annual report 2012

Transcription

annual report 2012

annual report
2012
omanair.com
His Majesty Sultan Qaboos bin Said
ANNUAL REPORT 2012
contents
Our Board of Directors................................................................................................................... 06
Chairman’s Statement.................................................................................................................... 08
Chief Executive Officer’s Statement.................................................................................10
Our Leadership Team......................................................................................................................... 12
Management Discussion and Analysis...........................................................................38
Auditor’s Report on Corporate Governance........................................................... 44
Corporate Governance Report...............................................................................................45
Auditor’s Report on Financial Statements.................................................................50
Statement of Financial Position.............................................................................................. 51
Statement of Comprehensive Income........................................................................... 52
Statement of Changes in Equity............................................................................................63
Statement of Cash Flows..............................................................................................................54
Notes to the Financial Statements..................................................................................... 55
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ANNUAL REPORT 2012
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Our Board
of Directors
1. HE Darwish bin Ismail bin Ali Al Bulushi - Chairman of the Board
Minister Responsible for Financial Affairs
2. H.E. Maitha bint Saif bin Majid Al Mahruqi - Deputy Chairman
Undersecretary of the Ministry of Tourism
3. Major-General Salim bin Muslem bin Ali Qatan - Director (Not in picture)
Commandant of the College of National Defence
4. H.E. Mohsin bin Khamis bin Ghulam Al Balushi - Director
Advisor of the Ministry of Commerce & Industry 5. H.E. Eng. Salim bin Nasser bin Said Al Aufi - Director
CEO, Public Authority for Civil Aviation
6. Dr. Mohamed bin Ali bin Mohamed Al Barwani - Director
Chairman, MB Holding
7. Sheikh/Nasser bin Sulaiman bin Hamed Al Harthy - Director
Director of the Department of Financial Investments,
Ministry of Finance
8. Mr. Vasudevan Thulasidas - Director
Aviation Expert (Advisor to the Board)
Chairman’s Statement
On behalf of the Board of Directors, it gives me great pleasure to welcome you
to the 31st Annual General Meeting and to present to you the Annual Report for
the financial year ending 31st December 2012.
2012 brought new leadership and dynamism to Oman Air in the form of our Chief
Executive Officer, Wayne Pearce. His appointment in January 2012, brought with
it the opportunity to undertake a thorough review of Oman Air’s operations
and subsequently to introduce new structures, appoint new members of
the management team and improve efficiency throughout the Oman Air
Group. At the same time as this consolidation of our operations, we have
continued to expand, introducing new aircraft, products and services and
invest in training at all levels of the organisation. Throughout these processes,
we have ensured that our focus is underpinned by two key principles: to
ensure the best possible passenger experience for our customers and to
continue our inexorable progress towards profitability.
This year’s results show the success that holding both these principles close
can achieve. In 2012, Oman Air carried 4,430,383 passengers, an increase of
17 percent compared with 2011, against a global increase in demand of just
six percent and growth in demand across the Middle East of 15.4 percent.
Furthermore, despite our increase in capacity, seat factors increased by 4.3
percent to 77 percent. We also served more than six million meals - nearly a
million, or 19 per cent, more than in 2011.
Oman Air’s financial progress continued impressively in 2012, with revenues
increasing by 21 per cent to 347,042,000 Omani Rials and our loss – largely
the result of our long term investment in new aircraft - being reduced by 11
percent to 97,467,000 Omani Rials.
These very positive figures reflect the continued increase in demand for the
quality, reliability, choice and value that Oman Air offers for air travellers
across three continents. Those virtues have provided, together with our
restated commitment to offering our customers the very best in 21st Century
air travel, the foundation for the many new developments that we have
unveiled this year.
Having received our first two Embraer E175 jets in 2011, we were pleased
to add two more of these excellent aircraft to our fleet in September and
November, allowing us to offer even greater comfort and reliability for
passengers on services within the Gulf region. They have also enabled us to
deliver greater flexibility in route planning and are an excellent complement
to our Boeing B737 and Airbus A330 aircraft. We have also taken delivery
of two wet-leased B737 aircrafts which have given us the opportunity to
increase frequencies on a number of services to India and Pakistan.
Meanwhile, the world-renowned quality of our A330 fleet continues to
attract international acclaim. On 12th July, 2012 the World Airline Awards
declared Oman Air as the winner of the ‘World’s Best Business Class Airline
Seat’ category, with our A330 First Class seat and Business Class cabin also
being singled out for praise. Our staff service, catering and airport lounges
were also commended at the awards, which were announced just days
before the opening of our newest lounge, the Oman Air Majan Lounge, at
Muscat International Airport.
This brand new facility builds on the success of our First Class and Business
class lounges at Muscat and our Business Class lounge at Bangkok and enables,
upon payment of a modest fee, Oman Air’s Economy Class passengers, and
those of a number of other airlines, to prepare for their flights in a superblydesigned luxurious, comfortable and relaxing environment.
The outstanding quality of all our lounges at Muscat International Airport are now
complemented by the superb new premium class check-in counters, which were
opened in the second half of 2012 and have been designed to further enhance
the excellent passenger experience enjoyed by our First Class and Business
Class Customers. Our premium customers play an invaluable role in Oman Air’s
success and we will continue to find new ways to exceed their expectations over
the coming year.
All our customers, however, are greatly valued and initiatives such as the
expansion of our web check-in service, increased engagement through social
media, the launch of our extremely popular new service between Muscat
and Tehran and our new charter service between Muscat and Jaaluni have
delivered even greater choice and convenience for all.
Elsewhere, our cargo business has mirrored the success of our passenger
services and has continued to exceed not only our own figures for last year,
but also those for the industry as a whole. In 2012, we carried 42,000 tonnes
of cargo, an increase of 29 per cent compared with the previous year. When
compared with the global air cargo sector’s decline of 1.5 percent over the
same period and the Middle East air cargo sector’s growth of 14.7 percent,
Oman Air’s position is a healthy one and the 21 million Omani Rials of revenue
that our cargo business generated during 2012 made a valuable contribution
to this year’s overall financial results.
Much of this success is due to the hard work and commitment of our staff,
throughout the Oman Air Group and over the last year we have continued
to recognise their importance by investing in training and supporting career
development. Indeed, the Oman Air Training Centre has, for the second
year running, been recognised by IATA as being one of the Middle East Top
Ten Authorised Training Centres. Furthermore, a series of intensive training
courses was followed in March by our CEO presenting Oman Air’s revenue
accounting staff with IATA Diplomas in Revenue Accounting and Control.
Effective recruitment is also vital and I am pleased to note that we have
appointed staff of the highest calibre, many of them Omani citizens, to
positions at every level of the company. We have also invested in the future
by running an initiative, again under the aegis of our Training Centre, to
provide trainees with the skills and experience they need to apply for and
ANNUAL REPORT 2012
succeed in jobs within their chosen fields, as well as publishing clear criteria
for the recruitment and training of Omani cadet pilots.
As an international airline, Oman Air employs staff of many different
nationalities at all levels of our structure. However, as the proud national
carrier of the Sultanate of Oman, we take very seriously our important role
of nurturing and promoting the skills and abilities of the Omani people and of
supporting every member of our country’s workforce in achieving his or her
full potential. As such, we are passionate advocates of His Majesty’s policy of
Omanisation and I am pleased to report that the number of Omani employees
at all levels within Oman Air has once again increased and now stands at
66 per cent. I am confident that this percentage will increase further over
the coming year and look forward to welcoming even more Omani men and
women to the airline.
I would like to take this opportunity to thank my esteemed colleagues on
the Board of Directors, the Executive Committee and the Audit Committee
who have actively supported and advised the management of Oman Air and
supported the last year’s success.
Finally, I would like to thank His Majesty Sultan Qaboos bin Said, and His
Government, for their invaluable advice, encouragement and guidance.
My colleagues on the Board and within Oman Air’s management join me in
expressing our gratitude to His Majesty for his vision, his kind benevolence
and his support.
Darwish bin Ismail bin Ali Al Bulushi
Chairman of the Board
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Chief Executive Officer’s Statement
After a full year since my appointment as Chief Executive Officer of Oman
Air in January 2012, Oman Air has continued to go from strength to strength,
building on its reputation for quality, choice and value to deliver a unique
and outstanding passenger experience.
Despite ongoing economic uncertainty across much of the world, continuing
high fuel prices and challenging aviation tax regimes in many of our markets,
we have carried more passengers to more destinations aboard more aircraft
than ever before.
In 2012, Oman Air carried 4.4 million customers, a 17 percent increase on the
previous year, and enjoyed a seat factor of 77 percent, up from 73 percent
compared with 2011. We served over 6 million meals–nearly a million more
than last year–and carried 42,000 tonnes of cargo, up by an impressive
29 percent on last year.
We also increased the range of choices we offer our customers by launching
a new service to Tehran on 1st September, enlarging our network to 42
destinations across three continents and building on the success of the Zurich
service, which we opened at the end of 2011. Furthermore, in November we
started a new charter service between Muscat and Jaaluni, in support of
the economic development of the Duqm area, and the following month we
increased our already-significant range of travel options as a result of our
new codeshare agreement with Qatar Airways.
In addition, in September and November we added two further Embraer E175
jets to our fleet, which enabled us to increase efficiency and reduce flight
times to domestic and regional destinations. Our Boeing B737-800 fleet has
also received a boost with the recent introduction of two wet-leased aircraft
which have enabled us to increase frequencies to double-daily on our routes
from Muscat to Chennai, Delhi and Hyderabad and to daily on services from
Muscat to Lahore and Islamabad.
Vitally, however, we have increased our revenues by 21 percent to over 347
million Omani Rials and reduced our losses by 11 percent to 97 million Omani
Rials, confirming Oman Air’s sustained progress towards profitability.
These are major achievements and could not have been attained without
the commitment, energy and creativity of our employees throughout
the company. As I have travelled throughout our network, I have been
fortunate to have been able to engage with a large number of staff, whose
comments and suggestions have demonstrated an impressive level of
initiative and determination to provide our customers with the highest
levels of care, hospitality and value. We have been able to act on many of
those suggestions and our continuous search for improvement in everything
we do has benefited greatly.
This is clear not only from our financial progress and increased passenger
numbers over the last year, but also from the acclaim we have received from
the travelling public and the aviation sector as a whole.
In July, Oman Air received - for the second year running - the ‘World’s Best
Business Class Airline Seat’ award at the World Airline Awards. Operated
by independent airline quality experts Skytrax, these awards are decided
following a year-long survey of air travellers throughout the world and
are therefore judged by those whose opinions perhaps matter most: our
customers. We also achieved second place in the ‘Best Airline Staff Service
in the Middle East’ and ‘Best First Class Onboard Catering’ categories, third
place in the ‘World’s Best Business Class’ category and top ten positions in
the Best Airline in the Middle East’, ‘Best Business Class Onboard Catering’,
‘Best Economy Class Onboard Catering’, ‘Best First Class Airline Seat’ and
‘Best Business Class Airline Lounge’ categories, ensuring global recognition
for the quality of Oman Air’s product across the board.
Further awards over the course of the year recognised the airline as a whole,
our Business Class cabins and even the quality of our amenity kits, showing
that our attention to detail really is appreciated by customers.
Our on-time performance on departures across our network had heavy focus
in 2012, and appreciable improvements to company standards were achieved.
It is that attention to detail of the passenger experience which has also
underpinned a number of customer-facing initiatives which we have unveiled
over recent months. For example, we have increased the period of time
during which passengers can use web check-in, from between 24 hours and
36 hours. Passengers now can also check in up to 90 minutes prior to takeoff, down from 2 hours. We have opened outstanding new premium checkin counters at Muscat International Airport, which complement our superb
First and Business Class lounges, and launched our new Majan lounge, again
in Muscat, which offers comfort and luxury for those of our economy class
customers, and customers of other carriers, who want to relax and enjoy
Oman Air’s hospitality before they board their flights.
However, quality and attention to detail alone do not deliver commercial
success and our ability to effectively promote and sell our products and
services has played a crucial part in 2012’s encouraging results.
Our sales teams have set, and have met, challenging targets, which have
been achieved by ensuring that we offer fares that are both competitive and
realistic, and also by working closely with the global travel trade. Initiatives
such as our Pan-European Road Show and participation at events such as ITB
Berlin, Arabian Travel Market, Expo Yeoso 2012 - for which we won a Gold
Award–and World Travel Market have enabled us to strengthen contacts
with existing customers, as well as forge new relationships and attract
new business.
ANNUAL REPORT 2012
Meanwhile, our promotional activities have been intensive and widespread,
resulting in international recognition of Oman Air’s brand which has been
further boosted by our association with sporting success. Our sponsorship of
Oman Sail’s participation in the Extreme Sailing Series, motorsports star Ahmad
Al Harthy and the Omani national football team have helped to put Oman Air
firmly within the gaze of the global media, as well as raised awareness of
the unique attractions that the Sultanate of Oman holds for travellers from
around the world.
Our commitment to promoting tourism to Oman has remained undimmed
over the last year and our partnership with the Ministry of Tourism has been
both strong and productive, with joint promotions and events taking place
across our network. In addition, we have been proud to once again be named as
Official Carrier of both the Muscat Festival and the Salalah Tourism Festival, the
success of the latter contributing to our operation of 440 extra flights, carrying
an additional 45,585 passengers, on our Muscat to Salalah service between
13th June and 30th September. Our total seat increase on the route was
+24 percent.
These outstanding results have only been possible due to the outstanding
quality of our aircraft and their onboard product, the seamless passenger
experience we offer and the continued hard work and dedication of our
employees right across the Oman Air network.
I wish to record my thanks to Oman Air’s management team and all of our staff
for their invaluable support and for their commitment, enthusiasm and positivity
towards customers and colleagues. They have risen magnificently to both
the challenges and opportunities of the last 12 months and their efforts are
greatly appreciated.
I am also grateful for the continuing support and guidance provided by
the Government of Oman, His Excellency the Chairman and the Board of
Directors, and for the enduring trust they have placed in me. I look forward
to continuing to work closely with them to take Oman Air to even greater
heights.
Wayne Pearce
Chief Excecutive Officer
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ANNUAL REPORT 2012
Our Leadership
Team
1. Wayne Pearce - Chief Executive Officer
2. Abdulaziz Al Raisi - Chief Officer Management Affairs
3. Japeen Shah - Chief Financial Officer
4. Abdulrazaq Alraisi - Chief Commercial Officer
5. Ahmed Al Nabhani - Chief Officer Support Services
6. Philippe Georgiou - Chief Officer Corporate Affairs
7. Ali Sulaiman - Chief Officer Flight Operations
8. Andrew Walsh - Chief Officer Airport Operations (Not in picture)
9. Markku Nokala - Chief Officer Network and Planning
10.Salim Al Kindy - Chief Technical Officer
11. Mohammed Al Musafir - Chief Officer Internal Audit
12. Gerry Mitchell - Chief Officer IT
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ANNUAL REPORT 2012
oman
discover a new
global destination
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ANNUAL REPORT 2012
Sultan Qaboos Grand Mosque
promoting
inbound tourism
The Sultan Qaboos Mosque in Muscat is a glorious testament to
Islamic architecture, with a unique single-piece prayer mat and
stunning crystal chandeliers _ a must-see for tourists. Sights such
as these have contributed to tourism in Oman rising significantly in
recent years. In fact, Muscat was named the Arab Capital of Tourism
in 2012.
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ANNUAL REPORT 2012
Barr Al Jissah Resort & Spa - Shangri-La
travel & tourism
Nestled in a turquoise bay, with beautiful Arabian imagery,
Shangri La’s Bar Al Jissah Resort & Spa is one of the finest in
the world. Employment has opened up in areas ranging from travel
and catering agencies to hotels and resorts. The hospitality sector is
burgeoning with opportunities today, for the youth of Oman.
Tourism in Oman in 2011
Total travel and tourism in Oman
Value added contribution to GDP: OMR 1.650 million
Employment supported: 70,000
Foreign visitors to Oman
Value added contribution to GDP: OMR 604 million
Foreign visitor arrivals by air
Value added contribution to GDP: OMR 302 million
Source: WTTC, Ministry of Tourism
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ANNUAL REPORT 2012
Majils Al Jinn
adventure tourism
Oman’s magnificent landscape offers thrill-seekers a variety of
ways to get that adrenaline rush. Featured here is Majlis Al Jinn,
the second-largest cave in the world. Rock climbing, rappelling,
biking and a host of underwater adventures await.
Tour of Oman
The first Tour of Oman was held in 2010, with the objective of
creating a new world class platform for competitive cycling,
and encouraging young Omanis to adopt this healthy sport.
Since then, every year, Oman has welcomed the biggest names
in cycling to take on the challenge of our dramatic landscape,
showcasing what determination and perseverance can achieve.
Cliff Diving World Series
The first-ever cliff diving event was held in Oman in 2012 and was
a runaway success. Wadi Shab in Oman played host to the finals
of the Red Bull Cliff Diving World Series, as top divers leapt from
a 27-metre high platform to showcase their skills.
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ANNUAL REPORT 2012
Bahla Fort
heritage & history
Situated about 200kms away from Muscat, Bahla Fort comprises
the ruins of a typical Omani military fortress built in the 14th century
and is today a UNESCO World Heritage Site. Heritage tourism is
another area gaining significance, bringing an increasing number of
visitors into Oman aboard Oman Air last year.
Other UNESCO World Heritage sites in Oman
• Aflaj Irrigation Systems of Oman
• Archaeological Sites of Bat, Al Khutm and Al Ayn
• Land of Frankincense: Wadi Dawkah, Ubhar and Khor Rori
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ANNUAL REPORT 2012
Ras al Jinz
eco-tourism
Ras Al Jinz in Sur is one of only three beaches in the world where
the endangered Green Turtle comes to nest. This is today a
protected area which attracts tourists from all over the world who
are environmentally conscious.
Key Natural Reserves In Oman:
Arabian Oryx Sanctuary at Jiddat Al Harasis
Al Ansab Lagoon
Marine Turtles Nature Reserve
The Al Daymaniyat Islands Nature Reserve
Al Saleel Natural Park
Jabal Samhan
Wadi Sareen Reserve
The Khawrs of Dhofar
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ANNUAL REPORT 2012
oman
air
giving wings to
the nation’s dreams
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ANNUAL REPORT 2012
bringing the
world to oman
In line with the Sultanate’s vision to make Oman a global destination,
Oman Air offers the highest standards of comfort and convenience,
making it the first choice of inbound travellers.
1%
5% 2%

Asia
8%

Europe
35%

GCC

Arab States
17%

America

Oceania
32%

Africa
Number of international guests in hotel’s accommodation by
nationality in 2011.
Oman Air accounted for 57 percentage of international passengers
at Muscat and Salalah airports in 2011.
Applying this to the total impact of foreign visitors arriving by air
and adjusting to account for expenditure on airfares suggests
that tourists travelling by Oman Air supported an OMR 106 million
value-added contribution to GDP and 4,600 jobs in 2011.
Source: Ministry of Tourism
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ANNUAL REPORT 2012
quality first,
always
The best talent and technology come together on Oman Air, to
assure the highest standards of quality. On ground and in the air,
our team prides itself on attention to detail, earning us the world’s
best accreditations.
•. Oman Air’s Supply Chain Management Operation has been
awarded ISO 9001 accreditation for proven processes in place to
meet customer requirements.
•. Oman Air has won the Best Inflight Connectivity & Communications
Award in The 2011 Passenger Choice Awards created by APEX and
voted on by travellers, designed to recognize airlines for their
service, products and innovations.
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ANNUAL REPORT 2012
the taste of
perfection
Starting off with a warm welcome of our traditional Kahwa (coffee)
and dates to give passengers a taste of Oman, the entire journey is
filled with treats to make your flight a memorable experience.
Our menus are designed and suited to compliement destinations
in conjunction with a dedicated team of professionals using only
the highest quality and seasonal ingredients, thus enabling us to
offer a varied menu and Arabic signature dishes.
•. Oman Air Ground Operations department was awarded
the AHS 1000 excellence certificate from IATA for compliance with
the quality and control standards as per IATA specification no. 804.
•. As proof of its dedication to Customer Service, Quality and Food
Safety management, the Catering Business Unit of Oman Air was
awarded the certificate of ISO 9001:2008 and ISO 22000:2005 by
INTERTEK, LTD. The catering unit is also a registered Food Safety
Training Centre of Chartered Institute for Environmental Health, UK.
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ANNUAL REPORT 2012
creating
opportunities
‘People power’ is Oman Air’s greatest asset. By consistently
nurturing talent and providing employees with opportunities to
grow and develop, Oman Air contributes to the national goal of
Omanisation and self-reliance.
Oman Air’s total economic impact in 2011.
The direct, indirect and induced impacts combined supported
an OMR 130 million value-added contribution to GDP and 10,200
jobs in 2011.
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ANNUAL REPORT 2012
raising the bar
Voted Best Business Class Seat in the world, two years in a row.
Over 18 million airline passengers across the world can’t be wrong!
This prestigious accolade is in addition to 8 more global accolades
awarded to Oman Air in recent times by Skytrax. A reflection of
Oman Air’s commitment to providing passengers the gold standard
in luxury.
Overall economic contribution in 2011.
The direct, indirect and induced impacts combined, including
tourism and catalytic impacts, supported an OMR 333 million
value-added contribution to GDP (2.4% of non-oil GDP).
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ANNUAL REPORT 2012
MANAGEMENT
DISCUSSION AND
ANALYSIS
Review of Financial Performance
Review of Financial Performance
Key Performance Indicators
19,769
4.4 million
77%
Round trips
Passengers flown
Seat factor
13.4 billion
10.3 billion
ASK or Capacity, measured as
seat kilometers flown
RPK or Utilisation, measured as
passenger kilometers flown
12.9 hours
per day
37,188 flights
Aircraft Utilisation
Handled at Muscat
International Airport
7.5 million
6.0 million
Passengers handled at
Muscat International Airport
Meals catered to flights at
Muscat International Airport
ANNUAL REPORT 2012
MANAGEMENT
DISCUSSION AND
ANALYSIS
FINANCIAL AND SECTOR PERFORMANCE
Our net loss for the year 2012 was RO 97.467 million, compared to a net loss of RO 109.860 million in the year 2011, an improvement
of RO 12,393 million (+11%)
NET PROFIT/(LOSS)
OPERATING PROFIT/(LOSS)
(64,281)
(78,087)
(109,860)
(97,467)
(41,956)
(63,145)
(67,398)
(96,598)
(84,249)
RO’ 000
(42,755)
RO’ 000
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
REVENUE
Revenue increased by RO 59.501 million or
21% over the previous year. Revenue Composition in 2012
compared to 2011 is as follows:
REVENUE COMPOSITION
REVENUE
RO’ 000
E-3% F-1% G-1%
D-1%
C-3%
B-6%
153,248
164,255
230,418
287,541
347,042
2009
2010
2011
2012
F-1%
G-1%
A-84%
A-85%
2008
E-4%
D-1%
C-3%
B-6%
2012
2011
2012 RO
Millions
2011 RO
Millions
295.2
242.7
A
Scheduled Services – International
B
Scheduled Services – Domestic
19.3
16.2
C
Air Charter
9.9
9.1
D
Handling Fees – Engineering
3.3
3.1
E
Handling Fees – Others
12.1
10.4
F
Catering
3.3
2.5
G
Hotel & Other Revenue
3.9
3.5
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ANNUAL REPORT 2012
SCHEDULED SERVICES
Scheduled services revenue rose from RO 258.9 million in 2011 to RO 314.5 million in 2012, up RO 55.6 million or 22%. During the year, Oman
Air commenced operations to Tehran. Available Seat Capacity (ASK) increased by 15%. Utilization (RPK) increased by 22%, higher than
increase in capacity resulting in improved average Seat Factor from 72.7% in 2011 to 77.0% in 2012. Average net passenger yield increased
by 7%. Despite increasing competition from the major players, Oman Air has successfully established its presence on most of its routes.
This has been achieved with continued focus on product, high frequencies, on-time performance, quick turnarounds, convenient flight
timings, good connectivity and high standards of customer service both on the ground and in the air.
AIR CHARTER SERVICES
Air charter services comprising of jet aircraft operations dedicated to Petroleum Development of Oman and turbo prop aircraft
operations dedicated to Occidental and Jaaluni recorded revenue of RO 9.941 million in 2012.
HANDLING FEES
Handling revenue from airlines other than Oman Air for the year was RO 15.357 million compared to RO 13.512 million in last year,
an increase of RO 1.845 million (+14%). This was mainly due to:
•Airlines, other than Oman Air, increased their operations from 16,727 to 17,433 flights, (+4%)
•Wide body flight movement increased from 5,985 to 6,156 flights, (+3%) and narrow body flight movement increased from 28,570 to
31,032 flights, (+9%)
OPERATING PROFIT/(LOSS)
PASSENGERS
RO’ 000
No. Passengers ‘000s
ASK (millions)
14000
2012
75%
7000
50%
3500
25%
0
2009
2010
2008
2011
0%
2012
2009
2010
2011
2012
37,188
83,862
7,467
34,555
73,455
6,480
33,775
73,253
5,752
27,986
53,875
4,557
23,194
52,596
Flights handled at Muscat International Airport
Cargo Tonnage Handled - Tonnes
Passengers Handled at Muscat International Airport (’000s)
2008
100%
77%
73%
13,351
10,286
2011
61%
Seat factor (%)
11,635
8,457
4,430
2010
72%
9,640
6,960
3,796
2009
RPK (millions)
7,051
4,308
3,263
2008
64%
5,509
3,551
2,361
10500
1,985
MANAGEMENT
DISCUSSION AND
ANALYSIS
4,000
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ANNUAL REPORT 2012
MANAGEMENT
DISCUSSION AND
ANALYSIS
CATERING
Catering revenue from airlines other than Oman Air for the year was RO 3.267 million, a increase of RO 738,000 or (+29%) over
the previous year’s revenue of RO 2.529 million.
Meals uplifted at Muscat International Airport
Total Available Rooms
No. of Meals ‘000s
Total Occupied Rooms
Occupancy Ratio (%)
70000
100%
60000
Note: Above includes, meal uplifted for Oman Air
2010
ROOMS, FOOD AND BEVERAGE REVENUE
Revenue for the year was RO 3.278 million, an increase of RO 22,000 or (+1%) over the previous year’s revenue of RO 3.256 million.
Meals uplifted at Muscat International Airport
Total Available Rooms
No. of Meals ‘000s
Total Occupied Rooms
Occupancy Ratio (%)
70000
100%
60000
Note: Above includes, meal uplifted for Oman Air
2010
2011
64,782
30000
43,739
6,038
2012
25%
64,605
5,077
2011
40000
43,028
4,507
2010
50%
64,605
3,511
2009
50000
41,571
3,210
2008
75%
68%
67%
64%
2012
0%
2011
64,782
30000
43,739
6,038
2012
25%
64,605
5,077
2011
40000
43,028
4,507
2010
50%
64,605
3,511
2009
50000
41,571
3,210
2008
75%
68%
67%
64%
2012
0%
41
ANNUAL REPORT 2012
EXPENDITURE
Net Expenditure increased by 12% from RO 384.139 million to RO 431.291 million.
COMPOSITION OF EXPENDITURE
EXPENDITURE
(RO’ 000s)
K-5%
A-5%
J-1%
I-6%
H-1%
B-36%
A-5%
K-4%
J-1%
I-6%
H-1%
B-34%
297,816
384,139
431,291
G-23%
227,400
MANAGEMENT
DISCUSSION AND
ANALYSIS
195,204
42
2008
2009
2010
2011
2012
G-23%
F-1%
C-6%
2012
D-11%
E-6%
F-1%
C-7%
2011
D-11%
E-7%
Expenditure composition in 2012 compared to 2011 is as follows:
A
B
C
D
E
F
Operating lease rentals on aircraft
Fuel cost
Maintenance cost
Other aircraft operating expenses
Passenger related cost
Catering materials consumed
2012 RO 2011 RO
Millions Millions
19.5
19.4
154.1
132.0
27.7
26.0
47.0
40.3
27.5
25.1
5.2
4.6
G
H
I
J
K
Employee cost
Insurance cost
Depreciation
Amortization/impairment
Others
2012 RO 2011 RO
Millions Millions
97.2
87.3
2.0
1.9
26.6
24.0
1.7
3.0
22.8
20.5
Our fuel cost increased by RO 22.168 million or 17% mainly due to increase in operations. The average network fuel price was
3.18 USD/USG compared to 3.14 USD/USG in the previous year, up 1%.
Maintenance costs and other aircraft operating expenses comprising of handling, landing, navigation, crew layover and simulator cost
increased due to the increase in operations in comparison with the previous year.
Passenger related cost increased by RO 2.483 million or 10% compared to 17% increase in passenger traffic in 2012. The increase was
mainly due to increase in passenger meal cost, reservation cost and passenger service cost.
Our employee cost increased by RO 9.939 million or 11% compared to last year mainly due to increase in staff strength, increase in overtime
cost with the implementation of amendments to oman labour law and increase in salaries to staff during the year. The Company’s
manpower increased from 5,375 in 2011 to 5,562 in 2012, up 4%. During the year, the increase in manpower was restricted to critical
operational requirements to support the increase in operations and to positions that would add value in terms of enhanced customer
service, productivity and profitability.
Company’s insurance costs increased by RO 65,000 or 3% and depreciation increased by RO 2.627 million or 11% compared to last year.
Increase in costs was mainly due to increase in operations and aircraft fleet strength.
Amortization/impairment cost comprising of impairment of goodwill paid for acquisition of Hotel Golden Tulip, Seeb and impairment of
landing slots.
CONCESSION FEE
The Company pays a concession fee to Oman Airport Management Company, the airport operator at Muscat and Salalah airports. The
Company pays 7.5% of its ground handling and cargo handling revenue and 5% of its catering revenue as a concession fee. The impact of
the concession fee in 2012 was RO 1.073 million as against RO 940,000 in 2011. The increase in concession fee is mainly due to increase in
ground handling and catering revenue generated during the year.
FINANCIAL POSITION
Non-current assets rose from RO 437.835 million in December 2011 to RO 451.726 million in December 2012 mainly due to purchase of two
Embarer - E175 aircraft. Apart from this, the company also invested in ground equipment, aircraft rotables and other assets to support
increased operations.
During the year, the Government of Oman contributed RO 85 million, reaffirming their support.
ANNUAL REPORT 2012
Non-current liabilities increased by RO 32.824 million as at 31 December 2012, compared to 2011, due to long term financing availed for
two Embarer E175 and additional loan for pre-delivery payments of aircraft.
Current assets increased by RO 37.551 million, mainly due to increase is cash and bank balances, due to drawdown of short term loans in
the last week of December 2012 to meet aircraft pre-delivery payments due in 2013.
Current liabilities increased by RO 31.041 million as at 31 December 2012 mainly due to increase in trade payables in line with
the increased operations.
INTERNAL CONTROLS
The Company has an adequate internal control system commensurate with its size and the nature of its business. The Internal
Audit department continues to maintain its focus on internal controls in all critical activities. Further, Statutory audit, State audit
and the Audit Committee augment review of internal controls within the Company. During 2011, no material lapse or weakness in
controls has been identified.
THE PEOPLE OF OMAN AIR
With its development as an airline of stature internationally, Oman Air has also become an employer of choice, offering premium
employment and career development opportunities to a wide cross section of people.
In keeping with the national initiative that seeks to enhance job opportunities for Omani nationals, the airline prioritises job offers to
Omani nationals possessing the requisite skills.
The Company staff strength at 31 December 2012 was 5,562 employees. Oman Air achieved an Omanisation ratio of 66%, without
compromising on the quality of service provided to customers. This is a significant achievement considering the fact that the airline
requires staff with multi-linguistic skills to serve a wide spectrum of customers across the network.
Career Development Path programmes have been successfully implemented across key functions and responsibilities in all departments,
and staffs are undergoing external and internal programmes to improve their skill sets.
MANPOWER STRENGTH AND OMANISATION RATIO
6000
4750
100%
63%
65%
63%
62%
66%
75%
2008
2009
2010
2011
5,562
1000
5,375
25%
5,095
2250
4,866
50%
4,082
3500
2012
0%
MANAGEMENT
DISCUSSION AND
ANALYSIS
43
44
ANNUAL REPORT 2012
CORPORATE
GOVERNANCE
REPORT
ANNUAL REPORT 2012
In accordance with the Capital Market Authority (CMA) circular # 11/2002 dated 3 June 2002, we are pleased to present the eleventh
Corporate Governance Report of Oman Air (SAOC) (the Company) for the year ended 31 December 2012.
Corporate Governance is mandatory for all the public companies listed in Muscat Securities Market (MSM). The Company is a closed
Omani joint stock company (SAOC) and therefore is not required to comply with CMA circular stated above. However, the Board is
adopting this circular as a best corporate governance practice to ensure high levels of transparency and accountability in its conduct of
business.
The Auditors have performed the procedures prescribed in the Capital Market Authority Circular No. 16/2003 dated 29 December
2003 with respect to the Corporate Governance Report of the Company and its application of the Corporate Governance practices in
accordance with the CMA Code of Corporate Governance issued under Circular No. 11/2002 dated 3 June 2002, and its amendments.
Company’s Philosophy
The Company has and will continue to uphold the highest standards of corporate governance. The Company’s focus has been on best
business practices that are ethical and fair while achieving ultimate objective of enhancing long term shareholder value. Appropriate
systems and procedures are continuously developed to evaluate and monitor the Company’s processes and performance to ensure they
meet high standards of corporate governance.
Board of Directors
The Company’s Board comprises of eight Non-Executive and Non-Independent Directors. Seven Directors including the Chairman
represent the Government’s shareholding and are appointed in accordance with the Article (132) of the Commercial Companies Law
of No. 4/74 and amendments thereto. The Government Nominees are Ministers, Undersecretaries and Directors in the Government
undertakings and one of them is a businessman of high repute from the private sector. The eighth member of the Board has been
appointed as an advisor to the Board with relevant airline industry background.
Functions of the Board
The Board appoints all members of the Executive Management and decides their remuneration. The Board approves business plans and
financial policies of the Company. The Board reviews policies and regulations governing company activities and specifies authorities and
responsibilities of key management members. The Board reviews the Company’s long term and yearly financial plans and key objectives.
The Company’s performance is reported to the Board on monthly basis and the same is reviewed and discussed in the Board meetings.
The Board appoints sub-committees including audit committee and evaluates their functions and performance. The Disclosure policy of
the Company, which is in line with the Code of Corporate Governance, has been approved by the Board and implemented.
The Board reviews the risk management strategy implemented by the Management to ensure that the major risks faced by the
Company are adequately mitigated and the processes are in place to maintain Integrity of the financial statements, compliance with law
and internal control systems. The Board approves the quarterly, half yearly and annual financial statements. The Board reports to the
shareholders, through the annual report, about the going concern status of the Company, with supporting assumptions.
Process of Nomination of the Directors
Seven members including Chairman of the Board are appointed by the Government and one member is appointed by the Board of
Directors as an advisor with relevant airline industry background.
Entity Represented by Non-Independent Directors
There are seven Non-Executive and Non-Independent Directors representing the Government of The Sultanate of Oman’s Shareholding
in the Company.
CORPORATE
GOVERNANCE
REPORT
45
46
ANNUAL REPORT 2012
CORPORATE
GOVERNANCE
REPORT
Board Meeting Number and Dates
Board Meeting No.
Board Meeting Date
1 – 2012
4 January 2012
2 – 2012
30 January 2012
3 – 2012
29 February 2012
4 – 2012
21 March 2012
5 – 2012
10 April 2012
6 – 2012
13 May 2012
7 – 2012
2 September 2012
8 – 2012
2 October 2012
9 – 2012
7 November 2012
10 – 2012
14 November 2012
11 – 2012
19 December 2012
There have been no material related party transactions between the Company and its directors. Specific related party transactions are
disclosed to the shareholders at the ordinary general meeting.
Remuneration Matters
All directors including Chairman are Non-Executive and do not draw any fixed salary from the Company except one director who has
been appointed as an advisor to the Board with relevant industry background.
The total remuneration paid to the Board of Directors as sitting fees for financial year 2012 was RO 26,150 for Board meetings, RO 5,050
for Executive Committee meetings and RO 4,150 for Audit Committee meetings.
Each employee of the Company draws salary based on ‘job group’ assigned to his job. Job groups are assigned to different jobs based
on the duties, responsibilities, skills and experience relevant to such jobs.
ANNUAL REPORT 2012
Remuneration of Top Five Executives
Total
(RO Per Annum)
Salary
692,000
Allowances
102,000
PASI/ESB
Total
54,440
848,440
Executive Committee
At present the Executive Committee carries out specific functions delegated by the Board of Directors. These functions include, review
of budget proposals, review of management proposals concerning new routes, fleet rationalisation and new ventures.
Objective of the Executive Committee is to conduct an in-depth review of specific issues before the same are approved by the Board.
During 2012 the Executive Committee members consisted of four Non-Executive and Non-Independent Directors. Five meetings were
held during 2012.
Audit Committee
During 2012 the Audit Committee members consisted of three Non-Executive and Non-Independent Directors. Five meetings were held
during 2012 to discuss issues concerning Internal Control, Internal Audit plans and Internal/External Audit reports, quarterly financial
statements and other related issues.
CORPORATE
GOVERNANCE
REPORT
47
48
ANNUAL REPORT 2012
CORPORATE
GOVERNANCE
REPORT
Audit and Internal Control
The Audit Committee has reviewed, on behalf of the Board, the effectiveness of the internal controls by meeting the internal auditor,
reviewing the internal audit reports and recommendations, meeting the external auditor, reviewing the audit findings and the external
audit management letter. The Audit Committee and the Board are pleased to inform the shareholders that reasonable internal control/
systems are in place and that there are no significant concerns.
Means of Communication with the Shareholders and Investors
The complete quarterly results are also mailed to any shareholder upon written request, and are also available for inspection at
the Company’s registered office. The Company produces comprehensive annual report for its shareholders. Audited annual financial
statements with the Chairman’s report are sent by mail to each shareholder.
At the same time the Company gives press releases from time to time for all strategic issues, such as opening of new routes, change in
fleet, financing agreements, etc. The Company also has its own website where airline related information is available.
Market Price Data
Due to change in the status of the Company from General Omani Joint Stock Company (SAOG) to Closed Omani Joint Stock Company
(SAOC), Oman Air shares are traded in the parallel third market of Muscat Securities Market effective May 2007. Hence, market price
data is not available.
Distribution of Shareholding
The major shareholders of the Company are as follows, with the Government of Sultanate of Oman being the major shareholder.
Major Shareholders
Name of the shareholder
The Government of Sultanate of Oman
Specific Areas of Non-compliance with the Provisions of Corporate Governance
There are no specific areas of non-compliance.
No. of Shares held
365,521,052
Shareholding %
99.869
ANNUAL REPORT 2012
Professional Profile of the Statutory Auditor
About KPMG
The shareholders of the Company have appointed KPMG as the auditors for the year 2012. KPMG is one of the leading accounting firms in
Oman. The Oman practice of KPMG, which forms part of KPMG Lower Gulf, was established in 1974 and employs more than 130 people,
amongst which are 4 Partners, 5 Directors and 20 Managers, including Omani nationals. KPMG Lower Gulf (UAE and Oman), is a member
of the KPMG network of independent firms affiliated with KPMG International Co-operative. KPMG is a global network of professional
firms providing Audit, Tax and Advisory services and has more than 152,000 outstanding professionals working together in 156 countries
worldwide to deliver value along with robust audit opinions.
KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies.
The total audit fee paid/payable to the external auditor for the company for the financial year 2012 is as follows:
Audit fee
RO 22,000
Quarterly review fee
RO 6,000
Total
RO 28,000
Acknowledgement by the Board of Directors
The Board of Directors acknowledges:
• That the Financial Statements prepard by the Management are in accordance with the applicable standards and rules applicable in
the Sultanate of Oman.
• The review of the efficiency and adequacy of internal control system of the company and compliance with internal rules and regulations.
• That there are no material things that effect the continuation of the company and its ability to continue its operations during
the next financial year.
Darwish bin Ismail bin Ali Al Bulushi
Chairman, Oman Air
CORPORATE
GOVERNANCE
REPORT
49
50
ANNUAL REPORT 2012
Independent
Auditor’s Report
to the Shareholders
of Oman Air SAOC
ANNUAL REPORT 2012
Notes
ASSETS
2012
2011
RO’000
RO’000
Non-current assets
Aircraft, property, plant and equipment
5
435,166
420,168
Goodwill
6
9,336
10,479
Other intangible assets
6
604
1,207
Available for sale investments
7
500
403
Equity accounted investee
8
2,270
1,799
Long-term receivables
9
3,850
3,779
451,726
437,835
10
14,051
13,228
Trade and other receivables
11
39,748
31,556
Term deposits
12
3,500
11,504
Cash and cash equivalent
13
53,347
16,807
Total non-current assets
Current assets
Inventories
Total current assets
110,646
73,095
Total assets
562,372
510,930
EQUITY AND LIABILITIES
Capital and reserves
Share capital
14
471,048
366,000
Share premium
14
-
20,048
Legal reserve
14
4,137
4,137
Investments revaluation reserve
7
197
153
(387,328)
(289,861)
88,054
100,477
15
23,703
19,172
Borrowings
16
275,010
251,541
Employees’ end of service benefits
18
7,556
6,738
Deferred tax liability
25
14,067
10,061
320,336
287,512
Accumulated losses
Total equity
Non-current liabilities
Provision for maintenance of aircraft, engines and rotables
Total non-current liabilities
Current liabilities
Current portion of provision for maintenance of aircraft, engines
and rotables
15
7,264
2,458
Current portion of borrowings
16
38,911
28,912
Trade and other payables
19
107,807
91,571
Total current liabilities
153,982
122,941
Total liabilities
474,318
410,453
Total equity and liabilities
562,372
510,930
RO 0.241
RO 0.275
Net assets per share
________________ 20
___________________
ChairmanDirector
The notes on pages 55 to 87 form an integral part of these financial statements.
The report of the Independent Auditors is set forth on page 50.
Statement of
financial position
as at 31 December
2012
51
52
ANNUAL REPORT 2012
Statement of
comprehensive
income
for the year ended
31 December 2012
Notes
2012
2011
RO’000
RO’000
Revenue
21
347,042
287,541
Expenditure
22
(431,291)
(384,139)
Operating loss
(84,249)
(96,598)
Interest and investment income
23
535
789
Share of profits from equity accounted investee
8
1,570
1,390
71
(50)
Increase (decrease) in fair value of long-term receivables
Finance cost
Loss before concession fee and tax
Concession fee
24
Loss before tax
Taxation
25
Net loss for the year
Loss per share - basic and diluted
26
(10,315)
(10,350)
(92,388)
(104,819)
(1,073)
(940)
(93,461)
(105,759)
(4,006)
(4,101)
(97,467)
(109,860)
(RO 0.266)
(RO 0.339)
(97,467)
(109,860)
44
3
(97,423)
(109,857)
Other comprehensive income
Fair value gain on available for sale investments
Total comprehensive loss for the year
7
ANNUAL REPORT 2012
Share
capital
Notes
Share
premium
Investments
Legal
Accumulated
revaluation
reserve
losses
reserve
Total
RO’000
RO’000
RO’000
RO’000
RO’000
RO’000
291,000
20,048
4,137
150
(180,001)
135,334
-
-
-
-
(109,860)
(109,860)
Other comprehensive income for the year
-
-
-
3
-
3
Total comprehensive income (loss) for the
year
-
-
-
3
(109,860)
(109,857)
75,000
-
-
-
-
75,000
75,000
-
-
-
-
75,000
31 December 2011
366,000
20,048
4,137
153
(289,861)
100,477
1 January 2012
366,000
20,048
4,137
153
(289,861)
100,477
-
-
-
-
(97,467)
(97,467)
Other comprehensive income for the year
-
-
-
44
-
44
Total comprehensive income (loss) for the
year
-
-
-
44
(97,467)
(97,423)
1 January 2011
Total comprehensive loss for the year:
Transactions with owners, recognized directly
in equity:
Issue of shares
14
Transactions with owners, recognised directly
in equity
Total comprehensive loss for the year:
Transactions with owners, recognised
directly in equity:
Government contribution to equity
14
85,000
-
-
-
-
85,000
Conversion of share premium to share capital
14
20,048
(20,048)
-
-
-
-
Transactions with owners, recognized
directly in equity
105,048
(20,048)
-
-
-
85,000
31 December 2012
471,048
-
4,137
197
(387,328)
88,054
Statement
of changes in equity
for the year ended
31 December 2012
53
54
ANNUAL REPORT 2012
Statement
of cash flows
for the year ended
31 December 2012
2012
2011
RO’000
RO’000
(93,461)
(105,759)
1,143
2,385
603
603
Operating activities:
Loss before tax
Adjustments for:
Impairment of goodwill
Impairment of intangible assets
(71)
50
Depreciation of aircraft, property, plant and equipment
(Increase) decrease in fair value of long term receivables
26,595
23,968
Employees’ end of service benefits charged for the year
1,329
1,592
Share of profit of an associated company
Finance cost
Provision (reversal) for doubtful debts
Provision for obsolete and slow moving inventories
(Gain) loss on sale of aircraft, property, plant and equipment
(535)
(789)
(1,570)
(1,390)
10,315
10,350
122
(10)
898
405
(6)
21
(54,638)
(68,574)
(1,721)
(1,709)
Working capital changes:
Inventories
(8,308)
(2,174)
16,215
16,162
9,337
5,455
Cash used in operations
(39,115)
(50,840)
Finance charges paid
(10,294)
(10,306)
(511)
(545)
(49,920)
(61,691)
(41,599)
(84,711)
Employees’ end of service benefits paid
Cash used in operating activities
Investing activities:
Purchase of aircraft, property, plant and equipment
Purchase of available for sale investment
Increase in goodwill
(Increase) decrease in term deposits
Interest and investment income received
Proceeds from sale of aircraft, property, plant and equipment
Dividend received from an associated company
Cash used in investing activities
(53)
-
-
(738)
8,004
27,019
529
891
12
-
1,099
1,550
(32,008)
(55,989)
Financing activities:
-
75,000
Issue of shares
85,000
-
Net borrowings availed
33,468
42,362
Cash flows from financing activities
118,468
117,362
Net change in cash and cash equivalents
36,540
(318)
Cash and cash equivalents at the beginning of the year
16,807
17,125
Cash and cash equivalents at the end of the year
53,347
16,807
ANNUAL REPORT 2012
1. Legal status and principal activities
Oman Air SAOC (the Company) is a closed Omani joint stock company registered under the Commercial Companies Law of 1974, as amended.
The Company was formed under Royal Decree 52/81 dated 24 May 1981 and commenced its operations on 1 October 1981. The initial duration
of the Company was for a period of 20 years from the date of commercial registration to 31 January 2002. Prior to expiry, the Company’s
shareholders passed a resolution in an extraordinary general meeting on 27 January 2002 extending the Company’s duration for an indefinite
period.
The Government of the Sultanate of Oman (the Government) holds 99.869% of the share capital of the Company as at 31 December 2012.
In an extraordinary general meeting held on 29 May 2007 the shareholders of the Company approved the transformation of the legal status
of the Company from a General Omani Joint Stock Company (SAOG) to a Closed Omani Joint Stock Company (SAOC).
The principal activities of the Company are to transport passengers and freight on a scheduled and chartered basis and to provide ground
handling, catering and other airline related services.
In an extraordinary general meeting held on 12 April 2009, the shareholders approved an amendment to the articles of association of
the Company. The amended articles of association allow the Company to establish and manage restaurants, coffee shops, hotels, apartments,
tourist utilities, both inside and outside the airports, within the Sultanate of Oman or abroad.
Acquisition of business
Effective 1 January 2009 the Company acquired Golden Tulip Seeb (the Hotel). The Hotel is a division of the Company and is not a separately
registered entity. The Hotel was acquired by the Company as a going concern from the Ministry of Tourism, Government of the Sultanate of Oman.
As on 1 January 2009, the following assets and liabilities were transferred to the Company except the land on which the Hotel is located.
The Company has been given a right by the Government to use the said land on a rental basis initially for a period of 50 years, subsequently
renewable with the mutual consent of both the parties.
RO ‘000
Current assets
Inventories
Cash and cash equivalents
88
346
1,618
Non-current assets
Property and equipment
370
Current liabilities
Bank overdraft
Dividend payable to previous owner
(330)
(35)
(420)
Non-current liabilities
(36)
Net assets acquired
1,601
Purchase consideration
16,000
Goodwill (note 6)
14,399
Notes to the
Financial
Statements
for the year ended
31 December 2012
55
56
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
2. Adoption of new and revised International Financial Reporting Standards (IFRS)
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012,
and have not been applied in preparing these financial statements as at 31 December 2012. None of these is expected to have a significant
effect on the financial statements of the Company, except for IFRS 9 Financial Instruments, which becomes mandatory for the Company’s
2015 financial statements and could change the classification and measurement of financial assets. The Company does not plan to adopt this
standard early and the extent of the impact has not been determined.
3. Summary of significant accounting policies
Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as promulgated by
International Accounting Standards Board (IASB), and the interpretations issued by International Financial Reporting Interpretations
Committee (IFRIC) and the requirements of the Commercial Companies Law of 1974, as amended.
Functional and presentation currency
These financial statements are presented in Rial Omani (RO), which is the Company’s functional currency. All financial information presented
in RO has been rounded to the nearest thousands, except when otherwise indicated.
Basis of measurement
These financial statements are prepared on the historical cost basis except for the following material items in the statement of financial
position:
• non-derivative financial instrument at fair value through profit and loss are measured at fair value; and
• available for sale financial assets are measured at fair value.
Going concern
The Company incurred a net loss of RO 97.467 million (2011: RO 109.860 million) during the year ended 31 December 2012, with accumulated
losses of RO 387.328 million (2011: RO 289.861 million) as at 31 December 2012. These conditions indicate the existence of a material uncertainty
which may cast significant doubt about the Company’s ability to continue as a going concern. The financial statements have been prepared
under the going concern basis on the assumption that the Company’s shareholders will continue to support the operations and
the management will successfully implement its business plan to generate sufficient funds to support its operations and meet its liabilities.
The Government holds in excess of 99% of the Company’s equity and has infused capital of RO 85 million in 2012 (2011: RO 75 million) to finance
the Company’s operations and capital requirements.
A summary of significant accounting policies, which have been consistently applied by the Company and are consistent with those used in
the previous year, is set out below:
Aircraft, property, plant and equipment
Aircraft, property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss. Borrowing
costs, net of interest income, which are directly attributable to acquisition of items of aircraft, property, plant and equipment, are capitalised
as the cost of aircraft, property, plant and equipment.
ANNUAL REPORT 2012
Subsequent expenditure
Expenditure incurred to replace a component of an item of aircraft including major inspection and overhaul expenditure is capitalized. Other
subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of aircraft, property, plant
and equipment. All other maintenance expenditure is recognised in profit or loss as an expense when incurred.
Cost of expenses incurred for regular inspections of air frame and engines are capitalized and depreciated over the period between
consecutive inspections which is generally 8 and 3 years, respectively.
Depreciation
Depreciation is recognised so as to write off the cost of aircraft, property, plant and equipment (other than capital work in progress) on
a straight line basis over the expected remaining useful economic life of the asset concerned. The useful lives are reviewed at each reporting
date, with the effect of any changes in estimate accounted for on a prospective basis.
The gain or loss arising on the disposal or retirement of an item of aircraft, property, plant and equipment is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
The estimated useful lives used for this purpose are:
Years
Airframe and buyer furnished equipment (BFE)
10 to 25
Engines and rotables
15
Tools
5
Buildings
5 to 25
Plant and equipment
5 to 7.5
Vehicles, office equipment and furniture
3 to 5
Capital work-in-progress is stated at cost. When the assets are ready for its intended use, it is transferred from capital work-in-progress to
the appropriate category under property, plant and equipment and depreciated.
Intangible assets
Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation
is recognised on a straight-line basis over their estimated useful lives. The estimated useful lives are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
Amortisation
Except for goodwill, other intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives from
the date that they are available for use.
The estimated useful lives for the current and comparative years are as follows:
Years
Time slots
5
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Notes to the
Financial
Statements
for the year ended
31 December 2012
57
58
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Impairment of tangible and intangible assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of
an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable
and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of that
asset or cash generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless
the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
Finance cost
Finance costs comprise interest expense on borrowings are recognised in profit or loss and reclassifications of amounts previously recognised
in other comprehensive income.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit
or loss using the effective interest method.
Manufacturers’ credits
The Company receive credits from manufacturers in connection with the acquisition of certain aircraft and engines. Depending on their
nature these credits are either recorded as a reduction to the cost of the related aircraft and engines or reduced from ongoing operating
expenses. Where the aircraft are held under operating leases these credits are deferred and reduced from the operating lease rentals on a
straight-line basis over the period of the related lease as deferred credits.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
The Company as lessor
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis
over the lease term.
The Company as lessee
Assets held under finance leases are initially recognised as assets of the Company at their fair value at the inception of the lease or, if lower, at
the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position
as a finance lease obligation.
ANNUAL REPORT 2012
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable
to qualifying assets, in which case they are capitalised in accordance with the Company’s general policy on borrowing costs. Contingent
rentals are recognised as expenses in the periods in which they are incurred.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis
is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under
operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased asset are consumed.
Financial assets
All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose
terms require delivery of the financial asset within the time frame established by the market concerned, and are initially measured at fair
value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured
at fair value.
Available for sale (AFS) financial assets
Listed shares held by the Company that are traded in an active market are classified as being AFS and are stated at fair value. The Company
also has other investments that are not traded in an active market but are also classified as AFS financial assets and stated at fair value
because management considers that fair value can be reliably measured. Gains and losses arising from changes in fair value are recognised
in other comprehensive income and accumulated in the cumulative change in fair values with the exception of impairment losses, which
are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
accumulated in the cumulative change in fair values is reclassified to profit or loss.
Dividends on AFS equity instruments are recognised in profit or loss when the Company’s right to receive the dividends is established.
The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot
rate at the reporting date. The change in fair value attributable to translation differences that result from a change in amortised cost of the
asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at the end of each reporting date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the asset have been affected.
For listed and unlisted equity investments classified as AFS financial assets, a significant or prolonged decline in the fair value of the security
below its cost is considered to be objective evidence of impairment.
Derecognition of financial assets
The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor
retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its
retained interest in the asset and an associated liability for amounts it may have to pay.
Notes to the
Financial
Statements
for the year ended
31 December 2012
59
60
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Financial liabilities and equity instruments issued by the Company
Classification as debt and equity instruments
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
The Company’s financial liabilities classified as other financial liabilities include borrowings and trade and other payables.
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using
the effective interest method, with interest expense recognised on an effective yield basis. Settlement of borrowings is recognised over
the respective terms of the agreements.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or expired.
Investment in an associate company
An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint
control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting,
except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets held for sale and
Discontinued Operations. Under the equity method, investments in associates are carried in the statement of financial position at cost as
adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment in the value of individual
investments. Losses of an associate in excess of the Company’s interest in that associate (which includes any long-term interests that, in
substance, form part of the Company’s net investment in the associate) are recognised only to the extent that the Company has incurred
legal or constructive obligations or made payments on behalf of the associate.
Goodwill
Goodwill arising in an acquisition of new line of business is recognised as an asset at the date that control is acquired (the acquisition date).
Goodwill is measured as an excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree,
and the fair value of the acquirer’s previously held equity interest in the acquiree, if any, over the net of the acquisition-date amounts of
the identifiable assets acquired and the liabilities assumed.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to
the Company’s cash-generating units expected to benefit from the synergies of the acquisition. Cash-generating units to which goodwill has
been allocated are tested for impairment annually. If the recoverable amount of the cash-generating unit is less than its carrying amount,
the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in
a subsequent period.
ANNUAL REPORT 2012
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise purchase cost and, where applicable, direct labour costs
and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated principally
using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
Legal reserve
In accordance with the Commercial Companies Law of 1974, as amended, 10% of the Company’s net profits after the deduction of taxes will
be transferred to a non-distributable legal reserve each year until the amount of such legal reserve has reached a minimum one-third of
the Company’s issued share capital. This reserve is not available for distribution to shareholders as dividends.
Provisions
Provisions are recognised when the Company has a present obligation, legal or constructive as a result of a past event, it is probable that
the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of
the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using
the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is
recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist
where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic
benefits expected to be received under it.
Provision for employees’ end of service benefits for non-Omani employees is made in accordance with the Oman Labour Law and is based on
current remuneration and cumulative years of service at the reporting date.
End of service benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.
Aircraft maintenance
For the aircraft under operating lease agreements, wherein the Company has an obligation to maintain the aircraft, accruals are made during
the lease term for the obligation based on estimated future costs of major airframe and certain engine maintenance checks by making
appropriate charges to the profit or loss calculated by reference to the number of hours or cycles operated and engineering estimates.
For the aircraft owned by the Company, maintenance accruals are made based on the technical evaluation and service maintenance agreement.
Taxation
Income tax expense comprises current and deferred tax.
Current tax
The tax currently payable is calculated as per the fiscal regulations of the Sultanate of Oman, based on taxable profits for the year. Taxable
profits differ from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible.
The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of
the reporting period.
Notes to the
Financial
Statements
for the year ended
31 December 2012
61
62
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable
that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition, other than in a business
combination, of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and
interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated
with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against
which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the
asset realised, based on tax rates and tax law that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the taxation authority and the Company intends to settle its current tax assets and liabilities
on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive
income or directly in equity, in which case the tax is also recognised in other comprehensive income or directly in equity.
Revenue
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns,
rebates and other similar allowances.
Rendering of goods
Revenue from sale of goods is recognised when risks and rewards of ownership are transferred to the customer and are stated net of
discounts and return.
Rendering of services
Passenger ticket and cargo airway bills revenue, net of commission, is recognised as current liabilities in an unearned revenue account until
recognised as revenue when the transportation service is provided. Unused tickets are recognised as revenue after one year from the date
of sale.
Dividend and interest income
Dividend revenue from investments is recognised when the shareholders’ right to receive payment has been established.
Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the effective profit rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net
carrying amount.
ANNUAL REPORT 2012
Other revenue
Other revenue is recognised at the time the service is provided, net of rebate.
Foreign currencies
Transactions denominated in foreign currencies are initially translated into Rial Omani at the rates of exchange prevailing on the date of
the transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing as at the end of the
reporting period. Gains and losses arising from foreign currency transactions are dealt with in profit or loss.
Directors’ remuneration
Directors’ remuneration is computed in accordance with the provisions of the Commercial Companies Law, as amended and is charged
to income.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker makes strategic decisions and is responsible for allocating resources and assessing performance of the
operating segments.
Frequent flyer programme
The Company operates a frequent flyer programme that provides a variety of awards to programme members based on a mileage credit for
flight on the Company and other airlines that participates in the programme. Members can also accrue miles by utilizing the services of non
airline programme participants.
The Company accounts for awards credits as a separately identifiable component of the sales transaction in which they are granted.
The consideration in respect of the initial sale is allocated to award credits based on their fair value and is accounted for as a liability (other
payable) in the statement of financial position. The fair value is determined using estimation techniques that take into account the fair
value of awards for which miles could be redeemed. Miles accrued through utilising the services of programme partners and paid for by the
participating partners are also accounted for as deferred revenue until they are utilized. In these instances, a liability is not recognised for
miles that are expected to expire.
Revenue is recognized in the statement of comprehensive income only when the Company fulfills its obligation by supplying free or
discounted goods or services on redemption of the miles accrued.
4. Critical accounting judgments and determination of fair value
The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects
both current and future periods.
a. Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimation, that management has made in the process of applying the
Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Classification of investments
Management decides on acquisition of a financial asset whether it should be classified as Fair value through profit and loss (FVTPL), held for
trading, Held to maturity (HTM) investments, loans and receivables or Available for sale (AFS) financial asset.
The Company has classified its investment as AFS financial asset as these investments are not falling under the category of FVTPL, held for
trading, HTM investments or loans and receivables.
Notes to the
Financial
Statements
for the year ended
31 December 2012
63
64
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Valuation of unquoted investments
Valuation of unquoted investments is normally based on recent market transactions on an arm’s length basis, fair value of another instrument
that is substantially the same, expected cash flows discounted at current rates for similar instruments or other valuation models.
Impairment of financial assets
The Company determines whether AFS financial assets are impaired when there has been a significant or prolonged decline in their fair value
below cost. This determination of what is significant or prolonged requires judgement. In making this judgement and to record whether an
impairment occurred, the Company evaluates among other factors, the normal volatility in share price, the financial health of the investee,
industry and sector performance, changes in technology and operational and financial cash flows.
Impairment of goodwill and other intangible assets
Goodwill and other intangible assets are tested annually for impairment and at other times when such indications exist. The impairment
calculation requires the use of estimates. Other intangible asset includes timing slots at airports.
b. Determination of fair value
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
Leased aircraft maintenance costs
The Company incurs liabilities for maintenance costs in respect of its leased aircraft during the course of the lease term. These are a result
of legal and constructive obligations in the lease contract in respect of the return conditions applied by lessors, which require aircraft
airframes, engines, landing gear and auxiliary power units to reach at least a specified condition on their return at the end of the lease term.
A charge is made in the profit or loss each month based on the number of flight hours or cycles used to build up an accrual to cover the cost
of heavy-duty maintenance checks when they occur. Estimates involved in calculating the provision required include the expected date of
the check, market conditions for heavy-duty maintenance checks pertaining at the expected date of check, the condition of asset at the time
of the check, the likely utilisation of the asset in terms of either flying hours or cycles, and the regulations in relation to extensions to lives
of life-limited parts, which form a significant proportion of the cost of heavy-duty maintenance costs of engines. Additional maintenance
costs for aircraft engines are considered for accrual based on the estimates made by Engineering Department on the basis of operational
requirements.
The Company is also required to pay maintenance reserves to lessors on a monthly basis, based on usage. These maintenance reserves are
then returned to the Company on production of evidence that qualifying maintenance expenditure has been incurred. Maintenance reserves
paid are deducted from the accruals made. In some instances, not all of the maintenance reserves paid can be recovered by the Company and
therefore, are retained by the lessor at the end of the lease term.
Assumptions made in respect of the basis of the accruals are reviewed for all aircraft once a year. In addition, when further information
becomes available which could materially change an estimate made, such as a heavy-duty maintenance check taking place, utilisation
assumptions changing, or return conditions being re-negotiated, then specific estimates are reviewed immediately, and the accrual is reset
accordingly.
Accrual for aircraft flying costs
Management accrues for the landing, parking, ground handling, and other charges applicable for each airport in which the Company operates
flights on a monthly basis. These estimates are based on the rate of charges applicable to each airport based on the agreements and recent
invoices received for the services obtained. Similarly, accruals for overflying charges are estimated based on the agreement entered with
each country.
Actual charges may differ from the charges accrued and the differences are accounted for on a prospective basis.
Useful lives of aircraft, property, plant and equipment
The cost of aircraft, property, plant and equipment is depreciated over the estimated useful life, which is based on expected usage of the
asset, expected physical wear and tear, the repair and maintenance program and technological obsolescence arising from changes using
management’s best estimates.
ANNUAL REPORT 2012
Inventories are stated at the lower of cost and net realisable value. Adjustments to reduce the cost of inventory to its realisable value,
if required, are made. Factors influencing these adjustments include changes in demand, product pricing, physical deterioration and
quality issues.
Provision for impaired debts
An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. This determination
of whether these trade receivables are impaired entails the Company evaluating, the credit and liquidity position of the customers, historical
recovery rates and collateral requirements from certain customers in certain circumstances. The difference between the estimated collectible
amount and the book amount is recognised as an expense in profit or loss. Any difference between the amounts actually collected in the
future periods and the amounts expected will be recognised in profit or loss at the time of collection.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been
allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating
unit and a suitable discount rate in order to calculate present value.
Impairment of other intangible assets
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
Passenger revenue recognition
Passenger sales are recognised as operating revenue when the transportation is provided. The value of unused tickets is include as sales in
advance of carriage on the statement of financial position and recognised as revenue at the end of one year from the date of sale. This is
estimated based on historical trends and experience of the Company whereby tickets uplift occurs mainly within the first two years. The
carrying amount of the Company’s sales in advance of carriage at 31 December 2012 is RO 30.334 million (2011: RO 22.794 million), included in
unearned revenue of trade and other payables in note 19.
Frequent flyer programme
The Company operates a frequent flyer programme that provides travel awards to programme members based on accumulated milage. A
portion of passenger revenue attributable to the awards of frequent flyer benefits is deferred until they are utilised. The deferment of the
revenue is estimated based on the historical trends of breakage and redemption, which is then used to project the expected utilisation of
these benefits. Any remaining untilised benefits are recognised as revenue upon expiry. The carrying amount of the Company’s deferred
revenue at 31 December 2012 is RO 2.114 million (2011: RO 1.347 million), included in other payables of trade and other payables in note 19.
Notes to the
Financial
Statements
for the year ended
31 December 2012
65
66
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
5. Aircraft, property, plant and equipment
Vehicles,
office
equipment
and
furniture
Capital
work-inprogress
Total
Airframe
and BFE
Engines
and
rotables
Tools
Buildings
Plant and
equipment
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
227,064
129,499
704
16,879
19,566
8,880
34,568
437,160
Cost
1 January 2011
Additions
-
-
-
22
33
7
84,649
84,711
Transfers
43,868
29,013
4
3,593
817
354
(77,649)
-
Disposals
-
(19)
-
-
(2)
(97)
-
(118)
270,932
158,493
708
20,494
20,414
9,144
41,568
521,753
Additions
1 January 2012
-
-
-
-
-
-
41,599
41,599
Transfers
16,139
9,246
7
506
1,709
1,925
(29,532)
-
Disposals
-
-
-
-
-
(62)
-
(62)
287,071
167,739
715
21,000
22,123
11,007
53,635
563,290
25,962
22,635
558
11,570
10,528
6,461
-
77,714
11,587
9,389
25
884
1,679
404
-
23,968
-
(5)
-
-
(2)
(90)
-
(97)
1 January 2012
37,549
32,019
583
12,454
12,205
6,775
-
101,585
Charge for the year
12,257
10,901
22
650
1,814
951
-
26,595
-
-
-
-
-
(56)
-
(56)
49,806
42,920
605
13,104
14,019
7,670
-
128,124
31 December 2012
237,265
124,819
110
7,896
8,104
3,337
53,635
435,166
31 December 2011
233,383
126,474
125
8,040
8,209
2,369
41,568
420,168
31 December 2012
Depreciation
1 January 2011
Charge for the year
Disposals
Disposals
31 December 2012
Net book value
Capital work in progress includes pre delivery payments in the amount of RO 43.687 million for eleven B737-800 aircraft, three A330-300 and
six B787 aircraft.
The Company owns one Boeing 737-700, four Embraer and two ATR 42-500 aircraft. The Company has also acquired three Boeing 737-800,
four Airbus A330-200 aircraft and three Airbus A330-300 aircraft under finance lease arrangements.
A financing agreement was signed with the lead arrangers on 4 February 2003 for the purchase of one Boeing 737-700 (delivered in June 2002) and
aircraft spares. The loan is secured by guarantee provided by the Government and the aircraft is mortgaged in favour of the Government.
In 2003, the Company entered into a lease agreement with Wings of Oman Limited, a company registered in the Cayman Islands, for the lease
of one Boeing 737-800 (delivered in July 2003) (note 17). The net carrying amount of the leased aircraft was in the amount of approximately
RO 8,773,604 (2011: RO 9,867,538).
In 2005, the Company entered into a lease agreement with Khanjar of Oman Limited, a company registered in the Cayman Islands, for
the lease of one Boeing 737-800 (delivered in March 2005) (note 17). The net carrying amount of the leased aircraft was in the amount of
approximately RO 10,274,830 (2011: RO 10,666,965).
In 2008, the Company entered into a lease agreement with Frankincense of Oman Limited, a company registered in the Cayman Islands, for
the lease of one Boeing 737-800 (delivered in March 2008) (note 17). The net carrying amount of the leased aircraft was in the amount of
approximately RO 13,362,120 (2011: RO 13,450,235).
ANNUAL REPORT 2012
In 2009, the Company entered into two lease agreements with Oryx of Oman, a company registered in the Cayman Islands, for the lease of two
Airbus A330-300 aircraft (first delivered in October 2009 and second in November 2009) (note 17). The net carrying amounts of the leased aircraft
were in the amount of approximately RO 39,117,631 and RO 38,018,273 respectively (2011: RO 41,771,389 and RO 40,421,321 respectively).
In 2010, the Company entered into four lease agreements. Two lease agreements were entered with Oryx of Oman, a company registered
in the Cayman Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying amounts of the leased aircraft were approximately
RO 28,953,356 and RO 29,264,016 respectively (2011: RO 31,069,548 and RO 31,388,843 respectively). The other two lease agreements were with
Luban of Oman, a company registered in the Cayman Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying amounts of the
leased aircraft were approximately RO 39,686,842 and RO 34,913,399 respectively (2011: RO 42,124,669 and RO 37,031,735 respectively).
In 2010, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Ahli Bank SAOG. The engine has been
mortgaged in favour of Ahli Bank SAOG (note 16) and net carrying amount of the engine is approximately RO 5,127,666 (2011: RO 5,564,063).
In 2011, the Company entered into a term loan for financing of two Embraer aircraft with Bank Dhofar. The aircraft has been mortgaged in
favour of Bank Dhofar (note 16) and net carrying amount of the aircraft is approximately RO 10,533,509 and RO 10,529,562 respectively (2011:
RO 11,345,224 and RO 11,340,627 respectively).
In 2011, the Company entered into a lease agreement with Oryx of Oman, a company registered in the Cayman Islands, for the lease of one Airbus
A330-200 (delivered in May 2011) (note 17). The net carrying amount of the leased aircraft is approximately RO 38,516,058 (2011: RO 40,698,002).
In 2011, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Oman International Bank SAOG.
The engine has been mortgaged in favour of HSBC Bank SAOG (formerly Oman International Bank SAOG) (note 16) and net carrying amount
of the engine is approximately RO 2,149,614 (2011: RO 2,313,916).
During the current year, the Company entered into a term loan for financing of two Embraer aircraft with Bank Muscat. Net carrying amount
of the aircraft is approximately RO 11,772,144 and RO 11,959,630 respectively.
Land on which buildings have been constructed by the Company is owned by the Directorate General of Civil Aviation and Meteorology
(DGCAM). In accordance with the combined term sheet agreement with the DGCAM, dated June 2001, the Company was granted
the continuing right to occupy and use the premises for the provision of ground handling, cargo handling and catering services at the Seeb
International Airport (renamed Muscat International Airport effective from February 2008) and Salalah Airport (note 24).
On expiry of the term sheet agreement, the assets in existence, purchased prior to 1 January 2002, will be purchased by the airport operator
at their open market value, as determined by an independent valuer except for the catering premises building which will be purchased at
its net book value.
Additions to assets subsequent to 1 January 2002, approved by the airport operator during the validity of the term sheet agreement, will be
purchased by the airport operator at an agreed residual value on expiry of the agreement.
The land on which the Hotel is situated was donated by the Ministry of Commerce and Industry to the Company on 13 April 1985.
Notes to the
Financial
Statements
for the year ended
31 December 2012
67
68
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
6. Goodwill and other intangible assets
Goodwill
2012
2011
RO ’000
RO ’000
15,137
14,399
-
738
15,137
15,137
4,658
2,273
Impairment for the year (note 22)
1,143
2,385
31 December
5,801
4,658
9,336
10,479
Cost
1 January
Additions during the year
31 December
Impairment
1 January
Net book value
31 December
Impairment losses recognised in the year
The recoverable amount of the Hotel’s line of business was assessed by reference to the cash-generating unit’s value in use. A pre-tax
discount factor of 6% (2011: 6%) per annum was applied in the value in use model.
The values assigned to the key assumptions represent management’s assessment of external sources and internal sources (historical data).
2012
2011
RO ’000
RO ’000
5,786
5,786
4,579
3,976
603
603
5,182
4,579
604
1,207
Cost
1 January and 31 December
Amortisation
1 January
Amortisation for the year (note 22)
31 December
Net book value
31 December
At the end of the reporting period, the Company assessed the recoverable amount of other intangible assets representing timing slots
purchased during 2008. The Company did not recognise any impairment losses in 2012 in respect of such intangible assets (2011: nil).
Amortisation on these assets is charged to the profit or loss on a straight-line basis over the estimated useful life of five years.
ANNUAL REPORT 2012
7. Available for sale investments
2012
2011
RO ’000
RO ’000
403
400
Addition during the year
53
-
Fair value changes during the year
44
3
31 December
500
403
Quoted local equity investments
400
303
Unquoted local equity investments
100
100
500
403
1 January
153
150
Fair value change during the year
44
3
31 December
197
153
1 January
The movement in the investments revaluation reserve is as follows:
Available-for-sale investments are analyzed as follows:
Fair value
Cost
Fair value
Cost
2012
2012
2011
2011
RO’000
RO’000
RO’000
RO’000
Banks and investment
237
89
160
36
Services
163
30
143
30
400
119
303
66
100
100
100
100
500
219
403
166
Quoted local equity investments:
Unquoted local equity investments:
Services
Management considers the carrying value of unquoted local investments to be the fair value at the end of the reporting period.
At the current and prior year reporting date none of the Company’s investment holdings represents 10% or more of the investee’s
share capital.
Details of the Company’s investment holding exceeding 10% of the market value of the Company’s total quoted investment portfolio as of 31
December 2012 are as follows:
Number of
securities
Portfolio
holding
Fair value
Cost
(%)
RO’000
RO’000
1,781,203
59
237
36
12,696
33
133
14
MSM quoted securities:
National Finance Company SAOG
Gulf Hotels Oman SAOG
Notes to the
Financial
Statements
for the year ended
31 December 2012
69
70
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
8. Equity accounted investee
2012
2011
RO ’000
RO ’000
75
75
Post acquisition changes in net assets at the beginning of the year
1,724
1,884
Share of profits for the year
1,570
1,390
(1,099)
(1,550)
2,270
1,799
Cost
Dividends received in the year
Investment in an associated company represents 50% equity in Oman Sales and Services LLC, a limited liability company registered in
the Sultanate of Oman, at a cost of RO 75,000.
Summarised financial information of the equity accounted investee is as follows:
RO in ‘000
Total assets
Total
liabilities
Net assets
Income
Expense
Profit
Company
share of
net assets
Company share
of profit/ (loss)
2011
7,348
3,755
3,593
19,373
16,593
2,780
1,799
1,390
2012
8,596
4,063
4,533
22,036
18,895
3,141
2,270
1,570
In 2012, the Company received dividends of RO 1.1 million from its investments in equity accounted investees (2011: RO 1.550 million).
9. Long-term receivables
Long-term receivables represent interest free security deposits placed to secure the lease of aircraft. Fair value of these deposits
has been discounted based on an effective interest rate method using a discount rate of 0.844% (2011: 1.128%). The maturity of such
deposits is as follows:
2012
2011
RO ’000
RO ’000
April 2012
-
75
May 2012
-
361
March 2013
-
378
April 2014
229
225
May 2014
152
150
April 2016
77
-
April 2017
844
825
May 2017
370
-
June 2017
445
435
October 2017
890
868
March 2018
367
-
Maturity
June 2019
476
462
3,850
3,779
ANNUAL REPORT 2012
10. Inventories
2012
2011
RO ’000
RO ’000
12,238
10,587
339
361
Passenger consumables
2,256
2,060
General
1,396
1,501
91
90
Aircraft consumables
Catering stock
Hotel stock
16,320
14,599
(2,269)
(1,371)
14,051
13,228
1 January
1,371
966
Provision during the year
898
405
2,269
1,371
2,902
2,906
22,358
19,957
2,111
1,570
312
433
27,683
24,866
Movement in provision for obsolete and slow moving inventories:
31 December
11. Trade and other receivables
Airlines and charterers
Travel agents
Ministries
Others
(602)
(480)
Trade receivables
27,081
24,386
Other receivables
9,449
4,337
Prepaid expenses
3,218
2,833
39,748
31,556
480
490
Additional provision (reversal) during the year
122
(10)
1 December
602
480
Provision for impaired debts
Movement in provision for doubtful debts :
1 January
Owing to the nature of the Company’s operations, it undertakes transactions with a large number of customers in various countries.
Trade receivables include amounts RO 14,341,667 (2011: RO 13,121,642) due in foreign currencies, mainly Euros and US Dollars.
12. Term deposits
Term deposits, in the amounts of RO 3.5 million (2011: RO 11.504 million), represent deposits with commercial banks in Oman.
These term deposits mature within six months from the end of the reporting period and are denominated in Rial Omani, earning interest
ranging between 1.75% to 1.90% (2011: 1.50% to 1.90%) per annum.
Notes to the
Financial
Statements
for the year ended
31 December 2012
71
72
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
13. Cash and cash equivalent
2012
2011
RO’000
RO’000
53,347
16,807
Cash in hand and at bank
Cash and bank balances include amounts aggregating RO 382,223 (2011: RO 897,840) held with banks in India, Sri Lanka and Bangladesh in
local currencies.
Prior approval from regulatory authorities of the respective countries is required for the transfer of these funds.
14. Share capital
Authorised share capital (shares of RO 1 each)
500,000
500,000
Issued and paid up share capital (shares of RO 1 each)
366,000
366,000
Government Contribution to equity
85,000
-
Conversion of share perimum to share capital
20,048
-
471,048
366,000
Shareholders who own 10% or more of the Company’s shares, whether in their name, or through a nominee account, and the number of
shares they hold are as follows:
Government of the Sultanate of Oman
% of
2012
% of
2011
Shareholding
No. of shares
Shareholding
No. of shares
99.869
365,521,052
99.865
365,505,900
Conversion of share perimum to share capital
In 2007, the Board of Directors proposed to increase the issued share capital to RO 50,000,000 by way of a preferential allotment to the
Government. This resolution was approved by the shareholders in the Extra Ordinary General Meeting held on 28 February 2007. Consequently
36,717,500 shares were issued resulting in a share premium reserve of RO 20,047,755 being created.
The Share perimum will be converted into paid up capital after the approval of the shareholders at the Extraodinary General Meeting.
During the current year, the Government of the Sultanate of Oman contributed RO 85 million disclosed in statement of changes in equity as
“Government contribution to equity”. The contribution will be converted into paid up capital after the approval of the shareholders at the
Extraodinary General Meeting.
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Legal reserve
In accordance with the Commercial Companies Law of 1974, as amended, 10% of the profit for the year is required to be transferred to
a legal reserve until the reserve is equal to one third of the issued share capital. The Company may resolve to discontinue such annual
transfers when the reserve totals one third of the issued share capital.
During the year, the Company has not added to this reserve as the Company incurred net loss for the year.
15. Provision for maintenance of aircraft, engines and rotables
2012
2011
RO ’000
RO ’000
30,967
21,630
Current portion
(7,264)
(2,458)
Long term portion
23,703
19,172
At 1 January
21,630
16,175
Additional provisions during the year
24,136
21,077
(14,799)
(15,622)
30,967
21,630
Movement during the year is as follows:
Utilised during the year
At 31 December
Provision for maintenance of aircraft, engines and rotables is recognised only when the Company has a present obligation (legal or
constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured reliably.
The amount to be incurred within the next year is shown under the current liabilities.
16. Borrowings
Term loans
91,138
35,687
222,783
244,766
313,921
280,453
Term loans
(16,164)
(6,930)
Finance lease liabilities (note 17)
(22,747)
(21,982)
(38,911)
(28,912)
275,010
251,541
Finance lease liabilities (note 17)
Current portion
Non-current portion
At the end of the reporting period the Company has twelve term loans.
The first term loan in the amount of RO 1,111,487 (2011: RO 2,222,973) denominated in US Dollars is for the purchase of one Boeing 737-700
aircraft. The loan is a syndicated loan participated by one foreign and two local banks with the lead arranger being Bank Muscat SAOG.
The loan is repayable in 40 equal quarterly installments commencing from February 2004. The Company has the option to repay the loan
in part or full on any of the repayment dates. The Government has given a guarantee for the repayment of the loan and the aircraft is
mortgaged in favor of the Government (note 5).
The second term loan in the amount of RO 579,024 (2011: RO 1,158,180) denominated in US Dollars is for the purchase of spares for the Boeing
aircraft. The loan is a syndicated loan participated by one foreign and two local banks with a lead arranger being Bank Muscat SAOG.
73
74
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
The loan is repayable in 40 equal quarterly installments commencing from February 2004. The Company has the option to repay the loan
in part or full on any of the repayment dates. The Government has given a guarantee for the repayment of the loan and the spares are
mortgaged in favor of the Government.
The rate of interest on the above loans is three months LIBOR plus 1.85% (2011: three months LIBOR plus 1.85%). The effective rate of interest
on the above loans was in the range of 2.16% to 2.35% per annum (2011: 2.11% to 2.32% per annum).
The third term loan in the amount of RO 3,786,516 (2011: RO 4,833,847) denominated in US Dollars, is for the financing of one spare engine
for A330 aircraft obtained from Al Ahli Bank SAOG (note 5). The loan is repayable in 24 equal quarterly installments commencing from June
2010 and carries a fixed interest rate of 5% per annum. The Company has the option to repay the loan in part or full on any of the repayment
dates. The spare engine is mortgaged in favor of Al Ahli Bank SAOG.
The fourth term loan in the amount of RO 4,129,125 (2011: RO 5,013,985) denominated in Omani Rials, is for the financing of one A330
Engine obtained from HSBC Bank Oman SAOG (formerly Oman International Bank SAOG) in 2011. The loan is repayable in 24 equal quarterly
installments commencing from March 2011 and carries a fixed interest rate of 3.50% per annum. The Company has the option to repay the
loan in part or full on any of the repayment dates.
The fifth term loan in the amount of RO 14,054,797 (2011: RO 17,361,922) denominated in US Dollars, is for the financing of two E175 aircraft
obtained from Bank Dhofar SAOG in 2011(note 5). The loan is repayable in 24 equal quarterly installments commencing from June 2011 and
carries a fixed interest rate of 3.15% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The sixth term loan in the amount of RO 5,096,581 (2011: RO 5,096,581) denominated in US Dollars is for the financing of pre-delivery payments
of six B787 aircraft obtained from Oman Arab Bank SAOC in 2011. The entire loan is repayable after 18 months and carries a fixed interest rate
of 1.426% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The seventh term loan in the amount of RO 11,647,298 denominated in Rial Omani, is for the financing of E175 aircraft obtained from Bank
Muscat SAOG during 2012. The loan is repayable in 24 equal quarterly installments commencing from November 2012 and carries a fixed
interest rate of 3.500% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The eighth term loan in the amount of RO 12,160,141 denominated in Rial Omani, is for the financing of E175 aircraft obtained from Bank
Muscat SAOG during 2012. The loan is repayable in 24 equal quarterly installments commencing from February 2013 and carries a fixed
interest rate of 3.500% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The ninth term loan in the amount of RO 13,575,870 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737
aircraft obtained from Bank Muscat SAOG during 2012. The entire loan is repayable during July 2014 and carries a fixed interest rate of 2.400%
per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The tenth term loan in the amount of RO 12,326,391 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737
aircraft obtained from Oman Arab Bank SAOG during 2012. The entire loan is repayable during August 2014 and carries a fixed interest rate
of 2.150% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
The eleventh term loan in the amount of RO 5,525,058 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737
aircraft obtained from Bank Muscat SAOG during 2012. The entire loan is repayable during August 2014 and carries a fixed interest rate of
2.400% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
ANNUAL REPORT 2012
The twelfth loan in the amount of RO 7,145,639 denominated in Rial Omani, is for the financing of pre-delivery payments of seven B737
aircraft obtained from Oman Arab Bank SAOG during 2012. The entire loan is repayable during November and December 2014 and carries
a fixed interest rate of 2.150% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.
Breach of loan covenant
As at 31 December 2012, the Company was not in any breach of loan covenant.
17. Finance lease liabilities
The Company has finance lease liabilities in respect of four Airbus 330-200 (2011: four) and three Airbus 330-300 (2011: three) and three Boeing
737-800 aircraft (2011: three) as of reporting date. Finance lease liabilities are payable as follows:
Minimum lease payments
Not later than one year
Present value of minimum lease
payments
2012
2011
2012
2011
RO’000
RO’000
RO’000
RO’000
31,054
31,153
22,747
21,982
Later than one year and not later than five years
119,014
121,935
95,012
94,212
Later than five years
114,232
142,365
105,024
128,572
264,300
295,453
222,783
244,766
(41,517)
(50,687)
-
-
222,783
244,766
222,783
244,766
Future finance charges
Finance leases are for a period of five to twelve years with interest ranging from 3.13% to 5.0% per annum. The aircraft are mortgaged in
favour of the leasing companies.
Under the terms of the lease agreement no contingent rents are payable.
18. Employees’ end of service benefits
Movement in the provision for end of service benefits during the year is as follows:
2012
2011
RO ’000
RO ’000
1 January
6,738
5,691
Charge for the year (note 22)
1,329
1,592
Payments during the year
(511)
(545)
7,556
6,738
11,324
13,505
436
250
Unearned revenue
33,816
24,519
Other payables
33,229
28,328
Accrued expenses
29,002
24,969
107,807
91,571
31 December
19. Trade and other payables
Trade payables
Due to related party (note 27)
Notes to the
Financial
Statements
for the year ended
31 December 2012
75
76
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Trade payables include aggregate amounts of RO 5.341 million (2011: RO 6.351 million) due in foreign currencies, mainly in Euro and US Dollars.
Unearned revenue relates to sales of scheduled passenger revenue which will be recognized when the Company fulfills its service obligation
by providing flight services.
20. Net assets per share
Net assets per share is calculated by dividing the net assets at the year-end by the number of shares outstanding as follows:
Net assets (RO ’000)
2012
2011
RO ’000
RO 000
88,054
100,477
366,000
366,000
0.241
0.275
295,245
242,700
19,344
16,165
Air charter services
9,941
9,125
Handling fees - engineering
3,306
3,111
Handling fees – others
12,051
10,401
Catering
3,267
2,529
Rooms, food and beverage revenue - Hotel
3,278
3,256
610
254
347,042
287,541
Number of shares outstanding at the year end (’000s)
Net assets per share (RO)
21. Revenue
Scheduled services - international
Scheduled services - domestic
Other revenue
22. Expenditure
Fuel cost
154,131
131,963
Employee costs
97,199
87,260
Other aircraft operating expenses
47,009
40,350
Maintenance cost
27,724
25,974
Passenger related costs
27,539
25,056
Depreciation
26,595
23,968
Others
22,038
19,955
Operating lease rentals on aircraft [note 29(b)]
19,484
19,441
5,191
4,604
Cost of catering materials consumed
Insurance costs
1,952
1,887
Amortisation and impairment (note 6)
1,746
2,988
Omani training and development costs
527
536
Management fee - Hotel
156
157
431,291
384,139
ANNUAL REPORT 2012
Employee cost includes the following:
Wages and salaries
72,835
66,328
Other benefits
20,184
16,901
Increase in liability for employee benefits (note 18)
1,329
1,592
Contribution to a defined retirement plan
2,851
2,439
97,199
87,260
Interest on term deposits
511
772
Dividends
24
17
535
789
23. Interest and investment income
24. Aviation services agreement and combined term sheet agreement
In accordance with the aviation services agreement between the Company and the Ministry of Communications, Government of
the Sultanate of Oman (the Government), the Company has been granted the right to operate domestic and international airline services, to
provide aircraft passenger and cargo handling facilities, airline catering and other services in Oman. The Company has the sole right to use
the utilities and facilities provided by the Government for such purposes. The agreement was for a period of twenty years up to 24 May 2001.
In June 2001 through a combined term sheet agreement, the Director General of Civil Aviation and Meteorology (DGCAM), acting in accordance
with a Cabinet Decision of 4 April 2000 and a decision issued by the Committee of Ministers dated 13 June 2000, extended the Company’s
ground handling and cargo handling services concessions, for periods of five years, and its catering services concession for a period of ten
years, all effective from 1 January 2002. The Company’s rights to operate its scheduled and charter airline services were extended for an
indefinite period.
In 2007, the ground handling concession was extended till 2010 or the opening of new international airport terminal, whichever is earlier
and cargo handling services concession was extended till 31 December 2008 which was then further extended till 31 December 2009.
The Company paid the charges payable to the concerned concessionaire Oman Airport Management Company SAOC (OAMC) in line with
the amounts payable under the amended terms of the concession agreements as enumerated herein.
During 2012, the Company received intimation from OAMC expressing its intention to extend the ground handling concession till 31 March
2012 and are in discussion with OAMC to further extend till 31 December 2014.
In 2011, the cargo handling services concession was also extended till 31 December 2014 on the existing terms.
The following charges set out in the aviation services agreement are included in the financial statements:
Rent
Concession fee
2012
2011
RO ’000
RO ‘000
200
200
1,073
940
Notes to the
Financial
Statements
for the year ended
31 December 2012
77
78
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Under the combined term sheet agreement, effective 1 January 2002, the Company will pay to the OAMC the following concession fees:
Ground handling fee
: 2% of monthly turnover from NOC handling, crew transport and radio rental revenue provided to third parties.
7.5% of the monthly turnover received from ground handling services provided to third parties.
Cargo handling fee
: 2% of monthly turnover from agency commission and 50% of demurrage collected from third parties.
7.5% of the monthly turnover received from cargo handling services provided to third parties.
Catering fees
: 5% of the monthly turnover received from catering services provided for use on Airport for third parties and
3% of monthly turnover for off-airport catering services.
Line maintenance
: 2% of monthly turnover on services other than Aircraft related provided to third parties.
7.5% of the monthly turnover received from line maintenance services provided to third parties.
In April 2009, commercial departure lounge concession agreement has signed for occupying commercial space at the airport. This agreement
commenced from opening date of the designated Oman Air First and Business class lounge and will continue till 31 October 2011 or end of operation at
the current Muscat International terminal. The Company will pay to the OAMC fixed amount of RO 2,500 plus 10% of the monthly sales.
25. Taxation
a) Recognised in statement of comprehensive income
2012
2011
RO ’000
RO ‘000
3,948
4,101
58
-
4,006
4,101
2012
2011
RO ’000
RO ‘000
14,067
10,061
Deferred tax
Current year
Prior year
Taxation [note 25 (c)]
b) Recognized in statement of financial position
Non-current liability
Deferred tax [note 25 (c)]
The Company is subject to income tax at the rate of 12% (2011: 12%) of taxable income in excess of RO 30,000. No provision for income tax has
been made in these financial statements in view of the tax loss incurred during the year.
The tax returns of the Company for the years 2008 to 2011 have not yet been agreed with the Secretariat General for Taxation at
the Ministry of Finance.
The Board of Directors are of the opinion that additional taxes, if any, related to the open tax years would not be significant to the Company’s
financial position as at 31 December 2012.
As at 31 December 2012, the tax losses available for offset against future taxable profit amounted to approximately RO 454 million. The tax loss
will be available for carry forward for a period of five years from the year when it was incurred.
ANNUAL REPORT 2012
c) Deferred tax liability
Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12% (2011: 12%). The net deferred tax (liability)/
asset and deferred tax charge in the statement of income are attributable to the following items:
1 January 2012
Charged to
profit or loss
31 December
2012
1 January 2011
Charged to
profit or loss
31 December
2011
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
250
-
250
485
(235)
250
(10,311)
(4,006)
(14,317)
(6,445)
(3,866)
(10,311)
(10,061)
(4,006)
(14,067)
(5,960)
(4,101)
(10,061)
2012
2011
Loss for the year (RO ’000)
(97,467)
(109,860)
Weighted average number of shares outstanding during the year (‘000)
366,000
324,082
(0.266)
(0.339)
Asset
Carried forward losses
Liability
Accelerated tax
depreciation
26. Loss per share – basic and diluted
Loss per share - basic and diluted loss per share (RO)
The par value of each share is RO 1. The loss per share is calculated by dividing the loss for the year by the weighted average number of shares
outstanding during the year.
27. Related parties
Related parties comprise the shareholders, directors, key Management personnel and business entities in which they have the ability to
control or exercise significant influence in financial and operating decisions. The Government is not considered as a related party.
The Company maintains balances with these related parties which arise in the normal course of business from the commercial transactions
and are entered into at terms and conditions which the directors consider to be comparable with those adopted for arms’ length transactions
with third parties. Outstanding balances at the year-end are unsecured and settlement occurs in cash.
No expenses have been recognized in the year for impaired debts in respect of amounts owed by related parties. Following is the summary
of significant transactions with related parties during the year:
2012
2011
RO ’000
RO ’000
7,866
6,264
175
175
Expenses
Purchase of goods/services
Management and marketing fee
The amount due to related parties is included in note 19.
433
237
Oman Sales and Services LLC
Oman Airport Management Company SAOC
1
5
Others
2
8
436
250
Notes to the
Financial
Statements
for the year ended
31 December 2012
79
80
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Key Management personnel benefits
Key Management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Company, directly or indirectly, including any director (whether executive or otherwise).
1,404
1,385
Post employment benefits
111
100
Directors› remuneration and sitting fees
51
37
1,566
1,522
Short term benefits
28. Segment information
Information regarding the Company’s operating segments is set out below in accordance with IFRS 8 Operating segments. IFRS 8 requires
operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the
chief operating decision maker in order to allocate resources to the segment and to assess its performance.
Primary reporting format - business segments
The Company is organised into three major operating divisions-airline, hotels & catering and ground & cargo handling. The airline division
provides passenger and cargo services on a scheduled and charter basis.
The Hotel division operates Golden Tulip Seeb Hotel and catering division provides in-flight and airport retail catering services.
The cargo division provides cargo handling services. The ground handling division provides airline support services.
The Company reports its primary segments information separately for its airline and catering divisions and by combining its cargo and
ground handling divisions. This information is presented as follows:
Airline
Hotels and catering
Ground and cargo
handling
Total
2012
2011
2012
2011
2012
2011
2012
2011
RO’000
RO’000
RO’000
RO’000
RO’000
RO’000
RO’000
RO’000
Revenue
Total revenue
330,094
272,545
21,857
19,467
21,126
18,322
373,077
310,334
Inter division revenue
(2,258)
(1,444)
(15,312)
(13,682)
(9,075)
(7,921)
(26,645)
(23,047)
External revenue
327,836
271,101
6,545
5,785
12,051
10,401
346,432
287,287
610
254
347,042
287,541
(72,827)
(84,881)
Other income
Segment (loss) profit including
inter division (loss) profit
(79,373)
(91,809)
6,682
5,905
(136)
1,023
Common costs
(11,422)
(11,717)
Operating loss
(84,249)
(96,598)
(10,315)
(10,350)
535
789
1,570
1,390
71
(50)
(1,073)
(940)
Deferred tax charge
(4,006)
(4,101)
(97,467)
(109,860)
Finance cost
Share of profits of an associate company
Increase in fair value of long-term receivables
Concession fee
ANNUAL REPORT 2012
Segment assets and liabilities:
2012
2011
RO ’000
RO ’000
543,922
493,613
Hotel
15,128
15,115
Others
3,322
2,202
562,372
510,930
2012
2011
RO ’000
RO ’000
459,175
400,030
524
362
14,619
10,061
474,318
410,453
Segment assets
Airline and airport services
Total assets
Segment liabilities
Airline and airport services
Hotel
Others
Total liabilities
For the purposes of monitoring segment performance and allocating resources between segments:
•All assets are allocated to reportable segments other than investments in associates and available-for-sale investments. Goodwill is allocated
to Company’s hotel cash generating unit. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by
individual reportable segments; and
•All liabilities are allocated to reportable segments other than current and deferred tax liabilities. Liabilities for which reportable segments
are jointly liable are allocated in proportion to segment assets.
Geographical information
The Company operates in two principal geographical markets, the domestic market in the Sultanate of Oman and the overseas markets.
The following table shows the distribution of the Company’s revenues; inclusive of inter division revenues, by geographical market:
Oman
Revenue including inter division revenues
Overseas
Total
2012
2011
2012
2011
2012
2011
RO’000
RO’000
RO’000
RO’000
RO’000
RO’000
22,514
19,421
350,563
290,913
373,077
310,334
2012
2011
RO ’000
RO ’000
5,615
584
29. Commitments and contingencies
a. Capital commitments
Capital expenditure commitments
Notes to the
Financial
Statements
for the year ended
31 December 2012
81
82
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
b. Operating lease commitments
Details of aircraft lease agreements are as follows:
Lease agreements
signed
Aircraft delivered
against lease
agreements
Aircraft to be
delivered in future
periods
737-800
11
(11)
-
737-700
1
(1)
-
12
(12)
-
Aircraft type
For Operating lease rental on aircraft see note 22.
The fixed lease commitments against 12 (2011: 11) delivered aircraft are as follows:
2012
2011
RO ’000
RO ’000
Not later than one year
22,457
18,269
Later than one year and not later than five years
55,913
54,124
3,210
2,943
81,580
75,336
After five years
In addition to the above fixed lease commitments, there is a variable lease rental element depending on the flying hours of the leased aircraft.
C. Contingent liabilities
8,224
6,835
Letters of Credit
1,189
3,287
Guarantees
9,413
10,122
30. Financial risk management
Financial instruments carried on the statement of financial position comprise cash and cash equivalents, term deposits, trade and other
receivables, trade and other payables and borrowings.
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows have been impacted.
The classification of financial assets depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition.
Overview
The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall risk
management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s
financial performance.
Risk management is carried out by management under policies approved by the Board of Directors.
Financial risk factors
(i) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Company’s receivables from customers.
ANNUAL REPORT 2012
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Owing to the nature of the
Company’s operations, it undertakes transactions with a large number of customers in various countries.
The Company has established credit policies and procedures that are considered appropriate and commensurate with the nature and size
of receivables.
In monitoring customer credit risk, customers are segmented according to their credit characteristics in the following categories:
• Airlines and charterers
• Travel agents
• Government customers
• Other customers
The potential risk in respect of amounts receivable is limited to their carrying values as Management regularly reviews these balances whose
recoverability is in doubt.
The Company establishes a provision for impairment that represents its estimate of potential losses in respect of trade and other receivables.
The main components of this loss are specific loss component that relates to individual exposures.
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 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.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the end of the reporting
period was on account of:
2012
2011
RO ’000
RO ’000
3,850
3,779
Trade receivables
27,683
24,866
Other receivables
9,449
4,337
Term deposits
3,500
11,504
Cash at bank
53,330
16,774
97,812
61,260
Long term receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also
considers the demographics of the Company’s customer base, including the default risks of the industry and country in which customers
operate, as these factors may have an influence on credit risks.
During 2012, approximately 35% (2011: 34%) of the Company’s passenger revenue was attributable to sales transactions with Indian
subcontinent.
Notes to the
Financial
Statements
for the year ended
31 December 2012
83
84
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
The exposure to credit risk for trade receivables at the end of the reporting period by type of customer was:
Travel agents
Airlines and charterers
Ministries
Other customers
22,358
19,957
2,902
2,906
2,111
1,570
312
433
27,683
24,866
The age of trade receivables and related impairment loss at the end of the reporting period was:
2012
2011
Gross
Impairment
Gross
Impairment
RO ’000
RO ’000
RO ’000
RO ’000
Not past due
15,287
-
14,875
-
Past due 0 to 150 days
11,066
-
9,065
-
Past due 151 to 365 days
580
-
302
-
More than 1 year
750
(602)
624
(480)
27,683
(602)
24,866
(480)
Included in the Company’s trade receivable balance are debtors with a carrying amount of RO 11.794 million (2011: RO 9.511 million) which
are past due at the end of the reporting period for which the Company has not provided as there has not been a significant change in credit
quality and the amounts are still considered recoverable. The Company holds collaterals in respect of certain parties in the form of cash
deposits / bank guarantees to the extent of RO 4.084 million (2011: RO 3.991 million). The average collection period of these receivables is 30.
The movement in provision for doubtful debts has been disclosed in note 11.
The allowance account in respect of trade receivables is used to record impairment losses unless the Company is satisfied that no recovery of
the amount owing is possible, at which point the amount considered irrecoverable is written off against allowance account.
(ii) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to
managing liquidity is to ensure, as far as possible that it will have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of
financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural
disasters. The Company has access to credit facilities.
ANNUAL REPORT 2012
The maturity profile of the financial liabilities is as follows:
Amount due and payable in future between
Carrying
amount
1 year
or less
1 to 2
years
2 to 5
years
Beyond
5 years
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
11,324
11,324
-
-
-
31 December 2012
Trade payables
Due to related parties
Other payables and accrued expenses
Borrowings
436
436
-
-
-
62,231
62,231
-
-
-
313,921
38,911
71,604
94,834
108,572
387,912
112,902
71,604
94,834
108,572
13,505
13,505
-
-
-
250
250
-
-
-
53,297
53,297
-
-
-
280,453
28,912
29,763
92,121
129,657
347,505
95,964
29,763
92,121
129,657
31 December 2011
Trade payables
Due to related parties
Other payables and accrued expenses
Borrowings
Unearned revenue are excluded from liquidity risk as these represent tickets sold but not flown as at the end of the reporting period.
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s
income or the value of its holdings of financial instruments.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising
the return.
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Fuel price risks
The Company is exposed to volatility in the price of fuel and closely monitors the actual cost against the forecast cost.
Aircraft lease foreign currency exchange rate risk:
There are no significant exchange rate risks as all aircraft lease rental agreements, new aircraft commitments and deposits are made in US
Dollars to which Rials Omani is fixed.
Interest rate risk
The Company has long term borrowings, which are interest bearing and exposed to changes in market interest rates.
At the end of the reporting period the interest rate profile of the Company’s interest bearing financial instruments was:
2012
2011
RO ’000
RO ’000
3,500
11,504
313,921
280,453
Fixed rate instruments
Financial assets
Financial liabilities
Notes to the
Financial
Statements
for the year ended
31 December 2012
85
86
ANNUAL REPORT 2012
Notes to the
Financial
Statements
for the year ended
31 December 2012
Fair value sensitivity analysis for fixed rate instruments
The Company does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in
interest rates at the end of the reporting period would not affect profit or loss.
Fair value sensitivity analysis for variable rate loan
A change of 100 basis points in interest rate would have increased or decreased equity by RO 0.19 million (2011: RO 0.19 million).
31. Fair value of financial assets and liabilities
The fair value of the financial assets and liabilities approximates their carrying value as stated in the statement of financial position.
Fair value hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable.
-Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
31 December 2012
Level 1
Level 2
Level 3
Total
RO
RO
RO
RO
400
-
-
400
-
100
-
100
400
100
-
500
Available for sale financial assets
Fair value measurements recognised in the statement of financial position
31 December 2011
Level 1
Level 2
Level 3
Total
RO
RO
RO
RO
303
-
-
303
-
100
-
100
303
100
-
403
Available for sale financial assets
There were no transfers between Level 1 and 2 during the year.
No gain or loss was included in profit or loss relating to unquoted equities held at the end of the reporting period.
ANNUAL REPORT 2012
32. Capital management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and benefit other stakeholders.
The Management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future
development of the business.
The capital requirements of the Company are determined by the Commercial Companies Law of 1974, as amended.
33. Approval of the financial statements
The financial statements were approved by the Board of Directors and authorised for issue in their meeting held on 26 February 2013.
Notes to the
Financial
Statements
for the year ended
31 December 2012
87
88
ANNUAL REPORT 2012

annual report 2012

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