24 Further details

24.1 Information concerning the performance of a risk assessment

Flughafen Zürich AG has set itself the strategic goal of maintaining a comprehensive risk management system and is committed to carrying out uniform and systematic risk management.

Risk management ensures that risks are approached systematically and given due consideration. It guarantees transparency over the main risks associated with the companyʼs business activities as well as continuous improvement and monitoring of the risk situation.

The risk management system is the tool used to manage corporate risk and consists of the following components:

In this context, the Board of Directors and the Management Board have overall responsibility under Swiss company law for ensuring the groupʼs existence and profitability. The Board of Directors is responsible for overall oversight of risk management. The Chief Financial Officer (CFO) also acts as the Management Boardʼs Chief Risk Officer.

The central Risk Manager reports to the CFO as Chief Risk Officer and stipulates minimum requirements for decentralised risk management at line management level. The central Risk Manager is responsible for risk reporting as well as the operation and ongoing development of the risk management system.

The Management Board members are each responsible for the risks that could arise primarily in their area. They bear responsibility for identifying, assessing and managing the relevant risks (risk owner concept). The central Risk Manager is responsible for any risks that cannot be assigned to one single area of business.

In consultation with the central Risk Manager, other specialist units perform their specific risk management procedures themselves, such as safety management, liquidity management, occupational safety, information security, fire prevention and contingency planning. The same goes for Flughafen Zürich AGʼs international subsidiaries. From this, the key risks to Flughafen Zürich AG are incorporated into the central risk reporting. This describes the business risks in detail and assesses their probability of occurrence and operational and financial impact as well as measures and responsibilities. Implementation of the measures is continually monitored. The risk report is presented to the Management Board and the Board of Directors once a year.

a) Financial risk management

Due to the nature of its activities, Flughafen Zürich AG is exposed to the following relevant financial risks, including:

The following sections provide an overview of the extent of the various financial risks and the objectives, principles and processes relating to the assessment, monitoring and hedging of risks, as well as of the capital management of the group. Further information on financial risks can also be found in the corresponding notes.

i) Credit risk

Credit risk refers to the risk that Flughafen Zürich AG could incur losses if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Cash and cash equivalents, accruals, trade receivables and other financial assets are exposed to credit risk.

Flughafen Zürich AG invests its cash and cash equivalents and fixed-term deposits with major banks with a rating indicating their solvency. In addition, the company minimises other risks relating to cash and cash equivalents and fixed-term deposits in that it does not invest with a single bank, but with a variety of financial service providers.

As a rule, accruals as at the reporting date are invoiced within one month and subsequently monitored as part of trade receivables management.

With the exception of the home carrier Swiss, credit risk is distributed over a broad clientele. Trade receivables include an amount of CHF 7.2 million due from Swiss (2019: CHF 18.8 million) (see note 14, Trade receivables). In the period between the reporting date and the preparation of the 2020 annual report, Swiss paid the outstanding amount arising from flight operations charges as at 31 December 2020 in full, with the exception of the air traffic control charges for which it was granted an extension of the period for payment until some time in the course of the 2021 financial year in light of the coronavirus crisis.

The exposure to credit risk primarily depends on the individual characteristics of each client. Risk assessments include a creditworthiness check, taking account of the clientʼs financial circumstances, past experience and other factors. The maturity structure of trade receivables is normally examined on a weekly basis. Where necessary, terms of payment aimed at minimising risk (normally proforma invoicing) are applied, or security is requested (mainly in the form of bank guarantees).

The financial assets of the Airport of Zurich Noise Fund are invested by professional financial institutions, partly on the basis of a conservative, money market-oriented investment strategy (mainly in fixed-rate debt instruments) and partly in a mixed investment fund. Here, priority is given to preservation of value and flexibility with respect to early redemption of investments. The direct use of derivative financial instruments is not permitted. The investment horizon is based on the expected obligation to make payments from the Airport of Zurich Noise Fund and averages around four years. For bonds held directly, the minimum acceptable rating is BBB+ (Standard & Poorʼs) or an equivalent rating from another recognised rating agency (see note 20, Airport of Zurich Noise Fund).

The maximum exposure to credit risk corresponds to the carrying amounts of the individual financial assets. No guarantees or similar commitments exist that could give rise to an increase in the credit exposure above the respective carrying amounts. The maximum exposure to credit risk as at the reporting date was as follows:

ii) Liquidity risk

Liquidity risk refers to the risk that Flughafen Zürich AG may not be able to meet its financial obligations on the due date.

Flughafen Zürich AG monitors liquidity risk via a prudent liquidity management process. Here it observes the principle that it must have sufficient flexibility and room for manoeuvre with respect to the availability of liquid funds at short notice. This means maintaining an adequate reserve of liquid funds, ensuring the availability of sufficient funds for financing purposes by securing adequate credit facilities, and being able to issue financial securities on the capital market. For this purpose, the company uses rolling liquidity planning that is based on expected cash flows and is periodically updated. Treasury is responsible for monitoring liquidity risk. As at the reporting date, Flughafen Zürich AG had the following unused credit facilities at its disposal:

The following tables show the contractual maturities of financial liabilities (including interest payments) held by Flughafen Zürich AG:

iii) Market risk

Market risk refers to the risk that changes in market prices such as exchange rates and interest rates could have an impact on the finance result or the value of the financial instruments.

The objective of market risk management is to monitor and control such risks in order to ensure that they do not exceed a specified limit.

iiia) Currency risk

The functional currency of the consolidated financial statements of Flughafen Zürich AG is the Swiss franc (CHF). The group is exposed to foreign currency exchange movements primarily in respect of the Brazilian real (BRL), the Chilean peso (CLP), the Indian rupee (INR), the US dollar (USD), the euro (EUR) and the Malaysian ringgit (MYR).

An appreciation or depreciation of the Swiss franc by 5% against the relevant currencies as at 31 December 2020 would have increased or reduced equity or profit by the amounts below. This analysis assumes that all other variables – in particular interest rates – remain unchanged.

iiib) Interest rate risk

Interest rate risk can be divided into an interest-related cash flow risk, i.e. the risk that future interest payments could change due to fluctuations in the market interest rate, and an interest-related risk of a change in fair value, i.e. the risk that the fair value of a financial instrument could change due to fluctuations in the market interest rate.

The financial assets of the Airport of Zurich Noise Fund are primarily invested in fixed-rate debt instruments and a mixed investment fund. The direct use of derivative financial instruments is not permitted in this context.

Most financing transactions have been concluded at a fixed rate of interest. The interest rate risk on variable liabilities is hedged on a case-by-case basis using interest rate swaps.

As at the reporting date, Flughafen Zürich AGʼs interest rate profile was as follows (interest-bearing financial instruments):

The table below shows the sensitivity analysis for variable and fixed-rate financial instruments with a deviation of 50 basis points:

B) CATEGORIES OF FINANCIAL INSTRUMENTS

The following tables show the carrying amounts of all financial instruments by category both for the reporting period and for the previous year:

c) Fair values

The carrying amounts of cash and cash equivalents, fixed-term deposits, receivables, other financial assets and other financial liabilities are a reasonable approximation of their fair values.

Financial assets in the Airport of Zurich Noise Fund: The fair value of the bonds corresponds to the market price of the securities at the reporting date (level 1). The fair value of the mixed investment fund is the unadjusted net asset value, as the units may be redeemed at that value as at the reporting date (level 2).

Financial liabilities: The fair value of the debentures corresponds to the market price (level 1).

Derivative financial instruments: The fair value of the cross-currency swap is determined using a fair value model (level 2). The key inputs are foreign exchange rates and interest rates observable in the market. Unobservable inputs are not significant to the measurement.

d) Fair value hierarchy of financial instruments

Financial instruments recognised or disclosed at fair value are categorised according to the following hierarchy, reflecting the significance of the inputs used to measure fair value:

Level 1 – Quoted market prices

The inputs used to measure the assets or liabilities are quoted, unadjusted market prices determined in active markets for identical assets or liabilities at the measurement date.

Level 2 – Measurement based on observable inputs

The assets or liabilities are measured on the basis of inputs (other than the quoted prices included within level 1) that are directly or indirectly observable for the asset or liability.

Level 3 – Measurement based on unobservable inputs

The inputs for these assets or liabilities are not observable.

e) Capital management

With respect to capital management, Flughafen Zürich AG pays particular attention to ensuring the continuation of the groupʼs operating activities, achieving an acceptable dividend for shareholders and optimising the balance sheet structure, particularly in periods of major investment activity or after crises. In order to achieve these objectives, Flughafen Zürich AG can adjust the amount of the dividend payment or repay capital to shareholders.

Flughafen Zürich AG primarily monitors the following key financial indicator: net debt to EBITDA. Here it is especially important to ensure that the ratio of debt to equity is in line with the budgetable cash flows and investments, and tends towards the conservative side. The higher debt resulting from the 2020 financial year will therefore be reduced again in the next few years. In this way a high degree of entrepreneurial flexibility can be assured at all times, including when future unforeseeable events occur.

The necessary quantity of treasury shares may be held for the purpose of employee and bonus programmes. It is not permitted to accumulate several yearsʼ worth of treasury shares for the purpose of bonus programmes, however. Neither is it permitted to hold treasury shares to use as payment for acquisitions (exchange of shares in the event of a takeover) or for the purpose of speculating on higher selling prices. Accumulated treasury shares may in no case exceed 10% of all shares issued.

24.2 CAPITAL COMMITMENTS

As at the reporting date, capital commitments for various buildings and engineering structures amounted to around CHF 280 million in total. The most significant capital commitments involved the refurbishment and expansion of the baggage sorting system (CHF 132 million), the renovation of runway 28/10 (CHF 29 million) and the expansion of the landside passenger areas (CHF 11 million). In addition, the companyʼs share of capital commitments for the Circle still amounted to around CHF 67 million. Contractual capital commitments related to the concession for the airport in Noida, New Delhi amounted to approximately CHF 35 million at the end of 2020.

24.3 CONTINGENT LIABILITIES

A number of legal proceedings and claims against Flughafen Zürich AG in the context of its normal business activities are still pending. The company does not expect the amounts required to settle these lawsuits and claims to have a significantly negative impact on the consolidated financial statements and cash flow of Flughafen Zürich AG.

Depending on future and final-instance legal judgements, especially with respect to the southern approaches, in particular the new noise-related liabilities, but also the old ones, 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.

As part of its involvement in the expansion and operation of Confins International Airport in Belo Horizonte, Flughafen Zürich AG provides a guarantee as security for local debt financing, which is made available by the Brazilian development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES). As at the reporting date, the amount arising from this guarantee was CHF 20.3 million (31 December 2019: CHF 25.0 million). Moreover, the company has entered into a counterbond for a performance bond which the operator, Concessionária do Aeroporto Internacional de Confins S.A., had to submit to Brazilʼs National Civil Aviation Authority (ANAC). As at the reporting date, the amount arising from the counterbond was CHF 7.4 million (31 December 2019: CHF 10.6 million).

As part of its involvement in the expansion and operation of the airport in Florianópolis, Flughafen Zürich AG provides a guarantee as security for local debt financing, which is made available by the Brazilian development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES). As at the reporting date, the amount arising from this guarantee was CHF 70.4 million (31 December 2019: CHF 90.7 million). Moreover, Flughafen Zürich AG has entered into a counterbond for a performance bond which the operator, Concessionária do Aeroporto Internacional de Florianópolis S.A., had to submit to Brazilʼs National Civil Aviation Authority (ANAC). As at the reporting date, the amount arising from the counterbond was CHF 10.9 million (31 December 2019: CHF 15.1 million).

As part of its involvement in the expansion and operation of the airports in Vitória and Macaé in the southeast of Brazil, Flughafen Zürich AG has entered into a counterbond for a performance bond which the operator, Aeroportos do Sudeste do Brasil S.A., had to submit to Brazilʼs National Civil Aviation Authority (ANAC). As at the reporting date, the amount arising from the counterbond was CHF 7.6 million (31 December 2019: CHF 10.7 million).

As part of the concession agreements for the airports in Antofagasta and Iquique, the operators have entered into performance bonds for the Chilean Ministry of Public Works (Ministerio de Obras Públicas). As at the reporting date, the total amount arising from these performance bonds was CHF 4.6 million (31 December 2019: CHF 5.7 million).

For the tender regarding the airport in Noida, New Delhi, Flughafen Zürich AG entered into a tender bond for the project company of the local Indian authority (Noida International Airport Limited). As at the reporting date, the amount arising from this tender bond was CHF 12.1 million (31 December 2019: CHF 13.6 million).

Flughafen Zürich AG and Swiss Life AG are jointly and severally liable to third parties for the liabilities of the co-ownership structure the Circle and the ordinary partnership the Circle.

24.4 Related parties

Related parties are:

a) Transactions with related parties

In the reporting period, the costs for the Canton of Zurich police force amounted to CHF 73.0 million (2019: CHF 99.3 million) in accordance with the applicable service level agreement. In this context, accrued expenses amounting to CHF 11.3 million at the reporting date (31 December 2019: CHF 7.8 million) were included in “Other current liabilities, accruals and deferrals”.

In financial year 2020, consulting revenue from operations and management agreements amounted to CHF 1.9 million (2019: CHF 3.0 million) for the airport in Belo Horizonte and to CHF 2.9 million (2019: CHF 3.6 million) for the airports in Bogotá and Curaçao.

In the reporting period, Flughafen Zürich AG paid employer contributions amounting to CHF 18.1 million (2019: CHF 18.0 million) to the BVK Employee Pension Fund of the Canton of Zurich for employee benefits (see note 22, Employee Benefits). As at the reporting date, CHF 2.5 million (31 December 2019: CHF 2.6 million) of this was still included in “Other current liabilities, accruals and deferrals”.

b) Shares held by related parties

As at the reporting date, members of the Board of Directors and related parties held the following number of shares:

As at the reporting date, members of the Management Board and related parties held the following number of shares:

Neither members of the Board of Directors nor the Management Board held options on the companyʼs shares at the reporting date.

C) REMUNERATION FOR KEY MANAGEMENT PERSONNEL

Remuneration for the members of the Board of Directors and Management Board comprises the following:

24.5 Composition of the group

As at the reporting date, the group comprised the following companies:

In addition, the following associates are included by applying the equity method:

24.6 NOTES ON THE LICENCE TO OPERATE ZURICH AIRPORT

The Swiss Federal Department of the Environment, Transport, Energy and Communications (DETEC) awarded Flughafen Zürich AG the licence to operate Zurich Airport for 50 years from 1 June 2001 to 31 May 2051.

The licence encompasses the operation of an airport in accordance with the provisions of the ICAO (International Civil Aviation Organisation) governing domestic, international and intercontinental civil aviation services. Flughafen Zürich AG is authorised and obliged to operate Zurich Airport for the entire period cited in the operating licence, and to provide the necessary infrastructure for this purpose. To accomplish this, it is entitled to collect charges from all users of the airport. Furthermore, Flughafen Zürich AG is authorised to assign specific rights and obligations arising from the operating licence to third parties. Insofar as they concern activities relating to airport operations such as aircraft handling, passenger handling, baggage sorting and handling, mail and freight handling, these rights and obligations shall be subject to the provisions of public law. Flughafen Zürich AG regulates rights and obligations it has assigned to third parties in the form of binding entitlements (concessions).

The concessionaire is obliged to grant access to the airport to all aircraft that are licensed to provide domestic and international flights. The volume of flight traffic and handling of licensed aircraft are governed by the regulations laid down in the Sectoral Aviation Infrastructure Plan (SAIP) and the provisions of the operating regulations. The concessionaire is obliged to implement all measures relating to regulations governing the use of German airspace for landings at, and take-offs from, Zurich Airport without delay, and to submit the necessary applications for approval by the authorities in good time. The concessionaire is empowered and obliged to enforce sound insulation measures and to implement them where they are not contested. The provision whereby the concessionaire shall meet all obligations to which it is bound through clauses of the civil aviation treaty between Germany and Switzerland without entitlement to compensation was declared null and void in response to an objection lodged by Flughafen Zürich AG.

As part of the bilateral agreements that came into effect on 1 June 2002, the EU ground handling directive (Council Directive 96/67/EC of 15 October 1996 on access to the groundhandling market at Community airports) also became applicable to Switzerland. The principles governing the granting of rights to carry out ground handling activities are defined in the operating regulations for Flughafen Zürich AG dated 30 June 2011. The licences for ground handling operations in areas in which the number of admissible service providers may be limited were re-awarded on the basis of tender procedures on 1 December 2018 for the period to the end of November 2025.

24.7 CONCESSIONS FOR THE OPERATION OF FOREIGN AIRPORTS

As at the reporting date, Flughafen Zürich AG was responsible, via its subsidiaries, for the operation and expansion of the following foreign airports:

Brazil

In 2017, in a public tender conducted by the Brazilian government as part of an airport privatisation programme, Flughafen Zürich AG was awarded the concession for the operation and expansion of Hercílio Luz International Airport (IATA: FLN) in Florianópolis in the south of Brazil. The airport has a catchment area of 1.1 million people and is located in Santa Catarina, a popular holiday destination for both local and international travellers. In 2020, traffic volumes reached 1.9 million passengers (2019: 3.9 million passengers). Concession fees totalling BRL 241.5 million are payable as consideration for the right to operate the airport. A portion of the concession charge was paid on the day that the concession agreement was signed (BRL 83.3 million or CHF 24.7 million). Further minimum concession payments totalling BRL 158.2 million (CHF 27.0 million) are due over the 30-year term of the concession. Following the signing of the concession agreement, the wholly-owned subsidiary Concessionária do Aeroporto Internacional de Florianópolis S.A., as sole holder of the concession, took over flight operations from the state-owned operator Infraero on 3 January 2018. In October 2019, the mandatory infrastructure measures provided for in the concession totalling approximately BRL 550 million (approximately CHF 132 million) were completed and a new terminal was opened.

On 15 March 2019, in a public tender conducted by the Brazilian government, Flughafen Zürich AG was awarded concessions for the operation and expansion of the airports in Vitória (IATA: VIX) and Macaé (IATA: MEA) in the southeast of Brazil. In 2020, traffic volumes at the two airports reached around 1.5 million passengers (2019: 3.2 million passengers). A fixed concession fee totalling BRL 437.0 million (CHF 105.0 million), payable as consideration for the right to operate the airports for a period of 30 years, fell due when the concession agreement was signed in September 2019. As of the sixth year of operations, variable, revenue-based concession payments will also be due. Following the signing of the concession agreement, the wholly-owned subsidiary Aeroportos do Sudeste do Brasil S.A., as sole holder of the concession, took over flight operations in Macaé on 20 December 2019 and in Vitória on 3 January 2020.

Chile

Since 2011, the wholly-owned subsidiary Sociedad Concesionaria Aeropuerto de Antofagasta S.A. has held the concession for the expansion and operation of Andrés Sabella International Airport (IATA: ANF) in Antofagasta in the north of Chile. The airport is located approximately 25 km north of the city of Antofagasta. In 2020, traffic volumes reached 1.1 million passengers (2019: 2.2 million passengers). The concession has a term that is dependent upon traffic volumes and ends 36 months after the date on which 75% of the maximum aeronautical revenues are generated, but at the latest after 15 years. It is currently expected to end in 2025. No notable infrastructure investments are anticipated in the period through to the end of the concession.

In 2017, the wholly-owned subsidiary Sociedad Concesionaria Aeropuerto Diego Aracena S.A. acquired the new concession for the operation and expansion of Diego Aracena International Airport (IATA: IQQ) in Iquique in the north of Chile. The airport is located around 40 km south west of the city of Iquique in the Tarapacá region. In 2020, traffic volumes reached 0.9 million passengers (2019: 1.5 million passengers). The concession commenced in April 2018 and has a variable term that is dependent upon traffic volumes and ranges from an anticipated 20 years up to a possible maximum of 25 years. The concession is currently scheduled to end in 2040. As part of the concession agreement, the company has undertaken to invest in measures to upgrade and extend the airport infrastructure, in particular to extend the existing terminal. In 2021, the company is anticipating investments of around CHF 20 million, which will complete the above-mentioned measures to upgrade and extend the airport infrastructure.

India

In November 2019, in a public tender conducted by the Indian government, Flughafen Zürich AG was awarded the concession for the construction and operation of the new Noida International Airport. In early 2020, the wholly-owned subsidiary Yamuna International Airport Private Limited based in New Delhi (India) was established for this purpose. On 7 October 2020, the concession agreement was signed locally. Construction work is expected to commence in the second half of 2021. The investments associated with the first phase of construction amount to approximately CHF 650 million. Once the first phase of construction is in operation, the new airport will have the capacity to handle 12 million passengers a year. As of the sixth year of operations, a fixed fee per departing passenger will be payable to the authorities of the state of Uttar Pradesh.

24.8 EVENTS AFTER THE REPORTING DATE

The Board of Directors authorised the 2020 consolidated financial statements for issue on 11 March 2021. These also have to be approved by the General Meeting of Shareholders.