Download English - Oman Air

It is true that we fly to 41 destinations around the world…but it is also true that we have but
one home! Another truth is the fact that our business is inextricably interwoven with the well
being and development of our beloved homeland, Oman. In being the best airline we can
be, we build our own enterprise and grow it in the right direction with invaluable assistance
and support from the State. As an important gateway provider and supportive institution of
international scope, we play a highly significant role in the advancement of Oman and its
interests in areas such as promotion of tourism, international business and foreign direct
investment into Oman, among others.
The relationship between State and airline is a fine example of symbiosis at work.
OMAN AIR
Annual Report 2011
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His Majesty Sultan Qaboos Bin Said
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OMAN AIR
Annual Report 2011
Top International Awards for
our Annual Report 2010
League of American Communications Professionals
Gold Award
Overall Annual Report
Bronze Award
Best Letter to Shareholders
48th Place
Among Top 100 Annual Reports
of the World
25th Place
Among Top 50 Annual Reports of
Europe/Middle East/Africa Region
Gold Award
Cover Photo/Design - Airline Category
Gold Award
Photography - Airline Category
Contents
Our Board of Directors 06
Chairman’s Statement 08
Chief Executive Officer’s Statement 12
Our Leadership Team 16
Management Discussion and Analysis 36
Auditor’s Report on Corporate Governance 42
Corporate Governance Report 43
Auditor’s Report on Financial Statements 46
Statement of Financial Position 47
Statement of Comprehensive Income 48
Statement of Changes in Equity 49
Statement of Cash Flows 50
Notes to the Financial Statements 51
WHERE WE FLY
Oman Air, the designated carrier of the Sultanate of Oman is a business enterprise committed to the basic objective of providing safe, reliable
and profitable air transport services for passengers and cargo as well as other aviation related services. Apart from being recognized as a
strong business presence, Oman Air is respected for its professional attitude and recommended for its punctuality and service excellence.
Starting off as a regional player in 1993, Oman Air as Oman’s national carrier has witnessed rapid growth since the time it was established.
The ownership of Oman Air rests in the hands of the Government of Oman. This airline has a strong work force of well-trained employees
whose dedication and hard work has helped us to build a distinct identity and customer base.
Oman Air is now the airline of choice for the discerning business and leisure traveller in the regional and international airline scenarios,
bringing together people from different nations and diverse cultures, welcoming each one of its guests with true hospitality and warmth
that is quintessentially Omani.
At Oman Air we are committed to exceed the expectations of our valuable customers by building a “First Choice Airline”.
GCC, Middle East
& Africa
Europe
*Aberdeen
*Belfast
*Edinburgh
Frankfurt
London
Milan
Munich
*Manchester
Paris
Zurich
*Code Share Flights with
BMI (Via London)
Muscat
Abu Dhabi
Amman
Bahrain
Beirut
Cairo
Dammam
Dar Es Salaam
Doha
Dubai
Jeddah
Khasab
Kuwait
Riyadh
Salalah
Zanzibar
Indian
sub-continent
Bangalore
Chennai
Chittagong
Cochin
Delhi
Hyderabad
Islamabad
Jaipur
Kozhikode
Lahore
Lucknow
Mumbai
Trivandrum
Karachi
Kathmandu
Colombo
Male
Far East
Bangkok
* Hong Kong
* Kota Kinabalu
Kuala Lumpur
* Kuching
* Langkawi
* Penang
* Singapore
*Code Share Flights with
Malaysia Airlines (Via Kuala Lumpur)
Our Board of Directors
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1. H.E. Darwish bin Ismail bin Ali Al Bulushi - Chairman
Minister Responsible for Financial Affairs
Deputy Chairman, Financial Affairs & Energy Resources Council
2. H.E. Sheikh Said bin Ali bin Nafal Al Mas’hali - Deputy Chairman
Undersecretary of Civil Aviation Affairs
Ministry of Transport and Communications
3. Major-General Salim bin Muslem bin Ali Qatan - Board Director
Assistant Inspector General of Police and Customs
Royal Oman Police
4. H.E. Mohsin bin Khamis bin Ghulam Al Balushi - Board Director
Advisor of the Ministry of Commerce & Industry
5. H.E. Maitha bint Saif Al Mahrooqi - Board Director
Undersecretary of the Ministry of Tourism
6. Dr. Mohamed bin Ali bin Mohamed Al Barwani - Board Director
Chairman - MB Holding
7. Sheikh Nasser bin Sulaiman bin Hamed Al Harthy - Board Director
Director of Financial Investments Department,
Ministry of Finance
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Annual Report 2011
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OMAN AIR
Annual Report 2011
Chairman’s Statement
OMAN AIR
Annual Report 2011
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Chairman’s Statement
“Whilst Oman Air is an international business, as the
national carrier of the Sultanate of Oman, we play an
important role in promoting the skills and abilities of the
Omani people, and in assisting people at all stages of their
careers to achieve their full potential.”
On behalf of the Board of Directors, it gives me great pleasure to welcome you to the 30th Annual General
Meeting and to present to you the Annual Report for the financial year ending 31st December 2011.
2011 was a year of both change and consolidation for Oman Air. We have continued our programme of
rapid expansion, introduced new aircraft and further enhanced the quality of our products and services. We
have also invested in training, agreed a number of partnerships and joint ventures and taken a series of
measures to improve efficiency. Each of these steps has been taken with two key aims in mind: to ensure
the best possible passenger experience for our customers and to improve profitability in the long run.
The results speak for themselves. The number of passengers carried by Oman Air increased by 16% in
2011, against a global increase in demand of just 5.9%, and despite our increased capacity, seat factors
increased by 0.5% to 72.7%. We also served over half a million more meals than in the previous year,
a 13% increase.
Oman Air’s move towards long-term profitability continued apace in 2011. While the company has
reported a loss of RO 110 Million during the year, it is important to note that the results for the year
were impacted by 38% increase in fuel price which alone increased the expenditure by RO 37 Million.
But for this steep increase in fuel price, the loss for the year would have been lower compared to the
previous year which is a significant achievement, especially considering the fact that the airline deployed
a significant increase of 21% in its capacity across the network. The airline reported improved yields and
seat factors despite higher capacity. We also saw revenues increase by 35% to RO 311.3 Million, reflecting
international recognition of, and demand for, Oman Air’s products and services. Both passenger and cargo
revenue registered handsome growth over the previous year. This was at the time when the European
crisis impacted traffic from and to Europe.
The Company carried out a company-wide compensation study and increased staff salaries to bring the
same in line with the industry and offset increase in the cost of living. This meant an increase in the
company’s manpower costs by about RO 8 Million. Total manpower cost in 2011 was RO 87.3 Million.
The losses are part of the growth model for the airline and represent investment by the government
to build Oman Air to a size where it would be a profitable entity. Oman Air with its capacity increase
contributes significantly to the non oil economic growth and tourism for Oman. The capacity expansion
has also created jobs and more importantly learning and employment opportunities for pilots, engineers
and airport operations.
The Government of Oman therefore will continue to support the expansion strategy for Oman Air.
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OMAN AIR
Annual Report 2011
Chairman’s Statement
Our branding strategy is fuelled by our total commitment to offering passengers the very best in
21st Century air travel. Having previously unveiled our much-praised Airbus A330 fleet on our long haul
routes, in 2011 we took delivery of the first of our Embraer E175 regional jets. These superb aircraft have
helped us to increase flexibility and efficiency on our short haul routes and have offered similar high
levels of style and comfort to those experienced by passengers on our A330s. However, our A330 fleet is
by no means ‘old news’ and, despite being operational for more than two years now, our aircraft continue
to attract acclaim. In June, Oman Air’s A330 Business Class seat was named as the Best in the World by
Skytrax, the renowned airline quality specialists, who also designated Oman Air as an Official Four Star
Airline, following a thorough audit of all aspects of the business.
In addition, we also opened stunning new First Class and Business Class lounges at Muscat International
Airport - where our First Class passengers can now enjoy a luxurious new lounge-to-aircraft chauffeured
limousine service. These elegant and relaxing spaces were extremely well received by our customers
and provided a template for the launch of our new Business Class lounge in Bangkok, where travellers
to and from South East Asia can now enjoy a taste of Oman’s legendary hospitality.
New services to Zurich and Zanzibar mean that customers from these valuable new markets can also enjoy
Oman Air’s hospitality, whilst our new service from Salalah to Dubai, together with increased frequencies
within the Gulf region offer even greater choice and convenience.
Greater choice, convenience and value also underpin our new joint venture with Bahwan Travel Agencies.
This venture has ensured that Oman Air Holidays is the leading operator for holidays in Oman and across
our international network and we anticipate that this increasingly important part of our business goes
from strength to strength.
The success of our passenger services is mirrored by that of our cargo business, where Oman Air has
again flown in the face of international trends by increasing the tonnage we carried by 13%. As a result,
cargo revenues increased by RO 4.1 Million, providing an important contribution to our financial results.
Our cargo operations were also enhanced by the launch in 2011 of new pan-GCC and pan-European
trucking services and a new partnership with the Port of Salalah which is resulting in new opportunities
to develop the Sultanate of Oman’s European freight transport market.
Our investment in our people has seen IATA recognise our high training standards by naming Oman Air
as a Middle East 2011 Top Ten Authorized Training Centre, and our catering staff have achieved CIEH food
safety accreditation. Oman Air was also awarded ISO accreditation for our supply chain management
and our airport lounges in Muscat, whilst the opening of our new, state-of-the-art Emergency Response
Centre provides world-class facilities and builds on the Emergency Response Planning training that we
undertook earlier in the year.
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Annual Report 2011
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Chairman’s Statement
Oman Air’s remarkable achievements over the last 12 months would not have been possible without
the dedication and hard work of staff at all levels of the company and I would like to express the Board
of Directors’ gratitude for the invaluable contributions that have helped to make Oman Air the world
class airline it is today. Our increased investment in staff training and career development are paying
dividends and we were pleased to recognise the commitment of many of our staff through enhanced
remuneration packages.
Whilst Oman Air is an international business, as the national carrier of the Sultanate of Oman, we play
an important role in promoting the skills and abilities of the Omani people, and in assisting people at all
stages of their careers to achieve their full potential. We are therefore proud supporters of the Sultanate’s
policy of Omanisation, and our commitment to the policy continues unabated.
I would like to take this opportunity to thank my colleagues on the Board, the Executive Committee and
the Audit Committee who have actively supported and advised the management of Oman Air. Also,
I would like to extend gratitude to our partners, suppliers and customers, who work hand-in-hand with
us and contribute to our success.
I would also like to thank our outgoing Chief Executive Officer, Peter Hill, for his exceptional contribution
to Oman Air’s success. His wisdom and experience have been invaluable and we all wish him well in his
retirement. Our newly-appointed CEO, Wayne Pearce, has vast experience within the aviation and travel
sectors. We are pleased to offer him a warm welcome and we look forward to working closely with him
to take Oman Air’s success to the next level.
Finally, I would like to thank His Majesty Sultan Qaboos bin Said, and his Government, for their invaluable
advice, encouragement and guidance. My colleagues on the Board and within Oman Air’s management
join me in expressing our gratitude to His Majesty for his vision, his kind benevolence and his support.
H.E. Darwish bin Ismail bin Ali Al Bulushi
Chairman
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OMAN AIR
Annual Report 2011
CHIEF EXECUTIVE OFFICER’S statement
OMAN AIR
Annual Report 2011
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CHIEF EXECUTIVE OFFICER’S statement
Oman Air’s reputation as a carrier offering the highest
standards of quality and value has been cemented, and
the Sultanate’s countless attractions recognized, securing
increased opportunities for people to fly with Oman Air and
visit Oman, whichever part of the world they come from.
The Oman Air Group has again experienced impressive growth throughout our business over the course
of 2011.
Whilst natural disasters, civil strife, economic uncertainty and rising fuel prices have all had a negative
impact on Oman Air’s financial performance, the outstanding quality of our product and the continued
expansion of our network have resulted in a striking 16% increase in passengers carried, to nearly
3.8 million. In addition, major growth within our cargo operation has taken cargo revenues up 28% to
RO 19.176 million.
As a result, Oman Air’s overall revenues for 2011 increased by 35%, to RO 311.3 million. Oman Air made
an overall loss of RO 110 million in 2011, but when the acquisition of new aircraft, investment in new
products and increased remuneration for staff throughout the company are factored in, we remain broadly
on course to meet the targets set out in Oman Air’s five-and ten-year plans.
The biggest items of expenditure over the last year have been our new Embraer E175 regional jets and
replacements within our Boeing 737 fleet. The Embraers are fuel-efficient and add invaluable flexibility
to our route planning, whilst the B737s are the highly effective workhorses of our short and medium haul
routes. Both make an important contribution to delivering a passenger experience of the highest quality.
The quality of Oman Air’s passenger experience has continued to attract acclaim over the last year, with numerous
awards being received, including Best Business Class Seat in the World, Airline of the Year, Best Luxury Airline Middle East and Best Inflight Connectivity and Communications. Importantly, many of the awards that
we were proud to accept were based on the views of the travelling public - our customers. This shows
that we are not only meeting, but exceeding our customers’ expectations and that Oman Air’s increasing
focus on the details of the passenger experience are paying off.
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OMAN AIR
Annual Report 2011
CHIEF EXECUTIVE OFFICER’S statement
The importance of attention to detail has been one of the elements of Oman Air’s significant investment
in staff training and career development over the last 12 months. The tireless efforts of all those involved
in the planning, delivery and assessment of training throughout the company are greatly appreciated,
as is the commitment of all those who have received training and put their new-found knowledge and
skills to use.
Staff training is just one of the areas of Oman Air’s business in which we have worked closely with external
partners to ensure effective service delivery. Elsewhere within the company, we have partnered with Able
Logistics and Jan De Rijk Logistics to launch, respectively, pan-GCC and pan-European trucking operations
and our partnership with the Port of Salalah is helping to open up important European freight markets.
We have increased our close working relationship with the Oman Ministry of Tourism, Omani hoteliers and
the travel trade to promote Oman as a destination for travellers from across the world. Joint promotions,
special deals, international advertising campaigns and increased media coverage have resulted in more
people than ever before visiting the Sultanate to experience its ancient history and culture and its
dramatically beautiful landscapes.
Promoting Oman Air and the Sultanate of Oman has also taken us to prestigious travel trade events
around the world, such as ITB in Berlin, Arabian Travel Market in Dubai, World Travel Market in London
and Top Resa in Paris. Here, Oman Air’s reputation as a carrier offering the highest standards of quality
and value has been cemented, and the Sultanate’s countless attractions recognised, securing increased
opportunities for people to fly with Oman Air and visit Oman, whichever part of the world they come from.
Further promotional opportunities have arisen in the form of sponsorship and Ahmad Al Harthy’s success
with the Oman Air Racing Team in the Porsche Carrera Cup GB and Porsche GT3 Cup Challenge Middle East
has successfully raised awareness of the Oman Air brand within a range of new international audiences,
as well as provided vital support for one of Oman’s greatest sports stars. Similarly, our sponsorship of
Oman Sail’s bid for success in the Extreme Sailing Series has given Oman Air an extraordinarily high
profile within markets around the globe, and helped to support the preservation and promotion of Oman’s
impressive maritime heritage. We have also been proud to sponsor events such as the Salalah Tourism
Festival and the Muscat Festival, both of which provide an invaluable window on the wealth of Omani
cultural and artistic expression.
Looking to the future, it is clear to me that we face two major challenges. Firstly, we must achieve even
greater awareness of Oman Air’s excellent products and services and outstanding value, and of Oman as the
perfect destination for the discerning traveller. Secondly, we must move unerringly towards profitability, in
a world in which economic uncertainty continues, fuel prices creep ever-upward and competition remains
fierce. It will not be easy, but Oman Air has the people – and its people have the skills and experience – to
achieve continued success and, ultimately, a positive balance sheet.
OMAN AIR
Annual Report 2011
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CHIEF EXECUTIVE OFFICER’S statement
I was appointed as Chief Executive Officer in January 2012 and it was both a pleasure and an honour to
accept the position. I would like to pay tribute to my predecessor, Peter Hill, for overseeing the historic
transformation of Oman Air and I greatly anticipate building on his legacy to ensure a sustainable and
profitable future.
I also wish to record my thanks to Oman Air’s management team and all of our staff, both for their warm
welcome and for their commitment, enthusiasm and positivity towards customers and colleagues. They
have risen to the challenges of the last year magnificently and their efforts are very much appreciated.
I am grateful for the welcome, support and guidance provided by the Government of Oman, His Excellency
the Chairman and the Board of Directors, and for the trust they have placed in me. I look forward to
working closely with them to take Oman Air from strength to strength.
Wayne Pearce
Chief Executive Officer
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OMAN AIR
Annual Report 2011
Our Leadership Team
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1. Wayne Pearce (Chief Executive Officer)
2. Abdulaziz Al Raisi (Chief Officer Management Affairs)
3. Japeen Shah (Chief Financial officer)
4. Abdulrazaq Alraisi (Chief Commercial Officer)
5. Ahmed Al Nabhani (Chief Officer Support Services)
6. Philippe Georgiou (Chief Officer Corporate Affairs)
7. Patrick Rotsaert (Chief Officer Flight Operations)
8.Don Hunter (Chief Officer Airport Operations)
9. Markku Nokala (Chief Officer Network and Planning)
10. Salim Al Kindy (Chief Technical Officer)
11. Mohammed Al Musafir (Chief Officer Internal Audit)
12. Gerry Mitchell (Chief Officer IT)
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Annual Report 2011
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OMAN AIR
Annual Report 2011
OMAN AIR
Annual Report 2011
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That Supreme ‘Traveller’s Rest’
It’s all about that sublime sensory experience…even the settings share
values. The state-of-the-art First Class Lounge and the haven of rest in
the Omani countryside…they’re the epitome of tranquillity and rest…each
with their own unique ambience…fulfilling a defined role.
OMAN AIR
Annual Report 2011
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That ‘Vehicle of Choice’
They’re all ‘vehicles of choice’…the aircraft, the limousine, the dhow...and
they’re each of them the ‘right choice’ for the need. Oman Air’s premium
fleet of limousines provides First Class ground transportation for First Class
passengers...whilst the dhow is the preferred mode of transport on water.
OMAN AIR
Annual Report 2011
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‘Flat Out Luxury’
Our world class, award winning Business Class seating not only seats
passengers ultra-comfortably, it lets them recline…fully. In fact they mirror
the comfort and relaxing experience depicted in our ‘other photograph’!
A Skytrax survey finds Oman Air’s
Business Class seat as Best in the World
OMAN AIR
Annual Report 2011
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A Bridge Over the World
Oman Air pioneered in-flight connectivity that helps passengers bridge
the vastness of cyberspace from their airline seat. Another prime
example of vast space is the world’s 8th largest subterranean cave…
which can contain the Great Pyramid of Egypt, or 12 Boeing 747s!
Oman Air wins the Technology
Implementation of the Year Award at the
4th Annual Aviation Business Awards 2010
Oman Air wins Technological Development
of the Year Award at Top Resa - France
APEX awards Oman Air Best In-flight
Connectivity and Communications Award
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Annual Report 2011
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Spectacular Entertainment
On board entertainment on Oman Air provides a spectacular experience
that fills the senses. Live TV offering news, sports and movie options
light up our seat back video screens. ‘The thrill of the dance’ is no longer
location bound…you can enjoy it on ground…or 35,000 feet above it!
OMAN AIR
Annual Report 2011
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Born Hospitality
Oman Air’s in-flight service springs from our genes…traditional Omani
warmth and caring passes down through generations and is embodied
in the manner our crew care for passengers…our guests on board.
This is warmth and caring that has the same origins…whether served
as a wayside coffee or as a gourmet airline meal.
A Skytrax survey awarded Oman Air with
Best Staff Excellence Award (Middle East)
Oman Air wins Gold for In-flight Amenities
at TravelPlus Amenity Bag Awards
OMAN AIR
Annual Report 2011
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The Epitome of Good Taste
Our in-flight cuisine treats every passenger to cordon bleu fare. From crisp
salads to sweetly succulent fruit, there’s a ‘fresh from the souk’ feel to
their freshness and quality. Our state-of-the-art flight kitchen produced
over 5.077 million meals during 2011, and serving just about every airline
operating through Muscat International Airport.
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Annual Report 2011
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High Calibre Craftsmanship
The capacities and capabilities of our engineers have a strong heritage. Innate
capabilities are honed to perfection and keep our cutting edge fleet of aircraft in
the air at optimum operating efficiency. As to heritage…whether it be crafting a
dhow or servicing a Rolls Royce jet engine, Oman Air’s skill base is well grounded.
OMAN AIR
Annual Report 2011
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That ‘Classic Example of Distribution’
It’s all about collection…consolidation…and distribution…whether it’s
harnessing and distributing water resources or consolidating and flying
out cargo. Oman Air moved 32,457 tonnes of air freight in 2011 - an
increase of 13% over the previous year.
Management Discussion and Analysis
Review of Financial Performance
Key Performance Indicators
OMAN AIR
17,780
3.8 million
73%
Round trips
Passengers flown
Seat factor
11.6 billion
8.5 billion
ASK or Capacity, measured as seat
kilometers flown
RPK or Utilisation, measured as
passenger kilometers flown
11.9 hours
per day
34,555
flights
Aircraft Utilisation
Handled at Muscat
International Airport
6.5 million
5.1 million
Passengers handled at Muscat
International Airport
Meals catered to flights at Muscat
International Airport
Annual Report 2011
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Management Discussion and Analysis
Financial and Sector Performance
Revenue
Our net loss for the year 2011 was RO 109.860
Revenue increased by RO 57.123 million or 25% over
million, compared to a net loss of RO 78.087 million
the previous year.
in the year 2010, up RO 31.773 million. This was
mainly due to increase in fuel prices, manpower cost
and new destinations added recently which will take
time to mature.
Revenue Composition in 2011 compared to 2010
is as follows:
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OMAN AIR
Annual Report 2011
Management Discussion and Analysis
Scheduled Services
Air Charter Services
Scheduled services revenue rose from RO 200.5
Air charter services comprising of jet aircraft
million in 2010 to RO 258.9 million in 2011, up
operations dedicated to Petroleum Development of
RO 58.4 million or 29%. During the year, Oman
Oman and turbo prop aircraft operations dedicated
Air commenced operations to Zurich and Zanzibar.
to Occidental recorded revenue of RO 9.125 million
Available Seat Capacity (ASK) increased by 21%.
in 2011.
Utilization (RPK) increased by 22%, higher than
increase in capacity resulting in improved average
Handling Fees
Seat Factor from 72.2% in 2010 to 72.7% in 2011.
Handling revenue from airlines other than Oman
Average net passenger yield increased by 6%. Despite
Air for the year was RO 13.512 million compared to
increasing competition from the major players,
RO 13.883 million in last year, a drop of RO 371,000
Oman Air has successfully established its presence
or (-3%). This was mainly due to:
on most of its routes. This has been achieved with
continued focus on product, high frequencies, ontime performance, quick turnarounds, convenient
 Airlines, other than Oman Air, reduced their
operations from 18,558 to 16,727 flights, (-10%)
flight timings, good connectivity and high standards
 Wide body flight movements decreased from
of customer service both on the ground and in the air.
7,379 to 5,985 flights, (-19%) and narrow body
flight movements increased from 26,396 to
28,570 flights, (+8%)
OMAN AIR
Annual Report 2011
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Management Discussion and Analysis
Expenditure
Net Expenditure increased by 29% from RO 297.816
million to RO 384.139 million.
Catering
Catering revenue from airlines other than Oman
Air for the year was RO 2.529 million, a drop of RO
514,000 or (-17%) over the previous year’s revenue
Expenditure composition in 2011 compared to 2010
of RO 3.043 million.
is as follows:
Note: Above includes, meals uplifted for Oman Air.
Rooms, Food and Beverage Revenue
Oman Air acquired the Hotel business (Golden
Tulip, Seeb) from the Ministry of Tourism, effective
1 January 2009. Revenue for the year was RO 3.256
million, an increase of RO 160,000 million or (+5%)
over the previous year’s revenue of RO 3.096 million.
Year
Total Available
Rooms
Total Occupied Occupancy Ratio
Rooms
(%)
2011
64,605
43,028
66.60
2010
64,605
41,571
64.35
2009
64,605
48,900
75.69
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OMAN AIR
Annual Report 2011
Management Discussion and Analysis
Our fuel cost increased by RO 54.049 million or 69%
Concession Fee
mainly due to increase in fuel prices and increase
The Company pays a concession fee to Oman Airport
in operations. The average network fuel price was
Management Company, the airport operator at
3.14 USD/USG compared to 2.28 USD/USG in the
Muscat and Salalah airports. The Company pays 7.5%
previous year, up 38%.
of its ground handling and cargo handling revenue
Maintenance costs and other aircraft operating
and 5% of its catering revenue as a concession
expenses comprising of handling, landing, navigation,
fee. The impact of the concession fee in 2011 was
crew layover and simulator cost increased due to
RO 940,000 as against RO 965,000 in 2010. The
the increase in operations in comparison with the
decrease in concession fee is mainly due to decrease
previous year.
in ground handling and catering revenue generated
Passenger related cost increased by RO 4.535 million
or 22% compared to 16% increase in passenger
traffic in 2011. The increase was mainly due to
Financial Position
increase in passenger meal cost, reservation cost
Non-current assets rose from RO 379.570 million in
and passenger service cost.
December 2010 to RO 437.835 million in December
Our employee cost increased by RO 13.913 million
or 19% compared to last year mainly due to increase
in staff strength and increase in salaries to staff
effected during the year with the implementation
of companywide staff compensation study.
2011 mainly due to purchase of two Embarer-E175
and one A330-200 aircraft. Apart from this, the
company also invested in ground equipment, aircraft
rotables and other assets to support increased
operations.
The Company’s manpower increased from 5,095
Share capital rose by RO 75 million due to the
in 2010 to 5,375 in 2011, up 6%. During the year,
Government of Oman reaffirming their support by
the increase in manpower was restricted to critical
injecting additional capital of RO 75 million during
operational requirements to support the increase in
the year.
operations and to positions that would add value in
Non-current liabilities increased by RO 49.267 million
terms of enhanced customer service, productivity
as at 31 December 2011, compared to 2010, due to
and profitability.
long term financing availed for RO 19.842 million
Company’s insurance costs increased by RO 359,000
for two Embarer-E175 and RO 37.279 million for
or 24% and depreciation increased by RO 3.043
one A330-200.
million or 17% compared to last year. Increase in
Current assets decreased by RO 23.951 million,
costs was mainly due to increase in operations and
mainly due to utilization of term deposits.
aircraft fleet strength.
Current liabilities increased by RO 19.904 million
Amortization/impairment cost comprising of
as at 31 December 2011 mainly due to increase in
impairment of goodwill paid for acquisition of Hotel
trade payables in line with the increased operations.
Golden Tulip, Seeb and impairment of landing slots
increased by RO 1.234 or 70% compared to last year.
OMAN AIR
during the year.
Annual Report 2011
40
Management Discussion and Analysis
Internal controls
Career Development Path programmes have been
The Company has an adequate internal control
successfully implemented across key functions and
system commensurate with its size and the nature of
responsibilities in all departments, and staff are
its business. The Internal Audit department continues
undergoing external and internal programmes to
to maintain its focus on internal controls in all critical
improve their skill sets.
activities. Further, Statutory audit, State audit and the
The airline’s management initiated a programme
Audit Committee augment review of internal controls
to train Omani Cadet Pilots in 2005 and 2007.
within the Company. During 2011, no material lapse
Accordingly, nine cadet pilots and fourteen cadet
or weakness in controls has been identified.
pilots who successfully completed training in 2007
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 prioritizes job offers to Omani nationals
possessing the requisite skills.
and 2009 respectively are flying on Oman Air as
second officers today.
In 2009, the third batch and in 2010, the fourth batch,
each consisting of fifteen cadet pilots commenced
their training. Management plans to train a fifth
batch of twelve cadet pilots, during the year 2012,
for upcoming E175 aircraft in 2013.
In 2008, the Management also initiated a programme
to train Omani Cadet Engineers. The first batch
commenced their training in October 2008 and
accordingly 10 Omani Cadet Engineers who
The Company staff strength at 31 December 2011
successfully completed training in 2010 have been
was 5,375 employees. Oman Air achieved an
absorbed to the company. Second batch of 15 Omani
Omanisation ratio of 65%, without compromise on
Cadet Engineers commenced their training in 2010.
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.
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 in the Company.
41
OMAN AIR
Annual Report 2011
KPMG
4th Floor, HSBC Bank Building
MBD
P.O. Box 641
P.C. 112
Sultanate of Oman
Tel 968 24709181
Fax 968 24700839
Report to the Shareholders of Oman Air SAOC (“the Company”) of Factual Findings in connection
with the Corporate Governance Report of the Company and application of the Corporate
Governance practices in accordance with Capital Market Authority Code of Corporate Governance
We have performed the procedures prescribed in the Capital Market Authority (“CMA”) Circular No. 16/2003
dated 29 December 2003 with respect to the Corporate Governance Report of the Company (“the Report”)
and its application of the Corporate Governance practices in accordance with the CMA Code of Corporate
Governance (“the Code”) issued under Circular No. 11/2002 dated 3 June 2002, as amended. The Report is set
out on pages 43 to 45.
Our engagement was undertaken in accordance with the International Standards on Auditing applicable to agreedupon procedures engagements. The procedures were performed solely to assist you in evaluating the Report.
We found the Report reflects, in all material respects, the Company’s application of the provisions of the Code
and is free from any material misrepresentation.
Because the above procedures do not constitute either an audit or a review made in accordance with International
Standards on Auditing, we do not express any assurance on the Company’s Corporate Governance Report. Had
we performed additional procedures or had we performed an audit or review of this Report in accordance with
International Standards on Auditing, other matters might have come to our attention that would have been
reported to you.
This report is solely for the purpose set forth in the second paragraph above, and for inclusion, with the Report,
in the Company’s annual report, and is not to be used for any other purpose. This report relates only to the
Report included in the Company’s annual report for the year ended 31 December 2011 and does not extend
to the financial statements or any other reports of Oman Air SAOC, taken as a whole.
Khalid Masud Ansari
29 February 2012
KPMG, an entity registered under the laws of Oman and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
OMAN AIR
Annual Report 2011
42
C.R. No. 1/30936/6
Corporate Governance Report
In accordance with the Capital Market Authority
Functions of the Board
(“CMA”) circular No. 11/2002 dated 3 June 2002,
The Board is fully aware of its functions and
we are pleased to present the tenth Corporate
responsibilities as defined by CMA Code of Conduct.
Governance Report of Oman Air SAOC (“the
The Board appoints all members of the Executive
Company”) for the year ended 31 December 2011.
Management and decides their remuneration. The
The Auditors have performed the procedures
Board approves business plans and financial policies
prescribed in the Capital Market Authority Circular
of the Company. The Board reviews policies and
No. 16/2003 dated 29 December 2003 with
regulations governing company activities and specifies
respect to the Corporate Governance Report of
authorities and responsibilities of key management
the Company and its application of the Corporate
members. The Board reviews the Company’s long
Governance practices in accordance with the CMA
term and yearly financial plans and key objectives.
Code of Corporate Governance issued under Circular
The Company’s performance is reported to the Board
No. 11/2002 dated 3 June 2002, and its amendments.
on a monthly basis and the same is reviewed and
discussed in the Board meetings.
Company’s Philosophy
The Board appoints sub-committees including the
The Company is committed to comply with the Code
audit committee and evaluates their functions
of Corporate Governance issued by the CMA. The
and performance. The Disclosure Policy of the
Company has and will continue to uphold the highest
Company, which is in line with the Code of Corporate
standards of corporate governance. The Board and
Governance, has been approved by the Board and
the Management strive to accomplish this through
implemented.
very high levels of transparency and accountability
in its conduct of business.
The Board assesses the major risks faced by the
Company and reviews options to mitigate them.
The Company’s focus has been on best business
The Board ensures that processes are in place to
practices that are ethical and fair while achieving the
maintain the integrity of the Company, i.e. Integrity
ultimate objective of enhancing long term shareholder
of the financial statements, compliance with law and
value. Appropriate systems and procedures are
internal control systems. The Board approves the
continuously developed to evaluate and monitor the
quarterly, half yearly and annual financial statements.
Company’s processes and performance to ensure
The Board reports to the shareholders, through the
they meet high standards of corporate governance.
annual report, about the going concern status of the
Board of Directors
Company, with supporting assumptions.
The Company’s Board comprises of Non-Executive
Process of Nomination of the Directors
Directors. All directors are Independent Directors
Six members are appointed by the Government
as defined in the Code of Corporate Governance.
including the Chairman of the Board and one member
There are seven members on the Board. Six
is appointed from the private sector by election once
members including the chairman to represent the
in every three years.
Government’s shareholding and shall be appointed in
Companies Law of No. 4/74 and amendments
Entity Represented by Non-Independent
Directors
thereto. The Government Nominees are Ministers and
There are no Non-Independent Directors in the
Under Secretaries while the director from the private
Company.
accordance with the Article (132) of the Commercial
sector is a businessman of high repute. The seventh
member of the Board of Directors is to be selected
from the shareholders of the Company or others.
43
OMAN AIR
Annual Report 2011
Corporate Governance Report
Board Meeting Number and Dates
Objective of the Executive Committee is to conduct
Board Meeting No.
an in-depth review of specific issues before the same
Board Meeting Date
are approved by the Board.
1 – 2011
28 February 2011
2 – 2011
18 June 2011
3 – 2011
23 August 2011
4 – 2011
29 August 2011
5 – 2011
19 October 2011
6 – 2011
10 December 2011
Audit Committee
7 – 2011
27 December 2011
During 2011 the Audit Committee members
During 2011 the Executive Committee members
consisted of four Non-Executive Directors and were
independent. Fifteen meetings were held during
2011.
consisted of three Non-Executive Directors and
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 fees for the financial year 2011 was RO 16,750.
The sitting fees paid to members of the Executive and
Audit Committee who are the members of the board
for the financial year 2011 is RO 20,700.
all were independent. Three meetings were held
during 2011 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
Each employee of the Company draws salary based
the shareholders that reasonable internal control/
on ‘job group’ assigned to his job. Job groups are
systems are in place and that there are no significant
assigned to different jobs based on the duties,
concerns.
responsibilities, skills and experience relevant to
Means of Communic ation with the
Shareholders and Investors
such jobs.
Remuneration of Top Five Executives
Total
(RO Per Annum)
Salary
582,000
Allowances
114,000
PASI/ESB
52,380
Total
748,380
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 a comprehensive
annual report for its shareholders. Audited annual
financial statements with the Chairman’s report are
sent by mail to each shareholder.
Executive Committee
At the same time the Company gives press releases
At present the Executive Committee carries out
from time to time for all strategic issues, such as
specific functions delegated by the Board of Directors.
opening of new routes, changes in fleet, financing
These functions include, review of management
agreements, etc. The Company also has its own
budget proposals, review of management proposals
website where airline related information is available.
concerning new routes, fleet rationalization and new
ventures.
OMAN AIR
Annual Report 2011
44
Corporate Governance Report
Market Price Data
During the year 2011, professional fees in the
Due to change in the status of the Company from
amount of RO 28,000 were rendered by the external
General Omani Joint Stock Company (SAOG) to Closed
auditors in respect of the services provided by them
Omani Joint Stock Company (SAOC), Oman Air shares
to the organization including the audit of Corporate
have been listed and traded in the parallel third
Governance Report.
market of Muscat Securities Market effective May
The total audit fee paid/payable to the external
2007. Hence, market price data is not available.
auditor for the company for the financial year 2011
is as follows:
Distribution of Shareholding
The major shareholders of the Company are as
Audit fee
RO 22,000
follows, with the Government of the Sultanate of
Quarterly review fee
Oman being the major shareholder.
Total
Major Shareholders
Acknowledgement by the Board of
Directors
Name of the
shareholder
No. of
Shares held
Shareholding
%
The Government of
the Sultanate of Oman 365,505,900
99.865
RO 6,000
RO 28,000
The Board of Directors acknowledges:
 Its liability for the preparation of the financial
statements in accordance with the applicable
Specific Areas of Non-compliance with the Provisions
standards and rules applicable in the Sultanate
of Corporate Governance
of Oman.
There are no specific areas of non-compliance.
 The review of the efficiency and adequacy of
internal control system of the company and
Professional Profile of the Statutory
Auditor
About KPMG:
The shareholders of the Company have appointed
KPMG as the auditors for the year 2011. KPMG is one
compliance with internal rules and regulations.
 That there are no material things that effect the
continuation of the company and its ability to
continue its operations during the next financial year.
of the leading accounting firms in Oman. The Oman
practice of KPMG, which forms part of KPMG Lower
Gulf, was established in 1974 and employs more
than 130 people, including 4 partners, 5 directors
and 19 managers. KPMG Lower Gulf (UAE and Oman),
is a member of the KPMG network of independent
firms affiliated with KPMG International Co-operative.
The KPMG network operates in 150 countries and
employs 138,000 people worldwide. KPMG in Oman
is accredited by the Capital Market Authority (CMA)
to audit joint stock companies (SAOG's).
45
OMAN AIR
Annual Report 2011
KPMG
4th Floor, HSBC Bank Building
MBD
P.O. Box 641
P.C. 112
Sultanate of Oman
Tel 968 24709181
Fax 968 24700839
Independent Auditor’s Report to the Shareholders of Oman Air SAOC
Report on the financial statements
We have audited the financial statements of Oman Air SAOC (“the Company”), which comprise of the statement of financial position as at
31 December 2011, and the related statements of comprehensive income, changes in equity and cash flows for the year then ended, and a
summary of significant accounting policies and other explanatory notes set out on pages 47 to 79.
The financial statements as at and for the year ended 31 December 2010 were audited by another auditor whose opinion dated 28 February
2011 was unqualified.
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, and the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended, and for such internal
control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
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 relevant ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial statements are free of 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 our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of
the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles
used and the reasonableness of accounting estimates made by the Company’s 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 opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2011
and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Report on other Legal and Regulatory Requirements
In our opinion, the financial statements of the Company as at and for the year ended 31 December 2011, in all material respects, comply with
the Commercial Companies Law of 1974, as amended.
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 109.860 million (2010 - RO 78.087 million) during the year ended 31 December 2011, with accumulated losses of
RO 289.861 million (2010 - RO 180.001 million) as at 31 December 2011. 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% of the Company’s equity and has infused capital of RO 75 million in 2011 (2010 - RO 75 million) to finance the
Company’s operations and capital requirements.
29 February 2012
KPMG, an entity registered under the laws of Oman and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
OMAN AIR
Annual Report 2011
46
C.R. No. 1/30936/6
Statement of Financial Position
2011
RO ’000
2010
RO ’000
5
6
6
7
8
9
420,168
10,479
1,207
403
1,799
3,779
437,835
359,446
12,126
1,810
400
1,959
3,829
379,570
10
11
12
13
13,228
31,556
11,504
16,807
73,095
510,930
11,924
29,474
38,523
17,125
97,046
476,616
14
14
366,000
20,048
4,137
153
(289,861)
100,477
291,000
20,048
4,137
150
(180,001)
135,334
15
16
18
25
19,172
251,541
6,738
10,061
287,512
9,348
217,246
5,691
5,960
238,245
15
16
19
2,458
28,912
91,571
6,827
20,845
75,365
Total current liabilities
122,941
103,037
Total liabilities
410,453
341,282
Total equity and liabilities
510,930
476,616
RO 0.275
RO 0.465
As at 31 December
Notes
ASSETS
Non-current assets
Aircraft, property, plant and equipment
Goodwill
Other intangible assets
Available-for-sale investments
Investment in an associate company
Long-term receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Term deposits
Cash in hand and at bank
Total current assets
Total assets
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share premium
Legal reserve
Investments revaluation reserve
Accumulated losses
Total equity
7
Non-current liabilities
Provision for maintenance of aircraft, engines and rotables
Borrowings
Employees’ end-of-service benefits
Deferred tax liability
Total non-current liabilities
Current liabilities
Current portion of provision for maintenance of aircraft, engines and rotables
Current portion of borrowings
Trade and other payables
Net assets per share
Chairman
20
Director
The notes on pages 51 to 79 form an integral part of these financial statements.
The report of the Auditors is set forth on page 46.
47
OMAN AIR
Annual Report 2011
Statement of Comprehensive Income
For the year ended 31 December
Notes
2011
RO ’000
2010
RO ’000
Revenue
21
287,541
230,418
Expenditure
22
(384,139)
(297,816)
(96,598)
(67,398)
Operating loss
Interest and investment income
Share of profits of an associate company
23
789
1,026
8
1,390
1,202
(50)
(Decrease) Increase in fair value of long-term receivables
Finance cost
Loss before concession fee and tax
Concession fee
24
Loss before tax
Taxation
25
Net Loss for the year
Loss per share - basic and diluted
26
Net Loss for the year
77
(10,350)
(8,982)
(104,819)
(74,075)
(940)
(965)
(105,759)
(75,040)
(4,101)
(3,047)
(109,860)
(78,087)
(RO 0.339)
(RO 0.307)
(109,860)
(78,087)
Other comprehensive income
Fair value gain (loss) on available-for-sale investments
Total comprehensive loss for the year
The notes on pages 51 to 79 form an integral part of these financial statements.
The report of the Auditors is set forth on page 46.
OMAN AIR
Annual Report 2011
48
7
3
(109,857)
(16)
(78,103)
Statement of Changes In Equity
For the year ended 31 December 2011
Note
1 January 2010
Investments
revaluation Accumulated
reserve
losses
RO ’000
RO ’000
Share
capital
RO ’000
Share
premium
RO ’000
Legal
reserve
RO ’000
216,000
20,048
4,137
166
(101,914)
138,437
–
(78,087)
(78,087)
Total
RO ’000
Total comprehensive loss for the year:
Net loss for the year
–
–
–
Other comprehensive loss for the year
–
–
–
(16)
Total comprehensive loss for the year
–
–
–
(16)
75,000
–
–
–
–
75,000
75,000
–
–
–
–
75,000
–
(16)
(78,087)
(78,103)
Transactions with owners, recognized
directly in equity:
Issue of shares
14
Transactions with owners, recognized
directly in equity
31 December 2010
291,000
20,048
4,137
150
(180,001)
135,334
1 January 2011
291,000
20,048
4,137
150
(180,001)
135,334
–
(109,860)
(109,860)
Total comprehensive loss for the year:
Net loss for the year
–
–
–
Other comprehensive income for the year
–
–
–
3
Total comprehensive loss for the year
–
–
–
3
75,000
–
–
–
–
75,000
75,000
–
–
–
–
75,000
4,137
153
–
(109,860)
3
(109,857)
Transactions with owners, recognized
directly in equity:
Issue of shares
14
Transactions with owners, recognized
directly in equity
31 December 2011
366,000
20,048
(289,861)
100,477
The notes on pages 51 to 79 form an integral part of these financial statements.
The report of the Auditors is set forth on page 46.
49
OMAN AIR
Annual Report 2011
Statement of Cash Flows
2011
RO ’000
For the year ended 31 December
2010
RO ’000
Operating activities
(105,759)
Loss before tax
(75,040)
Adjustments for:
Impairment of goodwill
Impairment of intangible assets
Decrease/(increase) in fair value of long term receivables
2,385
1,151
603
603
50
Depreciation of aircraft, property, plant and equipment
23,968
Employees’ end of service benefits charged for the year
1,592
(77)
20,565
2,446
(789)
(1,026)
Share of profit of an associated company
(1,390)
(1,202)
Finance cost
10,350
8,982
Interest and investment income
(Reversal)/provision for impaired debts
(10)
10
Provision for obsolete and slow moving inventories
405
270
Loss on sale of aircraft, property, plant and equipment
21
1
(68,574)
(43,317)
(1,709)
(1,844)
Working capital changes:
Inventories
Trade and other receivables
(2,174)
Trade and other payables
16,162
17,506
5,455
10,407
Provision for maintenance of aircraft, engines and rotables
–
Security deposits
(948)
12
Cash used in operations
(50,840)
(18,184)
Finance charges paid
(10,306)
(8,939)
(545)
(269)
(61,691)
(27,392)
(84,711)
(90,864)
Employees’ end-of-service benefits paid
Cash used in operating activities
Investing activities
Purchase of aircraft, property, plant and equipment
(738)
Increase in goodwill
27,019
(Increase)/decrease in term deposits
Interest and investment income received
Proceeds from sale of aircraft, property, plant and equipment
Dividend received from an associated company
Cash used in investing activities
891
–
1,550
(55,989)
–
(947)
1,532
4
850
(89,425)
Financing activities
Issue of shares
75,000
75,000
Net borrowings availed
42,362
53,853
117,362
128,853
Cash flows from financing activities
Net change in cash and cash equivalents
(318)
12,036
Cash and cash equivalents at the beginning of the year
17,125
5,089
Cash and cash equivalents at the end of the year
16,807
17,125
The notes on pages 51 to 79 form an integral part of these financial statements.
The report of the Auditors is set forth on page 46.
OMAN AIR
Annual Report 2011
50
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2011
1. Legal status and principal activities
As on 1 January 2009, the following assets and liabilities were
Oman Air SAOC (“the Company”) is a closed Omani joint stock
transferred to the Company except the land on which the Hotel is
company registered under the Commercial Companies Law of
located. The Company has been given a right by the Government
1974, as amended.
to use the said land on a rental basis initially for a period of 50
The Company was formed under Royal Decree 52/81 dated 24
May 1981 and commenced its operations on 1 October 1981.
years, subsequently renewable with the mutual consent of both
the parties.
RO ’000
The initial duration of the Company was for a period of 20 years
from the date of commercial registration to 31 January 2002. Prior
to expiry, the Company’s shareholders passed a resolution in an
extra-ordinary general meeting on 27 January 2002 extending
the Company’s duration for an indefinite period.
The Government of the Sultanate of Oman (“the Government”)
holds 99.865% of the share capital of the Company as at 31
December 2011.
In an extra-ordinary 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.
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
In an extra-ordinary 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
2. Adoption of new and revised International
Financial Reporting Standards (“IFRS”)
allow the Company to establish and manage restaurants, coffee
For the year ended 31 December 2011, the Company has adopted
shops, hotels, apartments, tourist utilities, both inside and outside
all the new and revised standards and interpretations issued
the airports, within the Sultanate of Oman or abroad.
by the International Accounting Standards Board (“IASB”) and
Acquisition of business
Effective 1 January 2009 the Company acquired Golden Tulip
the International Financial Reporting Interpretations Committee
(“IFRIC”) of the IASB that are relevant to its operations and
effective for the year beginning on 1 January 2011.
Seeb (“the Hotel”). The Hotel is a division of the Company and
is not a separately registered entity. The Hotel was acquired by
the Company as a going concern from the Ministry of Tourism,
Government of the Sultanate of Oman.
51
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
A number of new standards, amendments to standards and

In June 2011 IASB issued Presentation of items of other
interpretations are not yet effective for the year ended 31
comprehensive income (Amendments to IAS 1) with an
December 2011, and have not been applied in preparing these
effective date of 1 July 2012. The amendments improved
financial statements. None of these will have an effect on the
the consistency and clarity of the presentation of items of
financial statements of the Company, with the exception of:
other comprehensive income (“OCI”). The amendments also

IFRS 9 Financial Instruments, published on 12 November 2009
as part of phase I of the IASB’s comprehensive project to
replace IAS 39, deals with classification and measurement of
financial assets. The requirements of this standard represents a
significant change from the existing requirements in IAS 39 in
respect of financial assets. The Standard contains two primary
measurement categories for financial assets: amortised cost

OCI together and with equal prominence.
The Company does not intend to adopt these standards early and
the extent of the impact has not been determined.
3. Summary of significant accounting policies
and fair value. The standard eliminates the existing IAS 39
Statement of compliance
categories of held to maturity, available for sale and loans
The financial statements have been prepared in accordance with
and receivables. The standard is effective for annual periods
IFRS as promulgated by IASB, and the interpretations issued by
beginning on or after 1 January 2015.
IFRIC and the requirements of the Commercial Companies Law
IFRS 12 Disclosure of interests in Other Entities, published in
May 2011. This IFRS requires an entity to disclose information
that enables users of its financial statements to evaluate the
nature of, and risks associated with, its interests in other
entities and the effects of those interests on its financial
positions, financial performance and cash flows. Interests
in other entities are categorized as interests in subsidiaries,
joint arrangements and associates and structures entities that
are not controlled by the entity. The standard is effective for
annual periods beginning on or after 1 January 2013.

highlighted the importance of presenting profit or loss and
IFRS 13 Fair Value Measurement, published in May 2011. This
of 1974, as amended.
Basis of preparation
These financial statements are presented in Rial Omani (“RO”),
which is the Company’s functional currency. All financial
information presented in RO has been rounded to the nearest
thousands, except when otherwise indicated.
Basis of measurement
These financial statements are prepared on the historical
cost basis as modified by measurement of certain financial
instruments at fair value.
IFRS applies when another IFRS requires or permits fair value

measurements or disclosures about fair value measurements
Going concern
(and measurements, such as fair value less costs to sell, based
The Company incurred a net loss of RO 109.860 million (2010: RO
on fair value or disclosures about those measurements). An
78.087 million) during the year ended 31 December 2011, with
entity shall apply this IFRS for annual periods beginning on
accumulated losses of RO 289.861 million (2010: RO 180.001
or after 1 January 2013.
million) as at 31 December 2011. These conditions indicate the
In October 2010 the International Accounting Standards Board
existence of a material uncertainty which may cast significant
(“IASB”) issued Disclosures - Transfers of Financial Assets
doubt about the Company’s ability to continue as a going concern.
(Amendments to IFRS 7) with an effective date of 1 July 2011.
The financial statements have been prepared under the going
The amendments relate to the disclosure requirements for
concern basis on the assumption that the Company’s shareholders
transfers of financial assets to supplement other disclosures
will continue to support the operations and the management will
requirements of IFRS 7.
successfully implement its business plan to generate sufficient
funds to support its operations and meet its liabilities. The
Government holds in excess of 99% of the Company’s equity and
has infused capital of RO 75 million in 2011 (2010: RO 75 million)
to finance the Company’s operations and capital requirements.
OMAN AIR
Annual Report 2011
52
Notes to the Financial Statements
For the year ended 31 December 2011
A summary of significant accounting policies, which have been
Intangible assets
consistently applied by the Company and are consistent with
Intangible assets acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful lives are reviewed at
the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
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 capitalized as the cost of aircraft, property,
plant and equipment.
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
Subsequent expenditure
Expenditure incurred to replace a component of an item of
aircraft including major inspection and overhaul expenditure is
capitalized. Other subsequent expenditure is capitalized only
when it increases the future economic benefits embodied in
the item of aircraft, property, plant and equipment. All other
maintenance expenditure is recognized in profit or loss as an
expense when incurred.
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
Cost of expenses incurred for regular inspections of air frame
units, or otherwise they are allocated to the smallest group of
and engines are capitalized and depreciated over the period
cash-generating units for which a reasonable and consistent
between consecutive inspections which is generally 8 and 3
allocation basis can be identified.
years, respectively.
Intangible assets with indefinite useful lives and intangible
Depreciation
assets not yet available for use are tested for impairment at
Depreciation is recognised so as to write off the cost of aircraft,
least annually, and whenever there is an indication that the asset
property, plant and equipment (other than capital work in
may be impaired.
progress) on a straight line basis over the expected remaining
Recoverable amount is the higher of fair value less costs to sell
useful economic life of the asset concerned. The useful lives are
and value in use. In assessing value in use, the estimated future
reviewed at each reporting date, with the effect of any changes
cash flows are discounted to their present value using a pre-tax
in estimate accounted for on a prospective basis.
discount rate that reflects current market assessments of the time
The gain or loss arising on the disposal or retirement of an item
value of money and the risks specific to the asset for which the
of aircraft, property, plant and equipment is determined as the
estimates of future cash flows have not been adjusted.
difference between the sales proceeds and the carrying amount
If the recoverable amount of an asset or cash generating unit
of the asset and is recognized in profit or loss.
is estimated to be less than its carrying amount, the carrying
The estimated useful lives used for this purpose are:
amount of that asset or cash generating unit is reduced to
Years
Airframe and buyer furnished equipment (BFE)
Engines and rotables
Tools
10 to 25
15
5
Buildings
5 to 25
Plant and equipment
5 to 7.5
Vehicles, office equipment and furniture
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.
3 to 5
53
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
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.
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
to the lessee. All other leases are classified as operating leases.
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 timeframe 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.
The Company as lessor
AFS financial assets
Rental income from operating leases is recognised on a straight-
Listed shares held by the Company that are traded in an active
line basis over the term of the relevant lease. Initial direct costs
market are classified as being AFS and are stated at fair value.
incurred in negotiating and arranging an operating lease are
The Company also has other investments that are not traded in
added to the carrying amount of the leased asset and recognised
an active market but are also classified as AFS financial assets and
on a straight-line basis over the lease term.
stated at fair value because management considers that fair value
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
can be reliably measured. Gains and losses arising from changes
The Company as lessee
in fair value are recognised in other comprehensive income and
Assets held under finance leases are initially recognised as assets
accumulated in the cumulative change in fair values with the
of the Company at their fair value at the inception of the lease or,
exception of impairment losses, which are recognised in profit or
if lower, at the present value of the minimum lease payments. The
loss. Where the investment is disposed of or is determined to be
corresponding liability to the lessor is included in the statement
impaired, the cumulative gain or loss previously accumulated in
of financial position as a finance lease obligation.
the cumulative change in fair values is reclassified to profit or loss.
Lease payments are apportioned between finance expenses
Dividends on AFS equity instruments are recognised in profit
and reduction of the lease obligation so as to achieve a constant
or loss when the Company’s right to receive the dividends is
rate of interest on the remaining balance of the liability. Finance
established.
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.
Capitalized leased assets are depreciated over the shorter of the
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.
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.
OMAN AIR
Annual Report 2011
54
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short term highly liquid investments that are
readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value.
Notes to the Financial Statements
For the year ended 31 December 2011
Impairment of financial assets
Financial assets are assessed for indicators of impairment at the
end of each reporting date. Financial assets are impaired where
there is objective evidence that, as a result of one or more events
that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the asset have been affected.
For listed and unlisted equity investments classified as AFS
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.
financial assets, a significant or prolonged decline in the fair
Derecognition of financial liabilities
value of the security below its cost is considered to be objective
The Company derecognises financial liabilities when, and only
when, the Company’s obligations are discharged, cancelled or
expired.
evidence of impairment.
Derecognition of financial assets
The Company derecognises a financial asset only when the
Investment in an associate company
contractual rights to the cash flows from the asset expire; or
An associate is an entity over which the Company has significant
it transfers the financial asset and substantially all the risks
influence and that is neither a subsidiary nor an interest in a joint
and rewards of ownership of the asset to another entity. If the
venture. Significant influence is the power to participate in the
Company neither transfers nor retains substantially all the risks
financial and operating policy decisions of the investee but is not
and rewards of ownership and continues to control the transferred
control or joint control over those policies.
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 Company
Classification as debt and equity instruments
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recorded
at the proceeds received, net of direct issue costs.
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 postacquisition 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 recognized only to the extent that the Company
has incurred legal or constructive obligations or made payments
on behalf of the associate.
Financial liabilities
Goodwill
The Company’s financial liabilities classified as other financial
Goodwill arising in an acquisition of new line of business is
liabilities include borrowings and trade and other payables.
recognised as an asset at the date that control is acquired (“the
Other financial liabilities are initially measured at fair value, net
acquisition date”). Goodwill is measured as an excess of the
of transaction costs and are subsequently measured at amortised
sum of the consideration transferred, the amount of any non-
cost using the effective interest method, with interest expense
controlling interests in the acquiree, and the fair value of the
recognised on an effective yield basis. Settlement of borrowings
acquirer’s previously held equity interest in the acquiree, if any,
is recognised over the respective terms of the agreements.
over the net of the acquisition-date amounts of the identifiable
assets acquired and the liabilities assumed.
55
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
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 cashgenerating 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.
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.
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.
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
Legal reserve
employees is made in accordance with the Oman Labour Law
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.
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
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.
are made during the lease term for the obligation based on
estimated future costs of major airframe and certain engine
maintenance checks by making appropriate charges to the profit
or loss calculated by reference to the number of hours or cycles
operated and engineering estimates.
For the aircraft owned by the Company, maintenance accruals are
made based on the technical evaluation and service maintenance
agreement.
OMAN AIR
Annual Report 2011
56
Notes to the Financial Statements
For the year ended 31 December 2011
Taxation
Deferred tax assets and liabilities are measured at the tax rates
Income tax expense comprises current and deferred tax.
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
Current tax
have been enacted or substantively enacted by the end of the
The tax currently payable is calculated as per the fiscal regulations
reporting period. The measurement of deferred tax liabilities
of the Sultanate of Oman, based on taxable profits for the year.
and assets reflects the tax consequences that would follow from
Taxable profits differ from profit as reported in the statement of
the manner in which the Company expects, at the end of the
comprehensive income because of items of income or expense
reporting period, to recover or settle the carrying amount of its
that are taxable or deductible in other years and items that are
assets and liabilities.
never taxable or deductible.
Deferred tax assets and liabilities are offset when there is a legally
The Company’s liability for current tax is calculated using tax rates
enforceable right to set off current tax assets against current tax
that have been enacted or substantively enacted by the end of
liabilities and when they relate to income taxes levied by the
the reporting period.
taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis.
Deferred tax
Deferred tax is recognised on temporary differences between
Current and deferred tax for the period
the carrying amounts of assets and liabilities in the financial
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
tax is also recognised in other comprehensive income or directly
in equity.
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
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 interest income
Dividend revenue from investments is recognised when the
shareholders’ right to receive payment has been established.
which to utilise the benefits of the temporary differences and
Interest income is accrued on a time proportion basis, by reference
they are expected to reverse in the foreseeable future.
to the principal outstanding and at the effective profit rate
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
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.
to allow all or part of the asset to be recovered.
57
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
Other revenue
Critical judgements in applying accounting policies
Other revenue is recognised at the time the service is provided,
The following are the critical judgements, apart from those
net of rebate.
involving estimation, that management has made in the process
of applying the Company’s accounting policies and that have
Foreign currencies
the most significant effect on the amounts recognised in the
Transactions denominated in foreign currencies are initially
financial statements.
translated into Rial Omani at the rates of exchange prevailing
on the date of the transaction. Monetary assets and liabilities
Classification of investments
denominated in such currencies are translated at the rates
Management decides on acquisition of a financial asset whether it
prevailing as at the end of the reporting period. Gains and
should be classified as FVTPL, held for trading, HTM investments,
losses arising from foreign currency transactions are dealt with
loans and receivables or AFS financial asset.
in profit or loss.
The Company has classified its investment as AFS financial asset
as these investments are not falling under the category of FVTPL,
Directors’ remuneration
held for trading, HTM investments or loans and receivables.
Directors’ remuneration is computed in accordance with the
provisions of the Commercial Companies Law, as amended and
is charged to income.
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
4. Critical accounting judgments and key sources
of estimation uncertainty
instrument that is substantially the same, expected cash flows
The preparation of the financial statements in conformity with
valuation models.
discounted at current rates for similar instruments or other
IFRSs requires management to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
Impairment of financial assets
that are not readily apparent from other sources. The estimates
The Company determines whether AFS financial assets are
and associated assumptions are based on historical experience
impaired when there has been a significant or prolonged decline
and other factors that are considered to be relevant. Actual results
in their fair value below cost. This determination of what is
may differ from these estimates.
significant or prolonged requires judgement. In making this
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.
OMAN AIR
Annual Report 2011
58
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.
Notes to the Financial Statements
For the year ended 31 December 2011
Impairment of goodwill and other intangible assets
The Company is also required to pay maintenance reserves to
Goodwill and other intangible assets are tested annually for
lessors on a monthly basis, based on usage. These maintenance
impairment and at other times when such indications exist.
reserves are then returned to the Company on production of
The impairment calculation requires the use of estimates. Other
evidence that qualifying maintenance expenditure has been
intangible asset includes timing slots at airports.
incurred. Maintenance reserves paid are deducted from the
accruals made. In some instances, not all of the maintenance
Key sources of estimation uncertainty
reserves paid can be recovered by the Company and therefore,
The following are the key assumptions concerning the future,
are retained by the lessor at the end of the lease term.
and other key sources of estimation uncertainty at the reporting
Assumptions made in respect of the basis of the accruals are
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
reviewed for all aircraft once a year. In addition, when further
information becomes available which could materially change an
estimate made, such as a heavy-duty maintenance check taking
place, utilisation assumptions changing, or return conditions being
re-negotiated, then specific estimates are reviewed immediately,
and the accrual is reset accordingly.
its leased aircraft during the course of the lease term. These are a
result of legal and constructive obligations in the lease contract in
Accrual for aircraft flying costs
respect of the return conditions applied by lessors, which require
Management accrues for the landing, parking, ground handling,
aircraft airframes, engines, landing gear and auxiliary power units
and other charges applicable for each airport in which the
to reach at least a specified condition on their return at the end
Company operates flights on a monthly basis. These estimates
of the lease term. A charge is made in the profit or loss each
are based on the rate of charges applicable to each airport based
month based on the number of flight hours or cycles used to
on the agreements and recent invoices received for the services
build up an accrual to cover the cost of heavy-duty maintenance
obtained. Similarly, accruals for overflying charges are estimated
checks when they occur. Estimates involved in calculating the
based on the agreement entered with each country.
provision required include the expected date of the check, market
conditions for heavy-duty maintenance checks pertaining at the
expected date of check, the condition of asset at the time of the
check, the likely utilisation of the asset in terms of either flying
hours or cycles, and the regulations in relation to extensions to
lives of life-limited parts, which form a significant proportion of
the cost of heavy-duty maintenance costs of engines. Additional
maintenance costs for aircraft engines are considered for accrual
based on the estimates made by Engineering Department on the
basis of operational requirements.
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.
59
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
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. 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.
OMAN AIR
Annual Report 2011
60
Notes to the Financial Statements
For the year ended 31 December 2011
5. Aircraft, property, plant and equipment
Airframe Engines and
and BFE
rotables
RO ’000
RO ’000
Tools
RO ’000
Buildings
RO ’000
676
14,432
Vehicles,
office
Plant and equipment Capital work–
equipment and furniture in–progress
RO ’000
RO ’000
RO ’000
Total
RO ’000
Cost
1 January 2010
Additions
Transfers
Disposals
1 January 2011
Additions
Transfers
Disposals
31 December 2011
165,202
–
61,862
–
227,064
–
43,868
–
97,896
–
32,556
(953)
129,499
–
29,013
(19)
–
52
(24)
704
–
4
–
18,794
–
7,948
–
2,761
–
1,550
(314)
1,078
(778)
(146)
43,563
348,511
90,864
90,864
(99,859)
–
–
(2,215)
16,879
19,566
8,880
34,568
437,160
22
33
7
84,649
84,711
3,593
817
354
–
(2)
20,414
(97)
9,144
(77,649)
–
41,568
–
(118)
270,932
158,493
708
20,494
521,753
16,264
15,898
552
11,441
9,623
5,582
–
59,360
9,698
7,688
30
443
1,681
1,025
–
20,565
(24)
(314)
–
(2,211)
Depreciation
1 January 2010
Charge for the year
Disposals
–
(951)
(776)
(146)
1 January 2011
25,962
22,635
558
11,570
10,528
6,461
–
77,714
Charge for the year
11,587
9,389
25
884
1,679
404
–
23,968
–
–
(90)
–
Disposals
–
(5)
(2)
–
(97)
31 December 2011
37,549
32,019
583
12,454
12,205
6,775
101,585
Net book value
31 December 2011
233,383
126,474
125
8,040
8,209
2,369
41,568
420,168
31 December 2010
201,102
106,864
146
5,309
9,038
2,419
34,568
359,446
The Company owns one Boeing 737-700 and two ATR 42-500 aircraft. The Company has also acquired three Boeing 737-800,
two Embraer, four Airbus A330-200 aircraft and three Airbus A330-300 aircraft under finance lease arrangements.
A financing agreement was signed with the lead arrangers on 4 February 2003 for the purchase of one Boeing 737-700
(delivered in June 2002) and aircraft spares. The loan is secured by guarantee provided by the Government and the aircraft is
mortgaged in favour of the Government.
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) (note 17). The net carrying amount of the leased
aircraft was in the amount of approximately RO 9,867,538 (2010: RO 10,250,328).
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) (note 17). The net carrying amount of the
leased aircraft was in the amount of approximately RO 10,666,965 (2010: RO 12,094,005).
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) (note 17). The net carrying amount of
the leased aircraft was in the amount of approximately RO 13,450,235 (2010: RO 14,497,522).
During the year 2009, the Company entered into two lease agreements with Oryx of Oman, a company registered in the
Cayman Islands, for the lease of two Airbus A330-300 aircraft (first delivered in October 2009 and second in November 2009)
(note 17). The net carrying amounts of the leased aircraft were in the amount of approximately RO 41,771,389 and RO 40,421,321
respectively (2010: RO 44,236,777 and RO 42,824,368 respectively).
61
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
During the year 2010, the Company entered into four lease agreements. Two lease agreements were entered with Oryx of
Oman, a company registered in the Cayman Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying
amounts of the leased aircraft were approximately RO 31,069,548 and RO 31,388,843 respectively (2010: RO 33,003,381 and
RO 33,325,177 respectively). The other two lease agreements were with Luban of Oman, a company registered in the Cayman
Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying amounts of the leased aircraft were approximately
RO 42,124,669 and RO 37,031,735 respectively (2010: RO 44,562,496 and RO 39,150,071 respectively).
During the year 2010, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Ahli
Bank SAOG. The engine has been mortgaged in favour of Ahli Bank SAOG (note 16) and net carrying amount of the engine is
approximately RO 5,564,063 (2010: RO 6,000,460).
During the current year, the Company entered into a term loan for financing of two Embraer aircraft with Bank Dhofar. The
aircraft has been mortgaged in favour of Bank Dhofar (note 16) and net carrying amount of the aircraft is approximately
RO 11,345,224 and RO 11,340,627 respectively.
During the current year, the Company entered into a lease agreement with Oryx of Oman, a company registered in the Cayman
Islands, for the lease of one Airbus A330-200 (delivered in May 2011) (note 17). The net carrying amount of the leased aircraft
was in the amount of approximately RO 40,698,002.
During the current year, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Oman
International Bank SAOG. The engine has been mortgaged in favour of Oman International Bank SAOG (note 16) and net carrying
amount of the engine is approximately RO 2,313,916.
Land on which buildings have been constructed by the Company is owned by the Directorate General of Civil Aviation and
Meteorology (DGCAM). In accordance with the combined term sheet agreement with the DGCAM, dated June 2001, the
Company was granted the continuing right to occupy and use the premises for the provision of ground handling, cargo handling
and catering services at the Seeb International Airport (renamed Muscat International Airport effective from February 2008)
and Salalah Airport (note 24).
On expiry of the term sheet agreement, the assets in existence, purchased prior to 1 January 2002, will be purchased by the
airport operator at their open market value, as determined by an independent valuer except for the catering premises building
which will be purchased at its net book value.
Additions to assets subsequent to 1 January 2002, approved by the airport operator during the validity of the term sheet
agreement, will be purchased by the airport operator at an agreed residual value on expiry of the agreement.
The land on which the Hotel is situated was donated by the Ministry of Commerce and Industry to the Company on 13 April 1985.
6. Goodwill and other intangible assets
Goodwill
2011
RO ’000
2010
RO ’000
14,399
14,399
Cost
1 January
738
Additions during the year
31 December
–
15,137
14,399
1 January
2,273
1,122
Impairment for the year
2,385
1,151
31 December
4,658
2,273
10,479
12,126
Impairment
Net book value
31 December
OMAN AIR
Annual Report 2011
62
Notes to the Financial Statements
For the year ended 31 December 2011
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 the Hotel’s line of business was impaired by RO 2,384,968 (2010: RO 1,150,601). 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%
(2010: 6%) per annum was applied in the value in use model.
The impairment loss has been included in note 22 - Expenditure.
The carrying amount of goodwill at the end of the reporting period was RO 10.479 million (2010: 12.126 million) after an
impairment loss of RO 4.658 million (2010: RO 2.273 million).
Other intangible assets
2011
RO ’000
2010
RO ’000
5,786
5,786
3,976
3,373
603
603
4,579
3,976
1,207
1,810
Cost
1 January and 31 December
Amortisation
1 January
Amortisation for the year
31 December
Net book value
31 December
At the end of the reporting period, the Company assessed the recoverable amount of other intangible assets representing timing
slots purchased during 2008. The Company did not recognize any impairment losses in 2011 in respect of such intangible assets
(2010: nil).
Amortisation on these assets is charged to the profit or loss on a straight-line basis over the estimated useful life of five years.
7. Available-for-sale investments
1 January
2011
RO ’000
2010
RO ’000
400
416
3
Fair value changes during the year
(16)
31 December
403
400
Quoted local equity investments
303
300
Unquoted local equity investments
100
100
403
400
2011
RO ’000
2010
RO ’000
150
166
The movement in the investments revaluation reserve is as follows:
1 January
3
Fair value changes during the year
31 December
153
63
OMAN AIR
(16)
150
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
Available-for-sale investments are analysed as follows:
Fair value
2011
RO ’000
Cost
2011
RO ’000
Fair Value
2010
RO ’000
Cost
2010
RO ’000
Banks and investment
160
36
152
36
Services
143
30
148
30
303
66
300
66
100
100
100
100
403
166
400
166
Quoted local equity investments:
Unquoted local equity investments:
Services
Management considers the carrying value of unquoted local investments to be the fair value at the end of the reporting period.
At the current and prior year reporting date none of the Company’s investment holdings represents 10% or more of the investee’s
share capital.
Details of the Company’s investment holding exceeding 10% of the market value of the Company’s total quoted investment
portfolio as of 31 December 2011 are as follows:
Number of
securities
Portfolio
holding
(%)
Fair
value
RO ’000
Cost
RO ’000
MSM quoted securities:
National Finance Company SAOG
1,248,004
53
160
36
12,696
42
126
14
2011
RO ’000
2010
RO ’000
75
75
Post acquisition changes in net assets at the beginning of the year
1,884
1,532
Share of profits for the year
1,390
1,202
Gulf Hotels Oman SAOG
8. Investment in an associate company
Cost
(1,550)
Dividends received in the year
1,799
(850)
1,959
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 follows:
2011
RO ’000
2010
RO ’000
19,373
16,729
Profit after tax
2,780
2,404
Assets
7,348
7,227
Liabilities
3,755
3,314
Revenue
OMAN AIR
Annual Report 2011
64
Notes to the Financial Statements
For the year ended 31 December 2011
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 1.128% (2010: 0.783%). The maturity
of such deposits is as follows:
2011
RO ’000
2010
RO ’000
April 2012
75
76
May 2012
361
380
March 2013
378
377
April 2014
225
225
May 2014
150
150
April 2017
825
833
June 2017
435
439
October 2017
868
879
June 2019
462
470
3,779
3,829
2011
RO ’000
2010
RO ’000
10,587
7,974
Maturity
10. Inventories
Aircraft consumables
361
388
Passenger consumables
2,060
2,156
General
1,501
2,280
90
92
14,599
12,890
Catering stock
Hotel stock
(1,371)
Provision for obsolete and slow moving inventories
(966)
13,228
11,924
1 January
966
696
Provision during the year
405
270
1,371
966
Movement in provision for obsolete and slow moving inventories:
31 December
65
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
11. Trade and other receivables
2011
RO ’000
Airlines and charterers
Travel agents
Ministries
Others
Provision for impaired debts
2010
RO ’000
2,906
2,362
19,957
17,213
1,570
1,412
433
708
(480)
(490)
Trade receivables
24,386
21,205
Other receivables
4,337
5,778
Prepaid expenses
2,833
2,491
31,556
29,474
490
480
Movement in provision for impaired debts:
1 January
Additional provision during the year
(10)
10
31 December
480
490
In 2011, trade receivables include amounts due from related parties amounting to RO Nil (2010: RO 605,282).
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 totaling RO 13,121,642 (2010: RO 11,119,144) due in foreign currencies, mainly
Euros and US Dollars.
12. Term deposits
Term deposits, in the amounts of RO 11.504 million (2010: RO 38.523 million), represent deposits with commercial banks in
Oman. These term deposits mature within six months from the end of the reporting period and are denominated in Rial Omani,
earning interest ranging between 1.50% to 1.90% (2010 - 1.50% to 4.10%) per annum.
13. Cash in hand and at bank
Cash in hand and at bank
2011
RO ’000
2010
RO ’000
16,807
17,125
Cash and bank balances include amounts aggregating RO 897,840 (2010: RO 1,772,548) held with banks in India, Sri Lanka
and Bangladesh in local currencies. Prior approval from regulatory authorities of the respective countries is required for the
transfer of these funds.
14. Share capital
2011
RO ’000
2010
RO ’000
Authorised share capital (shares of RO 1 each)
500,000
500,000
Issued and paid up share capital (shares of RO 1 each)
366,000
291,000
OMAN AIR
Annual Report 2011
66
Notes to the Financial Statements
For the year ended 31 December 2011
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
Shareholding
2011
No. of Shares
% of
Shareholding
2010
No. of Shares
99.865
365,505,900
99.825
290,489,962
Government of the Sultanate of Oman
During 2010, shareholders of the Company approved a resolution in the Extra Ordinary General Meeting (“EOGM”) held on
31 March 2010 to increase the authorised share capital of the Company to RO 500,000,000. New shares of RO 75,000,000
(75,000,000 share of RO 1 each) have been issued to the Government of the Sultanate of Oman in 2011 (2010: RO 75,000,000).
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. This resolution was approved by the shareholders in the EOGM 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.
15. Provision for maintenance of aircraft, engines and rotables
2011
RO ’000
2010
RO ’000
21,630
16,175
Current portion
(2,458)
(6,827)
Long-term portion
19,172
9,348
16,175
5,768
Provision for maintenance of aircraft, engines and rotables
Movement during the year is as follows:
1 January
Additional provisions during the year
Utilized during the year
At 31 December
21,077
15,011
(15,622)
(4,604)
21,630
16,175
Provision for maintenance of aircraft, engines and rotables is recognised only when the Company has a present obligation
(legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured
reliably. The amount to be incurred within the next year is shown under the current liabilities.
16. Borrowings
Term loans
Finance lease liabilities (note 17)
2011
RO ’000
2010
RO ’000
35,687
10,902
244,766
227,189
280,453
238,091
Current portion
(6,930)
(2,695)
Finance lease liabilities (note 17)
(21,982)
(18,150)
(28,912)
(20,845)
Non-current portion
251,541
217,246
Term loans
67
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
Term loans
At the end of the reporting period the Company has six term loans.
The first term loan in the amount of RO 2,222,973 (2010: RO 3,334,460) denominated in US Dollars is for the purchase of one
Boeing 737-700 aircraft. The loan is a syndicated loan participated by one foreign and two local banks with the lead arranger
being Bank Muscat SAOG. The loan is repayable in 40 equal quarterly installments commencing from February 2004. The
Company has the option to repay the loan in part or full on any of the repayment dates. The Government has given a guarantee
for the repayment of the loan and the aircraft is mortgaged in favor of the Government (note 5).
The second term loan in the amount of RO 1,158,180 (2010: RO 1,737,270) 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 installments commencing from February 2004.
The Company has the option to repay the loan in part or full on any of the repayment dates. The Government has given a
guarantee for the repayment of the loan and the spares are mortgaged in favor of the Government.
The rate of interest on the above loans is three months LIBOR plus 1.85% (2010: three months LIBOR plus 1.85%). The effective
rate of interest on the above loans was in the range of 2.11% to 2.32% per annum (2010 - 2.10% to 2.31% per annum).
The third term loan in the amount of RO 4,833,847 (2010: RO 5,830,385) denominated in US Dollars, is for the financing of
one spare engine for A330 aircraft obtained from Ahli bank SAOG. The loan is repayable in 24 equal quarterly installments
commencing from June 2010 and carries a fixed interest rate of 5% per annum. The Company has the option to repay the loan
in part or full on any of the repayment dates. The spare engine is mortgaged in favor of Ahli bank SAOG.
The fourth term loan in the amount of RO 5,013,985 denominated in Omani Rials, is for the financing of one A330 Engine
obtained from Oman International Bank SAOG during the current year. The loan is repayable in 24 equal quarterly installments
commencing from March 2011 and carries a fixed interest rate of 3.50% per annum. The Company has the option to repay the
loan in part or full on any of the repayment dates. The engine is mortgaged in favor of Oman International Bank SAOG (note 5).
The fifth term loan in the amount of RO 17,361,922 denominated in US Dollars, is for the financing of two E175 aircraft obtained
from Bank Dhofar SAOG during the current year. The loan is repayable in 24 equal quarterly installments commencing from
June 2011 and carries a fixed interest rate of 3.15% per annum. The Company has the option to repay the loan in part or full
on any of the repayment dates. The aircraft is mortgaged in favor of Bank Dhofar SAOG (note 5).
The sixth term loan in the amount of RO 5,096,581 denominated in US Dollars is for the financing of pre-delivery payments
of six B787 aircraft obtained from Oman Arab Bank SAOC during the current year. The entire loan is repayable after 18 months
and carries a fixed interest rate of 1.426% per annum. The Company has the option to repay the loan in part or full on any of
the repayment dates.
OMAN AIR
Annual Report 2011
68
Notes to the Financial Statements
For the year ended 31 December 2011
17. Finance lease liabilities
The Company has finance lease liabilities in respect of four Airbus 330-200 (2010: three) and three Airbus 330-300
(2010: three) and three Boeing 737-800 aircraft (2010: three) as of reporting date. Finance lease liabilities are payable as follows:
Minimum lease
payments
Not later than one year
Present value of
minimum lease payments
2011
RO ’000
2010
RO ’000
2011
RO ’000
2010
RO ’000
31,153
26,952
21,982
18,158
Later than one year and not later
than five years
121,935
107,467
94,212
79,906
Later than five years
142,365
145,599
128,572
129,125
244,766
227,189
295,453
280,018
Future finance charges
(50,687)
(52,829)
Total
244,766
227,189
–
–
244,766
227,189
Finance leases are for a period of five to 12 years with interest ranging from 3.13% to 5.0% per annum. The aircraft are
mortgaged in favour of the leasing companies.
Under the terms of the lease agreement no contingent rents are payable.
18. Employees’ end of service benefits
Movement in the provision for end of service benefits during the year is as follows:
2011
RO ’000
2010
RO ’000
1 January
5,691
3,514
Charge for the year (note 22)
1,592
2,446
(545)
Payments during the year
31 December
(269)
6,738
5,691
2011
RO ’000
2010
RO ’000
Trade payables
13,755
12,157
Unearned revenue
24,519
18,618
Other payables
28,328
22,966
Accrued expenses
24,969
21,624
91,571
75,365
19. Trade and other payables
Trade payables include aggregate amounts of RO 6,350,578 (2010: RO 5,031,027) due in foreign currencies, mainly in Euro
and US Dollars.
Trade payables include amounts due to related parties amounting to RO 250,224 (2010: RO 477,096).
69
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
20. Net assets per share
Net assets per share is calculated by dividing the net assets at the year-end by the number of shares outstanding as follows:
2011
2010
Net assets (RO ’000)
100,477
135,334
Number of shares outstanding at the year end (’000s)
366,000
291,000
0.275
0.465
2011
RO ’000
2010
RO ’000
242,700
16,165
9,125
3,111
10,401
2,529
3,256
254
287,541
186,245
14,250
9,221
3,605
10,278
3,043
3,096
680
230,418
2011
RO ’000
2010
RO ’000
19,441
131,963
25,974
40,350
25,056
4,604
87,260
1,887
536
23,968
2,988
92
20,020
384,139
19,452
77,914
26,108
32,197
20,521
4,588
73,347
1,528
296
20,565
1,754
98
19,448
297,816
66,328
16,901
1,592
2,439
87,260
56,353
13,008
2,446
1,540
73,347
Net assets per share (RO)
21. Revenue
Scheduled services - international
Scheduled services - domestic
Air charter services
Handling fees - engineering
Handling fees - others
Catering
Rooms, food and beverage revenue - Hotel
Other revenue
22. Expenditure
Operating lease rentals on aircraft
Fuel cost
Maintenance cost
Other aircraft operating expenses
Passenger related costs
Cost of catering materials consumed
Employee costs
Insurance costs
Omani training and development costs
Depreciation
Amortisation and impairment
Management fee
Others
Employee cost includes the following:
Wages and salaries
Other benefits
Increase in liability for employee benefits (note 18)
Contribution to a defined retirement plan
OMAN AIR
Annual Report 2011
70
Notes to the Financial Statements
For the year ended 31 December 2011
23. Interest and investment income
Interest on term deposits
Dividends
2011
RO ’000
2010
RO ’000
772
1,013
17
13
789
1,026
24. Aviation services agreement and combined term sheet agreement
In accordance with the aviation services agreement between the Company and the Ministry of Communications, Government
of the Sultanate of Oman (the “Government”), the Company has been granted the right to operate domestic and international
airline services, to provide aircraft passenger and cargo handling facilities, airline catering and other services in Oman. The
Company has the sole right to use the utilities and facilities provided by the Government for such purposes. The agreement
was for a period of twenty years up to 24 May 2001.
In June 2001 through a combined term sheet agreement, the Director General of Civil Aviation and Meteorology (“DGCAM”),
acting in accordance with a Cabinet Decision of 4 April 2000 and a decision issued by the Committee of Ministers dated
13 June 2000, extended the Company’s ground handling and cargo handling services concessions, for periods of five years, and
its catering services concession for a period of ten years, all effective from 1 January 2002. The Company’s rights to operate its
scheduled and charter airline services were extended for an indefinite period.
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 which was then
further extended till 31 December 2009. The Company paid the charges payable to the concerned concessionaire Oman
Airport Management Company SAOC (“OAMC”) in line with the amounts payable under the amended terms of the concession
agreements as enumerated herein.
Subsequent to 31 December 2011, the Company received intimation from OAMC expressing its intention to extend the ground
handling concession till 31 March 2012. During the current year, the cargo handling services concession was also extended till
31 December 2014 on the existing terms.
The following charges set out in the aviation services agreement are included in the financial statements:
2011
RO ’000
2010
RO ’000
Rent
200
200
Concession fee
940
965
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.
71
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
25. Taxation
2011
RO ’000
2010
RO ’000
Charge of deferred tax liability [note 25 (c)]
4,101
3,047
Taxation
4,101
3,047
10,061
5,960
a. Recognized in statement of comprehensive income
Deferred tax
b. Recognized in statement of financial position
Non-current liability
Deferred tax [note 25 (c)]
The Company is subject to income tax at the rate of 12% (2010: 12%) of taxable income in excess of RO 30,000. No provision
for income tax has been made in these financial statements in view of the tax loss incurred during the year.
The tax returns of the Company for the years 2008 to 2010 have not yet been agreed with the Secretariat General for Taxation
at the Ministry of Finance. The Board of Directors are of the opinion that additional taxes, if any, related to the open tax years
would not be significant to the Company’s financial position as at 31 December 2011.
As at 31 December 2011, the tax losses available for offset against future taxable profit amounted to approximately
RO 329 million.
c. Deferred tax liability
Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12% (2010: 12%). The net
deferred tax (liability)/asset and deferred tax charge in the statement of income are attributable to the following items:
1 January Charged to 31 December
2011 profit or loss
2011
RO ’000
RO ’000
RO ’000
1 January Charged to 31 December
2010 profit or loss
2010
RO ’000
RO ’000
RO ’000
Asset
485
Carried forward losses
(235)
250
936
(451)
485
Liability
Accelerated tax depreciation
(6,445)
(3,866) (10,311)
(3,849)
(2,596)
(6,445)
(5,960)
(4,101) (10,061)
(2,913)
(3,047)
(5,960)
26. Loss per share – basic and diluted
2011
Loss for the year (RO ’000)
Weighted average number of shares outstanding during the year (‘000)
Loss per share - basic and diluted loss per share (RO)
2010
(109,860)
(78,087)
324,082
254,493
(0.339)
(0.307)
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.
OMAN AIR
Annual Report 2011
72
Notes to the Financial Statements
For the year ended 31 December 2011
27. Related parties
Related parties comprise the shareholders, directors, key management personnel and business entities in which they have
the ability to control or exercise significant influence in financial and operating decisions. The Government is not considered
as a related party.
The Company maintains balances with these related parties which arise in the normal course of business from the commercial
transactions and are entered into at terms and conditions which the directors consider to be comparable with those adopted for
arms’ length transactions with third parties. Outstanding balances at the year-end are unsecured and settlement occurs in cash.
No expenses have been recognized in the year for impaired debts in respect of amounts owed by related parties.
Following is the summary of significant transactions with related parties during the year:
2011
RO ’000
2010
RO ’000
6,264
6,904
175
162
Expenses
Purchase of goods/services
Management and marketing fee
The amounts due from and due to related parties are included in notes 11 and 19 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).
Short term benefits
Post employment benefits
Directors’ remuneration and sitting fees
2011
RO ’000
2010
RO ’000
1,385
1,385
100
111
37
16
1,522
1,512
28. Segment information
Information regarding the Company’s operating segments is set out below in accordance with IFRS 8 - Operating segments.
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Company that
are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess
its performance.
Primary reporting format - business segments
The Company is organised into three major operating divisions - airline, hotels & catering and ground & cargo handling. The
airline division provides passenger and cargo services on a scheduled and charter basis. The Hotel division operates Golden
Tulip Seeb Hotel and catering division provides in-flight and airport retail catering services. The cargo division provides cargo
handling services. The ground handling division provides airline support services.
73
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
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 results
Airline
Revenue
Total revenue
Inter division revenue
External revenue
Other income
Segment (loss)/profit including
inter division (loss)/profit
Common costs
Operating loss
Finance cost
Interest and investment
income
Share of profits of an
associate company
Increase in fair value of
long-term receivables
Concession fee
Deferred tax charge
Net loss for the year
Hotels and catering
Ground and cargo handling
2011
RO ’000
2010
RO ’000
2011
RO ’000
2010
RO ’000
2011
RO ’000
272,545
(1,444)
271,101
214,636
(1,361)
213,275
19,467
(13,682)
5,785
19,131
(12,992)
6,139
18,322
(7,921)
10,401
(91,809)
(64,254)
5,905
6,588
1,023
Total
2011
RO ’000
2010
RO ’000
2010
RO ’000
16,965 310,334
(6,641) (23,047)
10,324 287,287
254
287,541
250,732
(20,994)
229,738
680
230,418
(84,881)
(11,717)
(96,598)
(10,350)
(56,177)
(11,221)
(67,398)
(8,982)
1,489
789
1,026
1,390
1,202
(50)
(940)
(4,101)
(109,860)
77
(965)
(3,047)
(78,087)
Segment assets and liabilities
2011
RO ’000
2010
RO ’000
Airline and airport services
Hotel
Others
Total assets
493,613
15,115
2,202
510,930
458,026
16,231
2,359
476,616
Segment liabilities
Airline and airport services
Hotel
Others
Total liabilities
400,030
362
10,061
410,453
334,743
579
5,960
341,282
Segment assets
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.
OMAN AIR
Annual Report 2011
74
Notes to the Financial Statements
For the year ended 31 December 2011
Geographical information
The Company operates in two principal geographical markets, the domestic market in the Sultanate of Oman and the overseas
markets. The following table shows the distribution of the Company’s revenues; inclusive of inter division revenues, by
geographical market:
Oman
Revenue including inter division revenues
Overseas
Total
2011
RO ’000
2010
RO ’000
2011
RO ’000
2010
RO ’000
2011
RO ’000
2010
RO ’000
19,421
17,454
290,912
233,278
310,333
250,732
29. Commitments and contingencies
a. Capital commitments
Capital expenditure commitments
2011
RO ’000
2010
RO ’000
584
784
Aircraft delivered
against lease
agreements
Aircraft to be
delivered in
future periods
b. Operating lease commitments
Details of aircraft lease agreements are as follows:
Lease
agreements
signed
Aircraft type
737-800
737-700
10
(10)
–
1
(1)
–
11
(11)
–
The fixed lease commitments against 11 (2010: 11) delivered aircraft are as follows:
2011
RO ’000
2010
RO ’000
Not later than one year
18,269
19,441
Later than one year and not later than five years
54,124
72,392
2,943
9,852
75,336
101,685
After five years
In addition to the above fixed lease commitments, there is a variable lease rental element depending on the flying hours of
the leased aircraft.
30. Financial risk management
Financial instruments carried on the statement of financial position comprise cash and cash equivalents, term deposits, trade
and other receivables, trade and other payables and borrowings.
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired
where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows have been impacted.
The classification of financial assets depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
75
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
Financial risk factors
Overview
The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall
risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects
on the Company’s financial performance.
Risk management is carried out by management under policies approved by the Board of Directors.
(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 specific loss component that relates to individual exposures.
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:
2011
RO ’000
Long term receivables
Trade receivables
Other receivables
Term deposits
Cash and bank balances
OMAN AIR
Annual Report 2011
76
2010
RO ’000
3,779
3,829
24,866
4,337
11,504
16,807
61,293
21,695
5,778
38,523
17,125
86,950
Notes to the Financial Statements
For the year ended 31 December 2011
The exposure to credit risk for trade receivables at the end of the reporting period by type of customer was:
2011
RO ’000
2010
RO ’000
Travel agents
19,957
17,213
Airlines and charterers
Ministries
Other customers
2,906
1,570
433
24,866
2,362
1,412
708
21,695
The age of trade receivables and related impairment loss at the end of the reporting period was:
2011
Gross
RO ’000
Not past due
Past due 0 - 150 days
2010
Impairment
RO ’000
Gross
RO ’000
Impairment
RO ’000
14,875
–
12,580
–
9,065
–
8,467
–
302
–
148
–
624
480
500
490
24,866
480
21,695
490
Past due 151 - 365 days
More than 1 year
Included in the Company’s trade receivable balance are debtors with a carrying amount of RO 9.511 million (2010: RO 8.625
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 3.991 million (2010: RO 3.025 million).
The average collection period of these receivables is 32 days.
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.
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.
77
OMAN AIR
Annual Report 2011
Notes to the Financial Statements
For the year ended 31 December 2011
The maturity profile of the financial liabilities is as follows:
Amount due and payable in future between
Carrying
amount
RO ’000
1 year
or less
RO ’000
13,505
13,505
1-2
years
RO ’000
2-5
years
RO ’000
Beyond
5 years
RO ’000
31 December 2011
Trade payables
Due to related parties
Other payables
Borrowings
–
–
–
250
250
–
–
–
53,297
53,297
–
–
–
280,453
28,912
29,763
92,121
129,657
347,505
95,964
29,763
92,121
129,657
11,680
11,680
–
–
–
477
477
–
–
–
44,590
44,590
–
–
–
238,091
20,845
21,613
66,194
129,439
294,838
77,592
21,613
66,194
129,439
31 December 2010
Trade payables
Due to related parties
Other payables
Borrowings
Unearned revenue are excluded from liquidity risk as these represent tickets sold but not flown as at the end of the reporting period.
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while optimising the return.
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
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:
2011
RO ’000
2010
RO ’000
Fixed rate instruments
Financial assets
Financial liabilities
11,504
38,523
280,453
238,091
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.
OMAN AIR
Annual Report 2011
78
Notes to the Financial Statements
For the year ended 31 December 2011
31. Fair value of financial assets and liabilities
The fair value of the financial assets and liabilities approximates their carrying value as stated in the statement of financial position.
Fair value 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 2011
Level 1
RO
Level 2
RO
Level 3
RO
Total
RO
Available-for-sale financial assets
Quoted local equity investments
Unquoted local equity investments
Total
303
–
–
303
–
100
–
100
303
100
–
403
Level 1
RO
Level 2
RO
31 December 2010
Level 3
RO
Total
RO
Available-for-sale financial assets
Quoted local equity investments
Unquoted local equity investments
Total
300
–
–
300
–
100
–
100
300
100
–
400
There were no transfers between Level 1 and Level 2 during the year.
No gain or loss was included in profit or loss relating to unquoted equities held at the end of the reporting period.
32. Capital management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and benefit other
stakeholders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence
and to sustain future development of the business. The capital requirements of the Company are determined by the Commercial
Companies Law of 1974, as amended.
33. Approval of the financial statements
The financial statements were approved by the Board of Directors and authorized for issue in their meeting held on 29 February 2012.
79
OMAN AIR
Annual Report 2011