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Ultimate responsibility for effective management of risk rests with the Company's Board of Directors. The Board has put in place a risk management structure for the Group, with
strategies for the identification, analysis and management of the enterprise-wide risks. The basic principles of risk management followed by the Company and Group include:
Responsibility: recognition that Group
activities entail business risk and
therefore risk management is
everyone's responsibility. The Group
should take into account its social,
ethical and environmental
responsibilities in balancing risk
with returns in its activities.
Risk and return: ensuring that risk is
taken in support of Group strategy
and within its risk appetite as
defined from time to time.
Accountability: ensuring risk is taken
within a framework of agreed authority
limits and that there is an appropriate
system of evaluating, controlling and
reporting on risks in a disciplined
manner.
Awareness and anticipation: creating an
atmosphere of continuous learning and
awareness of risks that impact the
business throughout the Group.
Encouraging anticipation of future
risks by all sections through periodic
reviews and reporting systems.
The Board has delegated the overall management of risks to
the Risk Management Steering Committee (RMSC), a
sub-committee of the Board, which meets from time to time
to:
Review the policies for risk management
Define risk tolerance and approve
procedures and objectives.
The procedures and parameters for risk management are
contained in the Company's Risk Management Manual, which is
reviewed from time to time to ensure it remains relevant to
the Company's activities.
Management is accountable to the RMSC for the implementation
and detailed monitoring of the risk management process.
There is a Risk Management Team (RMT) which meets monthly to
review risk management reports as well as hedging
transactions for fuel and currency.
The Finance Department acts as the Company's risk
secretariat and is responsible for reporting all major risks
identified to the RMSC. An overall risk map is prepared each
year covering both financial and non-financial risks as part
of the Company's budgeting process. This risk map is
approved by the Board and forms the basis for budgeting
assumptions each year.
By nature,
aviation is a highly specialised and regulated industry,
requiring adherence to specific rules and regulations in the
conduct of airline business and other civil aviation
activities. International airlines have to operate within
the operational, safety and security parameters set by
regulator frameworks worldwide.
In addition, industry
organisations such as the International Civil Aviation
Organisation (ICAO), the International Air Transport
Association (IATA), the European Aviation Safety Agency (EASA),
the African Airlines Association (AFRAA) and others,
prescribe best practice procedures covering areas such as:
Ramp and flight safety;
Ramp and flight incident reporting
and investigation;
Aviation security;
Maintenance standards
and dispensation procedures;
Approval of maintenance organisations;
Operational standards for ground
handling, flight and cabin
crew, cargo handling;
Certification of personnel;
Mandatory training, medical reviews;
and audit and inspection
programmes.
The Company has periodic audits and inspection programs
using both internal and external experts to review such
matters and ensure compliance with standards.
A summary of
the critical risks for the Group and Company as identified
during the last review exercise is given hereunder.
The absolute assurance of safe operations, both on the
ground and in the air is critical to our operations. The
Company has a flight safety policy that ensures that
necessary priority is given to this objective in order to
assure the safety of our passengers and staff. The receipt
of our IOSA certification this year is a significant step
forward in maintaining our high standards of operational
safety.
The Company also has a fully fledged Emergency Procedures
Structure with experts and standby passenger information
facilities in Mauritius and abroad. The emergency procedures
manuals are constantly updated and simulation exercises are
carried out each year to ensure clarity and alertness. Our
flight safety procedures also include:
Ensuring the provision and conduct of
mandatory training to all staff in
critical operational areas
every year;
Ensuring the conduct of skills based
training on equipment and operating
systems for flight crews, cabin
crews, ground operations and other
staff every year;
Ensuring that all equipment and operating
systems are well maintained and in good
working order on board our aircraft
and on the ground;
Promoting and supporting a culture of
Zero tolerance to unsafe acts and
conditions through monitoring and
incident reporting mechanisms
across the Company;
Promoting high standards of
work practices
allowing for the auditing,
identification and correction of
identified short comings,
errors and unsafe acts; and
Providing a robust safety management
structure, through the Air Safety
Board, which allows for the
analysis, review, correction,
prevention; and feedback of all
safety issues within the company
and the industry. The Air safety
review Board, meets every quarter
to review flight and ramp incidents
and to ensure corrective measures
are taken.
Passengers and staff must be assured of security at airports and at all our work areas including on board the aircraft. Air Mauritius' security procedures include policies and systems for:
Ensuring the protection of passengers,
their property and staff from
danger and threats. The Company has
documented procedures for passenger
identification, check in, security
screening at airports, baggage
handIing, denied boarding and
disorderly conduct on board;
Ensuring the protection of company
property from misuse, damage,
theft or other loss;
Ensuring the protection of computerised
systems, records and information,
from unauthorised access, .
dissemination or theft.
The Air Mauritius Group is committed to providing and maintaining a healthy, safe and secure working environment. The Group believes that awareness of health and safety issues is key to the prevention of accidents and to promoting the well being of customers and staff.
Management is committed to comply with Health and Safety
Regulations in all countries in which we operate and has put
in place policies and procedures to:
Ensure the quick identification and
correction of hazards in the work
place through inspection reviews
by the Health and Safety Manager;
Ensure that equipment and facilities
are well maintained at all times;
Train our people to anticipate
and prevent accidents and the
build up of hazards that may
cause injury or illness:
Continually review our process and
controls, through inspection,
training and sharing
informationon best practices
worldwide.
We believe that long term profitability can only be sustained if the Company takes into account the impact of its activities on the environment and also contributes to the quality of life in Mauritius and abroad. Air Mauritius therefore works to:
Create awareness of its environmental
policy amongst its partners,
suppliers, customers and staff
around the world;
Encourage others to fulfill their
share of responsibility for
environmental issues;
Monitor changes in environmental
legislation and cooperate fully
with relevant authorities in
all the countries we operate;
Encourage our employees to actively
participate in the prevention of
wastage, preserving resources,
such as water & energy and in
the management of waste and
reduction of emissions;
Invest in more efficient and modern
aircraft which contribute less
in terms of emissions. The
Company is also keen to
contribute its data on this
subject, in keeping with the
rest of the industry.
We believe that long term profitability can only be sustained if the Company takes into account the impact of its activities on the environment and also contributes to the quality of life in Mauritius and abroad. Air Mauritius therefore works to:
The Group Fraud Prevention Policy outlines procedures for
the prevention, detection and investigation of suspected
frauds and other irregularities. The Group's Code of
Business
Practice and Ethics is used extensively to encourage staff
and other stakeholders, to act with integrity and to report
all suspicious transactions to relevant authorities in
accordance with Company procedures and the requirements of
the law.
The Code, which applies to all Directors and staff, is one
of the key pillars in the prevention of fraud and other
malpractices. Air Mauritius is committed to:
Ensure honesty, integrity and
transparency in all its
operations;
Promoting awareness of ethical
practices and encouraging
suppliers, customers and staff
to take personal responsibility
to uphold high standards of
behaviour;
Adhering to established ethical
practices and to complying with
relevant laws and regulations
in the conduct of its business
world wide.
Directors, officers and employees are expected to act
ethically at all times and to declare any matters of
potential conflict with the Company. A formal declaration of
interest is made by Directors and senior officers of the
Company each year.
A key aspect of the risk management process is the maintenance of high operational and service standards to ensure safe, secure and reliable air services in keeping with the Company's vision to be the preferred leisure carrier.
Training programmes are designed
to assist staff to provide the
highest standards of service at
all times, both on ground and on
board of our aircraft. The training
is aimed at giving staff the
knowledge and proficiency required
in conducting their duties;
Standards of performance are
measured continually and
benchmarked internationally,
through regular surveys and
other feedback;
Periodic reviews and audits
ensure that operational
procedures are keeping with
best practice in the
industry and meet with
regulatory requirements;
The Company has a Quality Manager
whose responsibility is to
promote a corporate quality and
to ensure that standards and
manuals are keptup to date;
The Company also ensures that
aircraft maintenance activities
are performed to the highest
standards in keeping with EASA
Part 145 certification.
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Air Mauritius operates in many countries and faces country
risks. These can take many different forms including:
The devaluation of a currency that the
Company receives as part of its proceeds
from normal operations;
Exchange controls or other actions taken by
the governments, restricting the
Company's ability to repatriate its
funds as a result of adverse
economic conditions
Outbreaks of diseases or epidemics forcing
the Company to stop operations
temporarily.
The Company works with its country managers and other
representatives, including airline industry organisations to
have an early warning system about adverse conditions in the
different jurisdictions. Such matters are reported to senior
management, the Risk Management Steering Committee and the
Board of Directors for actions.
This is the risk associated with operations and marketing
activities of the Company. Such risks can be associated with
demand & sales price variability, competitor threats,
operational leverage, portfolio risk and product development
risks, to the extent that they are independent of market
risk. The following are some of the key aspects of business
operational risk for the airline:
Commercial strategy and product: the
Company strives to operate in line with
its strategy and business plans. However,
due to the matters discussed in this
section, such plans may not always prove
able to be implemented along the lines
and time scales envisaged..
Market and economic factors: the Company is
largely dependent on passengers and cargo
shippers to be able and willing to pay
for carriage by air. This ability and
willingness is influenced by economic
factors and security conditions in
Mauritius and other countries around
the world, over which the Company has
no control. The Company strives to
market Mauritius abroad and to offer
products suited to the core tourism
market and other segments.
Loss of systems and infrastructure: the
Company is substantially dependent on
IT systems to deliver its functions.
It endeavours to ensure that its IT
and other systems provided in house
and by third parties are reliable and
well protected against threats from
hackers and viruses. Such systems have
ongoing backup structures and are also
regularly updated and maintained.
Supplier failure: the Company is dependent
on third parties for important aspects of
its operations, such as catering,
maintenance and reservation systems. It
is essential that critical supplies
should be maintained. If this were not
so, operations would be disrupted and the
business results would suffer. The Company
therefore ensures its contracts with key
suppliers are updated and negotiated for
periods ensuring security of supply.
Fleet groundling or restriction: the Company
operates a number of aircraft types in its
services. An accident or discovered defect
even where this applied to another airline
could ground significant portions or all
of the fleet, thus causing disruption to
the business. The Company maintains an
updated register of leasing companies.
Political restrictions: route rights and landing
rights are often determined by the country of
destination. If route rights and permission to
land were to be withdrawn for any reason, the
operations of the Company would be
disrupted and its financial performance
impaired. The Company mitigates this risk
by being a good citizen and operating within
the law, to high international
aviation standards.
Business risk can also arise from the potential that
inadequate information systems, operational problems,
breaches in internal controls, fraud, or unforeseen
catastrophes will result in unexpected losses. The Company
has proper operational and accounting systems to monitor
business performance including daily, weekly and monthly
reviews of key performance indicators and metrics.
The Company faces increasing competition as the Government continues to review its air access policy to gradually liberalise selected routes on a bilateral basis. Competitors on direct and indirect routes, as well as, from charter services have intensified fare discounting resulting in lower yields. In response, the Company has reviewed its strategy to focus on core leisure traffic in line with developments in tourism over the next few years.
Air Mauritius has also taken steps to improve service
quality, rejuvenate its brand, upgrade seats and cabin
interiors, offer new products and booking classes, to
simplify fares through internet based sales and
distribution.
Air Mauritius recognises that reputation is an ongoing risk of the business and is therefore constantly working to improve its image with all stakeholders. It is strengthening its communication systems so that both the staff and general public are well informed about the Company's activities and performances. When a negative perception is created in the market, the Company faces reputational risk and consequent loss of public confidence.
Failure to comply with applicable new or changed laws and
regulations, or governance standards or changes in
interpretation of laws and regulations may harm the
Company's
business and reputation. In certain areas, the Company
relies on systems and procedures specifically designed for
appropriate groups of employees to ensure that it meets its
regulatory obligations. This is the case for changing laws,
regulations and standards relating to accounting, corporate
governance, maintenance and ground operations, safety
and security and public disclosure. The Company provides
recurrent training to these staff to ensure they are kept up
to date with standards and legislative issues as they
evolve.
Legal risk also arises from the potential that unenforceable
contracts, lawsuits, or adverse judgments can disrupt or
otherwise negatively affect the operations or condition of
the Company. This includes the risk of unexpected loss due
to transactions not being enforceable under applicable law
or regulation and from contractual documentation. The
Company manages this risk though effective use of its
internal and external legal advisors and by ensuring that
contracts and transactions are properly authorised.
The Company has put in place formalised Business Continuity Plans (BCP) within the risk-management framework. These include standby facilities as well as emergency procedures and management structures covering recovery from major accidents and/or disasters that have the potential to disrupt the entire business. The BCP programme forms an integral part of the management of enterprise wide risks covering ground operations, aircraft operations, information technology, security, safety and other business threats.
In common with all airlines, Air Mauritius bears the risk of rising costs as a result of changes in fuel prices, interest rates and exchange rates. The Company's policy is to manage these risks systematically by using tools and control systems designed to identify, measure, and monitor these risks.
This is done within the framework of internal guidelines approved by the Risk
Management Steering Committee and the Board (RMSC). Compliance with these
guidelines is monitored by the finance and internal audit departments. In
addition, the Risk Management Team (RMT) meets on a monthly basis to review
hedging strategies and performances for both currency and fuel.
The Company generates a surplus in most of the currencies in which it does business, with the exception of the US dollar. As such, the Company can experience adverse or beneficial effects arising from exchange rate movements. For instance, it is likely to experience an adverse effect from a strengthening of the US dollar and a beneficial effect from a strengthening of other foreign currencies in which it has a surplus, especially
the Euro.
Foreign exchange exposure arising from transactions in various currencies is
reduced through cash flow planning and a policy of matching, as far as possible,
receipts and payments in each individual currency. Surpluses of convertible
currencies are sold, on a spot or hedged basis, to meet US dollar obligations.
The Company maintains a minimum hedge ratio of 3O% and a maximum ratio of 7O% of
its known and anticipated
requirements of US dollars. Transaction risks are selectively and actively
hedged within a twelve month horizon using approved financial instruments. The
average hedge ratio for the financial year 2OO6-O7 was 62%.
The Company's fuel risk management strategy aims to provide the airline
protection against sudden and significant increases in oil prices which can have
a significant impact on the operating results while ensuring that the airline is
not competitively disadvantaged in a serious way in the event of a substantial
fall in the price of fuel.
Air Mauritius has a fuel price hedging strategy with a maximum time horizon of
24 months. Hedges are concluded on crude oil, gas oil and jet fuel. Although, the
normal policy is to hedge between 3O to 7O% of exposure, the Company was hedged
at 82% of the fuel requirements for the year ended 31 March 2OO7 after obtaining
a derogation from the Risk Management Steering policy as per the approved
policy.
To manage counterparty credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure to a single counterparty, and monitors the market position of the programme and its relative market position with each counterparty. This mitigates the risk of material loss arising in the event of non-performance by counterparties. As maximum risk exposures are based on credit assessments by recognised rating agencies, the actual risk of default in financial market transactions is limited.
The Company's earnings are also affected by changes in interest rates due to the impact of such changes on interest income and expense from short term deposits and other interest bearing financial assets and liabilities. The Company manages its interest rate risks by keeping a portfolio of loans which carry both fixed and floating rates. Moreover, cash surpluses are invested in floating rate instruments. This acts as a mitigating factor since investment income goes up when rates are on the rise.
Passengers and staff must be assured of security at airports and at all our work areas including on board the aircraft. Air Mauritius' security procedures include policies and systems for:
In accounting terms, hedges are classified into three types: fair values hedges, where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, where variable rates of interest or foreign exchange are exchanged for fixed rates and hedges of net foreign investments translated into the Company's functional currency the Euro.
The Company uses derivative instruments such as futures, forwards, swaps and options in the foreign exchange, fuel and interest markets to hedge risk.
Insurance: the Company carries insurance of
types customary in the airline industry
and at amounts deemed reasonable and
adequate to protect its properties, to
comply with civil aviation regulations
and to comply with some credit and lease
agreements. The policies principally
provide "AII Risks and War and Terrorism"
coverage for loss or damage to aircraft,
engines and spare parts, public and
passenger liability, property damage, cargo
and baggage liability, and
employee liability.
Claims not covered by or exceed insurance:
the Group believes that its insurance cover
would substantially mitigate the effect of
claims likely to be brought against the
Group in foreseeable circumstances. However
even though the Group takes care to
update its limits based on trends worldwide
,insurance limits can sometimes be broken
or uncovered claims may emerge with
consequent risk of additional cost or loss.
Although the control of departmental
level
risks falls under the responsibility of
departmental heads, the Treasury & Risk
Management Section works with each
department individually in order to
identify major risks and develop an
action plan for reducing the risks
identified to acceptable levels.
Critical risks are reported to the Risk
Management Steering Committee
and the Board.
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