31 Financial instruments
a Fair values of financial assets and financial liabilities
The carrying amounts and fair values of the Group’s financial assets and liabilities at March 31, 2008 are set out below:
| Group | Company | |||
|---|---|---|---|---|
| £ million | Carrying value | Fair value | Carrying value | Fair value |
| Financial assets | ||||
| Cash and cash equivalents | 683 | 683 | 433 | 433 |
| Other liquid deposits maturing over three months | 1,181 | 1,181 | 399 | 399 |
| Available-for-sale financial assets | 80 | 80 | 24 | 24 |
| Forward currency contracts | 8 | 8 | 8 | 8 |
| Fuel derivatives | 350 | 350 | 350 | 350 |
| Financial liabilities | ||||
| Interest-bearing loans and borrowings: | ||||
| Finance lease and hire purchase obligations | 2,297 | 2,324 | 2,497 | 2,526 |
| Fixed rate borrowings | 518 | 526 | 584 | 586 |
| Floating rate borrowings | 359 | 359 | 311 | 311 |
| Cross currency swaps | 2 | 2 | 2 | 2 |
| Forward currency contracts | 20 | 20 | 20 | 20 |
| Fuel derivatives | 68 | 68 | 68 | 68 |
| The fair values of the Group’s financial assets and liabilities at March 31, 2007 are set out below: | ||||
| Group | Company | |||
| £ million | Carrying value | Fair value | Carrying value | Fair value |
| Financial assets | ||||
| Cash and cash equivalents | 713 | 713 | 662 | 662 |
| Other liquid deposits maturing over three months | 1,642 | 1,642 | 1,639 | 1,639 |
| Available-for-sale financial assets | 107 | 107 | 41 | 41 |
| Interest rate swap arrangements | 2 | 2 | 2 | 2 |
| Forward currency contracts | 1 | 1 | 1 | 1 |
| Fuel derivatives | 83 | 83 | 83 | 83 |
| Financial liabilities | ||||
| Interest-bearing loans and borrowings: | ||||
| Finance lease and hire purchase obligations | 2,400 | 2,406 | 2,608 | 2,615 |
| Fixed rate borrowings | 553 | 592 | 575 | 605 |
| Floating rate borrowings | 393 | 393 | 343 | 343 |
| Forward currency contracts | 3 | 3 | 3 | 3 |
| Fuel derivatives | 21 | 21 | 21 | 21 |
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:
Available-for-sale financial assets and loan notes
- Listed fixed asset investments are stated at market value as at March 31, 2008. For other investments the fair value is estimated by reference to a discounted cash flow that is not expected to reverse.
Bank and other loans, finance leases, hire purchase arrangements and the non-Japanese yen denominated portions of hire purchase arrangements carrying fixed rates of interest
- The repayments which the Group is committed to make have been discounted at the relevant interest rates applicable at March 31, 2008.
Japanese yen denominated portions of hire purchase arrangements carrying fixed rates of interest
- These amounts relate to the tax equity portions of Japanese leveraged leases which are personal to the Group, cannot be assigned and could not be refinanced or replaced in the same cross border market on a marked-to-market basis and accordingly, a fair value cannot be determined. The carrying value of £569 million (2007: £561 million) has therefore been included as the fair value above.
Euro-sterling notes and Euro-sterling bond 2016
- Quoted market value.
b Fair values of financial assets and financial liabilities
Interest rate swaps
- Discounted cash flow analysis, to determine the estimated amount the Group would receive or pay to terminate the agreements.
Forward currency transactions
- The marked-to-market value of the instruments.
Over The Counter (OTC) fuel derivatives
- The marked-to-market value of the instruments.
c Hedges
i Cash flow hedges
At March 31, 2008 the Group and Company held four principal risk management activities that were designated as hedges of future forecast transactions. These were:
A hedge of a proportion of future long-term revenue receipts by future debt repayments in foreign currency hedging future foreign exchange risk.
A hedge of certain short-term revenue receipts by foreign exchange contracts hedging future foreign exchange risk.
A hedge of certain short-term foreign currency operational payments by forward exchange contracts hedging future foreign exchange risk.
A hedge of future jet fuel purchases by forward crude, gas oil and jet kerosene derivative contracts hedging future fuel price risk.
To the extent that the hedges were assessed as highly effective, a summary of the amounts included in equity and the periods in which the related cash flows are expected to occur are summarised below:
March 31, 2008
| Group | ||||||
|---|---|---|---|---|---|---|
| £ million | 0-6 months | 6-12 months | 1-2 years | 2-5 years | More than 5 years | Total |
| Debt repayments to hedge future revenue | (1) | (1) | (5) | (10) | (17) | |
| Forward contracts to hedge future payments | 10 | 1 | 1 | 12 | ||
| Hedges of future fuel purchases | (148) | (94) | (45) | (2) | (289) | |
| (139) | (94) | (44) | (7) | (10) | (294) | |
| Related deferred tax charge | 83 | |||||
| Total amount included within equity | (211) | |||||
Notional value of financial instruments used as cash flow hedging instruments:
| Group | Company | |
|---|---|---|
| £ million | Notional amount | Notional amount |
| To hedge future currency revenues against US dollars | $143m | $143m |
| To hedge future currency revenues against sterling | £235m | £235m |
| To hedge future operating payments against US dollars | $440m | $440m |
| Hedges of future fuel purchases | $4,143m | $4,143m |
| Debt repayments to hedge future revenue: | ||
| D– Japanese yen | ¥100,798m | ¥100,798m |
| D– US dollars | $1,307m | $1,307m |
March 31, 2007
| Group | ||||||
|---|---|---|---|---|---|---|
| £ million | 0-6 months | 6-12 months | 1-2 years | 2-5 years | More than 5 years | Total |
| Debt repayments to hedge future revenue | 4 | 1 | 5 | 39 | 44 | 93 |
| Forward contracts to hedge future payments | (1) | (1) | (2) | |||
| Hedges of future fuel purchases | 29 | 9 | 2 | 40 | ||
| 32 | 9 | 7 | 39 | 44 | 131 | |
| Related deferred tax charge | (39) | |||||
| Total amount included within equity | 92 | |||||
Notional value of financial instruments used as cash flow hedging instruments:
| Group | Company | |
|---|---|---|
| £ million | Notional amount | Notional amount |
| To hedge future currency revenues against US dollars | $73m | $73m |
| To hedge future currency revenues against sterling | £144m | £144m |
| To hedge future operating payments against US dollars | $261m | $261m |
| Hedges of future fuel purchases | $2,440m | $2,440m |
| Debt repayments to hedge future revenue: | ||
| D– Japanese yen | ¥118,729m | ¥118,729m |
| D– US dollars | $1,140m | $1,140m |
The ineffective portion recognised in the income statement that arises from cash flow hedges amounts to a gain of £12 million (2006/07: £12 million loss).
ii Fair value hedges
The Group has no hedges designated as fair value hedges.
iii Net investments in foreign operations
The Group has no hedges designated as hedges of net investments in foreign operations.
Company
The Company undertakes hedging activities on behalf of other companies within the Group and performs the treasury activities of the Group centrally. As a result, the disclosures above apply to the Company as for the Group.