AIRBUS - 2019 Financial Statements

2.1 Basis of Preparation Notes to the IFRS Consolidated Financial Statements /

3.

Key Estimates and Judgements

The preparation of the Company’s Consolidated Financial Statements requires the use of estimates and assumptions. In preparing these financial statements, management exercises its best judgement based upon its experience and the circumstances prevailing at that time. The estimates and assumptions are based on available information and conditions at the end of the financial period presented and are reviewed on an ongoing basis. Key estimates and judgements that have a significant influence on the amounts recognised in the Company’s Consolidated Financial Statements are mentioned below: Revenue recognition for performance obligations transferred over time — The PoC method is used to recognise revenue for performance obligations transferred over time. This method places considerable importance on accurate estimates at completion as well as on the extent of progress towards completion. For the determination of the progress of the performance obligations, significant estimates include total contract costs, remaining costs to completion, total contract revenue, contract risks and other judgements. The management of the operating Divisions continually review all estimates involved in such performance obligations and adjusts them as necessary (see “– Note 22: Contract Assets, Contract Liabilities and Trade Receivables, and Trade Liabilities”). Provisions — The evaluation of provisions, such as onerous contracts, warranty costs, restructuring measures and legal proceedings are based on best available estimates. Onerous contracts are identified by monitoring the progress of the contract and the underlying programme performance. The associated estimates of the relevant contract costs require significant judgement related to performance achievements including estimates involving warranty costs. Depending on the size and nature of the Company’s contracts and related programmes, the extent of assumptions, judgements and estimates in these monitoring processes differs. In particular, the introduction of commercial or military aircraft programmes ( e.g. A400M) or major derivative aircraft programmes involves an increased level of estimates and judgements associated with the expected development, production and certification schedules and expected cost components. The Company makes estimates and provides across the programmes, for costs related to identified in service technical issues for which solutions have been defined, and for which the associated costs can be reliably estimated taking into consideration the latest facts and circumstances. The Company is contractually liable for the repair or replacement of the defective parts but not for any other damages whether direct, indirect, incidental or consequential (including loss of revenue, profit or use). However, in view of overall commercial relationships, contract adjustments may occur, and must be considered on a case by case basis. Estimates and judgements are subject to change based on new information as contracts and related programmes progress. Furthermore, the complex design and manufacturing processes of the Company’s industry require challenging integration and coordination along the supply chain including an ongoing assessment of suppliers’ assertions which may additionally impact the outcome of these monitoring processes.

Employee benefits — The Company accounts for pension and other post-retirement benefits in accordance with actuarial valuations. These valuations rely on statistical and other factors in order to anticipate future events. The actuarial assumptions may differ materially fromactual developments due to changingmarket and economic conditions and therefore result in a significant change in post-retirement employee benefit obligations and the related future expenses (see “– Note 31: Post-Employment Benefits”). Legal contingencies — Airbus companies are parties to litigations related to a number of matters as described in “– Note 38: Litigation and Claims”. The outcome of these matters may have a material effect on the financial position, results of operations or cash flows of the Company. Management regularly analyses current information concerning these matters and provides provisions for probable cash outflows, including the estimate of legal expenses to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for provisions, management considers the degree of probability of an unfavourable outcome and the ability to make a sufficiently reliable estimate of the amount of loss. The filing of a suit or formal assertion of a claim against the Airbus companies or the disclosure of any such suit or assertion, does not automatically indicate that a provision may be appropriate. Income taxes — The Company operates and earns income in numerous countries and is subject to changing tax laws inmultiple jurisdictions within these countries. Significant judgements are necessary in determining the worldwide income tax liabilities. Although management believes that it has made reasonable estimates about the final outcome of tax uncertainties, no assurance can be given that the final tax outcome of these matters will be consistent with what is reflected in the historical income tax provisions. At each end of the reporting period, the Company assesses whether the realisation of future tax benefits is probable to recognise deferred tax assets. This assessment requires the exercise of judgement on the part of management with respect to, among other things, benefits that could be realised from available tax strategies and future taxable income, as well as other positive and negative factors. The recorded amount of total deferred tax assets could be reduced, through valuation allowances recognition, if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to utilise future tax benefits. The basis for the recoverability test of deferred tax assets is the same as the Company’s latest operative planning also taking into account certain qualitative aspects regarding the nature of the temporary differences. Qualitative factors include but are not limited to an entity’s history of planning accuracy, performance records, business model, backlog, existence of long-term contracts as well as the nature of temporary differences (see “– Note 17: Income Tax”). Other subjects that involve assumptions and estimates are further described in the respective notes (see “– Note 7: Acquisitions and Disposals”, “– Note 19: Intangible Assets” and “– Note 22: Contract Assets, Contract Liabilities and Trade Receivables, and Trade Liabilities”).

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Airbus / Financial Statements 2019