Current risk situation

The current risk situation of Flughafen Zürich AG is characterised primarily by the following risks:

1. Legal uncertainties

Various domestic or foreign restrictions might prevent Flughafen Zürich AG from fully utilising its infrastructure, or cause it to incur additional capital expenditures and costs, or generate less revenue. These restrictions include the following:

1.1 AIRPORT CHARGES

Owing to the welcome growth in passenger numbers and the resulting increase in aviation revenues in recent years as well as declining interest rates, a reduction in airport charges is likely for the next charging period (expected to be from 2021 to 2024).

Nevertheless, on 6 November 2019, on the basis of a purported cost surplus, the Federal Office of Civil Aviation (FOCA) ordered the company to lower its flight operations charges (excluding noise and emission charges) by 15% already from 1 April 2020 until the beginning of the next charging period. Flughafen Zürich AG has lodged a challenge to this decision in the courts.

1.2 REGULATION GOVERNING THE USE OF SOUTH GERMAN AIRSPACE

The use of south German airspace is presently regulated by an implementing regulation (DVO) issued unilaterally by Germany. On 4 September 2012, the then Swiss Federal Councillor Doris Leuthard and the German Transport Minister at the time Peter Ramsauer signed an aviation treaty. This treaty must be ratified by both countries. The two chambers of Switzerlandʼs Parliament have already approved the treaty, but in Germany ratification was halted, and no date has yet been set for ratification there. Germany could also unilaterally change the implementing regulation (DVO), which would lead to additional capacity restrictions for Zurich Airport.

1.3 INVESTMENTS TO REDUCE OPERATIONAL COMPLEXITY

The complexity of the runway and taxiway layout, of the departure and approach routes, and of the various operational regulations at Zurich Airport is considerable. Following an incident involving two departing aircraft at the runway intersection, in 2012 Flughafen Zürich AG, Skyguide, Swiss International Air Lines and the Swiss Air Force prepared a comprehensive risk report with the assistance of the Federal Office of Civil Aviation (FOCA) and the Department of the Environment, Transport, Energy and Communications (DETEC). It proposed a number of measures aimed at improving safety. Some of these measures have since been implemented or are in the process of being implemented, while others are pending approval by the Federal government. Without implementing these additional measures to improve safety, there is a risk of capacity restrictions which would consequently have a negative impact on business growth.

1.4 noise exposure

In 2015, the Federal Office of Civil Aviation (FOCA) specified the noise levels permitted for Zurich Airport. Under the Federal Noise Abatement Ordinance, Flughafen Zürich AG is obliged to report annually on aircraft noise emissions. Reasons must be given for any noise exposure above the permitted level, and measures for avoiding such infringements in future must be stated. If it is anticipated that noise emissions will greatly exceed the permitted levels in the long term, the relevant departments of the Federal Administration will take the necessary measures. The permitted noise exposure levels are greatly exceeded during landings between 10 p.m. and 11 p.m. and take-offs after 11 p.m. With its decision of 23 July 2018, FOCA therefore limited the declared capacity of Zurich Airport for aircraft landing after 9 p.m. and taking off after 10.20 p.m. to apply to the allocation of airport slots with effect from the summer 2019 timetable. In the meantime, Flughafen Zürich AG has identified measures to improve the situation for night-time delays and is seeking approval for changes to the permitted noise levels (amendments of the 2014 and 2017 operating regulations). The Sectoral Aviation Infrastructure Plan (SAIP) adopted by the Federal Council on 23 August 2017 also extends the night-time noise curve. If the measures to avoid delays can be successfully implemented, and if the permitted noise exposure levels in the area concerned are not exceeded, Flughafen Zürich AG can apply to FOCA for the slot restrictions to be lifted. The decision was challenged by the SBFZ residentsʼ association and is due to be heard by the Swiss Federal Administrative Court.

Nonetheless, on 14 May 2018, FOCA instructed Flughafen Zürich AG to investigate the feasibility of bringing forward the last slots in the evening. The company was required to produce a report within a year setting out the operational feasibility, economic viability and the impact on noise exposure this would have. Flughafen Zürich AG commissioned an expert report which it submitted to FOCA by the specified deadline, together with a request not to bring forward the last slots as this would be neither operationally feasible nor economically viable, not only on account of the situation in Zurich but first and foremost because of influencing factors (slots) at the departure airports. The expert report was published in September 2019 together with the 2017 operating regulations. Various objections and comments were received. The proceedings are still ongoing at FOCA. If no new night-time noise exposure limits are specified or if the last slots are brought forward, this would greatly jeopardise the airport’s hub operations and its intercontinental flights.

1.5 Zurich Aircraft Noise Index (ZFI)

The Zurich Cantonal Airport Act contains the following stipulations:

In recent years, the guideline figure of 47,000 persons was exceeded every year. This is due to the strong population growth in the region around the airport compared with the year 2000. It is not inconceivable that the Canton of Zurich, through its representatives on the Board of Directors or through the Swiss Federal government, could demand the implementation of measures that might have a negative impact on the airportʼs development.

1.6 Discontinuation of Bilateral Agreements with the EU

The popular initiative aimed at capping immigration which was handed in at the end of August 2018 is shedding uncertainty on the continued existence of the Agreement on the Free Movement of Persons, and consequently all bilateral agreements with the EU. In a worst-case scenario, terminating the agreements could result in Switzerland being excluded from the Schengen system. This would result in extraordinary write-offs and additional costs for the company to make the necessary changes to its affected infrastructures. If visa procedures were to become more complex, a drop in demand at Zurich Airport would also have to be expected.

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 segments at Zurich Airport.

3. INTERRUPTIONS TO BUSINESS DUE TO OPERATIONAL EVENTS OR NATURAL HAZARDS

Given the complex and tightly interconnected nature of airport operations, they 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 suspended altogether 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. Where possible, cost-effective property and business interruption insurance is also taken out to cover such risks.

4. INFORMATION SECURITY

The majority of workflows and processes of Flughafen Zürich AG can no longer be executed properly without the aid of IT systems. A serious system failure, following a hacking attack for example, could result in lengthy interruptions to business or to the loss of business-critical and/or confidential data.

5. HUB CARRIER

Like any other hub airport, Flughafen Zürich AG depends to a considerable extent on the operational and financial performance of its hub carrier Swiss (and the latterʼs parent, Lufthansa). During the year under review, Swiss accounted for around 53.6% of passenger volumes (2018: 52.9%). 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.

6. INTERNATIONAL BUSINESS

Projects abroad and international holdings inherently pose commercial and industry-specific risks comparable with those associated with operating Zurich Airport. Along with political risks, location-specific risks typically include country, market and currency risks that could severely impact future revenue prospects, or even lead to a total failure of a venture.

Given the greater risks involved, when considering any project, both the financial risks and the political and economic risks are analysed in detail against the backdrop of the prevailing social and economic conditions. They are also continually monitored with reference to existing activities. The same high standards as practised at Zurich Airport apply.

7. NOISE-RELATED COSTS

Under Article 36a of the Civil Aviation Act and the Federal Expropriation Act together with Articles 679 and 684 of the Swiss Civil Code, and also under Article 20 f. of the Environmental Protection Act and its associated ordinances, Flughafen Zürich AG must bear the cost of formal expropriations and costs relating to sound insulation and resident protection measures. According to current legal practice, one of the several preconditions for any noise-related claim is that noise emissions must have exceeded the emission limits for commercial airports in effect since 1 June 2001. Both the operating licence and aviation and environmental legislation form the basis for refinancing the costs related to such claims through airport charges. In the interest of transparency, costs and income relating to aircraft noise are additionally presented in a separate statement for the Airport of Zurich Noise Fund.

With respect to formal expropriations in particular, the reporting of noise-related costs in the financial statements is a complex matter due to a multitude of relevant legal bases, unclear or pending case law and political debate. Especially in the case of formal expropriations, this financial reporting requires significant assumptions and estimates concerning the capitalisation of such costs and the obligation to recognise appropriate provisions.

Flughafen Zürich AG has received a total of around 20,000 noise-related claims for compensation, of which around 6,300 were still pending at the end of 2019. Almost 800 of these cases are currently being examined by the Swiss Federal Assessments Commission.

Depending on future 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 separate charges. As, based on current knowledge, the Airport of Zurich Noise Fund has sufficient assets to be able to finance the costs for formal expropriations as well as noise insulation and resident protection measures that can be estimated under the base case at the present time, the passenger-related noise supplement was suspended as of 1 February 2014. Aircraft noise charges based on flight movements and noise category continue to be levied.