In 1984, on November 28, Ryanair DAC took off as an ultra-low-cost carrier based in Ireland. Group Chief Executive Officer Michael O’Leary works alongside Nonexecutive Chairman David Bonderman. Stansted Airport, which serves Dublin and London, has its main office in the Swords neighborhood of Dublin. Buzz, Ryanair U.K., and Malta Air are the three principal subsidiaries of Ryanair Holdings plc. In 2016, Ryanair carried more non-European Union travelers than any other European low-cost carrier. Ryanair flies to a considerable number of locations from its 225 destinations. With a rise in revenue to €8495 million in 2020 from €7697 million in 2019, Ryanair’s operating income, net income, total assets, and equity have all increased over time. The Ryanair fleet includes Airbus A320-200s, Boeing 737-700s, Boeing 737-800s, and Boeing 737 Max 200s.
Ryanair’s mission is to become the preeminent low-cost, scheduled passenger airline in Europe by further developing and extending its low-cost services. Ryanair’s objective is to provide low fares to attract more customers while relentlessly pursuing efficiency in both cost and operations. To be a low-cost provider, in general, is part of the strategic mix. With its current strategy mix, Ryanair is well-positioned to achieve its stated goals and objectives. They are known as the largest low-cost aircraft in the world, and they are sometimes referred to as a discount airline as well. In August of 2006, Ryanair was deemed the most profitable airline in the world by Air Transport World Magazine’s estimations of operating income and net profit margins. The company’s physical and financial assets for Ryanair are preserved (Costa, 2017). The company operates a fleet of 196 Boeing planes, uses secondary airports in 27 countries, and offers flights to 127 locations across the world. Ryanair recognizes the value of its name and reputation as a company resource when it comes to human resources. Ryanair’s main concerns right now are the effects of rising oil prices and future opportunities.
Capital Expenditures
The total amount spent in 2020 was €1,196m, while 2019’s budget year was €1,547m. Borrowings under facilities given by foreign financial institutions on the basis of guarantees issued by the Export-Import Bank of the United States (“Ex-Im Bank”) have traditionally financed a large amount of Ryanair’s acquisition of new Boeing 737 aircraft and related equipment. By the end of March 2020, Ryanair had 440 Boeing 737s in service, with 89 planes receiving Ex-Im Bank-guaranteed loans (Costa, 2017). Ryanair also uses Japanese Operating Leases with Call Options (“JOLCOs”), which are recorded on the books as finance leases (10 of the Company’s Boeing 737 fleet as of March 31, 2020). On March 31, 2020, Ryanair had financed 14 Boeing 737s through lease agreements, 183 Boeing 737s using its resources on an unsecured basis, and 144 Boeing 737s with no outstanding debt. Historically, Ryanair has been able to cover its working capital needs unrelated to aircraft acquisitions with funds generated from operations. The Company has sufficient working capital to fulfill its current needs and to fund its expected capital expenditures and other cash requirements through the end of its fiscal year 2021, per management projections.
Capital Resources
The impact of IFRS 16 (€246m), a new €750m unsecured syndicated bank facility, debt repayments of €419m, and lease liability payments of €68m resulted in a change in Ryanair’s long-term debt (including current maturities) from €3,644m on March 31, 2019, to €4,211m on March 31, 2020. As of March 31, 2020, 89 of Ryanair’s aircraft were backed by Ex-Im Bank’s loan guarantee and financed through loan facilities with different financial institutions engaged in structured export finance. All of these funding options look very similar since they were all modeled after documents created by Ryanair and Ex-Im Bank, which in turn were modeled after industry-standard templates. The Ex-Im Bank Capital Markets Product (“Eximbond”) in U.S. dollars allowed Ryanair to purchase seven planes in November 2010. There are no new liabilities for Ryanair as a result of the Eximbond, and the terms are otherwise identical to those of prior Ex-Im Bank guaranteed financings. A financial institution investor enters into a commitment letter with the Company to provide financing for a defined number of aircraft benefiting from such guarantee; loans are subsequently drawn down as the aircraft are delivered, and payments to Boeing become due, all based on an Ex-Im Bank guarantee with regard to the financing of up to 85% of the qualifying U.S. and foreign content represented in the net purchase price of the relevant aircraft. All loans made under the facilities have the same basic parameters, including a priority mortgage in favor of a security trustee on behalf of Ex-Im Bank and a maturity date of 12 years from the drawdown date.
As of March 31, 2020, the Lauda fleet comprised 26 leased Aircraft A320s.
Ryanair has successfully transformed a portion of its floating-rate debt under its financing arrangements into fixed-rate debt using interest rate swaps and cross-currency interest rate swaps. As part of Ryanair’s risk management plan, they are handling the fact that about a quarter of the loans for the aircraft acquired under the facilities mentioned above are not covered by such swaps and have consequently stayed at floating rates linked to EURIBOR. Ryanair has effectively swapped or pulled down fixed-rate euro-denominated debt with remaining maturities of up to 5 years in respect of roughly 75% of its outstanding aircraft debt financing as of March 31, 2020, while around 25% of the overall debt was floating rate as of that date. In order to cover the cost of any future Boeing 737-MAX-200 aircraft purchases, Ryanair will need to receive further loans under each of the facilities, which is contingent on the issue of additional bank commitments and the meeting of specific contractual criteria. All of Ryanair’s obligations under the Boeing agreements must be met, and satisfactory security interests must be provided in the aircraft (and related assets) in favor of the lenders and Ex-Im Bank (Rodríguez-García., 2020).
Additionally, there must be no material adverse change in Ryanair’s conditions or prospects (financial or otherwise). Since Ryanair has a BBB credit rating from Standard & Poor’s (“S&P”) and Fitch Ratings and has previously issued €850m in 1.875% unsecured Eurobonds with a 7-year tenor in June 2014, €850m in 1.125% unsecured Eurobonds with an 8-year tenor in March 2015, and €750m in 1.125% unsecured Eurobonds with a 6.5-year tenor in February 2017 under its EMTN program, Ryanair has entered into various lease agreements and related arrangements as part of the Ex-Im Bank guarantee-based financing of the Boeing 737s. As a result of these agreements, several particular purpose vehicles (“SPVs”) organized under the laws of the United States hold legal title to the 89 aircraft that have been delivered and are still in the fleet as of March 31, 2020. All of the SPVs’ obligations under the Loans are guaranteed by Ryanair Holdings, even though the SPVs are the borrowers of record under the Loans made or issued under the Facilities.
Challenges the company would face in implementing continuous budgeting
When managing a company’s finances, budgeting is a crucial responsibility for CEOs and CFOs of enterprises of all sizes. The budget is the financial plan for the organization, outlining how much money will be allocated to each department so that it can cover its expected operational costs. It also helps business owners and executives estimate how much money will be available to invest in future growth and expansion. If Ryanair Holdings plc were to consider implementing continuous budgeting, the company would face several challenges. Such challenges include;
- Using the wrong tools
While pen and paper have their place, they may not be optimal when budgeting. Reporting ought to be precise and up-to-date. And if the reports are being done manually, the business may be missing out on a chance to save time and money. Maybe they’ve decided that electronic spreadsheets are more convenient than pen and paper. But spreadsheets might not provide them with all the data they require, either. If they used accounting software, for example, they could obtain instantaneous data as soon as they entered spending. Accounting software, an accountant, or both should be included as line items in the budget (Abardeh et al., 2022). The combination of these may allow the organization to stay on track with its financial goals.
- Not updating their budget.
Every year, businesses must revise and adjust their budget. However, what do we do when catastrophes like COVID-19 or natural disasters strike? When significant alterations affect how the company operates for the remainder of the year, it is time to revise the budget. Payroll adjustments, such as hazard pay, may be necessary if an unforeseen occurrence disrupts the supply chain or causes a shift in demand for goods and services (like the necessity to hire a sanitation expert in the wake of the COVID-19 pandemic). Budget revisions are essential for Ryanair Holdings, especially in a natural disaster or other emergencies that cause a halt in activity (Abardeh et al., 2022). The business should examine its reports monthly or annually to establish a benchmark from which future budgets can be compared. It is also a good idea to check in with the accounting division to see if any significant changes have occurred that could have a financial impact on the company.
- Not making time for budgeting.
When dealing with financial difficulties, time constraints may be paramount. The corporation risks acting hastily and making mistakes if it does not take the time to plan its annual budget carefully. The best way to deal with this problem is to give yourself plenty of time when making the budget. Remember that budgeting is an ongoing process that needs attention throughout the year. Spend some time reviewing both the near-term and far-term objectives of the business.
Reasons why cash is worth more today than cash to be received in the future
The time value of money is a foundational concept studied by all business majors (TVM). According to this economic tenet, money obtained today is worth more than money received tomorrow. The question is, “Why is that?” Cash is cash, and its value should be protected as much as possible. However, the truth is that it isn’t, and the underlying intuition is very straightforward. What would you take if you had the option of receiving $500,000 today or $500,000 in 100 years? In particular, below are three reasons why the first choice is preferable:
Higher purchasing powers: A person’s purchasing power is the number of goods and services that can be purchased with a certain amount of money. The tendency is upward and strongly correlated with the inflation rate. What does this imply, then? Simply put, compare what you could buy with $100 in 1914 to what you could buy with $100 now. Due to the rising cost of living, today’s value of $100 is lower than that of its 1914 counterpart. Therefore, we may reasonably estimate that $500,000 now would equal considerably more in 100 years, depending on the percentage growth in the inflation rate and historical tendencies.
Opportunity cost: Opportunity cost, in financial terms, typically refers to the value of the funds that could have been invested rather than spent immediately. With the opportunity to invest the initial $500,000 and earn interest, you will eventually have access to both the original $500,000 and the interest accumulated on it.
No risk: By receiving the funds immediately, any uncertainty over the timing of their arrival is eliminated. We can then conclude that the higher the interest rate and the sooner we receive our money, the better.
Should Ryanair Holdings plc consider investment projects with the shortest payback period?
The payback period is a strategy used in financial capital budgeting that forecasts how long it will take for an investment to generate cash flow sufficient to cover the initial investment plus interest and other expenses. This means that payback is the time it takes for an investment to generate enough profit to cover its initial outlay. Management finds it useful since it aids in assessing the dangers associated with various financial ventures. Suppose it takes a long time for an investment to generate a return on its initial investment, and the riskiness of the investment increases (Gonçalves, 2018). A more extended payback period is indicative of a riskier investment. If the time frame is shorter, the money will be returned to management sooner, and they will have more time to reinvest it. The longer the time frame, the more the money will sit in investments without the option to redeploy the returns elsewhere. Thus, the administration can use this evaluation to determine which investments or projects are worthwhile and whether or not they have the patience to wait for a return on their investment.
Management uses the payback period to determine how quickly an investment will generate a return on the company’s investment. It would be preferable if it could take place sooner rather than later. Generally, payback periods with more time involved are riskier and less specific than those with shorter durations. There is a greater chance of breaking even or making a profit on investment if the cash inflows from that investment come sooner. You can never be sure of the future revenue because the most capital increase and investments are based on guesses and future assumptions (Rodríguez-García., 2020). Investments that require less time to generate a profit are more widely accepted, and payback periods of a year or less are always preferable. You should be aware, however, that the cash payback period idea does not apply to all investments in the same way as it does to capital investments. This is because the time value of money is ignored; money that remains in an investment for a more extended period of time will decrease in purchasing power.
Audit Committee
Purpose & Objectives of the Audit Committee
The Board of Directors (the “Board”) delegated the responsibility for the Group’s accounting and financial reporting procedures, the Group’s internal control over financial reporting and audits of financial statements, the Group’s compliance with laws and regulations, the Group’s cyber security and information technology related risk management, the performance of the Group’s internal audit function, and the Group’s internal audit function to the Audit Committee. To fulfill its mandate, the Committee was assigned to work harmoniously with the Board, management, and external and internal auditors. The Audit Committee was required to update the Board on its progress and any significant problems it would encounter in carrying out its mandate. Compliance with policies and processes established in conformity with local regulations was to be monitored by the Audit Committee. The Audit Committee’s responsibility was also needed to evaluate the efficacy of the company’s internal policies and procedures in preventing the types of crimes specified by local laws and to provide recommendations to the Board of Directors for any changes to existing policies or the introduction of new policies and procedures that may be necessary from time to time to ensure the company complies with those laws.
Membership of the Committee
The Board chose members of the Audit Committee and its chair. Each of the at least three members of the Audit Committee is a non-executive director of the Group who meets the independence standards outlined in:
- Regulations imposed by NASDAQ Stock Market LLC’s (“NASDAQ”) Audit Committee,
- U.S. Securities and Exchange Commission (“SEC”) laws and regulations, the Companies Act of 2014 in Ireland;
- The United Kingdom’s Corporate Governance Code (the “Code”), the Irish Corporate Governance Annex to the Listing Rules of the Irish Stock Exchange, and Italy’s Legislative Decree n. 231 of June 8, 2001 (the “Decree”).
The Committee has focused on issues during the reporting year and improvements.
- Cybersecurity and Information Technology-Related Risk Management
Cybersecurity and I.T. risks, together with related programs and escalation mechanisms, were discussed and evaluated by the Audit Committee. In addition, the Audit Committee discussed the causes of all significant cyber incidents with management and reported their findings to the Board. To this end, the Audit Committee considered whether or not suitable actions should be made with respect to the following areas of information technology and cybersecurity, as outlined in periodic internal reports issued by internal audit or management:
– the safety of computer networks and software;
– backup procedures for handling financial data in case of a system outage; – measures to prevent and identify instances of fraud, including the inappropriate use of Group I.T. systems.
The Board of Directors retained ultimate responsibility for managing cybersecurity and IT-related risks, but CTO reports on significant issues regularly. The Committee improved significantly in this sector as they were able to deal with cyber security issues.
- Compliance with Law and Regulations
In preparing the financial accounts, the Audit Committee was tasked with ensuring that appropriate regulatory compliance matters were taken into account. In order to do this, they examined the efficiency of the system for monitoring compliance with laws and regulations. They received updates from management and the Group’s legal counsel on compliance concerns that could significantly influence the Group’s financial statements. The Committee also discussed the results of financial audits conducted by government bodies. All linked party transactions need approval from the Audit Committee. Guidelines and rules for assessing and making informed decisions about related party transactions were recommended, with input from legal counsel as necessary. They were also accountable for ensuring proper procedures were in place for management to identify and review related party transactions. The Committee was thorough in this sector as it would have impacted the company negatively if things were to go wrong.
Conclusion
Low-cost airline Ryanair is based in Ireland. Being a primary low-cost airline is the underlying tenet of Ryanair. Although there were many rivals in the Group, the administration took a number of steps to dominate the industry. Ryanair had high revenue growth; evaluating the organization’s financial structure aids in obtaining an insight into the debt and equity returns. Thanks to various capital planning techniques, it was simpler to examine future periods and the NPV discount rate to boost earnings. For a firm and its Board to audit and protect the brand and reputation of the business, compliance with laws and regulations, cybersecurity, and information technology-related risk management are essential areas that should be audited to avoid crisis. The firm can compete successfully in the markets by adhering to regulations and developing diverse tactics. Additionally, auditing allows us to understand how a company like Ryanair functions and operates across all areas.
References
Abardeh, H. C., Choubtarashabardeh, F., Callegari, K., Amuzu, M., & Alqusayer, A. (2022). Ryanair: Challenges and Opportunities of the Low-Cost Company. SAGE Publications: SAGE Business Cases Originals.
Costa, MMND, 2017. Ryanair Holdings plc: Equity Research (Doctoral dissertation)
Gonçalves, M., 2018. Ryanair holdings PLC (Doctoral dissertation). Cash Flow
Pereira, R. D. M. (2017). Corporate credit rating report-Ryanair (Doctoral dissertation).
Rita, J. R. C. S. (2019). Equity Research-Ryanair Holding Plc (Doctoral dissertation, Universidade de Lisboa (Portugal)).
Rodríguez-García, M., Orero-Blat, M. and Palacios-Marqués, D., 2020. Challenges in the Business Model of Low-Cost Airlines: Ryanair Case Study. International Journal of Enterprise Information Systems (IJEIS).
Yermack, D. 2017. Corporate governance and blockchains. Review of Finance, 21, 7-31.
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