AIRBUS - 2020 Financial Statement

4. Notes to the IFRS Company Financial Statements /

16. Information about Financial Instruments

16.1 Financial Risk Management The Company acts as an intermediary for its subsidiaries when they wish to enter into derivative contracts to hedge against foreign exchange risk or other market risks such as interest rate risk, commodity price risk or equity price risk. The Company’s practice is to set up a derivative contract with a subsidiary and at the same time enter into a back-to-back derivative transaction with a bank. Contracts with subsidiaries being thus mirrored (on a one-to-one basis) by contracts with banks, the Company’s net exposure is virtually zero. There are, however, a few derivative contracts the Company holds in order to hedge its own market risk exposure. As the Company’s back-to-back hedge contracts are entered into with different counterparties, their fair values are reflected separately in the statement of Financial Position and recognised as other financial assets and financial liabilities as disclosed in “– Note 11: Financial assets and liabilities” of the Company Financial Statements. In the Income Statement, the results of the back-to-back hedge transactions, both realised and unrealised, are presented on a net basis as the Company acts as an agent for its subsidiaries. The Company’s overall financial risk management activities and their objectives are described in detail in “– Note 38.1: Financial Risk Management” of the Consolidated Financial Statements. Market Risk Foreign exchange risk — The Company manages a long- term hedge portfolio with maturities of several years for its subsidiaries, mainly Airbus, and to a small extent for its joint ventures or associates. This hedge portfolio covers a large portion of Airbus’ firm commitments and highly probable forecast transactions. As explained above, owing to the Company’s back- to-back approach, its own exposure to foreign exchange risk is very limited. Interest rate risk — The Company uses an asset-liability management approach with the objective to limit its interest rate risk. It undertakes to match the risk profile of its interest- bearing assets with those of its interest-bearing liabilities. The remaining net interest rate exposure is managed through several types of interest rate derivatives, such as interest rate swaps and interest rate futures contracts, in order to minimise risks and financial impacts. The vast majority of related interest rate hedges qualify for hedge accounting, and most of them are accounted for under the fair value hedge model. As a result, both the fair value changes of these derivatives and the portion of the hedged items’ fair value

change that is attributable to the hedged interest rate risk are recognised in profit and loss, where they offset to the extent the hedge is effective. A few interest rate swaps that have been entered into as a hedge of certain of the Company variable rate debt (see “– Note 37.3: Financing Liabilities”) are accounted for under the cash flow hedge model. Related fair value gains are recognised in OCI and reclassified to profit or loss when the hedged interest payments affect profit or loss. The Company invests in financial instruments such as overnight deposits, certificates of deposits, commercial papers, other money market instruments and short-term as well as medium- term bonds. For its financial instruments portfolio, the Company has an Asset Liability Management Committee in place that meets regularly and aims to limit the interest rate risk on a fair value basis through a value-at-risk approach, from which results a hedge ratio that is however not actively steered. Commodity price risk — The Company is exposed to risk relating to fluctuations in the prices of commodities used in the supply chain. It manages these risks in the procurement process and to a certain extent uses derivative instruments in order to mitigate the risks associated with the purchase of raw materials. To the extent that the gains or losses of the derivative and those of the hedged item or transaction do not match in terms of profit or loss, the Company applies cash flow hedge accounting to the derivative instruments, with a hedge ratio of 1:1. Equity price risk — The Company is to a small extent invested in equity securities mainly for operational reasons. Its exposure to equity price risk is hence limited. Furthermore, it is exposed under its LTIP to the risk of the Company share price increases. The Company limits these risks through the use of equity derivatives that qualify for hedge accounting and have been designated as hedging instruments in cash flow hedges, with a hedge ratio of 1:1. Sensitivities of market risks —The approach used to measure and control market risk exposure within the Group’s financial instrument portfolio is amongst other key indicators the value-at- risk (“VaR”). For information about VaR and the approach used by the Company to assess and monitor sensitivities of market risks please refer to “– Note 38.1: Financial Risk Management” of the Consolidated Financial Statements. The Company is part of the Group risk management process, which is more fully described in “– Note 38.1: Financial Risk Management” of the Consolidated Financial Statements.

4

107

Airbus / Financial Statements 2020