Annual Report 2008-2009 - Emirates.com

35. Financial risk management
Financial risk factors
Emirates is exposed to a variety of financial risks which involve the analysis, evaluation, acceptance and management of some
degree of risk or combination of risks. Emirates aim is, therefore, to achieve an appropriate balance between risk and return and
minimise potential adverse effects on Emirates' financial performance.
Emirates risk management procedures are designed to identify and analyse these risks, to set appropriate risk limits and controls,
and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. Emirates regularly
reviews its risk management procedures and systems to reflect changes in markets, products and emerging best practice. Emirates
uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by corporate treasury under procedures that are approved by a steering group comprising of senior
management. Corporate treasury identifies, evaluates and hedges financial risks in close cooperation with the operating units.
Senior management is also responsible for the review of risk management and the control environment. The most important types
of risk are credit risk and concentrations of risk, market risk and liquidity risk. Market risk includes currency risk, interest rate risk and
price risk.
(i) Credit risk
Emirates is exposed to credit risk, which is the risk that the counterparty will cause a financial loss to Emirates by failing to discharge
an obligation. Financial assets that potentially subject Emirates to credit risk consist principally of deposits with banks and other
financial institutions, derivative counterparties as well as receivables from agents selling commercial air transportation. Emirates uses
external ratings such as Standard & Poor's and Moody's or their equivalent in order to measure and monitor its credit risk
exposures to financial institutions. In the absence of independent ratings, credit quality is assessed based on counterparty's
financial position, past experience and other factors.
Emirates manages limits and controls concentrations of risk wherever they are identified. In the normal course of business, Emirates
places significant deposits with high credit quality banks and financial institutions. Transactions with derivative counterparties are
similarly limited to high credit quality financial institutions. Exposure to credit risk is also managed through regular analysis of the
ability of counterparties and potential counterparties to meet their obligations and by changing their limits where appropriate.
Approximately 23% (2008: 25%) of short term bank deposits, cash and cash equivalent and held-to-maturity financial assets are
held with financial institutions under common control. Approximately 92% (2008: 81%) of cash and bank balances are held with
financial institutions based in the UAE.
The sale of passenger and cargo transportation is largely achieved through International Air Transport Association (IATA) approved
sales agents. All IATA agents have to meet a minimum financial criteria applicable to their country of operation to remain
accredited. Adherence to the financial criteria is monitored on an ongoing basis by IATA through their Agency Programme. The
credit risk associated with such sales agents is relatively small owing to a broad diversification.
The table below presents an analysis of short term bank deposits, cash and cash equivalents and held-to-maturity financial assets
by rating agency designation at the balance sheet date based on Standard & Poor's ratings or its equivalent for the main banking
relationships:
2009 2008
AED'000 AED'000
AA- to AA+
3,246,404
723,097
A- to A+
3,439,137
8,949,915
Lower than A- 194,414
437,823
107