clear skies · clear skies … are what we are ... we’ve already reinvented the oman air brand,...
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3Oman Air Annual Report 2009
ANNUAL REPORT 2009
Clear Skies
Clear Skies… are what we are confident we’ll soon see, from the ‘cockpit of enterprise’.
We’re already soaring upwards, adding several exciting new destinations to our route network and introducing an expanded fleet of top of the line wide bodied aircraft.
We’ve already reinvented the Oman Air brand, from the livery on our aircraft to the uniforms of our staff and are in the midst of significant enhancement of our infrastructure and key processes, readying them for our ‘new flight paths’.
As the national carrier of the Sultanate of Oman, we continue to soar past strategic milestones in our evolution from regional to a world class international airline.
It’s the new Oman Air that is ascending towards the clear skies of the future.
Our Board of Directors 05
Chairman’s Statement 06
Chief Executive Officer’s Statement 10
Our Leadership Team 12
About Oman Air 13
Our Fleet - Current and Future
Route Network
Management Discussion and Analysis 16
The Current Global Economy and the Airline Industry
Review of Operations
Review of Financial Performance
The People of Oman Air
Auditor’s Report on Corporate Governance 36
Corporate Governance Report 37
Auditor’s Report on Financial Statements 42
Statement of Financial Position 43
Statement of Comprehensive Income 44
Statement of Changes in Equity 45
Statement of Cash Flows 46
Notes to the Financial Statements 47
Contents
www.omanair.com
05Oman Air Annual Report 2009
Our Board of Directors
H.E. Ahmed bin Abdul Nabi Macki - Chairman Minister of National Economy Deputy Chairman of Financial Affairs and Energy Resources Council
H.E. Dr. Khamis bin Mubarak bin Issa Al Alawi - Deputy ChairmanMinister of Transport & Communications
H.E. Fareeq/Malik bin Suleiman bin Said Al Mamari - Director Inspector General of Police & Customs
H.E. Darwish bin Ismail bin Ali Al Bulushi - Director Secretary General of Ministry of Finance
H.E. Mohamed bin Hamood bin Zahir Al Toobi - Director Undersecretary of Tourism, Ministry of Tourism
H.E. Sheikh Mohamed bin Sakhar bin Hamed Al Amri - Director Undersecretary for Civil Aviation Affairs, Ministry of Transport and Communications
Mr. Mohamed bin Ali bin Mohamed Al Barwani - Director Businessman
H.E. Ahmed bin Abdul Nabi Macki
H.E. Darwish bin Ismail bin Ali Al Bulushi
Mr. Mohamed bin Ali bin Mohamed Al Barwani
H.E. Dr. Khamis bin Mubarak bin Issa Al Alawi
H.E. Mohamed bin Hamood bin Zahir Al Toobi
H.E. Fareeq/Malik bin Suleiman bin Said Al Mamari
H.E. Sheikh Mohamed bin Sakhar bin Hamed Al Amri
06 Oman Air Annual Report 2009
07Oman Air Annual Report 2009
Chairman’s Statement
Oman Air worked diligently throughout 2009 to evolve its ‘flight plan to the clear skies of tomorrow’…
…work that produced dramatic change, dynamic momentum and strategic vision that sees the airline well poised for the years ahead.
The Flight Plan...
08 Oman Air Annual Report 2009
Chairman’s Statement
as passenger travel is slowly picking up, especially in the
premium cabins. It will, however, take time for the business
to return to the levels seen before the economic crisis.
The Government of Oman is well aware of the fact that the
airline business is highly capital intensive and has a long
gestation period. While financial results will be under strain
for the next few years, the airline has proved to be a great
brand ambassador for the Sultanate, generates employment
for highly skilled manpower, promotes tourism and provides
impetus to commerce. Keeping in view these enormous
benefits, the Government has converted soft loan of RO 80
million and injected further capital of RO 70 million in 2009
to raise total equity to RO 200 million. On the other hand,
the airline operates on commercial basis and raises finance
for purchase of aircraft and long-term assets from financial
institutions on highly competitive terms. We are confident
that over a period of time when the airline has established
its presence in the industry and its network has matured, we
will see positive returns on investment.
Going forward, Oman Air will commence flights to Kuala Lumpur,
Dar-Es-Salaam, Islamabad, Lahore and Katmandu in Summer
2010, with Milan joining the network in the Winter Schedule. We
will also commence a few new routes and enhance operations
within GCC countries with an objective to strengthen our regional
network, which in turn will also complement our long-haul
routes. Oman Air will take delivery of 2 more new A330s in the
first half of this year, which will increase our fleet to 6 A330s,
15 B737s and 2 ATR-42 aircraft by the end of 2010. We hope to
leverage on our high quality product to gain market share and
enhance our presence, in terms of improved loads and yields,
on the new routes commenced in 2009. Cargo will be another
area Oman Air will focus on this year. We have established a
fully-fledged commercial cargo unit and are confident that this
business will see significant growth on the back of additional
capacity inducted with wide bodied aircraft and expected
economic recovery.
While the scheduled airline business at Oman Air has
witnessed remarkable developments, we continue to
provide air charter services with the highest levels of safety
and reliability to our valued clients, namely, Petroleum
Development Oman and Occidental Oman. These operations
generate positive returns for the Company. Our airport
services business also continues to be profitable. While Oman
Air, the airline, has grown to be the single largest customer
I am pleased to welcome you to the 28th Annual Shareholders’
General Meeting and present to you this Annual Report for
the financial year ended 31 December 2009.
Year 2009 was a landmark year for the Company when Oman
Air repositioned itself. The very business model of the airline
has changed from a regional carrier to a truly international
airline. We added 28% capacity during the year with the
addition of five Boeing 737s and four wide body Airbus
A330s. We added five new long-haul destinations, namely,
Paris, Frankfurt, Munich, Male and Colombo. Our new A330s
replaced the wet leased operations on London Heathrow and
Bangkok routes. In the region we consolidated our presence on
several existing routes including Salalah, Dubai, Bahrain, Doha,
Jeddah and Kuwait with increased frequencies. We carried
2.4 million passengers, up 19% and, in the context of worldwide
recessionary conditions and the new routes introduced during
the year, had a healthy seat utilisation of 61%.
Oman Air rebranded itself during the year with the new
aircraft livery, new uniforms and new inflight service ware
and amenities. Our fleet of brand new A330s has one of the
most luxurious first and business class cabins in the air with
plush flatbed seats, state-of-the-art in-flight entertainment
and designer furnished interior. In our economy class cabins,
we offer very comfortable seating with the latest in audio
and video entertainment. Our new uniforms, created by the
internationally renowned fashion house of Balenciaga, offer the
best in design and comfort. We have also introduced brand new
cutlery, crockery and amenities, and redesigned our menus
to offer the very best in food and beverages. We have made
significant investment in training our in-flight crew. Oman Air
now offers a product that is comparable to the best available
and I am pleased to state we have received excellent feedback
from passengers, media and our colleagues in the industry.
The Company has reported a loss of RO 64.3 million for the
year ended 31 December 2009 compared to the loss of
RO 42.8 million in the previous year. As expected, the launch
of new long-haul routes, which will take time to mature,
combined with the global recessionary conditions, has had
an adverse impact on the bottom line. As per the recent data
released by IATA, 2009 was one of the most difficult years
for the airline industry in which the airlines collectively lost
in excess of $ 11 billion. Globally passenger travel contracted
by 3.5% while cargo movement declined steeply by 10.1%.
The industry is expected to show improved results in 2010
09Oman Air Annual Report 2009
at the airports in Oman, other airlines too have increased
their operations at Muscat and Salalah International Airports.
We handled 27,986 flights (+21%), 4.447 million passengers
(+14%) and 53,875 tons of Cargo in 2009. Our Catering unit
provided 3.5 million meals to the airlines, up 9%.
As stated in the previous year, the Government is investing
in brand new airport terminals at Muscat and Salalah. The
new airport terminal at Muscat will be developed in two
phases. First phase, expected to complete in 2014, will see
the airport’s capacity grow from present 4 million passengers
to 12 million passengers. Besides complementing Oman
Air’s rapid growth in the airline business, the new airport
will also attract many other airlines and passengers to the
Sultanate. Along with the new passenger terminal, a brand
new cargo terminal, new engineering facility (MRO) and
in-flight catering facility are also envisaged. I am confident
that these additional modern facilities will mean significant
business opportunities for Oman Air.
Following His Majesty’s vision, the Government continues to
invest in the infrastructure across the nation and as part of
this drive, we will witness development of four new airports
in the country, namely, at Sohar, Duqum, Ras Al Hadd and
Adam. These domestic airports will be ready in the next two
to three years. Oman Air will operate to these airports with
the brand new regional jets it plans to receive starting first
half of 2011. Oman Air will also provide handling and allied
services at these airports.
Oman Air purchased Golden Tulip hotel, situated near Muscat
International Airport, during 2009. This property is profitable
and is ideally situated from the airline’s perspective. The
acquisition is meant to leverage on the synergies among
our core airline, in-flight catering and hotel businesses. The
management is looking at various opportunities to develop
this property so that it aligns with Oman Air’s image and
both businesses complement each other. If successful, Oman
Air may consider acquiring or developing other properties
in future.
Development of Omani human resources has always
been a high priority for the Board and the management
of Oman Air. We continue to induct Omani nationals across
the Company including in managerial and highly skilled
technical positions. Majority of our pilots and most of our
engineers are Omani nationals. The Company is investing
in training in a planned manner to ensure we harness the
tremendous potential offered by young Omanis graduating
from the universities in Oman and abroad. As in the past,
the Company has inducted Omani cadets this year to train
them as pilots and engineers. While Oman Air does require
multi-lingual staff from different countries because of the
nature of its business, the management gives top priority
to Omani nationals in all areas. Oman Air is now a premium
brand and a leading Company in Oman and we are confident
of attracting, retaining and developing local talent.
I take this opportunity to thank my colleagues on the Board,
the Executive Committee and the Audit Committee who have
actively supported and given direction to the management
from time to time. I would also like to thank the management
team and all employees of Oman Air for their sincere efforts
in meeting the challenge of this very demanding business
and firmly establishing the Company on its path to becoming
a world class international airline.
The development of Oman Air would not be possible
without the support, encouragement and guidance
of His Majesty Sultan Qaboos bin Said. It is only with
His Majesty’s support and vision that we have been
able to develop this airline to its current standard.
My colleagues on the Board and the management join me
in expressing our immense gratitude to His Majesty for his
kind benevolence and support.
Ahmed bin Abdul Nabi Macki
Chairman
YEAR 2009 wAS A lANDMARK YEAR FOR THE COMpANY wHEN
OMAN AIR REpOSITIONED ITSElF. THE vERY BuSINESS
MODEl OF THE AIRlINE HAS CHANgED FROM A
REgIONAl CARRIER TO A TRulY INTERNATIONAl AIRlINE.
Chairman’s Statement
A Year at High Revs...Chief Executive Officer’s Statement
It was a year of challenge that brought out the best… faith, loyalty and commitment from all stakeholders allowed Oman Air to forge ahead at high revolutions, building an exciting future
11Oman Air Annual Report 2009
Chief Executive Officer’s Statement
2009 presented the management and staff of Oman Air with their
toughest challenge to date. With world markets still in free fall and
the airline industry reeling from the effects of this global recession, it
was perhaps not surprising that the Company’s financial performance
was significantly lower than originally forecast. However we should
not let these disappointing financial results alone mask the true
success story of Oman Air during 2009, in its continuing quest
to become a world class international airline and leading brand
ambassador for Oman overseas.
During the course of 2009 we took delivery of nine brand new
aircraft, five Boeing 737-800’s and four Airbus A330-200/300’s, in
addition to employing three short-term wet leased aircraft. This
represented a huge challenge to every division in the Company, in
particular Flight Operations, Engineering, In-Flight Services, Finance
and Human Resources. Meticulous planning and excellent teamwork
in-house, combined with close support and co-operation from all
our manufacturers and suppliers allowed us to induct all of these
aircraft into our fleet on time and on budget.
The arrival of our first Airbus A330 in late September was a defining
moment in Oman Air’s ambition to become a world class international
airline. No expense had been spared on the overall definition and
interior specification of our first brand new long-haul aircraft. This
bold and far sighted decision by management and fully supported by
the Board, will I’m sure play a key role in quickly establishing Oman
Air as a preferred airline of choice by the discerning international
traveller wherever we fly.
Once again the successful introduction of such a sophisticated and
state-of-the-art aircraft such as the A330 was in the attention to detail,
requiring intense planning, a redefinition of operating procedures,
recruitment, selection, training and licensing of both technical
and cabin crew. Creation of a new uniform as well as the design,
sourcing and delivery of all in-flight service ware and amenities was
required to truly reflect Oman Air’s desire to provide a top of the line
product offering. If all this were not enough, we were up against
a deadline to have everything in place for the introduction of our
new A330 on our flagship service to London on 22 November 2009.
Suffice to say that thanks to the fantastic teamwork from everyone
in the Company, the regulatory authorities and so many other unsung
heroes, our inaugural new A330 service departed on schedule to
London, thus heralding the start of a new era for the National Carrier.
Three more A330’s were rapidly inducted into the fleet before the
end of 2009, with five new long-haul routes added to our rapidly
expanding network. The feedback from our customers who have
experienced our new A330 product has been truly amazing and bodes
very well for the future expansion of our Airbus fleet.
In order to capitalise on the investment that the Government has
placed in the Company, during the past year we have steadily
strengthened the vacant positions in the management team,
based upon the recommendations contained in the report by
Booz and Company in 2008. We now have in place a first class
senior management team that is capable of imparting their skills,
knowledge and experience in developing the talents of Omani
nationals to enable them to take on a greater responsibility for the
management and strategic development of the Company in the
future. I am confident that this team will take the Oman Air Group
forward to achieve the goals and ambitions outlined in the Five Year
Business Plan that was recently approved by the Board of Directors.
Looking forward to 2010, I am under no illusions that this again will
be yet another tough year for the aviation industry world wide and for
Oman Air in particular. Whilst there are some small encouraging signs
that certain markets may have bottomed out, very many more still
remain firmly in the grip of recession. With two more Airbus A330’s
joining our fleet in March and June 2010, and eight more new routes
being added progressively to our network this year, the pressure
on our front line staff to consistently deliver outstanding customer
service will be unrelenting. Equally our sales and distribution network,
supported by all of our teams in the Commercial Division will have
to be up to the job and remain fully focused in their efforts, to
achieve the demanding passenger and cargo revenue targets that
we have set ourselves.
In summary, we have an outstanding product to sell, we have a team
of loyal and increasingly motivated employees wanting deliver top
quality service and as an organisation we are rapidly developing and
improving our systems and processes to benchmark the best in our
industry. I am confident that we will achieve all of the targets that
we have set ourselves in this year’s budget.
I would like to acknowledge and thank my Management team and all
of our employees for their commitment, dedication, enthusiasm and
untiring efforts in laying down the foundations in this exceptionally
challenging year, to build Oman Air into one of the world’s finest
international airlines.
I am grateful for the continued support and guidance extended by the
Government of Oman, H.E. the Chairman and the Board of Directors,
during yet another of the most turbulent and demanding years in
the history of our industry.
peter Hill
Chief Executive Officer
Oman Air Annual Report 2009
Our Leadership Team
Left to Right:
Salim Al Kindy - Chief Technical Officer, gerry Mitchell - Chief Officer Information and Technology, Ahmed Al-Nabhani - Chief Officer Support Services,
Japeen Shah - Chief Financial Officer, philippe georgiou - Chief Officer Corporate Affairs, peter Hill - Chief Executive Officer,
Hamood Al-Bahlany - A/Chief Officer Airport Operations, Barry Brown - Chief Commercial Officer,
Markku Nokkala - Chief Officer Network and Planning, patrick J. Rotsaert - Chief Officer Flight Operations
13Oman Air Annual Report 2009
About Oman Air
In 1970, Oman International Services (OIS) was founded
primarily to offer support services such as ground handling,
cargo handling and catering uplift to the airlines flying to
Muscat International Airport.
In 1981, OIS was renamed as Oman Aviation Services (OAS) and
converted into a joint stock company. During the same year, OAS
purchased 13 aircraft from Gulf Air’s light aircraft division and
in 1982, OAS began operating jet flights between Muscat and
Salalah in a joint venture arrangement with Gulf Air.
A decade later in 1993, OAS was re-established as an airline,
taking the name Oman Air. Its new incarnation as a fully-fledged
airline saw Oman Air adding many destinations to a growing
network across the GCC region as well as a few international
points in the Indian sub-continent. The airline however, was
largely a regional carrier at the time.
The airline experienced steady but slow growth from the mid
90s until 2007, when the Government withdrew from Gulf Air
entirely, to concentrate on expanding and developing Oman Air.
In keeping with national objectives, the Government recapitalised
Oman Air substantially and became its major shareholder, with
a 99.61% stake as at the time of reporting.
This heralded a period of significant expansion for the airline
during which it added wide bodied aircraft to its fleet, as well
as long-haul operations to key destinations in Europe and Asia
and refashioned its branding and livery to signify the airline’s
evolution from regional to an international carrier of repute, as
the new ‘Wings of Oman’.
Where we fly
MuscatAbu DhabiAmman BahrainBeirut DohaDubai
Jeddah Khasab KuwaitRiyadhSalalah Cairo
gCC, Middle East & Africa
BangaloreCalicutChennaiChittagong CochinDelhiHyderabad
JaipurLucknowMumbaiTrivandrum Karachi Colombo Male
Indian sub-continent
LondonParisMunich Frankfurt
Europe
Bangkok
Far East
As the national carrier of Oman, the airline complements the
Government’s determination to diversify Oman’s economy
towards non-oil based endeavours in sectors such as
industrialisation and tourism. With a relatively youthful and
growing population, the Government also seeks more labour
utilising avenues of enterprise, which the tourism sector in
particular can provide.
Thus Oman Air plays an integral role in these national initiatives.
Our Fleet - Current and FutureOman Air’s current fleet strength stands at 21 aircraft and is
comprised of 2 Airbus A330-300s, 2 Airbus A330-200s, 2 Boeing
B737-700s, 13 Boeing B737-800s and 2 ATR-42-500s.
On order are 1 Airbus A330-300 for delivery in March 2010,
1 Airbus A330-200 for delivery in June 2010, 1 Airbus A330 -
200 for delivery in May 2011, 6 Boeing B737-800s for delivery
over the period 2014-2015 and 5 Embraer E175s for delivery
between 2011 and 2013.
Route NetworkThe airline currently flies to 32 destinations. Five of these
destinations are long-haul international operations to
London, Bangkok, Paris, Frankfurt and Munich. We also fly to
27 regional destinations.
15Oman Air Annual Report 2009
The New Face of Traditional Values
The new uniforms of our flight crew and ground staff symbolise Oman Air’s commitment to bringing timeless Omani traditions of hospitality to the customer, in a refreshing and enchanting style, which complements the courtesy, respect, accountability and caring personal attention we bring to our service… the building blocks of our reputation for superior service.
16 Oman Air Annual Report 2009
Management Discussion and Analysis
The Current Global Economy and the Airline Industry
The recent global economic slow down had a profound impact
on the performance of airline industry. Lower travel demand
and downward pressure on yields have contributed to higher
losses of the Airlines industry. Yields on Premium segment
passengers, a key measure of the business travel component
that drives airline profits, fell sharply.
The financial market crisis and consequent credit squeeze
also had an impact on airline financing costs. A positive
aspect that emanates from this negative scenario is that it
will counter the risk of excess capacity.
The industry continues to pursue efforts to simplify the
way it does business. Service enhancements such as 100%
E-ticketing, E-freight, RFID - new technology and approach
for baggage space handling, bar coded boarding passes,
implementation of CUTE (Common Use Terminal Equipment)
systems at all major airports, passenger self-service strategies
and many more will help to make air travel less tedious and
undoubtedly will define new age of travel.
Review of Operations
Capacity and Route Enhancement
During 2009, Oman Air inducted 4 wide bodied aircraft – 2
Airbus 330-300s and 2 Airbus 330-200s - to its fleet. It helped
the airline to expand its long-haul operations with services
to Germany (Frankfurt and Munich), France (Paris), Sri Lanka
(Colombo) and the Maldives (Male).
Additionally, the airline took delivery of 5 Next Generation
Boeing 737-800s, to augment the regional operations.
The Inflight Experience
For the passenger boarding an Oman Air flight, 2009 has
been a year of revelation. The signs of transformation of the
airline into a premier international carrier are everywhere.
Here are the highlights of change.
New Uniforms
Oman Air unveiled a range of new look uniforms during
2009. Our cabin crew and ground staff are now attired in
new uniforms designed by the renowned fashion designer
Cristobal Balenciaga. The ‘new look’ amply showcases the
new era of sophisticated air travel the airline has embarked
on whilst retaining and exemplifying the best traditions of
Omani culture and hospitality.
On Board our New A330 Fleet
Oman Air’s growing fleet of wide bodied Airbus aircraft offers
an unprecedented inflight experience to our passengers.
It begins with the seat.
Our Airbus A330-300 aircraft’s First Class Mini Suite offers six
luxurious seats with the longest lie-flat bed available on any
commercial airliner. It is set within an 87” pitch spacing and
features a 25.5” wide seat with eight point massage system
built in that allows the customer to personalise their seating
preference plus a personal screen in between the seats with
a 23” video monitor.
Our Business class cabins feature 20 lie-flat seats of 82” pitch
spacing, featuring a 4 abreast 1-2-1 layout, which together
with electrically controlled back rest and leg rest, a buddy
seat and 17” personal screen, give an ambience and space
that exceeds by some margin, the facilities offered by others
in this class of travel.
The airline has spared no effort in matching these
facilities with the state-of-the-art in-flight entertainment.
The entertainment system offers Live TV featuring news,
sports and movie options to every seat on the aircraft.
Not only have we raised the bar in our premium cabins,
but also a great deal of attention has been directed to
the economy cabin as well. Passenger comfort has been
addressed by providing 34” pitch seating with three phase
leg-rest positions and a 4-way adjustable headrest. Each seat
is complemented with 10.6” video screens between seats.
To sum up, our premium inflight experience is a completely
new range of menu for all classes, which offer passengers a
superior flying experience on every flight.
On GroundBook… Pay… Check-In…
Oman Air acknowledges that the travel experience begins
well before the passenger takes a seat aboard our aircraft.
The earliest point of contact today for a prospective passenger
is the Internet - flights could be booked and payment made
on-line via the Oman Air website.
17Oman Air Annual Report 2009
During the year under review, we also introduced an SMS
based programme where the passenger would be informed
of Oman Air’s special promotions, news and other offers
via SMS.
This year, we’ve also focused attention on making checking in
for a flight, a pleasant experience. Oman Air passengers are
now among the first in the Middle Eastern region to have a
choice of four new and innovative check-in options at Muscat
and other key airports.
With the launch of Web Check-in solution, passengers
could check-in for flights via a mobile phone, the Internet,
from Airport Kiosks or at the airport using mobile check-in
technology. Whilst the first three options are self-service in
nature, the latter option known as Roving Agent Check-In
enables Oman Air Staff ‘on the move’ to check-in passengers
using mobile hand-held computers, within the airport. The new
system also allows customers and travel agents to select their
preferred seat and print out a boarding pass for the same day
return flight on www.omanair.com.
During the year, in response to passengers’ request, Oman
Air increased the baggage allowance on all Oman Air flights,
across the Network. This increase was in addition to the
enhanced allowances being offered to premium members.
Improving Muscat International Airport
Infrastructure is being improved at Muscat’s airport for greater
passenger convenience. Eight new departure gates have been
added. New check-in counters, expansion of the departures
lounge and expansion of car parking capacity are amongst
other improvements undertaken.
Oman Air has also introduced Common User Terminal
Equipment (CUTE)/Baggage Reconciliation System (BRS)
at the airport to facilitate quick check-in procedures. These
facilities are used by all airlines for enhanced security and
easy identification of passenger baggage.
Flight Kitchen
Oman Air’s state-of-the-art flight kitchen is responsible for
the cordon bleu fare that is served aboard our flights around
the network. It also caters to all airlines flying to Muscat
International Airport supplying over 9,000 meals a day.
Ground Handling
Oman Air’s ground handling services at Muscat International
Airport were significantly upgraded during 2009, with
enhanced check-in facilities provided at the Passenger
Departure Terminal, as well as eight new Boarding Lounges
and an expanded Duty Free Shopping Area.
In addition, our Premium Class customers enjoy a number of
exclusive services such as a dedicated concierge departure
service featuring limousine airport transfers, meet and assist
through check-in/departure formalities and exclusive Oman
Air First and Business Class lounges with direct boarding
access to flights.
Engineering
A vibrant fleet, with state-of-the-art facilities requires state-
of-the-art engineering and maintenance facilities. Oman Air
has steadily built the proficiencies to keep in line with rapid
advances made, particularly in preparation for the new aircraft
inducted this year.
During the year under review, Oman Air became a member
of the International Airlines’ Technical Pool Association (IATP)
that has a membership of over 100 airlines and about 30
suppliers, including top aircraft manufacturers such as Airbus
and Boeing. This organisation is actively involved in enhancing
the safety of the airlines and passengers in the sky and on the
ground and provides a platform to facilitate new initiatives
and exchange of ideas concerning aircraft maintenance.
Acquiring Hotel Golden Tulip
Oman Air made its initial foray into a new area of business with
its acquisition of the Golden Tulip Hotel in Muscat. Situated in
close proximity to the Muscat International Airport, the hotel
opens up viable synergies for Oman Air not only in terms of
the leisure aspect but also through the offer of the services of
the hotel for the use of other airlines and passengers.
In this context, the airline also expects to develop its holiday
division towards being able to offer fully-fledged tour
operations, complete with coaches, hotel and all other facilities.
This is a developing business area for us.
Management Discussion and Analysis
Flying at 00 altitude
Air travel for our customers begins at 00 altitude… with feet firmly on ground which is why access to our sales and ticketing services, are fully automated and web based for maximum convenience and accessibility… through internet booking, online payment and e-ticketing, through city check-in and baggage drop off facilities and more and more... our services are second to none. when one adds premium class services being progressively introduced such as limousine airport transfers, meet and assist services, exclusive Oman Air First and Business Class lounges and direct boarding access to flights to the ‘flight plan’ take off on an Oman Air flight happens much earlier than it looks!
19Oman Air Annual Report 2009
Our Entertaining Touch
unrivalled entertainment on Oman Air flights…just a touch on the screens in front and the world of entertainment awaits your preference. Features include, audio/video on demand, live Tv delivered through state-of-the-art technology plus wi-fi facility, laptop charging, SMS, your own mobile phone and e-mail access… all from the passenger’s seat, that offers a great travel experience!
21Oman Air Annual Report 2009
Defining ‘In Flight’ Comfort
The seats aboard our A330s define… or even re-define, many aspects of the inflight experience. we’re proud of their ergonomic and aesthetic features, that guarantee maximum comfort in flight, be it sitting comfortably, sleeping peacefully, relaxing in style, relishing a sumptuous meal or even catching up on work.
23Oman Air Annual Report 2009
24 Oman Air Annual Report 2009
Review of Financial Performance
Key Performance Indicators
12,834Round trips
2.4 millionpassengers flown
61%Seat factor
7.1 billionASK or Capacity, measured as seat kilometres flown
4.3 billionRpK or utilisation, measured as passenger
kilometres flown
12.9 hours per dayAircraft utilisation
27,986 flights Handled at Muscat International Airport
4.5 millionpassengers handled at Muscat International Airport
3.5 millionMeals catered to flights at Muscat International Airport
Management Discussion and Analysis
Financial Performance
Our net loss for the year 2009 was RO 64.281 million, compared
to a net loss of RO 42.755 million in the year 2008.
This was mainly due to new long-haul destinations added
during 2009 which will take time to mature. Lower capacity
utilisation and increased pressure on yields in the background of
the global economic downturn also contributed to higher losses.
25Oman Air Annual Report 2009
Management Discussion and Analysis
Revenue
Revenue increased by RO 11.007 million or 7% over the
previous year.
Scheduled Services
Scheduled services achieved net revenue of RO 136.1 million,
higher by RO 8.2 million or 6% compared to the previous year.
During the year, Oman Air commenced operations to Paris,
Frankfurt, Munich, Colombo and Male. Available Seat Capacity
(ASK) increased by 28%. However the aircraft utilisation did
not increase in line with the increase in Capacity. Our seat
factor was down by 3% points to 61% and our yields were
down by 13%.
Overall capacity (ASK) rose by 28%
Passenger traffic rose by 19%
Revenue traffic (RPK) rose by 21%
Overall seat factor achieved was at 61%
26 Oman Air Annual Report 2009
Management Discussion and Analysis
Air Charter Services
Air Charter Services recorded revenue of RO 9.225 million, a
decrease of RO 1.644 million from the previous year mainly
due to operation of both turbo-prop ATR aircraft and Jet B737-
700 in 2008 compared to only Jet B737-700 operated in 2009.
Handling Fees
Handling revenue for the year was RO 11.911 million, an
increase of RO 1.140 million or 10% over the previous year’s
revenue of RO 10.771 million.
Flight movement increased from 23,194 to 27,986 flights,
(+21%)
Airlines other than Oman Air, increased operations from
13,485 to 15,152 flights, (+12%)
Wide body flight movement increased from 4,044 to
4,456 flights, (+10%) and narrow body flight movement
increased from 19,150 to 23,530 flights, (+23%)
Passenger movement increased from 3.916 million to
4.477 million passengers, (+14%)
Cargo tonnage handled increased from 52,596 metric tons
to 53,875, (+2 %)
business revenue during 2009 was mainly due to a reduction
in meal uplift to other airlines. Total meals uplifted to other
airlines decreased by 9%.
Hotel (Rooms, Food and Beverage Revenue)
Oman Air entered the leisure business sector through its
acquisition of the Golden Tulip, Seeb from the Ministry of
Tourism, on 1 January 2009. Revenue achieved during the year
from this business is RO 3.434 million.
Expenditure
Net expenditure increased by 17% from RO 195.204 million to
RO 227.400 million mainly due to the increase in operations.
Catering
Catering revenue during the year was RO 2.863 million, a
decrease of RO 0.580 million or 17% compared to RO 3.443
million reported in the previous year. The drop in the catering
27Oman Air Annual Report 2009
Table below summarises the change in major elements
of our cost structure over the two financial years ended
31 December 2009 and 31 December 2008 -
2009 2008 ChangeExpenses RO ‘000 RO ‘000 %
Employee costs 59,784 44,553 +34
Fuel cost 44,217 59,739 -26
Operating lease rentals on aircraft 31,402 27,757 +13
Maintenance cost 12,637 8,163 +55
Other aircraft operating expenses 23,615 18,580 +27
Passenger related costs 13,930 10,716 +30
Insurance costs 1,289 968 +33
Depreciation 11,394 6,832 +67
Finance cost 2,419 1,686 +44
Amortisation/impairment 2,949 1,546 +91
Management Discussion and Analysis
Our employee cost increased by RO 15.231 million or
34% compared to last year mainly due to increase in
staff strength. The Company’s manpower increased from
4,082 in 2008 to 4,866 in 2009, up 19%. 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.
Our Fuel cost decreased by RO 15.522 million or 26% mainly
due to decrease in fuel prices by 44%. The average network
fuel price was 1.81 USD/USG compared to 3.26 USD/USG in
the previous year.
Aircraft lease costs amounted to RO 31.402 million compared
to RO 27.757 million, an increase of RO 3.645 million.
The increase was mainly due to the lease of 5 additional
B737-800 aircraft and replacement of 2 A310 wide body
aircraft with 2 A330-200 aircraft from Jet Airways during 2009.
Maintenance costs and other aircraft operating expenses
comprising of handling, landing, wet lease, crew
accommodation and per diem cost, crew layover and
simulator cost increased due to the increase in operations in
comparison with the previous year.
Passenger related cost increased by RO 3.214 million or
30% compared to 19% increase in passenger traffic in 2009.
The increase was mainly due to increase in passenger meal
cost, reservation cost and passenger service charges.
The Company’s insurance costs increased by RO 0.321 million
or 33% compared to last year. The increase in insurance costs
was mainly due to increase in aircraft fleet strength.
Depreciation increased by RO 4.562 million or 67% compared
to last year. During the year, the Company purchased 2 new
A330-300 aircraft, 2 new A330-200 aircraft, one A330 spare
engine and one ATR spare engine. Apart from this, there were
new additions such as ground equipment, aircraft rotables
and other assets purchased.
28 Oman Air Annual Report 2009
Finance cost increased by RO 0.733 million or 44% compared
to the previous year mainly due to long-term financing of
2 A330-300 aircraft with the support of Export Credit Agencies,
in the later part of the year.
Amortisation/Impairment cost increased by RO 1.403 million
or 97% compared to last year due to impairment of goodwill
paid for acquisition of Golden Tulip by RO 1.122 million and
full impairment of landing slot at Gatwick Airport in London as
Oman Air presently operates to Heathrow International Airport.
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 2009
was RO 0.843 million as against RO 0.805 million in 2008.
The increase in concession fee is mainly due to increased
ground handling revenue generated during the year.
Financial Position
Non-current assets rose from RO 134.283 million in
December 2008 to RO 310.628 million in December
2009 mainly due to purchase of four wide bodied aircraft
(two A330-200 and 2 A330-300). Other purchases include
one spare engine for A330 aircraft and one spare engine for
ATR aircraft. The Company made pre-delivery payments to
Airbus towards purchase of three A330 aircraft, to Boeing
towards purchase of six B737-800 aircraft and to Embraer
towards purchase of five E175 aircraft.
Oman Air paid a consideration of RO 16 million towards
acquisition of Hotel Golden Tulip. The carrying value
of tangible net assets as on the date of purchase was
RO 1.601 million and the remaining value of RO 14.399 million
was recognised as Goodwill. An impairment provision of
RO 1.122 million for Goodwill was made, during the year 2009.
Management Discussion and Analysis
During the year, the Company fully impaired the Landing
slot at Gatwick Airport, as it shifted its London operations to
Heathrow Airport.
Share capital rose by RO 166 million due to the Government
of Oman reaffirming their support in the growth of Oman
Air by converting into equity the Soft Loan of RO 80 million
provided to Oman Air and by injecting additional capital of
RO 70 million during the year.
During the year, Oman Air allotted equity shares of RO 16 million
to the Government of Oman in consideration of Hotel Golden
Tulip, Seeb acquired from the Ministry of Tourism, Oman.
Non-current liabilities decreased by RO 4.924 million mainly
due to increase in aircraft loans availed for 2 A330-300
purchased during the year being offset by conversion of the
Soft Loan of RO 80 million received from the Government
of Oman into equity.
Current assets increased by RO 11.447 million mainly due
to increase in receivables and aircraft consumable inventory
due to increase in aircraft fleet.
Current liabilities increased during the year due to
classification of bridge loans of RO 66.610 million received
from the Government of Oman towards purchase of 2 A330-
200 aircraft, as current liabilities as the same are due and
payable during the year 2010, increase in the current portion
of the long-term aircraft loans received during the year and
increase in Accounts payable and accruals.
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 2009, no
material lapse or weakness in controls has been identified.
29Oman Air Annual Report 2009
Management Discussion and Analysis
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 2009 was 4,866
employees. Oman Air achieved an Omanisation ratio of 62%,
without compromise 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 staff are undergoing external and internal
programmes to improve their skill sets.
The airline’s management initiated a programme to train
Omani Cadet Pilots in 2005 and 2007. Accordingly, nine cadet
pilots and fourteen cadet pilots who successfully completed
training in 2007 and 2009 respectively are flying on Oman
Air as second officers today.
In 2009, the third batch of fifteen cadet pilots commenced
their training. Management plans to train a fourth batch of
fifteen cadet pilots, during the year 2010.
In 2008, the Management also initiated a programme to
train Omani Cadet Engineers. The first batch commenced
their training in October 2008. The airline has further planned
to recruit additional fifteen Omani cadet Engineers, during
the year 2010.
Oman Air has so far successfully completed the training of
two batches of Management Trainees. These trainees have
gone through varying periods of training and are now
absorbed in various supervisory/managerial positions.
30 Oman Air Annual Report 2009
31Oman Air Annual Report 2009
Maintaining Impeccable Taste
The cordon bleu fare that is served aboard our flights comes from Oman Air’s state-of-the-art flight kitchen. Our gourmet touch also reaches into the cabins of every other airline calling at Muscat International Airport… that’s over 9,000 meals a day and over 3.5 million meals a year.
31Oman Air Annual Report 2009
32 Oman Air Annual Report 2009
33Oman Air Annual Report 2009
World Class Servicing for a World Class Fleet
Oman Air has developed its Engineering and Maintenance capacities to move in step with its sophisticated fleet of Airbus, Boeing and ATR aircraft. The airline accepts nothing less than world class standards and proficiency.
33Oman Air Annual Report 2009
Proud to be The Wings of Oman
Oman Air takes pride in being the airline of Oman… one of the most beautiful and well endowed countries in the gulf. Oman is an upmarket, exclusive destination… and Oman Air is positioned to cater not only to this niche, but also to play a significant supportive role in the wider context of the Sultanate’s tourism industry. we are also an employer of choice for Omani nationals today.
35Oman Air Annual Report 2009
We have performed the procedures prescribed in Capital Market Authority (CMA) circular No. 16/2003, dated 29 December
2003 with respect to the accompanying corporate governance report of Oman Air SAOC (“the Company”) and its application
of corporate governance practices in accordance with the CMA Code of Corporate Governance issued under circular No.
11/2002 dated 3 June 2002 and the CMA Rules and Guidelines on disclosure, issued under CMA administrative decision 5, dated
27 June 2007, to the extent deemed relevant by the board of directors. Our engagement was undertaken in accordance
with the International Standard on Related Services applicable to agreed-upon procedures engagements. The procedures
were performed solely to assist you in evaluating the extent of the Company’s compliance with the Company’s Code.
We report our findings below:
We found that the Company’s corporate governance report fairly reflects the Company’s application of the provisions
of the code and is free from any material misrepresentation.
We draw attention to Article 4 of the CMA Code of Corporate Governance which requires the Board of Directors to meet
four times in a year with a maximum time gap of four months between any two consecutive meetings. During the
year the Company’s Board has met only two times.
Because the above procedures do not constitute either an audit or a review made in accordance with International
Standards on Auditing or International standards on Review Engagements, we do not express any assurance on the
corporate governance report.
Had we performed additional procedures or had we performed an audit or review of the corporate governance report in
accordance with International Standards on Auditing or International Standards on Review Engagements, other matters
might have come to our attention that would have been reported to you.
Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is
not to be used for any other purpose. This report relates only to the accompanying corporate governance report of
Oman Air SAOC to be included in its annual report for the year ended 31 December 2009 and does not extend to any
financial statements of Oman Air SAOC, taken as a whole.
To the shareholders of Oman Air SAOC
Deloitte & Touche (M.E.) & Co. LLCMuscat International CentreLocation: MBD AreaP.O. Box 258, RuwiPostal Code 112Sultanate of Oman
Tel: +968 2481 7775Fax: +968 2481 5581www.deloitte.com
Member of Deloitte Touch Tohmatsu
37Oman Air Annual Report 2009
In accordance with the Capital Market Authority (“CMA”)
circular # 11/2002 dated 3 June 2002, we are pleased
to present the Eighth Corporate Governance Report of
Oman Air (SAOC) (“the Company”) for the year ended
31 December 2009.
The Aud i to r s have per fo rmed the p rocedures
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 is committed to comply with the Code of
Corporate Governance issued by the CMA. The Company
has and will continue to uphold the highest standards of
corporate governance. The Board and the Management strive
to accomplish this through very high levels of transparency
and accountability in its conduct of business.
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 Non-Executive Directors.
All Directors are Independent Directors as defined in the Code
of Corporate Governance. There are seven members on the
Board. Six members including the Chairman to represent
the Government’s shareholding and shall be appointed
in accordance with the Article (132) of the Commercial
Companies Law No. 4/74 and amendments thereto. The
Government nominees are Ministers and Undersecretaries
while the Director from private sector is a businessman of
high repute.
Corporate Governance Report
The seventh member of the Board of Directors is to be
selected from the shareholders of the Company or others.
Functions of the Board
The Board is fully aware of its functions and responsibilities
as defined by CMA Code of Conduct. 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 the 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 a monthly basis
and the same is reviewed and discussed at 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 assesses the major risks faced by the Company
and reviews options to mitigate them. The Board ensures
that processes are in place to maintain the integrity of the
Company, i.e. 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
Six members are appointed by the Government including the
Chairman of the Board and one member is appointed from the
private sector by election once in every three years.
Entity Represented by Non-Independent Directors
There are no Non-Independent Directors in the Company.
38 Oman Air Annual Report 2009
Corporate Governance Report
Board Meeting Number and DatesBoard Meeting No. Board Meeting Date
1 – 2009 4 January 2009
2 – 2009 15 March 2009
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 the Chairman are non-executive
and do not draw any fixed salary from the Company.
The total remuneration paid to Directors as sitting fee for
financial year 2009 was RO 12,950. The sitting fees paid
to members of Executive and Audit Committee who are
not the members of the Board for financial year 2009 was
RO 8,400.
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.
Remuneration of Top Five Executives Total
(RO per Annum)
Salary 579,558
Allowances 100,026
PASI/ESB 52,160
Total 731,744
Executive Committee
At present, the Executive Committee carries out specific
functions delegated by the Board of Directors. These functions
include, review of management 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 2009, the Executive Committee members consisted
of four Non-Executive Directors and were independent.
Ten meetings were held during 2009.
Audit Committee
During 2009, the Audit Committee members consisted of
three Non-Executive Directors and all were independent.
Five meetings were held during 2009 to discuss issues
concerning Internal Control, Internal Audit plans and Internal/
External Audit reports, quarterly financial statements and
other related issues.
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 web site 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 have been listed and
traded in the parallel third market of Muscat Securities Market
effective May 2007. Hence, market price data is not available.
39Oman Air Annual Report 2009
Distribution of Shareholding
The major shareholders of the Company are as follows, with
the Government of the Sultanate of Oman being the major
shareholder.
Major Shareholders
Name of the ShareholderNo. of Shares
heldShareholding
%
Government of Sultanate of Oman 215,164,619 99.613
Specific Areas of Non-compliance with the Provisions of Corporate Governance
As per the requirement of Article 4 of the Code of Corporate
Governance, the Board of Directors is required to meet at
least once every four months with a maximum time gap of
four months between any two consecutive meetings but the
Board of Directors of the Company met only two times during
the year. However, during the year the Executive Committee
met 10 times and Audit Committee met 5 times.
Professional Profile of the Statutory Auditor
Deloitte Touche Tohmatsu is an organisation of member
firms around the world devoted to excellence in providing
professional services and advice. Deloitte is focused on client
service through a global strategy executed locally in over
140 countries. With access to the deep intellectual capital of
approximately 168,000 people worldwide, Deloitte delivers
services in four professional areas: audit, tax, consulting and
financial advisory services.
Corporate Governance Report
Deloitte & Touche in the Middle East is among the region’s
leading professional services firms, providing audit, tax,
consulting and financial advisory services through 25 offices
in 14 countries with over 1,700 partners, directors and staff.
The Oman Practice currently has three partners and over 65
professionals.
The total audit fee paid/payable to the external auditor for
the Company including the subsidiary for the financial year
2009 is as follows:
Audit fee RO 28,500
Quarterly review fee RO 6,000
Total RO 34,500
Acknowledgement by the Board of Directors
The Board of Directors acknowledges:
Its liability for the preparation of the financial statements
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 affect the
continuation of the Company and its ability to continue
its operations during the next financial year.
Adding Wingspan
One of the most powerful and visible symbols of Oman Air’s evolution to a fully-fledged, sophisticated international carrier is our growing fleet of Airbus A330 wide bodied aircraft. The A330 is a top tier aircraft that allows Oman Air to offer state-of-the-art facilities that support its long-haul capabilities to help position the airline as an international carrier of merit.
41Oman Air Annual Report 2009
Report on the financial statements
We have audited the accompanying financial statements of Oman Air SAOC (“the Company”), which comprise of the statement
of financial position as at 31 December 2009, the statement of comprehensive income, statement of changes in equity and
statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory
notes, as set out on pages 43 to 79.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that
are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Oman Air SAOC as of 31
December 2009, and of its financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion and as explained in note 3 to the financial statements, we draw attention to the fact that the
Company incurred a net loss of RO 64.281 million (2008 - RO 42.755 million) during the year ended 31 December 2009, with
accumulated losses of RO 101.914 million (2008 - RO 37.633 million) as at 31 December 2009. The Company will be able to
continue as a going concern only with the continuing support of its shareholders and successful implementation of its business
plan to support its operations. The Government of Oman holds in excess of 99.61% of the Company’s equity and has infused
capital of RO 70 million during 2009 to finance the Company’s operations and capital requirements.
Independent auditor’s report to the shareholders of Oman Air SAOC
Deloitte & Touche (M.E.) & Co. LLCMuscat International CentreLocation: MBD AreaP.O. Box 258, RuwiPostal Code 112Sultanate of Oman
Tel: +968 2481 7775Fax: +968 2481 5581www.deloitte.com
Member of Deloitte Touch Tohmatsu
43Oman Air Annual Report 2009
Statement of financial position
At 31 December 2009Notes
2009RO ’000
2008RO ’000
ASSETSNon-current assetsAircraft, property, plant and equipment 5 289,151 124,418Goodwill 6 13,277 –Other intangible assets 6 2,413 4,240Available-for-sale investments 7 416 396Investment in an associate company 8 1,608 1,438Long-term receivables 9 3,763 3,791Total non-current assets 310,628 134,283
Current assetsInventories 10 10,350 5,122Trade and other receivables 11 29,043 21,167Term deposits 12 37,576 32,000Cash and bank balances 13 5,089 12,322Total current assets 82,058 70,611Total assets 392,686 204,894
EQuITY AND lIABIlITIES Capital and reservesShare capital 14 216,000 50,000Share premium 14 20,048 20,048Legal reserve 4,137 4,137Investments revaluation reserve 7 166 146Accumulated losses (101,914) (37,633)Total equity 138,437 36,698
Non-current liabilitiesProvision for maintenance of aircraft, engines and rotables 15 4,292 1,796Borrowings 16 107,311 36,370Government soft loan 18 – 49,359Deferred government grant 18 – 30,641Employees’ end-of-service benefits 19 3,514 2,797Deferred tax liability 26 2,913 1,991Total non-current liabilities 118,030 122,954
Current liabilitiesCurrent portion of provision for maintenance of aircraft, engines and rotables 15 1,476 836Current portion of borrowings 16 76,927 4,850Trade and other payables 20 57,816 39,556
Total current liabilities 136,219 45,242
Total liabilities 254,249 168,196
Total equity and liabilities 392,686 204,894
Net assets per share 21 RO 0.641 RO 0.734
Chairman Director
The accompanying notes form an integral part of these financial statements.
44 Oman Air Annual Report 2009
Statement of comprehensive income
For the year ended 31 December 2009Notes
2009RO ’000
2008RO ’000
Revenue 22 164,255 153,248
Expenditure 23 (227,400) (195,204)
Operating loss (63,145) (41,956)
Interest and investment income 24 1,713 1,779
Share of profits of an associate company 8 970 797
Increase in fair value of long-term receivables 9 365 1
Finance cost (2,419) (1,686)
loss before concession fee and tax (62,516) (41,065)
Concession fee 25 (843) (805)
loss before tax (63,359) (41,870)
Taxation 26 (922) (885)
loss for the year (64,281) (42,755)
loss per share - basic and diluted 27 (RO 0.539) (RO 0.855)
Other comprehensive income
Loss for the year (64,281) (42,755)
Fair value gain on available-for-sale investments 20 7
Total comprehensive loss for the year (64,261) (42,748)
The accompanying notes form an integral part of these financial statements.
45Oman Air Annual Report 2009
Statement of changes in equity
For the year ended 31 December 2009
Note
Sharecapital
RO ’000
Sharepremium
RO ’000
LegalreserveRO ’000
Investments revaluation
reserveRO ’000
Accumulated losses
RO ’000Total
RO ’000
Balance at 1 January 2008 50,000 20,048 4,137 139 5,122 79,446
Loss for the year – – – – (42,755) (42,755)
Other comprehensive income
for the year – – – 7 – 7
Balance at 1 January 2009 50,000 20,048 4,137 146 (37,633) 36,698
loss for the year – – – – (64,281) (64,281)
Other comprehensive
income for the year – – – 20 – 20
Issue of shares 14 166,000 – – – – 166,000
Balance at 31 December 2009 216,000 20,048 4,137 166 (101,914) 138,437
The accompanying notes form an integral part of these financial statements.
46 Oman Air Annual Report 2009
Statement of cash flows
For the year ended 31 December 2009 2009RO ’000
2008RO ’000
Cash flows from operating activities
Loss before tax (63,359) (41,870)
Adjustments for:
Amortisation/impairment of intangible assets 2,949 1,546
Increase in fair value of long-term receivables (365) (1)
Depreciation of aircraft, property, plant and equipment 11,394 6,832
Employees’ end-of-service benefits charged for the year 780 675
Interest and investment income (1,713) (1,779)
Share of profit of an associate company (970) (797)
Finance cost 2,419 1,686
Provision for impaired debts 228 1
Provision for obsolete and slow moving inventories (48) 96
Loss/(Gain) on sale of aircraft, property, plant and equipment 119 (7)
(48,566) (33,618)
Movements in working capital:
Inventories (5,092) (896)
Trade and other receivables (7,356) (2,462)
Trade and other payables 17,024 8,495
Provision for maintenance of aircraft, engines and rotables 3,136 1,262
Security deposits 393 (845)
Cash used in operations (40,461) (28,064)
Finance charges paid (1,548) (1,658)
Employees’ end-of-service benefits paid (99) (190)
Net cash used in operating activities (42,108) (29,912)
Cash flows from investing activities
Acquisition of business (Note 13) (14,382) (5,786)
Purchase of aircraft, property, plant and equipment (176,084) (58,090)
(Increase)/decrease in term deposits (5,576) 15,587
Interest and investment income received 1,313 2,795
Proceeds from sale of aircraft, property, plant and equipment 206 52
Dividend received from an associate company 800 500
Net cash used in investing activities (193,723) (44,942)
Cash flows from financing activities
Issue of shares 166,000 –
Government soft loan (paid)/received (80,000) 70,000
Dividend paid to previous owner (Note 1) (420) –
Net borrowings availed 143,018 10,386
Net cash generated by financing activities 228,598 80,386
Net change in cash and cash equivalents (7,233) 5,532
Cash and cash equivalents at the beginning of the year 12,322 6,790
Cash and cash equivalents at the end of the year 5,089 12,322
The accompanying notes form an integral part of these financial statements.
47Oman Air Annual Report 2009
1. Legal status and principal activities
Oman Air SAOC, (“the Company”) is an Omani Closed Joint
Stock Company registered under the Commercial Companies
Law of the Sultanate of Oman. The registered address of the
Company is P.O. Box 58, PC 111, Seeb, Sultanate of Oman.
The Company was formed under Royal Decree 52/81 dated
24 May 1981 and commenced operations on 1 October
1981. 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 extra-ordinary general meeting on
27 January 2002 extending the Company’s duration for an
indefinite period.
The Government of Sultanate of Oman has 99.61%
shareholding in the Company as at 31 December 2009.
At 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 an Omani Closed 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.
At 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 allows the Company to establish and manage
restaurants, coffee shops, hotels, apartments, tourist utilities,
both inside and outside the airports, whether inside the
Sultanate of Oman or abroad.
Acquisition of business
Effective from 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
registered address of the Hotel is P.O. Box 69, Seeb Airport,
Postal Code 111, Sultanate of Oman. The Hotel was acquired
by Oman Air SAOC 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 rental basis initially for
a period of 50 years and renewable with the mutual consent
of both the parties.
RO ’000
Current assets
Inventories 88
Trade and other receivables 346
Cash and cash equivalents 1,618
Non-current assets
Property and equipment 370
Current liabilities
Trade and other payables (330)
Bank overdraft (35)
Dividend payable to previous owner (420)
Non-current liabilities
Employees’ end-of-service benefits (36)
Net assets acquired 1,601
Purchase consideration 16,000
goodwill (Note 6) 14,399
Notes to the financial statementsFor the year ended 31 December 2009
48 Oman Air Annual Report 2009
2. Adoption of new and revised International Financial Reporting Standards (IFRS)
2.1 Standards affecting presentation and disclosure
The following new and revised Standards have been adopted in the current period in these financial statements. Details of
other Standards and Interpretations adopted but that have had no effect on the financial statements are set out in section 2.2.
IAS 1 (as revised in 2007) Presentation of
financial statements
IAS 1 (2007) has introduced terminology changes (including
revised titles for the financial statements) and changes in the
format and content of the financial statements.
Improving disclosures about Financial Instruments
(Amendments to IFRS 7 Financial Instruments:
Disclosures)
The amendments to IFRS 7 expand the disclosures required
in respect of fair value measurements and liquidity risk. The
Company has elected not to provide comparative information in
the current year in accordance with the transitional reliefs offered
in these amendments.
2.2 Standards and Interpretations adopted with no effect on the financial statements
The following new and revised Standards and Interpretations have also been adopted in these financial statements. Their
adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting
for future transactions or arrangements.
IFRS 8 Operating Segments IFRS 8 is a disclosure Standard that requires re-designation of the
Company’s reportable segments based on the segments used
by the Chief Operating Decision Maker to allocate resources and
assess performance.
IFRS for SMEs Small and Medium-sized Entities This Standard is available immediately but the adoption has to be
decided by the jurisdiction of implementation.
Amendments to IFRS 2 Share-based Payment -
Vesting Conditions and Cancellations
The amendments clarify the definition of vesting conditions for
the purposes of IFRS 2, introduce the concept of ‘non-vesting’
conditions, and clarify the accounting treatment for cancellations.
IAS 23 (as revised in 2007) Borrowing Costs The principal change to the Standard was to eliminate the option
to expense all borrowing costs when incurred.
Amendments to IAS 32 Financial Instruments:
Presentation and IAS 1 Presentation of Financial
Statements - Puttable Financial Instruments and
Obligations Arising on Liquidation
The revisions to IAS 32 amend the criteria for debt/equity
classification by permitting certain puttable financial instruments
and instruments (or components of instruments) that impose on
an entity an obligation to deliver to another party a pro-rata share
of the net assets of the entity only on liquidation, to be classified
as equity, subject to specified criteria being met.
For the year ended 31 December 2009
Notes to the financial statements
49Oman Air Annual Report 2009
IFRIC 13 Customer Loyalty Programmes The Interpretation provides guidance on how entities should
account for customer loyalty programmes by allocating revenue
on sale to possible future award attached to the sale.
IFRIC 15 Agreements for the Construction of
Real Estate
The Interpretation addresses how entities should determine
whether an agreement for the construction of real estate is
within the scope of IAS 11 Construction Contracts or IAS 18
Revenue and when revenue from the construction of real estate
should be recognised.
IFRIC 16 Hedges of a Net Investment in a
Foreign Operation
The Interpretation provides guidance on the detailed
requirements for net investment hedging for certain hedge
accounting designations.
IFRIC 18 Transfers of Assets from Customers
(adopted in advance of effective date of transfers
of assets from customers received on or after
1 July 2009)
The Interpretation addresses the accounting by recipients for
transfers of property, plant and equipment from ‘customers’ and
concludes that when the item of property, plant and equipment
transferred meets the definition of an asset from the perspective
of the recipient, the recipient should recognise the asset at its fair
value on the date of the transfer, with the credit recognised as
revenue in accordance with IAS 18 Revenue.
Improvements to IFRSs (2008) Amendments to IFRS 5, IAS 1, IAS 16, IAS 19, IAS 20, IAS 23,
IAS 27, IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40
and IAS 41 resulting from the May and October 2008 Annual
Improvements to IFRSs majority of which are effective for annual
periods beginning on or after 1 January 2009.
For the year ended 31 December 2009
Notes to the financial statements
50 Oman Air Annual Report 2009
2.3 Standards and Interpretations in issue not yet effective
At the date of authorisation of these financial statements, the following new and revised Standards and Interpretations were
in issue but not yet effective:
New Standards and amendments to Standards:Effective for annual periods
beginning on or after
IFRS 1 (revised) First time Adoption of IFRS and IAS 27 (revised) Consolidated and
Separate Financial Statements - Amendment relating to Cost of an Investment in a
Subsidiary, Jointly Controlled Entity or Associate
1 July 2009
IFRS 3 (revised) Business Combinations - Comprehensive revision on applying the
acquisition method and consequential amendments to IAS 27 (revised) Consolidated and
Separate Financial Statements, IAS 28 (revised) Investments in Associates and IAS 31
(revised) Interests in Joint Ventures
1 July 2009
IAS 39 (revised) Financial Instruments: Recognition and Measurement - Amendments
relating to Eligible Hedged Items (such as hedging Inflation risk and Hedging with options)
1 July 2009
IFRS 1 (revised) First time Adoption of IFRS - Amendment on additional exemptions for
First-time Adopters
1 January 2010
IFRS 2 (revised) Share-based payment - Amendment relating to Group cash-settled
Share-based payments
1 January 2010
IAS 32 (revised) Financial Instruments: Presentation - Amendments relating to
classification of Rights Issue
1 February 2010
IAS 24 Related Party Disclosures - Amendment on disclosure requirements for entities
that are controlled, jointly controlled or significantly influenced by a Government
1 January 2011
IFRIC 17: Distributions of Non-cash Assets to Owners 1 July 2009
IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments 1 July 2010
Amendment to IFRIC 14: IAS 19: The limit on a defined Benefit Asset, Minimum Funding
Requirement and their interaction
1 January 2011
Amendment to IFRIC 16: Hedges of a Net Investment in a Foreign Operation 1 July 2009
Amendment to IFRIC 9 (revised): Reassessment of Embedded Derivatives relating to
assessment of embedded derivatives in case of reclassification of a financial asset out of
the ‘FVTPL’ category
1 July 2009
IFRS 9 Financial Instruments: Classification and Measurement (intended as complete
replacement for IAS 39 and IFRS 7)
1 January 2013
Amendments to IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 18, IAS 36, IAS 38 and
IAS 39 resulting from April 2009 Annual Improvements to IFRSs
Majority effective
for annual periods
beginning on or after
1 January 2010
Management anticipates that the adoption of these Standards and Interpretations in future periods will have no material impact
on the financial statements of the Company in the period of initial application.
For the year ended 31 December 2009
Notes to the financial statements
51Oman Air Annual Report 2009
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 the International Accounting Standards Board
(IASB), and the interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC) of the
IASB and the requirements of the Commercial Companies
Law of 1974, as amended.
Basis of preparation
These financial statements are presented in Rials Omani
(“RO”) which is the currency in which the majority of
transactions are denominated and are rounded off to the
nearest thousand.
These financial statements are prepared on historical cost
basis as modified by measurement of certain financial
instruments at fair value.
Going concern
The Company incurred a net loss of RO 64.281 million (2008 –
RO 42.755 million) during the year ended 31 December
2009, with accumulated losses of RO 101.914 million (2008 –
RO 37.633 million) as at 31 December 2009. 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 of Oman holds in excess
of 99.61% of the Company’s equity and has infused capital of
RO 70 million during 2009 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.
Subsequent expenditure
Expenditure incurred to replace a component of an item of
aircraft including major inspection and overhaul expenditure
is capitalised. 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 as and when incurred.
Cost of expenses incurred for regular inspections of airframe
and engines is capitalised 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 and depreciation method 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.
For the year ended 31 December 2009
Notes to the financial statements
52 Oman Air Annual Report 2009
The estimated useful lives used for this purpose are:
Asset 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
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 life
and amortisation method are reviewed at the end of each
annual reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
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 the 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.
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.
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
For the year ended 31 December 2009
Notes to the financial statements
53Oman Air Annual Report 2009
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.
Financial assets are classified into the following specified
categories: financial assets ‘at fair value through profit or
loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-
for-sale’ (AFS) financial assets and ‘loans and receivables’.
The classification depends on the nature and purpose of
the financial assets and is determined at the time of initial
recognition.
The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset, or, where
appropriate, a shorter period to the net carrying amount on
initial recognition.
The Company has classified the following financial assets as
‘loans and receivables’: long-term receivables, term deposits,
trade and other receivables and cash and cash equivalents.
Financial assets also include AFS financial assets.
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.
Loans and receivables
Loans and receivables that have fixed or determinable
payments are initially measured at fair value and subsequently
measured at amortised cost using the effective interest
method, less any impairment.
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
For the year ended 31 December 2009
Notes to the financial statements
54 Oman Air Annual Report 2009
of cash and are subject to an insignificant risk of changes
in value.
Impairment of financial assets
Financial assets, other than those at FVTPL, 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,
a significant or prolonged decline in the fair value of the
security below its cost is considered to be objective evidence
of impairment.
For certain categories of financial assets, such as trade and
other receivables, assets that are assessed not to be impaired
individually are, in addition, assessed for impairment on
a collective basis. Objective evidence of impairment for a
portfolio of receivables could include the Company’s past
experience of collecting payments, an increase in the number
of delayed payments in the portfolio as well as observable
changes in national or local economic conditions that correlate
with default on receivables.
For financial assets carried at amortised cost, the amount of
the impairment is the difference between the asset’s carrying
amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective
interest rate.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount
is reduced through the use of an allowance account. When
a trade receivable is considered uncollectible, it is written
off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the
allowance account are recognised in profit or loss.
When an AFS financial asset is considered to be impaired,
cumulative gains or losses previously recognised in other
comprehensive income are reclassified to profit or loss in
the period.
With the exception of AFS financial assets, if, in a subsequent
period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after
the impairment was recognised, the previously recognised
impairment loss is reversed through profit or loss to the
extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the
amortised cost would have been had the impairment not
been recognised.
In respect of AFS financial assets, impairment losses
previously recognised in profit or loss are not reversed
through profit or loss. Any increase in fair value subsequent
to an impairment loss is recognised in other comprehensive
income.
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.
Financial liabilities and equity instruments issued by the CompanyClassification 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 has classified the following financial liabilities
as ‘other financial liabilities’: borrowings and trade and other
payables.
For the year ended 31 December 2009
Notes to the financial statements
55Oman Air Annual Report 2009
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 they expire.
Investments in associate
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 the 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.
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.
For the year ended 31 December 2009
Notes to the financial statements
56 Oman Air Annual Report 2009
Deferred government grant
Government grants are not recognised until there is
reasonable assurance that the Company will comply with
the conditions attaching to them and that the grants will
be received.
The benefit of a government loan at a below-market rate of
interest is treated as a government grant, measured as the
difference between proceeds received and the fair value of
the loan, based on prevailing market interest rates.
Government grants whose primary condition is that the
Company should purchase, construct or otherwise acquire
non-current assets, are recognised as deferred revenue in
the statement of financial position and transferred to profit
or loss on a systematic and rational basis over the useful
lives of the related assets.
Other government grants are recognised as revenue over the
periods necessary to match them with the costs for which
they are intended to compensate, on a systematic basis.
Government grants that are receivable as compensation for
expenses or losses already incurred or for the purpose of
giving immediate financial support to the Company with no
future-related costs, are recognised in profit or loss in the
period in which they become receivable.
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.
Employees’ end-of-service benefits
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.
Taxation
Income tax expense represents the sum of the tax currently
payable 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.
For the year ended 31 December 2009
Notes to the financial statements
57Oman Air Annual Report 2009
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 period
Current and deferred tax are recognised as an expense or
income in profit or loss, except when they relate to items
that are recognised outside profit or loss (whether in other
comprehensive income or directly in equity), in which case
the tax is also recognised outside profit or loss.
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 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 bank deposit profit revenue
Dividend revenue from investments is recognised when the
shareholders’ right to receive payment has been established.
Bank deposit profit revenue is accrued on a time 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.
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 Rials 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 and the
requirements of Capital Market Authority and is charged in
profit or loss.
For the year ended 31 December 2009
Notes to the financial statements
58 Oman Air Annual Report 2009
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies,
which are described in Note 3, management is required 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.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those
involving estimations (see below), 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 FVTPL - held for trading,
held to maturity investments, loans and receivables or 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, held to maturity investments or
loans and receivables.
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 assets include timing slots at airports.
Key sources of estimation uncertainty
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
For the year ended 31 December 2009
Notes to the financial statements
59Oman Air Annual Report 2009
cost of heavy-duty maintenance costs of engines. Additional
maintenance costs for aircraft engines are considered for
accrual based on the estimates made by the 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 renegotiated, 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 into 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.
Provision for obsolete and slow moving inventories
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 at the product
Company level for estimated excess or obsolete items. 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.
The carrying amount of goodwill at the end of the reporting
period was RO 13.277 million after an impairment loss of
RO 1.122 million recognised during 2009. Details of the
impairment loss calculation are set out in Note 6.
For the year ended 31 December 2009
Notes to the financial statements
60 Oman Air Annual Report 2009
5. Aircraft, property, plant and equipment
Airframeand BFE
Engines androtables Tools Buildings
Plant andequipment
Vehicles,office
equipmentand furniture
Capital work–in–progress Total
RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000
Cost
At 1 January 2008 43,619 21,598 637 7,092 12,184 5,094 18,229 108,453
Transfers 10,328 13,128 16 87 4,897 583 (29,039) –
Additions – – – – – – 58,090 58,090
Disposals/write offs – (481) – (9) (89) (96) (24) (699)
At 1 January 2009 53,947 34,245 653 7,170 16,992 5,581 47,256 165,844
Transfers 31,852 2,851 – – 1,243 1,026 (36,972) –
Additions 79,403 61,160 35 231 1,463 513 33,279 176,084
Acquired during the year – – – 7,031 – 1,193 – 8,224
Disposals/write offs – (360) (12) – (904) (365) – (1,641)
At 31 December 2009 165,202 97,896 676 14,432 18,794 7,948 43,563 348,511
Depreciation
At 1 January 2008 10,384 8,958 529 3,828 7,953 3,595 – 35,247
Charge for the year 2,253 2,678 14 287 1,126 474 – 6,832
Disposals/write offs – (481) – (8) (82) (82) – (653)
At 1 January 2009 12,637 11,155 543 4,107 8,997 3,987 – 41,426
Charge for the year 3,627 4,984 20 672 1,365 726 – 11,394
Acquired during the year – – – 6,662 – 1,192 – 7,854
Disposals/write offs – (241) (11) – (739) (323) – (1,314)
At 31 December 2009 16,264 15,898 552 11,441 9,623 5,582 – 59,360
Carrying amount At 31 December 2009 148,938 81,998 124 2,991 9,171 2,366 43,563 289,151
At 31 December 2008 41,310 23,090 110 3,063 7,995 1,594 47,256 124,418
The Company owns one Boeing 737-700, two ATR 42-500 aircraft and two A330-200 aircraft. The Company has also acquired
three Boeing 737-800 and two 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 of the Sultanate of Oman and
the aircraft is mortgaged in favour of the Government of the Sultanate of Oman (Notes 17 and 18).
During the year 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). The net carrying amount of the leased aircraft
was in the amount of approximately RO 10,454,425 (2008 - RO 11,141,337) (Note 17).
During the year 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). The net carrying amount of the leased
aircraft was in the amount of approximately RO 12,576,001 (2008 - RO 12,782,805) (Note 17).
During the year 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). The net carrying amount of the leased
aircraft was in the amount of approximately RO 15,782,931 (2008 – RO 17,068,339) (Note 17).
For the year ended 31 December 2009
Notes to the financial statements
61Oman Air Annual Report 2009
During the current year, 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). The net carrying amounts of the leased aircraft were in the amounts of approximately RO 46,332,877
and RO 34,921,923 respectively (Note 17).
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 25).
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.
6. Goodwill and other intangible assets
Goodwill2009 2008
RO ’000 RO ’000
Cost
At 1 January – –
Additions during the year (Note 1) 14,399 –
At 31 December 14,399 –
Impairment
At 1 January – –
Impairment for the year 1,122 –
At 31 December 1,122 –
Carrying amount 13,277 –
Impairment losses recognised in the year
At the end of the reporting period, the Company assessed the recoverable amount of goodwill, and determined that goodwill
associated with hotel’s line of business was impaired by RO 1,121,795. The recoverable amount of the hotel’s line of business
was assessed by reference to the cash-generating unit’s value in use. A discount factor of 6% per annum was applied in the
value in use model.
The impairment loss has been included in the “Expenditure” (Note 23).
For the year ended 31 December 2009
Notes to the financial statements
62 Oman Air Annual Report 2009
Other intangible assets2009 2008
RO ’000 RO ’000
Cost
At 1 January 5,786 –
Additions during the year – 5,786
At 31 December 5,786 5,786
Amortisation/impairment
At 1 January 1,546 –
Amortisation for the year 954 323
Impairment for the year 873 1,223
At 31 December 3,373 1,546
Carrying amount 2,413 4,240
At the end of the reporting period, the Company assessed the recoverable amount of other intangible assets representing timing
slots purchased during 2008 and recognised an impairment of RO 0.873 million (2008 - RO 1.223 million). The impairment loss
has been included in the “Expenditure” (Note 23).
Amortisation on these assets is charged to the profit or loss on a straight-line basis over the estimated useful life of five years.
7. Available-for-sale investments2009 2008
RO ’000 RO ’000
At 1 January 396 389
Fair value changes during the year 20 7
At 31 December 416 396
Quoted local equity investments 316 296
Unquoted local equity investments 100 100
416 396
The movement in the investments revaluation reserve is as follows:
2009 2008RO ’000 RO ’000
At 1 January 146 139
Net unrealised gain during the year 20 7
At 31 December 166 146
For the year ended 31 December 2009
Notes to the financial statements
63Oman Air Annual Report 2009
Available-for-sale investments are analysed as follows:
Fair value Cost Fair Value Cost2009 2009 2008 2008
RO ’000 RO ’000 RO ’000 RO ’000
Quoted local equity investments:
Banks and investment 139 36 133 36
Services 177 30 163 30
316 66 296 66
unquoted local equity investments:
Services 100 100 100 100
416 166 396 166
Management considers the carrying value of unquoted local investments to be the fair value at the end of the
reporting period.
At the end of current and prior year reporting period 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 portfolio as of
31 December 2009 are as follows:
Portfolio FairNumber of holding value Costsecurities (%) RO ’000 RO ’000
MSM quoted securities:
National Finance Company SAOG 896,555 44 139 36
Oman United Insurance SAOG 151,356 12 38 16
8. Investment in an associate company2009 2008
RO ’000 RO ’000
Cost 75 75
Share of profits at the beginning of the year 1,363 1,066
Share of profits for the year 970 797
Dividends received in the year (800) (500)
1,608 1,438
Investment in an associate 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 associate (based on unaudited accounts) is as below:
2009 2008RO ’000 RO ’000
Revenue 14,045 12,841
Profit after tax 1,941 1,594
Assets 5,741 5,124
Liabilities 2,531 2,255
For the year ended 31 December 2009
Notes to the financial statements
64 Oman Air Annual Report 2009
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 0.985%. The maturity of such deposits
is as follows:
2009 2008RO ’000 RO ’000
Maturity
April 2011 78 75
May 2012 375 358
March 2013 371 353
April 2014 221 208
May 2014 147 138
April 2017 818 671
June 2017 433 395
July 2017 – 524
August 2017 – 68
September 2017 – 522
October 2017 858 67
June 2019 462 412
3,763 3,791
10. Inventories2009 2008
RO ’000 RO ’000
Aircraft consumables 6,483 3,810
Catering stock 345 330
Passenger consumables 1,743 751
General 2,371 975
Hotel stock 104 –
11,046 5,866
Provision for obsolete and slow moving inventories (696) (744)
10,350 5,122
Movement in provision for obsolete and slow moving inventories:
At 1 January 744 648
(Reversed)/provided during the year (48) 96
At 31 December 696 744
For the year ended 31 December 2009
Notes to the financial statements
65Oman Air Annual Report 2009
11. Trade and other receivables2009 2008
RO ’000 RO ’000
Airlines and charterers 2,733 2,212
Travel agents 13,294 8,838
Ministries 881 1,102
Others 623 457
Provision for impaired debts (480) (302)
Trade receivables 17,051 12,307
Other receivables 9,890 6,375
Prepaid expenses 2,102 2,485
29,043 21,167
Movement in provision for impaired debts:
At 1 January 302 347
Additional provision during the year 228 1
Amounts written off during the year as uncollectible (50) –
Amounts recovered during the year – (46)
At 31 December 480 302
Trade receivables include amounts due from related parties amounting to RO 64,859 (2008 - RO 13,936).
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 totalling RO 10,316,250 (2008 - RO 6,217,486) due in foreign currencies, mainly US Dollars.
The Company had purchased options from the manufacturer to buy four ATR 42-500 aircraft. Since the Company does not have
a firm date to exercise these options, a provision has been created.
12. Term deposits
Term deposits, in the amount of RO 37.58 million (2008 - RO 32 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 Rials Omani,
earning interest ranging between 3.10% to 6.35% (2008 - 5.35% to 6.35%) per annum.
13. Cash and bank balances
Cash and bank balances comprise the following:
2009 2008RO ’000 RO ’000
Cash and bank balances 5,089 12,322
Cash and bank balances include amounts aggregating to RO 1,186,988 (2008 - RO 3,876,028) 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.
For the year ended 31 December 2009
Notes to the financial statements
66 Oman Air Annual Report 2009
For the purposes of the statement of cash flows, the amount for acquisition of business has been arrived at as follows:
2009RO ’000
Purchase consideration 16,000
Cash and cash equivalent balances acquired (1,618)
Cash and bank balances 14,382
14. Share capital2009 2008
RO ’000 RO ’000
Authorised share capital (shares of RO 1 each) 216,000 50,000
Issued and paid up share capital (shares of RO 1 each) 216,000 50,000
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:
% of 2009 % of 2008Shareholding No. of Shares Shareholding No. of Shares
Government of Sultanate of Oman 99.61 215,164,619 97.96 48,980,948
During the current year, shareholders of the Company approved a resolution at the Extraordinary General Meeting held on
12 April 2009 to increase the share capital of the Company from RO 50,000,000 to RO 216,000,000. Accordingly, the new shares
of RO 166,000,000 have been issued to the Government of Sultanate of Oman as follows:
Number of Value Shares RO ’000
Issue of Shares of RO 1 each against :
- Conversion of Government soft loan 80,000,000 80,000
- Transfer of assets of Golden Tulip Hotel 16,000,000 16,000
- Cash 70,000,000 70,000
Total 166,000,000 166,000
Share premium
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 of Sultanate of Oman. This resolution was approved by the shareholders at an extraordinary
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.
For the year ended 31 December 2009
Notes to the financial statements
67Oman Air Annual Report 2009
15. Provision for maintenance of aircraft, engines and rotables2009 2008
RO ’000 RO ’000
Provision for maintenance of aircraft, engines and rotables 5,768 2,632
Current portion (1,476) (836)
Long-term portion 4,292 1,796
Movement during the year is as follows:
At 1 January 2,632 1,370
Additional provisions during the year 4,759 2,043
Reversed during the year – (88)
Utilised during the year (1,623) (693)
At 31 December 5,768 2,632
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. Borrowings2009 2008
RO ’000 RO ’000
Term loans 6,762 8,453
Bridge loans 66,640 –
Finance lease liabilities (Note 17) 110,836 32,767
184,238 41,220
Current portion
Term loans (1,691) (1,691)
Bridge loans (66,640) –
Finance lease liabilities (Note 17) (8,596) (3,159)
(76,927) (4,850)
Non-current portion 107,311 36,370
Term loans
At the end of the reporting period the Company has two term loans.
The first term loan in the amount of RO 4,445,947 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 instalments 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 of the Sultanate of Oman
has given a guarantee for the repayment of the loan and the aircraft is mortgaged in favour of the Government of the
Sultanate of Oman (Notes 5 and 18).
The second term loan in the amount of RO 2,316,359 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. The
loan is repayable in 40 equal quarterly instalments 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 of the Sultanate of Oman has given a guarantee for the repayment
of the loan and the spares are mortgaged in favour of the Government of the Sultanate of Oman (Note 18).
For the year ended 31 December 2009
Notes to the financial statements
68 Oman Air Annual Report 2009
The rate of interest on the above loans is three months LIBOR plus 0.9% (2008 - three months LIBOR plus 0.9%). The effective rate
of interest on the above loans was in the range of 2.12% to 3.18% per annum (2008 - 3.17% to 5.92% per annum).
Bridge loans
During the year, the Company obtained two short-term bridge loans totaling RO 66,639,600 (USD 173,000,000) from the
Government of the Sultanate of Oman for the purchase of two Airbus A330-200 aircraft. These loans have been obtained as
a stop-gap arrangement till long-term commercial financing is obtained by the Company with the support of Export Credit
Agencies (ECA) in Europe.
First bridge loan for purchase of 1st A330-200 aircraft (delivered in September 2009)
Loan amount RO 33.3 million (USD 86.5 million)
Date of loan 1 September 2009
Tenure 6 months
Rate of Interest 1.56% per annum
Second bridge loan for purchase of 2nd A330-200 aircraft (delivered in October 2009)
Loan amount RO 33.3 million (USD 86.5 million)
Date of loan 15 October 2009
Tenure 6 months
Rate of Interest 1.40% per annum
17. Finance lease liabilities
The Company has finance lease liabilities in respect of two Airbus 330-300 (2008- Nil) and three Boeing 737-800 aircraft (2008
- three). Finance lease liabilities are payable as follows:
Minimum lease paymentsPresent value of
minimum lease payments2009 2008 2009 2008
RO ’000 RO ’000 RO ’000 RO ’000
Not later than one year 13,167 4,487 8,596 3,159
Later than one year and not later than five years 52,669 22,434 38,256 17,921
Later than five years 73,523 12,760 63,984 11,687
139,359 39,681 110,836 32,767
Future finance charges (28,523) (6,914) – –
Total 110,836 32,767 110,836 32,767
Under the terms of the lease agreement no contingent rents are payable.
18. Government soft loan2009 2008
RO ’000 RO ’000
Government soft loan – 80,000
Less: deferred Government grant – (30,641)
– 49,359
For the year ended 31 December 2009
Notes to the financial statements
69Oman Air Annual Report 2009
The Government of the Sultanate of Oman had provided the interest free loans of RO 80 million. The first loan was disbursed
in January and February 2005 amounting to RO 10 million. The loan was repayable in 10 equal annual instalments from January
2011 and was secured against a mortgage of one Boeing 737-700 aircraft and associated spares. Under the loan agreement
signed with the Government, the Company cannot distribute any profit if any instalment is due and not paid by the Company.
The second loan was disbursed in May, October and December 2008 amounting to RO 70 million for the purchase and lease
of aircraft. The loan was repayable in 20 equal half-yearly instalments from May 2014.
During the year, both loans have been converted into equity and an equivalent number of shares in the Company have been
issued to the Government of the Sultanate of Oman (Note 14).
Soft loan from the Government was stated at amortised cost. In accordance with Capital Market Authority (CMA)
Circular 1 of 2002 and IAS 39, the difference between the carrying value and fair value of the loan has to be shown as “deferred
government grant” and is to be recognised as income over the loan period as necessary to match it with the related costs,
which it is intended to compensate on a systematic basis. The current market weighted average interest rate was considered
for this calculation. However, the current portion of recognised deferred Government income is equivalent to the related interest
cost. Hence, there was no impact on the profit or loss.
19. Employees’ end-of-service benefits
Movement in the provision for end-of-service benefits during the year is as follows:
2009 2008RO ’000 RO ’000
At 1 January 2,797 2,312
Charge for the year (Note 23) 816 675
Payments during the year (99) (190)
At 31 December 3,514 2,797
20. Trade and other payables2009 2008
RO ’000 RO ’000
Trade payables 10,937 7,306
Advances from customers 14,003 9,189
Other payables 13,913 7,693
Accrued expenses 18,963 15,368
57,816 39,556
Trade payables include aggregate amounts of RO 6,394,400 (2008 - RO 2,186,054) due in foreign currencies, mainly in Indian
Rupees and US Dollars.
Trade payables include amounts due to related parties amounting to RO 393,218 (2008 - RO 336,000).
For the year ended 31 December 2009
Notes to the financial statements
70 Oman Air Annual Report 2009
21. 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:
2009 2008
Net assets (RO ’000) 138,437 36,698
Number of shares outstanding at the year end (’000s) 216,000 50,000
Net assets per share (RO) 0.641 0.734
22. Revenue2009 2008
RO ’000 RO ’000
Scheduled services - international 123,815 114,594
Scheduled services - domestic 12,290 13,174
Air charter services 9,225 10,869
Handling fees - engineering 2,905 2,584
Handling fees - others 9,006 8,187
Catering 2,863 3,443
Rooms, food and beverage revenue 3,434 –
Other revenue 717 397
164,255 153,248
23. Expenditure2009 2008
RO ’000 RO ’000
Operating lease rentals on aircraft 31,402 27,757
Fuel cost 44,217 59,739
Maintenance cost 12,637 8,163
Other aircraft operating expenses 23,615 18,580
Passenger related costs 13,930 10,716
Cost of catering materials consumed 3,601 3,088
Employee costs 59,784 44,553
Insurance costs 1,289 968
Omani training and development costs 962 636
Depreciation (Note 5) 11,394 6,832
Amortisation/impairment 2,949 1,546
Management fee 216 –
Others 21,404 12,626
227,400 195,204
Employee costs include the following:
Wages and salaries 46,223 35,395
Other benefits 11,567 7,535
Increase in liability for employee benefits 816 675
Contribution to a defined retirement plan 1,178 948
59,784 44,553
For the year ended 31 December 2009
Notes to the financial statements
71Oman Air Annual Report 2009
24. Interest and investment income2009 2008
RO ’000 RO ’000
Interest on term deposits 1,669 1,762
Dividends 44 17
1,713 1,779
25. Aviation services agreement and combined term sheet agreement
In accordance with the aviation services agreement between the Company and the Ministry of Communications, the 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.
During the year 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. 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.
Subsequent to 31 December 2008, the Company received intimation from OAMC expressing its intention to extend the
ground handling concession till 31 December 2011 and the cargo handling services concession till 31 December 2009 on the
existing terms.
The following charges set out in the aviation services agreement are included in the financial statements:
2009 2008RO ’000 RO ’000
Rent 200 200
Concession fee 843 805
Under the combined term sheet agreement, effective 1 January 2002, the Company will pay to the Airport Operating Company
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.
For the year ended 31 December 2009
Notes to the financial statements
72 Oman Air Annual Report 2009
26. Taxation2009 2008
RO ’000 RO ’000
Statement of comprehensive income
Current tax
Current year – –
Deferred tax
Charge of deferred tax liability 922 885
Total taxation 922 885
Non-current liability
Deferred tax [Note 26 (b)] 2,913 1,991
The Company is subject to income tax at the rate of 12% (2008 - 12%) of taxable income in excess of RO 30,000.
The following further notes apply:
(a) Income tax is provided as per the provisions of the law of income tax on companies in the Sultanate of Oman as adjusted
for items that are either disallowed or non-available. No amount of tax provision was necessary during the year as the Company
has incurred taxable losses and also has carry forward losses to set off against taxable profits, if any. The Secretariat General
for Taxation at the Ministry of Finance has not completed the Company’s tax assessments for the years from 2005 to 2008.
The Company has assessed tax losses available for offset against future taxable profits as follows:
2009 2008RO ’000 RO ’000
Carry forward loss for the year 2004 – 3,791
– 3,791
(b) Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12% (2008 - 12%). The net
deferred tax (liability)/asset and deferred tax charge in the income statement are attributable to the following items:
1 January 2009
Charged toprofit or loss
31 December 2009
1 January 2008
Charged toprofit or loss
31 December 2008
RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000
Asset
Carried forward losses 1,391 (455) 936 1,886 (495) 1,391
liability
Accelerated tax depreciation (3,382) (467) (3,849) (2,992) (390) (3,382)
(1,991) (922) (2,913) (1,106) (885) (1,991)
27. Loss per share – basic and diluted2009 2008
Loss for the year (RO ’000) (64,281) (42,755)
Weighted average number of shares outstanding during the year (‘000) 119,282 50,000
Loss per share – basic and diluted loss per share (RO) (0.539) (0.855)
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.
For the year ended 31 December 2009
Notes to the financial statements
73Oman Air Annual Report 2009
28. 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 of the Sultanate of Oman 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 recognised 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:
2009 2008RO ’000 RO ’000
Expenses
Purchase of goods/services 4,904 4,708
Management and marketing fee 238 –
The amounts due from/due to related parties are included in Notes 11 and 20 respectively.
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).
2009 2008RO ’000 RO ’000
Short-term benefits 680 534
Post employment benefits 52 8
Directors’ remuneration and sitting fees 13 15
745 557
29. Segment information
The new standard which replaced IAS 14 ‘Segment reporting’ requires a ‘management approach’ under which segment information
is presented on the same basis as that used for internal reporting purposes. This has not resulted in any significant change
to the reportable segments presented by the Company as the segments reported by the Company were consistent with the
internal reporting provided to the chief operating decision maker.
Primary reporting format - business segments
The Company is organised into four major operating divisions - airline, hotels & catering, ground handling and 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.
For the year ended 31 December 2009
Notes to the financial statements
74 Oman Air Annual Report 2009
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:
Segment revenues and resultsAirline Hotels and catering Ground and cargo handling Total
2009 2008 2009 2008 2009 2008 2009 2008RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000
Revenue
Total revenue 149,294 141,983 15,377 9,963 14,231 12,382 178,902 164,328
Inter division revenue (1,059) (762) (9,080) (6,520) (5,225) (4,195) (15,364) (11,477)
External revenue 148,235 141,221 6,297 3,443 9,006 8,187 163,538 152,851
Other income 717 397
164,255 153,248
Segment (loss)/profit including inter division (loss)/profit (58,641) (39,948) 4,697 3,317 (277) 1,056 (54,221) (35,575)
Common costs (8,924) (6,381)
Operating loss (63,145) (41,956)
Finance cost (2,419) (1,686)
Interest and investment income 1,713 1,779
Share of profits of an associate company 970 797
Increase in fair value of long-term receivables 365 1
Concession fee (843) (805)
Deferred tax charge (922) (885)
loss for the year (64,281) (42,755)
Segment assets and liabilities2009 2008
RO ’000 RO ’000
Segment assets
Airline and airport services 374,265 203,060
Hotel 16,397 –
Others 2,024 1,834
Total assets 392,686 204,894
Segment liabilities
Airline and airport services 251,084 166,205
Hotel 252 –
Others 2,913 1,991
Total liabilities 254,249 168,196
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.
For the year ended 31 December 2009
Notes to the financial statements
75Oman Air Annual Report 2009
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 Overseas Total2009 2008 2009 2008 2009 2008
RO’000 RO’000 RO’000 RO’000 RO’000 RO’000
Revenue including inter division revenues 16,003 49,734 162,899 114,594 178,902 164,328
30. Commitments and contingencies
a. Capital commitments2009 2008
RO ’000 RO ’000
Capital expenditure commitments 1,305 2,220
b. Operating lease commitments
Details of aircraft lease agreements are as follows:Lease
agreements signed
Aircraft deliveredagainst leaseagreements
Aircraft to bedelivered in
future periods
Aircraft type
737-800 10 (10) –
737-700 1 (1) –
11 (11) –
The fixed lease commitments against 11 (2008: 9) delivered aircraft are as follows:2009 2008
RO ’000 RO ’000
Not later than one year 19,892 16,413
Later than one year and not later than five years 80,052 35,951
After five years 20,972 9,929
120,916 62,293
The fixed lease commitments against nil (2008:5) aircraft to be delivered in future periods are as follows:2009 2008
RO ’000 RO ’000
Not later than one year – 7,048
Later than one year and not later than five years – 54,119
After five years – 68,973
– 130,140
In addition to the above fixed lease commitments, there is a variable lease rental element depending on the flying hours of
the leased aircraft.
For the year ended 31 December 2009
Notes to the financial statements
76 Oman Air Annual Report 2009
31. 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.
Financial risk factorsOverview
The Company has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Market risk
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 programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the Company’s financial performance.
Risk management is carried out by management under policies approved by the Board of Directors.
(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.
Trade and other receivables
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 a specific loss component that relates to individual exposures.
For the year ended 31 December 2009
Notes to the financial statements
77Oman Air Annual Report 2009
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:
2009 2008RO ’000 RO ’000
Long-term receivables 3,763 3,791
Trade receivables 17,531 12,609
Other receivables 11,992 8,860
Term deposits 37,576 32,000
Cash and bank balances 5,089 12,322
75,951 69,582
The exposure to credit risk for trade receivables at the end of the reporting period by type of customer was:
2009 2008RO ’000 RO ’000
Travel agents 13,294 8,838
Airlines and charterers 2,733 2,212
Ministries 881 1,102
Other customers 623 457
17,531 12,609
The age of trade receivables and related impairment loss at the end of the reporting period was:
2009 2008gross Impairment Gross Impairment
RO ’000 RO ’000 RO ’000 RO ’000
Not past due 10,606 – 8,625 –
Past due 0 - 150 days 5,903 – 3,380 –
Past due 151 - 365 days 148 – 78 –
More than 1 year 874 480 526 302
17,531 480 12,609 302
(a) Included in the Company’s trade receivable balance are debtors with a carrying amount of RO 6.445 million (2008: RO 3.682
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 1.889 million. The average collection period
of these receivables is 30 days (2008 - 30 days).
(b) The movement in provision for impaired 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.
For the year ended 31 December 2009
Notes to the financial statements
78 Oman Air Annual Report 2009
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.
Amount due and payable in future between
Carrying 6 months 6-12 1-2 Beyond amount or less months years 2 yearsRO ’000 RO ’000 RO ’000 RO ’000 RO ’000
31 December 2009
Trade payables 10,544 10,544 – – –
Due to related parties 393 393 – – –
Other payables 32,876 32,876 – – –
Borrowings 184,238 71,753 5,174 21,704 85,607
228,051 115,566 5,174 21,704 85,607
31 December 2008
Trade payables 6,970 6,970 – – –
Due to related parties 336 336 – – –
Other payables 23,061 23,061 – – –
Borrowings 41,220 2,410 2,440 4,986 31,384
71,587 32,777 2,440 4,986 31,384
Advances from customers 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.
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:
2009 2008RO ’000 RO ’000
Fixed rate instruments
Financial assets 37,576 32,000
Financial liabilities 184,238 41,220
For the year ended 31 December 2009
Notes to the financial statements
79Oman Air Annual Report 2009
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.
32. Fair value of 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 measurements recognised in the statement of financial position
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 2009Level 1 Level 2 Level 3 TotalRO ’000 RO ’000 RO ’000 RO ’000
Available-for-sale financial assets
Quoted local equity investments 316 – – 316
Unquoted local equity investments – 100 – 100
Total 316 100 – 416
There were no transfers between Level 1 and Level 2 in the year.
No gain or loss was included in profit or loss relating to unquoted equities held at the end of the reporting period.
33. 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.
34. Approval of the financial statements
The financial statements were approved by the Board of Directors and authorised for issue in their meeting held on
03 March 2010.
For the year ended 31 December 2009
Notes to the financial statements
Defining moment in the history of Oman Air Inauguration Ceremony at Muscat International Airport on arrival of first owned A330 aircraft
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