The Company also hedges its expected foreign currency exposure arising from US dollar or pound sterling cash outflows in the commercial
aircraft business on a first outflow basis, though to a much lesser extent than US dollar cash inflows.
In military aircraft and non-aircraft businesses, the Company hedges inflows and outflows in foreign currencies from firmly committed or
highly probable forecast sales and purchase contracts. Here, foreign currency derivatives are typically contracted in lower volumes; they
may be accounted for using a first flow approach or are designated as hedges of specific agreed milestone payments. The amount of the
expected flows to be hedged can cover up to 100% of the equivalent of the net US dollar exposure at inception. The coverage ratio
considers the variability in the range of potential outcomes taking into account macroeconomic movements affecting spot rates and interest
rates as well as the robustness of the commercial cycle.
In situations where the payment dates for hedged firmly committed cash flows are not fixed and subject to potentially significant delays,
the Company may use rollover strategies, usually involving foreign exchange swaps.
For all foreign currency hedges of future cash flows which qualify for hedge accounting under IFRS 9, the Company uses the cash flow
hedge model, which requires (i) recognising the effective portion of the fair value changes of the hedging derivatives in equity (within OCI)
and (ii) recognising the effect of the hedge in profit or loss when the hedged cash flows affect profit or loss.
In addition, the Company hedges currency risk arising from financial assets or liabilities denominated in currencies other than the euro,
including foreign currency receivable and payable accounts, as well as foreign currency denominated funding transactions or securities.
The Company applies hedge accounting if a mismatch in terms of profit or loss recognition of the hedging instrument and hedged item
would otherwise occur. Frequently, however, the currency-induced gains or losses of the hedging instrument and the hedged item match
in terms of profit or loss recognition (“natural hedge”), so no hedge accounting is required. Sometimes such gains or losses may end up
in different sections of the income statement (such as operating profit for the hedged item and financial result for the hedging instrument).
If so, the Company may choose to present the gains or losses of both the hedging instrument and the hedged item in the same income
statement line item if certain formal requirements are met.
As hedging instruments, the Company primarily uses foreign currency forwards, foreign currency options and to a minor extent non-
derivative financial instruments. A hedge ratio of 1:1 is applied by the Company.
The Company also has foreign currency derivative instruments which are embedded in certain purchase contracts denominated in a
currency other than the functional currency of any substantial party to the contract, principally in US dollar and pound sterling. If such
embedded derivatives are required to be accounted for separately from the host purchase contract, related gains or losses are generally
recognised in other financial result. However, if the embedded derivatives qualify for hedge accounting, the Company might choose to
designate them as a hedging instrument in a hedge of foreign currency risk, in which case they are accounted for under the cash flow
hedge model as described above.
The Company uses an asset-liability management approach with the objective to limit its interest rate risk. It
Interest rate risk —
undertakes to match the risk profile of its interest-bearing assets with those of its interest-bearing liabilities. The remaining net interest
rate exposure is managed through several types of interest rate derivatives, such as interest rate swaps and interest rate futures contracts,
in order to minimise risks and financial impacts.
The vast majority of related interest rate hedges qualify for hedge accounting, and most of them are accounted for under the fair value
hedge model. As a result, both the fair value changes of these derivatives and the portion of the hedged items’ fair value change that is
attributable to the hedged interest rate risk are recognised in profit or loss, where they offset to the extent the hedge is effective.
A few interest rate swaps that have been entered into as a hedge of certain of the Company variable rate debt (see “– Note 36.3: Financing
Liabilities”) are accounted for under the cash flow hedge model. Related fair value gains are recognised in OCI and reclassified to profit
or loss when the hedged interest payments affect profit or loss.
The Company has applied the relief introduced by the amendments made to IFRS 9 in September 2019 on hedge accounting, having the
effect that the IBOR reform should not cause hedge accounting to terminate.
The Company invests in financial instruments such as overnight deposits, certificates of deposits, commercial papers, other money market
instruments and short-term as well as medium-term bonds. For its financial instruments portfolio, the Company has an Asset Liability
Management Committee in place that meets regularly and aims to limit the interest rate risk on a fair value basis through a value-at-risk
approach, from which results a hedge ratio that is however not actively steered.
Commodity price risk — The Company is exposed to risk relating to fluctuations in the prices of commodities used in the supply chain.
It manages these risks in the procurement process and to a certain extent uses derivative instruments in order to mitigate the risks
associated with the purchase of raw materials. To the extent that the gains or losses of the derivative and those of the hedged item or
transaction do not match in terms of profit or loss, the Company applies cash flow hedge accounting to the derivative instruments, with a
hedge ratio of 1:1.
The Company is to a small extent invested in equity securities mainly for operational reasons. Its exposure to equity
Equity price risk —
price risk is hence limited. Furthermore, it is exposed under its LTIP to the risk of the Company share price increases. The Company limits
these risks through the use of equity derivatives that qualify for hedge accounting and have been designated as hedging instruments in
cash flow hedges, with a hedge ratio of 1:1.
The approach used to measure and control market risk exposure of the Company’s financial instrument
Sensitivities of market risks —
portfolio is, amongst other key indicators, the value-at-risk model (“VaR”). The VaR of a portfolio is the estimated potential loss that will
not be exceeded over a specified period of time (holding period) from an adverse market movement with a specified confidence level. The
VaR used by the Company is based upon a 95% confidence level and assumes a five-day holding period. The VaR model used is mainly
based on the so-called “Monte-Carlo-Simulation” method. The model generates a wide range of potential future scenarios for market price
movements by deriving the relevant statistical behaviour of markets for the portfolio of market data from the previous two years and
observed interdependencies between different markets and prices.
AIRBUS - FINANCIAL STATEMENTS 2021 - 57
