanatory material and
Note 30 to the Consolidated Financial Statements included in Item 18 for a
detailed discussion of the principal differences between Irish GAAP and U.S.
GAAP.
Fiscal Year ended March 31,
Operating Data: 2003 2002 2001 2000 1999
Irish GAAP and U.S. GAAP
Average Yield per RPM (EUR).................... 0.108 0.122 0.139 0.157 0.158
Average Yield per ASM (EUR).................... 0.084 0.091 0.098 0.106 0.112
Average Passenger Spend per Flight (EUR)....... 3.518 3.630 3.600 3.910 5.110
Average Fuel Cost per U.S. Gallon (EUR)........ 0.930 1.007 0.750 0.630 0.660
Irish GAAP
Cost per ASM (CASM) (EUR)(a)................... 0.062 0.071 0.079 0.085 0.092
Operating Margin............................... 31% 26% 23% 23% 23%
U.S. GAAP
Cost per ASM (CASM)( EUR)(a)................... 0.061 0.071 0.078 0.085 0.091
Operating Margin............................... 31% 26% 24% 23% 24%
Other Data: (Irish GAAP, except where described
as U.S. GAAP)
Revenue Passengers Booked...................... 15,736,936 11,091,066 8,051,633 N/A N/A
Revenue Passengers Flown....................... 14,427,329 10,202,193 7,434,640 5,501,272 4,854,395
Revenue Passenger Miles (RPMs)................. 6,781,128,672 4,505,861,947 3,118,098,414 2,103,848,249 1,643,267,849
Available Seat Miles (ASMs).................... 8,744,373,118 6,081,007,925 4,439,036,540 3,126,069,535 2,304,838,185
Flown Passenger Load Factor.................... 78% 74% 70% 67% 71%
Booked Passenger Load Factor................... 85% 81% 77% N/A N/A
Break-even Load Factor (a)..................... 57% 58% 57% 54% 58%
Break-even Load Factor (U.S. GAAP) (a)......... 57% 58% 56% 54% 58%
Average Length of Passenger Haul (miles)....... 473 442 419 382 339
Sectors Flown.................................. 115,325 90,124 72,655 59,140 51,219
Average Flown Passenger Fare (EUR)............. 50.73 54.01 58.23 60.09 53.33
Average Booked Passenger Fare (EUR)............ 46.51 49.68 53.77 N/A N/A
Number of Airports Served at Period End........ 62 52 45 35 27
Average Daily Flight Hour Utilization (hours).. 8.02 7.28 6.82 6.37 6.47
Employees at Period End........................ 1,897 1,531 1,476 1,388 1,203
Employees per Aircraft at Period End (b)....... 35 37 41 53 57
Booked Passengers per Employee at Period End... 8,296 7,244 5,455 N/A N/A
(a) For the purposes of calculating Cost per ASM, and Break-Even Load Factor,
costs include the costs of Ryanair's charter operations (excluding
non-charter ancillary costs) but not the revenues or seat miles of such
charter operations.
(b) On March 19, 1999, Ryanair accepted delivery of its first 737-800 "next
generation" aircraft, the twenty-second aircraft in its fleet. As this
737-800 aircraft had only been used for training and test flights prior to
March 31, 1999, it has not been included in the computations of the Number
of Owned Aircraft Operated at Period End and the number of Employees per
Aircraft at Period End through March 31, 1999.
8
RISK FACTORS
Risks Related to the Company
The Company Will Incur Significant Costs Acquiring New Aircraft
Ryanair's continued growth is dependent upon its ability to acquire
additional aircraft to meet additional capacity needs and to replace aging
aircraft. Ryanair currently provides launched service on 132 routes to/from the
U.K. and in continental Europe, and has also increased the frequency of service
on a number of its principal routes. The new routes and expanded service are
expected to increase Ryanair's scheduled passenger volumes in fiscal year 2004
to approximately 23.5 million passengers, an increase of approximately 50% over
current levels, although no assurance can be given that these targets will in
fact be met.
Taking into account the retirement of certain of Ryanair's Boeing 737-200As
and the expected termination of leases, Ryanair expects to have at least 71
aircraft in its fleet by April 2004. Over the next five years, the Company
expects to take delivery of an additional 112 Boeing 737-800 aircraft which it
is obligated to purchase under existing contracts with The Boeing Company
("Boeing"). These deliveries, net of further scheduled retirements and lease
terminations, are expected to increase the size of the Company's fleet to 153
aircraft by December 2008. Ryanair may elect to enlarge its fleet further by
exercising any of the 125 options to purchase new aircraft it currently has
under its agreements with Boeing. For additional information on the Company's
aircraft and their delivery dates, see "Item 4. Information on the
Company-Aircraft" and "Item 5. Operating and Financial Review and
Prospects--Liquidity and Capital Resources." There can be no assurance that this
planned expansion will not outpace the growth of passenger traffic on Ryanair's
routes, or that traffic growth will not prove to be greater than the expanded
fleet can accommodate; in either case, such developments could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Ryanair is currently arranging financing for 112 firm order aircraft
expected to be delivered from December 2003 through December 2008. The Company
anticipates financing these aircraft through a combination of new bank loan
facilities supported by a guarantee from the Export-Import Bank of the United
States and similar to those already in place, bank debt provided by commercial
bankers, operating and finance leases via sale and leaseback transactions,
Enhanced Equipment Transit Certificates and cash flow generated from the
Company's operations. However, no assurance can be given that such financing
will be available to Ryanair, or that the terms of any such financing will be
favorable. Any inability of the Company to obtain financing for the new aircraft
on advantageous terms could have a material adverse effect on its business,
results of operations and financial condition. In addition, the financing of new
and existing 737-800 aircraft will significantly increase the total amount of
the Company's outstanding debt and the payments it is obliged to make to service
such debt. Furthermore, Ryanair's ability to draw down funds under its existing
bank loan facilities to pay for aircraft as they are delivered is subject to
various conditions imposed by the counterparties to the bank loan facilities and
related loan guarantees, and any future financing is expected to be subject to
similar conditions. The Company currently has a preliminary commitment from the
Export Import Bank of the United States to provide a loan guarantee covering 20
of the 112 firm order aircraft. The Company has also received sale and operating
leaseback proposals in respect of ten of the remaining aircraft. For additional
details on Ryanair's financings, see "Item 5. Operating and Financial Review and
Prospects-Liquidity and Capital Resources."
The Company's Rapid Growth May Expose It To Risks
Ryanair's operations have grown rapidly since it introduced a low cost
operating model in the early 1990s. In recent years, Ryanair has expanded its
fleet, added new destinations and flights to its schedule and established London
(Stansted), Glasgow (Prestwick), London (Luton), Shannon, Brussels (Charleroi),
Frankfurt (Hahn), Milan (Bergamo), and Stockholm (Skavsta) airports as
additional bases of operations. Since 1999, Ryanair has more than tripled its
number of passengers, number of aircraft and the number of airports it serves
and increased the number of people it employs by 58%. Ryanair intends to
continue to expand its fleet (which is scheduled to increase to a minimum of 153
aircraft by December 2008) and add new destinations and additional flights to
its schedule. If growth in passenger traffic and Ryanair's revenues do not keep
pace with the planned expansion of its fleet, Ryanair could suffer from
overcapacity and its results of operations and financial condition (including
its ability to fund scheduled aircraft purchases and related debt) could be
materially adversely affected. Ryanair has also entered into significant
derivative transactions intended to hedge both its current aircraft acquisition
related debt obligations and a portion of the substantial debt obligations it
expects to incur in the future as it expands its fleet. These derivative
transactions expose Ryanair to certain risks that could have an adverse effect
on its results of operations and financial condition. See "Item 11. Quantitative
and Qualitative Disclosures About Market Risk."
9
The expansion of Ryanair's fleet and operations, in addition to other
factors, may also strain existing management resources and related operational,
financial, management information and information technology systems and
controls, including its internet-based reservation system, to the point that
they may no longer be adequate to support Ryanair's operations. This would
require Ryanair to make significant additional expenditures. This expansion will
also require additional skilled personnel, equipment facilities and systems. An
inability to hire skilled personnel or to secure the required equipment and
facilities efficiently and in a cost-effective manner may adversely affect
Ryanair's ability to achieve growth plans and sustain or increase its
profitability.
Ryanair expects that it will need to develop further its financial and
management controls, reporting systems and procedures to accommodate future
growth. There can be no assurance that Ryanair will be able to develop such
controls, systems or procedures effectively or on a timely basis, and the
failure to do so could have a material adverse effect on the Company's business,
operating results and financial condition.
Ryanair's New Routes and Expanded Operations May Have an Adverse Financial
Impact on Its Results
At the date of this Report, several low-fares carriers operate routes
between the U.K., Ireland and continental Europe. See "Item 4. Information on
the Company-Industry Overview-Service to Continental Europe." Ryanair may face
substantially greater competition in these markets compared to the Ireland-U.K.
market. In addition, although readily accepted on Ryanair's current routes,
there can be no assurance that Ryanair's low-fares service will be accepted on
new routes.
When Ryanair commences new routes, its load factors tend to be lower than
those on its established routes and its advertising and other promotional costs
tend to be higher, which may result in initial losses that could have a material
negative impact on the Company's results of operations as well as require a
substantial amount of cash to fund. Ryanair also periodically runs special
promotional fare campaigns, in particular in connection with the opening of new
routes. Promotional fares may have the effect of increasing load factors and
reducing Ryanair's yield and passenger revenues on such routes during the period
that they are in effect. See "Item 4. Information on the Company-Route System,
Scheduling and Fares." Ryanair expects to have other substantial cash needs as
it expands, including cash required to fund aircraft purchases or aircraft
deposits as additional aircraft or replacement aircraft are bought to service
new routes and increased flight frequencies on existing routes, including the
substantial cash commitments related to the acquisition of the new fleet of
737-800s. There can be no assurance that the Company will have sufficient cash
to fund such projects.
EU air carriers are generally entitled to set air fares freely as a
consequence of EU regulations introduced in 1993 as part of a package of
measures designed to liberalize the market for air transportation services
within the EU. However, EU Member States may intervene to stop further fare
reductions on a route or group of routes where market forces have led to a
sustained downward movement in fares deviating from seasonal norms and resulting
in widespread losses among all carriers on the routes concerned. In addition,
certain European nations outside the EU could reserve the right to set minimum
fares. Such factors could adversely affect Ryanair's ability to set its own
fares freely on its new routes in such markets.
10
To the extent Ryanair may be unable to expand its route system
successfully, its future revenue and earnings growth will be limited.
The Company's Growth Is Dependent on Its Access to Airports, and Charges
for Airport Access Are Subject to Increase
Airline traffic at certain European airports is regulated by a system of
"grandfather" rights in relation to "slot" allocations. Each slot represents
authorization to take-off and land at the particular airport during a specified
time period. Among Ryanair's bases of operations, Dublin, Shannon, London
(Luton), Glasgow (Prestwick), Brussels (Charleroi), Stockholm (Skavsta), and
Frankfurt (Hahn) airports currently have no slot allocations. Nevertheless,
traffic at fourteen of the airports Ryanair serves, including its bases at
London (Stansted) and Milan (Bergamo), is currently regulated through slot
allocations. Applicable EU regulations currently prohibit the buying or selling
of slots for cash, and there is no assurance that Ryanair will be able to obtain
a sufficient number of slots at slot-controlled airports that it may wish to
serve in the future at the time it needs them or on acceptable terms. There can
also be no assurance that its non-slot bases or the other airports Ryanair
serves will continue to operate without slot allocations in the future. See
"Item 4. Information on the Company-Government Regulation-Slots."
Airports also may impose other operating restrictions such as curfews,
limits on aircraft noise levels, mandatory flight paths, runway restrictions and
limits on number of average daily departures. Such restrictions may limit the
ability of Ryanair to provide service to or increase service at such airports.
In addition, Ryanair is facing a European Commission investigation into
possible illegal state aid received by it in connection with its operations in
Brussels (Charleroi), while a Strasbourg court recently ruled Ryanair received
illegal state aid from the Strasbourg Chamber of Commerce in connection with the
Company's launch of its Strasbourg-London (Stansted) service. The Company is
appealing this decision. Adverse rulings in these or similar cases could also
cause Ryanair to strongly reconsider its growth strategy in relation to public
or state-owned airports across Europe. This could in turn lead to a scaling back
of its growth strategy due to the smaller number of privately-owned airports
available for development. See "--The Company Could Incur Significant Additional
Costs Arising from Legal Proceedings regarding Brussels (Charleroi) and
Strasbourg" and "Item 8. Financial Information--Other Financial
Information--Legal Proceedings."
Ryanair's future growth is materially dependent on its ability to access
suitable airports located in its targeted geographic markets at costs that are
consistent with Ryanair's low-fares strategy. See "Item 4. Information on the
Company-Airport Operations-Airport Charges." Any condition that denies, limits
or delays Ryanair's access to airports it serves or seeks to serve in the future
would constrain Ryanair's ability to grow. A change in the terms of Ryanair's
access to these facilities or any increase in the relevant charges paid by
Ryanair as a result of the expiration or termination of such arrangements and
Ryanair's failure to renegotiate comparable terms or rates could have a material
adverse effect on the Company's financial condition and results of operations.
11
Ryanair's operations are principally based at Dublin, London (Stansted),
Shannon, London (Luton), Glasgow (Prestwick), Brussels (Charleroi), Milan
(Bergamo), Stockholm (Skavsta), and Frankfurt (Hahn) airports. There can be no
assurance that these airports will not impose higher airport charges in the
future or that any such increases would not adversely affect Ryanair's
operations.
The Company Could Incur Significant Additional Costs Arising from Legal
Proceedings regarding Brussels Charleroi and Strasbourg.
On December 11, 2002, the European Commission announced the launch of an
investigation into the April 2001 agreement between Ryanair and Brussels
(Charleroi) airport and the government of the Walloon region of Belgium (the
owners of the airport) that permitted the Company to launch new routes and base
up to four aircraft at Brussels (Charleroi). The European Commission's
investigation is based on a complaint by Brussels International Airport
(Zaventem) (the principal airport for Brussels) alleging that Ryanair's
arrangements with Brussels (Charleroi) constitute illegal state aid.
The complaint is being investigated by the European Commission and it is
expected that the European Commission will issue its decision by the end of
2003. Although Ryanair believes that the arrangements do not constitute state
aid, no assurances can be given that the European Commission will rule in
Ryanair's favor. If the European Commission were to rule that the complaint is
valid, Ryanair may be required to repay amounts received since the launch of the
base comprising accommodation grants in the amount of EUR250,000, training
grants of EUR768,000 and new route launch marketing supports of EUR1.44 million.
Standard market practice is for public and private airports to provide volume
based discounts with regard to published handling and landing charges. However,
in the unlikely event that the full amount of the discounts received by Ryanair
off the published tariffs at Brussels (Charleroi) were considered illegal, the
amount repayable by Ryanair on an annualized basis since the launch of the base
in April 2001, in relation to these fees would be approximately EUR2.6 million.
A similar practice applies to marketing support, whereby airlines are regularly
granted such support for the marketing of routes; however, in the unlikely event
that the European Commission were to consider the marketing support received by
Ryanair from Brussels (Charleroi) to be illegal, the annualized amount repayable
by Ryanair since April 2001 would be approximately EUR2.2 million.
In an unrelated, though similar, matter, on July 24, 2003, a Strasbourg
court ruled that marketing support granted by the Strasbourg Chamber of Commerce
to Ryanair in connection with its launch of services from Strasbourg to London
(Stansted) constituted unlawful state aid. The judgment took effect on September
24, 2003. Ryanair has decided to appeal this decision on the basis that the
marketing support granted was not state aid; however, it has, pending the
outcome of this appeal, decided to close the route and has instead opened a
route from Baden Baden in Germany to London (Stansted) (Baden Baden airport is
located some 40 kilometres from Strasbourg). Ryanair has confirmed that it will
reopen the route if the appeal, which could take up to 12 to 18 months before a
decision is issued, is successful.
One or more adverse rulings in these or similar cases could be used as
precedents to challenge Ryanair's agreements with other publicly owned
continental European airports and could cause Ryanair to strongly reconsider its
growth strategy in relation to public or state-owned airports in continental
Europe, as well as potentially requiring Ryanair to repay similar supports
granted by such continental European airports. This could in turn lead to a
scaling back of its growth strategy due to the smaller number of privately-owned
airports available for development. For additional details on these matters,
please see "Item 8. Financial Information--Other Financial Information--Legal
Proceedings."
12
Changes in Fuel Costs and Fuel Availability Affect the Company's Results
Jet fuel costs have been subject to wide fluctuations as a result of sudden
disruptions in global supply and continued to exhibit substantial volatility in
the fiscal years ended March 31, 2002 and 2003. As international prices for jet
fuel are denominated in U.S. dollars, Ryanair's fuel costs are also subject to
certain exchange rate risks.
Ryanair's 16 737-200A aircraft and the four BAe146 aircraft it has on
sub-lease from KLM Royal Dutch Airlines ("KLM") until March 2004 are generally
less fuel efficient than newer aircraft used by many of Ryanair's competitors. A
significant increase in the price of jet fuel would therefore result in a higher
percentage increase in Ryanair's average overall operating costs than those of
its competitors that use more fuel efficient aircraft. See "Item 4. Information
on the Company-Fuel."
Both the cost and availability of fuel are subject to many economic and
political factors and events occurring throughout the world that Ryanair can
neither control nor accurately predict. Substantial price increases, adverse
exchange rates or the unavailability of adequate supplies, including, without
limitation, any such events resulting from significant military action or
prolonged hostilities in the Middle East or other oil-producing regions, could
have a material adverse effect on Ryanair's profitability. In the event of a
fuel shortage resulting from a disruption of oil imports or otherwise, higher
fuel prices or curtailment of scheduled service could result. Ryanair has
entered into limited arrangements providing for protection against fluctuations
in fuel prices and exchange rates, but there can be no assurance that such
agreements will be adequate to protect Ryanair from significant increases in the
price of fuel in the near or longer term. Ryanair has not otherwise entered into
agreements to guarantee its supply of fuel. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk-Fuel Price Exposure and Hedging."
Based upon Ryanair's fuel consumption for the fiscal year ended March 31,
2003, a change of one U.S. cent in the average annual price per gallon of
aviation fuel would have caused a change of approximately EUR1.44 million in the
Company's annual fuel costs. Ryanair's fuel costs in the fiscal year ended March
31, 2003, after giving effect to the Company's fuel hedging activities,
increased by approximately 24% over the comparable period ended March 31, 2002,
primarily due to an increase in the dollar-denominated cost of fuel and the
increase in the number of sectors flown and the average sector length as a
result of the expansion of Ryanair's fleet and route network. Because of
Ryanair's low-fares policy, its ability to pass on increased fuel costs to
passengers through increased fares or otherwise may be limited. Moreover, the
anticipated substantial expansion of Ryanair's fleet will result in a
substantial increase, in absolute terms, in Ryanair's aggregate fuel costs.
Labor Relations Could Expose the Company to Risk
A variety of factors, including, but not limited to, the Company's recent
profitability, may make it more difficult to maintain its current base salary
levels and current employee compensation arrangements. Consequently, there can
be no assurance that Ryanair's existing employee compensation arrangements may
not be subject to change or modification at any time.
Although Ryanair currently consults with groups of employees, including its
pilots, through "Employee Representation Committees," regarding work practices
and conditions of employment, it does not conduct formal binding negotiations
with collective bargaining units, as is the case at many other airlines. Ryanair
considers its relationship with its employees to be good, although the Company
has in the past experienced industrial actions or work stoppages by certain
groups of its employees. In addition, in the United Kingdom, the British Airline
Pilots Association ("BALPA") recently unsuccessfully sought to represent
Ryanair's U.K. based pilots in their negotiations with the company. The Company
could also potentially be exposed to claims arising from the transfer of
employees from KLM UK Limited to Buzz Stansted Limited ("Buzz Stansted"), a new
subsidiary of Ryanair, as part of Buzz Stansted's April 2003 acquisition of
certain assets of KLM UK Limited if, pursuant to UK legislation, a "transfer of
undertaking" is found to have occurred as part of the acquisition. For
additional details on these matters, see "Item 6. Directors, Senior Management
and Employees-Employees and Labor Relations."
13
If any future occurrence of such events were to alter Ryanair's historical
experience of flexibility in dealing with employees or were to alter the
public's perception of Ryanair generally, it could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company Is Dependent on the Ireland-U.K. Market
For the fiscal years ended March 31, 2002 and 2003, passengers on Ryanair's
routes between Ireland and the U.K. accounted for 43.8% and 35.9% of total
passenger revenues, with Dublin and London accounting for approximately 17.4%
and 13.4%, respectively, of total passenger revenues, and the Dublin-London
(Stansted) route alone accounting for approximately 9.7% and 7.6%, respectively,
of such total. Ryanair's business would be adversely affected by any
circumstance causing a reduction in general demand for air transportation
services in Ireland or the U.K., including, but not limited to, adverse changes
in local economic conditions, political disruptions or violence (including
terrorism) or significant price increases linked to increases in airport access
costs or taxes imposed on air passengers. In addition, so long as the Company's
operations remain dependent on routes between Ireland and the U.K., the
Company's future operations and growth will be adversely affected if this market
does not grow and if there is increased competition in this market. See "Item 4.
Information on the Company-Industry Overview-Ireland-U.K. Market."
The Company Is Dependent on Third Party Service Providers
Ryanair currently contracts its heavy airframe maintenance overhauls,
engine overhauls and "rotable" repairs to outside contractors approved under the
terms of Joint Aviation Requirement ("JAR") 145, the European airline industry
standard for maintenance. The Company also contracts its ticketing, passenger
and aircraft handling and ground handling services at airports other than Dublin
to established third party providers. See "Item 4. Information on the
Company-Maintenance and Repairs-Heavy Maintenance" and "Item 4. Information on
the Company-Airport Operations--Airport Handling Services."
The loss or expiration of these or any other of Ryanair's third party
service contracts or any inability to renew them or negotiate replacement
contracts with other service providers at comparable rates could have a material
adverse effect on the Company's results of operations. Ryanair will need to
enter into similar agreements in any new markets it enters, and there can be no
assurance that it will be able to obtain the necessary facilities and services
at competitive rates in new markets. In addition, although Ryanair seeks to
monitor the performance of third parties that provide passenger and aircraft
handling services, the efficiency, timeliness and quality of contract
performance by third party providers are largely beyond Ryanair's direct
control. Ryanair expects to be dependent on such third party arrangements for
the foreseeable future.
The Company Is Dependent on Key Personnel
The Company's success depends to a significant extent upon the efforts and
abilities of its senior management team, including Michael O'Leary, the Chief
Executive of Ryanair, and key financial, commercial, operating and maintenance
personnel. Mr. O'Leary's current contract may be terminated by either party upon
12 months' notice. See "Item 6. Directors, Senior Management and
Employees-Compensation of Directors and Senior Management-Employment
Agreements." The Company's success also depends on the ability of its executive
officers and other members of senior management to operate and manage
effectively both independently and as a group. Although the Company's employment
agreement with Mr. O'Leary and its employment agreements with its other senior
executives contain non-competition and non-disclosure provisions, there can be
no assurance that these provisions will be enforceable in whole or in part.
Competition for highly qualified personnel is intense, and the loss of any
executive officer, senior manager or other key employee without adequate
replacement or the inability to attract new qualified personnel could have a
material adverse effect upon the Company's business, operating results and
financial condition.
14
The Acquisition of Buzz could Increase the Company's Costs
On April 10, 2003, Buzz Stansted purchased certain assets from KLM UK
Limited for EUR20.1 million. These assets primarily comprised trademarks, domain
names, computer equipment, ticket desk equipment and certain aircraft documents,
records and manuals. As part of the transaction, Buzz Stansted agreed to take
over the leases on six Boeing 737-300s and four BAe146-200s. In addition, KLM UK
Limited agreed to transfer certain landing and takeoff slots at Stansted Airport
to Buzz Stansted. Buzz Stansted is operating these aircraft on a sub-service
basis for Ryanair on 12 routes that were formerly operated by KLM UK Limited,
which conducted business as "Buzz," the low fares subsidiary of KLM Royal Dutch
Airlines ("KLM"). Under the terms of this transaction, Ryanair Holdings and KLM
guaranteed the performance obligations of Buzz Stansted and KLM UK Limited
respectively. See "Item 4. Information on the Company--Industry Overview--The
Acquisition of Buzz."
Buzz Stansted is subject to regulation by the UK Civil Aviation Authority
(the "CAA"), and the Company was required to obtain a UK air operators'
certificate in order to operate its leased aircraft. Buzz Stansted did not
operate any services between April 10, 2003 and May 1, 2003, while its staff
were being retrained and the airline obtained this certificate. As a result, the
Company recorded exceptional costs amounting to EUR3.1 million (equal to Buzz
Stansted's operating costs during this period of inactivity) in the fiscal
quarter ending June 30, 2003. The Company was also required to give a guarantee
of StgGBP12 million to the CAA to discharge any liabilities to third parties
that might arise from the termination of Buzz's business. The Company could be
subject to further additional operating costs arising from the maintenance of
the UK air operators' certificate.
Ryanair is Subject to Aircraft Maintenance Requirements and the Risks of
Aircraft Reliability
As 16 out of 67 of Ryanair's aircraft are 737-200A aircraft manufactured
between 1980 and 1983, it is likely that they will require greater maintenance
expenditures than would a newer fleet. The average age of Ryanair's fleet of
owned 737-200A aircraft at March 31, 2003 was approximately 22 years. The
Company plans to retire the 16 737-200A aircraft between September 2003 and
December 2005 and replace these aircraft with new 737-800 aircraft. A number of
Ryanair's current or potential competitors own fleets of aircraft with a lower
average age. In general, the cost of maintaining or operating aging aircraft
exceeds that of maintaining or operating newer aircraft. In addition, there can
be no assurance that Ryanair's new 737-800 aircraft will not cause the Company
to incur significant maintenance or other operating costs. There also can be no
assurance that new regulations will not be implemented in the future that would
apply to Ryanair's aircraft and result in an increase in Ryanair's cost of
maintenance beyond management's current estimates. In addition, should Ryanair's
aircraft cease to be sufficiently reliable or should any public perception
develop that Ryanair's aircraft are less than completely reliable, the Company's
business could be materially adversely affected. See "Item 4. Information on the
Company-Maintenance and Repairs."
15
The Company Faces Risks Related to Its Reservations Operations
In 1996, Ryanair transferred its reservations operation from two locations
in London and Dublin to a single new facility in Dublin operated by its
Ryanair.com Limited ("Ryanair.com") subsidiary. See "Item 4. Information on the
Company-Reservations/Ryanair.com." The single center exposes Ryanair to the
risks of system breakdowns, damage to, or the loss of, its reservations center
and other events which could materially affect Ryanair's ability to process a
portion of its passenger reservations and rapidly recover reservations
information in the event of a system failure. As of August 2003, in excess of
94% of Ryanair's daily flight reservations were made through its website.
Although the Company has established a contingency program whereby the website
is hosted in two separate locations, each of these locations accesses the same
OpenSkies booking engine, located at the single center, in order to make
reservations. Although there are backup procedures at one of these locations,
there can be no assurance that Ryanair would not suffer a significant loss of
reservations in the event of a breakdown of such system, which in turn could
have a material adverse affect on the Company's financial condition or results
of operations.
Risks Related to the Airline Industry
Ryanair's Industry Is Highly Competitive
The level of competition among airlines is high. Airlines compete primarily
with respect to fare levels, frequency and dependability of service, name
recognition, passenger amenities (such as access to frequent flyer programs) and
the availability and convenience of other passenger services. In addition,
unlike Ryanair, certain of Ryanair's principal actual and potential competitors
are state-owned or controlled flag carriers and may have greater name
recognition and resources and may have received or may receive in the future
significant amounts of subsidies and other state aid from their respective
governments. See "Item 4. Information on the Company-Government
Regulation-Regulation of Competition." Management expects further competition
from start-up low-fares airlines and other carriers formed by or affiliated with
other major airlines that may be formed to compete in the low-fares segment of
the market as a result of continuing liberalization of the EU air transport
market. Competition has led to a general reduction in the level of air fares in
certain market segments of the industry in the EU, and Ryanair expects to face
substantial competition from established and new carriers, possibly including
other low-fares carriers operating in the Ireland-U.K. market. Negotiations
between the EU and the United States on a comprehensive "open skies" agreement,
which are expected to begin shortly, could result in the removal of current
barriers to the entry of U.S. carriers into the intra-EU market.
The airline industry is highly susceptible to price discounting, in part
because airlines incur very low marginal costs for providing service to
passengers occupying otherwise unsold seats. Since Ryanair began to restructure
its operations in the early 1990s, a number of its competitors have inaugurated
or increased the frequency of their service on routes that Ryanair currently
operates or may operate in the future. From time to time, certain of these
competitors have substantially reduced fares in an apparent attempt to match or
compete with the fares charged by Ryanair. There can be no assurance that
competitors will not continue to undercut Ryanair's fares in the future or
increase capacity on competing routes in an effort to increase their respective
market shares.
Although Ryanair intends to compete vigorously and to assert its rights
against any predatory conduct, such activity by other airlines could reduce the
level of fares or passenger traffic on its routes to the point where profitable
levels of operations could not be achieved. Due to Ryanair's smaller size and
reduced financial resources compared to some of its competitors, it may be less
able to withstand aggressive marketing tactics or fare wars engaged in by
competitors should such conditions exist. Furthermore, if Ryanair were to
achieve a dominant position on any route it operates, it would be prevented by
EU competition law from setting fares at a level below the cost of providing the
relevant service.
16
In addition to traditional competition among airline companies, the
industry faces competition from ground and sea transportation alternatives and
may also be subject to new forms of competition in the future such as video
teleconferencing and other methods of electronic communication that may add a
new dimension of competition to the industry as businesses and recreational
travelers seek lower-cost substitutes for air travel.
Impact of Proposed EU regulations on Denied Boarding Compensation for Passengers
The European Commission has proposed revised legislation for compensating
airline passengers who have been denied boarding on a flight for which they hold
a valid ticket. The proposed legislation also seeks to compensate passengers for
flights cancelled "for commercial reasons within the control of the airline".
The proposal in its current form calls for compensation of either EUR250, EUR400
or EUR600 per passenger, depending on the length of the flight. Passengers
subject to long delays (in excess of 2 hours) would be entitled to cancel their
flights, or to rebook on an alternative flight. In certain cases they could also
be entitled to a complimentary meal and drink and hotel accommodation at the
company's expense. Ryanair does not currently offer any such compensation or
other benefits to its passengers. As Ryanair's average flight duration is 1.1
hours, considered a short-haul flight, the amount payable if this legislation
were enacted would be EUR250 per occurrence.
Ryanair has strongly argued that this legislation is unfair and that the
proposed compensation is disproportionate given that Ryanair's average booked
fare in 2003 is less than EUR50 and that the legislation does not apply to
competing surface modes of transport. Other low fares airlines operating in
Europe have made similar arguments. The proposed legislation is currently being
considered by the European Council and the European Parliament, and Ryanair
continues to lobby to ensure that the final legislation is fair to all airlines
and applies equally to all modes of transportation.
Although Ryanair does not overbook its flights as a general rule (and
therefore generally does not need to deny boarding to "bumped" passengers) and
has one of the best on time and completed flights records of major European
carriers, there can be no assurance that passage of the proposed legislation
would not cause the Company to incur significant costs in connection with denied
boarding compensation, compensation for certain other cancellations or food and
accommodation costs for delayed passengers, which could have a material adverse
effect on the Company's operating costs and in turn reduce its profitability.
The Company Is Dependent on the Continued Acceptance of Low-Fares Airlines
In past years, accidents or other safety-related incidents involving
certain low-fares airlines have had a negative impact on the public's acceptance
of those airlines. Any adverse event potentially relating to the safety or
reliability of low-fares airlines (including accidents or negative reports from
regulatory authorities) could adversely impact the public's perception of, and
confidence in, airlines like Ryanair and could have a material adverse effect on
the Company's financial condition and results of operations.
The 2001 Terrorist Attacks on the United States Had a Severe Negative Impact on
the International Airline Industry
The terrorist attacks on the United States on September 11, 2001, in which
four commercial aircraft were hijacked, had a severe negative impact on the
international airline industry, particularly on U.S. carriers and carriers
operating international service to and from the U.S. Although carriers such as
Ryanair that operate exclusively in Europe have generally been spared from such
material adverse impacts on their businesses to date, the cost to all commercial
airlines of insurance coverage for certain third party liabilities arising from
"acts of war" or terrorism has increased dramatically since these attacks.
Although Ryanair has passed on the increased insurance costs to passengers by
means of a special "insurance levy" on each ticket, there can be no assurance
that it will continue to be successful in doing so. In response to the dramatic
drop in revenue and expected increases in costs, airlines in the U.S. and
certain European carriers with significant U.S. operations have sought, and in
certain cases, already received, governmental assistance in the form of
financial aid, although Ryanair has not received any such aid.
17
Ryanair does not fly to the U.S., and although it experienced a decline of
approximately 10% in reservations in the week following the terrorist attacks,
the number of flight bookings had returned to normal levels by the end of
September 2001. Nonetheless, because a substantial portion of airline travel
(both business and personal) is discretionary and because Ryanair is
substantially dependent on discretionary air travel, any prolonged general
reduction in airline passenger traffic may adversely affect the Company.
Similarly, any significant increase in expenses related to security, insurance
or related costs could have a material adverse effect on the Company. Any
further terrorist attacks in the U.S., or particularly in Europe, any
significant new military actions by the U.S. and any allies (such as the spring
2003 war in Iraq) or any related economic downturn would be likely to have a
material adverse effect on demand for air travel and thus on Ryanair's business,
operating results and financial condition.
The Company Faces the Risk of Loss and Liability
Ryanair is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident or terrorist incident. Any such accident or
incident could involve not only repair or replacement of a damaged aircraft and
its consequent temporary or permanent loss from service, but also significant
potential claims of injured passengers and others. Ryanair currently maintains
passenger liability insurance, employer liability insurance, aircraft insurance
for aircraft loss or damage, insurance for pilots' loss of license and other
business insurance in amounts per occurrence that are consistent with industry
standards. Although Ryanair currently believes its insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not
need to be increased, that insurance premiums will not increase significantly or
that Ryanair will not be forced to bear substantial losses from any accidents.
Airline insurance costs increased dramatically following the September 2001
terrorist attacks on the United States. See "-The 2001 Terrorist Attacks on the
United States Had a Severe Negative Impact on the International Airline
Industry." Substantial claims resulting from an accident in excess of related
insurance coverage could have a material adverse effect on the Company's results
of operations and financial condition. Moreover, any aircraft accident, even if
fully insured, could cause a public perception that Ryanair's aircraft are less
safe or reliable than those operated by other airlines, which could have a
material adverse effect on Ryanair's business.
EU Regulation No. 2027/97, as amended by Regulation 889/2002, governs air
carrier liability. This legislation provides for unlimited liability of an air
carrier in the event of death or bodily injuries suffered by passengers,
implementing the Warsaw Convention of 1929 for the Unification of Certain Rules
Relating to Transportation by Air, as amended by the Montreal Convention of
1999. This legislation also limits the ability of an air carrier to rely on
certain defenses in an action for damages, which would otherwise have been
available to it at law, and provides for uniform liability limits for loss of,
damage to or destruction of baggage and for damage occasioned by delay. The
potential exposure of air carriers, such as Ryanair, has therefore been
increased and, although Ryanair has extended its liability insurance accordingly
to meet the requirements of the legislation, no assurance can be given that
other laws, regulations or policies will not be applied, modified or amended in
a manner that has a material adverse effect on the Company's financial condition
or results of operations.
18
The Airline Industry Yields Low Margins of Return
The airline industry is characterized by high fixed costs and revenues that
generally exhibit substantially greater elasticity than costs. The operating
costs of each flight do not vary significantly with the number of passengers
flown and, therefore, a relatively small change in the number of passengers or
in fare pricing or traffic mix could have a disproportionate effect on operating
and financial results. Accordingly, a relatively minor shortfall from expected
revenue levels could have a material adverse effect on the Company's growth or
financial performance. See "Item 5. Operating and Financial Review and
Prospects." The very low marginal costs incurred for providing services to
passengers occupying otherwise unsold seats are also a factor in the industry's
high susceptibility to price discounting. See "-Ryanair's Industry Is Highly
Competitive."
Safety-Related Undertakings Could Affect the Company's Results
Aviation authorities in Europe and the United States periodically require
or suggest that airlines implement certain safety-related procedures on their
aircraft. In recent years, the U.S. Federal Aviation Administration (the "FAA")
has required a number of such procedures with regard to Boeing 737 aircraft,
including checks of rear pressure bulkheads and flight control modules, redesign
of the rudder control system and limitations on certain operating procedures.
Ryanair's policy is to implement any such required procedures in accordance with
FAA guidance, and to perform such procedures in close collaboration with Boeing.
To date, all such procedures have been conducted as part of Ryanair's standard
maintenance program and have not interrupted flight schedules or required any
material increases in Ryanair's maintenance expenses. However, there can be no
assurance that the FAA or other regulatory authorities will not recommend or
require other safety-related undertakings or that such undertakings would not
adversely impact the Company's results of operations or financial condition.
Currency Fluctuations Affect the Company's Results
Although the Company is headquartered in Ireland, a significant portion of
its operations is conducted in the U.K. Consequently, the Company has operating
revenues and operating expenses, as well as assets and liabilities, denominated
in currencies other than the euro; for example, fuel costs and debt service
obligations are denominated in U.S. dollars and U.K.-related revenues and
expenses are denominated in sterling. The Company's results of operations and
financial condition can therefore be significantly affected by fluctuations in
the respective values of those currencies. Ryanair's operations can be subject
to significant direct exchange rate risks between the euro and the U.S. dollar
because a significant portion of its operating costs (particularly those related
to fuel purchases) is incurred in U.S. dollars, while none of its revenues are
denominated in U.S. dollars. Although the Company engages in foreign currency
hedging transactions between the euro and the U.S. dollar, between the euro and
sterling, and between sterling and the U.S. dollar, hedging activities cannot be
expected to eliminate currency risks. See "Item 11. Quantitative and Qualitative
Discussion About Market Risk."
Risks Related to Ownership of Ryanair's Ordinary Shares or ADSs
EU Rules Impose Restrictions on the Ownership of Ryanair Holdings' Ordinary
Shares by Non-EU Nationals, and the Company has Instituted a Ban on the Purchase
of Ordinary Shares by Non-EU Nationals
The Board of Directors of Ryanair Holdings are given certain powers under
Ryanair Holdings' Articles of Association (the "Articles") to take action to
ensure that the amount of shares held in Ryanair Holdings by non-EU nationals
("Affected Shares") does not reach a level which could jeopardize the Company's
entitlement to continue to hold or enjoy the benefit of any license, permit,
consent or privilege which it holds or enjoys and which enables it to carry on
business as an air carrier (a "License"). In particular, EU Regulation 2407/92
requires that, in order to obtain and retain an operating license, an EU air
carrier must be majority owned and effectively controlled by EU nationals. EU
Regulation 2407/92 does not specify what level of share ownership will confer
effective control on a holder or holders of shares. As described below, the
Directors will, from time to time, set a "Permitted Maximum" on the number of
Ordinary Shares that may be owned by non-EU nationals at such level as they
believe will comply with EU Regulation 2407/92. The Permitted Maximum is
currently set at 49.9%.
19
In the event that, inter alia, (i) the refusal, withholding, suspension or
revocation of any License or the imposition of any condition which materially
inhibits the exercise of any License (an "Intervening Act") has taken place,
(ii) the Company receives a notice or direction from any governmental body or
any other body which regulates the provision of air transport services to the
effect that an Intervening Act is imminent, threatened or intended or (iii) an
Intervening Act may occur as a consequence of the level of non-EU ownership of
shares or an Intervening Act is imminent, threatened or intended because of the
manner of share ownership or control of Ryanair Holdings generally, the
Directors can take action pursuant to the Articles to deal with the situation.
They can, inter alia, (i) remove any Director or change the Chairman of the
Board, (ii) identify those shares, American Depositary Shares ("ADSs") or
Affected Shares which give rise to the need to take action and treat such
shares, ADSs, or Affected Shares as Restricted Shares (see below) or (iii) set a
"Permitted Maximum" on the number of Affected Shares which may subsist at any
time (which may not, save in the circumstances referred to below, be lower than
40% of the total number of issued shares) and treat any Affected Shares (or ADSs
representing such Affected Shares) in excess of this Permitted Maximum as
Restricted Shares (see below). Also, if as a consequence of a change of law or a
direction, notice or requirement of any state, authority or person it is
necessary to reduce the total number of Affected Shares below 40% or reduce the
number of Affected Shares held by any particular stockholder or stockholders in
order to overcome, prevent or avoid an Intervening Act, the Directors may
resolve to (i) set the Permitted Maximum at such level below 40% as they
consider necessary in order to overcome, prevent or avoid such Intervening Act,
or (ii) treat such number of Affected Shares (or ADSs representing Affected
Shares) held by any particular stockholder or stockholders as they consider
necessary (which could include all of such Affected Shares or ADSs) as
Restricted Shares (see below). The Directors may serve a Restricted Share Notice
in respect of any Affected Share, or any ADR representing any ADS, which is to
be treated as a Restricted Share. Such Notices can have the effect of depriving
the recipients of the rights to attend, vote and speak at general meetings,
which they would otherwise have had as a consequence of holding such shares or
ADSs. Such Notices can also require the recipients to dispose of the shares or
ADSs concerned to an EU national (so that the relevant shares (or shares
underlying the relevant ADSs) will then cease to be Affected Shares) within 21
days or such longer period as the Directors may determine. The Directors are
also given the power to transfer such shares themselves where there is
non-compliance with the Restricted Share Notice.
As of June 30, 2003, EU nationals owned at least 53.8% of Ryanair Holdings'
Ordinary Shares (assuming conversion of all outstanding ADSs into Ordinary
Shares). Ryanair Holdings continues to monitor the EU national ownership status
of its Ordinary Shares, which changes on a daily basis. Ryanair Holdings has
undertaken to notify its shareholders annually of the percentage of Ordinary
Shares held by EU nationals.
As a further measure to increase the percentage of shares held by EU
nationals, on February 7, 2002, the Company issued a notice to shareholders to
the effect that any purchase of Ordinary Shares by a non-EU national after such
date will immediately result in the issue of a Restricted Share Notice to such
non-EU national purchaser. The Restricted Share Notice compels the non-purchaser
to sell the affected shares to an EU national within 21 days of the date of
issuance. In the event that any such non-EU national shareholder does not sell
its shares to an EU national within the specified time period, the Company can
then take legal action to compel such a sale. As a result, non-EU nationals are
effectively barred from purchasing Ordinary Shares for as long as these
restrictions remain in place. There can be no assurance that these restrictions
will ever be lifted.
20
Holders of Ordinary Shares are Currently Unable to Convert those Shares into
American Depository Shares
In an effort to increase the percentage of its share capital held by EU
nationals, on June 26, 2001, Ryanair Holdings instructed The Bank of New York,
the depositary for its ADS program, to suspend the issuance of new ADSs in
exchange for the deposit of Ordinary Shares until further notice to its
shareholders. Holders of Ordinary Shares cannot convert their Ordinary Shares
into ADSs during such suspension, and there can be no assurance that the
suspension will ever be lifted. See also "EU Rules Impose Restrictions on the
Ownership of Ryanair Holdings' Ordinary Shares by Non-EU nationals and the
Company has Instituted a Ban on the Purchase of Ordinary Shares by Non-EU
Nationals" above.
The Company's Results of Operations Can Fluctuate Significantly
The Company's results of operations have varied significantly from quarter
to quarter, and management expects these variations to continue. Among the
factors causing these variations are the airline industry's sensitivity to
general economic conditions and the seasonal nature of air travel. Because a
substantial portion of airline travel (both business and personal) is
discretionary, the industry tends to experience adverse financial results during
general economic downturns. Any prolonged general reduction in airline passenger
traffic may adversely affect the Company, particularly since it is substantially
dependent on discretionary air travel. In addition, the airline industry tends
to be seasonal in nature. Historically, Ryanair has experienced its lowest load
factors and yields for the year in January and February. As a result, the
Company's operating revenues and profit before taxation have generally been
significantly lower in the last quarter of a fiscal year ended March 31 than in
the other quarters thereof.
The trading price of Ryanair Holdings' Ordinary Shares and ADSs may be
subject to wide fluctuations in response to quarterly variations in the
Company's operating results and operating results of other airlines. In
addition, the global stock markets from time to time experience extreme price
and volume fluctuations that affect the market prices of many airline company
stocks. These broad market fluctuations may adversely affect the market price of
the Ordinary Shares and ADSs.
Ryanair Holdings Does Not Intend to Pay Dividends
Since its organization as the holding company for Ryanair in 1996, Ryanair
Holdings has not declared or paid dividends on its Ordinary Shares. Ryanair
Holdings anticipates, for the foreseeable future, that it will retain any future
earnings in order to fund the business operations of the Company, including the
acquisition of additional aircraft needed for Ryanair's planned entry into new
markets and its expansion of its existing service, as well as replacement
aircraft for its current fleet. Ryanair Holdings does not, therefore, anticipate
paying any cash or share dividends on its Ordinary Shares in the foreseeable
future. As a holding company, Ryanair Holdings does not have any material assets
other than interests in the shares of Ryanair. See "Item 8. Financial
Information-Other Financial Information-Dividend Policy."
Future Sales of Ordinary Shares Could Depress Ryanair Holdings' Stock Price
Sales of substantial amounts of ADSs or Ordinary Shares (including Ordinary
Shares issued upon the exercise of stock options) in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the ADSs and the Ordinary Shares or the Company's ability to
raise capital though a public offering of our equity securities.
21
The Company seeks to attract and retain employees in part by offering its
employees stock options and other rights to purchase Ordinary Shares, which vest
over time. As of March 31, 2003, a total of 26,453,855 options to purchase an
equal number of Ordinary Shares were outstanding; not all of these options are
currently exercisable. Future grants of stock options under the Company's
existing plans are made at the discretion of the Board of Directors of Ryanair
Holdings and can only be considered by the Board if the Company meets certain
financial performance targets. The issuance of Ordinary Shares for such purposes
may have the effect of reducing the percentage ownership in Ryanair Holdings of
the then existing stockholders. See "Item 10. Additional Information. Options to
Purchase Securities from Registrant or Subsidiaries."
Item 4. Information on the Company
INTRODUCTION
The Company operates a low-fares scheduled passenger airline serving
short-haul, point-to-point routes primarily between Ireland and the U.K. In
operation since 1985, the Company began to introduce a low cost operating model
under a new management team in the early 1990s. See "Item 5. Operating and
Financial Review and Prospects--History." At September 30, 2003, with its fleet
of 67 aircraft, including 16 Boeing 737-200A jet aircraft, 41 new Boeing 737-800
"next generation" aircraft, four BAe146 aircraft and six 737-300 aircraft, the
Company offered approximately 475 scheduled short-haul flights per day serving
83 locations in the U.K., Ireland and continental Europe. See "--Route System,
Scheduling and Fares--Route System and Scheduling" for more details of Ryanair's
route network.
Offering widely-available low fares, Ryanair carried more than 13.4 million
passengers during calendar year 2002. On the basis of the U.K. Airports Annual
Statement of Movements, Passengers and Cargo (the "CAA Statistics") published by
the CAA in calendar year 2002, Ryanair had the leading market share (in terms of
passenger volume) on most of its scheduled routes between Ireland and provincial
cities in the U.K. and carried approximately 40% of all scheduled passenger
traffic between Dublin and London, a share comparable to that of Aer Lingus plc
("Aer Lingus"), its primary competitor on its UK/Ireland routes. According to
the CAA Statistics, Ryanair has also achieved competitive market share results
on the routes it launched from the U.K. to continental Europe from the dates it
began service on these routes.
By generating an average scheduled flown passenger load factor of
approximately 78% and average scheduled passenger yield of EUR0.084 per
available seat mile ("ASM") and focusing on maintaining low operating costs
(EUR0.062 per ASM), Ryanair achieved a net margin of 28% on operating revenues
of EUR843 million for the fiscal year ended March 31, 2003. See "Item 5.
Operating and Financial Review and Prospects" and "Glossary."
The market's acceptance of Ryanair's low-fares service is reflected in the
"Ryanair Effect" - Ryanair's history of stimulating significant growth in annual
passenger traffic on the new routes it has entered since 1991. On the basis of
the CAA Statistics and statistics released by the International Civil Aviation
Organization (the "ICAO"), the number of scheduled airline passengers traveling
between Dublin and London increased from approximately 1.7 million passengers in
1991 to more than 4.4 million passengers in 2002. Each international route
Ryanair has entered since 1991 has recorded significant traffic growth in the
period following Ryanair's commencement of service, with Ryanair capturing the
largest portion of such growth on each such route. Although a variety of factors
contributed to this increase in air passenger traffic, including the relative
strength of the Irish, U.K. and European economies, management believes that the
most significant factor across all its European routes in such growth has been
Ryanair's low-fares service.
22
Ryanair Holdings' registered office is located c/o Ryanair Limited,
Corporate Head Office, Dublin Airport, County Dublin, Ireland. The general
telephone number is +353-1-812-1212. Under its current Articles of Association,
Ryanair Holdings has an unlimited corporate duration.
STRATEGY
Ryanair's objective is to firmly establish itself as Europe's leading
low-fares scheduled passenger airline through continued improvements and
expanded offerings of its low-fares service. Ryanair aims to offer low fares
that generate increased passenger traffic while maintaining a continuous focus
on cost-containment and operating efficiencies. The key elements of Ryanair's
strategy are:
Low Fares. Ryanair's low fares are designed to stimulate demand,
particularly from fare-conscious leisure and business travelers who might
otherwise have used alternative forms of transportation or would not have
traveled at all. In November 2001, Ryanair changed the way it sells seats on its
flights from a return (round-trip) to a one-way basis, thus removing minimum
stay requirements from all travel on Ryanair scheduled services, regardless of
fare. Ryanair sets fares on the basis of the demand for particular flights and
by reference to the period remaining to the date of departure of the flight,
with higher fares charged on flights with higher levels of demand for bookings
made nearer to the date of departure. Ryanair's Dublin to London (Stansted)
route is its largest route in terms of passenger volume, with fares ranging from
EUR19.99 to EUR169.99. Ryanair's competitors generally do not operate a one-way
pricing policy, so direct comparison is not possible, but current fares on Aer
Lingus, Ryanair's largest competitor on the London-Dublin route, are EUR79.98
for restricted return tickets, EUR211.12 for same/next day return and EUR299 for
unrestricted return tickets. In September 2003, Ryanair launched a fare
promotion offering a total of two million seats on certain routes for "free"
(excluding government taxes and passenger service charges) for travel during the
period between September 23 and December 17, 2003.
Frequent Point-to-Point Flights on Short-Haul Routes. Ryanair provides
frequent point-to-point service on short-haul routes to secondary and regional
airports in and around major population centers and travel destinations. In the
fiscal year ended March 31, 2003, Ryanair flew an average of approximately 1.94
round-trips per route per day with an average route length of 473 miles and an
average duration of approximately 1.1 hours. Short-haul routes allow Ryanair to
offer frequent service, while eliminating the necessity to provide "frill"
services otherwise expected by customers on longer flights. Point-to-point
flying (as opposed to hub-and-spoke service) allows Ryanair to offer direct,
non-stop routes and avoid the costs of providing through service for connecting
passengers, including baggage transfer and transit passenger assistance costs.
In choosing its routes, Ryanair favors secondary airports with convenient
transportation to major population centers and regional airports. Secondary and
regional airports are generally less congested than major airports and, as a
result, can be expected to provide higher rates of on-time departures, faster
turnaround times (the time an aircraft spends at a gate loading and unloading
passengers), fewer terminal delays and more competitive airport access and
handling costs. Ryanair's "on time" performance record (arrivals within 15
minutes of schedule) for the first six months of 2003 was 91%, exceeding that of
its principal competitors, including Lufthansa (84%), British Airways (79%), Air
France (78%), easyJet (76%), and Alitalia (65%), according to the Association of
European Airlines' reports and the airlines' own published statistics. Faster
turnaround times are a key element in Ryanair's efforts to maximize aircraft
utilization. Ryanair's average scheduled turnaround time for the fiscal year
ended March 31, 2003 was approximately 25 minutes. Secondary and regional
airports also generally do not maintain slot requirements or other operating
restrictions that can increase operating expenses and limit the number of
allowed take-offs and landings.
23
Low Operating Costs. Management believes that Ryanair's operating costs are
among the lowest of any European scheduled passenger airline. Ryanair strives to
reduce or control four of the primary expenses involved in running a major
scheduled airline: (i) aircraft equipment costs; (ii) personnel expenses; (iii)
customer service costs; and (iv) airport access and handling costs:
Aircraft Equipment Costs. Ryanair's initial strategy for controlling
aircraft acquisition costs was to purchase used aircraft of a single type.
From 1994 to 1998, Ryanair purchased used Boeing 737-200A aircraft that
were, at the date of purchase, between 11 and 17 years old (with an average
age of 22 years at March 31, 2003). In the late 1990s, however, there was a
significant reduction in the number of such used aircraft available for
purchase in the market. Accordingly, in March 1998, Ryanair announced that
it would start purchasing new Boeing 737-800 "next generation" aircraft.
See "--Aircraft." The 737-800s represent the latest generation of Boeing's
737 aircraft and share certain basic attributes in common with Ryanair's
current fleet. Although Ryanair's acquisition of the 737-800s has already,
and will continue to significantly increase the size of its fleet from that
in 1998 and thus significantly increase its aircraft equipment and related
costs (both on an aggregate and per aircraft basis), management believes
that its strategy of limiting its fleet primarily to three variants of a
single type of aircraft from a single manufacturer enables it to limit the
costs associated with personnel training, maintenance and the purchase and
storage of spare parts, as well as affording greater flexibility in the
scheduling of crews and equipment. Management also believes that the terms
of the Boeing contracts are very favorable to Ryanair.
Personnel Expenses. Ryanair endeavors to control its labor costs by
continually improving the productivity of its already highly-productive
work force. Compensation for employees emphasizes productivity-based pay
incentives, including commissions for on-board sales of products for
flight attendants and payments based on the number of hours or sectors
flown by pilots and cabin crew personnel within limits set by industry
standards or regulations fixing maximum working hours, as well as
participation in Ryanair's valuable stock option programs.
Customer Service Costs. Ryanair has entered into agreements on competitive
terms with third party contractors at certain airports for passenger and
aircraft handling, ticketing and other services that management believes
can be more cost efficiently provided by third parties. Management attempts
to obtain competitive rates for such services by negotiating multi-year
contracts at prices that are fixed or subject only to periodic increases
linked to inflation. The development of its own reservations center and
internet booking facility has allowed Ryanair to eliminate travel agent
commissions. For the fiscal year ended March 31, 2003, Ryanair generated
virtually all of its scheduled passenger revenues through direct sales,
with direct telephone reservations and sales through Ryanair's website
generating approximately 6% and approximately 94% of the total,
respectively.
Airport Access Fees. Ryanair attempts to control airport access and service
charges by focusing on airports that offer competitive cost terms.
Management believes that Ryanair's record of delivering a consistently high
volume of passenger traffic growth at many of these airports has allowed it
to negotiate favorable contracts with such airports for access to their
facilities. Ryanair further endeavors to reduce its airport charges by
opting, when practicable, for less expensive gate locations as well as
outdoor boarding stairs rather than more expensive jetways.
24
Taking Advantage of the Internet. During January 2000, Ryanair converted
its host reservation system from the BABS (British Airways Booking System) to a
new system called Flightspeed, which it operates under a 10 year hosting
agreement with Accenture Open Skies ("Open Skies"). As part of the
implementation of the new reservation system, Open Skies developed an internet
booking facility called Skylights. The Skylights system allows internet users to
access Ryanair's host reservation system and to make and pay for confirmed
reservations in real time through Ryanair's Ryanair.com website. Since the
launch of the Skylights system, Ryanair has heavily promoted its website through
newspaper, radio and television advertising. As a result, internet bookings have
grown rapidly, accounting for in excess of 94% of all reservations on a daily
basis as of September 2003.
Commitment to Safety and Quality Maintenance. Ryanair's commitment to
safety is a primary priority of the Company and its management. This commitment
begins with the hiring and training of Ryanair's pilots, cabin crews and
maintenance personnel and includes a policy of maintaining its aircraft in
accordance with the highest European airline industry standards. Ryanair has not
had a single incident involving major injury to passengers or flight crew in its
19-year operating history. Although Ryanair seeks to maintain its fleet in a
cost-effective manner, management does not seek to extend Ryanair's low cost
operating strategy to the areas of safety, maintenance, training or quality
assurance. Routine aircraft maintenance and repair services are performed at
Dublin, London (Stansted), Glasgow (Prestwick), Shannon, Stockholm (Skavsta) and
Milan (Bergamo) by Ryanair and, at other airports, by maintenance contractors
approved under the terms of JAR 145, the European airline industry standard for
maintenance. Ryanair currently contracts heavy airframe maintenance, engine
overhaul services and rotable repairs to contractors. These contractors also
provide similar services to a number of other airlines, including British
Airways and Aer Lingus. Ryanair assigns a JAR 145 certified mechanic to oversee
heavy maintenance and authorize engine overhauls performed by third parties.
Enhancement of Operating Results through Ancillary Services. Ryanair offers
a variety of ancillary, revenue-generating services in conjunction with its core
transportation service, including on-board merchandise, beverage and food sales,
charter flights, cargo services, accommodation reservation services,
advertising, travel insurance, car rentals and rail and bus tickets. Ryanair
distributes car rentals, accommodation services and travel insurance through
both its website and its traditional telephone reservation offices. Management
believes that providing these services through the internet allows Ryanair to
increase sales, while at the same time reducing costs on a per unit basis.
For the fiscal year ended March 31, 2003, ancillary services accounted for
13.1% of Ryanair's total operating revenues, as compared to 11.7% of such
revenues in the fiscal year ended March 31, 2002. The increase reflected higher
revenues from car rentals, other ancillary products and services provided
through the Ryanair.com website.
Focused Criteria for Growth. Building on its success in the Ireland-U.K.
market and its expansion of service to continental Europe, Ryanair intends to
follow a manageable growth plan targeting specific markets. Ryanair introduced
its first routes to continental Europe in the spring of 1997 and now serves a
total of 61 continental European destinations from Dublin, London (Stansted),
Glasgow (Prestwick), Shannon, Brussels (Charleroi), Frankfurt (Hahn), Stockholm
(Skavsta) and Milan (Bergamo). Over the same period, Ryanair added several new
British and Irish destinations and increased the number of flights on certain of
its routes.
Ryanair believes it will have opportunities for continued growth by: (i)
initiating additional routes from the U.K. or Ireland to other locations in
continental Europe that are currently served by higher-cost, higher-fare
carriers; (ii) increasing the frequency of service on its existing routes ;
(iii) starting new domestic routes within EU countries; (iv) considering
possible acquisitions that may become available in the future; (v) connecting
airports within its existing route network ("triangulation"); and (vi)
establishing more new bases in continental Europe.
25
INDUSTRY OVERVIEW
European Airline Market
The Western European air transport market has historically been subject to
significant governmental regulation, encompassing both domestic regulations
imposed by individual countries and rules enacted by the EU that apply
throughout its territory. The EU commenced a program to reduce the level of
regulation during the 1980s, followed by a package of liberalization measures
substantially reducing the ability of individual EU Member States to restrict
access to routes for air travel that were originally adopted in 1992. Since
April 1997, EU carriers have been able to provide passenger service on domestic
routes within individual EU Member States outside their home country of
operation without restriction.
Partially as a result of this progressive movement towards deregulation,
there has been a significant increase in the number of airlines providing
scheduled passenger service in the EU over the course of the past decade. The
prospects for additional market liberalization measures provided further impetus
for new entrants, and management expects that other new carriers may be formed
to capitalize on these opportunities. Notwithstanding the overall increase in
the number of carriers, a large majority of the new entrants are quite small,
although this may change, and the overall market has been volatile, with several
of the new entrants ceasing operations. Among the major causes of their failure
were the competitive responses from major airlines serving the same routes,
including a number of sustained price wars, the difficulty the new entrants
encountered in obtaining a sufficient number of slots at major airports at peak
times and rapid, unmanageable expansion.
Air carriers operating in the intra-EU market generally have traditionally
fallen into one of four principal categories: flag carriers, independent
airlines, franchises of major airlines and charter operators. The flag carriers,
which fly inter-continental routes as well as those within Western Europe,
include both those that have traditionally been heavily dependent on aid from
their respective governments (including Air France Group ("Air France"),
Alitalia S.p.A. ("Alitalia"), Aer Lingus, and Iberia, S.A.) and "commercial"
flag carriers such as British Airways, KLM, Scandinavian Airline System ("SAS")
and Lufthansa AG ("Lufthansa") that have operated with no or little state aid in
recent years. The independent carriers include low-fares carriers, such as
Ryanair and easyJet Plc ("easyJet"), and carriers providing "frills" services
more comparable to those of the flag carriers but at slightly lower fares than
the flag carriers, such as British Midland Airways Ltd. ("British Midland").
Certain small carriers, including Virgin Express, have become franchises of
major airlines, sharing some ticketing and other distribution systems with the
flag carriers. These franchises serve mainly regional routes where flag carriers
cannot operate profitably due to their high overhead costs and serve to feed
regional passengers to their flag carrier partners for interline service. For
the flag carriers, franchises represent a possible means of competing with
low-fares start-up carriers. Charter flight operators are significantly more
established and more competitive in Europe than in the United States, with many
charter operations being owned by major travel groups or commercial airlines. A
number of charter operators have recently established their own low fare
subsidiaries, including Hapag-Lloyd Express in Germany (a subsidiary of TUI AG)
and My Travel Ltd in the U.K. (a subsidiary of My Travel.com). Charter operators
currently account for a significant portion of total intra-EU annual passenger
traffic and operate primarily on routes between northern and southern Europe,
targeting mainly price-conscious leisure travelers.
Although the liberalization measures adopted by the EU were expected to
reduce air fares and increase competition significantly, the European market
continues to be characterized by higher operating costs per ASM than those with
respect to scheduled passenger service in the United States. While active
competition has increased with the launch of the low fare carriers, fares for
scheduled passenger services on intra-EU routes continue to be generally higher
than those on domestic U.S. routes of comparable distances. Ryanair believes
that the higher fares are the result of carriers passing on their higher costs
to passengers and the lack of significant competition on some intra-EU routes.
In addition, EU Member States may intervene to stop further fare reductions on a
route or group of routes where market forces have led to a sustained downward
movement in fares deviating from seasonal norms and resulting in widespread
losses among all carriers on the routes concerned. Further, certain European
nations outside the EU could reserve the right to set minimum fares.
26
Ireland-U.K. Market
The market for scheduled passenger air travel between Ireland and the U.K.
can be divided into two principal segments, the Dublin-London route and the
routes between Ireland and other locations in the U.K. outside of London.
Dublin-London Route. The Dublin-London route (including service from Dublin
to each of Heathrow, Gatwick, Stansted, Luton and London City airports) is
currently served by four carriers. Ryanair serves three London airports
(Stansted, Gatwick and Luton), Aer Lingus serves one airport (Heathrow), while
British Midland and CityFlyer Express each serve one airport (Heathrow and
Gatwick, respectively).
Before Ryanair entered the Dublin-London route in 1986, it was serviced
only by British Airways and Aer Lingus. Management believes that Ryanair's
introduction of competition based on low fares contributed to the significant
growth in passenger volume and the heightened competition between airlines that
has characterized the Dublin-London route since Ryanair first commenced service
in 1986. British Midland entered the route in 1989 and British Airways withdrew
in 1991, while CityFlyer Express and CityJet Limited (a former Virgin Atlantic
franchise) entered the route in 1992 and 1994, respectively, with CityJet
withdrawing in 2000. As a result of increased competition, the lowest available
fares have declined while the route has experienced substantial annual traffic
growth. In calendar year 2002, according to the CAA Statistics, annual traffic
had risen to more than 4.3 million passengers.
Ireland-U.K. Routes. Prior to 1993, the market for air travel between
Ireland and other locations in the U.K. was dominated by Aer Lingus. As with the
London-Dublin route prior to Ryanair's entry, routes to provincial cities in the
U.K. were generally characterized by high fares, service on small-capacity
turboprop aircraft and slow traffic growth. Ryanair entered this market by
launching low-fares service using jet aircraft between Dublin and Birmingham in
1993 and has since expanded its service to include 21 routes. See "-Route
System, Scheduling and Fares-Route System and Scheduling" for a complete list of
routes and the dates of their introduction. Since Ryanair's entry into these
routes with jet aircraft service and low fares, each of the routes has
experienced a significant reduction in fares and, according to the CAA
Statistics, a significant increase in traffic growth. In each of these cases,
Ryanair has captured a majority of this incremental growth, and, as a result,
Ryanair is currently the market leader in terms of passenger volume on most of
its routes between Ireland and provincial cities in the U.K.
For the fiscal years ended March 31, 2002 and 2003, passengers flown on
Ryanair's routes between Dublin and London accounted for approximately 17.4% and
13.4%, respectively, of Ryanair's total passenger revenues, with the
Dublin-London (Stansted) route alone accounting for approximately 9.7% and 7.6%,
respectively, of such total. Ryanair's business would be adversely affected by
any circumstance causing a reduction in general demand for air transportation
services in Ireland or the U.K., including, but not limited to, adverse changes
in local economic conditions, political disruptions or violence (including
terrorism) or significant price increases linked to increases in airport access
costs or taxes imposed on air passengers. In addition, so long as a significant
proportion of the Company's operations remain dependent upon routes between
Ireland and the U.K., the Company's future operations and growth will be
adversely affected if this market does not grow and by increased competition in
this market. See "Item 3. Key Information-Risk Factors-The Company is Dependent
on the Ireland-U.K. Market."
27
Service to Continental Europe
In 1997, Ryanair began service on new routes to four locations in
continental Europe (Dublin to Paris (Beauvais) and Brussels (Charleroi), and
London (Stansted) to Stockholm (Skavsta) and Oslo (Torp)). Since that time
Ryanair has substantially expanded its continental European service and now
serves a total of 61 locations. See "-Route System, Scheduling and Fares-Route
System and Scheduling" for a complete list of routes and the dates of their
introduction. Ryanair established continental European bases at Brussels
(Charleroi), Frankfurt (Hahn), Milan (Bergamo), and Stockholm (Skavsta). Ryanair
currently competes with a number of flag carriers, including British Airways,
Lufthansa, Air France, KLM and Alitalia, and a larger number of smaller
carriers, including low fares airlines such as easyJet, with the number and
identity of its competitors varying according to the route flown.
The Acquisition of Buzz
On April 10, 2003, Buzz Stansted, a newly-formed subsidiary of Ryanair,
purchased certain assets of Buzz, KLM's former low fares subsidiary, from KLM UK
Limited for EUR20.1 million. These assets primarily comprised trademarks, domain
names, computer equipment, ticket desk equipment and certain aircraft documents,
records and manuals. As part of the transaction, Buzz Stansted agreed to take
over the leases on six Boeing 737-300s and four BAe146-200s. In addition, KLM UK
Limited agreed to transfer certain landing and takeoff slots at London
(Stansted) Airport to Buzz Stansted. Buzz Stansted is operating these aircraft
on a sub-service basis for Ryanair on some pre-existing Ryanair routes, as well
as on some of the routes which were formerly operated by Buzz. Buzz Stansted's
results are fully consolidated with those of Ryanair and are included in the
financial and operating data included in this annual report.
The leases for the six Boeing 737-300 aircraft, which were novated by KLM
UK Limited to Buzz Stansted, are from International Lease Finance Corporation
("ILFC") and have a formal term of approximately 8 years, ending between October
2010 and February 2011. However, Buzz Stansted may terminate any or all six of
these leases 48 months prior to the contractual lease termination date for each
aircraft, or between October 2006 and February 2007, provided that Buzz Stansted
gives ILFC 12 months' notice that it intends to exercise this early termination
option and pays it an early termination notice fee of US$0.4 million per
aircraft.
As part of the acquisition, Buzz Stansted also agreed to sub-lease four
BAe146 aircraft from KLM during the period from April 10, 2003 to March 31,
2004. Buzz Stansted may return the aircraft to KLM at any time prior to March
31, 2004 without prior notice, although it must continue to make the monthly
rental payments on all four aircraft until March 31, 2004.
In addition, the Company agreed to employ 110 of the approximately 500
former Buzz staff, each of whom was offered and accepted new contracts of
employment with Buzz Stansted. The balance of the former Buzz staff were made
redundant, and, under the purchase agreement governing the transaction, any
liabilities arising from resultant claims by these staff were settled by KLM UK
Ltd. The acquisition agreement also contains an indemnity from KLM UK Ltd in
favor of Buzz Stansted covering any further claims arising from the redundancies
of the former Buzz staff.
28
Buzz Stansted did not operate any services between April 10, 2003 and May
1, 2003, while its staff were being retrained and the airline obtained the
required UK air operators' certificate. As a result, the Company recorded
exceptional costs amounting to EUR3.1 million (equal to Buzz Stansted's
operating costs during this period of inactivity) in the fiscal quarter ending
June 30, 2003. The Company was also required to give a guarantee of StgGBP12 m
to the CAA to discharge any liabilities to third parties that might arise from
the termination of Buzz's business.
Ryanair recorded goodwill in the amount of EUR46.7 million in connection
with the Buzz acquisition. This figure is comprised of the purchase price of
EUR20.1 million and excess lease costs in the amount of EUR26.6 million, which
latter amount was calculated on the basis of a report from Avitas, independent
aircraft valuers. This independent valuation highlighted that the monthly
payments on the leases novated to Buzz Stansted are substantially higher than
existing market rates for leases on similar aircraft. The Company has calculated
the amount of these excess lease costs over the remaining term of the leases at
EUR26.6 million, based on a calculation of the difference between the
contractual rates and these estimates of current market rates. Under Irish GAAP,
this goodwill will be amortized in the Company's profit and loss account over a
20-year period in the amount of EUR2.3 million per annum. In accordance with
U.S. GAAP, the Company will perform a valuation of the Buzz assets acquired to
attribute value to separate intangible assets, which are likely to include
airport slots. As these assets do not have a limited life, they will not be
depreciated and, except for the straight-line goodwill amortization which is not
required under U.S. GAAP, the Company does not expect there will be any income
statement differences under Irish and U.S. GAAP in accounting for this
acquisition.
Buzz Stansted currently operates on a sub-service basis for Ryanair and
receives payments from Ryanair based on an agreed rate per flight hour. Buzz
Stansted does not sell tickets to passengers directly, as all of its routes are
operated and marketed by Ryanair. Ryanair is currently operating 12 of the
former "Buzz" routes. The Buzz Stansted aircraft operate on these and other
Ryanair routes.
ROUTE SYSTEM, SCHEDULING AND FARES
Route System and Scheduling
The following table lists each of the routes served by Ryanair and sets
forth certain information with respect to Ryanair's route system based upon the
flight schedule in effect at September 1, 2003:
Date service Round trip flights Number of passengers booked in
Route served commenced scheduled per day calendar year 2002
Between Dublin and London:
London Luton January 1986 5 394,691
London Stansted November 1988 13 1,130,028
London Gatwick November 1994 5 345,375
Between Dublin and UK Provincial Airports:
Liverpool May 1988 3 214,066
Birmingham November 1993 3 258,082
Manchester May 1994 4 366,966
Glasgow Prestwick May 1994 3 253,668
Cardiff May 1996 1 79,667
Bournemouth May 1996 1 97,721
Leeds/Bradford May 1996 4 181,594
Bristol May 1997 3 182,615
29
Teesside November 1997 1 90,875
Edinburgh August 2001 4 314,042
Aberdeen April 2002 1 58,666
Newcastle January 2003 2 -
Blackpool May 2003 1 -
Between Dublin and Continental Europe:
Paris (Beauvais) May 1997 4 275,686
Brussels (Charleroi) May 1997 4 275,054
Malaga March 2003 (3 times a week) -
Faro March 2003 (twice a week) -
Barcelona (Girona) April 2003 (once a week) -
Between Shannon and Continental Europe:
Paris (Beauvais) February 2002 1 71,375
Between London (Stansted) and Irish Provincial
Airports:
Cork October 1991 4 399,326
Knock May 1991 1 150,337
Kerry June 1997 2 66,672
City of Derry July 1999 2 142,595
Shannon April 2000 4 325,320
Between London (Stansted) and UK Provincial Airports:
Newquay April 2002 2 85,634
Blackpool May 2003 2 -
Between London (Stansted) and Germany:
Altenburg May 2003 1
Frankfurt (Hahn) April 1999 5 422,842
Friedrichshafen April 2002 1 88,555
Hamburg (Lubeck) June 2000 3 204,486
Niederrhein April 2003 3 -
Berlin (Schoenefeld) May 2003 3 -
Between London (Stansted) and Italy:
Venice (Treviso) May 1998 4 352,771
Pisa June 1998 4 334,143
Genoa May 1999 2 160,207
Ancona July 1999 1 139,311
Turin July 1999 1 155,434
Alghero (Sardinia) July 2000 2 156,924
Brescia July 2000 2 202,022
Trieste April 2001 1 110,485
Pescara April 2001 1 110,012
Bologna (Forli) November 2001 2 115,584
Rome Ciampino April 2002 6 273,968
Palermo May 2003 2 -
Between Pisa Airport and Germany:
Hamburg (Lubeck) May 2003 - -
Between London (Stansted) and France:
Lyon (St. Etienne) May 1998 1 86,317
30
Toulouse (Carcassonne) June 1998 2 119,894
Biarritz April 1999 2 122,664
Brittany (Dinard) April 1999 1 78,874
Nimes June 2000 1 163,629
Perpignan June 2000 2 120,412
Montpellier April 2002 1 89,021
Strasbourg* October 2002 2 33,202
Pau April 2003 1 -
Reims April 2003 1 -
Rodez May 2003 1 -
Bergerac May 2003 1 -
Brest May 2003 1 -
Clermont Ferrand May 2003 1 -
Limoges May 2003 1 -
La Rochelle May 2003 1 -
Poitiers May 2003 1 -
Tours May 2003 1 -
Between London (Stansted) and Scandinavia:
Oslo (Torp) June 1997 2 202,591
Aarhus September 1999 2 154,264
Malmo July 2000 2 192,224
Esbjerg April 2001 1 83,064
Stockholm (Vasteras) April 2001 2 109,834
Gothenburg April 2001 2 196,957
Haugesund April 2003 1 -
Between London (Stansted) and the Netherlands:
Eindhoven April 2002 2 87,282
Maastrict April 2003 1 -
Groningen May 2003 1 -
Between London (Stansted) and Austria:
Salzburg April 2001 2 230,737
Graz April 2002 1 89,506
Klagenfurt April 2002 1 57,118
Between London (Stansted) and Spain:
Barcelona (Girona) February 2003 4 -
Murcia May 2003 2 -
Jerez May 2003 (twice a week) -
Between Glasgow (Prestwick) and:
London Stansted October 95 9 764,355
Paris (Beauvais) November 1998 2 145,321
Frankfurt (Hahn) March 2000 1 107,445
Oslo (Torp) April 2002 1 57,389
Bournemouth February 2003 1 -
Barcelona (Girona) May 2003 1 -
Between Brussels Charleroi and:
London Stansted April 2001 4 348,084
Toulouse (Carcassonne) April 2001 1 88,043
Prestwick April 2001 1 105,570
Pisa April 2001 2 158,892
31
Shannon April 2001 1 98,254
Venice (Treviso) April 2001 2 165,226
Liverpool June 2002 1 59,499
Rome Ciampino June 2002 1 61,126
Barcelona (Girona) May 2003 1 -
Ostend-Bruges May 2003 1 -
Between Frankfurt (Hahn) and:
Shannon May 2000 (once a week) 114,303
Bournemouth February 2002 1 94,716
Milan (Bergamo) February 2002 2 201,658
Pescara February 2002 1 103,927
Oslo (Torp) February 2002 1 103,739
Montpellier March 2002 1 93,467
Pisa March 2002 2 183,855
Barcelona (Girona) December 2002 3 14,259
Rome Ciampino December 2002 2 15,675
Bologna (Forli) December 2002 1 7,650
Stockholm (Skavsta) December 2002 2 8,092
Gothenburg February 2003 1 -
Malmo March 2003 1 -
Kerry April 2003 1 -
Perpignan March 2002 1 93,430
Between Milan (Bergamo) and:
London Stansted April 2002 3 204,543
London Luton February 2003 2 -
Paris (Beauvais) February 2003 2 -
Brussels (Charleroi) February 2003 2 -
Barcelona (Girona) February 2003 2 -
Hamburg (Lubeck) February 2003 1 -
Between Stockholm (Skavsta) and:
London Stansted June 1997 2 285,747
Aarhus April 2003 1 -
Paris (Beauvais) April 2003 2 -
Hamburg April 2003 2 -
Glasgow Prestwick April 2003 1 -
Tampere April 2003 1 -
Oslo (Torp) April 2003 1 -
* Service to Strasbourg was discontinued in September 2003 after a
Strasbourg court ruled that the marketing support granted by the Strasbourg
Chamber of Commerce to Ryanair in connection with the route was illegal and
constituted unlawful state aid to Ryanair. Ryanair is appealing this decision;
pending the outcome of this appeal, it has opened a route from Baden Baden in
Germany to London Stansted. See "Item 8. Financial Information--Other Financial
Information--Legal Proceedings."
Management's objective is to schedule a sufficient number of flights per
day on each route to satisfy demand for Ryanair's low-fares service. Ryanair
schedules departures on its most popular routes at frequent intervals normally
between approximately 6:30 a.m. and 11:00 p.m. During peak demand periods and
periods with high advance bookings, Ryanair attempts to increase seat capacity
by increasing the number of flights with its existing aircraft. Management
regularly reviews the need for adjustments in the number of flights on all of
its routes.
32
Low and Widely-Available Fares
Ryanair offers low, multi-tier fare pricing, with prices generally varying
depending on advance booking, seat availability and demand. In November 2001,
Ryanair changed the way it sells seats on its flights from a return (round-trip)
to a one-way basis, thus removing minimum stay requirements from all travel on
Ryanair scheduled services, regardless of fare. All tickets can be changed
subject to certain conditions, including payment of a fee and applicable upgrade
charge, but are non-cancelable and non-refundable and must be paid for when the
reservation is made.
Ryanair's discounted fares are "capacity controlled" in that Ryanair
allocates a specific number of seats on each flight to each fare category to
accommodate projected demand for seats at each fare level leading up to flight
time. Ryanair generally makes its lowest fares widely available by endeavoring
to allocate a majority of its seat inventory to its lowest fare categories.
Management believes that its unrestricted fares as well as its advance purchase
fares are attractive to both the business and the leisure traveler.
When launching a new route, Ryanair's policy is to price its lowest fare so
that it will be significantly lower than other carriers' lowest fares, but still
provide a satisfactory operating margin.
Ryanair also periodically runs special promotional fare campaigns, in
particular in connection with the opening of new routes, and endeavors to
underprice attempts by its competitors to lower their fares on a particular
route. Ryanair offers weekday one-way fares starting at EUR9.99 on many of its
routes, and is offering lower-fare trips on certain routes from time to time. In
September 2003, Ryanair launched a fare promotion with up to two million seats
available for "free" (excluding government taxes and passenger service charges)
for travel during the period between September 23 and December 17, 2003.
Reservations for Ryanair's promotions must be made during a limited period of
time and are only available for travel during a specific period. Other
promotional fares generally are available only for mid-week travel, for a
limited period and for a limited number of seats per flight, and also require
reservations in advance. Promotional fares may have the effect of increasing
load factors and reducing Ryanair's yield and passenger revenues on the relevant
routes during the period they are in effect.
MARKETING AND ADVERTISING
Ryanair's primary marketing strategy is to emphasize its widely-available
low fares. In doing so, Ryanair primarily advertises its services in national
and regional newspapers in Ireland and the U.K. In continental Europe, Ryanair
advertises primarily through regional and national newspapers, as well as on
radio, billboards and other local media. Currently, the slogan "Ryanair.com, the
Low Fares Airline" is prominently featured in all of the airline's marketing to
build its brand identity. Other marketing activities include the distribution of
advertising and promotional material and cooperative advertising campaigns with
other travel-related entities, including local tourist boards.
Ryanair generally runs special promotions in coordination with the
inauguration of service into new markets. Starting approximately four to six
weeks before the launch of a new route, Ryanair undertakes a major advertising
campaign in the target market and local media and editorial attention frequently
focuses on the introduction of Ryanair's low fares. Ryanair's sales teams also
visit each area and target pubs, clubs, shopping malls, factories, offices and
universities with a view to increasing consumer awareness of the new service.
33
RESERVATIONS/RYANAIR.COM
Passenger airlines generally rely on travel agents for a significant
portion of their ticket sales and pay travel agents a commission for their
services. Following the introduction of its website-based reservations program,
Ryanair's reliance on travel agents has been eliminated.
In recent years, Ryanair has initiated significant changes in its
reservations operations with the aim of improving direct contact between its
customers and its own reservations center. In 1996, Ryanair transferred its
reservations operation from two locations in London and Dublin to a single new
facility in Dublin operated by its Ryanair Direct Limited subsidiary. To reflect
Ryanair's increased focus on internet-based reservations, Ryanair Direct Limited
changed its name to Ryanair.com Limited in 2000.
In August 1999, Ryanair launched an internet-based reservation and
ticketing service that allows passengers to access its reservations system
through Ryanair's website at www.ryanair.com. Information included on Ryanair's
website is not incorporated by reference into this Report. In January 2000, the
system was enhanced and integrated with Ryanair's new Flightspeed reservations
system. Passengers can now make reservations and purchase tickets directly
through the website. The level of internet bookings has grown rapidly,
accounting for approximately 94% of all daily reservations as of September 12,
2003.
Ryanair currently uses Flightspeed from Open Skies to provide its core seat
inventory and booking system. In return for access to these systems, Ryanair
pays transaction fees that are generally based on the number of passenger seat
journeys booked through such systems.
Management anticipates that the internet-based direct sales system will
allow it to continue to benefit from substantially reduced distribution costs.
However, Ryanair may incur additional costs in the promotion and advertising of
Ryanair.com, and overall passenger revenues may also be negatively affected by
discounted fares used to promote the internet site.
AIRCRAFT
As of September 30, 2003, Ryanair's owned fleet consisted of 21 Boeing
737-200A aircraft, each having 130 seats and 41 Boeing 737-800 "next generation"
aircraft, each having 189 seats. Ryanair also, through its subsidiary Buzz
Stansted, leased six Boeing 737-300 aircraft, each having 148 seats, and four
BAe146-200 aircraft, each having 110 seats.
Aircraft
Boeing 737-200As: The Company acquired six of its Boeing 737-200A aircraft
from Boeing Equipment in 1994, with five others acquired from various industry
sources between 1994 and 1996. In November 1996 and March 1997, Ryanair entered
into agreements to purchase a total of eight used Boeing 737-200A aircraft
formerly operated by Lufthansa, which were delivered between December 1996 and
January 1998. In July 1997, Ryanair acquired an additional used Boeing 737-200A
aircraft from a Swedish leasing company. In June 1998, Ryanair acquired an
additional used Boeing 737-200A aircraft from a leasing subsidiary of the
General Electric Company, bringing the size of its fleet to 21.
Ryanair currently plans to phase out its 737-200A aircraft, which have an
average age of 22 years, by December 2005. The first seven Boeing 737-200s were
planned for retirement this winter, with the balance to be retired over the
following 18 months. However, Ryanair has decided that it may increase the
number of retirements this winter from seven to nine 737-200s and bring forward
their anticipated date of retirement following the Company's discovery during
the course of a recent scheduled aircraft overhaul of some scratches on the
outer skin on certain of the 737-200s. The five 737-200s on which scratches were
found have already been retired, and four additional aircraft will be
inspected for similar scratches.
34
Given the planned retirement of the 737-200s, and the cost of repairing any
affected aircraft, the Company decided it would not be economically viable to
carry out these repairs and instead to retire all of the aircraft so affected.
To cover for the earlier retirement of these aircraft and the delivery of 15 new
737-800's during the next six months, Ryanair has arranged for the short-term
lease from October 2003 of four Boeing 737-800s and one 737-200. The Company
does not expect to experience any shortage of seat capacity or disruption to its
schedule, given these lease-ins and the delivery of new 737-800 series aircraft.
The cost of these short-term leases over the coming three to five months
are expected to be partially offset by cost savings from the earlier retirement
of the older 737-200s and additional revenues which may be generated by the four
larger aircraft out of the five leased in to replace them temporarily.
Accordingly, the Company expects the net effect of these early retirements and
lease-ins will be a one-time exceptional charge of approximately EUR5 million in
the fiscal year ending March 31, 2004.
Boeing 737-800s: Between March 1999 and March 2003, Ryanair took delivery
of 33 new Boeing 737-800 "next generation" aircraft to be delivered under its
contracts with Boeing. The new 737-800s share certain basic characteristics with
the Company's fleet of 737-200A aircraft, but are larger (seating up to 189
passengers, as compared to 130 in the 727-200As), capable of longer flights
without refueling and incorporate more advanced aviation technology. The
737-800s also comply with Chapter 3 noise reduction requirements established by
the International Civil Aviation Organization, which took effect in the EU in
2002.
On January 24, 2002, Ryanair announced that it had entered into a new
series of agreements with Boeing to purchase an additional 100 new Boeing
737-800 seat aircraft over a six-year period from December 2002 to December
2008; the contract also provided Ryanair with options to purchase up to an
additional 50 such aircraft. Ryanair had taken delivery of five of the firm
order aircraft under this contract as of March 31, 2003. The new 737-800
aircraft are identical in all significant respects to the 737-800s already being
operated by Ryanair, having 189 seats and the same cockpits and engine
configuration. In June 2002, the Company exercised three of these 50 options,
bringing its firm orders to 103 aircraft. For additional details on the Boeing
contracts and scheduled aircraft deliveries, see "Item 5. Operating and
Financial Review and Prospects--Liquidity and Capital Resources" and "Item 10.
Additional Information-Material Contracts".
On January 31, 2003, the Company entered into a supplemental agreement to
the 2002 Boeing contract, pursuant to which Ryanair exercised a further 18 of
the purchase options granted under the 2002 Boeing contract and purchased an
additional four 737-800 aircraft. This in turn brought total firm orders with
Boeing for 737-800 series aircraft to 125. In addition, as part of the
supplemental agreement, the number of purchase options remaining was increased
from 29 to 125. Similar commercial terms apply to the additional firm aircraft
ordered and to the additional options granted.
Management believes that the purchase of the additional new Boeing 737-800
aircraft will allow Ryanair to continue to grow over the next seven years and
that the significant size of the original and supplemental orders allowed
Ryanair to obtain favorable purchase terms, guaranteed deliveries, and a
standard configuration for all of the aircraft. The purchase is also expected to
allow Ryanair to phase out its remaining 16 Boeing 737-200s, which are on
average 22 years old, over a two-year period ending in 2005.
35
The Boeing 737 exists in a number of generations and is the world's most
widely-used commercial aircraft. The 737-800s represent the latest generation of
Boeing's 737 aircraft and share certain basic attributes in common with
Ryanair's fleet of 737-200As. Management believes that spare parts and cockpit
crews qualified to fly the aircraft are likely to be more widely available on
favorable terms than similar resources for other types of aircraft, and that its
strategy of generally limiting its fleet to related aircraft types enables
Ryanair to limit the costs associated with personnel training, maintenance and
the purchase and storage of spare parts, as well as affording greater
flexibility in the scheduling of crews and equipment. The 737-800s are fitted
with CFM 56-7B24 engines and have advanced CAT III Autoland capability, advanced
traffic collision avoidance systems, and enhanced ground proximity warning
systems.
Boeing 737-300s: As part of the acquisition of certain assets of Buzz,
Ryanair's Buzz Stansted subsidiary took over the leases on six 737-300 aircraft,
which as of March 31, 2003, had an average age of eight years. See "--Industry
Overview--The Acquisition of Buzz." These leases have a formal term of
approximately eight years, ending between October 2010 and February 2011.
However, Buzz Stansted may terminate any or all six of these leases 48 months
prior to the contractual lease termination date for each aircraft, or between
October 2006 and February 2007, provided that Buzz Stansted gives ILFC 12
months' notice that it intends to exercise this early termination option and
that certain other conditions are fulfilled, including the payment of a fee. The
Company has not yet finalized its plans in relation to the six 737-300s on lease
from ILFC, although management anticipates that the aircraft will be returned at
their respective early termination dates.
BAe146s: As part of the Buzz acquisition transaction, Buzz Stansted also
agreed to sub-lease four BAe146 aircraft from KLM during the period from April
10, 2003 to March 31, 2004. At March 31, 2003, these aircraft had an average age
of 13 years. Buzz Stansted may return the aircraft to KLM at any time prior to
March 31, 2004 without prior notice, although it must continue to make the
monthly rental payments on all four aircraft until March 31, 2004.
Fleet Expansion
Ryanair expects to take delivery of an additional 112 aircraft under its
current contracts with Boeing. Together with the retirement of its Boeing
737-200As and the return to KLM by March 2004 of the four sub-leased BAe146s, as
well as the scheduled termination of Buzz Stansted's leases for the six Boeing
737-300s, these deliveries will increase the size of Ryanair's fleet to 153 by
December 2008, or more should Ryanair choose to exercise any of the additional
125 options to purchase aircraft remaining under its existing purchase contracts
with Boeing.
Ryanair anticipates financing the expansion of its fleet through a
combination of new bank loan facilities supported by a guarantee from the
Export-Import Bank of the United States and similar to those already in place,
bank debt provided by commercial bankers, operating and finance leases via sale
and leaseback transactions, Enhanced Equipment Trust Certificates and cash flow
generated from the Company's operations. The financing of the new and existing
737-800 aircraft will significantly increase the total amount of the Company's
outstanding debt and the payments it is obliged to make to service such debt. In
addition, Ryanair's ability to draw down funds to pay for aircraft as they are
delivered under the 2002 Boeing contract and the 2003 supplemental agreement is
subject to various conditions imposed by the counterparties to the bank loan
facilities and loan guarantees, and any future financing is expected to be
subject to similar conditions. For additional details on this financing, see
"Item 5. Operating and Financial Review and Prospects-Liquidity and Capital
Resources."
36
Training and Regulatory Compliance
Ryanair currently owns and operates 737-200 and 737-800 flight simulators
for pilot training and has entered into a contract to purchase two additional
737-800 flight simulators from CAE Electronics Ltd. of Quebec, Canada. The first
of these additional simulators is scheduled for delivery in November 2003 and
the second simulator is expected to be delivered in 2005. The CAE contract also
provides Ryanair with an option to purchase another such simulator for delivery
in 2007.
Management believes that Ryanair is currently in compliance with all
applicable directives concerning its fleet of Boeing 737-200A, 737-300s and
737-800 and BAe146 aircraft and will comply with any regulations or directives
that may come into effect in the future. However, there can be no assurance that
the FAA or other regulatory authorities will not recommend or require other
safety-related undertakings or that such undertakings would not adversely impact
the Company's results of operations or financial condition. See "Item 3. Key
Information-Risk Factors-Safety-Related Undertakings Could Affect the Company's
Results".
ANCILLARY SERVICES
Ryanair offers various ancillary services in conjunction with its core air
passenger service, including the in-flight sale of beverages, food and
merchandise, travel insurance, car rentals, rail tickets, financial services and
the sale of advertising space on its website. Ryanair also derives revenues from
hotel reservations and other transactions made through its website or via its
Ryanair.com reservations center. See "Item 5. Operating and Financial Review and
Prospects-Results of Operations-Fiscal Year 2003 Compared with Fiscal Year
2002-Ancillary Revenues." Prior to the elimination of duty-free sales on
intra-EU flights on June 30, 1999, Ryanair sold traditional duty-free items,
such as spirits, cigarettes and fragrances, on all of its scheduled
international flights; Ryanair still charges for all beverages served on all of
its scheduled flights within the EU (which still may be sold duty-free).
Ryanair's merchandise sales on all of its scheduled flights and merchandise,
food, and beverage sales on flights within the U.K., are now on a duty-paid,
rather than duty-free basis. In fiscal year 2003, the in-flight sale of
beverages and duty-free merchandise accounted for 2.7% of Ryanair's revenues, or
EUR23.1 million, as compared to 2.9% of Ryanair's revenues, or EUR18.0 million,
in fiscal year 2002. In addition, as much as 17% of the compensation of
Ryanair's flight attendants was derived from the in-flight sale of beverages and
other products in fiscal year 2003. See "Item 6. Directors, Senior Management
and Employees-Employees and Labor Relations."
In fiscal year 2003, Ryanair's revenues from charter operations decreased
to EUR12.4 million from EUR14.6 million in fiscal year 2002 as a result of a
decline in excess capacity available for charter service as the Company
continued to focus on its scheduled operations. In fiscal year 2004, additional
charter capacity has been reallocated to scheduled services, with the Company
now offering flights to destinations previously served by charters.
Ryanair has entered into a contract with the Hertz Corporation ("Hertz")
for car rental services, pursuant to which Hertz handles all automobile-related
aspects of such services and pays a per-rental fee to Ryanair.com (or other
relevant reservations agent) as well as a set amount to Ryanair for marketing
support. Ryanair also receives a commission on all Hertz car rentals booked
through the Ryanair.com website. Revenues relating to car rental services
totaled EUR27.6 million in fiscal year 2003 and EUR18.9 million in fiscal year
2002. Ryanair distributes accommodation services and travel insurance through
both its website and its traditional telephone reservation offices. Management
believes that providing these services through the internet allows Ryanair to
increase sales, while at the same time reducing costs on a per unit basis.
Ryanair also provides certain financial services and acts as an agent for
MBNA, an issuer of Visa credit cards. As part of this agreement with MBNA,
Ryanair and MBNA jointly promote a Ryanair branded credit card supplied by MBNA
on board the aircraft, on Ryanair's internet site, and via direct marketing at
the airports served by Ryanair in the UK and Ireland. Ryanair generates revenues
from MBNA on the basis of the number of cards issued and the revenues generated
through use of the credit cards.
37
Ryanair also generates ancillary revenues through the sale of rail tickets
and through fees generated from charging passengers for excess baggage. These
excess baggage charges, in addition to generating revenue for the Company, also
result in the payment of commissions by the Company to airport handling agents
based on the level of revenue generated.
MAINTENANCE AND REPAIRS
General
As part of its commitment to safety, Ryanair endeavors to hire qualified
maintenance personnel, provide proper training to such personnel and maintain
its aircraft in accordance with European industry standards. While Ryanair seeks
to maintain its fleet in a cost-effective manner, management does not seek to
extend Ryanair's low cost operating strategy to the area of maintenance,
training or quality control.
Ryanair's quality assurance department deals with the overall supervision
of all maintenance activities in accordance with JAR 145, the European airline
industry standard for aircraft maintenance, and standards established by the
Joint Aviation Authorities ("JAA") (JARs are developed and adopted by the JAA,
an associated body of the European Civil Aviation Conference formed to enhance
co-operation between the national civil aviation authorities of participating
European countries, including Ireland. See "--Government Regulation--Regulatory
Authorities"). Ryanair is itself a JAR 145-approved maintenance contractor and
provides its own routine aircraft maintenance and repair services on its
aircraft other than scheduled heavy maintenance. Ryanair also performs certain
checks on its aircraft, including pre-flight, daily and transit checks at its
bases, as well as A and B checks at its Dublin facility. Maintenance and repair
services that may become necessary while an aircraft is located at one of the
other airports served by Ryanair are provided by other JAR 145 approved contract
maintenance providers (on-call maintenance). Aircraft return each evening to
Ryanair's bases at Dublin, London (Stansted), Shannon, London (Luton), Glasgow
(Prestwick), Brussels (Charleroi), Frankfurt (Hahn), Milan (Bergamo), and
Stockholm (Skavsta) airports, where they are examined each night by Ryanair's
approved engineers (or, in the case of Brussels (Charleroi), London (Luton) and
Frankfurt (Hahn), by local JAR 145 approved companies). In August 2002, Ryanair
announced that it would be expanding its in-house maintenance capability to
include C checks by building a new two-bay hangar facility at its base at
Glasgow (Prestwick) in Scotland. The new facility is expected to cost
approximately EUR8 million, to employ approximately 180 people and to be
operational by November 2003.
38
Heavy Maintenance
Ryanair contracts with outside maintenance providers for heavy maintenance
services. Ryanair currently contracts its heavy airframe maintenance overhauls
for its core Boeing 737 fleet to a single JAR 145-approved contractor, FLS
Aerospace Ltd. ("FLS") and engine overhaul service for these aircraft to two JAR
145-approved contractors, Lufthansa Airmotive Ireland ("Airmotive"), which is
responsible for maintenance of the CFM 56-7 engines that power the Boeing
737-800 aircraft, and Israeli Aircraft Industries Limited ("IAI"), which is
responsible for the JT8D engines fitted to the Boeing 737-200 aircraft. Ryanair
also contracts its "rotable" repairs to IAI. Services provided by FLS include
heavy airframe maintenance, technical engineering and various maintenance
support services, while those provided by IAI include engine overhauls, wheel
and brake services, landing gear overhaul and auxiliary power unit repair
services.
In January 2000, Ryanair entered into a new heavy maintenance agreement
with FLS covering both its Boeing 737-200 and 737-800 aircraft. The agreement
formally expires in January 2005, though Ryanair may terminate FLS's services at
any time after July 2002 on six months notice if FLS has not performed to a
reasonable level. Under this contract, man-hour rates for maintenance on the
Boeing 737-200 aircraft are fixed for the first three years and then are subject
to escalation on the basis of the annual increase in the cost index for the
Manufacturers of Aircraft and Spacecraft in the U.K. The Boeing 737-800 aircraft
checks are initially to be completed on the basis of the number of man-hours
incurred at a fixed rate per hour, plus the actual cost of the materials
consumed. Once the first series of checks have been completed, the contract
provides for both parties to agree to fix the price for labor and materials for
each check thereafter.
The contract also provides for penalties and a bonus incentive for FLS for
the on-time completion of checks, which have been capped at a specific level for
each year of the contract. In relation to the major P12 checks on the 737-200
aircraft, the Company does not have a fixed materials cost, but will instead pay
FLS on the basis of the manufacturer's list price, with Ryanair having an option
to supply spare parts to FLS either in advance of the aircraft check or to pay
FLS for such parts.
In November 1999, Ryanair entered into an agreement with Airmotive for the
repair and overhaul of the CFM56-7 engines fitted to its 737-800 aircraft. The
contract is for a period of 10 years and can be terminated after 5 years by
either party, upon six months notice. Labor charges for the repair and overhaul
of engines were fixed until January 2003. Thereafter, the rate per hour was
increased to a new fixed rate for one year, and from January 2004 will be
adjusted annually based on rates established by the mechanics trade union. All
parts required for the overhaul should initially be supplied from Ryanair's
inventory of spare parts. If the spare parts are not within Ryanair's inventory,
they are to be supplied on the basis of the manufacturer's list price plus a
fixed percentage for handling which is subject to a cap.
Effective November 1, 2001, Ryanair entered into an agreement with IAI ,
which is based at Ben Gurion Airport in Israel, for the repair and overhaul of
all of the Pratt & Whitney JT8D engines on its 21 Boeing 737-200A aircraft,
including seven spare engines. The contract terminates on December 31, 2005, and
requires IAI to complete all scheduled and unscheduled shop visits for these
engines, including spare parts and labor, at a fixed rate per engine cycle. IAI
will also provide other repair and overhaul services for these engines at fixed
rates throughout the period of the contract. Ryanair can terminate the contract
upon 30 days notice if there is material default in IAI's performance or in the
event of IAI's bankruptcy, or upon six months notice if certain delays occur.
IAI can terminate the contract upon 30 days notice if Ryanair fails to pay,
except where items are disputed in good faith, or if Ryanair is declared
bankrupt.
The Buzz Stansted aircraft are currently being maintained on a line
maintenance basis by KLM Engineering UK Ltd under a maintenance contract that
was originally scheduled to terminate in October 2003, but has been extended to
April 2004. Heavy maintenance for both engines and airframes of the four
BAe146's are also contracted to KLM UK Engineering Ltd. on the basis of a fixed
charge per block hour. The heavy maintenance in respect of the six Boeing
737-300's for engines is contracted to GE-Snecma, while that for the airframe
has not been contracted to any specific maintenance organization.
By contracting with JAR 145-approved maintenance providers, management
believes it is better able to control the quality of its aircraft and engine
maintenance. Ryanair assigns a JAR 145-certified mechanic to oversee all heavy
maintenance or engine overhaul performed by third parties. Maintenance providers
are also monitored closely by the national authorities under JAA and national
regulations.
The loss or expiration of these or any other of Ryanair's third party
service contracts or any inability to renew them or negotiate replacement
contracts with other service providers at comparable rates could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, although Ryanair seeks to monitor the performance of
third parties that provide passenger and aircraft handling services, the
efficiency, timeliness and quality of contract performance by third party
providers are largely beyond Ryanair's direct control. Ryanair expects to be
dependent on such third party arrangements for the foreseeable future,
notwithstanding the new capabilities to be provided at its new maintenance
facility at Glasgow Prestwick.
39
SAFETY RECORD
During its 19-year operating history, Ryanair has not had a single incident
involving major injury to passengers or flight crew. Ryanair's commitment to
safe operations is manifested by its safety training procedures, its investment
in safety-related equipment and the adoption of an internal confidential
reporting system for safety issues.
Ryanair's flight training is oriented towards accident prevention and
covers all aspects of flight operations. Ryanair conducts all of its own flight
crew training, both initial and recurrent, with the approval of the Irish
Aviation Authority (the "IAA"), which regularly audits both operation control
standards and flight training standards. Buzz Stansted separately conducts its
own training, under the approval of the CAA.
Ryanair's older Boeing 737-200A aircraft and the four BAe146 aircraft
currently operate in accordance with Category II minimum landing requirements.
Category II landing standards require a minimum horizontal visibility of 350
meters and a vertical visibility of 100 feet. The addition to its fleet of
Boeing 737-200As delivered in 1997 and 1998, which are equipped with more
advanced avionics, allowed Ryanair to operate these aircraft in accordance with
the more stringent Category IIIA minimum landing criteria. All of the Boeing
737-800s which Ryanair has bought or committed to buy and the Boeing 737-300's
operated by Buzz Stansted operate in accordance with the Category IIIA minimum
landing criteria, which require a minimum horizontal visibility of 200 meters
and no vertical visibility.
Management encourages flight crews to report any safety-related issues
through the use of a confidential reporting system which is available through
Ryanair's and Buzz Stansted's Flight Safety Offices. The confidential reporting
system affords flight crews the opportunity to report directly to senior
management any event, error or discrepancy in flight operations that they do not
wish to report through standard channels. The confidential reporting system is
designed to increase management's awareness of problems that may be encountered
by flight crews in their day-to-day operations. Management uses the information
reported through the system to modify operating procedures and improve flight
operation standards.
40
AIRPORT OPERATIONS
Airport Handling Services
Ryanair provides its own aircraft and passenger handling and ticketing
services at Dublin Airport. Third parties provide these services to Ryanair at
the other airports it serves. Servisair plc provides Ryanair's ticketing,
passenger and aircraft handling and ground handling services at many of these
airports in Ireland and the U.K., excluding London (Stansted) (where these
services are provided by Groundstar Ltd.), while similar services in continental
Europe are generally provided by the local airport authority, either directly or
through sub-contractors. Management attempts to obtain competitive rates for
such services by negotiating multi-year contracts at fixed prices, although some
may have periodic increases linked to inflation. These contracts are generally
scheduled to expire in one to five years, unless renewed, and certain of such
contracts may be terminated by either party by prior notice. The loss or
expiration of such contracts or any inability to renew such contracts or
negotiate contracts with other providers at comparable rates could have a
material adverse effect on the Company's business, results of operations and
financial condition. Ryanair will need to enter into similar agreements in any
new markets it may enter, and there can be no assurance that Ryanair will be
able to obtain the necessary facilities and services at competitive rates in
such new markets.
Airport Charges
As with other airlines, Ryanair is assessed airport charges each time it
lands and accesses facilities at the airports it serves. Depending on the policy
of the individual airport, such charges can include landing fees, passenger
loading fees, security fees and parking fees. Noise surcharges have also been
imposed by a limited number of European airports in response to concerns
expressed by local residents. Ryanair attempts to negotiate advantageous terms
for such fees by delivering a consistently high volume of passenger traffic and
opts, when practicable, for less expensive facilities, such as less convenient
gates, as well as the use of outdoor boarding stairs rather than more expensive
jetways. Nevertheless, there can be no assurance that the airports Ryanair uses
will not impose higher airport charges in the future and that any such increases
would not adversely affect the Company's operations.
In February 2001, the Irish Government established a Commission for
Aviation Regulation (the "CAR"). The CAR is responsible for regulating charges
at Dublin, Cork and Shannon airports. In August 2001, the CAR issued a report
that set charges for five years, beginning September 24, 2001. The base charges
for 2002 were approximately 5% lower than the charges previously in effect, and
an efficiency factor (RPI-X) provides that the charges will decrease by the
efficiency factor minus the level of inflation in Ireland. However, on September
24, 2003, the CAR announced a 9% increase in charges at Dublin airport to
compensate for claimed underrecovery of costs by Aer Rianta and legal costs
incurred by the CAR in defending a legal challenge by Aer Rianta of the CAR's
original price determination.
Ryanair is currently facing a European Commission investigation into the
question of whether concessions granted to it by the Walloon Government in
connection with its operations in Brussels (Charleroi) constituted illegal state
aid, while a Strasbourg court recently ruled Ryanair received illegal state aid
from the Strasbourg Chamber of Commerce in connection with the Company's launch
of its Strasbourg - London (Stansted) service. As Ryanair currently benefits
from similar concessions on a number of its routes, negative outcomes in these
proceedings could have a material adverse effect on its airport charges and
profitability. See "Item 3. Risk Factors--The Company could Incur Significant
Additional Costs Arising from Legal Proceedings Regarding Brussels (Charleroi)
and Strasbourg" and "Item 8. Financial Information--Other Financial
Information--Legal Proceedings."
41
FUEL
The cost of jet fuel accounted for approximately 22.2% and 22.5% of
Ryanair's total operating expenses in the fiscal years ended March 31, 2003 and
2002, respectively, in each case after giving effect to the Company's fuel
hedging activities and excluding de-icing costs. Jet fuel costs have been
subject to wide fluctuations as a result of sudden disruptions in supply and
continued to exhibit substantial volatility in the fiscal years ended March 31,
2002 and 2003.
The future availability and cost of jet fuel cannot be predicted with any
degree of certainty, and because of Ryanair's low-fares policy, its ability to
pass on increased fuel costs to passengers through increased fares or otherwise
may be limited. See "Item 3. Key Information-Risk Factors-Changes In Fuel Costs
and Fuel Availability Affect the Company's Results." As international prices for
jet fuel are denominated in U.S. dollars, Ryanair's fuel costs are also subject
to certain exchange rate risks. Ryanair has entered into fuel and currency
hedging agreements with various counterparties providing for price protection in
connection with the purchase of fuel. Ryanair has not otherwise entered into
agreements to guarantee its supply of fuel. See "Item 11. Quantitative and
Qualitative Disclosures About Market Risk-Fuel Price Exposure and Hedging."
The following table details Ryanair's fuel consumption and costs for
scheduled operations (thus excluding fuel costs related to charter operations
and de-icing costs), after giving effect to the Company's fuel hedging
activities, for the fiscal years ended March 31, 2001, 2002 and 2003. The
excluded de-icing costs amounted to EUR943,307, EUR1,347,336 and EUR2,282,003,
respectively, for the fiscal years ended March 31, 2001, 2002 and 2003. De-icing
costs, which are costs incurred for the labor and anti-freeze used to de-ice
aircraft, have increased significantly in recent years as the Company's route
network, types of aircraft operated and number of sectors flown have increased;
the Company therefore believes including these costs would distort the
year-to-year cost comparison.
Fiscal Year ended March 31,
2003 2002 2001
Scheduled fuel consumption (U.S. gallons)....... 133,782,854 101,903,433 82,854,337
Available seat miles (ASM)...................... 8,744,373,118 6,081,007,925 4,439,036,540
Scheduled fuel consumption (U.S. gallons)
per ASM.................................... 0.014 0.017 0.019
Total scheduled fuel costs...................... EUR124,429,232 EUR102,616,757 EUR61,645,183
Cost per gallon................................. EUR0.9301 EUR1.007 EUR0.7500
Total scheduled fuel costs as a percentage
of total operating costs................... 22.2% 22.25% 16.51%
INSURANCE
Ryanair is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident or terrorist incident. Any such accident or
incident could involve not only repair or replacement of a damaged aircraft and
its consequent temporary or permanent loss from service, but also significant
potential claims of injured passengers and others. Ryanair currently maintains
passenger liability insurance, employer liability insurance, aircraft insurance
for aircraft loss or damage, insurance for pilots' loss of license and other
business insurance in amounts per occurrence that is consistent with industry
standards. Although Ryanair currently believes its insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not
need to be increased, that insurance premiums will not increase significantly or
that Ryanair will not be forced to bear substantial losses from accidents. The
cost of insurance coverage for certain third party liabilities arising from
"acts of war" or terrorism increased dramatically as a result of the terrorist
attacks on the U.S. in September 2001. Following the attacks, all insurance
underwriters withdrew aircraft hull war liability cover and imposed a per
passenger surcharge of $1.25 for reinstatement of such cover up to a $50 million
limit. Aircraft hull war liability indemnities for amounts above $50 million
were, in the absence of any alternative cover, provided by the Irish Government
at pre-September 11 levels of coverage on the basis of a per passenger
surcharge. In March 2002, once such coverage was again commercially available,
Ryanair arranged cover to replace that provided by the Government indemnity on
the basis of a per passenger surcharge and an additional surcharge based on hull
values. Ryanair has passed these increased insurance costs on to passengers by
means of a special "insurance levy" on each ticket. Substantial claims resulting
from an accident in excess of related insurance coverage could also have a
material adverse effect on the Company's results of operations and financial
condition. Moreover, any aircraft accident, even if fully insured, could cause a
public perception that Ryanair's aircraft are less safe or reliable than those
operated by other airlines, which could have a material adverse effect on
Ryanair's business.
Council Regulation (EC) No. 2027/97, as amended by Council Regulation (EC)
No. 889/2002, governs air carrier liability. This legislation provides for
unlimited liability of an air carrier in the event of death or bodily injuries
suffered by passengers, implementing the Warsaw Convention of 1929 for the
Unification of Certain Rules Relating to Transportation by Air, as amended by
the Montreal Convention of 1999. This legislation also limits the ability of an
air carrier to rely on certain defenses in an action for damages, which would
otherwise have been available to it at law, and provides for uniform liability
limits for loss of, damage to or destruction of baggage and for damage
occasioned by delay. The potential exposure of air carriers, such as Ryanair,
has therefore been increased and, although Ryanair has extended its liability
insurance accordingly to meet the requirements of the legislation, no assurance
can be given that other laws, regulations or policies will not be applied,
modified or amended in a manner that has a material adverse effect on the
Company's financial condition or results of operations.
42
FACILITIES
The following are the principal properties owned or leased by the Company:
Site Area Floor Space
Location (Sq. Meters) (Sq. Meters) Tenure Activity
Dublin Airport 1,116 1,395 Leasehold Corporate Headquarters
(Corporate Headquarters)
Phoenix House, 2,566 3,899 Freehold Reservations Center
Conyngham Road,
Dublin
Satellite 3, 605 605 Leasehold Sales Office and
Stansted Airport Operations Center
Dublin Airport 2,993 2,175 Leasehold Aircraft Maintenance
(Hangar)
East Midlands Airport 3,647 3,647 Freehold Simulator and
training center
Skavsta Airport 1,936 1,936 Leasehold Aircraft
(Hangar) Maintenance
Prestwick Airport 3,825 3,825 Leasehold Aircraft
(Hangar) Maintenance
Stansted Storage Facilities 378 531 Leasehold Aircraft Maintenance
Ryanair has agreements with Aer Rianta, the Irish government authority
charged with operating Ireland's major airports, to lease ticket counters and
other space at the passenger and cargo terminal facilities at Dublin Airport.
Ryanair also financed the construction of and leased a new hangar extension at
Dublin Airport, which was completed in May 1997. The airport office facilities
used by Ryanair at London (Stansted) are leased from the airport authority;
similar facilities at each of the other airports Ryanair serves are provided by
Servisair plc or other service providers.
In May 2002, a new minister was appointed to lead the Department of
Transport in Ireland following the general election. The minister has completed
a review of Ireland's airport facilities and recently requested proposals from
interested parties for the development of new terminals and piers at Dublin
Airport. Ryanair has submitted a proposal to the government, as have several
other interested parties. Management expects that its proposal, if accepted and
implemented, would either involve Ryanair building and operating a terminal and
pier at Dublin Airport itself or it becoming the "anchor tenant" for a terminal
built by another consortium. Although the total cost to Ryanair of such a role
in the development of any such facilities cannot be determined at this time, any
such project could require substantial capital expenditures, as well as
significant additional costs in relation to the maintenance and operation of the
terminal and pier. In July 2003, the Minister for the Department of Transport
announced plans for the break up of Aer Rianta into three competing airports at
Dublin, Cork, and Shannon. This would enable each airport to compete with the
others on a commercial basis for new and existing business. The break up of Aer
Rianta has already commenced and the Government is in the process of appointing
directors to the board of the companies that will manage the three airports.
Ryanair anticipates that the new boards of management for the three airports
will not be fully operational until the end of 2003. The Minister has not yet
announced the Government's plan as to whether or not competing terminals can be
developed by independent operators.
43
TRADEMARKS
Ryanair's name, logo and slogans "Ryanair.com The Low Fares Website" and
the "Low Fares Airline" have been registered as Community Trade Marks ("CTM"). A
CTM allows trademark owners to obtain a single registration of their trademarks,
which registration affords uniform protection for those trademarks throughout
the EU.
Ryanair has also registered its name as a trademark in the Benelux
countries, Germany and the U.K. The registrations give Ryanair an exclusive
monopoly over the use of its trade name with regard to similar services in these
jurisdictions and the right to sue for trademark infringement should a third
party use an identical or confusingly similar trade mark in relation to
identical, or similar services. The registrations in each of these jurisdictions
is due for renewal in January 2005 and management currently intends to maintain
these registrations notwithstanding its CTM registration.
At present, Ryanair has not registered either its name or its logo as a
trademark in Ireland, as CTM registration provides all of the protection
available from an Irish registration, and management believes there are
therefore no advantages in making a separate Irish application.
GOVERNMENT REGULATION
Liberalization of the EU Air Transportation Market
Ryanair began its flight operations in 1985, during a decade in which the
governments of Ireland and the U.K. liberalized the bilateral arrangements for
the operation of air services between the two countries. In 1992, the Council of
Ministers of the EU adopted a package of measures intended to liberalize the
internal market for air transportation in the EU, including measures allowing EU
air carriers substantial freedom to set air fares, allowing EU air carriers
greatly enhanced access to routes within the EU and introducing a licensing
procedure for EU air carriers. Beginning in April 1997, EU air carriers have
generally been able to provide passenger services on domestic routes within any
EU Member State outside their home country of operations without restriction.
See also "--Regulation of Competition--State Aid."
The European Court of Justice in November 2002 ruled that bilateral
agreements between certain member states and the United States fell within the
exclusive competence of the EU and should not therefore be entered into by the
member states individually. As a result of these rulings, the European
Commission has been granted a mandate to negotiate with the United States to
replace the existing bilateral agreements between individual member states and
the United States with a single comprehensive EU-U.S. agreement establishing an
open aviation area between the two territories. These negotiations will cover
all arrangements covering air transport between and within the EU and United
States. It is proposed that this would include the rules governing market access
(routes, capacity, frequency), how airfares are set, how to ensure effective
application of competition rules and how to ensure maintenance of high standards
of airline safety and aviation security. The negotiations will also address
opening up each side's internal market to the airlines of the other side. A key
element will be the removal of the special restrictions that currently apply to
foreign ownership and control of airlines in the United States and EU.
44
Regulatory Authorities
As an Irish air carrier with routes to the U.K. and other EU countries,
Ryanair is subject to Irish and EU regulation, which is implemented primarily by
the Department of Transport, the IAA and the JAA. Management believes that the
present regulatory environment in Ireland and the EU is characterized by an
increased sensitivity to safety and security issues and an increased intensity
of review of safety-related procedures, training and equipment by the national
and EU regulatory authorities.
Commission for Aviation Regulation. The CAR was established on February 27,
2001 under the Aviation Regulation Act, 2001 ("Aviation Regulation Act"). The
CAR is primarily responsible for deciding maximum airport charges at Ireland's
major airports, namely Dublin, Cork and Shannon (the "Regulated Airports"). In
August 2001, the CAR issued a report setting charges which are to remain in
effect for five years, beginning September 24, 2001 with a possibility of a
review by the CAR after two years. The base charges for 2002 were approximately
5% lower than the charges previously in effect, and an efficiency factor (RPI-X)
provides that the charges will decrease by the efficiency factor minus the level
of inflation in Ireland. However, on September 24, 2003, the CAR announced a 9%
increase in charges at Dublin airport to compensate for claimed underrecovery of
costs by Aer Rianta and legal costs incurred by the CAR in defending a legal
challenge by Aer Rianta of the CAR's original price determination. The CAR has
indicated that it will initiate the "two-year" review of the changes in autumn
of this year, as provided in the Aviation Regulation Act, and it is anticipated
that charges will increase.
The CAR also has responsibility for licensing Irish airlines, subject to
the requirements of EU law. It issues operating licenses under the provisions of
Council Regulation 2407/92. An operating license is an authorization permitting
the holder to carry out carriage by air of passengers, mail and/or cargo.
Finally, CAR has responsibility for deciding whether a regulated airport
should be co-ordinated or fully co-ordinated under Council Regulation No. 95/93
on slots; and authorizing ground handling operations under Council Directive
96/67/EC and its implementing legislation.
The criteria for granting an operating license include, inter alia, an air
carrier's financial fitness, the adequacy of its insurance, and the fitness of
the persons who will manage the air carrier. In addition, in order to obtain and
maintain an operating license, Irish and EU regulations require that (i) the air
carrier must be owned and continue to be owned directly or through majority
ownership by EU Member States and/or nationals of EU Member States and (ii) the
air carrier must at all times be effectively controlled by such EU Member States
or EU nationals. The CAR has broad authority to revoke an operating license. See
"Item 10. Additional Information--Limitations on Share Ownership by Non-EU
Nationals."
Ryanair's current operating license was awarded effective November 30,
1993, reviewed on November 30, 1999, and is automatically subject to renewal
each year.
Irish Aviation Authority. The IAA is primarily responsible for Irish air
carrier licensing and certification. To operate in Ireland and the EU, an Irish
air carrier is required to hold an operator's certificate granted by the IAA. An
operator's certificate attests to the air carrier's operational and technical
competence to conduct an air service with specified types of aircraft. The IAA
has broad authority to amend or revoke an operator's certificate, with Ryanair's
ability to continue to hold its operator's certificate being subject to on-going
compliance with applicable statutes, rules and regulations pertaining to the
airline industry, including any new rules and regulations that may be adopted in
the future. Ryanair's current operating certificate was issued by the IAA with
effect from February 1, 2003 to January 31, 2004.
45
The IAA is responsible for overseeing and regulating the operations of
Irish air carriers. Matters within the scope of the IAA's regulatory authority
include air safety, aircraft certification, personnel licensing and training,
maintenance, manufacture, repair, airworthiness and operation of aircraft,
implementation of JARs, aircraft noise and ground services. Each of the
Company's aircraft has received an airworthiness certificate issued by the IAA
and any additional aircraft the Company adds to the fleet will be required to
obtain an airworthiness certificate. These airworthiness certificates are issued
for a period of 12 months, after which application for a further certificate
must be made. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the IAA. The IAA has broad and powerful regulatory and enforcement
authority, including the authority to require reports, inspect the books,
records, premises and aircraft of a carrier and investigate and institute
enforcement proceedings. Failure to comply with IAA Regulations can result in
revocation of operating certification.
In June 2002, the IAA awarded Ryanair an air operators' certificate in
recognition of Ryanair's satisfaction of the relevant JAR OPS 1 regulatory
requirements.
Civil Aviation Authority. Buzz Stansted successfully obtained a UK air
operators' certificate from the CAA in order to be able to operate the four
BAe146 aircraft and the six 737-300 aircraft it leases. The CAA has similar
powers to those of the IAA.
Department of Transport. The Department of Transport ("DOT") has a more
limited role in the regulation of Irish air transport as the majority of its
regulatory functions have been transferred to CAR under the Aviation Regulation
Act. DOT retains responsibility for implementation of EU and national
legislation and international standards relating to air transport, e.g., noise
levels, etc.
Joint Aviation Authorities. The JAA is an associated body of the European
Civil Aviation Conference formed to enhance co-operation between the national
civil aviation authorities of the participating European countries (including
Ireland) in aspects of aviation relating to, among other things, the safety of
aircraft and, in particular, the design, manufacture, continued airworthiness,
maintenance and operation of aircraft. The primary function of the JAA is to
develop, adopt and implement JARs for the use of authorities in the field of
design, manufacture, maintenance and operations. The aim of the JAA is to ensure
that each individual JAR becomes a uniform code for all JAA countries without
any national regulatory differences. EU regulations provide for the
harmonization of technical requirements and administrative procedures on the
basis of the JAR codes of the JAA and for the acceptance of certification in
accordance with common technical requirements and administrative procedures.
Eurocontrol. The European Organization for the Safety of Air Navigation
("Eurocontrol") is an autonomous European organization established under the
Eurocontrol Convention of December 13, 1960. Eurocontrol is responsible for,
inter alia, the safety of air navigation and the collection of route charges for
en route air navigation facilities and services throughout Europe. Ireland is a
party to several international agreements concerning Eurocontrol. These
agreements have been implemented into Irish law, which provides for the payment
of charges to Eurocontrol in respect of air navigation services provided for
aircraft in airspace under the control of Eurocontrol. The relevant legislation
imposes liability for the payment of any charges upon the operators of the
aircraft in respect of which services are provided, upon the owners of such
aircraft or the managers of airports used by such aircraft. Ryanair, as an
aircraft operator, is primarily responsible for the payment to Eurocontrol of
charges incurred in relation to its aircraft.
46
The legislation authorizes the detention of aircraft in the case of default
in the payment of any charge for air navigation services by the aircraft
operator or the aircraft owner, as the case may be. This power of detention
extends to any equipment, stores or documents, which may be on board the
aircraft when it is detained, and may result in the possible sale of the
aircraft.
The European Commission has also proposed a "single European sky policy,"
which would bring changes to aircraft management and control under EU
decision-making control by the end of 2004. The proposals aim to further improve
the safety of Europe's air transport system, to streamline decision-making
mechanisms and to increase the system's efficiency.
Registration of Aircraft
Pursuant to the Irish Aviation Authority (Nationality and Registration of
Aircraft) Order, 1996 and 1997 (the "Orders"), the IAA regulates the
registration of aircraft in Ireland. In order to be registered or continue to be
registered in Ireland, an aircraft must be wholly owned by either (i) a citizen
of Ireland or a citizen of another Member State of the EU having a place of
residence or business in Ireland or (ii) a company incorporated in and having a
place of business in Ireland and having its principal place of business in
Ireland or another Member State of the EU and not less than two-thirds of the
directors of which were citizens of Ireland or of another Member State of the
EU. As of September 30, 2003, nine of the 10 Directors of Ryanair Holdings are
citizens of Ireland or of another Member State of the EU. An aircraft will also
fulfill these conditions if it is wholly owned by such citizen or company in
combination. Notwithstanding the fact that these particular conditions may not
be met, the IAA retains discretion to register an aircraft in Ireland so long as
it is in compliance with the other conditions for registration under the Orders.
Any such registration may, however, be made subject to certain conditions. In
order to be registered, an aircraft must also continue to comply with any
applicable provisions of Irish law. The registration of any aircraft can be
cancelled if it is found that it is not in compliance with the requirements for
registration under the 1996 Order and, in particular, (i) if the ownership
requirements are not met, (ii) the aircraft has failed to comply with any
applicable safety requirements specified by the IAA in relation to the aircraft
or aircraft of a similar type or (iii) if the IAA decides in any case that it is
satisfied that it is inexpedient in the public interest for the aircraft to
remain registered in Ireland.
Similar measures apply to Buzz Stansted, which operates under a UK air
operators certificate issued by the CAA and whose ten aircraft are all
registered in the UK. As of September 30, 2003, all of the directors of Buzz
Stansted are citizens of EU Member States.
Regulation of Competition
Competition/Antitrust Law. It is a general principle of EU competition law
that no agreement may be concluded between two or more separate economic
undertakings that prevents, restricts or distorts competition in the common
market or any part of the common market. Such an arrangement may nevertheless be
exempted by the European Commission, on either an individual or category basis.
The second general principle of EU competition law is that any business or
businesses having a dominant position in the common market or any substantial
part of the common market may not abuse such a dominant position. Ryanair is
subject to the application of the general rules of EU competition law as well as
specific rules on competition in the airline sector (principally, Council
Regulation (EEC) 3975/87, as amended).
An aggrieved person may sue for breach of EU competition law in the courts
of the Member States and/or complain to the European Commission for an order to
terminate the breach of competition law. The European Commission also may impose
fines and daily penalties on businesses and the courts of the Member States may
award damages and other remedies (such as an injunction) in appropriate
circumstances.
47
Competition law in Ireland is primarily embodied in the Competition Act
2002. This Act is modeled on the EU competition law system. The Irish rules
generally prohibit anti-competitive arrangements among businesses and prohibit
the abuse of a dominant position. These rules are enforced either by public
enforcement (primarily by the Competition Authority) through both criminal and
civil sanctions or by private action in the courts. These rules apply to the
airline sector, but are subject to EU rules that override any contrary provision
of Irish competition law.
State Aid. The EU rules control aid granted by Member States to businesses
on a selective or discriminatory basis. The EU Treaty prevents Member States
granting such aid unless approved in advance by the EU. Any such grant of state
aid to an airline is subject to challenge before the EU or, in certain
circumstances, national courts. If aid is held to have been unlawfully granted
it may have to be repaid by the airline to the granting Member State, together
with interest thereon. See "Item 3. Key Information--Risk Factors--The Company
Could Incur Significant Additional Costs Arising from Legal Proceedings
Regarding Brussels Charleroi and Strasbourg" and "Item 8. Financial
Information--Other Financial Information--Legal Proceedings."
Environmental Regulation
Ryanair is subject to international, national and, in some cases, local
noise regulation standards. EU and Irish regulations have required that aircraft
must comply with Stage 3 noise requirements since April 1, 2002. All of
Ryanair's aircraft currently comply with these regulations.
Certain airports in the U.K. (including London (Stansted) and London
Gatwick) and continental Europe have established local noise restrictions,
including limits on the number of hourly or daily operations or the time of such
operations. These restrictions may cause curtailment of service or increases in
operating costs and could limit Ryanair's ability to expand its operations at
affected airports. Local authorities at other airports are considering adopting
similar noise regulations.
Environmental controls are generally imposed under Irish law through
property planning legislation (specifically the Local Government (Planning and
Development) Acts of 1963 to 1999, the Planning and Development Act 2000 and
regulations made thereunder). At Dublin Airport, Ryanair operates on land
controlled by Aer Rianta. Planning permission for its facility is in line with
both the zoning and planning requirements of Dublin Airport. There is also
specific Irish environmental legislation, generally implementing applicable EU
Directives and Regulations. From time to time, noxious or potentially toxic
substances are held on a temporary basis within Ryanair's engineering stores at
Dublin Airport. However, at all times Ryanair's storage and handling of these
substances complies with the relevant regulatory requirements.
Slots
Currently, only fourteen airports served by Ryanair: London (Stansted),
London (Gatwick), Turin, Manchester, Milan (Bergamo), Rome (Ciampino), Palermo,
Murcia, Barcelona (Girona), Malaga, Faro, Jerez, Berlin (Schoenefeld) and
Eindhoven, are regulated by means of "slot" allocations, which represent
authorizations to take off or land at a particular airport within a specified
time period. EU law currently regulates the acquisition, transfer and loss of
slots. Applicable EU regulations currently prohibit the buying or selling of
slots for cash. The European Commission adopted a proposal in June 2001 to
modernize the current allocation system. It allows for a limited transfer of
slots between carriers, but only in execution of a competition policy decision
of the European Commission (e.g. in a merger control case). The European
Commission is conducting an in-depth analysis of all possible options that will
allow it to propose further measures to introduce a market mechanism for the
allocation of slots which will allow more flexibility and mobility in the use of
slots and will further enhance possibilities for market entry. Any future
proposals that might create a secondary market for the auction of slots or allow
trading of slots among airlines could create a potential source of revenue for
certain of Ryanair's current and potential competitors, many of which have many
more slots allocated at present than Ryanair. Slot values depend on several
factors, including the airport, time of day covered, the availability of slots
and the class of aircraft. Ryanair's ability to gain access to and develop its
operations at slot-controlled airports will be affected by the availability of
slots for takeoffs and landings at these specific airports. New entrants to an
airport are given certain privileges in terms of obtaining slots, but such
privileges are subject to the "grandfather rights" of existing operators who are
utilizing their slots. While Ryanair generally seeks to avoid slot-controlled
airports, there is no assurance that Ryanair will be able to obtain a sufficient
number of slots at the slot-controlled airports that it desires to serve in the
future at the time it needs them or on acceptable terms.
EU regulations require the use of each slot at least 80% of the time during
the season to which the slot relates and provide for forfeiture of slots without
compensation in certain circumstances. A minor amendment was made to the
legislation in 2002 to reflect the fact that, due to the events of September 11,
2001, many airlines could not meet this "use it or lose it" requirement for
maintaining their slots. The amendment recognized that the events of September
11, 2001 were exceptional circumstances, which merited deviation from the rule.
This exemption has been extended for a further year in 2004 in light of the
additional blows to the airline industry from to the SARS outbreak and the
spring 2003 war in Iraq.
48
Other
Health and safety at work issues relating to the Company are largely
controlled in Ireland by compliance with the Safety, Health and Welfare at Work
Act, 1989, the Safety, Health and Welfare at Work (General Application)
Regulations, 1993, and other regulations under that Act. Although licenses or
permits are not issued under such legislation, compliance is monitored by the
Health and Safety Authority (the "Authority"), which is the regulating body in
this area. The Authority periodically reviews Ryanair's health and safety record
and where appropriate, issues improvement notices/prohibition notices. Ryanair
has responded to all such notices to the satisfaction of the Authority. Other
heath and safety issues are covered by the Irish Aviation Orders 2000-2003.
The Company's operations are subject to the general laws of Ireland and, in
so far as they are applicable in Ireland, the laws of the EU. The Company may
also become subject to additional regulatory requirements in the future. The
Company is also subject to local laws and regulations at locations where it
operates and the regulations of various local authorities that operate the
airports it serves.
DESCRIPTION OF PROPERTY
For certain information about each of the Company's key facilities, see
"-Facilities" above. Management believes that the Company's facilities are
suitable for its needs and are well maintained.
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the audited
Consolidated Financial Statements of the Company and the notes thereto included
in Item 18. Those financial statements have been prepared in accordance with
Irish GAAP. For a discussion of certain differences between Irish GAAP and U.S.
GAAP, see Note 30 to the Consolidated Financial Statements included in Item 18.
49
HISTORY
Ryanair's current business strategy dates to the early 1990s, when a new
management team, including the current chief executive, commenced the
restructuring of Ryanair's operations to become a low-fares airline based on the
low cost operating model pioneered by Southwest Airlines Co. in the United
States. During the period between 1992 and 1994, Ryanair expanded its route
network to include scheduled passenger service between Dublin and Birmingham,
Manchester and Glasgow (Prestwick). In 1994, Ryanair began standardizing its
fleet by purchasing used Boeing 737-200A aircraft to replace substantially all
of its leased aircraft. Beginning in 1996, Ryanair continued to expand its
service from Dublin to new provincial destinations in the U.K. In August 1996,
Irish Air, L.P., an investment vehicle led by David Bonderman and certain of his
associates at the Texas Pacific Group, acquired a minority interest in the
Company. Ryanair Holdings completed its initial public offering in June 1997.
From 1997 through September 2003, Ryanair launched service on 132 routes
to/from the U.K. and in continental Europe, and also increased the frequency of
service on a number of its principal routes. During that period, Ryanair also
established London (Stansted), Glasgow (Prestwick), London (Luton), Shannon,
Brussels (Charleroi), Frankfurt (Hahn), Milan (Bergamo), and Stockholm (Skavsta)
airports as additional bases of operations. Since 1999, Ryanair has more than
tripled its number of passengers, number of aircraft and the number of airports
it serves and increased the number of people it employs by 58%.
Taking into account retirements of Ryanair's Boeing 737-200As and the
termination of the subleases for its four BAe 146s, as well as the short-term
lease of five aircraft in connection with the early retirement of some of the
737-200As, Ryanair expects to have 71 aircraft in its fleet by April 2004. Over
the next five years, the Company expects to take delivery of an additional 112
Boeing 737-800 aircraft which it is obligated to purchase under existing
contracts with The Boeing Company ("Boeing"). These deliveries, net of further
scheduled retirements and lease terminations, are expected to increase the size
of the Company's fleet to 153 aircraft by December 2008, with that number
increasing should Ryanair choose to exercise any of the 125 options remaining
under its current contracts with Boeing. See "--Liquidity and Capital Resources"
and "Item 4. Information on the Company--Aircraft" for additional details.
50
BUSINESS OVERVIEW
Since Ryanair began to introduce its low cost operating model in the early
1990s, its passenger volumes and scheduled passenger revenues have increased
significantly as Ryanair has substantially increased capacity. Ryanair's annual
scheduled flown passenger volume has increased more than tenfold over the past
decade, from approximately 945,000 passengers in calendar year 1992 to
approximately 14.4 million passengers in fiscal year 2003.
Ryanair's revenue passenger miles ("RPMs") increased from 3,118.1 million
in fiscal year 2001 to 4,505.9 million in fiscal year 2002 and to 6,781.1
million in fiscal year 2003, due primarily to an increase in scheduled available
seat miles ("ASMs") from 4,439.0 million in fiscal year 2001 to 6,081.0 million
in fiscal year 2002 and to 8,744.4 million in fiscal year 2003. Scheduled
passenger revenues increased from EUR432.9 million in fiscal year 2001 to
EUR551.0 million in fiscal year 2002 and to EUR732.0 million in fiscal year
2003. During this period, flown passenger load factors increased from 70% in
fiscal year 2001 to 74% in fiscal year 2002 and to 78% in fiscal year 2003.
Average yield per RPM was EUR0.139 in fiscal year 2001, EUR0.122 in fiscal year
2002 and EUR0.108 in fiscal year 2003. The decrease in average yield per RPM in
fiscal years 2002 and 2003 was principally attributable to an increase in
average sector length without a corresponding increase in average yield per
passenger, or the amount of scheduled revenues per passenger flown.
The combination of expanding passenger volumes and capacity, high load
factors and aggressive cost containment has enabled Ryanair to generate
substantial increases in operating profit and profit after taxation. Ryanair's
break-even load factor was 57% in fiscal year 2001, 58% in fiscal year 2002 and
57% in fiscal year 2003. Cost per ASM declined from EUR0.079 in fiscal year 2001
to EUR0.071 in fiscal year 2002 and to EUR0.062 in fiscal year 2003. Ryanair's
operating profit increased from EUR114.0 million in fiscal year 2001 to EUR162.9
million in fiscal year 2002 and to EUR263.5 million in fiscal year 2003, while
profit after taxation increased from EUR104.5 million in fiscal year 2001 to
EUR150.4 million in fiscal year 2002 and to EUR239.4 million in fiscal year
2003.
The historical results of operations discussed herein may not be indicative
of Ryanair's future operating performance. Ryanair's future results of
operations will be affected by, among other things, overall passenger traffic
volume, the availability of new airports for expansion, the ability to finance
its planned acquisition of aircraft and to discharge the resulting debt service
obligations, economic and political conditions in Ireland, the U.K. and the EU,
seasonal variations in travel, government regulations, fuel prices, foreign
currency fluctuations, competition and the public's perception regarding the
safety of low-fares airlines, as well as changes in aircraft acquisition and
leasing costs, and, other operating expenses and the rates of income taxes paid.
Ryanair expects its depreciation, staff and fuel charges to continue to increase
as additional aircraft and related flight equipment are acquired. Future fuel
costs may also increase as a result of the current shortage of fuel production
capacity and/or production restrictions imposed by fuel oil producers.
Maintenance expenses may also increase as a result of Ryanair's fleet expansion
and replacement program. In addition, the financing of new and existing 737-800
aircraft will significantly increase the total amount of the Company's
outstanding debt and the payments it is obliged to make to service such debt.
The cost of insurance coverage for certain third party liabilities arising from
"acts of war" or terrorism has increased dramatically as a result of the
terrorist attacks on the U.S. in September 2001. Although Ryanair currently
passes on increased insurance costs to passengers by means of a special
"insurance levy" on each ticket, there can be no assurance that it will continue
to be successful in doing so. See "Item 3. Key Information-Risk Factors-The 2001
Terrorist Attacks on the United States Had a Severe Negative Impact on the
International Airline Industry."
RECENT OPERATING RESULTS
For the quarter ended June 30, 2003 (the first quarter of the Company's
fiscal year 2004), Ryanair recorded an increase in profit after taxation of
3.8%, from EUR39.0 million in the three months ended June 30, 2002 to EUR40.5
million, including exceptional costs and goodwill amortization arising from the
"Buzz" acquisition in the first quarter of fiscal year 2004.
Total operating revenues increased 26.2%, from EUR194.3 million in the
first quarter of fiscal year 2003 to EUR245.2 million in the three months ended
June 30, 2003, primarily as a result of an increase of approximately 43% in
scheduled passenger revenues, which totaled EUR214.0 million for the quarter.
Operating expenses increased by 29.0%, from EUR148.9 million in the three months
ended June 30, 2002 to EUR192.1 million in the first quarter of fiscal 2004,
reflecting increased costs (particularly staff, fuel, route charges, and airport
and handling costs) related to the growth of Ryanair's fleet and route network
and the general level of activity. As a result, Ryanair's operating profit
increased by 9.1% to EUR49.5 million. The Company had cash and liquid resources
of EUR1,077.5 million at June 30, 2003, as compared with EUR1,060.2 million in
cash and liquid resources at March 31, 2003, as increased cash flows from
operating activities reflected Ryanair's profitable performance. Capital
expenditures for the quarter, primarily relating to three aircraft delivered
during the quarter and deposit payments for future aircraft deliveries, totaled
EUR128.1 million.
Buzz Stansted did not operate any services between April 10, 2003 and May
1, 2003, while staff were being retrained and the airline obtained the required
UK air operators' certificate. As a result, the Company recorded exceptional
costs amounting to EUR3.1 million (equal to Buzz Stansted's operating costs
during this period of inactivity) in the fiscal quarter ending June 30, 2003.
Goodwill for the purposes of the Buzz transaction was calculated by reference to
the purchase price of EUR20.1 million and excess lease costs of EUR26.6 million
(based on a calculation of the difference between current market lease rates and
the contractual lease rates on the 10 aircraft). Under Irish GAAP, the goodwill
of EUR46.7 million arising from the acquisition comprising the purchase price of
EUR20.1 million and the excess lease costs of EUR26.6 million is amortised to
the profit and loss account over a 20-year period in the amount of EUR2.3
million per annum. In accordance with U.S. GAAP, the Company will perform a
valuation of the Buzz assets acquired to attribute value to separate intangible
assets, which are likely to include airport slots and trademarks. As these
assets do not have a limited life, they will not be depreciated and, except for
the straight-line goodwill amortization which is not required under U.S. GAAP,
the Company does not expect there will be any income statement differences under
Irish and U.S. GAAP in accounting for this acquisition.
Excluding the exceptional costs of EUR2.7 million (net of tax) and the
amortization of EUR0.6 million in goodwill from the "Buzz" acquisition, which
management believes is useful to show the trend in its profitability from its
ongoing business compared to the same quarter in the previous year, operating
profit increased by 17.0% to EUR53.1 million, and profit after tax increased by
12.5% to EUR43.8 million.
In September 2003, Ryanair decided to accelerate the retirements of certain
of its 737-200s following the discovery during the course of a recent scheduled
aircraft overhaul of some scratches on the outer skin on certain of these
aircraft. Five 737-200s on which scratches were found have already been retired,
and four additional aircraft will be inspected for similar scratches.
To cover for the earlier retirement of these aircraft and the delivery of
15 new 737-800's over the next six months, Ryanair has arranged for the
short-term lease from October 2003 of four Boeing 737-800s and one 737-200. The
cost of these short-term leases over the second half of fiscal 2004 is expected
to be partially offset by cost savings from the earlier retirement of the older
737-200s and additional revenues which may be generated by the four larger out
of the five aircraft leased in to replace them temporarily. Accordingly, the
Company expects the net effect of these early retirements and lease-ins will be
a one-time exceptional charge of approximately EUR5 million in the fiscal year
ending March 31, 2004. See "Item 4. Information on the Company--Aircraft" for
additional information.
51
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of Ryanair's financial condition and
results of operations are based on its Consolidated Financial Statements, which
are included in Item 18 and prepared in accordance with Irish GAAP. Irish GAAP
differs in certain significant respects from U.S. GAAP. For additional
information regarding the material differences between Irish GAAP and U.S. GAAP,
please refer to Note 30 to the Consolidated Financial Statements included in
Item 18. The preparation of these financial statements requires the use of
estimates, judgments, and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. Actual results may differ
from these estimates under different conditions or assumptions.
Ryanair believes that its most critical accounting policies, which are
those that require management's most difficult, subjective and complex
judgments, are those described in this section. These critical accounting
policies, the judgments and other uncertainties affecting application of those
policies and the sensitivity of reported results to changes in conditions and
assumptions are factors to be considered in reviewing the Consolidated Financial
Statements included in Item 18 and the discussion and analysis below. For
additional detail on these policies, see Note 1b to the Consolidated Financial
Statements included in Item 18.
52
Passenger revenues
Passenger revenues comprise the invoiced value of airline and other
services, net of government taxes. Revenue from the sale of flight seats is
recognized in the period in which the service is provided. Unearned revenue
represents flight seats sold but not yet flown and is included in accrued
expenses and liabilities. It is released to the profit and loss account as
passengers fly. Unused tickets are recognized as revenue on a systematic basis.
Long lived assets
As of March 31, 2003, Ryanair had EUR1.4 billion of long-lived assets,
including EUR1.3 billion of aircraft. In accounting for long-lived assets,
Ryanair must make estimates about the expected useful lives of the assets, the
expected residual values of the assets and the potential for impairment based on
the fair value of the assets and the cashflows they generate.
In estimating the lives and expected residual values of its aircraft,
Ryanair has primarily relied on industry experience and recommendations from
Boeing, the manufacturer of all of the Company's owned aircraft. Subsequent
revisions to these estimates, which can be significant, could be caused by
changes to Ryanair's maintenance program, changes in utilization of the
aircraft, governmental regulations on aging of aircraft and changing market
prices for new and used aircraft of the same or similar types. Ryanair evaluates
its estimates and assumptions in each reporting period, and when warranted
adjusts these assumptions. Generally, these adjustments are accounted for on a
prospective basis, through depreciation expense.
Ryanair periodically evaluates its long-lived assets for impairment.
Factors that would indicate potential impairment would include, but are not
limited to, significant decreases in the market value of long-lived assets, a
significant change in a long-lived asset's physical condition, and operating or
cash-flow losses associated with the use of the long-lived asset. While the
airline industry as a whole has experienced many of these factors, Ryanair has
not yet been impacted by the factors and continues to experience positive
cash-flows from these long-lived assets. Consequently, Ryanair has not yet
identified any impairments related to its existing aircraft fleet. The Company
will continue to monitor its long-lived assets and the general airline operating
environment.
Inventory obsolescence
In accounting for inventory, which principally comprises rotable aircraft
spares, Ryanair must make estimates regarding the useful lives of the aircraft
on which the inventory will be used, in addition to estimates of any excess
inventory on hand, and provides an allowance for such amounts. In estimating the
useful lives of the aircraft and related inventory, and any excess inventory,
Ryanair has primarily relied on the experience of its own operations and that of
the aircraft industry. Subsequent revisions to such estimates, which could be
significant, can be affected by changes to Ryanair's maintenance program,
changes to utilization of aircraft, governmental regulations on aging of
aircraft and changing market prices for rotable aircraft spares. Ryanair
evaluates these estimates and assumptions in each reporting period and adjusts
these as needed.
53
RESULTS OF OPERATIONS
The following table sets forth certain income statement data (calculated
under Irish GAAP) for Ryanair expressed as a percentage of Ryanair's total
revenues for each of the periods indicated:
Fiscal Year ended March 31,
2003 2002 2001
Total Revenues........................................ 100.0% 100.0% 100.0%
Scheduled Revenues.................................. 86.9 88.3 88.8
Ancillary Revenues.................................. 13.1 11.7 11.2
Total Operating Expenses.............................. 68.7 73.9 76.6
Staff Costs......................................... 11.0 12.5 12.6
Depreciation and Amortization....................... 9.1 9.5 12.1
Fuel and Oil........................................ 15.3 16.7 13.0
Maintenance, Materials and Repairs.................. 3.5 4.2 4.1
Marketing and Distribution Costs.................... 1.7 2.0 4.4
Aircraft Rentals.................................... 0.0 0.6 1.5
Route Charges....................................... 8.1 7.5 7.3
Airport and Handling Charges........................ 12.8 13.6 13.6
Other Ancillary and Operating Expenses.............. 7.2 7.3 8.0
Operating Profit...................................... 31.3 26.1 23.4
Other Income (Expenses)............................... 0.1 1.5 1.9
Profit before Taxation................................ 31.4 27.6 25.3
Taxation.............................................. 3.0 3.5 3.9
Profit after Taxation................................. 28.4 24.1 21.4
The following tables set forth the components of ancillary revenues earned
by Ryanair and each component expressed as a percentage of total ancillary
revenues for each of the periods indicated:
Fiscal Year ended March 31,
2003 2002 2001
(in thousands of euro, except percentage data)
Car Rental.................................. EUR27,615 25.0% EUR18,905 25.9% EUR12,562 23.0%
In-flight Sales............................. EUR23,142 20.9% EUR18,030 24.7% EUR14,186 26.0%
Non-flight Scheduled........................ EUR35,291 31.9% EUR16,662 22.8% EUR12,802 23.5%
Internet-Related............................ EUR12,159 11.0% EUR 4,831 6.6% EUR1,023 2.0%
Charter..................................... EUR12,350 11.2% EUR14,631 20.0% EUR13,892 25.5%
Total....................................... EUR110,557 100.0% EUR73,059 100.0% EUR54,465 100.0%
54
FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002
Profit after Taxation. Ryanair's profit on ordinary activities after
taxation increased 59.2%, from EUR150.4 million in the fiscal year ended March
31, 2002 to EUR239.4 million in the fiscal year ended March 31, 2003, while
total operating revenues increased 35.0% from EUR624.1 million to EUR842.5
million. The increase in profitability was driven by continued strong growth in
passenger volumes due to the increase in seat capacity on existing routes and
the launch of a further 29 routes and an additional continental European base
during the year. The continued focus on tight cost controls also contributed to
the increase in profitability. Ryanair's profit on ordinary activities before
taxation increased 53.5%, from EUR172.4 million in the fiscal year ended March
31, 2002 to EUR264.6 million in the fiscal year ended March 31, 2003.
Scheduled Revenues. Ryanair's scheduled passenger revenues increased 32.8%,
from EUR551.0 million in the fiscal year ended March 31, 2002 to EUR731.9
million in the fiscal year ended March 31, 2003. This increase reflected growth
of 41.4% in scheduled passenger volumes, from 10.2 million to 14.4 million
passengers flown, and a 28.0% increase in sectors flown from 90,124 to 115,325.
The increase in scheduled revenues was achieved despite a decrease in average
yield per RPM from EUR0.122 to EUR0.108, the negative effects of which were
partially offset by the increase in flown passenger load factor from 74% to 78%.
Much of the increase in scheduled passenger revenue was directly
attributable to the increase in sectors flown due to the impact of operating 13
new Boeing 737-800 aircraft and the expansion of Ryanair's route network during
the period. The increase in scheduled passenger revenues and sectors flown also
reflected Ryanair's launch of 29 additional routes during the period, an
increase in frequencies on certain of its existing routes and the use of larger
aircraft on certain of its routes. Passenger capacity (as measured in ASMs)
increased 43.8% during this period due to the addition of 13 737-800 aircraft,
as well as an increase in the average length of passenger haul and the increase
in sectors flown. Scheduled passenger revenues accounted for 86.9% of Ryanair's
total revenues for the fiscal year ended March 31, 2003, compared with 88.3% of
total revenues in fiscal year ended March 31, 2002.
Ancillary Revenues. Ryanair's ancillary revenues, which consist primarily
of revenues from car rentals, in-flight sales of beverages, food, and
merchandise, sales of rail tickets, hotel accommodation and travel insurance,
internet-related activities and charter services, increased 51.3%, from
EUR73.1 million in the fiscal year ended March 31, 2002 to EUR110.6 million in
the fiscal year ended March 31, 2003. The increase was primarily attributable to
a significant increase in revenues from car rentals, non-flight scheduled
services, and internet-related activities. Revenues from car rentals rose during
the period from EUR18.9 million to EUR27.6 million, or 46.1%; and revenues from
non-flight scheduled operations (primarily sales of rail tickets, hotel
accommodation and travel insurance, as well as excess baggage charges and credit
card revenues) more than doubled from EUR16.7 million to EUR35.3million.
Revenues from in-flight sales increased 28.4%, from EUR18.0million in fiscal
year 2002 to EUR23.1 million in fiscal year 2003, as average passenger spending
per flight declined from EUR3.63 to EUR3.52. Charter revenues decreased from
EUR14.6million to EUR12.4 million, or 15.1%, due to a reduction in the seat
capacity available, as charter capacity has been transferred to scheduled
flights and the Company now offers service to some of the destinations
previously served by charters. Revenues from internet-related services,
primarily commissions received from products sold on websites linked to the
Ryanair.com website, more than doubled, from EUR4.8million in fiscal year 2002
to EUR12.2 million in fiscal year 2003. Revenues from internet-related services
also reflect revenues from the financial services the Company offers.
Operating Expenses. As a percentage of total revenues, Ryanair's operating
expenses decreased from 73.9% in the fiscal year ended March 31, 2002 to 68.7%
in the fiscal year ended March 31, 2003. In absolute terms, total operating
expenses increased 25.6%, from EUR461.1 million in the fiscal year ended March
31, 2002 to EUR579.0 million in the fiscal year ended March 31, 2003,
principally as a result of the increase in scheduled passenger volume and the
28% increase in number of sectors flown, which were reflected in increases in
fuel expenses, route and airport and handling charges and staff and depreciation
costs in absolute terms. Nonetheless, total operating expenses per ASM declined
by 12.7%, reflecting declines on a per ASM basis in all components other than
route charges.
The following table sets forth the amounts in euro cents and percentage
changes of Ryanair's operating expenses (on a per ASM basis) for the fiscal
years ended March 31, 2002 and March 31, 2003 under Irish GAAP:
Fiscal Year Fiscal Year
Ended Ended
March 31, 2003 March 31, 2002 % Change
Staff Costs...................................................... 1.06 1.29 -17.3%
Depreciation and Amortization.................................... 0.88 0.97 -9.4%
Fuel and Oil..................................................... 1.47 1.71 -13.8%
Maintenance, Materials and Repairs............................... 0.34 0.43 -21.7%
Marketing and Distribution....................................... 0.17 0.20 -17.7%
Aircraft Rentals................................................. 0.00 0.07 -10.0%
Route Charges.................................................... 0.78 0.77 1.9%
Airport and Handling Charges..................................... 1.24 1.40 -11.5%
Other Operating Expenses......................................... 0.68 0.74 -9.2%
Total Operating Expenses(a)...................................... 6.62 7.58 -12.7%
* For the purposes of calculating Operating Expenses per Available Seat Mile
(ASM), operating expenses include the costs of the Company's charter
operations.
** These data are calculated by dividing the relevant expense amount (as shown
in the Consolidated Financial Statements) by the number of ASMs in the
relevant year as shown in the table of "Selected Operating and Other Data"
in Item 3 and rounding to the nearest euro cent; the percentage change is
calculated on the basis of the relevant figures before rounding.
(a) Total Operating Expenses per ASM does not equal the Cost per ASM (CASM)
reported in the table of "Selected Operating and Other Data" in Item 3, as
the latter figure excludes Non-Charter Ancillary Costs, which were 0.50
euro cents and 0.46 euro cents per ASM in the fiscal years ended March 31,
2002 and 2003, respectively.
Staff Costs. Ryanair's staff costs, which consist primarily of salaries,
wages and benefits, decreased 17.3% on a per ASM basis, while in absolute terms,
these costs increased 19.0%, from EUR78.2 million in the fiscal year ended March
31, 2002 to EUR93.1 million in the fiscal year ended March 31, 2003, due to an
increase in the number of staff employed, increased productivity payments to
pilots and cabin crew reflecting the growth of the airline and the impact of
increases in basic pay granted to certain employees.
Depreciation and Amortization. Ryanair's depreciation and amortization per
ASM decreased by 9.4%, while in absolute terms these costs increased 30.3% from
EUR59.0 million in the fiscal year ended March 31, 2002 to EUR76.9 million in
the fiscal year ended March 31, 2003, reflecting the increased costs arising
from the purchase of 13 new Boeing 737-800 aircraft.
Fuel and Oil. Ryanair's fuel and oil costs per ASM decreased 13.8%,
although in absolute terms these costs increased 24.0%, from EUR103.9 million in
the fiscal year ended March 31, 2002 to EUR128.8 million in the fiscal year
ended March 31, 2003, in each case after giving effect to the Company's fuel
hedging activities. The increase was principally due to an increase in the
dollar-denominated cost of fuel and the 28% increase in sectors flown (resulting
from the expansion of Ryanair's fleet), as well as an increase in average sector
length. Fuel and oil costs include the direct cost of fuel, the cost of
delivering fuel to the aircraft and aircraft de-icing costs. The average fuel
price paid by Ryanair (calculated by dividing total scheduled fuel costs by the
number of U.S. gallons of fuel consumed) decreased from EUR1.007 per U.S. gallon
in the fiscal year ended March 31, 2002 to EUR0.9301 per U.S. gallon in the
fiscal year ended March 31, 2003, in each case after giving effect to the
Company's fuel hedging activities.
Maintenance, Materials and Repairs. Ryanair's maintenance, materials and
repair expenses, which consist primarily of the cost of routine maintenance and
the overhaul of spare parts, decreased 21.7% on a per ASM basis, while in
absolute terms these expenses increased 12.6%, from EUR26.4 million in the
fiscal year ended March 31, 2002 to EUR29.7 million in the fiscal year ended
March 31, 2003. The increase in absolute terms was largely due to the increase
in flight hours (resulting from the expansion of Ryanair's fleet) and the
increase in sector length, the effects of which were partially offset by savings
reflecting improved reliability due to the higher proportion of 737-800 aircraft
in the fleet.
56
Marketing and Distribution Costs. Ryanair's marketing and distribution
costs per ASM decreased 17.7%, while in absolute terms these costs increased
18.3%, from EUR12.4 million in the fiscal year ended March 31, 2002 to EUR14.6
million in the fiscal year ended March 31, 2003. The increase in absolute terms
was primarily the result of higher spending on the promotion of new routes,
including those launched from Frankfurt (Hahn) following an increase in the
number of aircraft based there, as well as the initial launch costs arising from
the commencement of two new bases at Milan (Bergamo) and Stockholm (Skavsta).
Aircraft Rentals. Ryanair did not record any aircraft rental expense during
the period, as compared to EUR4.0 million in such expenses in the fiscal year
ended March 31, 2002. This reflects the reduced requirements to rent additional
seat capacity arising from the delivery of the new 737-800 aircraft. Ryanair has
recently entered into short-term leases for five aircraft starting in October
2003 in order to provide additional seating capacity due to the
earlier-than-expected retirement of up to nine of its 737-200s. See "Item 4.
Information on the Company--Aircraft" and "--Recent Operating Results" for more
information on these leases.
Route and Airport and Handling Charges. Ryanair's route charges per ASM
increased 1.9% in the fiscal year ended March 31, 2003, while airport and
handling charges per ASM decreased 11.5%. In absolute terms, route charges
increased 46.5%, from EUR46.7 million in the fiscal year ended March 31, 2002 to
EUR68.4 million in the fiscal year ended March 31, 2003, primarily as a result
of the 28% increase in sectors flown and the increase in average sector length,
as well as an increase in route charges based on aircraft weight, as the average
weight of the fleet increased due to the acquisition of 13 new 737-800s. In
absolute terms, airport and handling charges increased 27.2%, from EUR84.9
million in the fiscal year ended March 31, 2002 to EUR108.0 million in the
fiscal year ended March 31, 2003, reflecting the growth in passenger volume and
increased costs on certain existing routes, the effects of which were offset in
part by lower average costs on new routes to continental Europe and at Ryanair's
new bases.
Other Ancillary and Operating Expenses. Ryanair's other operating expenses,
including those applicable to the generation of ancillary revenues, decreased
9.2% on a per ASM basis in the fiscal year ended March 31, 2003, although in
absolute terms these costs increased by 30.5%, from EUR45.6 million in the
fiscal year ended March 31, 2002 to EUR59.5 million in the fiscal year ended
March 31, 2003. The decline on a per ASM basis reflected improved margins on
some new and existing products, as well as cost reductions realized in relation
to certain indirect costs, while the increase in absolute terms was primarily
attributable to the increases in sectors flown, average sector length and
passenger volumes.
Operating Profit. As a result of the factors described above, Ryanair's
operating profit as a percentage of total revenues increased from 26.1% in the
fiscal year ended March 31, 2002 to 31.3% in the fiscal year ended March 31,
2003. In absolute terms, operating profit increased 61.7%, from EUR162.9 million
in the fiscal year ended March 31, 2002 to EUR263.5 million in the fiscal year
ended March 31, 2003.
Interest Receivable and Similar Income. Ryanair's interest receivable and
similar income increased 13.8%, from EUR27.5 million in the fiscal year ended
March 31, 2002 to EUR31.4 million in the fiscal year ended March 31, 2003,
primarily reflecting higher average cash balances on hand due to the increase in
Ryanair's profitability.
Interest Payable and Similar Charges. Ryanair's interest payable and
similar charges increased 57.5%, from EUR19.6 million in the fiscal year ended
March 31, 2002 to EUR30.9 million in the fiscal year ended March 31, 2003,
reflecting the increase in debt related to the acquisition of 13 new 737-800
aircraft. These costs are expected to continue to increase as Ryanair expands
its fleet.
57
Other Income. Ryanair's other income decreased significantly from EUR1.5
million in the fiscal year ended March 31, 2002 to EUR0.6 million in the fiscal
year ended March 31, 2003, primarily reflecting the fact that other income for
the prior fiscal year included a gain on disposal of fixed assets of EUR0.5
million.
Taxation. The effective tax rate for the fiscal year ended March 31, 2003
was 9.5%, compared to 12.8% in the fiscal year ended March 31, 2002. The decline
in the effective tax rate reflects a reduction in the statutory rate of Irish
corporation tax to 12.5%, the positive impact of Ryanair.com (which benefits
from a reduced income tax rate) and the continued benefit of Ryanair's
international leasing and internet-related businesses. Profits from certain
qualifying activities at Ryanair.com are currently levied at an effective 10%
tax rate in Ireland. Ryanair.com will continue to be eligible for the 10%
preferential tax treatment until the scheduled expiration of its license in
2010. Ryanair recorded an income tax provision of EUR25.2 million for the fiscal
year ended March 31, 2003, and an income tax provision of EUR22.0 million for
the fiscal year ended March 31, 2002.
FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001
Profit after Taxation. Ryanair's profit on ordinary activities after
taxation increased 43.9%, from EUR104.5 million in the fiscal year ended March
31, 2001 to EUR150.4 million in the fiscal year ended March 31, 2002, while
total operating revenues increased 28.0% from EUR487.4 million to EUR624.1
million. This result reflected a significant increase in the revenues generated
by a record number of scheduled passengers (notwithstanding a decline in average
fares that reflected the launch of 22 new routes and promotional fares
introduced to increase traffic in the aftermath of the September 11 terrorist
attacks and the foot and mouth disease outbreak in the U.K.), an increase in
ancillary revenues and a decrease in operating expenses as a percentage of total
operating revenues. Ryanair's profit on ordinary activities before taxation
increased 39.7%, from EUR123.4 million in the fiscal year ended March 31, 2001
to EUR172.4 million in the fiscal year ended March 31, 2002.
Scheduled Revenues. Ryanair's scheduled passenger revenues increased 27.3%,
from EUR432.9 million in the fiscal year ended March 31, 2001 to EUR551.0
million in the fiscal year ended March 31, 2002. This increase reflected growth
of 37.2% in scheduled passenger volumes, from 7.4 million to 10.2 million
passengers flown, and a 24.0% increase in sectors flown from 72,655 to 90,124,
as well as the positive exchange rate impact of the translation of
sterling-denominated revenues into euro. The increase in scheduled revenues was
achieved despite a decrease in average yield per RPM from EUR0.139 to EUR0.122,
the negative effects of which were partially offset by increases in flown
passenger load factor from 70% to 74%.
Much of the increase in scheduled passenger revenue was directly
attributable to the increase in sectors flown due to the impact of the operation
of five more new Boeing 737-800 aircraft and the expansion of Ryanair's route
network during the period. The increase in scheduled passenger revenues and
sectors flown also reflected Ryanair's launch of 22 additional routes during the
period and an increase in frequencies on certain of its existing routes. The 22
new routes added during the fiscal year ended March 31, 2002 accounted for
approximately 59% of the growth in passenger volume. Increased capacity on
Ryanair's existing route network resulting from more frequent flights and the
use of larger aircraft on certain of its routes between Ireland and the U.K and
the U.K. and continental Europe accounted for the remaining 41% of the increase
in passenger volume. Passenger capacity (as measured in ASMs) increased 37.0%
during this period due to the addition of five 737-800 aircraft, as well as an
increase in the average length of passenger haul and the increase in sectors
flown. Scheduled passenger revenues accounted for 88.3% of Ryanair's total
revenues for the fiscal year ended March 31, 2002, compared with 88.8% of total
revenues in fiscal year ended March 31, 2001.
58
Ancillary Revenues. Ryanair's ancillary revenues, which consist primarily
of revenues from car rentals, in-flight sales of beverages and merchandise,
sales of rail tickets, hotel accommodation and travel insurance,
internet-related activities and charter services increased 34.1%, from EUR54.5
million in the fiscal year ended March 31, 2001 to EUR73.1 million in the fiscal
year ended March 31, 2002. The increase was primarily attributable to a
significant increase in revenues from car rentals, non-flight scheduled
services, and internet-related activities. Revenues from car rentals rose during
the period from EUR12.6 million to EUR18.9 million, or 50.5%; and revenues from
non-flight scheduled operations (primarily rail ticket, hotel accommodation and
travel insurance sales) increased from EUR12.8 million to EUR16.7 million, or
30.2%. Revenues from in-flight sales increased 27.1%, from EUR14.2 million in
fiscal year 2001 to EUR18.0 million in fiscal year 2002, as the average
passenger spend per flight increased from EUR3.60 to EUR3.63. Charter revenues
increased from EUR13.9 million to EUR14.6 million, or 5.3%. Revenues from
internet-related services, primarily commissions received from products sold on
websites linked to the Ryanair.com website, increased by more than four times,
from EUR1.0 million in fiscal year 2001 to EUR4.8 million in fiscal year 2002.
Operating Expenses. As a percentage of total revenues, Ryanair's operating
expenses decreased from 76.6% in the fiscal year ended March 31, 2001 to 73.9%
in the fiscal year ended March 31, 2002. In absolute terms, total operating
expenses increased 23.5%, from EUR373.4 million in the fiscal year ended March
31, 2001 to EUR461.1 million in the fiscal year ended March 31, 2002,
principally as a result of the increase in scheduled passenger volume and the
24.0% increase in number of sectors flown, which were reflected in increases in
fuel expenses, route and airport and handling charges and staff and maintenance
costs in absolute terms. Nonetheless, total operating expenses per ASM declined
by 9.9%, reflecting declines on a per ASM basis in all components other than
fuel costs.
The following table sets forth the amounts in euro cents and percentage
changes of Ryanair's operating expenses (on a per ASM basis) for the fiscal
years ended March 31, 2001 and March 31, 2002 under Irish GAAP:
59
Fiscal Year Fiscal Year
Ended Ended
March 31, 2002 March 31, 2001 % Change
Staff Costs...................................................... 1.29 1.38 -6.7%
Depreciation and Amortization.................................... 0.97 1.33 -27.2%
Fuel and Oil..................................................... 1.71 1.43 19.5%
Maintenance, Materials and Repairs............................... 0.43 0.45 -4.4%
Marketing and Distribution....................................... 0.20 0.48 -58.1%
Aircraft Rentals................................................. 0.07 0.16 -59.7%
Route Charges.................................................... 0.77 0.80 -4.5%
Airport and Handling Charges..................................... 1.40 1.49 -6.5%
Other Operating Expenses......................................... 0.74 0.87 -13.8%
Total Operating Expenses(a)...................................... 7.58 8.39 -9.9%
* For the purposes of calculating Operating Expenses per Available Seat Mile
(ASM), operating expenses include the costs of the Company's charter
operations.
** These data are calculated by dividing the relevant expense amount (as shown
in the Consolidated Financial Statements) by the number of ASMs in the
relevant year as shown in the table of "Selected Operating and Other Data"
in Item 3 and rounding to the nearest euro cent; the percentage change is
calculated on the basis of the relevant figures before rounding.
(a) Total Operating Expenses per ASM does not equal the Cost per ASM (CASM)
reported in the table of "Selected Operating and Other Data" in Item 3, as
the latter figure excludes Non-Charter Ancillary Costs, which were 0.54
euro cents and 0.50 euro cents per ASM in the fiscal years ended March 31,
2001 and 2002, respectively.
Staff Costs. Ryanair's staff costs, which consist primarily of salaries,
wages and benefits, decreased 6.7% on a per ASM basis, while in absolute terms,
these costs increased 27.8%, from EUR61.2 million in the fiscal year ended March
31, 2001 to EUR78.2 million in the fiscal year ended March 31, 2002, due to an
increase in the number of pilots employed, increased productivity payments to
staff reflecting the growth of the airline and the impact of increases in basic
pay granted to certain employees.
Depreciation and Amortization. Ryanair's depreciation and amortization per
ASM decreased by 27.2%, while in absolute terms these costs decreased slightly
from EUR59.2 million in the fiscal year ended March 31, 2001 to EUR59.0 million
in the fiscal year ended March 31, 2002.
Fuel and Oil. Ryanair's fuel and oil costs per ASM increased 19.5%,
although in absolute terms these costs increased 63.7%, from EUR63.5 million in
the fiscal year ended March 31, 2001 to EUR103.9 million in the fiscal year
ended March 31, 2002. The increase was principally due to the 24.0% increase in
sectors flown (resulting from the expansion of Ryanair's fleet), an increase in
average sector length reflecting the addition of 22 new routes and an increase
of approximately 34.3% in fuel prices (in euro terms) during this period. Fuel
and oil costs include both the direct cost of fuel, the cost of delivering fuel
to the aircraft and aircraft de-icing costs. The average fuel price paid by
Ryanair (calculated by dividing total scheduled fuel costs by the number of U.S.
gallons of fuel consumed) increased from EUR0.75 per U.S. gallon in the fiscal
year ended March 31, 2001 to EUR1.007 per U.S. gallon in the fiscal year ended
March 31, 2002.
Maintenance, Materials and Repairs. Ryanair's maintenance, materials and
repair expenses, which consist primarily of the cost of routine maintenance and
the overhaul of spare parts, decreased 4.4% on a per ASM basis, while in
absolute terms these expenses increased 30.9%, from EUR20.1 million in the
fiscal year ended March 31, 2001 to EUR26.4 million in the fiscal year ended
March 31, 2002. The increase was largely due to the increase in sectors flown
(resulting from the expansion of Ryanair's fleet), the increase in sector length
and increased line maintenance costs associated with the expansion of Ryanair's
line maintenance operation at the London (Stansted) base.
60
Marketing and Distribution Costs. Ryanair's marketing and distribution
costs per ASM decreased 58.1%, while in absolute terms these costs decreased
43.0%, from EUR21.5 million in the fiscal year ended March 31, 2001 to EUR12.4
million in the fiscal year ended March 31, 2002. The declines were primarily the
result of the increase in the level of reservations made directly through
Ryanair.com and elimination of commissions due to the cessation of travel agent
bookings. The effect of these factors was partially offset by increased
marketing and advertising expenses arising from the launch of 22 new routes and
the launch of two new bases at Brussels (Charleroi) and Frankfurt (Hahn).
Aircraft Rentals. Ryanair's aircraft rental expenses decreased 59.7% on a
per ASM basis, while in absolute terms these expenses decreased by 44.8% from
EUR7.3 million in the fiscal year ended March 31, 2001 to EUR4.0 million in the
fiscal year ended March 31, 2002. The declines reflected Ryanair's decreased
need for rental aircraft following the delivery of new aircraft during the
period.
Route and Airport and Handling Charges. Ryanair's route charges per ASM
decreased 4.5% in the fiscal year ended March 31, 2002, while airport and
handling charges per ASM decreased 6.5%. In absolute terms, route charges
increased 30.8%, from EUR35.7 million in the fiscal year ended March 31, 2001 to
EUR46.7 million in the fiscal year ended March 31, 2002, primarily as a result
of the 24.0% increase in sectors flown and the increase in average sector
length, as well as an increase in basic unit charges in some countries,
principally the U.K. In absolute terms, airport and handling charges increased
28.1%, from EUR66.3 million in the fiscal year ended March 31, 2001 to EUR84.9
million in the fiscal year ended March 31, 2002, reflecting the growth in
passenger volume and increased costs on certain existing routes, the effects of
which were offset in part by lower average costs on new routes to continental
Europe and at Ryanair's new bases.
Other Ancillary and Operating Expenses. Ryanair's other operating expenses,
including those applicable to the generation of ancillary revenues, decreased
13.8% on a per ASM basis in the fiscal year ended March 31, 2002, although in
absolute terms these costs increased by 18.1%, from EUR38.6 million in the
fiscal year ended March 31, 2001 to EUR45.6 million in the fiscal year ended
March 31, 2002. The decline on a per ASM basis reflected improved margins on
some new and existing products, as well as cost reductions realized in relation
to certain indirect costs.
Operating Profit. As a result of the factors described above, Ryanair's
operating profit as a percentage of total revenues increased from 23.4% in the
fiscal year ended March 31, 2001 to 26.1% in the fiscal year ended March 31,
2002. In absolute terms, operating profit increased 42.9%, from EUR114.0 million
in the fiscal year ended March 31, 2001 to EUR162.9 million in the fiscal year
ended March 31, 2002.
Interest Receivable and Similar Income. Ryanair's interest receivable and
similar income increased 40.1%, from EUR19.7 million in the fiscal year ended
March 31, 2001 to EUR27.5 million in the fiscal year ended March 31, 2002,
primarily reflecting higher average cash balances on hand due to the increase in
Ryanair's profitability and the receipt of net proceeds of EUR181.2 million from
the issuance and sale of 30 million new Ordinary Shares in the Regulation S
Offering conducted outside the United States in February 2002.
Interest Payable and Similar Charges. Ryanair's interest payable and
similar charges increased significantly, from EUR12.0 million in the fiscal year
ended March 31, 2001 to EUR19.6 million in the fiscal year ended March 31, 2002,
reflecting the increase in debt related to the acquisition of five new 737-800
aircraft. These costs are expected to continue to increase as Ryanair expands
its fleet.
61
Other Income. Ryanair's other income decreased slightly from EUR1.7 million
in the fiscal year ended March 31, 2001 to EUR1.5 million in the fiscal year
ended March 31, 2002, primarily reflecting lower foreign exchange gains due to
less favorable movements in the euro dollar exchange rate.
Taxation. The effective tax rate for the fiscal year ended March 31, 2002
was 13%, compared to 15% in the fiscal year ended March 31, 2001. The decline in
the effective tax rate reflects a reduction in the statutory rate of Irish
corporation tax, the positive impact of Ryanair.com (which benefits from a
reduced income tax rate) and the continued benefit of Ryanair's international
leasing and internet-related businesses. Profits from certain qualifying
activities at Ryanair.com are currently levied at an effective 10% rate in
Ireland. Ryanair.com will continue to be eligible for the 10% preferential tax
treatment until the scheduled expiration of its license in 2010. Ryanair
recorded an income tax provision of EUR22.0 million for the fiscal year ended
March 31, 2002, and an income tax provision of EUR18.9 million for the fiscal
year ended March 31, 2001.
QUARTERLY FLUCTUATIONS
The Company's results of operations have varied significantly from quarter
to quarter, and management expects these variations to continue. Among the
factors causing these variations are the airline industry's sensitivity to
general economic conditions and the seasonal nature of air travel. Historically,
Ryanair has experienced its lowest load factors and yields for the year in
January and February. As a result, the Company's operating revenues and profit
before taxation have generally been significantly lower in the last quarter of a
fiscal year ended March 31 than in the other quarters thereof.
U.S. GAAP RECONCILIATION
The Company's consolidated net income determined in accordance with U.S.
GAAP would have been EUR241.8 million, EUR155.5 million and EUR112.4 million,
for the fiscal years ended March 31, 2003, 2002 and 2001, respectively, as
compared with net income of EUR239.4 million, EUR150.4 million and EUR104.5
million, respectively, for the same periods, as determined under Irish GAAP.
The Company's total assets determined in accordance with U.S. GAAP would
have been EUR2,479.9 million, EUR1,896.7 million and EUR1,279.1 million at March
31, 2003, 2002 and 2001, respectively, as compared with EUR2,466.7 million,
EUR1,889.6 million and EUR1,277.3 million, respectively, under Irish GAAP.
Shareholders' equity determined in accordance with U.S. GAAP would have been
EUR1,177.2 million, EUR1,019.6 million and EUR674.4 million at March 31, 2003,
2002 and 2001, respectively, as compared with EUR1,241.7 million, EUR1,002.3
million and EUR669.9 million, respectively, under Irish GAAP. The main
differences affecting the determination of shareholders' equity at March 31,
2003 include the different treatment of derivative financial instruments,
pension costs, capitalized interest on aircraft acquisitions and employment
grants received from Forbairt under U.S. GAAP. For a discussion of the principal
differences between Irish GAAP and U.S. GAAP as they relate to the Group's
consolidated net income and shareholders' equity, see Note 30 to the
Consolidated Financial Statements included in Item 18.
RECENTLY ISSUED ACCOUNTING STANDARDS
Irish GAAP
Ryanair has adopted the transitional provisions of Financial Reporting
Standard 17 "Retirement Benefits," and the full provisions of Financial
Reporting Standards 18 and 19, "Accounting Policies" and "Deferred Tax,"
respectively, in preparing the Consolidated Financial Statements for the fiscal
year ended March 31, 2003 included in Item 18. The adoption of these financial
reporting standards did not have any impact on Ryanair's results of operations
for the period.
62
U.S. GAAP
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which revises
the accounting for purchased goodwill and other intangible assets. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001, with earlier
adoption permitted. Under SFAS No. 142, purchased goodwill and intangible assets
with indefinite lives are no longer amortized, but are instead tested for
impairment at least annually. Intangible assets with indefinite lives are tested
for impairment by comparing the fair value of the intangible asset with its
carrying value. Any excess of carrying value over fair value is recognized as an
impairment loss. SFAS No. 142 requires a two-step impairment test for goodwill.
The first step is to identify reporting units within the business and compare
the carrying amount of the reporting unit's assets to the fair value of the
reporting unit. If the carrying amount exceeds the fair value, then the second
step is required to be completed, which involves the fair value of the reporting
unit being allocated to each asset and liability with the excess being implied
goodwill. The impairment loss is the amount by which the recorded goodwill
exceeds the implied goodwill. A company applying SFAS No. 142 is required to
complete a "transitional" impairment test for goodwill as of the beginning of
the fiscal year in which the statement is adopted. The adoption of this standard
did not have a material impact on Ryanair's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"), addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The statement requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002, with early adoption encouraged.
The adoption of this standard did not have a material impact on Ryanair's
financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supercedes SFAS No. 121. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
Under SFAS No. 144, long lived assets to be held and used should be reviewed for
impairment using a two-step approach. The first step is to assess whether the
carrying amount of a long-lived asset is recoverable from its undiscounted cash
flows. If the undiscounted cash flows of the long- lived asset are less than its
carrying value, then the second step is required. The second step requires the
recognition of an impairment loss, measured as the difference between the
carrying amount and fair value of the asset. For long-lived assets to be
disposed of by sale, the statement requires that the long-lived asset be
classified as held for sale at the lower of its carrying amount or fair value
less cost to sell and to cease depreciation. The adoption of this standard did
not have a material impact on Ryanair's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. The adoption of this standard
did not have a material impact on Ryanair's financial statements.
63
In June 2002, the FASB issued SFAS No. 146 "Accounting for the Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), which nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a
liability for costs associated with exit or disposal activities first be
recognized when the liability is irrevocably incurred rather than at the date of
management's commitment to an exit or disposal plan. In addition, SFAS No. 146
stipulates that the liability be measured at fair value and adjusted for changes
in estimated cash flows. The provisions of the new standard are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 has not had a material impact on Ryanair's
financial statements.
In November 2002, the FASB issued FIN 45. This interpretation addresses the
disclosure to be made by a guarantor in its financial statements about its
obligation under guarantees. FIN 45 also requires the guarantor to recognize a
liability for the non-contingent component of the guarantee, that is, the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The disclosure requirements in this
Interpretation are effective for financial statements of interim and annual
periods ending after December 15, 2002. The recognition and measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal year
end. The adoption of this standard has not had a material impact on the
financial statements of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of FASB statement No.
123" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Ryanair has adopted the disclosure requirements of SFAS No. 148 during
the 2003 fiscal year. Ryanair has opted to continue to account for stock options
in accordance with APB 25 as permitted by this standard.
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation
of Variable Interest Entities" ("FIN 46"), which interprets Accounting Research
Bulletin (ARB) No. 51, "Consolidated Financial Statements". FIN 46 clarifies the
application of ARB No. 51 with respect to the consolidation of certain entities
(variable interest entities - "VIEs") to which the usual condition for
consolidation described in ARB No. 51 does not apply because the controlling
financial interest in VIEs may be achieved through arrangements that do not
involve voting interests. In addition, FIN 46 requires the primary beneficiary
of VIEs and the holder of a significant variable interest in VIEs to disclose
certain information relating to their involvement with the VIEs. The provisions
of FIN 46 apply immediately to VIEs created after January 31, 2003 and to VIEs
in which an enterprise obtains an interest after that date. FIN 46 applies to
the first fiscal year beginning after June 15, 2003, to VIEs in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
Ryanair does not expect that the adoption of this standard will have a material
impact on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of non-public
utilities. Ryanair does not expect the adoption of SFAS No. 150 to have a
material impact on its financial statements.
64
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company finances its working capital requirements through a
combination of cash generated from operations and bank loans for the acquisition
of aircraft. The Company had cash and liquid resources under Irish GAAP at March
31, 2001, 2002 and 2003 of EUR626.7 million, EUR899.3 million and EUR1,060.2
million, respectively, with the increase at March 31, 2003 primarily reflecting
the growth in profits, offset in part by cash used to fund the purchase of
tangible assets. During the year, the Company funded its EUR469.9 million in
purchases of tangible assets with cash generated from operations and EUR331.5
million in loans. Cash and liquid resources under Irish GAAP of EUR1,060.2
million at March 31, 2003 included EUR120.9 million held on deposit as
collateral for certain derivative financial instruments entered into by the
Company. This balance was nil in fiscal years 2002 and 2001.
The Company's net cash inflow from operating activities in fiscal year
2001, fiscal year 2002 and fiscal year 2003 totaled EUR229.8 million, EUR309.1
million and EUR351.0 million, respectively. During the last three fiscal years,
Ryanair's primary cash requirements have been for operating expenses, additional
aircraft, advance payments in respect of the new fleet of Boeing 737-800s and
related flight equipment, payments on related indebtedness and payments of
corporation tax. Equity offerings and cash generated from operations have been
the principal sources for these cash requirements, supplemented primarily by
aircraft related bank loans.
The Company's net cash inflow from returns on investments and servicing of
finance in fiscal year 2001, fiscal year 2002 and fiscal year 2003 totaled
EUR5.6 million, EUR10.4 million and EUR0.6 million, respectively, primarily
reflecting interest earned by the Company on its cash balances, as offset in
part by interest payments on long-term aircraft purchase loans. Interest income
increased from EUR27.4 million in fiscal year 2002 to EUR31.4 million (in line
with the increase in cash and liquid resources during the year) in fiscal year
2003. However, the impact of this increase was more than offset by an increase
in interest payable from EUR19.3 million in fiscal year 2002 to EUR30.9 million
in fiscal year 2003 as a result of the Company having raised additional bank
loans to fund the purchase of 13 new Boeing 737-800 aircraft during the year.
The Company's net cash inflow from financing and management of liquid
resources in fiscal year 2001, fiscal year 2002 and fiscal year 2003 totaled
EUR174.2 million, EUR78.5 million and EUR120.4 million, respectively,
principally reflecting the increase in long-term aircraft-related debt and the
issuance of new Ordinary Shares in the Regulation S Offerings in 2001 and 2002.
Under U.S. GAAP, the Company's cash and cash equivalents at March 31, 2001,
2002, and 2003 were EUR389.1 million, EUR482.5 million and EUR537.5 million,
respectively. Under U.S. GAAP, the cash inflows from operating activities in
fiscal years 2001, 2002, and 2003 were EUR221.6 million, EUR314.4 million and
EUR348.2 million, respectively; reflecting the strong growth in the Company's
profitability during the period. The cash outflows from investing activities in
fiscal years 2001, 2002 and 2003 were EUR360.1 million, EUR551.1 million and
EUR454.9 million respectively; which is predominantly made up of payments for
aircraft deliveries and advance payments on future deliveries. The cash inflows
from financing activities were EUR406.1 million, EUR330.2 million and EUR282.6
million, respectively. See Note 30 to the Consolidated Financial Statements
included in Item 18.
65
In each of fiscal year 2001 and fiscal year 2002, the Company made a
Regulation S Share offering, which contributed EUR123.0 million and EUR181.2
million, respectively, to cash flow in those years. The majority of other
inflows from financing activities during the period arose from the drawdown of
debt.
Capital Resources. Ryanair has generally been able to generate sufficient
funds from operations to meet its non-aircraft acquisition related working
capital requirements. A significant portion of the Company's capital
expenditures (consisting of purchases of new Boeing 737-800 aircraft and related
equipment) have been funded through drawdowns under borrowing facilities
provided by international financial institutions on the basis of guarantees
issued by the Export-Import Bank of the United States ("ExIm"), as described in
more detail below. Ryanair's long-term debt (including current maturities)
totaled EUR402.8 million at March 31, 2001, EUR550.5 million at March 31, 2002
and EUR837.2 million at March 31, 2003, with the increase being primarily
attributable to the financing of new aircraft. The ExIm guarantees are secured
with a first fixed mortgage on the delivered aircraft, and the terms of each of
the facilities are substantially similar, with borrowings maturing twelve years
from the date they are drawn down. At March 31, 2003, Ryanair had taken delivery
of 33 Boeing 737-800 aircraft, the purchase of which was funded in part by
ExIm-guaranteed financing, and the Company took delivery of an additional eight
such aircraft (bringing the total to 41) during the period between March 31 and
September 30, 2003.
The following table summarizes the maturity profile of Ryanair's long-term
debt (including current maturities) as of March 31, 2003; additional details
about both the ExIm guaranteed debt and the simulator debt are presented under
"Capital Expenditures" below. For more information on the maturity profile of
debt and currency structure of the Company's borrowings, see Notes 9 and 13
through 16 to the Consolidated Financial Statements included in Item 18.
Total Long-Term ExIm Guaranteed Debt Simulator
Debt Debt
(EUR in thousands)
Repayments fall due as follows:
Within one year 63,291 62,292 999
Between one and two years 66,480 65,481 999
Between two and five years 220,869 217,872 2,997
After five years 486,585 482,588 3,997
Total long-term debt 837,225 828,233 8,992
Weighted average interest rate 5.28% 5.81%
Management believes that the working capital available to the Company is
sufficient for its present requirements and will be sufficient to meet its
anticipated requirements for capital expenditures and other cash requirements
for fiscal year 2004.
Capital Expenditures. The Company's net cash outflows for capital
expenditures in fiscal year 2001, fiscal year 2002 and fiscal year 2003 were
EUR356.2 million, EUR372.0 million and EUR469.8 million, respectively. Ryanair
has funded its acquisition of aircraft and related equipment primarily through
borrowings under the ExIm guaranteed bank facilities described herein, net
proceeds from equity offerings aggregating EUR304.2 million in the period from
fiscal year 2001 through fiscal year 2003 and funds generated from operations.
The following table summarizes the delivery schedule for each of the Boeing
737-800 aircraft Ryanair has purchased, or is required to purchase, under the
1998 Boeing contract, the 2002 Boeing contract and the 2003 supplemental
agreement. These 737-800s are identical in all significant respects, having 189
seats and the same cockpit and engine configuration. The table also provides
details as to the number of firm commitment and option aircraft covered by each
of the agreements and the current status of the existing options, as well as the
"Basic Price" (or gross price) for each of these aircraft, including certain
equipment purchased and fitted by Boeing on the Company's behalf. The Basic
Price is subject to increase to take into account an "Escalation Factor"
reflecting the changes in the U.S. Employment Cost and Producer Price Indices
and subject to decrease to take account of certain concessions granted to the
Company by Boeing pursuant to the terms of the contracts. These concessions take
the form of credit memoranda, which the Company may apply towards the purchase
of goods and services from Boeing or towards certain payments, other than
advance payments, in respect of the purchase of the aircraft. Boeing and CFM
International S.A. (the manufacturer of the CFM56-7B engines that power the
737-800 aircraft) have also agreed to give the Company certain allowances for
promotional and other activities, as well as providing other goods and services
to the Company on concessionary terms.
66
Aircraft Delivery Schedule
1998 1998 2002
Deliveries and Boeing Boeing Boeing 2002 Boeing Total
Scheduled Deliveries Contract Contract Contract Contract 2003 No. of
in the Fiscal Year Firm Option Firm Option Supplemental 737-800
ending March 31, Orders Aircraft Orders Aircraft Agreement Aircraft
1999 1 - - - - 1
2000 4 - - - - 4
2001 10 - - - - 10
2002 5 - - - - 5
2003 5 3 2 3 - 13
Total as of
March 31, 2003 25 3 2 3 - 33
2004 - - 18 - - 18
2005 - - 13 - 14 27
2006 - - 19 - 8 27
2007 - - 19 - - 19
2008 - - 19 - - 19
2009 - - 10 - - 10
Expected Total as of
March 31, 2009 25 3 100 3 22 153
Options Granted - 20 - 50 96 166
Options Exercised - (3) - (21) - (24)
Options Cancelled - (17) - - - (17)
Total as of March - - - 29 96 125
31, 2003
Basic Price per
aircraft (unadjusted US$46.632m US$46.632m US$51.851m US$51.851m US$51.855m
for escalation factor
or concessions)
Management believes that the purchase of the additional Boeing 737-800
aircraft will allow Ryanair to continue to grow over the next six years and that
the significant size of the orders has allowed Ryanair to obtain favorable
purchase terms, guaranteed deliveries and a standard configuration for all of
the aircraft. The purchase is also expected to allow Ryanair to phase out its
remaining 16 Boeing 737-200s, which are an average 22 years old, over a two-year
period ending in December 2005. Ryanair's fleet is thus expected to consist
entirely of Boeing 737-800 "next generation" aircraft by December 2005, except
for the six Boeing 737-300s on lease from ILFC which the Company expects to
return to ILFC by October 2007. The short-term leases of four Boeing 737-800's
and one 737-200 will cease by the end of March 2004.
67
As can be seen from the table above, delivery of the 125 Boeing 737-800s
already ordered under the 2002 Boeing contract and the 2003 supplemental
agreement will enable the Company to increase the size of its summer schedule
fleet by between 10 and 27 additional aircraft each fiscal year during the
period from 2004 to 2009, significantly increasing the size of the fleet, which
is expected to total 153 at the end of that period. If traffic growth proves to
be greater than can be satisfied by these new aircraft, the Company may exercise
its rights to acquire some of the 125 option aircraft to cater to this demand.
The Company's purchase of all of the 41 Boeing 737-800 aircraft delivered
to date has been funded in part by bank financing in the form of loans under
facilities supported by a loan guarantee from ExIm. At March 31, 2003, ABN AMRO
Bank N.V. ("ABN") and The Royal Bank of Scotland ("RBS") had provided financing
under these ExIm-guaranteed loan facilities for 28 and five aircraft,
respectively. RBS provided financing under such a facility for an additional
three aircraft delivered in April 2003 and BNP Paribas ("BNP") provided
financing under such a facility for an additional five aircraft delivered in
September 2003. Each of these facilities takes essentially the same form and is
based on the documentation initially developed for the ABN facility, which
follows standard market forms for this type of financing. On the basis of an
ExIm guarantee with regard to the financing of up to 85% of the eligible U.S.
and foreign content represented in the net purchase price of the relevant
aircraft, the financial institution enters into a commitment letter with the
Company to provide financing for a specified number of aircraft benefiting from
such a guarantee; loans are then drawn down as the aircraft are delivered and
payments to Boeing become due. Each of the loans under the facilities is on
substantially similar terms, having a maturity of twelve years from the drawdown
date and being secured by a first priority mortgage in favor of a security
trustee on behalf of ExIm. The initial loans under the ABN facility are
denominated in dollars and bear interest at a floating rate linked to U.S.
dollar LIBOR, while subsequent loans under that facility, as well as all of
those under the RBS and BNP facilities, are denominated in euro and bear
interest at floating rates linked to EURIBOR.
Through the use of cross currency swaps, Ryanair has effectively converted
its dollar-denominated debt under the ABN facility into an approximately
equivalent amount (at current exchange rates) of euro-denominated debt. Through
the use of interest rate swaps, Ryanair has effectively converted almost all of
its floating rate debt under each of the facilities into fixed rate debt. Loans
for approximately 4% of aircraft acquired under the above facilities are not
covered by such swaps and have therefore remained at floating rates linked to
EURIBOR; the interest rate exposure from these loans is hedged by a similar
amount of cash on deposit at floating rates. The net result is that Ryanair has
effectively drawn down fixed rate euro-denominated debt with a maturity of
twelve years in respect of more than 96% of its financing for the 41 Boeing
737-800 aircraft delivered to date. The table below illustrates the effect of
the swap transactions (each of which is with an established international
financial counterparty) on the profile of Ryanair's aircraft-related debt at
March 31, 2003 (prior to the drawdowns for the last three aircraft financed
under the RBS facility and all five aircraft funded under the BNP facility). See
"Item 11. Quantitative and Qualitative Disclosures About Market Risk--Interest
Rate Exposure and Hedging" for additional details on the Company's hedging
transactions.
Effective Borrowing Profile of Aircraft-Related Debt
Effective Borrowing
Borrowing Profile Cross Currency Profile
Before Swaps Swaps Interest Rate Swaps After Swaps
US$ EUR US$ EUR EUR EUR Effective Cumulative
Fixed Rate Floating Fixed Fixed Notional Notional Net EUR Average
Loans Rate Rate Rate Floating Fixed Fixed Fixed
At March 31, Loans Deposits Loans Rate Rate Rate Interest Rate
2003 Deposits Loans Loans
US$'000 EUR'000 US$'000 EUR'000 EUR'000 EUR'000 EUR'000 %
Aircraft 544,261 246,786 (544,261) 581,477 (246,786) 246,786 828,263 5.28%
Facilities
68
Ryanair's ability to obtain additional loans pursuant to each of the
facilities in order to finance a portion of the purchase price of 737-800
aircraft to be delivered in the future is subject to the issuance of further
commitments by the banks and satisfaction of various conditions contained in the
documentation for the facilities. These conditions include, among other things,
the execution of satisfactory documentation, the requirement that Ryanair
perform all of its obligations under the Boeing agreements and provide
satisfactory security interests in the aircraft (and related assets) in favor of
the lenders and ExIm, and that Ryanair does not suffer a material adverse change
in its conditions or prospects (financial or otherwise).
ExIm's policy on facilities of this type is to issue a binding final
commitment only six months prior to delivery of each aircraft being financed.
ExIm has already issued final binding commitments and related guarantees with
respect to the 41 737-800 aircraft delivered between 1999 and September 2003.
ExIm's final binding commitment is also subject to certain conditions set forth
in the documentation for facilities and the ExIm guarantee. These conditions
include, among other things, the execution of satisfactory documentation, the
creation and maintenance of the lease and related arrangements described below,
that Ryanair provide satisfactory security interest in the aircraft (and related
assets) in favor of ExIm and the lenders, and that the subject aircraft be
registered in Ireland, be covered by adequate insurance and maintained in a
manner acceptable to ExIm. Ryanair expects that any future commitments or
guarantees issued by ExIm will contain similar conditions.
The terms of the facilities and the ExIm guarantee require that Ryanair pay
certain fees in connection with such financings. In particular, these fees
include arrangement fees paid to the facility arranger, and a commitment fee
based on the unutilized and uncancelled portion of the guarantee commencing 60
days from date of issuance of the guarantee and payable semi-annually in
arrears. An exposure fee for the issuance of the guarantee on the date of
delivery is also payable to ExIm (based on the amount of the guarantee).
Ryanair's payment of the 3% exposure fee to ExIm of the amount of the loan
provided is eligible for financing under the facilities. All such fees are
capitalized and amortized over the life of the aircraft. Ryanair anticipates
that similar fees will be incurred as additional aircraft are delivered and
financed.
As part of its ExIm guarantee-based financing of the Boeing 737-800's,
Ryanair has entered into certain lease agreements and related arrangements.
Pursuant to these arrangements, legal title of each of the 41 aircraft delivered
to date rests with a number of United States special purpose vehicles (the
"SPV's") in which Ryanair has no equity or other interest. The SPV's are the
borrower of record under the loans made or to be made under the facilities, with
all of its obligations under the loans being guaranteed by Ryanair Holdings plc.
The shares of the SPV's (which are owned by an unrelated charitable association)
are in turn pledged to a security trustee in favor of ExIm and the lenders.
Ryanair Limited operates each of the aircraft pursuant to a finance lease it has
entered into with the SPV's, the terms of which mirror those of the relevant
loan under the facilities. Ryanair has the right to purchase the aircraft upon
termination of the lease for a nominal amount. Pursuant to this arrangement,
Ryanair is considered to own the aircraft for accounting purposes under both
Irish GAAP and U.S. GAAP. Ryanair does not engage in the use of special purpose
entities for off-balance sheet financing or any other purpose which results in
assets or liabilities not being reflected in Ryanair's consolidated financial
statements.
69
At this time, Ryanair does not have firm commitments in place from any of
the banks to provide additional financing under their respective facilities with
respect to future aircraft deliveries. Ryanair currently expects to finance the
remaining 112 737-800 aircraft it is obligated to purchase under the 2002 Boeing
contract and the 2003 supplemental agreement and any option aircraft it acquires
under those agreements through the use of similar financing arrangements based
on an ExIm guarantee, bank debt provided by commercial banks, operating and
finance leases via sale and leaseback transactions, Enhanced Equipment Trust
Certificates and cash flow generated from the Company's operations. At March 31,
2003, the Company had received a preliminary commitment from ExIm in relation to
the first 33 aircraft which were to be delivered over the period from December
2002 to March 2005. The terms of this preliminary commitment are the same as
those outlined above in relation to the guarantees already issued. Thirteen of
these preliminary commitments have already been converted into final commitments
by ExIm for deliveries during the period from April 2003 to September 2003 and
were used to support the financing of those deliveries under the RBS and BNP
facilities. ExIm's preliminary commitment with respect to the remaining 20
aircraft can be used in support of financing of future deliveries. Additionally,
Ryanair has received sale and operating leaseback proposals for a further ten of
the aircraft.
It is expected that any such ExIm guarantee-based financing will also be
subject to terms and conditions similar to those described above. However, no
assurance can be given that such financing will be available to Ryanair, or that
the terms of any such financing will be as advantageous to the Company as those
available at the time of the facilities. Any inability of the Company to obtain
financing for the new aircraft on advantageous terms could have a material
adverse effect on its business, results of operation and financial condition.
In connection with its expected financing of additional 737-800 aircraft to
be delivered under the 2002 Boeing Contract and the 2003 supplemental agreement
after March 31, 2003, Ryanair has entered into a series of forward-starting
12-year interest rate swaps. These swaps have the effect of capping the
effective interest rate in euro terms on an estimated total of EUR875 million in
borrowings commencing between April 2003 and March 2005 and terminating between
April 2015 and December 2017 (with the starting dates corresponding to the
scheduled delivery dates for the aircraft) at interest rates from 5.63% to
5.75%. See Note 14 to the Consolidated Financial Statements included in Item 18
and "Item 11. Quantitative and Qualitative Disclosures About Market Risk -
Interest Rate Risk Exposure and Hedging." The effectiveness of these hedges will
be compromised to the extent that Company is unable to obtain financing for its
aircraft acquisition program.
In 2000, Ryanair purchased a Boeing 737-800 flight simulator from CAE
Electronics Limited of Quebec, Canada ("CAE"). The simulator is being used for
pilot training purposes. The gross purchase price of the simulator and the
necessary software was approximately US$10 million, not taking into account
certain price concessions provided by the seller in the form of credit
memoranda. The Company financed this expenditure with a 10-year euro-denominated
loan provided by the Export Development Corporation of Canada for up to 85% of
the net purchase price, with the remainder provided by cash flows from
operations.
In 2002, Ryanair entered into a contract to purchase two additional 737-800
flight simulators from CAE. The first of these simulators is scheduled for
delivery in the fourth quarter of 2003 and the second simulator is expected to
be delivered in 2005. The CAE contract also provides Ryanair with an option to
purchase another such simulator for delivery in 2007. The gross price of each
simulator is approximately US$10.3 million, not taking into account certain
price concessions provided by the seller in the form of credit memoranda. The
Company anticipates financing these simulators through a combination of bank
debt provided by commercial banks and cash flow from its operations.
Contractual Obligations. The following table sets forth the contractual
obligations and commercial commitments of the Company with definitive payment
terms which will require significant cash outlays in the future, as of March 31,
2003. These obligations primarily relate to Ryanair's aircraft purchase and
related financing obligations, which are described in more detail above. The
amounts listed under "Purchase Obligations" in the table are calculated by
multiplying the number of aircraft the Company is obligated to purchase under
its current agreements with Boeing during the relevant period by the "Base
Price" for each aircraft pursuant to the relevant contract, with the
dollar-denominated Base Price being converted into euro at an exchange rate of
US$1.1472 = EUR1.00. The relevant amounts therefore exclude the effect of the
price concessions granted to Ryanair by Boeing and CFM, as well as any
application of the Escalation Factor. As a result, Ryanair's actual expenditures
for aircraft during the relevant periods will be lower than the amounts listed
under "Purchase Obligations" in the table.
70
Obligations due by Period
Contractual Less than
Obligations Total 1 year 1-2 years 2-5 years After 5 years
(EUR in thousands)
Long term Debt 837,225 63,291 66,480 220,869 486,585
Purchase 5,423,822 813,562 1,220,391 2,937,890 451,979
Obligations
Operating 48,267 20,462 9,563 18,242 -
Leases
Engine 7,602 4,377 3,225 - -
Maintenance
Total 6,316,916 901,692 1,299,659 3,177,001 938,564
Contractual
Obligations
The Company also acquired operating leases representing total obligations
of EUR48.3 million, assuming the exercise of an early termination option, as
part of the acquisition of Buzz in April 2003, following the end of fiscal year
2003.
71
TREND INFORMATION
For information on Ryanair's results of operations in the quarter ended
June 30, 2003, see "-Recent Operating Results" above. For information on the
principal trends and uncertainties affecting the Company's results of operations
and financial condition, see "Item 3. Key Information-Risk Factors" and
"-Business Overview," "-Results of Operations" and "-Liquidity and Capital
Resources" above.
INFLATION
Inflation has not had a significant effect on the Company's results of
operations and financial condition during the three years ended March 31, 2003.
Item 6. Directors, Senior Management and Employees
Ryanair Holdings was established in 1996 as a holding company for Ryanair.
The management of Ryanair Holdings and Ryanair are integrated, with the two
companies having the same Board of Directors and all executive officers of
Ryanair Holdings being executive officers of Ryanair.
DIRECTORS
The following table sets forth certain information concerning the
Directors of Ryanair Holdings during fiscal year 2003:
Name Age Position
David Bonderman (a).............................. 60 Chairman of the Board and Director
Raymond MacSharry(b)(c).......................... 64 Director
Michael O'Leary(a)(d)............................ 42 Director and Chief Executive
James R. Osborne(b)(c)(a)........................ 54 Director
Declan F. Ryan(a)(e)............................. 39 Director
T. Anthony Ryan.................................. 67 Director
Richard P. Schifter(f)........................... 49 Director
Michael Horgan(h)................................ 67 Director
Kyran McLaughlin(b)(c)........................... 59 Director
Paolo Pietrogrande............................... 46 Director
Emmanuel Faber (g)............................... 39 Director
Klaus Kirchberger (g)............................ 45 Director
(a) Member of the Executive Committee.
(b) Member of the Remuneration Committee.
(c) Member of the Audit Committee.
(d) Mr. O'Leary is also the chief executive officer of Ryanair Holdings
and Ryanair Limited. None of the other Directors are
executive officers of Ryanair Holdings or Ryanair Limited.
(e) Resigned from the Board of Directors on June 24, 2003.
(f) Did not stand for re-election at the shareholders' annual general
meeting on September 24, 2003.
(g) Emmanuel Faber and Klaus Kirchberger were appointed to the Board of
Directors on September 25, 2002; and were approved by
the Company's shareholders at the annual general meeting held on
September 24, 2003.
(h) Member of the Air Safety Committee.
David Bonderman has served as a Director of Ryanair Holdings and Ryanair
Limited since August 23, 1996 and as Chairman of the Board of Ryanair Holdings
and Ryanair Limited since December 1996. Mr. Bonderman is a director and officer
of 1996 Air G.P., Inc., the general partner Irish Air GenPar, and founder and
Principal of Texas Pacific Group ("TPG"), which organized Irish Air, L.P. and
Irish Air GenPar, L.P. Prior to forming TPG, Mr. Bonderman was Chief Operating
Officer and Chief Investment Officer of Keystone Inc., the personal investment
vehicle of Texas-based investor Robert M. Bass. Prior to joining Keystone Inc.
in 1983, Mr. Bonderman was a partner in the law firm of Arnold & Porter in
Washington, D.C. Mr. Bonderman serves on the Board of Directors of ProQuest
Company, formerly Bell & Howell, Inc., Continental Airlines, Inc. (where he
formerly served as Chairman), Co-Star Group, Inc., Denbury Resources, Inc.,
Ducati Motor Holdings S.p.A., J. Crew Group, Inc., Korea First Bank, Magellan
Health Services, Inc., ON Semiconductor Corporation, Oxford Health Plans, Inc.,
Paradyne Networks, Inc. and Washington Mutual, Inc. Mr. Bonderman also serves in
general partner advisory board roles for Air Partners III, LLC, Aqua
International, Newbridge Asia Partners, Newbridge Latin America and TPG
Ventures, all of which are affiliated with Texas Pacific Group.
72
Raymond MacSharry has served as a Director of Ryanair Holdings since August
22, 1996, and as a Director of Ryanair Limited since February 11, 1993. From
1993 to 1995, Mr. MacSharry served as Chairman of the Board of Ryanair Limited.
From 1993 to 1996 and from April 1997 to March 2000, Mr. MacSharry served as a
consultant to Ryanair. From 1989 to 1993, Mr. MacSharry served as the European
Commissioner for Agriculture. Prior to his service on the European Commission,
Mr. MacSharry served in the Irish Parliament for over 20 years and was the
Minister for Finance of Ireland in 1982 and from 1987 to 1988. Mr. MacSharry
currently serves as a member of the Court of the Bank of Ireland, and as the
non-executive chairman of London City Airport.
Michael O'Leary has served as a Director of Ryanair Holdings since July 2,
1996 and as a Director of Ryanair Limited since November 25, 1988. Mr. O'Leary
was the Deputy Chief Executive of Ryanair Limited from 1991 to May 1993 and
Chief Operating Officer from June 1993 to December 1993, and Chief Executive
from January 1, 1994. Mr. O'Leary was appointed the Chief Executive of Ryanair
Holdings on April 21, 1997.
James R. Osborne has served as a Director of Ryanair Holdings since August
22, 1996, as a Director of Ryanair Limited since April 12, 1995. Mr. Osborne was
the managing partner of the law firm of A & L Goodbody Solicitors, Irish counsel
to the Company, from May 1982 to April 30, 1994 and served as a consultant to
the firm from May 1, 1994 to March 2000. Mr. Osborne also serves on the Board of
Directors of a number of Irish private companies.
Declan F. Ryan has served as a Director of Ryanair Holdings since August
22, 1996 and as a Director of Ryanair Limited since January 29, 1985. Mr. Ryan
held a number of executive positions at Ryanair beginning in 1986 and from April
1993 to March 1996 had executive responsibility for aircraft procurement and
finance. Mr. Ryan no longer holds an executive position at Ryanair and currently
operates a private investment company, Irelandia Investments Limited. Mr. Ryan
is the son of T.A. Ryan and the brother of Cathal Ryan (a former Director). Mr.
Ryan resigned as a Director of Ryanair Holdings as of June 24, 2003.
T. Anthony Ryan has served as a Director of Ryanair Holdings since July 2,
1996 and as a Director of Ryanair Limited since April 12, 1995. Dr. Ryan served
as Chairman of the Board of Ryanair Holdings from August 23, 1996 until December
1996 and as Chairman of the Board of Ryanair Limited from January 1996 until
December 1996. Dr. Ryan was one of the founders in 1975 of GPA Group plc
("GPA"), an operating lessor of commercial aircraft, and served as Chairman of
GPA from 1985 to 1993. Following a restructuring of GPA involving General
Electric Capital Corporation ("GECC") in 1993, Dr. Ryan served as Executive
Chairman of, and subsequently as a consultant to, GE Capital Aviation Services,
Limited, a company established by GECC to manage the aircraft assets of GPA,
from 1993 to 1996.
Richard P. Schifter has served as a Director of Ryanair Holdings and
Ryanair Limited since August 23, 1996. Mr. Schifter is a director of Holdings
Corp. and a principal of Texas Pacific Group. Mr. Schifter did not stand for
re-election as a Director at the annual general meeting held on September 24,
2003.
Michael Horgan has served as a director of Ryanair Holdings since January
12, 2001. A former Chief Pilot of Aer Lingus, he is consultant to a number of
international airlines, civil aviation authorities and the European Commission.
Mr. Horgan chairs the Air Safety Committee of the Board.
Kyran McLaughlin has served as a director of Ryanair Holdings since January
12, 2001. Mr. McLaughlin is Head of Equities at Davy Stockbrokers. Mr.
McLaughlin advised Ryanair during its initial flotation on the Dublin and NASDAQ
stock markets in 1997. Mr. McLaughlin is also a director of Elan Corporation plc
and he serves as a director of a number of Irish private companies.
73
Paolo Pietrogrande has served as a director of Ryanair Holdings since
January 12, 2001. Mr. Pietrogrande is a former Chief Executive Officer of Enel
GreenPower S.p.A. (a subsidiary of Enel S.p.A). He is also a member of the Board
of Directors of Ducati Motor Holding S.p.A.
Emmanuel Faber has served as a director of Ryanair Holdings since September
25, 2002,and currently serves as Chief Financial Officer and Executive Vice
President of Groupe Danone and was elected a director of the board of Groupe
Danone in 2002. Mr. Faber is also a director of Legris Industries. Prior to his
current appointment, he was head of the Mergers and Acquisitions and the
Corporate Strategy department of Groupe Danone. Between 1993 and 1997, he served
as a director and Chief Financial Officer of Legris Industries, a French public
company specializing in mechanical engineering. From 1989 to 1993, Mr. Faber
held a number of senior positions in the Corporate Finance department of Barings
Bank.
Klaus Kirchberger has served as director of Ryanair Holdings since
September 25, 2002. He has been Chief Executive Officer of Thurn und Taxis
Group, the asset management holding of Thurn und Taxis family in Regensburg,
since August 2002, and a director of that company since 1997. Prior to serving
as CEO, Mr. Kirchberger was the Head of the Controlling and Tax department of
Thurn und Taxis. Between 1990 and 1994, he was a Senior Manager at
Pricewaterhouse Coopers in Munich. He also held senior management positions at
IKB Industriebank AG, Munich and is a qualified German lawyer and auditor. Mr.
Kirchberger is also a non-executive director of DIBAG AG, Monachia AG, Emprise
Management Consulting AG and TTL Information Technology AG, all of which are
German listed companies.
The Board of Directors has established a number of committees, including the
following:
Executive Committee. The Board of Directors established the Executive
Committee in August 1996. The Executive Committee can exercise the powers
exercisable by the full Board of Directors in circumstances where action by the
Board of Directors is required and it is impracticable to convene a meeting of
the full Board of Directors. Messrs. O'Leary, Bonderman and Osborne are the
members of the Executive Committee.
Remuneration Committee. The Board of Directors established the Remuneration
Committee in September 1996 to have authority to determine the remuneration of
senior executives of Ryanair Holdings and to administer the Ryanair Holdings
Stock Option Plan. Messrs. MacSharry, McLaughlin and Osborne are the members of
the Remuneration Committee.
Audit Committee. The Board of Directors established the Audit Committee in
September 1996 to make recommendations concerning the engagement of independent
chartered accountants; to review with the accountants the plans for and scope of
the audit, the audit procedures to be utilized and the results of the audit; to
approve the professional services provided by the accountants; to review the
independence of the accountants; and to review the adequacy and effectiveness of
the Company's internal accounting controls. Messrs. Osborne, McLaughlin and
MacSharry are the members of the Audit Committee.
Nomination Committee. The Board of Directors established the Nomination
Committee in May 1999 to make recommendations to the full Board of Directors
concerning the selection of individuals to serve as executive and non-executive
Directors and to make proposals to the Board of Directors. Messrs. Osborne and
McLaughlin are the members of the Nomination Committee.
74
Air Safety Committee. The Board of Directors established the Air Safety
Committee in March 1997 to review and discuss air safety and related issues. The
Air Safety Committee reports to the full Board of Directors each quarter. The
Air Safety Committee is comprised of the following executive officers of
Ryanair: Messrs. Conway, Hickey, O'Leary and O'Brien, and director Michael
Horgan (chairperson).
Action and Powers of Board of Directors
The Board of Directors is empowered by the Articles of Association of
Ryanair Holdings to carry on the business of Ryanair Holdings, subject to the
Articles of Association, provisions of general law and the right of stockholders
to give directions to the Directors by way of ordinary resolution. Every
Director of Ryanair Holdings who is present at a meeting of the Board of
Directors shall have one vote. In the case of a tie on a vote, the Chairman of
the Board of Directors shall not have a second or tie-breaking vote. A Director
may designate an alternate to attend any Board of Directors meeting, and such
alternate shall have all the rights of a Director at such meeting.
The quorum for a meeting of the Board of Directors, unless another number
is fixed by the Directors, consists of three Directors. A majority of the
Directors present must be EU nationals. The Articles of Association of Ryanair
Holdings require the vote of a majority of the Directors (or alternates) present
at a duly convened meeting for the approval of all actions by the Board of
Directors.
Composition and Term of Office
The Articles of Association provide that the Board of Directors shall
consist of no less than three Directors and no more than 15 Directors, unless
otherwise determined by the stockholders.
Directors are elected (or have their appointment by the Directors
confirmed) at Annual General Meetings of stockholders. Save in certain
circumstances, at every Annual General Meeting one-third (rounded down to the
next whole number if it is a fractional number) of the Directors (being the
Directors who have been longest in office) will retire by rotation and be
eligible for re-election.
There is no maximum age for a Director and no Director is required to own any
shares of Ryanair Holdings.
Ryanair's Articles of Association require that all of the Directors retire
and offer themselves for re-election within a three-year period. Accordingly
Richard P. Schifter, Michael O'Leary, and Raymond MacSharry will be retiring,
and Michael O'Leary and Raymond MacSharry were re-elected at the annual general
meeting on September 24, 2003. Richard P. Schifter although eligible, did not
seek re-election at that meeting. Jeffrey A. Shaw and Cathal M. Ryan retired
from the Board on September 25, 2002 and Declan F. Ryan retired from the Board
on June 24, 2003.
In accordance with the recommendations of the Combined Code, a senior
independent non-executive Director, James R. Osborne, is Chairman of both the
Audit Committee and the Remuneration Committee. The criteria for Director
independence under the Combined Code differ in certain respects from those
scheduled to become applicable to Ryanair and other foreign private issuers in
2005 under the U.S. federal securities laws and the listing rules of the NASDAQ
National Market. Ryanair expects to be in compliance with such U.S. standards at
or before the time they become applicable to Ryanair.
75
Emmanuel Faber and Klaus Kirchberger were appointed to the Board as
non-executive Directors on September 25, 2002; the appointments were approved by
the Company's shareholders at the annual general meeting held on September 24,
2003.
SENIOR MANAGEMENT
The following table sets forth certain information concerning the executive
officers of Ryanair Holdings and Ryanair Limited at September 30, 2003:
Name Age Position
Michael O'Leary............................ 42 Chief Executive
Michael Cawley............................. 49 Deputy Chief Executive and Chief Operating Officer
Howard Millar.............................. 42 Deputy Chief Executive and Chief Financial Officer
David O'Brien.............................. 39 Director of Flight Operations and Ground Operations
Michael Hickey............................. 40 Director of Engineering
Ray Conway................................. 48 Chief Pilot
Edward Wilson.............................. 40 Director of Personnel and In-flight
Jim Callaghan.............................. 35 Head of Regulatory Affairs and Company Secretary
Caroline Green............................. 40 Head of Customer Service
Michael O'Leary has served as a Director of Ryanair since November 1988 and
was appointed Chief Executive on January 1, 1994. Prior to this, Michael was the
Deputy Chief Executive of Ryanair from 1991 to May 1993 and Chief Operating
Officer from June 1993 to December 1993.
Michael Cawley was appointed Chief Operating Officer on January 1, 2003,
having served as Chief Financial Officer and Commercial Director since February
1997. From 1993 to 1997, Michael served as Group Finance Director of Gowan Group
Limited, one of Ireland's largest private companies and the main distributor for
Peugeot and Citroen automobiles in Ireland.
Howard Millar was appointed Chief Financial Officer on January 1, 2003,
having served as Director of Finance of Ryanair since March 1993. Between April
1992 and March 1993 he served as Financial Controller of Ryanair. Howard was the
Group Finance Manager for the Almarai Group, an international food processing
company in Riyadh, Saudi Arabia, from 1988 to 1992.
David O'Brien was appointed Director of Operations in December 2002;
previously, he served as Director of Flight Operations of Ryanair since May
2002, having served as Director of UK Operations since April 1998. Prior to
that, David served as Regional General Manager-Europe and CIS for Aer Rianta
International. Between 1992 and 1996, David served as Director of Ground
Operations and Inflight with Ryanair.
Michael Hickey has served as Director of Engineering and Chief Engineer
since January 2000. Michael has held a wide range of senior positions within the
Ryanair engineering department since 1988 and was Deputy Director of Engineering
between 1992 and January 2000. Prior to joining Ryanair in 1988, Michael worked
as an aircraft engineer with Fields Aircraft Services and McAlpine Aviation,
working primarily on executive aircraft.
76
Captain Ray Conway was appointed as Chief Pilot in June 2002, having joined
Ryanair in 1987. He has held a number of senior management positions within the
Flight Operations Department over the last 16 years, including Fleet Captain on
the BAC1-11 and Boeing 737-200 fleets. Ray was appointed Head of Training
between 1998 and June 2002. Prior to joining Ryanair, Ray served as an officer
with the Irish Air Corps for 14 years where he was attached to the Training and
Transport Squadron, which was responsible for the government jet.
Edward Wilson was appointed Director of Personnel and Inflight in December
2002, prior to which he served as Head of Personnel since joining Ryanair in
December 1997. Prior to joining Ryanair he served as Human Resources Manager for
Gateway 2000 and held a number of other human resources related positions in the
Irish financial services sector.
Jim Callaghan was appointed Company Secretary in June 2002 and has also
served as Head of Regulatory Affairs of Ryanair since May 2000. Prior to joining
Ryanair, Jim practiced as a competition lawyer for the Brussels office of
Linklaters & Alliance. Jim is a U.S.-trained lawyer and completed a dual degree
in Law and Public and International Affairs at the University of Pittsburgh in
Pennsylvania.
Caroline Green was appointed Director of Customer Services in February
2003. Prior to this, Caroline served as Chief Executive of Ryanair.com between
November 1996 and January 2003. Before joining Ryanair, Caroline worked in
senior positions at a number of airline computerized reservations system
providers, including Sabre.
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Compensation
The aggregate amount of compensation paid by Ryanair Holdings and its
subsidiaries to the Directors and executive officers named above in the fiscal
year ended March 31, 2003 was EUR2.6 million. For details of Mr. O'Leary's
compensation in such fiscal year, see "-Employment Agreements-Employment and
Bonus Agreement with Mr. O'Leary" below. For details of stock options that have
been granted to the Company's employees, including the executive Directors named
above, see "Item 10. Additional Information-Options to Purchase Securities from
Registrant or Subsidiaries."
Each of Ryanair Holdings' nine non-executive Directors is entitled to
receive EUR32,000 plus expenses per annum, as remuneration for his services
to Ryanair Holdings. Each of Messrs. Bonderman, C. Ryan, T.A. Ryan and Schifter
has executed an agreement with Ryanair Holdings by which he has waived his
respective entitlement to receive annual remuneration of EUR32,000 in respect
of his service as a Director for the fiscal year ended March 31, 2003. The
remuneration of audit committee members was increased to EUR15,000 per annum
effective January 1, 2003.
Each of the 11 non-executive Directors then in office were issued 50,000
share options after the 2-for-1 share split in December 2001 in respect of an
equivalent number of Ordinary Shares having a strike price of EUR3.70 under
Ryanair's Share Option Plan 2000. See "Item 10. Additional Information-Options
to Purchase Securities from Registrant or Subsidiaries."
Emmanuel Faber and Klaus Kirchberger were appointed to the Board as
non-executive Directors on September 25, 2002, and the appointments were
approved by the Company's shareholders at the annual general meeting held on
September 24, 2003. In connection with his appointment, each director was
granted 25,000 share options at EUR5.65 each which are exercisable between June
2008 and June 2010.
77
As of September 8, 2003, the Directors and executive officers of Ryanair
Holdings as a group owned 59,527,631 Ordinary Shares, representing 7.8% of
Ryanair Holdings' outstanding Ordinary Shares as of such date. See Note 21(d) to
the Consolidated Financial Statements in Item 18.
Employment Agreements
Employment and Bonus Agreement with Mr. O'Leary. Mr O'Leary's current
employment agreement with Ryanair Limited is dated July 1, 2002 and can be
terminated by either party upon twelve months notice. Pursuant to the agreement,
Mr. O'Leary serves as Chief Executive at a current annual gross salary of
EUR505,000 subject to any increases that may be agreed between Ryanair Limited
and Mr. O'Leary. Mr. O'Leary also is eligible for annual bonuses as determined
by the Board of Directors of Ryanair Limited; the amount of such bonuses paid to
Mr. O'Leary in fiscal year 2003 totaled EUR228,000. Mr. O'Leary is subject to a
covenant not to compete with Ryanair within the EU for a period of two years
after the termination of his employment with Ryanair. Mr. O'Leary's employment
agreement does not contain provisions providing for compensation on its
termination.
EMPLOYEES AND LABOR RELATIONS
The following table sets forth the number of Ryanair's employees at each of
March 31, 2002 and 2003:
Number of Employees at March 31, Number of Employees at March 31,
Classification 2003 2002
Management............................. 82 77
Administrative......................... 103 102
Reservations........................... 167 165
Maintenance............................ 184 152
Ground Operations...................... 236 212
Cockpit Crew........................... 551 359
Flight Attendants...................... 574 464
Total.................................. 1,897 1,531
Ryanair's flight crew, maintenance and customer ground operations personnel
undergo training, both initial and recurrent. A substantial portion of the
initial training for Ryanair's cabin crews is devoted to safety procedures, and
cabin crews are required to undergo annual evacuation and fire drill training
during their tenure with the airline. Ryanair pays for the recurrent training of
all employees. Ryanair utilizes its own Boeing 737-200A and Boeing 737-800
aircraft simulators for pilot training. Ryanair has established an in-house
apprenticeship program to train maintenance engineers that currently produces
four qualified engineers per year. Ryanair also provides salary increases to its
engineers who complete advanced training in certain fields of aircraft
maintenance.
IAA regulations require pilots to be licensed as commercial pilots with
specific ratings for each aircraft to be flown and to be medically certified as
physically fit. At March 31, 2003, the average age of Ryanair's pilots was 36
years and their average period of employment with Ryanair was 3 years. Licenses
and medical certification are subject to periodic re-evaluation requirements,
including recurrent training and recent flying experience. Maintenance engineers
must be licensed and qualified for specific aircraft. Flight attendants must
have initial and periodic competency fitness training. Training programs are
subject to approval and monitoring by the IAA. In addition, the appointment of
senior management personnel directly involved in the supervision of flight
operations, training, maintenance and aircraft inspection must be satisfactory
to the IAA.
78
Based on its experience in managing the airline's growth to date,
management believes that there is a sufficient pool of qualified and licensed
pilots, engineers and mechanics in Ireland, the U.K. and continental Europe to
satisfy Ryanair's anticipated future needs in the areas of flight operations,
maintenance and quality control and that Ryanair will not face significant
difficulty in hiring and continuing to employ the required personnel. Ryanair
has also been able to satisfy its short-term needs for additional pilots and
cockpit crew by contracting with certain employment agencies that represent
experienced flight personnel and currently has 41 such pilots under contract.
Ryanair has licensed a number of JAA-approved type organizations in Sweden,
the Netherlands, Germany and the U.K. to operate pilot training courses which
result in 737 type-ratings based on the Ryanair syllabus. Each trainee pilot
must pay these training organizations for their own type-rating and, based on
their performance, some of the pilots may be offered positions within Ryanair.
This program enables Ryanair to secure a continuous stream of type-rated
co-pilots.
Ryanair's employees earn productivity-based pay incentives, including
commissions on in-flight sales for flight attendants and payments based on the
number of hours or sectors flown by pilots and cabin crew personnel within
limits set by industry standards or regulations fixing maximum working hours.
During the fiscal year ended March 31, 2003, such productivity-based pay
incentives accounted for approximately 17% of an average flight attendant's
total pay package and approximately 42% of the typical pilot's compensation.
Reservations personnel also receive incentive payments based on the number of
bookings made and sales of ancillary services such as car rentals and travel
insurance. In November 2000, Ryanair's pilots approved a new five-year pay
arrangement (subject to review in "exceptional circumstances" after three
years), which, in return for certain productivity enhancements, provides for
annual increases in base salary of 3% and increases in payments per sector of
between 3% and 20% (depending on the number of sectors flown).
Ryanair's pilots are currently subject to IAA-approved limits of 100 flight
hours per 28-day cycle, 300 flight hours every three months and 900 flight hours
per fiscal year. For the fiscal year ended March 31, 2003, the average flight
hours for each of Ryanair's pilots were approximately 74 hours per full working
month and approximately 887 hours for the complete year. Were more stringent
regulations on flight hours to be adopted, Ryanair's flight personnel could
experience a reduction in their total pay due to lower compensation for the
number of hours or sectors flown and Ryanair could be required to hire
additional flight personnel.
Although Ryanair currently consults with groups of employees, including its
pilots, through "Employee Representation Committees" ("ERCs"), regarding work
practices and conditions of employment, it does not conduct formal binding
negotiations with collective bargaining units, as is the case in many other
airlines. For example, Ryanair senior management has quarterly meetings with the
pilot ERC to discuss all aspects of the business and those issues that
specifically relate to pilots.
Ryanair considers its relationship with its employees to be good. However,
from January 9 to March 9, 1998, 39 of Ryanair's ground-handling employees
participated in industrial action with respect to terms and conditions of their
employment. Although the action did not have a material effect on Ryanair's
ability to fulfill its flight schedules or on its results of operations or
financial condition, a secondary action on the weekend of March 7 and 8, 1998 by
members of the Service, Industrial, Professional and Technical Union ("SIPTU")
working for other airlines and airport service providers led to the closure of
Dublin Airport for certain periods. As part of a government-sponsored
arrangement to end the secondary action, Ryanair agreed to cooperate with a
governmental inquiry into the facts of the dispute and the reasons for the
closure of the airport. The governmental inquiry report, which was issued in
July 1998, was critical of the actions of both Ryanair and SIPTU during the
dispute. Management believes that the dispute and related governmental and
judicial action will not have any impact on Ryanair's historical policy of not
conducting formal binding negotiations with collective bargaining units or on
the public's perception of the Company generally.
79
In the United Kingdom, the British Airline Pilots Association ("BALPA")
recently sought to represent Ryanair's U.K. based pilots in their negotiations
with the company. A legally-required ballot of the pilots conducted by the
Central Arbitration Committee in September 2001 resulted in only 18% of those
eligible to vote opting for formal recognition of BALPA, well below the required
51% threshold for recognition of the union. Under applicable U.K. labor
legislation, BALPA cannot reapply for recognition at Ryanair until October 2004.
In addition, the Company agreed to employ 110 of the approximately 500
former Buzz staff, each of whom was offered and accepted contracts of employment
with Buzz Stansted. The balance of the former Buzz staff were made redundant,
and, under the purchase agreement governing the transaction, any liabilities
arising from resultant claims by these staff were settled by KLM UK Ltd. The
acquisition agreement also contains an indemnity from KLM UK Ltd in favor of
Buzz Stansted covering any further claims arising from the redundancies of the
former Buzz staff.
The Company could potentially be exposed to claims arising from the
transfer of employees from Buzz to Buzz Stansted, if, pursuant to UK
legislation, a "transfer of undertaking" is found to have occurred as part of
the Buzz acquisition. This would enable employees to transfer certain rights
under their employment contracts with Buzz to Ryanair, including existing terms
and conditions in relation to redundancy, periods of service, redundancy
entitlements and payments, and other benefits associated with their previous
contracts.
If any of these events were to alter Ryanair's historical experience of
flexibility in dealing with employees or were to alter the public's perception
of Ryanair generally, it could have a material adverse effect on the Company's
business, operating results and financial condition.
In April 1998, the Board of Directors of Ryanair Holdings adopted an
employee share option plan (the "Option Plan"), with all employees being
eligible to participate. The Option Plan was approved by the Company's
shareholders at the Annual General Meeting held on September 29, 1998. Ryanair
Holdings has also issued share options to certain of its senior managers. For
details of all outstanding share options, see "Item 10. Additional
Information--Options to Purchase Securities from Registrant or Subsidiaries."
The Option Plan allows for eligible employees to be granted options to
purchase up to an aggregate of 5% of the outstanding Ordinary Shares of Ryanair
Holdings at an exercise price equal to the closing price of such shares on the
Irish Stock Exchange on the date of the grant of the option. Options may be
granted over a five-year period beginning in 1998, with the amount of options
granted to any individual employee being determined at the time they became
eligible to participate in the scheme with reference to the amount of emoluments
paid in May 1998 to such employee in the current or previous tax year, whichever
is greater. The first tranche of options became exercisable on June 24, 2003 and
639 employees are entitled to exercise options under the scheme.
Management has designed the Option Plan, so that, subject to the Board of
Directors' discretion, employees can be rewarded for achieving certain financial
performance criteria over a five-year period, thus allowing them to participate
in the increase in the value of the Company over the coming years. Grants of
options under the Option Plan are thus subject to the Company's achievement of
the following criteria during the five-year period beginning with fiscal year
1998, as follows:
80
1. The Company's net profit after tax for each fiscal year must exceed
its net profit after tax for the preceding fiscal year by at least
20%.
2. If the first criterion is not met, options will still be granted if
the aggregate growth in the Company's net profit after tax (as
compounded annually) during the period beginning with fiscal 1998 and
ending with the fiscal year ending in the year in which the grant of
yearly options is being considered is equal to, or greater than, an
annual rate of 20%.
If, in any year, either of these two criteria are met, the Remuneration
Committee may select eligible employees who will be invited to apply for options
that were not granted in any prior year as a result of neither such criterion
being met.
Ryanair Holdings' shareholders approved a share option plan at the Annual
General Meeting held on September 22, 2000 (the "Option Plan 2000"). All
employees and Directors are eligible to participate in the plan, under which
grants of options can only be made in any of the ten years beginning with fiscal
year 2000 if the Company's net profit after tax for the relevant fiscal year has
exceeded its net profit after tax for the preceding fiscal year by at least 20%,
or if an increase of 1% in net profit after tax for any relevant year would have
resulted in such criterion being met. The Option Plan 2000 is part of an
incentive program for Ryanair's employees and Directors. Under the terms of the
plan, options will become exercisable five years from the time of the first
grant under the program, provided that the grantee is still employed by the
Company. If the grantee has ceased to be a full time employee before this
vesting date, the grantee will generally lose their complete option entitlement
automatically.
A new share option plan (the "Option Plan 2003") was established by
resolution of the Board of Directors of Ryanair Holdings and approved by the
shareholders of Ryanair Holdings at the Annual General Meeting held on September
25, 2002. As Ireland operates a tax favorable approved share option scheme
regime, it was decided to adopt the Option Plan 2003 in accordance with this
regime so that employees will not be subject to income tax on the exercise of
options (subject to certain conditions). The Option Plan 2003 was approved by
the Revenue Commissioners on July 4, 2003 for the purposes of Chapter 4, Part
17, of the Irish Taxes Consolidation Act, 1997 and Schedule 12C of that act. All
employees and full-time Directors are eligible to participate in the plan, under
which grants of options can only be made in any of the ten years beginning with
fiscal year 2002 if the Company's net profit after tax for the relevant fiscal
year has exceeded its net profit after tax for the preceding fiscal year by at
least 25%, or if an increase of 1% in net profit after tax for any relevant year
would have resulted in such criterion being met. The Option Plan 2003 is part of
an incentive program for Ryanair's employees and Directors. Under the terms of
the plan, options will become exercisable five years from the time of the first
grant under the program.
81
Item 7. Major Shareholders and Related Party Transactions
DESCRIPTION OF CAPITAL STOCK
Ryanair Holdings' capital stock consists of Ordinary Shares, par value 1.27
euro cents. As of March 31, 2003, a total of 755,130,716 Ordinary Shares were
outstanding. On December 7, 2001, Ryanair effected a 2 for 1 share split by
which each of its then existing Ordinary Shares, par value 2.54 euro cents, was
split into two new Ordinary Shares, par value 1.27 euro cents.
MAJOR SHAREHOLDERS
Based on information available to Ryanair Holdings, the following table
summarizes the holdings of those shareholders holding 5% or more of the Ordinary
Shares as of the dates indicated.
As of March 31,
2003 2002 2001
No. of Shares % of Class No. of Shares % of Class No. of Shares % of Class
Fidelity Investments............. 91,000,000 12.1% 104,408,500 13.8% 91,200,000 12.6%
Ryan Family(1)(2) 71,497,661 9.5% 71,497,691 9.5% 93,518,080 12.9%
Putnam Investments............... 69,068,700 9.1% 70,570,400 9.3% 53,200,000 7.3%
Guilder Gagnon Howe & Co......... 67,597,305 8.9% - - 72,000,000 9.9%
Janus............................ 55,759,575 7.4% 70,548,175 9.3% - -
Michael O'Leary (2) 45,000,008 6.0% 52,000,008 6.9% 52,000,008 7.2%
Capital Group Companies Inc...... 52,159,800 6.9% 37,797,275 5.1% - -
(1) Includes T.Anthony Ryan and his three sons, Cathal Ryan, Declan Ryan
and Shane Ryan, each of whom has disclaimed beneficial ownership of
the Ordinary Shares held by the other members of the family.
(2) On June 10, 2003, Michael O'Leary and Declan Ryan each sold 4 million
shares at EUR5.95 per share in a private sale conducted outside the
United States in accordance with Regulation S under the Securities
Act.
RELATED PARTY TRANSACTIONS
The Company has not entered into any "related party transactions" as
defined in Item 7.B. of Form 20-F, in the three fiscal years ending March
31, 2003.
Item 8. Financial Information
CONSOLIDATED FINANCIAL STATEMENTS
Please refer to "Item 18. Financial Statements."
OTHER FINANCIAL INFORMATION
Legal Proceedings
The Company is engaged in litigation arising in the ordinary course of its
business. Except as otherwise described below, management does not believe that
any of these proceedings will, individually or in the aggregate, have a material
adverse effect on the results of operation or financial condition of the
Company.
On December 11, 2002, the European Commission announced the launch of an
investigation into the April 2001 agreement between Ryanair and Brussels
(Charleroi) airport and the government of the Walloon region of Belgium, which
permitted the Company to launch new routes and base up to four aircraft at
Brussels (Charleroi). The Walloon Government are the owners of Brussels
(Charleroi). In return for the launch of these new routes and the basing of
aircraft, the agreement provides the Company with concessions with regard to
landing and handling charges, as well as training and accommodation grants paid
by the airport. The airport also agreed to contribute to marketing costs
relating to the new routes and base. Since April 2001, Ryanair has based three
aircraft at the airport and launched routes from Brussels (Charleroi) to eleven
destinations within the European Union. The European Commission's investigation
is based on a complaint by Brussels International Airport (Zaventem) (the
principal airport for Brussels) which alleges that Ryanair's arrangements with
Brussels (Charleroi) constitute illegal state aid.
82
The complaint is being investigated by the European Commission and it is
expected that the European Commission will issue its decision by the end of
2003. Ryanair believes that the arrangements do not constitute illegal state aid
for a number of reasons, including the following:
* The arrangements comply with the "Private Investor Principle." This
test evaluates whether the agreement was entered into on a commercial
basis and is one that a rational investor would have agreed to.
Ryanair believes that the concessions and incentives provided by the
Brussels (Charleroi) agreement are no more favorable to the airline
than those contained in a number of contacts it has entered into with
other non-state owned airports both before and after 2001 and that the
existence of these other arm's length and freely negotiated agreements
demonstrates that the agreement in question meets the test.
* The agreement is non-exclusive. The agreement specifically states that
it is not exclusive to Ryanair and Ryanair is aware that the terms of
the agreement were offered to other carriers such as Sabena, easyJet,
and Virgin Express plc at the same time they were offered to Ryanair.
None of these airlines chose to accept these terms at the time and
subsequently none of these carriers have commenced operations at
Brussels (Charleroi).
Nevertheless, no assurances can be given that the European Commission will
rule in Ryanair's favor. If the Commission were to rule that the agreement
constitutes illegal state aid, Ryanair may be required to repay accommodation
grants in the amount of EUR250,000, training grants of EUR768,000 and new route
launch marketing supports of EUR1.44 million. Standard market practice is for
public and private airports to provide volume based discounts with regard to
published handling and landing charges. However, in the unlikely event that no
such discounts would be recognized as being valid, Ryanair would therefore be
required to make payments based on Brussels (Charleroi)'s published charges, the
amount repayable on an annualized basis since the launch of the base in April
2001 in relation to these fees would be approximately EUR2.6 million. A similar
practice applies to marketing support, whereby airlines are regularly granted
such support for the marketing of routes; however, in the unlikely event that no
such supports were recoverable, the annualized amount repayable since April 2001
would be approximately EUR2.2 million. In addition, any such ruling could lead
to further investigations by the Commission into certain of Ryanair's agreements
with state-owned or operated airports in France, Italy, and Scandinavia. Adverse
rulings in any resultant investigations would be likely to require the repayment
of monies received and increased charges at the relevant airports, and therefore
have a material adverse effect on the Company's airport charges and its
profitability.
In an unrelated, though similar, matter, on July 24, 2003, a Strasbourg
court ruled that marketing support granted by the city of Strasbourg to Ryanair
in connection with its launch of services from Strasbourg to London (Stansted)
constituted unlawful state aid to Ryanair. The judgment took effect on September
24, 2003. Ryanair has decided to appeal this decision on the basis that the
marketing support granted was not state aid, however, it has, pending the
outcome of this appeal, decided to close the route and has instead opened a
route at Baden Baden in Germany to London (Stansted) (Baden Baden airport is
located some 40 kilometres from Strasbourg). Ryanair has also confirmed that it
will reopen the route if the appeal, which could take up to 12 to 18 months
before a decision is issued, is successful.
One or more adverse rulings in these or similar cases could be used as
precedents to challenge Ryanair's agreements with other publicly owned airports
and could cause Ryanair to strongly reconsider its growth strategy in relation
to public or state-owned airports across Europe. This could in turn lead to a
scaling back of its growth strategy due to the smaller number of privately-owned
airports available for development.
83
Dividend Policy
Since its organization as the holding company for Ryanair in 1996, Ryanair
Holdings has not declared or paid dividends on its Ordinary Shares. Ryanair
Holdings anticipates, for the foreseeable future, that it will retain any future
earnings in order to fund the business operations of the Company, including the
acquisition of additional aircraft needed for Ryanair's planned entry into new
markets and its expansion of its existing service, as well as replacement
aircraft for its current fleet. Ryanair Holdings does not, therefore, anticipate
paying any cash or share dividends on its Ordinary Shares in the foreseeable
future.
Any cash dividends or other distributions, if made, are expected to be made
in euro, although Ryanair Holdings' Articles of Association provide that
dividends may be declared and paid in U.S. dollars. For owners of ADSs, The Bank
of New York, as depositary will convert all cash dividends and other
distributions payable to owners of ADSs into U.S. dollars to the extent that in
its judgment it can do so on a reasonable basis and will distribute the
resulting U.S. dollar amount (net of conversion expenses) to the owners of ADSs.
SIGNIFICANT CHANGES
No significant change in the Company's financial condition has occurred
since the date of the Consolidated Financial Statements included in this Report.
Item 9. The Offer and Listing
TRADING MARKETS AND SHARE PRICES
The primary market for Ryanair Holdings' Ordinary Shares is the Irish Stock
Exchange Limited (the "Irish Stock Exchange" or "ISE"); Ordinary Shares are also
traded on the London Stock Exchange. The Ordinary Shares were first listed for
trading on the Official List of the Irish Stock Exchange on June 5, 1997 and
were first admitted to the Official List of the London Stock Exchange on July
16, 1998.
ADSs, each representing five Ordinary Shares, are traded on the Nasdaq
National Market of the Nasdaq Stock Market, Inc. ("Nasdaq"). The Bank of New
York is Ryanair Holdings' depositary for purposes of issuing American Depositary
Receipts ("ADRs") evidencing the ADSs. The following tables set forth, for the
periods indicated, the reported high, low and period-end closing sales prices of
the ADSs on Nasdaq and for the Ordinary Shares on the Irish Stock Exchange and
the London Stock Exchange, and have been adjusted to reflect the two-for-one
splits of the Ordinary Shares and ADSs effected on February 28, 2000 and
December 7, 2001:
84
ADSs
(in dollars)
High Low Period End
1998
Second Quarter........................................ 9.9375 8.1260 8.9063
Third Quarter......................................... 10.7813 7.1875 8.5625
Fourth Quarter........................................ 9.5000 5.9594 9.4375
1999
First Quarter......................................... 10.4063 7.6250 10.1880
Second Quarter........................................ 13.2500 10.3125 13.2500
Third Quarter......................................... 14.0313 11.1875 11.4690
Fourth Quarter........................................ 14.0938 9.7813 13.7810
2000
First Quarter......................................... 23.2500 13.5625 22.9380
Second Quarter........................................ 22.5625 17.3750 18.2500
Third Quarter......................................... 21.5625 16.8750 19.2500
Fourth Quarter........................................ 27.8438 18.5000 27.8438
2001
First Quarter......................................... 29.3438 20.8438 22.2500
Second Quarter........................................ 28.1700 21.6250 25.9750
Third Quarter......................................... 28.6950 17.4950 20.4850
Fourth Quarter........................................ 32.0500 20.4000 32.0500
2002
First Quarter......................................... 34.2000 29.9800 30.0100
Second Quarter........................................ 36.7700 28.0000 34.8710
Third Quarter (September 30).......................... 35.4500 28.3900 33.8900
Fourth Quarter (December 31).......................... 48.0000 29.9300 39.1600
2003
First Quarter (March 31).............................. 43.9400 34.3800 41.6400
Second Quarter (June 30).............................. 44.9200 39.0000 44.9200
Third Quarter (through September 24).................. 46.2500 39.9500 40.4000
Month ending:
March 31, 2003........................................ 43.9400 34.3800 41.6400
April 30, 2003........................................ 44.2600 39.6700 39.6700
May 31, 2002.......................................... 42.4900 39.0000 41.4600
June 30, 2003......................................... 44.9200 39.9600 44.9200
July 31, 2003......................................... 44.9000 39.9500 42.6900
August 31, 2003....................................... 43.9300 41.0000 42.3880
September 24, 2003.................................... 46.2500 40.1100 40.4000
Ordinary Shares
(Irish Stock Exchange)
(in IR pence/euros)
High Low Period End
1998
Second Quarter........................................ IRp144 IRp122 IRp127
Third Quarter......................................... 154 126 140
Fourth Quarter........................................ 120 79 120
1999 (1)
First Quarter......................................... EUR1.90 EUR1.33 EUR1.90
Second Quarter........................................ 2.52 1.90 2.52
Third Quarter......................................... 2.59 2.15 2.20
Fourth Quarter........................................ 2.69 1.93 2.65
2000
First Quarter......................................... 4.81 2.61 4.55
Second Quarter........................................ 4.75 3.20 3.80
Third Quarter......................................... 4.50 3.90 4.15
Fourth Quarter........................................ 5.88 4.32 5.75
2001
First Quarter......................................... 6.23 4.70 5.12
Second Quarter........................................ 6.65 4.90 6.12
Third Quarter......................................... 6.50 3.75 4.48
Fourth Quarter........................................ 7.10 4.43 7.10
2002
First Quarter......................................... 7.20 6.15 6.68
Second Quarter........................................ 6.95 5.66 6.20
Third Quarter......................................... 6.32 4.95 5.65
Fourth Quarter........................................ 8.20 5.20 6.75
2003
First Quarter......................................... 7.23 5.10 6.19
Second Quarter........................................ 6.90 5.52 6.27
Third Quarter (through September 24).................. 6.72 5.73 6.06
Month ending:
March 31, 2003........................................ 6.75 5.10 6.19
April 30, 2003........................................ 6.90 6.13 6.13
May 31, 2003.......................................... 6.26 5.55 5.81
June 30, 2003......................................... 6.27 5.52 6.27
July 31, 2003......................................... 6.26 5.73 6.20
August 31, 2003....................................... 6.70 5.93 6.23
September 24, 2003.................................... 6.72 5.90 6.06
(1) Since January 1, 1999, share prices on the Irish Stock Exchange have
been quoted in euro. The fixed exchange rate between Irish pounds and
euro is EUR1.00 = IR GBP0.787564, established by the European Central
Bank.
85
Ordinary Shares
(London Stock Exchange)
(in U.K. pence)
High Low Period End
1998
Third Quarter (beginning July 16)..................... 130.38 82.75 93.16
Fourth Quarter........................................ 110.00 70.38 110.00
1999
First Quarter......................................... 129.63 93.75 125.63
Second Quarter........................................ 163.13 126.25 163.13
Third Quarter......................................... 171.13 139.63 139.63
Fourth Quarter........................................ 171.50 120.63 165.38
2000
First Quarter......................................... 288.50 165.63 262.50
Second Quarter........................................ 288.00 233.25 240.00
Third Quarter......................................... 283.75 238.75 260.00
Fourth Quarter........................................ 356.25 252.50 326.25
2001
First Quarter......................................... 390.50 293.75 316.25
Second Quarter........................................ 400.50 303.25 368.25
Third Quarter......................................... 394.25 236.25 276.75
Fourth Quarter........................................ 420.00 271.50 420.00
2002
First Quarter......................................... 434.50 381.00 404.50
Second Quarter........................................ 450.00 356.00 394.50
Third Quarter......................................... 404.50 316.00 353.00
Fourth Quarter........................................ 437.50 336.50 437.50
2003
First Quarter......................................... 470.50 353.00 428.00
Second Quarter........................................ 469.00 391.00 429.50
Third Quarter (through September 24).................. 472.00 399.50 419.50
Month ending:
March 31, 2003........................................ 456.50 353.00 428.00
April 30, 2003........................................ 469.00 426.00 427.50
May 31, 2003.......................................... 447.00 400.00 419.98
June 30, 2003......................................... 441.00 391.00 429.50
July 31, 2003......................................... 435.00 399.50 419.57
August 31, 2003....................................... 464.00 418.00 434.00
September 24, 2003.................................... 472.00 408.00 419.50
86
As of September 19, 2003, 757,964,172 Ordinary Shares were outstanding. At
such date, 59,169,010 ADRs, representing 295,845,050 Ordinary Shares, were held
of record in the United States by 60 holders, and represented in the aggregate
39% of the number of Ordinary Shares then outstanding.
Since certain of the Ordinary Shares are held by brokers or other nominees,
the number of direct record holders in the United States may not be fully
indicative of the number of direct beneficial owners in the United States or of
where the direct beneficial owners of such shares are resident.
Ryanair Holdings is seeking to increase the percentage of its share capital
held by EU nationals. Accordingly, beginning June 26, 2001, Ryanair Holdings has
instructed The Bank of New York to suspend the issuance of new ADSs in exchange
for the deposit of Ordinary Shares until further notice to its shareholders.
Holders of Ordinary Shares cannot convert their Ordinary Shares into ADSs. The
Bank of New York will continue to convert existing ADSs into ordinary shares at
the request of the holders of such ADSs. Ryanair Holdings does not expect this
action to have any material effect on the trading of its Ordinary Shares on the
Irish Stock Exchange or the London Stock Exchange, or on the trading of its
existing ADSs on the Nasdaq National Market.
As a further measure to increase the percentage of shares held by EU
nationals, on February 7, 2002, the Company issued a notice to shareholders to
the effect that any purchase of Ordinary Shares by a non-EU national after such
date will immediately result in the issue of a Restricted Share Notice to such
non-EU national purchaser. The Restricted Share Notice compels the non-EU
national purchaser to sell the affected shares to an EU national within 21 days
of the date of the issuance. In the event that any such non-EU national
shareholder does not sell its shares to an EU national within the specified time
period, the Company can then take legal action to compel such a sale. As a
result, non-EU nationals are effectively barred from purchasing Ordinary Shares
for as long as these restrictions remain in place. There can be no assurance
that these restrictions will ever be lifted.
Item 10. Additional Information
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
In May 1997, Ryanair Holdings granted options to seven members of the
Company's senior management to purchase an aggregate total of 2,871,792 Ordinary
Shares. The consideration for the grant of such options was EUR1.27 per
participant in each case. The exercise price of the options is 90% of the price
per Ordinary Share at the time of the IPO (or EUR0.557 per Ordinary Share).
These options first became exercisable in May 2000 and must be exercised within
seven years of the date of their grant. As of March 31, 2003, options in respect
of 2,751,460 Ordinary Shares had been exercised.
In April 1998, the Board of Directors of Ryanair Holdings adopted an
employee share option plan (the "Option Plan"), with all employees of the
Company being eligible to participate. The Option Plan was approved by Ryanair
Holdings' shareholders at the Annual General Meeting held on September 29, 1998
and replaced a comparable plan adopted at the time of the IPO, under which no
options had been granted.
The Option Plan allows for eligible employees to be granted options to
purchase up to an aggregate of 5% of the outstanding Ordinary Shares of Ryanair
Holdings at an exercise price to be equal to the closing price of such shares on
the Irish Stock Exchange on the date of the grant of the option. Options would
be granted over a five-year period beginning in 1998, with the amount of options
granted to any individual employee being determined with reference to the amount
of emoluments paid to eligible employees. All of these options became
exercisable beginning in June 2003 and will be exercisable through June 2007.
87
Management has designed the Option Plan, so that, subject to the Board of
Directors' discretion, employees can be rewarded for achieving certain financial
performance criteria over a five-year period, thus allowing them to participate
in the increase in the value of the Company over the coming years. Grants of
options under the Option Plan are thus subject to the Company's achievement of
the following criteria during the five-year period beginning with fiscal year
1998, as follows:
1. The Company's net profit after tax for each fiscal year must exceed
its net profit after tax for the preceding fiscal year by at least
20%.
2. If the first criterion is not met, options will still be granted if
the aggregate growth in the Company's net profit after tax (as
compounded annually) during the period beginning with fiscal 1998 and
ending with the fiscal year ending in the year in which the grant of
yearly options is being considered is equal to, or greater than, an
annual rate of 20%.
If, in any year, either of these two criteria are met, the Remuneration
Committee may select eligible employees who will be invited to apply for options
that were not granted in any prior year as a result of neither such criterion
being met.
Ryanair Holdings' shareholders approved a share option plan at the Annual
General Meeting held on September 22, 2000 (the "Option Plan 2000"). All
employees and Directors are eligible to participate in the plan, under which
grants of options can only be made in any of the ten years beginning with fiscal
year 2000 if the Company's net profit after tax for the relevant fiscal year has
exceeded its net profit after tax for the preceding fiscal year by at least 20%,
or if an increase of 1% in net profit after tax for any relevant year would have
resulted in such criterion being met. The Option Plan 2000 is part of a
incentive program for Ryanair's employees and Directors. Under the terms of the
plan, options will become exercisable five years from the time of the first
grant under the program, provided that the grantee is still employed by the
Company. If the grantee has ceased to be a full time employee before this
vesting date, the grantee will generally lose their complete option entitlement
automatically.
A new share option plan (the "Option Plan 2003") was established by
resolution of the Board of Directors of Ryanair Holdings and approved by the
shareholders of Ryanair Holdings at the Annual General Meeting held on September
25, 2002. As Ireland operates a tax favorable approved share option scheme
regime, it was decided to adopt the Option Plan 2003 in accordance with this
regime so that employees will not be taxed on the exercise of options (subject
to certain conditions). The Option Plan 2003 was approved by the Revenue
Commissioners on July 4, 2003 for the purposes of Chapter 4, Part 17, of the
Irish Taxes Consolidation Act, 1997 and Schedule 12C of that act. All employees
and full-time Directors are eligible to participate in the plan, under which
grants of options can only be made in any of the ten years beginning with fiscal
year 2002 if the Company's net profit after tax for the relevant fiscal year has
exceeded its net profit after tax for the preceding fiscal year by at least 25%,
or if an increase of 1% in net profit after tax for any relevant year would have
resulted in such criterion being met. The Option Plan 2003 is part of an
incentive program for Ryanair's employees and Directors. Under the terms of the
plan, options will become exercisable five years from the time of the first
grant under the program.
As of March 31, 2003, nine separate grants of an aggregate total of
30,364,440 options in respect of an equivalent number of Ordinary Shares had
been made to eligible employees under the Option Plan, the Option Plan 1998 and
the Option Plan 2002 together, and an aggregate of 26,453,855 options to
purchase an equal number of Ordinary Shares were outstanding. Of this total,
which includes options granted to senior management in 1997 that have not yet
been exercised, 120,332 options are currently exercisable, and the balance
become exercisable between June 2004 and June 2007. All of the options granted
under the Option Plan have a strike price equal to the closing price of the
Ordinary Shares on the date of the grant. The terms of the 5,400,000 options
granted under the Option Plan on December 9, 1998, which were granted to 15 key
senior executives and managers as part of an incentive and retention program,
are generally similar to those generally granted under the Option Plan, except
for the requirement that the executives/managers must continue to be employed by
the Company until June 2002. If they should leave or resign during the period
they automatically lose their complete option entitlement; if they die or their
contract of employment is terminated by the Company, the number of options to
which they will be entitled will be limited to the proportion of their initial
grant that is equal to the proportion of the complete period represented by the
time elapsed from the date of the grant to the date of their death or
termination. Under the Option Plan 2002, 23 senior managers were granted
4,558,000 share options at a strike price of EUR5.65 on June 30, 2002. These
options become exercisable between June 1, 2007 and June 1, 2009, but only for
managers who continue to be employed by the Company through June 1, 2007.
88
The aggregate of 26,453,855 Ordinary Shares that would be issuable upon
exercise in full of the options described in this section that were outstanding
as of March 31, 2003 would represent approximately 3.5% of the current issued
share capital of Ryanair Holdings. Of such total, options in respect of an
aggregate of 8,481,366 Ordinary Shares are held by the Directors and executive
officers of Ryanair Holdings.
MEMORANDUM AND ARTICLES OF ASSOCIATION
The following is a summary of certain provisions of the Memorandum and
Articles of Association of Ryanair Holdings. This summary does not purport to be
complete and is qualified in its entirety by reference to complete text of the
Memorandum and Articles of Association, which are filed as an exhibit to this
Report.
Objects. The Company's objects, which are detailed in its Memorandum of
Association, are broad and include carrying on business as an investment and
holding company. The Company's registered number is 249885.
Directors. Subject to certain exceptions, Directors may not vote on matters
in which they have a material interest. The ordinary remuneration of the
Directors is determined from time to time by ordinary resolution of the Company.
Any director who holds any executive office, serves on any committee or
otherwise performs services which, in the opinion of the Directors, are outside
the scope of the ordinary duties of a director may be paid such extra
remuneration as the Directors may determine. The Directors may exercise all the
powers of the Company to borrow money. These powers may be amended by special
resolution of the shareholders. The Directors are not required to retire at a
particular age. There is no requirement for Directors to hold shares. One third
of the Directors retire and offer themselves for re-election at each Annual
General Meeting of the Company. The Directors to retire by rotation are those
who have been longest in office since their last appointment or reappointment.
As between persons who became or were appointed Directors on the same date,
those to retire are determined by agreement between them or, otherwise, by lot.
All of the shareholders entitled to attend and vote at the Annual General
Meeting of the Company may vote on the re-election of Directors.
Annual and General Meetings. Annual and Extraordinary Meetings where
special resolutions are to be voted upon are called by 21 days clear notice.
Extraordinary General Meetings where ordinary resolutions are to be voted upon
are called by 14 days clear notice. All holders of ordinary shares are entitled
to attend, speak and vote at general meetings of the Company, subject as
described below under "Limitations on the Right to Own Shares."
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Rights, Preferences and Dividends Attaching to Shares. The Company has only
one class of shares, being ordinary shares of EUR0.0127 each. All such shares
rank equally with respect to payment of dividends and on any winding-up of the
Company. Any dividend, interest or other sum payable to a shareholder which
remains unclaimed for one year after having been declared may be invested by the
Directors for the benefit of the Company until claimed. If the Directors so
resolve, any dividend which has remained unclaimed for 12 years from the date of
its declaration shall be forfeited and cease to remain owing by the Company. The
Company is permitted under its Articles of Association to issue redeemable
shares on such terms and in such manner as the Company may, by special
resolution, determine. The ordinary shares currently in issue are not
redeemable. The liability of shareholders to invest additional capital is
limited to the amounts remaining unpaid on the shares held by them. There are no
sinking fund provisions in the Memorandum and Articles of Association of the
Company.
Action Necessary to Change the Rights of Shareholders. The rights attaching
to shares in the Company may be varied by special resolution passed at a meeting
of the shareholders of the Company.
Limitations on the Rights to Own Shares. The Articles of Association
contain detailed provisions enabling the Directors of the Company to limit the
number of shares in which non-EU nationals have an interest or the exercise by
non-EU nationals of rights attaching to shares. See "Item 10. Additional
Information-Limitations on Share Ownership by non-EU nationals." Such powers may
be exercised by the Directors if they are of the view that any license, consent,
permit or privilege of the Company or any of its subsidiaries which enables it
to operate an air service may be refused, withheld, suspended or revoked or have
conditions attached to it which inhibit its exercise and exercise of the powers
referred to above could prevent such an occurrence. The exercise of such powers
could result in non-EU national holders of shares being prevented from
attending, speaking or voting at general meetings of the Company and/or being
required to dispose of shares held by them to EU nationals.
Disclosure of Share Ownership. Under Irish law, the Company can require
parties to disclose their interests in shares. The Articles of Association of
the Company entitle the Directors to require parties to complete declarations
indicating their nationality and the nature and extent of any interest, which
such party holds in shares before allowing such parties to transfer shares in
the Company. See "Item 10. Additional Information-Limitations on Share Ownership
by non-EU nationals." Under Irish law, if a party acquires or disposes of shares
in the Company bringing his interest above or below 5% of the total issued share
capital of the Company or changing his percentage interest above 5% (once his
interest has been rounded down to the nearest percentage), he must notify the
Company of that. The Irish Stock Exchange must also be notified of any
acquisition or disposal of shares which bring the shareholding of a party above
or below certain specified percentages i.e., 10, 25, 50 and 70 %.
Other Provisions of the Memorandum and Articles of Association. There are
no provisions in the Memorandum and Articles of Association:
* Delaying or prohibiting a change in the control of the Company,
but which operate only with respect to a merger, acquisition or
corporate restructuring;
* discriminating against any existing or prospective holder of
shares as a result of such shareholder owning a substantial
number of shares; or
* governing changes in capital
where such provisions are more stringent than those required by law.
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MATERIAL CONTRACTS
In January 2002, the Company and Boeing entered into a series of agreements
pursuant to which the Company will purchase 100 new 737-800 aircraft for
delivery during the period from December 2002 through December 2008 and have the
option to purchase an additional 50 such aircraft, three of which options were
exercised in June 2002. The "Basic Price" for each of the 737-800s is
approximately $50,885,100 and will be increased for certain equipment Ryanair
will purchase and Boeing will install on each of the aircraft. The "Basic Price"
is also subject to increase by an "Escalation Factor" to reflect increases in
the U.S. Employment Cost and Producer Prices Indices between the time the Basic
Price was set and the period six months prior to the delivery of such aircraft.
Boeing has granted the Company certain price concessions with regard to the
737-800s and will issue credit memoranda to the Company in the amount of such
concessions, which the Company may apply toward the purchase of goods and
services from Boeing or toward certain payments in respect of the purchase of
the aircraft. Boeing has also agreed to provide Ryanair with certain allowances
for promotional and other activities, as well as providing certain other goods
and services to the Company on concessionary terms.
A copy of the agreements comprising the 2002 Boeing contract, which is the
subject of a request for confidential treatment that has been granted, was filed
as Exhibit 4.1 to Ryanair's Annual Report on Form 20-F for the fiscal year ended
March 31, 2002.
EXCHANGE CONTROLS
Irish exchange control regulations ceased to apply from and after December
31, 1992. Except as indicated below, there are no restrictions on non-residents
of Ireland dealing in Irish securities (including shares or depositary receipts
of Irish companies such as the Company). Except as indicated below, dividends
and redemption proceeds also continue to be freely transferable to non-resident
holders of such securities.
The Financial Transfers Act 1992 (the "1992 Act") was enacted in December
1992. The 1992 Act gives power to the Minister for Finance of Ireland to make
provision for the restriction of financial transfers between Ireland and other
countries. Financial transfers are broadly defined and include all transfers,
which would be movements of capital or payments within the meaning of the
treaties governing the EU. The acquisition or disposal of the ADSs, which
represent shares issued by an Irish incorporated company, the acquisition or the
disposal of the shares and associated payments may fall within this definition.
In addition, dividends or payments on the redemption or purchase of shares and
payments on a liquidation of an Irish incorporated company would fall within
this definition. Orders made by the Minister for Finance pursuant to the 1992
Act prohibit certain financial transfers to (or in respect of funds held by the
government of) the Federal Republic of Yugoslavia, Zimbabwe (including senior
members of the Zimbabwean government), Iraq, the Republic of Serbia, Al Qaeda,
Osama Bin Laden and the Taliban of Afghanistan.
The Company does not anticipate that Irish exchange controls or orders
under the 1992 Act will have a material effect on its business.
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LIMITATIONS ON SHARE OWNERSHIP BY NON-EU NATIONALS
The Board of Directors of Ryanair Holdings are given certain powers under
Ryanair Holdings' Articles of Association (the "Articles") to take action to
ensure that the amount of shares held in Ryanair Holdings by non-EU nationals
does not reach a level which could jeopardize the Company's entitlement to
continue to hold or enjoy the benefit of any license, permit, consent or
privilege which it holds or enjoys and which enables it to carry on business as
an air carrier (a "License"). In particular, EU Regulation 2407/92 requires
that, in order to obtain and retain an operating license, an EU air carrier must
be majority owned and effectively controlled by EU nationals. EU Regulation
2407/92 does not specify what level of share ownership will confer effective
control on a holder or holders of shares. As described below, the Directors
will, from time to time, set a "Permitted Maximum" on the number of Ordinary
Shares that may be owned by non-EU nationals at such level as they believe will
comply with EU Regulation 2407/92. The Permitted Maximum is currently set at
49.9%.
Ryanair Holdings maintains a separate register (the "Separate Register") of
shares in which non-EU nationals, whether individuals, bodies corporate or other
entities, have an interest (such shares are referred to as "Affected Shares" in
the Articles). Interest in this context is widely defined and includes an
interest held through ADRs in the shares underlying the relevant ADSs. The
Directors can require relevant parties to provide them with information to
enable a determination to be made by them as to whether shares are, or are to be
treated as, Affected Shares. If such information is not available or forthcoming
or is unsatisfactory then the Directors can, at their discretion, determine that
shares are to be treated as Affected Shares. Registered holders of shares are
also obliged to notify the Company if they are aware that any share which they
hold ought to be treated as an Affected Share for this purpose. With regard to
ADSs, the Directors can treat all of the relevant underlying shares as Affected
Shares unless satisfactory evidence as to why they should not be so treated is
forthcoming.
In the event that, inter alia, (i) the refusal, withholding, suspension or
revocation of any License or the imposition of any condition which materially
inhibits the exercise of any License (an "Intervening Act") has taken place,
(ii) the Company receives a notice or direction from any governmental body or
any other body which regulates the provision of air transport services to the
effect that an Intervening Act is imminent, threatened or intended or (iii) an
Intervening Act may occur as a consequence of the level of non-EU ownership of
shares or an Intervening Act is imminent, threatened or intended because of the
manner of share ownership or control of Ryanair Holdings generally, the
Directors can take action pursuant to the Articles to deal with the situation.
They can, inter alia, (i) remove any Directors or change the Chairman of the
Board, (ii) identify those shares, ADSs or Affected Shares which give rise to
the need to take action and treat such shares, ADSs, or Affected Shares as
Restricted Shares (see below) or (iii) set a "Permitted Maximum" on the number
of Affected Shares which may subsist at any time (which may not, save in the
circumstances referred to below, be lower than 40% of the total number of issued
shares) and treat any Affected Shares (or ADSs representing such Affected
Shares) in excess of this Permitted Maximum as Restricted Shares (see below).
Also, if as a consequence of a change of law or a direction, notice or
requirement of any state, authority or person it is necessary to reduce the
total number of Affected Shares below 40% or reduce the number of Affected
Shares held by any particular stockholder or stockholders in order to overcome,
prevent or avoid an Intervening Act, the Directors may resolve to (i) set the
Permitted Maximum at such level below 40% as they consider necessary in order to
overcome, prevent or avoid such Intervening Act, or (ii) treat such number of
Affected Shares (or ADSs representing Affected Shares) held by any particular
stockholder or stockholders as they consider necessary (which could include all
of such Affected Shares or ADSs) as Restricted Shares (see below). The Directors
may serve a Restricted Share Notice in respect of any Affected Share, or any ADR
representing any ADS, which is to be treated as a Restricted Share. Such Notices
can have the effect of depriving the recipients of the rights to attend, vote
and speak at general meetings, which they would otherwise have had as a
consequence of holding such shares or ADSs. Such Notices can also require the
recipients to dispose of the shares or ADSs concerned to an EU national (so that
the relevant shares (or shares underlying the relevant ADSs) will then cease to
be Affected Shares) within 21 days or such longer period as the Directors may
determine. The Directors are also given the power to transfer such shares
themselves where there is non-compliance with the Restricted Share Notice.
92
To enable the Directors to identify Affected Shares, transferees of
Ordinary Shares generally will be required to provide a declaration as to the
nationality of persons having interests in those shares and each stockholder is
obliged to notify Ryanair Holdings if any of his, her or its Ordinary Shares
become Affected Shares. Purchasers or transferees of ADSs need not complete a
nationality declaration because the Directors expect to treat all of the
Ordinary Shares held by the Depositary as Affected Shares. An American
Depositary Receipt holder must open an American Depositary Receipt account
directly with the Depositary if he, she or it wishes to provide to Ryanair
Holdings a nationality declaration or such other evidence as the Directors may
require in order to establish to the Directors' satisfaction that the Ordinary
Shares underlying such holder's American Depositary Receipts are not Affected
Shares.
In deciding which Affected Shares are to be selected as Restricted Shares,
the Directors can take into account which Affected Shares have given rise to the
necessity to take action. Subject to that they will, insofar as practicable,
firstly view as Restricted Shares those Affected Shares in respect of which no
declaration as to whether or not such shares are Affected Shares has been made
by the holder thereof and where information which has been requested by the
Directors in accordance with the Articles has not been provided within specified
time periods and, secondly, have regard to the chronological order in which
details of Affected Shares have been entered in the Separate Register and,
accordingly, treat the most recently registered Affected Shares as Restricted
Shares to the extent necessary. Transfers of Affected Shares to Affiliates (as
that expression is defined in the Articles) will not affect the chronological
order of entry in the Separate Register for this purpose. The Directors do
however have the discretion to apply another basis of selection if, in their
sole opinion, that would be more equitable. Where the Directors have resolved to
treat Affected Shares held by any particular stockholder or stockholders as
Restricted Shares (i) because such Affected Shares have given rise to the need
to take such action or (ii) because of a change of law or a requirement or
direction of a regulatory authority necessitating such action (see above), such
powers may be exercised irrespective of the date upon which such Affected Shares
were entered in the Separate Register.
After having initially resolved to set the maximum level at 49%, the
Directors increased the maximum level to 49.9% on May 26, 1999, after the number
of Affected Shares exceeded the initial limit. This maximum level could be
reduced if it becomes necessary for the Directors to exercise these powers in
the circumstances described above. The decision to make any such reduction or to
change the Permitted Maximum from time to time will be published in at least one
national newspaper in Ireland and in any country in which the Ordinary Shares or
ADSs are listed. The relevant notice will specify the provisions of the relevant
Article which can apply to Restricted Shares and the name of the person or
persons who will answer queries relating to Restricted Shares on behalf of
Ryanair Holdings. The Directors shall publish information as to the number of
shares held by EU nationals annually.
As of June 30, 2003, EU nationals owned at least 53.8% of Ryanair Holdings'
Ordinary Shares (assuming conversion of all outstanding ADSs into Ordinary
Shares). Ryanair continues to monitor the EU national ownership status of its
Ordinary Shares, which changes on a daily basis. In an effort to increase the
percentage of its share capital held by EU nationals, on June 26, 2001, Ryanair
Holdings instructed The Bank of New York, the depositary for its ADS program, to
suspend the issuance of new ADSs in exchange for the deposit of Ordinary Shares
until further notice to its shareholders. Holders of Ordinary Shares cannot
convert their Ordinary Shares into ADSs during such suspension, and there can be
no assurance that the suspension will ever be lifted. As a further measure to
increase the percentage of shares held by EU nationals, on February 7, 2002, the
Company issued a notice to shareholders to the effect that any purchase of
Ordinary Shares by a non-EU national after such date will immediately result in
the issue of a Restricted Share Notice to such non-EU national Purchaser. The
Restricted Share Notice compels the non-EU national purchaser to sell the
affected shares to an EU national within 21 days of the date of issuance. In the
event that any such non-EU national shareholder does not sell its shares to an
EU national within the specified time period, the Company can then take legal
action to compel such a sale. As a result, non-EU nationals are effectively
barred from purchasing Ordinary Shares for as long as these restrictions remain
in place. There can be no assurance that these restrictions will ever be lifted.
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TAXATION
Irish Tax Considerations
The following is a discussion of certain Irish tax consequences of the
purchase, ownership and disposition of Ordinary Shares or ADSs. This discussion
is based upon tax laws and practice of the Republic of Ireland at the date of
this document which are subject to change, possibly with retroactive effect.
Particular rules may apply to certain classes of taxpayers (such as dealers in
securities) and this discussion does not purport to deal with the tax
consequences of purchase, ownership or disposition of owning the relevant
securities for all categories of investors.
The discussion is intended only as a general guide based on current Irish
law and practice and is not intended to be, nor should it be considered to be,
legal or tax advice to any particular investor or stockholder. Accordingly,
current stockholders or potential investors should satisfy themselves as to the
overall tax consequences by consulting their own tax advisers.
Dividends. As discussed herein, it is not currently anticipated that
Ryanair Holdings will pay dividends. However, if it does pay dividends or makes
other relevant distributions, the following is relevant:
Withholding Tax. Unless exempted, a withholding at the standard rate of
income tax (currently 20%) will apply to dividends or other relevant
distributions paid by an Irish resident company. The withholding tax requirement
will not apply to distributions paid to certain categories of Irish resident
stockholders nor to distributions paid to certain categories of non-resident
stockholders.
The following Irish resident stockholders are exempt from withholding if
they make to the Company, in advance of payment of any relevant distribution, an
appropriate declaration of entitlement to exemption:
* An Irish resident company;
* A pension scheme;
* A qualifying fund manager or qualifying savings manager;
* A qualifying employee share ownership trust;
* A collective investment undertaking;
* A charity;
* A designated broker receiving the distribution for a special portfolio
investment account;
* A person who is entitled to exemption from income tax under Schedule F
on dividends in respect of an investment in whole or in part of
payments received in respect of a civil action for damages in respect
of mental or physical infirmity;
* Certain qualifying trusts established for the benefit of an
incapacitated individual and/or persons in receipt of income from such
a qualifying trust; and
* A person entitled to exemption to income tax under Schedule F by
virtue of Section 192(2) TCA 1997.
94
The following non-resident stockholders are exempt from withholding if they
make to the Company, in advance of payment of any dividend, an appropriate
declaration of entitlement to exemption:
* Persons (other than a company) who are (i) neither resident nor
ordinarily resident in Ireland and (ii) who are resident for tax
purposes in (a) a country which has in force a tax treaty with Ireland
(a "tax treaty country") or (b) an EU Member State other than Ireland;
* Companies not resident in Ireland which are resident in an EU Member
State or a tax treaty country and are not controlled, directly or
indirectly, by Irish residents;
* Companies not resident in Ireland which are directly or indirectly
controlled by a person or persons who are resident for tax purposes
under the law of a tax treaty country or an EU Member State in a tax
treaty country or an EU Member State other than Ireland and which are
not controlled directly or indirectly by persons who are not resident
for tax purposes in that tax treaty country or EU Member State;
* Companies the principal class of shares of which, or of a company of
which it is a 75% subsidiary, or where the company is wholly-owned by
two or more companies, of each of those companies, is substantially
and regularly traded on a recognized stock exchange in a tax treaty
country or an EU Member State other than Ireland.
In the case of a non-resident stockholder resident in an EU Member State or
tax treaty country, the declaration must be accompanied by a current certificate
of residence from the revenue authorities in the stockholder's country of
residence. In the case of non-resident companies which are controlled by
residents of an EU Member State other than Ireland or of a tax treaty country or
whose shares are substantially and regularly traded on a stock exchange in an EU
Member State other than Ireland or a tax treaty country, certain certification
by their auditors is required. The declaration also contains an undertaking by
the non resident and non ordinarily resident person that they will advise the
relevant person accordingly if they cease to be non resident or non ordinary
resident. No declarations are required where the stockholder is a 25% parent
company in another EU Member State pursuant to the Parent/Subsidiary directive.
Neither is a declaration required on the payment by a company resident in
Ireland to another company so resident where the company making the dividend is
a 51% subsidiary of that other company.
American Depositary Receipts. Special arrangements with regard to the
dividend withholding tax obligation apply in the case of Irish companies using
ADRs through U.S. depositary banks which have been authorized by the Irish
Revenue Commissioners. Such banks, which receive dividends from the company and
pass them on to U.S. ADR holders beneficially entitled to such dividends will be
allowed to receive and pass on the dividends gross based on an "address system"
where the recorded address of such holder, as listed in depository bank's
register of depository receipts, is in the U.S.
95
Taxation on Dividends. Companies resident in Ireland other than those
taxable on receipt of dividends as trading income are exempt from corporation
tax on distributions received from other Irish resident companies. Stockholders
which are "close" companies for Irish taxation purposes may, however, be subject
to a 20% corporation tax surcharge on undistributed investment income.
Individual stockholders who are resident or ordinarily resident in Ireland
are taxable on the gross dividend (i.e., before withholding) at their marginal
rate, but are entitled to a credit for the tax withheld by the company paying
the dividend. An individual stockholder who is not liable or not fully liable to
income tax by reason of exemption or otherwise may be entitled to receive an
appropriate refund of tax withheld. A charge to Irish social security
taxes/levies can also arise for individuals on the amount of any dividend
received from the Company.
Except in certain circumstances, (a) a person who is neither resident nor
ordinarily resident in Ireland and is entitled to receive dividends without
deductions is not chargeable to Irish tax on the dividend, (b) where a
withholding is made on a payment to a person neither resident nor ordinarily
resident in Ireland it will satisfy a liability to Irish tax of such
stockholder.
Capital Gains Tax. A person who is either resident or ordinarily resident
in Ireland will be liable for Irish capital gains tax on any gain realized on
the disposal of the Ordinary Shares or ADSs. The current capital gains tax rate
is 20%. A person who is neither resident nor ordinarily resident in Ireland and
who does not carry on a trade in Ireland through a branch or agency will not be
subject to Irish capital gains tax on the disposal of the Ordinary Shares or
ADSs.
Irish Capital Acquisitions Tax. A gift or inheritance of the Ordinary
Shares or ADSs will be within the charge to Irish Capital Acquisitions Tax
("CAT") notwithstanding that the disponer (e.g., a donor) or the donee/successor
in relation to such gift or inheritance is resident outside Ireland. CAT is
charged at a rate of 20% above a tax-free threshold. This tax-free threshold is
determined by the amount of the current benefit and of previous benefits taken
since December 2, 1988 within the charge to CAT and the relationship between the
donor and the successor or donee. Gifts and inheritances between spouses (and in
certain cases former spouses) are not subject to CAT. To the extent that
Ordinary Shares or ADSs pass under a will or on intestacy, the Ordinary Shares
or ADSs would be within the charge to this tax notwithstanding that the disponer
or the successor is resident outside Ireland.
In a case where an inheritance of the Ordinary Shares or ADSs is subject to
both Irish CAT and either U.S. federal estate tax or U.K. inheritance tax, the
Irish CAT paid on the inheritance may in certain circumstances may be credited
in whole or in part against the tax paid on the inheritance in the United States
or U.K., as the case may be under the relevant Estate Tax Convention between
Ireland and the United States or U.K. Neither Convention provides for relief
from Irish CAT paid on gifts.
Irish Stamp Duty. It is assumed for the purposes of this paragraph that
ADSs are dealt in on a recognized stock exchange in the United States (the
Nasdaq National Market is a recognized stock exchange in the United States for
this purpose). Under current Irish law, no stamp duty will be payable on the
acquisition of ADSs by persons purchasing such ADSs or on any subsequent
transfer of an ADS. A transfer of Ordinary Shares (including transfers effected
through CREST) wherever executed and whether on sale, in contemplation of a sale
or by way of a gift, will attract duty at the rate of 1% of the consideration
given or, in the case of a gift or where the purchase price is inadequate or
unascertainable, on the market value of the Ordinary Shares. Transfers of
Ordinary Shares which are not liable to duty at the rate of 1% (e.g., transfers
under which there is no change in beneficial ownership) may attract a fixed duty
of EUR12.50.
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The transfer by a stockholder to the Depositary or Custodian of Ordinary
Shares for deposit in return for ADSs and a transfer of Ordinary Shares from the
Depositary or Custodian in return for the surrender of ADSs will be stampable at
the rate of 1% if the transfer of Ordinary Shares relates to a sale or
contemplated sale or any other change in the beneficial ownership (under Irish
law) of such Ordinary Shares. If, however, the transfer of the Ordinary Shares
is a transfer under which there is no change in the beneficial ownership (under
Irish law) of the Ordinary Shares being transferred, nominal stamp duty only
will be payable on the transfer. Under Irish law, it is not free from doubt that
the mere deposit of Ordinary Shares for ADSs or ADSs for Ordinary Shares would
not be deemed to constitute a change in beneficial ownership. Accordingly, it is
not certain that holders would not be subject to stamp duty at the 1% rate when
merely depositing Ordinary Shares for ADSs or ADSs for Ordinary Shares and,
consequently, the Depositary reserves the right in such circumstances to require
payment of stamp duty at the rate of 1% from the holders.
The person accountable for payment of stamp duty is the transferee or, in
the case of a transfer by way of a gift or for a consideration less than the
market value, all parties to the transfer. Stamp duty is normally payable within
30 days after the date of execution of the transfer. Late or inadequate payment
of stamp duty will result in a liability to interest, penalties and fines.
United States Tax Considerations
Except as described below under the heading "Non-U.S. Holders," the
following is a summary of certain U.S. federal income tax considerations
relating to the purchase, ownership and disposition of Ordinary Shares or ADSs
by a holder that is a citizen or resident of the United States, a U.S. domestic
corporation or that is otherwise subject to U.S. federal income tax on a net
income basis in respect of the Ordinary Shares or the ADSs ("U.S. Holders").
This summary does not purport to be a comprehensive description of all of the
tax considerations that may be relevant to a decision to purchase the Ordinary
Shares or the ADSs. In particular, the summary deals only with U.S. Holders that
will hold Ordinary Shares or ADSs as capital assets and generally does not
address the tax treatment of U.S. Holders that may be subject to special tax
rules such as banks, insurance companies, dealers in securities or currencies,
traders in securities electing to mark-to-market, persons that own 10% or more
of the stock of the Company, U.S. Holders whose "functional currency" is not
U.S. Dollars or persons that hold the Ordinary Shares or the ADSs as part of an
integrated investment (including a "straddle") consisting of the Ordinary Shares
or the ADSs and one or more other positions.
Holders of the Ordinary Shares or the ADSs should consult their own tax
advisors as to the U.S. or other tax consequences of the purchase, ownership,
and disposition of the Ordinary Shares or the ADSs in light of their particular
circumstances, including, in particular, the effect of any foreign, state or
local tax laws.
For U.S. federal income tax purposes, holders of the ADSs will be treated
as the owners of the Ordinary Shares represented by those ADSs.
Taxation of Dividends. Dividends, if any, paid with respect to the Ordinary
Shares, including Ordinary Shares represented by ADSs, will be included in the
gross income of a U.S. Holder when the dividends are received by the holder or
the Depositary, as the case may be. Such dividends will not be eligible for the
dividends received deduction allowed to U.S. corporations in respect of
dividends from a domestic corporation. Dividends paid in euros will be
includible in the income of a U.S. Holder in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day they are received by the
holder or the Depositary, as the case may be. U.S. Holders generally should not
be required to recognize any foreign currency gain or loss to the extent such
dividends paid in euros are converted into U.S. dollars immediately upon
receipt. Under new rules applicable to dividends received after 2002 and before
2009, an individual U.S. Holder generally will be subject to U.S. taxation at a
maximum rate of 15%. This reduced rate does not apply to dividends paid in
respect of certain short-term (less than 60 days) or hedged positions. U.S.
holders should consult their own tax advisors regarding the implications of
these new rules in light of their particular circumstances.
97
Under the U.S.-Ireland Income Tax Treaty currently in effect, in the event
the Company were to pay any dividends, the tax credit attaching to the dividend
(as used herein the "Tax Credit"; see "-Irish Tax Considerations") will
generally be treated as a foreign income tax eligible for credit against such
U.S. Holder's United States federal income tax liability, subject to generally
applicable limitations and conditions. Any such dividends payable by the Company
to such U.S. Holder will constitute income from sources without the United
States for foreign tax credit purposes, and generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income."
Foreign tax credits may not be allowed for withholding taxes imposed
in respect of certain short-term or hedged positions in securities or in
respect of certain arrangements in which a U.S. Holder's expected economic
profit is insubstantial. U.S. Holders should consult their own advisors
concerning the implications of these rules in light of their particular
circumstances.
Distributions of Ordinary Shares that are made as part of a pro rata
distribution to all stockholders generally will not be subject to U.S. federal
income tax.
Sale or Disposition of Ordinary Shares or ADSs. Gains or losses
realized by a U.S. Holder on the sale or other disposition of ADSs generally
will be treated for U.S. federal income tax purposes as capital gains or
losses, which generally will be long-term capital gains or losses if the ADSs
have been held for more than one year. The net amount of long-term capital
gain recognized by an individual holder after May 5, 2003 and before
January 1, 2009 generally is subject to taxation at a maximum rate of 15%.
The net long-term capital gain recognized by an individual holder before
May 6, 2003 or after December 31, 2008 generally is subject to taxation at a
maximum rate of 20%.
Deposits and withdrawals of Ordinary Shares by U.S. Holders in
exchange for ADSs will not result in the realization of gain or loss for U.S.
federal income tax purposes.
Non-U.S. Holders. A holder of Ordinary Shares or ADSs that is, with
respect to the United States, a foreign corporation or a nonresident alien
individual (a "Non-U.S. Holder") generally will not be subject to U.S.
federal income or withholding tax on dividends received on such Ordinary
Shares or ADSs unless such income is effectively connected with the conduct
by such holder of a trade or business in the United States. A Non-U.S. Holder
of ADSs or Ordinary Shares will not be subject to U.S. federal income tax
or withholding tax in respect of gain realized on the sale or other
disposition of Ordinary Shares or ADSs, unless (i) such gain is effectively
connected with the conduct by such holder of a trade or business in the
United States or (ii) in the case of gain realized by an individual
Non-U.S. Holder, such Non-U.S. Holder is present in the United States for
183 days or more in the taxable year of the sale and certain other conditions
are met.
98
DOCUMENTS ON DISPLAY
Copies of Ryanair Holdings' Articles of Association may be examined at its
registered office and principal place of business at its Corporate Head Office,
Dublin Airport, County Dublin, Ireland.
Ryanair Holdings also files reports, including annual reports on Form 20-F,
periodic reports on Form 6-K and other information with the Securities and
Exchange Commission pursuant to the rules and regulations of the SEC that apply
to foreign private issuers. You may read and copy any materials filed with the
SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20459. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
GENERAL
Ryanair is exposed to market risks relating to fluctuations in commodity
prices, interest rates and currency exchange rates. The objective of financial
risk management at Ryanair is to minimize the negative impact of commodity
price, interest rate and foreign exchange rate fluctuations on the Company's
earnings, cash flows and equity.
To manage these risks, Ryanair uses various derivative financial
instruments, including forward starting interest rate swaps, foreign currency
forward contracts and commodity contracts. These derivative financial
instruments are generally held to maturity and are not actively traded. The
Company enters into these arrangements with the goal of hedging its operational
and balance sheet risk. However, Ryanair's exposure to commodity price, interest
rate and currency exchange rate fluctuations cannot be neutralized completely.
The Company also does not use derivative financial instruments to counter other
kinds of ambient risks that could affect its results of operations and financial
condition.
In executing its risk management strategy, Ryanair enters into forward
contracts for the purchase of aviation fuel, as well as foreign currency forward
contracts intended to reduce its exposure to certain currencies, principally the
U.S. dollar and sterling. It also enters into forward starting interest rate
contracts with the objective of fixing certain borrowing costs and hedging
principal repayments, particularly those associated with the purchase of new
aircraft such as the Boeing 737-800s. Ryanair is also exposed to the risk that
the counterparties to its derivative financial instruments may not be
creditworthy. Were a counterparty to default on its obligations under any of the
instruments described below, Ryanair's economic expectations when entering into
these arrangements might not be achieved and its financial condition could be
adversely affected. Transactions involving derivative financial instruments are
also relatively illiquid as compared with those involving other kinds of
financial instruments. It is Ryanair's policy not to enter into transactions
involving financial derivatives for speculative purposes.
The following paragraphs describe Ryanair's fuel hedging, foreign
currency and interest rate swap arrangements and analyze the sensitivity of the
market value, earnings and cash flows of the financial instruments to
hypothetical changes in commodity prices, interest rates and exchange rates as
if these changes had occurred at March 31, 2003. The range of changes selected
for this sensitivity analysis reflects Ryanair's view of changes which are
reasonably possible over a one-year period.
FUEL PRICE EXPOSURE AND HEDGING
Fuel costs constitute a substantial portion of Ryanair's operating expenses
(approximately 17.0%, 22.5% and 22.3% of such expenses in fiscal years 2001,
2002 and 2003, respectively, after taking into account Ryanair's fuel hedging
activities). Ryanair engages in fuel price hedging transactions from time to
time, pursuant to which Ryanair and a counterparty agree to exchange payments
equal to the difference between a fixed price for a given quantity of jet fuel
and the market price for such quantity of jet fuel at a given date in the
future, with Ryanair receiving the amount of any excess of such market price
over such fixed price and paying to the counterparty the amount of any excess of
such fixed price over such market price. Since the end of 1995, Ryanair has
sought to hedge its expected fuel requirements for the coming 12 to 18 months on
a rolling basis. Although these hedging strategies can cushion the impact on
Ryanair of fuel price increases in the short term, in the medium to longer-term,
such strategies cannot be expected to eliminate the impact on the Company of an
increase in the market price of aviation fuel. The unrealized gains/losses on
these forward agreements at March 31, 2001, March 31, 2002 and March 31, 2003,
based on their fair values, were a loss of EUR1.4 million, a gain of EUR5.9
million and a gain of EUR3.3 million, respectively. Based on Ryanair's fuel
consumption for the fiscal year ended March 31, 2003, a change of one U.S. cent
in the average annual price per U.S. gallon of aviation fuel would have caused a
change of approximately EUR1.44 million in Ryanair's fuel costs.
99
Under Irish GAAP, the Company's fuel forward contracts are treated as
hedges, and any unrealized gains or losses arising on those contracts are
deferred and recognized as an offset to fuel expenses, when realized. Under U.S.
GAAP, Ryanair accounts for its fuel forward contracts as cash flow hedges. In
accordance with Statement of Financial Accounting Standards No 133 "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), these financial
instruments are recorded at fair value as an offset to accumulated other
comprehensive income, net of applicable income taxes and the amount of estimated
hedge ineffectiveness, and are recorded as a component of fuel expenses when the
underlying fuel being hedged is used. The Company considers these hedges to be
highly effective in offsetting variability in future cash flows arising from
fluctuations in the market price of fuel because the fuel forward contracts
relate to the same quantity and time and location of delivery as the forecasted
fuel purchase being hedged. Accordingly, the quantification of the change in
expected cash flows of the forecasted fuel purchase is based on the fuel forward
price, and in the fiscal year ended March 31, 2003, the Company recorded no
material hedge ineffectiveness within earnings.
In the fiscal year ended March 31, 2003, the Company recorded a positive
fair value adjustment relating to fuel forward contracts of EUR2.9 million, net
of tax, within accumulated other comprehensive income. All of this gain is
expected to impact on Ryanair's earnings in fiscal 2004. In the fiscal year
ended March 31, 2002, the Company recorded a corresponding positive fair value
adjustment of EUR4.7 million, net of tax, within accumulated other comprehensive
income.
In fiscal year 2001, prior to the adoption of SFAS 133, the Company's
unrealized gains and losses on fuel forward contracts were deferred and
recognized in earnings when realized as an offset to fuel expenses. Upon the
adoption of SFAS 133 at April 1, 2001, the Company recorded a transition
adjustment of negative EUR1.1 million within accumulated other comprehensive
income relating to its fuel forward contracts.
FOREIGN CURRENCY EXPOSURE AND HEDGING
In recent years, Ryanair's revenues have been denominated primarily in two
currencies, the euro (and its predecessors) and U.K. pounds sterling. The euro
(and predecessor euro-area currencies) accounted for approximately 55% of
Ryanair's total revenues in fiscal year 2003, as compared to approximately 43%
in fiscal year 2002 and approximately 38% in fiscal year 2001, with sterling
accounting for most of the balance in each period. As Ryanair reports its
results in euro, the Company is not exposed to any material currency risk as a
result of its euro-denominated activities. Ryanair's operating expenses are
primarily denominated in euro, sterling and U.S. dollars. Ryanair's operations
can be subject to significant direct exchange rate risks between the euro and
the U.S. dollar because a significant portion of its operating costs
(particularly those related to fuel purchases) is incurred in U.S. dollars,
while none of its revenues is denominated in U.S. dollars. Appreciation of the
euro versus the U.S. dollar positively impacts Ryanair's operating income
because the amount in euro of its U.S. dollar operating costs decreases, while
depreciation of the euro versus the U.S. dollar negatively impacts operating
income. It is Ryanair's policy to hedge against a certain portion of its
exposure to fluctuations in the exchange rate between the U.S. dollar and
sterling at the time Ryanair enters into U.S. dollar-denominated purchases. In
general, Ryanair does not hedge its operating surpluses and shortfalls in
currencies other than the U.S. dollar and sterling.
100
Management seeks to manage Ryanair's exposure to changes in the value of
sterling by matching its sterling revenues against its sterling costs. Any
unmatched sterling revenues are generally used to fund forward exchange
contracts to hedge U.S. dollar currency exposure which arises in relation to
Ryanair's fuel, maintenance, aviation insurance and capital expenditure costs,
including the payments to Boeing on the 737-800s.
As Ryanair's volume of traffic originating in the U.K. has increased,
however, the volume of Ryanair's unmatched sterling revenues has also increased.
Accordingly, in fiscal year 2002 and fiscal year 2003, the Company entered into
a series of U.S. dollar/sterling and U.S. dollar/euro forward contracts to hedge
against variability in cash flows arising from market fluctuations in foreign
exchange rates associated with its forecasted fuel, maintenance and insurance
costs. At March 31, 2003, the total unrealized loss relating to these contracts
amounted to EUR5.2 million, compared to a EUR0.2 million gain at March 31, 2002.
In the fiscal years ended March 31, 2003 and 2002, the Company also entered
into a series of sterling/euro forward contracts to hedge against variability in
cash flows arising from market fluctuations in foreign exchange rates associated
with its forecasted sterling revenues. At March 31, 2003, the total unrealized
loss relating to these contracts amounted to EUR0.9 million, while at March 31,
2002, the total unrealized gain relating to these contracts amounted to EUR1.1
million.
Under Irish GAAP, the Company's foreign currency forward contracts are
treated as hedges and any unrealized gains or losses arising on those contracts
are deferred and recognized as an offset to the related income or expense when
realized. Under U.S. GAAP, the Company accounts for these contracts as cash flow
hedges in accordance with SFAS 133, and the change in fair value of these
contracts is recorded as an offset to accumulated other comprehensive income,
net of applicable income taxes and the amount of estimated hedge
ineffectiveness. Ryanair considers these hedges to be highly effective in
offsetting variability in future cash flows arising from fluctuations in
exchange rates, because the forward contracts are always for the same quantity,
currency and maturity date as the forecasted U.S. dollar-denominated expense or
sterling-denominated revenue being hedged. Accordingly, the quantification of
the change in expected cash flows of the forecasted U.S. dollar expense or
sterling revenue is based on the forward contract price and in the fiscal year
ended March 31, 2003, no material hedge ineffectiveness was recorded in
earnings. In the fiscal year ended March 31, 2003, the Company recorded a
negative fair value adjustment of EUR4.6 million relating to its U.S.
dollar/sterling forward contracts and a negative fair value adjustment of EUR0.8
million relating to its sterling/euro forward contracts. These losses have been
included within accumulated other comprehensive income and are all expected to
impact on earnings in fiscal year 2004. In the fiscal year ended March 31, 2002,
the Company recorded a positive fair value adjustment of EUR0.2 million relating
to its U.S. dollar/sterling forward contracts and a positive fair value
adjustment of EUR0.9 million relating to its sterling/euro forward contracts.
In fiscal year 2001 prior to the adoption of SFAS 133, the Company's
unrealized gains and losses on these contracts were accounted for in accordance
with "Statement of Financial Accounting Standard No 52 - Foreign Currency"
("SFAS 52"). Certain of these contracts did not qualify for hedge accounting,
and accordingly a gain of EUR6.8 million was recorded in earnings in fiscal year
2001.
101
On adoption of SFAS 133 at April 1, 2001, the Company recorded transition
adjustments within accumulated other comprehensive income consisting of a gain
of EUR3.2 million, net of tax, in respect of its U.S. dollar/sterling forward
contracts and a loss of EUR4.5 million, net of tax, in respect of its
sterling/euro forward contracts.
During fiscal years 2002 and 2001, the Company also entered into a series
of U.S. dollar/sterling and U.S. dollar/euro contracts to hedge against changes
in the fair value of aircraft purchase commitments under the Boeing contracts
which arise from fluctuations in the U.S. dollar/sterling and U.S. dollar/euro
exchange rates. At March 31, 2003, the total unrealized losses relating to these
contracts amounted to EUR3.8 million, while at March 31, 2002, such unrealized
gains amounted to EUR0.2 million.
Under U.S. GAAP, the Company accounts for these contracts as fair value
hedges in accordance with SFAS 133, and accordingly, such financial instruments
are recorded at fair value. Any gains or losses arising on these instruments are
recorded currently in earnings while the related gain or loss on the underlying
aircraft purchase commitment adjusts the carrying amount of aircraft purchase
commitments and is also recognized currently in earnings. Any related
ineffectiveness is measured by the amount by which these adjustments to earnings
do not match. The Company expects these hedges to be highly effective in
offsetting changes in the fair value of the aircraft purchase commitments
arising from fluctuations in exchange rates because the forward exchange
contracts are always for the same amount, currency and maturity dates as the
corresponding aircraft purchase commitments. Accordingly, the quantification of
the change in the fair value of the aircraft purchase commitment is based on the
foreign currency forward rate, and in the fiscal year ended March 31, 2003, no
material hedge ineffectiveness was recorded in earnings.
In fiscal year 2001, prior to the adoption of SFAS 133, the Company's
unrealized gains and losses on these contracts were accounted for in accordance
with SFAS 52, and were deferred and recognized as an offset to the price of the
aircraft when purchased.
Holding other variables constant, if there were an adverse change of ten
percent in relevant foreign currency exchange rates, the market value of
Ryanair's foreign currency contracts outstanding at March 31, 2003 would
decrease by EUR18.6 million, all of which would impact earnings.
INTEREST RATE EXPOSURE AND HEDGING
The Company's purchase of all of the 41 Boeing 737-800 aircraft delivered
to date has been funded in part by bank financing in the form of loans under
facilities supported by a loan guarantee from ExIm. At March 31, 2003, ABN Amro
and RBS had provided financing under these ExIm-guaranteed loan facilities for
28 and five aircraft, respectively. RBS provided financing under such a facility
for an additional three aircraft delivered in April 2003 and BNP provided
financing under such a facility for an additional five aircraft delivered in
September 2003. Each of the loans under the facilities is on substantially
similar terms, having a maturity of twelve years from the drawdown date and
being secured by a first priority mortgage in favor of a security trustee on
behalf of ExIm. The initial loans under the ABN facility are denominated in
dollars and bear interest at a floating rate linked to US dollar LIBOR, while
subsequent loans under that facility, as well as all of those under the RBS and
BNP facilities, are denominated in euro and bear interest at floating rates
linked to EURIBOR.
Through the use of cross currency swaps, Ryanair has effectively converted
its dollar-denominated debt under the ABN facility into euro-denominated debt.
Through the use of interest rate swaps, Ryanair has effectively converted almost
all of its floating rate debt under each of the facilities into fixed rate debt.
Loans for approximately 4% of aircraft acquired under the above facilities are
not covered by such swaps and have therefore remained at floating rates linked
to EURIBOR; the interest rate exposure from these loans is hedged by a similar
amount of cash on deposit at floating rates. The net result is that Ryanair has
effectively drawn down fixed rate euro-denominated debt with a maturity of
twelve years in respect of its financing of more than 96% of the 41 Boeing
737-800 aircraft delivered to date and has no ongoing currency or interest rate
exposure in respect of this debt. At March 31, 2003, the Company had outstanding
cumulative borrowings under the ABN and RBS facilities of EUR828.2 million with
a weighted average interest rate of 5.28%. See "Item 5. Operating and Financial
Review and Prospects--Liquidity and Capital Resources--Capital Expenditures" for
a tabular summary of the "Effective Borrowing Profile of Aircraft-Related Debt"
illustrating the effect of the swap transactions (each of which is with an
established international financial counterparty) on the profile of Ryanair's
aircraft-related debt at March 31, 2003. If Ryanair had not entered into such
swap agreements, a plus or minus one-percentage point movement in interest rates
would impact the unrealized fair market value of this liability by approximately
EUR45 million. The earnings and cash flow impact of any such change would be
approximately plus or minus EUR8 million per year, holding other variables
constant.
102
In connection with its expected financing of additional 737-800 aircraft to
be delivered under the 2002 Boeing Contract and the 2003 supplemental agreement
after March 31, 2003, Ryanair has entered into a series of forward-starting
12-year interest rate swaps. These swaps have the effect of capping the
effective interest rate in euro terms on an estimated notional value of EUR875
million in borrowings commencing between April 2003 and March 2005 and
terminating between April 2015 and December 2017 (with the starting dates
corresponding to the scheduled delivery dates for the aircraft) at interest
rates from 5.63% to 5.75%. At March 31, 2003, the fair value of the forward
starting interest rate swap agreements relating to forecasted debt drawdowns on
a mark-to-market basis was represented by a loss of EUR81 million.
Under Irish GAAP, the Company's forward starting interest rate swaps are
accounted for as hedges and any unrealized gains or losses on those swaps are
deferred and recognized as an offset to the related financing charges once the
debt is drawn down. Under U.S. GAAP, the Company accounts for its forward
starting interest rate swaps as cash flow hedges in accordance with SFAS 133.
These financial instruments are, accordingly, recorded at fair value with an
offset to accumulated other comprehensive income, net of applicable income taxes
and the estimated amount of hedge ineffectiveness, and are deferred and recorded
in earnings on the same basis as the underlying interest expense once the debt
is drawn-down, shown as an offset to interest expense.
The Company considers these hedges to be highly effective in offsetting
variability in future cash flows arising from the fluctuation of interest rates
associated with forecasted drawdowns of debt, because the notional amounts of
forecasted debt and forward starting interest rate swaps match, the formula for
computing net settlements under the swaps are uniform, the repricing dates match
and both the swap and the forecast debt draw-downs are based on the same index.
Additionally, the other conditions set out in SFAS 133 for highly effective
interest rate hedges have, in the opinion of the Company, been met. Accordingly,
the quantification of the change in expected cash flows of the forecasted loan
drawdowns is based on the forward starting interest rate, and in fiscal year
2003, no material hedge ineffectiveness has been recorded in earnings. In the
fiscal year ended March 31, 2003, the Company recorded a negative fair value
adjustment of EUR71 million relating to these forward starting interest rate
swaps, which was included within accumulated other comprehensive income. This
loss will be realized within earnings over a twelve-year period from the
expected drawdown of the related financing as an offset to the related interest
expense.
In fiscal year 2001, prior to the adoption of SFAS 133, unrealized gains
and losses on forward starting interest rate swaps were deferred and recognized
in the income statement when realized, as an offset to actual interest expense
on drawn-down debt. The unrealized gain on such contracts at March 31, 2001,
amounted to EUR3.8 million. On adoption of SFAS 133 at April 1, 2002, the
Company recorded a positive transition adjustment of EUR6.0 million in respect
of these forward starting interest rate swaps in accumulated other comprehensive
income.
103
Assuming that Ryanair had fully drawn down this forecasted debt on March
31, 2003, but that it had not entered into such forward starting interest rate
swap agreements, a plus or minus one percentage point movement in interest rates
would impact the fair value of this liability by approximately EUR55 million.
The earnings and cash flow impact of any such change in interest rates would
have been approximately plus or minus EUR9 million per year.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
Item 15. Controls and Procedures
The Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of March 31, 2003, the end
of the fiscal year covered by this annual report. Based upon and as of the date
of the Company's evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation. There were no changes in the Company's internal control over
financial reporting that occurred during the fiscal year covered by this annual
report that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
104
Item 16A. Audit Committee Financial Expert
Not applicable.
Item 16B. Code of Ethics
Not applicable.
Item 16C. Principal Accountant Fees and Services
Not applicable.
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
Item 19. Exhibits
1.1 Memorandum and Articles of Association of Ryanair Holdings in effect
as of the date of this Report (incorporated herein by reference to
Exhibit 1.1 of Ryanair Holdings' Annual Report on Form 20-F/A filed on
November 2, 2001 (Commission file No. 0-2930)).
1.2 The total amount of long-term debt securities of Ryanair Holdings
authorized under any instrument does not exceed 10% of the total
assets of the Company on a consolidated basis. Ryanair Holdings hereby
agrees to furnish to the Securities and Exchange Commission upon
request a copy of any instrument defining the rights of holders of
long-term debt of the registrant or of its subsidiaries for which
consolidated or unconsolidated financial statements are required to be
filed.
4.1 Purchase Agreement No. 2403 between The Boeing Company and Ryanair
Holdings plc relating to Model 737-8AS aircraft, together with
ancillary documents (subject to a request for confidential treatment
that has been granted) (incorporated herein by reference to Exhibit
4.1 of Ryanair Holdings' Annual Report on Form 20-F filed on September
30, 2002 (commission file No. 0-2930)).
8.1 Principal subsidiaries of the registrant.
99.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
105
RYANAIR HOLDINGS PLC INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report....................................................................... F-2
Consolidated Balance Sheets of Ryanair Holdings plc at March 31, 2001, March 31, 2002 and
March 31, 2003..................................................................................... F-3
Consolidated Profit and Loss Accounts of Ryanair Holdings plc for the Years ended March 31,
2001, March 31, 2002 and March 31, 2003............................................................ F-4
Consolidated Cash Flow Statements of Ryanair Holdings plc for the Years ended March 31,
2001, March 31, 2002 and March 31, 2003............................................................ F-5
Consolidated Statements of Changes in Shareholders' Funds-Equity of Ryanair Holdings plc
for the Years ended March 31, 2001, March 31, 2002 and March 31, 2003.............................. F-6
Notes to Consolidated Financial Statements......................................................... F-7
F-1
Report of independent chartered accountants to the shareholders and Board of
Directors of Ryanair Holdings plc
We have audited the accompanying consolidated balance sheets of Ryanair
Holdings plc and subsidiaries (Ryanair Holdings plc) at March 31, 2001, 2002 and
2003 and the related consolidated profit and loss accounts, consolidated cash
flow statements and consolidated statements of changes in shareholders'
funds-equity for the years ended March 31, 2001, 2002 and 2003. These
consolidated financial statements are the responsibility of Ryanair Holdings
plc's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Ireland and in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ryanair
Holdings plc at March 31, 2001, 2002 and 2003 and the results of their
operations and cash flows for the years ended March 31, 2001, 2002 and 2003 in
conformity with generally accepted accounting principles in Ireland.
Generally accepted accounting principles in Ireland vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity for
the years ended March 31, 2001, 2002 and 2003 to the extent summarized in Note
30 to the consolidated financial statements.
KPMG
Chartered Accountants
Dublin, Ireland
May 29, 2003
F-2
Consolidated Balance Sheets
At March 31, At March 31, At March 31,
2001 2002 2003
Note EUR000 EUR000 EUR000
Current assets
Cash and liquid resources.................................... 2 626,720 899,275 1,060,218
Accounts receivable.......................................... 3 8,695 10,331 14,970
Other assets ................................................ 5 12,235 11,035 16,370
Inventories ................................................. 6 15,975 17,125 22,788
Total current assets......................................... 663,625 937,766 1,114,346
Fixed assets
Tangible assets.............................................. 4 613,591 951,806 1,352,361
Financial assets............................................. 36 - -
Total assets................................................. 1,277,252 1,889,572 2,466,707
Current liabilities
Accounts payable............................................. 7 29,998 46,779 61,604
Accrued expenses and other liabilities....................... 8 139,406 217,108 251,328
Current maturities of long term debt......................... 9 27,994 38,800 63,291
Short term borrowings........................................ 10 5,078 5,505 1,316
Total current liabilities.................................... 202,476 308,192 377,539
Other liabilities
Provisions for liabilities and charges....................... 11 30,122 49,317 67,833
Accounts payable due after one year.......................... - 18,086 5,673
Long term debt............................................... 9 374,756 511,703 773,934
404,878 579,106 847,440
Shareholders' funds-equity
Called-up share capital...................................... 12 9,194 9,587 9,588
Share premium account........................................ 12 371,849 553,457 553,512
Profit and loss account...................................... 288,855 439,230 678,628
Shareholders' funds-equity................................... 669,898 1,002,274 1,241,728
Total liabilities and shareholders' funds.................... 1,277,252 1,889,572 2,466,707
The accompanying notes are an integral part of the financial information.
F-3
Consolidated Profit and Loss Accounts
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
Note EUR000 EUR000 EUR000
Operating Revenues
Scheduled revenues......................... 432,940 550,991 731,951
Ancillary revenues......................... 54,465 73,059 110,557
Total operating revenues-continuing operations 18 487,405 624,050 842,508
Operating expenses
Staff costs................................ 19 (61,222) (78,240) (93,073)
Depreciation and amortization.............. 4 (59,175) (59,010) (76,865)
Other operating expenses................... 20 (252,997) (323,867) (409,096)
Total operating expenses................... (373,394) (461,117) (579,034)
Operating profit-continuing operations..... 21 114,011 162,933 263,474
Other income/(expenses)
Interest receivable and similar income..... 19,666 27,548 31,363
Interest payable and similar charges....... 22 (11,962) (19,609) (30,886)
Foreign exchange gains..................... 1,621 975 628
Gain on disposal of fixed assets........... 52 527 (29)
Total other income/(expenses).............. 9,377 9,441 1,076
Profit on ordinary activities before tax... 123,388 172,374 264,550
Tax on profit on ordinary activities....... 23 (18,905) (21,999) (25,152)
Profit for the financial year.............. 104,483 150,375 239,398
Basic earnings per ordinary share euro
cent................................... 25 14.81 20.64 31.71
Diluted earnings per ordinary share euro
cent................................... 25 14.63 20.32 31.24
Number of ordinary shares (adjusted for 2:1
share split on December 7, 2001)....... 25 705,622,802 728,726,484 755,055,374
Number of diluted shares................... 714,195,716 739,960,901 766,278,569
The accompanying notes are an integral part of the financial information.
F-4
Consolidated Cash Flow Statements
Year ended March Year ended Year ended
31, 2001 March 31, 2002 March 31, 2003
Note EUR000 EUR000 EUR000
Net cash inflow from operating activities............. 27(a) 229,802 309,109 351,003
Returns on investments and servicing of finance
Interest received..................................... 14,303 30,193 30,171
Interest paid......................................... (8,667) (19,830) (29,563)
Interest paid on finance leases....................... (67) (3) -
Net cash inflow from returns on investments and
servicing of finance.............................. 5,569 10,360 608
Taxation
Corporation tax paid.................................. (13,813) (5,071) (3,410)
Capital expenditure and financial investment
Purchase of tangible fixed assets..................... (356,669) (372,587) (469,878)
Sales of financial and tangible fixed assets.......... 456 563 31
Net cash (outflow) from capital expenditure and
financial investment.............................. (356,213) (372,024) (469,847)
Net cash (outflow) before financing and management of
liquid resources.................................. (134,655) (57,626) (121,646)
Financing and management of liquid resources
Loans raised.......................................... 292,882 175,746 331,502
Debt repaid........................................... (11,825) (27,886) (44,779)
Issue of share capital................................ 128,607 188,331 56
Share issue costs..................................... (4,549) (6,330) -
Capital element of finance leases..................... (286) (107) (1)
Financing............................................. 404,829 329,754 286,778
(Increase) in liquid resources........................ 27(c) (230,633) (251,241) (166,329)
Net cash inflow from financing and management of liquid
resources......................................... 174,196 78,513 120,449
Increase/(decrease) in cash........................... 27(e) 39,541 20,887 (1,197)
The accompanying notes are an integral part of the financial information.
F-5
Consolidated Statements of Changes in Shareholders' Funds-Equity
Share
Ordinary premium Profit and
shares account loss account Total
EUR000 EUR000 EUR000 EUR000
Balance at March 31, 2000.............................. 8,892 248,093 184,372 441,357
Issue of ordinary equity shares (net of issue costs)... 302 123,756 - 124,058
Profit for the financial year.......................... - - 104,483 104,483
Balance at March 31, 2001.............................. 9,194 371,849 288,855 669,898
Issue of ordinary equity shares (net of issue costs)... 393 181,608 - 182,001
Profit for the financial year.......................... - - 150,375 150,375
Balance at March 31, 2002.............................. 9,587 553,457 439,230 1,002,274
Issue of ordinary equity shares (net of issue costs)... 1 55 - 56
Profit for the financial year.......................... - - 239,398 239,398
Balance at March 31, 2003.............................. 9,588 553,512 678,628 1,241,728
Details of movements in the number of shares and in the share premium account
are set out in Note 12.
The accompanying notes are an integral part of the financial information.
F-6
1a Business activity
Ryanair Limited and subsidiaries (the Group or Ryanair Limited) has
operated as an international airline since it commenced operations in 1985. On
August 23, 1996 Ryanair Holdings Limited, a newly formed holding company,
acquired the entire issued share capital of Ryanair Limited. On May 16, 1997
Ryanair Holdings Limited re-registered as a public limited company, Ryanair
Holdings plc (the Company). Ryanair Holdings plc and subsidiaries are hereafter
referred to as Ryanair Holdings plc (the Group or Ryanair Holdings). All trading
activity continues to be undertaken by the Group of companies headed by Ryanair
Limited.
1b Significant accounting policies
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Group's financial
statements. These financial statements are prepared in accordance with generally
accepted accounting principles (GAAP) in Ireland under the historical cost
convention and comply with financial reporting standards of the Accounting
Standards Board, as promulgated by the Institute of Chartered Accountants in
Ireland. Where possible, however, financial information has been presented in
accordance with the presentation and terminology of United States (U.S.) GAAP
except where such presentation is not consistent with Irish GAAP. A summary of
the differences between Irish GAAP and U.S. GAAP as applicable to the Group is
set out in Note 30.
Basis of preparation
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles in Ireland requires the use of management
estimates and assumptions that affect the reported amounts and disclosures in
these financial statements. Actual results could differ from these estimates.
The consolidated financial statements are prepared in euro.
Basis of consolidation
The Group's consolidated financial statements comprise the consolidated
financial statements of Ryanair Holdings plc and its subsidiary undertakings for
the years ended March 31, 2001, March 31, 2002 and March 31, 2003.
The results of subsidiary undertakings acquired or disposed of in the
period are included in the consolidated profit and loss account from the date of
acquisition or up to the date of disposal. Upon the acquisition of a business,
fair values are attributed to the separable net assets acquired. In the
Company's financial statements, investments in subsidiary undertakings are
stated at cost less any amounts written off.
Goodwill arising on acquisitions prior to March 31, 1998 has been written
off against the profit and loss account.
A separate profit and loss account for the Company is not presented, as
provided by Section 3 (2) of the Companies (Amendment) Act 1986. The retained
profit for the year attributable to the Company was EURnil (2002: EURNil, 2001:
EURNil).
Operating revenues
Operating revenues comprise the invoiced value of airline and other
services, net of passenger taxes. Revenue from the sale of flight seats is
recognized in the period in which the service is provided. Unearned revenue
represents flight seats sold but not yet flown and is included in accrued
expenses and other liabilities and released to the profit and loss account as
passengers fly. Unused tickets are recognized as revenue on a systematic basis.
Ancillary revenues are recognized when the related service is provided.
F-7
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation and
provisions for impairments, if any. Depreciation is calculated to write off the
cost, less estimated residual value, of assets on a straight line basis over
their expected useful lives at the following annual rates:
Plant and equipment.............................................................. 20-33.3%
Fixtures and fittings............................................................ 20%
Motor vehicles................................................................... 33.3%
Buildings........................................................................ 5%
Aircraft are depreciated on a straight line basis over their estimated
useful lives to estimated residual values. The current estimates of useful lives
and residual values are:
Number of Aircraft at March
Aircraft Type 31, 2003 Useful Life Residual Value
Boeing 737-200's 21 20 years from date of $1 million
manufacture
Boeing 737-800's 33 23 years from date of 15% of original cost
manufacture
An element of the cost of an acquired aircraft is attributed on acquisition
to its service potential reflecting the maintenance condition of its engines and
airframe. This cost, which can equate to a substantial element of the total
aircraft cost, is amortized over the shorter of the period to the next check
(usually between 8 and 12 years for 737-800 aircraft) or the remaining life of
the aircraft. The costs of subsequent major airframe and engine maintenance
checks are capitalized and amortized over the shorter of the period to the next
check or the remaining life of the aircraft.
Advance payments and option payments made in respect of aircraft purchase
commitments and options to acquire aircraft are recorded at cost and separately
disclosed. On acquisition of the related aircraft, these payments are included
as part of the cost of aircraft and are depreciated from that date.
Financial Fixed Assets
Financial fixed assets are shown at cost less provisions for impairments,
if any.
Inventories
Inventories, principally representing rotable aircraft spares, are stated
at the lower of cost and net realizable value. Cost is based on invoiced price
on an average basis for all stock categories. Net realizable value is calculated
as estimated selling price net of estimated selling costs.
Foreign currency
Transactions arising in currencies other than the euro are translated into
euro at the rates of exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are generally stated at
the rates of exchange prevailing at the year end and all exchange gains or
losses are accounted for through the profit and loss account.
Derivative financial instruments
The Group enters into transactions in the normal course of business using a
variety of derivative financial instruments in order to hedge against its
exposures to fluctuating aircraft fuel prices and changes in foreign exchange
and interest rates. Derivative financial instruments are utilized to cap
aircraft fuel prices, foreign exchange and interest rate exposures. Gains and
losses on derivative financial instruments are recognized in the profit and loss
account when realized as an offset to the related income or expense, as the
Group does not enter into any such transactions for speculative purposes.
F-8
Taxation
Corporation tax is provided on taxable profits at current rates. Full
provision is made for all timing differences at the balance sheet date in
accordance with Financial Reporting Standard No. 19 "Deferred Tax." Provision is
made at tax rates that are expected to apply in the periods in which the timing
differences are expected to reverse.
Leases
Assets held under finance leases are capitalized in the balance sheet and
are depreciated over their estimated useful lives. The present values of the
future lease payments are recorded as obligations under finance leases and the
interest element of the lease obligation is charged to the profit and loss
account over the period of the lease in proportion to the balances outstanding.
Expenditure arising under operating leases is charged to the profit and
loss account as incurred.
Aircraft maintenance costs
The accounting for the cost of providing major airframe and certain engine
maintenance checks is described in the accounting policy for tangible fixed
assets and depreciation.
All other maintenance costs are expensed as incurred.
Pension costs
The Group operates both defined benefit and defined contribution schemes.
In relation to the defined benefit scheme the cost of providing pensions to
employees is charged to the profit and loss account on a systematic basis over
the service lives of those employees. Pension costs are determined by an actuary
by reference to a funding plan and funding assumptions. The regular pension cost
is expressed as a substantially level proportion of current and expected future
pensionable payroll. Variations from regular cost are spread over the remaining
service lives of the current employees.
To the extent that the pension cost is different from the cash contribution
to the pension scheme, a provision or prepayment is recognized in the balance
sheet.
The cost of providing the defined contribution benefit plan is expensed
as incurred.
Statement of cash flows
Cash represents cash held at bank available on demand, offset by bank
overdrafts.
Liquid resources are current asset investments (other than cash) that are
readily convertible into known amounts of cash and restricted cash balances.
Liquid resources include investments in commercial paper, certificates of
deposit and cash deposit of less than one year.
New accounting policies and requirements
Financial Reporting Standard 17 "Retirement Benefits" ("FRS 17") was issued
in November 2000. In July 2002, the Accounting Standards Board in the United
Kingdom and Ireland deferred the requirement for the full adoption of FRS 17
until the International Accounting Standards board has reconsidered its
international standard, IAS 19 "Employee benefits". FRS 17 has accordingly not
been adopted in the Group's profit and loss accounts or balance sheets; however,
the phased disclosures required by the FRS have been given in Note 24. The Group
was required to implement Financial Reporting Standard 18 "Accounting Policies"
and Financial Reporting Standard 19 "Deferred tax" in full in fiscal 2002. The
adoption of these standards has not, and is not expected to have a material
impact on the Group's results.
F-9
2 Cash and liquid resources
The Company's cash and liquid resources included EUR120.9 million held on
deposit as collateral for certain derivative financial instruments entered into
by the Company to hedge its exposure to adverse movements in currency and
interest rates in relation to its current and planned debt financing. (2002:
EURNil, 2001: EURNil).
3 Accounts receivable
At March 31, At March 31, At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Trade receivables.................................. 9,097 10,690 15,316
Provision for doubtful debts....................... (402) (359) (346)
8,695 10,331 14,970
All amounts fall due within one year.
The movement in the provision for bad debts is as follows:
Additions
Balance at charged to Balance at
beginning of year expenses Deductions end of year
EUR000 EUR000 EUR000 EUR000
Year ended March 31, 2001............................. 432 72 (102) 402
Year ended March 31, 2002............................. 402 - (43) 359
Year ended March 31, 2003............................. 359 - (13) 346
F-10
4 Tangible fixed assets
Hangar & Plant & Fixtures & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
(ii) Year ended March 31, 2001
Cost
At March 31, 2000......................... 413,851 5,154 2,030 6,508 776 428,319
Additions................................. 355,030 - 340 982 317 356,669
Disposals................................. - - (6) (442) (96) (544)
At March 31, 2001......................... 768,881 5,154 2,364 7,048 997 784,444
Depreciation
At March 31, 2000......................... 107,922 1,236 967 2,721 441 113,287
Charge for year........................... 55,311 176 375 1,463 381 57,706
Disposals................................. - - - (67) (73) (140)
At March 31, 2001......................... 163,233 1,412 1,342 4,117 749 170,853
Net book value
At March 31, 2001......................... 605,648 3,742 1,022 2,931 248 613,591
Hangar & Plant & Fixtures & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
(iii) Year ended March 31, 2002
Cost
At March 31, 2001......................... 768,881 5,154 2,364 7,048 997 784,444
Additions................................. 394,813 1,404 363 493 152 397,225
Disposals................................. - - - (163) (163)
At March 31, 2002......................... 1,163,694 6,558 2,727 7,541 986 1,181,506
Depreciation
At March 31, 2001......................... 163,233 1,412 1,342 4,117 749 170,853
Charge for year........................... 56,619 229 409 1,394 359 59,010
Disposals................................. - - - - (163) (163)
At March 31, 2002......................... 219,852 1,641 1,751 5,511 945 229,700
Net book value
At March 31, 2002......................... 943,842 4,917 976 2,030 41 951,806
Fixtures
Hangar & Plant & & Motor
Aircraft Buildings Equipment Fittings Vehicles Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
(i) Year ended March 31, 2003
Cost
At March 31, 2002......................... 1,163,694 6,558 2,727 7,541 986 1,181,506
Additions................................. 474,757 156 663 1,559 345 477,480
Disposals................................. (42) (13) - - (635) (690)
At March 31, 2003......................... 1,638,409 6,701 3,390 9,100 696 1,658,296
Depreciation
At March 31, 2002......................... 219,852 1,641 1,751 5,511 945 229,700
Charge for year........................... 74,683 404 436 1,182 160 76,865
Disposals................................. (42) (4) - - (584) (630)
At March 31, 2003......................... 294,493 2,041 2,187 6,693 521 305,935
Net book value
At March 31, 2003......................... 1,343,916 4,660 1,203 2,407 175 1,352,361
F-11
At March 31, 2003, aircraft with a net book value of EUR1,002,841,729
(March 31, 2002, EUR631,833,409; March 31, 2001, EUR455,650,699) were mortgaged
to lenders as security for loans. Under the security arrangements for the
Group's new 737-800 aircraft, the Group does not hold legal title to those
aircraft while related loan amounts remain outstanding.
At March 31, 2003, the net book value of fixed assets held under finance
leases was EURnil (March 31, 2002, EUR164,590; March 31, 2001, EUR363,313).
Depreciation on these assets for the years ended March 31, 2003, March 31, 2002
and March 31, 2001 amounted to EUR164,590, EUR198,723 and EUR222,435,
respectively.
At March 31, 2003, the cost and net book value of aircraft included
EUR259,358,902 in respect of advance payments on aircraft (March 31, 2002:
EUR199,044,581; March 31, 2001, EUR51,488,310;). This amount is not depreciated.
At March 31, 2003 fixed asset additions of EUR477,480,249 (March 31, 2002:
EUR397,224,883; March 31, 2001: EUR356,669,203) was comprised of assets paid for
of EUR469,878,312 (March 31, 2002: EUR372,587,155; March 31, 2001:
EUR356,669,203) and the balance represented unpaid additions.
5 Other assets
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Prepayments.................................................... 2,466 3,456 5,679
Interest Receivable............................................ 8,662 6,117 7,013
Value Added Tax recoverable.................................... 1,107 1,462 3,678
12,235 11,035 16,370
All amounts fall due within one year.
6 Inventories
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Aircraft spares ......................................... 14,336 15,712 21,596
Duty free and other inventories.......................... 1,639 1,413 1,192
15,975 17,125 22,788
There are no material differences between the replacement cost of
inventories and the balance sheet amounts.
7 Accounts payable
Accounts payable: represents trade creditors payable within one year.
Accounts payable falling due after one year: consists entirely of the long
term obligations arising from an engine maintenance contract.
F-12
8 Accrued expenses and other liabilities
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Current:
Accruals........................................................................... 28,924 48,398 48,196
Taxation........................................................................... 31,717 53,341 58,907
Unearned revenue................................................................... 78,765 115,369 144,225
139,406 217,108 251,328
Taxation above comprises:
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
PAYE (payroll taxes)............................................................... 2,766 3,114 3,370
Corporation tax.................................................................... 8,830 6,563 9,789
Other tax (including foreign travel duty).......................................... 20,121 43,664 45,748
31,717 53,341 58,907
9 Maturity analysis of long term debt
March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Due within one year:
Secured debt....................................................................... 27,887 38,799 63,291
Obligations under finance leases................................................... 107 1
-
27,994 38,800 63,291
Due between one and two years:
Secured debt ...................................................................... 27,111 40,499 66,480
Obligations under finance leases................................................... 1 - -
Due between two and five years:
Secured debt ...................................................................... 91,860 136,545 220,869
Due after five years:
Secured debt....................................................................... 255,784 334,659 486,585
374,756 511,703 773,934
402,750 550,503 837,225
Notes on long term debt other than finance leases
(i) June 1996 property facility
At March 31, 2001, March 31, 2002 and March 31, 2003, the Group had
borrowings of EUR158,717, EURnil and EURnil, respectively, arranged through a
term loan with Allied Irish Banks plc to finance the purchase of property. The
term loan was secured with a first legal charge over the property at Conyngham
Road, Dublin 8. The loan was originally drawn down in June 1996. The loan bore
interest at 7.61% per annum and was repayable in quarterly installments over
five years.
(ii) Aircraft Facility
At March 31, 2001, March 31, 2002 and March 31, 2003, the Group had U.S.
dollar borrowings equivalent to EUR402,482,984, EUR540,510,604, and
EUR828,233,318, from various financial institutions provided on the basis of
guarantees issued by the Export-Import Bank of the United States to finance the
acquisition of thirty six Boeing 737-800 "next generation" aircraft. The
guarantees are secured with a first fixed mortgage on the delivered aircraft. At
March 31, 2003, the Group had taken delivery of thirty three of these aircraft.
F-13
(iii) CAE Financing
At March 31, 2001, March31, 2002 and March 31, 2003, the Group had other
borrowings of nil, EUR9,990,753 and EUR8,991,678. This loan has been provided by
Export Development Canada, a Canadian government agency, to finance the
acquisition of an aircraft simulator. The loan was originally drawn down in
February 2002. A Canadian governmental guarantee for the financing is secured
with a mortgage on the delivered aircraft simulator.
(iv) Maturity of long term debt other than finance leases
The following table sets out the maturities of the loans described above,
analyzed by year of repayment:
Years ending March 31, At March 31, 2003
EUR000
2004................................................................ 63,291
2005................................................................ 66,480
2006................................................................ 70,020
2007................................................................ 73,551
2008-2016........................................................... 563,883
837,225
(v) Analysis of changes in borrowings
Total Total Total
Fiscal Fiscal Fiscal
Bank Loans Finance Leases 2003 2002 2001
EUR000 EUR000 EUR000 EUR000 EUR000
Opening balance at start of year... 550,502 1 550,503 402,750 121,979
Loans raised to finance
aircraft/simulator purchases....... 331,502 - 331,502 175,746 292,882
Repayments of amounts borrowed......... (44,779) (1) (44,780) (27,993) (12,111)
Closing balance at end of year......... 837,225 - 837,225 550,503 402,750
F-14
10 Short term borrowings
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Bank overdrafts (represented by unpresented cheques)............................... 5,078 5,505 1,316
11 Provisions for liabilities and charges
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Deferred taxation: (see Note 23)
At beginning of year............................................................... 15,279 30,122 49,317
Charge for the year................................................................ 14,843 19,195 18,516
At end of year..................................................................... 30,122 49,317 67,833
12 Share capital and share premium account
(a) Share Capital
At March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Authorized:
840,000,000 ordinary equity shares of 1.27 euro cent each.......................... 10,668 10,668 10,668
Allotted, called up and fully paid:
724,106,728 ordinary equity shares of 1.27 euro cent each at March 31, 2001 and
755,030,716 ordinary equity shares of 1.27 euro cent each at March 31, 2002 and
755,130,716 ordinary equity shares of 1.27 euro cent each at March 31, 2003........ 9,194 9,587 9,588
On December 7, 2001, the Company implemented a further sub-division of the
Company's ordinary shares of EUR2.54 cent into ordinary shares of EUR1.27 cent
("the 2001 stock split"). Both the share capital and earnings per share have
been restated to give effect to the 2001 stock split.
In February 2002 and 2001, EUR187,500,000 and EUR127,600,000 were raised,
before deduction of issue costs from the issue of an additional 30,000,000 and
22,000,000 ordinary shares respectively.
A further 100,000, 923,988 and 1,807,472 ordinary shares were issued during
each of the years ended March 31, 2003, 2002 and 2001, respectively, upon the
exercise of options.
The purpose of the March 2000, February 2001 and February 2002 share issues
was to raise finance for general corporate purposes, including the Company's
aircraft fleet purchase program.
F-15
(b) Share premium account
EUR000
Balance at March 31, 2000............................................................................ 248,093
Share premium arising on issue of 22,000,000 ordinary shares......................................... 127,321
Share premium arising on issue of 1,807,472 options.................................................. 984
Cost of share issue.................................................................................. (4,549)
Balance at March 31, 2001............................................................................ 371,849
Share premium arising on issue of 30,000,000 ordinary shares......................................... 187,119
Share premium arising on issue of 923,988 options.................................................... 819
Cost of share issue.................................................................................. (6,330)
Balance at March 31, 2002............................................................................ 553,457
Share premium arising from the exercise of 100,000 options........................................... 55
Balance at March 31, 2003............................................................................ 553,512
(c) Share options and share purchase arrangements
On May 21, 1997 the Group granted seven senior managers options over
ordinary shares with an equivalent value of IR GBP200,000 (EUR253,948) each at
the Initial Public Offering (the "IPO") strike price of IR GBP1.95 (EUR2.48)
less a discount of 10%, resulting in the issue of 717,948 options (equivalent to
2,871,792 after the stock splits in both December, 2001 and February, 2000).
Since May 2000, the equivalent of 2,751,460 of these options have been
exercised. The remaining options must be exercised within seven years of the
date of their grant.
In addition, the Group adopted a stock option plan (the "Stock Option
Plan") following shareholder approval in 1998. Under the Stock Option Plan,
current or future employees or executive directors of the Company may be granted
options to purchase an aggregate of up to approximately 5% (when aggregated with
other ordinary shares over which options are granted which have not been
exercised) of the outstanding ordinary shares of Ryanair at an exercise price
equal to the market price of the ordinary shares at the time the options are
granted. The options could be granted each year between fiscal 1998 and fiscal
2003. The terms of the Stock Option Plan, and the number of ordinary shares
subject to options granted under the Stock Option Plan, may be changed from time
to time. At March 31, 2003, 26,453,855 options (after taking account of the
stock split) remained outstanding under these plans. Options issued under the
1998 plan became exercisable after June 2003. Details of the options outstanding
under the stock option plans have been set out below:
Weighted Average
Share Options Exercise Price
Outstanding at March 31, 2000..............................................12,954,490 EUR1.27
Exercised.................................................................(1,807,472) EUR0.56
Granted....................................................................10,708,284 EUR4.52
Outstanding at March 31, 2001..............................................21,855,302 EUR2.92
Exercised...................................................................(923,988) EUR0.56
Granted.....................................................................1,018,259 EUR5.88
Expired...................................................................(1,012,942) EUR4.55
Outstanding at March 31, 2002..............................................20,936,631 EUR3.09
Exercised...................................................................(100,000) EUR0.56
Granted.....................................................................5,763,407 EUR5.65
Expired.....................................................................(146,183) EUR5.00
Outstanding at March 31, 2003..............................................26,453,855 EUR3.62
The mid-market price of Ryanair Holdings plc's ordinary shares on the Irish
Stock Exchange at March 31, 2003 was EUR6.19. The highest and lowest prices at
which the shares traded on the Irish Stock Exchange in the year ended March 31,
2003 were EUR8.20 and EUR4.95, respectively.
F-16
13 Financial Instruments
Ryanair utilizes financial instruments to reduce exposure to market risks
resulting from fluctuations in foreign exchange rates, interest rates and
aircraft fuel prices. The Group does not enter into these instruments for
speculative purposes.
Derivative financial instruments are contractual agreements whose value
reflects price movements in an underlying asset. Ryanair uses derivative
financial instruments, where appropriate, to generate the desired effective
profile of currency, interest and aircraft fuel price risk.
Notes 14 to 16 below give details as to the Group's financial instruments
held, in accordance with the requirements of Financial Reporting Standard No. 13
"Derivatives and Other Financial Instruments: Disclosures" (the "Standard"). As
permitted by this Standard, short term debtors and creditors have been excluded
from all numerical disclosures shown in notes 14 to 16.
14 Interest Rate Risk
Financial liabilities
The interest rate risk profile of Ryanair's financial liabilities at March
31, 2001, 2002 and 2003 was as follows:
At March 31, 2001 At March 31, 2002 At March 31, 2003
Fixed Floating Total Fixed Floating Total Fixed Floating Total
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Short-term
borrowings........ - 5,078 5,078 - 5,505 5,505 - 1,316 1,316
Current
maturities of
long term debt.... 27,887 - 27,887 38,799 - 38,799 63,291 - 63,291
Non-current
maturities of
long term debt.... 374,755 - 374,755 511,703 - 511,703 773,934 - 773,934
Finance leases.... 108 - 108 1 1 - - -
402,750 5,078 407,828 550,503 5,505 556,008 837,225 1,316 838,541
Average interest rates applicable to fixed financial liabilities shown above are as follows:
Weighted
Weighted Weighted average
average average years
years years remaining
remaining remaining for
for which Weighted for which Weighted which Weighted
interest average Total at interest average Total at interest average Total at
rate is interest March 31, rate is interest March 31, rate is interest March 31,
fixed rate 2001 fixed rate 2002 fixed rate 2003
EUR000 EUR000 EUR000
Fixed euro
denominated
long term debt..... 10.5 5.06% 402,483 10.3 5.06% 540,511 9.7 5.28% 828,233
Other debt.........<1 year 7.61% 159 10.0 5.81% 9,991 9.0 5.81% 8,992
Finance leases.....<1 year 6.10% 108 <1 year 4.50% 1 - - -
402,750 550,503 837,225
F-17
All long term euro fixed rate debt shown above matures between 2011 and
2015 (at March 31, 2002: 2011 and 2014; March 31, 2001: 2011 and 2013) and
attracts a range of fixed interest rates of between 4.88% and 5.60% (at March
31, 2002: 4.88% and 5.16%; March 31, 2001: 4.88% and 5.54%).
Floating interest rates on financial liabilities are generally referenced
to inter-bank interest rates (Euribor, Sterling, LIBOR, or US$ LIBOR).
Financial Assets
The Group holds significant cash balances that are invested on a short-term
basis. At March 31, 2003 all of the Group's cash and liquid resources had a
maturity of one year or less and attracted a weighted average rate of 2.79%
(2002:3.5%, 2001:5.22%). This includes EUR120.9 million held on deposit as
collateral for certain derivative financial instruments entered into by the
Company to hedge its exposure to adverse movements in currency and interest
rates in relation to its current and planned debt financing.
Interest rates on financial assets are generally based on the appropriate
Euribor and Euribor-based bank offered rates.
Other financial instruments
Ryanair has entered into a series of forward starting interest rate swaps
in order to cap interest rate risk which arises in respect of its forecasted
draw-downs of long term debt. Details of these are as follows:
Loan Interest Rate
Notional Amount Loan Commencement Termination Payable
EUR000 dates dates
2003 - Forward starting interest rate swaps............ 875,000 2003 - 2005 2015 - 2017 5.63 - 5.75%
2002 - Forward starting interest rate swaps............1,242,573 2002 - 2005 2014 - 2017 5.03 - 5.68%
2001 - Forward starting interest rate swaps............ 251,820 2002 - 2003 2014 - 2015 4.83 - 5.03%
15 Currency Rate Risk and Aircraft Fuel Price Risk
Currency rate risk
Ryanair has exposure to various reporting currencies (principally sterling
and US dollars) due to the international nature of its operations. The following
table shows the net amount of monetary assets of Ryanair that are not
denominated in euro at March 31, 2001, March 31, 2002 and March 31, 2003:
At March 31, 2001 At March 31, 2002 At March 31, 2003
euro euro euro
GBP US$ Equiv GBP US$ Equiv GBP US$ Equiv
Monetary assets GBP000 $000 EUR000 GBP000 $000 EUR000 GBP000 $000 EUR000
Sterling cash
and liquid
resources......... 17,920 - 28,972 24,840 - 40,648 43,344 - 66,464
USD cash and
liquid resources.. - 8,611 9,762 - 11,697 13,286 - 7,240 6,645
F-18
Ryanair also enters into US dollar and sterling currency forward contracts
in order to manage functional currency risk which arises on its forecasted
aircraft deposit payments, fuel, maintenance and aviation insurance costs, which
are primarily denominated in US dollars and certain of its revenue income
streams, which arise in sterling. The following table gives details of Ryanair's
currency forward contracts as at March 31, 2001, March 31, 2002 and March 31,
2003:
At March 31, 2001 At March 31, 2002 At March 31, 2003
Currency Forward euro euro euro
Contracts GBP US$ Equiv GBP US$ Equiv GBP US$ Equiv
GBP000 $000 EUR000 GBP000 $000 EUR000 GBP000 $000 EUR000
US dollar
currency forward
contracts for
aircraft
purchases.......... - 65,878 69,055 - 47,498 54,195 - 203,500 189,417
US dollar
currency forward
contracts for
fuel and other
purchases.......... - 61,000 65,455 - 78,032 89,058 - 169,000 156,526
Sterling
currency forward
contracts for
sterling revenues.. 61,000 - 103,567 46,500 - 74,772 7,000 - 10,124
Aircraft fuel price risk
Ryanair enters into derivative contracts to fix the price of its forecasted
aircraft fuel purchases. At March 31, 2001, March 31, 2002 and 2003, the
following fuel price contracts were outstanding:
At March 31,
2001 2002 2003
(000 Metric Tonnes) (000 Metric Tonnes) (000 Metric Tonnes)
Aircraft fuel fixed price contracts 223 381 393
16 Fair Values
Fair value is the amount for which a financial instrument could be
exchanged in an arm's length transaction between informed and willing parties,
other than as part of a forced liquidation or sale. The following methods and
assumptions were used to estimate the fair value of each material class of
Ryanair's financial instruments:
* Cash and liquid resources, current portions of bank
loans and overdrafts: carrying amount approximates to
fair value due to the short term nature of these
instruments.
* Bank loans and finance leases carrying fixed rates of
interest: the repayments which Ryanair is committed to
make have been discounted at the relevant rates of
interest applicable at March 31, 2001, March 31, 2002
and March 31, 2003.
F-19
* Interest rate contracts: discounted cash flow analyses
have been used to determine the estimated amount
Ryanair would receive or pay to terminate the
contracts. Discounted cash flow analyses are based on
estimated future interest rates.
* Currency forward and aircraft fuel contracts: a
comparison of the contracted rate to the market rate
for contracts providing a similar risk management
profile at March 31, 2001, March 31, 2002 and March 31,
2003 has been made.
F-20
The fair value of Ryanair's financial instruments at March 31, 2001, 2002
and 2003 was as follows:
At March 31, 2001 At March 31, 2002 At March 31, 2003
Currency Forward Carrying Carrying Carrying
Contracts amount Fair value amount Fair value amount Fair value
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
On balance sheet
instruments
Cash on hand........ 61,938 61,938 83,252 83,252 77,866 77,866
Liquid resources.... 564,782 564,782 816,023 816,023 982,352 982,352
Short term
borrowings.......... (5,078) (5,078) (5,505) (5,505) (1,316) (1,316)
Long term debt...... (402,642) (459,752) (550,502) (616,852) (837,225) (912,576)
Finance leases...... (108) (108) (1) (1) - -
Derivative
instruments
Forward starting
interest rate swaps
gain/(loss)......... - 3,765 - 3,110 - (81,024)
US dollar currency
forward contracts
gain/(loss)......... - 10,119 - 379 - (9,045)
Sterling currency
forward contracts
gain/(loss)......... - 5,561 - 1,086 - (925)
Aircraft fuel price
contracts
(loss)/gain......... - (1,391) - 5,918 - 3,306
All of the derivative instruments shown above were held for hedging
purposes. The fair value of the derivative instruments in the table above
equates to the net unrealized gains and losses on these instruments which were
unrecognized at March 31, 2001, March 31, 2002 and March 31, 2003. On the basis
of no movement in fuel prices and exchange rates, these unrealized gains and
losses will impact on Ryanair's profit and loss account in the following years:
F-21
Off balance Total at Total at Total at
sheet Maturing March 31, Maturing Maturing March 31, Maturing March 31,
instruments in 2002 2001 in 2003 in 2004 2002 in 2004 2003
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
US dollar
currency
forward
contracts
gain/(loss)... 10,119 10,119 379 - 379 (9,045) (9,045)
Sterling
currency
forward
contracts
gain/(loss)... 5,561 5,561 1,086 - 1,086 (925) (925)
Aircraft fuel
price
contracts
(loss)/gain... (1,391) (1,391) 3,900 2,018 5,918 3,306 3,306
14,289 14,289 5,365 2,018 7,383 (6,664) (6,664)
Unrealized gains and losses on the Group's forward starting interest rate
swaps of EUR81.0 million (at March 31, 2002: EUR3.1 million; March 31, 2001:
EUR3.8 million) will be amortized to the profit and loss account over the eleven
year period from the date of the draw-down of the long term debt, as an offset
to the related interest expense.
17 Concentrations of credit risk
The Group's revenues derive principally from airline travel on scheduled
and chartered services, car hire, in-flight and related sales. Revenue is wholly
derived from European routes. No individual customer accounts for a significant
portion of total revenue.
18 Analysis of operating revenues
All revenues derive from the Group's principal activity as an airline and
include scheduled and chartered services, car hire, in-flight and related sales.
Revenue is analyzed by geographical area (by country of origin) as follows:
Year ended Year ended March Year ended March
March 31, 2001 31, 2002 31, 2003
EUR000 EUR000 EUR000
United Kingdom............... 299,399 355,708 466,749
Other European countries..... 188,006 268,342 375,759
487,405 624,050 842,508
Ancillary revenues included in total revenue above comprise:
Year ended March Year ended March Year ended March
31, 2001 31, 2002 31, 2003
EUR000 EUR000 EUR000
Car hire..................... 12,562 18,905 27,615
In-flight.................... 14,186 18,030 23,142
Internet Income.............. 1,023 4,831 12,159
Non-flight scheduled......... 12,802 16,662 35,291
Charter...................... 13,892 14,631 12,350
54,465 73,059 110,557
All of the Group's operating profit arises from airline-related
activities.
F-22
The major revenue earning assets of the Group are comprised of its aircraft
fleet, all of which are registered in Ireland and therefore all profits accrue
in Ireland. Since the Group's aircraft fleet is flexibly employed across its
route network, there is no suitable basis of allocating such assets and related
liabilities to geographical segments. Internet income comprises revenue
generated from Ryanair.com, excluding internet car hire revenue, which is
included under the heading car hire.
19 Staff numbers and costs
The average weekly number of employees, including the executive director,
during the years presented, analyzed by category, was as follows:
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
Flight and cabin crew........ 644 792 983
Sales, operations and
administration............... 823 755 763
1,467 1,547 1,746
The aggregate payroll costs of these persons were as follows:
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Wages and salaries and
related costs...................... 55,917 70,551 82,633
Social welfare costs............... 4,334 6,462 7,835
Other pension costs................ 971 1,227 2,605
61,222 78,240 93,073
20 Other operating expenses
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Fuel and oil........................ 63,468 103,918 128,842
Maintenance, materials
and repairs (excluding major
maintenance checks)................. 20,142 26,373 29,709
Marketing and
distribution costs.................. 21,526 12,356 14,623
Aircraft rentals.................... 7,286 4,021 -
Route charges....................... 35,701 46,701 68,406
Airport & handling charges.......... 66,269 84,897 107,994
Other costs......................... 38,605 45,601 59,522
252,997 323,867 409,096
F-23
Fuel and oil
Fuel and oil costs include fuel costs for scheduled services of
EUR61,645,183, EUR101,390,040 and EUR126,711,235 in respect of the years ended
March 31, 2001, March 31, 2002 and March 31, 2003, respectively.
21 Statutory and other information
Year ended March Year ended March Year ended March
31, 2001 31, 2002 31, 2003
EUR000 EUR000 EUR000
Directors' emoluments:
Fees.......................................... 96 160 198
Other emoluments, including
consultancy fees, bonus and pension
contributions................................. 580 694 822
Depreciation of tangible fixed assets......... 57,706 59,010 76,865
Auditors' remuneration (including expenses)... 121 121 121
Audit related services........................ 65 35 75
Taxation services............................. 181 153 213
Operating lease charges-
Aircraft (note 26 (c)):....................... 7,286 4,021 -
(a) Fees and emoluments - Executive Director
Year ended March Year ended March Year ended
31, 2001 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Basic salary 378 474 505
Performance related bonus.................... 165 180 228
Pension contributions........................ 37 40 49
580 694 782
During each year Michael O'Leary was the only executive director.
(b) Fees and emoluments-Non executive directors
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Fees......................................... 96 160 198
Emoluments................................... - - 40
96 160 238
At March 31, 2003 there were eleven non-executive directors.
F-24
(c) Pension benefits
Transfer Value
Increase in Accrued Equivalent of Increase in Total Accumulated
Directors Benefit Accrued Benefit Accrued Benefit
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2002 2003 2001 2002 2003 2001 2002 2003
EUR EUR EUR EUR EUR EUR EUR EUR EUR
Michael O'Leary 8,761 15,648 11,216 28,883 53,848 43,919 39,993 57,097 70,394
There have been no changes in pension benefits provided to directors during
the year. No pension benefits are provided for non-executive directors. The
executive director is a member of a defined benefit plan. The cost of the
death-in-service and disability benefits provided during the accounting year is
not included in the above figures. The pension benefits set out above have been
computed in accordance with Section 12.43(x) of the Listing Rules of the Irish
Stock Exchange. The increases in transfer values of the accrued benefits have
been calculated as at the year-end in accordance with Actuarial Guidance Note
GN11.
(d) Shares and share options
(i) Shares
Ryanair Holdings plc is listed on the Irish, London and Nasdaq Stock
Exchanges. The beneficial interests of the directors as at March 31, 2003 and of
their spouses and minor children are as follows. All figures have been adjusted
for the 2:1 share split on December 7, 2001:
At March 31, At March 31, At March 31,
2001 2002 2003
David Bonderman............................... 7,056,680 7,056,680 7,056,680
Raymond MacSharry............................. 7,280 7,280 7,280
Michael O'Leary............................... 52,000,008 52,000,008 45,000,008
James R. Osborne.............................. 705,128 705,128 705,128
Declan F. Ryan................................ 25,522,606 21,922,600 19,408,273
T. Anthony Ryan............................... 16,872,868 13,272,878 10,758,535
Richard P. Schifter........................... 664,820 104,820 104,820
Non-executive directors not referred to above held no shares.
During fiscal 2001, Irish Air Gen-Par, LP was dissolved and 9,106,400
ordinary shares were distributed to its partners. David Bonderman, chairman of
the Group, was the principal partner and prior to the dissolution had a
beneficial interest in 7,056,680 shares. Post dissolution he transferred
6,557,460 shares into a trust for the benefit of his children and retained a
beneficial interest in 385,600 and 104,820 shares before and after the
dissolution respectively.
On June 10, 2003, Michael O'Leary and Declan F. Ryan each sold 4 million
shares at EUR5.95 per share.
On September 25, 2002, Jeffrey A. Shaw and Cathal M. Ryan retired from the
Board of Directors. Declan F. Ryan resigned from the Board of Directors on June
24, 2003.
(ii) Share options
The number of share options held by directors at the year end were:
F-25
March 31, 2001 March 31, 2002 March 31, 2003
Number of Options Number of Options Number of Options
*David Bonderman............................................. 50,000 50,000 50,000
*Raymond MacSharry........................................... 50,000 50,000 50,000
*Michael O'Leary............................................. 50,000 50,000 50,000
*James R. Osborne............................................ 50,000 50,000 50,000
*Cathal M. Ryan.............................................. 50,000 50,000 -
*Paolo Pietrogrande.......................................... 50,000 50,000 50,000
*Declan F. Ryan.............................................. 50,000 50,000 50,000
*T. Anthony Ryan............................................. 50,000 50,000 50,000
*Richard P. Schifter......................................... 50,000 50,000 50,000
*Jeffrey A. Shaw............................................. 50,000 50,000 -
*Kyran McLaughlin............................................ 50,000 50,000 50,000
*Michael Horgan.............................................. 50,000 50,000 50,000
**Emmanuel Faber............................................. - - 25,000
**Klaus Kirchberger.......................................... - - 25,000
* The share options were granted to these directors at EUR3.70 (the
market value at date of grant) during the year ended March 31, 2001 and are
exercisable between June 2005 and June 2007.
** Emmanuel Faber and Klaus Kirchberger have been appointed to the Board
of Directors on September 25, 2002 and the appointments are subject to
shareholder approval at the AGM to be held on September 24, 2003. Both
directors were granted 25,000 share options at EUR5.65 each, which are
exercisable between June 2008 and June 2010.
Both Cathal M. Ryan and Jeffrey A. Shaw retired as directors at the AGM on
September 25, 2002 and did not seek re-election. Accordingly the share options
granted to them have lapsed.
22 Interest payable and similar charges
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Interest repayable on bank loans, wholly repayable
after five years.............................................. 68 19,608 30,886
Interest payable on bank loans repayable after five years...... 11,827 - -
Finance lease and hire purchase charges........................ 67 1 -
11,962 19,609 30,886
23 Taxation
The components of income tax expense were as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Current corporation tax..................................... 4,062 2,804 6,636
Deferred tax (See Note 11).................................. 14,843 19,195 18,516
18,905 21,999 25,152
All of the deferred tax charge above arose from the origination and
reversal of timing differences.
The following table reconciles the statutory rate of Irish corporation tax
to the Group's effective current corporation tax rate.
F-26
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
% % %
Statutory rate of Irish corporation tax..................... 23.0 19.0 15.0
Adjustments for earnings taxed at higher rates.............. - 1.0 1.0
Adjustments for earnings taxed at lower rates (including those
qualifying for relief under section 448, TCA 1997) ...... (12.0) (7.5) (5.0)
Capital allowances in excess of depreciation................ (6.0) (7.5) (7.5)
Other timing differences.................................... (6.0) (3.4) (1.0)
Losses carried back to previous years 4.3 - -
Current effective rate of taxation 3.3 1.6 2.5
Provision of deferred tax on timing differences 12.0 11.1 7.0
Total effective rate of taxation 15.3 12.7 9.5
In 1997, the Irish Government made a commitment to reduce headline Irish
corporate tax rates (excluding special rates applicable to certain qualifying
activities) from the then rate of 36% to a rate of 12.5% by January 1, 2003.
Accordingly, Irish corporate tax rates have reduced by 4% per annum since 1997
and at March 31, 2003 stood at 12.5%. The headline corporate tax rate applicable
to Ryanair for the fiscal year to March 31, 2003 was 16% for the first nine
months of the year, and fell to 12.5% for the final three months of the year,
resulting in a composite headline corporate tax rate for Ryanair of 15%.
At March 31, 2001, March 31, 2002 and March 31, 2003 the Group had no
unused net operating losses carry forwards. No deferred tax has been provided on
the unremitted earnings of overseas subsidiaries because there is no intention
to remit.
Ryanair.com Limited is engaged in international data processing and
reservation services. In these circumstances, Ryanair.com Limited is entitled to
claim an effective 10% corporation tax rate on profits derived from qualifying
activities in accordance with Section 448 of the Taxes Consolidated Act, 1997.
This legislation provides for the continuation of the 10% effective corporation
tax rate until 2010.
The principal components of deferred tax liabilities were as follows:
Year ended Year ended Year ended
March 31, 2001 March 31, March 31, 2003
2002
EUR000 EUR000 EUR000
Aircraft including maintenance provisions, property and
fixtures and fittings..................................... 29,868 49,063 67,833
Other reversing timing differences principally in relation to
unearned revenue and foreign exchange adjustments......... 254 254 -
30,122 49,317 67,833
At March 31, 2001, March 31, 2002 and March 31, 2003 the Group had fully
provided for deferred tax liabilities. As explained above, profits from certain
qualifying activities are levied at an effective 10% rate in Ireland until 2010.
F-27
24 Pensions
The Group operates both a defined benefit and a defined contribution scheme.
The Group has continued to account for pensions in accordance with the
accounting standard SSAP 24 and the disclosures given in (a) below are those
required by that standard. A new accounting standard on pensions (Financial
Reporting Standard No. 17 "Retirement Benefits" ("FRS 17") was issued in
November 2000. In July 2002, the Accounting Standards Board deferred the
requirement for the full adoption of FRS 17 until the International Accounting
Standards Board has reconsidered its international standard, IAS 19 "Employee
Benefits". FRS 17 has, accordingly, not been adopted in the profit and loss
account or the balance sheet, however the phased disclosures required by FRS 17
have been outlined in (b) below:
(a)SSAP 24 disclosures
Pensions for certain employees are funded through a defined benefit pension
scheme, the assets of which are vested in independent trustees for the benefit
of employees and their dependants. The contributions are based on the advice of
an independent professionally qualified actuary obtained at three yearly
intervals. The latest actuarial valuation of the scheme was at December 31, 2000
and used the projected unit method.
The principal actuarial assumptions used were as follows:
* Rate of long term investment returns will exceed the rate of
pensionable salary increases by 2%,
* Rate of long term investment returns will exceed the rate of post
retirement pension increases by 5%.
The actuarial report showed that at the valuation date the market value of
the scheme's assets was EUR10.3 million which was sufficient to cover more than
100% of the accrued liabilities, based on current earnings and 113% of the
accrued liabilities allowing for expected future increases in earnings. The
actuarial report recommends payment of contributions at 10% of staff and 12.8%
of pilots' pensionable salaries respectively.
The total pension charge for the Group for the year to March 31, 2003 was
EUR2,605,000 of which EUR1,394,000 relates to defined benefit pension schemes.
While the actuarial report is not available for public inspection, the results
are advised to the members of the scheme.
(b) FRS 17 disclosures
The valuation of Ryanair's defined benefit scheme used for the purposes of
the FRS 17 disclosures has been based on the most recent triennial actuarial
valuation of the scheme identified above and updated to March 31, 2003 by an
independent qualified actuary.
The financial assumptions used for the Ryanair defined benefit pension
scheme are:
Year ended Year ended
March 31, 2002 March 31, 2003
% %
Rate of general increase in salaries.. 4.25 3.50
Discount rate......................... 6.25 5.25
Rate of price inflation............... 3.25 2.50
The assets in the Ryanair pension scheme (excluding additional voluntary
contributions) and the expected rates of return were:
F-28
Expected Value at Expected Value at
Rate March 31, Rate March 31,
of Return 2002 of Return 2003
% EUR000 % EUR000
Equities........................................ 8.50 7,337 8.50 5,430
Properties...................................... 7.50 713 7.50 458
Bonds........................................... 5.50 1,834 5.50 1,878
Cash............................................ 3.25 306 3.25 400
Outstanding contributions at year end (paid
subsequent to year end)......................... - 91 - 112
Total market value of scheme assets............. 10,281 8,278
Actuarial value of scheme liabilities........... (9,209) (13,343)
Recoverable surplus/(deficit) in scheme......... 1,072 (5,065)
Related deferred tax (liability)/asset.......... (134) 633
Net pension asset/(liability)................... 938 (4,432)
If these amounts had been recognized in the financial statements, the
Group's net assets and revenue reserves would be as follows:
At March 31, At March 31,
2002 2003
EUR000 EUR000
Net Assets
Net assets excluding pension asset.............. 1,002,274 1,241,728
Net pension asset/(liability)................... 938 (4,432)
Net assets including pension asset/(liability).. 1,003,212 1,237,296
Revenue reserve
Revenue reserves per balance sheet.............. 439,230 678,628
Net FRS 17 pension asset/(liability)............ 938 (4,432)
Net reserves including pension asset/(liability) 440,168 674,196
The following tables set out the components of the defined benefit costs
which would have been included in the profit and loss account for the year ended
March 31, 2003 if FRS 17 had been applied:
Included in finance costs Year ended
March 31, 2003
EUR000
Expected return on pension scheme assets.................. (795)
Interest on pension scheme liabilities.................... 509
Net finance costs......................................... (286)
Included in payroll costs Year ended
March 31, 2003
EUR000
Current service costs..................................... 960
Year ended
March 31, 2003
Total costs in accordance with FRS 17..................... 674
F-29
The analysis of the amounts that would have been recognized in the
Statement of Total Recognised Gains and Losses (STRGL) is as follows:
March 31, 2003
EUR000
Actual return less expected return on pension scheme
assets.................................................... (2,910)
Experience losses on scheme liabilities................... (784)
Changes in financial and demographic assumptions
underlying present value of scheme liabilities............ (1,992)
Actuarial losses recognized in the STRGL.................. (5,686)
Movement in surplus/(deficit) during the year is as
follows:
Surplus in scheme at beginning of year.................... 1,072
Movement in year
Current service costs..................................... (960)
Contributions............................................. 795
Other finance income/investment return.................... (286)
Actuarial losses.......................................... (5,686)
Deficit in scheme at end of year.......................... (5,065)
History of actuarial gains and losses March 31, 2003
EUR000
Difference between expected and actual return on assets... (2,910)
Expressed as a percentage of scheme assets................ (35%)
Experience losses on scheme liabilities................... (784)
Expressed as a percentage of scheme liabilities........... (6%)
Total actuarial losses.................................... (5,686)
Expressed as a percentage of scheme liabilities........... (43%)
25 Earnings per share and adjusted earnings per share
Basic earnings per ordinary share (EPS) for Ryanair Holdings plc for the
years ended March 31, 2001, March 31, 2002 and March 31, 2003 has been computed
by dividing the profit attributable to shareholders by the weighted average
number of ordinary shares outstanding during the period, after giving effect to
the share split described in Note 12(a).
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
Basic weighted average number of shares outstanding........... 705,622,802 728,726,484 755,055,374
Dilutive effect of employee share options..................... 8,572,914 11,234,417 11,223,195
Dilutive weighted average number of shares outstanding........ 714,195,716 739,960,901 766,278,569
26 Commitments and contingencies
Commitments:
(a)On January 24, 2002 the Group entered into a contract with Boeing (the
"2002 Boeing contract") pursuant to which the Group will purchase 100 new Boeing
737-800 aircraft, and has additional purchase rights to purchase up to a further
50 such aircraft. The 2002 Boeing contract was approved at an Extraordinary
General Meeting held on August 7, 2002. The Group took delivery of the first 5
737-800 aircraft under this contract in the current year and additional
deliveries are currently scheduled between 2003-2009. The "Basic Price"
F-30
(equivalent to a standard list price for an aircraft of this type) for each of
the Boeing 737-800 aircraft (defined as a per aircraft airframe price, including
engines, plus the per aircraft price for certain optional features agreed
between the parties) is US$50,885,100. This "basic price" will be increased by
(a) an estimated US$900,000 per aircraft for certain "buyer-furnished" equipment
Ryanair has asked Boeing to purchase and install on each of the aircraft, and
(b) and "Escalation Factor" designed to increase the Basic Price of any
individual aircraft by applying a formula which reflects increases in the
published US Employment Cost and Producer Price indices between the time the
Basic Price was set and the period of six months prior to the delivery of such
aircraft.
Boeing has granted Ryanair certain price concessions with regard to the
737-800 aircraft. These will take the form of credit memoranda to the Group for
the amount of such concessions, which Ryanair may apply toward the purchase of
goods and services from Boeing or toward certain payments, other than advance
payments, in respect of the purchase of the aircraft under the 2002 Boeing
Contract. Boeing and CFMI (the manufacturer of the engines to be fitted on the
purchased aircraft) have also agreed to give the Group certain allowances as
well as providing other goods and services to the Group on concessionary terms.
Those credit memoranda and allowances will effectively reduce the price of each
aircraft to Ryanair. As a result the effective price of each aircraft will be
significantly below the basic price mentioned above. The total potential
commitment to acquire all 150 aircraft, not taking into account such increases
or decreases, will be up to US$7.6 billion.
On January 31, 2003 the company entered into an agreement for the delivery
of an additional 22 new Boeing 737-800 series aircraft and exercised 3 of the
original 50 options granted in January 2002. This in turn brings the total firm
orders with Boeing for 737-800 series aircraft to 125 aircraft and as part of
the agreement the number of options remaining was increased from 47 to 125. The
same commercial terms apply to the additional firm aircraft ordered and to the
additional options granted.
(b) Under the terms of an aircraft purchase contract dated March 9, 1998
with Boeing "the 1998 Boeing Contract" the Group committed to purchase 25 new
737-800 aircraft and has options to purchase up to an additional 20 such
aircraft. The gross price for each aircraft was to be US$46,631,900 including
certain equipment purchased and fitted by Boeing on Ryanair's behalf, subject to
increase to take into account the "Escalation Factor" reflecting the changes in
the US Employment Cost and Producer Price indices and to decrease to take into
account certain concessions granted to the Group by Boeing. The total amount
committed by Ryanair over the period to January 2003 in respect of the 25 new
aircraft, not taking into account any such increases or decreases, was
approximately US$1.2 billion. The Group took delivery of the first twenty
737-800 aircraft from fiscal 1999 to 2002, and a further five aircraft were
delivered during fiscal 2003. Three options were converted to firm purchases
during the year. All additional option aircraft have now been cancelled at no
cost to Ryanair.
(c ) The Group incurred expenses of EURnil in respect of operating lease
rentals for the year ended March 31, 2003 (2002: EUR4,020,678) (2001: EUR
7,285,674) which are included in the profit and loss account. Such expenses
consisted entirely of short term leases of aircraft.
(d) Commitments resulting from the use of derivative financial instruments
by the Group are described in notes 13-16.
Contingencies:
(e) The Group is engaged in litigation arising in the ordinary course of
its business. Except as otherwise described below, management does not believe
that any such litigation will individually or in aggregate have a material
adverse effect on the financial condition of the Group. Should the Group be
unsuccessful in these litigation actions, management believes the possible
liabilities then arising cannot be determined but are not expected to materially
adversely affect the Group's results of operations of financial position.
F-31
(f) The company has provided EUR51.3 million in letters of guarantee to
secure obligations of subsidiary undertakings in respect of loans and bank
advances.
(g) In order to avail of the exemption contained in Section 17 of the
Companies (Amendment) Act, 1986, the holding company, Ryanair Holdings plc, has
guaranteed the liabilities of its subsidiary undertakings registered in Ireland.
As a result, the subsidiary undertakings have been exempted from the provisions
of Section 7 of the Companies (Amendment) Act, 1986. Details of the Group's
principal subsidiaries have been included at note 29. The additional Irish
subsidiary covered by this exemption which is not listed as a principal
subsidiary at note 29 is Airport Marketing Services Limited.
(h) The Group has EUR120.9 million held on deposit as collateral for
certain derivative financial instruments to hedge its exposure to adverse
movements in currency and interest rates in relation to its current and planned
debt financing.
(i) On December 11, 2002, the European Commission announced the launch of
an investigation into the April 2001 agreement between Ryanair and Brussels
(Charleroi) airport and the government of the Walloon region of Belgium, which
allowed Ryanair to launch new routes from and base up to four aircraft at
Brussels (Charleroi) airport. In return, the agreement provides Ryanair with
concessions for landing and handling charges, as well as training and
accommodation grants and a contribution to certain marketing costs. The European
Commission is investigating whether this agreement constitutes illegal state aid
for Ryanair.
Ryanair believes that these arrangements do not constitute illegal state
aid, because the arrangements were not exclusive to Ryanair, and were similar to
other arrangements entered into by Ryanair with non-state owned airports. In the
unlikely event that the European Commission determined that the arrangements
constituted illegal state aid, Ryanair could be required to repay accommodation,
training grants and new route launch marketing supports of EUR250,000,
EUR768,000 and EUR1.44 million respectively, and if the Company were required to
pay the published charges and not the normal discounted rate that applies this
could amount to approximately EUR2.6 million for landing and handling charges
and approximately EUR2.2 million of marketing support on an annualized basis
since the launch of the base in April 2001. Ryanair believes, however, that the
arrangements did not constitute state aid and that the possibility of these
potential payments is unlikely. Accordingly, no such amounts have been provided
for by Ryanair.
F-32
27 Notes to cash flow statements
(a) Reconciliation of operating profit to net cash inflow from operating
activities
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Operating profit....................................................... 114,011 162,933 263,474
Foreign exchange gains................................................. 1,621 975 628
Depreciation of tangible fixed assets.................................. 57,706 59,010 76,865
(Increase) in inventories.............................................. (2,042) (1,150) (5,663)
Decrease/(Increase) in accounts receivable............................. 13,279 (1,636) (4,639)
(Increase) in other assets............................................. (393) (1,445) (4,143)
Increase in accounts payable........................................... 7,137 16,781 14,825
Increase in accrued expenses and other liabilities..................... 38,483 73,641 9,656
Net cash inflow from operating activities.............................. 229,802 309,109 351,003
(b) Analysis of cash and liquid resources balances
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Cash at bank, available on demand net of overdraft.......... 56,860 77,747 76,550
Liquid resources ........................................... 564,782 816,023 982,352
Total cash and liquid resources............................. 621,642 893,770 1,058,902
Liquid resources comprise bank fixed deposits with maturities of greater
than one day.
(c) Analysis of movements in liquid resources
Year ended March Year ended March Year ended
31, 2001 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Liquid resources at beginning of year................. 334,149 564,782 816,023
Increase in year...................................... 230,633 251,241 166,329
Liquid resources at end of year....................... 564,782 816,023 982,352
(d) Analysis of movements in cash
Year ended
March 31, 2001
Cash at Bank
Bank Overdraft Total
EUR000 EUR000 EUR000
At beginning of year.................................. 21,099 (3,780) 17,319
Net cash inflow....................................... 40,839 (1,298) 39,541
At end of year........................................ 61,938 (5,078) 56,860
Year ended
March 31, 2002
Cash at Bank
Bank Overdraft Total
EUR000 EUR000 EUR000
At beginning of year.................................. 61,938 (5,078) 56,860
Net cash inflow....................................... 21,314 (427) 20,887
At end of year........................................ 83,252 (5,505) 77,747
F-33
Year ended
March 31, 2003
Cash at Bank
Bank Overdraft Total
EUR000 EUR000 EUR000
At beginning of year.................................. 83,252 (5,505) 77,747
Net cash (outflow).................................... (5,386) 4,189 (1,197)
At end of year........................................ 77,866 (1,316) 76,550
(e) Reconciliation of net cash flow to movement in net funds
Year ended March Year ended Year ended
31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Increase/(decrease) in cash in year.......................... 39,541 20,887 (1,197)
Movement in liquid resources................................. 230,633 251,241 166,329
Cash flow from (increase) in debt............................(281,057) (147,860) (286,723)
Movement in net (debt)/funds resulting from cash flows....... (10,883) 124,268 (121,591)
Movement in finance leases................................... 286 107 1
Movement in net (debt)/funds in the year..................... (10,597) 124,375 (121,590)
Net funds at beginning of year............................... 229,489 218,892 343,267
Net funds at end of year..................................... 218,892 343,267 221,677
Net debt consists of borrowings less cash and liquid resources. Net funds
arise when cash and liquid resources exceed debt.
28 Post balance sheet events (unaudited)
On April 10, 2003, Ryanair Holdings plc acquired certain assets of KLM UK
Ltd ("Buzz") for the sum of EUR20.1 million. Those assets primarily comprised
leases on six Boeing 737-300's, four Bae146-200's, up to 110 employees, certain
trademarks, domain names, equipment, fixtures and fittings, and the transfer of
certain landing and take off slots at Stansted Airport. The leases on the six
Boeing 737-300's were novated to Buzz Stansted Ltd, a subsidiary of the Group
post year-end. These leases expire between 2010 and 2011, however the leases can
be terminated 48 months prior to the expiry date by the exercise of an early
termination option. The four Bae146-200 aircraft have been subleased by Buzz
Stansted Ltd from KLM Royal Dutch Airlines for the period from April 11, 2003 to
March 31, 2004. As part of this transaction, Ryanair recorded goodwill amounting
to EUR46.7 million, comprising the purchase price of EUR20.1 million for the
fair value of the assets acquired and excess onerous lease costs of EUR26.6
million, arising on the leased aircraft taken over, as these costs were
substantially higher than existing market rates for leases on similar aircraft.
Ryanair also recorded exceptional costs of EUR3.1 million relating to this
transaction, representing Buzz's operating costs from April 10, 2003 to May 1,
2003, while staff were being retrained and an air operators' certificate was
being processed. As part of this acquisition, the Company also gave a guarantee
to the Civil Aviation Authority regarding the payment and discharge of all
liabilities of Buzz Stansted Ltd. The guarantee amounts to StgGBP12m and is
required by the Civil Aviation Authority (CAA) for Buzz Stansted Ltd to obtain
and maintain an operating licence in the United Kingdom. In accordance with US
GAAP the Company will perform a valuation of the Buzz assets acquired, to
attribute value to separable intangible assets, which are likely, for example,
to include airport slots and trademarks. Pro-forma disclosures relating to Buzz
have not been provided as these are not meaningful in the context of the current
use of the assets acquired.
F-34
29 Subsidiary undertakings and acquisitions during the period
(a) The following are the principal subsidiary undertakings of Ryanair
Holdings plc:
Effective date of
Name acquisition/incorporation Registered Office Nature of Business
Ryanair Limited August 23, 1996 Corporate Headquarters Airline operator
(acquisition) Dublin Airport
Co Dublin
Darley Investments August 23, 1996 Corporate Headquarters Investment holding
Limited* (acquisition) Dublin Airport company
Co Dublin
Ryanair.com August 23, 1996 Corporate Headquarters International data
Limited* (acquisition) Dublin Airport processing and
Co Dublin reservations services
* These subsidiaries are wholly owned by Ryanair Limited, which in turn is
wholly owned by Ryanair Holdings plc. All of the above subsidiaries are
100% owned by the Group. The shares owned by the Group comprise one class
(ordinary shares) in respect of each subsidiary.
Information regarding all other subsidiaries will be filed with the
Company's next Annual Return as provided for by S.16 (3)(a) of Companies
(Amendment)Act, 1986.
In accordance with the basis of consolidation policy described in Note 1b,
the subsidiary undertakings referred to above have been consolidated in the
respective financial statements of Ryanair Holdings plc from the date of
acquisition.
F-35
30 Summary of differences between Irish and United States generally
accepted accounting principles
(a) Significant differences
The financial statements of Ryanair Holdings plc are prepared in accordance
with generally accepted accounting principles ("GAAP") applicable in Ireland
which differ significantly in certain respects from those generally accepted in
the United States (US GAAP). These significant differences are described below:
(i) Deferred tax
Under Irish GAAP, Ryanair Holdings plc provides for deferred taxation using
the full liability method on all material timing differences that have
originated but not reversed at the balance sheet date. Deferred tax assets are
recognized to the extent that they are regarded as recoverable. Under US GAAP,
as set out in Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," deferred taxation is provided on all temporary
differences between the financial statement carrying value of assets and
liabilities and the tax value of such assets and liabilities on a full provision
basis. Deferred tax assets are recognized if their realization is considered to
be more likely than not. The differences in these accounting treatments have not
resulted in any material reconciling items for US GAAP purposes.
(ii) Accounting for derivatives
Under Irish GAAP, unrealized gains and losses on derivative financial
instruments utilized for hedging purposes are deferred and recognized in the
profit and loss account when realized, as an offset to the related income or
expense being hedged.
Effective April 1, 2001 Ryanair adopted SFAS No. 133, "Accounting for
Derivatives Instruments and Hedging Activities," as amended by SFAS No.137 and
138. SFAS No. 133 requires that all derivative instruments are recognized as
assets or liabilities on the balance sheet and measured at fair value,
regardless of the purpose or intent for holding them. Changes in the fair value
of derivative instruments are recognized periodically either in earnings or
stockholders' equity (as a component of other comprehensive income), depending
on whether the derivative is designated as a hedge of changes in fair value or
cash flows. For derivatives designated as fair value hedges, changes in the fair
value of the hedged item and the derivative are recognized currently in
earnings. For derivatives designated as cash flow hedges, fair value changes of
the effective portion of the hedging instrument are recognized in accumulated
other comprehensive income on the balance sheet until the hedged item is
recognized in earnings. The ineffective portion of the fair value changes are
recognized in earnings immediately. SFAS No.133 also requires that certain
derivative instruments embedded in host contracts be accounted for separately as
derivatives.
For periods prior to April 1, 2001, Ryanair's derivative financial
instruments, excluding certain foreign exchange contracts purchased to offset
the Group's foreign currency exposure, were accounted for together with the
underlying business transactions ("hedge accounting"). Gains and losses on these
derivative financial instruments were deferred off-balance sheet and were
recognized as a component of the related transactions, when recorded (the
"deferral method"). Certain of Ryanair's foreign exchange contracts did not
qualify for hedge accounting, which resulted in gains or losses being recorded
currently in earnings.
As a result of adopting SFAS No. 133, Ryanair recorded a transition
adjustment of EUR0.7 million (gain) in other comprehensive income to record the
fair value of its cash flow hedges. Since April 1, 2001, Ryanair has qualified
for hedge accounting under SFAS No. 133 for all of its derivative financial
instruments. Ryanair's US dollar currency forward contracts for aircraft
purchases are accounted for as fair value hedges. All other derivative financial
instruments are accounted for as cash flow hedges. There was no material
ineffectiveness recorded for either cash flow or fair value hedges during the
current and preceding years or at transition. The maximum length of time over
which the Group is hedging its exposure to the variability in future cash flows
for forecasted transactions is 12 years. Of the EUR81.6 million loss (net of
EUR11.7 million of tax) recorded at March 31, 2003 in other comprehensive
income, EUR5.9 million is expected to be reclassified into earnings within the
next 12 months.
F-36
(iii) August 1996 transaction
Under U.S. GAAP, acquisition accounting does not apply in respect of the
August 1996 transaction by which Ryanair Holdings plc acquired the entire issued
share capital of Ryanair Limited because there has been no change in control.
Accordingly, under U.S. GAAP, Ryanair Holdings plc presents assets and
liabilities using the historical predecessor cost basis in Ryanair Limited.
Under Irish GAAP, the August 1996 transaction is accounted for as an
acquisition by Ryanair Holdings plc of Ryanair Limited and the assets and
liabilities are recorded at their fair values on that date. As the fair value of
the aircraft was higher than its cost basis in Ryanair Limited the depreciation
charge in the period subsequent to August 1996 is higher under Irish GAAP than
under U.S. GAAP.
Under Irish GAAP, the difference between the fair value of the acquired
assets and liabilities and the consideration is recorded as goodwill and written
off directly against reserves. Under U.S. GAAP the consideration paid in
connection with the transaction is recorded as a reduction in shareholders'
equity.
(iv) Darley Investments Limited
Under Irish GAAP, the acquisition of Darley Investments Limited ("Darley")
at March 31, 1996 has been treated as an acquisition and the acquired assets and
liabilities have been recorded in the consolidated financial statements of
Ryanair Limited at their fair values.
Under Irish GAAP, the assets acquired were recorded at their fair values
and a fair value adjustment on the headquarters building of EUR844,915 arose.
Under U.S. GAAP, the assets are presented at historical cost and consequently,
additional depreciation on the fair value adjustment on the headquarters
building is not recorded.
(v) Acquisition of certain aircraft
Under Irish GAAP, the aggregate consideration of U.S.$25 million paid by
Ryanair Limited to Northill Limited in August 1994 in respect of the acquisition
of four aircraft is included in fixed assets as aircraft cost.
Under U.S. GAAP, as Northill Limited was controlled by T.A. Ryan, a
connected person with the controlling shareholders of Ryanair Limited, the cost
of the aircraft is recorded based on their cost to Northill Limited of U.S.$22
million and the difference between that cost and the amount paid by Ryanair
Limited to Northill Limited is treated as a reduction of shareholders' equity.
(vi) Pensions
Under Irish GAAP, plan assets are valued on the basis of discounted present
value of expected future income. US GAAP requires that plan assets are valued by
reference to their market value. Under Irish GAAP, pension costs for defined
benefit plans are assessed in accordance with the advice of independent
actuaries using assumptions and methods which produce the actuaries' best
estimates of the cost of providing the relevant pension benefits. US GAAP
requires the use of the projected unit credit method and the matching of the
projected benefit obligation against the fair value of the plan's assets, as
adjusted to reflect any unrecognized obligations or assets. Under Irish GAAP,
the measurement of plan assets and obligations may be based on the most recent
actuarial valuation. Under US GAAP, calculations must be made as of the date of
the financial statements or a date not more than three months prior to that
date. Under US GAAP, where the accumulated benefit obligation (being the
actuarial present value of benefits attributed by the pension to employee
service rendered, based on current and past compensation levels) exceeds the
fair value of plan assets, a liability must be recognized in the statement of
financial position. Under Irish GAAP, such deficiencies are usually recognized
over the remaining average service lives of the employees by way of increased
contribution rates except where a major event or transaction has occurred which
has not been allowed for in the actuarial assumptions, giving rise to a material
deficit necessitating significant additional contributions to the scheme. In
such circumstances, a material deficit so arising may be recognized over a
shorter period.
F-37
Under Irish GAAP, pension credits are not recognized in the financial
statements unless a refund of, or reduction in, contributions is likely. Under
US GAAP, a negative pension cost may arise where a significant unrecognized net
asset or gain exists at the time of implementation. This is required to be
amortized on a straight line basis over the average remaining service period of
employees. Note 24 to the financial statements gives the Group pension
disclosure under Irish GAAP.
For the purposes of disclosure requirements under US GAAP, the pension cost
of the Group's retirement plan has been restated in the following tables, which
are presented in accordance with the requirements of SFAS 132.
Year ended March Year ended March Year ended March
31, 2001 31, 2002 31, 2003
EUR000 EUR000 EUR000
Projected benefit obligation at beginning of year........ 6,793 8,782 10,819
Service Cost............................................. 740 951 797
Interest Cost............................................ 453 443 655
Employee contributions................................... 463 485 558
Actuarial loss........................................... 729 826 1,576
Benefits paid............................................ (396) (668) (138)
Projected benefit obligation at end of year.............. 8,782 10,819 14,267
Change in plan assets Year ended March Year ended March Year ended March
31, 2001 31, 2002 31, 2003
Fair value of scheme assets at beginning of year......... 9,690 10,273 9,927
Actual return on assets.................................. (52) (758) (2,115)
Employer contributions paid.............................. 568 595 672
Employee contributions paid.............................. 463 485 558
Benefits paid............................................ (396) (668) (138)
Fair value of scheme assets at end of year............... 10,273 9,927 8,904
The funded status of the Group's retirement plan under SFAS No. 132 is as
follows:
F-38
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
Actuarial present value of vested benefit obligations......... 6,595 8,777 12,390
Accumulated benefit obligations............................... 6,595 8,777 12,390
Projected benefit obligations................................. (8,782) (10,819) (14,267)
Plan assets at fair value..................................... 10,273 9,927 8,904
Plan assets in excess of benefit obligations.................. 1,491 (892) (5,363)
Unrecognized net (loss)/gain.................................. (272) 2,261 6,698
Unrecognized net obligation on implementation................. 268 238 208
Prepaid pension cost.......................................... 1,487 1,607 1,543
Plan assets consist primarily of investments in Irish and overseas equity
and fixed interest securities.
The principal assumptions used in the plan for SFAS No. 132 purposes were
as follows:
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
% % %
Discount rate......................................... 6.00 6.25 6.25
Rate of increase in remuneration...................... 4.00 4.25 4.25
Expected long term rate of return on assets........... 9.00 9.00 7.75
The net periodic pension cost in accordance with SFAS No. 132 for the
fiscal years ended March 31, 2001, 2002 and 2003 comprised:
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Service cost - present value of benefits earned during
the year.................................................. 740 951 797
Interest cost on projected benefit obligations............ 453 443 655
Expected return/(loss) on assets.......................... 52 737 (2,115)
Deferrals and amortization................................ (1,014) (1,655) 1,360
Net periodic pension cost................................. 231 476 697
(vii) Employment grants
Under Irish GAAP, employment grants paid by an Irish government agency are
recognized in the profit and loss account on receipt and a contingent liability
is disclosed for amounts which may become repayable in certain predefined
circumstances.
Under US GAAP, these revenues are recognized in the profit and loss account
over the period for which minimum employment levels apply under the terms of the
agreement and the unamortized balance is treated as deferred income.
(viii) Share option compensation expense
Under US GAAP, any excess of the fair market value over the exercise price
under a share option plan on the date of the grant is recognized as compensation
expense over the period the services are provided. Under Irish GAAP, in effect
in May 1997, when these share options were granted, compensation was not
recognized for stock issued at a price less than market price.
Under US GAAP, the Group applies Accounting Principles Board Opinion No. 25
(APB 25) in accounting for its stock option plans and, accordingly, except for
the grant in May 1997, no compensation cost has been recognized for its stock
option grants. Had Ryanair Holdings plc determined compensation cost based on
F-39
the fair value of the options at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123 (SFAS 123), its U.S. GAAP
net income would have been reduced by EUR15,099,003, EUR2,222,730 and
EUR8,699,556 for the years ended March 31, 2003, March 31, 2002 and March 31,
2001, respectively, and the corresponding earnings per share and diluted
earnings per share would have been reduced by EUR1.99 euro cent and EUR0.30 euro
cent and EUR1.23 cent per share, respectively, in the years ended March 31,
2003, 2002 and 2001, as presented below.
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Net income in accordance with US GAAP (as reported)...................... 112,388 155,549 241,810
Deduct: total stock based employee compensation expense as determined
under fair-value method.................................................. (8,700) (2,223) (15,099)
Pro-forma net income..................................................... 103,688 153,326 226,711
Basic earnings per ordinary share (as reported).......................... EUR0.15 EUR0.21 EUR0.32
Pro-forma basic earnings per ordinary share.............................. EUR0.13 EUR0.21 EUR0.30
Diluted earnings per ordinary share (as reported)........................ EUR0.15 EUR0.20 EUR0.31
Pro-forma diluted earning per ordinary share............................. EUR0.13 EUR0.20 EUR0.29
The weighted average fair value of the individual options granted during
the years ended March 31, 2001, 2002, and 2003 is estimated based on the
following assumptions.
Options Granted
Date Granted.......... Jun 26, Jun 26, Nov 9, Nov 30, Jul 5, Jul 3,
2000 2000 2000 2000 2001 2002
Date of earliest exercise Jun 23, Jun 23, Jun 23, Jun 30, Jun 23, Jun 23,
2003 2003 2003 2005 2003 2003
Fair Value............ EUR3.24 EUR3.83 EUR5.32 EUR5.42 EUR2.18 EUR2.61
Assumptions:
Risk-free interest rate 5.69% 5.55% 5.41% 5.14% 4.48% 4.11%
Volatility............ 40% 40% 40% 40% 40% 40%
Dividend Yield........ Nil Nil Nil Nil Nil Nil
Maximum life (years).. 7.0 7.0 6.6 6.6 7.0 7.0
(ix) Investments
The Group held one investment in a publicly quoted company in 2001. Under
Irish GAAP this investment, which was held for the long term and not traded, was
recorded in the Company's balance sheet at cost, within the caption 'Financial
assets'. Profits or losses arising on disposal are booked in the profit and loss
account when the shares are sold and represent the difference between sales
proceeds and cost of purchase. Under U.S. GAAP equity securities must be
designated as trading or available for sale securities. Ryanair's investments
were classified as available for sale securities and were marked to market with
gains or losses arising taken to the Statement of Shareholders' Equity. Under US
GAAP the gain or loss arising on the ultimate sale of available for sale
securities is recognized in the income statement.
(x) Capitalized interest
Under US GAAP interest costs associated with the cost of acquiring and
making ready for their intended use certain 'qualifying' assets must be
capitalized as part of the acquisition cost of the asset. Ryanair makes deposits
in respect of its aircraft acquisition program and in accordance with US GAAP
capitalizes interest costs which could have been avoided if the expenditure had
not been made.
F-40
Under Irish GAAP there is no mandatory requirement to capitalize interest
costs in such circumstances.
(b) Net income under U.S. GAAP
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Profit for the financial year as reported in the consolidated profit
and loss accounts and in accordance with Irish GAAP
104,483 150,375 239,398
Adjustments:
Pensions................................................................. 740 751 697
Derivative financial instruments......................................... 6,803 - (4,189)
Employment grants........................................................ 401 464 469
Capitalized interest re aircraft acquisition program..................... - 5,027 5,262
Depreciation on tangible fixed assets:
- -basis of accounting for August 1996 transaction......................... 1,531 - -
- -basis of accounting for aircraft acquired from Northill Limited......... 179 - -
Darley Investments Limited............................................... 88 88 88
Taxation-effect of above adjustments..................................... (1,837) (1,156) 85
Net income in accordance with U.S. GAAP.................................. 112,388 155,549 241,810
(c) Shareholders' equity
Year ended Year ended Year ended
March 31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Shareholders' equity as reported in the consolidated balance sheets
(Irish GAAP) 669,898 1,002,274 1,241,728
Adjustments:
Pension.................................................................. 1,663 2,414 3,111
Employment grants........................................................ (933) (469) -
Capitalized interest re aircraft acquisition program..................... - 5,027 10,289
Darley Investments Limited............................................... (415) (327) (239)
Minimum pension liability (net of tax)(i)................................ - - (2,656)
Investments.............................................................. 588 - -
Unrealized gains/(losses) on derivative financial instruments(net of
tax)(ii)................................................................. 4,189 12,448 (73,371)
Tax effect of above adjustments.......................................... (604) (1,760) (1,675)
Shareholders' equity as adjusted to accord with U.S. GAAP................ 674,386 1,019,607 1,177,187
Opening shareholders' equity under U.S. GAAP............................. 439,340 674,386 1,019,607
Comprehensive Income
Investments.............................................................. (1,400) (588) -
Minimum pension liability (net of tax)................................... - - (2,656)
Unrealized gains/(losses) on derivative financial instruments............ - 8,259 (81,630)
Net income in accordance with U.S. GAAP.................................. 112,388 155,549 241,810
Total comprehensive income............................................... 110,988 163,220 157,524
Stock issued for cash.................................................... 124,058 182,001 56
Closing shareholders' equity under U.S. GAAP............................. 674,386 1,019,607 1,177,187
(i) Minimum pension liability net of tax of EUR379,428.
(ii) Unrealized gains/(losses) on derivative financial instruments net of tax
of EUR598,428 in March 2001 (2002: EUR1,778,286; 2003: EUR10,481,571).
F-41
(d) Total assets
Year ended March Year ended Year ended
31, 2001 March 31, 2002 March 31, 2003
EUR000 EUR000 EUR000
Total assets as reported in the consolidated balance sheets
(Irish GAAP)
1,277,252 1,889,572 2,466,707
Adjustments:
Pension................................................................. 1,663 2,414 3,111
Darley Investments Limited.............................................. (415) (327) (239)
Capitalized interest re aircraft acquisition program ................... - 5,027 10,289
Investments............................................................. 588 - -
Total assets as adjusted to accord with U.S. GAAP....................... 1,279,088 1,896,686 2,479,868
(e) Cash flows
In accordance with Irish GAAP, the Group complies with Financial Reporting
Standard No. 1-"Cash flow statements" (FRS 1). Its objective and principles are
similar to those set out in SFAS No. 95 "Statement of Cash Flows." The principal
difference between the standards is in respect of classification. Under FRS 1,
the Group presents its cash flows for: (a) operating activities; (b) returns on
investments and servicing of finance; (c) taxation; (d) capital expenditure; (e)
acquisitions and disposals; and (f) financing activities. SFAS No. 95 requires
only three categories of cash flow activity: (a) operating; (b) investing; and
(c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 are included as operating activities under SFAS No. 95.
In addition, under FRS 1, cash and liquid resources include short term
borrowings repayable on demand. SFAS No. 95 requires movements in such
borrowings to be included in financing activities.
Disclosure of accounting policy
For the purposes of cash flows under US GAAP, the Group considers all
highly liquid deposits with a maturity of three months or less to be cash
equivalents. Under Irish GAAP, cash represents cash held at bank available on
demand, offset by bank overdrafts, and liquid resources comprise bank fixed
deposits with maturities of greater than one day.
Under Irish and US GAAP, transactions that are undertaken to hedge another
transaction are reported under the same classification as the underlying
transaction that is the subject of the hedge.
A summarized consolidated cash flow under US GAAP is as follows:
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Cash inflow from operating activities..................... 221,558 314,398 348,200
Cash (outflow) from investing activities.................. (360,056) (551,146) (575,806)
Cash inflow from financing activities..................... 406,127 330,181 282,590
Increase in cash and cash equivalents..................... 267,629 93,433 54,984
Cash and cash equivalents at beginning of year............ 121,430 389,059 482,492
Cash and cash equivalents at end of year*................. 389,059 482,492 537,476
* The company's cash outflow from investing activities includes an increase
in restricted cash balances at March 31, 2001, March 31, 2002 and March 31,
2003 of nil, nil and EUR120.9 million to hedge its exposure to adverse
movements in currency and interest rates in relation to its current and
planned debt financing.
F-42
The following table reconciles cash and cash equivalents as presented under
U.S. and liquid resources as presented under Irish GAAP:
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Cash and cash equivalents under U.S. GAAP........................ 389,059 482,492 537,476
Restricted cash.................................................. - - 120,890
Deposits with a maturity between three and six months............ 237,661 416,783 401,852
Cash and liquid resources under Irish GAAP....................... 626,720 899,275 1,060,218
Supplemental schedule of Non-Cash Investing and Financing Activities.
The Group did not enter into capital leases for new fixtures and fittings,
plant and equipment and motor vehicles during the current or preceding fiscal
year. Principal payments under lease obligations entered into prior to March 31,
2003 totaled EUR1,000 (March 31, 2002: EUR107,000; March 31, 2001: EUR286,500)
for the year.
(f) Profit and loss account as presented under US GAAP
Year ended Year ended Year ended
March 31, March 31, March 31,
2001 2002 2003
EUR000 EUR000 EUR000
Operating revenues
Scheduled revenues............................................ 432,940 550,991 731,951
Ancillary revenues............................................ 54,465 73,059 110,557
Total operating revenues-continuing operations................ 487,405 624,050 842,508
Operating expenses
Staff costs (60,081) (77,025) (91,907)
Depreciation and amortization................................. (57,465) (59,010) (76,865)
Other operating expenses...................................... (252,909) (323,779) (409,008)
Total operating expenses...................................... (370,455) (459,814) (577,780)
Operating income-continuing operations........................ 116,950 164,236 264,728
Other income/(expenses)
Interest receivable and similar income........................ 19,666 27,548 31,363
Interest payable and similar charges.......................... (11,962) (14,582) (25,624)
Foreign exchange gains/(losses)............................... 8,424 975 (3,561)
Gain on disposal of fixed assets.............................. 52 527 (29)
Total other income/(expenses)................................. 16,180 14,468 2,149
Income before taxation........................................ 133,130 178,704 266,877
Taxation...................................................... (20,742) (23,155) (25,067)
Net income.................................................... 112,388 155,549 241,810
Basic earnings per ordinary share (euro cent)................. 15 21 32
Diluted earnings per share (euro cent)........................ 15 20 31
No. of ordinary shares (in '000's)............................ 705,623 728,726 755,055
Diluted no of ordinary shares (in '000's)..................... 714,196 739,961 766,279
Total comprehensive income amounted to EUR157.5 million, EUR163.2 million and
EUR111.0 million in the year ending March 31, 2003, 2002 and 2001 respectively.
F-43
(g) New US accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which revises
the accounting for purchased goodwill and other intangible assets. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001, with earlier
adoption permitted. Under SFAS No. 142, purchased goodwill and intangible assets
with indefinite lives are no longer amortized, but are instead tested for
impairment at least annually. Intangible assets with indefinite lives are tested
for impairment by comparing the fair value of the intangible asset with its
carrying value. Any excess of carrying value over fair value is recognized as an
impairment loss. SFAS No. 142 requires a two-step impairment test for goodwill.
The first step is to identify reporting units within the business and compare
the carrying amount of the reporting unit's assets to the fair value of the
reporting unit. If the carrying amount exceeds the fair value then the second
step is required to be completed, which involves the fair value of the reporting
unit being allocated to each asset and liability with the excess being implied
goodwill. The impairment loss is the amount by which the recorded goodwill
exceeds the implied goodwill. A company applying SFAS No. 142 is required to
complete a "transitional" impairment test for goodwill as of the beginning of
the fiscal year in which the statement is adopted. The adoption of this standard
did not have a material impact on Ryanair's financial statements.
SFAS No. 143, "Accounting for Asset Retirement obligations" ("SFAS No.
143"), addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. The statement requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002, with early adoption encouraged.
The adoption of this standard did not have a material impact on Ryanair's
financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supercedes SFAS No. 121. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
Under SFAS No. 144, long lived assets to be held and used should be reviewed for
impairment using a two-step approach. The first step is to assess whether the
carrying amount of a long-lived asset is recoverable from its undiscounted cash
flows. If the undiscounted cash flows of the long- lived asset are less than its
carrying value then the second step is required. The second step requires the
recognition of an impairment loss, measured as the difference between the
carrying amount and fair value of the asset. For long-lived assets to be
disposed of by sale, the statement requires that the long-lived asset be
classified as held for sale at the lower of its carrying amount or fair value
less cost to sell and to cease depreciation. The adoption of this standard did
not have a material impact on Ryanair's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. The adoption of this standard
did not have a material impact on Ryanair's financial statements.
In June 2002, the FASB issued SFAS No. 146 "Accounting for the Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), which nullifies
Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a
liability for costs associated with exit or disposal activities first be
recognized when the liability is irrevocably incurred rather than at the date of
management's commitment to an exit or disposal plan. In addition, SFAS No. 146
F-44
stipulates that the liability be measured at fair value and adjusted for changes
in estimated cash flows. The provisions of the new standard are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 has not had a material impact on Ryanair's
financial statements.
In November 2002, the FASB issued FIN 45. This interpretation addresses the
disclosure to be made by a guarantor in its financial statements about its
obligation under guarantees. FIN 45 also requires the guarantor to recognize a
liability for the non-contingent component of the guarantee, that is, the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The disclosure requirements in this
Interpretation are effective for financial statements of interim and annual
periods ending after December 15, 2002. The recognition and measurement
provisions are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal year
end. The adoption of this standard has not had a material impact on the
financial statements of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of FASB statement No.
123" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Ryanair has adopted the disclosure requirements of SFAS No. 148 during
the 2003 fiscal year. Ryanair has opted to continue to account for stock options
in accordance with APB 25 as permitted by this standard.
In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation
of Variable Interest Entities" ("FIN 46"), which interprets Accounting Research
Bulletin (ARB) No. 51, "Consolidated Financial Statements". FIN 46 clarifies the
application of ARB No. 51 with respect to the consolidation of certain entities
(variable interest entities - "VIEs") to which the usual condition for
consolidation described in ARB No. 51 does not apply because the controlling
financial interest in VIEs may be achieved through arrangements that do not
involve voting interests. In addition, FIN 46 requires the primary beneficiary
of VIEs and the holder of a significant variable interest in VIEs to disclose
certain information relating to their involvement with the VIEs. The provisions
of FIN 46 apply immediately to VIEs created after January 31, 2003 and to VIEs
in which an enterprise obtains an interest after that date. FIN 46 applies to
the first fiscal year beginning after June 15, 2003, to VIEs in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
Ryanair does not expect that the adoption of this standard will have a material
impact on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of non-public
utilities. Ryanair does not expect the adoption of SFAS No. 150 to have a
material impact on its financial statements.
F-45
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
RYANAIR HOLDINGS PLC
/s/ Michael O'Leary
Name: Michael O'Leary
Title: Chief Executive Officer and Director
Date: September 30, 2003
Appendix A
GLOSSARY
Certain of the terms included in the section on Selected Operating and
Other Data and elsewhere in this Report have the meanings indicated below and
refer only to Ryanair's scheduled passenger service.
Available Seat Miles (ASMs) Represents the number of seats available for scheduled passengers
multiplied by the number of miles those seats were flown.
Average Booked Passenger Fare Represents the average fare paid by a scheduled fare paying
passenger who has booked a ticket.
Average Daily Flight Hour Utilization Represents the average number of flight hours flown in scheduled
service per day per aircraft for the total fleet of aircraft.
Average Flown Passenger Fare Represents the average fare paid by a scheduled fare paying
passenger who has flown.
Average Fuel Cost Per U.S. Gallon Represents the average cost per U.S. gallon of jet fuel for the
fleet (including fueling charges) after giving effect to fuel
hedging arrangements.
Average Length of Passenger Haul Represents the average number of miles traveled by a scheduled
fare paying passenger.
Average Passenger Spend per Flight Represents the average revenue generated per scheduled passenger
flown including in-flight purchases and car rental services.
Average Yield per ASM Represents the average scheduled flown passenger fare revenue for
each available seat mile ("ASM").
Average Yield per RPM Represents the average scheduled passenger fare revenue for each
revenue passenger mile ("RPM"), or each mile a scheduled revenue
passenger is flown.
Booked Passenger Load Factor Represents the total number of seats sold as a percentage of total
seat capacity on all sectors flown.
Break-even Load Factor Represents the number of RPMs at which scheduled passenger
revenues would have been equal to operating expenses (excluding
Non-Charter Ancillary Costs) divided by ASMs (based on Average
Yield per RPM). For the purposes of this calculation, the number
of RPMs at which scheduled passenger revenues would have been
equal to operating expenses (excluding Non-Charter Ancillary
Costs) is calculated by dividing operating expenses (excluding
Non-Charter Ancillary Costs) by Average Yield per RPM.
Cost Per ASM (CASM) Represents operating expenses (excluding Non-Charter Ancillary
Costs) divided by ASMs.
Flown Passenger Load Factor Represents RPMs divided by ASMs.
A-1
Net Margin Represents profit after taxation as a percentage of total revenues.
Non-Charter Ancillary Costs Represents the direct cost of Ryanair's ancillary revenues,
excluding costs in relation to Ryanair's charter operations.
Number of Airports Served Represents the number of airports to/from which the carrier
offered scheduled service at the end of the period.
Number of Owned Aircraft Operated Represents the number of aircraft owned and operated at the end of
the period.
Operating Margin Represents operating profit as a percentage of total revenues.
Revenue Passenger Miles (RPMs) Represents the number of miles flown by scheduled fare paying
passengers.
Revenue Passengers Booked Represents the number of scheduled fare paying passengers booked.
Revenue Passengers Flown Represents the number of scheduled fare paying passengers flown.
Sectors Flown Represents the number of scheduled passenger flight sectors flown.
A-2
Index to Exhibits
Exhibit Number Exhibit
1.1 Memorandum and Articles of Association of Ryanair Holdings in
effect as of the date hereof (incorporated herein by reference to
Exhibit 1.1 of Ryanair Holdings' Annual Report on Form 20-F/A
filed on November 2, 2001 (Commission file No. 0-2930)).
1.2 The total amount of long-term debt securities of Ryanair Holdings
authorized under any instrument does not exceed 10% of the total
assets of the Company on a consolidated basis. Ryanair Holdings
hereby agrees to furnish to the Securities and Exchange
Commission upon request a copy of any instrument defining the
rights of holders of long-term debt of the registrant or of its
subsidiaries for which consolidated or unconsolidated financial
statements are required to be filed.
4.1 Purchase Agreement No. 2403 between The Boeing Company and
Ryanair Holdings plc relating to Model 737-8AS aircraft, together
with ancillary documents (subject to a request for confidential
treatment that has been granted) (incorporated herein by
reference to Exhibit 4.1 of Ryanair Holdings' Annual Report on
Form 20-F filed on September 30, 2002 (commission file No.
0-2930)).
8.1 Principal subsidiaries of the registrant.
99.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 8.1 Principal Subsidiaries of the Registrant
Name Jurisdiction of Incorporation
Ryanair Limited Ireland
Darley Investments Limited* Ireland
Ryanair.com Limited Ireland
Buzz Stansted Ltd.* United Kingdom
* These subsidiaries are wholly owned by Ryanair Limited, which in turn is
wholly owned by Ryanair Holdings plc.
Exhibit 99.1 Certifications Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
I, Michael O'Leary, certify that:
1. I have reviewed this Annual Report on Form 20-F of Ryanair
Holdings plc;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the company as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the company, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report
our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of
the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the company's
internal control over financial reporting that occurred
during the period covered by this report that has
materially affected, or is reasonably likely to
materially affect, the company's internal control over
financial reporting; and
5. The company's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company's auditors
and the audit committee of the company's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the company's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the company's internal control over financial
reporting.
Date: September 30, 2003
/s/ Michael O'Leary_______
Michael O'Leary
Chief Executive Officer
* Provide a separate certification for each principal executive officer and
principal financial officer of the company. See Rules 13a-14(a) and 15d-14(a).
I, Howard Millar, certify that:
1. I have reviewed this Annual Report on Form 20-F of Ryanair
Holdings plc;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the company as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the company, including its
consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the company's disclosure
controls and procedures and presented in this report
our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of
the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the company's
internal control over financial reporting that occurred
during the period covered by this report that has
materially affected, or is reasonably likely to
materially affect, the company's internal control over
financial reporting; and
5. The company's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company's auditors
and the audit committee of the company's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the company's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the company's internal control over
financial reporting.
Date: September 30, 2003
/s/ Howard Millar___________
Howard Millar
Chief Financial Officer
Provide a separate certification for each principal executive officer and
principal financial officer of the company. See Rules 13a-14(a) and 15d-14(a).
Exhibit 99.2 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of Ryanair Holdings plc (the "Company"), does hereby
certify, to such officer's knowledge, that:
The Annual Report on Form 20-F for the fiscal year ended March 31, 2003 of
the Company fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and information contained in the Form 20-F
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: September 30, 2003
/s/ Michael O'Leary
Name: Michael O'Leary
Title: Chief Executive Officer
Dated: September 30, 2003
/s/ Howard Millar
Name: Howard Millar
Title: Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Ryanair Holdings plc and will be retained by Ryanair Holdings plc.
and furnished to the Securities and Exchange Commission or its staff upon
request