Cover Pge - Oman Air

Transcription

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It gives me great pleasure in welcoming you all, to the 25th
Annual General Meeting and presenting you this Annual Report
on behalf of the Board of Directors for the financial year ended
31 December 2006. It’s a moment of pride for all the stakeholders
of Oman Aviation Services Co. SAOG that your Company has
completed twenty-five years of operation and has shown
improved results during the year under review following the
turnaround in 2004 and 2005.
Financial and Operating Performance
For the third year in a row, Oman Aviation Services Co. SAOG has
shown impressive results and reported a profit of RO 2.893 million
compared to RO 1.006 million during the year 2005.
During the year under review, Oman Air recorded an impressive
all-round performance in all operational segments of its business.
Oman Air carried 1.226 million passengers, an increase of 91,000
passengers or 8% over the year 2005. The capacity growth at
Oman Air is at a measured pace of 2%, which matched traffic
growth of 2% during the year 2006. The average seat factor across
the network remained at a healthy level of 76%. The average
aircraft utilization remained high at 12.6 block hours per day per
aircraft, one of the highest in the industry.
In the Airport Services Group business, Oman Aviation handled
23,545 flights, an increase of 16%; passenger movement of 4.521
million, an increase of 33%; cargo tonnage of 67,700 metric tons,
an increase of 22%; and catered 4.237 million meals to airline
passengers, an increase of 28% over the previous year.
Escalating fuel cost is one of the impediments to delivering a yearon-year improvement in earnings; however, Oman Air posted an
improved performance in 2006 against the increase in fuel price,
which was higher by 19% in comparison to the year 2005.
continue their best efforts to improve the long-term shareholder
value of the Company through business practices, which are
transparent, ethical and fair.
Omanisation & Training
The Company supports the national objective of higher percentage
of Omanisation at all levels of the organisation. The Company is
taking every possible initiative to increase the Omanisation level
further, without making any compromise on the quality of service
provided to passengers and airlines.
On the training front, the Company had initiated a programme in
2005 to train nine Omani Cadet Pilots. These Cadet Pilots are
expected to complete their training in early 2007, and will
commence flying as second officers. The Company plans to train
a new batch of ten Cadet Pilots during the year 2007. Further, the
Company has successfully completed the training of two batches
of management trainees. These trainees have gone through varied
training programmes in different disciplines and are placed in
responsible positions.
Quality and Safety
For us at Oman Air, quality and safety of our operations have
always assumed paramount importance. Safety has always been
the top priority without any compromise. We have recently
instituted an Emergency Response Cell within the Company to
ensure that we are ready and well equipped to handle emergency
situations effectively and with minimum inconvenience to our
passengers.
Government Support
IATA’s traffic results for the year 2006 indicate a global passenger
growth of 5.9% in comparison to 7.6% during the year 2005.
However the global cargo growth rate increased to 4.6% from
3.2% during the previous year. Average passenger load factors in
2006 rose to 76% up from 75.1% during the year 2005.
The Board of Directors would like to express their thanks to the
Government of Oman for their continued patronage and support
to Oman Aviation Services Co. SAOG. Your Company will
continue to pursue its efforts to achieve the national objectives of
improving tourism and providing air transportation to the residents
of Sultanate through a measured approach, and by operating in
markets with adequate demand and growth potential.
The industry expects to post an operating profit of US$ 10.2 billion
during the year 2006 with net losses at US$ 500 million. The
industry’s cautious approach in building capacity, cost reduction
measures, and improved efficiencies have resulted in improved
performance during the year 2006.
I wish to place on record my appreciation for the outstanding
commitment and dedication of the employees of Oman Aviation
Services Co. SAOG, our loyal customers for their continued
support, business associates, shareholders and the support
extended by my fellow Board members.
The Middle East continues to be the fastest growing region with
passenger and cargo recording an annual growth of 15.4% and
16.1% respectively. With the Asian economies and the Middle
East riding on good economic growth, it is expected that Oman Air
will continue to improve its market share further and consolidate
its presence in the region.
On behalf of the Board members, I take this opportunity to express
our sincere gratitude to His Majesty Sultan Qaboos bin Said and
the Government of Oman for their continued support to your
Company.
Industry Scenario and Challenges
Fuel prices, after posting record high prices in September 2006,
had shown declining trends during last quarter of the year 2006.
The fuel prices are expected to remain at current levels during the
first quarter of 2007 and may rebound in view of geo-political
tensions, high demand and continued supply-side constraints.
It is my belief that the faith and trust reposed on us by the
Government and other stakeholders will take us to great heights.
Corporate Governance
The Company’s Corporate Governance Report for the year ended
31 December 2006 and Auditors’ Report on the same is provided
in this Annual Report. The Company’s comprehensive policy on
Corporate Governance & Policies, and Procedures Manual for
Disclosure of Material Information comply with the Code of
Corporate Governance issued by the Capital Market Authority and
reflect the best global practices. The Board of Directors will
Said bin Hamdoon bin Saif Al Harthy
Chairman
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The Airline Industry has witnessed a successful year on the back
of an upsurge in passenger travel, good economic fundamentals,
and the results of various cost-saving and revenue enhancement
measures initiated by airlines in the last few years. Except in the
U.S., where airlines have incurred significant restructuring costs,
the turnaround in the industry’s fortunes appears complete.
IATA forecast indicates that the global passenger traffic and cargo
movement will grow at 4.8% and 5.3% respectively in 2007. In
the Middle East, passenger traffic and cargo movement, according
to the forecast, will grow at a faster pace of 6.9% and 5.8%
respectively. The region has benefited from the sustained high fuel
prices which in turn has resulted in greater investment in various
sectors including infrastructure, tourism, industry and agriculture.
The increased outlay by the governments and private sector has
translated into greater passenger and cargo movement.
Our Company has completed 25 years of existence during 2006.
Barring a few difficult years from 2001 to 2003 - when the whole
industry’s performance was affected by factors beyond its control
- the Company’s performance has been exemplary. The Company
has recorded profit in 21 out of 25 years, and has handsomely
rewarded its shareholders in the form of stock and cash dividends.
Year 2006 was yet another successful year. During the year under
review, Oman Air carried 1,226,000 passengers (up 8%), handled
23,545 flights (up 16%) and 4.521 million passengers (up 33%) at
Seeb airport, and catered 4,237,000 meals (up 28%) to airlines.
Oman Aviation Services Co. SAOG (OAS) recorded a net profit of
RO 2.893 million during the year 2006 in comparison to
RO 1.006 million during the previous year. Operating profit for
the year was RO 5.023 million in 2006 compared to RO 2.315
million in the previous year. The above results were achieved
despite the fact that the airline’s fuel bill rose by RO 2.816 million
in 2006 compared to the previous year.
In the Airline business, Oman Air has witnessed significant
competition from the established players as well as new entrants.
In our region, though demand has been very buoyant, capacity is
growing at an even faster pace. This has obviously put our market
share and yields under pressure. Oman Air has successfully
withstood this pressure by carving a niche for itself as a regional
carrier. Instead of chasing indiscriminate growth, we have adopted
a cautious approach by continued monitoring of our network,
increasing the frequencies on profitable routes and exploring new
markets. We have maintained our focus on providing good
connectivity, convenient flight timings, quick turnarounds,
on-time performance, and high standards of customer service on
the ground and in the air.
In the coming year, Oman Air will acquire three additional B737
800 aircraft for its scheduled operations. We will commence new
routes to Lucknow and Jaipur in India, and increase our operations
on certain existing profitable routes. We are also studying certain
new routes in the region, and operations to these routes will also
commence during the year. We will also increase operations on
the key domestic route of Salalah. In Charter Services business, in
addition to Petroleum Development of Oman (PDO), we now
provide air services to Occidental of Oman between Muscat and
their sites in the interior, effective January 2007.
While we have focused on the domestic and regional operations
so far, we have been pursuing plans to operate medium and long
haul routes in the near future. In this new role, Oman Air will act
as the country’s brand ambassador with an objective to boost
tourism and economic development in Oman. Oman Air will thus
soon extend its reach beyond the region. With a very sound track
record behind us, we believe, we are ready to take on this new
challenge, and provide efficient and safe air transportation
between Oman and certain key destinations. As in the past, our
growth will be cautious and we will continue to operate on
commercial principles while meeting Oman’s national priorities.
The Airline business is cyclical and the fortunes of the industry
follow economic growth and downturn in the region as well as
around the world. It is, therefore, important to invest during the
good times so that we are able to withstand the competition and
hard times when we are at the lower end of the business cycle.
With this in mind, Oman Air has always pursued various
initiatives to rationalise its cost structure and optimise its revenue
streams. During the year, we have successfully introduced and
implemented E-ticketing and Internet booking towards this
purpose. Today, more than half of our passengers avail of
paperless tickets. This has been an excellent customer proposition
for Oman Air passengers in terms of ease and convenience. On
the other hand, it has reduced our transaction costs significantly.
Internet booking is yet another measure in the same direction. We
are also looking into various possibilities to reduce our other
distribution costs.
Fuel prices have stabilised since last the three months after
reaching record highs during 2006. However, in view of certain
geo-political tensions and supply constraints, the prices may rise
once again in future. Besides fuel hedging programmes, we are
studying various other measures including weight reduction
programmes, improved flying practices, greater use of alternative
ground-based energy sources, and improved maintenance
procedures.
In the Airport Services business, we will continue to strive to be an
excellent service provider to all airlines and passengers at Seeb
and Salalah airports. We are committed to investing in the stateof-the-art equipment and systems at these airports. Having
successfully implemented a new departure control system in
2005, we will soon implement CUTE and Baggage Reconciliation
systems at Seeb Airport. We will continue to invest in our
manpower so that they maintain the focus on customer service
without compromising safety or quality of our services. Seeb
Airport is undergoing a major phased expansion. Oman Air is
working closely with the authorities to ensure that we are well
equipped to handle the new challenges.
A strong sense of social responsibility is central to Oman Air’s
values and beliefs. In the spirit of a caring corporation, Oman Air
responded during the recent war in Beirut, Lebanon by operating
flights to evacuate Omani nationals. Oman Air has sponsored
many social organisations that promote health and social welfare
activities. Oman Air sponsored the Omani team for the fifth
Special Olympics MENA Regional Games held in Dubai. During
the year, the Company organised an eight-week summer training
programme for the students of the Sultan Qaboos University to
provide exposure and hands-on experience in the field of
corporate communications, marketing and sales.
During the year, the Company won various awards. Notable
among those are the Gold Award received for excellence in web
design and development in the Travel & Tourism category in
Oman; the Award conferred by the Faculty of Arts and Social
Sciences, Sultan Qaboos University for contributing towards the
development of students’ skills in media; and the Special Award
conferred by Sabre Holdings for implementation of new products
using modern technologies to improve the standard of service to
customers.
I wish to place on record my appreciation for the outstanding
commitment and hard-work of all our employees that has resulted
in such excellent results. I am grateful for the continued support
and guidance extended by the Government of Oman and our
Board of Directors who have helped us achieve these impressive
results. I would also like to express my sincere thanks to all our
loyal customers, suppliers and other business associates for their
continued support.
Ziad Karim Al Haremi
Chief Executive Officer
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Report of factual findings in connection with Corporate Governance Report of Oman Aviation Services
Company SAOG and application of the corporate governance practices in accordance with CMA Code
of Corporate Governance.
TO THE SHAREHOLDERS OF
OMAN AVIATION SERVICES COMPANY SAOG
We have performed the procedures prescribed in Capital Market Authority (CMA) Circular No. 16/2003 dated
29 December 2003 with respect to the Corporate Governance Report of Oman Aviation Services Company
SAOG for the year ended 31 December 2006 and application of the corporate governance practices in
accordance with CMA Code of Corporate Governance issued under Circular No. 11/2002 dated 3 June 2002,
and its amendments. Our engagement was undertaken in accordance with the International Standards on
Auditing applicable to agreed-upon procedures engagements. The procedures were performed solely to assist
you in evaluating the Company’s compliance with the Code as issued by the CMA.
We report our findings as below:
We found the Company’s Corporate Governance Report reflects its application of the provisions of the Code,
and is free from any material misrepresentation, except for one instance where the interval between the two
Board Meetings exceeded the maximum permitted interval of four months.
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 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 first paragraph of this report and for your information, and
is not to be used for any other purpose. This report relates only to the Board of Directors’ Corporate
Governance Report included in its Annual Report for the year ended 31 December 2006, and does not extend
to any financial statements of Oman Aviation Services Company SAOG, taken as a whole.
Deloitte & Touche (M.E.)
Muscat, Sultanate of Oman
5 March 2007
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In accordance with the Capital Market Authority (“CMA”) Circular
No. 11/2002 dated 3 June 2002, we are pleased to present the 5th
Corporate Governance Report of Oman Aviation Services Co.
SAOG (“the Company”) for the year ended 31 December 2006.
The Auditors have performed the procedures prescribed in the
Capital Market Authority Circular No. 16/2003 dated 29
December 2003 with respect to the Corporate Governance Report
of the Company and its application of the corporate governance
practices in accordance with the CMA Code of Corporate
Governance issued under Circular No. 11/2002 dated 3 June
2002, and its amendments.
Company’s Philosophy
The Company is committed to comply with the Code of Corporate
Governance issued by the CMA. The Company has and will
continue to uphold the highest standards of corporate governance.
The Board and the Management strive to accomplish this through
very high levels of transparency and accountability in its conduct
of business.
The Company’s focus has been on best business practices that are
ethical and fair while achieving the ultimate objective of
enhancing long-term shareholder value. Appropriate systems and
procedures are continuously developed to evaluate and monitor
the Company’s processes and performance to ensure they meet
high standards of corporate governance.
Board of Directors
The Company’s Board comprises of Non-Executive Directors. All
Directors are Independent Directors as defined in the Code of
Corporate Governance. There are nine members on the Board.
The Government nominees hold highly responsible offices in the
Government while Directors from private sector are businessmen
of high repute.
Members of the Board of Directors are to be selected from the
shareholders of the Company or others, provided that the nominee
- if a shareholder (from private sector), shall possess at least 2,000
shares in the Company. Four members, including the Chairman,
represent the Government’s shareholding, and shall be appointed
in accordance with the Article (132) of the Commercial
Companies Law No. 4/74, and amendments thereto.
Directors’ Attendance Record and Directorships Held During the Financial Year 2006
Name of Director
Position
Board
Whether
Meetings attended
attended last AGM
Directorship in other SAOGs
H.E. Said bin Hamdoon Saif Al Harthy
Chairman
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Yes
None
Mr. Mohammed bin Ali bin Mohammed
Al Barwani
Deputy Chairman
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Yes
Transgulf Investment SAOG
(Chairman)
Tageer Finance Co. SAOG
(Chairman)
Shell Oman Marketing Co. SAOG
(Director)
Mr. Mohammed bin Abdullah bin Said Al Rawas
Non-Executive Director
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Yes
Raysut Cement Co. SAOG
(Vice Chairman)
Dhofar Cattle Feed Co. SAOG
(Director)
Oman & Emirates Investment
Holding Co. SAOG (Director)
Mr. Sulaiman bin Ahmed bin Saeed Al Hoqani
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No
Oman Hotels and Tourism SAOG
(Chairman)
Global Financial Investments
SAOG (Chairman)
Muscat Finance Co. Ltd. SAOG
(Deputy Chairman)
Mr. Khalifa bin Shamis bin Mohammed Al Subhi
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Yes
None
Engr. Mohammed bin Abdullah bin Faraj Al Yafie
9
No
None
Mr. Rashid bin Mohammed bin Hamad Al Kiyumi
9
Yes
None
Mr. Hussain bin Ali bin Hassan Al Raisi
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N.A
None
Dr. Anwar bin Mohammed bin Abdulaziz Al Rawas Non-Executive Director
6
N.A
Dhofar University Co. (SAOG)
(Director)
Mr. Abdulaziz bin Ahmed bin Sultan Al Hosany
(Left Board on 29 March 2006)
3
No
National Gas Co. SAOG
(Chairman)
National Securities Co. SAOG
(Deputy Chairman)
Mr. Khalil bin Abdullah bin Mohammed Al Khonji
2
Yes
Al Jazeera Tube Mills Co. SAOG
(Director)
Oman International Development
& Investment Co. SAOG
(Director)
Oman Waste Water Services Co.
SAOG (Director)
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Functions of the Board
Remuneration of Top Five Executives
The Board is fully aware of its functions and responsibilities as
defined by CMA’s Code of Conduct. The Board appoints all
members of the Executive Management and decides their
remuneration. The Board approves business plans and financial
policies of the Company. The Board reviews policies and
regulations governing Company activities and specifies authorities
and responsibilities of key Management members. The Board
reviews the Company’s long-term and yearly financial plans and
key objectives. The Company’s performance is reported to the
Board on a monthly basis, and the same is reviewed and discussed
in the Board meetings. The Board appoints sub-committees,
including an Audit Committee and evaluates their functions and
performance. The Disclosure Policy of the Company, which is in
line with the Code of Corporate Governance, has been approved
by the Board and implemented.
The Board assesses the major risks faced by the Company and
reviews options to mitigate them. The Board ensures that
processes are in place to maintain the integrity of the Company,
i.e. integrity of the financial statements, compliance with law and
internal control systems. The Board approves the quarterly,
half-yearly and annual financial statements. The Board reports to
the shareholders, in the Annual Report, about the status of the
Company, with supporting assumptions.
Process of Nomination of the Directors
Four members are appointed by the Government, including the
Chairman of the Board, and five are appointed from the private
sector by election once every three years.
Entity Represented by Non-Independent Directors
There are no Non-Independent Directors in the Company.
Board Meeting Number and Dates
Board Meeting No.
Board Meeting Date
1 – 2006
22 January 2006
2 – 2006
23 January 2006
3 – 2006
2 February 2006
4 – 2006
5 April 2006
5 – 2006
30 April 2006
6 – 2006
8 June 2006
7 – 2006
29 October 2006
8 – 2006
30 October 2006
9 – 2006
25 December 2006
There have been no material related transactions between the
Company and its Directors. Specific related party transactions are
disclosed to the shareholders at the Ordinary General Meeting.
Particulars
Total
(RO Per Annum)
Salary
195,717
Bonus
13,500
Allowances
44,611
PASI
16,298
Perquisites
11,584
Total
281,710
Executive Committee
At present, the Executive Committee carries out specific functions
delegated by the Board of Directors. These functions include,
review of Management budget proposals, review of Management
proposals concerning new routes, fleet rationalisation and new
ventures.
Objective of the Executive Committee is to conduct an in-depth
review of specific issues before the same are approved by the
Board.
Attendance Record of the Executive Committee Members
Name of Director
No. of
Meetings
Meetings
Attended
1. H.E. Said bin Hamdoon bin Saif Al Harthy
Chairman
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3
2. Mr. Mohammed bin Ali bin Mohammed Al Barwani
(Till 5 April 2006)
Deputy Chairman
2
2
3. Mr. Khalifa bin Shamis bin Mohammed Al Subhi
3
2
4. Mr. Abdulaziz Ahmed Sultan Al Hosany
2
2
5. Mr. Khalil bin Abdullah bin Mohammed Al Khonji
2
2
6. Dr. Anwar bin Mohammed bin Abdulaziz Al Rawas
(From 5 April 2006)
1
1
7. Engr. Mohammed bin Abdullah bin Faraj Al Yafie
(From 5 April 2006)
1
1
8. Mr. Sulaiman bin Ahmed bin Saeed Al Hoqani
(From 5 April 2006)
1
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Remuneration Matters
All Directors, including the Chairman, are Non-Executive and do
not draw any fixed salary from the Company. The total
remuneration paid to Directors as sitting fee for financial year
2006 was RO 95,421. The total value of tickets issued to Directors
for the financial year 2006 was RO 4,030.
During 2006, Executive Committee members consisted of six
Non-Executive Directors of who all were Independent, but
became 5 effective 5 April 2006.
Each employee of the Company draws salary based on the ‘job
group’ assigned to his job. Job groups are assigned to different
jobs based on the duties, responsibilities, skills and experience
relevant to such jobs.
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Audit Committee
Market Price Data
During 2006, Audit Committee members consisted of five
Non-Executive Directors and four Non-Executive Directors
effective 5 April 2006 of who, all were Independent. Seven
meetings were held during 2006 to discuss issues concerning
internal control, internal audit plans and internal / external audit
reports, quarterly financial statements filed with Capital Market
Authorities (CMA) and other related issues.
Attendance Record of the Audit Committee Members
Name of Director
No. of
Meetings
Meetings
Attended
1. Mr. Mohammed bin Abdullah bin Said Al Rawas
Chairman, Audit Committee
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5
2. Mr. Mohammed bin Ali bin Mohammed Al Barwani
(From 5 April 2006)
Audit Committee Member
5
2
3. Mr. Abdulaziz bin Ahmed bin Sultan Al Hosany
2
1
4. Mr. Khalil bin Abdullah bin Mohammed Al Khonji
2
1
5. Mr. Khalifa bin Shamis bin Mohammed Al Subhi
(Till 5 April 2006)
2
2
6. Mr. Rashid bin Mohammed bin Hamad Al Kiyumi
7
7
7. Mr. Hussain bin Ali bin Hassan Al Raisi
(From 5 April 2006)
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Audit and Internal Control
The Audit Committee has reviewed, on behalf of the Board, the
effectiveness of internal controls by meeting the internal auditor,
reviewing the internal audit reports and recommendations and
meeting the external auditor, reviewing the audit findings reports
and the external audit management letter. The Audit Committee
and the Board are pleased to inform the shareholders that
reasonable internal control systems are in place and that there are
no significant concerns.
Means of Communication with Shareholders and Investors
The Company publishes quarterly results in the leading Arabic and
English newspapers. The complete quarterly results, as submitted
to CMA, 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.
At the same time, the Company gives press releases from time to
time for all strategic issues, such as opening of new routes, change
in fleet, financing agreements, etc. The Company also has its own
website where airline-related information is available.
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Monthly high / low share price data for financial year 2006
Month, 2006
High (RO)
Low (RO)
Volume
January
1.630
1.280
1,697,755
February
1.600
1.500
58,494
March
2.000
1.450
1,193,508
April
1.700
1.440
284,070
May
1.450
1.100
131,148
June
1.400
1.201
36,883
July
1.300
1.120
25,629
August
1.300
1.200
31,528
September
1.300
1.200
16,876
October
1.430
1.210
80,500
November
1.455
1.320
234,888
December
1.425
1.300
74,745
Performance in Comparison to Broad-based Index of MSM
(Relevant Sector)
Specific Areas of Non-Compliance with the Provisions of
Corporate Governance
There is no other company listed on MSM in the same sector.
As per the requirement of Article 4 of the Code of Corporate
Governance, the Board of Directors are required to meet atleast
once every four months with a maximum time gap of four months
between any two consecutive meetings. The Board of Directors of
the Company met nine times during the year, but has on one
occasion (between the 6th and 7th Meeting) not complied with
this requirement. However, during such interim period, the
Executive Committee (3rd Meeting) and Audit Committee
(5th Meeting) have met once each.
Distribution of Shareholding
The major shareholders of the Company are as follows, with the
Government of the Sultanate of Oman being the major
shareholder.
Major Shareholders
Shareholders with more than 2% shareholding are:
Name of the shareholder
No. of
shares held
Government of Oman
4,495,282
33.844
Mohammed Ahmed Said Al Qassmi
1,342,002
10.104
MB Petroleum
554,893
4.178
Sulaiman bin Ahmed bin Saeed Al Hoqani
523,820
3.944
Rashid Darwish Ahmed Saif Al Qatabi
510,132
3.841
O.A.B Under Asset Management / Gulf
359,189
2.704
Corporate Association of Abu Dhabi
344,376
2.593
First National Company
330,000
2.484
ROP Pension Fund
279,884
2.107
8,739,578
65.799
Total shares held by Top 9 shareholders
Shareholding
(%)
Professional Profile of the Statutory Auditor
Deloitte Touche Tohmatsu is an organisation of member firms
devoted to excellence in providing professional services and
advice. Deloitte is focused on client service through a global
strategy executed locally in nearly 140 countries. With access to
the deep intellectual capital of 135,000 people worldwide, their
member firms, including their affiliates, deliver services in four
professional areas: audit, tax, consulting, and financial advisory.
Deloitte & Touche in the Middle East is the oldest and largest
indigenous professional services firm with more than 1,000 people
serving businesses and governments in 14 countries through 25
offices. The Oman Practice currently includes three Partners and
over 30 professionals.
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During 2006, the Airline Industry in the Middle East region has
witnessed improved performance on all fronts. Along with
increase in traffic volumes and healthy seat utilisation, average
yields also improved, boosting airline revenues.
However, against these improvements in key parameters, the rapid
increase in fuel cost posed a major concern. Fuel prices continued
to rise throughout the year. However, the prices declined towards
the end of the year, and this provided relief to the airlines during
the last quarter. Fuel prices are expected to remain at current level,
at least in the short term. However, in view of supply-side
constraints and growing demand, we do not anticipate fuel prices
to decline any further.
Oman Air, continued its focus on being a niche regional carrier
with Muscat as its hub, and strengthening its presence in the
Middle East and the Indian sub-continent. By operating into
markets with growth potential, by differentiating its product from
the competition, and optimising its top-line revenues through
various yield improvement measures, Oman Air has withstood the
impact of external forces - largely the impact of rising fuel prices and reported improved financial results. The Airport Services
business also showed impressive results with increased flights and
passengers movement at Seeb International Airport.
Airport Services, which includes Ground Handling, Cargo
Handling and Catering Services, witnessed enhanced profitability
with the increase in passenger movement and catering uplift at
Seeb Airport. Airport Services benefited from good economic
growth in the region, which has fuelled good traffic and passenger
growth. Flight movement was higher by 16% due to increased
operations mainly by Gulf Air, Etihad Airways, Qatar Airways,
Royal Jordanian, Saudi Arabian Airlines and Kuwait Airways.
Catering meal uplift was noticeably higher by 28%, mainly due to
the increase in meal uplift by Gulf Air. All these factors had a
favourable impact on handling and catering revenues.
The Airline division also showed improved performance
compared to the previous year. Passenger traffic increased by 8%
and the total revenue increased by 10%. New routes to Delhi and
Hyderabad, commenced in June 2005, matured during 2006.
Oman Air expanded its network by introducing the new route to
Amman in December 2006. The overall seat factor remained
healthy at 76%.
Airline results undoubtedly were affected by the unprecedented
increase in fuel prices. Fuel prices, which continued to escalate
through a major part of the year, added RO 2.8 million to the fuel
costs. Increase in fuel surcharge helped us to mitigate the impact
of the increase in fuel prices to some extent.
During the year, Oman Air flew more than 1.2 million passengers.
During the year, the new route to Amman was started and
additional frequencies were deployed on profitable routes. In the
Airport Services business, we handled 23,545 flights and 4.521
million passengers at Seeb Airport.
The Duty Free business, which is operated as a joint venture with
Aer Rianta reported increased profits mainly as a result of the
higher flight and passenger movement during the year, and
increased range of products.
Financial and Sector Performance
Revenue increased by RO 9.578 million or 13% over the last year.
Revenue
Net profit for the Year 2006 was RO 2.893 million compared to
the net profit of RO 1.006 million in the previous year.
The Company’s operating performance showed a significant
improvement in 2006 when compared to 2005. Profit from
operations was RO 5.023 million compared to a profit of
RO 2.315 million in 2005. The adoption of IAS 37 with regard to
maintenance provision, and IAS 16 with regard to component
depreciation, had a favourable impact on the income statement.
21
22
Scheduled Services
Scheduled Services revenue was RO 62.564 million, higher by
RO 5.769 million or 10% compared to the previous year.
Passenger traffic rose by 91,000 passengers or 8%. This was
achieved due to full year impact of the operations to Delhi and
Hyderabad started in June 2005, new route to Amman in
December 2006, and the increase in operations on certain
profitable routes. Despite the increasing competition from major
players and resultant discounting of fares, Oman Air succeeded in
maintaining and strengthening its market share, developing
Muscat as a strategic hub, and providing right volume of
frequencies and connectivity to its passengers. The lease of 2
ATR42 500 aircraft to Deccan Aviation Private Limited also
brought in additional revenue.
Revenue increased as major airlines, mainly Gulf Air, have
increased their operation. While wide-body flight movement
increased by 18%, narrow-body flight movement, other than ATR
aircraft, also increased by 18%.
•
•
•
•
•
Passenger traffic rose significantly by 91,000 passengers or 8%
Overall capacity (ASK) rose by 2%
Revenue traffic (RPK) rose by 2%
Overall seat factor remained at 76%
•
•
•
•
Flight movement at Seeb Airport, increased from 20,353 to
23,545 flights, up 16%.
Airlines, other than Oman Air, increased operations from
14,609 to 17,664 flights, up 21%.
Wide-body flight movement increased from 7,209 to 8,511
flights and narrow-body flight movement, other than ATR
aircraft, increased from 11,632 to 13,693 flights.
Passenger movement rose from 3.388 million to 4.521 million
passengers, up 33%.
Cargo tonnage handled rose from 55,656 to 67,696 metric
tonnes, up 22%.
Catering
Catering revenue during the year recorded RO 6.104 million, an
increase of RO 1.378 million or 29% compared to RO 4.726
million reported in the previous year. The Aircraft Catering
business witnessed growth over the last year with increased flight
movement and catering uplift by major carriers. Total meals
uplifted rose from 3,304,000 to 4,237,000, up by 28%.
Air Charter Services
Expenditure
Air Charter Services recorded a revenue of RO 5.089 million, a
decrease of RO 140,000 from the previous year on account of
step-down charges applicable during the extension period as per
our contract with PDO. PDO will upgrade the services to jet
operations, effective January 2008.
Net expenditure increased only by 9% from RO 74.022 million to
RO 80.892 million, as against a 13% increase in revenue. The
increase in cost is mainly on account of fuel, which rose by
RO 2.816 million or 19%. This was mainly due to a 16% increase
in fuel price and partly due to increase in operations compared to
the previous year. While most costs increased commensurate with
increase in operations, catering material cost increased only by
20%, as against a 29% increase in revenue. It is important to note
that, but for the increase in fuel price, operating profit would have
been even better compared to previous year. Current year
expenditure includes RO 550,000 provided for staff ex-gratia.
Handling Fees
Handling revenue for the year was RO 12.079 million, an increase
of RO 2.515 million or 26% over the previous year’s revenue of
RO 9.564 million.
23
During the current year, maintenance cost provisions for aircraft
and engines are carried in accordance with the provisions of IAS
37. In addition, the Company adopted component accounting and
its related depreciation of its aircraft and engines in accordance
with provisions of IAS 16.
Fuel Cost
Fuel cost rose by RO 2.816 million or 19% mainly due to 16%
increase in fuel price and partly due to the increase in operations
compared to previous year.
Maintenance Cost
In compliance with the provisions of IFRS, actual maintenance
cost is accounted in the current year. Previous year cost includes
maintenance provisions for aircraft, engines and rotables to meet
future contingencies.
Aircraft Operating Expenses
These expenses comprise of handling, landing, simulator costs,
etc. These costs were up RO 393,000 or 6%, in line with the
increase in flight movement, compared to the previous year.
Passenger-related Costs
Passenger-related cost increased marginally from RO 4.763
million to 4.787 million, an increase of RO 24,000 compared to
8% passenger traffic increase. The increase was mainly due to
increase in reservation cost and passenger service charges.
Catering Materials Consumed
Cost of catering materials, items used in the Company’s Catering
business, increased by RO 401,000 or 20%, as against a 29%
increase in revenue. Greater economies of scale and control over
expenses yielded higher gross margins in this business.
Staff Costs
Manpower costs increased by RO 2.497 million or 11% compared
to last year. The Company’s manpower strength increased from
2,878 in 2005 to 3,125 in 2006, up 9%. Increase in manpower
cost was due to the increase in staff strength, and partly due to
increments and promotions given in 2006. Increase in manpower
strength was mainly to cater to higher flight movement and meal
uplift. Other increases in manpower were restricted to critical
operational requirements and positions that would add value in
terms of enhanced customer service, productivity and profitability.
Current year expenditure includes RO 550,000 provided for staff
ex-gratia.
Insurance Cost
The Company’s insurance costs increased by RO 94,000 or 9%.
This is due to full year impact of insurance costs on the new B737
aircraft acquired in April 2005. Although the actual increase in the
insurance costs for the new aircraft is higher, declining aviation
insurance premiums have lowered the impact. Aviation insurance
premiums are gradually declining, after reaching an all-time high
post September 11, 2001.
Depreciation
Depreciation cost was higher by RO 1.844 million over last year.
The Company adopted component accounting as prescribed
under IAS 16 and as a result, the depreciation charge for aircraft
and engines for the year is higher. The increase is also attributed
to full year impact of depreciation cost on one additional aircraft
purchased during April 2005 and new ground equipment, and
aircraft rotables purchased during the year.
Concession Fee
Operating Lease Rentals
Aircraft lease costs amounted to RO 5.666 million compared to
RO 5.623 million, a marginal increase of RO 43,000. As in the
previous year, the airline leased two B737-700 aircraft, one B737800 aircraft, and two ATR42 aircraft.
24
The Company pays a concession fee to Oman Airport
Management Company, the airport operator at Seeb and Salalah
airports. The basis of concession fee has changed effective 2002
under the new concession agreement. From a profit-based
concession fee levied in the past, the Company now pays this fee
as a share of its revenue. The Company pays 7.5% of its handling
revenue and 5% of its catering revenue as concession fee. The
impact of concession fee in 2006 was RO 1.157 million as against
RO 891,000 in 2005. The increase is due to increased handling
and catering revenue from Airport Services.
all critical activities. Further, statutory audit, state audit and the
audit committee augment review of internal controls within the
Company. During 2006, no material lapse or weakness in controls
has been identified.
Capital Expenditure
Fixed assets decreased from RO 64.053 million in 2005 to
RO 57.783 million in 2006, lower by RO 6.270 million. During
the year, the Company adopted component accounting as
prescribed under IAS 16 and has split the aircraft and engines into
its components such as airframe and engines. These asset
components have been depreciated in accordance with their
estimated useful lives.
The Company continued to make capital investment in assets
during the year. Total investment in assets was RO 3.163 million
during the year. This mainly comprised of investment of
RO 774,000 in aircraft spares, RO 1,825,000 in ground
equipment and RO 224,000 for IT systems.
Our People
Company staff strength as at 31 December 2006 was 3,125
employees. Omani nationals represent 72% of the total staff
strength.
Financial Position
As at 31 December 2006, shareholders equity stood at
RO 19.914 million, up by RO 2.904 million over the last year, due
to profit reported in 2006.
Net assets per share amounted to RO 1.499, up by 90 Baizas
compared to last year.
Current assets have improved compared to last year mainly due to
the increase in cash inflows due to higher revenues.
Non-current liabilities decreased from RO 53.863 million in 2005
to RO 45.809 million in 2006. This is mainly due to the decrease
in maintenance cost provision carried at the end of the year in
compliance with the provisions of IAS 37.
The Company has generated a positive cash flow from operations
as shown in the Statement of Cash Flow in the audited financial
statements. Cash flow from operations was RO 10.996 million in
2006 compared to RO 10.703 million in 2005, an increase of
RO 293,000. After servicing and repayment of debt and other
capital expenditure, available cash was RO 5.266 million
compared to RO 2.725 million in 2005.
Internal Controls
The Company has an adequate internal control system
commensurate to its size and nature of business. The internal audit
department continues to maintain its focus on internal controls in
Opportunities and Threats
The global economy is entering a maturity phase, having had
remarkable growth during the years 2004-06. The global GDP
growth, as published by IMF estimates, is forecast at 4.7 percent
for the year 2007. The economic growth in the Middle-East is
expected to experience a higher-than-world-average growth as
high oil prices have led to increased government spending,
enhanced liquidity and significant increase in economic activity.
The Middle-East has been experiencing rapid economic growth,
which is primarily driven by increased investment. High oil
revenue in the last two years has led to increased fiscal spending
by Governments on infrastructure development and non-oil
sectors such as tourism.
Oman’s economy has been growing well in the recent years. With
the Government’s emphasis on development of non-oil sectors,
renewed focus on tourism, and the privatisation drive, the
economy is expected to grow at a healthy rate of 6% in 2007.
The healthy growth of the carriers in the region is expected to
continue for the next five years, with increase in passenger and
freight traffic. The region has witnessed a rapid expansion and
addition of capacity by major players. Expansion by other carriers
on destinations presently served by Oman Air will pose a threat in
terms of intense competition for market share and resultant
decline in yields. However, with a sustained pursuit of its core
plan to be a strong and quality niche regional airline, the
Company is well geared to offset the adverse impact of erosion of
its market share. The Company will capitalise on the available
opportunities
through
innovating
marketing,
product
development, value added service and expansion into routes that
offer synergy with the present network. Oman Air will also further
strengthen its presence on existing routes with a focus on high
frequencies, on-time performance, quick turnarounds, convenient
flight timings, good connectivity, and high standards of customer
service, both on the ground and in the air. High fuel prices
continue to be a threat and can negate improvements in all other
areas.
The proposed phased expansion of Seeb and Salalah airports will
benefit the Airport Services business. Oman Air will continue to
invest in new technologies, state-of-the-art systems, and
manpower training. This, combined with competitive pricing, it is
hoped, will enable the Company to enhance its revenue and
profits in this business.
Outlook
Although the region has witnessed a build up of capacity and
resultant competition from some large carriers, we believe that the
strong focus on customer care and innovative product
development can lead to an increased market share, greater
passenger traffic and revenue growth for the Company. Sustained
monitoring of costs combined with economies of scale through
measured expansion on profitable regional routes, on the other
hand, can improve margins in the Company’s Airline business. In
the Airport Services business, the Company is working jointly with
Oman Airport Management Company to ensure Seeb International
Airport strengthens its competitive edge with investment in human
resources, training and modern airport systems. In the absence of
a major change in competitive landscape or further increase in
fuel prices, Oman Air is confident that it can sustain its good
financial performance in the coming year.
25
26
Independent auditor’s report to the shareholders of
Oman Aviation Services Company SAOG
We have audited the accompanying financial statements of Oman Aviation Services Company SAOG, which comprise of the Balance Sheet
as at 31 December 2006, and the Income Statement, Statement of Changes in Equity and Cash Flow Statement for the year ended 31
December 2006, and a summary of significant accounting policies and other explanatory Notes, as set out on pages 29 to 53. The financial
statements for the year ended 31 December 2005 were audited by another auditor; whose report dated 2 March 2006 expressed an
unqualified opinion thereon.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial
Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and
fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly in all material respects the financial position of Oman Aviation Services Company
SAOG as of 31 December 2006, and of its financial performance and its cash flows for the year then ended, in accordance with International
Financial Reporting Standards and the relevant disclosure requirements of Commercial Companies Law of 1974, as amended, of the Sultanate
of Oman.
Also, in our opinion, the financial statements comply, in all material respects, with the disclosure requirements set out in the Rules for
Disclosure and Proformas issued by the Capital Market Authority and those prescribed under the Commercial Companies Law of 1974, as
amended, of the Sultanate of Oman.
Deloitte & Touche (M.E.)
Muscat, Sultanate of Oman
5 March 2007
28
Balance Sheet
as at 31 December 2006
Notes
2006
RO ’000
2005
RO ’000
57,783
308
1,018
1,073
64,053
297
813
498
60,182
65,661
2,815
14,536
9,504
5,266
2,405
13,988
10,000
2,725
Total current assets
32,121
29,118
Total assets
92,303
94,779
13,283
3,735
64
2,832
12,075
3,446
147
53
1,289
19,914
17,010
831
32,728
6,289
3,711
2,163
87
4,535
37,337
5,983
4,017
1,991
-
45,809
53,863
362
4,609
21,609
672
4,531
18,703
Total current liabilities
26,580
23,906
Total equity and liabilities
92,303
94,779
1.499
1.409
ASSETS
Non-current assets
Aircraft, property, plant and equipment
Available-for-sale investments
Investment in associate company
Long-term receivables
3
4
5
6
Total non-current assets
Current assets
Inventories
Trade and other receivables
Term deposits
Cash and cash equivalents
7
8
9
10
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Legal reserve
General reserve
Cumulative changes in fair value
Retained earnings
11
12
13
14
Total equity
Non-current liabilities
Provision for maintenance of aircraft, engine and rotables
Interest-bearing loans and borrowings
Government soft loan
Deferred Government grant
Employees’ end of service benefits
Deferred tax liability
16
17
19
19
20
21
Total non-current liabilities
Current liabilities
Current portion of provision for maintenance of aircraft, engine and rotables
Current portion of interest-bearing loans and borrowings
Trade and other payables
Net assets per share (RO)
Chairman
16
17
22
23
Director
The accompanying Notes form an integral part of these financial statements.
29
30
Income Statement
for the year ended 31 December 2006
Notes
2006
2005
RO ’000
RO ’000
Revenue
24
85,915
76,337
Expenditure
25
(80,892)
(74,022)
5,023
2,315
Gross profit
Profit on sale of investment
-
626
26
531
325
Share of profits of an associate company
5
556
386
Increase in fair value of long-term receivables
6
-
Interest and investment income
Finance cost
Profit before concession fee and tax
Concession fee
27
Profit before tax
Deferred tax
(1,770)
4,137
1,897
(1,157)
(891)
2,980
21
Profit after tax
Basic earnings per share (Baizas)
15
(1,973)
29
1,006
(87)
–
2,893
1,006
221
83
31
32
Statement of Changes in Equity
Cumulative
changes
Share
Legal
General
in fair
Retained
capital
reserve
reserve
value
earnings
Total
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
RO ’000
12,075
3,346
57
299
473
16,250
Profit for the year
-
-
-
-
1,006
1,006
Transfer to legal reserve
-
100
-
-
(100)
-
Transfer to general reserve
-
-
90
-
(90)
-
-
-
-
(246)
-
(246)
12,075
3,446
147
53
1,289
17,010
-
-
-
-
2,893
2,893
1,208
-
(147)
-
(1,061)
-
Transfer to legal reserve
-
289
-
-
(289)
-
-
-
-
11
-
11
13,283
3,735
-
64
2,832
19,914
Balance as at 1 January 2005
Balance as at 1 January 2006
Profit for the year
Issue of bonus shares
Balance at 31 December 2006
33
34
Statement of Cash Flows
Operating activities
Profit before tax
Adjustments for:
Depreciation of aircraft, property, plant and equipment
Net transfer to provision for end of service benefits
Share of profit of associate company
Finance charges
Loss on sale of aircraft, property, plant and equipment
2006
RO ’000
2005
RO ’000
2,980
1,006
9,421
383
(531)
(556)
1,973
29
(626)
(15)
3,676
356
(325)
1,770
50
Operating cash flows before movement in working capital
Decrease/(increase) in working capital:
Inventories
Aircraft maintenance provision
Security deposit paid
13,699
5,892
(410)
(1,811)
4,107
(4,014)
(575)
(360)
(3,619)
6,807
1,983
-
Cash generated from operations
Finance charges paid
Employees’ end of service indemnity paid
10,996
(1,981)
(211)
10,703
(1,770)
(176)
8,804
8,757
Investing activities
Purchase of aircraft, property, plant and equipment
Purchase of investment
Decrease/(increase) in term deposits
Proceeds from sale of aircraft, property, plant and equipment
Sale of investments
Share of profit received from associate company
(3,270)
496
601
90
351
(11,901)
(3)
(10,000)
325
8
1,067
-
Net cash used in investing activities
(1,732)
(20,504)
Financing activities
Interest-bearing loans and borrowings obtained
Government soft loan obtained
Repayment of loans and borrowings
(4,531)
7,942
10,000
(4,250)
Net cash (used in)/from financing activities
(4,531)
13,692
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
2,541
2,725
1,945
780
Cash and cash equivalents at the end of the year
5,266
2,725
Net cash from operating activities
35
36
Notes to the Financial Statements
1
Legal status and principal activities
Oman Aviation Services Company SAOG (“the Company”) is an Omani joint stock company registered under the Commercial
Companies Law of the Sultanate of Oman. The principal activity of the Company is to transport passengers and freight on a scheduled
and charter basis and to provide ground handling, catering and other airline-related services.
The Company was formed under Royal Decree 52/81 dated 24 May 1981, and commenced operations on 1 October 1981. Initial
duration of the Company was for a period of 20 years from the date of commercial registration to 31 January 2002. Prior to expiry,
the Company’s shareholders passed a resolution in an Extra-ordinary General Meeting on 27 January 2002 extending the Company’s
duration for an indefinite period.
The registered address of the Company is PO Box: 58, PC 111, Seeb, Sultanate of Oman.
2
Summary of significant accounting policies
These financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standard Board (IASB), interpretations used by the Standing Interpretations Committee of the IASB and the
requirements of the Commercial Companies Law of 1974, as amended, and the Capital Market Authority.
Adoption of new and revised International Financial Reporting Standards (IFRS)
For the year ended 31 December 2006, the Company has adopted all of the new and revised standards and interpretations issued
by the International Accounting Standards Board (IASB) and 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 2006.
The adoption of these standards and interpretations has not resulted in changes to the Company’s accounting policies and has not
affected the amounts reported for the current period.
At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet
effective:
Effective for annual periods
beginning on or after
IFRS 7 Financial instruments
IFRIC 7 Applying the restatement approach under IAS 29,
Financial reporting in hyper inflationary economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of embedded derivatives
IFRIC 10 Interim financial reporting and impairment
1 January 2007
1
1
1
1
March 2006
May 2006
June 2006
March 2006
The Management anticipates that the adoption of the above standards and interpretations in future periods will have no material
impact on the financial statements of the Company.
Basis of preparation
These financial statements are presented in Omani Rials (“RO”), which is the currency in which the majority of transactions are
denominated and are rounded off to the nearest thousand.
These financial statements are prepared on historical cost basis as modified by measurement of certain financial instruments at fair
value.
The preparation of the financial statements in conformity with the IFRS requires the Management to make estimates and assumptions
that affect the reported amount of financial assets, liabilities, income and expenses at the date of the financial statements. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods
if the revision affects both current and future periods. The critical accounting estimates and matters involving significant judgements
are disclosed in Note 34.
37
for the year ended 31 December 2006 (continued)
2
Summary of significant accounting policies (continued)
Aircraft, property, plant and equipment are stated at cost, less accumulated depreciation and any identified impairment loss.
Borrowing costs, net of interest income, which are directly attributable to acquisition of items of aircraft, property, plant and
equipment, are capitalised as the cost of aircraft, property, plant and equipment.
Subsequent expenditure
Expenditure incurred to replace a component of an item of aircraft including major inspection and overhaul expenditure is
capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item
of aircraft, property, plant and equipment. All other maintenance expenditure is recognised in the Income Statement as an expense
as and when incurred.
Cost of expenses incurred for regular inspections of air frame and engines are capitalised and depreciated over the period between
consecutive inspections, which is generally 8 and 3 years respectively.
Depreciation
Depreciation is calculated so as to write off the cost of aircraft, property, plant and equipment (other than capital work in progress)
on a straight line basis over the expected remaining useful economic life of the asset concerned.
The estimated useful lives used for this purpose are:
Asset
Years
Air frame
Engines
Tools
Buildings
Plant and equipment
Furniture, vehicles & equipment
25
15
5
5 to 25
5 to 7.5
3 to 5
Until 2005, the cost of aircraft, engines and rotables were depreciated over a period of 12 to 25 years. During 2006, in order to
achieve full compliance with IFRS, the Company has further broken the cost of aircraft into air frame, engines and maintenance costs,
each with separate useful lives. The effect of this change is disclosed in Note 26 to the financial statements.
Leases
Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are
capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance charges are charged to the Income Statement.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases, where the lessor retains substantially all the risks and benefits of ownership of the asset, are classified as operating leases.
Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term.
Impairment
At each Balance Sheet date, the Company reviews the carrying amounts of its assets (or cash-generating units) to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of
the assets is estimated in order to determine the extent of the impairment loss (if any).
38
2
Impairment (continued)
The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and the carrying
amount of the asset and is recognised immediately in the Income Statement.
Where an impairment loss subsequently reverses, the carrying amount of the assets is increased to the revised estimate of its
recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.
Investments intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes
in interest rates or equity prices, are classified as available-for-sale.
Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently
carried at fair value. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which
other methods of reasonably estimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated
impairment.
For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the
security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is
included in the profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as
available-for-sale are not subsequently reversed through profit or loss.
Investments in associate
An associate is an entity over which the Company has significant influence, and that is neither a subsidiary nor an interest in a joint
venture. ‘Significant influence’ is the power to participate in the financial and operating policy decisions of the investee, but is not
control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of
accounting, except when the investment is classified as held-for-sale, in which case it is accounted for under IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the Balance
Sheet at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment
in the value of individual investments. Losses of an associate in excess of the Company’s interest in that associate (which includes
any long-term interests that, in substance, form part of the Company’s net investment in the associate) are not recognised.
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.
Financial instruments
Financial assets and liabilities are recognised on the Company’s Balance Sheet when the Company becomes a party to the
contractual provisions of the instrument.
The principal financial assets are long-term receivables, trade and other receivables, bank balances, and cash.
Long-term receivables are carried in the Balance Sheet at their principal amount, less any impairment for time value of money.
Trade and other receivables are initially measured at their fair value, and subsequently measured at amortised cost, using the Effective
Interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in the Income Statement when there is
objective evidence that the asset is impaired.
The principal financial liabilities are bank loans and trade and other payables.
Interest-bearing bank loans and borrowings are initially measured at fair value, and are subsequently measured at amortised cost
using the Effective Interest method. Any difference between the proceeds (net of transaction costs) and the settlement of borrowings
is recognised over the term of the borrowings.
39
2
Financial instruments (continued)
Trade payables are initially measured at their fair value and subsequently measured at amortised cost, using the Effective Interest
method.
Share capital is stated at the net proceeds received, less direct issue costs.
Deferred Government grant
Interest subsidy is recognised in the Balance Sheet initially as a deferred Government grant and is amortised over the life of the loan
based on the Effective Interest method in the same years in which the interest expense is incurred.
Provision for staff end of service indemnity
Provision for end of service indemnity for non-Omani employees is made in accordance with the Oman Labour Law, and is based
on current remuneration and cumulative years of service at the Balance Sheet date.
End of service indemnity for Omani employees are contributed in accordance with the terms of the Social Securities Law 1991.
Provisions
A provision is recognised in the Balance Sheet when the Company has a legal or constructive obligation as a result of a past event
and it is probable that it will result in an outflow of economic benefits that can be reasonably estimated.
Taxation
Income tax is calculated as per the fiscal regulations of the Sultanate of Oman.
Current tax is the expected tax payable on the taxable income for the year, using the tax rates ruling at the Balance Sheet date.
Deferred tax is provided using the Balance Sheet Liability method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax is calculated on
the basis of the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. The tax effects
on the temporary differences are disclosed under non-current liabilities as deferred tax.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Revenue
Passenger ticket and cargo airway bills sales, net of commission, are 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.
Other revenue is recognised at the time the service is provided, net of rebate.
Interest income is accounted on accrual basis by reference to the amount outstanding and the applicable interest rates.
Foreign currency
Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the date of the
transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the Balance Sheet
date. Gains and losses arising from foreign currency transactions are dealt with in the Income Statement.
The Company considers all bank and cash balances with an original maturity of less than three months from the date of placement
and bank overdraft to be cash and cash equivalents.
Directors’ remuneration
Directors’ remuneration is computed in accordance with the provisions of the Commercial Companies Law and the requirements of
Capital Market Authority, and is charged in the Income Statement.
40
3
Plant and
equipment
RO ’000
Vehicles,
office
equipment
and furniture
RO ’000
Capital
work-inprogress
RO ’000
Total
RO ’000
Airframe
RO ’000
Engines and
rotables
RO ’000
Cost
1 January 2005
Additions
Transfers
Disposals / write-offs
40,179
407
16,631
-
7,003
348
-
698
19
-
6,726
62
30
-
9,737
1,161
(509)
4,549
248
497
(75)
7,784
9,702
(17,158)
(40)
76,676
11,947
(624)
1 January 2006
Reclassification (Note 26)
Additions
57,217
(13,598)
-
7,351
13,598
774
(33)
717
39
(2)
6,818
15
38
(101)
10,389
153
1,895
(382)
5,219
48
417
(110)
288
(216)
107
(27)
87,999
3,270
(655)
31 December 2006
43,619
21,690
754
6,770
12,055
5,574
152
90,614
Depreciation
1 January 2005
Charge for the year
Disposals
5,133
2,000
(33)
1,306
433
33
595
20
-
3,015
323
-
7,286
529
(458)
3,455
371
(62)
-
20,790
3,676
(520)
1 January 2006
Charge for the year
Reclassification (Note 26)
7,100
3,435
(2,064)
-
1,772
573
5,965
(17)
615
47
(2)
3,338
281
(92)
7,357
623
(340)
3,764
561
(85)
-
23,946
5,520
3,901
(536)
31 December 2006
8,471
8,293
660
3,527
7,640
4,240
-
32,831
Net book value
31 December 2006
35,148
13,397
94
3,243
4,415
1,334
152
57,783
31 December 2005
50,117
5,579
102
3,480
3,032
1,455
288
64,053
Tools Buildings
RO ’000 RO ’000
The Company owns one Boeing 737-700 and two ATR 42-500 aircraft, and has acquired two Boeing 737-800 under finance lease
arrangements.
A financing agreement was signed with the lead arrangers on 4 February 2003 for the purchase of one Boeing 737-700 (delivered
in June 2002) and aircraft spares. The loan is secured by guarantee provided by the Government of the Sultanate of Oman, and the
aircraft is mortgaged in favour of Government of Sultanate of Oman (Note 17).
The two ATR 42-500 aircraft are subject to a mortgage in favour of a bank to secure a term loan (Note 17).
During February and June 2005, the Company had leased out these aircraft for the period upto 31 December 2009, to Deccan
Aviation Private Limited, a private company registered in India. During the year 2006, the Company exercised its option to recall
one of these aircraft as this would be used for Occidental Mukhaizna LLC operations from January 2007.
During the year ended 31 December 2003, the Company entered into lease agreement with Wings of Oman Limited, a company
registered in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in July 2003); the net carrying amount of the leased
aircraft was in the amount of approximately RO 15,122,282 (Note 18).
During the year ended 31 December 2005, the Company entered into lease agreement with Khanjar of Oman Limited, a company
registered in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in March 2005); the net carrying amount of the
leased aircraft was in the amount of approximately RO 16,389,449 (Note 18).
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 and Salalah airports (Note 27). 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.
41
3
Aircraft, property, plant and equipment (continued)
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.
During the year, in order to achieve full compliance with IFRS, the Company has further broken the cost of aircraft into air frame,
engines and maintenance costs each with separate useful lives. The effect of this change is disclosed in Note 25 to the financial
statements.
4
Quoted local equity investments
Unquoted local equity investments
2006
RO ’000
2005
RO ’000
208
100
197
100
308
297
Available-for-sale investments are analysed as follows:
Quoted local equity investments:
Investments
Services
Unquoted local equity investments:
Services
Fair value
2006
RO ’000
At cost
2006
RO ’000
Fair value
2005
RO ’000
At cost
2005
RO’000
53
155
14
46
42
155
14
46
208
60
197
60
100
100
100
100
Details of the Company’s investment holding exceeding 10% of the market value of the Company’s total portfolio as of 31 December
2006 are as follows:
MSM quoted securities:
National Finance Company SAOG
Gulf Hotel Oman SAOG
Oman United Insurance SAOG
Portfolio
holding
(%)
Number of
securities
Market
value
RO ’000
Cost
RO ’000
32
6
62
65,204
12,696
120,310
124
53
31
36
14
10
208
60
2006
RO ’000
2005
RO ’000
100
5
Investments in associate
Cost
Add: Share of profits at the beginning of year
Add: Share of profit for the year
Less: Dividends received in the year
75
738
556
(351)
1,018
75
352
386
813
Investments in an associate company represents 50% equity in Oman Sales and Services LLC (“OSS”), a limited liability company
registered in the Sultanate of Oman, at a cost of RO 75,000.
42
5
Investments in associate (continued)
Summarised financial information of the associate (based on unaudited accounts) is as below :
6
2006
RO ’000
2005
RO ’000
Revenue
9,007
7,129
Profit after tax
1,109
776
Assets
2,900
1,829
Liabilities
1,277
982
Long-term receivables
Long-term receivables represent interest-free deposits placed with International Leasing Finance Corporation (ILFC) for the lease of
two Boeing 737 aircraft, and Eternity Aviation Limited for the lease of one Boeing 737 aircraft, in accordance with the terms of the
related lease agreements. The deposits are receivable at the termination of the lease agreements. The Boeing 737 NG lease
agreements expire in March 2008, April 2009 and May 2009.
7
Inventories
Aircraft consumables
Catering stock
Passenger consumables
General
Provision for obsolete and slow-moving items
2006
RO ’000
2005
RO ’000
2,302
226
239
726
1,857
216
341
857
3,493
3,271
(678)
(866)
2,815
2,405
Movement in provision for obsolete and slow-moving item:
1 January
Additional provision during the year
Amounts utilised during the year
31 December
8
866
87
(275)
779
150
(63)
678
866
3,153
6,325
936
1,319
(395)
3,540
5,586
924
1,391
(432)
Airlines and charterers
Travel agents
Ministries
Others
Provision for impairment
Trade receivables
Other receivables
Prepaid expenses
11,338
2,370
828
11,009
1,966
1,013
14,536
13,988
Movement in provision for impairment:
1 January
Additional provision during the year
Amounts utilised during the year
Debtors written-off during the year
432
23
(38)
(22)
399
33
-
31 December
395
432
43
8
Trade and other receivables (continued)
Trade receivables include amounts due from related parties amounting to RO 232,123 (2005 - RO Nil).
Owing to the nature of the Company’s operations, it undertakes transactions with a large number of customers in various countries.
Trade accounts receivable includes amounts totalling RO 5,862,017 (2005 - RO 3,070,444) due in foreign currencies, mainly US
Dollars.
The Company had purchased options from the manufacturer to buy four ATR 42-500 aircraft. Since the Company does not have a
firm date to exercise these options, a provision has been created.
9
Term deposits
Term deposits, in the amounts of RO 9.5 million, represent deposits with commercial banks in Oman. These term deposits mature
within six months from the Balance Sheet date and are denominated in Rials Omani, earning interest ranging between 5.100% and
5.467% per annum.
10
Cash and cash equivalents in the Balance Sheet comprise the following:
2006
RO ’000
5,266
Bank balances and cash
2005
RO ’000
2,725
Bank balances and cash include amounts aggregating RO 421,721 (2005 - RO 693,895) held with banks in India, Egypt and
Tanzania in local currencies. Prior approval from regulatory authorities of the respective countries is required for the transfer of these
funds.
11
Share capital
The authorised share capital of the Company is 50,000,000 shares of RO 1 each. The issued and paid up capital of the Company
comprises of 13,282,500 shares of RO 1 each (Note 36).
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
Government of Sultanate of Oman
Mohammed Ahmed Said Al Qassmi
12
34
10
2006
2005
4,495,282
1,342,002
4,086,620
135,049
5,837,284
4,221,669
Legal reserve
In accordance with the Commercial Companies Law of 1974 (as amended), 10% of the Company’s net profits after the deduction of
taxes will be transferred to a non-distributable legal reserve each year until the amount of such legal reserve has reached a minimum
one-third of the Company’s issued share capital. This reserve is not available for distribution to shareholders as dividends.
13
General reserve
This is a voluntary reserve created by appropriations equivalent to 10% of net profit after transfers to legal reserve.
14
The movement in the cumulative changes in the fair value of available-for-sale investments is as follows:
1 January
Realised during the year
Net unrealised gain during the year
31 December
44
2006
RO ’000
53
11
2005
RO ’000
299
(330)
84
64
53
15
Proposed dividend
The Board of Directors in their meeting on 5 March 2007, have proposed a cash dividend of RO 0.100 per share (2005 - stock
dividend of RO 0.100 per share). This dividend is subject to the approval of the shareholders in the Annual General Meeting.
16
Provision for maintenance of aircraft, engines and rotables
Provision for maintenance of aircraft, engines and rotables
Movement during the year is as follows:
1 January
Additional provisions during the year
Reversed during the year
Utilised during the year
31 December
2006
RO ’000
2005
RO ’000
1,193
5,207
5,207
(4,014)
-
3,224
2,082
(99)
1,193
5,207
Consequent to adoption of component accounting as per IAS 16 - Property, plant and equipment, the Company has transferred the
excess provision to the Income Statement. From the current year, 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.
17
Interest-bearing loans and borrowings
Term loans
Finance lease liabilities
Less: Current portion
Term loans
Finance lease liabilities (Note 18)
Non-current portion
2006
RO ’000
2005
RO ’000
14,674
22,663
17,311
24,557
37,337
41,868
2,637
1,972
2,637
1,894
4,609
4,531
32,728
37,337
The Company has three term loans as at 31 December 2006.
The first term loan in the amount of RO 3,786,440 denominated in US Dollars was obtained for the purchase of two ATR 42-500
aircraft. The loan is repayable in 32 equal quarterly installments commencing from December 2001. The Company has the option
to repay the loan in part or full on any of the repayment dates. The loan is secured by a mortgage on two aircraft (Note 3).
The second term loan in the amount of RO 8,891,894 denominated in US Dollars is for the purchase of one Boeing 737-700 aircraft.
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 of Oman has given a guarantee for the repayment of the loan
and the aircraft is mortgaged in favour of Government of Sultanate of Oman (Notes 3 and 19).
The third term loan in the amount of RO 4,632,719 denominated in US Dollars is for the purchase of spares for the Boeing aircraft.
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 of Oman has given a guarantee for the repayment of the loan
and the spares are mortgaged in favour of Government of Sultanate of Oman (Note 19).
The effective rate of interest on the above loans was in the range of three months LIBOR + 0.9% to three months LIBOR + 1% during
the year ended 31 December 2006 (2005 - three months LIBOR + 0.9% to three months LIBOR + 1%).
45
18
Finance lease liabilities
The Company obtained finance lease for two Boeing 737-800 aircraft, of which one was during the year 2006. Finance lease
liabilities are payable as follows:
Total
RO ’000
2006
Interest
RO ’000
Principal
RO ’000
Total
RO ’000
2005
Interest
RO ’000
Principal
RO ’000
Less than one year
Between one year and five years
More than five years
2,917
11,664
13,262
945
2,887
1,348
1,972
8,777
11,914
2,916
11,559
16,284
1,022
3,145
2,035
1,894
8,414
14,249
Total
27,843
5,180
22,663
30,759
6,202
24,557
Under the terms of the lease agreement, no contingent rents are payable.
19
2006
RO ’000
Less: Deferred government grant
2005
RO ’000
10,000
(3,711)
10,000
(4,017)
6,289
5,983
The Government of the Sultanate of Oman has provided an interest-free loan of RO 10,000,000. The loan was disbursed in January
and February 2005. The loan is repayable in 10 equal annual instalments from January 2011. The loan is secured against a mortgage
of one B 737-700 aircraft and associated spares. Under the loan agreement signed with the Government, the Company cannot
distribute any profit if any instalment is due and not paid by the Company. If the Company is able to increase the share capital during
the next five years, the Government may convert the loan into equity.
Soft loan from the Government of Sultanate of Oman is stated at amortised cost. In accordance with Capital Market Authority (CMA)
circular 1 of 2002 and IAS 39, the difference between the carrying value and fair value of the loan has to be shown as “deferred
government grant” and is to be recognised as income over the loan period as necessary to match it with the related costs, which it
is intended to compensate on a systematic basis. The current market Weighted Average interest rate has been considered for this
calculation. However, the current portion of recognised deferred government income is equivalent to the related interest cost.
Hence, there is no impact on the current year results.
20
Employees’ end of service benefits
Movement in the provision for end of service benefits during the year is as follows:
2006
RO ’000
2005
RO ’000
1 January
Charge for the year
Payments during the year
1,991
383
(211)
1,811
356
(176)
31 December
2,163
1,991
46
21
Deferred tax liability
Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 12%. The
net deferred tax (liability) / asset and deferred tax charge in the Income Statement are attributable to the following items:
Charge for
the year
Asset
Carried forward losses
Liability
Accelerated tax depreciation
22
RO ’000
Balance at
31 December
2006
RO ’000
2,300
2,300
(2,387)
(2,387)
(87)
(87)
Trade payables
Advances from customers
Other payables
Accrued expenses
2006
RO ’000
2005
RO ’000
3,628
5,914
10,041
2,026
3,933
5,195
7,260
2,315
21,609
18,703
Trade payables include aggregate amounts of RO 1,685,318 (2005 - RO 1,281,883) due in foreign currencies, mainly US Dollars.
Trade payables include amounts due to related parties amounting to RO 10,880 (2005 - RO 16,506).
Other payables includes an amount of RO 54,370 towards Directors’ remuneration proposed by the Board of Directors in their
Meeting on 5 March 2007, which is subject to the approval of the shareholders in the Annual General Meeting.
23
Net assets per share
2006
2005
Net assets (RO ’000)
19,914
17,010
Number of shares at year end (’000s)
13,283
12,075
1.499
1.409
Net assets per share (RO)
Net asset per share is calculated by dividing the shareholders’ equity at the year end by the number of shares outstanding.
24
Revenue
Scheduled Services-International
Scheduled Services-Domestic
Air Charter Services
Handling Fees
Catering
Other income
2006
RO ’000
2005
RO ’000
54,808
7,756
5,089
12,079
6,104
79
50,069
6,726
5,229
9,564
4,726
23
85,915
76,337
47
25
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
Others
2006
RO ’000
2005
RO ’000
5,666
17,919
3,899
6,647
4,787
2,455
25,425
1,196
200
5,520
7,178
5,623
15,103
5,862
6,254
4,763
2,054
22,928
1,102
211
3,676
6,446
80,892
74,022
Others include RO 113,208 being the effect of adoption of component accounting, which has resulted in additional depreciation
and the reversal of maintenance provision in respect of aircraft, engines and rotables consequent to full compliance with the
provisions of IAS 16 - ‘Property, plant and equipment’ and IAS 37 - ‘Provisions, contingent liabilities and contingent assets’.
Employee cost includes the following:
Wages and salaries
Other benefits
Increase in liability for unfunded defined benefit retirement plan
Contribution to a defined contribution retirement plan
26
2005
RO ’000
21,060
3,245
384
736
19,048
2,859
356
665
25,425
22,928
2006
RO ’000
2005
RO ’000
530
1
324
1
531
325
Interest on term deposits
Dividends
27
2006
RO ’000
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 and to provide aircraft passenger and cargo handling facilities and 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.
In the year 2006, the Company has secured an extension of service period for ground handling till 2010, or till the opening of new
international airport terminal, whichever is earlier and for services of cargo handling, the Company is awaiting confirmation from
Oman Airports Management Company SAOC (OAMC).
48
27
Aviation services agreement and combined term sheet agreement (continued)
The following charges set out in the aviation services agreement are included in the financial statements:
Rent
Concession fee
2006
RO ’000
2005
RO ’000
200
1,157
200
891
1,357
1,091
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 - 7.5% of the monthly turnover received from ground handling services provided to third parties.
Cargo handling fee - 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.
28
Income tax charge
Income tax is provided as per the provisions of the law of income tax on companies in Sultanate of Oman, as adjusted for items that
are either disallowed or non-available. No amount of tax provision was necessary during the year as the Company had carry forward
losses to set off against the current year’s profit. The Secretariat General for Taxation at the Ministry of Finance has not completed
the Company’s tax assessments for the year 2005. The deferred tax on all temporary differences have been calculated and dealt with
in the Income Statement (Note 21). The Company has tax losses available for offset against future taxable profits as follows:
Available to 31 December 2007 - Assessed
29
2006
RO ’000
2005
RO ’000
4,097
4,124
3,791
1,955
1,589
-
12,012
3,544
2006
2005
2,893
1,006
13,084
12,075
221
83
Basic earnings per share
Profit for the year (RO ’000)
Weighted Average number of shares outstanding during the year (‘000)
Earnings per share (Baiza)
The par value of each share is RO 1. The earnings per share is calculated by dividing the profit for the year by the weighted average
number of shares outstanding during the year.
30
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 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 period-end are unsecured, and settlement occurs in cash.
No expenses have been recognised in the year for bad or doubtful debts in respect of amounts owed by related parties.
49
30
Related parties (continued)
Following is the summary of significant transactions with related parties during the year:
Expenses
Purchase of goods / services
Brokerage on sale of investment
2006
RO ’000
2005
RO ’000
6,069
-
6,371
2
The amount due from / (to) related parties are included in Notes 8 and 22 respectively.
Key management personnel’s 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).
2006
RO ’000
2005
RO ’000
62
4
99
68
5
46
165
119
Short-term benefits
Post-employment benefits
Directors’ remuneration and sitting fees (Note 22)
31
Business and geographical segments
a.
Operating segment
The Company is organised into four major operating divisions - Airline, Catering, Cargo and Ground Handling. The Airline
division provides passenger and cargo services on a scheduled and charter basis. The 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.
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:
Airline
Catering
2005
RO ’000
Revenue
Total revenue
Inter-division revenue
Other income
70,002
-
63,713
-
8,727
(2,623)
-
6,926
(2,200)
-
11,676
(1,947)
-
9,721
(1,846)
-
90,405
(4,570)
80
80,360
(4,046)
23
External revenue
70,002
63,713
6,104
4,726
9,729
7,875
85,915
76,337
1,775
1,943
2,912
2,026
2,905
2,423
7,592
6,392
Common costs
(2,569)
(4,077)
Operating profit
Finance cost
Share of profit of an associate company
Concession fee
Deferred tax charge
5,023
(1,973)
531
556
(1,157)
(87)
2,315
(1,770)
325
386
15
626
(891)
-
2,893
1,006
Profit for the year
2005
RO ’000
Total
2006
RO ’000
Segment profit including
inter-division profit
2006
RO ’000
Ground and Cargo
Handling
2006
2005
RO ’000
RO’ 000
2006
RO ’000
2005
RO ‘000
As each of the Company’s divisions operate within the airline industry, the Company’s reporting structure encompasses the
assets and liabilities for all the divisions, and hence segmental analysis of assets and liabilities is not provided.
50
31
Business and geographical segments (continued)
b.
Geographical segment
Although the Company’s geographic business segments are managed centrally, they operate 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
32
Overseas
Total
2006
RO ’000
2005
RO ’000
2006
RO ’000
2005
RO ’000
2006
RO ’000
2005
RO ’000
35,597
30,291
54,808
50,069
90,405
80,360
Commitments and contingencies
a.
Capital commitments
Capital expenditure commitments
b.
2006
RO ’000
2005
RO ’000
1,009
1,994
Operating lease commitments
The Company has entered into operating lease agreements for the lease of following aircraft:
•
•
•
One Boeing 737-800 aircraft, effective from December 2001, for a period of 64 months
Two Boeing 737-700 aircraft, effective from January 2002 and May 2002 respectively, for periods of 64 months
Two ATR aircraft, effective from December 2001, for periods of 60 months
The operating lease commitments as of 31 December 2006 are as follows:
Future minimum lease payments:
Not later than one year
Later than one year, and not later than five years
Later than five years
33
2006
RO ’000
2005
RO ’000
6,364
26,784
6,865
5,580
2,135
-
40,013
7,715
Financial instruments
Exposure to credit, interest rate and foreign currency risks arises in the normal course of the Company’s business.
Trade and other receivables mainly comprise amounts due from customers. Trade and other payables comprise amounts outstanding
for trade purchases and ongoing costs.
Credit risk
The credit risk of the Company is primarily attributable to bank balances, and trade and other receivables.
The Company’s bank accounts are placed with reputed financial institutions.
The Company attempts to control credit risk by monitoring credit exposures, limiting transactions to specific counter parties and
continually assessing the credit worthiness of counter parties. Five customers (three billing settlement agents, one airline and a
government-owned entity) account for 64% of outstanding receivables at 31 December 2006 (2005 - Five customers accounted for
32%).
Interest rate risk
The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s long-term debt obligations.
The Company does not use derivative financial instruments to hedge its interest rate risk on long-term debt obligations as the Board
of Directors believe that the related interest rate risk is minimal.
51
52
33
Financial instruments (continued)
Currency risk
The Company’s term loans are denominated in US Dollars. No forward exchange contract cover on the loans was in place at the
Balance Sheet date, as the Board of Directors believes that the related currency risk is minimal.
Fair value of financial assets and liabilities
The Board of Directors believes that the fair value of financial assets and liabilities are not materially different from their carrying
values at the Balance Sheet date.
34
Critical judgments in applying the accounting policies
In the process of applying the Company’s accounting policies, which are described in Note 2, Management has made the following
judgments that have the most significant effect on the amounts recognised in the financial statements (apart from those involving
estimations).
Depreciation
Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based
on Management’s assessment of various factors such as the operating cycles, the maintenance programmes, and normal wear and
tear using its best estimates.
Provision for inventory obsolescence
Provision for inventory obsolescence is based on Management’s assessment of various factors such as the usability, the maintenance
programmes, and normal wear and tear using its best estimates.
Provision for impaired debts
Provision for impaired debts is based on Management’s best estimates of recoverability of the amounts due, along with the number
of days for which such debts are due.
35
Approval of the financial statements
The financial statements were approved by the Board of Directors and authorised for issue in their meeting held on 5 March 2007.
36
Events after Balance Sheet date
Subsequent to the Balance Sheet date on 4 February 2007, the Board of Directors has proposed to increase the issued share capital
to RO 50,000,000 by way of a preferential allotment to the Government of Sultanate of Oman. This resolution is subject to the
approval of the shareholders in an Extra-ordinary General Meeting.
37
Comparative figures
Certain comparative figures have been regrouped and reclassified wherever necessary to match with current year presentation.
53

Cover Pge - Oman Air

Transcription

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