Current risk situation

1.1 Legal uncertainties

Various domestic and foreign restrictions could mean that Flughafen Zürich AG will not be able to fully utilise its infrastructure and would need to finance additional investments. These restrictions include the following:

1.2 Decline in demand

Experience over the past few years has shown that the air transport sector is a growing but also volatile industry that is affected by external events such as economic crises, acts of terrorism or epidemics. Such events could temporarily cause a drop in demand at Zurich Airport. In addition, other external factors such as the political and macro-economic environment could have a negative impact on demand in both the aviation and non-aviation business at Zurich Airport.

1.3 Increasing safety and security requirements

Additional safety and security regulations may result in rising costs and reduced revenue or changes in capacity. While some of these higher costs could at least subsequently be offset or refinanced through higher charges, the possibility of other elements having a negative impact on earnings cannot be ruled out.

1.4 Interruptions to business due to operational events or natural hazards

The complex and tightly interconnected airport operations could be severely disrupted by operational events such as accidents or the failure of critical systems. Depending on the scale of the disruption, operations would have to be curtailed or even discontinued in order to maintain the safety of passengers and airport employees. The extensive airport infrastructure is especially exposed to natural hazards, in particular earthquakes and flooding following heavy precipitation. To minimise the risk, infrastructure and operations are designed to be robust and, where possible, cost-efficient property and business interruption insurance is taken out to cover them.

1.5 Hub carrier

Like any other hub airport, Flughafen Zürich AG depends to a considerable extent on the operational and financial development of its hub carrier Swiss (and the latterʼs parent, Lufthansa). The airline Swiss is the main customer of Flughafen Zürich AG. During the year under review, Swiss accounted for around 52% of the passenger volume. The airline plays a major role within the Lufthansa Group as far as profits are concerned, so the risk of the hub carrier failing for economic reasons can be considered minor at present. Capacity reductions can never be ruled out, however.

1.6 Reporting of noise-related costs in the financial statements

The reporting of noise-related costs in the financial statements is a complex matter. In particular the issue of formal expropriations involves significant assumptions and estimates concerning the capitalisation of such costs and the obligation to recognise appropriate provisions. This complexity is attributable to a large variety of relevant legal bases, unclear or pending legal practice and political debate.

The rulings by the Swiss Federal Supreme Court in the first half of 2008 on fundamental issues related to formal expropriations enabled Flughafen Zürich AG to reliably estimate the total cost of compensation for formal expropriations for the first time, in spite of the remaining uncertainties regarding the accuracy of this estimate. With further rulings on 8 June 2010 and 9 December 2011, the Swiss Federal Supreme Court definitively set the cut-off date for the foreseeability of an eastern approach as 1 January 1961 and ruled definitively on the method used to calculate a decline in the market value of investment property.

Based on these Federal Supreme Court rulings and other fundamental issues that have since been decided in a court of final instance, the company undertook a reappraisal of costs for formal expropriations at the end of 2010 and 2011, which in each case led to an adjustment to both the provision for formal expropriations and the intangible asset from the right of formal expropriation.

In the first half of 2016, the Swiss Federal Supreme Court handed down two rulings in test cases regarding claims for compensation due to eastern and southern approach routes. By answering important questions relating to how pending claims for compensation will be dealt with in a court of last instance, these rulings increased legal certainty significantly. These Swiss Federal Supreme Court rulings enabled Flughafen Zürich AG to undertake a reappraisal of the outstanding cost of compensation for formal expropriations. Based on the recalculation with estimated costs for formal expropriations amounting to CHF 385.0 million, the provision for formal expropriations was reduced by CHF 21.5 million as at 30 June 2016. At the same time, the intangible asset from the right of formal expropriation was reduced by the same amount.

As at the reporting date, the estimated costs for formal expropriations remained unchanged at CHF 385.0 million, of which CHF 63.9 million had already been paid out at that date. The outstanding costs of CHF 321.1 million (nominal amount) are stated at their present value of CHF 316.6 million in the consolidated financial statements for the period ended 31 December 2017.

With respect to sound insulation and resident protection measures, the Federal Office of Civil Aviation (FOCA) required Flughafen Zürich AG, in connection with its 2014 operating regulations application, to submit an extended sound insulation programme by the end of June 2015. Based on the permitted noise exposure levels specified by FOCA, and taking into account the still pending changes to the 2014 operating regulations, the company duly submitted its 2015 sound insulation programme by this deadline. At its meeting on 22 June 2015, the Board of Directors approved a further CHF 100 million of measures in this context in addition to the CHF 240 million previously estimated for sound insulation and resident protection.

As at the reporting date, the estimated costs for sound insulation and resident protection measures remained unchanged at CHF 340.0 million, of which CHF 236.5 million had already been paid out at that date. The outstanding costs of CHF 103.5 million (nominal amount) are stated at their present value of CHF 102.7 million in the consolidated financial statements for the period ended 31 December 2017.

Depending on future and final-instance legal judgements, including with respect to the southern approaches, noise-related liabilities may in future be subject to substantial adjustments, which would also require adjustments to the noise-related costs recognised as assets and liabilities in the balance sheet. At the present time, it is not possible to reliably estimate the total costs to capitalise as an intangible asset from the right of formal expropriation, the resulting amortisation or the corresponding provision.

Aircraft noise costs are refinanced through charges. The most important charge from a refinancing standpoint up until 1 February 2014 was the separate CHF 5.00 passenger noise charge. Owing to a directive on airport charges issued by FOCA on 14 November 2013, this passenger-related noise supplement was no longer collected as of 1 February 2014 as it can be assumed that the funds of the Airport of Zurich Noise Fund are sufficient to finance the costs currently estimated. Should actual future noise-related costs significantly exceed the estimate, this supplement would have to be levied again over the medium term in order to cover the costs. Aircraft noise charges are still levied.