Strong wings, big goals
ANNUAL REPORT 2009 It has been told that Simurg, emperor of the birds, lived in the Kaf Mountains among the branches of the Tree of Knowledge. Travelers themselves on the road to truth, birds set out in search of timurg. On this difficult journey, they pass over a lifetime’s worth of coarse valleys and lose hope when they reach the last valley, the valley of destitution. Still, a small number of birds keep flying and finally succeed in reaching the Kaf Mountains, whereupon they come to realization that they themselves are Simurg, their sought-after emperor of truth, and that the strength they need already lies within them. From the very beginning, we too have looked to become Simurg. With every step we take, we aim for something higher. We advance to the future through a process of continuous renewal and development. As we reach higher under the strength our shared corporate values and expanding ambitions, we believe that the joy of beating our wing together will deliver us to the summit. CContents Corporate
Financial Indicators 6
2009 Milestones 8
Mission-Vision 10
Management and Messages 12
Management System 20
Operations
Total Traffic Results 38
Fleet 44
Activities 48
Subsidiaries and Joint Ventures 72
Financial
Financial Ratios and Audit Reports 82 OOur Flight Network
Amsterdam Athens Baku Barcelona Basel Batumi Belgrade Berlin Birmingham Brussels Bucharest Budapest Chisinau
Europe North America 65 destinations New York 3 destinations Chicago Toronto
Africa 13 destinations
South America Sao Paulo 1 destination Addis Ababa Algiers Benghazi Cairo Cape Town Casablanca Dakar Johannesburg Khartoum Lagos Nairobi Tripoli Tunis
2 ANNUAL REPORT 2009 Cologne Helsinki Munich Skopje Copenhagen Kazan Nice Sofia Dnepropetrovsk Kiev Nuremberg Stockholm Donetsk Lisbon Odessa St.Petersburg Dublin London Oslo Stuttgart Dusseldorf Ljubljana Paris Tbilisi Ekaterinburg Lviv Prague Tirana Ercan Lyon Pristina Ufa Frankfurt Madrid Riga Venice Geneva Manchester Rome Vienna Gothenburg Milan Rostov Warsaw Hamburg Minsk Sarajevo Zagreb Hannover Moscow Simferopol Zurich
Far East 18 destinations
Almaty Hong Kong Middle East Ashgabat Karachi 19 destinations Astana Mumbai Bangkok Osaka Beijing Seoul Bishkek Shanghai Jakarta Singapore Delhi Tashkent Dushanbe Tokyo
Abu Dhabi Kuwait Amman Madinah Aleppo Mashad Baghdad Muscat Bahrein Riyadh Beirut San’aa Damascus Tabriz Doha Tehran Dubai Tel Aviv Jeddah
Adana Erzincan Malatya Adıyaman Erzurum Mardin Ağrı Eskişehir Merzifon Ankara Gaziantep Muş Antalya Hatay Nevşehir Batman Isparta Samsun Bodrum İstanbul Şanlıurfa Çanakkale İzmir Sinop Dalaman K. Maraş Sivas Denizli Kars Tekirdağ Diyarbakır Kayseri Trabzon Elazığ Konya Uşak Van 3 ANNUAL REPORT 2009 Taking strong steps to carry our deeply-rooted “corporate identity to new horizons.“ CCorporate
Financial Indicators 6
2009 Milestones 8
Mission and Vision 10
Management and Messages
Message from the Chairman 12
Board of Directors 14
Farewell to Candan Karlıtekin 18
Management System
Quality Concept 20
Sustainability 22
Social Responsibility 22
Risk Management 24
Organizational Structure 26
Legal Statute 28
Principles of Corporate Governance and
Compliance Report 30 FFinancial Indicators
6 ANNUAL REPORT 2009 1 January - 1 Januray - 31 December 2009 31 December 2008
ONGOING OPERATIONS Income from Sales 7,035,882,903 6,123,174,209 Cost of Sales (-) (5,135,949,144) (4,542,670,584)
GROSS PROFIT / (LOSS) 1,899,933,759 1,580,503,625 Marketing, Sales and Distribution Costs (-) (806,503,413) (635,876,008) General Administrative Costs (-) (261,536,526) (203,813,181) Other Operating Income 91,136,104 56,690,528 Other Operating Costs (-) (199,139,482) (210,120,463)
OPERATING PROFIT / (LOSS) 723,890,442 587,384,501 Share of Investment in Profit/Loss (Equity Method) 12,813,703 3,572,374 Financial Income 172,982,144 1,427,882,203 Financial Costs (-) (172,708,672) (713,373,140)
PROFIT BEFORE TAX / (LOSS) 736,977,617 1,305,465,938 Tax income / (expense) (177,901,337) (171,239,727)
PROFIT FOR PERIOD / (LOSS) 559,076,280 1,134,226,211 Earnings per share (Kr) / (Loss) (Kr) 0.64 1.30
Note: All amounts are expressed in Turkish Lira (TL) unless otherwise stated.
Sales Income (TL)
2009 7,035,882,903
2008 6,123,174,209
2007 4,859,508,826
2006 4,051,345,129 NET PROFIT 2005 3,107,071,608 559 Operating Profit (TL) 2009 723,890,442
million TL 2008 587,384,501
2007 722,759,224
2006 206,680,100
2005 218,493,953
7 ANNUAL REPORT 2009 009 Milestones
AWARDS INNOVATIONS AND DEVELOPMENTS
Turkish Airlines has been “Operational Excellence” award to Turkish Technic Inc. once again nominated “The Best Airline” in its Turkish Airlines from Airbus certifies its prestige in the region Following an evaluation of the international arena Turkish Airlines was selected as the service records of its fleet’s A320 Turkish Airlines Technic Inc. became best airline in its region, receiving family of aircraft, Turkish Airlines the first aircraft maintenance and the title of “Southern Europe’s received Airbus’ “Operational repair center in Turkey to obtain the Best Airline Company” by Skytrax, Excellence” award. The award EN/AS9100 Aviation Series and the a company that evaluates airlines was presented at a ceremony held ISO9001:2008 Quality Management and airports using 750 parameters in Paris attended by airlines that System Certificates. that measure a range of service and operate Airbus’ A320 aircraft, and Turkish Airlines Technic quality standards. In recognition was an occasion for Turkish Airlines Inc., holding ISO9001:2000, of the services standards it has to put its name to yet another ISO14001:2004, ISO18001:1999 developed though its quality and international achievement. Management System Certificates customer-focused philosophy, and National/International Aircraft/ Turkish Airlines was the only airline Aircraft Components maintenance in Europe to receive 4 stars in all authorization certificates, is both a categories. leader in Turkey and an important global player. Turkish Airlines received the The EN/AS9100 Aviation Series Aircraft Finance Journal’s “2008 - Quality Management System Europen Deal of the Year” award certificate, in addition to being an with financing of aircraft. important source of prestige and Turkish Airlines received the award progress for civil aviation in Turkey, during a ceremony organized by the will also increase Turkish Airlines 29th Air Finance Conference in New Technic Inc.‘s influence in the global York. Following a survey it made aviation industry and its share in the in 2008, in which detailed analysis market. and criteria were applied to more than 350 airlines around the world Turkish Airlines, a Cargo Quality in the area of aircraft and aircraft System Member engine financing, the Airfinance On January 1, Turkish Airlines Journal, one of the world’s Cargo joined the Cargo 2000 Quality leading publications in the aviation Management System, an International financing sector, named Turkish Air Transport Association (IATA) Airlines as having the best financial enterprise that comprises nearly 50 applications in Europe. airlines, numerous cargo agencies, general service providers and information technology providers. Turkish Airlines Cargo increased its market share in the global air cargo market by its improving cargo transport time management, quality of service and level of customer satisfaction. Flights to Tiran via Milan began on June 7, and the total number of cargo flight destinations reached to 21.
8 ANNUAL REPORT 2009 NETWORK
Turkey’s first mobile airline Codeshare agreements New domestic flight destinations application from Turkish Airlines: Passenger have been offered The number of domestic flight mobil.thy.com expanded flight options as a result destinations increased to 37 with Turkish Airlines, diversifying its of codeshare agreements signed the addition of Uşak (January 12), sales channels with the launch with Ethiopia, Singapore, Malaysia, Çanakkale (January 19), and Isparta of mobil.thy.com, now offers its Bosnia, Etihad, Asiana and Air Maroc (October 28). passengers the ability to perform airlines. A codeshare agreement all stages of ticketing, check-in and has also been signed between New destinations with AnadoluJet boarding procedures from their SunExpress, which is a joint venture Flights to Çorlu (Tekirdağ) began mobile phones. between Turkish Airlines and on February 27 and flights to Izmir Lufthansa, and AnadoluJet, also a began on September 28. Restructuring of business Turkish Airlines brand. processes with ERP New international flights Turkish Airlines launched an ERP Special Passengers Program destinations (Enterprise Resource Planning) partnerships Turkish Airlines added 10 new project, one of the world’s largest Turkish Airlines signed a Special international destinations in 2009, of its kind. The project aims to Passenger Program partnership increasing the total number of restructure business processes, agreement with Jet Airways and international destinations on its increase operational efficiency and Continental Airlines, under which flight network to 119. more effectively deliver products Miles&Smiles members may earn NAIROBI- Kenya (February 20) and services to passengers. The miles on flights with Jet Airways UFA - Russia (March 04) project is planned to be completed and Continental Airlines, which they MASHAD - Iran (March 15) in three years. may convert into ticket awards. SAO PAOLO - Brazil (April 05) DAKAR - Senegal (April 05) BENGHAZI - Libya (May 05) GOTEBORG - Sweden (June 29) TORONTO - Canada (July 11) LVIV - Ukraine (July 27) JAKARTA - Indonesia (September 04)
As one of the world’s most prestigious airlines, striving to be the very best in every area, Turkish Airlines gains strength
with each milestone on its ascent to the top.
9 ANNUAL REPORT 2009 ission and ision
mission
To become the preferred leading European air carrier with a global network of coverage thanks to its strict compliance with flight safety, reliability, product line, service quality and competitiveness, whilst maintaining its identity as the flag carrier of the Republic of Turkey in the civil air transportation industry.
10 ANNUAL REPORT 2009 vision
To become an air carrier with;
• a continued growth trend over industry average • zero major accidents/crashes • most envied service levels worldwide • unit costs equating with low cost carriers • sales and distribution costs below industry averages • a personnel constantly developing their qualifications with the awareness of the close relationship between the benefits for the company and the added value that they contribute • an entrepreneurship that creates business opportunities for fellow members in the Star Alliance and takes advantage of the business potential provided by them • a staff well adapted to modern governance principles by observing the best interests of not only shareholders but also stakeholders
11 ANNUAL REPORT 2009 MMessage from the Chairman
12 ANNUAL REPORT 2009 Continuing to grow in 2009 despite the crisis
Through our investments in technical training, we aim to turn Istanbul into a bona fide aviation training center. Our company completed the ordering process for two more training jets and also DearIn 2009, investorsfinancial and and commercial shareholders, performance closely mirrored purchased simulators that will continue providing training services overall macroeconomic balances. Severe reverberations both to our airline’s own pilots and to those of other airlines that emanated from the global crises, which turned into the worst we serve. Our pilots that graduate from the flight academy, which economic year on record since World War II, and which the IATA provides world-class training, are a source of great pride to us. reported as having caused significant financial losses. Alongside our main investments in the development of our fleet Despite the sector’s overall negative picture, Turkish Airlines and routes, projects aimed at strengthening our brand image also continued to progress successfully. Building its strategies based deserve emphasis. In addition to the “Feel Like a Star” advertising on long-term goals and visions - rather than short-term gains - campaign featuring Kevin Costner, in which we highlight that our company turned the crisis atmosphere into an opportunity, the services we offer our passengers are fit for the stars, we becoming the fastest growing airline of all member airlines in signed sponsorship agreements that once again validate us as an the European Airlines Association. Turkish Airlines added to this airline preferred by the very best in the world. We were further momentum by expanding its share of existing markets through motivated by the fact that our high quality and service standards organic growth, and by creating new markets that bring in rising were found to be worthy of the “Best airline in South Europe” numbers of new potential new passengers. Skytrax award, regarded as the Oscars of the aviation sector.
Today, Turkish Airlines, with its comprehensive flight network Our company’s achievements have been reflected in the and strong schedule structure, has further reinforced its identity increasing value of our shares, which are traded on the Istanbul as a global airline. The fact that more than one third of our Stock Exchange and rose by a colossal 395% in 2009. At the start international passengers used Istanbul as their connection point of 2009, our market value was 945 million TL, and by the end of has strengthened our company’s status as a network carrier. the year reached 4,988 million TL. Share in Turkish Airlines were In 2009, the Turkish Airlines brand, with its young fleet, quality the most profitable investment vehicle compared either to other in-flight catering services, friendly personnel and security and stocks traded on the IMKB or other airline company stocks on safety standards that surpass international standards, was the exchanges throughout the world. preferred airline for 25.1 million passengers, and while the IATA announced a 3.5% contraction in passenger demand, Turkish Turkish Airlines understands that its greatest assets are its Airlines grew by an impressive 11%. determined, dynamic and devoted employees, and thus places great importance on projects that improve the living standards In an environment where the sector’s unit revenues have been on of our personnel. By providing all of our employees with private a marked downward trend due to deteriorating global economic health insurance and increasing salaries by 6% before the start conditions, our company has reduced costs through a disciplined of the Collective Labor Agreement term, we have further boosted financial structure and as a result maintained its profitability. the motivation of our personnel - the architects of our success. In 2009, Turkish Airlines was among Europe’s most profitable airlines, with a total profit of TL 559 million. Turkish Airlines has taken off to a roaring start in 2010, and its coming achievements will also command strong attention. I would like to Our investments have served as the catalyst for Turkish Airlines’ express my gratitude to our investors for their support and to all my growth. Ten new international destinations were added to the colleagues, who have made great contributions to the achievements flight network in 2009. In addition to individual aircraft purchasing of our company and put forward their best efforts in making Turkish and leasing, the ordering process was completed on a total of 89 Airlines one of the most highly respected airlines in the world today. aircraft - 25 of which are optional – under our fleet renewal and expansion master program encompassing a total of 105 aircraft. Under this program, aircraft will begin entering our fleet in September and generate balanced and effective growth both in Hamdi TOPÇU single and double-corridor aircraft though 2014. Chairman of the Board, Turkish Airlines
13 MGMT. AND MESSAGES BBoard of Directors
Hamdi Topçu Chairman of The Board
Prof. Dr. Cemal Şanlı Vice Chairman of The Board
Temel Kotil, Ph.D. Member of The Board President & CEO
14 ANNUAL REPORT 2009 Hamdi Topçu Chairman of The Board
Mr. Topçu was born in Çayeli, Rize in 1964. He graduated from Marmara University in 1986, receiving his degree in Economics and Administrative Sciences. He began a certified accounting practice in Kartal in 1986, and continues his work as an accountant and financial advisor. Mr. Topçu is married with four children.
Prof. Dr. Cemal Şanlı Vice Chairman of The Board
Mr. Şanlı was born in Manisa in 1950. He graduated from the Faculty of Law of Istanbul University in 1977 and received his title as a Doctor of Law with the publication of his thesis “International Commercial Arbitration” in 1985. He completed his Ph. D. his thesis on International Arbitration at the “Institute of Advanced Legal Studies” associate with the University of London. In 1987, he became Assistant Associate Professor, in 1990 Associate Professor, and in 1996 full Professor at Istanbul University’s of Law. He is currently the head of the International Private Law Department of the Faculty of Law at Istanbul University. He is married and has four children.
Temel Kotil, Ph.D. Member of The Board and President & CEO
Born in 1959, Mr. Kotil graduated from Aeronautical Engineering Department at Istanbul Technical University in 1983. In 1986, he completed his first masters degree in the United States from the Aircraft Engineering department of Michigan University, his second masters degree in Mechanical Engineering in 1987, and his Ph.D in Mechanical Engineering in 1991. Following his work, Mr. Kotil served as Assistant Associate Professor and Associate Professor at Istanbul Technical Univesity in the Faculty of Aircraft and Space Sciences. In 2003, he began his carrier with Turkish Airlines as Vice President of the Technical Department. In 2005, he was appointed General Manager of Turkish Airlines, and in 2006, he was elected as a member of the IATA Boards of Directors. Mr. Kotil is married with four children.
15 MGMT. AND MESSAGES Orhan Birdal Member of The Board Mr. Birdal was born in Kemah in 1958, in 1980 graduated from the Istanbul I.T.I.A College of Muzaffer Akpınar Journalism and Public Relations, Member of The Board and in 1990 completed his Born in 1962, Mr. Akpınar graduate degree from the Social attended the French Saint-Michel Sciences Institute of Marmara Lycee and graduated from the Dr. Turan Erol University. Between 1976 – 1978 Department of Management Member of The Board Mr. Birdal served on the Turkish Science of Bosphorus University. Agricultural Equipment Board Born in 1961 in Trabzon, Mr. He began professional career as a and beginning in 1982 carried Erol graduated from Karadeniz founding partner of Penta Tekstil out various duties at DHMİ. As of Technical University in 1985 and Mehmet Büyükekşi in 1986 and in 1993 was appointed 2007, he assumed the position of received his masters’ degree from Member of The Board as the CEO of KVK Mobil Telefon General Manager and Chairman Middle East Technical University. Hizmetleri A.Ş. Mr. Akpınar later Mr. Büyükekşi was born in of the Board of DHMİ (General In 1996, he completed his Ph.D in served as CEO of MV Holding A.Ş. Gaziantep in 1961 and graduated Directorate of State Airports Economics at Erasmus University in and played an active role in the from the Faculty of Architecture Authority), which he presently the Netherlands. Mr. Erol served as creation of Fintur Holding BV. Mr. of Yıldız Technical University continues. On April 17, 2008 he an assistant professor at Başkent Akpınar served as the General in 1988. He has participated was elected as a Member of the University between 1997-1998, and Manager of Turkcell between Management Courses at Marmara Board of Directors of Turkish as associate professor from 1998- January 1, 2002 July 2006. He is University, and in Management Airlines. Mr. Birdal is married and 2003. In 2003, he was appointed as married and has two children. and English courses in England has four children. a member of the Capital Markets in 1998. He currently holds Board (CMB), and in December of positions as Vice Chairman of the 2004 was elected as Vice President Exporters Council of the Istanbul of the CMB, holding this position Chamber of Industry, Member of until June of 2007. Mr. Erol now the Board Directors of EximBank, serves as Chief Advisor to the and Member of the Directors of President. He is married with two the Turkish Leather Foundation. children. Mr. Büyükekşi is the General Coordinator of the Zilyan Group. He is married and has three children.
16 ANNUAL REPORT 2009 İsmail Gerçek Auditing Commitee Member Born in Çanakkale in 1963, Mr. Gerçek graduated in 1985 from Ankara University, in Prof. Dr. Ateş Vuran the Department of Public Auditing Commitee Member Administration of the Faculty of Mr. Vuran was born in Istanbul Political Sciences. In that same in 1944. He graduated from the year, he began working as Deputy Istanbul Academy of Economic Naci Ağbal Finance Inspector Committee of and Commercial Sciences, and Auditing Commitee Member the Ministry of Finance. Between conducted studies at Italy’s 1992 – 94, he completed his Mr. Ağbal was born in Bayburt Perugia University in 1966 – 1967. Master of Arts degree in Money in 1968. He graduated from He received his Ph.D. in 1974, and Banking in the United States the Department of Public became an associate professor in as well as post – graduate Administration of the Faculty 1978, and full Professor in 1984 studies in finance. Since 1998, of Political Sciences of Istanbul in the Departments of Statistical he has worked as a partner an University in 1989. Between 1996 and Numerical Methods. In certified public accountant in an – 1998, he completed an MBA 1971, founded Turkey’s first accounting firm. He is married program at Exeter University in private airline company (Anadolu and has two children. England. He is now engaged in Havacılık ve Turizm A.Ş.). He is a Ph.D Program in Management currently the Rector of Istanbul at the Institute of Social Sciences University of Commerce and of Ankara University. Mr. Ağbal heads the Department of Tourism currently continues his duties as Management within the Faculty of General Manager of Budget and Commercial Sciences at Istanbul Financial Control in the Ministry University Commerce. He is of Finance. He is married with two married with two children. children.
17 MGMT. AND MESSAGES FFarewell to Candan Karlıtekin
18 ANNUAL REPORT 2009 He was not only an executive, but also a true friend. We shared in almost every moment of happiness and sadness. The contributions of Candan Karlıtekin signature will forever remain in bold under each positive decision made by the company.
He made very valuable contributions to our companyHamdi as its Chairman. Topçu I thank him for his services on behalf of the entire Turkish Airlines family.
We thank him for transforming Turkish AirlinesPh.D. from Temel a national Kotil and regional airline into a global company and brand.
A very good businessman, an excellent executive, and a kind person with a very pure heart. I wish him all the very best.Orhan Birdal
A warm-hearted and enthusiastic ChairmanMuzaffer of the Board of Akpınar Directors, who loved his job and to which he brought clear a horizon and vision.
Farewell to Candan Karlıtekin … İsmail Gerçek His name Candan means “heartfelt”; but it is through his vigorous personality that Candan Karlıtekin put his signature to the countless achievements of Turkish Airlines during his term as the Chairman of the Board from 2004 to the end of 2009, which he served with obvious love for his work, as a master executive and with a colorful personality devoted to education. Even though we say farewell to him at the end of 2009, we know that our routes will cross on another flight. We owe him a debt of infinite gratitude for the value and vision he brought to Turkish Airlines.
Turkish Airlines Employees
19 MGMT. AND MESSAGES QQ uality Concept
20
ANNUAL REPORT 2009 Quality through sustainability and maximum security
Turkish Airlines strives to be among the world’s leading airlines brands, and it is committed to a quality policy of sustainability and maximum security. To this end, it has developed quality and safety standards that its growth requires in cooperation with national and international authorities.
As it continues its rapid growth, Turkish Airlines took Flight safety further steps to improve quality and safety without ever Turkish Airlines successfully satisfied the nearly 900 compromising its standards. As a result of its work on criteria specified in the IOSA (IATA Operational Safety quality and management systems, Turkish Airlines Audit) program in 2005 (organization and management successfully passed all of the approval processes system, flight operations, operational control and conducted by national and international authorities. flight departure management, technical, cabin, group operations, cargo and security) and received the IOSA Management system Certificate. In 2009, AQS performed the validity renewal audit for this certificate, which was completed with zero One of the basic duties of an airline company is to ensure adverse findings. a hassle-free experience by continually improving the products and services it offers to its customer, thus creating lasting customer satisfaction. In order to achieve this, the operational and commercial processes must be managed in an integrated fashion. Turkish Airlines takes this approach, and since May 2006 has held the TS-EN ISO 9001:2000 Quality Management System Certificate, which was renewed in 2009 as the TS-EN ISO 9001:2008. Having received this new certificate, Turkish Airlines’ quality standards were validated both by the Turkish Standards Institute and the international certification network IQNet, of which it is a member. Turkish Airlines is committed to leaving behind a clean environment for subsequent generations and is working on an ISO 14001 Environment Management System Project, while also placing priority on its employees through its work on OHSAS 18001 Work Health and Safety.
Quality and assurance The conformity of flight and ground operations to Turkish Airlines’ regulations and national and international standards are controlled through yearly planned and non-planned audits. In addition, operational training units (both flight and ground) provide quality assurance audits. In 2009, 792 audits were conducted, and Turkish Airlines also successfully passed external audits carried out by the Civil Aviation General Directorate, EASA, JAA Mast Team, France Civil Aviation and British Civil Aviation Authorities.
21 MANAGEMENT SYSTEM SS ustainability
Turkish Airlines’ vision of sustainability is based on being a leading, global and respected institution that conducts itself in line with its responsibility towards environmental, economic and social development. For long-term corporate sustainability, the implementation of resource and risk management is essential to putting in place responsible environmental and climate practices, as well as providing for the well-being, development and security of human resources.
Social Responsibility Turkish Airlines’ carbon reduction environmental implementations had the equivalent impact of planting one million trees. The practices introduced under the Fuel Savings Project were implemented across all operations.
As one of the most important contributors to global warming, fossil fuel usage is coming under increasing scrutiny, and airlines are looking to adopt renewable energy models within the shortest time. Turkish Airlines recognizes that older generation aircraft release higher carbon emissions, consume more fuel, and create more noise pollution, and it conducts itself with the awareness of its responsibility to the environment, operating a young fleet whose age is below the sector’s average. Under the “Fuel Savings Project,” which was launched in order to bring about the highest fuel efficiency, work began on the monitoring, control and reduction of fuel consumption values. In implementing the project, great care has been taken to ensure that fuel consumption reduction measures are carried out by those units whose paramount responsible is flight safety. Through practices such as the reduced of the use of the APU (Auxiliary Power Unit), take offs and landings with a low flap configuration, reduced aircraft weight, increased engine wash intervals, and reduced cabin and catering weights, approximately 360,000 fewer tons of carbon was emitted compared to prior years - a benefit equal to the planting of nearly 1 million trees per year.
22 ANNUAL REPORT 2009 Leaving good marks on nature
23 MANAGEMENT SYSTEM Risk Management
Financial Risk Management (FRM) was initiated under the Enterprise Risk Management (ERM) project, which Turkish Airlines is conducting in order to evaluate the company’s financial risks and implement risk hedging strategies.
The financial effects of changes in jet fuel prices has been defined as “commodity price risk”; losses that may arise from financial loans, receivables and investments as “credit risk”; fluctuations in the market value of aircraft financing, debts in foreign currency and the market value of cash as “interest risk”; and the various foreign currency rates in the income and expense calculations as “foreign exchange rate risk.” As a result of decisions to establish fixed commodity prices and fixed loan interest rates, strategies to hedge against the above risks were developed in derivative markets.
Commodity price risk management Turkish Airlines Risk Hedging Strategy (16 Months) Commodity price management aims to mitigate the effect 20%
of fuel price variations on jet fuel costs by fixing the cost 19% of jet fuel within a specific band or at a single price, thus 18% 16%
minimizing the consequences of adverse conditions that 15% 14%
may arise in the fuel market. Risk hedging has been 13% 11%
implemented in a staged manner, with the use of derivative 10% 9%
instruments for crude oil (barrels) and jet fuel (Mtons) on 8%
contract amounts corresponding to approximately 20% of 6% 5% 4%
Turkish Airlines’ forecasted annual jet fuel requirements. 3%
The “Petroleum Market Pricing Scenario” graph, below, 1% shows scenarios covering a risk-hedging period for
M+1 M+2 M+3 M+4 M+5 M+6 M+7 M+8 M+9 Turkish Airlines’ fuel prices and related estimated fuel M+10 M+11 M+12 M+13 M+14 M+15 M+16 costs in the event of supply changes in the Brent crude oil market. Turkish Airlines Petroleum Market Pricing Scenario* (as of February 1, 2010)
Market Price Market Price Turkish Airlines Price 180
150
120
90
60
30 30 60 90 120 150 180 Turkish Airlines USD/Barrel Price 24 ANNUAL REPORT 2009 Managing risks well under uncertain circumstances
- When the price of a barrel of crude oil is $180, the cost to the company is $174,2 - When the price of a barrel of crude oil is $150 the cost to the company is $145,9 - When the price of a barrel of crude oil is $120 the cost to the company is $117,7 - When the price of a barrel of crude oil is $90 the cost to the company is $89,4 - When the price of a barrel of crude oil is $60 the cost to the company is $61,1 - When the price of a barrel of crude oil is $30 the cost to the company is $32,9
The graph below, which compares Turkish Airlines’ fuel costs in 2008 with those in 2009, shows the change in various costs factors.
2008-2009 Turkish Airlines’ Fuel Cost Variations (as of February 1, 2010)
2,5
2,0 0,3
0,9 0,004 1,5 0,3
1,0 1,8 1,5 0,5
0,0 Fuel Costs Consumption Cost Exchange Rate Risk Hadging Fuel Costs 2008 Activities 2009
Credit risk management In response to the effects of the international economic crisis spanning 2008 and 2009, Turkish Airlines signed agreements for deposit and derivative transactions with financial institutions it does business with in order to protect against any future credit risks. Taking into consideration the credit risk ratings of financial institutions, Turkish Airlines has assigned its own limits to those institutions that remain above the credit risk threshold. The assigned limits have been periodically updated and the health of any institution whose credit rating slips is monitored closely. In order to manage the credit risk that can arise as the result of using derivative products, Turkish Airlines signed an International Swaps and Derivatives Association (ISDA)” agreement and other required agreements with its counterparties. Issues relating to the management of credit risks were dealt with in the “Credit Support Annex (CSA)” section of the agreement. As provided by the agreement, credit risk was reduced though reconciliation operations for certain periods. Interest rate risk management Turkish Airlines’ interest rate risk management activities include the regular monitoring and analysis of the interest rate market, setting fixed loan interest rates, conducting sensitivity analyses on interest rate variations and tracking probable interest-derived cost adjustments. Foreign exchange rate risk management Turkish Airlines’ international operations necessitate the denomination of revenues and expenditures in many foreign currencies. In order of descending magnitude, revenues are in EUR, USD and TL and expenditures in USD, TL and EUR. In order to minimize the effects of foreign currency fluctuations, which are a serious risk factor, an active foreign exchange rate policy has been implemented.
25 MANAGEMENT SYSTEM OO rganizational Structure
Turkish Airlines’ sound and strong organizational “structure rapidly adapts to changing conditions and increasing competition.”
26 ANNUAL REPORT 2009 Board of Directors
Executive Committee
President & CEO Mgr. Office of CEO
Dir. Inspection Board Legal Counsellor
Dir. Corporate Dir. Communications Quality Assurance
Dir. Corporate Development Dir. Investment and Information Technology Management
Press Counsellor Dir. Flight Training
Dir. Dir. Tecnical Ground Operations
Dir. Regional Flights Mgr. Aviation Safety
Mgr. Flight Safety
Exe. Vice President Exe. Vice President Exe. Vice President Exe. Vice President (Human Resources) (Financial) (Commercial) (Flight Operations)
Dir. Dir. Flight Operations Dir. Personnel Dir. Finance Production Planning (Chief Pilot)
Dir. Revenue Dir. Cabin Crew Dir. Training Dir. Accounting Management Managing
Dir. Social & Dir. General Purchasing Dir. Marketing & Dir. Operations Administrative Affairs and Catering Sales Coordination
Dir. Cargo
Dir. Business Devolopment & Agreements
27 MANAGEMENT SYSTEM Legal Statute
1933 Turkish Airlines was founded in Ankara pursuant to law No. 2186 as the “State Airlines Administration” and commenced operationsunder the authority of the Ministry of Defense.
1935 1955 In 1935, authority was transferred to the Ministry of Public In 1955, pursuant to Law No. 6623, the State Airlines was Works, and in 1938 the Administration was renamed the “General restructured as a corporation governed by the provisions of private Directorate of State Airlines,” with authority transferring to the law and continued its operations under the name of “Türk Hava Ministry of Transportation in 1939. Yolları Anonim Ortaklığı”.
1984 As a Public Economic Institution (KIK), the Company fell within the scope of Decree Law 233 Regarding Certain Public Bodies and Institutions published in Official Gazette No.18570 on November 9, 1984.
28 ANNUAL REPORT 2009 1990 Pursuant to Council of Ministers’ Resolution No.90/822 dated August 22, 1990 and published on September 25, 1990 in Official Gazette No. 20646, the Company was placed among KIKs to be privatized under the scope of Law 3291. The Company’s Articles of Association were structured in accordance with its new status and approved by the Higher Planning Authority via decision No. 90/18 dated October 30, 1990, and on November 5, 1990 the Article of Association were entered into the Commercial Register.
1994-2005 2006 The Company was included within the scope of Law No. 4046 The share of the government’s ownership in Turkish Airlines fell Concerning the Structuring of Privatization Activities and below 50% as a result of a public offering in May, and thus ended Amendments to Certain Decree Laws, which was published in Official Turkish Airlines’ legal status as that of a state corporation. Gazette No. 22124 dated November 27, 1994. Pursuant to Article 35 of the above-mentioned law, the Company was reclassified as a State Economic Enterprise under the Ministry of the Privatization Administration. In order to comply with the provisions of the above-mentioned law, the Articles of Association were amended in accordance with Article 20(a) of the said law, and approved by the Privatization Administration on December 5, 1996. The amendments to the Articles of Association received the approval of the Capital Markets Board by Decision No. 33/953 dated July 5, 2002 and were deemed suitable via Authorization No. 1006 of the Privatization Administration dated November 8, 2002. The amendments were entered into force following acceptance by an extraordinary session of the General Assembly on January 17, 2003.
29 MANAGEMENT SYSTEM rincipals of Corporate Governance PPand Compliance Report
1. Declaration of Compliance with Principles of Corporate Governance Board of Directors. The Board of Directors may refrain from registering any share transfers in the Share Register in cases which are not in consistency with The Company has embraced the concept of fairness, transparency as well as this Articles of Association or the law or without indicating any reason therefore. promoting Turkey and Turkish Aviation sector internationally by upholding fully to these Principles of Corporate Governance of Capital Market Board (CMB) Share transfers which are not in compliance with the foreign shareholding rate limits as indicated in Article 6 above, may not be registered in the Share 2. Shareholder Relations Unit Register. The Board of Directors will be under the obligation to reject the The Investor Relations Department, which reports to the CFO, has been registration of such share transfers in the Share Register. Share transfers established as an unit that oversees the communication of accurate and which are not registered in the Share Register by the Board of Directors timely information to our investors, maintaining relations and exchanging will not be recognized by the Incorporation and the related transferee will information with capital market supervisors, monitoring capital increases and not be granted to be a shareholder. The affirmative vote of the member, public offering transactions and organizing presentations and informational appointed to the Board of Directors to represent Group C share is required in meetings for domestic and international investors. Contact information for the resolutions of the Board of Directors to affirm the share transfer and to the Investor Relations Manager, Suna ÇELEBİ, is as follows: Contact Details: register this in the Share Register. Phone 212- 463-6363, Extension 3630, Fax 212-465-2307, E-mail [email protected] Group C share may be transferred to any Turkish public institution substantially 3. Shareholder’s Right to Obtain and Evaluate Information having the same powers granted to the Prime Ministry Privatization Directorate by Law No: 4046. In case of such a transfer then this will promptly be registered in the 50.88% of our Company’s share is Free Floating at Istanbul Stock Exchange Share Register without requirement for any resolution of the Board of Directors. (ISE). During the year 2009, 258 requests have been submitted to our Company by e-mail. All of the requests mostly related to financial and operational The Board of Directors will be under the obligation to limit the transfer of the data, were responded to without delay. In addition to those requests, a large shares to the foreigners, in order to comply with the provisions of Civil Aviation number of investors and shareholders were provided with information by and/or other laws, it is subject to, and with the limitations as indicated in this telephone. The Company does not discriminate among shareholders on the Articles of Association and to avoid from endangering the traffic and cabotage issue of exercise of shareholders’ right to obtain and evaluate information. The rights held by the Incorporation. Company has created a web site in order to allow shareholders to exercise As per article 362 of the Turkish Commercial Code (TCC), the income their right to obtain information effectively. statement, balance sheet, annual report and proposals for the method of 4. Information on General Assembly Meeting distribution of net income will be made available to shareholders at the Head Office of the Company at least 15 days prior to the Ordinary General Assembly, Pursuant to Article 6 of our Articles of Association, all share certificates of our accompanied by the report to be issued by auditors. Company are registered and are categorized into two groups: A and C. There is only one outstanding Group C share, which belongs to the Privatization In General Assembly Meetings, existing practice endeavors to respond to Administration of the Prime Ministry (OIB) incase such duties of OIB are shareholder questions orally and to address more comprehensive questions transferred then the transferee institution. Presently, 49.12% of Group A in writing; however, since no questions requiring a written answer were shares belong to OIB, and 50.88% are traded publicly. encountered during these period, verbal explanations were deemed adequate. In the course of 2009: The powers of authority of the General Assembly are set out in Article 27 of our Articles of Association; as such, the General Assembly is that body holding the 1. An Extraordinary General Assembly was held on January 22, 2009 that served powers of authority as stipulated in TCC and other laws. Outside of this article, to bring our Company’s Shareholders’ Agreement into conformity with the New there is no provision in the Articles of Association calling for resolutions by TL, as required by the decision of the Capital Markets Board. Shareholders General Assembly on matters of material importance. representing 92,900,317.66 TL of the 175 million TL of our Company’s issued share capital attended the Extraordinary General Assembly. Under Article 14 of our Articles of Association, the validity of any resolution to be adopted by the Board of Directors on the matters listed below is contingent 2. An Ordinary General Assembly was held on May 4, 2009 to review 2008 upon the participation of the Board member representing the Group C share in accounts and operations. Shareholders representing 90,414,562.66 TL of any meeting where such resolutions are to be adopted and upon that member the 175 million TL of our Company’s issued share capital attended the casting an affirmative vote. Ordinary General Assembly. - Resolutions which will clearly adversely affect the mission of the Invitations to both the Ordinary and Extraordinary General Assembly were Incorporations as indicated in Article 3.1 of this Articles of Association; promulgated by way of announcements in the agenda of the Trade Registry Gazette and in one newspaper circulated across the country, as well as - Any suggestion to be made to the Shareholders Assembly for any modification through announcements on the Investor Relations page of our website. in the Articles of Association; Pursuant to Article 29 of our Articles of Association, we are under no obligation - Increase of the share capital; to send notification of the meeting date by registered mail to shareholders - Approval of transfer of registered shares and registration of the transfer in holding share certificates traded on the stock exchange. the Share Register; No time period has been stipulated for holders of registered shares to place - Any transaction, based on each contract, which exceeds 5 % of the total notification with the share register in order to secure participation in the assets of the Incorporation as indicated in the latest balance sheet submitted general assembly. Other conditions relating to this matter are set forth in to the Capital Market Board and which is directly or indirectly binding for Article 7 of our Articles of Association, as follows: the Incorporation, any resolution which will bring the Incorporation under any Transfer of shares is subject to the provisions of Turkish Commercial Code, commitment, (provided that in case the share of the public in the Incorporation Capital Market regulations and Civil Aviation regulations. has decreased below 20% of the Incorporation’s share capital, then the provisions of this clause will automatically terminate); Transfer of registered shares will be effective with regard to the Incorporation upon registration in the Share Register. The shareholders will be under the - Merger, termination or liquidation of the Incorporation; obligation to evidence when required, according to the format as determined - Any resolution about the cancellation of any flight route or for a remarkable by the Board of Directors, their identities and nationalities and, if available, the decrease in the number of flights, excluding the routes which do not even have “Foreign shareholding” relation as indicated in Article 6, before registration of revenue to meet its own operating costs based on exclusive market conditions the registered shares in the Share Register. or through other sources. Until registration of the share transfer in the Share Register, the holder - The privileges of Group C share may only be limited by the High Commission registered in the Share Register will be deemed as the holder of the shares of Privatization or any other public institution which has taken over such duties. by the Incorporation. Minutes of General Assembly Meetings are made available to shareholders Share transfers will be registered in the Share Register upon resolution of the within our Company all the time and are delivered to shareholders upon
30 ANNUAL REPORT 2009 request. Furthermore, General Assembly minutes and attendance list are to any reason like death, resignation, dismissal or cease of membership, then made available on the Investors’ Relations section of our website. such vacant position will be occupied by the election of the Board of Directors made in compliance with Article 315 of Turkish Commercial Code. In the event 5. Voting Rights and Minority Rights of any vacancy in the Board of Directors due to any of the aforementioned 1. Voting Rights are set out in Article 31 of our Articles of Association, as reason, then the shareholders holding the group shares entitled to nominate appearing below.“Each shareholder or proxy attending the ordinary or the candidate office of which is then vacant, will be entitled to nominate a extraordinary Shareholders Assembly Meetings will be vested with one candidate for the vacant position and the Board of Directors will elect this vote for each share, provided that the provisions of Article 6/d of this candidate for this vacant position. In the event that the shareholders holding Articles of Association are reserved. Group A shares open for public may not nominate any candidate for the vacant position in the Board of Directors then Group C shareholder will be entitled to 2. Under Clause 5 of Article 14 of our Articles of Association, It is required for nominate a candidate for the vacant position or in case Group C share has been the Board member representing Group C share to attend the meeting and converted to Group A share, then the shareholders holding Group A shares his affirmative vote is required for the effectiveness of the resolutions of not open for public will be entitled to nominate a candidate for the vacant the Board of Directors regarding the followings issues: position. In the election for the vacant position of the candidate nominated by - Resolutions which will clearly adversely affect the mission of the the shareholders holding Group A shares open for public, the rates of 15%, Incorporations as indicated in Article 3.1 of this Articles of Association; 35% and 2% as indicated in paragraphs (a), (b) and (c) above will not be taken into consideration. The appointment of the successor member of the Board - Any suggestion to be made to the Shareholders Assembly for any will be submitted to the approval of the following Shareholders Assembly. The modification in the Articles of Association; Board member approved by the Shareholders Assembly will continue the Office - Increase of the share capital; period of the predecessor member. - Approval of transfer of registered shares and registration of the transfer e) In the event information is given that any Board member representing in the Share Register; a legal person has no more relation with that legal person or in the event - Any transaction, based on each contract, which exceeds 5% of the total such legal person transfers its shares to a third party, then this member assets of the Incorporation as indicated in the latest balance sheet submitted will be deemed to have resigned, and provisions of paragraph (d) hereof to the Capital Market Board and which is directly or indirectly binding will apply in nominating a candidate for the vacant position. for the Incorporation, any resolution which will bring the Incorporation f) In the event of any modification in this Articles of Association and creation under any commitment, (provided that in case the share of the public in of new share groups, the right granted to the shareholders holding Group the Incorporation has decreased below 20% of the Incorporation’s share A shares open for public to nominate 2 Board members as indicated in capital, then the provisions of this clause will automatically terminate); paragraphs (a) and (b) above may not be cancelled or modified, unless the - Merger, termination or liquidation of the Incorporation; aforementioned modification is approved by the shareholders representing 65 % of the issued share capital. - Any resolution about the cancellation of any flight route or for a remarkable decrease in the number of flights, excluding the routes 4. No mutually-affiliated relationship exists with any other company. which do not even have revenue to meet its own operating costs based on 5. Representation of minority shares in management is carried out in exclusive market conditions or through other sources. The privileges of accordance with Article 10 of our Articles of Association, as specified above. Group C share may only be limited by the High Commission of Privatization 6. Our Articles of Association do not contain provisions for accumulated voting. or any other public institution which has taken over such duties. 6. Dividend Policy and Timing of Distribution 3. Under Article 10 of our Articles of Association, The Board of Directors will consist of 7 members appointed by the Shareholders Assembly. It is The determination and distribution of profits from our Company are set forth obligatory to appoint 6 members of the Board of Directors, by electing in Article 36 of our Articles of Association, as follows. amongst the candidates nominated by the Group A shareholders having The net profit, as indicated in the annual balance sheet, found after deducting highest votes, and to appoint one member by electing amongst the from the revenue of the Incorporation, the amounts required to be paid or candidates nominated by the Group C shareholder. reserved by the Incorporation like general expenses and various depreciations Below principles will apply in the nomination of the candidates by the Group and the taxes required to be paid by the Incorporation, following the deduction of the losses of the past years, will be distributed in the following priority: A shareholders: a) Legal reserve fund in the rate of 5% will be reserved. Our Dividend Policy is a) In case the rate of being open to public is 15% (including), then the published at our web site. shareholders holding the Group A shares open to public will have the right to nominate one of the 6 members granted to Group A shares. b) First dividend in the rate and amount as determined by Capital Market Board will be deducted from the balance. b) In case the rate of being open to public is 35% (35% and more), then the shareholders holding the Group A shares open to public will have the right c) After deducting from the net profit the amounts indicated in clauses (a) to nominate two of the 6 members granted to Group A shares. and (b) above, the Shareholders Assembly will be entitled to resolve either to distribute as second dividend or to reserve as extraordinary reserve fund, the c) In order to be able nominate candidates for the Board of Directors by the entire or any portion of the balance. shareholders holding Group A shares open for public, they are required to be represented at the rate of minimum 2% of the total issued share capital of d) Second reserve fund will be reserved according to Article 466, paragraph 2, the Incorporation during the Shareholders Assembly in which the members clause 3 of Turkish Commercial Code in the rate of one tenth of the amount of the Board of Directors will be elected. Calculation of the aforementioned found after deducting the profit share in the rate of 5% of the issued share rate of 2% will be based only on the Group A shares open for public. capital from the amount resolved to be distributed to the shareholders and Shareholders holding Group A shares open for public will determine the those entitled to participate the profit. candidates nominated for the Board of Directors in a special meeting. In this e) Unless legal reserves required by law and the first dividend determined in the meeting only shareholders holding Group A shares open for public, not held Articles of Association for the shareholders are reserved, no resolution may be by the public, will be entitled to nominate candidates. In case shareholders adopted to reserve other reserve funds, to transfer profit to the coming year, and holding Group A shares open for public are not represented in the rate of unless first dividend is paid in cash and/or in share certificates, no resolution may 2% at the Shareholders Assembly, then the right of such shareholders to be adopted to distribute profit to the privileged shareholders in profit distribution, nominate candidates for the Board of Directors, will be used by the other to the holders of participation, founder and ordinary interest certificates, to shareholders holding Group A shares not open for public according to the the members of the Board and officers, employees and workers, to the trusts rules of Turkish Commercial Code and Capital Market. established for various purposes and similar persons and/or institutions. d) In the event of any vacancy in any membership of the Board of Directors due The General Assembly shall determine the time and method of payment of
31 MANAGEMENT SYSTEM dividends in accordance with the directives of Capital Market Board. In this such redemption, will be collected from the shareholder who has caused the regard, our Company’s dividend distribution policy as formulated by the Board redemption, through deduction from the redemption amount. of Directors by taking the strategic targets, growth trend, financial needs and (ii) In cases where the total share rate of the foreign shareholder is over the the expectations of the shareholders of the Incorporation into consideration and limit indicated in this Articles of Association, then the Board of Directors will under the provisions of the Turkish Commercial Code, Capital Markets Law, be entitled to increase the share capital in order to reduce the rate of the other related legislation and its Articles of Association, and the Incorporation shares exceeding the limit. In this case, new shares may be issued by limiting will basically distribute profit at the minimum ratio determined by the Capital the preferential purchase options of the existing shareholders according to the Markets Board by means of cash and/or bonus shares and upon taking of rules of the Capital Market Board. the potential of the Incorporation to be able to distribute profit, it is always possible for the Board of Directors to resolve for distributing profit above the REASONING FOR THE ARTICLE: minimum ratio and submit it to the approval of the General Assembly and the The reasoning for the rule in this Article is provided in the final paragraph of profit share distribution shall be carried out within their legal terms. Article 7 of our Articles of Association and in paragraph below. The regulations 7. Transfer of Shares to which our company is subject in its capacity as an airline and to which it must adhere are also explained. Article 6 of our Articles of Association; a) An airline company that does not qualify as Turkish on account of provisions Shareholders Nature listed in Articles 31 and 49 of Turkish Civil Aviation Act No. 2920 may not obtain The shares held by the foreigner shareholders may not exceed 40% of the an operating license or, if it does possess an operating license, such operating issued share capital of the Incorporation. In calculating the rates of the shares license shall be revoked in the event it ceases to qualify as Turkish due such held by the foreigner shareholders, the rate of foreign shareholding in the factors or events such as the transfer or sale of shares of the airline or due shares held by the shareholder holding Group A shares which are not open for to the majority of the members of its Board of Directors being foreign, etc. public will be taken into consideration as well. b) In order for flights to be possible from one state to another, that is, to Foreign shareholder shall mean: secure rights to international traffic, bilateral inter-governmental aviation treaties must first be executed between the two given countries, and the - foreign natural or legal persons; majority ownership of the airline to be designated by the Turkish Government - Turkish companies, share capital of over 49% of which are owned by and the control of such company must lie in the hands of Turks (natural or foreigners; legal persons). The criteria of nationality that qualifies our company as Turkish is a also a sine qua non condition for holding the right to traffic under the - Turkish companies in which majority members of administrative and bilateral aviation treaties executed between states. representative boards are not Turkish citizens and in which majority votes are not on Turkish partners according to their articles of associations; Hence, since the right of traffic may only be granted to an airline domiciled in Turkey if the majority of its shares of effective control thereof belong to - Turkish companies under actual control of the aforementioned. Turkish citizens or companies, and since in the event such airline ceases to In order to ensure that the aforementioned share rate limitations on the foreigner qualify as Turkish (or it fails to prove that it has not ceased to do so or if other partners will be complied with the provisions of the Articles of Association, the contracting states to which flights will be made fail to believe that it has not Incorporation will use separate parts for foreign shareholders in registering the done so) then the relevant airline shall lose its right to traffic, the criterion of shareholders and their related share rates in the Share Register. nationality is an element of vital importance for an airline. It is obligatory to promptly notify the Incorporation of any share purchase Hence, Article 6 of our Articles of Association contain provisions governing the and sale reaching to 1% of the issued share capital of the Incorporation. foreign element in order to ensure that our airline’s operating license and also Moreover, the shareholders who have reached or exceeded the maximum our international traffic rights are secured, as explained above. Accordingly, foreign shareholding rates as indicated in this Articles of Association, are restrictive rules were set out in terms of the limitations imposed on the foreign obliged to promptly notify the Incorporation as they become aware of this. The shareholding ratio for the protection of the traffic rights of our Company based purpose of such notification is to follow the foreigner element and remarkable on the criterion of nationality, should such limit be exceeded. share movements and to ensure the Board of Directors to perform its powers 2- Articles of Association Article 7 (Transfer of Shares) based on these, and only notification will not result with the nature of being a shareholder unless registered in the Share Register, and only the records in Transfer of shares is subject to the provisions of Turkish Commercial Code, the Share Register will be relied on in such cases. Capital Market regulations and Civil Aviation regulations. In cases where it is understood through the notifications or through other Transfer of registered shares will be effective with regard to the Incorporation means that the total shares held by the foreigner shareholders have exceed upon registration in the Share Register. The shareholders will be under the 40% of the issued share capital of the Incorporation, then the Board of Directors obligation to evidence when required, according to the format as determined will be under the obligation, to promptly notify the related shareholders lately by the Board of Directors, their identities and nationalities and, if available, the within 7 (seven) days, starting from the latest share transfer, to dispose of the “Foreign shareholding” relation as indicated in Article 6, before registration of shares which exceed the foreign shareholding limit, in amounts and rates to be the registered shares in the Share Register. in conformity to the foreign shareholding limit and otherwise the Incorporation Until registration of the share transfer in the Share Register, the holder will be entitled to apply any of the measures indicated below. The foreign registered in the Share Register will be deemed as the holder of the shares shareholder to whom the notice to dispose of its exceeding shares has been by the Incorporation. served, will be under the obligation to sell such shares which have caused the foreign shareholding limit to be exceeded, to a person who is not included in Share transfers will be registered in the Share Register upon resolution of the the foreign shareholder definition in this Articles of Association, within the Board of Directors. The Board of Directors may refrain from registering any period stated in the notice. In case such shares are not disposed despite the share transfers in the share Register in cases which are not in consistency with notification, then the Board of Directors will be under the obligation to meet in this Articles of Association or the law or without indicating any reason therefore. 3 (three) days and to take a resolution to cover the measures indicated below Share transfers which are not in compliance with the foreign shareholding rate in regard to the shares exceeding the limit. limits as indicated in Article 6 above, may not be registered in the Share Register. (i) To redeem with the nominal value, the shares held by the foreign The Board of Directors will be under the obligation to reject the registration of such shareholder which has caused the foreign shareholding limit to be exceed, share transfers in the Share Register. Share transfers which are not registered through decreasing the share capital; with this purpose, the Incorporation in the Share Register by the Board of Directors will not be recognized by the will first notify the shareholder who has exceed the foreign shareholding limit Incorporation and the related transferee will not be granted to be a shareholder. that his shares will be redeemed. In case such a notice may not be served The affirmative vote of the member, appointed to the Board of Directors to then the fact will be announced in two newspapers published at the place represent Group C share is required in the resolutions of the Board of Directors to where the head office of the Incorporation is located. Expenses related with affirm the share transfer and to register this in the Share Register.
32 ANNUAL REPORT 2009 Group C share may be transferred to any Turkish public institution substantially other interested parties may obtain information about our company via our website. having the same powers granted to the Prime Ministry Privatization Directorate by Personnel receive information regarding the Company’s general practices and Law No: 4046. In case of such a transfer then this will promptly be registered in the operations through internal annoucements through the Company intranet site. Share Register without requirement for any resolution of the Board of Directors. 14. Human Resource Policy The Board of Directors will be under the obligation to limit the transfer of the Our Company adheres to a Human Resource Code established by our Board shares to the foreigners, in order to comply with the provisions of Civil Aviation of Directors, and the Company act in accordance with Labor Law No. 4857 and/or other laws, it is subject to, and with the limitations as indicated in this regarding the personnel policies. In addition, our Company’s personnel are Articles of Association and to avoid from endangering the traffic and cabotage unionized and as such work under a collective bargaining system. Employee/ rights held by the Incorporation. employer relations are conducted in an effective and result-oriented 8. Company Public Disclosure Policy manner at all levels and on any subject concerning collective bargaining and representatives appointed by the union in numbers and percentages as Our Board of Directors has established Disclosure Policy to share information specified in Article 34 of Unions Law No. 2821 and by union directors. Training on the performance and forward looking developments within the scope of services are provided to all our personnel. No complaints of discrimination generally accepted accounting principles and Capital Market Legislation (CML), have been received from any employee. Capital Markets Board and Istanbul Stock Exchange regulations and Capital Markets Board Corporate Governance Guidelines in a fair, complete, accurate 15. Relations with Customers and Suppliers and comprehensible way with the capital market participants equally and keep Since the Company is an IATA member, ticket sales are subject to certain an active and open dialogue always available. rules and regulations determined by IATA. In addition, forms for complaints Turkish Airlines’ policy to give correct, complete, understandable, analyzable and suggestions are made available to customers on board and at all airports and cost effective easily accessible information, except trade secrets, to the and these are evaluated in an effort to improve customer satisfaction. Other capital market participants and personnel about its activities and related efforts geared toward customer satisfaction include the practice of allowing a strategies, critical subjects, risks and developments. The comprehensive commitment and penalty-free 24-hour option for changes or cancellations on public disclosure policy of our Company as approved by the Board of Directors reservations made over phone, assistance provided to passengers with special may be found on our Company’s website. needs or with disabilities, meeting basic passenger needs at times when flights are grounded during delays, taking the necessary measures to facilitate checkin. 9. Material Disclosure Customer satisfaction principles adopted by the Company in direct passenger In addition to the financial statements and notes to financial statements for 2009, relations form the basis of the agreements signed with agencies. Only agencies our Company made 64 Material Disclosure in accordance with CMB’s Directive that comply with these principles are allowed to work with Turkish Airlines. Series: VIII, No: 54 on Public Announcements of Special Circumstances, and no Agencies that do not comply with the rules are issued the necessary warnings and supplementary announcements were required by the CMB and ISE regarding the business relationship is terminated in the event of repeated violations. The such announcements. Our company has used its best efforts to ensure that its Company engages in the purchase of goods and services in accordance with the material disclosures were communicated to investors, deposit holders, agencies Purchasing/Sale Regulations that have been drawn up with the resolution of the and organizations simultaneously, in due time and in an understandable, Company’s Board of Directors and revised regularly since 1952 . Announcements accurate and interpretable form. Since no Material Disclosure was made by for tenders are made in newspapers that have highest circulation nationwide our Company that was not delivered in a timely manner, no sanctions were within the timeframes set forth by Company, and also announced on the website imposed by the CMB or ISE during the applicable period. Furthermore, since our www.thy.com. Procedures have been documented via Customer Relationship Company shares are not listed on any International Stock Exchange, no Material Management (CRM) for areas relating to customer loyalty analysis, global Disclosures were made to any International Stock Exchange. customer research, corporate prestige research and the hidden customer program, and implementation of the “hidden customer” program aimed at quality 10. Company’s Website and Its Contents improvement has begun. Our company became a Star Alliance member to improve Our Company’s web address is www.thy.com.tr, and the Investors’ Relations both customer satisfaction and our global mage. Cooperation still continues with page may be accessed via this website. The website also has an English version. member airlines of the Alliance to improve international products and services and The Investor Relations page contains information on shareholding composition, to participate an global information sharing and auditing mechanisms. Minutes of General Assemblies, proxy specimens, annual reports, financial Customer grievances may arise due to faults that occur from time to time in statements, commercial operating data, presentations, Corporate Governance our Company’s operations and services. We strive to address such grievances Guidelines, details on the Board of Directors, Material Disclosures, share and restore satisfaction in the shortest possible time, and are looking to create information, analyst information, Articles of Association, Board Committees a faithful customer profile. Our Customer Relations Department is engaged and contact information. Furthermore, a section with live data as well as in efforts towards these ends. In order to complete work quickly and enable historical data on Share performance of the Company procured from a data various departments to communicate findings from their own studies to the distribution company is available on the relevant page. Customer Relations Directorate in as soon as possible, the company as whole 11. Disclosure of Natural Person(s) with Final Controlling Shareholding has adopted a Department Performance assessment system, whose statistics are monitored by General Management. No natural person exists with final controlling shareholding in our Company. 16. Social Responsibility 12. Disclosure of Ultimate Controlling Individual(s) The Company continued to operate by its service quality and social responsibility Board of Directors, Auditors, CEO, Executive Vice Presidents, Executive philosophy, keeping its leading position both in the country and abroad. No Assistant, Investor Relations Manager, Press Consultant, Director of lawsuits have been filed against the Company in Turkey on the ground of Accounting, Director of Finance, Director of Investment Management, Director causing environmental damage. of Corporate Communications, as well as all staff of these Directors are prohibited from revealing any knowledge acquired during their terms of duty 17. Structure of the Board of Directors, its Formation and Independent and fields of operation That could be used to the advantage of third parties or Members advantage of themselves. The Board of Directors is comprised of seven members elected by the General 13. Informing the Stakeholders Assembly. Six Board Members are required to be elected from among the candidates receiving the highest number of votes in the election held by Class In our announcements to the public of information regarding our Company, in A shareholders. The other member is nominated by the Class C shareholder. addition to forecast and material disclosure announcements other information At least five Board Members, including the Board Member representing the and statements that are deemed to be of interest to other beneficiaries are Class C share, must be Turkish citizens. The term of office for Board members delivered to the public in a timely and clear manner through the appropriate is two years. The General Assembly may terminate the membership of a Board communications channels. Member before the end of his/her term. Board Members whose term has Not only stakeholders and investors, but also suppliers, financial institutions and expired may be reelected.
33 MANAGEMENT SYSTEM Members of the Board in 2009: Vision: Candan KARLITEKİN - Chairman of the Board a) Maintaining the growth trend that exceeds sector averages Hamdi TOPÇU - Deputy Chairman of the Board b) Zero accidents Ph.D. Temel KOTİL - Member of the Board and General Manager c) An understanding of service that captures the world’s attention Prof. Dr. Cemal ŞANLI - Member of the Board d) Unit prices that are competitive with those of low-cost carriers Orhan BİRDAL - Member of the Board e) Sales and distribution costs that are below sector averages Muzaffer AKPINAR - Member of the Board f) Loyal customers who carry out reservation, ticketing and boarding activities themselves. Mehmet BÜYÜKEKŞİ - Member of the Board g) Personnel who understand that the added value they create is directly 18. Qualifications of Board Members proportional to the Company’s gains and who are committed to their own The criteria for Board membership are specified in Article 11 of the Company’s development Articles of Association. In addition, Article 4/i of Law No. 4046 stipulates that in h) A commercial approach that creates business for partners who are organizations to be privatized, Board Members shall be graduates of fouryear members of the Star Alliance and which harnesses the potential that those higher education programs. Care is taken to comply with the provisions partners offer of Articles 3.1.1, 3.1.2 and 3.1.5 of Section IV of the Corporate Governance Principles concerning the appointment of Board Members. Qualifications of i) Management that is recognized for its embrace of the principals of modern the Company’s Board Members are in accord with these articles. Article 11 management, respecting the interests of its shareholders and all other and Provisional Article 1/c of the Articles of Association are quoted below. stakeholders. ARTICLE 11 20. Risk Management and Internal Control Persons to be elected to the Board shall not have been placed under legal The airline industry by its nature is a high risk sector, and we believe that restraint; a Company where they owned an interest or worked as a manager shall effective risk management systems at our Company are critical to ensuring not have been declared bankrupt or insolvent; they shall be a shareholder of the sustainable growth. In this regard, plans are being implemented for the Company and shall not have been convicted of an infamous crime or any other formation of a Financial Risk Management structure within our Company that crime specified in the Civil Aviation Law. If a member who is not a shareholder is will provide a reasonable degree of security against fluctuations particularly elected, that individual may only assume duties after having become a shareholder. relating to fuel prices, interest rates, and exchange rates. The Corporate Risk Management Department, which was formed in 2008, is currently engaged the The General Assembly may grant permission for the cases defined in Articles required preparatory work for this purpose. The Corporate Risk Management 334 and 335 of the Turkish Commercial Code. Department has the overall responsibility of coordinating the relevant units Board Members representing Class C shares and at least five members of the Company in identifying and effectively managing both financial and (including those who represent Class C shares) must be Turkish citizens. other important areas of risk. The Corporate Risk Management Department is currently laying down the Financial Risk Management strategy as a matter Provisional Article 1/c of first priority. Immediately following the completion of this process, work With the exception of the provisions outlined in the Paragraph “d” below will begin on the establishment of an operational, strategic and external risk concerning elections to be held among candidates nominated by Class A management framework to support our Corporate Risk Management strategy. shareholders in accordance with Law No. 4046, the Chairman of the Board The Company has an internal control mechanism in place that is implemented of Directors, Board Members, Auditors and the General Manager shall be by the relevant units. Matters such as the correct pricing of tickets sold by appointed upon the proposal of the Privatization Administration or the approval employees or agencies, the compliance of foreign offices’ accounting records of the authorized Minister. This is carried out on the condition that they can with the Company’s regulations and the correct and prompt fulfillment of satisfy the conditions set forth in the Law, and that the state’s stake in the tax obligations are all matters dealt with in this scope. The Company makes Company does not fall to below 50%. every effort to ensure that all records are accurate according to the Company 19. Mission and Vision and Strategic Targets of theCompany regulations and directives. The Company is, in addition, subject to annual inspections by the Prime Ministry’s Supreme Inspection Board. Separately, The Board of Directors shall approve the strategic targets set out by the the Company is being audited by three auditors appointed in the management and continuously and effectively monitor these targets, the activities of the Company and its past performance. In doing so, the Board General Assembly Meeting: shall strive to ensure compliance with international standards and wherever İsmail GERÇEK - Member of Auditing Board necessary, take action before problems arise. The mission of the Company as it appears in Article 3 of the Articles of Association is indicated below: Naci AĞBAL - Member of Auditing Board a) To strengthen the Company’s position as a global airline by expanding its Prof. Dr. Ateş VURAN - Member of Auditing Board long-distance flight network, Two auditors shall be elected from among Class A shareholders and one b) To position the Company as a technical services provider by transforming its auditor shall be the candidate nominated by the Class C shareholder. The maintenance unit into a leading maintenance base for the region, auditors have a one year term of office. An auditor whose term has expired may be reelected. c) To promote the Company’s identity as a service provider in all areas of strategic civil aviation, including handling and flight training, Class A Auditors shall be determined in the following manner: d) To maintain the Company’s leading status in domestic air transportation, a) In the event that the proportion of publicly traded shares is 35% or more, the rights granted to Class A shareholders to elect two auditors shall belong e) To provide seamless, high-quality air transportation services by to shareholders holding publicly-traded Class A shares. collaborating with a global airline alliance that complements its network in order to further improve the Company’s image abroad and increase marketing b) Shareholders holding publicly traded Class A shares may nominate a opportunities and candidate for membership of the Board of Auditors, provided they represent at least 2% of the total increased capital by attending the General Assembly f) To make Istanbul an important hub. Meeting in which the election of the Board of Directors elections took place. In addition, through its leadership position in the Civil Aviation Transport (SHT) Only publicly traded Class A shares shall be considered in the calculation of sector of the Republic of Turkey, to be a premier European airline with global this 2%. Shareholders holding publicly traded Class A shares shall determine operations which is preferred for its flight safety, security, product range, their candidates for Board of Auditors membership in a meeting held between service quality and competitive approach. them. The right to nominate a candidate in this meeting shall belong to the
34 ANNUAL REPORT 2009 holders of Class A shares which are publicly traded but not owned by the The quorum for Board meetings is five members. Board decisions shall be state. In the event that the holders of publicly traded Class A shares do not taken with the affirmative vote of at least four members. A member who has represent 2% at the General Assembly Meeting, these shareholders’ rights failed to attend four consecutive Board meetings without a valid reason, or has to nominate candidates for Board of Auditors membership shall be exercised not participated in six meetings over the course of a year shall be considered by those shareholders holding Class A shares which are not publicly traded, to have resigned. in accordance with the Turkish Commercial Code and Capital Markets Board Unless one of the members has requested a meeting, Board decisions Regulations. may also be taken following the proposal of one of the members regarding c) In the event of a vacancy on the Board of Auditors due to the death, resignation a specific issue and with the written approval of all members. The validity or dismissal of one of its members or otherwise, the vacant position shall be of Board decisions is contingent on their having been set out in writing and filled by means of an election to be held by the Board of Auditors in accordance signed. Failure to reach a quorum for a decision on any issue shall be treated with Article 351 of the Turkish Commercial Code. If the holders of publicly as a rejection of the proposal in question. traded Class A shares have not nominated a candidate for the vacant position The validity of the decisions to be taken by the Board of Directors on the on the Board of Auditors, the right to nominate a candidate shall belong to the following matters requires the presence and affirmative vote of the Board Class C Shareholder. If the Class C share has been converted into a Class A Member representing Class C shares at the meeting during which the decision share, the right to nominate shall belong to the shareholders holding Class was taken. A shares that are not publicly traded. In such an election carried out to fill the position vacated by the candidate nominated by shareholders holding - Decisions that would clearly adversely affect the Company’s mission, as set publicly traded Class A shares, the percentages of 35% and 2% as referenced out in Article 3.1 of the Articles of Association; in paragraphs “a”, “b” and “c” shall not be taken into consideration. - Proposals to the General Assembly Meeting for an amendment to the Articles d) In the event that these Articles of Association are later amended or new of Association; share classes created, paragraphs “a” and “b” above defining the right of - Capital increases; shareholders holding publicly traded Class A shares to determine two auditors shall not be annulled or modified, unless such modification has been approved - Approval of the transfer of registered shares and the recording of this in the by shareholders representing at least 65% of the capital. share ledger; The duties of the Auditors are to examine the Company’s general transactions - All transactions and decisions concerning direct or indirect commitments and budget and assume the responsibilities stipulated in the Turkish on behalf of the Company for more than 5% of the total assets appearing in Commercial Code. Auditors are authorized and assume the responsibility to the previous year’s financial statements submitted by the Company to the submit proposals to the Board of Directors, to ensure that the Company is Capital Markets Board per each contract (this provision shall be automatically managed efficiently and its interests protected, call a general meeting in the annulled when state-owned shares fall below 20% of the Company’s capital); event of vital and urgent matters, determine the agenda of such a meeting and - The merger of the Company with other companies, its termination or draw up the report specified in Article 354 of the Turkish Commercial Code. liquidation; Auditors are responsible for fulfilling the duties assigned to them by law and the Articles of Association in a satisfactory manner. - With the exception of those routes which are exclusively affected by market conditions, or those that cannot cover their operational costs with other 21. Responsibilities of Board Members and Directors Article resources, decisions concerning the termination of a route or a significant Article 15 of the Articles of Association defines the power and responsibilities reduction in the number of flights. of the Board of Directors and Article 19 defines the power and responsibilities The privileges of the Class C share may only be restricted by the Supreme of the General Manager. Privatization Board or a state agency that has taken over its duties. In Article 15. The Board of Directors represents and manages the Company. 2009, the Board held 72 meetings and made 254 decisions. The validity of The Board of Directors is responsible for all tasks that are not assigned in Board decisions is subject to their having been written up and signed. The the General Meeting by law, as well as the duties laid out in the Articles of organization and communication of Board activities, the determination of the Association, and it is granted all authority which these duties may require. number of Board meetings, the following up of proposals made to the Board and the drawing up of agendas are all duties of the General Secretariat. As set out in Article 319 of the Turkish Commercial Code, the Board of Directors may assign all or part of its management and representation powers 23. Prohibition to Deal and Compete with the Company to one or more of its members, to a general manager, assistant general During the reporting period, Board Members were prohibited from dealing manager, a manager or managers who are not members of the Board, or may and competing with the Company in accordance with Articles 334 and 335 of form executive committees comprising of Board Members or non-members the Turkish Commercial Code. In addition to these prohibitions, there are also to exercise its powers and fulfill its duties. All financial and other information rules set out in Section 11 of Turkish Airlines’ Human Resources Regulations required for the Board of Directors to fulfill its duties as well as Board No. 07-001, which prohibits Company personnel from providing services to proposals and attachments shall be submitted in a timely manner. other organizations All financial and other information needed for the Board of Directors to fulfill 24. Code of Ethics its duties as well as Board proposals and attachments shall be submitted in a timely manner. Article 19. The duties and powers of the General Manager shall Our Company has set forth its Code of Ethics within the scope of the Principals be determined by the Board of Directors. The General Manager is required to of Corporate Governance, which is published on our Website. be diligent in fulfilling his or her duties, and shall be held responsible for any 25. The number, structure, and independency of the Board Committees behavior or actions which contravene this duty. The Board of Directors’ Financial Audit Committee is comprised of Mr. Hamdi 22. Activities of the Board of Directors TOPÇU, Prof. Dr. Cemal ŞANLI and Mr. Mehmet BÜYÜKEKŞİ. The Corporate The activities of the Company’s Board of Directors, specified in Article 14 of Governance Committee, which audits the implications regarding the corporate the Articles of Association, are as follows: governance principles, is comprised of Mr. Muzaffer AKPINAR and Mr. Orhan BİRDAL. The Board of Directors shall meet whenever necessary and at least once a month. The meeting venue will be at Company headquarters; other venues 26. Remuneration Paid to Board Members may be chosen by a Board decision. Board Member remuneration is set by the General Assembly. Board Members Matters to be discussed at Board meetings shall be specified in an agenda that may not obtain any loan or debt from the Company. will be communicated to Board Members prior to the meeting. Invitations to Board meetings shall be made at least three days before the actual meeting.
35 MANAGEMENT SYSTEM We believe that the strength we need to be better“ and more successful exists within us.“ OOperations
Total Traffic Results 38
Fleet 44
Activities
Human Resources 48
Cargo 54
Production Planning 58
Marketing and Sales 60
Information Technologies 62
Business Development 66
Subsidiaries and Joint Ventures
AnadoluJet 72
Turkish DO&CO 74
Turkish Technic Inc. 76
TGS (Turkish Ground Service) 80 TTotal Traffic Results
As the effects of the financial crisis on the airline industry peaked in 2009 and traffic volumes dropped, low-cost airline companies made significant market inroads by lowering fares and expanding their price-sensitive customer portfolios. In an effort to lower operational costs and budgets, businesses reduced travel and increased their use of alternative technologies, such as videoconferencing and teleconferencing, reflecting a need to spend cautiously in the face of economic crisis. While the Association of European Airlines lost passengers at a rate of 5.8% and global commerce shrank dramatically in 2009, Turkish Airlines grew by 11.1%, carrying 25.1 million passengers.
38 ANNUAL REPORT 2009 Europe’s fastest growing airline
P A S S E N G E R G R O W T H 1 1 . 1 %
Turkish Airlines, with its young fleet, top quality passengers, while the Association of European catering, friendly personnel and high security and Airlines saw average passenger numbers fall by 5.8% safety standards, continued its rapid ascent in 2009 and global commerce shrank dramatically. Operating as the top preference by passengers. In 2009, Turkish a fleet of 132 aircraft, Turkish Airlines has displayed Airlines was the fastest growing airline company in its business success through its network, charter and Europe, growing 11.1% and carrying 25.1 million Hadj-Umrah operations.
Total Passengers Carried (000) Total Passenger Breakdown
Hadj-Umrah Charter 25,102 1.3% 1.2% 22,597 19,636 16,947
14,134 Domestic 46.4% 51.2% International
2005 2006 2007 2008 2009
Past 5-Year Performance in Figures
2005 2006 2007 2008 2009 Number of flights 127,137 152,536 168,899 189,328 213,953 Kms flown (000) 168,902 207,202 232,147 262,124 311,869 Available seat kms (million) 29,805 36,934 41,619 46,343 56,574 Revenue passenger - kms (million) 21,317 25,383 30,251 34,265 40,130 Load factor (%) 71.5 68.7 72.7 73.9 70.9 Available ton - kms (million) 3,986 4,874 5,535 6,147 7,795 Revenue ton - kms (million) 2,590 3,019 3,549 3,993 4,784 Overall load factor (%) 65.0 61.9 64.1 65.0 61.4 Revenue passengers (000) 14,134 16,947 19,636 22,597 25,102 Cargo (tons) 140,559 155,863 177,508 191,934 230,709 Mail (tons) 4,415 4,010 6,714 6,956 7,351 Excess Baggage (tons) 3,714 3,673 3,462 3,752 3,734 Personnel (year - end total) 11,121 10,324 10,453 11,520 12,750
39 ANNUAL REPORT 2009 D O M E S T I C G R O W T H 5 . 7 %
Number of Domestic Turkish Airlines continued to increase the number of its Passengers (000) domestic destinations and flight frequencies in 2009, posting a 5.7% increase in the number of domestic passengers. 11.7 million domestic passengers, which account for 46.6% of our total passengers, experienced the pleasure of comfortable, 11,692
11,063 convenient and economical flights on Turkish Airlines to 37
9,984 destinations throughout the country. In addition to expanding
8,906 its domestic flight operations, Turkish Airlines has made a
7,197 significant impact by establishing the AnadoluJet brand, and is rapidly improving and growing.
2005 2006 2007 2008 2009
Domestic Flights
2005 2006 2007 2008 2009
Number of flights 65,448 78,910 87,162 92,593 97,697 Kms flown (000) 36,049 45,282 51,016 53,372 56,313 Available seat kms (million) 5,457 7,123 8,117 8,488 9,038 Revenue passenger - kms (million) 4,016 5,213 5,924 6,417 6,819 Load factor (%) 73.6 73.2 73.0 75.6 75.4 Available ton - kms (million) 647 806 946 1,000 1,047 Revenue ton - kms (million) 394 504 570 615 652 Overall load factor (%) 60.9 62.5 60.3 61.5 62.3 Revenue passengers (000) 7,197 8,906 9,984 11,063 11,692 Cargo (tons) 29,233 32,085 35,518 34,305 33,037 Mail (tons) 1,088 1,295 3,555 3,427 3,549 Excess Baggage (tons) 1,490 1,460 1,538 1,589 1,450
40 ANNUAL REPORT 2009 I N T E R N A T I O N A L G R O W T H 1 6 . 3 %
Number of International In 2009, the number of international passengers flying with Passengers (000) Turkish Airlines rose by 16.3%, confirming its status as a global airline that commands a comprehensive flight network and strong schedule structure. Transporting 13.4 million passengers to
13,410 119 destinations in 5 continents, Turkish Airlines has proven its ability to succeed, even during the crises in 2009. International
11,534 passengers account for 53.4% of the total passengers carried by
9,652 Turkish Airlines. 8,041 6,937
2005 2006 2007 2008 2009
International Flights
2005 2006 2007 2008 2009
Number of flights 61,689 73,626 81,737 96,735 116,256 Kms flown (000) 132,852 161,920 181,131 208,752 255,556 Available seat kms (million) 24,348 29,811 33,502 37,855 47,536 Revenue passenger - kms (million) 17,301 20,170 24,327 27,848 33,311 Load factor (%) 71.1 67.7 72.6 73.6 70.1 Available ton - kms (million) 3,339 4,068 4,589 5,147 6,748 Revenue ton - kms (million) 2,196 2,515 2,979 3,378 4,132 Overall load factor (%) 65.8 61.8 64.9 65.6 61.2 Revenue passengers (000) 6,937 8,041 9,652 11,534 13,410 Cargo (tons) 111,326 123,777 141,990 157,629 197,672 Mail (tons) 3,327 2,715 3,159 3,529 3,802 Excess Baggage (tons) 2,224 2,213 1,924 2,163 2,284
41 ANNUAL REPORT 2009 P A S S E N G E R G R O W T H I N 4 9 . 1 % A F R I C A
While other airline companies reduced their Passenger Breakdown by Region capacity in response to the economic downturn in 2009, the effects of which were more severe than the 1980-82 recession, the 1991 Gulf War N. America S. America and the September 11 World Trade Center Africa attacks, Turkish Airlines took bold steps, adding 2.4% 0.3% new destinations and expanding its capacity. Far East 6.4% Across all regions, lead by Africa and North 11.5% America, the increase in capacity has been met 64.4% by passenger demand with noteworthy success. 15.0% Middle East Europe As industrial production and global trading went into deep decline in 2009 and the European Airlines Association endured an unprecedented 16.5% drop in air cargo traffic, Turkish Airlines posted the largest increase of all airlines, with 19.6% growth in cargo figures.
Change in available Change in revenue Change in number Change in cargo + seat kms (%) passenger kms (%) of passengers (%) mail (tons) (%)
MIDDLE EAST 35.3 24.4 26.3 27.2
EUROPE 18.5 13.4 13.2 10.2
FAR EAST 28.3 22.3 22.9 51.9
N. AMERICA 39.0 37.6 36.3 14.6
AFRICA 58.1 49.8 49.1 64.1
S. AMERICA - - - -
42 ANNUAL REPORT 2009 ASK and RPK Comparison
Number of Flights Available seat-kms (million) 56,574
Revenue passenger-kms (million) 46,343 41,619 213,953 40,130 36,934 189,328 34,266 168,899 30,251 29,805 152,536 26,481 26,001 25,383 24,890 24,071 24,040 127,137 117,916 21,317 109,028 106,493 102,607 100,807 18,594 17,396 16,594 16,113 15,679
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Passenger Load Factor (%) Kms Flown (000) 73.9 72.7 71.5 70.9 70.2 68.9 68.7 66.9 67.0 63.0 311,869 262,124 232,146 207,202 168,901 149,349 147,491 143,617 138,058 137,392
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Revenue Passengers Carried (000) Cargo and Mail Development (Tons) 25,102 238,060 22,597 19,636 198,890 184,222 16,946 159,873 14,134 144,974 134,851 130,337 12,031 11,991 124,905 122,822 10,420 10,383 109,426 10,227
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
43 ANNUAL REPORT 2009 FFleet
Turkish Airlines, aiming to offer the highest Fleet as of year-end 2009 Number Fleet Age Total Capacity quality service and maximum passenger comfort, Aircraft Type (Seat) boasts a fleet that is younger than the sector average. Turkish Airlines continued to expand A340 9 13.15 2,451 its fleet under its “2009-2023 Fleet Projection” A330 7 3.57 1,812 A320 22 2.99 3,512 project, and has expanded its fleet 103% over A321 21 3.80 3,985 the past five years, reaching a fleet size of 132 A319 4 3.87 528 at the end of 2009. In the commercial aircraft B737-800 51 6.44 8,487 market, in which new generation models with B737-700 6 3.01 894 the latest technological equipment compete with B737-400 4 17.57 632 each other, Turkish Airlines continued to pursue B777 4 2.39 1,248 a purchasing strategy of ongoing expansion with Cargo Aircraft ever younger aircraft. While at the beginning of A310-304 4 21.53 - 2009 the average age of our fleet of 127 aircraft Total 132 6.19 23,549 was 6.27 years, by the end of 2009 the fleet size increased to 132 aircraft and the average age fell to 6.19 years.
44 ANNUAL REPORT 2009 Young, comfortable, technological fleet
Total Seat Capacity
2009 23,549
2008 22,238
2007 17,594
2006 17,931
2005 14,419
Alongside the revised fleet plans at the end of 2008, orders announced in October 2008 for 105 aircraft, 75 of which are final and 30 of which are optional, remained active. Orders were placed for 10 A330-300 and 12 B777-300ER type aircraft, with delivery planned between 2010 and 2012. While work Turkish Cargo continuing on the procurement of narrow fuselage 3% aircraft, with the order of a 22-wide fuselage aircraft, AnadoluJet 7% 90% Turkish Airlines two A330-200F type cargo aircraft orders were placed and scheduled for delivery in 2010 and 2011. In order to meet periodic demand and fleet renewal needs, the chartering of aircraft has served as an interim solution, provided that neither the integrity of the aircraft family nor the average fleet aged is compromised.
45 ANNUAL REPORT 2009 Number of aircraft 9 Number of aircraft 7 Fleet Age 13.15 Fleet Age 3.57 Total Seat Capacity 2,451 A340 Total Seat Capacity 1,812 A330 Hours Flown 40,815 Hours Flown 32,000 Kms Flown 29,182,860 Kms Flown 23,396,097 Utilization 12:35 Utilization 14:07 Maximum Range 11,952 km. Maximum Range 12,000 km. Maximum Cargo Capacity 44,836 kg / 152.80 m3 Maximum Cargo Capacity 37,578 kg / 105.95 m3
Number of aircraft 21 Number of aircraft 22 Fleet Age 3.8 Fleet Age 2.99 Total Seat Capacity 3,985 A321 Total Seat Capacity 3,512 A320 Hours Flown 86,393 Hours Flown 91,759 Kms Flown 49,357,399 Kms Flown 48,871,086 Utilization 11:54 Utilization 11:27 Maximum Range 3,350 km. Maximum Range 3,350 km. Maximum Cargo Capacity 9,435 kg / 37.42 m3 Maximum Cargo Capacity 9,435 kg / 37.42 m3
Number of aircraft 4 Fleet Age 3.87 Total Seat Capacity 528 A319 Hours Flown 15,758 Kms Flown 7,394,269 Utilization 10:48 Maximum Range 3,350 km. Maximum Cargo Capacity 6,786 kg / 27.62 m3
46 ANNUAL REPORT 2009 Number of aircraft 51 Number of aircraft 6 Fleet Age 6.44 Fleet Age 3.01 Total Seat Capacity 8,487 B737-800 Total Seat Capacity 894 B737-700 Hours Flown 223,245 Hours Flown 12,396 Kms Flown 387,529,942 Kms Flown 5,357,595 Utilization 12:00 Utilization 10:04 Maximum Range 4,755 km. Maximum Range 5,940 km. Maximum Cargo Capacity 8,408 kg / 45.05 m3 Maximum Cargo Capacity 5,178 kg / 27.3 m3
Number of aircraft 4 Number of aircraft 4 Fleet Age 17.57 Fleet Age 2.39 Total Seat Capacity 632 B737-400 Total Seat Capacity 1,248 B777-300ER Hours Flown 11,991 Hours Flown 15,132 Kms Flown 6,067,983 Kms Flown 11,320,655 Utilization 08:38 Utilization 13:25 Maximum Range 3,350 km. Maximum Range 14,685 km. Maximum Cargo Capacity 7,491 kg / 39.22 m3 Maximum Cargo Capacity 57,784 kg / 201.6 m3
Number of aircraft 4 Fleet Age 21.53 A310 Total Seat Capacity Cargo Hours Flown 8,782 Kms Flown 5,374,406 Utilization 06:19 Maximum Range 8,980 km. Maximum Cargo Capacity 36,000 kg / 200 m3
47 ANNUAL REPORT 2009 HHuman Resources
48 ANNUAL REPORT 2009 Turkish Airlines; the success of employees
The corporate vision and values that Turkish Airlines shares with its employees have played major roles in the company’s successful emergence from the global economic crisis and competitive environment of 2009. Turkish Airlines’ human resources development strategy and its investments in in-house training and personnel motivation lie at the foundation of the success of the company, which maintained its competitive edge and leading position in 2009. In tandem with the company’s accelerating growth, in 2009 the number of employees also increased by 10.7%, reaching 12,750. In order to strengthen team spirit among employees and ensure continuing trust and harmony, a “Personnel Relations Office” was established, through which employees communicate their needs and expectations. Private health insurance has been provided to employees and their families, and measures to guard against global epidemics were implemented meticulously. Health scans and disinfection operations were conducted regularly, along with ongoing training activities for the prevention of on-the-job accidents.
Turkish Airlines, which has embraced the principle of service focused on customer satisfaction, seeks to balance employee satisfaction and corporate benefits, and has developed an approach to human resources that is predicated on work experience. Effective employment and enterprise resource planning The “Turkish Airlines Human Resources Management System” software has been implemented in order to meet the growing need to shorten and facilitate follow-up on employment processes. As a first step, the flight attendant employment process was restructured, allowing selections to be finalized in two days, and nearly 50,000 applications received in 2009 were processed in a faster and more reliable manner. The rising need for experienced pilots due to fleet expansion has necessitated the employment of foreign pilots, which has been done with the cooperation of international companies specializing in the field. The human resources infrastructure for the Enterprise Resource Planning (ERP) project to be initiated in 2010 was completed. In line with its customer satisfaction-oriented service philosophy, Turkish Airlines hired more people with knowledge of local languages such as Korean, Japanese and Chinese. The adaptation process for newly-employed personnel was carried out through corporate culture training.
P E R S O N N E L G R O W T H 1 0 . 7 %
49 ACTIVITIES Personnel Breakdown by Work Status Personnel Breakdown by Title
12,750 Number of Personnel 11,520 4.6% Manager 692 10,324 10,453 3.5% Pilot 1,622 1.0% 3.2% Cabin Crew 3,925 I.T. Personnel 195 Foreign Office 1,403 Engineer, Lawyer, Doctor 136 96.8% 99.0% 96.5% 95% Expert, Dispatch, Trainer 771 Technician 73 Officer 3,319 Worker 614 2006 2007 2008 2009 TOTAL 12,750 FULL TIME PART TIME
Does not include Turkish Technic Inc.
50
ANNUAL REPORT 2009 Personnel Breakdown by Gender Personnel Breakdown by Unit
12,750 Number of 11,520 Personnel 10,324 10,453 Departments Affiliated with The Board of Directors 4 51.6% Departments Directly Affiliated with General Manager 3,087 51.8% Deputy General Management (Human Resources) 347 50.5% 51.2% Deputy General Management (Financial) 416 Deputy General Management (Commercial) 2,966 Deputy General Management (Flight Operations) 5,930
49.5% 48.8% 48.2% 48.4% TOTAL 12,750
2006 2007 2008 2009
FEMALE MALE
Does not include Turkish Technic Inc.
51
ACTIVITIES FFlight Training
New investments have expanded the Turkish Airlines Flight Training Center into a facility providing professional services to customers both within Turkey and abroad.
52 ANNUAL REPORT 2009 Flight Training Center is growing
IOSA and all other similar planned and non-planned audits in 2009 were passed with zero incidents of nonconformity.
The Turkish Airlines Flight Training Center, which provides Training sessions are provided across 22 different flight training for cockpit and cabin personnel, renewed categories, including with first-aid and defibrillator training. its technical equipment with up-to-date technologies Nearly four thousand cockpit crew completed their and improved its infrastructure to keep up with Turkish conversion, type and recurrent trainings. The adaptation Airlines’ growth rate. process for foreign pilots joining Turkish Airlines for the Having started out with one simulator in 1995, the Turkish B777 fleet was supported by corporate culture training. Airlines Flight Training Center has since transformed into The Flight Training Academy operating within the Flight a facility that now offers 8 training aircraft, 4 simulators, 1 Training Center increased its capacity 330% and approached CEET, 1 FNPT II, 2 CST, 4 CBT classes and 24 classrooms. the capacity to meet pilot rotations. An increase of 200% In 2009, the Flight Training Center placed orders for 2 new with six fleets in total is predicted for 2010. simulators, and plans to remain abreast and integrated with the market by exchanging training sessions with 14 Training was provided for 24 different companies operating simulators and traffic centers abroad. in Asia, the Caucasus, the Middle East, North Africa and Europe. Academic cooperation was initiated with reputable academic institutions such as Istanbul Technical University, People-oriented investment in the service Culture University and Anatolia University with objective of sector developing models for increasing productivity and quality. While other airline companies have postponed investments The Turkish Airlines Flight Training Center, which is in operational and training services in the wake of the IQNet-approved and has met quality standards such as global crisis, Turkish Airlines kept its cockpit and cabin TSE 9001, 18001 and 14001, is an authorized TRTO and training standards up to speed with the rapid growth of its FTO by the SHGM, an authorized First Aid Center through fleet, purchased new simulators and training aircrafts, and the Ministry of Health and an authorized Educational increased the training times for its cockpit and cabin crew. Institution through the Ministry of National Education.
53 ACTIVITIES CCargo
54 ANNUAL REPORT 2009 Speed and quality in air cargo service
In 2009, Turkish Airlines Cargo increased its cargo volume by 19.7%, achieving a 57% share of the Turkish air cargo market.
In order to mitigate the impact of the ongoing global East. Routes with the greatest amount of cargo volume economic crisis in 2009, Turkish Airlines Cargo, aiming to transported were (in order) Frankfurt, Maastricht, Delhi, enhance its presence in regions with growing economies, Tel-Aviv and London. improved its effectiveness in the transit market by making Membership to the Quality Management Group its passenger and cargo flight schedules compatible. Having established a flexible schedule structure that Turkish Airlines Cargo, offering high quality, fast and safe changes according to cargo potential, maximum utilization service in the intensively competitive cargo market, and is ensured by enjoining destinations with low cargo being committed to continuous service quality standards potential. A flexible product policy allows for changes and customer satisfaction, joined “Cargo 2000 Quality according to market demand. These measures allowed Management Group” on January 1, 2009 as a corporate Turkish Airlines Cargo to increase the amount of cargo member. Membership in this group, which consists of nearly it carried by 19.7% and claim a 57% share of the Turkish 50 airlines, numerous forwarder companies, handling air cargo market. Turkish Airlines Cargo posted the organizations and information technology providers, brings highest growth rate among member airlines of the AEA access to a powerful system where all cargo movements (Association of European Airlines), with a 32% growth in are traceable at every stage. The marketing strength its scheduled cargo traffic. derived from being a member of a IATA-registered brand and the commitment to the international standard that Turkish Airlines transported approximately 238,000 tons the organization sets down have given a boost to Turkish of cargo across the world, generating revenues of $304 Airlines’ effectiveness in the market. million. A total of 179,000 and 59,000 tons of cargo was carried in the cargo compartments of passenger airplanes Electronic supply chain: e-freight and cargo airplanes, respectively. In cooperation with the IATA, Turkish Airlines Cargo Four A310-200 cargo airplanes, each with a 38-ton capacity, guides and supports customs and local agencies, and it make scheduled cargo flights to a total of 22 destinations, is continuing its efforts to bring the e-freight application, including five flights per week to Maastricht and Frankfurt, which is designed to establish an electronic, faster and less three flights to Tel Aviv, Milan, Zurich and Paris, 2 flights costly cargo supply chain and end the use of documents to Almaty, New Delhi, Tbilisi, Damascus, Amman, Madrid, in the air cargo sector, into full operation in the shortest Beirut, Cairo and Cologne, and one flight to London, Dubai, possible time. Algeria, Casablanca, Pristine, Tiran and Tripoli. Destination countries with the most intensive cargo traffic were Germany, England, France and the Netherlands in Cargo and Mail Development (Tons) Europe, and Thailand, Japan, China and India in the Far
C A R G O 238,060 198,890 184,222
G R O W T H 159,873 144,974 1 9 . 7 % 2005 2006 2007 2008 2009 55 ACTIVITIES Cargo Traffic 2008 2009 09/08 (%change) Number of flights 189,328 213,953 13.0 Passenger flights 186,733 210,990 13.0 Cargo flights 2,595 2,963 14.2
Cargo+Mail (tons) 198,890 238,060 19.7 Passenger flights (tons) 144,154 178,511 23.8 Cargo flights (tons) 54,736 59,549 8.8
Cargo+Mail revenue (000 USD) 323,952 304,279 -6.1 Passenger flights (000 USD) 232,213 229,954 -1.0 Cargo flights (000 USD) 91,739 74,325 -19.0
56 ANNUAL REPORT 2009 Breakdown of Regional Cargo Traffic Breakdown of Regional Cargo Revenue
N. America S. America Far East
Africa 0.9% 4.5% %265.1% 33% Middle East 14.5% 44% Europe 10% 48.9% Europe Middle East 7% 26.1% 6% Africa Far East America
57 ACTIVITIES PProduction Planning
Planned increases in frequency on existing routes have made the prospect of flying with Turkish Airlines even more attractive.
58 ANNUAL REPORT 2009 Innovation, development and growth
F L I G H T D E S T I N A T I O N S 1 5 6
13 new destinations have been added to the flight network, bringing the total number of destinations to 156 including 37 domestic and 119 international destinations.
As it continues to position itself in the competitive global Turkish Airlines in Haj, Umrah, charter and aviation industry as one of the world’s leading brands, private rental flights Turkish Airlines has engaged in a series of innovations and In 2009, 321,000 passengers traveled on Haj and Umrah developments in its production planning activities in 2009. flights, generating revenues of approximately $98.5 The introduction to its fleet of B777-type aircraft, on million. Supplementary flights generated revenues of which Turkish Airlines offers first-class services, and $19.5 million, of which 44% was from domestic flights the addition of Sao Paulo - the first destination in South and 56% was from international flights. Charter flights, America - further improved product diversity and customer which carried 629,000 passengers, brought in revenues of satisfaction. In addition to scheduled flight operations approximately $161.5 million. from Antalya to Paris, Düsseldorf and Stockholm, flights from Eskişehir to Brussels were launched. Due to ever- An expanding flight network and new rising passenger traffic at Atatürk International Airport, destinations Istanbul’s rapidly growing Sabiha Gökcen Airport has In 2009, Turkish Airlines started flying to 13 new been increasingly used with the addition of alternative international flight frequencies to Amsterdam, London destinations, 10 international and 3 domestic. (Stansted), Stuttgart, Cologne, Moscow, Hannover and Berlin (Schönefeld). New Destinations Nairobi (NBO) - Kenya February 20, 2009 Ufa (UFA) – Russia March 4, 2009 Utilization Mashad (MHD) - Iran March 15, 2009 Dakar (DKR) - Senegal April 5, 2009 Sao Paulo (GRU) - Brazil April 5, 2009 Benghazi (BEN) - Libya May 5, 2009 11,40 11,39
11,13 Gothenburg (GOT) – Sweden June 29, 2009
10,44 Toronto (YYZ) – Canada July 11 2009
10,21 Lviv (LWO) – Ukraine July 27, 2009 Jakarta (CGK) – Indonesia September 4, 2009 Uşak (USQ) January 12, 2009 Çanakkale (CKZ) January 19, 2009 Isparta (ISE) October 28, 2009
2005 2006 2007 2008 2009
59 ACTIVITIES MMarketing and Sales
Turkish Airlines has increased the capacity of its flight network through the addition of new destinations and increased frequencies.
Despite the global economic crises, Turkish Airlines Flying is now easier with mobil.thy.com increased its number of destinations around the world to 156 airports, including 3 new domestic and 10 Improvements made to the www.thy.com internet portal new international flights in 2009, taking bold steps to reflect improving information technologies and changing consolidate its global position in the airline industry. customer needs and have provided time saving and convenience. Sales over the Internet increased 2% over Turkish Airlines has successfully competed with the the previous year. As part of its effort to diversity sales world’s leading airline companies in their own regions channels, Turkish Airlines launched the mobil.thy.com and increased capacity through the addition of new application, allowing passengers to perform each stage of destinations and frequencies to its existing flight network. the ticketing process via mobile phone. Through pricing policies that dovetail with target markets and passenger profiles, Turkish Airlines ensured that its Codeshare agreements were entered into with Ethiopia increasing capacity met with the corresponding demand. Airlines, Etihad Airlines, Malaysian Airlines, Asiana Airlines, Singapore Airlines, Bosnia – Herzegovina Airlines and Air Maroc, strengthening network structure and attracting new customers. These agreements provided alternative access to markets in Africa, the Middle East, the Far East, and the Balkans. 60 ANNUAL REPORT 2009 Multi-faceted service
In recognition of its commitment to high quality services and a customer- oriented philosophy, Turkish Airlines was the sole European airline to receive four stars in all categories.
Turkish Airlines views flight safety and service quality Continued growth in the Middle East, Far East as two indispensible factors, and it has made efforts to and Africa improve check-in and boarding processes through the In terms of passenger traffic, the Middle East grew faster implementation of advanced technology that improve on- than any other region in 2009. In particular, the markets time takeoff performance. Despite its expanding network connecting the Middle East with the Far East, Europe and structure and increasing number of passengers, Turkish Africa have led the way in bringing about a 43% increase in Airlines has maintained a consistent level of success the number of international passengers. Compared to the in luggage delivery services. It has received Airbus’ previous year, the capacity serving the region grew 35.3% “Operational Excellence Award,” which evaluates airline and the number of passengers rose 26.3%, resulting in companies based on criteria that consider the number a 22% increase in revenues to 858 million TL. With the of aircraft in the fleets, the daily utilization rates of the addition of Meshed - Turkish Airlines’ third destination aircraft, technical trustworthiness and minimization of in Iran - to the flight network in 2009, the number of delays for operational reasons over the past two years. destinations in the Middle East grew to 19. Turkish Airlines was selected as the best in the region by Skytrax, which evaluates airlines and airports using The Far East is another region that has seen high growth 750 parameters that cover services rendered and quality rates, which Turkish Airlines has responded to with standards, and it has awarded the title of “The Best Airline increased capacity, particularly on flights to Bombay, Delhi Company in South Europe”. With its high quality services and Hong-Kong. A 28.3% increase in capacity was matched and customer-oriented philosophy, Turkish Airlines was with a 23% increase in the number of passengers. With the sole airline to receive four stars in all categories. the addition of Jakarta, a magnet for faith-based tourism and high in commercial potential, to the flight network, the total number of destinations in the region rose to 18. An active player in global competition Turkish Airlines experienced the highest level of growth In 2009, Turkish Airlines became a major player in world in Africa, where the number of passengers increased by aviation. The number of passengers choosing the pleasure 49%. The market abounds with opportunities, and flights of flying with Turkish Airlines in the international market were launched to Nairobi, Bingazi and Daccar, increasing increased by 16% to 13.4 million. Despite the overall capacity by 58% and bringing the total number of flight contraction in the aviation industry due to the impact of destinations to 13. These new destinations led to a 49% the global economic crises, Turkish Airlines increased its increase in the number of passengers over the prior year, capacity by 22% and its load factor rose to 71%. Turkish as well as a 49% increase in revenues. Airlines continued to pursue a strategy of flight network Turkish Airlines added Toronto as its third destination in expansion and achieved a 15% increase in sales revenues, North America, where it experienced a 36.3% rise in the which reached 7 billion TL. number of passengers and increased capacity by 39%. 8.3 million passengers flew to Europe, the most common Flights to Sao Paulo, Turkish Airlines’ latest and only destination. With the addition of Göteburg, Lviv and Ufa to destination in South America, successfully achieved an the flight network, the total number of passengers flying average load factor of 60%. to Europe increased by 13% and the region brought in revenues of 2.6 billion TL.
61 ACTIVITIES IInformation Technology
62 ANNUAL REPORT 2009 Effective information technology delivering innovation and competitive strength
Cutting-edge and performance-enhancing information technology solutions have been implemented in response to increasing business process needs.
The size of the global airline information technology market In the wake of the global economic crisis, cost reduction is €7.8 billion annually. America and the EMEA (Europe, measures have taken priority in the airline industry, and the Middle East and Africa) have the largest share of the thus applications and technology that would result in cost market, with €2.8 billion each. These are followed by the savings get more attention. Competition in the industry, Asia-Pacific, with a market size of €2.2 billion. meanwhile, has put rising pressure on the need to increase revenue and customer satisfaction. As such, investments Outsourced contracting services account for 40% of the in information technology are needed now more than ever, volume in the airline information technology market. The and despite the overall contraction of the airline industry sector is showing a growing trend in which a portion of in general, the market for airline information technology the information technology services are obtained through continues to grow. service providers, and such outsourced services are expected to continue to increase. SITA (Specialists in Air Transport Communications and IT Solutions) foresees that as a result of the economic crisis, In line with global trends, Turkish Airlines outsources the priority investment areas for information technology in some information technology services when necessary for the airline industry will center on applications that would cost savings and efficiency. Turkish Airlines determines its reduce costs, followed by applications that would increase outsourcing strategy in order to control externally-sourced revenues. information technology sources within the company.
Priority Areas of Investment in Information Technology for Airline Information Techonology The Airline Sector Markets (billion EUR)
Percentage of companies, based on priority assessment of investment purpose. (Source: SITA Airline IT Trends Survey, 2009) 3.00 2.80 2.80 2.20 2.50 Most preferred Least preferred 2.00 Cost -reducing 57% 26% 12% 3% 1.50 Delivery of new products and services and 43% 31% 20% 3% revenue - increasing 1.00
Improvement in Customer Services 42% 40% 15% 1% 0.50 0.00 Increase in Personnel Efficiency 34% 44% 21% 1% America EMEA Asia- (Europe- Pacific Sector Rules and Regulations 32% 34% 28% 3% Middle East- Africa) Information Technology Compatibility 14% 32% 41% 13%
0% 20% 40% 60% 80% 100%
63 ACTIVITIES Full support for business processes and functionality with the very best IT solutions
The airline industry features complex business processes, coordinating project management and business process and therefore high performance information technology owners in the resulting restructuring processes. As such, solutions are required to maintain a competitive edge and it has launched several customer satisfaction-oriented achieve sustainable growth targets. In this respect, ongoing projects in 2009 aimed at cost reduction and revenue work is underway to maximize the efficiency of Turkish increase, reflecting the growing sensitivity of the aviation Airlines’ business processes, design decision-making industry to the impact of the global economic crisis. processes that function in the fastest and the most effective Among these projects, the ERP (Enterprise Resource manner, and support the implementation of solutions and Planning) project, a broad-based project with major goals, decisions that most effectively contribute to Turkish Airlines’ was one of the most important developments of 2009. The pursuit of competitive strength and sustainable growth. installation and development stages of the ERP project, to The Information Technology Department is responsible begin in 2010, will be outsourced within the framework of for determining areas of corporate development in line an agreement made with SAP Turkey. with strategic targets, defining the scope of projects, and
64 ANNUAL REPORT 2009 Additionally, there have been important developments in 2009 on the O&D (Origin and Destination) and MRO (Maintenance, Repair and Options) projects. Alongside these main projects, further projects are being prepared to meet the company’s needs and technological requirements, and these are scheduled for completion in 2010. As Turkish Airlines continues its investment planning, new developments and trends in technology and in the airline industry are closely tracked in order to ensure that well- aligned strategies are formed.
65 ACTIVITIES BBusiness Development
With the launch of its renewed website and mobil.thy.com, Turkish Airlines has successfully created an ever-increasing number of customer contact points.
66 ANNUAL REPORT 2009 Your office in the sky
Call center costs fell by 46%, and the call completion rate increased to 95%.
With its new user-friendly design, the Turkish Airlines web A point of contact for service and solutions: site - available in 24 languages through 40 local sites - Turkish Airlines Call Center increased turnover by 37% over the prior year, with an increase of 73% in the number of tickets sold. As of February 2, 2009, outsourced services have been provided by Assistt Rehberlik ve Müşteri Hizmetleri A.Ş. Passengers are now able to use the “3D Secure” payment and Vodatech Bilişim Proje Danışmanlık Sanayi ve Dış option for hotel reservation services and online shopping. Ticaret Ltd. Şti., and the Turkish Airlines Call Center has The numbers of visitors to Turkish Airlines’ website now reached activation speed for the resource increase increased by 73%, and the management of the customer required for service from three different locations. support line is now being conducted over a more effective In February, the reservation system switched its software and measurable integrated management system. application to Quickres. In doing so, graphical interfacing improved, efficiencies increased and personnel training Fast and accessible service: mobil.thy.com processes became shorter. A Miles upgrade service was added to the Miles ticket sales mobil.thy.com gives passengers the ability to inquire into service offered through the Call Center. The Call Center, schedules, make reservations, purchase mobile tickets for which responds to international calls from the United domestic flights, and perform check-in, luggage, cargo, States, England, Germany, France, Moscow, Switzerland, bonus ticket and Miles&Smiles operations via their mobile the Netherlands and Italy, now also responds to calls from phones. Denmark, Austria and Cyprus. In the process of selecting the digital marketing agent, Call Center costs fell by 46%, while the call completion the originality of the competition pitch created by Turkish rate increased to 95%. Both the number of calls answered Airlines made a large worldwide impact, earning the and minutes generated increased by 4%, and the number recognition of the world’s leading digital media companies, of tickets sold rose by 9%. The Call Center generated including Fast Company, Adverblog, and Brand Republic. 1.78% of Turkish Airlines’ total ticket sales and accounted Turkish Airlines, which is featured in social networks such for 4.48% of the total number of tickets sold. as Twitter, Friendfeed, Slideshare, Facebook, and Flickr, has taken important steps in reinforcing its interaction with customers.
67 ACTIVITIES New applications and agreements enhanced “the Miles&Smiles Special Passenger Program, which now boasts 50 partners and 1.8 million members.“
Turkish Airlines, a member of the Star Alliance, successfully passed all of its audits in 2009 and now aims to achieve Pollux status, the highest membership level.
Turkish Airlines’ membership in the Star Alliance has Turkish Airlines offered its passengers the ability to been an important stepping stone in the company’s goal of use Miles&Smiles privileges through Special Passenger becoming a worldwide brand. The “Post-integration audit,” Program agreements it has entered into with leading which assesses integration with the minimum conditions organizations in a number of fields, first and foremost the following entry into the Star Alliance, and the “Self- tourism sector. Verification” audit, in which members audit themselves The diversity of services that Turkish Airlines offers its online, were both successfully concluded. passengers was enriched through mutual FFP partnership The Pollux, Castor and Wasat packages, which are the three agreements with new Star Alliance members Continental new membership status levels offered by the Star Alliance Airlines and Brussels Airlines, and with a Special Passenger in 2010, were evaluated, and the decision was made to Program partnership agreement with Jet Airways. advance to “Pollux” status, the highest level. Accordingly, Ongoing promotions offered by Turkish Airlines throughout the required work on the “Star Alliance Main Agreement 4th the year have served both to increase member satisfaction Amendment” was initiated. as well as maintain a lively and active program.
68 ANNUAL REPORT 2009 Parade of the stars
Non-stop convenience with Miles&Smiles Domestic travel agencies are now able to process Miles&Smiles domestic award tickets, and a condition was Turkish Airlines changed its method of distributing introduced to accompanying ticket awards that requires Miles&Smiles cards, and now sends out membership cards accompanying passengers to travel together with the following the first flight taken with either Turkish Airlines Miles&Smiles member on the outbound portion of their or a Star Alliance member airline. In May, a Miles&Smiles voyage. desk was set up in the international flights terminal of Atatürk Airport in order to provide instant membership The “Last Minute Upgrade” feature offered to Elite and card services, and members were given the option of Elite Plus card holders under the Miles&Smiles Special performing Miles&Smiles operations via mobil.thy.com. Passenger Program has now also been made available to Classic and Classic Plus card holders. A new service also now transmits any missing flight information entered into the system to members’ email addresses via an automatic information message.
69 ACTIVITIES The Star Alliance offers passengers comprehensive Alliance membership discussions are underway with the and safe air transport with approximately 20,000 daily African flag-carrier Ethiopian Airlines, the Chinese flag- departures to more than 1,000 destinations in 171 carrier China Eastern airlines and the Latin American countries and 954 CIP lounges. flag-carriers TACA, COPA and Avianca. In 2009, Continental Airlines and Brussels Airlines joined the Star Alliance, while Air India, Aegean Airlines and TAM continued their integration process.
70 ANNUAL REPORT 2009 Synergy: the source of competitive power
Available Seat - Kms Revenue Passenger - Kms
Oneworld Oneworld
15.4% 15.6%
Sky Team 16.1% 42.5% Sky Team 16.6% 41.6% Others Others
26.0% 26.3%
Star Alliance Star Alliance
The Star Alliance is bringing new products to market in order to facilitate its passengers’ travel options. These products are divided into two general categories - personal and corporate. Individual Products: Corporate Products: • Round the World Fares • Corporate Plus • 2 Circle Fares • Meeting Plus • 9 Airpasses • Convention Plus More than 3,000 customers per month reach Turkish Airlines’ website via the Star Alliance website, bringing them the benefits of Turkish Airlines’ online opportunities.
Starting in 2009, the Star Alliance has given passengers the option of purchasing member airline tickets through its own website (www.staralliance.com), under the slogan “Book and Fly.”
Monthly Traffic Routed to Member Websites from The Star Alliance Website 17,638 11,765 9,285 6,910 6,432 6,252 5,827 4,699 3,886 3,549 3,394 3,063 2,582 2,510 1,793 1,798 1,687 1,591 1,449 1,538 1,051 659 358 269 438
AC BC CA CO FM JK JP KF LH LX MS NH NZ OS OU OZ SA SK SN SQ TG TK TP UA US
71 ACTIVITIES 72 ANNUAL REPORT 2009 Transport to Anatolia at jet speed
Turkish Airlines, which places the utmost importance on quality of service and customer satisfaction, has turned AnadoluJet into one of Turkey’s most preferred brands.
AnadoluJet connects the four corners of Turkey with flight in June, and from Ankara to Cyprus in October. For the operations based out of Ankara, and through its affordable 2009-2010 winter schedule, flights were scheduled for each product policy and convenient flight schedules has carved out day of the week from Sabiha Gökçen Airport to Diyarbakır, a strong market position, becoming one of Turkish Airlines’ Elazığ, Erzincan, Erzurum, Konya, Trabzon and Van. preferred brands. AnadoluJet flies to 25 destinations every In 2009, AnadoluJet’s flight network comprised flights day of the week and offers passengers an economic and from Ankara to Adana, Adıyaman, Antalya, Batman, Çorlu, comfortable means of travel, featuring complimentary in- Diyarbakır, Elazığ, Erzincan, Erzurum, Gaziantep, Hatay, flight meal service and an onboard monthly publication, the İstanbul Sabiha Gökçen, İzmir, Kahramanmaraş, Kars, “AnadoluJet Magazine”. Kıbrıs, Malatya, Mardin, Muş, Samsun, Şanlıurfa, Trabzon, Van and in the summer schedule to Bodrum and Dalaman; AnadoluJet goes international and from Istanbul Sabiha Gökçen to Diyarbakır, Elazığ, Erzincan, Erzurum, Konya, Trabzon, Van and in the summer AnadoluJet has succeeded in taking the pleasure of its schedule to Bodrum and Dalaman. services abroad, adding new international destinations to AnadoluJet simplifies the luxury services of aviation without its flight network in 2010 and continuing to move forward in compromising international standards and flight safety, becoming an international brand. offering fares that accommodate its customers’ budgets. AnadoluJet completed the year having carried 2.8 million Among various fare promotions that support its economic passengers on its domestic flights at an 80% load factor, and pricing policy, AnadoluJet continued its “first 29 seats for with a load factor of 65% on international flights that began 59 TL” campaign. in June, has now joined the global competitive marketplace. AnadoluJet’s promotional activities have played an important The net address for young people: “jetgenc.net” and effective role in increasing brand awareness. These activities include ongoing transportation sponsorship of various Through its JetGenç project, AnadoluJet gives university concerts and arts organizations in Anatolia, particularly in students under 24 years old the opportunity to travel at a Ankara. It has expanded its sponsorship of the “AnadoluJet in 25% discount. Support of Anatolian Teams” campaign that supports Anatolian AnadoluJet supported the project with various promotions, athletic teams. AnadoluJet also participates in national and and delivered a message to university students that they international fairs and other similar events in cooperation with should not wait for life after 25. agencies, tour operators, tourism operators and city culture and tourism offices, creating opportunities to forge face-to-face Promotions are accessible through the www.anadolujet. relationships with its passengers. com and www.jetgenc.net websites, where young people in universities can win one free flight for every 10 flights, purchase all tickets using a student member password Anatolia’s young and dynamic airline registered to their accounts and win bonus tickets on AnadoluJet. AnadoluJet has the youngest fleet in the skies, with three B 737-800s and six B 737–700s, and in 2009 it continued to add AnadoluJet periodically organizes aviation events that new flight operations to its network and increase frequencies. aim to promote and popularize aviation and create career opportunities for students. Scheduled flights from Ankara to Çorlu Airport began in February, from Ankara to Istanbul’s Sabiha Gökçen Airport
73 SUBSIDIARIES With Turkish DO&CO, customer satisfaction has risen from 49% to 93%.
Turkish DO&CO was founded in 2007 as a partnership between Turkish Airlines and the Austrian catering company DO&CO, and it has since achieved great acclaim with its Guest satisfaction Questionaire. International Flights: 93% diverse menu catering to a variety of tastes and with the great care it gives to the details of service. Turkey’s market Materials used for offerings 95% leader with a commanding 70% share, Turkish DO&CO Freshness of food 93% operates from 9 locations (İstanbul - Atatürk ve Sabiha Gökçen, Ankara, Antalya, İzmir, Bodrum, Trabzon, Dalaman Food quality 93% and Adana) and provides catering services for more than 60 Size of portions 93% airlines and nearly 650 daily flights. Temperature of foods 92% Turkish DO&CO produces an average of 25 million meals per Meeting your taste expectations 92% year under 1,500 menus, striving to offer the highest quality products and service. Working to bring out the flavors of Appetizing appearence of foods 92% the world’s cuisines, Turkish DO&CO also gives a special Variety of food 92% place on its menus to foods unique to Turkey, such as shish kebabs, karnıyarık (aubergines with meat filling), mantı (Turkish style ravioli), imambayıldı (cold aubergines with vegetable filling), lentil patties, beğendi (aubergine puree) and cheese rolls. The quality of service and the importance placed on customer requests have shown up in surveys of customer satisfaction, which has risen to 93% from 49%.
74 ANNUAL REPORT 2009 The gourmet entertainment
Turkish cuisine meets the world Purchases of catering service abroad were curtailed in certain terminals, after a decision was made to load Guest satisfaction Questionaire. Domestic Flights: 92% meals in a staged manner for round-trip flights departing from Turkey,. This practice boosted worldwide promotion Materials used for offerings 94% of Turkish cuisine and increased our competitive strength Size of portions 92% through higher in-flight meal service quality and reduced costs. Turkish Airlines, which never compromises on the Temperature of foods 91% quality of its service and the products they contain, has Freshness of food 89% completed the in-flight meal loading process for round Meeting your taste expectations 89% trip departures from Turkey at 101 terminals. Appetizing appearence of foods 88% With the launch of First Class services on medium range Food quality 88% and ocean crossing flights, new First Class menus have Variety of food 82% been added to the in-flight meal services. The transfer of materials management to Turkish DO&CO as way of improving quality and procurement though integrated catering services has been an important step in the adoption of a per-passenger cost approach.
75 SUBSIDIARIES TTurkish Technic Inc.
76 ANNUAL REPORT 2009 Safe flights
Turkish Technic Inc. aims to carve out a large share of the aviation industry’s maintenance & repairs market with new projects.
Turkish Technic Inc. has achieved prominence through its million Turkish maintenance and repair market, whose experience and extensive engineering know-how in the global size in 2009 was $44 billion and is expected to reach increasingly competitive environment of the maintenance $65 billion by the 2020s. & repairs market. In 2009, Turkish Technic Inc. further As of year-end 2009, Turkish Technic Inc. employed a total strengthened its market position thought a customer- of 2,519 personnel, of which 61.3% hold technical licenses, oriented operating philosophy that has been at the core of and it continues to invest in its human resources - one of its quality policy since the day it was founded. the most important contributors to its success and growth. Turkish Technic Inc. commands an 85% share of the $550
Services provided both domestically and abroad foreign customers. These slots are also planned to handle landing gear replacements, engine replacements and aircraft Turkish Technic Inc., which in 2009 carried out nearly 1,800 painting operations. letter checks in its two hangars at Ataturk Airport, generated business of approximately 1,000,000 A/S through its heavy New gains maintenance activities alone. The engine workshop completed In 2009, Turkish Technic Inc. obtained authorization for 74 engine maintenance works, 38 of which were shop visits and Gulfstream 550 ESB+IST Base Maintenance, Gulfstream IV ESB 36 were overhauls, and it generated approximately 100,000 Base Maintenance and Diamond DA42 NG Base Maintenance. A/S. The APU workshop performed 42 APUs, the landing gear workshop performed 81 landing gear overhauls, and With the addition of the 777-300ER to the Turkish Airlines the component workshops performed approximately 43,000 fleet, all required works - such as tool and training - component overhauls. Turkish Technic Inc. also continued to were completed, line maintenance and A maintenance provide maintenance services for VIP craft in its Ataturk Airport capabilities were put in place and additional work on C VIP Hangar. Over 100 maintenance works were provided for maintenance capability continued. foreign customers. Under the scope of Total Care, Turkish Technic Inc. has Ankara Esenboğa Hangar taken on the technical obligations of foreign companies. By assigning technicians to these companies’ main bases, a The construction of the Ankara Esenboğa Hangar was sound continuity of technical operations has been ensured. completed in August of 2009, and the facility is now ready for operation in its 7,000 m2 closed area with a capacity of 3 narrow An IFE maintenance group of avionics technicians was fuselage craft. The facility plans to handle line maintenance established for the professional maintenance of the IFE services such as A and L for narrow fuselage craft and C systems in aircraft configurations. The group meets the level heavy maintenance, landing gear replacements, engine aircraft upon flight completion, corrects any failures and replacements and aircraft painting. One slot of the hangar, delivers the system to the crew in operating condition which can accommodate 3 narrow fuselage aircraft, is also under the “meet and greet” philosophy. reserved for nightly line maintenance services such as A For the follow-up of repeat failures, the procedures for and/or L. The same slot is anticipated to handle non-planned the Repetitive Defect Alert System – REDAS program, aircraft service, failed aircraft and VIP aircraft. The other 2 which was created by studying the procedures of other slots are reserved for C level heavy maintenance services on international companies, reached completion stage. Turkish Airlines and AnadoluJet aircraft and the aircraft of 77 SUBSIDIARIES Turkish Technic Inc., serves a variety of customers throughout the world, and continues to expand its domestic and foreign customer portfolio. Cabin developments narrow fuselage aircraft. In 2009, numerous studies were carried out on cabin For internal cabin configuration changes made to improvements. All seat covers for the fleet may now be some of the aircraft in Turkish Airlines’ fleet and in the manufactured by domestic companies that are authorized preparation of engineering publications produced by EASA- as sub-contractors, and new seat covers were sewn for approved design organizations, project management and 40 aircraft. Companies with JAR 21 authorization began engineering support was provided for the implementation production of parts used in the cabin, which have a high of modifications made by Turkish Airlines. replacement rate and pose procurement difficulties, and The required engineering support was provided for the costs were reduced by 15% -25%. Projects by the R&D group installation of the curved wing feature in 24 aircraft, 22 led to the creation of new tool designs that deliver enhance without provision and 2 with provision. Effective work was working ease, time savings and increased productivity. The also carried out to obtain testing capability for the V2500 seat-lifting apparatus and the A330/A340 B/C seat carry tool engine, on which a full performance maintenance was are among the projects implemented. made for the first time. Full engineering support Maintenance programs were revised by increasing the A Technical comparisons of candidate aircraft types and maintenance interval for Turkish Airlines’ A330 and A340 aircraft configuration assessments for selected aircraft types were from 600 FH to 800 FH and by increasing the S maintenance conducted as part of the selection process for wide and interval for the A340 aircraft from five years to six years.
78 ANNUAL REPORT 2009 TEC (Turkish Engine Center) Boeing 737 aircraft and the V2500-A5series engines fitted on the Airbus 320 aircraft. As part of Turkish Technic Inc.’s strategy to establish partnerships with manufacturers that provide know- HABOM (Aviation Maintenance Repairs and how and technology transfer, the Turkish Engine Center Modifications Center) (TEC), which is the first subsidiary jointly established with All preparations were completed for the HABOM project, Pratt&Whitney, began operations in December 2009. Under which gathers the majority of Turkish Airlines technical the Turkish Technic Inc. - Pratt&Whitney partnership, a projects under one roof. The first stage of the project, modern engine center was built, providing a window on planned for launch in the first quarter of 2010, covers the future and featuring a green-building construction narrow fuselage hangars and is targeted for completion concept in which work health and safety precautions have in 18 months. The facility will have a closed area of been taken to the highest level and flow lines that allow for approximately 370,000 m2, and has an impressive design simple production techniques fast TAT times. TEC, which that comprises hangars, component workshops, and is designed to perform revisions on 250 engines per year training and social buildings capable of simultaneously 2 at its full capacity, covers an area of 25,000 m and sits in a serving 12 narrow fuselage aircraft and three wide fuselage lot totaling 10 hectares. aircraft. The project that will be the industry’s largest An agreement has been reached with TEC for heavy maintenance and repairs center in the region is anticipated maintenance and repair services on the CFM56-3C/-5C/-7B to provide employment for 3,000 personnel when it reaches series engines fitted on Turkish Airlines’ Airbus 340 and full operating capacity.
79 SUBSIDIARIES VISION Turkish Ground Service (TGS) began operating in December 31, 2009 as a 50-50 joint venture partnership between Taking its market leadership in Turkey into the international Turkish Airlines and HAVAŞ, the ground services company arena and distinguishing itself by maintaining the highest of TAV Havalimanı Holding. levels of customer satisfaction though cost savings and high quality of service. The company’s 4,000 personnel began providing ramp (aircraft and cargo) services principally at Istanbul Atatürk Airport and Ankara Esenboğa, İzmir Adnan Menderes, MISSION Antalya and Adana Şakirpaşa airports, and aims to employ To become a global player in the ground services industry, 5,000 personnel by the end of its first year. delivering cost savings to customers and achieving the The company will begin providing passenger and operating highest level of operational efficiency. services at İzmir Adnan Menderes Airport on March 1, 2010, at Ankara Esenboğa Airport on May 1, 2010 and at İstanbul Atatürk Airport on October 1, 2010, and it will continue GOALS expanding to other airports following the completion of its Turkish Ground Service, a consortium between Turkish market research. Airlines and Havaş (TAV Holding), aims to achieve first local and then global status in its sector, by offering high quality service and undisputable cost savings.
80 ANNUAL REPORT 2009 Service from the ground to the sky
The company will provide services for the aircraft of domestic and foreign airlines with over 300,000 flight frequencies – first and foremost Turkish Airlines and AnadoluJet – and aims to become one of the world’s best ground operations companies. TGS’s target turnover for its first year is approximately TL 100 million, and the company plans to expand into Europe and the Middle East in the medium term. While bringing employment opportunities to hundreds of people, TGS’s entry into the market will enhance the market’s competitive environment and lead to higher customer satisfaction.
SERVICES: • Passenger services • Cargo control services • Ramp services • Postal services • Communications • Cargo services • Representation, management and supervision services 81 SUBSIDIARIES Our achievements lay the foundation for our goals. Our numbers“ tell the stories of the roads we have traveled.“ FFinancial
Financial Ratio and Audit Reports
Financial Ratios 85
Consolidated Financial Tables and Independent Auditor’s Report 86 Ongoing Investment and Growth
In 2009, while the world's leading airline companies cut down capacity as a result of the severe global economic crisis, Turkish Airlines grew both operationally and financially. Operating profit increased 12% to 832 million TL, and sales revenues grew by 15%, reaching 7 billion TL. Posting a net profit of 559 million TL, Turkish Airlines continued methodically bringing its investments to fruition in 2009.
Under the scope of the 2008-2023 fleet expansion projection of a total of 105 airplanes, final orders were issued for 64, including 22 double- corridor long-range airplanes, 40 single-corridor short and medium- range airplanes and 2 wide-body cargo airplanes. These airplanes will be added to the fleet in 2014. In 2009, the number of airplanes in the fleet grew 4%, from 127 to 132. International routes accounted for 79% and domestic routes for 21% of revenues from scheduled service. In parallel to a 22% increase in available seat kilometers, the number of passengers grew 11% to 25,099,000 and cargo transport increased 20% to 238,000 tons. To the effects of an increase in capacity, the load factor fell 3.1 points to 70.9%.
Turkish Airlines continues its work to carry the success of 2009 into future years. Financial Ratios
31 December 2009 31 December 2008 LIQUIDITY RATIOS Current Ratio 1.44 1.58 Acid Test Ratio 1.36 1.52 Cash Ratio (Incl. fixed deposits) 1.35 1.17
FINANCIAL STRUCTURE RATIOS Debt/Assets Ratio 0.60 0.62 Equity/Assets Ratio 0.40 0.38
PROFITABILITY RATIOS Net Profit Margin %8 %19 Operating Profit Margin %10 %10 EBITDAR Margin %24 %22 EBITDA Margin %17 %17 EBIT Margin %12 %12
Interest Coverage Ratio 7.11 7.02
85 ANNUAL REPORT 2009 DRT Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. Sun Plaza No: 24 34398 Maslak İstanbul, Türkiye
Tel: (212) 366 6000 Fax: (212) 366 6010 www.deloitte.com.tr
AUDITOR’S REPORT
To the Board of Directors of Türk Hava Yolları A.O.
We have audited the accompanying consolidated balance sheet of Türk Hava Yolları A.O. and its subsidiary (together the “Group”) as at 31 December 2009 and the related consolidated statement of comprehensive income, consolidated change in shareholder's equity statement and consolidated cash flow statement for the year ended 31 December 2009, and a summary of significant accounting policies and other explanatory notes.
Management Responsibility on Financial Statements
The management is responsible for preparation and fair presentation of these financial statements in accordance with accounting standards published by Capital Markets Board. 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 consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards published by the Capital Markets Board. 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 consolidated 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 Group'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 Group's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Group, as well as evaluating the overall presentation of the financial statements.
Member of Deloitte Touche Tohmatsu
86 ANNUAL REPORT 2009 Auditor's Responsibility (cont'd)
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Financial statements of Gunes Ekspres Havacılık A.Ş. and THY DO&CO Ikram Hizmetleri A.Ş. that are joint ventures of the company and accounted on the equity method have been audited by other independent audit firms. %0, 7 of total assets of accompanying financial statements is contributed by those companies. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these entities is solely based on reports of the other auditors.
Conclusion
In our and other audit firms' opinion, accompanying consolidated financial statements of the Group as of 31 December 2009 and for the year then ended have been properly prepared, in all material respects in accordance with generally accepted accounting standards issued by Capital Markets Board.
Without qualifying our opinion, we would like to draw attention to the following matter:
As it is explained in detail in Note 41, the Group has classified the financial statements for the year ended 31 December 2008 and balance sheet as of 1 January 2008.
Istanbul, 5 April 2010
DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU
Berkman Özata Partner
Member of Deloitte Touche Tohmatsu
87 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Consolidated Balance Sheet as of 31 December 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
Audited Audited Audited (Restated Note 41) (Restated Note 41) ASSETS Note 31 December 2009 31 December 2008 1 January 2008
Current Assets 2.799.855.184 2.620.279.393 1.487.528.554 Cash and Cash Equivalents 6 1.096.111.869 504.905.721 480.196.215 Financial Assets 7 222.298.370 1.442.632.862 292.020.000 Trade Receivables 10 445.381.881 349.144.133 245.539.019 Other Receivables 11 743.393.375 61.673.958 305.855.757 Inventories 13 148.995.932 98.359.291 113.740.571 Other Current Assets 26 143.673.757 163.563.428 50.176.992
Non-current Assets 5.772.234.243 5.290.955.322 3.434.915.521 Other Receivables 11 664.360.128 22.808.881 21.756.328 Financial Assets 7 1.750.943 1.750.943 3.016.564 Investments Accounted for Using the Equity Method 16 152.052.556 43.637.924 38.370.043 Investment Property 17 48.810.000 48.130.000 53.700.000 Tangible Assets 18 4.811.019.050 5.055.984.137 3.238.003.554 Intangible Assets 19 10.669.612 11.162.602 6.801.172 Deferred Tax Assets 35 - 1.986.324 3.193.155 Other Non-current Assets 26 83.571.954 105.494.511 70.074.705
TOTAL ASSETS 8.572.089.427 7.911.234.715 4.922.444.075
The accompanying notes form an integral part of these consolidated financial statements.
88 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Consolidated Balance Sheet as of 31 December 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
Audited Audited Audited (Restated Note 41) (Restated Note 41) LIABILITIES Note 31 December 2009 31 December 2008 1 January 2008
Current Liabilities 1.949.243.312 1.653.906.994 1.186.652.969 Financial debt 8 412.266.841 419.289.229 228.918.371 Other financial liabilities 9 46.078.943 45.000.251 877.628 Trade payables 10 560.801.478 435.109.211 364.523.991 Other payables 11 156.633.381 115.967.007 83.387.054 Current tax liabilities 35 2.419.544 4.185.809 19.981.215 Provisions 22 7.287.354 7.460.396 4.779.221 Employee benefit obligations 24 54.734.480 47.818.425 39.664.361 Passenger flight liabilites 26 586.525.279 487.393.997 379.676.586 Other current liabilities 26 122.496.012 91.682.669 64.844.542
Non-current Liabilities 3.177.965.889 3.270.740.625 1.887.889.627 Financial debt 8 2.575.899.283 2.798.005.235 1.595.842.462 Other payables 11 8.941.613 7.865.284 7.058.322 Provision for retirement pay liability 24 151.875.562 142.459.082 131.959.011 Deferred tax liability 35 362.243.105 291.289.291 128.930.080 Other non-current liabilities 26 79.006.326 31.121.733 24.099.752
SHAREHOLDERS' EQUITY Equity Attributable to Shareholders of Parent 3.444.880.226 2.986.587.096 1.847.901.479 Share capital 27 875.000.000 175.000.000 175.000.000 Inflation difference on shareholders' equity 27 1.123.808.032 1.672.901.479 1.739.005.871 Share premium 27 - - 895.492 Restricted profit reserves 27 22.686.727 - 61.014.406 Differences from currency translation 27 4.641.339 4.459.406 - Cash flow hedge fund (-) 27 (1.751.329) - - Retained Earnings 27 861.419.177 - (393.511.064) Net Profit/(Loss) for the Period 27 559.076.280 1.134.226.211 265.496.774
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8.572.089.427 7.911.234.715 4.922.444.075
The accompanying notes form an integral part of these consolidated financial statements.
89 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Consolidated Statement of Comprehensive Income for The Year Ended 31 December 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
Audited Audited (Restated Note 41) Notes 31 December 2009 31 December 2008
Sales revenue 28 7.035.882.903 6.123.174.209 Cost of sales (-) 28 (5.135.949.144) (4.542.670.584)
GROSS PROFIT / (LOSS) 1.899.933.759 1.580.503.625 Marketing. sales and distribution expenses (-) 29,30 (806.503.413) (635.876.008) Administrative expenses (-) 29,30 (261.536.526) (203.813.181) Other operating income 31 91.136.104 56.690.528 Other operating expenses (-) 31 (199.139.482) (210.120.463)
OPERATING PROFIT / (LOSS) 723.890.442 587.384.501 Share of investments' profit/ (loss) accounted for using the equity method 16 12.813.703 3.572.374 Financial income 32 172.982.144 1.427.882.203 Financial expenses (-) 33 (172.708.672) (713.373.140)
PROFIT / (LOSS) BEFORE TAX 736.977.617 1.305.465.938 Tax (expense) / income (177.901.337) (171.239.727) Current tax expense (-) 35 (104.523.367) (7.673.685) Deferred tax (expense) / income 35 (73.377.970) (163.566.042)
PROFIT / (LOSS) FOR THE YEAR 559.076.280 1.134.226.211
OTHER COMPREHENSIVE INCOME / (EXPENSE) Differences from currency translation 181.933 4.459.406 Cash flow hedge fund (2.189.161) - Tax income on items in other comprehensive income 437.832 -
OTHER COMPREHENSIVE INCOME/ (EXPENSE) (AFTER TAX) (1.569.396) 4.459.406
TOTAL COMPREHENSIVE INCOME/ (EXPENSE) FOR THE YEAR 557.506.884 1.138.685.617
Earnings/(Loss) per share (Kr) 36 0.64 1.30
The accompanying notes form an integral part of these consolidated financial statements.
90 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Consolidated Statement of Change in Shareholders’ Equity for The Year Ended 31 December 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
Inflation Difference on Restricted Differences Net profit / Total Shareholders' Share Profit from currency Cash flow loss for Retained shareholders' Issued capital Equity premium Reserves translation hedge fund the period earnings equity As of 31 December 2007 175.000.000 1.739.005.871 895.492 61.014.406 - - 265.496.774 (393.511.064) 1.847.901.479 Transfer of previous years' profit to retained earnings ------(265.496.774) 265.496.774 - Ofset of differences in shareholder's equity and inflation difference with retained earnings - (66.104.392) (895.492) (61.014.406) - - - 128.014.290 - Total comprehensive income for the year - - - - 4.459.406 - 1.134.226.211 - 1.138.685.617 As of 31 December 2008 175.000.000 1.672.901.479 - - 4.459.406 - 1.134.226.211 - 2.986.587.096
Transfer of previous years' profit to retained earnings ------(1.134.226.211) 1.134.226.211 - Transfer of previous years' profit to reserves - - - 22.686.727 - - - (22.686.727) - Dividends paid ------(99.213.754) (99.213.754) Capital increase 700.000.000 (549.093.447) - - - - - (150.906.553) - Total comprehensive income for the year - - - - 181.933 (1.751.329) 559.076.280 - 557.506.884 As of 31 December 2009 875.000.000 1.123.808.032 - 22.686.727 4.641.339 (1.751.329) 559.076.280 861.419.177 3.444.880.226 ANNUAL REPORT 2009
The accompanying notes form an integral part of these consolidated financial statements. 91 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Consolidated Statement of Cash Flow for The Year Ended 31 December 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
CASH FLOW FROM OPERATING ACTIVITIES 1 January- 1 January- Notes 31 December 2009 31 December 2008 Net profit before taxes 736.977.617 1.305.465.938 Adjustments to obtain net cash flow generated from operating activities: Depreciation and amortization 18-19 347.051.580 286.265.401 Provision for retirement pay liability 24 26.356.395 23.354.581 Interest income 32 (159.789.136) (123.120.093) Profit/(loss) on sales of fixed assets 31 (3.333.754) (55.645) Increase/(decrease) in provision for impairment 18 178.783.996 (835.272.705) Loss/(profit) on equity investments accounted for using the equity method 16 (12.813.703) (3.572.374) Interest expense 33 116.763.052 105.396.609 Movement in manufacturers' credit 26 (13.146.194) (3.378.570) Unrealized foreign exchange loss/(gain) on finance leases 32-33 (2.890.159) 586.719.977 Increase/(decrease) in provision for doubtful receivables 10 4.749.104 15.637.769 Impairment on investment property 17 78.086 5.000.000 Movement in fair value of derivative instruments 32-33 (9.016.534) 6.071.262 Dividend income 32 (42.016) (35.033) Operating profit before working capital changes 1.209.728.334 1.368.477.117 Increase in trade receivables 10 ( 100.986.852) (119.242.883) (Increase)/decrease in other short and long term receivables 11 7.946.875 (6.855.126) (Increase)/decrease in inventories 13 (50.636.641) 15.381.280 (Increase)/decrease in other current assets 26 19.889.671 (54.435.261) (Increase)/decrease in other non-current assets 26 21.922.557 (35.419.804) Increase in trade payables 10 125.692.267 70.585.220 Increase in other payables 11 41.742.703 33.386.915 Increase/(decrease) in provision for short term liabilities 22 (173.042) 2.681.175 Increase in other short and long term liabilities 26 35.344.129 37.238.679 Increase in employee benefits 24 6.916.055 8.154.065 Increase in passenger flight liabilities 26 99.131.282 107.717.411 Cash flow from operating activities 1.416.517.338 1.427.668.788 Payment of retirement pay liability 24 (16.939.915) (12.854.510) Interest paid (117.019.197) (102.736.065) Tax payments 26-35 (106.289.632) (82.420.270) Net cash flow from operating activities 1.176.268.594 1.229.657.943 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of tangible and intangible fixed assets 18-19 129.348.500 26.482.893 Interest received 181.134.732 82.172.581 Dividends received 542.016 7.034.983 Purchase of tangible and intangible fixed assets (net of increase in finance lease liabilities) (*) 18-19 (228.635.897) (230.333.395) Prepayments for the purchase of aircrafts (1.331.217.539) 249.984.372 (Increase)/decrease in short term financial investments 7 1.203.244.254 (1.109.665.350) Cash outflow for the purchase of investments accounted at equity method 16 (39.418.996) (4.280.515) Net cash used in investing activities ( 85.002.930) ( 978.604.431) CASH FLOW FROM FINANCING ACTIVITIES Repayment of principal in finance lease liabilities ( 397.692.584) ( 261.788.079) Decrease in financial borrowings ( 6.803.885) ( 3.917.374) Increase in other financial liabilities 9 3.650.707 39.361.447 Dividends paid ( 99.213.754) - Net cash used in financing activities ( 500.059.516) ( 226.344.006) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 591.206.148 24.709.506 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 504.905.721 480.196.215 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1.096.111.869 504.905.721
(*)TL 178.514.434 portion of tangible and intangible assets purchases in total of TL 407.150.331 as of 31 December 2009 was financed through finance leases. (31 December 2008: TL 1.019.175.119 portion of tangible and intangible assets purchases in total of TL 1.299.191.959 was financed through finance leases.)
The accompanying notes form an integral part of these consolidated financial statements. 92 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
1. THE COMPANY'S ORGANIZATION AND OPERATIONS
Türk Hava Yolları A.O. (“the Company” or “THY”) was incorporated in Turkey in 1933. The principal activity of the Company is domestic and international air transportation of passengers and cargo. As of 31 December 2009 and 31 December 2008, the shareholders and their respective shareholdings in the Company are as follows:
31 December 2009 31 December 2008 Republic of Turkey Prime Ministry Privatization Administration 49,12% 49,12% Other (publicly held) 50,88% 50,88% Total 100,00% 100,00%
The total number of employees working for Türk Hava Yolları A.O. and its subsidiary (“the Group”) as of 31 December 2009 is 15.269. (31 December 2008:14.072). The average number of employees working for the Group as of 31 December 2009 and 2008 is 14.696 and 13.724, respectively.
The Company is registered in İstanbul, Turkey and its head office address is as follows:
Türk Hava Yolları A.O. Genel Yönetim Binası Atatürk Havalimanı, 34149 Yeşilköy İSTANBUL.
Approval of Financial Statements
Board of Directors has approved the financial statements as of 31 December 2009 and delegated authority for publishing it on 5 April 2010. General shareholders' meeting has the authority to modify the financial statements.
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
2.1 Basis of Presentation
Basis of Preparation for Financial Statements and Significant Accounting Policies
The company and its subsidiaries registered in Turkey maintain their books of account and prepare their statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and Tax Legislation. Subsidiaries that are registered in foreign countries maintain their books of account and prepare their statutory statements in accordance with the prevailing accounting principles in their registered countries
The Capital Markets Board (“CMB”) has established principles, procedures and basis on the preparation of financial reports by enterprises and the representation of the reports with Communiqué Series XI, No: 29 “Communiqué on Capital Market Financial Reporting Standards”. This Communiqué is applicable for the first interim financial statements to be prepared after 1 January 2008 and with this Communiqué, the Communiqué Series XI, No: 29 “Communiqué on Capital Market Accounting Standards” has been repealed. In accordance with this Communiqué, the companies are supposed to prepare their financial statements in accordance with the International Financial Reporting Standards (“IAS/IFRS”) accepted by the European Union.
93 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.1 Basis of Presentation (cont'd)
Basis of Preparation for Financial Statements and Significant Accounting Policies (cont'd)
Nevertheless, until the discrepancies between the IAS/IFRS accepted by the European Union, and the IAS/IFRS declared by IASB are announced by the Turkish Accounting Standards Board (“TASB”), IAS/IFRS will be in use. Under these circumstances, Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”), which are the standards published by TASB, not contradicting with IAS/IFRS will be predicated on.
The accompanying consolidated financial statements have been prepared in accordance with IFRS and comply with CMB's decree announce on 17 April 2009 and 9 January 2009 regarding the format of the financial statements and footnotes since at the date of the issuance of these financial statements the differences of IAS/ IFRS accepted by the European Union are not declared by the TASB. Accordingly, some reclassifications are made in the prior year financial statements.
All financial statements have been prepared on cost basis principal. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
Currency Used In Financial Statements
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Turkish Lira (“TRY”), which is the functional currency of the Company, and the reporting currency for the consolidated financial statements.
Adjustment of Financial Statements in Hyperinflationary Periods
As per the 17 March 2005 dated, 11/367 numbered decree of CMB, companies engaged in Turkey and those of which prepare their financial statements in accordance with the CMB Accounting Standards (including IAS/IFRS exercisers), use of inflationary accounting standards have been discontinued effective 1 January 2005. Pursuant effectuation, “Financial Reporting Standards in Hyperinflationary Economies” issued by the International Accounting Standards Committee (IASC), (“IAS 29”) was no longer applied henceforward.
Comparative Information and Restatement of Prior Period Financial Statements
Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information about financial position and performance. On order to maintain consistency, with current year consolidated financial statements, comparative information is reclassified and significant changes are disclosed if necessary.
Basis of the Consolidation
a) The consolidated financial statements include the accounts of the parent company, Türk Hava Yolları A.O., its Subsidiary and its Affiliates on the basis set out in sections (b) and (c) below. Financial statements of subsidiary and affiliates are adjusted where applicable in order to apply the same accounting policies. All transactions, balances, profit and loss within the Group are eliminated during consolidation
b) Subsidiary is the entity in which the Company has power to control the financial and operating policies for the benefit of the Company through the power to exercise more than 50% of the voting rights relating to shares in the companies owned directly and indirectly by itself, otherwise having the power to exercise control over the financial and operating policies for the benefit of the Company. 94 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.1 Basis of Presentation (cont'd)
Basis of the Consolidation (cont’d)
The table below sets out the consolidated Subsidiary and participation rate of the Group in this subsidiary at 31 December 2009:
Participation Rate Name of the Company Principal Activity 31 December 2009 31 December 2008 Country of Registration THY Teknik A.Ş. Aircraft Maintenance Services 100% 100% Turkey
The balance sheet and statement of income of the subsidiary were consolidated on the basis of full consolidation. The carrying value of the investment held by the Group and its Subsidiary were eliminated against the related shareholders' equity. Intercompany transactions and balances between the Group and its Subsidiary were eliminated during consolidation process.
c) The Group has six joint ventures. These joint ventures are economical activities that decisions about strategic finance and operating policy are jointly controlled by the consensus of the Group and other participants. The affiliates to which the participation rates of the Group are 50% and 49% are controlled by the Group jointly, and are valued by equity method.
The table below sets out consolidated affiliates and indicates the proportion of ownership interest of the Company in these affiliates at 31 December 2009:
Participation share
Company name Principle activity 31 December 2009 31 December 2008 Country of registration Güneş Ekspres Havacılık A.Ş. Air Transportation 50% 50% Turkey THY DO&CO İkram Hizmetleri A.Ş. Catering Services 50% 50% Turkey P&W T.T. Uçak Bakım Merkezi Ltd. Şti. Maintenance 49% 49% Turkey Bosnia Herzegovina Airlines Air Transportation 49% - Bosnia Herzegovina TGS Yer Hizmetleri A.Ş. Ground Services 50% 100% Turkey THY Opet Havacılık Yakıtları A.Ş. Fuel sales 50% 50% Turkey
According to the equity method, subsidiaries are stated as the cost value adjusted as deducting the impairment in subsidiary from the change occurred in the subsidiary's assets after the acquisition date that is calculated by the Group's share in the consolidated balance sheet. Subsidiary's losses that exceed the Group's share are not considered (actually, that contains a long term investment which composes the net investment in the subsidiary)
95 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.2 Changes in Accounting Policies
Changes in accounting policies are applied retroactively and the financial statements of the previous period are adjusted.
2.3 Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
2.4 New and Revised International Financial Reporting Standards
Updated following new standards and interpretations applied in the current period financial statements and the reported amounts and disclosures effect has been made. Applied in these financial statements but does not have an impact on the reported amounts of other standards and interpretations in detail later in this chapter also explains in part.
Standards affecting presentation and disclosure in 2009 financial statements
• IAS 1 (Revised), “Presentation of financial statements”
IAS 1(2007) has introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements. The Group presents in the consolidated statement changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.
• IFRS 7 (Change), “Financial instruments: Disclosures”
The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk The Group in the current period, towards the implementation of these standards in the transition process, as mentioned in relation to the extended description has chosen not offer any comparative information (Note: 38).
• IFRS 8, “Operating segments”
IFRS 8 is an explanation standard that requires of the revised the Group's reportable segment that (Note: 5). The Group presented the segment information for the first time in a manner that is consistent with its internal reporting. According to internal reporting, aviation and technical operations were identified as operating segments.
96 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.4 New and Revised International Financial Reporting Standards (cont’d)
Standards affecting presentation and disclosure in 2009 financial statements (cont'd)
IFRIC 13, “Customer loyalty programs”
According to IFRIC 13, customer loyalty programs should be accounted as a separate component of the sales process. Group has adopted the early application of IFRIC 13 "Customer Loyalty Program", and on 1 January 2008 as retroactively applied as is. The Implementation of IFRIC 13, with the Group's customer loyalty programs changes has caused changes in the recording policy of revenues. While free travel has calculated by incremental cost method and recorded estimated cost as liability at previous application, according to the IFRIC 13, customer loyalty programs have started to account a separate component of sales operations. A fraction of fair value of collected the sales amount is distributed as unearned income with the name of “liability of passenger of frequent flight program”. Besides, as these interests are used by the Entity, they are recorded as revenue.
Standards and interpretations those are effective in 2009 with no impact on the 2009 consolidated financial statements
With the following new and revised standards and comments were applied in these financial statements. There is no significant effect of implementation these standards and comments on the amounts that reported in the financial statements. However, this may affect the accounting of future transactions or contracts.
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” and IAS 27 “Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”
The Group presents in the consolidated statement changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.
Amendments to IFRS 2 “Share-based Payment - Vesting Conditions and Cancellations”
The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of 'non-vesting' conditions, and clarify the accounting treatment for cancellations.
'IAS 23, “Borrowing costs” (2007)
The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred.
97 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.4 New and Revised International Financial Reporting Standards (cont'd)
Standards and Interpretations that are effective in 2009 with no impact on the 2009 consolidated financial statements (cont'd)
Amendments to IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements -Puttable Financial Instruments and Obligations Arising on Liquidation”.
The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments and instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rata share of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met
IAS 39, “Financial Instruments: Recognition and Measurement” Amendments relating to hedging items
The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options.
“Embedded Derivatives” (Amendments to IFRIC 9 and IAS 39)
The amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the 'fair value through profit or loss' category as permitted by the October 2008 amendments to IAS 39.
IFRIC 15, “Agreements for the Construction of Real Estate”
The Interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue and when revenue from the construction of real estate should be recognized. The requirements have not affected the accounting for the Group's construction activities.
IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”
The Interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations.
IFRIC 18, “Transfers of Assets from Customers”
The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from 'customers' and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognize the asset at its fair value on the date of the transfer, with the credit recognized as revenue in accordance with IAS 18 Revenue
98 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.4 New and Revised International Financial Reporting Standards (cont'd)
Standards and Interpretations those are effective in 2009 with no impact on the 2009 consolidated financial statements (cont'd)
IAS 38, 'Intangible Assets' Standards Changes
In addition to improvements in IFRS (2008), IAS 38 standard has been amended as purposes of: A business has only access to purchased products or advertising or promotional expenses could be accounted to the point of services taken.
Amendments to IAS 40, “Investment Property”
As part of Improvements to IFRSs (2008), IAS 40 has been amended to include within its scope investment property in the course of construction.
Amendments to IAS 39 “Financial Instruments: Recognition, Measurement”, and IFRS 7, “Financial Instruments: Disclosures regarding reclassifications of financial assets”
The amendments to IAS 39 permit an entity to reclassify non-derivative financial assets out of the 'fair value through profit or loss' (FVTPL) and 'available-for-sale' (AFS) categories in very limited circumstances. Such reclassifications are permitted from 1 July 2008. Reclassifications of financial assets made in periods beginning on or after 1 November 2008 take effect only from the date when the reclassification is made.
Amendments to IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”:
As part of Improvements to IFRSs (2008), IAS 20 has been amended to require that the benefit of a government loan at a below- market rate of interest be treated as a government grant. This accounting treatment was not permitted prior to these amendments.
Standards and Interpretations that are issued but not yet effective in 2009 and have not been early adopted
IFRS 3, “Business Combinations (2008)”
IFRS 3(2008) is effective for business combinations where the acquisition date is on or after the beginning of the first annual period beginning on or after 1 July 2009. The main impact of the adoption will be as follows:
a) to allow a choice on a transaction-by-transaction basis for the measurement of non-controlling interests (previously referred to as 'minority' interests) either at fair value or at the non-controlling interests' share of the fair value of the identifiable net assets of the acquire,
99 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.4 New and Revised International Financial Reporting Standards (cont'd)
Standards and interpretations that are issued but not yet effective in 2009 and have not been early-adopted (cont'd)
IFRS 3, “Business Combinations (2008)” (cont'd)
b) to change the recognition and subsequent accounting requirements for contingent consideration,
c) to require that acquisition-related costs be accounted for separately from the business combination, generally leading to those costs being recognized as an expense in profit or loss as incurred.
The group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010.
IFRS 9, “Financial Instruments: Classification and Measurement”
In November 2009, the first part of IFRS 9 relating to the classification and measurement of financial assets was issued. IFRS 9 will ultimately replace IAS 39 Financial Instruments: Recognition and Measurement. The standard requires an entity to classify its financial assets on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset, and subsequently measure the financial assets as either at amortized cost or at fair value. The new standard is mandatory for annual periods beginning on or after 1 January 2013.
IAS 24, ”(Revised 2009) Related Party Disclosures”
In November 2009, IAS 24 “Related Party Disclosures” was revised. The revision to the standard provides government-related entities with a partial exemption from the disclosure requirements of IAS 24. The revised standard is mandatory for annual periods beginning on or after 1 January 2011.
IAS 27, “(as revised in 2008) Consolidated and Separate Financial Statements"
IAS 27 (revised) is effective for annual periods beginning on or after 1 July 2009. The revised standard requires that ownership decreases or increases that do not result in change in control to be recorded in equity.
The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010.
IFRIC 17, “Distributions of non-cash assets to owners”
IFRIC 17 is effective for annual periods beginning on or after 1 July 2009. The interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.
100 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.4 New and Revised International Financial Reporting Standards (cont'd)
Standards and Interpretations that are issued but not yet effective in 2009 and have not been early-adopted (cont'd)
IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”
IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. IFRIC 19 addresses only the accounting by the entity that issues equity instruments in order to settle, in full or part, a financial liability.
Amendments related to Annual Improvements to IFRS (2009)
As part of the Annual Improvement project, in addition to the amendments mentioned above, other amendments were made to various standards and interpretations. These amendments are effective for annual periods beginning on or after 1 January 2010.
2.5 Summary of Significant Accounting Policies
Significant accounting policies applied in the preparation of accompanying financial statements are as follows:
2.5.1 Revenue
Rendering of services:
Revenue is measured based on the future value of collected or to be collected receivable amounts. Passenger fares and cargo revenues are recorded as operating revenue when the transportation service is provided. Tickets sold but not yet used (not flied) are recorded as passenger flight liabilities.
The Group develops estimations using historical statistics and data for unredeemed tickets. Total estimated unredeemed tickets are recognized as operating revenue. Agency commissions to relating to the passenger revenue are recognized as expense when the transportation service is provided.
Aircraft maintenance and infrastructure support services are accrued with regard to invoices prepared subsequent to the services.
Dividend and interest income:
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Dividend income generated from equity investments is registered as shareholders gain the dividend rights.
101 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont’d)
2.5.2 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost of inventories is the sum of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Average cost method is applied in the calculation of cost of inventories. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make a sale.
2.5.3 Tangible Assets
Tangible assets are measured at net book value calculated by deduction of accumulated depreciation from cost values, cost values being restated until 31 December 2004 in accordance with inflation accounting. Depreciation is calculated over the useful lives for tangible assets on a straight-line basis. The useful lives and residual values used for tangible assets are as follows:
Useful Life (Years) Residual Value
- Buildings 25-50 - - Aircrafts 15-20 10-30% - Cargo Aircraft 30 10% - Engines 15-20 10-30% - Components 7 - - Repairable Spare Parts 3-7 - - Simulators 10-20 0-10% - Machinery and Equipments 3-15 - - Furniture and Fixtures 3-15 - - Motor Vehicles 4-7 - - Other Equipments 4-15 -
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss
2.5.4 Leasing Transactions
Leasing - the Group as the lessee
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss, unless they are directly
102 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.4 Leasing Transactions (cont'd)
Leasing - the Group as the lessee (cont'd)
attributable to qualifying assets, in which case they are capitalized in accordance with the Group's general policy on borrowing costs.
Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases.
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
2.5.5 Intangible Assets
Intangible assets include leasehold improvements, rights, information systems and software. Intangible assets are carried at the beginning cost including the restatement to the equivalent purchasing power for those accounted on or before 31 December 2004 less accumulated depreciation. Leasehold improvements are depreciated over their lease periods and other intangible assets are depreciated over their useful life of 5 years, on a straight-line basis.
2.5.6 Impairment on Assets
The carrying amounts of the Group's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the assets' recoverable amounts are estimated.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. Value in use is the present value of estimated future cash flows resulting from continuing use of an asset and from disposal at the end of its useful life. Impairment losses are accounted at the consolidated income statement.
An impairment loss recognized in prior periods for an asset is reversed if the subsequent increase in the asset's recoverable amount is caused by a specific event since the last impairment loss was recognized. Such a reversal amount is recognized as income in the consolidated financial statements and cannot exceed the previously recognized impairment loss and shall not exceed the carrying amount that would have been determined, net of amortization or depreciation, had no impairment loss been recognized for the asset in prior years.
Group determined aircrafts, spare engines and simulators together (“Aircrafts”) as lower-line cash generating unit subject to impairment and impairment calculation was performed for Aircrafts collectively.
103 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.6 Impairment on Assets (cont'd)
In the examination of whether net book values of aircrafts, spare engines and simulators exceed their recoverable amounts, the higher value between value in use and sale expenses deducted net selling prices in US Dollars is used for determination of recoverable amounts. Net selling price for the aircrafts is determined according to second hand prices in international price guides. Net selling price for spare engines and simulators is net book values based on US Dollar acquisition costs. In the accompanying financial statements, the change in the differences between net book values of these assets and recoverable amounts are recognized as provision income/losses under income/losses from other operations account. Changes in value due to exchange rate changes are shown under group of financial income/expenses.
2.5.7 Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
2.5.8 Financial Instruments
Financial assets and liabilities are recorded in the balance sheet when the Group is a legal party to these financial instruments.
a) Financial assets
Financial investments are recognized and derecognized on a trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets as “at fair value through profit or loss” (FVTPL), “held-to-maturity investments”, “available-for-sale” (AFS) financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition
Financial assets at fair value through profit or loss
Financial assets are classified as financial assets at fair value through profit or loss where the Group acquires the financial asset principally for the purpose of selling in the near term, the financial asset is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short term profit taking as well as derivatives that are not designated and effective hedging instruments.
Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset.
104 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.8 Financial Instruments (cont'd)
a) Financial assets (cont'd)
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or where appropriates a shorter period.
Income is recognized on an effective interest basis for held-to-maturity investments, available-for-sale financial assets and loans and receivables.
Loans and receivables
Trade and other receivables are initially recorded at fair value. At subsequent periods, loans and receivables are measured at amortized cost using the effective interest method.
Impairment of financial assets
Financial assets, other than those at fair value through profit or loss are assessed for indicator of impairment at each balance sheet date.
Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For loans and receivables the amount of the impairment is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously recognize written of fare credited against the allowance account are recognized in profit or loss.
With the exception of available for sale equity instruments, if, in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of available for sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity.
105 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.8 Financial Instruments (cont'd)
a) Financial assets (cont'd)
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value.
b) Financial liabilities
The Group's financial liabilities and equity instruments are classified in accordance with the contractual arrangements and recognition principles of a financial liability and equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The significant accounting policies for financial liabilities and equity instruments are described below. Financial liabilities are classified as either financial liabilities at fair value through profit and loss or other financial liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are initially measured at fair value, and at each reporting period revalued at fair value as of balance sheet date. Changes in fair value are recognized in profit and loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability.
Other financial liabilities
Other financial liabilities, including bank borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
106 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.8 Financial Instruments (cont'd)
b) Financial liabilities (cont'd)
Derivative financial instruments and hedge accounting
The Group's activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates. The major source of interest rate risk is finance lease liabilities. The Group's policy is to convert some financial liabilities with fixed interest rates into financial liabilities with variable interest rates, and some financial liabilities denominated in EUR into financial liabilities denominated in USD. The derivative financial instruments obtained for this purpose are not subject to hedge accounting and profit/loss arising from the changes in the fair values of those instruments are directly accounted in the income statement. In 2009, Group converted some of the floating-rate loans into fixed-rate loans through derivative financial instruments. Also, Group began to obtain derivative financial instruments to hedge against jet fuel price risks beginning from 2009. Group accounts for those transactions as hedging against cash flow risks arising from jet fuel prices. Use of derivative financial instruments is managed according to Group policy which is written principles approved by Board of Directors and compliant with risk management strategy.
The Group does not use derivative financial instruments for speculative purposes.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, for forecast transactions, any cumulative gain or loss on the hedging instrument recognized in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to profit or loss for the period.
Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealized gains or losses reported in profit or loss.
2.5.9 Foreign Currency Transactions
Transactions in foreign currencies are translated into Turkish Lira at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the balance sheet date.
Gains and losses arising on settlement and translation of foreign currency items are included in the statements of income.
107 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.9 Foreign Currency Transactions (cont'd)
The closing and average TL - US Dollar exchange rates for the periods are as follows:
Closing Rate Average Rate Year ended 31 December 2009 1,5057 1,5457 Year ended 31 December 2008 1,5123 1,2976 Year ended 31 December 2007 1,1647 1,3003
The closing and average TL - Euro exchange rates for the periods are as follows:
Closing Rate Average Rate Year ended 31 December 2009 2,1603 2,1508 Year ended 31 December 2008 2,1408 1,8969 Year ended 31 December 2007 1,7102 1,7773
2.5.10 Earnings per Share
Earnings per share is calculated by dividing net profit by weighted average number of shares outstanding in the relevant period. In Turkey, companies are allowed to increase their capital by distributing free shares to share holders from accumulated profits. In calculation of earnings per share, such free shares are considered as issued shares. Therefore, weighted average number of shares in the calculation of earnings per share is found by applying distribution of free shares retrospectively.
2.5.11 Events Subsequent to the Balance Sheet Date
An explanation for any event between the balance sheet date and the publication date of the balance sheet, which has positive or negative effects on the Group (should any evidence come about events that were prior to the balance sheet date or should new events come about) they will be explained in the relevant footnote
If such an event were to arise, the Group restates its financial statements accordingly.
2.5.12 Provisions, Contingent Liabilities, Contingent Assets
Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
108 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.12 Provisions, Contingent Liabilities, Contingent Assets (cont'd)
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Onerous Contracts
Present liabilities arising from onerous contracts are calculated and accounted for as provision.
It is assumed that an onerous contract exists if Group has a contract which unavoidable costs to be incurred to settle obligations of the contract exceed the expected economic benefits of the contract.
2.5.13 Segmental Information
There are two operating segments of the Group, air transportation and aircraft technical maintenance operations; these include information for determination of performance evaluation and allocation of resources by the management. The Company management uses the operating profit calculated according to financial reporting standards issued by the Capital Markets Board while evaluating the performances of the segments.
2.5.14 Investment Property
Investment properties, which are properties, held to earn rentals and/or for capital appreciation are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date.
Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.
Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in profit or loss in the year of retirement or disposal
2.5.15 Taxation and Deferred Tax
Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.
Income tax expense represents the sum of the tax currently payable and deferred tax.
109 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.15 Taxation and Deferred Tax (cont'd)
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred Tax
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which is used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and affiliates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
110 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.15 Taxation and Deferred Tax (cont'd)
Deferred Tax (cont'd)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis
Current and deferred tax for the period
Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer's interest in the net fair value of the acquirer's identifiable assets, liabilities and contingent liabilities over cost.
2.5.16 Employee benefits / Retirement pay provision
Under Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group. Such payments are considered as being part of defined retirement benefit plan as per International Accounting Standard 19 (revised) “Employee Benefits” (“IAS 19”). The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses.
2.5.17 Statement of cash flows
In statement of cash flow, cash flows are classified according to operating, investment and finance activities.
Cash flows from operating activities reflect cash flows generated from sales of the Group.
Cash flows from investment activities express cash used in investment activities (direct investments and financial investments) and cash flows generated from investment activities of the Group.
Cash flows relating to finance activities express sources of financial activities and payment schedules of the Group.
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
111 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.5 Summary of Significant Accounting Policies (cont'd)
2.5.18 Share Capital and Dividends
Common shares are classified as equity. Dividends on common shares are recognized in equity in the period in which they are approved and declared.
2.5.19 Manufacturers' Credits
Manufacturers' credits are received against acquisition or lease of aircraft and engines. The Group records these credits as a reduction to the cost of the owned and amortizes them over the related asset's remaining economic life. Manufacturers' credits related to operating leases are recorded as deferred revenue and amortized over the lease term.
2.5.20 Maintenance and Repair Costs
Regular maintenance and repair costs for owned and leased assets are charged to operating expense as incurred. Overhaul maintenance checks for owned and finance leased aircraft are expensed as incurred and delivery maintenance checks of operating leased aircraft are accrued on a periodical basis.
2.5.21 Frequent Flyer Program
The Group provides a frequent flyer program named “Miles and Smiles” in the form of free travel award to its members on accumulated mileage. Miles earned by flights are recognized as a separately identifiable component of the sales transaction(s). A portion of the fair value of the consideration received in respect of the initial sale shall be allocated to the award credits and the consideration allocated to award credits should be recognized as revenue when awards credits are redeemed.
The Group also sells mileage credits to participating partners in “Shop and Miles” program. A portion of such revenue is deferred and amortized as transportation is provided.
2.6 Important Accounting Estimates and Assumptions
Preparation of the financial statements requires the amounts of assets and liabilities being reported, explanations of contingent liabilities and assets and the uses of accounting estimates and assumptions which would affect revenue and expense accounts reported during the accounting period. Group makes estimates and assumptions about the future periods. Actual results could differ from those estimations. Accounting estimates and assumptions which might cause material adjustments on the book values of assets and liabilities in future financial reporting period were given below:
The Determination of Impairment on Long Term Assets:
Basic assumptions and calculation methods of the Group relating to impairment on assets are explained in Disclosure 2.5.6.
112 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (cont'd)
2.6 Important Accounting Estimates and Assumptions (cont'd)
Calculation of the Liability for “Frequent Flyer Program”:
As explained in Note 2.5.21, Group has programs called “Miles and Smiles” and “Shop & Miles” which are applied for its members. In the calculations of the liability related with concerned programs, the rate of use and mile values which are determined by using statistical methods over the historical data were used
Useful Lives and Salvage Values of Tangible Assets:
Group has allocated depreciation over tangible assets by taking into consideration the useful lives and salvage values which were explained in Note 2.5.3.
3. BUSINESS COMBINATIONS
None.
4. JOINT VENTURES
See note 16.
5. SEGMENTAL REPORTING
The management of the Group investigates the results and operations based on air transportation and aircraft technical maintenance services in order to determine in which resources to be allocated to segments and to evaluate the performances of segments. The detailed information on the sales data of the Group is given in Note 28.
5.1 Total Assets and Liabilities
Total Assets 31 December 2009 31 December 2008 Aviation 8.542.807.991 7.871.289.987 Technic 534.901.509 444.802.648 Total 9.077.709.500 8.316.092.635 Less: Eliminations due to consolidation (505.620.073) (404.857.920) Total assets in consolidated financial statements 8.572.089.427 7.911.234.715
Total Liabilitites 31 December 2009 31 December 2008 Aviation 5.529.700.126 4.884.702.891 Technic 100.305.913 93.546.882 Total 5.630.006.039 4.978.249.773 Less: Eliminations due to consolidation (502.796.838) (53.602.154) Total liabilities in consolidated financial statements 5.127.209.201 4.924.647.619
113 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
5. SEGMENTAL REPORTING (cont'd)
5.2 Net Operating Profit / (Loss)
Segment Results:
Inter-segment 1 January-31 December 2009 Aviation Technic elimination Total Sales to external customers 6.845.308.852 190.574.051 - 7.035.882.903 Inter-segment sales 17.973.830 526.831.414 (544.805.244) - Segment revenue 6.863.282.682 717.405.465 (544.805.244) 7.035.882.903 Cost of sales (5.087.547.647) (579.093.922) 530.692.425 (5.135.949.144) Gross profit / (loss) 1.775.735.035 138.311.543 (14.112.819) 1.899.933.759 Marketing, sales and distribution expenses (801.665.991) (5.171.892) 334.470 (806.503.413) Administrative expenses (221.582.438) (44.046.329) 4.092.241 (261.536.526) Other operating incomes 82.872.341 17.160.521 (8.896.758) 91.136.104 Other operating expenses (202.042.652) (15.679.696) 18.582.866 (199.139.482) Operating profit / (loss) 633.316.295 90.574.147 - 723.890.442
Inter-segment 1 January-31 December 2008 Aviation Technic elimination Total Sales to external customers 5.974.927.490 148.246.719 - 6.123.174.209 Inter-segment sales 30.938.398 434.468.304 (465.406.702) - Segment revenue 6.005.865.888 582.715.023 (465.406.702) 6.123.174.209 Cost of sales (4.500.178.013) (501.131.764) 458.639.193 (4.542.670.584) Gross profit / (loss) 1.505.687.875 81.583.259 (6.767.509) 1.580.503.625 Marketing, sales and distribution expenses (632.369.295) (3.714.723) 208.010 (635.876.008) Administrative expenses (172.203.555) (34.289.692) 2.680.066 (203.813.181) Other operating incomes 58.451.257 17.899.690 (19.660.419) 56.690.528 Other operating expenses (196.578.878) (37.081.437) 23.539.852 (210.120.463) Operating profit / (loss) 562.987.404 24.397.097 - 587.384.501
Income statement items related to impairment of tangible fixed assets.
Inter-segment 1 January-31 December 2009 Aviation Technic elimination Total Real increase on tangible fixed asset impairment provision (Loss from other operations) (154.263.062) - - (154.263.062)
Increase on tangible fixed asset impairment provision due to exchange rate changes (Financial expense) (24.520.934) - - (24.520.934)
114 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
5. SEGMENTAL REPORTING (cont'd)
5.2 Net Operating Profit / (Loss) (cont’d)
Inter-segment 1 January-31 December 2008 Aviation Technic elimination Total Real increase on tangible fixed asset impairment provision (Loss from other operations) (176.836.702) - - (176.836.702)
Increase on tangible fixed asset impairment provision due to exchange rate changes (Financial expense) 1.012.109.405 - - 1.012.109.405
Income statement items related to investments accounted for equity method
Inter-segment 1 January-31 December 2009 Aviation Technic elimination Total Share of investment profit/ (loss) accounted for using the equity method 15.512.901 (2.699.198) - 12.813.703
Inter-segment 1 January-31 December 2008 Aviation Technic elimination Total Share of investment profit/ (loss) accounted for using the equity method 4.042.859 (470.485) - 3.572.374
5.3 Investment Operations
Inter-segment 1 January-31 December 2009 Aviation Technic elimination Total Purchase of of tangible and intangible fixed assets 286.807.723 120.342.608 - 407.150.331 Current period amortization and depreciation 293.456.913 53.594.667 - 347.051.580 Investments accounted for using the equity method 129.630.762 22.421.794 - 152.052.556
Inter-segment 1 January-31 December 2008 Aviation Technic elimination Total Purchase of of tangible and intangible fixed assets 1.180.306.571 118.885.388 - 1.299.191.959 Current period amortization and depreciation 203.281.709 82.983.692 - 286.265.401 Investments accounted for using the equity method 39.872.359 3.765.565 - 43.637.924
115 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
6. CASH AND CASH EQUIVALENTS
31 December 2009 31 December 2008 Cash 540.180356.049 Cheques received 769 244.458 Banks - Time deposits 974.329.053 365.786.513 Banks - Demand deposits 100.193.848 122.908.559 Other liquid assets 21.048.019 15.610.142 1.096.111.869504.905.721
Time Deposits: Amount Currency Opening Date Interest Rate Maturity 31 December 2009 21.05.2009 04.01.2010 %5,85 - %13,7 238.174.400 TL 31.12.2009 22.02.2010 238.174.400 20.07.2009 18.01.2010 %1,75 - %4,50 87.427.313 EUR 31.12.2009 20.01.2010 188.869.224 23.01.2009 04.01.2010 %0,20 - %6,00 363.475.745 USD 31.12.2009 25.02.2010 547.285.429 974.329.053
Amount Currency Opening Date Interest Rate Maturity 31 December 2008 17.11.2008 02.01.2009 90.700.000 TL 31.12.2008 %13,50 - %23,50 22.01.2009 90.700.00 23.050.000 EUR 07.11.2008 %7,76 05.02.2009 49.345.440 24.10.2008 02.01.2009 149.270.034 USD 31.12.2008 %2,00 - %7,50 22.01.2009 225.741.073 365.786.513
7. FINANCIAL ASSETS
Short-term financial assets are as follows: 31 December 2009 31 December 2008 Time deposits with maturity more than 3 months 175.000.000 1.403.033.703 Derivative instruments at fair values (Note 39) 47.298.370 39.599.159 222.298.370 1.442.632.862
Time deposits with maturity of more than 3 months:
Amount Currency Opening Date Interest Rate Maturity 31 December 2009 20.07.2009 11,55% 20.07.2010 175.000.000 TL 20.07.2009 12,50% 20.07.2010 175.000.000
175.000.000
116 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
7. FINANCIAL ASSETS (cont’d)
Amount Currency Opening Date Interest Rate Maturity 31 December 2009 21.05.2008 05.01.2009 544.600.000 TL 22.12.2008 %19,15 - %23,00 03.09.2009 544.600.000 07.07.2008 19.01.2009 107.460.000 Euro 22.12.2008 %6,50 - %8,50 04.05.2009 230.050.368 23.01.2008 05.01.2009 415.515.000 USD 15.12.2008 %5,65 - %8,55 24.07.2009 628.383.335 1.403.033.703 Long-term financial assets are as follows: 31 December 2009 31 December 2008 Sita Inc. 1.679.619 1.679.619 Emek İnşaat ve İşletme A.Ş. 26.859 26.859 Star Alliance GMBH 44.465 44.465 1.750.943 1.750.943
Sita Inc., Emek İnşaat ve İşletme A.Ş. and Star Alliance GMBH are disclosed at cost since they are not traded in an active market.
Details of the long-term financial assets of the Group at 31 December 2009 are as follows:
Country of registration Ownership Company name and operation Share Voting power Principle Activity Emek İnşaat ve İşletme A.Ş. Turkey 0,3% 0,3% Construction
Sita Inc. Netherlands Less than 0,1% Less than 0,1% Information& Telecommunication Services
Star Alliance GMBH Germany 5,55% 5,55% Coordination Between Star Alliance Member Airlines
8. FINANCIAL BORROWINGS
Short-term financial borrowings are as follows: 31 December 2009 31 December 2008 Bank loans 14.439.256 34.900.371 Finace lease obligations 397.827.585 384.388.858 412.266.841 419.289.229
117 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
8. FINANCIAL BORROWINGS (cont'd)
Long-term financial borrowings are as follows:
31 December 2009 31 December 2008 Bank loans 14.187.801 - Finace lease obligations 2.561.711.482 2.798.005.235 2.575.899.283 2.798.005.235
The details of short-term part of long-term bank loans as of 31 December 2009 are as follows:
Maturity Interest Rate Currency Original Amount Interest Accrual TL 17.10.2011 Libor+3,50% USD 9.422.728 167.002 14.439.256
The details of long-term bank loans as of 31 December 2009 are as follows:
Maturity Interest Rate Currency Original Amount Interest Accrual TL 17.10.2011 Libor + 3,50% USD 9.422.728 - 14.187.801
The details of short-term bank loans as of 31 December 2009 are as follows:
Maturity Interest Rate Currency Original Amount Interest Accrual TL 15.08.2009 Libor+1,25% USD 22.937.732 139.945 34.900.371
Financial lease obligations are as follows:
31 December 2009 31 December 2008 Less than 1 year 469.617.973 480.276.603 Between 1 – 5 years 1.438.363.567 1.566.966.270 Over 5 years 1.548.610.096 1.778.034.612 3.456.591.636 3.825.277.485 Less: Future interest expenses (497.052.569) (642.883.392) Principal value of future rentals stated in financial statements 2.959.539.067 3.182.394.093
Interest Range: Floating rate obligations 1.133.986.718 1.221.791.915 Fixed rate obligations 1.825.552.349 1.960.602.178 2.959.539.067 3.182.394.093
As of 31 December 2009, the US Dollars and Euro denominated lease obligations' weighted average interest rates for the fixed rate obligations are 4,91% (31 December 2008: 4,90 %) and for the floating rate obligations are 0,78% (31 December 2008: 1,93%).
118 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
9. OTHER FINANCIAL LIABILITIES
Short-term other financial liabilities of the Group are as follows:
31 December 2009 31 December 2008 Fair value of derivative instruments (Note 39) 45.232.172 44.360.335 Borrowings from banks 846.771 639.916 46.078.943 45.000.251
Debt to banks account consists of overnight interest-free borrowings obtained for settlement of monthly tax and social security premium payments.
10. ACCOUNTS RECEIVABLE AND PAYABLE
Short-term trade receivables are as follows:
31 December 2009 31 December 2008 Trade receivables 455.045.487 381.445.533 Due from related parties (Note 37) 32.128.286 4.741.388 Allowance for doubtful receivables (41.791.892) (37.042.788) 445.381.881 349.144.133
The Group provided provision for the receivables carried to legal proceedings and for the others by making historical statistical calculations. Movement of the doubtful receivables for the period ended 31 December 2009 and 2008 are as follows:
1January - 1 January - 31 December 2009 31 December 2008 Opening Balance 37.042.788 21.405.019 Current period expense 22.513.003 20.707.670 Bad debts collected (15.357.120) (4.895.781) Receivables written-off (2.406.779) (174.120) Closing Balance 41.791.892 37.042.788
Explanations about the credit risk of Group's receivables are provided in Note 38 Credit Risk.
Short-term trade payables are as follows:
31 December 2009 31 December 2008 Trade receivables 536.177.325 425.068.449 Due from related parties (Note 37) 22.663.149 9.433.149 Other 1.961.004 607.613 560.801.478 435.109.211
119 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
11. OTHER RECEIVABLES AND PAYABLES
Other short-term receivables are as follows: 31 December 2009 31 December 2008 Prepayments made for aircrafts, to be received back in cash (net) 724.055.005 30.220.978 Non-trade receivables from related parties (Note37) 12.581.316 67.386 Receivables from tax office 1.933.804 4.917.861 Receivables from employees 1.165.585 1.263.682 Deposits and guarantees given 1.153.878 949.250 Receivables from foreign acquisition transactions 938.235 5.551.351 Receivables from foreign technical suppliers 265.974 1.465.399 Deductible VAT - 4.295.567 Bosnia Herzegovina Airlines Share Advancement - 10.704.000 Other receivables 1.299.578 2.238.484 743.393.375 61.673.958
Long-term other receivables are as follows:
31 December 2009 31 December 2008 Prepayments made for aircrafts, to be received back in cash (net) 637.383.512 - Interest swap agreement deposits 7.663.566 - Advance payments for operating leases 7.211.446 6.924.230 Receivables from employees 6.045.185 6.410.064 Deposits and guarantees given 4.863.237 3.472.266 Receivables from Sita deposit certificates 1.193.182 1.205.400 Receivables from foreign acquisition transactions - 4.796.921 664.360.128 22.808.881
Short-term other payables are as follows:
31 December 2009 31 December 2008 MCO advances 69.550.656 57.613.133 Taxes and funds payable 31.244.933 26.061.291 Social security premiums payable 25.835.403 21.564.459 Payables to insurance companies 14.832.195 - Deposits and guarantees received 9.665.768 7.603.582 Other advances received 1.150.351 1.072.264 E-Pos ticket advances 936.185 162.591 Charter advances 895.143 751.062 Other liabilities 2.522.747 1.138.625 156.633.381 115.967.007
120 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
11. OTHER RECEIVABLES AND PAYABLES (cont’d)
Long-term other payables are as follows: 31 December 2009 31 December 2008 Deposits and guarantees received 8.941.613 7.865.284
12. RECEIVABLES AND PAYABLES FROM FINANCIAL SECTOR OPERATIONS
None (31 December 2009: None).
13. INVENTORIES
31 December 2009 31 December 2008 Spare parts 133.739.727 87.165.280 Other inventories 29.624.852 25.918.729 163.364.579 113.084.009 Provision for impairment (-) (14.368.647) (14.724.718) 148.995.932 98.359.291
Movement in change of diminution in value of inventories as of 31 December 2009 and 2008 are as follows:
1 January - 1 January - 31 December 2009 31 December 2008 Provision at the beginning of the period 14.724.718 10.845.508 Current period expense 1.290.280 13.078.367 Cancellation of provisions recognized (1.646.351) (9.199.157) Provision at the end of the period 14.368.647 14.724.718
14. BIOLOGICAL ASSETS
None (31 December 2008: None).
15. ASSETS FROM CONSTRUCTION CONTRACTS IN PROGRESS
None (31 December 2008: None).
121 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD
The associates accounted per the equity method are as follows:
31 December 2009 31 December 2008 Güneş Ekspres Havacılık A.Ş. (Sun Express) 26.698.068 13.811.371 THY DO&CO İkram Hizmetleri A.Ş. (Turkish DO&CO) 34.054.590 26.060.988 Bosnia-Herzegovina Airlines 2.936.441 - P&W T.T. Uçak Bakım Merkezi Ltd. Şti. 22.421.794 3.765.565 TGS Yer Hizmetleri A.Ş. (TGS) 63.482.168 - THY OPET Havacılık Yakıtları A.Ş. 2.459.495 - 152.052.556 43.637.924
Financial information for Sun Express as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Total assets 232.316.502 113.774.956 Total liabilities 178.920.367 86.152.214 Shareholders' equity 53.396.135 27.622.742
Group's share in associate's shareholders' equity 26.698.068 13.811.371
1 January - 1 January - 31 December 2009 31 December 2008 Revenue 899.836.648 765.171.890 Profit/ (loss) for the period 25.409.528 (3.899.580)
Group's share in profit/ (loss) for the period 12.704.764 (1.949.790)
Financial information for THY DO&CO Catering Services as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Total assets 122.594.934 93.245.421 Total liabilities 52.485.754 41.123.446 Shareholders' equity 68.109.180 52.121.975
Group's share in associate's shareholders' equity 34.054.590 26.060.988
1 January - 1 January - 31 December 2009 31 December 2008 Revenue 267.960.365 190.142.882 Profit/ (loss) for the period 16.987.205 11.985.300
Group's share in profit/ (loss) for the period 8.493.603 5.992.650
122 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD (cont’d)
Financial information for P&W T.T Uçak Bakım Merkezi Ltd. Şti as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Total assets 104.846.886 8.344.051 Total liabilities 59.088.122 659.225 Shareholders' equity 45.758.764 7.684.826
Group's share in associate's shareholders' equity 22.421.794 3.765.565
1 January - 1 January - 31 December 2009 31 December 2008 Revenue 119.754 - Profit/ (loss) for the period (5.508.567) (960.174)
Group's share in profit/ (loss) for the period (2.699.198) (470.485)
Financial information for Bosnia and Herzegovina Airlines as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Total assets 49.653.830 - Total liabilities 43.661.093 - Shareholders' equity 5.992.737 -
Group's share in associate's shareholders' equity 2.936.441 -
1 January - 1 January - 31 December 2009 31 December 2008 Revenue 20.721.502 - Profit/ (loss) for the period (13.524.756) -
Group's share in profit/ (loss) for the period (6.627.130) -
Financial information for TGS as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Total assets 142.871.824 - Total liabilities 15.907.488 - Shareholders' equity 126.964.336 -
Group's share in associate's shareholders' equity 63.482.168 -
123 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD (cont’d)
1 January - 1 January - 31 December 2009 31 December 2008 Revenue - - Profit/ (loss) for the period 1.964.336 -
Group's share in profit/ (loss) for the period 982.168 -
By the protocol and capital increase dated on 17 September 2009, 50 % of TGS’ capital, which has a nominal value of 6.000.000 TL, was acquired by HAVAŞ for 119.000.000 TL and a share premium at an amount of 113.000.000 TL has arised in the TGS’s capital. Because the share premium is related to the 5-year service contract between the Company and TGS, the Company’s portion (50 %) of the share premium under the shareholders’ equity of TGS was recognized as ‘Deferred Income’ to be amortized during the contract period.
Financial information for THY Opet Havacılık Yakıtları A.Ş. as of 31 December 2009 and 31 December 2008 are as follows
31 December 2009 31 December 2008 Total assets 5.745.326 - Total liabilities 826.333 - Shareholders' equity 4.918.993 -
Group's share in associate's shareholders' equity 2.459.495 -
1 January - 1 January - 31 December 2009 31 December 2008 Revenue - - Profit/ (loss) for the period (81.009) -
Group's share in profit/ (loss) for the period (40.504) -
Portions of financial assets accounted for equity method in profit / (loss) are as follows:
1 January - 1 January - 31 December 2009 31 December 2008 Sun Ekspress 12.704.764 (1.949.791) Turkish DO&CO 8.493.603 5.992.650 P&W T.T. Uçak Bakım Merkezi Ltd. Şti. (2.699.198) (470.485) Bosna Hersek Havayolları (6.627.130) - TGS 982.168 - THY OPET Havacılık Yakıtları A.Ş. (40.504) - Toplam 12.813.703 3.572.374
124 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
16. INVESTMENTS ACCOUNTED FOR EQUITY METHOD (cont’d)
Details of investments accounted for equity method as of 31 December 2009 are as follows:
Country of registration Ownership Company name and operation Share Voting power Principle Activity
Güneş Ekspres Havacılık A.Ş. (Sun Express) Turkey 50% 50% Air transportation
THY DO&CO İkram Hizmetleri A.Ş. Turkey 50% 50% Catering services
P&W T.T. Uçak Bakım Merkezi Ltd. Şti Turkey 49% 49% Maintanance services
Bosnia Herzegovina Bosnia Herzegovina Airlines Federation 49% 49% Air transportation
TGS Yer Hizmetleri A.Ş. Turkey 50% 50% Ground services
THY OPET Havacılık Yakıtları A.Ş. Turkey 50% 50% Aviation fuel
17. INVESTMENT PROPERTY
1 January - 1 January - 31 December 2009 31 December 2008 Opening balance, January 1 48.130.000 53.700.000 Purchases 758.086 - Loss due to the change in fair value (78.086) (5.000.000) Disposal - (570.000) Closing balance, December 31 48.810.000 48.130.000
Fair values of Group’s investment property were obtained from the valuation performed by an independent valuation firm, which is not a related party to Group. Valuation was performed by the independent valuation firm, which is authorized by Capital Markets Board with reference to market prices.
125 ANNUAL REPORT 2009 ANNUAL REPORT 2009 126
(Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
18. TANGIBLE ASSETS
Technical Components Land, land equipments Other Aircraft and Aircrafts improvements simulators and equipments, and spare repairable Special Construction acquired by and buildings vehicles fixtures engines spare parts costs in Progress leasing Total Cost Opening balance at 1 January 2009 164.645.538 311.294.139 166.561.736 2.755.313.950 366.092.558 29.093.614 62.709.927 4.855.582.307 8.711.293.769 Additions - 19.336.919 20.689.613 37.302.488 93.157.533 2.311.972 27.889.945 203.152.915 403.841.385 Disposals - (9.709.447) (14.615.913) (283.401.122) (139.420.597) (2.850) - (84.407.359) (531.557.288) Transfers - - - 31.770.055 - 16.019.226 (72.886.720) 25.097.439 - Closing balance at 31 December 2009 164.645.538 320.921.611 172.635.436 2.540.985.371 319.829.494 47.421.962 17.713.152 4.999.425.302 8.583.577.866
Accumulated depreciation Opening balance at 1 January 2009 55.667.061 248.016.427 139.815.066 2.023.627.036 185.009.980 22.559.087 - 980.614.975 3.655.309.632 Depreciation charge for the year 2.731.505 14.943.907 10.371.000 53.590.864 45.729.773 3.624.704 - 212.257.891 343.249.644 Disposals - (9.340.289) (14.512.382) (256.514.451) (83.694.306) (475) - (40.722.553) (404.784.456) Impairment, real increase/(decrease) - (551.167) - 77.905.359 - - - 76.908.870 154.263.062 Impairment, increase/(decrease) due to exchange rate changes - 37.062 - 18.192.961 - - - 6.290.911 24.520.934 Closing balance 31 December 2009 58.398.566 253.105.940 135.673.684 1.916.801.769 147.045.447 26.183.316 - 1.235.350.094 3.772.558.816 Net book value 31 December 2009 106.246.972 67.815.671 36.961.752 624.183.602 172.784.047 21.238.646 17.713.152 3.764.075.208 4.811.019.050 Net book value 31 December 2008 108.978.477 63.277.712 26.746.670 731.686.914 181.082.578 6.534.527 62.709.927 3.874.967.332 5.055.984.137 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
18. TANGIBLE ASSETS (cont’d)
Technical Components Land, land equipments Other Aircraft and Aircrafts improvements simulators and equipments, and spare repairable Special Construction acquired by and buildings vehicles fixtures engines spare parts costs in Progress leasing Total Cost Opening balance at 1 January 2008 164.584.014 303.009.428 171.151.244 2.639.937.173 327.244.646 23.890.480 59.697.500 3.830.021.095 7.519.535.580 Additions 10.644 20.494.791 8.968.480 85.287.700 102.489.872 12.093.986 42.532.535 1.019.175.119 1.291.053.127 Disposals (253.838) (12.210.080) (13.557.988) (2.114.432) (63.641.960) (7.516.640) - - (99.294.938) Transfers 304.718 - - 32.203.509 - 625.788 (39.520.108) 6.386.093 - Closing balance at 31 December 2008 164.645.538 311.294.139 166.561.736 2.755.313.950 366.092.558 29.093.614 62.709.927 4.855.582.307 8.711.293.769
Accumulated depreciation Opening balance at 1 January 2008 53.372.621 252.091.508 144.571.580 2.077.621.580 153.043.938 20.246.335 - 1.580.584.464 4.281.532.026 Depreciation charge for the year 2.409.090 12.680.870 8.589.280 42.672.639 77.231.045 4.124.389 - 134.780.686 282.487.999 Disposals (114.650) (11.877.505) (13.345.794) (1.023.101) (45.265.003) (1.811.637) - - (73.437.690) Impairment, real increase - 2.080.031 - 65.194.491 - - - 109.562.180 176.836.702 Impairment, decrease due to exchange rate changes - (6.958.477) - (160.838.573) - - - (844.312.355) (1.012.109.405) Closing balance 31 December 2008 55.667.061 248.016.427 139.815.066 2.023.627.036 185.009.980 22.559.087 - 980.614.975 3.655.309.632 Net book value 31 December 2008 108.978.477 63.277.712 26.746.670 731.686.914 181.082.578 6.534.527 62.709.927 3.874.967.332 5.055.984.137 Net book value 31 December 2007 111.211.393 50.917.920 26.579.664 562.315.593 174.200.708 3.644.145 59.697.500 2.249.436.631 3.238.003.554 ANNUAL REPORT 2009 127 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
18. TANGIBLE ASSETS (cont’d)
As explained in Note 2.5.6., since it is higher than ‘value in use’, the Group uses net US Dollar sales prices after cost of sales as the recoverable value in calculation of impairment in its property, plant and equipment (i.e. aircrafts, spare engines and simulators - “Aircrafts”). The Group has TL 24.520.934 of increase in impairment loss arising from exchange rate changes due to the decrease of net TL sales prices of aircrafts as a result of the depreciation of US Dollar against the TRY and has 154.263.062 TL of increase in impairment loss as a result of decline in the US Dollar prices of aircrafts in the year ended 31 December 2009 (Note 2.5.9). Total increase in impairment loss amounts to TL 178.783.996.
19. INTANGIBLE ASSETS
Rights Cost Opening balance at 1 January 2009 76.958.343 Additions 3.308.946 Disposals (2.333) Closing balance at 31 December 2009 80.264.956 Amortization Opening balance at 1 January 2009 65.795.741 Additions 3.801.936 Amortization for the year (2.333) Closing balance at 31 December 2009 69.595.344 Net book value 31 December 2009 10.669.612 Net book value 31 December 2008 11.162.602
Rights Cost Opening balance at 1 January 2008 68.832.212 Additions 8.138.832 Disposals (12.701) Closing balance at 31 December,2008 76.958.343 Amortization Opening balance at 1 January, 2008 62.031.040 Additions 3.777.402 Amortization for the year (12.701) Closing balance at 31 December 2008 65.795.741 Net book value 31 December 2008 11.162.602 Net book value 31 December 2007 6.801.172
128 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
20. GOODWILL
None (31 December 2008: None)
21. GOVERNMENT GRANTS AND INCENTIVES
None (31 December 2008: None)
22. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES
Provisions for short-term liabilites are as follows:
31 December 2009 31 December 2008 Provisions for legal claims 7.287.354 7.460.396
Movements in the provisions for legal claims at 31 December 2009 and 2008 periods set out below:
1 January- 1 January- 31 December 2009 31 December 2008 Provision at the beginning of the period 7.460.396 4.695.954 Charge for the period 1.346.190 3.031.707 Provisions released (1.519.232) (267.265) Provision at the end of the period 7.287.354 7.460.396
The Group recognizes provisions for lawsuits against it due to its operations. The lawsuits against the Group are usually reemployment lawsuits by former employees or damaged luggage or cargo.
a) Guarantees/Pledge/Mortgage (“GPM”) given by the group: Amount of letter of guarantees given is TL 92.014.638 as of 31 December 2009 (31 December 2008: TL 81.610.647).
31 December 2009 31 December 2008 A. Total amounts of GPM given on the behalf of its own legal entity 92.014.638 81.610.647 B. Total amounts of GPM given on the behalf of subsidiaries that are included in full consolidation - - C. Total amounts of GPM given in order to guarantee third partie debts for routine trade operations - - D. Total amounts of other GPM given - - 92.014.638 81.610.647
129 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
22. PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (cont’d)
b) At the beginning of 2006, US Ministry of Justice Antitrust Unit and Europe Antitrust Authorities synchronously initiated an investigation in Europe and the United States about the fix of the air cargo prices that covers the leading airline companies. Within the context of this investigation, information and documents that the Company holds are requested to be presented by USA Columbia (Washington) Regional Court through official notification in April 6, 2006. Similar notifications are sent to the other concerning airline companies. Within the context of this investigation, the Company’s inviolation of the agreement is declared to Anti-trust department of US Ministry of Justice, negotiations are continued by the American lawyers on behalf of the Company. As of the report date, the Company management thinks that the results of this investigation initiated by the US Ministry of Justice cannot be reliably measured. For this reason, no provision is provided for this issue in the accompanying financial statements. But, there is a possibility of financial liability to the Group as the result of this issue.
c) Dispute Related to Collective Bargaining
Since it is understood that an agreement will not be reached in the 22nd Term talks on collective bargaining between the Company and labor union Türkiye Sivil Havacılık Sendikası (“Hava-İş”), a “Record of Dispute” is signed and mediation process started. The Company made a wage increase of 6% on its own initiative, however, “Hava-İş” demands a retroactive increase in wages. Since collective bargaining is not concluded as of balance sheet date, there is not any provision in financial statements for the matter due to the fact that the result is uncertain for 2009 whether it will cause additional charge for the Company or not.
d) The Group’s discounted retirement pay provision is TL 151.875.562. The Group’s liability for retirement pay would be approximately TL 299.090.230 as of 31 December 2009, if all employees were dismissed on that date.
23. COMMITMENTS
The Group’s not accrued operational leasing debts details are as follows:
31 December 2009 31 December 2008 Less than 1 year 312.850.973 201.619.938 Between 1 – 5 years 853.516.736 684.056.091 More than 5 years 422.992.569 422.009.094 1.589.360.278 1.307.685.123
To be delivered between the years 2010-2012, the Group signed a contract for 24 aircrafts with a total value of 5.9 billion US Dollars, according to the price lists before the discounts made by the aircraft manufacturing firms. The Group has made an advance payment of 913 Million US Dollars relevant to these purchases as of 31 December 2009.
130 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
24. EMPLOYEE BENEFITS
Short-term employee benefits are as follows:
31 December 2009 31 December 2008 Salary accruals 38.827.130 33.409.789 Due to personnel 1.437.729 1.674.174 Provisions for unused vacation 14.469.621 12.734.462 54.734.480 47.818.425
Provision for long-term retirement pay liability comprised the following:
31 December 2009 31 December 2008 Provisions for retirement pay liability 151.875.562 142.459.082
Provision for retirement pay liability is recorded according to following explanations:
Under labor laws effective in Turkey, it is a liability to make legal retirement pay to employees whose employment is terminated in such way to receive retirement pay. In addition, according to Article 60 of Social Security Law numbered 506 which was changed by the laws numbered 2422, dated 6 March 1981 and numbered 4447, dated 25 August 1999, it is also a liability to make legal retirement pay to those who entitled to leave their work by receiving retirement pay. Some transfer provisions related to service conditions prior to retirement are removed from the Law by the changed made on 23 May 2002.
Retirement pay liability is subject to an upper limit of monthly TL 2.427 as of 1 January 2010 (1 January 2009: TL 2.260).
Retirement pay liability is not subject to any kind of funding legally. Provision for retirement pay liability is calculated by estimating the present value of probable liability amount arising due to retirement of employees. IAS 19 (“Employee Benefits”) stipulates the development of company’s liabilities by using actuarial valuation methods under defined benefit plans. In this direction, actuarial assumptions used in calculation of total liabilities are described as follows:
Main assumption is that maximum liability amount increases in accordance with the inflation rate for every service year. So, provisions in the accompanying financial statements as of 31 December 2009 are calculated by estimating present value of contingent liabilities due to retirement of employees. Provisions in the relevant balance sheet dates are calculated with the assumptions of 4,80% annual inflation rate (31 December 2008: 5,40%) and 11% discount rate. (31 December 2008: 12%). Estimated amount of retirement pay not paid due to voluntary leaves and retained in the Company is also taken into consideration as 2.17% (2008: 2.99%). Ceiling for retirement pay is revised semi-annually. Ceiling amount of TL 2.427 which is in effect since 1 January 2010 is used in the calculation of Group’s provision for retirement pay liability.
131 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
24. EMPLOYEE BENEFITS (cont’d)
Movement in the provision for retirement pay liability is as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Provisions at the beginning of the period 142.459.082 131.959.011 Charge for the period 15.405.411 17.941.602 Interest charges 8.870.209 8.260.634 Actuarial loss /(gain) 2.080.775 (2.847.655) Payments (16.939.915) (12.854.510) Provisions at the end of the period 151.875.562 142.459.082
25. RETIREMENT BENEFITS
None (31 December 2008: None).
26. OTHER ASSETS AND LIABILITIES
Details of other current assets are as follows:
31 December 2009 31 December 2008 Credit note accruals for received aircrafts 34.479.378 40.861.407 Prepaid taxes and funds 33.751.118 58.951.175 Prepaid operating lease expenses 19.410.997 11.010.997 Technical maintenance income accruals 18.049.297 5.438.006 VAT to be refunded 9.825.050 5.469.834 Prepaid sales commissions 9.418.953 8.832.684 Prepaid insurance expenses 5.197.278 5.676.306 Advance given for orders 3.788.745 4.649.039 Other prepaid expenses 3.543.305 4.668.513 Interline passenger income accruals 3.409.593 8.073.217 Advances for business purposes 903.082 1.005.304 Prepaid wet lease rent expenses - 5.345.647 Other currents assets 1.896.961 3.581.299 143.673.757 163.563.428
132 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
26. OTHER ASSETS AND LIABILITIES (cont’d)
Other non-current assets are as follows:
31 December 2009 31 December 2008 Prepayment for tangible assets 45.347.530 74.096.755 Maintenance reserves for engines 26.581.865 18.171.033 Prepaid aircraft financing expenses 7.543.182 7.197.530 Prepaid operating lease expenses 2.776.711 3.175.779 Prepaid Eximbank guarantee and exposure fee 1.183.491 2.618.689 Prepaid expenses 139.175 234.725 83.571.954 105.494.511
Other short-term liabilies are as follows:
31 December 2009 31 December 2008 Accruals for maintenance costs 98.389.811 69.099.738 Unearned revenue from share transfer of TGS (Note:16) 11.300.000 - Other unerarned revenue 5.534.473 430.965 Incentive premium accruals 5.049.461 4.603.716 Accruals for other expenses 2.142.564 369.934 Other liabilities 79.703 7.251.639 Manufacturer’s credit related to aircrafts to be received - 9.926.677 122.496.012 91.682.669
Other long-term liabilities are as follows:
31 December 2009 31 December 2008 Unearned revenue from share transfer of TGS (Note:16) 45.200.000 - Other unerarned revenue 5.904.110 - Gross manufacturer’s credits 39.419.630 39.289.960 Accumulated depreciations of manufacturer’s credit (11.517.414) (8.168.227) 79.006.326 31.121.733
Passenger flight liabilities are as follows:
31 December 2009 31 December 2008 Frequent flyer program liability 124.222.967 98.946.996 Flight liability generating from ticket sales 282.983.563 253.091.354 Flight liability generating from mileage sales 179.318.749 135.355.647 586.525.279 487.393.997
133 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
27. SHAREHOLDERS’ EQUITY
The ownership structure of the Group’s share capital is as follows: 31 December 31 December Type % 2009 % 2008 Republic of Turkey Prime Minestry Privitization Adm(*) A, C 49,12 429.818.308 49,12 85.963.662 Other (Publicly held) A 50,88 445.181.692 50,88 89.036.338 Paid-in capital 875.000.000 175.000.000 Restatement effect 1.123.808.032 1.672.901.479 Restated capital 1.998.808.032 1.847.901.479
(*) 1.644 shares belonging to various private shareholders were not taken into consideration when the Group was included to the privatization program in 1984. Subsequently, these shares were registered on behalf of Privatization Administration according to Articles of Association of the Group, approved by the decision of the Turkish Republic High Planning Board on 30 October 1990.
As of 31 December 2009, the Group’s issued and paid-in share capital consists of 87.499.999.999 Class A shares and 1 Class C share, all with a par value of Kr 1 each. These shares are issued to the name. The Class C share belongs to the Republic of Turkey Prime Ministry Privatization Administration and has the following privileges:
Articles of Association 7: Positive vote of the board member representing class C share and approval of the Board of Directors are necessary for transfer of shares issued to the name.
Articles of Association 10: The Board of Directors consists of seven members of which one member has to be nominated by the class C shareholder.
Articles of Association 14: The following decisions of the Board of Directors are subject to the positive vote of the class C Shareholder:
a) As defined in Article 3.1 of the Articles of Association, taking decisions that will negatively affect the Company’s mission, b) Suggesting change in the Articles of Association at General Assembly, c) Increasing share capital, d) Approval of transfer of the shares issued to the name and their registration to the “Share Registry”, e) Making decisions or taking actions which will put the Company under commitment over 5% of its total assets considering the latest annual financial statements prepared for Capital Market Board per agreement (this statement will expire when the Company’s shares held by Turkish State is below 20%), f) Making decisions relating to merges and liquidation, g) Making decisions to cancel flight routes or significantly decrease number of flights except for the ones that cannot recover even its operational expenses subject to the market conditions.
134 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
27. SHAREHOLDERS’ EQUITY (cont’d)
Restricted Reserves Assorted from Profit
The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (TCC). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the company’s paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in share capital. Under the TCC, the legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital.
Foreign Currency Translation Differences
Foreign currency translation differences are the changes due to foreign exchange rate changes in the shareholders’ equity Sun Express which is a subsidiary accounted for equity method.
Distribution of Dividends
Companies whose shares are traded at Istanbul Stock Exchange (ISE) are subject to the following dividend rules determined by Capital Markets Board:
According to the Serial:XI No:29 communiqué of Capital Markets Board, depending on the decision made in shareholders' meeting, the profit distribution can be made either by giving bonus shares to shareholders which are issued either in cash or by adding dividend to capital or giving some amount of cash and some amount of bonus shares to shareholders. If the primary dividend amount determined is less than 5% of the paid-in capital, the decision gives the option of not to distribute the related amount as to keep within the equity. However, for companies that have not made any dividend distributions in the prior period and therefore has classified their shares as “old shares” and “new shares” and those that will distribute dividends from the profit for the year obtained from their activities, primary dividend amount shall be distributed in cash.
According to the CMB’s decision on 9 January 2009, in calculation of distributable profit, the companies are required to prepare consolidated financial statements, those companies enabled to calculate distributable profit by taking into consideration the profit in the financial statements prepared and announced to the public in accordance with Serial:XI No:29. Regarding the same decision, retained earnings of the companies in legitimate records, profit for the period and total amount of the assets generating profit are to be stated in the accompanying notes of financial statements in accordance with Serial:XI No:29 communiqué.
In accordance with the Capital Markets Board’s (the “Board”) Decree issued as of 27 January 2010, in relation to the profit distribution of earnings derived from the operations in 2009, minimum profit distribution is not required for listed companies (December 31, 2008: 20%), and accordingly, profit distribution should be made based on the requirements set out in the Board’s Communiqué Serial:IV,No: 27 “Principles of Dividend Advance Distribution of Companies That Are Subject To The Capital Markets Board Regulations”, terms of articles of corporations and profit distribution policies publicly disclosed by the companies;
135 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
27. SHAREHOLDERS’ EQUITY (cont’d)
Distribution of Dividends (cont’d)
Furthermore, based on the afore-mentioned decree, companies that are required to prepare consolidated financial statements should calculate their net distributable profits, to the extent that they can be recovered from equity in their statutory records, by considering the net profit for the period in the consolidated financial statements which are prepared and disclosed in accordance with the Communiqué Serial: XI, No: 29;
Within the frame of Communiqué Series: XI, No: 29, amount disclosed in notes to financial statements based on the Board decision dated 9 January 2009; following the deduction of companies’ retained earnings, total of remaining profit for the period and other total resources that may apply to profit distribution;
Within the frame of 6 th bulletin of Communiqué Series: IV No: 27, application of related period about profit distribution time;
a) If all dividends are distributed in cash, dividends made to continue the adoption of distributing until the end of following fifth month of the fiscal period.
b) If dividends are distributed as share, the Entity should apply for Capital Markets Board until the end of following fifth month of the fiscal period and finish profit distribution until the end of following sixth month of the fiscal period as the purpose of exported shares are recorded by Capital Markets Board.
c) In the case of combination of the options "a" and "b", it was decided that operations described earlier should be performed separately but within the time that referred to in subparagraph
The items of shareholders’ equity of the Company in the statutory records as of 31 December 2009 are as follows
Paid-in capital 875.000.000 Share premium 181.185 Legal reserves 39.052.952 Extraordinary reserves (*) 7.806.889 Other profit reserves 9 Special funds 53.064.572 Retained earnings (*) 303.035.058 Net profit for the period (*) 332.792.278 Total shareholders’ equity 1.610.932.943
* According to legitimate regulations, total amount, subject to dividend distribution is TL 643.634.225
136 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
27. SHAREHOLDERS’ EQUITY (cont’d)
Hedge Fund against the Cash Flow Risk
Hedge fund against cash flow risk arises from the accounting under shareholders’ equity for the changes in the fair values of effective derivative financial instruments designated against financial risks of future cash flows. Total of deferred gain/loss arising from hedging against financial risk are accounted when the effect of the hedged item goes into the income statement.
28. SALES AND COST OF SALES
Details of gross profit are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Scheduled flights Passenger 6.242.396.046 5.415.875.828 Cargo and mail 442.452.326 381.265.205 Total scheduled flights 6.684.848.372 5.797.141.033 Non scheduled flights 60.234.596 79.011.633 Other revenue 290.836.108 247.035.147 Gross sales 7.035.919.076 6.123.187.813 Less: discounts and sales returns (36.173) (13.604) Net sales 7.035.882.903 6.123.174.209 Cost of sales (-) (5.135.949.144) (4.542.670.584) Gross profit 1.899.933.759 1.580.503.625
Geographical details of revenue from the scheduled flights are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 - Europe 2.621.154.415 2.349.389.459 - Far East 1.113.861.041 961.855.198 - Middle East 858.064.501 703.042.695 - Africa 380.388.615 254.735.557 - America 317.489.740 221.418.430 International flights 5.290.958.312 4.490.441.339 Domestic flights 1.393.890.060 1.306.699.694 Total revenue from scheduled flights 6.684.848.372 5.797.141.033
137 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
28. SALES AND COST OF SALES (cont’d)
The details of the cost of sales are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Fuel expenses 1.527.808.008 1.850.738.704 Personnel expenses 1.044.182.478 856.558.103 Landing and navigation expenses 552.646.148 399.283.075 Depreciation expenses 317.706.200 263.848.336 Handling expenses 378.811.863 276.261.303 Maintenance expenses 381.802.941 233.448.486 Passenger service and catering expenses 325.039.231 259.376.473 Operating lease expenses 275.052.324 154.353.787 Codeshare expenses 160.695.562 141.212.392 Insurance expense 35.344.992 21.169.619 Short term leasing expenses 62.753.715 6.898.765 Other leasing expenses 12.393.476 24.958.770 Communnication expenses 6.914.020 7.019.829 Other tax 5.763.728 6.154.225 Utility expenses 6.075.303 4.285.948 Cost of other sales 42.959.155 37.102.769 5.135.949.144 4.542.670.584
29. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SALES AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE EXPENSES
1 January- 1 January- 31 December 2009 31 December 2008 Marketing, sales and distribution expenses 806.503.413 635.876.008 Administrative expenses 261.536.526 203.813.181 1.068.039.939 839.689.189
138 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
29. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SALES AND DISTRIBUTION EXPENSES, GENERAL ADMINISTRATIVE EXPENSES (cont’d)
Marketing, sales and distribution expenses are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Personnel expenses 221.533.668 199.988.876 Commission and incentives expenses 206.925.465 189.842.053 Reservation system expenses 154.300.075 104.458.574 Advertising expenses 84.163.376 34.517.643 Service expenses 24.116.304 11.688.333 Other rent expenses 23.857.845 17.635.490 Special passenger program milage expenses 17.731.434 14.100.772 Passenger service and catering expenses 14.014.565 9.388.785 Communication expenses 11.727.334 11.335.043 Other tax 7.990.340 6.672.221 Transportation expenses 7.444.732 5.187.679 Membership expenses 5.118.475 12.929.861 Utility expenses 3.291.672 2.686.730 Maintenance expenses 1.539.270 1.410.155 Depreciation expenses 868.435 708.667 Fuel expenses 866.661 789.684 Insurance expenses 751.543 527.870 Other marketing and sales expenses 20.262.219 12.007.572 806.503.413 635.876.008
General administrative expenses are as follows: 1 January- 1 January- 31 December 2009 31 December 2008 Personnel expenses 144.413.318 122.824.047 Depreciation expenses 28.476.945 21.708.398 Insurance expenses 16.633.619 2.610.354 Service expenses 12.020.015 8.398.360 Other tax 11.669.858 7.734.389 Other rent expenses 11.395.026 6.828.249 Maintenance expenses 8.630.075 11.817.364 Communication expenses 7.632.253 3.730.409 Other administrative expenses 20.665.417 18.161.611 261.536.526 203.813.181
30. EXPENSES ACCORDING TO CATEGORIES
Expenses according to categories are explained in Notes 28 and 29.
139 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
31. OTHER OPERATING INCOME / (EXPENSES)
Other operating income consists of the following:
1 January- 1 January- 31 December 2009 31 December 2008 Reimbursement of maintenance fee from leasing companies 16.559.675 - Provision released 16.876.352 4.903.880 Banks protocol revenue 4.730.845 3.510.000 Discounts received from maintenace spare parts suppliers 9.060.636 8.174.830 Insurance, indemnity, penalty incomes 24.005.243 6.268.389 Purchase discount 5.857.946 6.423.388 Rent incomes 1.753.645 979.550 Fixed assets sale income 3.333.754 179.102 Income from free of charge materials 911.946 6.302.617 Other operating incomes 8.046.062 19.948.772 91.136.104 56.690.528
1 January- 1 January- 31 December 2009 31 December 2008 Real increase in provisions for impairment of fixed assets (Note 18) 154.263.062 176.836.702 Provision expenses 24.037.694 23.492.206 Expenses due to aircraft crash 5.503.191 - Expense due to passengers without visa 4.796.605 1.973.061 Other operating expenses 10.538.930 7.818.494 199.139.482 210.120.463
32. FINANCIAL INCOME
Finance income consists of the following 1 January- 1 January- 31 December 2009 31 December 2008 Decrease in the provisions for impairment of fixed assets due to changes in exchange rate (Note 18) - 1.012.109.405 Interest income 159.789.136 123.120.093 Gain due to changes in the fair value of derivative instruments 9.016.534 - Rediscount interest income 4.134.460 4.692.212 Foreign exhange rate income - 287.925.459 Dividend income 42.014 35.034 172.982.144 1.427.882.203
140 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
33. FINANCIAL EXPENSES
Finance expenses are as follows
1 January- 1 January- 31 December 2009 31 December 2008 Decrease in the provisions for impairment due to changes in exchange rate (Note 18) 24.520.934 - Foreign exchange loss 1.845.975 - Financial liabilities foreign exchange loss 2.890.159 586.719.978 Finance lease interest expense 116.382.383 103.921.630 Gain due to changes in the fair value of derivative instruments - 6.071.262 Retirement pay interest expense 8.870.209 8.260.634 Rediscount expense 17.530.474 6.801.332 Other financial debts interest expense 380.669 1.474.979 Other financial expenses 287.869 123.325 172.708.672 713.373.140
34. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
None (31 December 2008: None).
35. TAX ASSETS AND LIABILITIES
Tax liability for the current profit is as follows:
31 December 2009 31 December 2008 Provisions for corporate tax 70.893.068 7.673.685 Prepaid taxes and funds (68.473.524) (3.487.876) 2.419.544 4.185.809
Tax liability consists of the following items:
1 January- 1 January- 31 December 2009 31 December 2008 Current period tax expense 70.893.068 7.673.685 Deferred tax expense / (income) 73.377.970 163.566.042 Change in deferred tax for the year 2008 (foreign earnings exemption) 33.121.716 - Change in corporate tax for the year 2008 (other) 508.583 - Tax expense / (income) 177.901.337 171.239.727
141 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
35. TAX ASSETS AND TAX LIABILITIES (cont’d)
The Group is subject to taxation in accordance with the tax procedures and the legislation effective in Turkey. Provision is made in the accompanying financial statements for the estimated charge based on the Group’s results for the years and periods.
Corporate Tax Law of 5520 entered into force by 21 June 2006 and published in the Official Gazette No. 26205. With this Law, Law No. 5422 was repealed from application.
The corporate tax rate is 20% since 2006 (2006, 2007 and 2008 years: 30% for investment deduction).
Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment incentives utilized
Investment incentive certificates are revoked commencing from January 1, 2006. The investment incentive amount that cannot be deducted from 2008 taxable income will not be carried forward to following years. In accordance with Income Tax Law Temporary Article 69, investment allowances available as of 31 December 2005 and due to insufficiency of profit are transferable to next year’s; can be deducted from the profits of 2006, 2007 and 2008 depending on taxpayers’ choice. Investment allowances can be forwarded to next year’s by restatement with Producer Price Index (PPI).
In case of benefiting from investment allowances, the Corporate Tax rate is 30 % instead of 20%. Taxpayers have the option to benefit from investment allowances in all or any of the years 2006, 2007 and 2008.
Group preferred to deduct the investment allowances of 2005 from the earnings in 2006 and 2007. Therefore, the applicable current corporate tax rate is 30% for 2006 and 2007. The applicable current corporate tax rate is 20% for 2008. The deferred tax rate used for the calculation of deferred tax assets and liabilities is also 20%
Corporations are required to pay advance corporation tax quarterly, at the current rate on their corporate income. Advance tax is to be filed in the following second month’s 14th day and paid on 17th day. Advance tax paid by corporations is credited against the annual corporation tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government.
Despite of the offset, if there are temporary tax amounts, it may be returned by cash or may be offset any other financial liabilities.
Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years. Tax losses cannot be carried back to offset profits from previous periods.
In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns within the 25th of the fourth month following the close of the related financial year. Tax authorities have the right to audit tax declarations and accounting records for 5 years, and may issue re-assessment based on their findings.
Except for the dividends paid to non-resident corporations, which have a representative office in Turkey, or resident corporations, dividends that are paid to non-resident corporations or corporations exempt from taxation in accordance with Income Tax Law article 75 paragraph 2 lines (1), (2) and (3) are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered as a profit distribution and thus does not incur withholding tax.
142 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
35. TAX ASSETS AND TAX LIABILITIES (cont’d)
In accordance with “Bringing Some Assets Into National Economy” Law No: 5811, which has become effective as of 22 November 2008, earnings of real persons and entities which are full fledged taxpayers obtained through their foreign offices/branches and their permanent agencies, including of those that are obtained by the end of 30 April 2009, are exempt from income and corporate taxation to the extent that such earnings are transferred to Turkey from the date of the issuance of the related law until 31 May 2009.
Article 7.4 of the General Communiqué issued on 6 December 2008 in regards to “Bringing Some Assets Into National Economy” Law Serial 1, No: 5811 requires the inclusion of such earnings to the exemption to the extent that they are transferred to Turkey as of 31 May 2009, even if earnings attributable to 2008 are subject to temporary tax filings for the 2008’s temporary tax periods, since branch earnings obtained through their foreign offices/branches and permanent agencies are determined at the last day of the financial year.In this respect, the Company’s TL 436.428.799 of foreign branch earnings exemption obtained in 2008 is subject to as a deduction against the 2008’s Corporate Tax base. Unused and carry forward exemption amount of 2008 is also subject to deferred tax calculation.
During the calculation of prepaid tax for the 2009 March period, the issues about the calculation of foreign branch earnings were evaluated again by the Company management due to the factors of uncertainty in regulations, arising of different figures for the matter about which initiative can be used depending on the opinion taken from Tax authority, arising of different exception figures when the methods other than in the Tax authority’s opinion was applied. Foreign branch earnings, which were calculated previously on the location basis, are calculated again in the line basis, the previous earnings figure TL 436.428.799 has decreased to TL 114.788.079. Because of the changes made in accounting estimates, an additional tax burden of TL 64.328.144 is stated in the financial statements as of 31 December 2009.
Furthermore, the period of these exceptions are extended with Law No: 5917 article 46 which has become effective as of 10 July 2009 and the provisional article 3 added to the Law No: 5811. Accordingly commercial earnings obtained by corporations through permanent representatives and branches abroad, between the dates of 1 May 2009 and 31 December 2009 are exceptional from income and corporate tax if, those earnings were transferred to Turkey until the date 28 February 2010. The Company has calculated TL 156.045.544 foreign branch earnings for the year 2009 and has incorporated this amount to the calculation of corporation of tax relevant year.
In August 2009, the company has reflected TL 508.580 additional tax burden, which is related to the corporate tax for the period 2008 into the financial statements as of 31 December 2009 via adjustment declaration.
143 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
35. TAX ASSETS AND TAX LIABILITIES (cont’d)
1 January- 1 January- 31 December 2009 31 December 2008 Reconciliation of provision for taxes: Profit from operations before tax 736.977.617 1.305.465.938
Domestic income tax rate of 20% 147.395.523 261.093.188
Taxation effects on: - revenue that is exempt from taxation (2.846.785) (5.848.893) - foreign branch earning exemption 33.119.035 (87.285.760) - non-deductible expenses 233.564 3.281.192
Provisions for tax expense in income statement 177.901.337 171.239.727
Tax effect regarding other comprehensive income is as follows:
1 January - 31 December 2009 Amount Tax (expense) Amount before tax /income after tax
Foreign currency translation differences 181.933 - 181.933 Change in cash flow hedge fund (2.189.161) 437.832 (1.751.329) Other comprehensive income for the period (2.007.228) 437.832 (1.569.396)
Change in translation differences of foreign currency that is included in other comprehensive income, is TL 4.459.406. In addition, the effect on taxation does not exist for the period 1 January - 31 December 2008.
The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial statements prepared in accordance with IFRS and its statutory financial statements. Deferred tax assets and liabilities calculated for temporary differences expected to be realized in future are calculated under the liability method.
144 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
35. TAX ASSETS AND TAX LIABILITIES (cont’d)
The deferred tax assets and (liabilities) as of 31 December 2009 and 31 December 2008 are as follows:
31 December 2009 31 December 2008 Fixed assets (437.228.761) (433.734.782) Provision for ticket sales advances (48.624.219) (32.179.753) Accrued expense 41.874.247 36.194.357 Provision for retirement pay 30.375.112 28.491.817 Long-term lease obligations 21.625.506 49.277.131 Short-term lease obligations 21.321.316 21.716.516 Allowance for doubtful receivables 3.752.304 3.050.391 Provision for impairment in inventories 2.873.729 2.944.944 Provision for unused vacation 2.739.207 2.546.893 Adjustment of inventories (1.165.198) - Income and expenses relating to future periods (756.009) 1.037.855 Discount on receivables 279.604 472.633 Discount on payables (164.343) (485.657) Accummulated loss - 31.206.428 Other 854.400 158.260 (362.243.105) (289.302.967)
31 December 2009 31 December 2008 Deferred tax assets - 1.986.324 Deferred tax liabilities (362.243.105) (291.289.291) Deferred tax assets/ (liabilities), net (362.243.105) (289.302.967)
The movements of deferred tax liability as of 31 December 2009 and 2008 are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Opening balance at January 1 289.302.967 125.736.925 Deferred tax expense 73.377.970 163.566.042 Hedge fund tax income (437.832) - Closing balance at December 31 362.243.105 289.302.967
145 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
36. EARNINGS PER SHARE
Earnings per share disclosed in the consolidated statements of income are determined by dividing the net income by the weighted number of shares that have been outstanding during the period concerned.
In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“bonus shares”) to existing shareholders from retained earnings. For the purpose of earnings per share computations, such bonus shares are regarded as issued shares. Accordingly, the weighted average number of shares outstanding during the years has been adjusted in respect of bonus shares issued without a corresponding change in resources, by giving them retroactive effect for the period in which they were issued and for each earlier year.
Earnings per share is calculated by dividing net profit by weighted average number of shares outstanding in the relevant period.
Number of total shares and calculation of earnings per share at 31 December 2009 and 2008 are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Number of shares outstanding at 1 January (in full) 17.500.000.000 17.500.000.000 New shares issued (in full) 70.000.000.000 70.000.000.000 Number of shares outstanding at 31 December (in full) 87.500.000.000 87.500.000.000 Weighted average number of shares outstanding during the year (in full) 87.500.000.000 87.500.000.000 Net profit for the period 559.076.280 1.134.226.211 Earnings per share (kr) (*) 0,64 1,30
(*) The earnings per share with par value of TL 1 is TL 0, 64 in December 2009; TL 1, 3 in December 2008.
37. RELATED PARTY TRANSACTIONS
Short-term trade receivables from related parties (Note 10) are as follows:
31 December 2009 31 December 2008 P & W T.T Uçak Bakım Merkezi 26.705.625 - Bosnia Herzegovina Airlines 3.729.488 - Sun Express 1.074.744 646.191 THY DO&CO İkram Hizmetleri A.Ş. 616.912 4.095.197 TGS 1.517 - 32.128.286 4.741.388
146 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
37. RELATED PARTY TRANSACTIONS (cont’d)
Transactions with related parties in the nine month period ended as of 31 December are as follows:
31 December 2009 31 December 2008 TGS (*) 12.546.944 67.386 Bosnia Herzegovina Airlines 34.372 - 12.581.316 67.386
(*) TL 12.279.145 (EURO 5.684.000), a portion of the Group’s non-trade reveivables from TGS, consist of the credit given to TGS which is due to 5 January 2010. (Interest rate: 2%)
Short-term trade payables to related parties (Note 10) are as follows:
31 December 2009 31 December 2008 Sun Express 14.416.433 9.433.149 THY DO&CO İkram Hizmetleri A.Ş. 8.246.716 - 22.663.149 9.433.149
Transactions with related parties in the nine-month period ended as of 31 December are as follows:
1 January- 1 January- 31 December 2009 31 December 2008 Services rendered to Sun Express 46.068.132 8.038.397 Services rendered to Bosnia Herzegovina Airlines 4.399.906 - Services rendered to THY DO&CO 1.001.534 792.687 Service rendered to P&W T.T. 23.467.921 - Interest income from THY DO&CO - 401.509 74.937.493 9.232.593
1 January- 1 January- 31 December 2009 31 December 2008 Services received from THY DO&CO 224.579.638 147.850.051 Services received from Sun Express 57.017.608 30.909.242 Services received from Bosnia Herzegovina Airlines 2.435.000 - 284.032.246 178.759.293
147 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
37. RELATED PARTY TRANSACTIONS (cont’d)
Transactions between the Group and Sun Express are codeshare operations; transactions between the Group and Turkish DO&CO are catering services and loan financing. Receivables from related parties are not collateralized and maturity of trade receivables is 30 days.
The total amount of salaries and other short term benefits provided for the Chairman and the Member of Board of Directors, General Manager, General Coordinator and General Deputy Managers are TL 3.693.289 (2008: TL 3.003.116).
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS
(a) Capital Risk Management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 8, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
The Board of Directors of the Group periodically reviews the capital structure. During these analyses, the Board assesses the risks associated with each class of capital along with cost of capital. Based on the review of the Board of Directors, the Group aims to balance its overall capital structure through the issue of new debt or the redemption of existing debt.
The overall strategy of the Group remains the same since the year 2008.
31 December 2009 31 December 2008 Total debts 3.595.046.545 3.697.403.926 Less: Cash and cash equivalents (1.096.111.869) (504.905.721) Net debt 2.498.934.676 3.192.498.205 Total shareholders' equity 3.444.880.226 2.986.587.096 Total capital stock 5.943.814.902 6.179.085.301 Net debt/total capital stock ratio 0,42 0,52
b. Financial Risk Factors
The risks of the Group, resulted from operations, include market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk. The Group’s risk management program generally seeks to minimize the potential negative effects of uncertainty in financial markets on financial performance of the Group. The Group uses a small portion of derivative financial instruments in order to safeguard itself from different financial risks.
Risk management, in line with policies approved by the Board of Directors, is carried out. According to risk policy, financial risk is identified and assessed. By working together with Group’s operational units, relevant instruments are used to reduce the risk.
148 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.1)Credit Risk Management
Credit Risk of Financial Instruments Receivables Trade receivables Other receivables Deposits in Derivative 31 December 2009 Related Party Third Party Related Party Third Party Banks Instruments Maximum credit risk as of balance sheet date (*) 32.128.286 413.253.595 12.581.316 1.395.172.187 1.249.522.901 47.298.370 The part of maximum risk under guarantee with collateral etc. (**) - 3.437.802 - - - - A. Net book value of financial assets that are neither past due nor impaired 32.128.286 331.244.557 12.581.316 1.395.172.187 1.249.522.901 47.298.370 B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired ------C. Net book value of financial assets that are past due but not impaired - 82.009.038 - - - - -The part under guarantee with collateral etc. - 2.442.335 - - - - D. Net book value of impaired assets ---- -Past due (gross carrying amount) - 40.576.100 - - - - -Impairment(-) - (40.576.100) - - - - -The part of net value under guarantee with collateral etc. ------Not past due (gross carrying amount) - 1.215.792 - - - - -Impairment (-) - (1.215.792) - - - - -The part of net value under guarantee with collateral etc. ------E. Off-balance sheet items with credit risk ------
(*)The factors that increase in credit reliability such as guarantees received are not considered in the balance. (**)Guarantees consist of the guarantees in cash & letters of guarantee obtained from the customers ANNUAL REPORT 2009 149 ANNUAL REPORT 2009 150
(Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.1)Credit Risk Management
Credit Risk of Financial Instruments Receivables Trade receivables Other receivables Deposits in Derivative 31 December 2008 Related Party Third Party Related Party Third Party Banks Instruments Maximum credit risk as of balance sheet date (*) 4.741.388 344.402.745 67.386 84.415.453 1.891.728.775 39.599.159 The part of maximum risk under guarantee with collateral etc. (**) - 7.506.082 - - - - A. Net book value of financial assets that are neither past due nor impaired 4.741.388 314.650.601 67.386 84.415.453 1.891.728.775 39.599.159 B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired ------C. Net book value of financial assets that are past due but not impaired - 29.752.144 - - - - -The part under guarantee with collateral etc. - 2.318.741 - - - - D. Net book value of impaired assets ------Past due (gross carrying amount) - 37.042.788 - - - - -Impairment(-) - (37.042.788) - - - - -The part of net value under guarantee with collateral etc. ------Not past due (gross carrying amount) ------Impairment (-) ------The part of net value under guarantee with collateral etc. ------E.Off-balance sheet items with credit risk ------
(*)The factors that increase in credit reliability such as guarantees received are not considered in the balance.s (**)Guarantees consist of the guarantees in cash & letters of guarantee obtained from the customers (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont'd)
(b) Financial Risk Factors (cont'd)
b.1) Credit risk management (cont'd)
The risk of a financial loss for the Group due to failing of one of the parties of the contract to meet its obligations is defined as credit risk.
The Group's credit risk is basically related to its receivables. The balance shown in the balance sheet is formed by the net amount after deducting the doubtful receivables arisen from the Group management's forecasts based on its previous experience and current economical conditions. Because there are so many customers, the Group's credit risk is dispersed and there is not important credit risk concentration.
151 ANNUAL REPORT 2009 ANNUAL REPORT 2009 152
(Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.1) Credit Risk Management (cont’d)
The Aging of past due receivables as of 31 December 2009 are as follows.
Receivables Trade Other Deposits in Derivative 31 December 2009 Receivables Receivables Banks Instruments Other Total Past due 1-30 days 31.024.457 - - - - 31.024.457 Past due 1-3 months 30.409.900 - - - - 30.409.900 Past due 3-12 months 19.120.026 - - - - 19.120.026 Past due 1-5 years 42.030.755 - - - - 42.030.755 Past due more than 5 years ------Total past due receivables 122.585.138 - - - - 122.585.138
The part under guarantee with collateral etc 2.442.335 2.442.335 Türk Hava Yolları Anonim Ortaklığı 31 Aralık 2009 Tarihi İtibariyle Konsolide Finansal Tablolara İlişkin Dipnotlar (Tutarlar, aksi belirtilmedikçe, Türk Lirası (TL) olarak gösterilmiştir.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.1) Credit Risk Management (cont’d)
The aging of the past due receivables as of 31 December 2008 are as follows.
Receivables Trade Other Deposits in Derivative 31 December 2009 Receivables Receivables Banks Instruments Other Total Past due 1-30 days 9.751.742 - - - - 9.751.742 Past due 1-3 months 13.013.807 - - - - 13.013.807 Past due 3-12 months 16.766.592 - - - - 16.766.592 Past due 1-5 years 27.150.622 - - - - 27.150.622 Past due more than 5 years 112.169 - - - - 112.169 Total past due receivables 66.794.932 - - - - 66.794.932
The part under guarantee with collateral etc 2.318.741 - - - - 2.318.741 ANNUAL REPORT 2009 153 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38 NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
(b.1) Credit risk management (cont’d)
As of balance sheet date, total amount of cash collateral and letter of guarantee, which is received by Group for past due not impaired receivable, is TL 3.414.006 (31 December 2008: TL 2.318.741).
As of the balance sheet date, Group has no guarantee for past due receivables for which provisions were recognized.
b.2) Liquidity Risk Management
The main responsibility of liquidity risk management rests upon Board of Directors. The Board built an appropriate risk management for short, medium and long term funding and liquidity necessities of the Group management. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The tables below demonstrate the maturity distribution of nonderivative financial liabilities and are prepared based on the earliest date on which the Group can be required to pay. The interests that will be paid on the future liabilities are included in the related maturities. The adjustment column shows the item which causes possible cash flow in the future periods. The item in question is included in the maturity analysis and is not included balance sheet amount of financial liabilities in the balance sheet.
Group manages liquidity risk by keeping under control estimated and actual cash flows and by maintaining adequate funds and borrowing reserves through matching the maturities of financial assets and liabilities.
Liquidity risk table:
31 December 2009 Total cash outflow according to the contract Less than 3-12 months 1-5 years More than 5 Due date on the contract Book value (I+II+III+IV) 3 months (I) (II) (III) years (IV)
Non-derivative financial liabilities
Bank borrowings 28.627.057 29.847.936 7.680.629 7.536.703 14.630.604 - Financial lease obligations 2.959.539.067 3.456.591.636 103.436.047 366.181.926 1.438.363.567 1.548.610.096 Trade payables 560.801.478 561.612.148 490.554.785 71.057.363 - - Other financial liabilities 846.771 846.771 846.771 - - - Total 3.549.814.373 4.048.898.491 602.518.232 444.775.992 1.452.994.171 1.548.610.096
154 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.2) Liquidity risk management (cont’d)
Liquidity risk table (cont’d):
31 December 2008 Total cash outflow according to the contract Less than 3-12 months 1-5 years More than 5 Due date on the contract Book value (I+II+III+IV) 3 months (I) (II) (III) years (IV)
Non-derivative financial liabilities
Bank borrowings 34.900.371 35.698.342 1.469.294 34.229.048 - - Financial lease obligations 3.182.394.093 3.825.277.485 107.114.326 373.162.277 1.566.966.270 1.778.034.612 Trade payables 435.109.211 437.537.494 382.178.541 55.358.953 - - Other financial liabilities 639.916 639.916 639.916 - - - Total 3.653.043.591 4.299.153.237 491.402.077 462.750.278 1.566.966.270 1.778.034.612
b.3) Market Risk Management
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Market risk exposures of the Group are measured using sensitivity analysis. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk.
b.3.1) Foreign Currency Risk Management
Transactions in foreign currencies expose the Group to foreign currency risk. The foreign currency denominated assets and liabilities of monetary and non-monetary items are as follows:
155 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market risk management (cont’d)
b.3.1) Foreign Currency Risk Management (cont’d)
31 December 2009 TL Equivalent US Dollar Euro GBP Other 1.Trade receivables 318.804.899 91.640.001 108.281.865 8.393.269 110.489.764 2a.Monetary financial assets 1.596.717.983 1.276.912.740 214.803.790 12.413.729 92.587.724 2b.Non-monetary financial assets - ---- 3.Other 1.982.078 1.066.174 94.361 103.224 718.319 4.Current assets (1+2+3) 1.917.504.960 1.369.618.915 323.180.016 20.910.222 203.795.807 5.Trade receivables - ---- 6a.Monetary financial assets 637.383.512 637.383.512 - - 6b.Non monetary financial assets - ---- 7.Other 65.373.959 48.743.839 12.586.766 2.119.701 1.923.653 8.Noncurrent assets (5+6+7) 702.757.471 686.127.351 12.586.766 2.119.701 1.923.653 9.Total assets (4+8) 2.620.262.431 2.055.746.266 335.766.782 23.029.923 205.719.460 10.Trade payables 297.880.412 120.793.475 107.571.626 5.863.884 63.651.427 11.Financial liabilities 457.499.014 252.991.955 204.507.059 - - 12a.Other liabilities, monetary 14.337.275 7.789.570 3.479.885 336.138 2.731.682 12b.Other liabilities, non monetary - - - - 13.Current liabilities (10+11+12) 769.716.701 381.575.000 315.558.570 6.200.022 66.383.109 14.Trade payables - ---- 15.Financial liabilities 2.575.899.284 975.801.038 1.600.098.246 - - 16a.Other liabilities, monetary 8.941.614 2.354.919 5.734.714 2.605 849.376 16b.Other liabilities, non monetary - ---- 17.Noncurrent liabilities (14+15+16) 2.584.840.898 978.155.957 1.605.832.960 2.605 849.376 18.Total liabilities (13+17) 3.354.557.599 1.359.730.957 1.921.391.530 6.202.627 67.232.485 19.Net asset / liability position of Off-balance sheet derivatives (19a-19b) 27.416.849 (257.400.455) 284.817.304 - - 19a.Off-balance sheet foreign currency derivative assets 284.817.304 - 284.817.304 - - 19b.Off-balance sheet foreign currency derivative liabilities 257.400.455 257.400.455 - - - 20.Net foreign currency asset/(liability) position (9-18+19) (706.878.319) 438.614.854 (1.300.807.444) 16.827.296 138.486.975 21.Net foreign currency asset/(liability) position of monetary items (IFRS 7.B23) (=1+2a+5+6a-10-11-12a-14-15-16a) (801.651.205) 646.205.296 (1.598.305.875) 14.604.371 135.845.003 22.Fair value of foreign currency hedged financial assets - ---- 23.Hedged foreign currency assets - ---- 24.Hedged foreign currency liabilities - ---- 25.Exports 5.356.374.684 756.866.783 2.821.421.134 152.119.413 1.625.967.354 26.Imports 1.684.743.255 1.003.419.468 488.549.014 19.535.389 173.239.384
156 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market Risk Management (cont’d)
b.3.1) Foreign Currency Risk Management (cont’d)
31 December 2008 TL Equivalent US Dollar Euro GBP Other 1.Trade receivables 201.671.977 36.369.880 72.663.669 6.607.281 86.031.147 2a.Monetary financial assets 1.300.384.063 911.904.026 316.192.868 5.534.421 66.752.748 2b.Non-monetary financial assets - - - - - 3.Other 7.419.216 2.458.692 41.404 4.760.149 158.971 4.Current assets (1+2+3) 1.509.475.256 950.732.598 388.897.941 16.901.851 152.942.866 5.Trade receivables - - - - - 6a.Monetary financial assets - - - - - 6b.Non monetary financial assets - - - - - 7.Other 72.794.855 72.789.485 4.400 - 970 8.Noncurrent assets (5+6+7) 72.794.855 72.789.485 4.400 - 970 9.Total assets (4+8) 1.582.270.111 1.023.522.083 388.902.341 16.901.851 152.943.836 10.Trade payables 244.277.675 125.858.217 56.555.012 16.252.346 45.612.100 11.Financial liabilities 463.649.564 251.539.094 212.110.470 - - 12a.Other liabilities, monetary 9.761.078 4.472.433 2.789.862 81.221 2.417.562 12b.Other liabilities, non monetary - - - - - 13.Current liabilities (10+11+12) 717.688.317 381.869.744 271.455.344 16.333.567 48.029.662 14.Trade payables - - - - - 15.Financial liabilities 2.798.005.235 1.052.489.444 1.745.515.791 - - 16a.Other liabilities, monetary 7.998.826 1.038.768 5.829.426 4.210 1.126.422 16b.Other liabilities, non monetary - - - - - 17.Noncurrent liabilities (14+15+16) 2.806.004.061 1.053.528.212 1.751.345.217 4.210 1.126.422 18.Total liabilities (13+17) 3.523.692.378 1.435.397.956 2.022.800.561 16.337.777 49.156.084 19.Net asset / liability position of Off-balance sheet derivatives (19a-19b) 12.349.552 (112.925.248) 125.274.800 - - 19a.Off-balance sheet foreign currency derivative assets 125.274.800 - 125.274.800 - - 19b.Off-balance sheet foreign currency derivative liabilities 112.925.248 112.925.248 - - - 20.Net foreign currency asset/(liability) position (9-18+19) (1.929.072.715) (524.801.121) (1.508.623.420) 564.074 103.787.752 21.Net foreign currency asset/(liability) position of monetary items (IFRS 7.B23) (=1+2a+5+6a-10-11-12a-14-15-16a) (2.021.636.338) (487.124.050) (1.633.944.024) (4.196.075) 103.627.811 22.Fair value of foreign currency hedged financial assets - - - - - 23.Hedged foreign currency assets - - - - - 24.Hedged foreign currency liabilities - - - - - 25.Exports 4.540.026.181 536.061.102 2.404.349.759 141.055.054 1.458.560.268 26.Imports 1.651.794.897 937.339.395 495.108.749 14.626.988 204.719.765
157 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market Risk Management (cont’d)
b.3.1) Foreign Currency Risk Management (cont’d)
Foreign currency sensitivity
The Group is exposed to foreign exchange risk primarily from US dollar, Euro and GBP. The following table details the Group’s sensitivity to a 10% increase and decrease in US Dollars, Euro and GBP. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Company where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number indicates an increase in profit or loss.
31 December 2009 Profit / (Loss) Before Tax If foreign currency If foreign currency appreciated against devaluated against TL by 10% TL by 10%
1 - US Dollar net asset / liability 43.861.485 (43.861.485) 2- Part of hedged from US Dollar risk (-) - - 3- US Dollar net effect (1+2) 43.861.485 (43.861.485)
4 - Euro net asset / liability (130.080.744) 130.080.744 5 - Part of hedged from Euro risk (-) - - 6- Euro net effect (4+5) (130.080.744) 130.080.744
7 - GBP net asset / liability 1.682.730 (1.682.730) 8- Part of hedged from GBP risk (-) - - 9- GBP net effect (7+8) 1.682.730 (1.682.730)
10 - Other foreign currency net asset / liability 13.848.698 (13.848.698) 11- Part of hedged other foreign currency risk (-) - - 12- Other foreign currency net effect (10+11) 13.848.698 (13.848.698)
TOTAL (3 + 6 + 9 + 12) (70.687.831) 70.687.831
158 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market Risk Management (cont’d)
b.3.1) Foreign Currency Risk Management (cont’d)
Foreign currency sensitivity (cont’d)
31 December 2008 Profit / (Loss) Before Tax If foreign currency If foreign currency appreciated against devaluated against TL by 10% TL by 10%
1 - US Dollar net asset / liability (42.548.468) 42.548.468 2- Part of hedged from US Dollar risk (-) - - 3- US Dollar net effect (1+2) (42.548.468) 42.548.468
4 - Euro net asset / liability (161.468.260) 161.468.260 5 - Part of hedged from Euro risk (-) - - 6- Euro net effect (4+5) (161.468.260) 161.468.260
7 - GBP net asset / liability 63.642 (63.642) 8- Part of hedged from GBP risk (-) - - 9- GBP net effect (7+8) 63.642 (63.642)
10 - Other foreign currency net asset / liability 10.472.471 (10.472.471) 11- Part of hedged other foreign currency risk (-) - - 12- Other foreign currency net effect (10+11) 10.472.471 (10.472.471)
TOTAL (3 + 6 + 9 + 12) (193.480.615) 193.480.615
As explained in Note 2.5.6, the Group uses net US Dollars sales price as the recoverable amount in the impairment calculation of its property, plant and equipment (i.e. aircrafts, spare engines and simulations - “Aircrafts”). Accordingly, the impairment provided by the Group for the tangible assets decreases when the US Dollar is evaluated against TL, and increases when the US Dollar is devaluated against TL. In this context, If US Dollar is appreciated by 10 % against TL, there would be an increase amounted TL 360.275.994 (1 January-31 December 2008: TL 360.198.667) in the net profit for the period except for the effects in the table above due to the decrease in the impairment of aircrafts, spare engines and simulators. If US Dollar is devaluated by 10 % against TL, there would be a decrease amounted TL 401.499.641 effect in the profit or except for the effects in the table above.
159 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market Risk Management (cont’d)
b.3.2) Interest Rate Risk Management
Group has been borrowing over fixed and variable interest rates. Considering the interest types of the current borrowings, borrowings with variable interest rates have the majority but in financing of aircrafts performed in the last years, Group tries to create a partial balance between borrowings with fixed and variable interest rates by increasing the weight of the borrowings with fixed interest rate in condition of the suitability of the cost. Due to the fact that the variable interest rates of the Group are dependent on Libor and Euribor, dependency to local risks is low.
Interest Rate Position Table 31 December 2009 31 December 2008 Instruments with fixed interest rate Financial Assets – Time Deposits 1.149.329.053 1.768.820.216 Financial Liabilities 1.825.552.349 1.960.602.178
Financial Instruments with Variable Interest Rate Financial Liabilities 1.162.613.775 1.256.692.286 Interest Swap Agreements not subject to Hedge Accounting (net) (829.874) (5.087.603) Interest swap agreements subject to hedge acounting (Net) (7.130.730) -
As indicated in Note 39, the Group as of 31 December 2009 fixed the interest rate for TL 877.507.548 of floating–interest-rated financial liabilities via an interest rate swap contract.
Interest rate sensitivity
Following sensitivity analysis is determined according to the interest rate exposure in the reporting date and possible changes on this rate and it is fixed during all reporting period. Group management checks out possible effects that may arise when Libor and Euribor rates, which are the interest rates of the borrowings with variable interest rates, fluctuate 0, 5% and reports these to the top management.
In condition that 0, 5% increase in Libor and Euribor interest rate and all other variables being constant:
Profit before taxes of the Group, which belongs to twelve-month-period, will decrease for TL 6.283.461 (as of 31 December 2008 it will decrease by TL 6.283.461). In contrast, if Libor and Euribor interest rate decreases 0, 5%, Profit Before Taxes for six- month-period will increase with the same amounts
Moreover, as a result of the interest rate swap contracts against cash flow risks, in case of a 0,5% increase in the Libor and Euribor interest rates, the shareholders’ equity of the Group will increase by TL 18.318.580 without the deferred tax effect. In case of a 0,5% decrease in the Libor and Euribor interest rates, the shareholders’ equity of the Group will decrease by the same amount without the deferred tax effect.
160 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
38. NATURE AND LEVEL OF RISKS DERIVED FROM FINANCIAL INSTRUMENTS (cont’d)
(b) Financial Risk Factors (cont’d)
b.3) Market Risk Management (cont’d)
b.3.3) Fuel prices sensitivity
As explained in Note 39, Group made forward fuel purchase contracts in order to hedge cash flow risks arising from fuel purchases beginning from 2009. Due to forward fuel purchase contracts subject to hedge accounting, as a result of a 10 % increase in fuel prices, the shareholders’ equity of the Group will increase by TL 11.038.146 excluding the deferred tax effect. In case of a 10% decrease in fuel prices, the shareholders’ equity of the Group will decrease by the same amount excluding the deferred tax effect
39. FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
Fair values of financial assets and liabilities are determined as follows:
• In standard maturities and conditions, fair values of financial assets and liabilities which are traded in an active market are determined as quoted market prices. • Fair values of derivative instruments are calculated by using quoted prices. In absence of prices, discounted cash flows analysis is used through applicable yield curve for maturities of derivative instruments.
161 ANNUAL REPORT 2009 ANNUAL REPORT 2009 162
(Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
39. FINANCIAL INSTRUMENTS (cont’d)
Categories and fair values of financial instruments (cont’d):
Derivative Derivative instruments instruments Investment which are reflected which are at cost Financial Loans and fair value to share- reflected fair value available liabilities at Carrying 31 December 2009 Balance Sheet Receivables holder’s equity value profit/(loss) for sale amortized cost Value Note
Financial Assets Cash and cash equivalents 1.096.111.869 - - - 1.096.111.869 6 Financial investments 175.000.000 4.102.120 43.196.250 1.750.943 - 224.049.313 7 Trade receivables 445.381.881 - - - - 445.381.881 10 Other receivables 1.407.753.503 - - - - 1.407.753.503 11 Financial liabilities - - Bank borrowings - - - - 14.187.801 14.187.801 8 Finance lease obligations - - - - 2.959.539.067 2.959.539.067 8 Other financial liabilities - 7.866.905 37.365.267 - 846.771 46.078.943 9 Trade payables - - - - 560.801.478 560.801.478 10
Derivative Derivative instruments instruments Investment which are reflected which are at cost Financial Loans and fair value to share- reflected fair value available liabilities at Carrying 31 December 2008 Balance Sheet Receivables holder’s equity value profit/(loss) for sale amortized cost Value Note Financial Assets Cash and cash equivalents 504.905.721 - - - - 504.905.721 6 Financial investments 1.403.033.703 - 39.599.159 1.750.943 - 1.444.383.805 7 Trade receivables 349.144.133 - - - - 349.144.133 10 Other receivables 84.482.839 - - - - 84.482.839 11 Financial liabilities Bank borrowings - - - - 34.900.371 34.900.371 8 Finance lease obligations - - - - 3.182.394.093 3.182.394.093 8 Other financial liabilities - - 44.360.335 - 639.916 45.000.251 9 Trade payables - - - - 435.109.211 435.109.211 10
The Group considers the legitimate values of financial assets are of fair value (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
39. FINANCIAL INSTRUMENTS (cont’d)
Fair Values of Financial Instruments (cont’d)
Fair values of financial assets and liabilities are determined as follows:
• First level: Financial assets and liabilities are valued with the stock exchange prices in the active market for the assets and liabilities same with each other.
• Second level: Financial assets and liabilities are valued with input obtained while finding the stock exchange price of the relevant asset or liability mentioned in the first level and the direct or indirect observation of price in the market.
• Third level: Financial assets and liabilties are valued by the input that does not reflect an actual data observed in the market while finding the fair value of an asset or liability.
Financial assets and liabilities, which are presented in their fair values, level reclassifications are as follows:
Fair value level as of the reporting date 31 December Level 1 Level 2 Level 3 Financial assets 2009 TL TL TL
Financial assets at fair value through profit or loss Derivative instruments 43.196.250 - 43.196.250 -
Financial assets subject to hedge accounting Derivative instruments 4.102.120 - 4.102.120 -
Total 47.298.370 - 47.298.370 -
Financial liabilities
Financial liabilities at fair value through profit or loss Derivative instruments 37.365.267 - 37.365.267 -
Financial liabilities subject to hedge accounting Derivative instruments 7.866.905 - 7.866.905 -
45.232.172 - 45.232.172 -
163 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
39. FINANCIAL INSTRUMENTS (cont’d)
Derivative Instruments and Hedging Transactions (cont’d)
In order to hedge important operations and cash flows in the future against financial risks, Group made interest rate swap contracts to convert some of the fixed-rate finance lease liabilities into floating rate and cross-currency swap contracts to convert Euro-denominated finance lease liabilities into US Dollars.The changes in the fair values of those derivative instruments are directly accounted in the income statement for the period.
The floating-rate financial liabilities of the Group are explained in b.3.2. Beginning from June 2009, in order to keep interest costs at an affordable level, considering long-term finance lease liabilities; Group made fixed-paid/floating-received interest rate swap contracts to fix interest rates of finance lease liabilities whose maturities are after the second half of 2010 and account for approximately 76 % of floating rate USD and Euro denominated liabilities. Effective part of the change in the fair values of those derivative instruments which are subject to hedge accounting for cash flows risks of floating-rate finance lease liabilities are accounted in cash flow hedge fund under the shareholders’ equity.
Beginning from September 2009, in order to control risk arising from fluctuations in price of fuel which is approximately 30% of cost of sales as of 31 December 2009 and to lessen the effects of fluctuations in oil prices on fuel expenses, the Group began hedging transactions for approximately 10% of annual jet fuel consumption in 2009 . For this purpose, the Group made forward fuel purchase contracts settled on cash basis. Effective part of the change in the fair values of those derivative instruments which are subject to hedge accounting for cash flows risks of fuel purchases are accounted in cash flow hedge fund under the shareholders’ equity
Group’s derivative instruments arisen from transactions stated above and their balances as of 31 December 2009 and 31 December 2008 are as follows:
164 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
39. FINANCIAL INSTRUMENTS (cont’d)
Derivative Instruments and Hedging Transactions (cont’d)
Pozitive fair Negative fair 31 December 2009 value value Total
Fixed-paid/floating received interest rate swap contracts for hedging against cash flow risks of interest rate - (7.130.730) (7.130.730)
Forward fuel purchase contracts for hedging against cash flow risk of fuel prices 4.102.120 (736.175) 3.365.945
Fair values of derivative instruments for hedging purposes 4.102.120 (7.866.905) (3.764.785)
Cross-currency swap contracts not subject to hedge accounting 15.596.383 (8.935.528) 6.660.855
Interest rate swap contracts not subject to hedge accounting 27.599.867 (28.429.739) (829.872)
Fair values of derivative instruments not for hedging purposes 43.196.250 (37.365.267) 5.830.983
Total 47.298.370 (45.232.172) 2.066.198
Pozitive fair Negative fair 31 December 2008 value value Total
Fixed-paid/floating received interest rate swap contracts for hedging against cash flow risks of interest rate - - -
Forward fuel purchase contracts for hedging against cash flow risk of fuel prices - - -
Fair values of derivative instruments for hedging purposes ---
Cross-currency swap contracts not subject to hedge accounting 5.068.203 (4.741.776) 326.427
Interest rate swap contracts not subject to hedge accounting 34.530.956 (39.618.559) (5.087.603)
Fair values of derivative instruments not for hedging purposes 39.599.159 (44.360.335) (4.761.176)
Total 39.599.159 (44.360.335) (4.761.176) 165 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
39. FINANCIAL INSTRUMENTS (cont’d)
Derivative Instruments and Hedging Transactions (cont’d)
Hedging against Hedging against fuel risk interest risk Total Increase/(decrease) in fair values of derivative instruments for hedging purposes 3.365.945 (7.130.730) (3.764.785)
The amount of financial expenses inside hedge funds - 2.165.655 2.165.655
Reclassified amount for inactive part in the risk elimination of fair value of hedging gains of fuel hedging derivative instrument to financial revenues (590.031) - (590.031)
Total 2.775.914 (4.965.075) (2.189.161)
Deferred tax (555.183) 993.015 437.832 Hedge fund as of 31 December 2009 2.220.731 (3.972.060) (1.751.329)
40. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
The Board of Directors decided to purchase 14 of A321-200 and 6 of A319-100 aircrafts to be delivered in 2011 and 2012; and to order at option 10 of A319/A321 aircrafts to be delivered in 2013.
The Board of Directors, having 49% of the shares of Bosnia Herzegovina Airlines, approved the decision a capital increase by 8.000.000 –KM. In accordance with this decision, the “Corporation” will pay for its share in this capital increase in cash.
The Board of Directors decided to lease 2 of B737-700 aircrafts which are to be delivered by March and April 2010.
The Board of Directors decided to purchase 10 of B737-800 and 10 of B737-900ER aircrafts from Boeing Company to be delivered between 2011 and 2014. The Board of Directors also decided to order at option 15 of B737-800/B737-900ER aircrafts to be delivered between 2013 and 2015.
The Board of Directors decided to lease 1 of B737-700 aircraft to be delivered by March 2010.
The Board of Directors decided to increase authorized capital from TL 500 million to TL 2 billion and to include the following matters into Articles of Incorporation: to establish training institutions related to fields of activities of the Corporation and to make donations and financial aid in compliance with regulatory provisions. The Board of Directors made an application to Capital Markets Board.
166 ANNUAL REPORT 2009 (Convenience Translation of Report And Financial Statements Originally Issued in Turkish) Türk Hava Yolları Anonim Ortaklığı Notes to The Consolidated Financial Statements for The Year Ended 31 December, 2009 (All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)
41. OTHER ISSUES AFFECTING FINANCIAL STATEMENTS MATERIALLY OR NECESSARY TO MAKE FINANCIAL STATEMENTS SOUND, INTERPRETABLE AND UNDERSTANDABLE
The Board of Directors approved and authorized to issue the consolidated financial statements on 5 April 2010.
In compliance with Capital Markets Board (“CMB”) Communiqué Serial: XI No: 29, the Group restated the previous periods’ financial statements due to the changes in presentation and classification of financial statement items in order to maintain comparability. The changes have no material impact on the shareholders’ equity and net profit / (loss) of the previous periods. The significant classifications are as follows:
In the balance sheet as of 31 December 2008, TL 4.761.176 in “Other Financial Liabilities” is the offsetted amount for the “fair value of derivative instruments”, whereas it is presented separately in the balance sheet as of 31 December 2009 as TL 39.599.159 in “Financial Assets” and TL 44.360.335 in “Other Financial Liabilities.
‘Advances received for milage credit sales’ item, which was stated under ‘Other receivables and payables’ and amounting to TL 45.587.172 in the balance sheet as of 31 December 2008, is now classified under ‘Other short term liabilities’.
‘Special costs’ item, which was stated under ‘Intangible assets’ and amounting to net book value of TL6.534.527 in the balance sheet as of 31 December 2008, is now classified under ‘Tangible assets’.
The Group reconsidered the depreciation accounting method of its aircrafts, spare engines and simulators, which are subject to impairment while preparing the financial statements for the year ended at 31 December 2009. In previous years, the Group made depreciation calculation over cost value impairment according to paragraph of 63 th in the International Accounting Standard 36 "Impairment of Assets"; after the recognition of impairment loss, the depreciation charge for the asset is adjusted in future periods to allocate the asset’s revised charging amount, less its residual value, on a systematic basis over its remaining useful life. The mentioned change does not lead to a change in balance sheet items, equity and net profit for the year, however, led to a reclassification between “Depreciation expense for the year” and “Provision for impairment loss for the year”. Thus, 2008 financial statements were restated based on International Accounting Standard 8 “Changes and Inaccuracies in Accounting Policies and Accounting Predictions” (“IAS 8). Because of this change, “Depreciation expense” under “Cost of sales” item decreased by TL107.560.793 and “Real increase in provision for impairment in value of tangible assets” increased by the same amount
167 ANNUAL REPORT 2009