166
AirAsia X Berhad • Annual Report 2014
NOTES TO THE FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2014
29 FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED)
(a)
Market risk (continued)
(ii)
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest
rate risk is that risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates.
In view of the substantial borrowings taken to finance the acquisition of aircraft, the Group’s and Company’s income and operating cash flows are also influenced by
changes in market interest rates. Interest rate exposure arises from the Group’s and Company’s floating rate borrowings and deposits. Surplus funds are placed with
reputable financial institutions at the most favourable interest rate.
The Group manages its cash flow interest rate risk by entering into a cross currency interest rate swap contracts that effectively converts its existing long-term floating
rate debt facilities into fixed rate debts. This hedging strategy ensures that the Group is paying a fixed interest expense on its borrowings and that the performance of
the Group is not significantly impacted by the fluctuation in interest rates.
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet
date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have
floating rates.
At 31 December 2014, if interest rate on USD denominated borrowings had been 60 basis points higher/lower, the impact on the post-tax profit for the financial year
would have been RM3.42 million (2013: RM4.39 million) higher/lower with all other variables held constant.
2014
2013
+60bps
-60bps
+60bps
-60bps
RM’000
RM’000
RM’000
RM’000
Impact on post tax profits
(3,423)
3,423
(4,388)
4,388
Impact on other comprehensive income
-
-
-
-
(iii)
Foreign currency risk
Apart from Ringgit Malaysia (“RM”), the Group and Company transact business in various foreign currencies including United States Dollar (“USD”), Australian Dollar
(“AUD”), EURO, Indian Rupee (“INR”), Chinese Renminbi (“RMB”) and Japanese Yen (“JPY”). In addition, the Group and Company have significant borrowings in USD,
mainly to finance the purchase of aircraft and pre-delivery payments in respect of the Group’s and Company’s firm order of Airbus A330-300 aircraft (Note 25). Therefore,
the Group and Company are exposed to currency exchange risk. These exposures are managed, to the extent possible, by natural hedges that arise when payments for
foreign currency payables are matched against receivables denominated in the same foreign currency, or whenever possible by intragroup arrangements and settlements.
As at 31 December 2014, if RM had weakened/strengthened by 5% against the USD with all other variables held constant, post-tax profit for the financial year would
have been RM83 million (2013: RM92 million) lower/higher, mainly as a result of foreign exchange losses/gains on translation of USD denominated receivables and
borrowings (term loan and finance lease). The exposure to other foreign currency risk of the Group is not material and hence, sensitivity analysis is not presented.
