annual report 2014 - dfs · the business year 2014 this is a courtesy translation of the german...

Annual Report 2014

You can download or order this annual report at www.dfs.de

The business year 2014

This is a courtesy translation of the German original of the DFS Annual Report 2014. It is provided solely for your information and for the convenience of English-speaking readers. In the event that the English and German

versions permit different interpretations, the German text shall prevail.

You can download or order this annual report at www.dfs.de

DFS Deutsche Flugsicherung GmbH

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Report of the Supervisory Board In the business year 2014, the Supervisory Board performed its functions as prescribed by law and the Articles of Association. It regularly advised and monitored the Board of Managing Directors and was comprehensively involved in decisions of fundamental importance to the company. In its work, the Supervisory Board was supported by its three committees: an audit, a personnel and a project committee. The committees intensively discussed decision papers and prepared recommendations for the decisions to be taken at the plenary meetings. In the business year 2014, there were no changes in the composition of the Supervisory Board. The quarterly reports in accordance with Section 90 of the German Stock Corporation Law (AktG) formed the basis of the reporting of the Board of Managing Directors to the Supervisory Board. The Supervisory Board was also provided with ad hoc information on important issues on a case-by-case basis. The Board of Managing Directors reported to the Supervisory Board in due form. During the business year 2014, the Supervisory Board held four ordinary meetings where it deliberated on the situation and development of the company. It also convened two extraordinary meetings. In addition to the regular deliberations on the quarterly reports about the situation of the company, the Supervisory Board specifically dealt with the following topics at its four ordinary meetings:

the 2013 annual financial statements, management report and the audit report on the 2013 annual financial statements,

the 2015 economic plan, with the associated investment and financial plan, the planned involvement of DFS with the SESAR Deployment Manager and in

EUROCONTROL's tenders for centralised services and

the submission of a tender for the training of regional military air traffic control personnel in Kaufbeuren.

In addition, the Supervisory Board approved the replacement investments

for the prolonged use of the air traffic control system ATCAS at the Munich control centre and

for the comprehensive renovation of the Air Navigation Services Academy building. At two extraordinary meetings, the Supervisory Board deliberated on the setting up of a UK subsidiary, organisationally placed under The Tower Company GmbH, in connection with the tender for the air traffic control services at Gatwick Airport. The Supervisory Board supports the path being taken of continuous improvement which has been set out in the five-point programme. It notes that the strategic realignment of DFS initiated over the previous years has progressed further and is convinced this approach will be vigorously pursued in the second reference period, which is now beginning.

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The Supervisory Board discussed the 2014 financial statements and the management report with the assistance of the audit report prepared by the auditors RBS RoeverBroennerSusat GmbH & Co. KG in accordance with Section 53 of the German Budgetary Principles Act (HGrG). The comprehensive risk management system established in the company was included in the audit. The auditors participated in the discussions and were available to answer questions, giving an account of the key results of their report. The Supervisory Board found no exceptions to be taken against the audit report and its findings. The Supervisory Board would like to thank the Board of Managing Directors for their work and also thank all members of staff and the staff councils for their commitment to DFS in the business year 2014. The Supervisory Board Michael Odenwald Chairman

Michael Odenwald


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Members of the Supervisory Board

Chairperson Michael Odenwald State Secretary Federal Ministry of Transport and Digital Infrastructure Deputy Chairman Markus Siebers Employee representative DFS Deutsche Flugsicherung GmbH Carmen von Bornstaedt-Radbruch Ministerialrätin Federal Ministry of Defence Catja Gräber Employee representative DFS Deutsche Flugsicherung GmbH Dr Martina Hinricher Ministerialdirektorin Federal Ministry of Transport and Digital Infrastructure Dr Angelika Kreppein Regierungsdirektorin Federal Ministry of Finance

Dr Edeltraud Leibrock Member of the Executive Board KfW Bankengruppe Volker Möller Employee representative DFS Deutsche Flugsicherung GmbH Ralf Raddatz Colonel (G.S.) Federal Ministry of Defence Peter Schaaf Employee representative DFS Deutsche Flugsicherung GmbH Andrea Wächter Employee representative DFS Deutsche Flugsicherung GmbH Dirk Wendland Employee representative DFS Deutsche Flugsicherung GmbH Correct at 31 December 2014

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Members of the Advisory Council Gerd Becht Management Board Member for Compliance, Privacy, Legal Affairs and Group Security Deutsche Bahn AG Andreas Berger Member of the Board of Management Allianz Global Corporate & Specialty SE Markus Beumer Member of the Board of Managing Directors Commerzbank AG Michael Eggenschwiler Vice President German Airports Association (ADV) Chief Executive Officer Flughafen Hamburg GmbH Dirk Fischer Member of Parliament German Bundestag Prof Dr Elmar Giemulla President Aircraft Owners and Pilots Association (AOPA Germany) Winfried Hermann Minister for Transport and Infrastructure Ministry of Transport and Infrastructure Baden-Württemberg Michael Hoppe Chairperson Board of Airline Representatives in Germany e.V. (BARIG) Ulrich Lange Member of Parliament German Bundestag Kirsten Lühmann Member of Parliament German Bundestag

Karl Müllner Lieutenant General Chief of Staff, Air Force German Air Force Command Katherina Reiche, Chairperson Parliamentary State Secretary Federal Ministry of Transport and Digital Infrastructure Paul Riemens Chief Executive Officer Luchtverkeersleiding Nederland (LVNL) Prof Dr Bernd Sanner Medical Director AGAPLESION BETHESDA KRANKENHAUS WUPPERTAL gGmbH Dr Stefan Schulte Chairman of the Executive Board Fraport AG Carsten Spohr Chairman of the Executive Board and Chief Executive Officer Deutsche Lufthansa AG Wolfgang Stertenbrink Chairman of the Supervisory Boards ALTE LEIPZIGER – HALLESCHE Group Ralf Teckentrup President German Airline Association (BDF) CEO of the Executive Board Condor Flugdienst GmbH Klaus Thiemann Daniel Weder Chief Executive Officer skyguide swiss air navigation services ltd. Correct at 31 December 2014


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Group management report 1 Overview of the DFS Group………………………………………………………………..... 10

2 Report on economic position……………………………………………………………....... 20

3 Personnel……………………………………………………………………………….…...... 40

4 Report on post-balance-sheet date events……………………………..…………………. 43

5 Compliance……………………………………………………………………………………. 44

6 Risk report……………………………………………………………………………..…….... 45

7 Report on expected developments………………………………………………………..... 52

Group financial statements Group statement of comprehensive income………………………………………………....... 60

Group balance sheet…………………………………………………………………………...... 62

Group statement of changes in equity……………………………………………………….... 64

Group cash flow statement………………………………………………………………........... 65

Notes………………………………………………………………........................................... 66

Notes to the statement of comprehensive income………………………………………….... 94

Notes to the balance sheet………………………………………………………………........... 102

Additional disclosures………………………………………………………………................... 131

Auditor's report……………………………………………………………………………………. 159

Acronyms and abbreviations…………………………………………………………………..... 160

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Group management report

for the business year 2014

Group management report 2014

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1 Overview of the DFS Group 1.1 Business activities

The main business of air navigation services provided by DFS Deutsche Flugsicherung GmbH (DFS) is defined by the tasks set out in Section 27c of the German Aviation Act (LuftVG). DFS provides air traffic services as a sovereign function, coordinates the air traffic flow and manages airspace utilisation (as a company entrusted with State functions). For this purpose, it develops and operates air traffic service systems as well as communications, surveillance and navigation systems. DFS operates control centres in Langen, Bremen, Karlsruhe and Munich, a unit within the Maastricht Upper Area Control Centre of EUROCONTROL as well as 16 control towers at Germany's designated international airports. With its approximately 5,900 operational and administrative staff, DFS ensures that approximately three million flights under instrument flight rules (IFR) reach their destinations safely and on time each year. As payment for its main business, DFS levies air navigation charges. DFS also provides commercial services to third parties on the free market (i.e. services not financed by air navigation charges / commercial business). Control Centre The Control Centre division is in charge of air traffic control for the terminal (approach control service) and en-route areas (area control service), including all air traffic services (ATS) systems as well as the flight information service and the alerting service. Tower The Tower division controls air traffic at Germany's international airports (aerodrome control service), including all ATS systems as well as the flight information service and the alerting service. Aeronautical Information Management (AIM) The AIM division offers its customers all relevant aeronautical information, aeronautical data and aeronautical information services for the safe conduct of flights. It collects, prepares and publishes AIM aeronautical data, such as flight plans and NOTAM, and publishes numerous aeronautical publications and products, such as the AIP.

Projects

Consulting

Publications

Apron management services

Training

Not financed by air navigation charges

Air navigation services under Section 27c German Aviation Act (LuftVG)

Air traffic services

Air traffic flow management

Management of airspace utilisation

Aeronautical information services

Financed by air navigation charges

Main business (Control Centre, Tower and AIM)

Commercial business (Aeronautical Solutions)

Overview of business activities


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Supporting business

Generation and provision of energy for own use at DFS and sale to a fixed group of external customers.

Construction, rental, operation and administration of a parking structure for DFS and Airbus. Managing, holding, administering and financing investments in domestic and foreign

companies that promote the development, provision and conduct of services on the air transport market and their further development.

DFS is reacting to the continuing consolidation in the aviation industry and the resulting diversified framework conditions and has initiated further measures to adapt and realign the structure of the DFS Group. DFS International Business Services GmbH (DFS IBS), a holding company with an organisational and financing function, took over all shares in The Tower Company GmbH (TTC) from DFS with effect from 1 January 2014 as part of a share swap. In return for this spin-off, DFS received 100 new shares in DFS IBS. In 2014, the DFS Group won the competitive tender issued by Gatwick Airport Ltd. (GAL) for the provision of air navigation services at London Gatwick Airport, securing a contract running from March 2016 until February 2026. The preparatory transition phase (setting up the company, certification, transferring staff, etc.) started after the contract was signed at the end of December 2014. Gatwick is the second largest airport in the United Kingdom and the airport is considered the busiest single-runway airport in the world. GAL counts 45 airlines as customers and the airport is used by approximately 36 million passengers each year. To fulfil this contract, the DFS Group founded a subsidiary in 2014 called Air Navigation Solutions Ltd. (ANS Ltd.), with a registered office in London. ANS Ltd. is a wholly owned subsidiary of TTC. Until the beginning of 2016, ANS will prepare for the start of operations and have itself certified as an air navigation service provider (ANSP) in accordance with the Single European Sky (SES) regulations. With a resolution on its liquidation dated 17 December 2014, the DFS Group prepared the ground for the winding up of DFS-Unterstützungskasse GmbH i. L. (DFS U-Kasse), as had been previously announced. As at 14 October 2013, DFS has taken over the payment of grants to employees and eligible dependants in the case of emergencies. These duties had previously been undertaken by DFS U-Kasse. The contents of this group management report refer to DFS only, as the subsidiaries, neither individually nor collectively, exceed quantitative thresholds or display qualitative characteristics with a material impact on the results and financial position of DFS.

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1.3 Legal framework and management organisation In 1993, DFS was entrusted with the tasks of the Federal Administration of Air Navigation Services (BFS) by the Federal Republic of Germany. The Headquarters of DFS is located near Frankfurt, in Langen, Am DFS-Campus 10. The company is registered under HRB 34977 on the Commercial Register at the local district court in Offenbach. The object of the company is the development, provision and execution of the air navigation services delegated to the company by the Federal Ministry of Transport and Digital Infrastructure (BMVI). The company can provide air navigation services in Europe as well as carry out related sideline activities in Germany and abroad. The sole shareholder is the Federal Republic of Germany. The distribution of responsibilities among the Managing Directors of DFS forms the basis for the management organisation (as at 31 December 2014).

Distribution of responsibilities among the DFS Managing Directors

Chairman and CEO Managing Director Operations

Managing Director Human Resources

– Labour Director –

• Strategy, organisation,

international affairs

• Institutional and legal affairs,

insurance, risk management,

compliance

• Safety and security

management systems

• Internal audit, quality

management

• Corporate communications,

public relations, environmental

issues

• Finance, including taxes and

charges

• General administration

• Procurement

• Consulting services and

system deliveries

• Air traffic services

• Airspace management

• Air traffic flow management

• Aeronautical information service

• Communication, navigation and

surveillance services

• Product/system management for

technical systems, logistics

• Research and development

• Military affairs

• Technical and infrastructural

facility management

• Development of ATM systems

and business and administrative

information technology

• Human resources strategy

• Collective bargaining (strategies

and policies)

• Staff planning, human resources

management

• Human resources development,

initial and continuation training,

Academy

• Payroll accounting

• Compensation and incentive

systems

• Occupational pensions

• Social and health management

• Industrial safety, accident

prevention

• Labour law, collective

bargaining law

The Board of Managing Directors is supported by an Executive Committee, which is made up of the Managing Directors and the members of the executive management level (division directors). At its weekly meetings, the Executive Committee discusses important corporate issues and exchanges information. The Supervisory Board of DFS comprises 12 members, six appointed by the Shareholder and six elected by the employees (see Note 42.2 for the composition of the Supervisory Board).


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1.4 Strategies and objectives

1.4.1 Vision To fulfil its statutory obligation, DFS is committed to delivering an outstanding level of performance at a first-class, uncompromising safety level. The company's services are provided in a sustainable manner and are tailored to the different needs of our customers. As a recognised provider of air navigation services for complex airspaces and airports, DFS contributes to enhancing the performance of the air transport system, while carefully taking noise abatement needs into account. DFS offers challenging, attractive and family-friendly jobs for aviation enthusiasts and innovative people from around the world seeking the opportunity to shape the future of air transport.

1.4.2 Five-point programme The Board of Managing Directors is aligning DFS with the company's vision in order to meet future challenges and has defined significant goals. It has successfully set up a five-point programme and adapted the strategic guidelines. Numerous dedicated projects and measures have already been implemented. The Board of Managing Directors constantly reviews progress and the compatibility with the market environment. Air navigation services in Europe DFS remains an independent air navigation service provider. It cooperates with its European partners in a reliable and predictable manner while actively shaping the European consolidation and concentration process as a strong air navigation service provider. The company supports suitable and appropriate regulations to implement the SES objectives. Air traffic services DFS is optimising airspace structures and operating procedures. It is harmonising ATS systems across Europe and introducing flexibility into the deployment of staff. Innovative technological solutions, concepts and knowledge deliver a competitive edge. In its core business of en-route control services, the company concentrates on an ATS system line (iCAS), which allows sectorless air traffic management. The provision of aerodrome control services is being modernised at selected aerodromes through the remote tower concept. This means the provision of service is no longer bound to a particular physical location. The quality of all services remains exemplary in Europe and can be measured against the highest standards. Increase in productivity By 2019, DFS aims to reduce operating costs by approximately €100 million per year. The company is in close dialogue with the employees, staff councils and trade unions affected to avoid a further increase in headcount and uses natural staff turnover to reduce staff numbers. All measures are introduced in a socially compatible manner. Mandatory redundancies are not planned. Commercial business DFS is improving its competitiveness and is systematically expanding its commercial business. It analyses the competition and acquires new business.

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Human resources DFS is strengthening its reliable and trust-based working relationships with its staff, executives and the staff representatives. It is improving the ability of staff members to combine work and family life over the long term and is reorganising the human resources function.

1.4.3 Financial strategy The financial strategy of DFS promotes the financial stability of the company and is based on the following areas of focus: Good to very good credit rating Investors, business partners and employees should be able to continue to trust in the financial stability of the company. The company secures very good investment grade ratings in combination with its Shareholder (see section 2.5.3.1). Adequate liquidity The company keeps an operational reserve of €160 million to be able to react flexibly to changed conditions in its environment. This ensures the company's ability to act. Adequate capital structure and equity ratio The capital structure and equity ratio are strengthened continuously. The negative impact on the equity as defined under IFRS stemming from the revised standard on the recognition of long-term employee benefits (see Note 25.8) from the 2013 business year will be reduced step by step over the next 15 years, starting from 2015 because of higher air navigation charges. DFS will continue to maintain the equity ratio shown in 'adjusted equity' (see Note 35.4) of around 20 percent and to progress towards a fully funded status for occupational pensions in a step-by-step manner. Low debt and unencumbered assets The take-up of loans is tightly linked to the capital expenditure to be financed both as regards timing and purpose, and the loans are paid back over the normal useful life of the capital expenditure. The infrastructure of the company is unencumbered and remains the property of the company. This creates a stable asset base that is in essence freely available. Ability to pay a dividend The provision of cost-effective air navigation services ensures that the capital provided by the Shareholder earns an adequate return. Risk management system A modern risk management system supports the planning and control of financial risks in a consistent manner (see section 6.2.2.1).


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1.5 Corporate management Corporate management at DFS is aligned with the regulatory environment, the strategic guidelines and objectives, the requirements of the business financed by air navigation charges and the commercial business, the organisational structure of DFS as well as the five-point programme. The planning and control process identifies suitable measures, embeds them in the yearly rolling five-year plan and continuously monitors the results of the DFS Group, the segment financed by air navigation charges, all other segments and the group companies. Performance and cost objectives as well as the internal requirements stemming from the five-point programme determine the demands placed on the individual divisions. The achievement of these objectives and goals is measured by means of planned/actual comparisons which are carried out both on a regular basis and as needed (monthly, yearly and ad hoc). Achievement is monitored and reported at a group, corporate, unit and product level. A system of financial indicators has been developed. These indicators are primarily based on IFRS and are used for budgeting. Requirements for operating costs are determined for the divisions and laid down using the following format:

Operating costs Staff costs

+ Other operating expenses (e.g. material costs)

+ Depreciation and amortisation

= Primary costs

+ Charges from internal cost allocation (ILV)

- Credits from internal cost allocation (ILV)

= Operating costs The commercial business is materially influenced by the competitive environment in which it operates. Planning and control is carried out by means of contribution margins and return on sales metrics, whereby a positive contribution to earnings should be generated. Planning and control also uses non-monetary indicators, such as the analysis of the traffic forecast, in addition to financial metrics on cost-efficiency. As regards non-monetary indicators, DFS constantly measures indicators for the key performance areas of safety, ATC capacity and the environment, such as infringements of separation, punctuality indicators and horizontal flight efficiency.

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1.6 Operating segments

1.6.1 Overview

DFS divides its business activities between the "Segment financed by air navigation charges" and "All other segments". The segment financed by air navigation charges is the focus of the main business in Germany. It is divided into en-route services and terminal services, which fall under the responsibility of the Control Centre and Tower divisions and their technical support units.

1.6.2 Segment financed by air navigation charges

1.6.2.1 En-route services Since 1 January 2012, the European Commission has regulated en-route services by means of a performance scheme for air navigation services and network functions (EU Regulation 390/2013 laying down a performance scheme for air navigation services and network functions) and the introduction of a common charging scheme (EU Regulation 391/2013 laying down a common charging scheme for air navigation services). The focus is on European and national requirements covering safety, environment, capacity and cost-efficiency. As the national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF) determines the German contribution to the performance plan at the level of the Functional Airspace Block Europe Central (FABEC) (see section 7.2.1). The charges are laid down by EUROCONTROL on the basis of a decision of the Enlarged Commission.

1.6.2.2 Terminal services Terminal services were subject to a system of full cost recovery until the end of 2014. The calculation of charges resulted in operational over- and under-recoveries for the business year that were carried forward as liabilities or receivables into future periods (business year + 2) and offset when calculating charges for airspace users. Over-recoveries reduced the future basis for billing, while under-recoveries increased it.

All other

segments

En-route services Terminal services

Until the end of 2011: Full cost recovery

Since 2012:

Economic regulation

Until the end of 2014: Full cost recovery

From 2015 onwards:

Economic regulation

Commercial business

Investments

Financial transactions not impacting air

navigation charges

Segment financed by air navigation charges

Germany Germany World


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At the beginning of 2015, terminal services are transferring to a system of economic regulation (see section 7.3.6). In the same way as before, the terminal charges are set by means of a statutory instrument of the Federal Government (FSAAKV).

1.6.2.3 All other segments This segment covers the activities that are not individually reportable as they are below the quantitative thresholds. These activities primarily relate to commercial services, investments and financial transactions that do not impact air navigation charges. Commercial services are offered globally. In contrast to the business financed by air navigation charges, the activities under all other segments are not subject to economic regulation or full cost recovery. Commercial services make up the major component of all other segments. Intersegment transactions are conducted at arm's length conditions and prices (see Note 30).

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1.7 Research and development German airspace demands a particularly well-performing air navigation service provider over the long term as this airspace is considered to be extremely busy and complex in international comparison. Technological and operational innovations represent an important means to manage the growing cost pressure, the increasing requirements as regards environmental sustainability and the rise in air transport predicted in all forecasts for the medium term. This must all be managed while maintaining an unrestricted safety level. Therefore, DFS has been involved in international and national research projects for many years. It concentrates on applied research which leads to new products, procedures and working methods and follows the path from invention to innovation. The most prominent project at international level is the SESAR project (Single European Sky Air Traffic Management Research), which encompasses all areas of air navigation services. It is organised within the scope of the SESAR Joint Undertaking, which DFS joined as an active member in June 2009, along with other leading organisations (air navigation service providers, airspace users, airports and manufacturers). DFS has also been selected as a candidate for the successor organisation in the project SESAR 2020. National activities focus on regional challenges such as the optimisation of flight routes for overflights and the operation of busy airports such as those in Frankfurt and Munich (including their arrival and departure procedures) by means of real-time and fast-time simulations. This also covers testing new key technologies and the subsequent development of air traffic control software and suitable simulators. Within the scope of the German aeronautical research programme with its technology line of funding for safe, efficient and sustainable aviation processes and flight guidance sponsored by the Federal Ministry for Economic Affairs and Energy (BMWi), DFS was able to once again position itself as project manager. The goal is to work jointly with German partners from research and industry to improve the starting basis for later international activities. DFS advances innovative developments and markets some of these through the Aeronautical Solutions (AS) division. These include:

The remote control of airports (Remote Tower Control, see section 7.2.5).

Sectorless flying: a revolutionary concept that assigns aircraft in the entire controlled area to a particular air traffic controller and which promises more expeditious traffic handling with less effort.

Surveillance systems that use all available sensors, such as various radar systems, multilateration and the position determined by the aircraft itself, to be able to track the aircraft seamlessly from gate to gate, on the ground as well as in the air.

Support systems for air traffic controllers that reduce the burden on them by means of optimised information processing, especially with advice on conflict avoidance, and by means of step-by-step automation.

The interoperability of European air traffic management systems that keeps pace with new developments – an important precondition for the SES initiative (Single European Sky) (see section 7.2.1).

A total of approximately 3.6 percent of the costs and 243 staff posts are allocated to research and internally generated developments. The costs involved are partially offset by grant funding of approximately €8.2 million awarded from European research framework programmes, including SESAR and the German aeronautical research programme. In the future, the implementation of the R&D results will also take place within the scope of the SESAR Deployment Alliance (SDA) together with air navigation service providers (ANSPs), airlines and airport operators.


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2 Report on economic position 2.1 Overall economic situation In 2014, the global economy grew by 2.6 percent, which was at the same level as the previous year. Emerging economies, the United States and the United Kingdom consolidated their pace of growth. The economic decline in the eurozone and Japan put a brake on stronger growth. World trade rose significantly over the course of the year. The economic recovery in Europe remained subdued due to high debt levels and the stagnating level of competitiveness of some states. The Russia-Ukraine conflict and existing structural challenges had a negative impact on growth in the eurozone. In 2014, the German economy grew by 1.5 percent in real terms, which was considerably stronger than in the previous two years. The rise in private consumption, the positive labour market and the decline in oil prices had a significant impact on this development. Gross domestic product (GDP) came in within the bands forecast by the leading economic institutes (1.5 - 1.9 percent) and marginally below the 1.8 percent expected by the Federal Government in its Annual Economic Report for 2014.

2.2 Development of air transport In addition to the overall economic situation, political, legal and industry-specific factors have a fundamental influence on the development of air transport. Political unrest

The political environment is broadly stable, although the Russia-Ukraine crisis, the unrest in the Middle East and the political turbulence in North Africa are adversely affecting traffic. These conflicts led to airspace closures and one aircraft accident. Since then, air transport companies have been avoiding the Ukraine on their routes and have been taking wide diversions around this area.

As a consequence of the closure of Libyan airspace in August 2014, overflights between northwest Europe and southern Africa were diverted either to the east over Greece or to the west (Tunisia/Morocco).

The continuing conflicts in Syria, Iraq and on the Sinai Peninsula are causing a shift of routes to Greece. Grassroots movements, night curfew and the new Berlin Brandenburg Airport

In Germany, citizens are reacting in an increasingly sensitive manner to noise disturbance caused by air traffic. The night curfew at Frankfurt Airport, the referendum against the third runway at Munich Airport and the renewed postponement of the opening of the new airport in Berlin are dampening the growth impulses for the national economy. Climate action plan and emissions trading system

On 2 February 2009, the EU Directive 2008/101/EC on the inclusion of international aviation activities in the European emissions trading scheme came into effect. This Directive was in force until the end of 2012 and was superseded by the provisions on the new trading period from 2013 until 2020 (EU Directive 2009/29/EC). According to this Directive, all aircraft taking off or landing at an airport in the EU are included in the emissions trading system. From the total number of certificates allocated to aviation, 85 percent were divided among the air carriers involved. The remaining 15 percent were auctioned off. There was considerable opposition

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against the inclusion of airlines from non-EU States in the European emissions trading system, particularly from the USA, the Russian Federation, China and India. Following the agreement within the International Civil Aviation Organisation (ICAO) on a climate action plan for aviation, the European Commission intends to make permanent changes to emissions trading in Europe. The exception that requires airlines to only pay for flights that take off and land in Europe has been limited to the end of 2016 for the time being. The original scope of application of the Directive will apply again from 1 January 2017, unless the EU makes amendments following the introduction of global market-based measures by ICAO. Air transport tax

In Germany, the law introducing an air transport tax (Luftverkehrssteuergesetz - LuftVStG) has been in force since the beginning of 2011. This law governs the levying of a tax that has to be paid for every passenger that departs from a German airport. For 2015, the relevant regulation under this law (LuftVStFestV 2015) lays down a levy per passenger of €7.50 for short-haul flights, €23.43 for medium-haul (up to 6,000 kilometre) and €42.18 for long-distance flights. Overall, this passenger-based air transport tax increases the costs for the entire air transport industry. According to the second evaluation report of the German aviation association BDL (Bundesverband der Deutschen Luftverkehrswirtschaft), this is the reason why growth in air transport in Germany has remained below the Western European average and passengers are shifting to neighbouring countries. Overall, the drop in passenger numbers can be quantified at five million per year at least.

Competition, airlines' pressure to reduce costs and restructure

Airlines continue to operate in an extremely competitive environment for lucrative routes and customers. The pressure to control costs and restructure is considerable.

In particular, low-cost airlines and airlines from the Gulf region and Turkey (Emirates, Etihad Airways, Qatar Airways, Turkish Airlines) are having a fundamental impact on competition, changing and intensifying it. They are expanding and are gaining market share on intercontinental routes, which continue to remain profitable. The large airlines are reacting with far-reaching changes in their capacity plans and are changing the size and load factors of the aircraft used. Lufthansa German Airlines (DLH) is concentrating on the airports of Frankfurt and Munich and has transferred its decentralised routes to Germanwings. With this move, the German market leader has signalled a realignment of the German air transport market. Until now, Lufthansa ran a stable route network in Germany under its own steam. A host of low-cost carriers reacted to the withdrawal of Lufthansa by expanding their portfolio to improve their market share and position on the German market. Hedges taken out against rising crude oil prices have prevented many airlines from benefiting from the significant decline in prices over the course of the year.

There were comparatively few flight cancellations due to weather conditions in 2014. However, ten separate strikes in 2014 by pilots at Lufthansa organised under the German Airline Pilots' Association (VC) had a significant negative impact.


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11.0

11.0

51.8

51.6

37.2

37.4

0% 20% 40% 60% 80% 100%

2013

2014

Distribution of IFR flights (%)

Domestic flights

Flights arriving in ordeparting from Germany

Overflights

Conflict of interests between renewable energy and air safety

Within a radius of 15 kilometres, wind turbines can interfere with the proper operation of VOR and DVOR facilities and pose a hazard to air safety. (VOR is the short form of VHF omnidirectional radio range and the acronym VHF itself stands for very high frequency, while DVOR stands for Doppler VOR.) The Federal Supervisory Authority for Air Navigation Services (BAF) decides if the erection of new wind turbines can be approved based on the expert opinion submitted by DFS. Investors promoting the expansion of renewable energy are increasingly seeking legal remedies when they see the profitability of their projects being put at risk when approval is not granted. They are contesting the expert opinions of DFS and consider smaller distances and separation to be technically acceptable. Following an appeal proceeding, however, the Higher Administrative Court of Lower Saxony strengthened the position of DFS and the BAF in December 2014. It recognised the technical arguments as well as the forecast calculations of DFS (BAF) and agreed that the wind turbines had the potential to cause interference. The decision is, however, not yet legally binding.

IFR flights 2014

In Germany, the number of IFR flights in 2014 rose by 0.9 percent compared with the previous year. Significant growth factors for German airspace resulted from the dynamism of the low-cost sector and the growth rates in overflights. The expected rise of 1.8 percent was not achieved, primarily because of the unexpectedly strong decline in flights at Ryanair and the flight cancellations at Lufthansa caused by strikes.

The volume of civil air traffic rose by 0.9 percent over the previous year, while military air traffic rose by 5.8 percent. IFR flights in Germany 2014 2013

Total 2,980,437 2,952,624

Compared with previous year (%) +0.9 -1.4

The breakdown of domestic flights, arrivals and departures as well as overflights remained basically the same as in the previous year. Arrivals and departures decreased marginally, while overflights rose marginally.

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2.3 Overview of the business development Impact of the revised IAS 19 standard

DFS offers defined benefit pensions to its staff. The revised provisions of IAS 19 (Employee Benefits) have had to be applied since the business year 2013. The amendments to the accounting standard relate to the elimination of an option for recording actuarial gains and losses. Since 2013, such gains and losses as well as other measurement changes have had to be immediately recognised in full in equity under other comprehensive income (OCI). DFS can no longer use the corridor method it had previously applied. Changes in interest rates that impact occupational pensions can no longer be smoothed. Gains and losses from the subsequent measurement of pension obligations as well as the associated plan assets are fully recognised in equity without impacting the income statement (see Note 25.8). The immediate impact of this is increased equity volatility. This volatility has been dampened when determining charges by the introduction of an imputed model. DFS has developed, under the auspices of its regulatory authority, a model for the calculation of occupational pensions that conforms to European regulations on the performance plan and on the determination of charges. It has been in use since 1 January 2012. Air navigation charges take the length of service and interest cost into account in a mutatis mutandis application of IAS 19. The discount rate used to determine the obligation is based, in a prospective manner and in the medium term, on the interest rate that can be earned on the plan assets. The differences between the obligation and plan assets (plan deficit/plan surplus) are allocated in a rolling fashion over the average remaining time to work (15 years) of the staff and also taken into account in the following reference periods as a component of the charges. Additional conservative assumptions for interest rate, salary and inflation trends support the correct matching of the funding of occupational pensions and avoid random fluctuations in the cost-base for charges and therefore arbitrary charges for airspace users. In a directive dated 12 December 2012, the Federal Supervisory Authority for Air Navigation Services (BAF) laid down that the actual financing expense for occupational pensions should not be subject to the cost-efficiency targets of the performance plan, but is instead to be considered as a determined cost in the performance plan and therefore part of the cost-base. The model is adjusted as part of the performance planning when drawing up the following performance plan. The financing difference (delta) that is determined in the planning phase for the following reference period is distributed over 15 years (rolling view) and increases revenues and liquidity in the IFRS group financial statements. In the first reference period from 2012 to 2014, the company used a uniform interest rate of 4.65 percent based on prudent commercial considerations. This uniform rate was used for the assets underlying the occupational pension scheme as well as for discounting the corresponding obligations. The interest rate for the second reference period will probably amount to 3.54 percent.


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Conflict of norms between those governing the levying of charges and those governing the determination of results

In accordance with European regulations for air navigation service providers, DFS switched the cost-base for calculating charges from German Commercial Code (HGB) to International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as at 1 January 2007. Since that time, DFS has been exposed to a material conflict of norms between the standards used to determine charges and the standards used to draw up the commercial and tax accounts. This conflict is eating into the substance of DFS (see the last paragraph of this section for the tax solution). On the one hand, there were European regulations requiring the application of IFRS for the recognition and measurement of issues that impact charges and, on the other hand, there were commercial and tax regulations that required measurements to be made that significantly deviated from those required by those same European regulations. There is a divergence between the commercial accounting rules and the cost-related basis for determining revenues from air navigation charges. This divergence leads to a corresponding divergence in the expense line items. The regulatory authority has given DFS the right to spread the effects from the conversion to the new accounting standards (catch-up effects) that lead to ex-post financing requirements over a period of 15 years after first recognising them directly in equity (Article 6 of EC Regulation 1794/2006). These catch-up effects may be invoiced to airspace users. They were included in revenues for the first time in 2007. The catch-up effects relate particularly to the following balance sheet line items: non-current assets (development costs, borrowing costs, depreciation and amortisation), pension obligations and other provisions. Therefore, the revenues earned in the area financed by air navigation charges do not match the corresponding costs in the accounts drawn up under commercial law. In addition, it must be borne in mind that the day-to-day accounting treatment of the same underlying issues can lead to differences between the accounts from a charges perspective, the accounts under IFRS and the accounts under German Commercial Code (HGB) when the catch-up effects are included. Section 29 of the Law on the Implementation of the Mutual Assistance Directive as well as on the Change to Tax Regulations (AmtshilfeRLUmsG) dated 26 June 2013 now governs the determination of the tax base previously set out in Section 31b(3) of the German Aviation Act (LuftVG). The positive or negative difference between the profit from air navigation charges as calculated under income tax law (EStG) and the result from the provision of air navigation services as calculated under the rules governing charges are not considered when determining income for DFS. Taxation is therefore based on the charges-related result. At a minimum, this regulation resolves the existing tension between the charges and tax perspective for the determination of profit. Nevertheless, significant differences still remain from the divergence between the determination of profit under the provisions governing air navigation charges and those under commercial law.

Unclear legal situation as regards regulation and uncontrollable costs

The current debate on the contents of the revised Regulations of the EU performance plan (EU Regulation 390/2013) and regulated air navigation charges (EU Regulation 391/2013) is still ongoing although these Regulations have already been adopted. The European Commission drew up an application guide for the rules on uncontrollable costs (Article 14(2) of EU Regulation 391/2013), which also covers the approval process as well as amended rules on the return on equity, on the consideration of the interest on borrowings and on occupational pensions. The current legal position requires a final check by the Commission of each of these

25

cost items after a decision has been made in the Single Sky Committee. The rule also applies retroactively to the uncontrollable costs incurred in the first reference period (2012–2014). As the final decisions are unknown and the likely success of legal remedies unclear, DFS does not yet consider those costs that DFS itself believes, in its own legal opinion, should be borne by airspace users when drawing up its group financial statements. On the other hand, provisions for obligations are being recognised for the uncontrollable costs that probably have to be reimbursed.

The German Federal Supervisory Authority for Air Navigation Services (BAF) subjects the catch-up effects, the return on equity and the costs of occupational pensions to an efficiency target of minus 1.5 percent in real terms for 2015 and 2016, and minus 2.5 percent for the subsequent years (2017, 2018 and 2019). DFS considers these regulatory targets to be legally doubtful and inappropriate, and is reviewing suitable measures.

Five-point programme

The Board of Managing Directors is driving the expansion of the commercial business.

By founding ANS Ltd. in the UK in 2014, it has prepared the ground for the expansion of the portfolio of services offered abroad.

It plans further expansion in those commercial business areas directly connected to air navigation services when opportunities arise in the market. Our marketing and consulting activities are being expanded worldwide. In the core business, productivity will be boosted, staff flexibility enhanced and the rise in staff numbers contained to respond to fluctuating demand. If possible, vacant positions are not being filled and the natural turnover is being used to reduce staff numbers. Airspace structures and flight procedures are being optimised and capital expenditure on recoverable, high-performance and harmonised air traffic management (ATM) systems is being stepped up. Project and general costs are being reduced.

Forecast/actual comparison 2014 Forecast/actual comparison 2014

Actual

as at 31 Dec 2013 Forecast for 2014

Actual

as at 31 Dec 2014

Service units

En-route services: 12.51m units

Terminal services: 1.29m units

Slight rise over 2013 (DFS forecast)

En-route services:

12.81m units Terminal services:

1.32m units

Revenues in en-route area €796.2m Revenues at the

same broad level €801.1m

Present value of pension obligations

€3,083.6m Significant increase €4,007.9m

Depreciation and amortisation €102.4m Slight rise in level of

depreciation and amortisation

€104.5m

Net income €35.8m Result at approx.

same level as previous year

€34.9m

Personnel 6,046 Reduction in

staff numbers 5,879


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2.4 Results of operations

2.4.1 Service units and unit rates

2.4.1.1 En-route services For en-route services, a service unit is computed as the square root of the weight factor multiplied by the distance factor. The economic value of each flight conducted is taken into account so that the value of the air traffic control service performed is considered by the legislator when establishing the relevant air navigation charges. Definition of service units:

En-route services: 50

tonnes in w eightoff-takemax. x

100

kmin distance

The amount to be paid by the airspace user is given by multiplying the service unit by the unit rate. Development of service units – en-route services 2014 2013

Total 12,806,143 12,506,062

Compared with previous year (%) +2.4 +0.5

The national unit rate for en-route charges comprises air-traffic-related cost elements of DFS, the German Meteorological Service (DWD), EUROCONTROL, the Maastricht Control Centre, and other national bodies, such as the Air Navigation Services Division (LR23) of the German Federal Ministry of Transport and Digital Infrastructure (BMVI) and the Federal Supervisory Authority for Air Navigation Services (BAF). In 2014, the service units rose by roughly 2.4 percent over 2013 and came in within the forecast of the economic plan from 2013. The development of service units remained well below the expectations set out in the performance plan as the growth in air traffic in Europe has been significantly less dynamic than forecast when the plan was drawn up. The main reason is the continued modest overall economic growth in the European economic area. En-route unit rate (€) 2015 2014 2013 2012 2011 2010

Total 90.15* 77.32 76.50 74.19 71.84 68.86

DFS share 74.56 62.55 63.22 60.41 58.24 54.39

Compared with previous year

(Total, in %) +16.6 +1.1 +3.1 +3.3 +4.3 +2.7

* Provisional: Until the end of October 2015, the European Commission can require the Federal Republic of Germany to retroactively change the unit rates for 2015 under Article 17(1) of EU Regulation 391/2013.

In 2014, the national unit rate for en-route services rose by around 1.1 percent primarily because of the consideration of the under-recovery from 2012, which was caused by traffic variances and an inflation adjustment. The EU Regulation on the common charging scheme for air navigation services (EU Regulation 391/2013) contains compensation mechanisms within a reference period to partly offset losses in revenues as a consequence of fluctuations in traffic volumes as well as an inflation adjustment. The rise in the unit rate from 2015 is, as

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in the previous year, attributable to an under-recovery caused by the plan parameters from the first reference period. In addition, the rise in costs for pension provision and a significantly higher traffic forecast in the performance plan for the second reference period led to a further adjustment. The DFS share of costs of the en-route unit rate rose slightly to approximately 83 percent.

2.4.1.2 Terminal services For terminal services, a service unit is the quotient obtained by dividing by fifty the maximum take-off weight, expressed as a figure taken to two decimal places, to the power of 0.7. Definition of service units:

Terminal services:

7.0

50

tonnes in w eightoff-takemax.

The amount to be paid by the airspace user is given by multiplying the service unit by the unit rate for terminal services. Development of service units – terminal services 2014 2013

Total 1,316,131 1,287,989

Compared with previous year (%) +2.2 -1.7

The unit rate for terminal services comprises air-traffic-related cost elements of DFS, the German Meteorological Service (DWD), and other national bodies, such as the Air Navigation Services Division (LR23) of the German Federal Ministry of Transport and Digital Infrastructure (BMVI) and the Federal Supervisory Authority for Air Navigation Services (BAF). The development of service units 2014 came in slightly above the assumptions in the economic plan as low-cost carriers in particular expanded more strongly than expected.

Terminal unit rate (€) 2015 2014 2013 2012 2011 2010

Total 181.62* 183.87 181.99 171.29 163.05 162.54

DFS share 173.28 177.20 175.84 165.70 155.76 154.33

Compared with previous year (total, in %) -1.2 +1.0 +6.2 +5.1 +0.3 -3.1

* Provisional: Until the end of October 2015, the European Commission can require the Federal Republic of Germany to retroactively change the unit rates for 2015 under Article 17(1) of EU Regulation 391/2013.

The 2014 unit rate for terminal services rose by 1.0 percent compared with the previous year. Two factors were primarily responsible for this. DFS was not allowed to fully offset the under-recovery from 2011 in 2013. Instead, the under-recovery had to be evenly distributed over the years 2013, 2014 and 2015 in accordance with a directive issued by the Federal Supervisory Authority for Air Navigation Services (BAF). In addition, the carry-over from the traffic-related under-recovery from 2012 increases the unit rate. In 2015, the unit rate will decline by roughly 1.2 percent primarily because of the over-recovery in 2013. The DFS share of costs of the unit rate for terminal services amounts to approximately 95 percent.


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2.4.2 Revenues In the business year 2014, DFS generated revenues of €1,106.2 million, coming in just below the level of the previous year (€1,109.2 million).

For DFS, the shift from full cost recovery to a performance-oriented charging structure for en-route services brings with it significant changes in the breakdown of revenues. Within certain limits, DFS is exposed to opportunities and risks resulting from the development of air traffic (see section 2.4.5).

Revenues from air navigation services decreased slightly from €1,091.9 million to €1,085.5 million. This is after netting the relevant share of the under-recovery from previous years (€40.3 million including the carry-over from the en-route area) and the under-recovery 2014 (€23.7 million including the carry-over from the en-route area). While revenues from en-route charges and terminal charges rose slightly on the basis of adjusted unit rates to recover the under-recovery from the previous years, the revenues from other air navigation services declined disproportionately further below). Pilot strikes at Lufthansa and other labour disputes by workers in the aviation industry led to revenue shortfalls of up to €600 thousand per day. Revenues from en-route charges (€m) 2014 2013 2012 2011 2010

Total 801.1 796.2 753.4 739.1 665.3

Compared with previous year (%) +0.6 +5.7 +1.9 +11.1 +5.6

-1.51

0.32

0.59

1.87

5.34

20.97

72.42

-10 0 10 20 30 40 50 60 70 80

Over-/under-recovery

Other air navigation services

Government reimbursements: exempted flights

Other revenues

Government reimbursements: military flights

Terminal services

En-route services

Revenue breakdown (in %)(Includes result contribution from netting over-/under-recovery)

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Revenues from terminal charges (€m) 2014 2013 2012 2011 2010

Gross 232.6 227.3 218.3 207.4 196.8

Reimbursements paid (0.6) (0.9) (0.7) (0.6) (0.5)

Net 232.0 226.4 217.6 206.8 196.3

Compared with previous year (net, in %) +2.5 +4.0 +5.2 +5.3 +8.3 Revenues from government reimbursements (€m) 2014 2013 2012 2011 2010

Military operational air traffic 59.1 57.4 57.1 57.7 55.4

Exempted flights 6.5 6.5 6.5 6.5 6.5

Total 65.6 63.9 63.6 64.2 61.9

Compared with previous year (%) +2.7 +0.5 -0.9 +3.7 -8.0

Reimbursements for military flights contain services provided by the Maastricht unit. The exempted flights relate to en-route flights under visual flight rules. Revenues from other air navigation services (€m) 2014 2013 2012 2011 2010

Aeronautical publications 0.3 7.5* 3.3 3.6 2.8

Flight inspection services 2.0 2.5 3.0 3.1 2.9

Other air navigation services 1.2 1.5 1.1 0.9 0.4

Total 3.5 11.5 7.4 7.6 6.2

Compared with previous year (%) -69.6 +55.4 -2.6 +22.6 +8.8

* This item contains €4.6 million from a technology transfer agreement (Phoenix). This means it is not directly comparable with prior years nor with subsequent years.

Since 2014, DFS has marketed the German-language publication Nachrichten für Luftfahrer through the DFS subsidiary Eisenschmidt, which was acquired in 2013. Other revenues (€m) 2014 2013 2012 2011 2010

Total 20.7 17.2 20.4 20.1 18.2

Compared with previous year (%) 20.3 -15.7 +2.0 +10.4 +5.8

DFS generated other revenues primarily from consulting and staff services, apron management services and training services. Within other air navigation services and other revenues, commercial services made up roughly 90.3 percent, generating revenues of €21.9 million (previous year: €24.1 million, including the German-language publication Nachrichten für Luftfahrer), which was slightly below the plan taking the changed marketing channel for the Nachrichten für Luftfahrer into account.


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2.4.3 Other operating income Other operating income (€m) 2014 2013 2012 2011 2010

Total 35.3 33.7 77.8 38.4* 29.7

Compared with previous year (%) +4.7 -56.7 +102.6 +29.3 -10.3 * Due to a reclassification, the disclosures are not directly comparable with the previous years.

Other operating income was within the bounds set in the previous years. The high in 2012 proved an exception which was attributable to a special item from the termination of the QTE transaction (€52.2 million, see section 6.2.2.4). Material components: Project-specific funding by the European Commission (€8.2 million) Income from the QTE transaction, exchange rate gain (€7.0 million) Derecognition of liabilities (€6.0 million) Reimbursement of costs of the business year and of previous years (€5.7 million) Benefits-in-kind (€3.0 million) Reversal of provisions (€1.7 million)

2.4.4 Principal expense categories Employee expenses (€m) 2014 2013 2012* 2011 2010

Total 803.1 808.5 772.2

(789.1) 701.9 625.8

Thereof wages and salaries 593.8 585.7 586.1 550.3 527.6

Thereof social security costs and expenses

for pensions and assistance 180.2 197.8

160.2

(177.2) 130.2 78.7

Thereof costs of personnel belonging to

the Federal Aviation Office (LBA)** 29.1 25.0 25.9 21.3 19.5

Share of total costs (%) 76.9 76.7 75.1

(75.5) 72.5 71.4

Compared with previous year (%) -0.7 +4.7 +10.0 (+12.4) +12.2 +2.9

* Prior-year figures adjusted to IAS 19 (revised 2011). Figure in brackets: originally reported figure.

** LBA: Luftfahrt-Bundesamt (Federal Aviation Office)

The service cost was lower while there was a slight rise in salary expenses and the cost of personnel belonging to the Federal Aviation Office (LBA). Interest of €109.5 million accruing from provisions for pensions and early retirement is charged to the financial result. The return on plan assets (€63.9 million) is credited to the financial result.

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Other operating expenses (€m) 2014 2013 2012* 2011 2010

Total 132.7 138.3 144.0 155.0** 144.9


(13.8) 16.0 16.5

Compared with previous year (%) -4.0 -4.0 -7.1 +7.0 +8.3


** Due to a reclassification, the disclosures are not directly comparable with the previous years.

Material components: Spare parts and maintenance (€46.0 million) Occupancy costs (€21.8 million) Costs of external personnel (€9.9 million) Rental and leasing (€8.6 million) Telecommunication costs (€7.7 million) Exchange rate loss from the QTE transaction, exchange rate gain (€7.1 million) Legal and consultancy costs (€6.9 million) Travel costs (€6.2 million) Other employee expenses (€4.3 million) Vehicle costs (€3.5 million) Depreciation and amortisation (€m) 2014 2013 2012* 2011 2010

Total 104.5 102.4 105.0 102.5 100.8


(10.0) 10.5 11.5

Compared with previous year (%) +2.1 -2.5 +2.4 +1.7 -13.3


In 2014, no impairment losses were recognised.


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2.4.5 Earnings In 2014, DFS realised net income of €34.9 million (previous year: €35.8 million). The operational under-recovery, including the carry-over from the en-route area, amounted to €23.7 million (previous year: under-recovery of €26.2 million including the carry-over from the en-route area). Net income (€m) 2014 2013 2012* 2011 2010

Total 34.9 35.8 87.9

(73.1) 79.6 104.8

Compared with previous year (%) -2.5 -59.3 +10.4 (-8.2) -25.2 +5.4


Owing to the special regulatory influences acting on the company, the results are impacted by the catch-up effects, the inclusion of the imputed model (for pensions) and the tax expense calculated on the basis of the charges-related result (see section 2.3). The result in 2014 contains the costs reimbursed by airspace users for previous years of €49.7 million (previous year: €47.7 million) from the conversion of the cost-base for calculating charges from the German Commercial Code (HGB) to IFRS as at 1 January 2007 (catch-up effects). It also contains an amount of €17.5 million (previous year: €20.0 million) from the change in the charges-related parameters for expenses for occupational pensions (imputed model, see section 2.3) within the scope of the introduction of regulated charges as at 1 January 2012.

Earnings before taxes (€m)

Net income 34.9

+ Taxes on income and revenues 2.5

EBT 37.4

The changeover from full cost recovery to charges based on performance in the en-route area has a material impact on the cost structures. Savings or additional expenses are no longer passed on in the following periods but directly impact the earnings of DFS. Currently, there are still issues concerning interpretation and application which could influence the future development of the company's economic situation. From the point of view of DFS, there are a small number of measurement, accounting and charging issues which have not been unequivocally resolved since the date of the transition (31 December 2011/1 January 2012). The regulatory authority and DFS continue to work on the contentious issue of drawing up a binding catalogue of qualifying uncontrollable costs. Such costs will have to be borne in full by airspace users. For the en-route area, the regulatory situation has split the chances and risks resulting from the differences between planned and actual traffic volume between the airspace users and DFS since 2012. If defined thresholds are exceeded, DFS is authorised and obliged to return or demand any over- or under-recoveries (carry-over). The carry-over for 2014 will be carried forward and taken into account in the determination of charges for the second reference period.

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Chance/risk transfer from deviation in traffic volume

Deviation in traffic volume (v) DFS share User share

v ≤ 2.0% 100.0% ---

2.0% < v ≤ 10.0% 30.0% 70.0%

v > 10.0% --- 100.0%

Terminal services are subject to full cost recovery until the end of 2014. The principles governing air navigation charges laid down by ICAO continue to stipulate that – after making allowance for a reasonable return on capital employed – over- or under-recoveries have to be passed on in subsequent years. Accordingly, the operational over-recovery from the business year 2014 for terminal services will be taken into account when determining charges for the year 2016. At the beginning of 2015, terminal services are transferring to a system of economic regulation (see section 7.3.6). Overall, the positive earnings have been impacted by material special items.


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2.5 Assets and financial position

2.5.1 Capital expenditure DFS invests in the preservation and further development of the necessary infrastructure provided the measures are based on legal obligations or support the development of earnings in an economically sound manner. Regulations and standards from ICAO, EUROCONTROL and the EU are adhered to. The safety of air traffic plays a decisive role when it comes to decisions on capital expenditure. Against this background, capital expenditure of €84.0 million was made in the business year 2014. As at 31 December 2014, a total of €41.5 million of an inter-Group long-term loan approval of €50 million from DFS was drawn down. These projects are currently underway and represent the highest share of capital expenditure:

iCAS (interoperability through European collaboration Centre Automation System) software

The future control centre ATS system iCAS will in particular meet the interoperability requirements of the SES regulations.

Construction of the Langen technical centre

DFS is constructing a new technical centre to set up ATC test and reference installations and house the administrative computer centre.

Voice switching system ISIS-XM (Improved Speech Integrated System) in Munich

DFS is harmonising its voice switching systems and is replacing the system in Munich within the scope of the MUSE project. In the future, ISIS-XM is to be installed at all DFS control centres to achieve a homogeneous system landscape. Using a uniform user interface and concept will increase training efficiency and create the necessary conditions to enable the transfer of services (e.g. consolidating control centres at night) and new concepts to ensure ATC operations in contingencies.

Radio Site Upgrade and Modernisation (RASUM) 8.33

DFS is equipping 95 radio stations for the 8.33 kHz channel spacing requirements in lower airspace, including the necessary structural and infrastructural measures. The project caters for future traffic growth and implements the Conclusion taken by the ICAO European Air Navigation Planning Group (EANPG) 48 dated November 2006 and EU Regulation 1079/2012.

Extension of VAFORIT software (Very Advanced Flight Data Processing Operational Requirements Implementation)

The new air traffic management system for upper airspace, which was put into operation in December 2010, is being extended. VAFORIT is fully stripless and replaced the old system KARLDAP (Karlsruhe Automatic Data Processing and Display System).

Extension to the Munich Control Centre

Construction work was required because of the increase in space needed for the installation of the P2/ATCAS air traffic management system. This is the successor system to P1/ATCAS (P1 air traffic control automation system) in the control centres for lower airspace. The construction work covers a control room with roughly 100 controller working positions as well as office and functional rooms for operations. In addition, two equipment rooms and two centres each for the provision of air conditioning, cooling and electricity were fitted out.

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Collaboration 2.0

By using appropriate platforms and mechanisms, DFS promotes a company-wide, cross-disciplinary approach to work that breaks down physical boundaries. To this end, DFS has introduced a company-wide collaboration infrastructure and is migrating existing systems step by step until the end of 2018.

GBAS (Ground Based Augmentation System) Frankfurt CAT I

In a joint project with FRAPORT, DFS put into operation the first GBAS CAT I facility at a hub in Europe. The facility is a part of the noise abatement package for Frankfurt Airport and will enable the introduction of new approach procedures in the future and deliver insights for the further development of the system.

In the business year 2014, assets under construction worth a total of €54.9 million were completed. A significant share was made up by the construction of the Langen technical centre and the voice switching system ISIS-XM (Improved Speech Integrated System) in Munich (see above). With these projects, DFS secures its position as a reliable partner for aviation.


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2.5.2 Balance sheet structure In 2014, the balance sheet total increased by 4.2 percent to €1,459.0 million (previous year: €1,400.0 million). Assets

Non-current assets declined by 5.2 percent, while current assets rose by 25.2 percent. The change in non-current assets is primarily attributable to a reclassification (€47.5 million) of the under-recovery concerning charges which is borne by airspace users from non-current other receivables and assets to current assets. Capital expenditure was less than the amount of depreciation and amortisation for property, plant and equipment, and intangible assets, leading to a decline in this line item of roughly 3.0 percent. In contrast, financial assets rose by 20.3 percent primarily due to drawdowns (€12.0 million) under the existing loan contract with the subsidiary DFS Energy. The rise in current assets is primarily in connection with short-term cash investments in securities (€50 million) and the rise in the amount of liquid funds by 3.6 percent due to positive cash flows and the reclassification of the under-recovery (€47.5 million). Equity and liabilities

Shareholder's equity declined by a total of €659.8 million primarily due to the continued application of the revised provisions of IAS 19. The change in revaluation reserves for pension provisions caused shareholder's equity to decline by €688.8 million, while net income for the business year caused it to rise by €34.9 million. In the business year 2014, the Shareholder received a gross dividend of €5.9 million. Overall, the negative equity rose by 93.6 percent. Non-current liabilities were impacted primarily by the development in the net liability from pension obligations (chiefly from actuarial losses). Based on prior-year figures, the number reported in the balance sheet (the difference between obligation and plan assets) rose to approximately €2,045.2 million (previous year: €1,346.1 million) due to the significant decline in the discount rate. This effect was offset to a limited extent due to the good development in plan assets, which when measured using the current discount rate under IFRS made a significant positive contribution in the general investment, as well as the decline in the salary trend from 3.5 percent to 2.5 percent. Overall, non-current liabilities rose by 37.4 percent over the previous year. Current liabilities rose by roughly 5.0 percent. Current trade payables (chiefly relating to domestic suppliers) and other liabilities decreased slightly, while other provisions and income tax obligations rose. Net financial indebtedness amounted to €71.5 million as at 31 December 2014. The leverage ratio at the balance sheet date thus amounted to around 4.9 percent. Interest expenses, driven primarily by pension obligations, were higher than interest income by €60.3 million.

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Balance sheet indicators

2014 2013 2012

Net financial indebtedness (€m)

(Financial liabilities – liquid funds) 71.5 128.3 182.6

Leverage ratio (%)

(Net financial indebtedness/balance sheet total) 4.9 9.1 15.1

Asset intensity (%)

(Non-current assets/balance sheet total) 62.7 68.9 76.4

Balance sheet indicators when fully considering catch-up effects from the conversion to IFRS and the under-recovery

2014 2013 2012*

Net financial indebtedness (€m)

(Financial liabilities – liquid funds) 71.5 128.3

182.6

(182.6)

Leverage ratio (%)

(Net financial indebtedness/balance sheet total) 2.0 4.6

5.8

(10.0)

Asset intensity (%)

(Non-current assets/balance sheet total) 26.1 34.9

29.5

(50.3)

* Figures adjusted to IAS 19 (revised 2011). Figure in brackets: originally reported figure

In Note 35.4, a detailed reconciliation can be found of the equity as at 31 December 2014 to the charges-related equity after the integration of DFS Energy and taking into consideration the catch-up effects from the conversion to IFRS and the procedure approved by the Federal Supervisory Authority for Air Navigation Services (BAF) for costs to be recovered from the treatment of occupational pensions (see section 2.3).


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2.5.3 Liquidity

2.5.3.1 Financial management Financial management at DFS secures and supports the statutory obligation of DFS in the Group. DFS optimises its performance through an appropriate equity and debt structure, the economical use of equity capital, an optimised use of debt and the planning and control of cash flows in accordance with the plan. In this way, DFS also promotes the competitiveness of the commercial business. The company finances itself primarily by drawing on the cash inflows from operating activities and on funds from a money and capital market programme. Furthermore, there are special items impacting assets that have a temporarily favourable effect on liquidity (see section 2.4.5). The Group Treasury department plans and controls the level of cash and cash equivalents and the procurement of funds and incorporates subsidiaries in the flow of funds by means of a cash pool. Funds are collected and centrally controlled where legally allowed and when commercially sensible. The financing requirements of subsidiaries are satisfied by inter-Group settlement accounts and loans. The company pays attention to a balanced financing structure and holds liquid reserves to effectively meet unexpected changes in traffic volumes (see section 6.2.1). Business dealings with a selected group of principal bankers are conducted using uniform standards and existing reciprocal cash flows are continuously improved. DFS finances its non-current liabilities congruently with debenture loans and bonds traded on the exchange in Luxembourg. Short-term liquidity is covered by means of a multi-currency commercial paper programme. This programme is supported by a syndicated line of credit of €160 million as a back-up facility. Neither of the two means of financing was taken up in the business year. With its money and capital market programme, DFS attracts both national and international investors. These investors base their investment decisions and price fixing on the credit rating of each debtor. To support their decision-making process, DFS has its creditworthiness rated by means of standardised credit ratings from credit rating agencies according to internationally uniform and consistent procedures. The rating agencies Standard & Poor’s and Moody's confirmed the ratings for DFS in combination with its Shareholder for 2014, both for the short- and long-term area (AAA/A-1+ and Aa3/P-1). At year-end 2014, DFS had an issuing volume of bonds with a nominal value of €47.2 million with remaining terms of up to four years as well as debenture loans of €285.0 million with remaining terms of up to nine years. The existing debenture loans and bonds have fixed interest rates or have been swapped from variable to fixed rates. The average nominal interest rate of the bonds and debenture loans, taking the swaps into account, amounted to 2.941 percent at the balance sheet date.

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2.5.3.2 Cash flow statement Cash and cash equivalents at year-end are made up as follows: Cash and cash equivalents (€'000)

Cash inflow (+) / cash outflow (-) 2014 2013 Change (%)

Operating activities 162,076 178,925 -9.42

Investing activities -94,961 -135,193 -29.76

Financing activities -7,873 108,815 -107.24

Changes impacting cash flow 59,242 152,547 -61.16

Cash and cash equivalents at the

beginning of the year 258,081 105,534 144.55

Cash and cash equivalents at the

end of the year 317,323 258,081 22.95

Detailed information can be found in the cash flow statement and in Note 31. In the business year 2014, the Shareholder received a gross dividend of €5.9 million.

2.6 Overall assessment on the economic situation The results and financial position have been influenced primarily by the legal framework conditions, economic regulation, stagnating air traffic, the continuing low interest level as well as measures taken by the Board of Managing Directors to reduce costs.

In the business year 2014, DFS generated revenues at the same level as the previous year. Overall, DFS generated net income of €34.9 million. While it remained clearly in positive territory, it was primarily impacted by catch-up effects and the change in the charges-related parameters for expenses for occupational pensions. The five-point programme is having an effect and costs are declining significantly so that an acceptable net income was earned despite the weak traffic figures.


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3 Personnel Motivated and qualified employees are an absolute must for the long-term success of DFS. This is why human resources management at DFS stresses a holistic approach, ranging from selection through appropriate compensation and targeted training and development to the long-term retention of staff. Financial incentives are supported by HR policies aligned with different phases of life and family needs. DFS employs non-exempt staff (covered by collective agreements), exempt employees (not covered by collective agreements) and executive staff as well as personnel of the Federal Aviation Office (LBA) working for DFS and soldiers released from regular service. Non-exempt employees are subject to the provisions of the company-specific collective bargaining agreements. Executive staff and exempt employees negotiate their contracts freely on an individual basis. These employees have target agreements covering corporate goals and their area of expertise. The degree of fulfilment of these agreements determines the variable salary components. The personnel of the Federal Aviation Office (LBA) working for DFS comprise the third employee group at DFS. These established and non-established civil servants, who have remained in an employment relationship with the Federal Government, still fall under the collective agreement for the public service (Tarifvertrag für den öffentlichen Dienst – TVöD). The collective agreements at DFS do not apply to them. DFS bears the relevant expenses. Air traffic controllers (from the age of 55) and flight data assistants (from 59) receive transitional payments in the period before their formal retirement. This right to receive transitional payments accounts for a significant component of the pension commitment. Information on the compensation structure of the Board of Managing Directors can be found in Note 42.1. DFS is continuing to expand measures to support staff in combining work and family life. Since 2011, DFS has been involved in a childcare centre in Langen, where its Headquarters is located. Places are available for employees' children there. Such places are also available at the other DFS branches. Over the course of their whole career, staff can avail of flexible working-time models, health programmes, seminars and further training opportunities. The validation of the support measures related to the family is being made through participation in the work and family audit initiative (audit berufundfamilie). As at 31 December 2014, DFS had a total of 5,879 employees.

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49.0

48.4

7.5

7.6

43.5

44.0

0% 20% 40% 60% 80% 100%

2013

2014

Employees by area of duties (%)

Air traffic control

Operational engineering

Supporting functions

Employees (as at 31 December)

2014 2013 2012 2011 2010

Permanent employees (total) 5,879 6,046 6,100 6,064 5,938

Salaried staff 5,316 5,317 5,314 5,239 5,074

Soldiers released from regular service 219 235 246 259 263

Wage-earners 26 27 28 31 31

Technical/commercial students &

apprentices

45 50 51 51 45

Air traffic control trainees 51 172 193 189 213

Personnel belonging to the Federal Aviation

Office (LBA)

222 245 268 295 312

of which established civil servants (171) (188) (204) (227) (240)

of which non-established employees (51) (57) (64) (68) (72)

Compared with previous year (%) -2.8 -0.9 +0.6 +2.1 +6.1

Share of female employees (%) 26.8 26.5 26.3 26.0 27.0

Share of foreign employees (%) 4.0 4.1 4.3 4.3 3.9

Staff headcount is also impacted by the planned long-term reduction in operating costs. There were 761 part-time employees – 529 women and 232 men. The share of part-time

employees rose by 11.6 percent over the previous year, reaching 12.9 percent. Foreign

employees mainly come from the USA and the United Kingdom, followed by Spain and Austria.

Overall, 44 nations are represented. The age structure of staff is well balanced, with the

average age being 42 years. The average age for men is 43, while the average female

employee is 40 years old. The turnover rate – which only considers employees who leave DFS

voluntarily – was 1.6 percent in 2014.

The subsidiary The Tower Company GmbH had a staff of 58 at the end of December. This number includes 42 qualified or trainee air traffic controllers.


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DFS is well aware of its responsibility to society and has been offering job-starters attractive trainee and college places for years. People starting training at DFS 2014 2013

Total 47 222

Air traffic controllers 38 172

Dual course of studies/apprenticeship 9 50

Compared with previous year (%) -78.8 -9.0

In addition to training air traffic controllers, the spectrum of training currently offered at DFS encompasses apprenticeships and college places for dual courses of studies graduating with a bachelor's degree in professions currently in short supply: engineering degrees (electronics and telecommunications), IT, air navigation technology, service technology and aviation management. This allows DFS to meet its demand for qualified staff. As these staff are trained internally, they will, in all likelihood, take on duties in the company on completion of their training or degree. The small number of trainees/apprentices in 2014 is chiefly due to the decline in the number of new operational staff. In the future, DFS will continue to offer interesting and promising trainee and college places.

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4 Report on post-balance-sheet date events At a meeting on 22 January 2015, the Supervisory Board approved the extension of the contracts of two Managing Directors, Prof Klaus-Dieter Scheurle and Robert Schickling, until 2020. After the balance sheet date, there were no events that, individually or bundled, had a material influence on the assessment of the results and financial position.


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5 Compliance

The State-owned DFS is subject to the Public Corporate Governance Code (PCGK) of the Federal Government of Germany. Under this code, the Board of Managing Directors has to ensure adherence to and compliance with legal provisions and corporate guidelines. On the basis of this, DFS introduced a compliance management system (CMS) in 2011. Together with the risk management system (RMS) and the internal control system (ICS) for accounting and financial reporting, these elements form the three pillars of the corporate structure for risk management. This system was validated again in 2012. The compliance officer appointed as at 20 December 2012 is supported by the compliance office. The compliance committee advises the compliance officer. The committee is made up of the executive management level of Corporate Audit, Corporate Safety and Security Management and Corporate Management. To ensure the connection of the compliance management system to the internal control system and the risk management system, the committee is supplemented by the heads of Financial Management and Risk Management who are permanent guests of the committee. In 2014, the compliance committee had four scheduled meetings. The focus of activity in 2014 was the conduct of an external audit during which the overall organisational approach and the sub-areas of corruption prevention, data protection and occupational safety were audited and the compliance management system was assessed to be suitable as regards the audit areas. The audit report was discussed by the Board of Managing Directors and presented to the Audit Committee. The areas with potential for improvement will be successively handled. The compliance management system is constantly upgraded and expanded. Organisationally, the issue is assigned to Institutional and Legal Affairs. There is a direct reporting channel from the compliance officer to the Board of Managing Directors and the Supervisory Board.

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6 Risk report 6.1 Risk management system DFS uses a comprehensive set of instruments to identify, analyse, monitor, and manage the risks associated with its business. The risk management process is managed centrally by the independent Risk and Contract Management department. This department is supported by the risk management committee (RMC) when conducting evaluations that span several organisational units and processes. As a rule, the members of this body belong to the executive management level who are closely involved in the business decision-making processes, know company-wide interrelationships, and are hence in a position to contribute to forming a comprehensive overview. The Risk and Contract Management department takes account of the changes taking place in the aviation industry and the company, advances risk management methodically and therefore ensures the early identification of risks and the combating of business risks. This specialist department uses a process description and an operational instruction to lay down standards for the ongoing company-wide recognition, assessment, documentation and reporting of business risks. The early identification of risks begins with the applications for approval of business plans and projects. Possible effects encompass the following topics: operations (such as fulfilling the statutory mandate and infrastructure); finance (such as costs, financial markets and customers/suppliers); management (such as strategy, personnel and organisation) as well as external environment (such as politics and legislation, disasters and terrorist attacks). The heads of the organisational units identify the risks that have arisen as part of their management duties and are responsible for ensuring that the statements on the risk situation in their areas are correct. They report quarterly unless an ad-hoc report is required. A risk announcement contains a description and an assessment of the risk as well as the causes and countermeasures. In general, the forecast period is one year. Risks are assessed across all segments and are based on an evaluation of the probability of occurrence and the possible level of damage of the hazard under consideration as reported by the organisational unit concerned. The goal is a quantified assessment; in well-founded cases a qualified assessment is permissible. Criteria for a qualified assessment are laid down centrally in an assessment matrix. Based on this, the reported risks are categorised as "red"/threat to going-concern status, "yellow"/material and "green"/internal to the organisational unit. The Board of Managing Directors decided in the second half of 2014 to focus risk reporting on threats to the going-concern status from 2015. The direct and indirect investments of DFS are systematically managed and monitored using in-house risk management systems. The risk management systems of subsidiaries are aligned with group regulations. DFS risk management analyses, plans and controls the effects on the Group. The reporting of risks to the Board of Managing Directors takes place on a quarterly basis, while the Supervisory Board is informed on a half-yearly basis. Both reports include an overview of changes from the prior period and all reports that were no longer judged to be as business risks in the period under review. The integrity of the risk management system is tested by Internal Audit as well as in the course of the audit of the annual financial statements by the external auditors.


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6.2 Material risks

6.2.1 Corporate strategy risks Corporate strategy risks arise primarily from misjudgements of environmental conditions and future market developments. They can lead to an inadequate alignment of corporate activities, with negative consequences for the results and financial position. This is why DFS devotes considerable attention to the analysis and forecasting of air traffic, the political environment and the European charging and performance scheme. The Board of Managing Directors reviews its estimates in close cooperation with relevant bodies, checks variances and discusses risks. The Board of Managing Directors therefore sees only a slight corporate strategy risk.

6.2.2 Financial risks

6.2.2.1 Principles of financial risk management As part of its business activities, DFS is exposed to numerous financial risks. The management of these risks is an integral component of the planning and implementation system. The Board of Managing Directors lays down the associated corporate policy. The objective of the corporate policy is to contain and/or mitigate existing risks. Financial management implements these targets and uses a system to manage financial risks that is tailored to the specific business of DFS. Particularly since the beginning of the global financial market crisis, DFS has been continuously following and analysing the developments on the financial markets in a critical dialogue with its principal bankers and the rating agencies to reassess any existing strategies and develop new strategies as necessary. As part of its overall risk management system, DFS performs Value-at-Risk (VaR) analyses to manage market price risks (interest, currencies). The risk position is assessed weekly by the Treasury department based on market price risks and is reported to the Board of Managing Directors at regular intervals. The VaR indicates the absolute loss for a company of a defined risk position which will not be exceeded with a previously defined probability over a given period of time. The calculation of the VaR at DFS is based on a holding period of ten days and a probability of 95 percent. On 31 December 2014, the cumulative loss at a confidence level of 95 percent amounted to under €1,229 thousand (previous year: €3,064 thousand). The VaR is determined with the help of statistical time series on the relevant financial market data (interest rates, exchange rates). Historical simulations are computed by extrapolating scenarios from the past to the future using simulated changes in market values for financial instruments. This market risk analysis includes all money market transactions of DFS, the issued bonds, debenture loans, interest derivatives, securities, currency hedges as well as all associated risk positions (foreign currency purchases and foreign currency receivables/liabilities). Quantitative information on VaR values for risks from currency and interest rate changes is summarised in Note 34.3. Clearly defined framework conditions support the planning and control of risks based on the reporting. Speculative transactions with derivative instruments where there is no underlying transaction are forbidden. As regards financial investing, transactions are only entered into with counterparties who either have a long-term rating of at least AA-/ Aa3, short-term A-1/P-1, a correspondingly high creditworthiness or other form of collateral.

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6.2.2.2 Liquidity risk Daily liquidity is monitored by the Treasury department and is managed with the help of liquidity planning during the year and over the medium term (see section 2.5.3.1).

6.2.2.3 Default risk DFS is exposed to default risk and, increasingly, a collection and enforcement risk from the operating business in en-route and terminal services, from the commercial business as well as from financial instruments. That is why receivables are monitored constantly in the operating business and default risks considered by means of specific allowances. In addition, for terminal services DFS demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. In the en-route area, EUROCONTROL invoices all flights on the basis of the data transmitted by the individual Member States and supplementary information from the Network Manager. The invoices are issued based on the data (operator, weight, distance) known at that point in time. In individual cases, agreements are reached under which third parties make partial payments of outstanding amounts for services received after consultation with the Member States and at EUROCONTROL's reasonable discretion. EUROCONTROL does not require any security to be lodged but initiates enforcement measures to collect amounts due which have not been paid within the deadlines laid down. This requires a resolution from the Member States. DFS has no influence on the discretion applied when EUROCONTROL makes such decisions. The intergovernmental agreement entitled Multilateral Agreement relating to Route Charges dated 12 February 1981 (BGBl. 1984 II p. 109) at European level prevents it from demanding security deposits to limit imminent defaults in the en-route area. Notwithstanding these restrictions, the regulatory authority currently rejects the inclusion of these collection, default and enforcement risks as uncontrollable costs. The maximum default risk is reflected in the carrying amounts of the financial assets recognised on the balance sheet. Warranty obligations for the commercial business are demanded as part of a contract-related quality management. 6.2.2.4 Rating risk The business and performance of DFS are monitored by external rating agencies and the Deutsche Bundesbank (eligibility of the debt instruments of DFS). Negative analyses and the downgrading of the ratings could make the take-up of external financing more difficult and negatively influence the conditions for such financing and lead to higher interest rates. DFS concluded a US lease-in/lease-out transaction (five tranches) with two US investors (QTE transaction) for a portion of its air navigation systems under non-current assets in 2002 and 2003. This transaction was basically terminated in the second quarter of 2012. The remaining German shell structure with a remaining term up to and including 2021 is restricted to a receivable to Nord/LB bank (the borrower) and a liability to KfW bank (the lender). The associated cash flows match as regards amount, term and currency. Over its term, DFS bears the default risk to Nord/LB bank to the amount of €58 million as of the balance sheet date (previous year: €55 million). KfW Bank is authorised to extraordinarily terminate the loan if the rating of DFS falls under AA- (Standard & Poor's) or Aa3 (Moody's). In such a case, DFS has


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to name a third party within a period of 30 days that will acquire the receivable of KfW against DFS to the amount of €59 million (previous year: €57 million).

6.2.2.5 Interest rate risk DFS is exposed to interest rate risk from the financing area, from financial assets as well as from the measurement of obligations under occupational pensions. In 2014, DFS made use of financial derivatives to hedge interest rate risk and to minimise the expenses of a foreign currency bond. The effectiveness of the hedges is guaranteed by the matching of maturities and volumes between the hedge and the underlying transaction. DFS monitors the impact of regulation to be able to react with appropriate measures to changes in the area of occupational pensions. Variances in the present value of the pension obligations for changes in parameters of +/- 0.5 percentage points are shown in the sensitivity analysis in the Notes (see Note 25.3).

6.2.2.6 Currency risk DFS is exposed to transaction risks as part of cross-border procurement transactions. The majority of foreign currency purchases/liabilities result from suppliers invoicing in US dollars. The total volume amounted to approximately US$3.8 million in the reporting period (previous year: US$4.6 million). Other currencies are only of minor importance. These risks are limited by means of hedging using derivative financial instruments. Currency risks from financial transactions (foreign bonds, commercial paper) are hedged immediately on conclusion of the transaction. 6.2.3 Performance-related and IT risks The top priority for DFS is to ensure air safety, which is why DFS has installed a safety management system that corresponds with the provisions of EU Regulation 1035/2011. A variety of measures are taken at all levels of planning, implementing and operating DFS infrastructure to minimise the probability of downtime of the operational infrastructure of DFS which would endanger air safety and impact the business performance of DFS. The risk management system of DFS has incorporated the ATM-related systems and applications as well as the administrative systems and applications. Measures to avoid downtime that would have safety-related or economic repercussions include the redundancy and spatial separation of critical systems, the extensive storage of data on separate data carriers as well as the SAP backup computer centre.

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6.2.4 Staff-related risks The commitment and well-being of its staff are crucial for DFS to maintain safety in German airspace and to ensure an efficient level of performance. Economic regulation and technological developments mean that DFS is facing significant changes. Human Resources develops measures that support management and staff in exploiting the opportunities offered by change. A risk that cannot be underestimated stems from demographic change and increasing competition among companies for highly qualified staff and executives. This risk takes on particular significance when one considers the approximately 10 percent decline in the labour force participation rate in Germany forecast by 2030. The internal demographic characteristics of DFS also present a risk as regards a balanced age structure and the long-term maintenance of professional skills. Human Resources at DFS has set up a strategic HR and executive development programme and HR marketing and recruiting measures targeted at maintaining human capital at DFS. As necessary, qualified professionals are recruited externally. DFS has a comprehensive in-house health management programme to ensure that staff remain healthy and maintain their ability to perform.

6.2.5 Insured risks DFS has taken out insurance to cover common insurable risks, including those of subsidiaries where DFS has a direct majority shareholding. It particularly includes compensation for the loss or damage of material assets and the resulting interruption of operations minus the usually agreed deductible. It should be kept in mind when assessing the insured risks that DFS mainly performs sovereign functions on behalf of the Federal Republic of Germany in keeping with Article 87d of the German Basic Law (Grundgesetz) in conjunction with Section 31b and 31d of the German Aviation Act (LuftVG). As a consequence, the Federal Republic of Germany is liable for claims brought by third parties for damages in line with the principles of State liability. In the case of damage culpably caused by DFS, aviation liability insurance covers a limit of €767 million per instance of damage, thus releasing the Federal Republic of Germany from its liability to this amount. For non-sovereign tasks, statutory liability, and in some cases such as apron management services, contractual liability, are covered up to the named amount. In addition, claims for damages by third parties from employer's liability risks are covered by insurance.


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6.2.6 Internal control and risk management system (Section 315(2)(5) of the German Commercial Code (HGB)) DFS implemented an internal control and risk management system for (group) accounting and financial reporting. This ensures an orderly and efficient presentation of all asset and liability transactions impacting the finances or accounts and the associated flow of money, goods and services. The assessment of transactions and their recognition are conducted by adhering to international and national accounting and disclosure standards as well as by adhering to the applicable European and national statutory provisions covering air navigation charges, to tax and corporate law and to the German principles of proper accounting (GoB). DFS has set up the necessary organisational structures and processes in the responsible divisions. Their tasks are described in functional diagrams and ISO-certified documents. Process and competence-based job descriptions are available for each member of staff in these divisions. All recordable transactions are recognised using a standardised enterprise resource planning (ERP) software product – SAP R/3. This software carries out programmed plausibility checks. Access rights and the separation of functions in the system are administered outside of the Finance division. The statutory regulations and the regulations laid down in the Articles of Association are supplemented in all divisions by detailed internal instructions. These include the mandatory provisions laid down in internal accounting handbooks, guidelines and orders that reflect IAS/IFRS, the German Commercial Code (HGB), legislation governing charges and tax law. These provisions are constantly updated and revised as necessary. Special issues due to complex, one-off and non-routine transactions are also governed by decisions on their accounting treatment. Our internal accounting standards are based on special European regulations tailored to the business model used at DFS. Cost-efficiency is reviewed and there is a separation between the tasks financed by air navigation charges and the commercial business. In the area financed by air navigation charges, a differentiation is made between the regulated sub-area of en-route and the not (yet) regulated sub-area of terminal services. Internal and external bodies concerned with accounting report to the Board of Managing Directors on a monthly basis on potential problem areas and identified risks. Variances to planned figures are analysed. This reporting is supplemented by constant and standardised information to the Supervisory Board. Early warning signals are defined, with whose support the variances from the ongoing business are counteracted systematically. The preparation of the annual and group financial statements is an organised process coordinated by a central department. To ensure the completeness and correctness of the processed information, a detailed procedural plan as well as standardised information and request methods and checklists tailored to DFS are used. To ensure an optimal exchange of information, all those involved in the process participate in regular coordination rounds. The staff members involved in accounting and financial reporting receive regular training. There is a clear separation of duties among those involved in preparing the annual and group financial statements. This separation of functions and segregation of duties are strictly applied. Complex actuarial expert reports and valuations are drawn up by specialised external providers. DFS reviews the plausibility and usability of these. Any advances in knowledge gained are used to improve the efficiency, transparency and reliability of the process. The external auditors participate in the consultations of the Supervisory Board and report on the results of their audit.

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Internal Audit carries out compliance audits at irregular intervals. Processes that are relevant to the financial statements are also investigated. The interlocking instruments described above provide DFS with an internal control and risk management system for accounting and financial reporting which ensures a true and fair view of the actual assets, liabilities, financial position and profit or loss of the DFS Group. Conscious or unconscious erroneous actions are thus avoided to the greatest possible extent and discovered with a high degree of probability.

6.3 Overall assessment of risk situation The Board of Managing Directors of DFS currently discerns no risks which individually, or as a group, would pose a threat to the going-concern status of DFS.


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7 Report on expected developments 7.1 Development of the economic environment and the effects on air transport Leading economic institutes expect growth in gross domestic product (GDP) in Germany in 2015 to come in between 1.1 percent and 1.7 percent, the situation in the peripheral countries to stabilise and the economic recovery in the core countries of the eurozone to continue. The Federal Government forecasts an increase in the real gross domestic product (GDP) of 1.5 percent for 2015 in its annual projection 2015. Notwithstanding the geopolitical turbulence, the Federal Government sees the German economy on a growth path, which should be stimulated primarily by a strong rise in private consumption. The International Air Transport Association (IATA) has forecast an increase in passenger numbers for 2015 of 7.0 percent. The stable global economy and cheap kerosene will lead to a rise in airline profits in 2015. IATA made critical comments about the situation in Europe. Although load factors were comparatively good, profits were poor. IATA forecast moderate growth for Europe. EUROCONTROL provides the STATFOR 7-year prognosis (EUROCONTROL 7-Year IFR Flight Movements and Service Units Forecast: 2015-2021, EUROCONTROL Doc 522 from March 2015). In this prognosis, it expects an increase in IFR flights of 1.3 percent for German airspace. It did, however, reduce the rise in air traffic until 2021 to 0.7 percent per year in line with the low-growth scenario in the performance plan for the second reference period. Between 1995 and 2010, a one percent increase in economic growth led to a rise in air traffic of 1.8 percent. Since the introduction of the air transport tax in 2010, however, air traffic has barely grown faster than the economy. Based on its own standardised five-year planning approach, DFS has adopted a conservative stance and a critical attitude to these forecasts. It expects a fight for market share caused by competition from the low-cost carriers and modest growth in fleet size among German airlines. In its base scenario for 2015, it assumes a rise in IFR flights of 0.7 percent and a further annual average rise of 0.8 percent per year.

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7.2 Future development of the DFS Group

7.2.1 Single European Sky (SES) and regulatory requirements Single European Sky (SES)

The SES initiative of the European Commission shapes the formation and management of a single cross-border European sky (SES). It promotes the optimisation of capacity and service quality and forms functional airspace blocks (FAB) for air traffic management which are based on traffic flows rather than national borders. Since 2012, as part of the SES II package, a performance scheme for air navigation services and network functions in the area of en-route control services has been laid down based on EU Regulation 691/2010 and EU Regulation 1191/2010. EU Regulation 691/2010 lays down a performance scheme for air navigation services and network functions and EU Regulation 1191/2010 lays down a common charging scheme for air navigation services. The goal is to enhance the performance of air navigation services, network functions and the cost situation in the Single European Sky. The performance scheme has mandatory goals for predefined periods (reference periods) at the European level for the areas of safety, environment, capacity and cost-efficiency. The European performance scheme is supported at FABEC level by the planned effective use of civil-military airspaces. FABEC - FAB Europe Central

DFS along with its civil and military partners from Belgium, France, Luxembourg, the Netherlands and Switzerland joined forces with the transport and defence ministries to launch an initiative to create a functional airspace block at the heart of Europe, known as FABEC (FAB Europe Central). As a central element of SES, it covers a total area of approximately 1,713,442 km2, is one of the busiest and most complex airspaces in Europe and includes the majority of Europe's largest airports and hubs. The FABEC Treaty entered into force with the ratification by the Kingdom of Belgium on 1 June 2013. All the States involved had completed the ratification process by then and submitted the ratification documents. The focus in FABEC is on cross-border cooperation, both in the civil and the civil-military field.

With its partners, FABEC incorporates, and modifies as necessary, the targets from the European Commission for safety, capacity, environment and cost-efficiency into one joint position and implementation plan. The Member States drew up a performance plan for the first reference period (2012-2014) at FABEC level and laid down joint FABEC targets for capacity (punctuality indicators) and the environment (horizontal en-route flight efficiency). Each national contribution to the performance plan also contains a mandatory cost-efficiency target for the en-route cost unit.


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Reference period 2

The European Commission expanded economic regulation to cover terminal services, extended the reference periods from three to five years, and introduced mandatory European targets for the key performance area safety and an incentive system for capacity. This was achieved by revising the EU Regulations from the current regulation period and putting them into effect in their current version dated 23 May 2013 (EU Regulations 390/2013 and 391/2013) as part of the preparations for the second reference period (2015 to 2019). The performance plans for the second reference period, again drawn up at FAB level, will probably be modified, revised and re-presented step by step, and the European Commission will probably issue its final approval in autumn 2015 in conformity with Articles 14 and 15 of EU Regulation 390/2013. In the meantime, DFS is developing the mandatory targets for the second reference period in close dialogue with the Federal Supervisory Authority for Air Navigation Services (BAF) and the Federal Ministry of Transport and Digital Infrastructure (BMVI). It still cannot be definitively determined when and how the European Commission will finally lay down the performance plan for the Federal Republic of Germany. Until the end of October 2015, the European Commission can require the Federal Republic of Germany to retroactively change the unit rates for 2015 under Article 17(1) of EU Regulation 391/2013, thus confronting DFS with planning uncertainty. SES II+ package

The European Commission is currently working on a further development of SES as part of a SES II+ package. The final deliberations of the European Parliament and Council of Ministers are scheduled for 2015.

7.2.2 iCAS programme DFS started the iCAS programme to consolidate all projects, sub-projects and individual measures for the development of the ATS system iCAS, the future air traffic control system at all DFS control centres. It comprises both concrete procurement and development measures to provide the air traffic control system iCAS for the DFS control centres as well as varied bilateral and multinational cooperation measures at a European level. The iCAS programme is to ensure that the multinational initiatives to shape the future European air traffic management system and the development of the air traffic control system iCAS are conducted in a coordinated manner and that the interests of DFS are suitably taken into account. DFS is also adjusting the lifespan of the ATCAS system in Munich (P2i Munich) to accelerate the introduction of the iCAS system and to avoid having to introduce an interim solution.

7.2.3 SESAR In addition, DFS supports the European requirements for the modernisation of the air traffic management network through its participation in the SESAR project. Under the auspices of the SESAR Joint Undertaking, it develops, together with its partners, technologies and procedures that are fit for purpose (see section 1.7).

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7.2.4 Deployment manager DFS aims to exert material influence on the SES initiative of the European Commission as part of its strategic orientation. To this end, DFS has been an active member of the SESAR Joint Undertaking (SJU) since June 2009, along with other leading organisations. In numerous projects, it has developed and updated the requirements on the air traffic management network as well as on the most suitable technologies and procedures. Since 2014, the SESAR development process has moved to the long-term phase of technical implementation and the setting up of air traffic management (ATM) procedures (deployment management). As part of the SESAR Deployment Alliance, DFS won the contract to plan, coordinate and implement a comprehensive modernisation of European airspace within the scope of the deployment management for the time period 2014 to 2020. This consortium is a cross-industry partnership of four airlines, eleven air navigation service providers and 25 airport operators. The contract is financed out of the European funding programme, where a total of roughly €3 billion is earmarked for deployment management. DFS is thus able to influence the introduction of new technologies and benefits from the considerable funding as well as from the avoidance of incorrect cost allocation and flawed capital expenditures.

7.2.5 Remote Tower Control Remote Tower Control (RTC) is the bundling of several aerodrome control towers in one remote control centre with the help of remote tower operations. Remote tower operations involve the transfer of the aerodrome control unit from the original aerodrome to a different location without changing the operational concept of having a visual control procedure. In a remote tower centre, several aerodrome control units are brought together and operated remotely using one uniform concept of endorsements and operations. The Tower division is pursuing the strategy of reducing costs by using new technologies and procedures as well as an optimised and efficient deployment of staff. This is illustrated in the RTC project, which involves the step-by-step consolidation of aerodrome control for the international airports of Saarbrücken (SCN), Erfurt (ERF) and Dresden (DRS) at one central location in Leipzig (LEJ). At DFS, the implementation of Remote Tower Control means a change of paradigm in the provision of aerodrome control services. 7.2.6 Centralised services In spring 2013, EUROCONTROL introduced the centralised services initiative, in which nine operational supporting services have been identified by EUROCONTROL that should no longer be provided nationally but centrally for all EUROCONTROL Member States. DFS supports the basic approach of centralised services proposed by EUROCONTROL. In addition, it is working with its A6 partners (NATS, ENAIRE, DSNA, ENAV and LFV) on proposals to optimise individual centralised services, which is being funded by the European Commission Innovation & Networks Executive Agency. A6 is an alliance of six European ANSPs. DFS aims to exploit the opportunities and minimise the risks coming from the implementation of the EUROCONTROL initiative. EUROCONTROL plans on putting the nine centralised services out to tender in the form of 18 work packages. It began the prequalification phase in 2014. After evaluating all of these centralised services work packages, DFS submitted expressions of interest for six of the tenders. The bids will probably have to be submitted by the consortium partners over the course of 2015.


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7.2.7 Commercial business The Aeronautical Solutions division is strengthening its marketing activities with a focus on Asia and is paving the way for growth by bundling together the commercial business of DFS under one uniform strategic responsibility. It is applying for the training of regional military air traffic control personnel in Kaufbeuren. The establishment and development of the air navigation services business in the United Kingdom (see section 1.2) is being further strengthened by taking over air navigation services at Gatwick Airport.

7.2.8 Structure of the DFS Group DFS is increasingly separating at the organisational level the commercial business from the business financed by air navigation charges and progressing in its goal of bundling the commercial business under the DFS IBS holding company. To enable the sale of its shares in Group EAD Europe S.L. to DFS IBS, an approval procedure under the Federal Budget Code (Bundeshaushaltsordnung) has been started. This procedure should be completed in the near future.

7.3 Development of results and financial position

7.3.1 Interference in the determination of charges for terminal services In a directive dated 12 December 2012, the Federal Supervisory Authority for Air Navigation Services (BAF) laid down that the under-recovery concerning charges from 2011 had to be distributed over the years 2013-2015. The BAF also reduced the planned rise in staff costs from three percent to one percent and raised the traffic forecast, which now lies above EUROCONTROL's short-term forecast (as at 12/2012) and the DFS forecast for 2013. This measure provides relief for airspace users in the short term. Deviating from current practice, the under-recovery concerning charges from 2011 is now spread over a longer period of time instead of including it in full in 2013. This impacts the cost-base for determining charges and the liquidity situation. Measures and impact by business year (€m) 2013 2014 2015

Allocation of under-recovery -7.4 +3.7 +3.7

Staff costs due to salary rises under

collective agreements -1.9 ---

+1.9

Adjustment of traffic forecast -2.8 --- +2.8

7.3.2 Revenues and costs DFS is currently observing a significant variance between the actual air traffic volume and the traffic forecast for the first reference period. The continuing stagnation in air traffic is having a significant negative effect on revenues. The expansion of economic regulation to terminal services in the second reference period will lead to a further splitting of the traffic risk and the revenue risk between airspace users and air navigation service providers. Due to the wide range contained within the traffic forecasts and the long time covered by the forecast period (five to seven years), the risks can only be estimated with a high degree of uncertainty.

57

The potential retroactive change in the unit rates for 2015 (see section 7.2.1) continues to cause uncertainty as regards the actual revenues generated in 2015. In addition, the demanding regulatory targets are forcing DFS to achieve more savings, which DFS is implementing as part of the five-point programme. The Board of Managing Directors has aligned the level of staff recruitment in air traffic control with the stagnating traffic and stabilised this level for the long term. With the exception of a few sectors, staffing levels of operational personnel meet demand, leading to increased punctuality. Vacancies are only filled after being critically reviewed. The parties to the collective agreement decided on the practical implementation of the collective agreement on the grading system (ETV) with a minimum term until the end of October 2016 except for a few special cases which fall under the so-called "collective agreement monitoring". The air navigation services union (GdF) terminated the agreement covering remuneration (VTV), the agreement covering remuneration for apprentices (VTV-A) and the agreement covering allowances (ZTV) within the stipulated period on 31 December 2014. The Board of Managing Directors does not expect an impact on the results from the introduction on the incentive system (capacity).

7.3.3 Strengthening of equity position by the Federal Government The Federal Republic of Germany has undertaken to contribute €50 million of capital to DFS in 2015 as well as €112.5 million in each of the following four years (a total of €500 million) as part of the Law on the Approval of the Federal Budget for the Fiscal Year 2015 (Gesetz über Feststellung des Bundeshaushaltsplans für das Haushaltsjahr 2015, BGBl. I p. 2442). The exact design of the capital contribution is currently being clarified.

7.3.4 Capital expenditure In the future, capital expenditure for air navigation systems to expand capacity and for the infrastructure at the international airports in Munich and Berlin as well as replacement investments will lead to marginally higher charges for depreciation. Additional capital expenditure will be financed from cash flow and loans and amortised by matched depreciation charges. The adjustment in the lifespan of the ATCAS system in Munich and the comprehensive renovation of the Air Navigation Services Academy building are also taken into consideration here. Regulation in the technical-operational area will present a considerable financial challenge for DFS.

7.3.5 Liquidity Currently, the financial strategy of DFS is primarily being influenced by two counteracting effects from events on the capital markets. Low interest rates on the capital markets are favouring the take-up of debt and ensuring low interest expenses. However, the low returns that can currently be earned on the market mean that the pension plan assets are not yielding substantial low-risk income. The planned growth in plan assets for pensions is therefore slowing down and needs to be supported by a higher commitment to asset forms with a more attractive risk/return ratio. The regulatory authority has laid down that the actual financing expense for occupational pensions is to be subject to the cost-efficiency targets of the performance plan from 2015 (see section 2.3). If this trend is sustained into the third reference period, a review will need to be undertaken into how the obligations can reliably be met.


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7.3.6 Regulation of terminal services from 2015 The regulation of terminal services starts from 2015. It is based, as forecast, on the framework conditions for the en-route area. The chances and risks stemming from the development of traffic will be split and limited. Cost risks will be offset by an adequate return on the equity tied up that is relevant to charges. Potential chances and risks stemming from regulation are integrated in the planning process.

7.3.7 Summary and earnings forecast The Board of Managing Directors expects an overall stagnation in the volume of air traffic in Europe at a low level. As is common in this industry, expenses are particularly influenced by staff costs and occupational pensions. The Board of Managing Directors is counteracting these challenges using collective bargaining measures and the targeted reduction of costs under the five-point programme. It focuses on boosting productivity, reacting to fluctuating demand with increased staff flexibility and limiting staff recruitment. Vacant positions are successively not being filled and the natural turnover is being used to reduce staff numbers. Airspace structures and procedures are being optimised and capital expenditure on recoverable, high-performance and harmonised ATM systems is being stepped up. Project and general costs are being reduced. The Board of Managing Directors is counteracting the possible decline in revenues in a targeted manner with its five-point programme. DFS intends to reduce its annual operating costs by approximately €100 million by 2019 (see section 1.4). These measures will only have a limited effect on offsetting the expected rise in costs, with revenues trending at a constant level. Despite the challenging regulatory targets, the company expects net income for 2015 to come in at around the prior-year level, resulting from the rate of return allowed, the split of the traffic risk 2013 and the savings from the five-point programme. Langen, 9 March 2015 The Board of Managing Directors Prof Klaus-Dieter Scheurle Robert Schickling Dr Michael Hann


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DFS Deutsche Flugsicherung GmbH Group statement of comprehensive income for the period 1 January 2014 to 31 December 2014

Note 2014 2013 €'000 €'000 Revenues 5 1,106,238 1,109,197

Changes in inventory and other own work capitalised 6 807 1,417

Other operating income 7 35,269 33,650

Total operating revenues and income 1,142,314 1,144,264

Cost of materials and services 8 -3,863 -5,483

Employee expenses 9 -803,146 -808,477

Depreciation and amortisation 10 -104,533 -102,410

Other operating expenses 11 -132,710 -138,313

Earnings before interest and taxes (EBIT) 98,062 89,581

Financial income 12 74,411 61,322

Financial expenses 12 -135,054 -115,261

Financial result 12 -60,643 -53,939

Profit (loss) before income taxes 37,419 35,642

Income taxes 13 -2,474 124

Net income 34,945 35,766 Of which attributable to the Shareholder of the parent company 34,945 35,766

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Note 2014 2013 €'000 €'000

Net income 34,945 35,766 Of which attributable to the Shareholder of the parent company 34,945 35,766

Other comprehensive income

Items that cannot subsequently be reclassified in profit or loss:

Remeasurement of the net defined benefit liability from the defined benefit obligation = actuarial gains (+) and losses (-) of the ongoing business year 24 -688,758 555,524

Tax effects 24 0 0

Items that can subsequently be reclassified in profit or loss:

Change in the fair value of available-for-sale financial assets 24 0 -25

Tax effects 24 0 993

Total other comprehensive income 24 -688,758 556,492 Of which attributable to the Shareholder of the parent company -688,758 556,492

Total result -653,813 592,258

Of which attributable to the Shareholder of the parent company -653,813 592,258


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DFS Deutsche Flugsicherung GmbH Group balance sheet as at 31 December 2014

Note 31 Dec 2014 31 Dec 2013

€'000 €'000

Assets

Intangible assets 14 224,207 233,698

Property, plant and equipment 15 518,216 531,459

Investment property 16 813 843

Financial assets 17 71,032 59,026

Trade receivables 19 0 7

Other receivables and assets 18 97,957 137,755

Deferred tax assets 13 2,529 2,307

Non-current assets 914,754 965,095

Inventories 21 4,390 4,735

Trade receivables 19 151,964 146,490

Future receivables from construction contracts 20 2,429 2,770

Other receivables and assets 18 68,100 21,417

Current income tax assets 41 1,378

Securities 22 49,994 0

Liquid funds 23 267,329 258,081

Current assets 544,247 434,871

Balance sheet total (assets) 1,459,001 1,399,966

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Group balance sheet as at 31 December 2014

Note 31 Dec 2014 31 Dec 2013 €'000 €'000 Equity and liabilities

Subscribed capital 24 153,388 153,388

Capital reserves 24 74,296 74,296

Remeasurement reserves 24 -1,428,056 -739,298

Retained earnings 24 -164,395 -193,400

Other reserves 24 0 0

Shareholder's equity -1,364,767 -705,014

Provisions for pensions and similar obligations 25 2,045,179 1,346,114

Other provisions 26 140,356 132,499

Financial liabilities 27 383,484 381,931

Trade payables 28 1,324 1,094

Other liabilities 29 2,642 3,075

Income tax liabilities 30,869 30,869

Non-current liabilities 2,603,854 1,895,582

Other provisions 26 43,201 30,783

Financial liabilities 27 5,291 4,423

Trade payables 28 31,335 35,536

Other liabilities 29 129,559 135,979

Income tax liabilities 10,528 2,677

Current liabilities 219,914 209,398

Balance sheet total (equity and liabilities) 1,459,001 1,399,966


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DFS Deutsche Flugsicherung GmbH Group statement of changes in equity for the period 1 January 2014 to 31 December 2014 Note Subscribed

capital Capital

reserves Remeasurement

reserves Retained earnings

Other reserves

Total Of which attributable

to the Shareholder

of the parent

company

24 €'000 €'000 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2013 153,388 74,296 -1,294,822 -229,166 -968 -1,297,272 -1,297,272 Payment of dividend to Shareholder 0 0 0 0 0 0 0

Operating result

Net income 0 0 0 35,766 0 35,766 35,766


Remeasurement of the net defined benefit liability 0 0 555,524 0 0 555,524 555,524

Change in the fair value of available-for-sale financial assets 0 0 0 0 -25 -25 -25

Tax effects 0 0 0 0 993 993 993

As at 31 Dec 2013 153,388 74,296 -739,298 -193,400 0 -705,014 -705,014 Payment of dividend to Shareholder 0 0 0 -5,940 0 -5,940 -5,940

Operating result

Net income 0 0 0 34,945 0 34,945 34,945


Remeasurement of the net defined benefit liability 0 0 -688,758 0 0 -688,758 -688,758

Change in the fair value of available-for-sale financial assets 0 0 0 0 0 0 0

Tax effects 0 0 0 0 0 0 0

As at 31 Dec 2014 153,388 74,296 -1,428,056 -164,395 0 -1,364,767 -1,364,767

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DFS Deutsche Flugsicherung GmbH Group cash flow statement for the period 1 January 2014 to 31 December 2014 Note 2014 2013 31 €'000 €'000

Net income 34,945 35,766

Depreciation and amortisation on intangible assets and property plant and equipment 104,533 102,410

Income taxes 2,696 8,540

Income from investments -104 0

Gains (-) from the measurement of bonds -73 -5,676

Gains (-) from the measurement of securities 0 -25

Gains (-) from asset disposals -31 -60

Losses (+) from asset disposals 1,217 1,795

Non-cash changes from the QTE transaction -88 -930

Decrease (+) / increase (-) in other receivables and assets 2,807 -3,770

Increase (-) in deferred tax assets -223 -1,314

Decrease (+) in inventories 345 333

Increase (-) in trade receivables -5,467 -4,430

Decrease (+) / increase (-) in future receivables from construction contracts 341 -1,355

Decrease (+) in current tax assets 1,338 2,771

Increase (+) in provisions for pensions and similar obligations 10,306 74,401

Increase (+) in other provisions 20,274 4,363

Decrease (-) in other liabilities -21,294 -9,988

Decrease (-) in trade payables -3,970 -15,921

Increase (+) in income tax liabilities 7,851 2,577

Decrease (-) in deferred tax liabilities 0 -7,349

Taxes received (+) / paid (-) 6,569 -3,213

Dividend received (+) 104 0

Cash inflow from operating activities 162,076 178,925

Payments (-) for investments in intangible assets and property, plant and equipment -84,015 -124,643

Payments (-) for investments in financial assets -12,006 -18,500

Proceeds (+) from disposal of intangible assets and property, plant and equipment 1,060 932

Proceeds (+) from disposals of financial assets 0 7,018

Cash outflow for investing activities -94,961 -135,193

Payments (-) for finance leases -63 -33

Taking on (+) of financial assets (debenture loan) 0 110,000

Payment of dividend to Shareholder -5,940 0

Financial result 8,873 4,648

Interest received 1,921 2,821

Interest paid -12,664 -8,621

Cash inflow for financing activities -7,873 108,815

Net change in cash and cash equivalents 59,242 152,547 Cash and cash equivalents at the beginning of the year 258,081 105,534

Cash and cash equivalents at the end of the year 317,323 258,081

Notes 2014

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Notes to the group financial statements 2014

1 General basis

1 DFS Deutsche Flugsicherung GmbH (DFS) is a company under private law. It has its Headquarters (registered office) in 63225 Langen, Am DFS-Campus 10, Germany. The company is registered on the Commercial Register (HRB 34977) at Offenbach am Main district court, Germany, as a limited liability company (GmbH). DFS is wholly owned by the Federal Republic of Germany, represented by the Federal Ministry of Transport and Digital Infrastructure (BMVI).

2 The main business of DFS is defined by the tasks set out in Section 27c of the German Aviation Act (LuftVG). Under this act, DFS is entrusted with providing air navigation services (a sovereign task). The group management report contains information on the business activities of DFS and the object of the company (see sections 1.1 and 1.3 in the group management report).

2 Application of accounting standards

3 The regulations:

EC Regulation 1606/2002 of the European Parliament and of the Council dated 19 July 2002 on the application of international accounting standards

EC Regulation 550/2004 of the European Parliament and of the Council dated 10 March 2004 on the provision of air navigation services in the Single European Sky (the Service Provision Regulation)

EC Regulation 1794/2006 of the Commission dated 6 December 2006 laying down a common charging scheme for air navigation services

EU Regulation 1191/2010 dated 16 December 2010 amending EC Regulation 1794/2006 of the Commission on the development of a common charging scheme for air navigation services

EU Regulation 390/2013 of the Commission dated 3 May 2013 laying down a performance scheme for air navigation services and network functions

EU Regulation 391/2013 of the Commission dated 3 May 2013 laying down a common charging scheme for air navigation services

oblige DFS to draw up its group financial statements as at 31 December 2014 in line with International Financial Reporting Standards (IFRS). DFS applies the standards of the International Accounting Standards Board (IASB) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as recognised and endorsed by the European Union (EU).

4 These financial statements consider EU Regulation 1606/2002, which is enacted in Section 315a of the German Commercial Code (HGB) by means of the Accounting Law Reform Act (BilReG) dated 4 December 2004.

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5 These group financial statements of DFS were prepared in accordance with the standards endorsed for use in the EU.

6 The business year at DFS Group corresponds to the calendar year (1 January to 31

December).

7 The Board of Managing Directors drew up the group financial statements and approved them for submission to the Audit Committee of the Supervisory Board on 9 March 2015. The Audit Committee checked the group financial statements and stated its opinion of them. The Supervisory Board discussed the group financial statements and the opinion of the Audit Committee and issued a recommendation to the Shareholder to approve the group financial statements. The Shareholder may amend the group financial statements released by the Board of Managing Directors. The approved group financial statements are available via the electronic German Federal Gazette in accordance with Section 325(2a)(1) of the German Commercial Code (HGB) and from the website at www.dfs.de.

3 Scope of consolidation

Acronym Company Registered office Shareholding in %

DFS DFS Deutsche Flugsicherung GmbH Langen, Germany Ultimate parent company

Affiliated companies

DFS IBS DFS International Business Services GmbH Langen, Germany 100.00

DFS U-Kasse (Benevolent fund)

DFS Unterstützungskasse GmbH i. L. Langen, Germany 100.00

DFS Energy DFS Energy GmbH Langen, Germany 100.00

Investments

FCS FCS Flight Calibration Services GmbH Braunschweig, Germany 55.00

GroupEAD GroupEAD Europe S. L. Madrid, Spain 36.00

BILSODA BILSODA GmbH & Co. KG Pullach, Germany 24.90

Investments through affiliated companies and investments

Investments through DFS International Business Services GmbH:

TTC The Tower Company GmbH Langen, Germany 100.00

Eisenschmidt R. Eisenschmidt GmbH Egelsbach, Germany 100.00

ESSP SAS European Satellite Services Provider Société par Actions Simplifiée

Toulouse, France 16.67

Investments through The Tower Company GmbH:

TATS Tower Air Traffic Services S. L. Madrid, Spain 50.00

ANS Air Navigation Solutions Ltd. London, United Kingdom of Great Britain and Northern Ireland

100.00

Investment through GroupEAD Europe S. L.:

GEAD AP GroupEAD Asia-Pacific Ltd. Wellington, New Zealand 20.00

Notes 2014

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8 The principle of materiality (no. 29 and 30 of the IFRS Conceptual Framework) means that subsidiaries need not be consolidated if their influence on the group's results and financial position is not material. DFS undertakes an annual review of the consolidation of its affiliated companies in the group financial statements. Total assets, revenues and net income function as quantitative values in this regard. These must exceed a threshold of 5.00 percent cumulatively. The cumulative amounts in the financial statements of the affiliated companies as at 31 December 2013 are set in relation to DFS' own values. Currently, only the value of total assets exceeds the threshold laid down.

9 In addition, the type of business activities carried out in the affiliated companies is reviewed and the materiality of the company for DFS is examined.

10 DFS has come to the conclusion that, when viewed as a whole, the stakes in the affiliated companies and investments do not have a material impact on the group's results and financial position. They are therefore not consolidated, are carried at cost and are reported under financial assets.

11 As the commercial business has been bundled at the level of DFS IBS, and will be expanded at this level, DFS assumes that this affiliated company will play a material role in the future.

3.1 Affiliated companies


DFS IBS DFS U-Kasse (Benevolent fund)

DFS Energy

Shareholding in % 100.00 100.00 100.00

Equity capital in €'000 28,362 15 5,132

Net income in €'000 2,026 -5 0

Business year 1 Jan - 31 Dec 1 Jan - 31 Dec 1 Jan - 31 Dec

Accounting standards HGB HGB HGB

3.1.1 DFS International Business Services GmbH

12 DFS IBS manages, holds, administers and finances investments in companies that promote

the development, provision and conduct of services on the air transport market. In the future, DFS IBS will increasingly take on the function of a financial holding. Furthermore, DFS intends to split the commercial business organisationally from the business financed by air navigation charges and bundle the commercial activities in DFS IBS. The further expansion of the portfolio of investments will increasingly diversify business risk and reduce the dependency on one business area. The setting up of International Business Services GmbH in 2013 meant that the company's strategic orientation has been aligned to reflect the progress of the national and international air transport industry.

13 The registered and fully paid-in capital of DFS IBS amounts to €25,700.00. It was raised by €100.00 as at 1 January 2014 as a result of the spin-off and take-over contract dated 3 December 2013. The contract involved DFS transferring its single share in TTC to DFS IBS in return for being issued with 100 new shares. For smoothing purposes, the registered capital had already been raised by €35.41 from €25,564.59 (DM50,000.00) in the form of a cash contribution in the previous year. In addition, due to the inclusion of land at market value on the balance sheet of DFS IBS, the company now has a solid level of equity capital. It can now carry out the planned financing independently of DFS.

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14 DFS IBS has been granted an intercompany credit line of €8,500 thousand by DFS to cover its liquidity needs as part of a cash pool agreement. This was not taken up in the business year.

15 DFS IBS operates an early warning system for risks, which allows possible and identified risks to be discussed regularly and suitable countermeasures to be taken. There are no risks to the going-concern status.

3.1.2 DFS Unterstützungskasse GmbH (in liquidation)

16 The DFS U-Kasse (benevolent fund) provides ongoing support to active and former

employees of DFS in the form of old-age, disability, and survivors' pensions; transitional and early retirement benefits and the payment of one-off grants in exceptional circumstances.

17 The registered and fully paid-in capital of DFS U-Kasse amounts to €25,564.59 (50,000.00 Deutschmark). However, its activities have been taken over completely by DFS and its business activities will not be continued in the future. At a meeting on 17 December 2014, the shareholder of DFS U-Kasse resolved to wind up the company with effect from 31 December 2014.

18 DFS U-Kasse operates an early warning system for risks and suitable measures are taken to

counter potential and identified risks. There are no risks to the going-concern status.

3.1.3 DFS Energy GmbH

19 DFS Energy was set up with effect from 1 January 2010 by means of the spin-off and take-

over contract dated 1 July 2010. The spin-off covered all assets and all the existing contracts related to the operation of the energy plant. DFS Energy produces electricity, heating water, steam and chilled water for authorities and institutes in the local area.

20 The registered and fully paid-in capital of DFS Energy amounts to €5,000 thousand. It also has a capital reserve of €132 thousand from contributions from DFS. On 15 December 2009, the control and profit-and-loss transfer agreement was agreed with effect from 1 January 2010 and a term until 31 December 2014. After this time, this contract extends for one year at a time provided neither of the parties terminates the contract six months before its expiry. The loss at DFS Energy of €419 thousand under the German Commercial Code (HGB) was assumed by DFS (previous year: loss of €526 thousand).

21 DFS Energy has been granted an intercompany credit line of €1,000 thousand by DFS to cover its liquidity needs as part of a cash pool agreement. This was not taken up in the business year. In addition, DFS issued a loan approval of €50,000 thousand, €41,500 thousand had been taken up as at 31 December 2014.

22 DFS Energy operates an early warning system for risks, which allows possible and identified risks to be discussed regularly and suitable countermeasures to be taken. There are no risks to the going-concern status.

Notes 2014

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3.2 Investments

Investments

FCS GroupEAD BILSODA

€'000 €'000 €'000

Shareholding in % 55.00 36.00 24.90

Additional shareholders SKYNAV S.A., Belgium, 25.00%

AUSTRO CONTROL, Austria, 20.00%

Entidad Pública Empresarial Aeropuertos Españoles y

Navegación Aérea, Spain, 36.00%

FREQUENTIS AG, Austria, 28.00%

AD Grundstücksgesellschaft

mbH & Co. KG, Germany, 75.10%;

BILSODA Beteiligungs GmbH, General partner,

Germany, 0.00%

Income from investments (Previous year)

0 (0)

104 (0)

0 (0)

Current assets* 3,279 2,333 346

Non-current assets* 8,463 207 7,669

Current liabilities* 2,267 698 327

Non-current liabilities* 5,123 0 4,319

Equity* 4,352 1,842 3,369

Net income* 516 180 -111

Revenues* 7,842 5,870 400

* Values as at 31 Dec 2013

Business year 1 Jan - 31 Dec 1 Jan - 31 Dec 1 Jan - 31 Dec

Accounting standards HGB Spanish Commercial Code

HGB

3.2.1 FCS Flight Calibration Services GmbH

23 FCS operates an air transport company for the transport of third parties and their material for

the flight inspection of navigation aids and provides services, developments and support of all kinds for the conduct of flight inspections.

24 The registered capital of FCS amounts to €204,516.75 (400,000.00 Deutschmark). Although DFS holds more than half the shares (55.00 percent) in FCS, individual provisions of the articles of association of FCS as well as the rules of internal procedure for the board prevent DFS from exercising control. Therefore, FCS is included under investments.

25 FCS has been granted an intercompany credit line of €1,500 thousand by DFS to cover its liquidity needs as part of a cash pool agreement. This was not taken up in the business year. In addition, DFS IBS granted FCS four loans totalling €12,300 thousand to finance aircraft and inspection systems.

26 FCS operates an early warning system for risks, which allows possible and identified risks to

be discussed regularly and suitable countermeasures to be taken. There are no risks to the going-concern status.

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3.2.2 GroupEAD Europe S. L.

27 GroupEAD operates and develops a European aeronautical database for aeronautical

information services. DFS holds a stake of 36.00 percent from its paid-in capital of €360 thousand in GroupEAD. Agreements at the shareholder meeting have to be confirmed by a majority of the valid votes. DFS, therefore, cannot exercise sole control of GroupEAD and accounts for it as an investment. There are no risks to the going-concern status.

3.2.3 BILSODA GmbH & Co. KG

28 BILSODA erects, rents, operates and administers above all a parking garage in Bremen. It is

used by Airbus Operations GmbH and DFS.

29 With a partnership contribution of €2,490.00, DFS holds 24.90 percent in BILSODA. In addition, it financed its share of the construction costs of the parking garage with additional contributions of €1,992,000.00. The distribution of votes at the shareholder meeting and the individual agreements in the articles of association prevent DFS from exercising control. Therefore, BILSODA is included under investments.

30 BILSODA operates an early warning system for risks, which allows possible and identified risks to be discussed regularly and suitable countermeasures to be taken. There are no risks to the going-concern status.

3.3 Investments through affiliated companies and investments (Direct investments)

Investments through affiliated companies and investments

Eisenschmidt ESSP SAS TTC TATS ANS GEAD AP

€'000 €'000 €'000 €'000 €'000 €'000

Parent company DFS IBS DFS IBS DFS IBS TTC TTC GroupEAD

Shareholding in % 100.00 16.67 100.00 50.00 100.00 20.00

Additional shareholders

ANSPs from Spain, Italy,

United Kingdom and France each hold 16.67%;

Portugal and Switzerland, 8.33% each

INDRA Sistemas

S.A., Spain, 50.00%

Airways New Zealand,

New Zealand, 80.00%

Income from investments (Previous year)

0 (0)

0 (0)

0 (0)

0 (0)

0 (0)

0 (0)

Current assets 759 22,896* 3,611 -- -- --

Non-current assets 250 498* 6,906 -- -- --

Current liabilities 708 17,280* 796 -- -- --

Non-current liabilities 133 0* 2,618 -- -- --

Equity 168 6,114* 7,103 1,000* 6,344** --

Net income 0*** 1,834* 0*** -- -- --

Revenues 3,585 45,762* 9,851 -- -- --

* Values as at 31 Dec 2013

Notes 2014

72

** Registered capital translated into euro on 31 December 2014 (equals £5,000,000.00)

*** There are profit-and-loss transfer agreements with DFS IBS

Business year 1 Jan - 31 Dec

1 Jan - 31 Dec

1 Jan - 31 Dec

1 Jan - 31 Dec

1 Jan - 31 Dec

1 Jan - 31 Dec

Accounting standards HGB French Commercial

Code

HGB, IFRS Spanish Commercial

Code

UK company law

Not known

3.3.1 R. Eisenschmidt GmbH

31 Eisenschmidt creates and markets charts, publications and other aeronautical information.

Furthermore, the company sells technical devices for the preparation and conduct of flights. With the acquisition of Eisenschmidt, DFS IBS has integrated a long-standing contracting party into the DFS Group and ensured that its customers continue to receive quality and reliability over the long term.

32 DFS IBS holds 100.00 percent in Eisenschmidt with its registered and fully paid-in capital of €26,000.00. There is a profit and loss transfer agreement between the two companies dated 3 December 2013 with effect from 1 January 2014. The contract has a fixed term until 31 December 2018 and extends for one year at a time unless one of the contracting parties terminates the contract at least six months prior to its expiry. The profit and loss transfer agreement requires Eisenschmidt to transfer its complete profit to DFS IBS, which is in turn required to offset any net loss. The net income of Eisenschmidt transferred to DFS IBS under HGB amounts to €1,245 thousand.

33 The company has been granted an intercompany credit line of €1,000 thousand by DFS IBS

to cover its liquidity needs as part of a cash pool agreement. This was not taken up in the business year.

34 Eisenschmidt operates an early warning system for risks, which allows possible and identified risks to be discussed regularly and suitable countermeasures to be taken. There are no risks to the going-concern status.

3.3.2 European Satellite Services Provider Société par Actions Simplifiée

35 ESSP SAS operates and develops a European satellite-based navigation system (EGNOS)

to improve the signals of the American global positioning system. With a capital contribution of €166,705.83, DFS holds 16.67 percent in ESSP SAS. There are no risks to the going-concern status.

3.3.3 The Tower Company GmbH

36 TTC is responsible for the development, provision and conduct of air navigation services as

well as the provision of other services (apron management services, ground handling, meteorological observations), especially at regional airports.

37 On the basis of the spin-off and take-over contract dated 3 December 2013, DFS transferred its single share in TTC to DFS IBS in return for 100 new shares with effect from 1 January 2014. This was part of a universal transfer of assets and liabilities. DFS IBS holds 100.00 percent of the shares in TTC with its registered and paid-in capital of €25 thousand. In addition,

73

there are capital reserves from contributions of €6,955 thousand as well as contributions in kind with a market value of €123 thousand.

38 The profit and loss transfer agreement between DFS and TTC dated 21 February 2006 was dissolved by mutual consent as at 31 December 2013, 24:00 hrs. The profit and loss transfer agreement between DFS IBS and TTC was entered into the Commercial Register on 13 August 2014, retrospectively effective as at 1 January 2014. It has an indefinite term. The contract can be terminated by each contracting party provided this occurs in writing at least six months before the end of the business year of TTC. The first termination may take place only as at 31 December 2019. The profit and loss transfer agreement requires TTC to transfer its complete profit to DFS IBS, which is in turn required to offset any net loss. The net income of TTC transferred to DFS IBS under HGB amounts to €1,020 thousand (previous year: payout to DFS €776 thousand).

39 TTC has been granted an intercompany credit line of €1,000 thousand by DFS to cover its

liquidity needs as part of a cash pool agreement. In addition, DFS IBS granted TTC a loan of €500 thousand to finance its investment in TATS.

40 TTC has a risk management plan and a risk coordinator. Early warning signals have been defined to identify possible risks in good time and to allow suitable counter measures to be taken. There are no risks to the going-concern status.

3.3.4 Tower Air Traffic Services S. L.

41 Since 2011, TTC has had a stake of 50.00 percent in the joint venture TATS with a capital

contribution of €500,000.00. The primary goal is the participation in public tenders for the provision of aerodrome control services in Spain. The company, however, did not win two tenders. Currently, TATS has no operating activities.

3.3.5 Air Navigation Solutions Ltd.

42 Following a shareholders' resolution dated 1 August 2014, TTC founded an investment in the

United Kingdom. Air Navigation Solutions Limited provides air navigation services in the United Kingdom and the EU as well as other services connected with air navigation services (training, consulting). The capital amounts to £5,000,000.00 (GBP). TTC holds 5,000,000 shares with a value of one pound sterling each. Operations are scheduled to be taken over in March 2016.

3.3.6 GroupEAD Asia Pacific Ltd.

43 Since 1 July 2014, GroupEAD has held a 20.00 percent stake in GEAD AP. It was founded

by means of a shareholder loan in proportion to the shareholdings. The company provides services in aeronautical information management (AIM, aeronautical data management). This includes consultancy, training, the hosting of content and AIM operations.

Notes 2014

74

4 Accounting policies

44 DFS and its subsidiaries carry out their accounting and measurement using uniform standards. They apply the historical cost principle, unless IFRS prescribes a different measurement principle. The associated disclosure is made with the respective accounting policy.

4.1 New and revised international financial reporting standards and interpretations 4.1.1 Mandatory standards and interpretations

45 DFS uses the following new and revised standards that are mandatory for business years

beginning on or after 1 January 2014. The endorsement by the European Union is made with the publication of the standard in the Official Journal of the European Union.

Standard Title Publication IASB

EU endorsement

Effective date

New standards

IFRS 10 Group financial statements 12 May 2011 11 Dec 2012 1 Jan 2014

IFRS 11 Joint arrangements 12 May 2011 11 Dec 2012 1 Jan 2014

IFRS 12 Disclosure of interests in other entities 12 May 2011 11 Dec 2012 1 Jan 2014

Amendments to existing standards and interpretations

IAS 27 Separate financial statements 12 May 2011 11 Dec 2012 1 Jan 2014

IAS 28 Investments in associates and joint ventures 12 May 2011 11 Dec 2012 1 Jan 2014

IAS 32 Financial instruments: Disclosure (Offsetting

of financial assets and financial liabilities) 16 Dec 2011 13 Dec 2012 1 Jan 2014

IFRS 10 to 12

Transitional provisions to IFRS 10, 11 and 12 28 Jun 2012 4 Apr 2013 1 Jan 2014

IFRS 10 Group financial statements (Investment entities)

31 Oct 2012 20 Nov 2013 1 Jan 2014

IFRS 12 Disclosure of interests in other entities (Investment entities)

31 Oct 2012 20 Nov 2013 1 Jan 2014

IAS 27 Separate financial statements (Investment entities)

31 Oct 2012 20 Nov 2013 1 Jan 2014

IAS 36 Impairment of assets (Disclosures on the recoverable amount for non-financial assets)

29 May 2013 19 Dec 2013 1 Jan 2014

IAS 39 Financial instruments: Recognition and measurement (Novation of derivatives and continuation of hedge accounting)

27 Jun 2013 19 Dec 2013 1 Jan 2014

75

46 As required, the following have been retrospectively applied following the endorsement by the EU on 11 December 2012 for the first time from the business year beginning on or after 1 January 2014: IFRS 10 (Consolidated financial statements), IFRS 11 (Joint arrangement), IFRS 12 (Disclosure of interests in other entities), IAS 27 (Separate financial statements) as well as IAS 28 (Investment in associates and joint ventures). These have been applied in conformity with IAS 8 (Accounting policies, changes in accounting estimates and errors). The new and revised standards are the result of the IASB consolidation project. They did not have an impact on the scope of consolidation as the stakes in affiliated companies are immaterial, even when viewed as a whole.

IFRS 10 contains a new control model that applies to all entities, regardless of legal form and size. The standard defines control as being when an investor is exposed, or has rights, to variable returns from its involvement with the investee and also has the ability to effect those returns through its power over the investee. IFRS 10 clarifies with extensive application guidance and a variety of scenarios when control is deemed to be exercised.

IFRS 11 governs the classification of and accounting for joint arrangements. A joint arrangement is an arrangement of which two or more parties have joint control. Depending upon the rights and obligations of the parties to the arrangement, the standard differentiates between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint operator recognises its share of assets, liabilities, revenues and expenses in relation to its respective share. In contrast, a joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement and not directly to rights to the assets, and obligations for the liabilities. A joint venturer accounts for the investment using the equity method. Proportionate consolidation is no longer a choice under the new standard.

IFRS 12 consolidates in one standard the quantitative and qualitative disclosures required. These disclosures must help users of financial statements evaluate the nature of, risks associated and the financial effect of its interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities.

After the introduction of this new group standard, IAS 27 now only relates to the accounting and disclosures for separate IFRS financial statements.

The revised standard IAS 28 governs the accounting for investments in associates and joint ventures as well as the requirements for the application of the equity method. The option for proportionate consolidation for joint ventures was discontinued.

47 DFS applies the transitional provisions introduced by the EU on 4 April 2013 for the new group

standards IFRS 10, IFRS 11 and IFRS 12 for the first time for the business year starting 1 January 2014. The provisions lay down that the date for the initial application of these standards corresponds as the beginning of the business year for which they are applied for the first time. In addition, no retrospective adjustments under IFRS 10 are required for subsidiaries that were disposed of in the comparative period. IFRS 11 and IFRS 12 contain comparable clarification and relief. Furthermore, IFRS 12 does not require comparative disclosures for unconsolidated structured entities. The amendments to the standards do no impact DFS.

48 The adjustments to IFRS 10, IFRS 12 and IAS 27 in relation to investment entities associated with the consolidation project were adopted by the EU on 20 November 2013. DFS applies the revised standards for the first time effective from 1 January 2014. The amendments aim

Notes 2014

76

to better reflect the business model of investment entities. In addition to definitions and disclosures, the revisions require that investment entities not consolidate the subsidiaries they control and hold for investment purposes. Instead, fair value should be used to measure those investments. These amendments had no impact on the scope of consolidation as no investment entities are held within the DFS Group.

49 The amendments to IAS 32 (Financial instruments: presentation – offsetting financial assets and financial liabilities) endorsed by the EU on 13 December 2012 have been applied for the first time effective from 1 January 2014. The adjustments clarify offsetting by providing additional guidance. They specify that offsetting is only permitted when the entity currently has a right to set-off, it may not be contingent on a future event and it must be legally enforceable in all of the following circumstances: (i) the normal course of business; (ii) an event of default; and (iii) an event of insolvency or bankruptcy of the entity or any of the counterparties. The amendments also regulate that gross settlement mechanisms are to be deemed equivalent to net settlement under certain circumstances. The revised standard had no impact on DFS.

50 DFS applies the amendments to IAS 36 (Impairment of assets – disclosures on the

recoverable amount for non-financial assets) endorsed by the EU on 19 December 2013 retrospectively for the first time effective from 1 January 2014. The amendments clarify that the recoverable amount of non-financial assets only needs to be disclosed when the entity recognised or reversed an impairment loss during the current business year. In the case of such an impairment or reversal, additional disclosures for non-financial assets are required provided the recoverable amount had been determined on the basis of fair value less costs of disposal. The change had no impact on DFS.

51 DFS applies the revised standard IAS 39 (Financial instruments: recognition and measurement – novation of derivatives and continuation of hedge accounting), adopted by the EU on 19 December 2013 retrospectively for the first time effective from 1 January 2014. Due to the change, the novation of hedges to a central counterparty (CCP) as a consequence of laws or regulations does not lead to the expiration or termination of the hedging instrument under certain circumstances, allowing hedge accounting to be continued. As such issues currently do not arise, the revised standard had no impact on DFS.

4.1.2 Voluntary standards and interpretations

52 The IASB has published the following revised or new standards and interpretations. The

standards have already been incorporated into European law as part of the endorsement procedure. They become effective from the point in time given and early application is permitted.

53 DFS is currently examining the impact of the new and amended standards on the group's results and financial position. The standards will be applied when they become effective and early application will not be availed of.

77


EU endorsement

Effective date

IFRIC 21 Levies 20 May 2013 13 Jun 2014 17 Jun 2014*

IAS 19 Employee benefits (Defined benefit plans: employee contributions)

21 Nov 2013 17 Dec 2014 1 Feb 2015**

Catalogue Improvements to international financial reporting standards (2010 to 2012)

12 Dec 2013 17 Dec 2014 1 Feb 2015**


12 Dec 2013 18 Dec 2014 1 Jan 2015**

* Different effective date according to IASB 1 Jan 2014

** Different effective date according to IASB 1 Jul 2014

54 The interpretation IFRIC 21 (Levies) was endorsed by the EU on 13 June 2014 and

incorporated into European law. IFRIC 21 provides guidance on when to recognise a liability for a levy imposed by a government (such as a bank levy) for levies that are accounted for in accordance with IAS 37. IFRIC 21 has to be applied retrospectively for business years beginning on or after 17 June 2014. Early application is permitted. The IASB proposed a different effective date as at 1 January 2014. DFS does not expect the introduction of the new standards to impact the group financial statements.

55 On 17 December 2014, the EU endorsed the changes to IAS 19 (Employee benefits) into European law. Application guidance has been provided that clarifies the accounting for employee contributions to defined benefit plans. IAS 19 has to be applied retrospectively for business years beginning on or after 1 February 2015. Early application is permitted. The IASB proposed a different effective date as at 1 July 2014. DFS does not anticipate material consequences for the group financial statements.

56 On 17/18 December 2014, the EU endorsed the annual improvements to the IFRS. Within the scope of this regular process, non-urgent corrections, inconsistencies and clarifications are made. The following standards were affected in the 2010-2012 cycle: IAS 16 (Property, plant and equipment), IAS 24 (Related party disclosures), IAS 38 (Intangible assets), IFRS 2 (Share-based payment), IFRS 3 (Business combinations), IFRS 8 (Operating segments) and IFRS 13 (Fair value measurement). The 2011-2013 cycle covered the following standards: IAS 40 (Investment property), IFRS 3 (Business combinations) and IFRS 13 (Fair value measurement). The improvements to the standards are mandatory for business years beginning on or after 1 January 2015 (2011-2013 cycle) and 1 February 2015 (2010-2012 cycle). Early application is permitted. The IASB proposed a different effective date as at 1 July 2014. These changes are not expected to impact DFS as they involve only small changes to and clarifications of standards.

4.1.3 Published, though not yet mandatory, standards and interpretations

57 The IASB has issued the following standards which are not yet mandatory. Before these can

be applied, they have to be recognised and endorsed by the EU. They become effective from the point of time given.

58 DFS is currently examining the possible impact on the group financial statements. DFS does not avail of the right of early application of new or revised standards.

Notes 2014

78


Expected effective

date

Relevant to DFS

New standards

IFRS 14 Regulatory deferral accounts 30 Jan 2014 1 Jan 2016 Yes

IFRS 15 Revenue from contracts with customers 28 May 2014 1 Jan 2017 Yes

IFRS 9 Financial instruments 24 Jul 2014 1 Jan 2018 Yes

Amendments to existing standards and interpretations

IFRS 11 Joint arrangements (Accounting for acquisitions of interests in joint operations)

6 May 2014 1 Jan 2016 Yes

IAS 16 / IAS 38

Property, plant and equipment / intangible assets (Clarification of acceptable methods of depreciation and amortisation)

12 May 2014 1 Jan 2016 Yes

IAS 16 / IAS 41

Property, plant and equipment / agriculture (Bearer plants)

30 Jun 2014 1 Jan 2016 No

IAS 27 Separate financial statements (Equity method in separate financial statements)

12 Aug 2014 1 Jan 2016 Yes

IFRS 10 / IAS 28

Group financial statements / investments in associates and joint ventures (Sale or contribution of assets between an investor and its associate or joint venture)

11 Sep 2014 1 Jan 2016 Yes


25 Sep 2014 1 Jan 2016 Yes

IAS 1 Presentation of financial statements (Disclosure initiative)

18 Dec 2014 1 Jan 2016 Yes

IFRS 10 / IFRS 12 / IAS 28

Group financial statements / disclosure of interests in other entities / investments in associates and joint ventures (Investment entities: consolidation exception)

18 Dec 2014 1 Jan 2016 Yes

79

4.2 Changes in accounting policies

59 The new standards IFRS 10, IFRS 11 and IFRS 12 as well as the revised IAS 27 and IAS 28 represent a new concept for the preparation and presentation of group financial statements. In particular, the entity must have control or power over an investee. The principle of materiality allows entities not to consolidate subsidiaries and investments in its group financial statements. In addition, the type of business activities carried out is reviewed and the materiality of the company for DFS is determined. This review is carried out each year. The review has shown that, when viewed as a whole, the stakes in affiliated companies and investments do not have a material impact on the group's results and financial position. The stakes are therefore not consolidated but are carried at cost.

4.3 Use of assumptions and discretionary decisions

60 At the balance sheet date, DFS makes annual forecasts of future developments for accounting and measurement purposes. The comprehensive set of assumptions, estimates and judgements made may have a considerable influence on the representation of the results and financial position of DFS. They are based on experience and expectations about the occurrence of future events which appear commercially reasonable in the given circumstances. DFS continuously verifies its estimates and prognoses. If external conditions develop differently than expected, the actual amounts may vary from the estimates. Any variances from the actual circumstances are recognised in profit and loss when they occur. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next business year are described below.

4.3.1 International financial reporting standards and interpretations

61 Revisions to accounting policies resulting from new and revised standards and interpretations

are applied retrospectively, unless otherwise regulated. The prior-year statement of comprehensive income and the opening balance sheet for the prior-year period are adjusted as if the new accounting policies had always applied.

4.3.2 Consolidation of affiliated companies and investments

62 Subsidiaries and investments are not consolidated in the group financial statements as they

are not material. DFS examines the key quantitative values of total assets, revenues and net income of all its subsidiaries each year and sets the cumulative values from the financial statements as at 31 December in relation to DFS' own values. In selecting the materiality threshold of 5.00 percent, DFS based its decision on the recommendations contained in the German-language publication Beck´sches IFRS-Handbuch – Kommentierung der IFRS/IAS (4th edition, 2013, section 2, points 57 to 67).

4.3.3 Useful lives of property, plant and equipment

63 DFS estimates the useful lives of property, plant and equipment based on their probable

usability. As an orientation, DFS uses the official tax depreciation table (AfA-Tabelle) for general purpose assets (see letter from the German Federal Ministry of Finance (BMF) dated 15 December 2000 in the Federal Tax Gazette (Bundessteuerblatt) I 2000, page 1,532). Adjustments are made, as necessary, based on historical experience.

Notes 2014

80

4.3.4 Impairment of internally generated intangible assets

64 Impairment tests are carried out on internally generated intangible assets to determine the

present value of expected future cash flows if there are objective indications of impairment (see Note 4.5.2). DFS evaluates current requirements due to changing market conditions as well as the progress of new intangible assets that are already in the development process.

4.3.5 Intrinsic value of financial assets

65 Impairment tests are carried out on financial assets to determine the present value of expected

future cash flows if there are objective indications of impairment (see Note 4.5.2). DFS evaluates, in addition to other factors, the timing and extent of variances from cost, interest and exchange rates, the financial situation, the short-term business prospects as well as the general economic situation. If there is doubt about whether financial assets carried under the category "Held-to-maturity" will be settled in full, DFS evaluates the need to impair the receivable using the estimated probability of default. When there are doubtful trade receivables, DFS evaluates the creditworthiness of customers and determines the allowance for doubtful accounts required based on probable default risks from information on insolvencies (see Note 4.6.8).

4.3.6 Long-term service contracts

66 DFS recognises revenues from long-term service contracts using the percentage-of-

completion method (see Note 4.5.1). To determine the percentage of completion and thus the progress of performance, estimates are required of the material influencing factors such as costs incurred, contract income and contract risks. The expert departments responsible constantly review all the estimates and make any necessary adjustments.

4.3.7 Pensions and similar obligations

67 The measurement of pensions and similar obligations is based on assumptions set out at the

beginning of the business year (see Note 25.2). The discount rate at the balance sheet date is based on the market yield on high quality corporate bonds with an average rating of AA using the standard procedure. DFS uses bonds which, like the pension obligation, are measured in euro. The term of the corporate bonds corresponds to the term of the obligation. The interest rate for the expected return on plan assets corresponds to the discount rate. The percentage rates for the salary trend and the projected increase in benefits are based on past experience. Biometric data serve as the basis for the estimates of average life expectancy (mortality tables taken from Heubeck-Richttafeln 2005 G). Any change to these assumptions has an impact on the present value of the pension obligations (see Note 25.3). DFS recognises changes in value (particularly actuarial gains and losses) directly in equity as a remeasurement of defined benefit obligations under other comprehensive income.

81

4.3.8 Other provisions

68 The measurement of other provisions requires judgements on estimated costs, expected cash

flows and their maturities (see Note 4.6.15). The provisions relate to contracts, collective agreements, legal provisions or other obligations. They are recognised based on financial and actuarial calculations and historic experience using prudent commercial judgement. The premises underlying other provisions are reviewed annually and adjusted to current circumstances as necessary.

69 The discount rates for non-current provisions were adjusted to the development of interest rates in the business year (see Note 26).

4.4 Currency translation

70 The group financial statements and the separate financial statements are drawn up in the reporting currency euro. All amounts are given in thousands of euro (units of currency). The common method of rounding is used.

71 Non-monetary items (intangible assets, property, plant as well as inventories) in foreign currencies are carried at historical cost. Monetary items (liquid funds, receivables, liabilities) in foreign currencies are translated by DFS using the rate at the reporting date and the currency effects are recognised in the income statement.

Currencies ISO code 1 euro =

Standard conversion

Mean exchange rate 31 Dec 2014

EMU conversion

Asked price 31 Dec 2014

Standard conversion

Mean exchange rate 31 Dec 2013

EMU conversion

Asked price 31 Dec 2013

US dollar USD 1.21410 1.21710 1.37910 1.38210

Pound sterling GBP 0.77890 0.78090 0.83370 0.83570

Swiss franc CHF 1.20240 1.20440 1.22760 1.22960

Japanese yen JPY 145.23000 145.47000 144.72000 144.96000

Notes 2014

82

4.5 Items in the statement of comprehensive income

4.5.1 Income and expense recognition

72 Revenues and other operating income are recognised if:

the provision of the service or the sale of goods involves the transfer of the material risks and rewards to the customer;

it is probable that future economic benefits will be generated from the transaction;

there is no right of disposition nor effective control and

the level of revenues and the costs to sell incurred and expected can be quantified reliably.

73 Operating expenses are recognised in the income statement when the service is used or at

the time the expenses are incurred.

74 DFS accounts for revenues and expenses from long-term service contracts using the percentage-of-completion method. Revenues are recognised based on the stage of completion. The stage of completion results from the relationship between the contract costs incurred up to the balance sheet date and planned contract costs to this date. If the execution of the service contract requires a significant period of time, contract costs may also include direct borrowing costs. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. The contract costs are expensed using the matching principle. If the total contract costs exceed the total contract revenue, the expected loss is expensed immediately. If the results of a service contract cannot be estimated reliably, the probable revenues are recorded at the value of the costs incurred. Revenues from long-term service contracts accounted for using the percentage-of-completion method are reported by DFS under "Future receivables from construction contracts" in the balance sheet after deducting any payments received.

75 Interest income and expenses are recorded in accordance with the matching principle.

4.5.2 Impairment

76 Non-financial assets are reviewed at the balance sheet date to determine if there are

indications of impairment. This involves comparing the carrying amount with the recoverable amount of the asset.

77 The carrying amount is the amount at which an asset is recognised after deducting any accumulated amortisation/depreciation and accumulated impairment losses thereon. The recoverable amount is the higher of the net realisable value and the value in use. The net realisable value is equal to fair value less costs to sell. Value in use is the present value of the future cash flows expected to be derived from the continuing use of an asset and its disposal at the end of its useful life. DFS calculates the present value with an interest rate before tax that reflects market conditions, calculated using the estimated zero-coupon curves of the German Bundesbank (the Svensson method is used). No risk premium in accordance with IAS 36.55 (b) was used, as the assets are not exposed to any special risks.

83

78 If the recoverable amount of an asset is less than the carrying amount, an impairment is made to the recoverable amount. If a recoverable amount cannot be determined for the individual asset, then it is determined for the smallest cash generating unit to which the relevant asset can be allocated. Impairment losses are recognised in profit or loss in other operating expenses.

79 If, at a later date, the reasons for impairments made in previous years no longer apply, either in full or in part, the impairment loss is reversed accordingly. The reversal is limited to the carrying amount which would have applied if the impairments from the past were excluded and it is recognised in the income statement. It is not permissible to reverse impairments of goodwill.

4.6 Items in the balance sheet

4.6.1 Intangible assets

80 Assets acquired for valuable consideration are capitalised at cost when it is probable that the

asset will generate future economic benefits for the company and the costs can be measured reliably.

81 Intangible assets that arose from own development activities are capitalised at cost. This presupposes that future economic benefits will be generated from the products. Production costs comprise all direct costs and an appropriate share of development-related overhead. Borrowing costs are capitalised as part of production costs in accordance with the requirements of IAS 23.

82 Prepayments are measured at cost. The prepayments are allocated to the respective intangible assets at the time of commissioning and written off over their useful life.

83 Intangible assets have a limited useful life. They are written off on a straight-line basis from the beginning of use.

Intangible assets Useful life

Concessions, industrial and similar property rights and assets as well as licences in such rights and assets

3 to 8 years

Internally generated intangible assets 8 years

Prepayments Only after commissioning

84 Research expenses and associated government grants are recognised in profit or loss.

Notes 2014

84

4.6.2 Property, plant and equipment

85 Tangible assets acquired for valuable consideration are capitalised at cost when it is probable

that the asset will generate future economic benefits for the company and the costs can be measured reliably.

86 Costs include the purchase price as well as all directly attributable costs required to bring the asset to the site and get it into the working condition as intended by management.

87 DFS divides property, plant and equipment (in particular buildings) into the material economic components and reports them separately. Costs for the replacement of components and general overhaul are capitalised separately.

88 Production costs for internally generated property, plant and equipment comprise direct production costs (prime costs), an appropriate share of manufacturing overhead as well as the borrowing costs that are directly attributable up to the time of completion in accordance with IAS 23.

89 Government grants are deducted from the carrying amount of the corresponding asset.

90 All assets (except for land) have a limited useful life and are written off on a straight-line basis from the beginning of use:

Property, plant and equipment Useful life

Building – Structure 25 to 40 years

Building – Façade 25 to 30 years

Building – Interior finishing 25 years

Building – Heating, ventilation, water 15 to 25 years

Building – Electronics 15 to 25 years

External facilities 5 to 19 years

Technical equipment 3 to 20 years

Operating and office equipment 5 to 20 years

91 Costs for repairs and ongoing maintenance of property, plant and equipment that do not lead to an extension or material improvement are recognised under other operating expenses in the income statement.

92 When property, plant and equipment are sold, decommissioned or scrapped, any gains or losses from the difference between the net disposal proceeds and the amortised cost are recognised in other operating income or expenses.

85

4.6.3 Leases

93 DFS concludes rental and lease contracts with limited or unlimited terms to maintain flexibility

as regards liquidity. The company examines the contracts in accordance with IAS 17 to establish whether they are finance leases that have to be capitalised or operating leases to be expensed.

94 A lease is considered a finance lease when the lessor transfers all the material risks and rewards from ownership of an asset to the lessee (IAS 17.10). If these conditions are not met DFS classifies the lease as an operating lease.

95 For finance leases, DFS capitalises the lower of the present value of the minimum lease payments or the fair value of the leased asset. The payment obligations resulting from future lease instalments are recognised as a financial liability at the corresponding value of the leased asset. The minimum lease payments are split between a principal component and an interest component, with the interest being calculated using the effective interest rate method. DFS depreciates the leased asset over the shorter of the estimated useful life or the term of the lease.

96 The lease payments under operating leases are expensed over the term of the lease arrangement on a straight-line basis.

4.6.4 Investment property

97 Some property is not used operationally at DFS but is exclusively held either for rental income

or capital gains. Such property is classified as investment property, measured at amortised cost and written off on a straight-line basis.

4.6.5 Financial instruments – Financial assets

98 Financial instruments relate to all contractual claims and obligations that directly or indirectly

lead to an exchange of cash. Such an instrument is a contract which results in a financial asset for one party and either a financial liability or an equity instrument for the other party.

99 Financial assets are classified as "At fair value through profit or loss", "Held-to-maturity", "Loans and receivables" or "Available-for-sale" (see Note 32).

The category "At fair value through profit and loss" comprises financial assets that are held for trading. Financial assets are assigned to this category if they were acquired with the intention to sell in the short term. Derivatives also belong to this category unless they qualify as hedging instruments. DFS exclusively employs effective derivatives to hedge existing and future interest rate and currency risks under a hedging policy defined by the Board of Managing Directors and monitored by the Treasury department (see sections 2.5.3.1 and 6.2.2 in the group management report). While interest rate swaps are used to manage interest risk, cross-currency swaps hedge both interest rate risk and currency risk from financing in foreign currencies. Initial recognition as at the time of settlement and subsequent measurement occur at fair value. Financial instruments are deemed current if their realisation is expected within 12 months. Otherwise, they are disclosed as non-current. Derivative financial instruments with positive fair values are reported as receivables; those with negative fair values are reported as liabilities. All derivative financial instruments were accounted for without the creation of designated hedging relationships. The changes

Notes 2014

86

in the fair value between the reporting dates are recognised in profit or loss in the financial result.

The category "Held-to-maturity" contains non-derivative financial assets with fixed and determinable payments, and a fixed term. The company must have the intention and ability to hold the financial instruments until maturity. Initial recognition occurs at fair value as at the time of settlement (plus direct transaction costs). Receivables denominated in a foreign currency are translated using the rate at the reporting date and recognised in the income statement. Subsequently, financial instruments are carried at amortised cost using the effective interest method. If there are doubts about the collectibility of receivables, they are written down to the lower recoverable amount based on the estimated probability of default. If the amount of the write-down declines in the following periods, the required reversals are made through the income statement. Interest income is considered in the financial result.

The category "Loans and receivables" consists of financial assets with fixed or determinable terms of payment which are not traded on an active market. The assets are broken down into non-current and current remaining terms. Initial recognition occurs at fair value as at the time of settlement (plus direct transaction costs). Receivables denominated in a foreign currency are measured at the balance sheet date and recognised in the income statement. Subsequent measurement is at amortised cost using the effective interest rate method for interest bearing and non-interest bearing loans and receivables. If there are doubts about the collectibility of receivables, they are written down to the lower recoverable amount based on the estimated probability of default and the impairment loss is recognised. If the amount of the write-down declines in the following periods, the required reversals are made through the income statement. Interest income is reported in the financial result.

The category "Available-for-sale" includes all other financial assets which cannot be allocated to any other category (such as financial assets or securities). Initial recognition occurs at fair value as at the time of settlement (plus direct transaction costs). Subsequent measurement of this category occurs at fair value to the extent this can be reliably determined at the balance sheet date. Unrealised gains and losses from changes in fair value between the reporting dates are recognised directly in equity in other reserves. Upon the sale of financial assets or a permanent impairment of the market value below the carrying amount, other reserves are reversed and the cumulative gains and losses are recognised in profit or loss.

100 Financial assets are derecognised when the contractual rights to payments from the financial

assets no longer exist or all risks and rewards have been transferred.

87

4.6.6 Fair value

101 The fair value of financial instruments is the price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value is measured based on the assumptions that knowledgeable market participants who are independent of each other and who are willing and able to enter into a transaction would make while acting in their economic best interest. Fair value is a market-based measurement, not an entity-specific measurement.

102 The fair value measurement assumes that the transaction is made in the principal market for the asset or liability. In the absence of such a market, the most advantageous market is to be used. This is the market that would maximise the amount that would be received to sell an asset or minimise the amount that would be paid to transfer a liability, taking into consideration transport and transaction costs. However, fair value measurements should not be adjusted for transaction costs.

103 DFS uses valuation techniques to determine fair value that are appropriate under the given circumstances and for which sufficient data are available. The techniques maximise the use of relevant observable inputs and minimise the use of unobservable inputs.

Inputs

Level 1 Directly observable inputs

Observable (unadjusted) quoted prices in accessible active markets for identical assets or liabilities.

Level 2 Indirectly observable inputs

Inputs that are observable for assets or liabilities either directly or indirectly.

a) Quoted prices for similar assets or liabilities in active markets. b) Quoted prices for identical or similar assets or liabilities in markets that are not

active. c) Inputs other than quoted market prices that are observable. d) Market-corroborated inputs (values derived from market data using statistical

methods).

Level 3 Unobservable inputs

Entity's own assumptions on the behaviour of a typical market participant.

Notes 2014

88

Valuation techniques

Market approach

This approach derives market multiples from a set of identical or comparable assets (matrix pricing).

Cost approach

This approach is based on the amount required to replace the service capacity of an asset (the current replacement cost).

Income approach

This method discounts future cash flows to a current amount (present value techniques, option pricing models, residual income method).

104 DFS undertakes reclassifications within the hierarchy at the end of the business year in which the changes took place.

105 Further information on the determination of the fair value can be found in Notes 16 and 32.

4.6.7 Investments accounted for using the equity method

106 Investments accounted for using the equity method are capitalised at cost at the acquisition

date and, in subsequent periods, adjusted to account for the associated changes in equity. If there are indications for an impairment of investments, the lower recoverable amount is used as required by the regulations of IAS 36 (see Note 4.5.2).

4.6.8 Trade receivables

107 Trade receivables are carried at amortised cost. Due to the predominately short-term nature

of trade receivables, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS therefore assumes that trade receivables can be sold for at least their carrying amounts in the short term and sets the fair value at the same level.

108 DFS determines the allowance for doubtful accounts required based on probable default risks from information on insolvencies. DFS also demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. The allowances for doubtful accounts are recognised in a separate allowance account in the income statement. Such allowances are derecognised through the income statement should the reasons for the impairment no longer apply in subsequent periods. If a receivable that had already been written down is classified as uncollectible, it is written off completely.

109 Trade receivables in foreign currencies are measured at the reporting date and recognised in the income statement.

89

4.6.9 Other receivables and assets

110 Receivables and other assets are carried at amortised cost. Due to the predominately short-

term nature of other receivables and assets, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS assumes that the assets can be sold for at least their carrying amounts in the short term and sets the fair value at the same level.

111 Allowances for doubtful accounts are measured based on the probable default following an analysis of their age and maturity and information on insolvencies, and recognised as an expense on a separate allowance account.

112 Other receivables and assets in foreign currencies are measured at the reporting date and recognised in the income statement.

4.6.10 Deferred taxes

113 IAS 12 regulates the treatment of deferred taxes using the liability method. Deferred tax assets

and liabilities are recognised by DFS for all temporary differences between the tax base of assets and liabilities and their carrying amounts in the group balance sheet according to IFRS as well as for consolidation adjustments recognised in profit or loss. The differences are limited to those items whose changes influence taxable earnings.

114 Issues related to the calculation of charges are excluded (see Section 31b(3)(3) of the German Aviation Act (LuftVG)).

115 Deferred tax assets are also recognised for future claims to tax reductions resulting from tax loss carryforwards. Deferred tax assets for deductible temporary differences and for tax loss carryforwards are only recognised to the extent that there are future taxable profits which either the temporary differences or unused taxable losses can offset.

116 The computation of deferred taxes is based on the existing or applicable income tax rates in each country at the date of valuation. The income tax rate of 29.83 percent (previous year: 29.83 percent) is made up of a corporate income tax of 15.00 percent, a solidarity surcharge of 5.50 percent and a weighted-average German municipal trade tax multiplier rate of 400.00 percent on a tax rate (Steuermessbetrag) of 3.50 percent. The effect of changes in tax rates on deferred tax assets and liabilities is reflected in the income tax expense for the period in which the law was changed.

117 Deferred tax assets and liabilities are netted if permitted under law and the receivables and payables are against the same tax authority.

118 Deferred tax assets and liabilities are not discounted.

Notes 2014

90

4.6.11 Liquid funds

119 Liquid funds include cash, cash accounts as well as short-term money market investments

and certificates of deposit at credit institutions. Cash and cash equivalents are carried at amortised cost. Due to the predominately short-term nature of cash and cash equivalents, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS therefore sets the fair value at the same level as the carrying amount.

120 Liquid funds in foreign currencies are converted at the closing rate.

121 Overdrafts taken up are reported by DFS in the balance sheet as liabilities to credit institutions under current financial liabilities.

4.6.12 Inventories

122 Inventories are carried at cost based on the weighted average method or at production cost.

123 Production costs comprise direct production costs (especially direct materials and direct

labour) as well as an appropriate share of the necessary material and manufacturing overhead. Administrative expenses and costs of employee assistance programmes are included to the extent they can be allocated to production. Financing costs are not recognised as part of production costs.

124 Subsequent measurement occurs at the lower of deemed cost and net realisable value. Inventory risks resulting from the duration of storage or impaired usability led to write-downs upon determination of the net realisable value. If the reasons for a write-down no longer apply, the write-down is reversed. Lower values at the reporting date due to lower prices on sales and purchase markets were taken into account.

4.6.13 Other reserves

125 This item relates to changes recognised directly in equity, provided they are not based on

capital transactions with the Shareholder. This includes, in particular, the changes in fair value of the available-for-sale financial assets and their associated tax effects.

4.6.14 Provisions for pensions and similar obligations

126 Defined benefit plans are measured in accordance with IAS 19 using the projected unit credit

method on the basis of actuarial reports at the balance sheet date. This requires, in particular, assumptions to be made about long-term salary trends and average life expectancy. The premises on salary trends are based on historical trends and take into account country-specific interest and inflation levels. Biometric data serve as the basis for the estimates of average life expectancy (mortality tables taken from Heubeck-Richttafeln 2005 G).

91

127 The rate used to discount pension obligations is determined by reference to market yields at the end of the reporting period on high quality fixed-rate corporate and treasury bonds. The discount rate is an actuarial assumption and it is set at the beginning of each business year (see Note 25.2). With the help of this interest rate, DFS calculates the net interest result, for which the net pension obligation or net defined benefit liability is multiplied by the interest rate. The net pension obligation results from the deduction of plan assets with their fair value from the gross pension obligation and is therefore a net amount. In the event of an asset surplus (i.e. a net defined benefit asset), a corresponding procedure is applied. Before offsetting, DFS reports the net interest result in the financial result under financial income and financial expenses in line with IAS 19.127 in conjunction with IAS 19.134.

128 DFS anticipates a moderate rise in salaries thanks to the low inflation rate in the Federal Republic of Germany and the moderate collective bargaining agreements concluded over the last few years. DFS is therefore reducing the long-term salary trend from 3.50 percent to 2.50 percent and shows this effect in the reconciliation (see Note 25.6) under actuarial gains and losses due to changed parameters. The effect is recognised directly in other comprehensive income.

129 Remeasurements of the net defined benefit liability are recognised directly in equity in other comprehensive income. This includes in particular the actuarial gains and losses resulting from changes in expectations as regards the estimates made at the beginning of the year compared with the actual development during the business year. In addition, a portion of the actual return on plan assets at the end of the year in excess of the expected return on plan assets at the beginning of the year is recognised directly in equity. The remeasurement recognised in equity cannot be recognised in profit or loss in the following periods.

130 The service cost is made up of the current and past service costs. The latter reflects the change in pension obligations as a consequence of plan adjustments and plan curtailments. It is recognised in profit or loss when incurred in the statement of comprehensive income and reported under employee expenses.

131 The development of plan assets is made up of the contributions, payments and income from a matched reinsurance contract. The reinsurance contract requires an investment in the general cover fund of the insurer in accordance with Section 54 of the Insurance Supervision Act (VAG) as well as a separate fund-based investment in accordance with Section 54b of the VAG. This fund-based investment allows the DFS group contract with the insurer to have a higher equity ratio to gain a long-term increase in return compared with the return provided by the general cover fund of the insurance consortium. The fund investment is restricted to a maximum of half of the whole capital reserve of the reinsurance contract. The expectations placed on the fund investment are formulated by the strategy commission. It considers the latest expectations for the capital markets and risk issues. Pension obligations for which there are plan assets are netted against the fair value of these plan assets.

132 No provisions are recognised for defined contribution plans. The level of contributions at DFS

is dependent on the income relevant to pension calculations. The payments for defined contribution plans are expensed when due and reported as part of employee expenses.

Notes 2014

92

4.6.15 Other provisions

133 Other provisions are recognised for past events that result in present obligations to third

parties. These provisions must be capable of being estimated reliably and lead to an outflow of resources in the future with a probability of at least 50.00 percent. A provision is recognised with the settlement amount, which represents the highest probability of occurrence based on best estimates and under consideration of all discernible risks.

134 DFS expects the majority of the other provisions to fall due in the next one to thirty years. Some of the individual provisions may involve time periods of up to thirty years. Therefore, uncertainties remain as to the timing and concrete amount of the expenses. Nevertheless, DFS expects to utilise the full amount of the provisions (100.00%) and expects that the outflow of economic benefits will equal the amount set aside in the provisions.

135 Provisions for obligations which in all probability will not lead to a reduction in assets in the subsequent year are discounted at prevailing market rates and carried at the present value of the expected outflow of resources, provided the interest effect is material. The discount rates are based on the yields on debt securities outstanding issued by residents, public debt securities and listed Federal securities corresponding to their remaining term as published by the German Bundesbank. In addition to these yields, a company-internal risk premium of 0.25 percent is added.

136 If a change in an estimate results in a reduction of the obligation, then the provision is reversed proportionally and the income reported under other operating income.

4.6.16 Financial instruments – Financial liabilities

137 Financial liabilities generally give rise to a claim for repayment in cash or in the form of another

financial asset. The classification is subdivided into the categories "At fair value through profit or loss" and "Amortised cost" (see Note 32).

Financial liabilities of the category "At fair value through profit and loss" (derivative financial instruments) are held exclusively for trading purposes (see sections 2.5.3.1 and 6.2.2 in the group management report). The initial and subsequent recognition are at fair value. The changes in fair value between the reporting dates and interest expenses are recognised in profit or loss in the financial result.

The category "Amortised cost" contains all other financial liabilities which cannot be allocated to another category. The initial recognition is at fair value, including transaction costs directly connected with the issuance of the liability. Subsequent measurement of liabilities is at amortised cost using the effective interest rate method for liabilities with high or low interest rates. Bonds and debenture loans are carried at amortised cost using the effective interest method. Due to the predominately short-term nature of trade payables and other liabilities, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS therefore sets the fair value at the same level as the carrying amount. Amounts derecognised and the allowance for doubtful accounts are disclosed in profit and loss and interest expenses in the financial result.

93

138 For financial liabilities with maturities up to one year, the fair value corresponds to the carrying amount. If the maturity is longer than one year, the fair value is calculated by discounting the settlement value at a risk-free rate.

139 Liabilities denominated in a foreign currency are converted using the rate at the reporting date.

Notes 2014

94

Notes to the statement of comprehensive income

5 Revenues

2014 2013

€'000 €'000

Revenues from air navigation services 1,085,489 1,091,949

Other revenues 20,749 17,248

1,106,238 1,109,197

Revenues from air navigation services

2014 2013

€'000 €'000

En-route charges 801,052 796,206

Terminal charges 232,612 227,282

Payments to German MET Service (DWD) and MoT (BMVI) from terminal charges

-616 -878

Under-recovery of charges for current year 23,702 22,246

Offsetting over-recovery/under-recovery from previous years -40,326 -28,346

Revenues from en-route and terminal charges 1,016,424 1,016,510

Reimbursements by the State for military flights and facilities 59,099 57,394

Reimbursements by the State for exempted flights 6,500 6,500

Aeronautical publications 253 7,565

Flight inspection services 1,957 2,473

Other air navigation services 1,256 1,507

Revenues from air navigation services 1,085,489 1,091,949

6 Changes in inventory and other own work capitalised

2014 2013

€'000 €'000

Changes in inventory of finished goods 0 -171

Other own work capitalised (primarily internally generated IT systems)

807 1,588

807 1,417

95

7 Other operating income

2014 2013

€'000 €'000

R&D project funding by the EU Commission and German federal and regional ministries recognised in the income statement

8,211 6,706

Income from QTE transaction (exchange rate gains) 6,993 2,600

Income from derecognition of liabilities 5,997 8,567

Cost reimbursements 5,650 4,137

Income from reversal of provisions 1,704 5,474

Rental income 744 778

Income from asset disposals 31 61

Remaining 5,939 5,327

35,269 33,650

8 Cost of materials and services

2014 2013

€'000 €'000

Raw materials, consumables used and purchased goods 283 935

Purchased services (flight inspection and consulting services) 3,580 4,548

3,863 5,483

9 Employee expenses

2014 2013

€'000 €'000

Wages and salaries* 593,819 585,742

Expenses for IFRS pensions** 115,583 134,184

Social security costs and expenses for assistance 64,666 63,570

Cost of personnel belonging to the Federal Aviation Office (LBA)

29,078 24,981

803,146 808,477

* See Note 42.1 for the remuneration of the Board of Managing Directors

** For the expenses and income for occupational pensions contained in the statement of comprehensive income, see Note 25.11

Notes 2014

96

140 Besides the usual outlays for wages, salaries and social security expenses for DFS personnel, this item also includes the costs charged by the Federal Aviation Office (LBA) for personnel belonging to the LBA.

Average annual number of employees

2014 2013

€'000 €'000

Salaried staff 5,324 5,302

Soldiers released from regular service 226 235

Wage-earners 26 28

Technical and commercial students and apprentices 140 256

DFS personnel 5,716 5,821

Employees covered by the collective agreement for the public service (TVöD)

55 62

Established civil servants 181 197

Personnel belonging to the Federal Aviation Office (LBA) Office Air Navigation Services

236 259

5,952 6,080

10 Depreciation and amortisation

2014 2013

€'000 €'000

Intangible assets 34,842 33,675

Property, plant and equipment 69,661 68,705

Investment property 30 30

104,533 102,410

141 The impairment tests carried out in the business year resulted in no impairment charges being recognised for intangible assets; property, plant and equipment; investment property and financial assets.

97

11 Other operating expenses

2014 2013

€'000 €'000

Spare parts and maintenance 45,956 41,653

Occupancy costs 21,814 23,351

Costs of external personnel 9,886 10,734

Rent and leasing costs 8,639 8,919

Telecommunication 7,669 8,265

Expenses from QTE transaction (exchange rate losses) 7,104 1,989

Legal and consultancy costs 6,941 9,100

Travel costs 6,246 6,572

Other employee expenses 4,348 4,685

Vehicle costs 3,523 3,481

Costs from previous years 2,748 3,332

Insurance policies 2,033 2,122

Magazines, journals, stationery 1,046 1,194

Write-downs and write-offs of receivables 928 6,762

Asset disposals 835 1,824

Costs of monetary transactions 768 1,137

Entertainment expenses 745 639

Advertising costs 451 857

Remaining 1,030 1,697

132,710 138,313

Notes 2014

98

12 Financial result

2014 2013

€'000 €'000

Income from fund assets to finance retirement obligations 63,858 46,749

Interest income from QTE transaction 7,104 6,617

Interest income from affiliated companies 1,153 843

Income from foreign currency translation 1,048 5,686

Other interest income 711 651

Result from fair value adjustment of derivatives 433 0

Income from investments 104 0

Income from profit transfer agreements with affiliated companies

0 776

Financial income 74,411 61,322

Expenses from discounting provisions -116,770 -96,653

Other interest expense -7,183 -6,435

Interest expense from QTE transaction -6,839 -6,324

Interest expense from operating taxes -2,880 0

Expenses from foreign currency translation -940 0

Expenses from loss transfer agreements with affiliated companies

-419 -526

Expenses from securities -23 -12

Result from fair value adjustment of derivatives 0 -5,311

Financial expenses -135,054 -115,261

Financial result -60,643 -53,939

Additional disclosures on the financial result

2014 2013

€'000 €'000

Interest result from financial instruments determined using the effective interest method not classified in the category "At fair value through profit or loss"

-7,217 -1,184

Interest income from impaired financial assets 319 332

Impairment losses recognised directly in equity from the category "Available-for-sale"

0 -25

99

13 Income taxes

2014 2013

€'000 €'000

Current income taxes 2,697 8,540

Deferred income taxes -223 -8,664

2,474 -124

142 Current income taxes relate to corporation taxes, including the solidarity surcharge, and German municipal trade taxes. The computation of income taxes is based on applicable tax regulations in connection with Section 31b(3)(3) of the German Aviation Act (LuftVG).

Breakdown of effective income taxes

2014 2013

€'000 €'000

Corporation tax 2,050 3,836

Corporation tax from previous years -416 0

Solidarity surcharge 113 211

Municipal trade tax 2,352 4,411

Municipal trade tax from previous years -1,475 0

Foreign taxes 73 82

2,697 8,540

143 In addition to the tax liabilities from the current business year, possible estimated additional tax demands are also included to the extent that they might result from the current tax audit. In the business year, the tax audit for the years 2002 to 2006 was completed. Therefore, current taxes contain income for the corporation tax from prior years (€416 thousand) and for the municipal trade tax from prior years (€1,475 thousand).

144 DFS owes tax as the dominant enterprise for the dependent enterprise DFS Energy. Therefore, the deferred taxes of the dependent enterprise are reflected in the dominant enterprise. The spin-off of the energy plant, which is assigned to those areas relevant to air navigation charges, into DFS Energy led to a continuation of the tax measurement for this legal entity. Therefore, in determining taxes, the special situation as regards air navigation charges at DFS is also taken into consideration at DFS Energy. This does not lead to taxable temporary differences in value between the IFRS and the tax accounts. The spin-off of TTC from DFS to DFS IBS led to the end of TTC being a dependent enterprise of DFS. DFS therefore no longer reports the deferred taxes of TTC (previous year: €105 thousand).

Notes 2014

100

Reconciliation from expected to current income tax expense

2014 2013

€'000 €'000

Net income before income taxes 37,418 35,643

Expected tax rate (in %) 29.83 29.83

Expected income tax expense 11,162 10,632

Tax expense not relating to the period under review -1,891 0

Reduction in the tax base under Section 31b LuftVG -7,086 2,312

Variances in municipal trade tax 439 436

Foreign taxes 73 82

Changes in the measurement logic of deferred taxes under Section 31b LuftVG

0 -9,638

Derecognition of deferred taxes for the changes in fair value of the available-for-sale financial assets

0 993

Tax loss carryforward (corporation tax) 0 -2,822

Tax loss carryforward (municipal trade tax) 0 -2,100

Miscellaneous -223 -19

Current income tax expense 2,474 -124

Effective tax rate (in %) 6.61 -0.35

101

Deferred taxes by balance sheet item

Deferred tax assets Deferred tax liabilities 2014 2013 2014 2013

€'000 €'000 €'000 €'000

Intangible assets 0 0 10,439 11,830

Property, plant and equipment 2,043 2,318 1,676 2,720

Available-for-sale securities 0 0 3,325 2,273

Receivables and other assets 0 0 648 477

Provisions for pensions and similar obligations 699,104 446,114 0 0

Other provisions 26,529 26,644 859 203

Liabilities 3,770 3,545 983 922

731,446 478,621 17,930 18,425

Impact due to Section 31b LuftVG (until 2012: methodology n + 2 used)

Intangible assets 0 0 -10,439 -11,830

Property, plant and equipment -1,972 -2,263 -1,755 -2,720

Available-for-sale securities 0 0 0 -79

Receivables and other assets 0 0 0 0

Provisions for pensions and similar obligations -684,110 -435,348 0 0

Other provisions -26,527 -26,640 -859 -203

Liabilities -788 -917 -460 -439

-713,397 -465,168 -13,513 -15,271

Other allowances -11,102 -8,097 0 0

Netting -4,417 -3,154 -4,417 -3,154

TTC 0 105 0 0

2,530 2,307 0 0

145 There were no issues which resulted in deferred tax assets not being recognised.

Notes 2014

102

Notes to the balance sheet

14 Intangible assets

Cost

As at Additions Disposals Transfers As at

1 Jan 31 Dec

2013 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences 544,998 12,792 -4,288 4,807 558,309

Internally generated intangible assets 50,242 1,381 0 0 51,623

Assets under construction 30,040 20,097 -1,170 -4,545 44,422

625,280 34,270 -5,458 262 654,354

2014 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences 558,309 6,396 -3,848 498 561,355

Internally generated intangible assets 51,623 535 0 0 52,158

Assets under construction 44,422 18,160 0 -158 62,424

654,354 25,091 -3,848 340 675,937

Amortisation Carrying amount

As at Additions Disposals Transfers As at As at

1 Jan 31 Dec 31 Dec

2013 €'000 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences

369,281 29,712 -4,225 0 394,768 163,541

Internally generated intangible assets

21,925 3,963 0 0 25,888 25,735

Assets under construction 0 0 0 0 0 44,422

391,206 33,675 -4,225 0 420,656 233,698

2014 €'000 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences

394,768 30,526 -3,778 10 421,526 139,829

Internally generated intangible assets

25,888 4,316 0 0 30,204 21,954


420,656 34,842 -3,778 10 451,730 224,207

103

Individually material intangible assets

Carrying amount Remaining

useful life Share of total

carrying amount 31 Dec 2014 31 Dec 2014 €'000 in years in %

VAFORIT software 51,764 4 23.09

P1/ATCAS software including release 24,040 10 5.00

iCAS software 16,293 4 7.27

P1/ATCAS 2007 7,778 10 3.47

PSS software 4,705 3 - 11 2.10

104,580 46.64

Total carrying amount 224,207 100.00

146 Impairment tests for intangible assets showed no indications of a need to impair as required by IAS 36.

Capitalisation of borrowing costs for intangible assets

31 Dec 2014 31 Dec 2013

Borrowing costs in €'000 1,418 1,264

Capitalisation rate in % 2.88 3.19

147 Intangible assets for which there is a contractual obligation to accept but which do not yet come under the economic power of disposition of DFS are shown in Note 36.2.

148 DFS has not assigned any intangible assets nor pledged them as collateral. DFS freely controls these assets.

Notes 2014

104

15 Property, plant and equipment

Cost


1 Jan 31 Dec

2013 €'000 €'000 €'000 €'000 €'000

Land and buildings 612,889 8,107 -2,789 26,521 644,728

Technical equipment and machinery 1,086,476 32,409 -67,076 15,162 1,066,971

Operating and office equipment 98,601 6,115 -2,529 257 102,444

Assets under construction 53,253 43,742 0 -42,202 54,793

1,851,219 90,373 -72,394 -262 1,868,936

2014 €'000 €'000 €'000 €'000 €'000

Land and buildings 644,728 12,659 -812 29,889 686,464

Technical equipment and machinery 1,066,971 38,869 -55,004 22,559 1,073,395

Operating and office equipment 102,444 4,110 -24,963 1,492 83,083

Assets under construction 54,793 3,285 0 -54,280 3,798

1,868,936 58,923 -80,779 -340 1,846,740

Depreciation Carrying amount


1 Jan 31 Dec 31 Dec

2013 €'000 €'000 €'000 €'000 €'000 €'000

Land and buildings 346,862 19,958 -2,574 -1 364,245 280,483

Technical equipment and machinery

915,811 44,382 -66,013 2 894,182 172,789

Operating and office equipment

77,060 4,365 -2,374 -1 79,050 23,394


1,339,733 68,705 -70,961 0 1,337,477 531,459

2014 €'000 €'000 €'000 €'000 €'000 €'000

Land and buildings 364,245 21,063 -448 0 384,860 301,604

Technical equipment and machinery

894,182 43,751 -53,354 -14 884,565 188,830

Operating and office equipment

79,050 4,847 -24,802 4 59,099 23,984


1,337,477 69,661 -78,604 -10 1,328,524 518,216

105

Capitalisation of borrowing costs for property, plant and equipment

31 Dec 2014 31 Dec 2013

Borrowing costs in €'000 1,173 1,903

Capitalisation rate in % 2.88 3.19

Research and development costs

31 Dec 2014 31 Dec 2013

€'000 €'000

Expenses for research and development 37,313 37,874

- of which research costs recognised in the income statement

36,784 36,586

- of which capitalised additions in assets under construction 529 1,288

Capitalised borrowing costs on development costs 6 93

Development costs in assets under construction as at 31 December

0 0

Scheduled depreciation of development costs based on the degree of completion notified

4,316 3,963

R&D project funding by the EU Commission and German federal and regional ministries deducted from cost

0 0

149 At the reporting date, there were no indications that property, plant and equipment needed to be impaired as required by IAS 36.

150 DFS concludes rental and lease contracts for land and buildings, technical facilities and machines as well as vehicles. The material rewards and risks are borne by the respective contracting party. There are no additional risks from these contracts for DFS. DFS does not make use of purchase price options, rather the items are transferred when the lease matures. Vehicles are leased for one year without an option to extend.

Maturity of operating leases

Up to 1 year 1 to 5 years More than 5 years

Total

€'000 €'000 €'000 €'000

2014 6,384 4,662 87 11,133

2013 6,440 3,830 210 10,480

Expenses and income recognised in the statement of comprehensive income

2014 2013

€'000 €'000

Minimum lease payments from operating leases 8,639 8,919

Notes 2014

106

151 The carrying amount of property, plant and equipment which DFS does not freely control (finance leases) amounts to €68 thousand (previous year: €130 thousand).

152 The QTE transaction was terminated except for the remaining shell structure (for additional disclosures see Note 18).

153 Property, plant and equipment for which there is a contractual obligation to accept but which do not yet come under the economic power of disposition of DFS are shown in Note 36.2.

154 DFS has not assigned any property, plant and equipment nor pledged them as collateral. DFS freely controls these assets.

155 Compensation of €216 thousand (previous year: €19 thousand) for third parties for property, plant and equipment that was impaired, irrecoverably lost or decommissioned was recognised in the income statement.

16 Investment property

Cost


1 Jan 31 Dec

€'000 €'000 €'000 €'000 €'000

2013 Property in Braunschweig 1,210 0 0 0 1,210

2014 Property in Braunschweig 1,210 0 0 0 1,210

Depreciation Carrying amount


1 Jan 31 Dec 31 Dec

€'000 €'000 €'000 €'000 €'000 €'000

2013 Property in Braunschweig 337 30 0 0 367 843

2014 Property in Braunschweig 367 30 0 0 397 813

156 DFS rents a building, including the land, in Braunschweig, Germany, to FCS, which uses this land for its own operational purposes.


2014 2013

€'000 €'000

Rental income 121 121

Depreciation 30 30

Repairs 0 0

107

157 The property is depreciated over the useful life of 40 years using the straight-line method. The latest review of the rental and land values revealed no indications of an impairment under IAS 36. The values remained unchanged compared with the previous year. The appraisal dated 3 December 2012 demonstrates the recoverability of the carrying amounts.

Appraisal on the value of the property

Date of appraisal 3 December 2012 22 October 2008

Date for which appraisal applies 1 December 2012 1 October 2008

Procedure DCF method DCF method

Market value €980 thousand €1,030 thousand

Fair value €980 thousand €1,013 thousand

Property yield (Liegenschaftszinssatz) of the city of Braunschweig

7.60% 6.30%

Initial discount rate 8.25% 7.75%

158 The fair value of investment property is determined by an external independent property valuer who possesses the relevant professional qualification and up-to-date experience on the location and type of property to be valued.

Valuation technique

Discounted cash flow method: The calculation of the fair value is based on current rental rates considering various factors such as the standard land values, property yield, other operating expenses, risk of default on rents, remaining useful life of the building, maintenance risk as well as current property developments.

Unobservable inputs

Discount rate, risk of default on rents, other operating expenses

Level

3

Relationship between inputs and fair value

The estimated fair value would increase if

the risk-adjusted discount rate was lower;

the risk of default on rents was lower;

other operating costs were lower.

Reconciliation of the fair value level 3

31 Dec 2014 31 Dec 2013

€'000 €'000

As at 1 Jan 980 980

Ongoing gains (+) and losses (-) 0 0

Gains (+) and losses (-) recognised in other comprehensive income

0 0

Additions (+) and disposals (-) 0 0

Transfers in and out of levels 0 0

As at 31 Dec 980 980

Notes 2014

108

159 DFS is not contractually obliged to conduct repairs, maintenance or improvements. However, DFS is authorised to make material changes to the premises and the rental object as well as necessary repairs and maintenance without the approval of FCS. There are no other contractual obligations or restraints on disposition.

17 Financial assets

Cost

As at Additions Disposals Changes in market

value

As at

1 Jan 31 Dec

2013 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 0 0 0 27,172

Loans to affiliated companies 11,000 18,500 0 0 29,500

Investments 2,354 0 0 0 2,354

40,526 18,500 0 0 59,026

2014 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 223 -223 0 27,172

Loans to affiliated companies 29,500 12,000 0 0 41,500

Investments 2,354 6 0 0 2,360

59,026 12,229 -223 0 71,032

Impairment Carrying amount


1 Jan 31 Dec 31 Dec

2013 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 0 0 0 0 0 27,172

Loans to affiliated companies 0 0 0 0 0 29,500

Investments 0 0 0 0 0 2,354

0 0 0 0 0 59,026

2014 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 0 0 0 0 0 27,172

Loans to affiliated companies 0 0 0 0 0 41,500

Investments 0 0 0 0 0 2,360

0 0 0 0 0 71,032

109

Shares in affiliated companies*

DFS IBS U-Kasse (Benevolent

fund)

DFS Energy Total

€'000 €'000 €'000 €'000

Shareholding in % 100.00 100.00 100.00

Share capital 26 26 5,000 5,052

Capital reserve 223 0 132 355

Retained earnings 0** 0 264 264

Contributions in kind 21,501 0 0 21,501

Carrying amount 31 Dec 2014 21,750 26 5,396 27,172

* For additional disclosures see Note 3

** Under €1 thousand

160 The loans to affiliated companies relate to a loan to DFS Energy of €50,000 thousand agreed in 2011. The loan has a term until 31 December 2031. It has been taken up since 1 January 2012 and was disbursed at times agreed in advance. In the business year, €12,000 thousand (previous year: €18,500 thousand) was drawn down. Interest has been paid on the loan at the end of each quarter in arrears since the beginning of the disbursements with an effective interest rate of 3.45 percent.

Investments*

FCS GroupEAD BILSODA Total

€'000 €'000 €'000 €'000

Shareholding in % 55.00 36.00 24.90

Share capital 0 360 0 360

Liability contribution 0 0 2 2

Other contribution 0 0 1,998 1,998

Carrying amount 31 Dec 2014 Under €1 thousand

360 2,000 2,360

* For additional disclosures see Note 3

161 There were no indications of a need to impair as required by IAS 36.

Notes 2014

110

18 Other receivables and assets

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013

Total Remaining term more than

1 year


1 year

€'000 €'000 €'000 €'000

Under-recovery 93,895 46,380 87,984 87,984

QTE transaction 56,412 51,449 53,767 49,663

Interest receivables 1,943 0 1,933 0

Receivables from affiliated companies*

158 0 4 0

Receivables from investments* 1 0 0 0

Remaining financial assets 5,690 128 5,667 108

Other financial receivables and assets

158,099 97,957 149,355 137,755

Remaining non-financial assets 7,543 0 9,095 0

Prepayments 415 0 722 0

166,057 97,957 159,172 137,755

* Disclosures on netting in Note 29

Aged-list

31 Dec 2014 31 Dec 2013

€'000 €'000

Carrying amount 166,057 159,172

Of which not impaired and

- not yet overdue 166,057 159,172

- up to 30 days overdue 0 0

- 31 to 60 days overdue 0 0


- more than 180 days overdue 0 0

Of which impaired 0 0

162 No receivables served as securities for loans or as collateral for other liabilities.

163 Since 2012, a regulated procedure for determining charges has been in force. Across Europe, the respective national supervisory authority lays down binding unit rates for the en-route cost unit according to EU regulations. Consequently, traffic volume and cost changes impact profit and loss (see section 2.4.5 in the group management report and Note 40.1). If the values fall short, DFS is authorised and obliged to demand any under-recovery and if the values exceed the relevant thresholds DFS is authorised and obliged to return any over-recovery (carry-over).

111

164 For terminal services, DFS continues to treat as a receivable the under-recoveries (and over-recoveries as a provision) that are carried forward until the next reference period to be netted with the users due to the regulations on traffic volume and cost risk distribution.

165 The qualified technological equipment (QTE) transaction with foreign investors was basically terminated in the previous year. DFS agreed with the remaining contracting parties to keep up the domestic cash flows. The restructuring of the contractual relationships allowed financial drawbacks to be avoided. The remaining purely inner-German shell structure comprises a claim against NORD/LB and a liability against KfW Kreditanstalt für Wiederaufbau (see Note 27). The new loan contracts concluded have fixed interest and principal payments and a term until 2 January 2022 (see section 6.2.2.4 in the group management report). DFS receives the claims from the ongoing rent from NORD/LB without having to provide a consideration. DFS bears the default risk of NORD/LB during the term. The rating agencies Moody's and Fitch Ratings awarded an Aa1 or AAA rating for the long-term guaranteed liabilities of NORD/LB. For the liability, temporally limited collateral was pledged to KfW in the form of the assignment of the receivables against NORD/LB. This hedge was dissolved in 2013 after a one-off payment. The termination of the QTE transaction led to a significant improvement in the risk position for the creditors of DFS.

19 Trade receivables

Due dates of trade receivables


Total

€'000 €'000 €'000 €'000

2014 151,964 0 0 151,964

2013 146,490 7 0 146,497

Aged-list

31 Dec 2014 31 Dec 2013

€'000 €'000

Carrying amount 151,964 146,497

Of which not impaired and

- not yet overdue 142,506 140,276

- up to 30 days overdue 5,665 4,175


- 61 to 180 days overdue 1,793 247

- more than 180 days overdue 1,293 1,071

Of which impaired 0 0

166 Trade receivables were written down to the amount that could be recovered as soon as information on the insolvency of customers was available. There are no indications that the debtors whose receivables were overdue will not be able to fulfil their obligations.

Notes 2014

112

Development of allowances

31 Dec 2014 31 Dec 2013

€'000 €'000

As at 1 Jan 12,093 6,076

Additions 584 6,819

Utilisation 0 0

Reversal -3,359 -802

As at 31 Dec 9,318 12,093


2014 2013

€'000 €'000

Derecognition and write-off of receivables -3,342 -826

Income from payment of receivables previously written off 75 1

Income from other derecognitions 21 4

Additions to specific allowances -584 -6,819

Income from reversal of specific allowances 3,359 802

167 Trade receivables in foreign currencies amount to €7 thousand (previous year: €591 thousand). Due to the low impact on the results (less than €50 thousand), there is no currency valuation.

168 DFS did not pledge any receivables as securities for loans.

20 Future receivables from construction contracts

Due dates of future receivables from construction contracts


Total

31 Dec 2014 €'000 €'000 €'000 €'000

Gross value 5,593 0 0 5,593

Prepayments -3,164 0 0 -3,164

Carrying amount 2,429 0 0 2,429

31 Dec 2013 €'000 €'000 €'000 €'000

Gross value 4,474 0 0 4,474

Prepayments -1,704 0 0 -1,704

Carrying amount 2,770 0 0 2,770

113


2014 2013

€'000 €'000

Contract revenue recognised in the business year 1,682 2,453

Costs incurred in the business year 561 1,688

Profit earned for ongoing projects 1,121 765

Amounts withheld 0 0

21 Inventories

31 Dec 2014 31 Dec 2013

€'000 €'000

Raw materials, consumables and supplies 4,390 4,418

Finished goods and goods for resale 0 317

4,390 4,735


2014 2013

€'000 €'000

Impairment of raw materials and consumables used 24 11

Impairment of finished goods and goods for resale 0 52

22 Securities

31 Dec 2014 31 Dec 2013

€'000 €'000

Short-term securities 49,994 0

23 Liquid funds

31 Dec 2014 31 Dec 2013

€'000 €'000

Cash in hand and cheques 32 38

Cash at bank 267,297 258,043

267,329 258,081

Notes 2014

114

24 Equity

31 Dec 2014 31 Dec 2013

€'000 €'000

Subscribed capital 153,388 153,388

Capital reserve 74,296 74,296

Remeasurement reserves -1,428,056 -739,298

Retained earnings -164,395 -193,400

Other reserves 0 0

-1,364,767 -705,014

169 The share capital of DFS amounts to DM300,000 thousand (three hundred million Deutschmark).

170 The share capital of DM100 thousand and DM299,900 thousand is held by the sole Shareholder, the Federal Republic of Germany, represented by the Federal Ministry of Transport and Digital Infrastructure (BMVI). The shares may not be sold or encumbered. Additional shareholders shall not be admitted.

171 The capital reserves consist of other payments of the Shareholder (Section 272(2)(4) HGB) and serve to strengthen the share capital.

172 Other reserves are used for changes recognised directly in equity that are not based on capital transactions with the Shareholder.

173 The Shareholder approved the group financial statements, the group management report and the financial statements as at 31 December 2013 under the German Commercial Code (HGB) in resolution no. 141 dated 29 April 2014 and decided on the transfer of the net income 2013 under HGB to retained earnings:

31 Dec 2014 31 Dec 2013

€'000 €'000

Retained profit 56,833 6,433

Gross dividend to the Shareholder 5,940 0

Transferred to retained earnings 50,893 6,433

115

Other comprehensive income after taxes contained in the reserves

Remeasurement reserves

Other reserves Other comprehensive

income

31 Dec 2014 €'000 €'000 €'000

Remeasurement of the net defined benefit liability

-688,758 0 -688,758

Change in the fair value of available-for-sale financial assets

0 0 0

-688,758 0 -688,758

31 Dec 2013 €'000 €'000 €'000

Remeasurement of the net defined benefit liability

555,524 0 555,524

Change in the fair value of available-for-sale financial assets

0 968 968

555,524 968 556,492

25 Provisions for pensions and similar obligations

174 Provisions for pensions are recognised exclusively for defined benefit plans for active and former employees.

175 The level of detail presented in the numbers reported in the following sections is based on the collective agreements and individual contracts relevant to DFS:

Acronym Contents

VersTV (Pensions)*

This collective agreement relates to the pensions for the staff employed at DFS.

ÜVersTV (Transitional payments)

This collective agreement relates to the transitional payments for air traffic controllers and flight data assistants employed at DFS.

KTV (Insurance)

This collective agreement covers the health and long-term care insurance for the staff employed at DFS.

Miscellaneous The accessory obligations for death grants and under the deferred compensation scheme for pensions (old) are grouped under "Miscellaneous".

* The defined benefit obligations under the VersTV continue to be split in Note 25.6 between the final salary benefits and the benefits linked to average career earnings.

Notes 2014

116

25.1 Pension plans

176 There are various forms of pension provision available to the employees of DFS which are largely governed by collective agreements.

177 Under the collective agreement covering pensions (VersTV), employees who began employment by 31 December 2004 receive old-age, disability and surviving dependant's benefits (defined benefit plans) linked to the respective final salary of the employee (Plan A). However, employees who entered service from 1 January 2005 receive benefits under the collective agreement covering pensions which are linked to average career earnings (Plan B). Under this system, a pension component is calculated each year based on the respective income and the old-age pension is determined based on the sum of the annual pension components.

178 Air traffic controllers and flight data assistants receive a transitional retirement benefit linked to their final salary (ÜVersTV). This is to cover the period from the end of their operational activity until the earliest possible receipt of the statutory pension.

179 Both plans (VersTV and ÜVersTV) are financed by reinsurance policies that are recognised as plan assets under IAS 19.7. The reinsurance contract requires an investment in the general cover fund of the insurer in accordance with the investment principles of Section 54 of the Insurance Supervision Act (VAG) and a separate fund-based investment created for part of the assets under Section 54b of the VAG. The latter, however, is limited to a maximum of half of the actuarial reserve.

180 DFS pays an increased employer contribution for health insurance for the employees who were previously employed as established civil servants with the former Federal Administration of Air Navigation Services (BFS) / the Federal Aviation Office (LBA). This compensates over the entire active period of employment and in retirement for the fact that these staff are no longer covered by the German Civil Service welfare provisions for healthcare.

181 DFS pays death grants to qualifying next of kin of active employees. The grants are equal to the previous remuneration and are paid for two and half months from the month following the month in which the employee passed away.

182 In addition, there are individual contractual benefits based on the salary conversion model for exempt employees which were approved in 2005. The amount of the pension capital underlying the benefit is based on the salary converted with a return of 6.00 percent.

183 There were no changes, curtailments or settlements to the pension plans in the business year.

117

25.2 Actuarial assumptions

In % 2015 2014 2013 2012 2011

Discount rate 2.00 3.60 2.90 4.50 4.90

Expected return on plan assets 2.00 3.60 2.90 4.65 4.00

Salary trend 2.50 3.50 3.50 3.50 3.50

Projected increase in benefits* 1.25/2.00 1.25/2.00 1.25/2.00 1.25/2.00 1.25/2.00

* 1.25 percent for the guaranteed adjustment for staff with benefits under VersTV 2009 2.00 percent for staff with benefits under VersTV 1993 (static reference)

25.3 Sensitivity analysis

184 The sensitivity analysis takes into account the respective change of the individual assumption compared to the reference value, which is made up of the sum of the individual present values of the pension obligations from the VersTV (Pensions), ÜVersTV (Transitional payments) and KTV (Insurance). The remaining parameters of the original calculations remain unchanged. This ensures that potential correlation effects are excluded.

Changes to the actuarial assumptions

Impact on the defined benefit obligations

€'000 In %

Present value of defined benefit obligations at 31 Dec 2014 4,002,089

Discount rate Increase by 0.5 percentage points -393,112 -9.82

Decrease by 0.5 percentage points 461,236 11.52

Salary trend Increase by 0.5 percentage points 194,090 4.85

Decrease by 0.5 percentage points -178,101 -4.45

Present value of defined benefit obligations at 31 Dec 2013 3,078,133

Discount rate Increase by 0.5 percentage points -268,405 -8.72

Decrease by 0.5 percentage points 310,079 10.07

Salary trend Increase by 0.5 percentage points 142,722 4.64

Decrease by 0.5 percentage points -132,118 -4.29

185 The VersTV dated 21 August 2009 sets out a fixed annual adjustment of 1.25 percent. This means there is no sensitivity calculation from the pension progression.

186 For a specific group of people, the adjustment logic is set out in the VersTV 2005. This collective agreement has an adjustment of 2.00 percent per year as well as a lagging correction for inflation that follows a three-year rhythm. As this represents an immaterial portion of the overall obligation, DFS does not conduct a sensitivity calculation for the pension progression.

Notes 2014

118

25.4 Risks

187 The pension obligations and the plan assets are subject to fluctuations over time. The reasons for these fluctuations and the associated risks arise from the usual actuarial risks and the financial risks in connection with the plan assets.

25.4.1 Market price risks

188 The amount of the net obligation from occupational pensions is exposed to interest rate risk

and is particularly influenced by the discount rate. The rate is determined by reference to market yields at the reporting date on high quality fixed-rate corporate and treasury bonds. The current low level of interest rates has resulted in a comparatively high obligation. Potential fluctuations in the pension obligations are considered when managing the plan assets. Nevertheless, the rise in the pension obligations can only be partly offset by the rise in the market values of plan assets. The low interest rate level means that substantial returns cannot be earned, which reduces the speed at which the assets for occupational pensions may grow.

25.4.2 Liquidity risks

189 The daily liquidity of DFS is monitored by the Treasury department and is managed with the

help of short-(< year) and medium-term liquidity plans.

25.4.3 Inflation risks

190 DFS distinguishes in its pension plans between benefits that are based on the respective final

salary of the employee and benefits based on the career average plan. With the latter, the pension component is directly tied to the respective income. A rise in salaries tied to inflation would therefore lead to a rise in the pension obligations.

25.5 Duration and expected pension and contribution payments

191 DFS has concluded reinsurance policies with an insurance consortium consisting of four life insurance companies to secure its obligations from the collective agreement on pensions and transitional payments. This ensures that the benefits payable can actually be paid when the insured event arises. The capital investment of the consortium is made under the provisions of the Insurance Supervision Act (VAG), which requires a separate investment in a fund-based pension insurance policy under Section 54b of the Act (VAG). All the consortium members to the group insurance policy are also members of the guarantee fund of the Protektor Lebensversicherungs-Aktiengesellschaft, ensuring that the interests of the insured are protected in the event of an insolvency of one of the companies (additional information can be found at: www.protektor-ag.de).

http://www.protektor-ag.de/

119

Expected due date of undiscounted payments

Up to 1 year 2 to 5 years 6 to 15 years

€'000 €'000 €'000

Estimated pension payments* 86,004 398,608 1,554,901

- of which reinsured with the insurance consortium 79,328 368,207 1,455,563

Expected employer contributions to plan assets 235,754 927,319 1,800,246

* From the Aon-Hewitt detailed forecast 2014 to 2029 dated 28 May 2014

192 The weighted duration of the pension obligations amounts to 21.7 years (previous year: 19.4 years) as at 31 December 2014.

25.6 Defined benefit obligations

VersTV (Pensions)

ÜVersTV (Transitional

payments)

KTV (Insurance)

Other

Total

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2013 2,279,582 933,154 201,318 5,806 3,419,860

Current service cost 86,624 49,205 2,063 132 138,024

Interest expense 65,585 26,511 5,750 166 98,012

Retirement benefits paid -34,528 -33,581 -6,220 -435 -74,764

Past service cost 0 0 0 0 0

Actuarial gains (-) and losses (+) -377,544 -98,622 -21,164 -213 -497,543

- of which changed parameters -343,366 -82,066 -22,176 -270 -447,878

- of which experience-based adjustments -34,178 -16,556 1,012 57 -49,665

Present value of defined benefit obligations 2,019,719 876,667 181,747 5,456 3,083,589

- of which benefits based on final salary

Retirement payments 1,916,948 - - - -

One-time payments 0 - - - -

- of which benefits based on career average plan

Retirement payments 102,771 - - - -


Notes 2014

120

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2014 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2014 2,019,719 876,667 181,747 5,456 3,083,589





Actuarial gains (-) and losses (+) 666,134 70,074 39,354 422 775,984

- of which changed parameters 684,780 77,152 52,340 495 814,767

- of which experience-based adjustments -18,646 -7,078 -12,986 -73 -38,783


- of which benefits based on final salary

Retirement payments 2,570,346 - - - -


- of which benefits based on career average plan

Retirement payments 221,019 - - - -


193 The impact of the decline in the salary trend from 3.50 percent to 2.50 percent for the measurement as at 1 January 2015 can be seen under actuarial gains and losses due to changed parameters.

121

25.7 Plan assets

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2013 1,110,182 458,618 23,823 0 1,592,623

Expected return on plan assets 32,610 13,458 681 0 46,749

Employer contributions 49,842 45,800 0 0 95,642

Retirement benefits paid -26,436 -28,414 -669 0 -55,519

Actuarial gains (+) and losses (-) 55,057 3,556 -633 0 57,980

Market value of plan assets 1,221,255 493,018 23,202 0 1,737,475 Actual return on plan assets 87,667 17,014 48 0 104,729

31 Dec 2014 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2014 1,221,255 493,018 23,202 0 1,737,475

Expected return on plan assets 45,196 17,840 823 0 63,859

Employer contributions and payments 95,531 38,169 0 0 133,700

Retirement benefits paid -29,308 -29,514 -701 0 -59,523

Actuarial gains (+) and losses (-) 82,253 5,832 -859 0 87,226

Market value of plan assets 1,414,927 525,345 22,465 0 1,962,737 Actual return on plan assets 127,449 23,672 -36 0 151,085

Composition of plan assets

31 Dec 2014 31 Dec 2013

€'000 €'000

Capital investment in the general cover fund of the insurer under Section 54 VAG

1,141,637 1,046,099

Capital investment in the fund-based pension insurance policy under Section 54b VAG

798,635 668,174

Capital investment in the general cover fund of the insurer under Section 54 VAG (KTV)

22,465 23,202

Market value of plan assets 1,962,737 1,737,475

194 The capital investment of the consortium is subject to the provisions of the Insurance Supervision Act (VAG). While the life insurance policies are subject to the specific investment guidelines under Section 54 of the VAG, the use of Section 54b of the VAG allows the capital investment to have a higher equity allocation. This should lead to higher returns than available from the regular return under Section 54 of the VAG. The separate investment is managed by an investment company on behalf of the insurance company and the asset allocation is as follows:

Notes 2014

122

Allocation of the capital investment in the fund-based pension insurance policy

31 Dec 2014 31 Dec 2013

In % In %

Shares 51.30 50.90

Bonds 46.90 47.80

Cash 1.80 1.30

195 Each year as at 31 December, the life insurance companies compare the capital reserve of the fund-based pension insurance policy with the capital reserve of a normal pension insurance policy. They check if there is sufficient cover for the promised insurance benefits. If this is not the case, the contribution to the fund-based pension insurance policy is increased to boost the existing capital reserve to the required level.

196 The capital investment under Section 54b of the VAG is measured at present value and not at market price. It is a component of assets and it is determined by the consortium at the balance sheet date.

25.8 Remeasurement of the net defined benefit liability in equity

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2013 -870,058 -343,424 -80,540 -800 -1,294,822 Remeasurement of the net defined benefit liability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of the ongoing business year 432,601 102,179 20,531 213 555,524

Remeasurement of the net defined benefit liability in equity -437,457 -241,245 -60,009 -587 -739,298 31 Dec 2014 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2014 -437,457 -241,245 -60,009 -587 -739,298 Remeasurement of the net defined benefit liability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of the ongoing business year -583,880 -64,242 -40,214 -422 -688,758

Remeasurement of the net defined benefit liability in equity -1,021,337 -305,487 -100,223 -1,009 -1,428,056

123

25.9 Net defined benefit liability

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2013 1,169,400 474,536 177,495 5,806 1,827,237

Expenses in income statement 119,599 62,258 7,132 298 189,287


Employer contributions -49,842 -45,800 0 0 -95,642

Remeasurement of the net defined benefit liability in equity (other comprehensive income) = actuarial gains (-) and losses (+) of the ongoing business year -432,601 -102,179 -20,531 -213 -555,524

Net defined benefit liability 798,464 383,649 158,545 5,456 1,346,114 31 Dec 2014 €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2014 798,464 383,649 158,545 5,456 1,346,114



Employer contributions -95,531 -38,169 0 0 -133,700 Remeasurement of the net defined benefit liability in equity (other comprehensive income) = actuarial gains (-) and losses (+) of the ongoing business year 583,880 64,242 40,214 422 688,758

Net defined benefit liability 1,376,439 462,339 200,574 5,827 2,045,179

Notes 2014

124

25.10 Balance sheet amounts

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2014 €'000 €'000 €'000 €'000 €'000


Fair value of plan assets 1,414,927 525,345 22,465 0 1,962,737

Funding status obligation (+) and asset (-) 1,376,439 462,339 200,574 5,827 2,045,179

Amount not recognised as assets (IAS 19.64) 0 0 0 0 0

Net amount of debt items (+) and asset items (-) in the balance sheet 1,376,439 462,339 200,574 5,827 2,045,179 31 Dec 2013 €'000 €'000 €'000 €'000 €'000


Fair value of plan assets 1,221,255 493,018 23,202 0 1,737,475

Funding status obligation (+) and asset (-) 798,464 383,649 158,545 5,456 1,346,114

Amount not recognised as assets (IAS 19.64) 0 0 0 0 0

Net amount of debt items (+) and asset items (-) in the balance sheet 798,464 383,649 158,545 5,456 1,346,114

125

25.11 Expenses and income recognised in the statement of comprehensive income

VersTV (Pensions)


payments)

KTV (Insurance)

Other

Total

31 Dec 2014 €'000 €'000 €'000 €'000 €'000


Expected return on plan assets -45,196 -17,840 -823 0 -63,859

Net interest expense 26,814 13,037 5,610 189 45,650




Reversal of the provision for past service cost -6,065 Contributions to the German mutual insurance association 1,355

Payments to defined contribution plans 34,986

- of which contributions to pension insurance 33,379

193,422

31 Dec 2013 €'000 €'000 €'000 €'000 €'000


Expected return on plan assets -32,610 -13,458 -681 0 -46,749

Net interest expense 32,975 13,053 5,069 166 51,263




Reversal of the provision for past service cost -6,065 Contributions to the German mutual insurance association 1,663

Payments to defined contribution plans 34,400

- of which contributions to pension insurance 32,716

219,285

Notes 2014

126

26 Other provisions

As at Utilisation Reversal Discounting Additions As at Remaining term more

than 1 year 1 Jan 2014 31 Dec 2014

€'000 €'000 €'000 €'000 €'000 €'000 €'000

Over-recovery of charges

76,710 -6,849 0 0 23,319 93,180 73,204

Personnel 34,563 -3,930 -595 715 1,030 31,783 23,542

Re-conversion 15,389 -229 -94 2,460 18 17,544 17,340

Leasehold 14,564 -572 0 3,309 0 17,301 16,717

Preserving records

10,041 -928 0 759 628 10,500 9,553

Restructuring 2,328 -132 -399 19 0 1,816 0

QTE transaction

48 0 -48 0 0 0 0

Miscellaneous 9,639 -51 -616 0 2,461 11,433 0

163,282 -12,691 -1,752 7,262 27,456 183,557 140,356

197 The provision for over-recovery of charges relates to the over-recovery for the past service cost still to be allocated over eight years.

198 Personnel provisions are recognised for early retirement, part-time work for older employees and anniversary payments. These provisions are recognised based on the expert reports of actuaries. In addition, DFS grants recuperation cures to air traffic controllers.

199 The leasehold interest to be paid relates to land in Berlin-Schönefeld which is not used operationally.

200 The provision for restructuring relates to personnel (severance payments) and infrastructural measures (re-conversion obligations) in connection with operational units to be closed where no future economic benefits are expected.

Due dates of future non-discounted settlement values

2015 2016 2017 2018 2019 From 2020

€'000 €'000 €'000 €'000 €'000 €'000

Over-recovery of charges

19,976 20,687 6,065 6,065 28,255 12,131

Personnel 8,241 4,974 1,211 1,211 1,211 14,994

Re-conversion 204 93 3,300 88 0 15,385

Leasehold 583 595 607 620 632 17,588

Preserving records

947 955 963 974 983 6,045

Restructuring 1,816 0 0 0 0 0

Miscellaneous 11,433 0 0 0 0 0

43,200 27,304 12,146 8,958 31,081 66,143

127

Discount rates (in %) distributed over the respective remaining terms in years

1 to 2 2 to 3 3 to 4 4 to 5 5 to 6 6 to 7

2014 0.17 0.25 0.25 0.35 0.45 0.55

2013 0.46 0.57 0.80 1.08 1.34 1.57

7 to 8 8 to 9 9 to 10 11 to 15 15 to 30

2014 0.54 0.68 0.80 0.80 1.47

2013 1.80 1.99 2.21 2.23 2.96

201 Due to the change in the discount rates, the discounted provisions increased by €5,973 thousand respectively (previous year: decline of €3,023 thousand) and the interest expense rose by €5,728 thousand (previous year: decline by €2,866 thousand) in comparison with the application of the previous year's rates.

27 Financial liabilities

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013


1 year


1 year

€'000 €'000 €'000 €'000

Bonds 45,657 45,657 45,730 45,730

Debenture loans 285,000 285,000 285,000 285,000

QTE transaction 58,045 52,782 55,488 51,101

Finance lease liabilities 73 45 136 100

388,775 383,484 386,354 381,931

Bonds and debenture loans

Term Currency Nominal value

Nominal interest rate

Effective interest rate

31 Dec 2014 31 Dec 2013

€'000 €'000

2003 to 2018 EUR 25,000 4.840% 4.840% 25,000 25,000

2004 to 2016 JPY 22,200 1.820% 1.820% 20,657 20,730

Bonds 47,200 45,657 45,730

2010 to 2017 EUR 87,500 2.564% 87,500 87,500

2010 to 2020 EUR 87,500 3.007% 87,500 87,500

2013 to 2023 EUR 110,000 2.308% 110,000 110,000

Debenture loans 285,000 285,000 285,000

202 DFS hedges its interest rates for bonds and debenture loans with derivative financial instruments (see Note 33).

Notes 2014

128

203 In the previous year, the QTE transaction with foreign investors was basically terminated. DFS agreed with the remaining contracting parties to keep up the domestic cash flows (for additional disclosures on the QTE transaction see Note 18).

Future minimum lease payments from finance lease liabilities

Up to 1 year 1 to 5 years More than 5 years Total

31 Dec 2014 €'000 €'000 €'000 €'000

Future minimum lease payments

32 47 0 79

Interest component 4 2 0 6

Finance lease liabilities (present value)

28 45 0 73

31 Dec 2013 €'000 €'000 €'000 €'000

Future minimum lease payments

44 109 0 153

Interest component 8 9 0 17

Finance lease liabilities (present value)

36 100 0 136

28 Trade payables

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013


1 year


1 year

€'000 €'000 €'000 €'000

Germany 28,138 1,265 30,792 0

Abroad 2,672 59 4,510 307

Creditors with debit balances 189 0 70 0

Amounts withheld 1,656 0 1,256 787

Maastricht unit 4 0 2 0

32,659 1,324 36,630 1,094

204 Trade payables in foreign currencies amount to €359 thousand (previous year: €62 thousand). Due to the low impact on the results (less than €5 thousand), there is no currency valuation.

205 Trade payables are regularly secured by means of reservation of title clauses until payment is made in full.

129

29 Other liabilities

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013


1 year


1 year

€'000 €'000 €'000 €'000

Staff costs 31,623 0 35,104 0

Amounts owed to affiliated companies

23,700 0 27,455 0

Outstanding invoices 10,505 0 14,754 0

Interest payable 6,530 0 6,484 0

Amounts owed to Shareholder 5,311 0 3,132 0

Liabilities to investments 3,353 0 2,769 0

Derivative financial instruments 2,642 2,642 3,075 3,075

Share of en-route charges: German Meteorological Service

1,827 0 1,642 0

Remaining 817 0 291 0

Other financial liabilities 86,308 2,642 94,706 3,075

Staff costs 22,775 0 20,845 0

Amounts owed to tax authorities 15,539 0 14,348 0

Remaining 7,579 0 9,155 0

Other non-financial liabilities 45,893 0 44,348 0

132,201 2,642 139,054 3,075

Notes 2014

130

Offsetting of financial assets and liabilities

Financial assets (+)

Financial liabilities (-)

Assets (+) and liabilities (-) as

reported on the balance

sheet

31 Dec 2014 €'000 €'000 €'000

Shareholder 1,888 -7,199 -5,311


DFS IBS 2 -15,942 -15,940

DFS U-Kasse (Benevolent fund) 10 0 10

DFS Energy 197 -7,957 -7,760

TTC 592 -476 117

Eisenschmidt 34 -3 31

Investments

FCS 7 -3,360 -3,353

GroupEAD 14 -13 1

31 Dec 2013 €'000 €'000 €'000

Shareholder 3,798 -6,930 -3,132


DFS IBS 21 -19,282 -19,261

DFS U-Kasse (Benevolent fund) 4 0 4

DFS Energy 0 -7,888 -7,888

TTC 866 -1,172 -306

Investments

FCS 51 -2,788 -2,737

GroupEAD 0 -32 -32

206 The fair value of the offset financial assets and liabilities corresponds to the carrying amount. DFS did not receive collateral for the financial assets nor did it provide collateral for the financial liabilities.

131

Additional disclosures

30 Notes to segment reporting

207 Segment reporting is based on the internal management and reporting systems. Commercial management and reporting have been based on cost units and contribution margins since the start of economic regulation. This enhances the transparency as well as the planning and control of the individual divisions.

208 Within the scope of segment reporting, the Board of Managing Directors as the chief operating

decision-maker allocates company funds and assesses the performance of the operating segments. The operating result (operating EBIT) is an important performance indicator for DFS. EBIT is used for resource allocation and to measure the profitability of the segments. Further data are neither collected nor communicated to the chief operating decision-makers.

Business financed by air navigation charges

The main business of DFS (see section 1.1 in the group management report) is air navigation services and the directly associated support activities. DFS defines these activities as the "Segment financed by air navigation charges". Since 2012, this segment has been divided into the units: en-route and terminal services.

Commercial business

Commercial services comprise consultancy services offered globally, the sale of ATM systems as well as analysis, simulation and project management activities.

Other businesses

The other products (both commercial and financed by air navigation charges) relate to services which either cannot be assigned to a particular segment or which would require considerable expense to do so. This includes, in particular, services for operational air traffic (OAT), flights under visual flight rules (VFR) and Maastricht Upper Area Control (MUAC).

209 The determination of segment data is based on the following premises:

The assets and liabilities of DFS Energy were included as part of the operating assets in the cost-base for determining charges. Consequently, in the reconciliation to DFS results, the expenses and income of DFS Energy were disclosed separately.

The financial result and income taxes were not assigned to the individual segments as the Treasury and Taxes departments are active at the corporate level.

The number of staff corresponds to the number of employees.

Notes 2014

132

Information on the business segments by cost type

Business financed by

air navigation charges

All other segments

Reconciliation Total

2014 €'000 €'000 €'000 €'000

External revenues 1,060,590 21,856 1,082,446

Intersegment revenues 22,157 -22,157 0

Other operating income 32,250 32,250

Own work capitalised 807 807

Total operating revenues and income 1,115,804 21,856 -22,157 1,115,503

Staff costs 795,931 795,931

Material costs 108,585 108,585

Depreciation and amortisation 105,664 105,664

Project costs 22,893 22,893

Intersegment costs 22,157 -22,157 0

Total costs 1,033,073 22,157 -22,157 1,033,073 Internal results for the period 82,731 -301 0 82,430 Under-recovery -6,220 -6,220

Carry-over en-route 30,065 30,065

Earnings before taxes from a charges-related perspective 106,576 -301 0 106,275 2013 €'000 €'000 €'000 €'000

External revenues 1,058,886 24,060 1,082,946

Intersegment revenues 24,730 -24,730 0

Other operating income 33,763 33,763

Changes in inventory -171 -171

Own work capitalised 1,588 1,588

Total operating revenues and income 1,118,796 24,060 -24,730 1,118,126

Staff costs 778,125 778,125

Material costs 124,999 124,999

Depreciation and amortisation 102,646 102,646

Project costs 18,913 18,913

Intersegment costs 24,730 -24,730 0

Total costs 1,024,683 24,730 -24,730 1,024,683 Internal results for the period 94,113 -670 0 93,443 Under-recovery -13,911 -13,911

Carry-over en-route 40,150 40,150

Balancing items: cost accounting 0 0

Earnings before taxes from a charges-related perspective 120,352 -670 0 119,682

133

Information on business segments with reconciliation from charges-related result to IFRS earnings before interest and taxes EBIT EBIT

2014 2013 €'000 €'000

Terminal services 23,631 24,242

En-route services 76,005 90,471

Commercial products -301 -670

Remaining commercial products and products financed by air navigation charges 6,940 5,639

Earnings before interest and taxes from a charges-related perspective 106,275 119,682

Reconciliation to DFS earnings before interest and taxes under IFRS

Occupational pensions from a charges-related perspective 371,033 49,003

Occupational pensions under IAS/IFRS -115,583 -134,184

Change in equity relevant to charges (closing deficit) -262,866 54,816

DFS Energy earnings before interest and taxes under IFRS -686 -316

QTE transaction 6,993 2,600

Differing apportionment between the accounting perspective and a charges-related perspective -7,104 -2,020

DFS earnings before interest and taxes under IFRS 98,062 89,581

Information on important external customers

2014 2014 2013 2013

€'000 In % €'000 In %

DFS total revenues* 1,104,988 100.00 1,093,243 100.00

Lufthansa 199,887 18.09 219,661 20.09

Air Berlin 77,047 6.97 75,044 6.86

Federal Ministry of Defence 64,935 5.88 62,780 5.74

Germanwings 50,391 4.56 32,794 3.00

Ryanair 46,755 4.23 54,771 5.01

KLM 32,406 2.93 31,900 2.92

British Airways 30,799 2.79 31,763 2.91

easyJet 30,706 2.78 27,650 2.53

* Comprising terminal and en-route revenues as well as revenues from military operational air traffic

Notes 2014

134

31 Additional disclosures on the cash flow statement

210 The cash flow statement shows the change in liquid funds between two balance sheet dates and the movements in cash and cash equivalents. Cash inflows and outflows are divided into operating, investing and financing activities and only show cash flows from continuing operations. There are no discontinued operations.

211 Bank overdrafts are deducted from liquid funds when drawing up the cash flow statement:

31 Dec 2014 31 Dec 2013

€'000 €'000


Cash in hand and cheques 32 38

Cash at bank 267,297 258,043

Current overdraft 0 0

317,323 258,081

212 Cash inflow from operating activities was calculated using the indirect method by adjusting net income for changes in inventory, receivables, other assets and borrowings as well as depreciation and amortisation and other non-cash income and expenses. The cash flows from income taxes relate to all of the above areas of activity. However, owing to the time that would be involved in assigning the cash flows from income taxes to the individual activities, for the purpose of the cash flow statement they were allocated to operating activities.

213 In addition to the separate group cash flow statement using the indirect method, DFS has adopted the recommendation of IAS 7.19 and also shows the cash flows from operating activities according to the direct method. The direct method provides information that makes it easier to estimate future cash flows. This sort of information is not available under the indirect method. The direct cash flow statement is oriented towards the structure of the actual cash flows. The cash inflows from revenues are shown alongside the cash outflows. In particular, the difference between staff costs and the employee expenses reported in the statement of comprehensive income can be seen, namely the payment of reinsurance premiums and actual pension payments after the reimbursement from the pension plan reinsurance. These cash outflows are matched with revenues from air navigation charges that show the actual liquidity inflows, which may not correspond exactly to revenues reported in the group statement of comprehensive income. Investment grants, revenues from the commercial business and reimbursements (SESAR) which are relevant to the calculation of air navigation charges are recorded under other proceeds. The value accruals item shows the cash flows whose clear allocation to items previously used in the cash flow statement would have involved considerable expense.

135

Cash flows from operating activities using the direct method

2014 2013

€'000 €'000

Terminal charges received 234,073 236,951

En-route charges received 798,605 786,836

Reimbursements OAT/Maastricht/VFR flights 79,926 80,696

Reimbursements paid -8,359 -7,927

Staff costs -833,016 -819,923

Non-staff and project costs -186,961 -155,428

Other payments 55,627 50,875

Netting of tax refunds (+) / overpayment (-) (income taxes, VAT, withholding taxes)

23,524 13,905

Value accruals -1,343 -1,560

162,076 184,425

214 Cash outflows for investing and financing activities are presented using the direct method.

Notes 2014

136

32 Financial instruments

Financial assets by category

Carrying amount

At fair value through

profit or loss

Held-to-maturity

Loans and receivables

Available-for-sale

Fair value Level

31 Dec 2014 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 27,172 27,172 3

Loans to affiliated companies 41,500 41,500 41,500 3

Investments 2,360 2,360 4,753 3

Trade receivables 151,964 151,964 151,964 3

Future receivables from construction contracts 2,429 2,429 2,429 3

Under-recovery 93,895 93,895 93,895 3

QTE transaction 56,412 56,412 56,412 2

Interest receivables 1,943 1,943 1,943 2

Receivables from affiliated companies 158 158 158 3

Receivables from investments 1 1 1 3

Other assets of level 2 5,062 5,062 5,062 2

Other assets of level 3 628 628 628 3

Short-term securities 49,994 49,994 49,994 2

Liquid funds 267,329 267,329 267,329 2

700,847 0 56,412 564,909 79,526 703,240

31 Dec 2013 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 27,172 27,172 3

Loans to affiliated companies 29,500 29,500 29,500 3

Investments 2,354 2,354 4,464 3

Trade receivables 146,497 146,497 146,497 3

Future receivables from construction contracts 2,770 2,770 2,770 3

Under-recovery 87,984 87,984 87,984 3

QTE transaction 53,767 53,767 53,767 2

Interest receivables 1,933 1,933 1,933 2

Receivables from affiliated companies 4 4 4 3

Other assets of level 2 4,867 4,867 4,867 2

Other assets of level 3 800 800 800 3

Liquid funds 258,081 258,081 258,081 2

615,729 0 53,767 532,436 29,526 617,839

137

Valuation technique

Cost approach: For shares in affiliated companies, loans to affiliated companies and investments, DFS assumes they can be sold for at least their carrying amounts in the short term and sets the fair value at the same level. There is a grey capital market for the shares DFS holds in limited liability companies (GmbH-Anteile). The fair value of the shares can be calculated reliably and backed up by financial calculations. The share (GmbH-Anteil) in FCS corresponds to the nominal remaining amount. DFS therefore determines the fair value from the share in the accounting equity of FCS.

Due to the predominately short-term nature of trade receivables, other receivables and assets as well as liquid funds, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS therefore assumes that these assets can be sold for at least their carrying amounts in the short term and sets the fair values at the same level.

Market approach: The fair values of securities and derivatives with positive fair values are determined completely or partially using recognised valuation models or the external valuations of third parties based on the market conditions prevailing at the balance sheet date (interest and exchange rates) using external sources or market prices. In determining the fair value of derivatives, compensating effects from the primary transaction (pending business or anticipated transactions) are excluded.

Present value method: The fair value of the QTE transaction is determined based on discounting future expected cash flows.

Unobservable inputs

Discount rate, nominal value of shares and investments as well as other receivables and assets

Observable inputs

Security prices, market interest rates




the nominal values were higher;

the security prices were higher;

the market interest rates values were higher.

Reconciliation of the fair values of level 2 and 3

Level 2 Level 3 Level 2 Level 3

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013

€'000 €'000 €'000 €'000

As at 1 Jan 318,648 299,191 181,849 259,784

Ongoing gains (+) and losses (-)

34 -929 6,918 -6,762


0 0 -25 0

Additions (+) and disposals (-) 62,058 24,238 129,906 46,169

Transfers in and out of levels 0 0 0 0

As at 31 Dec 380,740 322,500 318,648 299,191

Notes 2014

138

Financial liabilities by category with disclosures on fair value

Carrying amount At fair value

through profit or

loss

Amortised cost Fair value Level

31 Dec 2014 €'000 €'000 €'000 €'000

Bonds 45,657 45,657 49,774 1

Debenture loans 285,000 285,000 318,515 2

QTE transaction 58,045 58,045 58,045 2

Finance leases 73 73 73 3

Trade payables 32,659 32,659 32,659 3

Staff costs 31,623 31,623 31,623 3

Amounts owed to Shareholder 5,311 5,311 5,311 3

Amounts owed to affiliated companies 23,700 23,700 23,700 3

Liabilities to investments 3,354 3,354 3,354 3

Outstanding invoices 10,505 10,505 10,505 3

Interest payable 6,530 6,530 6,530 2

Derivative financial instruments 2,642 2,642 2,642 2,642 2

Share of charges: German Meteorological Service 1,827 1,827 1,827 3

Remaining financial liabilities 817 817 817 3

507,743 2,642 507,743 545,375

31 Dec 2013 €'000 €'000 €'000 €'000

Bonds 45,730 45,730 50,418 1

Debenture loans 285,000 285,000 300,884 2

QTE transaction 55,488 55,488 55,488 2

Finance leases 136 136 136 3

Trade payables 36,630 36,630 36,630 3

Staff costs 35,104 35,104 35,104 3

Amounts owed to Shareholder 3,132 3,132 3,132 3

Amounts owed to affiliated companies 27,455 27,455 27,455 3

Liabilities to investments 2,769 2,769 2,769 3

Outstanding invoices 14,754 14,754 14,754 3

Interest payable 6,484 6,484 6,484 2

Derivative financial instruments 3,075 3,075 3,075 2

Share of charges: German Meteorological Service 1,642 1,642 1,642 3

Remaining financial liabilities 291 291 291 3

517,690 3,075 514,615 538,262

139

Valuation technique

Cost approach: Due to the predominately short-term nature of trade payables and other liabilities, the carrying amount on the balance sheet date does not differ significantly from the fair value. DFS assumes that fair values of these liabilities are at least equal to the settlement value from the current obligation.

Market approach: The fair values of debenture loans and derivatives with negative fair values are determined completely or partially using recognised valuation models or the external valuations of third parties based on the market conditions prevailing at the balance sheet date (interest and exchange rates) using external sources or market prices. In determining the fair value of derivatives, compensating effects from the primary transaction (pending business or anticipated transactions) are excluded. The fair value of the bonds is determined using market listing on public markets.

Present value method: The fair value of finance leases and the QTE transaction is determined by discounting future expected cash flows using prevailing market interest rates.

Unobservable inputs

Discount rate, settlement value of other liabilities and liabilities

Observable inputs

Exchange prices, exchange rates, market interest rates




the settlement values were higher;

the exchange prices were higher;

the exchange rates were higher;

the market interest rates values were higher.

Reconciliation of the fair values of level 2 and 3

Level 2 Level 3 Level 2 Level 3

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013

€'000 €'000 €'000 €'000

As at 1 Jan 365,931 121,913 266,119 133,089

Ongoing gains (+) and losses (-)

432 0 -1,597 0


0 0 0 0

Additions (+) and disposals (-) 19,369 -12,044 101,409 -11,176

Transfers in and out of levels 0 0 0 0

As at 31 Dec 385,732 109,869 365,931 121,913

Notes 2014

140

Assets (+) and liabilities (-) at fair value

As at 1 Jan Change in value 2014

Cumulative change in value

As at 31 Dec

31 Dec 2014 €'000 €'000 €'000 €'000

Interest rate swap 918135L

-2,444 818 818 -1,626


-631 -385 -385 -1,016

-3,075 433 433 -2,642

31 Dec 2013 €'000 €'000 €'000 €'000

Interest rate swap 647659

90 -90 0 0


6,818 -6,818 0 0

6,908 -6,908 0 0


-29 29 0 0


-4,272 1,828 -2,444 -2,444


0 -631 -631 -631

Interest rate swap LEES2089U0

-371 371 0 0

-4,672 1,597 -3,075 -3,075

215 DFS determines the net results by measurement category for financial instruments that were recognised and measured at the reporting date:

At fair value through profit or loss: The net loss is made up of the measurement of the interest rate swaps used at market prices and the resulting interest income and expenses. The derivatives have fixed and floating interest rates.

Held-to-maturity: The net gain relates to the interest income of the interest-bearing receivable (fixed) from the remaining QTE transaction.

Loans and receivables: The net result includes allowances for doubtful accounts and the write-off of trade receivables. In addition, the result contains the incidental costs and administration fees of credit institutions. Interest income results from customer receivables, fixed-rate loans to affiliated companies and current account balances with fixed interest rates.

Available-for-sale: The net result is made up of profit or loss transfers with affiliated companies, interest income from fixed-rate securities and price differences in the securities of the long-term time account (Langzeitkonto).

Amortised cost: The net result is made up of the income from currency translation of the foreign loan and the incidental costs and administration fees of credit institutions. In addition, it includes the interest expense for the loan, the debenture loans, the QTE liability, the suppliers and the finance leases.

141

Net results of financial instruments by measurement category

Assets Liabilities

At fair value

through profit or

loss

Held-to-maturity

Loans and receivables

Available-for-sale

Amortised cost

31 Dec 2014 €'000 €'000 €'000 €'000 €'000

Income (+) and expenses (-) from investments and profit and loss transfers -315

Income (+) and expenses (-) from foreign currency translation 107

Gains (+) / losses (-) from fair value adjustment of derivatives 432

Expenses (-) from impairments -4,384 -23

Interest income (+) 7,104 1,759 9 96

Interest expense (-) -740 -15,872

Other financial income (+) and expenses (-) -577 -187

Gains (+) and losses (-) -308 7,104 -3,202 -329 -15,856 Recognised directly in other comprehensive income 0 0 0 0 0

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

Income (+) and expenses (-) from investments and profit and loss transfers 250

Income (+) and expenses (-) from foreign currency translation 5,686

Gains (+) / losses (-) from fair value adjustment of derivatives -5,311

Expenses (-) from impairments -7,645 -12

Interest income (+) 6,617 1,430 40 24

Interest expense (-) -754 -15,167

Other financial income (+) and expenses (-) -903 -230

Gains (+) and losses (-) -6,065 6,617 -7,118 278 -9,687 Recognised directly in other comprehensive income 0 0 0 -25 0

216 The expenses from impairments and other financial expenses are reported under other operating expenses. All other expenses and income is allocated to the financial result.

Notes 2014

142

33 Derivative financial instruments

217 DFS is exposed to market risks in the form of interest and currency fluctuations (see section 6.2.2 in the group management report and in Note 34). DFS uses derivative financial instruments to manage these risks.

218 In addition, DFS is exposed to default risk. To minimise this risk, DFS concludes derivative transactions exclusively with its principal bankers, who have good credit ratings.

219 Speculative transactions with derivative instruments where there is no underlying transaction are forbidden.

Derivative financial instruments

Remaining term

Nominal volume

Fair value Nominal volume

Fair value

31 Dec 2014 31 Dec 2014 31 Dec 2013 31 Dec 2013

€'000 €'000 €'000 €'000

Negative fair value

Payer interest rate swaps

1 to 5 years 22,200 -1,626 22,200 -2,444

Receiver cross-currency swaps

1 to 5 years 22,200 -1,016 22,200 -631

44,400 -2,642 44,400 -3,075

220 The clean price of the financial instruments is reported as the fair value. The change in fair value is primarily due to the development of interest rates. As at 31 December 2014, the fixed interest rates were 1.8200 percent and 5.1675 percent. The variable interest rates were 0.274 percent (previous year: 0.392 percent) and result from the total of 0.100 percentage points and the six-month EURIBOR.

34 Financial risks

221 Financial risks arise in the form of liquidity risks, default risks and market price risks. DFS provides disclosures in the group management report in section 6.2.2 on the required qualitative disclosures under IFRS 7 about the type and means by which risks from financial instruments arise as well as the procedures for the management of these risks.

34.1 Liquidity risks

222 Liquidity risk describes the risk that DFS may not be in the position to settle its financial liabilities as contractually required through the delivery of cash or other financial assets.

143

Maturities of undiscounted principal and interest payments from financial liabilities

Up to 3 months

4 to 12 months

1 to 5 years

More than 5 years

Total

31 Dec 2014 €'000 €'000 €'000 €'000 €'000

Non-derivative financial liabilities

Bonds 0 0 47,200 0 47,200

Debenture loans 0 0 87,500 197,500 285,000

Interest 3,749 5,279 29,201 12,786 51,015

QTE transaction 5,264 0 25,222 27,560 58,046

Finance lease liabilities 9 19 45 0 73

Trade payables 31,220 115 1,324 0 32,659

Other liabilities 77,097 6,569 0 0 83,666

Derivative financial liabilities

Derivatives 0 743 743 0 1,486

117,339 12,725 191,235 237,846 559,145

31 Dec 2013 €'000 €'000 €'000 €'000 €'000

Non-derivative financial liabilities

Bonds 0 0 22,200 25,000 47,200

Debenture loans 0 0 87,500 197,500 285,000

Interest 3,749 5,279 33,058 17,956 60,042

QTE transaction 4,387 0 20,704 30,397 55,488

Finance lease liabilities 12 24 100 0 136

Trade payables 35,203 333 1,094 0 36,630

Other liabilities 84,553 7,078 0 0 91,631

Derivative financial liabilities

Derivatives 0 743 1,486 0 2,229

127,904 13,457 166,142 270,853 578,356

34.2 Default risks

223 DFS is exposed to default risks from financial receivables that result from the possible default on the obligations of a party to a contract. The maximum value equals the positive fair value or market value of the financial instrument.

Notes 2014

144

Default risk by category

31 Dec 2014 €'000

31 Dec 2013 €'000

At fair value through profit or loss 0 0

Held-to-maturity 56,412 53,767

Loans and receivables 564,910 532,436

Available-for-sale 79,526 29,526

700,848 615,729

224 With the exception of trade receivables, there were no financial assets that were overdue or impaired. Trade receivables were written down to the amount that could be recovered as soon as information on the insolvency of customers was available. DFS demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. In addition, there are no indications that the debtors whose receivables are overdue will not be able to fulfil their obligations.

225 As regards financial investing, DFS only enters into transactions with counterparties who

either have a long-term rating of at least AA- (Standard & Poor's) or Aa3 (Moody's), short-term A-1 (Standard & Poor's) or P-1 (Moody's), a correspondingly high creditworthiness or other form of collateral.

226 Business dealings with a selected group of principal bankers are conducted using uniform

standards and existing reciprocal cash flows are continuously improved.

34.3 Market risks

227 Market risk is defined as the risk that the fair value or future cash flows of a primary or derivative financial instrument fluctuate due to fluctuations in market prices (interest rate risk and currency risk). Interest rate risk arises primarily when refinancing with variable rates. Currency risks result from exchange rate fluctuations for transactions in foreign currencies.

Interest rate risk for financial liabilities

31 Dec 2014 Nominal value

€'000

31 Dec 2013 Nominal value

€'000

Fixed-rate bonds 47,200 47,200

Fixed-rate debenture loans 285,000 285,000

332,200 332,200

145

Net risk by currency

31 Dec 2014 Nominal

value

31 Dec 2014 Value on

reporting date

31 Dec 2013 Nominal

value

31 Dec 2013 Value on

reporting date

JPY '000 €'000 JPY '000 €'000

Primary transactions 3,000,000 20,657 3,000,000 20,730


-3,000,000 0 -3,000,000 0

Planned hedges 0 0 0 0

USD '000 €'000 USD '000 €'000

Primary transactions 2,128 1,615 3,779 2,839


0 0 0 0


£'000 €'000 £'000 €'000

Primary transactions 117 151 0 0


0 0 0 0


CHF '000 €'000 CHF '000 €'000

Primary transactions 9 7 0 0


0 0 0 0


228 The value-at-risk analysis conducted determines the currency and interest risk, which is based

on a sensitivity model used for internal planning and control. The value-at-risk shows the decline which will not be exceeded with a probability of 95.00 percent when the holding period is ten days.

Value-at-risk

31 Dec 2014 Foreign exchange

risk €'000

31 Dec 2014 Interest rate

risk €'000

31 Dec 2013 Foreign exchange

risk €'000

31 Dec 2013 Interest rate

risk €'000

By currency

USD 31 0 59 0

EUR 0 1,102 0 3,078

By line item

Money market 0 3 0 7

Capital market 413 1,096 570 3,032

Hedge 719 13 815 70

Overall risk Value at year end €'000

Highest value €'000

Lowest value €'000

Annual average €'000

2014 1,229 3,095 1,182 1,904

2013 3,064 4,434 1,840 3,382

Notes 2014

146

229 Foreign exchange risks that impact the balance sheet arise due to monetary items that are not in the functional currency. As the primary monetary financial instruments are held mainly in the functional currency or converted into the functional currency by means of derivatives, changes in exchange rates therefore have no material impact on the result or equity.

230 Interest rate risk results mainly from the sensitivity of financial instruments. Liquidity is ensured by means of money market and capital market programmes with long maturities that have fixed and variable interest rates. The use of derivative financial instruments, such as interest rate swaps and cross currency swaps, secures fixed interest rates and thus limits interest rate risk. The changes in interest rates therefore have no material impact on the result or equity.

231 The obligation and plan assets for occupational pensions are exposed to interest rate risk. The discount rate for pensions and similar obligations is based on the market yields for high quality fixed-rate corporate bonds. The continued decline in the level of interest rates would lead to a further increase in the obligation. The low returns that can currently be earned on the market mean that the pension plan assets cannot yield substantial income, which reduces the speed at which the assets for occupational pensions may grow.

35 Capital management

232 As regards commercial considerations, capital is managed from a charges-related perspective (for further disclosures see section 2.5.3.1 in the group management report). The charges-related perspective takes additional elements into account when contrasted with the accounting principles under IAS/IFRS.

35.1 Consideration of the catch-up effects from conversion to IAS/IFRS not included in the financial statements

233 The financial statements were converted from the German Commercial Code (HGB) to IFRS

in 2007 (see Note 2). This led to measurement changes, in particular as regards occupational pensions, which were recognised directly in retained earnings. This resulted in a negative equity situation. DFS is authorised to include these negative consequences in the cost-base for determining and levying charges. These off-balance sheet catch-up effects may be charged to airspace users over a 15-year period. This will have a positive influence on the equity and liquidity of DFS over the remaining period of eight years. The German Federal Supervisory Authority for Air Navigation Services (BAF) subjects the catch-up effects, the return on equity and the costs of occupational pensions to an efficiency target of minus 1.50 percent in real terms for 2015 and 2016 and minus 2.50 percent for the subsequent years with an impact on total costs. DFS considers these regulatory targets to be legally doubtful and is reviewing suitable measures.

35.2 Inclusion of the model to finance occupational pensions approved by the regulatory authority

234 Since 2012, DFS has been authorised to distribute the following components of charges over

the average remaining time to work of the staff (15 years) in a rolling fashion and include them in the following reference periods, resulting in a liquidity effect (see section 2.3 in the group management report):

147

service cost and

the distribution of the deficit, including interest on the outstanding instalments to close the deficit. The deficit at the beginning of a reference period is the difference between the obligation and the assets less the present value of the cash flows (including interest) that were already approved in prior periods to close the deficit. The determination of the present value of cash flows is based on the respective current interest rate for charges.

235 The German Federal Supervisory Authority for Air Navigation Services (BAF) also subjects

these elements to an efficiency target, which DFS considers to be unlawful.

35.3 Law on the Implementation of the Mutual Assistance Directive as well as on the Change to Tax Regulations (Amtshilferichtlinie-Umsetzungsgesetz)

236 Section 29 of this law contains the change to Section 31b(3) of the German Aviation Act

(LuftVG). Consequently, the positive or negative difference between the profit from air navigation charges under income tax law and the result under the regulations governing charges will not be considered when determining income and thus is not subject to tax.

35.4 Integration of DFS Energy

237 The assets and liabilities of DFS Energy were included as part of the operating assets in the cost-base for determining charges.

Reconciliation to charges-related equity

31 Dec 2014 31 Dec 2013

€'000 €'000

Equity recognised on the balance sheet -1,364,767 -705,014

Catch-up effects not yet accounted for 442,766 498,510

Deferred taxes on this amount -2,184 -758

Occupational pensions from a charges-related perspective

1,043,025 939,861

Change in equity relevant to charges (closing deficit) 563,639 -53,912

Charges-related inclusion of DFS Energy 1,694 588

Charges-related equity 684,173 679,275

Notes 2014

148

Indicators of capital management

31 Dec 2014 31 Dec 2013

€'000 €'000

Equity ratio 19.50% 24.40%

Return on equity 5.11% 5.27%

Net income 34,945 35,766

EBIT 98,062 89,581

Borrowings 2,823,768 2,104,980

Debt ratio 80.50% 75.60%

Return on total assets 1.00% 1.28%

Leverage ratio 2.04% 4.61%

Liquid funds 267,329 258,081


Non-current financial liabilities 383,484 381,931

Of which QTE transaction 52,782 51,101

Current financial liabilities 5,291 4,423

Of which QTE transaction 5,263 4,388

Net financial indebtedness 71,452 128,273

238 This perspective includes the future flow of charges approved by the supervisory authorities and delivers a clear picture of the capital structure, debts and cash flows. Assets and liabilities that are subject in full or in part to economic regulation are transferred to a regulatory asset base, i.e. an accounting of the results and financial position from the perspective of economic regulation.

239 The view of DFS is supported by the supplement to Section 31b(3) of the German Aviation Act (LuftVG). This regulation obliges DFS to determine its taxes based on the charges-related result.

240 The assessment of the financial risks of DFS is given by the rating awarded by the rating agencies.

Ratings

Long-term Short-term Outlook

Standard & Poor's AAA A-1+ Stable

Moody's Aa3 P-1 Negative

149

36 Contingent liabilities and other financial obligations

36.1 Contingent liabilities

Maturity of sureties

Up to 1 year 1 to 5 years More than 5 years Total

€'000 €'000 €'000 €'000

2014 351 0 0 351

2013 1,320 0 0 1,320

241 No provisions were recognised for the obligations shown because the risk of use was deemed

to have a low probability. There exist no uncertainties as regards the amount or maturity of the contingent liabilities.

242 Sureties relate to guarantees for advance payments, warranties, contract fulfilment and tender

guarantees for simulation, radar data and air traffic control systems. At the end of the business year, there were no obligations for the issuance or endorsement of guarantees covering bills of exchange and cheques.

36.2 Other financial obligations Due dates of other financial obligations

Up to 1 year 1 to 5 years More than 5 years Total 31 Dec 2014 €'000 €'000 €'000 €'000 Loans commitments 0 0 50,000 50,000

- of which taken up 0 0 41,500 41,500

Intercompany credit lines with affiliated companies 11,000 0 0 11,000 - of which taken up 0 0 0 0

Capital expenditure commitments for the acquisition of - intangible assets 14,459 11,166 0 25,625 - property, plant and equipment 38,255 14,899 841 53,995 - other 54,978 28,469 464 83,911

118,692 54,534 9,805 183,031

31 Dec 2013 €'000 €'000 €'000 €'000 Loans commitments 0 0 50,000 50,000 - of which taken up 0 0 29,500 29,500

Intercompany credit lines with affiliated companies 14,900 0 0 14,900 - of which taken up 0 0 0 0

Capital expenditure commitments for the acquisition of - intangible assets 23,128 13,565 0 36,693 - property, plant and equipment 38,400 14,937 2,140 55,477 - other 61,591 44,320 523 106,434

138,019 72,822 23,163 234,004

Notes 2014

150

243 No provisions were recognised for the obligations shown because the risk of use was deemed to have a low probability. There exist no uncertainties as regards the amount or maturity of the other financial obligations.

244 To cover their liquidity needs, affiliated companies were granted an inter-company credit line as part of daily cash pooling. By doing so, the group optimises its conditions for cash investments and loans and exploits the advantages of a central, systematic financial planning.

245 Capital expenditure obligations relate to the contractual obligations for the purchase of intangible assets as well as property, plant and equipment.

246 The new Board of the benevolent fund (U-Kasse) was released from its liability by the Board of Managing Directors of DFS.

37 Contingent assets

There are two separate abstract acknowledgements of debt (abstrakte Schuldanerkenntnisse – a standard German law acknowledgement of a borrower’s indebtedness) between DFS and FCS:

Effective from 26 April 2006 29 September 2008 / 6 October 2008

Collateral Registration of a charge Registration of a charge

Legal basis Section 1 LuftfzgG (Law on Rights Regarding Aircraft – Gesetze über Rechte an Flugzeugen)

Section 1 LuftfzgG (Law on Rights Regarding Aircraft – Gesetze über Rechte an Flugzeugen)

Beneficiary DFS DFS

Object Hawker Beechcraft Super King Air 350 Hawker Beechcraft Super King Air 350

Serial number FL-473 D-CFMD FL-626 D-CFME

Local court Braunschweig Braunschweig

Registration 22 August 2006 16 September 2009

Basis Loan agreement dated March 2006 Loan agreement dated September 2008 / October 2008

Parties to the contract

DFS IBS and FCS DFS IBS and FCS

Loan 1 €5,500 thousand for the aircraft FL-473 D-CFMD with a term until 31 December 2022.

€4,300 thousand for the aircraft FL-626 D-CFME with a term until 31 December 2025.

Loan 2 €3,000 thousand for the flight inspection system (type Aerodata AeroFIS) with a term until 31 December 2016.

€1,700 thousand for the flight inspection system (type Aerodata AeroFIS) with a term until 30 December 2019.

Miscellaneous The loan for the aircraft is collateralised over its entire maturity by an abstract acknowledgement of debt in favour of DFS by means of a liability of €8,500 thousand. €7,100 thousand of the volume of the loan have been taken up.

The loan for the aircraft is collateralised over its entire maturity by an abstract acknowledgement of debt in favour of DFS by means of a liability of €6,000 thousand. €5,200 thousand of the volume of the loan have been taken up.

151

38 Post-balance sheet events

247 No post-balance sheet events of material importance were determined which have impacted the results and financial position of DFS.

39 Auditors' fees

Total fees of the auditor under Section 314(1)(9) of the German Commercial Code (HGB)

31 Dec 2014 €'000

31 Dec 2013 €'000

Audit of the annual financial statements 147 163

Other assurance services 16 13

Tax advice 0 2

Other services 2 277

165 455

40 Service concession arrangements

248 Under Section 27c of the German Aviation Act (LuftVG), DFS is obliged to perform its sovereign tasks (see section 1.1 in the group management report). The details of these tasks are regulated by an indefinite framework agreement with the Federal Republic of Germany.

249 The law and the framework agreement authorise DFS as the current entrusted air navigation service provider to require the airports under Section 27d of the German Aviation Act (LuftVG) to:

Establish and maintain the necessary facilities and take the necessary structural measures in these facilities; make the necessary facilities available and allow cables to be laid, connected and maintained on the premises.

Enable the air navigation services personnel to use the infrastructure at aerodromes.

Ensure that the buildings and rooms made available by the aerodrome operator are provided with power, thermal energy, water, heating and air-conditioning; perform other utility services and ensure that waste disposal services are rendered.

250 In return, DFS reimburses the airports for these costs. If another air navigation service provider

is entrusted with these duties, the legal and contractual rights and obligations transfer to this air navigation service provider.

251 Charges levied are the main source of revenue at DFS and they should cover the costs incurred (for changes to the unit rate, see section 2.4.1 in the group management report).

Notes 2014

152

40.1 En-route services

252 Since 2012, the performance scheme for air navigation services has aimed to improve the overall efficiency across the performance areas of safety, environment, capacity and cost-efficiency in the en-route area. The European Commission has laid down the performance targets and alert thresholds for the whole European Union for one reference period. Each reference period comprises five years. To gather experience in the introductory phase, the first reference period was limited to three years (2012-2014). The changes coming in with the second reference period (2015 to 2019) can be found in section 7.2.1 in the group management report.

253 The national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF), draws up a performance plan on the national or functional airspace block level that is aligned with the performance targets of the European Union. Upon proposal of the national supervisory authorities, Member States adopt their performance plans and communicate them to the Commission. The Commission evaluates the performance plans and suggests or takes corrective measures.

254 For the first reference period from 2012 to 2014, the Federal Supervisory Authority for Air

Navigation Services (BAF) has laid down the unit rates for en-route services for DFS. Previously, the business risk DFS was exposed to under the system of full cost recovery was limited. However, the business risk has risen since the start of this economic regulation.

255 The cost risks that arise within a reference period impact the profits of DFS directly. However, the traffic risk is spread between DFS and the airspace users. Section 2.4.5 in the group management report contains information of the split of opportunities and risks stemming from variances in traffic volume.

256 The variances are determined by the Federal Supervisory Authority for Air Navigation

Services (BAF) and reported to the European Commission and EUROCONTROL. EUROCONTROL checks the differences and submits the adjustments to the representatives of the Member States in the Enlarged Committee for Route Charges. This Committee prepares the adjusted unit rates for en-route services after consultation with the airspace users. These are submitted to the enlarged Commission for final approval.

257 The Federal Ministry of Transport and Digital Infrastructure (BMVI) publishes the unit rate for en-route services in the Federal Law Gazette on the basis of the German Ordinance on Route Charges of the Air Navigation Services (FSStrKV) and taking into consideration the EU Regulations on a common charging scheme for air navigation services.

40.2 Terminal services

258 For terminal services, the Federal Ministry of Transport and Digital Infrastructure (BMVI) lays down a unit rate each year on the basis of the German Ordinance on Terminal Charges of the Air Navigation Services (FSAAKV) and taking into consideration the EU Regulations on a common charging scheme for air navigation services.

259 To this end, DFS sends the national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF), a preliminary cost estimate for the coming year. The cost estimate is based on the costs of the last business year and the estimates of the cost development in the current and following business year. The unit rate is calculated from the quotients between the planned costs and the planned traffic volume.

153

260 The Federal Supervisory Authority for Air Navigation Services (BAF) applies the European regulations for establishing the en-route charges to determine the charges for terminal services as well. From 2015, DFS will also be subject to economic regulation for terminal services (see sections 7.2.1 and 7.3.6 in the group management report).

41 Related party disclosures

41.1 Related parties – entities

261 In the normal course of business, services are rendered to related parties (entities). Group companies also render services to DFS. These extensive delivery and service relationships are conducted at arm’s length and are no different from the business relationships with other companies.

262 DFS maintains business relations with the sole controlling Shareholder, the Federal Republic

of Germany, and with other companies controlled by it as part of the entrusted sovereign functions for air navigation services. These transactions are conducted at arm’s length and are no different from the delivery and service relationships with other companies. DFS avails of the exemption in IAS 24.25 and does not disclose information on outstanding balances and transactions with government-related entities.

263 DFS aims to exert a material influence on the SES initiative of the European Commission as part of its strategic orientation. To this end, DFS has been an active member of the SESAR Joint Undertaking (SJU) since June 2009, along with other leading organisations. In numerous projects, it has developed and updated the requirements on the air traffic management networks, the most suitable technologies and procedures. Since 2014, the SESAR development process has moved to the long-term phase of technical implementation and the setting up of air traffic management (ATM) procedures (deployment management). As part of a cross-industry partnership, DFS won the contract to plan, coordinate and implement a comprehensive modernisation of European airspace within the scope of the deployment management for the time period 2014 to 2020. The contract is financed out of the European funding programme, where a total of roughly €3 billion is earmarked for deployment management. DFS is thus able to influence the introduction of new technologies and benefits from the considerable funding as well as from the avoidance of incorrect cost allocation and flawed capital expenditures (see section 7.2.4 in group management report).

Notes 2014

154

Outstanding balances

2014

Shareholder

€'000


€'000

Investments

€'000

Financial assets 68,672 2,360

Other assets 1,888 377 21

Other liabilities 7,199 23,919 3,373

2013 €'000 €'000 €'000

Financial assets 56,672 2,354

Other assets 3,798 891 51

Other liabilities 6,930 28,342 2,820

Income (+) and expenses (-)

2014

Shareholder

€'000


€'000

Investments

€'000

Revenues 72,369 425 406

Other operating income 1,695 434

Purchased services -66 -2,607

Employee expenses -29,078

Other operating expenses -6,091 -3,469

Interest income 1,153

Interest expense

Profit transfers 104

Assumption of losses -419

2013 €'000 €'000 €'000

Revenues 70,506 299 279

Other operating income 281 214

Purchased services -38 -3,149

Employee expenses -24,982 -1

Other operating expenses -5,619 -3,400

Interest income 843

Interest expense

Profit transfers 776

Assumption of losses -526

41.2 Related parties – persons

264 In accordance with IAS 24, DFS also reports on business relationships between the company and related parties (persons) or members of those persons' families. Related parties (persons)

155

were identified as the Board of Managing Directors, Level 1 executives, the Supervisory Board and their family members (for remuneration see Note 42). There were no material or, in their form or character, atypical reportable transactions between DFS and people in key positions of management and their close family.

42 Organs of the company

42.1 Board of Managing Directors Prof Klaus-Dieter Scheurle, Frankfurt am Main, Chairman and Chief Executive Officer Robert Schickling, Bad Homburg vor der Höhe, Managing Director Operations Dr Michael Hann, Bad Dürkheim, Managing Director Human Resources

265 See section 1.3 in the group management report for the distribution of responsibilities of the Board of Managing Directors

Payments due in the short term for members of the Board of Managing Directors

Fixed components (including benefits in

kind)

Performance-related

components

Total emoluments

2014 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman)

334 167 501

Robert Schickling 270 132 402

Dr Michael Hann 277 156 433

881 455 1,336

2013 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman)

347 0 347

Robert Schickling 259 26 285


Former Managing Directors

0 343 343

878 412 1,290

266 DFS did not grant any advance payments, loans or benefits to members of the Board of Managing Directors or former Managing Directors on their termination. In addition, DFS paid no remuneration from consultancy or service contracts.

Notes 2014

156

Post-employment benefits

Pension benefits

Pension payments

Expenses for pension

benefits earned in the current

year*

2014 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman) 550 0 227

Robert Schickling 2,172 0 127


Former Managing Directors 15,365 723 442

18,622 723 979

2013 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman) 218 0 0

Robert Schickling 1,548 0 0


Former Managing Directors 12,647 709 402

14,667 709 618

* Service cost and interest cost

267 There were no other long-term benefits due or share-based compensation.

42.2 Supervisory Board

Shareholder representatives

Michael Odenwald Chairman

State Secretary

Federal Ministry of Transport and Digital Infrastructure

Dr Angelika Kreppein Regierungsdirektorin

Federal Ministry of Finance

Carmen von Bornstaedt-Radbruch Ministerialrätin

Federal Ministry of Defence

Dr Edeltraud Leibrock Member of the Executive Board KfW Bankengruppe

Dr Martina Hinricher Ministerialdirektorin

Federal Ministry of Transport and Digital Infrastructure

Ralf Raddatz Colonel (G.S.)

Federal Ministry of Defence

157

Staff representatives

Markus Siebers Deputy Chairman

Air traffic controller

Peter Schaaf Chairman Central Staff Council

Air traffic controller

Catja Gräber Senior expert customer service

Andrea Wächter Tower manager

Volker Möller Air traffic controller

Dirk Wendland Systems engineer

268 In the business year, there were four scheduled ordinary meetings and two extraordinary meetings of the Supervisory Board.

Remuneration of the Supervisory Board

31 Dec 2014 €'000

31 Dec 2013 €'000

Catja Gräber 0.70 0.60

Dr Martina Hinricher 0.90 0.90

Dr Angelika Kreppein 0.90 0.70

Dr Edeltraud Leibrock 0.70 0.30

Volker Möller 1.70 0.60

Michael Odenwald 0.80 1.00

Ralf Raddatz 0.90 0.90

Peter Schaaf 0.50 0.80

Markus Siebers 1.00 1.40

Carmen von Bornstaedt-Radbruch 0.60 0.60

Andrea Wächter 1.00 0.70

Dirk Wendland 0.90 0.60

Members who left in the previous year 0.00 1.50

10.60 10.60

269 The Articles of Association determine the level of remuneration of the Supervisory Board. The emoluments of the Supervisory Board are comprised of fixed and variable components. The fee for meeting attendance is €80.00 per meeting and the daily allowance amounts to €26.00 per meeting.

270 The members of the Supervisory Board received no advances, loans or remuneration from consultancy or service contracts.

Notes 2014

158

43 Disclosures on the public corporate governance code

271 DFS is subject to the Public Corporate Governance Code of the Federation (PCGK). The Board of Managing Directors and the Supervisory Board jointly issue a compliance statement each year and publish the corporate governance report on the website of the company. Responsibility statement

272 The Board of Managing Directors of DFS Deutsche Flugsicherung GmbH issues the following statement, pursuant to Section 37y(1) of the Securities Trading Act (WpHG) in conjunction with Sections 297(2)(4), 315(1)(6) and 315a(1) of the German Commercial Code (HGB).

273 To the best of our knowledge, and in accordance with the applicable reporting principles, the group financial statements give a true and fair view of the results and financial position of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group. Langen, 9 March 2015 Prof Klaus-Dieter Scheurle Chairman and CEO

Robert Schickling Managing Director Operations

Dr Michael Hann Managing Director Human Resources

Following the result of our audit, we have issued the group annual financial statements 2014 and the group management report of DFS Deutsche Flugsicherung GmbH, Langen, the following

Auditor's report* We have audited the group financial statements of DFS Deutsche Flugsicherung GmbH (DFS) – consisting of the balance sheet, statement of comprehensive income, statement of changes in equity, cash flow statement and notes to the group financial statements – together with the group management report for the business year from 1 January to 31 December 2014. The preparation of the group financial statements and the group management report in accordance with the IFRS to be applied within the EU and provisions to be additionally applied according to Section 315a(1) of the German Commercial Code (HGB) are the responsibility of the Company's management. Our responsibility is to express an opinion on the group financial statements and on the group management report based on our audit. We conducted our audit of the group financial statements in accordance with Section 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the group financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the group financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in the consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company’s Board of Management, as well as evaluating the overall presentation of the group financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the group financial statements comply with IFRS as adopted by the EU, the additional requirements of German commercial law pursuant to Section 315a(1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the group financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development. Cologne, 9 March 2015 RBS RoeverBroennerSusat GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft Rudolph Lächele Auditor Auditor *Courtesy translation; see page 3


160

DFS Deutsche Flugsicherung GmbH Acronyms and abbreviations

AD Airbus Deutschland

AENA Entidad Pública Empresarial Aeropuertos Españoles y Navegación Aérea, Madrid, Spain

AfA Official German Schedule for Deductions for Depreciation – Absetzung für Abnutzung

AG Public Limited Company – Aktiengesellschaft

AIM Aeronautical Information Management

AIS Aeronautical Information Service

ANS Air Navigation Solutions Ltd., London, United Kingdom of Great Britain and Northern Ireland

A-SMGCS Advanced Surface Movement Guidance and Control System

ATC Air Traffic Control

ATCAS Air Traffic Control Automation System

ATCISS Air Traffic Control Information Support System

ATFM Air Traffic Flow Management

ATM Air Traffic Management

AUSTRO CONTROL Austro Control Österreichische Gesellschaft für Zivilluftfahrt mbH, Vienna, Austria (Austrian air navigation service provider)

BAF Federal Supervisory Authority for Air Navigation Services – Bundesaufsichtsamt für Flugsicherung

BFS Federal Administration of Air Navigation Services – Bundesanstalt für Flugsicherung

BGBl Federal Law Gazette – Bundesgesetzblatt

BilMoG German Accounting Law Modernisation Act – Bilanzrechtsmodernisierungsgesetz

BilReG German Accounting Law Reform Act – Bilanzrechtsreformgesetz

BILSODA BILSODA GmbH & Co. KG, Pullach, Germany

BMF Federal Ministry of Finance – Bundesministerium der Finanzen

BMVI Federal Ministry of Transport and Digital Infrastructure – Bundesministerium für Verkehr und digitale Infrastruktur

CER Certified Emission Reduction

CDA Continuous Descent Approach

CHF Swiss Franc

Co. Compagnie

DCF Discounted Cash Flow

de Country Code Domain for Germany

DFS DFS Deutsche Flugsicherung GmbH, Langen, Germany

DFS Energy DFS Energy GmbH, Langen, Germany

DFS IBS DFS International Business Services GmbH, Langen, Germany

DM Deutschmark – German Mark

DWD German Meteorological Service – Deutscher Wetterdienst

EAD European AIS Database

EANPG European Air Navigation Planning Group

EASA European Aviation Safety Agency

EBG Sector family – Einsatzberechtigungsgruppe

EBIT Earnings before Interest and Taxes

EC European Community

161

ECB European Central Bank

EEIG European Economic Interest Grouping i. L., Brussels, Belgium

EMU Economic and Monetary Union

ERP Enterprise Resource Planning

ETV Collective Agreement on the Grading System at DFS – Eingruppierungstarifvertrag

EU European Union

EUA European Union Allowance (emission rights)

EUR Euro

EURIBOR Euro Interbank Offered Rate (reference interest rate for interbank lending)

EUROCONTROL European Organisation for the Safety of Air Navigation

e.V. Registered Association – eingetragener Verein

FAB Functional Airspace Block

FABEC Functional Airspace Block Europe Central

FCS Flight Calibration Services GmbH, Braunschweig, Germany

FSAAKV German Ordinance on Terminal Charges of the Air Navigation Services – Flugsicherungs-An- und Abflug-Kostenverordnung

FS-AuftragsV Regulation Concerning the Commissioning of an Air Navigation Services Enterprise – Verordnung zur Beauftragung eines Flugsicherungsunternehmens

FS-DurchführungsV Air Navigation Services Regulation – Verordnung über die Durchführung der Flugsicherung

FSStrKV German Regulation on Route Charges – Flugsicherungs-Streckenkostenverordnung

GBP Pound Sterling

GdF Air Navigation Services Union - Gewerkschaft der Flugsicherung

GEAD AP GroupEAD Asia-Pacific Ltd., Wellington, New Zealand

GmbH Limited Liability Company – Gesellschaft mit beschränkter Haftung

GoB German Principles of Proper Accounting – Grundsätze ordnungsmäßiger Buchführung

GroupEAD GroupEAD Europe S. L., Madrid, Spain

G.S. General Staff

HGB German Commercial Code – Handelsgesetzbuch

HGrG German Budgetary Principles Act – Haushaltsgrundsätzegesetz

HRB Commercial Register B – Handelsregister Abteilung B

IAS International Accounting Standards

IASB International Accounting Standards Board

IATA International Air Transport Association

ICAO International Civil Aviation Organisation

iCAS iTEC Center Automation System

IFR Instrument Flight Rules

IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards

i. L. In Liquidation

IMC Instrument Meteorological Conditions

ISIS-XM Improved Speech Integrated System

ISO International Organisation for Standardisation

iTEC interoperability Through European Collaboration

JPY Japanese Yen


162

KARLDAP Karlsruhe Automatic Data Processing and Display System

KfW Kreditanstalt für Wiederaufbau (German government-owned development bank)

KG Partnership – Kommanditgesellschaft

KLM KLM Royal Dutch Airlines

KStG German Corporation Tax Act – Körperschaftsteuergesetz

KTV Collective Agreement on Health and Long-term Care Insurance at DFS – Kranken- und Pflegeversicherungstarifvertrag

LASER Langen Replacement of the Voice Switching System – Langen Sprachvermittlung Erneuerung

LBA Federal Aviation Office - Luftfahrt-Bundesamt

Ltd. Limited

LuftfzgG German Law on Rights Regarding Aircraft – Gesetz über Rechte an Flugzeugen

LuftVG German Aviation Act – Luftverkehrsgesetz

LuftStG German Air Transport Tax – Luftverkehrssteuergesetz

mbH With Limited Liability – mit beschränkter Haftung

MET Meteorological

MLAT Multilateration

Mode-S Mode Select

MoT Ministry of Transport (in Germany: Federal Ministry of Transport and Digital Infrastructure – BMVI)

MSSR Monopulse Secondary Surveillance Radar

MUSE Replacement of the voice switching system in Munich – München Sprachvermittlung Erneuerung

n Represents the current business year

NATS National Air Traffic Services

Nord/LB Norddeutsche Landesbank (Landesbank of Lower Saxony and Saxony-Anhalt)

P1/P2 Project 1 / Project 2

PCGK Public Corporate Governance Code – Public Corporate Governance Kodex

PSS Paperless Strip System

QTE Qualified Technological Equipment

RASUM Radio Site Upgrade and Modernisation

RMC Risk Management Committee

S.A. Société Anonyme

SAS Société par Actions Simplifiée

SDR Surveillance Data Recording

SES Single European Sky

SESAR Single European Sky ATM Research

SJU SESAR Joint Undertaking

SKYNAV S.A. SKYNAV Société Anonyme, Awans, Belgium

S.L. Sociedad de Responsabilidad Limitada

SPC Special Purpose Company

SSC Single Sky Committee

STANLY Statistics and Analysis

TATS Tower Air Traffic Services S.L., Madrid, Spain

TOPAS Technology Optimisation of Administrative Information Systems –Technologieoptimierung der administrativen Informationssysteme

TTC The Tower Company GmbH, Langen, Germany

163

TVöD Collective Agreement for the Public Service – Tarifvertrag für den öffentlichen Dienst

ÜVersTV Collective Agreement on Pensions and Transitional Payments at DFS – Übergangsversorgungstarifvertrag

U-Kasse DFS Unterstützungskasse GmbH, Langen, Germany

USD United States Dollar

VAFORIT Very Advanced Flight Data Processing Operational Requirements Implementation

VAG German Insurance Supervision Act – Versicherungsaufsichtsgesetz

VAN Value Added Network

VaR Value at Risk

VersTV Collective Agreement on Pensions at DFS – Versorgungstarifvertrag

VFR Visual Flight Rules

VTV Collective Agreement on Remuneration at DFS – Vergütungstarifvertrag

VTV-A Collective Agreement Covering Remuneration for Apprentices at DFS –Vergütungstarifvertrag für Auszubildende

WpHG German Securities Trading Act – Wertpapierhandelsgesetz

ZTV Collective Agreement Covering Allowances at DFS - Zulagentarifvertrag

60-2

290-

219

DFS Deut sche Flug si che rung GmbH

Corporate Communications

Am DFS-Cam pus 10

63225 Lan gen

Germany

Tele phone +49 (0)6103 707-4111

Facsimile +49 (0)6103 707-4196

E- mail [email protected]

Inter net www.dfs.de

ISSN 1865-6420

Picture credits

Source: BMVI

annual report 2014 - dfs · the business year 2014 this is a courtesy translation of the german...

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