AIRBUS - 2020 Financial Statement

2. Notes to the IFRS Consolidated Financial Statements / 2.7 Capital Structure and Financial Instruments

the so-called “Monte-Carlo-Simulation” method. The model generates a wide range of potential future scenarios for market price movements by deriving the relevant statistical behaviour of markets for the portfolio of market data from the previous two years and observed interdependencies between different markets and prices. The Company’s VaR computation includes the Company’s financial debt, short-term and long-term investments, foreign currency forwards, swaps and options, commodity contracts, finance lease receivables and liabilities, foreign currency trade liabilities and receivables and contract assets. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based give rise to some limitations, including the following: – a five-day holding period assumes that it is possible to hedge or dispose of positions within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period;

– a 95% confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a 5% statistical probability that losses could exceed the calculated VaR; – the use of historical data as a basis for estimating the statistical behaviour of the relevant markets and finally determining the possible range of future outcomes out of this statistical behaviour may not always cover all possible scenarios, especially those of an exceptional nature. The Company uses VaR amongst other key figures in order to determine the riskiness of its financial instrument portfolio and in order to optimise the risk-return ratio of its financial asset portfolio. Further, its investment policy defines a VaR limit for the total portfolio of cash, cash equivalents and securities. The total VaR as well as the different risk-factor specific VaR figures of this portfolio are measured and serve amongst other measures as a basis for the decisions of the Company’s Asset Liability Management Committee.

A summary of the VaR position of the Company financial instruments portfolio at 31 December 2020 and 2019 is as follows:

Equity price VaR

Currency VaR

Commodity price VaR

Interest rate VaR

Total VaR

(In € million)

31 December 2020 Foreign exchange hedges for forecast transactions or firm commitments Financing liabilities, financial assets (including cash, cash equivalents, securities and related hedges) Finance lease receivables and liabilities, foreign currency trade payables and receivables

837

0

838

0

87

137

120

96

0

35

39

0

35

0

24

Commodity contracts

3

0

0

3

0

Equity swaps

4

4

0

0

0

Diversification effect

(214)

(1)

(201)

0

(54)

2

All financial instruments

806

123

768

3

92

31 December 2019 Foreign exchange hedges for forecast transactions or firm commitments Financing liabilities, financial assets (including cash, cash equivalents, securities and related hedges) Finance lease receivables and liabilities, foreign currency trade payables and receivables

643

0

643

0

179

113

34

78

0

71

51

0

41

0

27

Commodity contracts

3

0

0

3

0

Equity swaps

5

5

1

0

0

Diversification effect

(249)

(4)

(177)

0

(121)

All financial instruments

566

35

586

3

156

The increase of the total VaR as of 31 December 2020 is mainly attributable to a strong increase of market volatilities, in particular in €/$ and equity due to COVID-19 pandemic. The Company uses its derivative instruments entirely for hedging purposes. As a result, the respective market risks of these hedging instruments are – depending on the hedges’ actual effectiveness – offset by corresponding opposite market risks of the underlying forecast transactions, assets or liabilities. Under IFRS 7, the underlying forecast transactions do not qualify as financial instruments and are therefore not included in the tables shown above. Accordingly, the VaR of the foreign exchange hedging portfolio in the amount of €837 million (2019: €643 million) cannot be considered as a risk indicator for the Company in the economic sense.

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Airbus / Financial Statements 2020