annual report 2012 - oman air · annual report 2012 5 contents ... management discussion and...

annual report 2012

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His Majesty Sultan Qaboos bin Said

5ANNUAL REPORT 2012

contentsOur Board of Directors .................................................................................................................. 06

Chairman’s Statement ................................................................................................................... 08

Chief Executive Officer’s Statement ................................................................................10

Our Leadership Team ........................................................................................................................12

Management Discussion and Analysis ..........................................................................38

Auditor’s Report on Corporate Governance .......................................................... 44

Corporate Governance Report ..............................................................................................45

Auditor’s Report on Financial Statements ................................................................50

Statement of Financial Position .............................................................................................51

Statement of Comprehensive Income ..........................................................................52

Statement of Changes in Equity ...........................................................................................63

Statement of Cash Flows .............................................................................................................54

Notes to the Financial Statements ....................................................................................55

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7ANNUAL REPORT 2012

Our Board of Directors1. HE Darwish bin Ismail bin Ali Al Bulushi - Chairman of the Board

Minister Responsible for Financial Affairs

2. H.E. Maitha bint Saif bin Majid Al Mahruqi - Deputy Chairman Undersecretary of the Ministry of Tourism

3. Major-General Salim bin Muslem bin Ali Qatan - Director (Not in picture) Commandant of the College of National Defence

4. H.E. Mohsin bin Khamis bin Ghulam Al Balushi - Director Advisor of the Ministry of Commerce & Industry

5. H.E. Eng. Salim bin Nasser bin Said Al Aufi - Director CEO, Public Authority for Civil Aviation

6. Dr. Mohamed bin Ali bin Mohamed Al Barwani - Director Chairman, MB Holding

7. Sheikh/Nasser bin Sulaiman bin Hamed Al Harthy - Director Director of the Department of Financial Investments, Ministry of Finance

8. Mr. Vasudevan Thulasidas - Director Aviation Expert (Advisor to the Board)

Chairman’s Statement

On behalf of the Board of Directors, it gives me great pleasure to welcome you to the 31st Annual General Meeting and to present to you the Annual Report for the financial year ending 31st December 2012.

2012 brought new leadership and dynamism to Oman Air in the form of our Chief Executive Officer, Wayne Pearce. His appointment in January 2012, brought with it the opportunity to undertake a thorough review of Oman Air’s operations and subsequently to introduce new structures, appoint new members of the management team and improve efficiency throughout the Oman Air Group. At the same time as this consolidation of our operations, we have continued to expand, introducing new aircraft, products and services and invest in training at all levels of the organisation. Throughout these processes, we have ensured that our focus is underpinned by two key principles: to ensure the best possible passenger experience for our customers and to continue our inexorable progress towards profitability.

This year’s results show the success that holding both these principles close can achieve. In 2012, Oman Air carried 4,430,383 passengers, an increase of 17 percent compared with 2011, against a global increase in demand of just six percent and growth in demand across the Middle East of 15.4 percent. Furthermore, despite our increase in capacity, seat factors increased by 4.3 percent to 77 percent. We also served more than six million meals - nearly a million, or 19 per cent, more than in 2011.

Oman Air’s financial progress continued impressively in 2012, with revenues increasing by 21 per cent to 347,042,000 Omani Rials and our loss – largely the result of our long term investment in new aircraft - being reduced by 11 percent to 97,467,000 Omani Rials.

These very positive figures reflect the continued increase in demand for the quality, reliability, choice and value that Oman Air offers for air travellers across three continents. Those virtues have provided, together with our restated commitment to offering our customers the very best in 21st Century air travel, the foundation for the many new developments that we have unveiled this year.

Having received our first two Embraer E175 jets in 2011, we were pleased to add two more of these excellent aircraft to our fleet in September and November, allowing us to offer even greater comfort and reliability for passengers on services within the Gulf region. They have also enabled us to deliver greater flexibility in route planning and are an excellent complement to our Boeing B737 and Airbus A330 aircraft. We have also taken delivery of two wet-leased B737 aircrafts which have given us the opportunity to increase frequencies on a number of services to India and Pakistan.

Meanwhile, the world-renowned quality of our A330 fleet continues to attract international acclaim. On 12th July, 2012 the World Airline Awards declared Oman Air as the winner of the ‘World’s Best Business Class Airline Seat’ category, with our A330 First Class seat and Business Class cabin also

being singled out for praise. Our staff service, catering and airport lounges were also commended at the awards, which were announced just days before the opening of our newest lounge, the Oman Air Majan Lounge, at Muscat International Airport.

This brand new facility builds on the success of our First Class and Business class lounges at Muscat and our Business Class lounge at Bangkok and enables, upon payment of a modest fee, Oman Air’s Economy Class passengers, and those of a number of other airlines, to prepare for their flights in a superbly-designed luxurious, comfortable and relaxing environment.

The outstanding quality of all our lounges at Muscat International Airport are now complemented by the superb new premium class check-in counters, which were opened in the second half of 2012 and have been designed to further enhance the excellent passenger experience enjoyed by our First Class and Business Class Customers. Our premium customers play an invaluable role in Oman Air’s success and we will continue to find new ways to exceed their expectations over the coming year.

All our customers, however, are greatly valued and initiatives such as the expansion of our web check-in service, increased engagement through social media, the launch of our extremely popular new service between Muscat and Tehran and our new charter service between Muscat and Jaaluni have delivered even greater choice and convenience for all.

Elsewhere, our cargo business has mirrored the success of our passenger services and has continued to exceed not only our own figures for last year, but also those for the industry as a whole. In 2012, we carried 42,000 tonnes of cargo, an increase of 29 per cent compared with the previous year. When compared with the global air cargo sector’s decline of 1.5 percent over the same period and the Middle East air cargo sector’s growth of 14.7 percent, Oman Air’s position is a healthy one and the 21 million Omani Rials of revenue that our cargo business generated during 2012 made a valuable contribution to this year’s overall financial results.

Much of this success is due to the hard work and commitment of our staff, throughout the Oman Air Group and over the last year we have continued to recognise their importance by investing in training and supporting career development. Indeed, the Oman Air Training Centre has, for the second year running, been recognised by IATA as being one of the Middle East Top Ten Authorised Training Centres. Furthermore, a series of intensive training courses was followed in March by our CEO presenting Oman Air’s revenue accounting staff with IATA Diplomas in Revenue Accounting and Control.

Effective recruitment is also vital and I am pleased to note that we have appointed staff of the highest calibre, many of them Omani citizens, to positions at every level of the company. We have also invested in the future by running an initiative, again under the aegis of our Training Centre, to provide trainees with the skills and experience they need to apply for and

9ANNUAL REPORT 2012

succeed in jobs within their chosen fields, as well as publishing clear criteria for the recruitment and training of Omani cadet pilots.

As an international airline, Oman Air employs staff of many different nationalities at all levels of our structure. However, as the proud national carrier of the Sultanate of Oman, we take very seriously our important role of nurturing and promoting the skills and abilities of the Omani people and of supporting every member of our country’s workforce in achieving his or her full potential. As such, we are passionate advocates of His Majesty’s policy of Omanisation and I am pleased to report that the number of Omani employees at all levels within Oman Air has once again increased and now stands at 66 per cent. I am confident that this percentage will increase further over the coming year and look forward to welcoming even more Omani men and women to the airline.

I would like to take this opportunity to thank my esteemed colleagues on the Board of Directors, the Executive Committee and the Audit Committee who have actively supported and advised the management of Oman Air and supported the last year’s success.

Finally, I would like to thank His Majesty Sultan Qaboos bin Said, and His Government, for their invaluable advice, encouragement and guidance. My colleagues on the Board and within Oman Air’s management join me in expressing our gratitude to His Majesty for his vision, his kind benevolence and his support.

Darwish bin Ismail bin Ali Al Bulushi Chairman of the Board

Chief Executive Officer’s Statement

After a full year since my appointment as Chief Executive Officer of Oman Air in January 2012, Oman Air has continued to go from strength to strength, building on its reputation for quality, choice and value to deliver a unique and outstanding passenger experience.

Despite ongoing economic uncertainty across much of the world, continuing high fuel prices and challenging aviation tax regimes in many of our markets, we have carried more passengers to more destinations aboard more aircraft than ever before.

In 2012, Oman Air carried 4.4 million customers, a 17 percent increase on the previous year, and enjoyed a seat factor of 77 percent, up from 73 percent compared with 2011. We served over 6 million meals–nearly a million more than last year–and carried 42,000 tonnes of cargo, up by an impressive 29 percent on last year.

We also increased the range of choices we offer our customers by launching a new service to Tehran on 1st September, enlarging our network to 42 destinations across three continents and building on the success of the Zurich service, which we opened at the end of 2011. Furthermore, in November we started a new charter service between Muscat and Jaaluni, in support of the economic development of the Duqm area, and the following month we increased our already-significant range of travel options as a result of our new codeshare agreement with Qatar Airways.

In addition, in September and November we added two further Embraer E175 jets to our fleet, which enabled us to increase efficiency and reduce flight times to domestic and regional destinations. Our Boeing B737-800 fleet has also received a boost with the recent introduction of two wet-leased aircraft which have enabled us to increase frequencies to double-daily on our routes from Muscat to Chennai, Delhi and Hyderabad and to daily on services from Muscat to Lahore and Islamabad.

Vitally, however, we have increased our revenues by 21 percent to over 347 million Omani Rials and reduced our losses by 11 percent to 97 million Omani Rials, confirming Oman Air’s sustained progress towards profitability.

These are major achievements and could not have been attained without the commitment, energy and creativity of our employees throughout the company. As I have travelled throughout our network, I have been fortunate to have been able to engage with a large number of staff, whose comments and suggestions have demonstrated an impressive level of initiative and determination to provide our customers with the highest levels of care, hospitality and value. We have been able to act on many of those suggestions and our continuous search for improvement in everything we do has benefited greatly.

This is clear not only from our financial progress and increased passenger numbers over the last year, but also from the acclaim we have received from the travelling public and the aviation sector as a whole.

In July, Oman Air received - for the second year running - the ‘World’s Best Business Class Airline Seat’ award at the World Airline Awards. Operated by independent airline quality experts Skytrax, these awards are decided following a year-long survey of air travellers throughout the world and are therefore judged by those whose opinions perhaps matter most: our customers. We also achieved second place in the ‘Best Airline Staff Service in the Middle East’ and ‘Best First Class Onboard Catering’ categories, third place in the ‘World’s Best Business Class’ category and top ten positions in the Best Airline in the Middle East’, ‘Best Business Class Onboard Catering’, ‘Best Economy Class Onboard Catering’, ‘Best First Class Airline Seat’ and ‘Best Business Class Airline Lounge’ categories, ensuring global recognition for the quality of Oman Air’s product across the board.

Further awards over the course of the year recognised the airline as a whole, our Business Class cabins and even the quality of our amenity kits, showing that our attention to detail really is appreciated by customers.

Our on-time performance on departures across our network had heavy focus in 2012, and appreciable improvements to company standards were achieved.

It is that attention to detail of the passenger experience which has also underpinned a number of customer-facing initiatives which we have unveiled over recent months. For example, we have increased the period of time during which passengers can use web check-in, from between 24 hours and 36 hours. Passengers now can also check in up to 90 minutes prior to take-off, down from 2 hours. We have opened outstanding new premium check-in counters at Muscat International Airport, which complement our superb First and Business Class lounges, and launched our new Majan lounge, again in Muscat, which offers comfort and luxury for those of our economy class customers, and customers of other carriers, who want to relax and enjoy Oman Air’s hospitality before they board their flights.

However, quality and attention to detail alone do not deliver commercial success and our ability to effectively promote and sell our products and services has played a crucial part in 2012’s encouraging results.

Our sales teams have set, and have met, challenging targets, which have been achieved by ensuring that we offer fares that are both competitive and realistic, and also by working closely with the global travel trade. Initiatives such as our Pan-European Road Show and participation at events such as ITB Berlin, Arabian Travel Market, Expo Yeoso 2012 - for which we won a Gold Award–and World Travel Market have enabled us to strengthen contacts with existing customers, as well as forge new relationships and attract new business.

11ANNUAL REPORT 2012

Meanwhile, our promotional activities have been intensive and widespread, resulting in international recognition of Oman Air’s brand which has been further boosted by our association with sporting success. Our sponsorship of Oman Sail’s participation in the Extreme Sailing Series, motorsports star Ahmad Al Harthy and the Omani national football team have helped to put Oman Air firmly within the gaze of the global media, as well as raised awareness of the unique attractions that the Sultanate of Oman holds for travellers from around the world.

Our commitment to promoting tourism to Oman has remained undimmed over the last year and our partnership with the Ministry of Tourism has been both strong and productive, with joint promotions and events taking place across our network. In addition, we have been proud to once again be named as Official Carrier of both the Muscat Festival and the Salalah Tourism Festival, the success of the latter contributing to our operation of 440 extra flights, carrying an additional 45,585 passengers, on our Muscat to Salalah service between 13th June and 30th September. Our total seat increase on the route was +24 percent.

These outstanding results have only been possible due to the outstanding quality of our aircraft and their onboard product, the seamless passenger experience we offer and the continued hard work and dedication of our employees right across the Oman Air network.

I wish to record my thanks to Oman Air’s management team and all of our staff for their invaluable support and for their commitment, enthusiasm and positivity towards customers and colleagues. They have risen magnificently to both the challenges and opportunities of the last 12 months and their efforts are greatly appreciated.

I am also grateful for the continuing support and guidance provided by the Government of Oman, His Excellency the Chairman and the Board of Directors, and for the enduring trust they have placed in me. I look forward to continuing to work closely with them to take Oman Air to even greater heights.

Wayne Pearce Chief Excecutive Officer

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13ANNUAL REPORT 2012

Our Leadership Team1. Wayne Pearce - Chief Executive Officer

2. Abdulaziz Al Raisi - Chief Officer Management Affairs

3. Japeen Shah - Chief Financial Officer

4. Abdulrazaq Alraisi - Chief Commercial Officer

5. Ahmed Al Nabhani - Chief Officer Support Services

6. Philippe Georgiou - Chief Officer Corporate Affairs

7. Ali Sulaiman - Chief Officer Flight Operations

8. Andrew Walsh - Chief Officer Airport Operations (Not in picture)

9. Markku Nokala - Chief Officer Network and Planning

10. Salim Al Kindy - Chief Technical Officer

11. Mohammed Al Musafir - Chief Officer Internal Audit

12. Gerry Mitchell - Chief Officer IT

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ANNUAL REPORT 2012 15

oman discover a new global destination


promoting inbound tourismThe Sultan Qaboos Mosque in Muscat is a glorious testament to Islamic architecture, with a unique single-piece prayer mat and stunning crystal chandeliers _ a must-see for tourists. Sights such as these have contributed to tourism in Oman rising significantly in recent years. In fact, Muscat was named the Arab Capital of Tourism in 2012.

Sultan Qaboos Grand Mosque


travel & tourismNestled in a turquoise bay, with beautiful Arabian imagery, Shangri La’s Bar Al Jissah Resort & Spa is one of the finest in the world. Employment has opened up in areas ranging from travel and catering agencies to hotels and resorts. The hospitality sector is burgeoning with opportunities today, for the youth of Oman.

Tourism in Oman in 2011

Total travel and tourism in OmanValue added contribution to GDP: OMR 1.650 million

Employment supported: 70,000

Foreign visitors to OmanValue added contribution to GDP: OMR 604 million


Foreign visitor arrivals by airValue added contribution to GDP: OMR 302 million


Source: WTTC, Ministry of Tourism

Barr Al Jissah Resort & Spa - Shangri-La


adventure tourismOman’s magnificent landscape offers thrill-seekers a variety of ways to get that adrenaline rush. Featured here is Majlis Al Jinn, the second-largest cave in the world. Rock climbing, rappelling, biking and a host of underwater adventures await.

Tour of Oman

The first Tour of Oman was held in 2010, with the objective of creating a new world class platform for competitive cycling, and encouraging young Omanis to adopt this healthy sport. Since then, every year, Oman has welcomed the biggest names in cycling to take on the challenge of our dramatic landscape, showcasing what determination and perseverance can achieve.

Cliff Diving World Series

The first-ever cliff diving event was held in Oman in 2012 and was a runaway success. Wadi Shab in Oman played host to the finals of the Red Bull Cliff Diving World Series, as top divers leapt from a 27-metre high platform to showcase their skills.

Majils Al Jinn


heritage & historySituated about 200kms away from Muscat, Bahla Fort comprises the ruins of a typical Omani military fortress built in the 14th century and is today a UNESCO World Heritage Site. Heritage tourism is another area gaining significance, bringing an increasing number of visitors into Oman aboard Oman Air last year.

Other UNESCO World Heritage sites in Oman

• Aflaj Irrigation Systems of Oman

• Archaeological Sites of Bat, Al Khutm and Al Ayn

• Land of Frankincense: Wadi Dawkah, Ubhar and Khor Rori

Bahla Fort


eco-tourismRas Al Jinz in Sur is one of only three beaches in the world where the endangered Green Turtle comes to nest. This is today a protected area which attracts tourists from all over the world who are environmentally conscious.

Key Natural Reserves In Oman:

Arabian Oryx Sanctuary at Jiddat Al Harasis

Al Ansab Lagoon

Marine Turtles Nature Reserve

The Al Daymaniyat Islands Nature Reserve

Al Saleel Natural Park

Jabal Samhan

Wadi Sareen Reserve

The Khawrs of Dhofar

Ras al Jinz


oman air giving wings to the nation’s dreams


bringing the world to omanIn line with the Sultanate’s vision to make Oman a global destination, Oman Air offers the highest standards of comfort and convenience, making it the first choice of inbound travellers.

Number of international guests in hotel’s accommodation by nationality in 2011.

Oman Air accounted for 57 percentage of international passengers at Muscat and Salalah airports in 2011.

Applying this to the total impact of foreign visitors arriving by air and adjusting to account for expenditure on airfares suggests that tourists travelling by Oman Air supported an OMR 106 million value-added contribution to GDP and 4,600 jobs in 2011.

Source: Ministry of Tourism

32%

35%

5%

8%

17%

1%2% Asia

Europe

GCC

Arab States

America

Oceania

Africa


quality first, alwaysThe best talent and technology come together on Oman Air, to assure the highest standards of quality. On ground and in the air, our team prides itself on attention to detail, earning us the world’s best accreditations.

• Oman Air’s Supply Chain Management Operation has been awarded ISO 9001 accreditation for proven processes in place to meet customer requirements.

• Oman Air has won the Best Inflight Connectivity & Communications Award in The 2011 Passenger Choice Awards created by APEX and voted on by travellers, designed to recognize airlines for their service, products and innovations.


the taste of perfectionStarting off with a warm welcome of our traditional Kahwa (coffee) and dates to give passengers a taste of Oman, the entire journey is filled with treats to make your flight a memorable experience.

Our menus are designed and suited to compliement destinations in conjunction with a dedicated team of professionals using only the highest quality and seasonal ingredients, thus enabling us to offer a varied menu and Arabic signature dishes.

• Oman Air Ground Operations department was awarded the AHS 1000 excellence certificate from IATA for compliance with the quality and control standards as per IATA specification no. 804.

• As proof of its dedication to Customer Service, Quality and Food Safety management, the Catering Business Unit of Oman Air was awarded the certificate of ISO 9001:2008 and ISO 22000:2005 by INTERTEK, LTD. The catering unit is also a registered Food Safety Training Centre of Chartered Institute for Environmental Health, UK.


creating opportunities‘People power’ is Oman Air’s greatest asset. By consistently nurturing talent and providing employees with opportunities to grow and develop, Oman Air contributes to the national goal of Omanisation and self-reliance.

Oman Air’s total economic impact in 2011.

The direct, indirect and induced impacts combined supported an OMR 130 million value-added contribution to GDP and 10,200 jobs in 2011.


raising the barVoted Best Business Class Seat in the world, two years in a row.

Over 18 million airline passengers across the world can’t be wrong! This prestigious accolade is in addition to 8 more global accolades awarded to Oman Air in recent times by Skytrax. A reflection of Oman Air’s commitment to providing passengers the gold standard in luxury.

Overall economic contribution in 2011.

The direct, indirect and induced impacts combined, including tourism and catalytic impacts, supported an OMR 333 million value-added contribution to GDP (2.4% of non-oil GDP).

ANNUAL REPORT 201238

MANAGEMENT DISCUSSION AND ANALYSIS

Review of Financial Performance Review of Financial Performance Key Performance Indicators

19,769Round trips

4.4 millionPassengers flown

77%Seat factor

13.4 billionASK or Capacity, measured as seat kilometers flown

10.3 billionRPK or Utilisation, measured as passenger kilometers flown

12.9 hours per dayAircraft Utilisation

37,188 flights Handled at Muscat International Airport

7.5 millionPassengers handled at Muscat International Airport

6.0 millionMeals catered to flights at Muscat International Airport



FINANCIAL AND SECTOR PERFORMANCE

Our net loss for the year 2012 was RO 97.467 million, compared to a net loss of RO 109.860 million in the year 2011, an improvement of RO 12,393 million (+11%)

20122011201020092008 20122011201020092008(9

7,46

7)

(109

,860

)

(78,

087)

(64,

281)

(42,

755)

(84,

249)

(96,

598)

(67,

398)

(63,

145)

(41,9

56)

NET PROFIT/(LOSS)RO’ 000

OPERATING PROFIT/(LOSS)RO’ 000

REVENUE

Revenue increased by RO 59.501 million or Revenue Composition in 201221% over the previous year. compared to 2011 is as follows:

347,

042

287,

541

230,

418

164,

255

153,

248

20122011201020092008

REVENUERO’ 000

REVENUE COMPOSITION

2012

B-6%

A-85%

C-3%D-1%

E-3%F-1%G-1%

2011

B-6%

A-84%

C-3%D-1%

E-4% F-1%G-1%

2012 RO Millions

2011 RO Millions

A Scheduled Services – International 295.2 242.7

B Scheduled Services – Domestic 19.3 16.2

C Air Charter 9.9 9.1

D Handling Fees – Engineering 3.3 3.1

E Handling Fees – Others 12.1 10.4

F Catering 3.3 2.5

G Hotel & Other Revenue 3.9 3.5



SCHEDULED SERVICES

Scheduled services revenue rose from RO 258.9 million in 2011 to RO 314.5 million in 2012, up RO 55.6 million or 22%. During the year, Oman Air commenced operations to Tehran. Available Seat Capacity (ASK) increased by 15%. Utilization (RPK) increased by 22%, higher than increase in capacity resulting in improved average Seat Factor from 72.7% in 2011 to 77.0% in 2012. Average net passenger yield increased by 7%. Despite increasing competition from the major players, Oman Air has successfully established its presence on most of its routes.This has been achieved with continued focus on product, high frequencies, on-time performance, quick turnarounds, convenient flight timings, good connectivity and high standards of customer service both on the ground and in the air.

AIR CHARTER SERVICES

Air charter services comprising of jet aircraft operations dedicated to Petroleum Development of Oman and turbo prop aircraft operations dedicated to Occidental and Jaaluni recorded revenue of RO 9.941 million in 2012.

HANDLING FEES

Handling revenue from airlines other than Oman Air for the year was RO 15.357 million compared to RO 13.512 million in last year, an increase of RO 1.845 million (+14%). This was mainly due to:

•Airlines, other than Oman Air, increased their operations from 16,727 to 17,433 flights, (+4%)

•Wide body flight movement increased from 5,985 to 6,156 flights, (+3%) and narrow body flight movement increased from 28,570 to 31,032 flights, (+9%)

20122011201020092008 20122011201020092008

4,43

0

5,50

93,

551

7,05

14,

308

9,64

06,

960

11,6

358,

457

13,3

5110

,286

3,79

6

3,26

3

2,36

1

1,985

PASSENGERSNo. Passengers ‘000s

OPERATING PROFIT/(LOSS)RO’ 000

0

3500

7000

10500

14000

25%

0%

50%

75%64%

ASK (millions) RPK (millions) Seat factor (%)

61%72% 73% 77%

100%

20122011201020092008

Flights handled at Muscat International AirportCargo Tonnage Handled - TonnesPassengers Handled at Muscat International Airport (’000s)

4,00

0

52,5

96

23,19

4

4,55

7

53,8

75

27,9

86

5,75

2

73,2

53

33,7

75

6,48

0

73,4

55

34,5

55

7,46

7

83,8

62

37,18

8



CATERING

Catering revenue from airlines other than Oman Air for the year was RO 3.267 million, a increase of RO 738,000 or (+29%) over the previous year’s revenue of RO 2.529 million.

Total Occupied RoomsTotal Available Rooms

Occupancy Ratio (%)

20122011201020092008

6,03

8

5,07

7

4,50

7

3,51

1

3,21

0

Meals uplifted at Muscat International AirportNo. of Meals ‘000s

Note: Above includes, meal uplifted for Oman Air

41,5

71

64,6

05

43,0

28

64,6

05

43,7

39

64,7

82

20122011201030000

40000

50000

60000

70000

0%

25%

68%67%

50%

75%

100%

64%

ROOMS, FOOD AND BEVERAGE REVENUE

Revenue for the year was RO 3.278 million, an increase of RO 22,000 or (+1%) over the previous year’s revenue of RO 3.256 million.

Total Occupied RoomsTotal Available Rooms

Occupancy Ratio (%)

20122011201020092008

6,03

8

5,07

7

4,50

7

3,51

1

3,21

0

Meals uplifted at Muscat International AirportNo. of Meals ‘000s

Note: Above includes, meal uplifted for Oman Air

41,5

71

64,6

05

43,0

28

64,6

05

43,7

39

64,7

82

20122011201030000

40000

50000

60000

70000

0%

25%

68%67%

50%

75%

100%

64%



EXPENDITURE

Net Expenditure increased by 12% from RO 384.139 million to RO 431.291 million.

431,2

91

384,

139

297,

816

227,

400

195,

204

20122011201020092008

EXPENDITURE(RO’ 000s)

COMPOSITION OF EXPENDITURE

2012

A-5%J-1%

K-5%

B-36%

C-6% D-11%E-6%

F-1%

G-23%

H-1%I-6% A-5%

J-1%K-4%

B-34%

C-7% D-11%E-7%

F-1%

G-23%

H-1%I-6%

2011

Expenditure composition in 2012 compared to 2011 is as follows:

2012 RO Millions

2011 RO Millions

2012 RO Millions

2011 RO Millions

A Operating lease rentals on aircraft 19.5 19.4 G Employee cost 97.2 87.3B Fuel cost 154.1 132.0 H Insurance cost 2.0 1.9C Maintenance cost 27.7 26.0 I Depreciation 26.6 24.0D Other aircraft operating expenses 47.0 40.3 J Amortization/impairment 1.7 3.0E Passenger related cost 27.5 25.1 K Others 22.8 20.5F Catering materials consumed 5.2 4.6

Our fuel cost increased by RO 22.168 million or 17% mainly due to increase in operations. The average network fuel price was 3.18 USD/USG compared to 3.14 USD/USG in the previous year, up 1%.

Maintenance costs and other aircraft operating expenses comprising of handling, landing, navigation, crew layover and simulator cost increased due to the increase in operations in comparison with the previous year.

Passenger related cost increased by RO 2.483 million or 10% compared to 17% increase in passenger traffic in 2012. The increase was mainly due to increase in passenger meal cost, reservation cost and passenger service cost.

Our employee cost increased by RO 9.939 million or 11% compared to last year mainly due to increase in staff strength, increase in overtime cost with the implementation of amendments to oman labour law and increase in salaries to staff during the year. The Company’s manpower increased from 5,375 in 2011 to 5,562 in 2012, up 4%. During the year, the increase in manpower was restricted to critical operational requirements to support the increase in operations and to positions that would add value in terms of enhanced customer service, productivity and profitability.

Company’s insurance costs increased by RO 65,000 or 3% and depreciation increased by RO 2.627 million or 11% compared to last year. Increase in costs was mainly due to increase in operations and aircraft fleet strength.

Amortization/impairment cost comprising of impairment of goodwill paid for acquisition of Hotel Golden Tulip, Seeb and impairment of landing slots.

CONCESSION FEE

The Company pays a concession fee to Oman Airport Management Company, the airport operator at Muscat and Salalah airports. The Company pays 7.5% of its ground handling and cargo handling revenue and 5% of its catering revenue as a concession fee. The impact of the concession fee in 2012 was RO 1.073 million as against RO 940,000 in 2011. The increase in concession fee is mainly due to increase in ground handling and catering revenue generated during the year.

FINANCIAL POSITION

Non-current assets rose from RO 437.835 million in December 2011 to RO 451.726 million in December 2012 mainly due to purchase of two Embarer - E175 aircraft. Apart from this, the company also invested in ground equipment, aircraft rotables and other assets to support increased operations.

During the year, the Government of Oman contributed RO 85 million, reaffirming their support.



Non-current liabilities increased by RO 32.824 million as at 31 December 2012, compared to 2011, due to long term financing availed for two Embarer E175 and additional loan for pre-delivery payments of aircraft.

Current assets increased by RO 37.551 million, mainly due to increase is cash and bank balances, due to drawdown of short term loans in the last week of December 2012 to meet aircraft pre-delivery payments due in 2013.

Current liabilities increased by RO 31.041 million as at 31 December 2012 mainly due to increase in trade payables in line with the increased operations.

INTERNAL CONTROLS

The Company has an adequate internal control system commensurate with its size and the nature of its business. The Internal Audit department continues to maintain its focus on internal controls in all critical activities. Further, Statutory audit, State audit and the Audit Committee augment review of internal controls within the Company. During 2011, no material lapse or weakness in controls has been identified.

THE PEOPLE OF OMAN AIR

With its development as an airline of stature internationally, Oman Air has also become an employer of choice, offering premium employment and career development opportunities to a wide cross section of people.

In keeping with the national initiative that seeks to enhance job opportunities for Omani nationals, the airline prioritises job offers to Omani nationals possessing the requisite skills.

The Company staff strength at 31 December 2012 was 5,562 employees. Oman Air achieved an Omanisation ratio of 66%, without compromising on the quality of service provided to customers. This is a significant achievement considering the fact that the airline requires staff with multi-linguistic skills to serve a wide spectrum of customers across the network.

Career Development Path programmes have been successfully implemented across key functions and responsibilities in all departments, and staffs are undergoing external and internal programmes to improve their skill sets.

20122011201020092008

MANPOWER STRENGTH AND OMANISATION RATIO

1000

2250

3500

4750

6000

0%

63% 62% 63% 65% 66%

25%

50%

75%

100%

4,08

2

4,86

6

5,09

5

5,37

5

5,56

2


CORPORATE GOVERNANCE REPORT



In accordance with the Capital Market Authority (CMA) circular # 11/2002 dated 3 June 2002, we are pleased to present the eleventh Corporate Governance Report of Oman Air (SAOC) (the Company) for the year ended 31 December 2012.

Corporate Governance is mandatory for all the public companies listed in Muscat Securities Market (MSM). The Company is a closed Omani joint stock company (SAOC) and therefore is not required to comply with CMA circular stated above. However, the Board is adopting this circular as a best corporate governance practice to ensure high levels of transparency and accountability in its conduct of business.

The Auditors have performed the procedures prescribed in the Capital Market Authority Circular No. 16/2003 dated 29 December 2003 with respect to the Corporate Governance Report of the Company and its application of the Corporate Governance practices in accordance with the CMA Code of Corporate Governance issued under Circular No. 11/2002 dated 3 June 2002, and its amendments.

COMPANY’S PHILOSOPHY

The Company has and will continue to uphold the highest standards of corporate governance. The Company’s focus has been on best business practices that are ethical and fair while achieving ultimate objective of enhancing long term shareholder value. Appropriate systems and procedures are continuously developed to evaluate and monitor the Company’s processes and performance to ensure they meet high standards of corporate governance.

BOARD OF DIRECTORS

The Company’s Board comprises of eight Non-Executive and Non-Independent Directors. Seven Directors including the Chairman represent the Government’s shareholding and are appointed in accordance with the Article (132) of the Commercial Companies Law of No. 4/74 and amendments thereto. The Government Nominees are Ministers, Undersecretaries and Directors in the Government undertakings and one of them is a businessman of high repute from the private sector. The eighth member of the Board has been appointed as an advisor to the Board with relevant airline industry background.

FUNCTIONS OF THE BOARD

The Board appoints all members of the Executive Management and decides their remuneration. The Board approves business plans and financial policies of the Company. The Board reviews policies and regulations governing company activities and specifies authorities and responsibilities of key management members. The Board reviews the Company’s long term and yearly financial plans and key objectives. The Company’s performance is reported to the Board on monthly basis and the same is reviewed and discussed in the Board meetings.

The Board appoints sub-committees including audit committee and evaluates their functions and performance. The Disclosure policy of the Company, which is in line with the Code of Corporate Governance, has been approved by the Board and implemented.

The Board reviews the risk management strategy implemented by the Management to ensure that the major risks faced by the Company are adequately mitigated and the processes are in place to maintain Integrity of the financial statements, compliance with law and internal control systems. The Board approves the quarterly, half yearly and annual financial statements. The Board reports to the shareholders, through the annual report, about the going concern status of the Company, with supporting assumptions.

PROCESS OF NOMINATION OF THE DIRECTORS

Seven members including Chairman of the Board are appointed by the Government and one member is appointed by the Board of Directors as an advisor with relevant airline industry background.

Entity REpRESEntED by non-inDEpEnDEnt DiRECtoRS

There are seven Non-Executive and Non-Independent Directors representing the Government of The Sultanate of Oman’s Shareholding in the Company.



BOARD MEETING NUMBER AND DATES

BOARD MEETING NO. BOARD MEETING DATE

1 – 2012 4 January 2012

2 – 2012 30 January 2012

3 – 2012 29 February 2012

4 – 2012 21 March 2012

5 – 2012 10 April 2012

6 – 2012 13 May 2012

7 – 2012 2 September 2012

8 – 2012 2 October 2012

9 – 2012 7 November 2012

10 – 2012 14 November 2012

11 – 2012 19 December 2012

There have been no material related party transactions between the Company and its directors. Specific related party transactions are disclosed to the shareholders at the ordinary general meeting.

REMUNERATION MATTERS

All directors including Chairman are Non-Executive and do not draw any fixed salary from the Company except one director who has been appointed as an advisor to the Board with relevant industry background.

The total remuneration paid to the Board of Directors as sitting fees for financial year 2012 was RO 26,150 for Board meetings, RO 5,050 for Executive Committee meetings and RO 4,150 for Audit Committee meetings.

Each employee of the Company draws salary based on ‘job group’ assigned to his job. Job groups are assigned to different jobs based on the duties, responsibilities, skills and experience relevant to such jobs.



Remuneration of Top Five Executives

Total (RO Per Annum)

Salary 692,000

Allowances 102,000

PASI/ESB 54,440

Total 848,440

Executive Committee

At present the Executive Committee carries out specific functions delegated by the Board of Directors. These functions include, review of budget proposals, review of management proposals concerning new routes, fleet rationalisation and new ventures.

Objective of the Executive Committee is to conduct an in-depth review of specific issues before the same are approved by the Board.

During 2012 the Executive Committee members consisted of four Non-Executive and Non-Independent Directors. Five meetings were held during 2012.

Audit Committee

During 2012 the Audit Committee members consisted of three Non-Executive and Non-Independent Directors. Five meetings were held during 2012 to discuss issues concerning Internal Control, Internal Audit plans and Internal/External Audit reports, quarterly financial statements and other related issues.



Audit and Internal Control

The Audit Committee has reviewed, on behalf of the Board, the effectiveness of the internal controls by meeting the internal auditor, reviewing the internal audit reports and recommendations, meeting the external auditor, reviewing the audit findings and the external audit management letter. The Audit Committee and the Board are pleased to inform the shareholders that reasonable internal control/systems are in place and that there are no significant concerns.

Means of Communication with the Shareholders and Investors

The complete quarterly results are also mailed to any shareholder upon written request, and are also available for inspection at the Company’s registered office. The Company produces comprehensive annual report for its shareholders. Audited annual financial statements with the Chairman’s report are sent by mail to each shareholder.

At the same time the Company gives press releases from time to time for all strategic issues, such as opening of new routes, change in fleet, financing agreements, etc. The Company also has its own website where airline related information is available.

Market Price Data

Due to change in the status of the Company from General Omani Joint Stock Company (SAOG) to Closed Omani Joint Stock Company (SAOC), Oman Air shares are traded in the parallel third market of Muscat Securities Market effective May 2007. Hence, market price data is not available.

Distribution of Shareholding

The major shareholders of the Company are as follows, with the Government of Sultanate of Oman being the major shareholder.

Major Shareholders

Name of the shareholder No. of Shares held Shareholding %

The Government of Sultanate of Oman 365,521,052 99.869

Specific Areas of non-compliance with the provisions of Corporate Governance

There are no specific areas of non-compliance.



PROFESSIONAL PROFILE OF THE STATUTORY AUDITOR

About KPMG

The shareholders of the Company have appointed KPMG as the auditors for the year 2012. KPMG is one of the leading accounting firms in Oman. The Oman practice of KPMG, which forms part of KPMG Lower Gulf, was established in 1974 and employs more than 130 people, amongst which are 4 Partners, 5 Directors and 20 Managers, including Omani nationals. KPMG Lower Gulf (UAE and Oman), is a member of the KPMG network of independent firms affiliated with KPMG International Co-operative. KPMG is a global network of professional firms providing Audit, Tax and Advisory services and has more than 152,000 outstanding professionals working together in 156 countries worldwide to deliver value along with robust audit opinions.

KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies.

The total audit fee paid/payable to the external auditor for the company for the financial year 2012 is as follows:

Audit fee RO 22,000

Quarterly review fee RO 6,000

Total RO 28,000

ACKNOWLEDGEMENT BY THE BOARD OF DIRECTORS

The Board of Directors acknowledges:

• That the Financial Statements prepard by the Management are in accordance with the applicable standards and rules applicable in the Sultanate of Oman.

• The review of the efficiency and adequacy of internal control system of the company and compliance with internal rules and regulations.

• That there are no material things that effect the continuation of the company and its ability to continue its operations during the next financial year.

Darwish bin Ismail bin Ali Al Bulushi Chairman, Oman Air


Independent Auditor’s Report to the Shareholders of Oman Air SAOC


Notes 2012 2011

ASSETS RO’000 RO’000

Non-current assets

Aircraft, property, plant and equipment 5 435,166 420,168

Goodwill 6 9,336 10,479

Other intangible assets 6 604 1,207

Available for sale investments 7 500 403

Equity accounted investee 8 2,270 1,799

Long-term receivables 9 3,850 3,779

Total non-current assets 451,726 437,835

Current assets

Inventories 10 14,051 13,228

Trade and other receivables 11 39,748 31,556

Term deposits 12 3,500 11,504

Cash and cash equivalent 13 53,347 16,807

Total current assets 110,646 73,095

Total assets 562,372 510,930

EQUITY AND LIABILITIES

Capital and reserves

Share capital 14 471,048 366,000

Share premium 14 - 20,048

Legal reserve 14 4,137 4,137

Investments revaluation reserve 7 197 153

Accumulated losses (387,328) (289,861)

Total equity 88,054 100,477

Non-current liabilities

Provision for maintenance of aircraft, engines and rotables 15 23,703 19,172

Borrowings 16 275,010 251,541

Employees’ end of service benefits 18 7,556 6,738

Deferred tax liability 25 14,067 10,061

Total non-current liabilities 320,336 287,512

Current liabilities

Current portion of provision for maintenance of aircraft, enginesand rotables 15 7,264 2,458

Current portion of borrowings 16 38,911 28,912

Trade and other payables 19 107,807 91,571

Total current liabilities 153,982 122,941

Total liabilities 474,318 410,453

Total equity and liabilities 562,372 510,930

Net assets per share 20 RO 0.241 RO 0.275

________________ ___________________

Chairman Director

The notes on pages 55 to 87 form an integral part of these financial statements.The report of the Independent Auditors is set forth on page 50.

Statement of financial positionas at 31 December 2012


Notes 2012 2011

RO’000 RO’000

Revenue 21 347,042 287,541

Expenditure 22 (431,291) (384,139)

Operating loss (84,249) (96,598)

Interest and investment income 23 535 789

Share of profits from equity accounted investee 8 1,570 1,390

Increase (decrease) in fair value of long-term receivables 71 (50)

Finance cost (10,315) (10,350)

Loss before concession fee and tax (92,388) (104,819)

Concession fee 24 (1,073) (940)

Loss before tax (93,461) (105,759)

Taxation 25 (4,006) (4,101)

Net loss for the year (97,467) (109,860)

Loss per share - basic and diluted 26 (RO 0.266) (RO 0.339)


Other comprehensive income

Fair value gain on available for sale investments 7 44 3

Total comprehensive loss for the year (97,423) (109,857)


Statement of comprehensive incomefor the year ended 31 December 2012


Share capital

Share premium

Legal reserve

Investments revaluation

reserve

Accumulated losses Total

Notes RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

1 January 2011 291,000 20,048 4,137 150 (180,001) 135,334

Total comprehensive loss for the year:

Net loss for the year - - - - (109,860) (109,860)

Other comprehensive income for the year - - - 3 - 3

Total comprehensive income (loss) for the year - - - 3 (109,860) (109,857)

Transactions with owners, recognized directly in equity:

Issue of shares 14 75,000 - - - - 75,000

Transactions with owners, recognised directly in equity 75,000 - - - - 75,000

31 December 2011 366,000 20,048 4,137 153 (289,861) 100,477

1 January 2012 366,000 20,048 4,137 153 (289,861) 100,477

Total comprehensive loss for the year:

Net loss for the year - - - - (97,467) (97,467)

Other comprehensive income for the year - - - 44 - 44

Total comprehensive income (loss) for the year - - - 44 (97,467) (97,423)

Transactions with owners, recognised directly in equity:

Government contribution to equity 14 85,000 - - - - 85,000

Conversion of share premium to share capital 14 20,048 (20,048) - - - -

Transactions with owners, recognized directly in equity 105,048 (20,048) - - - 85,000

31 December 2012 471,048 - 4,137 197 (387,328) 88,054

Statement of changes in equityfor the year ended 31 December 2012



2012 2011

RO’000 RO’000

Operating activities:

Loss before tax (93,461) (105,759)

Adjustments for:

Impairment of goodwill 1,143 2,385

Impairment of intangible assets 603 603

(Increase) decrease in fair value of long term receivables (71) 50

Depreciation of aircraft, property, plant and equipment 26,595 23,968

Employees’ end of service benefits charged for the year 1,329 1,592

Interest and investment income (535) (789)

Share of profit of an associated company (1,570) (1,390)

Finance cost 10,315 10,350

Provision (reversal) for doubtful debts 122 (10)

Provision for obsolete and slow moving inventories 898 405

(Gain) loss on sale of aircraft, property, plant and equipment (6) 21

(54,638) (68,574)

Working capital changes:

Inventories (1,721) (1,709)

Trade and other receivables (8,308) (2,174)

Trade and other payables 16,215 16,162

Provision for maintenance of aircraft, engines and rotables 9,337 5,455

Cash used in operations (39,115) (50,840)

Finance charges paid (10,294) (10,306)

Employees’ end of service benefits paid (511) (545)

Cash used in operating activities (49,920) (61,691)

Investing activities:

Purchase of aircraft, property, plant and equipment (41,599) (84,711)

Purchase of available for sale investment (53) -

Increase in goodwill - (738)

(Increase) decrease in term deposits 8,004 27,019

Interest and investment income received 529 891

Proceeds from sale of aircraft, property, plant and equipment 12 -

Dividend received from an associated company 1,099 1,550

Cash used in investing activities (32,008) (55,989)

Financing activities:

Issue of shares - 75,000

Government contribution to equity 85,000 -

Net borrowings availed 33,468 42,362

Cash flows from financing activities 118,468 117,362

Net change in cash and cash equivalents 36,540 (318)

Cash and cash equivalents at the beginning of the year 16,807 17,125

Cash and cash equivalents at the end of the year 53,347 16,807

Statement of cash flowsfor the year ended 31 December 2012



Notes to the Financial Statementsfor the year ended 31 December 2012

1. Legal status and principal activities

Oman Air SAOC (the Company) is a closed Omani joint stock company registered under the Commercial Companies Law of 1974, as amended.

The Company was formed under Royal Decree 52/81 dated 24 May 1981 and commenced its operations on 1 October 1981. The initial duration of the Company was for a period of 20 years from the date of commercial registration to 31 January 2002. Prior to expiry, the Company’s shareholders passed a resolution in an extraordinary general meeting on 27 January 2002 extending the Company’s duration for an indefinite period.

The Government of the Sultanate of Oman (the Government) holds 99.869% of the share capital of the Company as at 31 December 2012.

In an extraordinary general meeting held on 29 May 2007 the shareholders of the Company approved the transformation of the legal status of the Company from a General Omani Joint Stock Company (SAOG) to a Closed Omani Joint Stock Company (SAOC).

The principal activities of the Company are to transport passengers and freight on a scheduled and chartered basis and to provide ground handling, catering and other airline related services.

In an extraordinary general meeting held on 12 April 2009, the shareholders approved an amendment to the articles of association of

the Company. The amended articles of association allow the Company to establish and manage restaurants, coffee shops, hotels, apartments, tourist utilities, both inside and outside the airports, within the Sultanate of Oman or abroad.

Acquisition of business

Effective 1 January 2009 the Company acquired Golden Tulip Seeb (the Hotel). The Hotel is a division of the Company and is not a separately registered entity. The Hotel was acquired by the Company as a going concern from the Ministry of Tourism, Government of the Sultanate of Oman.

As on 1 January 2009, the following assets and liabilities were transferred to the Company except the land on which the Hotel is located. The Company has been given a right by the Government to use the said land on a rental basis initially for a period of 50 years, subsequently renewable with the mutual consent of both the parties.

RO ‘000

Current assets

Inventories 88

Trade and other receivables 346

Cash and cash equivalents 1,618

Non-current assets

Property and equipment 370

Current liabilities

Trade and other payables (330)

Bank overdraft (35)

Dividend payable to previous owner (420)

Non-current liabilities

Employees’ end of service benefits (36)

Net assets acquired 1,601

Purchase consideration 16,000

Goodwill (note 6) 14,399



2. Adoption of new and revised International Financial Reporting Standards (IFRS)

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements as at 31 December 2012. None of these is expected to have a significant effect on the financial statements of the Company, except for IFRS 9 Financial Instruments, which becomes mandatory for the Company’s 2015 financial statements and could change the classification and measurement of financial assets. The Company does not plan to adopt this standard early and the extent of the impact has not been determined.

3. Summary of significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as promulgated by International Accounting Standards Board (IASB), and the interpretations issued by International Financial Reporting Interpretations Committee (IFRIC) and the requirements of the Commercial Companies Law of 1974, as amended.

Functional and presentation currency

These financial statements are presented in Rial Omani (RO), which is the Company’s functional currency. All financial information presented in RO has been rounded to the nearest thousands, except when otherwise indicated.

Basis of measurement

These financial statements are prepared on the historical cost basis except for the following material items in the statement of financial position:

• non-derivative financial instrument at fair value through profit and loss are measured at fair value; and

• available for sale financial assets are measured at fair value.

Going concern

The Company incurred a net loss of RO 97.467 million (2011: RO 109.860 million) during the year ended 31 December 2012, with accumulated losses of RO 387.328 million (2011: RO 289.861 million) as at 31 December 2012. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern. The financial statements have been prepared under the going concern basis on the assumption that the Company’s shareholders will continue to support the operations and

the management will successfully implement its business plan to generate sufficient funds to support its operations and meet its liabilities. The Government holds in excess of 99% of the Company’s equity and has infused capital of RO 85 million in 2012 (2011: RO 75 million) to finance the Company’s operations and capital requirements.

A summary of significant accounting policies, which have been consistently applied by the Company and are consistent with those used in the previous year, is set out below:

Aircraft, property, plant and equipment

Aircraft, property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss. Borrowing costs, net of interest income, which are directly attributable to acquisition of items of aircraft, property, plant and equipment, are capitalised as the cost of aircraft, property, plant and equipment.



Subsequent expenditure

Expenditure incurred to replace a component of an item of aircraft including major inspection and overhaul expenditure is capitalized. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of aircraft, property, plant and equipment. All other maintenance expenditure is recognised in profit or loss as an expense when incurred.

Cost of expenses incurred for regular inspections of air frame and engines are capitalized and depreciated over the period between consecutive inspections which is generally 8 and 3 years, respectively.

Depreciation

Depreciation is recognised so as to write off the cost of aircraft, property, plant and equipment (other than capital work in progress) on

a straight line basis over the expected remaining useful economic life of the asset concerned. The useful lives are reviewed at each reporting date, with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of aircraft, property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

The estimated useful lives used for this purpose are:

Years

Airframe and buyer furnished equipment (BFE) 10 to 25

Engines and rotables 15

Tools 5

Buildings 5 to 25

Plant and equipment 5 to 7.5

Vehicles, office equipment and furniture 3 to 5

Capital work-in-progress is stated at cost. When the assets are ready for its intended use, it is transferred from capital work-in-progress to the appropriate category under property, plant and equipment and depreciated.

Intangible assets

Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful lives are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.

Amortisation

Except for goodwill, other intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives from

the date that they are available for use.

The estimated useful lives for the current and comparative years are as follows:

Years

Time slots 5

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.



Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of

an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and

the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of that asset or cash generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless

the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of

the impairment loss is treated as a revaluation increase.

Finance cost

Finance costs comprise interest expense on borrowings are recognised in profit or loss and reclassifications of amounts previously recognised in other comprehensive income.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Manufacturers’ credits

The Company receive credits from manufacturers in connection with the acquisition of certain aircraft and engines. Depending on their nature these credits are either recorded as a reduction to the cost of the related aircraft and engines or reduced from ongoing operating expenses. Where the aircraft are held under operating leases these credits are deferred and reduced from the operating lease rentals on a straight-line basis over the period of the related lease as deferred credits.

Leases

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.

The Company as lessor

Rental income from operating leases is recognised 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 recognised on a straight-line basis over the lease term.

The Company as lessee

Assets held under finance leases are initially recognised as assets of the Company 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 statement of financial position as a finance lease obligation.



Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Financial assets

All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the time frame established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Available for sale (AFS) financial assets

Listed shares held by the Company that are traded in an active market are classified as being AFS and are stated at fair value. The Company also has other investments that are not traded in an active market but are also classified as AFS financial assets and stated at fair value because management considers that fair value can be reliably measured. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the cumulative change in fair values with the exception of impairment losses, which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the cumulative change in fair values is reclassified to profit or loss.

Dividends on AFS equity instruments are recognised in profit or loss when the Company’s right to receive the dividends is established.

The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the reporting date. The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in other comprehensive income.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting 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 asset have been affected.

For listed and unlisted equity investments classified as AFS financial assets, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

Derecognition of financial assets

The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay.



Financial liabilities and equity instruments issued by the Company

Classification as debt and equity instruments

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Financial liabilities

The Company’s financial liabilities classified as other financial liabilities include borrowings and trade and other payables.

Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Settlement of borrowings is recognised over

the respective terms of the agreements.

The effective interest method is a method of calculating the amortised 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 to the net carrying amount on initial recognition.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or expired.

Investment in an associate company

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets held for sale and Discontinued Operations. Under the equity method, investments in associates are carried in the statement of financial position at cost as adjusted for post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Company’s interest in that associate (which includes any long-term interests that, in substance, form part of the Company’s net investment in the associate) are recognised only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.

Goodwill

Goodwill arising in an acquisition of new line of business is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as an excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree, if any, over the net of the acquisition-date amounts of

the identifiable assets acquired and the liabilities assumed.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to the Company’s cash-generating units expected to benefit from the synergies of the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment annually. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.



Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise purchase cost and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated principally using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Legal reserve

In accordance with the Commercial Companies Law of 1974, as amended, 10% of the Company’s net profits after the deduction of taxes will be transferred to a non-distributable legal reserve each year until the amount of such legal reserve has reached a minimum one-third of

the Company’s issued share capital. This reserve is not available for distribution to shareholders as dividends.

Provisions

Provisions are recognised when the Company has a present obligation, legal or constructive as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, 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.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised 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 obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Employees’ end of service benefits

Provision for employees’ end of service benefits for non-Omani employees is made in accordance with the Oman Labour Law and is based on current remuneration and cumulative years of service at the reporting date.

End of service benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.

Aircraft maintenance

For the aircraft under operating lease agreements, wherein the Company has an obligation to maintain the aircraft, accruals are made during the lease term for the obligation based on estimated future costs of major airframe and certain engine maintenance checks by making appropriate charges to the profit or loss calculated by reference to the number of hours or cycles operated and engineering estimates.

For the aircraft owned by the Company, maintenance accruals are made based on the technical evaluation and service maintenance agreement.

Taxation

Income tax expense comprises current and deferred tax.

Current tax

The tax currently payable is calculated as per the fiscal regulations of the Sultanate of Oman, based on taxable profits for the year. Taxable profits differ from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.

The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.



Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements andthe corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised 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 utilised. Such deferred tax assets and liabilities are not recognised 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 recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company 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 recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise 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 the end of each reporting period 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 realised, based on tax rates and tax law that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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 taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the tax is also recognised in other comprehensive income or directly in equity.

Revenue

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Rendering of goods

Revenue from sale of goods is recognised when risks and rewards of ownership are transferred to the customer and are stated net of discounts and return.

Rendering of services

Passenger ticket and cargo airway bills revenue, net of commission, is recognised as current liabilities in an unearned revenue account until recognised as revenue when the transportation service is provided. Unused tickets are recognised as revenue after one year from the date of sale.

Dividend and interest income

Dividend revenue from investments is recognised when the shareholders’ right to receive payment has been established.

Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the effective profit rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount.



Other revenue

Other revenue is recognised at the time the service is provided, net of rebate.

Foreign currencies

Transactions denominated in foreign currencies are initially translated into Rial Omani at the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing as at the end of the reporting period. Gains and losses arising from foreign currency transactions are dealt with in profit or loss.

Directors’ remuneration

Directors’ remuneration is computed in accordance with the provisions of the Commercial Companies Law, as amended and is charged to income.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker makes strategic decisions and is responsible for allocating resources and assessing performance of the operating segments.

Frequent flyer programme

The Company operates a frequent flyer programme that provides a variety of awards to programme members based on a mileage credit for flight on the Company and other airlines that participates in the programme. Members can also accrue miles by utilizing the services of non airline programme participants.

The Company accounts for awards credits as a separately identifiable component of the sales transaction in which they are granted. The consideration in respect of the initial sale is allocated to award credits based on their fair value and is accounted for as a liability (other payable) in the statement of financial position. The fair value is determined using estimation techniques that take into account the fair value of awards for which miles could be redeemed. Miles accrued through utilising the services of programme partners and paid for by the participating partners are also accounted for as deferred revenue until they are utilized. In these instances, a liability is not recognised for miles that are expected to expire.

Revenue is recognized in the statement of comprehensive income only when the Company fulfills its obligation by supplying free or discounted goods or services on redemption of the miles accrued.

4. Critical accounting judgments and determination of fair value

The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Critical judgements in applying accounting policies

The following are the critical judgements, apart from those involving estimation, that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Classification of investments

Management decides on acquisition of a financial asset whether it should be classified as Fair value through profit and loss (FVTPL), held for trading, Held to maturity (HTM) investments, loans and receivables or Available for sale (AFS) financial asset.

The Company has classified its investment as AFS financial asset as these investments are not falling under the category of FVTPL, held for trading, HTM investments or loans and receivables.



Valuation of unquoted investments

Valuation of unquoted investments is normally based on recent market transactions on an arm’s length basis, fair value of another instrument that is substantially the same, expected cash flows discounted at current rates for similar instruments or other valuation models.

impairment of financial assets

The Company determines whether AFS financial assets are impaired when there has been a significant or prolonged decline in their fair value below cost. This determination of what is significant or prolonged requires judgement. In making this judgement and to record whether an impairment occurred, the Company evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology and operational and financial cash flows.

Impairment of goodwill and other intangible assets

Goodwill and other intangible assets are tested annually for impairment and at other times when such indications exist. The impairment calculation requires the use of estimates. Other intangible asset includes timing slots at airports.

b. Determination of fair value

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Leased aircraft maintenance costs

The Company incurs liabilities for maintenance costs in respect of its leased aircraft during the course of the lease term. These are a result of legal and constructive obligations in the lease contract in respect of the return conditions applied by lessors, which require aircraft airframes, engines, landing gear and auxiliary power units to reach at least a specified condition on their return at the end of the lease term. A charge is made in the profit or loss each month based on the number of flight hours or cycles used to build up an accrual to cover the cost of heavy-duty maintenance checks when they occur. Estimates involved in calculating the provision required include the expected date of the check, market conditions for heavy-duty maintenance checks pertaining at the expected date of check, the condition of asset at the time of the check, the likely utilisation of the asset in terms of either flying hours or cycles, and the regulations in relation to extensions to lives of life-limited parts, which form a significant proportion of the cost of heavy-duty maintenance costs of engines. Additional maintenance costs for aircraft engines are considered for accrual based on the estimates made by Engineering Department on the basis of operational requirements.

The Company is also required to pay maintenance reserves to lessors on a monthly basis, based on usage. These maintenance reserves are then returned to the Company on production of evidence that qualifying maintenance expenditure has been incurred. Maintenance reserves paid are deducted from the accruals made. In some instances, not all of the maintenance reserves paid can be recovered by the Company and therefore, are retained by the lessor at the end of the lease term.

Assumptions made in respect of the basis of the accruals are reviewed for all aircraft once a year. In addition, when further information becomes available which could materially change an estimate made, such as a heavy-duty maintenance check taking place, utilisation assumptions changing, or return conditions being re-negotiated, then specific estimates are reviewed immediately, and the accrual is reset accordingly.

Accrual for aircraft flying costs

Management accrues for the landing, parking, ground handling, and other charges applicable for each airport in which the Company operates flights on a monthly basis. These estimates are based on the rate of charges applicable to each airport based on the agreements and recent invoices received for the services obtained. Similarly, accruals for overflying charges are estimated based on the agreement entered with each country.

Actual charges may differ from the charges accrued and the differences are accounted for on a prospective basis.

Useful lives of aircraft, property, plant and equipment

The cost of aircraft, property, plant and equipment is depreciated over the estimated useful life, which is based on expected usage of the asset, expected physical wear and tear, the repair and maintenance program and technological obsolescence arising from changes using management’s best estimates.



Provision for obsolete and slow moving inventories

Inventories are stated at the lower of cost and net realisable value. Adjustments to reduce the cost of inventory to its realisable value, if required, are made. Factors influencing these adjustments include changes in demand, product pricing, physical deterioration and quality issues.

Provision for impaired debts

An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. This determination of whether these trade receivables are impaired entails the Company evaluating, the credit and liquidity position of the customers, historical recovery rates and collateral requirements from certain customers in certain circumstances. The difference between the estimated collectible amount and the book amount is recognised as an expense in profit or loss. Any difference between the amounts actually collected in the future periods and the amounts expected will be recognised in profit or loss at the time of collection.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

Impairment of other intangible assets

The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.

Passenger revenue recognition

Passenger sales are recognised as operating revenue when the transportation is provided. The value of unused tickets is include as sales in advance of carriage on the statement of financial position and recognised as revenue at the end of one year from the date of sale. This is estimated based on historical trends and experience of the Company whereby tickets uplift occurs mainly within the first two years. The carrying amount of the Company’s sales in advance of carriage at 31 December 2012 is RO 30.334 million (2011: RO 22.794 million), included in unearned revenue of trade and other payables in note 19.

Frequent flyer programme

The Company operates a frequent flyer programme that provides travel awards to programme members based on accumulated milage. A portion of passenger revenue attributable to the awards of frequent flyer benefits is deferred until they are utilised. The deferment of the revenue is estimated based on the historical trends of breakage and redemption, which is then used to project the expected utilisation of these benefits. Any remaining untilised benefits are recognised as revenue upon expiry. The carrying amount of the Company’s deferred revenue at 31 December 2012 is RO 2.114 million (2011: RO 1.347 million), included in other payables of trade and other payables in note 19.



5. Aircraft, property, plant and equipment

Airframe and BFE

Engines and

rotables Tools BuildingsPlant and

equipment

Vehicles, office

equipment and

furniture

Capital work-in-

progress Total

RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000

Cost

1 January 2011 227,064 129,499 704 16,879 19,566 8,880 34,568 437,160

Additions - - - 22 33 7 84,649 84,711

Transfers 43,868 29,013 4 3,593 817 354 (77,649) -

Disposals - (19) - - (2) (97) - (118)

1 January 2012 270,932 158,493 708 20,494 20,414 9,144 41,568 521,753

Additions - - - - - - 41,599 41,599

Transfers 16,139 9,246 7 506 1,709 1,925 (29,532) -

Disposals - - - - - (62) - (62)

31 December 2012 287,071 167,739 715 21,000 22,123 11,007 53,635 563,290

Depreciation

1 January 2011 25,962 22,635 558 11,570 10,528 6,461 - 77,714

Charge for the year 11,587 9,389 25 884 1,679 404 - 23,968

Disposals - (5) - - (2) (90) - (97)

1 January 2012 37,549 32,019 583 12,454 12,205 6,775 - 101,585

Charge for the year 12,257 10,901 22 650 1,814 951 - 26,595

Disposals - - - - - (56) - (56)

31 December 2012 49,806 42,920 605 13,104 14,019 7,670 - 128,124

Net book value

31 December 2012 237,265 124,819 110 7,896 8,104 3,337 53,635 435,166

31 December 2011 233,383 126,474 125 8,040 8,209 2,369 41,568 420,168

Capital work in progress includes pre delivery payments in the amount of RO 43.687 million for eleven B737-800 aircraft, three A330-300 and six B787 aircraft.

The Company owns one Boeing 737-700, four Embraer and two ATR 42-500 aircraft. The Company has also acquired three Boeing 737-800, four Airbus A330-200 aircraft and three Airbus A330-300 aircraft under finance lease arrangements.

A financing agreement was signed with the lead arrangers on 4 February 2003 for the purchase of one Boeing 737-700 (delivered in June 2002) and aircraft spares. The loan is secured by guarantee provided by the Government and the aircraft is mortgaged in favour of the Government.

In 2003, the Company entered into a lease agreement with Wings of Oman Limited, a company registered in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in July 2003) (note 17). The net carrying amount of the leased aircraft was in the amount of approximately RO 8,773,604 (2011: RO 9,867,538).

In 2005, the Company entered into a lease agreement with Khanjar of Oman Limited, a company registered in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in March 2005) (note 17). The net carrying amount of the leased aircraft was in the amount of approximately RO 10,274,830 (2011: RO 10,666,965).

In 2008, the Company entered into a lease agreement with Frankincense of Oman Limited, a company registered in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in March 2008) (note 17). The net carrying amount of the leased aircraft was in the amount of approximately RO 13,362,120 (2011: RO 13,450,235).



In 2009, the Company entered into two lease agreements with Oryx of Oman, a company registered in the Cayman Islands, for the lease of two Airbus A330-300 aircraft (first delivered in October 2009 and second in November 2009) (note 17). The net carrying amounts of the leased aircraft were in the amount of approximately RO 39,117,631 and RO 38,018,273 respectively (2011: RO 41,771,389 and RO 40,421,321 respectively).

In 2010, the Company entered into four lease agreements. Two lease agreements were entered with Oryx of Oman, a company registered in the Cayman Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying amounts of the leased aircraft were approximately RO 28,953,356 and RO 29,264,016 respectively (2011: RO 31,069,548 and RO 31,388,843 respectively). The other two lease agreements were with Luban of Oman, a company registered in the Cayman Islands, for the lease of two Airbus A330 aircraft (note 17). The net carrying amounts of the leased aircraft were approximately RO 39,686,842 and RO 34,913,399 respectively (2011: RO 42,124,669 and RO 37,031,735 respectively).

In 2010, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Ahli Bank SAOG. The engine has been mortgaged in favour of Ahli Bank SAOG (note 16) and net carrying amount of the engine is approximately RO 5,127,666 (2011: RO 5,564,063).

In 2011, the Company entered into a term loan for financing of two Embraer aircraft with Bank Dhofar. The aircraft has been mortgaged in favour of Bank Dhofar (note 16) and net carrying amount of the aircraft is approximately RO 10,533,509 and RO 10,529,562 respectively (2011: RO 11,345,224 and RO 11,340,627 respectively).

In 2011, the Company entered into a lease agreement with Oryx of Oman, a company registered in the Cayman Islands, for the lease of one Airbus A330-200 (delivered in May 2011) (note 17). The net carrying amount of the leased aircraft is approximately RO 38,516,058 (2011: RO 40,698,002).

In 2011, the Company entered into a term loan for financing of one spare engine for A330 aircraft with Oman International Bank SAOG. The engine has been mortgaged in favour of HSBC Bank SAOG (formerly Oman International Bank SAOG) (note 16) and net carrying amount of the engine is approximately RO 2,149,614 (2011: RO 2,313,916).

During the current year, the Company entered into a term loan for financing of two Embraer aircraft with Bank Muscat. Net carrying amount of the aircraft is approximately RO 11,772,144 and RO 11,959,630 respectively.

Land on which buildings have been constructed by the Company is owned by the Directorate General of Civil Aviation and Meteorology (DGCAM). In accordance with the combined term sheet agreement with the DGCAM, dated June 2001, the Company was granted the continuing right to occupy and use the premises for the provision of ground handling, cargo handling and catering services at the Seeb International Airport (renamed Muscat International Airport effective from February 2008) and Salalah Airport (note 24).

On expiry of the term sheet agreement, the assets in existence, purchased prior to 1 January 2002, will be purchased by the airport operator at their open market value, as determined by an independent valuer except for the catering premises building which will be purchased at its net book value.

Additions to assets subsequent to 1 January 2002, approved by the airport operator during the validity of the term sheet agreement, will be purchased by the airport operator at an agreed residual value on expiry of the agreement.

The land on which the Hotel is situated was donated by the Ministry of Commerce and Industry to the Company on 13 April 1985.



6. Goodwill and other intangible assets

Goodwill

2012 2011

RO ’000 RO ’000

Cost

1 January 15,137 14,399

Additions during the year - 738

31 December 15,137 15,137

Impairment

1 January 4,658 2,273

Impairment for the year (note 22) 1,143 2,385

31 December 5,801 4,658

Net book value

31 December 9,336 10,479

Impairment losses recognised in the year

The recoverable amount of the Hotel’s line of business was assessed by reference to the cash-generating unit’s value in use. A pre-tax discount factor of 6% (2011: 6%) per annum was applied in the value in use model.

The values assigned to the key assumptions represent management’s assessment of external sources and internal sources (historical data).

2012 2011

RO ’000 RO ’000

Cost

1 January and 31 December 5,786 5,786

Amortisation

1 January 4,579 3,976

Amortisation for the year (note 22) 603 603

31 December 5,182 4,579

Net book value

31 December 604 1,207

At the end of the reporting period, the Company assessed the recoverable amount of other intangible assets representing timing slots purchased during 2008. The Company did not recognise any impairment losses in 2012 in respect of such intangible assets (2011: nil).

Amortisation on these assets is charged to the profit or loss on a straight-line basis over the estimated useful life of five years.



7. Available for sale investments

2012 2011

RO ’000 RO ’000

1 January 403 400

Addition during the year 53 -

Fair value changes during the year 44 3

31 December 500 403

Quoted local equity investments 400 303

Unquoted local equity investments 100 100

500 403

The movement in the investments revaluation reserve is as follows:

1 January 153 150

Fair value change during the year 44 3

31 December 197 153

Available-for-sale investments are analyzed as follows:

Fair value Cost Fair value Cost

2012 2012 2011 2011

RO’000 RO’000 RO’000 RO’000

Quoted local equity investments:

Banks and investment 237 89 160 36

Services 163 30 143 30

400 119 303 66

Unquoted local equity investments:

Services 100 100 100 100

500 219 403 166

Management considers the carrying value of unquoted local investments to be the fair value at the end of the reporting period.

At the current and prior year reporting date none of the Company’s investment holdings represents 10% or more of the investee’s share capital.

Details of the Company’s investment holding exceeding 10% of the market value of the Company’s total quoted investment portfolio as of 31 December 2012 are as follows:

Number of securities

Portfolio holding Fair value Cost

(%) RO’000 RO’000

MSM quoted securities:

National Finance Company SAOG 1,781,203 59 237 36

Gulf Hotels Oman SAOG 12,696 33 133 14



8. Equity accounted investee

2012 2011

RO ’000 RO ’000

Cost 75 75

Post acquisition changes in net assets at the beginning of the year 1,724 1,884

Share of profits for the year 1,570 1,390

Dividends received in the year (1,099) (1,550)

2,270 1,799

Investment in an associated company represents 50% equity in Oman Sales and Services LLC, a limited liability company registered in the Sultanate of Oman, at a cost of RO 75,000.

Summarised financial information of the equity accounted investee is as follows:

RO in ‘000 Total assetsTotal

liabilities Net assets Income Expense profit

Company share of

net assetsCompany share of profit/ (loss)

2011 7,348 3,755 3,593 19,373 16,593 2,780 1,799 1,390

2012 8,596 4,063 4,533 22,036 18,895 3,141 2,270 1,570

In 2012, the Company received dividends of RO 1.1 million from its investments in equity accounted investees (2011: RO 1.550 million).

9. Long-term receivables

Long-term receivables represent interest free security deposits placed to secure the lease of aircraft. Fair value of these deposits has been discounted based on an effective interest rate method using a discount rate of 0.844% (2011: 1.128%). The maturity of such deposits is as follows:

2012 2011

RO ’000 RO ’000

Maturity

April 2012 - 75

May 2012 - 361

March 2013 - 378

April 2014 229 225

May 2014 152 150

April 2016 77 -

April 2017 844 825

May 2017 370 -

June 2017 445 435

October 2017 890 868

March 2018 367 -

June 2019 476 462

3,850 3,779



10. Inventories2012 2011

RO ’000 RO ’000

Aircraft consumables 12,238 10,587

Catering stock 339 361

Passenger consumables 2,256 2,060

General 1,396 1,501

Hotel stock 91 90

16,320 14,599

Provision for obsolete and slow moving inventories (2,269) (1,371)

14,051 13,228

Movement in provision for obsolete and slow moving inventories:

1 January 1,371 966

Provision during the year 898 405

31 December 2,269 1,371

11. Trade and other receivablesAirlines and charterers 2,902 2,906

Travel agents 22,358 19,957

Ministries 2,111 1,570

Others 312 433

27,683 24,866

Provision for impaired debts (602) (480)

Trade receivables 27,081 24,386

Other receivables 9,449 4,337

Prepaid expenses 3,218 2,833

39,748 31,556

Movement in provision for doubtful debts :

1 January 480 490

Additional provision (reversal) during the year 122 (10)

1 December 602 480

Owing to the nature of the Company’s operations, it undertakes transactions with a large number of customers in various countries.

Trade receivables include amounts RO 14,341,667 (2011: RO 13,121,642) due in foreign currencies, mainly Euros and US Dollars.

12. Term deposits

Term deposits, in the amounts of RO 3.5 million (2011: RO 11.504 million), represent deposits with commercial banks in Oman.

These term deposits mature within six months from the end of the reporting period and are denominated in Rial Omani, earning interest ranging between 1.75% to 1.90% (2011: 1.50% to 1.90%) per annum.



13. Cash and cash equivalent

2012 2011

RO’000 RO’000

Cash in hand and at bank 53,347 16,807

Cash and bank balances include amounts aggregating RO 382,223 (2011: RO 897,840) held with banks in India, Sri Lanka and Bangladesh in local currencies.

Prior approval from regulatory authorities of the respective countries is required for the transfer of these funds.

14. Share capital

Authorised share capital (shares of RO 1 each) 500,000 500,000

Issued and paid up share capital (shares of RO 1 each) 366,000 366,000

Government Contribution to equity 85,000 -

Conversion of share perimum to share capital 20,048 -

471,048 366,000

Shareholders who own 10% or more of the Company’s shares, whether in their name, or through a nominee account, and the number of shares they hold are as follows:

% of 2012 % of 2011

Shareholding No. of shares Shareholding No. of shares

Government of the Sultanate of Oman 99.869 365,521,052 99.865 365,505,900

Conversion of share perimum to share capital

In 2007, the Board of Directors proposed to increase the issued share capital to RO 50,000,000 by way of a preferential allotment to the Government. This resolution was approved by the shareholders in the Extra Ordinary General Meeting held on 28 February 2007. Consequently 36,717,500 shares were issued resulting in a share premium reserve of RO 20,047,755 being created.

The Share perimum will be converted into paid up capital after the approval of the shareholders at the Extraodinary General Meeting.

Government contribution to equity

During the current year, the Government of the Sultanate of Oman contributed RO 85 million disclosed in statement of changes in equity as “Government contribution to equity”. The contribution will be converted into paid up capital after the approval of the shareholders at the Extraodinary General Meeting.



Legal reserve

In accordance with the Commercial Companies Law of 1974, as amended, 10% of the profit for the year is required to be transferred to a legal reserve until the reserve is equal to one third of the issued share capital. The Company may resolve to discontinue such annual transfers when the reserve totals one third of the issued share capital.

During the year, the Company has not added to this reserve as the Company incurred net loss for the year.

15. Provision for maintenance of aircraft, engines and rotables

2012 2011

RO ’000 RO ’000

Provision for maintenance of aircraft, engines and rotables 30,967 21,630

Current portion (7,264) (2,458)

Long term portion 23,703 19,172

Movement during the year is as follows:

At 1 January 21,630 16,175

Additional provisions during the year 24,136 21,077

Utilised during the year (14,799) (15,622)

At 31 December 30,967 21,630

Provision for maintenance of aircraft, engines and rotables is recognised only when the Company has a present obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured reliably.

The amount to be incurred within the next year is shown under the current liabilities.

16. Borrowings

Term loans 91,138 35,687

Finance lease liabilities (note 17) 222,783 244,766

313,921 280,453

Current portion

Term loans (16,164) (6,930)

Finance lease liabilities (note 17) (22,747) (21,982)

(38,911) (28,912)

Non-current portion 275,010 251,541

At the end of the reporting period the Company has twelve term loans.

The first term loan in the amount of RO 1,111,487 (2011: RO 2,222,973) denominated in US Dollars is for the purchase of one Boeing 737-700 aircraft. The loan is a syndicated loan participated by one foreign and two local banks with the lead arranger being Bank Muscat SAOG.

The loan is repayable in 40 equal quarterly installments commencing from February 2004. The Company has the option to repay the loan in part or full on any of the repayment dates. The Government has given a guarantee for the repayment of the loan and the aircraft is mortgaged in favor of the Government (note 5).

The second term loan in the amount of RO 579,024 (2011: RO 1,158,180) denominated in US Dollars is for the purchase of spares for the Boeing aircraft. The loan is a syndicated loan participated by one foreign and two local banks with a lead arranger being Bank Muscat SAOG.



The loan is repayable in 40 equal quarterly installments commencing from February 2004. The Company has the option to repay the loan in part or full on any of the repayment dates. The Government has given a guarantee for the repayment of the loan and the spares are mortgaged in favor of the Government.

The rate of interest on the above loans is three months LIBOR plus 1.85% (2011: three months LIBOR plus 1.85%). The effective rate of interest on the above loans was in the range of 2.16% to 2.35% per annum (2011: 2.11% to 2.32% per annum).

The third term loan in the amount of RO 3,786,516 (2011: RO 4,833,847) denominated in US Dollars, is for the financing of one spare engine for A330 aircraft obtained from Al Ahli Bank SAOG (note 5). The loan is repayable in 24 equal quarterly installments commencing from June 2010 and carries a fixed interest rate of 5% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates. The spare engine is mortgaged in favor of Al Ahli Bank SAOG.

The fourth term loan in the amount of RO 4,129,125 (2011: RO 5,013,985) denominated in Omani Rials, is for the financing of one A330 Engine obtained from HSBC Bank Oman SAOG (formerly Oman International Bank SAOG) in 2011. The loan is repayable in 24 equal quarterly installments commencing from March 2011 and carries a fixed interest rate of 3.50% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The fifth term loan in the amount of RO 14,054,797 (2011: RO 17,361,922) denominated in US Dollars, is for the financing of two E175 aircraft obtained from Bank Dhofar SAOG in 2011(note 5). The loan is repayable in 24 equal quarterly installments commencing from June 2011 and carries a fixed interest rate of 3.15% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The sixth term loan in the amount of RO 5,096,581 (2011: RO 5,096,581) denominated in US Dollars is for the financing of pre-delivery payments of six B787 aircraft obtained from Oman Arab Bank SAOC in 2011. The entire loan is repayable after 18 months and carries a fixed interest rate of 1.426% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The seventh term loan in the amount of RO 11,647,298 denominated in Rial Omani, is for the financing of E175 aircraft obtained from Bank Muscat SAOG during 2012. The loan is repayable in 24 equal quarterly installments commencing from November 2012 and carries a fixed interest rate of 3.500% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The eighth term loan in the amount of RO 12,160,141 denominated in Rial Omani, is for the financing of E175 aircraft obtained from Bank Muscat SAOG during 2012. The loan is repayable in 24 equal quarterly installments commencing from February 2013 and carries a fixed interest rate of 3.500% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The ninth term loan in the amount of RO 13,575,870 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737 aircraft obtained from Bank Muscat SAOG during 2012. The entire loan is repayable during July 2014 and carries a fixed interest rate of 2.400% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The tenth term loan in the amount of RO 12,326,391 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737 aircraft obtained from Oman Arab Bank SAOG during 2012. The entire loan is repayable during August 2014 and carries a fixed interest rate of 2.150% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

The eleventh term loan in the amount of RO 5,525,058 denominated in Rial Omani, is for the financing of pre delivery payments of seven B737 aircraft obtained from Bank Muscat SAOG during 2012. The entire loan is repayable during August 2014 and carries a fixed interest rate of 2.400% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.



The twelfth loan in the amount of RO 7,145,639 denominated in Rial Omani, is for the financing of pre-delivery payments of seven B737 aircraft obtained from Oman Arab Bank SAOG during 2012. The entire loan is repayable during November and December 2014 and carries a fixed interest rate of 2.150% per annum. The Company has the option to repay the loan in part or full on any of the repayment dates.

Breach of loan covenant

As at 31 December 2012, the Company was not in any breach of loan covenant.

17. Finance lease liabilities

The Company has finance lease liabilities in respect of four Airbus 330-200 (2011: four) and three Airbus 330-300 (2011: three) and three Boeing 737-800 aircraft (2011: three) as of reporting date. Finance lease liabilities are payable as follows:

Minimum lease payments Present value of minimum lease payments

2012 2011 2012 2011

RO’000 RO’000 RO’000 RO’000

Not later than one year 31,054 31,153 22,747 21,982

Later than one year and not later than five years 119,014 121,935 95,012 94,212

Later than five years 114,232 142,365 105,024 128,572

264,300 295,453 222,783 244,766

Future finance charges (41,517) (50,687) - -

222,783 244,766 222,783 244,766

Finance leases are for a period of five to twelve years with interest ranging from 3.13% to 5.0% per annum. The aircraft are mortgaged in favour of the leasing companies.

Under the terms of the lease agreement no contingent rents are payable.

18. Employees’ end of service benefits

Movement in the provision for end of service benefits during the year is as follows:

2012 2011

RO ’000 RO ’000

1 January 6,738 5,691

Charge for the year (note 22) 1,329 1,592

Payments during the year (511) (545)

31 December 7,556 6,738

19. Trade and other payables

Trade payables 11,324 13,505

Due to related party (note 27) 436 250

Unearned revenue 33,816 24,519

Other payables 33,229 28,328

Accrued expenses 29,002 24,969

107,807 91,571



Trade payables include aggregate amounts of RO 5.341 million (2011: RO 6.351 million) due in foreign currencies, mainly in Euro and US Dollars.

Unearned revenue relates to sales of scheduled passenger revenue which will be recognized when the Company fulfills its service obligation by providing flight services.

20. Net assets per share

Net assets per share is calculated by dividing the net assets at the year-end by the number of shares outstanding as follows:

2012 2011

RO ’000 RO 000

Net assets (RO ’000) 88,054 100,477

Number of shares outstanding at the year end (’000s) 366,000 366,000

Net assets per share (RO) 0.241 0.275

21. Revenue

Scheduled services - international 295,245 242,700

Scheduled services - domestic 19,344 16,165

Air charter services 9,941 9,125

Handling fees - engineering 3,306 3,111

Handling fees – others 12,051 10,401

Catering 3,267 2,529

Rooms, food and beverage revenue - Hotel 3,278 3,256

Other revenue 610 254

347,042 287,541

22. Expenditure

Fuel cost 154,131 131,963

Employee costs 97,199 87,260

Other aircraft operating expenses 47,009 40,350

Maintenance cost 27,724 25,974

Passenger related costs 27,539 25,056

Depreciation 26,595 23,968

Others 22,038 19,955

Operating lease rentals on aircraft [note 29(b)] 19,484 19,441

Cost of catering materials consumed 5,191 4,604

Insurance costs 1,952 1,887

Amortisation and impairment (note 6) 1,746 2,988

Omani training and development costs 527 536

Management fee - Hotel 156 157

431,291 384,139



Employee cost includes the following:

Wages and salaries 72,835 66,328

Other benefits 20,184 16,901

Increase in liability for employee benefits (note 18) 1,329 1,592

Contribution to a defined retirement plan 2,851 2,439

97,199 87,260

23. Interest and investment income

Interest on term deposits 511 772

Dividends 24 17

535 789

24. Aviation services agreement and combined term sheet agreement

In accordance with the aviation services agreement between the Company and the Ministry of Communications, Government of the Sultanate of Oman (the Government), the Company has been granted the right to operate domestic and international airline services, to provide aircraft passenger and cargo handling facilities, airline catering and other services in Oman. The Company has the sole right to use the utilities and facilities provided by the Government for such purposes. The agreement was for a period of twenty years up to 24 May 2001.

In June 2001 through a combined term sheet agreement, the Director General of Civil Aviation and Meteorology (DGCAM), acting in accordance with a Cabinet Decision of 4 April 2000 and a decision issued by the Committee of Ministers dated 13 June 2000, extended the Company’s ground handling and cargo handling services concessions, for periods of five years, and its catering services concession for a period of ten years, all effective from 1 January 2002. The Company’s rights to operate its scheduled and charter airline services were extended for an indefinite period.

In 2007, the ground handling concession was extended till 2010 or the opening of new international airport terminal, whichever is earlier and cargo handling services concession was extended till 31 December 2008 which was then further extended till 31 December 2009. The Company paid the charges payable to the concerned concessionaire Oman Airport Management Company SAOC (OAMC) in line with the amounts payable under the amended terms of the concession agreements as enumerated herein.

During 2012, the Company received intimation from OAMC expressing its intention to extend the ground handling concession till 31 March 2012 and are in discussion with OAMC to further extend till 31 December 2014.

In 2011, the cargo handling services concession was also extended till 31 December 2014 on the existing terms.

The following charges set out in the aviation services agreement are included in the financial statements:

2012 2011

RO ’000 RO ‘000

Rent 200 200

Concession fee 1,073 940



Under the combined term sheet agreement, effective 1 January 2002, the Company will pay to the OAMC the following concession fees:

Ground handling fee : 2% of monthly turnover from NOC handling, crew transport and radio rental revenue provided to third parties.7.5% of the monthly turnover received from ground handling services provided to third parties.

Cargo handling fee : 2% of monthly turnover from agency commission and 50% of demurrage collected from third parties.7.5% of the monthly turnover received from cargo handling services provided to third parties.

Catering fees : 5% of the monthly turnover received from catering services provided for use on Airport for third parties and 3% of monthly turnover for off-airport catering services.

Line maintenance : 2% of monthly turnover on services other than Aircraft related provided to third parties.7.5% of the monthly turnover received from line maintenance services provided to third parties.

In April 2009, commercial departure lounge concession agreement has signed for occupying commercial space at the airport. This agreement commenced from opening date of the designated Oman Air First and Business class lounge and will continue till 31 October 2011 or end of operation at the current Muscat International terminal. The Company will pay to the OAMC fixed amount of RO 2,500 plus 10% of the monthly sales.

25. Taxation

a) Recognised in statement of comprehensive income

2012 2011

RO ’000 RO ‘000

Deferred tax

Current year 3,948 4,101

Prior year 58 -

Taxation [note 25 (c)] 4,006 4,101

b) Recognized in statement of financial position

2012 2011

RO ’000 RO ‘000

Non-current liability

Deferred tax [note 25 (c)] 14,067 10,061

The Company is subject to income tax at the rate of 12% (2011: 12%) of taxable income in excess of RO 30,000. No provision for income tax has been made in these financial statements in view of the tax loss incurred during the year.

The tax returns of the Company for the years 2008 to 2011 have not yet been agreed with the Secretariat General for Taxation at the Ministry of Finance.

The Board of Directors are of the opinion that additional taxes, if any, related to the open tax years would not be significant to the Company’s financial position as at 31 December 2012.

As at 31 December 2012, the tax losses available for offset against future taxable profit amounted to approximately RO 454 million. The tax loss will be available for carry forward for a period of five years from the year when it was incurred.



c) Deferred tax liability

Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12% (2011: 12%). The net deferred tax (liability)/asset and deferred tax charge in the statement of income are attributable to the following items:

1 January 2012Charged to

profit or loss31 December

2012 1 January 2011Charged to

profit or loss31 December

2011

RO ’000 RO ’000 RO ’000 RO ’000 RO ’000 RO ’000

Asset

Carried forward losses 250 - 250 485 (235) 250

Liability

Accelerated tax depreciation (10,311) (4,006) (14,317) (6,445) (3,866) (10,311)

(10,061) (4,006) (14,067) (5,960) (4,101) (10,061)

26. Loss per share – basic and diluted

2012 2011

Loss for the year (RO ’000) (97,467) (109,860)

Weighted average number of shares outstanding during the year (‘000) 366,000 324,082

Loss per share - basic and diluted loss per share (RO) (0.266) (0.339)

The par value of each share is RO 1. The loss per share is calculated by dividing the loss for the year by the weighted average number of shares outstanding during the year.

27. Related parties

Related parties comprise the shareholders, directors, key Management personnel and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions. The Government is not considered as a related party.

The Company maintains balances with these related parties which arise in the normal course of business from the commercial transactions and are entered into at terms and conditions which the directors consider to be comparable with those adopted for arms’ length transactions with third parties. Outstanding balances at the year-end are unsecured and settlement occurs in cash.

No expenses have been recognized in the year for impaired debts in respect of amounts owed by related parties. Following is the summary of significant transactions with related parties during the year:

2012 2011

RO ’000 RO ’000

Expenses

Purchase of goods/services 7,866 6,264

Management and marketing fee 175 175

The amount due to related parties is included in note 19.

Oman Airport Management Company SAOC 433 237

Oman Sales and Services LLC 1 5

Others 2 8

436 250



Key Management personnel benefits

Key Management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise).

Short term benefits 1,404 1,385

Post employment benefits 111 100

Directors› remuneration and sitting fees 51 37

1,566 1,522

28. Segment information

Information regarding the Company’s operating segments is set out below in accordance with IFRS 8 Operating segments. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

Primary reporting format - business segments

The Company is organised into three major operating divisions-airline, hotels & catering and ground & cargo handling. The airline division provides passenger and cargo services on a scheduled and charter basis.

The Hotel division operates Golden Tulip Seeb Hotel and catering division provides in-flight and airport retail catering services.

The cargo division provides cargo handling services. The ground handling division provides airline support services.

The Company reports its primary segments information separately for its airline and catering divisions and by combining its cargo and ground handling divisions. This information is presented as follows:

Airline Hotels and catering Ground and cargo handling Total

2012 2011 2012 2011 2012 2011 2012 2011

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Revenue

Total revenue 330,094 272,545 21,857 19,467 21,126 18,322 373,077 310,334

Inter division revenue (2,258) (1,444) (15,312) (13,682) (9,075) (7,921) (26,645) (23,047)

External revenue 327,836 271,101 6,545 5,785 12,051 10,401 346,432 287,287

Other income 610 254

347,042 287,541

Segment (loss) profit including inter division (loss) profit (79,373) (91,809) 6,682 5,905 (136) 1,023 (72,827) (84,881)

Common costs (11,422) (11,717)

Operating loss (84,249) (96,598)

Finance cost (10,315) (10,350)

Interest and investment income 535 789

Share of profits of an associate company 1,570 1,390

Increase in fair value of long-term receivables 71 (50)

Concession fee (1,073) (940)

Deferred tax charge (4,006) (4,101)




Segment assets and liabilities:

2012 2011

RO ’000 RO ’000

Segment assets

Airline and airport services 543,922 493,613

Hotel 15,128 15,115

Others 3,322 2,202

Total assets 562,372 510,930

2012 2011

RO ’000 RO ’000

Segment liabilities

Airline and airport services 459,175 400,030

Hotel 524 362

Others 14,619 10,061

Total liabilities 474,318 410,453

For the purposes of monitoring segment performance and allocating resources between segments:

• All assets are allocated to reportable segments other than investments in associates and available-for-sale investments. Goodwill is allocated to Company’s hotel cash generating unit. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments; and

• All liabilities are allocated to reportable segments other than current and deferred tax liabilities. Liabilities for which reportable segments are jointly liable are allocated in proportion to segment assets.

Geographical information

The Company operates in two principal geographical markets, the domestic market in the Sultanate of Oman and the overseas markets. The following table shows the distribution of the Company’s revenues; inclusive of inter division revenues, by geographical market:

Oman Overseas Total

2012 2011 2012 2011 2012 2011

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Revenue including inter division revenues 22,514 19,421 350,563 290,913 373,077 310,334

29. Commitments and contingencies

a. Capital commitments

2012 2011

RO ’000 RO ’000

Capital expenditure commitments 5,615 584



b. Operating lease commitments

Details of aircraft lease agreements are as follows:

Lease agreements signed

Aircraft delivered against lease agreements

Aircraft to be delivered in future

periods

Aircraft type

737-800 11 (11) -

737-700 1 (1) -

12 (12) -

For Operating lease rental on aircraft see note 22.

The fixed lease commitments against 12 (2011: 11) delivered aircraft are as follows:

2012 2011

RO ’000 RO ’000

Not later than one year 22,457 18,269

Later than one year and not later than five years 55,913 54,124

After five years 3,210 2,943

81,580 75,336

In addition to the above fixed lease commitments, there is a variable lease rental element depending on the flying hours of the leased aircraft.

C. Contingent liabilities

8,224 6,835

Letters of Credit 1,189 3,287

Guarantees 9,413 10,122

30. Financial risk management

Financial instruments carried on the statement of financial position comprise cash and cash equivalents, term deposits, trade and other receivables, trade and other payables and borrowings.

Financial assets are assessed for indicators of impairment at the end of each reporting period. 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 have been impacted.

The classification of financial assets depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Overview

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

Risk management is carried out by management under policies approved by the Board of Directors.

Financial risk factors

(i) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers.



Trade and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Owing to the nature of the Company’s operations, it undertakes transactions with a large number of customers in various countries.

The Company has established credit policies and procedures that are considered appropriate and commensurate with the nature and size of receivables.

In monitoring customer credit risk, customers are segmented according to their credit characteristics in the following categories:

• Airlines and charterers

• Travel agents

• Government customers

• Other customers

The potential risk in respect of amounts receivable is limited to their carrying values as Management regularly reviews these balances whose recoverability is in doubt.

The Company establishes a provision for impairment that represents its estimate of potential losses in respect of trade and other receivables. The main components of this loss are specific loss component that relates to individual exposures.

The sale of passenger and cargo transportation is largely achieved through International Air Transport Association (IATA) approved sales agents. All IATA agents have to meet minimum financial criteria applicable to their country of operation to remain accredited. Adherence to the financial criteria is monitored on an ongoing basis by IATA through their Agency programme.

The credit risk associated with such sales agents is relatively small owing to a broad diversification.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the end of the reporting period was on account of:

2012 2011

RO ’000 RO ’000

Long term receivables 3,850 3,779

Trade receivables 27,683 24,866

Other receivables 9,449 4,337

Term deposits 3,500 11,504

Cash at bank 53,330 16,774

97,812 61,260

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risks of the industry and country in which customers operate, as these factors may have an influence on credit risks.

During 2012, approximately 35% (2011: 34%) of the Company’s passenger revenue was attributable to sales transactions with Indian subcontinent.



The exposure to credit risk for trade receivables at the end of the reporting period by type of customer was:

Travel agents 22,358 19,957

Airlines and charterers 2,902 2,906

Ministries 2,111 1,570

Other customers 312 433

27,683 24,866

The age of trade receivables and related impairment loss at the end of the reporting period was:

2012 2011

Gross Impairment Gross Impairment

RO ’000 RO ’000 RO ’000 RO ’000

Not past due 15,287 - 14,875 -

Past due 0 to 150 days 11,066 - 9,065 -

Past due 151 to 365 days 580 - 302 -

More than 1 year 750 (602) 624 (480)

27,683 (602) 24,866 (480)

Included in the Company’s trade receivable balance are debtors with a carrying amount of RO 11.794 million (2011: RO 9.511 million) which are past due at the end of the reporting period for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Company holds collaterals in respect of certain parties in the form of cash deposits / bank guarantees to the extent of RO 4.084 million (2011: RO 3.991 million). The average collection period of these receivables is 30.

The movement in provision for doubtful debts has been disclosed in note 11.

The allowance account in respect of trade receivables is used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible, at which point the amount considered irrecoverable is written off against allowance account.

(ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Company has access to credit facilities.



The maturity profile of the financial liabilities is as follows:

Amount due and payable in future between

Carryingamount

1 year or less

1 to 2years

2 to 5years

Beyond5 years

RO ’000 RO ’000 RO ’000 RO ’000 RO ’000

31 December 2012

Trade payables 11,324 11,324 - - -

Due to related parties 436 436 - - -

Other payables and accrued expenses 62,231 62,231 - - -

Borrowings 313,921 38,911 71,604 94,834 108,572

387,912 112,902 71,604 94,834 108,572

31 December 2011

Trade payables 13,505 13,505 - - -

Due to related parties 250 250 - - -

Other payables and accrued expenses 53,297 53,297 - - -

Borrowings 280,453 28,912 29,763 92,121 129,657

347,505 95,964 29,763 92,121 129,657

Unearned revenue are excluded from liquidity risk as these represent tickets sold but not flown as at the end of the reporting period.

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

Fuel price risks

The Company is exposed to volatility in the price of fuel and closely monitors the actual cost against the forecast cost.

Aircraft lease foreign currency exchange rate risk:

There are no significant exchange rate risks as all aircraft lease rental agreements, new aircraft commitments and deposits are made in US Dollars to which Rials Omani is fixed.

Interest rate risk

The Company has long term borrowings, which are interest bearing and exposed to changes in market interest rates.

At the end of the reporting period the interest rate profile of the Company’s interest bearing financial instruments was:

2012 2011

RO ’000 RO ’000

Fixed rate instruments

Financial assets 3,500 11,504

Financial liabilities 313,921 280,453



Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in interest rates at the end of the reporting period would not affect profit or loss.

Fair value sensitivity analysis for variable rate loan

A change of 100 basis points in interest rate would have increased or decreased equity by RO 0.19 million (2011: RO 0.19 million).

31. Fair value of financial assets and liabilities

The fair value of the financial assets and liabilities approximates their carrying value as stated in the statement of financial position.

Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

- Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

- Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

- Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

31 December 2012

Level 1 Level 2 Level 3 Total

RO RO RO RO

Available for sale financial assets

Quoted local equity investments 400 - - 400

Unquoted local equity investments - 100 - 100

400 100 - 500

Fair value measurements recognised in the statement of financial position

31 December 2011

Level 1 Level 2 Level 3 Total

RO RO RO RO

Available for sale financial assets

Quoted local equity investments 303 - - 303

Unquoted local equity investments - 100 - 100

303 100 - 403

There were no transfers between Level 1 and 2 during the year.

No gain or loss was included in profit or loss relating to unquoted equities held at the end of the reporting period.



32. Capital management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and benefit other stakeholders. The Management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain future development of the business.

The capital requirements of the Company are determined by the Commercial Companies Law of 1974, as amended.

33. Approval of the financial statements

The financial statements were approved by the Board of Directors and authorised for issue in their meeting held on 26 February 2013.

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